UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2005

 

OR

 

¨

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 0-19878

 

OPTION CARE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

 

36-3791193

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

 

 

485 Half Day Road, Suite 300
Buffalo Grove, Illinois

 

60089

(Address of principal executive office)

 

(zip code)

 

 

 

(847) 465-2100

(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 ý  No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý  No o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Issued and Outstanding
as of August 1, 2005

 

 

 

Common Stock - $0.01 par value

 

32,480,036

 

 



 

INDEX

 

OPTION CARE, INC. AND SUBSIDIARIES

 

DESCRIPTION

 

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed consolidated balance sheets—June 30, 2005 and December 31, 2004

 

 

 

 

 

Condensed consolidated statements of income—Three and six months ended June 30, 2005 and 2004

 

 

 

 

 

Condensed consolidated statements of cash flows—Six months ended June 30, 2005 and 2004

 

 

 

 

 

Notes to condensed consolidated financial statements—June 30, 2005

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

 

 

Item 5.

Other Information

 

 

 

 

Item 6.

Exhibits

 

 

 

 

SIGNATURES

 

 

2



 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements

Option Care, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

 

 

 

June 30, 2005

 

December 31, 2004

 

 

 

(Unaudited)

 

(Note 1)

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

8,860

 

$

19,816

 

Short-term investments

 

71,598

 

75,370

 

Accounts receivable, net

 

72,575

 

69,930

 

Inventory

 

12,615

 

13,191

 

Deferred income tax benefit

 

2,938

 

3,098

 

Other current assets

 

8,259

 

5,459

 

 

 

 

 

 

 

Total current assets

 

176,845

 

186,864

 

Equipment and other fixed assets, net

 

16,267

 

13,709

 

Goodwill, net

 

85,289

 

65,356

 

Other assets

 

4,973

 

3,918

 

 

 

 

 

 

 

Total assets

 

$

283,374

 

$

269,847

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade accounts payable

 

$

16,786

 

$

21,819

 

Current portion of long-term debt

 

47

 

19

 

Other current liabilities

 

7,427

 

6,573

 

 

 

 

 

 

 

Total current liabilities

 

24,260

 

28,411

 

Long-term debt, less current portion

 

86,335

 

86,306

 

Deferred income tax liability

 

8,066

 

7,468

 

Other liabilities

 

582

 

551

 

Minority interest

 

597

 

548

 

 

 

 

 

 

 

Total liabilities

 

119,840

 

123,284

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $.01 par value per share, 60,000 shares authorized, 32,464 and 32,183 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively

 

325

 

322

 

Common stock to be issued, 189 and 114 shares at June 30, 2005 and December 31, 2004, respectively

 

2,140

 

1,085

 

Additional paid-in capital

 

109,840

 

108,062

 

Retained earnings

 

51,229

 

41,612

 

Less treasury stock, at cost, 474 shares at December 31, 2004

 

 

(4,518

)

 

 

 

 

 

 

Total stockholders’ equity

 

163,534

 

146,563

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

283,374

 

$

269,847

 

 

See notes to condensed consolidated financial statements

 

3



 

Option Care, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

(in thousands, except per share amounts)

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

Specialty pharmacy services

 

$

67,600

 

$

58,407

 

$

142,497

 

$

123,339

 

Infusion and related healthcare services

 

47,690

 

37,450

 

90,538

 

72,396

 

Other

 

4,201

 

2,794

 

7,211

 

6,065

 

Total revenue

 

119,491

 

98,651

 

240,246

 

201,800

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

71,750

 

58,997

 

147,442

 

122,805

 

Cost of services provided

 

12,781

 

10,616

 

24,581

 

21,260

 

Total cost of revenue

 

84,531

 

69,613

 

172,023

 

144,065

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

34,960

 

29,038

 

68,223

 

57,735

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

23,509

 

19,200

 

45,050

 

38,449

 

Provision for doubtful accounts

 

2,153

 

1,462

 

4,479

 

3,021

 

Depreciation and amortization

 

849

 

569

 

1,753

 

1,250

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

26,511

 

21,231

 

51,282

 

42,720

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

8,449

 

7,807

 

16,941

 

15,015

 

Interest income

 

194

 

34

 

150

 

35

 

Other income (expense), net

 

100

 

(12

)

53

 

(79

)

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

8,743

 

7,829

 

17,144

 

14,971

 

Income tax provision

 

3,334

 

3,128

 

6,450

 

5,985

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,409

 

$

4,701

 

$

10,694

 

$

8,986

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.17

 

$

0.15

 

$

0.33

 

$

0.28

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

0.16

 

$

0.14

 

$

0.32

 

$

0.28

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

32,559

 

31,923

 

32,332

 

31,782

 

Diluted

 

34,519

 

32,613

 

33,930

 

32,466

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per share

 

$

0.0200

 

$

0.0133

 

$

0.0333

 

$

0.0133

 

 

See notes to condensed consolidated financial statements

 

4



 

Option Care, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

Six Months Ended
June 30,

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

10,694

 

$

8,986

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

3,022

 

2,494

 

Provision for doubtful accounts

 

4,479

 

3,021

 

Deferred income taxes

 

663

 

1,473

 

Income tax benefit from exercise of stock options

 

1,388

 

1,148

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts and notes receivable

 

(3,066

)

(1,205

)

Inventory

 

1,546

 

2,495

 

Accounts payable

 

(5,693

)

(3,685

)

Income taxes receivable/payable

 

1,639

 

715

 

Change in other assets and liabilities

 

(2,715

)

(3,582

)

 

 

 

 

 

 

Net cash provided by operating activities

 

11,957

 

11,860

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of short-term investments

 

(135,288

)

 

Sales of short-term investments

 

139,060

 

 

Purchases of equipment and other, net

 

(4,158

)

(2,588

)

Payments for acquisitions, net of cash acquired

 

(25,742

)

(1,090

)

 

 

 

 

 

 

Net cash used in investing activities

 

(26,128

)

(3,678

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Increase in financing costs

 

(161

)

 

Payments on capital leases and other debt

 

(13

)

(387

)

Proceeds from issuance of stock

 

4,466

 

2,403

 

Payments of cash dividends to common shareholders

 

(1,077

)

(428

)

Payments for purchase of treasury stock

 

 

(944

)

 

 

 

 

 

 

Net cash provided by financing activities

 

3,215

 

644

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(10,956

)

8,826

 

Cash and cash equivalents, beginning of period

 

19,816

 

3,961

 

Cash and cash equivalents, end of period

 

$

8,860

 

$

12,787

 

 

See notes to condensed consolidated financial statements

 

5



 

Option Care, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2005

(Unaudited)

 

1.   Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

 

The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

 

We completed a 3-for-2 split of our common stock on March 31, 2005 for shareholders of record as of March 17, 2005.  All share and per share amounts in this Quarterly Report on Form 10-Q have been adjusted to reflect the pro forma effects of this stock split.

 

For further information, refer to the consolidated financial statements and footnotes thereto included in Option Care’s Annual Report on Form 10-K for the year ended December 31, 2004.

 

2.   Long-Term Debt

 

On November 2, 2004, we completed a $75 million offering of 2.25% convertible senior notes due 2024 in a private placement to qualified institutional buyers.  The initial purchasers were granted the option to purchase up to an additional $11.3 million principal amount of notes and exercised this option in full on November 9, 2004.  We filed a Registration Statement on Form S-3 with the Securities and Exchange Commission on January 24, 2005 registering the notes and the common stock issuable upon conversion of the notes for resale to the public.

