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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES
FORM 8-K
CURRENT REPORT
Date of Report (Date of earliest event reported): February 28, 2007
Omnicare, Inc.
859-392-3300
Not applicable
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On February 28, 2007, Omnicare, Inc. issued a press release announcing its financial results for the fourth quarter and full year ended December 31, 2006. A copy of the release is furnished herewith
as Exhibit 99.1 and incorporated by reference herein.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
99.1 Press Release of Omnicare, Inc., dated February 28, 2007.
SIGNATURES
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 hereunto duly authorized.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
(Exact name of Registrant as specified in its charter)
Delaware
1-8269
(Registrant's telephone number including area code)
(Former name and former address, if changed since last report)
Dated: February 28, 2007 |
INDEX TO EXHIBITS | |
Exhibit Number | Description of Exhibit |
99.1 | Press Release of Omnicare, Inc., dated February 28, 2007 |
Omnicare, Inc. 100 East RiverCenter Boulevard Covington, Kentucky 41011 859/392-3300 859/392-3360 Fax
Omnicare |
news release
|
|
OMNICARE REPORTS FOURTH-QUARTER
AND FULL-YEAR 2006 RESULTS
COVINGTON, Ky., February 28, 2007 Omnicare, Inc. (NYSE:OCR), the nation's leading provider of pharmaceutical care for the elderly, today reported financial results for its fourth-quarter and full-year ended December 31, 2006.
Financial results for the quarter ended December 31, 2006, as compared with the same prior-year period, including restructuring and related charges and other special items which are described below, were as follows:
Results for both the fourth quarter of 2006 and 2005 include special items (which are described below) of $19.9 million pretax and $44.0 million pretax, respectively. Adjusting for these special items, results for the quarter ended December 31, 2006 and 2005, respectively, were as follows:
Both the results as presented under Generally Accepted Accounting Principles (GAAP) and as adjusted for special items for the fourth quarter of 2006 reflect a change to the equity method of accounting for certain pharmacy joint venture operations in which Omnicare (the Company) owns less than a 100% interest, which was effective in the third quarter of 2006. Accordingly, the deconsolidation of these operations reduced reported sales by approximately $26 million for the 2006 fourth quarter but had no impact on earnings.
Included in the results for the fourth quarter of 2006 (including the adjusted results) are expenses totaling approximately $4.0 million pretax, or 2 cents per diluted share, comprising temporary labor, administrative and operating costs incurred in connection
with the implementation of the Medicare Part D drug benefit, as well as $1.0 million pretax, or approximately 0.5 cents per diluted share, in expense related to the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R), effective January 1, 2006. Income tax expense for the fourth quarter of 2006 was reduced by approximately $5.0 million, or 4 cents per diluted share, primarily for the favorable effect of an increase in the tax benefit of certain state income tax net operating losses.
Moreover, the results for the fourth quarter of 2006 (including the adjusted results) continued to be impacted by the unilateral reduction by UnitedHealth Group and its affiliates (United) in the reimbursement rates paid by United to Omnicare under its pharmacy network contract for services rendered by Omnicare to beneficiaries of Uniteds drug benefit plans under the Medicare Part D program. The differential in rates that resulted from Uniteds action reduced sales and operating profit in the fourth quarter by approximately $21.7 million, or 12 cents per diluted share. The total impact of this reduction in rates for 2006 (beginning in April 2006) was approximately $68.2 million, or approximately 35 cents per diluted share. This matter is currently the subject of litigation initiated by Omnicare in federal court in the Northern District of Illinois.
Full-Year Results
Financial results for the year ended December 31, 2006, as compared with the full-year 2005, including restructuring and related charges, other special items and an accounting change, which are described below, were as follows:
Results for both the full-year 2006 and 2005 include special items (which are described below) of $194.5 million pretax and $62.8 million pretax, respectively. In addition, the diluted earnings per share for both periods reflect the Companys fourth quarter 2004 adoption of Emerging Issues Task Force Issue No. 04-8 related to the calculation of diluted earnings per share for contingently convertible securities. Adjusting for these special items and the accounting change, results for the full-year 2006 and 2005, respectively, were as follows:
The results for 2006 (including the adjusted results) include the aforementioned impact on revenues of the deconsolidation of certain pharmacy joint ventures of $48 million with no impact on earnings. In addition, the 2006 results included the aforementioned impact of the reduced reimbursement from United of approximately $68.2 million pretax, or approximately 35 cents per diluted share, as well as temporary labor, administrative and operating costs related to the Medicare Part D transition of approximately $27.3
2
million pretax, or approximately 14 cents per diluted share. Also included in the 2006 results is $7.1 million pretax, or approximately 4 cents per diluted share, in expense related to the adoption of SFAS 123R, effective January 1, 2006.
Commenting on the results for the quarter and full year, Joel F. Gemunder, Omnicare's president and chief executive officer, said, "Our results for the fourth quarter came in as we expected, capping off one of the most extraordinary years in the Companys history. While 2006 was filled with significant change and some unexpected challenges, we remained focused on our mission to provide exceptional pharmaceutical care to the seniors we serve. We believe that, even in the face of significant challenges, the fundamentals underpinning our business and our organization are strong. Despite the year of transition and the difficult issues we faced, we also kept our focus on opportunities to leverage our core business, such as the successful integration of NeighborCare, RxCrossroads and excelleRx and on achieving sales and adjusted earnings growth for the year.
As we look ahead to 2007, we will continue to work diligently to resolve the remaining legacy issues and move ahead with those activities that we believe will enhance shareholder value, including rolling out the Omnicare Full Potential Plan we announced last July. We have both short- and long-term strategies in place to help position the Company for growth and are committed to taking advantage of the strengths of our business.
Financial Position
Cash flow from operations for the quarter ended December 31, 2006 reflected a net use of cash of $104.2 million versus $88.2 million in cash provided by operations in the comparable prior-year quarter. Cash flow from operations for the quarter ended December 31, 2006 included payments of $101.3 million relating to two government settlements as well as litigation expenses, an unfavorable impact of $9.7 million related to a broad-based slowdown in payments from the Illinois Department of Public Aid (Medicaid) and $6.4 million in incremental cash costs related to the Companys Heartland repackaging operation. Cash flow for the 2005 quarter was favorably impacted by approximately $40 million from the receipt of payments from Illinois Medicaid following its broad-based slowdown in payments experienced throughout 2005. This favorable variance was partially offset by the cash portion of special items (described later herein) paid during the 2005 quarter totaling $22.9 million.
Cash flow from operations for the full-year 2006 was $108.5 million versus the $263.5 million in the full-year 2005. The 2006 cash flow was impacted by the government settlements and litigation expenses totaling $104.2 million and by $12.5 million related to Heartland repackaging matters, partially offset by the return of a $38.3 million deposit from one of the Companys drug wholesalers. Cash flow from operations for 2005 was impacted by the $22.9 million cash portion of special items mentioned below.
In addition to a number of unusual items affecting cash flow during the year, our cash flow from operations in 2006 was significantly impacted by the implementation of the
3
Medicare Part D drug benefit. On top of incremental expenses of approximately $27 million needed to deal with administrative and payment issues, we have seen a net increase in receivables of $26 million related to inappropriate co-pays and $33 million in rejected claims yet to be resolved with Prescription Drug Plans (PDPs) related to 2006 activity, said Gemunder. One of our highest priorities in 2007 is to resolve these payment issues that represent the inappropriate and unintended consequences of the administrative burden created by the implementation of the Part D benefit on all long-term care providers in the program.
