-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H3T9B8VifbnHX9GQNQqD4P0WOzWTHRmhQUjCUJqXzEoDRhfW6mdcQJ0Yy33SECYM o4/a5L2Xk6HWtkBYTCJGQA== 0000950152-98-001151.txt : 19980218 0000950152-98-001151.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950152-98-001151 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCS HEALTHCARE INC CENTRAL INDEX KEY: 0001004990 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 341816187 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27602 FILM NUMBER: 98540630 BUSINESS ADDRESS: STREET 1: 3201 ENTERPRISE PKWY STREET 2: STE 2200 CITY: BEACHWOOD STATE: OH ZIP: 44122 MAIL ADDRESS: STREET 1: 1400 MCDONALD INVESTMENT CENTER STREET 2: 800 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114 10-Q 1 NCS HEALTHCARE, INC./QUARTERLY REPORT/FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 UNITED STATES FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended December 31, 1997 Commission File Number- 0-27602 ------- NCS Health Care, Inc. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware No. 34-1816187 - --------------------------------------------------- -------------------- (State or other jurisdiction of incorporation or (IRS employer organization) identification number) 3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122 - ---------------------------------------------------------- (Address of principal executive offices and zip code) (216) 514-3350 - ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: 1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and 2) has been subject to such filing requirement for the past 90 days. Yes X No --- --- Common Stock Outstanding - ------------------------ Indicate the number of shares outstanding of each of the Issuers' classes of common stock, as of the latest practical date. Class A Common Stock, $.01 par value -- 12,646,504 shares as of February 6, 1998 Class B Common Stock, $.01 par value-- 6,877,464 shares as of February 6, 1998 1 2 NCS HEALTHCARE, INC. AND SUBSIDIARIES INDEX Page Part I. Financial Information: Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets- December 31, 1997 and June 30, 1997 3 Condensed Consolidated Statements of Income- Three and six months ended- December 31, 1997 and 1996 4 Condensed Consolidated Statements of Cash Flows- Six months ended- December 31, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements - December 31, 1997 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 Part II. Other Information: Item 2. Changes in Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 2 3 ITEM 1. FINANCIAL STATEMENTS NCS HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION)
(Unaudited) (Note A) December 31, June 30, 1997 1997 ------------ -------- ASSETS Current Assets: Cash and cash equivalents $ 49,012 $ 8,160 Accounts receivable, less allowances 95,571 70,476 Inventories 29,496 22,28] Other 8,851 6,570 -------- -------- Total current assets 182,930 107,487 Property and equipment, at cost net of accumulated depreciation and amortization 31,050 23,309 Goodwill, less accumulated amortization 201,359 180,723 Other assets 16,329 9,511 -------- -------- Total assets $431,668 $321,030 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Line of credit $ - $ 10,285 Accounts payable 17,619 15,054 Accrued expenses and other liabilities 29,434 28,984 -------- -------- Total current liabilities 47,053 54,323 Long-term debt 8,760 8,043 Convertible subordinated debentures 102,753 4,313 Other 591 625 Stockholders' Equity: Preferred stock, par value $ .01 per share, 1,000,000 shares authorized; none issued - - Common stock, par value $.01 per share: Class A - 50,000,000 shares authorized; 12,344,870 and 11,313,638 shares issued and outstanding at December 31,1997 and June 30, 1997, respectively 123 113 Class B - 20,000,000 shares authorized; 6,905,467 and 6,742,742 shares issued and outstanding at December 31, 1997 and June 30, 1997, respectively 69 67 Paid-in capital 247,323 235,703 Retained earnings 24,996 17,343 -------- -------- Total stockholders' equity 272,511 253,226 -------- -------- Total liabilities and stockholders' equity $431,668 $321,030 ======== ========
Note A: The balance sheet at June 30,1997 has been derived from the audited financial statements at that date, but does not include any of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 4 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
Three Months Ended Six Months Ended December 31 December 31, ------------------------ ------------------------ 1997 1996 1997 1996 ------------------------ ------------------------ Revenues $ 114,508 $ 59,323 $ 218,219 $ 102,365 Cost of revenues 85,469 44,292 162,954 76,146 --------- --------- --------- --------- Gross profit 29,039 15,031 55,265 26,219 Selling, general and administrative expenses 21,229 11,175 40,582 18,829 --------- --------- --------- --------- Operating income 7,810 3,856 14,683 7,390 Interest expense (income), net 754 (1,256) 1,255 (1,133) --------- --------- --------- --------- Income before income taxes 7,056 5,112 13,428 8,523 Income tax expense 3,034 2,223 5,774 3,724 --------- --------- --------- --------- Net income $ 4,022 $ 2,889 $ 7,654 $ 4,799 ========= ========= ========= ========= Net income per share - basic $ 0.21 $ 0.17 $ 0.41 $ 0.33 ========= ========= ========= ========= Net income per share - diluted $ 0.21 $ 0.17 $ 0.41 $ 0.32 ========= ========= ========= ========= Shares used in the computation - basic 18,900 16,691 18,639 14,551 Shares used in the computation - diluted 19,113 17,526 18,887 15,386
