-----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, MniZLmdCSPdQ0hCfmq3L6xXB4KKAbgilZdaNWX0JBh03oWZ5lrS2XAR606DQxWLT Vd2aVYxuOJb/KtJzjUVcJQ== 0000950117-03-004865.txt : 20031114 0000950117-03-004865.hdr.sgml : 20031114 20031114142201 ACCESSION NUMBER: 0000950117-03-004865 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 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: 031003158 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 a36458.txt OMNICARE, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2003 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 1-8269 OMNICARE, INC. -------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 31-1001351 ----------------------------------- ------------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization)
100 East RiverCenter Boulevard, Covington, Kentucky 41011 --------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (859) 392-3300 -------------- (Registrant's Telephone Number, Including Area Code) 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 --------- ------ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No --------- ------ COMMON STOCK OUTSTANDING
Number of Shares Date ------ ---- Common Stock, $1 par value 102,438,681 September 30, 2003
OMNICARE, INC. AND SUBSIDIARY COMPANIES INDEX
PAGE ---- PART I. FINANCIAL INFORMATION: - ------------------------------ ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Consolidated Statements of Income - Three and nine months ended - September 30, 2003 and 2002 3 Consolidated Balance Sheets - September 30, 2003 and December 31, 2002 4 Consolidated Statements of Cash Flows - Nine months ended - September 30, 2003 and 2002 5 Notes to Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 37 ITEM 4. CONTROLS AND PROCEDURES 38 PART II. OTHER INFORMATION: - -------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 39
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 Nine Months Ended September 30, September 30, ------------------------ -------------------------- 2003 2002 2003 2002 -------- -------- ---------- ---------- Sales $896,099 $657,270 $2,532,035 $1,936,386 Reimbursable out-of-pockets 5,555 7,448 19,513 20,801 -------- -------- ---------- ---------- Total net sales 901,654 664,718 2,551,548 1,957,187 -------- -------- ---------- ---------- Cost of sales 668,844 481,703 1,875,842 1,425,685 Reimbursed out-of-pocket expenses 5,555 7,448 19,513 20,801 -------- -------- ---------- ---------- Total direct costs 674,399 489,151 1,895,355 1,446,486 -------- -------- ---------- ---------- Gross profit 227,255 175,567 656,193 510,701 Selling, general and administrative expenses 123,592 103,888 380,610 306,007 Restructuring charges (Note 5) -- 11,096 -- 23,195 -------- -------- ---------- ---------- Operating income 103,663 60,583 275,583 181,499 Investment income 880 651 2,634 2,116 Interest expense (Note 8) (26,316) (14,339) (64,647) (42,990) -------- -------- ---------- ---------- Income before income taxes 78,227 46,895 213,570 140,625 Income taxes 29,397 17,829 80,816 53,425 -------- -------- ---------- ---------- Net income $ 48,830 $ 29,066 $ 132,754 $ 87,200 =========== =========== =========== =========== Earnings per share: Basic $ 0.48 $ 0.31 $ 1.36 $ 0.93 =========== =========== =========== =========== Diluted $ 0.47 $ 0.31 $ 1.34 $ 0.92 =========== =========== =========== =========== Weighted average number of common shares outstanding: Basic 101,965 94,245 97,490 94,129 =========== =========== =========== =========== Diluted 102,944 94,710 103,017 94,920 =========== =========== =========== =========== Dividends per share $ 0.0225 $ 0.0225 $ 0.0675 $ 0.0675 =========== =========== =========== =========== Comprehensive income $ 48,396 $ 31,030 $ 134,574 $ 91,010 =========== =========== =========== ===========
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)
September 30, December 31, 2003 2002 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 268,250 $ 137,936 Restricted cash 5,819 3,147 Accounts receivable, less allowances of $92,311 (2002 - $68,593) 620,156 522,857 Unbilled receivables 20,526 25,062 Inventories 296,289 190,464 Deferred income tax benefits 11,371 18,621 Other current assets 121,424 103,471 ---------- ---------- Total current assets 1,343,835 1,001,558 Properties and equipment, at cost less accumulated depreciation of $194,964 (2002 - $177,870) 149,631 139,908 Goodwill 1,706,269 1,188,907 Other noncurrent assets 130,659 97,212 ---------- ---------- Total assets $3,330,394 $2,427,585 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 290,374 $ 175,648 Current debt 18,899 110 Accrued employee compensation 29,849 22,627 Deferred revenue 22,116 25,254 Income taxes payable 23,752 6,837 Other current liabilities 74,806 66,174 ---------- ---------- Total current liabilities 459,796 296,650 Long-term debt 141,791 187 5.0% convertible subordinated debentures, due 2007 -- 345,000 8.125% senior subordinated notes, due 2011 375,000 375,000 6.125% senior subordinated notes, due 2013 232,784 -- 4.0% contingent convertible notes, due 2033 345,000 -- Deferred income tax liabilities 98,734 84,071 Other noncurrent liabilities 71,978 51,615 ---------- ---------- Total liabilities 1,725,083 1,152,523 ---------- ---------- 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, 104,288,700 shares issued (2002 - 95,441,400 shares issued) 104,289 95,441 Paid-in capital 962,749 737,421 Retained earnings 625,047 498,856 ---------- ---------- 1,692,085 1,331,718 Treasury stock, at cost - 1,850,000 shares (2002 - 1,139,900 shares) (45,599) (23,471) Deferred compensation (38,828) (29,018) Accumulated other comprehensive income (2,347) (4,167) ---------- ---------- Total stockholders' equity 1,605,311 1,275,062 ---------- ---------- Total liabilities and stockholders' equity $3,330,394 $2,427,585 ========== ==========
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)
Nine Months Ended September 30, --------------------------- 2003 2002 --------- --------- Cash flows from operating activities: Net income $ 132,754 $ 87,200 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 28,369 24,920 Amortization 9,960 9,444 Provision for doubtful accounts 34,676 22,114 Deferred tax provision 21,756 12,342 Write-off of debt issuance costs 3,755 -- Non-cash portion of restructuring charges -- 9,060 Changes in assets and liabilities, net of effects from acquisition of businesses: Accounts receivable and unbilled receivables (28,131) (25,621) Inventories (58,703) (539) Current and noncurrent assets 3,782 (32,526) Accounts payable 59,200 20,736 Accrued employee compensation 281 (527) Deferred revenue (3,138) (13,060) Current and noncurrent liabilities (22,198) 17,056 --------- --------- Net cash flows from operating activities 182,363 130,599 --------- --------- Cash flows from investing activities: Acquisition of businesses, net of cash received (599,689) (115,893) Capital expenditures (11,241) (16,762) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust (2,672) (3,400) Other 58 263 --------- --------- Net cash flows from investing activities (613,544) (135,792) --------- --------- Cash flows from financing activities: Borrowings on line of credit facilities and term loans 749,000 90,000 Payments on line of credit facilities and term loans (589,000) (80,000) Proceeds from long-term borrowings 595,000 -- Payments on long-term borrowings and obligations (354,242) (64) Fees paid for financing arrangements (29,366) -- Gross proceeds from stock offering 188,629 -- Proceeds from stock awards and exercise of stock options, net of stock tendered in payment 5,834 352 Dividends paid (6,559) (6,364) Other 122 72 --------- --------- Net cash flows from financing activities 559,418 3,996 --------- --------- Effect of exchange rate changes on cash 2,077 2,083 --------- --------- Net increase in cash and cash equivalents 130,314 886 Cash and cash equivalents at beginning of period - unrestricted 137,936 168,396 --------- --------- Cash and cash equivalents at end of period - unrestricted $ 268,250 $ 169,282 ========= =========
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 5 and 8) 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, 2002. Certain reclassifications of prior year amounts have been made to conform with the current year presentation. 2. Stock-Based Employee Compensation At September 30, 2003, the Company had three stock-based employee compensation plans. As permitted under U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), the Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related Interpretations. No stock-based employee compensation cost for stock options is reflected in net income as all options granted under the plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS 123" ("SFAS 148"), for stock options (in thousands, except per share data):
Three Months Ended Nine Months Ended September 30, September 30, ------------------- --------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net income, as reported $48,830 $29,066 $132,754 $87,200 Deduct: Total stock-based employee compensation expense determined under fair value-based method for all options, net of related tax effects (2,160) (2,476) (6,820) (5,359) ------- ------- -------- ------- Pro forma net income $46,670 $26,590 $125,934 $81,841 ======= ======= ======== ======= Earnings per share: Basic - as reported $ 0.48 $ 0.31 $ 1.36 $ 0.93 ======= ======= ======== ======= Basic - pro forma $ 0.46 $ 0.28 $ 1.29 $ 0.87 ======= ======= ======== ======= Diluted - as reported $ 0.47 $ 0.31 $ 1.34 $ 0.92 ======= ======= ======== ======= Diluted - pro forma $ 0.45 $ 0.28 $ 1.27 $ 0.86 ======= ======= ======== =======
