SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) | |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2003 | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
NEIGHBORCARE, INC. |
(Exact name of Registrant as specified in its charter) |
Pennsylvania | 7 East Lee Street Baltimore, MD 21202 | 06-1132947 |
(State or other jurisdiction of incorporation or organization) | (Address of principal executive offices including zip code) | (I.R.S. Employer Identification Number) |
Preferred Share Purchase Rights, no par value per share
(1) | The aggregate market value of the voting and non-voting common stock set forth above equals the number of shares of the registrant’s common stock outstanding, reduced by the number of shares of common stock held by officers, directors and shareholders owning in excess of 10% of the registrant’s common stock, multiplied by the last reported sale price for the registrant’s common stock on the last business day of the registrant’s most recently completed second fiscal quarter (i.e., March 31, 2003) ($14.86). The information provided shall in no way be construed as an admission that any officer, director or 10% shareholder of the registrant may or may not be deemed an affiliate of the registrant or that he/it is the beneficial owner of the shares reported as being held by him/it, and any such inference is hereby disclaimed. The information provided herein is included solely for record keeping purposes of the Securities and Exchange Commission. |
Page | ||
PART III | ||
• | statements contained in “Risk Factors;” | |
• | certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our notes to our consolidated financial statements, such as our ability to meet our liquidity needs, scheduled debt and interest payments, and expected future capital expenditure requirements; the expected effects of government regulation on reimbursement for services provided, including the Medicare Prescription Drug, Improvement and Modernization Act of 2003; and our ability to successfully implement our strategic objectives and achieve certain performance improvement initiatives; the expected financial impact of severance and related costs; the expected spin-off costs in fiscal 2004 and the foreseeable future; and estimates in our critical accounting policies, including our allowance for doubtful accounts, the anticipated impact of long-lived asset impairments and our ability to provide for loss reserves for self-insured programs; | |
• | certain statements contained in “Business” concerning strategy, corporate integrity programs, insurance coverage, environmental matters, government regulations and the Medicare and Medicaid programs, and reimbursement for services provided; and | |
• | certain statements in “Legal Proceedings” regarding the effects of litigation. |
• | our ability, and the ability of our customers, to comply with Medicare or Medicaid reimbursement regulations or other applicable laws; | |
• | changes in the reimbursement rates or methods of payment from Medicare and Medicaid, or the implementation of other legislation or measures to reduce the reimbursement for our services; | |
• | the expiration or phase out of enactments providing for additional governmental funding; | |
• | changes in pharmacy legislation and/or payment formulas; | |
• | the impact of federal and state regulations; | |
• | the impact of investigations and audits relating to alleged violations of federal and/or state regulations; | |
• | changes in the acuity of our customer’s patients, payor mix and payment methodologies; | |
• | further consolidation of managed care organizations and other third-party payors; | |
• | the effect of the expiration or termination of certain service and supply contracts; | |
• | changes in or our failure to satisfy our manufacturer’s rebate programs; | |
• | competition in our business; | |
• | competition for qualified management and pharmacy professionals; | |
• | an economic downturn or changes in the laws affecting our business in those markets in which we operate; |
• | the impact of any acquisitions on our operations; | |
• | availability of financial and other resources to us after the spin-off of Genesis HealthCare Corporation (“GHC”); | |
• | operating inefficiencies and higher costs after the spin-off of GHC; | |
• | federal income tax liabilities and indemnification obligations related to the spin-off of GHC; | |
• | conflicts of interest as a result of our continuing relationship with GHC after the spin-off; | |
• | the ability of GHC, as our largest customer, to act as a separate entity; | |
• | our ability to control operating costs and generate sufficient cash flow to meet operational and financial requirements; | |
• | our ability, and the ability of our subsidiary guarantors, to fulfill debt obligations; | |
• | the enforceability or limitations of the guarantees on our senior subordinated notes; | |
• | the liquidity of our senior subordinated notes as a new issue of securities; | |
• | our ability to repurchase or fulfill our obligations on our senior subordinated notes; and | |
• | acts of God or public authorities, war, civil unrest, fire, floods, earthquakes, terrorism and other matters beyond our control. |
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• | inaccurate assessment of undisclosed liabilities; | ||
• | entry into markets in which we may have limited or no experience; | ||
• | diversion of management’s attention from our core business; | ||
• | difficulties in assimilating the operations of an acquired business or in realizing projected efficiencies and cost savings; | ||
• | increase in our indebtedness and a limitation on our ability to access additional capital when needed; and | ||
• | difficulties in obtaining anticipated revenue synergies or cost reductions. |
• | incur additional indebtedness; | ||
• | issue redeemable preferred stock; | ||
• | pay dividends or make other distributions to our shareholders; | ||
• | repurchase our stock; | ||
• | make certain investments; | ||
• | create liens; | ||
• | sell or otherwise dispose of certain assets; | ||
• | consolidate, merge or sell all of our assets; | ||
• | prepay, redeem or repurchase debt; | ||
• | enter into transactions with affiliates; and | ||
• | engage in certain business activities. |
• | a classified board of directors, with each director having a three-year term; | |
• | a provision providing that certain business combinations involving us, unless approved by at least 75% of the board of directors, will require the affirmative vote of at least 80% of our voting stock; | |
• | a provision permitting the board of directors to oppose a tender or other offer for our securities in light of the fairness of the price, the impact on our constituents, the reputation of the offeror, the value of the offered securities and any applicable legal or regulatory issues raised by the offer, as well as all other pertinent factors; | |
• | a provision requiring the affirmative vote of at least 80% of our voting stock to amend provisions relating to anti-takeover measures, unless the amendment is approved by at least 75% of the board of directors; and | |
• | the authority to issue preferred stock with rights to be designated by the board of directors. |
ITEM 1: | BUSINESS |
• | monthly reviews of each resident’s drug regimen to assess the appropriateness and efficacy of drug therapies, including a review of medical records, monitoring drug interactions with other drugs or food, monitoring laboratory test results and recommending alternate therapies; | |
• | participation on quality assurance and other committees of our customers; | |
• | monitoring and reporting on facility-wide drug utilization; | |
• | development and maintenance of pharmaceutical policy and procedure manuals; and | |
• | assistance with federal and state regulatory compliance pertaining to resident care. |
2003 | 2002 | 2001 | ||||||||
Medicaid | 42 | % | 40 | % | 37 | % | ||||
Long-term care facilities | 30 | % | 34 | % | 35 | % | ||||
Third-party payor | 16 | % | 14 | % | 14 | % | ||||
Private | 10 | % | 10 | % | 11 | % | ||||
Medicare Part B | 2 | % | 2 | % | 3 | % | ||||
Totals: | 100 | % | 100 | % | 100 | % | ||||
• | the “anti-kickback” provisions of the federal Medicare and Medicaid programs, which prohibit, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate) directly or indirectly in return for or to induce the referral of an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under Medicare or Medicaid. Penalties may include imprisonment, fines, exclusion from participation in the Medicare and Medicaid programs and loss of license; and | |
• | the “Stark laws” which prohibit, with limited exceptions, the referral of patients by physicians for certain services, to an entity in which the physician has a financial interest. Penalties may include denial of payment, mandatory refund of prior payment, civil monetary penalties and exclusion from participation in the Medicare and Medicaid programs. |
• | healthcare claims information; | |
• | plan eligibility, referral certification and authorization; | |
• | claims status; | |
• | plan enrollment and disenrollment; | |
• | payment and remittance advice; | |
• | plan premium payments; and | |
• | coordination of benefits. |
DHHS finalized the transaction standards on August 17, 2000. DHHS issued the privacy standards on December 28, 2000, and, after certain delays, they became effective on April 14, 2001, with a compliance date of April 14, 2003. On February 20, 2003, DHHS issued final rules governing the security of health information. This rule specifies a series of administrative, technical and physical security procedures to assure the confidentiality of electronic protected health information. Affected parties will have approximately two years to be fully compliant. Sanctions for failing to comply with HIPAA health information practices provisions include criminal penalties and civil sanctions.
At this time, our management anticipates that NeighborCare will be able to fully comply with those HIPAA requirements that have been adopted. As part of our Corporate Integrity Program, we will monitor our compliance with HIPAA. Our compliance and privacy officer will be responsible for administering the Corporate Integrity Program which includes HIPAA related compliance. However, management cannot at this time estimate the cost of compliance, nor can management estimate the cost of compliance with standards that have not yet been finalized by DHHS.
It is not possible to fully quantify the effect of recent legislation, potential legislative or regulatory changes, the interpretation or administration of such legislation or any other governmental initiatives on our business. Accordingly, there can be no assurance that the impact of these changes or any future healthcare legislation will not
adversely affect our business. There can be no assurance that payments under governmental and private third-party payor programs will be timely, will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. Our financial condition and results of operations may be affected by the reimbursement process, which in our industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled.
Years Ended September 30, | ||||||||||
2003 | 2002 | 2001 | ||||||||
Average Beds in Service | ||||||||||
Owned and Leased Facilities | 22,758 | 24,139 | 24,783 | |||||||
Managed and Jointly-Owned Facilities | 6,320 | 7,898 | 9,215 | |||||||
Occupancy Based on Average Beds in Service: | ||||||||||
Owned and Leased Facilities | 91 | % | 92 | % | 92 | % | ||||
Managed and Jointly-Owned Facilities | 92 | % | 91 | % | 88 | % |
Years Ended September 30, | ||||||||||
2003 | 2002 | 2001 | ||||||||
Medicaid | 50 | % | 48 | % | 48 | % | ||||
Medicare | 28 | % | 29 | % | 27 | % | ||||
Private pay and other | 22 | % | 23 | % | 25 | % | ||||
100 | % | 100 | % | 100 | % | |||||
• | the imposition of fines; | |
• | suspension of payments for new or all admissions to the center; and | |
• | in extreme circumstances, decertification from participation in the Medicare or Medicaid programs and revocation of a center’s or service site’s license. |
• | the inability to provide the service; | |
• | the inability to operate the centers; | |
• | the inability to complete the acquisition, addition or other change; and | |
• | the imposition of sanctions or adverse action on the center’s license and adverse reimbursement action. |
• | the “anti-kickback” provisions of the federal Medicare and Medicaid programs, which prohibit, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate) directly or indirectly in return for or to induce the referral of an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under Medicare or Medicaid. Penalties may include imprisonment, fines, exclusion from participation in the Medicare and Medicaid programs and loss of license; and | |
• | the “Stark laws” which prohibit, with limited exceptions, the referral of patients by physicians for certain services, including home health services, physical therapy and occupational therapy, to an entity in which the physician has a financial interest. Penalties may include denial of payment, mandatory refund of prior payment, civil monetary penalties and exclusion from participation in the Medicare and Medicaid programs. |
• | healthcare claims information; | |
• | plan eligibility, referral certification and authorization; | |
• | claims status; | |
• | plan enrollment and disenrollment; | |
• | payment and remittance advice; | |
• | plan premium payments; and | |
• | coordination of benefits. |
It is not possible to fully quantify the effect of recent legislation, potential legislative or regulatory changes, the interpretation or administration of such legislation or any other governmental initiatives on GHC’s business. Accordingly, there can be no assurance that the impact of these changes or any future healthcare legislation will not adversely affect GHC’s business. There can be no assurance that payments under governmental and private third-party payor programs will be timely, will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. GHC’s financial condition and results of operations may be affected by the reimbursement process, which in GHC’s industry is complex and can involve lengthy delays between the time that revenue is recognized and the time that reimbursement amounts are settled.
