SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 26, 1999
BERGEN BRUNSWIG CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 1-5110 22-1444512
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
4000 Metropolitan Drive, Orange, California 92868-3598
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 714-385-4000
<PAGE>
Item 2. Acquisition or Disposition of Assets
On April 26, 1999, Bergen Brunswig Corporation, a New Jersey corporation
(the "Registrant"), completed the merger (the "Merger") of its wholly-owned
Peacock Merger Corp. subsidiary ("Subcorp") with and into PharMerica, Inc.
("PharMerica"). PharMerica was the surviving corporation of the Merger and is
now a wholly owned subsidiary of the Registrant. Pursuant to the Agreement and
Plan of Merger, dated as of January 11, 1999, by and among the Registrant,
Subcorp and PharMerica (the "Merger Agreement"), each outstanding share of
PharMerica's common stock, par value $.01 per share ("PharMerica Common Stock"),
was converted into 0.275 (the "Exchange Ratio") of a share of the Company's
Class A Common Stock, par value $1.50 per share (the "Bergen Common Stock").
Furthermore, each outstanding option to purchase PharMerica Common Stock (a
"PharMerica Option") was converted into an option to purchase Bergen Common
Stock (a "Bergen Exchange Option") and each outstanding warrant to purchase
PharMerica Common Stock (a "PharMerica Warrant") was converted into a warrant to
purchase Bergen Common Stock (a "Bergen Exchange Warrant"). Each Bergen Exchange
Option and Bergen Exchange Warrant will entitle the holder to purchase a number
of shares of Bergen Common Stock equal to the number of shares of PharMerica
Common Stock subject to the related PharMerica Option or PharMerica Warrant, as
the case may be, multiplied by 0.275; the per share exercise price of each
Bergen Exchange Option and each Bergen Exchange Warrant is the exercise price of
the related PharMerica Option or PharMerica Warrant, as the case may be, divided
by 0.275.
Pursuant to the terms of the Merger Agreement, approximately 26.3 million
shares of Bergen Common Stock are issuable upon conversion of PharMerica Common
Stock in the Merger and upon exercise of Bergen Exchange Options and Bergen
Exchange Warrants. The Exchange Ratio was determined by arms-length negotiations
between PharMerica and its advisors and the Registrant and its advisors.
Additional information concerning the Merger and the transactions related
thereto (including pro forma financial information and historical PharMerica
financial information) is contained in the Registrant's Registration Statement
on Form S-4 (Registration Number 333-74445) previously filed with the Securities
and Exchange Commission on March 16, 1999.
Item 7. Financial Statements and Exhibits
(a) Consolidated Financial Statements of PharMerica Inc. and
Subsidiaries:
1. Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1997 and 1998
2. Consolidated Balance Sheets as of December 31, 1997 and 1998.
3. Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998
4. Consolidated Statements of Cash Flows for the for
the years ended December 31, 1996, 1997 and 1998
5. Notes to Consolidated Financial Statements
6. Report of Arthur Andersen LLP
7. Report of Ernst & Young LLP
(b) Unaudited Pro Forma Condensed Combined Financial Information:
1. Introduction
2. Unaudited Pro Forma Condensed Combined Balance Sheet as
of December 31, 1998
3. Unaudited Pro Forma Condensed Combined Statement
of Earnings for the twelve months ended September 30, 1998
4. Unaudited Pro Forma Condensed Combined Statement
of Earnings for the three months ended December 31, 1998
5. Notes to Unaudited Pro Forma Condensed Combined Financial
Information
(c) Exhibits:
2.1 Agreement and Plan of Merger, dated as of January 11,
1999, among the Registrant, Peacock Merger Corp. and
PharMerica, Inc. is incorporated by reference to Exhibit 2.1
to the Registrant's Registration Statement on Form S-4 (No.
333-74445) as filed with the Securities and Exchange
Commission on March 16, 1999
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
<PAGE>
(a) PharMerica Consolidated Financial Information
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of PharMerica, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of PharMerica,
Inc. and subsidiaries (a Delaware corporation and formerly Pharmacy Corporation
of America and subsidiaries) as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PharMerica, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations, and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements and schedule taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements,
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Baltimore, Maryland /s/ ARTHUR ANDERSEN LLP
February 26, 1999
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
PharMerica, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of PharMerica, Inc. for the year ended
December 31, 1996. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of PharMerica, Inc. for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements and schedule taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements,
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ERNST & YOUNG
Little Rock, Arkansas
April 18, 1997
<PAGE>
<TABLE>
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
As of December 31, 1997 and 1998
(in thousands)
ASSETS 1997 1998
------------- ----------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 34,215 $ 32,312
Accounts receivable, net of allowance for doubtful
accounts of $22,096 and $38,201 202,645 250,711
Inventories 51,766 55,686
Prepaid expenses and other current assets 8,887 9,507
Deferred tax asset 35,360 37,017
--------- -------
Total Current Assets 332,873 385,233
Property and equipment, net 49,207 64,187
Goodwill, net of accumulated amortization of
$26,653 and $43,753 723,954 699,313
Other assets, net 8,214 15,592
--------- -------
Total Assets $ 1,114,248 $ 1,164,325
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 109,483 $ 91,909
Current portion of long-term debt 7,533 6,151
Current portion of accrued restructuring charges 14,269 4,031
--------- ---------
Total Current Liabilities 131,285 102,091
Deferred tax liability 21,216 26,567
Long-term debt, net of current portion 427,889 591,552
Accrued restructuring charges, net of current portion 4,980 11,280
--------- ---------
Total Liabilities 585,370 731,490
--------- ---------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $0.01 par value; 300,000,000 shares
authorized; 89,387,106 shares issued and outstanding
as of December 31, 1998; 87,930,184 shares issued
and 87,591,722 shares outstanding as of December 31,
1997 876 894
Preferred stock, $0.01 par value; 500,000 shares
authorized and none outstanding - -
Additional paid-in capital 413,567 417,114
Retained earnings 114,435 14,827
---------- ---------
Total Stockholders' Equity 528,878 432,835
---------- ---------
Total Liabilities and Stockholders' Equity $ 1,114,248 $ 1,164,325
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
(in thousands, except per share amounts)
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1996 1997 1998
----------------- ------------------ -------------------
<S> <C> <C> <C>
Net revenues $ 516,400 $ 652,179 $ 1,145,928
Cost of revenues 280,468 355,577 656,589
-------- ------- ---------
Gross profit 235,932 296,602 489,339
Operating expenses:
Selling, general and administrative expenses 171,085 205,278 344,734
Bad debt expense 13,500 10,809 52,937
Depreciation and amortization 16,392 21,408 36,398
Loss on disposition of business - - 4,500
Asset impairment and restructuring charges - 10,935 108,215
-------- ------ ---------
Operating income (loss) 34,955 48,172 (57,445)
Interest expense, net - 2,483 39,133
-------- ------ ---------
Income (loss) before provision
for income taxes 34,955 45,689 (96,578)
Provision for income taxes 14,668 18,992 3,030
-------- ------ ---------
Net income (loss) $ 20,287 $ 26,697 $ (99,608)
======== ======== ==========
Earnings (loss) per common and common equivalent share:
Basic $ 0.41 $ 0.50 $ (1.12)
======== ======== ==========
Diluted $ 0.41 $ 0.50 $ (1.12)
======== ======== ==========
Weighted average number of common and common equivalent shares outstanding:
Basic 50,000 52,896 89,221
======== ======== =========
Diluted 50,000 53,060 89,221
======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1997 and 1998
(in Thousands)
<CAPTION>
Additional Total
Common Stock Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1 $ 1 $ 3,866 $ 67,451 $ 71,318
Net income for the year ended December 31, 1996 - - - 20,287 20,287
---------- --------- ------------ ------------ ------------------
Balance at December 31, 1996 1 1 3,866 87,738 91,605
Recapitalization in connection with the acquisition
of Capstone Pharmacy Services, Inc. 49,999 499 (499) - -
Capital contribution from Beverly Enterprises, Inc. - - 15,076 - 15,076
Issuance of common stock:
Stock issued in connection with the acquisition
of Capstone Pharmacy Services, Inc. 34,980 350 377,150 - 377,500
Stock issued in connection with the acquisition
of Resident Care Pharmacy, Inc. 811 8 9,092 - 9,100
Stock issued in connection with exercise of
