<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 17, 1995 (April 6, 1995)
Coram Healthcare Corporation
(Exact name of Registrant as specified in its charter)
DELAWARE 1-11343 33-0615337
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1125 SEVENTEENTH STREET, 15TH FLOOR, 80202
DENVER, COLORADO (ZIP CODE)
(Address of principal executive offices)
(303) 292-4973
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or address, if changed since last report)
<PAGE> 2
On April 6, 1995, Coram Healthcare Corporation ("Coram" or the
"Company") filed a Form 8-K reporting its acquisition of substantially all of
the assets used in the alternate site infusion therapy business, the home care
management and utilization system business and women's health care business
(collectively, the "Caremark Business") of Caremark Inc., a California
corporation ("Caremark") and filed therewith the financial statements in Item
7(a).
On May 19, 1995, the Company in accordance with Item 7(b) of Form 8-K,
filed pro forma financial information giving effect to the acquisition of the
Caremark Business.
The Company is now filing amendments of certain information included in
the prior filings and is filing the financial statements of Critical Care
America (a division of Medial Care America, Inc.).
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 29, 1995, Coram Healthcare Corporation, a Delaware
corporation (the "Company"), entered into a definitive agreement to acquire
substantially all of the assets used in the alternate site infusion health care
business, the home care management and utilization system business and women's
health care business of Caremark Inc. (the "Caremark Business"), and issued the
press release attached hereto as Exhibit A, which is incorporated herein in its
entirety by this reference. On April 6, 1995, the Company completed the
acquisition of the Caremark Business and issued the press release attached
hereto as Exhibit B, which is incorporated herein in its entirety by this
reference.
Pursuant to the terms of the Asset Sale and Note Purchase Agreement
dated as of January 29, 1995, as amended on April 1, 1995 between the Company,
Caremark Inc., a California corporation ("Caremark") and a wholly-owned
subsidiary of Caremark International Inc., a Delaware corporation ("Caremark
International") (the "Asset Purchase Agreement"), attached hereto as Exhibit C
and incorporated herein in its entirety by this reference, the purchase price of
the Caremark Business was $309 million, consisting of (i) $209 million in cash
and (ii) $100 million of junior subordinated pay-in-kind notes payable to
Caremark, consisting of a $75 million 7% Convertible Subordinated PIK Note (the
"Junior Convertible Subordinated PIK Note") and a $25 million 12%
Non-Convertible Subordinated PIK Note (the "Junior Non-Convertible Subordinated
PIK Note" and, collectively with the Junior Convertible Subordinated PIK Note,
the "Junior Subordinated PIK Notes"). The purchase price may be increased or
decreased by up to $15 million, plus an additional increase or decrease of up to
$3 million depending upon the amount of certain employee health plan liabilities
pursuant to a post-closing adjustment.
The Company acquired all of the assets of Caremark and Caremark
International used in or related to the Caremark Business (collectively, the
"Acquired Assets") including tangible and intangible assets owned by Caremark.
The Company also assumed only the liabilities of the Caremark Business (i)
adequately reflected or fully reserved against in a net assets statement of the
Caremark Business dated as of December 31, 1994, (ii) which are immaterial and
incurred in the ordinary course of business, (iii) which arise after April 6,
1995 under certain contracts assumed by the Company, and (iv) certain employee
liabilities. Other assets (the "Excluded Assets"), including cash and cash
equivalents, and the rights to any mark using "Care" or "Caremark," and all
remaining liabilities of Caremark and Caremark International (the "Excluded
Liabilities") including liabilities associated with the pending investigation of
Caremark by the Office of the Inspector General of the U.S. Department of Health
and Human Services (the "OIG"), remain the responsibility of Caremark and
Caremark International.
The Asset Purchase Agreement provides for indemnification by each of
the parties thereto of the other within certain limits. Under the terms of the
Asset Purchase Agreement, Caremark and Caremark International, jointly and
severally, will indemnify the Company and its affiliates against any liabilities
arising out of the (i) breach by Caremark of any of its covenants under the
Asset Purchase Agreement, (ii) the failure of any representation or warranty
made by Caremark in the Asset Purchase Agreement to be true in all respects as
of the date of the Asset Purchase Agreement and the deemed closing date of April
1, 1995, (iii) the use, operation or ownership of any of the Excluded Assets,
(iv) any Excluded
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Liability and (v) certain other liabilities, including the failure of Caremark
to obtain certain consents and approvals necessary to transfer the assets of the
Caremark Business; provided, however, that with respect to breaches by Caremark
of any representation or warranty the aggregate of all such liabilities and
damages exceeds $10 million. With respect to breaches by it of any
representation or warranty, the total amount Caremark may be required to pay is
limited to $130 million and the representations and warranties, subject to
certain exceptions, will expire on April 1, 1997. With respect to all other
claims for indemnification (including any claims related to the pending
investigation of Caremark by the OIG), Caremark must indemnify the Company
without any minimum threshold and without limitation by time or amount. Pursuant
to the Asset Purchase Agreement, the Company will indemnify Caremark and
Caremark International against any liabilities arising out of the (i) material
breach by the Company of any of its covenants under the Asset Purchase
Agreement, (ii) the failure of any representation or warranty made by the
Company in the Asset Purchase Agreement to be true in all respects as of the
date of the Asset Purchase Agreement and April 6, 1995, (iii) the use, operation
or ownership of any of the Acquired Assets after April 6, 1995 or (iv) any of
the liabilities assumed under the Asset Purchase Agreement.
Pursuant to the Asset Purchase Agreement, for a period from April 1,
1995 through December 31, 2001, Caremark will not and will not permit any of its
affiliates to engage in, directly or indirectly, or have any direct or indirect
interest in any entity or person that engages in any business which is the same
or substantially similar to the Caremark Business (a "Competing Business");
provided, however, that Caremark may own up to 20% of the equity of an entity
whose Competing Business revenues are at all times less than 30% of such
entity's total revenues; provided, further, that the aggregate of (i) Caremark's
proportionate share of the Competing Business Revenues per year and (ii)
revenues of certain physician groups associated with Caremark does not exceed
certain specified thresholds.
The Company financed the cash portion of the purchase price of the
Caremark Business and the repayment of all of its outstanding indebtedness under
the Amended and Restated Credit Agreement dated as of February 10, 1995, by and
among the Company, Curaflex Health Services, Inc., HealthInfusion, Inc.,
Medisys, Inc., H.M.S.S., Inc. and T(2) Medical, Inc., Toronto Dominion (Texas),
Inc., the Co-Agents named therein and the financial institutions party thereto,
of $123,800,000 principal amount, together with related fees and expenses,
through (i) borrowings under a new credit facility (the "Senior Credit
Facility"), with Chemical Bank, as agent, providing for aggregate commitments of
up to $300 million, including a $100 million revolving credit facility, and (ii)
the proceeds of a $150 million bridge financing provided by an affiliate of DLJ
Bridge Finance, Inc.
Concurrently with the acquisition of the Caremark Business, the Company
contributed the Caremark Business to a wholly-owned subsidiary of Coram, Inc., a
Delaware corporation and a newly-formed, wholly-owned subsidiary of the Company
("Coram"), and the Company contributed to Coram all of the outstanding capital
stock of each of its direct and indirect subsidiaries other than Coram. As a
result of these transactions, all of the operations conducted by the Company
immediately prior to the acquisition of the Caremark Business on April 1, 1995
and the Caremark Business were conducted through subsidiaries of Coram
immediately following the acquisition of the Caremark Business.
