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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20049
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report (date of earliest event reported): December 3, 1997
PHARMERICA INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 0-20606 11-2310352
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(State or other jurisdiction of (Commissions File Number) (IRS Employer Identification
incorporation) Number)
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3611 Queen Palm Drive, Tampa Florida 33619
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(Address of principal executive offices)
(813) 626-7788
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(Registrant's telephone number, including area code)
9901 East Valley Ranch Parkway, Suite 3001, Irving, Texas 75063
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(former name or former address if changed since last report)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired
(i) Unaudited balance sheet of Pharmacy Corporation of America as
of September 30, 1997, and the related statements of income
and cash flows for the nine months then ended.
(ii) Audited balance sheets of Pharmacy Corporation of America as
of December 31, 1996 and 1995 and the statements of income,
stockholder's equity and cash flows for the years ended
December 31, 1996, 1995 and 1994 are incorporated by reference
to Capstone Pharmacy Services, Inc.'s Form S-4, filed
September 22, 1997.
(b) Pro forma financial information. Pro forma financial data as of and for
the nine months ended September 30, 1997, reflecting the merger of
Capstone Pharmacy Services and Pharmacy Corporation of America. Pro
forma financial data for the year ended December 31, 1996 are
incorporated by reference to Capstone Pharmacy Services, Inc.'s Form
S-4, filed September 22, 1997.
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PHARMACY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(in thousands)
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<CAPTION>
September 30, December 31,
1997 1996
------------- --------------
ASSETS (unaudited) (see Note)
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CURRENT ASSETS:
Cash $ 1,707 $ 7,575
Accounts receivable, net of allowance for doubtful accounts of
$15,261 in 1997 and $13,890 in 1996 113,436 94,461
Inventory 27,510 22,025
Prepaid expenses and other 336 335
-------- --------
Total current assets 142,989 124,396
PROPERTY AND EQUIPMENT, net 38,577 32,698
OTHER ASSETS:
Goodwill, net 288,889 276,430
Other, net 10,157 8,052
-------- --------
Total other assets 299,046 284,482
-------- --------
Total assets $480,612 $441,576
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 16,430 $ 18,017
Accrued wages and related liabilities 7,501 6,656
Other accrued liabilities 7,819 6,621
Current portion of long-term obligations 1,317 968
-------- --------
Total current liabilities 33,067 32,262
LONG-TERM OBLIGATIONS 1,519 1,334
DEFERRED INCOME TAXES PAYABLE 4,079 3,980
DUE TO PARENT 326,709 312,395
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, 1,000 shares issued 1 1
Additional paid-in capital 3,866 3,866
Retained earnings 111,371 87,738
-------- --------
Total stockholder's equity 115,238 91,605
-------- --------
Total liabilities and stockholder's equity $480,612 $441,576
======== ========
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See accompanying notes
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PHARMACY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED INCOME STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited - in thousands)
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NET SALES $456,885
COST OF SALES 247,291
--------
Gross profit 209,594
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OPERATING EXPENSES:
Selling, general and administrative 153,458
Depreciation and amortization 14,930
--------
Total operating expenses 168,388
Income before provision for income taxes 41,206
Provision for income taxes 17,095
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Net income $ 24,111
========
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See accompanying notes
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PHARMACY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited - in thousands)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,111
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation and amortization 14,930
Deferred taxes 99
Changes in operating assets and liabilities, net of acquisitions and
dispositions:
Accounts receivable (15,827)
Inventory (4,027)
Prepaid expenses and other receivables 64
Accounts payable and other accrued expenses 456
--------
Net cash flows from operating activities 19,806
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired (27,589)
Capital expenditures (12,328)
Other, net (366)
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Net cash flows from investing activities (40,283)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (to) from Parent, net 14,075
Repayments of long-term obligations 534
--------
Net cash flows from financing activities 14,609
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NET DECREASE IN CASH AND CASH EQUIVALENTS (5,868)
CASH AND CASH EQUIVALENTS, beginning of period 7,575
--------
CASH AND CASH EQUIVALENTS, end of period $ 1,707
========
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See accompanying notes
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PHARMACY CORPORATION OF AMERICA
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(unaudited)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS:
The condensed consolidated financial statements included herein have been
prepared by Pharmacy Corporation of America ("PCA"), without audit, and include
all adjustments of a normal recurring nature which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the nine months ended September 30, 1997 pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although PCA believes that the
disclosures in these condensed consolidated financial statements are adequate to
make the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with PCA's December 31,
1996 consolidated financial statements and the notes thereto. The results of
operations for the nine months ended September 30, 1997 are not necessarily
indicative of the results for a full year. Unless the context indicates
otherwise, PCA means Pharmacy Corporation of America and its consolidated
subsidiaries.
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.
2. ACQUISITIONS:
During the nine months ended September 30, 1997, PCA purchased 14 pharmacies for
approximately $27,600,000 in cash. The operations of these pharmacies were
immaterial to PCA's financial position and results of operations.
3. CONTINGENCIES:
There are various lawsuits and regulatory actions pending against PCA arising in
the normal course of business, some of which seek punitive damages. PCA does not
believe that the ultimate resolution of these matters will have a material
adverse effect on PCA's consolidated financial position or results of
operations.