warrants 1,800 18 8,882 - 8,900
Net income for the year ended December 31, 1997 - - - 26,697 26,697
---------- --------- ------------ ------------ ------------------
Balance at December 31, 1997 87,591 876 413,567 114,435 528,878
Shares released from escrow 332 3 (3) -
Common stock issued in connection with
exercise of stock options and warrants 2,002 20 10,062 - 10,082
Common stock received in connection with
disposition and retired (538) (5) (6,512) - (6,517)
Net loss for the year ended December 31, 1998 - - - (99,608) (99,608)
---------- --------- ------------ ------------ ------------------
Balance at December 31, 1998 89,387 $894 $417,114 $14,827 $432,835
========== ========= ============ ============ ==================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
(in thousands)
<CAPTION>
Years ended December 31,
------------------------------------------------
1996 1997 1998
------------- -------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $20,287 $26,697 $ (99,608)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation and amortization 16,392 21,408 36,398
Asset impairment and restructuring charges - 10,935 108,215
(Gain) loss on dispositions of assets (250) - 4,500
Deferred income taxes 4,159 (4,879) 3,694
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable (7,974) (30,471) (48,856)
Inventories 3,510 (10,581) (2,368)
Prepaid expenses and other current assets (44) 5,419 (196)
Accounts payable and accrued expenses (7,498) 14,202 (27,661)
Accrued restructuring charges - (273) (13,234)
Other assets 329 (4,299) 113
------------- -------------- -----------
Total adjustments 8,624 1,461 60,605
------------- -------------- -----------
Net cash flows from operating activities 28,911 28,158 (39,003)
------------- -------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired (8,683) (19,178) (88,124)
Purchase of property and equipment (9,616) (15,600) (23,982)
------------- -------------- ------------
Net cash flows from investing activities (18,299) (34,778) (112,106)
------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of subordinated debt - - 316,875
Net proceeds from commercial bank borrowings
and other notes payable - 424,524 204,627
Repayments of commercial bank borrowings
and other notes payable (1,288) (125,164) (382,378)
Proceeds from exercise of stock options and warrants - 8,900 10,082
Advances to former parent, net (5,064) (275,000) -
------------- -------------- -----------
Net cash flows from financing activities (6,352) 33,260 149,206
------------- -------------- -----------
Net increase (decrease) in cash and cash equivalents 4,260 26,640 (1,903)
Cash and cash equivalents, beginning of year 3,315 7,575 34,215
------------- -------------- -----------
Cash and cash equivalents, end of year $ 7,575 $ 34,215 $ 32,312
============= ============== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 11 $ 2,716 $ 31,274
============= ============== ============
Taxes $ 0 $ 6,792 $ 12,107
============= ============== ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business - PharMerica, Inc. ("PharMerica" or the
"Company"), a Delaware corporation, was formed as a result of the merger
between Capstone Pharmacy Services, Inc. ("Capstone") and Pharmacy
Corporation of America ("PCA"), a wholly-owned subsidiary of Beverly
Enterprises, Inc. ("Beverly"), on December 3, 1997 (the "PCA/Capstone
Merger").
PharMerica is a leading provider of pharmacy products and services serving
approximately 500,000 patients in long-term care and alternate site
settings. The Company provides services to patients in skilled nursing
facilities, assisted living facilities, residential and independent living
communities, specialty hospitals and the home setting. The Company
currently operates 159 pharmacies in 39 states serving approximately
380,000 long-term care residents and more than 106,000 workers'
compensation patients through mail service and its on-line pharmacy
programs.
Basis of Presentation - In connection with the PCA/Capstone Merger, the
transaction was treated as an acquisition of Capstone by PCA for accounting
purposes since, at the date of the PCA/Capstone Merger, Beverly's
shareholders owned a majority of the surviving company. Accordingly, the
historical financial statements for the year ended December 31, 1996 are
comprised of PCA only.
Principles of Consolidation - The consolidated financial statements include
the accounts of PharMerica, Inc. and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the
financial statements. Also affected are the reported amounts of revenues,
expenses, gains and losses during the reporting periods. Actual results
could differ from these estimates.
Reclassifications - Certain prior year amounts have been reclassified to
conform to the current year presentation.
Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market. Inventories consist principally of purchased
pharmaceuticals.
Equipment and Leasehold Improvements - Equipment and leasehold improvements
are recorded at cost. Depreciation and amortization are computed using the
<PAGE>
straight-line method over their estimated useful lives or, with respect to
leasehold improvements, over the term of the lease if shorter as follows:
Furniture, fixtures and equipment............................3-15 years
Software and computer equipment..............................3-5 years
Leasehold improvements.......................................5-10 years
Equipment and leasehold improvements obtained in acquisitions of
subsidiaries are depreciated or amortized based on their remaining useful
lives at the acquisition date.
Goodwill and Impairment of Long-Lived Assets - Costs in excess of fair
values of businesses acquired are recorded as goodwill and amortized using
the straight-line method over 40 years. Amortization of goodwill amounted
to approximately $7,279,000, $8,795,000 and $20,405,000 for the years ended
December 31, 1996, 1997 and 1998, respectively. On an ongoing basis, the
Company reviews the carrying value of its intangible assets in light of any
events or circumstances that indicate they may be impaired or that the
amortization period may need to be adjusted. If such circumstances suggest
the intangible value cannot be recovered, calculated based on undiscounted
cash flows over the remaining amortization period, the carrying value of
the intangible will be reduced to its fair value based on discounted
projected cash flows.
In 1997, the Company recorded an impairment loss of approximately $5.2
million related to the planned closure of certain pharmacies as a result of
the PCA/Capstone Merger. These pharmacies were closed during 1998. The
impairment loss included the write-off of various fixed assets, such as
leasehold improvements and furniture and fixtures, which are specific to
the pharmacies that were closed. Additionally, the Company wrote down
certain capitalized software costs to their estimated fair value.
During the third quarter of 1998, the Company recorded an impairment loss
of approximately $99.0 million. The loss related primarily to five
pharmacies, each of which had negative operating cash flows during 1998.
The Company closed one of the pharmacies during the third quarter of 1998
and identified three of the other pharmacies as "assets to be disposed of"
and recorded write-downs to reflect the estimated net realizable value for
these pharmacies. Two of these pharmacies were sold during February 1999.
Total proceeds from these sales were approximately $3,800,000 which
approximated their net book value. The fifth pharmacy has had deteriorating
operating results which required the Company to record the charge. The four
pharmacies held as "assets to be disposed of" recorded total revenues and
pre-tax income before interest and amortization expense of approximately
$36,673,000 and $69,000, respectively, for the year ended December 31,
1998.
401(K) Benefit Plan - The Company sponsors a supplemental retirement
program established under Section 401(k) of the Internal Revenue Code, as
amended. Contributions by the Company may be made to the plan subject to
the discretion of the Board of Directors. No Company contributions were
made for the years ended December 31, 1996, 1997 and 1998.
Revenue Recognition - Revenues are recorded as products are shipped and
services rendered. A portion of the Company's sales is covered by various
<PAGE>
state and federal reimbursement programs which are subject to review and
audit. Reimbursement programs are also subject to change from time to time.
Revenues are reported at the estimated net amounts to be received from
individuals, third party payors, nursing facilities and others.
Approximately 37%, 37% and 43% of the Company's revenues for the years
ended December 31, 1996, 1997 and 1998, respectively, were derived from
funds under federal and state medical assistance programs.
Concentration of Credit Risk - A significant portion of the Company's
revenue and related receivables are reimbursed from two primary payors,
Medicaid and Medicare. Collectively, Medicaid and Medicare accounted for
34% and 29%, respectively, of accounts receivable reported on the
consolidated balance sheets at December 31, 1997 and 1998.
