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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
[X] For the fiscal year ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
[ ] For the transition period from _________________________
to ___________________
Commission file number 0-27602
NCS HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
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Delaware 34-1816187
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
3201 Enterprise Parkway, Beachwood, Ohio 44122
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(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (216) 514-3350
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, par value $.01 per share.
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 requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of September 25, 1996, the registrant had 5,969,141 shares
of Class A Common Stock, par value $.01 per share, and 6,495,858 shares of
Class B Common Stock, par value $.01 per share, issued and outstanding. As of
that date, the aggregate market value of these shares, which together
constitute all of the voting stock of the registrant, held by non-affiliates
was $183,144,350 (based upon the closing price of $31.75 per share of Class A
Common Stock on the NASDAQ National Market on September 25, 1996). For
purposes of this calculation, the registrant deems the 102,028 shares of Class
A Common Stock and the 5,666,298 shares of Class B Common Stock held by all of
its Directors and executive officers to be the shares of Class A Common Stock
and Class B Common Stock held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held on November 11,
1996 and the registrant's 1996 Annual Report to Stockholders for the fiscal
year ended June 30, 1996 are incorporated by reference into Parts II, III and
IV of this Form 10-K.
Except as otherwise stated, the information contained in this Form 10-K is as
of June 30, 1996.
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NCS HEALTHCARE, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Part I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . 9
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY . . . . . . . . . . . . . . . . 9
Part II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . 14
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY . . . . . . . . . 14
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . 14
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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PART I
ITEM 1. BUSINESS
GENERAL
NCS HealthCare, Inc. (the "Company" or "NCS") is a leading independent
provider of pharmacy services to long-term care institutions including skilled
nursing facilities, assisted living facilities and other institutional health
care settings. The Company purchases and dispenses prescription and
non-prescription pharmaceuticals and provides client facilities with related
management services, automated medical recordkeeping, drug therapy evaluation
and regulatory assistance. The Company also provides a broad array of
ancillary health care services to complement its core pharmacy services,
including infusion therapy, physical, speech and occupational therapies and
nutrition management. The Company is considered to operate principally in one
business segment. At June 30, 1996, the Company provided services to
approximately 71,250 residents at over 845 facilities located in Ohio,
Pennsylvania, Indiana, Michigan, Illinois, New Hampshire, and Maine.
NCS's strategy is to capitalize on industry trends and Company
expertise to strengthen its position as a leading provider of high quality,
integrated pharmacy and related services to institutional clients. The Company
intends to implement this strategy by identifying and standardizing "best
practices," cross marketing its services across its customer base to generate
internal growth, utilizing its proprietary technology to deliver information,
providing a broad array of ancillary health care services to complement its
core pharmacy services and continuing its aggressive acquisition and
development program.
NCS entered the long-term care pharmacy services industry in 1986 with
the acquisition of Modern Pharmacy Consultants, Inc. in Northeastern Ohio.
Through June 30, 1996, the Company had completed a total of fifteen
acquisitions in seven states. Subsequent to June 30, 1996, the Company
completed five additional acquisitions. As a result, NCS has expanded its
geographic presence into eleven states serving approximately 83,500 residents
at over 1,000 facilities.
On February 14, 1996, the Company issued 4,476,000 shares of Class A
Common Stock at $16.50 per share in connection with its 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. The remaining proceeds were used to fund business acquisitions.
On September 27, 1996, the Company issued 3,650,000 shares of Class A
Common Stock at $31.00 per share in connection with a public offering. A
portion of the net proceeds were used to repay approximately $7,100,000 of
outstanding indebtedness under short-term borrowings. The remaining proceeds
will be used to fund business acquisitions.
MARKET OVERVIEW
Institutional pharmacies purchase, repackage and distribute
pharmaceuticals to residents of long-term care facilities such as skilled
nursing facilities, assisted living facilities and other institutional health
care settings. Unlike hospitals, most long-term care facilities do not have
on-site pharmacies but depend instead on outside sources to provide the
necessary products and services. In response to a changing regulatory
environment and other factors, the sophistication and breadth of services
required by long-term care facilities have increased dramatically in recent
years. Today, in addition to providing pharmaceuticals, institutional
pharmacies provide consultant pharmacy services, which include monitoring the
control, distribution and administration of drugs within the long-term care
facility and assisting in compliance with applicable regulations, as well as
therapeutic monitoring and drug utilization review services. With the average
long-term care facility patient taking six to eight medications per day, high
quality, cost-efficient systems for dispensing and monitoring patient drug
regimens are critical. Providing these services places the institutional
pharmacy in a central role of influencing the effectiveness and cost of care.
Based on data from industry sources, the Company estimates that the
U.S. market for pharmacy services (including consulting services and related
supplies) in long-term care facilities exceeded $3.5 billion in 1994. The
Company believes that the market is growing due primarily to two factors.
First, the number of long-term care facility residents is rising as a result of
both demographic trends and pressures faced by acute care hospitals to
discharge patients at earlier stages of recovery. According to the U.S. Bureau
of the Census, the number of persons over age 75 increased by approximately 30%
from 1980 to 1990. In 1990, 6.1% of the population ages 75 to 84 and 24.5% of
the population ages 85 or older received care in long-term care facilities.
The segment of the population over age 85, which comprises the largest
percentage of residents at long-term care facilities, is the fastest growing
segment of the population and is expected to increase by more than 40% from
1990 to 2000.
The second factor creating growth in the institutional pharmacy market
is the increasing number of medications taken per day by long-term care
facility residents. This increase is due to (i) advances in medical technology
which have resulted in the
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availability of new drug therapy regimens and (ii) the generally higher acuity
levels of residents as a result of both payors' efforts to have care delivered
in the lowest cost setting and the generally older, and consequently sicker,
population of long-term care facility residents.
The Company believes that there are significant consolidation
opportunities in the institutional pharmacy market. Prior to the 1970's,
pharmacy needs of long-term care facilities were fulfilled by local retail
pharmacies. Since then, the pharmacy and information needs of long-term care
facilities have grown substantially and regulatory requirements and the
reimbursement environment have become more complex. Institutional pharmacy
companies, both independent and captive (those owned by an operator of
long-term care facilities), are better positioned to meet these changing market
demands. As a result, over the past 25 years the proportion of the market
served by retail pharmacies has steadily declined, and institutional pharmacies
have become the dominant providers of pharmacy services to the long-term care
market. Despite this shift, the independent institutional pharmacy market
remains highly fragmented. Faced with uncertainties related to health care
reform, an increasing need for capital resources and the necessity to provide a
wide range of specialized services, a growing number of retail and small
institutional pharmacies are seeking to affiliate with, or be acquired by,
large institutional pharmacies.
There are several factors driving the consolidation among providers of
long-term care pharmaceutical services. All of these factors relate to the
advantages that large institutional providers have over retail and small
institutional providers.
Scale Advantages. Larger pharmacies are able to (i) realize
advantages associated with size, including purchasing power, service
breadth, more sophisticated sales and marketing programs and formulary
management capabilities, (ii) achieve efficiencies in administrative
functions and (iii) access the capital resources necessary to invest
in critical computer systems and automation.
Ability to Serve Multi-Site Customers and Managed Care Payors. As
a result of their ability to serve long-term care customers with
several physical locations, larger pharmacies possess a significant
competitive advantage over their smaller counterparts. Additionally,
the Company believes that there are significant opportunities for
full-service institutional pharmacies with a comprehensive range of
services and regional coverage to provide a spectrum of health care
products and services to managed care payors.
Regulatory Expertise and Systems Capabilities. Long-term care
facilities are demanding more sophisticated and specialized services
from pharmacy providers due, in part, to the implementation in 1990 of
the Omnibus Budget Reconciliation Act of 1987 ("OBRA"). The OBRA
regulations, which were designed to upgrade and standardize care in
nursing facilities, mandated strict new standards relating to
planning, monitoring and reporting on the progress of patient care to
include, among other things, prescription drug therapy. As a result,
long-term care administrators increasingly seek experienced
pharmacists and specialized providers with computerized information
and documentation systems designed to monitor patient care and control
the facilities' and payors' costs.
Changing Market. The long-term care market is undergoing change
as health care reform proposals are considered, cost-containment
initiatives are implemented, managed care organizations seek regional
coverage and consolidation takes place. Smaller providers are more
concerned with, and generally less capable of capitalizing on
opportunities created by, these changes.
SERVICES
The Company has traditionally provided institutional pharmacy and
infusion products and services to long-term care facility residents. In recent
years, NCS has developed an array of services which address the needs of
long-term care facilities to accommodate higher acuity admissions and manage
costs. NCS believes that it is one of the few companies capable of offering
customers the depth and breadth of these products and services. Approximately
74% of the Company's revenues during fiscal year 1996 were derived from
providing pharmacy and consultant pharmacy services to long-term care
facilities. An additional 10% of revenues were derived from providing infusion
therapy services, 6% were derived from providing other therapies and the
remaining 10% were primarily derived from providing various other products and
services, including nutrition management, oxygen and Medicare Part B.
Pharmacy Services. The Company's core business is providing
pharmaceutical dispensing services to residents of long-term care facilities
and other institutions. The Company purchases, repackages and dispenses
prescription and non-prescription medication in accordance with physician
orders and delivers such prescriptions at least daily to long-term care
facilities for administration to residents by the nursing staffs of these
facilities. The Company typically serves facilities within a two hour drive
time of its distribution facility and provides 24 hour coverage 365 days per
year. As of June 30, 1996 and September 25, 1996, the
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Company provided its services from 16 sites in seven states and 24 sites in 11
states, respectively. NCS also provides its services through the management of
third party institutional pharmacies.
Upon receipt of a doctor's order, the information is entered into the
Company's management information system, which automatically reviews the order
for patient-specific allergies and potentially adverse interactions with other
medications the patient is receiving. Following this analysis, a report on
each order is produced for review by a Company pharmacist, who performs a
prospective drug utilization analysis of the order and, if appropriate,
substitutes generic drugs approved for equivalence by the U.S. Food and Drug
Administration ("FDA"). In addition, subject to the prescribing physician's
approval, the pharmacist may make therapeutic substitutions based on guidelines
established by the Company's Therapeutic Formulary Committee.
NCS provides pharmaceuticals to its clients through a unit dose
distribution system. The Company divides the pharmaceuticals received in bulk
form from its suppliers into unit dose packages for its customers. The unit
dose format is designed to reduce errors, improve control over the distribution
of pharmaceuticals and save nursing administration time relative to the bulk
systems traditionally used by retail pharmacies.
