FORM 10-Q
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2007
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 0-28740
BioScrip, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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05-0489664 |
(State or Other Jurisdiction
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(I.R.S. Employer Identification No.) |
of Incorporation or Organization) |
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100 Clearbrook Road, Elmsford, NY
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10523 |
(Address of Principal Executive Offices)
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(Zip Code) |
(914) 460-1600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act (check one):
o Large accelerated filer þ Accelerated filer o Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
On October 31, 2007, there were outstanding 37,672,768 shares of the registrants common
stock, $.0001 par value per share.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
BIOSCRIP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
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September 30, |
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December 31, |
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2007 |
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2006 |
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(unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
Receivables, less allowance for doubtful accounts of $13,079 and
$13,774 at September 30, 2007 and December 31, 2006, respectively |
|
|
125,297 |
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|
135,139 |
|
Inventory |
|
|
33,383 |
|
|
|
33,471 |
|
Prepaid expenses and other current assets |
|
|
1,473 |
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|
2,090 |
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|
|
|
|
|
|
|
Total current assets |
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|
160,153 |
|
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|
170,700 |
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|
|
|
|
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|
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Property and equipment, net |
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|
10,287 |
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|
10,409 |
|
Other assets |
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|
467 |
|
|
|
681 |
|
Goodwill |
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|
114,824 |
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|
114,991 |
|
Intangible assets, net |
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6,261 |
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|
8,675 |
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Total assets |
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$ |
291,992 |
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$ |
305,456 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
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Line of credit |
|
$ |
36,158 |
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$ |
52,895 |
|
Accounts payable |
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|
54,487 |
|
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|
51,724 |
|
Claims payable |
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|
6,379 |
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|
9,548 |
|
Amounts due to Plan Sponsors |
|
|
4,617 |
|
|
|
10,280 |
|
Accrued expenses and other current liabilities |
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|
12,058 |
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|
9,230 |
|
|
|
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Total current liabilities |
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|
113,699 |
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|
133,677 |
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Unrecognized tax benefits |
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|
4,028 |
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Deferred taxes, net |
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12,097 |
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|
9,946 |
|
|
|
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Total liabilities |
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129,824 |
|
|
|
143,623 |
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Stockholders equity |
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Preferred stock, $.0001 par value; 5,000,000 shares authorized;
no shares issued or outstanding |
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Common stock, $.0001 par value; 75,000,000 shares authorized;
shares issued: 41,028,984 and 40,680,233, respectively;
shares outstanding: 37,667,268 and 37,488,257, respectively |
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4 |
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4 |
|
Treasury stock, 2,282,734 and 2,247,150 shares, respectively, at cost |
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|
(8,158 |
) |
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|
(8,002 |
) |
Additional paid-in capital |
|
|
241,425 |
|
|
|
239,315 |
|
Accumulated deficit |
|
|
(71,103 |
) |
|
|
(69,484 |
) |
|
|
|
|
|
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Total stockholders equity |
|
|
162,168 |
|
|
|
161,833 |
|
|
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|
|
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Total liabilities and stockholders equity |
|
$ |
291,992 |
|
|
$ |
305,456 |
|
|
|
|
|
|
|
|
See accompanying Notes to the Unaudited Consolidated Financial Statements.
1
BIOSCRIP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
Three Months Ended |
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Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
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|
2006 |
|
Revenue |
|
$ |
298,133 |
|
|
$ |
280,916 |
|
|
$ |
889,478 |
|
|
$ |
860,219 |
|
|
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|
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|
|
|
|
|
|
|
|
|
|
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Cost of revenue |
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262,451 |
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|
|
251,213 |
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|
787,529 |
|
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|
771,391 |
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Gross profit |
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35,682 |
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|
|
29,703 |
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|
101,949 |
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|
88,828 |
|
|
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|
|
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|
|
|
|
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|
Selling, general and administrative expenses |
|
|
31,278 |
|
|
|
29,232 |
|
|
|
88,938 |
|
|
|
88,350 |
|
Bad debt expense |
|
|
766 |
|
|
|
2,804 |
|
|
|
4,805 |
|
|
|
9,458 |
|
Amortization of intangibles |
|
|
484 |
|
|
|
1,639 |
|
|
|
2,414 |
|
|
|
4,899 |
|
|
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|
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|
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Income (loss) from operations |
|
|
3,154 |
|
|
|
(3,972 |
) |
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|
5,792 |
|
|
|
(13,879 |
) |
|
|
|
|
|
|
|
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|
|
|
|
|
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|
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|
Interest expense, net |
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|
(728 |
) |
|
|
(916 |
) |
|
|
(2,668 |
) |
|
|
(2,098 |
) |
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income (loss) before benefit from income taxes |
|
|
2,426 |
|
|
|
(4,888 |
) |
|
|
3,124 |
|
|
|
(15,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Tax provision (benefit) |
|
|
760 |
|
|
|
(1,499 |
) |
|
|
2,323 |
|
|
|
(5,723 |
) |
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|
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|
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|
|
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|
|
|
|
|
|
|
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|
Net income (loss) |
|
$ |
1,666 |
|
|
$ |
(3,389 |
) |
|
$ |
801 |
|
|
$ |
(10,254 |
) |
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|
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|
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|
Basic income (loss) per share |
|
$ |
0.04 |
|
|
$ |
(0.09 |
) |
|
$ |
0.02 |
|
|
$ |
(0.28 |
) |
|
|
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|
|
|
|
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|
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|
|
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|
Diluted income (loss) per share |
|
$ |
0.04 |
|
|
$ |
(0.09 |
) |
|
$ |
0.02 |
|
|
$ |
(0.28 |
) |
|
|
|
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|
|
|
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|
|
|
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|
|
|
|
|
|
|
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|
|
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|
Weighted average shares used in computing basic income (loss) per share |
|
|
37,603 |
|
|
|
37,385 |
|
|
|
37,532 |
|
|
|
37,270 |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
Weighted average shares used in computing diluted income (loss) per
share |
|
|
38,480 |
|
|
|
37,385 |
|
|
|
37,957 |
|
|
|
37,270 |
|
|
|
|
|
|
|
|
|
|
|
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|
See accompanying Notes to the Unaudited Consolidated Financial Statements.