6 The fair value of each option at the grant date is estimated using the Black-Scholes option-pricing model, with the following weighted average assumptions used for grants:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------ ----------------------------- 2003 2002 2003 2002 ----------- ---------- ----------- --------- Volatility 60% 63% 60% 63% Risk-free interest rate 2.9% 2.9% 2.9% 2.9% Dividend yield 0.2% 0.4% 0.2% 0.4% Expected term of options (in years) 5.2 5.4 5.2 5.4 Weighted average fair value per option $17.91 $11.88 $15.63 $14.23
The above pro forma information is based on the circumstances and assumptions in effect for each of the respective periods and, therefore, is not necessarily representative of the actual effect of SFAS 123 on net income or earnings per share in future years. 3. Recently Issued Accounting Pronouncements Effective January 1, 2003, the Company adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"), SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45") and FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). All accounting and disclosure relevant to this authoritative guidance has been incorporated into this Quarterly Report on Form 10-Q. The adoption of SFAS 145, SFAS 146, FIN 45 and FIN 46 did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In October 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 147, "Acquisition of Certain Financial Institutions." This pronouncement is not applicable to the Company. In December 2002, the FASB issued SFAS 148. While limited in scope, SFAS 148 provides additional transition guidance for those entities that elect to voluntarily adopt the accounting provisions of SFAS 123. The standard is intended to encourage the adoption of the provisions of SFAS 123 by providing three transitional implementation methodologies. Even for those companies choosing not to adopt the provisions of SFAS 123, SFAS 148 includes new annual and interim disclosure requirements related to a company's issuance of stock compensation. The transition and disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The disclosure provisions of SFAS 148 have been incorporated into the notes to consolidated financial statements, and Omnicare currently intends to continue accounting for stock-based compensation plans in accordance with APB 25 and related Interpretations, as permitted by U.S. GAAP. 7 In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This Statement was effective for the Company beginning July 1, 2003. The adoption of this Statement did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) in the statement of financial position. This Statement was effective for the Company for financial instruments entered into or modified after May 31, 2003. The adoption of this Statement did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. 4. 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 47 states in the United States of America ("USA") at September 30, 2003. 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 29 countries around the world, including the USA, at September 30, 2003. The table below presents information about the reportable segments as of and for the three and nine months ended September 30, 2003 and 2002 and should be read in conjunction with the paragraph that follows (in thousands):
Three Months Ended September 30, ---------------------------------------------------------- Corporate Pharmacy CRO and Consolidated 2003: Services Services Consolidating Totals - ------------------------------------------------------------------------------------------------------ Net sales $ 865,923 $ 35,731 $ -- $ 901,654 Depreciation and amortization 11,832 468 580 12,880 Operating income (expense) 111,587 1,646 (9,570) 103,663 Total assets 2,941,061 115,232 274,101 3,330,394 Capital expenditures 3,861 91 134 4,086 - ------------------------------------------------------------------------------------------------------ 2002: - ------------------------------------------------------------------------------------------------------ Net sales $ 623,241 $ 41,477 $ -- $ 664,718 Depreciation and amortization 10,176 524 662 11,362 Restructuring charges (2,911) (8,185) -- (11,096) Operating income (expense) 72,173 (2,831) (8,759) 60,583 Total assets 2,079,031 147,949 208,550 2,435,530 Capital expenditures 7,560 217 158 7,935 - ------------------------------------------------------------------------------------------------------
8
Nine Months Ended September 30, ------------------------------------------------------------------ Corporate Pharmacy CRO and Consolidated 2003: Services Services Consolidating Totals - ------------------------------------------------------------------------------------------------------- Net sales $2,431,905 $119,643 $ -- $2,551,548 Depreciation and amortization 35,206 1,369 1,754 38,329 Operating income (expense) 292,782 10,861 (28,060) 275,583 Total assets 2,941,061 115,232 274,101 3,330,394 Capital expenditures 9,946 796 499 11,241 - ------------------------------------------------------------------------------------------------------- 2002: - ------------------------------------------------------------------------------------------------------- Net sales $1,829,918 $127,269 $ -- $1,957,187 Depreciation and amortization 30,559 1,734 2,071 34,364 Restructuring charges (6,769) (16,426) -- (23,195) Operating income (expense) 208,134 (884) (25,751) 181,499 Total assets 2,079,031 147,949 208,550 2,435,530 Capital expenditures 15,370 531 861 16,762 - -------------------------------------------------------------------------------------------------------
In accordance with Emerging Issues Task Force ("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 $5.6 million and $19.5 million for the three and nine months ended September 30, 2003, respectively ($7.4 million and $20.8 million for the comparable prior year periods ended September 30, 2002, respectively). 5. Restructuring Charges --------------------- In 2001, the Company announced the implementation of a second phase of the productivity and consolidation initiative (the "Phase II Program"). The Phase II Program, completed in September 2002, further streamlined operations, increased efficiencies and helped enhance the Company's position as a high-quality, cost-effective provider of pharmaceutical services. Building on previous efforts, the Phase II Program included 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 included 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 Phase II Program encompassed a net reduction of approximately 460 employees, or about 5% of the Company's total work force, across both the Pharmacy Services and CRO Services segments. In connection with the Phase II Program, the Company expensed a total of $18.3 million pretax ($11.4 million aftertax, or $0.12 per diluted share) for restructuring charges during the year ended December 31, 2001. Further, approximately $23.2 million pretax ($14.4 million aftertax, or $0.15 per diluted share) was recorded during the year ended December 31, 2002, when the amounts were required to be recognized in accordance with U.S. GAAP. Of the total amount recorded during the year ended December 31, 2002, $11.1 million and $23.2 million pretax ($6.9 million and $14.4 million aftertax, or $0.07 and $0.15 per diluted share, respectively) were recorded in the three and nine months ended September 30, 2002, respectively. The restructuring charges included severance pay, the buy-out of employment 9 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 year-to-date September 30, 2003 and December 31, 2002 activity relating to the Phase II Program follow (in thousands):
Balance at 2002 Utilized Balance at Utilized Balance at December 31, Provision/ during December 31, during September 30, 2001 Accrual 2002 2002 2003 2003 ------------ ---------- ---------- ------------ -------- ------------- Restructuring charges: Employee severance $1,642 $ 2,177 $ (2,655) $1,164 $(1,141) $ 23 Employment agreement buy-outs 508 -- (214) 294 (263) 31 Lease terminations 606 5,862 (1,846) 4,622 (899) 3,723 Other assets, fees and facility exit costs 3,027 15,156 (14,690) 3,493 (2,157) 1,336 ------- -------- -------- ------ ------- ------ Total restructuring charges $5,783 $23,195 $(19,405) $9,573 $(4,460) $5,113 ======= ======== ======== ====== ======= ======
