<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 December 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 identification number)
incorporation or organization)
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 Issuer's classes of
common stock, as of the latest practical date.
Class A Common Stock, $ .01 par value -- 15,127,313 shares as of February 8,
2000
Class B Common Stock, $ .01 par value -- 5,815,925 shares as of February 8,
2000
<PAGE> 2
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
INDEX
Page
----
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
December 31, 1999 and June 30, 1999 3
Condensed Consolidated Statements of Operations
Three and six months ended-
December 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows-
Six months ended-
December 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements - December 31, 1999 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. Other Information:
Item 2. Changes in Securities and Use of Proceeds 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
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,
ASSETS 1999 1999
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 13,526 $ 29,424
Accounts receivable, less allowances 157,108 160,168
Inventories 46,486 49,244
Other 44,031 46,397
--------- ---------
Total current assets 261,151 285,233
Property and equipment, at cost
net of accumulated depreciation and amortization 53,629 59,116
Goodwill, less accumulated amortization 322,162 343,247
Other assets 11,335 11,903
--------- ---------
Total assets $ 648,277 $ 699,499
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit in default $ 204,500 $ -
Accounts payable 48,734 50,061
Accrued expenses and other liabilities 28,425 37,777
--------- ---------
Total current liabilities 281,659 87,838
Line of credit - 214,700
Long-term debt, excluding current portion 1,612 1,936
Convertible subordinated debentures 100,000 100,000
Other 16,388 18,591
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; 15,042,922
and 14,277,492 shares issued and outstanding at
December 31, 1999 and June 30, 1999, respectively 150 143
Class B - 20,000,000 shares authorized; 5,855,679
and 6,005,280 shares issued and outstanding at
December 31, 1999 and June 30, 1999, respectively 59 60
Paid-in capital 265,840 263,882
Retained earnings (accumulated deficit) (17,431) 12,349
--------- ---------
Total stockholders' equity 248,618 276,434
--------- ---------
Total liabilities and stockholders' equity $ 648,277 $ 699,499
========= =========
</TABLE>
Note A: The balance sheet at June 30, 1999 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
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 179,323 $ 178,030 $ 363,514 $ 350,876
Cost of revenues 141,899 132,630 285,790 261,620
--------- --------- --------- ---------
Gross profit 37,424 45,400 77,724 89,256
Selling, general and administrative expenses (1) 32,302 34,289 64,342 67,090
Charge to increase allowance for doubtful accounts 11,885 - 11,885 -
Nonrecurring and other special charges 27,952 - 27,952 -
--------- --------- --------- ---------
Operating income (loss) (34,715) 11,111 (26,455) 22,166
Interest expense, net 6,450 4,302 12,120 8,779
--------- --------- --------- ---------
Income (loss) before income taxes (41,165) 6,809 (38,575) 13,387
Income tax expense (benefit) (9,858) 2,894 (8,796) 5,724
Cumulative effect of accounting change (1) - - - (2,921)
Net income (loss) $ (31,307) $ 3,915 $ (29,779) $ 4,742
========= ========= ========= =========
Net income (loss) per share - basic $ (1.51) $ 0.19 $ (1.45) $ 0.23
========= ========= ========= =========
Net income (loss) per share - diluted $ (1.51) $ 0.19 $ (1.45) $ 0.23
========= ========= ========= =========
Net income (loss) per share before cumulative
effect of accounting change - basic $ (1.51) $ 0.27 $ (1.45) $ 0.50
========= ========= ========= =========
Net income (loss) per share before cumulative
effect of accounting change - diluted $ (1.51) $ 0.26 $ (1.45) $ 0.50
========= ========= ========= =========
Shares used in the computation - basic 20,738 20,162 20,530 20,138
Shares used in the computation - diluted 20,738 20,466 20,530 20,382
</TABLE>
(1) As disclosed in the Form 10-K for the year ended June 30, 1999, selling,
general and administrative expenses as originally reported for the three
and six month periods ending December 31, 1998 excluded pre-tax costs of
$2,483 and $4,240, respectively, that were capitalized prior to the
adoption of SOP 98-5, "Reporting on the Costs of Start-up Activities." The
$2,921 cumulative effect of the accounting change represents start-up
costs, net of tax, that were previously capitalized as of June 30, 1998. As
a result of the restatement for the adoption of SOP 98-5, net income and
diluted earnings per share, were reduced by $1,428 and $0.07 from the
originally reported amounts of $5,343 and $0.26, respectively, for the
three months ended December 31, 1998. Net income and diluted earnings per
share, were reduced by $5,352 and $0.27 from the originally reported
amounts of $10,094 and $0.50, respectively, for the six months ended
December 31, 1998.
See notes to condensed consolidated financial statements.