Income Taxes - The Company files a consolidated federal income tax return.
Income tax expense is based on reported earnings before income taxes.
Deferred taxes on income are provided for items in which the reporting
period and methods used for income tax purposes differ from those used for
financial statement purposes, using the asset and liability method.
Deferred income taxes are recognized for the tax consequence of "temporary
differences" by applying enacted statutory rates applicable to future years
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities.
Stock-Based Compensation - In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") which
encourages, but does not require, companies to recognize compensation
expense for stock-based awards based on their fair value on the date of
grant. The Company has elected to continue to account for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and accordingly, recognizes no
compensation expense for stock option grants. See Note 7 for the pro forma
effects on the Company's reported net income assuming the election had been
to recognize compensation expense on stock-based awards in accordance with
SFAS No. 123.
Earnings Per Share - In March 1997, the Financial Accounting Standards
Board issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 simplifies
the standards for computing earnings per share previously found in APB
Opinion No. 15, "Earnings Per Share." It replaces the presentation of
primary and fully-diluted EPS with a presentation of basic and diluted EPS
and requires a reconciliation of the numerator and denominator of the basic
EPS calculation to the numerator and denominator of the diluted EPS
calculation. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed similarly to
primary EPS pursuant to APB Opinion No. 15. SFAS No. 128 was effective for
fiscal years ending after December 15, 1997.
A reconciliation of the weighted average basic common shares outstanding to
weighted average diluted common shares outstanding follows (in thousands):
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Basic 50,000 52,896 89,221
Effect of Dilutive Securities:
Options - 139 -
Warrants - 25 -
------- ------- --------
Diluted 50,000 53,060 89,221
======= ======= ========
</TABLE>
Options totaling 5,808,936 and warrants totaling 275,000 were outstanding
at December 31, 1998, but were not included in the 1998 diluted shares
calculation because their effect would have been antidilutive for that
year.
Supplemental Disclosure of Non-Cash Investing and Financing Activities -
During July 1998, the Company acquired treasury stock at market value of
approximately $6,517,000 in connection with the sale of a business. The
Company also acquired approximately $2,608,000 in assets under capital
leases during the year. During December 1997, the Company issued common
stock with a fair value of $9,100,000 in connection with an acquisition.
NOTE 2 - ACQUISITIONS AND DIVESTITURES
1998 Acquisitions and Divestitures - During January 1998, the Company
acquired the stock of Express Pharmacy Services, Inc., and Tmesys, Inc.,
which are based in Tampa, Florida and provide workers' compensation related
mail order and on-line pharmacy services. The purchase price was
approximately $19,676,000, and goodwill at the date of acquisition was
approximately $18,622,000.
During February 1998, the Company acquired the assets of Kentucky Health
Services, Inc. d/b/a Med Source, a Kentucky based provider of institutional
pharmacy services. The purchase price was approximately $25,000,000, and
goodwill at the date of acquisition was approximately $23,335,000. The
agreement also provides for a contingent payment based on the future
adjusted earnings of the business.
During July 1998, the Company sold its Department of Corrections business
to Stadtlanders Drug Distribution Co., Inc., formerly an affiliate of
Counsel Corporation ("Counsel"), the Company's largest shareholder. In
exchange for substantially all net assets of the business, the Company
received 537,500 shares of PharMerica common stock previously owned by
Counsel. The Company recorded a pre-tax loss on the sale of this business
of approximately $4,500,000.
During August 1998, the Company acquired certain assets of National
Institutional Pharmacy Services, Inc. ("NIPSI"), a New Mexico based
<PAGE>
provider of institutional pharmacy services, from Integrated Health
Services, Inc. The purchase price was approximately $20,900,000, plus
related transaction costs of approximately $7,400,000. Goodwill recorded at
the date of acquisition was approximately $26,400,000.
During 1998, the Company also acquired the assets or stock of ten
additional companies. The aggregate purchase price totaled approximately
$24,000,000 and the related goodwill totaled approximately $21,600,000.
Certain acquisitions include provisions for earnouts based on adjusted
future earnings for the respective business.
1997 Acquisitions - During January 1997, the Company acquired Interstate
Pharmacy Corp., which provides institutional pharmacy services from twelve
pharmacies throughout the state of Hawaii. The purchase price was
approximately $20,138,000, and goodwill recorded at the date of acquisition
was approximately $12,000,000.
On December 3, 1997, Capstone issued 50,000,000 shares of its common stock
and paid approximately $291,000,000 to acquire all of the outstanding stock
of Beverly Enterprises, Inc. Immediately prior to this transaction, Beverly
had completed a distribution of its long-term care business to New Beverly
Holdings, Inc. leaving only its institutional pharmacy business, PCA, to be
acquired by Capstone. Because Beverly's shareholders own a majority of the
surviving corporation, the transaction has been treated as an acquisition
of Capstone by PCA for accounting purposes.
In accordance with Emerging Issues Task Force Bulletin "EITF" 95-19, the
purchase price for the Beverly acquisition was determined using the fair
value of Capstone's common stock over a reasonable period of time before
and after the transaction was agreed to and announced. In a reverse merger
transaction, the shares of Capstone at the date of close represent the
consideration for the merger, plus the fair value of Capstone's outstanding
options and warrants, calculated using the Black-Scholes option pricing
model. After the merger was consummated, the historical financial
statements of the Company became those of PCA.
Also, during December 1997, the Company purchased Resident Care Pharmacy,
Inc. ("Resident Care"), a North Carolina-based institutional pharmacy. The
total consideration was approximately $12,967,000, including $9,100,000
representing the issuance of 811,341 shares of the Company's common stock,
a non-compete note payable of $1,444,000, assumed debt of $1,592,000 and a
cash payment of $831,000. Goodwill at the date of acquisition was
approximately $13,610,000.
Additionally, during 1997, the Company acquired four institutional
pharmacies for an aggregate purchase price of approximately $24,752,000.
Aggregate goodwill associated with these acquisitions totaled approximately
$21,901,000.
1996 Acquisitions - During 1996, the Company acquired three institutional
pharmacies for cash totaling approximately $10,835,000 and disposed of one
institutional pharmacy for cash proceeds of approximately $2,152,000.
All business acquisitions described above have been accounted for by the
purchase method of accounting with the assets and liabilities of the
acquirees recorded at their estimated fair market values at the date of
acquisition. The operations of the acquirees, since the dates of
acquisition, are included in the accompanying consolidated statements of
operations. Goodwill, representing the excess of acquisition cost over the
fair value of net assets acquired, for these business acquisitions is being
amortized over forty years.
<PAGE>
Unaudited Pro Forma Financial Information - Unaudited pro forma
consolidated results of operations of the Company for the years ended
December 31, 1997 and 1998 are presented below. Such pro forma presentation
has been prepared assuming that the acquisitions and divestitures discussed
above had been made as of January 1, 1997 (in thousands except per share
amounts):
(Unaudited)
Pro Forma
Years Ended
December 31,
1997 1998
---- ----
Revenues $1,071,276 $ 1,168,874
Income (loss) before provision for income taxes 54,066 (85,858)
Provision for income taxes (23,032) (5,530)
-------- ------
Net income (loss) $ 31,034 $ (91,388)
======== ==========
Diluted income (loss) per share $ 0.36 $ (1.02)
======== ==========
The unaudited pro forma results include the historical accounts of the
Company and the acquired businesses adjusted to reflect (1) depreciation
and amortization of the acquired identifiable tangible and intangible
assets based on the new cost basis of the acquisitions, (2) the interest
expense resulting from the financing of the acquisitions, (3) incremental
interest charges on intercompany balances with Beverly Enterprises, Inc. at
an effective rate of 6.5%, (4) the per share effect of stock issued as part
of the acquisitions, and (5) the related income tax effects. The pro forma
results do not reflect any anticipated operating efficiencies or synergies
and are not necessarily indicative of actual results which might have
occurred had the operations and management of the Company and the acquired
companies been combined in prior years.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1998, consists of the
following (in thousands):
1997 1998
---- ----
Furniture, fixtures and equipment $ 41,409 $ 51,105
Software and computer equipment 28,065 41,723
Leasehold improvements 13,022 15,914
Construction in progress 1,376 4,426
--------- ---------
83,872 113,168
Accumulated depreciation and amortization (34,665) (48,981)
--------- ---------
Property and equipment, net $ 49,207 $ 64,187
========= ========
<PAGE>
Depreciation of property and equipment amounted to approximately
$6,737,000, $9,452,000, and $12,462,000 for the years ended December 31,
1996, 1997 and 1998, respectively. Total equipment under capital leases was
approximately $6,441,000 and $7,864,000, with accumulated depreciation of
$3,069,000 and $4,432,000 at December 31, 1997, and 1998, respectively.