Earnings before interest, income taxes, depreciation and amortization (EBITDA) for the fourth quarter 2006, including the special items discussed below, was $173.4 million versus $181.3 million in the fourth quarter of 2005. Excluding the special items, adjusted EBITDA in the 2006 quarter was $193.3 million versus $197.8 million in the 2005 quarter. For the full-year 2006, EBITDA, including special items, was $600.0 million versus $602.0 million for 2005. Excluding special items, 2006 adjusted EBITDA was $794.5 million versus $629.7 million in 2005.
During 2006, the Company repaid $109 million in debt and at December 31, 2006, had $141.8 million in cash on its balance sheet. Its total debt to total capital at December 31, 2006 was 48.5%, down approximately 280 basis points from December 31, 2005.
To facilitate comparisons and to enhance understanding of core operating performance, the discussion that follows includes financial measures that are adjusted from the comparable amount under GAAP to exclude the impact of the special items described elsewhere herein. For a detailed presentation of reconciling items and related definitions and components, please refer to the attached schedules or to reconciliation schedules posted on the Companys Web site at www.omnicare.com. It should also be noted that the results of the NeighborCare, excelleRx and RxCrossroads acquisitions are included from the dates such acquisitions closed (July 28, 2005, August 12, 2005 and August 15, 2005, respectively). All three acquisitions are included in the Pharmacy Services Business segment.
Pharmacy Services Business
Omnicare's pharmacy services business generated revenues of $1,552.5 million for the fourth quarter of 2006 (net of the reduction of approximately $26 million relating to the deconsolidation of certain joint venture operations), as compared with the $1,576.5 million reported in the fourth quarter of 2005. Adjusted operating profit in this business was $180.8 million in the 2006 fourth quarter as compared with the $184.3 million earned in the same 2005 quarter. For the full-year 2006, adjusted pharmacy services sales reached $6,331.5 million, up 24% above the $5,110.4 million reported in 2005. Adjusted operating profit for the full-year 2006 reached $748.5 million, 26% higher than the $595.3 million earned in 2005. At December 31, 2006, Omnicare served long-term care facilities and other chronic care settings comprising approximately 1,406,000 beds.
Omnicares pharmacy services sales for the fourth quarter of 2006 were marginally lower than in the comparable 2005 quarter largely as a result of the deconsolidation of
4
the pharmacy joint-venture operations mentioned above as well as the increased availability and utilization of generic drugs and a lower number of beds served along with a bed mix shift. Partially offsetting these factors were drug price inflation, a favorable payor mix shift (offset in large measure by the aforementioned reduction in reimbursement rates under the United Part D contract) and strong growth in its hospice pharmacy and specialty pharmacy services businesses.
Sales growth for the full year in the pharmacy services business is largely attributable to the acquisitions of NeighborCare, excelleRx and RxCrossroads, all of which were completed during the third quarter of 2005, as well as the ongoing execution of Omnicares acquisition strategy, a favorable payor mix shift (offset in large measure by the aforementioned reduction in reimbursement rates under the United Part D contract) and drug price inflation. This growth was tempered somewhat by a marked increase in the use of generic drugs, competitive pricing, a lower number of beds served along with a bed mix shift and prior-period Medicaid reimbursement reductions.
As previously disclosed, during the third quarter 2006, the Company experienced certain quality control, fire damage and environmental issues at one of its repackaging operations, Heartland Repack Services (Heartland). As a precautionary measure, the Company voluntarily suspended operations and subsequently decided not to reopen the Heartland facility. In order to replace the capacity, the Company ramped up production in its other repackaging facility, as well as onsite at its individual pharmacies for use by their patients. As a result, Omnicare has been and continues to be able to meet the needs of all of its client facilities and their residents, which is the Companys highest priority. Addressing these issues, however, continued to result in increased costs (see Special Items discussed below), particularly in labor, materials, and professional fees during the fourth quarter. The Company maintains product recall, property and casualty and business interruption insurance and the extent of insurance recovery for these expenses continues under review by its outside advisors.
We have worked diligently to address and resolve all issues and to seek appropriate solutions to restore Heartlands repackaging capacity, said Gemunder. In that vein, we are pleased to have reached an agreement that will extend through October 2010 with the Repackaging Services division of Cardinal Health, Inc. to become our contract repackager for the repackaging volumes previously produced at Heartland. We view this as a very favorable alternative to opening a new repackaging facility as it will restore our repackaging capacity more quickly and efficiently.
Given the ongoing complexities of Part D and the need to resolve cumulative implementation issues relating to co-pays, rejected claims and increased prior-authorizations, Omnicares Part D transition costs continued during the quarter, albeit at a lower level than in the third quarter.
Even with the temporary constraints to the implementation of planned revenue and cost savings initiatives brought about by the voluntary closing of one our repackaging facilities and the complexities associated with the transition to Medicare Part D, our fourth-quarter adjusted operating margins on both a sequential and year-over-year
5
basis were consistent and full-year adjusted operating margins in 2006 were higher than in 2005, said Gemunder. We believe this performance reflects, among other factors, the progress weve made throughout the year in the integration of NeighborCare as well as other acquisitions and realizing anticipated cost savings as well as the impact of increasing generic drug utilization.
CRO Business
The Company's CRO business, including Omnicare Clinical Research and Clinimetrics Research Associates, generated revenues of $46.9 million on a GAAP basis for the fourth quarter of 2006 as compared with the $41.8 million in revenues generated in the same prior-year quarter. Included in the 2006 and 2005 periods were reimbursable out-of-pocket expenses totaling $7.8 million and $6.2 million, respectively. Excluding these reimbursable out-of-pocket expenses, adjusted revenues were $39.1 million for the 2006 fourth quarter as compared with $35.6 million for the same prior-year period. Adjusted operating profit for the 2006 fourth quarter totaled $2.6 million versus $2.3 million in the same prior-year period.
For the full-year 2006, CRO revenues, on a GAAP basis, totaled $171.9 million as compared with $182.4 million in 2005. Reimbursable out-of-pocket expenses in 2006 and 2005 totaled $25.6 million and $28.5 million, respectively. Excluding such expenses, adjusted CRO revenues for the full-year 2006 were $146.2 million as compared with $153.9 million in 2005. Adjusted operating profit in 2006 was $7.7 million versus $12.4 million in 2005. Backlog at December 31, 2006 was $301.9 million.
We were pleased to see revenues in our CRO business reach their highest quarterly level in 2006 and solid business wins take backlog to a new high. We believe the reorientation of our CRO business model implemented earlier this year, along with tight control over fixed and variable expenses, began to produce improved results in the fourth quarter, noted Gemunder.
Special Items
As noted above, the results for the fourth-quarter and full-year 2006 include certain special items totaling $19.9 million pretax ($13.2 million aftertax, or approximately 11 cents per diluted share) and $194.5 million pretax ($144.4 million aftertax, or approximately $1.18 per diluted share), respectively. Operating income for the fourth-quarter and full-year 2006 includes a charge of $4.8 million and $29.6 million, respectively, for restructuring and other related costs associated primarily with the implementation of the Omnicare Full Potential Plan, a major initiative designed to re-engineer the pharmacy operating model to increase efficiency and enhance customer growth, as well as the NeighborCare integration and other production initiatives. The fourth-quarter 2006 results also include special litigation charges of $6.3 million pretax relating to litigation-related professional fees in connection with previously disclosed government inquiries and litigation, as well as the Companys lawsuit against United. The full-year 2006 includes the previously announced special litigation charges of $57.5 million pretax relating to the settlement amounts and professional fees in connection
6
with inquiries by the federal government and certain states concerning the substitution of three generic drugs by the Company, $54.0 million pretax ($10.3 million and $43.7 million recorded in the net sales and litigation charges lines of the income statement, respectively) for the settlement, including professional fees, of an inquiry conducted by the Attorney Generals Office in Michigan related to certain billing issues under the Michigan Medicaid program, and $13.6 million pretax for other litigation-related professional fees. Also included in the fourth-quarter and full-year 2006 is a pretax charge of $8.7 million and $33.7 million, respectively, relating to the incremental costs associated with the quality control, product recall and fire damage issues (including $18.9 million related to the write-off of inventory) incurred in connection with the Companys closure of its Heartland repackaging operations. The full-year 2006 results also include $6.1 million pretax associated with retention payments for certain NeighborCare employees as required under the acquisition agreement.
