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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-8269
OMNICARE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1001351
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 East RiverCenter Boulevard, Covington, Kentucky 41011
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (859) 392-3300
Indicate by check mark whether the registrant:
1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and
2) has been subject to such filing requirement for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
COMMON STOCK OUTSTANDING
Number of
Shares Date
----------- -------------
Common Stock, $1 par value 101,334,199 June 30, 2003
OMNICARE, INC. AND
SUBSIDIARY COMPANIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Income --
Three and six months ended --
June 30, 2003 and 2002 3
Consolidated Balance Sheets --
June 30, 2003 and December 31, 2002 4
Consolidated Statements of Cash Flows --
Six months ended --
June 30, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 36
ITEM 4. CONTROLS AND PROCEDURES 37
PART II. OTHER INFORMATION:
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 38
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 38
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------------
2003 2002 2003 2002
-------- -------- ---------- ----------
Sales $838,183 $647,101 $1,635,936 $1,279,116
Reimbursable out-of-pockets 5,850 7,054 13,958 13,353
-------- -------- ---------- ----------
Total net sales 844,033 654,155 1,649,894 1,292,469
-------- -------- ---------- ----------
Cost of sales 617,206 476,171 1,206,998 943,982
Reimbursed out-of-pocket expenses 5,850 7,054 13,958 13,353
-------- -------- ---------- ----------
Total direct costs 623,056 483,225 1,220,956 957,335
-------- -------- ---------- ----------
Gross profit 220,977 170,930 428,938 335,134
Selling, general and administrative expenses 130,090 102,501 257,018 202,119
Restructuring charges (Note 5) -- 7,302 -- 12,099
-------- -------- ---------- ----------
Operating income 90,887 61,127 171,920 120,916
Investment income 1,166 667 1,754 1,465
Interest expense (Note 8) (21,875) (14,475) (38,331) (28,651)
-------- -------- ---------- ----------
Income before income taxes 70,178 47,319 135,343 93,730
Income taxes 26,677 17,961 51,419 35,596
-------- -------- ---------- ----------
Net income $ 43,501 $ 29,358 $ 83,924 $ 58,134
======== ======== ========== ==========
Earnings per share:
Basic $ 0.45 $ 0.31 $ 0.88 $ 0.62
======== ======== ========== ==========
Diluted $ 0.44 $ 0.31 $ 0.86 $ 0.61
======== ======== ========== ==========
Weighted average number of common shares outstanding:
Basic 96,034 94,175 95,215 94,070
======== ======== ========== ==========
Diluted 102,925 95,292 103,372 94,984
======== ======== ========== ==========
Dividends per share $ 0.0225 $ 0.0225 $ 0.0450 $ 0.0450
======== ======== ========== ==========
Comprehensive income $ 44,758 $ 30,977 $ 86,178 $ 59,980
======== ======== ========== ==========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
3
CONSOLIDATED BALANCE SHEETS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(In thousands, except share data)
June 30, December 31,
2003 2002
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 594,532 $ 137,936
Restricted cash 5,819 3,147
Accounts receivable, less allowances
of $86,616 (2002 - $68,593) 625,103 522,857
Unbilled receivables 29,495 25,062
Inventories 248,078 190,464
Deferred income tax benefits 21,458 18,621
Other current assets 97,270 103,471
----------- -----------
Total current assets 1,621,755 1,001,558
Properties and equipment, at cost less accumulated
depreciation of $193,788 (2002 - $177,870) 149,534 139,908
Goodwill 1,627,203 1,188,907
Other noncurrent assets 135,946 97,212
----------- -----------
Total assets $ 3,534,438 $ 2,427,585
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 265,340 $ 175,648
Current debt 20,403 110
Accrued employee compensation 33,598 22,627
Deferred revenue 23,262 25,254
Income taxes payable 15,746 6,837
Other current liabilities 90,115 66,174
----------- -----------
Total current liabilities 448,464 296,650
Long-term debt 180,343 187
5.0% convertible subordinated debentures, due 2007 238,465 345,000
8.125% senior subordinated notes, due 2011 375,000 375,000
6.125% senior subordinated notes, due 2013 250,000 --
4.0% contingent convertible notes, due 2033 345,000 --
Deferred income tax liabilities 105,585 84,071
Other noncurrent liabilities 52,799 51,615
----------- -----------
Total liabilities 1,995,656 1,152,523
----------- -----------
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $1 par value, 200,000,000 shares authorized,
102,694,400 shares issued (2002 - 95,441,400 shares issued) 102,694 95,441
Paid-in capital 929,011 737,421
Retained earnings 578,526 498,856
----------- -----------
1,610,231 1,331,718
Treasury stock, at cost - 1,360,200 shares (2002 - 1,139,900 shares) (29,147) (23,471)
Deferred compensation (40,389) (29,018)
Accumulated other comprehensive income (1,913) (4,167)
----------- -----------
Total stockholders' equity 1,538,782 1,275,062
----- ----- -----------
Total liabilities and stockholders' equity $ 3,534,438 $ 2,427,585
=========== ===========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(In thousands)
Six Months Ended
June 30,
---------------------
2003 2002
--------- ---------
Cash flows from operating activities:
Net income $ 83,924 $ 58,134
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation 18,827 16,510
Amortization 6,622 6,492
Provision for doubtful accounts 23,180 14,176
Deferred tax provision 18,739 4,375
Write-off of debt issuance costs 1,164 --
Non-cash portion of restructuring charges -- 5,633
Changes in assets and liabilities, net of effects
from acquisition of businesses:
Accounts receivable and unbilled receivables (50,375) (33,913)
Inventories (23,849) 14,744
Current and noncurrent assets 16,271 (11,524)
Accounts payable 40,363 3,422
Accrued employee compensation 1,532 (269)
Deferred revenue (1,992) (13,498)
Current and noncurrent liabilities (14,376) 19,019
--------- ---------
Net cash flows from operating activities 120,030 83,301
--------- ---------
Cash flows from investing activities:
Acquisition of businesses (492,157) (107,794)
Capital expenditures (7,155) (8,827)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust (2,672) (3,383)
Other 53 253
--------- ---------
Net cash flows from investing activities (501,931) (119,751)
--------- ---------
Cash flows from financing activities:
Borrowings on line of credit facilities and term loans 749,000 90,000
Payments on line of credit facilities and term loans (549,000) (40,000)
Proceeds from / (payments on) long-term borrowings 485,221 (244)
Fees paid for financing arrangements (29,366) --
Gross proceeds from stock offering 188,629 --
Payments for stock awards and exercise of stock options,
net of stock tendered in payment (3,832) (763)
Dividends paid (4,250) (4,237)
Other 122 72
--------- ---------
Net cash flows from financing activities 836,524 44,828
--------- ---------
Effect of exchange rate changes on cash 1,973 1,465
--------- ---------
Net increase in cash and cash equivalents 456,596 9,843
Cash and cash equivalents at beginning of period - unrestricted 137,936 168,396
--------- ---------
Cash and cash equivalents at end of period - unrestricted $ 594,532 $ 178,239
========= =========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
1. Interim Financial Data
The interim financial data is unaudited; however, in the opinion of the
management of Omnicare, Inc., the interim data includes all adjustments (which
include only normal adjustments, except as described in Notes 5 and 8)
considered necessary for a fair presentation of the consolidated financial
position, results of operations and cash flows of Omnicare, Inc. and its
consolidated subsidiaries ("Omnicare" or the "Company"). These financial
statements should be read in conjunction with the Consolidated Financial
Statements and related notes included in Omnicare's Annual Report on Form 10-K
for the year ended December 31, 2002. Certain reclassifications of prior year
amounts have been made to conform with the current year presentation.
2. Stock-Based Employee Compensation
At June 30, 2003, the Company has three stock-based employee compensation
plans. As permitted per U.S. Generally Accepted Accounting Principles ("U.S.
GAAP"), the Company accounts for these plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
Interpretations. No stock-based employee compensation cost for stock options is
reflected in net income as all options granted under the plans had an exercise
price equal to or greater than the market value of the underlying common stock
on the date of grant.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), as amended by SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS
123" ("SFAS 148"), for stock options (in thousands, except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2003 2002 2003 2002
------- ------- ------- -------
Net income, as reported $43,501 $29,358 $83,924 $58,134
Deduct: Total stock-based employee
compensation expense determined
under fair value-based method for all
options, net of related tax effects (2,241) (1,648) (4,660) (2,883)
------- ------- ------- -------
Pro forma net income $41,260 $27,710 $79,264 $55,251
======= ======= ======= =======
Earnings per share:
Basic - as reported $ 0.45 $ 0.31 $ 0.88 $ 0.62
======= ======= ======= =======
Basic - pro forma $ 0.43 $ 0.29 $ 0.83 $ 0.59
======= ======= ======= =======
Diluted - as reported $ 0.44 $ 0.31 $ 0.86 $ 0.61
======= ======= ======= =======
Diluted - pro forma $ 0.42 $ 0.29 $ 0.81 $ 0.58
======= ======= ======= =======
6
The fair value of each option at the grant date is estimated using the
Black-Scholes option-pricing model, with the following weighted average
assumptions used for grants:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2003 2002 2003 2002
------ ------ ------ ------
Volatility 60% 63% 60% 63%
Risk-free interest rate 2.6% 3.9% 2.6% 3.9%
Dividend yield 0.3% 0.3% 0.3% 0.3%
Expected term of options (in years) 5.4 5.2 5.4 5.2
Weighted average fair value per option $14.00 $15.19 $14.01 $14.27
The above pro forma information is based on the circumstances and
assumptions in effect for each of the respective periods and, therefore, is not
necessarily representative of the actual effect of SFAS 123 on net income or
earnings per share in future years.
3. Recently Issued Accounting Pronouncements
Effective January 1, 2003, the Company adopted SFAS No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS 145"), SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), FASB Interpretation
No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45") and FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
All accounting and disclosure relevant to this authoritative guidance has been
incorporated into this Quarterly Report on Form 10-Q. The adoption of SFAS 145,
SFAS 146, FIN 45 and FIN 46 did not have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
In October 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 147, "Acquisition of Certain Financial Institutions." This
pronouncement is not applicable to the Company.
In December 2002, the FASB issued SFAS 148. While limited in scope, SFAS
148 provides additional transition guidance for those entities that elect to
voluntarily adopt the accounting provisions of SFAS 123. The standard is
intended to encourage the adoption of the provisions of SFAS 123 by providing
three transitional implementation methodologies. Even for those companies
choosing not to adopt the provisions of SFAS 123, SFAS 148 includes new annual
and interim disclosure requirements related to a company's issuance of stock
compensation. The transition and disclosure provisions of SFAS 148 are effective
for fiscal years ending after December 15, 2002. The disclosure provisions of
SFAS 148 have been incorporated into the notes to consolidated financial
statements, and Omnicare currently intends to continue accounting for
stock-based compensation plans in accordance with APB 25 and related
Interpretations, as permitted by U.S. GAAP.
7
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
Statement is effective for the Company beginning July 1, 2003. The adoption of
this Statement will not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances) in the
statement of financial position. This Statement was effective for the Company
for financial instruments entered into or modified after May 31, 2003. The
adoption of this Statement did not have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
4. Segment Information
Based on the "management approach," as defined by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," Omnicare
has two business segments. The Company's largest segment is Pharmacy Services.
