NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-- NATURE OF BUSINESS
Corporate Organization and Business
BioScrip, Inc. and subsidiaries (the “Company” or “BioScrip”) is a national provider of home infusion services, home care services and pharmacy benefit management ("PBM") services that partners with patients, physicians, hospitals, home health agencies, healthcare payors and pharmaceutical manufacturers to provide clinical management solutions and deliver cost-effective access to prescription medications and home health services. The Company's services are designed to improve clinical outcomes for patients with chronic and acute healthcare conditions while controlling overall healthcare costs.
The Company's platform provides broad service capabilities and the ability to deliver clinical management services that offer patients a high-touch, community-based and home-based care environment. The Company's core services are provided in coordination with, and under the direction of, the patient's physician. The Company's multidisciplinary team of clinicians, including pharmacists, nurses, respiratory therapists and physical therapists, work with the physician to develop a plan of care suited to the patient's specific needs. Whether in the home, physician's office, ambulatory infusion center or other alternate sites of care, the Company provides products, services and condition-specific clinical management programs tailored to improve the care of individuals with complex health conditions such as gastrointestinal abnormalities, infectious diseases, cancer, multiple sclerosis, organ transplants, bleeding disorders, immune deficiencies and heart failure.
The Company has
three
operating and reportable segments, "Infusion Services", "Home Health Services" and "PBM Services". These operating and reportable segments reflect how the Company's chief operating decision maker reviews the Company's results in terms of allocating resources and assessing performance.
On February 1, 2014, the Company entered into a Stock Purchase Agreement with LHC Group, Inc. and certain of its subsidiaries (collectively, the “Buyers”) wherein the Buyers have agreed to acquire substantially all of the entities and assets that make up the Company’s Home Health Services segment for a total cash purchase price of approximately
$60.0 million
, subject to a net working capital adjustment. The closing on this transaction is expected to occur on March 31, 2014 (see Note 17 - Subsequent Events).
Basis of Presentation
The Company’s Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation. Such reclassifications had no material effect on our previously reported Consolidated Financial Statements.
NOTE 2-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value Measurements
The fair value measurement accounting standard, ASC Topic 820,
Fair Value Measurement
("ASC 820"), provides a framework for measuring fair value and defines fair value as the price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The standard establishes a valuation hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on independent market data sources. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available.
The valuation hierarchy is composed of three categories. The categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The categories within the valuation hierarchy are described as follows:
|
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•
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Level 1 - Inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2 - Inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
|
|
|
•
|
Level 3 - Inputs to the fair value measurement are unobservable inputs or valuation techniques.
|
Cash and Cash Equivalents
Highly liquid investments with a maturity of
three
months or less when purchased are classified as cash equivalents.
Receivables
Receivables include amounts due from government sources, such as Medicare and Medicaid programs, PBMs, Managed Care Organizations and other commercial insurance (“Plan Sponsors”); amounts due from patient co-payments; amounts due from pharmaceutical manufacturers for rebates; and service fees resulting from the distribution of certain drugs through retail pharmacies.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on estimates of losses related to receivable balances. The risk of collection varies based upon the product, the payor (commercial health insurance and government) and the patient’s ability to pay the amounts not reimbursed by the payor. We estimate the allowance for doubtful accounts based on several factors including the age of the outstanding receivables, the historical experience of collections, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for the ability to pay. Collection agencies are employed and legal action is taken when we determine that taking collection actions is reasonable relative to the probability of receiving payment on amounts owed. Management judgment is used to assess the collectability of accounts and the economic ability of our customers to pay. Judgment is also used to assess trends in collections and the effects of systems and business process changes on our expected collection rates. The Company reviews the estimation process quarterly and makes changes to the estimates as necessary. When it is determined that a customer account is uncollectible, that balance is written off against the existing allowance.
The following table sets forth the aging of our net accounts receivable (net of allowance for contractual adjustments and prior to allowance for doubtful accounts), aged based on date of service and categorized based on the three primary overall types of accounts receivable characteristics (in thousands):
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|
|
|
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|
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|
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December 31, 2013
|
|
December 31, 2012
(1)
|
|
|
0 - 180 days
|
|
Over 180 days
|
|
Total
|
|
0 - 180 days
|
|
Over 180 days
|
|
Total
|
Government
|
|
37,344
|
|
|
9,490
|
|
|
46,834
|
|
|
41,124
|
|
|
2,744
|
|
|
43,868
|
|
Commercial
|
|
126,498
|
|
|
28,186
|
|
|
154,684
|
|
|
75,389
|
|
|
26,137
|
|
|
101,526
|
|
Patient
|
|
2,833
|
|
|
2,163
|
|
|
4,996
|
|
|
1,784
|
|
|
4,137
|
|
|
5,921
|
|
Gross accounts receivable
|
|
166,675
|
|
|
39,839
|
|
|
206,514
|
|
|
118,297
|
|
|
33,018
|
|
|
151,315
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
(19,213
|
)
|
|
|
|
|
|
(22,212
|
)
|
Net accounts receivable
|
|
|
|
|
|
187,301
|
|
|
|
|
|
|
129,103
|
|
|
|
(1)
|
The December 31, 2012 balances include the remaining Pharmacy Services gross accounts receivables not sold as part of the 2012 Asset Purchase Agreement of
$12.8 million
over 180 days and the allowance for doubtful accounts includes
$8.0 million
related to these receivables. At
December 31, 2013
, none of the accounts receivable retained by the Company remained.
|
As of December 31, 2012, excluding the
$12.8 million
of Pharmacy Services accounts receivable that were remaining, the accounts receivable balance related to the continuing business was
$138.5 million
, of which
$20.2 million
were over 180 days. The allowance for doubtful accounts related to the continuing business was
$14.2 million
or
10.2%
of total accounts receivable and
70.2%
of accounts receivable over 180 days as of December 31, 2012. As of December 31, 2013, the allowance for doubtful accounts of
$19.2 million
or
9.3%
of total accounts receivable and
48.2%
of accounts receivable over 180 days. In addition, the
December 31, 2013
aging includes
$5.2 million
of doubtful account allowances that were established as of the acquisition date of acquired entities or businesses and are not included in the allowance for doubtful accounts above as they are considered a fair value adjustment under purchase accounting. The following table shows the pro forma effect on the accounts receivable aging (in thousands):
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December 31, 2013
|
|
December 31, 2012
|
|
|
0 - 180 days
|
|
Over 180 days
|
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Total
|
|
0 - 180 days
|
|
Over 180 days
|
|
Total
|
Gross accounts receivable
|
|
$
|
166,675
|
|
|
$
|
39,839
|
|
|
$
|
206,514
|
|
|
$
|
118,297
|
|
|
$
|
33,018
|
|
|
$
|
151,315
|
|
Add: acquisition-related allowance
|
|
—
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|
5,243
|
|
|
5,243
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|
|
—
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|
|
—
|
|
|
—
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|
Less: Pharmacy Services accounts receivable
|
|
—
|
|
|
—
|
|
|
—
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|
|
—
|
|
|
(12,840
|
)
|
|
(12,840
|
)
|
Pro forma gross accounts receivable
|
|
$
|
166,675
|
|
|
$
|
45,082
|
|
|
211,757
|
|
|
$
|
118,297
|
|
|
$
|
20,178
|
|
|
138,475
|
|
Allowance for doubtful accounts
|
|
|
|
|
|
(19,213
|
)
|
|
|
|
|
|
(22,212
|
)
|
Add: Acquisition-related allowance
|
|
|
|
|
|
(5,243
|
)
|
|
|
|
|
|
—
|
|
Less: Pharmacy Services allowance
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|
|
|
|
|
—
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|
|
|
|
|
|
8,045
|
|
Pro forma allowance for doubtful accounts
|
|
|
|
|
|
(24,456
|
)
|
|
|
|
|
|
(14,167
|
)
|
Pro forma net accounts receivable
|
|
|
|
|
|
$
|
187,301
|
|
|
|
|
|
|
$
|
124,308
|
|
The pro forma allowance for doubtful accounts as a percent of pro forma accounts receivable was
11.5%
and
10.2%
at December 31, 2013 and 2012, respectively.
The Company believes that the increase in the aging is due to insufficient resources given the growth of the business
and the resources required to integrate acquired businesses. The Company has added resources, including the engagement of a third party collection firm, and have improved cash and collections process monitoring tools. The Company has added additional controls to mitigate the risk of claims not timely filed. The Company assessed the collectability of the increase in aging and added allowance for doubtful accounts as of
December 31, 2013
and believes the accounts receivable, net of the allowance for doubtful accounts, are collectible.
Incremental bad debt expense remains a risk if the Company’s action plans implemented in the fourth quarter of 2013 do not have the anticipated level of success.
Allowance for Contractual Discounts
The Company is reimbursed by payors for products and services the Company provides. Payments for medications and services covered by payors are generally less than billed charges. The Company monitors revenue and receivables from payors on an account-specific basis and records an estimated contractual allowance for certain revenue and receivable balances at the revenue recognition date to properly account for anticipated differences between amounts billed and amounts reimbursed. Accordingly, the total revenue and receivables reported in our financial statements are recorded at the amounts expected to be received from these payors. For the significant portion of the Company's revenue, the contractual allowance is estimated based on several criteria, including unbilled claims, historical trends based on actual claims paid, current contract and reimbursement terms and changes in customer base and payor/product mix. Contractual allowance estimates are adjusted to actual amounts as cash is received and claims are settled. We do not believe these changes in estimates are material. The billing functions for the remaining portion of the Company's revenue are largely computerized, which enables on-line adjudication (i.e., submitting charges to third-party payors electronically with simultaneous feedback of the amount the primary insurance plan expects to pay) at the time of sale to record net revenue, exposure to estimating contractual allowance adjustments is limited on this portion of the business.
Inventory
Inventory is recorded at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventory consists principally of purchased prescription drugs and related supplies. Included in inventory is a reserve for inventory waste and obsolescence.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of assets as follows:
|
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Asset
|
|
Useful Life
|
Computer hardware and software
|
|
3
|
-
|
5
|
years
|
Office equipment
|
|
3
|
-
|
5
|
years
|
Vehicles
|
|
4
|
-
|
5
|
years
|
Medical equipment
|
|
2
|
-
|
5
|
years
|
Furniture and fixtures
|
|
|
|
5
|
years
|
Leasehold improvements and assets leased under capital leases are depreciated using a straight-line basis over the related lease term or estimated useful life of the assets, whichever is less. The cost and related accumulated depreciation of assets sold or retired are removed from the accounts with the gain or loss, if applicable, recorded in the statement of operations. Maintenance and repair costs are expensed as incurred.
Costs relating to the development of software for internal purposes are charged to expense until technological feasibility is established in accordance with FASB ASC Topic 350,
Intangibles – Goodwill and Other
(“ASC 350”). Thereafter, the remaining software production costs up to the date placed into production are capitalized and included in Property and Equipment. Costs of customization and implementation of computer software purchased for internal use are likewise capitalized. Depreciation of the capitalized amounts commences on the date the asset is ready for its intended use and is calculated using the straight-line method over the estimated useful life of the software.
Goodwill
Goodwill is not subject to amortization and is tested for impairment annually and whenever events or circumstances exist that indicate that the carrying value of goodwill may no longer be recoverable in accordance with ASC 350. Impairment testing is performed for each of our operating and reporting segments. The impairment testing is based on a two-step process. The first step compares the fair value of a reporting segment to its carrying amount including goodwill. If the first step indicates that the fair value of the reporting unit is less than its carrying amount, the second step must be performed to determine the implied fair value of reporting unit goodwill. The measurement of possible impairment is based on the comparison of the implied fair value of reporting unit goodwill to its carrying value.
Intangible Assets
The Company evaluates the useful lives of its intangible assets to determine if they are finite or indefinite-lived. Our indefinite-lived intangible assets, primarily acquired nursing trademarks and certificates of need, are not subject to amortization and are tested for impairment annually and whenever events or circumstances exist that indicate that their carrying amount may no longer be recoverable. Finite-lived intangible assets, primarily acquired customer relationships, trademarks and non-compete agreements, are amortized on a straight-line basis over their estimated useful lives.
Impairment of Long Lived Assets
The Company evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long lived assets, including intangible assets, may warrant revision or that the remaining balance of an asset may not be recoverable. The measurement of possible impairment is based on the ability to recover the balance of assets from expected future operating cash flows on an undiscounted basis. Impairment losses, if any, are determined based on the fair value of the asset, calculated as the present value of related cash flows using discount rates that reflect the inherent risk of the underlying business.
Variable Interest Entity
In accordance with FASB ASC Topic 810,
Consolidation
, the Company analyzes its variable interests to determine if an entity in which it has a variable interest is a variable interest entity. The Company's analysis includes both quantitative and qualitative reviews. The Company bases its quantitative analysis on the forecasted cash flows of the entity and its qualitative analysis on its review of the design of the entity, its organizational structure, including decision making ability, and relevant financial agreements. The Company also uses its qualitative analysis to determine if it must consolidate a variable interest entity as its primary beneficiary.
The Company had an affiliate equity investment in a variable interest entity that developed a platform that facilitates the flow, management and sharing of vital health and medical information with stakeholders across the healthcare ecosystem. The Company's analysis determined that the Company was not the primary beneficiary and, accordingly, recorded its initial net investment in the variable interest entity of
$6.9 million
and subsequent working capital contributions in the investments in and advances to unconsolidated affiliate line on the accompanying Consolidated Balance Sheets using the equity method of accounting.
On April 19, 2013, the Company, along with all other minority investors, completed the sale of its affiliate equity investment in this variable interest entity. As of December 31, 2013, the Company had received cash payments from the sale of
$8.6 million
, with an additional
$1.0 million
held in escrow. The Company also expects to receive additional services or cash from an existing guarantee during the
two
years following close. The terms of the services to be provided or the cash guarantee to be paid will be determined by the Company and the parties involved in the sale. As of
December 31, 2013
, a receivable of
$2.2 million
is included in other non-current assets in the accompanying Consolidated Balance Sheets.
Amounts due to Plan Sponsors
Amounts due to Plan Sponsors primarily represent payments received from Plan Sponsors in excess of the contractually required reimbursement. These amounts are refunded to Plan Sponsors. These payables also include the sharing of manufacturers’ rebates with Plan Sponsors.
