<PAGE>
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): October 11, 1996
Genesis Health Ventures, Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 1-11666 06-1132947
- ------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
148 West State Street, Suite 100
Kennett Square, Pennsylvania 19348
- ------------------------------------------------------------------------------
(Address of principal executive offices,
including zip code)
Registrant's telephone number, including area code: (610) 444-6350
-------------
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On October 11, 1996, Genesis Health Ventures, Inc. ("Genesis")
and its wholly-owned subsidiary G Acquisition Corporation ("Newco") consummated
an Agreement and Plan of Merger (the "Merger Agreement") with Geriatric &
Medical Companies, Inc. ("GMC"). Pursuant to the Merger Agreement, Newco merged
into GMC and GMC became a wholly-owned subsidiary of Genesis (the "Merger").
Each share of GMC common stock was converted into the right to receive $5.75 in
cash, subject to statutory appraisal rights. The total consideration paid to
stockholders of GMC to acquire their shares (including shares which may have
been issued upon exercise of outstanding warrants, options and long-term
incentive plans) was approximately $93.9 million. Prior to the Merger, GMC had
outstanding approximately $133.1 million of indebtedness which included
approximately $87.6 million which the Company loaned to GMC immediately prior to
consummation of the Merger to repay $82.8 million principal amount of
indebtedness and to pay related prepayment expenses. The cash portion of the
purchase price and the loan to GMC were provided through the sale by the Company
on October 7, 1996 of $125,000,000 of 9-1/4% Senior Subordinated Notes due 2006
and borrowing under its Bank Credit Facility.
GMC owns and operates 18 long-term care facilities and six
assisted living facilities with approximately 3,000 licensed beds; 11 of these
facilities are located in the eastern Pennsylvania market and 13 are
located in New Jersey. GMC also operates an ambulance transportation business, a
medical supply business, a pharmacy business, a contract management service
business, a diagnostic and rehabilitative management services business and a
financial services and information systems business. In addition, GMC currently
is developing two long-term care facilities with approximately 240 beds.
In connection with the Merger, Daniel Veloric, Chairman of the
Board, President and the principal beneficial stockholder of GMC, and certain
companies which he controls entered into an agreement in principle with Genesis
for Genesis to manage a long-term care facility located in New Jersey with 335
licensed beds (the "New Jersey Facility"). The Management Agreement is expected
to provide that Genesis receive a management fee of 6% of annual revenues and
that the owner receive payments of $26,667 per month. Genesis is also expected
to provide certain working capital loans to the New Jersey Facility. Mr. Veloric
and certain companies which he controls have also agreed in principle to sell to
Genesis for $1,000,000 and $500,000 respectively five year options to acquire
the stock of the companies which own the New Jersey Facility and certain excess
land adjacent to the New Jersey Facility for $5,000,000 (plus the assumption of
outstanding debt) and $2,500,000, respectively (with the option payments being
deducted against the respective purchase prices).
-2-
<PAGE>
Incident to Genesis' acquisition of GMC, an agreement in
principle has been reached, without any admission of wrongdoing, with the United
States Attorney's Office for the Eastern District of Pennsylvania and other
governmental agencies and third parties to settle claims related to alleged
improper billings by GMC's ambulance transportation subsidiary. The aggregate
amount of the settlement is within the amount that has previously been withheld
by governmental authorities.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
a. Financial Statements of business to be acquired
Geriatric & Medical Companies, Inc. and Subsidiaries
*Independent Auditors' Report
*Consolidated Balance Sheets as of May 31, 1996
*Consolidated Statements of Operations for the years
ended May 31, 1995 and 1996
*Consolidated Statements of Shareholders' Equity for the
years ended May 31, 1995 and 1996
*Consolidated Statements of Cash Flows for the years
ended May 31, 1995 and 1996
*Notes to Consolidated Financial Statements
b. Pro Forma Financial Information
Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended September 30, 1995 and the nine
months ended June 30, 1996
Unaudited Pro Forma Condensed Consolidated Balance Sheet
at June 30, 1996
c. Exhibits
-3-
<PAGE>
The following Exhibits are filed herewith:
Number Title
*1. Agreement and Plan of Merger, dated as of
July 11, 1996, by and among Genesis Health
Ventures, Inc., a Pennsylvania corporation,
G Acquisition Corporation, a Delaware
corporation and Geriatric & Medical
Companies, Inc., a Delaware corporation.