Pharmacy Services provides distribution of pharmaceuticals, related pharmacy
consulting, data management services and medical supplies to long-term care
facilities in 47 states in the United States of America ("USA") at June 30,
2003. The Company's other reportable segment is Contract Research Organization
("CRO") Services, which provides comprehensive product development services to
client companies in pharmaceutical, biotechnology, medical devices and
diagnostics industries in 29 countries around the world, including the USA, at
June 30, 2003.
The table below presents information about the reportable segments as of
and for the three and six months ended June 30, 2003 and 2002 and should be read
in conjunction with the paragraph that follows (in thousands):
Three Months Ended June 30,
----------------------------------------------------
Corporate
Pharmacy CRO and Consolidated
2003: Services Services Consolidating Totals
- ------------------------------------------------------------------------------------
Net sales $ 802,828 $ 41,205 $ -- $ 844,033
Depreciation and amortization 11,626 483 579 12,688
Operating income (expense) 95,825 4,485 (9,423) 90,887
Total assets 2,745,926 122,535 665,977 3,534,438
Capital expenditures 2,270 640 255 3,165
====================================================================================
2002:
- ------------------------------------------------------------------------------------
Net sales $ 610,412 $ 43,743 $ -- $ 654,155
Depreciation and amortization 9,948 592 771 11,311
Restructuring charges (2,732) (4,570) -- (7,302)
Operating income (expense) 68,882 703 (8,458) 61,127
Total assets 2,063,608 143,398 209,656 2,416,662
Capital expenditures 3,358 164 330 3,852
- ------------------------------------------------------------------------------------
8
Six Months Ended June 30,
----------------------------------------------------
Corporate
Pharmacy CRO and Consolidated
2003: Services Services Consolidating Totals
- ------------------------------------------------------------------------------------
Net sales $1,565,982 $ 83,912 $ -- $1,649,894
Depreciation and amortization 23,374 901 1,174 25,449
Operating income (expense) 181,195 9,215 (18,490) 171,920
Total assets 2,745,926 122,535 665,977 3,534,438
Capital expenditures 6,085 705 365 7,155
====================================================================================
2002:
- ------------------------------------------------------------------------------------
Net sales $1,206,677 $ 85,792 $ -- $1,292,469
Depreciation and amortization 20,383 1,210 1,409 23,002
Restructuring charges (3,858) (8,241) -- (12,099)
Operating income (expense) 135,961 1,947 (16,992) 120,916
Total assets 2,063,608 143,398 209,656 2,416,662
Capital expenditures 7,810 314 703 8,827
====================================================================================
In accordance with Emerging Issues Task Force ("EITF") Issue No. 01-14,
"Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred," the Company included in its reported CRO
segment net sales amounts of $5.9 million and $14.0 million for the three and
six months ended June 30, 2003, respectively ($7.1 million and $13.4 million for
the comparable prior year periods ended June 30, 2002, respectively).
5. Restructuring Charges
In 2001, the Company announced the implementation of a second phase of the
productivity and consolidation initiative (the "Phase II Program"). The Phase II
Program, completed in September 2002, further streamlined operations, increased
efficiencies and helped enhance the Company's position as a high-quality,
cost-effective provider of pharmaceutical services. Building on previous
efforts, the Phase II Program included the merging or closing of seven pharmacy
locations and the reconfiguration in size and function of an additional ten
locations. The Phase II Program also included a reduction in occupied building
space in certain locations and the rationalization or reduction of staffing
levels in the CRO business in order to better garner the efficiencies of the
integration and functional reorganization of that business. The Phase II Program
encompassed a net reduction of approximately 460 employees, or about 5% of the
Company's total work force, across both the Pharmacy Services and CRO Services
segments.
In connection with the Phase II Program, the Company expensed a total of
$18.3 million pretax ($11.4 million aftertax, or $0.12 per diluted share) for
restructuring charges during the year ended December 31, 2001. Further,
approximately $23.2 million pretax ($14.4 million aftertax, or $0.15 per diluted
share) was recorded during the year ended December 31, 2002, when the amounts
were required to be recognized in accordance with U.S. GAAP. Of the total amount
recorded during the year ended December 31, 2002, $7.3 million and $12.1 million
pretax ($4.5 million and $7.5 million aftertax, or $0.05 and $0.08 per diluted
share, respectively) were recorded in the three and six months ended June 30,
2002, respectively. The restructuring charges included severance pay, the
buy-out of employment agreements, the buy-out of lease obligations, the
write-off of leasehold improvements and other assets, and related fees and
facility exit costs.
9
Details of the year-to-date June 30, 2003 and December 31, 2002 activity
relating to the Phase II Program follow (in thousands):
Balance at 2002 Utilized Balance at Utilized Balance at
December 31, Provision/ during December 31, during June 30,
2001 Accrual 2002 2002 2003 2003
------------ ---------- -------- ------------ -------- ----------
Restructuring charges:
Employee severance $1,642 $ 2,177 $ (2,655) $1,164 $(1,136) $ 28
Employment agreement buy-outs 508 -- (214) 294 (49) 245
Lease terminations 606 5,862 (1,846) 4,622 (615) 4,007
Other assets, fees
and facility exit costs 3,027 15,156 (14,690) 3,493 (2,012) 1,481
------ ------- -------- ------ ------- ------
Total restructuring charges $5,783 $23,195 $(19,405) $9,573 $(3,812) $5,761
====== ======= ======== ====== ======= ======
As of June 30, 2003, the Company had paid approximately $8.2 million of
severance and other employee-related costs relating to the reduction of
approximately 460 employees. The remaining liabilities recorded at June 30, 2003
represent amounts not yet paid or settled relating to actions taken, and will be
adjusted in future periods as these matters are finalized.
In connection with the previously disclosed first phase of its productivity
and consolidation initiative (the "Phase I Program"), Omnicare had liabilities
of $0.6 million at December 31, 2002 of which $0.2 million was utilized in the
six months ended June 30, 2003. The remaining liabilities at June 30, 2003 of
$0.4 million represent amounts not yet paid relating to actions taken
(consisting of remaining lease payments), and will be adjusted as these matters
are settled.
6. Acquisitions
In January 2002, Omnicare completed the acquisition of the assets
comprising the pharmaceutical business of American Pharmaceutical Services, Inc.
and related entities (collectively, "APS"). At the time of the acquisition,
APS provided professional pharmacy-related consulting services to approximately
60,000 residents of skilled nursing and assisted living facilities through its
network of 32 pharmacies in 15 states, as well as respiratory and Medicare
Part B services for residents of long-term care facilities. The acquisition,
accounted for as a purchase business combination, included cash consideration
and transaction costs which aggregated approximately $120 million (including
an adjustment based on the closing balance sheet review and a $6.0 million
deferred payment made in the first quarter of 2003). An additional $12.0 million
in deferred payments was made in August 2003, satisfying all future contingent
payments under the acquisition agreement. The Company has completed its
purchase price allocation, including the identification of goodwill and
other intangible assets based on an appraisal performed by an independent
valuation firm.
In connection with the purchase of APS, the Company acquired amortizable
intangible assets composed of non-compete agreements and customer relationship
assets totaling $1.3 million and $3.1 million, respectively. Amortization
periods for the non-compete agreements and customer relationship assets are 10.0
years and 4.7 years, respectively, and 6.3 years on a weighted-average basis.
At June 30, 2003, the Company has also recorded goodwill totaling approximately
$66 million (all of which is tax deductible) in connection with the acquisition.
10
On January 15, 2003, Omnicare closed its $5.50 per share cash tender offer
for all of the issued and outstanding shares of Class A common stock and Class B
common stock of NCS HealthCare, Inc. ("NCS"). Omnicare accepted, on January 15,
2003, all validly tendered shares for payment (totaling 17,510,126 shares of
Class A common stock, representing approximately 94% of the then-outstanding
Class A common stock, and 5,038,996 shares of Class B common stock, representing
100% of the then-outstanding Class B common stock). Omnicare subsequently
acquired the remaining shares of Class A common stock of NCS.
The acquisition of NCS, accounted for as a purchase business combination,
included cash consideration and transaction costs of approximately $493 million.
The cash consideration included the payoff of certain NCS debt totaling
approximately $325.5 million, which was retired by Omnicare immediately
following the acquisition. The Company financed the acquisition with available
cash, working capital and borrowings under its three-year, $500.0 million
revolving credit facility. The Company later refinanced the borrowings under its
three-year, $500.0 million revolving credit facility, as described further under
"Debt and Issuance of Common Stock." The Company has engaged an independent
valuation firm to assist with the purchase price allocation, including the
identification of goodwill and other identifiable intangible assets.
At the time of the acquisition, NCS provided professional pharmacy and
related services to long-term care facilities, including skilled nursing centers
and assisted living facilities in 33 states and managed hospital pharmacies in
10 states. NCS added approximately 182,000 beds served in the first quarter of
2003. Omnicare expects to achieve certain economies of scale and operational
efficiencies from the acquisition, while broadening Omnicare's geographical
reach. The net assets and operating results of NCS have been included from the
date of acquisition in the Company's financial statements beginning in the first
quarter of 2003.
Unaudited pro forma combined results of operations of the Company and NCS
for the three and six months ended June 30, 2002 are presented below. Such pro
forma presentation has been prepared assuming that the NCS acquisition had been
made as of January 1, 2002. Pro forma information is not presented for the three
and six months ended June 30, 2003 as the results of NCS are included in those
of the Company from the closing date of January 15, 2003, and the difference
from the beginning of the period is not significant.
The unaudited pro forma combined financial information follows (in
thousands, except per share data):
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
------------------ ----------------
Net sales $813,397 $1,611,099
Net income $ 27,021 $ 53,074
Earnings per share:
Basic $ 0.29 $ 0.56
Diluted $ 0.28 $ 0.56
Earnings per share is calculated independently for each separately reported
period. Accordingly, the sum of the separately reported three months ended
periods may not necessarily
11
be equal to the per share amount for the corresponding six months ended period,
as independently calculated.
7. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the six months ended June
30, 2003, by business segment, are as follows (in thousands):
Pharmacy CRO
Services Services Total
---------- -------- ----------
Balance as of December 31, 2002 $1,149,939 $38,968 $1,188,907
Goodwill acquired in the six
months ended June 30, 2003 423,360 -- 423,360
Other 13,753 1,183 14,936
---------- ------- ----------
Balance as of June 30, 2003 $1,587,052 $40,151 $1,627,203
========== ======= ==========
The "Other" caption above includes the settlement of acquisition matters
relating to pre-2003 acquisitions (including payments pursuant to acquisition
agreements such as deferred payments, indemnification payments and payments
originating from earnout provisions), as well as the effect of adjustments due
to foreign currency translations.
The Company's other intangible assets have not changed significantly from
the balances at December 31, 2002. The Company has engaged an independent
valuation firm to assist with the NCS acquisition purchase price allocation,
including the identification of goodwill and other identifiable intangible
assets. The Company is in the process of completing its allocation of the
purchase price and accordingly, the goodwill balance is preliminary and subject
to change.
