<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE SECOND QUARTER ENDED JUNE 30, 2000
COMMISSION FILE NUMBER 80-19878
----------------------
OPTION CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3791193
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 CORPORATE NORTH, SUITE 212 60015
BANNOCKBURN, ILLINOIS (zip code)
(Address of principal executive office)
Registrant's telephone number, including area code: (847) 615-1690
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Issued and Outstanding
Class as of August 11, 2000
---------------------------- ------------------------------------
Common Stock - .01 par value 11,939,570
<PAGE>
INDEX
OPTION CARE, INC. & SUBSIDIARIES
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 2000
and December 31, 1999
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements -
June 30, 2000
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6(a). Exhibits
Item 6(b). Reports on Form 8-K
<PAGE>
PART I. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
OPTION CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30,2000 December 31,1999
(Unaudited) (Note 1)
----------------------- ------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, net 23,509 22,697
Inventories, net 1,734 3,608
Other current assets 4,290 4,138
----------------------- ------------------------
Total current assets 29,533 30,443
Equipment and other fixed assets, net 4,418 4,808
Goodwill, net 23,807 21,395
Other assets 738 988
----------------------- ------------------------
Total assets $ 58,496 $ 57,634
======================= ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 1,849 $ 4,253
Trade accounts payable 3,620 5,747
Other current liabilities 6,766 8,767
----------------------- ------------------------
Total current liabilities 12,235 18,767
Long-term debt, excluding current portion 11,328 8,448
Other liabilities 808 950
Minority interest 305 163
----------------------- ------------------------
Total liabilities 24,676 28,328
Stockholders' equity:
Common stock, $.01 par value, 30,000 shares authorized, 11,865
and 11,493 shares issued and outstanding, respectively 119 115
Common stock to be issued, 161 and 235 shares, respectively 655 740
Other stockholders' equity 33,046 28,451
----------------------- ------------------------
Total stockholders' equity 33,820 29,306
----------------------- ------------------------
Total liabilities and stockholders' equity $ 58,496 $ 57,634
======================= ========================
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
Note 1 - The balance sheet at December 31, 1999 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 33,150 $ 29,572 $ 65,921 $ 58,601
Cost of revenue 20,254 17,322 39,967 34,702
------------ ------------ ------------ ------------
Gross profit 12,896 12,250 25,954 23,899
Selling, general and administrative expenses 9,125 9,047 18,312 18,077
Provision for doubtful accounts 555 755 1,344 1,406
Amortization of goodwill 157 138 314 269
------------ ------------ ------------ ------------
Total operating expenses 9,837 9,940 19,970 19,752
------------ ------------ ------------ ------------
Operating income 3,059 2,310 5,984 4,147
Interest expense (198) (242) (449) (571)
Other expense, net (112) (203) (191) (396)
------------ ------------ ------------ ------------
Income before income taxes 2,749 1,865 5,344 3,180
Income tax provision 1,027 784 2,013 1,336
------------ ------------ ------------ ------------
Net income $ 1,722 $ 1,081 $ 3,331 $ 1,844
============ ============ ============ ============
Net income per common share:
Basic $ 0.14 $ 0.09 $ 0.28 $ 0.16
============ ============ ============ ============
Diluted $ 0.14 $ 0.09 $ 0.27 $ 0.16
============ ============ ============ ============
Shares used in computing net income per share:
Basic 11,968 11,509 11,968 11,452
============ ============ ============ ============
Diluted 12,433 11,867 12,434 11,784
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------- ------------
2000 1999
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,331 $ 1,844
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,468 1,295
Provision for doubtful accounts 1,344 1,406
Change in current assets and current liabilities (3,944) 733
------------- ------------
Net cash provided by operating activities 2,199 5,278
CASH FLOWS FROM INVESTING ACTIVITIES:
Other assets, net (47) (271)
Purchases of equipment and other, net (562) (164)
Payments for acquisitions (2,255) (1,369)
------------- ------------
Net cash used in investing activities (2,864) (1,804)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft (2,405) 1,100
Retirement of previous debt facility -- (21,800)
Net borrowings (payments) on revolving credit agreement 2,980 13,039
Payments on capital leases (82) (118)
Payments of other long-term debt (20) (20)
Proceeds from issuance of stock 192 660
------------- ------------
Net cash provided by (used in) financing activities 665 (7,139)
------------- ------------
Net increase(decrease) in cash and cash equivalents -- (3,665)
Cash and cash equivalents, beginning of period -- 3,665
------------- ------------
Cash and cash equivalents, end of period $ -- $ --
============= ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
JUNE 30, 2000
1. BASIS OF PRESENTATION
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 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 three and six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December
31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
2. RECLASSIFICATIONS
Certain prior year amounts in the condensed consolidated financial
statements have been reclassified to conform to the current year presentation.
