-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TUDPqgk02Pw5K5D2yFpt/t+FLi9iWdhBBtvLmLIs2ym0Cera+bVWkF33K1cdUPIw T15avZudgRSYKovsCrsUIA== /in/edgar/work/20000814/0000950117-00-001995/0000950117-00-001995.txt : 20000921 0000950117-00-001995.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950117-00-001995 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNICARE INC CENTRAL INDEX KEY: 0000353230 STANDARD INDUSTRIAL CLASSIFICATION: [5912 ] IRS NUMBER: 311001351 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08269 FILM NUMBER: 698463 BUSINESS ADDRESS: STREET 1: 100 E RIVERCENTER BLVD STREET 2: STE 1600 CITY: COVINGTON STATE: KY ZIP: 41101 BUSINESS PHONE: 6063923300 MAIL ADDRESS: STREET 1: 100 E RIVERCENTER BLVD STREET 2: STE 1600 CITY: COVINGTON STATE: KY ZIP: 41101 10-Q 1 0001.txt OMNICARE, INC. 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For Quarter Ended June 30, 2000 Commission File Number 1-8269 OMNICARE, INC. Incorporated under the laws of the I.R.S. Employer Identification State of Delaware No. 31-1001351 100 East RiverCenter Boulevard, Covington, Kentucky 41011 ---------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (859) 392-3300 ------------------------------------------------------------------ Indicate by check mark whether the registrant: 1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and 2) has been subject to such filing requirement for the past 90 days. Yes x No --- --- COMMON STOCK OUTSTANDING - ------------------------
Number of Shares Date ---------- ---- Common Stock, $1 par value 92,169,311 June 30, 2000
OMNICARE, INC. AND SUBSIDIARY COMPANIES INDEX
PAGE ---- Part I. Financial Information: Item 1. Financial Statements Consolidated Balance Sheet - June 30, 2000 and December 31, 1999 3 Consolidated Statement of Income - Three and six months ended - June 30, 2000 and 1999 4 Consolidated Statement of Cash Flows - Six months ended - June 30, 2000 and 1999 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 Part II. Other Information: Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 17
PART I -- FINANCIAL INFORMATION Item 1. Financial Statements OMNICARE, INC. AND SUBSIDIARY COMPANIES Consolidated Balance Sheet UNAUDITED (In thousands, except share data)
June 30, December 31, 2000 1999 ------------ ------------- ASSETS Current assets: Cash and cash equivalents $ 93,920 $ 97,267 Restricted cash 4,733 -- Accounts receivable, less allowances of $34,836 (1999-$36,883) 426,597 422,283 Unbilled receivables 18,965 18,450 Inventories 134,602 120,280 Deferred income tax benefits 18,339 17,336 Other current assets 77,767 76,729 ---------- ---------- Total current assets 774,923 752,345 Properties and equipment, at cost less accumulated depreciation of $121,304 (1999-$106,022) 159,709 162,133 Goodwill, less accumulated amortization of $99,439 (1999-$83,243) 1,178,801 1,188,941 Other assets 64,364 64,554 ---------- ---------- Total assets $ 2,177,797 $ 2,167,973 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 103,449 $ 108,189 Amounts payable pursuant to acquisition agreements 5,140 9,053 Current bank debt 67,043 77,413 Accrued employee compensation 32,698 50,498 Deferred revenue 26,813 24,321 Other current liabilities 75,414 52,769 ---------- ---------- Total current liabilities 310,557 322,243 Long-term bank debt 390,830 391,944 5% convertible subordinated notes, due 2007 345,000 345,000 Deferred income taxes 39,185 37,360 Amounts payable pursuant to acquisition agreements 12,036 13,878 Other noncurrent liabilities 32,054 29,168 ---------- ---------- Total liabilities 1,129,662 1,139,593 Stockholders' equity: Preferred stock-authorized 1,000,000 shares without par value; none issued Common stock-authorized 200,000,000 shares $1 par; 92,573,700 shares issued (1999-91,611,800 shares issued) 92,574 91,612 Paid-in capital 691,416 684,419 Retained earnings 296,036 275,114 ---------- ---------- 1,080,026 1,051,145 Treasury stock, at cost - 404,400 shares (1999-325,500 shares) (7,878) (6,950) Deferred compensation (21,177) (14,098) Accumulated other comprehensive income (2,836) (1,717) ---------- ---------- Total stockholders' equity 1,048,135 1,028,380 ---------- ---------- Total liabilities and stockholders' equity $ 2,177,797 $ 2,167,973 =========== ===========
The Notes to Consolidated Financial Statements are an integral part of this statement. 3 OMNICARE, INC. AND SUBSIDIARY COMPANIES Consolidated Statement of Income UNAUDITED (In thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- Sales $ 480,510 $ 454,645 $ 973,536 $ 900,333 Cost of sales 353,716 322,607 714,125 632,500 --------- --------- --------- --------- Gross profit 126,794 132,038 259,411 267,833 Selling, general and administrative expenses 90,424 85,546 183,192 167,529 Acquisition expenses, pooling-of-interests -- 822 -- 822 Restructuring and other related charges 6,150 26,713 10,428 26,713 --------- --------- --------- --------- Operating income 30,220 18,957 65,791 72,769 Investment income 357 367 816 649 Interest expense (13,634) (10,848) (26,799) (20,829) --------- --------- --------- --------- Income before income taxes 16,943 8,476 39,808 52,589 Income taxes 6,267 3,598 14,739 19,904 --------- --------- --------- --------- Net income $ 10,676 $ 4,878 $ 25,069 $ 32,685 ========= ========= ========= ========= Earnings per share: Basic $ 0.12 $ 0.05 $ 0.27 $ 0.36 ========= ========= ========= ========= Diluted $ 0.12 $ 0.05 $ 0.27 $ 0.36 ========= ========= ========= ========= Weighted average number of common shares outstanding: Basic 92,155 90,890 91,877 90,709 ========= ========= ========= ========= Diluted 92,155 91,073 91,877 90,976 ========= ========= ========= ========= Comprehensive income $ 10,283 $ 4,524 $ 24,364 $ 31,827 ========= ========= ========= =========
