<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
Commission File Number- 0-27602
-------
NCS HealthCare, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 34-1816187
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122
- ---------------------------------------------------------
(Address of principal executive offices and zip code)
(216) 378-6800
- ---------------------------------------------------------
(Registrant's telephone number, including area code)
* Indicate by check 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 -- 14,140,595 shares as of May 12, 1999
Class B Common Stock, $ .01 par value -- 6,135,737 shares as of May 12, 1999
<PAGE> 2
<TABLE>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
INDEX
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
March 31, 1999 and June 30, 1998 3
Condensed Consolidated Statements of Income-
Three and nine months ended-
March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows-
Nine months ended-
March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements - March 31, 1999 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<CAPTION>
(Unaudited) (Note A)
March 31, June 30,
ASSETS 1999 1998
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 24,014 $ 21,186
Accounts receivable, less allowances 193,805 142,325
Inventories 50,609 43,784
Other 17,241 14,224
-------- --------
Total current assets 285,669 221,519
Property and equipment, at cost
net of accumulated depreciation and amortization 56,392 43,593
Goodwill, less accumulated amortization 338,914 340,209
Other assets 24,823 18,469
-------- --------
Total assets $705,798 $623,790
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 31,199 $ 34,131
Accrued expenses and other liabilities 42,257 38,026
-------- --------
Total current liabilities 73,456 72,157
Line of credit 212,700 147,800
Long-term debt, excluding current portion 2,514 3,879
Convertible subordinated debentures 100,000 102,753
Other 9,767 9,867
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;
14,126,176 and 13,334,639 shares issued and
outstanding at March 31, 1999 and June 30,
1998, respectively 141 133
Class B - 20,000,000 shares authorized;
6,135,787 and 6,463,244 shares issued and
outstanding at March 31, 1999 and June 30,
1998, respectively 61 65
Paid-in capital 262,517 258,462
Retained earnings 44,642 28,674
-------- --------
Total stockholders' equity 307,361 287,334
-------- --------
Total liabilities and stockholders' equity $705,798 $623,790
======== ========
</TABLE>
Note A: The balance sheet at June 30, 1998 has been derived from the audited
consolidated 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.
See notes to condensed consolidated financial statements.
3
<PAGE> 4
<TABLE>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
1999 1998 1999 1998
--------------------- ---------------------
<S> <C> <C> <C> <C>
Revenues $184,611 $137,669 $535,487 $355,888
Cost of revenues 137,167 102,812 398,787 265,766
--------------------- ---------------------
Gross profit 47,444 34,857 136,700 90,122
Selling, general and administrative expenses 32,815 25,390 95,665 65,972
--------------------- ---------------------
Operating income 14,629 9,467 41,035 24,150
Interest expense, net 4,588 1,808 13,367 3,063
--------------------- ---------------------
Income before income taxes 10,041 7,659 27,668 21,087
Income tax expense 4,167 3,294 11,700 9,068
--------------------- ---------------------
Net income $ 5,874 $ 4,365 $ 15,968 $ 12,019
===================== =====================
Net income per share - basic $ 0.29 $ 0.22 $ 0.79 $ 0.64
===================== =====================
Net income per share - diluted $ 0.29 $ 0.22 $ 0.79 $ 0.63
===================== =====================
Shares used in the computation - basic 20,252 19,486 20,176 18,903
Shares used in the computation - diluted 23,410 19,757 20,338 19,219
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
<TABLE>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
Nine Months Ended
March 31,
-----------------------
1999 1998
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 15,968 $ 12,019
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 17,505 11,708
Changes in assets and liabilities, net of effects
of assets and liabilities acquired:
Accounts receivable, net (52,372) (31,053)
Accrued expenses and other liabilities 1,215 7,539
Other, net (9,756) (16,972)
-----------------------
Net cash used in operating activities (27,440) (16,759)
-----------------------
INVESTING ACTIVITIES
Purchases of businesses (1,204) (108,116)
Capital expenditures for property and equipment, net (21,128) (14,953)
Other (11,390) (5,933)
-----------------------
Net cash used in investing activities (33,722) (129,002)
-----------------------
FINANCING ACTIVITIES
Proceeds from convertible subordinated debentures, net -- 97,250
Borrowings on line-of-credit 93,575 99,499
Payments on line-of-credit (28,675) (31,784)
Repayment of long-term debt (1,418) (3,763)
Proceeds from issuance of long-term debt 137 178
Proceeds from exercise of stock options 371 --
-----------------------
Net cash provided by financing activities 63,990 161,380
-----------------------
Net increase in cash and cash equivalents 2,828 15,619
Cash and cash equivalents at beginning of period 21,186 8,160
-----------------------
Cash and cash equivalents at end of period $ 24,014 $ 23,779
=======================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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, 1999 are not necessarily indicative
of the results that may be expected for the year ending June 30, 1999. 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, 1998.