NeighborCare, Inc. |
7 East Lee Street |
Baltimore, MD 21202 |
Attention: Investor Relations |
Telephone: (410) 752-2600 |
ITEM 2: | PROPERTIES |
State | Institutional Pharmacies | Medical Supply/ Home Medical Equipment Sites | Community- Based Pharmacies | Total | Total Square Feet | |||||||||||
Pennsylvania | 6 | 3 | 2 | 11 | 220,930 | |||||||||||
Maryland | 6 | 5 | 27 | 38 | 208,190 | |||||||||||
New Jersey | 4 | 1 | 1 | 6 | 200,592 | |||||||||||
Virginia | 4 | 1 | 2 | 7 | 84,236 | |||||||||||
Florida | 4 | 1 | — | 5 | 66,391 | |||||||||||
California | 4 | 1 | — | 5 | 59,187 | |||||||||||
Indiana | 3 | — | — | 3 | 38,500 | |||||||||||
Wisconsin | 4 | — | — | 4 | 37,112 | |||||||||||
Massachusetts | 2 | 1 | — | 3 | 30,265 | |||||||||||
Illinois | 3 | 1 | — | 4 | 22,777 | |||||||||||
Texas | 2 | — | — | 2 | 22,222 | |||||||||||
Rhode Island | 1 | — | — | 1 | 21,600 | |||||||||||
South Carolina | 3 | — | — | 3 | 21,149 | |||||||||||
New Hampshire | 1 | — | — | 1 | 20,000 | |||||||||||
Oregon | 1 | — | — | 1 | 18,428 | |||||||||||
Colorado | 1 | — | — | 1 | 17,479 | |||||||||||
Ohio | 1 | — | — | 1 | 16,200 | |||||||||||
West Virginia | 1 | — | — | 1 | 15,794 | |||||||||||
Oklahoma | 1 | — | — | 1 | 14,905 | |||||||||||
Connecticut | 1 | 1 | — | 2 | 12,450 | |||||||||||
Michigan | 1 | — | — | 1 | 12,000 | |||||||||||
North Carolina | 2 | — | — | 2 | 9,700 | |||||||||||
Iowa | 2 | — | — | 2 | 6,803 | |||||||||||
New York | 2 | 1 | — | 3 | 6,000 | |||||||||||
Washington | 1 | — | — | 1 | 5,600 | |||||||||||
Kentucky | 1 | — | — | 1 | 5,000 | |||||||||||
Totals | 62 | 16 | 32 | 110 | 1,193,510 |
Wholly-Owned Centers | Leased Centers | Managed Centers (1) | Total | ||||||||||||||||||||||
State | Facilities | Beds | Facilities | Beds | Facilities | Beds | Facilities | Beds | |||||||||||||||||
Pennsylvania | 31 | 4,167 | 9 | 1,038 | 4 | 705 | 44 | 5,910 | |||||||||||||||||
New Jersey | 18 | 2,654 | 10 | 1,738 | 8 | 775 | 36 | 5,167 | |||||||||||||||||
Maryland | 13 | 1,613 | 6 | 825 | 12 | 1,658 | 31 | 4,096 | |||||||||||||||||
Massachusetts | 13 | 1,742 | 2 | 250 | 22 | 1,533 | 37 | 3,525 | |||||||||||||||||
West Virginia | 14 | 1,306 | 5 | 394 | 4 | 270 | 23 | 1,970 | |||||||||||||||||
Connecticut | 10 | 1,511 | — | — | 2 | 168 | 12 | 1,679 | |||||||||||||||||
New Hampshire | 8 | 814 | 4 | 366 | 1 | 85 | 13 | 1,265 | |||||||||||||||||
Delaware | 5 | 583 | — | — | 2 | 237 | 7 | 820 | |||||||||||||||||
Wisconsin | 2 | 404 | — | — | — | — | 2 | 404 | |||||||||||||||||
Virginia | 3 | 367 | 1 | 240 | — | — | 4 | 607 | |||||||||||||||||
Rhode Island | 3 | 373 | — | — | — | — | 3 | 373 | |||||||||||||||||
North Carolina | — | — | — | — | 2 | 340 | 2 | 340 | |||||||||||||||||
Vermont | 3 | 314 | — | — | — | — | 3 | 314 | |||||||||||||||||
Total | 123 | 15,848 | 37 | 4,851 | 57 | 5,771 | 217 | 26,470 |
(1) | Managed facilities include 22 properties with 3,086 beds that are jointly-owned by us and independent third-parties. On a weighted average basis, we have an approximate 22% ownership interest in our jointly-owned properties. Also included in “managed centers” are 16 transitional care units with 412 beds located in hospitals principally in the Commonwealth of Massachusetts. |
ITEM 3: | LEGAL PROCEEDINGS |
ITEM 4: | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
ITEM 4A: | EXECUTIVE OFFICERS OF THE REGISTRANT |
Name | Age | Position | ||
John J. Arlotta | 54 | Chairman, President and Chief Executive Officer | ||
Robert A. Smith | 55 | Chief Operating Officer | ||
John L. Kordash | 61 | Executive Vice President and Assistant to the Chairman and Chief Executive Officer | ||
Richard W. Sunderland, Jr. | 43 | Senior Vice President and Chief Financial Officer | ||
John F. Gaither, Jr. | 54 | Senior Vice President, General Counsel and Secretary |
ITEM 5: | MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
Fiscal Year Ended | High | Low | |||||
September 30, 2003 | |||||||
First Quarter | $ | 17.51 | $ | 12.79 | |||
Second Quarter | 16.79 | 13.01 | |||||
Third Quarter | 17.90 | 14.35 | |||||
Fourth Quarter | 24.21 | 17.55 | |||||
September 30, 2002 | |||||||
First Quarter | $ | 26.00 | $ | 19.20 | |||
Second Quarter | 21.00 | 13.74 | |||||
Third Quarter | 21.23 | 17.70 | |||||
Fourth Quarter | 19.50 | 14.25 |
ITEM 6: | SELECTED FINANCIAL DATA |
Successor Company | Predecessor Company | ||||||||||||||||
(Years ended September 30, ) | 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||
Statement of Operations Data (1) | |||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||
Net revenues | $ | 2,648,979 | $ | 2,485,788 | $ | 2,327,133 | $ | 2,206,554 | $ | 1,728,109 | |||||||
Income (loss) from continuing operations | 51,112 | 78,508 | 270,862 | (874,191 | ) | (286,508 | ) | ||||||||||
Net income (loss) attributable to common shareholders | 29,987 | 70,167 | 246,474 | (882,920 | ) | (290,050 | ) | ||||||||||
Per common share data (diluted): | |||||||||||||||||
Earnings (loss) from continuing operations | $ | 1.25 | $ | 1.87 | $ | 5.57 | $ | (18.57 | ) | $ | (8.07 | ) | |||||
Net income (loss) attributable to common shareholders | 0.74 | 1.68 | 5.07 | (18.75 | ) | (8.17 | ) | ||||||||||
Weighted average common shares – diluted | 40,757 | 43,351 | 48,641 | 47,077 | 35,485 | ||||||||||||
Other Financial Data: | |||||||||||||||||
Capital expenditures (in thousands) | $ | 59,758 | $ | 51,635 | $ | 43,721 | $ | 51,981 | $ | 77,943 | |||||||
Operating Data: | |||||||||||||||||
Pharmacy Services | |||||||||||||||||
Payor Mix | |||||||||||||||||
Long-term care facilities and other | 56 | % | 58 | % | 60 | % | 62 | % | 63 | % | |||||||
Medicaid | 42 | % | 40 | % | 37 | % | 35 | % | 33 | % | |||||||
Medicare Part B | 2 | % | 2 | % | 3 | % | 3 | % | 4 | % | |||||||
Average institutional pharmacy beds served | 246,628 | 247,114 | 253,224 | 244,409 | 245,277 | ||||||||||||
Inpatient Services | |||||||||||||||||
Payor Mix | |||||||||||||||||
Medicaid | 50 | % | 48 | % | 48 | % | 49 | % | 49 | % | |||||||
Medicare | 28 | % | 29 | % | 27 | % | 24 | % | 23 | % | |||||||
Private pay and other | 22 | % | 23 | % | 25 | % | 27 | % | 28 | % | |||||||
Average owned/leased eldercare center beds (1) | 22,758 | 24,139 | 24,783 | 14,286 | 15,522 | ||||||||||||
Occupancy Percentage | 91 | % | 92 | % | 92 | % | 91 | % | 93 | % | |||||||
Average managed eldercare center beds (1) | 6,320 | 7,898 | 9,215 | 23,779 | 23,984 |
Successor Company | Predecessor Company | ||||||||||||||||
(As of September 30,) | 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||
Balance Sheet Data (in thousands) | |||||||||||||||||
Working capital | $ | 446,657 | $ | 449,006 | $ | 282,016 | $ | 304,241 | $ | 235,704 | |||||||
Total assets | 1,938,729 | 2,010,477 | 1,839,220 | 3,081,998 | 2,429,914 | ||||||||||||
Liabilities subject to compromise | — | — | — | 2,446,673 | — | ||||||||||||
Long-term debt | 611,619 | 689,683 | 644,509 | 143,441 | 1,521,636 | ||||||||||||
Redeemable preferred stock | 46,831 | 44,765 | 42,600 | 442,820 | — | ||||||||||||
Shareholders’ equity (deficit) | $ | 916,163 | $ | 914,123 | $ | 834,858 | $ | (246,391 | ) | $ | 587,890 |
(1) | The statement of operations data from continuing operations for all prior year periods has been adjusted for operations identified as discontinued. Inpatient services payor mix and occupancy data has also been adjusted to exclude discontinued operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Certain Transactions and Events — Assets Held for Sale and Discontinued Operations.” |
ITEM 7: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
• | the failure of GHC, or its affiliates, or any other person to pay, perform or otherwise promptly discharge any of the liabilities of the eldercare businesses; | |
• | any liabilities of the eldercare businesses and the operation of the eldercare businesses at any time before or after the spin-off; | |
• | any breach by GHC or its affiliates of the separation and distribution agreement or any of the ancillary agreements entered into in connection with the separation and distribution agreement; | |
• | one-half of any liabilities arising out of our 2001 joint plan of reorganization (other than certain liabilities specifically allocated in the separation and distribution agreement); and | |
• | specified disclosure liabilities. |
• | the failure of us, or our affiliates, or any other person to pay, perform or otherwise promptly discharge any of our liabilities, other than liabilities of the eldercare businesses; | |
• | any of our liabilities, other than liabilities of the eldercare businesses, and the operation of our business other than the eldercare businesses at any time before or after the spin-off; | |
• | any breach by us or our affiliates of the separation and distribution agreement or any of the ancillary agreements entered into in connection with the separation and distribution agreement; | |
• | one-half of any liabilities arising out of our 2001 joint plan of reorganization (other than certain liabilities specifically allocated in the separation and distribution agreement); and | |
• | specified disclosure liabilities. |
Accrued at Beginning of Year | Provision | Paid | Non-cash Charges | Accrued at End of Year | ||||||||||||
Severance and related costs | $ | 1,100 | $ | 14,247 | $ | 5,916 | $ | 8,431 | $ | 1,000 | ||||||
Strategic consulting costs | 621 | 14,039 | 11,280 | 1,220 | 2,160 | |||||||||||
Total | $ | 1,721 | $ | 28,286 | $ | 17,196 | $ | 9,651 | $ | 3,160 | ||||||
Accrued at Beginning of Year | Provision | Paid | Non-cash Charges | Accrued at End of Year | ||||||||||||
Severance and related costs | $ | — | $ | 16,410 | $ | 10,599 | $ | 4,711 | $ | 1,100 | ||||||
Strategic consulting costs | — | 4,730 | 3,089 | 1,020 | 621 | |||||||||||
Asset impairments | — | 358 | — | 358 | — | |||||||||||
Total | $ | — | $ | 21,498 | $ | 13,688 | $ | 6,089 | $ | 1,721 | ||||||
• | GHC will purchase two skilled nursing facilities having 210 skilled nursing beds and 67 assisted living beds, and three assisted living facilities having 257 beds, for $24.8 million. GHC leases these properties from ElderTrust at an annual cash basis and accrual basis lease cost of $2.4 million and $1.5 million, respectively. On October 29, 2003, GHC purchased one of the aforementioned eldercare facilities having 183 beds for $10.3 million. The remaining four properties are expected to be purchased by January 2004; | |
• | GHC agreed to pay ElderTrust $32.3 million to reduce annual cash basis and accrual basis lease cost associated with nine properties by $6.9 million and $1.2 million, respectively, and acquire options to purchase seven properties currently subleased to GHC by ElderTrust. On October 29, 2003, GHC paid ElderTrust $2.3 million to reduce the rents of two of the nine aforementioned eldercare facilities, and on |
November 7, 2003 paid ElderTrust the remaining $30.0 million to reduce the rents of the other seven aforementioned eldercare facilities; and | ||
• | NeighborCare paid ElderTrust $4.4 million upon consummation of the spin-off in exchange for ElderTrust’s consent to the assignment of all remaining leases and guarantees from NeighborCare to GHC. |
• | Multicare became our wholly-owned subsidiary. We previously owned 43.6% of Multicare and managed its skilled nursing and assisted living facilities under the Genesis ElderCare brand name; |
• | New senior notes, new convertible preferred stock, new common stock and new warrants were issued to our and Multicare’s creditors. Approximately 93% of new common stock, $242.6 million in new senior notes and new preferred stock with a liquidation preference of $42.6 million were issued to our and Multicare’s senior secured creditors. New one year warrants to purchase an additional 11% of the new common stock were issued, and approximately 7% of the new common stock have been or will be issued to our and Multicare’s unsecured creditors; |
• | Holders of our and Multicare’s pre-Chapter 11 preferred and common stock received no distribution and those instruments were canceled; |
• | Claims between us and Multicare were set off against one another and any remaining claims were waived and released; and |
• | A new board of directors was constituted. |
Successor Company | Predecessor Company | ||||||||||
2003 | 2002 | 2001 | |||||||||
Professional, bank and other fees | $ | — | $ | 2,570 | $ | 59,393 | |||||
Employee benefit related costs, including severance | — | — | 16,786 | ||||||||
Exit costs of terminated businesses | — | — | 5,877 | ||||||||
Fresh start valuation adjustments (1) | — | — | 932,435 | ||||||||
Gain on debt discharge (2) | — | — | (1,460,909 | ) | |||||||
Post confirmation mortgage adjustment | — | 1,700 | — | ||||||||
Total debt restructuring and reorganization costs and net gain on debt discharge | $ | — | $ | 4,270 | $ | (446,418 | ) | ||||
(1) | The fresh-start valuation adjustment represents the net write-down to fair value of NeighborCare’s assets and liabilities from continuing operations at September 30, 2001, and does not include $101.3 million of net write-downs attributed to discontinued operations. |
(2) | The gain on debt discharge in 2001 represents the relief of NeighborCare’s obligations for liabilities subject to compromise from continuing operations, and does not include $63.9 million attributed to discontinued operations. |
Successor Company | Predecessor Company | ||||||||||
Years Ended September 30, | Year Ended September 30, 2001 | ||||||||||
2003 | 2002 | ||||||||||
Net revenues | $ | 144,279 | $ | 261,879 | $ | 259,014 | |||||
Net operating loss of discontinued businesses | $ | (20,779 | ) | $ | (2,296 | ) | $ | (24,388 | ) | ||
Loss on discontinuation of businesses | (14,168 | ) | (11,004 | ) | — | ||||||
Income tax benefit | 13,822 | 4,959 | — | ||||||||
Loss from discontinued operations, net of taxes | $ | (21,125 | ) | $ | (8,341 | ) | $ | (24,388 | ) | ||
Successor Company | Predecessor Company | ||||||||||
Years ended September 30, | Year ended September 30, | ||||||||||
2003 | 2002 | 2001 | |||||||||
Net income available to common shareholders - as reported | $ | 29,987 | $ | 70,167 | $ | 246,474 | |||||
Add back: | |||||||||||
Loss from discontinued operations, net of taxes | 21,125 | 8,341 | 24,388 | ||||||||
Preferred stock dividends | 2,701 | 2,599 | 45,623 | ||||||||
