UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
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For the quarterly period ended March 31, 2005 |
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
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For the transition period from to |
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Commission File Number: 000-33217
NEIGHBORCARE, INC.
(Exact name of registrant as specified in its charter)
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Pennsylvania |
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06-1132947 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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601 East Pratt Street, 3rd Floor |
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21202 |
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(Address of principal executive offices) |
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(Zip code) |
(410) 528-7300
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ý NO o
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).
YES ý NO o
As of May 5, 2005, 44,132,566 shares of the registrant’s common stock were outstanding and 259,360 shares are to be issued in connection with the registrant’s joint plan of reorganization confirmed by the Bankruptcy Court on September 20, 2001.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
YES ý NO o
TABLE OF CONTENTS
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
As used herein, unless the context otherwise requires, “NeighborCare,” the “Company,” “we,” “our” or “us” refers to NeighborCare, Inc. and our subsidiaries.
Statements made in this report and in our other public filings and releases, which are not historical facts, contain “forward-looking” statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to:
• certain statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the notes to our consolidated financial statements, such as our ability to meet our liquidity needs, scheduled debt and interest payments, and expected future capital expenditure and business acquisition requirements; the expected effects of government regulation on our business including the Medicare Prescription Drug, Improvement and Modernization Act of 2003; our ability to successfully implement our strategic objectives, including the effects of the spin-off of Genesis HealthCare Corporation (“GHC”) and the achievement of certain performance improvement initiatives within our institutional pharmacy segment, in order to improve current pharmacy profitability; costs associated with an unsolicited offer to acquire the Company; and estimates in our significant accounting policies, including our allowance for doubtful accounts, the valuation of our deferred tax assets and the anticipated impact of long-lived asset impairments;
• certain statements in “Quantitative and Qualitative Disclosures About Market Risk;” and
• certain statements in “Legal Proceedings” regarding the effects of litigation.
The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. You are cautioned that these statements are not guarantees of future performance, and that actual results and trends in the future may differ materially.
Factors that could cause actual results to differ materially include, but are not limited to the following:
• our ability, and the ability of our customers, to comply with Medicare or Medicaid reimbursement regulations or other applicable laws;
• changes in the reimbursement rates or methods of payment from Medicare and Medicaid, or the implementation of other measures to reduce the reimbursement for our services and the impact of the Medicare Prescription Drug, Improvement and Modernization Act of 2003;
• changes in pharmacy legislation and payment formulas;
• the impact of federal and state regulations;
• competition in our businesses;
• the impact of Omnicare, Inc.’s unsolicited tender offer to acquire all of our outstanding common stock and nomination of an alternative slate of directors;
• competition for qualified management and pharmacy professionals;
• the impact of investigations and audits relating to alleged violations of federal and/or state regulations;
• changes in the acuity of patients, payor mix and payment methodologies;
• further consolidation of managed care organizations and other third party payors;
• the effect of the expiration or termination of certain service and supply contracts;
• changes in or our failure to satisfy pharmaceutical manufacturers’ rebate programs;
• an economic downturn or changes in the laws affecting our business in those markets in which we operate;
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• the impact of acquisitions, and our ability to integrate acquired businesses, on our operations and finances;
• our ability to control operating costs and generate sufficient cash flow to meet operational and financial requirements;
• our ability, and the ability of our subsidiary guarantors, to fulfill debt obligations;
• our covenants and restrictions contained in financing agreements which limit our discretion in the operation of our business;
• our charter documents and the Pennsylvania Business Corporation Law of 1988, as amended, which could delay or prevent a change of control;
• income tax liabilities and indemnification obligations related to the spin-off of GHC; and
• acts of God or public authorities, war, civil unrest, terrorism, fire, floods, earthquakes and other matters beyond our control.
Certain of these risks are described in more detail in our Annual Report on Form 10-K for the fiscal year ended September 30, 2004 filed with the Securities and Exchange Commission on December 10, 2004, as amended on Form 10-K/A filed with the Securities and Exchange Commission on December 14, 2004.
In addition to these factors and any risks and uncertainties specifically identified in the text surrounding forward-looking statements, any statements in this report or the reports and other documents filed by us with the SEC that warn of risks or uncertainties associated with future results, events or circumstances also identify factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements.
All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as may be required under applicable securities law.
4
NEIGHBORCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
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March 31, 2005 |
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September 30, 2004 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
27,316 |
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$ |
81,923 |
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Accounts receivable, net of allowance of $18,174 and $13,608, respectively |
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265,557 |
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230,903 |
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Inventories |
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69,779 |
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64,111 |
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Prepaid expenses and other current assets |
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43,906 |
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40,046 |
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Total current assets |
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406,558 |
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416,983 |
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Property, plant and equipment, net of accumulated depreciation of $74,659 and $61,904, respectively |
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95,600 |
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84,215 |
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Other long-term assets |
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21,343 |
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19,353 |
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Identifiable intangible assets, net |
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16,824 |
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12,737 |
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Goodwill |
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347,097 |
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316,120 |
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Total assets |
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$ |
887,422 |
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$ |
849,408 |
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LIABILITIES and SHAREHOLDERS’ EQUITY |
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Current liabilities |
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Current portion of long-term debt |
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$ |
9,035 |
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$ |
4,263 |
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Accounts payable and accrued expenses |
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119,604 |
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116,965 |
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Income taxes payable |
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14,878 |
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4,747 |
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Total current liabilities |
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143,517 |
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125,975 |
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Long-term debt excluding current portion |
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255,648 |
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258,008 |
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Deferred income taxes |
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62,607 |
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62,607 |
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Other long-term liabilities |
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10,442 |
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8,158 |
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Total liabilities |
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472,214 |
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454,748 |
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Minority interest |
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7,893 |
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7,880 |
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SHAREHOLDERS’ EQUITY |
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407,315 |
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386,780 |
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Total liabilities and shareholders’ equity |
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$ |
887,422 |
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849,408 |
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See accompanying notes to unaudited condensed consolidated financial statements.
5
NEIGHBORCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except per share amounts)
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Three Months Ended |
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2005 |
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2004 |
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Net revenues |
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$ |
404,706 |
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356,646 |
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Cost of revenues |
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321,329 |
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282,285 |
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Gross profit |
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83,377 |
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74,361 |
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Selling, general and administrative |
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60,518 |
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51,599 |
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Strategic planning, severance and other operating items |
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(64 |
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2,037 |
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Takeover defense expenses |
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785 |
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Operating income |
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22,138 |
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20,725 |
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Interest expense, net |
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4,498 |
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4,553 |
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Other expense |
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1,173 |
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1,225 |
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Income before income tax provision |
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16,467 |
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14,947 |
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Income tax provision |
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6,782 |
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6,731 |
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Net income |
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$ |
9,685 |
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