-----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, We6eWahJtaqf/8D+VPsemhRLWHKSZ4Ok9KR+OD+4X3uHSl2VbAwkVLcBnk2i8UUS pnglsTm+emWD6GegEI04og== 0000950117-02-001909.txt : 20020814 0000950117-02-001909.hdr.sgml : 20020814 20020814111719 ACCESSION NUMBER: 0000950117-02-001909 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 02732522 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 a33152.txt OMNICARE, INC. 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, 2002 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 94,220,115 June 30, 2002
OMNICARE, INC. AND SUBSIDIARY COMPANIES INDEX
PAGE ---- PART I. FINANCIAL INFORMATION: - ------------------------------ ITEM 1. FINANCIAL STATEMENTS Consolidated Statements of Income - Three and six months ended - June 30, 2002 and 2001 3 Consolidated Balance Sheets - June 30, 2002 and December 31, 2001 4 Consolidated Statements of Cash Flows - Six months ended - June 30, 2002 and 2001 5 Notes to Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 18 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 29 PART II. OTHER INFORMATION: - -------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 31
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME OMNICARE, INC. AND SUBSIDIARY COMPANIES UNAUDITED
(In thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, --------------------------- --------------------------- 2002 2001 2002 2001 -------- -------- ---------- --------- Sales $647,101 $530,065 $1,279,116 $1,053,710 Reimbursable out-of-pockets 7,054 6,427 13,353 12,190 -------- -------- ---------- ---------- Total net sales 654,155 536,492 1,292,469 1,065,900 -------- -------- ---------- ---------- Cost of sales 476,171 388,002 943,982 771,383 Reimbursed out-of-pocket expenses 7,054 6,427 13,353 12,190 -------- -------- ---------- ---------- Total direct costs 483,225 394,429 957,335 783,573 -------- -------- ---------- ---------- Gross profit 170,930 142,063 335,134 282,327 Selling, general and administrative expenses 102,501 85,755 202,119 173,509 Goodwill amortization (Note 7) - 8,335 - 16,497 Restructuring charges (Note 4) 7,302 - 12,099 - Other expense (Note 5) - 3,000 - 4,817 -------- -------- ---------- ---------- Operating income 61,127 44,973 120,916 87,504 Investment income 667 748 1,465 1,222 Interest expense (14,475) (14,415) (28,651) (28,324) -------- -------- ---------- ---------- Income before income taxes 47,319 31,306 93,730 60,402 Income taxes 17,961 11,910 35,596 22,962 -------- -------- ---------- ---------- Net income $ 29,358 $ 19,396 $ 58,134 $ 37,440 ======== ======== ========== ========== Earnings per share: Basic $ 0.31 $ 0.21 $ 0.62 $ 0.40 ======== ======== ========== ========== Diluted $ 0.31 $ 0.21 $ 0.61 $ 0.40 ======== ======== ========== ========== Weighted average number of common shares outstanding: Basic 94,175 93,198 94,070 92,812 ======== ======== ========== ========== Diluted 95,292 94,042 94,984 93,692 ======== ======== ========== ========== Comprehensive income $ 30,977 $ 18,758 $ 59,980 $ 36,925 ======== ======== ========== ========== The Notes to Consolidated Financial Statements are an integral part of these statements.
3 CONSOLIDATED BALANCE SHEETS OMNICARE, INC. AND SUBSIDIARY COMPANIES UNAUDITED
(In thousands, except share data) June 30, December 31, 2002 2001 ------------------------------- ASSETS Current assets: Cash and cash equivalents $ 178,239 $ 168,396 Restricted cash 6,305 2,922 Accounts receivable, less allowances of $67,299 (2001-$45,573) 518,016 478,077 Unbilled receivables 35,968 23,621 Inventories 146,902 149,134 Deferred income tax benefits 27,677 28,147 Other current assets 81,265 77,297 ---------- ---------- Total current assets 994,372 927,594 Properties and equipment, at cost less accumulated depreciation of $172,785 (2001-$160,164) 154,994 155,073 Goodwill 1,176,181 1,123,800 Other noncurrent assets 91,115 83,809 ---------- ---------- Total assets $2,416,662 $2,290,276 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 145,446 $ 140,327 Current debt 369 393 Accrued employee compensation 23,762 25,015 Deferred revenue 25,840 39,338 Income taxes payable 11,770 9,256 Other current liabilities 77,467 54,944 ---------- ---------- Total current liabilities 284,654 269,273 Long-term debt 80,384 30,669 5.0% convertible subordinated debentures, due 2007 345,000 345,000 8.125% senior subordinated notes, due 2011 375,000 375,000 Deferred income tax liabilities 82,857 81,495 Other noncurrent liabilities 44,138 39,056 ---------- ---------- Total liabilities 1,212,033 1,140,493 ---------- ---------- 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, 95,330,500 shares issued and outstanding (2001-94,671,800 shares issued and outstanding) 95,331 94,672 Paid-in capital 732,379 722,701 Retained earnings 435,060 381,441 ---------- ---------- 1,262,770 1,198,814 Treasury stock, at cost-1,110,400 shares (2001-986,600 shares) (22,869) (19,824) Deferred compensation (32,184) (24,273) Accumulated other comprehensive income (3,088) (4,934) ---------- ---------- Total stockholders' equity 1,204,629 1,149,783 ---------- ---------- Total liabilities and stockholders' equity $2,416,662 $2,290,276 ========== ========== The Notes to Consolidated Financial Statements are an integral part of these statements.
4 CONSOLIDATED STATEMENTS OF CASH FLOWS OMNICARE, INC. AND SUBSIDIARY COMPANIES UNAUDITED (In thousands)
Six Months Ended June 30, ---------------------------- 2002 2001 ------------- ------------- Cash flows from operating activities: Net income $ 58,134 $ 37,440 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 16,510 16,322 Amortization 6,492 20,092 Provision for doubtful accounts 14,176 13,841 Deferred tax provision 4,375 22,101 Non-cash portion of restructuring charges 5,633 - Changes in assets and liabilities, net of effects from acquisition of businesses: Accounts receivable and unbilled receivables (33,913) (15,131) Inventories 14,744 (4,668) Current and noncurrent assets (11,524) (7,080) Accounts payable 3,422 (1,927) Accrued employee compensation (269) (6,294) Deferred revenue (13,498) (7,234) Current and noncurrent liabilities 19,019 (13,406) --------- --------- Net cash flows from operating activities 83,301 54,056 --------- --------- Cash flows from investing activities: Acquisition of businesses (107,794) (5,993) Capital expenditures (8,827) (11,402) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust (3,383) (4,017) Other 253 293 --------- --------- Net cash flows from investing activities (119,751) (21,119) --------- --------- Cash flows from financing activities: Borrowings on line of credit facilities 90,000 70,000 Proceeds from long-term borrowings - 375,000 Payments on line of credit facilities (40,000) (455,000) Principal payments on long-term obligations (244) (1,429) Fees paid for financing arrangements - (14,418) (Payments for) proceeds from stock awards and exercise of stock options, net of stock tendered in payment (763) 3,587 Dividends paid (4,237) (4,181) Other 72 - --------- --------- Net cash flows from financing activities 44,828 (26,441) --------- --------- Effect of exchange rate changes on cash 1,465 (400) --------- --------- Net increase in cash and cash equivalents 9,843 6,096 Cash and cash equivalents at beginning of period - unrestricted 168,396 111,607 --------- --------- Cash and cash equivalents at end of period - unrestricted $ 178,239 $ 117,703 ========= ========= The Notes to Consolidated Financial Statements are an integral part of these statements.