See notes to condensed consolidated financial statements. 4 5 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Six Months Ended December 31, ------------------------- 1997 1996 --------- --------- OPERATING ACTIVITIES Net income $ 7,654 $ 4,799 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 7,009 3,103 Changes in assets and liabilities, net of effects of assets and liabilities acquired: Accounts receivable, net (22,365) (5,715) Accrued expenses and other liabilities (1,053) 4,115 Other, net (8,022) (2,808) ------------------------- Net cash provided by (used in) operating activities (16,777) 3,494 INVESTING ACTIVITIES Purchases of businesses (11,607) (52,009) Capital expenditures for property and equipment, net (9,582) (3,386) Other (4,785) (1,418) ------------------------- Net cash used in investing activities (25,974) (56,813) FINANCING ACTIVITIES Proceeds from issuance of common stock - 123,626 Proceeds from convertible subordinated debentures, net 97,250 - Borrowings on line-of-credit 21,499 7,095 Payments on line-of-credit (31,784) (7,095) Repayment of long-term debt (3,575) (1,996) Proceeds from issuance of long-term debt 213 10,246 ------------------------- Net cash provided by financing activities 83,603 131,876 ------------------------- Net increase in cash and cash equivalents 40,852 78,557 Cash and cash equivalents at beginning of period 8,160 21,460 ------------------------- Cash and cash equivalents at end of period $ 49,012 $ 100,017 =========================
See notes to condensed consolidated financial statements. 5 6 NCS HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 (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, 1997 are not necessarily indicative of the results that may be expected for the year ending June 30, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended June 30, 1997 (File No. 0-27602). 2. On October 4, 1996, the Company completed a public offering of 4,235,000 shares of Class A Common Stock at $31 per share. The offering raised approximately $123,600,000 (net of underwriting discounts and expenses). A portion of the net proceeds from the stock issuance was used to repay approximately $7,000,000 of outstanding indebtedness under short-term borrowings. 3. On August 13, 1997, the Company issued $100,000,000 of convertible subordinated debentures (debentures) due 2004. Net proceeds to the Company were approximately $97,250,000, net of underwriting discounts and expenses. The debentures carry an interest rate of 5 3/4% and are convertible into shares of Class A Common Stock. A portion of the proceeds from the debenture offering was used to repay approximately $21,000,000 of outstanding indebtedness under short-term borrowings. The debentures are obligations of the Company. The operations of the Company are currently conducted principally through subsidiaries, which are separate and distinct legal entities. Each of the Company's wholly-owned subsidiaries has unconditionally guaranteed, jointly and severally, the Company's payment obligations under the debentures. Accordingly, summarized financial information regarding the guarantor subsidiaries has not been presented because management of the Company believes that such information would not be meaningful to investors. In July 1997, $1,135,000 of 8% convertible subordinated debentures due in 1998 were converted into 112,890 shares of Class A Common Stock. In October 1997, $925,000 of 7% convertible subordinated debentures due in 1998 were converted into 91,990 shares of Class A Common Stock. During August 1997, the Company entered into a $135,000,000 credit facility expiring July 2000. 4. Significant acquisitions completed by the Company during the six months ended December 31, 1997 include Cheshire LTC Pharmacy, Inc. in Cheshire, Connecticut, PharmaSource Healthcare, Inc. in Norcross, Georgia and Marco & Company, LLC in Billings, Montana. The aggregate purchase price for all businesses acquired during the six months ended December 31, 1997 was $21,778,000 consisting of $11,607,000 in cash, $600,000 of debt and $9,571,000 of Class A Common Stock of the Company. The Cheshire LTC Pharmacy, Inc. acquisition was accounted for as a pooling of interests transaction, however the impact of this transaction on the Company's historical financial statements is not significant. Consequently, prior period financial statements have not been restated for this transaction. Significant acquisitions completed by the Company during fiscal 1997 include Advanced Rx