10-Q 1 a10qq22013.htm 10-Q 10Q Q2 2013


 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-8269

OMNICARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
31-1001351
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)

OMNICARE, INC.
900 OMNICARE CENTER
201 E. FOURTH STREET
CINCINNATI, OH  45202
(Address of Principal Executive Offices)
513-719-2600
(Registrant’s Telephone Number)
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 requirements for the past 90 days. Yes  ý No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer   ý      Accelerated filer  ¨       Non-Accelerated filer  ¨       Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes  No ý
Common Stock Outstanding
 
Number of Shares
Date
Common Stock, $1 par value
103,464,872
June 30, 2013


 
 
 
 
 
 



OMNICARE, INC. AND

SUBSIDIARY COMPANIES

FORM 10-Q QUARTERLY REPORT JUNE 30, 2013

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
 
 
PAGE
ITEM 1.
FINANCIAL STATEMENTS (UNAUDITED)
 
 
 
 
Three and six months ended June 30, 2013 and 2012
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2013 and 2012
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II - OTHER INFORMATION
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
ITEM 5.
 
 
 
ITEM 6.








ITEM 1. - FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(in thousands, except per share data)

 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2013
 
2012
 
2013
 
2012
Net sales
 
$
1,569,897

 
$
1,536,027

 
$
3,094,900

 
$
3,129,095

Cost of sales
 
1,191,447

 
1,168,681

 
2,345,626

 
2,393,649

Gross profit
 
378,450

 
367,346

 
749,274

 
735,446

Selling, general and administrative expenses
 
203,688

 
201,878

 
405,514

 
402,002

Provision for doubtful accounts
 
25,346

 
24,078

 
49,572

 
48,509

Settlement, litigation and other related charges
 
3,512

 
26,093

 
26,131

 
33,296

Other charges
 
31,268

 
49,209

 
35,274

 
60,721

Operating income
 
114,636

 
66,088

 
232,783

 
190,918

Interest expense, net of investment income
 
(29,624
)
 
(35,574
)
 
(59,083
)
 
(66,408
)
Income before income taxes
 
85,012

 
30,514

 
173,700

 
124,510

Income tax expense
 
32,793

 
11,822

 
67,127

 
50,079

Net income
 
$
52,219

 
$
18,692

 
106,573

 
74,431

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 

 
 
 
 

Basic
 
$
0.51

 
$
0.17

 
$
1.03

 
$
0.67

Diluted
 
$
0.48

 
$
0.17

 
$
0.98

 
$
0.65

 
 
 
 
 
 
 
 
 
Dividends per common share
 
$
0.14

 
$
0.07

 
$
0.28

 
$
0.14

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 

 
 

 
 

 
 

Basic
 
102,867

 
110,580

 
103,038

 
111,033

Diluted
 
109,931

 
113,472

 
108,736

 
114,987

 
 
 
 
 
 
 
 
 
Comprehensive income
 
$
52,145

 
$
17,003

 
$
106,475

 
$
73,164


The accompanying notes are an integral part of these financial statements.


3



CONSOLIDATED BALANCE SHEETS
OMNICARE,  INC.  AND  SUBSIDIARY  COMPANIES
UNAUDITED
(in thousands, except share data)
 
June 30,
2013
 
December 31,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
535,360

 
$
454,213

Restricted cash
5

 
1,066

Accounts receivable, less allowances of $218,764 (2012-$269,416)
764,448

 
857,052

Inventories
402,130

 
385,698

Deferred income tax benefits
97,616

 
136,186

Other current assets
296,594

 
254,644

Total current assets
2,096,153

 
2,088,859

Properties and equipment, at cost less accumulated depreciation
     of $328,213 (2012-$308,525)
301,954

 
282,660

Goodwill
4,253,461

 
4,256,959

Identifiable intangible assets, less accumulated amortization of
     $249,289 (2012-$236,116)
175,353

 
196,873

Other noncurrent assets
114,614

 
163,913

Total noncurrent assets
4,845,382

 
4,900,405

Total assets
$
6,941,535

 
$
6,989,264

LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
191,039

 
$
200,125

Accrued employee compensation
64,885

 
73,791

Current debt
443,514

 
27,713

Other current liabilities
164,336

 
180,385

Total current liabilities
863,774

 
482,014

Long-term debt, notes and convertible debentures
1,591,524

 
2,030,030

Deferred income tax liabilities
927,293

 
914,660

Other noncurrent liabilities
61,081

 
56,848

Total noncurrent liabilities
2,579,898

 
3,001,538

Total liabilities
3,443,672

 
3,483,552

Commitments and contingencies (Note 7)
 

 
 

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, 134,400,995
    shares issued (2012-133,503,156 shares issued)
134,401

 
133,503

Paid-in capital
2,450,465

 
2,419,970

Retained earnings
1,878,807

 
1,801,075

Treasury stock, at cost - 30,936,123 shares (2012-28,851,671 shares)
(962,892
)
 
(846,016
)
Accumulated other comprehensive income (loss)
(2,918
)
 
(2,820
)
Total stockholders' equity
3,497,863

 
3,505,712

Total liabilities and stockholders' equity
$
6,941,535

 
$
6,989,264


The accompanying notes are an integral part of these financial statements.

4


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(in thousands)
 
Six months ended
June 30,
 
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
106,573

 
$
74,431

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation
28,520

 
24,478

Amortization
40,528

 
42,826

Debt redemption loss and costs, net
—

 
35,092

Other operating activities
—

 
4,196

Loss from disposition
28,786

 
5,903

Changes in certain assets and liabilities, net of effects from acquisition and divestiture of businesses:
 

 
 

Accounts receivable, net of provision for doubtful accounts
71,130

 
3,496

Inventories
(17,319
)
 
68,535

Current and noncurrent assets
(28,359
)
 
6,821

Accounts payable
1,146

 
(66,829
)
Accrued employee compensation
(8,873
)
 
5,553

Current and noncurrent liabilities
40,537

 
16,113

Net cash flows from operating activities
262,669

 
220,615

Cash flows from investing activities:
 
 
 

Acquisition of businesses, net of cash received
(298
)
 
(568
)
Disposition of business, net
675

 
—

Capital expenditures
(46,837
)
 
(46,435
)
Other
625

 
(586
)
Net cash flows used in investing activities
(45,835
)
 
(47,589
)
Cash flows from financing activities:
 

 
 

Payments on term loans
(10,626
)
 
(11,250
)
Payments on long-term borrowings and obligations
(3,434
)
 
(26,046
)
Capped call transaction
(38
)
 
(48,126
)
Decrease in cash overdraft balance
(10,233
)
 
(7,318
)
Payments for Omnicare common stock repurchases
(100,302
)
 
(80,307
)
Proceeds for stock awards and exercise of stock options, net of stock tendered in payment
16,532

 
4,159

Dividends paid
(28,766
)
 
(15,521
)
Other
1,180

 
(4,400
)
Net cash flows used in financing activities
(135,687
)
 
(188,809
)
Net increase in cash and cash equivalents
81,147

 
(15,783
)
Cash and cash equivalents at beginning of period
454,213

 
580,262

Cash and cash equivalents at end of period
$
535,360

 
$
564,479


The accompanying notes are an integral part of these financial statements.


5



Notes to Consolidated Financial Statements

Note 1 - Basis of Presentation

Omnicare, Inc. and its consolidated subsidiaries (“Omnicare” or the “Company”) have prepared the accompanying unaudited Consolidated Financial Statements in accordance with the accounting policies described in its consolidated financial statements and the notes thereto included in the Company's 2012 Annual Report on Form 10-K (“2012 Annual Report”), and the interim reporting requirements of Form 10-Q.  Accordingly, certain information and disclosures normally included in the annual financial statements have been condensed or omitted.  The Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes included in the 2012 Annual Report and any related updates included in the Company’s periodic Securities and Exchange Commission (“SEC”) filings.  In the second quarter of 2013, the Company concluded that the operations of its hospice pharmacy business were better aligned with the operation of its Long-Term Care Group ("LTC"), and began to review and manage the operations of this business as part of LTC. Accordingly, to align the reporting segments with the current way management reviews information to make operating decisions, assess performance and allocate resources, the results of the Company's hospice business are now reported in LTC. Additional information on the Company's reportable segments is presented at the "Segment Information" note of the Notes to Consolidated Financial Statements. Certain reclassifications of prior year amounts, primarily related to the reclassification of segment information, have been made to conform to the current year presentation.  

Note 2 - Significant Accounting Policies

Interim Financial Data

The interim financial data is unaudited; however, in the opinion of Omnicare management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Omnicare consolidated results of operations, financial position and cash flows for the interim periods presented have been made.  All significant intercompany accounts and transactions have been eliminated.

Stock-Based Compensation

Stock-based compensation expense recognized in the Consolidated Statements of Comprehensive Income for stock options, restricted stock units, performance share units and stock awards totaled approximately $4.7 million and $9.2 million for the three and six months ended June 30, 2013, respectively, and $5.4 million and $8.9 million for the three and six months ended June 30, 2012, respectively.

Accounts Receivable

The following table is an aging of the Company’s gross accounts receivable (net of allowances for contractual adjustments), aged based on payment terms and categorized based on the three primary types of accounts receivable characteristics (in thousands):
June 30, 2013
 
Current and 0-180 Days Past Due
 
181 Days and Over Past Due
 
Total
Medicare (Part D and Part B), Medicaid and Third-Party payors
 
$
204,910

 
$
84,780

 
$
289,690

Facility payors
 
372,440

 
160,028

 
532,468

Private Pay payors
 
71,989

 
89,065

 
161,054

Total gross accounts receivable
 
$
649,339

 
$
333,873

 
$
983,212

December 31, 2012
 
 
 
 
 
 
Medicare (Part D and Part B), Medicaid and Third-Party payors
 
$
238,348

 
$
163,773

 
$
402,121

Facility payors
 
383,848

 
168,945

 
552,793

Private Pay payors
 
70,835

 
100,719

 
171,554

Total gross accounts receivable
 
$
693,031

 
$
433,437

 
$
1,126,468


Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) ("AOCI") by component and in the aggregate, follows (in thousands):

6


 
 
June 30,
2013
 
December 31, 2012
Unrealized loss on fair value of investments
 
$
(642
)
 
$
(428
)
Pension and postemployment benefits
 
(2,276
)
 
(2,392
)
Total accumulated other comprehensive income (loss), net
 
$
(2,918
)
 
$
(2,820
)

The amounts are net of applicable tax benefits which were not material at June 30, 2013 and December 31, 2012. The reclassifications out of AOCI did not materially affect any individual line item on the Statement of Comprehensive Income.

Fair Value

The Company’s financial assets and liabilities, measured at fair value on a recurring basis, were as follows (in thousands):
 
 
 
 
Based on
 
 
Fair Value
 
Quoted Prices in Active Markets
 (Level 1)
 
Other Observable Inputs
(Level 2)
 
Unobservable Inputs
(Level 3)
June 30, 2013
 
 
 
 
 
 
 
 
Bond portfolio
 
$
25,050

 
$
—

 
$
25,050

 
$
—

7.75% interest rate swap agreements - fair value hedge
 
20,992

 
—

 
20,992

 
—

Derivatives
 
—

 
—

 
—

 
—

Total
 
$
46,042

 
$
—

 
$
46,042

 
$
—

December 31, 2012
 
 
 
 
 
 
 
 
Bond portfolio
 
$
24,887

 
$
—

 
$
24,887

 
$
—

7.75% interest rate swap agreements - fair value hedge
 
46,090

 
—

 
46,090

 
—

Derivatives
 
—

 
—

 
—

 
—

Total
 
$
70,977

 
$
—

 
$
70,977

 
$
—

 
The fair value of the Company’s fixed-rate debt facilities are shown at the Debt note of the Notes to Consolidated Financial Statements.

Offsetting Assets and Liabilities

Effective January 1, 2013 the Company adopted Accounting Standards Update (“ASU”) 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities which clarifies ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. The amended standard requires an entity to disclose information about offsetting and related arrangements to enable users of the its financial statements to understand the effect of those arrangements on its financial position.

The Company has interest rate swap agreements with multiple counterparties on its 7.75% Senior Subordinated Notes, which are subject to this guidance. The following table presents these swap agreements offsetting securities as of June 30, 2013 and December 31, 2012:


7


 
 
 
 
Gross Amounts not offset in the statement of financial position
 
Interest Rate Swaps as of:
Gross amount of recognized assets (liabilities)
Gross amount offset in the statement of financial position
Net amount of assets (liabilities) presented in the statement of financial position
Financial instruments
Cash collateral received
Net amount
June 30, 2013
 
 
 
 
 
 
Swap A
$
12,031

$
—

$
12,031

$
—

$
—

$
12,031

Swap B
11,739

—

11,739

—

—

11,739

Swap C
(1,416
)
—

(1,416
)
—

—

(1,416
)
Swap D
(1,362
)
—

(1,362
)
—

—

(1,362
)
 
$
20,992

$
—

$
20,992

$
—

$
—

$
20,992

 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
Swap A
$
20,560

$
—

$
20,560

$
—

$
—

$
20,560

Swap B
20,011

—

20,011

—

—

20,011

Swap C
2,896

—

2,896

—

—

2,896

Swap D
2,623

—

2,623

—

—

2,623

 
$
46,090

$
—

$
46,090

$
—

$
—

$
46,090


Income Taxes

The quarterly effective tax rates are different than the federal statutory rate largely as a result of the impact of state and local income taxes and certain non-deductible charges.  The year over year change in the effective tax rate is primarily due to certain non-deductible charges relating to the disposition of businesses in 2012.

Other charges

Other charges (on a pre-tax basis) consist of the following (in thousands):
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
Acquisition and other related costs
$
1,763

 
$
1,117

 
$
2,300

 
$
4,226

Disposition of businesses
28,786

 
—

 
28,786

 
5,903

Separation costs
719

 
13,000

 
4,188

 
15,500

Debt related costs
—

 
35,092

 
—

 
35,092

Total - other charges
$
31,268

 
$
49,209

 
$
35,274

 
$
60,721


Disposition of Businesses

In the second quarter of 2013, the Company completed the disposition of certain assets in its Medical Supply Services business and in 2012, completed the dispositions of its Canadian pharmacy and the Company's pharmacy operational software businesses, which were not considered, individually or in the aggregate, significant to the operations of Omnicare. The Company recorded a charge on the disposition of these businesses of $28.8 million ($17.7 million after-tax) in the three and six months ended June 30, 2013 and $5.9 million in the six months ended June 30, 2012. These charges are reflected in the "Other charges" caption of the Consolidated Statements of Comprehensive Income.

