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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 September 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)
(859) 392-3300
--------------
(Registrant's Telephone Number, Including Area Code)
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 102,438,681 September 30, 2003
OMNICARE, INC. AND
SUBSIDIARY COMPANIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Income -
Three and nine months ended -
September 30, 2003 and 2002 3
Consolidated Balance Sheets -
September 30, 2003 and December 31, 2002 4
Consolidated Statements of Cash Flows -
Nine months ended -
September 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 37
ITEM 4. CONTROLS AND PROCEDURES 38
PART II. OTHER INFORMATION:
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 39
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 Nine Months Ended
September 30, September 30,
------------------------ --------------------------
2003 2002 2003 2002
-------- -------- ---------- ----------
Sales $896,099 $657,270 $2,532,035 $1,936,386
Reimbursable out-of-pockets 5,555 7,448 19,513 20,801
-------- -------- ---------- ----------
Total net sales 901,654 664,718 2,551,548 1,957,187
-------- -------- ---------- ----------
Cost of sales 668,844 481,703 1,875,842 1,425,685
Reimbursed out-of-pocket expenses 5,555 7,448 19,513 20,801
-------- -------- ---------- ----------
Total direct costs 674,399 489,151 1,895,355 1,446,486
-------- -------- ---------- ----------
Gross profit 227,255 175,567 656,193 510,701
Selling, general and administrative expenses 123,592 103,888 380,610 306,007
Restructuring charges (Note 5) -- 11,096 -- 23,195
-------- -------- ---------- ----------
Operating income 103,663 60,583 275,583 181,499
Investment income 880 651 2,634 2,116
Interest expense (Note 8) (26,316) (14,339) (64,647) (42,990)
-------- -------- ---------- ----------
Income before income taxes 78,227 46,895 213,570 140,625
Income taxes 29,397 17,829 80,816 53,425
-------- -------- ---------- ----------
Net income $ 48,830 $ 29,066 $ 132,754 $ 87,200
=========== =========== =========== ===========
Earnings per share:
Basic $ 0.48 $ 0.31 $ 1.36 $ 0.93
=========== =========== =========== ===========
Diluted $ 0.47 $ 0.31 $ 1.34 $ 0.92
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic 101,965 94,245 97,490 94,129
=========== =========== =========== ===========
Diluted 102,944 94,710 103,017 94,920
=========== =========== =========== ===========
Dividends per share $ 0.0225 $ 0.0225 $ 0.0675 $ 0.0675
=========== =========== =========== ===========
Comprehensive income $ 48,396 $ 31,030 $ 134,574 $ 91,010
=========== =========== =========== ===========
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)
September 30, December 31,
2003 2002
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 268,250 $ 137,936
Restricted cash 5,819 3,147
Accounts receivable, less allowances
of $92,311 (2002 - $68,593) 620,156 522,857
Unbilled receivables 20,526 25,062
Inventories 296,289 190,464
Deferred income tax benefits 11,371 18,621
Other current assets 121,424 103,471
---------- ----------
Total current assets 1,343,835 1,001,558
Properties and equipment, at cost less accumulated
depreciation of $194,964 (2002 - $177,870) 149,631 139,908
Goodwill 1,706,269 1,188,907
Other noncurrent assets 130,659 97,212
---------- ----------
Total assets $3,330,394 $2,427,585
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 290,374 $ 175,648
Current debt 18,899 110
Accrued employee compensation 29,849 22,627
Deferred revenue 22,116 25,254
Income taxes payable 23,752 6,837
Other current liabilities 74,806 66,174
---------- ----------
Total current liabilities 459,796 296,650
Long-term debt 141,791 187
5.0% convertible subordinated debentures, due 2007 -- 345,000
8.125% senior subordinated notes, due 2011 375,000 375,000
6.125% senior subordinated notes, due 2013 232,784 --
4.0% contingent convertible notes, due 2033 345,000 --
Deferred income tax liabilities 98,734 84,071
Other noncurrent liabilities 71,978 51,615
---------- ----------
Total liabilities 1,725,083 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,
104,288,700 shares issued (2002 - 95,441,400 shares issued) 104,289 95,441
Paid-in capital 962,749 737,421
Retained earnings 625,047 498,856
---------- ----------
1,692,085 1,331,718
Treasury stock, at cost - 1,850,000 shares (2002 - 1,139,900 shares) (45,599) (23,471)
Deferred compensation (38,828) (29,018)
Accumulated other comprehensive income (2,347) (4,167)
---------- ----------
Total stockholders' equity 1,605,311 1,275,062
---------- ----------
Total liabilities and stockholders' equity $3,330,394 $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)
Nine Months Ended
September 30,
---------------------------
2003 2002
--------- ---------
Cash flows from operating activities:
Net income $ 132,754 $ 87,200
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation 28,369 24,920
Amortization 9,960 9,444
Provision for doubtful accounts 34,676 22,114
Deferred tax provision 21,756 12,342
Write-off of debt issuance costs 3,755 --
Non-cash portion of restructuring charges -- 9,060
Changes in assets and liabilities, net of effects
from acquisition of businesses:
Accounts receivable and unbilled receivables (28,131) (25,621)
Inventories (58,703) (539)
Current and noncurrent assets 3,782 (32,526)
Accounts payable 59,200 20,736
Accrued employee compensation 281 (527)
Deferred revenue (3,138) (13,060)
Current and noncurrent liabilities (22,198) 17,056
--------- ---------
Net cash flows from operating activities 182,363 130,599
--------- ---------
Cash flows from investing activities:
Acquisition of businesses, net of cash received (599,689) (115,893)
Capital expenditures (11,241) (16,762)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust (2,672) (3,400)
Other 58 263
--------- ---------
Net cash flows from investing activities (613,544) (135,792)
--------- ---------
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 (589,000) (80,000)
Proceeds from long-term borrowings 595,000 --
Payments on long-term borrowings and obligations (354,242) (64)
Fees paid for financing arrangements (29,366) --
Gross proceeds from stock offering 188,629 --
Proceeds from stock awards and exercise of stock options,
net of stock tendered in payment 5,834 352
Dividends paid (6,559) (6,364)
Other 122 72
--------- ---------
Net cash flows from financing activities 559,418 3,996
--------- ---------
Effect of exchange rate changes on cash 2,077 2,083
--------- ---------
Net increase in cash and cash equivalents 130,314 886
Cash and cash equivalents at beginning of period - unrestricted 137,936 168,396
--------- ---------
Cash and cash equivalents at end of period - unrestricted $ 268,250 $ 169,282
========= =========
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 September 30, 2003, the Company had three stock-based employee
compensation plans. As permitted under 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 Nine Months Ended
September 30, September 30,
------------------- ---------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income, as reported $48,830 $29,066 $132,754 $87,200
Deduct: Total stock-based employee
compensation expense determined
under fair value-based method for all
options, net of related tax effects (2,160) (2,476) (6,820) (5,359)
------- ------- -------- -------
Pro forma net income $46,670 $26,590 $125,934 $81,841
======= ======= ======== =======
Earnings per share:
Basic - as reported $ 0.48 $ 0.31 $ 1.36 $ 0.93
======= ======= ======== =======
Basic - pro forma $ 0.46 $ 0.28 $ 1.29 $ 0.87
======= ======= ======== =======
Diluted - as reported $ 0.47 $ 0.31 $ 1.34 $ 0.92
======= ======= ======== =======
Diluted - pro forma $ 0.45 $ 0.28 $ 1.27 $ 0.86
======= ======= ======== =======
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 Nine Months Ended
September 30, September 30,
------------------------------ -----------------------------
2003 2002 2003 2002
----------- ---------- ----------- ---------
Volatility 60% 63% 60% 63%
Risk-free interest rate 2.9% 2.9% 2.9% 2.9%
Dividend yield 0.2% 0.4% 0.2% 0.4%
Expected term of options (in years) 5.2 5.4 5.2 5.4
Weighted average fair value per option $17.91 $11.88 $15.63 $14.23
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 was effective for the Company beginning July 1, 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.
