-----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, Tyr5WbHvys5o0bmgKFpwKHdzfAM3pAxClnpMWTiuRNXwt7yRwU0qd6hOJHtJNpzk fdXklvCTicxrAPhKMsI+Pw== 0000950152-98-004641.txt : 19980518 0000950152-98-004641.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950152-98-004641 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 98624215 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. 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 March 31, 1998 Commission File Number- 0-27602 ------- NCS HealthCare, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 34-1816187 - --------------------------------------------- ---------------------------- (State or other jurisdiction of incorporation (IRS employer identification or organization) No.) 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 practicable date. Class A Common Stock, $ .01 par value - 12,953,842 shares as of May 8, 1998 Class B Common Stock, $ .01 par value -- 6,640,900 shares as of May 8, 1998 1 2 NCS HEALTHCARE, INC. AND SUBSIDIARIES INDEX Page ---- Part I. Financial Information: Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets- March 31, 1998 and June 30, 1997 3 Condensed Consolidated Statements of Income- Three and nine months ended- March 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows- Nine months ended- March 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements - March 31, 1998 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information: Item 2. Changes in Securities 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) March 31, June 30, ASSETS 1998 1997 --------------- --------- Current Assets: Cash and cash equivalents $ 23,779 $ 8,160 Accounts receivable, less allowances 120,865 70,476 Inventories 38,632 22,281 Other 14,504 6,570 -------- -------- Total current assets 197,780 107,487 Property and equipment, at cost net of accumulated depreciation and amortization 36,450 23,309 Goodwill, less accumulated amortization 281,315 180,723 Other assets 17,147 9,511 -------- -------- Total assets $532,692 $321,030 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Line of credit $ -- $ 10,285 Accounts payable 26,050 15,054 Accrued expenses and other liabilities 31,981 28,984 -------- -------- Total current liabilities 58,031 54,323 Line of credit 78,000 -- Long-term debt 8,672 8,043 Convertible subordinated debentures 102,753 4,813 Other 743 625 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; 12,949,705 and 11,313,638 shares issued and outstanding at March 31, 1998 and June 30, 1997, respectively 129 113 Class B - 20,000,000 shares authorized; 6,642,400 and 6,742,742 shares issued and outstanding at March 31, 1998 and June 30, 1997, respectively 66 67 Paid-in capital 254,936 235,703 Retained earnings 29,362 17,343 -------- -------- Total stockholders' equity 284,493 253,226 -------- -------- Total liabilities and stockholders' equity $532,692 $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 all 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 Nine Months Ended March 31, March 31, --------------------------- ---------------------------- 1998 1997 1998 1997 --------------------------- ---------------------------- Revenues $137,669 $78,539 $355,888 $180,904 Cost of revenues 102,812 58,867 265,766 135,013 ---------------------------- ---------------------------- Gross profit 34,857 19,672 90,122 45,891 Selling, general and administrative expenses 25,390 14,718 65,972 33,547 ---------------------------- ---------------------------- Operating income 9,467 4,954 24,150 12,344 Interest expense (income), net 1,808 (517) 3,063 (1,650) ---------------------------- ---------------------------- Income before income taxes 7,659 5,471 21,087 13,994 Income tax expense 3,294 2,380 9,068 6,104 Net income $ 4,365 $ 3,091 $ 12,019 $ 7,890 ============================ ============================ Net income per share - basic $ 0.22 $ 0.18 $ 0.64 $ 0.51 ============================ ============================ Net income per share - diluted $ 0.22 $ 0.18 $ 0.63 $ 0.50 ============================ ============================ Shares used in the computation - basic 19,486 17,257 18,903 15,440 Shares used in the computation - diluted 19,757 18,068 19,219 16,251
See notes to condensed consolidated financial statements. 4 5
