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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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VITALINK PHARMACY SERVICES, INC.
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COMMISSION FILE NUMBER 0-19820
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Incorporated in Delaware E.I. 37-0903482
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1250 E. Diehl Road, Suite 208, Naperville, Illinois 60563
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Telephone: (630) 245-4800
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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13,979,700 Common Shares were outstanding as of October 14, 1996.
This report contains 9 pages.
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VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The consolidated balance sheets as of August 31, 1996, the consolidated income
statements for the three month periods ended August 31, 1996 and 1995, and the
consolidated statements of cash flows for the three month periods ended August
31, 1996 and 1995, have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows at August 31, 1996, and for all periods presented
have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's May 31, 1996 Annual Report to
shareholders, previously filed with the Commission. The results of operations
for the three month periods ended August 31, 1996 and 1995, and cash flows for
the three month periods ended August 31, 1996 and 1995, are not necessarily
indicative of the operating results or cash flows for the full year.
2
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VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
August 31, 1996 May 31, 1996
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(unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 471 $ 889
Receivables (net of allowances of $2,938 and $2,163) 22,096 20,093
Inventories 8,795 7,426
Deferred income taxes 1,430 1,138
Other 343 330
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TOTAL CURRENT ASSETS 33,135 29,876
DUE FROM PARENT 14,761 16,910
PROPERTY AND EQUIPMENT, AT COST (net of accumulated depreciation) 8,717 8,191
PHARMACY CONTRACTS (net of amortization of $3,237 and $3,004) 6,351 6,187
GOODWILL (net of amortization of $2,381 and $2,146) 35,558 31,194
OTHER ASSETS (net of amortization of $3,562 and $3,292) 4,198 3,565
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TOTAL ASSETS $ 102,720 $ 95,923
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,160 $ 3,918
Accrued expenses 2,784 2,403
State income taxes payable 980 725
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TOTAL CURRENT LIABILITIES 8,924 7,046
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DEFERRED INCOME TAXES AND OTHER LONG-TERM LIABILITIES 3,785 2,578
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STOCKHOLDERS' EQUITY
Common stock (30,000,000 shares authorized, 13,979,700
and 13,975,000 shares issued and outstanding, $.01 par
value) 140 140
Contributed capital 38,155 38,155
Retained earnings 51,716 48,004
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TOTAL STOCKHOLDERS' EQUITY 90,011 86,299
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 102,720 $ 95,923
============= =========
</TABLE>
Note: The balance sheet at May 31, 1996 has been taken from the audited
financial statements at that date.
3
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VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
1996 1995
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<S> <C> <C>
NET REVENUES
Affiliates and their patients $ 18,244 $ 15,396
Non-affiliates and their patients 21,129 16,426
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Total net revenues 39,373 31,822
COST OF GOODS SOLD 20,005 15,973
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GROSS PROFIT 19,368 15,849
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OPERATING EXPENSES
Payroll expenses 8,198 6,620
Selling, general and administrative expenses 3,342 2,602
Provision for doubtful accounts 616 530
Depreciation and amortization 1,247 1,027
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Total operating expenses 13,403 10,779
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INCOME FROM OPERATIONS 5,965 5,070
INTEREST INCOME AND OTHER, NET 264 298
INTEREST EXPENSE (11) (13)
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INCOME BEFORE ALLOCATION OF INCOME TAXES 6,218 5,355
INCOME TAX ALLOCATION 2,506 2,164
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NET INCOME $ 3,712 $ 3,191
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AVERAGE SHARES OUTSTANDING 13,980 13,975
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EARNINGS PER SHARE $ .27 $ .23
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</TABLE>
4
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VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
August 31,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,712 $ 3,191
Reconciliation of net income to cash provided by operating activities:
Depreciation and amortization 1,247 1,027
Provision for doubtful accounts 616 530
Increase in deferred income taxes (76) (93)
Change in assets and liabilities, net of acquisitions:
Change in receivables (762) (3,141)
Change in inventories (703) 35
Change in other current assets 16 (7)
Change in accounts payable and accrued expenses 274 439
Change in state income taxes payable 255 (81)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 4,579 1,900
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment (570) (777)
Decrease in due from parent, net 2,149 1,342
Acquisition of pharmacy business (5,291) (2,325)
Other items, net (117) (30)
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NET CASH USED IN INVESTING ACTIVITIES (3,829) (1,790)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt (1,168) (13)
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NET (DECREASE) INCREASE IN CASH (418) 97
CASH AT BEGINNING OF PERIOD 889 198
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CASH AT END OF PERIOD $ 471 $ 295
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</TABLE>
5
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VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
ACQUISITIONS AND DIVESTITURES
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Fiscal 1997 - First Quarter
On July 31, 1996, The Company acquired Medisco Pharmacies, Inc., located in San
Bernardino, California for $5,291,000 in cash plus the assumption of $2,510,000
in liabilities and future payments totalling $1,150,000.
Fiscal 1996
On November 3, 1995, the Company acquired the institutional pharmacy business
of Brentview Clinical Pharmacy, located in Los Angeles, California for
$3,206,000 in cash plus the assumption of $45,000 in liabilities and future
contingent payments based on the achievement of future profitability
objectives.
On July 6, 1995, the Company acquired the infusion therapy business of Home
Intravenous Care, Inc., located in Loveland, Colorado, for $2,325,000 in cash
plus the assumption of $105,000 in liabilities and future contingent payments
based on the achievement of certain future profitability objectives.
The above acquisitions are accounted for under the purchase method of
accounting with the assets recorded a their estimated fair market values at the
date of acquisition. The estimated fair market values of pharmacy contracts
acquired are amortized over the expected remaining lives of 10 years including
estimated contract renewals. Goodwill, representing the excess of acquisition
costs over the fair market value of acquired assets, is amortized over 40
years.