As of September 30, 2003, the Company had paid approximately $8.5 million of severance and other employee-related costs relating to the reduction of approximately 460 employees. The remaining liabilities recorded at September 30, 2003 represent amounts not yet paid or settled relating to actions taken, and will be adjusted in future periods as these matters are finalized. In connection with the previously disclosed first phase of its productivity and consolidation initiative (the "Phase I Program"), the Company had liabilities of $0.6 million at December 31, 2002 of which $0.3 million was utilized in the nine months ended September 30, 2003. The remaining liabilities at September 30, 2003 of $0.3 million represent amounts not yet paid relating to actions taken (consisting of remaining lease payments), and will be adjusted as these matters are settled. 6. Acquisitions ------------ On July 15, 2003, Omnicare completed the acquisition of the SunScript pharmacy services business from Sun Healthcare Group, Inc. The acquisition, accounted for as a purchase business combination, included cash consideration and transaction costs of approximately $79 million. The Company funded the acquisition of SunScript from existing cash balances. An additional $15.0 million is payable post closing, subject to reduction. The Company is using an independent valuation firm to assist with the determination of the initial purchase price allocation, including the identification of goodwill and other identifiable intangible assets. At the time of the acquisition, SunScript provided pharmaceutical products and related consulting services for skilled nursing and assisted living facilities comprised of approximately 43,000 beds located in 19 states (excluding beds in Sun Healthcare facilities that Sun Healthcare is divesting). SunScript served these facilities through its network of 31 long-term care pharmacies. Omnicare expects to achieve certain economies of scale and operational efficiencies from the acquisition. The net assets and operating results of SunScript have been included from the date of acquisition in the Company's financial statements. 10 On January 15, 2003, Omnicare closed its $5.50 per share cash tender offer for all of the issued and outstanding shares of Class A common stock and Class B common stock of NCS HealthCare, Inc. ("NCS"). Omnicare accepted, on January 15, 2003, all validly tendered shares for payment (totaling 17,510,126 shares of Class A common stock, representing approximately 94% of the then-outstanding Class A common stock, and 5,038,996 shares of Class B common stock, representing 100% of the then-outstanding Class B common stock). Omnicare subsequently acquired the remaining shares of Class A common stock of NCS. The acquisition of NCS, accounted for as a purchase business combination, included cash consideration and transaction costs of approximately $500 million. The cash consideration included the payoff of certain NCS debt totaling approximately $325.5 million, which was retired by Omnicare immediately following the acquisition. The Company initially financed the acquisition with available cash, working capital and borrowings under its three-year, $500.0 million revolving credit facility. The Company later refinanced the borrowings under its three-year, $500.0 million revolving credit facility, as described further under "Debt and Issuance of Common Stock." The Company is using an independent valuation firm to assist with the purchase price allocation, including the identification of goodwill and other identifiable intangible assets. The Company also continues to evaluate the tax effects of the NCS acquisition. At the time of the acquisition, NCS provided professional pharmacy and related services to long-term care facilities, including skilled nursing centers and assisted living facilities in 33 states and managed hospital pharmacies in 10 states. NCS added approximately 182,000 beds served in the first quarter of 2003. Omnicare is achieving certain economies of scale and operational efficiencies from the acquisition, while broadening Omnicare's geographical reach. The net assets and operating results of NCS have been included from the date of acquisition in the Company's financial statements. In January 2002, Omnicare completed the acquisition of the assets comprising the pharmaceutical business of American Pharmaceutical Services, Inc. and related entities (collectively, "APS"). At the time of the acquisition, APS provided professional pharmacy-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. The acquisition, accounted for as a purchase business combination, included cash consideration and transaction costs which aggregated approximately $132 million (including an adjustment based on the closing balance sheet review, a $6.0 million deferred payment made in the first quarter of 2003 and an additional $12.0 million in deferred payments made in the third quarter of 2003, satisfying all future contingent payments under the acquisition agreement). The Company has completed its purchase price allocation, including the identification of goodwill and other intangible assets based on an appraisal performed by an independent valuation firm. In connection with the purchase of APS, the Company acquired amortizable intangible assets composed 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. At September 30, 2003, the Company has also recorded goodwill 11 totaling approximately $78 million (all of which is tax deductible) in connection with the acquisition. Unaudited pro forma combined results of operations of the Company and NCS for the three and nine months ended September 30, 2002 are presented below. Such pro forma presentation has been prepared assuming that the NCS acquisition had been made as of January 1, 2002. Pro forma information is not presented for the three and nine months ended September 30, 2003 as the results of NCS are included in those of the Company from the closing date of January 15, 2003, and the difference from the beginning of the period is not significant. The unaudited pro forma presentation excludes the impact of SunScript, due to the lack of significance on the pro forma combined results. The unaudited pro forma combined financial information follows (in thousands, except per share data):
Three Months Ended Nine Months Ended September 30, 2002 September 30, 2002 ------------------ ------------------ Net sales $824,864 $2,435,963 Net income $ 25,100 $ 78,174 Earnings per share: Basic $ 0.27 $ 0.83 Diluted $ 0.27 $ 0.82
Earnings per share is calculated independently for each separately reported period. Accordingly, the sum of the separately reported three months ended periods may not necessarily be equal to the per share amount for the corresponding nine months ended period, as independently calculated. 7. Goodwill and Other Intangible Assets ------------------------------------ Changes in the carrying amount of goodwill for the nine months ended September 30, 2003, by business segment, are as follows (in thousands):
Pharmacy CRO Services Services Total -------- -------- ----- Balance as of December 31, 2002 $1,149,939 $38,968 $1,188,907 Goodwill acquired in the nine months ended September 30, 2003 488,703 -- 488,703 Other 27,598 1,061 28,659 ---------- ------- ---------- Balance as of September 30, 2003 $1,666,240 $40,029 $1,706,269 ========== ======= ==========
The "Other" caption above includes the settlement of acquisition matters relating to pre-2003 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 adjustments due to foreign currency translations, which relate solely to CRO Services. 12 During the third quarter of 2003, the Company completed its annual goodwill impairment assessment based on an evaluation of estimated undiscounted future cash flows and determined that goodwill was not impaired. The Company's other intangible assets have not changed significantly from the balances at December 31, 2002. The Company is using independent valuation firms to assist with the purchase price allocations for the NCS and SunScript acquisitions, including the identification of goodwill and other identifiable intangible assets. The Company is in the process of completing its allocations of the purchase price for NCS and SunScript and accordingly, the goodwill balance is preliminary and subject to change. 8. Debt and Issuance of Common Stock --------------------------------- During the second quarter of 2003, the Company completed its offering of $250.0 million aggregate principal amount of 6.125% senior subordinated notes due 2013 ("6.125% Senior Notes"), issued at par and 6,468,750 shares of common stock, $1 par value, at $29.16 per share for gross proceeds of $189 million and the offering, through Omnicare Capital Trust I, a statutory trust formed by the Company (the "Trust"), of $345 million aggregate principal amount of convertible trust preferred securities due 2033 ("trust PIERS" or "Preferred Income Equity Redeemable Securities"). In connection with the offering of the trust PIERS, the Company issued a corresponding amount of contingent convertible notes due 2033 to the Trust. The trust PIERS offer fixed cash distributions at a rate of 4.0% per annum payable quarterly, and a conversion price of $40.82 under a contingent conversion feature whereby the holders may convert their trust PIERS if the closing sales price of Omnicare common stock for a predetermined period, beginning with the quarter ending September 30, 2003, is more than 130% of the then-applicable conversion price or, during a predetermined period, if the daily average of the trading prices for the trust PIERS is less than 105% of the average of the conversion values for the trust PIERS through 2028 (98% for any period thereafter through maturity). The trust PIERS also will pay contingent distributions, commencing with the quarterly distribution period beginning June 15, 2009, if the average trading prices of the trust PIERS for a predetermined period equals 115% or more of the stated liquidation amount of the trust PIERS. Embedded in the trust PIERS are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision. The