<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 16, 1998
OMNICARE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
----------------------------------------------
(State or other jurisdiction of incorporation)
1-8269 31-1001351
------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
100 East RiverCenter Boulevard, Covington, Kentucky 41011
---------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (606) 392-3300
<PAGE> 2
Omnicare, Inc. hereby files its amended Form 8-K/A, reflecting changes to the
Financial Statements and Exhibits section (Item 7) of the Form 8-K originally
filed with the Securities and Exchange Commission on September 28, 1998.
OMNICARE INC. AND
SUBSIDIARY COMPANIES
Index
-----
<TABLE>
<CAPTION>
<S> <C>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
As of and for the year ended December 31, 1997
Report of Independent Certified Public Accountants
Balance Sheet
Statement of Net Earnings and Changes in Equity
Statement of Cash Flows
Notes to Financial Statements
As of June 30, 1998 and for the six months ended June 30,
1998 and 1997 (unaudited)
Balance Sheet
Statement of Net Earnings
Statement of Cash Flows
Notes to Financial Statements
</TABLE>
2
<PAGE> 3
OMNICARE INC. AND
SUBSIDIARY COMPANIES
Index
-----
<TABLE>
<CAPTION>
<S> <C>
Item 7. Financial Statements and Exhibits (cont.)
(b) Pro Forma Financial Information (unaudited)
Introduction
Consolidated Statement of Income for the year ended
December 31, 1997
Consolidated Statement of Income for the nine months ended
September 30, 1998
Notes to Unaudited Pro Forma Financial Information
(c) Exhibits
23.1 Consent of KPMG Peat Marwick LLP
</TABLE>
3
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Extendicare Health Services, Inc.:
We have audited the accompanying balance sheet of the Extendicare Health
Services, Inc. Pharmacy Operations as of December 31, 1997, and the related
statements of net earnings and changes in equity and cash flows for the year
ended December 31, 1997. These financial statements are the responsibility of
the Extendicare Health Services, Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 the Extendicare Health
Services, Inc. Pharmacy Operations as of December 31, 1997, and the results of
its operations and cash flows for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
October 24, 1998
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
4
<PAGE> 5
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Current assets:
Cash $ 1,485,979
Trade accounts receivable, less allowance for doubtful
accounts of $2,396,000 19,142,306
Trade accounts receivable from parent 5,704,881
Inventories 7,689,032
Prepaids 1,899,601
Other current assets 157,814
- --------------------------------------------------------------------------------
Total current assets 36,079,613
- --------------------------------------------------------------------------------
Notes receivable 75,436
Property and equipment, net 9,891,775
Other assets:
Goodwill, less accumulated amortization of $317,513 37,471,338
Identifiable intangible asset, less
accumulated amortization of $235,000 56,078,000
Other 866,223
- --------------------------------------------------------------------------------
Total assets $140,462,385
- --------------------------------------------------------------------------------
LIABILITIES AND EQUITY
- --------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt $ 961,945
Accounts payable 1,382,980
Wages and benefits payable 1,426,353
Other accrued liabilities 602,665
- --------------------------------------------------------------------------------
Total current liabilities 4,373,943
Long-term debt, less current portion 5,223,273
- --------------------------------------------------------------------------------
Total liabilities 9,597,216
- --------------------------------------------------------------------------------
Minority interest 1,300,429
Equity 129,564,740
Commitments
- --------------------------------------------------------------------------------
Total liabilities and equity $140,462,385
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Statement of Net Earnings and Changes in Equity
Year ended December 31, 1997
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
Revenues $ 99,058,111
Cost of goods sold 52,443,939
- -------------------------------------------------------------------------------------
Gross profit 46,614,172
Costs and expenses:
Operating expenses 32,757,167
Lease costs 451,589
Depreciation and amortization 2,385,942
- -------------------------------------------------------------------------------------
Earnings from operations 11,019,474
Interest expense 86,404
- -------------------------------------------------------------------------------------
Earnings before provision for income taxes and minority interest 10,933,070
Provision for income taxes 3,824,994
- -------------------------------------------------------------------------------------
Earnings before minority interest 7,108,076
Minority interest 799,258
- -------------------------------------------------------------------------------------
Net earnings 6,308,818
Equity transfers from parent 102,117,719
- -------------------------------------------------------------------------------------
Change in equity 108,426,537
Equity, beginning of year 21,138,203
- -------------------------------------------------------------------------------------
Equity, end of year $129,564,740
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Statement of Cash Flows
Year ended December 31, 1997
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C>
Net earnings $ 6,308,818
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 2,385,942
Bad debt expense 1,111,778
Change in deferred taxes (117,059)
Minority interest, net of distributions 599,258
Change in:
Accounts receivable (2,850,104)
Inventories (1,026,419)
Deposits 49,721
Accounts payable and accrued liabilities 151,034
Payables and receivables to/from Parent (2,745,854)