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 September 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
September 30, 2003.
The table below presents information about the reportable segments as
of and for the three and nine months ended September 30, 2003 and 2002 and
should be read in conjunction with the paragraph that follows (in thousands):
Three Months Ended September 30,
----------------------------------------------------------
Corporate
Pharmacy CRO and Consolidated
2003: Services Services Consolidating Totals
- ------------------------------------------------------------------------------------------------------
Net sales $ 865,923 $ 35,731 $ -- $ 901,654
Depreciation and amortization 11,832 468 580 12,880
Operating income (expense) 111,587 1,646 (9,570) 103,663
Total assets 2,941,061 115,232 274,101 3,330,394
Capital expenditures 3,861 91 134 4,086
- ------------------------------------------------------------------------------------------------------
2002:
- ------------------------------------------------------------------------------------------------------
Net sales $ 623,241 $ 41,477 $ -- $ 664,718
Depreciation and amortization 10,176 524 662 11,362
Restructuring charges (2,911) (8,185) -- (11,096)
Operating income (expense) 72,173 (2,831) (8,759) 60,583
Total assets 2,079,031 147,949 208,550 2,435,530
Capital expenditures 7,560 217 158 7,935
- ------------------------------------------------------------------------------------------------------
8
Nine Months Ended September 30,
------------------------------------------------------------------
Corporate
Pharmacy CRO and Consolidated
2003: Services Services Consolidating Totals
- -------------------------------------------------------------------------------------------------------
Net sales $2,431,905 $119,643 $ -- $2,551,548
Depreciation and amortization 35,206 1,369 1,754 38,329
Operating income (expense) 292,782 10,861 (28,060) 275,583
Total assets 2,941,061 115,232 274,101 3,330,394
Capital expenditures 9,946 796 499 11,241
- -------------------------------------------------------------------------------------------------------
2002:
- -------------------------------------------------------------------------------------------------------
Net sales $1,829,918 $127,269 $ -- $1,957,187
Depreciation and amortization 30,559 1,734 2,071 34,364
Restructuring charges (6,769) (16,426) -- (23,195)
Operating income (expense) 208,134 (884) (25,751) 181,499
Total assets 2,079,031 147,949 208,550 2,435,530
Capital expenditures 15,370 531 861 16,762
- -------------------------------------------------------------------------------------------------------
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 $5.6 million and $19.5 million for the three and
nine months ended September 30, 2003, respectively ($7.4 million and $20.8
million for the comparable prior year periods ended September 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, $11.1 million and $23.2
million pretax ($6.9 million and $14.4 million aftertax, or $0.07 and $0.15 per
diluted share, respectively) were recorded in the three and nine months ended
September 30, 2002, respectively. The restructuring charges included severance
pay, the buy-out of employment
9
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 September 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 September 30,
2001 Accrual 2002 2002 2003 2003
------------ ---------- ---------- ------------ -------- -------------
Restructuring charges:
Employee severance $1,642 $ 2,177 $ (2,655) $1,164 $(1,141) $ 23
Employment agreement buy-outs 508 -- (214) 294 (263) 31
Lease terminations 606 5,862 (1,846) 4,622 (899) 3,723
Other assets, fees
and facility exit costs 3,027 15,156 (14,690) 3,493 (2,157) 1,336
------- -------- -------- ------ ------- ------
Total restructuring charges $5,783 $23,195 $(19,405) $9,573 $(4,460) $5,113
======= ======== ======== ====== ======= ======
As of September 30, 2003, the Company had paid approximately $8.5 million
of severance and other employee-related costs relating to the reduction of
approximately 460 employees. The remaining liabilities recorded at September 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"), the Company had
liabilities of $0.6 million at December 31, 2002 of which $0.3 million was
utilized in the nine months ended September 30, 2003. The remaining liabilities
at September 30, 2003 of $0.3 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
------------
On July 15, 2003, Omnicare completed the acquisition of the SunScript
pharmacy services business from Sun Healthcare Group, Inc. The acquisition,
accounted for as a purchase business combination, included cash consideration
and transaction costs of approximately $79 million. The Company funded the
acquisition of SunScript from existing cash balances. An additional $15.0
million is payable post closing, subject to reduction. The Company is using 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 Sun Healthcare is divesting).
SunScript served 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 have been included from the date of acquisition in the
Company's financial statements.
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 $500 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 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 is using an
independent valuation firm to assist with the purchase price allocation,
including the identification of goodwill and other identifiable intangible
assets. The Company also continues to evaluate the tax effects of the NCS
acquisition.
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 is achieving 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.
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 $132 million (including an
adjustment based on the closing balance sheet review, a $6.0 million deferred
payment made in the first quarter of 2003 and an additional $12.0 million in
deferred payments made in the third quarter of 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
September 30, 2003, the Company has also recorded goodwill
11
totaling approximately $78 million (all of which is tax deductible) in
connection with the acquisition.