Services, Inc. in Northfield, New Jersey, IPAC Pharmacy, Inc. in Portland, Oregon, Medical Arts Pharmacy in Grand Rapids, Michigan, Northside Pharmacy, Inc. and Thrifty Medical Supply, Inc. in Oklahoma City, Oklahoma, Thrifty 6 7 Medical of Tulsa L.L.C. in Tulsa, Oklahoma, Hudson Pharmacy of Wichita, Inc. in Wichita, Kansas, Spectrum Health Services, Inc. in Tampa, Florida, Clinical Health Systems in Vancouver, Washington, Rescot Systems Group, Inc. in Philadelphia, Pennsylvania, W.P. Malone, Inc. in Arkadelphia, Arkansas, Long Term Care Pharmacy Services in East Greenwich, Rhode Island, Eakles Drug Store, Inc. in Hagerstown, Maryland, Pharmacare in Glendale, California, Advanced Pharmaceutical Services, Inc. in Tujunga, California, Dahlin Pharmacy, Inc. in Paramount, California, Stoll Services, Inc. in Modesto, California, Cooper Hall Pharmacy, Inc. in Mount Pleasant, South Carolina, Hammer Incorporated in Des Moines, Iowa, Daven Drug in Los Angeles, California, Medi-Centre Pharmacy in Lansing, Michigan, Vangard Labs, Inc. in Glasgow, Kentucky, Long Term Care, Inc. in Williston, Vermont, Look Drug Store, Inc. in Kaukauna, Wisconsin and HLF Adult Home Pharmacy in Rochester, New York. The aggregate purchase price for all businesses acquired during fiscal 1997 was $166,376,000 consisting of $137,080,000 in cash, $3,804,000 of debt and $25,492,000 of Class A Common Stock of the Company. Unaudited pro forma data, as though the Company had completed its October 4, 1996 public offering and had purchased each of these businesses as of July 1, 1996, are set forth below:
Six Months Six Months Ended Ended December 31, 1997 December 31, 1996 ----------------- ------------------ (In thousands, except per share information) Revenues $ 225,335 $ 189,251 Net income $ 7,675 $ 7,714 Net income per share - basic $ 0.40 $ 0.41 Net income per share - diluted $ 0.40 $ 0.40
During January 1998, the Company acquired MedStar Pharmacy, Inc. in Benson, North Carolina and Greenwood Pharmacy and Managed Pharmacy Services, affiliates of Eckerd Corporation. The Eckerd Corporation business is based in Sharon, Pennsylvania and provides institutional pharmacy an ancillary services to over 42,000 long-term care residents in New York, North Carolina and Pennsylvania. Annualized revenues of these acquisitions are approximately $79,000,000. 7 8 5. The Company has adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128) which replaces the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the requirements of SFAS No. 128. The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended Six Months Ended December 31, December 31, --------------------- -------------------- 1997 1996 1997 1996 ------- ------- ------- ------- Numerator: Numerator for basic earnings per share - net income $ 4,022 $ 2,889 $ 7,654 $ 4,799 Effect of dilutive securities: Convertible debentures - 71 - 142 -------------------- -------------------- Numerator for diluted earnings per share $ 4,022 $ 2,960 $ 7,654 $4,941 ==================== ==================== Denominator: Denominator for basic earnings per share - weighted average common shares 18,900 16,691 18,639 14,551 Effect of dilutive securities: Stock options 213 184 248 184 Convertible debentures - 651 - 651 -------------------- -------------------- Dilutive potential common shares 213 835 248 835 -------------------- -------------------- Denominator for diluted earnings per share 19,113 17,526 18,887 15,386 ==================== ==================== Basic earnings per share $ 0.21 $ 0.17 $ 0.41 $ 0.33 ==================== ==================== Diluted earnings per share $ 0.21 $ 0.17 $ 0.41 $ 0.32 ==================== ====================
The Company has $102,753,000 of convertible subordinated debentures outstanding at December 31, 1997 that are convertible into 3,332,000 shares of Class A Common Stock that were not included in the computation of diluted earnings per share as their effect would be antidilutive. 8 9 NCS HEALTHCARE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 Results of Operations Revenues for the three months ended December 31, 1997 increased 93.0% to $114,508,000 from $59,323,000 recorded in the comparable period in fiscal 1997. Revenues for the six months ended December 31, 1997 increased 113.2% to $218,219,000 from $102,365,000 recorded in the comparable period in fiscal 1997. The increase in quarter and year to date revenues over comparable prior year periods is primarily attributed to two factors: the Company's acquisition program and internal growth. Of the $115,854,000 increase for the six months ended December 31, 1997, $6,949,000 was due to the acquisitions of Cheshire LTC Pharmacy, Inc. in August 1997, PharmaSource Healthcare, Inc. in September 1997 and Marco & Company, LLC in December 1997. In addition, $73,521,000 of the increase is attributable to revenues for the first six months of fiscal 1998 including a full period of operations for fiscal 1997 acquisitions. These fiscal 1997 acquisitions include Advanced Rx Services, Inc. in July 