Equity in (net income) loss of unconsolidated affiliates | (1,184 | ) | (2,165 | ) | 10,213 | ||||||
Minority interests | 5,194 | 2,838 | (2,249 | ) | |||||||
Income tax expense | 28,674 | 35,103 | — | ||||||||
Interest expense | 40,917 | 41,183 | 114,404 | ||||||||
Depreciation and amortization expense | 66,384 | 59,449 | 99,898 | ||||||||
EBITDA | $ | 193,798 | $ | 217,515 | $ | 538,751 | |||||
• | A $14.3 million increase in the EBITDA of our pharmacy services segment, principally due to revenue growth and the realization of our pharmacy margin expansion initiatives. See “— Segment Results” for a more in-depth discussion of the results of our pharmacy services segment. | |
• | A $20.1 million decline in the EBITDA of our inpatient services segment, principally due to the negative impact of the Skilled Nursing Facility Medicare Cliff. See “— Segment Results” for a more in-depth discussion of the results of our inpatient services segment. | |
• | An $8.3 million decline in all other businesses’ EBITDA, principally due to a decline in the operating performance of our hospitality service business. $6.3 million of this decline is attributed to a change in the pricing charged by our hospitality service business to our inpatient services segment for dietary, housekeeping and laundry management services. The remaining $2 million of deterioration is primarily the result of lost external hospitality service business. The hospitality service business is not considered a component of our core businesses or strategy. | |
• | A $5.3 million decrease in fiscal 2003 general and administrative costs principally due to the results of our overhead reductions initiatives and reduced stock based compensation expenses in the current year period. | |
• | A $6.8 million increase in fiscal 2003 costs incurred in connection with our strategic planning, severance and other related costs versus the same period in the prior year. The cost increase was centered in strategic consulting costs. See “— Certain Transactions and Events — Change in Strategic Direction and Objectives” for the composition of such costs incurred in the current year. |
• | A $4.3 million decrease in debt restructuring and reorganization costs as a result of the recognition in the prior year-to-date period of approximately $2.6 million of reorganization costs for post confirmation liabilities payable to the United States Trustee related to the Chapter 11 proceedings, as well as recording debt restructuring and reorganization costs resulting from a settlement reached with a lender of a pre-petition mortgage obligation for an amount that exceeded the estimated loan value established in the September 30, 2001 fresh-start balance sheet by approximately $1.7 million. | |
• | A $12.4 million decrease in fiscal 2003 net gains from break-up fees and other settlements (net gains). In the current year-to-date period we recorded $11.3 million of net gains composed of a $10.2 million net break-up fee earned in connection with the proposed NCS transaction (see “ — Certain Transactions and Events — NCS Transaction Termination Fee”) and $1.1 million of net gain resulting from the early extinguishment of debt. In the prior year-to-date period we recorded a net gain of approximately $23.8 million, principally related to an arbitration award. |
• | An $11.8 million increase in the EBITDA of our pharmacy services segment, principally due to revenue growth and increased margins. See “— Segment Results” for a more in-depth discussion of the results of our pharmacy services segment. | ||
• | A $24.9 million increase in the EBITDA of our inpatient services segment, principally due to increased payment rates. See “— Segment Results” for a more in-depth discussion of the results of our inpatient services segment. | ||
• | A $2.0 million increase in all other businesses’ EBITDA, principally due to the improved operating performance of our rehabilitation services business. | ||
• | An $18.6 million increase in fiscal 2002 general and administrative costs resulting from approximately $9 million of additional expenses for self-insured liability claims, approximately $5 million due to changes in our employee incentive compensation program and the remainder is principally attributed to inflationary increases in cost. | ||
• | A $450.5 million increase in fiscal 2002 debt restructuring and reorganization costs and net gain on debt discharge primarily due to $1,460.9 million of gains recognized during fiscal 2001 in connection with the discharge of liabilities subject to compromise pursuant to our joint plan of reorganization, partially offset by $1,014.5 of costs recognized during fiscal 2001, primarily consisting of fresh-start valuation adjustments. Fresh-start valuation adjustments |
were recorded pursuant to the provisions of SOP 90-7, which require entities to record their assets and their liabilities at estimated fair values. The fresh-start valuation adjustment as described relates only to continuing operations and is principally the result of the elimination of predecessor company goodwill and the revaluation of property, plant and equipment to estimated. In fiscal 2002, $4.3 million of debt restructuring and reorganization costs were recognized. | |||
• | A $106.4 million decrease in fiscal 2002 operating expenses due to the recognition in fiscal 2001 of costs in connection with certain uncollectible receivables, insurance related costs and other charges included in other operating expenses. Cost components included: (a) $30.0 million of notes receivable, advances, and trade receivables, due from affiliated businesses formerly owned or managed deemed uncollectible, (b) $38.9 million of uncollectible trade receivables, (c) $15.1 million of self-insured and related program costs, (d) $22.4 million of other charges principally related to contract and litigation matters and settlements, and certain other charges. | ||
• | A $23.8 million increase in fiscal 2002 net gains from break-up fees and other settlements (net gains). During fiscal 2002, we recorded a net gain of $21.9 million resulting from the award in the Manor Care arbitration. In addition, we also recorded $1.9 million of gains on other legal settlements in fiscal 2002. | ||
• | A $21.5 million decrease in fiscal 2002 costs incurred in connection with our strategic planning, severance and other related costs in fiscal 2002. | ||
• | A $0.5 million net loss on sale of eldercare centers recognized in fiscal 2001. In October 2000, we sold an idle 232 bed eldercare center for cash consideration of $7 million, resulting in a net gain on sale of $1.8 million. In April 2001, we sold an operational 121 bed eldercare center for cash consideration of $0.5 million, resulting in a net loss of $2.3 million. |
• | A reduction in cash flow from operations of $60.8 million, net of charges not requiring funds, principally driven by the $24.8 million negative impact of the Skilled Nursing Facility Medicare Cliff, $11.3 million of reduced cash received in fiscal 2003 from unusual gains associated with the previously described arbitration awards, break-up fees and other settlements, and $12.8 million of increased losses from discontinued operations; | ||
• | Timing of payments for vendor and employee obligations accounted for a $34.1 million decline in operating cash flow in fiscal 2003 versus fiscal 2002; and | ||
• | A use of cash of $17.8 million in fiscal 2003 driven by increased trade accounts receivable caused by growth in operations. |
• | $250.0 million, 6.875% senior subordinated notes due 2013; and | ||
• | $100.0 million, undrawn revolving credit facility due 2008. Interest at LIBOR plus 2.00% on borrowings and a commitment fee of 0.50% on any unused commitment. |
• | $225.0 million, 8% senior subordinated notes due 2013; | ||
• | $185.0 million, fully drawn term loan due 2010. Interest at LIBOR plus 2.75%; and | ||
• | $75.0 million, undrawn revolving credit facility due 2008. Interest at LIBOR plus 3.00% on borrowings; and a commitment fee of 0.50% on any unused commitment. |
• | incur more debt; | ||
• | pay dividends, redeem stock or make other distributions; | ||
• | make certain investments; | ||
• | create liens; | ||
• | enter into transactions with affiliates; | ||
• | make acquisitions; | ||
• | merge or consolidate; and | ||
• | transfer or sell assets. |
Payments Due by Period | ||||||||||||||||
Contractual Obligation | Total | Less than 1 year | 1-3 years | 4-5 years | Thereafter | |||||||||||
Long-term debt | $ | 601,746 | $ | 15,872 | $ | 16,398 | $ | 533,639 | $ | 35,837 | ||||||
Capital lease obligations | 9,873 | 4,263 | 4,580 | 1,022 | 8 | |||||||||||
Operating leases | 137,851 | 29,109 | 50,913 | 40,503 | 17,326 | |||||||||||
$ | 749,470 | $ | 49,244 | $ | 71,891 | $ | 575,164 | $ | 53,171 | |||||||
Amount of Commitment Expiration Per Period | ||||||||||||||||
Off-Balance Sheet Commitments | Total | Less than 1 year | 1-3 years | 4-5 years | Thereafter | |||||||||||
Lines of credit | $ | 2,765 | $ | — | $ | — | $ | — | $ | 2,765 | ||||||
Letters of credit | 894 | 894 | — | — | — | |||||||||||
Guarantees | 23,184 | 8,623 | 1,706 | 12,430 | 425 | |||||||||||
$ | 26,843 | $ | 9,517 | $ | 1,706 | $ | 12,430 | $ | 3,190 | |||||||
ITEM 7A: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Expected Maturity Date | |||||||||||||||||||||||||
($ in thousands) | 2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | Total | Fair Value | |||||||||||||||||
Fixed rate debt | $ | 2,075 | $ | 2,085 | $ | 2,161 | $ | 2,352 | $ | 2,023 | $ | 35,837 | $ | 46,533 | $ | 59,260 | |||||||||
Weighted average rate | 8.20 | % | 8.22 | % | 8.27 | % | 8.31 | % | 8.21 | % | 9.31 | % | 9.07 | % | |||||||||||
Variable rate debt | $ | 13,797 | $ | 6,076 | $ | 6,076 | $ | 529,264 | $ | — | $ | — | $ | 555,213 | $ | 555,213 | |||||||||
Weighted average rate | L+4.10 | % | L+4.10 | % | L+4.10 | % | L+4.15 | % | — | — | L+4.15 | % | |||||||||||||
Variable to fixed swaps (2) | $ | — | $ | 75,000 | $ | — | $ | 125,000 | $ | — | $ | — | $ | 200,000 | $ | (7,219 | ) | ||||||||
Pay fixed rate | — | 3.10 | % | — | 3.77 | % | — | — | 3.52 | % | |||||||||||||||
Receive variable rate | — | L | — | L | — | — | L | ||||||||||||||||||
Interest rate cap (1) | $ | 75,000 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 75,000 | $ | 2 | |||||||||
L = | three-month LIBOR (approximately 1.16% at September 30, 2003) |
(1) | The interest rate cap pays interest to us when LIBOR exceeds 3%. The amount paid to us is equal to the notional principal balance of $75 million multiplied by (LIBOR minus 3%) in those periods in which LIBOR exceeds 3%. |
(2) | Amounts under expected maturity dates represent notional amounts. |
ITEM 8: | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Page | |
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78 | |
NeighborCare, Inc.
/s/ KPMG LLP | |
Philadelphia, Pennsylvania | |
December 1, 2003, except as to note 14, which is as of December 16, 2003 |
Successor Company | |||||||
September 30, 2003 | September 30, 2002 | ||||||
(in thousands, except share and per share data) | |||||||
Assets: | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 132,726 | $ | 148,030 | |||
Restricted investments in marketable securities | 29,320 | 20,542 | |||||
Accounts receivable, net allowance for doubtful accounts of $48,628 in 2003 and $55,791 in 2002 | 366,886 | 369,969 | |||||
Inventories | 66,747 | 64,734 | |||||
Prepaid expenses and other current assets | 82,197 | 71,854 | |||||
Assets held for sale | 7,721 | 46,134 | |||||
Total current assets | 685,597 | 721,263 | |||||
Property, plant and equipment, net | 751,996 | 795,928 | |||||
Assets held for sale | 10,624 | — | |||||
Restricted investments in marketable securities | 61,271 | 65,605 | |||||
Notes receivable and other investments | 19,252 | 17,034 | |||||
Other long-term assets | 42,606 | 34,008 | |||||
Investments in unconsolidated affiliates | 8,822 | 14,143 | |||||
Identifiable intangible assets, net | 20,866 | 25,795 | |||||
Goodwill | 337,695 | 336,701 | |||||
Total assets | $ | 1,938,729 | $ | 2,010,477 | |||
Liabilities and Shareholders’ Equity: | |||||||
Current liabilities: | |||||||
Current installments of long-term debt | $ | 20,135 | $ | 40,744 | |||
Accounts payable | 58,435 | 80,248 | |||||
Accrued expenses | 29,493 | 28,723 | |||||
Current portion of self-insurance liability reserves | 29,320 | 20,542 | |||||
Accrued compensation | 92,774 | 91,546 | |||||
Accrued interest | 4,667 | 5,517 | |||||
Income taxes payable | 4,116 | 4,937 | |||||
Total current liabilities | 238,940 | 272,257 | |||||
Long-term debt | 591,484 | 648,939 | |||||
Deferred income taxes | 50,022 | 37,191 | |||||
Self-insurance liability reserves | 37,093 | 36,551 | |||||
Other long-term liabilities | 47,837 | 48,989 | |||||
Minority interests | 10,359 | 7,662 | |||||
Redeemable preferred stock, including accrued dividends | 46,831 | 44,765 | |||||
Commitments and contingencies | |||||||
Shareholders’ equity: | |||||||
Common stock - par $0.02, 200,000,000 authorized, 41,813,603 and 39,872,740 issued, 39,514,351 and 39,872,740 outstanding, and 260,493 and 811,153 to be issued at September 30, 2003 and 2002, respectively | 842 | 830 | |||||
Additional paid-in-capital | 853,540 | 843,625 | |||||
Retained earnings | 101,290 | 71,303 | |||||
Accumulated other comprehensive loss | (3,301 | ) | (1,635 | ) | |||
Treasury stock, at cost – 2,299,252 shares | (36,208 | ) | — | ||||
Total shareholders’ equity | 916,163 | 914,123 | |||||
Total liabilities and shareholders’ equity | $ | 1,938,729 | $ | 2,010,477 | |||
Successor Company Years ended September 30, | Predecessor Company Year ended September 30, | ||||||||||
2003 | 2002 | 2001 | |||||||||
(in thousands, except share and per share data) | |||||||||||
Net revenues: | |||||||||||
Inpatient services | $ | 1,229,239 | $ | 1,201,071 | $ | 1,136,273 | |||||
Pharmacy services | 1,235,398 | 1,121,917 | 1,035,188 | ||||||||
Other revenues | 184,342 | 162,800 | 155,672 | ||||||||
Total net revenues | 2,648,979 | 2,485,788 | 2,327,133 | ||||||||
Operating expenses: | |||||||||||
Salaries, wages and benefits | 1,119,244 | 1,035,603 | 981,536 | ||||||||
Cost of sales | 783,895 | 705,524 | 642,836 | ||||||||
Other operating expenses | 506,869 | 498,727 | 581,219 | ||||||||