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,867,115
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of equipment (3,534,237)
Business acquisitions (330,771)
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,865,008)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 209,535
Payments on long-term debt and capital leases (267,490)
Proceeds from capital leases incurred 812,694
- -------------------------------------------------------------------------------------------------
Net cash provided by financing activities 754,739
- -------------------------------------------------------------------------------------------------
Net increase in cash 756,846
Cash, beginning of year 729,133
- -------------------------------------------------------------------------------------------------
Cash, end of year $ 1,485,979
- -------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information and noncash transactions:
Cash paid during the year for interest $ 124,860
Notes payable issued for noncompete agreements 20,000
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
'
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Extendicare Health Services, Inc. Pharmacy Operations (the Pharmacy
Operations) includes the pharmacy operations owned and operated by United
Professional Companies, Inc. (UPC), a wholly owned subsidiary of
Extendicare Health Services, Inc. (EHSI) and the pharmacy operations
acquired through the purchase of Arbor Health Care Company (Arbor) by EHSI
in November, 1997. The Pharmacy Operations provide to nursing homes,
assisted living facilities, and other long-term care facilities and
residents of such facilities (collectively LTC Customers) the following
items: pharmaceutical products, pharmacy-related services, infusion therapy
products and services, respiratory equipment and supplies, parenteral and
enteral nutritional products, wound care products, ostomy and urological
supplies, together with all home care services provided by UPC at its
Springfield, Ohio location.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies of the Pharmacy Operations are as
follows:
(a) CASH EQUIVALENTS
The Pharmacy Operations consider all highly liquid investments with
original maturities of three months or less to be cash equivalents for
purpose of the financial statements.
(b) ACCOUNTS RECEIVABLE
Accounts receivable are recorded at the net realizable value expected to be
received from federal and state assistance programs, other third-party
payors, or from individual patients. Management does not believe that there
are any credit risks associated with these government agencies other than
possible funding delays. Accounts receivable other than from government
agencies consist of receivables from various payors that are subject to
differing economic conditions and do not represent any concentrated credit
risk to the Pharmacy Operations.
(c) INVENTORIES
Inventories consisting of drugs and pharmaceuticals are stated at the lower
of cost or market. Cost is determined using the first-in, first-out method.
8
<PAGE> 9
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
- --------------------------------------------------------------------------------
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment is
provided using the straight-line method at rates based upon the following
estimated useful lives:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Buildings 25 years
Building improvements 5-20 years
Furniture and equipment Varying periods not exceeding 10 years
Leasehold improvements The shorter of the term of the applicable leases
or the useful life of the improvement not
exceeding 10 years
Rental equipment 3-5 years
Automobiles and trucks 3 years
</TABLE>
- --------------------------------------------------------------------------------
Maintenance and repairs are charged to expense as incurred. When property
or equipment is retired or disposed of, the cost and related accumulated
depreciation and amortization are removed from the accounts and the
resulting gain or loss is included in earnings.
(e) GOODWILL AND OTHER INTANGIBLES
Goodwill represents the cost of acquired net assets in excess of their fair
market values. Amortization of goodwill is computed using the straight-line
method over a period of forty years related to the Arbor acquisition and
five to fifteen years for other acquisitions. The other identifiable
intangible asset consists of pharmacy contract rights that were obtained in
the Arbor acquisition and represents the value to provide pharmacy
services. Pharmacy contract rights are amortized using the straight-line
method over a period of twenty years. Covenants not to compete are
amortized over the effective period of the covenant, which is estimated to
be three years.
(f) LONG-LIVED ASSETS
The Pharmacy Operations periodically assess the recoverability of
long-lived assets, including property and equipment, goodwill, and other
intangibles, when there are indications of potential impairment based on
estimates of undiscounted future cash flows. The amount of any impairment
is calculated by comparing the estimated fair market value with the
carrying value of the related asset. Management considers such factors as
current results, trends, and future prospects, in addition to other
economic factors, in performing this analysis. In management's opinion, no
such impairment exists as of December 31, 1997.
(g) LEASES
Leases that substantially transfer all of the benefits and risks of
ownership of property to the Pharmacy Operations or otherwise meet the
criteria for capitalizing a lease under generally accepted accounting
principles are accounted for as capital leases. An asset is recorded at the
time a capital lease is entered into together with its related long-term
obligation to reflect its purchase and financing. Property and equipment
recorded under capital leases are depreciated on the same basis as
previously described. Rental payments under operating leases are expensed
as incurred.