1996, IPAC Pharmacy, Inc., Medical Arts Pharmacy, Northside Pharmacy Inc., Med-Equip, Thrifty Medical Supply, Inc. and Thrifty Medical of Tulsa L.L.C. in August 1996, Hudson Pharmacy of Wichita, Inc. in September 1996, Spectrum Health Services, Inc. in October 1996, Clinical Health Systems in November 1996, Rescot Systems Group, Inc., W.P. Malone, Inc., Long Term Care Pharmacy Services and Eakles Drug Store, Inc. in January 1997, Pharmacare, Advanced Pharmaceutical Services, Inc. and Dahlin Pharmacy, Inc. in February 1997, Stoll Services, Inc., Cooper Hall Pharmacy, Inc., Hammer Incorporated, Daven Drug, and Medi-Centre Pharmacy in March 1997, Vangard Labs, Inc. in April 1997, Long Term Care, Inc. in May 1997 and Look Drug Store, Inc. and HLF Adult Home Pharmacy in June 1997. Internal growth accounted for $35,384,000 of the increase as the Company's existing operations continued to grow through marketing efforts to new and existing clients, increased drug utilization of long-term care facility residents, and the growth and integration of new and existing products and services. The total number of beds serviced by the Company as of December 31, 1997 increased 71% to 171,000 beds, from 100,000 beds at December 31, 1996. Of the $55,185,000 increase in revenues for the three months ended December 31, 1997, $6,051,000 was due to the fiscal 1998 acquisitions noted above. In addition, $29,785,000 of the increase is attributable to revenues for the three months ended December 31, 1997 including a full period of operations for the fiscal 1997 acquisitions noted above and internal growth accounted for $19,349,000 of the increase. Cost of revenues for the three months ended December 31, 1997 increased 93.0% to $85,469,000, from $44,292,000 recorded in the comparable period in fiscal 1997. For the six months ended December 31, 1997, cost of revenues increased 114.0% to $162,954,000 from $76,146,000 recorded in the comparable period in fiscal 1997. Cost of revenues as a percentage of revenues for the three and six month periods ended December 31, 1997 was 74.6% and 74.7%, respectively, compared to 74.7% and 74.4% for the comparable periods during the prior fiscal year. The increase in cost of revenues as a percentage of revenues for the six months ended December 31, 1997 is primarily the result of acquisitions because at the time of acquisition, the gross margins of the acquired companies are typically lower than the Company as a whole. This is the result of several factors, including less advantageous purchasing terms, lack of formulary management and higher production costs. Selling, general and administrative expenses for the three months ended December 31, 1997 increased 90.0% to $21,229,000, from $11,175,000 recorded in the comparable period in fiscal 1997. For the six months ended December 31, 1997, selling, general and administrative expenses increased 115.5% to $40,582,000 from $18,829,000 recorded in the comparable period in fiscal 1997. Selling, general and administrative expenses as a percentage of revenues was 18.5% and 18.6% for the three and six month periods ended December 31, 1997, compared to 18.8% and 18.4% during the comparable periods in fiscal 1997. The percentage increase for the six month period ended December 31, 1997 is primarily the result of acquisitions because at the time of acquisition, the 9 10 selling, general and administrative expenses of the acquired companies are typically higher than the Company as a whole. The Company has been successful at creating operational efficiencies with acquisitions as selling, general and administrative expenses as a percentage of revenues decreased for the fourth straight quarter. The increase in selling, general, and administrative expenses in absolute dollars is mainly attributable to expenses associated with the operations of businesses acquired during the current and prior fiscal year. The Company had net interest expense of $754,000 and $1,255,000 for the three and six month periods ended December 31, 1997, compared to net interest income of $1,256,000 and $1,133,000 during the comparable periods in fiscal 1997. The increase is primarily attributable to the reduction of long-term debt during the prior year with funds from the Company's initial public offering completed on February 14, 1996, interest income earned during the prior year on funds from the Company's public offering completed on October 4, 1996 and additional interest expense incurred in the current year on $100,000,000 of convertible subordinated debentures issued by the Company in August 1997. Liquidity and Capital Resources Net cash used in operating activities was $16,777,000 for the six months ended December 31, 1997, as compared to net cash provided by operating activities of $3,494,000 during the comparable period in fiscal 1997. Net cash used in operating activities increased from the comparable period in fiscal 1997 primarily due to an increase in accounts receivable and inventory. The increase in accounts receivable and inventory is mainly