Pursuant to the terms of the Credit Agreement dated as of April 6,
1995, among the Company, Coram, the lenders named therein and Chemical Bank as
Administrative Agent, Collateral Agent and Fronting Bank, attached as Exhibit D
hereto and incorporated herein in its entirety by this reference, Coram is
entitled to borrow up to an aggregate principal amount of $300 million. The
Senior Credit Facility consists of (i) a five-year senior secured term loan
facility (the "Term Loan") in an aggregate principal amount of $200 million and
(ii) a revolving credit facility (the "Revolving Credit Facility"), of which up
to $20 million is available in the form of letters of credit. The Term Loan will
mature in five years. Coram may borrow, pay or repay and reborrow under the
Revolving Credit Facility and the letters of credit issued thereunder for a five
year period. Loans under the Senior Credit Facility bear interest at a rate
equal to, at Coram's option, a Eurodollar rate or an alternate base rate (equal
to the highest of the prime rate as reported by Chemical Bank, the secondary
market rate for a three month certificate of deposit plus 1% and (iii) the
federal funds rate in effect plus 0.5%) plus a margin ranging from 1.50% to .50%
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for the base rate or 1.50% to 2.50% for the Eurodollar rate. Coram's obligations
under the Senior Credit Facility are guaranteed by the Company and each of
Coram's subsidiaries, and such guarantees are secured by security interests on
all of the capital stock of Coram and each of its corporate subsidiaries and by
substantially all of the Company's assets.
Pursuant to the Securities Purchase Agreement (including a Form of
Subordinated Bridge Note (the "Bridge Note")), dated as of April 6, 1995 among
Coram, the Company and Coram Funding, Inc., attached as Exhibit E hereto and
incorporated herein in its entirety by this reference, interest on the Bridge
Note is payable at the prime rate plus a spread (the "Spread") initially equal
to 300 basis points. If the Bridge Note is not retired in whole by the end of
the first six-month period following the issuance date, the Spread will increase
by 100 basis points and continue to increase by an additional 50 basis points at
the end of each subsequent three-month period for so long as the Bridge Note is
outstanding; provided, that such rate will not exceed 21% per annum; provided
further, that the portion, if any, of any interest payment representing a rate
per annum of in excess of 15.25% shall be paid by issuing subordinated bridge
notes with a principal amount equal to such excess portion. The Company may, at
its option, redeem the Bridge Note upon ten days' notice to the holder of the
Bridge Note at par. The Bridge Note is also subject to mandatory redemption upon
the occurrence of certain conditions. The Bridge Note is subordinated to the
Senior Credit Facility and certain refinancings thereof.
Pursuant to the terms of the Junior Subordinated PIK Notes, attached as
Exhibit F hereto and incorporated herein in their entirety by this reference,
interest is payable semi-annually at the rate of 7% per annum for the Junior
Subordinated Convertible PIK Notes, and at the rate of 12% per annum for the
Junior Subordinated Non-Convertible PIK Notes. The Junior Subordinated PIK Notes
mature upon the earlier of an event of default or October 1, 2005. Also, prior
to April 6, 1997, interest on the Junior Subordinated PIK Notes is payable in
additional Junior Subordinated PIK Notes, at the election of the Company.
Thereafter, interest is payable in cash, subject to the satisfaction of certain
lender tests. The Junior Subordinated Convertible Note is convertible at any
time subsequent to April 6, 1996, in whole or in part, into shares of the
Company's Common Stock determined by dividing the aggregate principal amount
thereof by $27 per share, subject to adjustment. The Company is required to
file, and use its best efforts to cause to become effective on or before April
6, 1996, a registration statement covering the shares of Common Stock of the
Company issuable upon conversion thereof. The Company is required to maintain
the effectiveness of such registration statement for a three-year period
following the original effective date of the registration statement. The Junior
Subordinated PIK Notes are expressly subordinated to the Senior Credit Facility
and the indebtedness under the Bridge Note.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statement of Business Acquired
Audited financial statements of the Caremark Business,
including a Combined Statement of Operations and Combined
Statement of Cash Flows for the years ended December 31, 1994,
1993 and 1992, and a Balance Sheet for the years ended
December 31, 1994 and 1993, together with a manually signed
accountants' report were filed previously.
The financial statements of the Caremark International Inc.
Home Infusion Business referred to in the preceding paragraph
and the data furnished below relating to those financial
statements is required to be provided by the Company pursuant
to the requirements of the Securities and Exchange Commission
and is based on information provided to the Company by
Caremark. The Company in September 1995 filed a lawsuit
against Caremark alleging, among other things, that certain
financial and other data provided to the Company by Caremark
contains material misstatements and omissions. Accordingly,
pending the resolution of such litigation, the Company
believes such financial data and other information should not
be relied upon in evaluating the Company's financial position
and results of operations, and no assurance can be given
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as to its completeness or accuracy.
Caremark has advised that the allocation methods used to
allocate costs to the business were as follows:
Legal - Estimated internal payroll and other direct
costs of employees directly performing services on
behalf of the business as well as external legal fees
incurred on behalf of the business.
Treasury - Bank fees based on estimated units of
activity.
Regulatory - Estimated internal payroll and other
direct costs of employees directly performing
services on behalf of the business.
Insurance - Estimated based on the business's
historical loss ratios.
Benefits - Estimated based on the business's payroll
as a percentage of Caremark's total payroll.
Facilities and administrative services - The cost of
shared facilities and related administrative services
are allocated based on the percentage of square
footage occupied by the business.
As disclosed in Note 1 to the financial statements,
the expenses reflected in the Home Infusion financial
statements are not necessarily indicative of the
level of expenses the business might have incurred
had it operated a separate company.
Caremark has advised that Caremark's Home Infusion Business
assesses the recoverability of goodwill based on estimated
future undiscounted cash flows. This assessment is made when
changes in facts and circumstances indicate that future cash
flows may not be adequate to recover the capitalized value.
Caremark has advised the Company that other intangible assets
totaled $3.4 million at December 31, 1994 and consisted of
acquired customer lists ($600 thousand) which are being
amortized over a five year period and non-compete agreements
($2.8 million) which are being amortized over their legal
lives of five to eight years.
Caremark has advised the Company that the $25 million
restructuring and integration charges charged to operations in
1994 are the costs to exit redundant Home Infusion operations.
The $54.4 million reserve established in purchase accounting
related to expected costs to exit redundant Critical Care
operations, establish other known liabilities under purchase
accounting and costs to complete the transaction. This reserve
consists of $18.7 million of severance costs, $18 million
related to lease commitments for abandoned facilities, $4.0
million to terminate purchased contracts, $3.5 million for
estimated environmental costs, $2.4 million of transaction
costs, $2.0 million related to estimated sales and use tax
deficiencies, and $5.8 million of other costs resulting from
the transaction. Caremark has further advised the Company that
the accounting treatment and related disclosures are in
accordance with APB 16 and FASB Technical Bulletin NO. 85-5.
Caremark has advised the Company that in 1993, the Caremark
Home Infusion Business sold to its partner a portion of its
ownership interest in one of its more significant hospital
partnerships at no gain or loss. The sale was made in response
to its partners' desire to increase their ownership interest.
Caremark has advised the Company that included in 1992's
sundry income is a $4.5 million payment to the Caremark Home
Infusion Business to settle a lawsuit. Caremark has further
advised the Company that no other items included in sundry
income for the years periods presented were individually
material.
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(b) Pro Forma Financial Information.