- --------
*Incorporated by reference to Genesis Health Ventures, Inc.'s
Current Report on Form 8-K/A dated July 11, 1996.
-4-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
The following Unaudited Pro Forma Condensed Consolidated Statement of
Operations gives effect to: (i) the acquisition by the Company of McKerley
Health Care Centers, Inc. and certain related entities (colectively, "McKerley")
in November 1995 (the "McKerley Transaction"); (ii) the acquisition of the
pharmacy healthcare services businesses of NeighborCare Pharmacies, Inc. and
certain related entities (collectively, "NeighborCare") in June 1996 (the
"NeighborCare Transaction"); (iii) the acquisition of the outstanding stock of
National Health Care Affiliates, Inc. and certain related entities
(collectively, "National Health") and certain related transactions in July 1996
(the "National Health Transaction"); (iv) the sale by the Company of 6,500,000
shares of Common Stock in May 1996 (the "1996 Equity Offering") and the
application of the net proceeds therefrom; (v) the merger of Geriatric & Medical
Companies, Inc. ("GMC") with a wholly-owned subsidiary of Genesis in July 1996
(the "GMC Transaction"); and (iv) the sale of the Company of $125,000,000 of
9 1/4% Senior Subordinated Notes Due 2006 in October 1996 (the "Offering") and
the application of the net proceeds therefrom as if each had occurred at the
beginning of the periods presented.
The pro forma condensed statements of operations are based upon assumptions
and include adjustments as described in the notes below. The pro forma
information should be read in conjunction with the Company's historical
consolidated financial statements, McKerley's historical combined financial
statements, National Health's historical combined financial statements and GMC's
historical combined financial statements. The column entitled "McKerley
Historical Results" represents the historical combined results of McKerley for
the year ended November 30, 1995. The column entitled "McKerley Historical
Results" for the nine months ended June 30, 1996 represents the two months ended
November 30, 1995. As a result of the differing year ends of Genesis and
McKerley, the two months ended November 30, 1995 are included in both periods.
The historical financial statements of NeighborCare for the year ended July 2,
1995 and the seven months ended April 30, 1996 are included in the columns
"NeighborCare" in the tables below. The historical combined financial statements
of National Health for the year ended December 31, 1995 and for the nine months
ended June 30, 1996 are included in the columns "National Health" in the tables
below. As a result of the differing year ends of Genesis and National Health,
the three months ended December 31, 1995 is included in both periods. The column
entitled "GMC Historical Results" for the year ended September 30, 1995
represents the historical results of GMC for the year ended May 31, 1995. The
column entitled "GMC Historical Results" for the nine months ended June 30, 1996
represents the historical results of GMC for the nine months ended May 31, 1996.
For purposes of this presentation, an effective tax rate of 37% has been assumed
for McKerley, NeighborCare, National Health and GMC, for the historical results,
and the resulting pro forma adjustments and offering adjustments. Such data is
not necessarily indicative of the historical financial results that would have
been achieved had the acquisitions occurred at the beginning of the periods
presented or that may be expected to result in the future as a result of such
transactions.
