-----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, P5kAUK5O6rtncN/k81TvBsfIXiYO7oAqoQ5LpkLZUxEPUSbNZHrrvRNHDszWasTi mDvrfTYRwciNHMneT2zREA== 0000950117-01-500912.txt : 20010814 0000950117-01-500912.hdr.sgml : 20010814 ACCESSION NUMBER: 0000950117-01-500912 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNICARE INC CENTRAL INDEX KEY: 0000353230 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 311001351 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08269 FILM NUMBER: 1706789 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 a31147.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, 2001 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 93,235,238 June 30, 2001
OMNICARE, INC. AND SUBSIDIARY COMPANIES INDEX
PAGE ---- Part I. Financial Information: Item 1. Financial Statements Consolidated Statement of Income - Three and six months ended - June 30, 2001 and 2000 3 Consolidated Balance Sheet - June 30, 2001 and December 31, 2000 4 Consolidated Statement of Cash Flows - Six months ended - June 30, 2001 and 2000 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Part II. Other Information: Item 4. Submission of Matters to a Vote of Security Holders 24 Item 6. Exhibits and Reports on Form 8-K 25
PART I - FINANCIAL INFORMATION Item 1. Financial Statements 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, ---------------------------------- ------------------------------------ 2001 2000 2001 2000 -------------- ----------------- ----------------- ----------------- Sales $ 530,065 $ 480,510 $ 1,053,710 $ 973,536 Cost of sales 388,002 353,716 771,383 714,125 --------- --------- ----------- --------- Gross profit 142,063 126,794 282,327 259,411 Selling, general and administrative expenses 94,090 90,424 190,006 183,192 Other expense (Note 5) 3,000 - 4,817 - Restructuring and other related charges (Note 3) - 6,150 - 10,428 --------- --------- ----------- --------- Operating income 44,973 30,220 87,504 65,791 Investment income 748 357 1,222 816 Interest expense (14,415) (13,634) (28,324) (26,799) --------- --------- ----------- --------- Income before income taxes 31,306 16,943 60,402 39,808 Income taxes 11,910 6,267 22,962 14,739 --------- --------- ----------- --------- Net income $ 19,396 $ 10,676 $ 37,440 $ 25,069 ========= ========= =========== ========= Earnings per share: Basic $ 0.21 $ 0.12 $ 0.40 $ 0.27 ========= ========= =========== ========= Diluted $ 0.21 $ 0.12 $ 0.40 $ 0.27 ========= ========= =========== ========= Weighted average number of common shares outstanding: Basic 93,198 92,155 92,812 91,877 ========= ========= =========== ========= Diluted 94,042 92,155 93,692 91,877 ========= ========= =========== ========= Comprehensive income $ 18,758 $ 10,283 $ 36,925 $ 24,364 ========= ========= =========== =========
The Notes to Consolidated Financial Statements are an integral part of this statement. 3 OMNICARE, INC. AND SUBSIDIARY COMPANIES Consolidated Balance Sheet (In thousands, except share data)
UNAUDITED June 30, December 31, 2001 2000 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 117,703 $ 111,607 Restricted cash 6,317 2,300 Accounts receivable, less allowance of $43,975 (2000-$40,497) 441,196 440,785 Unbilled receivables 26,627 18,933 Inventories 134,296 129,404 Deferred income tax benefits 21,500 26,338 Other current assets 91,656 88,371 ---------- ---------- Total current assets 839,295 817,738 Properties and equipment, at cost less accumulated depreciation of $146,209 (2000-$132,308) 155,512 158,535 Goodwill, less accumulated amortization of $131,867 (2000-$115,832) 1,146,171 1,168,151 Other noncurrent assets 78,582 65,794 ---------- ---------- Total assets $2,219,560 $2,210,218 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 116,802 $ 118,941 Amounts payable pursuant to acquisition agreements 5,723 4,372 Current debt 333 1,619 Accrued employee compensation 21,641 30,113 Deferred revenue 21,099 28,333 Income taxes payable 63 14,238 Other current liabilities 57,752 59,393 ---------- ---------- Total current liabilities 223,413 257,009 Long-term debt 50,705 435,706 5.0% convertible subordinated debentures, due 2007 345,000 345,000 8.125% senior subordinated notes, due 2011 375,000 - Deferred income taxes 79,139 63,579 Amounts payable pursuant to acquisition agreements 6,821 12,675 Other noncurrent liabilities 30,448 27,826 ---------- ---------- Total liabilities 1,110,526 1,141,795 Stockholders' equity: Preferred stock, no par value, 1,000,000 shares authorized, none issued and outstanding - - Common stock, $1 par value, 200,000,000 shares authorized, 94,056,200 shares issued (2000-92,730,600 shares issued) 94,056 92,731 Paid-in capital 713,456 692,695 Retained earnings 348,897 315,638 ---------- ---------- 1,156,409 1,101,064 Treasury stock, at cost-821,000 shares (2000-574,200 shares) (16,256) (10,808) Deferred compensation (27,438) (18,915) Accumulated other comprehensive income (3,681) (2,918) ---------- ---------- Total stockholders' equity 1,109,034 1,068,423 ---------- ---------- Total liabilities and stockholders' equity $2,219,560 $2,210,218 ========== ==========
The Notes to Consolidated Financial Statements are an integral part of this statement. 4 OMNICARE, INC. AND SUBSIDIARY COMPANIES Consolidated Statement of Cash Flow UNAUDITED (In thousands)
Six Months Ended June 30, ------------------------------------- 2001 2000 ----------------- ------------------ Cash flows from operating activities: Net income $ 37,440 $ 25,069 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 16,322 17,322 Amortization 20,092 21,518 Provision for doubtful accounts 13,841 12,241 Deferred tax provision 22,101 2,900 Non-cash portion of restructuring charges - 1,701 Changes in assets and liabilities, net of effects from acquisition of businesses: Accounts receivable and unbilled receivables (15,131) (19,440) Inventories (4,668) (14,578) Current and noncurrent assets (7,080) (1,118) Accounts payable (1,927) 4,749 Accrued employee compensation (6,294) (12,363) Deferred revenue (7,234) 2,492 Current and noncurrent liabilities (13,406) 19,212 --------- -------- Net cash flows from operating activities 54,056 59,705 --------- -------- Cash flows from investing activities: Acquisition of businesses (5,993) (25,662) Capital expenditures (11,402) (16,224) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust (4,017) (4,733) Other 293 200 --------- -------- Net cash flows from investing activities (21,119) (46,419) --------- -------- Cash flows from financing activities: Borrowings on line of credit facilities 70,000 - Payments on line of credit facilities (455,000) (10,000) Proceeds from long-term borrowings 375,000 - Principal payments on long-term obligations (1,429) (1,528) Fees paid for financing arrangements (14,418) - Proceeds from and (payments) for exercise of stock options, net of stock tendered in payment 3,587 (756) Dividends paid (4,181) (4,147) --------- -------- Net cash flows from financing activities (26,441) (16,431) --------- -------- Effect of exchange rate changes on cash (400) (202) --------- -------- Net increase (decrease) in cash and cash equivalents 6,096 (3,347) Cash and cash equivalents at beginning of period 111,607 97,267 --------- -------- Cash and cash equivalents at end of period $ 117,703 $ 93,920 ========= ========
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. Interim Financial Data The interim financial data is unaudited; however, in the opinion of the management of Omnicare, Inc., the interim data includes all adjustments (which include only normal adjustments, except as described in Notes 3 and 5) 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, 2000. 2. Segment Information 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 in 43 states in the United States of America ("USA"). The Company's other reportable segment is Contract Research Organization ("CRO") Services, which provides comprehensive product development services to client companies in pharmaceutical, biotechnology, medical devices and diagnostics industries in 26 countries around the world, including the USA. The table below presents information about the reportable segments as of and for the three and six months ended June 30, 2001 and 2000 (in thousands):
