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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 March 31, 2004
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 103,848,057 March 31, 2004
OMNICARE, INC. AND
SUBSIDIARY COMPANIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Income -
Three months ended -
March 31, 2004 and 2003 3
Consolidated Balance Sheets -
March 31, 2004 and December 31, 2003 4
Consolidated Statements of Cash Flows -
Three months ended -
March 31, 2004 and 2003 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 29
ITEM 4. CONTROLS AND PROCEDURES 30
PART II. OTHER INFORMATION:
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND
ISSUER PURCHASES OF EQUITY SECURITIES 31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 31
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
March 31,
--------------------
2004 2003
-------- --------
Sales $977,742 $797,753
Reimbursable out-of-pockets 4,537 8,108
-------- --------
Total net sales 982,279 805,861
-------- --------
Cost of sales 723,074 589,792
Reimbursed out-of-pocket expenses 4,537 8,108
-------- --------
Total direct costs 727,611 597,900
-------- --------
Gross profit 254,668 207,961
Selling, general and administrative expenses 138,662 126,928
-------- --------
Operating income 116,006 81,033
Investment income 634 588
Interest expense (16,712) (16,456)
-------- --------
Income before income taxes 99,928 65,165
Income taxes 36,437 24,742
-------- --------
Net income $ 63,491 $ 40,423
======== ========
Earnings per share:
Basic $ 0.61 $ 0.43
======== ========
Diluted $ 0.61 $ 0.42
======== ========
Weighted average number of common shares outstanding:
Basic 103,458 94,386
======== ========
Diluted 104,769 104,029
======== ========
Dividends per share $ 0.0225 $ 0.0225
======== ========
Comprehensive income $ 64,173 $ 41,420
======== ========
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)
March 31, December 31,
2004 2003
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 174,069 $ 187,413
Restricted cash 5,777 714
Deposit with drug wholesaler 44,000 --
Accounts receivable, less allowances
of $120,289 (2003-$108,813) 737,078 678,255
Unbilled receivables 10,312 15,281
Inventories 322,022 326,550
Deferred income tax benefits 71,898 53,224
Other current assets 142,475 121,651
---------- ----------
Total current assets 1,507,631 1,383,088
Properties and equipment, at cost less accumulated
depreciation of $208,398 (2003-$200,498) 149,422 148,307
Goodwill 1,765,959 1,690,558
Other noncurrent assets 176,703 173,068
---------- ----------
Total assets $3,599,715 $3,395,021
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 323,053 $ 296,089
Current debt 22,799 20,709
Accrued employee compensation 29,049 30,611
Deferred revenue 18,540 22,454
Income taxes payable 15,951 16,244
Other current liabilities 68,773 76,653
---------- ----------
Total current liabilities 478,165 462,760
Long-term debt 214,651 135,855
8.125% senior subordinated notes, due 2011 375,000 375,000
6.125% senior subordinated notes, net, due 2013 237,735 226,822
4.0% contingent convertible notes, due 2033 345,000 345,000
Deferred income tax liabilities 86,559 50,913
Other noncurrent liabilities 110,721 122,647
---------- ----------
Total liabilities 1,847,831 1,718,997
---------- ----------
Commitments and contingencies (Note 8)
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,
105,882,400 shares issued (2003-105,050,900 shares issued) 105,882 105,051
Paid-in capital 1,023,121 986,138
Retained earnings 745,506 684,348
Treasury stock, at cost-2,034,300 shares (2003-1,863,000 shares) (53,630) (46,087)
Deferred compensation (65,779) (49,528)
Accumulated other comprehensive income (3,216) (3,898)
---------- ----------
Total stockholders' equity 1,751,884 1,676,024
---------- ----------
Total liabilities and stockholders' equity $3,599,715 $3,395,021
========== ==========
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)
Three Months Ended
March 31,
---------------------
2004 2003
--------- ---------
Cash flows from operating activities:
Net income $ 63,491 $ 40,423
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation 9,081 9,568
Amortization 4,846 3,193
Provision for doubtful accounts 10,476 11,045
Deferred tax provision 14,808 13,469
Changes in assets and liabilities, net of effects
from acquisition of businesses:
Accounts receivable and unbilled receivables (49,744) (43,631)
Inventories 12,172 (8,076)
Current and noncurrent assets (59,991) 456
Accounts payable 23,619 (10,768)
Accrued employee compensation (1,784) (2,509)
Deferred revenue (3,914) 7,788
Current and noncurrent liabilities 698 (15,607)
--------- ---------
Net cash flows from operating activities 23,758 5,351
--------- ---------
Cash flows from investing activities:
Acquisition of businesses (105,936) (476,999)
Capital expenditures (5,068) (3,990)
Transfer of cash to trusts for employee health and
severance costs, net of payments out of the trust (5,063) (2,654)
Other 35 45
--------- ---------
Net cash flows from investing activities (116,032) (483,598)
--------- ---------
Cash flows from financing activities:
Borrowings on line of credit facilities 115,000 499,000
Payments on line of credit facilities and term A loan (34,103) (25,000)
Payments on long-term borrowings and obligations (52) (146)
Proceeds from (payments) for stock awards and exercise of
stock options and warrants, net of stock tendered in payment 1,072 (3,117)
Dividends paid (2,333) (2,125)
--------- ---------
Net cash flows from financing activities 79,584 468,612
--------- ---------
Effect of exchange rate changes on cash (654) 689
--------- ---------
Net decrease in cash and cash equivalents (13,344) (8,946)
Cash and cash equivalents at beginning of period - unrestricted 187,413 137,936
--------- ---------
Cash and cash equivalents at end of period - unrestricted $ 174,069 $ 128,990
========= =========
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
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, 2003. Certain reclassifications of prior year
amounts have been made to conform with the current year presentation.
2. Stock-Based Employee Compensation
At March 31, 2004, the Company had three stock-based employee compensation
plans. As permitted under United States 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 March 31,
----------------------------
2004 2003
------- -------
Net income, as reported $63,491 $40,423
Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects 1,810 1,251
Deduct: Total stock-based employee
compensation expense determined under
fair value based method, net of
related tax effects (6,177) (3,670)
------- -------
Pro forma net income $59,124 $38,004
======= =======
6
Earnings per share:
Basic - as reported $0.61 $0.43
===== =====
Basic - pro forma $0.57 $0.40
===== =====
Diluted - as reported $0.61 $0.42
===== =====
Diluted - pro forma $0.56 $0.39
===== =====
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 March 31,
----------------------------
2004 2003
------ ------
Volatility 57% 62%
Risk-free interest rate 2.9% 3.0%
Dividend yield 0.2% 0.3%
Expected term of options (in years) 5.0 5.5
Weighted average fair value per option $21.62 $14.02
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. Acquisitions
During the first quarter of 2004, the Company completed several
acquisitions in its institutional pharmacy business which individually and in
the aggregate were not significant.