 

The convertible notes are senior unsecured obligations of Option Care and will be convertible into cash and, if applicable, shares of our common stock based on an initial conversion rate of 55.5278 shares per $1,000 principal amount of notes, which represents an initial conversion price of $18.01 per share, subject to adjustment in certain circumstances.  The conversion rate and conversion price were subsequently adjusted to 83.3338 and $12.00 per share, respectively, pursuant to the terms of the notes as a result of our 3-for-2 common stock split on March 31, 2005 and $0.02 per share dividend paid on June 10, 2005.  Note holders may convert their notes into cash and, if applicable, shares of our common stock prior to the stated maturity only under the following circumstances: (1) during any calendar quarter beginning after December 31, 2004, if the closing sale price of our common stock for each of 20 or more consecutive trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter; (2) during the five business day period after any five consecutive trading day period in which the average trading price per $1,000 principal amount of notes was equal to or less than 97% of the average conversion value of the notes during the note measurement period; (3) upon the occurrence of specified corporate transactions; or (4) if we have called the notes for redemption.  In general, upon conversion, the holder of each note will receive the conversion value of the note payable in cash, up to the principal amount of the note, and common stock for the notes’ conversion value in excess of such principal amount (plus an additional cash payout in lieu of fractional shares).  If the notes are surrendered for conversion in connection with certain fundamental changes that occur before November 1, 2009, holders will in certain circumstances also receive a make-whole premium in addition to the cash and shares that holders are otherwise entitled to receive upon conversion.  The convertible senior notes will mature on November 1, 2024 and will not be redeemable by us prior to November 1, 2009.  Holders of the convertible notes may require us to repurchase all or a portion of the convertible notes for cash on November 1, 2009, 2014 and 2019.  Interest will be paid at 2.25% per annum, payable semi-annually in arrears on May 1 and November 1 of each year to the holders of record at the close of business on the preceding April 15 and October 15, respectively.  The notes are senior unsecured obligations and will rank equally with all of our existing and future senior unsecured indebtedness.

 

6



 

3.    Earnings Per Share Data

 

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated.  All share and per share amounts reflect the 3-for-2 stock split effective March 31, 2005 for shareholders of record on March 17, 2005. (in thousands, except per share amounts):

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Basic:

 

 

 

 

 

 

 

 

 

Net income

 

$

5,409

 

$

4,701

 

$

10,694

 

$

8,986

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

32,559

 

31,923

 

32,332

 

31,782

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.17

 

$

0.15

 

$

0.33

 

$

0.28

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Net income

 

$

5,409

 

$

4,701

 

$

10,694

 

$

8,986

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

32,559

 

31,923

 

32,332

 

31,782

 

Net effect of dilutive stock options – Based on the treasury stock method

 

1,025

 

690

 

1,023

 

684

 

Net effect of dilutive contingently convertible debt (1)

 

935

 

¾

 

575

 

¾

 

 

 

 

 

 

 

 

 

 

 

Total diluted shares

 

34,519

 

32,613

 

33,930

 

32,466

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.16

 

$

0.14

 

$

0.32

 

$

0.28

 

 


(1)  Weighted average shares issuable upon conversion of all $86.3 million of our 2.25% convertible senior notes due 2024.

 

4.   Operating Segments

 

We have one identifiable business segment, with three service lines: specialty pharmacy services; infusion and related healthcare services; and other.

 

      Specialty pharmacy services involve the distribution of injectible and infused pharmaceuticals to treat a wide range of chronic health conditions.  The pharmaceuticals can be directly distributed to the patient’s home or to their physician’s office for in-office administration.  These pharmaceuticals may require refrigeration during shipping as well as special handling to prevent potency degradation.  Patients receiving treatment usually require special counseling and education regarding their condition and treatment program.

 

      Infusion and related healthcare services primarily involve the intravenous administration of medications at the patient’s home or other non-hospital sites such as one of our infusion suites.  Infusion pharmacy services treat a wide range of acute and chronic health conditions, including infections, dehydration, cancer, pain and nutritional deficiencies.  All of our company-owned pharmacies provide infusion pharmacy services.  Some of these pharmacies also provide related healthcare services, such as home health nursing, home hospice services, respiratory therapy services and durable medical equipment.

 

      Other revenue consists of royalties and other fees generated from our franchised pharmacy network and the software licensing and support revenue generated by our subsidiary, Management by Information, Inc. (“MBI”).

 

5.   Significant Customers and Concentration of Credit Risk

 

We generate the majority of our revenue from managed care contracts and other agreements with commercial third party payors by providing health care services to their members.  Our principal managed care contract is with Blue Cross and Blue Shield of Florida, to whose members we provide infusion pharmacy services and specialty pharmacy services.  The contract may be terminated by either party on 90 days’ notice and, unless terminated, renews annually each September for an additional one-year term.  We also generate revenue from government healthcare programs such as Medicare and Medicaid.

 

7



 

The following table sets forth information regarding revenue and accounts receivable related to our most significant payors as of the dates and for the periods presented:

 

 

 

Revenue

 

 

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

Accounts Receivable

 

June 30,

 

December 31,

 

 

2005

 

2004

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Blue Cross and Blue Shield of Florida

 

14

%

16

%

14

%

15

%

9

%

7

%

Medicare & Medicaid

 

17

%

20

%

17

%

20

%

20

%

18

%

All other payors (1)

 

69

%

64

%

69

%

65

%

71

%

75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

100

%

100

%

100

%

100

%

100

%

100

%

 


(1)  No other payor represents 10% or more of revenue or accounts receivable as of the dates and for the periods presented.

 

6.     Seasonal Revenue Trends

 

Synagis®, one of the specialty pharmaceuticals that we provide to patients, is seasonal.  Synagis® is a drug used for the prevention of respiratory synctial virus (RSV) in high-risk pediatric patients. RSV infection is a seasonal condition, with the season generally lasting from October through April.

 

Option Care’s quarterly Synagis® revenue for the year 2004 and the first two quarters of 2005 was as follows (amounts in thousands):

 

 

 

Synagis® revenue

 

% of Total
Revenue

 

 

 

 

 

 

 

Quarter ended March 31, 2004

 

$

14,251

 

13.8

%

Quarter ended June 30, 2004

 

3,955

 

4.0

%

Quarter ended September 30, 2004

 

571

 

0.6

%

Quarter ended December 31, 2004

 

9,455

 

8.4

%

Fiscal year 2004

 

$

28,232

 

6.8

%

 

 

 

 

 

 

Quarter ended March 31, 2005

 

$

15,536

 

12.9

%

Quarter ended June 30, 2005

 

$

4,492

 

3.8

%

 

7.     Acquisitions

 

During the quarter ended June 30, 2005, we completed three acquisitions of home infusion pharmacy businesses.  Two of the acquired businesses were current or former Option Care franchises, while the third was an independent, non-affiliated home infusion provider.  On April 8, 2005, we acquired the assets of our franchisee serving Indianapolis, Indiana and surrounding areas.  Effective May 1, 2005, we acquired the outstanding stock of an independent home infusion pharmacy business operating in Montana.  As of June 1, 2005, we acquired the outstanding stock of our former franchisee in Bakersfield, California.  These acquisitions continued our objective of expanding our overall national presence of company-owned home infusion pharmacies.  We have consolidated the results of operations of these businesses as of the effective dates of the acquisitions. We used $18.7 million in cash upon closing these transactions and will also issue 48,315 shares of our common stock, valued at a market price of $13.31 per share, in an unregistered offering.  Each acquisition contains a provision for payment of additional consideration in future periods if various performance measures are achieved.  We anticipate that any such additional consideration would be recorded as goodwill.  From the initial purchase payments, we recorded $12.9 million in goodwill from these transactions and expect the entire amount to be deductible for income tax purposes.