Three Months Ended June 30, ------------------------------------------------------------------ Corporate Pharmacy CRO and Consolidated 2001: Services Services Consolidating Totals - ---------------------------------------------------------------------------------------------------------------------------- Sales $ 498,178 $ 31,887 $ - $ 530,065 Depreciation and amortization 16,966 920 392 18,278 Operating income (expense), excluding other (expense) 52,305 2,801 (7,133) 47,973 Other (expense) (3,000) - - (3,000) Operating income (expense) 49,305 2,801 (7,133) 44,973 Total assets 1,961,808 115,296 142,456 2,219,560 Expenditures for additions to long-lived assets 6,205 297 294 6,796 ======================================================================================================================== 2000: - ------------------------------------------------------------------------------------------------------------------------ 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 ========================================================================================================================
6
Six Months Ended June 30, ----------------------------------------------------------- Corporate Pharmacy CRO and Consolidated 2001: Services Services Consolidating Totals - ------------------------------------------------------------------------------------------------------------------------ Sales $ 993,579 $ 60,131 $ - $1,053,710 Depreciation and amortization 33,590 2,057 767 36,414 Operating income (expense), excluding other (expense) 101,527 4,813 (14,019) 92,321 Other (expense) (4,817) - - (4,817) Operating income (expense) 96,710 4,813 (14,019) 87,504 Total assets 1,961,808 115,296 142,456 2,219,560 Expenditures for additions to long-lived assets 10,515 374 513 11,402 ======================================================================================================================== 2000: - ------------------------------------------------------------------------------------------------------------------------ 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 ========================================================================================================================
3. Restructuring and Other Related Charges In 2000, the Company completed its previously disclosed productivity and consolidation program. As part of the program, the roster of pharmacies and other operating locations was reconfigured through the consolidation, relocation, closure and opening of sites, resulting in a net reduction of 59 locations. The program also resulted in the reduction of the Company's work force by 16%, or approximately 1,800 full and part-time employees, and annualized pretax savings in excess of $46 million upon completion. Details of the year-to-date June 30, 2001 and December 31, 2000 activity relating to the program follow (in thousands):
Balance at Utilized December 31, during Balance at 2000 2001 June 30, 2001 ------------ ------------- --------------- Restructuring charges: Employee severance $ 3,390 $ (2,602) $ 788 Employment agreement buy-outs 676 (676) - Lease terminations 2,593 (1,292) 1,301 Other assets and facility exit costs 2,538 (1,881) 657 ------- -------- ------- Total restructuring charges $ 9,197 $ (6,451) $ 2,746 ======= ======== =======
7
Balance at Utilized Balance at December 31, 2000 during December 31, 1999 Provision 2000 2000 -------------- ----------- ----------- -------------- Restructuring charges: Employee severance $ 8,461 $ 3,296 $ (8,367) $ 3,390 Employment agreement buy-outs 3,363 1,048 (3,735) 676 Lease terminations 4,523 1,881 (3,811) 2,593 Other assets and facility exit costs 1,648 10,627 (9,737) 2,538 -------- ------- --------- ------- Total restructuring charges $ 17,995 16,852 $ (25,650) $ 9,197 ======== ========= ======= Other related charges 10,347 -------- Total restructuring and other related charges $ 27,199 ========
In connection with the program, Omnicare expensed a total of $6.2 million and $10.4 million pretax ($3.9 million and $6.6 million after taxes, or 4 cents and 7 cents per diluted share, respectively) in the three and six months ended June 2000, respectively. Additionally, $62.6 million pretax ($39.8 million after taxes) was incurred for restructuring and other related charges over the duration of the entire program (including 1999 activity). The restructuring charges included severance pay, the buy-out of employment agreements, the buy-out of lease obligations, the write-off of other assets (representing approximately $11.0 million of pretax non-cash items over the life of the program) and facility exit costs. The other related charges were primarily comprised of consulting fees and duplicate costs associated with the program, as well as the write-off of certain non-core healthcare investments. As of June 30, 2001, the Company paid approximately $22.5 million of severance and other employee-related costs relating to the employee reductions. The remaining liabilities at June 30, 2001 represent amounts not yet paid relating to actions taken in connection with the program (primarily severance payments and lease payments), and will be adjusted as these matters are settled. 4. Long-Term Debt On March 20, 2001, the Company completed the offering of $375.0 million of 8.125% senior subordinated notes due 2011 (the "Senior Notes"), issued at par through a private placement. Concurrent with the issuance of the Senior Notes, the Company entered into a new three-year syndicated $495.0 million revolving credit facility (the "Revolving Credit Facility"), including a $25.0 million letter of credit subfacility, with various lenders. Net proceeds from the Senior Notes of approximately $365.0 million and borrowings under the new credit facility of $70.0 million were used to repay outstanding indebtedness under the Company's existing credit facilities, which totaled $435.0 million at December 31, 2000, and such existing facilities were terminated. Subsequent to the closing of the Revolving Credit Facility, the Company received commitments from additional banks that allowed it to increase the size of the Revolving Credit Facility to $500.0 million. The Revolving Credit Facility bears interest at the Company's option at a rate equal to either: (i) LIBOR plus a margin that varies depending on certain ratings on the Company's senior long-term debt; or ii) the higher of (a) the administrative agent's prime rate, or (b) the sum of the federal funds rate plus 0.50%. Additionally, the Company is charged a commitment fee on the unused portion of the Revolving Credit Facility, which also varies depending on such ratings. At June 30, 2001, the interest rate was LIBOR plus 1.375% and the 8 commitment fee was 0.375%. There is no utilization fee associated with the Revolving Credit Facility. 5. Other Expense Included in the year-to-date June 2001 results are other expense items totaling $1.8 million pretax ($1.1 million aftertax, or 1 cent per diluted share) and $3.0 million pretax ($1.9 million aftertax, or 2 cents per diluted share). The $1.8 million one-time charge recorded in the first quarter of 2001 represents a repayment to the Medicare Part B program of overpayments made to one of the Company's pharmacy units during the period from January 1997 through April 1998. As part of its corporate compliance program, the Company learned of the overpayments, which related to Medicare Part B claims that contained documentation errors, and notified the Health Care Financing Administration for review and determination of the amount of overpayment. The $3.0 million one-time charge recorded in the second quarter of 2001 represents a settlement during June 2001 of certain contractual issues with a customer, which issues and amount relate to prior year periods. 