(h) REVENUES
Revenues are recorded in the period in which services and products are
provided at established rates less contractual adjustments. Contractual
adjustments include differences between the Pharmacy Operations'
establishing billing rates and allowable Medicaid or other third-party
reimbursement.
9
<PAGE> 10
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
- --------------------------------------------------------------------------------
(i) INCOME TAXES
The Pharmacy Operations' results of operations are included in the
consolidated Federal tax return of its U.S. parent company, EHSI.
Accordingly, Federal current and deferred income taxes payable are
transferred to EHSI. The provision for income taxes has been calculated as
if the Pharmacy Operations were a separately taxed entity in the
accompanying financial statements.
(j) ORGANIZATION COSTS
Organization costs are amortized on a straight-line basis over five years.
(k) USE OF ESTIMATES
Management of the Pharmacy Operations has made a number of estimates
relating to the reporting of assets, liabilities, revenues, costs, and
expenses to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from these
estimates.
(3) ACQUISITIONS
On November 26, 1997, EHSI acquired for cash all of the outstanding stock
of Arbor, a company engaged in operating 31 nursing facilities. The
acquisition of Arbor also included Arbor's four institutional pharmacies
and outpatient rehabilitation businesses. The acquisition was accounted for
using the purchase method and, accordingly, the results of the acquired
institutional pharmacy operations are included in the accompanying
financial statements since the date of acquisition.
The cost of the businesses and assets acquired in 1997 (primarily comprised
of the Arbor acquisition along with other minor acquisitions) was
$101,043,431 which consisted of:
<TABLE>
<S> <C>
Net current assets $ 709,320
Accounts receivable 6,306,690
Inventory 2,529,790
Property and equipment 2,859,312
Goodwill 37,097,000
Identifiable intangible assets 56,313,000
Long-term debt assumed (4,771,681)
------------
$101,043,431
============
</TABLE>
The following unaudited pro forma financial information presents the
combined results of operations of the Pharmacy Operations as if the
acquisition had occurred as of January 1, 1997. The pro forma financial
information does not necessarily reflect the results of operations that
would have occurred had the UPC and Arbor pharmacy operations constituted a
single entity during that period. Certain of the other acquisitions of UPC
were deemed immaterial to the results of the Pharmacy Operations and
therefore pro forma information is not provided.
<TABLE>
<CAPTION>
----------------------------------------------------------
(unaudited)
<S> <C>
Revenues $145,461,000
----------------------------------------------------------
Net earnings before extraordinary item $ 11,997,000
----------------------------------------------------------
Net earnings $ 11,997,000
==========================================================
</TABLE>
10
<PAGE> 11
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
- --------------------------------------------------------------------------------
(4) PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation and
amortization at December 31, 1997 are as follows:
- --------------------------------------------------------------------------------
Buildings $ 937,991
Furniture and equipment 9,951,383
Leasehold improvements 1,356,169
Rental equipment 3,093,713
Automobiles and trucks 2,274,182
Computer software 1,966,302
Construction in progress 439,255
- --------------------------------------------------------------------------------
Total property and equipment 20,018,995
Less accumulated depreciation and
amortization 10,127,220
- --------------------------------------------------------------------------------
Net property and equipment $ 9,891,775
- --------------------------------------------------------------------------------
Leases that meet the criteria of capital leases have been capitalized and
the amounts are included in the above net property and equipment as follows
at December 31, 1997:
- --------------------------------------------------------------------------------
Capital lease equipment $ 975,676
Less accumulated amortization 167,978
- --------------------------------------------------------------------------------
Net capital lease equipment $ 807,698
- --------------------------------------------------------------------------------
(5) INCOME TAXES
The Pharmacy Operations accounts for income taxes using an asset and
liability approach which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
11
<PAGE> 12
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
- --------------------------------------------------------------------------------
The provision for income taxes for 1997 consists of the following:
- --------------------------------------------------------------------------------
Federal:
Current $ 3,334,024
Deferred (117,059)
- --------------------------------------------------------------------------------
Total Federal 3,216,965
- --------------------------------------------------------------------------------
State:
Current 608,029
- --------------------------------------------------------------------------------
Total $ 3,824,994
- --------------------------------------------------------------------------------
The effective tax rate on earnings before provision for income taxes and
minority interest does not materially differ from the statutory Federal
income tax rate of 35%.
The components of the net deferred tax assets and liabilities as of
December 31, 1997 are as follows:
- --------------------------------------------------------------------------------
Deferred tax assets:
Depreciation and amortization $ 39,616
Employee benefit accruals 58,064
Accounts receivable allowances 106,639
- --------------------------------------------------------------------------------
Net deferred tax asset $ 204,319
- --------------------------------------------------------------------------------
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which these temporary differences become deductible. Management
has considered the scheduled reversal of deferred tax liabilities in making
this assessment and believes it is more likely than not the Company will
realize the benefits of these deductible differences.
