<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996
Commission File Number- 027602
--------------------
NCS HealthCare, Inc.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 34-1816187
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122
- - ----------------------------------------------------------
(Address of principal executive offices and zip code)
(216) 514-3350
- - ----------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant:
1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
2) has been subject to such filing requirement for the past 90 days.
Yes X No
--- ---
Common Stock Outstanding
- - ------------------------
Indicate the number of shares outstanding of each of the Issuers classes of
common stock, as of the latest practical date.
Class A Common Stock, $ .01 par value -- 5,519,172 shares as of May 8, 1996
Class B Common Stock, $ .01 par value -- 6,603,228 shares as of May 8, 1996
<PAGE> 2
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets-
March 31, 1996 and June 30, 1995 3
Condensed Consolidated Statements of Income-
Three and nine months ended-
March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows-
Nine months ended-
March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements-
March 31, 1996 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited) (Note A)
March 31, June 30,
ASSETS 1996 1995
-------- -------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 40,752 $ 286
Accounts receivable, less allowances 23,950 14,475
Inventories 6,048 3,699
Other 3,190 1,984
-------- -------
Total current assets 73,940 20,444
Properties and equipment, at cost
net of accumulated depreciation and amortization 8,275 5,549
Goodwill, less accumulated amortization 24,636 12,137
Other assets 542 465
-------- -------
Total assets $107,393 $38,595
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,312 $ 3,801
Accrued expenses and other liabilities 4,220 6,027
-------- -------
Total current liabilities 8,532 9,828
Long-term debt 3,438 18,505
Convertible subordinated debentures 6,549 1,900
Other 565 245
Stockholders' Equity:
Common stock, par value $ .01 share:
Class A - 50,000,000 authorized; 5,519,112 shares issued
and outstanding at March 31, 1996 (7,467 at June 30, 1995) 55 1
Class B - 20,000,000 shares authorized; 6,603,228
shares issued and outstanding at March 31, 1996
(5,976,062 at June 30, 1995) 66 60
Paid-in capital 83,676 4,341
Retained earnings 4,512 3,715
-------- -------
Total stockholders' equity 88,309 8,117
-------- -------
Total liabilities and stockholders' equity $107,393 $38,595
======== =======
[/FN]
Note A: The balance sheet at June 30, 1995 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- -------------------------
1996 1995 1996 1995
------------------------- -------------------------
<S> <C> <C> <C> <C>
Revenues $30,209 $17,186 $80,236 $46,216
Cost of revenues 22,197 12,220 58,183 32,753
------------------------- -------------------------
Gross profit 8,012 4,966 22,053 13,463
Selling, general and administrative expenses 5,616 3,715 16,044 10,366
Special compensation (1) -- -- 2,811 --
------------------------- -------------------------
Operating income 2,396 1,251 3,198 3,097
Interest expense 394 295 1,775 745
------------------------- -------------------------
Income before income taxes 2,002 956 1,423 2,352
Income tax expense 881 432 626 1,062
------------------------- -------------------------
Net income $ 1,121 $ 524 $ 797 $ 1,290
========================= =========================
Net income per share $ 0.12 $ 0.08 $ 0.10 $ 0.19
========================= =========================
Shares used in the computation 9,685 6,929 7,854 6,709
</TABLE>
[FN]
(1) Represents a one-time, non-recurring charge in connection with the
termination of compensation arrangements with the prior owners of
certain acquired businesses which had the effect of reducing net income
per share by $0.20 for the nine months ended March 31, 1996.
See notes to condensed consolidated financial statements.