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OMNICARE, INC. AND SUBSIDIARY COMPANIES UNAUDITED 1. Interim Financial Data The interim financial data is unaudited; however, in the opinion of the management of Omnicare, Inc., the interim data includes all adjustments (which include only normal adjustments, except as described in Notes 4 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, 2001. Certain reclassifications of prior year amounts have been made to conform with the current year presentation. 2. Recently Issued Accounting Pronouncements In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement updates, clarifies and simplifies existing accounting pronouncements. Management does not expect the standard to have a material impact on the Company's consolidated financial position, results of operations and cash flows. The FASB has issued SFAS No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to exit an Activity (including Certain Costs Incurred in a Restructuring)" and requires liabilities associated with exit and disposal activities to be expensed as incurred. SFAS 146 will be effective for exit or disposal activities of the Company that are initiated after December 31, 2002. 3. Segment Information Based on the "management approach," as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," Omnicare has two business segments. The Company's largest segment is Pharmacy Services. Pharmacy Services provides distribution of pharmaceuticals, related pharmacy consulting, data management services and medical supplies to long-term care facilities in 45 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, 6 biotechnology, medical devices and diagnostics industries in 28 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, 2002 and 2001 and should be read in connection with the paragraph that follows (in thousands):
Three Months Ended June 30, ---------------------------------------------------------- Corporate Pharmacy CRO and Consolidated 2002: Services Services Consolidating Totals - --------------------------------------------------------------------------------------------------------------- Net sales $ 610,412 $ 43,743 $ -- $ 654,155 Depreciation and amortization 9,948 592 771 11,311 Operating income (expense), excluding restructuring charges 71,614 5,273 (8,458) 68,429 Restructuring charges (2,732) (4,570) -- (7,302) Operating income (expense) 68,882 703 (8,458) 61,127 Total assets 2,063,608 143,398 209,656 2,416,662 Capital expenditures 3,358 164 330 3,852 - --------------------------------------------------------------------------------------------------------------- 2001: - --------------------------------------------------------------------------------------------------------------- Net sales $ 498,178 $ 38,314 $ -- $ 536,492 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 Capital expenditures 6,205 297 294 6,796 - --------------------------------------------------------------------------------------------------------------- Six Months Ended June 30, ---------------------------------------------------------- Corporate Pharmacy CRO and Consolidated 2002: Services Services Consolidating Totals - --------------------------------------------------------------------------------------------------------------- Net sales $1,206,677 $ 85,792 $ -- $1,292,469 Depreciation and amortization 20,383 1,210 1,409 23,002 Operating income (expense), excluding restructuring charges 139,819 10,188 (16,992) 133,015 Restructuring charges (3,858) (8,241) -- (12,099) Operating income (expense) 135,961 1,947 (16,992) 120,916 Total assets 2,063,608 143,398 209,656 2,416,662 Capital expenditures 7,810 314 703 8,827 - --------------------------------------------------------------------------------------------------------------- 2001: - --------------------------------------------------------------------------------------------------------------- Net sales $ 993,579 $ 72,321 $ -- $1,065,900 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 Capital expenditures 10,515 374 513 11,402 - ---------------------------------------------------------------------------------------------------------------
In accordance with EITF Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for `Out-of-Pocket' Expenses Incurred," the Company included in its reported CRO segment net sales amounts of $7.1 million and $13.4 million pretax for the three and six months ended June 30, 2002, respectively ($6.4 million and $12.2 million pretax for the comparable prior year periods ended June 30, 2001, respectively). 7 In accordance with Omnicare's adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), the Company discontinued amortization of goodwill as of January 1, 2002. Accordingly, no goodwill amortization was recorded during the three and six months ended June 30, 2002. Pretax goodwill amortization for the three and six months ended June 30, 2001 totaled $8.0 million and $15.9 million, respectively, for the Pharmacy Services segment, and $0.3 million and $0.6 million, respectively, for the CRO Services segment. 4. Restructuring Charges In 2001, the Company announced the implementation of a second phase (the "Phase II Program") of its previously disclosed productivity and consolidation initiative. The Phase II Program is intended to further streamline operations, increase efficiency and enhance the Company's position as a high quality, cost-effective provider of pharmaceutical services. Building on the previous efforts, the Phase II Program includes the merging or closing of seven pharmacy locations and the reconfiguration in size and function of an additional ten locations. The Phase II Program also includes a reduction in occupied building space in certain locations and the rationalization or reduction of staffing levels in the CRO business in order to better garner the efficiencies of the integration and functional reorganization of that business. The Company expects the Phase II Program to encompass a net reduction of approximately 460 employees, or about 5% of its total workforce, across both the Pharmacy Services and CRO Services segments. In connection with the Phase II Program, the Company expensed $ 18.3 million pretax ($11.4 million aftertax, or $0.12 per diluted share) during the 2001 year. Further, approximately $7.3 million and $12.1 million ($4.5 million and $7.5 million aftertax, or $0.05 and $0.08 per diluted share, respectively) were recorded during the three and six months ended June 30, 2002, respectively. The remaining costs will be taken over the remainder of the program when the amounts are required to be recognized in accordance with generally accepted accounting principles. The restructuring charges include severance pay, the buy-out of employment agreements, the buy-out of lease obligations, the write-off of leasehold improvements and other assets, and related fees and facility exit costs. Details of the pretax restructuring charges recorded in 2001 and the six months ended June 30, 2002 relating to the Phase II Program follow (in thousands):
2001 Utilized Balance at 2002 Utilized Balance at Provision/ during December 31, Provision/ during June 30, Accrual 2001 2001 Accrual 2002 2002 ------- -------- ------ ------- ------- ------- Restructuring charges: Employee severance $ 4,256 $ (2,614) $1,642 $ 628 $ (723) $ 1,547 Employment agreement buy-outs 2,086 (1,578) 508 -- (161) 347 Lease terminations 2,711 (2,105) 606 2,819 (1,088) 2,337 Other assets, fees and facility exit costs 9,291 (6,264) 3,027 8,652 (4,473) 7,206 ------- -------- ------ ------- ------- ------- Total restructuring charges $18,344 $(12,561) $5,783 $12,099 $(6,445) $11,437 ======= ======== ====== ======= ======= =======
8 As of June 30, 2002, the Company had paid approximately $5.1 million of severance and other employee-related costs relating to the reduction of approximately 370 employees. The remaining liabilities recorded at June 30, 2002 are primarily related to activities that the Company anticipates will be finalized within the next year, and which are classified as current liabilities. In connection with the previously disclosed first phase of its productivity and consolidation initiative (the "Phase I Program"), Omnicare had liabilities of $1.5 million at December 31, 2001, of which $0.5 million was utilized in the six months ended June 30, 2002. The remaining liabilities at June 30, 2002 of $1.0 million represent amounts not yet paid relating to actions taken in connection with the Phase I Program (largely comprised of remaining lease payments), and will be adjusted as these matters are settled. 