2
BIOSCRIP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
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|
|
|
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|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
801 |
|
|
$ |
(10,254 |
) |
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
3,111 |
|
|
|
3,153 |
|
Amortization |
|
|
2,414 |
|
|
|
4,899 |
|
Change in deferred income tax |
|
|
2,151 |
|
|
|
(3,938 |
) |
Tax benefit relating to employee stock compensation |
|
|
|
|
|
|
456 |
|
Excess tax benefits relating to employee stock compensation |
|
|
(51 |
) |
|
|
(19 |
) |
Stock based compensation |
|
|
1,899 |
|
|
|
1,736 |
|
Provision for losses on receivables |
|
|
4,805 |
|
|
|
9,458 |
|
Changes in assets and liabilities, net of acquired assets: |
|
|
|
|
|
|
|
|
Receivables |
|
|
5,037 |
|
|
|
(5,887 |
) |
Inventory |
|
|
88 |
|
|
|
(2,452 |
) |
Prepaid expenses and other assets |
|
|
832 |
|
|
|
(4,412 |
) |
Accounts payable |
|
|
2,763 |
|
|
|
2,637 |
|
Claims payable |
|
|
(3,169 |
) |
|
|
(21,257 |
) |
Amounts due to Plan Sponsors |
|
|
(5,663 |
) |
|
|
(742 |
) |
Accrued expenses and other liabilities |
|
|
4,449 |
|
|
|
3,426 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
19,467 |
|
|
|
(23,196 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment, net of disposals |
|
|
(2,989 |
) |
|
|
(4,713 |
) |
Cost of acquisitions, net of cash acquired |
|
|
|
|
|
|
(13,082 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(2,989 |
) |
|
|
(17,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
(Repayments) borrowings on line of credit, net |
|
|
(16,737 |
) |
|
|
38,157 |
|
Purchase of treasury stock |
|
|
(156 |
) |
|
|
|
|
Proceeds from exercise of stock options |
|
|
374 |
|
|
|
1,525 |
|
Excess tax benefits relating to employee stock compensation |
|
|
51 |
|
|
|
19 |
|
Principal payments on capital lease obligations |
|
|
(10 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(16,478 |
) |
|
|
39,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
|
|
|
|
(1,308 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents-beginning of period |
|
|
|
|
|
|
1,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents-end of period |
|
$ |
|
|
|
$ |
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
2,785 |
|
|
$ |
1,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for income taxes |
|
$ |
966 |
|
|
$ |
2,133 |
|
|
|
|
|
|
|
|
See accompanying Notes to the Unaudited Consolidated Financial Statements.
3
BIOSCRIP, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
These unaudited consolidated financial statements should be read in conjunction with the
audited consolidated financial statements, including the notes thereto, and other information
included in the Annual Report on Form 10-K of BioScrip, Inc. (the Company) for the year ended
December 31, 2006 (the Form 10-K) filed with the U.S. Securities and Exchange Commission (the
SEC). The unaudited consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (GAAP) for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities
Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the unaudited consolidated financial position,
results of operations and cash flows for the periods presented have been included. Operating
results for the three and nine month periods ended September 30, 2007 are not necessarily
indicative of the results that may be expected for the full year ending December 31, 2007. The
accounting policies followed for interim financial reporting are similar to those disclosed in Note
2 of Notes to Consolidated Financial Statements included in the Form 10-K.
Certain prior period amounts have been reclassified to conform to the current year
presentation. Such reclassifications had no material effect on the Companys previously reported
consolidated financial position, results of operations or cash flow.
NOTE 2 EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted income (loss) per common
share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,666 |
|
|
$ |
(3,389 |
) |
|
$ |
801 |
|
|
$ |
(10,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
37,603 |
|
|
|
37,385 |
|
|
|
37,532 |
|
|
|
37,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share |
|
$ |
0.04 |
|
|
$ |
(0.09 |
) |
|
$ |
0.02 |
|
|
$ |
(0.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
37,603 |
|
|
|
37,385 |
|
|
|
37,532 |
|
|
|
37,270 |
|
Common share equivalents of outstanding stock
options and restricted stock awards |
|
|
877 |
|
|
|
|
|
|
|
425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted shares outstanding |
|
|
38,480 |
|
|
|
37,385 |
|
|
|
37,957 |
|
|
|
37,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per common share |
|
$ |
0.04 |
|
|
$ |
(0.09 |
) |
|
$ |
0.02 |
|
|
$ |
(0.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential common shares related to the Companys outstanding stock options of 5,298 and 8,112
for the three and nine months ended September 30, 2007, respectively, were excluded from the
computation of diluted earnings per share. Inclusion of these shares would have been anti-dilutive
as the exercise price of these shares exceeded market value. The net loss per common share for the
three and nine month periods ended September 30, 2006 excludes the effect of all common stock
equivalents, as their inclusion would be anti-dilutive.
