<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 September 30, 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 -- 10,471,328 shares as of November 7,
1996
Class B Common Stock, $ .01 par value -- 6,379,098 shares as of November 7, 1996
1
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NCS HEALTHCARE, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
Page
----
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
September 30, 1996 and June 30, 1996 3
Condensed Consolidated Statements of Income-
Three months ended-
September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows-
Three months ended-
September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements - September 30, 1996 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
(Unaudited) (Note A)
September 30, June 30,
ASSETS 1996 1996
- ------ -------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,416 $ 21,460
Accounts receivable, less allowances 34,321 27,762
Inventories 11,202 7,487
Other 3,482 2,484
-------- --------
Total current assets 54,421 59,193
Property and equipment, at cost
net of accumulated depreciation and amortization 12,851 10,283
Goodwill, less accumulated amortization 70,248 39,101
Other assets 2,398 2,091
-------- --------
Total assets $139,918 $110,668
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,054 $ 4,968
Accrued expenses and other liabilities 14,782 5,889
-------- --------
Total current liabilities 22,836 10,857
Long-term debt 6,581 1,961
Convertible subordinated debentures 6,549 6,549
Other 493 201
Stockholders' Equity:
Preferred stock, par value $.01 per share,
1,000,000 shares authorized; none issued -- --
Common stock, par value $ .01 per share:
Class A - 50,000,000 shares authorized;
5,969,141 and 5,560,492 shares issued and outstanding at
September 30, 1996 and June 30, 1996, respectively 60 56
Class B - 20,000,000 shares authorized; 6,575,368
and 6,603,228 shares issued and outstanding at
September 30, 1996 and June 30,1996, respectively 66 66
Paid-in capital 95,352 84,907
Retained earnings 7,981 6,071
-------- --------
Total stockholders' equity 103,459 91,100
-------- --------
Total liabilities and stockholders' equity $139,918 $110,668
======== ========
<FN>
Note A: The balance sheet at June 30, 1996 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
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NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------
1996 1995
-----------------------
<S> <C> <C>
Revenues $43,042 $22,428
Cost of revenues 31,854 16,212
-----------------------
Gross profit 11,188 6,216
Selling, general and administrative expenses 7,654 4,699
Special compensation (1) -- 2,811
-----------------------
Operating income (loss) 3,534 (1,294)
Interest expense, net 123 507
-----------------------
Income (loss) before income taxes 3,411 (1,801)
Income tax expense (benefit) 1,501 (752)
-----------------------
Net income (loss) $ 1,910 $(1,049)
=======================
Net income (loss) per share $ 0.15 $ (0.15)
=======================
Shares used in the computation 12,594 6,932
<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 $0.23 for the three months ended
September 30, 1995.
</TABLE>
See notes to condensed consolidated financial statements.
4
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NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1996 1995
-------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,910 $ (1,049)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Special compensation -- 2,811
Depreciation and amortization 1,291 558
-------------------------
3,201 2,320
Changes in assets and liabilities, net of effects of
assets and liabilities acquired:
Accounts receivable, net (764) (1,214)
Accrued expenses and other liabilities 3,139 (2,125)
Other, net (960) (1,172)
-------------------------
Net cash provided by (used in) operating activities 4,616 (2,191)
INVESTING ACTIVITIES
Purchases of businesses (25,775) (7,478)
Capital expenditures for property and equipment, net (1,269) (1,203)
Other (1,151) (194)
-------------------------
Net cash used in investing activities (28,195) (8,875)
FINANCING ACTIVITIES
Proceeds from issuance of common stock -- 34
Proceeds from convertible subordinated debentures -- 7,000
Repayment of long-term debt (97) (10)
Borrowings on line-of-credit 7,095 13,710
Payments on line-of-credit -- (10,000)
Proceeds from issuance of long-term debt 537 53
-------------------------
Net cash provided by financing activities
7,535 10,787
-------------------------
Net decrease in cash and cash equivalents (16,044) (279)
Cash and cash equivalents at beginning of period 21,460 286
-------------------------
Cash and cash equivalents at end of period $ 5,416 $ 7
=========================
</TABLE>
See notes to condensed consolidated financial statements.
5
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NCS HEALTHCARE, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Registrant's Form 10-K for
the year ended June 30, 1996 (File No. 0-27602).
2. On February 14, 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.
On October 4, 1996, the Company completed a public offering of 4,235,000
shares of Class A Common Stock at $31 per share. The offering raised
approximately $124,700,000 (net of underwriting discounts and expenses). A
portion of the net proceeds was used to reduce debt.
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3. During the three months ended September 30, 1996, the Company completed
acquisitions of Advanced Rx Services, Inc. in Northfield, New Jersey, IPAC
Pharmacy, Inc. in Portland, Oregon, Medical Arts Pharmacy in Grand Rapids,
Michigan, Northside Pharmacy Inc. and Thrifty Medical Supply, Inc. in
Oklahoma City, Oklahoma, Thrifty Medical of Tulsa L.L.C. in Tulsa,
Oklahoma, and Hudson Pharmacy of Wichita, Inc. in Wichita, Kansas. The
aggregate purchase price for these businesses was $36,224,000 consisting
of $24,578,000 cash, $1,197,000 debt and $10,449,000 Class A Common Stock
of the Company.