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 $0.01 per diluted share) and $3.0 million pretax ($1.9 million aftertax, or $0.02 per diluted share). The $1.8 million special 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 special 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. Acquisitions In January 2002, Omnicare announced the completion of the acquisition of the assets comprising the pharmaceutical business of American Pharmaceutical Services, Inc. and other related entities (collectively, "APS"). The acquisition included cash consideration at closing of $93.1 million (which is subject to adjustment based on the closing balance sheet review). Up to an additional $18.0 million in deferred payments may become payable, contingent upon future performance. The Company has completed its initial purchase price allocation, including the identification of goodwill and other intangible assets based on an appraisal performed by an independent valuation firm. At the time of the acquisition, APS provided professional pharmacy and related consulting services to approximately 60,000 residents of skilled nursing and assisted living facilities through its network of 32 pharmacies in 15 states, as well as respiratory and Medicare Part B services for residents of long-term care facilities. From the acquisition, Omnicare expects to achieve certain economies of scale and cost synergies. The net assets and operating results of APS have been included in the Company's financial statements beginning in the first quarter of 2002. Unaudited pro forma combined results of operations of the Company and APS for the three and six months ended June 30, 2001 are presented below. Such pro forma presentation has 9 been prepared assuming that the APS acquisition had been made as of January 1, 2001. Pro forma information is not presented for the three and six months ended June 30, 2002 as the results of APS are included in those of the Company from the closing date of January 7, 2002, and the difference from the beginning of the period would not be significant. The unaudited pro forma combined financial information follows (in thousands, except per share data):
Three Months Ended Six Months Ended June 30, 2001 June 30, 2001 ------------- ------------- Net sales $603,767 $1,199,132 Net income $ 19,387 $ 37,002 Earnings per Share: Basic $ 0.21 $ 0.40 Diluted $ 0.21 $ 0.39
In connection with the purchase of APS, the Company acquired amortizable intangible assets comprised of non-compete agreements and customer relationship assets totaling $1.3 million and $3.1 million, respectively. Amortization periods for the non-compete agreements and customer relationship assets are 10.0 years and 4.7 years, respectively, and 6.3 years on a weighted-average basis. The Company has also recorded goodwill totaling approximately $52 million in connection with the acquisition, although this amount is subject to adjustment based on certain open matters, including the finalization of the closing balance sheet review and the payment of any deferred consideration, as discussed above. Further discussion of goodwill and other intangible assets is included in Note 7. 10 7. Goodwill and Other Intangible Assets In accordance with SFAS 142, the Company discontinued the amortization of goodwill effective January 1, 2002. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization, net of tax, follows (in thousands, except per share data):
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2002 2001 2002 2001 ------- ------- ------- ------- Net income, as reported $29,358 $19,396 $58,134 $37,440 Add: Goodwill amortization, net of tax -- 5,168 -- 10,228 ------- ------- ------- ------- Adjusted net income $29,358 $24,564 $58,134 $47,668 ======= ======= ======= ======= Basic earnings per share: Net income, as reported $ 0.31 $ 0.21 $ 0.62 $ 0.40 Add: Goodwill amortization, net of tax -- 0.05 -- 0.11 ------- ------- ------- ------- Adjusted net income $ 0.31 $ 0.26 $ 0.62 $ 0.51 ======= ======= ======= ======= Diluted earnings per share: Net income, as reported $ 0.31 $ 0.21 $ 0.61 $ 0.40 Add: Goodwill amortization, net of tax -- 0.05 -- 0.11 ------- ------- ------- ------- Adjusted net income $ 0.31 $ 0.26 $ 0.61 $ 0.51 ======= ======= ======= =======
Additionally, the adoption of SFAS 142 did not require the Company to record an adjustment to the carrying value of goodwill. Changes in the carrying amount of goodwill for the six months ended June 30, 2002, by business segment, are as follows (in thousands):
Pharmacy CRO Services Services Total -------- -------- ----- Balance as of January 1, 2002 $1,085,938 $37,862 $1,123,800 Goodwill acquired in the six months ended June 30, 2002 51,518 -- 51,518 Other 380 483 863 ---------- ------- ---------- Balance as of June 30, 2002 $1,137,836 $38,345 $1,176,181 ========== ======= ==========
The "Other" caption above includes the settlement of acquisition matters relating to pre-2002 acquisitions (including payments pursuant to acquisition agreements such as deferred payments, indemnification payments and payments originating from earnout provisions), as well as the effect of translation adjustments due to foreign currency translations. 11 The table below presents the Company's other intangible assets at June 30, 2002 and December 31, 2001, all of which are subject to amortization (in thousands):
June 30, 2002 --------------------------------------- Gross Net Carrying Accumulated Carrying Amount Amortization Amount ------ ------------ ------ Non-compete agreements $10,106 $(6,122) $3,984 Customer relationship assets 3,100 (332) 2,768 Other 373 (166) 207 ------- ------- ------ Total $13,579 $(6,620) $6,959 ======= ======= ======
December 31, 2001 --------------------------------------- Gross Net Carrying Accumulated Carrying Amount Amortization Amount ------ ------------ ------ Non-compete agreements $8,963 $(5,754) $3,209 Other 190 (149) 41 ------ ------- ------ Total $9,153 $(5,903) $3,250 ====== ======= ======
Pretax amortization expense related to intangible assets other than goodwill was $0.7 million and $0.9 million for the six months ended June 30, 2002 and 2001, respectively. Estimated annual amortization expense for intangible assets subject to amortization for the next five fiscal years is as follows (in thousands):
Years Ended Amortization December 31, Expense ----------- ------- 2002 $1,416 2003 1,329 2004 1,160 2005 1,095 2006 750
8. Guarantor Subsidiaries The Company's $375.0 million senior subordinated notes due 2011 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, 2002 and December 31, 2001 for the balance sheet, the statement of income for each of the three and six month periods ended June 30, 2002 and 2001, and the statement of cash flows for the six months ended June 30, 2002 and 2001. 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. 12 8. Guarantor Subsidiaries (Continued)
Summary Consolidating Statements of Income (in thousands) Three Months Ended June 30, ---------------------------------------------------------------------------- Guarantor Non-Guarantor Omnicare, Inc. 2002 Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries - ---------------------------------------------------------------------------------------------------------------------------- Total net sales $ -- $626,812 $27,343 $ -- $654,155 Total direct costs -- 460,776 22,449 -- 483,225 -------- -------- ------- -------- -------- Gross profit -- 166,036 4,894 -- 170,930 Selling, general and administrative expenses 6,374 90,799 5,328 -- 102,501 Restructuring charges -- 6,504 798 -- 7,302 -------- -------- ------- -------- -------- Operating income (loss) (6,374) 68,733 (1,232) -- 61,127 Investment income 301 289 77 -- 667 Interest expense (14,279) (193) (3) -- (14,475) -------- -------- ------- -------- -------- Income (loss) before income taxes (20,352) 68,829 (1,158) -- 47,319 Income tax (benefit) expense (7,734) 26,135 (440) -- 17,961 Equity in net income of subsidiaries 41,976 -- -- (41,976) -- -------- -------- ------- -------- -------- Net income (loss) $ 29,358 $ 42,694 $ (718) $(41,976) $ 29,358 - ----------------------------------------------------------------------------------------------------------------------- 2001 - ----------------------------------------------------------------------------------------------------------------------- Total net sales $ -- $511,825 $43,782 $(19,115) $536,492 Total direct costs -- 374,073 39,471 (19,115) 394,429 -------- -------- ------- -------- -------- 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 (loss) (4,052) 50,578 (1,553) -- 44,973 Investment income 617 86 45 -- 748 Interest expense (13,616) (587) (212) -- (14,415) -------- -------- ------- -------- -------- Income (loss) before income taxes (17,051) 50,077 (1,720) -- 31,306 Income tax (benefit) expense (6,479) 19,017 (628) -- 11,910 Equity in net income of subsidiaries 29,968 -- -- (29,968) -- -------- -------- ------- -------- -------- Net income (loss) $ 19,396 $ 31,060 $(1,092) $(29,968) $ 19,396 - -----------------------------------------------------------------------------------------------------------------------
13 8. Guarantor Subsidiaries (Continued)
