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, 2002
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
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(Address of principal executive offices and zip code)
(216) 378-6800
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(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 - 18,508,102 shares as of November 7, 2002
Class B Common Stock, $ .01 par value - 5,208,707 shares as of November 7, 2002
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
INDEX
Page
----
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
September 30, 2002 and June 30, 2002 3
Condensed Consolidated Statements of Operations-
Three months ended - September 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows-
Three months ended - September 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements-
September 30, 2002 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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,
2002 2002
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 47,514 $ 42,539
Accounts receivable, less allowances 83,024 85,808
Inventories 32,035 30,593
Other 3,896 2,863
--------- ---------
Total current assets 166,469 161,803
Property and equipment, at cost
net of accumulated depreciation and amortization 26,786 28,118
Goodwill, less accumulated amortization 80,501 80,487
Other assets 6,319 7,385
--------- ---------
TOTAL ASSETS $ 280,075 $ 277,793
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Line of credit in default $ 206,130 $ 206,130
Convertible subordinated debentures in default 102,496 102,361
Accounts payable 44,714 45,336
Accrued expenses and other liabilities 37,570 31,406
--------- ---------
Total current liabilities 390,910 385,233
Long-term debt, excluding current portion 483 549
Other 56 73
Stockholders' Deficit:
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; 18,471,599
and 18,461,599 shares issued and outstanding at
September 30, 2002 and June 30, 2002, respectively 184 184
Class B - 20,000,000 shares authorized; 5,245,210
and 5,255,210 shares issued and outstanding at
September 30, 2002 and June 30, 2002, respectively 53 53
Paid-in capital 271,943 271,943
Accumulated deficit (383,554) (380,242)
--------- ---------
Total stockholders' deficit (111,374) (108,062)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 280,075 $ 277,793
========= =========
Note A: The balance sheet at June 30, 2002 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.
6
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
THREE MONTHS ENDED
SEPTEMBER 30,
2002 2001
--------- ---------
Revenues $ 163,753 $ 157,836
Cost of revenues 138,221 130,656
--------- ---------
Gross profit 25,532 27,180
Selling, general and administrative expenses 22,761 25,331
--------- ---------
Operating income 2,771 1,849
Interest expense, net 6,024 6,953
--------- ---------
Loss before income taxes and cumulative effect of accounting change (3,253) (5,104)
Income tax expense 60 75
--------- ---------
Loss before cumulative effect of accounting change (3,313) (5,179)
Cumulative effect of accounting change -- (222,116)
--------- ---------
Net loss $ (3,313) $(227,295)
========= =========
Net loss per common share before cumulative effect of accounting change -
basic and diluted $ (0.14) $ (0.22)
Cumulative effect of accounting change -- $ (9.37)
--------- ---------
Net loss per common share - basic and diluted $ (0.14) $ (9.58)
========= =========
Weighted average number of common shares outstanding - basic and diluted 23,717 23,717
========= =========
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,
2002 2001
--------- ---------
OPERATING ACTIVITIES
Net loss $ (3,313) $(227,295)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Cumulative effect of accounting change -- 222,116
Depreciation and amortization 3,064 3,319
Changes in assets and liabilities:
Accounts receivable, net 2,128 (578)
Accrued expenses and other liabilities 5,966 1,487
Other, net (2,475) 689
--------- ---------
Net cash provided by (used in) operating activities 5,370 (262)
--------- ---------
INVESTING ACTIVITIES
Capital expenditures for property and equipment, net (1,473) (1,368)
Other 1,144 (332)
--------- ---------
Net cash used in investing activities (329) (1,700)
--------- ---------
FINANCING ACTIVITIES
Repayment of long-term debt (66) (139)
--------- ---------
Net cash used in financing activities (66) (139)
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,975 (2,101)
Cash and cash equivalents at beginning of period 42,539 39,464
--------- ---------
Cash and cash equivalents at end of period $ 47,514 $ 37,363
========= =========
See notes to condensed consolidated financial statements.
5
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(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, 2002 are
not necessarily indicative of the results that may be expected for the
year ending June 30, 2003. 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, 2002.
2. On July 28, 2002, the Company (NCS), Genesis Health Ventures, Inc.
(Genesis) and Geneva Sub, Inc., a wholly owned subsidiary of Genesis (Sub)
entered into a definitive Agreement and Plan of Merger (the merger
agreement), pursuant to which Sub will merge with and into NCS (the
proposed merger), with NCS surviving as a wholly owned subsidiary of
Genesis. If the proposed merger is completed, each outstanding share of
common stock of NCS, par value $0.01 per share ("NCS Common Stock"), other
than the NCS Common Stock held by NCS and other than dissenting shares,
will be converted into the right to receive 0.1 of a share of common stock
of Genesis, par value $0.02 per share. At the closing of the proposed
merger, Genesis will repay in full the outstanding debt of the Company,
including the borrowings of $206.1 million under the Credit Facility, and
will redeem $102.5 million of 5-3/4% convertible subordinated debentures,
including accrued and unpaid interest and any applicable redemption
premiums. The completion of the proposed merger is subject to regulatory
approvals and other customary conditions, including the approval of the
holders of a majority of the outstanding voting power of NCS Common Stock.