NOTE 3 STOCK-BASED COMPENSATION PLANS
Under the Companys stock-based compensation plans (the Plans), it may issue, among other
things, incentive stock
4
options (ISOs), non-qualified stock options (NQSOs), restricted stock, performance units and
performance share awards. Options granted under the Plans typically vest over a three-year period
and, in certain instances, fully vest upon a change in control of the Company. In addition, such
options are generally exercisable for 10 years after the date of grant, subject to earlier
termination in certain circumstances, most notably, upon termination of employment. The exercise
price of NQSOs is equal to the fair market value on the date of grant. The exercise price of ISOs
granted under the Plans will not be less than 100% of the fair market value on the date of grant
(110% for ISOs granted to a person who owns more than 10% of the outstanding stock of the Company).
Stock Options
The Company recognized stock option-related compensation expense of $0.5 million for each of
the three month periods ended September 30, 2007 and 2006. The Company recognized stock
option-related compensation expense of $1.2 million and $1.6 million for the nine months ended
September 30, 2007 and 2006, respectively.
The fair value of each stock option award on the date of the grant was calculated by using a
binomial option-pricing model and is amortized to expense on a straight line basis over the vesting
period with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
|
Expected volatility |
|
|
54.0 |
% |
|
|
|
|
|
|
54.7 |
% |
|
|
52.0 |
% |
Risk-free interest rate |
|
|
4.76 |
% |
|
|
|
|
|
|
4.76 |
% |
|
|
4.50 |
% |
Expected life of options |
|
6.1 years |
|
|
|
|
|
5.2 years |
|
4.5 years |
Dividend rate |
|
|
-0- |
|
|
|
|
|
|
|
-0- |
|
|
|
|
|
Fair value of options |
|
$ |
3.05 |
|
|
|
|
|
|
$ |
1.98 |
|
|
$ |
3.45 |
|
No stock options or other equity-based incentive grants were made during the three months
ended September 30, 2006.
At September 30, 2007, there was $2.2 million of unrecognized compensation expense related to
non-vested stock-based compensation arrangements. That expense is expected to be recognized over a
weighted-average period of 2.0 years.
Since the Company records compensation expense for options over the vesting period, the
weighted average period over which the expense will be recognized may change. Also, future
stock-based compensation expense may be greater as additional options are granted.
Restricted Stock
The Company recognized compensation expense related to restricted stock awards of $0.3 million
and less than $0.1 million for the three months ended September 30, 2007 and 2006, respectively.
The Company recognized compensation expense related to restricted stock awards of $0.7 million and
$0.1 million for the nine months ended September 30, 2007 and 2006, respectively.
As of September 30, 2007, there was $0.9 million of unrecognized compensation expense related
to non-vested stock-based compensation arrangements. That expense is expected to be recognized over
a weighted-average period of 1.8 years.
Since the Company records compensation expense for restricted stock awards based on the
vesting requirements, which include time elapsed and a factor related to stock price, the weighted
average period over which the expense will be recognized may change. Also, future stock-based
compensation expense may be greater if additional restricted stock awards are made.
Performance Units
Under the Plans, the Companys Compensation Committee may grant performance units to key
employees. The Compensation Committee establishes the terms and conditions of the performance units
including the performance goals, the performance period and the value for each performance unit. If
the performance goals are satisfied, the Company shall pay the key employee an amount in cash equal
to the value of each performance unit at the time of payment. In no event shall a key employee
receive an amount in excess of $1.0 million in respect of performance units for any given year. As
of September 30, 2007 there have been no performance units granted.
5
NOTE 4 OPERATING SEGMENTS
The Company operates in two reportable segments: (1) Specialty Services, which is comprised
of specialty pharmacy distribution and clinical management services; and (2) PBM Services, which is
comprised of fully integrated pharmacy benefit management and traditional mail services. Corporate
overhead is allocated between the two segments based on revenue adjusted for managements
assessment of utilization of overhead by each segment.