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4. RELATED PARTY TRANSACTIONS:
PCA 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 $64,216,000 for
the nine months ended September 30, 1997.
Beverly provides certain administrative services to PCA. These services have
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 PCA in
mid-1996 as part of a consolidation and reorganization of PCA's accounting and
related functions. Substantially all cash received by PCA is deposited daily and
wired to Beverly's corporate cash account. In turn, all of PCA's operating
expenses, capital expenditures and other cash needs are paid by Beverly, and
charged back to PCA along with a management fee for handling such services. Fees
for these services amounted to approximately $2,618,000 for the nine months
ended September 30, 1997. PCA believes that the charges for services provided by
Beverly to PCA are a reasonable allocation of the costs incurred by Beverly on
behalf of PCA in providing these services; however, such costs are not
necessarily indicative of the costs that would have been incurred if PCA
operated as a stand-alone entity.
The net result of all intercompany transactions between PCA and Beverly is
recorded in the "Due to Parent" account in the accompanying condensed
consolidated balance sheets. There are currently no required repayment terms for
this account nor do such amounts bear interest.
5. SUBSEQUENT EVENTS
In April 1997, Beverly Enterprises, Inc. ("Beverly") entered into a definitive
agreement with Capstone Pharmacy Services, Inc. ("Capstone") to combine PCA, a
wholly-owned subsidiary of Beverly, with Capstone (the "Merger") to create one
of the nation's largest independent institutional pharmacy companies. The
transaction closed on December 3, 1997, concurrently the combined company
changed its name from Capstone Pharmacy Services, Inc. to PharMerica, Inc.
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PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL DATA
From January 1, 1996 through December 3, 1997, PharMerica, Inc. (the "Company")
acquired several institutional pharmacy and pharmacy service companies. These
acquisitions consist of the following:
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IMD Corporation February 1996
DC Med, Inc. July 1996
Symphony Pharmacy Services, Inc. July 1996
Happy Harry's Inc. October 1996
Institutional Pharmacy, Inc. December 1996
Clinical Care - SNF Pharmacy, Inc. January 1997
Portaro Pharmacies, Inc. January 1997
Alger Health Services, Inc. January 1997
Pennsylvania Prescriptions, Inc. March 1997
Macromed March 1997
Pharmacare, Inc. March 1997
Willowwood April 1997
Care Health Systems, Inc. May 1997
Med-Tec Pharmaceutical Services, Inc. September 1997
Pharmacy Corporation of America December 1997
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The following unaudited pro forma income statement data for the nine months
ended September 30, 1997 have been prepared based on historical income
statements of the Company, as adjusted to reflect the acquisitions of the above
listed companies as if each had occurred on January 1, 1997. The pro forma
income statement data may not be indicative of the future results of operations
of or what the actual results of operations would have been had the acquisitions
described above been effective January 1, 1997 and 1996.
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PHARMERICA, INC.
PRO FORMA INCOME STATEMENT DATA
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
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<CAPTION>
PharMerica,
Inc.
(formerly
Capstone
Pharmacy
Services, Total
Inc.) per Pharmacy Acquired Pro Forma
Form Corporation of Companies Pro Forma Income
10-Q America (1) Adjustments Statement
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Net sales $ 228,048 $ 456,885 $ 13,605 -- $ 698,538
Cost of sales (127,354) (247,291) (8,500) -- (383,145)
--------- --------- -------- -------- ---------
Gross profit 100,694 209,594 5,105 -- 315,393
Selling, general and
administrative expense 73,481 153,339 4,475 (2,695) 228,600
Depreciation and amortization (2) 7,547 14,930 174 3,329 25,980
Merger related costs(3) 3,525 -- -- (3,525) --
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Total operating expenses 84,553 168,269 4,649 (2,891) 254,580
Income from operations 16,141 41,325 456 2,891 60,813
Nonoperating expense:
Interest expense (4) 4,578 219 95 13,293 18,185
Other income -- (100) 229 (215) (86)
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Total nonoperating expense 4,578 119 325 13,078 18,099
Income before taxes 11,563 41,206 131 (10,187) 42,714
Provision for income taxes(5) 5,415 17,095 -- (3,979) 18,531
--------- --------- -------- -------- ---------
Net income $ 6,148 $ 24,111 $ 131 $ (6,208) $ 24,183
========= ========= ======== ======== =========
Earnings per share $ 0.28
=========
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(1) Reflects the above listed acquisitions as if they had occurred on January 1,
1997. The financial results for the acquired companies represent the
historical results of those companies and are not necessarily reflective of
their financial performance subsequent to their acquisition by PharMerica,
Inc.
(2) Reflects the amortization of goodwill related to the above listed
acquisitions over 40 years.
(3) Reflects the reversal of non-recurring merger related expenses incurred by
Capstone
(4) Reflects additional interest expense incurred on debt financed to acquire
the above listed acquisitions.
(5) Adjusts the effective tax rate to 43%
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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
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Executive Vice President and Chief Financial
Officer
Date: February 16, 1998