On July 15, 2003, Omnicare acquired 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 $83 million. The Company funded the acquisition of SunScript
from existing cash balances. Up to an additional $15.0 million may become
payable post-closing, subject to adjustment.
At the time of the acquisition, SunScript provided pharmaceutical products
and related consulting services to 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 in
unrelated transactions). SunScript served these facilities through its network
of 31 long-term care pharmacies. Omnicare has achieved 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 HealthCare, Inc. ("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
7
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."
At the time of the acquisition, NCS provided professional pharmacy and
related services to long-term care facilities, including skilled nursing 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. In addition to broadening its geographic reach, Omnicare achieved certain
economies of scale and operational efficiencies from the acquisition. The net
assets and operating results of NCS have been included from the date of
acquisition in the Company's financial statements.
Pro forma information for NCS and SunScript is not presented for the three
months ended March 31, 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, and the impact of SunScript is not
presented due to the lack of significance on the pro forma combined results.
4. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the three months ended March
31, 2004, by business segment, are as follows (in thousands):
Pharmacy CRO
Services Services Total
---------- -------- ----------
Balance as of December 31, 2003 $1,649,604 $40,954 $1,690,558
Goodwill acquired in the three
months ended March 31, 2004 73,743 -- 73,743
Other 1,670 (12) 1,658
---------- ------- ----------
Balance as of March 31, 2004 $1,725,017 $40,942 $1,765,959
========== ======= ==========
The "Other" caption above includes the settlement of acquisition matters
relating to prior-year 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 Contract Research
Organization ("CRO") Services.
The Company's other intangible assets have not changed significantly from
the balances at December 31, 2003. The Company is using an independent valuation
firm to assist with the completion of the purchase price allocation for the
SunScript acquisition, including the identification of goodwill and other
identifiable intangible assets. Accordingly, the goodwill balance is preliminary
and subject to change.
8
5. Debt and Issuance of Common Stock
As discussed further below, 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 approximately $189 million, and the offering, through Omnicare
Capital Trust I, a statutory trust formed by the Company (the "Trust"), of
$345.0 million aggregate principal amount of convertible trust preferred
securities due 2033 ("trust PIERS" or "Preferred Income Equity Redeemable
Securities").
In early 2001, the Company entered into a three-year syndicated $500.0
million revolving line of credit facility (the "Revolving Credit Facility"),
including a $25.0 million letter of credit subfacility, with various lenders. As
previously discussed, in January 2003, the Company borrowed $499.0 million under
the Revolving Credit Facility to finance its acquisition of NCS.
In connection with the 2003 financings (described above), the Company
entered into a new, four-year $750.0 million credit facility ("Credit
Facility"), consisting of a $250.0 million term A loan commitment and a $500.0
million revolving credit commitment, including a $25.0 million letter of credit
subfacility. The new Credit Facility bears interest at the Company's option at
a rate equal to either: (i) the 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 March 31, 2004,
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.
The Company used the net proceeds from the 6.125% Senior Notes offering and
borrowings of $250.0 million under the term A loan portion of the new Credit
Facility to repay the balance of the Company's existing Revolving Credit
Facility of $474.0 million, with remaining proceeds being used for general
corporate purposes. The Company paid down $4.1 million on the term A loan during
the three months ended March 31, 2004. The $151.8 million outstanding at March
31, 2004 under the term A loan is due in quarterly installments, in varying
amounts, through 2007, with approximately $22.6 million due within one year.
There was $85.0 million outstanding as of March 31, 2004 under the revolving
credit commitment of the Credit Facility.
As described above, the Company completed, during the second quarter of
2003, its offering of $250.0 million of 6.125% Senior Notes due 2013. 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, in
arrears, two London Banking Days prior to the first of each December and June,
commencing December 1, 2003. The Company records interest expense on the 6.125%
Senior Notes at the floating rate. The estimated LIBOR-based floating rate was
3.43% at March 31, 2004. The Swap Agreement, which matches the terms of the
6.125% Senior Notes, is designated and accounted for as a fair
9
value hedge. The Company is accounting for the Swap Agreement in accordance
with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, so changes in the 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 of $12.3 million at March 31,
2004 is recorded as a noncurrent liability and a reduction to the carrying value
of the related 6.125% Senior Notes.
In connection with the offering of the trust PIERS in the second quarter of
2003, the Company issued a corresponding amount of contingent convertible notes
due 2033 to the Trust. The Trust is a 100%-owned finance subsidiary of the
Company. The Company has fully and unconditionally guaranteed the securities of
the Trust. The trust PIERS offer fixed cash distributions at a rate of 4.0% per
annum payable quarterly, and a fixed 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
March 31, 2004, 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 financial position, cash flows and 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.
6. Employee Benefit Plans
The Company has various defined contribution savings plans under which
eligible employees can participate by contributing a portion of their salary for
investment, at the direction of each employee, in one or more investment funds.
Expense relating to the Company's defined contribution plans for the three
months ended March 31, 2004 and 2003 was $1.2 million and $1.0 million,
respectively.
The Company also has an excess benefit plan which provides retirement
benefits to certain headquarters employees in amounts generally consistent with
what they would have received under the Company's non-contributory, defined
benefit pension plan (the "Qualified Plan"), frozen in 1993. The retirement
benefits provided by the excess benefit plan are generally comparable to those
that would have been earned in the Qualified Plan, if payments under the
Qualified Plan were not limited by the Internal Revenue Code. The Company has
established rabbi trusts, which are invested primarily in a mutual fund holding
U.S. Treasury obligations, to provide for retirement obligations under the
excess benefit plan. The Company's policy is to fund pension costs in accordance
with the funding provisions of the Employee Retirement Income Security Act
("ERISA").
10
The following table presents the components of the Company's pension cost
for each of the three months ended March 31, 2004 and 2003 (in thousands):
Three months ended
March 31,
-----------------
2004 2003
------ ------
Service cost $ 384 $ 394
Interest cost 527 411
Amortization of deferred amounts (primarily prior
actuarial losses) 470 242
------ ------
Net periodic pension cost $1,381 $1,047
====== ======
During the first quarter of 2004, the Company made no payments related to
funding plan assets for the settlement of the Company's pension obligations.
In addition, the Company has supplemental pension plans ("SPPs") in
which certain of its officers participate. Retirement benefits under the SPPs
are calculated on the basis of a specified percentage of the officers' covered
compensation, years of credited service and a vesting schedule, as specified in
the plan documents. Expense relating to the SPPs was $0.2 million for the three
month periods ended March 31, 2004 and 2003.
7. Restructuring Charges
In connection with the previously disclosed second phase of its
productivity and consolidation initiative (the "Phase II Program"), the Company
had liabilities of $4.1 million at December 31, 2003, of which $0.5 million was
utilized in the three months ended March 31, 2004. The remaining liabilities at
March 31, 2004 of $3.6 million represent amounts not yet paid relating to
actions taken (consisting primarily of lease payments), and will be adjusted as
these matters are settled.