Unaudited pro forma combined results of operations of the Company and NCS
for the three and nine months ended September 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 nine months ended September 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 presentation excludes the impact of SunScript, due to the
lack of significance on the pro forma combined results.
The unaudited pro forma combined financial information follows (in
thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
------------------ ------------------
Net sales $824,864 $2,435,963
Net income $ 25,100 $ 78,174
Earnings per share:
Basic $ 0.27 $ 0.83
Diluted $ 0.27 $ 0.82
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 be equal to the per share amount for the
corresponding nine months ended period, as independently calculated.
7. Goodwill and Other Intangible Assets
------------------------------------
Changes in the carrying amount of goodwill for the nine months ended
September 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 nine
months ended September 30, 2003 488,703 -- 488,703
Other 27,598 1,061 28,659
---------- ------- ----------
Balance as of September 30, 2003 $1,666,240 $40,029 $1,706,269
========== ======= ==========
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, which relate solely to CRO Services.
12
During the third quarter of 2003, the Company completed its annual goodwill
impairment assessment based on an evaluation of estimated undiscounted future
cash flows and determined that goodwill was not impaired.
The Company's other intangible assets have not changed significantly from
the balances at December 31, 2002. The Company is using independent valuation
firms to assist with the purchase price allocations for the NCS and SunScript
acquisitions, including the identification of goodwill and other identifiable
intangible assets. The Company is in the process of completing its allocations
of the purchase price for NCS and SunScript and accordingly, the goodwill
balance is preliminary and subject to change.
8. Debt and Issuance of Common Stock
---------------------------------
During the second quarter of 2003, the Company completed its offering of
$250.0 million aggregate principal amount of 6.125% senior subordinated notes
due 2013 ("6.125% Senior Notes"), issued at par and 6,468,750 shares of common
stock, $1 par value, at $29.16 per share for gross proceeds of $189 million and
the offering, through Omnicare Capital Trust I, a statutory trust formed by the
Company (the "Trust"), 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
September 30, 2003 the values of both derivatives were not material. 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"), with remaining proceeds being used for
general corporate purposes. A portion of the 5% Convertible Debentures
(approximately $106.5 million) were redeemed in June 2003. In July 2003, the
Company redeemed the remainder of the 5% Convertible Debentures (approximately
$238.5 million) completing its 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). 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
13
associated with the 5% Convertible Debentures, were recognized ratably in the
quarter in which they were redeemed. Accordingly, an $8.6 million pre-tax charge
($5.3 million aftertax, or $0.05 per diluted share) was recognized in interest
expense during 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. A charge of $4.1 million pretax
($2.5 million aftertax, or $0.02 per diluted share) was recorded in interest
expense during 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, with remaining proceeds being used for general corporate
purposes. The Company paid down $50.0 million and $40.0 million on the term
loan during the second and third quarters, respectively. The $160.0 million
outstanding at September 30, 2003 under the term loan is due in quarterly
installments, in varying amounts, through 2007, with approximately $18.5
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 September 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 aggregate
principal amount of the 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
3.45% at September 30, 2003. The Swap Agreement, which matches the terms 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, so changes in fair value of the Swap Agreement are offset by changes in
the recorded carrying value of the related 6.125% Senior Notes. The fair value
of the Swap Agreement is recorded as a noncurrent liability and reduced the
carrying value of the related 6.125% Senior Notes by $17.2 million as of
September 30, 2003.
14
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 September 30, 2003 and
December 31, 2002 for the balance sheet, the statement of income for each of the
three and nine month periods ended September 30, 2003 and 2002, and the
statement of cash flows for the nine months ended September 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 September 30,
--------------------------------------------------------------------------
Guarantor Non-Guarantor Omnicare, Inc.
2003 Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------------
Total net sales $ -- $ 871,419 $ 30,235 $ -- $ 901,654
Total direct costs -- 649,848 24,551 -- 674,399
-------- --------- -------- -------- ---------
Gross profit -- 221,571 5,684 -- 227,255
Selling, general and administrative expenses 1,372 117,406 4,814 -- 123,592
-------- --------- -------- -------- ---------
Operating income (loss) (1,372) 104,165 870 -- 103,663
Investment income 427 440 13 -- 880
Interest expense (26,047) (213) (56) -- (26,316)
-------- --------- -------- -------- ---------
Income (loss) before income taxes (26,992) 104,392 827 -- 78,227
Income tax (benefit) expense (10,257) 39,340 314 -- 29,397
Equity in net income of subsidiaries 65,565 -- -- (65,565) --
-------- --------- -------- -------- ---------
Net income (loss) $ 48,830 $ 65,052 $ 513 $(65,565) $ 48,830
- -----------------------------------------------------------------------------------------------------------------------------
2002
- -----------------------------------------------------------------------------------------------------------------------------
Total net sales $ -- $ 636,159 $ 28,559 $ -- $ 664,718
Total direct costs -- 465,856 23,295 -- 489,151
-------- --------- -------- -------- ---------
Gross profit -- 170,303 5,264 -- 175,567
Selling, general and administrative expenses 5,325 92,965 5,598 -- 103,888
Restructuring charges -- 11,096 -- -- 11,096
-------- --------- -------- -------- ---------
Operating income (loss) (5,325) 66,242 (334) -- 60,583
Investment income 497 70 84 -- 651
Interest expense (14,332) (7) -- -- (14,339)
-------- --------- -------- -------- ---------
Income (loss) before income taxes (19,160) 66,305 (250) -- 46,895
Income tax (benefit) expense (7,281) 25,205 (95) -- 17,829
Equity in net income of subsidiaries 40,945 -- -- (40,945) --
-------- --------- -------- -------- ---------
Net income (loss) $ 29,066 $ 41,100 $ (155) $(40,945) $ 29,066
- -----------------------------------------------------------------------------------------------------------------------------
15
9. Guarantor Subsidiaries (Continued)
----------------------------------
Summary Consolidating Statements of Income
(in thousands) Nine Months Ended September 30,
---------------------------------------------------------------------------
Guarantor Non-Guarantor Omnicare, Inc.