embedded derivatives are periodically valued by a third party advisor, and at September 30, 2003 the values of both derivatives were not material. However, the values are subject to change, based on market conditions, which could affect the Company's future results of operations. Omnicare irrevocably and unconditionally guarantees, on a subordinated basis, certain payments to be made by the Trust in connection with the trust PIERS. The Company used a portion of the net proceeds from the common stock offering and the net proceeds from the trust PIERS offering to redeem the entire outstanding $345 million aggregate principal amount of the Company's 5% convertible subordinated debentures due 2007 ("5% Convertible Debentures"), with remaining proceeds being used for general corporate purposes. A portion of the 5% Convertible Debentures (approximately $106.5 million) were redeemed in June 2003. In July 2003, the Company redeemed the remainder of the 5% Convertible Debentures (approximately $238.5 million) completing its early redemption of the entire $345 million aggregate principal amount of the outstanding 5% Convertible Debentures (which were convertible into 8,712,121 shares of common stock). The total redemption price, including the call premium, was approximately $353.9 million. The call premium, along with the write-off of unamortized debt issuance costs 13 associated with the 5% Convertible Debentures, were recognized ratably in the quarter in which they were redeemed. Accordingly, an $8.6 million pre-tax charge ($5.3 million aftertax, or $0.05 per diluted share) was recognized in interest expense during the quarter ended September 30, 2003 for the call premium and the write-off of remaining unamortized debt issuance costs associated with the redemption of the 5% Convertible Debentures. A charge of $4.1 million pretax ($2.5 million aftertax, or $0.02 per diluted share) was recorded in interest expense during the second quarter of 2003, representing the proportionate share of the call premium and unamortized debt issuance costs. In connection with the offerings, the Company also completed a new, four-year $750.0 million credit facility ("Credit Facility"), consisting of a $250 million term loan commitment and a $500 million revolving credit commitment. The Company used the net proceeds from the 6.125% Senior Notes offering and borrowings of $250.0 million under the term loan portion of the new Credit Facility to repay the balance of the Company's existing credit facility of $474 million, with remaining proceeds being used for general corporate purposes. The Company paid down $50.0 million and $40.0 million on the term loan during the second and third quarters, respectively. The $160.0 million outstanding at September 30, 2003 under the term loan is due in quarterly installments, in varying amounts, through 2007, with approximately $18.5 million due within one year. The new Credit Facility bears interest at the Company's option at a rate equal to either: (i) London Interbank Offered Rate ("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 prime rate or (b) the sum of the federal funds effective rate plus 0.50%. Additionally, the Company is charged a commitment fee on the unused portion of the revolving credit portion of the Credit Facility, which also varies depending on such ratings. At September 30, 2003, the interest rate was LIBOR plus 1.375% and the commitment fee was 0.375%. There is no utilization fee associated with the Credit Facility. During the second quarter of 2003, the Company entered into an interest rate swap agreement ("Swap Agreement") on all $250.0 million of its aggregate principal amount of the 6.125% Senior Notes. Under the Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company will receive a fixed rate of 6.125% and pay a floating rate based on LIBOR with a maturity of six months plus a spread of 2.27%. The floating rate is determined semi-annually two London Banking Days prior to the first of each December and June, commencing December 1, 2003. The estimated LIBOR-based floating rate was 3.45% at September 30, 2003. The Swap Agreement, which matches the terms of the 6.125% Senior Notes, is designated and accounted for as a fair value hedge. The Company is accounting for the Swap Agreement in accordance with SFAS No. 133, as amended, so changes in fair value of the Swap Agreement are offset by changes in the recorded carrying value of the related 6.125% Senior Notes. The fair value of the Swap Agreement is recorded as a noncurrent liability and reduced the carrying value of the related 6.125% Senior Notes by $17.2 million as of September 30, 2003. 14 9. Guarantor Subsidiaries ---------------------- The Company's $375.0 million senior subordinated notes due 2011 and the 6.125% 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 September 30, 2003 and December 31, 2002 for the balance sheet, the statement of income for each of the three and nine month periods ended September 30, 2003 and 2002, and the statement of cash flows for the nine months ended September 30, 2003 and 2002. Separate complete financial statements of the respective Guarantor Subsidiaries would not provide additional information that 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. Summary Consolidating Statements of Income
(in thousands) Three Months Ended September 30, -------------------------------------------------------------------------- Guarantor Non-Guarantor Omnicare, Inc. 2003 Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries - ----------------------------------------------------------------------------------------------------------------------------- Total net sales $ -- $ 871,419 $ 30,235 $ -- $ 901,654 Total direct costs -- 649,848 24,551 -- 674,399 -------- --------- -------- -------- --------- Gross profit -- 221,571 5,684 -- 227,255 Selling, general and administrative expenses 1,372 117,406 4,814 -- 123,592 -------- --------- -------- -------- --------- Operating income (loss) (1,372) 104,165 870 -- 103,663 Investment income 427 440 13 -- 880 Interest expense (26,047) (213) (56) -- (26,316) -------- --------- -------- -------- --------- Income (loss) before income taxes (26,992) 104,392 827 -- 78,227 Income tax (benefit) expense (10,257) 39,340 314 -- 29,397 Equity in net income of subsidiaries 65,565 -- -- (65,565) -- -------- --------- -------- -------- --------- Net income (loss) $ 48,830 $ 65,052 $ 513 $(65,565) $ 48,830 - ----------------------------------------------------------------------------------------------------------------------------- 2002 - ----------------------------------------------------------------------------------------------------------------------------- Total net sales $ -- $ 636,159 $ 28,559 $ -- $ 664,718 Total direct costs -- 465,856 23,295 -- 489,151 -------- --------- -------- -------- --------- Gross profit -- 170,303 5,264 -- 175,567 Selling, general and administrative expenses 5,325 92,965 5,598 -- 103,888 Restructuring charges -- 11,096 -- -- 11,096 -------- --------- -------- -------- --------- Operating income (loss) (5,325) 66,242 (334) -- 60,583 Investment income 497 70 84 -- 651 Interest expense (14,332) (7) -- -- (14,339) -------- --------- -------- -------- --------- Income (loss) before income taxes (19,160) 66,305 (250) -- 46,895 Income tax (benefit) expense (7,281) 25,205 (95) -- 17,829 Equity in net income of subsidiaries 40,945 -- -- (40,945) -- -------- --------- -------- -------- --------- Net income (loss) $ 29,066 $ 41,100 $ (155) $(40,945) $ 29,066 - -----------------------------------------------------------------------------------------------------------------------------
15 9. Guarantor Subsidiaries (Continued) ---------------------------------- Summary Consolidating Statements of Income
(in thousands) Nine Months Ended September 30, --------------------------------------------------------------------------- Guarantor Non-Guarantor Omnicare, Inc. 2003 Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries - ----------------------------------------------------------------------------------------------------------------------------- Total net sales $ -- $ 2,455,620 $ 95,928 $ -- $ 2,551,548 Total direct costs -- 1,817,631 77,724 -- 1,895,355 --------- ----------- -------- --------- ----------- Gross profit -- 637,989 18,204 -- 656,193 Selling, general and administrative expenses 4,740 358,397 17,473 -- 380,610 --------- ----------- -------- --------- ----------- Operating income (loss) (4,740) 279,592 731 -- 275,583 Investment income 1,773 796 65 -- 2,634 Interest expense (63,039) (1,393) (215) -- (64,647) --------- ----------- -------- --------- ----------- Income (loss) before income taxes (66,006) 278,995 581 -- 213,570 Income tax (benefit) expense (25,082) 105,677 221 -- 80,816 Equity in net income of subsidiaries 173,678 -- -- (173,678) -- --------- ----------- -------- --------- ----------- Net income (loss) $ 132,754 $ 173,318 $ 360 $(173,678) $ 132,754 - ----------------------------------------------------------------------------------------------------------------------------- 2002 - ----------------------------------------------------------------------------------------------------------------------------- Total net sales $ -- $ 1,874,148 $ 83,039 $ -- $ 1,957,187 Total direct costs -- 1,378,724 67,762 -- 1,446,486 --------- ----------- -------- --------- ----------- Gross profit -- 495,424 15,277 -- 510,701 Selling, general and administrative expenses 17,089 272,522 16,396 -- 306,007 Restructuring charges -- 22,397 798 -- 23,195 --------- ----------- -------- --------- ----------- Operating income (loss) (17,089) 200,505 (1,917) -- 181,499 Investment income 1,537 389 190 -- 2,116 Interest expense (42,573) (235) (182) -- (42,990) --------- ----------- -------- --------- ----------- Income (loss) before income taxes (58,125) 200,659 (1,909) -- 140,625 Income tax (benefit) expense (22,088) 76,293 (780) -- 53,425 Equity in net income of subsidiaries 123,237 -- -- (123,237) -- --------- ----------- -------- --------- ----------- Net income (loss) $ 87,200 $ 124,366 $ (1,129) $(123,237) $ 87,200 - -----------------------------------------------------------------------------------------------------------------------------