Separation Costs

In the three and six months ended June 30, 2013, the Company recorded separation related costs for certain employees of approximately $0.7 million and $4.2 million, respectively. In the three and six months ended June 30, 2012, the Company recorded

8


charges of approximately $13.0 million and $15.5 million, respectively, related to separation related costs with the former CEO and other former executives. These charges are reflected in the "Other charges" caption of the Consolidated Statements of Comprehensive Income.

Common Stock Repurchase Program

As part of the Company's share repurchase program, on May 23, 2013, the Company entered into an Accelerated Share Repurchase Agreement (“JP ASR”) with J.P. Morgan Securities LLC as agent for JPMorgan Chase Bank, National Association, London Branch ("JPMorgan"). Pursuant to the JP ASR, the Company made a $100 million payment to JPMorgan on May 24, 2013 and received an initial number of approximately 1.3 million shares of its outstanding common stock from JPMorgan on the same day. The initial shares were valued at $60 million and recorded in treasury stock. The remaining $40 million balance was recorded as an equity forward contract which is included in paid in capital at June 30, 2013. The specific number of shares that the Company ultimately will repurchase and the final aggregate purchase price under the JP ASR will be determined based on an agreed upon discount to the average of the daily volume-weighted average price per share of the Company's common stock during a repurchase period, subject to adjustments pursuant to the terms and conditions of the JP ASR. At settlement, under certain circumstances, the Company or JPMorgan may be required to deliver cash or additional shares of the Company's common stock, at the Company's option, to the other party. The JP ASR contains customary provisions for agreements of this type, including provisions for adjustments to the transaction terms, the circumstances generally under which the JP ASR may be accelerated, extended or terminated early by JPMorgan and various acknowledgments, representations and warranties made by the parties to one another. The transaction is expected to be completed in the third quarter of 2013.

In 2012, the Company entered into an Accelerated Share Repurchase Agreement (“GS ASR”) with Goldman, Sachs & Co. ("Goldman"). Pursuant to the GS ASR, the Company made a $250 million payment to Goldman on November 30, 2012 and received an initial number of approximately 5.8 million shares of its outstanding common stock from Goldman on the same day. The initial shares were valued at $200 million and recorded in treasury stock. The remaining $50 million balance was recorded as an equity forward contract, which was included in paid in capital at December 31, 2012. The equity forward contract was settled with 0.6 million additional shares of the Company's common stock being delivered by Goldman to the Company during the three months ended June 30, 2013.

In the six months ended June 30, 2013, the Company repurchased approximately 1.9 million shares through authorized share repurchase programs at an aggregate cost of approximately $110.0 million, for a cumulative amount of its common stock of approximately 21.1 million shares repurchased at an aggregate cost of approximately $690 million from the inception of the share repurchase programs in May 2010 through June 30, 2013. The Company had approximately $120 million of combined share repurchase authority remaining as of June 30, 2013, which expires on December 31, 2014, after consideration of the $40 million equity forward contract recorded as part of the JP ASR.

Recently Issued Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this update require an entity to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the income statement or in the notes, significant amounts reclassified from accumulated other comprehensive income by the net income line item. The adoption of this amended guidance on January 1, 2013 did not have a material impact on the Company's consolidated results of operations, financial position and cash flows.

Note 3 - Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the six months ended June 30, 2013 are as follows (in thousands):
 
 
 
 
 
 
 
 
 
Long-Term Care Group
 
Specialty Care Group
 
Total
Goodwill balance as of December 31, 2012
 
$
3,770,235

 
$
486,724

 
$
4,256,959

Other
 
(3,498
)
 
—

 
(3,498
)
Goodwill balance as of June 30, 2013
 
$
3,766,737

 
$
486,724

 
$
4,253,461



9


The Company’s intangible amortization expense for the three and six months ended June 30, 2013 was approximately $9 million and $19 million, respectively, and was approximately $11 million and $22 million for the three and six months ended June 30, 2012, respectively.

"Other" includes a reduction in goodwill related to the the disposition of the Company's Medical Supply Services business.

Note 4 - Debt

A summary of debt follows (in thousands):
 
 
June 30,
2013
 
December 31,
2012
Revolving credit facility
 
$
—

 
$
—

Senior term loan, due 2017
 
409,063

 
419,688

7.75% senior subordinated notes, due 2020
 
550,000

 
550,000

3.75% convertible senior subordinated notes, due 2025
 
318,054

 
318,054

4.00% junior subordinated convertible debentures, due 2033
 
345,000

 
345,000

3.25% convertible senior debentures, due 2035
 
427,500

 
427,500

3.75% convertible senior subordinated notes, due 2042
 
390,000

 
390,000

Capitalized lease and other debt obligations
 
24,447

 
23,685

Subtotal
 
2,464,064

 
2,473,927

Add interest rate swap agreements
 
20,992

 
46,090

(Subtract) unamortized debt discount
 
(450,018
)
 
(462,274
)
(Subtract) current portion of debt
 
(443,514
)
 
(27,713
)
Total long-term debt, net
 
$
1,591,524

 
$
2,030,030


3.75% Convertible Senior Subordinated Notes, due 2025
Omnicare has outstanding $318 million aggregate principal amount of 3.75% convertible senior subordinated notes, due 2025 (the “2025 Notes”).  The holders may convert their 2025 Notes, prior to December 15, 2023, on any date during any calendar quarter beginning after March 31, 2011 (and only during such calendar quarter) if the closing sale price of the Company's common stock was more than 130% of the then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on, and including, the last trading day of the previous quarter, or at any time on or after December 15, 2023 or under certain other specified circumstances. Upon conversion, the Company will pay cash and shares of its common stock, if any, based on a daily conversion value calculated on a proportionate basis for each day of the 25 trading-day cash settlement averaging period. The conversion price is $27.05 and the conversion threshold is $35.17 as of June 30, 2013. As of June 30, 2013, the aforementioned conversion threshold of the 2025 Notes had been attained. As a result, the 2025 Notes were convertible by the holders to cash and to common stock and have been classified as current debt, net of discount, on the Consolidated Balance Sheet as of June 30, 2013. 

4.00% Junior Subordinated Convertible Debentures, due 2033
Omnicare has outstanding $345 million aggregate principal amount of 4.00% junior subordinated convertible debentures, due 2033 (the “4.00% Convertible Debentures”). The 4.00% Convertible Debentures underlie the securities in the 4.00% Trust Preferred Income Equity Redeemable Securities ("Trust PIERS") of Omnicare Capital Trust I and Omnicare Capital Trust II (the "Series A Trust PIERS" and "Series B Trust PIERS", respectively). Each Trust PIERS represents an undivided beneficial interest in the assets of the applicable Trust, which assets consist solely of a corresponding amount of 4.00% Convertible Debentures. The Series B Trust PIERS have identical terms to the Series A Trust PIERS, except that the Series B Trust PIERS have a net share settlement feature. Holders may convert their Trust PIERS if the closing sales price of Company common stock for a predetermined period is more than 130% of the then-applicable conversion price or, if during a predetermined period, 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 before June 15, 2028 (98% for any period thereafter through maturity). The average trading price was $58.43 for the Series A Trust PIERS and $58.64 for the Series B Trust PIERS and for both the average conversion value was $58.11 with a conversion threshold of $61.02. as of June 30, 2013. As of June 30, 2013, the aforementioned conversion threshold had been attained. As a result, the Trust PIERS (and the underlying 4.00% Convertible Debentures) were convertible by the holders and have been classified as current debt, net of discount, on the Consolidated Balance Sheet as of June 30, 2013. 


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In addition to the continued accrual of regular cash interest, contingent interest will accrue on the Trust PIERS (and the underlying 4.00% Convertible Debentures) for the period from June 15, 2013 to September 14, 2013 at a rate of 0.125% of the average trading price of the Trust PIERS for the five trading days ended June 13, 2013. Contingent cash interest of approximately $0.07 per $50 stated liquidation amount of Trust PIERS (and per $50 principal amount of the underlying 4.00% Convertible Debentures) is expected to be paid on September 16, 2013.

At June 30, 2013, there was no outstanding balance under the Company’s revolving credit facility and $409 million outstanding under the term loan.  The interest rate on the term loan was 1.95% at June 30, 2013. As of June 30, 2013, the Company had approximately $8 million outstanding relating to standby letters of credit, substantially all of which were subject to automatic annual renewals.

The weighted average floating interest rate on the interest rate swap agreements associated with the Company's fixed rate debt was 4.68% versus the 7.75% stated rate on the corresponding senior subordinated notes due 2020 with remaining principal balance of $550 million at June 30, 2013.

The Company amortized to expense approximately $1.0 million and $1.5 million of deferred debt issuance costs during the three months ended June 30, 2013 and 2012, respectively, and $1.9 million and $3.0 million in the six months ended June 30, 2013 and 2012, respectively.

Information relating to the Company's convertible securities at June 30, 2013 is in the following table:
Convertible Debt
 
Carrying Value of Equity Component (in thousands)
 
Remaining Amortization Period
 
Effective Interest Rate
3.75% convertible senior subordinated notes, due 2025
 
$
27,230

 
12.50
 
8.25
%
4.00% junior subordinated convertible debentures, due 2033
 
$
151,665

 
20.00
 
8.01
%
3.25% convertible senior debentures, due 2035
 
$
245,433

 
2.50
 
7.63
%
3.75% convertible senior subordinated notes, due 2042
 
$
161,600

 
28.75
 
7.11
%

The fair value of the Company’s fixed-rate debt facilities, excluding the previously disclosed swap values, is based on quoted market prices (Level II) and is summarized as follows (in thousands):
Fair Value of Financial Instruments
 
 
June 30, 2013
 
December 31, 2012
Financial Instrument
 
Book Value
 
Market Value
 
Book Value
 
Market Value
7.75% senior subordinated notes, due 2020
 
$
550,000

 
$
606,900

 
$
550,000

 
$
614,600

3.75% convertible senior subordinated notes, due 2025
 
 

 
 

 
 

 
 

Carrying value
 
207,110

 
—

 
204,608

 
—

Unamortized debt discount
 
110,944

 
—

 
113,446

 
—

Principal amount
 
318,054

 
597,900

 
318,054

 
459,600

4.00% junior subordinated convertible debentures, due 2033
 
 

 
 

 
 

 
 

Carrying value
 
207,641

 
—

 
206,266

 
—

Unamortized debt discount
 
137,359

 
—

 
138,734

 
—

Principal amount
 
345,000

 
408,200

 
345,000

 
331,600

3.25% convertible senior debentures, due 2035
 
 

 
 

 
 

 
 

Carrying value
 
385,309

 
—

 
377,782

 
—

Unamortized debt discount
 
42,191

 
—

 
49,718

 
—

Principal amount
 
427,500

 
440,600

 
427,500

 
425,400

3.75% convertible senior subordinated notes, due 2042
 
 

 
 

 
 

 
 

Carrying value
 
230,476

 
—

 
229,624

 
—

Unamortized debt discount
 
159,524

 
—

 
160,376

 
—

Principal amount
 
390,000

 
487,100

 
390,000

 
397,100



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Note 5 - Earnings Per Share Data

The following is a reconciliation of the basic and diluted earnings per share (“EPS”) computations for both the numerator and denominator (in thousands, except per share data):
 
 
Three months ended June 30,
 
Six months ended June 30,
2013:
 
Income (Numerator)
 
Common Shares(Denominator)
 
Per Common
Share Amounts
 
Income (Numerator)
 
Common Shares(Denominator)
 
Per Common
Share Amounts
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
52,219

 
102,867

 
$
0.51

 
106,573

 
103,038

 
$
1.03

Effect of Dilutive Securities
 
 

 
 

 
 

 
 

 
 

 
 

Convertible securities
 
71

 
6,402

 
 

 
142

 
5,078

 
 

Stock options, units and awards
 
—

 
662

 
 

 
—

 
620

 
 

Diluted EPS
 
 

 
 

 
 

 
 

 
 

 
 

Net income plus assumed conversions
 
$
52,290

 
109,931

 
$
0.48

 
$
106,715

 
$
108,736

 
$
0.98

2012:
 
 

 
 

 
 

 
 

 
 

 
 

Basic EPS
 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
$
18,692

 
110,580

 
$
0.17

 
$
74,431

 
111,033

 
$
0.67

Effect of Dilutive Securities
 
 

 
 

 
 

 
 

 
 

 
 

Convertible securities
 
72

 
2,309

 
 

 
143

 
3,314

 
 

Stock options, warrants, units and awards
 
—

 
583

 
 

 
—

 
640

 
 

Diluted EPS
 
 

 
 

 
 

 
 

 
 

 
 

Net income plus assumed conversions
 
$
18,764

 
113,472

 
$
0.17

 
$
74,574

 
$
114,987

 
$
0.65


EPS is reported independently for each amount presented.  Accordingly, the sum of the individual amounts may not necessarily equal the separately calculated amounts for the corresponding period.

The Company is required to include additional shares in its diluted shares outstanding calculation based on the treasury stock method when the average Omnicare stock market price for the applicable period exceeds the following amounts:

Convertible Debt
 
Price
3.75% convertible senior subordinated notes, due 2025
 
$
27.05

4.00% junior subordinated convertible debentures, due 2033
 
$
40.82

3.25% convertible senior debentures, due 2035
 
$
78.29

3.75% convertible senior subordinated notes, due 2042
 
$
41.19


Weighted average shares outstanding, assuming dilution, excludes the impact of 0.8 million and 0.8 million stock options and awards for the three and six months ended June 30, 2013, respectively, and 2.3 million and 2.6 million for the three and six months ended June 30, 2012, respectively, due to the exercise prices of these stock options and awards being greater than the average fair market value of our common stock during the period. Also, the Company has capped call provisions in place on our 3.75% convertible notes due 2042, which provide a hedge against economic dilution, but not against diluted share count under generally accepted accounting principles, up to a stock price of approximately $61.25 through 2016.

Note 6 - Restructuring and Other Related Charges

Company-wide Reorganization Program

During 2010, the Company initiated a Company-wide Reorganization Program (the “CWR Program”), including a reshaping of the organization with the objective of deploying resources closer to the customers, allowing Omnicare to become more responsive to customer needs, better leveraging the Omnicare platform and better positioning the Company for potential growth.  The program

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was completed in the third quarter of 2012 with the completion of the relocation of the Corporate office. As of June 30, 2013, the Company has made cumulative payments of approximately $3.2 million of severance and other employee-related costs for the CWR Program.  The Company had liabilities of approximately $8.5 million at December 31, 2012, with utilization of approximately $1.6 million in the six months ended June 30, 2013. The remaining liabilities of $6.9 million at June 30, 2013, represent amounts not yet paid relating to actions taken in connection with the program (primarily lease termination costs) and will be settled as these matters are finalized.