2003 Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------------
Total net sales $ -- $ 2,455,620 $ 95,928 $ -- $ 2,551,548
Total direct costs -- 1,817,631 77,724 -- 1,895,355
--------- ----------- -------- --------- -----------
Gross profit -- 637,989 18,204 -- 656,193
Selling, general and administrative expenses 4,740 358,397 17,473 -- 380,610
--------- ----------- -------- --------- -----------
Operating income (loss) (4,740) 279,592 731 -- 275,583
Investment income 1,773 796 65 -- 2,634
Interest expense (63,039) (1,393) (215) -- (64,647)
--------- ----------- -------- --------- -----------
Income (loss) before income taxes (66,006) 278,995 581 -- 213,570
Income tax (benefit) expense (25,082) 105,677 221 -- 80,816
Equity in net income of subsidiaries 173,678 -- -- (173,678) --
--------- ----------- -------- --------- -----------
Net income (loss) $ 132,754 $ 173,318 $ 360 $(173,678) $ 132,754
- -----------------------------------------------------------------------------------------------------------------------------
2002
- -----------------------------------------------------------------------------------------------------------------------------
Total net sales $ -- $ 1,874,148 $ 83,039 $ -- $ 1,957,187
Total direct costs -- 1,378,724 67,762 -- 1,446,486
--------- ----------- -------- --------- -----------
Gross profit -- 495,424 15,277 -- 510,701
Selling, general and administrative expenses 17,089 272,522 16,396 -- 306,007
Restructuring charges -- 22,397 798 -- 23,195
--------- ----------- -------- --------- -----------
Operating income (loss) (17,089) 200,505 (1,917) -- 181,499
Investment income 1,537 389 190 -- 2,116
Interest expense (42,573) (235) (182) -- (42,990)
--------- ----------- -------- --------- -----------
Income (loss) before income taxes (58,125) 200,659 (1,909) -- 140,625
Income tax (benefit) expense (22,088) 76,293 (780) -- 53,425
Equity in net income of subsidiaries 123,237 -- -- (123,237) --
--------- ----------- -------- --------- -----------
Net income (loss) $ 87,200 $ 124,366 $ (1,129) $(123,237) $ 87,200
- -----------------------------------------------------------------------------------------------------------------------------
16
9. Guarantor Subsidiaries (Continued)
----------------------------------
Condensed Consolidating Balance Sheets
(in thousands)
Omnicare, Inc.
Guarantor Non-Guarantor and
As of September 30, 2003: Parent Subsidiaries Subsidiaries Eliminations Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 232,500 $ 30,196 $ 5,554 $ -- $ 268,250
Restricted cash -- 5,819 -- -- 5,819
Accounts receivable, net (including intercompany) -- 617,979 14,313 (12,136) 620,156
Inventories -- 291,459 4,830 -- 296,289
Other current assets 853 150,611 1,857 -- 153,321
---------- ---------- -------- ----------- ----------
Total current assets 233,353 1,096,064 26,554 (12,136) 1,343,835
---------- ---------- -------- ----------- ----------
Properties and equipment, net -- 139,570 10,061 -- 149,631
Goodwill -- 1,638,675 67,594 -- 1,706,269
Other noncurrent assets 35,710 89,763 5,186 -- 130,659
Investment in subsidiaries 2,499,593 -- -- (2,499,593) --
---------- ---------- -------- ----------- ----------
Total assets $2,768,656 $2,964,072 $109,395 $(2,511,729) $3,330,394
========== ========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities (including intercompany) $ 70,561 $ 389,914 $ 11,457 $ (12,136) $ 459,796
Long-term debt 140,000 1,091 700 -- 141,791
8.125% senior subordinated notes, due 2011 375,000 -- -- -- 375,000
6.125% senior subordinated notes, due 2013 232,784 -- -- -- 232,784
4.0% contingent convertible notes, due 2033 345,000 -- -- -- 345,000
Other noncurrent liabilities -- 170,686 26 -- 170,712
Stockholders' equity 1,605,311 2,402,381 97,212 (2,499,593) 1,605,311
---------- ---------- -------- ----------- ----------
Total liabilities and stockholders' equity $2,768,656 $2,964,072 $109,395 $(2,511,729) $3,330,394
- -----------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------
17
9. Guarantor Subsidiaries (Continued)
----------------------------------
Condensed Consolidating Statements of Cash Flows
(in thousands) Nine Months Ended September 30,
----------------------------------------------------------
Guarantor Non-Guarantor Omnicare, Inc.
2003: Parent Subsidiaries Subsidiaries and Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Provision for doubtful accounts $ -- $ 33,977 $ 699 $ 34,676
Other (24,731) 170,086 2,332 147,687
--------- --------- ------- ---------
Net cash flows from operating activities (24,731) 204,063 3,031 182,363
--------- --------- ------- ---------
Cash flows from investing activities:
Acquisition of businesses, net of cash received -- (594,113) (5,576) (599,689)
Capital expenditures -- (11,134) (107) (11,241)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust -- (2,672) -- (2,672)
Other -- 43 15 58
--------- --------- ------- ---------
Net cash flows from investing activities -- (607,876) (5,668) (613,544)
--------- --------- ------- ---------
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 (589,000) -- -- (589,000)
Proceeds from long-term borrowings 595,000 -- -- 595,000
Payments on long-term borrowings and obligations (354,242) -- -- (354,242)
Fees paid for financing arrangements (29,366) -- -- (29,366)
Gross proceeds from stock offerings 188,629 -- -- 188,629
Other (398,483) 397,818 62 (603)
--------- --------- ------- ---------
Net cash flows from financing activities 161,538 397,818 62 559,418
--------- --------- ------- ---------
Effect of exchange rate changes on cash -- -- 2,077 2,077
--------- --------- ------- ---------
Net increase (decrease) in cash and cash equivalents 136,807 (5,995) (498) 130,314
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 $ 232,500 $ 30,196 $ 5,554 $ 268,250
- -----------------------------------------------------------------------------------------------------------------------------
2002:
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Provision for doubtful accounts $ -- $ 21,440 $ 674 $ 22,114
Other (25,868) 133,934 419 108,485
--------- --------- ------- ---------
Net cash flows from operating activities (25,868) 155,374 1,093 130,599
--------- --------- ------- ---------
Cash flows from investing activities:
Acquisition of businesses -- (114,643) (1,250) (115,893)
Capital expenditures -- (16,523) (239) (16,762)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust -- (3,400) -- (3,400)
Other -- 146 117 263
--------- --------- ------- ---------
Net cash flows from investing activities -- (134,420) (1,372) (135,792)
--------- --------- ------- ---------
Cash flows from financing activities:
Borrowings on line of credit facilities 90,000 -- -- 90,000
Payments on line of credit facilities (80,000) -- -- (80,000)
Other 13,558 (19,562) -- (6,004)
--------- --------- ------- ---------
Net cash flows from financing activities 23,558 (19,562) -- 3,996
--------- --------- ------- ---------
Effect of exchange rate changes on cash -- -- 2,083 2,083
--------- --------- ------- ---------
Net increase (decrease) in cash and cash equivalents (2,310) 1,392 1,804 886
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 $ 124,800 $ 38,696 $ 5,786 $ 169,282
- -----------------------------------------------------------------------------------------------------------------------------
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 consolidated net sales and results of
operations for Omnicare, Inc. ("Omnicare" or the "Company"), for each of the
three and nine months ended September 30, 2003 and 2002 (in thousands, except
per share amounts).