NOTE 4 - LONG-TERM DEBT
The Company maintains a $325 million Bank Credit Facility with several
commercial banks (the "Credit Facility"). The Credit Facility stipulates
certain covenants relating to various financial ratios, including a
leverage ratio and a minimum net worth requirement, among other restrictive
covenants. The Company was in compliance with all such covenants as of
December 31, 1998. The Credit Facility allows PharMerica to draw on the
Credit Facility at any time, subject to compliance with certain covenants,
and matures on December 3, 2002.
Under the Credit Facility, the Company has the option to borrow under an
alternate base rate or a Eurodollar loan rate. Interest rates on the
alternate base rate loans are at the greatest of (a) the prime rate, (b)
the base certificate of deposit rate plus 1% or (c) the federal funds
effective rate on the date of the loan, plus 1/2 of 1%. Interest on the
alternate base rate loans is due quarterly in arrears. Interest rates on
the Eurodollar loans are calculated using the adjusted LIBOR rate for the
interest period in effect, plus the applicable rate. The adjusted LIBOR
rate is the LIBOR rate for such interest period multiplied by the statutory
reserve rate. The applicable rate and the statutory reserve rate are
defined in the Credit Facility. Interest on the Eurodollar loans is due on
the last day of the interest period applicable to the borrowing. As of
December 31, 1998, the Company had $259.7 million outstanding under a
Eurodollar loan at an effective interest rate, including the amortization
of deferred financing costs, of approximately 6.25%. Upon the occurrence of
a change in control, all borrowings become due and payable. (See Note 15.)
In March 1998, the Company sold $325 million of Senior Subordinated Notes
(the "Notes") in a private placement offering. The Notes bear interest at 8
3/8% and mature in 2008. Net proceeds of the Notes were used to repay a
portion of the outstanding borrowings under the Credit Facility. In
accordance with the terms of the Notes, in July 1998 the Company exchanged
the private placement notes for publicly registered notes with
substantially the same terms. The Notes contain certain limitations or
prohibitions on the Company, including the incurrence of certain
indebtedness, the creation of security interests, certain acquisitions and
dispositions and certain investments and a restriction on payment of
dividends. As of December 31, 1998, the Company was in compliance with such
covenants. Upon the occurrence of a change in control, the Company is
required to offer to purchase the Notes at a cash price equal to 101% of
the outstanding principal, plus accrued interest. (See Note 15.)
<PAGE>
Long-term debt at December 31, 1997 and 1998 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C> <C>
Borrowings under a $325 million credit agreement ($550 million at December
31, 1997) with a group of several commercial banks, interest at varying
rates based on the type of borrowing, secured by the stock of the
Company's subsidiaries, due December 2002 $ 424,524 $ 259,650
$325 million Senior Subordinated Notes, interest at 8 3/8%,
due April 2008 - 325,000
Unsecured notes payable to former stockholders of a
Capstone acquiree, interest at 6%, currently payable 1,000 -
Unsecured note payable to former owners of a
Capstone acquiree, non-interest bearing, payable in monthly installment
of $20 beginning in March 1998, remaining balance due January 1999 1,100 900
Unsecured note payable to former stockholders of Hollins
Manor, non-interest bearing with $1,000 installments due
and payable on June 3, 1998 and December 7, 1998 2,000 -
Unsecured notes payable to former stockholders of
Kentucky Health Services, Inc., non-interest bearing with
$3,000 installment and due February 1999 - 3,000
Assumed note payable from Resident Care acquisition,
due currently 1,592 490
Unsecured note payable to former owner of NIPSI,
interest at 10%, due August 2003 - 4,500
Non-compete payable to former shareholders of acquired
companies, non-interest bearing 1,644 -
Capital lease obligations (Note 12) 3,224 3,829
Other 338 334
----------- ---------
435,422 597,703
Less: Current portion 7,533 6,151
----------- ---------
Long-term portion $ 427,889 $ 591,552
=========== ==========
</TABLE>
Future maturities of long-term debt, exclusive of capital lease obligations
at December 31, 1998, follow (in thousands):
1999 4,456
2000 135
2001 132
2002 259,650
2003 4,500
Thereafter 325,000
-----------
$ 593,873
Interest expense for the years ended December 31, 1996, 1997 and 1998, was
approximately $0, $2,483,000, and $39,133,000, respectively. These amounts
<PAGE>
include amortization of deferred financing costs of approximately $0,
$113,000 and $831,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
NOTE 5 - RESTRUCTURING CHARGES
During December 1997, in connection with the Merger, the Company adopted a
plan to restructure its long-term care pharmacy operations. In connection
with this plan, management intended to close six former PCA pharmacies, 14
former Capstone pharmacies, and relocate Capstone's corporate headquarters
from Irving, Texas to Tampa, Florida. The restructuring activities in
connection with the PCA/Capstone Merger were completed during 1998.
The Company recorded restructuring costs of approximately $5.8 million in
1997 related to the closure of certain former PCA pharmacies, consisting of
$3.6 million of severance covering approximately 180 pharmacy employees,
$0.7 million of lease termination costs and $1.4 million of other exit
costs.
The Company also assumed liabilities, included in the Capstone purchase
price allocation, of approximately $9.6 million related to the closure of
the former Capstone pharmacies and the relocation of Capstone's former
corporate headquarters, consisting of $5.0 million of severance covering
approximately 260 employees, $3.1 million of lease termination costs and
$1.5 million of relocation costs. The terminated positions were comprised
primarily of pharmacy employees and several regional and corporate
positions.
In connection with the Capstone acquisition, the Company assumed
approximately $3.9 million of liabilities from previous Capstone
restructurings consisting primarily of remaining lease termination costs.
As of December 31, 1998, approximately $6.0 million has been charged
against these restructuring accruals consisting of approximately $2.9
million paid as severance to 125 terminated employees and approximately
$3.1 million paid for relocation, terminated leases and other exit costs.
In September 1998, management determined that $6.8 million of the remaining
accrued restructuring charges, which were created in December 1997,
exceeded the estimated amount required to complete the originally planned
restructuring. Accordingly, the restructuring accrual was reduced by $3.8
million by a reduction of asset impairment and restructuring charges on the
consolidated statements of operations, and a reduction of $3.0 million in
goodwill on the consolidated balance sheet.
In September 1998, the Company recorded approximately $13.0 million in
additional restructuring charges, consisting of approximately $2.1 million
of severance covering approximately 46 corporate positions and
approximately $10.9 million relating to future rents to be paid through the
year 2003 and related exit costs in connection with the relocation of the
Company's corporate office and its mail service pharmacy facility in Tampa.
The Company consolidated and relocated its corporate office and the mail
service pharmacy operating unit to a new location in Tampa.
During the three months ended December 31, 1998, approximately $1.3 million
was charged against these restructuring accruals consisting of
<PAGE>
approximately $1.0 million paid as severance to 46 terminated employees and
approximately $0.3 million paid for terminated leases and related exit
costs.