The fourth-quarter and full-year 2005 included certain special items, totaling $44.0 million pretax ($27.6 million aftertax or 25 cents per diluted share) and $62.8 million pretax ($39.4 million after tax or 36 cents per diluted share), respectively. Operating income for the fourth-quarter and full-year 2005 includes a previously announced restructuring charge of $9.8 million and $18.8 million, respectively, related primarily to certain costs associated with the NeighborCare consolidation plan and other productivity initiatives; $4.9 million for the settlement of litigation relating to certain contractual issues with two vendors; and $1.7 million and $3.0 million, respectively, for professional fees incurred in connection with the Series B 4.00% Trust Preferred Income Equity Redeemable Securities exchange offer and the redemption of the 8.125% senior subordinated notes. The full-year 2005 also includes a special charge of $1.1 million for acquisition related expenses pertaining to a proposed transaction that was not consummated. Interest expense for the fourth-quarter and full-year 2005 includes a special pretax charge of $25.0 million and $32.5 million, respectively, for new debt issuance and debt extinguishment costs associated with the Companys 2005 refinancing; and $2.5 million related to the previously mentioned vendor litigation settlements.
Omnicare Outlook
Under the new Medicare Part D benefits, Prescription Drug Plans, or PDPs, sponsored by commercial insurers or other risk-bearing entities approved by the Centers for Medicare & Medicaid Services (CMS), are providing a drug benefit to Medicare-eligible beneficiaries, including those dually eligible under Medicaid, which include many residents of the skilled nursing facilities served by Omnicare. During 2006, more than 40% of the Companys revenues shifted to the Part D program.
Throughout 2006 we spent considerable time, effort and resources working through the implementation of Medicare Part D in order to make the transition seamless for our customers. As we work toward a smoother operating environment, there are still aspects of the program that need to be rectified and improved. We are committed to working with the PDPs, CMS and our customers to resolve the administrative and payment issues surrounding Part D, both on a retrospective and prospective basis.
7
Overall, we believe Omnicare adds considerable value to this program and that, long- term, it will be beneficial to our future growth; accordingly, we will continue to devote the necessary time and resources to it, said Gemunder.
As we look ahead to 2007, we see it as a building year one in which we work to resolve prior issues and improve future performance. First, we are excited about our new agreement with the Repackaging Services division of Cardinal Health which we believe will restore our centralized repackaging capacity in a timely and cost-efficient manner. This, in turn, should allow us to pull out costs in many areas and redirect resources to our other growth initiatives.
We are focused squarely on overall growth, both through increasing our customer base in long-term care as well as in adjacent markets where our core competencies can be leveraged and our opportunities broadened. We will also be working to maximize free cash flow to deploy in acquisitions, debt reduction, or other uses of cash that drive shareholder value. Moreover, we are keenly focused on the implementation of the Omnicare Full Potential Plan a major new program which, in many respects, presents permanent solutions to the issues we faced in 2006. The Omnicare Full Potential Plan is premised on the fact that we are a scale business. We believe it capitalizes on our unique advantages in driving change in our industry through technology, reduces costs and, importantly, enables us to enhance customer growth.
Webcast Today
Omnicare will hold a conference call to discuss fourth-quarter and full-year results today, Wednesday, February 28, at 11:00 a.m. ET. The conference call will be webcast live at Omnicare's Web site at www.omnicare.com by clicking on "Investors" and then on "Conference Calls," and will be accessible by telephone at the following numbers:
Calling from the United States or Canada: 888-634-8522
Calling from other countries: 706-634-6522
Reference: Omnicare
An online replay will be available at www.omnicare.com beginning approximately two hours after the completion of the live call and will remain available for 14 days.
Omnicare, Inc. (NYSE:OCR), a Fortune 500 company based in Covington, Kentucky, is a leading provider of pharmaceutical care for the elderly. Omnicare serves residents in long-term care facilities and other chronic care settings comprising approximately 1,406,000 beds in 47 states, the District of Columbia and Canada. Omnicare is the largest U.S. provider of professional pharmacy, related consulting and data management services for skilled nursing, assisted living and other institutional healthcare providers as well as for hospice patients in homecare and other settings. Omnicares pharmacy services also include distribution and patient assistance services for specialty pharmaceuticals. Omnicare offers clinical research services for the pharmaceutical and biotechnology industries in 30 countries worldwide. For more information, visit the company's Web site at www.omnicare.com.
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Forward-Looking Statements
In addition to historical information, this press release 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 managements 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 Companys Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: overall economic, financial, political and business conditions; trends in the long-term healthcare, pharmaceutical and contract research industries; the ability to attract new clients and service contracts and retain existing clients and service contracts; the ability to consummate pending acquisitions; trends for the continued growth of the Companys 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 Companys 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 continued successful integration of acquired companies; the continued availability of suitable acquisition candidates; the ability to attract and retain needed management; competition for qualified staff in the healthcare industry; the demand for the Companys products and services; variations in costs or expenses; the ability to implement productivity, consolidation and cost reduction efforts and to realize anticipated benefits; the ability of clinical research projects to produce revenues in future periods; the 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; government budgetary pressures and shifting priorities; federal and state budget shortfalls; efforts by payors to control costs; changes to or termination of the Companys contracts with Medicare Part D plan sponsors; the outcome of litigation; potential liability for losses not covered by, or in excess of, insurance; the impact of differences in actuarial assumptions and estimates pertaining to employee benefit plans; events or circumstances which result in an impairment of assets, including but not limited to, goodwill; market conditions; the outcome of audit, compliance, administrative or investigatory reviews; volatility in the market for the Companys stock and in the financial markets generally; access to adequate capital and financing; changes in international economic and political conditions and currency fluctuations between the U.S. dollar and other currencies; changes in tax laws and regulations; changes in accounting rules and standards. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, the Companys 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.
For more information on Omnicare, Inc., visit www.omnicare.com.
