SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2001
Commission File Number- 0-27602
-------
NCS HealthCare, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 34-1816187
- ----------------------------------- ---------------------------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122
- ----------------------------------------------------------
(Address of principal executive offices and zip code)
(216) 378-6800
- -----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check whether the registrant:
1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
2) has been subject to such filing requirement for the past 90 days.
Yes X No
--- ---
Common Stock Outstanding
- ------------------------
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practical date.
Class A Common Stock, $ .01 par value - 18,461,599 shares as of November 7, 2001
Class B Common Stock, $ .01 par value - 5,255,210 shares as of November 7, 2001
1
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
INDEX
Page
----
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
September 30, 2001 and June 30, 2001 3
Condensed Consolidated Statements of Operations-
Three months ended-
September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows-
Three months ended-
September 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements - September 30, 2001 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED) (NOTE A)
SEPTEMBER 30, JUNE 30,
2001 2001
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 37,363 $ 39,464
Accounts receivable, less allowances 92,470 94,447
Inventories 30,313 32,770
Prepaid expenses and other current assets 5,070 3,301
-------- --------
Total current assets 165,216 169,982
Property and equipment, at cost
net of accumulated depreciation and amortization 32,683 34,019
Goodwill, less accumulated amortization 301,951 301,907
Other assets 8,679 8,063
-------- --------
TOTAL ASSETS $508,529 $513,971
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit in default $206,130 $206,130
Convertible subordinated debentures in default 102,228 102,107
Accounts payable 50,287 56,349
Accrued expenses and other current liabilities 27,640 21,925
--------- ----------
Total current liabilities 386,285 386,511
Long-term debt, excluding current portion 805 825
Other 122 140
Stockholders' Equity:
Preferred stock, par value $ .01 per share, 1,000,000
shares authorized; none issued - -
Common stock, par value $ .01 per share:
Class A - 50,000,000 shares authorized; 18,461,599
and 18,421,845 shares issued and outstanding at
September 30, 2001 and June 30, 2001, respectively 184 184
Class B - 20,000,000 shares authorized; 5,255,210
and 5,294,964 shares issued and outstanding at
September 30, 2001 and June 30, 2001, respectively 53 53
Paid-in capital 271,943 271,943
Accumulated deficit (150,863) (145,685)
-------- --------
Total stockholders' equity 121,317 126,495
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $508,529 $513,971
======== ========
Note A: The balance sheet at June 30, 2001 has been derived from the audited
consolidated financial statements at that date, but does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to condensed consolidated financial statements.
3
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
---- ----
Revenues $ 157,836 $ 159,022
Cost of revenues 130,656 130,985
--------- ---------
Gross profit 27,180 28,037
Selling, general and administrative expenses 25,331 27,001
--------- ---------
Operating income 1,849 1,036
Interest expense, net 6,953 8,049
--------- ---------
Loss before income taxes (5,104) (7,013)
Income tax expense 75 100
--------- ---------
Net loss $ (5,179) $ (7,113)
========= =========
Net loss per share - basic $ (0.22) $ (0.31)
========= =========
Net loss per share - diluted $ (0.22) $ (0.31)
========= =========
Shares used in the computation - basic 23,717 23,150
========= =========
Shares used in the computation - diluted 23,717 23,150
========= =========
See notes to condensed consolidated financial statements.
4
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2001 2000
----------------------------
OPERATING ACTIVITIES
Net loss $ (5,179) $ (7,113)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,319 6,433
Changes in assets and liabilities :
Accounts receivable, net (578) (4,961)
Accrued expenses and other liabilities 1,487 18,667
Other, net 689 5,189
----------------------------
Net cash provided by (used in) operating activities (262) 18,215
----------------------------
INVESTING ACTIVITIES
Capital expenditures for property and equipment, net (1,368) (555)
Other (332) 273
----------------------------
Net cash used in investing activities (1,700) (282)
----------------------------
FINANCING ACTIVITIES
Repayment of long-term debt (139) (216)
----------------------------
Net cash used in financing activities (139) (216)
----------------------------
Net increase (decrease) in cash and cash equivalents (2,101) 17,717
Cash and cash equivalents at beginning of period 39,464 16,387
----------------------------
Cash and cash equivalents at end of period 37,363 $ 34,104
============================
See notes to condensed consolidated financial statements.
5
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended September 30, 2001 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2002. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K for the
year ended June 30, 2001.
2. In June 1998, the Company entered into a four-year revolving credit
agreement (Credit Facility). The Credit Facility, as amended, has an
available commitment of $207 million, provides all Company assets as
security, limits the availability of the Credit Facility to use for working
capital only, requires Lender approval on future acquisitions, bears
interest at a variable rate and contains certain debt covenants including an
Interest Coverage Ratio and minimum consolidated net worth requirements.