8. Debt and Issuance of Common Stock
On June 13, 2003, the Company completed the offering of $250.0 million
aggregate principal amount of 6.125% senior subordinated notes due 2013 ("6.125%
Senior Notes"), issued at par; 6,468,750 shares of common stock, $1 par value,
at $29.16 per share for gross proceeds of $189 million and its offering, through
a statutory trust, Omnicare Capital Trust I ("the Trust"), formed by the
Company, of $345 million aggregate principal amount of convertible trust
preferred securities due 2033 ("trust PIERS" or "Preferred Income Equity
Redeemable Securities"). In connection with the offering of the trust PIERS, the
Company issued a corresponding amount of contingent convertible notes due 2033
to the Trust. The trust PIERS offer fixed cash distributions at a rate of 4.0%
per annum payable quarterly, and a conversion price of $40.82 under a contingent
conversion feature whereby the holders may convert their trust PIERS if the
closing sales price of Omnicare common stock for a predetermined period,
beginning with the quarter ending September 30, 2003, is more than 130% of the
then-applicable conversion price or, during a predetermined period, if the daily
average of the trading prices for the trust PIERS is less than 105% of the
average of the conversion values for the trust PIERS through 2028 (98% for any
period thereafter through maturity). The trust PIERS also will pay contingent
distributions, commencing with the quarterly distribution period beginning
June 15, 2009, if the average trading prices of the trust PIERS for a
predetermined period equals 115% or more of the stated liquidation amount of
the trust PIERS. Embedded in the trust PIERS
12
are two derivative instruments, specifically, a contingent interest provision
and a contingent conversion parity provision. The embedded derivatives are
periodically valued by a third party advisor, and at June 30, 2003 the values of
both derivatives were immaterial. However, the values are subject to change,
based on market conditions, which could affect the Company's future results of
operations. Omnicare irrevocably and unconditionally guarantees, on a
subordinated basis, certain payments to be made by the Trust in connection with
the trust PIERS. The Company used a portion of the net proceeds from the common
stock offering and the net proceeds from the trust PIERS offering to redeem the
entire outstanding $345 million aggregate principal amount of the Company's 5%
convertible subordinated debentures due 2007 ("5% Convertible Debentures"), and
remaining proceeds will be used for general corporate purposes. A portion of the
5% Convertible Debentures (approximately $106.5 million) were redeemed in June
2003 and the remaining 5% Convertible Debentures outstanding were redeemed by
July 14, 2003, as discussed further at the "Subsequent Events" note below. In
connection with the early redemption of the 5% Convertible Debentures, a charge
of $4.1 million pretax ($2.5 million aftertax, or $0.02 per diluted share) was
recorded in the second quarter of 2003, representing the proportionate share of
the call premium and unamortized debt issuance costs.
In connection with the offerings, the Company also completed a new,
four-year $750.0 million credit facility ("Credit Facility"), consisting of a
$250 million term loan commitment and a $500 million revolving credit
commitment. The Company used the net proceeds from the 6.125% Senior Notes
offering and borrowings of $250.0 million under the term loan portion of the
new Credit Facility to repay the balance of the Company's existing credit
facility of $474 million, and remaining proceeds will be used for general
corporate purposes. Also, during the second quarter of 2003, the Company paid
down an additional $50.0 million of debt. The $200 million outstanding under
the term loan is due in quarterly installments through 2007, with $20.0 million
due within one year. The new Credit Facility bears interest at the Company's
option at a rate equal to either: (i) London Interbank Offered Rate ("LIBOR")
plus a margin that varies depending on certain ratings on the Company's senior
long-term debt; or (ii) the higher of (a) the prime rate or (b) the sum of the
federal funds effective rate plus 0.50%. Additionally, the Company is charged a
commitment fee on the unused portion of the revolving credit portion of the
Credit Facility, which also varies depending on such ratings. At June 30, 2003,
the interest rate was LIBOR plus 1.375% and the commitment fee was 0.375%.
There is no utilization fee associated with the Credit Facility.
During the second quarter of 2003, the Company entered into an interest
rate swap agreement ("Swap Agreement") on all $250.0 million of its 6.125%
Senior Notes. Under the Swap Agreement, which hedges against exposure to
long-term U.S. dollar interest rates, the Company will receive a fixed rate of
6.125% and pay a floating rate based on LIBOR with a maturity of six months plus
a spread of 2.27%. The floating rate is determined semi-annually two London
Banking Days prior to the first of each December and June, commencing
December 1, 2003. The estimated LIBOR-based floating rate was 3.38% at June 30,
2003. The Swap Agreement, which matches the term of the 6.125% Senior Notes, is
designated and accounted for as a fair value hedge. The Company is accounting
for the Swap Agreement in accordance with SFAS No. 133, as amended.
13
9. Guarantor Subsidiaries
The Company's $375.0 million senior subordinated notes due 2011 and the
6.125% Senior Notes are fully and unconditionally guaranteed on an unsecured,
joint and several basis by certain wholly owned subsidiaries of the Company (the
"Guarantor Subsidiaries"). The following condensed consolidating financial data
illustrates the composition of Omnicare, Inc. ("Parent"), the Guarantor
Subsidiaries and the Non-Guarantor Subsidiaries as of June 30, 2003 and December
31, 2002 for the balance sheet, the statement of income for each of the three
and six month periods ended June 30, 2003 and 2002, and the statement of cash
flows for the six months ended June 30, 2003 and 2002. Separate complete
financial statements of the respective Guarantor Subsidiaries would not provide
additional information that would be useful in assessing the financial condition
of the Guarantor Subsidiaries and thus are not presented. No eliminations column
is presented for the condensed consolidating statement of cash flows, since
there were no significant eliminating amounts during the periods presented.
Summary Consolidating Statements of Income
(in thousands)
Three Months Ended June 30,
-------------------------------------------------------------------------
Guarantor Non-Guarantor Omnicare , Inc.
2003 Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------
Total net sales $ -- $806,113 $37,920 $ -- $844,033
Total direct costs -- 592,269 30,787 -- 623,056
-------- -------- ------- -------- --------
Gross profit -- 213,844 7,133 -- 220,977
Selling, general and administrative expenses 1,839 120,862 7,389 -- 130,090
-------- -------- ------- -------- --------
Operating income (loss) (1,839) 92,982 (256) -- 90,887
Investment income 1,001 117 48 -- 1,166
Interest expense (21,049) (699) (127) -- (21,875)
-------- -------- ------- -------- --------
Income (loss) before income taxes (21,887) 92,400 (335) -- 70,178
Income tax (benefit) expense (8,317) 35,121 (127) -- 26,677
Equity in net income of subsidiaries 57,071 -- -- (57,071) --
-------- -------- ------- -------- --------
Net income (loss) $ 43,501 $ 57,279 $ (208) $(57,071) $ 43,501
========================================================================================================================
2002
- ------------------------------------------------------------------------------------------------------------------------
Total net sales $ -- $626,812 $27,343 $ -- $ 654,155
Total direct costs -- 460,776 22,449 -- 483,225
-------- -------- ------- -------- ---------
Gross profit -- 166,036 4,894 -- 170,930
Selling, general and administrative expenses 6,374 90,799 5,328 -- 102,501
Restructuring charges -- 6,504 798 -- 7,302
-------- -------- ------- -------- ---------
Operating income (loss) (6,374) 68,733 (1,232) -- 61,127
Investment income 301 289 77 -- 667
Interest expense (14,279) (193) (3) -- (14,475)
-------- -------- ------- -------- ---------
Income (loss) before income taxes (20,352) 68,829 (1,158) -- 47,319
Income tax (benefit) expense (7,734) 26,135 (440) -- 17,961
Equity in net income of subsidiaries 41,976 -- -- (41,976) --
-------- -------- ------- -------- ---------
Net income (loss) $ 29,358 $ 42,694 $ (718) $(41,976) $ 29,358
========================================================================================================================
14
9. Guarantor Subsidiaries (Continued)
Summary Consolidating Statements of Income
(in thousands) Six Months Ended June 30,
-------------------------------------------------------------------------
Guarantor Non-Guarantor Omnicare, Inc.
2003 Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------
Total net sales $ -- $1,584,201 $ 65,693 $ -- $1,649,894
Total direct costs -- 1,167,783 53,173 -- 1,220,956
-------- ---------- -------- --------- ----------
Gross profit -- 416,418 12,520 -- 428,938
Selling, general and administrative expenses 3,368 240,991 12,659 -- 257,018
-------- ---------- -------- --------- ----------
Operating income (loss) (3,368) 175,427 (139) -- 171,920
Investment income 1,346 356 52 -- 1,754
Interest expense (36,992) (1,180) (159) -- (38,331)
-------- ---------- -------- --------- ----------
Income (loss) before income taxes (39,014) 174,603 (246) -- 135,343
Income tax (benefit) expense (14,825) 66,337 (93) -- 51,419
Equity in net income of subsidiaries 108,113 -- -- (108,113) --
-------- ---------- -------- --------- ----------
Net income (loss) $ 83,924 $ 108,266 $ (153) $(108,113) $ 83,924
========================================================================================================================
2002
- ------------------------------------------------------------------------------------------------------------------------
Total net sales $ -- $1,237,989 $ 54,480 $ -- $1,292,469
Total direct costs -- 912,868 44,467 -- 957,335
-------- ---------- -------- --------- ----------
Gross profit -- 325,121 10,013 -- 335,134
Selling, general and administrative expenses 11,764 179,557 10,798 -- 202,119
Restructuring charges -- 11,301 798 -- 12,099
-------- ---------- -------- --------- ----------
Operating income (loss) (11,764) 134,263 (1,583) -- 120,916
Investment income 1,040 319 106 -- 1,465
Interest expense (28,241) (228) (182) -- (28,651)
-------- ---------- -------- --------- ----------
Income (loss) before income taxes (38,965) 134,354 (1,659) -- 93,730
Income tax (benefit) expense (14,807) 51,088 (685) -- 35,596
Equity in net income of subsidiaries 82,292 -- -- (82,292) --
-------- ---------- -------- --------- ----------
Net income (loss) $ 58,134 $ 83,266 $ (974) $ (82,292) $ 58,134
========================================================================================================================
15
9. Guarantor Subsidiaries (Continued)
Condensed Consolidating Balance Sheets
(in thousands)
Guarantor Non-Guarantor Omnicare, Inc.
