<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
UNITED STATES
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1997
Commission File Number- 0-27602
-------
NCS Health Care, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 34-1816187
- --------------------------------------------------- --------------------
(State or other jurisdiction of incorporation or (IRS employer
organization) identification number)
3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122
- ----------------------------------------------------------
(Address of principal executive offices and zip code)
(216) 514-3350
- ----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant:
1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
2) has been subject to such filing requirement for the past 90 days.
Yes X No
--- ---
Common Stock Outstanding
- ------------------------
Indicate the number of shares outstanding of each of the Issuers' classes of
common stock, as of the latest practical date.
Class A Common Stock, $.01 par value -- 12,646,504 shares as of February 6, 1998
Class B Common Stock, $.01 par value-- 6,877,464 shares as of February 6, 1998
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NCS HEALTHCARE, INC.
AND SUBSIDIARIES
INDEX
Page
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
December 31, 1997 and June 30, 1997 3
Condensed Consolidated Statements of Income-
Three and six months ended-
December 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows-
Six months ended-
December 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements - December 31, 1997 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 9
Part II. Other Information:
Item 2. Changes in Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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ITEM 1. FINANCIAL STATEMENTS
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
(Unaudited) (Note A)
December 31, June 30,
1997 1997
------------ --------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 49,012 $ 8,160
Accounts receivable, less allowances 95,571 70,476
Inventories 29,496 22,28]
Other 8,851 6,570
-------- --------
Total current assets 182,930 107,487
Property and equipment, at cost
net of accumulated depreciation and amortization 31,050 23,309
Goodwill, less accumulated amortization 201,359 180,723
Other assets 16,329 9,511
-------- --------
Total assets $431,668 $321,030
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ - $ 10,285
Accounts payable 17,619 15,054
Accrued expenses and other liabilities 29,434 28,984
-------- --------
Total current liabilities 47,053 54,323
Long-term debt 8,760 8,043
Convertible subordinated debentures 102,753 4,313
Other 591 625
Stockholders' Equity:
Preferred stock, par value $ .01 per share, 1,000,000
shares authorized; none issued - -
Common stock, par value $.01 per share:
Class A - 50,000,000 shares authorized; 12,344,870 and
11,313,638 shares issued and outstanding at
December 31,1997 and June 30, 1997, respectively 123 113
Class B - 20,000,000 shares authorized; 6,905,467
and 6,742,742 shares issued and outstanding at
December 31, 1997 and June 30, 1997, respectively 69 67
Paid-in capital 247,323 235,703
Retained earnings 24,996 17,343
-------- --------
Total stockholders' equity 272,511 253,226
-------- --------
Total liabilities and stockholders' equity $431,668 $321,030
======== ========
</TABLE>
Note A: The balance sheet at June 30,1997 has been derived from the audited
financial statements at that date, but does not include any of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
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NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31,
------------------------ ------------------------
1997 1996 1997 1996
------------------------ ------------------------
<S> <C> <C> <C> <C>
Revenues $ 114,508 $ 59,323 $ 218,219 $ 102,365
Cost of revenues 85,469 44,292 162,954 76,146
--------- --------- --------- ---------
Gross profit 29,039 15,031 55,265 26,219
Selling, general and administrative expenses 21,229 11,175 40,582 18,829
--------- --------- --------- ---------
Operating income 7,810 3,856 14,683 7,390
Interest expense (income), net 754 (1,256) 1,255 (1,133)
--------- --------- --------- ---------
Income before income taxes 7,056 5,112 13,428 8,523
Income tax expense 3,034 2,223 5,774 3,724
--------- --------- --------- ---------
Net income $ 4,022 $ 2,889 $ 7,654 $ 4,799
========= ========= ========= =========
Net income per share - basic $ 0.21 $ 0.17 $ 0.41 $ 0.33
========= ========= ========= =========
Net income per share - diluted $ 0.21 $ 0.17 $ 0.41 $ 0.32
========= ========= ========= =========
Shares used in the computation - basic 18,900 16,691 18,639 14,551
Shares used in the computation - diluted 19,113 17,526 18,887 15,386
</TABLE>
See notes to condensed consolidated financial statements.