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2003 2002 2003 2002
---- ---- ---- ----
Total net sales $901,654 $664,718 $2,551,548 $1,957,187
======== ======== ========== ==========
Net income $ 48,830 $ 29,066 $ 132,754 $ 87,200
======== ======== ========== ==========
Earnings per share:
Basic $ 0.48 $ 0.31 $ 1.36 $ 0.93
======== ======== ========== ==========
Diluted $ 0.47 $ 0.31 $ 1.34 $ 0.92
======== ======== ========== ==========
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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
(in thousands) 2003 2002 2003 2002
---- ---- ---- ----
EBITDA calculation:
Net income $ 48,830 $ 29,066 $132,754 $ 87,200
Add:
Interest expense, net of investment income 25,436 13,688 62,013 40,874
Income taxes 29,397 17,829 80,816 53,425
Depreciation and amortization 12,880 11,362 38,329 34,364
-------- -------- -------- --------
EBITDA $116,543 $ 71,945 $313,912 $215,863
======== ======== ======== ========
EBITDA reconciliation to net cash flows
from operating activities:
EBITDA $116,543 $ 71,945 $313,912 $215,863
(Subtract)/Add:
Interest expense, net of investment income (25,436) (13,688) (62,013) (40,874)
Income taxes (29,397) (17,829) (80,816) (53,425)
Changes in assets and liabilities, net of effects from
acquisition of businesses (16,481) (12,462) (48,907) (34,481)
Provision for doubtful accounts 11,496 7,938 34,676 22,114
Deferred tax provision 3,017 7,967 21,756 12,342
Write-off of debt issuance costs 2,591 -- 3,755 --
Non-cash portion of restructuring charges -- 3,427 -- 9,060
-------- -------- -------- --------
Net cash flows from operating activities $ 62,333 $ 47,298 $182,363 $130,599
======== ======== ======== ========
Quarter Ended September 30, 2003 vs. 2002
- --------------------------------------------------------------------------------
Consolidated
Total net sales for the three months ended September 30, 2003 increased
to $901.7 million from $664.7 million in the comparable prior year period.
Diluted earnings per share for the three months ended September 30, 2003 were
$0.47 versus $0.31 in the same prior year period. Net income for the 2003 third
quarter was $48.8 million versus $29.1 million earned in the comparable 2002
period. EBITDA for the three months ended September 30, 2003 totaled $116.5
million in comparison with $71.9 million for the same period of 2002.
20
Included in the 2003 third quarter interest expense was a charge of
$8.6 million pretax ($5.3 million aftertax, or $0.05 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 the remaining
outstanding portion of its 5% convertible subordinated debentures, further
discussed below.
Included in the 2002 third quarter was a charge of $11.1 million pretax
($6.9 million aftertax, or $0.07 per diluted share), relating to the Phase II
productivity and consolidation program described under the "Restructuring
Charges" caption below.
Pharmacy Services Segment
Omnicare's Pharmacy Services segment recorded sales of $865.9 million
for the third quarter of 2003, exceeding the 2002 amount of $623.2 million by
$242.7 million. At September 30, 2003, Omnicare served long-term care facilities
comprising approximately 994,000 beds as compared with approximately 746,000
beds served at September 30, 2002. The increase in revenues and in beds served
was primarily a result of the acquisitions of NCS HealthCare, Inc. ("NCS") and
the SunScript pharmacy services businesses, 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 $111.6 million in
the third quarter of 2003, a $39.4 million improvement as compared with the
$72.2 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 at the end of the third quarter of 2002
(the "Phase II Program"), the ongoing integration of NCS and the $2.9 million
pretax impact of a restructuring charge in the third quarter of 2002, partially
offset by the initial impact of the lower-margin SunScript business added during
the third quarter of 2003, which impact is expected to diminish as the Company
achieves economies of scale, drug purchasing improvements, and consolidates
redundant pharmacy locations.
On July 15, 2003, Omnicare completed the acquisition of the SunScript
pharmacy services business from Sun Healthcare Group, Inc. The acquisition,
accounted for as a purchase business combination, included cash consideration
and transaction costs of approximately $79 million. The Company funded the
acquisition of SunScript from existing cash balances. An additional $15.0
million is payable post closing, subject to reduction. The Company is using 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.
21
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 Sun Healthcare is divesting).
SunScript served 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 have been included from the date of acquisition in the
Company's financial statements.
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 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
$500 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 is using an independent valuation firm
to assist with the purchase price allocation, including the identification of
goodwill and other intangible assets. The Company also continues to evaluate
the tax effects of the NCS acquisition.
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 is achieving 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.
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 $132 million (including an
adjustment based on the closing balance sheet review, a $6.0 million deferred
payment made in the first quarter of 2003 and an additional
22
$12.0 million in deferred payments made in the third quarter of 2003, satisfying
all future contingent payments under the acquisition agreement).
As part of ongoing operations, the Company and its customers are
subject to regulatory changes in the level of reimbursement received from the
Medicare and Medicaid programs. As disclosed in the Company's previous public
filings, certain payment increases to skilled nursing facilities ("SNFs")
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 has not had a significant impact on Omnicare to date.
Nonetheless, the loss of revenues associated with the expiration of these
payments or future changes in SNF payments could, in the future, have an
adverse effect on the financial condition of the Company's SNF clients which
could, in turn, adversely affect the timing or level of their payments to
Omnicare.