3. LONG-TERM DEBT
On June 30, 2000, the Company amended its $25,000 Loan and Security
Agreement ("Agreement") by expanding the lending group to include another bank
and increasing the total amount available under the Agreement to $40,000. The
additional $15,000 portion represents an acquisition line ("Acquisition Line")
that can be drawn upon by the Company for a period of one year, expiring on June
30, 2001. The amount, if any, not drawn upon prior to the expiration date shall
expire and the Company will not have any ability to borrow such amounts. All
borrowings under the Acquisition Line must be for approved acquisitions, as
defined. The Company paid a facility fee of $150 at the time of signing of the
Acquisition Line.
On February 5, 1999, the Company entered into a $25,000 Loan and
Security Agreement ("Agreement") with a bank that replaced the Company's former
credit facility. The Agreement provides for borrowings up to $25,000 and
requires the Company to meet certain financial covenants including, but not
limited to: fixed charge coverage ratio, debt ratio and limitation on annual
capital expenditures. The Agreement allowed the Company, among other things, to
meet working capital needs and to retire in its entirety the Company's former
facility. Under the Agreement, the Company is subject to an early termination
fee if the loan is terminated prior to its natural expiration of February 2002.
The Company paid a facility fee of $185 at the time of signing of the Agreement.
The Agreement prohibits the Company from declaring any cash dividends on its
common stock. The Company may elect interest rates ranging from various LIBOR
periods plus a 2.125% margin to the bank's reference rate. The average interest
rate for the second quarter of 2000 on outstanding borrowings under the facility
was 8.69%.
Effective November 1, 1999, borrowing availability under the facility
is related to a percentage of the
<PAGE>
Company's net outstanding account receivable and inventory balances, less
certain ineligible amounts, as defined in the Agreement. The facility is
secured by the assets of the Company. Overall borrowings allowable under the
Agreement are limited to the lessor of $25,000 or the total allowable
collateral base.
4. EARNINGS PER SHARE DATA
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------------------------------
2000 1999
----------------------- ------------------------
(In thousands, except per share data)
<S> <C> <C>
Basic :
Net income $ 1,722 $ 1,081
Average shares outstanding 11,968 11,509
----------------------- ------------------------
Basic earnings per share $ 0.14 $ 0.09
======================= ========================
Diluted :
Net income $ 1,722 $ 1,081
Average shares outstanding 11,968 11,509
----------------------- ------------------------
Net effect of dilutive stock options -
based on the treasury stock method 465 358
----------------------- ------------------------
Total 12,433 11,867
----------------------- ------------------------
Diluted earnings per share $ 0.14 $ 0.09
======================= ========================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------------------------
2000 1999
----------------------- ------------------------
(In thousands, except per share data)
<S> <C> <C>
Basic :
Net income $ 3,331 $ 1,844
Average shares outstanding 11,968 11,452
----------------------- ------------------------
Basic earnings per share $ 0.28 $ 0.16
======================= ========================
Diluted :
Net income $ 3,331 $ 1,844
Average shares outstanding 11,968 11,452
----------------------- ------------------------
Net effect of dilutive stock options -
based on the treasury stock method 466 332
---------------------- ------------------------
Total 12,434 11,784
----------------------- ------------------------
Diluted earnings per share $ 0.27 $ 0.16
======================= ========================
</TABLE>
<PAGE>
5. OPERATING SEGMENTS
In January 2000, the Company realigned its operations and separated the
specialty pharmaceutical distribution portion of the Company into a new
operating division named OptionMed-TM-. As a result of the realignment, the
Company now has two identifiable operating segments, OC and OptionMed, that
require additional disclosure.
OC is comprised of revenue from infusion therapy, product sales and
royalty fees. OptionMed consists of revenue from distribution of specialty
pharmaceuticals. Inter-segment sales are recorded at OptionMed's cost and there
is no inter-company profit or loss on inter-segment sales or transfers.