Note 7 - Commitments and Contingencies

Omnicare continuously evaluates contingencies based upon the best available information.  The Company believes that liabilities have been recorded to the extent necessary in cases where the outcome is considered probable and reasonably estimable.  To the extent that resolution of contingencies results in amounts that vary from the Company's recorded liabilities, future earnings will be charged or credited accordingly.

On May 23, 2013, a qui tam complaint entitled United States and the State of Illinois ex rel. Alan Litwiller v. Omnicare, Inc., No. 1:11-cv-08980, was unsealed by the U.S. District Court for the Northern District of Illinois, Eastern Division. The U.S. Department of Justice has declined to intervene in this action. The complaint was brought by Alan Litwiller as a private party qui tam relator on behalf of the federal government and the State of Illinois. The Company received a request for a waiver of service of summons on June 6, 2013, which was executed by counsel for the Company. The action alleges civil violations of the federal False Claims Act and analogous Illinois law based upon allegations that the Company agreed to forego collection of certain debts, provided certain credits or refunds to customers, provided charitable donations to charities associated with certain customers, and provided other services below cost for referrals of business in violation of the Anti-Kickback Statute. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On March 11, 2013, a qui tam complaint entitled United States et al. ex rel. Marc Silver, et al. v. Omnicare, Inc. et al. Civil No. 1:11-cv-01326, which had been filed under seal in the U.S. District Court for the District of New Jersey, was unsealed by the Court. The complaint was brought by Marc Silver as a private party qui tam relator on behalf of the federal government and several state governments. The action alleges civil violations of the federal False Claims Act and analogous state laws based upon allegations that the Company provided certain customer facilities with discounts and other forms of remuneration in return for referrals of business in violation of the Anti-Kickback Statute. The U.S. Department of Justice has notified the Court that it declined to intervene in this action. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On March 27, 2013, a qui tam complaint, entitled United States of America et. al. ex rel. Gil Pomeranz, Michael Gawronski and Larry Cobb v. Omnicare, Inc., et al., No. 2:11-cv-13831, was unsealed by the U.S. District Court for the Eastern District of Michigan, Southern Division. The case was filed on September 1, 2011 under seal in that Court. The U.S. Department of Justice notified the Court that it has declined to intervene in the action. The complaint was brought by Pomeranz, Gawronski, and Cobb as private party qui tam relators on behalf of the federal government and certain states. The action alleges civil violations of the False Claims Act based on allegations that the Company failed to comply with certain Michigan pharmacy regulations. On May 22, 2013 the Court granted Relators' motion to voluntarily dismiss the complaint.

On October 5, 2011, a qui tam complaint, entitled United States ex rel. Donald Gale v. Omnicare, Inc., No. 1:10-cv-0127, was served on the Company. The case had been filed on January 19, 2010 under seal with the U.S. District Court for the Northern District of Ohio, Eastern Division. The complaint was unsealed by the Court on June 9, 2011 after the U.S. Department of Justice notified the Court that it has declined to intervene in this action. The complaint was brought by Donald Gale as a private party qui tam relator on behalf of the federal government. The action alleges civil violations of the False Claims Act based on allegations that the Company provided certain customer facilities with discounts and other forms of remuneration in return for referrals of business in violation of the Anti-Kickback Statute, and offered pricing terms in violation of the "most favored customer" pricing laws of various state Medicaid plans. The Company filed a motion to dismiss on January 27, 2012. On September 26, 2012, the Court granted in part and denied in part the Company's motion to dismiss. Allegations concerning pricing and certain discounts remain in the case. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On August 4, 2011, a qui tam complaint, entitled United States of America ex rel. Fox Rx, Inc. v. Omnicare, Inc. and Neighborcare, Inc., No. 1:11-cv-0962, that was filed under seal with the U.S. District Court for the Northern District of Georgia, was unsealed by the Court. The U.S. Department of Justice has declined to intervene in this action. The Company was served with the complaint on November 23, 2011. The complaint was brought by Fox Rx, Inc. as a qui tam relator on behalf of the federal government. The

13


action alleges civil violations of the False Claims Act based on allegations that the Company billed Medicare Part D for medically unnecessary antipsychotic drugs, increased the dispensing fees by artificially shortening the supply of prescribed medication, submitted claims for antipsychotic drugs without complying with Fox Rx, Inc.'s prior approval requirements, and waived or failed to collect copayments from patients to induce the use of prescription drugs. The Company filed a motion to dismiss on December 21, 2011. On August 29, 2012, the Court granted the Company's motion to dismiss, though granting leave to replead certain counts. On September 18, 2012, the Relator filed its Third Amended Complaint reasserting its claims regarding copayments and antipsychotic drugs. On October 2 and 5, 2012, the Company filed motions to dismiss the Third Amended Complaint. On May 17, 2013, the Court granted in part and denied in part the Company's motions to dismiss. The Court dismissed all claims except those related to prescriptions filled for Fox patients between 2009 and 2010. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On August 24, 2011, a class action complaint entitled Ansfield v. Omnicare, Inc., et al. was filed on behalf of a putative class of all purchasers of the Company's common stock from January 10, 2007 through August 5, 2010 against the Company and certain of its current and former officers in the U.S. District Court for the Eastern District of Kentucky, alleging violations of federal securities laws in connection with alleged false and misleading statements with respect to the Company's compliance with federal and state Medicare and Medicaid laws and regulations. On October 21, 2011, a class action complaint entitled Jacksonville Police & Fire Pension Fund v. Omnicare, Inc. et al. was filed on behalf of the same putative class of purchasers as is referenced in the Ansfield complaint, against the Company and certain of its current and former officers, in the U.S. District Court for the Eastern District of Kentucky. Plaintiffs allege substantially the same violations of federal securities law as are alleged in the Ansfield complaint. Both complaints seek unspecified money damages. The Court has appointed lead counsel and a consolidated amended complaint was filed on May 11, 2012. The Company filed a motion to dismiss on July 16, 2012. On March 27, 2013, the Court granted the Company's motion to dismiss and dismissed all claims with prejudice. On April 26, 2013 the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Sixth Circuit appealing the District Court's order dismissing the complaint with prejudice.

On October 29, 2010, a qui tam complaint entitled United States ex rel. Banigan and Templin, et al. v. Organon USA, Inc., Omnicare, Inc. and Pharmerica, Inc., Civil No. 07-12153-RWZ, that had been filed under seal with the U.S. District Court in Boston, Massachusetts, was ordered unsealed by the Court. The complaint was brought by James Banigan and Richard Templin, former employees of Organon, as private party qui tam relators on behalf of the federal government and several state and local governments. The action alleges civil violations of the False Claims Act based on allegations that Organon USA, Inc. and its affiliates paid the Company and several other long-term care pharmacies rebates, post-purchase discounts and other forms of remuneration in return for purchasing pharmaceuticals from Organon and taking steps to increase the purchase of Organon's drugs in violation of the Anti-Kickback Statute. The U.S. Department of Justice has notified the Court that it has declined to intervene in this action. The Court denied the Company's motion to dismiss on June 1, 2012. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

The U.S. Department of Justice, through the U.S. Attorney's Office for the Western District of Virginia, is investigating whether the Company's activities in connection with agreements it had with the manufacturer of the pharmaceutical Depakote violated the False Claims Act or the Anti-Kickback Statute. The Company is cooperating with this investigation and believes that it has complied with applicable laws and regulations with respect to this matter.

The U.S. Department of Justice is investigating whether certain of the Company's practices relating to customer collections violated the False Claims Act or the Anti-Kickback Statute. The Company is cooperating with this investigation and believes that it has complied with applicable laws and regulations with respect to this matter.

On March 22, 2013, a qui tam complaint entitled United States ex rel. Susan Ruscher, et al. v. Omnicare, Inc. et al., Civil No. 08-cv-3396, which had been filed under seal in the U.S. District Court for the Southern District of Texas, was unsealed by the court. The complaint was brought by Susan Ruscher as a private party qui tam relator on behalf of the federal government and several state governments. The action alleges civil violations of the federal False Claims Act and analogous state laws based upon allegations that the Company's practices relating to customer collections violated the Anti-Kickback Statute. The U.S. Department of Justice has notified the Court that it has declined to intervene in this action at this time. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On April 14, 2010, a purported shareholder derivative action, entitled Manville Personal Injury Settlement Trust v. Gemunder, et al., Case No. 10-CI-01212, was filed in Kentucky State Court, against certain current and former members of the Board and certain former officers of the Company, individually, purporting to assert claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and waste of corporate assets arising out of alleged violations of federal and state laws prohibiting the payment

14


of illegal kickbacks and the submission of false claims in connection with the Medicare and Medicaid healthcare programs. Plaintiff alleges that the Board and senior management caused the Company to violate these laws, which has resulted in over $100 million in fines and penalties paid by Omnicare and exposed the Company and certain individual defendants to potential civil and criminal liability. On April 27, 2011 the Court entered an order denying defendants' motion to dismiss the complaint for failure to make a pre-suit demand and failure to state a claim. Defendants filed a notice of appeal from the decision in the Kentucky Court of Appeals, and plaintiff moved to dismiss that appeal on the grounds that the order denying defendants' motion to dismiss is not subject to an immediate appeal under Kentucky law. On October 6, 2011, the Kentucky Court of Appeals granted plaintiff's motion on the grounds that the appeal was premature. The individual defendants have denied all allegations of wrongdoing. On May 22, 2013, the parties executed an agreement in principle to settle the claims asserted by plaintiff.  The settlement, which is subject to the execution of a definitive settlement agreement, notice to shareholders, and court approval, would provide for, among other things: (i) the release by plaintiff and the Company of all claims that have been or could have been asserted against the individual defendants arising out of or relating to the subject matter of the action; (ii) an explicit disclaimer of wrongdoing or liability on the part of the individual defendants; and (iii) the adoption or continuation by the Company of certain corporate governance measures, as well as the creation of a settlement fund, funded by insurance proceeds in the amount of $16.7 million (less plaintiff's reasonable attorney fees), to be used by the Company over four years following the effective date of the settlement to implement, among other things, such corporate governance measures.

On January 8, 2010, a qui tam complaint, entitled United States ex rel. Resnick and Nehls v. Omnicare, Inc., Morris Esformes, Phillip Esformes and Lancaster Ltd. d/b/a Lancaster Health Group, No. 1:07cv5777, that was filed under seal with the U.S. District Court in Chicago, Illinois was unsealed by the Court. The U.S. Department of Justice and the State of Illinois have notified the Court that they have declined to intervene in this action. The complaint was brought by Adam Resnick and Maureen Nehls as private party qui tam relators on behalf of the federal government and two state governments. The action alleges civil violations of the False Claims Act and certain state statutes based on allegations that Omnicare acquired certain institutional pharmacies at above-market rates in violation of the Anti-Kickback Statute and applicable state statutes. On December 1, 2010, Resnick filed a motion to withdraw as a relator, which the Court granted on December 14, 2010. The Company recorded a provision for this matter in the quarter ended June 30, 2012. On June 24, 2013 the Company entered into an agreement with the Relator to voluntarily dismiss the action and made settlement payments in an aggregate amount of approximately $20 million. The U.S. Department of Justice and named states consented to the dismissal. On July 11, 2013 the Court granted Relator's stipulated motion to voluntarily dismiss the claims against the Company.
 
On November 19, 2010, the Company was served with a second amended qui tam complaint entitled United States ex rel. Rostholder v. Omnicare, Inc. and Omnicare Distribution Center, LLC f/k/a Heartland Repack Services LLC, No. CCB-07-1283, that was filed under seal with the U.S. District Court in Baltimore, Maryland in May 2007. The U.S. Department of Justice notified the court on April 22, 2009 that it declined to intervene in this action. The complaint was brought by Barry Rostholder as a private party qui tam relator on behalf of the federal government and several state and local governments. The action, in general, alleges civil violations of the False Claims Act based on allegations that the Company submitted claims for reimbursement for drugs that were repackaged at its Heartland repackaging facility in violation of certain FDA regulations. These allegations arise from the previously disclosed issues experienced by the Company at its Heartland repackaging facility, which suspended operations in 2006. On September 30, 2011, the Company filed a motion to dismiss the lawsuit in its entirety. On August 14, 2012, the Court granted the Company's motion with prejudice as to the Relator and without prejudice as to the United States. Relator filed an amended motion for reconsideration on September 10, 2012. On October 19, 2012, the Court denied Relator's motion to reconsider. On November 16, 2012, Relator filed a Notice of Appeal to the U.S. Court of Appeals for the Fourth Circuit from the District Court's denial of the motion to reconsider and granting of the Company's motion to dismiss. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

As part of the previously disclosed civil settlement agreement entered into by the Company with the U.S. Attorney's Office, District of Massachusetts in November 2009, the Company also entered into an amended and restated corporate integrity agreement (“CIA”) with the Department of Health and Human Services Office of the Inspector General (“OIG”) with a term of five years from November 2, 2009. Pursuant to the CIA, the Company is required, among other things, to (i) create procedures designed to ensure that each existing, new or renewed arrangement with any actual or potential source of health care business or referrals to Omnicare or any actual or potential recipient of health care business or referrals from Omnicare does not violate the Anti-Kickback Statute, 42 U.S.C. §1320a-7b(b) or related regulations, directives and guidance, including creating and maintaining a database of such arrangements; (ii) retain an independent review organization to review the Company's compliance with the terms of the CIA and report to OIG regarding that compliance; and (iii) provide training for certain Company employees as to the Company's requirements under the CIA. The requirements of the Company's prior corporate integrity agreement obligating the Company to create and maintain procedures designed to ensure that all therapeutic interchange programs are developed and implemented by Omnicare consistent with the CIA and federal and state laws for obtaining prior authorization from the prescriber before making a therapeutic

15


interchange of a drug and to maintain procedures for the accurate preparation and submission of claims for federal health care program beneficiaries in hospice programs, have been incorporated into the amended and restated CIA without modification. The requirements of the CIA have resulted in increased costs to maintain the Company's compliance program and greater scrutiny by federal regulatory authorities. Violations of the CIA could subject the Company to significant monetary penalties. Consistent with the CIA, the Company is reviewing its contracts to ensure compliance with applicable laws and regulations. As a result of this review, pricing under certain of its consultant pharmacist services contracts has increased and will continue to increase, and these price increases have resulted and may continue to result in the loss of certain contracts.