Amended pro forma financial information, including an
Unaudited Pro Forma Condensed Combined Balance Sheet, an
Unaudited Pro Forma Condensed Combined Statement of Operations
and Notes to Unaudited Pro Forma Condensed Combined Financial
Statements, are filed herewith.
Refer to the second paragraph under Item 7(a) above concerning
financial data furnished to the Company by Caremark
International Inc. The pro forma financial statements do not
reflect the change in September 1995 to write-off goodwill and
long-lived assets and for the valuation of receivables
acquired as part of the Caremark Business.
(c) Financial Statements of Business Acquired
Audited financial statements of Critical Care America (a
Division of Medical Care America, Inc.) including Consolidated
Balance Sheets for the years ended December 31, 1993 and 1992
and Consolidated Statements of Operations, Divisional Equity
and Cash Flows for the years ended December 31, 1993, 1992 and
1991, together with a manually signed accountant's report and
consent, are filed herewith.
(d) Exhibits
The following exhibits are furnished in accordance with Item
601 of Regulation S-K.
99.A Press Release Issued by the Company on January 30,
1995(1)
99.B Press Release Issued by the Company on April 6, 1995(1)
99.C Asset Sale and Note Purchase Agreement dated as of
January 29, 1995, among Coram Healthcare Corporation,
Caremark International Inc. and Caremark Inc., as
amended April 1, 1995.(1)
99.D Credit Agreement dated as of April 6, 1995 among Coram
Healthcare Corporation, Coram, Inc., the lenders named
therein and Chemical Bank as Administrative Agent, as
Collateral Agent and as Fronting Bank.(1)
99.E Securities Purchase Agreement, and Form of Subordinated
Bridge Note, dated as of April 6, 1995 among Coram,
Inc., as Issuer, Coram Funding, Inc., as initial
Purchaser and Coram Healthcare Corporation.(1)
99.F $75 million 7% Convertible Subordinated PIK Note and $25
million 12% Non-Convertible Subordinated PIK Note.(1)
99.G Consent of KPMG Peat Marwick LLP.(2)
- ------------
(1) Previously filed.
(2) Filed herewith.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements are presented assuming the acquisition of t e Caremark Business has
been consummated and has been accounted for as a purchase. The pro forma
condensed combined statements of income for the year ended December 31, 1994 and
for the three months ended March 31, 1995 have been prepared as if the
acquisition of the Caremark Business and the other transactions requiring pro
forma adjustments, including the purchase of Critical Care of America ("CCA") by
Caremark, had occurred on January 1, 1994. The pro forma condensed combined
balance sheet as of March 31, 1995 have been prepared as if the acquisition of
the Caremark Business and the other transactions requiring pro forma adjustments
had occurred on March 31, 1995.
The pro forma combined data are based on the separate historical
consolidated financial statements of Coram, the Caremark Business and CCA giving
effect to the transactions under the assumptions and adjustments outlined in the
accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements. The pro forma adjustments are based upon available information and
upon certain assumptions that management believes are reasonable given the
circumstances. The unaudited pro forma condensed combined financial statements
are provided for comparative purposes only and are not necessarily indicative of
the results that would have been obtained had the acquisition of the Caremark
Business and CCA occurred on the dates indicated or that may be achieved in the
future.
The unaudited pro forma condensed combined financial statements and
accompanying notes should be read in conjunction with the respective historical
audited consolidated financial statements of Coram and the Caremark Business
contained in this Form 8-K, as amended.
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CORAM HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Combined
Coram
and
Caremark Pro Forma Caremark
Coram Business Adjustments Business
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................. $ 21,580 $ -- $ (7,300)(A) $ 14,280
Accounts receivable net of allowances ...... 106,419 138,800 -- 245,219
Investments ................................ 15,499 -- -- 15,499
Inventories ................................ 11,250 10,900 (3,000)(G) 19,150
Prepaid taxes .............................. 9,739 -- -- 9,739
Deferred income taxes, net ................. 32,538 -- -- 32,538
Other current assets ....................... 20,784 -- -- 20,784
--------- --------- --------- ---------
Total current assets ..................... 217,809 149,700 (10,300) 357,209
Property and equipment, net ................ 23,744 26,700 (6,100)(B) 35,344
-- -- (9,000)(G) --
Other assets ............................... 18,629 4,700 26,000(B) 47,329
-- -- (2,000)(C) --
Goodwill, net .............................. 337,269 191,900 (191,900)(B) 513,869
-- -- 176,600(B) --
--------- --------- --------- ---------
TOTAL ASSETS ............................. $ 597,451 $ 373,000 $ (16,700) $ 953,751
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ........................... $ 32,553 $ 23,800 $ -- $ 56,353
Current maturities of long-term debt ....... 5,562 -- 30,600(A) 36,162
Deferred income taxes ...................... 5,818 -- -- 5,818
Securities sold for repurchase ............. 7,365 -- -- 7,365
Reserve for litigation ..................... 22,647 -- -- 22,647
Accrued merger and restructuring ........... 35,958 -- 20,000(G) 55,958
Other accrued liabilities .................. 13,632 13,400 -- 27,032
--------- --------- --------- ---------
Total current liabilities ................ 123,535 37,200 30,600 211,335
Revolving lines of credit .................. 122,300 -- (122,300)(A) --
Long-term debt ............................. 10,801 -- 169,400(A) 430,201
-- -- 150,000(A) --
-- -- 100,000(A) --
Minority interest .......................... 4,729 5,200 -- 9,929
Other liabilities .......................... 1,885 200 -- 2,085
Deferred income taxes, non current ......... 1,522 -- -- 1,522
--------- --------- --------- ---------
Total non current liabilities ............ 141,237 5,400 297,100 443,737
--------- --------- --------- ---------
TOTAL LIABILITIES ........................ 264,772 42,600 327,700 655,072
STOCKHOLDERS' EQUITY
Common stock, par $.001 .................... 39 -- -- 39
Additional paid in capital ................. 347,071 -- -- 347,071
Unrealized loss on available for sale
securities ............................... (193) -- -- (193)
Retained earnings (deficit) ................ (14,238) 330,400 (330,400)(B) (16,238)
-- -- (32,000)(G) (32,000)
-- -- (2,000)(C) --
--------- --------- --------- ---------
Total stockholders' equity ............... 332,679 330,400 (332,400) 298,679
--------- --------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . $ 597,451 $ 373,000 $ (4,700) $ 953,751
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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CORAM HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
For the three months ended March 31, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
Combined
Coram and
Caremark Pro Forma Caremark
Coram Business Adjustments Business
----- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue ..................................... $ 104,778 $ 96,100 $ -- $ 200,878
Cost of service ................................. 75,609 76,200 (305)(F) 151,504
--------- --------- --------- ---------
Gross profit .................................. 29,169 19,900 305 49,374
Operating expenses:
Selling, general and administrative expenses .. 17,885 14,200 -- 32,085
Provision for estimated uncollectible accounts 4,013 4,300 -- 8,313
Amortization of goodwill ...................... 2,790 1,300 172(E) 4,262
Restructuring costs and other ................. (4,131) -- -- (4,131)
--------- --------- --------- ---------
Total operating expenses ................... 20,557 19,800 172 40,529
--------- --------- --------- ---------
Operating income ................................ 8,612 100 133 8,845
Other income (expense)
Interest income ............................... 402 -- -- 402
Interest expense .............................. (3,436) -- (9,791)(D) (13,227)
Other income (loss) ........................... 338 (100) -- 238
--------- --------- --------- ---------
Income (loss) before income taxes and minority
interests ..................................... 5,916 (9,658) (3,742)
--------- --------- --------- ---------
Income tax benefits ............................. (1,105) -- --(H) (1,105)
Minority interests .............................. 2,432 500 2,932
--------- --------- --------- ---------
Net income (loss) ............................... $ 4,589 $ (500) $ (9,658) $ (5,569)
========= ========= ========= =========
Income (loss) per share ......................... $ .11 $ (.14)
========= =========
Shares used to compute income (loss) per share .. 40,939 40,939
========= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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CORAM HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
For the Year Ended December 31, 1994
(in thousands, except per share data)
<TABLE>
<CAPTION>
Combined
Coram
and
Caremark Pro Forma Caremark
Coram Business CCA Adjustments Business
----- -------- --- ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenue ....................................... $ 450,496 $ 441,900 $ 31,100 $ -- $ 923,496
Cost of service ................................... 313,182 338,200 26,200 (1,220)(F) 676,362
--------- --------- --------- --------- ---------
Gross profit .................................... 137,314 103,700 4,900 1,220 247,134
Operating expenses
Selling, general and administrative expenses .... 81,907 54,200 5,600 -- 141,707
Provision for estimated uncollectible accounts .. 19,517 22,600 2,400 -- 44,517
Amortization expense ............................ 8,971 4,500 -- 2,187(E) 15,658
Provision for litigation ........................ 23,220 -- -- -- 23,220
Merger costs .................................... 28,500 -- -- -- 28,500
Restructuring costs ............................. 95,500 25,000 -- -- 120,500
Special provision for uncollectible accounts .... 17,300 -- -- -- 17,300
--------- --------- --------- --------- ---------
Total operating expense ....................... 274,915 106,300 8,000 2,187 382,602
Operating loss .................................... (137,601) (2,600) (3,100) (967) (144,268)
Other income (expense)
Interest income ................................. 2,469 -- -- -- 2,469
Interest expense ................................ (7,414) (489) -- (47,470)(D) (55,373)
Other income .................................... 865 2,489 100 -- 3,454
--------- --------- --------- --------- ---------
Loss before income taxes and minority interests ... (141,681) (600) (3,000) (48,437) (193,718)
Income tax benefit ................................ (26,231) (1,700) (1,400) (700) (30,031)
--------- --------- --------- --------- ---------
Minority interest ................................. 12,622 3,500 -- -- (G) 16,122
Net loss .......................................... $(128,072) $ (2,400) $ (1,600) $ (47,737) $(179,809)
========= ========= ========= ========= =========
Net loss per share ................................ $ (3.32) $ (4.65)
========= =========
Shares used to compute loss per share ............. 38,633 38,633
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
CAREMARK PURCHASE COMBINATION
On January 29, 1995, Coram entered into an agreement to acquire the
Caremark Business for $309 million, subject to a potential purchase price
adjustment of up to $18 million. On April 6, 1995, Coram completed the
acquisition of the Caremark Business effective as of April 1, 1995. Concurrently
with the acquisition, Coram repaid $123.8 million ($122.3 million of which was
outstanding on March 31, 1995) under long-term revolving lines-of-credit. The
potential purchase price adjustment relates principally to an increase or
decrease in the purchase price under certain circumstances to the extent net
assets are, respectively, more than or less than the purchase price.
The purchase price consisted of (i) $209 million in cash and (ii) $100
million aggregate principal amount of junior subordinated pay-in-kind ("PIK")
notes.
Coram financed the cash portion of the purchase price, costs associated
with the acquisition and the repayment of amounts outstanding under its former
credit facility with Toronto Dominion (Texas) Inc. (the "Former Credit
Facility") through (i) $200 million of borrowings under a new credit facility
with Chemical Bank as Agent, providing for aggregate commitments of up to $300
million, including a $100 million revolving credit facility (the "Senior Credit
Facility") and (ii) $150 million from the issuance of Senior Subordinated Bridge
Notes (the "Bridge Notes"). Coram intends to redeem the Bridge Notes as promptly
as practicable, subject to the availability of financing on terms reasonably
satisfactory to it.
Coram anticipates significant expenses to be incurred in connection
with the implementation of a branch office and consolidation program to
integrate the Caremark Business (the "Caremark Consolidation Plan") subsequent
to the acquisition of the Caremark Business combination. Such expenses are
expected to include severance costs, costs to terminate leases on closed
branches, consolidation of information systems, and other costs related to
consolidation activities. Additionally, Coram anticipates that it will record a
special charge associated with a revaluation of specific assets including
accounts receivable. The Company, on a preliminary basis, has estimated that the
amount of the charge will be approximately $32 million, of which approximately
$12 million is estimated to be non-cash. The estimated charge consists of
personnel and facility reduction costs of approximately $14 million and
approximately $18 million, respectively. The Company expects to revise these
estimates upon completion of the acquisition of the Caremark Business, and no
assurance can be given as to the amounts of the actual costs that will be
incurred.
In connection with the Caremark Consolidation Plan, because of branch
consolidations and system changes there is a potential for an increase in
accounts receivable write-offs for both the Company's and the Caremark Business
receivables. The charge, if any, associated with accounts receivable is not
currently estimable based on current information with a reasonable degree of
accuracy, and accordingly is not reflected in the unaudited condensed combined
financial statements. The Company expects to record the charge related to the
Caremark
10
<PAGE> 12
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
Business consolidation and any charge associated with accounts receivable as
charges to operations within six months of the purchase combination.
Coram expects to realize substantial cost savings and efficiencies from
the implementation of the Caremark Consolidation Plan. The Caremark
Consolidation Plan includes the elimination of duplicate or redundant facilities
in overlapping markets, the elimination of duplicative corporate and
administrative expenses and the renegotiation of procurement contracts. Coram
has tentatively identified 66 of 77 total Caremark Business treatment centers
which have significant geographical overlap with Coram's existing facilities.
Based on current information available, management estimates that total
annualized savings to be realized by the Caremark Consolidation Plan will
approximate $45 million. No assurance, however, can be given regarding the
aggregate amount or the timing of cost savings to be achieved by Coram from the
Caremark Consolidation Plan. Management is currently developing a detailed
Caremark Consolidation Plan, therefore, the unaudited pro forma condensed
combined financial statements do not reflect such savings.
The historical balances related to the Caremark Business presented in
the pro forma information exclude certain assets and liabilities of the home
infusion business of Caremark which were not included in the acquisition.
Effective March 1, 1994 Caremark acquired the assets and assumed
certain liabilities of Critical Care America ("CCA"). The CCA transaction was
accounted for using the purchase method of accounting. The CCA amounts on the
statement of operations for the year ended December 31, 1994 represent the
operations of CCA for the two months prior to being acquired by Caremark.
Subsequent to the acquisition the operations of CCA are included in the results
of Caremark.
11
<PAGE> 13
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(Dollars in thousands)
A. The Caremark acquisition was financed as presented below:
<TABLE>
<S> <C>
Proceeds from borrowing under the Senior Credit Facility of which $30,600
is classified as a current obligation .................................. $ 200,000
Proceeds from the Bridge Note ............................................ 150,000
$75 million 7% Convertible Subordinated PIK Note (the "Junior Convertible
Subordinated PIK Notes") ............................................... 75,000
$25 million 12% Non-Convertible Subordinated PIK Note (the "Junior Non-
Convertible Subordinated PIK Notes") ................................... 25,000
Purchase price for the Caremark Business including $26 million of fees and
expenses(1) ............................................................ (335,000)
Refinancing of Former Credit Facility .................................... (122,300)
---------
Decrease in cash ......................................................... $ (7,300)
=========
</TABLE>
----------
(1) Includes approximately $4.8 million of fees and expenses
related to a permanent financing undertaken by Coram and
deferred as of May 1, 1995, which is expected to occur after
the completion of this transaction.