Segment information for the second quarter and year-to-date through
June 30, 2000 and 1999 is as follows: (in thousands)
<PAGE>
<TABLE>
<CAPTION>
OC OPTIONMED TOTAL
---------------- ---------------- ---------------
THREE MONTHS ENDED JUNE 30, 2000
---------------------------------------------
<S> <C> <C> <C>
Net sales to external customers 25,592 7,558 33,150
Inter-segment net sales - 1,885 1,885
Gross profit 11,908 988 12,896
Operating income 2,687 371 3,058
Total assets 54,824 3,672 58,496
THREE MONTHS ENDED JUNE 30, 1999
---------------------------------------------
Net sales to external customers 23,799 5,773 29,572
Inter-segment net sales - 594 594
Gross profit 11,432 818 12,250
Operating income 1,732 578 2,310
Total assets 50,760 2,519 53,279
SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------------
Net sales to external customers 51,154 14,767 65,921
Inter-segment net sales - 3,396 3,396
Gross profit 23,820 2,134 25,954
Operating income 5,056 928 5,984
Total assets 54,824 3,672 58,496
SIX MONTHS ENDED JUNE 30, 1999
---------------------------------------------
Net sales to external customers 47,030 11,571 58,601
Inter-segment net sales 68 1,363 1,431
Gross profit 22,238 1,661 23,899
Operating income 3,029 1,118 4,147
Total assets 50,760 2,519 53,279
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this
Quarterly Report on Form 10-Q and other materials filed or to be filed by the
Company with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company) contains statements that are or will be forward-looking, such as
statements relating to acquisitions and other business developments
activities, future capital expenditures and the effects of future regulation
and competition. Such forward-looking information involves important risks
and uncertainties that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in any
forward-looking statements made by, or on behalf of, the Company. These risks
and uncertainties include, but are not limited to, uncertainties affecting
businesses of the Company and its franchisees relating to acquisitions and
divestitures (including continuing obligations with respect to completed
transactions), sales and renewals of franchises, government and regulatory
policies (including federal, state and local efforts to reform the delivery
of and payment for healthcare services), general economic conditions
(including economic conditions affecting the healthcare industry in
particular), the pricing and availability of equipment and services,
technological developments and changes in the competitive environment in
which the Company operates.
DISCUSSION OF RESULTS OF OPERATIONS FOR THE SECOND QUARTER AND SIX MONTHS ENDED
JUNE 30, 2000 (IN THOUSANDS, UNLESS OTHERWISE NOTED)
REVENUE-
Total revenue for the three months ended June 30, 2000 was $33,150,
which was $3,578 or 12.1% higher than the $29,572 reported for the three
months ended June 30, 1999. Revenue during the period from infusion therapy
care services was $22,757, an increase of $1,759 or 8.4% from $20,998 in the
second quarter of 1999. Such increase was primarily the result of same-store
sales increases. Revenue realized from OptionMed-related sales increased
30.9% from $5,773 in the second quarter of 1999 to $7,558 for the second
quarter of 2000. Product sales for the second quarter of 2000 of $505
decreased by $154 or 23.4%, from the second quarter of 1999 sales of $659.
Such decrease was largely due to reduced shipments of the Company's MBI 5.0
software. Royalty and other revenue during the second quarter of 2000 was
$2,330, an increase of $189, or 8.8% over the second quarter of 1999's
revenue from such sources of $2,141, due to continued strong cash receipts
and increases in sales volume realized by the Company's network of franchise
locations during the second quarter of 2000.
For the six months ended June 30, 2000, total revenue was $65,921,
an increase of $7,320, or 12.5%. During such period revenue realized from the
Company's owned locations increased 9.2% from $41,452 to $45,273, OptionMed
revenue increased 27.6% from $11,571 to $14,767 and royalties revenue
increased 8.8%, from $4,272 to $4,646, offset by a decline in product sales
of 5.4% from $1,306 to $1,235.
For the three months ended June 30, 2000, revenue was comprised of
the following categories: infusion therapy care services through the
Company-owned locations which represented 68.7% of total revenue; revenue
from OptionMed which represented 22.8%; royalty fees which represented 7.0%;
and product sales which represented 1.5% of total revenue. For the six months
ended June 30, 2000, revenue from infusion therapy care services represented
68.7%, OptionMed represented 22.4%, royalties 7.0% and product sales
represented 1.9%
<PAGE>
of total revenue.
GROSS PROFIT-
For the three months ended June 30, 2000 gross profit as a
percentage of revenue (gross margin) was 38.9%, a decline of 2.5% from gross
margin of 41.4% for the second quarter of 1999. Such decline was primarily
due to a change in sales mix reflecting a greater percentage of the lower
margin OptionMed business. In addition, the sales mix impact was offset by
more favorable pricing realized through the Company's purchasing agreements
with several manufacturers. For the six months ended June 30, 2000, gross
margin was 39.4%, a 1.4% decline from 1999's year-to-date margin of 40.8%.