8. Commitments and Contingencies
The Company continuously evaluates contingencies based upon the best
available evidence. Management believes that allowances for loss have been
provided to the extent necessary and that its assessment of contingencies is
reasonable. To the extent that resolution of contingencies results in amounts
that vary from management's estimates, future earnings will be charged or
credited accordingly.
As part of its ongoing operations, the Company is subject to various
inspections, audits, inquiries and similar actions by governmental/regulatory
authorities responsible for enforcing the laws and regulations to which the
Company is subject. The Company is also involved in various legal actions
arising in the normal course of business. Although occasional adverse outcomes
(or settlements) may occur and could possibly have an adverse effect on the
results of operations in any one accounting period, the Company believes that
the final disposition of such matters will not have a material adverse effect
on the Company's consolidated financial position.
11
9. 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") and the District
of Columbia at March 31, 2004. The Company's other reportable segment is 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 at March 31, 2004, including the
USA.
The table below presents information about the reportable segments as of
and for the three months ended March 31, 2004 and 2003 and should be read in
conjunction with the paragraph that follows (in thousands):
Three Months Ended March 31,
- ------------------------------------------------------------------------------------
Corporate
Pharmacy CRO and Consolidated
Services Services Consolidating Totals
- ------------------------------------------------------------------------------------
2004:
Net sales $ 948,513 $ 33,766 $ -- $ 982,279
Depreciation and amortization 12,968 347 612 13,927
Operating income (expense) 123,430 3,208 (10,632) 116,006
Total assets 3,174,788 104,659 320,268 3,599,715
Capital expenditures 4,804 65 199 5,068
- ------------------------------------------------------------------------------------
2003:
Net sales $ 763,154 $ 42,707 $ -- $ 805,861
Depreciation and amortization 11,748 418 595 12,761
Operating income (expense) 85,370 4,730 (9,067) 81,033
Total assets 2,731,891 127,116 169,547 3,028,554
Capital expenditures 3,815 65 110 3,990
- ------------------------------------------------------------------------------------
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 amount, reimbursable out-of-pockets totaling $4.5 million for
the three months ended March 31, 2004 ($8.1 million for the period ended March
31, 2003).
12
10. Guarantor Subsidiaries
The Company's $375.0 million 8.125% 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 March 31, 2004
and December 31, 2003 for the balance sheet, and for the three months ended
March 31, 2004 and 2003 for the statement of income and the statement of cash
flows. 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 March 31,
-------------------------------------------------------------------------
Guarantor Non-Guarantor Omnicare, Inc.
Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries
-------- ------------ ------------- ------------ ----------------
2004
Total net sales $ -- $952,784 $29,495 $ -- $982,279
Total direct costs -- 704,609 23,002 -- 727,611
-------- -------- ------- -------- --------
Gross profit -- 248,175 6,493 -- 254,668
Selling, general and administrative expenses 1,381 131,812 5,469 -- 138,662
-------- -------- ------- -------- --------
Operating income (loss) (1,381) 116,363 1,024 -- 116,006
Investment income 98 523 13 -- 634
Interest expense (15,157) (1,377) (178) -- (16,712)
-------- -------- ------- -------- --------
Income (loss) before income taxes (16,440) 115,509 859 -- 99,928
Income tax (benefit) expense (6,001) 42,124 314 -- 36,437
Equity in net income of subsidiaries 73,930 -- -- (73,930) --
-------- -------- ------- -------- --------
Net income (loss) $ 63,491 $ 73,385 $ 545 $(73,930) $ 63,491
======== ======== ======= ======== ========
2003
Total net sales $ -- $778,088 $27,773 $ -- $805,861
Total direct costs -- 575,514 22,386 -- 597,900
-------- -------- ------- -------- --------
Gross profit -- 202,574 5,387 -- 207,961
Selling, general and administrative expenses 1,529 120,129 5,270 -- 126,928
-------- -------- ------- -------- --------
Operating income (loss) (1,529) 82,445 117 -- 81,033
Investment income 345 239 4 -- 588
Interest expense (15,943) (481) (32) -- (16,456)
-------- -------- ------- -------- --------
Income (loss) before income taxes (17,127) 82,203 89 -- 65,165
Income tax (benefit) expense (6,508) 31,216 34 -- 24,742
Equity in net income of subsidiaries 51,042 -- -- (51,042) --
-------- -------- ------- -------- --------
Net income (loss) $ 40,423 $ 50,987 $ 55 $(51,042) $ 40,423
======== ======== ======= ======== ========
13
10. Guarantor Subsidiaries (Continued)
Condensed Consolidating Balance Sheets
(In thousands)
Guarantor Non-Guarantor Omnicare, Inc. and
Parent Subsidiaries Subsidiaries Eliminations Subsidiaries
---------- ------------ ------------- ------------ ------------------
As of March 31, 2004:
ASSETS
Cash and cash equivalents $ 119,301 $ 48,663 $ 6,105 $ -- $ 174,069
Restricted cash -- 5,777 -- -- 5,777
Deposit with drug wholesaler -- 44,000 -- -- 44,000
Accounts receivable, net (including intercompany) -- 729,524 13,113 (5,559) 737,078
Inventories -- 316,730 5,292 -- 322,022
Other current assets 481 221,757 2,447 -- 224,685
---------- ---------- -------- ----------- ----------
Total current assets 119,782 1,366,451 26,957 (5,559) 1,507,631
---------- ---------- -------- ----------- ----------
Properties and equipment, net -- 140,496 8,926 -- 149,422
Goodwill -- 1,697,058 68,901 -- 1,765,959
Other noncurrent assets 37,083 126,532 13,088 -- 176,703
Investment in subsidiaries 2,792,759 -- -- (2,792,759) --
---------- ---------- -------- ----------- ----------
Total assets $2,949,624 $3,330,537 $117,872 $(2,798,318) $3,599,715
========== ========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities (including intercompany) $ 19,741 $ 449,094 $ 14,889 $ (5,559) $ 478,165
Long-term debt 214,231 420 -- -- 214,651
8.125% senior subordinated notes, due 2011 375,000 -- -- -- 375,000
6.125% senior subordinated notes, net, due 2013 237,735 -- -- -- 237,735
4.0% contingent convertible notes, due 2033 345,000 -- -- -- 345,000
Other noncurrent liabilities 6,033 189,418 1,829 -- 197,280
Stockholders' equity 1,751,884 2,691,605 101,154 (2,792,759) 1,751,884
---------- ---------- -------- ----------- ----------
Total liabilities and stockholders' equity $2,949,624 $3,330,537 $117,872 $(2,798,318) $3,599,715
========== ========== ======== =========== ==========
As of December 31, 2003:
ASSETS
Cash and cash equivalents $ 134,513 $ 48,940 $ 3,960 $ -- $ 187,413
Restricted cash -- 714 -- -- 714
Accounts receivable, net (including intercompany) -- 672,315 13,708 (7,768) 678,255
Inventories -- 321,465 5,085 -- 326,550
Other current assets 954 187,363 1,839 -- 190,156
---------- ---------- -------- ----------- ----------
Total current assets 135,467 1,230,797 24,592 (7,768) 1,383,088
---------- ---------- -------- ----------- ----------
Properties and equipment, net -- 139,108 9,199 -- 148,307
Goodwill -- 1,621,645 68,913 -- 1,690,558
Other noncurrent assets 33,390 128,147 11,531 -- 173,068
Investment in subsidiaries 2,627,756 -- -- (2,627,756) --
---------- ---------- -------- ----------- ----------
Total assets $2,796,613 $3,119,697 $114,235 $(2,635,524) $3,395,021
========== ========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities (including intercompany) $ 38,383 $ 422,566 $ 9,579 $ (7,768) $ 462,760
Long-term debt 135,384 471 -- -- 135,855
8.125% senior subordinated notes, due 2011 375,000 -- -- -- 375,000
6.125% senior subordinated notes, net, due 2013 226,822 -- -- -- 226,822
4.0% contingent convertible notes, due 2033 345,000 -- -- -- 345,000
Other noncurrent liabilities -- 173,246 314 -- 173,560
Stockholders' equity 1,676,024 2,523,414 104,342 (2,627,756) 1,676,024
---------- ---------- -------- ----------- ----------
Total liabilities and stockholders' equity $2,796,613 $3,119,697 $114,235 $(2,635,524) $3,395,021
========== ========== ======== =========== ==========
14
10. Guarantor Subsidiaries (Continued)
Condensed Consolidating Statements of Cash Flows
(In thousands) Three Months Ended March 31,
----------------------------------------------------------
Guarantor Non-Guarantor Omnicare, Inc.