Contingent Consideration
Liabilities that may be owed to sellers after the closing of an acquisition transaction are recorded at fair value as of the opening balance sheet established for the acquired target. These contingent consideration provisions are frequently referred to as earnouts and are the subject of negotiation between the seller and the buyer. An earnout provision can compensate the seller with the value they believe the asset will deliver while also providing downside risk protection to the buyer should projections not materialize. As such, the terms of potential earnouts vary with each transaction. Fair value is assigned using multiple payout scenarios which each have a probability assigned based on factors including actual performance, evidence of business plans that have been implemented, and current market conditions that influence the ability to achieve the earnout. The probable payout amount is discounted to the current balance sheet date using a risk free rate. Each quarter, the fair value of the contingent consideration is updated to reflect relevant factors such as post-closing operating results and future forecasts for the acquired business or entity. The fair value of contingent consideration may be included in current liabilities or other non-current liabilities depending on the payment date specified in the purchase agreement.
Revenue Recognition
The Company generates revenue principally through the sale of prescription drugs and nursing services. Prescription drugs are dispensed either through a pharmacy participating in the Company’s pharmacy network or a pharmacy owned by the Company. Fee-for-service agreements include: (i) pharmacy agreements, where we dispense prescription medications through the Company’s pharmacy facilities and (ii) PBM agreements, where prescription medications are dispensed through pharmacies participating in the Company’s retail pharmacy network.
FASB ASC Subtopic 605-25,
Revenue Recognition: Multiple-Element Arrangements
(“ASC 605-25”), addresses situations in which there are multiple deliverables under one revenue arrangement with a customer and provides guidance in determining whether multiple deliverables should be recognized separately or in combination. The Company provides a variety of therapies to patients. For infusion-related therapies, the Company frequently provides multiple deliverables of drugs and related nursing services. After applying the criteria from ASC 605-25, the Company concluded that separate units of accounting exist in revenue arrangements with multiple deliverables. Drug revenue is recognized at the time the drug is shipped, and nursing revenue is recognized on the date of service. The Company allocates revenue consideration based on the relative fair value as determined by the Company's best estimate of selling price to separate the revenue where there are multiple deliverables under one revenue arrangement.
Revenue generated under PBM agreements is classified as either gross or net based on whether the Company is acting as a principal or an agent in the fulfillment of prescriptions through our retail pharmacy network. When the Company independently has a contractual obligation to pay a network pharmacy provider for benefits provided to its Plan Sponsors’ members, and therefore is the “primary obligor” as defined in FASB ASC 605
, Revenue Recognition
("ASC 605") the Company includes payments (which include the drug ingredient cost) from these Plan Sponsors as revenue and payments to the network pharmacy providers as cost of revenue. These transactions require the Company to pay network pharmacy providers, assume credit risk of Plan Sponsors and act as a principal. If the Company merely acts as an agent, and consequently administers Plan Sponsors’ network pharmacy contracts, the Company does not have the primary obligation to pay the network pharmacy and assume credit risk, and as such, records only the administrative fees (and not the drug ingredient cost) as revenue.
Revenue generated under discount card agreements is recognized when the discount card is used to purchase a prescription drug. The revenue is based on contractual rates per transaction. Broker fees associated with the marketing of the discount cards are incurred and recognized at the time the card is used and classified as selling, general and administrative expense in the Consolidated Statements of Operations.
In the Company’s Infusion Services and Home Health Services segments, the Company also recognizes nursing revenue as the estimated net realizable amounts from patients and Plan Sponsors for services rendered and products provided. This revenue is recognized as the treatment plan is administered to the patient and is recorded at amounts estimated to be received under reimbursement or payment arrangements with payors.
Under the Medicare Prospective Payment System program, net revenue is recorded based on a reimbursement rate which varies based on the severity of the patient’s condition, service needs and certain other factors. Revenue is recognized ratably over a
60
-day episode period and is subject to adjustment during this period if there are significant changes in the patient’s condition during the treatment period or if the patient is discharged but readmitted to another agency within the same 60-day episodic period. Medicare cash receipts under the prospective payment system are initially recognized as deferred revenue and are subsequently recognized as revenue over the
60
-day episode period. The process for recognizing revenue under the Medicare program is based on certain assumptions and judgments, the appropriateness of the clinical assessment of each patient at the time of certification, and the level of adjustments to the fixed reimbursement rate relating to patients who receive a limited number of visits, have significant changes in condition or are subject to certain other factors during the episode.
Cost of Revenue
Cost of revenue includes the costs of prescription medications, pharmacy claims, fees paid to pharmacies, shipping and other direct and indirect costs associated with pharmacy management and administration, claims processing operations, and nursing services, offset by volume and prompt pay discounts received from pharmaceutical manufacturers and distributors and total manufacturer rebates.
Rebates
Manufacturers’ rebates are part of each of the Company’s segments. Rebates are generally volume-based incentives that are earned and recorded upon purchase of the inventory. Rebates are recorded as a reduction of both inventory and cost of goods sold.
PBM rebates are recorded on historical PBM results and trends and are revised on a regular basis depending on the Company’s latest forecasts, as well as information received from rebate sources. Should actual results differ, adjustments will be recorded in future earnings when the adjustment becomes known. In some instances, rebate payments are shared with the Company’s Plan Sponsors. PBM rebates earned by the Company are recorded as a reduction of cost of goods sold. PBM rebates shared with clients are recorded as a reduction of revenue consistent with the sales incentive provisions of ASC 605.
Lease Accounting
The Company accounts for operating leasing transactions by recording rent expense on a straight-line basis over the expected term of the lease starting on the date it gains possession of leased property. The Company includes tenant improvement allowances and rent holidays received from landlords and the effect of any rent escalation clauses, as adjustments to straight-line rent expense over the expected term of the lease.
Capital lease transactions are reflected as a liability at the inception of the lease based on the present value of the minimum lease payments or, if lower, the fair value of the property. Assets recorded under capital leases are depreciated in the same manner as owned property.
Income Taxes
As part of the process of preparing the Company’s Consolidated Financial Statements, management is required to estimate income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes under ASC Topic 740,
Income Taxes
(“ASC 740”). ASC 740 requires the use of the asset and liability method of accounting for income taxes. Under this method, deferred taxes are determined by calculating the future tax consequences attributable to differences between the financial accounting and tax bases of existing assets and liabilities. A valuation allowance is recorded against deferred tax assets when, in the opinion of management, it is more likely than not that the Company will not be able to realize the benefit from its deferred tax assets.
The Company files income tax returns, including returns for its subsidiaries, as prescribed by Federal tax laws and the tax laws of the state and local jurisdictions in which it operates. The Company’s uncertain tax positions are related to tax years that remain subject to examination and are recognized in the Consolidated Financial Statements when the recognition threshold and measurement attributes of ASC 740 are met. Interest and penalties related to unrecognized tax benefits are recorded as income tax expense.
Financial Instruments
The Company’s financial instruments consist mainly of cash and cash equivalents, receivables, accounts payable, accrued interest and its line of credit. The carrying amounts of cash and cash equivalents, receivables, accounts payable, accrued interest and its line of credit approximate fair value due to their fully liquid or short-term nature.
Accounting for Stock-Based Compensation
The Company accounts for stock-based employee compensation expense under the provisions of ASC Topic 718,
Compensation – Stock Compensation
(“ASC 718”). At
December 31, 2013
, the Company has two stock-based employee compensation plans pursuant to which incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), stock appreciation rights ("SARs"), restricted stock, performance shares and performance units may be granted to employees and non-employee directors. Option and stock awards are typically settled by issuing authorized but unissued shares of the Company.
The Company estimates the fair value of each stock option award on the measurement date using a binomial option-pricing model. The fair value of the award is amortized to expense on a straight-line basis over the requisite service period. The Company expenses restricted stock awards based on vesting requirements, including time elapsed, market conditions and/or performance conditions. Because of these requirements, the weighted average period for which the expense is recognized varies. The Company expenses stock appreciation right awards ("SARs") based on vesting requirements. In addition, because they are settled with cash, the fair value of the SAR awards are revalued on a quarterly basis.
Income (Loss) Per Share
The following table sets forth the computation of basic and diluted income (loss) per common share (in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Numerator:
|
|
|
|
|
|
Loss from continuing operations, net of income taxes
|
$
|
(53,606
|
)
|
|
$
|
(8,340
|
)
|
|
$
|
(424
|
)
|
Income from discontinued operations, net of income taxes
|
(16,048
|
)
|
|
73,047
|
|
|
8,296
|
|
Net income (loss)
|
$
|
(69,654
|
)
|
|
$
|
64,707
|
|
|
$
|
7,872
|
|
Denominator - Basic and Diluted:
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
64,560
|
|
|
56,239
|
|
|
54,505
|
|
Earnings Per Common Share:
|
|
|
|
|
|
Loss from continuing operations, basic and diluted
|
$
|
(0.83
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.01
|
)
|
Income (loss) from discontinued operations, basic and diluted
|
(0.25
|
)
|
|
1.30
|
|
|
0.15
|
|
Income (loss) per common share, basic and diluted
|
$
|
(1.08
|
)
|
|
$
|
1.15
|
|
|
$
|
0.14
|
|
The computation of diluted shares for the years ended
December 31, 2013
,
2012
and
2011
excludes the effect of
3.1 million
,
3.4 million
and
3.4 million
warrants with an exercise price of
$10.00
issued in connection with the acquisition of CHS as their inclusion would be anti-dilutive to earnings per common share from continuing operations. In addition, the computation of diluted shares for the years ended
December 31, 2013
,
2012
and
2011
excludes the effect of
6.1 million
,
5.0 million
and
4.6 million
, respectively, of other common stock equivalents as their inclusion would be anti-dilutive to earnings per common share from continuing operations. ASC Topic 260,
Earnings Per Share,
requires that income from continuing operations be used as the basis for determining whether the inclusion of common stock equivalents would be anti-dilutive.
Recent Accounting Pronouncements
In July 2012, the FASB issued ASU 2012-02,
Testing Indefinite-Lived Intangible Assets for Impairment
(“ASU 2012-02”). ASU 2012-02 allows an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under this amendment, an entity is not required to calculate the fair value of the indefinite-lived intangible asset unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The adoption of this statement did not have a material effect on the Company's Consolidated Financial Statements.
In July 2013, the FASB issued ASU 2013-11,
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
(“ASU 2013-11”). ASU 2013-11 provides that a liability related to an unrecognized tax benefit would be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In that case, the liability associated with the unrecognized tax benefit is presented in the financial statements as a reduction to the related deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. In situations in which a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the financial statements as a liability and will not be combined with deferred tax assets. ASU 2013-11 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The Company believes that adopting ASU 2013-11 will not have a material impact on its Consolidated Financial Statements.
NOTE 3-- STOCKHOLDERS' EQUITY
Stock Offering
The Company filed a shelf registration statement on Form S-3 on March 18, 2013 and related amendment on April 2, 2013, which was declared effective on April 4, 2013. On April 24, 2013, the Company completed an underwritten primary public offering of
10,406,250
shares of its common stock at an offering price to the public of
$12.00
per share. In addition,
3,968,750
shares of common stock were offered and sold by certain existing stockholders in an underwritten secondary offering completed on the same date and at the same offering price to the public.
Net proceeds to the Company were
$118.4 million
after underwriting discounts, commissions and other offering expenses. The Company did not receive any proceeds from the sale of shares of common stock by the selling stockholders. The Company used
$21.0 million
and approximately
$61.1 million
of the net proceeds to (i) repay outstanding borrowings under the Company's prior credit facility with Healthcare Finance Group (the "Prior Credit Facility") and (ii) fund a portion of the CarePoint acquisition as described in Note 4 - Acquisitions below, respectively. The Company used the remaining net proceeds from the offering for general corporate purposes, which included, among other things, capital expenditures, repurchases of outstanding debt or equity securities, debt servicing requirements or redemption of our short-term or long-term borrowings, or for other working capital requirements.
Treasury Stock
During the
year ended December 31, 2013
,
no
shares of treasury stock were acquired or issued. During the years ended
December 31, 2012
and
2011
,
25,999
and
25,273
shares, respectively, were surrendered to satisfy tax withholding obligations on the vesting of restricted stock awards. The Company holds a total of
2,582,520
shares of treasury stock at
December 31, 2013
acquired under current and prior repurchase programs as well as forfeitures to satisfy tax obligations in the vesting of restricted stock awards.
Common Stock Purchase Warrants
In connection with the acquisition of Critical Homecare Solutions Holdings, Inc. ("CHS") in March 2010, the Company issued
3.4 million
warrants exercisable for BioScrip common stock. The warrants have a
five
year term with an exercise price of
$10.00
per share. They are exercisable at any time prior to the expiration date. The warrants also contain provisions whereby the number of shares to be issued upon exercise of the warrants will be increased if the Company were to execute certain dilutive transactions such as stock splits, stock dividends or the issuance of shares below
90%
of market value at the time of issuance. The Company has determined that the warrants meet the conditions for equity classification in accordance with GAAP. Therefore, these warrants were classified as equity and included in additional paid-in capital.
During the
year ended December 31, 2013
, the Company issued
78,567
shares of common stock pursuant to the cashless exercise of
256,175
of the warrants. As of
December 31, 2013
,
3.1 million
of the warrants remain outstanding.
The fair value of the warrants of
$12.3 million
was calculated as of the acquisition date using the Black-Scholes model. The Black-Scholes model used the following assumptions: volatility of
62%
, risk free interest rate of
2.63%
, dividend yield of
0%
and expected term of
five years
. In addition, there was a discount applied for lack of marketability of
13.5%
. This discount is considered appropriate because the warrants were not registered under the Securities Act of 1933, as amended (the "Securities Act") and the shares issued upon exercise of the warrants will be unregistered shares subject to transfer restrictions.
CarePoint Partners Holdings LLC
On August 23, 2013, the Company closed on the acquisition of substantially all of the assets and assumption of certain liabilities that constituted the home infusion business (the “CarePoint Business”) of CarePoint Partners Holdings LLC, a Delaware limited liability company, and its subsidiaries (collectively "CarePoint"). CarePoint was a provider of home and alternate-site infusion therapy for patients with complex, acute and chronic illnesses. CarePoint serviced approximately
20,500
patients annually through
28
sites of service in
nine
states in the East Coast and Gulf Coast regions.
The total consideration to the sellers at closing was
$211.1 million
paid in cash plus a contingent payment of up to
$10.0 million
. The Sellers of the CarePoint Business will be eligible to receive the contingent payment if the CarePoint Business achieves a specified level of product gross profit during the one-year period following the closing date. Subsequent to the closing, the Company identified additional net working capital adjustments of approximately
$2.2 million
primarily related to the value of accounts receivable and prepaid expenses as of the date of acquisition and has requested payment from the sellers. The
$2.2 million
amount due from CarePoint is included in prepaid expenses and other current assets on the accompanying Consolidated Balance Sheets and is reflected in the estimated fair values below.
