<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
FORM 8-K/A
NUMBER 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): May 3, 1996
GENESIS HEALTH VENTURES, INC.
-----------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 1-11666 06-1132947
- ------------------------------- ------------ ----------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
148 West State Street
Kennett Square, Pennsylvania 19348
----------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (610) 444-6350
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<PAGE>
Item 7 is hereby amended as follows:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired.
National Health Care Affiliates, Inc. and Related Entities -- Audited
Combined Financial Statements for the Year-Ended December 31, 1995
Report of Independent Auditors
Combined Balance Sheet
Combined Statement of Earnings
Combined Statement of Owners' Equity
Combined Statement of Cash Flows
Notes to Combined Financial Statements
National Health Care Affiliates, Inc. and Related Entities --
Unaudited Combined Financial Statements for the Quarter ended March
31, 1996.
Combined Balance Sheet
Combined Statement of Earnings
Combined Statement of Cash Flows
(b) Pro Forma Condensed Consolidated Financial Information
Unaudited Condensed Consolidated Statements of Operation for the year
ended September 30, 1995 and the six months ended March 31, 1996.
Unaudited Pro Forma Condensed Consolidated Balance Sheet at March 31,
1996.
(c) Exhibits.
<TABLE>
<CAPTION>
Number Title
----- -----
<S> <C>
Purchase Agreement, dated May 3, 1996, by and among Mark E. Hamister, Oliver C. Hamister, George E.
Hamister, Julia L. Hamister, The George E. Hamister Trust, The Oliver C. Hamister Trust, National Health
Care Affiliates, Inc., Oak Hill Health Care Center, Inc., Derby Nursing Center Corporation, Delaware
Avenue Partnership, EIDOS, Inc., VersaLink Inc., certain other individuals and Genesis Health Ventures,
*1. Inc.
*2. Consent of Ernst & Young, LLP
</TABLE>
* Previously filed.
2
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC. AND RELATED ENTITIES
AUDITED COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
Contents
Report of Independent Auditors ...................... F-1
Audited Combined Financial Statements ...............
Combined Balance Sheet .............................. F-2
Combined Statement of Earnings ...................... F-4
Combined Statement of Owners' Equity ................ F-5
Combined Statement of Cash Flows .................... F-6
Notes to Combined Financial Statements .............. F-7
UNAUDITED COMBINED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 31, 1996
Contents
Combined Balance Sheet................................ F-14
Combined Statement of Earnings........................ F-16
Combined Statement of Cash Flows...................... F-17
3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
National Health Care Affiliates, Inc.
and Related Entities
We have audited the accompanying combined balance sheet as of December 31, 1995
of National Health Care Affiliates, Inc. and Related Entities (Note 1), and the
related combined statements of earnings, owners' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Companies' 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 combined financial position at December 31, 1995 of
National Health Care Affiliates, Inc. and Related Entities, and the combined
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Buffalo, New York
March 15, 1996
F-1
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC. AND RELATED ENTITIES
COMBINED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and cash equivalents ...................................... $ 3,538,809
Cash restricted for bond retirement -- Note 4 .................. 524,188
Accounts receivable, less allowance for doubtful accounts of
$374,000 ...................................................... 12,615,783
Inventory ...................................................... 629,512
Due from third parties ......................................... 1,675,377
Prepaid expenses ............................................... 1,007,638
-----------
Total current assets ................................................ 19,991,307
Land, buildings and equipment - Notes 2 and 4:
Land and land improvements ..................................... 4,156,914
Building and improvements ...................................... 69,423,972
Equipment ...................................................... 13,354,321
-----------
86,935,207
Less accumulated depreciation and amortization ................. 27,522,518
-----------
59,412,689
Other assets:
Notes receivable from shareholders -- Note 6 ................... 250,000
Reserve fund cash and U.S. Government obligations -- Note 4 .... 665,056
Escrow cash -- Note 2 .......................................... 335,014
Goodwill, net -- Note 2 ........................................ 6,273,566
Deferred finance costs -- Note 2 ............................... 1,639,614
Other -- Note 2 ................................................ 2,464,465
-----------
11,627,715
-----------
Total assets ........................................................ $91,031,711
===========
</TABLE>
F-2
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC. AND RELATED ENTITIES
COMBINED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Liabilities and owners' equity
Current liabilities:
Accounts payable and accrued expenses .......................... $11,567,422
Salaries and wages ............................................. 3,138,625
Accrued interest ............................................... 584,028
Deferred resident income ....................................... 540,327
Current maturities of long-term debt ........................... 3,284,623
-----------
Total current liabilities ........................................... 19,115,025
Long-term debt, less current maturities -- Note 4 ................... 67,183,144
Owners' equity: .....................................................
Common stock -- Note 8 ......................................... 231,565
Preferred stock, par value $.10 per share Authorized 5,000,000
shares; issued and outstanding, none ......................... --
Additional paid-in capital ..................................... 278,470
Capital accounts of affiliates ................................. 884,573
Retained earnings .............................................. 3,338,934
-----------
Total owners' equity ................................................ 4,733,542
-----------
Total liabilities and owners' equity ................................ $91,031,711
===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC. AND RELATED ENTITIES
COMBINED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Revenue:
Basic healthcare services, net -- Note 2 ....................... $ 62,473,477
Specialty medical services, net -- Note 2 ....................... 44,840,029
Management services and other .................................. 1,471,587
------------
Net revenue ......................................................... 108,785,093
Operating expenses:
Salaries, wages and benefits ................................... 52,792,169
Other operating expenses ....................................... 33,992,494
Administrative and general ..................................... 6,205,327
Depreciation and amortization .................................. 4,055,259
Rent expense ................................................... 3,175,908
Interest expense ............................................... 6,176,718
------------
Net earnings ........................................................ $ 2,387,218
============
</TABLE>
See accompanying notes.