16 9. Guarantor Subsidiaries (Continued) ---------------------------------- Condensed Consolidating Balance Sheets (in thousands)
Omnicare, Inc. Guarantor Non-Guarantor and As of September 30, 2003: Parent Subsidiaries Subsidiaries Eliminations Subsidiaries - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 232,500 $ 30,196 $ 5,554 $ -- $ 268,250 Restricted cash -- 5,819 -- -- 5,819 Accounts receivable, net (including intercompany) -- 617,979 14,313 (12,136) 620,156 Inventories -- 291,459 4,830 -- 296,289 Other current assets 853 150,611 1,857 -- 153,321 ---------- ---------- -------- ----------- ---------- Total current assets 233,353 1,096,064 26,554 (12,136) 1,343,835 ---------- ---------- -------- ----------- ---------- Properties and equipment, net -- 139,570 10,061 -- 149,631 Goodwill -- 1,638,675 67,594 -- 1,706,269 Other noncurrent assets 35,710 89,763 5,186 -- 130,659 Investment in subsidiaries 2,499,593 -- -- (2,499,593) -- ---------- ---------- -------- ----------- ---------- Total assets $2,768,656 $2,964,072 $109,395 $(2,511,729) $3,330,394 ========== ========== ======== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities (including intercompany) $ 70,561 $ 389,914 $ 11,457 $ (12,136) $ 459,796 Long-term debt 140,000 1,091 700 -- 141,791 8.125% senior subordinated notes, due 2011 375,000 -- -- -- 375,000 6.125% senior subordinated notes, due 2013 232,784 -- -- -- 232,784 4.0% contingent convertible notes, due 2033 345,000 -- -- -- 345,000 Other noncurrent liabilities -- 170,686 26 -- 170,712 Stockholders' equity 1,605,311 2,402,381 97,212 (2,499,593) 1,605,311 ---------- ---------- -------- ----------- ---------- Total liabilities and stockholders' equity $2,768,656 $2,964,072 $109,395 $(2,511,729) $3,330,394 - ----------------------------------------------------------------------------------------------------------------------------- As of December 31, 2002: - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 95,693 $ 36,191 $ 6,052 $ -- $ 137,936 Restricted cash -- 3,147 -- -- 3,147 Accounts receivable, net (including intercompany) -- 524,290 13,610 (15,043) 522,857 Inventories -- 185,521 4,943 -- 190,464 Other current assets 1,399 144,399 1,356 -- 147,154 ---------- ---------- -------- ----------- ---------- Total current assets 97,092 893,548 25,961 (15,043) 1,001,558 ---------- ---------- -------- ----------- ---------- Properties and equipment, net 2,931 126,452 10,525 -- 139,908 Goodwill -- 1,121,728 67,179 -- 1,188,907 Other noncurrent assets 31,234 65,029 949 -- 97,212 Investment in subsidiaries 1,903,357 -- -- (1,903,357) -- ---------- ---------- -------- ----------- ---------- Total assets $2,034,614 $2,206,757 $104,614 $(1,918,400) $2,427,585 ========== ========== ======== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities (including intercompany) $ 37,363 $ 255,691 $ 18,639 $ (15,043) $ 296,650 Long-term debt -- 187 -- -- 187 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 2,189 132,577 920 -- 135,686 Stockholders' equity 1,275,062 1,818,302 85,055 (1,903,357) 1,275,062 ---------- ---------- -------- ----------- ---------- Total liabilities and stockholders' equity $2,034,614 $2,206,757 $104,614 $(1,918,400) $2,427,585 - -----------------------------------------------------------------------------------------------------------------------------
17 9. Guarantor Subsidiaries (Continued) ---------------------------------- Condensed Consolidating Statements of Cash Flows
(in thousands) Nine Months Ended September 30, ---------------------------------------------------------- Guarantor Non-Guarantor Omnicare, Inc. 2003: Parent Subsidiaries Subsidiaries and Subsidiaries - ----------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Provision for doubtful accounts $ -- $ 33,977 $ 699 $ 34,676 Other (24,731) 170,086 2,332 147,687 --------- --------- ------- --------- Net cash flows from operating activities (24,731) 204,063 3,031 182,363 --------- --------- ------- --------- Cash flows from investing activities: Acquisition of businesses, net of cash received -- (594,113) (5,576) (599,689) Capital expenditures -- (11,134) (107) (11,241) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust -- (2,672) -- (2,672) Other -- 43 15 58 --------- --------- ------- --------- Net cash flows from investing activities -- (607,876) (5,668) (613,544) --------- --------- ------- --------- Cash flows from financing activities: Borrowings on line of credit facilities and term loans 749,000 -- -- 749,000 Payments on line of credit facilities and term loans (589,000) -- -- (589,000) Proceeds from long-term borrowings 595,000 -- -- 595,000 Payments on long-term borrowings and obligations (354,242) -- -- (354,242) Fees paid for financing arrangements (29,366) -- -- (29,366) Gross proceeds from stock offerings 188,629 -- -- 188,629 Other (398,483) 397,818 62 (603) --------- --------- ------- --------- Net cash flows from financing activities 161,538 397,818 62 559,418 --------- --------- ------- --------- Effect of exchange rate changes on cash -- -- 2,077 2,077 --------- --------- ------- --------- Net increase (decrease) in cash and cash equivalents 136,807 (5,995) (498) 130,314 Cash and cash equivalents at beginning of period - unrestricted 95,693 36,191 6,052 137,936 --------- --------- ------- --------- Cash and cash equivalents at end of period - unrestricted $ 232,500 $ 30,196 $ 5,554 $ 268,250 - ----------------------------------------------------------------------------------------------------------------------------- 2002: - ----------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Provision for doubtful accounts $ -- $ 21,440 $ 674 $ 22,114 Other (25,868) 133,934 419 108,485 --------- --------- ------- --------- Net cash flows from operating activities (25,868) 155,374 1,093 130,599 --------- --------- ------- --------- Cash flows from investing activities: Acquisition of businesses -- (114,643) (1,250) (115,893) Capital expenditures -- (16,523) (239) (16,762) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust -- (3,400) -- (3,400) Other -- 146 117 263 --------- --------- ------- --------- Net cash flows from investing activities -- (134,420) (1,372) (135,792) --------- --------- ------- --------- Cash flows from financing activities: Borrowings on line of credit facilities 90,000 -- -- 90,000 Payments on line of credit facilities (80,000) -- -- (80,000) Other 13,558 (19,562) -- (6,004) --------- --------- ------- --------- Net cash flows from financing activities 23,558 (19,562) -- 3,996 --------- --------- ------- --------- Effect of exchange rate changes on cash -- -- 2,083 2,083 --------- --------- ------- --------- Net increase (decrease) in cash and cash equivalents (2,310) 1,392 1,804 886 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 $ 124,800 $ 38,696 $ 5,786 $ 169,282 - -----------------------------------------------------------------------------------------------------------------------------
18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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, see "Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information." Results of Operations - -------------------------------------------------------------------------------- The following table presents consolidated net sales and results of operations for Omnicare, Inc. ("Omnicare" or the "Company"), for each of the three and nine months ended September 30, 2003 and 2002 (in thousands, except per share amounts).
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Total net sales $901,654 $664,718 $2,551,548 $1,957,187 ======== ======== ========== ========== Net income $ 48,830 $ 29,066 $ 132,754 $ 87,200 ======== ======== ========== ========== Earnings per share: Basic $ 0.48 $ 0.31 $ 1.36 $ 0.93 ======== ======== ========== ========== Diluted $ 0.47 $ 0.31 $ 1.34 $ 0.92 ======== ======== ========== ==========
19 The Company believes that certain investors find earnings before interest, income taxes, depreciation and amortization ("EBITDA") to be a useful tool for measuring a company's ability to service its debt. However, EBITDA does not represent net cash flows from operating activities, as defined by United States Generally Accepted Accounting Principles ("U.S. GAAP"), and should not be considered as a substitute for net income as an indicator of the Company's operating performance or operating cash flows as a measure of liquidity. The Company's calculation of EBITDA may differ from the calculation of EBITDA by others.
