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United
States
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Securities
and Exchange Commission
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Washington,
D.C. 20549
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________________
Form
10-Q
________________
(Mark
One)
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R
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended June 30, 2009
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OR
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£
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
________ to _______
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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
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(State
or Other Jurisdiction
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(I.R.S.
Employer Identification No.)
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of
Incorporation or Organization)
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100
Clearbrook Road, Elmsford, NY
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10523
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(914)
460-1600
(Registrant’s
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 R No
£
Indicate
by check mark whether the registrant has submitted electronically and posted to
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes £ No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer: £
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Accelerated
filer: R
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Non-accelerated
filer: £
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Smaller
reporting company: £
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(Do
not check if a smaller reporting
company)
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|||
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No R
On July
31, 2009, there were 38,780,865 outstanding shares of the registrant’s common
stock, $.0001 par value per share.
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Page
Number
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EXHIBITS
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PART
I
FINANCIAL
INFORMATION
BIOSCRIP,
INC. AND SUBSIDIARIES
(in
thousands, except for share and per share amounts)
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June
30,
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December
31,
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|||||
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2009
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2008
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|||||
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ASSETS
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(unaudited)
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|||||
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Current
assets
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||||||
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Cash
and cash equivalents
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$ | - | $ | - | ||
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Receivables,
less allowance for doubtful accounts of $9,681 and $11,629
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||||||
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at
June 30, 2009 and December 31, 2008, respectively
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137,214 | 158,649 | ||||
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Inventory
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48,504 | 45,227 | ||||
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Prepaid
expenses and other current assets
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4,026 | 2,766 | ||||
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Total
current assets
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189,744 | 206,642 | ||||
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Property
and equipment, net
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16,436 | 14,748 | ||||
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Other
assets
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1,254 | 1,069 | ||||
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Goodwill
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24,498 | 24,498 | ||||
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Total
assets
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$ | 231,932 | $ | 246,957 | ||
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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||||||
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Current
liabilities
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||||||
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Line
of credit
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$ | 33,067 | $ | 50,411 | ||
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Accounts
payable
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70,301 | 76,936 | ||||
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Claims
payable
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4,851 | 5,230 | ||||
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Amounts
due to plan sponsors
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5,152 | 5,646 | ||||
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Accrued
expenses and other current liabilities
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9,679 | 9,575 | ||||
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Total
current liabilities
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123,050 | 147,798 | ||||
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Deferred
taxes
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857 | 533 | ||||
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Income
taxes payable
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3,370 | 3,089 | ||||
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Total
liabilities
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127,277 | 151,420 | ||||
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Stockholders'
equity
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||||||
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Preferred
stock, $.0001 par value; 5,000,000 shares authorized;
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||||||
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no
shares issued or outstanding
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- | - | ||||
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Common
stock, $.0001 par value; 75,000,000 shares authorized; shares
issued:
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||||||
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41,843,194,
and 41,622,629, respectively; shares outstanding; 38,780,865
and
|
||||||
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38,691,356,
respectively
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4 | 4 | ||||
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Treasury
stock, shares at cost: 2,653,007 and 2,624,186,
respectively
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(10,320 | ) | (10,288 | ) | ||
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Additional
paid-in capital
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249,929 | 248,441 | ||||
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Accumulated
deficit
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(134,958 | ) | (142,620 | ) | ||
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Total
stockholders' equity
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104,655 | 95,537 | ||||
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Total
liabilities and stockholders' equity
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$ | 231,932 | $ | 246,957 | ||
See
accompanying Notes to the Unaudited Consolidated Financial
Statements.
BIOSCRIP,
INC. AND SUBSIDIARIES
(in
thousands, except per share amounts)
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Three
Months Ended
|
Six
Months Ended
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|||||||||||
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June
30,
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June
30,
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|||||||||||
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2009
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2008
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2009
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2008
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|||||||||
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Revenue
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$ | 328,749 | $ | 348,440 | $ | 654,498 | $ | 675,911 | ||||
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Cost
of revenue
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290,361 | 312,714 | 580,120 | 607,813 | ||||||||
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Gross
profit
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38,388 | 35,726 | 74,378 | 68,098 | ||||||||
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Selling,
general and administrative expenses
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31,607 | 31,635 | 61,933 | 63,172 | ||||||||
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Bad
debt expense
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1,597 | 723 | 2,977 | 1,373 | ||||||||
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Income
from operations
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5,184 | 3,368 | 9,468 | 3,553 | ||||||||
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Interest
expense, net
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430 | 677 | 1,024 | 1,262 | ||||||||
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Income
before income taxes
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4,754 | 2,691 | 8,444 | 2,291 | ||||||||
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Tax
provision
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377 | 1,072 | 782 | 1,149 | ||||||||
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Net
income
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$ | 4,377 | $ | 1,619 | $ | 7,662 | $ | 1,142 | ||||
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Income
per common share
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||||||||||||
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Basic
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$ | 0.11 | $ | 0.04 | $ | 0.20 | $ | 0.03 | ||||
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Diluted
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$ | 0.11 | $ | 0.04 | $ | 0.20 | $ | 0.03 | ||||
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Weighted
average common shares outstanding
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||||||||||||
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Basic
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38,748 | 38,242 | 38,729 | 38,210 | ||||||||
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Diluted
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39,227 | 39,023 | 39,026 | 39,257 | ||||||||
See
accompanying Notes to the Unaudited Consolidated Financial
Statements.