4
<PAGE> 5
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-----------------------
1999 1998
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(29,779) $ 4,742
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Non-cash portion of special and nonrecurring charges 33,108 -
Depreciation and amortization 13,901 11,415
Cumulative effect of accounting change, net of taxes - 2,921
Changes in assets and liabilities, net of effects of
assets and liabilities acquired:
Accounts receivable, net (4,625) (39,410)
Accrued expenses and other liabilities (9,136) 1,407
Other, net (924) (8,556)
-----------------------
Net cash provided by (used in) operating activities 2,545 (27,481)
-----------------------
INVESTING ACTIVITIES
Purchases of businesses - (425)
Capital expenditures for property and equipment, net (3,813) (12,758)
Other (3,737) (1,329)
-----------------------
Net cash used in investing activities (7,550) (14,512)
-----------------------
FINANCING ACTIVITIES
Line-of-credit, net (10,200) 42,700
Repayment of long-term debt (693) (961)
Proceeds from issuance of long-term debt - 73
Proceeds from exercise of stock options - 336
-----------------------
Net cash provided by (used in) financing activities (10,893) 42,148
-----------------------
Net increase (decrease) in cash and cash equivalents (15,898) 155
Cash and cash equivalents at beginning of period 29,424 21,186
-----------------------
Cash and cash equivalents at end of period $ 13,526 $ 21,341
=======================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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 six month period ended December 31, 1999 are not necessarily indicative
of the results that may be expected for the year ending June 30, 2000. 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, 1999.
2. As a result of the Company's second quarter financial performance, the
Company is in violation of certain financial covenants of the credit
agreement related to its revolving credit facility. The Company is currently
in discussions to obtain waivers of the covenant violations and to amend the
credit agreement. Until the amendment to the credit agreement is obtained,
the borrowings of $204,500,000 under the credit facility will be classified
as a current liability. The Company expects that the interest rate on the
revolving credit facility will increase as a result of its current
negotiations but to what extent is not certain at this time.
3. During the second quarter of fiscal 2000, the Company recorded special and
nonrecurring charges of $39.8 million ($26.9 million net of tax). A special
charge of $11.9 million before tax was recorded to increase the allowance
for doubtful accounts, and nonrecurring and other special charges of $27.9
million before tax were recorded in connection with the implementation and
execution of strategic restructuring and consolidation initiatives of
certain operations, the planned disposition of certain non-core and/or
non-strategic assets, impairment of certain assets, and costs related to a
tentative settlement with federal authorities regarding the investigation of
the Company's Indianapolis, Indiana facility.
The special charge to increase the allowance for doubtful accounts primarily
resulted from continuing negative changes observed in industry and customer
trends during the three months ended December 31, 1999. The circumstances of
the customer and industry trends primarily relate to bankruptcies and
significant financial difficulties that continue to be experienced by the
Company's customers primarily as a result of the implementation of the
Medicare Prospective Payment System. The total provision for doubtful
accounts, including the amounts included in the special charge, was $14.0
million and $15.4 million for the three and six month periods ending
December 31, 1999, respectively.
The Company continued its plan of restructuring to consolidate certain
pharmacy sites in close geographic proximity in order to improve operating
efficiencies. During the quarter the Company decided to consolidate five
additional pharmacy sites into either a new or existing location. Two of
these site consolidations were complete as of December 31, 1999 with the
remainder expected to be completed by June 30, 2000. During the three months
ended December 31, 1999, the Company recorded nonrecurring charges of $1.9
million before tax related to these site consolidations.
During the second quarter of fiscal 2000 the Company adopted a formal exit
plan to dispose of certain non-core and/or non-strategic assets. The Company
recorded nonrecurring charges of $17.4 million, before tax, related to the
planned disposition of assets primarily consisting of impairment to goodwill
and property and equipment. Total revenue and operating income of the
related business units was $18.8 million and $1.0 million, respectively, for
the six month period ended December 31, 1999.
During December 1999, the Company reached a tentative settlement with the
U.S. Attorney's office in the Southern District of Indiana regarding the
federal investigation of the Company's facility in Indianapolis, Indiana.
Accordingly, in the second quarter of fiscal 2000, the Company recorded the
tentative settlement amount in the
6
<PAGE> 7
nonrecurring charge. The U.S. Attorney's office has advised the Company not
to disclose the terms of the tentative settlement until all details have
been finalized. See Note 6.
The remaining $8.6 million before tax of the nonrecurring charge primarily
relates to severance incurred during the second quarter associated with the
Company's expense reduction initiatives, additional asset impairments, the
tentative settlement of the federal investigation discussed above and other
expenses.
Employee severance costs included in the nonrecurring charge relate to the
termination of 230 employees. As of December 31, 1999, 139 employees have
been terminated.
Details of the second quarter fiscal 2000 special and nonrecurring charge,
related activity and reserve balance are as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve
Description Cash/Non-cash Charge Activity At 12/31/99
----------- ------------- ------ -------- -----------
(In millions)
<S> <C> <C> <C> <C>
Site Consolidations
Severance/compensation related Cash $ .6 $(.2) $ .4
Lease terminations Cash .4 (.1) .3
Asset impairments Non-cash .7 (.7) --
Other Cash .2 -- .2
Special increase to allowance
for doubtful accounts Non-cash 11.9 (11.9) --
Disposition of Assets
Asset Impairment Non-cash 17.0 (17.0) --
Other Cash .4 -- .4
Other
Cash 5.1 (.7) 4.4
Non-cash 3.5 (3.5) --
----- ------ ----
Total $39.8 $(34.1) $5.7
===== ====== ====
</TABLE>
During the fourth quarter of fiscal 1999, the Company recorded special and
nonrecurring charges of $40.5 million ($24.3 million net of tax). A special
charge of $32.4 million before tax was recorded to increase the allowance
for doubtful accounts, and nonrecurring charges of $8.1 million before tax
were recorded in connection with the implementation and execution of
strategic restructuring and consolidation initiatives of certain operations
and other nonrecurring items.