As of June 30, 2003: Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 555,912 $ 34,384 $ 4,236 $ -- $ 594,532
Restricted cash -- 5,819 -- -- 5,819
Accounts receivable, net (including intercompany) -- 618,541 13,122 (6,560) 625,103
Inventories -- 243,085 4,993 -- 248,078
Other current assets 946 145,261 2,016 -- 148,223
---------- ---------- -------- ----------- ----------
Total current assets 556,858 1,047,090 24,367 (6,560) 1,621,755
---------- ---------- -------- ----------- ----------
Properties and equipment, net -- 140,760 8,774 -- 149,534
Goodwill -- 1,558,617 68,586 -- 1,627,203
Other noncurrent assets 39,678 95,382 886 -- 135,946
Investment in subsidiaries 2,392,462 -- -- (2,392,462) --
---------- ---------- -------- ----------- ----------
Total assets $2,988,998 $2,841,849 $102,613 $(2,399,022) $3,534,438
========== ========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities (including intercompany) $ 61,751 $ 368,952 $ 24,321 $ (6,560) $ 448,464
Long-term debt 180,000 343 -- -- 180,343
5.0% convertible subordinated debentures,
due 2007 238,465 -- -- -- 238,465
8.125% senior subordinated notes, due 2011 375,000 -- -- -- 375,000
6.125% senior subordinated notes, due 2013 250,000 -- -- -- 250,000
4.0% contingent convertible notes, due 2033 345,000 -- -- -- 345,000
Other noncurrent liabilities -- 158,384 -- -- 158,384
Stockholders' equity 1,538,782 2,314,170 78,292 (2,392,462) 1,538,782
---------- ---------- -------- ----------- ----------
Total liabilities and stockholders' equity $2,988,998 $2,841,849 $102,613 $(2,399,022) $3,534,438
- ------------------------------------------------------------------------------------------------------------------------------
As of December 31, 2002:
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 95,693 $ 36,191 $ 6,052 $ -- $ 137,936
Restricted cash -- 3,147 -- -- 3,147
Accounts receivable, net (including intercompany) -- 524,290 13,610 (15,043) 522,857
Inventories -- 185,521 4,943 -- 190,464
Other current assets 1,399 144,399 1,356 -- 147,154
---------- ---------- -------- ----------- ----------
Total current assets 97,092 893,548 25,961 (15,043) 1,001,558
---------- ---------- -------- ----------- ----------
Properties and equipment, net 2,931 126,452 10,525 -- 139,908
Goodwill -- 1,121,728 67,179 -- 1,188,907
Other noncurrent assets 31,234 65,029 949 -- 97,212
Investment in subsidiaries 1,903,357 -- -- (1,903,357) --
---------- ---------- -------- ----------- ----------
Total assets $2,034,614 $2,206,757 $104,614 $(1,918,400) $2,427,585
========== ========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities (including intercompany) $ 37,363 $ 255,691 $ 18,639 $ (15,043) $ 296,650
Long-term debt -- 187 -- -- 187
5.0% convertible subordinated debentures,
due 2007 345,000 -- -- -- 345,000
8.125% senior subordinated notes, due 2011 375,000 -- -- -- 375,000
Other noncurrent liabilities 2,189 132,577 920 -- 135,686
Stockholders' equity 1,275,062 1,818,302 85,055 (1,903,357) 1,275,062
---------- ---------- -------- ----------- ----------
Total liabilities and stockholders' equity $2,034,614 $2,206,757 $104,614 $(1,918,400) $2,427,585
- ------------------------------------------------------------------------------------------------------------------------------
16
9. Guarantor Subsidiaries (Continued)
Condensed Consolidating Statements of Cash Flows
(in thousands)
Six Months Ended June 30,
-----------------------------------------------------------
Guarantor Non-Guarantor Omnicare, Inc.
2003: Parent Subsidiaries Subsidiaries and Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Provision for doubtful accounts $ -- $ 22,749 $ 431 $ 23,180
Other (7,050) 105,265 (1,365) 96,850
--------- --------- ------- ---------
Net cash flows from operating activities (7,050) 128,014 (934) 120,030
--------- --------- ------- ---------
Cash flows from investing activities:
Acquisition of businesses -- (489,415) (2,742) (492,157)
Capital expenditures -- (7,080) (75) (7,155)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust -- (2,672) -- (2,672)
Other -- 53 -- 53
--------- --------- ------- ---------
Net cash flows from investing activities -- (499,114) (2,817) (501,931)
--------- --------- ------- ---------
Cash flows from financing activities:
Borrowings on line of credit facilities and term loans 749,000 -- -- 749,000
Payments on line of credit facilities and term loans (549,000) -- -- (549,000)
Proceeds from / (payments on) long-term borrowings 485,221 -- -- 485,221
Fees paid for financing arrangements (29,366) -- -- (29,366)
Gross proceeds from stock offerings 188,629 -- -- 188,629
Other (377,215) 369,293 (38) (7,960)
--------- --------- ------- ---------
Net cash flows from financing activities 467,269 369,293 (38) 836,524
--------- --------- ------- ---------
Effect of exchange rate changes on cash -- -- 1,973 1,973
--------- --------- ------- ---------
Net increase (decrease) in cash and cash equivalents 460,219 (1,807) (1,816) 456,596
Cash and cash equivalents at beginning of period - unrestricted 95,693 36,191 6,052 137,936
--------- --------- ------- ---------
Cash and cash equivalents at end of period - unrestricted $ 555,912 $ 34,384 $ 4,236 $ 594,532
=============================================================================================================================
2002:
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Provision for doubtful accounts $ -- $ 13,716 $ 460 $ 14,176
Other (13,333) 78,278 4,180 69,125
--------- --------- ------- ---------
Net cash flows from operating activities (13,333) 91,994 4,640 83,301
--------- --------- ------- ---------
Cash flows from investing activities:
Acquisition of businesses -- (106,544) (1,250) (107,794)
Capital expenditures -- (8,588) (239) (8,827)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust -- (3,383) -- (3,383)
Other -- 136 117 253
--------- --------- ------- ---------
Net cash flows from investing activities -- (118,379) (1,372) (119,751)
--------- --------- ------- ---------
Cash flows from financing activities:
Borrowings on line of credit facilities 90,000 -- -- 90,000
Payments on line of credit facilities (40,000) -- -- (40,000)
Other (29,228) 24,056 -- (5,172)
--------- --------- ------- ---------
Net cash flows from financing activities 20,772 24,056 -- 44,828
--------- --------- ------- ---------
Effect of exchange rate changes on cash -- -- 1,465 1,465
--------- --------- ------- ---------
Net increase (decrease) in cash and cash equivalents 7,439 (2,329) 4,733 9,843
Cash and cash equivalents at beginning of period - unrestricted 127,110 37,304 3,982 168,396
--------- --------- ------- ---------
Cash and cash equivalents at end of period - unrestricted $ 134,549 $ 34,975 $ 8,715 $ 178,239
=============================================================================================================================
17
10. Subsequent Events
On July 14, 2003, the Company completed the early redemption of the entire
$345 million aggregate principal amount of the outstanding 5% Convertible
Debentures, which were convertible into 8,712,121 shares of common stock. As
previously discussed, during the second quarter of 2003, the Company redeemed
$106.5 million of its 5% Convertible Debentures. The Company financed the early
redemption with the net proceeds from the offering of the trust PIERS and a
portion of the net proceeds from the offering of its common stock, both
completed on June 13, 2003. The total redemption price, including the call
premium, was approximately $353.9 million. The call premium, along with the
write-off of unamortized debt issuance costs associated with the 5% Convertible
Debentures, relating to the redemption are being recognized in the quarter in
which they are redeemed. Accordingly, an $8.6 million pre-tax charge will be
recognized in the quarter ended September 30, 2003 for the call premium and the
write-off of remaining unamortized debt issuance costs associated with the
redemption of the 5% Convertible Debentures.
On July 15, 2003, Omnicare announced the completion of the acquisition of
the SunScript pharmacy services business from Sun Healthcare Group, Inc. The
acquisition, to be accounted for as a purchase business combination, included
cash consideration of $75.0 million at closing. An additional $15.0 million is
payable post closing, subject to reduction. The Company has engaged an
independent valuation firm to assist with the determination of the initial
purchase price allocation, including the identification of goodwill and other
identifiable intangible assets.
At the time of the acquisition, SunScript provided pharmaceutical products
and related consulting services for skilled nursing and assisted living
facilities comprised of approximately 43,000 beds located in 19 states
(excluding beds in Sun Healthcare facilities that are being divested). SunScript
serves these facilities through its network of 31 long-term care pharmacies.
Omnicare expects to achieve certain economies of scale and operational
efficiencies from the acquisition. The net assets and operating results of
SunScript will be included from the date of acquisition in the Company's
financial statements beginning in the third quarter of 2003.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements, related notes and other financial information
appearing elsewhere in this report. In addition, see "Safe Harbor Statement
under the Private Securities Litigation Reform Act of 1995 Regarding
Forward-Looking Information."
Results of Operations
The following table presents net sales and results of operations for
Omnicare, Inc. ("Omnicare" or the "Company"), for each of the three and six
months ended June 30, 2003 and 2002 (in thousands, except per share amounts).
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------------
2003 2002 2003 2002
-------- -------- ---------- ----------
Total net sales $844,033 $654,155 $1,649,894 $1,292,469
======== ======== ========== ==========
Net income $ 43,501 $ 29,358 $ 83,924 $ 58,134
======== ======== ========== ==========
Earnings per share:
Basic $ 0.45 $ 0.31 $ 0.88 $ 0.62
======== ======== ========== ==========
Diluted $ 0.44 $ 0.31 $ 0.86 $ 0.61
======== ======== ========== ==========
19
The Company believes that certain investors find earnings before interest,
income taxes, depreciation and amortization ("EBITDA") to be a useful tool for
measuring a company's ability to service its debt. However, EBITDA does not
represent net cash flows from operating activities, as defined by United States
Generally Accepted Accounting Principles ("U.S. GAAP"), and should not be
considered as a substitute for net income as an indicator of the Company's
operating performance or operating cash flows as a measure of liquidity. The
Company's calculation of EBITDA may differ from the calculation of EBITDA by
others.
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
(in thousands) 2003 2002 2003 2002
-------- -------- -------- --------
EBITDA calculation:
Net income $ 43,501 $ 29,358 $ 83,924 $ 58,134
Add:
Interest expense, net of investment income 20,709 13,808 36,577 27,186
Income taxes 26,677 17,961 51,419 35,596
Depreciation and amortization 12,688 11,311 25,449 23,002
-------- -------- -------- --------
EBITDA $103,575 $ 72,438 $197,369 $143,918
======== ======== ======== ========
EBITDA reconciliation to net cash flows from operating activities:
EBITDA $103,575 $ 72,438 $197,369 $143,918
(Subtract)/Add:
Interest expense, net of investment income (20,709) (13,808) (36,577) (27,186)
Income taxes (26,677) (17,961) (51,419) (35,596)
Changes in assets and liabilities, net of effects from
acquisition of businesses 39,921 6,570 (32,426) (22,019)
Provision for doubtful accounts 12,135 7,618 23,180 14,176
Deferred tax provision 5,270 2,333 18,739 4,375
Write-off of debt issuance costs 1,164 -- 1,164 --
Non-cash portion of restructuring charges -- 3,213 -- 5,633
-------- -------- -------- --------
Net cash flows from operating activities $114,679 $ 60,403 $120,030 $ 83,301
======== ======== ======== ========
Quarter Ended June 30, 2003 vs. 2002
Consolidated
Total net sales for the three months ended June 30, 2003 increased to
$844.0 million from $654.2 million in the comparable prior year period. Diluted
earnings per share for the three months ended June 30, 2003 were $0.44 versus
$0.31 in the same prior year period. Net income for the 2003 second quarter was
$43.5 million versus $29.4 million earned in the comparable 2002 period. EBITDA
for the three months ended June 30, 2003 totaled $103.6 million in comparison
with $72.4 million for the same period of 2002.
20
Included in the 2003 second quarter was a charge of $4.1 million pretax
($2.5 million aftertax, or $0.02 per diluted share), relating to the call
premium and write-off of unamortized debt issuance costs associated with the
Company's early redemption and retirement of a portion of its 5% convertible
subordinated debentures, further discussed below.
Included in the 2002 second quarter was a charge of $7.3 million pretax
($4.5 million aftertax, or $0.05 per diluted share), relating to the Phase II
productivity and consolidation program described hereafter under "Restructuring
Charges."
Pharmacy Services Segment
Omnicare's Pharmacy Services segment recorded sales of $802.8 million for
the second quarter of 2003, exceeding the 2002 amount of $610.4 million by
$192.4 million. At June 30, 2003, Omnicare served long-term care facilities
comprising approximately 938,000 beds as compared with approximately 738,000
beds served at June 30, 2002. The increase in revenues and in beds served was
primarily a result of the acquisition of NCS HealthCare, Inc. ("NCS"), as
discussed below. Additionally, Pharmacy Services sales increased due to growth
in new contracts, the continued implementation and expansion of the Company's
clinical and other service programs, drug price inflation, and the increased
market penetration of newer branded drugs targeted at the diseases of the
elderly, which often carry higher prices but are significantly more effective in
reducing overall healthcare costs than those they replace. Lower government
reimbursement formulas in some states and the increasing number and usage of
generic drugs partially offset the increase in pharmacy sales.
