<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 March 31, 1998
Commission File Number- 0-27602
-------
NCS HealthCare, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-1816187
- --------------------------------------------- ----------------------------
(State or other jurisdiction of incorporation (IRS employer identification
or organization) No.)
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 practicable date.
Class A Common Stock, $ .01 par value - 12,953,842 shares as of May 8, 1998
Class B Common Stock, $ .01 par value -- 6,640,900 shares as of May 8, 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-
March 31, 1998 and June 30, 1997 3
Condensed Consolidated Statements of Income-
Three and nine months ended-
March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows-
Nine months ended-
March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements - March 31, 1998 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information:
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(Unaudited) (Note A)
March 31, June 30,
ASSETS 1998 1997
--------------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 23,779 $ 8,160
Accounts receivable, less allowances 120,865 70,476
Inventories 38,632 22,281
Other 14,504 6,570
-------- --------
Total current assets 197,780 107,487
Property and equipment, at cost
net of accumulated depreciation and amortization 36,450 23,309
Goodwill, less accumulated amortization 281,315 180,723
Other assets 17,147 9,511
-------- --------
Total assets $532,692 $321,030
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ -- $ 10,285
Accounts payable 26,050 15,054
Accrued expenses and other liabilities 31,981 28,984
-------- --------
Total current liabilities 58,031 54,323
Line of credit 78,000 --
Long-term debt 8,672 8,043
Convertible subordinated debentures 102,753 4,813
Other 743 625
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; 12,949,705
and 11,313,638 shares issued and outstanding at
March 31, 1998 and June 30, 1997, respectively 129 113
Class B - 20,000,000 shares authorized; 6,642,400
and 6,742,742 shares issued and outstanding at
March 31, 1998 and June 30, 1997, respectively 66 67
Paid-in capital 254,936 235,703
Retained earnings 29,362 17,343
-------- --------
Total stockholders' equity 284,493 253,226
-------- --------
Total liabilities and stockholders' equity $532,692 $321,030
======== ========
<FN>
Note A: The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
</TABLE>
See notes to condensed consolidated financial statements.
3
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<TABLE>
<CAPTION>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ----------------------------
1998 1997 1998 1997
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenues $137,669 $78,539 $355,888 $180,904
Cost of revenues 102,812 58,867 265,766 135,013
---------------------------- ----------------------------
Gross profit 34,857 19,672 90,122 45,891
Selling, general and administrative expenses 25,390 14,718 65,972 33,547
---------------------------- ----------------------------
Operating income 9,467 4,954 24,150 12,344
Interest expense (income), net 1,808 (517) 3,063 (1,650)
---------------------------- ----------------------------
Income before income taxes 7,659 5,471 21,087 13,994
Income tax expense 3,294 2,380 9,068 6,104
Net income $ 4,365 $ 3,091 $ 12,019 $ 7,890
============================ ============================
Net income per share - basic $ 0.22 $ 0.18 $ 0.64 $ 0.51
============================ ============================
Net income per share - diluted $ 0.22 $ 0.18 $ 0.63 $ 0.50
============================ ============================
Shares used in the computation - basic 19,486 17,257 18,903 15,440
Shares used in the computation - diluted 19,757 18,068 19,219 16,251
</TABLE>
See notes to condensed consolidated financial statements.