BIOSCRIP,
INC. AND SUBSIDIARIES
(in
thousands)
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Six
Months Ended
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||||||||
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June
30,
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||||||||
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2009
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2008
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|||||||
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Cash
flows from operating activities:
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||||||||
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Net
income
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$ | 7,662 | $ | 1,142 | ||||
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Adjustments
to reconcile net income to net cash provided by
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||||||||
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(used
in) operating activities:
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||||||||
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Depreciation
and amortization
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2,240 | 3,065 | ||||||
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Change
in deferred income tax
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324 | 844 | ||||||
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Compensation
under stock-based compensation plans
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1,488 | 1,995 | ||||||
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Bad
debt expense
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2,977 | 1,373 | ||||||
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Changes
in assets and liabilities
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||||||||
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Receivables,
net
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18,458 | (18,580 | ) | |||||
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Inventory
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(3,277 | ) | (2,704 | ) | ||||
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Prepaid
expenses and other assets
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(1,445 | ) | (1,354 | ) | ||||
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Accounts
payable
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(6,635 | ) | 36,081 | |||||
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Claims
payable
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(379 | ) | (76 | ) | ||||
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Amounts
due to plan sponsors
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(494 | ) | 1,017 | |||||
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Accrued
expenses and other liabilities
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387 | (5,147 | ) | |||||
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Net
cash provided by operating activities
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21,306 | 17,656 | ||||||
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Cash
flows from investing activities:
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||||||||
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Purchases
of property and equipment, net of disposals
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(3,929 | ) | (3,702 | ) | ||||
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Net
cash used in investing activities
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(3,929 | ) | (3,702 | ) | ||||
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Cash
flows from financing activities:
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||||||||
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Borrowings
on line of credit
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666,260 | 654,961 | ||||||
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Repayments
on line of credit
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(683,604 | ) | (668,928 | ) | ||||
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Surrender
of stock to satisfy minimum tax withholding
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(33 | ) | (263 | ) | ||||
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Net
proceeds from exercise of employee stock compensation
plans
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- | 276 | ||||||
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Net
cash used in financing activities
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(17,377 | ) | (13,954 | ) | ||||
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Net
change in cash and cash equivalents
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- | - | ||||||
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Cash
and cash equivalents - beginning of period
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- | - | ||||||
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Cash
and cash equivalents - end of period
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$ | - | $ | - | ||||
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DISCLOSURE
OF CASH FLOW INFORMATION:
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||||||||
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Cash
paid during the period for interest
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$ | 1,085 | $ | 1,991 | ||||
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Cash
paid during the period for income taxes
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$ | 273 | $ | 219 | ||||
See
accompanying Notes to the Unaudited Consolidated Financial
Statements.
BIOSCRIP,
INC. AND SUBSIDIARIES
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.
and subsidiaries (the “Company”) for the year ended December 31, 2008 (the “Form
10-K”) filed with the U.S. Securities and Exchange Commission on March 5, 2009.
These 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.
The
information furnished in these unaudited consolidated financial statements
includes normal recurring adjustments and reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the results for
the interim periods presented. Operating results for the three and six months
ended June 30, 2009 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2009. 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 have no material effect on the Company’s
previously reported consolidated financial position, results of operations or
cash flow.
Bioscrip
has evaluated events subsequent to the balance sheet date through August 4,
2009, which represents the issue date of this Form 10-Q. As of August
4, 2009, there were no subsequent events which required recognition or
disclosure in the financial statements.
NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles (“SFAS 168”), which becomes effective for financial statements
issued for interim and annual periods ending after September 15,
2009. This standard replaces SFAS 162, The Hierarchy of Generally Accepted
Accounting Principles, and establishes only two levels of U.S. generally
accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The
FASB Accounting Standards Codification (the “Codification”) will become the
source of authoritative, nongovernmental GAAP. Rules and
interpretive releases of the SEC will also be sources of authoritative GAAP for
SEC registrants. All other non-grandfathered, non-SEC accounting literature not
included in the Codification will become nonauthoritative. The Company will
begin to use the new guidelines and numbering system prescribed by the
Codification when referring to GAAP in its third quarter of 2009. As the
Codification was not intended to change or alter existing GAAP, it will not have
any impact on the Company’s results of operations, financial position or cash
flows.
In
June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (“SFAS 167”), which is effective for fiscal years
beginning after November 15, 2009. SFAS 167 amends certain
requirements of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable
Interest Entities, (“FIN 46”) to improve financial
reporting by enterprises involved with variable interest entities and to provide
more relevant and reliable information to users of financial statements. The
Company has evaluated SFAS 167 and does not believe that it will have a material
impact on its results of operations, financial position or cash
flows.
In
June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, an
amendment to SFAS No. 140, (“SFAS 166”), which is effective for
fiscal years beginning after November 15, 2009. SFAS 166 eliminates
the concept of a “qualifying special-purpose entity,” changes the requirements
for derecognizing financial assets, and requires additional disclosures in order
to enhance information reported to users of financial statements by providing
greater transparency about transfers of financial assets, including
securitization transactions, and an entity’s
continuing involvement in and exposure to the risks related to transferred
financial assets. The Company has evaluated SFAS 166 and does not
believe that it will have a material impact on its results of operations,
financial position or cash flows.
In
May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS
165”), which was effective for interim and annual periods after June 15,
2009. This Statement incorporates guidance into accounting literature
that was previously addressed only in auditing standards. The statement refers
to subsequent events that provide additional evidence about conditions that
existed at the balance-sheet date as “recognized subsequent
events”. Subsequent events which provide evidence about conditions
that arose after an issuer’s most recent balance-sheet date but prior to the
issuance of its most recent financial statements are referred to as
“non-recognized subsequent events”. It also requires companies to
disclose the date through which subsequent events have been evaluated and
whether this date is the date the financial statements were issued or the date
the financial statements were available to be issued. The Company adopted this
new standard effective June 30, 2009 — see Note 1.
In
April 2009, the FASB issued three FASB Staff Positions (“FSP”) intended to
provide additional application guidance and enhanced disclosures regarding fair
value measurements and impairments of securities. FSP No. 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, provides
additional guidelines for estimating fair value in accordance with SFAS 157,
Fair Value Measurements.
FSP No. 115-2, Recognition and Presentation of
Other-Than-Temporary Impairments, provides additional guidance related to
the disclosure of impairment losses on securities and the accounting for
impairment losses on debt securities. FSP No. 115-2 does not amend existing
guidance related to other-than-temporary impairments of equity securities. FSP
No. 107-1 and Accounting Principles Board (“APB”) Opinion No. 28-1,
Interim Disclosures about Fair
Value of Financial Instruments, increases the frequency of fair value
disclosures. These FSPs are effective for interim and annual periods after
June 15, 2009. The Company has evaluated these FSPs and does not
believe that they will have a material impact on its results of operations,
financial position or cash flows.