In February 2006, two substantially similar putative class action lawsuits were filed in the U.S. District Court for the Eastern District of Kentucky, and were consolidated and entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26. The amended consolidated complaint was filed against Omnicare, three of its officers and two of its directors and purported to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, as well as all purchasers who bought their shares in the Company's public offering in December 2005. The complaint contained claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (and Rule 10b-5) and Section 11 of the Securities Act of 1933 and sought, among other things, compensatory damages and injunctive relief. Plaintiffs alleged that Omnicare (i) artificially inflated its earnings (and failed to file GAAP-compliant financial statements) by engaging in improper generic drug substitution, improper revenue recognition and overvaluation of receivables and inventories; (ii) failed to timely disclose its contractual dispute with UnitedHealth Group Inc.; (iii) failed to timely record certain special litigation reserves; and (iv) made other allegedly false and misleading statements about the Company's business, prospects and compliance with applicable laws and regulations. The defendants filed a motion to dismiss the amended complaint on March 12, 2007, and on October 12, 2007, the district court dismissed the case. On November 9, 2007, plaintiffs appealed the dismissal to the U.S. Court of Appeals for the Sixth Circuit. On October 21, 2009, the Sixth Circuit Court of Appeals generally affirmed the district court's dismissal, dismissing plaintiff's claims for violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. However, the appellate court reversed the dismissal for the claim brought for violation of Section 11 of the Securities Act of 1933, and returned the case to the district court for further proceedings. On July 14, 2011, the district court granted plaintiffs' motion to file a third amended complaint. This complaint asserts a claim under Section 11 of the Securities Act of 1933 on behalf of all purchasers of Omnicare common stock in the December 2005 public offering. The new complaint alleges that the 2005 registration statement contained false and misleading statements regarding Omnicare's policy of compliance with all applicable laws and regulations with particular emphasis on allegations of violation of the federal Anti-Kickback Statute in connection with three of Omnicare's acquisitions, Omnicare's contracts with two of its suppliers and its provision of pharmacist consultant services. On August 19, 2011, the defendants filed a motion to dismiss plaintiffs' most recent complaint and on February 13, 2012 the district court dismissed the case and struck the case from the docket. On March 12, 2012, plaintiffs filed a notice of appeal in the U.S. Court of Appeals for the Sixth Circuit.  On May 23, 2013, the U.S. Court of Appeals affirmed in part and reversed and remanded in part the dismissal of Plaintiff's complaint.  On June 6, 2013, the Company petitioned the Court of Appeals for a rehearing en banc.  The petition for rehearing en banc was denied on July 23, 2013.

On February 13, 2006, two substantially similar shareholder derivative actions, entitled Isak v. Gemunder, et al., Case No. 06-CI-390, and Fragnoli v. Hutton, et al., Case No. 06-CI-389, were filed in Kentucky State Circuit Court, Kenton Circuit, against certain current and former members of Omnicare's board of directors, individually, purporting to assert claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment arising out of the Company's alleged violations of federal and state health care laws based upon the same purportedly improper generic drug substitution that is the subject of the federal purported class action lawsuits. The complaints seek, among other things, damages, restitution and injunctive relief. The Isak and Fragnoli actions were later consolidated by agreement of the parties. The individual defendants believe that the allegations are without merit and intend to vigorously defend themselves in this action.

During 2006, the Company experienced certain quality control and product recall issues, as well as fire damage, at one of its repackaging facilities.  In connection with the resolution of these matters (the “Repack Matters”) the Company decided not to reopen this facility.  The Company has been cooperating with federal and state officials who have been conducting an investigation relating to the Repack Matters and certain billing issues.  The Company believes all investigations into the Repack Matters and billing issues have been resolved.

The three and six months ended June 30, 2013 included charges of $3.5 million and $26.1 million, respectively, and approximately $26.1 million and $33.3 million for the three and six months ended June 30, 2012, respectively, reflected in “Settlement, litigation and other related charges” on the Consolidated Statements of Comprehensive Income, primarily for estimated litigation and other related settlements and associated professional expenses for resolution of certain large customer disputes, certain regulatory matters with the federal government and various states, qui tam lawsuits, and costs associated with the purported class and derivative actions against the Company.  In connection with Omnicare's participation in Medicare, Medicaid and other healthcare programs,

16


the Company is subject to various inspections, audits, inquiries and investigations by governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject.  Further, the Company maintains a compliance program which establishes certain routine periodic monitoring of the accuracy of the Company's billing systems and other regulatory compliance matters and encourages the reporting of errors and inaccuracies.  As a result of the compliance program, Omnicare has made, and will continue to make, disclosures to the applicable governmental agencies of amounts, if any, determined to represent over-payments from the respective programs and, where applicable, those amounts, as well as any amounts relating to certain inspections, audits, inquiries and investigations activity are included in “Settlement, litigation and other related charges” on the Consolidated Statements of Comprehensive Income.

Although the Company cannot know the ultimate outcome of the matters described in the preceding paragraphs other than as disclosed, there can be no assurance that the resolution of these matters will not have a material adverse impact on the Company’s consolidated results of operations, financial position or cash flows or, in the case of other billing matters, that these matters will be resolved in an amount that would not exceed the amount of the pretax charges previously recorded by the Company.

As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries, investigations and similar actions by third parties, as well as governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject. Further, under the federal False Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. In addition to the inquiries discussed above, the Company from time to time receives government inquiries from federal and state agencies regarding compliance with various healthcare laws. The Company is also involved in various legal actions arising in the normal course of business. At any point in time, the Company is in varying stages of discussions on these matters. Omnicare records accruals for such contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These matters are continuously being evaluated and, in many cases, are being contested by the Company and the outcome is not predictable. The inherently unpredictable nature of legal proceedings may be exacerbated by various factors from time to time, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes. Consequently, unless otherwise stated, no estimate of the possible loss or range of loss in excess of the amounts accrued, if any, can be made at this time regarding the matters described above. Further, there can be no assurance that the ultimate resolution of these matters, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.

The Company indemnifies its directors and officers for certain liabilities that might arise from the performance of their job responsibilities for the Company.  Additionally, in the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications.  The Company’s maximum exposure under these arrangements is unknown, as this involves the resolution of claims made, or future claims that may be made, against the Company, its directors and/or officers, the outcomes of which are unknown and not currently predictable.  Accordingly, no liabilities have been recorded for the indemnifications.


17


Note 8 - Segment Information

The Company is organized in two operating segments, LTC and Specialty Care Group (“SCG”). These segments are based on the operations of the underlying businesses and the customers they serve. The Company's larger reportable segment is LTC, which primarily provides distribution of pharmaceuticals, related pharmacy consulting and other ancillary services, as well as end-of-life pharmaceutical care management. LTC's customers are primarily skilled nursing, assisted living and other providers of healthcare services including hospice care agencies. The Company’s other reportable segment is SCG, which provides specialty pharmacy and key commercialization services for the biopharmaceutical industry. The primary components of the "Corporate/Other" segment are the Company's corporate management oversight and administration, including its information technology and data management services, as well as other consolidating and eliminating entries, which have not been charged to reportable segments. Beginning in the second quarter of 2013, the Company concluded that the operations of its hospice pharmacy business were better aligned with the operation of its LTC, and began to review and manage the operations of this business as part of LTC. Accordingly, to align the reporting segments with the current way management reviews information to make operating decisions, assess performance and allocate resources, the results of the Company's hospice business are now reported in LTC. All prior period segment information has been recast to reflect the new segment reporting. The Company evaluates the performance of its segments based on revenue and operating income, and does not include segment assets or nonoperating income/expense items for management reporting purposes.
 
 
For the three months ended June 30,
2013:
 
LTC
 
SCG
 
Corporate/Other
 
Consolidated
Totals
Net sales
 
$
1,222,352

 
$
347,006

 
$
539

 
$
1,569,897

Depreciation and amortization expense
 
(19,673
)
 
(1,146
)
 
(14,507
)
 
(35,326
)
Settlement, litigation and other related charges
 
(3,512
)
 
—

 
—

 
(3,512
)
Other charges
 
(30,549
)
 
—

 
(719
)
 
(31,268
)
Operating income (loss)
 
131,049

 
29,887

 
(46,300
)
 
114,636

2012:
 
 
 
 
 
 
 
 
Net sales
 
$
1,254,873

 
$
278,065

 
$
3,089

 
$
1,536,027

Depreciation and amortization expense
 
(19,359
)
 
(2,280
)
 
(13,204
)
 
(34,843
)
Settlement, litigation and other related charges
 
(25,893
)
 
(200
)
 
—

 
(26,093
)
Other charges
 
(2,117
)
 
—

 
(47,092
)
 
(49,209
)
Operating income (loss)
 
130,102

 
24,370

 
(88,384
)
 
66,088

 
 
 
 
 
 
 
 
 
 
 
For the six months ended June 30,
2013:
 
LTC
 
SCG
 
Corporate/Other
 
Consolidated
Totals
Net sales
 
$
2,426,087

 
$
667,643

 
$
1,170

 
$
3,094,900

Depreciation and amortization expense
 
(39,428
)
 
(2,257
)
 
(27,363
)
 
(69,048
)
Settlement, litigation and other related charges
 
(26,131
)
 
—

 
—

 
(26,131
)
Other charges
 
(33,301
)
 
—

 
(1,973
)
 
(35,274
)
Operating income (loss)
 
267,781

 
60,852

 
(95,850
)
 
232,783

2012:
 
 
 
 
 
 
 
 
Net sales
 
$
2,604,289

 
$
518,164

 
$
6,642

 
$
3,129,095

Depreciation and amortization expense
 
(37,777
)
 
(4,472
)
 
(25,055
)
 
(67,304
)
Settlement, litigation and other related charges
 
(33,096
)
 
(200
)
 
—

 
(33,296
)
Other charges
 
(11,129
)
 
—

 
(49,592
)
 
(60,721
)
Operating income (loss)
 
274,922

 
47,678

 
(131,682
)
 
190,918



18



Note 9 - Guarantor Subsidiaries

The Company’s 7.75% Senior Subordinated Notes due 2020, 3.75% Convertible Senior Subordinated Notes due 2025 and the 3.75% Convertible Senior Subordinated Notes due 2042 are fully and unconditionally guaranteed, subject to certain customary release provisions, on an unsecured, joint and several basis by certain wholly-owned subsidiaries of the Company (the “Guarantor Subsidiaries”).  The following condensed consolidating unaudited financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiaries and the non-guarantor Subsidiaries as of June 30, 2013 and December 31, 2012 for the balance sheets, as well as the three and six months ended June 30, 2013 and 2012 for the statements of comprehensive income and the statements of cash flows for the six months ended June 30, 2013 and 2012.  Management believes separate complete financial statements of the Guarantor Subsidiaries would not provide information that would be necessary for evaluating the sufficiency of the Guarantor Subsidiaries, and thus are not presented.  The equity method has been used with respect to the Parent company’s investment in subsidiaries.  No consolidating/eliminating adjustment column is presented for the condensed consolidating statements of cash flows since there were no significant consolidating/eliminating adjustment amounts during the periods presented.

Summary Consolidating
Statements of Comprehensive Income
(in thousands)
 
 
For the three months ended June 30,
2013:
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating / 
Eliminating Adjustments
 
Omnicare, Inc. and Subsidiaries
Net sales
 
$
—

 
$
1,536,702

 
$
33,195

 
$
—

 
$
1,569,897

Cost of sales
 
—

 
1,172,210

 
19,237

 
—

 
1,191,447

Gross profit
 
—

 
364,492

 
13,958

 
—

 
378,450

Selling, general and administrative expenses
 
1,186

 
196,944

 
5,558

 
—

 
203,688

Provision for doubtful accounts
 
—

 
24,856

 
490

 
—

 
25,346

Settlement, litigation and other related charges
 
—

 
3,512

 
—

 
—

 
3,512

Other charges
 
—

 
31,268

 
—

 
—

 
31,268

Operating income (loss)
 
(1,186
)
 
107,912

 
7,910

 
—

 
114,636

Interest expense, net of investment income
 
(29,183
)
 
(253
)
 
(188
)
 
—

 
(29,624
)
Income (loss) before income taxes
 
(30,369
)
 
107,659

 
7,722

 
—

 
85,012

Income tax (benefit) expense
 
(11,659
)
 
41,488

 
2,964

 
—

 
32,793

Equity of net income of subsidiaries
 
70,929

 
—

 
—

 
(70,929
)
 
—

Net income
 
$
52,219

 
$
66,171

 
$
4,758

 
$
(70,929
)
 
$
52,219

Comprehensive income
 
$
52,145

 
$
66,171

 
$
4,758

 
$
(70,929
)
 
$
52,145

2012:
 
 

 
 

 
 

 
 

 
 

Net sales
 
$
—

 
$
1,501,324

 
$
34,703

 
$
—

 
$
1,536,027

Cost of sales
 
—

 
1,146,567

 
22,114

 
—

 
1,168,681

Gross profit
 
—

 
354,757

 
12,589

 
—

 
367,346

Selling, general and administrative expenses
 
1,119

 
194,618

 
6,141

 
—

 
201,878

Provision for doubtful accounts
 
—

 
23,619

 
459

 
—

 
24,078

Settlement, litigation and other related charges
 
—

 
26,093

 
—

 
—

 
26,093

Other charges
 
35,092

 
14,117

 
—

 
—

 
49,209

Operating income (loss)
 
(36,211
)
 
96,310

 
5,989

 
—

 
66,088

Interest expense, net of investment income
 
(35,133
)
 
(255
)
 
(186
)
 
—

 
(35,574
)
Income (loss) before income taxes
 
(71,344
)
 
96,055

 
5,803

 
—

 
30,514

Income tax (benefit) expense
 
(27,570
)
 
37,152

 
2,240

 
—

 
11,822

Equity of net income of subsidiaries
 
62,466

 
—

 
—

 
(62,466
)
 
—

Net income (loss)
 
$
18,692

 
$
58,903

 
$
3,563

 
$
(62,466
)
 
$
18,692

Comprehensive income
 
$
17,003

 
$
58,903

 
$
1,876

 
$
(60,779
)
 
$
17,003



19




Note 9 - Guarantor Subsidiaries (Continued)


Summary Consolidating
Statements of Comprehensive Income
(in thousands)
 
 
For the six months ended June 30,
2013:
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating / 
Eliminating Adjustments
 
Omnicare, Inc. and Subsidiaries
Net sales
 
$
—

 
$
3,029,090

 
$
65,810

 
$
—

 
$
3,094,900

Cost of sales
 
—

 
2,307,550

 
38,076

 
—

 
2,345,626

Gross profit
 
—

 
721,540

 
27,734

 
—

 
749,274

Selling, general and administrative expenses
 
2,192

 
392,980

 
10,342

 
—

 
405,514

Provision for doubtful accounts
 
—

 
48,602

 
970

 
—

 
49,572

Settlement, litigation and other related charges
 
—

 
26,131

 
—

 
—

 
26,131

Other charges
 
—

 
35,274

 
—

 
—

 
35,274

Operating income (loss)
 
