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PharMerica Reports Results For The Fourth Quarter Of 2012 And Year Ended December 31, 2012

Stocks in this article: PMC

As is normal practice, the fiscal 2013 earnings guidance does not consider any benefits from future acquisitions nor does it consider any merger, acquisition, integration costs and other charges the Company may incur, including but not limited to the application of new accounting pronouncements or other non-recurring charges, including the impact of Hurricane Sandy. Also, the guidance does not consider the potential impact of the expected conversion to Average Manufacturers Price (“AMP”) because the effect of these items cannot be reasonably estimated at this time.

Conference Call

Management will hold a conference call to review the financial results for the fourth quarter and year ended December 31, 2012, on February 8, 2013, at 10:00 a.m. Eastern Time. To access the live webcast, visit the Investor Relations section of the Company’s website at www.pharmerica.com or go to www.earnings.com. To access a telephonic replay of the call, which will be available one hour after the conclusion of the call through February 22, 2013, please dial 1-888-286-8010 (617-801-6888 if calling from outside the U.S.) and use passcode 58304162.

About PharMerica

PharMerica Corporation is a leading institutional pharmacy services company that services healthcare facilities in the United States, provides pharmacy management services to hospitals, and also provides specialty infusion services to patients outside a hospital setting. As of December 31, 2012, PharMerica operated 91 institutional pharmacies and 12 specialty infusion centers in 45 states. PharMerica’s customers are institutional healthcare providers, such as skilled nursing facilities, nursing centers, assisted living facilities, hospitals, individuals receiving in home care and other long-term alternative care providers. The Company also provides pharmacy management services to long-term care hospitals.

Forward-looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company’s current estimates, expectations and projections about its future results, performance, prospects and opportunities. Forward-looking statements include, among other matters, the information concerning the Company’s “guidance” and possible future results of operations, the strength of the Company’s financial performance during 2013, the impact of the brand to generic drug conversions on the Company, the Company’s ability to identify and consummate future acquisitions, the Company’s ability to deliver outstanding value to its shareholders, the Company’s plan to accelerate the rollout of on-site dispensing technology and cost containment products, the Company’s continued pursuit of its strategic initiatives including those focused on client retention and operating margins, the Company’s ability to grow the Amerita specialty infusion services business, the Company’s ability to capitalize on the operating and marketing synergies between the infusion and LTC operating segments, the Company’s ability to position itself to serve an expanded senior population, and the Company’s ability to achieve organic growth in LTC services. Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” “may,” “should,” “will,” “would,” “project” and similar expressions. These forward-looking statements are based upon information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause the Company’s actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause the Company’s actual results to differ materially from the results referred to in the forward-looking statements we make in this press release are included in the Risk Factors section set forth in the Company’s Annual Report on Form 10-K filed with the SEC and in other reports, including Quarterly Reports on Form 10-Q filed with the SEC by the Company.

You are cautioned not to place undue reliance on any forward-looking statements, all of which speak only as of the date of this press release. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events. All subsequent written and oral forward-looking statements attributable to us or any person acting on the Company’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this press release and in the Risk Factors section set forth in the Company’s Annual Report on Form 10-K filed with the SEC and in other reports filed with the SEC by the Company.

 

PHARMERICA CORPORATION

CONSOLIDATED INCOME STATEMENTS

(In millions, except share and per share amounts)

   
Three Months Ended December 31, Year Ended December 31,
2011     2012   2011     2012  
Amount  

% of Revenue

Amount  

% of Revenue

Amount  

% of Revenue

Amount  

% of Revenue

Revenues $ 495.6 100.0 % $ 433.2 100.0 % $ 2,081.1 100.0 % $ 1,832.6 100.0 %
 
Cost of goods sold   419.4 84.6     357.6 82.5     1,786.2 85.8     1,532.4 83.6  
 
Gross profit 76.2 15.4 75.6 17.5 294.9 14.2 300.2 16.4
 
Selling, general and administrative expenses 53.8 10.9 52.9 12.2 216.5 10.4 214.7 11.7
 
Amortization expense 2.6 0.5 3.3 0.8 11.0 0.5 12.3 0.7
 
Impairment of intangible assets 5.1 0.3
 
Merger, acquisition, integration costs and other charges 3.7 0.7 5.6 1.3 15.3 0.8 19.9 1.1
 