NOTE
3 – EARNINGS PER SHARE
The
following table sets forth the computation of basic and diluted income per
common share (in thousands, except for per share amounts):
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
|
June
30,
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June
30,
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|||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||
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Numerator:
|
||||||||||||
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Net
income
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$ | 4,377 | $ | 1,619 | $ | 7,662 | $ | 1,142 | ||||
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Denominator
- Basic:
|
||||||||||||
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Weighted
average number of common shares outstanding
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38,748 | 38,242 | 38,729 | 38,210 | ||||||||
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Basic
income per common share
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$ | 0.11 | $ | 0.04 | $ | 0.20 | $ | 0.03 | ||||
|
Denominator
- Diluted:
|
||||||||||||
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Weighted
average number of common shares outstanding
|
38,748 | 38,242 | 38,729 | 38,210 | ||||||||
|
Common
share equivalents of outstanding stock options and restricted
awards
|
479 | 781 | 297 | 1,047 | ||||||||
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Total
diluted shares outstanding
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39,227 | 39,023 | 39,026 | 39,257 | ||||||||
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Diluted
income per common share
|
$ | 0.11 | $ | 0.04 | $ | 0.20 | $ | 0.03 | ||||
Excluded
from the computation of diluted earnings per share for the three and six months
ended June 30, 2009, were 4,632,707 shares, 4,947,263 shares,
respectively, and for the three and six months ended June 30, 2008, were
3,972,515 shares and 3,240,966 shares, respectively. The shares are
issuable upon the exercise of outstanding stock options. The
inclusion of those shares would have been anti-dilutive as the exercise price of
these shares exceeded market value.
NOTE
4 – STOCK-BASED COMPENSATION PLANS
Under the
Company’s 2008 Equity Incentive Plan (the “2008 Plan”), the Company may issue,
among other things, incentive stock options (“ISOs”), non-qualified stock
options (“NQSOs”), stock appreciation rights, restricted stock, and performance
units to employees and directors. Under the 2008 Plan, 3,580,000
shares were authorized for issuance (subject to adjustment for grants made under
the Company’s 2001 Incentive Stock Plan (the “2001 Plan”) after January 1, 2008,
as well as for forfeitures, expirations or awards that under the 2001 Plan
otherwise settled in cash after the adoption thereof). As of June 30,
2009, 268,367 shares remain available for grant under the 2008
Plan. The Plan is administered by the Company’s Management
Development and Compensation Committee (the “Compensation Committee”), a
standing committee of the Board of Directors (the “Board”). Upon
adoption of the 2008 Plan, no further grants may be made under the 2001
Plan.
Under the
provisions of the 2008 Plan, as well as under the Company’s prior equity
compensation plans (collectively the “Plans”), plan participants may use shares
to cover tax withholding on income earned as a result of the appreciation of the
equity-based instrument upon the exercise, vesting and/or lapsing of
restrictions thereon. Upon the exercise of stock options and the
vesting of other equity awards granted under the Plans, participants will
generally have taxable income subject to statutory withholding
requirements. The number of shares that may be issued to participants
upon the exercise of stock options and the vesting of equity awards may be
reduced by the number of shares having a market value equal to the amount of tax
required to be withheld by the Company to satisfy Federal, state and local tax
obligations as a result of such exercise or vesting.
Stock
Options
Options
granted under the Plan: (a) typically vest over a three-year period and, in
certain instances, fully vest upon a change in control of the Company, (b) have
an exercise price that may not be less than 100% of its fair market value on the
date of grant (110% for ISOs granted to a stockholder who holds more than 10% of
the outstanding stock of the Company), and (c) are generally exercisable for ten
years (five years for ISOs granted to a stockholder holding more than 10% of the
outstanding stock of the Company) after the date of grant, subject to earlier
termination in certain circumstances.
The
Company recognized compensation expense related to stock options of $0.5 million
for each of the three months ended June 30, 2009 and 2008, respectively, and
stock option related compensation expense of $0.9 million and $1.3 million for
the six months ended June 30, 2009 and 2008, respectively.
The fair
value of each stock option award on the date of the grant was calculated using a
binomial option-pricing model. Option expense is amortized on a
straight-line basis over the requisite service period with the following
weighted average assumptions:
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
June
30,
|
June
30,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Expected
volatility
|
67.0 | % | 51.0 | % | 66.5 | % | 51.2 | % | ||||||||
|
Risk-free
interest rate
|
3.05 | % | 3.85 | % | 2.94 | % | 3.86 | % | ||||||||
|
Expected
life of options
|
5.6
years
|
5.6
years
|
5.6
years
|
5.7
years
|
||||||||||||
|
Dividend
rate
|
- | - | - | - | ||||||||||||
|
Fair
value of options
|
$ | 1.66 | $ | 3.33 | $ | 1.52 | $ | 3.50 | ||||||||
On April
28, 2009, the Compensation Committee approved a grant to management of 1,258,600
NQSOs.
At June
30, 2009, there was $3.8 million of unrecognized compensation expense related to
unvested option grants. That expense is expected to be recognized over a
weighted-average period of 2.2 years.
Restricted
Stock
Under the
2008 Plan, stock grants subject solely to an employee’s or director’s continued
service with the Company will not become fully vested less than (a) three years
from the date of grant to employees and, in certain instances, fully vest upon a
change in control of the Company, and (b) one year from the date of grant for
directors. Stock grants subject to the achievement of performance
conditions will not vest less than one year from the date of
grant. No such time restrictions applied to stock grants made under
the Company’s prior equity compensation plans.
On April
28, 2009, the Compensation Committee approved a grant to the members of the
Board of Directors (the “Board”) of 35,000 shares of restricted
stock.
The
Company recognized compensation expense related to restricted stock awards of
$0.2 million and $0.5 million for the three months ended June 30, 2009 and 2008,
respectively, and compensation expense related to restricted stock awards of
$0.5 million and $0.7 million for the six months ended June 30, 2009 and 2008,
respectively.
As of
June 30, 2009, there was $1.3 million of unrecognized compensation expense
related to unvested restricted stock awards. That expense is expected to be
recognized over a weighted-average period of 1.6 years.
Since the
Company records compensation expense for restricted stock awards based on the
vesting requirements, which generally includes time elapsed, market conditions
and/or performance conditions, the weighted average period over which the
expense is recognized may vary from quarter to quarter. Also, future
equity-based compensation expense may be greater if additional restricted stock
awards are made.
Performance
Units
Under the
2008 Plan, the Compensation Committee may grant performance units to key
employees. The Compensation Committee will establish the terms and conditions of
any performance units granted, including the performance goals, the performance
period and the value for each performance unit. If the performance goals are
satisfied, the Company would pay the key employee an amount in cash equal to the
value of each performance unit at the time of payment. In no event may a key
employee receive an amount in excess of $1.0 million with respect to performance
units for any given year. To date, no performance units have been granted under
the 2008 Plan.