B. Allocation of the purchase price of $335 million, based on the fair
market value of the assets of the Caremark Business acquired and
liabilities assumed results in the following:
<TABLE>
<S> <C>
Net assets of Caremark Business at historical amounts ......... $ 330,400
Write-off of previously recorded goodwill ..................... (191,900)
Decrease in fair value of property and equipment .............. (6,100)
Deferred financing costs of the acquisition(1) ................ 26,000
Cost in excess of net assets acquired ......................... 176,600
---------
$ 335,000
=========
</TABLE>
(1) Includes approximately $4.8 million of fees and expenses
related to a permanent financing undertaken by Coram and
deferred as of May 1, 1995, which is expected to occur after
the completion of this transaction.
C. Represents the write off of unamortized deferred financing costs
associated with Former Credit Facility repaid concurrently with the
acquisition of the Caremark Business. The write off of these costs is
not reflected in the unaudited pro forma condensed combined statements
of operations.
D. Pro forma interest expense adjustment detailed below reflects the
elimination of interest expense related to the Former Credit Facility,
and to record interest expense associated with the Senior Credit
Facility, the Bridge Notes, the Junior Convertible Subordinated PIK
Notes and Junior NonConvertible Subordinated PIK Notes and the
amortization of deferred financing costs.
12
<PAGE> 14
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Elimination of Former Credit Facility interest expense ................ $(2,921) $ (5,604)
Senior Credit Facility interest expense: Average
outstanding $169,400 in 1995 and $192,500 in 1994
at LIBOR plus 2.5% (8.84% at borrowing date) ........................ 3,573 16,135
Bridge Notes interest expense: $150,000 at prime
plus margin (12.25% at borrowing date) .............................. 4,594 18,375
Junior Convertible Subordinated PIK notes interest expense: $75,000
at 7% ............................................................... 1,398 5,334
Junior Non-Convertible Subordinated PIK notes interest expense: $25,000
at 12% .............................................................. 835 3,083
Amortization of deferred financing costs(1) ........................... 2,312 9,247
------- --------
Net interest expense adjustment ....................................... $ 9,791 $ 46,570
======= ========
</TABLE>
----------
(1) Excludes amortization of the $4.8 million of expenses related
to a permanent financing undertaken by Coram and deferred as
of May 1, 1995, which is expected to occur after the
completion of this transaction.
Each change of 1/8% in interest rates will change interest
expense on debt with variable interest rates by $437,500 based on the
$350 million variable-rate debt originally borrowed. The margin on the
Bridge Notes increases from 3.25% at initial borrowing to 4.25% after
six months, and an additional 0.5% every quarter thereafter.
Interest rates based on rates in effect during the pro forma
periods would vary with changes in the underlying reference rate.
Average rates on the Senior Credit Facility would have been 8.69% in
1995 and 6.97% in 1994; on the Bridge Note they would have been 13.46%
in 1995 and 10.88% in 1994. If those rates were reflected in the pro
forma financial statements, the interest expense would be $0.6 million
higher in 1995 and $4.9 million lower in 1994.
E. Goodwill associated with the purchase of the Caremark Business is
amortized in the unaudited pro forma condensed combined statement of
operations assuming an estimated average aggregate 30- year useful life
consistent with Coram accounting policies currently in effect. However,
Coram intends to perform a study of the components of acquired goodwill
and intangibles and may adjust amortization based upon the results of
this study. The pro forma adjustment to record goodwill amortization is
detailed below:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Elimination of goodwill amortization previously recorded................. $(1,300) $(4,500)
Amortization of costs in excess of fair value of net assets acquired..... 1,472 5,887
Goodwill adjustment from CCA transaction................................. -- 800
------- -------
Net goodwill adjustment.................................................. $ 172 $ 2,187
</TABLE>
F. Depreciation expense related to the decrease in fair value of fixed
assets over five years on a straight-line basis.
G. Estimated restructuring charge to operations in connection with the
Caremark Consolidation Plan.
13
<PAGE> 15
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
H. No tax benefits from the aforementioned pro forma adjustments have been
reflected in the unaudited pro forma condensed combined financial
statements, except for a $.7 million benefit in the year ended December
31, 1994 related to Caremark's purchase of CCA.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Secu ities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 3, 1996 CORAM HEALTHCARE CORPORATION
(registrant)
By: /s/ RICHARD M. SMITH
------------------------------
Richard M. Smith
Chief Financial Officer
15
<PAGE> 17
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Consolidated Financial Statements
December 31, 1993 and 1992
(With Independent Auditors' Report Thereon)
<PAGE> 18
Independent Auditors' Report
The Board of Directors and Stockholders
Medical Care America, Inc.:
We have audited the accompanying consolidated balance sheets of Critical Care
America (a division of Medical Care America, Inc.) as a December 31, 1993 and
1992, and the related consolidated statements of operations, divisional equity,
and cash flows for each of the years in the three year period ended December 31,
1993. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Critical Care
America at December 31, 1993 and 1992, and the results of their operations and
their cash flows for each of the years in the three year period ended December
31, 1993, in conformity with generally accepted accounting principles.
As discussed in note 10 to the consolidated financial statements, the Company
is a defendant in a class action lawsuit alleging that, during 1992, Medical
Care America, Inc., its subsidiaries, directors and certain of its officers
violated Federal securities and various state laws by making false and
misleading statements to the public, and seeking damages in unspecified
amounts. The ultimate outcome of this litigation cannot presently be
determined. Accordingly, no provision for any liability that may result upon
adjudication has been recognized in the accompanying consolidated financial
statements.