At the date of acquisition, the fair value of the
$10.0 million
contingent payment was estimated at
$9.8 million
and recorded in accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets. The fair value of the contingent payment was determined using Level 3 inputs based on the present value of various payout scenarios, weighted on the basis of probability. At
December 31, 2013
, the fair value of the contingent payment was re-evaluated using the actual operating results during 2013 and forecasted operating results for 2014 of the CarePoint Business and no adjustment was made.
The Company funded the cash payment at closing with a combination of cash on hand and
$150.0 million
in borrowings under the Senior Credit Facilities (see Note 9 - Debt).
The table below summarizes the Company's preliminary assessment of the estimated fair values of the assets acquired and liabilities assumed as of the date of Closing of the acquisition of the CarePoint Business. The Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the date of the Closing may result in retrospective adjustments to the provisional amounts recognized. These changes could be significant. The Company will finalize these amounts no later than one year from the acquisition date.
|
|
|
|
|
|
Estimated Fair Value
(in thousands)
|
Cash
|
$
|
14
|
|
Accounts receivable
|
16,644
|
|
Inventories
|
3,263
|
|
Other current assets
|
272
|
|
Property and equipment
|
3,266
|
|
Identifiable intangible assets
(1)
|
16,700
|
|
Current liabilities
|
(8,128
|
)
|
Non-current liabilities
|
(621
|
)
|
Total identifiable net assets
|
31,410
|
|
Goodwill
|
187,228
|
|
Total cash and fair value of contingent consideration
|
$
|
218,638
|
|
|
|
(1)
|
The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:
|
|
|
|
|
|
|
|
|
Weighted-
Average
Useful Lives
|
|
Amounts
Recognized as of the Closing Date
(in thousands)
|
Customer relationships
|
2 - 4 years
|
|
$
|
13,600
|
|
Trademarks
|
2 years
|
|
2,600
|
|
Non-compete agreements
|
5 years
|
|
500
|
|
Total identifiable intangible assets acquired
|
|
|
$
|
16,700
|
|
The excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of goodwill represents the value the Company expects to be created by combining the various operations of the CarePoint Business with the Company's operations, including the expansion into new infusion markets, the opportunity to consolidate and upgrade certain existing facilities, access to new patients and potential cost savings and synergies. The CarePoint transaction was structured such that the amount allocated to goodwill will be deductible for income tax purposes.
The accompanying Consolidated Statements of Operations for the
year ended December 31, 2013
include revenues and income from continuing operations of the CarePoint Business of
$55.8 million
and
$2.3 million
.
HomeChoice Partners, Inc.
On February 1, 2013, the Company acquired
100%
of the ownership interest in HomeChoice Partners, Inc., a Delaware corporation ("HomeChoice"). Prior to the Company's acquisition, HomeChoice was a provider of alternate-site infusion pharmacy services that serviced approximately
15,000
patients annually and had
14
infusion pharmacy locations in Pennsylvania, Washington, DC, Maryland, Virginia, North Carolina, South Carolina, Georgia, Missouri, and Alabama.
The cash purchase price of the HomeChoice acquisition was
$72.9 million
paid at the closing date. In addition, the purchase price may be increased by contingent consideration of up to
$20.0 million
if HomeChoice reaches certain performance milestones in the
two
years following the closing.
At the date of acquisition, the fair value of the potential contingent consideration, using Level 3 inputs, was estimated at
$8.0 million
. The
$20.0 million
maximum amount of the contingent consideration was based on high growth targets that were an incentive for the sellers to partner with the Company to drive performance in excess of the assumptions under the transaction valuation model. The opportunities to outperform the transaction valuation model were quantified and used in the Company's initial fair value assessment at the acquisition date. Because the performance thresholds required to earn the contingent consideration were high, the Company assigned lower than a 50% probability of payout to the various payout scenarios considered when we estimated the initial fair value of
$8.0 million
. At
December 31, 2013
, the fair value of the contingent payment was re-evaluated using the actual operating results during 2013 and forecasted operating results for 2014 to adjust the present value and
probability of the various payout scenarios. Specifically, the 2013 operating results indicated that the sellers would not earn the
$10.0 million
maximum payout for the first year. Additionally, the remaining
$10.0 million
maximum payout related to the second year was less likely to be earned given the growth required above current projections necessary to achieve the payout target. While the acquisition has generated expected revenues forecasted in the transaction valuation model, it did not exceed the model sufficiently to earn additional contingent consideration. As a result of this reevaluation, the fair value of the contingent payment was reduced to
$2.2 million
and is included in other non-current liabilities in the accompanying Consolidated Balance Sheets. The
$5.8 million
of income resulting from the reduction in the fair value of the contingent liability is included in change in fair value of contingent consideration in the accompanying Consolidated Statements of Operations for the
year ended December 31, 2013
.
The Company funded the acquisition with a combination of cash and the Prior Credit Facility.
The table below summarizes the Company's assessment of the fair values of the assets acquired and liabilities assumed as of the acquisition date of HomeChoice.
|
|
|
|
|
|
Fair Value
(in thousands)
|
Accounts receivable
|
$
|
9,693
|
|
Inventories
|
1,984
|
|
Other current assets
|
154
|
|
Property and equipment
|
2,432
|
|
Identifiable intangible assets
(1)
|
4,000
|
|
Other non-current assets
|
30
|
|
Current liabilities
|
(4,073
|
)
|
Total identifiable net assets
|
14,220
|
|
Goodwill
|
66,701
|
|
Total cash and fair value of contingent consideration
|
$
|
80,921
|
|
|
|
(1)
|
The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:
|
|
|
|
|
|
|
|
|
Weighted-
Average
Useful Lives
|
|
Amounts
Recognized as of
Acquisition Date
(in thousands)
|
Customer relationships
|
5 mo. - 3 years
|
|
$
|
2,000
|
|
Trademarks
|
23 months
|
|
1,000
|
|
Non-compete agreements
|
1 year
|
|
1,000
|
|
Total identifiable intangible assets acquired
|
|
|
$
|
4,000
|
|
The excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of goodwill represented the value the Company expected to be created by combining the various operations of HomeChoice with the Company's operations, including the expansion into new infusion markets, the opportunity to consolidate and upgrade certain existing facilities, access to new patients and potential cost savings and synergies. The HomeChoice transaction was structured such that the amount allocated to goodwill will be deductible for income tax purposes.
The accompanying Consolidated Statements of Operations for the
year ended December 31, 2013
includes revenues and income from continuing operations related to HomeChoice for the period from the date of acquisition through
December 31, 2013
, of
$67.7 million
and
$2.6 million
, respectively.
InfuScience, Inc.
On July 31, 2012, the Company acquired
100%
of InfuScience, Inc. (“InfuScience”) for a cash payment of
$38.3 million
. The purchase price could increase up to an additional
$3.0 million
based on the results of operations during the
24
month period through July 31, 2014. InfuScience historically acquired, developed and operated businesses providing alternate site infusion pharmacy services through
5
infusion centers located in Eagan, Minnesota; Omaha, Nebraska; Chantilly, Virginia; Charleston, South Carolina; and Savannah, Georgia.
At the date of acquisition, the fair value of the potential contingent payments of
$3.0 million
was estimated at
$2.9 million
. The fair value of the contingent liability was determined using Level 3 inputs based on the present value of various payout scenarios, weighted on the basis of probability. As of
December 31, 2013
, the Company has made contingent payments of
$1.7 million
based on the achievement of expected operating results. At
December 31, 2013
, the fair value of the remaining contingent liability was reevaluated using actual operating results during 2013, forecasted operating results for 2014 and payments made through
December 31, 2013
to adjust the present value and probability of the various payout scenarios. As a result of this reevaluation, the fair value of the contingent payment was increased to
$1.3 million
and is included in accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets. The
$0.1 million
of expense resulting from the increase in the fair value of the contingent liability is included in change in fair value of contingent consideration in the accompanying Consolidated Statements of Operations for the
year ended December 31, 2013
.
The table below summarizes the Company's assessment of the fair values of the assets acquired and liabilities assumed as of the acquisition date of InfuScience.
|
|
|
|
|
|
Fair Value
(in thousands)
|
Cash
|
$
|
23
|
|
Accounts receivable
|
4,938
|
|
Inventories
|
586
|
|
Other current assets
|
371
|
|
Property and equipment
|
751
|
|
Identifiable intangible assets
(1)
|
400
|
|
Other non-current assets
|
349
|
|
Current liabilities
|
(4,428
|
)
|
Total identifiable net assets
|
2,990
|
|
Goodwill
|
38,429
|
|
Total cash and fair value of contingent consideration
|
$
|
41,419
|
|
|
|
(1)
|
The following table summarizes the provisional amounts and useful lives assigned to identifiable intangible assets:
|
|
|
|
|
|
|
|
|
Weighted-
Average
Useful Lives
(Months)
|
|
Amounts
Recognized as of
Acquisition Date
(in thousands)
|
Customer relationships
|
5 months
|
|
$
|
400
|
|
Total identifiable intangible assets acquired
|
|
|
$
|
400
|
|
The excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition was allocated to goodwill. The value of goodwill represented the value the Company expected to be created by combining the various operations of InfuScience with the Company's operations, including the ability to cross-sell their respective services on a national basis with an expanded footprint in Infusion Services segment. Of the goodwill recorded in the InfuScience acquisition,
$7.7 million
is estimated to be deductible for income tax purposes.
The accompanying Consolidated Statements of Operations for the
year ended December 31, 2013
includes revenues of
$46.7 million
and income from operations of
$4.4 million
related to the operations of InfuScience. Revenues and loss from continuing operations for the
year ended December 31, 2012
, include revenues of
$16.5 million
and a loss from operations of
$1.7 million
related to InfuScience from the date of acquisition through
December 31, 2012
.
Acquisition and Integration Costs
Acquisition and integration expenses in the accompanying Consolidated Statements of Operations for the years ended
December 31, 2013
and
2012
include the following costs related to the CarePoint Business, HomeChoice Partners, and InfuScience acquisitions (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
Legal and professional fees
|
$
|
5,113
|
|
|
$
|
2,941
|
|
Financial advisory fees
|
4,713
|
|
|
—
|
|
Employee costs including redundant salaries and benefits and severance
|
3,554
|
|
|
806
|
|
Facilities consolidation and discontinuation
|
1,621
|
|
|
110
|
|
Other
|
1,129
|
|
|
189
|
|
Total
|
$
|
16,130
|
|
|
$
|
4,046
|
|
There were no acquisition and integration expenses in the year ended December 31, 2011.
Pro Forma Impact of Acquisitions
The following table shows summarized unaudited pro forma combined operating results of the Company as if the InfuScience acquisition had occurred on the same terms as of January 1, 2011 and the HomeChoice and CarePoint Business acquisitions had occurred on the same terms as of January 1, 2012. Pro forma adjustments have been made related to amortization of intangibles, interest expense, and income tax expense. The pro forma financial information does not reflect revenue opportunities and cost savings which the Company expected to realize as a result of the acquisitions or estimates of charges related to the integration activity. Amounts are in thousands, except for earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Revenues
|
|
$
|
949,679
|
|
|
$
|
893,814
|
|
|
$
|
589,333
|
|
Net loss from continuing operations
|
|
$
|
(55,444
|
)
|
|
$
|
(23,352
|
)
|
|
$
|
(2,582
|
)
|
Basic loss per common share from continuing operations
|
|
$
|
(0.86
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
(0.05
|
)
|
Diluted loss per common share from continuing operations
|
|
$
|
(0.86
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
(0.05
|
)
|
The unaudited pro forma combined results of operations were prepared using the acquisition method of accounting and are based on the historical financial operating results of the Company, CarePoint Business, HomeChoice and InfuScience. Except to the extent realized in the
years ended December 31, 2013 and 2012
, the unaudited pro forma information does not reflect any cost savings, operating synergies and other benefits that the Company may achieve as a result of these acquisitions, or the expenses to be incurred to achieve these savings, operating synergies and other benefits. In addition, except to the extent recognized in the
years ended December 31, 2013 and 2012
, the unaudited pro forma information does not reflect the costs to integrate the operations of the Company with CarePoint Business, HomeChoice and InfuScience.
The unaudited pro forma information is not necessarily indicative of what the Company's consolidated results of operations actually would have been had the CarePoint Business and HomeChoice acquisitions been completed on January 1, 2012 and the InfuScience acquisition been completed on January 1, 2011. In addition, the unaudited pro forma information does not purport to project the future results of operations of the Company. The unaudited pro forma information primarily reflects the following net adjustments to the historical results of the acquired entities prior to acquisition (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Interest expense
|
$
|
3,734
|
|
|
$
|
8,613
|
|
|
$
|
1,169
|
|
Amortization expense
|
$
|
576
|
|
|
$
|
4,094
|
|
|
$
|
400
|
|
Income tax expense (benefit)
|
$
|
2,785
|
|
|
$
|
4,357
|
|
|
$
|
(1,159
|
)
|
NOTE 5-- DISCONTINUED OPERATIONS
On February 1, 2012, the Company and certain of its subsidiaries (collectively, the "Sellers") entered into a purchase agreement (the “2012 Asset Purchase Agreement”) with Walgreen Co. and certain of its subsidiaries (collectively, the "Pharmacy Services
Buyers") with respect to the sale of certain assets, rights and properties (the “Pharmacy Services Asset Sale”) relating to the Sellers' traditional and specialty pharmacy mail operations and community retail pharmacy stores.
Pursuant to the terms of the 2012 Asset Purchase Agreement, the Company received a total purchase price of approximately
$173.8 million
during 2012, including approximately
$158.8 million
at closing on May 4, 2012 (which included monies received for the inventories on hand attributable to the operations subject to the Pharmacy Services Asset Sale) and a subsequent additional purchase price payment of
$15.0 million
based on events related to the Pharmacy Services Buyer's retention of certain business after closing. Similarly, the Company may have been required to refund up to approximately
$6.4 million
of the cash received to the Buyers under certain circumstances during the 14 month period following the closing. During the three months ended September 30, 2013, the contingency was resolved with no refund due to the Buyers and the Company included the amount of this liability in the gain on sale. The
$173.8 million
purchase price excluded all accounts receivable and working capital liabilities relating to the operations subject to the sale, which were retained by the Company. The net accounts receivable retained by the Company were approximately
$0.0
and
$4.8 million
at December 31, 2013 and 2012
, respectively.