NOTE
5 – OPERATING SEGMENTS
In
accordance with SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information” (“SFAS 131”), and based on the nature
of the Company’s services, the Company has two reportable segments: Specialty
Services and PBM Services. SFAS 131 requires an enterprise to report
segment information in the same way that management internally organizes its
business for assessing performance and making decisions regarding allocation of
resources. The Company evaluates the performance of operating
segments and allocates resources based on income from operations.
Revenues
from Specialty Services and PBM Services are derived from the Company’s
relationships with healthcare payors, including managed care organizations,
government funded and/or operated programs, pharmaceutical manufacturers,
patients and physicians, as well as a variety of third party payors, including
third party administrators (“TPAs”) and self-funded employer groups
(collectively, “Plan Sponsors”).
The
Specialty Services segment consists of the Company’s specialty pharmacy
distribution and therapy management services. Specialty Services
distribution occurs locally through community pharmacies, centrally through mail
order facilities and through our infusion pharmacies for patients requiring
infused medications in the home or infused at a variety of sites including the
Company’s ambulatory infusion sites. All Specialty Services target
certain specialty medications that are used to treat patients living with
chronic and other complex healthcare conditions.
The PBM
Services segment consists of the Company’s integrated pharmacy benefit
management and traditional mail services. These PBM Services are
designed to offer Plan Sponsors cost-effective delivery of pharmacy benefit
plans including the low cost distribution of mail services for plan members who
receive traditional maintenance medications.
Segment
Reporting Information
(in
thousands)
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
|
June
30,
|
June
30,
|
|||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||
|
Results
of Operations:
|
||||||||||||
|
Revenue:
|
||||||||||||
|
Specialty
Services
|
$ | 275,461 | $ | 298,150 | $ | 549,784 | $ | 575,455 | ||||
|
PBM
Services
|
53,288 | 50,290 | 104,714 | 100,456 | ||||||||
|
Total
|
$ | 328,749 | $ | 348,440 | $ | 654,498 | $ | 675,911 | ||||
|
Income
(loss) from operations:
|
||||||||||||
|
Specialty
Services
|
$ | 1,620 | $ | (128 | $ | 3,258 | $ | (1,881 | ) | |||
|
PBM
Services
|
3,564 | 3,496 | 6,210 | 5,434 | ||||||||
|
Total
|
5,184 | 3,368 | 9,468 | 3,553 | ||||||||
|
Interest
expense, net
|
430 | 677 | 1,024 | 1,262 | ||||||||
|
Tax
provision
|
377 | 1,072 | 782 | 1,149 | ||||||||
|
Net
income:
|
$ | 4,377 | $ | 1,619 | $ | 7,662 | $ | 1,142 | ||||
|
Capital
expenditures:
|
||||||||||||
|
Specialty
Services
|
$ | 2,619 | $ | 1,194 | $ | 3,562 | $ | 2,976 | ||||
|
PBM
Services
|
233 | 333 | 367 | 726 | ||||||||
|
Total
|
$ | 2,852 | $ | 1,527 | $ | 3,929 | $ | 3,702 | ||||
|
Depreciation
Expense:
|
||||||||||||
|
Specialty
Services
|
$ | 938 | $ | 915 | $ | 1,867 | $ | 1,862 | ||||
|
PBM
Services
|
191 | 115 | 373 | 236 | ||||||||
|
Total
|
$ | 1,129 | $ | 1,030 | $ | 2,240 | $ | 2,098 | ||||
|
Total
Assets
|
||||||||||||
|
Specialty
Services
|
$ | 165,748 | $ | 253,819 | ||||||||
|
PBM
Services
|
66,184 | 64,619 | ||||||||||
|
Total
|
$ | 231,932 | $ | 318,438 | ||||||||
Certain
prior period segment data has been reclassified to conform to the current year’s
presentation. These reclassifications had no material impact on
previously reported segment data.
The
following table sets forth by segment, revenue from services
provided through a pharmacy network agreement under which the Company
provides services to various Plan Sponsors. In the aggregate, revenue from
these Plan Sponsors accounted for more than 10% of the Company’s total
revenues for the three and six month periods ended June 30, 2009 and 2008 (in
thousands, except percentages):
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
|
June
30,
|
June
30,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
PBM
Services Revenue
|
$ | 30,121 | $ | 27,908 | $ | 61,070 | $ | 57,256 | ||||||||
|
Specialty
Services Revenue
|
12,266 | 7,505 | 25,831 | 23,299 | ||||||||||||
|
Total
Services Revenue
|
$ | 42,387 | $ | 35,413 | $ | 86,901 | $ | 80,555 | ||||||||
|
Percentage
of Total Revenue
|
13 | % | 10 | % | 13 | % | 12 | % | ||||||||
NOTE
6 – CONCENTRATION OF CREDIT RISK
The
Company provides trade credit to its customers in the normal course of
business. One pharmacy network agreement under which various Plan
Sponsors are served accounted, in the aggregate, for approximately 13% and
12% of revenues during the six month periods ended June 30, 2009 and 2008,
respectively, and 16% of accounts receivable as of June 30, 2009 and
2008.
NOTE
7 – LINE OF CREDIT
At June
30, 2009, there was $33.1 million in outstanding borrowings under the Company’s
revolving credit facility (the “Facility”) with an affiliate of Healthcare
Finance Group, Inc. (“HFG”), as compared to $50.4 million at December 31,
2008. The Facility provides for borrowings of up to $85.0 million,
provided that a sufficient level of receivable assets is available as
collateral, at the London Inter-Bank Offered Rate (“LIBOR”) or a pre-determined
minimum rate plus the applicable margin and other associated
fees. The term of the Facility runs through November 1,
2010. Under the terms of the Facility, the Company may request to
increase the amount available for borrowing up to $100.0 million, and convert a
portion of any outstanding borrowings from a Revolving Loan into a Term
Loan. The borrowing base utilizes receivable balances and proceeds
thereof as security under the Facility. At June 30, 2009 the Company
had $44.2 million of credit available under the Facility on a borrowing basis of
$77.3 million. The weighted average interest rate on the Facility
during the quarter ended June 30, 2009 was 4.5% compared to 5.4% for the quarter
ended December 31, 2008.
The
Facility contains various covenants that, among other things, require the
Company to maintain certain financial ratios as defined in the agreements
governing the Facility. The Company was in compliance with all the
covenants contained in the agreements as of June 30, 2009.
NOTE
8 – INCOME TAXES
The
Company uses an estimated annual effective tax rate in determining its quarterly
provision for income taxes. The methodology employed is based on the
Company’s expected annual income, statutory tax rates and tax strategies
utilized in the various jurisdictions in which it operates.