(2,192
)
 
218,553

 
16,422

 
—

 
232,783

Interest expense, net of investment income
 
(58,174
)
 
(543
)
 
(366
)
 
—

 
(59,083
)
Income (loss) before income taxes
 
(60,366
)
 
218,010

 
16,056

 
—

 
173,700

Income tax (benefit) expense
 
(23,205
)
 
84,160

 
6,172

 
—

 
67,127

Equity of net income of subsidiaries
 
143,734

 
—

 
—

 
(143,734
)
 
—

Net income
 
$
106,573

 
$
133,850

 
$
9,884

 
$
(143,734
)
 
$
106,573

Comprehensive income
 
$
106,475

 
$
133,850

 
$
9,884

 
$
(143,734
)
 
$
106,475

2012:
 
 

 
 

 
 

 
 

 
 

Net sales
 
$
—

 
$
3,058,727

 
$
70,368

 
$
—

 
$
3,129,095

Cost of sales
 
—

 
2,347,716

 
45,933

 
—

 
2,393,649

Gross profit
 
—

 
711,011

 
24,435

 
—

 
735,446

Selling, general and administrative expenses
 
2,122

 
383,341

 
16,539

 
—

 
402,002

Provision for doubtful accounts
 
—

 
47,585

 
924

 
—

 
48,509

Settlement, litigation and other related charges
 
—

 
33,296

 
—

 
—

 
33,296

Other charges
 
35,092

 
25,629

 
—

 
—

 
60,721

Operating income (loss)
 
(37,214
)
 
221,160

 
6,972

 
—

 
190,918

Interest expense, net of investment income
 
(65,521
)
 
(538
)
 
(349
)
 
—

 
(66,408
)
Income (loss) from continuing operations before income taxes
 
(102,735
)
 
220,622

 
6,623

 
—

 
124,510

Income tax (benefit) expense
 
(39,656
)
 
84,907

 
4,828

 
—

 
50,079

Equity of net income of subsidiaries
 
137,510

 
—

 
—

 
(137,510
)
 
—

Net income
 
$
74,431

 
$
135,715

 
$
1,795

 
$
(137,510
)
 
$
74,431

Comprehensive income
 
$
73,164

 
$
135,715

 
$
1,252

 
$
(136,967
)
 
$
73,164



20


Note 9 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets
(in thousands)
As of June 30, 2013:
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Omnicare, Inc. and Subsidiaries
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
479,460

 
$
45,337

 
$
10,563

 
$
—

 
$
535,360

Restricted cash
 
—

 
5

 
—

 
—

 
5

Accounts receivable, net (including intercompany)
 
—

 
758,129

 
306,615

 
(300,296
)
 
764,448

Inventories
 
—

 
394,751

 
7,379

 
—

 
402,130

Deferred income tax benefits, net-current
 
—

 
97,902

 
—

 
(286
)
 
97,616

Other current assets
 
1,796

 
284,182

 
21,441

 
(10,825
)
 
296,594

Total current assets
 
481,256

 
1,580,306

 
345,998

 
(311,407
)
 
2,096,153

Properties and equipment, net
 
—

 
295,380

 
6,574

 
—

 
301,954

Goodwill
 
—

 
4,224,637

 
28,824

 
—

 
4,253,461

Identifiable intangible assets, net
 
—

 
172,756

 
2,597

 
—

 
175,353

Other noncurrent assets
 
48,235

 
71,309

 
3,264

 
(8,194
)
 
114,614

Investment in subsidiaries
 
5,351,140

 
—

 
—

 
(5,351,140
)
 
—

Total assets
 
$
5,880,631

 
$
6,344,388

 
$
387,257

 
$
(5,670,741
)
 
$
6,941,535

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

 
 

 
 

 
 

Current liabilities
 
$
466,287

 
$
668,899

 
$
39,709

 
$
(311,121
)
 
$
863,774

Long-term debt, notes and convertible debentures
 
1,574,589

 
16,935

 
5,000

 
(5,000
)
 
1,591,524

Deferred income tax liabilities
 
341,892

 
570,530

 
15,157

 
(286
)
 
927,293

Other noncurrent liabilities
 


 
64,275

 
—

 
(3,194
)
 
61,081

Stockholders' equity
 
3,497,863

 
5,023,749

 
327,391

 
(5,351,140
)
 
3,497,863

Total liabilities and stockholders' equity
 
$
5,880,631

 
$
6,344,388

 
$
387,257

 
$
(5,670,741
)
 
$
6,941,535

As of December 31, 2012:
 
 

 
 

 
 

 
 

 
 

ASSETS
 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
383,674

 
$
58,312

 
$
12,227

 
$
—

 
$
454,213

Restricted cash
 
—

 
1,066

 
—

 
—

 
1,066

Accounts receivable, net (including intercompany)
 
—

 
849,753

 
197,370

 
(190,071
)
 
857,052

Inventories
 
—

 
379,448

 
6,250

 
—

 
385,698

Deferred income tax benefits, net-current
 
—

 
137,736

 
—

 
(1,550
)
 
136,186

Other current assets
 
1,765

 
248,833

 
14,871

 
(10,825
)
 
254,644

Total current assets
 
385,439

 
1,675,148

 
230,718

 
(202,446
)
 
2,088,859

Properties and equipment, net
 
—

 
276,056

 
6,604

 
—

 
282,660

Goodwill
 
—

 
4,219,900

 
37,059

 
—

 
4,256,959

Identifiable intangible assets, net
 
—

 
193,852

 
3,021

 
—

 
196,873

Other noncurrent assets
 
75,336

 
93,508

 
11,382

 
(16,313
)
 
163,913

Investment in subsidiaries
 
5,453,702

 
—

 
—

 
(5,453,702
)
 
—

Total assets
 
$
5,914,477

 
$
6,458,464

 
$
288,784

 
$
(5,672,461
)
 
$
6,989,264

 
 


 


 


 


 


LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
$
60,454

 
$
587,025

 
$
35,431

 
$
(200,896
)
 
$
482,014

Long-term debt, notes and convertible debentures
 
2,012,807

 
17,223

 
5,000

 
(5,000
)
 
2,030,030

Deferred income tax liabilities
 
335,504

 
559,405

 
21,301

 
(1,550
)
 
914,660

Other noncurrent liabilities
 
—

 
68,161

 
—

 
(11,313
)
 
56,848

Stockholders' equity
 
3,505,712

 
5,226,650

 
227,052

 
(5,453,702
)
 
3,505,712

Total liabilities and stockholders' equity
 
$
5,914,477

 
$
6,458,464

 
$
288,784

 
$
(5,672,461
)
 
$
6,989,264

 
 
 
 
 
 
 
 
 
 
 

21


Note 9 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows
(in thousands)
 
 
Six months ended June 30,
2013:
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
 
 
 
 
 
 
 
 
Net cash flows (used in) from operating activities
 
$
(11,358
)
 
$
275,143

 
$
(1,116
)
 
$
262,669

Cash flows from investing activities:
 
 

 
 

 
 

 
 

Acquisition of businesses, net of cash received
 
—

 
(298
)
 
—

 
(298
)
Disposition of businesses
 
—

 
675

 
—

 
675

Capital expenditures
 
—

 
(46,289
)
 
(548
)
 
(46,837
)
Other
 
(227
)
 
852

 
—

 
625

Net cash flows used in investing activities
 
(227
)
 
(45,060
)
 
(548
)
 
(45,835
)
Cash flows from financing activities:
 
 

 
 

 
 

 
 

Payments on terms loans
 
(10,626
)
 
—

 
—

 
(10,626
)
Payments on long-term borrowings and obligations
 
(3,434
)
 
—

 
—

 
(3,434
)
Capped call transaction
 
(38
)
 
—

 
—

 
(38
)
Increase (decrease) in cash overdraft balance
 
(10,324
)
 
91

 
—

 
(10,233
)
Payments for Omnicare common stock repurchase
 
(100,302
)
 
—

 
—

 
(100,302
)
Dividends paid
 
(28,766
)
 
—

 
—

 
(28,766
)
Other
 
260,861

 
(243,149
)
 
—

 
17,712

Net cash flows from (used in) financing activities
 
107,371

 
(243,058
)
 
—

 
(135,687
)
Net increase (decrease) in cash and cash equivalents
 
95,786

 
(12,975
)
 
(1,664
)
 
81,147

Cash and cash equivalents at beginning of period
 
383,674

 
58,312

 
12,227

 
454,213

Cash and cash equivalents at end of period
 
$
479,460

 
$
45,337

 
$
10,563

 
$
535,360

2012:
 
 

 
 

 
 

 
 

Cash flows from operating activities:
 
 

 
 

 
 

 
 

Net cash flows (used in) from operating activities
 
$
(42,150
)
 
$
260,896

 
$
1,869

 
$
220,615

Cash flows from investing activities:
 
 

 
 

 
 

 
 

Acquisition of businesses, net of cash received
 
—

 
(568
)
 
—

 
(568
)
Divestiture of business, net
 
—

 
—

 
—

 
—

Capital expenditures
 
—

 
(45,290
)
 
(1,145
)
 
(46,435
)
Other
 
—

 
(1,085
)
 
499

 
(586
)
Net cash flows used in investing activities
 
—

 
(46,943
)
 
(646
)
 
(47,589
)
Cash flows from financing activities:
 
 

 
 

 
 

 
 

Payments on term loans
 
(11,250
)
 
—

 
—

 
(11,250
)
Payments on long-term borrowings and obligations
 
(26,046
)
 
—

 
—

 
(26,046
)
Capped call transaction
 
(48,126
)
 
—

 
—

 
(48,126
)
Increase (decrease) in cash overdraft balance
 
497

 
(7,815
)
 
—

 
(7,318
)
Payments for Omnicare common stock repurchases
 
(80,307
)
 
—

 
—

 
(80,307
)
Dividends paid
 
(15,521
)
 
—

 
—

 
(15,521
)
Other
 
207,887

 
(207,888
)
 
(240
)
 
(241
)
Net cash flows from (used in) financing activities
 
27,134

 
(215,703
)
 
(240
)
 
(188,809
)
Net increase (decrease) in cash and cash equivalents
 
(15,016
)
 
(1,750
)
 
983

 
(15,783
)
Cash and cash equivalents at beginning of period
 
460,253

 
101,786

 
18,223

 
580,262

Cash and cash equivalents at end of period
 
$
445,237

 
$
100,036

 
$
19,206

 
$
564,479


22


Note 9 - Guarantor Subsidiaries (Continued)

The Company’s 3.25% convertible senior debentures due 2035 (with optional redemption by Omnicare on or after, or an optional repurchase right of holders on, December 15, 2015, at par) are fully and unconditionally guaranteed, subject to certain customary release provisions, on an unsecured basis by Omnicare Purchasing Company, LP, a wholly-owned subsidiary of the Company (the “Guarantor Subsidiary”).  The following condensed consolidating unaudited financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiary and the non-guarantor Subsidiaries as of June 30, 2013 and December 31, 2012 for the balance sheets, as well as the three and six months ended June 30, 2013 and 2012 for the statements of comprehensive income and the statements of cash flows for the six months ended June 30, 2013 and 2012.  Management believes separate complete financial statements of the Guarantor Subsidiary would not provide information that would be necessary for evaluating the sufficiency of the Guarantor Subsidiary, and thus are not presented.  The Guarantor Subsidiary does not have any material net cash flows in the condensed consolidating statements of cash flows.  The equity method has been used with respect to the Parent company’s investment in subsidiaries.  No consolidating/eliminating adjustments column is presented for the condensed consolidating statements of cash flows since there were no significant consolidating/eliminating adjustment amounts during the periods presented.

Summary Consolidating
Statements of Comprehensive Income
(in thousands)
 
 
For the three months ended June 30,
2013:
 
Parent
 
Guarantor Subsidiary
 
Non-Guarantor Subsidiaries
 
Consolidating / 
Eliminating Adjustments
 
Omnicare, Inc. and Subsidiaries
Net sales
 
$
—

 
$
—

 
$
1,569,897

 
$
—

 
$
1,569,897

Cost of sales
 
—

 
—

 
1,191,447

 
—

 
1,191,447

Gross profit
 
—

 
—

 
378,450

 
—

 
378,450

Selling, general and administrative expenses
 
1,186

 
417

 
202,085

 
—

 
203,688

Provision for doubtful accounts
 
—

 
—

 
25,346

 
—

 
25,346

Settlement, litigation and other related charges
 
—

 
—

 
3,512

 
—

 
3,512

Other charges
 
—

 
—

 
31,268

 
—

 
31,268

Operating income (loss)
 
(1,186
)
 
(417
)
 
116,239

 
—

 
114,636

Interest expense, net of investment income
 
(29,183
)
 
—

 
(441
)
 
—

 
(29,624
)
Income (loss) before income taxes
 
(30,369
)
 
(417
)
 
115,798

 
—

 
85,012

Income tax (benefit) expense
 
(11,659
)
 
(160
)
 
44,612

 
—

 
32,793

Equity of net income of subsidiaries
 
70,929

 
—

 
—

 
(70,929
)
 
—

Net income (loss)
 
$
52,219

 
$
(257
)
 
$
71,186

 
$
(70,929
)
 
$
52,219

Comprehensive income (loss)
 
$
52,145

 
$
(257
)
 
$
71,186

 
$
(70,929
)
 
$
52,145

2012:
 
 

 
 

 
 

 
 

 
 

Net sales
 
$
—

 
$
—

 
$
1,536,027

 
$
—

 
$
1,536,027

Cost of sales
 
—

 
—

 
1,168,681

 
—

 
1,168,681

Gross profit
 
—

 
—

 
367,346

 
—

 
367,346

Selling, general and administrative expenses
 
1,119

 
346

 
200,413

 
—

 
201,878

Provision for doubtful accounts
 
—

 
—

 
24,078

 
—

 
24,078

Settlement, litigation and other related charges
 
—

 
—

 
26,093

 
—

 
26,093

Other charges
 
35,092

 
—

 
14,117

 
—

 
49,209

Operating income (loss)
 
(36,211
)
 
(346
)
 
102,645

 
—

 
66,088

Interest expense, net of investment income
 
(35,133
)
 
—

 
(441
)
 
—

 
(35,574
)
Income (loss) before income taxes
 
(71,344
)
 
(346
)
 
102,204

 
—

 
30,514

Income tax (benefit) expense
 
(27,570
)
 
(134
)
 