The Pharmacy Services Asset Sale included the sale of
27
community pharmacy locations and certain assets of three community pharmacy locations and three traditional and specialty mail service operations, which constituted all of the Company's operations in the community pharmacy and mail order lines of business.
Two
mail order locations which were not transferred as part of the Pharmacy Services Asset Sale have been redeployed to provide infusion pharmacy services.
On May 4, 2012, the carrying value of the assets included in the Pharmacy Services Asset Sale was as follows (in thousands):
|
|
|
|
|
|
Carrying Value
|
Inventory
|
$
|
30,560
|
|
Prepaid expenses and other current assets
|
299
|
|
Total current assets
|
30,859
|
|
Property and equipment, net
|
1,592
|
|
Goodwill
|
11,754
|
|
Intangible assets, net
|
2,503
|
|
Total assets
|
$
|
46,708
|
|
In addition, the Company and its subsidiaries and certain subsidiaries of the Pharmacy Services Buyers entered into an agreement concurrently with the 2012 Asset Purchase Agreement which provided that the Company cease to be the sole fulfillment pharmacy for customers who utilized the drugstore.com website. The agreement provided for a cash payment of
$3.0 million
to the Company and the payment of
$2.9 million
to the Pharmacy Services Buyers related to contingent consideration from the Company's 2010 acquisition of the prescription pharmacy business of DS Pharmacy, Inc. both of which occurred during the year ended December 31, 2012.
As a result of the divestiture process, the Company's management commenced an assessment of the Company's continuing operations in order to align its corporate structure with its remaining operations. As part of these efforts, the Company has incurred and expects to continue to incur additional charges that may impact the Company's future consolidated financial statements (see Note 7 - Restructuring Expenses). These additional charges include employee severance, other restructuring type charges, temporary redundant expenses, potential cash bonus payments, bad debt expense relating to retained receivables, the write down of certain long-lived assets and potential accelerated payments or terminated costs for certain of its contractual obligations. Interest expense was allocated to discontinued operations based upon the portion of the borrowing base associated with discontinued operations. Income tax expense has also been allocated to discontinued operations. These adjustments have been made for all periods presented. Depreciation expense was no longer incurred on fixed assets included in the disposal group as of February 1, 2012, the date the Company entered into the 2012 Asset Purchase Agreement.
As a result of the Pharmacy Services Asset Sale, the Company recognized a total pretax gain of
$108.2 million
including a pretax gain of
$101.6 million
net of transaction costs of
$5.6 million
during the
year ended December 31, 2012
. The Company also recognized approximately
$13.4 million
of impairment costs, employee severance and other benefit-related costs, and facility-related costs as a result of the transaction in the year ended
December 31, 2012
(see Note 8 - Property and Equipment). The impairment costs, employee severance and other benefit-related costs, facility-related costs, and other one-time charges are included in income (loss) from discontinued operations, net of income taxes in the Consolidated Statements of Operations. The Company allocated tax expense of
$6.1 million
to discontinued operations' pre-tax income of
$79.2 million
during the
year ended December 31, 2012
. The allocated tax expense is less than the statutory rate because the Company used
$24.1 million
of deferred tax assets that previously had a full valuation allowance. The use of the deferred tax assets significantly reduced the amount of gain that was subject to federal and state income tax.
The Company recognized approximately
$7.6 million
of other costs during the year ended
December 31, 2013
, primarily legal and other fees associated with the settlements discussed below and collection fees for the retained accounts receivable.
Effective January 8, 2014, the Company entered into a Stipulation and Order of Settlement and Dismissal (the “Federal Settlement Agreement”) with the U.S. Department of Justice (the “DOJ”) and a
qui tam
relator (the “Relator”). The Federal Settlement Agreement memorialized the federal and private component of an agreement in principle to settle all civil claims under the False Claims Act and related statutes and all common law claims that could have been brought by the DOJ and Relator that arose out of the distribution of the Novartis Pharmaceutical Corporation’s product
Exjade®
(the “Medication”) by the Company's traditional and specialty pharmacy mail operations and community retail pharmacy stores prior to its divestiture in May 2012. Further, effective February 11, 2014, the Company entered into State Settlement Agreements with the offices of the Attorneys General of thirty-five states (the "Settling States"). The State Settlement Agreements memorialized the state component of the Company's agreement in principle to settle the claims that could have been brought by the Settling States that arose out of the distribution of the Medication. During the year ended December 31, 2013, the Company accrued
$15.0 million
related to the Settlement Agreements and included the amount and related legal fees and expenses in income (loss) from discontinued operations, net of income taxes in the Consolidated Statements of Operations (see Note 10 - Commitments and Contingencies).
As of
December 31, 2013
, there were accruals of
$16.3 million
related to legal settlement, employee severance and other costs, of which
$4.3 million
is included in accrued expenses and other current liabilities and
$12.0 million
is included in other non-current liabilities on the Consolidated Balance Sheets. The accrual activity consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal Settlement
|
|
Impairment Costs
|
|
Employee Severance
and Other Benefits
|
|
Facility-Related Costs
|
|
Other Costs
|
|
Total
|
Balance at December 31, 2011
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Expenses
|
—
|
|
|
5,839
|
|
|
5,279
|
|
|
1,071
|
|
|
1,198
|
|
|
13,387
|
|
Cash payments
|
—
|
|
|
—
|
|
|
(5,234
|
)
|
|
(82
|
)
|
|
(3,133
|
)
|
|
(8,449
|
)
|
Non-cash charges
|
—
|
|
|
(5,839
|
)
|
|
—
|
|
|
(989
|
)
|
|
2,024
|
|
|
(4,804
|
)
|
Balance at December 31, 2012
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
89
|
|
|
134
|
|
Expenses
|
15,000
|
|
|
—
|
|
|
186
|
|
|
—
|
|
|
7,410
|
|
|
22,596
|
|
Cash payments
|
—
|
|
|
—
|
|
|
(103
|
)
|
|
—
|
|
|
(6,261
|
)
|
|
(6,364
|
)
|
Non-cash charges
|
—
|
|
|
—
|
|
|
(36
|
)
|
|
—
|
|
|
(43
|
)
|
|
(79
|
)
|
Balance at December 31, 2013
|
$
|
15,000
|
|
|
$
|
—
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
1,195
|
|
|
$
|
16,287
|
|
The operating results of the divested traditional and specialty pharmacy mail operations and community pharmacies for the
years ended December 31, 2013, 2012 and 2011
are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
Revenue
|
|
$
|
(75
|
)
|
|
$
|
466,747
|
|
|
$
|
1,263,520
|
|
Gross profit
|
|
(519
|
)
|
|
29,844
|
|
|
96,888
|
|
Operating expenses
|
|
7,118
|
|
|
38,612
|
|
|
77,727
|
|
Legal settlement expense
|
|
15,000
|
|
|
—
|
|
|
—
|
|
Bad debt expense
|
|
—
|
|
|
12,931
|
|
|
7,213
|
|
Interest (income) expense
|
|
(41
|
)
|
|
761
|
|
|
2,764
|
|
Gain on sale
|
|
6,548
|
|
|
101,624
|
|
|
—
|
|
Income tax expense
|
|
—
|
|
|
6,117
|
|
|
888
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
$
|
(16,048
|
)
|
|
$
|
73,047
|
|
|
$
|
8,296
|
|
NOTE 6-- GOODWILL AND INTANGIBLE ASSETS
Goodwill, and the changes in the carrying amount of goodwill by operating and reportable segment for the years ended
December 31, 2013
and
2012
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infusion Services
|
|
Home Health Services
|
|
PBM
Services
|
|
Total
|
Balance at December 31, 2011
|
$
|
265,859
|
|
|
$
|
33,784
|
|
|
$
|
12,744
|
|
|
$
|
312,387
|
|
Acquisitions
|
38,423
|
|
|
—
|
|
|
—
|
|
|
38,423
|
|
Balance at December 31, 2012
|
$
|
304,282
|
|
|
$
|
33,784
|
|
|
$
|
12,744
|
|
|
$
|
350,810
|
|
Acquisitions
|
254,304
|
|
|
—
|
|
|
—
|
|
|
254,304
|
|
Other adjustments
|
7
|
|
|
—
|
|
|
—
|
|
|
7
|
|
Balance at December 31, 2013
|
$
|
558,593
|
|
|
$
|
33,784
|
|
|
$
|
12,744
|
|
|
$
|
605,121
|
|
The Company evaluated goodwill for possible impairment in accordance with ASC 350,
Intangibles--Goodwill and Other
(see Note 2 - Significant Accounting Policies) as of
December 31, 2013
, and determined that no impairment of goodwill was indicated.
Intangible assets consisted of the following as of
December 31, 2013
and
2012
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
December 31, 2012
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Indefinite Lived Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Health certificates of need
|
|
$
|
9,600
|
|
|
$
|
—
|
|
|
$
|
9,600
|
|
|
$
|
9,600
|
|
|
$
|
—
|
|
|
$
|
9,600
|
|
Home Health nursing trademarks
|
|
5,800
|
|
|
—
|
|
|
5,800
|
|
|
5,800
|
|
|
—
|
|
|
5,800
|
|
|
|
15,400
|
|
|
—
|
|
|
15,400
|
|
|
15,400
|
|
|
—
|
|
|
15,400
|
|
Finite Lived Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Infusion customer relationships
|
|
25,650
|
|
|
(12,062
|
)
|
|
13,588
|
|
|
9,300
|
|
|
(7,447
|
)
|
|
1,853
|
|
Infusion trademarks
|
|
6,200
|
|
|
(3,514
|
)
|
|
2,686
|
|
|
2,600
|
|
|
(2,407
|
)
|
|
193
|
|
Non-compete agreements
|
|
1,500
|
|
|
(950
|
)
|
|
550
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
33,350
|
|
|
(16,526
|
)
|
|
16,824
|
|
|
11,900
|
|
|
(9,854
|
)
|
|
2,046
|
|
|
|
$
|
48,750
|
|
|
$
|
(16,526
|
)
|
|
$
|
32,224
|
|
|
$
|
27,300
|
|
|
$
|
(9,854
|
)
|
|
$
|
17,446
|
|
Indefinite lived intangible assets are not subject to amortization. Finite lived intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:
|
|
|
|
|
|
Estimated Useful Life
|
Infusion customer relationships
|
|
5 months - 4 years
|
Infusion trademarks
|
|
23 months - 3 years
|
Non-compete agreements
|
|
1 to 5 years
|
Total amortization expense of intangible assets was
$6.7 million
,
$4.0 million
, and
$3.4 million
for the years ended
December 31, 2013
,
2012
, and
2011
, respectively. Amortization expense is expected to be the following (in thousands):
|
|
|
|
|
Year ending December 31,
|
Estimated Amortization
|
2014
|
$
|
5,571
|
|
2015
|
4,966
|
|
2016
|
2,622
|
|
2017
|
2,385
|
|
2018
|
1,221
|
|
Thereafter
|
$
|
59
|
|
Total estimated amortization expense
|
$
|
16,824
|
|
NOTE 7-- RESTRUCTURING AND OTHER EXPENSES
Restructuring and other expenses include expenses resulting from the execution of our strategic assessment and related restructuring plans, consisting primarily of employee severance and other benefit-related costs, third-party consulting costs, facility-related costs, and certain other costs. It also includes other transitional costs such as training, redundant salaries prior to defined separation dates, and retention bonuses for certain critical personnel.
In 2010, the Company commenced a strategic assessment of its business and operations ("Restructuring Phase I"). This assessment focused on expanding revenue opportunities and lowering corporate overhead, including workforce and benefit reductions and facility rationalization. In addition to addressing corporate overhead, the strategic assessment examined the Company's market strengths and opportunities and compared the Company's position to that of its competitors. As a result of the assessment, the Company focused its growth on investments in the Infusion and Home Health Services segments and elected to pursue offers for its traditional and specialty pharmacy mail operations and community retail pharmacy stores. Accordingly, the Company consummated the Pharmacy Services Asset Sale relating to its traditional and specialty pharmacy mail operations and community retail pharmacy stores.
In 2012, as a result of the divestiture process, the Company's management team commenced an assessment of the Company's continuing operations in order to align its corporate structure with its remaining operations ("Restructuring Phase II").
The Company anticipates that additional restructuring will occur and thus we may incur significant additional charges such as the write down of certain long-lived assets, employee severance, other restructuring type charges, temporary redundant expenses, potential cash bonus payments and potential accelerated payments or termination costs for certain of its contractual obligations, which impact the Company's future Consolidated Financial Statements.
Restructuring Phase I
As a result of the execution of the strategic assessment and related restructuring plan, the Company incurred restructuring expenses of approximately
$(0.1) million
,
$0.2 million
and
$6.4 million
during the years ended December 31, 2013, 2012 and 2011, respectively. The Company did not incur any significant restructuring expenses related to Restructuring Phase I during 2013, though some amounts previously accrued were adjusted. Restructuring expenses during the year ended December 31, 2012 consisted of approximately
$0.3 million
of third-party consulting costs offset by
$0.1 million
of facility-related expense adjustments. Restructuring expenses during the year ended December 31, 2011 consisted of approximately
$2.9 million
of third-party consulting costs and
$1.9 million
of severance and other benefit-related costs related to workforce reductions, and
$1.6 million
of facility-related costs.
Since inception of the strategic assessment and related restructuring plan, the Company has incurred approximately
$10.1 million
in total expenses, including
$4.3 million
of third-party consulting costs,
$4.1 million
of employee severance and other benefit-related costs related to workforce reductions, and
$1.7 million
of facility-related costs. A large part of the third-party consulting costs and other costs were associated with the analysis of our assets and their long-term strategic value relative to other assets in which we could invest. The assessment process culminated in the Pharmacy Services Asset Sale (see Note 5--Discontinued Operations).