F-4
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC. AND RELATED ENTITIES
COMBINED STATEMENT OF OWNERS' EQUITY
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Capital
Accounts
Common Additional of Retained
Stock Paid-in Capital Affiliates Earnings Total
----------- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 ..... $234,447 $278,470 $342,668 $1,806,740 $2,662,325
Net earnings ................... -- -- -- 2,387,218 2,387,218
Redemption and retirement of NHCA
stock (29,820 shares) ......... (2,982) -- -- (156,064) (159,046)
Issuance of VersaLink stock .... 100 -- -- -- 100
Redemption and retirement of
HSNNY stock ................... -- -- -- (10,480) (10,480)
Redemption and retirement of
Oak Hill stock ................ -- -- -- (46,600) (46,600)
Dividends paid ................. -- -- -- (641,880) (641,880)
Contributions from owners ...... -- -- 541,905 -- 541,905
-------- -------- -------- ---------- ----------
Balance at December 31, 1995 ... $231,565 $278,470 $884,573 $3,338,934 $4,733,542
======== ======== ======== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC. AND RELATED ENTITIES
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Operating activities
Net earnings ..................................................................... $ 2,387,218
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization ............................................... 4,055,259
Deferred revenue ............................................................ (113,696)
-----------
6,328,781
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable ......................................................... (2,454,726)
Inventory ................................................................... (72,920)
Prepaid expenses ............................................................ (25,921)
Accounts payable and other accruals ......................................... 4,673,300
Deferred resident income .................................................... 9,799
Due to third parties, net ................................................... (1,435,853)
-----------
Net cash provided by operating activities ........................................ 7,022,460
Investing activities
Capital expenditures ............................................................. (2,036,624)
Decrease in notes and other receivables from related entities and shareholders ... (915,164)
Acquisitions of businesses, net of cash acquired -- Note 3 ....................... (1,807,549)
-----------
Net cash used in investing activities ............................................ (4,759,337)
Financing activities
Increase in restricted cash ...................................................... (57,541)
Decrease in escrow cash .......................................................... 408,124
Increase in deferred expenses .................................................... (990,888)
Proceeds from long-term borrowings ............................................... 4,398,000
Principal payments on long-term debt ............................................. (3,113,778)
Principal payments from debt refinancing ......................................... (1,323,916)
Retirement of stock .............................................................. (216,126)
Contributions from shareholders .................................................. 541,905
Dividends paid ................................................................... (641,880)
Other -- net ..................................................................... (123,769)
-----------
Net cash used in financing activities ............................................ (1,119,869)
-----------
Net increase in cash and cash equivalents ........................................ 1,143,254
Cash and cash equivalents at beginning of year ................................... 2,395,555
-----------
Cash and cash equivalents at end of year ......................................... $ 3,538,809
===========
</TABLE>
See accompanying notes
F-6
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC.
AND RELATED ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. General
The financial statements presented herein include the combined financial
statements of National Health Care Affiliates, Inc. (NHCA) and its
majority-owned subsidiary Proxyfusion, Inc. (ProxyFusion), as well as the
related entities of Brompton Heights (Brompton), Delaware Avenue Partners (DAP),
Derby Nursing Center Corporation (Derby), Orchard Heights, Oak Hill Health Care
Center, Inc. (Oak Hill), Health Services of Northern New York, Inc. (HSNNY),
VersaLink, Inc., EIDOS (formerly known as NHCA Management Services Corporation),
and Hamister Office Building Partnership (HOBP). Intercompany transactions and
balances have been eliminated in combination.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash equivalents consist of certificates of deposit with maturities of less
than three months.
Accounts Receivable and Revenues
NHCA and related entities provide services to nursing home patients and home
health care clients under agreements with third-party payors (Medicare and
Medicaid), whereby NHCA and related entities are reimbursed under provisions of
their respective cost reimbursement formulas. Amounts received under these
agreements are generally less than established billing rates and the difference
is accounted for as a deduction from revenue. Final determination of the amounts
earned is subject to review by the third-party payors or their agents. While the
ultimate outcome of such reviews is unknown, it is the opinion of management
that adequate provision has been made for any significant adjustments that may
result.
Significant concentrations of resident service revenues are derived from
contractual arrangements with Medicaid and Medicare. Resident accounts
receivable at December 31, 1995 include Medicaid, 26% and Medicare, 23%.
Deferred resident income represents a liability for future resident care
services for which advance payment has been received.
Inventory
Inventory is valued at the lower of cost (first-in, first-out method) or
market.
Land, Buildings and Equipment
Land, buildings, and equipment are recorded at cost; renewals and betterments
are capitalized at cost, and maintenance and repairs are charged to expense as
incurred.
Depreciation is provided over the estimated service lives of the assets on
the straight-line method. Generally, the estimated service lives used are 40
years for buildings, 20 years for land and building improvements, 15 years for
fixed equipment, and 10 years for furniture and fixtures.
Escrow Cash
Escrow cash at December 31, 1995 consists of $50,000 in deposits related to
potential business acquisitions. Certain financing agreements require monthly
payments to fund mortgage insurance premiums, real estate taxes, capital
improvements and property insurance of which $285,014 is held in escrow at
December 31, 1995.
Funding of $35,665 per month is required during 1996.
F-7
<PAGE>
National Health Care Affiliates, Inc.
and Related Entities
Notes to Combined Financial Statements - (Continued)
2. Summary of Significant Accounting Policies - (Continued)
Funds Held in Trust
NHCA and related entities maintain funds in trust for residents' use. These
funds are included in cash and accounts payable, and amounted to $505,418 at
December 31, 1995.