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30, 1995
--------------------------------------------------------------------------------------------------------
National National
Genesis McKerley McKerley NeighborCare NeighborCare Health Health
Historical Historical Pro Forma Historical Pro Forma Historical Pro Forma
Results Results Adjustments Results Adjustments Results Adjustments
---------- ---------- -------------- ------------ -------------- ---------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues ......... $486,393 $57,266 $ 114 (A)(B)(C) $52,751 $ -- $108,785 $(22,949)(L)(P)
Operating expense:
Operating expenses other
than depreciation,
amortization and lease
expense ............ 393,139 52,069 (6,063)(A)(D) 51,986 (1,849)(I)(K) 92,990 (26,435)(L)(O)(P)
Depreciation and
amortization ....... 18,793 1,900 1,079 (F) -- 2,547 (J) 4,055 1,067 (L)(M)
Lease expense ........ 13,798 2,759 (1,244)(G) -- -- 3,176 4,716 (L)(N)
Interest expense, net . 20,367 4,200 1,625 (A)(E) 1,276 1,880 (H) 6,177 (1,498)(L)(N)
--------- --------- ---------- --------- -------- --------- --------
Earnings from operations
before income taxes and
extraordinary items . 40,296 (3,662) 4,717 (511) (2,578) 2,387 (799)
--------- --------- ---------- --------- -------- --------- --------
Earnings from operations
before extraordinary
items .............. $ 25,531 $(2,307) $ 2,972 $ (322) $(1,624) $ 1,504 $(503)
--------- --------- ---------- --------- -------- --------- --------
Fully diluted earnings
per share before
extraordinary items . $1.03
Weighted average common
shares and equivalents 28,452 308 (H)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Consolidated Consolidated
Genesis/McKerley/ Genesis/McKerley/
NeighborCare/ NeighborCare/
National Health National Health/
1996 Results Adjusted GMC Results
Equity for GMC GMC Adjusted for 1996
Offering 1996 Equity Historical Pro Forma Offering Equity Offering
Adjustment Offering Results Adjustments Adjustment and Offering
----------- ------------------- ---------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues ........... $ -- $682,360 $192,234 $ -- $ -- $874,594
Operating expense:
Operating expenses other
than depreciation,
amortization and lease
expense ............... -- 555,837 163,769 (617)(S)(T) -- 718,989
Depreciation and
amortization .......... -- 29,441 8,734 -- -- 38,175
Lease expense .......... -- 23,205 -- -- -- 23,205
Interest expense, net .. (13,720)(Q) 20,307 14,666 4,987(S)(U) (2,368)(V) 37,592
--------- --------- ---------- -------- -------- --------
Earnings from operations
before income taxes and
extraordinary items ... 13,720 53,570 5,065 (4,370) 2,368 56,633
--------- --------- ---------- -------- -------- --------
Earnings from operations
before extraordinary
items ................. $ 8,644 $ 33,895 $ 3,191 $(2,753) $ 1,492 $ 35,825
--------- --------- ---------- -------- -------- --------
Fully diluted earnings per
share before
extraordinary items ... $1.12
Weighted average common
shares and equivalents . 6,500 35,260
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Nine Months ended June 30, 1996
---------------------------------------------------------------------------------------------------------
National National
Genesis McKerley McKerley NeighborCare NeighborCare Health Health
Historical Historical Pro Forma Historical Pro Forma Historical Pro Forma
Results Results Adjustments Results Adjustments Results Adjustments
---------- ---------- ------------- - ------------ ------------- ---------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues ......... $460,354 $ 9,671 $ 204(A)(B)(C) $39,765 $ -- $92,092 $(24,764)(L)(P)
Operating expenses:
Operating expenses other
than depreciation,
amortization and lease
expense ............ 373,041 11,537 (3,820)(A)(D) 36,697 (1,078)(I)(K) 79,865 (27,635)(L)(O)(P)
Debenture conversion
expense ............ 1,245 -- -- -- -- -- --
Depreciation and
amortization ....... 17,883 323 180 (F) 506 1,485(J) 3,556 286 (L)(M)
Lease expense ........ 11,948 460 (207)(G) 857 -- 2,617 3,389 (L)(N)
Interest expense, net . 19,104 1,158 (201)(A)(E) 1,171 671(H) 4,898 (1,432)(L)(N)
--------- --------- -------- -------- -------- -------- -------