The Notes to Consolidated Financial Statements are an integral part of this statement. 4 OMNICARE, INC. AND SUBSIDIARY COMPANIES Consolidated Statement of Cash Flows UNAUDITED
(In thousands) Six Months Ended June 30, ------------------------- 2000 1999 --------- --------- Cash flows from operating activities: Net income $ 25,069 $ 32,685 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 17,322 14,679 Amortization 21,518 18,055 Provision for doubtful accounts 12,241 8,912 Deferred tax provision 2,900 2,112 Non-cash portion of restructuring charges 1,701 2,717 Changes in assets and liabilities, net of effects from acquisition of businesses: Accounts receivable and unbilled receivables (19,440) (39,502) Inventories (14,578) (23,588) Current and noncurrent assets (1,118) (29,213) Payables and accrued liabilities 4,749 21,890 Accrued employee compensation (12,363) 20,413 Deferred revenue 2,492 2,923 Current and noncurrent liabilities 19,212 (1,364) --------- --------- Net cash flows from operating activities 59,705 30,719 --------- --------- Cash flows from investing activities: Acquisition of businesses (25,662) (125,713) Capital expenditures (16,224) (33,335) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust (4,733) -- Other 200 (775) --------- --------- Net cash flows from investing activities (46,419) (159,823) --------- --------- Cash flows from financing activities: Borrowings on line of credit facilities -- 170,000 Payments on line of credit facilities (10,000) -- Principal payments on long-term obligations (1,528) (1,526) (Payments) for and proceeds from exercise of stock options and warrants, net of stock tendered in payment (756) (2,102) Dividends paid (4,147) (4,094) --------- --------- Net cash flows from financing activities (16,431) 162,278 --------- --------- Effect of exchange rate changes on cash (202) 1,087 --------- --------- Net increase (decrease) in cash and cash equivalents (3,347) 34,261 Cash and cash equivalents at beginning of period 97,267 54,312 --------- --------- Cash and cash equivalents at end of period $ 93,920 $ 88,573 ========= ========= Supplemental disclosures of cash flow information: Income taxes (refunded) paid, net $ (5,713) $ 25,343 Interest paid 25,467 21,322
The Notes to Consolidated Financial Statements are an integral part of this statement. 5 OMNICARE, INC. AND SUBSIDIARY COMPANIES Notes to Consolidated Financial Statements 1. The interim financial data are unaudited; however, in the opinion of the management of Omnicare, Inc., the interim data include all adjustments (which include only normal adjustments) considered necessary for a fair presentation of the consolidated financial position, results of operations and cash flows of Omnicare, Inc. and its consolidated subsidiaries ("Omnicare" or the "Company"). These financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in Omnicare's Annual Report on Form 10-K for the year ended December 31, 1999. Certain reclassifications of prior year amounts have been made to conform with the current year presentation. 2. Based on the "management approach," as defined by Statement of Financial Accounting Standards (SFAS) No. 131, Omnicare has two business segments. The Company's largest segment is Pharmacy Services. Pharmacy Services provides distribution of pharmaceuticals, related pharmacy consulting, data management services and medical supplies to long-term care facilities. The Company's other reportable segment is Contract Research Organization ("CRO") Services, which provides comprehensive product development services to client companies in pharmaceutical, biotechnology, medical devices and diagnostics industries. The table below presents information about the reportable segments as of and for the three and six months ended June 30, 2000 and 1999 (in thousands):
Three Months Ended June 30, ------------------------------------------------------------ Corporate Pharmacy CRO and Consolidated 2000: Services Services Consolidating Totals - ------------------------------------------------------------------------------------------------------------------------ Sales $ 452,924 $ 27,586 $ -- $ 480,510 Depreciation and amortization 17,806 1,027 295 19,128 Operating income (expense), excluding restructuring and other related charges 43,003 1,042 (7,675) 36,370 Restructuring and other related charges (4,324) (1,826) -- (6,150) Operating income (expense) 38,679 (784) (7,675) 30,220 Total assets 1,947,884 119,214 110,699 2,177,797 Expenditures for additions to long-lived assets 6,355 1,090 335 7,780 - ------------------------------------------------------------------------------------------------------------------------ 1999: - ------------------------------------------------------------------------------------------------------------------------ Sales $ 419,142 $ 35,503 $ -- $ 454,645 Depreciation and amortization 15,206 1,531 262 16,999 Operating income (expense), excluding acquisition expenses and restructuring and other related charges 47,973 4,731 (6,212) 46,492 Acquisition expenses (822) -- -- (822) Restructuring and other related charges (23,983) (2,730) -- (26,713) Operating income (expense) 23,168 2,001 (6,212) 18,957 Total assets 1,882,437 121,712 141,075 2,145,224 Expenditures for additions to long-lived assets 16,371 985 996 18,352 - ------------------------------------------------------------------------------------------------------------------------