The restructuring costs are included in restructuring and other expenses on the Consolidated Statements of Operations. As of December 31, 2013, there are restructuring accruals of $
0.5 million
related to Phase I included in accrued expenses and other current liabilities and other non-current liabilities on the Consolidated Balance Sheets. The restructuring accrual activity consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Severance
and Other Benefits
|
|
Consulting
Costs
|
|
Facility-Related Costs
|
|
Other Costs
|
|
Total
|
Balance as of December 31, 2011
|
|
$
|
2,109
|
|
|
$
|
50
|
|
|
$
|
1,289
|
|
|
$
|
—
|
|
|
$
|
3,448
|
|
Expenses
|
|
6
|
|
|
270
|
|
|
(61
|
)
|
|
—
|
|
|
215
|
|
Cash payments
|
|
(1,952
|
)
|
|
(300
|
)
|
|
(387
|
)
|
|
—
|
|
|
(2,639
|
)
|
Balance as of December 31, 2012
|
|
$
|
163
|
|
|
$
|
20
|
|
|
$
|
841
|
|
|
$
|
—
|
|
|
$
|
1,024
|
|
Expenses
|
|
(163
|
)
|
|
(20
|
)
|
|
118
|
|
|
—
|
|
|
(65
|
)
|
Cash payments
|
|
—
|
|
|
—
|
|
|
(438
|
)
|
|
—
|
|
|
(438
|
)
|
Balance as of December 31, 2013
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
521
|
|
|
$
|
—
|
|
|
$
|
521
|
|
Restructuring Phase II
As a result of Restructuring Phase II, the Company incurred restructuring expenses of approximately
$3.4 million
and
$1.9 million
during the years ended December 31, 2013 and 2012. The Company did not incur restructuring expense related to Phase II during 2011. Restructuring expenses during the year ended December 31, 2013 consisted of approximately
$1.5 million
of employee severance and other benefit related costs associated with workforce reductions,
$1.6 million
of third-party consulting costs and
$0.4 million
in other costs. Restructuring expenses during the year ended December 31, 2012 consisted of approximately
$1.1 million
of employee severance and other benefit related costs associated with workforce reductions,
$0.3 million
of third-party consulting costs, and
$0.5 million
in other costs.
The restructuring costs are included in restructuring and other expenses on the Consolidated Statements of Operations. As of December 31, 2013, there are restructuring accruals of
$2.5 million
related to Phase II included on the Consolidated Balance Sheets. The restructuring accrual activity consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Severance
and Other Benefits
|
|
Consulting
Costs
|
|
Facility-Related Costs
|
|
Other Costs
|
|
Total
|
Balance as of December 31, 2011
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Expenses
|
|
1,125
|
|
|
262
|
|
|
—
|
|
|
541
|
|
|
1,928
|
|
Cash payments
|
|
(566
|
)
|
|
(117
|
)
|
|
—
|
|
|
(541
|
)
|
|
(1,224
|
)
|
Balance as of December 31, 2012
|
|
$
|
559
|
|
|
$
|
145
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
704
|
|
Expenses
|
|
1,496
|
|
|
1,561
|
|
|
—
|
|
|
378
|
|
|
3,435
|
|
Cash payments
|
|
(1,159
|
)
|
|
(155
|
)
|
|
—
|
|
|
(344
|
)
|
|
(1,658
|
)
|
Balance as of December 31, 2013
|
|
$
|
896
|
|
|
$
|
1,551
|
|
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
2,481
|
|
Other transitional costs included in restructuring and other expenses on the Consolidated Statements of Operations totaled
$4.4 million
,
$3.0 million
, and
$1.5 million
in the years ended December 31, 2013, 2012 and 2011, respectively. During the year ended December 31, 2012 they also include
$0.8 million
for certain state sales taxes associated with prior year sales.
NOTE 8-- PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2013
|
|
2012
|
Computer and office equipment, including equipment acquired under capital leases
|
$
|
20,440
|
|
|
$
|
14,443
|
|
Software capitalized for internal use
|
13,842
|
|
|
9,939
|
|
Vehicles, including equipment acquired under capital leases
|
2,056
|
|
|
1,540
|
|
Medical equipment
|
22,391
|
|
|
16,466
|
|
Work in progress
|
8,820
|
|
|
4,315
|
|
Furniture and fixtures
|
4,461
|
|
|
3,219
|
|
Leasehold improvements
|
12,232
|
|
|
7,164
|
|
Property and equipment, gross
|
84,242
|
|
|
57,086
|
|
Less: Accumulated depreciation
|
(42,630
|
)
|
|
(33,365
|
)
|
Property and equipment, net
|
$
|
41,612
|
|
|
$
|
23,721
|
|
Work in progress at
December 31, 2013
and
2012
includes
$0.7 million
and
$1.3 million
, respectively, of internally developed software costs to be capitalized.
Depreciation expense, including expense related to assets under capital lease, for the years ended
December 31, 2013
,
2012
and
2011
was
$13.6 million
,
$8.5 million
, and
$6.6 million
, respectively. Depreciation expense for the years ended
December 31, 2013
,
2012
and
2011
includes
$1.7 million
,
$1.3 million
, and
$0.8 million
, respectively, related to costs related to software capitalized for internal use.
Impairment
The Company assesses the impairment of its assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. As a result of the Pharmacy Services Asset Sale (see Note 5 - Discontinued Operations), the Company evaluated certain facilities that were retained by the Company following the divestiture. As a result of the evaluation, the Company determined that a triggering event occurred, giving rise to the need to assess the recoverability of certain of our assets previously used in the specialty pharmacy mail operations and community retail pharmacy operations, which consisted primarily of software capitalized for internal use, leasehold improvements and work in progress. Based on our analysis, we recorded a
$5.8 million
impairment charge in income (loss) from discontinued operations, net of income taxes during the
year ended December 31, 2012
. No impairment charges were incurred during the years ended years ended
December 31, 2013
and
December 31, 2011
.
NOTE 9-- DEBT
As of
December 31, 2013
and
2012
the Company’s debt consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2013
|
|
2012
|
Revolving Credit Facility
|
$
|
40,003
|
|
|
$
|
—
|
|
Term Loan Facilities
|
395,000
|
|
|
—
|
|
Prior Credit Facility
|
—
|
|
|
—
|
|
2015 Notes
|
—
|
|
|
225,000
|
|
Capital leases
|
577
|
|
|
1,379
|
|
Total Debt
|
435,580
|
|
|
226,379
|
|
Less: Current portion
|
60,257
|
|
|
953
|
|
Long-term debt, net of current portion
|
$
|
375,323
|
|
|
$
|
225,426
|
|
Senior Credit Facilities
On July 31, 2013, the Company entered into (i) a senior secured first-lien revolving credit facility in an aggregate principal amount of
$75.0 million
(the “Revolving Credit Facility”), (ii) a senior secured first-lien term loan B in an aggregate principal amount of
$250.0 million
(the “Term Loan B Facility”) and (iii) a senior secured first-lien delayed draw term loan B in an aggregate principal amount of
$150.0 million
(the “Delayed Draw Term Loan Facility” and, together with the Revolving Credit Facility and the Term Loan B Facility, the “Senior Credit Facilities”) with SunTrust Bank, Jefferies Finance LLC and Morgan Stanley Senior Funding, Inc.
Advances under the Senior Credit Facilities bear interest at a floating rate or rates equal to the Eurodollar rate plus
5.25%
or the base rate plus
4.25%
specified in the Senior Credit Facilities agreement. The Eurodollar rate used in the interest rate calculation for Term Loan B Facility and the Delayed Draw Term Loan Facility (collectively, the "Term Loan Facilities") is subject to a floor of
1.25%
. There is no floor applied to interest rate calculation for the Revolving Credit Facility. In addition, there is a
0.50%
commitment fee on the unused portion of the Revolving Credit Facility. As of
December 31, 2013
, the interest rate for the Term Loan Facilities is approximately
6.50%
and the interest rate for the Revolving Credit Facility is approximately
5.46%
. The interest rates may vary in the future depending on the Company's consolidated net leverage ratio.
The Revolving Credit Facility matures on July 31, 2018, at which time all principal amounts outstanding are due and payable. The Term Loan Facilities each mature on July 31, 2020, and require equal consecutive quarterly repayments of
1.25%
of the original principal amount funded commencing on December 31, 2013. Once repaid, amounts under Term Loan Facilities may not be re-borrowed. The Senior Credit Facilities are secured by substantially all of the Company's and its subsidiaries' assets.
The Senior Credit Facilities contain customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material indebtedness and events constituting a change of control. The occurrence of certain events of default may increase the applicable rate of interest by
2%
and could result in the acceleration of the Company's obligations under the Senior Credit Facilities to pay the full amount of the obligations. If the Company draws down in excess of
25%
of the available borrowing capacity under the Revolving Credit Facility, the net leverage covenants under the Revolving Credit Facility will become applicable such that the Company’s consolidated net leverage ratio will not be permitted to exceed certain thresholds until maturity of the Revolving Credit Facility. The required maximum consolidated net leverage ratio thresholds for the Revolving Credit Facility are defined for each measurement quarter.
The Term Loan Facilities are not subject to any financial covenants. The Company was in compliance with the net leverage covenants under the Revolving Credit Facility at
December 31, 2013
.
The proceeds of the Term Loan B Facility were used to refinance certain existing indebtedness of the Company, including the payment of the purchase price for the 10 1/4% senior unsecured notes (the "2015 Notes") tendered and accepted for purchase in the Offer (defined below) and the payment of the redemption price for the 2015 Notes that remained outstanding after completion of the Offer. The Delayed Draw Term Loan Facility and the Revolving Credit Facility were used to fund a portion of the CarePoint Business acquisition and may be used for other general corporate purposes of the Company, including acquisitions, investments, capital expenditures and working capital needs.
On December 23, 2013, the Company entered into the First Amendment to the Senior Credit Facilities pursuant to which the Company obtained the required consent of the lenders to enter into the Settlement Agreements (see Note 10 - Commitments and Contingencies) and to begin making payments, in accordance with the payment terms, on the settlement amount of
$15.0 million
. In exchange for this consent, the Company paid the lenders a fee of
$0.5 million
and included this amount in loss from discontinued operations in the Consolidated Statements of Operations.
Subsequent to December 31, 2013, the Company entered into the Second Amendment to the Senior Credit Facilities (see Note 17 - Subsequent Events).
Prior Revolving Credit Facility
On July 3, 2012, the Company entered into a Third Amendment to the Second Amended and Restated Credit Agreement, by and among the Company, as borrower, all of its subsidiaries as guarantors thereto, the lenders, Healthcare Finance Group, LLC, an administrative agent, and the other parties thereto to provide an available line of credit of up to
$125.0 million
. The Prior Credit Facility bore interest at LIBOR rate plus
3.5%
. On July 31, 2013, the Company entered into its new Senior Credit Facilities and terminated this agreement. At the date of termination, no amounts were outstanding under this agreement.
10
¼
% Senior Unsecured Notes due 2015
On June 3, 2013, the Company commenced an Offer to Purchase and Consent Solicitation (the "Offer") to the holders of the Company's outstanding
$225.0 million
aggregate principal 2015 Notes to purchase any and all of the 2015 Notes at
$1,056.25
cash for each
$1,000.00
of principal plus accrued but unpaid interest to the date of purchase.
On July 31, 2013, the Company received and accepted for purchase approximately
56.1%
of the aggregate principal amount of its outstanding 2015 Notes that were validly tendered by the Offer's expiration date of July 30, 2013. The
$133.3 million
aggregate repurchase price plus accrued but unpaid interest of
$4.3 million
, of the 2015 Notes tendered in connection with the Offer was paid from proceeds received under the Term Loan B Facility.
In connection with the Offer, the Company solicited and received sufficient consents from the holders of the 2015 Notes to amend certain provisions of the indenture governing the 2015 Notes (the "2015 Notes Indenture") that would eliminate substantially all of the restrictive covenants, certain events of default and other provisions included in the Indenture. On July 31, 2013, the Company entered into a supplemental indenture with the trustee for the 2015 Notes, giving effect to the proposed amendments to the 2015 Notes Indenture and eliminating substantially all of the restrictive covenants and certain default provisions contained in the 2015 Notes Indenture.
On July 31, 2013, the Company satisfied and discharged its obligations under the 2015 Notes Indenture by depositing with the trustee approximately
$107.8 million
from proceeds received under the Term Loan B Facility. On August 19, 2013, the trustee paid all remaining outstanding 2015 Notes at a redemption price equal to
$1,051.25
cash for each
$1,000.00
of the principal amount plus accrued and unpaid interest as of such date.
Issuance of 8.875% Senior Notes due 2021
Subsequent to December 31, 2013, the Company issued
$200.0 million
aggregate principal amount of 8.875% Senior Notes due 2021 (the "2021 Notes") (see Note 17 - Subsequent Events).
Loss on Extinguishment of Debt
As a result of the above repurchase and redemption, all outstanding principal and interest amounts under the 2015 Notes were fully satisfied. The accompanying Consolidated Statements of Operations include a loss on extinguishment of debt as follows (in thousands):
|
|
|
|
|
|
Amount
|
2015 Note redemption premium
|
$
|
12,162
|
|
Write-off of deferred financing costs
|
3,501
|
|
Legal fees and other expenses
|
235
|
|
Loss on extinguishment of debt
|
$
|
15,898
|
|
Deferred Financing Costs
In connection with Senior Credit Facilities, the Company incurred underwriting fees, agent fees, legal fees and other expenses of
$21.9 million
that are being amortized over the terms of the Senior Credit Facilities.
Future Maturities
The estimated future maturities of the Company's debt as of
December 31, 2013
, including interest, is as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
2014
|
|
$
|
45,188
|
|
2015
|
|
43,888
|
|
2016
|
|
42,588
|
|
2017
|
|
41,288
|
|
2018
|
|
39,988
|
|
Thereafter
|
|
323,979
|
|
Total future maturities
|
|
$
|
536,919
|
|
Future maturities are calculated based on the terms of the Senior Credit Facility as of December 31, 2013 and do not reflect the change in payments terms in the amendment to the Senior Credit Facility and paydown of debt subsequent to December 31, 2013 (see Note 17 - Subsequent Events).
Interest Expense, net
Interest expense consisted of the following for each of the three years ended
December 31, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Revolving Credit Facility
|
$
|
873
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Term Loan Facilities
|
10,313
|
|
|
—
|
|
|
—
|
|
Prior Credit Facility
|
765
|
|
|
2,675
|
|
|
4,371
|
|
2015 Notes
|
13,960
|
|
|
23,063
|
|
|
23,063
|
|
Amortization of deferred financing costs
|
2,259
|
|
|
1,261
|
|
|
1,055
|
|
Expense allocated to discontinued operations
|
41
|
|
|
(761
|
)
|
|
(2,764
|
)
|
Other, net
|
(15
|
)
|
|
(171
|
)
|
|
(183
|
)
|
Interest expense, net
|
$
|
28,197
|
|
|
$
|
26,067
|
|
|
$
|
25,542
|
|
The weighted average interest rate on the Company's short-term borrowings under its revolving credit facilities during the
years ended December 31, 2013 and 2012
was
5.43%
and
4.69%
, respectively.