At September 30, 2001, the Company is in violation of certain financial
covenants of the Credit Facility. On April 21, 2000, the Company received a
formal notice of default from the bank group. As a result of the notice of
default, the interest rate on the Credit Facility (excluding facility fee)
increased to the Prime Rate plus 2.25% (8.25% at September 30, 2001). In
addition, the Company will not be permitted to obtain any further funds
under the Credit Facility until the defaults have been waived by the bank
group. The Company is currently in discussions to obtain waivers of the
covenant violations and to amend the credit agreement. Until the amendment
to the credit agreement is obtained, the borrowings of $206.1 million under
the Credit Facility at September 30, 2001 will be classified as a current
liability. Failure to obtain the waiver and amendment could have a material
adverse effect on the Company. If the waiver and amendment are not obtained,
the Company's lenders may accelerate the maturity of the Company's
obligations and/or exercise other remedies under the credit agreement
including exercising their rights with respect to the pledged collateral.
The Company elected to not make the semi-annual $2.875 million interest
payments due February 15, 2001 and August 15, 2001 on the Company's 5 3/4%
Convertible Subordinated Debentures due 2004 (debentures). On April 6, 2001,
the Company received a formal Notice of Default and Acceleration and Demand
for Payment from the Indenture Trustee. The Indenture Trustee declared the
entire principal and any accrued interest thereon to be immediately due and
payable and demanded immediate payment of such amounts. If such payments are
not made, the Indenture Trustee reserves the right to pursue remedial
measures in accordance with the Indenture, including, without limitation,
collection activities. As of September 30, 2001, the amount of principal and
accrued interest is $106.5 million. The Company is currently in discussions
with an ad hoc committee of debenture holders regarding a possible
restructuring of this indebtedness. The timing and ultimate outcome of these
negotiations is uncertain and could have a material adverse effect on the
Company. As a result of the above noted debentures being in default, an
additional $2.1 million of the Company's 5 3/4% Convertible Subordinated
Debentures due 2004 are also in default. Until the defaults are resolved,
convertible subordinated debentures of $102.2 million and the related
accrued interest will be classified as a current liability.
6
3. The following table sets forth the computation of basic and diluted earnings
per share in accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS No. 128):
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2001 2000
-------------------------------
Numerator:
Numerator for basic earnings per share - net loss $ (5,179) $ (7,113)
Effect of dilutive securities:
Convertible debentures - -
-------------------------------
Numerator for diluted earnings per share $ (5,179) $ (7,113)
===============================
Denominator:
Denominator for basic earnings per share -
Weighted average common shares 23,717 23,150
-------------------------------
Effect of dilutive securities:
Stock options - -
Convertible debentures - -
-------------------------------
Dilutive potential common shares - -
-------------------------------
Denominator for diluted earnings per share 23,717 23,150
===============================
Basic earnings per share:
Net loss per share $ (0.22) $ (0.31)
===============================
Diluted earnings per share:
Net loss per share $ (0.22) $ (0.31)
===============================
At September 30, 2001 and 2000, the Company had 1,954,798 and 1,297,109,
respectively, of employee stock options that are potentially dilutive that
were not included in the computation of diluted earnings per share as their
effect would be antidilutive. The Company had $102,228,000 and $102,000,000
of convertible subordinated debentures outstanding at September 30, 2001 and
2000, respectively, that were convertible into 3,258,104, shares of Class A
Common Stock, that were not included in the computation of diluted earnings
per share as their effect would be antidilutive for all periods presented.
4. In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets acquired in a business combination that is completed
after June 30, 2001. The Company adopted SFAS No. 141 on July 1, 2001.
The Company has elected early adoption of SFAS No. 142 effective July 1,
2001. Under SFAS No. 142, goodwill and indefinite lived intangible assets
will no longer be amortized. Under this non-amortization approach, goodwill
and indefinite lived intangible assets will be reviewed for impairment using
a fair value based approach as of the beginning of fiscal 2002. The Company
is required to complete the initial step of the transitional impairment test
within six months of adopting SFAS No. 142 and is required to complete the
final step of the transitional impairment test by the end of the current
fiscal year. Going forward, these assets will be tested for impairment on an
annual basis or upon the occurrence of certain triggering events as defined
by SFAS No. 142. Any impairment loss resulting from the transitional
impairment test will be recorded as a cumulative effect of a change in
accounting principle during the quarter ended September 30, 2001. While the
Company is
7
still in the process of completing the initial step of the transitional
impairment test, the Company does expect that it will be required to
recognize an impairment loss as a result of the adoption of SFAS No. 142.