attributable to a 21.6% increase in sales during the three months ended December 31, 1997, as compared to the three months ended June 30,1997. Net cash used in investing activities decreased to $25,974,000 during the six months ended December 31, 1997, as compared to $56,813,000 during the comparable period in fiscal 1997. The decrease is primarily the result of a decrease in cash used for acquisitions, partially offset by an increase in capital expenditures. Significant capital expenditures during the six months ended December 31, 1997 included computer and information systems equipment, computer software, furniture and fixtures at a new facility in Pinellas Park, Florida, leasehold improvements, medication carts and delivery vehicles. Net cash provided by financing activities decreased to $83,603,000 during the six months ended December 31, 1997, from $136,876,000 during the comparable period in fiscal 1997. The fiscal 1997 amount is primarily a result of funds received from the Company's public offering completed on October 4, 1996. The fiscal 1998 amount is primarily a result of funds received from a convertible subordinated debenture offering completed on August 13,1997. The Company's future cash requirements and cash flow expectations are closely related to its expansion plans. In August 1997, the Company issued $100,000,000 of convertible subordinated debentures due 2004. The debentures carry an interest rate of 5 3/4%. The debentures are obligations of the Company. The operations of the Company are currently conducted principally through subsidiaries, which are separate and distinct legal entities. The Company's ability to make payments of principal and interest on the debentures will depend on its ability to receive distributions of cash from its subsidiaries. Each of the Company's wholly-owned subsidiaries has guaranteed the Company's payment obligations under the debentures, so long as such subsidiary is a member of an affiliated group (within the meaning of Section 279(g) of the Internal Revenue Code of 1986, as amended) which includes the Company. The satisfaction by the Company's subsidiaries of their contractual guarantees, as well as the payment of dividends and certain loans and advances to the Company by such subsidiaries, may be subject to certain statutory or contractual restrictions, are contingent upon the earnings of such subsidiaries and are subject to various business considerations. Also in August 1997, the Company entered into a $135,000,000 credit facility expiring July 2000. The Company believes that its cash and available sources of capital, including proceeds from the issuance of the debentures and funds available under the credit facility, are sufficient to meet its normal operating requirements and acquisition needs through January 31, 1999. On January 30, 1998, the Company paid approximately $81,000,000, subject to adjustment, for the purchase of substantially all of the assets used in the operation of the institutional pharmacy businesses of Thrift Drug, Inc., a Delaware corporation (d/b/a Greenwood Pharmacy), and Fay's Incorporated, a New York corporation (d/b/a/ MPS). The funds used to pay the purchase price were obtained in part through the proceeds of the Company's August 1997 offering of 5-3/4% debentures and in part through the Company's August 1997 credit facility. As of February 12, 1998, the Company has approximately $77,000,000 available on its August 1997 credit facility. Year 2000 Compliance Computer systems in use after the beginning of the year 2000 will need to accept four-digit entries in the date code field in order to distinguish 21st century dates from 20th century dates. Consequently, many companies face significant uncertainties because of the need to upgrade or replace their currently installed computer systems to comply with such "year 2000" requirements. At present, NCS believes its currently installed information systems are Year 2000 compliant. However, there can be no assurance that coding errors or other defects will not be discovered in the future. Any Year 2000 compliance problems of the Company, its service providers, its customers or its internet infrastructures could result in a material adverse effect on the Company's business, operating results and financial condition. 10 11 Factors That May Affect Future Results Except for historical financial information contained in this Form 10-Q, the statements made in this report are forward-looking statements. Factors that may cause actual results to differ materially from those in the forward-looking statements include the availability and cost of attractive acquisition candidates, continuation of various trends in the long-term care market (including the trend toward consolidation), competition among providers of long-term care pharmacy services, the availability of capital for acquisitions and capital requirements, changes in regulatory requirements and reform of the health care delivery system. 