<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20049
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): March 18, 1998
PHARMERICA INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-20606 11-2310352
- ------------------------------- ------------------------- ----------------------------
(State or other jurisdiction of (Commissions File Number) (IRS Employer Identification
incorporation) Number)
</TABLE>
3611 Queen Palm Drive, Tampa Florida 33619
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(813) 626-7788
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(former name or former address if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS
The registrant reports the following selected financial information that it
deems of importance to its security holders:
a. Balance Sheets as of December 31, 1996 and 1997.
b. Statements of Income for the years ended December 31, 1995,
1996 and 1997.
c. Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997.
d. Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.
e. Unaudited pro forma financial statements as of and for the
year ended December 31, 1997, reflecting the merger involving
Capstone Pharmacy Services and Pharmacy Corporation of America.
2
<PAGE> 3
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 7,575 $ 34,215
Accounts receivable, net of allowance for doubtful
accounts of $13,890 and $22,096........................ 94,461 205,225
Inventories............................................... 22,025 51,766
Prepaid expenses and other current assets................. 335 6,307
Deferred tax asset........................................ -- 35,360
-------- ----------
Total current assets.............................. 124,396 332,873
Equipment and leasehold improvements, net................... 36,784 46,599
Goodwill, net of accumulated amortization of $17,865 and
$26,653................................................... 276,430 723,954
Other assets, net........................................... 3,966 10,822
-------- ----------
Total assets...................................... $441,576 $1,114,248
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses..................... $ 31,294 $ 109,483
Current portion of long-term debt......................... 968 7,533
Accrued restructuring charges............................. -- 14,269
-------- ----------
Total current liabilities......................... 32,262 131,285
Deferred income taxes....................................... 3,980 21,216
Long-term debt, net of current portion...................... 1,334 427,889
Due to former parent........................................ 312,395 --
Accrued restructuring charges, net of current portion....... -- 4,980
-------- ----------
Total liabilities................................. 349,971 585,370
-------- ----------
Commitments and Contingencies
Stockholders' Equity
Common stock, $0.01 par value; 1,000 shares authorized at
December 31, 1996; and 300,000,000 shares authorized at
December 31, 1997; and 1,000 shares issued and
outstanding as of December 31, 1996 and 87,930,184
shares issued and 87,591,722 shares outstanding as of
December 31, 1997...................................... 1 876
Preferred stock, $.01 par value; and 0 shares authorized
at December 31, 1996; 500,000 shares authorized at
December 31, 1997; 0 shares issued and outstanding as
of December 31, 1996 and 1997.......................... -- --
Additional paid-in capital................................ 3,866 413,567
Retained earnings......................................... 87,738 114,435
-------- ----------
Total stockholders' equity........................ 91,605 528,878
-------- ----------
Total liabilities and stockholders' equity........ $441,576 $1,114,248
======== ==========
</TABLE>
3
<PAGE> 4
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................................. $ 451,685 $ 516,400 $ 652,179
Cost of sales.............................................. 242,761 280,468 355,577
---------- ---------- ----------
Gross profit............................................. 208,924 235,932 296,602
---------- ---------- ----------
Operating expenses:
Selling, general and administrative expenses............. 175,599 184,585 216,087
Depreciation and amortization............................ 13,219 16,392 21,408
Restructuring charges.................................... -- -- 5,780
Impairment of long-lived assets.......................... 9,543 -- 5,155
---------- ---------- ----------
Total operating expenses......................... 198,361 200,977 248,430
---------- ---------- ----------
Operating income................................. 10,563 34,955 48,172
Interest expense, net...................................... -- -- 2,483
---------- ---------- ----------
Income before provision for income taxes......... 10,563 34,955 45,689
Provision for income taxes................................. 5,977 14,668 18,992
---------- ---------- ----------
Net income....................................... $ 4,586 $ 20,287 $ 26,697
========== ========== ==========
Pro forma earnings per common share........................ $ 0.50
==========
Shares used in computing pro forma earnings per common
share.................................................... 52,896
==========
</TABLE>
4
<PAGE> 5
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL RETAINED
SHARES AMOUNT PAID-IN CAPITAL EARNINGS
------ ------ --------------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1995............................ 1 $ 1 $ 3,866 $ 62,865