 

The following table sets forth the allocation of purchase price, in aggregate, for the three acquisitions we completed in the quarter ended June 30, 2005.  For certain of our acquisitions, the allocation of purchase price is tentative and subject to adjustment based on final valuation of the acquired assets (amounts in thousands):

 

8



 

Purchase Price:

 

 

 

Paid in cash at closing

 

$

18,643

 

Payable in shares of Option Care common stock

 

643

 

Liabilities assumed

 

310

 

 

 

 

 

Total purchase price

 

$

19,596

 

 

 

 

 

Allocation of Purchase Price:

 

 

 

Accounts receivable

 

$

5,114

 

Inventory

 

736

 

Other tangible assets

 

625

 

Goodwill

 

12,901

 

Other intangible assets

 

220

 

 

 

 

 

Total purchase price

 

$

19,596

 

 

In addition to our new acquisitions, during the six months ended June 30, 2005, we recorded $500,000 in goodwill equal to the additional cash consideration we expect to pay related to our 2004 acquisitions.  The additional consideration is based upon the achievement of performance targets contained in the purchase agreements for the acquired businesses.  This additional goodwill is expected to be fully deductible for income tax purposes.

 

8.     Franchise-related Revenue

 

We maintain a national franchise network through which we generate a portion of our revenue.  Our franchise-related revenues include: (1) royalties; (2) vendor rebates and administration fees; and (3) franchise settlement and related fees.  Each of these types of revenue can fluctuate over time, with the largest potential fluctuations relating to franchise terminations.

 

During the six months ended June 30, 2005, we recorded franchise settlement revenue related to two of our former franchisees.  During the quarter ended June 30, 2005, we recorded $2.0 million related to the termination of one of our franchisees, of which $1.7 million was related to release of future obligations under the franchise agreement and $300,000 represented settlement of under-reported royalties from prior periods discovered during our audit of their books and records.  During the quarter ended March 31, 2005, we acquired our franchise in St. Cloud, Minnesota.  As part of the transaction, we terminated the franchise agreement early and recorded a settlement gain of $800,000, which was equal to the present value of the excess of the estimated future royalty payments receivable under the franchise agreement over current market rates.

 

During the quarter and six months ended June 30, 2004, we recorded revenue of $400,000 and $900,000, respectively, related to the termination of one of our franchisees.  This revenue was primarily related to the amortization of a non-competition agreement we signed with the buyers of the franchisee's business.  We also recorded $100,000 in revenue during the quarter ended March 31, 2004 related to a settlement reached with a former franchise that had been terminated in 2003.

 

Our franchise-related revenue is included in our “Other” service line.  The following table sets forth our franchise-related revenue for the periods indicated (in thousands):

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Franchise-related revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalties

 

$

2,105

 

$

1,983

 

$

3,915

 

$

4,077

 

Vendor rebates and administration fees

 

 

95

 

 

125

 

 

189

 

 

287

 

Franchise settlements and related fees

 

 

1,700

 

 

392

 

 

2,491

 

 

1,036

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total franchise-related revenue

 

$

3,900

 

$

2,500

 

$

6,595

 

$

5,400

 

 

9.     Stock-based Compensation

 

Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, encouraged, but did not require, companies to record compensation cost for stock-based compensation plans at fair value.  We have chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.  Accordingly, compensation expense for stock options is measured as the excess, if any, of the quoted market price of Option Care common stock at the date of grant over the amount an employee must pay to acquire the stock.  We grant options at fair market value and therefore recognize no compensation expense when options are granted.  Likewise, our Employee

 

9



 

Stock Purchase Plan was structured to qualify under Section 423 of the Internal Revenue Code. Therefore, no compensation expense is recognized from employees’ purchase of shares under this plan.

 

The following table sets forth our net income and net income per common share for the three and six months ended June 30, 2005 and 2004, had compensation cost for our stock-based compensation plan been determined based on FASB Statement No. 123.  All share and per share amounts in the following table have been adjusted to reflect the pro forma effects of the 3-for-2 split of our common stock that became effective March 31, 2005 for shareholders of record on March 17, 2005 (in thousands, except per share amounts):

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Net income:

 

 

 

 

 

 

 

 

 

As reported

 

$

5,409

 

$

4,701

 

$

10,694

 

$

8,986

 

Deduct: Total stock-based employee compensation expense determined under the fair value based method for the following awards, net of related tax effects:

 

 

 

 

 

 

 

 

 

Stock option grants

 

(239

)

(367

)

(462

)

(699

)

Employee stock purchase plan withholdings

 

(63

)

(33

)

(127

)

(68

)

Pro forma

 

$

5,107

 

$

4,301

 

$

10,105

 

$

8,219

 

 

 

 

 

 

 

 

 

 

 

Net income per common share—basic:

 

 

 

 

 

 

 

 

 

As reported

 

$

0.17

 

$

0.15

 

$

0.33

 

$

0.28

 

Pro forma

 

$

0.16

 

$

0.13

 

$

0.31

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

Net income per common share—diluted:

 

 

 

 

 

 

 

 

 

As reported

 

$

0.16

 

$

0.14

 

$

0.32

 

$

0.28

 

Pro forma

 

$

0.15

 

$

0.13

 

$

0.30

 

$

0.25

 

 

The fair value of options granted under our stock option plan during the three and six months ended June 30, 2005 and 2004 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions (as pro forma adjusted for our 3-for2 stock split on March 31, 2005):

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Annual dividend yield per share

 

$

0.08

 

$

0.05

 

$

0.08

 

$

0.05

 

Expected volatility

 

30

%

40

%

33

%

40

%

Weighted average risk-free interest rate

 

3.72

%

3.10

%

3.66

%

2.86

%

Expected grant life (years)

 

4.0

 

4.0

 

4.0

 

4.0

 

Weighted average per share fair value of options granted

 

$

3.92

 

$

2.93

 

$

3.99

 

$

2.85

 

 

10.  Recently Issued Accounting Pronouncement

 

On December 16, 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment, which will change the way we account for employee stock options in future periods.  SFAS No. 123(R), which is a revision to SFAS No. 123, Accounting for Stock-Based Compensation, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows.  Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123, but with certain enhancements to improve the accuracy of fair value estimates.  However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  Pro forma disclosure is no longer an alternative.

 

SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

 

      A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the

 

10



 

requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

 

      A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

 

Initially, the SEC announced that SFAS No. 123(R) must be adopted in the first interim or annual period beginning after June 15, 2005.  Subsequently, on April 14, 2005, the SEC announced that calendar year-end companies will be allowed to delay implementation of the new standard until their first interim period beginning after December 15, 2005.

 

We will adopt SFAS No. 123(R) in our fiscal quarter ending March 31, 2006 and intend to apply the “modified retrospective” method. Adoption of SFAS No. 123(R) may materially affect our results of operations for periods following adoption, but will have no effect on our financial condition.

 

11.  Quarterly Dividends

 

Our Board of Directors initiated a quarterly dividend policy on May 11, 2004 and we paid our first quarterly dividend in the quarter ended June 30, 2004.  During the quarter ended June 30, 2005, our Board of Directors declared a $0.02 per share dividend paid on June 10, 2005 to shareholders of record as of May 27, 2005.  In each of the preceding four quarters, we paid dividends of $0.0133 per share.

 

12.  Comprehensive Income

 

Net income was our only component of comprehensive income for the three and six months ended June 30, 2005 and 2004.

 

11



 

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

FORWARD LOOKING STATEMENTS

 

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2004. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this Quarterly Report on Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us) contain statements that are or will be forward-looking, such as statements relating to acquisitions and other business development activities, future capital expenditures and the effects of future regulation and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us, or on our behalf. These risks and uncertainties include, but are not limited to, uncertainties affecting our businesses and our franchisees relating to acquisitions and divestitures (including continuing obligations with respect to completed transactions), sales and renewals of franchises, government and regulatory policies (including federal, state and local efforts to reform the delivery of and payment for healthcare services), general economic conditions (including economic conditions affecting the healthcare industry in particular), the pricing and availability of equipment and services, technological developments and changes in the competitive environment in which we operate.  For a more comprehensive description of risks applicable to our business, see Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2004.

 

OVERVIEW

 

We provide specialty pharmacy services and infusion pharmacy and other related healthcare services to patients at home or at other alternate sites such as infusion suites and physician’s offices.  We contract with managed care organizations and other third party payors who reimburse us for the services we provide to their subscriber members.  Our services are provided through our national network of company-owned and franchise-owned pharmacies and our two central, high-volume drug distribution facilities.