The special charge to increase the allowance for doubtful accounts resulted
from significant changes observed in industry and customer trends during the
last three months of the fiscal year ended June 30, 1999, and items
encountered from recent acquisitions. The circumstances of the customer and
industry trends primarily relate to increased bankruptcies and significant
financial difficulties recently experienced by the Company's customers
primarily as a result of the Medicare Prospective Payment System
implementation. The acquisition items encountered pertain to specific
accounts receivable collectibility issues identified relating to previous
utilization of "legacy" systems, and other nonrecurring issues which have
resulted in potentially uncollectible accounts receivable.
During the fourth quarter of fiscal 1999, the Company adopted a new plan of
restructuring to consolidate certain pharmacy sites in similar geographies.
The plan is a continuation of the plan adopted in fiscal 1998 to combine
pharmacies in close proximity in order to improve operating efficiencies. As
a result of the new exit plan, four pharmacy sites were consolidated into
either a new or existing location as of December 31, 1999. During the year
ended June 30, 1999, the Company recorded nonrecurring charges of $4.7
million before tax related to the new site consolidations and additional
costs incurred on the site consolidations announced in the prior year.
7
<PAGE> 8
The remaining $3.4 million before tax of the nonrecurring charge primarily
relates to severance incurred during the fourth quarter associated with the
Company's expense reduction initiatives, additional acquisition related and
other expenses.
Employee severance costs included in the nonrecurring charge relate to the
termination of 120 employees. As of December 31, 1999, 111 employees have
been terminated.
Details of the fourth quarter fiscal 1999 special and nonrecurring charge,
related activity and reserve balance are as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve Reserve
Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 12/31/99
----------- ------------- ------------ -------- --------- -------- ------------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Site Consolidations
Severance/compensation related Cash $ 2.1 $(1.5) $ .6 $ (.5) $ .1
Lease terminations Cash .6 (.1) .5 (.4) .1
Asset impairments Non-cash 1.5 (1.5) -- -- --
Other Cash .5 (.5) -- -- --
Special increase to allowance
For doubtful accounts Non-cash 32.4 (32.4) -- -- --
Other Cash 3.4 (2.7) .7 (.3) .4
----- ------ ---- ----- ---
Total $40.5 $(38.7) $1.8 $(1.2) $.6
===== ====== ==== ===== ===
</TABLE>
During the fourth quarter of fiscal 1998, the Company recorded a
nonrecurring charge of $8.9 million before tax 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 adopted a formal plan of restructuring to combine pharmacies in
close geographical proximity in order to improve operating efficiencies. As
a result of the plan, 17 pharmacy sites were to be consolidated into either
new or existing locations and an estimated total of 149 employees
terminated. As of December 31, 1999, 15 site consolidations were completed
and 143 employees have been terminated. The remaining site consolidations
are expected to be complete by the end of fiscal 2000.
Details of the fourth quarter fiscal 1998 nonrecurring charge, related
activity and reserve balance are as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve Reserve
Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 12/31/99
----------- ------------- ------------ -------- ---------- -------- -----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Site Consolidations
Severance packages Cash $ .5 $ (.5) $ -- $ -- $ --
Lease terminations Cash .7 (.4) .3 (.2) .1
Asset impairments Non-cash 3.5 (3.5) -- -- --
Other Cash .6 (.6) -- -- --
Buyout of employment agreements Cash .9 (.8) .1 -- .1
Write-off financing fees Non-cash 1.3 (1.3) -- -- --
Other
Cash 1.0 (.9) .1 (.1) --
Non-cash .4 (.4) -- -- --
------ ------ ----- ----- ----
Total $ 8.9 $ (8.4) $ .5 $ (.3) $ .2
====== ====== ===== ===== ====
</TABLE>
8
<PAGE> 9
4. The following table sets forth the computation of basic and diluted
earnings per share in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS No. 128):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1999 1998 1999 1998
--------------------- ---------------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share - net income $(31,307) $ 3,915 $(29,779) $ 4,742
Effect of dilutive securities:
Convertible debentures
--------------------- ---------------------
Numerator for diluted earnings per share $(31,307) $ 3,915 $(29,779) $ 4,742
===================== =====================
Denominator:
Denominator for basic earnings per share -
weighted average common shares 20,738 20,162 20,530 20,138
--------------------- ---------------------
Effect of dilutive securities:
Stock options - 304 - 244
Convertible debentures - - - -
--------------------- ---------------------
Dilutive potential common shares - 304 - 244
--------------------- ---------------------
Denominator for diluted earnings per share 20,738 20,466 20,530 20,382
===================== =====================
Basic earnings per share $ (1.51) $ 0.19 $ (1.45) $ 0.23
===================== =====================
Diluted earnings per share $ (1.51) $ 0.19 $ (1.45) $ 0.23
===================== =====================
</TABLE>
At December 31, 1999, the Company had 1,335,944 of employee stock options
that are potentially dilutive that were not included in the computation of
diluted earnings per share as their effect would be antidilutive. The
Company had $100,000,000 of convertible subordinated debentures outstanding
at December 31, 1999 and 1998, that were convertible into 3,058,000 shares
of Class A Common Stock that were not included in the computation of diluted
earnings per share as their effect would be antidilutive for all periods
presented.
