In 1999, we recorded $6.0 million of TennCare® reserve adjustments for estimated losses on contract receivables relating to Tennessee Health Partnership (“THP”), Preferred Health Plans and Xantus Health Plans of Tennessee, Inc. (“Xantus”). In the first quarter of 2002, we recorded TennCare® reserve adjustment credits of $0.9 million as a result of the collection of the receivables reserved in 1999 from Xantus.
The 2006 and 2005 net loss per diluted share excludes the effect of common stock equivalents, as their inclusion would be anti-dilutive.
billed or collected by us and we have no legal right or obligation to receive them as they are collected by our network pharmacies.
Manufacturers’ rebates are primarily part of our PBM Services segment and are recorded as estimates until such time as the rebate monies are received. These estimates are based on historical results and trends and are revised on a regular basis depending upon our latest forecasts, as well as information received from rebate sources. Should actual results differ, adjustments will be recorded in future earnings. In some instances, rebate payments are shared with our managed care organizations. Shared rebates are recorded as a reduction of revenue. Total rebates are recorded as a reduction of cost of goods sold.
PBM Services revenue for the year ended December 31, 2006 was $285.8 million compared to $384.7 million on a pro forma basis for the same period in 2005, a $98.9 million, or 25.7% decrease. The decline in revenue is due primarily to the loss of our customer Centene Corporation, which acquired its own PBM business and transitioned its PBM business with us to its own PBM throughout 2006. The decline in PBM revenue is partially offset by increased volume in our traditional mail business.
Amortization of Intangibles. For the year ended December 31, 2006 we recorded amortization expense of intangibles of $6.5 million compared to amortization expense from intangibles of $6.4 million in 2005. The increase is due to the amortization associated with the acquisition completed during 2006.
Goodwill and Intangible Impairment. There was no goodwill or intangible impairment write offs for the year ended December 31, 2006. The year ended December 31, 2005 included the write off of $5.8 million for the trade name intangible assets associated with Natural Living, Inc. and Vitality Home Infusion Services, Inc. The re-branding of all of our business lines to a single brand, BioScrip, prompted the write off of the existing trade name intangible assets. Also included in 2005 were goodwill and intangible impairment charges of $19.4 million, principally associated with the PBM Services segment. The PBM Services impairment is the result of the loss of the Centene contract and other related PBM Services contracts, and its negative impact on the long term financial outlook for the PBM Services business.
Pro forma net loss for the year ended December 31, 2005 was $24.9 million, or $0.73 per diluted share, compared to pro forma net income of $9.6 million, or $0.26 per diluted share, for the year ended December 31, 2004. The decline primarily is due to goodwill and intangible impairment charges, as well as increased SG&A expenses, bad debt expense and merger expenses related to the Chronimed acquisition.
Interest on the line of credit is payable monthly. For additional information regarding the line of credit see Note 9 - Line of Credit.
Prior to January 1, 2006, those plans were accounted for under the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations, as permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), issued by the Financial Accounting Standards Board (“FASB”). Under APB 25, only the intrinsic value of stock options was recognized in the Statement of Operations for periods prior to January 1, 2006. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment (“SFAS 123(R)”), using the modified-prospective-transition method. Under that transition method, compensation cost recognized during 2006 includes: (i) compensation cost for all share-based payments granted prior to, but not yet vested as of, January 1, 2006 based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (ii) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.
market or private transactions. No stock was repurchased during 2006, 2005 or 2004. As of December 31, 2006, approximately $4.9 million of the $10.0 million authorized remains available for additional share repurchases. The Company holds a total of 2,247,150 shares of treasury stock acquired under current and prior repurchase programs.
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our revenues and expenditures are being made only in accordance with authorizations of our management and directors; and
While we are re-assessing the long-term design of information technology for our business, we continue to consolidate our pharmacy operating systems, and have already consolidated two of these systems in January and February of 2007. The two pharmacy operating systems lacked sufficient IT controls and incurring the cost of remediation in 2006 would have been unwise given our intention to decommission the systems. In addition to consolidation, we are addressing the following information technology controls:
Logical access controls will be improved through a layered series of preventive controls to limit access and detective controls to monitor use of powerful privileges. A detailed plan for the completion of the logical access improvements will take into consideration the cost of remediation and whether or not the applications, databases and operating systems under remediation are considered a long-term component of our information technology strategic plan.
Other than the remediation of the above items to improve internal control over financial reporting there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The discussion above under “Management Remediation Plan” describes a number of changes we have initiated since December 31, 2006, as well as other changes that we plan to implement in 2007, that we believe will significantly improve our internal control over financial reporting.
Incorporated by reference to the indicated exhibit to the Company’s Current Report on Form 8-K filed on November 21, 2006.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 16, 2007.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of BioScrip, Inc.’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2007, expressed an unqualified opinion on management’s assessment and an adverse opinion on the effectiveness of internal control over financial reporting.
Basic (loss) income per common share is based on the weighted average number of shares outstanding. Diluted income per share is based on the weighted average number of shares outstanding, including common stock equivalents and diluted (loss) per share is based on the weighted average number of shares outstanding because the impact of common stock equivalents would be anti-dilutive (in thousands except per share data).
On March 12, 2005 the Company assumed all the option plans from Chronimed as part of the acquisition. Previously granted Chronimed options assumed by the Company in 2005 totaled 2,612,146. Vesting on the Chronimed options was accelerated to be fully vested at the date of acquisition.
As of December 31, 2005 and 2004, the exercisable portion of outstanding options was approximately 4.7 million shares and approximately 2.4 million shares, respectively.