Strategic planning, severance and other related costs | 28,286 | 21,498 | — | ||||||||
Net loss on sale of eldercare centers | — | — | 540 | ||||||||
Net gain from break-up fee and other settlements | (11,337 | ) | (23,768 | ) | — | ||||||
Depreciation and amortization expense | 66,384 | 59,449 | 99,898 | ||||||||
Lease expense | 28,224 | 26,419 | 28,669 | ||||||||
Interest expense (contractual interest for the year ended September 30, 2001 was $209,822) | 40,917 | 41,183 | 114,404 | ||||||||
Income (loss) before debt restructuring and reorganization costs and net (gain) on debt discharge, income tax expense, equity in net income (loss) of unconsolidated affiliates and minority interests | 86,497 | 121,153 | (121,969 | ) | |||||||
Debt restructuring and reorganization costs and net (gain) on debt discharge | — | 4,270 | (446,418 | ) | |||||||
Income before income tax expense, equity in net income (loss) of unconsolidated affiliates and minority interests | 86,497 | 116,883 | 324,449 | ||||||||
Income tax expense | 28,674 | 35,103 | — | ||||||||
Income before equity in net income (loss) of unconsolidated affiliates and minority interests | 57,823 | 81,780 | 324,449 | ||||||||
Equity in net income (loss) of unconsolidated affiliates | 1,184 | 2,165 | (10,213 | ) | |||||||
Minority interests | (5,194 | ) | (2,838 | ) | 2,249 | ||||||
Income from continuing operations before preferred stock dividends | 53,813 | 81,107 | 316,485 | ||||||||
Preferred stock dividends | 2,701 | 2,599 | 45,623 | ||||||||
Income from continuing operations | 51,112 | 78,508 | 270,862 | ||||||||
Loss from discontinued operations, net of taxes | (21,125 | ) | (8,341 | ) | (24,388 | ) | |||||
Net income attributed to common shareholders | $ | 29,987 | $ | 70,167 | $ | 246,474 | |||||
Per Common Share Data: | |||||||||||
Basic: | |||||||||||
Income from continuing operations | $ | 1.25 | $ | 1.90 | $ | 5.57 | |||||
Loss from discontinued operations | (0.52 | ) | (0.20 | ) | (0.50 | ) | |||||
Net income | $ | 0.74 | $ | 1.70 | $ | 5.07 | |||||
Weighted average shares | 40,755,507 | 41,225,564 | 48,641,456 | ||||||||
Diluted: | |||||||||||
Income from continuing operations | $ | 1.25 | $ | 1.87 | $ | 5.57 | |||||
Loss from discontinued operations | (0.52 | ) | (0.20 | ) | (0.50 | ) | |||||
Net income | $ | 0.74 | $ | 1.68 | $ | 5.07 | |||||
Weighted average shares - income from continuing operations | 43,009,647 | 43,351,187 | 48,641,456 | ||||||||
Weighted average shares - net income | 40,756,587 | 43,351,187 | 48,641,456 | ||||||||
(in thousands) | Series G Cumulative Convertible Preferred Stock | Common stock | Additional paid-in capital | Retained earnings (deficit) | Accumulated other comprehensive income (loss) | Treasury stock | Total shareholders’ equity (deficit) | |||||||||||||||
Balance at September 30, 2000 (Predecessor Company) | $ | 6 | $ | 973 | $ | 803,202 | $ | (1,048,540 | ) | $ | (1,789 | ) | $ | (243 | ) | $ | (246,391 | ) | ||||
Comprehensive income | ||||||||||||||||||||||
Net unrealized gain on marketable securities | — | — | — | — | 1,981 | — | 1,981 | |||||||||||||||
Net income | — | — | — | 292,097 | — | — | 292,097 | |||||||||||||||
Preferred Stock dividends | — | — | — | (45,623 | ) | — | — | (45,623 | ) | |||||||||||||
Total comprehensive income | 248,455 | |||||||||||||||||||||
Balance at September 30, 2001 (Predecessor Company) | $ | 6 | $ | 973 | $ | 803,202 | $ | (802,066 | ) | $ | 192 | $ | (243 | ) | $ | 2,064 | ||||||
Fresh start adjustments | (6 | ) | (973 | ) | (803,202 | ) | 803,202 | — | 243 | (736 | ) | |||||||||||
Issuance of common stock | — | 820 | 832,710 | — | — | — | 833,530 | |||||||||||||||
Balance at September 30, 2001 (Successor Company) | $ | — | $ | 820 | $ | 832,710 | $ | 1,136 | $ | 192 | $ | — | $ | 834,858 | ||||||||
Issuance of common stock | — | 10 | 10,915 | — | — | — | 10,925 | |||||||||||||||
Comprehensive income | ||||||||||||||||||||||
Net unrealized gain on marketable securities | — | — | — | — | 647 | — | 647 | |||||||||||||||
Net change in fair value of interest rate swap and cap agreements | — | — | — | — | (2,474 | ) | — | (2,474 | ) | |||||||||||||
Net income | — | — | — | 72,766 | — | — | 72,766 | |||||||||||||||
Preferred Stock dividends | — | — | — | (2,599 | ) | — | — | (2,599 | ) | |||||||||||||
Total comprehensive income | 68,340 | |||||||||||||||||||||
Balance at September 30, 2002 (Successor Company) | $ | — | $ | 830 | $ | 843,625 | $ | 71,303 | $ | (1,635 | ) | $ | — | $ | 914,123 | |||||||
Issuance of common stock | — | 12 | 9,915 | — | — | — | 9,927 | |||||||||||||||
Purchases of common stock for the treasury | — | — | — | — | — | (36,208 | ) | (36,208 | ) | |||||||||||||
Comprehensive income | ||||||||||||||||||||||
Net unrealized gain on marketable securities | — | — | — | — | 262 | — | 262 | |||||||||||||||
Net change in fair value of interest rate swap and cap agreements | — | — | — | — | (1,928 | ) | — | (1,928 | ) | |||||||||||||
Net income | — | — | — | 32,688 | — | — | 32,688 | |||||||||||||||
Preferred Stock dividends | — | — | — | (2,701 | ) | — | — | (2,701 | ) | |||||||||||||
Total comprehensive income | 28,321 | |||||||||||||||||||||
Balance at September 30, 2003 (Successor Company) | $ | — | $ | 842 | $ | 853,540 | $ | 101,290 | $ | (3,301 | ) | $ | (36,208 | ) | $ | 916,163 | ||||||
Successor Company Years ended September 30, | Predecessor Company Year ended September 30, | ||||||||||
2003 | 2002 | 2001 | |||||||||
(in thousands) | |||||||||||
Cash flows from operating activities: | |||||||||||
Net income attributed to common shareholders | $ | 29,987 | $ | 70,167 | $ | 246,474 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Charges (credits) included in operations not requiring funds: | |||||||||||
Debt restructuring and reorganization costs and net (gain) on debt discharge | — | 4,270 | (427,640 | ) | |||||||
Loss on impairment - Discontinuation of businesses | 13,215 | 6,364 | 110,249 | ||||||||
Depreciation and amortization | 67,085 | 65,768 | 106,189 | ||||||||
Provision for losses on accounts receivable | 37,838 | 44,712 | 49,901 | ||||||||
Arbitration award and other legal settlements | — | 1,139 | — | ||||||||
Non-cash stock compensation | 10,196 | 6,936 | — | ||||||||
Equity in (earnings) loss of unconsolidated affiliates and minority interests | 4,009 | 1,259 | 7,986 | ||||||||
Amortization of deferred gains and net unfavorable leases | (4,660 | ) | (5,575 | ) | (7,820 | ) | |||||
Loss on sale of assets | — | — | 540 | ||||||||
Provision for deferred taxes | 14,063 | 37,693 | — | ||||||||
Preferred stock dividends | 2,701 | 2,599 | 45,623 | ||||||||
Net gain from break-up fee and other related costs | (1,125 | ) | — | — | |||||||
Changes in assets and liabilities, excluding the effects of acquisitions: | |||||||||||
Accounts receivable | (37,451 | ) | (19,633 | ) | (40,745 | ) | |||||
Inventory | (2,372 | ) | 1,233 | (236 | ) | ||||||
Prepaid expense and current assets | (367 | ) | 1,441 | (12,094 | ) | ||||||
Accounts payable and accrued expenses | (17,899 | ) | 15,014 | (26,685 | ) | ||||||
Net cash provided by operating activities before debt restructuring and reorganization costs | 115,220 | 233,387 | 51,742 | ||||||||
Cash paid for debt restructuring and reorganization costs | (4,659 | ) | (54,202 | ) | (44,405 | ) | |||||
Net cash provided by operating activities | 110,561 | 179,185 | 7,337 | ||||||||
Cash flows from investing activities: | |||||||||||
Capital expenditures | (59,758 | ) | (51,635 | ) | (43,721 | ) | |||||
Proceedings on maturity or sales of restricted marketable securities | 39,765 | 52,202 | 33,311 | ||||||||
Purchases of restricted marketable securities | (43,948 | ) | (86,077 | ) | (55,057 | ) | |||||
Acquisition of rehabilitation services business | (5,923 | ) | — | — | |||||||
Proceeds from sale of eldercare assets | 55,123 | 2,955 | 7,010 | ||||||||
Purchase of eldercare assets | (5,325 | ) | (10,453 | ) | — | ||||||
Notes receivable and other investment additions | (2,183 | ) | (2,655 | ) | 1,032 | ||||||
Other, net | 9,961 | 824 | (1,324 | ) | |||||||
Net cash used in investing activities | (12,288 | ) | (94,839 | ) | (58,749 | ) | |||||
Cash flows from financing activities: | |||||||||||
Repayment of long-term debt and payment of sinking fund requirements | (77,369 | ) | (48,455 | ) | (77,990 | ) | |||||
Proceeds from issuance of long-term debt | — | 80,000 | 285,000 | ||||||||
Debt issuance costs | — | — | (14,413 | ) | |||||||
Net borrowings under prepetition working capital revolving credit facilities | — | — | 1,006 | ||||||||
Net borrowings under debtor-in-possession financing facility | — | — | 63,000 | ||||||||
Repayment of debtor-in-possession financing facility | — | — | (196,000 | ) | |||||||
Repurchase of common stock | (36,208 | ) | — | — | |||||||
Net cash (used in) provided by financing activities | (113,577 | ) | 31,545 | 60,603 | |||||||
Net (decrease) increase in cash and equivalents | $ | (15,304 | ) | $ | 115,891 | $ | 9,191 | ||||
Cash and equivalents: | |||||||||||
Beginning of year | 148,030 | 32,139 | 22,948 | ||||||||
End of year | $ | 132,726 | $ | 148,030 | $ | 32,139 | |||||
Supplemental cash flow information: | |||||||||||
Interest paid | $ | 41,767 | $ | 58,284 | $ | 118,057 | |||||
Income taxes paid, net of refunds | 3,941 | (5,594 | ) | — | |||||||
Non-cash financing activities: | |||||||||||
Issuance of preferred stock | — | — | 42,600 | ||||||||
Capital leases | 5,453 | 10,983 | 3,484 | ||||||||
(1) | Summary of Significant Accounting Policies |
As reported | Pro forma (Unaudited) | ||||||
Net revenues | $ | 2,648,979 | $ | 1,323,705 | |||
Income from continuing operations | 51,112 | 24,125 | |||||
Diluted earnings per share – from continuing operations | 1.25 | 0.59 | |||||
Total assets | 1,938,729 | 839,251 | |||||
Long-term debt, including current installments | 611,619 | 260,119 | |||||
Shareholders’ equity | 916,163 | 399,226 |
• | Historical cost of sales trends based on prior physical inventory results; | |
• | Review of cost of sales information reflecting current customer and vendor terms; and | |
• | Consideration and analysis of changes in customer base and product mix, payor mix, or other issues that may impact cost of sales. |
2003 | 2002 | 2001 | ||||||||
Net income - as reported | $ | 29,987 | $ | 70,167 | $ | 246,474 | ||||
Net income - pro forma | 25,947 | 57,422 | 246,474 | |||||||
Net income per share - as reported (diluted) | $ | 0.74 | $ | 1.68 | $ | 5.07 | ||||
Net income per share - pro forma (diluted) | 0.64 | 1.38 | 5.07 | |||||||
Successor Company | Predecessor Company 2001 | ||||||||||
2003 | 2002 | ||||||||||
Earnings (loss) used in computation: | |||||||||||
Income from continuing operations – basic computation | $ | 51,112 | $ | 78,508 | $ | 270,862 | |||||
Elimination of preferred stock dividend requirements upon assumed conversion of preferred stock | 2,701 | 2,599 | 45,623 | ||||||||
Income from continuing operations – diluted computation | $ | 53,813 | $ | 81,107 | $ | 316,485 | |||||
Loss from discontinued operations – basic and diluted computation | $ | (21,125 | ) | $ | (8,341 | ) | $ | (24,388 | ) | ||
Net income attributed to common shareholders – basic computation | $ | 29,987 | $ | 70,167 | $ | 246,474 | |||||
Elimination of preferred stock dividend requirements upon assumed conversion of preferred stock | — | 2,599 | — | ||||||||
Net income – diluted computation | $ | 29,987 | $ | 72,766 | $ | 246,474 | |||||
Shares used in computation: | |||||||||||
Weighted average shares outstanding – basic computation | 40,756 | 41,226 | 48,641 | ||||||||
Assumed conversion of preferred stock | 2,253 | 2,091 | — | ||||||||
Dilutive effect of outstanding stock options | 1 | — | — | ||||||||
Contingent consideration related to an acquisition | — | 34 | — | ||||||||
Weighted average shares outstanding – diluted computation, | |||||||||||
income from continuing operations | 43,010 | 43,351 | 48,641 | ||||||||
Less assumed conversion of preferred stock | (2,253 | ) | — | — | |||||||
Weighted average shares outstanding – diluted computation, net income attributed to common shareholders | 40,757 | 43,351 | 48,641 | ||||||||
Earnings per common share: | |||||||||||
Basic: | |||||||||||
Income from continuing operations | $ | 1.25 | $ | 1.90 | $ | 5.57 | |||||
Loss from discontinued operations | (0.52 | ) | (0.20 | ) | (0.50 | ) | |||||
Net income attributed to common shareholders | 0.74 | 1.70 | 5.07 | ||||||||
Diluted: | |||||||||||
Income from continuing operations | $ | 1.25 | $ | 1.87 | $ | 5.57 | |||||
Loss from discontinued operations * | (0.52 | ) | (0.20 | ) | (0.50 | ) | |||||
Net income attributed to common shareholders | 0.74 | 1.68 | 5.07 |
(2) | Reorganization |
Successor Company | Predecessor Company | ||||||||||
2003 | 2002 | 2001 | |||||||||
Professional, bank and other fees | $ | — | $ | 2,570 | $ | 59,393 | |||||
Employee benefit related costs, including severance | — | — | 16,786 | ||||||||
Exit costs of terminated businesses | — | — | 5,877 | ||||||||
Fresh-start valuation adjustments (1) | — | — | 932,435 | ||||||||
Gain on debt discharge (2) | — | — | (1,460,909 | ) | |||||||
Post confirmation mortgage adjustment | — | 1,700 | — | ||||||||
Total debt restructuring and reorganization costs and net gain on debt discharge | $ | — | $ | 4,270 | $ | (446,418 | ) | ||||
(1) | The fresh-start valuation adjustment represents the net write-down to fair value of NeighborCare’s assets and liabilities from continuing operations at September 30, 2001, and does not include $101.3 million of net write-downs attributed to discontinued operations. |
(2) | The gain on debt discharge in 2001 represents the relief of NeighborCare’s obligations for liabilities subject to compromise from continuing operations, and does not include $63.9 million attributed to discontinued operations. |
Liabilities subject to compromise: | ||||
Revolving credit and term loans | $ | 1,484,904 | ||
Senior subordinated notes | 617,510 | |||
Other indebtedness | 120,961 | |||
Long-term debt subject to compromise | 2,223,375 | |||
Accounts payable and accrued liabilities | 64,621 | |||
Accrued interest (including a $28,331 swap termination fee) | 87,716 | |||
Accrued preferred stock dividends on Series G Preferred Stock | 49,673 | |||