4
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<TABLE>
<CAPTION>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Nine Months Ended
March 31,
----------------------------------
1998 1997
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 12,019 $ 7,890
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 11,708 5,673
Changes in assets and liabilities, net of effects of
assets and liabilities acquired:
Accounts receivable (31,053) (13,461)
Accrued expenses and other liabilities 7,539 13,267
Other, net (16,972) (3,173)
----------------------------------
Net cash provided by (used in) operating activities (16,759) 10,196
INVESTING ACTIVITIES
Purchases of businesses (108,116) (131,036)
Capital expenditures for property and equipment, net (14,953) (6,033)
Other (5,933) (4,971)
----------------------------------
Net cash used in investing activities (129,002) (142,040)
FINANCING ACTIVITIES
Proceeds from issuance of common stock -- 123,626
Proceeds from convertible subordinated debentures, net 97,250 --
Borrowings on line-of-credit 99,499 10,895
Payments on line-of-credit (31,784) (10,895)
Repayment of long-term debt (3,763) (14,164)
Proceeds from issuance of long-term debt 178 22,129
----------------------------------
Net cash provided by financing activities 161,380 131,591
----------------------------------
Net increase in cash and cash equivalents 15,619 (253)
Cash and cash equivalents at beginning of period 8,160 21,460
----------------------------------
Cash and cash equivalents at end of period $ 23,779 $ 21,207
==================================
</TABLE>
See notes to condensed consolidated financial statements.
5
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NCS HEALTHCARE, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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 nine month period ended March 31, 1998 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 nine months
ended March 31, 1998 include Cheshire LTC Pharmacy, Inc. in Cheshire,
Connecticut, PharmaSource Healthcare, Inc. in Norcross, Georgia, Marco &
Company, LLC in Billings, Montana, MedStar Pharmacy, Inc. in Benson, North
Carolina, Greenwood Pharmacy and Managed Pharmacy Services, affiliates of
Eckerd Corporation based in Sharon, Pennsylvania, Medical Pharmacy in
Bakersfield, California, Robcin Enterprises, Inc. in Independence, Missouri
and Apple Institutional Services in Salisbury, Maryland. The aggregate
purchase price for all businesses acquired during the nine months ended
March 31, 1998 was $125,904,000 consisting of $108,116,000 in cash,
$600,000 of debt and $17,188,000 of Class A Common Stock of the Company.
The Cheshire LTC Pharmacy, Inc. and MedStar Pharmacy, Inc. acquisitions
were accounted for as pooling of interests transactions, however the impact
of these transactions on the Company's historical financial statements is
not significant. Consequently, prior period financial statements have not
been restated for these transactions.
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<PAGE> 7
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 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>
Nine Months Nine Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
(In thousands, except per share information)
<S> <C> <C>
Revenues $ 417,365 $ 369,584
Net income $ 11,747 $ 9,195
Net income per share - basic $ 0.60 $ 0.48
Net income per share - diluted $ 0.59 $ 0.47
</TABLE>
On April 10, 1998, the Company signed a definitive agreement to acquire the
institutional pharmacy assets of Walgreen Co., an Illinois corporation
("Walgreen"). The closing of the acquisition is subject to customary closing
conditions, including regulatory approval, and is expected to occur on or
about June 1, 1998. The business to be acquired is based in Deerfield,
Illinois and provides institutional pharmacy and ancillary services to over
20,000 long-term care residents in Arizona, Iowa, Minnesota, New Mexico,
Nebraska, Tennessee, Texas and Wisconsin.
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<PAGE> 8
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 Nine Months Ended
March 31, March 31,
------------------------------ ----------------------------
1998 1997 1998 1997
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share - net income $ 4,366 $ 3,091 $12,019 $ 7,890
Effect of dilutive securities:
Convertible debentures - 71 - 212
------------------------------ ----------------------------
Numerator for diluted earnings per share $ 4,366 $ 3,162 $12,019 $ 8,102
============================== ============================
Denominator:
Denominator for basic earnings per share -
weighted average common shares 19,486 17,257 18,903 15,440
Effect of dilutive securities:
Stock options 271 160 316 160
Convertible debentures - 651 - 651
------------------------------ ----------------------------
Dilutive potential common shares 271 811 316 811
------------------------------ ----------------------------
Denominator for diluted earnings per share 19,757 18,068 19,219 16,251
============================== ============================
Basic earnings per share $ 0.22 $ 0.18 $ 0.64 $ 0.51
============================== ============================
Diluted earnings per share $ 0.22 $ 0.18 $ 0.63 $ 0.50
============================== ============================
</TABLE>
The Company has $102,753,000 of convertible subordinated debentures
outstanding at March 31, 1998 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 NINE MONTHS ENDED MARCH 31, 1998
Results of Operations
Revenues for the three months ended March 31, 1998 increased 75.3% to
$137,669,000 from $78,539,000 recorded in the comparable period in fiscal 1997.