Goodwill
Goodwill costs of $6,441,176 at December 31, 1995 resulted from acquisitions
(Note 3) and are being amortized over a 40 year life. Accumulated amortization
was $167,610 at December 31, 1995. Based upon management's assessment of the
future undiscounted operating cash flows of acquired businesses, the carrying
value of goodwill at December 31, 1995 has not been impaired.
Deferred Finance Costs
Deferred financing costs of $2,415,782 at December 31, 1995 were incurred in
connection with various debt financing arrangements and are being amortized over
the term of the respective debt agreements. Accumulated amortization was
$776,168 at December 31, 1995.
Other Assets
Other assets consist primarily of the following:
Leasehold interests related to NHCA were acquired in 1989 at a cost of
$1,650,000, and are being amortized using the straight-line method over the
initial term of the related lease. Accumulated amortization was $1,024,153 at
December 31, 1995.
Costs related to covenant-not-to-compete agreements of $875,000 at December
31, 1995 resulted from acquisitions (Note 3) and are being amortized over
periods of 2.5 to 5 years, according to the terms of the respective
agreements. Accumulated amortization was $115,972 at December 31, 1995.
Fees of $835,545 were incurred during 1995 in conjunction with a franchise
agreement and the securement of a related non-compete agreement with a
national supplementary staffing franchisor. The payment is being amortized
over the future benefit period of this agreement (2.8 years). Accumulated
amortization was $124,048 at December 31, 1995.
Nonrecurring Costs
Nonrecurring costs of $242,463 included in administrative and general
expenses represent charges to operations for legal, accounting and other costs
incurred in connection with negotiations and due diligence activities related to
discussions with potential equity investors in 1995.
Income Taxes
NHCA and related entities (except for HSNNY and ProxyFusion, Inc. which are
taxable C-Corporations) have elected to be treated as either S Corporations,
under Subchapter S of the Internal Revenue Code, or as partnerships and are not
subject to income taxes as such taxes accrue to the shareholders or partners.
Taxes attributable to HSNNY and ProxyFusion, Inc. of approximately $7,000 are
included in administrative and general expenses.
Earnings Per Share
NHCA and related entities do not present information on earnings per share
because the combined statements are those of a private enterprise which is not
required to present earnings per share.
F-8
<PAGE>
National Health Care Affiliates, Inc.
and Related Entities
Notes to Combined Financial Statements - (Continued)
2. Summary of Significant Accounting Policies - (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to various
market data and other valuation considerations. The fair value of financial
instruments approximates their recorded values.
3. Acquisitions
On October 25, 1995, NHCA acquired the business assets of Professional Home
Health, L.P. d/b/a Commonwealth Pediatrics, a durable medical equipment and home
health care company specializing in pediatric respiratory services in Richmond
and Charlottesville, Virginia. The purchase price was $2,306,586 paid in a
combination of cash and long-term notes payable. The excess of the purchase
price over the estimated fair value of the tangible assets was recorded as
goodwill. The acquisition may result in the payment of up to $400,000 contingent
upon future earnings of the home health care company. During 1995, no contingent
payments were required under the terms of this agreement. The estimated effect
(unaudited) of this acquisition, as if the acquisition had occurred on January
1, 1995, would have been to increase net revenues and net earnings by $2,295,000
and $252,000, respectively, in 1995.
On September 29, 1995, NHCA (79%) and Oak Hill (21%) acquired the stock of
ProxyFusion, Inc. d/b/a Progressive Infusion Care P.A., a provider of infusion
therapy services. The purchase price was $1,542,029, paid in a combination of
cash and long-term notes payable. The excess of the purchase price over the
estimated fair value of the net assets was recorded as goodwill. The estimated
effect (unaudited) of this acquisition, as if the acquisition had occurred on
January 1, 1995, would have been to increase net revenues by $1,936,000 and
would have had an immaterial impact on net earnings in 1995.
Effective January 1, 1995, the shareholders of NHCA acquired the stock of
Health Services of Northern New York, Inc., a provider of temporary nursing and
certified home health care services. The purchase price was $1,689,391, paid in
a combination of cash and long-term notes payable. The excess purchase price
over the estimated fair value of the net assets was recorded as goodwill. The
acquisition may result in an additional $300,000 payment contingent upon future
earnings of the Company. During 1995 no contingent payments were required under
this agreement.
On May 23, 1994, NHCA acquired the business assets of Care Med Management
Systems, Inc., a provider of home care and supplemental staffing services in
West Palm Beach, Florida d/b/a PRN of West Palm Beach. The purchase price was
$1,800,000 in cash and long-term notes payable. The excess of the purchase price
over the estimated fair value of the net assets was recorded as goodwill. The
acquisition may result in an additional $1,200,000 payment contingent upon
future earnings of the Company. A total of $166,062 in contingent payments have
been made under the terms of this agreement ($122,228 in 1995).
On January 31, 1994, NHCA acquired the stock of Nursefinders of Cleveland,
Inc., a temporary nursing and home health agency with operations in Cleveland
and Akron, Ohio, d/b/a PRN of Cleveland and Akron. The purchase price was
$1,829,000, paid in a combination of cash and a long-term note payable. The
excess of the purchase price over the estimated fair value of the net assets was
recorded as goodwill. The acquisition may result in an additional $500,000
payment contingent upon future earnings of the agency. A total of $65,572 in
contingent payments (all made in 1995) have been made under this agreement.