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EXHIBIT 99.1
Omnicare, Inc. and Subsidiary Companies |
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Summary Consolidated Statements of Income, GAAP Basis | |||||||||||||||||||||
(000s, except per share amounts) | |||||||||||||||||||||
Unaudited | |||||||||||||||||||||
Three months ended |
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Net sales | $ | 1,599,419 |
(a)(b)(f)
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$ | 1,618,262 | (a) | $ | 6,492,993 | (a)(b)(e)(f) | $ | 5,292,782 |
(a)
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Cost of sales ("COS") | 1,188,830 |
(a)
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1,224,438 | (a) | 4,864,966 | (a) | 3,993,717 |
(a)
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Heartland matters - COS | 4,894 |
(c)
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- | 27,663 | (e) | - | |||||||||||||||
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Gross profit | 405,695 |
(c)
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393,824 | 1,600,364 | (e) | 1,299,065 | |||||||||||||||
Selling, general and administrative | |||||||||||||||||||||
expenses ("S,G&A")
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246,443 |
(d)
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230,933 | (c) | 969,635 | (d)(e) | 758,657 |
(e)
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Restructuring and other related charges | 4,841 |
(c)
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9,829 | (c) | 29,562 | (e) | 18,779 |
(e)
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Heartland matters - S,G&A | 3,847 |
(c)
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- | 6,063 | (e) | - | |||||||||||||||
Litigation charges | 6,310 |
(c)
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- | 114,778 | (e) | - | |||||||||||||||
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Operating income | 144,254 |
(c)(d)(f)
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153,062 |
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(c) | 480,326 | (d)(e)(f) | 521,629 |
(e)
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Investment income | 2,198 | 2,331 | 10,453 | 5,787 | |||||||||||||||||
Interest expense | (41,434 | ) |
(78,395 | ) |
(c) | (170,283 | ) | (165,610 | ) |
(e) |
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Income before income taxes | 105,018 | 76,998 | 320,496 | 361,806 | |||||||||||||||||
Income tax provision | 35,286 | (g) | 28,733 | 136,924 | (g) | 135,315 | |||||||||||||||
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Net income | $ | 69,732 |
(c)(d)(f)
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$ | 48,265 | (c) | $ | 183,572 | (d)(e)(f) | $ | 226,491 |
(e)
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Earnings per share ("EPS"):(p) | |||||||||||||||||||||
Basic | $ | 0.59 | $ | 0.45 | $ | 1.55 | $ | 2.19 | |||||||||||||
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Diluted | $ | 0.58 |
(c)(d)(f)
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$ | 0.43 | (c) | $ | 1.50 | (d)(e)(f) | $ | 2.10 |
(e)(h)
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Weighted average number of common | |||||||||||||||||||||
shares outstanding:
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Basic | 118,784 | 106,728 | 118,480 | 103,551 | |||||||||||||||||
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Diluted | 121,378 | 112,318 | 122,536 | 108,804 | |||||||||||||||||
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The footnotes presented at the separate "Footnotes to Financial Information" pages are an integral part of this financial information.
10
Omnicare, Inc. and Subsidiary Companies |
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|||||||||||||||||||
Summary Segment Financial Data, Non-GAAP Basis (i) | ||||||||||||||||||||
Excluding EITF No. 01-14 and Special Items | ||||||||||||||||||||
(000s) | ||||||||||||||||||||
Unaudited | ||||||||||||||||||||
|
||||||||||||||||||||
Pharmacy | CRO |
|
Consolidated | |||||||||||||||||
Services | Services | |
Totals | |||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Three months ended December 31, 2006: | ||||||||||||||||||||
Adjusted sales |
$
|
1,552,470 | (k) |
$
|
39,142 | (j) |
$
|
- |
$
|
1,591,612 | (j)(k) | |||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Adjusted operating income (expense) |
$
|
180,768 | (k) |
$
|
2,577 | (k) |
$ |
(19,199 | ) |
(k) |
$
|
164,146 | (k) | |||||||
Depreciation and amortization | 27,863 | 483 | 843 | 29,189 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Adjusted earnings before interest, income taxes, | ||||||||||||||||||||
depreciation and amortization ("EBITDA") (l) |
$
|
208,631 | (k) |
$
|
3,060 | (k) |
$ |
(18,356 | ) |
(k) |
$
|
193,335 | (k) | |||||||
|
|
|
|
|
|
|
||||||||||||||
Three months ended December 31, 2005: | ||||||||||||||||||||
Adjusted sales |
$
|
1,576,459 |
$
|
35,559 | (j) |
$
|
- |
$
|
1,612,018 | (j) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Adjusted operating income (expense) |
$
|
184,294 | (k) |
$
|
2,319 | (k) |
$ |
(17,088 | ) |
(k) |
$
|
169,525 | (k) | |||||||
Depreciation and amortization | 27,103 | 494 | 660 | 28,257 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Adjusted EBITDA (l) |
$
|
211,397 | (k) |
$
|
2,813 | (k) |
$ |
(16,428 | ) |
(k) |
$
|
197,782 | (k) | |||||||
|
|
|
|
|
|
|
||||||||||||||
Year ended December 31, 2006: | ||||||||||||||||||||
Adjusted sales |
$
|
6,331,491 | (k) |
$
|
146,238 | (j) |
$
|
- |
$
|
6,477,729 | (j)(k) | |||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Adjusted operating income (expense) |
$
|
748,542 | (k) |
$
|
7,714 | (k) |
$
|
(81,382 | ) ) |
(k) |
$
|
674,874 | (k) | |||||||
Depreciation and amortization | 114,575 | 1,956 | 3,134 | 119,665 | ||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Adjusted EBITDA (l) |
$
|
863,117 | (k) |
$
|
9,670 | (k) |
$ |
(78,248 | ) |
(k) |
$
|
794,539 | (k) | |||||||
|
|
|
|
|
|
|
||||||||||||||
Year ended December 31, 2005: | ||||||||||||||||||||
Adjusted sales |
$
|
5,110,414 |
$
|
153,872 | (j) |
$
|
- |
$
|
5,264,286 | (j) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Adjusted operating income (expense) |
$
|
595,255 | (k) |
$
|
12,351 | (k) |
$
|
(58,180 | ) |
(k) |
$
|
549,426 | (k) | |||||||
Depreciation and amortization | 75,670 | 1,989 |
|
2,663 | 80,322 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Adjusted EBITDA (l) |
$
|
670,925 | (k) |
$
|
14,340 | (k) |
$ |
(55,517 | ) |
(k) |
$
|
629,748 | (k) | |||||||
|
|
|
|
|
|
The footnotes presented at the separate "Footnotes to Financial Information" pages are an integral part of this financial information.
11
Omnicare, Inc. and Subsidiary Companies |
|
|||||
Condensed Consolidated Balance Sheets, GAAP Basis | ||||||
(000s) | ||||||
Unaudited | ||||||
|
||||||
|
|
|||||
|
|
|
|
|||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents |
$
|
138,034 |
$
|
215,421 | ||
Restricted cash | 3,777 | 2,674 | ||||
Deposits with drug wholesalers | 618 | 83,036 | ||||
Accounts receivable, net | 1,522,266 | 1,260,634 | ||||
Unbilled receivables | 21,949 | 17,195 | ||||
Inventories | 449,671 | 473,942 | ||||
Deferred income tax benefits | 94,231 | 107,967 | ||||
Other current assets | 194,282 | 200,026 | ||||
|
|
|
|
|||
Total current assets | 2,424,828 | 2,360,895 | ||||
|
|
|
|
|||
Properties and equipment, net | 200,425 | 231,734 | ||||
Goodwill | 4,225,011 | 4,029,482 | ||||
Identifiable intangible assets, net | 319,588 | 339,474 | ||||
Other noncurrent assets | 228,619 | 195,820 | ||||
|
|
|
|
|||
Total noncurrent assets | 4,973,643 | 4,796,510 | ||||
|
|
|
|
|||
Total assets |
$
|
7,398,471 |
$
|
7,157,405 | ||
|
|
|
|
|||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable |
$
|
262,918 |
$
|
397,471 | ||
Accrued employee compensation | 33,864 | 56,063 | ||||
Deferred revenue | 26,434 | 24,857 | ||||
Current debt (m) | 5,371 | 355,943 | ||||
Other current liabilities and income taxes payable | 223,814 | 166,170 | ||||
|
|
|
|
|||
Total current liabilities | 552,401 | 1,000,504 | ||||
|
|
|
|
|||
Long-term debt | 651,667 | 752,901 | ||||
8.125% senior subordinated notes, due 2011 | - | 8,775 | ||||
6.125% senior subordinated notes, net, due 2013 | 230,953 | 230,216 | ||||
6.75% senior subordinated notes, due 2013 | 225,000 | 225,000 | ||||
6.875% senior subordinated notes, due 2015 | 525,000 | 525,000 | ||||
4.00% junior subordinated convertible debentures, due 2033 (m) | 345,000 | - | ||||
3.25% convertible senior debentures, due 2035 | 977,500 | 977,500 | ||||
Deferred income tax liabilities | 384,989 | 249,034 | ||||
Other noncurrent liabilities | 342,510 | 246,429 | ||||
|
|
|
|
|||
Total noncurrent liabilities | 3,682,619 | 3,214,855 | ||||
|
|
|
|
|||
Total liabilities | 4,235,020 | 4,215,359 | ||||
|
|
|
|
|||
Stockholders' equity (n) | 3,163,451 | 2,942,046 | ||||
|
|
|
|
|||
Total liabilities and stockholders' equity |
$
|
7,398,471 |
$
|
7,157,405 | ||
|
|
|
|
The footnotes presented at the separate "Footnotes to Financial Information" pages are an integral part of this financial information.