At those sites at which the Company's proprietary computer system has
been implemented, the Company utilizes its work flow control to improve
efficiencies and uses its bar-coding system to enhance safety. Under this
system, a bar code label is applied to each unit dose package. In most cases,
this step is executed by the Company. At the request of the Company, certain
manufacturers have begun to provide pharmaceuticals which are pre-packaged and
bar coded. Through bar coding, information relating to the contents and
destination of each unit dose package distributed can be automatically entered
into the Concord system. This bar code technology enables the Company to
monitor pharmaceuticals throughout the production and distribution process,
thereby reducing errors, improving pharmacy control and enhancing production
efficiency.
As an additional service, NCS furnishes its clients with information
captured by its computerized medical records and documentation system. This
system captures patient care information which is used to create monthly
management and quality assurance reports. The Company believes that this
system of information management, combined with the unit dose delivery system,
improves the efficiency and controls in nursing administration and reduces the
likelihood of drug-related adverse consequences.
Consultant Pharmacy Services. Federal and state regulations mandate
that long-term care facilities improve the quality of patient care by retaining
consultant pharmacist services to monitor and report on prescription drug
therapy. The OBRA legislation implemented in 1990 seeks to further upgrade and
standardize health care by setting forth more stringent standards relating to
planning, monitoring and reporting on the progress of prescription drug therapy
as well as facility-wide drug usage. Noncompliance with these regulations may
result in monetary sanctions as well as the potential loss of the facility's
ability to participate in Medicare and Medicaid reimbursement programs.
NCS provides consulting services that help clients comply with federal
and state regulations applicable to long-term care facilities. The Company's
services include: (i) reviewing each patient's drug regimen to assess the
appropriateness and efficacy of drug therapies, including a review of the
patient's medical records, monitoring drug reactions to other drugs or food,
monitoring lab results and recommending alternate therapies or discontinuing
unnecessary drugs; (ii) participating on the Pharmacy and Therapeutics, Quality
Assurance and other committees of the Company's clients; (iii) inspecting
medication carts and storage rooms each month; (iv) monitoring and reporting
monthly on facility-wide drug usage and drug administration systems and
practices; (v) developing and maintaining the client's pharmaceutical policy
and procedure manuals; and (vi) assisting the long-term care facility in
complying with state and federal regulations as they pertain to patient care.
Additionally, NCS offers a specialized line of consulting services
which help long-term care facilities enhance care and reduce and contain costs
as well as comply with state and federal regulations. Under this service line,
the Company provides: (i) data required for OBRA and other regulatory
purposes, including reports on psychotropic drug usage (chemical restraints),
antibiotic usage (infection control) and other drug usage; (ii) plan of care
programs which assess each patient's state of health upon admission and monitor
progress and outcomes using data on drug usage as well as dietary, physical
therapy and social service inputs; (iii) counseling related to appropriate drug
usage and implementation of drug protocols; (iv) on-site educational seminars
for the long-term care facilities' staff on topics such as drug information
relating to clinical indications, adverse drug reactions, drug protocols and
special geriatric considerations in drug therapy, information and training on
intravenous drug therapy and updates on OBRA and other regulatory compliance
issues; (v) mock regulatory reviews for nursing staffs; and (vi) nurse
consultant services and consulting for dietary, social services and medical
records.
Infusion Therapy. Infusion therapy is the intravenous delivery of
medication. The Company's infusion therapy services include pain management,
antibiotic therapy and chemotherapy for long-term care residents and home care
patients. NCS received Joint Commission on the Accreditation of Healthcare
Organizations accreditation at four sites and accreditation with commendation
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at another site. NCS prepares the product to be administered and delivers the
product to the long-term care facility for administration by the nursing staff.
Because the proper administration of infusion therapy requires a highly trained
nursing staff, the Company provides education and certification programs to its
clients in order to assure proper staff training and compliance with regulatory
requirements. NCS believes that, by enhancing the ability of client facilities
to administer infusion therapies, these programs have led to a greater use of
infusion therapies throughout the Company's long-term care facility customer
base.
Other Therapies. In 1993, the Company began providing physical,
speech and occupational therapy services. The Company currently provides these
services to residents of 26 long-term care facilities.
Nutrition Management. NCS assists long-term care facilities in menu
planning, purchasing and managing their dietary operations. Because the food
service area is typically one of the principal areas of regulatory violations,
this is an area of critical concern to long-term care facility operators.
Currently, NCS provides this service to over 160 long-term care facility
customers.
Other. The Company also provides long-term care facilities with
pharmaco-psychiatric services, recommending the appropriate treatment and
dosage amounts for behavioral syndromes and psychiatric illnesses of geriatric
residents as well as counseling and assistance with regulatory compliance in
connection with such services. Additional services offered by the Company
include assistance in complying with regulations concerning healthy and
sanitary environments. The Company also assists its customers with various
regulatory compliance matters and products and services relating to durable
medical equipment ("DME"), oxygen and Medicare Part B products and services.
Finally, NCS offers specialized educational services that aid facilities in the
training of their staffs. These services include surveys to prepare facilities
for state reviews and training on appropriate nursing techniques in infusion
therapy, wound care management and restorative nursing.
FORMULARY MANAGEMENT
NCS employs formulary management techniques designed to assist
physicians in making the best clinical choice of drug therapy for patients at
the lowest cost. Under the Company's formulary programs, NCS pharmacists
assist prescribing physicians in designating the use of particular drugs from
among therapeutic alternatives (including generic substitutions) and in the use
of more cost-effective delivery systems and dose forms. The formulary takes
into account such factors as pharmacology, safety and toxicity, efficacy, drug
administration, quality of life and other considerations specific to the
elderly population of long-term care facilities. The Company's formulary
guidelines also provide relative pharmaceutical cost information to residents,
their insurers or other payors of the pharmacy bill.
Successful implementation of formulary guidelines is dependent upon
close interaction between the pharmacist and the prescribing physician. NCS
seeks to attract and retain highly trained clinical pharmacists and encourages
their active participation in the caring for residents of long-term care
facilities, including consultation with the facilities' medical staff and other
prescribing physicians, to increase the likelihood that the most efficacious,
safe and cost-effective drug therapy is prescribed. The Company's formulary
program is directed by the NCS Formulary Committee, which is comprised of ten
pharmacists and two purchasing managers. The NCS Formulary Committee is
responsible for establishing protocols and procedures for evaluating
alternative drug therapies. To facilitate adherence to the Company's formulary
guidelines, NCS annually publishes the NCS Formulary Guide, which presents the
findings and recommendations of the NCS Formulary Committee as well as
reimbursement information. The Company believes that adherence to the NCS
formulary guidelines improves drug therapy results, lowers costs for residents
and strengthens the Company's purchasing power with pharmaceutical
manufacturers.
ACQUISITION PROGRAM
The Company believes that through consolidation of other institutional
pharmacies it can provide a broad array of high quality pharmacy and related
services in a cost effective manner. Acquisition and effective integration can
result in efficiencies in service delivery, management, marketing, information
systems and administrative functions, substantial increases in purchasing
leverage, particularly with respect to drug purchases, the ability to provide a
broad range of ancillary services complementary to the Company's core pharmacy
services and the geographic scope necessary to service multi-facility customers
and market to managed care payors.
NCS targets acquisition candidates with strong management, a
demonstrated capacity for growth and opportunities to realize efficiencies
through consolidation and integration. The Company's philosophy is to create
an environment that maintains the importance of the entrepreneur in such key
areas as dispensing, consulting, marketing and customer service while
consolidating formulary management, purchasing, administration and information
systems. Central to the Company's integration strategy is implementation of
NCS's proprietary information systems, which improve communications between the
Company's sites and permit comparison of results, facilitating the
identification of "best practices." NCS further targets acquisition candidates
with management
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who intend to continue to participate in the operation of the business but
believe that there are more substantial opportunities in being involved in a
larger organization. The Company has historically included equity in NCS as a
component of the purchase price for an acquired company in order to align the
interests of the acquired company's management with those of NCS. The Company
typically values acquisition candidates based on number of beds served,
business mix, quality of management and whether the target is a regional hub or
a "fold-in."
NCS typically targets three classes of entities for acquisition, each
with its distinct economic profile and opportunities for value creation. The
first class of acquisitions consists of larger institutional pharmacies located
in markets not currently served by NCS. These acquisitions give the Company an
immediate point of entry into a new geographic market and provide a regional
hub for distribution. The second class consists of smaller companies that are
located near a current hub. These "fold-in" acquisitions are usually
consolidated with the larger hub, increasing market share without increasing
overhead. The third class consists of those companies that offer service
extension opportunities.
MANAGEMENT INFORMATION SYSTEMS
The Company has developed a proprietary management information system,
Concord, which it employs as a pharmacy and information management system.
Many institutional pharmacy companies utilize noncustomized information systems
with limited capabilities while other companies maintain multiple systems as a
result of acquisitions of companies with different systems. NCS developed
Concord to integrate and support the Company's locations and achieve customer
specific functionality and flexibility while retaining the ability to generate
standardized information for use by the Company. NCS believes that by
developing a customized and uniform system, it is better able to provide
detailed information to its customers and third party payors. Concord provides
the Company's pharmacists with computerized access to medication administration
records, physician order sheets and treatment records for each long-term care
facility resident. Concord also improves the pharmacists' control over the
review of prescriptions for safety and the dispensing of patient doses by
giving pharmacists access to data regarding drug interactions and
contraindications, providing patient medication profiles and providing updated
information on allergies which the pharmacist can use to calculate accurately
dosages for drugs that have a high potential for toxicity and therefore cannot
be given in standard doses. Concord also is an integral part of the
implementation of the Company's bar code system. The Company believes that
Concord's computerized documentation system, in combination with NCS's unit
dose drug delivery and bar coding systems, result in greater efficiency in
nursing time, improved control, reduced waste in the facility and lower error
rates in both dispensing and administration. These benefits enhance drug
efficacy and result in fewer drug-related adverse consequences.
In addition, Concord captures patient charges, manages drug purchasing
and coordinates formulary management, financial reporting and controls and work
flow analysis. The Company believes that through its centralized information
systems, "best practices" are more easily identified and standardized and
acquisitions are more readily integrated. NCS intends to use Concord's ability
to compile utilization, cost and outcome data as a competitive advantage in
marketing to managed care companies.
Concord has been developed over a period of four years and is
supported by four on-site programmers, a full-time corporate staff of 21
employees and several outside consultants. The Company believes that this
system will facilitate a unified NCS culture through improved site-to-site
communication and will enhance the Company's ability to deliver high quality,
standardized services throughout its geographic market. To date, six of the
Company's largest distribution facilities, representing approximately 63% of
the Company's pharmacy revenues, have been converted to Concord.