Operating income of the Pharmacy Services segment was $95.8 million in the
second quarter of 2003, a $26.9 million improvement as compared with the $68.9
million earned in the comparable period of 2002. The improved operating income
was primarily the result of increased sales, as discussed above, a lower
operating cost structure reflecting principally the impact of the productivity
and consolidation initiative completed in the third quarter of 2002 (the "Phase
II Program"), the completion of the integration of American Pharmaceutical
Services, Inc. and related entities (collectively, "APS") discussed below, and
the $2.7 million pretax impact of a restructuring charge in the second quarter
of 2002, partially offset by the initial impact of the lower-margin NCS
business. This negative impact is diminishing as the Company consolidates
redundant pharmacy locations.
As previously disclosed, certain payment increases provided under the
Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 ("BBRA") and
the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000
("BIPA") acts expired on October 1, 2002 with no further action taken by
Congress to date. The impact of these expirations on the Company's customers did
not result in a significant impact to Omnicare in the second quarter of 2003.
Congress may consider these funding issues during 2003; however, if no
additional legislation is enacted, the loss of revenues associated with this
occurrence could have an adverse effect on the financial condition of the
Company's skilled nursing facility ("SNF") clients which could, in turn,
adversely affect the timing or level of their payments to Omnicare.
21
On August 4, 2003, the Centers for Medicare & Medicaid Services ("CMS")
published a final rule announcing that it is adopting a 3.0% market basket
increase in SNF prospective payment system ("PPS") rates for fiscal year 2004,
which begins October 1, 2003. In addition, the rule adjusts fiscal year 2004
rates by an additional 3.26% to reflect cumulative forecast errors since the
start of the SNF PPS on July 1, 1998. Together, CMS estimates that these
adjustments will result in an estimated $850 million increase in Medicare
payments in fiscal year 2004. Moreover, the final rule does not adopt
refinements to the current patient classification system for fiscal year 2004,
which results in the continuation of the temporary add-on payment for certain
high-acuity patients established by the BBRA. CMS estimates that these temporary
payments will equal approximately $1 billion in fiscal year 2004.
In June 2003, the U.S. House of Representatives and Senate adopted separate
Medicare reform bills that would, if enacted, expand Medicare prescription drug
coverage, modify payments to various Medicare providers, and institute
administrative reforms to improve Medicare program operations. It is uncertain
at this time whether Congress ultimately will enact Medicare reform legislation,
what form any such legislation would take, or the impact such legislation would
have on the Company.
Other healthcare funding issues remain, including pressures on federal and
state Medicaid budgets due to the economic downturn, which has led to decreasing
reimbursement rates in certain states. On May 28, 2003, President Bush signed
into law the "Jobs and Growth Reconciliation Tax Act," which includes $20
billion in temporary aid to the states, $10 billion of which is earmarked for
state Medicaid programs. Nevertheless, many states continue to experience budget
shortfalls, which may prompt them to consider implementing reductions in
Medicaid reimbursement. While the Company has managed to adjust to these pricing
pressures to date, such pressures are likely to continue or escalate if economic
recovery does not emerge and there can be no assurance that such occurrence will
not have an adverse impact on the Company's business.
In January 2002, Omnicare completed the acquisition of the assets
comprising the pharmaceutical business of APS. At the time of the acquisition,
APS provided professional pharmacy-related consulting services to approximately
60,000 residents of skilled nursing and assisted living facilities through its
network of 32 pharmacies in 15 states, as well as respiratory and Medicare Part
B services for residents of long-term care facilities. The acquisition,
accounted for as a purchase business combination, included cash consideration
and transaction costs, which aggregated approximately $120 million (including an
adjustment based on the closing balance sheet review and a $6.0 million deferred
payment made in the first quarter of 2003). An additional $12.0 million in
deferred payments was made in August 2003, satisfying all future contingent
payments under the acquisition agreement.
On January 15, 2003, Omnicare closed its $5.50 per share cash tender offer
for all of the issued and outstanding shares of Class A common stock and Class B
common stock of NCS. Omnicare accepted, on January 15, 2003, all validly
tendered shares for payment (totaling 17,510,126 shares of Class A common stock,
representing approximately 94% of the then-outstanding Class A common stock and
5,038,996 shares of Class B common stock, representing
22
100% of the then-outstanding Class B common stock). Omnicare subsequently
acquired the remaining shares of Class A common stock of NCS.
The acquisition of NCS, accounted for as a purchase business combination,
included cash consideration and transaction costs of approximately $493 million.
The cash consideration included the payoff of certain NCS debt totaling
approximately $325.5 million, which was retired by Omnicare immediately
following the acquisition. The Company initially financed the acquisition with
available cash, working capital and borrowings under its three-year, $500.0
million revolving credit facility (the "Revolving Credit Facility"). The Company
later refinanced the borrowings under its Revolving Credit Facility, as
described further under the "Financial Condition, Liquidity and Capital
Resources" caption below. The Company has engaged an independent valuation
firm to assist with the purchase price allocation, including the identification
of goodwill and other intangible assets.
At the time of the acquisition, NCS provided professional pharmacy and
related services to long-term care facilities, including skilled nursing centers
and assisted living facilities in 33 states and managed hospital pharmacies in
10 states. NCS added approximately 182,000 beds served in the first quarter of
2003. Omnicare expects to achieve certain economies of scale and operational
efficiencies from the acquisition, while broadening Omnicare's geographical
reach. The net assets and operating results of NCS have been included from the
date of acquisition in the Company's financial statements beginning in the first
quarter of 2003.
On July 15, 2003, Omnicare announced the completion of the acquisition of
the SunScript pharmacy services business from Sun Healthcare Group, Inc. The
acquisition, to be accounted for as a purchase business combination, included
cash consideration of $75.0 million at closing. An additional $15.0 million is
payable post closing, subject to reduction. The Company has engaged an
independent valuation firm to assist with the determination of the initial
purchase price allocation, including the identification of goodwill and other
identifiable intangible assets.
At the time of the acquisition, SunScript provided pharmaceutical products
and related consulting services for skilled nursing and assisted living
facilities comprised of approximately 43,000 beds located in 19 states
(excluding beds in Sun Healthcare facilities that are being divested). SunScript
serves these facilities through its network of 31 long-term care pharmacies.
Omnicare expects to achieve certain economies of scale and operational
efficiencies from the acquisition. The net assets and operating results of
SunScript will be included from the date of acquisition in the Company's
financial statements beginning in the third quarter of 2003.
CRO Services Segment
Omnicare's Contract Research Organization ("CRO") Services segment recorded
revenues of $41.2 million for the second quarter of 2003 compared with the $43.7
million recorded in the same prior year period. In accordance with Emerging
Issues Task Force ("EITF") Issue No. 01-14, "Income Statement Characterization
of Reimbursements Received for `Out-of-Pocket' Expenses Incurred" ("EITF No.
01-14"), the Company included $5.9 million and $7.1 million of reimbursable
out-of-pockets in its CRO Services segment reported revenue
23
and direct cost amounts for the three months ended June 30, 2003 and 2002,
respectively. Under EITF No. 01-14, in cases where a company acts as a
principal, reimbursements received for "out-of-pocket" expenses incurred are
required to be characterized as revenue and the associated costs are required to
be included as expenses in the Company's income statement. As a result of this
accounting pronouncement, which affects only the CRO business, CRO revenues and
direct costs may fluctuate significantly based on the timing of when
reimbursable expenses are incurred. Excluding the impact of the reimbursable
out-of-pocket expenses, revenues for the quarter ended June 30, 2003 were
marginally lower than the prior-year second quarter revenues, partially due to
client-driven delays in decision-making and project commencement.
Operating income in the CRO Services segment was $4.5 million in the second
quarter of 2003 compared with $0.7 million in the same 2002 period. The
improvement in operating performance was attributable to the year-over-year
realization of benefits from the Company's initiatives to integrate and
streamline the organization and the year-over-year impact of restructuring
charges associated with the Phase II productivity and consolidation program,
which totaled $4.6 million pretax in the 2002 second quarter. The improvement in
operating performance was partially offset by the marginally lower revenues
discussed above. Backlog at June 30, 2003 was $198.6 million, representing an
increase of $3.9 million from the June 30, 2002 backlog of $194.7 million and
$17.0 million from the December 31, 2002 backlog of $181.6 million due to an
increase in new business, particularly in the Peri-Approval (Phase IIIb and IV)
business.
Consolidated
The Company's consolidated gross profit of $221.0 million increased $50.1
million during the second quarter of 2003 from the same prior-year period amount
of $170.9 million. Gross profit as a percentage of total net sales of 26.2% in
the three months ended June 30, 2003 was slightly higher than the 26.1%
experienced during the same period of 2002. Positively impacting overall gross
profit was the Company's increased use of generic drugs, purchasing leverage
associated with the procurement of pharmaceuticals due, in part, to the
completion of the integration of the APS business and benefits realized from the
Company's formulary compliance program, as well as the leveraging of fixed and
variable overhead costs at the Company's pharmacies as a result of the reduced
cost structure brought about by the Phase II Program completed in the third
quarter of 2002 and the integration of the APS business. These favorable factors
were partially offset by the previously mentioned shift in mix toward newer,
branded drugs targeted at the diseases of the elderly that typically produce
higher gross profit but lower gross profit margins, the effects of lower
government reimbursement formulas in some states and the impact of the
lower-margin NCS business in the 2003 period. The negative impact of the
lower-margin NCS business is diminishing as the Company consolidates redundant
pharmacy locations.
Omnicare's selling, general and administrative ("operating") expenses for
the quarter ended June 30, 2003 of $130.1 million were higher than the
comparable year amount of $102.5 million by $27.6 million, due to the overall
growth of the business, including the acquisition of NCS. Operating expenses as
a percentage of total net sales totaled 15.4% in second quarter 2003,
representing a decrease from the 15.7% experienced in the comparable prior year
period.
24
This decrease is due to the year-over-year favorable impact of the Phase II
Program completed in the third quarter of 2002 and the leveraging of fixed and
variable overhead costs over a larger sales base in 2003 than that which existed
in 2002.
Investment income for the three months ended June 30, 2003 was $1.2
million, an increase of $0.5 million from the same period of 2002. Higher cash
balances on hand as a result of the timing of the Company's second quarter 2003
refinancing and operating earnings was the primary driver of the year-over-year
increase in investment income.
Interest expense for the three months ended June 30, 2003 was $21.9 million
compared with $14.5 million in the comparable prior-year period. The increase
related to the previously mentioned financing of the NCS acquisition in January
2003, initially through borrowings on the Revolving Credit Facility of $499.0
million, partially offset by a $25.0 million repayment in the 2003 first
quarter. The interest expense for the three month period ended June 30, 2003
also included a call premium and the write-off of unamortized debt issuance
costs aggregating $4.1 million before taxes ($2.5 million aftertax, or $0.02 per
diluted share). The call premium and the write-off of a ratable portion of the
unamortized debt issuance costs related to the Company's early redemption and
retirement of $106.5 million of its $345 million aggregate principal amount of
5%, convertible subordinated debentures in the second quarter of 2003, in
connection with its refinancing transactions, as further described at the
"Financial Condition, Liquidity and Capital Resources" caption below.
The effective income tax rate was 38% in 2003, consistent with the prior
year. The effective tax rates in 2003 and 2002 are higher than the federal
statutory rate largely as a result of the combined impact of state and local
income taxes, various nondeductible expenses and tax-accrual adjustments.