Segment Reporting Information
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Results of Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services |
|
$ |
244,485 |
|
|
$ |
219,958 |
|
|
$ |
717,460 |
|
|
$ |
634,068 |
|
PBM Services |
|
|
53,648 |
|
|
|
60,958 |
|
|
|
172,018 |
|
|
|
226,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
298,133 |
|
|
$ |
280,916 |
|
|
$ |
889,478 |
|
|
$ |
860,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services |
|
$ |
651 |
|
|
$ |
(3,122 |
) |
|
$ |
(2,204 |
) |
|
$ |
(12,892 |
) |
PBM Services |
|
|
2,503 |
|
|
|
(850 |
) |
|
|
7,996 |
|
|
|
(987 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
3,154 |
|
|
|
(3,972 |
) |
|
|
5,792 |
|
|
|
(13,879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(728 |
) |
|
|
(916 |
) |
|
|
(2,668 |
) |
|
|
(2,098 |
) |
Income tax provision (benefit) |
|
|
760 |
|
|
|
(1,499 |
) |
|
|
2,323 |
|
|
|
(5,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss): |
|
$ |
1,666 |
|
|
$ |
(3,389 |
) |
|
$ |
801 |
|
|
$ |
(10,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services |
|
$ |
1,410 |
|
|
$ |
930 |
|
|
$ |
2,632 |
|
|
$ |
4,192 |
|
PBM Services |
|
|
176 |
|
|
|
72 |
|
|
|
357 |
|
|
|
521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,586 |
|
|
$ |
1,002 |
|
|
$ |
2,989 |
|
|
$ |
4,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services |
|
$ |
897 |
|
|
$ |
895 |
|
|
$ |
2,621 |
|
|
$ |
2,594 |
|
PBM Services |
|
|
163 |
|
|
|
184 |
|
|
|
490 |
|
|
|
559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,060 |
|
|
$ |
1,079 |
|
|
$ |
3,111 |
|
|
$ |
3,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Services |
|
|
|
|
|
|
|
|
|
$ |
228,613 |
|
|
$ |
237,233 |
|
PBM Services |
|
|
|
|
|
|
|
|
|
|
63,379 |
|
|
|
64,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
291,992 |
|
|
$ |
301,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table outlines, by segment, contracts with a Plan Sponsor which accounted for
revenues that exceeded 10% of the Companys total revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
PBM Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
28,495 |
|
|
$ |
29,673 |
|
|
$ |
86,728 |
|
|
$ |
90,684 |
|
% of Total Revenue |
|
|
10 |
% |
|
|
11 |
% |
|
|
10 |
% |
|
|
11 |
% |
Specialty Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
3,626 |
|
|
$ |
5,968 |
|
|
$ |
22,301 |
|
|
$ |
18,004 |
|
% of Total Revenue |
|
|
1 |
% |
|
|
2 |
% |
|
|
3 |
% |
|
|
2 |
% |
6
NOTE 5 ACQUISITIONS
Intravenous Therapy Services, Inc. Acquisition
On March 1, 2006, the Company acquired all of the issued and outstanding capital stock of
Intravenous Therapy Services, Inc. (Infusion West), now known as BioScrip Infusion Services,
Inc., a specialty pharmacy company specializing in home infusion therapies located in Burbank,
California, for approximately $13.1 million in cash, which resulted in approximately $10.7 million
of goodwill, plus a potential earn-out payment contingent on Infusion West achieving certain future
financial performance benchmarks. Had this acquisition taken place on January 1, 2006, the
Companys consolidated sales and income would not have been materially different from the reported
amounts at September 30, 2006.
NOTE 6 CONCENTRATION OF CREDIT RISK
The Company provides credit in the normal course of business to its customers. One customer
accounted for approximately 11% and 13% of revenues during the nine month periods ended September
30, 2007 and 2006, respectively, and 16% and 17% of accounts receivable as of September 30, 2007
and 2006, respectively.
NOTE 7 RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS 159), which
becomes effective for fiscal years beginning after November 15, 2007. SFAS 159 permits companies
to choose to measure many financial instruments and certain other items at fair value on a per
instrument basis, with changes in fair value recognized in earnings each reporting period. This
will enable some companies to reduce volatility in reported earnings caused by measuring related
assets and liabilities differently. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. The Company is currently evaluating the
impact, if any, that adopting SFAS 159 will have on its results of operations and its financial
condition.
NOTE 8 INCOME TAXES
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, (FIN 48) effective January 1, 2007. As a result of the adoption of FIN 48, the
Company recorded a $2.4 million increase in the liability for unrecognized tax benefits, which was
recorded as an adjustment to the opening balance of accumulated deficit on January 1, 2007. As of
the adoption date, the Company had gross tax effected unrecognized tax benefits of approximately
$4.8 million of which $4.5 million, if recognized, would impact its effective tax rate. Interest
and penalties related to unrecognized tax benefits are recorded as income tax expense. As of
January 1, 2007, the Company had $0.6 million of accrued interest included in the $4.8 million of
unrecognized tax benefits.
The Company files income tax returns, including returns for its subsidiaries, with federal,
state and local jurisdictions. The Companys uncertain tax positions are related to tax years that
remain subject to examination. As of the date of the Companys adoption of FIN 48, U.S. tax
returns for 2003, 2005 and 2006 remain subject to examination by federal tax authorities. Tax
returns for the years 2002 through 2006 remain subject to examination by state and local tax
authorities for a majority of the Companys state and local filings.
The Company believes it is likely that certain controversies (totaling approximately $0.5
million) with taxing authorities will be resolved through administrative proceedings within the
next 12 months.
During the quarter ended September 30, 2007 the Company reached settlement agreements with
several state taxing authorities under voluntary disclosure programs offered by the states. As a
result of these settlements the Company has agreed to file prior years returns in certain states
where it believed a filing obligation did not exist. As a result of these settlements the Company
has reclassified approximately $80,000 from unrecognized tax benefits into current liabilities. In
addition, the Company has recorded a reduction of income tax expense of approximately $160,000
which was previously recorded as part of the adoption of FIN 48.
Income tax expense of $0.8 million was recorded on pre-tax income of $2.4 million for the
three months ended September 30, 2007. For the nine months ended September 30, 2007, income tax
expense of $2.3 million was recorded on
7
pre-tax income of $3.1 million. The year to date tax provision includes the tax effects of the
amortization of certain indefinite-lived assets.
At September 30, 2007 the Company had federal net operating loss carry forwards (NOLs) of
approximately $22.9 million, of which $11.6 million is subject to an annual limitation, all of
which will begin expiring in 2017 and later. If the NOLs are not utilized in the year they are
available they may be utilized in a future year to the extent they have not expired. The Company
has state NOLs remaining of approximately $18.7 million, the majority of which will begin expiring
in 2017 and later.
NOTE 9 LONG-TERM CONTRACTS
During the second quarter the Company amended its agreement with its primary drug wholesaler
to, among other things, provide more favorable pricing and payments terms and extend the term of
the agreement until April 2010.
