Our consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles (“GAAP”). In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and judgments on an ongoing basis. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates, and different assumptions or conditions may yield different estimates. The following discussion highlights what we believe to be the critical accounting estimates and judgments made in the preparation of our consolidated financial statements.
SG&A for the year ended December 31, 2006 was $116.8 million, or 10.1% of total revenue, compared to $107.0 million, or 9.0% of total revenue, on a pro forma basis for the year ended December 31, 2005. The increase in SG&A primarily is the result of ongoing operating expenses associated with acquisitions made since September 30, 2005, stock option expense due to the adoption of SFAS 123(R) at January 1, 2006, operating expense increases related to the CAP program, severance expense related to the departure of former senior management and general staff reduction, and general operating expense increases.
The following unaudited consolidated pro forma financial information for the year ended December 31, 2005 has been prepared assuming Chronimed was acquired as of the beginning of 2005, utilizing the purchase method of accounting, with certain pro forma adjustments for amortization of intangibles. The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the actual results had the acquisition occurred at the beginning of the period. This pro forma financial information is not intended to be a projection of future operating results.
Certain intangible assets associated with customer lists valued at $0.8 million were written off in the fourth quarter of 2005.
Depreciation expense for the years ended December 31, 2006, 2005 and 2004 was $4.3 million, $3.5 million and $2.0 million, respectively.
The effect of temporary differences that give rise to a significant portion of deferred taxes is as follows (in thousands):
Form of Subscription Agreement among the Company, BioScrip Infusion Services, Inc., BioScrip Pharmacy, Inc., JPD, Inc. d/b/a Northland Pharmacy, Natural Living, Inc. d/b/a BioScrip Pharmacy, BioScrip PBM Services, Inc., BioScrip Infusion Services, LLC, and BioScrip Pharmacy Services, Inc.
Severance Letter, dated July 24, 2006, between the Company and Anthony Zappa
Incorporated by reference to the indicated exhibit to the Company’s Current Report on Form 8-K filed on March 17, 2005.
Incorporated by reference to the indicated exhibit to the Company’s Current Report on Form 8-K filed on June 6, 2005.
As discussed in Note 2 to the consolidated financial statements, effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment.
BioScrip, Inc. (the “Company” or “BioScrip”) provides comprehensive specialty pharmacy and pharmacy benefit management (“PBM”) services. The Company’s specialty pharmacy services (“Specialty Services”) include the distribution of specialty and traditional prescription medications (both injectable and infusible), the coordination of customer benefits and the provision of specialized clinical therapy management services. The Company’s PBM services include pharmacy network management, claims processing, benefit design consultation, drug utilization review and formulary management.
Fee-for-service or transactional agreements include: (i) specialty and mail service agreements, where the Company dispenses prescription medications through its own pharmacy facilities and (ii) PBM agreements, where prescription medications are dispensed through pharmacies participating in the Company’s retail pharmacy network as well as the Company’s mail service facility. Under fee-for-service agreements, revenue is recognized either: (a) when the pharmacy services are reported to the Company through the point of sale (“POS”) claims processing system and the drug is dispensed to the Member, in the case of a prescription filled through a pharmacy participating in the Company’s retail pharmacy network, or (b) at the time the drug is dispensed to the patient, in the case of a prescription filled through a pharmacy owned by the Company. Fee-for-service agreements accounted for more than 95% of revenue for each of the years ended December 31, 2006, 2005 and 2004.
The Company accounts for leasing transactions by recording rent expense on a straight-line basis, starting on the date it gains possession of leased property, over the expected life of the lease. Lease terms are generally five years, with many containing options to extend for periods ranging from one to five years. The Company includes tenant improvement allowances and rent holidays received from landlords as adjustments reducing straight-line rent expense and the effect of any rent escalation clauses as adjustments to straight-line rent expense over the expected life of the lease.
During the fourth quarter of 2006 the Company concluded that a valuation allowance against all of its deferred tax assets was appropriate. A deferred tax asset generally represents future tax benefits to be received when certain expenses and losses previously recognized in its U.S. GAAP-based financial statements become deductible under applicable income tax laws. Consequently, realization of a deferred tax asset is dependent on future taxable income against which these deductions can be applied. In accordance with Statement of Financial Accounting Standards No. 109,
The weighted-average grant-date fair value of options granted during the years ending December 31, 2006, 2005, and 2004, was $1.67, $3.74, and $5.30, respectively. The total intrinsic value of options exercised during the years December 31, 2006, 2005, and 2004, was $0.4 million, $1.0 million, and $0.7, million respectively.
Plan Sponsor (B) revenue and accounts receivable is primarily in the PBM