Six Months Ended June 30, 2003 vs. 2002
Consolidated
Total net sales for the six months ended June 30, 2003 rose to $1,649.9
million from $1,292.5 million in the comparable prior year period. Diluted
earnings per share for the six months ended June 30, 2003 were $0.86 versus
$0.61 in the same prior year period. Net income for the six months ended June
30, 2003 was $83.9 million versus $58.1 million earned in the comparable 2002
period. EBITDA totaled $197.4 million for the six months ended June 30, 2003 as
compared with $143.9 million for the same period of 2002.
Included in the 2003 second quarter was a charge of $4.1 million pretax
($2.5 million aftertax, or $0.02 per diluted share), relating to the call
premium and write-off of unamortized debt issuance costs associated with the
Company's early redemption of its 5% convertible subordinated debentures
discussed below.
25
Included in the year-to-date June 30, 2002 period was a charge of $12.1
million pretax ($7.5 million aftertax, or $0.08 per diluted share), relating to
the Phase II productivity and consolidation program described hereafter under
"Restructuring Charges."
Pharmacy Services Segment
Omnicare's Pharmacy Services segment recorded sales of $1,566.0 million for
the six months ended June 30, 2003, exceeding the same prior period amount of
$1,206.7 million by $359.3 million. The increase in revenues was primarily a
result of the acquisition of NCS. Additionally, Pharmacy Services sales
increased due to the continued implementation and expansion of the Company's
clinical and other service programs, drug price inflation, and the increased
market penetration of newer branded drugs targeted at the diseases of the
elderly, which often carry higher prices but are significantly more effective in
reducing overall healthcare costs than those they replace. Lower government
reimbursement formulas in some states and the increasing number and usage of
generic drugs partially offset the increase in pharmacy sales.
Operating income of the Pharmacy Services segment was $181.2 million for
the six months ended June 30, 2003, an increase of $45.2 million from the $136.0
million earned in the comparable period of 2002. The improved operating income
was primarily the result of increased sales, as discussed above, a lower
operating cost structure reflecting principally the impact of the Phase II
Program started in the third quarter of 2001 and completed in the third quarter
of 2002, the completion of the integration of APS and the $3.9 million pretax
impact of restructuring charges in the 2002 period, partially offset by the
initial impact of the lower-margin NCS business. This negative impact is
diminishing as the Company consolidates redundant pharmacy locations.
As previously disclosed, certain payment increases provided under the BBRA
and the BIPA acts expired on October 1, 2002 with no further action taken by
Congress to date. The impact of these expirations on the Company's customers did
not result in a significant impact to Omnicare in the first six months of 2003.
CRO Services Segment
Omnicare's CRO Services segment recorded revenues of $83.9 million during
the six months ended June 30, 2003 compared with the $85.8 million recorded in
the same prior year period. In accordance with EITF No. 01-14, the Company
included $14.0 million and $13.4 million of reimbursable out-of-pockets in its
CRO Services segment reported revenue and direct cost amounts for the six months
ended June 30, 2003 and 2002, respectively. Excluding the impact of the
reimbursable out-of-pocket expenses, revenues for the six months ended June 30,
2003 were marginally lower than the same prior-year period revenues.
Operating income in the CRO Services segment was $9.2 million for the six
months ended June 30, 2003 compared with $1.9 million in the same 2002 period.
The improvement in operating performance was attributable to the year-over-year
realization of benefits from the Company's initiatives to integrate and
streamline the organization and the year-over-year impact
26
of restructuring charges associated with the Phase II productivity and
consolidation program, which totaled $8.2 million pretax in the year-to-date
2002 period.
Consolidated
The Company's consolidated gross profit of $428.9 million increased $93.8
million during the six months ended June 30, 2003 from the same prior-year
period amount of $335.1 million. Gross profit as a percentage of total net sales
of 26.0% in the six months ended June 30, 2003, was slightly higher than the
25.9% experienced during the same period of 2002. Positively impacting overall
gross profit was the Company's increased use of generic drugs, purchasing
leverage associated with the procurement of pharmaceuticals due, in part, to the
completion of the integration of the APS business and benefits realized from the
Company's formulary compliance program, as well as the leveraging of fixed and
variable overhead costs at the Company's pharmacies as a result of the reduced
cost structure brought about by the Phase II Program and the integration of the
APS business. These favorable factors were offset primarily by the initial
impact of the lower-margin NCS business and, to a lesser extent, by the
previously mentioned shift in mix toward newer, branded drugs targeted at the
diseases of the elderly that typically produce higher gross profit but lower
gross profit margins, and the effects of lower government reimbursement formulas
in some states. The negative impact of the lower-margin NCS business is
diminishing as the Company consolidates redundant pharmacy locations.
Omnicare's operating expenses for the six months ended June 30, 2003 of
$257.0 million were higher than the comparable year amount of $202.1 million by
$54.9 million, due to the overall growth of the business, including the
acquisition of NCS. Operating expenses as a percentage of total net sales
totaled 15.6% in the six months ended June 30, 2003, even with the comparable
prior year period.
Investment income for the six months ended June 30, 2003 was $1.8 million,
an increase of $0.3 million from the same period of 2002 due to larger invested
cash balances in the 2003 period.
Interest expense for the six months ended June 30, 2003 was $38.3 million
compared with $28.7 million in the comparable prior-year period. The increase
related to the previously mentioned financing of the NCS acquisition in January
2003, initially through borrowings on the Revolving Credit Facility of $499.0
million, partially offset by a $25.0 million repayment in the 2003 first
quarter. The increase also included the previously mentioned call premium and
write-off of a ratable portion of the unamortized debt issuance costs,
aggregating $4.1 million before tax ($2.5 million aftertax, or $0.02 per diluted
share).
The effective income tax rate was 38% in the year-to-date 2003 period,
consistent with the prior year period. The effective tax rates in 2003 and 2002
are higher than the federal statutory rate largely as a result of the combined
impact of state and local income taxes, various nondeductible expenses and
tax-accrual adjustments.
27
Restructuring Charges
In 2001, the Company announced the implementation of the Phase II Program,
the second phase of its productivity and consolidation initiative. The Phase II
Program, completed in September 2002, further streamlined operations, increased
efficiencies and helped enhance the Company's position as a high-quality,
cost-effective provider of pharmaceutical services. Building on previous
efforts, the Phase II Program included the merging or closing of seven pharmacy
locations and the reconfiguration in size and function of an additional ten
locations. The Phase II Program also included a reduction in occupied building
space in certain locations and the rationalization or reduction of staffing
levels in the CRO business in order to better garner the efficiencies of the
integration and functional reorganization of that business. The Phase II Program
encompassed a net reduction of approximately 460 employees, or about 5% of the
Company's total work force, across both the Pharmacy Services and CRO Services
segments.
In connection with the Phase II Program, the Company expensed a total of
$18.3 million pretax ($11.4 million aftertax, or $0.12 per diluted share) for
restructuring charges during the year ended December 31, 2001. Further,
approximately $23.2 million pretax ($14.4 million aftertax, or $0.15 per diluted
share) was recorded during the year ended December 31, 2002, when the amounts
were required to be recognized in accordance with U.S. GAAP. Of the total amount
recorded during the year ended December 31, 2002, $7.3 million and $12.1 million
pretax ($4.5 million and $7.5 million aftertax, or $0.05 and $0.08 per diluted
share, respectively) were recorded in the three and six months ended June 30,
2002, respectively. The restructuring charges included severance pay, the
buy-out of employment agreements, the buy-out of lease obligations, the
write-off of leasehold improvements and other assets, and related fees and
facility exit costs.
Details of the year-to-date June 30, 2003 and December 31, 2002 activity
relating to the Phase II Program follow (in thousands):
Balance at 2002 Utilized Balance at Utilized Balance at
December 31, Provision/ during December 31, during June 30,
2001 Accrual 2002 2002 2003 2003
------------ ---------- -------- ------------ -------- ----------
Restructuring charges:
Employee severance $1,642 $ 2,177 $ (2,655) $1,164 $(1,136) $ 28
Employment agreement buy-outs 508 -- (214) 294 (49) 245
Lease terminations 606 5,862 (1,846) 4,622 (615) 4,007
Other assets, fees
and facility exit costs 3,027 15,156 (14,690) 3,493 (2,012) 1,481
------ ------- -------- ------ ------- ------
Total restructuring charges $5,783 $23,195 $(19,405) $9,573 $(3,812) $5,761
====== ======= ======== ====== ======= ======
As of June 30, 2003, the Company had paid approximately $8.2 million of
severance and other employee-related costs relating to the reduction of
approximately 460 employees. The remaining liabilities recorded at June 30, 2003
represent amounts not yet paid or settled relating to actions taken, and will be
adjusted in future periods as these matters are finalized.
In connection with the previously disclosed first phase of its productivity
and consolidation initiative (the "Phase I Program"), Omnicare had liabilities
of $0.6 million at
28
December 31, 2002 of which $0.2 million was utilized in the six months ended
June 30, 2003. The remaining liabilities at June 30, 2003 of $0.4 million
represent amounts not yet paid relating to actions taken (consisting of
remaining lease payments), and will be adjusted as these matters are settled.
Financial Condition, Liquidity and Capital Resources
Cash and cash equivalents at June 30, 2003 were $600.4 million compared
with $141.1 million at December 31, 2002 (including restricted cash amounts of
$5.8 million and $3.1 million, respectively). The Company generated positive
cash flows from operating activities of $120.0 million during the six months
ended June 30, 2003 compared with net cash flows from operating activities of
$83.3 million during the six months ended June 30, 2002. These operating cash
flows, as well as new borrowings and common stock issuance proceeds (further
discussed below), were used primarily for debt repayment, acquisition-related
payments, capital expenditures and dividends in both periods. The increase in
net cash flows from operating activities in the first six months of 2003 was
driven primarily by growth in earnings, as previously discussed in the "Results
of Operations."
Net cash used in investing activities was $501.9 million and $119.8 million
for the six months ended June 30, 2003 and 2002, respectively. Acquisition of
businesses required cash payments of $492.2 million in the first six months of
2003, which were primarily funded initially by borrowings under the Revolving
Credit Facility. Also included in acquisition of businesses were amounts payable
pursuant to acquisition agreements relating to pre-2003 acquisitions,
particularly a $6.0 million deferred payment relating to APS. Acquisition of
businesses during 2002 required $107.8 million of cash payments (including
amounts payable pursuant to acquisition agreements relating to pre-2002
acquisitions), which were funded primarily by borrowings under the Revolving
Credit Facility and operating cash flows. The Company's capital requirements are
primarily comprised of its acquisition program, and capital expenditures,
largely relating to investments in the Company's information technology systems.
There were no material commitments and contingencies outstanding at June 30,
2003, other than certain acquisition-related payments potentially due in the
future, including deferred payments, indemnification payments and payments
originating from earnout provisions, that may become payable. An additional
$12.0 million in deferred payments was made in August 2003, relating to APS,
satisfying all future contingent payments under the acquisition agreement.
Net cash provided by financing activities was $836.5 million and $44.8
million for the six months ended June 30, 2003 and 2002, respectively. In
connection with the aforementioned NCS and APS acquisitions, the Company
borrowed $499.0 million and $90.0 million, respectively, under its Revolving
Credit Facility in the first quarters of 2003 and 2002, respectively. The
Company also completed its refinancing plan in June 2003, as discussed below, in
which it raised $1,033.6 million. Partially offsetting these borrowings were
payments on debt of $549.0 million and $40.0 million during the six months
ended June 30, 2003 and 2002, respectively, as well as the early redemption and
retirement of $106.5 million of the 5% convertible subordinated debentures due
2007 ("5% Convertible Debentures") in the second quarter of 2003.