Since
December 31, 2006, the Company has fully reserved its deferred tax assets as it
has concluded that it was more likely than not that its deferred tax assets
would not be utilized. The Company continually assesses the necessity
of maintaining a valuation allowance for its deferred tax assets. If
the Company determines in a future period that it is more likely than not that
the deferred tax assets will be utilized based upon application of the criteria
required per the accounting literature, the Company will reverse all or part of
the valuation allowance for its deferred tax assets.
For the
quarter ended June 30, 2009, the Company’s provision for income taxes was $0.4
million with an effective tax rate of 7.9%. For the quarter ended
June 30, 2008, the Company’s provision for income taxes was $1.1 million with an
effective rate of 39.8%. The lower effective tax rate of 7.9% for the
current quarter compared to the statutory rate is primarily a result of a
reduction in the valuation allowance due to the expected utilization of a
portion of the net operating losses in 2009. The effective tax rate
for the quarter ended June 30, 2008 differs from the statutory rate primarily
due to amortization of indefinite lived assets.
For the
six months ended June 30, 2009, the Company’s provision for income taxes was
$0.8 million with an effective tax rate of 9.3%. For the six months
ended June 30, 2008, the Company’s provision for income taxes was $1.1 million
with an effective tax rate of 50.2%. The lower effective tax rate of
9.3% for the six months ended June 30, 2009 compared to the statutory rate is
primarily a result of a reduction in the valuation allowance due to the expected
utilization of a portion of the net operating losses in 2009. The
effective tax rate for the six months ended June 30, 2008 differs from the
statutory rate primarily due to amortization of indefinite lived
assets.
The
Company files income tax returns with Federal, state and local
jurisdictions. The Company’s uncertain tax positions are related to
tax years that remain subject to examination. As of June 30, 2009,
U.S. tax returns for 2005, 2006, 2007 and 2008 remain subject to examination by
Federal tax authorities. Tax returns for the years 2004 through 2008
remain subject to examination by state and local tax authorities for a majority
of the Company’s state and local filings.
NOTE
9 – SECURITY INTEREST AND LETTERS OF CREDIT
During
the fourth quarter of 2008, in consideration for more favorable payment terms,
the Company granted its primary drug wholesaler a secured, first priority lien
in all of its inventory as well as the proceeds thereof. In addition,
in the ordinary course of business, the Company obtained certain letters of
credit (“LC”) from commercial banks in favor of various parties. At
June 30, 2009, there was $1.9 million on deposit as collateral for these
LCs.
The
following discussion should be read in conjunction with the audited consolidated
financial statements, including the notes thereto, and Management’s 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, 2008 (the
“Form 10-K”) filed with the U.S. Securities and Exchange Commission, 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 June 30, 2009 (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, 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, but are not limited
to:
|
|
·
|
Statements
relating to our business development
activities;
|
|
|
·
|
Sales
and marketing efforts;
|
|
|
·
|
Status
of material contractual arrangements, including the negotiation or
re-negotiation of such
arrangements;
|
|
|
·
|
Future
capital expenditures;
|
|
|
·
|
Effects
of regulation and competition in our business;
and
|
|
|
·
|
Future
operation performance.
|
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 increased government regulation related to the health care
and insurance industries in general, and more specifically, pharmacy
benefit management and specialty pharmaceutical distribution
organizations;
|
|
|
·
|
Unfavorable
economic and market conditions, including governmental budget
constraints;
|
|
|
·
|
Reductions
in Federal and state reimbursement
rates;
|
|
|
·
|
Delays
or suspensions of Federal and state payments for services
provided;
|
|
|
·
|
Existence
of complex laws and regulations relating to our
business;
|
|
|
·
|
Compliance
with financial covenants required under our revolving credit
facility;
|
|
|
·
|
Availability
of financing sources;
|
|
|
·
|
Declines
and other changes in revenue due to expiration of short-term
contracts;
|
|
|
·
|
Network
lock-outs and decisions to in-source by health
insurers;
|
|
|
·
|
Unforeseen
problems arising from contract
terminations;
|
|
|
·
|
Increases
or other changes in our acquisition cost for our products;
and
|
|
|
·
|
Changes
in industry pricing benchmarks such as average wholesale price (“AWP”),
wholesale acquisition cost (“WAC”) and average manufacturer price
(“AMP”).
|
The
changes in industry pricing benchmarks, including the impact of the approved
settlement in a class action case involving the First DataBank and MediSpan AWP
reporting services, and increased competition from our competitors, including
competitors with greater financial, technical, marketing and other resources,
could have the effect of reducing prices and margins.
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 healthcare organization that partners with patients,
physicians, healthcare payors and pharmaceutical manufacturers to provide access
to medications and management solutions to optimize outcomes for chronic and
other complex healthcare conditions.
Our
business is reported under two operating segments: (i) specialty pharmaceutical
services (“Specialty Services”), and (ii) pharmacy benefit management (“PBM”)
services (“PBM Services”). Our Specialty Services include
comprehensive support, dispensing and distribution, patient care management,
data reporting, as well as a range of other complex therapy management services
for certain chronic health conditions. The medications we dispense
include oral, injectable and infusible medications used to treat patients living
with chronic and other complex health conditions and are provided to patients
and physicians. Our PBM Services include pharmacy network management,
claims processing, benefit design, drug utilization review, formulary management
and traditional mail order pharmacy fulfillment.
Revenues
from Specialty Services and PBM Services are derived from our relationships with
healthcare payors including managed care organizations, government-funded and/or
operated programs, pharmaceutical manufacturers, patients and physicians, as
well as a variety of third party payors, including third party administrators
(“TPAs”) and self-funded employer groups (collectively, “Plan
Sponsors”).
Our
Specialty Services are marketed and/or sold to Plan Sponsors, pharmaceutical
manufacturers, physicians, and patients, and target certain specialty
medications that are used to treat patients living with chronic and other
complex health conditions. 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
experienced a reduction in revenue in 2009 due to the termination of the Centers
for Medicare and Medicaid Services’ Competitive Acquisition Program (“CAP”), and
United Healthcare (“UHC”) contracts. As expected, our gross profit as
a percentage of revenue increased as a result of these contract terminations, as
they operated at margin rates below the average for Specialty
Services.