4
<PAGE> 5
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
--------------------------
1996 1995
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 797 $ 1,290
Adjustments to reconcile net income to net cash used in
operating activities:
Special compensation 2,811 --
Depreciation and amortization 2,174 784
Other 423 532
--------------------------
6,205 2,606
Changes in assets and liabilities, net of effects of assets and
liabilities acquired:
Accounts receivable, net (6,605) (2,951)
Accrued expenses and other liabilities (2,399) (1,056)
Other, net (472) (205)
--------------------------
Net cash used in operating activities (3,271) (1,606)
INVESTING ACTIVITIES
Purchases of businesses (12,125) (10,781)
Capital expenditures for property and equipment, net (2,871) (701)
Other (2,286) (72)
--------------------------
Net cash used in investing activities (17,282) (11,554)
FINANCING ACTIVITIES
Proceeds from issuance of common stock and exercise of
stock options 68,878 2,688
Proceeds from convertible subordinated debentures 12,925 1,400
Repayment of long-term debt (4,784) (7,222)
Borrowings on line-of-credit 31,400 --
Payments on line-of-credit (48,900) --
Proceeds from issuance of long-term debt -- 16,941
Accrued Initial Public Offering expenses 1,500 --
--------------------------
Net cash provided by financing activities 61,019 13,807
--------------------------
Net increase in cash and cash equivalents 40,466 647
Cash and cash equivalents at beginning of period 286 384
--------------------------
Cash and cash equivalents at end of period $ 40,752 $ 1,031
==========================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine
month periods ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending June 30, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Registrant and Subsidiaries' registration
statement on Form S-1 dated February, 13, 1996 (File No. 33-80455).
2 . During the nine months ended March 31, 1996, the Company acquired
Corinthian Healthcare Systems, Inc., located in Indiana, The Apothecary,
Inc., located in Scranton, Pennsylvania, and DeMoss Rexall Drugs, Inc.,
located in Evansville, Indiana. Each of these acquisitions have been
accounted for under the purchase method. The aggregate purchase price for
these businesses was $12,125,000.
During fiscal 1995, the Company's acquisitions included TeleRx, Inc., in
Detroit, Michigan, Hunsickers's Pharmacy Long Term Care Division, Inc. and
Hunsicker's HealthCare, Inc., in Souderton, Pennsylvania, Laurel Extended
Care Pharmacy, Inc., in Ebensburg, Pennsylvania and Quality HealthCare in
Indianapolis, Indiana. Each of these acquisitions have been accounted for
under the purchase method. The aggregate purchase price for these
businesses was $16,439,000.
Unaudited pro forma data as though the Company had purchased
each of these businesses as of July 1, 1994, are set forth below:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 1996 March 31, 1995
--------------- --------------
(In thousands, except per share data)
<S> <C> <C>
Revenues $ 85,886 $ 72,448
Net income (A) $ 972 $ 1,186
Net income per common share (A) $ 0.12 $ 0.18
<FN>
(A) The pro forma results of operations of the Company for the nine months
ended March 31, 1996, include a one-time, non-recurring charge of
$2,811,000 in connection with the termination of compensation
arrangements with the prior owners of certain acquired businesses which
had the effect of reducing the net income per share by $0.20.
</TABLE>
3. On February 13, 1996, the Company issued 4,476,000 shares of Class A Common
Stock at $16.50 per share in connection with an initial public offering. A
portion of the net proceeds from the stock issuance were used to repay
approximately $27,000,000 of outstanding indebtedness under long and
short term borrowings.
4. In April 1996, the Company purchased substantially all of the assets
of Care Plus, Inc. located in Decatur, Illinois. Care Plus, Inc. provides
services to approximately 1,700 long term care residents in the Decatur
area.
6
<PAGE> 7
NCS HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THIRD QUARTER ENDED MARCH 31, 1996
Results of Operations
Revenues for the three months ended March 31, 1996 increased 75.8% to
$30,209,000, from $17,186,000 recorded in the same period in fiscal 1995. For
the nine months ended March 31, 1996, revenues increased 73.6% to $80,236,000
from $46,216,000 recorded in the comparable period in fiscal 1995.
The increase in quarter and year to date revenues over comparable prior year
periods is attributed to the Company's successful acquisition program, as well
as steady internal growth. Total revenues for the nine months ended March 31,
1996 include the fiscal 1996 acquisitions of Corinthian Healthcare Systems,
Inc., in September 1995, The Apothecary, Inc., in November 1995, and DeMoss
Rexall Drugs, Inc., in December 1995. In addition, the fiscal 1995 acquisitions
of TeleRx, Inc., in November 1994, Hunsicker's Pharmacy Long Term Care
Division, Inc. and Hunsicker's HealthCare Inc., in January 1995, Laurel
Extended Care Pharmacy, Inc. in April 1995, and Quality HealthCare of Indiana,
Inc. in June 1995, have had a full period of operations as part of the fiscal
1996 year to date consolidated operating results. The total number of beds
serviced by the Company as of March 31, 1996 has increased 35% to 50,000 beds,
up from 37,000 beds at June 30, 1995.