In connection with the merger agreement, on July 28, 2002, NCS and Genesis
entered into agreements (the voting agreements) with Jon H. Outcalt,
chairman of the board of NCS, and Kevin B. Shaw, president, chief
executive officer and a director of NCS in their capacity as NCS
stockholders, beneficially owning in the aggregate a majority of the
outstanding voting power of NCS Common Stock. In the voting agreements,
Messrs. Outcalt and Shaw agreed to vote all of their shares of NCS Class A
common stock and NCS Class B common stock in favor of adoption of the
merger agreement and against certain other actions specified in the voting
agreements. In the voting agreements, each of Messrs. Outcalt and Shaw
granted an irrevocable limited proxy to each of the president and
secretary of Genesis and any other Genesis-authorized representative to
vote their respective shares of NCS capital stock in favor of adoption of
the merger agreement and against certain other actions specified in the
voting agreements. Messrs. Outcalt and Shaw also agreed not to transfer
their shares of NCS Class A common stock and NCS Class B common stock or
options convertible into shares of NCS Class A common stock or NCS Class B
common stock before the completion of the proposed merger or termination
of the voting agreements. Accordingly, a sufficient number of the votes
required to adopt the merger agreement is assured.
On August 8, 2002, Omnicare, Inc. (Omnicare) commenced a cash tender offer
to purchase all of the outstanding shares of Class A and Class B common
stock of NCS for $3.50 per share. On October 7, 2002, NCS received an
irrevocable, executed merger agreement from Omnicare that commits Omnicare
to pay $3.50 per share in cash to NCS stockholders. The effect of the
Omnicare tender offer and irrevocable, executed merger agreement on the
proposed merger between NCS and Genesis is not known at this time.
Since the Company entered into the merger agreement, seven lawsuits (six
of which are purported stockholder class action lawsuits and one of which
was filed by Omnicare) have been filed in connection with the proposed
merger. The five purported stockholder class actions that were filed in
the Court of Chancery of the State of Delaware have been consolidated into
a single proceeding. The Omnicare lawsuit (as amended) and the
consolidated stockholder lawsuit, which together are referred to as the
"Delaware lawsuits", each name NCS, the NCS directors, Genesis and Geneva
Sub as defendants. The Delaware lawsuits allege, among other things,
6
that the NCS directors breached their fiduciary duties and certain other
duties to NCS stockholders by entering into the merger agreement and the
voting agreements. The Delaware lawsuits seek various relief, including:
an injunction against completion of the proposed merger; a judgment that
the proposed merger would require approval by both the holders of NCS
Class A common stock and the holders of NCS Class B common stock voting as
separate classes; a judgment that would rescind the proposed merger if it
is completed prior to a final judgment on the Delaware lawsuits; a
declaration that the merger agreement and the voting agreements are null
and void; a declaration that the voting agreements violated NCS'
certificate of incorporation and resulted in an automatic conversion of
the NCS Class B common stock to which the voting agreements pertained,
into NCS Class A common stock (which would mean that the shares agreed to
be voted by Messrs. Outcalt and Shaw would represent less than a majority
of the voting power of NCS); and an award of compensatory damages and
costs.
On October 25, 2002, the Court of Chancery of the State of Delaware (the
Court) issued a ruling dismissing all of Omnicare's claims except for
Count I, which count seeks a judgement declaring that the voting
agreements violated NCS' certificate of incorporation and resulted in an
automatic conversion of the NCS Class B common stock to which the voting
agreements pertained, into NCS Class A common stock. On October 29, 2002,
the Court issued a ruling granting summary judgment in favor of the
defendants as to Count I of Omnicare's amended complaint and Count I of
the consolidated stockholder lawsuit. In the summary judgement, the Court
ruled that the voting agreements did not violate the NCS' certificate of
incorporation and did not result in a conversion of the NCS Class B common
stock owned by Messrs. Outcalt and Shaw into NCS Class A common stock.
Omnicare has appealed these rulings. A motion for a preliminary injunction
relating to the remaining claims of the consolidated class action is
currently scheduled for November 14, 2002. The Company believes that the
allegations set forth in these lawsuits are without merit and intends to
contest them vigorously; however, the ultimate outcome of these lawsuits
cannot be predicted with certainty. These lawsuits could adversely affect
the Company's ability to consummate the merger agreement with Genesis.