12
<PAGE> 13
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
- --------------------------------------------------------------------------------
(6) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997:
<TABLE>
- -----------------------------------------------------------------------------------------------------
<S> <C>
Promissory note payable, 8%, maturing in 2000 $ 4,072,632
Promissory notes payable, 8% to 12.5%, maturing through August, 2005 808,583
Note payable intercompany 368,484
Capital lease obligation 935,519
- ------------------------------------------------------------------------------------------------------
Total long-term debt 6,185,218
- ------------------------------------------------------------------------------------------------------
Less current portion 961,945
- ------------------------------------------------------------------------------------------------------
Total long-term debt, less current portion $ 5,223,273
- ------------------------------------------------------------------------------------------------------
Principal payments on long-term debt due within the next five years and thereafter are as
follows as of December 31, 1997:
- ------------------------------------------------------------------------------------------------------
1998 $ 961,945
1999 656,556
2000 4,109,311
2001 197,178
2002 197,178
After 2002 63,050
- ------------------------------------------------------------------------------------------------------
Total $ 6,185,218
- ------------------------------------------------------------------------------------------------------
</TABLE>
(7) EMPLOYEE BENEFIT PLANS
The Pharmacy Operations participate in a defined contribution retirement
401(k) savings plan, the Extendicare Health Services, Inc. 401(k) Savings
Plan, which is made available to substantially all of EHSI's employees.
EHSI pays a matching contribution of 25% of every qualifying dollar
contributed by plan participants, net of any forfeitures. Expenses incurred
by the Pharmacy Operations related to the 401(k) Savings Plan amounted to
$148,010 in 1997.
The Pharmacy Operations also participate in defined contribution 401(k)
plans which were sponsored by Arbor prior to its acquisition by EHSI.
Eligible employees under these plans may elect to defer up to 17% of their
gross pay and EHSI pays a matching contribution subject to certain
limitations.
The Pharmacy Operations participate in a nonfunded deferred compensation
plan offered to all corporate employees defined as highly compensated by
the Internal Revenue Service Code in which participants may defer up to 10%
of their base salary. EHSI will match up to 50% of the amount deferred.
EHSI also maintains nonqualified deferred compensation plans covering
certain executive employees. Expenses incurred for the Pharmacy Operations
under the deferred compensation plans amounted to approximately $25,000 in
1997.
13
<PAGE> 14
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
- --------------------------------------------------------------------------------
(8) LEASE COMMITMENTS
The Pharmacy Operations at December 31, 1997 were committed under
noncancelable leases requiring future minimum rental payments as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating
leases
- --------------------------------------------------------------------------------
<S> <C>
1998 $ 747,261
1999 583,128
2000 304,884
2001 130,268
2002 47,804
After 2002 73,728
- --------------------------------------------------------------------------------
Total $1,887,073
- --------------------------------------------------------------------------------
</TABLE>
Operating lease costs were approximately $1,065,000 in 1997. These leases
expire on various dates extending through the year 2014.
(9) COMMITMENTS AND CONTINGENCIES
LITIGATION
The Pharmacy Operations periodically are a defendant in actions brought
against them in connection with their operations. Management believes, on
the basis of information furnished by legal counsel, that none of these
actions will have a material adverse effect on the financial position or
earnings of the Pharmacy Operations.
YEAR 2000
EHSI, including the Pharmacy Operations (collectively the Company), has
conducted a review of its computer systems and its third-party systems to
identify those systems that could be affected by the "Year 2000" issue. The
Year 2000 issue is the result of computer systems being written using two
digits rather than four to define the applicable year. Any of the Company's
programs or programs of third-party providers that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the
year 2000. If not corrected, Year 2000 issues could result in a major
system failure or modifications and material costs to the Company. As a
result of the sale of the Pharmacy Operations, no further analysis of the
systems have occurred.
(10) TRANSACTIONS WITH PARENT
The Pharmacy Operations' parent, EHSI, is an indirect wholly owned
subsidiary of Extendicare Inc. (Extendicare), a Canadian publicly-held
company. The following is a summary of the transactions between the
Pharmacy Operations and other UPC entities, EHSI, Extendicare, and other
affiliates in 1997:
14
<PAGE> 15
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
- --------------------------------------------------------------------------------
INSURANCE
The Pharmacy Operations insure certain risks with an affiliated insurance
subsidiary of Extendicare. The statement of net earnings for 1997 includes
expenses of $666,667 related to the costs of these coverages.
REVENUES
Revenues of approximately $23,274,000 were recorded in 1997 by the Pharmacy
Operations that were earned from related EHSI and Arbor facilities.