6. Recently Issued Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141, which supercedes Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises", requires that all business combinations entered into after the effective date of July 1, 2001 be accounted for by the purchase method, defines criteria for recognition of intangible assets apart from goodwill, and further defines disclosure requirements for business combinations. Omnicare does not expect this standard to have a significant impact on the Company's consolidated financial position, results of operations and cash flows. SFAS 142, which replaces APB Opinion No. 17, "Intangible Assets", defines new accounting treatment for goodwill and other intangible assets. This standard eliminates the amortization of goodwill and other intangible assets that have indefinite lives, establishes a requirement that goodwill and intangible assets with indefinite lives be tested annually for impairment, provides specific guidance on the process for this testing at the reporting unit level and requires disclosures of information about goodwill and other intangible assets in the years subsequent to their acquisition that was not previously required. SFAS 142 is effective for fiscal years beginning after December 15, 2001, except that goodwill and intangible assets acquired after June 30, 2001 will be immediately subject to the new provisions. The Company is currently evaluating the impact of this new standard on Omnicare's consolidated financial position, results of operations and cash flows. It is anticipated that this new standard will serve to significantly increase the Company's net income. Additionally, an impairment analysis will be conducted upon implementation of SFAS 142 and required adjustments, if any, to the carrying value of goodwill will be recognized during 2002 as a change in accounting principle. 9 7. Guarantor Subsidiaries The Company's Senior Notes are fully and unconditionally guaranteed on an unsecured, joint and several basis by certain wholly owned subsidiaries of the Company (the "Guarantor Subsidiaries"). The following condensed consolidating financial data illustrates the composition of Omnicare, Inc. ("Parent"), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries as of June 30, 2001 and December 31, 2000 for the balance sheet, the statement of income for each of the three and six month periods ended June 30, 2001 and 2000, and the statement of cash flows for the six months ended June 30, 2001 and 2000 (in thousands). Separate complete financial statements of the respective Guarantor Subsidiaries would not provide additional information which would be useful in assessing the financial condition of the Guarantor Subsidiaries and thus are not presented. No eliminations column is presented for the condensed consolidating statement of cash flows since there were no significant eliminating amounts during the periods presented. 10 Summary Consolidating Statement of Income
Three Months Ended June 30, ----------------------------------------------------------------------- Omnicare, Inc. Guarantor Non-Guarantor and 2001: Parent Subsidiaries Subsidiaries Eliminations Subsidiaries - ------------------------------------------------------------------------------------------------------------------------ Sales $ - $ 507,428 $ 41,752 $ (19,115) $ 530,065 Cost of sales - 369,676 37,441 (19,115) 388,002 --------- --------- --------- --------- --------- Gross profit - 137,752 4,311 - 142,063 Selling, general and administrative expenses 4,052 84,174 5,864 - 94,090 Other expense - 3,000 - - 3,000 --------- --------- --------- --------- --------- Operating income (4,052) 50,578 (1,553) - 44,973 Investment income 617 86 45 - 748 Interest expense (13,616) (587) (212) - (14,415) --------- --------- --------- --------- --------- Income before income taxes (17,051) 50,077 (1,720) - 31,306 Income taxes (6,479) 19,017 (628) - 11,910 Equity in net income of subsidiaries 29,968 - - (29,968) - --------- --------- --------- --------- --------- Net income $ 19,396 $ 31,060 $ (1,092) $ (29,968) $ 19,396 ================================================================================================================== 2000: - ------------------------------------------------------------------------------------------------------------------ Sales $ - $ 456,864 $ 41,741 $ (18,095) $ 480,510 Cost of sales - 335,802 36,009 (18,095) 353,716 --------- --------- --------- --------- --------- Gross profit - 121,062 5,732 - 126,794 Selling, general and administrative expenses 3,106 80,202 7,116 - 90,424 Restructuring and other related charges - 5,386 764 - 6,150 --------- --------- --------- --------- --------- Operating income (3,106) 35,474 (2,148) - 30,220 Investment income 337 (60) 80 - 357 Interest expense (13,290) (315) (29) - (13,634) --------- --------- --------- --------- --------- Income before income taxes (16,059) 35,099 (2,097) - 16,943 Income taxes (5,942) 12,524 (315) - 6,267 Equity in net income of subsidiaries 20,793 - - (20,793) - --------- --------- --------- --------- --------- Net income $ 10,676 $ 22,575 $ (1,782) $ (20,793) $ 10,676 ==================================================================================================================
11 Summary Consolidating Statement of Income
Six Months Ended June 30, ------------------------------------------------------------------------------ Omnicare, Inc. Guarantor Non-Guarantor and 2001: Parent Subsidiaries Subsidiaries Eliminations Subsidiaries - ------------------------------------------------------------------------------------------------------------------------------- Sales $ - $ 1,007,964 $ 84,473 $ (38,727) $ 1,053,710 Cost of sales - 735,259 74,851 (38,727) 771,383 ----------- ----------- ----------- ----------- ----------- Gross profit - 272,705 9,622 - 282,327 Selling, general and administrative expenses 7,945 169,685 12,376 - 190,006 Other expense - 4,817 - - 4,817 ----------- ----------- ----------- ----------- ----------- Operating income (7,945) 98,203 (2,754) - 87,504 Investment income 1,012 97 113 - 1,222 Interest expense (27,018) (886) (420) - (28,324) ----------- ----------- ----------- ----------- ----------- Income before income taxes (33,951) 97,414 (3,061) - 60,402 Income taxes (12,901) 36,871 (1,008) - 22,962 Equity in net income of subsidiaries 58,490 - - (58,490) - ----------- ----------- ----------- ----------- ----------- Net income $ 37,440 $ 60,543 $ (2,053) $ (58,490) $ 37,440 ============================================================================================================================ 2000: - ------------------------------------------------------------------------------------------------------------------------------- Sales $ - $ 924,861 $ 81,194 $ (32,519) $ 973,536 Cost of sales - 677,628 69,016 (32,519) 714,125 ----------- ----------- ----------- ----------- ----------- Gross profit - 247,233 12,178 - 259,411 Selling, general and administrative expenses 6,203 162,447 14,542 - 183,192 Restructuring and other related charges - 9,664 764 - 10,428 ----------- ----------- ----------- ----------- ----------- Operating income (6,203) 75,122 (3,128) - 65,791 Investment income 781 (96) 131 - 816 Interest expense (26,499) (201) (99) - (26,799) ----------- ----------- ----------- ----------- ----------- Income before income taxes (31,921) 74,825 (3,096) - 39,808 Income taxes (11,811) 27,029 (479) - 14,739 Equity in net income of subsidiaries 45,179 - - (45,179) - ----------- ----------- ----------- ----------- ----------- Net income $ 25,069 $ 47,796 $ (2,617) $ (45,179) $ 25,069 ============================================================================================================================