 

We have three service lines: specialty pharmacy services, infusion and related healthcare services, and other. Specialty pharmacy services involve the distribution of injectible and infused pharmaceuticals to treat a wide range of chronic health conditions.  The pharmaceuticals can be directly distributed to the patient’s home or to their physician’s office for in-office administration.  Depending on therapy type, we may also administer specialty pharmaceuticals to patients at our ambulatory infusion centers. These pharmaceuticals may require refrigeration during shipping as well as special handling to prevent potency degradation.  Patients receiving treatment usually require special counseling and education regarding their condition and treatment program.  Infusion and related services primarily involves the intravenous administration of medications at the patient’s home or other non-hospital site such as one of our infusion suites.  Infusion pharmacy services treat a wide range of acute and chronic health conditions, including infections, dehydration, cancer, pain and nutritional deficiencies.  All of our company-owned pharmacies provide infusion therapies. Some of these pharmacies also provide related healthcare services, such as home health nursing, home hospice services, respiratory therapy services and durable medical equipment.  Other revenue consists of royalties and other fees generated from our franchised pharmacy network and the software licensing and support revenue generated by our subsidiary, MBI.

 

Summarized information about revenues and gross profit for each of our service lines is provided in the following table (amounts in thousands):

 

REVENUE

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

Revenue

 

% of
total

 

Revenue

 

% of
total

 

Revenue

 

% of
total

 

Revenue

 

% of
total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specialty pharmacy services

 

$

67,600

 

56.6

%

$

58,407

 

59.2

%

$

142,497

 

59.3

%

$

123,339

 

61.1

%

Infusion and related healthcare services

 

47,690

 

39.9

%

37,450

 

38.0

%

90,538

 

37.7

%

72,396

 

35.9

%

Other

 

4,201

 

3.5

%

2,794

 

2.8

%

7,211

 

3.0

%

6,065

 

3.0

%

Total revenue

 

$

119,491

 

100.0

%

$

98,651

 

100.0

%

$

240,246

 

100.0

%

$

201,800

 

100.0

%

 

12



 

GROSS PROFIT

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

Gross
Profit

 

Gross
profit
margin

 

Gross
Profit

 

Gross
profit
margin

 

Gross
Profit

 

Gross
profit
margin

 

Gross
Profit

 

Gross
profit
margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specialty pharmacy services

 

$

10,307

 

15.2

%

$

10,059

 

17.2

%

$

21,860

 

15.3

%

$

20,585

 

16.7

%

Infusion and related healthcare services

 

20,555

 

43.1

%

16,334

 

43.6

%

39,353

 

43.5

%

31,363

 

43.3

%

Other

 

4,098

 

97.6

%

2,645

 

94.7

%

7,010

 

97.2

%

5,787

 

95.4

%

Total gross profit

 

$

34,960

 

29.3

%

$

29,038

 

29.4

%

$

68,223

 

28.4

%

$

57,735

 

28.6

%

 

The majority of our revenue is generated from managed care contracts and other agreements with commercial third party payors.  Our principal managed care contract is with Blue Cross Blue Shield of Florida. For the three and six months ended June 30, 2005, approximately 14% of our revenue was generated from this contract compared to 16% and 15%, respectively, for the corresponding periods in the prior year.  As of June 30, 2005 and December 31, 2004, respectively, 9% and 7% of our accounts receivable was due from Blue Cross Blue Shield of Florida. The contract may be terminated by either party on 90 days’ notice and, unless terminated, renews annually each September for an additional one-year term.

 

We also generate revenue from government healthcare programs such as Medicare and Medicaid.  For the three and six months ended June 30, 2005, approximately 17% of our revenue was generated from government healthcare programs compared to 20% for the corresponding three and six month periods in the prior year.  As of June 30, 2005 and December 31, 2004, respectively, 20% and 18% of our total accounts receivable was due from government healthcare programs.

 

13



 

RESULTS OF OPERATIONS

 

The following table shows the results of our operations for the three and six months ended June 30, 2005 and 2004, expressed in amounts and percentages of revenue (amounts in thousands):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

Amount

 

% of
Revenue

 

Amount

 

% of
Revenue

 

Amount

 

% of
Revenue

 

Amount

 

% of
Revenue

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specialty pharmacy services

 

$

67,600

 

56.6

%

$

58,407

 

59.2

%

$

142,497

 

59.3

%

$

123,339

 

61.1

%

Infusion and related healthcare services

 

47,690

 

39.9

%

37,450

 

38.0

%

90,538

 

37.7

%

72,396

 

35.9

%

Other

 

4,201

 

3.5

%

2,794

 

2.8

%

7,211

 

3.0

%

6,065

 

3.0

%

Total revenue

 

119,491

 

100.0

%

98,651

 

100.0

%

240,246

 

100.0

%

201,800

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

71,750

 

60.0

%

58,997

 

59.8

%

147,442

 

61.4

%

122,805

 

60.9

%

Cost of services provided

 

12,781

 

10.7

%

10,616

 

10.8

%

24,581

 

10.2

%

21,260

 

10.5

%

Total cost of revenue

 

84,531

 

70.7

%

69,613

 

70.6

%

172,023

 

71.6

%

144,065

 

71.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

34,960

 

29.3

%

29,038

 

29.4

%

68,223

 

28.4

%

57,735

 

28.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

23,509

 

19.7

%

19,200

 

19.5

%

45,050

 

18.7

%

38,449

 

19.1

%

Provision for doubtful accounts

 

2,153

 

1.8

%

1,462

 

1.5

%

4,479

 

1.9

%

3,021

 

1.5

%

Depreciation and amortization

 

849

 

0.7

%

569

 

0.5

%

1,753

 

0.7

%

1,250

 

0.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

26,511

 

22.2

%

21,231

 

21.5

%

51,282

 

21.3

%

42,720

 

21.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

8,449

 

7.1

%

7,807

 

7.9

%

16,941

 

7.1

%

15,015

 

7.4

%

Interest income (expense), net

 

194

 

0.1

%

34

 

%

150

 

%

35

 

%

Other expense, net

 

100

 

0.1

%

(12

)

%

53

 

%

(79

)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

8,743

 

7.3

%

7,829

 

7.9

%

17,144

 

7.1

%

14,971

 

7.4

%

Income tax provision

 

3,334

 

2.8

%

3,128

 

3.1

%

6,450

 

2.6

%

5,985

 

2.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,409

 

4.5

%

$

4,701

 

4.8

%

$

10,694

 

4.5

%

$

8,986

 

4.5

%

 

Three and Six Months Ended June 30, 2005 and 2004

 

For the quarter ended June 30, 2005, we generated revenue of $119.5 million, an increase of 21.1% over the corresponding prior year quarter.  For the six months ended June 30, 2005, our revenue was $240.2 million, and increase of 19.1% over the prior year.  This revenue growth was the result of acquisitions, start-ups and an increase in same store sales.  Gross profit margins remained steady across most therapies, with the exception of IVIG (immune globulin).  Supply shortages of IVIG throughout 2005 have significantly increased its cost, reducing our margin on this therapy.  Our overall specialty pharmacy gross profit margin declined to 15.2% in the quarter ended June 30, 2005 compared to 17.2% in the corresponding prior year quarter, primarily due to the increased cost of IVIG.  Despite this margin pressure, our net income increased by 15.1% to $5.4 million for the quarter ended June 30, 2005 compared to $4.7 million in the prior year quarter as a result of revenue growth through increased same store sales, acquisitions and start-ups, and an increase in franchise-related revenue.  For the six months ended June 30, 2005, net income was $10.7 million, an increase of 19.0% over the $9.0 million net income in the prior year period.  Net income per diluted share was $0.16 for the quarter and $0.32 for the six months ended June 30, 2005, compared to $0.14 and $0.28 for the respective quarter and six months in the prior year.  We paid a cash dividend of $0.02 per share during the quarter ended June 30, 2005 compared to $0.0133 in the prior year quarter.