6
Six Months Ended June 30, ------------------------------------------------------------ Corporate Pharmacy CRO and Consolidated 2000: Services Services Consolidating Totals - ------------------------------------------------------------------------------------------------------------------------ Sales $ 913,870 $ 59,666 $ -- $ 973,536 Depreciation and amortization 36,271 2,032 537 38,840 Operating income (expense), excluding restructuring and other related charges 86,344 3,774 (13,899) 76,219 Restructuring and other related charges (8,602) (1,826) -- (10,428) Operating income (expense) 77,742 1,948 (13,899) 65,791 Total assets 1,947,884 119,214 110,699 2,177,797 Expenditures for additions to long-lived assets 13,733 2,103 388 16,224 - ------------------------------------------------------------------------------------------------------------------------ 1999: - ------------------------------------------------------------------------------------------------------------------------ Sales $ 830,852 $ 69,481 $ -- $ 900,333 Depreciation and amortization 29,176 3,107 451 32,734 Operating income (expense), excluding acquisition expenses and restructuring and other related charges 103,461 9,155 (12,312) 100,304 Acquisition expenses (822) -- -- (822) Restructuring and other related charges (23,983) (2,730) -- (26,713) Operating income (expense) 78,656 6,425 (12,312) 72,769 Total assets 1,882,437 121,712 141,075 2,145,224 Expenditures for additions to long-lived assets 29,446 1,553 2,336 33,335 - ------------------------------------------------------------------------------------------------------------------------
3. In the second quarter of 1999, the Company announced a comprehensive restructuring plan to streamline company-wide operations through the implementation of a productivity and consolidation program. This program is in response to the recent changes in the healthcare industry and will complement Omnicare's ability to gain maximum benefits from its acquisition program. The productivity and consolidation initiatives are expected to eliminate redundant efforts, simplify work processes and apply technology to maximize employee productivity, and standardize operations around best practices. Facilities in overlapping geographic territories are being consolidated to better align pharmacies around customers, to improve efficiency and enhance the Company's ability to deliver innovative services and programs to its customers. Productivity initiatives are being introduced at the majority of the Company's pharmacy and other operating locations, which totaled approximately 220 sites at the commencement of the program. As part of the initiative, the roster of pharmacies and other operating locations is being reconfigured through consolidations and relocations of approximately 44 facilities, the closing of approximately 20 sites and the creation of nine new sites. These strategic measures are designed to lead to the net reduction of approximately 1,700 full- and part-time positions upon completion of the plan. In connection with this program, Omnicare has recorded a total of $45,822,000 ($29,267,000 after taxes) for restructuring and other related charges, of which $6,150,000 ($3,874,000 after taxes) and $10,428,000 ($6,569,000 after taxes) were recorded during the three and six months ended June 30, 2000, respectively. Additional charges of this nature are expected to be incurred and expensed during the remainder of 2000, at such time the amounts are required to be recognized per generally accepted accounting principles. The restructuring charges include severance pay, the buy-out of current employment agreements, the buy-out of lease obligations, the write-off of other assets (representing $5,899,000 of pretax non-cash items, cumulative 7 through June 30, 2000) and facility exit costs. The other related charges are primarily comprised of consulting fees and duplicate costs associated with the program. Details of the restructuring and other related charges relating to the productivity and consolidation program follow (in thousands):
Utilized as of Balance at 1999 December 31, December 31, Provision 1999 1999 ---------- --------- ----------- Restructuring charges: Employee severance $ 12,178 $ (3,717) $ 8,461 Employment agreement buy-outs 6,740 (3,377) 3,363 Lease terminations 5,612 (1,089) 4,523 Other assets and facility exit costs 8,310 (6,662) 1,648 -------- -------- -------- Total restructuring charges 32,840 $(14,845) $ 17,995 ======== ======== Other related charges 2,554 -------- Total restructuring and other related charges $ 35,394 ======== Six Months Ended Utilized During June 30, 2000 Six Months Ended Balance at Provision June 30, 2000 June 30, 2000 --------- -------------- --------------- Restructuring charges: Employee severance $ 1,574 $ (3,712) $ 6,323 Employment agreement buy-outs 288 (1,502) 2,149 Lease terminations 177 (757) 3,943 Other assets and facility exit costs 5,188 (4,504) 2,332 -------- -------- -------- Total restructuring charges 7,227 $(10,475) $ 14,747 ======== ======== Other related charges 3,201 -------- Total restructuring and other related charges $ 10,428 ========