NCS HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) Nine Months Ended March 31, ---------------------------------- 1998 1997 ---------------------------------- OPERATING ACTIVITIES Net income $ 12,019 $ 7,890 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 11,708 5,673 Changes in assets and liabilities, net of effects of assets and liabilities acquired: Accounts receivable (31,053) (13,461) Accrued expenses and other liabilities 7,539 13,267 Other, net (16,972) (3,173) ---------------------------------- Net cash provided by (used in) operating activities (16,759) 10,196 INVESTING ACTIVITIES Purchases of businesses (108,116) (131,036) Capital expenditures for property and equipment, net (14,953) (6,033) Other (5,933) (4,971) ---------------------------------- Net cash used in investing activities (129,002) (142,040) FINANCING ACTIVITIES Proceeds from issuance of common stock -- 123,626 Proceeds from convertible subordinated debentures, net 97,250 -- Borrowings on line-of-credit 99,499 10,895 Payments on line-of-credit (31,784) (10,895) Repayment of long-term debt (3,763) (14,164) Proceeds from issuance of long-term debt 178 22,129 ---------------------------------- Net cash provided by financing activities 161,380 131,591 ---------------------------------- Net increase in cash and cash equivalents 15,619 (253) Cash and cash equivalents at beginning of period 8,160 21,460 ---------------------------------- Cash and cash equivalents at end of period $ 23,779 $ 21,207 ==================================
See notes to condensed consolidated financial statements. 5 6 NCS HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (UNAUDITED) 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended March 31, 1998 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 nine months ended March 31, 1998 include Cheshire LTC Pharmacy, Inc. in Cheshire, Connecticut, PharmaSource Healthcare, Inc. in Norcross, Georgia, Marco & Company, LLC in Billings, Montana, MedStar Pharmacy, Inc. in Benson, North Carolina, Greenwood Pharmacy and Managed Pharmacy Services, affiliates of Eckerd Corporation based in Sharon, Pennsylvania, Medical Pharmacy in Bakersfield, California, Robcin Enterprises, Inc. in Independence, Missouri and Apple Institutional Services in Salisbury, Maryland. The aggregate purchase price for all businesses acquired during the nine months ended March 31, 1998 was $125,904,000 consisting of $108,116,000 in cash, $600,000 of debt and $17,188,000 of Class A Common Stock of the Company. The Cheshire LTC Pharmacy, Inc. and MedStar Pharmacy, Inc. acquisitions were accounted for as pooling of interests transactions, however the impact of these transactions on the Company's historical financial statements is not significant. Consequently, prior period financial statements have not been restated for these transactions. 6 7 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 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:
Nine Months Nine Months Ended Ended March 31, 1998 March 31, 1997 -------------- -------------- (In thousands, except per share information) Revenues $ 417,365 $ 369,584 Net income $ 11,747 $ 9,195 Net income per share - basic $ 0.60 $ 0.48 Net income per share - diluted $ 0.59 $ 0.47
On April 10, 1998, the Company signed a definitive agreement to acquire the institutional pharmacy assets of Walgreen Co., an Illinois corporation ("Walgreen"). The closing of the acquisition is subject to customary closing conditions, including regulatory approval, and is expected to occur on or about June 1, 1998. The business to be acquired is based in Deerfield, Illinois and provides institutional pharmacy and ancillary services to over 20,000 long-term care residents in Arizona, Iowa, Minnesota, New Mexico, Nebraska, Tennessee, Texas and Wisconsin. 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 Nine Months Ended March 31, March 31, ------------------------------ ---------------------------- 1998 1997 1998 1997 ------------------------------ ---------------------------- Numerator: Numerator for basic earnings per share - net income $ 4,366 $ 3,091 $12,019 $ 7,890 Effect of dilutive securities: Convertible debentures - 71 - 212 ------------------------------ ---------------------------- Numerator for diluted earnings per share $ 4,366 $ 3,162 $12,019 $ 8,102 ============================== ============================ Denominator: Denominator for basic earnings per share - weighted average common shares 19,486 17,257 18,903 15,440 Effect of dilutive securities: Stock options 271 160 316 160 Convertible debentures - 651 - 651 ------------------------------ ---------------------------- Dilutive potential common shares 271 811 316 811 ------------------------------ ---------------------------- Denominator for diluted earnings per share 19,757 18,068 19,219 16,251 ============================== ============================ Basic earnings per share $ 0.22 $ 0.18 $ 0.64 $ 0.51 ============================== ============================ Diluted earnings per share $ 0.22 $ 0.18 $ 0.63 $ 0.50 ============================== ============================