12 Condensed Consolidating Balance Sheet
Omnicare, Inc. Guarantor Non-Guarantor and June 30, 2001 Parent Subsidiaries Subsidiaries Eliminations Subsidiaries - ------------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 90,337 $ 21,631 $ 5,735 $ - $ 117,703 Restricted cash - 6,317 - - 6,317 Accounts receivable, net (including intercompany) - 416,837 34,815 (10,456) 441,196 Inventories - 125,973 8,323 - 134,296 Other current assets 1,701 133,673 4,409 - 139,783 ---------- ---------- -------- ----------- ---------- Total current assets 92,038 704,431 53,282 (10,456) 839,295 ---------- ---------- -------- ----------- ---------- Properties and equipment, net 4,058 138,463 12,991 - 155,512 Goodwill, net - 1,080,811 65,360 - 1,146,171 Other noncurrent assets 33,828 44,279 475 - 78,582 Investment in subsidiaries 1,766,202 - - (1,766,202) - ---------- ---------- -------- ----------- ---------- Total assets $1,896,126 $1,967,984 $132,108 $(1,776,658) $2,219,560 ========== ========== ======== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Other current liabilities (including intercompany) $ 16,316 $ 192,223 $ 25,330 $ (10,456) $ 223,413 ---------- ---------- -------- ----------- ---------- Total current liabilities 16,316 192,223 25,330 (10,456) 223,413 ---------- ---------- -------- ----------- ---------- Long-term debt 50,000 639 66 - 50,705 5.0% convertible subordinated debentures, due 2007 345,000 - - - 345,000 8.125% senior subordinated notes, due 2011 375,000 - - - 375,000 Other noncurrent liabilities 776 102,805 12,827 - 116,408 Stockholders' equity 1,109,034 1,672,317 93,885 (1,766,202) 1,109,034 ---------- ---------- -------- ----------- ---------- Total liabilities and stockholders' equity $1,896,126 $1,967,984 $132,108 $(1,776,658) $2,219,560 ============================================================================================================================= December 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash and cash equivalents $ 48,663 $ 59,274 $ 3,670 $ - $ 111,607 Restricted cash - 2,300 - - 2,300 Accounts receivable, net (including intercompany) - 433,061 30,150 (22,426) 440,785 Inventories - 120,519 8,885 - 129,404 Other current assets 580 127,341 5,721 - 133,642 ---------- ---------- -------- ----------- ---------- Total current assets 49,243 742,495 48,426 (22,426) 817,738 ---------- ---------- -------- ----------- ---------- Properties and equipment, net 4,277 141,429 12,829 - 158,535 Goodwill, net - 1,101,120 67,031 - 1,168,151 Other noncurrent assets 29,640 35,251 903 - 65,794 Investment in subsidiaries 1,778,655 - - (1,778,655) - ---------- ---------- -------- ----------- ---------- Total assets $1,861,815 $2,020,295 $129,189 $(1,801,081) $2,210,218 ========== ========== ======== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Other current liabilities (including intercompany) $ 12,716 $ 230,415 $ 36,304 $ (22,426) $ 257,009 ---------- ---------- -------- ----------- ---------- Total current liabilities 12,716 230,415 36,304 (22,426) 257,009 ---------- ---------- -------- ----------- ---------- Long-term debt 435,000 633 73 - 435,706 5.0% convertible subordinated debentures, due 2007 345,000 - - - 345,000 Other noncurrent liabilities 676 102,405 999 - 104,080 Stockholders' equity 1,068,423 1,686,842 91,813 (1,778,655) 1,068,423 ---------- ---------- -------- ----------- ---------- Total liabilities and stockholders' equity $1,861,815 $2,020,295 $129,189 $(1,801,081) $2,210,218 ==============================================================================================================================
13 Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, ------------------------------------------------------ Omnicare, Inc. Guarantor Non-Guarantor and 2001: Parent Subsidiaries Subsidiaries Subsidiaries - ----------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Provision for doubtful accounts $ - $ 13,109 $ 732 $ 13,841 Other (20,440) 57,465 3,190 40,215 -------- -------- ------- ---------- Net cash flows from operating activities (20,440) 70,574 3,922 54,056 -------- -------- ------- ---------- Cash flows from investing activities: Acquisition of businesses - (5,993) - (5,993) Capital expenditures - (9,987) (1,415) (11,402) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust - (4,017) - (4,017) Other - 16 277 293 -------- -------- ------- ---------- Net cash flows from investing activities - (19,981) (1,138) (21,119) -------- -------- ------- ---------- Cash flows from financing activities: Borrowings on line of credit facilities 70,000 - - 70,000 Payments on line of credit facilities (455,000) - - (455,000) Proceeds from long-term borrowings 375,000 - - 375,000 Fees paid for financing arrangements (14,418) - - (14,418) Other 86,532 (88,236) (319) (2,023) -------- -------- ------- ---------- Net cash flows from financing activities 62,114 (88,236) (319) (26,441) -------- -------- ------- ---------- Effect of exchange rate changes on cash - - (400) (400) -------- -------- ------- ---------- Net increase (decrease) in cash and cash equivalents 41,674 (37,643) 2,065 6,096 Cash and cash equivalents at beginning of period - unrestricted 48,663 59,274 3,670 111,607 -------- -------- ------- ---------- Cash and cash equivalents at end of period - unrestricted $ 90,337 $21,631 $ 5,735 $ 117,703 ================================================================================================================== 2000: - ------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Provision for doubtful accounts $ - $ 11,619 $ 622 $ 12,241 Other (30,431) 77,989 (94) 47,464 -------- -------- ------- ---------- Net cash flows from operating activities (30,431) 89,608 528 59,705 -------- -------- ------- ---------- Cash flows from investing activities: Acquisition of businesses - (25,662) - (25,662) Capital expenditures (61) (14,262) (1,901) (16,224) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust - (4,733) - (4,733) Other - 569 (369) 200 -------- -------- ------- ---------- Net cash flows from investing activities (61) (44,088) (2,270) (46,419) -------- -------- ------- ---------- Cash flows from financing activities: Payments on line of credit facilities (10,000) - - (10,000) Other 31,452 (37,889) 6 (6,431) -------- -------- ------- ---------- Net cash flows from financing activities 21,452 (37,889) 6 (16,431) -------- -------- ------- ---------- Effect of exchange rate changes on cash - - (202) (202) --------- ------------ ------------- ---------- Net (decrease) increase in cash and cash equivalents (9,040) 7,631 (1,938) (3,347) Cash and cash equivalents at beginning of period - unrestricted 52,009 39,274 5,984 97,267 -------- -------- ------- ---------- Cash and cash equivalents at end of period - unrestricted $ 42,969 $ 46,905 $ 4,046 $ 93,920 ==================================================================================================================