During fiscal 1996, the Company completed acquisitions of Corinthian
Healthcare Systems, Inc., located in Indianapolis, Indiana, The Apothecary,
Inc. in Scranton, Pennsylvania, DeMoss Rexall Drugs, Inc., in Evansville,
Indiana, Care Plus Pharmacy in Decatur, Illinois, Uni-Care Health
Services Inc. in Londonderry, New Hampshire, Uni-Care Health Services of
Maine in Wells, Maine, and Family Care Nursing Home Service, Inc. and Care
Unlimited, Inc. in Herrin, Illinois. The aggregate purchase price for these
businesses was $29,744,000 consisting of $19,983,000 cash, $7,925,000
convertible debentures and $1,836,000 Class A Common Stock of the Company.
Subsequent to September 30, 1996, the Company completed acquisitions of
IV - Pen Care Inc. in Fort Wayne, Indiana, Pharmacy Corporation of
America - Wilsonville division, in Wilsonville, Oregon, I.V. Care of East
Central Indiana, in Muncie, Indiana, and Spectrum Health Services, Inc.
in Tampa, Florida. The aggregate purchase price for these businesses was
$12,241,000 consisting of $12,043,000 cash and $198,000 Class A Common
Stock of the Company.
Unaudited pro forma data as though the Company had completed its initial
public offering and had purchased each of these businesses as of
July 1, 1995, are set forth below:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1996 September 30, 1995
------------------ ------------------
(In thousands, except per share information)
<S> <C> <C>
Revenues $ 47,371 $ 42,683
Net income (loss) (A) $ 2,160 $ (471)
Net income per common share (A) $ 0.17 $ (0.07)
</TABLE>
(A) The pro forma results of operations of the Company for the three months
ended September 30, 1995, 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 $0.23.
4. Effective as of November 1, 1996, the Company purchased substantially all
of the assets and liabilities of Clinical Health Systems (Clinical) located
in Vancouver, Washington. Clinical provides pharmacy and related services
to over 9,400 residents in Washington, Oregon, and Idaho. The results of
Clinical have not been included in the pro forma results above. The
aggregate purchase price for Clinical was $15,000,000 consisting of
$13,000,000 cash and $2,000,000 Class A Common Stock of the Company.
7
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NCS HEALTHCARE, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION FIRST QUARTER ENDED SEPTEMBER 30, 1996
Results of Operations
Revenues for the three months ended September 30, 1996 increased 91.9% to
$43,042,000, from $22,428,000 recorded in the same period in fiscal 1996. The
increase in first quarter 1997 revenues over the comparable prior year period is
primarily attributed to two factors, the Company's acquisition program, and
internal growth.
Total revenues for the three months ended September 30, 1996 include the
acquisitions of Advanced Rx Services, Inc. in July, 1996, IPAC Pharmacy, Inc.,
Medical Arts Pharmacy, Northside Pharmacy Inc., Thrifty Medical Supply, Inc.,
and Thrifty Medical of Tulsa L.L.C. in August, 1996, and Hudson Pharmacy of
Wichita, Inc., in September, 1996. In addition, fiscal 1996 acquisitions have
had a full period of operations included as part of first quarter 1997 operating
results. Those fiscal 1996 acquisitions include Corinthian Healthcare Systems,
Inc., acquired in September, 1995, The Apothecary, Inc., acquired in November,
1995, DeMoss Rexall Drugs, Inc., acquired in December, 1995, Care Plus Pharmacy
acquired in April, 1996, Uni-Care Health Services Inc. and Uni-Care Health
Services of Maine acquired in May, 1996, and Family Care Nursing Home Service,
Inc. and Care Unlimited, Inc. acquired in June, 1996.
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 September 30, 1996 increased 96.4%
to $31,854,000, from $16,212,000 recorded in the same period in fiscal 1996.
Cost of revenues as a percentage of revenues for the three month period ended
September 30, 1996 was 74.0%, compared to 72.3% for the comparable period 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, lack of formulary management, and higher production costs.
Second, during the second quarter of 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 was
17.8% and 21.0% for the three month period ended September 30, 1996 and 1995,
respectively. 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 three months ended September 30, 1995
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 decreased to $123,000 in the first quarter of fiscal
1997, from $507,000 for the comparable period in the prior fiscal year. This
decrease is attributed mainly to the reduction of long-term debt with funds from
the initial public offering completed on February 14, 1996.
8
<PAGE> 9
Liquidity and Capital Resources
Net cash provided by operating activities was $4,616,000 for the three months
ended September 30, 1996, as compared to net cash used by operating activities
of $2,191,000 in the comparable period in fiscal 1996. Net cash provided by
operating activities increased from the comparable period in fiscal 1996 due to
increased profitability, and an increase in accrued expenses and other
liabilities. The increase in accrued expenses and other liabilities resulted
primarily from an increase in income taxes payable, increases in trade accounts
payable, and the timing of payment of certain compensation and related accruals.