Such decline was also due, in part, to the increase in OptionMed sales which
provide a lower margin than the Company's other revenue sources.
OPERATING EXPENSES-
Total operating expenses for the three months ended June 30, 2000
were $9,837, a decrease of $103 from operating expenses of $9,940 for the
three months ended June 30, 1999. In addition, total operating expenses as a
percentage of revenue decreased to 29.7% for second quarter of 2000 from
33.6% for the comparable period in the prior year and 30.9% from the first
quarter of 2000. The continuing decline in the percentage of operating
expenses to revenue reflects productivity improvements and the favorable
impact on operating expenses of the change in sales mix to increased
OptionMed revenue. For the six months ended June 30, 2000, operating expenses
as a percentage of revenue was 30.3%, a decline of 3.7%, from 1999's
year-to-date percentage of 33.7%. The provision for doubtful accounts
declined to 1.7% of revenue in the second quarter of 2000 from 2.6% of
revenue in the second quarter of 1999, while for the six months ended June
30, 2000, the provision for doubtful accounts of $1,344 represented 2.0% of
revenue, down from 2.4% in the same period of 1999.
INTEREST EXPENSE-
Interest expense declined by $44, or 18.2%, to $198 for the three
months ended June 30, 2000 from $242 for the corresponding period in the
prior year. Such decline resulted from the reduction in the amount of debt
outstanding by 14.8% from $13,459 at June 30, 1999 to $11,468 at June 30,
2000. For the six months ended June 30, 2000, interest expense of $449,
represents a decline of $122, or 21.4% from $571 for the same period of 1999.
INCOME TAXES-
The effective income tax rate for the second quarter of 2000 was
37.4%, which represents a decline from the second quarter of 1999's effective
income tax rate of 42.0%. Such decline was due to the deductibility of
certain items in the second quarter of 2000 for income tax purposes.
EARNINGS PER SHARE-
As a result of the above noted increases, the Company reported
earnings per diluted share of $0.14 for the second quarter of 2000, an
increase of $0.05, or 55.6%, over the $0.09 earnings per diluted share for
the same period in 1999. Earnings per share also increased by $0.01, or 7.7%
over the $0.13 earning per diluted share realized in the first quarter of
2000 and represents the sixth consecutive quarter of increasing earnings per
share for the Company. For the six months ended June 30, 2000, earnings per
diluted share of $0.27 increased by $0.11,
<PAGE>
or 68.8%, from $0.16 for the comparable period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
CASH AND CASH EQUIVALENTS-
As of June 30, 2000, the Company had no cash and cash equivalents,
in line with the amount of cash and cash equivalents at December 31, 1999.
The Company has instituted a policy of using excess cash balances, if any, to
retire outstanding debt under its revolver agreement.
NET CASH FLOWS-
Net cash flow used in operations for the six months ended June 30,
2000 of $2,199, represented a decline of $3,079 from the $5,278 provided by
operations during the same period in 1999. The decline was primarily due to
increased income tax payments paid during 2000 due to the Company's
profitability, reductions of several liabilities during the first six months
of 2000, increased compensation expenses and payments made to renew the
Company's insurance program. Net cash flow used in investing activities of
$2,864, increased $1,060 over the $1,804 used in the first six months of
1999, due mainly to increases in and the timing of deferred purchase price
payments for acquisitions made in prior years. Net cash flow provided by
financing activities of $665 for the first six months of 2000 increased by
$7,804 over the use of $7,139 from the comparable period in 1999 as a result
of the Company in the first quarter of 1999 retiring its former credit
facility in its entirety.
REVOLVING DEBT FACILITY-
On June 30, 2000, the Company amended its $25,000 Loan and Security
Agreement ("Agreement") by expanding the lending group to include another
bank and increasing the total amount available under the Agreement to
$40,000. The additional $15,000 portion represents an acquisition line
("Acquisition Line") that can be drawn upon by the Company for a period of
one year, expiring on June 30, 2001. The amount, if any, not drawn upon prior
to the expiration date shall expire and the Company will not have any ability
to borrow such amounts. All borrowings under the Acquisition Line must be for
approved acquisitions, as defined. The Company paid a facility fee of $150 at
the time of signing of the Acquisition Line.