Parent Subsidiaries Subsidiaries and Subsidiaries
-------- ------------ ------------- ----------------
2004:
Cash flows from operating activities:
Provision for doubtful accounts $ -- $ 10,239 $ 237 $ 10,476
Other (25,887) 35,662 3,507 13,282
-------- --------- ------ ---------
Net cash flows from operating activities (25,887) 45,901 3,744 23,758
-------- --------- ------ ---------
Cash flows from investing activities:
Acquisition of businesses -- (105,038) (898) (105,936)
Capital expenditures -- (5,021) (47) (5,068)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust -- (5,063) -- (5,063)
Other -- 35 -- 35
-------- --------- ------ ---------
Net cash flows from investing activities -- (115,087) (945) (116,032)
-------- --------- ------ ---------
Cash flows from financing activities:
Borrowings on line of credit facility 115,000 -- -- 115,000
Payments on line of credit facility and term A loan (34,103) -- -- (34,103)
Payments on long-term borrowings and obligations (52) -- -- (52)
Proceeds from stock awards and exercise of stock options
and warrants, net of stock tendered in payment 1,072 -- -- 1,072
Dividends (2,333) -- -- (2,333)
Other (68,909) 68,909 -- --
-------- --------- ------ ---------
Net cash flows from financing activities 10,675 68,909 -- 79,584
-------- --------- ------ ---------
Effect of exchange rate changes on cash -- -- (654) (654)
-------- --------- ------ ---------
Net increase (decrease) in cash and cash equivalents (15,212) (277) 2,145 (13,344)
Cash and cash equivalents at beginning of period - unrestricted 134,513 48,940 3,960 187,413
-------- --------- ------ ---------
Cash and cash equivalents at end of period - unrestricted $119,301 $ 48,663 $6,105 $ 174,069
======== ========= ====== =========
15
10. Guarantor Subsidiaries (Continued)
Condensed Consolidating Statements of Cash Flows - Continued
(In thousands) Three Months Ended March 31,
-----------------------------------------------------------
Guarantor Non-Guarantor Omnicare, Inc.
Parent Subsidiaries Subsidiaries and Subsidiaries
--------- ------------ ------------- ----------------
2003:
Cash flows from operating activities:
Provision for doubtful accounts $ -- $ 10,832 $ 213 $ 11,045
Other (9,086) 1,183 2,209 (5,694)
--------- --------- ------- ---------
Net cash flows from operating activities (9,086) 12,015 2,422 5,351
--------- --------- ------- ---------
Cash flows from investing activities:
Acquisition of businesses -- (475,373) (1,626) (476,999)
Capital expenditures -- (3,943) (47) (3,990)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust -- (2,654) -- (2,654)
Other -- 45 -- 45
--------- --------- ------- ---------
Net cash flows from investing activities -- (481,925) (1,673) (483,598)
--------- --------- ------- ---------
Cash flows from financing activities:
Borrowings on line of credit facilities 499,000 -- -- 499,000
Payments on line of credit facilities (25,000) -- -- (25,000)
Other (475,994) 470,644 (38) (5,388)
--------- --------- ------- ---------
Net cash flows from financing activities (1,994) 470,644 (38) 468,612
--------- --------- ------- ---------
Effect of exchange rate changes on cash -- -- 689 689
--------- --------- ------- ---------
Net increase (decrease) in cash and cash equivalents (11,080) 734 1,400 (8,946)
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 $ 84,613 $ 36,925 $ 7,452 $ 128,990
========= ========= ======= =========
16
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."
First Quarter Overview
Omnicare, Inc. ("Omnicare" or the "Company") is a leading provider of
pharmaceutical care for the elderly. Omnicare serves residents in long-term care
facilities comprising approximately 1,050,000 beds in 47 states and the District
of Columbia, making it the nation's largest provider of professional pharmacy,
related consulting and data management services for skilled nursing, assisted
living and other institutional healthcare providers. Omnicare also provides
clinical research services for the pharmaceutical and biotechnology industries
in 29 countries worldwide.
Total consolidated net sales for the three months ended March 31, 2004
increased to $982.3 million from $805.9 million in the comparable prior year
period. Consolidated net income for the 2004 first quarter was $63.5 million
versus $40.4 million earned in the comparable 2003 period. Diluted earnings per
share were $0.61 for the quarter ended March 31, 2004 versus $0.42 in the same
prior year period. Consolidated earnings before interest (net of investment
income), income taxes, depreciation and amortization ("EBITDA") for the three
months ended March 31, 2004 totaled $129.9 million in comparison with $93.8
million for the same period of 2003.