(11) SUBSEQUENT EVENT
Under an Asset Purchase Agreement, dated as of July 29, 1998 among
Omnicare, Inc. (Omnicare); Badger Acquisition Corp., a wholly owned
subsidiary of Omnicare; EHSI; and the subsidiaries of EHSI, EHSI sold to
Omnicare, effective September 16, 1998, certain assets and Omnicare
assumed certain liabilities relating to the Pharmacy Operations.
In September, 1998 the minority shareholder interest was purchased by EHSI
for $2,300,000 in cash. This purchase was consummated prior to the
completion of the transaction with Omnicare.
15
<PAGE> 16
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Unaudited Balance Sheet
June 30, 1998
<TABLE>
Assets
- ----------------------------------------------------------------------
(In Thousands)
<S> <C>
Current assets:
Cash $ 1,723
Accounts receivable, less allowance for
doubtful accounts of $2,605 22,685
Trade accounts receivable from parent 7,439
Inventories 7,885
Prepaids 532
Other current assets 131
--------
Total current assets 40,395
--------
Notes receivable 33
Property and equipment, net 9,823
Other assets:
Goodwill, less accumulated amortization of $913 39,169
Identifiable intangible asset, less accumulated
amortization of $1,643 54,670
Other 2,674
--------
Total Assets $146,764
========
Liabilities and Equity
- ----------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,775
Accounts payable 2,521
Wages and benefits payable 1,740
Other current liabilities 598
--------
Total current liabilities 6,634
Long-term debt, less current portion 6,993
--------
Total liabilities 13,627
Minority interest 1,443
Equity 131,694
--------
Total liabilities and equity $146,764
========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 17
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Unaudited Statement of Net Earnings
Six Months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(In Thousands)
- ------------------------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $ 82,506 $46,157
Cost of goods sold 44,777 23,926
- ------------------------------------------------------------------------------------------------
Gross profit 37,729 22,231
Costs and expenses:
Operating expenses 26,029 14,305
Lease costs 457 212
Depreciation and amortization 3,252 1,105
- ------------------------------------------------------------------------------------------------
29,738 15,622
Interest expense 360 31
- ------------------------------------------------------------------------------------------------
Income before provision for income taxes 7,631 6,578
Provision for income taxes 2,671 2,302
- ------------------------------------------------------------------------------------------------
Income before minority interest 4,960 4,276
Minority interest 468 401
- ------------------------------------------------------------------------------------------------
Net Income $ 4,492 $3,875
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 18
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Unaudited Statement of Cash Flows
Six Months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
(In Thousands)
- ----------------------------------------------------------------------------------------
1998 1997
---- ----
<S> <C> <C>
Net earnings $ 4,492 $ 3,875
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,252 1,105
Bad debt expense 570 442
Minority interest, net of distributions 143 401
Change in:
Accounts and notes receivable (2,004) (1,043)
Inventories (196) 66
Prepaids and other assets 1,510 5
Accounts payable and accrued liabilities 1,447 (355)
Payables and receivables to/from Parent (6,011) (2,849)
------- -------
Net cash provided by operating activities 3,203 1,647
------- -------
Cash flows from investing activities:
Purchase of equipment (1,188) (1,173)
Contingent purchase payments and non-compete agreement (4,361) 0
------- -------
Net cash used in investing activities (5,549) (1,173)
------- -------
Cash flows from financing activities:
Long-term debt issued 3,131 0
Payments on long-term debt and capital leases (548) (142)
------- -------
Net cash provided by financing activities 2,583 (142)
------- -------
Net increase in cash 237 332
Cash, beginning of period 1,486 729
------- -------
Cash, end of period $ 1,723 $ 1,061
======= =======
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 19
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
Six Months Ended June 30, 1998 and 1997
================================================================================
(1) ORGANIZATION
The Extendicare Health Services, Inc. Pharmacy Operations (the Pharmacy
Operations) represents the pharmacy operations owned and operated by United
Professional Companies, Inc. (UPC), a wholly owned subsidiary of
Extendicare Health Services, Inc. (EHSI) and the pharmacy operations
acquired through the purchase of Arbor Health Care Company by EHSI in
November, 1997. The Pharmacy Operations provide to nursing homes, assisted
living facilities and other long-term care facilities and residents of such
facilities (collectively LTC Customers) the following items: pharmaceutical
products, pharmacy-related services, infusion therapy products and
services, respiratory equipment and supplies, parenteral and enteral
nutritional products, wound care products, ostomy and urological supplies,
together with all home care services provided by UPC at its Springfield,
Ohio location. The Pharmacy Operations excludes the following: (a)
respiratory therapist services, not including the provision of such
services to LTC Customers, (b) the provision of respiratory equipment and
supplies other than to LTC Customers, (c) home health services (including
those provided by Stein Medical), except for those services provided by UPC
at its Springfield, Ohio location and the provision of such services to LTC
Customers, (d) group purchasing services, (e) clinical psychology and other
behavior health services, not including the provision of such services to
LTC Customers, (f) the business of contracting with managed care
organizations, insurers, and other payors of health care services for the
provision of care to individuals in nursing homes, assisted living
facilities and other long-term care facilities, (g) respiratory equipment
and supplies provided by UPC/Chippewa Valley Home Care, LLC in the Eau
Claire, Wisconsin area and (h) the provision by UPC Home Health Services of
respiratory equipment and supplies to residents in assisted living
facilities in Wisconsin which are not affiliated with EHSI.