SALES AND MARKETING
In marketing to existing customers, NCS has organized the selling
efforts of each formerly independent location into a single sales force
consisting of 17 field service representatives, four sales managers and five
internal sales personnel. All field sales representatives are trained in each
of the Company's products and services and sell these services throughout their
respective geographic territories. A typical territory consists of
approximately 250 long-term care facilities, and the salesperson follows an
eight week call cycle. These individuals are paid base salaries with
commissions comprising 25% to 50% of a successful salesperson's compensation.
The Company believes that long-term care facilities change institutional
pharmacies fairly infrequently, but when a change is made, it is generally the
result of a competitor's ability to offer better service or a broader array of
products and services.
PURCHASING
NCS purchases pharmaceuticals primarily from AmeriSource Health
Corporation, a national wholesale distributor, with whom it has negotiated a
prime vendor contract, and directly from certain pharmaceutical manufacturers.
The Company also is a member of industry buying groups that contract with
manufacturers for volume-based discounted prices which are passed through to
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the Company by its wholesale distributor. The Company has numerous sources of
supply available to it and has not experienced any difficulty in obtaining
pharmaceuticals or other products and supplies used in the conduct of its
business.
CUSTOMERS
At June 30, 1996, NCS had contracts to provide services to
approximately 71,250 residents in over 845 facilities. These contracts, as is
typical in the industry, are generally for a period of one year but are
terminable by either party for any reason upon thirty days' written notice. As
of June 30, 1996, no individual customer or market group represents more than
5% of the total sales of the Company's institutional pharmacy business.
COMPETITION
Competition among providers of pharmacy services to long-term care
facilities is intense, both regionally and nationally. The Company believes
that it is one of the top three independent institutional pharmacies in the
country. Institutional pharmacies compete principally on the basis of service
levels and service breadth. In its program of acquiring institutional pharmacy
providers, NCS competes with several other companies with similar acquisition
strategies, some of whom may have greater resources than the Company.
REIMBURSEMENT AND BILLING
As is generally the case for long-term care facility services, NCS
receives payments through reimbursement from Medicaid and Medicare programs and
directly from individual residents (private pay), private third-party insurers
and long-term care facilities. For the fiscal year ended June 30, 1996, the
Company's payor mix was approximately 37% Medicaid, 3% Medicare, 21% private
pay, 5% third party insurance and 34% long-term care facilities, including
amounts for which the long-term care facility receives reimbursement under
Medicare Part A. Medicare and Medicaid are highly regulated. The failure of
NCS and/or its client institutions to comply with applicable reimbursement
regulations could adversely affect the Company's business.
Private Pay. For those residents who are not covered by
government-sponsored programs or private insurance, NCS generally bills the
patient or the patient's insurer or other responsible party on a monthly basis.
Depending upon local market practices, NCS may alternatively bill private
residents through the long-term care facility. Pricing for private pay
residents is based on prevailing regional market rates or "usual and customary"
charges.
Medicaid. The Medicaid program is a federal-state cooperative program
designed to enable states to provide medical assistance to aged, blind or
disabled individuals, or to members of families with dependent children whose
income and resources are insufficient to meet the costs of necessary medical
services. State participation in the Medicaid program is voluntary. To become
eligible to receive federal funds, a state must submit a Medicaid "state plan"
to the Secretary of HHS for approval. The federal Medicaid statute specifies a
variety of requirements which the state plan must meet, including requirements
relating to eligibility, coverage of services, payment and administration. For
residents eligible for Medicaid, the Company bills the individual state
Medicaid program. Medicaid programs are funded jointly by the federal
government and individual states and are administered by the states. The
reimbursement rates for pharmacy services under Medicaid are determined on a
state-by-state basis subject to review by the Health Care Financing
Administration and applicable federal law. Federal regulations and the
regulations of certain states establish "upper limits" for reimbursement for
prescription drugs under Medicaid. In most states pharmacy services are priced
at the lower of "usual and customary" charges or cost (which generally is
defined as a function of average wholesale price and may include a profit
percentage) plus a dispensing fee. In addition, most states establish a fixed
dispensing fee which is adjusted to reflect associated costs on an annual or
less frequent basis.
State Medicaid programs generally have long-established programs for
reimbursement which have been revised and refined over time and have not had a
material adverse effect on the pricing policies or receivables collection for
long-term care facility pharmacy services. Any future changes in such
reimbursement programs or in regulations relating thereto, such as reductions
in the allowable reimbursement levels or the timing of processing of payments,
could adversely affect the Company's business. The annual increase in the
federal share would vary from state to state based on a variety of factors.
Such provisions, if ultimately signed into law, could adversely affect the
Company's business.
Medicare. The Medicare program is a federally funded and administered
health insurance program for individuals age 65 and over or for certain
individuals who are disabled. The Medicare program consists of two parts:
Medicare Part A, which covers, among other things, inpatient hospital, skilled
long-term care facility, home health care and certain other types of health
care services; and Medicare Part B, which covers physicians' services,
outpatient services and certain items and services provided by medical
suppliers. Medicare Part B also covers a limited number of specifically
designated prescription drugs. Medicare Part A requires
6
<PAGE> 9
long-term care facilities to submit all of their costs for patient care,
including pharmaceutical costs, in a unified bill. Thus, fees for
pharmaceuticals provided to Medicare Part A patients are paid to the Company by
the long-term care facility on a monthly basis. Pricing is consistent with
that of private pay residents or is set between private pay rates and Medicaid
minimums. Medicare Part A has a cost-sharing arrangement under which
beneficiaries must pay a portion of their costs. These non-covered co-payments
are billed by the facility directly to residents or the state Medicaid plan, as
the case may be.
Medicare Part B provides benefits covering, among other things,
outpatient treatment, physicians' services, durable medical equipment ("DME"),
orthotics, prosthetic devices and medical supplies. Products and services
covered for Medicare Part B eligible residents in the long-term care facility
include, but are not limited to, enteral feeding products, ostomy supplies,
urological products, orthotics, prosthetics, surgical dressings, tracheostomy
care supplies and a limited number of other medical supplies. All claims for
DME, prosthetics, orthotics, prosthetic devices, including enteral therapy and
medical supplies ("DMEPOS") are submitted to and paid by four regional carriers
known as Durable Medical Equipment Regional Carriers ("DMERCs"). The DMERCs
establish coverage guidelines, allowable utilization frequencies and billing
procedures for DMEPOS. Payment is based on a fee schedule, which varies
depending on the state in which the patient receiving the items resides.
Payments for Medicare Part B products to eligible suppliers, which include
long-term care facilities and suppliers such as NCS, are made on a per-item
basis directly to the supplier. In order to receive Medicare Part B
reimbursement payments, suppliers must meet certain conditions set by the
federal government. NCS, as an eligible supplier, either bills Medicare
directly for Part B covered products for each patient or, alternatively,
assists the long-term care facility in meeting Medicare Part B eligibility
requirements and prepares bills on behalf of the facility. For Part B
services, such as physical, speech and occupational therapy, long-term care
facilities bill Medicare for reimbursement of the amounts paid to NCS for these
services. Medicare limits such reimbursement to the reasonable amount that
would have been paid if provider employees had furnished the services. To
date, Medicare has published "salary equivalency guidelines" for physical and
respiratory therapy services. Medicare does not currently have salary
equivalency guidelines for other therapy services, but may disallow payment for
rates that substantially exceed rates paid for such services by other providers
in the same area. Moreover, Medicare is likely to issue salary equivalency
guidelines for occupational and speech therapy services in the near future.
Medicare Part B also has an annual deductible as well as a co-payment
obligation on behalf of the patient, and the portion not covered by Medicare is
billed directly to the patient or appropriate secondary payor.
Third-Party Insurance. Third-party insurance includes funding for
residents covered by private plans, veterans' benefits, workers' compensation
and other programs. The resident's individual insurance plan is billed monthly
and rates are consistent with those for other private pay residents.
Long-Term Care Facilities. In addition to occasional private patient
billings and those related to drugs for Medicare eligible residents, long-term
care facilities are billed directly for consulting services, certain
over-the-counter medications and bulk house supplies.
GOVERNMENT REGULATION
Institutional pharmacies, as well as the long-term care facilities
they service, are subject to extensive federal, state and local laws and
regulations. These laws and regulations cover required qualifications,
day-to-day operations, reimbursement and the documentation of activities. NCS
continuously monitors the effects of regulatory activity on its operations.
Licensure, Certification and Regulation. States generally require
that companies operating a pharmacy within that state be licensed by the state
board of pharmacy. The Company currently has pharmacy licenses in each of the
states in which it operates a pharmacy. In addition, the Company's pharmacies
are registered with the appropriate state and federal authorities pursuant to
statutes governing the regulation of controlled substances.
Long-term care facilities are also separately required to be licensed
in the states in which they operate and, if serving Medicaid or Medicaid
patients, must be certified to ensure compliance with applicable program
participation requirements. Long-term care facilities are also subject to the
long-term care facility reforms of OBRA, which impose strict compliance
standards relating to the quality of care for long-term care operations,
including vastly increased documentation and reporting requirements. In
addition, pharmacists, nurses and other health professionals who provide
services on the Company's behalf are in most cases required to obtain and
maintain professional licenses and are subject to state regulation regarding
professional standards of conduct.
Federal and State Laws Affecting The Repackaging, Labeling and
Interstate Shipping of Drugs. Federal and state laws impose certain
repackaging, labeling and package insert requirements on pharmacies that
repackage drugs for distribution beyond the regular practice of dispensing or
selling drugs directly to patients at retail. A drug repackager must register
with the FDA. The Company believes that it holds all required registrations
and licenses and that its repackaging operations are in compliance with
applicable state and federal requirements.
7
<PAGE> 10
Medicare and Medicaid. For an extensive period of time, the long-term
care facility pharmacy business has operated under regulatory and cost
containment pressures from state and federal legislation primarily affecting
Medicaid and, to a lesser extent, Medicare.
The Medicare program establishes certain requirements for
participation of providers and suppliers in the Medicare program. Pharmacies
are not subject to such certification requirements. Skilled long-term care
facilities and suppliers of DMEPOS, however, are subject to specified
standards. Failure to comply with these requirements and standards may
adversely affect an entity's ability to participate in the Medicare program and
receive reimbursement for services provided to Medicare beneficiaries. See
"--Reimbursement and Billing."