The Company's existing operations continued to produce internal growth through
marketing efforts to new and existing clients, increased drug utilization of
long term care facility residents, and the growth and integration of new and
existing products and services.
Cost of revenues for the three months ended March 31, 1996 increased 81.6% to
$22,197,000, from $12,220,000 recorded in the same period in fiscal 1995. For
the nine months ended March 31, 1996, cost of revenues increased 77.6% to
$58,183,000 from $32,753,000 recorded in the comparable prior fiscal year
period. Cost of revenues as a percentage of revenues for the three and nine
month periods ended March 31, 1996 were 73.5% and 72.5%, respectively,
compared to 71.1% and 70.9% for the comparable periods during the prior fiscal
year.
The increase in cost of revenues as a percentage of revenues was primarily the
result of two factors, acquisitions, and a change in the State of Pennsylvania
Medicaid reimbursement rates. First, at the time of acquisition, the gross
margins of the acquired companies are typically lower than the Company as a
whole. This is the result of several factors, including less advantageous
purchasing terms and higher production costs. Second, during fiscal 1996, the
State of Pennsylvania changed the reimbursement methodology under the State
Medicaid program which resulted in a lower reimbursement percentage for
Company sites located in that state.
Selling, general and administrative expenses as a percentage of revenues were
18.6% and 20.0% for the three and nine month periods ended March 31, 1996.
These expenses as a percentage of revenues decreased from 21.6% and 22.4%
during the comparable period in fiscal 1995. The percentage decreases are the
result of operational efficiencies and continuing efforts to leverage corporate
overhead over a larger revenue base. The increase in selling, general, and
administrative expenses in absolute dollars was mainly attributable to
acquisitions completed during the current fiscal year.
Special compensation of $2,811,000 for the nine months ended March 31, 1996
represents a one time, non recurring charge resulting from the termination of
compensation and performance incentive arrangements with the prior
owners of certain acquired businesses.
Interest expense - net increased to $394,000 and $1,775,000 for the three and
nine month periods ended March 31, 1996, from $295,000 and $745,000 during the
comparable periods in the prior fiscal year. These increases are attributed
mainly to the increase in acquisition related debt.
7
<PAGE> 8
Liquidity and Capital Resources
Net cash used in operating activities was $3,271,000 for the nine months ended
March 31, 1996, as compared to $1,606,000 in the comparable period in fiscal
1995. Cash used in operating activities increased from the comparable period in
fiscal 1995 due to an increase in trade accounts receivable, as well as a
reduction in accrued expenses. The increase in receivables occurred primarily
because of internal sales growth and slower payment from skilled nursing
facilities. The decrease in accrued expenses resulted from the timing of
payment of certain compensation and related accruals, as well as a decrease in
income taxes payable.
Net cash used in investing activities increased to $17,282,000 during the nine
months ended March 31, 1996, as compared to $11,554,000 during the same period
in the prior fiscal year. This is primarily the result of fiscal 1996
acquisitions, as well as an increase in capital expenditures. Fiscal 1996
acquisitions included Corinthian Healthcare Systems, Inc., The Apothecary, Inc.,
and DeMoss Rexall Drugs, Inc. Net cash used for capital expenditures increased
to $2,871,000 during the nine months ended March 31, 1996, up from $701,000
during the same period of fiscal 1995. Significant capital expenditures during
the nine months ended March 31, 1996, included computer and information systems
equipment, two phone systems, furniture and fixtures at the new facility
in Kittanning, Pennsylvania, leasehold improvements and medication carts for
new and existing customers.
Net cash provided by financing activities increased to $61,019,000 during the
nine months ended March 31, 1996, up from $13,807,000 for the comparable period
in fiscal 1995. The increase is primarily the result of the Company issuing
4,476,000 shares of Class A Common Stock in connection with an initial public
offering. A portion of the cash provided by the initial public offering was
used to repay approximately $27,000,000 of outstanding indebtedness under short
and long term borrowings.