On August 20, 2002, the Company filed a complaint against Omnicare in the
United States District Court for the Northern District of Ohio, titled NCS
Healthcare, Inc. v. Omnicare, Inc., Case No. 1:02CV1635 (Matia, J.), and,
on August 21, 2002, the Company amended the complaint. The complaint, as
amended, alleges, among other things, that Omnicare's disclosure on
Schedule TO, filed on August 8, 2002 in connection with the associated
tender offer, contains materially false and misleading disclosures in
violation of Section 14(e) of the Securities Exchange Act of 1934. On
September 30, 2002, NCS filed a motion for a preliminary injunction
seeking to enjoin the Omnicare tender offer until such time as Omnicare
amends the tender offer to correct its materially false and misleading
disclosures. Omnicare has filed a Motion to Dismiss. The Motion to Dismiss
has been submitted to the court for consideration.
On September 26, 2002, UBS Warburg LLC filed a complaint against the
Company in the Supreme Court of the State of New York for the County of
New York, titled UBS Warburg LLC (f/k/a Warburg Dillon Read LLC) v. NCS
HealthCare, Inc. et. al., Case No. 603546/02. The lawsuit seeks damages in
connection with the Company's alleged breach of certain engagement letters
between the Company and UBS Warburg LLC. UBS Warburg seeks a money
judgment against NCS in excess of $12.5 million. The Company believes that
the allegations set forth in this lawsuit are without merit and intends to
contest them vigorously.
If the Company is unsuccessful in defending the actions discussed above,
their resolution could have a material effect on the Company's financial
condition and consolidated financial position, results of operations and
cash flows.
3. In June 1998, the Company entered into a four-year revolving credit
agreement (Credit Facility) which expired on May 31, 2002. On June 3,
2002, the Company received correspondence from the senior lenders
indicating that they reserve the right to exercise all rights, powers and
privileges provided for in the credit agreement including the acceleration
of the collection of the Company's obligations and/or exercise other
remedies under the credit agreement including exercising their rights with
respect to the pledged collateral. At the current time, the senior lenders
have not chosen to exercise and enforce the rights and remedies available
to them under the credit agreement.
7
Prior to the expiration of the Credit Facility, the Company had been in
violation of certain financial covenants of the Credit Facility. On April
21, 2000, the Company received a formal notice of default from the senior
lenders. 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% (7.0% at September 30, 2002). The borrowings of $206.1 million under
the Credit Facility at September 30, 2002 are classified as a current
liability. Failure to obtain a favorable resolution to the expiration of
the Credit Facility could have a material adverse effect on the Company.
The Company elected to not make the semi-annual $2.875 million interest
payments due February 15 and August 15, 2001 and February 15 and August
15, 2002 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, 2002, the amount of principal and accrued
interest is $112.2 million. As a result of the above noted Debentures
being in default, an additional $2.5 million of convertible subordinated
debentures due 2004 are also in default. Until the defaults are resolved,
convertible subordinated debentures of $102.5 million and related accrued
interest of $12.2 million will be classified as a current liability.
See additional discussion regarding the Credit Facility, the Debentures
and the proposed merger with Genesis in Note 2.
4. 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,
-------------
2002 2001
---- ----
Numerator:
Numerator for basic earnings per share - net loss $ (3,313) $ (227,295)
Effect of dilutive securities:
Convertible debentures -- --
-------- ----------
Numerator for diluted earnings per share $ (3,313) $ (227,295)
======== ==========
Denominator:
Denominator for basic earnings per share -
Weighted average common shares 23,717 23,717
-------- ----------
Effect of dilutive securities:
Stock options -- --
Convertible debentures -- --
-------- ----------
Dilutive potential common shares -- --
-------- ----------
Denominator for diluted earnings per share 23,717 23,717
======== ==========
Basic earnings per share:
Loss before cumulative effect of accounting change $ (0.14) $ (0.22)
Cumulative effect of accounting change -- (9.37)
-------- ----------
Net loss per share $ (0.14) $ (9.58)
======== ==========
Diluted earnings per share:
Loss before cumulative effect of accounting change $ (0.14) $ (0.22)
Cumulative effect of accounting change -- (9.37)
-------- ----------
Net loss per share $ (0.14) $ (9.58)
======== ==========
8
At September 30, 2002 and 2001, the Company had 2,482,382 and 1,954,798,
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 $102,496,000 and
$102,228,000 of convertible subordinated debentures outstanding at
September 30, 2002 and 2001, 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.
5. The Company elected early adoption of Statement of Financial Accounting
Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" effective
July 1, 2001. The Company recorded a non-cash charge of $222.1 million to
reduce the carrying value of its goodwill as a result of the adoption of
SFAS No. 142. In accordance with the requirements of SFAS No. 142, the
charge has been recorded as a cumulative effect of accounting change in
the Company's fiscal 2002 consolidated statement of operations.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Proposed Merger with Genesis Health Ventures, Inc.