Subtotal – liabilities subject to compromise | 2,425,385 | |||
Redeemable preferred stock – Series H and Series I | 468,722 | |||
Total liabilities subject to compromise | 2,894,107 | |||
Less: | ||||
Cash payments | 25,000 | |||
Value of secured, priority and other claims assumed | 143,319 | |||
Value of new Senior Secured Notes | 242,605 | |||
Value of Term Loan used to repay synthetic lease facility | 50,000 | |||
Carrying value of deferred financing fees of discharged debts | 32,230 | |||
Value of Successor Company’s common stock | 833,530 | |||
Value of Successor Company’s redeemable preferred stock | 42,600 | |||
Gain on debt discharge | $ | 1,524,823 | ||
Less: net gain on discontinued operations | (63,914 | ) | ||
Gain on debt discharge as reported from continuing operations | $ | 1,460,909 | ||
(3) | Fresh–Start Reporting |
• | Other long-term assets – represents the write-off of unamortized financing fees associated with debts that were discharged in connection with the Plan. | |
• | Current installments of long-term debt, accrued interest and long-term debt – represents the capitalization of the Company’s newly issued senior debt agreements in accordance with the Plan, as well as debts specifically held by the Company’s subsidiaries that were deemed unimpaired in accordance with the Plan. Adjustments to accrued interest represent unpaid interest obligations through September 30, 2001 that were deemed unimpaired in accordance with the Plan. | |
• | Liabilities subject to compromise – represents the write-off of liabilities that were discharged under the Plan and the reclassification of debt obligations to appropriate debt accounts for those debts specifically held by the Company’s subsidiaries that were deemed unimpaired in accordance with the Plan. | |
• | Deferred gain and other long-term liabilities – represents the reclassification of liabilities subject to compromise that survived the bankruptcy in accordance with the Plan. These liabilities principally consist of priority tax claims made by a multitude of taxing authorities. | |
• | Redeemable preferred stock – represents the cancellation of the previously issued Series H and Series I Preferred, as well as the issuance of the Series A Preferred in accordance with the Plan. | |
• | Series G preferred stock, common stock, additional paid-in-capital and treasury stock – represents the cancellation of the Company’s previously issued equity securities, offset by 41 million newly issued shares of common stock of the successor company at $20.33 per share. | |
• | Retained earnings (accumulated deficit) – represents the net gain recognized for relief of the Company’s obligations for liabilities subject to compromise in exchange for the newly issued debt and equity securities. |
• | Property and equipment, net – represents the net write-down of property and equipment to its fair value. | |
• | Other long-term assets – represents the write-down of cost report receivables due principally from the Medicare program. In connection with the reorganization, the Company entered into a global settlement with the federal government regarding various unresolved reimbursement appeal issues. As a result of the settlement, the Company agreed not to further pursue collection of certain of its cost report receivable accounts due from Medicare. | |
• | Identifiable intangible assets – represents the fair value of customer contracts, trademarks and tradenames, and non-compete agreements. | |
• | Goodwill, net – represents the write-off of goodwill which was deemed unrecoverable. | |
• | Deferred gain and other long-term liabilities – represents the write-off of $40.1 million of deferred gains recorded on sale lease back transactions, offset by the recognition of $28.6 million of net unfavorable lease liabilities recognized in order to carry certain above market operating leases at fair value. |
• | Deferred income taxes – represents the revaluation of deferred tax assets and liabilities. | |
• | Minority interest – represents the elimination of NeighborCare’s right to purchase its joint venture partners’ minority interest in Multicare for $2.0 million. | |
• | Retained earnings (accumulated deficit) – represents the offsetting net loss recognized in fresh-start reporting related to the previously described fresh-start adjustments. |
(in thousands) | Predecessor Company | Reorganization | Fresh-Start Adjustments | Reclassification | Successor Company | |||||||||||
Assets: | ||||||||||||||||
Cash and equivalents | $ | 30,552 | $ | 1,587 | $ | — | $ | — | $ | 32,139 | ||||||
Restricted investments in marketable securities | 12,932 | — | — | — | 12,932 | |||||||||||
Accounts receivable, net | 399,816 | — | — | — | 399,816 | |||||||||||
Inventory | 65,222 | — | — | — | 65,222 | |||||||||||
Prepaid expenses and other current assets | 35,753 | — | — | — | 35,753 | |||||||||||
Total current assets | 544,275 | 1,587 | — | — | 545,862 | |||||||||||
Property, plant and equipment | 1,387,608 | — | (553,883 | ) | — | 833,725 | ||||||||||
Accumulated depreciation | (306,797 | ) | — | 295,812 | — | (10,985 | ) | |||||||||
Property, plant and equipment, net | 1,080,811 | — | (258,071 | ) | — | 822,740 | ||||||||||
Restricted investments in marketable securities | 38,693 | — | — | — | 38,693 | |||||||||||
Notes receivable and other investments | 18,001 | — | (3,462 | ) | — | 14,539 | ||||||||||
Other long-term assets | 84,135 | (25,452 | ) | (12,985 | ) | — | 45,698 | |||||||||
Investments in unconsolidated affiliates | 12,504 | — | — | — | 12,504 | |||||||||||
Identifiable intangible assets | — | — | 33,591 | — | 33,591 | |||||||||||
Goodwill, net | 1,155,956 | — | (830,363 | ) | — | 325,593 | ||||||||||
Total assets | $ | 2,934,375 | $ | (23,865 | ) | $ | (1,071,290 | ) | $ | — | $ | 1,839,220 | ||||
(in thousands) | Predecessor Company | Reorganization | Fresh-Start Adjustments | Reclassification | Successor Company | |||||||||||
Liabilities and Shareholders’ Equity (Deficit) | ||||||||||||||||
Current installments of long-term debt | $ | 196,000 | $ | (196,000 | ) | $ | — | $ | 41,241 | $ | 41,241 | |||||
Accounts payable | 46,429 | — | — | — | 46,429 | |||||||||||
Accrued expenses | 67,904 | (5,635 | ) | 2,423 | — | 64,692 | ||||||||||
Current portion of self-insurance liability reserves | 12,932 | — | — | — | 12,932 | |||||||||||
Accrued compensation | 78,074 | — | — | — | 78,074 | |||||||||||
Accrued interest | 1,599 | 14,239 | — | — | 15,838 | |||||||||||
Income taxes payable | 4,640 | — | — | — | 4,640 | |||||||||||
Total current liabilities | 407,578 | (187,396 | ) | 2,423 | 41,241 | 263,846 | ||||||||||
Liabilities subject to compromise | 2,425,385 | (2,425,385 | ) | — | — | — | ||||||||||
Long-term debt | 14,104 | 626,921 | 3,484 | (41,241 | ) | 603,268 | ||||||||||
Deferred income taxes | 48,534 | — | (48,534 | ) | — | — | ||||||||||
Self-insurance liability reserves | 26,834 | — | — | — | 26,834 | |||||||||||
Deferred gain and other long-term liabilities | 46,713 | 30,500 | (11,536 | ) | — | 65,677 | ||||||||||
Minority interests | 4,137 | — | (2,000 | ) | — | 2,137 | ||||||||||
Redeemable preferred stock | 468,722 | (426,122 | ) | — | — | 42,600 | ||||||||||
Shareholders’ equity (deficit) | ||||||||||||||||
Series G preferred stock | 6 | (6 | ) | — | — | — | ||||||||||
Common stock | 973 | (153 | ) | — | — | 820 | ||||||||||
Additional paid-in capital | 803,202 | 832,710 | — | (803,202 | ) | 832,710 | ||||||||||
Retained earnings (accumulated deficit) | (1,311,762 | ) | 1,524,823 | (1,015,127 | ) | 803,202 | 1,136 | |||||||||
Accumulated other comprehensive income | 192 | — | — | — | 192 | |||||||||||
Treasury stock, at cost | (243 | ) | 243 | — | — | — | ||||||||||
Total shareholders’ equity (deficit) | (507,632 | ) | 2,357,617 | (1,015,127 | ) | — | 834,858 | |||||||||
Total liabilities and shareholders’ equity (deficit) | $ | 2,934,375 | $ | (23,865 | ) | $ | (1,071,290 | ) | $ | — | $ | 1,839,220 | ||||
(4) | Certain Significant Risks and Uncertainties |
2003 | 2002 | 2001 | ||||||||
Medicaid | 42 | % | 40 | % | 37 | % | ||||
Long term care facilities | 30 | 34 | 35 | |||||||
Third-party payor | 16 | 14 | 14 | |||||||
Private | 10 | 10 | 11 | |||||||
Medicare Part B | 2 | 2 | 3 | |||||||
Total | 100 | % | 100 | % | 100 | % | ||||
2003 | 2002 | 2001 | ||||||||
Medicaid | 50 | % | 48 | % | 48 | % | ||||
Medicare | 28 | 29 | 27 | |||||||
Private pay and other | 22 | 23 | 25 | |||||||
Total | 100 | % | 100 | % | 100 | % | ||||
(5) | Significant Transactions and Events |
Accrued at Beginning of Year | Provision | Paid | Non-cash Charges | Accrued at End of Year | ||||||||||||
Severance and related costs | $ | 1,100 | $ | 14,247 | $ | 5,916 | $ | 8,431 | $ | 1,000 | ||||||
Strategic consulting costs | 621 | 14,039 | 11,280 | 1,220 | 2,160 | |||||||||||
Total | $ | 1,721 | $ | 28,286 | $ | 17,196 | $ | 9,651 | $ | 3,160 | ||||||
Accrued at Beginning of Year | Provision | Paid | Non-cash Charges | Accrued at End of Year | ||||||||||||
Severance and related costs | $ | — | $ | 16,410 | $ | 10,599 | $ | 4,711 | $ | 1,100 | ||||||
Strategic consulting costs | — | 4,730 | 3,089 | 1,020 | 621 | |||||||||||
Asset impairments | — | 358 | — | 358 | — | |||||||||||
Total | $ | — | $ | 21,498 | $ | 13,688 | $ | 6,089 | $ | 1,721 | ||||||
• | GHC will purchase two skilled nursing facilities having 210 skilled nursing beds and 67 assisted living beds, and three assisted living facilities having 257 beds, for $24.8 million. GHC leases these properties from ElderTrust at an annual cash basis and accrual basis lease cost of $2.4 million and $1.5 million, respectively. On October 29, 2003, GHC purchased one of the aforementioned eldercare facilities having 183 beds for $10.3 million. The remaining four properties are expected to be purchased by January 2004; | |
• | GHC agreed to pay ElderTrust $32.3 million to reduce annual cash basis and accrual basis lease cost associated with nine properties by $6.9 million and $1.2 million, respectively, and acquire options to purchase seven properties currently subleased to GHC by ElderTrust. On October 29, 2003, GHC paid ElderTrust $2.3 million to reduce the rents of two of the nine aforementioned eldercare facilities, and on November 7, 2003 paid ElderTrust the remaining $30.0 million to reduce the rents of the other seven aforementioned eldercare facilities; and | |
• | NeighborCare paid ElderTrust $4.4 million upon consummation of the spin-off in exchange for ElderTrust’s consent to the assignment of all remaining leases and guarantees from NeighborCare to GHC. |
(6) | Restricted Investments in Marketable Securities |
Amortized cost | Unrealized gains | Unrealized losses | Fair value | ||||||||||
Fixed interest securities: | |||||||||||||
U.S. mortgage backed securities | $ | 5,475 | $ | 677 | $ | — | $ | 6,152 | |||||
Corporate bonds | 9,771 | 658 | — | 10,429 | |||||||||
Government bonds | 1,368 | 21 | 42 | 1,347 | |||||||||
Term deposits | 1,028 | — | — | 1,028 | |||||||||
Equity securities | 1,102 | 380 | — | 1,482 | |||||||||
Money market funds | 70,153 | — | — | 70,153 | |||||||||
$ | 88,897 | $ | 1,736 | $ | 42 | $ | 90,591 | ||||||
Less: Current portion of restricted investments | (29,320 | ) | |||||||||||
Long-term restricted investments | $ | 61,271 | |||||||||||
Amortized cost | Unrealized gains | Unrealized losses | Fair value | ||||||||||
Fixed interest securities: | |||||||||||||
U.S. mortgage backed securities | $ | 5,464 | $ | 774 | $ | — | $ | 6,238 | |||||
Corporate bonds | 12,209 | 633 | (42 | ) | 12,800 | ||||||||
Government bonds | �� | 1,413 | 22 | (95 | ) | 1,340 | |||||||
Term deposits | 2,495 | — | — | 2,495 | |||||||||
Equity securities | 1,103 | — | — | 1,103 | |||||||||
Money market funds | 62,171 | — | — | 62,171 | |||||||||
$ | 84,855 | $ | 1,429 | $ | (137 | ) | $ | 86,147 | |||||
Less: Current portion of restricted investments | (20,542 | ) | |||||||||||
Long-term restricted investments | $ | 65,605 | |||||||||||
2003 | |||||||
Amortized cost | Fair value | ||||||
Due in one year or less | $ | 3,060 | $ | 3,088 | |||
Due after 1 year through 5 years | 10,988 | 11,983 | |||||
Due after 5 years through 10 years | 2,010 | 2,229 | |||||
Over 10 years | 556 | 628 | |||||
$ | 16,614 | $ | 17,928 | ||||
(7) | Property, Plant and Equipment |
2003 | 2002 | ||||||
Land | $ | 72,515 | $ | 79,321 | |||
Buildings and improvements | 584,263 | 594,446 | |||||
Equipment, furniture and fixtures | 203,619 | 169,383 | |||||
Construction in progress | 6,372 | 16,152 | |||||
866,769 | 859,302 | ||||||
Less accumulated depreciation | (114,773 | ) | (63,374 | ) | |||
Property, plant and equipment, net | $ | 751,996 | $ | 795,928 | |||
(8) | Notes Receivable and Other Investments |
2003 | 2002 | ||||||
Mortgage notes and other notes receivable | $ | 19,252 | $ | 15,664 | |||
Investments in revenue bonds | — | 1,370 | |||||
Notes receivable and other investments | $ | 19,252 | $ | 17,034 | |||
(9) | Other Long–Term Assets |
2003 | 2002 | ||||||
Deferred financing fees, net | $ | 7,575 | $ | 10,131 | |||
Cost report receivables, net | 2,123 | 4,379 | |||||
Property deposits and funds held in escrow | 22,783 | 14,035 | |||||
Employee deferred compensation | 7,501 | 1,950 | |||||
Other, net | 2,624 | 3,513 | |||||
Other long-term assets | $ | 42,606 | $ | 34,008 | |||
(10) | Goodwill and Identifiable Intangible Assets |
2003 | 2002 | ||||||
Balance at beginning of period | $ | 336,701 | $ | 325,593 | |||
Goodwill acquired during the year | 3,040 | 4,833 | |||||
Impairment losses | — | (2,818 | ) | ||||
Utilization of net operating losses | (2,046 | ) | (3,149 | ) | |||
Fresh-start valuation adjustments | — | 12,242 | |||||
Balance at end of period | $ | 337,695 | $ | 336,701 | |||
2001 | ||||
Income from continuing operations – as reported | $ | 270,862 | ||
Income from continuing operations – as adjusted | 303,275 | |||
Income per share from continuing operations – basic and diluted – as reported | $ | 5.57 | ||
Income per share from continuing operations – basic and diluted – as adjusted | 6.23 |
Classification | 2003 | 2002 | Estimated Life (Years) | |||||||
Customer Contracts | $ | 28,164 | $ | 26,391 | 2-6 | |||||
Trademarks and trade names | 5,000 | 5,000 | 5 | |||||||
Non-competition agreements | 4,081 | 2,200 | 1-4 | |||||||