In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective July 1, 2001. A reconciliation of previously reported
net loss and loss per share to the amounts adjusted for the exclusion of
goodwill amortization net of the related income tax effect follows:
THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
---- ----
(IN THOUSANDS)
Net Loss:
As reported $ (5,179) $ (7,113)
Goodwill amortization - 2,625
--------- ---------
As adjusted $ (5,179) $ (4,488)
========= =========
Basic and Diluted Loss Per Share:
As reported $ (0.22) $ (0.31)
Goodwill amortization - 0.12
--------- ---------
As adjusted $ (0.22) $ (0.19)
========= =========
The gross carrying amount and accumulated amortization of intangible assets
subject to amortization was $11,334,000 and $7,339,000, respectively, at
September 30, 2001. Intangible assets that will continue to be amortized
under SFAS No. 142 consist primarily of non-compete covenants, deferred
debenture issuance costs and capitalized loan fees. Amortization expense for
the three months ended September 30, 2001 was $614,000. The estimated
amortization expense for each of the five fiscal years subsequent to June
30, 2001 is as follows:
FISCAL YEAR ENDING JUNE 30, AMOUNT
2002 $1,980,000
2003 1,082,000
2004 879,000
2005 394,000
2006 201,000
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
Net loss for the three months ended September 30, 2001 was $5,179,000 or $0.22
per diluted share compared to net loss of $7,113,000 or $0.31 per diluted share
for the three months ended September 30, 2000. The results for the three months
ended September 30, 2001 reflect the adoption of Statements of Financial
Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets," which resulted in discontinuing the
amortization of goodwill. As a result of the early adoption of SFAS No. 142, net
loss was reduced by $2.6 million and net loss per diluted share was reduced by
$0.11 for the quarter ended September 30, 2001. As required by SFAS No. 142, the
results for the quarter ended September 30, 2000 have not been restated.
Revenues for the three months ended September 30, 2001 decreased $1,186,000 or
0.7% to $157,836,000 from $159,022,000 recorded in the comparable period in
fiscal 2001. The decrease in revenue from the prior fiscal year is attributable
to a decrease in revenue from the Company's allied and ancillary businesses.
This decrease is due to decisions by management to terminate uneconomic accounts
and the shutdown or sale of certain non-strategic or unprofitable operations.
Cost of revenues for the three months ended September 30, 2001 decreased
$329,000 or 0.3% to $130,656,000 from $130,985,00 recorded in the comparable
period in fiscal 2001. Cost of revenues as a percentage of revenues for the
three month period ended September 30, 2001 was 82.8%, compared to 82.4% for the
same period during the prior fiscal year. The decline in gross margin as a
percentage of revenues was primarily due to the continued shift toward lower
margin payer sources such as Medicaid and third party insurance, and lower
Medicaid and insurance reimbursement levels. Medicaid and insurance revenues
accounted for 59.4% of revenues in the first quarter of fiscal 2002 versus 55.0%
in the first quarter of fiscal 2001.
Selling, general and administrative expenses for the three months ended
September 30, 2001 decreased by $1,670,000 or 6.2% to $25,331,000, from
$27,001,000 recorded in the comparable period in fiscal 2001. Selling, general
and administrative expenses as a percentage of revenues was 16.0% for the three
month period ended September 30, 2001, compared to 17.0% during the comparable
period in fiscal 2001. As discussed above, the Company adopted SFAS No. 142
effective July 1, 2001 and accordingly discontinued the amortization of
goodwill. If SFAS No. 142 would have been effective for the quarter ended
September 30, 2000, selling, general and administrative expenses would have been
$24,376,000 or 15.3% of sales compared to $25,331,000 or 16.0 % of sales for the
quarter ended September 30, 2001. The increase in expenses from the prior year
is primarily a result of increases in bad debt expense and professional fees
related to restructuring activities, partially offset by a decrease in operating
expenses as a result of efforts by the Company to reduce pharmacy operating and
overhead expenses.
The Company had net interest expense of $6,953,000 for the three month period
ended September 30, 2001, compared to net interest expense of $8,049,000 during
the comparable period in fiscal 2001. The decrease is primarily attributable to
a decrease in interest rates during the past year. As discussed below, the
Company is in default on its line of credit agreement and is currently being
charged a default interest rate. The Company will continue to pay the default
interest rate as long as it is in default of its line of credit agreement.