12
Omnicare, Inc. and Subsidiary Companies | ||||||||
Condensed Consolidated Statement of Cash Flows, GAAP Basis | ||||||||
(000s) | ||||||||
Unaudited | ||||||||
Three months ended |
|
|||||||
|
December 31, 2006 | |||||||
|
|
|
|
|
||||
Cash flows from operating activities: | ||||||||
Net income |
$
|
69,732 |
$
|
183,572 | ||||
Adjustments to reconcile net income to net cash | ||||||||
flows from operating activities: | ||||||||
Depreciation | 14,290 | 57,110 | ||||||
Amortization | 14,899 | 62,555 | ||||||
Provision for doubtful accounts | 27,710 | 82,209 | ||||||
Deferred tax provision | 60,225 | 81,602 | ||||||
Changes in assets and liabilities, net of effects | ||||||||
from acquisition of businesses
|
(291,083 | ) | (358,528 | ) | ||||
|
|
|
|
|
|
|||
Net cash flows from operating activities
|
(104,227 | ) | 108,520 | |||||
|
|
|
|
|
|
|||
Cash flows from investing activities: | ||||||||
Acquisition of businesses, net of cash received | (22,900 | ) | (94,346 | ) | ||||
Capital expenditures | (8,351 | ) | (31,251 | ) | ||||
Other | 9,468 | (1,275 | ) | |||||
|
|
|
|
|
|
|||
Net cash flows from investing activities
|
(21,783 | ) | (126,872 | ) | ||||
|
|
|
|
|
|
|||
Cash flows from financing activities: | ||||||||
Proceeds from line of credit facilities, term A loan and long-term | ||||||||
borrowings and obligations | 25,000 | 158,000 | ||||||
Payments on line of credit facilities, term A loan and long-term | ||||||||
borrowings and obligations | (35,157 | ) | (272,858 | ) | ||||
Fees paid for financing arrangements | (69 | ) | (3,482 | ) | ||||
Changes in cash overdraft balance | (718 | ) | 12,264 | |||||
Proceeds from stock offering, net of issuance costs | - | 49,239 | ||||||
Proceeds from / (payments) for stock awards and exercise of stock | ||||||||
options and warrants, net of stock tendered in payment | (90 | ) | (2,751 | ) | ||||
Excess tax benefits from stock-based compensation | (1,267 | ) | 10,411 | |||||
Dividends paid | (2,739 | ) | (10,937 | ) | ||||
|
|
|
|
|
|
|||
Net cash flows from financing activities
|
(15,040 | ) | (60,114 | ) | ||||
|
|
|
|
|
|
|||
Effect of exchange rate changes on cash | (209 | ) | 1,079 | |||||
|
|
|
|
|
|
|||
Net increase in cash and cash equivalents | (141,259 | ) | (77,387 | ) | ||||
Cash and cash equivalents at beginning | ||||||||
of period | 279,293 | 215,421 | ||||||
|
|
|
|
|
|
|||
Cash and cash equivalents at | ||||||||
end of period |
$
|
138,034 |
$
|
138,034 | ||||
|
|
|
|
|
|
The footnotes presented at the separate "Footnotes to Financial Information" pages are an integral part of this financial information.
13
Omnicare, Inc. and Subsidiary Companies | |||||||||||||||||||
Reconciliation Statement and Definitions, | |||||||||||||||||||
Non-GAAP Basis (i) | |||||||||||||||||||
(000s, except per share amounts) | |||||||||||||||||||
Unaudited | |||||||||||||||||||
|
|
||||||||||||||||||
|
|
||||||||||||||||||
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Adjusted sales: | |||||||||||||||||||
Net sales (a)(b) |
$
|
1,599,419 | 1,618,262 | $ | 6,492,993 | 5,292,782 | |||||||||||||
Special items (k) | - | - | 10,350 | - | |||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted sales, including EITF No. 01-14 (a)(b)(k) | 1,599,419 | 1,618,262 | 6,503,343 | 5,292,782 | |||||||||||||||
Reimbursable out-of-pockets (a) | (7,807 | ) | (6,244 | ) | (25,614 | ) | (28,496 | ) | |||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted sales, excluding EITF No. 01-14 (b)(j)(k) |
$
|
1,591,612 | 1,612,018 | $ | 6,477,729 | 5,264,286 | |||||||||||||
|
|
|
|
|
|
||||||||||||||
Adjusted operating income (earnings | |||||||||||||||||||
before interest and income taxes, "EBIT"): | |||||||||||||||||||
EBIT |
$
|
144,254 | $ | 153,062 | $ | 480,326 | $ | 521,629 | |||||||||||
Special items (k) | 19,892 | 16,463 | 194,548 | 27,797 | |||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted EBIT (k) |
$
|
164,146 | $ | 169,525 | $ | 674,874 | $ | 549,426 | |||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted income before income taxes: | |||||||||||||||||||
Income before income taxes |
$
|
105,018 | $ | 76,998 | $ | 320,496 | $ | 361,806 | |||||||||||
Special items (k) | 19,892 | 44,043 | 194,548 | 62,842 | |||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted income before income taxes (k) |
$
|
124,910 | $ | 121,041 | $ | 515,044 | $ | 424,648 | |||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted net income: | |||||||||||||||||||
Net income |
$
|
69,732 | $ | 48,265 | $ | 183,572 | $ | 226,491 | |||||||||||
Special items, net of taxes (k) | 13,208 | 27,608 | 144,415 | 39,369 | |||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted net income (k) |
$
|
82,940 | $ | 75,873 | $ | 327,987 | $ | 265,860 | |||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted earnings per share ("EPS"):(p) | |||||||||||||||||||
Basic EPS |
$
|
0.59 | $ | 0.45 | $ | 1.55 | $ | 2.19 | |||||||||||
Special items, net of taxes (k) | 0.11 | 0.26 | 1.22 | 0.38 | |||||||||||||||
Adjusted basic EPS (k) |
$
|
0.70 | $ | 0.71 | $ | 2.77 | $ | 2.57 | |||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Diluted EPS |
$
|
0.58 | $ | 0.43 | $ | 1.50 | $ | 2.10 |
(h)
|
||||||||||
Special items, net of taxes (k) | 0.11 | 0.25 | 1.18 | 0.36 | |||||||||||||||
Adjusted diluted EPS (k) |
$
|
0.68 | $ | 0.68 | $ | 2.68 | $ | 2.46 |
(h)
|
||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Diluted EPS, excluding "if-converted" | |||||||||||||||||||
impact of 4.00% junior subordinated convertible | |||||||||||||||||||
debentures, due 2033 ("4.00% debentures") |
$
|
0.58 | $ | 0.43 | $ | 1.50 | $ | 2.12 |
(h)
|
||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted diluted EPS, excluding 4.00% debentures (k) |
$
|
0.68 | $ | 0.68 | $ | 2.68 | $ | 2.48 |
(h)
|
||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Weighted average number of shares outstanding: | |||||||||||||||||||
Diluted | 121,378 | 112,318 | 122,536 | 108,804 |
(h)
|
||||||||||||||
Subtract: "If-converted" impact of 4.00% debentures | (275 | ) | (275 | ) | (275 | ) | (1,753 | ) |
(h)
|
||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted diluted, excluding 4.00% debentures | 121,103 | 112,043 | 122,261 | 107,051 | |||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted earnings before interest, income taxes, | |||||||||||||||||||
depreciation and amortization ("EBITDA"): (l) | |||||||||||||||||||
EBIT |
$
|
144,254 | $ | 153,062 | $ | 480,326 | $ | 521,629 | |||||||||||
Depreciation and amortization | 29,189 | 28,257 | 119,665 | 80,322 | |||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
EBITDA (l) | 173,443 | 181,319 | 599,991 | 601,951 | |||||||||||||||
Special items (k) | 19,892 | 16,463 | 194,548 | 27,797 | |||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||
Adjusted EBITDA (k)(l) |
$
|
193,335 | $ | 197,782 | $ | 794,539 | $ | 629,748 | |||||||||||
|
|
|
|
|
|
|
|
The footnotes presented at the separate "Footnotes to Financial Information" pages are an integral part of this financial information.