The Company believes that its cash and available sources of capital are
sufficient to meet its normal operating requirements and acquisition needs
through June 30, 1997.
8
<PAGE> 9
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<S> <C> <C>
(a) Exhibits
Exhibit
Numbers Exhibit
------- -------
11 Computation of Earnings Per Common Share
15 Independent Accountant's Review Report
(b) Reports on Form 8-K - There were no reports filed on Form 8-K
for the three months ended March 31, 1996.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
NCS HealthCare, Inc.
(Registrant)
Date May 13, 1996 By /s/ Kevin B. Shaw
------------------------------------
Kevin B. Shaw
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date May 13, 1996 By /s/ Jeffrey R. Steinhilber
-------------------------------------
Jeffrey R. Steinhilber
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
9
<PAGE> 1
EXHIBIT 11
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------------------------------
1996 1995 1996 1995
----------------------------------------------------
<S> <C> <C> <C> <C>
Net income used in calculation of primary
earnings per share $ 1,121 $ 524 $ 797 $1,290
Add impact of assumed conversion of
subordinated debentures 123 13 293 13
----------------------------------------------------
Net income used in calculation of fully
diluted earnings per share $ 1,244 $ 537 1,090 $1,303
====================================================
Weighted average common shares outstanding 9,544 5,982 7,235 5,762
Net effect of dilutive stock options -- Note A 141 947 619 947
----------------------------------------------------
Shares used in calculation of primary earnings
per share 9,685 6,929 7,854 6,709
Add impact of assumed conversion of
subordinated debentures 1,005 116 835 32
----------------------------------------------------
Shares used in calculation of fully diluted
earnings per share $10,690 $7,045 $8,689 $6,741
====================================================
Primary net income per share $ 0.12 $ 0.08 $ 0.10 $ 0.19
===================================================
Fully diluted net income per share--Note B $ 0.12 $ 0.08 $ 0.13 $ 0.19
===================================================
</TABLE>
[FN]
NOTE A -- Stock options granted within a twelve-month period
preceding the proposed filing date of the Company's initial
public offering are included as if they were outstanding for
all periods presented. The dilutive effect of all options
outstanding was calculated using the treasury stock method.
NOTE B -- Fully diluted net income per share has not been presented
in the Consolidated Statements of Income because the effect
is either immaterial or anti-dilutive.
10
<PAGE> 1
EXHIBIT 15
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
NCS HealthCare, Inc.
We have reviewed the accompanying condensed balance sheet of NCS HealthCare,
Inc. and subsidiaries (the Company) as of March 31, 1996, and the related
condensed consolidated statements of income for the three-month and nine-month
periods ended March 31, 1996, and the condensed consolidated statement of cash
flows for the nine-month period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. We did not make
a similar review of the condensed consolidated statements of income for the
three-month and nine-month periods ended March 31, 1995 and the condensed
consolidated statement of cash flows for the nine-month period ended
March 31, 1995.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements at March 31, 1996 and for the
three-month and nine-month periods then ended for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of NCS HealthCare, Inc. and
subsidiaries as of June 30, 1995, and the consolidated statements of income,
stockholders' equity and cash flows for the year then ended, not presented
herein, and in our report dated December 13, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of June 30, 1995 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Cleveland, Ohio /s/ Ernst & Young LLP
May 13, 1996
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 40,752
<SECURITIES> 0
<RECEIVABLES> 26,691
<ALLOWANCES> 2,741
<INVENTORY> 6,048
<CURRENT-ASSETS> 73,940
<PP&E> 15,471
<DEPRECIATION> 7,196
<TOTAL-ASSETS> 107,393
<CURRENT-LIABILITIES> 8,532
<BONDS> 9,987
<COMMON> 121
0
0
<OTHER-SE> 88,188
<TOTAL-LIABILITY-AND-EQUITY> 107,393
<SALES> 80,236
<TOTAL-REVENUES> 80,236
<CGS> 58,183
<TOTAL-COSTS> 58,183
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 712
<INTEREST-EXPENSE> 1,775
<INCOME-PRETAX> 1,423
<INCOME-TAX> 626
<INCOME-CONTINUING> 797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 797
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