5. The effective tax benefit rate of 22.8% for the six months ended December
31, 1999 differs from the effective tax rate booked in prior periods due
primarily to the creation of a valuation allowance in the amount of
$3,561,000. The valuation allowance is principally composed of state income
tax net operating loss carryforwards which management has determined are
more likely than not to expire unused.
6. During December 1999, the Company and NCS HealthCare of Indiana, Inc. (NCS
Indiana), a wholly-owned subsidiary of the Company, reached a tentative
settlement with the U.S. Attorney's office in the Southern District of
Indiana (USA-Indiana) regarding the previously disclosed federal
investigation of the Company's facility in Indianapolis, Indiana. The
USA-Indiana has advised the Company not to disclose the terms of the
tentative settlement until all details have been finalized. The Company
accrued the tentative settlement in the second quarter of fiscal 2000.
The Company's facility in Herrin, Illinois has been the subject of an
investigation by federal authorities, and the Company has engaged in
discussions with representatives of the U.S. Attorney's office concerning
the alleged violations of federal law at that facility. It is possible that
the imposition of significant fines or other remedies in connection with the
Illinois matter could have a material effect on the Company's financial
condition and results of operations.
9
<PAGE> 10
On January 21, 2000, the Company reached a tentative settlement related to
litigation with certain selling shareholders of the PharmaSource Group, Inc.
regarding amounts payable under the terms of an earn-out provision in the
acquisition agreement. Under the terms of the tentative settlement, the
Company will issue 1,750,000 Class A Common Shares and a $2,000,000
convertible subordinated debenture maturing on August 15, 2004. The note and
accrued "payment-in-kind" interest will be convertible into a maximum of
200,000 Class A Common Shares at a conversion price of $8.00 per share. The
issuance of the 1,750,000 Class A Common Shares will have a dilutive effect
on the Company's earnings per share beginning in the third quarter of fiscal
2000.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Operating results for the three and six month periods ended December 31, 1999
continued to be negatively impacted by the implementation of Medicare's
Prospective Payment System (PPS). The adverse impact of the implementation of
the PPS under the Balanced Budget Act of 1997, for Medicare residents of skilled
nursing facilities was significantly greater than anticipated. PPS has created
numerous changes to reimbursement policies applicable to skilled nursing under
Medicare Part A. Prior to PPS, Medicare reimbursed each skilled nursing facility
based on that facility's actual Medicare Part A costs plus a premium. Under PPS,
Medicare pays skilled nursing facilities a fixed fee per Medicare Part A patient
day based on the acuity level of the patient. The per diem rate covers all items
and services furnished during a covered stay for which reimbursement was
formerly made separately under Medicare. Consequently, the Company has
experienced revenue pressure as a result of nursing facilities attempting to
manage pharmaceutical costs along with all other costs associated with patient
care under a simple per diem reimbursement amount. In addition, there has been a
reduction in utilization of other therapies such as speech, occupational and
physical rehabilitation. Additionally, as a result of these changes, skilled
nursing facilities have become increasingly more reluctant to admit Medicare
residents, especially those requiring complex care, causing Medicare census in
these facilities to weaken and a reduction in the average length of stay for
Medicare residents. These factors have had the effect of significantly reducing
overall occupancy in the facilities served by the Company. The resident acuity
level has also decreased as these facilities have attempted to avoid high acuity
patients negatively impacting overall utilization of drugs, particularly those
with higher cost such as infusion therapy. For Medicare certified skilled
nursing facilities with a high cost structure, or those which are unable to cut
costs, PPS has caused significant earnings and cash pressure. Some facilities
have sought bankruptcy protection or consolidation as a method of reducing costs
and increasing efficiencies causing the Company to experience some bed loss.
These outcomes have negatively impacted nursing facilities and the institutional
pharmacy services industry as a whole. The recent passing of the Balanced Budget
Refinement Act may provide some relief to skilled nursing facilities; however, a
very difficult environment remains and management continues to react to
pressures in the current PPS environment by adjusting its cost structure. The
Company is reducing operating and overhead expenses and accelerating the
consolidation and/or closing of pharmacy locations.
Revenues for the three months ended December 31, 1999 increased $1,293,000 or
0.7% to $179,323,000 from $178,030,000 recorded in the comparable period in
fiscal 1999. Revenues for the six months ended December 31, 1999 increased
$12,638,000 or 3.6% to $363,514,000 from $350,876,000 recorded in the comparable
period in fiscal 1999.
The increase in revenues during the three and six month periods ended December
31, 1999 over the comparable prior year period is primarily attributed to
internal growth. The Company's revenues continued to grow through marketing
efforts to new and existing clients, increased drug utilization of long-term
care facilities and the growth and integration of new and existing products and
services by non Medicare Part-A residents. Internal revenue growth was primarily
driven by expansion of the Company's non-pharmacy products and services. The
total number of beds serviced by the Company as of December 31, 1999 was
254,000, up slightly from the 253,000 beds served at December 31, 1998, but a
decrease from the 262,000 beds served at June 30, 1999. Although the Company
added a number of new customers during the three and six month periods ended
December 31, 1999 through its sales and marketing efforts, the number of beds
served by the Company declined slightly due to decisions by management to
terminate uneconomic accounts as well as general bed loss typically experienced
in a competitive environment.