Federal law and regulations contain a variety of requirements relating
to the furnishing of prescription drugs under Medicaid. First, states are
given broad authority, subject to certain standards, to limit or to specify
conditions as to the coverage of particular drugs. Second, federal Medicaid
law establishes standards affecting pharmacy practice. These standards include
general requirements relating to patient counseling and drug utilization review
and more specific requirements for long-term care facilities relating to drug
regimen reviews for Medicaid patients in such facilities. Recent regulations
clarify that, under federal law, a pharmacy is not required to meet the general
standards for drugs dispensed to long-term care facility residents if the
long-term care facility complies with the drug regimen review requirements.
However, the regulations indicate that states may nevertheless require
pharmacies to comply with the general standards, regardless of whether the
long-term care facility satisfies the drug regimen review requirement, and the
states in which the Company operates currently require its pharmacies to comply
therewith. Third, federal regulations impose certain requirements relating to
reimbursement for prescription drugs furnished to Medicaid residents. See
"--Reimbursement and Billing--Medicaid."
In addition to requirements imposed by federal law, states have
substantial discretion to determine administrative, coverage, eligibility and
payment policies under their state Medicaid programs which may affect the
Company's operations. For example, some states have enacted "freedom of
choice" requirements which prohibit a long-term care facility from requiring
its residents to purchase pharmacy or other ancillary medical services or
supplies from particular providers that deal with the long-term care facility.
Such limitations may increase the competition which the Company faces in
providing services to long-term care facility patients.
Referral Restrictions. The Company is subject to federal and state
laws which govern financial and other arrangements between health care
providers. These laws include the federal anti-kickback statute, which was
originally enacted in 1977 and amended in 1987, and which prohibits, among
other things, knowingly and willfully soliciting, receiving, offering or paying
any remuneration directly or indirectly in return for or to induce the referral
of an individual to a person for the furnishing of any item or service for
which payment may be made in whole or in part under Medicare or Medicaid. Many
states have enacted similar statutes which are not necessarily limited to items
and services for which payment is made by Medicare or Medicaid. Violations of
these laws may result in fines, imprisonment and exclusion from the Medicare
and Medicaid programs or other state-funded programs. Federal and state court
decisions interpreting these statutes are limited, but have generally construed
the statutes to apply if "one purpose" of remuneration is to induce referrals
or other conduct within the statutes.
Federal regulations establish "Safe Harbors," which give immunity from
criminal or civil penalties to parties in good faith compliance. While the
failure to satisfy all the criteria for a specific Safe Harbor does not
necessarily mean that an arrangement violates the federal statute, the
arrangement is subject to review by the HHS Office of Inspector General
("OIG"), which is charged with administering the federal anti-kickback statute.
Currently, there are no procedures for obtaining binding interpretations or
advisory opinions from the OIG on the application of the federal anti-kickback
statute to an arrangement or its qualification for a Safe Harbor upon which the
Company can rely. However, on August 21, 1996, the President signed into law
the Health Insurance Portability and Accountability Act of 1996 ("HIPAA").
Beginning January 1, 1997, the Secretary of Health and Human Services will be
required under the HIPAA to issue written advisory opinions regarding the
applicability of certain aspects of the anti-kickback statute to specific
arrangements or proposed arrangements. Advisory opinions will be binding as to
the Secretary and the party requesting the opinion.
The OIG has issued "Fraud Alerts" identifying certain questionable
arrangements and practices which it believes may implicate the federal
anti-kickback statute. The OIG has issued a Fraud Alert providing its views on
certain joint venture and contractual arrangements between health care
providers. The OIG has recently issued a Fraud Alert concerning prescription
drug marketing practices that could potentially violate the federal
anti-kickback statute. Pharmaceutical marketing activities may implicate the
federal anti-kickback statute because drugs are often reimbursed under the
Medicaid program. According to the Fraud Alert, examples of practices that may
implicate the statute include certain arrangements under which remuneration is
made to pharmacists to recommend the use of a particular pharmaceutical
product. In addition, a number of states have recently undertaken enforcement
8
<PAGE> 11
actions against pharmaceutical manufacturers involving pharmaceutical marketing
programs, including programs containing incentives to pharmacists to dispense
one particular product rather than another. These enforcement actions arise
under state consumer protection laws which generally prohibit false
advertising, deceptive trade practices and the like. Further, a number of the
states involved in these enforcement actions have requested that the FDA
exercise greater regulatory oversight in the area of pharmaceutical promotional
activities by pharmacists. It is not possible to determine whether the FDA
will act in this regard or what effect, if any, FDA involvement would have on
the Company's operations.
The Company believes its contract arrangements with other health care
providers, its pharmaceutical suppliers and its pharmacy practices are in
compliance with these laws. There can be no assurance that such laws will not,
however, be interpreted in the future in a manner inconsistent with the
Company's interpretation and application.
Environmental Matters. In operating its facilities, NCS makes every
effort to comply with environmental laws. No major difficulties have been
encountered in effecting compliance. In addition, no material capital
expenditures for environmental control facilities are expected. While the
Company cannot predict the effect which any future legislation, regulations or
interpretations may have upon its operations, it does not anticipate any
changes that would have a material adverse impact on its operations.
EMPLOYEES
As of June 30, 1996, the Company had approximately 900 full-time
employees. None of the employees are represented by a union. The Company
considers relations with its employees to be good.
ITEM 2. PROPERTIES
The Company presently maintains its executive offices in approximately
3,000 square feet of space in Beachwood, Ohio pursuant to a ten-year lease with
an unaffiliated third party at an annual rental of approximately $96,000. NCS
currently considers this space to be sufficient for its corporate headquarters
operations.
As of June 30, 1996, the Company leased or owned 18 properties in ten
states with a total square feet ranging in size from approximately 1,200 square
feet to approximately 38,000 square feet. The terms of the leases relating to
these properties vary in length remaining, from one month to nine years and, in
some cases, include options to extend. For information concerning the
Company's rental obligations, see Note 4 (Operating Leases) of the Notes to
Consolidated Financial Statements, which is set forth at Exhibit 13.1 to this
Form 10-K Annual Report.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to the
conduct of its business. The Company does not expect that any such proceedings
will have a material adverse effect on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY*
The name, age and positions of each of the Company's executive
officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jon H. Outcalt 60 Chairman of the Board of Directors
Kevin B. Shaw 39 President, Chief Executive Officer
Phyllis K. Wilson 55 Executive Vice President
Jeffrey R. Steinhilber 39 Senior Vice President and Chief Financial Officer
Norman D. Leibow 64 Senior Vice President
William B. Byrum 52 Vice President - Corporate Development
</TABLE>
*Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Jon H. Outcalt, chairman of the Board, is a founding principal of NCS
and has served as Chairman of the Board since 1986. He was a Senior Vice
President of Alliance Capital Management L.P., a global investment management
company, from 1975 to December 1995. Mr. Outcalt serves on the Board of
Directors of Capitol American Financial Corporation, a specialty insurance
provider, Myers Industries, Inc., a manufacturer of plastic and rubber parts
for the automotive and other industries, and Ohio Savings Financial
Corporation, a savings and loan holding company. He is a graduate of Trinity
College (B.A.) and the Wharton Graduate School of Business (M.B.A.).
9
<PAGE> 12
Kevin B. Shaw, President, Chief Executive Officer and a Director of
the Company, is a founding principal of NCS and has served as President,
Secretary and a Director of the Company since 1986 and as Chief Executive
Officer since December 1995. Prior to joining the Company, he was employed by
McKinsey & Company and Owens Corning Fiberglas. Mr. Shaw is a graduate of
Harvard College (B.A.) and Stanford Graduate School of Business (M.B.A.).
Phyllis K. Wilson, R.PH., Executive Vice President and a Director of
the Company since November, 1993, is the founder of NCS's Columbus, Ohio
operation and heads the corporate and support functions of the Company. From
1989 to June 1995, she was responsible for corporate development and oversaw
the Company's Ohio and Michigan operations. She is past President of the Ohio
State Board of Pharmacy and served on the Board from 1980 to 1984. Ms. Wilson
is a founding member of the American Society of Consultant Pharmacists and is a
graduate of Ohio State University with a B.S. in Pharmacy.
Jeffrey R. Steinhilber, Senior Vice President and Chief Financial
Officer of the Company, joined NCS in August 1994. From 1988 to July 1994, Mr.
Steinhilber was the Chief Financial Officer of Austin Powder Company. He is a
graduate of Duke University (B.A.) and Northwestern Graduate School of Business
(M.B.A.).
Norman D. Leibow, Senior Vice President of the Company since 1986, was
the founder of Modern Pharmacy Consultants, which was acquired by the Company
in 1986. He is past President of the Ohio State Board of Pharmacy and served
on the Board from 1984 to 1992. Mr. Leibow graduated from Ohio State
University with a B.S. in Pharmacy.
William B. Byrum, Vice President--Corporate Development of the
Company, joined the Company in September 1995. From April 1993 to September
1995, Mr. Byrum was President and Chief Executive Officer of Corinthian
Healthcare Systems, Inc., prior to its acquisition by the Company. From 1991
to April 1993, he was Vice President of Development (Acquisitions) for
Hook-SupeRx, Inc. Prior to 1991, Mr. Byrum was Vice President, Store Operations
at the Hook Drug Division of Hook-SupeRx, Inc., serving in various management
positions. Mr. Byrum is a graduate of Purdue University with a B.S. in
Pharmacy.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Class A Common Stock is traded on the Nasdaq National Market under
the symbol NCSS. The Class A Common Stock was initially offered to the public
on February 14, 1996 at a price of $16.50 per share and commenced trading on
The Nasdaq Stock Market, Inc. on that date. The following table sets forth,
for the fiscal year ended June 30, 1996, the high and low sale prices per share
for the Class A Common Stock, as reported on the Nasdaq National Market. These
prices do not include retail markups, markdowns or commission.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Third Quarter (from February 14, 1996) . . . . . . . . . . . . . . . . . . . $26.50 $20.00
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.50 24.50
</TABLE>
On September 26, 1996, the last sale price of the Class A Common Stock
as reported by Nasdaq was $31 5/16 per share. As of September 25, 1996, there
were approximately 225 holders of record of the Class A Common Stock.
The Company has never declared or paid cash dividends on its Class A
Common Stock. The Company currently intends to retain any earnings for use in
its business and therefore does not anticipate paying any dividends in the
foreseeable future. Any determination to pay cash dividends in the future will
be at the discretion of the Board of Directors after taking into account
various factors, including the Company's financial condition, results of
operations, current and anticipated cash needs and plans for expansion.