As of June 30, 2000, the Company had incurred approximately $12.3 million of severance and other employee-related costs relating to the reduction of approximately 1,500 employees. All remaining liabilities recorded at June 30, 2000 were classified as current liabilities since the Company expects that the overall restructuring program will be completed in 2000. 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Quarter Ended June 2000 vs. 1999 Diluted earnings per share for the three months ended June 30, 2000 were $0.16 as compared with $0.25 earned in the prior year quarter, excluding from the periods $6,150,000 ($3,874,000 after taxes, or $0.04 per diluted share) and $27,535,000 ($17,815,000 after taxes, or $0.20 per diluted share), respectively, of restructuring and other related charges (relating to the Company's previously announced productivity and consolidation initiative) and acquisition expenses. Net income for the 2000 quarter, excluding restructuring and other related charges and acquisition expenses, was $14,550,000 versus the $22,693,000 earned in the comparable 1999 quarter. Earnings before interest, taxes, depreciation and amortization ("EBITDA"), on this basis, totaled $55,498,000 for the three months ended June 30, 2000 as compared with EBITDA of $63,491,000 earned in the second quarter of 1999. Net income for the second quarter of 2000 was $10,676,000 (or $0.12 per diluted share) as compared to $4,878,000 (or $0.05 per diluted share) in the same period of 1999. Sales for the three months ended June 30, 2000 rose to $480,510,000 from the $454,645,000 recorded in the comparable prior year period. The increase in the Company's sales represents the cumulative effect of its acquisitions of long-term care pharmacy providers in 1999 and the internal growth of the pharmacy services business. Internal growth resulted primarily from the efforts of the Company's National Sales and Marketing Group and pharmacy staff in developing new pharmacy contracts and drug price inflation. The reduction in earnings primarily reflects the difficult operating environment in the long-term care industry originating as a result of the implementation of the federal government's Prospective Payment System ("PPS") for Medicare residents of skilled nursing facilities ("SNFs"). Because of the substantial reduction in reimbursement for skilled nursing facilities brought about by PPS, Omnicare experienced PPS-related pricing pressure from its skilled nursing facility customers late in 1998, and to a greater extent in 1999. Moreover, the increasing reluctance on the part of skilled nursing facilities to admit Medicare residents, particularly those requiring complex care, owing to concerns relating to the adequacy of reimbursement under PPS caused a significant weakening in Medicare census in many areas, primarily during the second quarter of 1999 and thereafter. Also, for many skilled nursing facilities, the average length of stay for Medicare residents decreased. These factors had the effect of significantly reducing overall occupancy in the facilities Omnicare serves. Additionally, the mix of residents in skilled nursing facilities adversely affected Omnicare's results as these facilities attempted to avoid high acuity patients, which impacts overall utilization of drugs. Reimbursement concerns have increasingly driven many nursing facilities to admit residents funded by payors other than Medicare. Although these trends appeared to be stabilizing in the first half of 2000, they had an unfavorable impact on the year-to-year comparison of sales, profit margins and net income. The impact of the implementation of PPS for Medicare residents in SNFs, specifically lower reimbursement which has led to lower occupancy and acuity levels, has continued to weaken the financial condition of many SNFs. Congress attempted to remedy this situation by enacting the Balanced Budget Refinement Act ("BBRA"), which was intended to provide a temporary increase in reimbursement rates, particularly for higher acuity residents, to be effective April 1, 2000. However, many of Omnicare's customers reported that payments at these new rates had not been received during the second quarter, exacerbating already severe cash flow problems in some facilities. It was therefore necessary for Omnicare to apply more stringent standards in accepting new business, and to continue aggressively withdrawing from uneconomic accounts and those with an unstable financial condition, which served to offset the addition of new accounts during the second quarter of 2000 and had a dampening effect on sales growth. The number of residents served at June 30, 2000 was 629,000 as compared to 625,000 served one year earlier. Omnicare's CRO Services segment recorded