/s/ KPMG Peat Marwick
February 7, 1994
<PAGE> 19
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Consolidated Balance Sheets
December 31, 1993 and 1992
(In thousands)
<TABLE>
<CAPTION>
Assets 1993 1992
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 3,237 5,015
Patient accounts receivable, less allowance for doubtful accounts of $23,955 and
$18,105 in 1993 and 1992, respectively 58,066 78,660
Inventories 5,778 5,206
Prepaid and other assets 3,660 3,114
----------- ---------
Total current assets 70,741 91,995
Property and equipment, net (note 5) 15,443 17,602
Cost in excess of net assets acquired, net - 55,877
Other assets (note 11) 8,220 14,203
----------- ---------
$ 94,404 179,677
=========== =========
Liabilities and Divisional Equity
---------------------------------
Current liabilities:
Current portion of long-term debt and obligations under capital lease (note 6) $ 756 1,338
Accounts Payable 11,385 12,386
Accrued expenses (note 4) 11,000 12,169
Merger and restructuring reserves (note 9) 58,384 7,329
----------- ---------
Total current liabilities 81,525 33,222
Long-term debt and obligations under capital lease - noncurrent (note 6) 537 1,245
Other liabilities 802 4,037
Due to (from) MCA (4,806) 22,318
----------- ---------
Total liabilities 78,058 60,822
Divisional equity (note 8) 16,346 118,855
----------- ---------
$ 94,404 179,677
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 20
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Consolidated Statements of Operations
December 31, 1993, 1992 and 1991
(In thousands)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenues $ 235,075 272,842 233,346
Cost of revenues 160,057 152,928 122,890
----------- ----------- ----------
Gross profit 75,018 119,914 110,456
Selling, general and administrative expenses 46,898 53,126 49,920
Management fee (note 1) 2,270 2,998 -
Provision for doubtful accounts 18,773 26,774 18,996
Merger and restructuring expenses (note 9) 141,000 13,193 17,600
----------- ----------- ----------
Operating income (loss) (133,923) 23,823 23,940
Interest income 115 583 4,247
Interest expense (180) (371) (2,853)
Other income (expense), net (20) 11 (43)
----------- ----------- ----------
Income (loss) before income tax expense (benefit) (134,008) 24,046 25,291
Provision for income tax expense (benefit) (note 7) (30,989) 11,907 11,988
----------- ----------- ----------
Net income (loss) $ (103,019) 12,139 13,303
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 21
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Consolidated Statements of Divisional Equity
December 31, 1993, 1992 and 1991
(In thousands)
<TABLE>
<CAPTION>
Divisional
Equity
------
<S> <C>
Balance at December 31, 1990 $ 112,991
Exercise of stock options and warrants, net 12,941
Income tax benefits arising from stock option activity 10,592
Issuance of stock in connection with acquisitions 12,626
Redemption of convertible debentures (note 12) 38,632
Pro forma tax adjustments 762
Net income 13,303
-----------
Balance, December 31, 1991 201,847
Exercise of stock options and warrants, net 4,570
Income tax benefits arising from stock option activity 2,276
Net assets transferred to MCA (note 1) (101,977)
Net income 12,139
-----------
Balance, December 31, 1992 118,855
Exercise of stock options and warrants, net 406
Income tax benefits arising from stock option activity 104
Net loss (103,019)
-----------
Balance, December 31, 1993 $ 16,346
===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 22
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Consolidated Statements of Cash Flows
December 31, 1993, 1992 and 1991
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (103,019) 12,139 13,303
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 8,027 7,521 5,990
Loss on disposal of property and equipment - - 147
Writeoff of intangibles 64,170 - -
Impact of changes in assets and liabilities (net of
effects of various acquisitions);
Accounts receivable 21,641 (1,316) (6,154)
Inventories (572) (221) (951)
Prepaid and other assets (323) 489 (5,497)
Accounts payable and accruals (1,341) 5,144 26,291
Merger and restructuring reserves 51,893 3,633 -
Intercompany MCA (37,156) 22,264 -
Net transfer to MCA - (101,977) -
----------- ----------- ----------
Net cash provided by operating activities 3,320 (52,324) 33,129
----------- ----------- ----------
Cash flows from investing activities:
Purchase of property and equipment (3,001) (6,461) (3,516)
Other (1,213) (5,710) (3,681)
(Increase) Decrease in costs in excess of net assets acquired - (685) (682)
Payment in connection with acquisitions, net of cash acquired - (23,402) (2,906)
Proceeds from sale of temporary investments - 12,894 -
Purchases of temporary investments, net - - (12,894)
----------- ----------- ----------
Net cash used for investing activities (4,214) (23,364) (23,679)
----------- ----------- ----------
Cash flows from financing activities:
Equity increases from stock option activity 406 4,570 -
Issuance of stock, net - - 12,941
Payments of long-term debt, notes payable and capital
lease obligations (1,290) (1,958) (5,657)
Proceeds from borrowings under long-term debt - - 200
----------- ----------- ----------
Net cash provided by (used for) financing activities (884) 2,612 7,484
----------- ----------- ----------
Increase (decrease) in cash and cash equivalents (1,778) (73,076) 16,934
Cash - beginning of year 5,015 78,091 61,157
----------- ----------- ----------
Cash - end of year $ 3,237 5,015 78,091
=========== =========== ==========
(Continued)
</TABLE>
<PAGE> 23
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Consolidated Statements of Cash Flows
December 31, 1993, 1992 and 1991
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid $ 167 359 2,343
Income taxes paid * 21,643 3,870
Supplemental schedules of non-cash investing and financing activities:
Additions to obligations under capital leases 135 205 898
Income tax benefits arising from stock option activity 104 2,276 10,592
Issuance of common stock in connection with acquisitions - - 10,369
Issuance of stock pursuant to bond redemption - - 38,632
Pro forma tax provision (benefit) pursuant to merger - - 633
Liabilities assumed in acquisition 4,659 5,452 1,365
</TABLE>
* Income taxes were paid by MCA under a consolidated tax basis for the year
ended December 31, 1993.
See accompanying notes to consolidated financial statements.
<PAGE> 24
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Notes to Consolidated FINANCIAL Statements
December 31, 1993 and 1992
(In thousands, except share data)
(1) NATURE OF BUSINESS AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Critical
Care America and its wholly-owned subsidiaries (the
"Company"). On September 9, 1992, the Company merged with
Medical Care International, Inc. ("MCI") to form Medical Care
America, Inc. ("MCA"). MCI, a Delaware Corporation, owns and
operates freestanding surgical centers located throughout the
United States. The Company, a Delaware Corporation, provides
home infusion therapy services through regional centers
located throughout the United States.
In connection with the merger, 20,885,990 and 15,389,837 shares were
issued to MCI and the Company's shareholders, respectively,
based upon the exchange ratios of one share of MCA's common
stock for each share of MCI common stock and 0.72 of a share
of MCA's common stock for each share of the Company's common
stock. This transaction was accounted for as a
pooling-of-interest.
Accordingly, the Company operated as free standing entity through
September 9, 1992. Since the merger was accounted for as a
pooling which requires retroactive presentation of the
financial information, the Company is presented for the three
years ended December 31, 1993 as a division of MCA. Certain
allocations have been made which are described in subsequent
paragraphs.
Net assets of approximately $102,000 were transferred to the Company
on September 9, 1992. This is mainly comprised of short-term
investments of $42,600, deferred taxes of $9,900 and net other
assets of $49,500. During 1992, approximately $2,260 of
interest income and $2,998 of corporate overhead for the year
was transferred to MCA. Of these amounts, $2,998 was charged
back to the Company as a management fee. For 1993, a
management fee of $2,270 for corporate and administrative
costs was allocated to the Company.
All equity transactions and related tax benefits associated with the
Company employees are recorded in the Statement of Divisional
Equity.
Income tax expense (benefit) for the periods are presented on a
stand-alone basis. Since the division is part of the
consolidated tax return of MCA for the years ended December
31, 1993 and 1992, the resultant current and deferred tax
liabilities and tax assets are included in Due to (from) MCA.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Critical
Care America and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(Continued)
<PAGE> 25
CRITICAL CAPE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Notes to Consolidated Financial Statements
(b) Revenues
The Company records revenues net of contractual allowances and
other billing discounts. Payment from third-party payors is
dependent upon specific benefits included in the patient's
policy.
The Company provides an allowance for doubtful accounts to cover the
difference between the Company's billable charges and expected
collections from third-party payors and patients.
(c) Inventories
Inventories are comprised principally of drugs and medical supplies
and are stated at the lower of cost (first-in, first-out) or
market.
(d) Property and Equipment
Property and equipment are stated at cost. Equipment under capital
lease obligations is recorded at the net present value of
future minimum lease payments. Depreciation and amortization
are provided using the straight-line method over the estimated
useful lives of the assets or over the term of the respective
lease.
(e) Excess of Purchase Price Over Net Assets Acquired
The excess of purchase price over net assets acquired is being
amortized using the straight-line method over a twenty-five to
forty year period. Contingent payments required under earn out
provisions of acquisition agreements are recorded, when
earned, as excess of cost over fair value of net assets
acquired and amortized over the remaining amortization period.
All goodwill was charged-off against restructuring reserve
during 1993.