 

Our operating cash flow has continued to be positive.  We generated $12.0 million in cash from operations during the six months ended June 30, 2005 with $4.8 million of this total generated in the quarter ended June 30, 2005.  We used $25.7 million in cash to complete five business acquisitions thus far in 2005, with three of these acquisitions taking place in the quarter ended June 30,

 

14



 

2005.  We plan to continue evaluating potential acquisitions that we believe will add to shareholders value, as well as pursuing start-ups and strategic joint ventures. We will also continue to pursue opportunities to expand our business through increased market penetration and by partnering with biotech manufacturers on the release of new specialty drugs.  As of June 30, 2005, we had $8.9 million of cash and cash equivalents and $71.6 million in short-term investments, while our debt primarily consisted of $86.3 million of 2.25% convertible senior notes due 2024.

 

Revenue:

We report our operating results in one segment, consisting of three service lines: specialty pharmacy services; infusion and related healthcare services; and other.  For the three and six months ended June 30, 2005, our revenue was $119.5 million and $240.2 million, respectively, representing increases of 21.1% and 19.1% over the corresponding prior year periods.  Our increases in revenue were primarily due to same store sales growth and from the effects of acquisitions and start-ups.

 

Specialty pharmacy services revenue:

Our specialty pharmacy services revenue for the quarter ended June 30, 2005 was $67.6 million, an increase of $9.2 million, or 15.7%, over the corresponding prior year quarter.  For the six months ended June 30, 2005, specialty revenue was $142.5 million, an increase of $19.2 million, or 15.5%, over the corresponding period in the prior year.  Three main factors contributed to this growth:  acquisitions and startups; increased sales of Xolair; and increased market penetration for various other specialty drugs and therapies.  We completed three acquisitions during the quarter ended June 30, 2005 and five acquisitions overall so far this year.  All of the acquired businesses are infusion therapy providers that also distribute specialty drugs for various therapies, adding to our revenue base for both of these service lines.  Our Xolair revenue steadily increased throughout 2004 after the drug became available late in 2003 for the treatment of moderate to severe allergic asthma.  We continue to see sequential quarterly increases in sales of Xolair, but at a more modest rate than during 2004.  In addition, revenue from various other specialty products, such as growth hormone and blood clotting factor, increased on a same store basis during the current year periods as a result of focused marketing efforts.  On a sequential quarterly basis, our specialty pharmacy services revenue decreased due to the seasonal effect of Synagis, a drug used during the colder months to prevent respiratory synctial virus infection in premature and other high-risk infants.  With the wind-down of the current Synagis season, our Synagis revenue declined to $4.5 million in the quarter ended June 30, 2005 compared to $15.5 million in the quarter ended March 31, 2005.

 

Infusion and related healthcare services revenue:

Our infusion and related healthcare services revenue for the quarter ended June 30, 2005 was $47.7 million, an increase of $10.2 million, or 27.3%, over the prior year quarter.  For the six months ended June 30, 2005, infusion and related healthcare services revenue was $90.5 million, an increase of $18.1million, or 25.1%, over the corresponding prior year quarter.  Our increases in revenue have been due to same store sales growth, acquisitions, and start-ups.  Same store sales have grown at a rate of 12.2% in the quarter ended June 30, 2005 compared to the prior year quarter, and 14.0% in the six months ended June 30, 2005 compared to the corresponding prior year period.  Increases have occurred across a wide variety of therapies.

 

Other revenue:

Other revenue consists of two primary elements: (1) revenue generated from our franchise network, consisting of royalties, franchise fees and vendor rebates earned through our franchises’ purchases under our contracts, and; (2) software licensing and support services provided by our wholly-owned subsidiary, MBI. Other revenue was $4.2 million for the quarter ended June 30, 2005 compared to $2.8 million in the corresponding prior year quarter.  For the six months ended June 30, 2005, other revenue was $7.2 million compared to $6.1 million in the prior year period.  These increases in other revenue in the current year periods were due to franchise terminations, audits and settlements.  Franchise-related revenue may continue to fluctuate significantly in future periods due to our potential acquisition, audit or termination of various franchises.  Our software revenue in the current periods was immaterial in amount and consistent with the prior year periods.

 

Cost of revenue:

Cost of revenue consists of the cost of goods sold and the cost of service provided. Cost of goods primarily consists of the cost of drugs and medical supplies used in the provision of services to our patients, as well as depreciation expense for medical equipment rented to patients.  Cost of service consists of salaries and related costs for employees directly involved in patient care, including pharmacists, nurses, therapists and delivery drivers.  Cost of service also includes the cost of shipping or delivering products and services to the patient, including depreciation of delivery vehicles.

 

15



 

The following table presents our cost of revenue for the quarter and six months ended June 30, 2005 and 2004 (in thousands):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2005

 

2004

 

Dollar
Change

 

Percent
Change

 

2005

 

2004

 

Dollar
Change

 

Percent
Change

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

71,750

 

$

58,997

 

$

12,753

 

21.6

%

$

147,442

 

$

122,805

 

$

24,637

 

20.1

%

Cost of services provided

 

12,781

 

10,616

 

2,165

 

20.4

%

24,581

 

21,260

 

3,321

 

15.6

%

Total cost of revenue

 

$

84,531

 

$

69,613

 

$

14,918

 

21.4

%

$

172,023

 

$

144,065

 

$

27,958

 

19.4

%

 

The increases in cost of revenue of 21.4% and 19.4% for the quarter and six months ended June 30, 2005 over the respective prior year periods were primarily due to our 21.1% and 19.1% increases in revenue over the same periods.  Cost of goods sold increased at a higher rate than revenue primarily because of supply shortages for IVIG which resulted in a higher cost of goods and lower gross profit margin for that drug, and due to increased sales of Xolair in the current year periods.

 

Gross profit margin.  The following table sets forth the gross profit margin for each of our three service lines: specialty pharmacy services; infusion and related healthcare services; and other:

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Gross profit margin:

 

 

 

 

 

 

 

 

 

Specialty pharmacy services

 

15.2

%

17.2

%

15.3

%

16.7

%

Infusion and related healthcare services

 

43.1

%

43.6

%

43.5

%

43.3

%

Other

 

97.6

%

94.7

%

97.2

%

95.4

%

Overall gross profit margin

 

29.3

%

29.4

%

28.4

%

28.6

%

 

Our overall gross profit margins in the current year have remained consistent with the prior year.  Within our services lines, the gross profit margin on our specialty pharmacy services has decreased, the margin on infusion and related healthcare services has remained steady and the margin on our other revenue has increased.  Our specialty pharmacy services gross profit margin declined by 200 basis points in the quarter ended June 30, 2005 compared to the prior year quarter and 140 basis points in the six months ended June 30, 2005 compared to the corresponding prior year period.  This decline was primarily due to supply shortages of IVIG which drove up the cost of that drug and reduced our gross profit margins.  Our margin on other revenue improved in 2005 due to an increase in franchise-related revenue related to our acquisition of one franchisee and termination of another.  Other revenue, which consists of franchise-related revenues and software sales and support, has minimal direct costs and therefore produces a high gross profit margin.  Our infusion and related healthcare services gross profit margins have remained fairly consistent.  The 50 basis point decline in margin for infusion and related healthcare services in the quarter ended June 30, 2005 was due to a one-time adjustment to depreciation expense for certain respiratory equipment as a result of a change in our estimate of useful life.