sales of $27,586,000 during the second quarter of 2000 as compared to $35,503,000 recorded in the same prior year period, representing a decline of $7,917,000. This decline was primarily the result of 9 delays in decision making by pharmaceutical manufacturers in commencing clinical studies, relating in part to merger activities, as well as the cancellation of planned projects prior to commencement. Operating profit for the second quarter of 2000, excluding restructuring and other related charges from both periods, was $1,042,000, a decline of $3,689,000 in comparison to the same prior year quarter operating profit of $4,731,000, owing primarily to the volatility in sales arising from the aforementioned factors. Gross profit as a percentage of sales decreased to 26.4% in 2000 from 29.0% in 1999, representing an overall decline of $5,244,000 to $126,794,000 in the 2000 period. The positive impact on gross profit relating to the Company's purchasing leverage associated with purchases of pharmaceuticals, leveraging fixed and variable overhead costs at the Company's pharmacies and benefits realized from the Company's formulary compliance program and productivity and consolidation initiative were more than offset by the aforementioned unfavorable impact of PPS on the Pharmacy Services segment and the less favorable performance of the CRO Services segment. Selling, general and administrative ("operating") expenses for the quarter ended June 30, 2000 increased $4,878,000 to $90,424,000 as compared to 1999 due primarily to the overall growth of the Company. Operating expenses as a percentage of sales of 18.8% in 2000 were flat with the comparable prior year period. Operating expenses for the second quarter of 2000 were unfavorably impacted as compared to the same prior year period due to an increase in estimated retirement expense as a result of the modification of one of the Company's retirement plans, causing an increase of approximately 0.3 percentage points of sales. This increase in operating expenses was offset, on a percentage of sales basis, by the favorable impact of the Company's productivity and consolidation program. In 1999, the Company announced its commitment to the implementation of a company-wide productivity and consolidation program to take place over the remainder of 1999 and 2000. This initiative is intended to gain maximum benefit from the Company's acquisition program and to respond to changes in the healthcare industry. The program is designed to eliminate redundant efforts, simplify work processes and apply technology to maximize employee productivity and standardize operations around best practices. This will be achieved by reconfiguring the roster of pharmacies and other operating locations through consolidation/relocation of approximately 44 facilities, the closing of approximately 20 sites and the creation of nine new sites. The plan is designed to result in the reduction of the Company's work force by 15%, or approximately 1,700 full- and part-time employees, and annualized pretax savings of $46 million upon completion. In connection with this program, the Company recorded pretax restructuring and other related expenses of $6,150,000 in the second quarter of 2000, primarily comprised of employee severance, employment agreement buy-out costs, lease termination costs, other assets and facility exit costs, and other related charges. 10 Investment income for the three months ended June 30, 2000 was relatively consistent with the same period of 1999. Interest expense during the three months ended June 30, 2000 was $13,634,000, an increase of $2,786,000 versus the comparable prior year period primarily due to the full-quarter impact in 2000 of interest expense associated with a $110 million increase (offset in part by subsequent repayments aggregating $20 million) in borrowings under the Company's line of credit facilities during the second quarter of 1999, as well as an increase in interest rates in the second quarter of 2000 as compared to the same period in the prior year. The increases in the Company's line of credit borrowings in 1999 were primarily attributable to the Company's acquisition program. The decrease in the effective tax rate to 37.0% in the second quarter of 2000 from 42.4% in the comparable prior year quarter is primarily attributable to the existence of nondeductible acquisition expenses in the prior year quarter relating to a pooling-of-interests transaction, whereas no such transaction existed in the second quarter of 2000. The effective tax rates in the 2000 and 1999 second quarters are higher than the statutory rate primarily due to state and local income taxes and the previously mentioned nondeductible acquisition costs. Year-to-Date June 2000 vs. 1999 Diluted earnings per share for the six months ended June 30, 2000 were $0.34 as compared with $0.56 earned in the first half of 1999, excluding from the periods $10,428,000 ($6,569,000 after taxes, or $0.07 per diluted share) and $27,535,000 ($17,815,000 after taxes, or $0.20 per diluted share), respectively, of restructuring and other related charges (relating to the Company's previously announced productivity and consolidation initiative) and acquisition expenses. Net income for the first half of 2000, excluding