LIQUIDITY AND CAPITAL RESOURCES
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The Company meets its ongoing capital requirements and operating needs from
operating cash flows. Cash flows provided by operating activities were
$4,579,000 in the first quarter of fiscal 1997 compared to $1,900,000 in the
year earlier period. Operating cash flows not used to acquire pharmacies or
invest in new property and equipment is held in the form of a receivable due
from Manor Care. The balance due is classified as due from parent on the
consolidated balance sheets and totalled approximately $14,800,000 at August
31, 1996.
Acquired businesses were paid for with operating cash flows. The purchase
contracts for acquisitions generally stipulate future payments contingent upon
achievement of future profitability objectives.
In connection with the acquisition of Medisco, Vitalink made payments of
$1,144,000 in August, 1996 to pay-off certain liabilities assumed.
Effective June 1, 1995, the Company assumed the responsibility of billing the
revenues and collecting the receivables derived from the private pay residents
of Manor Care facilities. Previously, the Company was paid monthly for these
services by Manor Care which in turn billed and collected the receivables from
private pay residents. The Company had paid Manor Care a 3% administrative fee
on the related revenues for this service. The increase in accounts receivable
during the first quarter of fiscal 1996 is primarily the result of this change.
6
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VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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On June 1, 1991, the Company entered into an "Intercompany Debt and Credit
Agreement" with Manor Care, Inc. pursuant to which Manor Care, Inc. provides
the Company with a line of credit of $10,000,000. To date, the line of credit
has not been utilized and the entire $10,000,000 balance on the line of credit
remains available to the Company. The line of credit and approximately
$15,200,000 of cash and amounts due from the Company's parent are available for
general corporate purposes, including potential acquisitions of pharmacies, the
internal development of additional pharmacies, working capital and capital
expenditures.
The Company believes that cash generated from operations, the $10,000,000 line
of credit and the remaining amounts due from the Company's parent will be
adequate to meet the Company's foreseeable capital and other cash requirements.
RESULTS OF OPERATIONS
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Net revenues for the three months ended August 31, 1996, were $39,373,000, an
increase of $7,551,000 or 23.7% over the same period last year. The increase
in net revenues was principally attributable to increases in the number of
nursing facility beds serviced by the Company and the continuing rise in
patient acuity levels which results in increased revenues per bed. At August
31, 1996, the Company provided services to approximately 52,900 nursing
facility beds, including 19,800 Manor Care beds and 33,100 non-affiliate beds.
At August 31, 1995, the Company provided services to approximately 42,900 beds,
including 16,400 Manor Care beds and 26,500 non-affiliate beds.
Increases in beds serviced were achieved through acquisitions and marketing
efforts to customers in existing markets and service to new and existing
affiliate facilities.
Gross profit for the three months ended August 31, 1996 was $19,368,000, an
increase of $3,519,000 or 22.2% over the same period last year. The gross
profit margin was 49.2% for the three months ended August 31, 1996, compared to
49.8% for the same period last year.
Operating expenses increased $2,624,000 to $13,403,000 or 34.0% of net revenues
in the first quarter of 1997 compared to $10,779,000 or 33.9% of net revenues
in the first quarter of 1996. Payroll and selling, general and administrative
expenses increased to support the growth in beds serviced.
The decrease in interest income and other, net, which consists principally of
interest earned on the balance due from parent, is primarily due to the
slightly lower average balance due from parent and a slightly lower interest
rate. The interest earned on the loan is equal to the average 3-month Treasury
Bill rate plus 100 basis points.
7
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VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
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At the annual shareholders' meeting on October 2, 1996, the
shareholders elected the directors who had been nominated by
the Company. The number of votes cast was as follows:
AGAINST/
FOR WITHHELD
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Stewart Bainum, Jr. 13,776,897 12,150
Harold Blumenkrantz 13,776,897 12,150
Joseph R. Buckely 13,776,897 12,150
Donna L. DeNardo 13,776,547 12,500
Anil K. Gupta 13,776,897 12,150
James A. MacCutcheon 13,776,697 12,350
James H. Rempe 13,776,897 12,150
Donald C. Tomasso 13,776,697 12,350
Marvin Wilensky 13,776,897 12,150
The shareholders also voted to approve resolutions to adopt the
1996 Long-Term Incentive Plan and the 1995 Employee Stock Purchase
Plan. The number of votes cast was as follows:
AGAINST/
FOR WITHHELD
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1996 Long-Term Incentive Plan 13,463,027 314,485
1995 Employee Stock Purchase 13,165,112 612,400
Plan
ITEM 6. Exhibits and Reports on Form 8-K
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There were no reports filed on Form 8-K for the three months ended
August 31, 1996.
8
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VITALINK PHARMACY SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
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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.
VITALINK PHARMACY SERVICES, INC.
--------------------------------
(Registrant)
Date: October 14, 1996 By: /s/ Scott T. Macomber
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Scott T. Macomber
Vice President, Finance and
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 471
<SECURITIES> 0
<RECEIVABLES> 22,096
<ALLOWANCES> 2,938
<INVENTORY> 8,795
<CURRENT-ASSETS> 33,135
<PP&E> 8,717
<DEPRECIATION> 5,101
<TOTAL-ASSETS> 102,720
<CURRENT-LIABILITIES> 8,924
<BONDS> 0
<COMMON> 140
0
0
<OTHER-SE> 89,871
<TOTAL-LIABILITY-AND-EQUITY> 102,720
<SALES> 39,373
<TOTAL-REVENUES> 39,373
<CGS> 20,005
<TOTAL-COSTS> 33,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 616
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 6,218
<INCOME-TAX> 2,506
<INCOME-CONTINUING> 3,712
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,712
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