The Company has $102,753,000 of convertible subordinated debentures outstanding at March 31, 1998 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 NINE MONTHS ENDED MARCH 31, 1998 Results of Operations Revenues for the three months ended March 31, 1998 increased 75.3% to $137,669,000 from $78,539,000 recorded in the comparable period in fiscal 1997. Revenues for the nine months ended March 31, 1998 increased 96.7% to $355,888,000 from $180,904,000 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 $174,984,000 increase for the nine months ended March 31, 1998, $30,161,000 was due to the acquisitions of Cheshire LTC Pharmacy, Inc. in August 1997, PharmaSource Healthcare, Inc. in September 1997, Marco & Company, LLC in December 1997, MedStar Pharmacy, Inc. in January 1998, Medical Pharmacy, Robcin Enterprises, Inc. and Greenwood Pharmacy and Managed Pharmacy Services, affiliates of Eckerd Corporation in February 1998 and Apple Institutional Services in March 1998. In addition, $85,357,000 of the increase is attributable to revenues for the first nine 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 $59,466,000 of the increase as the Company's existing operations continued to grow through marketing efforts to new and existing clients, increased drug utilization of long-term care facility residents, and the growth and integration of new and existing products and services. The total number of beds serviced by the Company as of March 31, 1998 increased 53% to 223,000 beds, from 146,000 beds at March 31, 1997. Of the $59,130,000 increase in revenues for the three months ended March 31, 1998, $12,216,000 was due to the fiscal 1998 acquisitions noted above. In addition, $23,103,000 of the increase is attributable to revenues for the three months ended March 31, 1998 including a full period of operations for the fiscal 1997 acquisitions noted above and internal growth accounted for $23,811,000 of the increase. Cost of revenues for the three months ended March 31, 1998 increased 74.7% to $102,812,000, from $58,867,000 recorded in the comparable period in fiscal 1997. For the nine months ended March 31, 1998, cost of revenues increased 96.8% to $265,766,000 from $135,013,000 recorded in the comparable period in fiscal 1997. Cost of revenues as a percentage of revenues for the three and nine month periods ended March 31, 1998 was 74.7% and 74.7%, respectively, compared to 74.9% and 74.6% for the comparable periods during the prior fiscal year. The fluctuations in cost of revenues as a percentage of revenues for the three months and nine months ended March 31, 1998 is primarily the result of the timing of acquisitions. At the time of acquisition, the gross margins of the acquired companies are typically lower than the Company as a whole; however, the Company is typically able to increase the gross margins of the acquired companies through more advantageous purchasing terms and the use of formulary management. Selling, general and administrative expenses for the three months ended March 31, 1998 increased 72.5% to $25,390,000, from $14,718,000 recorded in the comparable period in fiscal 1997. For the nine months ended March 31, 1998, selling, general and administrative expenses increased 96.7% to $65,972,000 from $33,547,000 recorded in the comparable period in fiscal 1997. Selling, general and administrative expenses as a percentage of 9 10 revenues was 18.4% and 18.5% for the three and nine month periods ended March 31, 1998, compared to 18.7% and 18.5% during the comparable periods in fiscal 1997. The percentage decrease for the three month period ended March 31, 1998 is a result of creating operational efficiencies with acquisitions and the ability to leverage overhead expenses over a larger revenue base. At the time of acquisition, the selling, general and administrative expenses of the acquired companies are typically higher than the Company as a whole. The Company has been successful at creating operational efficiencies with acquisitions as selling, general and administrative expenses as a percentage of revenues decreased for the fifth 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 $1,808,000 and $3,063,000 for the three and nine month periods ended March 31, 1998, compared to net interest income of $517,000 and $1,650,000 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 and increased borrowings on the August 1997 credit facility. Liquidity and Capital Resources Net cash used in operating activities was $16,759,000 for the nine months ended March 31, 1998, as compared to net cash provided by operating activities of $10,196,000 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 46.2% increase in sales during the three months ended March 31, 1998, as compared to the three months ended June 30, 1997. Net cash provided by operating activities was $18,000 for the three months ended March 31, 1998. Net cash used in investing activities decreased to $129,002,000 during the nine months ended March 31, 1998, as compared to $142,040,000 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 nine months ended March 31, 1998 included computer and information systems equipment, computer software, furniture and fixtures at new facilities in Pinellas Park, Florida and Van Nuys, California, leasehold improvements, medication carts and delivery vehicles. Net cash provided by financing activities increased to $161,380,000 during the nine months ended March 31, 1998, from $131,591,000 during the comparable period in fiscal 1997. The fiscal 1998 amount is primarily a result of funds received from a convertible subordinated debenture offering completed on August 13, 1997 and borrowings on the August 1997 credit facility. The fiscal 1997 amount is primarily a result of funds received from the Company's public offering completed on October 4, 1996. 