2. 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 1998, $2,753,000 of 8% convertible subordinated debentures due in
fiscal 1999 were converted into 273,707 shares of Class A Common Stock.
During July 1998, the Company amended its credit facility increasing the
total commitment from $150,000,000 to $245,000,000.
3. During the fourth quarter of fiscal 1998, the Company recorded a
nonrecurring charge of $8,900,000 primarily related to: 1) the adoption of a
formal plan of restructuring to consolidate certain pharmacy sites in
similar geographies; 2) the buyout of existing employment agreements with
the prior owners of certain acquired businesses; 3) the write-off of certain
financing fees; and 4) additional acquisition related expenses.
The Company has adopted a formal plan of restructuring that will combine
pharmacies in close geographical proximity in order to improve operating
efficiencies. As a result of the plan, 17 pharmacy sites will be
consolidated into either new or existing locations and an estimated total of
149 employees will be terminated. As of March 31, 1999, 13 site
consolidations were completed, with the remainder expected to be completed
by the end of fiscal 1999.
<PAGE> 7
Details of the nonrecurring charge, related activity and reserve balance are
as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve Reserve
Description Cash/Non-cash Charge Activity At 6/30/98 Activity At 3/31/99
----------- ------------- ------------ -------- ---------- -------- ----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Site Consolidations
Severance packages Cash $ .5 $ -- $ .5 $ (.2) $ .3
Lease terminations Cash .7 -- .7 (.3) .4
Asset impairments Non-cash 3.5 (3.5) -- -- --
Other Cash .6 (.4) .2 -- .2
Buyout of employment agreements Cash .9 (.2) .7 (.6) .1
Write-off financing fees Non-cash 1.3 (1.3) -- -- --
Other
Cash 1.0 (.8) .2 (.1) .1
Non-cash .4 (.4) -- -- --
---- ----- ---- ----- ----
Total $8.9 $(6.6) $2.3 $(1.2) $1.1
==== ===== ==== ===== ====
</TABLE>
4. Significant acquisitions completed by the Company during fiscal 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, Apple Institutional
Services in Salisbury, Maryland and the institutional pharmacy assets of
Walgreen Co., an Illinois corporation. The aggregate purchase price for all
businesses acquired during fiscal 1998 was $188,854,000 consisting of
$171,083,000 in cash, $959,000 of debt and $16,812,000 of Class A and Class
B 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
material; consequently, prior period financial statements have not been
restated for these transactions. All other acquisitions have been accounted
for as purchase transactions.
Unaudited pro forma data, as though the Company had purchased each of these
businesses as of July 1, 1997, are set forth below:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
(In thousands, except per share information)
<S> <C> <C>
Revenues $537,099 $450,380
Net income $ 16,069 $ 11,437
Net income per share - basic $ 0.79 $ 0.59
Net income per share - diluted $ 0.79 $ 0.58
</TABLE>
The pro forma information does not intend to be indicative of operating
results that would have occurred had the acquisitions been made at the
beginning of the respective periods or of results that may occur in the
future. The primary pro forma adjustments reflect amortization of goodwill
acquired and interest costs. The pro forma information does not give effect
to any potential synergies anticipated by the Company as a result of the
acquisitions such as improvements in gross margin attributable to the
Company's purchasing leverage and increased operating efficiencies.
7
<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
exclude 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,
------------------- -------------------
1999 1998 1999 1998
------------------- -------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share - net income $ 5,874 $ 4,365 $15,968 $12,019
Effect of dilutive securities:
Convertible debentures
819 -- -- --
------------------- -------------------
Numerator for diluted earnings per share $ 6,693 $ 4,365 $15,968 $12,019
=================== ===================
Denominator:
Denominator for basic earnings per share -
Weighted average common shares 20,252 19,486 20,176 18,903
------------------- -------------------
Effect of dilutive securities:
Stock options 99 271 162 316
Convertible debentures 3,059 -- -- --
------------------- -------------------
Dilutive potential common shares 3,158 271 162 316
=================== ===================
Denominator for diluted earnings per share 23,410 19,757 20,338 19,219
=================== ===================
Basic earnings per share $ 0.29 $ 0.22 $ 0.79 $ 0.64
=================== ===================
Diluted earnings per share $ 0.29 $ 0.22 $ 0.79 $ 0.63
=================== ===================
</TABLE>
The Company had $100,000,0000 and $102,753,000 of convertible
subordinated debentures outstanding at March 31, 1999 and 1998,
respectively, that were convertible into 3,058,000 and 3,332,000 shares,
respectively, of Class A Common Stock that were not included in the
computation of diluted earnings per share as their effect would be
antidilutive for all periods presented except for the three months ended
March 31, 1999.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
Revenues for the three months ended March 31, 1999 increased 34.1% to
$184,611,000 from $137,669,000 recorded in the comparable period in fiscal 1998.