14
Omnicare, Inc. and Subsidiary Companies |
|
|||||||||||||||
Reconciliation Statement and Definitions, Non-GAAP Basis (i) | ||||||||||||||||
(000s) | ||||||||||||||||
Unaudited | ||||||||||||||||
|
|
|||||||||||||||
|
|
|||||||||||||||
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
Net cash flows from operating activities: | ||||||||||||||||
EBITDA (l) |
$
|
173,443 |
$
|
181,319 |
$
|
599,991 | $ | 601,951 | ||||||||
Subtract: | ||||||||||||||||
Interest expense, net of investment income | (39,236 | ) | (76,064 | ) | (159,830 | ) | (159,823 | ) | ||||||||
Income tax provision | (35,286 | ) | (28,733 | ) | (136,924 | ) | (135,315 | ) | ||||||||
Changes in assets and liabilities, net of effects from | ||||||||||||||||
acquisition of businesses
|
(291,083 | ) | (94,546 | ) | (358,528 | ) | (219,333 | ) | ||||||||
Add: | ||||||||||||||||
Provision for doubtful accounts | 27,710 | 17,672 | 82,209 | 58,024 | ||||||||||||
Write-off of debt issuance costs | - | 5,841 | - | 7,755 | ||||||||||||
Deferred tax provision | 60,225 | 82,706 | 81,602 | 110,280 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash flows from operating activities |
$
|
(104,227 | ) | $
|
88,195 |
$
|
108,520 | $ | 263,539 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Free cash flow: (o) | ||||||||||||||||
Net cash flows from operating activities |
$
|
(104,227 | ) | $
|
88,195 |
$
|
108,520 | $ | 263,539 | |||||||
Capital expenditures | (8,351 | ) | (9,567 | ) | (31,251 | ) | (24,239 | ) | ||||||||
Dividends | (2,739 | ) | (2,414 | ) | (10,937 | ) | (9,549 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Free cash flow (o) |
$
|
(115,317 | ) | $
|
76,214 |
$
|
66,332 | $ | 229,751 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Segment Reconciliations - Pharmacy Services: | ||||||||||||||||
Adjusted Sales - Pharmacy Services: | ||||||||||||||||
Net sales (b) |
$
|
1,552,470 |
$
|
1,576,459 |
$
|
6,321,141 | $ | 5,110,414 | ||||||||
Special items (k) | - | - | 10,350 | - | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted sales - Pharmacy Services (b)(k) |
$
|
1,552,470 |
$
|
1,576,459 |
$
|
6,331,491 | $ | 5,110,414 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBIT - Pharmacy Services: | ||||||||||||||||
EBIT |
$
|
162,366 |
$
|
178,579 |
$
|
560,991 | $ | 583,954 | ||||||||
Special items (k) | 18,402 | 5,715 | 187,551 | 11,301 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBIT - Pharmacy Services (k) |
$
|
180,768 |
$
|
184,294 |
$
|
748,542 | $ | 595,255 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA - Pharmacy Services: (l) | ||||||||||||||||
EBITDA (l) |
$
|
190,229 |
$
|
205,682 |
$
|
675,566 | $ | 659,624 | ||||||||
Special items (k) | 18,402 | 5,715 | 187,551 | 11,301 | ||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
Adjusted EBITDA - Pharmacy Services (k)(l) |
$
|
208,631 |
$
|
211,397 |
$
|
863,117 | $ | 670,925 | ||||||||
|
|
|
|
|
|
|
|
The footnotes presented at the separate "Footnotes to Financial Information" pages are an integral part of this financial information.
15
Omnicare, Inc. and Subsidiary Companies | |||||||||||||||||
Reconciliation Statement and Definitions, Non-GAAP Basis (i) | |||||||||||||||||
(000s) | |||||||||||||||||
Unaudited | |||||||||||||||||
|
Year ended | ||||||||||||||||
December 31, |
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Segment Reconciliations - Corporate and Consolidating: | |||||||||||||||||
Adjusted EBIT - Corporate and Consolidating: | |||||||||||||||||
EBIT |
$
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(19,617 | ) | $
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(20,782 | ) |
$
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(86,005 | ) | $ | (63,886 | ) | |||||
Special items (k) | 418 | 3,694 | 4,623 | 5,706 | |||||||||||||
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Adjusted EBIT - Corporate and Consolidating (k) |
$
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(19,199 | ) | $
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(17,088 | ) |
$
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(81,382 | ) | $ | (58,180 | ) | |||||
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Adjusted EBITDA - Corporate and Consolidating: (l) | |||||||||||||||||
EBITDA (l) |
$
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(18,774 | ) | $
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(20,122 | ) |
$
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(82,871 | ) | $ | (61,223 | ) | |||||
Special items (k) | 418 | 3,694 | 4,623 | 5,706 | |||||||||||||
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Adjusted EBITDA - Corporate and Consolidating (k)(l) |
$
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(18,356 | ) |
$ |
(16,428 | ) |
$
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(78,248 | ) | $ | (55,517 | ) | |||||
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Segment Reconciliations - CRO Services: | |||||||||||||||||
Adjusted Sales - CRO Services: | |||||||||||||||||
Net sales (a) |
$
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46,949 | $ | 41,803 |
$
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171,852 | $ | 182,368 | |||||||||
Reimbursable out-of-pockets (a) | (7,807 | ) | (6,244 | ) | (25,614 | ) | (28,496 | ) | |||||||||
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Adjusted sales (j) |
$
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39,142 | $ | 35,559 |
$
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146,238 | $ | 153,872 | |||||||||
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Adjusted EBIT - CRO Services: | |||||||||||||||||
EBIT |
$
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1,505 | $ | (4,735 | ) |
$
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5,340 | $ | 1,561 | ||||||||
Special items (k) | 1,072 | 7,054 | 2,374 | 10,790 | |||||||||||||
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Adjusted EBIT - CRO Services (k) |
$
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2,577 | $ | 2,319 |
$
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7,714 | $ | 12,351 | |||||||||
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Adjusted EBITDA - CRO Services: (l) | |||||||||||||||||
EBITDA (l) |
$
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1,988 | $ | (4,241 | ) |
$
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7,296 | $ | 3,550 | ||||||||
Special items (k) | 1,072 | 7,054 | 2,374 | 10,790 | |||||||||||||
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Adjusted EBITDA - CRO Services (k)(l) |
$
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3,060 | $ | 2,813 |
$
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9,670 | $ | 14,340 | |||||||||
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DEFINITIONS:
GAAP: Amounts that conform with U.S. Generally Accepted Accounting Principles ("GAAP").