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- (in thousands) 2003 2002 2003 2002 ---- ---- ---- ---- EBITDA calculation: Net income $ 48,830 $ 29,066 $132,754 $ 87,200 Add: Interest expense, net of investment income 25,436 13,688 62,013 40,874 Income taxes 29,397 17,829 80,816 53,425 Depreciation and amortization 12,880 11,362 38,329 34,364 -------- -------- -------- -------- EBITDA $116,543 $ 71,945 $313,912 $215,863 ======== ======== ======== ======== EBITDA reconciliation to net cash flows from operating activities: EBITDA $116,543 $ 71,945 $313,912 $215,863 (Subtract)/Add: Interest expense, net of investment income (25,436) (13,688) (62,013) (40,874) Income taxes (29,397) (17,829) (80,816) (53,425) Changes in assets and liabilities, net of effects from acquisition of businesses (16,481) (12,462) (48,907) (34,481) Provision for doubtful accounts 11,496 7,938 34,676 22,114 Deferred tax provision 3,017 7,967 21,756 12,342 Write-off of debt issuance costs 2,591 -- 3,755 -- Non-cash portion of restructuring charges -- 3,427 -- 9,060 -------- -------- -------- -------- Net cash flows from operating activities $ 62,333 $ 47,298 $182,363 $130,599 ======== ======== ======== ========
Quarter Ended September 30, 2003 vs. 2002 - -------------------------------------------------------------------------------- Consolidated Total net sales for the three months ended September 30, 2003 increased to $901.7 million from $664.7 million in the comparable prior year period. Diluted earnings per share for the three months ended September 30, 2003 were $0.47 versus $0.31 in the same prior year period. Net income for the 2003 third quarter was $48.8 million versus $29.1 million earned in the comparable 2002 period. EBITDA for the three months ended September 30, 2003 totaled $116.5 million in comparison with $71.9 million for the same period of 2002. 20 Included in the 2003 third quarter interest expense was a charge of $8.6 million pretax ($5.3 million aftertax, or $0.05 per diluted share), relating to the call premium and write-off of unamortized debt issuance costs associated with the Company's early redemption and retirement of the remaining outstanding portion of its 5% convertible subordinated debentures, further discussed below. Included in the 2002 third quarter was a charge of $11.1 million pretax ($6.9 million aftertax, or $0.07 per diluted share), relating to the Phase II productivity and consolidation program described under the "Restructuring Charges" caption below. Pharmacy Services Segment Omnicare's Pharmacy Services segment recorded sales of $865.9 million for the third quarter of 2003, exceeding the 2002 amount of $623.2 million by $242.7 million. At September 30, 2003, Omnicare served long-term care facilities comprising approximately 994,000 beds as compared with approximately 746,000 beds served at September 30, 2002. The increase in revenues and in beds served was primarily a result of the acquisitions of NCS HealthCare, Inc. ("NCS") and the SunScript pharmacy services businesses, as discussed below. Additionally, Pharmacy Services sales increased due to growth in new contracts, the continued implementation and expansion of the Company's clinical and other service programs, drug price inflation, and the increased market penetration of newer branded drugs targeted at the diseases of the elderly, which often carry higher prices but are significantly more effective in reducing overall healthcare costs than those they replace. Lower government reimbursement formulas in some states and the increasing number and usage of generic drugs partially offset the increase in pharmacy sales. Operating income of the Pharmacy Services segment was $111.6 million in the third quarter of 2003, a $39.4 million improvement as compared with the $72.2 million earned in the comparable period of 2002. The improved operating income was primarily the result of increased sales, as discussed above, a lower operating cost structure reflecting principally the impact of the productivity and consolidation initiative completed at the end of the third quarter of 2002 (the "Phase II Program"), the ongoing integration of NCS and the $2.9 million pretax impact of a restructuring charge in the third quarter of 2002, partially offset by the initial impact of the lower-margin SunScript business added during the third quarter of 2003, which impact is expected to diminish as the Company achieves economies of scale, drug purchasing improvements, and consolidates redundant pharmacy locations. On July 15, 2003, Omnicare completed the acquisition of the SunScript pharmacy services business from Sun Healthcare Group, Inc. The acquisition, accounted for as a purchase business combination, included cash consideration and transaction costs of approximately $79 million. The Company funded the acquisition of SunScript from existing cash balances. An additional $15.0 million is payable post closing, subject to reduction. The Company is using an independent valuation firm to assist with the determination of the initial purchase price allocation, including the identification of goodwill and other identifiable intangible assets. 21 At the time of the acquisition, SunScript provided pharmaceutical products and related consulting services for skilled nursing and assisted living facilities comprised of approximately 43,000 beds located in 19 states (excluding beds in Sun Healthcare facilities that Sun Healthcare is divesting). SunScript served these facilities through its network of 31 long-term care pharmacies. Omnicare expects to achieve certain economies of scale and operational efficiencies from the acquisition. The net assets and operating results of SunScript have been included from the date of acquisition in the Company's financial statements. On January 15, 2003, Omnicare closed its $5.50 per share cash tender offer for all of the issued and outstanding shares of Class A common stock and Class B common stock of NCS. Omnicare accepted, on January 15, 2003, all validly tendered shares for payment (totaling 17,510,126 shares of Class A common stock, representing approximately 94% of the then-outstanding Class A common stock and 5,038,996 shares of Class B common stock, representing 100% of the then-outstanding Class B common stock). Omnicare subsequently acquired the remaining shares of Class A common stock of NCS. The acquisition of NCS, accounted for as a purchase business combination, included cash consideration and transaction costs of approximately $500 million. The cash consideration included the payoff of certain NCS debt totaling approximately $325.5 million, which was retired by Omnicare immediately following the acquisition. The Company initially financed the acquisition with available cash, working capital and borrowings under its three-year, $500.0 million revolving credit facility (the "Revolving Credit Facility"). The Company later refinanced the borrowings under its Revolving Credit Facility, as described further under the "Financial Condition, Liquidity and Capital Resources" caption below. The Company is using an independent valuation firm to assist with the purchase price allocation, including the identification of goodwill and other intangible assets. The Company also continues to evaluate the tax effects of the NCS acquisition. At the time of the acquisition, NCS provided professional pharmacy and related services to long-term care facilities, including skilled nursing centers and assisted living facilities in 33 states and managed hospital pharmacies in 10 states. NCS added approximately 182,000 beds served in the first quarter of 2003. Omnicare is achieving certain economies of scale and operational efficiencies from the acquisition, while broadening Omnicare's geographical reach. The net assets and operating results of NCS have been included from the date of acquisition in the Company's financial statements. In January 2002, Omnicare completed the acquisition of the assets comprising the pharmaceutical business of American Pharmaceutical Services, Inc. and related entities (collectively, "APS"). At the time of the acquisition, APS provided professional pharmacy-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. The acquisition, accounted for as a purchase business combination, included cash consideration and transaction costs, which aggregated approximately $132 million (including an adjustment based on the closing balance sheet review, a $6.0 million deferred payment made in the first quarter of 2003 and an additional 22 $12.0 million in deferred payments made in the third quarter of 2003, satisfying all future contingent payments under the acquisition agreement). As part of ongoing operations, the Company and its customers are subject to regulatory changes in the level of reimbursement received from the Medicare and Medicaid programs. As disclosed in the Company's previous public filings, certain payment increases to skilled nursing facilities ("SNFs") provided under the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 ("BBRA") and the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 ("BIPA") acts expired on October 1, 2002 with no further action taken by Congress to date. The impact of these expirations on the Company's customers has not had a significant impact on Omnicare to date. Nonetheless, the loss of revenues associated with the expiration of these payments or future changes in SNF payments could, in the future, have an adverse effect on the financial condition of the Company's SNF clients which could, in turn, adversely affect the timing or level of their payments to Omnicare. Partially offsetting the October 1, 2002 expiration of certain payment increases under BBRA and BIPA as discussed above, the Centers for Medicare & Medicaid Services ("CMS") published, on August 4, 2003, a final rule announcing that it is adopting a 3.0% market basket increase in SNF prospective payment system ("PPS") rates for fiscal year 2004, which begins October 1, 2003. In addition, the rule increases fiscal year 2004 rates by an additional 3.26% to reflect cumulative forecast errors since the start of the SNF PPS on July 1, 1998. Together, CMS estimates that these adjustments will result in an estimated $850 million increase in Medicare payments to SNFs in fiscal year 2004. Moreover, the final rule does not adopt refinements to the current patient classification system for fiscal year 2004, which results in the continuation of the temporary add-on payment for certain high-acuity patients established by the BBRA. CMS estimates that these temporary payments will equal approximately $1 billion in fiscal year 2004. In June 2003, the U.S. House of Representatives and Senate adopted separate Medicare reform bills that would, if enacted, expand Medicare prescription drug coverage, modify payments to various Medicare providers, modify the current Part B drug reimbursement mechanism to further limit payments and institute administrative reforms to improve Medicare program operations. It is uncertain at this time whether Congress ultimately will enact Medicare reform legislation, what form any such legislation would take, or the impact such legislation would have on the Company. 