(f) Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No.109, Accounting for Income Taxes (FAS
109). FAS 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and
liability method of accounting for income taxes. Under the
asset and liability method of FAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis and operating loss and tax credit carry
forwards. The cumulative effect of that change in the method
of accounting for income taxes was immaterial and has been
included in other income in the 1993 consolidated statement of
operations. Pursuant to the deferred method under APB Opinion
11, which was applied in 1992 and prior years, deferred
income taxes are recognized for income and expense items that
are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable
in the year of the calculation.
(g) Per Share Data
MCA pooled with the Company effective September 9, 1992 and operated
as a division of MCA on a retroactive basis. Accordingly, no
per share data is presented for this division.
(Continued)
<PAGE> 26
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Notes to Consolidated Financial Statements
(h) Off-Balance Sheet Risk and Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash
equivalents, marketable investment securities and trade
receivables. Concentrations of credit risk with respect to
trade receivables is limited due to the large number of
customers comprising the Company's customer base, and their
dispersion across many different insurance companies,
individuals and geographies. As of December 31, 1993 and 1992,
the Company had no significant concentrations of credit risk
or financial instruments with off-balance sheet risk.
(3) BUSINESS COMBINATIONS
During 1992, the Company acquired the assets of certain infusion
locations. Of the $24,494 purchase price, $18,194 was paid in
cash and the remainder was recorded as a deferred purchase
price at December 31, 1992. The Company recorded $20,981 as
excess of purchase price over net assets acquired. These
acquisitions have been accounted for under the purchase method
of accounting.
On February 26, 1991, the Company merged with Care Plus, Inc.
("CPLS") under the terms of a definitive agreement previously
announced on December 31, 1990. CPLS, a Florida corporation,
provides home infusion therapy services through 19 regional
centers located throughout the United States.
On September 30, 1991, the Company merged with TeamCare, Incorporated
("TCI") under the terms of a definitive agreement previously
announced on September 5, 1991. TCI provides home infusion
therapy services, specializing in the managed care industry
segment of this marketplace.
In connection with the merger with CPLS, 5,144,290 shares of the
Company's stock were issued to CPLS stockholders, based on an
exchange ratio of .775 shares of the Company's common stock for
each share of CPLS common stock. Under the terms of the
definitive agreement with TCI, all outstanding shares of TCI
were exchanged for 580,921 shares of the Company's common
stock. These transactions were accounted as
poolings-of-interests, and, accordingly, the consolidated
financial statements for all periods presented prior to the
mergers have been restated to include the results of
operations and the financial position of CPLS and TCI. Certain
reclassifications have been made to the historical statements
of CPLS and TCI to conform to those used by the Company.
The unaudited consolidated results of operations on a pro forma basis
as though the Company's 1992 acquisitions occurred on January
1, 1992 are as follows for the year ended December 31:
<TABLE>
<CAPTION>
1992
----
<S> <C>
Net revenue $280,175
Operating income (loss) 18,539
</TABLE>
(Continued)
<PAGE> 27
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Notes to Consolidated Financial Statements
(4) ACCRUED EXPENSES
The following items are included in accrued expenses:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
---- ----
<S> <C> <C>
Accrued payroll $ 2,363 2,403
Deferred rent 1,286 1,321
Sales and use tax 1,153 1,198
Other accruals 6,198 7,247
-------- --------
$ 11,000 12,169
======== ========
</TABLE>
(5) PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
---- ----
<S> <C> <C>
Furniture and equipment $ 19,683 18,402
Medical equipment 4,859 4,708
Rental equipment (pumps) 11,917 11,289
Leasehold improvement 3,388 3,185
39,847 37,584
Less accumulated depreciation and
amortization (24,404) (19,982)
-------- --------
$ 15,443 17,602
======== ========
</TABLE>
(6) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
---- ----
<S> <C> <C>
Various notes payables, unsecured with interest rates ranging
from 9.04% to 12.52% maturing through 1999 $ 82 144
Obligations under capital leases 1,211 2,439
1,293 2,583
Less current maturities (756) (1,338)
-------- --------
$ 537 1,245
======== ========
</TABLE>
(Continued)
<PAGE> 28
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Notes to Consolidated Financial Statements
Scheduled maturities of long-term debt at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1994 $ 31
1995 17
1996 18
1997 16
-----
$ 82
=====
</TABLE>
The Company leases office space and warehouse facilities,
transportation equipment, and various furniture, fixtures and
equipment under agreements that expire over the next nine
years. The majority of the leases provide for purchase or
renewal options.
In addition, the Company leases equipment under capital leases that
expire on various dates through 1996. The total amount of
capital leases included in property and equipment on the
accompanying balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992
---- ----
<S> <C> <C>
Furniture and equipment $ 3,299 4,125
Medical equipment 2,271 2,271
Rental equipment 151 188
Leasehold improvement 54 54
-------- --------
$ 5,775 6,638
======== ========
</TABLE>
Accumulated amortization applicable to such leases is $3,229 and
$3,250 at December 31, 1993 and 1992, respectively.
The future minimum lease payments under noncancellable leases and the
present value of future minimum capital lease payments at
December 31, 1993 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASE
----------------------- -------- --------
<S> <C> <C>
1994 $833 6,913
1995 349 5,369
1996 121 4,185
1997 - 3,237
1998 1,930
Thereafter 1,360
-------- --------
Total minimum lease payments 1,303 22,994
========
Less amount representing interest (annual rates ranging
from 6.44% to 12.3%) 92
--------
Present value of minimum capital lease payments $ 1,211
========
</TABLE>
(Continued)
<PAGE> 29
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Notes to Consolidated Financial Statements
Total rental expenses relating to operating leases for the years ended
December 31, 1993, 1992 and 1991 was approximately $6,166,
$6,270 and $6,305, respectively.
(7) INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Current $ (1,572) 15,778 16,433
Deferred (29,417) (3,871) (4,445)
---------- --------- ---------
$ (30,989) 11,907 11,988
========== ========= =========
</TABLE>
As discussed in note 1, effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No.109, "Accounting
for Income Taxes" (FAS 109). The impact of adopting FAS 109
had no effect, and accordingly, there is no cumulative effect
of an accounting change presented in the accompanying
financial statements. The difference between the U.S. federal
income tax rate and the effective tax rate on the net loss
was as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------------------------------
1993 1992 1993
---- ---- ----
<S> <C> <C> <C>
U.S. federal income tax rate $(45,563) 8,176 8,599
State tax, net of federal benefit (4,343) 1,585 1,187
Non-deductible merger and restructuring 17,190 2,705 1,872
Other 1,727 (559) 330
---------- --------- ---------
$ (30,989) 11,907 11,988
========== ========= =========
</TABLE>
For the year ended December 31, 1992, under Accounting Principles
Board Opinion No. 11, deferred taxes were recognized for
income and expense items that are reported for financial
statement purposes in different years than for income tax
purposes.
The components of the net deferred tax recognized in the balance
sheets under FAS 109 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1993 1993
---- ----
<S> <C> <C>
Deferred tax assets $ 9,214 14,155
Deferred tax liabilities (2,213) (2,446)
Valuation allowance - -
---------- ---------
Net deferred tax assets $ 7,001 11,709
========== =========
</TABLE>
(Continued)
<PAGE> 30
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Notes to Consolidated Financial Statements
The approximate tax effect of each type of temporary difference and
tax credit carryforwards before allocation of the valuation
allowance is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1993 1993
---- ----
<S> <C> <C>
Gross deferred tax assets:
Allowance for doubtful accounts $ 6,314 8,764
Merger and restructuring reserve 2,070 3,863
Capital lease obligations 487 938
Other 343 590
---------- ---------
Gross deferred tax assets 9,214 14,155
---------- ---------
Gross deferred tax liability:
Tax depreciation in excess of book (1,812) (2,239)
Other (401) (207)
---------- ---------
(2,213) (2,446)
Valuation allowance - -
---------- ---------
Net deferred tax asset 7,001 11,709
========== =========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1993
was $0. No change in the total valuation allowance for the
year ended December 31, 1993 occurred.