On July 28, 2002, the Company entered into a definitive merger agreement with
Genesis Health Ventures, Inc. (Genesis). If the proposed merger is completed,
each outstanding share of common stock of the Company will be converted into the
right to receive 0.1 of a share of Genesis common stock. At the closing of the
proposed merger, Genesis will repay in full the outstanding debt of NCS,
including $206.1 million of senior debt, and will redeem $102.5 million of
5-3/4% convertible subordinated debentures, including accrued and unpaid
interest and any applicable redemption premiums. The completion of the proposed
merger is subject to regulatory approvals and other customary conditions,
including the approval of the holders of a majority of the outstanding voting
power of the Company's common stock.
In connection with the merger agreement, on July 28, 2002, NCS and Genesis
entered into agreements (the voting agreements) with Jon H. Outcalt, chairman of
the board of NCS, and Kevin B. Shaw, president, chief executive officer and a
director of NCS in their capacity as NCS stockholders, beneficially owning in
the aggregate a majority of the outstanding voting power of NCS Common Stock. In
the voting agreements, Messrs. Outcalt and Shaw agreed to vote all of their
shares of NCS Class A common stock and NCS Class B common stock in favor of
adoption of the merger agreement and against certain other actions specified in
the voting agreements. In the voting agreements, each of Messrs. Outcalt and
Shaw granted an irrevocable limited proxy to each of the president and secretary
of Genesis and any other Genesis-authorized representative to vote their
respective shares of NCS capital stock in favor of adoption of the merger
agreement and against certain other actions specified in the voting agreements.
Messrs. Outcalt and Shaw also agreed not to transfer their shares of NCS Class A
common stock and NCS Class B common stock or options convertible into shares of
NCS Class A common stock or NCS Class B common stock before the completion of
the proposed merger or termination of the voting agreements. Accordingly, a
sufficient number of the votes required to adopt the merger agreement is
assured.
Genesis provides healthcare services to America's elderly through a network of
NeighborCare pharmacies and Genesis ElderCare skilled nursing and assisted
living facilities. The merger will consolidate the operations of the Company and
NeighborCare, Genesis' pharmacy subsidiary, creating the second largest
long-term care pharmacy provider in the United States.
On August 8, 2002, Omnicare, Inc. (Omnicare) commenced a cash tender offer to
purchase all of the outstanding shares of Class A and Class B common stock of
NCS for $3.50 per share. On October 7, 2002, NCS received an irrevocable,
executed merger agreement from Omnicare that commits Omnicare to pay $3.50 per
share in cash to NCS stockholders. The effect of the Omnicare tender offer and
irrevocable, executed merger agreement on the proposed merger between NCS and
Genesis is not known at this time.
Results of Operations
Net loss for the three months ended September 30, 2002 was $3,313,000 or $0.14
per diluted share compared to net loss of $227,295,000 or $9.58 per diluted
share for the three months ended September 30, 2001. Net loss for the three
months ended September 30, 2001, excluding the cumulative effect of the adoption
of Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and
Other Intangible Assets," was $5,179,000 or $0.22 per share.
The Company elected early adoption of SFAS No. 142 effective July 1, 2001. In
accordance with SFAS No. 142, goodwill and other indefinite lived intangible
assets are no longer amortized. Under this non-amortization approach, SFAS No.
142 requires that goodwill and other indefinite lived intangible assets be
reviewed for impairment using a fair value based approach upon adoption and at
least annually thereafter. The Company recorded a non-cash charge of
$222,116,000 or $9.37 per diluted share to reduce the carrying value of its
goodwill as a result of the adoption of SFAS No. 142. In accordance with the
requirements of SFAS No. 142, the charge has been recorded as a cumulative
effect of accounting change in the Company's fiscal 2002 consolidated statement
of operations.
10
Revenues for the three months ended September 30, 2002 increased $5,917,000 or
3.7% to $163,753,000 from $157,836,000 recorded in the comparable period in
fiscal 2002. The increase in revenue from the prior fiscal year is attributable
to pharmaceutical price inflation over the last year and the increased
utilization of higher priced drugs.
Cost of revenues for the three months ended September 30, 2002 increased
$7,565,000 or 5.8% to $138,221,000 from $130,656,000 recorded in the comparable
period in fiscal 2002. Cost of revenues as a percentage of revenues for the
three month period ended September 30, 2002 was 84.4%, compared to 82.8% 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 payor sources such as Medicaid and third party insurance, and lower
Medicaid and insurance reimbursement levels. Medicaid and insurance revenues
accounted for 60.8% of revenues in the first quarter of fiscal 2003 versus 59.4%
in the first quarter of fiscal 2002.
Selling, general and administrative expenses for the three months ended
September 30, 2002 decreased by $2,570,000 or 10.1% to $22,761,000, from
$25,331,000 recorded in the comparable period in fiscal 2002. Selling, general
and administrative expenses as a percentage of revenues was 13.9% for the three
month period ended September 30, 2002, compared to 16.0% during the comparable
period in fiscal 2002. The decrease in expenses from the prior year is primarily
a result of decreases in bad debt expense and operating expenses as a result of
efforts by the Company to reduce pharmacy operating and overhead expenses,
partially offset by an increase in professional fees related to restructuring
and merger related activities.