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. On May 28, 2003, President Bush signed into law the "Jobs and Growth Reconciliation Tax Act," which includes $20 billion in temporary aid to the states, $10 billion of which is earmarked for state Medicaid programs. Nevertheless, many states continue to experience budget shortfalls, which may prompt them to consider implementing reductions in Medicaid reimbursement. While the Company has managed to adjust to these pricing pressures to date, such pressures are likely to continue or escalate if economic recovery does not emerge and there can be no assurance that such occurrence will not have an adverse impact on the Company's business. 23 CRO Services Segment Omnicare's Contract Research Organization ("CRO") Services segment recorded revenues of $35.7 million for the third quarter of 2003 compared with the $41.5 million recorded in the same prior year period. In accordance with Emerging Issues Task Force ("EITF") Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for `Out-of-Pocket' Expenses Incurred" ("EITF No. 01-14"), the Company included $5.6 million and $7.4 million of reimbursable out-of-pockets in its CRO Services segment reported revenue and direct cost amounts for the three months ended September 30, 2003 and 2002, respectively. Under EITF No. 01-14, in cases where a company acts as a principal, reimbursements received for "out-of-pocket" expenses incurred are required to be characterized as revenue and the associated costs are required to be included as expenses in the Company's income statement. As a result of this accounting pronouncement, which affects only the CRO business, CRO revenues and direct costs may fluctuate significantly based on the timing of when reimbursable expenses are incurred. Revenues for the quarter ended September 30, 2003 were lower than the prior-year third quarter revenues primarily due to client-driven start-up delays in certain projects. Operating income in the CRO Services segment was $1.6 million in the third quarter of 2003 compared with an operating loss of $2.8 million in the same 2002 period. The improvement in operating income was attributable to the year-over-year impact of restructuring charges associated with the Phase II productivity and consolidation program, which totaled $8.2 million pretax in the 2002 third quarter, partially offset by the impact on operating income of the lower revenues discussed above. Backlog at September 30, 2003 was $207.9 million, representing an increase of $6.9 million from the September 30, 2002 backlog of $201.0 million, and $26.3 million from the December 31, 2002 backlog of $181.6 million due to an increase in new business. Consolidated The Company's consolidated gross profit of $227.3 million increased $51.7 million during the third quarter of 2003 from the same prior-year period amount of $175.6 million. Gross profit as a percentage of total net sales of 25.2% in the three months ended September 30, 2003 was lower than the 26.4% experienced during the same period of 2002. Positively impacting overall gross profit were the Company's purchasing leverage associated with the procurement of pharmaceuticals due, in part, to the ongoing integration of the NCS business and benefits realized from the Company's formulary compliance program, as well as the increased use of generic drugs, leveraging of fixed and variable overhead costs at the Company's pharmacies as a result of the reduced cost structure brought about by the Phase II Program completed in the third quarter of 2002, and the integration of the NCS business. These favorable factors were more than offset by the previously mentioned shift in mix toward newer, branded drugs targeted at the diseases of the elderly that typically produce higher gross profit but lower gross profit margins, the effects of lower government reimbursement formulas in some states, lower gross profit margins in the CRO business, and the impact of the lower-margin SunScript business in the 2003 period, which impact is expected to diminish as the Company achieves economies of scale, drug purchasing improvements, and consolidates redundant pharmacy locations. 24 Omnicare's selling, general and administrative ("operating") expenses for the quarter ended September 30, 2003 of $123.6 million were higher than the comparable year amount of $103.9 million by $19.7 million, due to the overall growth of the business, including the acquisitions of NCS and SunScript. Operating expenses as a percentage of total net sales totaled 13.7% in the third quarter 2003, representing a decrease from the 15.6% experienced in the comparable prior year period. This decrease is primarily due to the year-over-year favorable impact of the Phase II Program completed at the end of the third quarter of 2002 as well as realization of synergies from the APS acquisition, and the leveraging of fixed and variable overhead costs over a larger sales base in 2003 than that which existed in 2002. Investment income for the three months ended September 30, 2003 was $0.9 million, an increase of $0.2 million from the same period of 2002. Higher cash balances on hand as a result of the Company's second quarter 2003 refinancing and third quarter 2003 operating results was the primary driver of the year-over-year increase in investment income. Interest expense for the three months ended September 30, 2003 was $26.3 million compared with $14.3 million in the comparable prior-year period. The increase related to the previously mentioned financing of the NCS acquisition in January 2003, initially through borrowings on the Revolving Credit Facility of $499.0 million (partially offset by a $25.0 million repayment in the 2003 first quarter). The interest expense for the three month period ended September 30, 2003 also included a call premium and the write-off of unamortized debt issuance costs aggregating $8.6 million before taxes ($5.3 million aftertax, or $0.05 per diluted share). The call premium and the write-off of the unamortized debt issuance costs related to the completion of the Company's early redemption and retirement of its $345 million aggregate principal amount of 5%, convertible subordinated debentures in the third quarter of 2003, in connection with its refinancing transactions, as further described at the "Financial Condition, Liquidity and Capital Resources" caption below. Partially offsetting this increase was reduced interest expense associated with Omnicare's repayment of $40.0 million on the term loan during the third quarter of 2003. The effective income tax rate was 38% in the third quarter of 2003, consistent with the comparable prior year period. The effective tax rates in 2003 and 2002 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. 25 Nine Months Ended September 30, 2003 vs. 2002 - -------------------------------------------------------------------------------- Consolidated Total net sales for the nine months ended September 30, 2003 rose to $2,551.5 million from $1,957.2 million in the comparable prior year period. Diluted earnings per share for the nine months ended September 30, 2003 were $1.34 versus $0.92 in the same prior year period. Net income for the nine months ended September 30, 2003 was $132.8 million versus $87.2 million earned in the comparable 2002 period. EBITDA totaled $313.9 million for the nine months ended September 30, 2003 as compared with $215.9 million for the same period of 2002. Included in interest expense during the year-to-date September 30, 2003 period was a charge of $12.7 million pretax ($7.9 million aftertax, or $0.08 per diluted share), relating to the call premium and write-off of unamortized debt issuance costs associated with the Company's early redemption of its 5% convertible subordinated debentures discussed below. Included in the year-to-date September 30, 2002 period was a charge of $23.2 million pretax ($14.4 million aftertax, or $0.15 per diluted share), relating to the Phase II productivity and consolidation program described under the "Restructuring Charges" caption below. Pharmacy Services Segment Omnicare's Pharmacy Services segment recorded sales of $2,431.9 million for the nine months ended September 30, 2003, exceeding the comparable prior period amount for 2002 of $1,829.9 million by $602.0 million. The increase in revenues was primarily a result of the acquisition of NCS and to a lesser extent, the addition of the SunScript business during the third quarter of 2003. Additionally, Pharmacy Services sales increased due to the continued implementation and expansion of the Company's clinical and other service programs, drug price inflation, and the increased market penetration of newer branded drugs targeted at the diseases of the elderly, which often carry higher prices but are significantly more effective in reducing overall healthcare costs than those they replace. Lower government reimbursement formulas in some states and the increasing number and usage of generic drugs partially offset the increase in pharmacy sales. Operating income of the Pharmacy Services segment was $292.8 million for the nine months ended September 30, 2003, an increase of $84.7 million from the $208.1 million earned in the comparable period of 2002. The improved operating income was primarily the result of increased sales, as discussed above, a lower operating cost structure reflecting principally the impact of the Phase II Program started in 2001 and completed in the third quarter of 2002, the completion of the integration of APS and the $6.8 million pretax impact of restructuring charges in the 2002 period, partially offset by the initial impact of the lower-margin NCS and SunScript business added in the first and third quarters of 2003, respectively, which impact is expected to diminish as the Company achieves economies of scale, drug purchasing improvements, and consolidates redundant pharmacy locations. 