NOTE 6 - INCOME TAXES
Prior to the merger with Capstone and the spin-off of the Beverly long-term
care business, the Company was included in the consolidated federal income
tax returns of Beverly. The tax provisions for Beverly subsidiaries,
including the Company, were determined on a separate company basis. The
resultant income taxes payable to, or tax benefit receivable from, Beverly
flowed through the "Due to Former Parent" account. The Company's provision
for income taxes consists of the following for the years ended December 31,
1996, 1997 and 1998 (in thousands):
For the Year Ended December 31,
-------------------------------
1996 1997 1998
---- ---- ----
Federal:
Current $ 8,649 $ 12,963 $ -
Deferred 3,423 2,668 1,530
State:
Current 1,860 2,788 1,251
Deferred 736 573 249
-------- -------- -------
$ 14,668 $ 18,992 $ 3,030
======== ======== ======
The actual income tax expense for the years ended December 31, 1996, 1997
and 1998, is different from the amounts computed by applying the
statutory Federal income tax rates to income before taxes. The
reconciliation of these differences follow:
For the Year Ended December 31,
-------------------------------
1996 1997 1998
---- ---- ----
Tax benefit at statutory rate 35.0% 35.0% (35.0%)
State income taxes, net of federal
income tax effect 4.8 4.6 (4.6)
Tax effect of permanent differences 1.6 2.0 42.7
Other items, net 0.6 - -
--- ----- ------
Provision for income taxes 42.0% 41.6% 3.1%
==== ==== ======
The tax effect of cumulative temporary differences at December 31, 1997 and
1998 follow (in thousands):
At December 31,
------------------------
1997 1998
---- ----
Current Deferred Taxes:
Accounts receivable allowance $ 11,568 $ 11,419
Inventory 686 696
Accrued restructuring charges 1,537 566
Other accrued liabilities 14,740 14,322
Net operating loss carryforward 6,829 10,014
--------- ----------
Net current deferred tax asset $ 35,360 $ 37,017
========= ==========
<PAGE>
Non-Current Deferred Taxes:
Goodwill $ 14,784 $ 19,652
Accumulated depreciation and other 6,432 6,915
--------- ----------
Net non-current deferred tax liability $ 21,216 $ 26,567
========= ==========
NOTE 7 - STOCKHOLDERS' EQUITY
Stock Option Plans - The Company has eight stock option plans and an
employee stock purchase plan covering up to 12,385,000 shares of the
Company's common stock, pursuant to which officers, directors and employees
of the Company are eligible to receive either incentive or non-qualified
options. Stock options generally expire five or ten years from the date of
the grant. The exercise price of an incentive stock option is equal to the
fair market value of the Company's common shares on the date such option
was granted. The exercise price of non-qualified stock options may be less
than the fair market value on the date of grant.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its fixed option plans and its stock purchase plan. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated below (in thousands, except per share data):
<TABLE>
For the Year Ended December 31,
-------------------------------
1996 1997 1998
---- ---- ----
Net income (loss):
<S> <C> <C> <C>
As reported $ 20,287 $ 26,697 $ (99,608)
Pro forma $ 20,019 $ 25,083 $ (105,503)
Earnings (loss) per share:
As reported $ 0.41 $ 0.50 $ (1.12)
Pro forma $ 0.40 $ 0.47 $ (1.18)
</TABLE>
<PAGE>
A summary of option transactions during the years ended December 31, 1996,
1997 and 1998 is as follows:
<TABLE>
Year Ended December 31,
-----------------------
1996 1997 1998
----------------------- -------------------------- -------------------------
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year 92,000 $ 6.26 753,000 $ 7.99 5,960,000 $ 8.60
Options granted 661,000 8.23 5,207,000 8.68 824,000 6.04
Options exercised - - - - (557,000) 5.74
Options canceled - - - - (418,000) 6.94
---------- ----------- ------------ ------------ ------------ ------------
Options outstanding, end of year 753,000 $ 7.99 5,960,000 $ 8.60 5,809,000 $ 8.63
========== =========== ============ ============ ============ ============
Shares available for future grant - - 3,952,500 - 3,128,500 -
========== =========== ============ ============ ============ ============
Options exercisable at end of year 753,000 $ 7.99 3,818,000 $ 8.06 4,249,000 $ 8.77
========== =========== ============ ============ ============ ============
Weighted average fair value
of options granted $ 4.56 $ 5.34 $ 4.54
=========== ============ ============
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following key assumptions were
used in the Black-Scholes option pricing model:
<TABLE>
For the Year Ended December 31,
-------------------------------
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C> <C>
Risk-free interest rate 6.5% 6.5% 4.7% - 5.7%
Expected life 10 years 10 years 10 years
Volatility 34% 34% 63%
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Outstanding Average Weighted Exercisable Weighted
at Remaining Average at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1998 Life Price 1998 Price
--------------- ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$2.41 - $5.00 671,000 5.3 years $ 4.20 446,000 $ 4.26
$5.01 - $7.50 549,000 9.1 years $ 5.97 318,000 $ 6.30
$7.51 - $10.00 3,586,000 6.7 years $ 9.33 2,610,000 $ 9.25
$10.01 - $12.04 1,003,000 2.9 years $10.52 875,000 $10.52
----------------- ------------- -------------- -------------- ------------
5,809,000 6.1 years $ 8.63 4,249,000 $ 8.77
================= ============= ============== ============== ============
</TABLE>
As part of the PCA/Capstone Merger, warrants for 1,665,293 shares were
assumed and were outstanding at December 31, 1997. During the year ended
December 31, 1998, warrants for 1,382,571 shares were exercised at an
average price of $4.97 per share and warrants for 7,722 shares expired. At
<PAGE>
December 31, 1998, warrants for 275,000 shares were outstanding at an
average price of $10.77 per share. Warrants for 75,000 shares at an
exercise price of $7.50 per share expired on January 1, 1999.
NOTE 8 - Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," (SFAS No. 107) requires disclosure of
fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Company.
The Company used the following methods and assumptions in estimating its
fair value disclosures for financial instruments. The carrying amount of
cash and cash equivalents reported in the consolidated balance sheets
approximates its fair value. Estimated fair value for other current assets
and current liabilities are stated at the carrying amount because of the
short maturity of these instruments. The fair value of long-term
obligations was estimated using discounted cash flow analyses based on the
Company's incremental borrowing rates for similar types of borrowing
arrangements or based on quoted market prices for publicly traded debt.
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Cash & cash equivalents $ 34,215 $ 34,215 $ 32,312 $ 32,312
Other current assets (1) 263,298 263,298 315,904 315,904
Current portion of long-term debt 7,533 7,533 6,151 6,151
Other current liabilities 109,483 109,483 91,909 91,909
Long-term debt (net of current portion) 427,889 427,889 591,552 557,427
(1) Excluding deferred tax asset
</TABLE>
NOTE 9 - MAJOR CUSTOMER AND VENDOR RELATIONSHIPS
The Company provides its pharmaceutical dispensing, infusion therapy
products and services and its pharmacy and nursing consulting services to
nursing facilities operated by Beverly, and to the residents of Beverly
facilities. Revenues attributable to Beverly nursing facilities, inclusive
of revenues from federal and state medical assistance programs and other
third party payors, were approximately 31%, 29% and 18% of net sales for
the years ended December 31, 1996, 1997 and 1998, respectively.
<PAGE>
The Company utilizes a primary supplier arrangement for its pharmaceutical
purchases. Purchases of inventory under primary supplier relationships
during the years ended December 31, 1996, 1997 and 1998, were approximately
92%, 94% and 82% of total inventory purchases, respectively.
NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as
of December 31, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Trade accounts payable $ 46,386 $ 37,048
Accrued salaries, payroll taxes and benefits 12,109 16,314
Other accrued expenses 50,988 38,547
----------- ------------
Total $ 109,483 $ 91,909
=========== ============
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS
Prior to December 3, 1997, PCA was a wholly-owned subsidiary of Beverly.
Subsequent to the PCA/Capstone Merger, all transactions between Beverly and
the Company were made on an arms-length basis.