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NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,654 $ 4,799
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 7,009 3,103
Changes in assets and liabilities, net
of effects of assets and liabilities
acquired:
Accounts receivable, net (22,365) (5,715)
Accrued expenses and other liabilities (1,053) 4,115
Other, net (8,022) (2,808)
-------------------------
Net cash provided by (used in) operating activities (16,777) 3,494
INVESTING ACTIVITIES
Purchases of businesses (11,607) (52,009)
Capital expenditures for property and equipment, net (9,582) (3,386)
Other (4,785) (1,418)
-------------------------
Net cash used in investing activities (25,974) (56,813)
FINANCING ACTIVITIES
Proceeds from issuance of common stock - 123,626
Proceeds from convertible subordinated debentures, net 97,250 -
Borrowings on line-of-credit 21,499 7,095
Payments on line-of-credit (31,784) (7,095)
Repayment of long-term debt (3,575) (1,996)
Proceeds from issuance of long-term debt 213 10,246
-------------------------
Net cash provided by financing activities 83,603 131,876
-------------------------
Net increase in cash and cash equivalents 40,852 78,557
Cash and cash equivalents at beginning of period 8,160 21,460
-------------------------
Cash and cash equivalents at end of period $ 49,012 $ 100,017
=========================
</TABLE>
See notes to condensed consolidated financial statements.
5
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NCS HEALTHCARE, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended December 31, 1997 are not necessarily indicative
of the results that may be expected for the year ending June 30, 1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended
June 30, 1997 (File No. 0-27602).
2. On October 4, 1996, the Company completed a public offering of 4,235,000
shares of Class A Common Stock at $31 per share. The offering raised
approximately $123,600,000 (net of underwriting discounts and expenses). A
portion of the net proceeds from the stock issuance was used to repay
approximately $7,000,000 of outstanding indebtedness under short-term
borrowings.
3. On August 13, 1997, the Company issued $100,000,000 of convertible
subordinated debentures (debentures) due 2004. Net proceeds to the Company
were approximately $97,250,000, net of underwriting discounts and expenses.
The debentures carry an interest rate of 5 3/4% and are convertible into
shares of Class A Common Stock. A portion of the proceeds from the
debenture offering was used to repay approximately $21,000,000 of
outstanding indebtedness under short-term borrowings.
The debentures are obligations of the Company. The operations of the
Company are currently conducted principally through subsidiaries, which are
separate and distinct legal entities. Each of the Company's wholly-owned
subsidiaries has unconditionally guaranteed, jointly and severally, the
Company's payment obligations under the debentures. Accordingly, summarized
financial information regarding the guarantor subsidiaries has not been
presented because management of the Company believes that such information
would not be meaningful to investors.
In July 1997, $1,135,000 of 8% convertible subordinated debentures due in
1998 were converted into 112,890 shares of Class A Common Stock. In October
1997, $925,000 of 7% convertible subordinated debentures due in 1998 were
converted into 91,990 shares of Class A Common Stock.
During August 1997, the Company entered into a $135,000,000 credit facility
expiring July 2000.
4. Significant acquisitions completed by the Company during the six months
ended December 31, 1997 include Cheshire LTC Pharmacy, Inc. in Cheshire,
Connecticut, PharmaSource Healthcare, Inc. in Norcross, Georgia and Marco &
Company, LLC in Billings, Montana. The aggregate purchase price for all
businesses acquired during the six months ended December 31, 1997 was
$21,778,000 consisting of $11,607,000 in cash, $600,000 of debt and
$9,571,000 of Class A Common Stock of the Company.
The Cheshire LTC Pharmacy, Inc. acquisition was accounted for as a pooling
of interests transaction, however the impact of this transaction on the
Company's historical financial statements is not significant. Consequently,
prior period financial statements have not been restated for this
transaction.