On February 5, 1999, the Company entered into a $25,000 Loan and
Security Agreement ("Agreement") with a bank that replaced a previous
facility. The Agreement provides for borrowings up to $25,000 and requires
the Company to meet certain financial covenants including, but not limited
to: fixed charge coverage ratio; debt ratio; and limitation on annual capital
expenditures. The Agreement provides for, among other things, the ability to
meet working capital needs and to retire in its entirety the Company's former
credit facility. The Company is subject to an early termination fee if the
loan is terminated prior to its natural expiration of February 2002. The
Company paid a facility fee of $185 at the time of signing the Agreement. The
Agreement prohibits the Company from declaring any cash dividends on its
common stock. The Company may elect interest rates ranging from various LIBOR
periods plus a 2.125% margin to the bank's reference rate.
Effective November 1, 1999, availability under the facility is
related to a percentage of the Company's net outstanding account receivable
and inventory balances, less certain ineligible amounts, as defined in the
Agreement. The facility is secured by the assets of the Company. Borrowings
allowable under the Agreement are limited to the lessor of $25,000 or the
total allowable collateral base.
<PAGE>
Prior to November 1, 1999, the John N. Kapoor Trust, dated September
20, 1989, (the "Trust"), had pledged an irrevocable letter of credit ranging
from $7,000 to $2,500 in favor of the lending bank to support borrowings that
exceed the allowable collateral base as defined in the Agreement. In
addition, the Company had entered into an agreement with the Trust which
provided the payment of fees and expenses related to the establishment and
maintenance of the letter of credit. Effective November 1, 1999, the
Agreement was amended to eliminate the irrevocable letter of credit.
Management believes that cash flow from operations and availability
under the Agreement, will be sufficient to meet the cash needs of the
business for the immediate future. In the event that additional capital is
required, management cannot assure that such capital can be obtained on terms
acceptable to the Company.
GOODWILL AND OTHER INTANGIBLE ASSETS-
Goodwill and other intangible assets, net, at June 30, 2000 of
$24,462 increased by $2,395 over the $22,067 at December 31, 1999. The
increase is due to payments made under certain of the Company's purchase
agreements for acquisitions made in 1997 and 1996. These agreements obligate
the Company, upon the acquired businesses meeting of determined milestones,
the attainment of certain financial results or contractually, to pay
additional consideration to former owners representing additional purchase
price for these acquisitions. Total net goodwill and other intangible assets
increased as a percentage of total assets from 38.3% at December 31, 1999 to
41.8% at June 30, 2000, due mainly to the additional payments made. Total net
goodwill and other intangible assets reduced as a percentage of stockholders'
equity from 75.3% at December 31, 1999 to 72.3% at June 30, 2000, due mainly
to the increase in stockholders' equity realized from the net income
recognized for 2000.
REGULATORY AND OTHER DEVELOPMENTS-
Recent government investigations into how the average wholesale
price ("AWP") for certain pharmaceuticals are determined could result in
reduced pricing and margins on certain drugs that the Company currently
supplies to patients. Various federal and state government agencies have been
investigating whether the AWP of many drugs is an appropriate or accurate
measure of market prices from which government payors determine how much they
reimburse for the drug. Many government payors pay the Company, either
directly or indirectly, for some of the drugs based on that drug's AWP, or at
a percentage off AWP. In addition, the Company has also contracted with a
number of private payors to sell at AWP or at a percentage discount off AWP.
AWP for most drugs is compiled and published by a private company,
First DataBank, Inc. It has been reported that there, currently, are several
lawsuits pending against manufacturers of certain drugs. These government
investigations and lawsuits involve allegations that manufacturers have
misrepresented the actual selling price of certain drugs to First DataBank.
First DataBank has announced that it will base AWP on market prices certified
by the manufacturer. First DataBank has published a Market Price Survey that
reduces the AWP significantly for a number of the products the Company
currently supplies to patients. The Company cannot predict the eventual
results of these investigations, and the changes made in AWP by First
DataBank.
If the reduced average wholesale prices published by First DataBank
for the drugs that the Company currently provides to patients are ultimately
adopted as the standard by which the Company is reimbursed by government
payors or private payors, it could have a material adverse effect on the
Company's business,
<PAGE>
financial condition, and results of operation, including reducing the pricing
and margins on certain of the Company's products. For the six months ended
June 30, 2000, less than approximately 20% of the Company's total revenue
were generated from governmental agencies.