Earnings from operations
before taxes and
extraordinary items . 37,133 (3,807) 4,252 534 (1,078) 1,156 628
--------- --------- -------- -------- -------- -------- -------
Earnings from operations
before extraordinary
items .............. $ 23,759 $(2,398) $2,678 $ 336 $ (679) $ 728 $ 396
--------- --------- -------- -------- -------- -------- -------
Fully diluted earnings
per share before
extraordinary items
and Debenture
conversion expense . $0.91
Weighted average common
shares and equivalents 29,359 239(H)
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Pro Forma
Consolidated
Pro Forma Genesis/McKerley/
Consolidated NeighborCare/
Genesis/McKerley/ National Health/
1996 NeighborCare/ GMC Results
Equity National Health GMC GMC Adjusted for 1996
Offering Results Adjusted Historical Pro Forma Offering Equity Offering
Adjustment for 1996 Equity Offering Results Adjustments Adjustment and Offering
---------- ------------------------ ---------- ---------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues ........... $ -- $577,322 $145,787 $ -- $ -- $723,109
Operating expenses:
Operating expenses other
than depreciation,
amortization and lease
expense ............... -- 468,607 125,455 (2,353)(R)(S)(T) 591,709
Debenture conversion
expense ............... -- 1,245 -- -- -- 1,245
Depreciation and
amortization .......... -- 24,219 6,537 -- -- 30,756
Lease expense .......... -- 19,064 -- -- -- 19,064
Interest expense, net .. (8,831)(Q) 16,538 12,408 2,210(R)(S)(U) (1,776)(V) 29,380
-------- --------- ---------- ------- -------- -------
Earnings from operations
before taxes and
extraordinary items ... 8,831 47,649 1,387 143 1,776 50,955
-------- --------- ---------- ------- -------- -------
Earnings from operations
before extraordinary
items ................. $ 5,563 $ 30,383 $ 874 $ 90 $ 1,119 $ 32,466
-------- --------- ---------- ------- -------- -------
Fully diluted earnings per
share before
extraordinary items and
Debenture conversion
expense ............... $1.01
Weighted average common
shares and equivalents . 5,958 35,556
</TABLE>
-6-
<PAGE>
PRO FORMA ADJUSTMENTS ARE AS FOLLOWS:
MCKERLEY TRANSACTION
(A) The historical financial statements of McKerley include unusual,
nonrecurring charges related to a provision to properly state certain
insurance program liabilities, record a loss related to the termination
of an interest rate swap agreement and to write off certain other
long-term assets.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Revenues, net ......................................... $ 204 $ 204
Operating expenses other than depreciation,
amortization and lease expense ....................... (3,248) (3,248)
Interest expense, net ................................. $ (566) $ (566)
</TABLE>
(B) Effective October 1, 1995 the State of New Hampshire issued a reduction
in payment rates under the Medical Assistance program. The annualized
impact of this rate reduction is approximately $1,500,000.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Revenues, net ................ $(1,500) --
</TABLE>
(C) The former owners have agreed to pay certain Genesis subsidiaries for
marketing and other services for approximately two years with annual
payments of approximately $900,000. The former owners also agreed to
lease 30,000 square feet of office space from the Company for
approximately two years at an annual rate of $510,000.
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
Revenues, net ............. $1,410 --
(D) As a result of the McKerley Transaction, corporate overhead functions
related to the prior owners, certain nursing staff and regional
management of the nursing facilities will be merged. The Company has
identified duplicative positions and the costs associated with such
positions, and plans to eliminate these costs according to a transition
plan within one year of the acquisition.
Salary costs and other payments associated with certain McKerley
principals who will not be joining Genesis have been identified and
eliminated, as well as costs associated with other management positions
which have already been vacated and will not be replaced. Support staff
associated with these positions have also been eliminated.