 

Selling, general and administrative expenses:

For the quarter ended June 30, 2005, selling, general and administrative expenses were $23.5 million, an increase of $4.3 million, or 22.4% over the prior year quarter.  For the six months ended June 30, 2005, selling, general and administrative expenses were $45.1 million, an increase of $6.6 million, or 17.2%, over the prior year period.  Wages and related costs increased by $3.2 million and $5.0 million in the quarter and six months ended June 30, 2005 as a result of business acquisitions, increases in corporate and field staff and merit wage adjustments.  Travel-related expenses, professional services and building rent also increased, in part due to acquisitions and acquisition-related activities.  Professional services also increased in part due to incremental costs of complying with Section 404 of the Sarbanes-Oxley Act of 2002.

 

Provision for doubtful accounts:

Our provision for doubtful accounts for the quarter ended June 30, 2005 was $2.2 million, or 1.8% of revenue, compared to $1.5 million, or 1.5% of revenue, in the prior year period.  For the six months ended June 30, 2005, our provision for doubtful accounts was $4.5 million, or 1.9% of revenue, compared to $3.0 million, or 1.5% of revenue, in the corresponding prior year period.  The slight

 

16



 

increase in our provision for doubtful accounts in both dollar amount and percentage of revenue was primarily due to the effects of our acquisitions and growth in same store sales at our company-owned local pharmacies.  We provide for doubtful accounts at a higher rate at our local pharmacies than at our two high-volume distribution pharmacies.  Therefore, as we acquired additional local pharmacies and generated higher revenue at our existing local pharmacies, our blended bad debt provision rate increased slightly in the current year periods as a percentage of revenue.

 

Depreciation and amortization:

For the quarter ended June 30, 2005, depreciation and amortization expense was $800,000, an increase of $300,000, or 49.2%, over the corresponding prior year quarter.  For the six months ended June 30, 2005, our depreciation and amortization expense was $1.8 million, an increase of $500,000, or 40.2%, over the corresponding prior year period.  The primary causes of these increases are the depreciation of internally-developed software products and the amortization of deferred financing costs generated by our $86.3 million offering of 2.25% convertible senior notes, completed in November 2004.  The depreciation expense contained within this line item relates to non-revenue producing assets only, such as furniture and fixtures and leasehold improvements.  Depreciation for revenue-producing equipment such as rental medical equipment and delivery vehicles in included in cost of revenue.

 

Operating income:

Our operating income was $8.4 million in the quarter ended June 30, 2005, an increase of $600,000, or 8.2%, over the corresponding prior year quarter.  For the six months ended June 30, 2005, our operating income was $16.9 million, which represents an increase of $1.9 million, or 12.8%, over the prior year period.  These increases in operating income were primarily the result of same store sales growth, acquisition activities and an increase in franchise-related revenue.  As a percentage of revenue, our operating income was 7.1% for the quarter and six months ended June 30, 2005 compared to 7.9% for the quarter ended June 30, 2004 and 7.4% for the six months ended June 30, 2004.  These declines were primarily due to supply shortages of IVIG, which reduced our gross profit margin on this product and reduced our operating income in the current year periods.

 

Interest Income/(Expense):

Our interest income, net of interest expense, was $194,000 and $150,000 for the quarter and six months ended June 30, 2005, respectively.  In the prior year periods, our interest income was $34,000 and $35,000 for the respective quarter and six months ended June 30, 2004.  We completed an $86.3 million offering of 2.25% convertible senior notes in November 2004.  In the current year periods, our interest expense was primarily from these convertible notes and our interest income was earned from investing the proceeds from this debt offering.  The interest earned on our investments exceeded the interest expense on the convertible notes, resulting in net interest income during the current year periods.  In the prior year periods, we had virtually no debt and our net interest income was earned from investing our cash reserves.

 

Income taxes:

Our income tax provision was $3.3 million for the quarter and $6.5 million for the six months ended June 30, 2005.  In the prior year, our income tax provision was $3.1 million for the quarter and $6.0 million for the six months ended June 30, 2004.  As a percentage of pre-tax income, our provision for income taxes was 38.1% for the quarter and 37.6% for the six months ended June 30, 2005 compared to 40.0% for the corresponding prior year periods.  The decline in income tax provision as a percentage of pre-tax income is primarily due to two factors:  re-evaluation of our effective state income tax rate based on our reduced state tax exposure reserve; and an increase in tax-exempt interest income earned from our short-term investments.

 

Net income:

Our net income was $5.4 million for the quarter and $10.7 million for the six months ended June 30, 2005 compared to $4.7 million for the quarter and $9.0 million for the six months ended June 30, 2004.  Our growth in revenue from same store sales increases, acquisitions and start-ups and an increase in franchise termination revenue were the primary causes of our increase in net income over the period.  As a percentage of revenue, our net income was equal to 4.5% for both the quarter and six months ended June 30, 2005 compared to 4.8% for the quarter and 4.5% for the six months ended June 30, 2004.

 

Diluted shares & earnings per share:

We completed a 3-for-2 stock split on March 31, 2005.  All share and per share amounts in this quarterly report reflect the pro forma effects of this split.  Our earnings per diluted share were $0.16 for the quarter and $0.32 for the six months ended June 30, 2005, representing increases of 14.3% over our earnings per diluted share of $0.14 for the quarter and $0.28 for the six months ended June 30, 2004.  Total diluted shares were 34.5 million for the quarter and 33.9 million for the six months ended June 30, 2005 compared to diluted shares of 32.6 million for the quarter and 32.5 million for the six months ended June 30, 2004.  These increases in diluted shares were due to a number of factors, including (1) an increase in the dilutive effect of our contingently convertible debt, (2) the dilutive effect of employee stock options and shares issued and issuable under our employee stock purchase plan and stock incentive plan, and (3) new shares issued and to be issued as partial payment for acquisitions.  These increases were partially offset by our purchase and subsequent retirement of 474,000 shares of treasury stock in the quarter ended December 31, 2004.  Our contingently

 

17



 

convertible debt accounted for 900,000 shares of the total 1.9 million share increase in diluted shares for the quarter ended June 30, 2005 over the corresponding prior year quarter.

 

LIQUIDITY AND CAPITAL RESOURCES

 

During the six months ended June 30, 2005, we financed our operations and business acquisitions through operating cash flows and the use of cash reserves and proceeds generated from our $86.3 million offering of 2.25% convertible senior notes, completed in November 2004.  During the six months ended June 30, 2005, we generated $12.0 million in cash flow from operations.  We also used $25.7 million in cash during this period for business acquisitions. We continue to evaluate opportunities for potential business acquisitions, start-ups and joint ventures that we believe will be accretive to future earnings.  Accordingly, we may need to seek additional sources of capital in the future to fund these activities.  As of June 30, 2005, we had cash and short-term investments totaling $80.5 million and total long-term debt of $86.3 million.

 

Operating Cash Flows:

We generated $12.0 million in positive cash flow from operations in the six months ended June 30, 2005.  This positive cash flow was primarily the result of our net income of $10.7 million in the current year period, as well as our consistent collection of accounts receivable.  Also, of the current period $12.0 million of positive operating cash flow, $1.6 million was due to the timing of our income tax payments and $1.4 million was the result of tax credits from employee stock option exercises.

 

For the six-month period ended June 30, 2004, we generated $11.9 million of positive operating cash flow.  The positive cash flow was primarily due to our net income during the period and our accounts receivable collection performance.  Additionally, our operating cash flow benefited during this period from a federal income tax overpayment carried over from 2003.

 

Investing Cash Flows:

We used $26.1 million in cash in investing activities during the six months ended June 30, 2005.  Of this total, $25.7 million was used to complete five business acquisitions during the period, with the majority of this expenditure occurring in the quarter ended June 30, 2005.  We also used $4.2 million to acquire equipment and other fixed assets, of which $1.2 million was used to purchase a new software system for our specialty drug distribution business, $1.5 million was used for infrastructure items such as furniture, fixtures and computer hardware, $1.1 million was used to acquire revenue-generating medical equipment such as infusion pumps and other durable medical equipment, and $400,000 was used for internally-developed software projects.  During the six months ended June 30, 2005, we generated a net $3.8 million in cash from the liquidation of short-term investments to help fund our acquisition payments.