8
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the audited consolidated financial
statements, including the notes thereto, and Managements Discussion and Analysis of Financial
Condition and Results of Operations, included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2006 (the Form 10-K) filed with the U.S. Securities and Exchange Commission
(the SEC), as well as our unaudited consolidated interim financial statements and the related
notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2007 (this Report).
This Report contains statements not purely historical and which may be considered forward
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act), including statements regarding our expectations, hopes, beliefs, intentions or
strategies regarding the future. These forward looking statements may include statements relating
to our business development activities, sales and marketing efforts, the status of material
contractual arrangements, including the negotiation or re-negotiation of such arrangements, future
capital expenditures, the effects of regulation and competition on our business, future operating
performance and the results, benefits and risks associated with the integration of acquired
companies. Investors are cautioned that any such forward-looking statements are not guarantees of
future performance, involve risks and uncertainties and that actual results may differ materially
from those possible results discussed in the forward-looking statements as a result of various
factors. These factors include, among other things, risks associated with capitated contracts,
increased government regulation related to the health care and insurance industries in general and
more specifically, pharmacy benefit management and specialty pharmaceutical distribution
organizations, the existence of complex laws and regulations relating to our business, changes in
reimbursement rates from government and private payors, changes in industry pricing benchmarks such
as average wholesale price (AWP), wholesale acquisition cost (WAC) and average manufacturer
price (AMP), which could have the effect of reducing prices and margins, including the impact or
a proposed settlement in a class action case involving First DataBank, and AWP reporting service
and increased competition from our competitors, including competitors with greater financial,
technical, marketing and other resources. This Report contains information regarding important
factors that could cause such differences.
You should not place undue reliance on such forward-looking statements as they speak only as
of the date they are made. Except as required by law, we assume no obligation to publicly update or
revise any forward-looking statement even if experience or future changes make it clear that any
projected results expressed or implied therein will not be realized.
Business Overview
We are a specialty pharmaceutical health care organization that partners with patients,
physicians, health care payors and pharmaceutical manufacturers to provide access to medications
and management solutions to optimize outcomes for chronic and other complex health care conditions.
Our specialty pharmaceutical services (Specialty Services) include the comprehensive
support, management, dispensing, distribution and data reporting for medications used to treat
patients living with chronic health conditions including potentially life threatening or
debilitating diseases or genetic disorders and are provided in various capacities to patients,
physicians, payors and pharmaceutical manufacturers. Our pharmacy benefit management (PBM)
services include pharmacy network management, claims processing, benefit design, drug utilization
review, formulary management and traditional mail order pharmacy fulfillment. These services are
reported under two operating segments: (i) Specialty Services; and (ii) PBM and Traditional Mail
Services (collectively, PBM Services).
Specialty Services and PBM Services revenues are derived from our relationships with a variety
of third party payors, including managed care organizations, third party administrators (TPAs),
self-funded employer groups and government programs (collectively Plan Sponsors) as well as
patients, physicians and pharmaceutical manufacturers.
Our Specialty Services are marketed and sold to patients, physicians, pharmaceutical
manufacturers and Plan Sponsors and are focused on chronic health conditions including potentially
life threatening or debilitating diseases or genetic disorders which are treated with specialty
medications. These services include the distribution of biotech and other high cost injectable,
oral and infusible prescription medications and the provision of therapy management services.
We strive to maximize therapy outcomes through strict adherence to clinical guidelines or
protocols for particular prescription therapies while at the same time managing the costs of such
therapies on behalf of a Plan Sponsor or patient.
9
We were named the sole vendor for the Centers for Medicare and Medicaid Services Competitive
Acquisition Program (CAP) and as part of our Specialty Services offering began dispensing
Medicare Part B drugs and biologics to CAP enrolled physicians as of July 1, 2006. As a result of
the physician election period which occurred from May 1 through June 15, 2007 for enrollments
effective August 1, 2007, the total number of enrolled physicians increased 36.8% to approximately
3400.
We were awarded an agreement to serve as one of two national specialty pharmacy providers of
HIV/AIDS and Solid Organ Transplant drugs and services to patients insured by United Healthcare and
its participating affiliates. This agreement became effective on August 1, 2007, with the initial
term of the agreement running through December 31, 2008.
We plan to grow our infused product sales by marketing a broader product offering, including
adding new therapies to our current focus on immunological blood products and expanding our
geographic service area. We will work with physicians who utilize our services to support their
in-office infusion activities and we expect to establish ambulatory infusion centers.
Our PBM Services are offered to Plan Sponsors and are designed to promote a broad range of
cost-effective, clinically appropriate pharmacy benefit management services through our network of
retail pharmacies and our traditional mail service distribution facilities. Over the past several
years we have focused on building our Specialty Services for strategic growth and have lost a
significant amount of PBM Services business, including the loss of our contracts with Centene and
excelleRx, which has and will continue to negatively impact 2007 revenue as compared to prior
periods. As of September 30, 2007, Specialty Services revenues represented approximately 80% of
our total revenue.
As part of our PBM Services, we also administer numerous cash card or discount card programs
on behalf of program sponsors or TPAs. These are 100% copay programs that provide savings to
customers who present a discount card at one of our participating network pharmacies or who order
medications through one of our mail order pharmacies. Under such programs we derive revenue on a
per claim basis from the dispensing network pharmacy.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP). In preparing our financial statements, we are required to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. We evaluate our estimates
and assumptions on an ongoing basis. We base our estimates and assumptions on historical
experience and on various other factors that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Our actual results may differ from
these estimates, and different assumptions or conditions may yield different estimates. The
accounting estimates followed for interim financial reporting are similar to those disclosed in
Note 2 of Notes to Consolidated Financial Statements included in the Form 10-K. Material updates
to estimates disclosed in the Form 10-K are discussed below.