Hurricane Sandy disaster costs       4.5 1.0         4.5 0.2  
 
Operating income 16.1 3.3 9.3 2.2 47.0 2.2 48.8 2.7
 
Interest expense, net   2.5 0.5     2.4 0.6     8.8 0.4     10.0 0.6  
 
Income before income taxes 13.6 2.8 6.9 1.6 38.2 1.8 38.8 2.1
 
Provision for

income taxes

  5.7 1.2     3.2 0.7     14.8 0.7     15.9 0.9  
 
Net income $ 7.9 1.6 % $ 3.7 0.9 % $ 23.4 1.1 % $ 22.9 1.2 %
  Three Months Ended

December 31,

  Year Ended

December 31,

  2011     2012   2011     2012
Earnings per common share:
Basic $ 0.27 $ 0.13 $ 0.80 $ 0.78
Diluted $ 0.27 $ 0.12 $ 0.79 $ 0.77
 
Shares used in computing earnings per common share:
Basic 29,399,978 29,475,489 29,343,221 29,471,734
Diluted 29,638,296 29,988,342 29,468,452 29,901,896
 

PHARMERICA CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

   
(As Adjusted)

Dec. 31, 2011

Dec. 31, 2012

 
ASSETS
Current assets:
Cash and cash equivalents $ 17.4 $ 12.3
Accounts receivable, net 232.2 206.5
Inventory 130.6 135.7
Deferred tax assets, net 36.5 36.7
Prepaids and other assets   34.5     38.6  
  451.2     429.8  
 
Equipment and leasehold improvements 145.0 158.8
Accumulated depreciation   (92.6 )   (105.7 )
  52.4     53.1  
 
Deferred tax assets, net 0.6
Goodwill 214.9 268.2
Intangible assets, net 100.2 121.9
Other   14.7     12.7  
$ 834.0   $ 885.7  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 54.7 $ 49.2
Salaries, wages and other compensation 35.1 35.8
Current portion of long-term debt 6.3 12.5
Other accrued liabilities   6.7     9.0  
  102.8     106.5  
 
Long-term debt 293.7 303.0
Other long-term liabilities 23.7 22.5
Deferred tax liability 11.1
Commitments and contingencies (see Note 6)
 
Stockholders’ equity:

Preferred stock, $0.01 par value per share; 1,000,000 shares authorized and no shares issued at December 31, 2011, and December 31, 2012

 

Common stock, $0.01 par value per share; 175,000,000 shares authorized; 30,794,000 and 30,943,748 shares issued as of December 31, 2011, and December 31, 2012, respectively

 

0.3 0.3
Capital in excess of par value 355.9 363.0
Retained earnings 68.4 91.3

Treasury stock at cost, 1,350,128 shares and 1,456,293 shares at December 31, 2011, and December 31, 2012, respectively

 

  (10.8 )   (12.0 )
  413.8     442.6  
$ 834.0   $ 885.7  
 

PHARMERICA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

   
Three Months Ended

December 31,

Year Ended

December 31,

  2011       2012     2011       2012  
Cash flows provided by (used in) operating activities:
Net income $ 7.9 $ 3.7 $ 23.4 $ 22.9

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation 5.2 4.7 20.1 18.6
Amortization 2.6 3.3 11.0 12.3
Impairment charge 5.1
Merger, acquisition, integration costs and other charges 0.3 (0.9 ) 1.5 1.3
Hurricane Sandy disaster costs 1.5 1.5
Stock-based compensation and deferred compensation 1.4 1.5 6.0 7.1
Amortization of deferred financing fees 0.1 0.3 0.8 1.0
Deferred income taxes 4.1 (1.1 ) 13.9 2.8
(Gain) loss on disposition of equipment (0.2 ) 0.2 0.1 0.1
Other 0.4 0.1 0.2 0.2
Change in operating assets and liabilities:
Accounts receivable, net 11.3 13.5 9.1 35.8
Inventory (9.2 ) (37.4 ) (38.3 ) (4.7 )
Prepaids and other assets (2.8 ) (1.4 ) (9.7 ) (1.3 )
Accounts payable (3.7 ) 1.5 (25.0 ) (9.3 )
Salaries, wages and other compensation (0.5 ) 0.4 11.1 (3.4 )
Other accrued liabilities   (2.4 )   (7.4 )   (2.5 )   0.8  
Net cash provided by (used in) operating activities   14.5     (17.5 )   26.8     85.7  
 
Cash flows provided by (used in) investing activities:
Purchase of equipment and leasehold improvements (3.8 ) (7.3 ) (13.2 ) (20.8 )
Acquisitions, net of cash acquired (42.5 ) (84.0 ) (51.0 ) (84.8 )
Cash proceeds from the sale of assets   0.1         0.2     0.3  
Net cash used in investing activities   (46.2 )   (91.3 )   (64.0 )   (105.3 )
 
Cash flows provided by (used in) financing activities:
Repayments of long-term debt (240.0 ) (6.3 )
Proceeds from long-term debt 250.0
Net activity of long-term revolving credit facility 39.0 71.7 44.4 21.7
Payment of debt issuance costs (9.8 )
Repayments of capital lease obligations (0.1 ) (0.8 ) (0.1 )
Issuance of common stock (0.1 ) 0.2 0.4
Treasury stock at cost (0.1 ) (0.1 ) (0.2 ) (1.2 )
Tax benefit from stock-based compensation       0.1          
Net cash provided by financing activities   38.8     71.6     43.8     14.5  
 
Change in cash and cash equivalents 7.1 (37.2 ) 6.6 (5.1 )
Cash and cash equivalents at beginning of period   10.3     49.5     10.8     17.4  
Cash and cash equivalents at end of period $ 17.4   $ 12.3   $ 17.4   $ 12.3  
 
Supplemental information:
Cash paid for interest $ 2.5   $ 2.1   $ 7.6   $ 9.3  
Cash paid for taxes $ 0.4   $ 8.6   $ 0.5   $ 12.6  
 

PHARMERICA CORPORATION

SUPPLEMENTAL INFORMATION

 

MERGER, ACQUISITION, INTEGRATION COSTS AND OTHER CHARGES

 

The following is a summary of merger, acquisition, integration costs and other charges incurred by PharMerica for the three months and years ended December 31, 2011 and 2012.

   
(In millions, except per share amounts) Three Months Ended

December 31,

Year Ended

December 31,

  2011       2012     2011       2012  
Merger, integration costs and other charges:
Pre-Pharmacy transaction litigation matters $ $ $ (2.0 ) $
IT Transition costs 2.1 3.0
Tender offer costs 1.7 2.8 1.9
Professional and advisory fees 0.3 1.0 0.9 3.2
General and administrative 0.1
Employee costs 0.2 0.2
Severance costs 0.2 0.1
Facility costs       0.4     0.2     0.8  
  2.0     3.5     2.4     9.2  
Acquisition related costs:
Professional and advisory fees 0.8 2.3 4.9 7.7
General and administrative 0.1 0.1 0.8 0.2
Employee costs 0.4 0.3 2.9 2.4
Severance costs 0.1 (0.8 ) 1.7 (0.3 )
Facility costs 0.2 0.1 1.7 0.6
Other   0.1     0.1     0.9     0.1  
  1.7     2.1     12.9     10.7  
Total merger, acquisition, integration costs and other charges $ 3.7   $ 5.6   $ 15.3   $ 19.9  
Negative effect on diluted earnings per share $ (0.07 ) $ (0.11 ) $ (0.32 ) $ (0.40 )

CUSTOMER LICENSED BEDS UNDER CONTRACT AND PRESCRIPTION DATA

   

The following is a summary of customer licensed beds under contract and prescription data as of and for the three months and years ended December 31, 2011 and 2012.

 
(In whole numbers, except where indicated) Three Months Ended

December 31,

Year Ended

December 31,

  2011       2012     2011       2012  
Customer licensed beds under contract:
Beginning of period 339,946 320,009 361,154 337,213
Additions 14,295 5,400 30,460 21,198
Losses   (17,028 )   (18,401 )   (54,401 )   (51,403 )
End of period   337,213     307,008     337,213     307,008  
 
Institutional pharmacy prescription data:
Prescriptions dispensed (in thousands)   9,944     9,537     41,677     39,212  
Revenue per prescription dispensed $ 48.27   $ 43.31   $ 48.43   $ 44.99  
Gross profit per prescription dispensed $ 7.48   $ 7.61   $ 6.89   $ 7.44  
 

PHARMERICA CORPORATION

SUPPLEMENTAL INFORMATION (Continued)

 

UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA

   
(In millions) Three Months Ended

December 31,

Year Ended

December 31,

  2011       2012     2011       2012  
Net income $ 7.9 $ 3.7 $ 23.4 $ 22.9
Add:
Interest expense, net 2.5 2.4 8.8 10.0
Merger, acquisition, integration costs and

other charges

3.7 5.6 15.3 19.9
Hurricane Sandy disaster costs 4.5 4.5
Provision for income taxes 5.7 3.2 14.8 15.9
Impairment of intangible assets 5.1
Depreciation and amortization expense   7.8     8.0     31.1     30.9  
Adjusted EBITDA $ 27.6   $ 27.4   $ 98.5   $ 104.1  
Adjusted EBITDA margin   5.6 %   6.3 %   4.7 %   5.7 %
 

UNAUDITED RECONCILIATION OF DILUTED EARNINGS PER SHARE

TO ADJUSTED DILUTED EARNINGS PER SHARE

   
(In whole numbers) Three Months Ended

December 31,

Year Ended

December 31,

  2011     2012   2011       2012
Diluted earnings per share $ 0.27 $ 0.12 $ 0.79 $ 0.77
Diluted earnings per share impact of:
Impairment of intangible assets 0.11

Merger, acquisition, integration costs and other charges

 

0.07 0.11 0.32 0.40
Hurricane Sandy disaster costs 0.09 0.09
Tax accounting matters   0.01   0.01   (0.02 )   0.01
Adjusted diluted earnings per share $ 0.35 $ 0.33 $ 1.20   $ 1.27
 

PHARMERICA CORPORATION

SUPPLEMENTAL INFORMATION (Continued)

 

UNAUDITED RECONCILIATION OF ADJUSTED EBITDA

TO NET CASH FLOWS FROM OPERATING ACTIVITIES

   
(In millions) Three Months Ended

December 31,

Year Ended

December 31,

  2011       2012     2011       2012  
Adjusted EBITDA $ 27.6 $ 27.4 $ 98.5 $ 104.1
Interest expense, net (2.5 ) (2.4 ) (8.8 ) (10.0 )
Provision for income taxes (5.7 ) (3.2 ) (14.8 ) (15.9 )
Merger, acquisition, integration costs and other charges (3.4 ) (6.5 ) (13.8 ) (18.6 )
Hurricane Sandy disaster costs (3.0 ) (3.0 )
Provision for bad debt 7.2 5.5 24.8 25.2
Stock-based compensation and deferred compensation 1.4 1.5 6.0 7.1
Amortization of deferred financing fees 0.1 0.3 0.8 1.0
Deferred income taxes 4.1 (1.1 ) 13.9 2.8
(Gain) loss on disposition of equipment (0.2 ) 0.2 0.1 0.1
Other 0.4 0.1 0.2 0.2
Changes in assets and liabilities   (14.5 )   (36.3 )   (80.1 )   (7.3 )
Net cash flows provided by (used in)

operating activities

$ 14.5   $ (17.5 ) $ 26.8   $ 85.7  

Use of Non-GAAP Measures

PharMerica calculates Adjusted EBITDA as provided in the reconciliation above and calculates Adjusted EBITDA Margin by taking Adjusted EBITDA and dividing it by revenues. PharMerica calculates and uses Adjusted EBITDA as an indicator of its ability to generate cash from reported operating results. The measurement is used in concert with net income and cash flows from operations, which measure actual cash generated in the period. In addition, PharMerica believes that Adjusted EBITDA and Adjusted EBITDA Margin are supplemental measurement tools used by analysts and investors to help evaluate overall operating performance and the ability to incur and service debt and make capital expenditures. In addition, Adjusted EBITDA, as defined in the Credit Agreement, is used in conjunction with the Corporation’s debt leverage ratio and this calculation sets the applicable margin for the quarterly interest charge. Adjusted EBITDA, as defined in the Credit Agreement, is not the same calculation as this Adjusted EBITDA table. Adjusted EBITDA does not represent funds available for PharMerica’s discretionary use and is not intended to represent or to be used as a substitute for net income or cash flows from operations data as measured under U.S. generally accepted accounting principles (“GAAP”). The items excluded from Adjusted EBITDA but included in the calculation of PharMerica’s reported net income and cash flows from operations are significant components of the accompanying unaudited condensed consolidated income statements and cash flows and must be considered in performing a comprehensive assessment of overall financial performance. PharMerica’s calculation of Adjusted EBITDA may not be consistent with calculations of EBITDA used by other companies.

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