F-9
<PAGE>
National Health Care Affiliates, Inc.
and Related Entities
Notes to Combined Financial Statements - (Continued)
4. Long-Term Debt
Long-term debt consists of the following at December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
First mortgages with banks, at various rates from 7.75% to 12.5%, payable through 2034. $54,664,483
Other mortgages, at various rates from 9% to 10.5%, payable through 1999. ............ 4,096,896
Other secured obligation, at prime plus 1.5%, payable through 2001. .................. 3,770,361
Industrial Revenue Bonds, at rates of 9.75% and 10.7%, maturing serially through 2010.. 3,190,000
Unsecured obligations, at various rates from 5% through 10%, payable through 2002. ... 4,083,774
Other ................................................................................ 662,253
-----------
70,467,767
Less current maturities .............................................................. 3,284,623
-----------
$67,183,144
===========
</TABLE>
Substantially all property and equipment are pledged as collateral on
long-term debt. Subordinated debt is subordinate for all purposes and subject in
right of payment to prior payment in full of the senior debt. In the event of
default on senior debt, the holder of the senior debt may declare a halt to the
subordinate debt payments until the default has been satisfactorily cured.
The aggregate maturities of long-term debt for years subsequent to December
31, 1995 are as follows:
1996 ........................ $ 3,284,623
1997 ........................ 15,607,180
1998 ........................ 2,474,088
1999 ........................ 17,099,722
2000 ........................ 7,810,411
Thereafter .................. 24,191,743
-----------
$70,467,767
===========
Interest paid in 1995 was $6,141,024.
Cash restricted for bond retirement relates to currently payable Industrial
Revenue Bonds. Reserve funds are required to be maintained over the life of the
bonds and used solely for the purpose of paying principal and interest on the
bonds to the extent that such funds may be needed. Cash and U.S. Government
obligations in the reserve fund are subject to certain withdrawal restrictions
under the terms of the respective bond agreements.
Certain loan agreements provide restrictions including among others, the
maintenance of specified debt coverage, debt-to-worth and current ratios, and
specified net earnings. At December 31, 1995, NHCA and related entities were in
compliance with these requirements.
NHCA's $4,000,000 working capital line of credit is used to collateralize
letters of credit issued on behalf of the Company. At December 31, 1995,
approximately $1,200,000 is available on this line and $2,800,000 has been
utilized to secure letters of credit. NHCA has a revolving credit facility of up
to $5,000,000 of which $3,770,361 was outstanding at December 31, 1995. The
credit facility is available for financing of home health care agency
acquisitions through December 31, 1997.
In 1996, NHCA received bank commitments to refinance certain of its debt
obligations. These obligations will be refinanced in 1996 under the terms of the
bank commitment. Funds of $18 million have been committed. If these debt
obligations had been refinanced at December 31, 1995, the aggregate maturities
on long-term debt for years subsequent to December 31, 1995 would be as follows
(assuming an interest rate of 8.45%).
F-10
<PAGE>
National Health Care Affiliates, Inc.
and Related Entities
Notes to Combined Financial Statements - (Continued)
4. Long-Term Debt - (Continued)
1996 ........................ $ 2,936,281
1997 ........................ 9,195,217
1998 ........................ 2,292,358
1999 ........................ 14,577,772
2000 ........................ 8,102,456
Thereafter .................. 33,363,683
-----------
$70,467,767
===========
5. Operating Leases
NHCA currently leases four health care facilities and Derby leases one health
care facility under noncancelable operating leases. The facility leases each
provide for an initial term of 10 years, with two 5-year renewal options, and
are subject to annual escalators based on increases in operating revenues. NHCA
and Derby have the right to purchase the facilities at fair market value after
October 1999. Aggregate minimum lease payments under the terms of these leases
are as follows:
1996 .................. $2,411,000
1997 .................. 2,433,500
1998 .................. 2,456,000
1999 .................. 2,405,917
----------
$9,706,417
==========
NHCA has issued a standby letter of credit for $900,000 guaranteeing in part
its future commitment under the facility leases.
6. Related Party Transactions
During 1995, a shareholder borrowed $250,000 at 5% interest, maturing in
August 2000. Interest revenue of $4,452 has been accrued as of December 31,
1995.
In addition, NHCA has guaranteed certain shareholder indebtedness aggregating
$655,803 at December 31, 1995. Management believes NHCA will not incur any
liability under these guarantees.
7. Employee Savings and Retirement Plan
NHCA and related entities offer a defined contribution plan (the Plan),
subject to the provisions of the Employee Retirement Income Security Act (ERISA)
of 1974, to qualified employees who are not members of a bargaining unit.
Participants voluntarily elect to contribute up to 15% of their annual gross
wages up to the maximum allowed by the Internal Revenue Service. NHCA and
related entities matched 25% of the participants' qualified contributions up to
a maximum of 4% of their gross wages. The Plan began operations in 1988. Company
contributions were $68,742 in 1995.
F-11
<PAGE>
National Health Care Affiliates, Inc.
and Related Entities
Notes to Combined Financial Statements - (Continued)
8. Capital Stock
Common stock outstanding was as follows at December 31, 1995:
NHCA -- par value $.10 per share:
Authorized 12,000,000 shares; issued and outstanding 2,304,650
shares .................................................... $230,465
Oakhill -- no par value:
Authorized 12,000,000 shares; issued and outstanding 2,304,682
shares .................................................... --
Derby -- par value $.20 per share:
Authorized, issued and outstanding 5,000 shares .............. 1,000
Versalink -- par value $1 per share:
Authorized 1,000 shares; issued and outstanding 100 shares ... 100
HSNNY
Authorized 2,389,790 shares; issued and outstanding 2,256,511
shares at stated value .................................... --
--------
$231,565
========
The issuance of up to 5,000,000 shares of NHCA series preferred stock is
authorized. The rights, privileges, and preferences of each series will be
determined by resolutions of the Board of Directors upon issuance.