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues $28,478 $33,620 $48,205 $65,602 $113,281
Cost of revenues 21,106 24,646 34,288 46,570 82,415
------- ------- ------- ------- --------
Gross profit 7,372 8,974 13,917 19,032 30,866
Selling, general and
administrative expenses 5,964 7,037 10,531 14,539 22,236
Special compensation (1) -- -- -- -- 2,811
------- ------- ------- ------- --------
Operating income 1,408 1,937 3,386 4,493 5,819
Interest expense, net 59 428 525 1,089 1,611
------- ------- ------- ------- --------
Income before income taxes 1,349 1,509 2,861 3,404 4,208
Income tax expense 632 696 1,327 1,536 1,852
------- ------- ------- ------- --------
Net income $ 717 $ 813 $ 1,534 $ 1,868 $ 2,356
======= ======= ======= ======= ========
Net income per share $ 0.11 $ 0.13 $ 0.24 $ 0.28 $ 0.26
======= ======= ======= ======= ========
Shares used in the computation 6,303 6,303 6,424 6,764 8,971
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 85 $ 577 $ 384 $ 286 $ 21,460
Working capital 2,644 1,383 5,920 10,616 48,336
Total assets 6,812 8,651 15,556 38,595 110,668
Long-term debt, excluding
current portion 1,897 1,575 4,608 18,505 1,961
Convertible subordinated
debentures -- -- -- 1,900 6,549
Stockholders' equity 613 1,426 4,173 8,117 91,100
</TABLE>
(1) Represents a one-time, non-recurring charge in connection with the
termination of certain compensation and performance incentive
arrangements with the prior owners of certain acquired businesses.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is set forth at Exhibit 13.1 to
be provided in the 1996 Annual Report to Stockholders, which is incorporated
herein by reference.
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth at Exhibit 13.1 to
be provided in the 1996 Annual Report to Stockholders, which is incorporated
herein by reference.
Quarterly results of operations for the year ended June 30, 1996 are
included in Note 9 of the Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information regarding Directors appearing under the caption
"Election of Directors" in the Company's definitive Proxy Statement to be used
in connection with the Annual Meeting of Stockholders to be held on November
11, 1996 (the "1996 Proxy Statement") is incorporated herein by reference.
Information required by this item as to the executive officers of the Company
is included as Item 4A of Part I of this Annual Report on Form 10-K as
permitted by Instruction 3 to Item 401(b) of Regulation S-K. Information
required by Item 405 of Regulation S-K is set forth in the 1996 Proxy Statement
under the heading "Section 16(a) Beneficial Ownership Reporting Compliance,"
which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to "Executive Compensation" in the 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to "Stock Ownership of Principal Holders and Management" in the 1996
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the extent applicable the information required by this item is
incorporated herein by reference to "Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions" in the 1996 Proxy Statement.
13
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K:
1. Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets at June 30, 1995 and 1996
Consolidated Statements of Income for each of the
three years in the period ended June 30, 1996
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended June 30,
1996
Consolidated Statements of Cash Flows for each of the
three years in the period ended June 30, 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
All financial statement schedules for the Company and its
subsidiaries have been included in the consolidated financial
statements or the related footnotes, or they are either
inapplicable or not required.
3. Exhibits
See the Index to Exhibits at page E-1 of this Form 10-K.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the last quarter of
the period covered by this Annual Report on Form 10-K other than the
following:
Current Report on Form 8-K, dated May 15, 1996, reporting under
Item 2 the Company's acquisition of Uni-Care Health Services, Inc.
and Uni-Care Health Services of Maine, Inc.
14
<PAGE> 17
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
By: /s/ Jon H. Outcalt
---------------------------
Jon H. Outcalt
Chairman of the Board of Directors
Date: September 30, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Jon H. Outcalt Chairman of the Board of Directors
- -----------------------------------
Jon H. Outcalt
/s/ Kevin B. Shaw President, Chief Executive Officer and Director
- ----------------------------------- (Principal Executive Officer)
Kevin B. Shaw
/s/ Jeffrey R. Steinhilber Chief Financial Officer (Principal Financial and
- ----------------------------------- Accounting Officer)
Jeffrey R. Steinhilber
/s/ A Malachi Mixon Director
- -----------------------------------
A. Malachi Mixon III
/s/ Boake A. Sells Director
- -----------------------------------
Boake A. Sells
/s/ James B. Naylor Director
- -----------------------------------
James B. Naylor
/s/ Richard L. Osborne Director
- -----------------------------------
Richard L. Osborne
/s/ Phyllis K. Wilson Director
- -----------------------------------
Phyllis K. Wilson
</TABLE>
Date: September 30, 1996
15
<PAGE> 18
EXHIBIT TO INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE
- ------- ----------- ----------
<S> <C>
2.1 Stock Purchase Agreement, dated May 15, 1996, by and among the Company and
the owners of capital stock of Uni-Care Health Services, Inc. and Uni-Care Health
Services of Maine, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A)
2.2 Asset Purchase Agreement, dated as of July 31, 1996, by and among the Company,
NCS HealthCare of Oregon, Inc., IPAC Pharmacy, Inc. and Prestige Care, Inc. . . . (B)
2.3 Agreement of Merger, dated August 13, 1996, by and among the Company, Northside
Pharmacy, Inc., Willis V. Smith, The Willis Vernon Smith Unitrust, dated as of
August 8, 1996, Charles Oliver and NCS HealthCare of Oklahoma, Inc. . . . . . . . (C)
2.4 Asset Purchase Agreement, dated August 13, 1996, by an among NCS HealthCare of ]
Oklahoma, Inc., an Oklahoma corporation, Med-Equip Homecare Equipment Service,
Inc., an Oklahoma corporation Gail Benjamin, Willis V. Smith and John Tarr . . . . (C)
2.5 Asset Purchase Agreement, dated August 13, 1996, by and among Thrifty Medical of
Tulsa, L.L.C., an Oklahoma limited liability company, Willis V. Smith, Charles
Oliver and NCS HealthCare of Oklahoma, Inc., an Oklahoma corporation . . . . . . (C)
2.6 Stock Purchase Agreement, dated August 13, 1996, by and among the Willis Vernon
Smith Unitrust Dated August 8, 1996, Charles Oliver, Willis V. Smith and the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (C)
3.1 Amended and Restated Certificate of Incorporation of the Company . . . . . . . . . (E)
3.2 Amended By-Laws of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . (E)
4.1 Specimen certificate of the Company's Class A Common Stock . . . . . . . . . . . . (E)
4.2 Specimen certificate of the Company's Class B Common Stock . . . . . . . . . . . . (E)
4.3 Commercial Demand Note dated November 1, 1995 . . . . . . . . . . . . . . . . . . (D)
* 10.1 Deferred Compensation Agreement, dated as of January 1, 1994, by and between Modern
Pharmacy Consultants, Inc. and Phyllis K. Wilson . . . . . . . . . . . . . . . . . (E)
* 10.2 1996 Long Term Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . (E)
* 10.3 Aberdeen Group, Inc. 1995 Amended and Restated Employee Stock Purchase
and Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (E)
* 10.4 Amended and Restated Stock Option Agreement, dated as of December 3, 1993,
by and between Aberdeen Group, Inc. and Richard L. Osborne . . . . . . . . . . . (E)
* 10.5 Amended and Restated Stock Option Agreement, dated as of December 29, 1994,
by and between Aberdeen Group, Inc. and Jeffrey R. Steinhilber . . . . . . . . . . (E)
10.6 Lease Agreement, dated as of July 16, 1990, by and among Crow-O'Brien-Woodhouse
I Limited Partnership, Aberdeen Group, Inc. and Van Cleef Properties, Inc. . . . (E)
10.7 Lease Agreement, dated as of January 1, 1996, by and between PR Realty and
Nursing Center Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . (E)
10.8 Industrial Lease Agreement dated as of May 28, 1993 by and between Industrial
Developments International, Inc. and Corinthian Pharmaceutical Systems, Inc. . . . (E)
10.9 Lease Agreement, dated as of January 17, 1995, by and among Calvin Hunsicker,
Brenda Hunsicker and Aberdeen Group, Inc. . . . . . . . . . . . . . . . . . . . . (E)
10.10 Form of Indemnity Agreement by and between the Company and each of its Directors
and Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (E)
*10.11 Employment and Noncompetition Agreement, dated as of September 1, 1996, by and
between Aberdeen Group, Inc. and William B. Bryum . . . . . . . . . . . . . . . . (D)
</TABLE>
E-1
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page
- ------- ----------- ----------
<S> <C> <C>
11.1 Statement regarding computation of net income (loss) per common share . . . . . .
13.1 Financial information to be provided in the 1996 Annual Report to Stockholders . .
21.1 Subsidiaries of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.1 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
____________________
* Management contract or compensatory plan or arrangement identified
pursuant to Item 14(c) of this Form 10-K.
(A) Incorporated herein by reference to the appropriate exhibit to the
Company's Current Report in Form 8-K, dated May 15, 1996 (File No.
0-027602).
(B) Incorporated herein by reference to the appropriate exhibit to the
Company's Current Report in Form 8-K, dated August 1, 1996 (File No.
0-027602).
(C) Incorporated herein by reference to appropriate exhibit to the
Company's Current Report on Form 8-K, dated August 15, 1996 (File No.
0- 027602).
(D) Incorporated herein by reference to the appropriate exhibit to the
Company's Registration Statement on Form S-1 declared effective on
September 26, 1996 (Reg. No. 333-11251).
(E) Incorporated herein by reference to the appropriate exhibit to the
Company's Registration Statement on Form S-1 declared effective on
February 13, 1996 (Reg. No. 333-8045).
E-2
<PAGE> 1
<TABLE>
EXHIBIT 11.1
NCS HealthCare, Inc. and Subsidiaries
Computation of Earnings Per Common Share
(In thousands, except per share information)
<CAPTION>
Year ended June 30,
--------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net income used in calculation of primary
earnings per share $1,534 $1,868 $2,356
Add impact of assumed conversion of
subordinated debentures 0 31 364
------ ------ ------
Net income used in calculation of fully
diluted earnings per share $1,534 $1,899 $2,720
====== ====== ======
Weighted average common shares outstanding 5,478 5,818 8,462
Net effect of dilutive stock options--Note A 946 946 509
------ ------ ------
Shares used in calculation of primary
earnings per share 6,424 6,764 8,971
Add impact of assumed conversion of
subordinated debentures 0 68 775
Additional effect of dilutive
stock options using end of
period stock price - - 24
------ ------ ------
Shares used in calculation of fully
diluted earnings per share 6,424 6,832 9,770
====== ====== ======
Primary net income per share $ .24 $ .28 $ .26
====== ====== ======
Fully diluted net income per share--
Note B $ .24 $ .28 $ .28
====== ====== ======
<FN>
NOTE A -- Stock options granted within a twelve-month period preceding
the proposed filing date of the Company's initial public
offering on February 14, 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 per share has not been presented in
the Consolidated Statements of Income because the effect is
either immaterial or anti-dilutive.