Significant acquisitions completed by the Company during fiscal 1997
include Advanced Rx Services, Inc. in Northfield, New Jersey, IPAC
Pharmacy, Inc. in Portland, Oregon, Medical Arts Pharmacy in Grand Rapids,
Michigan, Northside Pharmacy, Inc. and Thrifty Medical Supply, Inc. in
Oklahoma City, Oklahoma, Thrifty
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Medical of Tulsa L.L.C. in Tulsa, Oklahoma, Hudson Pharmacy of Wichita,
Inc. in Wichita, Kansas, Spectrum Health Services, Inc. in Tampa, Florida,
Clinical Health Systems in Vancouver, Washington, Rescot Systems Group,
Inc. in Philadelphia, Pennsylvania, W.P. Malone, Inc. in Arkadelphia,
Arkansas, Long Term Care Pharmacy Services in East Greenwich, Rhode Island,
Eakles Drug Store, Inc. in Hagerstown, Maryland, Pharmacare in Glendale,
California, Advanced Pharmaceutical Services, Inc. in Tujunga, California,
Dahlin Pharmacy, Inc. in Paramount, California, Stoll Services, Inc. in
Modesto, California, Cooper Hall Pharmacy, Inc. in Mount Pleasant, South
Carolina, Hammer Incorporated in Des Moines, Iowa, Daven Drug in Los
Angeles, California, Medi-Centre Pharmacy in Lansing, Michigan, Vangard
Labs, Inc. in Glasgow, Kentucky, Long Term Care, Inc. in Williston,
Vermont, Look Drug Store, Inc. in Kaukauna, Wisconsin and HLF Adult Home
Pharmacy in Rochester, New York. The aggregate purchase price for all
businesses acquired during fiscal 1997 was $166,376,000 consisting of
$137,080,000 in cash, $3,804,000 of debt and $25,492,000 of Class A Common
Stock of the Company.
Unaudited pro forma data, as though the Company had completed its October
4, 1996 public offering and had purchased each of these businesses as of
July 1, 1996, are set forth below:
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
December 31, 1997 December 31, 1996
----------------- ------------------
(In thousands, except per share information)
<S> <C> <C>
Revenues $ 225,335 $ 189,251
Net income $ 7,675 $ 7,714
Net income per share - basic $ 0.40 $ 0.41
Net income per share - diluted $ 0.40 $ 0.40
</TABLE>
During January 1998, the Company acquired MedStar Pharmacy, Inc. in Benson,
North Carolina and Greenwood Pharmacy and Managed Pharmacy Services, affiliates
of Eckerd Corporation. The Eckerd Corporation business is based in Sharon,
Pennsylvania and provides institutional pharmacy an ancillary services to over
42,000 long-term care residents in New York, North Carolina and Pennsylvania.
Annualized revenues of these acquisitions are approximately $79,000,000.
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5. The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS No. 128) which replaces the previously
reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where necessary,
restated to conform to the requirements of SFAS No. 128. The following
table sets forth the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- --------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share - net income $ 4,022 $ 2,889 $ 7,654 $ 4,799
Effect of dilutive securities:
Convertible debentures - 71 - 142
-------------------- --------------------
Numerator for diluted earnings per share $ 4,022 $ 2,960 $ 7,654 $4,941
==================== ====================
Denominator:
Denominator for basic earnings per share -
weighted average common shares 18,900 16,691 18,639 14,551
Effect of dilutive securities:
Stock options 213 184 248 184
Convertible debentures - 651 - 651
-------------------- --------------------
Dilutive potential common shares 213 835 248 835
-------------------- --------------------
Denominator for diluted earnings per share 19,113 17,526 18,887 15,386
==================== ====================
Basic earnings per share $ 0.21 $ 0.17 $ 0.41 $ 0.33
==================== ====================
Diluted earnings per share $ 0.21 $ 0.17 $ 0.41 $ 0.32
==================== ====================
</TABLE>
The Company has $102,753,000 of convertible subordinated debentures outstanding
at December 31, 1997 that are convertible into 3,332,000 shares of Class A
Common Stock that were not included in the computation of diluted earnings
per share as their effect would be antidilutive.
8
<PAGE> 9
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
THREE AND SIX MONTHS ENDED DECEMBER 31, 1997
Results of Operations
Revenues for the three months ended December 31, 1997 increased 93.0% to
$114,508,000 from $59,323,000 recorded in the comparable period in fiscal 1997.
Revenues for the six months ended December 31, 1997 increased 113.2% to
$218,219,000 from $102,365,000 recorded in the comparable period in fiscal 1997.