NHCA and its shareholders have entered into a share purchase agreement which
restricts the transferability of their shares and provides for certain
conditions under which their shares must be purchased by the other principal
shareholders or NHCA at the lower of a specified price (as determined by a
formula based on NHCA earnings) or fair market value of the shares.
Up to 47,796 shares of common stock of NHCA is authorized to be issued to two
outside directors, as defined in a stock option agreement. The options are
exercisable at a price of $12.553 per share through February 2005. No
compensation expense was incurred related to these options in 1995, and at
December 31, 1995, no options have been exercised.
9. Stock Redemption
The shareholders have entered into an agreement whereby NHCA and certain
related entities will redeem annually, subject to certain restrictions and
limitations, the ownership interests of two principal shareholders based upon a
predetermined formula. Payments of $159,046 were made in 1995 to redeem a
portion of NHCA stock. In addition, payments of $10,480 and $46,600 were made to
redeem HSNNY and Oak Hill stock, respectively, in 1995. As a result of
limitations related to availability of cash flow and debt covenant requirements,
management does not expect the amount to be paid in 1996 related to the stock
redemption agreement to be materially higher than the 1995 amount.
10. Contingencies
At December 31, 1995, certain claims of the type normally associated with the
Company's business have been asserted against NHCA. In the opinion of
management, all matters involving claims for damages are adequately covered by
insurance, are without merit or are of such kind or amount as would not have a
material effect on the financial position or results of operations of the
Company.
F-12
<PAGE>
National Health Care Affiliates, Inc.
and Related Entities
Notes to Combined Financial Statements - (Continued)
11. Non-Cash Transactions
The following non-cash transactions occurred during 1995:
Note payable to sellers for acquisition of Commonwealth Pediatrics
(Note 3)......................................................... $ 600,000
Note payable for noncompete agreement (Note 2).................... $ 429,545
Note payable to sellers for acquisition of HSNNY (Note 3)......... $1,089,391
12. Subsequent Event -- Purchase of Business Assets
Effective January 1, 1996, NHCA purchased the business assets of Nurses PRN
of Denver, Inc. and PRN, Inc., entities that provide home care and supplementary
staffing services in Florida, Alabama, Colorado, and Oregon. The purchase price
was $3,975,000 with an additional $2,500,000 payment contingent upon future
earnings of the business units. In connection with this purchase, the Company
utilized approximately $1,092,000 of its available revolving credit facility.
13. Subsequent Event -- Sale of Business Interests -- Unaudited
On May 3, 1996, NHCA entered into an agreement with Genesis Health Ventures
to sell certain of its business interests in the states of Florida, Virginia and
Connecticut for approximately $133,600,000, including assumed debt. These
entities account for $83,800,000 of the combined net revenues and $65,500,000 of
the combined total assets reported in the accompanying combined financial
statements.
F-13
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC. AND RELATED ENTITIES
COMBINED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents ............................ $ 3,797,510
Cash restricted for bond retirement .................. 453,611
Accounts receivable .................................. 14,988,094
Inventory ............................................ 650,638
Due from third parties ............................... 2,564,925
Prepaid expenses ..................................... 1,879,976
-----------
Total current assets ...................................... 24,334,754
Net Land, buildings and equipment ......................... 58,972,951
Other assets:
Notes receivable from shareholders ................... 250,000
Reserve fund cash and U.S. Government obligations...... 669,730
Escrow cash .......................................... 316,463
Goodwill, net ........................................ 10,085,597
Deferred finance costs ............................... 1,578,335
Other ................................................ 2,484,213
-----------
Total assets .............................................. $98,692,043
===========
17
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC. AND RELATED ENTITIES
COMBINED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
Liabilities and owners' equity
Current liabilities:
Accounts payable and accrued expenses.................. $15,761,838
Salaries and wages ................................... 2,842,244
Accrued interest ..................................... 565,802
Deferred resident income ............................. 586,048
Demand notes payable ................................. 500,000
Current maturities of long-term debt................... 3,587,352
-----------
Total current liabilities ................................. 23,843,284
Long-term debt, less current maturities .................... 69,800,284
Owners' equity ............................................ 5,048,730
-----------
Total liabilities and owners' equity ...................... $98,692,043
===========
F-15
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC. AND RELATED ENTITIES
COMBINED STATEMENT OF EARNINGS
QUARTER ENDED MARCH 31, 1996
(UNAUDITED)
Revenue:
Basic healthcare services, net......................... $17,256,011
Specialty medical services, net ....................... 14,235,165
Management services and other 286,351
-----------
Net revenue ............................................... 31,777,527
Operating expenses:
Salaries, wages and benefits........................... 16,337,507
Other operating expenses ............................. 9,354,417
Administrative and general ............................ 1,818,729
Depreciation and amortization.......................... 1,197,353
Rent expense ......................................... 866,436
Interest expense ..................................... 1,647,119
-----------
Net earnings .............................................. $ 555,966
===========
F-16
<PAGE>
NATIONAL HEALTH CARE AFFILIATES, INC. AND RELATED ENTITIES
COMBINED STATEMENT OF CASH FLOWS
QUARTER ENDED MARCH 31, 1996
Operating activities
Net earnings .............................................. $ 555,966
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization ........................ 1,197,353
Deferred revenue ..................................... (28,425)
=============
1,724,894
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable .................................. (2,372,311)
Inventory ............................................ (326,489)