Revenues for the nine months ended March 31, 1999 increased 50.5% to
$535,487,000 from $355,888,000 recorded in the comparable period in fiscal 1998.
The increase in quarter and year to date revenues during fiscal 1999 over the
comparable prior year period is primarily attributed to two factors: the
Company's acquisition program and internal growth. Of the $179,599,000 increase
for the nine months ended March 31, 1999, $107,752,000 of the increase is
attributable to a full period of operations for fiscal 1998 acquisitions. These
fiscal 1998 acquisitions include 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, Apple Institutional Services
in March 1998 and the institutional pharmacy assets of Walgreens Co. in June
1998. Internal growth accounted for $71,847,000 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, 1999
increased 16% to 258,000 beds, from 223,000 beds at March 31, 1998.
Of the $46,942,000 increase in revenues for the three months ended March 31,
1999, $22,830,000 was due to the fiscal 1998 acquisitions noted above and
internal growth accounted for $24,112,000 of the increase.
Cost of revenues for the three months ended March 31, 1999 increased 33.4% to
$137,167,000 from $102,812,000 recorded in the comparable period in fiscal
1998. For the nine months ended March 31, 1999, cost of revenues increased
50.1% to $398,787,000 from $265,766,000 recorded in the comparable period in
fiscal 1998. Cost of revenues as a percentage of revenues for the three and
nine month periods ended March 31, 1999 was 74.3% and 74.5%, respectively,
compared to 74.7% and 74.7% for the comparable periods during the prior fiscal
year.
The decrease in cost of revenues as a percentage of revenues 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. The Company's leverage associated with purchasing
pharmaceuticals, formulary management program and leveraging of production costs
positively impacted gross margins during the past year. However, these
improvements were partially offset by the lower margins of companies acquired
during the past year.
Selling, general and administrative expenses for the three months ended March
31, 1999 increased 29.2% to $32,815,000, from $25,390,000 recorded in the
comparable period in fiscal 1998. For the nine months ended March 31, 1999,
selling, general and administrative expenses increased 45.0% to $95,665,000 from
$65,972,000 recorded in the comparable period in fiscal 1998. Selling, general
and administrative expenses as a percentage of revenues was 17.8% and 17.9% for
the three and nine month periods ended March 31, 1999, respectively, compared to
18.4% and 18.5% during the comparable periods in fiscal 1998. The percentage
decrease for the three and nine month periods ended March 31, 1999 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
able to create operational efficiencies with acquisitions as selling, general
and administrative expenses as a percentage of revenues have decreased nine
quarters in a row. 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 prior fiscal year and the cost of
upgrading information systems as the Company converts all sites to a common
operating system.
9
<PAGE> 10
The Company had net interest expense of $4,588,000 and $13,367,000 for the
three and nine month periods ended March 31, 1999, compared to net interest
expense of $1,808,000 and $3,063,000 during the comparable periods in fiscal
1998. The increase is primarily attributable to increased borrowing on the
Company's revolving credit facility during fiscal 1998 and 1999 and a full nine
months of interest expense during the nine months ended March 31, 1999 on
$100,000,000 of convertible subordinated debentures issued by the Company in
August 1997. The additional funds were primarily used for acquisitions.
During the fourth quarter of fiscal 1998, the Company recorded a nonrecurring
charge of $8,900,000 primarily related to: 1) the Company adopting a formal plan
of restructuring to consolidate certain pharmacy sites in similar geographies;
2) the buyout of existing employment agreements with the prior owners of certain
acquired businesses; 3) the write-off of certain financing fees; and 4)
additional acquisition related expenses.
The Company adopted a formal plan of restructuring that will combine pharmacies
in close geographical proximity in order to improve operating efficiencies. As a
result of the plan, 17 pharmacy sites will be consolidated into either new or
existing locations and an estimated total of 149 employees will be terminated as
a result of the plan. As of March 31, 1999, 13 site consolidations were
completed with the remainder expected to be completed by the end of fiscal 1999.