39,526

 
—

 
11,822

Equity of net income of subsidiaries
 
62,466

 
—

 
—

 
(62,466
)
 
—

Net income (loss)
 
$
18,692

 
$
(212
)
 
$
62,678

 
$
(62,466
)
 
$
18,692

Comprehensive income (loss)
 
$
17,003

 
$
(212
)
 
$
60,991

 
$
(60,779
)
 
$
17,003






23


Note 9 - Guarantor Subsidiaries (Continued)


Summary Consolidating
Statements of Comprehensive Income
(in thousands)
 
 
For the six months ended June 30,
2013:
 
Parent
 
Guarantor Subsidiary
 
Non-Guarantor Subsidiaries
 
Consolidating / 
Eliminating Adjustments
 
Omnicare, Inc. and Subsidiaries
Net sales
 
$
—

 
$
—

 
$
3,094,900

 
$
—

 
$
3,094,900

Cost of sales
 
—

 
—

 
2,345,626

 
—

 
2,345,626

Gross profit
 
—

 
—

 
749,274

 
—

 
749,274

Selling, general and administrative expenses
 
2,192

 
816

 
402,506

 
—

 
405,514

Provision for doubtful accounts
 
—

 
—

 
49,572

 
—

 
49,572

Settlement, litigation and other related charges
 
—

 
—

 
26,131

 
—

 
26,131

Other charges
 
—

 
—

 
35,274

 
—

 
35,274

Operating income (loss)
 
(2,192
)
 
(816
)
 
235,791

 
—

 
232,783

Interest expense, net of investment income
 
(58,174
)
 
—

 
(909
)
 
—

 
(59,083
)
Income (loss) before income taxes
 
(60,366
)
 
(816
)
 
234,882

 
—

 
173,700

Income tax (benefit) expense
 
(23,205
)
 
(314
)
 
90,646

 
—

 
67,127

Equity of net income of subsidiaries
 
143,734

 
—

 
—

 
(143,734
)
 
—

Net income (loss)
 
$
106,573

 
$
(502
)
 
$
144,236

 
$
(143,734
)
 
$
106,573

Comprehensive income (loss)
 
$
106,475

 
$
(502
)
 
$
144,236

 
$
(143,734
)
 
$
106,475

2012:
 
 

 
 

 
 

 
 

 
 

Net sales
 
$
—

 
$
—

 
$
3,129,095

 
$
—

 
$
3,129,095

Cost of sales
 
—

 
—

 
2,393,649

 
—

 
2,393,649

Gross profit
 
—

 
—

 
735,446

 
—

 
735,446

Selling, general and administrative expenses
 
2,122

 
668

 
399,212

 
—

 
402,002

Provision for doubtful accounts
 
—

 
—

 
48,509

 
—

 
48,509

Settlement, litigation and other related charges
 
—

 
—

 
33,296

 
—

 
33,296

Other charges
 
35,092

 
—

 
25,629

 
—

 
60,721

Operating income (loss)
 
(37,214
)
 
(668
)
 
228,800

 
—

 
190,918

Interest expense, net of investment income
 
(65,521
)
 
—

 
(887
)
 
—

 
(66,408
)
Income (loss) before income taxes
 
(102,735
)
 
(668
)
 
227,913

 
—

 
124,510

Income tax (benefit) expense
 
(39,656
)
 
(258
)
 
89,993

 
—

 
50,079

Equity of net income of subsidiaries
 
137,510

 
—

 
—

 
(137,510
)
 
—

Net income (loss)
 
$
74,431

 
$
(410
)
 
$
137,920

 
$
(137,510
)
 
74,431

Comprehensive income (loss)
 
$
73,164

 
$
(410
)
 
$
137,377

 
$
(136,967
)
 
$
73,164





24


Note 9 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets
(in thousands)
As of June 30, 2013:
 
Parent
 
Guarantor Subsidiary
 
Non-Guarantor Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Omnicare, Inc. and Subsidiaries
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
479,460

 
$
—

 
$
55,900

 
$
—

 
$
535,360

Restricted cash
 
—

 
—

 
5

 
—

 
5

Accounts receivable, net (including intercompany)
 
—

 
178

 
764,448

 
(178
)
 
764,448

Inventories
 
—

 
—

 
402,130

 
—

 
402,130

Deferred income tax benefits, net-current
 
—

 
—

 
97,616

 
—

 
97,616

Other current assets
 
1,796

 
—

 
294,798

 
—

 
296,594

Total current assets
 
481,256

 
178

 
1,614,897

 
(178
)
 
2,096,153

Properties and equipment, net
 
—

 
22

 
301,932

 
—

 
301,954

Goodwill
 
—

 
—

 
4,253,461

 
—

 
4,253,461

Identifiable intangible assets, net
 
—

 
—

 
175,353

 
—

 
175,353

Other noncurrent assets
 
48,235

 
19

 
66,360

 
—

 
114,614

Investment in subsidiaries
 
5,351,140

 
—

 
—

 
(5,351,140
)
 
—

Total assets
 
$
5,880,631

 
$
219

 
$
6,412,003

 
$
(5,351,318
)
 
$
6,941,535

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

 
 

 
 

 
 

Current liabilities
 
$
466,287

 
$
—

 
$
397,665

 
$
(178
)
 
$
863,774

Long-term debt, notes and convertible debentures
 
1,574,589

 
—

 
16,935

 
—

 
1,591,524

Deferred income tax liabilities
 
341,892

 
—

 
585,401

 
—

 
927,293

Other noncurrent liabilities
 


 
—

 
61,081

 
—

 
61,081

Stockholders' equity
 
3,497,863

 
219

 
5,350,921

 
(5,351,140
)
 
3,497,863

Total liabilities and stockholders' equity
 
$
5,880,631

 
$
219

 
$
6,412,003

 
$
(5,351,318
)
 
$
6,941,535

As of December 31, 2012:
 
 

 
 

 
 

 
 

 
 

ASSETS
 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
383,674

 
$
—

 
$
70,539

 
$
—

 
$
454,213

Restricted cash
 
—

 
—

 
1,066

 
—

 
1,066

Accounts receivable, net (including intercompany)
 
—

 
204

 
857,052

 
(204
)
 
857,052

Inventories
 
—

 
—

 
385,698

 
—

 
385,698

Deferred income tax benefits, net-current
 
—

 
—

 
137,736

 
(1,550
)
 
136,186

Other current assets
 
1,765

 
—

 
252,879

 
—

 
254,644

Total current assets
 
385,439

 
204

 
1,704,970

 
(1,754
)
 
2,088,859

Properties and equipment, net
 
—

 
22

 
282,638

 
—

 
282,660

Goodwill
 
—

 
—

 
4,256,959

 
—

 
4,256,959

Identifiable intangible assets, net
 
—

 
—

 
196,873

 
—

 
196,873

Other noncurrent assets
 
75,336

 
19

 
88,558

 
—

 
163,913

Investment in subsidiaries
 
5,453,702

 
—

 
—

 
(5,453,702
)
 
—

Total assets
 
$
5,914,477

 
$
245

 
$
6,529,998

 
$
(5,455,456
)
 
$
6,989,264

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 

 
 

 
 

 
 

 
 

Current liabilities
 
$
60,454

 
$
54

 
$
421,710

 
$
(204
)
 
$
482,014

Long-term debt, notes and convertible debentures
 
2,012,807

 
—

 
17,223

 
—

 
2,030,030

Deferred income tax liabilities
 
335,504

 
—

 
580,706

 
(1,550
)
 
914,660

Other noncurrent liabilities
 
—

 
—

 
56,848

 
—

 
56,848

Stockholders' equity
 
3,505,712

 
191

 
5,453,511

 
(5,453,702
)
 
3,505,712

Total liabilities and stockholders' equity
 
$
5,914,477

 
$
245

 
$
6,529,998

 
$
(5,455,456
)
 
$
6,989,264

 
 
 
 
 
 
 
 
 
 
 

25


Note 9 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - Unaudited
(in thousands)
 
 
Six months ended June 30,
2013:
 
Parent
 
Guarantor Subsidiary
 
Non-Guarantor Subsidiaries
 
Omnicare, Inc. and Subsidiaries
Cash flows from operating activities:
 
 
 
 
 
 
 
 
Net cash flows (used in) from operating activities
 
$
(11,358
)
 
$
—

 
$
274,027

 
$
262,669

Cash flows from investing activities:
 
 

 
 

 
 

 
 

Acquisition of businesses, net of cash received
 
—

 
—

 
(298
)
 
(298
)
Disposition of businesses
 
—

 
—

 
675

 
675

Capital expenditures
 
—

 
—

 
(46,837
)
 
(46,837
)
Other
 
(227
)
 
—

 
852

 
625

Net cash flows used in investing activities
 
(227
)
 
—

 
(45,608
)
 
(45,835
)
Cash flows from financing activities:
 
 

 
 

 
 

 
 

Payments on terms loans
 
(10,626
)
 
—

 
—

 
(10,626
)
Payments on long-term borrowings and obligations
 
(3,434
)
 
—

 
—

 
(3,434
)
Capped call transaction
 
(38
)
 
—

 
—

 
(38
)
Increase (decrease) in cash overdraft balance
 
(10,324
)
 
—

 
91

 
(10,233
)
Payments for Omnicare common stock repurchase
 
(100,302
)
 
—

 
—

 
(100,302
)
Dividends paid
 
(28,766
)
 
—

 
—

 
(28,766
)
Other
 
260,861

 
—

 
(243,149
)
 
17,712

Net cash flows from (used in) financing activities
 
107,371

 
—

 
(243,058
)
 
(135,687
)
Net increase (decrease) in cash and cash equivalents
 
95,786

 
—

 
(14,639
)
 
81,147

Cash and cash equivalents at beginning of period
 
383,674

 
—

 
70,539

 
454,213

Cash and cash equivalents at end of period
 
$
479,460

 
$
—

 
$
55,900

 
$
535,360

2012:
 
 

 
 

 
 

 
 

Cash flows from operating activities:
 
 

 
 

 
 

 
 

Net cash flows (used in) from operating activities
 
$
(42,150
)
 
$
—

 
$
262,765

 
$
220,615

Cash flows from investing activities:
 
 

 
 

 
 

 
 

Acquisition of businesses, net of cash received
 
—

 
—

 
(568
)
 
(568
)
Divestiture of business, net
 
—

 
—

 
—

 
—

Capital expenditures
 
—

 
—

 
(46,435
)
 
(46,435
)
Other
 
—

 
—

 
(586
)
 
(586
)
Net cash flows used in investing activities
 
—

 
—

 
(47,589
)
 
(47,589
)
Cash flows from financing activities:
 
 

 
 

 
 

 
 

Payments on term loans
 
(11,250
)
 
—

 
—

 
(11,250
)
Payments on long-term borrowings and obligations
 
(26,046
)
 
—

 
—

 
(26,046
)
Capped call transaction
 
(48,126
)
 
—

 
—

 
(48,126
)
Increase (decrease) in cash overdraft balance
 
497

 
—

 
(7,815
)
 
(7,318
)
Payments for Omnicare common stock repurchases
 
(80,307
)
 
—

 
—

 
(80,307
)
Dividends paid
 
(15,521
)
 
—

 
—

 
(15,521
)
Other
 
207,887

 
—

 
(208,128
)
 
(241
)
Net cash flows from (used in) financing activities
 
27,134

 
—

 
(215,943
)
 
(188,809
)
Net decrease in cash and cash equivalents
 
(15,016
)
 
—

 
(767
)
 
(15,783
)
Cash and cash equivalents at beginning of period
 
460,253

 
—

 
120,009

 
580,262

Cash and cash equivalents at end of period
 
$
445,237

 
$
—

 
$
119,242

 
$
564,479



26



ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

The following discussion should be read in conjunction with the Omnicare, Inc. (“Omnicare” or the “Company”) Consolidated Financial Statements, related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q.  In addition, see “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information.”  The reader should also refer to the Consolidated Financial Statements and notes thereto and MD&A, including critical accounting policies, for the year ended December 31, 2012, which appear in the Company's 2012 Annual Report on Form 10-K (“2012 Annual Report”).

Executive Overview

Omnicare is a leading healthcare services company that specializes in the management of complex pharmaceutical care. The Company operates two primary businesses, Long-Term Care Group ("LTC") and Specialty Care Group ("SCG"), each serving a different customer population but sharing a common objective: advancing health outcomes at the lowest possible cost. Through LTC, Omnicare is the nation's largest provider of pharmaceuticals and related pharmacy and ancillary services to long-term care facilities as well as chronic care facilities and other settings. SCG provides specialty pharmacy and commercialization services for the biopharmaceutical industry. Omnicare leverages its specialized clinical capabilities and innovative technology solutions across both primary businesses as key components of the value management believes Omnicare provides to its customers. Omnicare services customers across the United States. In the second quarter of 2013, the Company concluded that the operations of its hospice pharmacy business were better aligned with the operation of its LTC, and began to review and manage the operations of this business as part of LTC. Accordingly, to align the reporting segments with the current way management reviews information to make operating decisions, assess performance and allocate resources, the results of the Company's hospice business are now reported in LTC.

Through LTC, Omnicare operates the nations largest institutional pharmacy business, as measured in both revenues and the number of beds served. Due to the size and scope of LTC, Omnicare believes the Company has unique cost advantages, especially pertaining to the sourcing of pharmaceuticals. The scale of the Company's operations has also provided Omnicare the opportunity to make investments in proprietary automation technology to reduce its dispensing costs while improving the accuracy and consistency of its service delivery. LTC's customers consist of skilled nursing facilities, assisted living facilities, independent living communities, hospitals, correctional facilities, and other healthcare service providers including hospice care agencies. In light of a customer mix that is heavily penetrated in the senior citizen market, Omnicare has a high level of insight into geriatric pharmaceutical care. At June 30, 2013, LTC provided pharmacy services in 47 states in the United States as well as the District of Columbia. LTC served approximately 969 thousand beds and dispensed approximately 29.6 million prescriptions in the second quarter of 2013.

SCG touches a broad spectrum of the healthcare continuum, serving the needs of biopharmaceutical manufacturers, physicians, nurses, caregivers and patients. SCG's services are largely centered on the specialty pharmaceutical market. These services are based on four platforms: brand support services, supply chain solutions, patient support services and specialty pharmacy. The brand support services, supply chain solutions and patient support services platforms are integrated fee-for-service platforms which focus on helping the drug manufacturer market, distribute and obtain reimbursement for their products. Through the specialty pharmacy platform, SCG dispenses specialized pharmaceuticals that are high cost, have complex reimbursement and supply chain challenges, have limited patient populations and are not available through normal retail channels. These specialized drugs deal primarily with specific categories of drugs and disease states, such as rheumatoid arthritis, multiple sclerosis, oncology and growth hormones.
 
