We rely on the use of estimates and make assumptions that impact our financial condition and results. These estimates and assumptions are based on historical results and trends as well as our forecasts as to how these might change in the future. Our significant accounting policies that impact our results are included in Note 2 of the Notes to Consolidated Financial Statements.
For the year ended December 31, 2001, the Company recorded revenues of $456.6 million compared with 2000 revenues of $338.2 million, an increase of $118.4 million. The increase in revenues was the result of continued growth in all of the Company's businesses. Revenue from the Company's specialty pharmaceutical services approximated $41.5 million for 2001, compared to $17.9 million in 2000. The principal reasons for the increase are the development and growth of the Company's BioScrip injectable distribution services offerings and the inclusion of ADIMA's revenues for all of 2001. In 2000, ADIMA's results were included for five months (from August 4, 2000, the date of acquisition). For the year ended December 31, 2001, approximately 21.2% of the Company's revenue was generated from capitated contracts compared to approximately 28% in 2000. Based upon its present contractual arrangements, the Company anticipates that less than 7% of its revenues in 2002 will be derived from capitated contracts.
Cost of revenue for 2001 increased to $403.2 million from $303.0 million for 2000, an increase of $100.2 million commensurate with the increases in revenue discussed above. Cost of revenue with respect to contracts with Plan Sponsors participating in the TennCare(R) program decreased $1.6 million from 2000 to 2001. Cost of revenue from commercial business increased $64.1 million, which includes an increase of $9.9 million from the inclusion of the full year of ADIMA's operating results. For the year ended December 31, 2001, gross profit increased $18.2 million to $53.4 million, from $35.2 million at December 31, 2000. Gross profit as a percentage of revenue increased to 11.7% in 2001 from 10.4% for the prior year. Gross margins were positively impacted in 2001 as a result of the increase in the Company's specialty pharmaceutical distribution services, which have higher associated gross profit margins than the Company's PBM and Mail Service businesses, as well as lower pharmaceutical utilization in the Company's capitated PBM contracts. Additionally, margins were positively impacted by a full year of ADIMA's operating results.
General and administrative expenses increased $4.6 million to $38.5 million in 2001 from $33.9 million in 2000, an increase of 13.6%. This increase was primarily the result of the inclusion of ADIMA's operating expenses for all of 2001 and increases related to the Company's general growth, including the hiring of additional key management in support of the Company's specialty pharmaceutical, PBM and Mail Service businesses net of legal expenditures incurred in 2000 arising out of the Company's obligation to advance legal fees to two former officers. As a percentage of revenue, general and administrative expenses decreased to 8.4% in 2001 from 9.1% in 2000.
On May 4, 2000, the Company reached a negotiated settlement with Preferred Health Plans ("PHP"), pursuant to which, among other things, the Company retained rebates that would have otherwise been due and owing PHP. PHP paid the Company an additional $0.9 million and each party released the other from any and all liability with respect to past or future claims. This agreement did not have a material effect on the Company's results of operations or financial position.
For the year ended December 31, 2001, the Company recorded amortization of goodwill and other intangibles of $2.2 million compared to $1.5 million in 2000. This increase is due to inclusion of a full year of goodwill amortization for ADIMA.
For the year ended December 31, 2001, the Company recorded a net profit of $14.2 million, or $0.64 per diluted share, which included one-time special gains totaling $2.5 million before taxes. This compares with a net loss of $1.8 million, or $0.09 per share, for the year ended December 31, 2000, which included special one-time charges of $5.4 million relating to the legal defense costs of two former officers and the write off of a non-operating investment.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") was $22.3 million for the year ended December 31, 2001, which include one time special gains of $2.5 million, compared to EBITDA of $4.8 million for the year ended December 31, 2000. EBITDA for the year ended December 31, 2000 was approximately $8.0 million, excluding the Company's legal defense costs of two former officers.