Details of the nonrecurring charge, related activity and reserve balance are
as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve Reserve
Description Cash/Non-cash Charge Activity At 6/30/98 Activity At 3/31/99
----------- ------------- ------------ -------- ---------- -------- ----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Site Consolidations
Severance packages Cash $ .5 $ -- $ .5 $ (.2) $ .3
Lease terminations Cash .7 -- .7 (.3) .4
Asset impairments Non-cash 3.5 (3.5) -- -- --
Other Cash .6 (.4) .2 -- .2
Buyout of employment agreements Cash .9 (.2) .7 (.6) .1
Write-off financing fees Non-cash 1.3 (1.3) -- -- --
Other
Cash 1.0 (.8) .2 (.1) .1
Non-cash .4 (.4) -- -- --
---- ----- ---- ----- ----
Total $8.9 $(6.6) $2.3 $(1.2) $1.1
==== ===== ==== ===== ====
</TABLE>
Liquidity and Capital Resources
Net cash used in operating activities was $27,440,000 for the nine months ended
March 31, 1999, as compared to $16,759,000 during the comparable period in
fiscal 1998. The increase in net cash used in operating activities was primarily
due to an increase in accounts receivable. The increase in accounts receivable
from June 30, 1998 is mainly attributable to a 20.5% increase in sales during
the three months ended March 31, 1999, as compared to the three months ended
June 30, 1998.
Net cash used in investing activities decreased to $33,722,000 during the nine
months ended March 31, 1999, as compared to $129,002,000 during the comparable
period in fiscal 1998. 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, 1999 included computer and information systems equipment, computer
software, furniture and fixtures, leasehold improvements, medication carts and
delivery vehicles. The Company continues to invest in converting all sites to a
common operating system.
10
<PAGE> 11
Net cash provided by financing activities decreased to $63,990,000 during the
nine months ended March 31, 1999, from $161,380,000 during the comparable period
in fiscal 1998. The decrease is a result of the Company completing a
$100,000,000 convertible subordinated debenture offering during August 1997.
In August 1997, the Company issued $100 million 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) that 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.
The Company expects to meet future financing needs principally through the use
of its revolving credit facility. In June 1998, the Company entered into a four
year, $150,000,000 revolving credit facility (the "Credit Facility") with a
bank, which replaced the existing $135,000,000 revolving credit facility. Under
the Credit Facility, the Company also has available a $10,000,000 swing line
revolving facility. In June 1998, the Company entered into a $50,000,000 bridge
facility agreement (the "Bridge Facility") due December 31, 1998. Effective July
13, 1998, the Credit Facility was amended to increase the total commitment from
$150,000,000 to $245,000,000 and was syndicated to a consortium of 11 banks.
Also effective July 13, 1998, the Bridge Facility was paid with funds under the
Credit Facility and was terminated. The Credit Facility bears interest at a
variable rate based upon the Eurodollar rate plus a spread of 37.5 to 162.5
basis points, dependent upon the Company's Interest Coverage Ratio. The Credit
Facility contains certain debt covenants including Interest Coverage Ratio and
minimum consolidated net worth as amended on March 3, 1999. As of March 31,
1999, the Company had $212,700,000 outstanding under the Credit Facility. The
Company believes that its cash and available sources of capital, including funds
available under the Credit Facility, are sufficient to meet its normal operating
requirements.
New Accounting Standards
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." This
statement establishes standards for the reporting of financial information about
reportable segments in annual and interim financial statements. SFAS No. 131
also requires disclosure of revenues from each group of products and services,
geographic areas and major customers. Currently, the Company does not expect the
adoption of SFAS No. 131 to have a significant impact on the Company's reporting
and disclosures.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-up Activities." This SOP
requires that start-up and organization costs be expensed as incurred, and that
such previously capitalized costs be written-off as a cumulative effect of
change in accounting principle upon adoption. The SOP is effective for fiscal
years beginning after December 15, 1998 or the Company's fiscal year ended June
30, 2000. The Company plans to adopt this SOP in the first quarter of fiscal
2000 and will continue to capitalize and amortize start-up costs and
organization costs during fiscal 1999. The Company currently estimates the
adoption of the SOP will result in a charge of approximately $7,500,000, net of
tax, which will be recorded as a cumulative effect of change in accounting
principle.
Year 2000 Readiness Disclosure
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. Various
systems could be affected ranging from complex information technology ("IT")
computer systems to non-IT devices, such as an individual machine's programmable
logic controller.
11
<PAGE> 12
The Company has reviewed all significant current and planned internal IT systems
and believes these systems are Year 2000 compliant. However, there can be no
assurance that coding errors or other defects will not be discovered
in the future. The Company is currently in the process of reviewing and
assessing all significant non-IT devices for Year 2000 compliance. The Company
expects to complete this review and assessment process by June 30, 1999. Testing
of devices and resolution of noncompliance issues, if any, is expected to be
completed by September 30, 1999.