Summary Consolidating Statements of Income (in thousands) Six Months Ended June 30, ---------------------------------------------------------------------------- Guarantor Non-Guarantor Omnicare, Inc. 2002 Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries - ----------------------------------------------------------------------------------------------------------------------------- Total net sales $ -- $1,237,989 $54,480 $ -- $1,292,469 Total direct costs -- 912,868 44,467 -- 957,335 -------- ---------- ------- -------- ---------- Gross profit -- 325,121 10,013 -- 335,134 Selling, general and administrative expenses 11,764 179,557 10,798 -- 202,119 Restructuring charges -- 11,301 798 -- 12,099 -------- ---------- ------- -------- ---------- Operating income (loss) (11,764) 134,263 (1,583) -- 120,916 Investment income 1,040 319 106 -- 1,465 Interest expense (28,241) (228) (182) -- (28,651) -------- ---------- ------- -------- ---------- Income (loss) before income taxes (38,965) 134,354 (1,659) -- 93,730 Income tax (benefit) expense (14,807) 51,088 (685) -- 35,596 Equity in net income of subsidiaries 82,292 -- -- (82,292) -- -------- ---------- ------- -------- ---------- Net income (loss) $ 58,134 $83,266 $(974) $(82,292) $58,134 - -------------------------------------------------------------------------------------------------------------------------- 2001 - -------------------------------------------------------------------------------------------------------------------------- Total net sales $ -- $1,016,447 $88,180 $(38,727) $1,065,900 Total direct costs -- 743,742 78,558 (38,727) 783,573 -------- ---------- ------- -------- ---------- 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 (loss) (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 (loss) before income taxes (33,951) 97,414 (3,061) -- 60,402 Income tax (benefit) expense (12,901) 36,871 (1,008) -- 22,962 Equity in net income of subsidiaries 58,490 -- -- (58,490) -- -------- ---------- ------- -------- ---------- Net income (loss) $ 37,440 $ 60,543 $(2,053) $(58,490) $ 37,440 - --------------------------------------------------------------------------------------------------------------------------
14 8. Guarantor Subsidiaries (Continued)
Condensed Consolidating Balance Sheets (in thousands) Guarantor Non-Guarantor Omnicare, Inc. June 30, 2002: Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 134,549 $ 34,975 $ 8,715 $ -- $ 178,239 Restricted cash -- 6,305 -- -- 6,305 Accounts receivable, net (including intercompany) -- 524,085 12,334 (18,403) 518,016 Inventories -- 142,742 4,160 -- 146,902 Other current assets 2,964 141,178 768 -- 144,910 ---------- ---------- -------- ----------- ---------- Total current assets 137,513 849,285 25,977 (18,403) 994,372 ---------- ---------- -------- ----------- ---------- Properties and equipment, net 3,272 141,305 10,417 -- 154,994 Goodwill -- 1,113,434 62,747 -- 1,176,181 Other noncurrent assets 32,496 57,852 767 -- 91,115 Investment in subsidiaries 1,862,381 -- -- (1,862,381) -- ---------- ---------- -------- ----------- ---------- Total assets $2,035,662 $2,161,876 $ 99,908 $(1,880,784) $2,416,662 ---------- ---------- -------- ----------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities (including intercompany) $29,184 $264,386 $ 9,487 $ (18,403) $284,654 Long-term debt 80,000 384 -- -- 80,384 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 1,849 124,928 218 -- 126,995 Stockholders' equity 1,204,629 1,772,178 90,203 (1,862,381) 1,204,629 ---------- ---------- -------- ----------- ---------- Total liabilities and stockholders' equity $2,035,662 $2,161,876 $ 99,908 $(1,880,784) $2,416,662 - ------------------------------------------------------------------------------------------------------------------------- December 31, 2001: - ------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 127,110 $ 37,304 $ 3,982 $ -- $ 168,396 Restricted cash -- 2,922 -- -- 2,922 Accounts receivable, net (including intercompany) -- 462,882 24,648 (9,453) 478,077 Inventories -- 144,833 4,301 -- 149,134 Other current assets 944 126,049 2,072 -- 129,065 ---------- ---------- -------- ----------- ---------- Total current assets 128,054 773,990 35,003 (9,453) 927,594 ---------- ---------- -------- ----------- ---------- Properties and equipment, net 3,192 139,130 12,751 -- 155,073 Goodwill, net -- 1,060,523 63,277 -- 1,123,800 Other noncurrent assets 30,023 53,317 469 -- 83,809 Investment in subsidiaries 1,754,149 -- -- (1,754,149) -- ---------- ---------- -------- ----------- ---------- Total assets $1,915,418 $2,026,960 $111,500 $(1,763,602) $2,290,276 ---------- ---------- -------- ----------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities (including intercompany) $ 14,797 $246,338 $17,591 $ (9,453) $269,273 Long-term debt 30,000 609 60 -- 30,669 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 838 119,227 486 -- 120,551 Stockholders' equity 1,149,783 1,660,786 93,363 (1,754,149) 1,149,783 ---------- ---------- -------- ----------- ---------- Total liabilities and stockholders' equity $1,915,418 $2,026,960 $111,500 $(1,763,602) $2,290,276 - -------------------------------------------------------------------------------------------------------------------------
15 8. Guarantor Subsidiaries (Continued) Condensed Consolidating Statements of Cash Flows
(in thousands) Six Months Ended June 30, ---------------------------------------------------------- Guarantor Non-Guarantor Omnicare, Inc. 2002: Parent Subsidiaries Subsidiaries and Subsidiaries - ----------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Provision for doubtful accounts $ -- $ 13,716 $ 460 $ 14,176 Other (13,333) 78,278 4,180 69,125 --------- --------- --------- --------- Net cash flows from operating activities (13,333) 91,994 4,640 83,301 --------- --------- --------- --------- Cash flows from investing activities: Acquisition of businesses -- (106,544) (1,250) (107,794) Capital expenditures -- (8,588) (239) (8,827) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust -- (3,383) -- (3,383) Other -- 136 117 253 --------- --------- --------- --------- Net cash flows from investing activities -- (118,379) (1,372) (119,751) --------- --------- --------- --------- Cash flows from financing activities: Borrowings on line of credit facilities 90,000 -- -- 90,000 Payments on line of credit facilities (40,000) -- -- (40,000) Other (29,228) 24,056 -- (5,172) --------- --------- --------- --------- Net cash flows from financing activities 20,772 24,056 -- 44,828 --------- --------- --------- --------- Effect of exchange rate changes on cash -- -- 1,465 1,465 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 7,439 (2,329) 4,733 9,843 Cash and cash equivalents at beginning of period - unrestricted 127,110 37,304 3,982 168,396 --------- --------- --------- --------- Cash and cash equivalents at end of period - unrestricted $ 134,549 $ 34,975 $ 8,715 $ 178,239 - --------------------------------------------------------------------------------------------------------------------------- 2001: - --------------------------------------------------------------------------------------------------------------------------- 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 Proceeds from long-term borrowings 375,000 -- -- 375,000 Payments on line of credit facilities (455,000) -- -- (455,000) 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 - ---------------------------------------------------------------------------------------------------------------------------
16 9. Subsequent Event On July 29, 2002, the Company made public its July 26, 2002 offer to acquire NCS Healthcare, Inc. ("NCS"). Under that proposal, Omnicare would acquire NCS in a merger transaction pursuant to which NCS stockholders would receive $3.00 per share in cash and the Company would assume and/or retire existing NCS debt at its full principal amount plus accrued interest, bringing the total value of the Omnicare offer to nearly $400 million. Subsequent to the Company's offer, NCS announced the signing of a merger agreement with Genesis Health Ventures, Inc. ("Genesis"), whereby NCS stockholders would receive 0.1 share of Genesis stock for each outstanding NCS share held and Genesis would retire existing NCS debt at its full principal amount, a deal valued at approximately half of Omnicare's offer for the equity component of the proposed transaction. On August 1, 2002, the Company increased its offer to $3.50 per share and on August 8, 2002 commenced a cash tender offer for all of the outstanding shares of NCS at $3.50 per share. Additionally, the Company filed a lawsuit in Delaware Chancery Court to set aside the merger agreement between Genesis and NCS and certain related voting agreements. To date, NCS has not responded to the Company concerning its offer. 17 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 Report. 