On January 1, 2007, we adopted the provisions of FASB Interpretation No. 48 Accounting for
Uncertainty in Income Taxes (FIN 48). FIN 48 establishes a single model to address accounting
for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a
recognition threshold and measurement attribute that a tax position is required to meet before
being recognized in the financial statements and provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
We file income tax returns, including returns for our subsidiaries, as prescribed by federal tax
laws and the tax laws of the state and local jurisdictions in which we operate. Our uncertain tax
positions are related to tax years that remain subject to examination. Interest and penalties
related to unrecognized tax benefits are recorded as income tax
expense. See Note 8 - Income Taxes
of the Notes to the Unaudited Consolidated Financial Statements for discussion of the effects of
our adoption of FIN 48.
Results of Operations
In the following Managements Discussion and Analysis we provide a discussion of reported
results for the three and nine month periods ended September 30, 2007 as compared to the same
periods a year earlier.
Revenue. Revenue for the third quarter of 2007 was $298.1 million compared to $280.9 million
in the third quarter of 2006. Specialty Services revenue for the third quarter of 2007 was $244.5
million, an increase of $24.5 million, or 11.2%, compared to $220.0 million for the same period a
year ago, primarily due to additional revenues associated with preferred distribution arrangements
for newly approved drugs, increased sales from new payor contracts, the CAP program and growth
10
in infused products. PBM Services revenue for the third quarter of 2007 was $53.6 million, a
decrease of $7.3 million, or 12.0%, from the same period a year ago, primarily attributable to the
termination or expiration of certain PBM contracts.
Revenue for the nine months ended September 30, 2007 was $889.5 million compared to $860.2
million for the same period in 2006. Specialty Services revenue for the nine months ended
September 30, 2007 was $717.5 million, an increase of $83.4 million, or 13.2%, compared to $634.1
million for the same period a year ago, primarily due to additional revenues associated with
preferred distribution arrangements for newly approved drugs, increased sales under the CAP program
and growth in infused products. PBM Services revenue for the nine months ended September 30, 2007
was $172.0 million, a decrease of $54.1 million, or 23.9%, from the same period a year ago
attributable to the termination or expiration of certain PBM contracts.
Cost of Revenue and Gross Profit. Cost of revenue for the third quarter of 2007 was $262.5
million compared to $251.2 million for the same period in 2006. Gross margin as a percentage of
revenue increased from 10.6% in the third quarter of 2006 to 12.0% in the third quarter of 2007.
The increase in gross margin rate was primarily due to a favorable contractual settlement and
on-going contractual changes with our primary drug supplier, decreased contractual allowances
relative to previously reserved amounts and the termination of contracts with certain lower gross
profit customers.
Cost of revenue for the nine month period ended September 30, 2007 increased $16.1 million to
$787.5 million from $771.4 million for the same period in 2006. Gross profit for the nine months
ended September 30, 2007 was $101.9 million, an increase of $13.1 million, or 14.8%, from $88.8
million for the nine months ended September 30, 2006. Gross margin as a percentage of revenue for
the nine months ended September 30, 2007 increased to 11.5% compared to gross margin of 10.3% for
the same period last year, primarily as a result of a favorable contractual settlement and on-going
contractual changes with our primary drug supplier, decreased contractual allowance charges and the
termination of certain lower gross profit contracts and revenue growth from higher margin customers
throughout the first nine months of 2007.
Selling, General and Administrative Expenses. Selling, general and administrative expenses
(SG&A) for the third quarter of 2007 increased to $31.3 million, or 10.5% of total revenue, from
$29.2 million, or 10.4% of total revenue, for the third quarter of 2006. The increase in SG&A is
primarily due to increased employee expenses associated with the growth in our Specialty Services
segment along with employee incentives resulting from our improved performance.
SG&A expenses for the nine months ended September 30, 2007 were $88.9 million, or 10.0% of
total revenue, compared to $88.3 million, or 10.3% of total revenue for the same period in 2006.
The decrease in SG&A as a percentage of revenue is primarily due to $2.2 million in severance
obligations that were recognized in the first nine months of 2006 related to the departure of
former members of senior management.
Bad Debt Expense. For the third quarter of 2007 bad debt expense was $0.8 million, or 0.3% of
revenue, as compared to $2.8 million, or 1.0% of revenue, in the third quarter of 2006. The
decrease in bad debt expense is primarily the result of improved billing, cash collection and
posting practices. Our overall methodology used for determining our provision for bad debt remains
essentially unchanged.
For the nine months ended September 30, 2007, bad debt expense decreased 49.2% to $4.8 million
compared to $9.5 million for the same period a year ago. Bad debt expense has decreased due to
improved billing, cash collection and posting practices and the favorable settlement of previously
reserved doubtful accounts.
Amortization of Intangibles. For the third quarter of 2007 we recorded amortization of
intangibles of $0.5 million compared to $1.6 million for the same period in 2006. The decrease in
2007 was primarily the result of certain intangible assets becoming fully amortized in the first
quarter of 2007.
The amortization of intangibles for the nine months ended September 30, 2007 was $2.4 million
compared to $4.9 million for the same period a year ago. The decrease in 2007 was primarily the
result of certain intangible assets becoming fully amortized in the first quarter of 2007.