Identifiable intangible assets | 37,245 | 33,591 | ||||||||
Accumulated amortization | (16,379 | ) | (7,796 | ) | ||||||
Identifiable intangible assets, net | $ | 20,866 | $ | 25,795 | ||||||
(11) | Long–Term Debt |
2003 | 2002 | ||||||
Secured debt | |||||||
Senior Credit Facility | |||||||
Term Loan | $ | 246,875 | $ | 281,575 | |||
Delayed Draw Term Loan | 68,162 | 79,239 | |||||
Total Senior Credit Facility | 315,037 | 360,814 | |||||
Senior Secured Notes | 240,176 | 242,602 | |||||
Mortgages and other secured debt | 56,406 | 86,267 | |||||
Total debt | 611,619 | 689,683 | |||||
Less: | |||||||
Current portion of long-term debt | (20,135 | ) | (40,744 | ) | |||
Long-term debt | $ | 591,484 | $ | 648,939 | |||
Principal Amount | |||||||
Years Ending September 30, | Loans | Capital Leases | |||||
2004 | $ | 15,872 | $ | 4,263 | |||
2005 | 8,161 | 2,939 | |||||
2006 | 8,237 | 1,641 | |||||
2007 | 531,616 | 907 | |||||
2008 | 2,023 | 115 | |||||
Thereafter | 35,837 | 8 |
• | $250.0 million, 6.875% senior subordinated notes due 2013; and | |
• | $100.0 million, undrawn revolving credit facility due 2008. Interest at LIBOR plus 2.00% on borrowings |
and a commitment fee of 0.50% on any unused commitment. |
• | $225.0 million, 8% senior subordinated notes due 2013; | |
• | $185.0 million, fully drawn term loan due 2010. Interest at LIBOR plus 2.75%; and | |
• | $75 million, undrawn revolving credit facility due 2008. Interest at LIBOR plus 3.00% on borrowings and a commitment fee of 0.50% on any unused borrowings. |
• | incur more debt; | |
• | pay dividends, redeem stock or make other distributions; | |
• | make certain investments; | |
• | create liens; | |
• | enter into transactions with affiliates; | |
• | make acquisitions; | |
• | merge or consolidate; and | |
• | transfer or sell assets. |
(12) | Leases and Lease Commitments |
Year ending September 30, | Minimum Payment | |||
2004 | $ | 29,109 | ||
2005 | 27,149 | |||
2006 | 23,764 | |||
2007 | 21,188 | |||
2008 | 19,315 | |||
Thereafter | 17,326 |
(13) | Income Taxes |
Successor Company | Predecessor Company | ||||||||||
2003 | 2002 | 2001 | |||||||||
Income from continuing operations | $ | 28,674 | $ | 35,103 | $ | — | |||||
Loss from discontinued operations | (13,822 | ) | (4,959 | ) | — | ||||||
Total | $ | 14,852 | $ | 30,144 | $ | — | |||||
Successor Company | Predecessor Company | ||||||||||
2003 | 2002 | 2001 | |||||||||
Current: | |||||||||||
Federal | $ | 13,602 | $ | (10,285 | ) | $ | — | ||||
State | 3,859 | 2,736 | — | ||||||||
17,461 | (7,549 | ) | — | ||||||||
Deferred: | |||||||||||
Federal | 9,294 | 37,846 | — | ||||||||
State | 1,919 | 4,806 | — | ||||||||
11,213 | 42,652 | — | |||||||||
Total | $ | 28,674 | $ | 35,103 | $ | — | |||||
Successor Company | Predecessor Company | ||||||||||
2003 | 2002 | 2001 | |||||||||
Computed “expected” tax | $ | 30,274 | $ | 40,909 | $ | 113,557 | |||||
Increase (reduction) in income taxes resulting from: | |||||||||||
State and local income taxes, net of federal tax benefits | 3,936 | 4,960 | — | ||||||||
Amortization of goodwill | — | — | 8,750 | ||||||||
Targeted jobs tax credits | (1,102 | ) | (857 | ) | — | ||||||
Carryback of losses allowed under Job Creation and Worker Assistance Act of 2002 | (4,443 | ) | (10,285 | ) | — | ||||||
Write-off of non-deductible goodwill | 1,571 | — | 304,500 | ||||||||
Cancellation of debt income | — | — | (538,962 | ) | |||||||
Adequate protection payments | — | — | 40,250 | ||||||||
Change in valuation allowance | — | — | 74,005 | ||||||||
Other, net | (1,562 | ) | 376 | (2,100 | ) | ||||||
Total income tax expense | $ | 28,674 | $ | 35,103 | $ | — | |||||
2003 | 2002 | ||||||
Deferred Tax Assets: | |||||||
Accrued liabilities and reserves | $ | 66,056 | $ | 63,296 | |||
Net operating loss carry-forwards (Predecessor) | 98,835 | 100,881 | |||||
Net operating loss carry-forwards (Successor) | 12,289 | — | |||||
Derivatives financial instruments | 2,389 | — | |||||
Net unfavorable leases | 7,345 | 8,800 | |||||
Other | 11,900 | 12,449 | |||||
Deferred tax assets | 198,814 | 185,426 | |||||
Valuation allowance | (98,835 | ) | (100,881 | ) | |||
Net deferred tax assets | 99,979 | 84,545 | |||||
Deferred Tax Liabilities: | |||||||
Accounts receivable | (22,622 | ) | (20,243 | ) | |||
Goodwill and other intangibles | (65,150 | ) | (58,721 | ) | |||
Depreciation | (50,434 | ) | (33,000 | ) | |||
Deferred gain | (4,047 | ) | (5,800 | ) | |||
Other | (7,748 | ) | (3,972 | ) | |||
Total deferred tax liability | (150,001 | ) | (121,736 | ) | |||
Net deferred tax liability | $ | (50,022 | ) | $ | (37,191 | ) | |
(14) | Redeemable Preferred Stock |
(15) | Shareholders’ Equity |
(16) | Stock Option Plans |
Option Price Per Share | Outstanding | Exercisable | Available for Grant | ||||||||||
Balance at September 30, 2001 | — | — | — | — | |||||||||
Authorized | — | — | — | 3,480,000 | |||||||||
Granted | $ 18.75 - $ 20.33 | 2,751,000 | — | (2,751,000 | ) | ||||||||
Exercisable | — | — | 619,779 | — | |||||||||
Canceled / Forfeited | — | (392,000 | ) | — | 392,000 | ||||||||
Balance at September 30, 2002 | $ 18.75 - $ 20.33 | 2,359,000 | 619,779 | 1,121,000 | |||||||||
Authorized | — | — | — | — | |||||||||
Granted | $ 15.06 - $ 20.33 | 652,500 | — | (652,500 | ) | ||||||||
Exercisable | — | — | (299,459 | ) | — | ||||||||
Canceled / Forfeited | — | (2,271,500 | ) | — | 2,271,500 | ||||||||
Balance at September 30, 2003 | $ 16.80 - $ 20.33 | 740,000 | 320,320 | 2,740,000 | |||||||||
(17) | Loss on Impairment of Assets and Other Charges |
2001 | ||||
Notes receivable, advances, and trade receivables, due from affiliated businesses formerly owned or managed deemed uncollectible | $ | 30,048 | ||
Uncollectible trade receivables | 38,883 | |||
Self-insured and related program costs | 15,110 | |||
Other charges | 22,390 | |||
Total uncollectible receivable, insurance related and other charges (included in other operating expenses) | $ | 106,431 | ||
Debt restructuring and reorganization costs and net (gain) on debt discharge: | ||||
Professional, bank and other fees | $ | 59,393 | ||
Employee benefit related costs, including severance | 16,786 | |||
Exit costs of terminated businesses | 5,877 | |||
Fresh start valuation adjustments | 932,435 | |||
Gain on debt discharge | (1,460,909 | ) | ||
Total debt restructuring and reorganization costs and net (gain) on debt discharge | $ | (446,418 | ) | |
(18) | Commitments and Contingencies |
• | the failure of GHC, or its affiliates, or any other person to pay, perform or otherwise promptly discharge any of the liabilities of the eldercare businesses; | |
• | any liabilities of the eldercare businesses and the operation of the eldercare businesses at any time before or after the spin-off; | |
• | any breach by GHC or its affiliates of the separation and distribution agreement or any of the ancillary agreements entered into in connection with the separation and distribution agreement; |
• | one-half of any liabilities arising out of our 2001 joint plan of reorganization (other than certain liabilities specifically allocated in the separation and distribution agreement); and | |
• | specified disclosure liabilities. |
• | the failure of NeighborCare, or its affiliates, or any other person to pay, perform or otherwise promptly discharge any of our liabilities, other than liabilities of the eldercare businesses; | |
• | any of NeighborCare liabilities, other than liabilities of the eldercare businesses, and the operation of its business other than the eldercare businesses at any time before or after the spin-off; | |
• | any breach by NeighborCare or its affiliates of the separation and distribution agreement or any of the ancillary agreements entered into in connection with the separation and distribution agreement; | |
• | one-half of any liabilities arising out of our 2001 joint plan of reorganization (other than certain liabilities specifically allocated in the separation and distribution agreement); and | |
• | specified disclosure liabilities. |
(19) | Fair Value of Financial Instruments |
2003 | 2002 | ||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||
Cash and equivalents | $ | 132,726 | $ | 132,726 | $ | 148,030 | $ | 148,030 | |||||
Restricted investments in marketable securities | 90,591 | 90,591 | 86,147 | 86,147 | |||||||||
Accounts receivable, net | 366,886 | 366,886 | 369,969 | 369,969 | |||||||||
Accounts payable | 58,435 | 58,435 | 80,248 | 80,248 | |||||||||
Debt, excluding capital leases | 601,746 | 614,473 | 679,402 | 696,351 | |||||||||
Pay fixed / receive variable interest rate swap | (7,219 | ) | (7,219 | ) | (4,454 | ) | (4,454 | ) | |||||
Interest rate cap | 2 | 2 | 398 | 398 |
(20) | Assets Held for Sale and Discontinued Operations |
Successor Company | Predecessor Company | ||||||||||
Years Ended September 30, | Year Ended September 30, 2001 | ||||||||||
2003 | 2002 | ||||||||||
Net revenues | $ | 144,279 | $ | 261,879 | $ | 259,014 | |||||
Net operating loss of discontinued businesses | $ | (20,779 | ) | $ | (2,296 | ) | $ | (24,388 | ) | ||
Loss on discontinuation of businesses | (14,168 | ) | (11,004 | ) | — | ||||||
Income tax benefit | 13,822 | 4,959 | — | ||||||||
Loss from discontinued operations, net of taxes | $ | (21,125 | ) | $ | (8,341 | ) | $ | (24,388 | ) | ||
(21) | Segment Information |
Successor Company | Predecessor Company | ||||||||||
(in thousands) | 2003 | 2002 (1) | 2001 (1) | ||||||||
Revenues: | |||||||||||
Inpatient services – external | $ | 1,229,239 | $ | 1,201,071 | $ | 1,136,273 | |||||
Pharmacy services: | |||||||||||
External | 1,235,398 | 1,121,917 | 1,035,188 | ||||||||
Intersegment | 78,019 | 100,502 | 98,122 | ||||||||
All other services: | |||||||||||
External | 184,342 | 162,800 | 155,672 | ||||||||
Intersegment | 146,159 | 172,160 | 194,323 | ||||||||
Elimination of intersegment revenues | (224,178 | ) | (272,662 | ) | (292,445 | ) | |||||
Total net revenues | 2,648,979 | 2,485,788 | 2,327,133 | ||||||||
EBITDA (2): | |||||||||||
Inpatient services | 120,763 | 140,884 | 115,974 | ||||||||
Pharmacy services | 126,663 | 112,328 | 100,571 | ||||||||
All other services | 38,456 | 46,735 | 44,705 | ||||||||
Corporate | (75,135 | ) | (80,432 | ) | (61,837 | ) | |||||
Other adjustments (3) | (16,949 | ) | (2,000 | ) | 339,878 | ||||||
Net loss on sale of eldercare centers | — | — | (540 | ) | |||||||
Total EBITDA | 193,798 | 217,515 | 538,751 | ||||||||
Capital and other: | |||||||||||
Consolidated: | |||||||||||
Depreciation and amortization | (66,384 | ) | (59,449 | ) | (99,898 | ) | |||||
Interest expense | (40,917 | ) | (41,183 | ) | (114,404 | ) | |||||
Income tax expense | (28,674 | ) | (35,103 | ) | — | ||||||
Equity in net income (loss) of unconsolidated affiliates | 1,184 | 2,165 | (10,213 | ) | |||||||
Minority interests | (5,194 | ) | (2,838 | ) | 2,249 | ||||||
Preferred stock dividends | (2,701 | ) | (2,599 | ) | (45,623 | ) | |||||
Income from continuing operations | 51,112 | 78,508 | 270,862 | ||||||||
Loss from discontinued operations, net of taxes | (21,125 | ) | (8,341 | ) | (24,388 | ) | |||||
Net income attributed to common shareholders | $ | 29,987 | $ | 70,167 | $ | 246,474 | |||||
Successor Company | Predecessor Company | |||||||||
(in thousands) | September 30, 2003 | September 30, 2002 (4) | September 30, 2001 | |||||||
Assets: | ||||||||||
Inpatient services (5) | $ | 846,361 | $ | 945,047 | $ | 973,476 | ||||
Pharmacy services | 729,586 | 701,036 | 686,361 | |||||||
All other | 362,782 | 364,394 | 179,383 | |||||||
$ | 1,938,729 | $ | 2,010,477 | $ | 1,839,220 | |||||
(1) | Segment revenue and EBITDA data previously reported was adjusted to remove discontinued businesses from the results of continuing operations for the September 30, 2002 and 2001 periods. |
(2) | EBITDA is defined as earnings before interest, taxes, depreciation and amortization of the Company’s continuing operations. EBITDA is calculated by adding back interest, income tax expense, depreciation and amortization, equity in net income (loss) of unconsolidated affiliates, minority interests, preferred stock dividends, and loss from discontinued operations, net of taxes to net income attributed to common shareholders. EBITDA of the operating segments include the direct overhead costs attributable to those segments. |
(3) | Other adjustments includes strategic planning, severance and other related costs, net gain from breakup fee and other settlements and debt restructuring and reorganization costs and net (gain) on debt discharge from the Company’s consolidated statements of operations. |
(4) | Certain prior year amounts have been reclassified to conform with the current year presentation. |
(5) | Assets of the inpatient services segment at September 30, 2003 and September 30, 2002 include $18.3 million and $46.1 million, respectively, of assets held for sale. See note 20 — “Assets Held for Sale and Discontinued Operations.” |
(22) | Comprehensive Income |
Successor Company | Predecessor Company | ||||||||||
2003 | 2002 | 2001 | |||||||||
Net income attributed to common shareholders | $ | 29,987 | $ | 70,167 | $ | 246,474 | |||||
Unrealized gain on marketable securities (net of income taxes of $141, $349 and $1,067, respectively) | 262 | 647 | 1,981 | ||||||||
Net change in fair value of interest rate swap and cap agreements (net of income tax benefit of $1,233 and $1,582, respectively) | (1,928 | ) | (2,474 | ) | — | ||||||
Total comprehensive income | $ | 28,321 | $ | 68,340 | $ | 248,455 | |||||
(23) | Derivative Financial Instruments |
(24) | Subsequent Event |
(25) | Quarterly Financial Data (Unaudited) |
Total Net Revenues | Income (Loss) from Continuing Operations | Net Income (Loss) Attributed to Common Shareholders | Diluted Income (Loss) Per Common Share from Continuing Operations | Diluted Net Income (Loss) Per Common Share | ||||||||||||
Quarter ended: | ||||||||||||||||
December 31, 2002 | $ | 638,582 | $ | 17,010 | $ | 11,934 | $ | 0.40 | $ | 0.29 | ||||||
March 31, 2003 | 645,076 | 9,619 | 4,670 | 0.25 | 0.11 | |||||||||||
June 30, 2003 | 666,320 | 12,518 | 6,471 | 0.31 | 0.16 | |||||||||||
September 30, 2003 | 699,001 | 11,965 | 6,912 | 0.30 | 0.17 | |||||||||||
Quarter ended: | ||||||||||||||||
December 31, 2001 | $ | 606,869 | $ | 16,711 | $ | 15,599 | $ | 0.40 | $ | 0.38 | ||||||