Our PBM
Services are marketed to Plan Sponsors and are designed to promote a broad range
of cost-effective, clinically appropriate PBM services through our national PBM
retail network and our own mail service distribution facility. We also
administer prescription discount card programs on behalf of commercial Plan
Sponsors, most typically TPAs. Under such programs we derive revenue on a per
claim basis from the dispensing network pharmacy.
Both
Specialty Services and PBM Services segments generate revenues through a
pharmacy network agreement under which we provide services to various Plan
Sponsors. In the aggregate, revenue from these Plan Sponsors accounted for
approximately 13% of our total revenues during the first and second quarters of
2009. No one individual Plan Sponsor to whom we provided services under
this network agreement accounted for more than 10% of total revenues during the
first and second quarters of 2009. Should a large portion or all of these Plan
Sponsors cease using our services in the same period, it would have a material
adverse effect on our results of operations.
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 judgments on an ongoing basis. We base those estimates and judgments 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. There have been no changes to critical accounting estimates in the
quarter ended June 30, 2009.
For a
full description of our accounting policies please refer to Note 2 of Notes to
Consolidated Financial Statements included in the Form 10-K.
Results
of Operations
In the
following Management’s Discussion and Analysis we provide a discussion of
reported results for the three and six month periods ended June 30, 2009 as
compared to the same periods a year earlier.
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||||||||||
|
June
30,
|
June
30,
|
|||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||
|
Revenue
|
$ | 328,749 | 100.0 | % | $ | 348,440 | 100.0 | % | $ | 654,498 | 100.0 | % | $ | 675,911 | 100.0 | % | ||||||||
|
Gross
profit
|
$ | 38,388 | 11.7 | % | $ | 35,726 | 10.3 | % | $ | 74,378 | 11.4 | % | $ | 68,098 | 10.1 | % | ||||||||
|
Income
from operations
|
$ | 5,184 | 1.6 | % | $ | 3,368 | 1.0 | % | $ | 9,468 | 1.4 | % | $ | 3,553 | 0.5 | % | ||||||||
|
Interest
expense, net
|
$ | 430 | 0.1 | % | $ | 677 | 0.2 | % | $ | 1,024 | 0.2 | % | $ | 1,262 | 0.2 | % | ||||||||
|
Income
before income taxes
|
$ | 4,754 | 1.4 | % | $ | 2,691 | 0.8 | % | $ | 8,444 | 1.3 | % | $ | 2,291 | 0.3 | % | ||||||||
|
Net
income
|
$ | 4,377 | 1.3 | % | $ | 1,619 | 0.5 | % | $ | 7,662 | 1.2 | % | $ | 1,142 | 0.2 | % | ||||||||
Revenue. Revenue for the
second quarter of 2009 was $328.7 million as compared to revenue of $348.4
million in the second quarter of 2008, a decrease of $19.7 million, or
5.7%. Specialty Services revenue for the second quarter of 2009 was
$275.5 million as compared to revenue of $298.2 million for the same period a
year ago, a decrease of $22.7 million, or 7.6%. The decrease was primarily due
to the termination of the CAP and UHC contracts which was offset by an increase
in revenue from other new Specialty Services contracts, preferred distribution
arrangements with manufacturers and price increases driven by drug acquisition
cost increases. PBM Services revenue for the second quarter of 2009 was $53.3
million, as compared to revenue of $50.3 million for the same period a year ago,
an increase of $3.0 million, or 6.0%. The increase was primarily attributable to
the growth of the prescription discount card programs.
Revenue
for the six months ended June 30, 2009 was $654.5 million as compared to revenue
of $675.9 million for the six months ended June 30, 2008, a decrease of $21.4
million, or 3.2%. Specialty Services revenue for the six months ended
June 30, 2009 was $549.8 million as compared to revenue of $575.5 million for
the same period a year ago, a decrease of $25.7 million, or 4.5%. The decrease
was primarily due to the termination of the CAP and UHC contracts which was
offset by an increase in revenue from other new Specialty Services contracts,
preferred distribution arrangements with manufacturers and price increases
driven by drug acquisition cost increases. PBM Services revenue for the six
months ended June 30, 2009 was $104.7 million, as compared to revenue of $100.5
million for the same period a year ago, an increase of $4.2 million, or 4.2%.
The increase was primarily attributable to the continued growth of the
prescription discount card programs.
Cost of Revenue and Gross
Profit. Cost of revenue for the second quarter of 2009 was
$290.4 million as compared to $312.7 million for the same period in
2008. Gross margin dollars were $38.4 million for the second quarter
of 2009, compared to $35.7 million for the same period a year ago, an increase
of $2.7 million, or 7.6%. Gross margin as a percentage of revenue increased to
11.7% in the second quarter of 2009 from 10.3% in the second quarter
of 2008. The increase in gross margin percentage from 2008 to 2009
was mainly the result of the termination of the CAP and UHC contracts which, as
expected, reduced volume and increased Specialty Services’ overall
margins. In addition to the favorable business mix, strategic
purchases and reduced shipping costs also contributed to the increase of the
gross margin percentage and dollars.
Cost of
revenue for the six months ended June 30, 2009 was $580.1 million as compared to
$607.8 million for the same period in 2008. Gross margin dollars were
$74.4 million for the six months ended June 30, 2009, compared to $68.1 million
for the same period a year ago, an increase of $6.3 million, or 9.3%. Gross
margin as a percentage of revenue increased to 11.4% in the six months ended
June 30, 2009 from 10.1% in the six months ended 2008. The increase in gross
margin percentage from 2008 to 2009 was mainly the result of the termination of
the CAP and UHC contracts which, as expected, reduced volumes and increased
Specialty Services’ overall margin percentage. In addition to the
favorable business mix, strategic purchases and reduced shipping costs also
contributed to the increase of the gross margin percentage and
dollars. We also experienced an increase in gross margin dollars in
2009 due to action taken to purchase drugs during the fourth quarter of 2008 in
anticipation of drug cost increases during the first quarter of
2009. In early 2008, there was a longer than usual delay in updating
the industry price lists used by us and our peers to charge customers for
reimbursement, which caused a reduction in gross margin in the three months
ended March 31, 2008.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses (“SG&A”) were
$31.6 million for each quarter ended June 30, 2009 and 2008. This
represented 9.6% of total revenue in the second quarter of 2009 and 9.1% of
total revenue for the second quarter in 2008. SG&A expenses
remained relatively unchanged due to several offsetting factors, including cost
control measures such as a reduction in employee benefit costs, consulting and
professional services, which were offset by an increase in technology expenses
related to the continued implementation of our new information system and
additional broker fees to market our discount cash cards. Also, due
to improved results of operations, a performance based management bonus accrual
was made in the second quarter of 2009.