The increase in quarter and year to date revenues over comparable prior year
periods is primarily attributed to two factors: the Company's acquisition
program and internal growth. Of the $115,854,000 increase for the six months
ended December 31, 1997, $6,949,000 was due to the acquisitions of Cheshire LTC
Pharmacy, Inc. in August 1997, PharmaSource Healthcare, Inc. in September 1997
and Marco & Company, LLC in December 1997. In addition, $73,521,000 of the
increase is attributable to revenues for the first six months of fiscal 1998
including a full period of operations for fiscal 1997 acquisitions. These fiscal
1997 acquisitions include Advanced Rx Services, Inc. in July 1996, IPAC
Pharmacy, Inc., Medical Arts Pharmacy, Northside Pharmacy Inc., Med-Equip,
Thrifty Medical Supply, Inc. and Thrifty Medical of Tulsa L.L.C. in August 1996,
Hudson Pharmacy of Wichita, Inc. in September 1996, Spectrum Health Services,
Inc. in October 1996, Clinical Health Systems in November 1996, Rescot Systems
Group, Inc., W.P. Malone, Inc., Long Term Care Pharmacy Services and Eakles Drug
Store, Inc. in January 1997, Pharmacare, Advanced Pharmaceutical Services, Inc.
and Dahlin Pharmacy, Inc. in February 1997, Stoll Services, Inc., Cooper Hall
Pharmacy, Inc., Hammer Incorporated, Daven Drug, and Medi-Centre Pharmacy in
March 1997, Vangard Labs, Inc. in April 1997, Long Term Care, Inc. in May 1997
and Look Drug Store, Inc. and HLF Adult Home Pharmacy in June 1997. Internal
growth accounted for $35,384,000 of the increase as the Company's existing
operations continued to grow through marketing efforts to new and existing
clients, increased drug utilization of long-term care facility residents, and
the growth and integration of new and existing products and services. The total
number of beds serviced by the Company as of December 31, 1997 increased 71% to
171,000 beds, from 100,000 beds at December 31, 1996.
Of the $55,185,000 increase in revenues for the three months ended December 31,
1997, $6,051,000 was due to the fiscal 1998 acquisitions noted above. In
addition, $29,785,000 of the increase is attributable to revenues for the three
months ended December 31, 1997 including a full period of operations for the
fiscal 1997 acquisitions noted above and internal growth accounted for
$19,349,000 of the increase.
Cost of revenues for the three months ended December 31, 1997 increased 93.0% to
$85,469,000, from $44,292,000 recorded in the comparable period in fiscal 1997.
For the six months ended December 31, 1997, cost of revenues increased 114.0% to
$162,954,000 from $76,146,000 recorded in the comparable period in fiscal 1997.
Cost of revenues as a percentage of revenues for the three and six month periods
ended December 31, 1997 was 74.6% and 74.7%, respectively, compared to 74.7% and
74.4% for the comparable periods during the prior fiscal year.
The increase in cost of revenues as a percentage of revenues for the six months
ended December 31, 1997 is primarily the result of acquisitions because at the
time of acquisition, the gross margins of the acquired companies are typically
lower than the Company as a whole. This is the result of several factors,
including less advantageous purchasing terms, lack of formulary management and
higher production costs.
Selling, general and administrative expenses for the three months ended December
31, 1997 increased 90.0% to $21,229,000, from $11,175,000 recorded in the
comparable period in fiscal 1997. For the six months ended December 31, 1997,
selling, general and administrative expenses increased 115.5% to $40,582,000
from $18,829,000 recorded in the comparable period in fiscal 1997. Selling,
general and administrative expenses as a percentage of revenues was 18.5% and
18.6% for the three and six month periods ended December 31, 1997, compared to
18.8% and 18.4% during the comparable periods in fiscal 1997. The percentage
increase for the six month period ended December 31, 1997 is primarily the
result of acquisitions because at the time of acquisition, the
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selling, general and administrative expenses of the acquired companies are
typically higher than the Company as a whole. The Company has been successful at
creating operational efficiencies with acquisitions as selling, general and
administrative expenses as a percentage of revenues decreased for the fourth
straight quarter. The increase in selling, general, and administrative expenses
in absolute dollars is mainly attributable to expenses associated with the
operations of businesses acquired during the current and prior fiscal year.
The Company had net interest expense of $754,000 and $1,255,000 for the three
and six month periods ended December 31, 1997, compared to net interest income
of $1,256,000 and $1,133,000 during the comparable periods in fiscal 1997. The
increase is primarily attributable to the reduction of long-term debt during the
prior year with funds from the Company's initial public offering completed on
February 14, 1996, interest income earned during the prior year on funds from
the Company's public offering completed on October 4, 1996 and additional
interest expense incurred in the current year on $100,000,000 of convertible
subordinated debentures issued by the Company in August 1997.