11 12 ITEM 2. CHANGES IN SECURITIES 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 31, 1997 the Company issued 155,296 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. (b) On October 31, 1997 the Company issued 91,990 shares of its Class A Common Stock to one stockholder in connection with the conversion of a Non-Negotiable 7% Convertible Promissory Note. Exemption from registration is claimed under Section 3(a)(9) of the Securities Act. (c) On December 1, 1997 the Company issued 7,407 shares of its Class A Common Stock to two stockholders in connection with the acquisition of certain assets of Marco & Company, LLC. Exemption from registration is claimed under Section 4(2) of the Securities Act. (d) On December 31, 1997 the Company issued 267,347 shares of its Class B Common Stock to seven stockholders in connection with the merger of MedStar Pharmacy, 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 Shareholders held on October 30, 1997 (the "Annual Meeting"), the stockholders voted to elect Kevin B. Shaw and Boake A. Sells each to an additional three-year term as Director of the Company. The following is a summary of the voting: Votes Kevin B. Shaw Boake A. Sells ----- ------------- -------------- For 8,910,096 8,908,596 Withheld 117,225 118,725 The term of office of the following Directors of the Company continued after the Annual Meeting: Jon H. Outcalt, Phyllis K. Wilson, James B. Naylor, A. Malachi Mixon III and Richard O. Osborne. ITEM 5. OTHER INFORMATION On January 28, 1998, the Company issued a press release, a copy of which is filed herewith as Exhibit 99.1, regarding a document and records search conducted by governmental authorities at the Company's Herrin, Illinois pharmacy. To date, the governmental authorities have not advised the Company as to the nature or circumstance of their investigation. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Numbers Exhibit -------- ------- 15 Independent Accountants' Review Report 27 Financial Data Schedule 99.1 Press Release dated January 30, 1998 (b) Reports on Form 8-K: No reports on Form 8-K were filed during the three months ended December 31, 1997. 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NCS HealthCare, Inc. (Registrant) Date: February 16, 1998 By /s/ Kevin B. Shaw ------------------------------ Kevin B. Shaw President, Chief Executive Officer and Director (Principal Executive Officer) Date: February 16, 1998 By /s/ Jeffrey R. Steinhilber ------------------------------- Jeffrey R. Steinhilber Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 13 EX-15 2 EXHIBIT 15 1 EXHIBIT 15 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Stockholders NCS HealthCare, Inc. and Subsidiaries We have reviewed the accompanying condensed consolidated balance sheet of NCS HealthCare, Inc. and subsidiaries (the Company) as of December 31, 1997, the related condensed consolidated statements of income for the three-month and six-month periods ended December 31, 1997 and 1996 and the condensed consolidated statements of cash flows for the six-month periods ended December 31, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of NCS HealthCare, Inc. and subsidiaries as of June 30, 1997, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended, not presented herein, and in our report dated August 1, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 1997 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Cleveland, Ohio /s/ Ernst & Young LLP January 28, 1998 14 EX-27 3 EXHIBIT 27
5 0001004990 NCS Healthcare, Inc. 1,000 6-MOS JUN-30-1998 JUL-01-1997 DEC-31-1997 49,012 0 115,056 19,485 29,496 182,930 52,703 21,653 431,668 47,053 112,227 0 0 192 272,319 431,668 218,219 218,219 162,954 162,954 0 1,006 2,910 13,428 5,774 7,654 0 0 0 7,654 0.41 0.41
EX-99.1 4 EXHIBIT 99.1 1 NCS HEALTHCARE MAKES ANNOUNCEMENT Exhibit 99.1 Cleveland, Ohio (January 28, 1998) - NCS HealthCare, Inc. (Nasdaq:NCSS) reports that earlier today, government authorities, pursuant to a warrant, sought and obtained various documents and records from a pharmacy located in Herrin, Illinois operated by a wholly-owned subsidiary of the company. Government authorities have not informed the company of the purpose of the inquiry. No other operating unit of the company has been contacted. The company intends to cooperate fully with the government's inquiry. NCS acquired the Herrin, Illinois pharmacy in June, 1996. The pharmacy's operation accounts for less than 2 percent of NCS' fiscal year-to-date sales and operating profitability. This pharmacy continues to provide services without interruption to long-term care residents in the region. NCS HealthCare, Inc. is a leading independent provider of pharmacy and related services to long-term care and acute care facilities, including skilled nursing centers, assisted living facilities and hospitals. NCS serves over 171,000 residents of long-term care facilities in twenty-eight states and manages hospital pharmacies in nineteen states. Contact: Kristen H. Schulz Director of Investor Relations (216) 514-3350 15 -----END PRIVACY-ENHANCED MESSAGE-----