The Company had net interest expense of $6,024,000 for the three month period
ended September 30, 2002, compared to net interest expense of $6,953,000 during
the comparable period in fiscal 2002. The decrease is primarily attributable to
a decrease in interest rates during the past year. As discussed below, the line
of credit agreement expired on May 31, 2002 and the Company is currently being
charged a default interest rate.
Liquidity and Capital Resources
Net cash provided by operating activities increased to $5,370,000 during the
three months ended September 30, 2002 from $262,000 used in operating activities
in the comparable period in fiscal 2002. The increase in net cash provided by
operating activities resulted primarily from improved cash collections of
accounts receivable and an increase in accrued expenses in the current year due
to timing of company payroll funding, and an increase in deferred revenue.
Net cash used in investing activities decreased to $329,000 during the three
months ended September 30, 2002 from $1,700,000 recorded in the comparable
period in fiscal 2002.
Net cash used in financing activities decreased to $66,000 during the three
months ended September 30, 2002 from $139,000 recorded in the comparable period
in fiscal 2002.
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) which includes
the Company. The satisfaction by the Company's subsidiaries of their contractual
guarantees, as well as the payment of dividends and certain loans and advances
to the Company by such subsidiaries, may be subject to certain statutory or
contractual restrictions, are contingent upon the earnings of such subsidiaries
and are subject to various business considerations.
The Company elected to not make the semi-annual $2.875 million interest payments
due February 15 and August 15, 2001 and February 15 and August 15, 2002 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
11
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, 2002, the amount of principal and accrued interest is $112.2 million. As a
result of the above noted Debentures being in default, an additional $2.5
million of convertible subordinated debentures due 2004 are also in default.
Until the defaults are resolved, convertible subordinated debentures of $102.5
million and related accrued interest of $12.2 million will be classified as a
current liability.
In June 1998, the Company entered into a four-year revolving credit agreement
(Credit Facility) which expired on May 31, 2002. On June 3, 2002, the Company
received correspondence from the senior lenders indicating that they reserve the
right to exercise all rights, powers and privileges provided for in the credit
agreement including the acceleration of the collection of the Company's
obligations and/or exercise other remedies under the credit agreement including
exercising their rights with respect to the pledged collateral. At the current
time, the senior lenders have not chosen to exercise and enforce the rights and
remedies available to them under the credit agreement.
Prior to the expiration of the Credit Facility, the Company had been in
violation of certain financial covenants of the Credit Facility. On April 21,
2000, the Company received a formal notice of default from the senior lenders.
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% (7.00% at
September 30, 2002). The borrowings of $206.1 million under the Credit Facility
at September 30, 2002 are classified as a current liability. Failure to obtain a
favorable resolution to the expiration of the Credit Facility could have a
material adverse effect on the Company.
During the past three years, 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
credit administration and collection and inventory reduction efforts, and a
temporary modification of payment terms negotiated with a major Company
supplier. In addition, the Company continues to review the profitability of its
customer base and is terminating uneconomic accounts as well as applying
stricter standards in accepting new business. The Company expects to meet its
financing needs for the next twelve months through the use of cash generated
from operations and its cash balance of $47.5 million at September 30, 2002.
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 assurance that additional
funds will be available.
The Company has been in ongoing discussions with the Company's senior lenders
and with an ad hoc committee of holders of the 5-3/4% Convertible Subordinated
Debentures due 2004 regarding the defaults discussed above and potential
restructuring options. In addition, the Company engaged financial advisors and
legal counsel to assist in exploring various capital restructuring and strategic
alternatives with third parties. These defaults, among other factors, raise
substantial doubt about the Company's ability to continue as a going concern.
On July 28, 2002, the Company entered into a definitive merger agreement with
Genesis Health Ventures, Inc. (Genesis). If the proposed merger is completed,
each outstanding share of common stock of the Company will be converted into the
right to receive 0.1 of a share of Genesis common stock. At the closing of the
proposed merger, Genesis will repay in full the outstanding debt of the Company,
including the borrowings of $206.1 million under the Credit Facility, and will
redeem $102.5 million of 5-3/4% convertible subordinated debentures, including
accrued and unpaid interest and any applicable redemption premiums.
The completion of the proposed merger is subject to regulatory approvals and
other customary conditions, including the approval of the holders of a majority
of the outstanding voting power of the Company's common stock. The timing and
ultimate outcome of the proposed merger or any future negotiations with the
Company's senior lenders and ad hoc committee of debenture holders is uncertain
and could have a material adverse effect on the Company. Given the foregoing, no
assurances can be given that the Company will be able to maintain its current
level of operations, or that its financial condition and prospects will not be
materially and adversely affected over the next twelve months.
12
The Company's effective income tax rate for the three months ended September 30,
2002 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.