SG&A
for the six months ended June 30, 2009 was $61.9 million, or 9.5% of total
revenue, as compared to $63.2 million, or 9.3% of total revenue, for the same
period in 2008. The reduction in SG&A expenses was due to several
offsetting factors, including cost control measures such as a reduction in wages
and professional services, as well as reduced legal settlements, which were
partially offset by an increase in technology expenses related to the continued
implementation of our new information system and additional broker fees to
market our discount cash cards. Also, due to improved results of
operations, a performance based management bonus accrual was made in the second
quarter of 2009.
Bad Debt Expense. For the
second quarter of 2009, bad debt expense was $1.6 million, or 0.5% of revenue,
as compared to $0.7 million, or 0.2% of revenue, in the second quarter of
2008. Prior year results include recoveries on previously reserved
amounts. Current year expense at 0.5% reflects expected recurring
expense levels. Our overall methodology used for determining our provision for
bad debt remains essentially unchanged.
For the
six months ended June 30, 2009, bad debt expense was $3.0 million, or 0.5% of
revenue, as compared to $1.4 million, or 0.2% of revenue, in the six months
ended June 30, 2008. Prior year results include recoveries on previously
reserved amounts. Current year expense at 0.5% reflects expected
recurring expense levels. Our overall methodology used for determining our
provision for bad debt remains essentially unchanged.
Net Interest Expense. Net
interest expense was $0.4 million for the second quarter of 2009 as compared to
$0.7 million for the same period a year ago, due to reduced borrowing levels as
well as a reduced borrowing rate.
Net
interest expense was $1.0 million for the six months ended 2009 as compared to
$1.3 million for the same period a year ago, due to reduced borrowing levels as
well as a reduced borrowing rate.
Provision for Income Taxes.
For the quarter ended June 30, 2009, our provision for income taxes was
$0.4 million with an effective tax rate of 7.9%. For the quarter
ended June 30, 2008, our provision for income taxes was $1.1 million with an
effective rate of 39.8%. The lower effective tax rate of 7.9% for the
current quarter compared to the statutory rate is primarily a result of a
reduction in the valuation allowance due to the expected utilization of a
portion
of the net operating losses in 2009. The effective tax rate for the
quarter ended June 30, 2008 differs from the statutory rate primarily due to
amortization of indefinite lived assets.
For the
six months ended June 30, 2009, our provision for income taxes was $0.8 million
with an effective tax rate of 9.3%. For the six months ended June 30,
2008, our provision for income taxes was $1.1 million with an effective tax rate
of 50.2%. The lower effective tax rate of 9.3% for the six months
ended June 30, 2009 compared to the statutory rate is primarily a result of a
reduction in the valuation allowance due to the expected utilization of a
portion of the net operating losses in 2009. The effective tax rate
for the six months ended June 30, 2008 differs from the statutory rate primarily
due to amortization of indefinite lived assets.
Net Income and Income Per Share.
Net income for the second quarter of 2009 was $4.4 million, or $0.11 per
diluted share, as compared to net income of $1.6 million, or $0.04 per diluted
share, for the same period last year.
Net
income for the six months ended June 30, 2009 was $7.7 million, or $0.20 per
diluted share, as compared to net income of $1.1 million, or $0.03 per diluted
share, for the same period last year.
Liquidity
and Capital Resources
We
utilize both funds generated from operations and available credit under our
Facility (as defined below) for general working capital needs, capital
expenditures and acquisitions.
Net cash
provided by operating activities totaled $21.3 million during the first six
months of 2009, as compared to $17.7 million of cash provided by operating
activities during the first six months of 2008. The increase in cash
provided by operating activities was primarily the result of net income of $7.7
million, as well as a decrease in accounts receivable, which was offset by an
increase in inventory and by cash used in accounts payable. The $21.4
million reduction in accounts receivable was due to collections of receivables
related to the wind down of CAP and UHC contracts. The increase of
$3.3 million in inventory was a result of strategic purchases offset by reduced
working capital needs resulting from the termination of the CAP and UHC
contracts. The decrease of $6.6 million in accounts payable is
primarily related to shorter payment terms on certain strategic
purchases.
Net cash
used in investing activities during the first six months of 2009 was $3.9
million compared to $3.7 million for the same period in 2008. The
cash used was driven primarily by the investment in our information technology
infrastructure during the first six months of 2009 and 2008.
Net cash
used in financing activities during the first six months of 2009 was $17.4
million compared to $13.9 million for the same period a year ago. The
cash used in financing activities to pay down the line of credit increased in
2009 because of cash available from higher net income and lower working capital
requirements.
At June
30, 2009, there was $33.1 million in outstanding borrowings under our revolving
credit facility (the “Facility”) with an affiliate of Healthcare Finance Group,
Inc. (“HFG”), as compared to $50.4 million at December 31, 2008. The
Facility provides for borrowing up to $85.0 million, provided a sufficient level
of receivable assets is available as collateral, at the London Inter-Bank
Offered Rate (“LIBOR”) or a pre-determined minimum rate plus the applicable
margin and other associated fees. The term of the Facility runs
through November 1, 2010. Under the terms of the Facility, we may
request to increase the amount available for borrowing up to $100.0 million, and
convert a portion of any outstanding borrowings from a Revolving Loan into a
Term Loan. The borrowing base utilizes receivable balances and
proceeds thereof as security under the Facility. At June 30, 2009 we
had $44.2 million of credit available on a borrowing basis of $77.3 million
under the Facility.
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 the covenants contained in
the agreements as of June 30, 2009.
At June
30, 2009, we had working capital of $66.7 million compared to $58.8 million at
December 31, 2008. We anticipate that our working capital needs will
decrease in the current year due to the termination of certain contracts in 2008
and in early 2009. We made substantial information technology (“IT”)
systems investments during 2008 and will continue to invest in 2009 to improve
efficiencies, internals controls, and data reporting and management. We
believe that our cash on hand, together with funds available under the Facility
and cash expected to be generated from operating activities, will be sufficient
to fund our anticipated working capital, IT systems investments and other cash
needs for at least the next twelve months.
We may
also 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 June
30, 2009, we had Federal net operating loss carryforwards available to us of
approximately $29.0 million, of which $5.9 million is subject to an annual
limitation, all of which will begin expiring in 2017 and later. We
have state net operating loss carryforwards remaining of approximately $15.3
million, the majority of which will begin expiring in 2017 and
later.