The components of the savings expected upon merging McKerley's operations
into Genesis are as follows:
<TABLE>
<CAPTION>
Annual Cost Nine Months Cost
------------- ----------------
(In thousands)
<S> <C> <C>
Principal salaries, payments and cost of support
personnel .............................................. $(1,693) $(418)
Management to be eliminated due to overlap, and vacated
management positions not to be replaced ................ (622) (104)
Personnel reduction in operating staff to eliminate
duplicative positions .................................. (500) (50)
------------- ----------------
$(2,815) $(572)
============= ================
</TABLE>
-7-
<PAGE>
The impact of the savings has been reflected in a pro forma adjustment as
follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C>
Operating expenses other than depreciation,
amortization and lease expense ....................... $(2,815) $(572)
</TABLE>
(E) The McKerley Transaction was financed with borrowings under the Company's
bank credit facilities aggregating approximately $68,700,000. The Company
has repaid approximately $27,000,000 of assumed McKerley debt. The
Company has also assumed a mortgage obligation of approximately
$9,100,000 which was not immediately repaid. Interest rate assumptions
are 7.25% for the Company's borrowing under its bank credit facilities.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Interest expense, net:
Interest expense -- bank facilities ............... $ 4,930 $ 822
Elimination of historical McKerley remaining
interest expense ............................... (2,739) (457)
------------------ -----------------
$ 2,191 $ 365
================== =================
</TABLE>
(F) In accordance with generally accepted accounting principles, the net
assets acquired are recorded at the lower of purchase price or fair
value. The estimated fair value adjustments have been determined based on
the most recent information available. The resultant excess of purchase
price over fair value of net assets acquired is required to be amortized.
The pro forma adjustment to reflect the increased depreciation and
amortization is as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Depreciation and amortization expense... $1,079 $180
</TABLE>
(G) The former owners have agreed to make certain lease payments on behalf of
the Company with respect to certain lease obligations of the McKerley
entities. The following pro forma adjustment reflects the impact of
recognizing the resulting lease expense on a straight line basis over the
remaining lease term:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Lease expense .......... $(1,244) $(207)
</TABLE>
-8-
<PAGE>
NEIGHBORCARE TRANSACTION
(H) A portion of the NeighborCare Transaction will be financed with
borrowings under the Company's bank credit facilities aggregating
approximately $47,250,000. Genesis expects to repay approximately
$18,000,000 of NeighborCare debt assumed in the transaction. Interest
rate assumptions are 6.8% for the Company's borrowings under its credit
facilities.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Interest expense, net:
Interest expense -- bank facilities ............... $ 3,171 $ 1,842
Elimination of historical NeighborCare remaining
interest expense ............................... (1,291) (1,171)
------------------ -----------------
$ 1,880 $ 671
================== =================
</TABLE>
Adjustment to reflect the issuance of $10,000,000 of Genesis Common Stock
as a portion of the consideration. The stock issuance price has been
estimated at $32.50 per share resulting in the issuance of 307,692 shares.
(I) As a result of the NeighborCare Transaction, corporate and administrative
overhead functions related to the prior ownership structure will be
merged. Accordingly, Genesis has identified duplicative physical
locations which will be merged into existing Genesis pharmacy and medical
supply locations.
<TABLE>
<CAPTION>
Annual Cost Nine Months Cost
------------- ----------------
(In thousands)
<S> <C> <C>
Consolidation of institutional pharmacy locations ....... $ (300) $(175)
Consolidation of medical supply division ................ (300) (175)
Personnel reduction in operating staff to eliminate
duplicative positions .................................. (615) (360)
Other operating costs including legal and accounting
fees, advertising and office expense ................... (474) (275)
------------- ----------------
$(1,689) $(985)
============= ================
</TABLE>
The impact of the savings has been reflected in a pro forma adjustment as
follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Operating expenses other than depreciation,
amortization and lease expense ....................... $(1,689) $(985)
</TABLE>
(J) In accordance with generally accepted accounting principles, the net
assets acquired are recorded at the lower of purchase price or fair
value. The estimated fair value adjustments have been determined based on
the most recent information available. The resultant excess of purchase
price over fair value of net assets acquired is required to be amortized.