NOTE 10-- COMMITMENTS AND CONTINGENCIES
Legal Proceedings
United States Attorney's Office for the Southern District of New York and New York State Attorney General investigation
Settlement Agreements with the United States of America, qui tam relator and thirty-five states
Effective January 8, 2014, the Company entered into the Federal Settlement Agreement with the DOJ and David M. Kester (the “Relator”). The Federal Settlement Agreement memorialized the federal and private component of the Company's previously disclosed agreement in principle, first announced on December 16, 2013, to settle all civil claims under the False Claims Act and related statutes and all common law claims (collectively, the “Claims”) that could have been brought by the DOJ and Relator in the Civil Action (as defined below) relating to the distribution of the Medication by the Company's legacy specialty pharmacy division that was divested in May 2012 (the “Legacy Division”). Effective February 11, 2014, the Company entered into the State Settlement Agreements with the Settling States. The State Settlement Agreements memorialized the state component of the Company's previously disclosed agreement in principle, first announced on December 16, 2013, to settle the Claims that could have been brought by the Settling States that arose out of the Legacy Division's distribution of the Medication.
As previously disclosed in September 2013, the Company has cooperated with the United States Attorney’s Office (the “USAO”) for the Southern District of New York (the “SDNY”) and the New York State Attorney General's Medicaid Fraud Control Unit (the "NYMFCU" and together with the USAO, the "Government") by producing documents and information regarding the Legacy Division’s distribution of the Medication. As reflected in the Federal Settlement Agreement, the Company was informed by the Government for the first time in September 2013 that the Government was contemplating claims against the Company relating to the Legacy Division’s distribution of the Medication. Thereafter, and in connection with confidential settlement discussions with the Government, the Company was first informed confidentially that the Company and others were named as defendants in a sealed
qui tam
lawsuit (a whistleblower action brought by a private citizen, the Relator, on behalf of the government) filed in the SDNY by the Relator, in a case titled United States of America, et al., ex. Rel Kester v. Novartis Pharmaceuticals Corporation, et al, Civil Action No. 11-CIV-8196 (the “Civil Action”) regarding the Legacy Division’s distribution of the Medication and alleging violations of the False Claims Act and related statutes. Until January 8, 2014, the Company was prohibited from publicly disclosing any information related to the existence of the Civil Action. On January 8, 2014, the Civil Action was unsealed and made public on order of the court.
With the execution of the Settlement Agreements, the Company expects the Civil Action to be fully resolved, and the Company expects to be fully resolved the federal and state claims that were or could have been raised in the Civil Action. The Company anticipates that all state claims that have been or could be brought against it in the Civil Action will be dismissed with prejudice. The State Settlement Agreements expressly recognize and affirmatively provide that, by entering into the State Settlement Agreements, the Company has not made any admission of liability and the Company expressly denies the allegations in the Civil Action.
As a part of the State Settlement Agreements, the Company has also resolved any and all claims that the Settling States or their representatives, including the National Association of Medicaid Fraud Control Units (the “NAMFCU”) (which represented the offices of the Attorneys General of the Settling States), could bring for attorney’s fees, investigative fees and/or administrative costs related to the Civil Action. Except for potential claims for certain investigative/administrative costs and attorney’s fees related to the Civil Action incurred by the DOJ, Relator and the NAMFCU that the Company expects not to exceed
$0.75 million
in the aggregate, the Company does not anticipate any further claims relating to the matters involved in the Settlement Agreements. The Settlement Agreements do not, however, preclude the OIG or any state from taking any administrative actions.
Under the Settlement Agreements, the Company will pay an aggregate of
$15.0 million
, plus interest (at an annual rate of
3.25%
) in three approximately annual payments from January 2014 through January 2016. The Settlement Agreements represented a compromise to avoid the costs, distraction and uncertainty of protracted litigation. The Settlement Agreements do not include any admission of wrongdoing, illegal activity, or liability by the Company or its employees, directors, officers or agents. The lenders under the Company's Senior Credit Facilities provided their consent to the Settlement Agreements. In connection with this consent, the Company paid the lenders an amount of
$0.5 million
.
During the year ended December 31, 2013, the Company included in its results of discontinued operations an accrual of
$15.0 million
in connection with the government’s investigation regarding certain operations of the Legacy Division.
Securities Class Action Litigation in the Southern District of New York
On September 30, 2013, a putative securities class action lawsuit was filed against the Company and certain of its officers on behalf of the putative class of purchasers of our securities between August 8, 2011 and September 20, 2013, inclusive. The lawsuit seeks damages and other relief for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 promulgated thereunder.
On November 15, 2013, a putative securities class action lawsuit was filed against the Company and certain of its directors and officers and certain underwriters in the Company's April 2013 underwritten public offering of its common stock, on behalf of the putative class of purchasers of our securities between August 8, 2011 and September 23, 2013, inclusive. The lawsuit seeks damages and other relief for alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.
The two class action lawsuits were consolidated and a lead plaintiff was appointed on December 19, 2013. The Company denies any allegations of wrongdoing in the consolidated class action lawsuit. The lead plaintiff filed a consolidated complaint on February 19, 2014 against the Company, certain of its directors and officers, certain underwriters in the Company's April 2013 underwritten public offering of its common stock, and a certain stockholder of the Company. The consolidated complaint is brought on behalf of a putative class of purchasers of the Company's securities between November 9, 2012 and November 6, 2013, inclusive, and persons and entities who purchased the Company's securities pursuant or traceable to two underwritten public offerings of the Company’s common stock conducted in April 2013, and August 2013. The consolidated complaint alleges generally
that the defendants made material misstatements and/or failed to disclose matters related the Legacy Division’s distribution of the Medication as well as the Company’s PBM Services segment. The consolidated complaint asserts claims under Sections 11, 12(a)(2) and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The Company intends to file a motion to dismiss the consolidated complaint. Pursuant to the parties' scheduling order, briefing on the motion to dismiss will be complete in July 2014. The Company believes all of the claims in these class action lawsuits are without merit and intends to vigorously defend against these claims. However, there is no assurance that the Company will be successful in its defense or that insurance will be available or adequate to fund any settlement or judgment or the litigation costs of these actions. Additional similar lawsuits may be filed. Moreover, the Company is not able to predict the outcome or reasonably estimate a range of possible loss at this time.
Professional Home Care Services Litigation
On March 31, 2009, Professional Home Care Services, Inc., or PHCS, which is one of the subsidiaries we acquired through our acquisition of CHS, was sued by Alexander Infusion, LLC, a New York-based home infusion company, in the Supreme Court of the State of New York. The complaint alleges principally breach of contract arising in connection with PHCS's failure to consummate an acquisition of Alexander Infusion after failing to satisfy the conditions to PHCS's obligation to close. Alexander Infusion has sued for
$3.5 million
in damages. We believe Alexander Infusion's claims to be without merit and intend to continue to defend against the allegations vigorously. Furthermore, under the Merger Agreement, subject to certain limits, the former CHS Stockholders agreed to indemnify us in connection with any losses arising from claims made in respect of the acquisition agreement entered into between PHCS and Alexander Infusion.
Legal Settlements
Following responses to government subpoenas and discussions with the government, in May 2011 we were advised of a
qui tam
lawsuit filed under seal in federal court in Minnesota in 2006 and naming us as defendant. The complaint alleged violations of healthcare statutes and regulations by the Company and predecessor companies dating back to 2000. The Company entered into a final settlement under which we paid the states
$0.6 million
and the federal government
$4.4 million
resolving all issues alleged in the complaint and the government's investigation in exchange for a release and dismissal of the claims. A related
qui tam
relator's employment termination claim and her lawyer's statutory legal fee claim were also resolved. During the year ended December 31, 2011, the Company recorded a legal settlement expense of
$4.8 million
related to the settlement. During the year ended December 31, 2012, the Company recorded additional legal settlement expense of
$0.8 million
to account for the final settlement amount. The legal settlement expenses were included in income from discontinued operations, net of income taxes in the accompanying Consolidated Statements of Operations.
Government Regulation
Various federal and state laws and regulations affecting the healthcare industry do or may impact the Company's current and planned operations, including, without limitation, federal and state laws prohibiting kickbacks in government health programs, federal and state antitrust and drug distribution laws, and a wide variety of consumer protection, insurance and other state laws and regulations. While management believes the Company is in substantial compliance with all existing laws and regulations material to the operation of its business, such laws and regulations are subject to rapid change and often are uncertain in their application. As controversies continue to arise in the healthcare industry (for example, the efforts of Plan Sponsors and pharmacy benefit managers to limit formularies, alter drug choice and establish limited networks of participating pharmacies), federal and state regulation and enforcement priorities in this area can be expected to increase, the impact of which cannot be predicted.
From time to time, the Company responds to subpoenas and requests for information from governmental agencies. The Company cannot predict with certainty what the outcome of any of the foregoing might be. While the Company believes it is in substantial compliance with all laws, rules and regulations that affects its business and operations, there can be no assurance that the Company will not be subject to scrutiny or challenge under one or more existing laws or that any such challenge would not be successful. Any such challenge, whether or not successful, could have a material effect upon the Company's Consolidated Financial Statements. A violation of the Federal anti-kickback statute, for example, may result in substantial criminal penalties, as well as suspension or exclusion from the Medicare and Medicaid programs. Moreover, the costs and expenses associated with defending these actions, even where successful, can be significant.
Further, there can be no assurance the Company will be able to obtain or maintain any of the regulatory approvals that may be required to operate its business, and the failure to do so could have a material effect on the Company's Consolidated Financial Statements.
Leases
The Company leases its facilities and certain equipment under various operating leases with third parties. The majority of these leases contain escalation clauses that increase base rent payments based upon either the Consumer Price Index or an agreed upon schedule.
In addition, the Company utilizes capital leases agreements with third parties to obtain certain assets such as telecommunications equipment and vehicles. Interest rates on capital leases are both fixed and variable and range from
3%
to
7%
.
As of
December 31, 2013
, future minimum lease payments under operating and capital leases were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Capital Leases
|
|
Total
|
2014
|
$
|
9,622
|
|
|
$
|
333
|
|
|
$
|
9,955
|
|
2015
|
7,771
|
|
|
438
|
|
|
8,209
|
|
2016
|
6,202
|
|
|
201
|
|
|
6,403
|
|
2017
|
5,038
|
|
|
39
|
|
|
5,077
|
|
2018
|
3,242
|
|
|
1
|
|
|
3,243
|
|
2019 and thereafter
|
3,177
|
|
|
—
|
|
|
3,177
|
|
Total
|
$
|
35,052
|
|
|
$
|
1,012
|
|
|
$
|
36,064
|
|
Rent expense for leased facilities and equipment was approximately
$7.9 million
,
$6.2 million
and
$6.3 million
for the
years ended December 31, 2013, 2012 and 2011
, respectively.
Purchase Commitments
As of
December 31, 2013
, the Company had commitments to purchase prescription drugs from drug manufacturers of approximately
$37.3 million
in
2014
. These purchase commitments are made at levels expected to be used in the normal course of business.
NOTE 11-- OPERATING AND REPORTABLE SEGMENTS
On February 1, 2012, the Company divested its traditional and specialty pharmacy mail operations and community retail pharmacy stores, as a result the Company reevaluated its operating and reportable segments in accordance with the provisions of ASC 280
Segment Reporting
(“ASC 280”). Based on this review, the Company changed its operating and reportable segments from “Infusion/Home Health Services” and “Pharmacy Services” to its new operating and reportable segments: “Infusion Services", "Home Health Services” and “PBM Services”. These three operating and reportable segments reflect how the Company's chief operating decision maker reviews the Company's results in terms of allocating resources and assessing performance. Disclosures for the
year ended December 31, 2011
reflect the change in reportable segments.
The Infusion Services operating and reportable segment provides services consisting of home infusion therapy, respiratory therapy and the provision of durable medical equipment, products and services. Infusion services include the dispensing and administering of infusion-based drugs, which typically require nursing support and clinical management services, equipment to administer the correct dosage and patient training designed to improve patient outcomes.
The Home Health Services operating and reportable segment provides services including the provision of skilled nursing services and therapy visits, private duty nursing services, hospice services, rehabilitation services and medical social services to patients primarily in their home.
The PBM Services operating and reportable segment consists of PBM services, which primarily consists of discount card programs. The discount card programs provide a cost effective alternative for individuals who may be uninsured, underinsured or may have restrictive coverage that disallows reimbursement for certain medications. Under these discount programs, individuals who present a discount card at one of the Company's participating network pharmacies receive prescription medications at a discounted price compared to the retail price. In addition, in the Company's capacity as a pharmacy benefit manager, it has fully funded prescription benefit programs where the Company reimburses its network pharmacies and third party payors in turn reimburse the Company based on Medi-Span reported pricing for those claims fulfilled for their plan participants.
The Company's chief operating decision maker evaluates segment performance and allocates resources based on Segment Adjusted EBITDA. Segment Adjusted EBITDA is defined as income (loss) from continuing operations, net of income taxes adjusted for net interest expense, income tax expense (benefit), depreciation, amortization of intangibles and stock-based compensation expense and prior to the allocation of certain corporate expenses. Segment Adjusted EBITDA excludes acquisition and integration expenses; restructuring and other expense; and other expenses related to the Company's strategic assessment. Segment Adjusted EBITDA is a measure of earnings that management monitors as an important indicator of operating and financial performance. The accounting policies of the operating and reportable segments are consistent with those described in the Company's summary of significant accounting policies.