Revenues for the nine months ended March 31, 1998 increased 96.7% to
$355,888,000 from $180,904,000 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 $174,984,000 increase for the nine months
ended March 31, 1998, $30,161,000 was due to the acquisitions of Cheshire LTC
Pharmacy, Inc. in August 1997, PharmaSource Healthcare, Inc. in September 1997,
Marco & Company, LLC in December 1997, MedStar Pharmacy, Inc. in January 1998,
Medical Pharmacy, Robcin Enterprises, Inc. and Greenwood Pharmacy and Managed
Pharmacy Services, affiliates of Eckerd Corporation in February 1998 and Apple
Institutional Services in March 1998. In addition, $85,357,000 of the increase
is attributable to revenues for the first nine 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 $59,466,000 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 March 31, 1998 increased 53% to 223,000 beds, from 146,000
beds at March 31, 1997.
Of the $59,130,000 increase in revenues for the three months ended March 31,
1998, $12,216,000 was due to the fiscal 1998 acquisitions noted above. In
addition, $23,103,000 of the increase is attributable to revenues for the three
months ended March 31, 1998 including a full period of operations for the fiscal
1997 acquisitions noted above and internal growth accounted for $23,811,000 of
the increase.
Cost of revenues for the three months ended March 31, 1998 increased 74.7% to
$102,812,000, from $58,867,000 recorded in the comparable period in fiscal 1997.
For the nine months ended March 31, 1998, cost of revenues increased 96.8% to
$265,766,000 from $135,013,000 recorded in the comparable period in fiscal 1997.
Cost of revenues as a percentage of revenues for the three and nine month
periods ended March 31, 1998 was 74.7% and 74.7%, respectively, compared to
74.9% and 74.6% for the comparable periods during the prior fiscal year.
The fluctuations in cost of revenues as a percentage of revenues for the three
months and nine months ended March 31, 1998 is primarily the result of the
timing of acquisitions. At the time of acquisition, the gross margins of the
acquired companies are typically lower than the Company as a whole; however, the
Company is typically able to increase the gross margins of the acquired
companies through more advantageous purchasing terms and the use of formulary
management.
Selling, general and administrative expenses for the three months ended March
31, 1998 increased 72.5% to $25,390,000, from $14,718,000 recorded in the
comparable period in fiscal 1997. For the nine months ended March 31, 1998,
selling, general and administrative expenses increased 96.7% to $65,972,000 from
$33,547,000 recorded in the comparable period in fiscal 1997. Selling, general
and administrative expenses as a percentage of
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<PAGE> 10
revenues was 18.4% and 18.5% for the three and nine month periods ended March
31, 1998, compared to 18.7% and 18.5% during the comparable periods in fiscal
1997. The percentage decrease for the three month period ended March 31, 1998 is
a result of creating operational efficiencies with acquisitions and the ability
to leverage overhead expenses over a larger revenue base. At the time of
acquisition, the 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 fifth 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 $1,808,000 and $3,063,000 for the three
and nine month periods ended March 31, 1998, compared to net interest income of
$517,000 and $1,650,000 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 and increased
borrowings on the August 1997 credit facility.
Liquidity and Capital Resources
Net cash used in operating activities was $16,759,000 for the nine months ended
March 31, 1998, as compared to net cash provided by operating activities of
$10,196,000 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 46.2% increase
in sales during the three months ended March 31, 1998, as compared to the three
months ended June 30, 1997. Net cash provided by operating activities was
$18,000 for the three months ended March 31, 1998.