14 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition The following discussion should be read in conjunction with the consolidated financial statements, related notes and other financial information appearing elsewhere in this Filing. In addition, consideration should be given to the disclosures at the "Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information" caption below. Results of Operations Quarter Ended June 30, 2001 vs. 2000 Consolidated Diluted earnings per share for the three months ended June 30, 2001 were $0.23, excluding the impact of a one-time item classified as other expense (further discussed in the following paragraph), as compared with $0.16 earned in the prior year quarter, excluding restructuring and other related charges associated with a productivity and consolidation initiative completed in 2000. Net income for the 2001 second quarter, on that basis, was $21.3 million versus the $14.6 million earned in the comparable 2000 quarter. Earnings before interest, taxes, depreciation and amortization ("EBITDA"), on the same basis, totaled $66.3 million for the three months ended June 30, 2001 as compared with EBITDA of $55.5 million in the second quarter of 2000. Sales for the three months ended June 30, 2001 rose to $530.1 million from the $480.5 million recorded in the comparable prior year period. Included in the 2001 quarterly results was a one-time charge of $3.0 million pretax ($1.9 million aftertax, or 2 cents per diluted share) representing a settlement during the second quarter of certain contractual issues with a customer, which issues and amount relate to prior year periods. Included in the 2000 quarter was a charge of $6.2 million pretax ($3.9 million aftertax, or 4 cents per diluted share) related to the Company's previously reported productivity and consolidation program. Including these items in both quarters, earnings per diluted share were 21 cents in 2001 versus 12 cents in 2000; EBITDA was $63.3 million versus $49.3 million, respectively; and net income was $19.4 million versus $10.7 million, respectively. Pharmacy Services Segment Omnicare's Pharmacy Services segment recorded sales of $498.2 million for the second quarter of 2001 as compared to $452.9 million recorded in the same prior year period, representing an increase of $45.3 million. Operating profit in this segment reached $52.3 million (excluding the previously mentioned one-time charge), representing an increase of $9.3 million above the prior year quarter amount of $43.0 million (excluding restructuring and other related charges). Owing to the efforts of the Company's National Sales & Marketing Group and pharmacy staff in developing new contracts, solid new account growth, net of the elimination of certain high credit risk or uneconomic accounts, the number of residents served at June 30, 2001 increased to approximately 650,100, from 629,000 one year earlier. Additionally, the increasing market penetration of newer drugs, which often carry higher prices but are significantly more effective in reducing overall healthcare costs than those they replace, served to increase pharmacy sales. The increase in sales in relation to a lower operating cost structure brought 15 about by the completion of the productivity and consolidation program in 2000, produced increased operating margins in the Pharmacy Services segment. These factors, along with a gradually improving operating environment in the skilled nursing facility market, due in part to higher reimbursements under the Balanced Budget Refinement Act of 1999 and the Benefits Improvement and Protection Act of 2000, favorably impacted the performance of the Pharmacy Services segment during the quarter. CRO Services Segment Omnicare's Clinical Research ("CRO Services") segment recorded revenues of $31.9 million during the second quarter of 2001 as compared to $27.6 million recorded in the same prior year period, representing an increase of $4.3 million. Furthermore, operating profit in this segment for the second quarter of 2001 was $2.8 million, an increase of $1.8 million in comparison to the same prior year quarter operating profit of $1.0 million (excluding restructuring and other related charges). The improvements in revenue, owing to strong business gains in prior quarters and the returning health of the industry, coupled with the efforts made over the past year to integrate and streamline the organization, produced these substantial increases in profitability. Given an improving operating environment in the CRO Services segment due, in part, to reduced merger activity in the pharmaceutical industry, the backlog of new projects increased approximately 23% from June 30, 2000, to $211 million at June 30, 2001. Consolidated The Company's consolidated gross profit as a percentage of sales increased to 26.8% in the second quarter of 2001 from 26.4% in 2000, representing a year-to-year increase in gross profit of $15.3 million to $142.1 million. Positively impacting overall gross profit was the Company's purchasing leverage associated with the procurement of pharmaceuticals and benefits realized from the Company's formulary compliance program, as well as the leveraging of fixed and variable overhead costs at the Company's pharmacies and the reduced cost structure brought about by the productivity and consolidation program completed in 2000. These favorable factors were offset in part by the previously mentioned shift in mix towards newer, branded drugs which typically produce higher gross profit, but lower gross margins. Also favorably impacting consolidated gross profit was the previously mentioned improvements in the CRO Services segment. Omnicare's selling, general and administrative ("operating") expenses for the quarter ended June 30, 2001 of $94.1 million were higher than the comparable prior year amount of $90.4 million, by $3.7 million, due to the overall growth of the business. However, operating expenses as a percentage of sales totaled 17.8% in the 2001 second quarter, representing a decline from the 18.8% experienced in the comparable prior year period. This decline is primarily due to improved leveraging of fixed and variable overhead costs over a higher sales base and the favorable impact of the productivity and consolidation program which was successfully completed in late 2000. In connection with the productivity and consolidation program discussed at length at the "Year-to-Date June 2001 vs. 2000" caption below, the Company recorded pretax restructuring and other related charges of $6.2 million ($3.9 million aftertax, or 4 cents per diluted share) in the three months ended June 30, 2000, primarily comprised of employee severance, employment 16 agreement buy-out costs, lease termination costs, other assets and facility exit costs, and other related charges. Investment income for the three months ended June 30, 2001 was $0.7 million, an improvement of $0.4 million over the same period of 2000. Larger average cash balances coupled with an increase in assets invested for settlement of the Company's pension obligations, in the second quarter of 2001 versus the comparable prior year period, were the primary drivers of the year-to-year increase in investment income. Interest expense during the three months ended June 30, 2001 was $14.4 million, an increase of $0.8 million versus the comparable prior year period. This increase was largely due to the full-quarter impact of an increase in debt issuance cost amortization, classified as interest expense, relating to the first quarter 2001 debt transactions discussed at the "Liquidity and Capital Resources" section below. Also unfavorably impacting second quarter 2001 interest expense, on a year-to-year basis, was a marginal increase in the weighted-average interest rates paid on outstanding debt brought about by the aforementioned debt transactions, which converted a majority of the related outstanding debt from current to long-term in nature. The increase in the effective tax rate to 38.0% in the second quarter of 2001 from 37.0% in the comparable prior year quarter is primarily attributable to the full utilization in 2000 of certain benefits derived from the Company's state tax planning program. While other state tax planning benefits will continue, they will be realized at a different magnitude than was the case in 2000. The effective tax rates in the 2001 and 2000 second quarters are higher than the federal statutory rate primarily due to state and local income