SOURCE: Curative Health Services

March 01, 2005 10:14 ET

Curative Health Services Reports Fourth Quarter 2004 Results

Fourth Quarter Revenues of $83.6 Million, GAAP Net Loss Per Share of $10.76 Results Include Goodwill Impairment of $10.40 Per Share

NASHUA, NH -- (MARKET WIRE) -- March 1, 2005 -- Curative Health Services, Inc. (NASDAQ: CURE) announced today fourth quarter and full-year financial results for the period ended December 31, 2004. Total revenues for the fourth quarter of 2004 were $83.6 million, compared with $65.4 million reported in the fourth quarter of 2003. Under U.S. generally accepted accounting principles (GAAP) net loss was $139.3 million or $10.76 per share for the fourth quarter of 2004, compared with GAAP net income of $4.4 million, or $.32 per diluted share, for the fourth quarter of 2003.

In the fourth quarter of 2004, the Company recorded charges of $138.4 million, or $10.68 per share. In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," the Company conducted its annual impairment test related to the carrying value of its goodwill and other intangible assets. The impairment test resulted in a non-cash charge of $134.8 million or $10.40 per share to reduce the Specialty Infusion segment goodwill and intangibles to their estimated fair value as of December 31, 2004. This charge resulted primarily from changes in the economics of the Specialty Infusion business, including the much-publicized changes in reimbursement methodology that occurred in the second half of 2004. The Company also recorded charges and adjustments of $4.7 million or $.36 per share, $.22 per share after tax, in the quarter. Additionally, the Company invested approximately $.9 million in new branch start up costs in the quarter.

For the quarter ended December 31, 2004, the Company recorded earnings before interest, other (expense) income and taxes (EBIT), of $(135.9) million and earnings before interest, other (expense) income and taxes excluding charges and adjustments (Adjusted EBIT), of $2.5 million. Earnings before interest expense, other (expense) income, taxes and depreciation and amortization (EBITDA) for the fourth quarter, was $(134.1) million and earnings before interest expense, other (expense) income, taxes and depreciation and amortization, excluding charges and adjustments (Adjusted EBITDA), for the fourth quarter was $4.3 million. A reconciliation of GAAP net (loss) income and other GAAP measures to non-GAAP measures is included in the tables accompanying this press release. Management believes EBIT, Adjusted EBIT, EBITDA and Adjusted EBITDA information is necessary to present the Company's underlying business operating results and are key indicators of the Company's ability to generate working capital and service its debt. Additionally, management believes costs incurred such as those relating to acquisition integration, litigation, amortization of intangibles and long-term compensation, changes in the fair value of the Company's interest rate swap and impairment charges are viewed as distinct expense categories. Further, management believes the change in the fair value of its interest rate swap is comparable to interest and so is included in the calculation of EBIT and EBITDA. While EBIT, EBITDA, Adjusted EBIT and Adjusted EBITDA are not measures of financial performance nor liquidity under GAAP, they are provided as information for investors for analysis purposes. They are not meant to be considered a substitute or replacement for net income as prepared in accordance with GAAP.

Highlights for the fourth quarter of 2004 included:

--  Opened four new full-service, JCAHO accredited pharmacies.
--  Settled lawsuit with the California Department of Health Services.
--  A decline in overall DSOs of 12 days from the third quarter to 88 days
    at December 31.
    
"This past year was one in which the Company was faced with many challenges," said Paul F. McConnell, President and Chief Executive Officer. "Reimbursement for clotting factor was drastically cut by certain Medicaid programs in the second half of 2004."

"While 2004 was a year of change, we view 2005 as an opportunity to continue the expansion of our national footprint of local, full-service pharmacies," said Mr. McConnell. "With a focused and strategic plan in place, we believe we are positioned to increase our same-store and expansion branch growth and drive sales in higher margin therapies such as TPN, IV antibiotics, pain management and chemotherapy."

The Company also signed two new multi-year contracts to manage acute care hospital Wound Care Center® programs. Additionally, the Company has signed three multi-year contracts thus far in the first quarter of 2005.