For the year ended December 31, 2000, the Company recorded revenues of $338.2 million compared with 1999 revenues of $350.7 million, a decrease of $12.5 million. Contracts with Plan Sponsors participating in the TennCare(R) program accounted for decreased revenues of $43.3 million, principally as a result of the State of Tennessee assuming financial responsibility for the TennCare(R) dual eligible Members and the decrease in the number of TennCare(R) contracts managed by the Company, partially offset by an increase in revenue of $1.4 million related to a settlement of fees associated with 1998 services. Revenue increases as a result of the acquisition of ADIMA and an increase in commercial PBM and Mail Service revenues from both new and existing accounts increased revenue by $34.3 million. For the years ended December 31, 2000, approximately 28% of the Company's revenue was generated from capitated contracts compared to approximately 32% in 1999.
On May 4, 2000, the Company reached a negotiated settlement with PHP, under which, among other things, the Company retained rebates that would have otherwise been due and owing PHP. PHP paid the Company an additional $0.9 million and the respective parties released each other from any and all liability with respect to past or future claims. This agreement did not have a material effect on the Company's results of operations or financial positions.
For the year ended December 31, 2000, the Company recorded amortization of goodwill and other intangibles of $1.5 million compared to $1.1 million in 1999. This increase is primarily due to the goodwill amortization for ADIMA.
The Company utilizes both funds generated from operations and available credit under its credit facility for acquisitions, capital expenditures and its general working capital needs. For the year ended December 31, 2001, net cash provided to the Company from operating activities totaled $11.0 million primarily due to increased business.
Cash used in investing activities was $3.7 million primarily due to the acquisition costs of $1.5 million for Community Prescription Service, Inc. ("CPS") in May 2001, and the earnouts for other acquisitions which together used cash of $2.2 million. The Company also purchased $2.6 million of equipment in support of the Company's Mail Service and fulfillment facility located in Columbus, Ohio.
At December 31, 2001, the Company had working capital of $9.3 million compared to a working capital deficit of $11.2 million at December 31, 2000. This is primarily due to increased cash on hand of $11.2 million, and an increase of $9.7 million in receivables due to increased business. Increased cash on hand was partially offset by an increase in claims payable of $8.7 million. Working capital was also impacted by a decrease in payables to Plan Sponsors as a result of payment acceleration.
The Company also may pursue joint venture arrangements, business acquisitions and other transactions designed to expand its specialty pharmacy, Mail Service and PBM businesses, which the Company would expect to fund from cash on hand, the Facility, other future indebtedness or, if appropriate, the private and/or public sale or exchange of equity securities of the Company.
From time to time, the Company may be a party to legal proceedings or involved in related investigations, inquiries or discussions, in each case, arising in the ordinary course of the Company's business. Although no assurance can be given, management does not presently believe that any current matters would have a material adverse effect on the liquidity, financial position or results of operations of the Company.
At December 31, 2001, the Company had unused Federal net operating loss carryforwards of $40.3 million, which will begin expiring in 2009. In the opinion of management, as the Company has not had a history of consistent profitability, it is uncertain whether the Company will realize the benefit from its deferred tax assets and has provided a valuation allowance.
As of December 31, 2001, certain of the company's Federal net operating loss carryforwards are subject to limitation and may be utilized in a future year upon release of the limitation. If Federal net operating loss carryforwards are not utilized in the year they are available they may be utilized in a future year to the extent they have not expired.
The TennCare(R) program operates under a demonstration waiver from The United States Center for Medicare and Medicaid Services ("CMS"). That waiver is the basis of the Company's ongoing service to those MCOs in the TennCare(R) program. The waiver expired on December 31, 2001 and was renewed without material modification through December 31, 2002. In addition, the State of Tennessee and the Federal governments have agreed to negotiate towards an additional two-year extension of the waiver through December 31, 2004. While the Company believes that pharmacy benefits will continue to be provided to Medicaid and other eligible TennCare(R) enrollees through MCOs in one form or another through at least December 31, 2004, there can be no assurances that such waiver will be renewed
Historically, as a result of providing capitated PBM services to certain TennCare(R) MCOs, the Company's pharmaceutical claims costs had been subject to significant increases from October through February, which the Company believes is due to the need for increased medical attention to, and intervention with, MCOs' Members during the colder months. The resulting increase in pharmaceutical costs impacted the profitability of capitated contracts. Currently, the Company has no capitated PBM arrangements with MCOs participating in the TennCare(R) program. Fee for service arrangements mitigate the adverse effect on profitability of higher pharmaceutical costs incurred under capitated contracts, as higher utilization positively impacts profitability. The Company presently anticipates that less than 7% of its revenues for 2002 will be derived from capitated arrangements.