Omnicare's Pharmacy Services segment recorded sales of $948.5 million for
the first quarter of 2004, an increase of 24% from the $763.2 million recorded
in the comparable prior-year quarter of 2003. Contributing in large measure to
the increase in sales was the acquisition of SunScript in July 2003, as well as
a number of smaller acquisitions throughout the first quarter of 2004. Operating
income of the Pharmacy Services segment was $123.4 million in the first quarter
of 2004, an increase of 45% from the $85.4 million recorded in the first quarter
of 2003. The improved operating income was primarily the result of the increased
sales, as discussed above, and the ongoing benefits of the Company's acquisition
integration efforts as well as productivity initiatives throughout the Pharmacy
Services segment.
Omnicare's Contract Research Organization ("CRO") Services segment recorded
revenues of $33.8 million for the three months ended March 31, 2004, compared
with $42.7 million recorded in the same prior year period. Operating income in
the CRO Services segment for the first quarter of 2004 was $3.2 million compared
with the $4.7 million recorded in the comparable prior-year period of 2003.
Revenues and operating income in the CRO Services segment were lower in the
three months ended March 31, 2004 than in same period of 2003 due primarily to
client-driven cancellations or delays in the commencement or continuation of
certain projects in the latter half of 2003.
17
Net cash flows from operating activities for the first-quarter ended March
31, 2004 was $23.8 million as compared with $5.4 million for the first quarter
ended March 31, 2003. During the first quarter of 2004, the Company's investing
activities included the completion of several acquisitions in its institutional
pharmacy business which individually and in the aggregate were not significant.
Borrowings on the credit facility, net of repayments of $30.0 million, totaled
$85.0 million in the 2004 first quarter and were primarily used for payments
relating to the acquisition of businesses. The Company also paid $4.1 million on
the term A loan in the first quarter of 2004. At March 31, 2004, outstanding
revolving credit borrowings were $85.0 million and the balance on the term A
loan was $151.8 million.
Results of Operations
The following table presents the consolidated net sales and results of
operations of Omnicare for each of the three months ended March 31, 2004 and
2003 (in thousands, except per share amounts).
Three Months Ended
March 31,
-------------------
2004 2003
-------- --------
Total net sales $982,279 $805,861
======== ========
Net income $ 63,491 $ 40,423
======== ========
Earnings per share:
Basic $ 0.61 $ 0.43
======== ========
Diluted $ 0.61 $ 0.42
======== ========
18
The Company believes that certain investors find 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 operating cash flows as a measure of liquidity or
net income as an indicator of the Company's operating performance. The Company's
calculation of EBITDA may differ from the calculation of EBITDA by others.
Three Months Ended
March 31,
-------------------
(in thousands) 2004 2003
-------- --------
EBITDA calculation:
Net income $ 63,491 $ 40,423
Add:
Interest expense, net of investment income 16,078 15,868
Income taxes 36,437 24,742
Depreciation and amortization 13,927 12,761
-------- --------
EBITDA $129,933 $ 93,794
======== ========
EBITDA reconciliation to net cash flows from
operating activities:
EBITDA $129,933 $ 93,794
(Subtract)/Add:
Interest expense, net of investment income (16,078) (15,868)
Income taxes (36,437) (24,742)
Changes in assets and liabilities, net of effects from
acquisition of businesses (78,944) (72,347)
Provision for doubtful accounts 10,476 11,045
Deferred tax provision 14,808 13,469
-------- --------
Net cash flows from operating activities $ 23,758 $ 5,351
======== ========
Quarter Ended March 31, 2004 vs. 2003
Pharmacy Services Segment
Omnicare's Pharmacy Services segment recorded sales of $948.5 million for
the three months ended March 31, 2004, exceeding the 2003 amount of $763.2
million by $185.3 million, or 24.3%. At March 31, 2004, Omnicare served
long-term care facilities comprising approximately 1,050,000 beds as compared
with approximately 935,000 beds served at March 31, 2003. Contributing in large
measure to the increase in sales and in beds served was the acquisition of
SunScript in July 2003, as discussed below, as well as smaller acquisitions.
Additionally, Pharmacy Services sales increased due to growth in new business,
increasing occupancy in many areas, 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
19
are significantly more effective in reducing overall healthcare costs than
those they replace. Partially offsetting the increase in sales were pricing
pressures, including lower government reimbursement formulas and other cost
control measures in some states, and the increasing number and usage of
generic drugs.
Operating income of the Pharmacy Services segment was $123.4 million in the
first quarter of 2004, a $38.0 million improvement as compared with the $85.4
million earned in the comparable period of 2003. The improved operating income
was primarily the result of increased sales, as discussed above, and the overall
synergies from the integration of the NCS HealthCare, Inc. ("NCS") business and,
to a lesser extent, the SunScript acquisition, as well as productivity
initiatives throughout the Pharmacy Services segment. Although operating margins
were initially unfavorably impacted by the addition of these lower-margin
businesses, the integration efforts resulted in drug purchasing improvements,
consolidation of redundant pharmacy locations and economies of scale, which
serve to leverage the Company's operating cost structure.
On July 15, 2003, Omnicare acquired 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 $83 million. Up to an additional $15.0 million may become
payable post-closing, subject to adjustment.
At the time of the acquisition, SunScript provided pharmaceutical products
and related consulting services to 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 in
unrelated transactions). SunScript served these facilities through its network
of 31 long-term care pharmacies. 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 acquisition 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.
At the time of the acquisition, NCS provided professional pharmacy and
related services to long-term care facilities, including skilled nursing 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. The net assets and operating results of NCS have been included from the
date of acquisition in the Company's financial statements.
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. In addition, healthcare funding issues, including pressures
on federal and state Medicaid budgets due to the economy, coupled with growth in
enrollees, the escalation in drug costs owing to higher drug utilization as the
population ages and the introduction of new, more effacious, albeit more
expensive medications, have led to decreasing reimbursement rates in certain
states. On
20
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. This additional funding
expires June 30, 2004. Economic conditions have improved in many areas, however,
some states continue to experience budget shortfalls or other funding pressures,
and they may consider implementing further reductions in Medicaid reimbursement
and other cost control measures. 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 fully emerge, and there can be no
assurance that such occurrence will not have an adverse impact on the Company's
business.
In December 2003, Congress enacted the Medicare Prescription Drug
Improvement and Modernization Act of 2003 ("MMA"), which includes a major
expansion of the Medicare prescription drug benefit under a new Medicare Part D.