The Company is currently determining the extent to which it may be impacted by
any third parties' failure to remediate their own Year 2000 issues. The Company
is assessing and reviewing relationships with all significant customers,
suppliers, payors and other third parties to determine the extent, if any, to
which the Company could be impacted by those third-parties' failure to remediate
their own Year 2000 issues. The Company expects to complete this review and
assessment by June 30, 1999. At this stage of the review no assurance can be
given that the failure by one or more third parties to become Year 2000
compliant will not have a material adverse impact on its operations.
The Company intends to develop contingency plans for significant third parties'
determined to be at high risk of noncompliance or business disruption before
September 30, 1999. The contingency plans will be developed on a case-by-case
basis. Judgments regarding contingency plans are themselves subject to many
variables and uncertainties. There can be no assurance that the Company will
correctly anticipate the level, impact or duration of noncompliance by third
parties, or that its contingency plan will be sufficient to mitigate the impact.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. Nevertheless, since it is not
possible to anticipate all future outcomes, especially when third parties are
involved, there could be circumstances in which the Company's operations could
be interrupted. If the federal and state healthcare reimbursement agencies or
their intermediaries fail to implement Year 2000 compliant technologies before
December 31, 1999, a significant cash flow problem may result. These agencies
and intermediaries have Year 2000 plans in place and we continue to monitor the
status of these projects. All of these government agencies have stated that
interim procedures would be implemented if their Year 2000 solutions are not in
place by January 1, 2000. In addition, disruptions in the economy in general
resulting from Year 2000 issues could also adversely impact the Company.
The majority of costs related to Year 2000 readiness issues will be expensed as
incurred and are expected to be funded through operating cash flows. Through the
third quarter of fiscal 1999 costs related to the Year 2000 issue have been
immaterial to the financial results of the Company. Future costs related to Year
2000 issues are also expected to be immaterial to the financial results of the
Company. Estimates of costs are based on currently available information and
developments may occur that could increase the costs related to Year 2000
issues.
Disclosure Regarding Forward-Looking Statements
Certain statements contained in or incorporated by reference into this Quarterly
Report on Form 10-Q, including, but not limited to, those regarding the
Company's financial position, business strategy, acquisition strategy, Year 2000
readiness disclosure and other plans and objectives for future operations and
any other statements that are not historical facts constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company, or industry results, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Although the Company believes that
the expectations reflected in these forward-looking statements are reasonable,
there can be no assurance that the actual results or developments anticipated by
the Company will be realized or, even if substantially realized, that they will
have expected effects on its business or operations. Among the factors that
could cause actual results to differ materially from the Company's expectations
include the availability and cost of attractive acquisition candidates,
continuation of various trends in the long-term care market (including the trend
12
<PAGE> 13
toward consolidation), competition among providers of long-term care pharmacy
services, the availability of capital for acquisitions and capital requirements,
changes in regulatory requirements, reform of the health care delivery system,
disruption to the operations of the Company resulting from Year 2000 issues and
other factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company has not entered
into derivative financial instruments for trading purposes. The Company's
primary market risk exposure relates to interest rate risk. The Company has
managed its interest rate risk by balancing its exposure between fixed and
variable rates while attempting to minimize its interest costs. The Company has
a balance of $212,700,000 on its revolving credit facility at March 31, 1999,
which is subject to a variable rate of interest based on the Eurodollar rate.
Assuming borrowings at March 31, 1999, a one-hundred basis point change in
interest rates would impact net interest expense by approximately $2,127,000 per
year.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Numbers Exhibit
------- -------
10.1 Amendment No. 2, dated March 3, 1999, to the
Credit Agreement dated as of June 1, 1998,
among the Company and the Lenders named
therein, NBD Bank and National City Bank, as
co-agents, and KeyBank National Association,
as a Lender, the Swing Line Lender, the Letter
of Credit issuer and as Administrative Agent.
15.1 Independent Accountants' Review Report
15.2 Independent Accountants' Acknowledgment Letter
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months
ended March 31, 1999.
14
<PAGE> 15
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 17, 1999 By /s/ Kevin B. Shaw
-----------------------------------------------
Kevin B. Shaw
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: May 17, 1999 By /s/ Gerald D. Stethem
-----------------------------------------------
Gerald D. Stethem
Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE> 1
Exhibit 10.1
AMENDMENT NO. 2 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT, dated as of March 3, 1999 ("THIS
AMENDMENT"), among the following: (i) NCS HEALTHCARE, INC., a Delaware
corporation (herein, together with its successors and assigns, the "BORROWER");
(ii) the Lenders party hereto; (iii) NBD BANK and NATIONAL CITY BANK, as Lenders
and as Co-Agents; and (iv) KEYBANK NATIONAL ASSOCIATION, a national banking
association, as a Lender, the Swing Line Lender, the Letter of Credit Issuer,
and as the Administrative Agent under the Credit Agreement:
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders named therein, the Swing Line Lender and the
Administrative Agent entered into the Credit Agreement, dated as of June 1,
1998, as amended by Amendment No. 1 thereto, dated as of July 13, 1998 (as so
amended and in effect immediately prior to the effective date of this Amendment,
the "CREDIT AGREEMENT"; with the terms defined therein, or the definitions of
which are incorporated therein, being used herein as so defined).