Under an Asset Purchase Agreement, dated as of July 29, 1998 among
Omnicare, Inc. (Omnicare), Badger Acquisition Corp., a wholly owned
subsidiary of Omnicare, EHSI and the subsidiaries of EHSI, EHSI agreed to
sell and Omnicare agreed to purchase, certain assets and assume certain
liabilities relating to the Pharmacy Operations.
(2) BASIS OF PRESENTATION
The financial information presented as of any date other than December 31
has been prepared from the books and record without audit. The accompanying
financial statements do not include all of the information and the
footnotes required by generally accepted accounting principles for complete
statements. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of such
financial statements, have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
These financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1997.
19
<PAGE> 20
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
Six Months Ended June 30, 1998 and 1997
- -------------------------------------------------------------------------------
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies of the Pharmacy Operations are as
follows:
INVENTORIES
Inventories consisting of drugs and pharmaceuticals are stated at the
lower of cost or market. Cost is determined using the first-in, first-out
method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment is
provided using the straight-line method at rates based upon the following
estimated useful lives:
- -------------------------------------------------------------------------------
Buildings 25 years
Building improvements 5-20 years
Furniture and equipment Varying periods not exceeding 10 years
Leasehold improvements The shorter of the term of the
applicable leases or the useful life
of the improvement not exceeding
10 years
Rental equipment 3-5 years
Automobiles and trucks 3 years
- -------------------------------------------------------------------------------
Maintenance and repairs are charged to expense as incurred. When property
or equipment is retired or disposed of, the cost and related accumulated
depreciation and amortization is removed from the accounts and the
resulting gain or loss is included in earnings.
GOODWILL AND OTHER INTANGIBLES
Amortization of goodwill and other intangibles is computed using the
straight-line method over a period of five to forty years. Covenants not to
compete are amortized over the effective period of the covenant.
LEASES
Leases that substantially transfer all of the benefits and risks of
ownership of property to the Pharmacy Operations or otherwise meet the
criteria for capitalizing a lease under generally accepted accounting
principles are accounted for as capital leases. An asset is recorded at
the time a capital lease is entered into together with its related
long-term obligation to reflect its purchase and financing. Property and
equipment recorded under capital leases are depreciated on the same basis
as previously described. Rental payments under operating leases are
expensed as incurred.
REVENUES
Revenues are recorded in the period in which services and products are
provided at established rates less contractual adjustments. Contractual
adjustments include differences between established billing rates and
allowable Medicaid or other third-party reimbursement.
20
<PAGE> 21
EXTENDICARE HEALTH SERVICES, INC.
PHARMACY OPERATIONS
Notes to Financial Statements
Six Months Ended June 30, 1998 and 1997
- -------------------------------------------------------------------------------
INCOME TAXES
The Pharmacy Operations' results of operations are included in the
consolidated Federal tax return of its U.S. parent company, EHSI.
Accordingly, Federal current and deferred income taxes are transferred to
EHSI. The provision for income taxes has been calculated as if the Pharmacy
Operations were a separately taxed entity in the accompanying financial
statements. The Pharmacy Operations has provided for income tax expense by
applying the approximately combined federal and state tax of 35% to revenue
before income taxes and minority interest.
ORGANIZATION COSTS
Organization costs are amortized on a straight-line basis for over 5 years.
(4) COMMITMENTS AND CONTINGENCIES
LITIGATION
The Pharmacy Operations periodically are a defendant in actions brought
against them in connection with their operations. Management believes, on
the basis of information furnished by legal counsel, that none of these
actions will have a material adverse effect on the financial position or
earnings of the Pharmacy Operations.
YEAR 2000
EHSI, including the Pharmacy Operations (collectively the Company), has
conducted a review of its computer systems and its third-party systems to
identify those systems that could be affected by the "Year 2000" issue. The
Year 2000 issue is the result of computer systems being written using two
digits rather than four to define the applicable year. Any of the Company's
programs or programs of third-party providers that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the
year 2000. If not corrected, Year 2000 issues could result in a major
system failure or modifications and material costs to the Company. As a
result of the sale of the Pharmacy Operations, no further analysis of the
systems have occurred.