Under the MMA, Medicare beneficiaries may enroll in prescription drug plans
offered by private entities, which will provide coverage of outpatient
prescription drugs. Beginning in 2006, Medicare beneficiaries who are also
entitled to benefits under a state Medicaid program (so-called "dual eligibles")
will have their prescription drug costs covered by the new Medicare drug
benefit, including nursing home residents served by the Company whose drug costs
are currently covered by state Medicaid programs. Implementation of the new
Medicare drug benefit will require implementing regulations currently under
development by the Centers for Medicare & Medicaid Services ("CMS"). In
addition, the Secretary of the Department of Health and Human Services is
required to conduct a study of current standards of practice for pharmacy
services provided to patients in long-term care settings, and, among other
things, make recommendations regarding necessary actions and appropriate
reimbursement to ensure the provision of prescription drugs to Medicare
beneficiaries in nursing facilities consistent with existing patient safety and
quality of care standards. Until the Part D benefit goes into effect on January
1, 2006, Medicare beneficiaries can receive assistance with their outpatient
prescription drug costs beginning in June 2004 through a new prescription drug
discount card program, which will give enrollees access to negotiated discounted
prices for prescription drugs. PBM Plus Inc., an Omnicare subsidiary, has been
selected by CMS as an endorsed sponsor to offer a Medicare prescription drug
discount card. PBM Plus also received a special endorsement for long-term care
to administer a transitional assistance benefit of $600 per year to certain
qualified low-income seniors not currently receiving drug benefits from the
Medicare and Medicaid programs. In addition, Omnicare is a member, together
with several other national institutional pharmacies, in Long Term Care Pharmacy
Alliance, LLC, which has also received the special long-term care endorsement
from CMS to administer the transitional assistance benefit. The MMA also reforms
the Medicare Part B prescription drug payment methodology. The Company's
revenues for drugs dispensed under Medicare Part B are not significant in
comparison to total revenues. The MMA also includes provisions that will
institute administrative reforms designed to improve Medicare program
operations. It is uncertain at this time the impact that the MMA's legislative
reforms ultimately will have on the Company.
CRO Services Segment
Omnicare's CRO Services segment recorded revenues of $33.8 million for the
three months ended March 31, 2004, which were $8.9 million, or 20.8%, lower than
the $42.7 million recorded in the same prior year period. In accordance with
Emerging Issues Task Force
21
("EITF") Issue No. 01-14, "Income Statement Characterization of Reimbursements
Received for 'Out-of-Pocket' Expenses Incurred" ("EITF No. 01-14"), the Company
included $4.5 million and $8.1 million of reimbursable out-of-pockets in its CRO
Services segment reported revenue and direct cost amounts for the quarters ended
March 31, 2004 and 2003, respectively. Revenues for the three months ended March
31, 2004 were lower than in the same prior year period largely due to the impact
of client-driven cancellations or delays in the commencement or continuation of
certain projects in the latter half of 2003, and a reduction in reimbursable
out-of-pockets of $3.6 million under EITF No. 01-14.
Operating income in the CRO Services segment was $3.2 million in the first
quarter of 2004 compared with $4.7 million in the same 2003 period. The
operating income was unfavorably impacted by the lower revenues discussed above.
Although the CRO Services segment experienced a year-over-year decline in
revenues and operating income, the Company did see an increase in new business
during the first quarter of 2004, which when combined with cost reduction
efforts, led to improving quarterly profitability on a sequential basis in the
CRO Services segment. Backlog at March 31, 2004 was $197.1 million, representing
an increase of $16.7 million from the March 31, 2003 backlog of $180.4 million,
and $14.3 million from the December 31, 2003 backlog of $182.8 million due to
an increase in new business.
Consolidated
The Company's consolidated gross profit of $254.7 million increased $46.7
million during the first quarter of 2004 from the same prior-year period amount
of $208.0 million. Gross profit as a percentage of total net sales of 25.9% in
the three months ended March 31, 2004, was higher than the 25.8% experienced
during the same period of 2003. Positively impacting overall gross profit margin
were the Company's purchasing leverage associated with the procurement of
pharmaceuticals due, in part, to the completion of the integration of the NCS
business and, to a lesser extent, the SunScript business (net of the initial
impact of adding these lower-margin businesses) and benefits realized from the
Company's formulary compliance program, as well as the increased use of generic
drugs. These favorable factors were 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, and
pricing pressures, including lower government reimbursement formulas and other
cost control measures in some states.
Omnicare's selling, general and administrative ("operating") expenses for
the quarter ended March 31, 2004 of $138.7 million were higher than the
comparable year amount of $126.9 million by $11.8 million, due primarily to the
overall growth of the business, including the acquisition of SunScript as well
as other smaller acquisitions.
Operating expenses as a percentage of total net sales, however, totaled
14.1% in the first quarter 2004, representing a decrease from the 15.8%
experienced in the comparable prior-year period. This decrease is primarily due
to the realization of synergies from the NCS and SunScript acquisitions, and the
leveraging of fixed and variable overhead costs over a larger sales base in 2004
than that which existed in 2003.
22
Investment income for the three months ended March 31, 2004 of $0.6 million
was consistent with the comparable prior year quarter.
Interest expense for the three months ended March 31, 2004 of $16.7 million
was relatively consistent with the $16.5 million in the comparable prior-year
period.
The effective income tax rate was 36.5% in the first quarter of 2004,
slightly lower than the comparable prior year rate of 38%. The effective tax
rates in 2004 and 2003 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 connection with the previously disclosed second phase of its
productivity and consolidation initiative (the "Phase II Program"), the Company
had liabilities of $4.1 million at December 31, 2003, of which $0.5 million was
utilized in the three months ended March 31, 2004. The remaining liabilities at
March 31, 2004 of $3.6 million represent amounts not yet paid relating to
actions taken (consisting primarily of lease payments), and will be adjusted as
these matters are settled.
Financial Condition, Liquidity and Capital Resources
Cash and cash equivalents at March 31, 2004 were $179.8 million compared
with $188.1 million at December 31, 2003 (including restricted cash amounts of
$5.8 million and $0.7 million, respectively).
The Company generated positive net cash flows from operating activities of
$23.8 million during the three months ended March 31, 2004, compared with net
cash flows from operating activities of $5.4 million during the three months
ended March 31, 2003. The increase in net cash flows from operating activities
during the three months ended March 31, 2004 was driven primarily by earnings
growth, as previously discussed in the "Results of Operations" caption above.
During the first quarter of 2003, a slowdown in payments to all providers by the
Illinois Department of Public Aid ("Illinois Medicaid") delayed approximately
$56 million in payments to the Company, and these funds were received during the
balance of the year. In the first quarter of 2004, another broad-based slowdown
occurred in Illinois, impacting cash flow by approximately $29 million. Also,
owing to a change in payment terms under the Company's new contract with its
drug wholesaler, a one-time deposit of $44.0 million was made during the first
quarter of 2004. Lastly, a statewide administrative backup in the transfer of
Medi-Cal provider numbers affecting California-based pharmacies acquired in the
SunScript and other acquisitions created a temporary delay in cash receipts of
approximately $19 million. Operating cash flows, as well as borrowings on the
line of credit facilities, were used primarily for acquisition-related payments,
debt repayment, capital expenditures and dividends.