restructuring and other related charges and acquisition expenses, was $31,638,000 versus the $50,500,000 earned in the comparable 1999 period. EBITDA, on this basis, totaled $115,059,000 for the first half of 2000 as compared with EBITDA of $133,038,000 earned in the same 1999 period. Net income for the first half of 2000 was $25,069,000 (or $0.27 per diluted share) as compared to $32,685,000 (or $0.36 per diluted share) in the same period of 1999. Sales for the six months ended June 30, 2000 increased to $973,536,000 from the $900,333,000 recorded in the comparable prior year period. The increase in the Company's sales represents the cumulative effect of its acquisitions of long-term care pharmacy providers in 1999 and the internal growth of the pharmacy services business. These favorable factors were partially offset by the previously discussed unfavorable impact of PPS, which had the overall impact of reducing earnings on a year over year basis. 11 Omnicare's CRO Services segment recorded sales of $59,666,000 during the six months ended June 30, 2000 as compared to $69,481,000 recorded in the same prior year period, representing a decline of $9,815,000. This decline was primarily the result of delays in decision making by pharmaceutical manufacturers in commencing clinical studies, relating in part to merger activities, as well as the cancellation of planned projects prior to commencement. Operating profit for the six month period, excluding restructuring and other related charges from both periods, was $3,774,000, a decline of $5,381,000 in comparison to the same prior year period operating profit of $9,155,000, owing primarily to the volatility in sales arising from the aforementioned factors. Gross profit as a percentage of sales decreased to 26.6% in 2000 from 29.7% in 1999, representing an overall decline of $8,422,000 to $259,411,000 in the period. The positive impact on gross profit relating to the Company's purchasing leverage associated with purchases of pharmaceuticals, leveraging fixed and variable overhead costs at the Company's pharmacies and benefits realized from the Company's formulary compliance program and productivity and consolidation initiative were more than offset by the aforementioned unfavorable impact of PPS on the Pharmacy Services segment and the less favorable performance of the CRO Services segment. Operating expenses for the six months ended June 30, 2000 increased $15,663,000 to $183,192,000 as compared to 1999 due primarily to the overall growth of the Company. Operating expenses as a percentage of sales of 18.8% in 2000 were higher than the 18.6% experienced in the comparable prior year period. Unfavorably impacting the year-to-year comparison was an increase in the Company's provision for doubtful accounts brought about by a deterioration in the financial condition of certain skilled nursing facility clients as a result, in part, of the impact of PPS on their business, accounting for an increase of approximately 0.3 percentage points of sales. Operating expenses for the first half of 2000 were also unfavorably impacted as compared to the same prior year period due to an increase in estimated retirement expense as a result of the aforementioned modification of a retirement plan, causing an additional increase of approximately 0.3 percentage points of sales. These increases in operating expenses were partially offset, on a percentage of sales basis, by the favorable impact of the Company's productivity and consolidation program. In connection with the productivity and consolidation program which the Company commenced in 1999, Omnicare recorded pretax restructuring and other related expenses of 12 $10,428,000 during the first half of 2000, primarily comprised of employee severance, employment agreement buy-out costs, lease termination costs, other assets and facility exit costs, and other related charges. Investment income for the six months ended June 30, 2000 was relatively consistent with the same period of 1999. Interest expense during the six months ended June 30, 2000 was $26,799,000, an increase of $5,970,000 versus the comparable prior year period primarily due to the full-period impact of interest expense associated with a $170 million increase (offset in part by subsequent repayments aggregating $20 million) in borrowings under the Company's line of credit facilities during the first half of 1999, as well as an increase in interest rates in the first half of 2000 as compared to the same period in the prior year. The increases in the Company's line of credit borrowings in 1999 were primarily attributable to the Company's acquisition program. The decrease in the effective tax rate to 37.0% during the first half of 2000 from 37.8% in the comparable prior year period is primarily attributable to the existence of nondeductible acquisition expenses in the prior year period relating to a pooling-of-interests transaction, whereas no such transaction existed in the first half of 2000. The effective tax rates in 2000 and 1999 periods are higher than the statutory rate primarily due to state and local income taxes and the previously mentioned nondeductible acquisition costs. Liquidity and Capital Resources Cash and cash equivalents (including restricted cash) at June 