(5) PURCHASE OF MINORITY INTEREST
In September, 1998, the minority shareholder interest was purchased by EHSI
for $2.3 million in cash. This purchase was consummated prior to the
completion of the transaction with Omnicare as described in Note (1).
21
<PAGE> 22
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Omnicare, Inc. (the "Company") completed, effective September 16, 1998, the
acquisition of substantially all of the institutional pharmacy operations (the
"Pharmacy Operations") of Extendicare Health Services, Inc. ("EHSI"), a
wholly-owned subsidiary of Extendicare, Inc. Additional information relating to
this acquisition is included in the Form 8-Ks dated August 7, 1998 and September
28, 1998, and the Form 10-Q dated November 16, 1998. The unaudited Consolidated
Balance Sheet of Omnicare as of September 30, 1998 (included in the Company's
Form 10-Q for the quarter ended September 30, 1998) gives effect to the
acquisition of the pharmacy business of EHSI. The following unaudited Pro Forma
Consolidated Statements of Income of the Company for the year ended December 31,
1997 and for the nine months ended September 30, 1998 give effect to the
acquisition of the Pharmacy Operations as if it had occurred on January 1, 1997.
The acquisition of the Pharmacy Operations was accounted for under the purchase
method of accounting. The total purchase price was allocated to the tangible and
identifiable intangible assets, and liabilities based on the Company's
management's estimate of their fair values. The excess of cost over the fair
value of the net assets acquired was recorded as goodwill. The allocation of the
purchase price may be adjusted in accordance with Statement of Financial
Accounting Standards No. 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises," to the extent that actual amounts differ from
management's current estimates. Management does not expect that any such
adjustment would have a material impact on the financial statements.
The pro forma information has been prepared by the Company based on the
consolidated financial statements of the Company and the Pharmacy Operations.
The pro forma information is presented for illustration purposes only and does
not purport to be indicative of the combined results of operations that actually
would have occurred if the acquisition of the Pharmacy Operations had been
effected at the dates indicated or to project results of operations for any
future period. The pro forma information gives effect only to the adjustments
set forth in the accompanying notes and does not reflect any synergies
anticipated by the Company's management as a result of the acquisition, in
particular, improvements in gross margin attributable to the Company's
purchasing leverage associated with purchases of pharmaceuticals and the
elimination of duplicate payroll and other operating expenses. Therefore,
management believes that the pro forma financial information is not necessarily
indicative of future performance. The pro forma information should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto included in its Form 8-K dated September 28, 1998 and its Form
10-Q for the quarter ended September 30, 1998, and the financial statements of
the Pharmacy Operations and related notes thereto included in this filing.
22
<PAGE> 23
Omnicare, Inc. and Subsidiary Companies
Pro Forma Consolidated Statement of Income
Unaudited
For The Year Ended December 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
Pharmacy Pro Forma
Omnicare Operations Adjustments Pro Forma
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Sales $ 1,034,384 $ 99,058 $ -- $ 1,133,442
Cost of sales 725,923 52,444 22,375 (a) 800,641
(101)(b)
----------- -------- -------- -----------
Gross profit 308,461 46,614 (22,274) 332,801
Selling, general and administrative expenses 199,050 35,595 6,000 (c) 217,752
(518)(d)
(22,375)(a)
Acquisition expenses, pooling-of-interests 4,321 -- -- 4,321
Nonrecurring expenses 7,521 -- -- 7,521
----------- -------- -------- -----------
Operating income 97,569 11,019 (5,381) 103,207
Investment income 5,720 -- -- 5,720
Interest expense (6,556) (86) (14,500)(e) (21,142)
Other expense (800) -- -- (800)
----------- -------- -------- -----------
Income before income taxes 95,933 10,933 (19,881) 86,985
Income taxes 41,828 3,825 (7,475)(f) 38,464
286 (g)
----------- -------- -------- -----------
Income from continuing operations before
minority interest 54,105 7,108 (12,692) 48,521
Minority interest -- (799) 799 (h) --
----------- -------- -------- -----------
Income from continuing operations $ 54,105 $ 6,309 $(11,893) $ 48,521
----------- -------- -------- -----------
Earnings per share from continuing operations:
Basic $ 0.63 $ 0.57
----------- -----------
Diluted $ 0.62 $ 0.56
----------- -----------
Weighted average number of common shares outstanding:
Basic 85,692 125 (i) 85,817
----------- -------- -----------
Diluted 86,710 125 (i) 86,835
----------- -------- -----------
</TABLE>
See notes to unaudited pro forma financial information.