taxes. Year-to-Date June 2001 vs. 2000 Consolidated Diluted earnings per share for the six months ended June 30, 2001 were $0.43, excluding the impact of one-time items classified as other expense discussed below, as compared with $0.34 earned in the prior year period, excluding restructuring and other related charges associated with the productivity and consolidation initiative completed in 2000. Net income for the 2001 period, on that basis, was $40.4 million versus the $31.6 million earned in the comparable 2000 period. EBITDA, on the same basis, totaled $128.7 million for the six months ended June 30, 2001 as compared with EBITDA of $115.1 million in the same period of 2000. Sales for the year-to-date June 30, 2001 period rose to $1,053.7 million from the $973.5 million recorded during the comparable prior year period. Included in the year-to-date June 2001 results were other expense items totaling $4.8 million pretax ($3.0 million aftertax, or 3 cents per share). In the first quarter of 2001, Omnicare recorded a $1.8 million pretax ($1.1 million aftertax, or 1 cent per diluted share) one-time charge representing a repayment to the Medicare Part B program of overpayments made to one of the Company's pharmacy units during the period from January 1997 through April 1998. As part of its corporate compliance program, the Company learned of the overpayments, which related to Medicare Part B claims that contained documentation errors, and notified the Health Care Financing Administration for review and determination of the amount of overpayment. Further, 17 the Company recorded a $3.0 million pretax ($1.9 million aftertax, or 2 cents per diluted share) one-time charge in the second quarter of 2001, representing a settlement in June 2001 of certain contractual issues with a customer, which issues and amount relate to prior year periods. Included in the 2000 six month period was an aggregate charge of $10.4 million pretax ($6.6 million aftertax, or 7 cents per diluted share) relating to the productivity and consolidation program. Including these special items in both six month periods, earnings per diluted share were 40 cents in 2001 versus 27 cents in 2000; EBITDA was $123.9 million versus $104.6 million, respectively; and net income was $37.4 million versus $25.1 million, respectively. Pharmacy Services Segment Omnicare's Pharmacy Services segment recorded sales of $993.6 million for the six months ended June 30, 2001, ahead of the comparable prior year period amount of $913.9 million, by $79.7 million. Operating profit in this segment reached $101.5 million (excluding the previously mentioned one-time charges), also ahead of the same prior year period amount of $86.3 million (excluding restructuring and other related charges), by $15.2 million. The favorable year-to-year results largely relate to solid new account growth (including additional business under the Company's contract with Marriott Senior Living Communities), net of the elimination of certain high credit risk or uneconomic accounts, coupled with the efforts of the Company's National Sales & Marketing Group and pharmacy staff in developing new contracts. Additionally, higher drug utilization, the expansion of clinical programs and drug price inflation contributed to increased sales. Moreover, the increasing market penetration of newer drugs, which often carry higher prices but are significantly more effective in reducing overall healthcare costs than those they replace, served to increase pharmacy sales. The increase in sales, in addition to a lower operating cost structure brought about by the completion of the productivity and consolidation program in 2000, served to produce increased operating margins. Collectively, these factors along with a gradually improving operating environment in the skilled nursing facility market brought about by the implementation of the Balanced Budget Refinement Act of 1999 and the Benefits Improvement and Protection Act of 2000, favorably impacted the performance of the Pharmacy Services segment during the six-month period. CRO Services Segment Omnicare's CRO Services segment recorded revenues of $60.1 million during the six months ended June 30, 2001, which were relatively consistent with the $59.7 million recorded in the same prior year period. Operating profit in this segment for the six months ended June 30, 2001 was $4.8 million, an increase of $1.0 million in comparison to the same prior year period operating profit of $3.8 million (excluding restructuring and other related charges). The year-to-date June 2001 improvement in operating profit is the result of several favorable trends experienced in the second quarter of 2001. These trends included improvements in revenue, owing to strong business gains in prior quarters and the returning health of the industry, coupled with the efforts made over the past year to integrate and streamline the organization, producing substantial increases in profitability in the second quarter of 2001. 18 Consolidated The Company's consolidated gross profit as a percentage of sales of 26.8% in the six months ended June 30, 2001 improved as compared with the rate of 26.6% experienced during the year-to-date June 30, 2000 period, and represented a year-to-year increase in gross profit of $22.9 million to $282.3 million. Positively impacting overall gross profit was the Company's purchasing leverage associated with the procurement of pharmaceuticals and benefits realized from the Company's formulary compliance program, as well as the leveraging of fixed and variable overhead costs at the Company's pharmacies and the reduced cost structure brought about by the productivity and consolidation program completed in 2000. These favorable factors were offset in part by the previously mentioned shift in mix towards newer, branded drugs which typically produce higher gross profit, but lower gross profit margins. Omnicare's operating expenses for the six months ended June 30, 2001 of $190.0 million were higher than the comparable prior year amount of $183.2 million, by $6.8 million, due to the overall growth of the business. Operating expenses as a percentage of sales, however, totaled 18.0% in the 2001 six month period, representing a decline from the 18.8% experienced in the comparable prior year period. This decline is primarily due to the favorable impact of the productivity and consolidation program, which was successfully completed in late 2000, and the leveraging of fixed and variable overhead costs over a larger sales base in 2001 than was the case in the comparable 2000 period. In 2000, the Company completed its previously disclosed productivity and consolidation program. As part of the program, the roster of pharmacies and other operating locations was reconfigured through the consolidation, relocation, closure and opening of sites, resulting in a net reduction of 59 locations. The program also resulted in the reduction of the Company's work force by 16%, or approximately 1,800 full and part-time employees, and annualized pretax savings in excess of $46 million upon completion. Details of the year-to-date June 30, 2001 and December 31, 2000 activity relating to the program follow (in thousands):
Balance at Utilized Balance at December 31, during June 30, 2000 2001 2001 ------------ -------- ----------- Restructuring charges: Employee severance $3,390 $(2,602) $ 788 Employment agreement buy-outs 676 (676) - Lease terminations 2,593 (1,292) 1,301 Other assets and facility exit costs 2,538 (1,881) 657 ------ -------- ------ Total restructuring charges $9,197 $(6,451) $2,746 ====== ======== ======
19