The Company paid $465, $657 and $277 of interest for each of the years ended December 31, 2001, 2000, and 1999, respectively.
Capital lease obligations of $0, $1,495 and $807 were incurred to acquire equipment for each of the years ended December 31, 2001, 2000, and 1999, respectively.
In connection with the acquisition of American Disease Management Associates L.L.C. ("ADIMA"), the Company issued 2,700 shares of its common stock, par value $0.0001 per share, valued at $5,034 during the year ended December 31, 2000.
In 2001, there was a contribution of a minority interest to additional paid-in capital upon dissolution of a subsidiary of $1,112.
In 2001, the Company reclassified stockholder notes receivable of $771 to other assets. During 2001, the stockholder repaid $504 of the notes outstanding. As of December 31, 2001, $267 of the stockholder notes are outstanding and included in other assets.
MIM Corporation (the "Company" or "MIM") is a pharmaceutical healthcare organization delivering innovative pharmacy benefit, special pharmaceutical distribution and other pharmacy-related healthcare solutions to Plan Sponsors, principally managed care organizations and third party administrators. The Company combines its clinical expertise, sophisticated data management and therapeutic fulfillment capabilities to serve the particular needs of each of its customers and respective benefit recipients covered by the customers' pharmacy related health benefit.
On May 1, 2001, the Company acquired Community Prescription Service, Inc. ("CPS") for $1,500, plus acquisition costs. The acquisition was treated as a purchase for financial reporting purposes. Based on a final appraisal, the Company has recorded intangible assets in connection with that acquisition which will be amortized over three to seven years. Operating results of CPS, which are included in the accompanying statements of operations from the date of acquisition, were not material to the results of operations for the twelve months ended December 31, 2001.
Revenues ............................. $ 380,032 $388,611 Net loss ............................. $ (85) $ (1,933) Basic loss per share ................. (0.00) (.09) Diluted loss per share ............... (0.00) (.09)
The pro forma amounts above include $10,328 and $11,191 of revenues from the operations of ADIMA for the period from January 1, 2000 and 1999 respectively through the acquisition date.
Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method.
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of assets. The estimated useful lives of the Company's assets are as follows:
Goodwill and other intangible assets represent the cost in excess of the fair market value of the tangible net assets acquired in connection with acquisitions. Amortization expense for the years ended December 31, 2001, 2000 and 1999, was $2,200, $1,450 and $1,064, respectively. Goodwill is amortized over periods ranging from twenty to twenty-five years and other intangible assets are amortized over four to six years.
The Company periodically reviews its long-lived assets and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company does not believe such events or changes in circumstances have occurred.
CAPITATED AGREEMENTS. The Company's capitated contracts with Plan Sponsors require the Company to provide covered pharmacy services to Plan Sponsor members in return for a fixed fee per member per month paid by the Plan Sponsor. Capitated contracts generally have a one-year term or, if longer, provide for adjustment of the capitated rate each year. These contracts are subject to rate adjustment or termination upon the occurrence of certain events.
Generally, loss contracts arise only on capitated contracts and primarily result from higher than expected pharmacy utilization rates, higher than expected inflation in drug costs and the inability to restrict formularies,
resulting in higher than expected drug costs. At such time as management estimates that a contract will sustain losses over its remaining contractual life, a reserve is established for these estimated losses. There are currently no expected loss contracts and management does not believe that there is an overall trend towards losses on its existing capitated contracts.
PRESCRIPTION SERVICES. The Company's integrated pharmacy benefit services include the delivery of pharmaceutical services and products. Such services and products may be provided by the Company's pharmacy dispensing facility, by ADIMA, or by one of its network pharmacies. Such products must be provided and dispensed before the total pharmacy benefit service is billed under the fee for services agreements described above.