Non-GAAP: Amounts that
do not conform with U.S. GAAP.
The footnotes presented at the separate "Footnotes to Financial Information" pages are an integral part of this financial information.
16
Omnicare, Inc. and Subsidiary Companies
Footnotes to Financial Information
(000s, except per share amounts)
Unaudited
(a) |
In accordance with Emerging Issues Task Force (EITF) Issue No. 01-14, Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred (EITF No.
01-14), Omnicare, Inc. (Omnicare or the Company) has recorded reimbursements received for out-of-pocket expenses on a grossed-up basis in the income statement as net sales and cost of sales. The respective
amounts are disclosed at the Segment Reconciliations CRO Services section of the Financial Information. EITF No. 01-14 relates solely to the Companys contract research services business. |
|
(b) |
Both the results as presented in accordance with GAAP and as adjusted for special items for the three months and year ended December 31, 2006 reflect a change, effective in the third quarter of 2006 and thereafter, to the equity
method of accounting for certain pharmacy joint venture operations in which the Company owns less than 100%. Accordingly, the deconsolidation of these operations reduced reported sales by approximately $26 million and $48 million for the
three months and year ended December 31, 2006, respectively, but had no impact on earnings. |
|
(c) | The three months ended December 31, 2006 and 2005 include the following special charges: | |
(i) |
For the three months ended December 31, 2006 and 2005, operating income includes restructuring and other related charges of $4,841 and $9,829 before taxes ($3,214 and $6,161 after taxes, or $0.03 and
$0.05 per diluted share), respectively. The $4,841 pretax charge for the year ended December 31, 2006 relates to the implementation of the Omnicare Full Potential Plan, a major initiative designed to re-engineer the pharmacy
operating model to increase efficiency and enhance customer growth. The $9,829 pretax charge for the year ended December 31, 2005 relates to the Companys previously disclosed consolidation and productivity initiatives related, in part, to
the integration of the NeighborCare, Inc. (NeighborCare) acquisition and other related activities (2005 Program). |
|
(ii) |
The three months ended December 31, 2006 also includes special litigation charges of $6,310 before taxes ($4,190 after taxes, or $0.03 per diluted share) for litigation-related professional expenses in connection with
the administrative subpoenas from the United States Attorneys Office, District of Massachusetts, the purported class and derivative actions, the Companys lawsuit against UnitedHealth Group and its Affiliates (United), and the
investigation by the federal government and certain states relating to drug substitutions. |
|
(iii) |
For the three months ended December 31, 2006, operating income includes a special charge of $8,741 before taxes ($4,894 and $3,847 was recorded in the cost of sales and operating expense sections of the income
statement, respectively) ($5,804 after taxes, or $0.05 per diluted share) for costs associated with the |
|
17
Omnicare, Inc. and Subsidiary Companies
Footnotes to Financial Information
(000s, except per share amounts)
Unaudited
previously disclosed Heartland Repack Services quality control, product recall and fire issues. | ||
(iv) |
Operating income for the three months ended December 31, 2005 includes a $4,909 pretax ($3,078 after taxes, or $0.03 per diluted share) special charge for settlement of litigation relating to certain contractual issues
with two vendors. |
|
(v) |
Operating income for the three months ended December 31, 2005 also includes a special charge of $1,725
before taxes ($1,081 after taxes, or $0.01 per diluted share),
relating to professional fees and expenses incurred in connection with the Series B 4.00% Trust Preferred Income Equity Redeemable Securities (New Trust PIERS) exchange offer, as further discussed in footnote (m) below, and
with the repurchase of approximately 98% of the 8.125% senior subordinated notes, due 2011. |
|
(vi) |
Interest expense for the three months ended December 31, 2005 includes a special charge of $25,037 before taxes ($15,694 after taxes, or $0.14 per
diluted share) in connection with the debt
extinguishment and new debt issuance costs in connection with the financing arrangement undertaken to provide final funding for the NeighborCare, RxCrossroads, L.L.C. and excelleRx, Inc. transactions, and the repurchase of approximately 98% of
the 8.125% senior subordinated notes, due 2011. In addition to the aforementioned items, interest expense for this same period also includes a special charge of $2,543 before taxes ($1,594 after taxes, or $0.01 per diluted share) in
connection with vendor litigation settlements at (c) (iv) above. |
|
(d) |
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R). Operating income for the three months and year ended
December 31, 2006 includes additional equity-based compensation expense for stock options and stock awards of approximately $1.0 million and $7.1 million before taxes (approximately $0.7 million and $4.5 million after taxes, or
approximately $0.005 and $0.04 per diluted share), respectively, related to the adoption of SFAS 123R. |
|
(e) | The year ended December 31, 2006 and 2005 include the following special charges: | |
(i) |
For the year ended December 31, 2006 and 2005, operating income includes restructuring and other related charges of $29,562 and $18,779 before taxes ($18,758 and $11,760 after taxes, or $0.15 and $0.11 per
diluted share), respectively. Approximately $17,466 of the pretax charge for the year ended December 31, 2006 ($11,088 after taxes, or $0.09 per diluted share) relates to the implementation of the aforementioned Omnicare Full
Potential Plan. The remaining $12,096 and $18,779 of the pretax charge ($7,670 and $11,760 after taxes, or $0.06 and $0.11 per diluted share), respectively, relates to the 2005 Program. For the year ended December 31,
2006, operating income also includes |
|
18
Omnicare, Inc. and Subsidiary Companies
Footnotes to Financial Information
(000s, except per share amounts)
Unaudited
a $6,132 pretax ($3,918 after tax, or $0.03 per diluted share) special charge associated with retention payments for certain NeighborCare employees as required under the acquisition agreement. |
||
(ii) |
The year ended December 31, 2006 also includes special litigation charges of $125,128 before taxes ($100,507 after taxes, or $0.82 per diluted share) consisting of approximately $57,499 before taxes ($45,283
after taxes, or $0.37 per diluted share) relating to the establishment of a settlement reserve relating to the inquiry by the federal government and certain states concerning the substitution of three generic pharmaceuticals by the Company,
$54,005 before taxes ($10,350 and $43,655 was recorded in the net sales and litigation charges lines of the income statement, respectively) ($46,674 after taxes, or $0.38 per diluted share) for the establishment of a reserve
relating to an inquiry being conducted by the Attorney Generals Office in Michigan relating to certain billing issues under the Michigan Medicaid program, and $13,624 before taxes ($8,550 after taxes, or $0.07 per diluted share)
for litigation-related professional expenses in connection with the administrative subpoenas from the United States Attorneys Office, District of Massachusetts, the purported class and derivative actions and the Companys lawsuit against
United. |
|
(iii) |
For the year ended December 31, 2006, operating income includes a special charge of $33,726 before taxes ($27,663 and $6,063 was recorded in the cost of sales and operating expense sections of the income statement,
respectively) ($21,232 after taxes, or $0.17 per diluted share) for costs associated with the previously disclosed Heartland Repack Services quality control, product recall and fire issues. |
|
(iv) |
For the year ended December 31, 2005, operating income includes a special charge of $2,962 before taxes ($1,854 after taxes, or $0.02 per diluted share), relating to professional fees and expenses incurred in
connection with the New Trust PIERS exchange offering in the first quarter of 2005, as further discussed in footnote (m) below, and with the repurchase of approximately 98% of
the 8.125% senior subordinated notes, due 2011. Operating income also includes a special charge of $1,147 before taxes ($719 after taxes, or $0.01 per diluted share), for acquisition-related expenses pertaining to a proposed transaction that was not consummated. |