Net income............................................ -- -- -- 4,586
------ ---- -------- --------
Balance at December 31, 1995.......................... 1 1 3,866 67,451
Net income............................................ -- -- -- 20,287
------ ---- -------- --------
Balance at December 31, 1996.......................... 1 1 3,866 87,738
Recapitalization in connection with the acquisition of
Capstone Pharmacy Services, Inc..................... 49,999 499 (499) --
Capital contribution from Beverly Enterprises,
Inc. ............................................... -- -- 15,076 --
Issuance of common stock:
Stock issued in connection with acquisition of
Capstone Pharmacy Services, Inc. ................ 34,980 350 377,150 --
Stock issued in connection with acquisition of
Resident Care Pharmacy, Inc. .................... 811 8 9,092 --
Stock issued in connection with exercise of
warrants......................................... 1,800 18 8,882 --
Net income............................................ -- -- -- 26,697
------ ---- -------- --------
Balance at December 31, 1997.......................... 87,591 $876 $413,567 $114,435
====== ==== ======== ========
</TABLE>
5
<PAGE> 6
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 4,586 $ 20,287 $ 26,697
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization.......................... 13,219 16,392 21,408
Restructuring charges.................................. -- -- 5,780
Impairment of long-lived assets........................ 9,543 -- 5,155
Gain on dispositions of assets......................... -- (250) --
Deferred income taxes (benefit)........................ (909) 4,159 (4,879)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable.................................. (4,810) (7,974) (30,471)
Inventories.......................................... 2,282 3,510 (10,581)
Prepaid expenses and other current assets............ 614 (44) 5,419
Accounts payable and accrued expenses................ (2,836) (7,498) 14,202
Accrued restructuring charges........................ -- -- (273)
--------- -------- --------
Total adjustments................................. 17,103 8,295 5,760
--------- -------- --------
Net cash flows from operating activities.................... 21,689 28,582 32,457
--------- -------- --------
Cash Flows from Investing Activities:
Payments for acquisitions, net of cash acquired........... (2,151) (10,835) (19,178)
Proceeds from dispositions................................ -- 2,152 --
Purchases of property and equipment....................... (13,098) (9,616) (15,600)
Other, net................................................ 1,852 329 (4,299)
--------- -------- --------
Net cash flows from investing activities.................... (13,397) (17,970) (39,077)
--------- -------- --------
Cash Flows from Financing Activities:
Advances (to) from former Parent, net..................... (9,716) (5,064) (275,000)
Proceeds from exercise of warrants........................ -- -- 8,900
Proceeds from issuance of long-term obligations........... 143 -- 424,524
Repayments of long-term obligations....................... (877) (1,288) (125,164)
--------- -------- --------
Net cash flows from financing activities.................... (10,450) (6,352) 33,260
--------- -------- --------
Net (decrease) increase in cash and cash equivalents........ (2,158) 4,260 26,640
Cash and cash equivalents, beginning of year................ 5,473 3,315 7,575
--------- -------- --------
Cash and cash equivalents, end of year...................... $ 3,315 $ 7,575 $ 34,215
========= ======== ========
Supplemental Schedule of Cash Flow Information:
Cash paid during the year for:
Interest............................................... $ 35 $ 11 $ 2,716
========= ======== ========
Taxes.................................................. $ -- $ -- $ 6,792
========= ======== ========
</TABLE>
6
<PAGE> 7
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma combining statements of income give
effect to the merger involving Capstone Pharmacy Services, Inc. and Pharmacy
Corporation of America (the "Merger"), a proposed private offering of $300
million of senior subordinated notes (the "Offering") and all acquisitions other
than certain insignificant acquisitions as though they occurred on January 1,
1997. This pro forma information has been prepared utilizing the audited
historical consolidated financial statements of PharMerica for the year ended
December 31, 1997, and the unaudited historical consolidated financial
statements of Capstone for the eleven months ended December 31, 1997. The Merger
was accounted for under the purchase method of accounting and was treated as a
reverse merger/acquisition of Capstone by PCA for accounting and financial
reporting purposes. Therefore, this pro forma information reflects the
adjustment of Capstone's assets and liabilities to their fair values in
accordance with the purchase method of accounting. As a result of this
treatment, the historical financial statements of PharMerica are those of PCA
rather than those of Capstone. This information should be read in conjunction
with the historical consolidated financial statements and notes thereto that
appear elsewhere herein. The pro forma financial data are provided for
comparative purposes only and are not necessarily indicative of the results
which would have occurred had the Merger, the Offering and the described
acquisitions been consummated on January 1, 1997, nor are they necessarily
indicative of future results.