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, 2002 vs. 2001 Consolidated Diluted earnings per share for the three months ended June 30, 2002 were $0.31 versus $0.21 earned in the same prior year period, including the impact of restructuring charges in the 2002 period and other expense in the 2001 period, as discussed below. Net income, on this basis, for the 2002 second quarter was $29.4 million versus $19.4 million earned in the comparable 2001 period. Earnings before interest, taxes, depreciation and amortization ("EBITDA") totaled $72.4 million for the three months ended June 30, 2002 as compared with EBITDA of $63.3 million in the same period of 2001. Total net sales for the three months ended June 30, 2002 rose to $654.2 million from the $536.5 million recorded in the comparable prior year period. Effective January 1, 2002, in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), Omnicare adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," ("SFAS 142") eliminating the amortization of goodwill related to acquisitions. Accordingly, no goodwill amortization was recorded during the second quarter of 2002. In the second quarter of 2001, this accounting standard would have had the effect of adding approximately $5.2 million aftertax ($0.05 per diluted share) to net income. In addition, the Company adopted Emerging Issues Task Force ("EITF") Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for `Out-of-Pocket' Expenses Incurred," which requires that, in cases where a company acts as a principal, reimbursements received for "out-of-pocket" expenses incurred be characterized as revenue and the associated costs be included as expenses in the Company's income statement. As a result of this accounting pronouncement, which affects only the contract research organization ("CRO") business, CRO revenues and direct costs may fluctuate significantly based on the timing of when reimbursable expenses are incurred. EITF No. 01-14 had the effect of increasing both sales and cost of sales by $7.1 million in the 2002 period and $6.4 million in the 2001 period. Accordingly, it had no impact on operating or net income. Included in the 2002 and 2001 second quarters were charges of $7.3 million and $3.0 million pretax ($4.5 million and $1.9 million aftertax, or $0.05 and $0.02 per diluted share, respectively) related to the second phase of a productivity and consolidation initiative (the "Phase II Program"), and other expense, respectively. The restructuring programs are further discussed at the "Restructuring Charges" section below. Other expense represents a settlement 18 during the second quarter of 2001 of certain contractual issues with a customer, which issues and amount related to a prior period. Diluted earnings per share for the second quarter of 2002 were $0.36, excluding the impact of restructuring charges associated with the Phase II Program, as compared with $0.28 earned in the prior year quarter, excluding goodwill amortization and other expense as previously discussed above. Net income, on that basis, was $33.9 million for the 2002 second quarter versus the $26.4 million earned in the comparable 2001 quarter. EBITDA, on the same basis, totaled $79.7 million for the three months ended June 30, 2002 as compared with $66.3 million in the second quarter of 2001. Pharmacy Services Segment Omnicare's Pharmacy Services segment recorded sales of $610.4 million for the second quarter of 2002 as compared with $498.2 million recorded in the same prior year period, representing an increase of $112.2 million. Operating income in this segment reached $71.6 million, representing an increase of $19.3 million above the prior year quarter amount of $52.3 million (excluding restructuring charges and other expense from the 2002 and 2001 periods, respectively). Owing to the acquisition of American Pharmaceutical Services ("APS") as discussed below, and the efforts of the Company's National Sales & Marketing Group and pharmacy staff in developing new contracts, the number of residents served at June 30, 2002 increased to approximately 738,000 from 650,100 one year earlier. Additionally, the continued implementation of the Company's clinical programs along with drug price inflation and 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, as well as the acquisition of APS, partially offset by lower government reimbursement formulas in some states, served to increase pharmacy sales. The increase in sales in relation to a lower operating cost structure brought about largely by the previously disclosed Phase II Program, in addition to the exclusion of goodwill amortization which was $8.0 million in the comparable prior year quarter, 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. At the same time, other healthcare funding issues remain, including pressures on federal and state Medicaid budgets due to the economic downturn which has led to decreasing reimbursement rates in certain states. While the Company has successfully adjusted to these pricing pressures, pricing pressures are likely to continue if the economic recovery fails to emerge. In January 2002, Omnicare announced the completion of the acquisition of the assets comprising the pharmaceutical business of American Pharmaceutical Services, Inc. and other related entities (collectively, "APS"). The acquisition included cash consideration at closing of $93.1 million (which is subject to adjustment based on the closing balance sheet review). Up to an additional $18.0 million in deferred payments may become payable, contingent upon future performance. The Company has completed its initial purchase price allocation, including the identification of goodwill and other intangible assets based on an appraisal performed by an independent valuation firm. 19 At the time of the acquisition, APS provided professional pharmacy and related consulting services to approximately 60,000 residents of skilled nursing and assisted living facilities through its network of 32 pharmacies in 15 states, as well as respiratory and Medicare Part B services for residents of long-term care facilities. From the acquisition, Omnicare expects to achieve certain economies of scale and cost synergies. The net assets and operating results of APS have been included in the Company's financial statements beginning in the first quarter of 2002. Based upon historical financial information, during the full 2002 fiscal year the acquired APS assets are expected to generate approximately $240.0 million in incremental revenues. On July 29, 2002, the Company made public its July 26, 2002 offer to acquire NCS Healthcare, Inc. ("NCS"). Under that proposal, Omnicare would acquire NCS in a merger transaction pursuant to which NCS stockholders would receive $3.00 per share in cash and the Company would assume and/or retire existing NCS debt at its full principal amount plus accrued interest, bringing the total value of the Omnicare offer to nearly $400 million. Subsequent to the Company's offer, NCS announced the signing of a merger agreement with Genesis Health Ventures, Inc. ("Genesis"), whereby NCS stockholders would receive 0.1 share of Genesis stock for each outstanding NCS share held and Genesis would retire existing NCS debt at its full principal amount, a deal valued at approximately half of Omnicare's offer for the equity component of the proposed transaction. On August 1, 2002, the Company increased its offer to $3.50 per share and on August 8, 2002 commenced a cash tender offer for all of the outstanding shares of NCS at $3.50 per share. Additionally, the Company filed a lawsuit in Delaware Chancery Court to set aside the merger agreement between Genesis and NCS and certain related voting agreements. To date, NCS has not responded to the Company concerning its offer. CRO Services Segment Omnicare's Clinical Research ("CRO Services") segment recorded revenues of $43.7 million during the second quarter of 2002 as compared with $38.3 million recorded in the same prior year period, representing an increase of $5.4 million. In accordance with EITF No. 01-14, the Company included $7.1 million and $6.4 million in its CRO Services segment reported revenue and direct cost amounts for the three months ended June 30, 2002 and 2001, respectively. Operating income in this segment for the second quarter of 2002 was $5.3 million, an increase of $2.5 million in comparison to the same prior year quarter operating income of $2.8 million (excluding restructuring charges from the 2002 period). The improvements in revenue, owing to strong business gains in prior quarters and the recovery of the overall drug research market, coupled with efforts made to integrate and streamline the organization, and the exclusion of goodwill amortization totaling $0.3 million in the comparable prior year quarter, produced these substantial increases in profitability. Backlog at June 30, 2002 was $194.7 million, representing a decrease of approximately 7.9% from June 30, 2001 and $2.1 million from March 31, 2002 backlog of $196.8 million due to projects moving out of backlog at a more rapid pace in the second quarter of 2002. 20 Consolidated The Company's consolidated gross profit increased $28.8 million from the prior year to $170.9 million. Gross profit as a percentage of total net sales decreased to 26.1% in the second quarter of 2002 from 26.5% in the same period of 2001 (26.4% and 26.8%, respectively, excluding the previously disclosed impact of EITF No. 01-14). 