Basic earnings (loss) per common share are based on the weighted average number of shares outstanding and diluted earnings per share are based on the weighted average number of shares outstanding, including common stock equivalents. For the years ended December 31, 2000 and 1999, diluted loss per share is the same as basic loss per share because the inclusion of common stock equivalents would be anti-dilutive.
The Company accounts for employee stock based compensation plans and non-employee director stock incentive plans in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Stock options granted to non-employees are accounted for in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation" (See Note 11).
In January 2001, the Company adopted Emerging Issues Task Force Issue No. 00-22 ("EITF 00-22"), "Accounting for `Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future". EITF 00-22, states, among other things, that rebates received from pharmaceutical manufacturers should be recognized as a reduction of cost of revenue and rebates shared with Plan Sponsors as a reduction of revenue. Prior to adoption of EITF 00-22, the Company recorded the difference between the rebates received and the rebates shared with customers as a reduction of cost of revenue. The adoption of EITF 00-22 required the Company to classify $27,401 and reclassify $31,623 and $26,727 of rebates shared as reductions of revenue for years ended December 31, 2001, 2000, and 1999, respectively.
Certain amounts in the 2000 and 1999 financial statements have been reclassified to conform to current year presentation.
The Company leases one of its facilities from Alchemie Properties, LLC ("Alchemie") pursuant to a ten-year agreement. Alchemie is controlled by Mr. E. David Corvese, a stockholder and a former officer and director of the Company (the "Founder"). Rent expense was approximately $56, $51 and $56 for the years ended December 31, 2001, 2000, and 1999.
On March 23, 2002, Mr. Richard Friedman, the Company's Chairman and Chief Executive Officer, repaid in full a $1,700 loan, together with all accrued and unpaid interest thereon, totalling approximately $2,100. Interest income on the note was $121, $161 and $101 for the years ended December 31, 2001, 2000 and 1999, respectively.
On November 1, 2000 the Company entered into a $45,000 revolving credit facility (the "Facility") with HFG Healthco-4 LLC, an affiliate of Healthcare Finance Group, Inc. ("HFG"), to be used for working capital purposes and future acquisitions. The Facility has a three-year term and is secured by the Company's receivables. Interest is payable monthly and provides for borrowing up to $45,000 at the London Inter-Bank Offered Rate (LIBOR) plus 2.1% (4.25% as of December 2001). A 0.5% fee is incurred monthly when the line is not utilized. In connection with the issuance of the Facility, the Company incurred financing costs of $1,642, which are included in other assets and are being amortized over the term of the agreement. The facility contains various covenants that, among other things, require the Company to maintain certain financial ratios, as defined in the agreement governing the Facility. As of December 31, 2001 and 2000, the Company had no amounts outstanding under the revolving credit facility.
In February 2001, the Company repurchased 1,298,183 shares of the Company's common stock for $2,596, at a price of $2.00 per share.
In 1998, the Company recorded a $2,200 special charge against earnings in connection with an agreement in principle with respect to a civil settlement of the Federal and State of Tennessee investigation in connection with the conduct of two former officers of the Company, prior to the Company's initial public offering. The definitive agreement covering this settlement was executed on June 15, 2000, and required payment of $775 in 2000, $900 in 2001 and $525 to be paid in 2002.
2002 ................................. $1,275 2003 ................................. 1,181 2004 ................................. 1,046 2005 ................................. 915 2006 ................................. 931 Thereafter ........................... 2,345
Rent expense for non-related party leased facilities and equipment was approximately $1,439, $1,292 and $995 for the years ended December 31, 2001, 2000 and 1999, respectively.
At December 31, 2001, the Company had unused Federal net operating loss carryforwards of $40,253, which will begin expiring in 2009. In the opinion of management, as the Company has not had history of consistent profitability, it is uncertain whether the Company will realize the benefit from its deferred tax assets and has provided a valuation allowance.