In addition, there are currently various proposals under development
to enact healthcare reform on a national, state and local level. It is not
possible at this time to predict the cash flow impact, if any, which any such
changes may have on providers of home healthcare services and on the
Company's locations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II.
OTHER INFORMATION
(IN THOUSANDS)
ITEM 1 LEGAL PROCEEDINGS
Not Applicable.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 2000 Annual Meeting of Shareholders on
May 12, 2000. At the Annual Meeting, the shareholders voted on and approved the
election of Dr. John N. Kapoor and Roger W. Stone as Directors to serve until
the Annual Meeting of 2003. In addition, the shareholders voted to approve and
ratify the Option Care, Inc. 2001 Employee Stock Purchase Plan and an increase
in the number of shares available under the Amended and Restated Stock Incentive
Plan. The votes cast at the Annual Meeting on such matters were as follows:
a. Election of Directors:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
------- --------- ---------
<S> <C> <C> <C>
Dr. John N. Kapoor 10,638,335 --- 349,681
Roger W. Stone 10,644,864 --- 343,142
b. Approval of 2001 Stock Purchase Plan :
10,952,639 49,912 7,040
c. Approval of increase in shares available for Stock Incentive Plan :
10,555,350 448,751 5,490
</TABLE>
ITEM 5 OTHER INFORMATION
Not Applicable.
<PAGE>
ITEM 6(a) EXHIBITS
See exhibit index
ITEM 6(b) REPORTS ON FORM 8-K
The Company, on June 2, 2000, filed a Form 8-K discussing changes
in the Senior management of the Company.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
OPTION CARE, INC.
By: /s/ Michael A. Siri
-----------------------------------------
Michael A. Siri
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING OFFICER AND
PRINCIPAL FINANCIAL OFFICER)
Date: August 14, 2000
<PAGE>
EXHIBIT INDEX
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<CAPTION>
EXHIBIT
NUMBER
<S> <C>
3.1 Certificate of Incorporation of the Registrant, together with
Certificate of Amendment thereto filed February 18, 1992. Filed
as Exhibit 3(a) to the Company's Registration Statement (No.
33-45836) dated April 15, 1992 and incorporated by reference
herein.
3.2 Certificate of Amendment to Certificate of Incorporation of the
Registrant filed March 25, 1992. Filed as Exhibit 3(c) to the
Company's Registration Statement (No. 33-45836) dated April 15,
1992 and incorporated by reference herein.
3.3 Restated By-laws of the Registrant dated June 1, 1994. Filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
year ending December 31, 1994 and incorporated by reference
herein.
10.1 Stock Purchase Agreement dated February 18, 1992, among the
Registrant, OCE and the stockholders of Young's I.V. Therapy,
Inc. Filed as Exhibit 2(f) to the Company's Registration
Statement (No. 33-45836) dated April 15, 1992 and incorporated by
reference herein.
10.2 1991 Stock Incentive Plan of the Registrant and related forms of
Incentive and Nonqualified Stock Option Agreements. Filed as
Exhibit 10(a) to the Company's Registration Statement (No.
33-45836) dated April 15, 1992 and incorporated by reference
herein. *
10.2(a) Amendment to the 1991 Stock Incentive Plan of the Registrant and
related forms of Incentive and Nonqualified Stock Option
Agreements, dated February 21, 1995. Filed as Exhibit 10.6(a) to
the Company's Annual Report on Form 10-K for the year ending
December 31, 1994 and incorporated by reference herein. *
10.2(b) Amendment to the 1991 Stock Incentive Plan of the Registrant,
dated May 22, 1997. Filed as Exhibit 10.2(b) to the Company's
Annual Report on Form 10-K for the year ending December 31, 1997
and incorporated by reference herein *
10.3 Option Care, Inc. 401(k) Profit Sharing Plan. Filed as Exhibit
10(b) to the Company's Registration Statement (No. 33-45836)
dated April 15, 1992 and incorporated by reference herein. *
10.3(a) Amendment to the 1992 401(k) Profit Sharing Plan of the
Registrant dated January 1, 1996. Filed as Exhibit 10.3(a) to the
Company's Annual Report on Form 10-K for the year ending December
31, 1997 and incorporated by reference herein. *
10.4 Consulting Agreement dated as of September 27, 1990 between EJ
Financial Enterprises and Michael Prime. Filed as Exhibit 10(h)
to the Company's Registration Statement (No. 33-45836) dated
April 15, 1992 and incorporated by reference herein. *
10.5 Form of Franchise Agreement. Filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ending December
31, 1996 and incorporated by reference herein.