</TABLE>
<PAGE> 1
Exhibit 13.1
<TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items from the Company's Statements of income, expressed as a percentage of
total revenues.
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of revenues . . . . . . . . . . . . . . . . . 71.1 71.0 72.8
----- ----- -----
Gross margin . . . . . . . . . . . . . . . . . . . 28.9 29.0 27.2
Selling, general and administrative expenses . . . 21.9 22.1 19.6
Special compensation . . . . . . . . . . . . . . . -- -- 2.5
----- ----- -----
Operating income . . . . . . . . . . . . . . . . . 7.0 6.9 5.1
Interest expense, net . . . . . . . . . . . . . . . 1.1 1.7 1.4
----- ----- -----
Income before income taxes . . . . . . . . . . . . 5.9 5.2 3.7
Income tax expense . . . . . . . . . . . . . . . . 2.7 2.3 1.6
----- ----- -----
Net income . . . . . . . . . . . . . . . . . . . . 3.2% 2.9% 2.1%
===== ===== =====
</TABLE>
Years Ended June 30, 1996 and 1995
Revenues for the year ended June 30, 1996 rose $47.7 million or 72.7%
to $113.3 million from the $65.6 million recorded in the comparable period of
1995. This increase is attributable to $35.9 million of revenues generated by
acquisitions and $11.8 million of revenues relating to internal growth.
Cost of revenues for the year ended June 30, 1996 grew to $82.4
million from $46.6 million for the year ended June 30, 1995, representing an
increase of $35.8 million or 76.8%. Cost of revenues as a percentage of
revenues increased to 72.8% for the year ended June 30, 1996 from 71.0% for the
year ended June 30, 1995. The increase in cost of revenues was primarily the
result of acquisitions. At the time of acquisition, the cost of revenues as a
percentage of revenues of the acquired companies was generally higher as a
result of several factors, including less advantageous purchase contracts, lack
of formulary management and higher production costs.
Selling general and administrative expenses for the year ended June
30, 1996 were $22.2 million compared to $14.5 million for the year ended June
30, 1995, representing an increase of $7.7 million or 53.1%. Selling, general
and administrative expenses as a percentage of revenues decreased from 22.1%
for the year ended June 30, 1995 to 19.6% for the year ended June 30, 1996.
The increase in selling, general and administrative expenses in absolute terms
was mainly attributable to acquisitions completed since June 30, 1995. The
decrease in percentage terms was due to the relatively fixed nature of
corporate general and administrative expenses.
Special compensation of $2.8 million for the year ended June 30, 1996
represents a one-time, non-recurring charge in connection with the termination
of certain compensation and performance incentive arrangements with the prior
owners of certain acquired businesses.
Operating income for the year ended June 30, 1996 was $5.8 million
compared to operating income of $4.5 million for the year ended June 30, 1995.
Excluding the one-time, non-recurring charge described above, operating income
for the year ended June 30, 1996 was $8.6 million or a 91.1% increase over the
$4.5 million for the year ended June 30, 1995. This improvement reflects
increased sales volume and the continued benefit of the Company's operating
leverage which is due to the higher rate of growth in revenues and gross profit
than in general and administrative expenses. As a percentage of total
revenues, operating income, excluding the one-time, non-recurring charge,
increased to 7.6% for the year ended June 30, 1996 from 6.9% for the year ended
June 30, 1995.
Interest expense, net, of $1.6 million for the year ended June 30,
1996 increased from $1.1 million for the year ended June 30, 1995. This
increase was primarily due to the increase in acquisition-related debt offset
somewhat from interest income generated from the approximately $67.0 million
net proceeds the Company raised in its initial public offering on February 14,
1996.
Years Ended June 30, 1995 and 1994
Revenues for the year ended June 30, 1995 rose $17.4 million or 36.1%
to $65.6 million from the $48.2 million recorded in the comparable period of
1994. This increase is attributable to $7.7 million of revenues generated by
Tele-Rx, Hunsicker's, Laurel and Quality, acquired during the year ended June
30, 1995, $1.6 million of revenues reflecting a full year's effect of
Klingensmith NCS, Inc. ("Klingensmith") acquired during the year ended June
30, 1994, and $8.1 million relating to internal growth.
Cost of revenues for the year ended June 30, 1995 grew to $46.6
million compared to $34.3 million for the year ended June 30, 1994,
representing an increase of $12.3 million or 35.9%. Cost of revenues as a
percentage of revenues decreased to 71.0%
<PAGE> 2
for the year ended June 30, 1995 from 71.1% for the year ended June 30, 1994.
The slight decrease in cost of revenues, as a percentage of revenues, was
primarily a result of improvements in purchasing and formulary management and
the growth of higher margin services offset by the higher cost of revenues at
Hunsicker's and Tele-Rx. Hunsicker's higher cost of revenues is primarily a
result of durable medical equipment products and services composing 25% of
Hunsicker's total revenues. This is a higher percentage of revenues than NCS
maintains at other sites, and these revenues typically have higher cost of
revenues than pharmaceutical sales. Tele-Rx, located in Detroit, Michigan, has
a higher cost of revenues, due mostly to a Medicaid reimbursement rate in the
state of Michigan that is lower than reimbursement rates in other states in
which NCS operates.
Selling, general and administrative expenses for the year ended June
30, 1995 were $14.5 million compared to $10.5 million for the year ended June
30, 1994, representing an increase of $4.0 million or 38.1%. Selling, general
and administrative expenses as a percentage of revenues increased from 21.9% for
the year ended June 30, 1994 to 22.1% for the year ended June 30, 1995. The
increase in selling, general and administrative expenses in absolute terms was
mainly attributable to the acquisitions of Tele-Rx, Hunsicker's and Laurel, the
hiring of management personnel and increased marketing expenses.
Interest expense, net, of $1.1 million for the year ended June 30,
1995 increased $564,000 over the same period of 1994, due primarily to the
increase in acquisition-related debt.
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company completed an initial public offering of
4,476,000 shares of Class A Common Stock resulting in net proceeds of
approximately $67.0 million of which approximately $27.0 million was used to
repay outstanding indebtedness.
The Company's principal capital requirements have been to fund
acquisitions, working capital needs and capital expenditures.
Net cash provided (used) by operating activities was $1.5 million,
$1.3 million and $(2.1) million in 1994, 1995 and 1996 respectively. Cash
provided by operating activities decreased over the three years due to an
increase in trade accounts receivable and, in 1996, a reduction in trade
accounts payable.
Net cash used in investing activities increased from $3.1 million in
1994 to $19.2 million in 1995 and $34.7 million in 1996. The majority of the
increase was attributable to acquisitions along with an increase in capital
expenditures.
The Company made capital expenditures in 1995 and 1996 of $2.8 million
and $4.7 million, respectively. The increase was due principally to purchase
of medication carts, computer equipment, vehicles and leasehold improvements.
Additionally, the Company has obtained financing through the issuance
of convertible subordinated debentures totaling $6.5 million. These debentures
were issued to fund two acquisitions completed during fiscal 1996. These
debentures carry interest rates of 7.0% to 8.0% and are redeemable or
convertible into Class A Common Stock.
In connection with an acquisition completed in August 1996, the
Company issued, in partial payment of the purchase price, approximately 273,245
shares of Class A Common Stock valued at $26.34 per share, or approximately
$7.2 million. The Company has granted the holder of such shares a one-time put
option exercisable in August 1998 to sell all but not less than all of such
shares to the Company for $7.2 million.
The Company's future cash requirements and cash flow expectations are
closely related to its expansion plans. The Company generally expects to meet
future financing needs for the coming fiscal year principally through proceeds
from the secondary public offering and bank borrowings. Although the Company
does not currently have a committed line of credit, it currently is in
discussions with banks to establish a credit facility and believes it could
obtain bank financing under commercially reasonable terms.
The Company's effective tax rates for 1994, 1995 and 1996 were 46.4%,
45.1%, and 44.0%, respectively. The effective tax rates differs from the
federal statutory rates as a result of state and local taxes, as well as the
non-deductibility of certain acquisition costs.
<PAGE> 3
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
NCS HEALTHCARE, INC. AND SUBSIDIARIES
Report of Independent Auditors
Consolidated Balance Sheets at June 30, 1995 and 1996
Consolidated Statements of Income for each of the three years in the period ended
June 30, 1996
Consolidated Statements of Stockholders' Equity for each of the three years in the
period ended June 30, 1996
Consolidated Statements of Cash Flows for each of the three years in the period ended
June 30, 1996
Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NCS HealthCare, Inc.
We have audited the accompanying consolidated balance sheets of NCS
HealthCare, Inc. and subsidiaries as of June 30, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 consolidated financial
position of NCS HealthCare, Inc. and subsidiaries at June 30, 1995 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles.