(2) The Borrower, the Lenders party hereto and the Administrative Agent
desire to change one of the financial covenants contained in the Credit
Agreement, all as more fully set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
10 AMENDMENT. Section 9.7 of the Credit Agreement is amended to read in
its entirety as follows:
9.7. TOTAL SENIOR INDEBTEDNESS/CAPITAL RATIO. The Borrower will not
at any time permit the ratio, expressed as a percentage, of (i) the amount
of Total Senior Indebtedness at such time to (ii) the sum of the amount of
Total Indebtedness at such time, PLUS its Consolidated Net Worth as of the
end of the most recently completed fiscal quarter, to exceed (x) 38.00% as
of the end of the fiscal quarters ended March 31, 1999 and June 30, 1999,
or (y) 35.00% as of the end of the fiscal quarter ended September 30, 1999
or any subsequent fiscal quarter.
20 REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants as
follows: (a) this Amendment has been duly authorized by all necessary corporate
action on the part of the Borrower, has been duly executed and delivered by a
duly authorized officer of the Borrower, and constitutes the valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms; (b) the representations and warranties of the Credit Parties
contained in the Credit Agreement or in the other Credit Documents are true and
correct in all material respects on and as of the date hereof as though made on
and as of the date hereof, except to the extent that such representations and
warranties expressly relate to an earlier specified date, in which case such
representations and warranties are hereby reaffirmed as true and correct in all
material respects as of the date when made; (c) no condition or event has
occurred or exists which constitutes or which, after notice or lapse of time or
both, would constitute an Event of Default; (d) the Borrower is in full
compliance with all covenants and agreements contained in the Credit Agreement,
as amended hereby, and the other Credit Documents to which it is a party; and
(e) without limitation of the foregoing, each Subsidiary of the
<PAGE> 2
Borrower which, as of the date hereof, is required to be a Subsidiary Guarantor,
has as on or prior to the date hereof become a Subsidiary Guarantor under the
Subsidiary Guaranty.
30 RATIFICATIONS. Except as expressly modified and superseded by this
Amendment, the terms and provisions of the Credit Agreement are ratified and
confirmed and shall continue in full force and effect.
40 BINDING EFFECT. This Amendment shall become effective on a date (the
"EFFECTIVE DATE"), on or before March 19, 1999, if the following conditions
shall have been satisfied on and as of such date:
(a) this Amendment shall have been executed by the Borrower and the
Administrative Agent, and counterparts hereof as so executed shall have
been delivered to the Administrative Agent;
(b) the Acknowledgment and Consent appended hereto shall have been
executed by the Credit Parties named therein, and counterparts thereof as
so executed shall have been delivered to the Administrative Agent;
(c) the Administrative Agent shall have been notified by the Required
Lenders that such Lenders have executed this Amendment (which notification
may be by facsimile or other written confirmation of such execution); and
(d) the Borrower shall have paid to the Administrative Agent, in
immediately available funds, for distribution to the Lenders who have
executed this Amendment, in proportion to their General Revolving
Commitments, a nonrefundable amendment fee in the amount previously agreed
between the Borrower and the Administrative Agent and communicated to the
Lenders;
and thereafter this Amendment shall be binding upon and inure to the benefit of
the Borrower, the Administrative Agent, and each Lender and their respective
permitted successors and assigns. After this Amendment becomes effective, the
Administrative Agent will promptly furnish a copy of this Amendment to each
Lender and the Borrower and advise them of the Effective Date.
50 MISCELLANEOUS. 5.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in this Amendment shall survive the
execution and delivery of this Amendment, and no investigation by the
Administrative Agent or any Lender or any subsequent Loan or other Credit Event
shall affect the representations and warranties or the right of the
Administrative Agent or any Lender to rely upon them.
5.2. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and all
other agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference therein to the Credit Agreement shall mean
a reference to the Credit Agreement as amended hereby.
5.3. EXPENSES. As provided in the Credit Agreement, but without limiting
any terms or provisions thereof, the Borrower shall pay on demand all reasonable
costs and expenses incurred by the Administrative Agent in connection with the
preparation, negotiation, and execution of this Amendment, including without
limitation the reasonable costs and fees of the Administrative Agent's special
legal counsel, regardless of whether this Amendment becomes effective in
accordance with the terms hereof,
2
<PAGE> 3
and all reasonable costs and expenses incurred by the Administrative Agent or
any Lender in connection with the enforcement or preservation of any rights
under the Credit Agreement, as amended hereby.