29
On May 19, 2003, the Company's Board of Directors declared a quarterly cash
dividend of 2.25 cents per share for an indicated annual rate of 9 cents per
common share for 2003. Dividends of $4.3 million paid during the six months
ended June 30, 2003 were consistent with those paid in the comparable prior year
period.
The Company's current ratio was 3.6 to 1.0 at June 30, 2003, compared with
the 3.4 to 1.0 in existence at December 31, 2002.
The acquisition of NCS, accounted for as a purchase business combination,
included cash consideration and transaction costs of approximately $493 million.
The cash consideration included the payoff of certain NCS debt totaling
approximately $325.5 million, which was retired by Omnicare immediately
following the acquisition. The Company initially financed the acquisition with
available cash, working capital and borrowings under its three-year, $500.0
million Revolving Credit Facility. As discussed below, the Company refinanced
the borrowings under its three-year, $500.0 million Revolving Credit Facility
over a longer term.
On June 13, 2003, the Company completed the offering of $250.0 million
aggregate principal amount of 6.125% senior subordinated notes due 2013 ("6.125%
Senior Notes"), issued at par; 6,468,750 shares of common stock, $1 par value,
at $29.16 per share for gross proceeds of $189 million and its offering, through
a statutory trust, Omnicare Capital Trust I ("the Trust"), formed by the
Company, of $345 million aggregate principal amount of convertible trust
preferred securities due 2033 ("trust PIERS" or "Preferred Income Equity
Redeemable Securities"). In connection with the offering of the trust PIERS, the
Company issued a corresponding amount of contingent convertible notes due 2033
to the Trust. The trust PIERS offer fixed cash distributions at a rate of 4.0%
per annum payable quarterly, and a conversion price of $40.82 under a contingent
conversion feature whereby the holders may convert their trust PIERS if the
closing sales price of Omnicare common stock for a predetermined period,
beginning with the quarter ending September 30, 2003, is more than 130% of the
then-applicable conversion price or, during a predetermined period, if the daily
average of the trading prices for the trust PIERS is less than 105% of the
average of the conversion values for the trust PIERS through 2028 (98% for any
period thereafter through maturity). The trust PIERS also will pay contingent
distributions, commencing with the quarterly distribution period beginning June
15, 2009, if the average trading prices of the trust PIERS for a predetermined
period equals 115% or more of the stated liquidation amount of the trust PIERS.
Embedded in the trust PIERS are two derivative instruments, specifically, a
contingent interest provision and a contingent conversion parity provision. The
embedded derivatives are periodically valued by a third party advisor, and at
June 30, 2003 the values of both derivatives were immaterial. However, the
values are subject to change, based on market conditions, which could affect the
Company's future results of operations. Omnicare irrevocably and unconditionally
guarantees, on a subordinated basis, certain payments to be made by the Trust in
connection with the trust PIERS. The Company used a portion of the net proceeds
from the common stock offering and the net proceeds from the trust PIERS
offering to redeem the entire outstanding $345 million aggregate principal
amount of the Company's 5% Convertible Debentures, and remaining proceeds will
be used for general corporate purposes. A portion of the 5% Convertible
Debentures (approximately $106.5 million) were redeemed in June 2003 and the
remaining 5% Convertible Debentures outstanding were redeemed by July 14, 2003,
as discussed below. In connection
30
with the early redemption of the 5% Convertible Debentures, a charge of $4.1
million pretax ($2.5 million aftertax, or $0.02 per diluted share) was recorded
in the second quarter of 2003, representing the proportionate share of the call
premium and unamortized debt issuance costs.
In connection with the offerings, the Company also completed a new,
four-year $750.0 million credit facility ("Credit Facility") consisting of a
$250 million term loan commitment and a $500 million revolving credit
commitment. The Company used the net proceeds from the 6.125% Senior Notes
offering and borrowings of $250.0 million under the term loan portion of the new
Credit Facility to repay the balance of the Company's existing credit facility
of $474 million, and remaining proceeds will be used for general corporate
purposes. Also, during the second quarter of 2003, the Company paid down an
additional $50.0 million of debt. The $200 million outstanding under the term
loan is due in quarterly installments through 2007, with $20.0 million due
within one year. The new Credit Facility bears interest at the Company's option
at a rate equal to either: (i) London Interbank Offered Rate ("LIBOR") plus a
margin that varies depending on certain ratings on the Company's senior
long-term debt; or (ii) the higher of (a) the prime rate or (b) the sum of the
federal funds effective rate plus 0.50%. Additionally, the Company is charged a
commitment fee on the unused portion of the revolving credit portion of the
Credit Facility, which also varies depending on such ratings. At June 30, 2003,
the interest rate was LIBOR plus 1.375% and the commitment fee was 0.375%. There
is no utilization fee associated with the Credit Facility.
On July 14, 2003, the Company completed the redemption of the entire $345
million aggregate principal amount of the outstanding 5% Convertible Debentures,
which were convertible into 8,712,121 shares of common stock. As previously
discussed, during the second quarter of 2003, the Company redeemed $106.5
million of its 5% Convertible Debentures. The Company financed the redemption
with the net proceeds from the offering of the trust PIERS and a portion of the
net proceeds from the offering of its common stock, both completed on June 13,
2003. The total redemption price, including the call premium, was approximately
$353.9 million. The call premium, along with the write-off of unamortized debt
issuance costs associated with the 5% Convertible Debentures, relating to the
redemption are being recognized in the quarter in which they are redeemed.
Accordingly, an $8.6 million pre-tax charge will be recognized in the quarter
ended September 30, 2003 for the call premium and the write-off of remaining
unamortized debt issuance costs associated with the redemption of the 5%
Convertible Debentures.
During the second quarter of 2003, the Company entered into an interest
rate swap agreement ("Swap Agreement") on all $250.0 million of its 6.125%
Senior Notes. Under the Swap Agreement, which hedges against exposure to
long-term U.S. dollar interest rates, the Company will receive a fixed rate of
6.125% and pay a floating rate based on LIBOR with a maturity of six months plus
a spread of 2.27%. The floating rate is determined semi-annually two London
Banking Days prior to the first of each December and June, commencing
December 1, 2003. The estimated LIBOR-based floatig rate was 3.38% at June 30,
2003. The Swap Agreement, which matches the term of the 6.125% Senior Notes, is
designated and accounted for as a fair value hedge. The Company is accounting
for the Swap Agreement in accordance with SFAS No. 133, as amended.
31
The Company believes that net cash flows from operating activities, credit
facilities and other short- and long-term debt financings, if any, will be
sufficient to satisfy its future working capital, acquisition contingency
commitments, debt servicing, capital expenditures and other financing
requirements for the foreseeable future. The Company may, in the future,
refinance its indebtedness, issue additional indebtedness, or issue additional
equity as deemed appropriate. The Company believes that, if needed, these
additional external sources of financing are readily available.
Disclosures About Off-Balance Sheet Arrangements and Aggregate Contractual
Obligations
At June 30, 2003, the Company had one unconsolidated entity, Omnicare
Capital Trust I, which was established for the purpose of facilitating the trust
PIERS offering. For financial reporting purposes, the Omnicare Capital Trust I
is treated as an equity method investment of Omnicare. The contingent
convertible notes issued by the Company to the Trust in connection with the
trust PIERS are presented as a separate line item on Omnicare's consolidated
balance sheet, and the related disclosures concerning the trust PIERS, the
guarantee and the contingent convertible notes are included in Omnicare's notes
to consolidated financial statements. Omnicare records interest payable to the
Trust as interest expense in its consolidated statement of income.
At June 30, 2003, the Company had no other unconsolidated entities, or any
financial partnerships, such as entities often referred to as structured finance
or special purpose entities, which might have been established for the purpose
of facilitating off-balance sheet arrangements.
The following summarizes the Company's contractual obligations at June 30,
2003, and the effect such obligations are expected to have on the Company's
liquidity and cash flows in future periods (in thousands):
Less than After
Total 1 year 1-3 years 4-5 years 5 years
---------- --------- --------- --------- --------
Long-term debt obligations $1,408,465 $20,000 $60,000 $358,465 $970,000
Capital lease obligations 746 403 114 100 129
Operating lease obligations 125,225 26,477 37,770 37,433 23,545
---------- ------- ------- -------- --------
Total contractual cash obligations $1,534,436 $46,880 $97,884 $395,998 $993,674
========== ======= ======= ======== ========
On July 15, 2003, Omnicare announced the completion of the acquisition of
the SunScript pharmacy services business from Sun Healthcare Group, Inc. The
acquisition, to be accounted for as a purchase business combination, included
cash consideration of $75.0 million at closing. An additional $15.0 million is
payable post closing, subject to reduction. The $75.0 million paid at closing
was funded from existing cash balances.
Recently Issued Accounting Standards
Effective January 1, 2003, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of
32
FASB Statement No. 13, and Technical Corrections" ("SFAS 145"), SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"),
FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN
45") and FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" ("FIN 46"). All accounting and disclosure relevant to this
authoritative guidance has been incorporated into this Quarterly Report on Form
10-Q. The adoption of SFAS 145, SFAS 146, FIN 45 and FIN 46 did not have a
material impact on the Company's consolidated financial position, results of
operations or cash flows.
In October 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 147, "Acquisition of Certain Financial Institutions." This
pronouncement is not applicable to the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of SFAS 123" ("SFAS
148"). While limited in scope, SFAS 148 provides additional transition guidance
for those entities that elect to voluntarily adopt the accounting provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The
standard is intended to encourage the adoption of the provisions of SFAS 123 by
providing three transitional implementation methodologies. Even for those
companies choosing not to adopt the provisions of SFAS 123, SFAS 148 includes
new annual and interim disclosure requirements related to a company's issuance
of stock compensation. The transition and disclosure provisions of SFAS 148 are
effective for fiscal years ending after December 15, 2002. The disclosure
provisions of SFAS 148 have been incorporated into the notes to consolidated
financial statements, and Omnicare currently intends to continue accounting for
stock-based compensation plans in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations, as permitted by U.S. GAAP.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
Statement is effective for the Company beginning July 1, 2003. The adoption of
this Statement will not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Amendment for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances) in the statement of financial
position. This Statement was effective for the Company for financial instruments
entered into or modified after May 31, 2003. The adoption of this Statement did
not have a material impact on our consolidated financial position, results of
operations or cash flows.
33
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Regarding Forward-Looking Information
In addition to historical information, this report contains forward-looking
statements and performance trends that are subject to certain known and unknown
risks, uncertainties, contingencies and other factors that could cause actual
results, performance or achievements to differ materially from those stated.