Cleveland, Ohio Ernst & Young LLP
August 2, 1996
<PAGE> 5
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1995 1996
------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 286 $ 21,460
Trade accounts receivable, less allowance for
doubtful accounts of $1,478 and $3,629
as of June 30, 1995 and 1996 14,475 27,762
Inventories 3,699 7,487
Deferred income taxes 1,530 1,644
Prepaid expenses 454 840
------- --------
Total current assets 20,444 59,193
PROPERTY, PLANT AND EQUIPMENT
Land -- 64
Building 820 1,334
Machinery, equipment and vehicles 5,061 8,632
Computer equipment 2,540 4,759
Furniture, fixtures and leasehold improvements 1,381 4,544
------- --------
9,802 19,333
Less accumulated depreciation and amortization 4,253 9,050
------- --------
5,549 10,283
Goodwill, less accumulated amortization of $176
and $1,041 as of June 30, 1995 and 1996 12,137 39,101
Other assets, less accumulated amortization
of $183 and $367 as of June 30, 1995 and 1996 465 2,091
------- --------
TOTAL ASSETS $38,595 $110,668
======= ========
</TABLE>
See accompanying notes
<PAGE> 6
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1995 1996
------- --------
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable $ 3,801 $ 4,968
Accrued compensation and related expenses 2,393 2,813
Other accrued expenses 2,277 2,275
Income taxes payable 691 --
Current portion of long-term debt 666 801
------- --------
Total current liabilities 9,828 10,857
Long-term debt, excluding current portion 18,505 1,961
Convertible subordinated debentures 1,900 6,549
Minority interests 245 201
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
1,000,000 shares authorized; none issued - -
Common stock, par value $.01 per share:
Class A--50,000,000 shares authorized; 7,467 and 5,560,492 shares issued
and outstanding at June 30, 1995 and 1996, respectively 1 56
Class B--20,000,000 shares authorized; 5,976,062 and 6,603,228 shares
issued and outstanding at 1995 and 1996, respectively 60 66
Paid-in capital 4,341 84,907
Retained earnings 3,715 6,071
------- --------
8,117 91,100
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $38,595 $110,668
======= ========
</TABLE>
See accompanying notes
<PAGE> 7
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues $48,205 $65,602 $113,281
Cost of revenues 34,288 46,570 82,415
------- ------- --------
Gross profit 13,917 19,032 30,866
Selling, general and administrative expenses 10,531 14,539 22,236
Special compensation -- -- 2,811
------- ------- --------
Operating income 3,386 4,493 5,819
Interest expense (525) (1,089) (2,282)
Interest income -- -- 671
------- ------- --------
Income before income taxes 2,861 3,404 4,208
Income tax expense 1,327 1,536 1,852
------- ------- --------
Net income $ 1,534 $ 1,868 $ 2,356
======= ======= ========
Net income per common share $ 0.24 $ 0.28 $ 0.26
Weighted average number of common shares outstanding 6,424 6,764 8,971
</TABLE>
See accompanying notes
<PAGE> 8
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
CLASS A CLASS B STOCK-
COMMON COMMON PAID-IN RETAINED HOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
----- ----- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1993 $-- $54 $ 1,059 $ 313 $ 1,426
Issuance of 296,375 shares of
Class B Common Stock -- 3 1,210 -- 1,213
Net income -- -- -- 1,534 1,534
----- ----- ------- ------ -------
Balance at June 30, 1994 -- 57 2,269 1,847 4,173
Issuance of 7,467 shares of
Class A Common Stock and 323,247
shares of Class B Common Stock 1 3 2,072 -- 2,076
Net income -- -- -- 1,868 1,868
----- ----- ------- ------ -------
Balance at June 30, 1995 1 60 4,341 3,715 8,117
Issuance of 7,461 shares of
Class A Common Stock -- -- 57 -- 57
Exercise of stock options (890,333
shares of Class B Common Stock) -- 9 3,366 -- 3,375
Conversion of 263,167 shares of Class B
Common Stock to 263,167 shares of
Class A Common Stock 3 (3) -- -- --
Issuance of 4,476,000 shares of
Class A Common Stock 45 -- 67,039 -- 67,084
Issuance of 124,088 shares of
Class A Common Stock for purchases
of businesses 1 -- 1,835 -- 1,836
Conversion of convertible subordinated
debentures (682,309 shares of
Class A Common Stock) 6 -- 8,269 -- 8,275
Net income -- -- -- 2,356 2,356
----- ----- ------- ------ -------
Balance at June 30, 1996 $ 56 $ 66 $84,907 $6,071 $91,100
===== ===== ======= ====== =======
</TABLE>
See accompanying notes
<PAGE> 9
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,534 $ 1,868 $ 2,356
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Special compensation -- -- 2,811
Depreciation and amortization 883 1,222 3,217
Provision for doubtful accounts 443 530 841
Other 104 57 --
Deferred income taxes (693) (557) 11
Changes in assets and liabilities, net of effects of
assets and liabilities acquired:
Trade accounts receivable (2,915) (3,240) (8,834)
Inventories (254) 262 109
Trade accounts payable 1,035 293 (2,069)
Accrued expenses 1,355 1,283 (239)
Prepaid expenses and other (42) (390) (260)
------- -------- --------
Net cash provided by (used in) operating activities 1,450 1,328 (2,057)
INVESTING ACTIVITIES
Capital expenditures for property and equipment (1,095) (2,832) (4,701)
Proceeds from sales of property and equipment 22 37 40
Purchases of businesses (2,100) (16,439) (27,908)
Other 34 -- (2,172)
------- -------- --------
Net cash used in investing activities (3,139) (19,234) (34,741)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 2,714 1,392 --
Repayment of long-term debt (2,431) (5,060) (3,398)
Borrowings on line-of-credit -- 26,500 31,400
Payments on line-of-credit -- (9,000) (48,900)
Proceeds from convertible subordinated debentures -- 1,900 12,925
Proceeds from issuance of common stock and exercise of
stock options 1,213 2,076 68,878
Other -- -- (2,933)
------- -------- --------
Net cash provided by financing activities 1,496 17,808 57,972
------- -------- --------
Net (decrease) increase in cash and cash equivalents (193) (98) 21,174
Cash and cash equivalents at beginning of period 577 384 286
------- -------- --------
Cash and cash equivalents at end of period $ 384 $ 286 $ 21,460
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 525 $ 1,008 $ 2,282
======= ======== ========
Income taxes $ 1,502 $ 2,192 $ 1,724
======= ======== ========
Noncash transactions during the year:
Conversion of convertible subordinated debentures $ -- $ -- $ 8,275
======= ======== ========
Issuance of common stock for purchases of businesses $ -- $ -- $ 1,836
======= ======== ========
</TABLE>
See accompanying notes
<PAGE> 10
NCS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
NCS HealthCare, Inc. (the Company) operates in one business segment
providing a broad range of health care services primarily to long-term care,
assisted living facilities and other institutional settings. The Company
provides pharmacy, pharmacy consulting and management services, infusion
therapies, rehabilitation and dietary care plans.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when products or services are provided to the
customer. A significant portion of the Company's revenues from sales of
pharmaceutical and related products are reimbursable from Medicaid and Medicare
programs. The Company monitors its receivables from these reimbursement
sources and reports such revenues at the net realizable amount expected to be
received from these third-party payors.
CASH EQUIVALENTS
The Company considers all investments in highly liquid instruments
with original maturities of three months or less at the date purchased to be
cash equivalents. Investments in cash equivalents are carried at cost which
approximates market value.
INVENTORIES
Inventories for all business units consist primarily of purchased
pharmaceuticals and medical supplies and are stated at the lower of cost or
market. Cost is determined by using the last-in, first-out (LIFO) method for
26% of the June 30, 1996 net inventory balance and by using the first-in,
first-out method for the remaining 74%. If the FIFO inventory valuation method
had been used, inventories would have been $507 and $585 higher at June 30,
1995 and 1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property
and equipment is computed using the straight-line method over the estimated
useful lives of the assets which are as follows:
<TABLE>
<S> <C>
Building 30 years
Machinery, equipment and vehicles 5--10 years
Computer equipment 3---5 years
Furniture, fixtures and leasehold improvements 3--10 years
</TABLE>
STOCK BASED COMPENSATION
The Company accounts for stock based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees.
<PAGE> 11
GOODWILL
The Company has classified as goodwill the cost in excess of fair
value of the net assets acquired in purchase transactions. Goodwill is being
amortized over 30-year periods using the straight-line method.
The carrying value of goodwill is evaluated if circumstances indicate
a possible impairment in value. If undiscounted cash flows over the remaining
amortization period indicate that goodwill may not be recoverable, the carrying
value of goodwill will be reduced by the estimated shortfall of cash flows on a
discounted basis.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. This accounting standard requires that the
liability method be used in accounting for income taxes. Under this accounting
method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting basis and the tax basis of assets
and liabilities and are measured using the enacted tax rates and laws that
apply in the periods in which the deferred tax asset or liability is expected
to be realized or settled.
NET INCOME PER SHARE
Net income per share is computed based on the weighted average number
of Class A and B shares outstanding, which gives retroactive effect to the
stock split as discussed below and the stock options outstanding as discussed
below for all periods presented. 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.
On December 13, 1995, the Board of Directors approved an amendment to
the Company's Certificate of Incorporation to effect a corporate
recapitalization, including a 46-for-1 stock split of the Class A Common Stock
and Class B Common Stock. All share and per share information included in the
accompanying financial statements have been retroactively adjusted to give
effect to the stock split.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
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 and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results can differ from these estimates.
<PAGE> 12
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1995 1996
------ ------
<S> <C> <C>
Credit facilities up to $28,000; $15,000 at LIBOR plus 2.5%. The line
of credit was terminated by the Company in March 1996 $17,500 $ --
8% notes payable to former owners of an acquired company due in annual
installments through December, 1999 -- 1,000
2% note payable to Pennsylvania Industrial Development Authority due
in monthly installments through June, 2001, and secured through an
interest in a building of the Company -- 612
Collateralized lease obligations with interest ranging from 6% to 13%
due monthly through October, 2000 -- 405
5% note payable to a former owner of an acquired company maturing in
August, 2000 -- 240
7% note payable to former owner of an acquired company due in quarterly
installments through October, 1998 -- 170
Construction bridge loan at prime plus .5% 798 --
Other 873 335
------- ------
Total long-term debt 19,171 2,762
Less current portion 666 801
------- ------
Long-term debt, excluding current portion $18,505 $1,961
======= ======
</TABLE>
The aggregate maturities of the long-term debt for each of the five
years subsequent to June 30, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, AMOUNT
-------------------- ------
<S> <C>
1997 $ 801
1998 563
1999 370
2000 552
2001 50
Thereafter 426
------
$2,762
======
</TABLE>
3. INCOME TAX EXPENSE
Income tax expense (benefit) for each of the three fiscal years ended
June 30, 1996 consists of:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------------- --------------------------- ---------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------ ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $1,538 $(543) $ 995 $1,537 $(466) $1,071 $1,439 $ 8 $1,447
State and Local 482 (150) 332 556 (91) 465 402 3 405
------- -------- ------ ------- -------- ------ ------- -------- ------
Total $2,020 $(693) $1,327 $2,093 $(557) $1,536 $1,841 $11 $1,852
======= ======== ====== ======= ======== ====== ======= ======== ======
</TABLE>
<PAGE> 13
Reconciliations of income taxes at the United States Federal statutory
rate to the effective income tax rate for the three years ended June 30, 1996
are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Income taxes at the United States statutory rate $ 973 $1,157 $1,473
State and local income taxes 200 238 221
Goodwill amortization 2 49 203
Tax exempt interest -- -- (81)
Other--net 152 92 36
------ ------ ------
$1,327 $1,536 $1,852
====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1995 1996
------ ------
<S> <C> <C>
Deferred tax assets (liabilities):
Allowance for doubtful accounts $ 541 $ 780
Accrued expenses and other 1,066 1,194
Depreciable assets and other (77) (330)
------ ------
Net deferred tax assets $1,530 $1,644
====== ======
</TABLE>
4. OPERATING LEASES
The Company is obligated under several operating leases primarily for
office facilities and equipment. Future minimum lease payments under
noncancelable operating leases as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, AMOUNT
-------------------- ------
<S> <C>
1997 $1,690
1998 1,472
1999 1,392
2000 1,177
2001 912
Thereafter 1,810
------
$8,453
======
</TABLE>
Rent expense for the years ended June 30, 1994, 1995 and 1996, was
$478, $600 and $1,196, respectively.