5.4. SEVERABILITY. Any term or provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.
5.5. APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Ohio.
5.6. HEADINGS. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.7. ENTIRE AGREEMENT. This Amendment is specifically limited to the
matters expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and delivered in connection with this
Amendment embody the final, entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any and all prior
commitments, agreements, representations and understandings, whether written or
oral, relating to the matters covered by this Amendment, and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto relating to the subject matter hereof or any other
subject matter relating to the Credit Agreement.
5.8. COUNTERPARTS. This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as
of the date first above written.
- ---------------------------------------- --------------------------------------
NCS HEALTHCARE, INC. KEYBANK NATIONAL ASSOCIATION,
INDIVIDUALLY AS A LENDER, THE SWING
LINE LENDER, THE LETTER OF CREDIT
BY: /S/ GERALD A. STETHEM ISSUER, AND AS ADMINISTRATIVE AGENT
CHIEF FINANCIAL OFFICER
BY: /S/ THOMAS J. PURCELL
VICE PRESIDENT
- ---------------------------------------- --------------------------------------
NBD BANK, NATIONAL CITY BANK,
AS A LENDER AND AS CO-AGENT AS A LENDER AND AS CO-AGENT
BY: /S/ STEVEN GEROW BY: /S/ CHRIS THORNTON
FIRST VICE PRESIDENT VICE PRESIDENT
- ---------------------------------------- --------------------------------------
BANK ONE, NA FIRST UNION NATIONAL BANK
BY: /S/ JAN PETRIK BY: /S/ ANN M. DODD
VICE PRESIDENT VICE PRESIDENT
- ---------------------------------------- --------------------------------------
COMERICA BANK MELLON BANK, N. A.
BY: /S/ CRAIG DURNO BY: /S/ COLLEEN MCCULLUM
VICE PRESIDENT VICE PRESIDENT
- ---------------------------------------- --------------------------------------
HARRIS TRUST AND SAVINGS BANK STAR BANK, N. A.
BY: /S/ STANLEY C. ROSENDAHL BY: /S/ W. GREGORY SCHMID
VICE PRESIDENT VICE PRESIDENT
- ---------------------------------------- --------------------------------------
AMSOUTH BANK BANK HAPOALIM B. M.,
CHICAGO BRANCH
BY: /S/ DAVID C. STYLES BY: /S/ MICHAEL J. BYRNE
VICE PRESIDENT VICE PRESIDENT
AND: /S/ THOMAS J. HEPPERLE
TITLE:
- ---------------------------------------- --------------------------------------
4
<PAGE> 5
ACKNOWLEDGMENT AND CONSENT
For the avoidance of doubt, and without limitation of the intent and
effect of sections 6 and 10 of the Subsidiary Guaranty (as such term is defined
in the Credit Agreement referred to in the Amendment No. 2 to Credit Agreement
(the "AMENDMENT"), to which this Acknowledgment and Consent is appended), each
of the undersigned hereby unconditionally and irrevocably (i) acknowledges
receipt of a copy of the Credit Agreement and the Amendment, and (ii) consents
to all of the terms and provisions of the Credit Agreement as amended by the
Amendment.
Capitalized terms which are used herein without definition shall have the
respective meanings ascribed thereto in the Credit Agreement referred to herein.
This Acknowledgment and Consent is for the benefit of the Lenders, the
Administrative Agent, the Collateral Agent and any Hedge Creditor (as defined in
the Subsidiary Guaranty) which may be a third party beneficiary of the
Subsidiary Guaranty or the Pledge Agreement, in its capacity as such third party
beneficiary under any Credit Document, and their respective successors and
assigns. No term or provision of this Acknowledgment and Consent may be modified
or otherwise changed without the prior written consent of the Administrative
Agent, given as provided in the Credit Agreement. This Acknowledgment and
Consent shall be binding upon the successors and assigns of each of the
undersigned. This Acknowledgment and Consent may be executed by any of the
undersigned in separate counterparts, each of which shall be an original and all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the undersigned has duly executed and
delivered this Acknowledgment and Consent as of the date of the Amendment
referred to herein.
- --------------------------------------------------------------------------------
NCS HEALTHCARE OF NCS SERVICES, INC. NCS HEALTHCARE OF
OKLAHOMA, INC. NCS HEALTHCARE OF IOWA, MASSACHUSETTS, INC.