During
the fourth quarter of 2008, in consideration for more favorable payment terms,
we granted our primary drug wholesaler a secured, first priority lien in all of
its inventory as well as the proceeds thereof. In addition, in the
ordinary course of business, we also obtained certain letters of credit (“LC”)
from commercial banks in favor of various parties. At June 30, 2009,
there was $1.9 million on deposit as collateral for these LCs.
Exposure
to market risk for changes in interest rates relates to our outstanding debt. At
June 30, 2009 we did not have any long-term debt. We are exposed to interest
rate risk primarily through our borrowing activities under our line of credit
discussed in Item 2 of this Report. Based on our line of credit balance at June
30, 2009, a 1% increase in current market interest rates would have an impact of
approximately $0.3 million, pre-tax, on an annual basis. We do not use financial
instruments for trading or other speculative purposes and are not a party to any
derivative financial instruments.
At June
30, 2009, the carrying values of cash and cash equivalents, accounts receivable,
accounts payable, claims payable, payables to Plan Sponsors and others, debt 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.
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.
Based on
their evaluation as of June 30, 2009, pursuant to Exchange Act Rule 13a-15(b),
the Company’s management, including its CEO and CFO, believe that our disclosure
controls and procedures are effective.
During
the second quarter 2009, there was no change in our internal controls over
financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
PART
II
None
|
(a)
|
On
April 28, 2009 we held our Annual Meeting of Stockholders (the “Annual
Meeting”).
|
|
(b)
|
At
the Annual Meeting, our stockholders elected Charlotte W. Collins, Louis
T. DiFazio, Richard H. Friedman, Myron Z. Holubiak, David R. Hubers,
Richard L. Robbins, Stuart A. Samuels and Steven K. Schelhammer as
directors to serve until our next annual meeting of
stockholders.
|
|
(c)
|
At
the Annual Meeting our stockholders also approved the appointment of Ernst
& Young LLP as our independent auditors for the year ending December
31, 2009.
|
|
(d)
|
Set
forth below are the final results of the voting at the annual
meeting:
|
|
|
(i)
|
Election
of Directors:
|
|
For
|
Withheld
|
||
|
Charlotte
W. Collins
|
17,798,458
|
10,114,393
|
|
|
Louis
T. DiFazio
|
25,951,079
|
1,961,772
|
|
|
Richard
H. Friedman
|
25,662,385
|
2,250,466
|
|
|
Myron
Z. Holubiak
|
18,073,682
|
9,839,169
|
|
|
David
R. Hubers
|
26,002,132
|
1,910,719
|
|
|
Richard
L. Robbins
|
26,004,665
|
1,908,186
|
|
|
Stuart
A. Samuels
|
18,041,572
|
9,871,279
|
|
|
Steven
K. Schelhammer
|
18,125,896
|
9,786,955
|
|
|
(ii)
|
Adoption
Ratification of the appointment of Ernst & Young LLP as our
independent auditors for the year ending December 31,
2009:
|
|
For
|
Against
|
Abstain
|
Broker
Non-Votes
|
|||
|
27,506,533
|
402,965
|
3,353
|
0
|
(a) Exhibits.
|
Exhibit
3.1
|
Second
Amended and Restated Certificate of Incorporation of BioScrip, Inc.
(Incorporated by reference to Exhibit 3.2 to the Company’s Registration
Statement on Form S-4 (File No. 333-119098), as amended, which became
effective on January 26, 2005)
|
|
Exhibit
3.2
|
Amended
and Restated By-Laws of BioScrip, Inc. (Incorporated by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC
on July 30, 2009, accession No. 0001014739-09-000029)
|
|
Exhibit
10.1
|
Employment
Letter Agreement, dated August 21, 2003, between MIM Corporation (now
BioScrip, Inc.) and Scott Friedman
|
|
Exhibit
10.2
|
Amendment,
dated October 14, 2004, to Employment Letter Agreement between MIM
Corporation (now BioScrip, Inc.) and Scott Friedman
|
|
Exhibit
10.3
|
Employment
Letter, dated October 15, 2001, between the Company and
Russell J. Corvese (Incorporated by reference to Exhibit 10.51
to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, SEC Accession
No. 0001089355-02-000248)
|
|
Exhibit
10.4
|
Amendment,
dated September 19, 2003, to Employment Letter Agreement between the
Company and Russel J. Corvese (Incorporated by reference to Exhibit 10.46
to the Company’s Annual Report on Form 10-K filed on for
the fiscal year ended December 31, 2003, filed March 15, 2004, SEC
Accession No. 001014739-04-000021)
|
|
Exhibit
10.5
|
Amendment,
dated December 1, 2004, to Employment Letter Agreement between the
Company and Russel J. Corvese (Incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed on December 1,
2004, SEC Accession No. 0001014739-04-000082)
|
|
Exhibit
10.6
|
Severance
Agreement, dated August 24, 2006, between BioScrip, Inc. and
Barry A. Posner
(Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on August 25, 2006, SEC Accession No.
0000950123-06-010904)
|
|
Exhibit
10.7
|
Amendment
No. 1 to Severance Agreement between BioScrip, Inc. and Barry A. Posner
(Incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on January 20, 2009 SEC Accession
No. 0000950123-09-000854)
|
|
Exhibit
10.8
|
Severance
Agreement, dated August 2, 2007 between BioScrip, Inc. and Stanley G.
Rosenbaum
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on August 3, 2007, SEC Accession No.
0000950123-07-010803)
|
|
Exhibit
10.9
|
Amendment
No. 1 to Severance Agreement between BioScrip, Inc. and Stanley G.
Rosenbaum (Incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on January 20, 2009 SEC Accession
No. 0000950123-09-000854)
|
|
Exhibit
10.10
|
Employment
Agreement dated May 30, 2008, by and between BioScrip, Inc. and
Richard H. Friedman (Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on June 3, 2008, SEC
Accession No. 0000950123-08-006507)
|
|
Exhibit
31.1
|
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
|
|
Exhibit
31.2
|
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
|
|
Exhibit
32.1
|
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
|
|
Exhibit
32.2
|
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
|
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.
|
BIOSCRIP,
INC.
|
|
Date:
August 4, 2009
|
/s/ Stanley G. Rosenbaum
|
|
Stanley
G. Rosenbaum, Chief Financial Officer,
|
|
|
Treasurer
and Principal Accounting Officer
|
21