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. As of March 31, 1998, the Company has $57,000,000 available on its credit facility. 10 11 On April 10, 1998, the Company signed a definitive agreement to acquire the institutional pharmacy assets of Walgreen Co., an Illinois corporation ("Walgreen"). The closing of the acquisition is subject to customary closing conditions, including regulatory approval, and is expected to occur on or about June 1, 1998. The Walgreen acquisition will primarily be funded by the current credit facility, however, the acquisition is expected to utilize the remaining funds available under the current credit facility. In conjunction with the Walgreen acquisition, the Company is currently in the process of finalizing negotiations for a new $200,000,000 credit facility that the Company believes will be sufficient to meet its normal operating requirements and acquisition needs through March 31, 1999. 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. 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 third fiscal quarter that were not registered under the Securities Act of 1933, as amended (the "Securities Act"). (a) On January 30, 1998 the Company issued 5,631 shares of its Class A Common Stock to two stockholders in connection with the acquisition of certain assets of Precision X-Ray Services, Inc. Exemption from registration is claimed under Section 4(2) of the Securities Act. (b) On February 1, 1998 the Company issued 268,000 shares of its Class A Common Stock to two stockholders in connection with the acquisition of certain assets of Medical Pharmacy. Exemption from registration is claimed under Section 4(2) of the Securities Act. (c) On February 17, 1998 the Company issued 23,329 shares of its Class B Common Stock to two stockholders in connection with the merger of Progressive Rehab, Inc. Exemption from registration is claimed under Section 4(2) of the Securities Act. (d) Effective December 31, 1997 the Company issued 44,808 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Numbers Exhibit ------- ------- 15.1 Independent Accountants' Review Report 15.2 Acknowledgment Letter 27 Financial Data Schedule (b) Reports on Form 8-K: (1) On February 13, 1998 the Company filed a Current Report on Form 8-K relating to the acquisition of substantially all of the assets primarily used in the operation of the institutional pharmacy business of Thrift Drug, Inc. and Fay's Incorporated. 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: May 15, 1998 By /s/ Kevin B. Shaw --------------------------------------- Kevin B. Shaw President, Chief Executive Officer and Director (Principal Executive Officer) Date: May 15, 1998 By /s/ Gerald D. Stethem --------------------------------------- Gerald D. Stethem Chief Financial Officer (Principal Financial and Accounting Officer) 13 EX-15.1 2 EXHIBIT 15.1 1 EXHIBIT 15.1 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Stockholders NCS HealthCare, Inc. and Subsidiaries We have reviewed the accompanying condensed consolidated balance sheet of NCS HealthCare, Inc. and subsidiaries (the Company) as of March 31, 1998, the related condensed consolidated statements of income for the three-month and nine-month periods ended March 31, 1998 and 1997 and the condensed consolidated statements of cash flows for the nine-month periods ended March 31, 1998 and 1997. 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 April 28, 1998 14 EX-15.2 3 EXHIBIT 15.2 1 EXHIBIT 15.2 The Board of Directors and Stockholders NCS HealthCare, Inc. and Subsidiaries We are aware of the incorporation by reference in the Registration Statement (Form S-8 No. 333-49417) of NCS HealthCare, Inc. for the registration of 883,528 shares of its Class A common stock of our report dated April 28, 1998 relating to the unaudited condensed consolidated interim financial statements of NCS HealthCare, Inc. and subsidiaries that are included in its Form 10-Q for the quarter ended March 31, 1998. /s/ Ernst & Young LLP April 28, 1998 EX-27 4 EXHIBIT 27
5 0001004990 NCS Healthcare, Inc. 1,000 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 23,779 0 146,540 25,675 38,632 197,780 62,069 25,619 532,692 58,031 190,133 0 0 195 284,298 532,692 355,888 355,888 265,766 265,766 0 1,666 5,160 21,087 9,068 12,019 0 0 0 12,019 0.64 0.63
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