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 previously disclosed Phase II Program. These favorable factors were more than offset by the initial impact of the lower-margin APS business, the adoption of EITF No. 01-14, the previously mentioned shift in mix towards newer, branded drugs which typically produce higher gross profit, but lower gross profit margins, and the effect of lower government reimbursement formulas in some states. Omnicare's selling, general and administrative ("operating") expenses for the quarter ended June 30, 2002 of $102.5 million were higher than the comparable prior year amount of $85.8 million (excluding goodwill amortization of $8.3 million pretax, or $5.2 million aftertax), by $16.7 million, due to the overall growth of the business, including the APS acquisition. However, operating expenses as a percentage of total net sales totaled 15.7% in the 2002 second quarter, representing a decline from the 16.0% experienced in the comparable prior year period, excluding goodwill amortization (15.8% and 16.2%, respectively, excluding the previously disclosed impact of EITF No. 01-14). This decline is primarily due to improved leveraging of fixed and variable overhead costs over a higher sales base in the 2002 second quarter, and the year-over-year favorable impact of the Phase II Program. In connection with the Phase II Program discussed at the "Restructuring Charges" section below, the Company recorded pretax restructuring charges of $7.3 million ($4.5 million aftertax, or $0.05 per diluted share) in the three months ended June 30, 2002, primarily comprised of employee severance, employment agreement buy-out costs, lease termination costs, other assets, fees and facility exit costs. Investment income for the three months ended June 30, 2002 was $ 0.7 million, consistent with the same period of 2001. Lower interest rates served to offset the favorable impact of larger invested cash balances during the three months ended June 30, 2002 versus the same period of 2001. Interest expense for the three months ended June 30, 2002 of $14.5 million was relatively consistent with the comparable prior year quarter. The effective tax rate was 38% in the second quarter of 2002, consistent with the comparable prior year quarter rate. The effective tax rates in the 2002 and 2001 second quarters are higher than the federal statutory rate largely as a result of the combined impact of state and local income taxes, various nondeductible expenses and tax-accrual adjustments. 21 Year-to-Date June 30, 2002 vs. 2001 Consolidated Diluted earnings per share for the six months ended June 30, 2002 were $0.61 versus $0.40 earned in the same prior year period, including the impact of restructuring charges in the 2002 period and other expense in the 2001 period, as discussed below. Net income, on this basis, for the six months ended June 30, 2002 was $58.1 million versus $37.4 million earned in the comparable 2001 period. EBITDA totaled $143.9 million for the six months ended June 30, 2002 as compared with EBITDA of $123.9 million in the same period of 2001. Total net sales for the six months ended June 30, 2002 rose to $1,292.5 million from the $1,065.9 million recorded in the comparable prior year period. In connection with the previously discussed SFAS 142, no goodwill amortization was recorded during the six months ended June 30, 2002. In the six months ended June 30, 2001, this accounting standard would have had the effect of adding approximately $10.2 million aftertax ($0.11 per diluted share) to net income. Further, in connection with the previously discussed EITF No. 01-14, sales and cost of sales increased by $13.4 million and $12.2 million in the six months ended June 30, 2002 and 2001, respectively. Included in the year-to-date June 30, 2002 and 2001 periods were charges of $12.1 million and $4.8 million pretax ($7.5 million and $3.0 million aftertax, or $0.08 and $0.03 per diluted share, respectively) related to the Phase II Program, and other expense, respectively (both of which are further discussed below). Diluted earnings per share for the six months ended June 30, 2002 were $0.69, excluding the impact of restructuring charges associated with the Phase II Program, as compared with $0.54 earned in the prior year period, excluding goodwill amortization and other expense. Net income, on that basis, was $65.6 million for the 2002 six month period versus the $50.7 million earned in the comparable 2001 period. EBITDA, on the same basis, totaled $156.0 million for the six months ended June 30, 2002 as compared with $128.7 million in the comparable 2001 period. Pharmacy Services Segment Omnicare's Pharmacy Services segment recorded sales of $1,206.7 million for the six months ended June 30, 2002 as compared with $993.6 million recorded in the same prior year period, representing an increase of $213.1 million. Operating income in this segment reached $139.8 million, representing an increase of $38.3 million above the prior year period amount of $101.5 million (excluding restructuring charges and other expense from the 2002 and 2001 periods, respectively). A higher number of residents served, the continued implementation of the Company's clinical programs, drug price inflation and 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, as well as the aforementioned acquisition of APS, partially offset by lower government reimbursement formulas in some states, served to increase pharmacy sales. The increase in sales in relation to a lower operating cost structure brought about largely by the Phase II Program, in addition to the exclusion of goodwill amortization which was $15.9 million in the comparable prior year period, produced increased 22 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 overall performance of the Pharmacy Services segment. At the same time, other healthcare funding issues remain, including pressures on federal and state Medicaid budgets due to the economic downturn which has led to decreasing reimbursement rates in certain states. While the Company has successfully adjusted to these pricing pressures, pricing pressures are likely to continue if the economic recovery fails to emerge. CRO Services Segment The CRO Services segment recorded revenues of $85.8 million during the six months ended June 30, 2002 as compared with $72.3 million recorded in the same prior year period, representing an increase of $13.5 million. In accordance with EITF No. 01-14, the Company included $13.4 million and $12.2 million in its CRO Services segment reported revenue and direct cost amounts for the six months ended June 30, 2002 and 2001, respectively. Operating income in this segment for the six months ended June 30, 2002 was $10.2 million, an increase of $5.4 million in comparison to the prior year period operating income of $4.8 million (excluding restructuring charges from the 2002 period). The improvements in revenue, owing to strong business gains in prior quarters and the recovery of the overall drug research market, coupled with efforts made to integrate and streamline the organization, and the exclusion of goodwill amortization totaling $0.6 million in the comparable prior year period, produced these substantial increases in profitability. Consolidated The Company's consolidated gross profit increased $52.8 million from the prior year to $335.1 million. Gross profit as a percentage of total net sales decreased to 25.9% in the six months ended June 30, 2002 from 26.5% in the same period of 2001 (26.2% and 26.8%, respectively, excluding the previously disclosed impact of EITF No. 01-14). 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 Phase II Program. These favorable factors were more than offset by the initial impact of the lower-margin APS business, the adoption of EITF No. 01-14, the shift in mix towards newer, branded drugs which typically produce higher gross profit, but lower gross profit margins, and the effect of lower government reimbursement formulas in some states. Operating expenses for the six months ended June 30, 2002 of $202.1 million were higher than the comparable prior year amount of $173.5 million (excluding goodwill amortization of $16.5 million pretax, or $10.2 million aftertax), by $28.6 million, due to the overall growth of the business. However, operating expenses as a percentage of total net sales totaled 15.6% in the six months ended June 30, 2002, representing a decline from the 16.3% experienced in the comparable prior year period, excluding goodwill amortization (15.8% and 16.5%, respectively, excluding the previously disclosed impact of EITF No. 01-14). This decline is primarily due to improved leveraging of fixed and variable overhead costs over a higher sales 23 base in the six months ended June 30, 2002, and the year-over-year favorable impact of the Phase II Program. In connection with the Phase II Program discussed at the "Restructuring Charges" section below, the Company recorded pretax restructuring charges of $12.1 million ($7.5 million aftertax, or $0.08 per diluted share) in the six months ended June 30, 2002, primarily comprised of employee severance, employment agreement buy-out costs, lease termination costs, other assets, fees and facility exit costs. Included in the year-to-date June 2001 results are other expense items totaling $1.8 million pretax ($1.1 million aftertax, or $0.01 per diluted share) and $3.0 million pretax ($1.9 million aftertax, or $0.02 per diluted share). The $1.8 million special 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 special 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. Investment income for the six months ended June 30, 2002 was $1.5 million, an improvement of $0.3 million over the same period of 2001. Larger average invested cash balances during the six months ended June 30, 2002 versus the comparable prior year period, partially offset by the impact of lower interest rates in the 2002 versus 2001 period, was the primary driver of the year-to-year