Certain Legal Proceedings
On July 28, 2002, the Company (NCS), Genesis Health Ventures, Inc. (Genesis) and
Geneva Sub, Inc., a wholly owned subsidiary of Genesis (Sub) entered into a
definitive Agreement and Plan of Merger (the merger agreement), pursuant to
which Sub will merge with and into NCS (the proposed merger), with NCS surviving
as a wholly owned subsidiary of Genesis. If the proposed merger is completed,
each outstanding share of common stock of NCS, par value $0.01 per share ("NCS
Common Stock"), other than the NCS Common Stock held by NCS and other than
dissenting shares, will be converted into the right to receive 0.1 of a share of
common stock of Genesis, par value $0.02 per share. At the closing of the
proposed merger, Genesis will repay in full the outstanding debt of the Company,
including the borrowings of $206.1 million under the Credit Facility, and will
redeem $102.5 million of 5-3/4% convertible subordinated debentures, including
accrued and unpaid interest and any applicable redemption premiums. The
completion of the proposed merger is subject to regulatory approvals and other
customary conditions, including the approval of the holders of a majority of the
outstanding voting power of NCS Common Stock.
In connection with the merger agreement, on July 28, 2002, NCS and Genesis
entered into agreements (the voting agreements) with Jon H. Outcalt, chairman of
the board of NCS, and Kevin B. Shaw, president, chief executive officer and a
director of NCS in their capacity as NCS stockholders, beneficially owning in
the aggregate a majority of the outstanding voting power of NCS Common Stock. In
the voting agreements, Messrs. Outcalt and Shaw agreed to vote all of their
shares of NCS Class A common stock and NCS Class B common stock in favor of
adoption of the merger agreement and against certain other actions specified in
the voting agreements. In the voting agreements, each of Messrs. Outcalt and
Shaw granted an irrevocable limited proxy to each of the president and secretary
of Genesis and any other Genesis-authorized representative to vote their
respective shares of NCS capital stock in favor of adoption of the merger
agreement and against certain other actions specified in the voting agreements.
Messrs. Outcalt and Shaw also agreed not to transfer their shares of NCS Class A
common stock and NCS Class B common stock or options convertible into shares of
NCS Class A common stock or NCS Class B common stock before the completion of
the proposed merger or termination of the voting agreements. Accordingly, a
sufficient number of the votes required to adopt the merger agreement is
assured.
On August 8, 2002, Omnicare, Inc. (Omnicare) commenced a cash tender offer to
purchase all of the outstanding shares of Class A and Class B common stock of
NCS for $3.50 per share. On October 7, 2002, NCS received an irrevocable,
executed merger agreement from Omnicare that commits Omnicare to pay $3.50 per
share in cash to NCS stockholders. The effect of the Omnicare tender offer and
irrevocable, executed merger agreement on the proposed merger between NCS and
Genesis is not known at this time.
Since the Company entered into the merger agreement, seven lawsuits (six of
which are purported stockholder class action lawsuits and one of which was filed
by Omnicare) have been filed in connection with the proposed merger. The five
purported stockholder class actions that were filed in the Court of Chancery of
the State of Delaware have been consolidated into a single proceeding. The
Omnicare lawsuit (as amended) and the consolidated stockholder lawsuit, which
together are referred to as the "Delaware lawsuits", each name NCS, the NCS
directors, Genesis and Geneva Sub as defendants. The Delaware lawsuits allege,
among other things, that the NCS directors breached their fiduciary duties and
certain other duties to NCS stockholders by entering into the merger agreement
and the voting agreements. The Delaware lawsuits seek various relief, including:
an injunction against completion of the proposed merger; a judgment that the
proposed merger would require approval by both the holders of NCS Class A common
stock and the holders of NCS Class B common stock voting as separate classes; a
judgment that would rescind the proposed merger if it is completed prior to a
final judgment on the Delaware lawsuits; a declaration that the merger agreement
and the voting agreements are null and void; a declaration that the voting
agreements violated NCS' certificate of incorporation and resulted in an
automatic conversion of the NCS Class B common stock to which the voting
agreements pertained, into NCS Class A common stock (which would mean that the
shares agreed to be voted by Messrs. Outcalt and Shaw would represent less than
a majority of the voting power of NCS); and an award of compensatory damages and
costs.
13
On October 25, 2002, the Court of Chancery of the State of Delaware (the Court)
issued a ruling dismissing all of Omnicare's claims except for Count I, which
count seeks a judgement declaring that the voting agreements violated NCS'
certificate of incorporation and resulted in an automatic conversion of the NCS
Class B common stock to which the voting agreements pertained, into NCS Class A
common stock. On October 29, 2002, the Court issued a ruling granting summary
judgment in favor of the defendants as to Count I of Omnicare's amended
complaint and Count I of the consolidated stockholder lawsuit. In the summary
judgement, the Court ruled that the voting agreements did not violate the NCS'
certificate of incorporation and did not result in a conversion of the NCS Class
B common stock owned by Messrs. Outcalt and Shaw into NCS Class A common stock.