Such forward-looking statements and trends include those relating to Omnicare's
business outlook or position or future economic performance; the impact of the
acquisition of NCS; the impact of new pharmacy services contracts; the impact of
clinical and other service programs; the impact of drug price inflation; the
impact of penetration of new drugs; the impact of lower government reimbursement
formulas in some states; trends concerning the number and usage of generic
drugs; the impact of the productivity and consolidation programs; the impact of
the integration of the APS and NCS acquisitions; the impact of reimbursement
trends and expectations concerning legislative action with respect thereto
including with regard to the impact of the expiration of certain payments under
BBRA and BIPA, as well as the increase in Medicare payment rates to SNFs for the
2004 federal fiscal year; expectations concerning the current patient
classification system; the impact of healthcare funding issues; the impact of
Medicare reform legislation under Congressional consideration; governmental
budgetary and pricing pressures due to the economic downturn; the impact of the
SunScript acquisition; the impact of streamlining and cost reduction at the CRO
organization; trends concerning CRO backlog; purchasing leverage; the formulary
compliance program; the leveraging of costs; the impact of higher cash balances
due to the refinancing; the impact of contractual obligations on future periods;
the adequacy and availability of Omnicare's sources of liquidity and capital;
the availability of external sources of financing; and the impact of new
accounting rules and standards. Such forward-looking statements involve actual
known and unknown risks, uncertainties, contingencies and other factors that
could cause actual results, performance or achievements to differ materially
from those stated. Such risks, uncertainties, contingencies and other factors,
many of which are beyond the control of Omnicare, include, but are not limited
to: overall economic, financial and business conditions; trends for the
continued growth of the businesses of Omnicare; increases or decreases in
reimbursement; the effect of new government regulations, executive orders and/or
legislative initiatives, including those relating to reimbursement and drug
pricing policies and changes in the interpretation and application of such
policies; government budgetary pressures and shifting priorities; efforts by
payors to control costs; delays and further reductions in reimbursement by the
government and other payors to customers and to Omnicare as a result of
pressures on federal and state budgets due to the continuing economic downturn
and other factors; the overall financial condition of Omnicare's customers;
Omnicare's ability to assess and react to the financial condition of customers;
the ability to implement productivity, consolidation and cost reduction efforts
and to realize anticipated benefits; the continued successful integration of
acquired companies, including NCS and SunScript, and the ability to realize
anticipated economies of scale, cost synergies and profitability; the continued
availability of suitable acquisition candidates; pricing and other competitive
factors in the industry; the impact of seasonal illness trends on the business
of Omnicare; the ability of vendors and business partners to provide products
and services to Omnicare; the impact and pace of pharmaceutical price increases;
the outcome of litigation; the failure of Omnicare or the long-term care
facilities it serves to obtain or maintain required regulatory approvals or
licenses; loss or delay of CRO contracts for regulatory or other
34
reasons; the ability of CRO projects to produce revenues in future periods; the
ability to attract and retain needed management; potential liability for losses
not covered by, or in excess of, insurance; competition for qualified staff in
the healthcare industry; the impact and pace of technological advances; the
ability to obtain or maintain rights to data, technology and other intellectual
property; the impact of consolidation in the pharmaceutical and long-term care
industries; changes in tax law and regulation; volatility in the market for
Omnicare's stock and in the financial markets generally; access to capital and
financing; changes in international economic and political conditions and
currency fluctuations between the U.S. dollar and other currencies; the demand
for Omnicare's products and services; variations in costs or expenses; and
changes in accounting rules and standards.
35
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omnicare's primary market risk exposure relates to interest rate risk
exposure through its borrowings. The Company's debt obligations at June 30, 2003
include $200.0 million outstanding under the term loan portion of its June 2003
four-year, variable-rate Credit Facility at an interest rate of LIBOR plus
1.375%, or 2.6% at June 30, 2003 (a one-hundred basis point change in the
interest rate would impact pretax interest expense by approximately $2.0 million
per year); $238.5 million outstanding under its 5.0% fixed-rate convertible
debentures, due 2007 (the "5.0% Convertible Debentures"); $375.0 million
outstanding under its 8.125% fixed-rate senior subordinated notes (the "8.125%
Senior Notes"), due 2011; $250.0 million outstanding under its 6.125% fixed-rate
senior subordinated notes (the "6.125% Senior Notes"), due 2013; and $345.0
million outstanding under its 4.0% fixed-rate convertible debentures (the "4.0%
Convertible Debentures"), due 2033. During the second quarter of 2003, the
Company entered into an interest rate swap agreement ("Swap Agreement") on all
$250.0 million of its 6.125% Senior Notes. Under the Swap Agreement, which
hedges against exposure to long-term U.S. dollar interest rates, the Company
will receive a fixed rate of 6.125% and pay a floating rate based on LIBOR with
a maturity of six months plus a spread of 2.27%. The floating rate is determined
semi-annually two London Banking Days prior to the first of each December and
June, commencing December 1, 2003. The estimated LIBOR-based floating rate was
3.38% at June 30, 2003 (a one-hundred basis point change in the interest rate
would impact pretax interest expense by approximately $2.5 million per year).
The Swap Agreement, which matches the term of the 6.125% Senior Notes, is
designated and accounted for as a fair value hedge. The Company is accounting
for the Swap Agreement in accordance with SFAS No. 133, as amended. At June 30,
2003, the fair value of Omnicare's Credit Facility approximates its carrying
value, and the fair value of the 5.0% Convertible Debentures, 8.125% Senior
Notes, 6.125% Senior Notes and 4.0% Convertible Debentures is approximately
$244.1 million, $406.9 million, $255.0 million and $378.1 million, respectively.
The Company has operations and revenue that occur outside of the United
States ("U.S.") and transactions that are settled in currencies other than the
U.S. dollar, exposing it to market risk related to changes in foreign currency
exchange rates. However, the substantial portion of the Company's operations and
revenues and the substantial portion of the Company's cash settlements are
exchanged in U.S. dollars. Therefore, changes in foreign currency exchange rates
do not represent a substantial market risk exposure to the Company.
Embedded in the trust PIERS are two derivative instruments, specifically, a
contingent interest provision and a contingent conversion parity provision. The
embedded derivatives are periodically valued by a third party advisor, and at
June 30, 2003 the values of both derivatives were immaterial. However, the
values are subject to change, based on market conditions, which could affect the
Company's future results of operations.
The Company does not have any financial instruments held for trading
purposes.
36
ITEM 4. CONTROLS AND PROCEDURES
(a) Based on a recent evaluation, as of the end of the period covered by
this Quarterly Report on Form 10-Q, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures (as defined in the Exchange Act Rules 13a-14 and 15d-14) are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in
periodic reports filed under the Securities Exchange Act of 1934.
(b) There were no changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
37
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Omnicare held its Annual Meeting of Stockholders on May 19, 2003.
(b) The names of each director elected at this Annual Meeting, as well as the
corresponding number of shares voted for, and withheld from, each nominee
follows:
Votes For Votes Withheld
---------- --------------
Edward L. Hutton 81,488,308 3,889,854
Joel F. Gemunder 81,504,735 3,873,427
Charles H. Erhart, Jr. 81,037,756 4,340,406
David W. Froesel, Jr. 81,339,182 4,038,980
Cheryl D. Hodges 81,338,033 4,040,129
Patrick E. Keefe 79,163,762 6,214,400
Sandra E. Laney 74,642,983 10,735,179
Andrea R. Lindell, DNSc, RN 81,050,647 4,327,515
Sheldon Margen, M.D. 80,644,757 4,733,405
John H. Timoney 81,215,151 4,163,011
(c) The Stockholders ratified the selection by the Board of Directors of
PricewaterhouseCoopers LLP as independent accountants for the Company and
its consolidated subsidiaries for the 2003 year. A total of 82,428,634
votes were cast in favor of the proposal; 2,905,507 votes were cast against
it; 44,021 votes abstained; and there were no Broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index of Exhibits.
(b) Reports on Form 8-K
(I) During the quarter ended June 30, 2003, the Company filed a Report on Form
8-K on May 1, 2003 reporting, under Item 9, the filing of a press release
announcing its financial results for the first quarter of 2003.
(II) During the quarter ended June 30, 2003, the Company filed a Report on Form
8-K on June 3, 2003 reporting, under Items 5 and 7, the filing of the
amended and restated by-laws of Omnicare, Inc. as approved and adopted on
May 19, 2003.
38
(III) During the quarter ended June 30, 2003, the Company filed a Report on Form
8-K on June 12, 2003 reporting, under Items 5 and 7, the filing of
Statements of Eligibility under the Trust Indenture Act of 1939.
(IV) During the quarter ended June 30, 2003, the Company filed a Report on Form
8-K on June 16, 2003 reporting, under Items 5 and 7, the filing of exhibits
in connection with the Registration Statement on Form S-3 (File No.
333-103115) declared effective by the Securities and Exchange Commission on
February 25, 2003.
39
SIGNATURE
Pursuant to the requirements 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.
Omnicare, Inc.
Registrant
Date: August 14, 2003 By: /s/ David W. Froesel, Jr.
------------------------------------
David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
40
INDEX OF EXHIBITS
Document Incorporated by Reference
Number and Description of Exhibit from a Previous Filing or Filed
(Numbers Coincide with Item 601 of Regulation S-K) Herewith, as Indicated Below
- -------------------------------------------------- ----------------------------------
(4.1) Subordinated Debt Securities Indenture, Form 8-K
dated as of June 13, 2003 between Filed June 13, 2003
Omnicare, Inc. and SunTrust Bank, as
Trustee
(4.2) First Supplemental Indenture, dated as of Form 8-K
June 13, 2003, between Omnicare, Inc. and Filed June 13, 2003
SunTrust Bank, as Trustee
(4.3) Second Supplemental Indenture, dated as Form 8-K
of June 13, 2003, between Omnicare, Inc. Filed June 13, 2003
and SunTrust Bank, as Trustee
(4.4) Amended and Restated Trust Agreement of Form 8-K
Omnicare Capital Trust, dated as of June Filed June 13, 2003
13, 2003
(4.5) Guarantee Agreement of Omnicare, Inc. Form 8-K
relating to the Trust Preferred Income Filed June 13, 2003
Equity Redeemable Securities, dated as
of June 13, 2003
(4.6) $750,000,000 Credit Agreement, dated as Filed Herewith
of June 13, 2003, by and among Omnicare,
Inc., as Borrower, the lenders from time to
time parties thereto, as Lenders, JPMorgan
Chase Bank, as a Joint Syndication Agent,
Wachovia Bank, National Association, as a
Joint Documentation Agent, Lehman Commercial
Paper Inc., as a Joint Syndication Agent,
UBS Securities LLC, as a Joint
Documentation Agent, and SunTrust Bank, as
the Administrative Agent (execution copy).
(11) Computation of Earnings Per Common Share Filed Herewith
(12) Computation of Ratio of Earnings to Fixed Filed Herewith
Charges
E-1
Document Incorporated by Reference
Number and Description of Exhibit from a Previous Filing or Filed
(Numbers Coincide with Item 601 of Regulation S-K) Herewith, as Indicated Below
- -------------------------------------------------- ----------------------------------
(31.1) Rule 13a-14(a) Certification of Chief Filed Herewith
Executive Officer of Omnicare, Inc. in
accordance with Section 302 of the
Sarbanes-Oxley Act of 2002
(31.2) Rule 13a-14(a) Certification of Chief Filed Herewith
Financial Officer of Omnicare, Inc. in
accordance with Section 302 of the
Sarbanes-Oxley Act of 2002
(32.1) Section 1350 Certification of Chief Furnished
Executive Officer of Omnicare, Inc. in
accordance with Section 906 of the
Sarbanes-Oxley Act of 2002*
(32.2) Section 1350 Certification of Chief Furnished
Financial Officer of Omnicare, Inc. in
accordance with Section 906 of the
Sarbanes-Oxley Act of 2002*
* A signed original of this written statement required by Section 906 has been
provided to Omnicare, Inc. and will be retained by Omnicare, Inc. and furnished
to the Securities and Exchange Commission or its staff upon request.
E-2