The elimination of historical depreciation expense is the result of
certain assets not being acquired by Genesis. The pro forma adjustment to
reflect the net increased depreciation and amortization is as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Impact of step-up and allocation of goodwill . $2,706 $1,578
Elimination of historical depreciation expense (159) (93)
------------------ -----------------
Depreciation and amortization ................ $2,547 $1,485
================== =================
</TABLE>
-9-
<PAGE>
(K) In connection with the NeighborCare Transaction, certain corporate office
and furniture and fixture leases will be terminated. The pro forma
adjustment to reflect this is as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Operating expenses other than depreciation,
amortization and lease expense ....................... $(160) $(93)
</TABLE>
NATIONAL HEALTH TRANSACTION
(L) In connection with the National Health Transaction certain assets and
liabilities were not acquired by Genesis. Additionally, certain
businesses, including home health care, infusion therapy and assisted
living facilities in New York State were not acquired. The statement of
operations data from these assets is presented in a pro forma footnote
below:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Net Revenues ......................................... $(24,949) $(26,264)
Operating expenses other than depreciation,
amortization and lease expense ...................... (27,375) (28,340)
Depreciation and amortization ........................ (1,290) (1,453)
Lease expense ........................................ (233) (323)
Interest expense, net ................................ (1,124) (1,151)
</TABLE>
(M) In accordance with generally accepted accounting principles, the net
assets acquired are recorded at the lower of the purchase price or fair
value. The estimated fair value adjustments have been determined based on
the most recent information available. The resultant excess of purchase
price over fair value of net assets acquired is required to be amortized.
The pro forma adjustment to reflect the increased depreciation and
amortization is as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Depreciation and amortization...... $2,357 $1,739
</TABLE>
(N) The National Health Transaction was financed by Genesis with borrowings
under its bank credit facilities aggregating approximately $51,800,000.
Genesis repaid approximately $36,200,000 of indebtedness assumed upon
consummation of the transaction. The Company also assumed mortgage
obligations of approximately $7,900,000 which were not repaid. Interest
rate assumptions are 6.8% for the Company's borrowing under its bank
credit facilities.
Prior to the closing of the stock acquisitions, an affiliate of a
financial institution purchased nine of the National Health eldercare
centers and subsequently leased the centers to a subsidiary of Genesis
under operating lease agreements.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Interest expense, net:
Interest expense-bank facility .................. $ 3,619 $ 2,714
Elimination of historical National Health
remaining expense ............................ (3,993) (2,995)
------------------ -----------------
$ (374) $ (281)
================== =================
Lease expense ................................... $ 4,949 $ 3,712
</TABLE>
-10-
<PAGE>
(O) Genesis has identified certain cost saving opportunities in connection
with the National Health Transaction. The Company has identified
duplicative positions and the costs associated with such positions, and
plans to eliminate these costs according to a transition plan within one
year of the acquisition.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Reduction in contract labor services .................... $(108) $ (81)
Personnel reduction in operating staff to eliminate
duplicative positions .................................. (252) (189)
------------------ -----------------
$(360) $(270)
================== =================
</TABLE>
(P) Genesis has identified certain revenue synergies relating to its
pharmacy, medical supply and group purchasing businesses. These services
are currently not provided by Genesis to National Health facilities nor
does National Health have the businesses to deliver these services.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
Revenues, net ........................................ $2,000 $1,500
Operating expenses other than depreciation,
amortization and lease expense ...................... 1,300 975
------------------ -----------------
Net impact ......................................... $ 700 $ 525
================== =================
</TABLE>
1996 EQUITY OFFERING ADJUSTMENT
(Q) Adjustment to reflect the application of the net proceeds of the 1996
Equity Offering to repay indebtedness under the Company's bank credit
facilities which currently bear interest at a weighted average annual
rate of approximately 6.8%.
Year Ended Nine Months Ended
September 30, 1995 June 30, 1996
------------------ -----------------
(In thousands)
Interest, net .......... $(13,720) $(8,831)
GMC TRANSACTION
(R) The historical financial statements of GMC include unusual, non-recurring
charges related to a provision to increase allowance for doubtful
accounts, the settlement of a matter relating to reimbursement for
nutritional services provided at a nursing facility previously managed by
a GMC subsidiary and an amount recorded relating to a class action suit.