Prepaid expenses and other ........................... (872,338)
Accounts payable and other accruals .................. 4,222,879
Accrued salaries and wages ........................... (296,381)
Accrued interest ..................................... (18,226)
Deferred resident income ............................. 45,721
Due from third parties, net .......................... (584,185)
-------------
Net cash provided by operating activities ................. 1,523,564
Investing activities
Capital expenditures ................................. (429,388)
Acquisitions of businesses, net of cash acquired ..... (1,092,065)
-------------
Net cash (used in) investing activities .............. (1,521,453)
Financing activities
Increase in restricted cash .......................... 65,903
Increase in escrow cash .............................. 18,551
(Decrease) in deferred expenses ...................... (156,662)
Proceeds from long-term borrowings ................... 1,092,065
Proceeds from demand borrowings ...................... 500,000
Payments on long-term debt ........................... (1,022,451)
Repurchase of stock .................................. (816)
Dividends paid ....................................... (240,000)
Net cash provided from financing activities ............... 256,590
-------------
Net increase in cash and cash equivalents ................. 258,701
Cash and cash equivalents at beginning of period .......... 3,538,809
-------------
Cash and cash equivalents at end of period ................ $ 3,797,510
=============
F-17
<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 Genesis of McKerley Health
Care Centers, Inc. and certain related entities ("McKerley") in November 1995,
(ii) the transaction contemplated by the agreement, dated in April 1996, between
Genesis and NeighborCare Pharmacies, Inc. and certain of its related entities
("NeighborCare"), (iii) the transaction contemplated by the agreement between
Genesis and National Health as described in this report, and (iv) the proposed
public offering by Genesis of up to 6,000,000 shares of its Common Stock and the
application of the estimated net proceeds from such offering as described under
"Use of Proceeds" in the Registration Statement on Form S-3 with respect to such
offering (the "Offering") 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 Genesis's historical
consolidated financial statements, McKerley's historical combined financial
statements and National Health's historical combined financial statements
included herein or in the Company's other filings with the Securities and
Exchange Commission. The historical combined financial statements of McKerley
for the year ended November 30, 1995 and for the six months ended March 31, 1996
are included in the columns "McKerley" in the tables below. As a result of the
differing year ends of McKerley and Genesis, 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 six months ended March 31,
1996 are included in the colums "NeighborCare" in the tables below. The
historical combined financial statements of National Health for the year ended
December 31, 1995 and for the six months ended March 31, 1996 are included in
the columns "National Health" in the tables below. As a result of the differing
year ends of the National Health and Genesis, the three months ended December
31, 1995 is included in both periods. 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.
F-18
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Year ended September 30, 1995
------------------------------------------------------------------------------------------------
Genesis McKerley McKerley Pro NeighborCare NeighborCare
Historical Historical Forma Historical Pro Forma
Results Results Adjustments Results Adjustments
---------- ---------- ------------- ----------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues ................. $486,393 $57,266 $ 114 (A)(B)(C) $52,751 $ --
Operating expense: .......
Operating expenses other than
depreciation, amortization
and lease expense ........... 393,139 52,064 (6,063)(A)(D) 51,986 (1,849)(I)(K)
Depreciation and
amortization ................ 18,793 1,900 1,079 (F) -- 2,547 (J)
Lease expense ................ 13,798 2,759 (1,244)(G) -- --
Interest expense, net ........ 20,367 4,200 1,625 (A)(E) 1,276 1,880 (H)
-------- ------- ------- ------- -------
Earnings from operations
before income taxes and
extraordinary items ......... 40,296 (3,662) 4,717 (511) (2,578)
-------- ------- ------- ------ -------
Earnings from operations
before extraordinary items... $ 25,531 $(2,307) $ 2,972 $ (322) $(1,624)
-------- ------- ------- ------ -------
Fully diluted earnings per
share before extraordinary
items ....................... $1.03
Weighted average common
shares and equivalents ...... 28,452 333 (H)
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Year ended September 30, 1995
------------------------------------------------------------------------------------------------
Pro Forma
Consolidated
Pro Forma Genesis/McKerley/
Consolidated NeighborCare/
National Health National Health Genesis/McKerley/ National Health
Pro Forma Pro Forma NeighborCare/National Offering Results Adjusted
Results Adjustments Health Results Adjustment for Offering
--------------- --------------- --------------------- ---------- -----------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues ................. $108,785 $(22,949)(L)(P) $682,360 $ -- $682,360
Operating expense:
Operating expenses other than
depreciation, amortization
and lease expense ........... 92,990 (26,435)(L)(O)(P) 555,837 -- 555,837
Depreciation and
amortization ................ 4,055 1,067 (L)(M) 29,441 -- 29,441
Lease expense ................ 3,176 (233)(L) 18,256 -- 18,256
Interest expense, net ........ 6,177 3,375 (L)(N) 38,900 (11,696)(Q) 27,204
-------- ------- --------- ------- ---------
Earnings from operations
before income taxes and
extraordinary items ......... 2,387 (723) 39,926 11,696 51,622
-------- ------- --------- ------- ---------
Earnings from operations
before extraordinary items... $ 1,504 $ (455) $ 25,299 $ 7,368 $ 32,667
-------- ------- --------- ------- ---------
Fully diluted earnings per
share before extraordinary
items ....................... $1.05
Weighted average common
shares and equivalents ...... 6,000 34,785
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
Six Months ended March 31, 1996
------------------------------------------------------------------------------------------------
Genesis McKerley McKerley Pro NeighborCare NeighborCare
Historical Historical Forma Historical Pro Forma
Results Results Adjustments Results Adjustments
---------- ---------- ------------- ----------------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues ............. $287,517 $ 9,671 $ 204 (A)(B)(C) $34,214 --
Operating expenses: ......