Segment Reporting Information
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Results of Operations:
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
Infusion Services - product revenue
|
$
|
675,684
|
|
|
$
|
471,506
|
|
|
$
|
365,526
|
|
Infusion Services - service revenue
|
21,643
|
|
|
10,080
|
|
|
8,756
|
|
Total Infusion Services revenue
|
697,327
|
|
|
481,586
|
|
|
374,282
|
|
Home Health Services - service revenue
|
72,276
|
|
|
69,190
|
|
|
69,635
|
|
PBM Services - service revenue
|
72,592
|
|
|
111,861
|
|
|
110,589
|
|
Total revenue
|
$
|
842,195
|
|
|
$
|
662,637
|
|
|
$
|
554,506
|
|
|
|
|
|
|
|
Adjusted EBITDA by Segment before corporate overhead:
|
|
|
|
|
|
Infusion Services
|
$
|
60,677
|
|
|
$
|
36,764
|
|
|
$
|
35,128
|
|
Home Health Services
|
2,884
|
|
|
5,401
|
|
|
5,954
|
|
PBM Services
|
17,110
|
|
|
25,659
|
|
|
30,122
|
|
Total Segment Adjusted EBITDA
|
80,671
|
|
|
67,824
|
|
|
71,204
|
|
Corporate overhead
|
(32,042
|
)
|
|
(26,755
|
)
|
|
(23,308
|
)
|
Interest expense, net
|
(28,197
|
)
|
|
(26,067
|
)
|
|
(25,542
|
)
|
Loss on extinguishment of debt
|
(15,898
|
)
|
|
—
|
|
|
—
|
|
Income tax benefit (expense)
|
(2,538
|
)
|
|
4,439
|
|
|
(435
|
)
|
Depreciation
|
(13,555
|
)
|
|
(8,513
|
)
|
|
(6,591
|
)
|
Amortization of intangibles
|
(6,671
|
)
|
|
(3,957
|
)
|
|
(3,376
|
)
|
Stock-based compensation expense
|
(9,450
|
)
|
|
(6,122
|
)
|
|
(4,467
|
)
|
Acquisition and integration expenses
|
(16,130
|
)
|
|
(4,046
|
)
|
|
—
|
|
Restructuring and other expenses and investments
|
(9,796
|
)
|
|
(5,143
|
)
|
|
(7,909
|
)
|
Loss from continuing operations, net of income taxes
|
$
|
(53,606
|
)
|
|
$
|
(8,340
|
)
|
|
$
|
(424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Supplemental Operating Data:
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
Infusion Services
|
$
|
15,972
|
|
|
$
|
6,685
|
|
|
$
|
4,826
|
|
Home Health Services
|
69
|
|
|
171
|
|
|
170
|
|
PBM Services
|
—
|
|
|
—
|
|
|
—
|
|
Corporate unallocated
|
9,576
|
|
|
4,130
|
|
|
2,857
|
|
Total Capital Expenditures
|
$
|
25,617
|
|
|
$
|
10,986
|
|
|
$
|
7,853
|
|
|
|
|
|
|
|
Depreciation Expense:
|
|
|
|
|
|
|
|
|
Infusion Services
|
$
|
8,640
|
|
|
$
|
4,347
|
|
|
$
|
5,242
|
|
Home Health Services
|
75
|
|
|
111
|
|
|
48
|
|
PBM Services
|
—
|
|
|
—
|
|
|
—
|
|
Corporate unallocated
|
4,840
|
|
|
4,055
|
|
|
1,301
|
|
Total Depreciation Expense
|
$
|
13,555
|
|
|
$
|
8,513
|
|
|
$
|
6,591
|
|
|
|
|
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
Infusion Services
|
$
|
794,006
|
|
|
$
|
438,623
|
|
|
$
|
353,999
|
|
Home Health Services
|
64,428
|
|
|
62,403
|
|
|
64,672
|
|
PBM Services
|
25,239
|
|
|
36,354
|
|
|
40,418
|
|
Corporate unallocated
|
53,169
|
|
|
95,813
|
|
|
24,348
|
|
Assets from discontinued operations
|
—
|
|
|
—
|
|
|
59,005
|
|
Assets associated with discontinued operations, not sold
|
16
|
|
|
9,183
|
|
|
134,660
|
|
Total Assets
|
$
|
936,858
|
|
|
$
|
642,376
|
|
|
$
|
677,102
|
|
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
Infusion Services
|
$
|
558,593
|
|
|
$
|
304,282
|
|
|
$
|
265,859
|
|
Home Health Services
|
33,784
|
|
|
33,784
|
|
|
33,784
|
|
PBM Services
|
12,744
|
|
|
12,744
|
|
|
12,744
|
|
Total Goodwill
|
$
|
605,121
|
|
|
$
|
350,810
|
|
|
$
|
312,387
|
|
Subsequent to December 31, 2013, the Company entered into a Stock Purchase Agreement to sell substantially all of the assets and entities that make up its Home Health Services segment (see Note 17 - Subsequent Events).
NOTE 12-- CONCENTRATION OF RISK
Customer and Credit Risk
The Company provides trade credit to its customers in the normal course of business. One payor, UnitedHealthcare, accounted for approximately
21%
,
18%
and
13%
of revenue during the
years ended December 31, 2013, 2012 and 2011
, respectively. The majority of the revenue is related to the Infusion Services segment.
Therapy Revenue Risk
The Company sells products related to the Immune Globulin (IG) therapy, which represented
18%
,
19%
, and
25%
of revenue during the
years ended December 31, 2013, 2012 and 2011
, respectively. The revenue is related to the Infusion Services segment.
NOTE 13-- INCOME TAXES
The Company’s federal and state income tax expense (benefit) is summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Current
|
|
|
|
|
|
Federal
|
$
|
(866
|
)
|
|
$
|
(3,759
|
)
|
|
$
|
(167
|
)
|
State
|
(1,412
|
)
|
|
(676
|
)
|
|
(122
|
)
|
Total current
|
(2,278
|
)
|
|
(4,435
|
)
|
|
(289
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
4,437
|
|
|
121
|
|
|
632
|
|
State
|
379
|
|
|
(125
|
)
|
|
92
|
|
Total deferred
|
4,816
|
|
|
(4
|
)
|
|
724
|
|
Total tax (benefit) provision
|
$
|
2,538
|
|
|
$
|
(4,439
|
)
|
|
$
|
435
|
|
The effect of temporary differences that give rise to a significant portion of deferred taxes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2013
|
|
2012
|
Deferred tax assets:
|
|
|
|
Reserves not currently deductible
|
$
|
10,315
|
|
|
$
|
11,771
|
|
Net operating loss carryforwards
|
39,556
|
|
|
16,287
|
|
Goodwill and intangibles (tax deductible)
|
8,089
|
|
|
7,278
|
|
Accrued expenses
|
148
|
|
|
3,055
|
|
Stock based compensation
|
6,277
|
|
|
3,717
|
|
Other
|
417
|
|
|
1,778
|
|
Total deferred tax assets
|
64,802
|
|
|
43,886
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Property basis differences
|
(506
|
)
|
|
(3,144
|
)
|
Indefinite-lived goodwill and intangibles
|
(16,122
|
)
|
|
(11,306
|
)
|
Less: valuation allowance
|
(63,281
|
)
|
|
(39,727
|
)
|
Net deferred tax liability
|
$
|
(15,107
|
)
|
|
$
|
(10,291
|
)
|
During the fourth quarter of 2010, the Company concluded that it was more likely than not that its deferred tax assets would not be realized. The Company continually assesses the necessity of a valuation allowance. Based on this assessment, the Company concluded that a valuation allowance, in the amount of
$63.3 million
and
$39.7 million
, was required as of
December 31, 2013
and
2012
, respectively. If the Company determines in a future period that it is more likely than not that part or all of the deferred tax assets will be realized, the Company will reverse part or all of the valuation allowance.
At
December 31, 2013
, the Company had federal net operating loss (“NOL”) carryforwards of approximately
$112.0 million
, of which
$23.9 million
is subject to an annual limitation, which will begin expiring in 2026 and later. Of the Company’s
$112.0 million
of federal NOLs,
$17.9 million
will be recorded in additional paid-in capital when realized as these NOLs are related to the exercise of non-qualified stock options and restricted stock grants. The Company has post-apportioned state NOL carryforwards of approximately
$138.4 million
, the majority of which will begin expiring in 2017 and later.
The Company’s reconciliation of the statutory rate to the effective income tax rate is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Tax (benefit) provision at statutory rate
|
$
|
(17,874
|
)
|
|
$
|
(4,473
|
)
|
|
$
|
4
|
|
State tax (benefit) provision, net of federal taxes
|
(2,419
|
)
|
|
(587
|
)
|
|
36
|
|
Non-deductible transaction costs
|
317
|
|
|
—
|
|
|
—
|
|
Penalties
|
—
|
|
|
—
|
|
|
78
|
|
Change in tax contingencies
|
(1,157
|
)
|
|
(633
|
)
|
|
(675
|
)
|
Valuation allowance changes affecting income tax expense
|
23,493
|
|
|
1,104
|
|
|
778
|
|
Other
|
178
|
|
|
150
|
|
|
214
|
|
Tax (benefit) provision
|
$
|
2,538
|
|
|
$
|
(4,439
|
)
|
|
$
|
435
|
|
As of
December 31, 2013
, the Company had
$1.2 million
of gross unrecognized tax benefits, of which
$0.2 million
, if recognized, would favorably affect the effective income tax rate in future periods. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2013
|
|
2012
|
|
2011
|
Unrecognized tax benefits balance at January 1,
|
$
|
2,754
|
|
|
$
|
2,605
|
|
|
$
|
2,869
|
|
Gross increases for tax positions of prior years
|
—
|
|
|
—
|
|
|
—
|
|
Gross increases for tax positions taken in current year
|
—
|
|
|
636
|
|
|
378
|
|
Settlements with taxing authorities
|
—
|
|
|
—
|
|
|
(212
|
)
|
Lapse of statute of limitations
|
(1,582
|
)
|
|
(487
|
)
|
|
(430
|
)
|
Unrecognized tax benefits balance at December 31,
|
$
|
1,172
|
|
|
$
|
2,754
|
|
|
$
|
2,605
|
|
The Company's policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of income tax expense in the Consolidated Statements of Operations. As of
December 31, 2013
and
2012
, the Company had approximately
$0.1 million
and
$0.3 million
of accrued interest related to uncertain tax positions, respectively.
The Company files income tax returns, including returns for its subsidiaries, with federal, state and local jurisdictions. The Company's uncertain tax positions are related to tax years that remain subject to examination. As of
December 31, 2013
, U.S. tax returns for the years 2011 through 2013 remain subject to examination by federal tax authorities. Tax returns for the years 2009 through 2013 remain subject to examination by state and local tax authorities for a majority of the Company's state and local filings.
NOTE 14-- STOCK-BASED COMPENSATION
BioScrip Equity Incentive Plans
Under the Company's Amended and Restated 2008 Equity Incentive Plan as amended and restated (the “2008 Plan”), the Company may issue, among other things, incentive stock options (“ISOs”), non-qualified stock options (“NQSOs”), stock appreciation rights ("SARs"), restricted stock, performance shares and performance units to employees and directors. While SARS are authorized under the 2008 Plan, they may also be issued outside of the plan. Under the 2008 Plan,
3,580,000
shares were originally 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). Upon the effective date of the 2008 Plan, the Company ceased making grants under the 2001 Plan. The 2008 Plan is administered by the Company's Management Development and Compensation Committee (the “Compensation Committee”), a standing committee of the Board of Directors. On June 10, 2010, the Company's stockholders approved an amendment to the 2008 Plan to increase the number of authorized shares of common stock available for issuance by
3,275,000
shares to
6,855,000
shares. On May 7, 2013, the Company's stockholders approved an amendment to the 2008 Plan to increase by
300,000
shares (from
500,000
to
800,000
) the aggregate number of shares within the 2008 Plan that may be granted to directors.
As of
December 31, 2013
, there were
971,658
shares that remained available for grant under the 2008 Plan.
BioScrip/CHS Equity Plan
Effective upon closing of the acquisition of CHS, the CHS 2006 Equity Incentive Plan was adopted by the Company and renamed the “BioScrip/CHS 2006 Equity Incentive Plan” (as amended and restated, the “BioScrip/CHS Plan” and together with the 2008 Plan, the "Equity Compensation Plans"). There were
13,000,000
shares of CHS common stock originally authorized for issuance under the CHS 2006 Equity Incentive Plan, which were converted into
3,106,315
shares of BioScrip common stock using the exchange ratio defined by the merger agreement. The Board of Directors further amended the BioScrip/CHS Plan to provide for it to have substantially the same terms and provisions as the 2008 Plan.
Of the options authorized and outstanding under the BioScrip/CHS Plan on the date of the acquisition,
716,086
options were designated as “rollover” options. These rollover options were issued to the top five executives of CHS at the time of the acquisition, and otherwise remain subject to the terms of the BioScrip/CHS Plan, as amended, and fully vested on the date of conversion. Under the terms of the BioScrip/CHS Plan, any shares of the Company's common stock subject to rollover options that expire or otherwise terminate before all or any part of the shares subject to such options have been purchased as a result of the exercise of such options shall become available for issuance under the BioScrip/CHS Plan.
The remaining
2,390,229
shares are authorized for issuance under the BioScrip/CHS Plan. These shares may be used for awards under the BioScrip/CHS Plan, provided that awards using such available shares are not made after the original expiration date of the pre-existing plan, and are only made to individuals who were not employees or directors of the Company or an affiliate or subsidiary of the Company prior to such acquisition. As of
December 31, 2013
, there were
800,361
shares that remained available under the BioScrip/CHS Plan.
Annual Equity Grants
During the
year ended December 31, 2013
, the Compensation Committee approved grants of approximately
1.9 million
NQSO awards and
0.4 million
restricted stock awards to key employees and members of the board of directors consistent with the Compensation Committee's historic grant practices.
Stock Options
Options granted under the Equity Compensation Plans: (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 and (c) are generally exercisable for
ten
years after the date of grant, subject to earlier termination in certain circumstances.
Option expense is amortized on a straight-line basis over the requisite service period. The Company recognized compensation expense related to stock options of
$6.0 million
,
$4.6 million
, and
$3.7 million
, in the years ended
December 31, 2013
,
2012
and
2011
, respectively.