<PAGE> 14
5. PROFIT-SHARING PLAN
The Company maintains a profit sharing plan with an Internal Revenue
Code Section 401(k) feature covering substantially all of their employees.
Under the terms of the plan, the Company will match up to 20% of the first 10%
of eligible employee contributions.
The Company's aggregate contributions to the plan and related expense
were $73, $94 and $192 for the years ended June 30, 1994, 1995 and 1996,
respectively.
6. RELATED PARTY TRANSACTIONS
The Company leases seven of its facilities from entities affiliated
with former owners of certain businesses acquired, who are employees of the
Company. The buildings are used for operations of the Company. Rent expense
of $0, $32 and $559 was paid under these leasing arrangements in 1994, 1995 and
1996, respectively.
7. STOCKHOLDER'S EQUITY
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 of outstanding indebtedness under long and short-term
borrowings.
During the period from 1987 through 1995, the Company granted stock
options to purchase shares of Class B Common Stock to certain directors and key
employees which provide for the purchase of 1,054,890 common shares in the
aggregate, at exercise prices ranging from $0.71 to $6.19 per share, which
prices represented fair market values on the dates the grants were made. For
options granted in 1987 with a tax-offset cash bonus feature, the Company has
recognized compensation expense of $224 in fiscal 1994, $320 in fiscal 1995 and
$175 for the year ended June 30, 1996. During the year ended June 30, 1996,
options were exercised for the purchase of 627,166 shares of Class B Common
Stock.
During fiscal 1995, the Company adopted an Employee Stock Purchase and
Option Plan. Under the terms and provision of this plan, the Company
authorized 100,000 shares of Class A Common Stock and granted options to
certain key employees for the purchase of a total of 11,523 common shares at an
exercise price of $6.19 per share, which was determined to be the fair market
value on the grant date.
In January 1996, the Company adopted a Long Term Incentive Plan (the
Plan) to provide up to 700,000 shares of Class A Common Stock for awards of
incentive and nonqualified stock options to officers and key employees of the
Company. During the year the Company granted 61,500 nonqualified stock options
and 22,540 incentive stock options, all at $16.50 per share, the price at the
initial public offering. The nonqualified stock options have a term of five
years and become exercisable in thirds on February 1, 1997, 1998 and 1999. In
addition, all the nonqualified stock options will not vest unless the trading
price of the Company's Class A Common Stock reaches certain targeted levels.
The incentive stock options have a term of six years and 20% become exercisable
each year on February 1, 1997, 1998, 1999, 2000 and 2001.
Holders of Class A Common Stock and holders of Class B common stock
are entitled to one and ten votes, respectively, in corporate matters requiring
approval of the shareholders of the Company. No dividend may be declared or
paid on the Class B Common Stock unless a dividend of equal or greater amount
is declared or paid on the Class A Common Stock.
The Company had issued and outstanding at June 30, 1995, $1,900 of 8%
convertible subordinated debentures, due in 1997, which are convertible into
188,952 shares of Class A Common Stock. During the year ended June 30, 1996,
the Company issued an additional: $7,000 of 8% convertible subordinated
debentures, due in 1998, which are convertible into 696,140 shares of Class A
Common Stock, $925 of 7% convertible subordinated debentures, due in 1998,
which are convertible into 91,990 shares of Class A Common Stock; and $5,000 of
10% convertible
<PAGE> 15
subordinated debentures, due in 1996, which are convertible into 356,499 shares
of Class A Common Stock. During fiscal 1996, $1,900 of 8% convertible
subordinated debentures due in 1997, $1,376 of 8% convertible subordinated
debentures due in 1998, and $5,000 of 10% convertible subordinated debentures
due in 1996 were converted into 682,300 shares of Class A Common Stock.
8. ACQUISITIONS
During fiscal 1994, the Company purchased an 85% interest in
Klingensmith Adult Care Pharmacy, Inc., in Ford City, Pennsylvania (remaining
interest purchased in fiscal 1996).
During fiscal 1995, the Company completed acquisitions including
TeleRx, Inc. in Detroit, Michigan in November, Hunsicker's Pharmacy, Long-Term
Care Division, Inc. and Hunsicker's HealthCare, Inc. in Souderton, Pennsylvania
in January, Laurel Extended Care Pharmacy, Inc. in Ebensburg, Pennsylvania in
April, and Quality HealthCare of Indiana in Indianapolis, Indiana in June.
During fiscal 1996, the Company acquired Corinthian Healthcare
Systems, Inc. located in Indiana in September, The Apothecary, Inc. in
Scranton, Pennsylvania in October, Demoss Rexall Drugs, Inc. in Evansville,
Indiana, in November, Valu Pharmacy, Inc. (d/b/a/ Care Plus Pharmacy) in
Decatur, Illinois, in April, Uni-Care Health Services, Inc. in Londonderry, New
Hampshire and Uni-Care Health Services of Maine, in Wells, Maine, in May,
Family Care Nursing Home Service, Inc. and Care Unlimited, Inc. in Herrin,
Illinois, in June.
Each of the acquisitions has been accounted for under the purchase
method. The following table summarizes the aggregate purchase price for these
businesses:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Cash $2,100 $13,919 $19,983
Convertible debentures -- 1,900 7,925
Debt -- 545 --
Class A common stock -- 75 1,836
------ ------- -------
Total $2,100 $16,439 $29,744
====== ======= =======
</TABLE>
The convertible subordinated debentures bear interest at 7%-8% and are
convertible into Class A Common Stock at $10.06 per share.
Purchase agreements for certain acquired companies include contingent
earnings arrangements with the former owners (who are now current Company
managers). These contingent payments, which are based on growth and earnings
of the acquired companies, are expensed as earned ($483 in fiscal 1994; $1,007
in fiscal 1995 and $309 in fiscal 1996) and are included in selling, general
and administrative expenses. Effective September 30, 1995, the Company
terminated these arrangements with the former owners which resulted in special
compensation expense and a related increase in debt of $2,811.
The results of operations of the businesses acquired have been
included in the consolidated financial statements of the Company from the dates
of the respective acquisitions. All of the businesses acquired provide
substantially similar services as the existing company.
Subsequent to June 30, 1996 the Company completed acquisitions of
Advanced Rx Services, Inc., in Northfield, New Jersey, and IPAC Pharmacy
Services, Inc. in Portland, Oregon, Thrifty Medical Systems in Oklahoma City,
Oklahoma, and Tulsa, Oklahoma and Medical Arts in Grand Rapids, Michigan.
These acquisitions were accounted for under the purchase method, at an
aggregate purchase price of $36,705 comprised of $22,090 in cash, $10,600 in
Class A Common Stock and $4,015 in assumed debt. In connection with an
acquisition completed in August 1996 the Company issued, in partial payment of
the purchase price, approximately 273,245 shares of Class A
<PAGE> 16
Common Stock valued at $26.34 per share, or approximately $7,200. The Company
has granted the holder of such shares a one-time put option exercisable in
August 1998 to sell all but not less than all of such shares to the Company for
$7,200.
The following unaudited pro forma data has been prepared as though the
Company had completed its initial public offering and used the net proceeds
therefrom to repay approximately $27,000 of outstanding indebtedness and
purchase all of the above businesses at the beginning of each of the fiscal
years ended June 30, 1995 and 1996:
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
1995 1996*
-------- --------
<S> <C> <C>
Revenues $155,673 $177,536
Net income 3,795 4,776
Net income per share $ 0.30 $ 0.38
Shares used in the computation 12,695 12,695
</TABLE>
*Includes a one-time nonrecurring charge of $2,811 in connection with
the termination of certain compensation arrangements with the former
owners of certain acquired businesses which had the effect of reducing
net income per share $0.18.
9. QUARTERLY DATA (UNAUDITED)
Selected quarterly data for the years ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
-------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues $14,037 $14,993 $17,186 $19,386 $65,602
Operating income 799 1,047 1,251 1,396 4,493
Net income 327 439 525 577 1,868
Net income per share 0.05 0.07 0.08 0.08 0.28
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
------------------------
FIRST SECOND THIRD FOURTH
QUARTER* QUARTER QUARTER QUARTER TOTAL
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues $22,428 $27,599 $30,209 $33,045 $113,281
Operating income (loss) (1,294) 2,096 2,396 2,621 5,819
Net income (loss) (1,049) 725 1,121 1,559 2,356
Net income (loss) per share (0.15) 0.10 0.12 0.13 0.26
</TABLE>
*Includes a one-time nonrecurring charge of $2,811 in connection with
the termination of certain compensation agreements with the former
owners of certain acquired businesses.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Advanced Rx, Inc.
The Apothecary NCS, Inc.
Klingensmith NCS Inc.
Marlowe Nursing Center Services L.P.
NCS HealthCare of Illinois, Inc.
NCS HealthCare of Indiana, Inc.
NCS HealthCare of Kansas, Inc.
NCS HealthCare of Michigan, Inc.
NCS HealthCare of Ohio, Inc.
NCS HealthCare of Oklahoma, Inc.
NCS HealthCare of Oregon, Inc.
NCS HealthCare of Pennsylvania, Inc.
Uni-Care Health Services of Maine, Inc.
Uni-Care Health Services, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001004990
<NAME> N/A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 21,460
<SECURITIES> 0
<RECEIVABLES> 27,762
<ALLOWANCES> 3,629
<INVENTORY> 7,487
<CURRENT-ASSETS> 59,193
<PP&E> 19,333
<DEPRECIATION> 9,050
<TOTAL-ASSETS> 110,668
<CURRENT-LIABILITIES> 10,857
<BONDS> 8,510
<COMMON> 122
0
0
<OTHER-SE> 90,978
<TOTAL-LIABILITY-AND-EQUITY> 110,668
<SALES> 113,281
<TOTAL-REVENUES> 113,281
<CGS> 82,415
<TOTAL-COSTS> 82,415
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 841
<INTEREST-EXPENSE> 2,282
<INCOME-PRETAX> 4,208
<INCOME-TAX> 1,852
<INCOME-CONTINUING> 2,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,356
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