23
Net cash used in investing activities was $116.0 million and $483.6 million
for the three months ended March 31, 2004 and 2003, respectively. Acquisitions
of businesses required cash payments of $105.9 million (including amounts
payable pursuant to acquisition agreements relating to pre-2004 acquisitions) in
2004, which were primarily funded by borrowings under the credit facility and
existing cash balances. Acquisitions of businesses during 2003 required $477.0
million of cash payments (including amounts payable pursuant to acquisition
agreements relating to pre-2003 acquisitions) which were primarily funded by
borrowings under the Company's then existing revolving credit facility.
Omnicare's capital requirements are primarily comprised of its acquisition
program and capital expenditures, largely relating to investments in the
Company's information technology systems.
Net cash provided by financing activities was $79.6 million for the three
months ended March 31, 2004. Borrowings on the credit facility, net of
repayments of $30.0 million, totaled $85.0 million in the 2004 first quarter and
were primarily used for payments relating to the acquisition of businesses. The
Company also paid $4.1 million on the term A loan in the first quarter of 2004.
At March 31, 2004, outstanding revolving credit borrowings were $85.0 million
and the balance on the term A loan was $151.8 million. Net cash provided by
financing activities was $468.6 million in the first quarter of 2003. In
connection with the aforementioned NCS acquisition, the Company borrowed $499.0
million under its then existing revolving credit facility in the first quarter
of 2003. Partially offsetting these 2003 borrowings were payments of $25.0
million on the revolving credit facility in the first quarter of 2003.
On February 5, 2004, 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 2004. Aggregate dividends of $2.3 million paid during the
three months ended March 31, 2004 were relatively consistent with those paid in
the comparable prior year period.
Disclosures About Off-Balance Sheet Arrangements and Aggregate Contractual
Obligations
At March 31, 2004, the Company had one unconsolidated entity, Omnicare
Capital Trust I (the "Trust"), which was established for the purpose of
facilitating the convertible trust preferred securities offering, due 2033
("trust PIERS" or "Preferred Income Equity Redeemable Securities"). For
financial reporting purposes, the Trust is treated as an equity method
investment of Omnicare. The Trust is a 100%-owned finance subsidiary of the
Company. The Company has fully and unconditionally guaranteed the securities of
the Trust. The contingent convertible notes issued by the Company to the Trust
in connection with the issuance by the Trust of 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 March 31, 2004, 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.
24
Except for the Company's long-term debt obligations, Omnicare's contractual
obligations did not significantly change from December 31, 2003. The following
table sets forth the Company's contractual long-term debt obligations at March
31, 2004 to include the net borrowings on the credit facility of $85.0 million
in the 2004 first quarter, as well as the impact of a payment on the term A
loan of $4.1 million. The table summarizes the effect such long-term debt
obligations are expected to have on the Company's liquidity and cash flows in
future periods.
Contractual Long-Term Debt Obligations at March 31, 2004 (in thousands):
Total Less Than 1 Year 1-3 Years 4-5 Years After 5 Years
---------- ---------------- --------- --------- -------------
Long-term debt obligations $1,206,795 $22,564 $80,000 $134,231 $970,000
========== ======= ======= ======== ========
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 approximately
$189 million, and the offering, through the Trust, of $345.0 million aggregate
principal amount of convertible trust preferred securities due 2033.
In March 2001, the Company entered into a three-year syndicated $500.0
million revolving line of credit facility (the "Revolving Credit Facility"),
including a $25.0 million letter of credit subfacility, with various lenders. In
January 2003, the Company borrowed $499.0 million under the Revolving Credit
Facility to finance its acquisition of NCS (see Note 3 of the Notes to
Consolidated Financial Statements). The Revolving Credit Facility was retired in
connection with the mid-2003 refinancing transactions, as further discussed
below.
In connection with the mid-2003 financings, the Company entered into a new,
four-year $750.0 million credit facility ("Credit Facility") consisting of a
$250.0 million term A loan commitment and a $500.0 million revolving credit
commitment, including a $25.0 million letter of credit subfacility. The new
Credit Facility bears interest at the Company's option at a rate equal to
either: (i) the 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 March 31, 2004, 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.
The Company used the net proceeds from the 6.125% Senior Notes offering and
borrowings of $250.0 million under the term A loan portion of the new Credit
Facility to repay the balance of the Company's existing Revolving Credit
Facility of $474.0 million, with remaining proceeds being used for general
corporate purposes. The Company paid down $4.1 million on the term A loan during
the three months ended March 31, 2004. The $151.8 million outstanding at March
31, 2004 under the term A loan is due in quarterly installments, in varying
25
amounts, through 2007, with approximately $22.6 million due within one year.
There was $85.0 million outstanding as of March 31, 2004 under the revolving
credit commitment of the Credit Facility.
As described above, the Company completed, during the second quarter of
2003, its offering of $250.0 million of 6.125% Senior Notes due 2013. 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, in
arrears, two London Banking Days prior to the first of each December and June,
commencing December 1, 2003. The Company records interest expense on the 6.125%
Senior Notes at the floating rate. The estimated LIBOR-based floating rate was
3.43% at March 31, 2004. 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 Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended ("SFAS 133"), so changes in the
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
of $12.3 million at March 31, 2004 is recorded as a noncurrent liability and a
reduction to the carrying value of the related 6.125% Senior Notes.
In connection with the offering of the trust PIERS in the second quarter of
2003, 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 fixed 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 March 31, 2004, 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
financial position, cash flows and 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 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. While no such plans currently exist,
the
26
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.
Recently Issued Accounting Standards
All recently issued accounting standards applicable to the Company have
been adopted.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Regarding Forward-Looking Information
In addition to historical information, this report contains certain
statements that constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are made on the basis of management's views and assumptions regarding
business performance as of the time the statements are made, and management does
not undertake any obligation to update these statements. These forward-looking
statements include, but are not limited to, all statements regarding the intent,
belief or current expectations regarding the matters discussed or incorporated
by reference in this document (including statements as to "beliefs,"
"expectations," "anticipations," "intentions" or similar words) and all
statements which are not statements of historical fact.
Forward-looking statements in this report include, but are not limited to,
the following: expectations concerning the Company's financial performance,
results of operations, sales, earnings or business outlook; trends in the
long-term healthcare and contract research industries generally; the impact of
continued pricing pressures and the economy on federal and state Medicaid
budgets, reimbursement rates and other cost control measures; the impact of the
MMA; trends in healthcare funding issues, including, but not limited to, state
Medicaid budgets; the impact of any changes in healthcare policy relating to the
future funding of the Medicaid and Medicare programs; expectations concerning
capital expenditure requirements; valuations of derivative instruments embedded
in the Company's trust PIERS instruments; the adequacy and availability of the
Company's sources of liquidity and capital; payments of future quarterly
dividends; and the adequacy of the Company's net cash flows from operating
activities, credit facilities and other long and short-term debt financings to
satisfy the Company's future working capital needs, acquisition contingency
commitments, debt servicing, capital expenditures and other financing
requirements for the foreseeable future.