UNAUDITED PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------
ACQUISITION PRO FORMA
PHARMERICA CAPSTONE(1) ADJUSTMENTS(2) ADJUSTMENTS(3) TOTAL
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales......................... $652,179 $284,407 $82,763 -- $1,019,349
Cost of sales..................... 355,577 160,081 53,938 -- 569,596
-------- -------- ------- ------- ----------
Gross profit...................... 296,602 124,326 28,825 -- 449,753
-------- -------- ------- ------- ----------
Operating expenses:
Selling, general and
administrative............... 216,087 91,869 18,784 (3,200)(4) 323,540
Depreciation and amortization... 21,408 9,094 2,799 3,300 (5) 36,601
Restructuring costs............. 5,780 -- -- (5,780)(6) --
Merger related costs............ -- 5,061 -- (5,061)(6) --
Impairment of long-lived
assets....................... 5,155 -- -- (5,155)(6) --
-------- -------- ------- ------- ----------
Total operating expenses..... 248,430 106,024 21,583 (15,896) 360,141
-------- -------- ------- ------- ----------
Income from operations............ 48,172 18,302 7,242 15,896 89,612
Interest expense, net............. 2,483 6,136 5,092 22,385 (7) 36,096
-------- -------- ------- ------- ----------
Income before provision for income
taxes........................... 45,689 12,166 2,150 (6,489) 53,516
Provision for income taxes........ 18,992 5,415 -- (415)(8) 23,992
-------- -------- ------- ------- ----------
Net income........................ $ 26,697 $ 6,751 $ 2,150 $(6,074) $ 29,524
======== ======== ======= ======= ==========
EBITDA............................ $ 126,213(9)
Ratio of EBITDA to interest
expense, net.................... 3.5x
</TABLE>
7
<PAGE> 8
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME
(1) Represents Capstone's actual results of operations for the eleven months
ended November 30, 1997. The remaining month of Capstone's actual results
is included as part of PharMerica's year end results.
(2) Represents the pro forma effects of all material acquisitions made by
Capstone and PCA, other than certain insignificant acquisitions, since
January 1, 1997 as though they occurred on January 1, 1997. The financial
statements underlying a significant number of these acquisitions were not
audited or reviewed by independent public accountants, and, therefore, the
information included herein is generally based on internally prepared
financial statements by the selling entity. 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 teams of the Company and the acquired companies
been combined in prior years.
(3) Represents the pro forma effects of the Merger and the Offering as though
they occurred on January 1, 1997.
(4) Represents the elimination of management fees paid by the Company to
Beverly which will not continue post-Merger.
(5) Represents amortization associated with the excess of purchase price over
the estimated fair value of net assets acquired in the Merger calculated on
a straight line basis over 40 years.
(6) Represents elimination of Merger costs recognized in the operations of
Capstone during the period through the date of Merger and restructuring
charges and impairments of long-lived assets directly related to the Merger
recognized in the operations of the Company during the year ended December
31, 1997.
(7) Represents interest expense on $275.0 million of borrowings under the Bank
Credit Facility used to partially repay PCA's intercompany balance to
Beverly at an effective interest rate of 6.5% plus the incremental interest
expense incurred as a result of the Offering (and use of the proceeds
thereof) at an assumed rate of 8.5%. If the interest rate on the notes
related to the Offering were to increase by 1/2%, pro forma interest
expense would increase by approximately $1.5 million for both of the years
ended December 31, 1996 and December 31, 1997.
(8) Represents the tax effect on the acquisition and pro forma adjustments,
using an incremental tax rate of 40%, after affecting for permanent
differences.
(9) EBITDA is defined as net income before interest expense, income taxes,
depreciation and amortization and non-recurring charges. The EBITDA
calculation does not include any anticipated synergies from the Merger.
EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles and should not be used as an
alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity.
8
<PAGE> 9
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 thereunto duly authorized.
PHARMERICA, INC.
By: /s/ James D. Shelton
-------------------------------
Executive Vice President and Chief Financial
Officer
Date: March 18, 1998