increase in investment income. Interest expense for the six months ended June 30, 2002 of $28.7 million was relatively consistent with the comparable prior year period. The effective tax rate was 38% in the year-to-date June 30, 2002 period, consistent with the comparable prior year period. The effective tax rates in the 2002 and 2001 six months periods are higher than the federal statutory rate largely as a result of the combined impact of state and local income taxes, various nondeductible expenses and tax-accrual adjustments. Restructuring Charges In 2001, the Company announced the Phase II Program, which is intended to further streamline operations, increase efficiency and enhance the Company's position as a high quality, cost-effective provider of pharmaceutical services. Building on previous efforts, the Phase II Program includes the merging or closing of seven pharmacy locations and the reconfiguration in size and function of an additional ten locations. The Phase II Program also includes a reduction in occupied building space in certain locations and the rationalization or reduction of staffing levels in the CRO business in order to better garner the efficiencies of the integration and functional reorganization of that business. The Company expects the Phase II Program to encompass a net reduction of approximately 460 employees, or about 5% of its total workforce, across both the Pharmacy Services and CRO Services segments. 24 In connection with the Phase II Program, the Company expensed $18.3 million pretax ($11.4 million aftertax, or $0.12 per diluted share) during the 2001 year. Further, approximately $7.3 million and $12.1 million ($4.5 million and $7.5 million aftertax, or $0.05 and $0.08 per diluted share, respectively) were recorded in the three and six months ended June 30, 2002, respectively. The remaining costs will be taken over the remainder of the program when the amounts are required to be recognized in accordance with generally accepted accounting principles. The restructuring charges include severance pay, the buy-out of employment agreements, the buy-out of lease obligations, the write-off of leasehold improvements and other assets, and related fees and facility exit costs. Details of the pretax restructuring charges recorded in 2001 and the six months ended June 30, 2002 relating to the Phase II Program follow (in thousands):
2001 Utilized Balance at 2002 Utilized Balance at Provision/ during December 31, Provision/ during June 30, Accrual 2001 2001 Accrual 2002 2002 ---------- ---------- -------------- ---------- ----------- ------------ Restructuring charges: Employee severance $4,256 $(2,614) $1,642 $628 $(723) $1,547 Employment agreement buy-outs 2,086 (1,578) 508 -- (161) 347 Lease terminations 2,711 (2,105) 606 2,819 (1,088) 2,337 Other assets, fees and facility exit costs 9,291 (6,264) 3,027 8,652 (4,473) 7,206 ------- -------- ------ ------- ------- ------- Total restructuring charges $18,344 $(12,561) $5,783 $12,099 $(6,445) $11,437 ======= ======== ====== ======= ======= =======
As of June 30, 2002, the Company had paid approximately $5.1 million of severance and other employee-related costs relating to the reduction of approximately 370 employees. The remaining liabilities recorded at June 30, 2002 are primarily related to activities that the Company anticipates will be finalized within the next year, and which are classified as current liabilities. In connection with the previously disclosed first phase of its productivity and consolidation initiative (the "Phase I Program"), Omnicare had liabilities of $1.5 million at December 31, 2001, of which $0.5 million was utilized in six months ended June 30, 2002. The remaining liabilities at June 30, 2002 of $1.0 million represent amounts not yet paid relating to actions taken in connection with the Phase I Program (largely comprised of remaining lease payments), and will be adjusted as these matters are settled. Liquidity and Capital Resources Cash and cash equivalents at June 30, 2002 were $184.5 million compared with $171.3 million at December 31, 2001 (including restricted cash amounts of $6.3 million and $2.9 million, respectively). The Company generated positive net cash flows from operating activities of $83.3 million (including the impact of purchasing pharmaceuticals in advance of price increases, or "prebuys") during the six months ended June 30, 2002. These funds, and borrowings of $90 million under the Company's line of credit facility, were used primarily for acquisition-related payments (primarily the aforementioned APS acquisition, as well as amounts payable pursuant to acquisition agreements relating to pre-2002 acquisitions), debt repayment, capital expenditures and dividends. 25 Net cash used in investing activities was $119.8 million and $21.1 million for the six months ended June 30, 2002 and 2001, respectively. The large increase is primarily the result of the APS acquisition in the first quarter of 2002. The Company's capital requirements are primarily related to its acquisition program, as well as capital expenditures, including those related to investments in the Company's information technology systems. There are no material commitments and contingencies outstanding at June 30, 2002, other than the Company's cash tender offer for all of the outstanding shares of NCS, as well as certain acquisition-related payments potentially due in the future, including deferred payments, indemnification payments and payments originating from earnout provisions (including up to an additional $18.0 million relating to APS, contingent upon performance). Net cash flows provided by financing activities totaled $44.8 million for the six months ended June 30, 2002 compared to a net use of $26.4 million for the comparable prior year period. 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. On October 24, 2001, the Company's offer to exchange the originally issued Senior Notes for Senior Notes which have been registered under the Securities Act of 1933 expired with all Senior Notes having been exchanged. Concurrent with the original 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 in connection with terminating the Company's then existing facilities. 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, 2002, the Revolving Credit Facility bears an interest rate of LIBOR plus 1.375%, incurs commitment fees on the unused portion at a rate of 0.375% and has no utilization fee. In connection with the APS acquisition, the Company borrowed $90 million on the Revolving Credit Facility, of which $40 million has been repaid during the six month period ended June 30, 2002. The Company's current ratio of 3.5 to 1.0 at June 30, 2002 is relatively consistent with the 3.4 to 1.0 in existence at December 31, 2001. On May 20, 2002, 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 2002. Dividends of $4.2 million paid during the six months ended June 30, 2002 were consistent with those paid in the comparable prior year period. If the Company acquires NCS pursuant to the Company's cash tender offer, it will use funds of approximately $405 million, of which approximately $95 million would be for the purchase of NCS's shares and the payment of expenses and approximately $310 million would be for the pay off of NCS's indebtedness and the redemption of NCS's notes. The Company presently intends to use available cash and additional borrowings under its Revolving Credit Facility to fund these payments. The Company believes that cash flows from operations, credit facilities and other short- and long-term debt financings, if any, will be sufficient to satisfy its future working capital, acquisition contingency commitments, capital expenditures, debt servicing and other financing requirements for the foreseeable future. The Company may, in the future, refinance its indebtedness, issue additional indebtedness, or issue additional equity as 26 deemed appropriate. The Company believes that, if needed, these additional external sources of financing are readily available. Recently Issued Accounting Pronouncements In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement updates, clarifies and simplifies existing accounting pronouncements. Management does not expect the standard to have a material impact on the Company's consolidated financial position, results of operations and cash flows. The FASB has issued SFAS No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 supersedes EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to exit an Activity (including Certain Costs Incurred in a Restructuring)" and requires liabilities associated with exit and disposal activities to be expensed as incurred. SFAS 146 will be effective for exit or disposal activities of the Company that are initiated after December 31, 2002. 