Partially offsetting the October 1, 2002 expiration of certain
payment increases under BBRA and BIPA as discussed above, the Centers for
Medicare & Medicaid Services ("CMS") published, on August 4, 2003, 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 increases 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 to SNFs 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,
modify the current Part B drug reimbursement mechanism to further limit payments
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.
23
CRO Services Segment
Omnicare's Contract Research Organization ("CRO") Services segment
recorded revenues of $35.7 million for the third quarter of 2003 compared with
the $41.5 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 $5.6 million and $7.4 million
of reimbursable out-of-pockets in its CRO Services segment reported revenue and
direct cost amounts for the three months ended September 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. Revenues for the quarter ended September 30,
2003 were lower than the prior-year third quarter revenues primarily due to
client-driven start-up delays in certain projects.
Operating income in the CRO Services segment was $1.6 million in the
third quarter of 2003 compared with an operating loss of $2.8 million in the
same 2002 period. The improvement in operating income was attributable to
the year-over-year impact of restructuring charges associated with the Phase II
productivity and consolidation program, which totaled $8.2 million pretax in the
2002 third quarter, partially offset by the impact on operating income of the
lower revenues discussed above. Backlog at September 30, 2003 was $207.9
million, representing an increase of $6.9 million from the September 30, 2002
backlog of $201.0 million, and $26.3 million from the December 31, 2002 backlog
of $181.6 million due to an increase in new business.
Consolidated
The Company's consolidated gross profit of $227.3 million increased
$51.7 million during the third quarter of 2003 from the same prior-year period
amount of $175.6 million. Gross profit as a percentage of total net sales of
25.2% in the three months ended September 30, 2003 was lower than the 26.4%
experienced during the same period of 2002. Positively impacting overall gross
profit were the Company's purchasing leverage associated with the procurement of
pharmaceuticals due, in part, to the ongoing integration of the NCS business and
benefits realized from the Company's formulary compliance program, as well as
the increased use of generic drugs, 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 NCS business. These favorable factors were more
than 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, lower gross profit margins in the CRO
business, and the impact of the lower-margin SunScript business in the 2003
period, which impact is expected to diminish as the Company achieves economies
of scale, drug purchasing improvements, and consolidates redundant pharmacy
locations.
24
Omnicare's selling, general and administrative ("operating") expenses
for the quarter ended September 30, 2003 of $123.6 million were higher than the
comparable year amount of $103.9 million by $19.7 million, due to the overall
growth of the business, including the acquisitions of NCS and SunScript.
Operating expenses as a percentage of total net sales totaled 13.7% in the third
quarter 2003, representing a decrease from the 15.6% experienced in the
comparable prior year period. This decrease is primarily due to the
year-over-year favorable impact of the Phase II Program completed at the end of
the third quarter of 2002 as well as realization of synergies from the APS
acquisition, 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 September 30, 2003 was
$0.9 million, an increase of $0.2 million from the same period of 2002. Higher
cash balances on hand as a result of the Company's second quarter 2003
refinancing and third quarter 2003 operating results was the primary driver of
the year-over-year increase in investment income.
Interest expense for the three months ended September 30, 2003 was
$26.3 million compared with $14.3 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 September 30, 2003 also included a call premium and the write-off of
unamortized debt issuance costs aggregating $8.6 million before taxes ($5.3
million aftertax, or $0.05 per diluted share). The call premium and the
write-off of the unamortized debt issuance costs related to the completion of
the Company's early redemption and retirement of its $345 million aggregate
principal amount of 5%, convertible subordinated debentures in the third quarter
of 2003, in connection with its refinancing transactions, as further described
at the "Financial Condition, Liquidity and Capital Resources" caption below.
Partially offsetting this increase was reduced interest expense associated with
Omnicare's repayment of $40.0 million on the term loan during the third quarter
of 2003.
The effective income tax rate was 38% in the third quarter of 2003,
consistent with the comparable 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.
25
Nine Months Ended September 30, 2003 vs. 2002
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Consolidated
Total net sales for the nine months ended September 30, 2003 rose to
$2,551.5 million from $1,957.2 million in the comparable prior year period.
Diluted earnings per share for the nine months ended September 30, 2003 were
$1.34 versus $0.92 in the same prior year period. Net income for the nine months
ended September 30, 2003 was $132.8 million versus $87.2 million earned in the
comparable 2002 period. EBITDA totaled $313.9 million for the nine months ended
September 30, 2003 as compared with $215.9 million for the same period of 2002.
Included in interest expense during the year-to-date September 30, 2003
period was a charge of $12.7 million pretax ($7.9 million aftertax, or $0.08 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.
Included in the year-to-date September 30, 2002 period was a charge of
$23.2 million pretax ($14.4 million aftertax, or $0.15 per diluted share),
relating to the Phase II productivity and consolidation program described under
the "Restructuring Charges" caption below.
Pharmacy Services Segment
Omnicare's Pharmacy Services segment recorded sales of $2,431.9 million
for the nine months ended September 30, 2003, exceeding the comparable prior
period amount for 2002 of $1,829.9 million by $602.0 million. The increase in
revenues was primarily a result of the acquisition of NCS and to a lesser
extent, the addition of the SunScript business during the third quarter of 2003.
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 $292.8 million
for the nine months ended September 30, 2003, an increase of $84.7 million from
the $208.1 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 2001 and completed in the third quarter of 2002, the
completion of the integration of APS and the $6.8 million pretax impact of
restructuring charges in the 2002 period, partially offset by the initial impact
of the lower-margin NCS and SunScript business added in the first and third
quarters of 2003, respectively, which impact is expected to diminish as the
Company achieves economies of scale, drug purchasing improvements, and
consolidates redundant pharmacy locations.
26
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
nine months of 2003.
CRO Services Segment
Omnicare's CRO Services segment recorded revenues of $119.6 million
during the nine months ended September 30, 2003 compared with the $127.3 million
recorded in the same prior year period. In accordance with EITF No. 01-14, the
Company included $19.5 million and $20.8 million of reimbursable out-of-pockets
in its CRO Services segment reported revenue and direct cost amounts for the
nine months ended September 30, 2003 and 2002, respectively. Revenues for the
nine months ended September 30, 2003 were lower than the same prior-year period
revenues largely due to client-driven delays in commencement and continuation
of certain projects.