The Company provides its pharmaceutical dispensing, infusion therapy
products and services and its pharmacy and nursing consulting services to
nursing facilities operated by Beverly, and to the residents of Beverly
facilities. Revenues from sales directly to Beverly nursing facilities were
approximately $82,083,000, $91,228,000 for the years ended December 31,
1996 and 1997, respectively.
Prior to the merger with Capstone, Beverly provided certain administrative
services to the Company. These services included, among others, cash
management, finance, legal, tax, financial reporting, executive management,
payroll and payables processing and employee benefit plans maintenance. The
responsibility for certain of these services, including finance, tax and
payables processing was transferred to the Company in mid-1996 as part of a
consolidation and reorganization of the Company's accounting and related
functions. Substantially all cash received by the Company was deposited
daily and wired to Beverly's corporate cash account. In turn, all of the
Company's operating expenses, capital expenditures and other cash needs
were paid by Beverly, and charged back to the Company along with a
management fee for handling such services. Fees for these services amounted
to approximately $1,820,000, $3,186,000 for the years ended December 31,
1996, 1997, respectively. In addition, the Company was insured for general
liability and workers' compensation risks through the self insurance
programs of Beverly. Total insurance allocations to the Company were
approximately $1,829,000 and $2,558,000 for the years ended December31,
1996 and 1997, respectively. The Company believes that the charges for
services provided by Beverly to the Company are a reasonable allocation of
the costs incurred by Beverly on behalf of the Company in providing these
services; however, such costs are not necessarily indicative of the costs
that would have been incurred if the Company operated as a stand-alone
entity.
The average intercompany balance was approximately $315,500,000 and
$327,172,000 for the years ended December 31, 1996 and 1997, respectively.
<PAGE>
There were no required repayment terms for this account nor did such
amounts bear interest. As part of the merger with Capstone, Beverly
accepted a payment of $275,000,000 in satisfaction of the Company's
intercompany payable. The difference between the amount of this payment and
the intercompany payable of $15,076,000 (net of certain obligations assumed
by the Company), at the date of the merger has been recorded as a capital
contribution by Beverly.
During the year ended December 31, 1998, the Company paid approximately
$5,900,000 to Counsel Corporation, a significant shareholder, for
investment banking services in connection with the Company's acquisition of
NIPSI and the settlement of related litigation with Integrated Health
Services, Inc.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Leases - The Company leases office and warehouse space, automobiles and
equipment. Rental expense under these leases aggregated approximately
$12,142,000, $13,642,000 and $21,486,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
Future minimum lease payments are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31, Capital Leases Operating Leases
<S> <C> <C> <C>
1999 $ 1,857 $ 9,354
2000 1,173 3,315
2001 719 2,223
2002 388 1,344
2003 59 430
------ -------
Total minimum lease payments 4,196 $ 16,666
======
Less: amount representing interest 367
-----
Present value of net minimum lease payments 3,829
Less: current portion 1,695
-----
Long-term portion $ 2,134
======
</TABLE>
<PAGE>
In November 1998, a putative securities class action was filed against
PharMerica, C. Arnold Renschler, M.D. (the Company's Chief Executive
Officer), Robert Della Valle (the Company's former Chief Operating Officer)
and James D. Shelton (the Company's former Chief Financial Officer) in the
United States District Court for the Middle District of Florida. The
proposed class consists of all persons who purchased or acquired stock of
PharMerica between January 7, 1998 and July 24, 1998. The complaint seeks
monetary damages but does not specify an amount. In general, the complaint
alleges that the defendants made material omissions by withholding from the
market information related to the costs associated with certain
acquisitions. The complaint alleges claims under Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934. PharMerica believes the complaint
is without merit and intends to defend the case vigorously. The potential
outcome of the litigation cannot be predicted with certainty, however,
management believes the litigation will not have a material impact on the
financial position or results of operations of the Company given a
preliminary investigation and its existing insurance coverages.
The Company is subject to various other claims and litigation in the
ordinary course of its business. In the opinion of management and outside
counsel, the ultimate settlement of these claims and litigation will not
have a material adverse effect on the consolidated financial position or
future operating results of the Company.
<PAGE>
NOTE 13 - QUARTERLY DATA (Unaudited)
Selected quarterly data for the years ended December 31, 1997 and 1998
follow (in thousands):
<TABLE>
<CAPTION>
Quarter Ended in 1998
-------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $274,677 $287,672 $ 289,767 $293,812
Costs of revenues 152,802 160,862 172,219 170,706
----------------- ---------------- -------------------- --------------
Gross profit 121,875 126,810 117,548 123,106
----------------- ---------------- -------------------- --------------
Operating expenses:
Selling, general and
administrative expenses 85,528 89,452 130,293 92,399
Depreciation and amortization 8,524 8,892 9,327 9,654
Loss on disposition - - 4,500 -
Asset impairment and
restructuring charges - - 108,215 -
----------------- ---------------- -------------------- --------------
Total operating expenses 94,052 98,344 252,335 102,053
----------------- ---------------- -------------------- --------------
Operating income (loss) 27,823 28,466 (134,787) 21,053
Interest expense, net 7,795 9,588 10,656 11,094
----------------- ---------------- -------------------- --------------
Income (loss) before provision
for income taxes 20,028 18,878 (145,443) 9,959
Provision (benefit) for income taxes 8,698 8,196 (18,000) 4,136
----------------- ---------------- -------------------- --------------
Net income (loss) $ 11,330 $ 10,682 $(127,443) $ 5,823
================= ================ ==================== ==============
Quarter Ended in 1997
--------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Revenues $147,592 $153,738 $155,555 $195,294
Costs of revenues 80,087 82,310 84,894 108,287
-------------- ----------------- ----------------- ------------
Gross profit 67,505 71,428 70,661 87,007
-------------- ----------------- ----------------- ------------
Operating expenses:
Selling, general and
administrative expenses 49,229 52,210 51,900 62,748
Depreciation and amortization 4,827 5,082 5,022 6,478
Asset impairment and
restructuring charges - - - 10,935
-------------- ----------------- ----------------- ------------
Total operating expenses 54,056 57,292 56,922 80,161
-------------- ----------------- ----------------- ------------
Operating income 13,449 14,136 13,739 6,846
Interest expense, net 46 3 70 2,364
-------------- ----------------- ----------------- ------------
Income before provision
for income taxes 13,403 14,133 13,669 4,482
Provision for income taxes 5,576 5,845 5,675 1,897
-------------- ----------------- ----------------- ------------
Net income $ 7,827 $ 8,288 $ 7,994 $ 2,585
============== ================= ================= ============
</TABLE>
<PAGE>
NOTE 14 - OPERATING SEGMENTS
In 1998, the Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. The Company's five business units have
separate management teams and infrastructures that offer different products
and services. The business units have been aggregated into two reportable
segments, long-term care and mail pharmacy services. These segments are
managed separately because each of these business units requires different
marketing strategies and delivery systems.
The long-term care segment consists of two business units serving the
eastern and western United States. This segment provides institutional
pharmacy products and services to patients in the long-term care and
alternate site settings, including skilled nursing facilities, assisted
living facilities, and residential and independent living communities.
The mail pharmacy services segment provides mail order and on-line pharmacy
services, including prescription and non-prescription pharmaceuticals,
medical supplies, and medical equipment. The primary customer base for this
segment includes injured workers who are receiving workers' compensation
benefits, and homebound catastrophically injured patients.
The accounting policies of the reportable segments are the same as those
described in Note 1. Income taxes, restructuring expenses, and certain bad
debt and goodwill amortization expense charges have not been allocated to
the operating segments. The Company evaluates the performance of its
segments based on operating earnings of the respective business units.
Intersegment sales and transfers are not significant.
Summarized financial information for 1998 concerning the Company's
reportable operating segments is outlined below (in thousands):
<TABLE>
<CAPTION>
Mail
Long-Term Pharmacy All Non-recurring
Care Services Other Charges Total
-------------- -------------- -------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues $962,731 $137,734 $ 45,463 $ - $1,145,928
EBITDA 107,823 26,817 (42,972) (112,715) (21,047)
Total assets 646,371 57,029 460,925 - 1,164,325
Capital expenditures 12,550 1,548 9,883 - 23,981
Depreciation and amortization 18,283 1,834 16,281 - 36,398
</TABLE>
The "All Other" column includes corporate related items, results of
immaterial operations and, as it relates to EBITDA, income and expense not
allocated to reportable segments. The "Non-recurring Charges" column
includes asset impairment and restructuring charges of $108,215,000 and
loss on disposition of $4,500,000.