Omnicare believes it has an attractive business model, with a market leadership position in the long-term care market, and its position in the growing specialty care market supported by strong cash flows. Omnicare believes its business model is appropriately aligned with the interests of its customers, payors and patients. Many of the factors that benefit the Company, such as new low-cost generic introductions and more accurate and efficient automation technologies, also have a favorable effect on the Company's key constituencies. Because of this factor, Omnicare believes it can play a role in lowering the country's healthcare costs while striving for positive patient outcomes.

In the first half of 2013, SCG continued its strong financial performance primarily attributable to higher than expected drug price inflation and strong script levels within the Company's specialty pharmacy platform. Further, the year-over-year benefit from generic drugs launched in 2012 has served to offset the increased payroll and employee benefit costs associated with Omnicare’s

27


initiatives to improve its infrastructure and payor-driven reimbursement reductions within the LTC business. Further, the second quarter showed positive sequential net bed growth in LTC. Also, in the second quarter of 2013, the Company completed the disposition of certain assets in its Medical Supply Services business which was not considered significant to the operations of Omnicare. The Company continues to evaluate certain non-core operations for alignment with the Company's long-term strategy. The Company may determine some of these operations no longer fit within this strategy and may look to dispose of additional assets in the future.

On May 23, 2013, the Company entered into an Accelerated Share Repurchase Agreement (“JP ASR”) with J.P. Morgan Securities, LLC as agent for JPMorgan Chase Bank, National Association, London Branch ("JPMorgan") pursuant to which the Company will repurchase up to $100 million of its outstanding common stock. The JP ASR is part of the Company's previously disclosed share repurchase program and is expected to be completed in the third quarter of 2013. Also, in the second quarter of 2013, the Company settled its Accelerated Share Repurchase Agreement with Goldman, Sachs & Co., with the Company receiving 0.6 million shares of the Company's common stock.

For a further description of the Company’s business activities, see the “Business” caption of Part I, Item 1, of the 2012 Annual Report.

Regulatory Matters Update

The Company derives a significant portion of its revenues directly or indirectly from government-sponsored programs, principally the federal Medicare program and to a lesser extent state Medicaid programs. As part of ongoing operations, the Company and its customers are subject to legislative and regulatory changes impacting operations and the level of reimbursement received from the Medicare and Medicaid programs. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), changed the requirements for the Centers for Medicare & Medicaid Services' ("CMS") calculation of maximum prescription drug reimbursement amounts under state Medicaid programs, as discussed under "Changes in industry pricing benchmarks could materially impact our financial performance" in Part I, Item 1A of the 2012 Annual Report.

On March 1, 2013, President Obama issued a sequestration order that mandates spending reductions impacting most federal programs, as required under the terms of the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012. The sequestration order requires a 2% cut to Medicare payments to providers and health plans. Sequestration generally applies to Medicare fee-for-service claims with dates-of-service or dates-of-discharge on or after April 1, 2013, and payments made to Medicare Advantage organizations and Medicare Part D sponsors beginning April 1, 2013. Under current law, sequestration is scheduled to last through fiscal year 2021, although legislation could be enacted at any time to end or modify the terms of sequestration. The Company believes that this reduction in CMS payments to Medicare Part D plan sponsors generally does not directly affect the amounts the Company is paid under its existing contracts with Medicare Part D plan sponsors. However, it is possible that the sequestration reductions could lead Medicare Part D plan sponsors to seek lower rates through renegotiation. There can be no assurances that sequestration or other future policies impacting federal spending on Medicare will not adversely affect the Company's business.

Beginning January 1, 2013, institutional pharmacies are required to dispense branded oral-solid drugs to nursing home residents that are covered under Medicare Part D in 14-day increments. As a result of this new requirement, we dispensed approximately 1,139,000 additional branded scripts in the first six months of 2013. Although we received additional dispensing fees for this increased activity, we also incurred greater costs, which generally offset the impact of the additional fees.

The Company's results of operations, cash flows, or financial condition could be impacted by future legislative and regulatory developments, including unfavorable changes in reimbursement or increased operational costs, as discussed in Part I, Item 1A of the 2012 Annual Report, “Federal and state healthcare legislation has significantly impacted our business, and future legislation and regulations are likely to affect us.”

Consolidated Results of Operations for the Three and Six Months Ended June 30, 2013

The following summary table presents consolidated financial information and results of operations of Omnicare as well as Adjusted operating income and Adjusted net income (in thousands).  

28


 
Three months ended
June 30,
Six months ended
June 30,
 
2013
 
2012
2013
 
2012
Net sales
$
1,569,897

 
$
1,536,027

$
3,094,900

 
$
3,129,095

Operating income
114,636

 
66,088

232,783

 
190,918

Adjusted operating income (a)
149,416

 
141,390

294,188

 
284,935

Net income
52,219

 
18,692

106,573

 
74,431

Adjusted net income (a)
77,455

 
71,061

151,919

 
144,488

(a)
Adjusted operating income and Adjusted net income exclude certain items not considered part of the core operating results of the Company and certain non-cash charges. Management believes that presenting these non-GAAP financial measures enhances investors' understanding of how management assesses the performance of the Company's businesses. Management uses non-GAAP measures for budgeting purposes, measuring actual results, allocating resources and in determining employee incentive compensation. Omnicare's method of calculating non-GAAP financial results may differ from those used by other companies and, therefore, comparability may be limited. See the “Special Items” caption of this MD&A for a description of the excluded items and a reconciliation of Adjusted operating income and Adjusted net income to the most comparable GAAP financial measures.

Net sales for the three and six months ended June 30, 2013 were adversely impacted by the unfavorable net sales impact of the increased availability and utilization of generic drugs, reductions in reimbursement coupled with competitive pricing issues, and a lower average number of beds served. These were partially offset by the positive impact of drug price inflation and growth in SCG.  See the discussion of sales and operating income results in more detail under the “Long-Term Care Group Segment” and “Specialty Care Group Segment” captions below.

Gross margin was 24.1% and 24.2% in the three and six months ended June 30, 2013, respectively, versus 23.9% and 23.5%, respectively, in the comparable prior year periods.  Gross profit dollars were favorably affected by the increased availability and utilization of higher margin generic drugs, cost reduction and productivity improvement initiatives, the favorable dollar effect of drug price inflation, as well as growth in the SCG segment. Partially offsetting these factors was certain of the aforementioned items that, individually, served to reduce net sales, primarily the reductions in reimbursement coupled with competitive pricing issues, increased payroll and employee benefit costs in connection with the Company’s initiatives to improve its organizational structure and a lower average number of beds served.  

Omnicare’s consolidated selling, general and administrative (“operating”) expenses as a percentage of net sales amounted to 13.0% and 13.1% in the three and six months ended June 30, 2013, respectively, versus 13.1% and 12.8%, respectively, in the comparable prior year periods.  Operating expenses were unfavorably impacted by the increased payroll and employee benefit costs as well as other costs associated with Omnicare's initiatives to improve its organizational structure and customer service. Partially offsetting these factors was the continued progress in lowering operating expenses through the Company’s non-drug purchasing program. Also, negatively impacting the percentage is the reduction in net sales due to the impact of the increased availability and utilization of generic drugs.

Interest expense, net of investment income was lower in the three and six months ended June 30, 2013 than the prior-year periods primarily due to the refinancing activities completed in 2012.

The effective tax rates for the three and six months ended June 30, 2013 are different than the federal statutory rate largely as a result of the impact of state and local income taxes and certain non-deductible charges.  The year over year change in the effective tax rate is primarily due to certain non-deductible charges relating to the disposition of businesses in 2012.

Long-Term Care Group Segment    
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net sales
$
1,222,352

 
$
1,254,873

 
$
2,426,087

 
$
2,604,289

Operating income
$
131,049

 
$
130,102

 
$
267,781

 
$
274,922

Beds served (at end of period)
969

 
977

 
969

 
977

Scripts dispensed
29,589

 
29,684

 
59,463

 
60,054


29



LTC net sales were unfavorably impacted by reductions in reimbursement coupled with competitive pricing issues related to the Company's facilities contracts and a lower average number of beds served which was partially offset by drug price inflation. Also unfavorably impacting net sales was the increased availability and utilization of generic drugs. When a drug converts from brand to generic, the Company's cost goes down, and a portion of that savings is passed on to LTC's customers, which also reduces sales. While the Company is focused on reducing its costs to mitigate the impact of drug pricing and reimbursement issues, there can be no assurance that such issues or other pricing and reimbursement pressures will not adversely impact LTC's net sales.

Operating income in 2013 was favorably impacted largely by the increased availability and utilization of higher margin generic drugs, cost reduction and productivity improvement initiatives, as well as the favorable dollar effect of drug price inflation. Operating income was unfavorably affected by certain of the aforementioned items that, individually, served to reduce net sales, primarily the reductions in reimbursement and pricing, as well as the year-over-year impact of various "special items", further discussed in the "Special Items" section of this MD&A.  

Specialty Care Group Segment     
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net sales
$
347,006

 
$
278,065

 
$
667,643

 
$
518,164

Operating income
$
29,887

 
$
24,370

 
$
60,852

 
$
47,678


SCG net sales were positively impacted primarily by higher prescription volumes and drug price inflation coupled with increased volume in programs with drug manufacturers.  Favorable drug utilization was driven primarily by growth in the Company's multiple sclerosis and oncology therapies.

Operating income was favorably affected primarily by the same factors as those impacting the net sales increase.  Partially offsetting these positive factors was the unfavorable impact of mix within the SCG segment toward business with lower margins, competitive pricing pressures, and investments in facilities and personnel in order to position the segment for future growth.  

Restructuring and Other Related Charges

See discussion under the “Restructuring and Other Related Charges” note of the Notes to Consolidated Financial Statements.

Special Items

Management believes that presenting certain non-GAAP financial measures, which exclude items not considered part of the core operating results of the Company and certain non-cash charges ("Special Items"), enhances investors' understanding of how management assesses the performance of the Company's businesses. Management uses non-GAAP measures for budgeting purposes, measuring actual operating results, allocating resources and in determining employee incentive compensation. Omnicare's method of calculating non-GAAP financial results may differ from those used by other companies and, therefore, comparability may be limited. Financial results for the three and six months ended June 30, 2013 and 2012 included the Special Items presented in the table below, which also contains a reconciliation of the Company's non-GAAP amounts to their most directly comparable GAAP financial measure.

30


 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2013
 
2012
 
2013
 
2012
Settlement, litigation and other related charges (i)
 
$
3,512

 
$
26,093

 
$
26,131

 
$
33,296

Other charges (ii)
 
31,268

 
49,209

 
35,274

 
60,721

Subtotal - operating expense Special Items
 
34,780

 
75,302

 
61,405

 
94,017

Amortization of discount on convertible notes (iii)
 
6,187

 
5,929

 
12,256

 
12,279

Debt redemption costs - net (iii)
 
$
—

 
$
4,093

 
$
—

 
$
4,093

Total - Special Items
 
$
40,967

 
$
85,324

 
$
73,661

 
$
110,389

Total - Special items after tax (iv)
 
$
25,236

 
$
52,369

 
$
45,346

 
$
70,057

 
 
 
 
 
 
 
 
 
Operating income
 
$
114,636

 
$
66,088

 
$
232,783

 
$
190,918

Operating expense Special Items
 
34,780

 
75,302

 
61,405

 
94,017

Adjusted operating income
 
$
149,416

 
$
141,390

 
$
294,188

 
$
284,935

 
 
 
 
 
 
 
 
 
Net income
 
$
52,219

 
$
18,692

 
$
106,573

 
$
74,431

Total Special Items - after tax
 
25,236

 
52,369

 
45,346

 
70,057

Adjusted income
 
$
77,455

 
$
71,061

 
$
151,919

 
$
144,488

 
 
 
 
 
 
 
 
 
(i)
See further discussion at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements.
(ii)
See additional information at the "Other Charges" caption of the "Significant Accounting Policies" note of the Notes to Consolidated Financial Statements.
(iii)
The Company recorded non-cash interest expense from the amortization of debt discount on its convertible notes.
(iv)
The tax effect was calculated by multiplying the tax-deductible pretax amounts by the appropriate effective tax rate.

Financial Condition, Liquidity and Capital Resources

Cash and cash equivalents at June 30, 2013 were $535.4 million compared with $455.3 million at December 31, 2012 (including restricted cash amounts).

The Company generated positive net cash flows from operating activities of $262.7 million during the six months ended June 30, 2013, compared with net cash flows from operating activities totaling $220.6 million during the six months ended June 30, 2012.  Compared to the same prior year period, operating cash flow was favorably impacted primarily by the year-over-year change in accounts receivable and accounts payable, which was partially offset by the year-over-year change in inventory.  Also, the 2013 and 2012 period included litigation settlement payments of $20 million and $50 million, respectively. Further favorably impacting operating cash flow was the excess of tax deductible interest expense over book interest expense related to certain of the Company’s convertible debentures and notes, which resulted in a net increase in the Company’s deferred tax liabilities during the six months ended June 30, 2013 and 2012 of $12.4 million and $7.0 million, respectively ($185.3 million cumulative, the recorded deferred tax liability, as of June 30, 2013).  The recorded deferred tax liability will, under certain circumstances, be realized in the future upon conversion or redemption of debentures or notes which would reduce operating cash flow.
 
Net cash used in investing activities was $45.8 million and $47.6 million for the six months ended June 30, 2013 and 2012, respectively.  Omnicare’s capital expenditures were $46.8 million for the first six months of 2013 versus $46.4 million in the same prior year period. These amounts primarily relate to investment in information technology systems, related to the Company's ongoing investment in the business to improve operations and customer service.

Net cash used in financing activities was $135.7 million for the six months ended June 30, 2013 as compared to $188.8 million for the comparable prior year period.  Pursuant to the JP ASR, the Company made a $100 million payment to JPMorgan on May 24, 2013 and received an initial number of approximately 1.3 million shares of its outstanding common stock from JPMorgan on the same day. The specific number of shares that the Company ultimately will repurchase and the final aggregate purchase price under the JP ASR will be determined based on an agreed upon discount to the average of the daily volume-weighted average price per share of the Company's common stock during a repurchase period, subject to adjustments pursuant to the terms and conditions of the JP ASR. At settlement, under certain circumstances, the Company or JPMorgan may be required to deliver cash or additional shares of the Company's common stock, at the Company's option, to the other party. The transaction is expected to be completed during the third quarter of 2013. In the six months ended June 30, 2012, the Company repurchased approximately $80 million

31


shares of the Company's common stock under the share repurchase program. The Company had approximately $120 million of share repurchase authority remaining as of June 30, 2013, after consideration of the remaining $40 million equity forward contract related to the JP ASR. The 2012 period includes the Company's debt exchange where it retired $256.9 million of 3.75% convertible senior subordinated notes, due 2025 in exchange for its issuance of $390 million of new 3.75% convertible senior subordinated notes, due 2042 as well as its redemption of $25 million of its 3.25% convertible senior debentures, due 2035.