Balance at Utilized Balance at December 31, 2000 during December 31, 1999 Provision 2000 2000 ------------ --------- --------- ------------ Restructuring charges: Employee severance $ 8,461 $ 3,296 $ (8,367) $ 3,390 Employment agreement buy-outs 3,363 1,048 (3,735) 676 Lease terminations 4,523 1,881 (3,811) 2,593 Other assets and facility exit costs 1,648 10,627 (9,737) 2,538 ------- ------- --------- ------- Total restructuring charges $17,995 16,852 $(25,650) $ 9,197 ======= ========= ======= Other related charges 10,347 ------- Total restructuring and other related charges $27,199 =======
In connection with the program, Omnicare expensed a total of $10.4 million pretax ($6.6 million after taxes, or 7 cents per diluted share) in the six months ended June 30, 2000. Additionally, $62.6 million pretax ($39.8 million after taxes) was incurred for restructuring and other related charges over the duration of the entire program (including 1999 activity). The restructuring charges included severance pay, the buy-out of employment agreements, the buy-out of lease obligations, the write-off of other assets (representing approximately $11.0 million of pretax non-cash items over the life of the program) and facility exit costs. The other related charges were primarily comprised of consulting fees and duplicate costs associated with the program, as well as the write-off of certain non-core healthcare investments. As of June 30, 2001, the Company paid approximately $22.5 million of severance and other employee-related costs relating to the employee reductions. The remaining liabilities at June 30, 2001 represent amounts not yet paid relating to actions taken in connection with the program (primarily severance payments and lease payments), and will be adjusted as these matters are settled. Investment income for the six months ended June 30, 2001 was $1.2 million, an improvement of $0.4 million over the same period of 2000. Larger average cash balances coupled with an increase in assets invested for settlement of the Company's pension obligations, during 2001 as compared to the same 2000 period, were the primary drivers of the year-to-year increase in investment income. Interest expense during the six months ended June 30, 2001 was $28.3 million, an increase of $1.5 million versus the comparable prior year period. This increase was largely due to the impact of an increase in debt issuance cost amortization, classified as interest expense, relating to the first quarter 2001 debt transactions discussed at the "Liquidity and Capital Resources" section below. Also unfavorably impacting 2001 interest expense, on a year-to-year basis, was a marginal increase in the weighted-average interest rates paid on outstanding debt brought about by the aforementioned debt transactions, which converted a majority of the related outstanding debt from current to long-term in nature. The increase in the effective tax rate to 38.0% in the year-to-date June 2001 period from 37.0% in the comparable prior year period is primarily attributable to the full utilization in 2000 of certain benefits derived from the Company's state tax planning program. While other state tax planning benefits will continue, they will be realized at a different magnitude than was the case 20 in 2000. The effective tax rates in the 2001 and 2000 six months periods are higher than the federal statutory rate primarily due to state and local income taxes. Liquidity and Capital Resources Cash and cash equivalents (including restricted cash) at June 30, 2001 were $124.0 million compared to $113.9 million at December 31, 2000. The Company generated positive net cash flows from operating activities of $54.1 million (including the impact of purchasing pharmaceuticals in advance of price increases, or "prebuys," of $34.2 million) during the six months ended June 30, 2001. These funds were used primarily for debt repayment, debt issuance costs, capital expenditures, acquisition-related payments (including amounts payable pursuant to acquisition agreements relating to pre-2001 acquisitions) and dividends. Higher net income and improved management of accounts receivable and inventories contributed to the favorable cash flows from operations through June 30, 2001 of approximately $88 million (excluding prebuys). On March 20, 2001, the Company completed the offering of $375.0 million of 8.125% senior subordinated notes due 2011 (the "Senior Notes"), issued at par through a private placement. Concurrent with the issuance of the Senior Notes, the Company entered into a new three-year syndicated $495.0 million revolving credit facility (the "Revolving Credit Facility"), including a $25.0 million letter of credit subfacility, with various lenders. Net proceeds from the Senior Notes of approximately $365.0 million and borrowings under the new credit facility of $70.0 million were used to repay outstanding indebtedness under the Company's existing credit facilities, which totaled $435.0 million at December 31, 2000, and such existing facilities were terminated. Subsequent to the closing of the Revolving Credit Facility, the Company received commitments from additional banks that allowed it to increase the size of the Revolving Credit Facility to $500.0 million. As of June 30, 2001, the Revolving Credit Facility bears an interest rate of LIBOR plus 1.375%, and incurs commitment fees on the unused portion at a rate of 0.375%. The Company's capital requirements are primarily comprised of capital expenditures, including those related to investments in the Company's information technology systems, and ongoing payments originating from its acquisition program. There are no material commitments and contingencies outstanding at June 30, 2001, other than certain acquisition-related payments potentially due in the future, including deferred payments, indemnification payments and payments originating from earnout provisions. The Company's current ratio of 3.8 to 1.0 at June 30, 2001 increased as compared to the 3.2 to 1.0 in existence at December 31, 2000. This improvement is due primarily to the combined effect of higher cash balances and inventory levels (due to prebuys), as well as a reduction in aggregate current liabilities, largely made possible as a result of the aforementioned favorable operating cash flows generated during the six months ended June 30, 2001. On May 21, 2001, 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 2001. Dividends of $4.2 million paid during the six months ended June 30, 2001 were consistent with those paid in the comparable prior year period. 21 The Company believes its sources of liquidity and capital are adequate for its ongoing operating needs. Omnicare may in the future incur additional indebtedness or issue additional equity. The Company believes that, if needed, external sources of financing are readily available. Recently Issued Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141, which supercedes Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises", requires that all business combinations entered into after the effective date of July 1, 2001 be accounted for by the purchase method, defines criteria for recognition of intangible assets apart from goodwill, and further defines disclosure requirements for business combinations. Omnicare does not expect this standard to have a significant impact on the Company's consolidated financial position, results of operations and cash flows. SFAS 142, which replaces APB Opinion No. 17, "Intangible Assets", defines new accounting treatment for goodwill and other intangible assets. This standard eliminates the amortization of goodwill and other intangible assets that have indefinite lives, establishes a requirement that goodwill and intangible assets with indefinite lives be tested annually for impairment, provides specific guidance on the process for this testing at the reporting unit level and requires disclosures of information about goodwill and other intangible assets in the years subsequent to their acquisition that was not previously required. SFAS 142 is effective for fiscal years beginning after December 15, 2001, except that goodwill and intangible assets acquired after June 30, 2001 will be immediately subject to the new provisions. The Company is currently evaluating the impact of this new standard on Omnicare's consolidated financial position, results of operations and cash flows. It is anticipated that this new standard will serve to significantly increase the Company's net income. Additionally, an impairment analysis will be conducted upon implementation of SFAS 142 and required adjustments, if any, to the carrying value of goodwill will be recognized during 2002 as a change in accounting principle. 