Net Interest Expense. Net interest expense was $0.7 million for the third quarter of 2007
compared to $0.9 million for the same period a year ago. Interest expense associated with our line
of credit decreased during the third quarter of 2007 primarily due to lower average borrowing
levels compared to last year. The decreased borrowing level was principally due to decreased
working capital requirements as a result of our improved cash flows from operating activities.
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Net interest expense was $2.7 million for the nine months ended September 30, 2007 compared to
$2.1 million for the nine months ended September 30, 2006. The increase in interest expense
associated with our line of credit is a result of a delay in receipt of CAP claims payments in the
first quarter of 2007.
Provision for Income Taxes. Income tax expense of $0.8 million was recorded for the second
quarter of 2007 on pre-tax net income of $2.4 million, including a reduction of income tax expense
of approximately $0.2 million which was previously recorded as part of the adoption of FIN 48.
This compares to a $1.5 million tax benefit on a pre-tax net loss of $4.9 million for the same
period a year ago which was recorded prior to the establishment of a valuation allowance in the
fourth quarter of 2006.
Income tax expense of $2.3 million was recorded for the nine months ended September 30, 2007,
on pre-tax income of $3.1 million. This compares to an income tax benefit of $5.7 million on
pre-tax loss of $16.0 million for the nine months ended September 30, 2006 which was recorded prior
to the establishment of a valuation allowance in the fourth quarter of 2006. The year to date tax
provision includes the tax effect of the amortization of certain indefinite-lived assets.
Net Income (Loss) and Income (Loss) Per Share. Net income for the third quarter of 2007 was
$1.7 million, or $0.04 per share, compared to a net loss of $3.4 million, or $0.09 per share, for
the same period last year. The increase in net income is due to items previously discussed in our
Results of Operations.
Net income for the nine months ended September 30, 2007 was $0.8 million, or $0.02 per share.
This compares to net loss of $10.3 million, or $0.28 per share, for the nine months ended
September 30, 2006.
Liquidity and Capital Resources
Cash provided by operating activities was $19.5 million for the first nine months of 2007, an
improvement of $42.7 million over the $23.2 million used in operating activities during the first
nine months of 2006. The cash provided by operating activities was largely due to the increase in
net income, an increase in accounts payable coupled with decreases in accounts receivable and
prepaid expenses partially offset by decreases in claims payable and amounts payable to Plan
Sponsors.
Net cash used in investing activities during the nine months ended September 30, 2007 was $3.0
million, primarily due to the purchases of property and equipment. This compares to net cash of
$17.8 million used in investing activities in the same period in 2006, primarily for the purchase
of property and equipment and the acquisition of Intravenous Therapy Services, Inc. (Infusion
West).
For the nine months ended September 30, 2007 net cash used in financing activities was $16.5
million compared to net cash provided by financing activities of $39.7 million for the same period
in 2006, primarily due to repayments on the line of credit of $16.7 million during the first nine
months of 2007 compared to borrowings on the line of credit of $38.2 million in the 2006 period.
At September 30, 2007 there were $36.2 million of bank borrowings outstanding under our
revolving credit facility (the Facility) with HFG Healthco-4 LLC, an affiliate of Healthcare
Finance Group, Inc. (HFG), as compared to $45.6 million at September 30, 2006. Outstanding
borrowings decreased primarily from improved cash flow from operations.
The Facility was increased in July 2006 to provide for borrowings of up to $75.0 million at
the London Inter-Bank Offered Rate (LIBOR) plus the applicable margin. Effective September 30,
2006, the Facility was extended for four years through November 1, 2010. The Facility permits us
to request an increase in the amount available for borrowing up to $100.0 million. The borrowing
base utilizes receivables balances and other related collateral as security under the Facility.
The weighted average interest rate on the Facility was 7.4% during the third quarter of 2007
compared to 7.8% for the same period a year ago. At October 31, 2007 we had $49.8 million of
credit available under the Facility. As a result of the improved financial conditions we expect a
lower weighted average interest rate in the fourth quarter of 2007.
The Facility contains various covenants that, among other things, require us to maintain
certain financial ratios, as defined in the agreements governing the Facility. We were in
compliance with all covenants as of September 30, 2007.
At September 30, 2007 we had working capital of $46.5 million compared to $37.0 million at
December 31, 2006. As we continue to grow, we anticipate that our working capital needs will also
continue to increase. We believe that cash expected to be generated from operating activities and
the funds available under our current Facility will be sufficient to fund our
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anticipated working capital, IT systems investments and other cash needs for the next twelve months
as our business is currently configured. Growth in National HIV/AIDS and Solid Organ Transplant
programs may require an increase in our line of credit to fund additional working capital
requirements.
We also may pursue joint venture arrangements, business acquisitions and other transactions
designed to expand our business, which we would expect to fund from borrowings under the Facility,
other future indebtedness or, if appropriate, the private and/or public sale or exchange of our
debt or equity securities.
At September 30, 2007 the Company had federal net operating loss carry forwards (NOLs) of
approximately $22.9 million, of which $11.6 million is subject to an annual limitation, all of
which will begin expiring in 2017 and later. If the NOLs are not utilized in the year they are
available they may be utilized in a future year to the extent they have not expired. The Company
has state NOLs remaining of approximately $18.7 million, the majority of which will begin expiring
in 2017 and later.