Liquidity and Capital Resources
Net cash used in operating activities decreased to $262,000 during the three
months ended September 30, 2001 from $18,215,000 provided by operating
activities in the comparable period in fiscal 2001. The decrease in net cash
provided by operating activities resulted primarily from an increase in accounts
payable in the prior year due to an interim modification of payment terms
negotiated with a major Company supplier. The Company is continuing its
negotiations with this supplier to achieve a permanent modification in payment
terms. The timing and the ultimate outcome of these negotiations is uncertain.
9
Net cash used in investing activities increased to $1,700,000 during the three
months ended September 30, 2001 from $282,000 recorded in the comparable period
in fiscal 2001. The increase is primarily the result of increased capital
expenditures during the current period.
Net cash used in financing activities decreased to $139,000 during the three
months ended September 30, 2001 from $216,000 recorded in the comparable period
in fiscal 2001.
In August 1997, the Company issued $100 million of convertible subordinated
debentures due 2004. The debentures carry an interest rate of 5 3/4%. The
debentures are obligations of the Company. The operations of the Company are
currently conducted principally through subsidiaries, which are separate and
distinct legal entities. The Company's ability to make payments of principal and
interest on the debentures will depend on its ability to receive distributions
of cash from its subsidiaries. Each of the Company's wholly-owned subsidiaries
has guaranteed the Company's payment obligations under the debentures, so long
as such subsidiary is a member of an affiliated group (within the meaning of
Section 279(g) of the Internal Revenue Code of 1986, as amended) that includes
the Company. The satisfaction by the Company's subsidiaries of their contractual
guarantees, as well as the payment of dividends and certain loans and advances
to the Company by such subsidiaries, may be subject to certain statutory or
contractual restrictions, are contingent upon the earnings of such subsidiaries
and are subject to various business considerations.
The Company elected to not make the semi-annual $2.875 million interest payments
due February 15, 2001 and August 15, 2001 on the Company's 5 3/4% Convertible
Subordinated Debentures due 2004 (debentures). On April 6, 2001, the Company
received a formal Notice of Default and Acceleration and Demand for Payment from
the Indenture Trustee. The Indenture Trustee declared the entire principal and
any accrued interest thereon to be immediately due and payable and demanded
immediate payment of such amounts. If such payments are not made, the Indenture
Trustee reserves the right to pursue remedial measures in accordance with the
Indenture, including, without limitation, collection activities. As of September
30, 2001, the amount of principal and accrued interest is $106.5 million. The
Company is currently in discussions with an ad hoc committee of debenture
holders regarding a possible restructuring of this indebtedness. The timing and
ultimate outcome of these negotiations is uncertain and could have a material
adverse effect on the Company. As a result of the above noted debentures being
in default, an additional $2.1 million of the Company's 5 3/4% Convertible
Subordinated Debentures due 2004 are also in default. Until the defaults are
resolved, convertible subordinated debentures of $102.2 million and the related
accrued interest will be classified as a current liability.
In June 1998, the Company entered into a four-year revolving credit agreement
(Credit Facility). The Credit Facility, as amended, has an available commitment
of $207 million, provides all Company assets as security, limits the
availability of the Credit Facility to use for working capital only, requires
Lender approval on future acquisitions, bears interest at a variable rate and
contains certain debt covenants including an Interest Coverage Ratio and minimum
consolidated net worth requirements.
At September 30, 2001, the Company is in violation of certain financial
covenants of the Credit Facility. On April 21, 2000, the Company received a
formal notice of default from the bank group. As a result of the notice of
default, the interest rate on the Credit Facility (excluding facility fee)
increased to the Prime Rate plus 2.25% (8.25% at September 30, 2001). In
addition, the Company will not be permitted to obtain any further funds under
the Credit Facility until the defaults have been waived by the bank group. The
Company is currently in discussions to obtain waivers of the covenant violations
and to amend the credit agreement. Until the amendment to the credit agreement
is obtained, the borrowings of $206.1 million under the Credit Facility at
September 30, 2001 will be classified as a current liability. Failure to obtain
the waiver and amendment could have a material adverse effect on the Company. If
the waiver and amendment are not obtained, the Company's lenders may accelerate
the maturity of the Company's obligations and/or exercise other remedies under
the credit agreement including exercising their rights with respect to the
pledged collateral. Subject to obtaining the necessary waivers and amendments,
the Company expects to meet future financing needs principally through the use
of the Credit Facility and cash generated from operations.
During the past twenty-four months the Company has implemented measures to
improve cash flows generated from operating activities, including reductions in
operating and overhead costs by continuing the consolidation and/or closing of
pharmacy locations, continuing its employee reduction plan, more aggressive
collection activity and inventory reduction efforts, and an interim modification
of payment terms negotiated with a major Company
10
supplier. However, the Company may require additional capital resources for
internal working capital needs and may need to incur additional indebtedness to
meet these requirements. Additional funds are currently not available under the
Credit Facility as described above and there can be no assurances that
additional funds will be available.