2002 $14,127 $ 2,518 $16,645 2003 - 4,780 4,780 2004 - 2,700 2,700 2005 - 2,700 2,700 2006 - 2,700 2,700 Thereafter - 10,728 10,728 ------- ------- ------- Total unused Federal net operating $14,127 $26,126 $40,253 loss carryforwards ======= ======= =======
The 1996 Incentive Stock Plan (the "1996 Plan") provided for the granting of incentive stock options ("ISOs") and non-qualified stock options ("NQSOs") to employees, directors and consultants of the Company. Under the 1996 Plan there were 5,200,450 shares authorized for issuance. In 2001, the stockholders approved the Company's 2001 Incentive Stock Plan (the "2001 Plan," collectively with the 1996 Plan, the "Plans"). Under the 2001 Plan an additional 950,000 shares were authorized for issuance. As of December 31, 2001, 19,193 shares and 74,000 shares remained available for grant under the 1996 Plan and the 2001 Plan, respectively.
Options granted under the Plans vest over a three-year period and, in certain limited instances, fully vest upon a change in control of the Company. In addition, such options generally are exercisable for 10 years after the date of grant, subject in some cases, to earlier termination in certain circumstances. The exercise price of ISOs granted under the Plans will not be less than 100% of the fair market value on the date of grant (110% for ISOs granted to more than a 10% stockholder). If NQSOs are granted at an exercise price less than fair market value on the grant date, the amount by which fair market value exceeds the exercise price will be charged to compensation expense over the period the options vest.
The 1996 Directors Stock Incentive Plan, (the "Directors Plan") was adopted to attract and retain qualified individuals to serve as non-employee directors of the Company ("Outside Directors"), to provide incentives and rewards to such directors and to associate more closely the interests of such directors with those of the Company's stockholders. The Directors Plan provides for the automatic granting of non-qualified stock options to Outside Directors joining the Company. Each such Outside Director receives an option to purchase 20,000 shares of Common Stock upon his or her initial appointment or election to the Board of Directors. The exercise price of such options is equal to the fair market value of the Common Stock on the date of grant. Options granted under the Directors Plan vest over three years. 300,000 shares are authorized under the Directors Plan. During 2001, options to purchase 20,000 shares at an exercise price of $13.00 were canceled. As of December 31, 2001, options to purchase 60,000 shares are outstanding at an average exercise price of $5.80. At December 31, 2001, 86,667 shares under the Directors Plan were exercisable.
2001 2000 1999 Volatility 104.4% 106.6% 95.5% Risk-free interest rate 1.25% 6.25% 6.00% Expected life of options 4 years 4 years 4 years
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Under the Plans, performance units may be granted by the Company's Board of Directors to key employees. The terms and conditions of the performance units including the performance goals, the performance period and the value for each performance unit are established by the Company's Board of Directors. If the performance goals are satisfied, the Company shall pay the key employee an amount in cash equal to the value of each performance unit at the time of payment. In no event shall a key employee receive an amount in excess of $1,000 in respect of performance units for any given year. During 2001 and 2000, performance goals were not satisfied, thus there were no amounts paid to employees related to performance. As of December 31, 2001, there are 241,500 performance units outstanding. If the Company exceeds $30,000, $37,500 or $45,000,000 net after tax earnings levels during the year ending December 31, 2002, the Company would have to pay the performance unit value of $10.00, $25.00 or $40.00, respectively, multiplied by the number of units held by each employee.
The following table outlines contracts with Plan Sponsors having revenues and/or accounts receivable that individually exceeded 10% of the Company's total revenues and/or accounts receivables during the applicable time period:
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 15% of their salary, subject to Internal Revenue Service limits. The Company may make a discretionary matching contribution. The Company recorded matching contributions of $86, $65 and $50 for the years ended December 31, 2001, 2000, and 1999, respectively.
On March 23, 2002, Mr. Richard Friedman, the Company's Chairman and Chief Executive Officer, repaid in full a $1,700 loan, together with all accrued and unpaid interest thereon totalling approximately $2,100.
A summary of quarterly financial information for fiscal 2001 and 2000 is as follows:
For the years ended December 31, 2001, 2000 and 1999 (In thousands)