Liquidity and Capital Resources
Net cash used in operating activities was $16,777,000 for the six months ended
December 31, 1997, as compared to net cash provided by operating activities of
$3,494,000 during the comparable period in fiscal 1997. Net cash used in
operating activities increased from the comparable period in fiscal 1997
primarily due to an increase in accounts receivable and inventory. The increase
in accounts receivable and inventory is mainly attributable to a 21.6% increase
in sales during the three months ended December 31, 1997, as compared to the
three months ended June 30,1997.
Net cash used in investing activities decreased to $25,974,000 during the six
months ended December 31, 1997, as compared to $56,813,000 during the
comparable period in fiscal 1997. The decrease is primarily the result of a
decrease in cash used for acquisitions, partially offset by an increase in
capital expenditures. Significant capital expenditures during the six months
ended December 31, 1997 included computer and information systems equipment,
computer software, furniture and fixtures at a new facility in Pinellas Park,
Florida, leasehold improvements, medication carts and delivery vehicles.
Net cash provided by financing activities decreased to $83,603,000 during the
six months ended December 31, 1997, from $136,876,000 during the comparable
period in fiscal 1997. The fiscal 1997 amount is primarily a result of funds
received from the Company's public offering completed on October 4, 1996. The
fiscal 1998 amount is primarily a result of funds received from a convertible
subordinated debenture offering completed on August 13,1997.
The Company's future cash requirements and cash flow expectations are closely
related to its expansion plans. In August 1997, the Company issued $100,000,000
of convertible subordinated debentures due 2004. The debentures carry an
interest rate of 5 3/4%. The debentures are obligations of the Company. The
operations of the Company are currently conducted principally through
subsidiaries, which are separate and distinct legal entities. The Company's
ability to make payments of principal and interest on the debentures will depend
on its ability to receive distributions of cash from its subsidiaries. Each of
the Company's wholly-owned subsidiaries has guaranteed the Company's payment
obligations under the debentures, so long as such subsidiary is a member of an
affiliated group (within the meaning of Section 279(g) of the Internal Revenue
Code of 1986, as amended) which includes the Company. The satisfaction by the
Company's subsidiaries of their contractual guarantees, as well as the payment
of dividends and certain loans and advances to the Company by such subsidiaries,
may be subject to certain statutory or contractual restrictions, are contingent
upon the earnings of such subsidiaries and are subject to various business
considerations. Also in August 1997, the Company entered into a $135,000,000
credit facility expiring July 2000. The Company believes that its cash and
available sources of capital, including proceeds from the issuance of the
debentures and funds available under the credit facility, are sufficient to meet
its normal operating requirements and acquisition needs through
January 31, 1999.
On January 30, 1998, the Company paid approximately $81,000,000, subject to
adjustment, for the purchase of substantially all of the assets used in the
operation of the institutional pharmacy businesses of Thrift Drug, Inc., a
Delaware corporation (d/b/a Greenwood Pharmacy), and Fay's Incorporated, a New
York corporation (d/b/a/ MPS). The funds used to pay the purchase price were
obtained in part through the proceeds of the Company's August 1997 offering of
5-3/4% debentures and in part through the Company's August 1997 credit facility.
As of February 12, 1998, the Company has approximately $77,000,000 available on
its August 1997 credit facility.
Year 2000 Compliance
Computer systems in use after the beginning of the year 2000 will need to
accept four-digit entries in the date code field in order to distinguish 21st
century dates from 20th century dates. Consequently, many companies face
significant uncertainties because of the need to upgrade or replace their
currently installed computer systems to comply with such "year 2000"
requirements. At present, NCS believes its currently installed information
systems are Year 2000 compliant. However, there can be no assurance that coding
errors or other defects will not be discovered in the future. Any Year 2000
compliance problems of the Company, its service providers, its customers or
its internet infrastructures could result in a material adverse effect on the
Company's business, operating results and financial condition.
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<PAGE> 11
Factors That May Affect Future Results
Except for historical financial information contained in this Form 10-Q, the
statements made in this report are forward-looking statements. Factors that may
cause actual results to differ materially from those in the forward-looking
statements include the availability and cost of attractive acquisition
candidates, continuation of various trends in the long-term care market
(including the trend toward consolidation), competition among providers of
long-term care pharmacy services, the availability of capital for acquisitions
and capital requirements, changes in regulatory requirements and reform of the
health care delivery system.