Operating expenses other than
depreciation, amortization
and lease expense ....... 232,820 11,537 (3,802)(A)(D) 31,319 $ (924)(I)(K)
Debenture conversion expense 1,090 -- --
Depreciation and
amortization ............ 11,235 323 180 (F) 437 1,273 (J)
Lease expense ............ 7,861 460 (207)(G) 732 --
Interest expense, net .... 12,979 1,158 (201)(A)(E) 979 602 (H)
--------- -------- ------- ------- ------
Earnings from operations
before taxes and
extraordinary items ..... 21,532 (3,807) 4,252 747 (951)
--------- -------- ------- ------- ------
Earnings from operations
before extraordinary items $ 13,668 $(2,398) $2,678 $ 471 $(599)
--------- -------- ------- ------- ------
Fully diluted earnings per
share before extraordinary
items and Debenture
conversion expense ...... $0.55
Weighted average common
shares and equivalents .. 28,817 333 (H)
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Six Months ended March 31, 1996
----------------------------------------------------------------------------------------------------
Pro Forma
Consolidated
Pro Forma Genesis/McKerley/
Consolidated NeighborCare/
National Health National Health Genesis/McKerley/ National Health
Pro Forma Pro Forma NeighborCare/National Offering Results Adjusted
Results Adjustments Health Results Adjustment for Offering
--------------- --------------- --------------------- ---------- --------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues ............... $60,373 $ (15,621)(L)(P) $376,358 $376,358
Operating expenses:
Operating expenses other than
depreciation, amortization
and lease expense ......... 52,368 (17,430)(L)(O)(P) 305,870 305,870
Debenture conversion expense 1,090 -- 1,090
Depreciation and
amortization .............. 2,327 234 (L)(M) 16,009 16,009
Lease expense .............. 1,696 (198)(L) 10,344 10,344
Interest expense, net ...... 3,233 1,498 (L)(N) 20,248 $ (5,832)(Q) 14,416
-------- ------- --------- ------- ------
Earnings from operations
before taxes and
extraordinary items ....... 749 275 22,797 5,832 28,629
-------- ------- --------- ------- -------
Earnings from operations
before extraordinary items.. $ 472 $ 173 $ 14,465 $ 3,674 $ 18,139
-------- ------- --------- ------- -------
Fully diluted earnings per
share before extraordinary
items and Debenture
conversion expense ........ $0.58
Weighted average common
shares and equivalents .... 6,000 35,150
</TABLE>
F-20
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
-------------------- -----------------
(In thousands)
Revenues, net ................... $ 204 $ 204
======= =======
Operating expenses other than
depreciation, amortization
and lease expense .............. (3,248) (3,248)
Interest expense, net ........... $ (566) $ (566)
======= =======
(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.
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
--------------------- ------------------
(In thousands)
Revenues, net ................... $(1,500) --
======= ==
(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 Six Months Ended
September 30, 1995 March 31, 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:
Annual Cost Semi-Annual Cost
---------------------------------
(In thousands)
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)
======= =====
F-21
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The impact of the savings have been reflected in a pro forma adjustment as
follows:
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Operating expenses other than
depreciation, amortization
and lease expense ................. $(2,815) $(572)
======= =====
(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 $9,000,000 which was
not immediately repaid. Interest rate assumptions are 7.25% for the
Company's borrowing under its bank credit facilities.
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Interest expense, net: .............
Interest expense -- bank
facilities .................... $ 4,930 $ 822
Elimination of historical McKerley
remaining interest expense .... (2,739) (457)
------- -----
$ 2,191 $ 365
======= =====
(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:
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Depreciation and amortization
expense ........................... $1,079 $180
====== ====
(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:
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Lease expense ....................... $(1,244) $(207)
======= =====
F-22
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Interest expense, net:
Interest expense -- bank
facilities ..................... $ 3,171 $1,581
Elimination of historical
NeighborCare remaining
interest expense .............. (1,291) (979)
------- ------
$ 1,880 $ 602
======= ======
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 $30 per share resulting in the issuance of 333,333 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.
Semi
Annual Cost Annual Cost
----------- -----------
(In thousands)
Consolidation of institutional pharmacy locations.. $ (300) $(150)
Consolidation of medical supply division ......... (300) (150)
Personnel reduction in operating staff to eliminate
duplicative positions ............................ (615) (308)
Other operating costs including legal and
accounting fees, advertising and office expense . (474) (236)
------- -----
$(1,689) $(844)
======= =====
The impact of the savings have been reflected in a pro forma adjustment as
follows:
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Operating expenses other than
depreciation, amortization
and lease expense ................. $(1,689) $(844)
======= =====
(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:
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Impact of step-up and allocation
of goodwill ....................... $2,706 $1,353
Elimination of historical depreciation
expense ............................ (159) (80)
------ ------
Depreciation and amortization ....... $2,547 $1,273
====== ======
F-23
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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:
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Operating expenses other than
depreciation, amortization
and lease expense ................. $(160) $(80)
===== ====
NATIONAL HEALTH TRANSACTION
(L) In connection with the National Health Transaction certain assets and
liabilities will not be acquired by Genesis. Additionally, certain
businesses, including home health care, infusion therapy and assisted living
facilities in New York State will not be acquired. The statement of
operations data from these assets is presented in a pro forma footnote
below:
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Net Revenues ....................... $(24,949) $(16,621)
Operating expenses other than
debenture conversion expense
depreciation, amortization and
lease expense .................... (27,375) (17,900)
Depreciation and amortization ...... (1,290) (928)
Lease expense ...................... (233) (198)
Interest expense, net .............. (1,124) (751)
(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:
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
--------------------- -----------------
(In thousands)
Depreciation and amortization ..... $2,357 $1,162
====== ======
(N) The National Health Transaction is expected to be financed by Genesis with
borrowings under its bank credit facilities aggregating approximately
$116,272,000. Genesis intends to repay approximately $36,200,000 of
indebtedness to be assumed upon consummation of the transaction. The Company
also expects to assume mortgage obligations of approximately $18,000,000
which is not expected to be repaid. Interest rate assumptions are 6.8% for
the Company's borrowing under its bank credit facilities.