10.6 Lease dated as of October 23, 1996 between the Registrant and
LaSalle National Trust, N.A., as Trustee. Filed as Exhibit 10.6
to the Company's Annual Report on Form 10-K for the year ending
December 31, 1996 and incorporated by reference herein.
<PAGE>
10.7 Consulting Agreement between the Registrant and EJ Financial
Enterprises, Inc. Filed as Exhibit 10(o) to the Company's
Registration Statement (No. 33-45836) dated April 15, 1992 and
incorporated by reference herein.
10.8 Credit Agreement with ancillary documentation dated December 23,
1996, among Registrant, Option Care Enterprises, Inc. ("OCE"),
Option Care, Inc. (California), and Option Care Capital Services
and PNC Bank as agent and lender and Harris Bank and The Northern
Trust Company as lenders re: $30,000,000 credit agreement. Filed
as Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the year ending December 31, 1996 and incorporated by reference
herein.
10.8(a) Amendment 1 to Credit Agreement dated February 5, 1997, among
Registrant, Option Care Enterprises, Inc. ("OCE"), Option Care,
Inc. (California), and PNC Bank as agent and lender and Harris
Bank and The Northern Trust Company as lenders. Filed as Exhibit
10.8(a) to the Company's Annual Report on Form 10-K for the year
ending December 31, 1997 and incorporated by reference herein.
10.8(b) Amendment 5 to Credit Agreement dated March 25, among Registrant,
Option Care Enterprises, Inc. ("OCE"), Option Care, Inc.
(California), and PNC Bank as agent and lender and Harris Bank,
The Northern Trust Company and The First National Bank of Chicago
as lenders re: an extension to the original revolving credit
agreement to January 2000. Filed as Exhibit 10.8(b) to the
Company's Annual Report on Form 10-K for the year ending December
31, 1997 and incorporated by reference herein.
10.9 Stock Sale Agreement, Franchise Agreement and Addendum to
Franchise Agreement dated December 31, 1996 among the Registrant
and J. Harris Morgan, Jr. Filed as Exhibit 10.9 to the Company's
Annual Report on form 10-K for the year ending December 31, 1996
and incorporated by reference herein.
10.10 Promissory Note between Convention Center Drug, Inc. and Option
Care, Inc., dated November 15, 1996. Filed as Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the year ending
December 31, 1996 and incorporated by reference herein.
10.11 Security Agreement between Convention Center Drug, Inc. and
Option Care, Inc., dated November 15, 1996. Filed as Exhibit
10.11 to the Company's Annual Report on Form 10-K for the year
ending December 31, 1996 and incorporated by reference herein.
10.12 Promissory Notes between Home I.V., Inc. and Option Care, Inc.,
dated March 17, 1995. Filed as Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ending December 31, 1995
and incorporated by reference herein.
10.13 Promissory Note between Home Pharmacy Inc. and Option Care, Inc.,
dated February 1, 1997. Filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year ending December 31, 1997
and incorporated by reference herein.
10.14 Management Agreement between Pinecrest Healthcare Consultants,
Inc., and Option Care, Inc. dated April, 1997. Filed as Exhibit
10.14 to the Company's Annual Report on Form 10-K for the year
ending December 31, 1997 and incorporated by reference herein. *
10.15 Amended Option Care, Inc. 1996 Employee Stock Purchase Plan,
dated January 1, 1996. Filed as Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ending December 31, 1995
and incorporated by reference herein. *
<PAGE>
10.16 Renewal, dated May 2, 1997, of the Executive Severance Agreement
between Erick E. Hanson and Option Care, Inc., dated June 28,
1996 incorporated by reference herein. *
10.17 Executive Severance Agreement between James A. Hodges, Jr. and
Option Care, Inc., dated December 19, 1997. Filed as Exhibit
10.17 to the Company's Annual Report for the year ending December
31, 1997 and incorporated by reference herein.*
10.18 Executive Severance Agreement between Cathy Bellehumeur and
Option Care, Inc., dated November 12, 1997. Filed as Exhibit
10.18 to the Company's Annual Report for the year ending December
31, 1997 and incorporated by reference herein.*
10.19 Promissory Note between Felice, Inc., and Option Care, Inc.,
dated March 11, 1997. Filed as Exhibit 10.19 to the Company's
Annual Report for year ending December 31, 1997 and incorporated
by reference herein.*
10.20 Promissory Note between C.R. I.V. Service, Inc., and Option Care,
Inc., dated April 24, 1997. Filed as Exhibit 10.20 to the
Company's Annual Report for year ending December 31, 1997 and
incorporated by reference herein. *
10.21 Promissory Note between Eugene and Susan Lutz, and Option Care,
Inc., dated April 24, 1997. Filed as Exhibit 10.21 to the
Company's Annual Report for year ending December 31, 1997 and
incorporated by reference herein. *
10.22 Promissory Note between East Coast Optioncare, Inc., and Option
Care, Inc., dated November 1, 1997. Filed as Exhibit 10.22 to the
Company's Annual Report for year ending December 31, 1997 and
incorporated by reference herein.*
10.23 Promissory Note between Brooks Home I.V., Inc., and Option Care,
Inc., dated December 8, 1997. Filed as Exhibit 10.23 to the
Company's Annual Report for year ending December 31, 1997 and
incorporated by reference herein.*
10.24 Facility Provider Agreement between Foundation Health Corporation
Affiliate(s) and Option Care, Inc. dated June 1, 1997. Filed as
Exhibit 10.24 to the Company's Annual Report for year ending
December 31, 1997 and incorporated by reference herein.