11
<PAGE> 12
ITEM 2. CHANGES IN SECURITIES
The following information is furnished as to all equity securities of the
Company sold during the second fiscal quarter that were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
(a) On October 31, 1997 the Company issued 155,296 shares of its Class A
Common Stock to sixteen stockholders in connection with the acquisition
of certain assets of PharmaSource Healthcare, Inc. Exemption from
registration is claimed under Section 4(2) of the Securities Act.
(b) On October 31, 1997 the Company issued 91,990 shares of its Class A Common
Stock to one stockholder in connection with the conversion of a
Non-Negotiable 7% Convertible Promissory Note. Exemption from registration
is claimed under Section 3(a)(9) of the Securities Act.
(c) On December 1, 1997 the Company issued 7,407 shares of its Class A Common
Stock to two stockholders in connection with the acquisition of certain
assets of Marco & Company, LLC. Exemption from registration is claimed
under Section 4(2) of the Securities Act.
(d) On December 31, 1997 the Company issued 267,347 shares of its Class B
Common Stock to seven stockholders in connection with the merger of
MedStar Pharmacy, Inc. Exemption from registration is claimed under Section
4(2) of the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on October 30, 1997 (the "Annual
Meeting"), the stockholders voted to elect Kevin B. Shaw and Boake A. Sells
each to an additional three-year term as Director of the Company.
The following is a summary of the voting:
Votes Kevin B. Shaw Boake A. Sells
----- ------------- --------------
For 8,910,096 8,908,596
Withheld 117,225 118,725
The term of office of the following Directors of the Company continued after
the Annual Meeting: Jon H. Outcalt, Phyllis K. Wilson, James B. Naylor, A.
Malachi Mixon III and Richard O. Osborne.
ITEM 5. OTHER INFORMATION
On January 28, 1998, the Company issued a press release, a copy of which is
filed herewith as Exhibit 99.1, regarding a document and records search
conducted by governmental authorities at the Company's Herrin, Illinois
pharmacy. To date, the governmental authorities have not advised the Company
as to the nature or circumstance of their investigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Numbers Exhibit
-------- -------
15 Independent Accountants' Review Report
27 Financial Data Schedule
99.1 Press Release dated January 30, 1998
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended December 31,
1997.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NCS HealthCare, Inc.
(Registrant)
Date: February 16, 1998 By /s/ Kevin B. Shaw
------------------------------
Kevin B. Shaw
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: February 16, 1998 By /s/ Jeffrey R. Steinhilber
-------------------------------
Jeffrey R. Steinhilber
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT 15
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
NCS HealthCare, Inc. and Subsidiaries
We have reviewed the accompanying condensed consolidated balance sheet of NCS
HealthCare, Inc. and subsidiaries (the Company) as of December 31, 1997, the
related condensed consolidated statements of income for the three-month and
six-month periods ended December 31, 1997 and 1996 and the condensed
consolidated statements of cash flows for the six-month periods ended December
31, 1997 and 1996. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of NCS HealthCare, Inc. and
subsidiaries as of June 30, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended, not
presented herein, and in our report dated August 1, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of June 30, 1997 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
Cleveland, Ohio /s/ Ernst & Young LLP
January 28, 1998
14
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<NAME> NCS Healthcare, Inc.
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<FISCAL-YEAR-END> JUN-30-1998
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<PERIOD-END> DEC-31-1997
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<PAGE> 1
NCS HEALTHCARE MAKES ANNOUNCEMENT
Exhibit 99.1
Cleveland, Ohio (January 28, 1998) - NCS HealthCare, Inc. (Nasdaq:NCSS) reports
that earlier today, government authorities, pursuant to a warrant, sought and
obtained various documents and records from a pharmacy located in Herrin,
Illinois operated by a wholly-owned subsidiary of the company.
Government authorities have not informed the company of the purpose of the
inquiry. No other operating unit of the company has been contacted. The company
intends to cooperate fully with the government's inquiry.
NCS acquired the Herrin, Illinois pharmacy in June, 1996. The pharmacy's
operation accounts for less than 2 percent of NCS' fiscal year-to-date sales
and operating profitability. This pharmacy continues to provide services
without interruption to long-term care residents in the region.
NCS HealthCare, Inc. is a leading independent provider of pharmacy and related
services to long-term care and acute care facilities, including skilled nursing
centers, assisted living facilities and hospitals. NCS serves over 171,000
residents of long-term care facilities in twenty-eight states and manages
hospital pharmacies in nineteen states.
Contact: Kristen H. Schulz
Director of Investor Relations
(216) 514-3350
15