Omnicare has appealed these rulings. A motion for a preliminary injunction
relating to the remaining claims of the consolidated class action is currently
scheduled for November 14, 2002. The Company believes that the allegations set
forth in these lawsuits are without merit and intends to contest them
vigorously; however, the ultimate outcome of these lawsuits cannot be predicted
with certainty. These lawsuits could adversely affect the Company's ability to
consummate the merger agreement with Genesis.
On August 20, 2002, the Company filed a complaint against Omnicare in the United
States District Court for the Northern District of Ohio, titled NCS Healthcare,
Inc. v. Omnicare, Inc., Case No. 1:02CV1635 (Matia, J.), and, on August 21,
2002, the Company amended the complaint. The complaint, as amended, alleges,
among other things, that Omnicare's disclosure on Schedule TO, filed on August
8, 2002 in connection with the associated tender offer, contains materially
false and misleading disclosures in violation of Section 14(e) of the Securities
Exchange Act of 1934. On September 30, 2002, NCS filed a motion for a
preliminary injunction seeking to enjoin the Omnicare tender offer until such
time as Omnicare amends the tender offer to correct its materially false and
misleading disclosures. Omnicare has filed a Motion to Dismiss. The Motion to
Dismiss has been submitted to the court for consideration.
On September 26, 2002, UBS Warburg LLC filed a complaint against the Company in
the Supreme Court of the State of New York for the County of New York, titled
UBS Warburg LLC (f/k/a Warburg Dillon Read LLC) v. NCS HealthCare, Inc. et. al.,
Case No. 603546/02. The lawsuit seeks damages in connection with the Company's
alleged breach of certain engagement letters between the Company and UBS Warburg
LLC. UBS Warburg seeks a money judgment against NCS in excess of $12.5 million.
The Company believes that the allegations set forth in this lawsuit are without
merit and intends to contest them vigorously.
NCS' subsidiary, NCS HealthCare of Illinois, Inc., referred to as "NCS
Illinois," and former owners of the Herrin, Illinois site, were named defendants
in a civil action filed under the federal civil False Claims Act in the United
States District Court for the Southern District of Illinois in the case
captioned "The United States of America, ex rel., Denise Crews, et al. v. Family
Nursing Home Services, Inc., et al." (Case No. 99-4020-GPM). On February 20,
2002, the United States of America filed a Notice of Election to Decline
Intervention. This notice was filed in camera and under seal. The complaint was
then served on NCS Illinois on July 12, 2002. On August 20, 2002, NCS was served
with a copy of a First Amended False Claims Complaint with jury demand in the
above-captioned matter in which NCS was also named as a defendant. The amended
complaint alleges violations of the federal and Illinois false claims acts and
seeks treble damages and a civil penalty in the amount of $10,000 for each false
claim.
If the Company is unsuccessful in defending the actions discussed above, their
resolution could have a material effect on the Company's financial condition and
consolidated financial position, results of operations and cash flows.
Critical Accounting Policies
In December 2001, the SEC issued Financial Reporting Release No. 60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policies" (FR 60),
suggesting companies provide additional disclosure and commentary on those
accounting policies considered most critical. FR 60 considers an accounting
policy to be critical if it is important to the Company's financial condition
and results, and requires significant judgment and estimates on the part of
management in its application. The Company's critical accounting policies are
described in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" within the Annual Report on Form 10-K for
the year ended June 30, 2002. In addition, a summary of all of the Company's
significant
14
accounting policies, including critical accounting policies, is included in Note
1 of the Notes to Consolidated Financial Statements in the Annual Report on Form
10-K for the year ended June 30, 2002. No changes were made to the Company's
critical accounting policies during the quarter ended September 30, 2002 except
as indicated below.
Obligations Under Prime Wholesaler Agreement:
The Company purchases the majority of its inventory through one primary
pharmaceutical supplier. In fiscal 2001, the Company negotiated a temporary
modification of payment terms with this supplier. In June 2002, the Company
entered into a letter of intent with this supplier and is continuing its
negotiations to achieve a permanent modification in payment terms. In addition,
the Company earns administrative fees and amounts from certain other contractual
arrangements under a prime wholesaler agreement with this supplier. The
administrative fees and amounts from other contractual arrangements are accrued
on a monthly basis based on purchasing data and knowledge of the terms of the
contractual arrangements. The monthly accrual is adjusted to actual results when
they are communicated to the Company. The adjustments to actual results were not
material during the quarter ended September 30, 2002. The actual amounts due
under the contractual arrangements are typically communicated to the Company on
a quarterly or annual basis based on the terms of the contractual arrangements.