At June 30, 2013, there were no outstanding borrowings on the Company's revolving credit facility and $409 million outstanding on the term loan.

On May 22, 2013, the Company’s Board of Directors declared a quarterly cash dividend of 14 cents per common share, for an indicated annual rate of 56 cents per common share for 2013, which is 33.3% higher than the 42 cents per share in dividends paid during 2012.  Further, aggregate dividends paid of $28.8 million during the six months ended June 30, 2013 were greater than those paid in the comparable prior year period by approximately $13.2 million.

There were no known material commitments and contingencies outstanding at June 30, 2013, other than the contractual obligations summarized in the “Disclosures About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements” caption below; certain acquisition-related payments potentially due in the future, including deferred payments, indemnification payments and payments originating from earnout and other provisions that may become payable; separation payments; as well as the matters discussed in the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements.

The Company believes that net cash flows from operating activities, credit facilities and existing cash balances will be sufficient to satisfy its future working capital needs, debt servicing, capital expenditures and other financing requirements for at least the next year, although no such assurances can be given in that regard.  Additionally, the Company believes that external sources of financing, including short- and long-term debt financings, are available.  Omnicare may not be able to refinance maturing debt at terms that are as favorable as those from which the Company previously benefited or at terms that are acceptable to Omnicare.  In addition, no assurances can be given regarding the Company’s ability to obtain additional financing in the future.

Disclosures About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements

Aggregate Contractual Obligations
The following table summarizes the Company’s aggregate contractual obligations as of June 30, 2013, the nature of which is described in further detail at the “Aggregate Contractual Obligations” caption of the MD&A section in Part II, Item 7 of the 2012 Annual Report, and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future periods (in thousands):
 
 
Total
 
Less Than 1 Year
 
1-3 Years
 
4-5 Years
 
More than 5 Years
Debt obligations
 
$
2,439,617

 
$
684,304

 
$
42,500

 
$
345,313

 
$
1,367,500

Capital lease obligations
 
24,447

 
7,513

 
12,371

 
4,563

 
—

Operating lease obligations
 
114,299

 
27,577

 
43,904

 
21,639

 
21,179

Purchase obligations
 
36,269

 
27,819

 
4,802

 
3,648

 
—

Other current obligations
 
198,679

 
198,679

 
—

 
—

 
—

Other long-term obligations
 
54,353

 
—

 
40,647

 
3,315

 
10,391

Subtotal
 
2,867,664

 
945,892

 
144,224

 
378,478

 
1,399,070

Future interest costs relating to debt and capital lease obligations
 
1,366,960

 
88,328

 
175,280

 
168,471

 
934,881

Total contractual cash obligations
 
$
4,234,624

 
$
1,034,220

 
$
319,504

 
$
546,949

 
$
2,333,951


As of June 30, 2013, the Company had approximately $8 million outstanding under standby letters of credit, substantially all of which are subject to automatic annual renewals.

Off-Balance Sheet Arrangements

A description of the Company’s Off-Balance Sheet Arrangements, for which there were no significant changes during the six months ended June 30, 2013, is presented at the “Off-Balance Sheet Arrangements” caption of Part II, Item 7 of the 2012 Annual Report.

32



Critical Accounting Policies
The Company’s description of business and critical accounting policies are disclosed in the 2012 Annual Report.

Allowance for Doubtful Accounts
The allowance for doubtful accounts as of June 30, 2013 was $218.8 million, compared with $269.4 million at December 31, 2012.  The allowance for doubtful accounts represented 22.2% and 23.9% of gross accounts receivable (net of contractual allowance adjustments) as of June 30, 2013 and December 31, 2012, respectively.   Unforeseen future developments could lead to changes in the Company’s provision for doubtful accounts levels and future allowance for doubtful accounts percentages, which could materially impact the overall financial results, financial position or cash flows of the Company.  For example, a one percentage point increase in the allowance for doubtful accounts as a percentage of gross accounts receivable as of June 30, 2013 would result in an increase to the provision for doubtful accounts and related allowance for doubtful accounts of approximately $9.8 million.

See further discussion at the “Accounts Receivable” caption of the “Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

Legal Contingencies
The status of certain legal proceedings has been updated at the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements.

Recently Issued Accounting Standards
Information pertaining to recently issued accounting standards is further discussed at the “Recently Issued Accounting Standards” section of the “Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

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 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. Such forward-looking statements, together with other statements that are not historical, are based on management’s current expectations and involve known and unknown risks, uncertainties, contingencies and other factors that could cause results, performance or achievements to differ materially from those stated. The most significant of these risks and uncertainties are described in the Company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the SEC and include, but are not limited to: overall economic, financial, political and business conditions; trends in the long-term healthcare and pharmaceutical industries; the ability to attract new clients and service contracts and retain existing clients and service contracts; the ability to consummate pending acquisitions on favorable terms or at all; trends for the continued growth of the Company’s businesses; trends in drug pricing; delays and reductions in reimbursement by the government and other payors to customers and to the Company; the overall financial condition of the Company’s customers and the ability of the Company to assess and react to such financial condition of its customers; the ability of vendors and business partners to continue to provide products and services to the Company; the successful integration of acquired companies and realization of contemplated synergies; the continued availability of suitable acquisition candidates; the ability to attract and retain needed management; competition for qualified staff in the healthcare industry; variations in 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 potential impact of legislation, government regulations, and other government action and/or executive orders, including those relating to Medicare Part D, including its implementing regulations and any subregulatory guidance; reimbursement and drug pricing policies and changes in the interpretation and application of such policies, including changes in calculation of average wholesale price; discontinuation of reporting average wholesale price, and/or implementation of new pricing benchmarks; legislative and regulatory changes impacting long term care pharmacies; government budgetary pressures and shifting priorities; federal and state budget shortfalls; efforts by payors to control costs; changes to or termination of the Company’s contracts with pharmaceutical benefit managers, Medicare Part D Plan sponsors and/or commercial health insurers or to the proportion of the Company’s business covered by specific contracts; the outcome of disputes and litigation; potential liability for losses not covered by, or in excess of, insurance; the impact of executive separations; the impact of benefit plan terminations; the impact of differences in actuarial assumptions and estimates as compared to eventual outcomes; events or circumstances which result in an impairment of assets, including but not limited to, goodwill and identifiable intangible assets; the final outcome of divestiture activities; market conditions; the outcome of audit, compliance, administrative, regulatory, or investigatory reviews; volatility in the market for the Company’s

33


stock and in the financial markets generally; access to adequate capital and financing; changes in tax laws and regulations; changes in accounting rules and standards; the impacts of potential cybersecurity risks and/or incidents; and costs to comply with the Company’s Corporate Integrity Agreement; and unexpected costs and interruptions from the implementation of our new information technology system. 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 variable interest rate risk through its variable interest debt and swap agreements related to certain of the Company’s borrowings. Accordingly, market risk loss is primarily defined as the potential loss in earnings due to higher interest rates for certain debt of the Company. The modeling technique used by Omnicare for evaluating interest rate risk exposure involves performing sensitivity analysis on the variable-rate debt, assuming a change in interest rates of 100 basis-points. Among the Company’s debt obligations is $409 million outstanding under the variable-rate Senior Term Loan, due 2017, at an interest rate of 1.95% at June 30, 2013 (a 100 basis point change in the interest rate would increase or decrease interest expense by approximately $4.1 million per year). In connection with its offering of $400 million of 7.75% Senior Notes during 2010 and the additional $150 million in 2011, the Company entered into swap agreements on all $550 million of its aggregate principal amount of the 7.75% Senior Notes (the “7.75% Swap Agreements”). Under the 7.75% Swap Agreements, which are designed to effectively lower the Company's cost, but subject the Company to variable interest rate risk, the Company receives a fixed rate of 7.75% and pays a floating rate based on LIBOR with a maturity of six months, plus a weighted average spread of 4.27%. The weighted average estimated LIBOR-based floating rate (including the 4.27% spread) was 4.68% at June 30, 2013 (a 100 basis-point change in the interest rate would increase or decrease interest expense by approximately $5.5 million per year). In addition, the Company has a bond portfolio comprised of high quality corporate bonds and government bonds which is managed by a third-party and had a fair value at June 30, 2013 of approximately $25.1 million (a 100 basis-point change in the interest rates of the entire portfolio would increase or decrease the fair value by approximately $0.3 million.

For information regarding the fair value of the Company’s fixed-rate debt facilities, see the "Debt" section of the “Significant Accounting Policies” note of the Notes to Consolidated Financial Statements.

See further discussion of the Company’s debt, bond portfolio, swap agreements and derivative instruments at the “Debt” and “Fair Value” notes of the Notes to Consolidated Financial Statements for the year ended December 31, 2012 included in the 2012 Annual Report.

The Company does not have any financial instruments held for trading purposes.

ITEM 4 - CONTROLS AND PROCEDURES

Under applicable SEC regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the Company’s “disclosure controls and procedures,” which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the SEC (such as this Form 10-Q) is recorded, processed, accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding disclosure.  Omnicare is an acquisitive company that regularly acquires and integrates new businesses.  Throughout and following an acquisition, Omnicare focuses on analyzing the acquiree’s procedures and controls to determine their effectiveness and, where appropriate, implements changes to conform them to the Company’s disclosure controls and procedures.  The Company’s Chief Executive Officer and Chief Financial Officer evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q and concluded that they are effective.

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


34


PART II - OTHER INFORMATION:

ITEM 1 - LEGAL PROCEEDINGS

Information relating to certain legal proceedings in which Omnicare is involved is included in the “Commitments and Contingencies” note of the Notes to Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q and is incorporated herein by reference, and should be read in conjunction with the related disclosures previously reported in the 2012 Annual Report.

ITEM 1A - RISK FACTORS

Certain information in the risk factor entitled “Federal and state healthcare legislation has significantly impacted our business, and future legislation and regulations are likely to affect us” has been updated by the discussion in the “Regulatory Matters Update” section of the MD&A at Part I, Item 2, of this Quarterly Report on Form 10-Q, which is incorporated by reference herein and should be read in conjunction with the risk factors disclosed in the 2012 Annual Report. There has been no other material change in the risk factors previously disclosed in Part I, Item 1A of the 2012 Annual Report.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c)           Purchases of Equity Securities by the Issuer and Affiliated Purchasers

A summary of the Company’s repurchase of Omnicare, Inc. common stock during the quarter ended June 30, 2013 is as follows (in thousands, except per share data):
Period
 
Total Number of Shares Purchased(a)
 
Average Price Paid per
 Share(b)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(c)
April 1 - 30, 2013
 
3

 
$
40.67

 
—

 
$
219,963

May 1 - 31, 2013
 
1,964

 
57.16

 
1,913

 
120,368

June 1 - 30, 2013
 
6

 
46.94

 
—

 
120,368

Total
 
1,973

 
$
57.11

 
1,913

 
$
120,368

(a)
During the second quarter of 2013, the Company purchased 60 shares of Omnicare common stock in connection with its employee benefit plans, including purchases associated with the forfeiture of shares to pay taxes upon vesting of restricted stock awards.  These purchases were not made pursuant to a publicly announced repurchase plan or program.
(b)
The average price paid per share reflects the cost for the Accelerated Share Repurchase ("GS ASR") agreement with Goldman, Sachs & Co. of $250 million which was paid in November 2012. Upon settlement of the GS ASR in May 2013 the Company received 0.6 million additional shares of its common stock. Overall the average settlement price for the shares repurchased under the GS ASR was $38.92. See the "Significant Accounting Policies" note of the Notes to the Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.
(c)
The following chart summarizes the Company's stock repurchase programs as approved by the Board of Directors in effect for the periods ended December 31, 2010 through June 30, 2013 (in thousands):
Date Approved
 
Amount Approved
 
Term Date
 
Remaining Repurchase Authority
May 3, 2010
 
$
200,000

 
May 3, 2012
 
—

May 26, 2011
 
$
100,000

 
December 31, 2012
 
—

February 21, 2012
 
$
200,000

 
February 28, 2014
 
—

September 12, 2012
 
$
350,000

 
December 31, 2014
 
120,368


In the six months ended June 30, 2013, the Company repurchased approximately 1.9 million shares through authorized share repurchase programs at an aggregate cost of approximately $110.0 million, for a cumulative amount of approximately 21.1 million shares repurchased at an aggregate cost of approximately $690 million since the inception of the programs outlined above. The Company had approximately $120.0 million of combined share repurchase authority remaining as of June 30, 2013, which expires on December 31, 2014.

35



ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5 - OTHER INFORMATION
None.

ITEM 6 - EXHIBITS
See Index of Exhibits. 

36



 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:
July 24, 2013
By:
 
/s/ Robert O. Kraft
 
 
 
Robert O. Kraft
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)


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INDEX OF EXHIBITS

 
Number and Description of Exhibit (Numbers Coincide with Item 601 of Regulation S-K)
 
Document Incorporated by Reference from a Previous Filing, Filed Herewith or Furnished Herewith, as Indicated Below
 
(3.1)
Restated Certificate of Incorporation of Omnicare, Inc. (as amended)
 
Form 10-K
March 27, 2003
 
(3.2)
Fourth Amended and Restated By-Laws of Omnicare, Inc.
 
Form 8-K
February 22, 2011
 
(10.1)
Omnicare, Inc. Senior Executive Change in Control Plan**
 
Filed Herewith
 
(12)
Statement of Computation of Ratio of Earnings to Fixed Charges
 
Filed Herewith
 
(31.1)
Rule 13a-14(a) Certification of Chief Executive Officer of Omnicare, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed Herewith
 
(31.2)
Rule 13a-14(a) Certification of Chief Financial Officer of Omnicare, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed Herewith
 
(32.1)
Section 1350 Certification of Chief Executive Officer of Omnicare, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002*
 
Furnished Herewith
 
(32.2)
Section 1350 Certification of Chief Financial Officer of Omnicare, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002*
 
Furnished Herewith
 
(101)
The following materials from the Omnicare, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Comprehensive Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statement of Cash Flows and (iv) the Notes to Consolidated Financial Statements
 
As provided in Rule 406T of Regulation S-T, this information is furnished herewith and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934
 
 

* 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.
** Indicates management contract or compensatory arrangement.



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