The weighted-average, grant-date fair value of options granted during the years ending
December 31, 2013
,
2012
and
2011
was
$6.24
,
$4.00
, and
$2.53
, respectively. A binomial lattice-based valuation model is used to estimate the fair value of each option granted. Because of the limitations with closed-form valuation models, such as the Black-Scholes model, we have determined that this more flexible binomial model provides a better estimate of the fair value of our options. The fair value of each stock option award on the date of the grant was calculated using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Expected volatility
|
61.8
|
%
|
|
64.8
|
%
|
|
64.1
|
%
|
Risk-free interest rate
|
2.13
|
%
|
|
1.98
|
%
|
|
3.23
|
%
|
Expected life of options
|
5.5 years
|
|
|
5.8 years
|
|
|
5.2 years
|
|
Dividend rate
|
—
|
|
|
—
|
|
|
—
|
|
Fair value of options
|
$
|
6.24
|
|
|
$
|
4.00
|
|
|
$
|
2.53
|
|
Stock option activity for the Equity Compensation Plans through
December 31, 2013
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
Exercise Price
|
|
Aggregate
Intrinsic Value
(thousands)
|
|
Weighted Average
Remaining
Contractual Life
|
Balance at December 31, 2012
|
4,885,215
|
|
|
$
|
5.97
|
|
|
$
|
23,463
|
|
|
7.8 years
|
Granted
|
1,928,500
|
|
|
$
|
11.25
|
|
|
|
|
|
|
Exercised
|
(517,979
|
)
|
|
$
|
4.83
|
|
|
|
|
|
|
Forfeited and expired
|
(562,915
|
)
|
|
$
|
8.57
|
|
|
|
|
|
|
Balance at December 31, 2013
|
5,732,821
|
|
|
$
|
7.59
|
|
|
$
|
6,185
|
|
|
7.7 years
|
Outstanding options less expected forfeitures at December 31, 2013
|
5,274,974
|
|
|
$
|
7.44
|
|
|
$
|
5,936
|
|
|
7.6 years
|
Exercisable at December 31, 2013
|
2,492,009
|
|
|
$
|
5.84
|
|
|
$
|
4,362
|
|
|
6.4 years
|
Cash received from option exercises under share-based payment arrangements for the years ended
December 31, 2013
,
2012
, and
2011
was
$2.5 million
,
$8.6 million
, and
$3.2 million
, respectively.
The maximum term of stock options under these plans is
ten
years. Options outstanding as of
December 31, 2013
expire on various dates ranging from May 2014 through November 2023. The following table outlines our outstanding and exercisable stock options as of
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Option Exercise Price
|
|
Outstanding Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life
|
|
Options Exercisable
|
|
Weighted Average Exercise Price
|
$1.71 - $4.24
|
|
443,516
|
|
|
$
|
2.83
|
|
|
5.2 years
|
|
411,850
|
|
|
$
|
2.72
|
|
$4.42 - $6.61
|
|
1,104,875
|
|
|
$
|
5.03
|
|
|
6.5 years
|
|
768,053
|
|
|
$
|
5.13
|
|
$6.62- $6.65
|
|
1,856,582
|
|
|
$
|
6.63
|
|
|
7.8 years
|
|
879,922
|
|
|
$
|
6.63
|
|
$6.67 - $9.16
|
|
857,348
|
|
|
$
|
7.90
|
|
|
7.9 years
|
|
432,184
|
|
|
$
|
8.44
|
|
$11.04 - $16.63
|
|
1,470,500
|
|
|
$
|
12.01
|
|
|
9.2 years
|
|
—
|
|
|
$
|
—
|
|
All options
|
|
5,732,821
|
|
|
$
|
7.59
|
|
|
7.7 years
|
|
2,492,009
|
|
|
$
|
5.84
|
|
As of
December 31, 2012
and
2011
the exercisable portion of outstanding options was approximately
1.9 million
shares and
3.3 million
shares, respectively.
As of
December 31, 2013
there was
$13.1 million
of unrecognized compensation expense related to unvested option grants that is expected to be recognized over a weighted-average period of
2.0
years. The total intrinsic value of options exercised during the years
December 31, 2013
,
2012
and
2011
was
$3.8 million
,
$4.4 million
, and
$2.5 million
, respectively.
As compensation expense for options granted is recorded over the requisite service period of options, future stock-based compensation expense may be greater as additional options are granted.
Restricted Stock
Under the Equity Compensation Plans, 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, may 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. Such performance shares may vest after
one
year from grant. No such time restrictions applied to stock grants made under the Company’s prior equity compensation plans.
The Company recognized compensation expense related to restricted stock awards of
$3.5 million
,
$0.4 million
, and
$0.5 million
for the years ended
December 31, 2013
,
2012
and
2011
, respectively.
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 varies. Also, future equity-based compensation expense may be greater if additional restricted stock awards are made.
Each share of restricted stock issued reduces the number of shares available for grant under the Equity Compensation Plans by
1.53
shares.
Restricted stock award activity through
December 31, 2013
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
|
|
Weighted Average
Award
Date Fair Value
|
|
Weighted Average
Remaining
Recognition Period
|
Balance at December 31, 2012
|
70,000
|
|
|
$
|
7.52
|
|
|
0.4 years
|
Granted
|
370,000
|
|
|
$
|
12.31
|
|
|
|
Awards Vested
|
(70,000
|
)
|
|
$
|
7.52
|
|
|
|
Canceled
|
—
|
|
|
$
|
—
|
|
|
|
Balance at December 31, 2013
|
370,000
|
|
|
$
|
12.31
|
|
|
0.3 years
|
As of
December 31, 2013
, there was
$1.2 million
of unrecognized compensation expense related to unvested restricted stock awards. That expense is expected to be recognized over a weighted average period of
0.3
years. The total grant date fair market value of awards vested during the years ended
December 31, 2013
,
2012
and
2011
was
$0.5 million
,
$0.8 million
, and
$0.6 million
, respectively. The total intrinsic value of restricted stock awards vested during the years
December 31, 2013
,
2012
and
2011
was
$0.5 million
,
$2.3 million
, and
$0.5 million
, respectively.
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. As of
December 31, 2013
, no performance units have been granted under the 2008 Plan.
Stock Appreciation Rights
The Company has granted and has outstanding cash-based phantom stock appreciation rights ("SARs), which are independent of the Company's 2008 Equity Incentive Plan, with respect to
330,000
shares of the Company's common stock. The SARs vest in three equal annual installments and will fully vest in connection with a change of control (as defined in the grantee's employment agreement). The SARs may be exercised, in whole or in part, to the extent each SAR has been vested and will receive in cash the amount by which the closing stock price on the exercise date exceeds the Grant Price, if any. Upon the exercise of any SARs, as soon as practicable under the applicable federal and state securities laws, the grantee may be required to use the net after-tax proceeds of such exercise to purchase shares of the Common Stock from the Company at the closing stock price of the Common Stock on that date and hold such shares of Common Stock for a period of not less than
one year
from the date of purchase, except that the grantee will not be required to purchase any shares of Common Stock if the SAR is exercised on or after a change of control of the Company. The grantee's right to exercise the SAR will expire on the earliest of (1) the
ten
th anniversary of the grant date, or (2) under certain conditions as a result of termination of the grantee's employment.
SAR activity through
December 31, 2013
was as follows:
|
|
|
|
|
|
|
|
|
|
|
Stock Appreciation Right
|
|
Weighted
Average
Exercise Price
|
|
Weighted Average
Remaining
Recognition Period
|
Balance at December 31, 2012
|
380,000
|
|
|
$
|
6.72
|
|
|
1.8 years
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
|
Canceled
|
(50,000
|
)
|
|
$
|
6.67
|
|
|
|
Balance at December 31, 2013
|
330,000
|
|
|
$
|
6.73
|
|
|
1.7 years
|
The SARs are recorded as a liability in other non-current liabilities in the accompanying Consolidated Balance Sheets. Compensation expense related to the SARs for the year ended
December 31, 2013
,
2012
and
2011
was
$0.0 million
,
$1.1 million
and
$0.3 million
As of
December 31, 2013
there was
$0.3 million
of unrecognized compensation expense related to the SARs that is expected to be recognized over a weighted-average period of
1.7
years. In addition, because they are settled with cash, the fair value of the SAR awards is revalued on a quarterly basis. During the years ended
December 31, 2013
,
2012
and
2011
the Company paid
$0.0 million
,
$0.3 million
and
$0.0 million
related to the exercise of SAR awards.
Employee Stock Purchase Plan
On May 7, 2013, the Company's stockholders approved the BioScrip, Inc. Employee Stock Purchase Plan (the “ESPP”). The ESPP provides all eligible employees, as defined under the ESPP, the opportunity to purchase up to a maximum number of shares of Common Stock of the Company as determined by the Compensation Committee. Participants in the ESPP may acquire the Common Stock at a cost of
85%
of the lower of the fair market value on the first or last day of the Plan Year from January 1st through December 31st. The Company has filed a Registration Statement on Form S-8 to register
750,000
shares of Common Stock for issuance under the ESPP. As of
December 31, 2013
, no shares have been issued and no expense has been incurred under the ESPP.
NOTE 15-- DEFINED CONTRIBUTION PLAN
The Company maintains a deferred compensation plan under Section 401(k) of the Internal Revenue Code. Under the Plan, employees may elect to defer up to
100%
of their salary, subject to Internal Revenue Service limits, and the Company may make a discretionary matching contribution. The Company recorded matching contributions in selling, general and administrative expenses in the Consolidated Statements of Operations of
$0.5 million
during the
year ended December 31, 2013
. The Company elected not to make matching contributions during the
years ended December 31, 2012 and 2011
.
NOTE 16-- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of unaudited quarterly financial information for the years ended
December 31, 2013
and
2012
is as follows (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Year ended December 31, 2013
|
|
|
|
|
|
|
|
Revenue
|
$
|
199,071
|
|
|
$
|
190,733
|
|
|
$
|
208,879
|
|
|
$
|
243,512
|
|
Gross profit
|
$
|
63,237
|
|
|
$
|
65,012
|
|
|
$
|
68,682
|
|
|
$
|
74,883
|
|
Net loss from continuing operations
|
$
|
(7,470
|
)
|
|
$
|
(8,317
|
)
|
|
$
|
(22,442
|
)
|
|
$
|
(15,377
|
)
|
Net (loss) income from discontinued operations
|
$
|
(658
|
)
|
|
$
|
(563
|
)
|
|
$
|
(11,645
|
)
|
|
$
|
(3,182
|
)
|
Net (loss) income
|
$
|
(8,128
|
)
|
|
$
|
(8,880
|
)
|
|
$
|
(34,087
|
)
|
|
$
|
(18,559
|
)
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations, basic and diluted
|
$
|
(0.13
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.22
|
)
|
Loss per share from discontinued operations, basic and diluted
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.18
|
)
|
|
(0.05
|
)
|
Loss income per share, basic and diluted
|
$
|
(0.14
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
Year ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
155,633
|
|
|
$
|
155,901
|
|
|
$
|
170,365
|
|
|
$
|
180,738
|
|
Gross profit
|
$
|
53,522
|
|
|
$
|
53,041
|
|
|
$
|
58,004
|
|
|
$
|
60,393
|
|
Net (loss) income from continuing operations
|
$
|
(2,023
|
)
|
|
$
|
(4,293
|
)
|
|
$
|
(605
|
)
|
|
$
|
(1,419
|
)
|
Net income (loss) from discontinued operations
|
$
|
(680
|
)
|
|
$
|
76,059
|
|
|
$
|
(10,931
|
)
|
|
$
|
8,599
|
|
Net income (loss)
|
$
|
(2,703
|
)
|
|
$
|
71,766
|
|
|
$
|
(11,536
|
)
|
|
$
|
7,180
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations, basic and diluted
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
Loss per share from discontinued operations, basic and diluted
|
(0.01
|
)
|
|
1.35
|
|
|
(0.19
|
)
|
|
0.15
|
|
Loss income per share, basic and diluted
|
$
|
(0.05
|
)
|
|
$
|
1.28
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.12
|
|
NOTE 17-- SUBSEQUENT EVENTS
Second Amendment to Senior Credit Facilities
On January 31, 2014, the Company entered into the Second Amendment to the Senior Credit Facilities, which, among other things (i) provides additional flexibility with respect to compliance with the maximum net leverage ratio for the fiscal quarters ending December 31, 2013 through and including December 31, 2014, (ii) provides additional flexibility under the indebtedness covenants to permit the Company to obtain up to
$150.0 million
of second-lien debt and issue up to
$250.0 million
of unsecured bonds, provided that 100% of the net proceeds are applied first to the Revolving Credit Facility, with no corresponding permanent commitment reduction, and then to the Term Loan B Facility, (iii) provides the requisite flexibility to sell non-core assets, subject to the satisfaction of certain conditions, and (iv) increased the applicable interest rates for the Term Loan Facilities to the Eurodollar rate plus
6.00%
or the base rate plus
5.00%
, until the occurrence of certain pricing decrease triggering events, as defined in the amendment. Upon the occurrence of a pricing decrease triggering event, the interest rates for the Senior Credit Facilities may revert to the Eurodollar rate plus
5.25%
or the base rate plus
4.25%
.
Stock Purchase Agreement
On February 1, 2014, the Company entered into a Stock Purchase Agreement with LHC Group, Inc., a Delaware corporation, and certain of its subsidiaries (collectively, the “Buyers”) wherein the Buyers have agreed to acquire substantially all of the entities and assets that make up the Company’s Home Health Services segment for a total cash purchase price of approximately
$60.0 million
, subject to a net working capital adjustment. The closing of this transaction is expected to occur on March 31, 2014. The closing of this transaction is subject to customary closing conditions, including compliance with covenants, release and satisfaction of all indebtedness, receipt of certain contractual consents and receipt of certain regulatory approvals. The Stock Purchase Agreement may be terminated at any time prior to the closing date by, among other things, mutual agreement of the Company and
Buyers, or by either the Company or the Buyers if the other party fails to satisfy the applicable closing conditions under the Stock Purchase Agreement by July 1, 2014. The Company intends to use the net proceeds from the sale to pay down its debt.
The agreement to sell the Home Health Services segment is consistent with the Company’s continuing strategic evaluation of its non-core businesses and its decision to continue to focus growth initiatives and capital in the Infusion Services segment.
Issuance of 8.875% Senior Notes due 2021
On February 11, 2014, the Company issued
$200.0 million
aggregate principal amount of the 2021 Notes. Pursuant to the terms of the Second Amendment to the Senior Credit Facilities, the Company used approximately
$194.5 million
of the net proceeds of the offering to repay
$59.3 million
of the Revolving Credit Facility and
$135.2 million
of the term loan portion of the Senior Credit Facilities. The 2021 Notes are senior unsecured obligations of the Company and are fully and unconditionally guaranteed by certain subsidiaries of the Company. Interest is payable semi-annually on February 1 and August 1. The Company, at its option, may redeem some or all of the 2021 Notes prior to maturity. The 2021 Notes were offered to qualified institutional buyers in reliance on Rule 144A under the Securities Act and outside the United States in reliance on Regulation S under the Securities Act.
Registration Rights Agreement
In connection with the issuance of the 2021 Notes, the Company entered into a registration rights agreement on February 11, 2014 its subsidiary guarantors of the 2021 Notes and the initial purchasers (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company has agreed to file an exchange offer registration statement to exchange the 2021 Notes for substantially identical notes registered under the Securities Act. The Company has also agreed to file a shelf registration statement to cover resale of the 2021 Notes under certain circumstances.