As a result of the 2001 temporary modification of payment terms, the supplier is
withholding certain contractual amounts due to the Company. Receivables from the
supplier of $12.5 million and $12.2 million at September 30, 2002 and June 30,
2002, respectively, have been netted against accounts payable to the supplier
for financial reporting purposes. The Company believes that the receivables
arising from these contractual arrangements are collectible and is currently
operating under the letter of intent which provides for the Company to make
monthly payments to the supplier based on the net amount payable to the
supplier. The timing and ultimate outcome of these negotiations are uncertain
and could have a material adverse effect on the Company.
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. These forward-looking statements may include, but
are not limited to, statements containing words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend," "may" and similar expressions. Among the
factors that could cause actual results to differ materially from the Company's
expectations include the ability to consummate the proposed merger transaction
with Genesis and/or obtain the anticipated results and synergies from the
proposed merger transaction with Genesis and the increased uncertainty created
by the integration of the two businesses, the outcome of the Omnicare, Inc.
tender offer and related litigation, the continued impact of the Medicare
Prospective Payment System, discussions with the Company's senior lenders and
the ad hoc committee of debenture holders, overall economic, financial and
business conditions, delays in reimbursement by the government or other payors
of the Company and its customers, the overall financial condition of the
Company's customers, the ability of the Company to assess and react to the
financial condition of customers, the effect of new government regulation,
access to capital and financing, the demand for the Company's products and
services, pricing and competitive factors in the industry, changes in accounting
rules and standards continuation of various trends in the long-term care market
(including the trend toward consolidation), changes in reimbursement levels from
State Medicaid programs and third-party insurance plans, the credit worthiness
of customers, competition among providers of long-term care pharmacy services,
negotiations regarding payment terms and other contractual obligations with
suppliers, changes in
15
regulatory requirements and Federal and State reimbursement levels, reform of
the health care delivery system, litigation matters and 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,
2002, which is subject to a variable rate of interest based on the Prime rate.
Assuming borrowings at September 30, 2002, a one-hundred basis point change in
interest rates would impact net interest expense by approximately $2,061,300 per
year.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the filing date of this Quarterly Report on Form 10-Q,
the Company performed an evaluation, under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on that evaluation, the Company's management, including
the Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer, concluded that the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934)
were effective in ensuring that material information relating to the Company was
made known to them, particularly during the period in which this quarterly
report was prepared. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect these
internal controls subsequent to the date of their evaluation.
16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K:
(1) On July 30, 2002 the Company filed a Current Report on Form
8-K relating to the proposed merger with Genesis Health
Ventures, Inc.
(2) On August 6, 2002 the Company filed a Current Report on Form
8-K dated relating to the filing of certain shareholder
lawsuits in connection with the proposed merger with Genesis
Health Ventures, Inc.
(3) On August 19, 2002 the Company filed a Current Report on Form
8-K relating to the filing of certain lawsuits in connection
with the proposed merger with Genesis Health Ventures, Inc.
(4) On August 22, 2002 the Company filed a Current Report on Form
8-K relating to the submission to the Securities and Exchange
Commission of certifications by the chief executive and chief
financial officers of the Company pursuant to the
Sarbanes-Oxley Act of 2002 regarding the Company's Annual
Report on Form 10-K for the year ended June 30, 2002.
17
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 13, 2002 By /s/ Kevin B. Shaw
----------------------------------------------------
Kevin B. Shaw
President, Chief Executive Officer and Director
Date: November 13, 2002 By /s/ William B. Byrum
----------------------------------------------------
William B. Byrum
Executive Vice President and Chief Operating Officer
Date: November 13, 2002 By /s/ Gerald D. Stethem
----------------------------------------------------
Gerald D. Stethem
Senior Vice President and Chief Financial Officer
18
CERTIFICATION
I, Kevin B. Shaw, President, Chief Executive Officer and Director, certify that:
1. I have reviewed this quarterly report on Form 10-Q of NCS HealthCare,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present, in all
material aspects the financial condition, results of operations and cash
flows of the registrant as of, and for the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; 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; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 13, 2002 By /s/ Kevin B. Shaw
-----------------------------------------------
Kevin B. Shaw
President, Chief Executive Officer and Director
19
CERTIFICATION
I, William B. Byrum, Executive Vice President and Chief Operating Officer,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of NCS HealthCare,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present, in all
material aspects the financial condition, results of operations and cash
flows of the registrant as of, and for the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; 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; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 13, 2002 By /s/ William B. Byrum
----------------------------------------------------
William B. Byrum
Executive Vice President and Chief Operating Officer
20
CERTIFICATION
I, Gerald D. Stethem, Senior Vice President and Chief Financial Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of NCS HealthCare,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present, in all
material aspects the financial condition, results of operations and cash
flows of the registrant as of, and for the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and audit
committee of the registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material
weaknesses in internal controls; 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; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 13, 2002 By /s/ Gerald D. Stethem
-------------------------------------------------
Gerald D. Stethem
Senior Vice President and Chief Financial Officer
21