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Exhibit 99.1
Report of Independent Auditors
To the Board of Directors and Stockholders of
NCS HealthCare, Inc.
We have audited the accompanying combined statement of assets acquired and
liabilities assumed of Thrift Drug, Inc. ("Thrift") and Fay's, Incorporated
("Fay's") as of January 30, 1998, and the related combined statement of revenues
and direct expenses for the year then ended. These statements are the
responsibility of Thrift's and Fay's management. Our responsibility is to
express an opinion on these 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 combined statement of assets acquired and
liabilities assumed and the related combined statement of revenues and direct
expenses are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
statement of assets acquired and liabilities assumed of Thrift and Fay's and the
related combined statement of revenues and direct expenses. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the combined
statement of assets acquired and liabilities assumed of Thrift and Fay's and the
related combined statement of revenues and direct expenses. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined statement of assets acquired and liabilities assumed
of Thrift and Fay's and the related combined statement of revenues and direct
expenses were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in NCS
HealthCare, Inc.'s Form 8-K/A-1 as described in Note 1 and are not intended to
be a complete presentation of the financial position and results of operations
of Thrift or Fay's.
In our opinion, the accompanying combined statements referred to above present
fairly, in all material respects, the combined assets acquired and liabilities
assumed of Thrift and Fay's as of January 30, 1998, and the related combined
revenues and direct expenses for the year ended January 30, 1998, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
March 31, 1998
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Thrift Drug, Inc. and Fay's Incorporated
Combined Statement of Assets Acquired and Liabilities Assumed
January 30, 1998
ASSETS ACQUIRED
Current assets:
Accounts receivable, less allowance of $984,000 $13,075,543
Inventory 5,363,594
Other current assets 191,297
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18,630,434
Net property, plant and equipment 4,201,047
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TOTAL ASSETS ACQUIRED 22,831,481
LIABILITIES ASSUMED
Current liabilities:
Accrued vacation payable 505,371
Other current liabilities 22,711
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TOTAL LIABILITIES ASSUMED 528,082
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TOTAL ASSETS ACQUIRED AND LIABILITIES ASSUMED, NET $22,303,399
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See accompanying notes.
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Thrift Drug, Inc. and Fay's Incorporated
Combined Statement of Revenues and Direct Expenses
For the Year Ended January 30, 1998
Revenues $76,930,953
Direct expenses:
Cost of revenues 49,769,745
Salaries and benefits 10,317,461
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EXCESS OF REVENUES OVER DIRECT EXPENSES $16,843,747
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See accompanying notes.
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Thrift Drug, Inc. and Fay's, Incorporated
Notes to Combined Statements
Year Ended January 30, 1998
1. SALE OF CERTAIN ASSETS AND BASIS OF PRESENTATION
SALE OF CERTAIN ASSETS
On January 30, 1998, NCS HealthCare ("NCS") acquired all of the assets primarily
used in the operation of the institutional pharmacy business of Thrift Drug,
Inc., ("Thrift") and Fay's, Incorporated ("Fay's"), pursuant to the terms of an
Asset Purchase Agreement dated December 29, 1997 (the "Agreement"). Thrift and
Fay's institutional pharmacy businesses are engaged, among other things, in the
business of providing pharmaceuticals, drugs, biologicals, medical devices, and
other health or medical supplies and related services to correctional
facilities, nursing homes, other institutional care facilities and individuals
residing in such facilities. Thrift and Fay's operate in Pennsylvania, North
Carolina and New York.
BASIS OF PRESENTATION
The accompanying combined statement of assets acquired and liabilities assumed
of Thrift and Fay's and the related combined statement of revenues and direct
expenses were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in NCS's
Form 8-K/A-1 requirements and are not intended to be a complete presentation of
the financial position and results of operations of Thrift and Fay's. Prior to
the purchase, these assets were an integral part of Thrift and Fay's
institutional pharmacy businesses, and did not constitute separate legal or
reporting entities for which separate financial statements or allocations of
corporate overhead costs or other corporate level activities such as cash
management and financing were prepared. In addition, operating, investing and
financing cash flow activities was not prepared. These assets and results of
operations were included in the consolidated financial statements of their
parent company, J. C. Penney Company.
Due to the omission of various operating overhead and other corporate level
expenses and anticipated changes in the business upon integration with NCS, the
statements presented are not indicative of the financial condition or results of
operations of Thrift and Fay's going forward.
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Thrift Drug, Inc. and Fay's, Incorporated
Notes to Combined Statements--Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is recognized when products or services are provided to the customer. A
significant portion of Thrift and Fay's revenues from sales of pharmaceutical
and related products are reimbursable from Medicaid and Medicare programs.
Thrift and Fay's monitor their receivables from these reimbursement sources and
reports such revenues at the net realizable amount expected to be received from
these third-party payors.
DIRECT EXPENSES
Direct expenses include the cost of products sold and salaries and benefits of
Thrift and Fay's personnel to process and distribute products sold. No amounts
have been allocated for insurance, interest, depreciation, provision for bad
debts, income taxes or any selling, general or administrative costs.
BASIS OF ACCOUNTING
These statements have been prepared on the accrual basis of accounting in
conformity with generally accepted accounting principles.
INVENTORIES
Inventories of Thrift and Fay's consist primarily of purchased pharmaceuticals
and medical supplies and are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property, plant and
equipment is computed using the straight-line method over the estimated useful
lives of the assets are as follows:
Software and computer equipment 3 - 5 years
Machinery and equipment 10 years
Furniture and fixtures 10 years
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 reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and direct expenses
during the reported period. Actual results could differ from those estimates.
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