|
(v) | Operating income for the year ended December 31, 2005 includes a $4,909 pretax ($3,078 after taxes, or $0.03 per diluted share) special charge for the settlement of litigation relating to certain contractual issues with two vendors. | |
(vi) | Interest expense for the year ended December 31, 2005 includes a special charge of $32,502 before taxes ($20,364 after taxes, or $0.19 per diluted share), in | |
19
Omnicare, Inc. and Subsidiary Companies
Footnotes to Financial Information
(000s, except per share amounts)
Unaudited
connection with the debt extinguishment and new debt issuance costs relating to the financing arrangement undertaken to provide interim and final funding for the NeighborCare, RxCrossroads, L.L.C. and excelleRx, Inc. transactions, and the repurchase of approximately 98% of the 8.125% senior subordinated notes, due 2011. In addition to the aforementioned items, interest expense also includes a special charge of $2,543 before taxes ($1,594 after taxes, or $0.01 per diluted share) in connection with the vendor litigation settlements mentioned at (e)(v) above. |
|
(f) |
Operating income for the three months and year ended December 31, 2006 includes estimated expenses of approximately $4.0 million and $27.3 million before taxes (approximately $2.7 million and $17.4 million after
taxes, or approximately $0.02 and $0.14 per diluted share), respectively, comprising temporary labor, administrative and operating costs incurred in connection with the implementation of the new Medicare Drug Benefit, which went into effect
on January 1, 2006. Operating income was also impacted by the unilateral reduction by United in the reimbursement rates paid by United to Omnicare under its pharmacy network contract for services rendered by Omnicare to beneficiaries of
Uniteds drug benefit plans under the Medicare Part D program. The impact of Uniteds action was to reduce sales and operating profit for the three months and year ended December 31, 2006 by approximately $21.7 million and $68.2 million
before taxes (approximately $14.4 million and $43.3 million after taxes, or approximately $0.12 and $0.35 per diluted share), respectively. This matter is currently the subject of litigation initiated by Omnicare in federal
court. |
(g) |
Income tax expense during the three months and year ended December 31, 2006 was reduced by approximately $5.0 million ($0.04 per diluted share) primarily for the favorable effect of an increase in the tax benefit of certain state income tax net operating losses. |
(h) |
In December 2004, the EITF of the Financial Accounting Standards Board ratified EITF No. 04-8, "The Effect of Contingently Convertible Instruments on Diluted Earnings per Share" ("EITF No. 04-8"), which requires the shares
underlying contingently convertible debt instruments to be included in diluted earnings per share computations using the "if-converted" accounting method, regardless of whether the market price threshold has been met. Under that method, the
convertible debentures are assumed to be converted to common shares (weighted for the number of days assumed to be outstanding during the period), and interest expense, net of taxes, related to the convertible debentures is added back to net income.
Diluted earnings per common share amounts were retroactively restated for all prior periods to give effect to the application of EITF No. 04-8 relating to the Company's 4.00% junior subordinated convertible debentures ("Old 4.00% Debentures") issued
in the second quarter of 2003. The effect of Omnicare's fourth quarter 2004 adoption of EITF No. 04-8 was to |
20
Omnicare, Inc. and Subsidiary Companies
Footnotes to Financial Information
(000s, except per share amounts)
Unaudited
decrease diluted earnings per share $0.02 for the year ended December 31, 2005. There was no impact relating to this change on reported diluted earnings per share for the three months or year ended December 31, 2006 or the three months ended December 31, 2005. |
|
(i) |
Omnicare believes that investors' understanding of Omnicare's performance is enhanced by the Company's disclosure of certain non-GAAP financial measures as presented in this financial information. Omnicare management believes that
the adjusted non-GAAP financial results information is useful to investors by providing added insight into the Company's performance through focusing on the results generated by the Company's ongoing core operations, which is also the primary
purpose that Omnicare management uses the adjusted non-GAAP financial results. Omnicare's method of calculating these measures may differ from those used by other companies and, therefore, comparability may be limited. |
(j) | The noted presentation excludes amounts that Omnicare is required to record in its income statement pursuant to EITF No. 01-14, as previously discussed in footnote (a) above. |
(k) |
The noted presentation for the three months and year ended December 31, 2006 and 2005 excludes the special charges discussed in footnotes (c) and (e) above. Management believes these items are not related to Omnicares ordinary course of business, as previously discussed at footnote (i). |
(l) |
EBITDA represents earnings before interest expense (net of investment income), income taxes, depreciation and amortization. Omnicare believes that certain investors find EBITDA to be a useful tool for measuring a company's ability
to service its debt, which is also the primary purpose for which management uses this financial measure. However, EBITDA does not represent net cash flows from operating activities, as defined by U.S. GAAP, and should not be considered as a substitute for operating cash flows as a measure of liquidity. Omnicare's calculation of EBITDA may differ from the calculation of EBITDA by others. |
(m) |
On March 8, 2005, Omnicare completed its offer to exchange up to $345,000 aggregate liquidation amount of the 4.00% Trust Preferred Income Equity Redeemable Securities ("Old Trust PIERS") of Omnicare's subsidiary, Omnicare
Capital Trust I, for an equal amount of the New Trust PIERS of Omnicare's subsidiary, Omnicare Capital Trust II, plus an exchange fee of $0.125 per $50 stated liquidation amount of the Old Trust PIERS. After the expiration of the exchange
offer, approximately $334 million of the Old 4.00% Debentures was replaced with Series B 4.00% junior subordinated convertible debentures ("New 4.00% Debentures"), with approximately $11 million of the Old 4.00% Debentures still outstanding.
Omnicare commenced the exchange offer to remove the effect to diluted earnings per share the Old 4.00% Debentures had after the issuance of EITF No. 04-8, as further discussed in footnote (h) above. At December |
21
Omnicare, Inc. and Subsidiary Companies
Footnotes to Financial Information
(000s, except per share amounts)
Unaudited
31, 2005, the contingent threshold of the Old Trust PIERS and the New Trust PIERS had been attained. Accordingly, the Old 4.00% Debentures and the New 4.00% Debentures were convertible as of December 31, 2005, to cash and Omnicare common stock, and have been classified as current versus long-term debt on the December 31, 2005 consolidated balance sheet. As of December 31, 2006, the aforementioned contingent threshold had not been met and the Old 4.00% Debentures and the New 4.00% Debentures have been classified as long-term debt on the December 31, 2006 consolidated balance sheet. |
|
(n) |
During the fourth quarter of 2005, the Company completed its offering of 12,825,000 shares of common stock (not including the underwriters option to purchase additional shares), $1 par value, at $59.72 per share. In
the first quarter of 2006, the underwriters exercised their option, in part, to purchase an additional 850,000 shares of common stock at $59.72 per share, for gross cash proceeds of approximately $51 million (before underwriting discounts,
commissions and expenses). |
(o) |
Free cash flow represents net cash flows from operating activities less capital expenditures and dividends paid by the Company. Omnicare believes that certain investors find free cash flow to be a helpful measure of cash generated
from current operations, net of cash used for its ongoing capital expenditures and dividend payment requirements. Omnicare's calculation of free cash flow may differ from the calculation of free cash flow by others. |
(p) | EPS (basic EPS; special items, net of taxes; adjusted basic EPS; diluted EPS; and adjusted diluted 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. |
22