March 31, 2002 | 617,821 | 27,559 | 24,943 | 0.65 | 0.59 | |||||||||||
June 30, 2002 | 625,540 | 18,518 | 17,453 | 0.44 | 0.42 | |||||||||||
September 30, 2002 | 635,558 | 15,720 | 12,172 | 0.38 | 0.29 | |||||||||||
ITEM 9: | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9A: | CONTROLS AND PROCEDURES |
ITEM 10: | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Name | Age | Committees of the board of directors | ||
John J. Arlotta | 54 | Chairman, Executive Committee | ||
James H. Bloem | 53 | Chairman, Audit and Compliance Committee; Compensation Committee | ||
James E. Dalton, Jr. | 61 | Nominating and Governance Committee; Compensation Committee | ||
James D. Dondero | 41 | Chairman, Compensation Committee; Executive Committee | ||
Robert H. Fish | 53 | Executive Committee | ||
Dr. Philip P. Gerbino | 56 | Audit and Compliance Committee; Chairman, Nominating and Governance Committee | ||
Arthur J. Reimers | 48 | Audit and Compliance Committee; Executive Committee | ||
Phyllis R. Yale | 46 | Nominating and Governance Committee |
ITEM 11: | EXECUTIVE COMPENSATION |
Annual Compensation | Long-term Compensation | |||||||||||||||||||
Name and Position | Fiscal Year | Salary ($)(1) | Bonus ($)(2) | Other Annual Compensation (3) | Restricted Stock Awards ($)(4) | Securities Underlying Options/SAR’s | All Other Compensation ($)(5) | |||||||||||||
Robert H. Fish, Chief Executive Officer | 2003 | 850,000 | 1,221,410 | 83,406 | — | 177,500 | — | |||||||||||||
2002 | 274,615 | 70,833 | — | — | 25,000 | — | ||||||||||||||
John J. Arlotta, Vice Chairman | ||||||||||||||||||||
2003 | 163,462 | 850,000 | — | — | — | 29,005 | ||||||||||||||
George V. Hager, Jr., Chief Financial Officer | 2003 | 400,001 | 155,000 | — | — | — | 1,023,315 | |||||||||||||
2002 | 398,078 | 200,000 | — | 1,524,750 | 75,000 | 601,698 | ||||||||||||||
2001 | 350,000 | 309,875 | — | — | — | 1,700 | ||||||||||||||
Robert A. Smith, President, NeighborCare | 2003 | 360,768 | 75,250 | — | — | — | 2,000 | |||||||||||||
2002 | 310,003 | 60,000 | — | 304,950 | 50,000 | 1,700 | ||||||||||||||
2001 | 232,281 | 117,000 | 75,103 | — | — | 1,700 | ||||||||||||||
Richard Pell, Jr., Senior Vice President, Administration and Chief Compliance Officer | 2003 | 271,827 | 715,875 | — | — | — | 2,000 | |||||||||||||
2002 | 260,382 | 55,000 | — | 304,950 | 50,000 | 2,000 | ||||||||||||||
2001 | 224,039 | 71,000 | — | — | — | 1,700 | ||||||||||||||
Richard Howard, Former Vice Chairman | 2003 | 59,615 | — | — | — | — | 4,035,048 | |||||||||||||
2002 | 500,000 | 250,000 | — | 1,524,750 | 75,000 | 320,008 | ||||||||||||||
2001 | 500,000 | 432,250 | — | — | — | — |
(1) | Includes compensation deferred under the 401(k) Retirement Plan, Non Qualified Deferred Compensation Plan and other arrangements with us. Other payments made by us under the 401(k) Retirement Plan, Non Qualified Deferred Compensation Plan and other arrangements with us are not included. | |
(2) | Mr. Fish received a performance bonus of $500,000 and a bonus of $721,410 upon his appointment to chief executive officer. Mr. Arlotta received a performance bonus of $550,000 and a sign-on bonus of $300,000. Mr. Pell received an employment contract payout of $661,400 and a performance bonus of $54,475. All other amounts in 2003 reflect performance bonuses. | |
(3) | Mr. Fish received compensation of approximately $62,206 for housing expenses and approximately $15,200 for the use of a Company owned automobile. All other amounts reflect the receipt of relocation benefits. | |
(4) | Restricted stock grants were authorized by the board of directors on October 2, 2001 and vest quarterly over a five year period beginning January 1, 2002. Our common stock market value as of October 2, 2001 was $20.33 per share. As of September 30, 2003, the restricted stock grants issued to Mr. Smith and Mr. Pell each had an aggregate market value of $363,150. As of September 30, 2003, the restricted stock grants issued to Mr. Hager and Mr. Howard each had an aggregate market value of $1,815,750. The restricted stock grants of each of the previously mentioned individuals are fully vested at September 30, 2003. The market value of our common stock at September 30, 2003 was $24.21 per share. | |
(5) | Includes severance pay, company-sponsored life insurance coverage, note forgiveness as well as our matching contribution under the 401(k) Retirement Plan and Non Qualified Deferred Compensation Plan. Mr. Arlotta received $29,005 in relation to his company-sponsored life insurance plan. Mr. Hager received $1,021,315 of note forgiveness and $2,000 of 401(k) matching compensation. Mr. Smith and Mr. Pell each received $2,000 of 401(k) matching compensation. Mr. Howard received note forgiveness in the amount of $1,238,298 and severance pay in the amount of $2,796,750. |
Individual Grants | Potential Realized Value at Assumed Annual Rates of Stock Price Appreciation for Option Terms | ||||||||||||||||||
Name | Number of Securities Underlying Options/SARs Granted | Percent of Total Options/ SARs Granted to Employees in Fiscal Year | Exercise Price ($/share) | Expiration Date | 5% | 10% | |||||||||||||
Robert H. Fish | 2,500 | 0.4 | % | $ | 16.80 | 10/2/12 | $ | 26,414 | $ | 66,937 | |||||||||
275,000 | 43.14 | % | $ | 17.00 | 12/2/06 | $ | 1,358,833 | $ | 4,932,871 | ||||||||||
225,000 | (1) | 35.29 | % | $ | 20.33 | 12/2/06 | $ | 362,522 | $ | 3,286,735 |
(1) | Includes 100,000 options that were forfieted in fiscal 2003 as a result of failure to satisfy vesting conditions. |
Name | Shares Acquired on Exercise (#) | Value Realized ($) (1) | Number of Unexercised Securities Underlying Options/SARs Fiscal Year-End (#) Exercisable/Unexercisable | Value of Unexercised In-the- Money Options/SARs at Fiscal Year-End ($) Exercisable/ Unexercisable | |||||
Robert H. Fish | — | — | 177,500/352,500 | 1,197,025/1,774,250 |
(1) | Stock price at close of business on September 30, 2003 was $24.21. |
• | pay him a pro rata bonus for the portion of the year in which the date of termination occurs preceding the date of termination based upon an annual amount equal to 100% of his base salary and a lump-sum cash payment equal to two times his highest base salary in the three years preceding termination plus two times his target bonus for the year of termination less any disability insurance benefits if applicable for the two-year period beginning with the date of termination; | |
• | continue to provide the health and life insurance benefits provided to him and his spouse and eligible dependents immediately prior to his date of termination for a period of two years following the date of termination; and | |
• | all restricted stock, stock option and performance share awards will fully vest. |
• | make a lump-sum payment to Messrs. Smith and Sunderland of $405,900 and $294,300, respectively; | |
• | continue each executive’s employment with the terms and conditions of the employment agreements described above; | |
• | grant a stock option to Messrs. Smith and Sunderland to purchase 87,500 and 75,000, respectively, shares of our common stock; and | |
• | on the six-month anniversary of the option grant, either grant an additional option to purchase the same amount of our common stock or grant shares of restricted stock having a value equivalent to the replaced options. |
ITEM 12: | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND OTHER STOCKHOLDER RELATED MATTERS |
Shares of Common Stock Beneficially Owned (1) | Percent of Common Stock Owned (1) | ||||||
Highland Capital Management, L.P. Two Galleria Tower 13455 Noel Road, Suite 1300 Dallas, TX 75240 (2) | 4,358,972 | 10.10 | % | ||||
Goldman, Sachs Group 85 Broad Street New York, NY 10004 (3) | 4,306,146 | 9.97 | % | ||||
John J. Arlotta (4) | 125,000 | * | |||||
James H. Bloem (5) | 46,960 | * | |||||
James D. Dondero (2) | 4,358,972 | 10.10 | % | ||||
Robert H. Fish (6) | 546,960 | 1.25 | % | ||||
Dr. Philip P. Gerbino (7) | 46,960 | * | |||||
James E. Dalton, Jr. (8) | 46,960 | * | |||||
Arthur J. Reimers | — | * | |||||
Phyllis R. Yale | — | * | |||||
George V. Hager, Jr. | — | * | |||||
Robert A. Smith | — | * | |||||
Richard Pell, Jr. | — | * | |||||
Richard Howard | — | * | |||||
All executive officers and directors as a group (15 persons) (9) | 5,312,437 | 12.05 | % |
* | Less than one percent |
(1) | Includes an aggregate of 3,464,255 shares of common stock issued on December 16, 2003 as a result of the board of directors’ election to exercise its option to require the mandatory conversion of the Series A convertible preferred stock, pursuant to the Company’s amended and restated articles of incorporation, as amended, excludes 2,299,252 shares held by the Company in treasury, and gives effect to the adjustment of stock option amounts and exercise prices as a result of the spin-off. |
(2) | Includes 2,429,471 shares of our common stock beneficially and directly owned by Highland Capital Management, L.P (“Highland Capital”); 46,960 stock options to purchase our common stock, which are exercisable within sixty days of December 17, 2003, granted under our 2001 Stock Option Plan to Mr. Dondero (Mr. Dondero has an understanding with Highland Capital pursuant to which he holds the options for the benefit of Highland Capital); 1,404,120 shares of common stock beneficially and directly owned by Highland Crusader Offshore Partners, L.P. (“Crusader”), of which 251,272 shares were issued upon conversion of the Series A convertible preferred stock; 263,577 shares of common stock beneficially and directly owned by Prospect Street High Income Portfolio, Inc. (“Prospect”), of which 123,803 shares were issued upon conversion of the Series A convertible preferred stock; 41,100 shares of common stock owned by PCMG Trading Partners XXIII L.P. (“PCMG”); 173,745 shares of common stock beneficially and directly owned by KZH-Pamco LLC (“KZH”), of which 16,484 shares were issued upon conversion of the Series A convertible preferred stock. Mr. Dondero disclaims beneficial ownership of 3,295,654 shares of our common stock. Based partially upon a Schedule 13D/A filed with the SEC on April 8, 2002 and a Form 4 filed with the SEC on October 24, 2003, on behalf of a group consisting of Highland Capital, Crusader, Prospect, PCMG, KZH and Mr. Dondero. The general partner of Crusader is Highland Capital. Highland Capital, as a registered investment advisor, is the investment advisor for Prospect. The general partner of Highland Capital is Strand Advisors, Inc., a Delaware corporation (“Strand”). The general partner of PCMG is Strand Advisors III, Inc., a Delaware corporation (“Strand III”). Mr. Dondero is the president of Highland, Prospect, Strand, and Strand III, and our director. |
(3) | Goldman, Sachs & Co. is a wholly–owned subsidiary of Goldman, Sachs Group. Goldman, Sachs & Co.’s direct beneficial ownership consists of 4,263,099 shares of common stock, of which 632,135 shares were issued upon conversion of the Series A convertible preferred stock. Joseph A. LaNasa III, a managing director of Goldman, Sachs & Co., was a member of our board of directors in fiscal 2003 and was granted 43,047 options to purchase our common stock, which are exercisable within 60 days of December 17, 2003, granted under our 2001 Stock Option Plan. Mr. LaNasa has an understanding with Goldman, Sachs Group pursuant to which he holds the options for the benefit of the Goldman, Sachs Group. Based in part upon a Schedule 13D/A filed with the SEC on December 2, 2003. |
(4) | Includes 125,000 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days of December 17, 2003 granted under our 2001 Stock Option Plan. |
(5) | Includes 46,960 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days of December 17, 2003 granted under our 2001 Stock Option Plan. |
(6) | Includes 546,960 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days of December 17, 2003 granted under our 2001 Stock Option Plan. |
(7) | Includes 46,960 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days of December 17, 2003 granted under our 2001 Stock Option Plan. |
(8) | Includes 46,960 shares of common stock issuable upon the exercise of stock options that are exercisable within 60 days of December 17, 2003 granted under our 2001 Stock Option Plan. |
that are immediately exercisable. | |
(9) | Includes officers with no beneficial ownership and those with ownership less than five percent beneficial ownership. |
A | B | C | ||||||||
Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column A) | ||||||||
Equity compensation plans approved by security holders | — | — | — | |||||||
Equity compensation plans not approved by security holders | 740,000 | $ | 19.70 | 2,740,000 |
ITEM 13: | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
ITEM 14: | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
2003 | 2002 | |||||
Audit fees | $ | 2,249,000 | $ | 1,363,000 | ||
Audit related fees | 78,000 | 40,000 | ||||
Tax fees | — | 569,000 | ||||
All other fees | 244,000 | 581,000 | ||||
Total | $ | 2,571,000 | $ | 2,553,000 | ||
ITEM 15: | EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8–K |
(a)(1) | The following financial statements of NeighborCare, Inc. and Subsidiaries are filed as part of this Form 10-K in Item 8: |
Independent Auditors’ Report | |
Consolidated Balance Sheets as of September 30, 2003 and 2002 (Successor) | |
Consolidated Statements of Operations for the years ended September 30, 2003, 2002 (Successor), and 2001 (Predecessor) | |
Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended September 30, 2003, 2002 (Successor), and 2001 (Predecessor) | |
Consolidated Statements of Cash Flows for the years ended September 30, 2003, 2002 (Successor), and 2001 (Predecessor) | |
Notes to Consolidated Financial Statements | |
(a)(2) | Schedule |
Schedule II - Valuation and Qualifying Accounts for the years ended September 30, 2003, 2002 and 2001. Schedule II is included herein. All other schedules not listed have been omitted since the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required. | |
2.1(1) | Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated July 6, 2001. |
2.2(2) | Technical Amendments to Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated August 27, 2001. |
2.3(2) | Amendments to Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code dated to |
