Health Card does not take possession or legal ownership of the pharmaceuticals dispensed by the retail pharmacy network or its out-sourced mail order facilities, although Health Card assumes the legal responsibility and financial risk of paying for dispensed pharmaceuticals whether or not Health Card is paid by its sponsors. Health Card does take possession and dispenses pharmaceuticals from its mail order facility and its specialty pharmacy as of August 1, 2003.
Selling, general, and administrative expenses, which include amounts charged by affiliates, increased $14.6 million, or approximately 41%, from $36.0 million for the fiscal year ended June 30, 2003 to $50.6 million for the fiscal year ended June 30, 2004. Approximately $8.5 million, or 73%, of this increase in selling, general, and administrative expenses is related to new entities which were part of the Company in the twelve months ended June 30, 2004 which were not part of the Company during all of the twelve months ended June 30, 2003. The services provided by these entities include specialty pharmacy distribution through the Company’s acquisition of PPP, predictive modeling and consulting services through the Company’s acquisition of Integrail, and mail order distribution through the Company’s owned facility in Miramar, Florida. In addition, PBM services were complemented and enhanced by the acquisition of Inteq. The major components of the $8.5 million increase in expenses related to new services was: 1) salaries and benefits - approximately $4,046,000, 2) postage and supplies - approximately $461,000, 3) equipment rental - approximately $505,000, 4) insurance - approximately $339,000, 5) marketing - approximately $229,000, 6) depreciation and amortization - approximately $556,000, 7) commissions to outside brokers - approximately $599,000, and 8) postage and shipping - approximately $589,000.
Selling, general, and administrative expenses, which include amounts charged by affiliates, increased $8.7 million, or approximately 32%, from $27.3 million for the fiscal year ended June 30, 2002 to $36.0 million for the fiscal year ended June 30, 2003. This increase is primarily related to the acquisition of Centrus. While the expenses specifically related to Centrus were $7.3 million greater in the twelve months ended June 30, 2003 as compared to the five months since the acquisition in the twelve months ended June 30, 2002, this was partially offset by reductions in other areas of the Company related to the full integration of Centrus. The Company analyzed every department in the Company and made decisions concerning the most efficient way to operate regardless of location. This evaluation has led to synergies across the Company and has allowed the Company to maximize the utilization of its resources. It is anticipated that this kind of analysis and deployment of resources will continue as the Company grows.
The shareholders of PPP are eligible to receive additional consideration of up to $7,000,000, if certain financial targets are met over the first three years. Such amounts earned are payable within 45 days after the first, second, and third anniversary of the date of acquisition. In the sole discretion of the Company, up to 50% of any amounts earned can be paid in the form of the Company’s stock in lieu of cash. For the first year ended July 31, 2004, $716,010 has been earned and was paid on September 15, 2004. Of this amount, $358,005 was paid in cash and $358,005 was paid in the form of the Company’s common stock.
Revenue under the fee for service arrangement is recognized when the claims are adjudicated. Included as revenue are the Company’s administrative fees and charges relating to pharmaceuticals dispensed by the Company’s network of pharmacies. Revenue is reduced by the amount of rebates paid to the Company’s sponsors.