The methodology used by MCA to allocate the Company's portion of the
tax expense/benefit and related net tax asset is based upon
the asset and liability method required under FAS 109.
Consistent with the requirements of FAS 109, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amount of existing assets and liabilities
and their respective tax basis and operating loss and tax
credit carryforwards. Management maintains the methodology
implemented properly reflects the tax position of the Company
as required under FAS 109.
Total net tax assets at December 31, 1993 amounted to $7,001 and is
included in amounts Due to (from) MCA.
(8) STOCK OPTION PLANS AND WARRANTS
The stock option activity associated with Company employees, including
the related tax benefit, is reflected in the statements of
divisional equity for the three year period ended December
31, 1993.
(Continued)
<PAGE> 31
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Notes to Consolidated Financial Statements
(9) MERGER AND RESTRUCTURING EXPENSES
During the year ended December 31, 1993, the Company recorded
restructuring expenses of $141,000. These expenses include the
write-off of goodwill and other costs recorded as a result of
various acquisitions of home infusion businesses ($71,100),
provision for closing of home infusion centers associated with
centralizing the distribution channels ($40,500), write-off of
impaired assets ($20,000) and other costs associated with the
restructuring ($9,400).
In connection with the 1992 merger, MCA recorded merger expenses of
$26,900. These expenses include transaction filing fees,
attorneys' and accounting fees ($7,045), costs related to
relocation of certain employees and office consolidation
expenses ($7,670), write-downs of certain intangible assets
($5,080) and other accruals ($7,105). Of the total expenses,
approximately $7,393 related to the Company.
During the year ended December 31, 1992, the Company recorded
restructuring expenses of $5,800. These costs relate to
expenses to be incurred in an effort to reduce overhead,
further decentralize the infusion therapy corporate management
structure and to reduce the cost of providing services
($3,300) and the write-off of an investment in an affiliated
company ($2,500).
In connection with the 1991 mergers with Care Plus, Inc. and TeamCare,
Incorporated, which were accounted for as
poolings-of-interests, the Company recorded merger expenses of
$17,600. These expenses include transaction fees ($3,660),
costs related to consolidation of operations ($5,100),
adjustments to reserve for Medicare Part A Certified Agency
appeal ($2,300), adjustments to adopt a consistent methodology
with that of the merged company for the reserve for bad debts
($4,200) and other accruals ($2,400).
(10) CONTINGENCIES
MCA and its wholly owned subsidiaries, MCI and the Company, as well as
MCA's directors and certain of its officers have been named as
defendants in a consolidated class action lawsuit alleging
violation of various sections of the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as
amended, as well as various causes of action under state law.
The suit is generally based on claims that the defendants
knew or should have known earlier than reported that MCA's
earnings for the quarter ended September 30, 1992 would be
below analysts' published expectations and that the defendants
made false and misleading statements concerning MCA's earnings
prospects leading to the subsequent loss in the value of
common shares. The suit seeks to recover monetary damages in
unspecified amounts. Although it is not possible to determine
the ultimate liability, if any, MCA believes the suit is
without merit and plans to defend itself vigorously.
(Continued)
<PAGE> 32
CRITICAL CARE AMERICA
(A DIVISION OF MEDICAL CARE AMERICA, INC.)
Notes to Consolidated Financial Statements
At December 31, 1992, MCA had certain other malpractice and other
litigation outstanding for which no specific monetary claims
have been made or for which it is not possible to determine
the ultimate liability, if any. In addition, it is possible
that certain incidents may have occurred which have not been
reported as of this date. MCA maintains professional liability
insurance coverage with respect to all claims in excess of
$3,000 in the aggregate to an annual limit of $30,000 on a
claims made basis. Based on MCA's knowledge of the facts to
date, consultation with its legal advisors and insurance
coverage, management disposition of these matters will not
have a material adverse effect on the financial position.
(11) CAPITALIZED SOFTWARE
Included in other assets is $4,861 and $6,783 of capitalized software
costs at December 31, 1993 and 1992, respectively. During
1993, as part of the restructuring charge, $5,000 was charged
off as a result of asset impairment. No amortization has been
charged through December 31, 1993 as the project is not fully
completed.
(12) CONVERTIBLE SUBORDINATED DEBENTURES
On October 26, 1989, the Company completed the sale of $39,000 in
convertible subordinated debentures. The Company received
$37,727 in net proceeds from the sale after deducting
expenses. The debentures mature October 15, 2014 and have a
coupon of 7-3/4% paying semi-annually, commencing April
15, 1990.
On September 30, 1991, the debentures were converted into the
Company's common stock at a rate equivalent to $26.25 per
share and as a result 1,484,335 shares of the Company's stock
were issued to bondholders of record.
(13) SUBSEQUENT EVENTS
Pursuant to an agreement between MCA and Caremark International, Inc.,
MCA agreed to sell certain assets and liabilities of the
Company to Caremark, Inc.
<PAGE> 33
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
99.A Press Release Issued by the Company on January 30,
1995(1)
99.B Press Release Issued by the Company on April 6, 1995(1)
99.C Asset Sale and Note Purchase Agreement dated as of
January 29, 1995, among Coram Healthcare Corporation,
Caremark International Inc. and Caremark Inc., as
amended April 1, 1995.(1)
99.D Credit Agreement dated as of April 6, 1995 among Coram
Healthcare Corporation, Coram, Inc., the lenders named
therein and Chemical Bank as Administrative Agent, as
Collateral Agent and as Fronting Bank.(1)
99.E Securities Purchase Agreement, and Form of Subordinated
Bridge Note, dated as of April 6, 1995 among Coram,
Inc., as Issuer, Coram Funding, Inc., as initial
Purchaser and Coram Healthcare Corporation.(1)
99.F $75 million 7% Convertible Subordinated PIK Note and $25
million 12% Non-Convertible Subordinated PIK Note.(1)
99.G Consent of KPMG Peat Marwick LLP.(2)
</TABLE>
- ------------
(1) Previously filed.
(2) Filed herewith.
<PAGE> 1
The Board of Directors
Medical Care, America, Inc.:
We consent to the inclusion of our qualified report dated February 7, 1994,
with respect to the consolidated balance sheets of Critical Care America (a
division of Medical Care America, Inc.) as of December 31, 1993 and 1992, and
the related consolidated statements of operations, divisional equity, and cash
flows for each of the years in the three-year period ended December 31, 1993,
which report appears in the Form 8-KA Amendment No. 1 of Coram Healthcare
Corporation dated April 17, 1995 incorporated by reference in the Forms S-8
(No. 33-55657 and 33-55547)
Our report dated February 7, 1994, contains an explanatory paragraph that
states the Company is a defendant in a class action lawsuit alleging that,
during 1992, Medical Care America, Inc., its subsidiaries, directors and
certain of its officers violated Federal securities and various state laws by
making false and misleading statements to the public, and seeking damages in
unspecified amounts. The ultimate outcome of this litigation cannot presently
be determined. Accordingly, no provision for any liability that may result
upon adjudication has been recognized in the accompanying consolidated
financial statements.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 6, 1996