comply with opinion on confirmation dated September 13, 2001. | |
2.4(3) | Separation and Distribution Agreement by and between the Company and Genesis HealthCare Corporation, dated as of October 27, 2003 (Schedules and exhibits are omitted pursuant to Regulation S-K, Item 601(b)(2); the Company agrees to furnish supplementally a copy of such schedules and/or exhibits to the Securities and Exchange Commission upon request). |
3.1(4) | Amended and Restated Articles of Incorporation of the Company. |
3.2(4) | Articles of Amendment to the Company’s Amended and Restated Articles of Incorporation, effective as of December 2, 2003, changing the name to NeighborCare, Inc. |
3.3(4) | Statement with Respect to Shares, effective as of December 5, 2003, designating the Company’s Series B Junior Participating Preferred Stock, par value $0.01 per share. |
3.4(4) | Amended and Restated Bylaws of the Company, as amended. |
4.1(5) | Specimen of Common Stock Certificate. |
4.2(6) | Certificate of Designation of the Series A Convertible Preferred Stock (included in Exhibit 3.1). |
4.3 | Specimen of the Company’s 6.785% Senior Subordinated Notes due 2013 (included in Exhibit 4.4). |
4.4 | Indenture, dated as of November 4, 2003, among the Company, the Guarantors and The Bank of New York, as trustee, relating to the Company 6.875% Senior Subordinated Notes due 2013. |
4.5(7) | Rights Agreement, dated as of November 18, 2003, by and between the Company and StockTrans, Inc., as rights agent. |
4.6(4) | Statement with Respect to Shares, effective as of December 5, 2003, designating the Company’s Series B Junior Participating Preferred Stock, par value $0.01 per share (included in Exhibit 3.3). |
+10.1(8) | The Company’s Employee Retirement Plan, adopted January 1, 1989, as amended and related Retirement Plan Trust Agreement. |
+10.2(6) | 2001 Stock Option Plan. |
10.3(6) | Registration Rights Agreement between the Company, Goldman Sachs & Co., and Highland Capital Management L.P., dated as of October 2, 2001, regarding the Company’s Common Stock. |
10.4(6) | Registration Rights Agreement between the Company, Goldman Sachs & Co., and Highland Capital Management L.P., dated as of October 2, 2001, regarding the Company’s Second Priority Secured Notes due 2007. |
10.5(6) | Credit, Security, Guaranty and Pledge Agreement, dated as of October 2, 2001, among the Company, the Guarantors, the Lenders, First Union Securities, Inc., as Co–Lead Arranger, Goldman Sachs Credit Partners L.P., as Co–Lead Arranger and Syndication Agent, First Union National Bank, as Administrative Agent and Collateral Agent, General Electric Capital Corporation, as Collateral Monitoring Agent and Co–Documentation Agent and CitiCorp USA, Inc., as Co–Documentation Agent (the “Credit, Security, Guaranty and Pledge Agreement”). |
10.6(9) | Amendment No. 1, dated as of December 31, 2001, to the Credit, Security, Guaranty and Pledge Agreement. |
10.7(10) | Amendment No. 2, dated as of June 28, 2002, to the Credit, Security, Guaranty and Pledge Agreement. |
10.8(11) | Employment Agreement between the Company and Robert H. Fish dated as of May 28, 2002 and the addendum thereto dated November 30, 2002. |
+10.9(12) | The Company’s Deferred Compensation Plan. |
+10.10(13) | Transition Agreement by and between the Company and Michael R. Walker, dated as of May 28, 2002. |
+10.11(13) | Transition Agreement by and between the Company and David C. Barr, dated as of June 18, 2002. |
+10.12(11) | Voluntary Separation Agreement between the Company and Richard R. Howard dated as of October 28, 2002. |
+10.13(14) | 2001 Stock Incentive Plan. |
+10.14(15) | Employment Agreement, dated as of February 28, 2003, by and between the Company and Robert H. Fish. |
+10.15 | Employment Agreement, dated as of July 7, 2003, by and between the Company and John J. Arlotta. |
+10.16 | Employment Agreement, dated as of July 28, 2003 and amended and restated as of December 9, 2003, by and between the Company and John L. Kordash. |
+10.17 | Employment Agreement, dated as of September 10, 2003 and amended and restated as of December 9, 2003, by and between the Company and John F. Gaither, Jr. |
10.18 | Registration Rights Agreement, dated as of November 4, 2003, by and among the Company, the Guarantors, Goldman, Sachs & Co., Lehman Brothers Inc., UBS Securities LLC and J.P. Morgan Securities Inc. |
+10.19 | Letter Agreement, dated as of November 7, 2003, by and between the Company and Richard W. Sunderland. |
+10.20 | Letter Agreement, dated as of November 20, 2003, by and between the Company and Robert A. Smith. |
+10.21 | Employment Agreement, dated as of November 24, 2003 and amended and restated as of December 9, 2003, by and between the Company and Richard W. Sunderland. |
+10.22 | Employment Agreement, dated as of November 26, 2003 and amended and restated as of December 9, 2003, by and between the Company and Robert A. Smith. |
10.23(4) | Tax Sharing Agreement, dated as of December 1, 2003, by and between the Company and Genesis HealthCare Corporation. |
10.24(4) | Transition Services Agreement, dated as of December 1, 2003, by and between the Company and Genesis HealthCare Corporation. |
10.25(4) | Employee Benefits Agreement, dated as of December 1, 2003, by and between the Company and Genesis HealthCare Corporation. |
10.26(4) | Master Agreement for Pharmacy, Pharmacy Consulting and Related Products and Services, dated as of December 1, 2003, by and between NeighborCare Pharmacy Services, Inc. and Genesis HealthCare Corporation |
10.27(4) | Credit Agreement by and among the Company, the domestic subsidiaries of the Company from time to |
time party thereto, the lenders party thereto, Wachovia Bank, National Association, as administrative agent, and General Electric Capital Corporation and ING Capital LLC, as syndication agents, and LaSalle Bank National Association and U.S. Bank, National Association, as documentation agents (Schedules and exhibits are omitted; the Company agrees to furnish supplementally a copy of such schedules and/or exhibits to the Securities and Exchange Commission upon request). | |
+10.28 | Amendment, dated as of December 9, 2003, to Employment Agreement by and between the Company and John J. Arlotta. |
+10.29 | Option Cancellation Agreement, dated as of December 9, 2003, by and between the Company and Robert H. Fish. |
21 | Subsidiaries of the Company. |
23 | Consent of KPMG LLP. |
31.1 | Certificate of John J. Arlotta, Chief Executive Officer of the Company, pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Sections 302 and 404 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certificate of Richard W. Sunderland, Chief Financial Officer of the Company, pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Sections 302 and 404 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certificate of John J. Arlotta, Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certificate of Richard W. Sunderland, Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
+ | Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. |
1) | Incorporated by reference to the Company’s Current Report on Form 8–K filed on June 19, 2001. |
2) | Incorporated by reference to the Company’s Form T–3 filed on September 18, 2001. |
3) | Incorporated by reference to Genesis HealthCare Corporation’s Registration Statement on Form 10 dated November 14, 2003 (as amended) (File No. 000-50351). |
4) | Incorporated by reference to an exhibit to the Company’s Current Report on Form 8-K filed on December 9, 2003. |
5) | Incorporated by reference to the Company’s Form 8–A filed on October 2, 2001. |
6) | Incorporated by reference to the Company’s Annual Report on Form 10–K for the fiscal year ended September 30, 2001. |
7) | Incorporated by reference to an exhibit to the Company’s Form 8-A filed on November 18, 2003. |
8) | Incorporated by reference to the Company’s Registration Statement on Form S–1, dated June 19, 1991 (Registration No. 33–40007). |
9) | Incorporated by reference to the Company’s Quarterly Report for the quarter ended December 31, 2001. |
10) | Incorporated by reference to the Company’s Quarterly Report on Form 10–Q for the quarter ended June 30, 2002. |
11) | Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2002. |
12) | Incorporated by reference to the Company’s Registration Statement on Form S–8 (File No. 33–82208) filed on February 5, 2002. |
13) | Incorporated by reference to the Company’s Current Report on Form 8–K filed on July 1, 2002. |
14) | Incorporated by reference to the Company’s Registration Statement on Form S–8 (File No. 33–83430) filed on February 26, 2002. |
15) | Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. |
(b) | Reports on Form 8-K |
On August 5, 2003, the Company filed a Current Report on Form 8-K under Items 9 and 12 reporting its financial results for the quarter and year to date periods ended June 30, 2003. | |
NeighborCare, Inc.
/s/ KPMG LLP | |
Philadelphia, Pennsylvania | |
December 1, 2003, except as to note 14, which is as of December 16, 2003 |
Valuation and Qualifying Accounts
Years Ended September 30, 2003, 2002 and 2001
(in thousands)
Description | Balance at Beginning of Period | Charged to Operations | Charged to Other Accounts (1) | Deductions (2) | Balance at End of Period | |||||||||||
Year Ended September 30, 2003 | ||||||||||||||||
Allowance for Doubtful Accounts | $ | 55,791 | 37,085 | — | 44,248 | $ | 48,628 | |||||||||
Year Ended September 30, 2002 | ||||||||||||||||
Allowance for Doubtful Accounts | $ | 83,125 | 44,712 | — | 72,046 | $ | 55,791 | |||||||||
Year Ended September 30, 2001 | ||||||||||||||||
Allowance for Doubtful Accounts | $ | 78,020 | 49,901 | 12,509 | 57,305 | $ | 83,125 |
(1) | In fiscal 2001, represents a reclassification of amounts previously reported as a direct reduction to trade receivables, rather than an allowance for doubtful accounts. |
(2) | Represents amounts written off as uncollectible. |
NeighborCare, Inc. | ||
/s/ RICHARD W. SUNDERLAND, JR. | ||
By: | Richard W. Sunderland, Jr. | |
Chief Financial Officer |
Signature | Capacity | |
/s/ JOHN J. ARLOTTA | ||
John J. Arlotta | Chairman, President and Chief Executive Officer | |
/s/ JAMES H. BLOEM | ||
James H. Bloem | Director | |
/s/ JAMES E. DALTON, JR. | ||
James E. Dalton, Jr. | Director | |
/s/ JAMES D. DONDERO | ||
James D. Dondero | Director | |
/s/ ROBERT H. FISH | ||
Robert H. Fish | Director | |
/s/ DR. PHILIP P. GERBINO | ||
Dr. Philip P. Gerbino | Director | |
/s/ ARTHUR J. REIMERS | ||
Arthur J. Reimers | Director | |
/s/ PHYLLIS R. YALE | ||
Phyllis R. Yale | Director |
/s/ RICHARD W. SUNDERLAND, JR. | ||
Richard W. Sunderland, Jr. | Chief Financial Officer |
Entity Name | State of Organization | |
Accumed, Inc. | New Hampshire | |
ASCO Healthcare of New England, Inc. | Maryland | |
ASCO Healthcare of New England, Limited Partnership | Maryland | |
ASCO Healthcare, Inc. | Maryland | |
Care4, L.P. | Delaware | |
CareCard, Inc. | Maryland | |
Concord Pharmacy Services, Inc. | Pennsylvania | |
Delco Apothecary, Inc. | Pennsylvania | |
Eastern Medical Supplies, Inc. | Maryland | |
Encare of Massachusetts, Inc. | Delaware | |
Genesis Health Ventures, Inc. | Pennsylvania | |
Genesis Holdings, Inc. | Delaware | |
Geneva Sub, Inc. | Delaware | |
H.O. Subsidiary, Inc. f/k/a HealthObjects, Inc. | Maryland | |
Health Concepts and Services, Inc. | Maryland | |
HealthObjects Corporation f/k/a Neighborware Health Systems, Inc. | Maryland | |
Horizon Medical Equipment and Supply, Inc. | West Virginia | |
Institutional Health Care Services, Inc. | New Jersey | |
Medical Services Group, Inc. | Maryland | |
Neighborcare Home Medical Equipment of Maryland, L. L. C. | Maryland | |
NeighborCare Home Medical Equipment, Inc. f/k/a United Health Care Services, Inc. | Pennsylvania | |
NeighborCare Infusion Services, Inc. f/k/a Vitalink Infusion Services, Inc. | Delaware | |
NeighborCare of Indiana, Inc. f/k/a TeamCare of Indiana, Inc. | Indiana | |
NeighborCare of New Hampshire L. L. C. | New Hampshire | |
NeighborCare of Northern California, Inc. f/k/a CompuPharm of Northern California, Inc. | California | |
NeighborCare of Oklahoma, Inc. f/k/a Vitalink Subsidiary, Inc. | Oklahoma | |
NeighborCare of Virginia, Inc. f/k/a TeamCare of Virginia, Inc. | Virginia | |
NeighborCare of Wisconsin, Inc. f/k/a GCI Innovative Pharmacy, Inc. | Wisconsin | |
NeighborCare Pharmacies, Inc. | Maryland | |
NeighborCare Pharmacy of Oklahoma LLC | Oklahoma | |
NeighborCare Pharmacy of Virginia LLC | Virginia | |
NeighborCare Pharmacy Services, Inc. f/k/a Vitalink Pharmacy Services, Inc. | Delaware | |
NeighborCare-Medisco, Inc. f/k/a Medisco Pharmacies, Inc. | California | |
NeighborCare-ORCA, Inc. f/k/a White, Mack & Wart, Inc. d/b/a Propac Pharmacy | Oregon | |
NeighborCare-TCI, Inc. | Delaware |
Entity Name | State of Organization | |
Professional Pharmacy Services, Inc. | Maryland | |
SNALF, Inc. | Delaware | |
Tidewater Healthcare Shared Services Group, Inc. The f/k/a TW Acquisition Corp | Pennsylvania |
NeighborCare, Inc.:
/s/ KPMG LLP |
December 23, 2003
1. | I have reviewed this annual report on Form 10-K of NeighborCare, Inc. and subsidiaries; | |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15(e)) for the registrant and have: | |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | |
b) | [Intentionally omitted]; | |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedure and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. | |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
John J. Arlotta |
1. | I have reviewed this annual report on Form 10-K of NeighborCare, Inc. and subsidiaries; | |
2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15(e)) for the registrant and have: | |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; | |
b) | [Intentionally omitted]; | |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedure and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. | |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
/s/ | |
Richard W. Sunderland, Jr. |
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ |
John J. Arlotta |
1. | The Report fully complies with the requirements of section 13 (a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ |
Richard W. Sunderland, Jr. |