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Interest expense, net:
Interest expense-bank facility .. $ 8,139 $ 4,070
Elimination of historical
National Health remaining
expense ....................... (3,640) (1,820)
------- -------
$ 4,499 $ 2,250
======= =======
F-24
<PAGE>
GENESIS HEALTH VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Reduction in contract labor services.. $( 108) $(54)
Personnel reduction in operating
staff to eliminate duplicative
positions ........................... (252) (126)
------ -----
$( 360) $(180)
====== =====
(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.
Year Ended Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Revenues, net ...................... $2,000 $1,000
Operating expenses other than
debenture conversion expense
depreciation, amortization and
lease expense ..................... 1,300 650
------- ------
Net impact ....................... $ 700 $ 350
======= ======
OFFERING ADJUSTMENT
(Q) Adjustment to reflect the application of the net proceeds of the 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 Six Months Ended
September 30, 1995 March 31, 1996
----------------- -------------------
(In thousands)
Interest, net ...................... $11,696 $5,832
======= ======
F-25
<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
March 31, 1996 and the pro forma adjustments to reflect the NeighborCare
Transaction and the National Health Transaction, as if they occurred on March
31, 1996. The pro forma adjustments should be read in conjunction with the
Company's historical consolidated financial statements included in the Company's
filings with the Securities and Exchange Commission and National Health's
historical combined financial statements included elsewhere herein.
<TABLE>
<CAPTION>
Pro
Forma
Consolidated
Pro Forma Genesis/
Pro Forma National NeighborCare/
NeighborCare National Health National
Genesis NeighborCare Adjustments Health Adjustments Health
------- ------------ ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets ................... $206,292 $19,595 $ -- $24,335 $(8,514)(D) $241,408
Property and equipment, net ...... 304,010 1,712 -- 58,973 64,281(D)(G) 428,976
Other assets ..................... 223,774 5,899 46,327(C) 15,384 (1,309)(D)(G) 290,075
-------- ------- ------- ------- ------- --------
Total assets ..................... $734,076 $27,206 $46,327 $98,692 $54,158 $960,459
-------- ------- ------- ------- ------- --------
Current liabilities .............. $ 61,807 $11,839 $(2,149)(A)(B) $23,843 $(5,195)(D)(E)(F) $90,145
Long term debt, excluding
current maturities .............. 392,210 10,897 39,844(A) 69,800 62,899 (D)(E) 575,650
Other liabilities ................ 10,454 2,562 390(B) -- 520 (F) 13,926
Shareholders' equity ............. 269,605 1,908 8,242(A)(C) 5,049 (4,066)(D)(G) 280,738
-------- ------- ------- ------- ------- --------
Total liabilities and shareholders
equity .......................... $734,076 $27,206 $46,327 $98,692 $54,158 $960,459
======== ======= ======= ======= ======= ========
</TABLE>
Pro forma adjustments are as follows:
NEIGHBORCARE TRANSACTION
(A) The NeighborCare Transaction will be financed with a combination of
borrowing by Genesis under its bank credit facilities of approximately
$47,250,000 and the issuance of $10,000,000 of Genesis Common Stock. The
impact of the borrowings under the bank credit facilities and the issuance
of Genesis common stock at an estimated value of $30 per share is reflected
in the following pro forma adjustment:
(In thousands)
Current Liabilities .................... $(3,649)
Long-term debt ........................ 39,844
Shareholders' equity ................... 10,000
=======
(B) 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 $1,890. The following pro forma adjustment
represents the accrual for these costs:
(In thousands)
Current liabilities .................... $1,500
Other liabilities ...................... 390
======
(C) Purchase accounting adjustments include the following allocations:
(In thousands)
Other assets .......................... $46,327
Shareholders' equity ................... (1,758)
=======
F-26
<PAGE>
NATIONAL HEALTH TRANSACTION
(D) The assets and liabilities of National Health not being acquired or assumed
by Genesis in the National Health Transaction are eliminated in a pro forma
adjustment as follows:
(In thousands)
Current assets ............................ $ (8,814)
Property and equipment .................... (9,755)
Other assets .............................. (12,408)
--------
Total assets .............................. $(30,977)
========
Current liabilities ....................... $ (7,095)
Long term debt, excluded current maturities. (17,273)
Other liabilities ......................... --
Shareholders' equity ...................... (6,609)
--------
Total liabilities and shareholders' equity . $(30,977)
========
(E) The National Health Transaction will be financed by Genesis with borrowings
under its bank credit facilities of approximately $116,272,000 which
includes the repayment of approximately $36,200,000. Additionally, Genesis
will assume existing indebtedness of approximately $18,000,000 which it does
not intend to repay 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. 80,172
=======
(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, net of
tax benefits, in the amount of $2,520. The following pro forma adjustment
represent the accrual for these costs:
(In thousands)
Current liabilities ......................... $2,000
Other liabilities .......................... 520
======
(G) Purchase accounting adjustments include the following allocations:
(In thousands)
Property and equipment, net ................. $74,036
Other assets ............................... 11,099
Shareholders' equity ....................... 2,543
=======
F-27
<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.
------------------------
Date: May 20, 1996