 

In the prior year period ending June 30, 2004, we used $3.7 million in investing activities.  Of this total, we used $1.1 million to acquire two small businesses and used $2.6 million for the purchase of equipment and other fixed assets.  Of this total, $1.5 million was used to acquire infusion pumps and other revenue-generating medical equipment, $600,000 was used for infrastructure improvement and $500,000 was used on internally and externally developed software products.

 

Financing Cash Flows:

Financing activities generated a net $3.2 million in positive cash flow during the six months ended June 30, 2005.  We generated $4.5 million in cash from issuance of shares of common stock to employees who exercised stock options or participated in our employee stock purchase plan, and we used $1.1 million to pay cash dividends to our shareholders.  We also used $200,000 to pay trailing debt issuance costs related to our convertible debt offering from November 2004.

 

In the prior year period ending June 30, 2004, financing activities generated $600,000 in cash flow.  We generated $2.4 million from employee stock option exercises and employee stock purchase plan contributions.  This was offset by $900,000 used to purchase treasury stock, $400,000 used to pay a cash dividend to our common shareholders and $400,000 used for scheduled debt repayments on capital leases and other fixed-rate debts.

 

Convertible Senior Notes:

In November 1, 2004, we completed an $86.3 million offering of 2.25% convertible senior notes, due 2024.  The purpose of the offering was to finance our future growth initiatives.  The funds may be used for acquisitions, stock repurchases, operating cash needs and other general corporate purposes.  The initial offering was completed on November 2, 2004 for $75.0 million, with an option for an additional $11.3 million.  This option was exercised in full on November 9, 2004.  We will pay 2.25% interest per annum on the principal amount of the notes, payable semi-annually in arrears on May 1 and November 1 of each year, with the first payment due and paid on May 1, 2005.  The holders may convert the notes into cash and, if applicable, shares of our common stock if certain

 

18



 

conversion criteria are met, such as our stock reaching a threshold market price or various other criteria.  The notes cannot be redeemed by us prior to November 1, 2009.  On each of November 1, 2009, November 1, 2014 and November 1, 2019, the holders can require us to purchase all or a portion of the outstanding notes for their principal amount plus accrued interest.  At any time on or after November 1, 2009, we may redeem the notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus any accrued and unpaid interest.  We have incurred deferred financing costs of $3.2 million related to this offering, consisting of underwriting, legal and other related costs.  These costs are being amortized straight-line over a five-year period.

 

Accounts Receivable:

The following table sets forth information regarding our accounts receivable as of the dates indicated (dollar amounts in thousands):

 

 

 

June 30,
2005

 

March 31,
2005

 

December 31,
2004

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$

78,614

 

$

80,029

 

$

76,809

 

Less allowance for doubtful accounts

 

(6,039

)

(5,948

)

(6,879

)

 

 

 

 

 

 

 

 

Accounts receivable, net of allowance for doubtful accounts

 

$

72,575

 

$

74,081

 

$

69,930

 

 

 

 

 

 

 

 

 

Days sales outstanding (DSO)(1)

 

57 days

 

54 days

 

55 days

 

 


(1)   DSO is based on trade accounts receivable, net of allowance for doubtful accounts, and is calculated using the exhaustion method whereby the net accounts receivable balance is exhausted against each preceding month’s or partial month’s net revenue.  The DSO calculated above includes only our specialty pharmacy service line and infusion and related healthcare service line.

 

Our accounts receivable, net of bad debt reserves, was $72.6 million as of June 30, 2005 compared to $74.1 million at March 31, 2005 and $69.9 million as of December 31, 2004.  The quarterly decline in accounts receivable was primarily due to a seasonal decline in Synagis revenue which more than offset the increase related to same store sales growth and business acquisitions we completed during the quarter.

 

The following table sets forth the percentage breakdown of our trade accounts receivable by aging category and by major payor as of the dates indicated:

 

 

 

June 30,
2005

 

March 31,
2005

 

December 31,
2004

 

By Aging Category (1):

 

 

 

 

 

 

 

Aged 0-90 days

 

72

%

74

%

72

%

Aged 91-180 days

 

15

%

13

%

13

%

Aged 181-365 days

 

8

%

8

%

9

%

Aged over 365 days

 

5

%

5

%

6

%

Total

 

100

%

100

%

100

%

 

 

 

 

 

 

 

 

By Major Payor:

 

 

 

 

 

 

 

Managed care and other payors

 

80

%

83

%

82

%

Medicare and Medicaid

 

20

%

17

%

18

%

Total

 

100

%

100

%

100

%

 


(1)   Accounts receivable by aging category considers only accounts of our specialty pharmacy service line and infusion and related healthcare service line.

 

Our days sales outstanding (DSO) increased to 57 days as of June 30, 2005 from 54 days as of March 31, 2005.  This increase was due in part to normal fluctuations in the timing of payments received under our principal managed care contract with Blue Cross and Blue Shield of Florida.

 

As of June 30, 2005 we had cash and cash equivalents of $8.9 million and short-term investments of $71.6 million for a combined

 

19



 

total of $80.5 million available for operations, acquisitions and other cash requirements.  As of December 31, 2004, we had cash and cash equivalents of $19.8 million and short-term investments of $75.4 million for a combined total of $95.2 million.  The $14.7 million decline in cash, cash equivalents and short-term investments was primarily due to acquisition activities, which used $25.7 million in cash during the period.  We generated positive cash flow from operations of $12.0 million during the six months ended June 30, 2005, which partially offset our use of cash for acquisitions.  We believe that cash flow from operations and our current reserves of cash and short-term investments will be sufficient to meet our operating cash needs for the immediate future, including any interest due on our $86.3 million of 2.25% convertible senior notes.  In the event that additional capital is required, there can be no assurance that such capital can be obtained from other sources on terms acceptable to us, if at all.

 

Our business strategy includes the selective acquisition of additional local pharmacy facilities and specialty pharmacy operations.  Accordingly, we may require additional capital in order to complete these acquisitions.  It is impossible to predict the amount of capital that may be required for acquisitions, and there is no assurance that sufficient financing for these activities will be available on terms acceptable to us, if at all.

 

Goodwill and Other Intangible Assets

 

As of June 30, 2005, we had net goodwill and other intangible assets of $86.0 million, consisting of $85.3 million of goodwill and $700,000 of other intangible assets such as non-competition agreements and managed care contracts.  As of December 31, 2004, net goodwill and other intangible assets equaled $65.9 million, consisting of $65.4 million of goodwill and $500,000 of other intangible assets.  During the six months ended June 30, 2005, goodwill increased $19.9 million as a result of the five business acquisitions we completed during the period.  Other intangible assets increased by $400,000 as a result of these acquisitions, offset by amortization of $200,000 during the period.

 

As required by Statements of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142), we do not amortize goodwill, but test our goodwill for impairment annually each October 1, or whenever we identify events or conditions that could potentially result in impairment of our goodwill.  During the quarter ended June 30, 2005, no impairment of goodwill was identified.

 

Regulatory and Other Developments

 

Health Insurance Portability and Accountability Act of 1996 (HIPAA).  To improve the efficiency and effectiveness of the health care system, the Health Insurance Portability and Accountability Act (HIPAA) of 1996, Public Law 104-191, included “Administrative Simplification” provisions that required the Department of Health and Human Services (HHS) to adopt national standards for electronic health care transactions.  The Administrative Simplification provisions address electronic health care transactions and the security of electronic health information systems.  Providers are required to comply with the standards by specific compliance dates established by HHS.  For standards relating to electronic health care transactions, the compliance date was originally set for October 16, 2002.  If the covered entity filed for an extension, the compliance date was postponed until October 16, 2003.  The security standards applicable to individually identifiable health information maintained electronically were required to be implemented by April 21, 2005.  We were materially compliant with these standards by the applicable compliance dates.  The standards for a unique national health identifier for providers used in connection with electronic healthcare transactions must be implemented by May 23, 2007.  We expect to be able to materially comply with this regulation by its applicable compliance date.