30, 2000 were $98.7 million compared to $97.3 million at December 31, 1999. In October 1996, the Company entered into a five-year agreement with a consortium of sixteen banks for a $400 million revolving credit facility available through October 2001. The total amount outstanding under this facility as of June 30, 2000 was $390 million. Interest rates and commitment fees for the five-year, $400 million line of credit facility are based on the Company's level of performance under certain financial ratios, debt covenants and the amount of borrowings under the line of credit. In 1998, the Company amended this five-year, $400 million line of credit to permit an additional 364-day, $400 million line of credit, which is convertible at maturity into a one-year term loan. During 1999, Omnicare renewed this 364-day, $400 million revolving line of credit facility through September 2000. The amount outstanding at June 30, 2000 under the 364-day facility was $65 million. Interest rates and commitment fees under the 364-day, $400 million line of credit facility are based on the Company's debt ratings. The Company expects that this credit line will be renewed upon its maturity. The Company generated positive net cash flows from operating activities of approximately $60 million during the six months ended June 30, 2000, which was used primarily for acquisition-related payments (including amounts payable pursuant to acquisition agreements relating to pre-2000 acquisitions), capital expenditures, debt repayment and dividends. Improved management of working capital significantly contributed to the favorable operating cash flow results through June 30, 2000. The Company's capital requirements are primarily related to its acquisition program and, to a lesser extent, capital expenditures, including those related to investments in the Company's information technology systems. There are no material commitments outstanding at June 30, 13 2000, other than estimated future acquisition-related payments to be made in accordance with purchase agreements. The Company's current ratio at June 30, 2000 and December 31, 1999 was 2.5 to 1.0 and 2.3 to 1.0, respectively. The increase in the current ratio is primarily attributable to an increase in working capital combined with a $10 million reduction in current bank debt during the first half of 2000. On February 2, 2000, the Company's Board of Directors declared a quarterly cash dividend of 2.25 cents per share for an indicated annual rate of 9 cents per share in 2000. Dividends of $ 4.1 million paid during the six months ended June 30, 2000 were consistent with those paid in the comparable prior year period. The Company believes its sources of liquidity and capital are adequate for its ongoing operating needs. If needed, other external sources of financing are readily available to the Company. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information In addition to historical information, this report contains forward-looking statements and performance trends that are subject to certain known and unknown risks, uncertainties, contingencies and other factors that could cause actual results, performance or achievements to differ materially from those stated. Such forward-looking statements and trends include those relating to Omnicare's acquisition program, internal growth trends, Omnicare's operating environment, the impact of PPS, nursing home admission and occupancy trends, census and length of stay trends, the impact of delayed decision-making and project cancellation by pharmaceutical manufacturers, purchasing leverage, the leveraging of costs, the formulary compliance program, the impact of the financial condition of skilled nursing facilities on Omnicare's performance, the impact of implementation of higher reimbursement rates under BBRA, the impact of the productivity and consolidation program, the Company's capital requirements, expectations concerning the renewal of the Company's 364-day credit facility and the adequacy and availability of Omnicare's sources of liquidity and capital. Such risks, uncertainties, contingencies and other factors, many of which are beyond the control of Omnicare, include, but are not limited to: overall economic, financial and business conditions, the ability to assess and react to the financial condition of customers, the impact of seasonality on the business of Omnicare, the successful integration of acquired companies, the effect of new government regulation and/or legislative initiatives including those relating to reimbursement and drug pricing policies and in the interpretation and application of such policies, the failure of Omnicare to obtain or maintain required regulatory approvals or licenses, loss or delay of CRO contracts for regulatory or other reasons, the ability to implement the productivity and consolidation program and to realize anticipated benefits, the impact and pace of technological advances, the ability to obtain or maintain rights to data, technology and other intellectual property, the impact of consolidation in the pharmaceutical industry, changes in tax law and regulation, trends for the continued growth of the businesses of Omnicare, volatility in Omnicare's stock price, the demand for Omnicare's products and services, pricing and other competitive factors in the industry and variations in costs or expenses. 