Cost of revenues for the three months ended December 31, 1999 increased
$9,269,000 or 7.0% to $141,899,000 from $132,630,000 recorded in the comparable
period in fiscal 1999. Cost of revenues for the six months ended December 31,
1999 increased $24,170,000 or 9.2% to $285,790,000 from $261,620,000 recorded in
the comparable period in fiscal 1999. Cost of revenues as a percentage of
revenues for the three and six month periods ended December 31, 1999 was 79.1%
and 78.6%, respectively, compared to 74.5% and 74.6% for the comparable periods
during the prior fiscal year.
Gross margins during the period were effected by the continued impact of the PPS
reimbursement system. The current period margin pressure resulted from continued
Medicare Part A pricing pressure, lower than anticipated gross margins
11
<PAGE> 12
on PPS related contracts and reduced acuity levels and census at customer
facilities. In addition, the payor mix has shifted slightly towards lower margin
payers from the higher margin Medicare Part A business. These pressures were
offset slightly by improved leverage associated with purchasing pharmaceuticals,
improvements in formulary management programs and restructuring and streamlining
production costs.
Selling, general and administrative expenses for the three months ended December
31, 1999 decreased by $1,987,000 or 5.8% to $32,302,000 from $34,289,000
recorded in the comparable period in fiscal 1999. Selling, general and
administrative expenses for the six months ended December 31, 1999 decreased by
$2,748,000 or 4.1% to $64,342,000 from $67,090,000 recorded in the comparable
period in fiscal 1999. Selling, general and administrative expenses as a
percentage of revenues was 18.0% and 17.7% for the three and six month periods
ended December 31, 1999, respectively, compared to 19.3% and 19.1% during the
comparable periods in fiscal 1999. Excluding the addition of $2,483,000 and
$4,240,000 of pre-tax costs in the three and six month periods ended December
31, 1998, respectively, for costs that were capitalized prior to the adoption of
SOP-98-5, "Reporting on the Costs of Start-up Activities", selling, general and
administrative costs for the three months ended December 31, 1999 increased
$496,000 or 1.6% to $32,302,000 from $31,806,000 recorded in the comparable
period in fiscal 1999. Selling, general and administrative costs for the six
months ended December 31, 1999 increased $1,492,000 or 2.4% to $64,342,000 from
$62,850,000 recorded in the comparable period in fiscal 1999. Excluding the
effects of the adoption of SOP 98-5, selling, general and administrative
expenses as a percentage of revenues was 18.0% and 17.7% for the three and six
month periods ended December 31, 1999, respectively, compared to 17.9% and 17.9%
during the comparable periods in fiscal 1999. The percentage decrease for the
six month period ended December 31, 1999 is a result of efforts by the Company
to reduce operating and overhead costs, accelerating the consolidation or
closing of pharmacy locations and the ability to leverage overhead expenses over
a larger revenue base.
The Company had net interest expense of $6,450,000 and $12,120,000 for the three
and six month periods ended December 31, 1999, respectively, compared to net
interest expense of $4,302,000 and $8,779,000 during the comparable periods in
fiscal 1999. The increase is primarily attributable to increased borrowing on
the Company's revolving credit facility and other finance related charges during
fiscal 2000 as compared to the same period in fiscal 1999. The additional funds
were primarily used to fund internal growth and capital expenditures for
infrastructure improvement.
During the second quarter of fiscal 2000, the Company recorded special and
nonrecurring charges of $39.8 million ($26.9 million net of tax). A special
charge of $11.9 million before tax was recorded to increase the allowance for
doubtful accounts, and nonrecurring and other special charges of $27.9 million
before tax were recorded in connection with the implementation and execution of
strategic restructuring and consolidation initiatives of certain operations, the
planned disposition of certain non-core and/or non-strategic assets, impairment
of certain assets, and costs related to a tentative settlement with federal
authorities regarding the investigation of the Company's Indianapolis, Indiana
facility.
The special charge to increase the allowance for doubtful accounts primarily
resulted from continuing negative changes observed in industry and customer
trends during the three months ended December 31, 1999. The circumstances of the
customer and industry trends primarily relate to bankruptcies and significant
financial difficulties that continue to be experienced by the Company's
customers primarily as a result of the implementation of the Medicare
Prospective Payment System. The total provision for doubtful accounts, including
the amounts included in the special charge, was $14.0 million and $15.4 million
for the three and six month periods ending December 31, 1999, respectively.
The Company continued its plan of restructuring to consolidate certain pharmacy
sites in close geographic proximity in order to improve operating efficiencies.
During the quarter the Company decided to consolidate five additional pharmacy
sites into either a new or existing location. Two of these site consolidations
were complete as of December 31, 1999 with the remainder expected to be
completed by June 30, 2000. During the three months ended December 31, 1999, the
Company recorded nonrecurring charges of $1.9 million before tax related to
these site consolidations.
During the second quarter of fiscal 2000 the Company adopted a formal exit plan
to dispose of certain non-core and/or non-strategic assets. The Company recorded
nonrecurring charges of $17.4 million before tax related to the planned
disposition of assets primarily consisting of impairment to goodwill and
property and equipment. Total revenue and operating income of the related
business units was $18.8 million and $1.0 million, respectively, for the six
month period ended December 31, 1999.