 

Penalties for non-compliance with the HIPAA Administrative Simplification provisions range from a civil penalty of $100 for each violation (which can total up to $25,000 per person per year), to criminal penalties, including up to $50,000 and/or one year imprisonment, up to $100,000 and/or five years imprisonment if the offense is committed under false pretenses and up to $250,000 and/or ten years imprisonment for violating a standard with the intent to sell, transfer or use individually identifiable health information for commercial advantage, personal gain or malicious harm.

 

In addition to regulating privacy of individual health information and other provisions relating to Administrative Simplification, HIPAA includes several anti-fraud and abuse laws, extends criminal penalties to private health care benefit programs and, in addition to Medicare and Medicaid, to other federal health care programs, and expands the Office of Inspector General’s authority to exclude persons and entities from participating in the Medicare and Medicaid programs.

 

Medicare Prescription Drug, Improvement and Modernization Act of 2003.  The Medicare Prescription Drug, Improvement and Modernization Act of 2003 changed the way in which covered outpatient drugs are reimbursed by the Medicare program.  In January 2004, payment for most drugs covered by Medicare decreased to 85% of the AWP for those drugs, determined as of April 1, 2003.  Beginning in 2005, reimbursement for most Medicare Part B drugs not paid on a cost or prospective payment basis was to be set at either 106% of the average sales price (ASP) or through a competitive acquisition program to be phased in beginning in 2006.  The competitive acquisition program will be established by the Centers for Medicare and Medicaid Services (CMS) and will enable physicians in designated competitive acquisition areas to purchase drugs through contractors that have successfully bid for that right.  Each physician will elect annually whether to obtain drugs through the competitive acquisition program.  CMS will re-bid the contracts at least every three years.  A significant portion of the infusion drugs provided by us are administered in connection with covered durable medical equipment (DME).  The payment rate for drugs administered in this manner generally will continue to be 95% of the AWP in effect as of October 1, 2003.

 

While the majority of our revenue is reimbursed by managed care organizations and other non-government payors, these changes to the way Medicare pays for outpatient drugs and biologicals may reduce our revenue and gross margins on services provided to Medicare patients.  Further, adoption of ASP as the standard measure for determining reimbursement by state Medicaid programs for the drugs we provide may reduce our revenue and gross margins.

 

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

 

We are subject to market risk primarily in relation to our cash and cash equivalents and short-term investments.  As of June 30, 2005, we had no variable-rate debt.  In November 2004, we completed an $86.3 million offering of 2.25% convertible senior notes due 2024.  The interest rate on this debt is fixed.  However, the interest rate we may earn on the cash generated from this offering, as well as

 

20



 

cash generated from our operations, is subject to market fluctuations.  We utilize a mix of investment maturities based on our anticipated cash needs and evaluation of existing interest rates and market conditions.

 

The following table sets forth our cash and cash equivalents and short-term investments as of the dates indicated (in thousands):

 

 

 

June 30,
2005

 

March 31,
2005

 

December 31,
2004

 

Cash and cash equivalents (1)

 

$

8,860

 

$

11,604

 

$

19,816

 

Short-term investments (2)

 

71,598

 

85,814

 

75,370

 

Total

 

$

80,458

 

$

97,418

 

95,186

 

 


(1)   Cash equivalents includes highly-liquid investments having a maturity of three months or less at time of purchase,

(2)   Short-term investments consist of commercial paper with maturities of three months or more at time of acquisition, as well as variable-rate municipal demand notes, preferred stocks and similar instruments that are either perpetual in nature or have final maturities greater than three months.

 

While we attempt to minimize market risk and maximize return, changes in market conditions may significantly affect the income we earn on our cash and cash equivalents and short-term investments.  Based on our actual cash and cash equivalents and short-term investment balances at June 30, 2005, a 100 basis point decline in interest rates would reduce our interest income by $805,000 on an annualized basis.

 

ITEM 4.  Controls and Procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as of June 30, 2005. Based upon that evaluation, the chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective as of June 30, 2005. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during our fiscal quarter ended June 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II.  OTHER INFORMATION

 

ITEM 1.  Legal Proceedings

 

We are subject to claims and legal actions that may arise in the ordinary course of business. However, we maintain insurance to protect against such claims or legal actions. We are not aware of any litigation, either pending or filed, that we believe is likely to have a material adverse effect on our results of operation or financial condition.

 

ITEM 2.  Unregistered Sales of Equity Securities

 

Effective May 1, 2005, we acquired the outstanding stock of At Home Solutions, Inc., an independent infusion pharmacy provider operating in the major population centers of Montana.  A portion of the purchase price will be paid in shares of our common stock.  A total of 48,315 shares will be issued, valued at $13.31 per share, pursuant to the exemption from registration provided Rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933.

 

ITEM 3.  Defaults Upon Senior Securities

 

None.

 

21



 

ITEM 4.  Submission of Matters to a Vote of Securities Holders

 

We held our annual meeting of stockholders on May 9, 2005.  At that meeting, our stockholders were asked to consider and vote upon the following matters.

 

1.     Election of one member to the Board of Directors to hold office for a three-year term or until his successor is duly elected and qualified.  The nominee, who was listed in our proxy statement, was elected for a three-year term, with the results of voting as follows:

 

 

 

VOTES FOR

 

VOTES AGAINST

 

ABSTAIN

 

Leo Henikoff, M.D.

 

22,886,626

 

0

 

1,102,685

 

 

2.     Ratification of the appointment of Ernst & Young, LLP as our independent auditors for the fiscal year 2005.  The proxy voting results were as follows:

 

VOTES FOR

 

VOTES AGAINST

 

ABSTAIN

 

23,941,025

 

46,850

 

1,436

 

 

ITEM 5.  Other Information

 

None.

 

ITEM 6.  Exhibits

 

See Exhibit Index.

 

22



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

OPTION CARE, INC.

Date: August 9, 2005

By:

/s/ Paul Mastrapa

 

 

 

Chief Financial Officer

 

 

(Principal Accounting Officer and Principal Financial Officer)

 

23



 

EXHIBIT INDEX

 

Exhibit
Number

 

 

 

 

 

3.1

 

Certificate of Incorporation of the Registrant, together with Certificate of Amendment thereto filed February 18, 1992. Filed as Exhibit 3(a) to Option Care’s Registration Statement (No. 33-45836) dated April 15, 1992 and incorporated by reference herein.

 

 

 

3.2

 

Certificate of Amendment to Certificate of Incorporation of the Registrant filed March 25, 1992. Filed as Exhibit 3(c) to Option Care’s Registration Statement (No. 33-45836) dated April 15, 1992 and incorporated by reference herein.

 

 

 

3.3

 

Certificate of Amendment to Certificate of Incorporation of the Registrant filed with the Delaware Secretary of State on June 18, 2002. Filed as Exhibit 3.3 to Option Care’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 and incorporated by reference herein.

 

 

 

3.4

 

Restated By-laws of the Registrant dated June 1, 1994. Filed as Exhibit 10.5 to Option Care’s Annual Report on Form
10-K for the year ending December 31, 1994 and incorporated by reference herein.

 

 

 

4.1

 

Indenture Agreement by and among Option Care, Inc. and LaSalle Bank National Association, including the Form of our 2.25% Convertible Senior Notes due 2024. Filed as Exhibit 4.1 to our Current Report on Form 8-K filed on November 11, 2004 and incorporated by reference herein.

 

 

 

4.2

 

Registration Rights Agreement dated as of November 2, 2004 by and among Option Care, UBS Securities LLC and Piper Jaffray & Co. Filed as Exhibit 4.2 to our Current Report on Form 8-K filed on November 11, 2004 and incorporated by reference herein.

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32

 

Certification of Chief Executive Officer and Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, and Rule 13a-14(b) of the Exchange Act.

 

24