A reconciliation of EBITDA to net income is as follows:
EBITDA $(21,047)
Interest expense, net 39,133
Depreciation and amortization 36,398
Provision for income taxes 3,030
------
$(99,608)
NOTE 15 - SUBSEQUENT EVENTS
On January 11, 1999, Bergen Brunswig Corporation (traded on the New York
Stock Exchange, trading symbol: BBC) and PharMerica entered into an
Agreement and Plan of Merger (the "Bergen Merger Agreement"), pursuant to
which PharMerica will be merged into, and will thereby become, a
wholly-owned subsidiary of Bergen (the "Bergen Merger"). Under the terms of
the Bergen Merger Agreement, upon consummation of the Bergen Merger,
shareholders of PharMerica will receive 0.275 of a share of Bergen Class A
Common Stock in exchange for each share of PharMerica common stock they
hold. The Bergen Merger is intended to be tax-free and will be treated by
Bergen as a purchase for financial reporting purposes. Consummation of the
transaction is subject to the satisfaction of certain conditions, including
approvals by the shareholders of Bergen and PharMerica.
<PAGE>
PHARMERICA, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(in thousands)
Allowance for Doubtful Accounts:
<TABLE>
<CAPTION>
Amounts
Due to
Balance at Acquisitions Balance
Beginning Charged to Write-offs, and at End of
Description of Year Operations Net Dispositions Other Year
----------- ------- ---------- --- ------------ ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996 $18,908 $13,500 $(18,510) $ (8) $ - $13,890
=========================================================================================
December 31, 1997 $13,890 $10,809 $(13,897) $11,294 $ - $22,096
=========================================================================================
December 31, 1998 $22,096 $52,937 $(48,164) $11,332 $ - $38,201
=========================================================================================
Accrued Restructuring Charges:
Amounts Adjustments
Balance at New Amounts Charged to Balance
Beginning Restructuring Due to Against Accrued at End of
Description of Year Charges Acquisitions Accrual Amounts Year
----------- ------- ------- ------------ ------- ------- ----
December 31, 1997 $ - $ 5,780 $ 13,469 $ - $ - $ 19,249
===========================================================================================
December 31, 1998 $19,249 $ 13,000 $ - $(10,107) $ (6,831) $ 15,311
===========================================================================================
</TABLE>
<PAGE>
(b) UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
should be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of PharMerica included elsewhere herein
and the historical consolidated financial statements, including the notes
thereto, of Bergen which have previously been filed by Bergen with the
Securities and Exchange Commission. The unaudited pro forma information is
presented for illustration purposes only in accordance with the assumptions set
forth below, and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
nor is it necessarily indicative of future operating results or financial
position of the combined enterprise. The unaudited pro forma condensed combined
financial information does not reflect any adjustments to conform accounting
practices or to reflect any cost savings or other synergies anticipated as a
result of the Merger or any merger-related expenses.
Unaudited Pro Forma Condensed Combined Balance Sheet
The following unaudited pro forma condensed combined balance sheet
presents, under the purchase method of accounting, the consolidated balance
sheets of Bergen and PharMerica combined as of December 31, 1998, as if the
Merger had occurred on that date.
<TABLE>
<CAPTION>
Pro Forma
Bergen Brunswig PharMerica Pro Forma Combined
December 31, 1998 December 31, 1998 Adjustments (1) Balances (2)(3)
----------------- ----------------- --------------- ---------------
(In thousands)
Assets
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $68,344 $32,312 $ -- $100,656
Receivables, net 1,047,285 250,711 (14,558)(d) 1,283,438
Inventories 1,966,727 55,686 2,022,413
Income taxes receivable 23,264 -- 23,264
Deferred income taxes -- 37,017 37,017
Other current assets 9,184 9,507 18,691
--------- ------- -------- ---------
Total current assets 3,114,804 385,233 (14,558) 3,485,479
--------- ------- -------- ---------
Property-at cost 292,241 113,168 405,409
Accumulated depreciation and amortization (145,290) (48,981) (194,271)
--------- ------- ----------
Property--net 146,951 64,187 211,138
--------- ------- --------- ---------
Goodwill 257,679 699,313 1,103,530 (a) 1,361,209
(699,313)(a)
Deferred income taxes 7,647 -- 7,647
Deferred charges and other assets 100,786 15,592 116,378
--------- ------ -------- ---------
Total assets $3,627,867 $1,164,325 $389,659 $5,181,851
========= ========= ======= =========
Liabilities and Shareowners' Equity
Current liabilities:
Accounts payable and accrued liabilities $2,037,406 $95,940 $(14,558)(d) $2,118,788
Customer credit balances 160,278 -- 160,278
Deferred income taxes 76,647 -- 76,647
Current portion of long-term obligations 1,913 6,151 8,064
--------- ------ --------- ---------
Total current liabilities 2,276,244 102,091 (14,558) 2,363,777
--------- ------- --------- ---------
Long-term debt 668,359 591,552 1,259,911
Deferred income taxes -- 26,567 (19,652)(e) 6,915
Other long-term liabilities 15,719 11,280 26,999
--------- ------- -------- ---------
Total long-term obligations 684,078 629,399 (19,652) 1,293,825
--------- ------- -------- ---------
Shareowners' equity:
Common stock 168,465 894 (894)(c) 205,337
36,872 (b)
Paid-in capital 88,103 417,114 819,832 (b) 907,935
(417,114)(c)
Retained earnings 481,537 14,827 (14,827)(c) 481,537
Other 185 -- 185
-------- ------- -------- ---------
Total 738,290 432,835 423,869 1,594,994
Treasury shares (70,745) -- (70,745)
-------- ------- ------- ---------
Total shareowners' equity 667,545 432,835 423,869 1,524,249
--------- --------- ------- ---------
Total liabilities and shareowners'
equity $3,627,867 $1,164,325 $389,659 $5,181,851
========= ========= ======= =========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Earnings
Twelve Months Ended September 30, 1998
The following table sets forth the condensed combined statement of
earnings of PharMerica and Bergen as if the two companies had combined on
October 1, 1997. Bergen's historical fiscal year ends on September 30, while
PharMerica's historical fiscal year ends on December 31. For purposes of
combining PharMerica's historical financial information with Bergen's historical
financial information in the following pro forma condensed combined statement of
earnings, the financial information of Bergen for the fiscal year ended
September 30, 1998 has been combined with PharMerica's financial information for
the three months ended December 31, 1997 (the last three months of PharMerica's
fiscal year ended December 31, 1997) and PharMerica's financial information for
the nine months ended September 30, 1998.