Fiscal 2005 Guidance

The Company's strategic focuses in 2005 will be on opening new full-service pharmacies in strategic markets and carefully managing its cash flow. Currently the Company has plans to open six to eight branch pharmacies in 2005. The Company believes it has adequate working capital, including refundable taxes of $3.4 million, supplemented by existing credit facilities to service its debt and to implement its expansion plans. Opening additional branches beyond current plans may also be considered. Given the ongoing consolidation and reorganization of the Company, the evolving branch expansion and investment plans and the continued market uncertainties, the Company is continuing to review its full year 2005 outlook. As a result the Company now expects to provide full year guidance later in the year.

The Company will host a conference call to discuss the Company's fourth quarter 2004 financial results, recent developments, business strategy and outlook on Tuesday, March 1, 2005, at 11:00 a.m. Eastern Time. To participate in the conference call, dial 1-800-374-0191 approximately 10 minutes prior to the scheduled start time.

If you are unable to participate, a digital replay of the call will be available from Tuesday, March 1, 2005 at 2:00 p.m. Eastern Time until 11:59 p.m. Eastern Time on March 7, 2005 by dialing 1-800-642-1687 with conference ID #3881260. The live broadcast of Curative Health Services quarterly conference call will be available online by going to www.curative.com and selecting the Investor Relations link, on www.streetevents.com, and on www.companyboardroom.com. An online replay will be available shortly after the call through March 7, 2005 at those sites.

About Curative Health Services

Curative Health Services, Inc. seeks to deliver high-quality care and clinical results for patients with serious or chronic medical conditions.

The Specialty Infusion business, through its national footprint of local pharmacy branches, provides products, related clinical services and disease management support to patients with chronic or severe conditions such as hemophilia and other bleeding disorders, chronic or severe infections, gastrointestinal illnesses that prohibit oral digestion and other severe conditions requiring nutritional support, immune system disorders, cancer and susceptibility to respiratory syncytial virus.

The Wound Care Management business is a leader in the area of disease management specializing in chronic wound care management. The Wound Care Management business manages, on behalf of hospital clients, a nationwide network of Wound Care Center® programs that offer a comprehensive range of services for treatment of chronic wounds.

For more information, visit www.curative.com.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Factors that might cause such differences include, but are not limited to, risks associated with our acquisition of Critical Care Systems including, but not limited to, integration risks and costs, risks of client retention, and risks associated with the operations of the acquired business, as well as risks in our current businesses such as the substantial level of indebtedness incurred in connection with the acquisition of Critical Care Systems, the potential for termination or non-renewal of a material number of contracts, an inability to obtain new contracts, changes in government regulations relating to the Company's Specialty Infusion or Wound Care Management businesses, changes in the regulations governing third party reimbursements for the Company's services, manufacturing shortages of products sold by Curative's Specialty Infusion business, the impact of competitive products and pricing, the ability to maintain pricing arrangements with suppliers that preserve margins, the seasonality and variability of operating results, the Company's ability to implement its strategies and achieve its objectives and the other risks and uncertainties detailed in the Company's filings with the Securities and Exchange Commission. Readers of this release are referred to the Company's Registration Statement on Form S-4 filed July 29, 2004, as amended, and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, for further discussion of these and other risk factors that could affect future results.


              CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                       Selected Financial Information

Consolidated Statements of Operations
(In Thousands, except for per share data)

                         Three Months Ended         Twelve Months Ended
                            December 31,               December 31,
                         2004          2003         2004          2003
                      Unaudited     Unaudited    Unaudited      Audited
                      -----------------------    -----------------------

Revenues              $  83,628     $  65,445    $ 282,368     $ 214,741
Costs and expenses:
  Cost of product
   sales and services    69,337        48,259      222,493       148,673
  Selling, general &
   administrative        11,798        10,277       43,606        37,792
  Total charges
   incurred (see
   reconciliation
   table following)     138,374         1,420      144,701         6,752
                      ---------     ---------    ---------     ---------
  Total costs and
   operating expenses   219,509        59,956      410,800       193,217
                      ---------     ---------    ---------     ---------
(Loss) income from
 operations            (135,881)        5,489     (128,432)       21,524