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company does not have any financial instruments held for trading purposes and does not hedge any of its market risks with derivative instruments. The Company's primary market risk exposure relates to interest rate risk exposure through its borrowings. The Company's debt obligations at June 30, 2000 include $390 million outstanding under its five-year, $400 million variable-rate revolving line of credit facility at an approximate average rate of 7.8% at June 30, 2000 (a one-hundred basis point change in interest rates would impact interest expense by approximately $1.0 million per quarter), $65 million outstanding under its 364-day, $400 million variable-rate revolving line of credit facility at an approximate average rate of 7.2% at June 30, 2000 (a one-hundred basis point change in interest rates would impact interest expense by approximately $0.2 million per quarter) and $345 million outstanding under convertible subordinated notes due in 2007, which accrue interest at a fixed rate of 5%. The fair value of the Company's debt obligations approximates their carrying value. 15 PART II. - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) Omnicare held its Annual Meeting of Stockholders on May 15, 2000. (b) The names of each director elected at this Annual Meeting are as follows: Edward L. Hutton Patrick E. Keefe Joel F. Gemunder Sandra E. Laney Charles H. Erhart, Jr. Andrea R. Lindell, DNSc, RN Mary Lou Fox Sheldon Margen, M.D. David W. Froesel, Jr. Kevin J. McNamara Cheryl D. Hodges John H. Timoney Thomas C. Hutton With respect to the election of directors, the number of votes cast for each nominee was as follows: Votes For Votes Withheld E. L. Hutton 75,618,538 2,372,337 J. F. Gemunder 75,647,449 2,343,426 C. H. Erhart, Jr. 75,960,236 2,030,639 M. L. Fox 75,644,585 2,346,590 D. W. Froesel, Jr. 75,662,248 2,328,627 C. D. Hodges 75,660,369 2,330,506 T. C. Hutton 75,652,406 2,338,469 P. E. Keefe 75,664,318 2,326,557 S. E. Laney 75,991,061 1,999,814 A. R. Lindell, DNSc, RN 75,993,291 1,997,584 S. Margen, M.D. 75,991,767 1,999,108 K. J. McNamara 75,645,254 2,345,621 J. H. Timoney 75,995,063 1,995,812 (c) The Stockholders ratified the selection by the Board of Directors of PricewaterhouseCoopers LLP as independent accountants for the Company and its consolidated subsidiaries for the 2000 year. A total of 77,469,691 votes were cast in favor of the proposal, 293,482 votes were cast against it, 227,702 votes abstained and there were no Broker non-votes. 16 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Exhibit 11 Computation of Earnings Per Common Share 27 Financial Data Schedule (b) Reports on Form 8-K The Company filed a Form 8-K on June 27, 2000 to report its preliminary estimate of second quarter 2000 operating results. 17 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 thereunto duly authorized. Omnicare, Inc. -------------- Registrant Date August 14, 2000 By: /s/ David W. Froesel, Jr. --------------------- -------------------------- David W. Froesel, Jr. Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 18 STATEMENT OF DIFFERENCES ------------------------ The registered trademark symbol shall be expressed as........................'r' EX-11 2 0002.txt EXHIBIT 11 Exhibit 11 OMNICARE, INC. AND SUBSIDIARY COMPANIES Computation of Earnings Per Common Share (EPS) (in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 2000 1999 2000 1999 ------- ------- -------- ------- Basic Earnings: Net income $10,676 $ 4,878 $ 25,069 $32,685 ======= ======= ======== ======= Shares Weighted average number of common shares outstanding 92,155 90,890 91,877 90,709 ======= ======= ======== ======= Basic earnings per common share $ 0.12 $ 0.05 $ 0.27 $ 0.36 ======= ======= ======== ======= Diluted Earnings (a): Net income $10,676 $ 4,878 $ 25,069 $32,685 ======= ======= ======== ======= Shares Weighted average number of common shares outstanding 92,155 90,890 91,877 90,709 Additional shares assuming conversion of stock options and stock warrants (b) -- 183 -- 267 ------- ------- -------- ------- Weighted average common shares outstanding, as adjusted 92,155 91,073 91,877 90,976 ======= ======= ======== ======= Diluted earnings per common share $ 0.12 $ 0.05 $ 0.27 $ 0.36 ======= ======= ======== =======
(a) The $345,000,000 of 5.0% Convertible Subordinated Notes due 2007 which are convertible into 8,712,121 shares at $39.60 per share were outstanding during the three and six months ended June 30, 2000 and 1999, but were not included in the computation of diluted EPS because the impact was anti-dilutive. (b) Options and warrants to purchase shares of common stock were excluded from the computation of diluted earnings per share in those cases where the exercise price was greater than the average market price of common shares. EX-27 3 0003.txt EXHIBIT 27
5 1 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 98,653 0 480,398 34,836 134,602 774,923 281,013 121,304 2,177,797 310,557 735,830 0 0 92,574 955,561 2,177,797 973,536 973,536 714,125 714,125 193,620 12,241 26,799 39,808 14,739 25,069 0 0 0 25,069 0.27 0.27
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