10.25 Amendment to the Facility Provider Agreement between Foundation
Health Corporation Affiliate(s) and Option Care, Inc. dated March
23, 1998. Filed as Exhibit 10.25 to the Company's Annual Report
for year ending December 31, 1997 and incorporated by reference
herein.
10.26 Loan and Security Agreement with ancillary documentation dated
February 5, 1999, among Registrant, Option Care Enterprises, Inc.
("OCE'), Option Care, Inc. (California) and BankAmerica Business
Credit, Inc. as lender. Filed as Exhibit 10.26 to the Company's
Annual Report for year ended December 31, 1998 and incorporated
by reference herein.
10.27 Employment Agreement between Michael A. Rusnak and Option Care,
Inc., dated October 1, 1998. Filed as Exhibit 10.27 to the
Company's Annual Report for year ended December 31, 1998 and
incorporated by reference herein.*
10.28 Reimbursement and Security Agreement dated February 10, 1999,
between Option Care, Inc. and the John N. Kapoor Trust dated
September 20, 1989. Filed as Exhibit 10.28 to the Company's
Annual Report for year ended December 31, 1998 and incorporated
by reference herein.
<PAGE>
10.29 Letter Agreement dated January 15, 1999, among Registrant,
Option Care Enterprises, Inc. ("OCE"), Option Care, Inc.
(California), and PNC Bank as agent and lender and Harris Bank,
the Northern Trust Company and The First National Bank of Chicago
as lenders re: Forbearance Agreement. Filed as Exhibit 10.29 to
the Company's Annual Report for year ended December 31, 1998 and
incorporated by reference herein.
10.30 Amendment of Consulting Agreement by and Between EJ Financial
Group and Option Care, Inc., dated October 1, 1999. Filed as
Exhibit 10.30 to the Company's Annual Report for year ended
December 31, 1998 and incorporated by reference herein.
10.31 Amendment to the Reimbursement and Security Agreement dated
February 10, 1999, between Option Care, Inc. and the John N.
Kapoor Trust dated September 20, 1989. Filed as Exhibit 10.31 to
the Company's Annual Report for year ended December 31, 1999 and
incorporated by reference herein.
10.32 Option Care, Inc. 2001 Employee Stock Purchase Plan, effective
January 1, 2001. Filed as Exhibit 10.32 to the Company's Annual
Report for year ended December 31, 1999 and incorporated by
reference herein.*
10.33 Amended and Restated Loan and Security Agreement dated June 30,
2000 among Bank of America, N.A. and Option Care, Inc.
16 Letter re Change in Certifying Accountant dated December 11, 1998
from KPMG, filed with Securities and Exchange Commission as an
amendment to Form 8-K filed by Company on December 4, 1998 and
incorporated by reference herein.
21 Subsidiaries of the Registrant. Filed as Exhibit 21 to the
Company's Annual Report for year ended December 31, 1998 and
incorporated by reference herein.
23.1 Consent of Ernst & Young LLP. Filed as Exhibit 23.1 to the
Company's Annual Report for year ended December 31, 1999 and
incorporated by reference herein.
23.2 Consent of KPMG LLP. Filed as Exhibit 23.2 to the Company's
Annual Report for year ended December 31, 1999 and incorporated
by reference herein.
27 Financial Data Schedule
</TABLE>
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* Management contracts and compensatory plans and arrangements.