Other (expense) income     (275)        2,340         (974)        2,347
Interest expense          5,655           626       15,833         2,300
                      ---------     ---------    ---------     ---------

(Loss) income before
 income taxes          (141,811)        7,203     (145,239)       21,571

Income tax (benefit)
 provision               (2,471)        2,821       (3,834)        8,496
                      ---------     ---------    ---------     ---------

Net (loss) income     $(139,340)    $   4,382    $(141,405)    $  13,075
                      =========     =========    =========     =========

Net (loss) income
 per common share,
 basic                $  (10.76)    $    0.34    $  (10.92)    $    1.04
                      =========     =========    =========     =========

Net (loss) income
 per common share,
 diluted              $  (10.76)(1) $    0.32(2) $  (10.92)(1) $    0.96(2)
                      =========     =========    =========     =========

Denominator for basic
 earnings per share,
 weighted average
 common shares           12,951        12,845       12,949        12,546
                      =========     =========    =========     =========

Denominator for diluted
 earnings per share,
 weighted average
 common shares
 assuming conversions    12,951        13,749       12,949        13,826
                      =========     =========    =========     =========

(1) Basic shares were used to calculate net loss per common share, diluted,
for the three and twelve months ended December 31, 2004 as using the
effects of stock options and convertible notes would have an anti-dilutive
effect on earnings per share.

(2) Calculated under the "as if converted" method, which requires adding
shares related to convertible notes that have no  contingencies to the
denominator for diluted earnings per share and adding to net income, the
numerator, tax effected interest relating to those convertible notes.

              CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                       Selected Financial Information

Reconciliation of GAAP Net (loss) income to
Adjusted net (loss) income
(In thousands, except for per share data)

                             Unaudited                  Unaudited
                         Three Months Ended        Twelve Months Ended
                            December 31,               December 31,
                         2004          2003         2004          2003
                      -----------------------    -----------------------

GAAP net (loss)
 income               $(139,340)    $   4,382    $(141,405)    $  13,075

Adjustments:

Amortization of
 intangibles and
 long-term incentive
 compensation               777             -        1,955             -

Income from sale of
 equity interest              -        (2,327)           -        (2,327)

Change in fair value
 of interest rate swap      322             -        1,081             -
                      ---------     ---------    ---------     ---------

Subtotal of adjustments   1,099        (2,327)       3,036        (2,327)

Charges:

Goodwill and intangible
 impairment charge      134,755             -      134,755             -

Costs related to
 Critical Care
 Systems integration      1,021             -        6,844             -

Litigation expense        1,279             -        1,783             -

Hemophilia reimbursement
 allowance                    -             -        1,033             -

Costs of convertible note
 offering not completed
 due to market conditions     -             -            -           682

Corporate reorganization  1,319             -        1,319             -

Costs of acquisitions
 not completed                -         1,154            -         1,483

Costs of credit facility
 termination and corporate
 structure reorganization     -             -            -         1,100

Costs of writing off
 obsolete equipment           -           317            -           317

Costs of pharmacy
 consolidation and
 executive terminations       -           (51)           -         3,170
                      ---------     ---------    ---------     ---------

Subtotal of charges     138,374         1,420      145,734         6,752
                      ---------     ---------    ---------     ---------

Total charges &
 adjustments            139,473          (907)     148,770         4,425

Taxes                    (1,868)(1)       358       (5,550)(1)    (1,748)
                      ---------     ---------    ---------     ---------

Adjusted net (loss)
 income               $  (1,735)    $   3,833    $   1,815     $  15,752
                      =========     =========    =========     =========

(1) Assumes a tax rate of 39.6% and is calculated on adjustments and
charges, excluding goodwill impairment.

              CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                       Selected Financial Information

Reconciliation of GAAP Net (loss) income per common share,
diluted to Adjusted Net (loss) income per common share, diluted
(In thousands, except for per share data)

                             Unaudited                  Unaudited
                         Three Months Ended         Twelve Months Ended
                            December 31,               December 31,
                         2004          2003         2004          2003
                      -----------------------    -----------------------

GAAP net (loss)
 income per common
 share, diluted       $  (10.76)(1) $    0.32(2) $  (10.92)(1) $    0.96(2)

Adjustments:

Amortization of
 intangibles and
 long-term incentive
 compensation              0.06             -         0.15             -

Income from sale of
 equity interest              -         (0.17)           -         (0.17)

Change in fair value
 of interest rate swap     0.02             -         0.08             -
                      ---------     ---------    ---------     ---------

Subtotal of adjustments    0.08         (0.17)        0.23         (0.17)

Charges:

Goodwill and intangible
 impairment charge        10.40             -        10.41             -

Costs related to
 Critical Care
 Systems integration       0.08             -         0.53             -

Litigation expense         0.10             -         0.14             -

Hemophilia reimbursement
 allowance                    -             -         0.08             -

Costs of convertible note
 offering not completed
 due to market conditions     -             -            -          0.05

Corporate reorganization   0.10             -         0.10             -

Costs of acquisitions
 not completed                -          0.08            -          0.08

Costs of credit facility
 termination and corporate
 structure organization       -             -            -          0.08

Costs of writing off
 obsolete equipment           -          0.02            -          0.02

Costs of pharmacy
 consolidation and
 executive terminations       -             -            -          0.23
                      ---------     ---------    ---------     ---------

Subtotal of charges       10.68          0.10        11.25          0.46

Total charges &
 adjustments              10.76         (0.07)       11.49          0.29

Tax benefit               (0.14)         0.03        (0.43)        (0.15)
                      ---------     ---------    ---------     ---------

Adjusted net (loss)
 income per common
 share, diluted       $   (0.14)(1) $    0.28(2) $    0.14(1)  $    1.10(2)
                      =========     =========    =========     =========

Denominator for
 diluted earnings per
 share, weighted
 average common shares
 assuming conversions    12,951        13,749       12,949        13,826
                      =========     =========    =========     =========

(1) Basic shares were used to calculate net loss per common share, diluted,
for the three months ended December 31, 2004 as using the effects of stock
options and convertible notes would have an anti-dilutive effect on
earnings per share.

(2) Calculated under the "as if converted" method, which requires adding
shares related to convertible notes that have no contingencies to the
denominator for diluted earnings per share and adding to net income, the
numerator, tax effected interest expense relating to those convertible
notes.

              CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                       Selected Financial Information

Reconciliation of GAAP Net (loss) income to
EBIT and Adjusted EBIT

                             Unaudited                  Unaudited
                         Three Months Ended         Twelve Months Ended
                            December 31,               December 31,
                         2004          2003         2004          2003
                      -----------------------    -----------------------

GAAP net (loss)
 income               $(139,340)    $   4,382    $(141,405)    $  13,075

Adjustments:

  Income tax (benefit)
   provision             (2,471)        2,821       (3,834)        8,496
  Interest expense        5,655           626       15,833         2,300
  Change in fair
   value of interest
   rate swap                322             -        1,081             -
  Interest and other
   (income) expense         (47)       (2,340)        (107)        2,347
                      ---------     ---------    ---------     ---------
EBIT                   (135,881)        5,489     (128,432)       26,218

Adjustments:

Goodwill and intangible
 impairment charge      134,755             -      134,755             -

Costs related to
 Critical Care
 Systems integration      1,021             -        6,844             -

Litigation expense        1,279             -        1,783             -

Hemophilia reimbursement
 allowance                    -             -        1,033             -

Corporate reorganization  1,319                      1,319

Cost of convertible note
 offering not completed
 due to market conditions     -             -            -           682

Costs of acquisitions
 not completed                -         1,154            -         1,483