12
<PAGE> 13
During December 1999, the Company reached a tentative settlement with the U.S.
Attorney's office in the Southern District of Indiana regarding the federal
investigation of the Company's facility in Indianapolis, Indiana. Accordingly,
in the second quarter of fiscal 2000, the Company recorded the tentative
settlement amount in the nonrecurring charge. The U.S. Attorney's office has
advised the Company not to disclose the terms of the tentative settlement
until all details have been finalized. See "Certain Regulatory Investigations
and Legal Proceedings".
The remaining $8.6 million before tax of the nonrecurring charge primarily
relates to severance incurred during the second quarter associated with the
Company's expense reduction initiatives, additional asset impairments, the
tentative settlement of the federal investigation discussed above and other
expenses.
Employee severance costs included in the nonrecurring charge relate to the
termination of 230 employees. As of December 31, 1999, 139 employees have been
terminated.
Details of the second quarter fiscal 2000 special and nonrecurring charge,
related activity and reserve balance are as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve
Description Cash/Non-cash Charge Activity At 12/31/99
----------- ------------- -------------- -------- -----------
(In millions)
<S> <C> <C> <C> <C>
Site Consolidations
Severance/compensation related Cash $ .6 $ (.2) $ .4
Lease terminations Cash .4 (.1) .3
Asset impairments Non-cash .7 (.7) --
Other Cash .2 -- .2
Special increase to allowance
for doubtful accounts Non-cash 11.9 (11.9) --
Disposition of Assets
Asset Impairment Non-cash 17.0 (17.0) --
Other Cash .4 -- .4
Other
Cash 5.1 (.7) 4.4
Non-cash 3.5 (3.5) --
----- ----- ----
Total $ 39.8 $ (34.1) $ 5.7
===== ===== ====
</TABLE>
During the fourth quarter of fiscal 1999, the Company recorded special and
nonrecurring charges of $40.5 million ($24.3 million net of tax). A special
charge of $32.4 million before tax was recorded to increase the allowance for
doubtful accounts, and nonrecurring charges of $8.1 million before tax were
recorded in connection with the implementation and execution of strategic
restructuring and consolidation initiatives of certain operations and other
nonrecurring items.
The special charge to increase the allowance for doubtful accounts resulted from
significant changes observed in industry and customer trends during the last
three months of the fiscal year ended June 30, 1999, and items encountered from
recent acquisitions. The circumstances of the customer and industry trends
primarily relate to increased bankruptcies and significant financial
difficulties recently experienced by the Company's customers primarily as a
result of the Medicare Prospective Payment System implementation. The
acquisition items encountered pertain to specific accounts receivable
collectibility issues identified relating to previous utilization of "legacy"
systems, and other nonrecurring issues which have resulted in potentially
uncollectible accounts receivable.
During the fourth quarter of fiscal 1999, the Company adopted a new plan of
restructuring to consolidate certain pharmacy sites in similar geographies. The
plan is a continuation of the plan adopted in fiscal 1998 to combine pharmacies
in close proximity in order to improve operating efficiencies. As a result of
the new exit plan, four
13
<PAGE> 14
pharmacy sites were consolidated into either a new or existing location as of
December 31, 1999. During the year ended June 30, 1999, the Company recorded
nonrecurring charges of $4.7 million before tax related to the new site
consolidations and additional costs incurred on the site consolidations
announced in the prior year.
The remaining $3.4 million before tax of the nonrecurring charge primarily
relates to severance incurred during the fourth quarter associated with the
Company's expense reduction initiatives, additional acquisition related and
other expenses.
Employee severance costs included in the nonrecurring charge relate to the
termination of 120 employees. As of December 31, 1999, 111 employees have been
terminated.
Details of the fourth quarter fiscal 1999 special and nonrecurring charge,
related activity and reserve balance are as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve Reserve
Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 12/31/99
----------- ------------- ------------ -------- ---------- -------- -----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Site Consolidations
Severance/compensation related Cash $ 2.1 $ (1.5) $ .6 $ (.5) $ .1
Lease terminations Cash .6 (.1) .5 (.4) .1
Asset impairments Non-cash 1.5 (1.5) -- -- --
Other Cash .5 (.5) -- -- --
Special increase to allowance
For doubtful accounts Non-cash 32.4 (32.4) -- -- --
Other Cash 3.4 (2.7) .7 (.3) .4
------- ------- ------ ------ -----
Total $ 40.5 $ (38.7) $ 1.8 $ (1.2) $ .6
======= ======= ====== ====== =====
</TABLE>
During the fourth quarter of fiscal 1998, the Company recorded a nonrecurring
charge of $8.9 million before tax 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 to combine pharmacies in
close geographical proximity in order to improve operating efficiencies. As a
result of the plan, 17 pharmacy sites were to be consolidated into either new or
existing locations and an estimated total of 149 employees terminated. As of
December 31, 1999, 15 site consolidations were completed and 143 employees have
been terminated. The remaining site consolidations are expected to be complete
by the end of fiscal 2000.