Operating income in the CRO Services segment was $10.9 million for the
nine months ended September 30, 2003 compared with an operating loss of $0.9
million in the same 2002 period. The improvement in operating income 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 $16.4 million pretax in the year-to-date
2002 period, partially offset by the impact on operating income of the lower
revenues discussed above.
Consolidated
The Company's consolidated gross profit of $656.2 million increased
$145.5 million during the nine months ended September 30, 2003 from the same
prior-year period amount of $510.7 million. Gross profit as a percentage of
total net sales of 25.7% in the nine months ended September 30, 2003, was
slightly lower than the 26.1% experienced during the same period of 2002.
Positively impacting overall gross profit were the Company's 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 increased use of generic
drugs, 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 and
SunScript business (which impact is expected to diminish as the Company
achieves economies of scale, drug purchasing improvements, and consolidates
redundant pharmacy locations) 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.
Omnicare's operating expenses for the nine months ended September 30,
2003 of $380.6 million were higher than the comparable year amount of $306.0
million by $74.6 million, due to the overall growth of the business, including
the acquisitions of NCS and SunScript in the first
27
and third quarters of 2003, respectively. Operating expenses as a percentage of
total net sales totaled 14.9% in the nine months ended September 30, 2003, lower
than the 15.6% experienced during the comparable prior year period. This
decrease is primarily due to the year-over-year favorable impact of the Phase II
Program completed at the end of the third quarter of 2002 as well as realization
of synergies from the APS acquisition, 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 nine months ended September 30, 2003 was $2.6
million, an increase of $0.5 million from the same period of 2002 due to the
previously disclosed larger average invested cash balances in the 2003 period.
Interest expense for the nine months ended September 30, 2003 was $64.6
million compared with $43.0 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 the unamortized debt issuance costs, aggregating $12.7 million
before tax ($7.9 million aftertax, or $0.08 per diluted share). Partially
offsetting this increase was reduced interest expense associated with Omnicare's
repayment of $50.0 million and $40.0 million on the term loan during the second
and third quarters of 2003, respectively.
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.
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, $11.1 million and $23.2
million
28
pretax ($6.9 million and $14.4 million aftertax, or $0.07 and $0.15 per diluted
share, respectively) were recorded in the three and nine months ended September
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 September 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 September 30,
2001 Accrual 2002 2002 2003 2003
------------ ---------- ------ ------------ ------ -------------
Restructuring charges:
Employee severance $1,642 $ 2,177 $ (2,655) $1,164 $(1,141) $ 23
Employment agreement buy-outs 508 -- (214) 294 (263) 31
Lease terminations 606 5,862 (1,846) 4,622 (899) 3,723
Other assets, fees
and facility exit costs 3,027 15,156 (14,690) 3,493 (2,157) 1,336
------ ------- ------- ------ -------- -------
Total restructuring charges $5,783 $23,195 $(19,405) $9,573 $(4,460) $5,113
====== ======= ======== ====== ======= =======
As of September 30, 2003, the Company had paid approximately $8.5
million of severance and other employee-related costs relating to the reduction
of approximately 460 employees. The remaining liabilities recorded at September
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"), the Company
had liabilities of $0.6 million at December 31, 2002 of which $0.3 million was
utilized in the nine months ended September 30, 2003. The remaining liabilities
at September 30, 2003 of $0.3 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 September 30, 2003 were $274.1 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 $182.4 million during the nine
months ended September 30, 2003 compared with net cash flows from operating
activities of $130.6 million during the nine months ended September 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
nine months of 2003 was driven primarily by growth in earnings, as previously
discussed in the "Results of Operations" section above.
29
Net cash used in investing activities was $613.5 million and $135.8
million for the nine months ended September 30, 2003 and 2002, respectively.
Acquisition of businesses required cash payments of $599.7 million in the first
nine months of 2003, which were primarily funded by borrowings and existing cash
balances. Also included in acquisition of businesses were amounts payable
pursuant to acquisition agreements relating to pre-2003 acquisitions.
Acquisition of businesses required $115.9 million of cash payments during the
nine months ended September 30, 2002 (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 September 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 (including up to an additional $15.0
million relating to SunScript, payable post closing, subject to reduction).
Net cash provided by financing activities was $559.4 million and $4.0
million for the nine months ended September 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 line of credit facilities and term loans of $589.0 million and $80.0
million during the nine months ended September 30, 2003 and 2002, respectively,
as well as the early redemption and retirement during the nine months ended
September 30, 2003 of $345.0 million of 5% convertible subordinated debentures
due 2007 ("5% Convertible Debentures").
On August 7, 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, consistent with the prior year. Dividends
paid of $6.6 million during the nine months ended September 30, 2003 were also
consistent with those paid in the comparable prior year period.
The Company's current ratio (defined as current assets divided by
current liabilities) of 2.9 to 1.0 at September 30, 2003 is lower than the
3.4 to 1.0 in existence at December 31, 2002, largely as a result of the
current portion of the term loan (approximately $18.5 million) as well as the
use of cash for the Company's acquisition of businesses.
The acquisition of the SunScript pharmacy services business, accounted
for as a purchase business combination, included cash consideration and
transaction costs of approximately $79.0 million at closing. An additional $15.0
million is payable post closing, subject to reduction. The Company funded the
acquisition from existing cash balances.
The acquisition of NCS, accounted for as a purchase business
combination, included cash consideration and transaction costs of approximately
$500 million. The cash consideration included the payoff of certain NCS debt
totaling approximately $325.5 million, which was
30
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 initial borrowings over a longer
term.
During the second quarter of 2003, the Company completed its offering
of $250.0 million aggregate principal amount of 6.125% senior subordinated notes
due 2013 ("6.125% Senior Notes"), issued at par and 6,468,750 shares of common
stock, $1 par value, at $29.16 per share for gross proceeds of $189 million and
the offering, through Omnicare Capital Trust I, a statutory trust formed by the
Company (the "Trust"), 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
September 30, 2003 the values of both derivatives were not material. 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, with remaining
proceeds being used for general corporate purposes. A portion of the 5%
Convertible Debentures (approximately $106.5 million) were redeemed in June
2003. In July 2003, the Company redeemed the remainder of the 5% Convertible
Debentures (approximately $238.5 million) completing its 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). 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 were recognized ratably in
the quarter in which they were redeemed. Accordingly, an $8.6 million pre-tax
charge ($5.3 million aftertax, or $0.05 per diluted share) was recognized in
interest expense during 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. A charge of
$4.1 million pretax ($2.5 million aftertax, or $0.02 per diluted share)
31
was recorded in interest expense during 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, with remaining proceeds being used for general corporate
purposes. The Company paid down $50.0 million and $40.0 million on the term
loan during the second and third quarters, respectively. The $160.0 million
outstanding at September 30, 2003 under the term loan is due in quarterly
installments, in varying amounts, through 2007, with approximately $18.5
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 September 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 aggregate
principal amount of the 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
3.45% at September 30, 2003. The Swap Agreement, which matches the terms 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, so changes in fair value of the Swap Agreement are offset by changes in
the recorded carrying value of the related 6.125% Senior Notes. The fair value
of the Swap Agreement is recorded as a noncurrent liability and reduced the
carrying value of the related 6.125% Senior Notes by $17.2 million as of
September 30, 2003.