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 business outlook or position or future economic performance; the impact of the acquisition of APS; the impact of lower government reimbursement formulas in some states; internal growth resulting from the development of new contracts; the impact of clinical programs; the impact of drug price inflation; the impact of penetration of new drugs; the impact of the productivity and consolidation programs; the operating environment for skilled nursing facilities; the impact of higher reimbursement under the BBRA and BIPA; governmental pricing pressures due to the continuing economic downturn; the impact of Omnicare's efforts to acquire NCS; the impact of prior period business gains on current quarter CRO performance; the operating environment in the CRO industry; the impact of the integration and streamlining of the CRO organization; trends concerning CRO backlog; trends concerning the number of residents served; purchasing leverage; the formulary compliance program; the leveraging of costs; expectations concerning pharmaceutical price increases and the impact of prebuys on costs; the adequacy and availability of Omnicare's sources of liquidity and capital; the availability of external sources of financing; and the impact of new accounting rules and standards including SFAS 146. Such forward-looking statements involve actual known and unknown risks, uncertainties, contingencies and other factors that could cause actual results, performance or achievements to differ materially from those stated. Such risks, uncertainties, contingencies and 27 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; the ability to implement productivity, consolidation and cost reduction efforts and to realize anticipated benefits; delays and further reductions in governmental reimbursement to customers and to Omnicare as a result of pressures on federal and state budgets due to the continuing economic downturn and other factors; the overall financial condition of Omnicare's customers; Omnicare's ability to assess and react to the financial condition of customers; the impact of seasonality on the business of Omnicare; the ability of vendors to provide products and services to Omnicare; the continued successful integration of the CRO business and acquired companies, including APS, and the ability to realiz anticipated economies of scale and cost synergies; the impact and pace of pharmaceutical price increases; increases or decreases in reimbursement; the effect of new government regulations, executive orders and/or legislative initiatives, including those relating to reimbursement and drug pricing policies and changes in the interpretation and application of such policies; government budgetary pressures and shifting priorities; efforts by payors to control costs; the ability to consummate an acquisition transaction involving NCS; 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 future periods; the ability to attract and 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 and in the financial markets generally; 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. 28 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Omnicare's primary market risk exposure relates to interest rate risk exposure through its borrowings. The Company's debt obligations at June 30, 2002 include $80.0 million outstanding under its three-year, $500.0 million variable-rate Revolving Credit Facility at an interest rate of LIBOR plus 1.375%, or 3.2% at June 30, 2002 (a one-hundred basis point change in the interest rate would impact pretax interest expense by approximately $0.8 million per year); $345.0 million outstanding under its 5.0% fixed rate convertible debentures, due 2007 (the "Convertible Debentures"); and $375.0 million outstanding under its 8.125% fixed rate Senior Notes, due 2011. At June 30, 2002, the fair value of Omnicare's Revolving Credit Facility approximates its carrying value, and the fair value of the Convertible Debentures and Senior Notes is approximately $326.5 million and approximately $386.3 million, respectively. The Company has operations and revenue that occur outside of the United States ("U.S.") and transactions that are settled in currencies other than the U.S. dollar, exposing it to market risk related to changes in foreign currency exchange rates. However, the substantial portion of the Company's operations and revenues and the substantial portion of the Company's cash settlements are exchanged in U.S. dollars. Therefore, changes in foreign currency exchange rates do not represent a substantial market risk exposure to the Company. The Company does not have any financial instruments held for trading purposes, and does not hedge any of its market risks with derivative instruments. 29 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 20, 2002. (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 84,199,516 3,077,410 Joel F. Gemunder 84,250,633 3,026,293 Timothy E. Bien, R.Ph., FASCP 84,248,051 3,028,875 Charles H. Erhart, Jr. 84,550,551 2,726,375 David W. Froesel, Jr. 84,257,337 3,019,589 Cheryl D. Hodges 84,250,905 3,026,021 Patrick E. Keefe 84,247,033 3,029,893 Sandra E. Laney 84,058,195 3,218,731 Andrea R. Lindell, DNSc, RN 84,602,535 2,674,391 Sheldon Margen, M.D. 84,992,477 2,284,449 Kevin J. McNamara 84,499,079 2,777,847 John H. Timoney 84,614,380 2,662,546
(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 2002 year. A total of 83,461,063 votes were cast in favor of the proposal; 3,777,071 votes were cast against it; 38,792 votes abstained; and there were no Broker non-votes. (d) The Stockholders re-approved amendments to the Company's 1992 Long-Term Stock Incentive Plan. A total of 76,846,224 votes were cast in favor of the proposal; 10,243,161 were cast against it; 187,541 votes abstained; and there were no Broker non-votes. 30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit Number Exhibit ------ ------- 11 Computation of Earnings Per Common Share 99.1 Certification of Chief Executive Officer of Omnicare, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer of Omnicare, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K The Company filed no reports on Form 8-K during the quarter ended June 30, 2002. 31 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, 2002 By: /s/David W. Froesel, Jr. --------------------- ------------------------------ David W. Froesel, Jr. Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 32 EX-11 3 ex11.txt EXHIBIT 11 Exhibit 11 COMPUTATION OF EARNINGS PER COMMON SHARE ("EPS") OMNICARE, INC. AND SUBSIDIARY COMPANIES UNAUDITED
(in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, ----------------------- ------------------------ 2002 2001 2002 2001 ------- -------- ------- -------- Basic Earnings: Net income $29,358 $19,396 $58,134 $37,440 ======= ======= ======= ======= Shares Weighted average number of common shares outstanding 94,175 93,198 94,070 92,812 ======= ======= ======= ======= Basic EPS (c) $0.31 $0.21 $0.62 $0.40 ======= ======= ======= ======= Diluted Earnings (a): Net income $29,358 $19,396 $58,134 $37,440 ======= ======= ======= ======= Shares Weighted average number of common shares outstanding 94,175 93,198 94,070 92,812 Additional shares assuming conversion of stock options and stock warrants (b) 1,117 844 914 880 ------- ------- ------- ------- Weighted average common shares outstanding, as adjusted 95,292 94,042 94,984 93,692 ======= ======= ======= ======= Diluted EPS (c) $ 0.31 $ 0.21 $ 0.61 $ 0.40 ======= ======= ======= =======
(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, 2002 and 2001, 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, 2002 and 2001, the anti-dilutive effect associated with options and warrants was 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 aggregate anti-dilutive stock options and warrants excluded for the quarter ended June 30, 2002 and 2001 totaled 4.2 million and 3.9 million, respectively. Further, 4.1 million and 3.9 million anti-dilutive options and warrants were excluded from the year-to-date June 30, 2002 and 2001, respectively. (c) In accordance with the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," Omnicare discontinued amortization of goodwill as of January 1, 2002. Accordingly, no goodwill amortization was recorded during the three and six months ended June 30, 2002. Goodwill amortization during the three and six months ended June 30, 2001 totaled $8.3 million before taxes ($5.2 million after taxes, or $0.05 per basic and diluted share) and $16.5 million before taxes ($10.2 million after taxes, or $0.11 per basic and diluted share), respectively. EX-99 4 ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 SECTION 906 CEO CERTIFICATION I, Joel F. Gemunder, President and Chief Executive Officer of Omnicare, Inc. (the "Company"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2002 (the "Periodic Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and 2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 14, 2002 /s/Joel F. Gemunder --------------------------------------- Joel F. Gemunder President and Chief Executive Officer EX-99 5 ex99-2.txt EXHIBIT 99.2 Exhibit 99.2 SECTION 906 CFO CERTIFICATION I, David W. Froesel, Jr., Senior Vice President and Chief Financial Officer of Omnicare, Inc. (the "Company"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2002 (the "Periodic Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and 2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 14, 2002 /s/David W. Froesel, Jr. ----------------------------------- David W. Froesel, Jr. Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----