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 internal growth resulting from the development of new contracts; the impact of penetration of new drugs; the impact of the productivity and consolidation program; the operating environment for skilled nursing facilities; the operating environment in the CRO industry; the impact of the integration and streamlining of the CRO organization; purchasing leverage; the formulary compliance program; the leveraging of costs; benefits from the Company's state tax planning program; the impact of the contract with Marriott Senior Living Communities; drug utilization rates; the expansion of clinical programs; drug price inflation; the adequacy and availability of Omnicare's sources of liquidity and capital; the availability of 22 external sources of financing; and the impact of new accounting rules and standards including SFAS 141 and SFAS 142. Such risks, uncertainties, contingencies and other factors, many of which are beyond the control of Omnicare, include, but are not limited to: overall economic, financial and business conditions; trends for the continued growth of the businesses of Omnicare; delays in reimbursement by the government and other payors to customers and to Omnicare; the overall financial condition of our customers; the ability to assess and react to the financial condition of customers; the impact of seasonality on the business of Omnicare; the ability to implement additional opportunities for lowering costs and to realize anticipated benefits; the continued successful integration of the CRO business and acquired companies; the effect of new government regulations, executive orders and/or legislative initiatives including those relating to reimbursement and drug pricing policies and in the interpretation and application of such policies; the outcome of litigation; 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 of CRO projects to produce revenues in subsequent periods; the ability to attract or retain needed management; the impact and pace of technological advances; the ability to obtain or maintain rights to data, technology and other intellectual property; the impact of consolidation in the pharmaceutical and long-term care industries; the continued availability of suitable acquisition candidates; changes in tax law and regulation; volatility in Omnicare's stock price; access to capital and financing; the demand for Omnicare's products and services; pricing and other competitive factors in the industry; variations in costs or expenses; and changes in accounting rules and standards. 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. Omnicare's primary market risk exposure relates to interest rate risk exposure through its borrowings. The Company's debt obligations at June 30, 2001 include $50.0 million outstanding under its three-year, $500.0 million variable-rate Revolving Credit Facility at an interest rate of LIBOR plus 1.375%, or 5.3% at June 30, 2001 (a one-hundred basis point change in the interest rate would impact pretax interest expense by approximately $0.1 million per quarter); $375.0 million outstanding under its 8.125% Senior Notes due 2011; and $345.0 million outstanding under convertible subordinated debentures due in 2007 ("Convertible Debentures"), which accrue interest at a fixed rate of 5.0%. At June 30, 2001, the fair value of Omnicare's Revolving Credit Facility approximates its carrying value, and the fair value of the Senior Notes and Convertible Debentures is $380.6 million and $304.5 million, respectively. 23 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 21, 2001. (b) The names of each director elected at this Annual Meeting, as well as the corresponding number of shares voted for, and withheld from, each nominee follows:
Votes For Votes Withheld --------- -------------- Edward L. Hutton 80,763,504 2,839,775 Joel F. Gemunder 80,779,484 2,823,795 Timothy E. Bien 80,780,173 2,823,106 Charles H. Erhart, Jr. 81,256,029 2,347,250 David W. Froesel, Jr. 80,783,780 2,819,499 Cheryl D. Hodges 80,779,706 2,823,573 Patrick E. Keefe 80,781,176 2,822,103 Sandra E. Laney 77,592,983 6,010,296 Andrea R. Lindell, DNSc, RN 81,278,773 2,324,506 Sheldon Margen, M.D. 81,259,951 2,343,328 Kevin J. McNamara 80,783,500 2,819,779 John H. Timoney 81,274,897 2,328,382
(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 2001 year. A total of 82,784,495 votes were cast in favor of the proposal; 752,271 votes were cast against it; 66,513 votes abstained; and there were no Broker non-votes. (d) The Stockholders re-approved the Company's Annual Incentive Plan for Senior Executive Officers. A total of 76,682,004 votes were cast in favor of the proposal; 6,802,703 were cast against it; 118,572 votes abstained; and there were no Broker non-votes. 24 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit Number Exhibit ------ ------- 11 Computation of Earnings Per Common Share
(b) Reports on Form 8-K The Company filed no Reports on Form 8-K during the quarter ended June 30, 2001. 25 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 13, 2001 By: /s/ David W. Froesel, Jr. --------------- --------------------------- David W. Froesel, Jr. Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 26 EX-11 3 ex11.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, ------------------ ------------------ 2001 2000 2001 2000 ------- ------- ------- ------- Basic Earnings: Net income $19,396 $10,676 $37,440 $25,069 ======= ======= ======= ======= Shares Weighted average number of common shares outstanding 93,198 92,155 92,812 91,877 ======= ======= ======= ======= Basic earnings per common share $ 0.21 $ 0.12 $ 0.40 $ 0.27 ======= ======= ======= ======= Diluted Earnings (a): Net income $19,396 $10,676 $37,440 $25,069 ======= ======= ======= ======= Shares Weighted average number of common shares outstanding 93,198 92,155 92,812 91,877 Additional shares assuming conversion of stock options and stock warrants (b) 844 - 880 - ------- ------- ------- ------- Weighted average common shares outstanding, as adjusted 94,042 92,155 93,692 91,877 ======= ======= ======= ======= Diluted earnings per common share $ 0.21 $ 0.12 $ 0.40 $ 0.27 ======= ======= ======= =======
(a) The $345.0 million of Convertible Debentures which are convertible into 8.7 million shares at $39.60 per share were outstanding during the three and six months ended June 30, 2001 and 2000, but were not included in the computation of diluted EPS because the impact was anti-dilutive. (b) During the three and six months ended June 30, 2001 and 2000, the anti-dilutive effect associated with options and warrants were excluded from the computation of diluted earnings per share, since the exercise price of these options and warrants was greater than the average market price of the Company's common stock during these periods. The total anti-dilutive options and warrants excluded for the quarters ended June 30, 2001 and 2000 were 3,937 and 7,610, respectively. Further, 3,931 and 7,265 anti-dilutive options and warrants were excluded from the year-to-date June 30, 2001 and 2000 periods, respectively. -----END PRIVACY-ENHANCED MESSAGE-----