Details of the fourth quarter fiscal 1998 nonrecurring charge, related activity
and reserve balance are as follows:
14
<PAGE> 15
<TABLE>
<CAPTION>
Nonrecurring Reserve Reserve
Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 12/31/99
----------- ------------- ------------ -------- ---------- -------- -----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Site Consolidations
Severance packages Cash $ .5 $ (.5) $ -- $ -- $ --
Lease terminations Cash .7 (.4) .3 (.2) .1
Asset impairments Non-cash 3.5 (3.5) -- -- --
Other Cash .6 (.6) -- -- --
Buyout of employment agreements Cash .9 (.8) .1 -- .1
Write-off financing fees Non-cash 1.3 (1.3) -- -- --
Other
Cash 1.0 (.9) .1 (.1) --
Non-cash .4 (.4) -- -- --
------ ------ ----- ----- -----
Total $ 8.9 $ (8.4) $ .5 $ (.3) $ .2
====== ====== ===== ===== =====
</TABLE>
Liquidity and Capital Resources
Net cash provided by operating activities was $2,545,000 for the six months
ended December 31, 1999, as compared to net cash used in operating activities of
$27,481,000 during the comparable period in fiscal 1999. The increase in net
cash provided by operating activities was primarily due to a slower growth rate
in accounts receivable, a decrease in inventory and refunds received from
federal and state income tax authorities offset by a decrease in accounts
payable and accrued expenses. The slower growth rate in accounts receivable from
June 30, 1999 is mainly attributable to slower internal sales growth during the
six months ended December 31, 1999 and collection efforts by the Company.
Additionally, some accounts receivable growth is attributable to slower payment
trends by customers as a result of PPS implementation.
Net cash used in investing activities decreased to $7,550,000 during the six
months ended December 31, 1999, as compared to $14,512,000 during the comparable
period in fiscal 1999. The decrease is primarily the result of reduced cash
outlays for information system equipment and building leasehold improvements.
The reduced levels of capital expenditures were achieved as a result of
decreased activity in the conversion of sites to a common operating system and
fewer build-outs required as the majority of the physical infrastructure of the
Company has been completed. To date, conversion to the common operating system,
Concord DX, has been implemented in over 80% of the Company's customer base.
Net cash used in financing activities increased to $10,893,000 during the six
months ended December 31, 1999, from net cash provided by financing activities
of $42,148,000 during the comparable period in fiscal 1999. The increase in cash
used in financing activities is a result of the Company's efforts to pay down
the outstanding revolving credit facility balance using positive cash flow
generated from operating activities and decreasing cash reserves.
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.
As a result of the Company's second quarter financial performance, the Company
is in violation of certain financial covenants of the credit agreement related
to its revolving credit facility. The Company is currently in discussions to
15
<PAGE> 16
obtain waivers of the covenant violations and to amend the credit agreement.
Until the amendment to the credit agreement is obtained, the borrowings of
$204.5 million under the credit facility will be classified as a current
liability. Failure to obtain the waiver and amendment could have a material
adverse effect on the Company. If the waiver and amendment are not obtained, the
Company's lenders may accelerate the maturity of the Company's obligations
and/or exercise other remedies under the credit agreement. Such action could
also result in the acceleration of the maturity of the Company's convertible
subordinated debentures. Subject to obtaining the waiver and amendment, the
Company expects to meet future financing needs principally through the use of
its revolving credit facility. The Credit Facility bears interest at a variable
rate based upon the Eurodollar rate plus a spread of 150 to 275 basis points,
dependent upon the Company's ratio of Total Funded Debt to EBITDA. The Company
expects that the interest rate on the revolving credit facility will increase as
a result of its current negotiations but to what extent is not certain at this
time. The Company believes that its cash and available sources of capital,
including funds available under its revolving credit facility once the amendment
has been obtained, are sufficient to meet its normal operating requirements.
Certain Regulatory Investigations and Legal Proceedings
In the ordinary course of its business, the Company is subject to inspections,
audits, inquiries and similar actions by governmental authorities responsible
for enforcing the laws and regulations to which the Company is subject.
In January 1997, governmental authorities requested information from the Company
in connection with an audit and investigation of the circumstances surrounding
the apparent drug-related homicide of a non-management employee of one of the
Company's pharmacies. The information provided relates to the Company's
inventory and the possible theft of controlled substances from this pharmacy.
The review identified inadequacies in record keeping and inventory control at
this pharmacy. In a meeting with governmental authorities in August 1997, the
Company discussed its findings and those of the government and documented
corrective measures taken by the Company. In September 1998, the Company was
notified by the United States Department of Justice, United States Attorney for
the Southern District of Indiana ("USA-Indiana") that the United States Drug
Enforcement Administration had referred this matter to the Office of the
USA-Indiana for possible legal action involving certain numerous alleged
violations of federal law. The USA-Indiana invited the Company to contact the
Office of the USA-Indiana in an effort to resolve the matter. The Company
subsequently contacted the Office of the USA-Indiana and discussions regarding a
possible settlement of this matter ensued. During December 1999, the Company and
NCS HealthCare of Indiana, Inc. (NCS Indiana), a wholly-owned subsidiary of the
Company, reached a tentative settlement with the USA-Indiana regarding the
previously disclosed federal investigation of the Company's facility in
Indianapolis, Indiana. The USA-Indiana has advised the Company not to disclose
the terms of the tentative settlement until all details have been finalized.