These cash flow increases were offset by increases in accounts receivable and
inventory during the period.
Net cash used in investing activities increased to $28,195,000 during the three
months ended September 30, 1996, as compared to $8,875,000 during the same
period in the prior fiscal year. This is primarily the result of fiscal 1997
acquisitions, as well as an increase in capital expenditures. Significant
capital expenditures during the three months ended September 30, 1996 included
computer and information systems equipment, furniture and fixtures at the new
facility in Eastlake, Ohio, leasehold improvements and medication carts for new
and existing customers.
Net cash provided by financing activities decreased to $7,535,000 during the
three months ended September 30, 1996, down from $10,787,000 for the comparable
period in fiscal 1996. The decrease is primarily the result of the Company
utilizing cash raised from an initial public offering on February 14, 1996 to
fund acquisitions, as compared to the three months ended September 30, 1995 when
the Company utilized commercial bank financing.
The Company believes that its cash and available sources of capital, including
funds from the October 1996 public offering, are sufficient to meet its normal
operating requirements and acquisition needs through June 30, 1998.
9
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Numbers Exhibit
------- -------
11 Computation of Earnings Per Common Share
15 Independent Accountants' Review Report
(b) Reports on Form 8-K:
(1) On July 29, 1996 the Company filed an Amendment to its
Current Report on Form 8-K dated May 15, 1996, pursuant
to Item 7 of Form 8-K, for the purpose of filing
historical financial statements of Americare Health
Services, Inc. and subsidiaries (d.b.a. Uni-Care Health
Services) and certain pro-forma financial information.
(2) On August 15, 1996 the Company filed a Current Report
on Form 8-K dated August 1, 1996, pursuant to Item 2
of Form 8-K, relating to the acquisition of IPAC
Pharmacy, Inc.
(3) On August 28, 1996 the Company filed a Current Report
on Form 8-K dated August 13, 1996, pursuant to Item 2
of Form 8-K, relating to the acquisition of Thrifty
Medical of Tulsa, L.L.C., Northside Pharmacy, Inc., and
Thrifty Medical Supply, Inc.
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.
NCS HealthCare, Inc.
(Registrant)
Date: November 13, 1996 By /s/ Kevin B. Shaw
----------------------------------------
Kevin B. Shaw
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: November 13, 1996 By /s/ Jeffrey R. Steinhilber
-----------------------------------------
Jeffrey R. Steinhilber
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
10
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EXHIBIT 11
NCS HEALTHCARE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Net income (loss) used in calculation of primary
earnings per share $ 1,910 $(1,049)
Add impact of assumed conversion of
subordinated debentures 71 47
-----------------------------
Net income (loss) used in calculation of fully
diluted earnings per share $ 1,981 $(1,002)
=============================
Weighted average common shares outstanding 12,407 5,985
Net effect of dilutive stock options -- Note A 187 947
-----------------------------
Shares used in calculation of primary earnings
per share 12,594 6,932
Add impact of assumed conversion of
subordinated debentures 654 421
-----------------------------
Shares used in calculation of fully diluted
earnings per share 13,248 7,353
=============================
Primary net income (loss) per share $ 0.15 $ (0.15)
=============================
Fully diluted net income (loss) per share--
Note B $ 0.15 $ (0.14)
=============================
<FN>
NOTE A -- Stock options granted within a twelve-month period preceding the
Company's initial public offering in February 1996 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 dilutive net income (loss) per share has not been presented in
the Condensed Consolidated Statements of Income because the effect
is either immaterial or anti-dilutive.
</TABLE>
11
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EXHIBIT 15
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
NCS HealthCare, Inc. and Subsidiaries
We have reviewed the accompanying condensed consolidated balance sheet of NCS
HealthCare, Inc. and subsidiaries (the Company) as of September 30, 1996, and
the related condensed consolidated statements of income and cash flows for the
three-month periods ended September 30, 1996 and 1995. These financial
statements are the responsibility of the Company's management.
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 September 30, 1996 and for
the three-month period 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, 1996, and the consolidated statements of income,
stockholders' equity and cash flows for the year then ended, not presented
herein, and in our report dated August 2, 1996, 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, 1996 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
November 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,416
<SECURITIES> 0
<RECEIVABLES> 34,321
<ALLOWANCES> 5,310
<INVENTORY> 11,202
<CURRENT-ASSETS> 54,421
<PP&E> 24,828
<DEPRECIATION> 11,977
<TOTAL-ASSETS> 139,918
<CURRENT-LIABILITIES> 22,836
<BONDS> 13,130
<COMMON> 126
0
0
<OTHER-SE> 103,333
<TOTAL-LIABILITY-AND-EQUITY> 139,918
<SALES> 43,042
<TOTAL-REVENUES> 43,042
<CGS> 31,854
<TOTAL-COSTS> 31,854
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (39,209)
<INTEREST-EXPENSE> 300
<INCOME-PRETAX> 3,411
<INCOME-TAX> 1,501
<INCOME-CONTINUING> 1,910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,910
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