THRIFTY MEDICAL INC. NCS HEALTHCARE OF
SUPPLY, INC. NCS HEALTHCARE OF ARIZONA, INC.
NCS HEALTHCARE OF MODESTO, INC. NCS HEALTHCARE OF
RHODE ISLAND, INC. NCS QUALITY CARE MONTANA, INC.
NCS HEALTHCARE OF PHARMACY, INC. NCS HEALTHCARE OF
KANSAS, INC. NCS HEALTHCARE OF MISSOURI, INC.
NCS HEALTHCARE OF KENTUCKY, INC. NCS HEALTHCARE OF
SOUTH CAROLINA, INC. KINETIC SERVICES, INC. NORTH CAROLINA, INC.
NCS HEALTHCARE OF NCS DAVEN DRUG, INC. OPTIMAL ACQUISITION
OREGON, INC. JK MEDICAL SERVICES, INC. CO., INC.
NCS HEALTHCARE OF NCS HEALTHCARE OF NCS HEALTHCARE OF
MARYLAND, INC. VERMONT, INC. NEW YORK, INC.
NCS HEALTHCARE OF NCS HEALTHCARE OF PHARMASOURCE
ARKANSAS, INC. BEACHWOOD, INC. HEALTHCARE, INC.
NCS HEALTHCARE OF HLF ADULT HOME PHARMACY NCS HEALTHCARE OF
CALIFORNIA, INC. CORP. TEXAS, INC.
RESCOT SYSTEMS GROUP, NCS HEALTHCARE OF OHIO, NCS HEALTHCARE OF
INC. INC. TENNESSEE, INC.
UNI-CARE HEALTH NCS HEALTHCARE OF NCS HEALTHCARE OF
SERVICES, INC. MICHIGAN, INC. MINNESOTA, INC.
UNI-CARE HEALTH NCS HEALTHCARE OF NCS HEALTHCARE OF
SERVICES OF MAINE, INDIANA, INC. WISCONSIN, INC.
INC. NCS HEALTHCARE OF NCS HEALTHCARE OF
ADVANCED RX SERVICES, ILLINOIS, INC. NEBRASKA, INC.
INC. NCS UNLIMITED, INC. NCS HEALTHCARE OF
NCS HEALTHCARE OF NCS HEALTHCARE OF NEW MEXICO, INC.
FLORIDA, INC. PENNSYLVANIA, INC. BEACHWOOD HEALTHCARE
NCS HEALTHCARE OF CHESHIRE LONG TERM CARE MANAGEMENT, INC.
WASHINGTON, INC. PHARMACY, INC.
MANAGEMENT & NETWORK
SERVICES, INC.
- --------------------------------------------------------------------------------
BY: /S/ MICHAEL J. MASCALI
MICHAEL J. MASCALI, VICE PRESIDENT,
ON BEHALF OF EACH OF
THE ABOVE CORPORATIONS
KERN ACQUISITION CORP.
BY: /S/ KEVIN B. SHAW
KEVIN B. SHAW, PRESIDENT
5
<PAGE> 6
================================================================================
================================================================================
NCS HEALTHCARE, INC.
AS BORROWER
THE LENDERS NAMED HEREIN
AS LENDERS
NBD BANK
NATIONAL CITY BANK
AS CO-AGENTS
AND
[KEYBANK LOGO]
KEYBANK NATIONAL ASSOCIATION
AS A LENDER,
THE SWING LINE LENDER, THE LETTER OF CREDIT ISSUER
AND AS ADMINISTRATIVE AGENT
---------------------
AMENDMENT NO. 2
DATED AS OF
MARCH 3, 1999
TO
CREDIT AGREEMENT
DATED AS OF
JUNE 1, 1998
---------------------
================================================================================
================================================================================
<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, 1999, and the
related condensed consolidated statements of income for the three-month and
nine-month periods ended March 31, 1999 and 1998, and the condensed
consolidated statements of cash flows for the nine month periods ended March 31,
1999 and 1998. 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, 1998, 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 6, 1998, 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, 1998 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
Cleveland, Ohio /s/ Ernst & Young LLP
May 14, 1999
<PAGE> 1
EXHIBIT 15.2
May 14, 1999
The Board of Directors and Stockholders
NCS HealthCare, Inc. and Subsidiaries
We are aware of the incorporation by reference in the Registration Statements
(Form S-8 No. 333-49417; Form S-3 No. 333-63437;Form S-3 No. 333-47293; Form
S-3/A No. 333-29565; Form S-3/A No. 333-35551; Form S-8 No. 333-70741 and Form
S-8 No. 333-72243) of NCS HealthCare, Inc. and subsidiaries of our report dated
May 14, 1999, 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 31,1999.
/s/ Ernst & Young LLP
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