In January 1998, federal and state government authorities sought and obtained
various documents and records from a Herrin, Illinois pharmacy operated by a
wholly-owned subsidiary of the Company. The Company has cooperated fully and
continues to cooperate fully with the government's inquiry. In June 1999,
representatives of the Company met with attorneys with the Civil and Criminal
Divisions of the Office of the United States Department of Justice, United
States Attorney for the Southern District of Illinois ("USA-Illinois") regarding
the government's investigation. The USA-Illinois informed the Company that it
had information that allegedly substantiated numerous violations of federal law,
but the Company has not received any written notification of these allegations.
Discussions regarding the government's investigation have ensued and are
currently proceeding between representatives of the USA-Illinois and the
Company. It is possible that the imposition of significant fines or other
remedies in connection with the resolution of this matter could have a material
effect on the Company's financial condition and results of operations.
On June 7, 1999, a lawsuit was filed against the Company in the Superior Court
of Norfolk County, Massachusetts. Plaintiffs are certain selling stockholders of
the PharmaSource Group, Inc. ("PharmaSource"), which NCS acquired on September
17, 1997. The complaint alleges breach of contract and unfair business practices
arising out of NCS' non-payment of certain amounts allegedly payable under the
terms of an earn-out provision included in the acquisition agreement. On January
21, 2000, the Company reached a tentative settlement of this litigation. Under
the terms of the tentative settlement, the Company will issue 1,750,000 Class A
Common Shares and a $2,000,000 convertible subordinated debenture maturing on
August 15, 2004. The note and accrued "payment-in-kind" interest will be
convertible into a maximum of 200,000 Class A Common Shares at a conversion
price of $8.00 per share. The issuance of the 1,750,000 Class A Common Shares
will have a dilutive effect on the Company's earnings per share beginning in the
third quarter of fiscal 2000.
16
<PAGE> 17
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.
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 completed the process of reviewing and assessing all
significant non-IT devices for Year 2000 compliance in December 1999.
The Company also assessed the extent to which it may be impacted by any third
parties' failure to remediate their own Year 2000 issues. During December 1999,
the Company completed a review and assessment of 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.
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 a
significant cash flow problem may result. In addition, disruptions in the
economy in general resulting from Year 2000 issues could also adversely impact
the Company.
Substantially all costs related to Year 2000 readiness issues have been incurred
by the Company and were expensed as incurred. They were funded through operating
cash flows. Through December 31, 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 expected to be minimal. Estimates of costs are based on
currently available information and developments may occur that could increase
the costs related to Year 2000 issues.
The Company has not experienced any significant Year 2000 issues to date. In
addition, the Company is not aware of any Year 2000 related issues with any of
its customers, suppliers or third party payors that would have a negative impact
on the Company.
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, 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 continuation of various trends in the long-term care market (including
the trend toward consolidation and the impact of the Balanced Budget Act of
1997), competition among providers of long-term care pharmacy services, the
Company's negotiations with its bank group related to the waiver and amendment
of its credit facility, changes in regulatory requirements, reform of the health
care delivery system, litigation matters, disruption to the operations of the
Company resulting from Year 2000 issues and other factors.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 $204,500,000 on its revolving credit facility at December 31, 1999,
which is subject to a variable rate of interest based on the Eurodollar rate.
Assuming borrowings at December 31, 1999, a one-hundred basis point change in
interest rates would impact net interest expense by approximately $2,045,000 per
year.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 26, 1999, the Company issued 453,844 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of stockholders of the Company held on November 22, 1999
(the "Annual Meeting"), the stockholders voted to elect A. Malachi Mixon to an
additional three-year term as a Director of the Company. Votes were cast as
follows:
VOTES A. MALACHI MIXON III
----- --------------------
For 67,934,069
Withheld 141,748
For a description of the bases used in tabulating the above-referenced vote, see
the Company's definitive proxy statement used in connection with the Annual
Meeting.
The term of office of the following Directors of the Company continued after the
Annual Meeting: Jon H. Outcalt, Boake A. Sells, Kevin B. Shaw, and Richard L.
Osborne.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit
------- -------
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months
ended December 31, 1999.
19
<PAGE> 20
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 14, 2000 By /s/ Kevin B. Shaw
--------------------------
Kevin B. Shaw
President, Chief Executive Officer and Director
Date: February 14, 2000 By /s/ William B. Byrum
--------------------------
William B. Byrum
Chief Operating Officer
Date: February 14, 2000 By /s/ Gerald D. Stethem
--------------------------
Gerald D. Stethem
Chief Financial Officer
20
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001004990
<NAME> NCS HEALTHCARE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,526
<SECURITIES> 0
<RECEIVABLES> 194,170
<ALLOWANCES> 37,062
<INVENTORY> 46,486
<CURRENT-ASSETS> 261,151
<PP&E> 95,628
<DEPRECIATION> 41,999
<TOTAL-ASSETS> 648,277
<CURRENT-LIABILITIES> 281,659
<BONDS> 306,112
0
0
<COMMON> 209
<OTHER-SE> 248,409
<TOTAL-LIABILITY-AND-EQUITY> 648,277
<SALES> 363,514
<TOTAL-REVENUES> 363,514
<CGS> 285,790
<TOTAL-COSTS> 285,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,485
<INTEREST-EXPENSE> 14,055
<INCOME-PRETAX> (38,575)
<INCOME-TAX> (8,796)
<INCOME-CONTINUING> (29,779)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,779)
<EPS-BASIC> (1.45)
<EPS-DILUTED> (1.45)
</TABLE>