<TABLE>
<CAPTION>
Fiscal Year
Ended Twelve Months
September 30, Ended
1998 September 30, Pro Forma
Bergen 1998 Pro Forma Combined
Brunswig PharMerica Adjustments(1) Results(2)(3)
----------- ------------- ----------- -------
(In thousands, except per share amounts)
Net sales and other revenues:
<S> <C> <C> <C> <C>
Excluding bulk shipments to customers'
warehouses $13,720,017 $1,047,410 $(471,232)(f) $14,296,195
Bulk shipments to customers' warehouses 3,401,651 -- 3,401,651
---------- --------- --------- ----------
Total net sales and other revenues 17,121,668 1,047,410 (471,232) 17,697,846
---------- --------- --------- ----------
Costs and other expenses:
Cost of sales 16,371,403 594,169 (471,232)(f) 16,494,340
Distribution, selling, general and
administrative expenses 534,119 401,242 2,675 (g) 938,036
Special charges (4) 110,247 123,650 (99,000)(g) 134,897
---------- --------- --------- ----------
Total costs and expenses 17,015,769 1,119,061 (567,557) 17,567,273
---------- --------- --------- ---------
Operating earnings (loss) (4) 105,899 (71,651) 96,325 130,573
Net interest expense 39,996 30,404 (1,865)(h) 68,535
---------- --------- --------- ----------
Earnings (loss) before provision for
taxes on income 65,903 (102,055) 98,190 62,038
Provision for taxes on income 62,801 791 879(i) 64,471
---------- --------- ------ ------
Net earnings (loss)(4) $3,102 $ (102,846) $ 97,311 $(2,433)
========== ========= ====== ======
Earnings (loss) per share (4)(5):
Basic $0.03 $ (0.02)
========== =======
Diluted $0.03 $ (0.02)
========== =======
Weighted average number of common
shares outstanding (5):
Basic 101,118 123,631
========== =======
Diluted 102,620 125,133
========== =======
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
<PAGE>
Three Months Ended December 31, 1998
The following table sets forth the condensed combined statement of
earnings of PharMerica and Bergen as if the two companies had combined on
October 1, 1998. For purposes of combining PharMerica's historical financial
information with Bergen's historical financial information in the following pro
forma condensed combined statement of earnings, the financial information of
Bergen for the first three months of its current fiscal year has been combined
with PharMerica's financial information for the last three months of
PharMerica's fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Pro Forma
Bergen Pro Forma Combined
Brunswig PharMerica Adjustments(1) Results(2)(3)
-------- ---------- ----------- -------
Three Months Ended December 31, 1998
(In thousands, except per share amounts)
Net sales and other revenues:
<S> <C> <C> <C> <C>
Excluding bulk shipments to customers' warehouses $3,960,106 $293,812 $(144,708)(f) $4,109,210
Bulk shipments to customers' warehouses 1,060,212 -- 1,060,212
--------- ------- -------- ---------
Total net sales and other revenues 5,020,318 293,812 144,708) 5,169,422
--------- ------- -------- ---------
Costs and other expenses:
Cost of sales 4,821,690 170,706 (144,708)(f) 4,847,688
Distribution, selling, general and administrative
expenses 143,048 102,053 657 (g) 245,758
--------- ------- -------- ---------
Total costs and expenses 4,964,738 272,759 (144,051) 5,093,446
--------- ------- ------- ---------
Operating earnings 55,580 21,053 (657) 75,976
Net interest expense 8,718 11,094 (366)(h) 19,446
--------- ------- -------- ---------
Earnings before provision for taxes on income 46,862 9,959 (291) 56,530
Provision for taxes on income 18,979 4,136 928 (i) 24,043
--------- ------- -------- ---------
Net earnings $27,883 $5,823 $(1,219) $32,487
========= ======= ======== =========
Earnings per share (5):
Basic $0.27 $0.25
======= =====
Diluted $0.27 $0.25
======= =====
Weighted average number of common shares outstanding (5):
Basic 103,170 127,751
======= =======
Diluted 104,968 129,551
======= =======
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 1. Pro Forma Adjustments
(a) Represents the preliminary computation of the excess of the purchase
price over the estimated fair value of the tangible net assets
acquired ("goodwill") associated with the acquisition of PharMerica by
Bergen. Under the Merger Agreement, Bergen will acquire all of the
capital stock of PharMerica at the exchange ratio described in Note 3
below. Assuming that the acquisition was consummated on December 31,
1998, Bergen would have recorded goodwill of approximately $1,103.5
million, would have issued approximately 24.6 million shares of Bergen
Common Stock based on approximately 89.4 million shares of PharMerica
Common Stock outstanding on that date, and would have completed the
transaction at a cost of approximately $856.7 million, based on
Bergen's closing stock price of $34.875 on December 31, 1998. In
addition, goodwill was decreased by PharMerica's historical goodwill
of $699.3 million at December 31, 1998, as required under the purchase
accounting method.
(b) Represents the issuance of shares of Bergen Common Stock as described
in adjustment (a) above.
(c) Represents the elimination of PharMerica's historical stockholders'
equity balances.
(d) Represents the elimination of Bergen's accounts receivable and
PharMerica's related accounts payable at December 31, 1998.
(e) Represents the elimination of PharMerica's historical long-term
deferred income tax liability related to that portion of PharMerica's
historical goodwill which is deductible for federal income tax
purposes.
(f) Represents the elimination of Bergen's sales to PharMerica and
elimination of PharMerica's related cost of sales for the twelve-month
and three-month periods ended September 30, 1998 and December 31,
1998, respectively. The unrealized gross profit on Bergen's products
remaining in PharMerica's beginning and ending inventory was not
material in either period.
(g) Represents the estimated effect of increased goodwill amortization
expense of $2.7 million and $0.7 million for the twelve-month and
three-month periods ended September 30, 1998 and December 31, 1998,
respectively, attributable to additional goodwill recorded in the
combination of Bergen and PharMerica as described in adjustment (a)
above over a 40-year amortization period. Also represents the reversal
of PharMerica's historical goodwill writedown of $99.0 million during
the twelve months ended September 30, 1998, assuming that the Merger
was consummated at the beginning of that period, as required under the
purchase accounting method.
<PAGE>
(h) Represents the estimated effect of decreased interest expense
attributable to Bergen's assumption of PharMerica's borrowings under
its credit facility at an effective cost of 5.74% and 5.42% for the
twelve months and three months ended September 30, 1998 and December
31, 1998, respectively. The effect of decreased interest expense on
the remainder of PharMerica's indebtedness to be assumed by Bergen in
the Merger has not been estimated because it is possible that Bergen
may not refinance such indebtedness.
(i) Represents an increase of $0.9 million related to the establishment of
the pro forma consolidated income tax provision for the twelve months
ended September 30, 1998 and the three months ended December 31, 1998.
Note 2. Reclassifications
Certain reclassifications have been made to the unaudited historical
financial statements of PharMerica to conform to the presentation expected to be
used by the combined companies.
Note 3. Exchange Ratio
Under the Merger Agreement, each outstanding share of PharMerica Common
Stock will be converted into 0.275 of a share of Bergen Common Stock. This
exchange ratio was used in computing share and per share amounts in the
accompanying unaudited pro forma combined condensed financial statements.
Note 4. Effect of Special Charges
Bergen's historical amounts for the twelve months ended September 30,
1998 include special pre-tax charges for writedown of goodwill of $87.3 million,
merger expenses of $14.6 million, abandonment of capitalized software of $5.3
million and restructuring expenses of $3.0 million. PharMerica's historical
amounts for the twelve months ended September 30, 1998, excluding the goodwill
writedown of $99.0 million described in Note 1(g) above, include pre-tax charges
for restructuring expenses of $15.0 million, impairment losses of $5.2 million
and a loss on disposition of a business of $4.5 million. The effect of these
special charges on the unaudited pro forma condensed combined results for the
twelve months ended September 30, 1998 was to:
- reduce pro forma net earnings by $117.8 million; and
- reduce pro forma diluted earnings per share by $0.93 per share.
Note 5. (Loss) Earnings per Share
The pro forma (loss) earnings per share reflects the weighted average
number of shares of Bergen Common Stock that would have been outstanding if the
Merger occurred at the beginning of the periods presented, based upon an
<PAGE>
exchange ratio of 0.275 shares of Bergen Common Stock to be issued for each
share of PharMerica Common Stock outstanding, and the dilutive impact of stock
options and warrants using the treasury stock method. All PharMerica options and
warrants are assumed to be converted into options and warrants for shares of
Bergen Common Stock at the exchange ratio before application of the treasury
stock method.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BERGEN BRUNSWIG CORPORATION
By: _____________________
Milan A. Sawdei
Executive Vice President
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, dated as of January 11, 1999, among the
Registrant, Peacock Merger Corp. and PharMerica, Inc. is incorporated
by reference to Exhibit 2.1 to the Registrant's Registration Statement
on Form S-4 (No. 333-74445) as filed with the Securities and Exchange
Commission on March 16, 1999
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