23
<PAGE> 24
Omnicare, Inc. and Subsidiary Companies
Pro Forma Consolidated Statement of Income
Unaudited
For The Nine Months Ended September 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------
Pharmacy Pro Forma
Omnicare Operations Adjustments Pro Forma
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Sales $ 1,082,099 $ 118,071 $ -- $ 1,200,170
Cost of sales 755,719 64,199 24,401 (a) 844,319
----------- --------- -------- -----------
Gross profit 326,380 53,872 (24,401) 355,851
Selling, general and administrative expenses 202,652 43,140 4,500 (c) 220,891
(5,000)(d)
(24,401)(a)
Acquisition expenses, pooling-of-interests 14,587 -- -- 14,587
Restructuring costs 3,627 -- -- 3,627
----------- --------- -------- -----------
Operating income 105,514 10,732 500 116,746
Investment income 3,046 -- -- 3,046
Interest expense (14,507) (179) (10,875)(e) (25,561)
----------- --------- -------- -----------
Income before income taxes 94,053 10,553 (10,375) 94,231
Income taxes 39,801 3,694 (3,901)(f) 39,868
274 (g)
----------- --------- -------- -----------
Income from continuing operations before minority interest 54,252 6,859 (6,748) 54,363
Minority interest -- (457) 457 (h) --
----------- --------- -------- -----------
Income from continuing operations $ 54,252 $ 6,402 $ (6,291) $ 54,363
----------- --------- -------- -----------
Earnings per share from continuing operations:
Basic $ 0.61 $ 0.61
----------- -----------
Diluted $ 0.61 $ 0.61
----------- -----------
Weighted average number of common shares outstanding:
Basic 88,815 125 (i) 88,940
----------- -------- -----------
Diluted 89,647 125 (i) 89,772
----------- -------- -----------
</TABLE>
See notes to unaudited pro forma financial information.
24
<PAGE> 25
Notes to Unaudited Pro Forma Financial Information
(dollars in thousands)
(a) To reclassify certain general and administrative expenses of the Pharmacy
Operations to cost of sales in order to reflect cost of sales consistently
with the Company's treatment of these expenses.
(b) To eliminate the historical LIFO expense of the Pharmacy Operations.
(c) To reflect amortization of the goodwill of approximately $240 million
recorded in connection with the purchase of the Pharmacy Operations on a
straight-line basis over 40 years.
(d) To eliminate the historical goodwill amortization of the Pharmacy
Operations.
(e) To adjust interest expense to record interest expense at approximately 5.8%
(the average actual rate on the borrowing) on the $250 million of debt
drawn down by the Company at closing (annual interest expense would change
by approximately $313 for each 1/8% change in the interest rate).
(f) To record tax effect of pro forma adjustments at the Company's effective
tax rate of approximately 37.6% (excluding the impact of various
nondeductible expenses such as certain acquisition costs and nonrecurring
charges) which is not materially different than the combined federal and
state statutory rates.
(g) To adjust the income tax provision on the Pharmacy Operation's pretax
income at the Company's effective tax rate of 37.6% (excluding the impact
of various nondeductible expenses such as certain acquisition costs and
nonrecurring charges).
(h) To eliminate the minority interest in a joint venture of the Pharmacy
Operations, which was purchased by the Pharmacy Operations immediately
preceding the Company's acquisition of the Pharmacy Operations.
(i) To reflect the Company's issuance of 125,000 shares of OCR common stock in
connection with the acquisition of the Pharmacy Operations.
25
<PAGE> 26
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Omnicare, Inc.
(Registrant)
Date: November 30, 1998 By: /s/ David W. Froesel, Jr.
----------------- -------------------------
David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
26
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Omnicare, Inc.
Suite 1500
100 East RiverCenter Blvd.
Covington, KY 41011
We consent to the incorporation by reference in the Registration Statements
(Nos. 2-78161, 33-34635, 33-48209, 33-88856, 333-02667, 333-45801, 333-48067,
and 333-53637) on Form S-8 of Omnicare, Inc.; (No. 333-53749) on Form S-4 of
Omnicare, Inc.; and (Nos. 33-81644, 33-83752, 33-59689, 33-62965, 333-07695,
333-00635, 333-33279, 333-36665, 333-45825, 333-48059, 333-57731, and 333-64441)
on Form S-3 of Omnicare, Inc., of our report dated October 24, 1998, with
respect to the balance sheet of Extendicare Health Services, Inc. Pharmacy
Operations as of December 31, 1997 and the related statements of net earnings,
changes in equity and cash flows for the year ended December 31, 1997, which
report appears in the Form 8-K/A of Omnicare, Inc., dated November 30, 1998.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
November 30, 1998