The historical financial statements also include non-recurring charges
related to additional interest incurred under GMC's credit facility and a
discount on a note receivable.
<TABLE>
<CAPTION>
Year Ended
September 30, Nine Months Ended
1995 June 30, 1996
----------------- -----------------
(In thousands)
<S> <C> <C>
Operating expenses other than depreciation,
amortization and lease expense ....................... -- $(2,300)
Interest, net ......................................... -- (1,121)
</TABLE>
-11-
<PAGE>
(S) The historical financial results include a provision for costs on the
sale of accounts receivable, which is included in the interest expense
line item. The following pro forma adjustment represents the
reclassification of the portion of the provision that relates to
operating expenses:
<TABLE>
<CAPTION>
Year Ended
September 30, Nine Months Ended
1995 June 30, 1996
----------------- -----------------
(In thousands)
<S> <C> <C>
Operating expenses other than depreciation,
amortization and lease expense ....................... $ 1,383 $ 1,447
Interest expense, net ................................. (1,383) (1,447)
</TABLE>
(T) As a result of the GMC Transaction, certain corporate and administrative
overhead functions related to the prior ownership structure will be
merged. Genesis has identified duplicative physical locations which will
be merged into existing Genesis administrative locations.
<TABLE>
<CAPTION>
Nine Months
Annual Cost Cost
------------ ---------------
(In thousands)
<S> <C> <C>
Personnel reduction in operating staff to eliminate
duplicative position ................................... $(1,000) $ (750)
Other operating costs including legal and accounting
fees, advertising and office expense ................... (1,000) (750)
---------- --------
$(2,000) $(1,500)
========== ========
</TABLE>
The impact of the savings have been reflected in a pro forma adjustment
as follows:
<TABLE>
<CAPTION>
Year Ended
September 30, Nine Months Ended
1995 June 30, 1996
----------------- -----------------
(In thousands)
<S> <C> <C>
Operating expenses other than depreciation,
amortization and lease expense ....................... $(2,000) $(1,500)
</TABLE>
(U) A portion of the purchase price was financed with borrowings under the
Company's bank credit facility of approximately $91,000,000. Interest rate
assumptions are 6.8% for the Company's borrowings:
Year Ended
September 30, Nine Months Ended
1995 June 30, 1996
----------------- -----------------
(In thousands)
Interest expense -- bank
facilities ..................... $6,370 $4,778
OFFERING ADJUSTMENT
(V) Adjustment to reflect the application of the net proceeds of the Offering
to repay a portion of assumed GMC term indebtedness ($108,000,000 at a
weighted average rate of 12.25%) and other GMC indebtedness ($10,000,000
at a weighted average rate of 7%). The assumed rate of this Offering is
9.25%.
Year Ended Nine Months Ended
September 30,
1995 June 30, 1996
----------------- -----------------
(In thousands)
Interest expense, net:
Interest expense -- offering ... $ 11,562 $ 8,672
Eliminate historical interest
expense ...................... (13,930) (10,448)
---------- -----------
$ (2,368) $ (1,776)
=========== ===========
-12-
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet
includes the historical consolidated condensed balance sheet of the Company
at June 30, 1996 and the pro forma adjustments to reflect the National Health
Transaction, the GMC Transaction, as adjusted to reflect the Offering and the
application of the estimated net proceeds as if they occurred on June 30,
1996. The pro forma adjustments should be read in conjunction with the
Company's historical consolidated financial statements, National Health's
historical combined financial statements and GMC's historical combined
financial statements.