These forward-looking statements, together with other statements that are
not historical, involve known and unknown risks, uncertainties, contingencies
and other factors that could cause 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 the Company, include,
but are not limited to: overall economic, financial, political and business
conditions; trends in the long-term healthcare and contract research industries;
competition in the pharmaceutical, long-term care and contract research
industries; the impact of consolidation in the pharmaceutical and long-term care
industries; trends in long-term care occupancy rates and
27
demographics; the ability to attract new clients and service contracts and
retain existing clients and service contracts; trends for the continued growth
of the Company's businesses; expectations concerning the development and
performance of the Company's informatics business; the effectiveness of the
Company's formulary compliance program; trends in drug pricing, including the
impact and pace of pharmaceutical price increases; delays and reductions in
reimbursement by the government and other payors to customers and to the Company
as a result of pressures on federal and state budgets or for other reasons; the
overall financial condition of the Company's customers; the ability of the
Company to assess and react to the financial condition of its customers; the
effectiveness of the Company's pharmaceutical purchasing programs and its
ability to obtain discounts and manage pharmaceutical costs; the ability of
vendors and business partners to continue to provide products and services to
the Company; the continued successful integration of acquired companies and the
ability to realize anticipated sales, economies of scale, cost synergies and
profitability; the continued availability of suitable acquisition candidates;
pricing and other competitive factors in the industry; increases or decreases
in reimbursement rates and the impact of other cost control measures; the impact
on the Company's sales, profits and margins resulting from market trends in the
use of newer branded drugs versus generic drugs; the number and usage of generic
drugs and price competition in the drug marketplace; the ability to attract and
retain needed management; 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
demand for the Company's products and services; variations in costs or expenses;
the ability to implement productivity, consolidation and cost reduction efforts
and to realize anticipated benefits; the ability of clinical research projects
to produce revenues in future periods; the ability to benefit from streamlining
and globalization efforts at the CRO; trends concerning CRO backlog; the
effectiveness of the Company's implementation and expansion of its clinical and
other service programs; the effect of new legislation, government regulations,
and/or executive orders, including those relating to reimbursement and drug
pricing policies and changes in the interpretation and application of such
policies; the impact of the MMA and its implementing regulations; legislation
and regulations affecting payment and reimbursement rates for skilled nursing
facilities; trends in federal and state budgets and their impact on Medicaid
reimbursement rates; government budgetary pressures and shifting priorities; the
Company's ability to adjust to federal and state budget shortfalls; efforts by
payors to control costs; the failure of the Company or the long-term care
facilities it serves to obtain or maintain required regulatory approvals or
licenses; loss or delay of contracts pertaining to the CRO business for
regulatory or other reasons; the outcome of litigation; potential liability for
losses not covered by, or in excess of, insurance; the impact of differences in
actuarial assumptions and estimates pertaining to employee benefit plans; events
or circumstances which result in an impairment of goodwill; market conditions
which adversely affect the valuation of the trust PIERS instruments; the outcome
of audit, compliance, administrative or investigatory reviews; volatility in the
market for the Company's stock and in the financial markets generally; market
conditions generally; access to adequate capital and financing; changes in
international economic and political conditions and currency fluctuations
between the U.S. dollar and other currencies; interest rate risk on borrowings;
changes in tax laws and regulations; changes in accounting rules and standards;
and other risks and uncertainties described in the Company's reports and filings
with the Securities and Exchange Commission.
28
Should one or more of these risks or uncertainties materialize or should
underlying assumptions prove incorrect, the Company's actual results,
performance or achievements could differ materially from those expressed in, or
implied by, such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. Except as otherwise required by law, the Company does not undertake
any obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
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 March 31,
2004 include $151.8 million outstanding under the term A loan portion, and
$85.0 million drawn on the revolving credit commitment portion, of its June
2003 four-year, variable-rate Credit Facility at an interest rate of LIBOR plus
1.375%, or 2.47% at March 31, 2004 (a 100 basis point change in the interest
rate would impact pretax interest expense by approximately $2.4 million per
year); $375.0 million outstanding under its fixed-rate 8.125% senior
subordinated notes due 2011 ("8.125% Senior Notes"), due 2011; $250.0 million
outstanding under its fixed-rate 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 a 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 estimated LIBOR-based
floating rate was 3.43% at March 31, 2004 (a 100 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 133, as amended, so
changes in the 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 of $12.3 million at March 31, 2004 is recorded as a
noncurrent liability and a reduction to the carrying value of the related 6.125%
Senior Notes. At March 31, 2004, 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 $418.1
million, $260.6 million and $452.0 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
March 31, 2004, 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 financial position, cash flows and results of operations.
29
The Company has operations and revenue that occur outside of the 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.
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-15(e) and 15d-15(e))
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 or submitted 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, our internal
control over financial reporting.
30
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
A summary of the Company's repurchases during the quarter ended March 31,
2004 is as follows (in thousands):
Maximum Number
Total Number of (or Approximate Dollar
Total Shares Purchased as Value) of Shares that
Number of Part of Publicly May Yet Be
Shares Average Price Announced Purchased Under the
Period Purchased (a) Paid per Share Plans or Programs Plans or Programs
- ------------------- ------------- -------------- ------------------- ----------------------
January 1-31, 2004 -- $ -- -- --
February 1-29, 2004 94 43.87 -- --
March 1-31, 2004 68 45.49 -- --
--- --- ---
Total 162 $44.55 -- --
=== ====== === ===
(a) During the first quarter of 2004, the Company purchased 162,000 shares of
Omnicare common stock in connection with its employee benefit plans, including
purchases associated with stock option exercises and the vesting of restricted
stock awards. These purchases were not made pursuant to a publicly announced
repurchase plan or program.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index of Exhibits.
(b) Reports on Form 8-K
During the quarter ended March 31, 2004, the Company submitted, on February
12, 2004, a Report on Form 8-K reporting that it had issued a press release
announcing its financial results for the fourth quarter and year ended
December 31, 2003.
31
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: May 10, 2004 By: /s/ David W. Froesel, Jr.
------------------------------------
David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
32
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
- -------------------------------------------------------------------------------- ------------------------------------------
(11) Computation of Earnings Per Common Share Filed Herewith
(12) Computation of Ratio of Earnings to Fixed Charges Filed Herewith
(31.1) Rule 13a-14(a) Certification of Chief Executive Officer of Omnicare, Inc. Filed Herewith
in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
(31.2) Rule 13a-14(a) Certification of Chief Financial Officer of Omnicare, Inc. Filed Herewith
in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
(32.1) Section 1350 Certification of Chief Executive Officer of Omnicare, Inc. Furnished Herewith
in accordance with Section 906 of the Sarbanes-Oxley Act of 2002*
(32.2) Section 1350 Certification of Chief Financial Officer of Omnicare, Inc. Furnished Herewith
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