Net cash used in investing activities decreased to $129,002,000 during the nine
months ended March 31, 1998, as compared to $142,040,000 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 nine months ended
March 31, 1998 included computer and information systems equipment, computer
software, furniture and fixtures at new facilities in Pinellas Park, Florida and
Van Nuys, California, leasehold improvements, medication carts and delivery
vehicles.
Net cash provided by financing activities increased to $161,380,000 during the
nine months ended March 31, 1998, from $131,591,000 during the comparable period
in fiscal 1997. The fiscal 1998 amount is primarily a result of funds received
from a convertible subordinated debenture offering completed on August 13,
1997 and borrowings on the August 1997 credit facility. The fiscal 1997 amount
is primarily a result of funds received from the Company's public offering
completed on October 4, 1996.
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. As of March 31, 1998, the Company has
$57,000,000 available on its credit facility.
10
<PAGE> 11
On April 10, 1998, the Company signed a definitive agreement to acquire the
institutional pharmacy assets of Walgreen Co., an Illinois corporation
("Walgreen"). The closing of the acquisition is subject to customary closing
conditions, including regulatory approval, and is expected to occur on or about
June 1, 1998. The Walgreen acquisition will primarily be funded by the current
credit facility, however, the acquisition is expected to utilize the remaining
funds available under the current credit facility. In conjunction with the
Walgreen acquisition, the Company is currently in the process of finalizing
negotiations for a new $200,000,000 credit facility that the Company believes
will be sufficient to meet its normal operating requirements and acquisition
needs through March 31, 1999.
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.
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 third fiscal quarter that were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
(a) On January 30, 1998 the Company issued 5,631 shares of its Class A Common
Stock to two stockholders in connection with the acquisition of certain
assets of Precision X-Ray Services, Inc. Exemption from registration is
claimed under Section 4(2) of the Securities Act.
(b) On February 1, 1998 the Company issued 268,000 shares of its Class A Common
Stock to two stockholders in connection with the acquisition of certain
assets of Medical Pharmacy. Exemption from registration is claimed under
Section 4(2) of the Securities Act.
(c) On February 17, 1998 the Company issued 23,329 shares of its Class B Common
Stock to two stockholders in connection with the merger of Progressive
Rehab, Inc. Exemption from registration is claimed under Section 4(2) of
the Securities Act.
(d) Effective December 31, 1997 the Company issued 44,808 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Numbers Exhibit
------- -------
15.1 Independent Accountants' Review Report
15.2 Acknowledgment Letter
27 Financial Data Schedule
(b) Reports on Form 8-K:
(1) On February 13, 1998 the Company filed a Current Report
on Form 8-K relating to the acquisition of
substantially all of the assets primarily used in the
operation of the institutional pharmacy business of
Thrift Drug, Inc. and Fay's Incorporated.
12
<PAGE> 13
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: May 15, 1998 By /s/ Kevin B. Shaw
---------------------------------------
Kevin B. Shaw
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: May 15, 1998 By /s/ Gerald D. Stethem
---------------------------------------
Gerald D. Stethem
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE> 1
EXHIBIT 15.1
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 March 31, 1998, the
related condensed consolidated statements of income for the three-month and
nine-month periods ended March 31, 1998 and 1997 and the condensed consolidated
statements of cash flows for the nine-month periods ended March 31, 1998 and
1997. 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
April 28, 1998
14
<PAGE> 1
EXHIBIT 15.2
The Board of Directors and Stockholders
NCS HealthCare, Inc. and Subsidiaries
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No. 333-49417) of NCS HealthCare, Inc. for the registration of
883,528 shares of its Class A common stock of our report dated April 28, 1998
relating to the unaudited condensed consolidated interim financial statements
of NCS HealthCare, Inc. and subsidiaries that are included in its Form 10-Q
for the quarter ended March 31, 1998.
/s/ Ernst & Young LLP
April 28, 1998
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