<TABLE>
<CAPTION>
Pro Forma,
As Adjusted
Pro Forma Consolidated
National Pro Forma Genesis/
National Health GMC National
Genesis Health Adjustments GMC Adjustments Health/GMC
-------- --------- ------------ --- ------------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Current assets................. $297,009 $23,401 $(9,108)(A) $75,834 $ -- $387,136
Property and equipment, net .. 313,388 58,608 7,346 (A)(D) 93,042 73,325(E) 545,709
Other assets ................. 267,951 13,795 (7,426)(A)(D) 22,808 44,000(E) 341,128
------- ------ ------ ------ ------ -------
Total assets ................. $878,348 $95,804 $(9,188) $191,684 $117,325 $1,273,973
======== ======= ======= ======== ======== ==========
Current liabilities .......... $ 69,410 $21,777 $(3,349)(A)(B)(C) $ 37,951 $ (5,820)(F)(G) $ 119,969
Long term debt, excluding
current maturities .......... 295,897 68,826 (1,158)(A)(B) 130,775 101,025 (G) 595,365
Other liabilities ............ 12,803 -- 520 (C) 4,078 41,000 (E) 58,401
Shareholders' equity ......... 500,238 5,201 (5,201)(A)(D) 18,880 (18,880)(E) 500,238
------- ------ ------ ------ ------ -------
Total liabilities and
shareholders' equity ........ $878,348 $95,804 $(9,188) $191,684 $117,325 $1,273,973
======== ======= ======= ======== ======== ==========
</TABLE>
Pro forma adjustments are as follows:
NATIONAL HEALTH TRANSACTION
(A) The assets and liabilities of National Health not acquired or assumed by
Genesis in the National Health Transaction are eliminated in a pro forma
adjustment as follows:
(In thousands)
Current assets ...................................... $(9,108)
Property and equipment ............................. (9,686)
Other assets ....................................... (11,141)
-------
Total assets ....................................... $(29,935)
========
Current liabilities ................................ $ (5,249)
Long term debt, excluding current
maturities ....................................... (16,758)
Other liabilities ................................. --
Shareholders' equity .............................. (7,928)
-------
Total liabilities and shareholders' equity $(29,935)
========
(B) The National Health Transaction was financed by Genesis with borrowings
under its bank credit facilities of approximately $51,800,000 which
includes the repayment of approximately $36,200,000. Additionally,
Genesis assumed existing indebtedness of approximately $7,900,000 which
was not repaid immediately. The impact of the borrowings under the bank
credit facilities is reflected in the following pro forma adjustment:
(In thousands)
Current liabilities ..................................... $ (100)
Long term debt, excluding current maturities ........... 15,600
-13-
<PAGE>
(C) Transaction costs which include professional fees, duplicative salary
costs and severance, taxes and title costs and certain other costs
incurred or to be incurred in order to consummate the transaction will be
accrued, net of tax benefits, in the amount of $2,520,000. The following
pro forma adjustment represents the accrual for these costs:
(In thousands)
Current liabilities ......................................... $2,000
Other liabilities .......................................... 520
(D) Purchase accounting adjustments include the following allocations:
(In thousands)
Property and equipment, net .................................. $17,032
Other assets ................................................ 3,715
Shareholders' equity ........................................ 2,727
GMC TRANSACTION
(E) Purchase accounting adjustments include the following allocations:
(In thousands)
Property and equipment, net .............................. $72,345
Other assets ............................................ 44,000
Other liabilities ....................................... 41,000
Shareholders' equity .................................... (18,880)
(F) Transaction costs which include professional fees, duplicative salary
costs and severance, taxes and title costs and certain other costs
incurred or to be incurred in order to consummate the transaction will be
accrued in the amount of $8,000,000. The following pro forma adjustment
represents the accrual for these costs:
(In thousands)
Current liabilities ....................................... $8,000
(G) The GMC Transaction was financed by the payment of $93,900,000
representing the equity purchase price, the repayment of approximately
$90,000,000 of existing indebtedness and the assumption of approximately
$47,900,000 of other indebtedness. The following pro forma adjustment
represents the incremental debt incurred in the transaction and reflects
the repayment of certain GMC indebtedness with the net proceeds of the
Offering:
(In thousands)
Current liabilities ..................................... $ (8,820)
Long-term debt .... .................................... 101,025
-14-
<PAGE>
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.
GENESIS HEALTH VENTURES, INC.
By: /s/ George V. Hager, Jr.
---------------------------------
George V. Hager, Jr.
Senior Vice President and
Chief Financial Officer
Date: October 25, 1996