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 needs, 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.
32
Disclosures About Off-Balance Sheet Arrangements and Aggregate Contractual
Obligations
- --------------------------------------------------------------------------------
At September 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 September 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
September 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 $1,130,000 $18,462 $ 59,487 $ 82,051 $970,000
Capital lease obligations 690 437 73 58 122
Operating lease obligations 119,833 20,388 41,309 37,899 20,237
---------- ------- --------- -------- --------
Total contractual cash obligations $1,250,523 $39,287 $ 100,869 $120,008 $990,359
========== ======= ========= ======== ========
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 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.
33
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 was effective for the Company beginning July 1, 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.
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.
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 acquisitions of NCS and SunScript, including
Omnicare's ability to enhance the lower margin NCS and SunScript businesses
through economies of scale, operational efficiencies, drug purchasing
improvements and pharmacy consolidations; potential tax and accounting effects
from the NCS acquisition; 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
34
consolidation programs; the impact and timing of the integration of the NCS and
SunScript acquisitions; the impact of the expiration of certain payments under
BBRA and BIPA and the potential loss of revenues associated with the expiration
of such payments; CMS estimates of increased Medicare payments to skilled
nursing facilities for the 2004 federal fiscal year; expectations concerning the
current patient classification system by CMS; the impact of healthcare funding
issues generally; the impact of Medicare reform legislation under Congressional
consideration; governmental budgetary and pricing pressures due to the economic
downturn, and Omnicare's ability to adjust to such pricing pressures; the impact
of streamlining and cost reduction measures at the CRO organization; trends
concerning CRO backlog; purchasing leverage for pharmaceuticals; the formulary
compliance program; the impact of contractual obligations on future periods;
future valuations of the trust PIERS instruments; 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; the ability to attract new clients and service contracts
and retain existing clients and service contracts; the ability to implement and
expand clinical and other service programs; the impact of Omnicare's formulary
compliance program; trends in drug pricing, including the impact of current drug
price inflation; the ability to enhance market penetration of newer, branded
drugs; trends in the use of generic drugs; trends in state reimbursement
formulas; the impact of pending federal Medicare legislation; trends in CMS
Medicare payments to skilled nursing facilities; pressures on federal and state
Medicaid budgets and the impact of budget shortfalls which may result in delays
and reductions in Medicaid reimbursements; 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; efforts by payors to control
costs; 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 ability to effectively integrate NCS,
SunScript and other acquired companies, including the ability to realize
anticipated economies of scale, cost synergies, pharmacy consolidation savings
and profitability; the continued availability of suitable acquisition
candidates; fluctuations in gross profit margins due to acquisitions and a shift
toward newer branded drugs with lower profit margins; the timing and impact of
advance purchases of pharmaceuticals; the impact of tax and accounting rules in
connection with acquisitions; 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 outcome of litigation; the failure of Omnicare or the long-term
care facilities it serves to obtain or maintain required regulatory approvals or
licenses; trends concerning delays in project commencement or continuation by
CRO clients, as well as those concerning backlog and new CRO business;
Omnicare's ability to take effective cost-reduction measures in response to CRO
client delays; volatility in the CRO business; the ability of CRO projects to
produce revenues in future periods; market conditions which may affect the
valuation of the trust PIERS instruments; the ability to attract and retain
needed management; potential
35
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; competition in the pharmaceutical, long-term care and
contract research industries; changes in tax laws and regulations; 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; interest rate and foreign currency fluctuations; the demand for
Omnicare's products and services; variations in costs or expenses; and changes
in accounting rules and standards.
36
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 September 30,
2003 include $160.0 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 2.5% at September 30, 2003 (a one-hundred basis point change in the
interest rate would impact pretax interest expense by approximately $1.6 million
per year); $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 aggregate
principal amount of the 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
3.45% at September 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 terms 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, so changes
in fair value of the Swap Agreement are offset by changes in the recorded
carrying value of the related 6.125% Senior Notes. The fair value of the Swap
Agreement is recorded as a noncurrent liability and reduced the carrying value
of the related 6.125% Senior Notes by $17.2 million as of September 30, 2003. At
September 30, 2003, the fair value of Omnicare's Credit Facility approximates
its carrying value, and the fair value of the 8.125% Senior Notes, 6.125% Senior
Notes and 4.0% Convertible Debentures is approximately $405.9 million, $245.0
million and $388.1 million, respectively.
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 September 30, 2003 the values of both derivatives were not
material. However, the values are subject to change, based on market conditions,
which could affect the Company's future results of operations.
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.
The Company does not have any financial instruments held for trading
purposes.
37
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.
38
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index of Exhibits.
(b) Reports on Form 8-K
On July 31, 2003, the Company reported that it had issued a press release
announcing its financial results for the second quarter of 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: November 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, Filed Herewith
(Numbers Coincide with Item 601 of Regulation S-K) or Furnished Herewith, as Indicated
Below
- -------------------------------------------------- ---------------------------------------
(3.3) Second Amended and Restated By-laws Filed Herewith
of Omnicare, Inc.
(11) Computation of Earnings Per Common Share Filed Herewith
(12) Computation of Ratio of Earnings to Fixed Filed Herewith
Charges
(31.1) Rule 13a-14(a) Certification of Chief Executive Filed Herewith
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 Financial Filed Herewith
Officer of Omnicare, Inc. in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002
(32.1) Section 1350 Certification of Chief Executive Officer Furnished Herewith
of Omnicare, Inc. in accordance with Section 906 of
the Sarbanes-Oxley Act of 2002*
(32.2) Section 1350 Certification of Chief Financial Officer Furnished Herewith
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-1