Costs of credit
 facility termination
 and corporate
 structure reorganization     -             -            -         1,100

Costs of writing off
 obsolete equipment           -           317            -           317

Costs of pharmacy
 consolidation and
 executive terminations       -           (51)           -         3,170
                      ---------     ---------    ---------     ---------

     Subtotal of
      adjustments       138,374         1,420      145,734         6,752
                      ---------     ---------    ---------     ---------

Adjusted EBIT         $   2,493     $   6,909    $  17,302     $  32,970
                      =========     =========    =========     =========

              CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                       Selected Financial Information

Reconciliation of GAAP Net (loss) income to
EBITDA and Adjusted EBITDA

                             Unaudited                  Unaudited
                         Three Months Ended         Twelve Months Ended
                            December 31,               December 31,
                         2004          2003         2004          2003
                      -----------------------    -----------------------

GAAP net (loss)
 income               $(139,340)    $   4,382    $(141,405)    $  13,075

Adjustments:
  Income tax (benefit)
   provision             (2,471)        2,821       (3,834)        8,496
  Interest expense        5,655           626       15,833         2,300
  Change in fair
   value of interest
   rate swap                322             -        1,081             -
  Other (income)
   expense                  (47)       (2,340)        (107)        2,347
  Depreciation and
   amortization           1,819           848        5,713         2,797
                      ---------     ---------    ---------     ---------
EBITDA                 (134,062)        6,337     (122,719)       29,015

Adjustments:
Goodwill and intangible
 impairment charge      134,755             -      134,755             -

Costs related to
 Critical Care
 Systems integration      1,021             -        6,844             -

Litigation expense        1,279             -        1,783             -

Hemophilia reimbursement
 allowance                    -             -        1,033             -

Corporate reorganization  1,319             -        1,319             -

Cost of convertible note
 offering not completed
 due to market conditions     -             -            -           682

Costs of acquisitions
 not completed                -         1,154            -         1,483

Costs of credit facility
 termination and corporate
 structure reorganization     -             -            -         1,100

Costs of writing off
 obsolete equipment           -           317            -           317

Costs of pharmacy
 consolidation and
 executive terminations       -           (51)           -         3,170
                      ---------     ---------    ---------     ---------

     Subtotal of
      adjustments       138,374         1,420      145,734         6,752
                      ---------     ---------    ---------     ---------

Adjusted EBITDA       $   4,312     $   7,757    $  23,015     $  35,767
                      =========     =========    =========     =========

              CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
                       Selected Financial Information

Consolidated Balance Sheet
(Dollars in thousands)

                                          Unaudited
                                           Dec. 31,     Dec. 31,
                                             2004         2003
                                          ---------    ---------
Assets
Current assets:
  Cash and cash equivalents               $   1,176    $   1,072
  Accounts receivable, net                   81,766       55,217
  Deferred tax assets                         3,362        2,984
  Inventories                                18,398       11,237
  Tax refund receivable                       3,431            -
  Prepaids and other current assets           5,660        4,270
                                          ---------    ---------
    Total current assets                    113,793       74,780

  Property and equipment, net                11,104        7,890
  Goodwill and intangibles                  145,293      150,040
  Other long-term assets                     12,909        1,228
                                          ---------    ---------

    Total assets                          $ 283,099    $ 233,938
                                          =========    =========

Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable and accrued expenses   $  56,961    $  41,401
  Current portion of long-term
   liabilities                                6,871        7,911
                                          ---------    ---------
    Total current liabilities                63,832       49,312

  Other long-term liabilities                 4,198        1,307
  Long-term debt                            210,616       39,599
                                          ---------    ---------
  Total long-term liabilities               214,814       40,906

  Stockholders' equity                        4,453      143,720
                                          ---------    ---------

    Total liabilities and
     stockholders' equity                 $ 283,099    $ 233,938
                                          =========    =========

          Editor's Note: This release is also available
           on the Internet over the World Wide Web at
                    http://www.curative.com

Contact Information