Other Matters
We make available through our website, www.bioscrip.com, access to our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, any amendments to those reports
(when applicable), and other reports filed with the SEC. Such access is free of charge and is
available as soon as reasonably practicable after such information is filed with the SEC. This
information may also be accessed through the SEC website at www.sec.gov.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Exposure to market risk for changes in interest rates relates to our outstanding debt. At
September 30, 2007 we did not have any long-term debt. We are exposed to interest rate risk
primarily through our borrowing activities under the Facility as discussed in Item 2 of this
report. Based upon our average daily borrowings, a 1.0% increase in interest rates would have
increased our interest expense for the nine month period ended September 30, 2007 by 12.0%.
Interest rate risk on our investments is immaterial due to our level of investment dollars. We do
not use financial instruments for trading or other speculative purposes and are not a party to any
derivative financial instruments.
At September 30, 2007, the carrying values of cash and cash equivalents, accounts receivable,
accounts payable, claims payable, payables to plan sponsors and others and line of credit
approximate fair value due to their short-term nature.
Because management does not believe that our exposure to interest rate market risk is material
at this time, we have not developed or implemented a strategy to manage this market risk through
the use of derivative financial instruments or otherwise. We will assess the significance of
interest rate market risk from time to time and will develop and implement strategies to manage
that market risk as appropriate.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to reasonably assure that
information required to be disclosed by us in reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported on a timely basis and that such information is
accumulated and communicated to management, including the Chief Executive Officer (CEO) and the
Chief Financial Officer (CFO) as appropriate, to allow for timely decisions regarding required
disclosures.
In connection with the preparation of our 2006 Form 10-K, an evaluation was performed under
the supervision and with the participation of management, including our CEO and CFO, of the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in
Exchange Act Rules 13d-15(e) and 15d-15(e)). Based on that evaluation, management concluded that
our disclosure controls as of December 31, 2006 were not effective as a result of a material
weakness in internal control over financial reporting related to information technology. The
material weakness was disclosed in Item 9A of the Form 10-K.
Based on its evaluation of the effectiveness of the design and operation of our internal
control over financial reporting as of September 30, 2007, management has identified no new
material weaknesses other than that previously described in the Form 10-K. Although progress has
been made to address the material weakness, management has concluded that the material weakness
related to information technology disclosed in the Form 10-K continues to exist as of the quarter
ended
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September 30, 2007, and therefore, has also concluded that our disclosure controls and procedures
were not effective as of September 30, 2007 for the same reason disclosed in the Form 10-K.
Internal Control Over Financial Reporting
In light of the material weakness in internal control over financial reporting which continued
to exist as of September 30, 2007, management performed additional analysis and procedures to
ensure the consolidated financial statements were prepared in accordance with GAAP. Accordingly,
management believes that the consolidated financial statements and schedules included in this Form
10-Q fairly present in all material respects our financial position, results of operations and cash
flows for the periods presented.
Management, with oversight from the Audit Committee, is working to remediate the remaining
material weakness in internal control over financial reporting disclosed in the Form 10-K. No
additional changes in our internal controls over financial reporting were identified during the
quarter ended September 30, 2007 that materially affected, or are reasonably likely to materially
affect, such internal control over financial reporting other than those remedial actions previously
disclosed in Form 10-K.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits
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Exhibit 3.1
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Third Amended and Restated Certificate of Incorporation of BioScrip, Inc.
(Incorporated by reference to Exhibit 3.2 to the Companys Registration Statement on
Form S-4 (File No. 333-119098), as amended, which became effective on January 26, 2005) |
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Exhibit 3.2
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Amended and Restated By-Laws of BioScrip, Inc. (Incorporated by reference to
Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the SEC on May 16,
2007, accession No. 0000950123-07-007569) |
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Exhibit 10.1
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Form of Amended and Restated Loan and Security Agreement, dated as of September 26,
2007, among MIM Funding, LLC, BioScrip Pharmacy Services, Inc., BioScrip Infusion
Services, Inc., BioScrip Pharmacy (NY), Inc., BioScrip PBM Services, LLC, BioScrip
Pharmacy, Inc., Natural Living, Inc. and BioScrip Infusion Services, LLC, as Borrower,
and HFG Healthco-4 LLC, as Lender |
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Exhibit 10.2
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Form of Amended and Restated Pledge Agreement among BioScrip, Inc., Chronimed Inc., MIM
Funding, LLC, BioScrip Pharmacy Services, Inc., BioScrip Infusion Services, Inc.,
BioScrip Pharmacy (NY), Inc., BioScrip PBM Services, LLC, BioScrip Pharmacy, Inc.,
Natural Living, Inc. and BioScrip Infusion Services, LLC, and HFG Healthco-4 LLC |
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Exhibit 10.3
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Form of Refinancing Arrangements Agreement made by MIM Funding, LLC, BioScrip Pharmacy
Services, Inc., BioScrip Infusion Services, Inc., BioScrip Pharmacy (NY), Inc.,
BioScrip PBM Services, LLC, BioScrip Pharmacy, Inc., Natural Living, Inc. and BioScrip
Infusion Services, LLC, and consented to by BioScrip, Inc. and HFG Healthco-4 LLC |
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Exhibit 31.1
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Certification of Richard H. Friedman pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 31.2
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Certification of Stanley G. Rosenbaum pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 32.1
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Certification of Richard H. Friedman pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 32.2
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Certification of Stanley G. Rosenbaum pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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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.
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BIOSCRIP, INC.
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Date: November 5, 2007 |
/s/ Stanley G. Rosenbaum
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Stanley G. Rosenbaum, Chief Financial Officer, Treasurer |
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and Principal Accounting Officer |
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