Brown, Gibbons, Lang & Company L.P. (BGL&Co.) is acting as the Company's
financial advisor in its continuing discussions with the Company's senior
lenders and with an ad hoc committee of holders of the 53/4% Convertible
Subordinated Debentures due 2004, with respect to the defaults and to
restructuring options. BGL&Co. is also discussing various strategic alternatives
with third parties. No decision has been made to enter into any transaction or
as to what form any transaction might take. NCS can give no assurance with
respect to the outcome of these discussions or negotiations.
The Company's effective income tax rate for the three months ended September 30,
2000 and 2001 differs from the federal statutory rate primarily as a result of
the recording of a full valuation allowance against the Company's net deferred
tax assets consisting primarily of net operating loss carryforwards.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets."
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination that is completed after
June 30, 2001. The Company adopted SFAS No. 141 on July 1, 2001.
The Company has elected early adoption of SFAS No. 142 effective July 1, 2001.
Under SFAS No. 142, goodwill and indefinite lived intangible assets will no
longer be amortized. Accordingly, the Company discontinued the amortization of
goodwill effective July 1, 2001. Under this non-amortization approach, goodwill
and indefinite lived intangible assets will be reviewed for impairment using a
fair value based approach as of the beginning of fiscal 2002. The Company is
required to complete the initial step of the transitional impairment test within
six months of adopting SFAS No. 142 and is required to complete the final step
of the transitional impairment test by the end of the current fiscal year. Going
forward, these assets will be tested for impairment on an annual basis or upon
the occurrence of certain triggering events as defined by SFAS No. 142. Any
impairment loss resulting from the transitional impairment test will be recorded
as a cumulative effect of a change in accounting principle during the quarter
ended September 30, 2001. While the Company is still in the process of
completing the initial step of the transitional impairment test, the Company
does expect that it will be required to recognize an impairment loss as a result
of the adoption of SFAS No. 142.
Disclosure Regarding Forward-Looking Statements
Certain statements contained in or incorporated by reference into this Quarterly
Report on Form 10-Q, including, but not limited to, those regarding the
Company's financial position, business strategy and other plans and objectives
for future operations and any other statements that are not historical facts
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of the Company, or
industry results, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Although
the Company believes that the expectations reflected in these forward-looking
statements are reasonable, there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have expected effects on its business or
operations. These forward-looking statements are made based on management's
expectations and beliefs concerning future events impacting the Company and are
subject to uncertainties and factors (including, but not limited to, those
specified below) which are difficult to predict and, in many instances, are
beyond the control of the Company. As a result, actual results of the Company
may differ materially from those expressed or implied by any such
forward-looking statements. Among the factors that could cause actual results to
differ materially from the Company's expectations include continuation
11
of various trends in the long-term care market (including the trend toward
consolidation and the impact of the Balanced Budget Act of 1997), competition
among providers of long-term care pharmacy services, the Company's negotiations
with its bank group regarding its revolving credit facility, the Company's
negotiations with an ad hoc committee of holders of its 5 3/4% convertible
subordinated debentures due 2004, negotiations regarding payment terms with
suppliers, changes in regulatory requirements and Federal and State
reimbursement levels, reform of the health care delivery system, litigation
matters, implementation of newly issued accounting standards, other factors and
risks and uncertainties described in the Company's SEC reports.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company has not entered
into derivative financial instruments for trading purposes. The Company's
primary market risk exposure relates to interest rate risk. The Company has
managed its interest rate risk by balancing its exposure between fixed and
variable rates while attempting to minimize its interest costs. The Company has
a balance of $206,130,000 on its revolving credit facility at September 30,
2001, which is subject to a variable rate of interest based on the Prime rate.
Assuming borrowings at September 30, 2001, a one-hundred basis point change in
interest rates would impact net interest expense by approximately $2,061,300 per
year.
12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
September 30, 2001.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NCS HealthCare, Inc.
(Registrant)
Date: November 14, 2001 By /s/ Kevin B. Shaw
------------------------------
Kevin B. Shaw
President, Chief Executive
Officer, Secretary and Director
Date: November 14, 2001 By /s/ William B. Byrum
------------------------------
William B. Byrum
Executive Vice President and
Chief Operating Officer
Date: November 14, 2001 By /s/ Gerald D. Stethem
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Gerald D. Stethem
Senior Vice President and
Chief Financial Officer
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