26 As previously disclosed, certain payment increases provided under the BBRA and the BIPA acts expired on October 1, 2002 with no further action taken by Congress to date. The impact of these expirations on the Company's customers did not result in a significant impact to Omnicare in the first nine months of 2003. CRO Services Segment Omnicare's CRO Services segment recorded revenues of $119.6 million during the nine months ended September 30, 2003 compared with the $127.3 million recorded in the same prior year period. In accordance with EITF No. 01-14, the Company included $19.5 million and $20.8 million of reimbursable out-of-pockets in its CRO Services segment reported revenue and direct cost amounts for the nine months ended September 30, 2003 and 2002, respectively. Revenues for the nine months ended September 30, 2003 were lower than the same prior-year period revenues largely due to client-driven delays in commencement and continuation of certain projects. Operating income in the CRO Services segment was $10.9 million for the nine months ended September 30, 2003 compared with an operating loss of $0.9 million in the same 2002 period. The improvement in operating income was attributable to the year-over-year realization of benefits from the Company's initiatives to integrate and streamline the organization and the year-over-year impact of restructuring charges associated with the Phase II productivity and consolidation program, which totaled $16.4 million pretax in the year-to-date 2002 period, partially offset by the impact on operating income of the lower revenues discussed above. Consolidated The Company's consolidated gross profit of $656.2 million increased $145.5 million during the nine months ended September 30, 2003 from the same prior-year period amount of $510.7 million. Gross profit as a percentage of total net sales of 25.7% in the nine months ended September 30, 2003, was slightly lower than the 26.1% experienced during the same period of 2002. Positively impacting overall gross profit were the Company's purchasing leverage associated with the procurement of pharmaceuticals due, in part, to the completion of the integration of the APS business and benefits realized from the Company's formulary compliance program, as well as the increased use of generic drugs, leveraging of fixed and variable overhead costs at the Company's pharmacies as a result of the reduced cost structure brought about by the Phase II Program, and the integration of the APS business. These favorable factors were offset primarily by the initial impact of the lower-margin NCS and SunScript business (which impact is expected to diminish as the Company achieves economies of scale, drug purchasing improvements, and consolidates redundant pharmacy locations) and, to a lesser extent, by the previously mentioned shift in mix toward newer, branded drugs targeted at the diseases of the elderly that typically produce higher gross profit but lower gross profit margins, and the effects of lower government reimbursement formulas in some states. Omnicare's operating expenses for the nine months ended September 30, 2003 of $380.6 million were higher than the comparable year amount of $306.0 million by $74.6 million, due to the overall growth of the business, including the acquisitions of NCS and SunScript in the first 27 and third quarters of 2003, respectively. Operating expenses as a percentage of total net sales totaled 14.9% in the nine months ended September 30, 2003, lower than the 15.6% experienced during the comparable prior year period. This decrease is primarily due to the year-over-year favorable impact of the Phase II Program completed at the end of the third quarter of 2002 as well as realization of synergies from the APS acquisition, and the leveraging of fixed and variable overhead costs over a larger sales base in 2003 than that which existed in 2002. Investment income for the nine months ended September 30, 2003 was $2.6 million, an increase of $0.5 million from the same period of 2002 due to the previously disclosed larger average invested cash balances in the 2003 period. Interest expense for the nine months ended September 30, 2003 was $64.6 million compared with $43.0 million in the comparable prior-year period. The increase related to the previously mentioned financing of the NCS acquisition in January 2003, initially through borrowings on the Revolving Credit Facility of $499.0 million (partially offset by a $25.0 million repayment in the 2003 first quarter). The increase also included the previously mentioned call premium and write-off of the unamortized debt issuance costs, aggregating $12.7 million before tax ($7.9 million aftertax, or $0.08 per diluted share). Partially offsetting this increase was reduced interest expense associated with Omnicare's repayment of $50.0 million and $40.0 million on the term loan during the second and third quarters of 2003, respectively. The effective income tax rate was 38% in the year-to-date 2003 period, consistent with the prior year period. The effective tax rates in 2003 and 2002 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 implementation of the Phase II Program, the second phase of its productivity and consolidation initiative. The Phase II Program, completed in September 2002, further streamlined operations, increased efficiencies and helped enhance the Company's position as a high-quality, cost-effective provider of pharmaceutical services. Building on previous efforts, the Phase II Program included 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 included 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 Phase II Program encompassed a net reduction of approximately 460 employees, or about 5% of the Company's total work force, across both the Pharmacy Services and CRO Services segments. In connection with the Phase II Program, the Company expensed a total of $18.3 million pretax ($11.4 million aftertax, or $0.12 per diluted share) for restructuring charges during the year ended December 31, 2001. Further, approximately $23.2 million pretax ($14.4 million aftertax, or $0.15 per diluted share) was recorded during the year ended December 31, 2002, when the amounts were required to be recognized in accordance with U.S. GAAP. Of the total amount recorded during the year ended December 31, 2002, $11.1 million and $23.2 million 28 pretax ($6.9 million and $14.4 million aftertax, or $0.07 and $0.15 per diluted share, respectively) were recorded in the three and nine months ended September 30, 2002, respectively. The restructuring charges included 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 year-to-date September 30, 2003 and December 31, 2002 activity relating to the Phase II Program follow (in thousands):
Balance at 2002 Utilized Balance at Utilized Balance at December 31, Provision/ during December 31, during September 30, 2001 Accrual 2002 2002 2003 2003 ------------ ---------- ------ ------------ ------ ------------- Restructuring charges: Employee severance $1,642 $ 2,177 $ (2,655) $1,164 $(1,141) $ 23 Employment agreement buy-outs 508 -- (214) 294 (263) 31 Lease terminations 606 5,862 (1,846) 4,622 (899) 3,723 Other assets, fees and facility exit costs 3,027 15,156 (14,690) 3,493 (2,157) 1,336 ------ ------- ------- ------ -------- ------- Total restructuring charges $5,783 $23,195 $(19,405) $9,573 $(4,460) $5,113 ====== ======= ======== ====== ======= =======
As of September 30, 2003, the Company had paid approximately $8.5 million of severance and other employee-related costs relating to the reduction of approximately 460 employees. The remaining liabilities recorded at September 30, 2003 represent amounts not yet paid or settled relating to actions taken, and will be adjusted in future periods as these matters are finalized. In connection with the previously disclosed first phase of its productivity and consolidation initiative (the "Phase I Program"), the Company had liabilities of $0.6 million at December 31, 2002 of which $0.3 million was utilized in the nine months ended September 30, 2003. The remaining liabilities at September 30, 2003 of $0.3 million represent amounts not yet paid relating to actions taken (consisting of remaining lease payments), and will be adjusted as these matters are settled. Financial Condition, Liquidity and Capital Resources - -------------------------------------------------------------------------------- Cash and cash equivalents at September 30, 2003 were $274.1 million compared with $141.1 million at December 31, 2002 (including restricted cash amounts of $5.8 million and $3.1 million, respectively). The Company generated positive cash flows from operating activities of $182.4 million during the nine months ended September 30, 2003 compared with net cash flows from operating activities of $130.6 million during the nine months ended September 30, 2002. These operating cash flows, as well as new borrowings and common stock issuance proceeds (further discussed below), were used primarily for debt repayment, acquisition-related payments, capital expenditures and dividends in both periods. The increase in net cash flows from operating activities in the first nine months of 2003 was driven primarily by growth in earnings, as previously discussed in the "Results of Operations" section above. 29 Net cash used in investing activities was $613.5 million and $135.8 million for the nine months ended September 30, 2003 and 2002, respectively. Acquisition of businesses required cash payments of $599.7 million in the first nine months of 2003, which were primarily funded by borrowings and existing cash balances. Also included in acquisition of businesses were amounts payable pursuant to acquisition agreements relating to pre-2003 acquisitions. Acquisition of businesses required $115.9 million of cash payments during the nine months ended September 30, 2002 (including amounts payable pursuant to acquisition agreements relating to pre-2002 acquisitions), which were funded primarily by borrowings under the Revolving Credit Facility and operating cash flows. The Company's capital requirements are primarily comprised of its acquisition program, and capital expenditures, largely relating to investments in the Company's information technology systems. There were no material commitments and contingencies outstanding at September 30, 2003, other than certain acquisition-related payments potentially due in the future, including deferred payments, indemnification payments and payments originating from earnout provisions, that may become payable (including up to an additional $15.0 million relating to SunScript, payable post closing, subject to reduction). Net cash provided by financing activities was $559.4 million and $4.0 million for the nine months ended September 30, 2003 and 2002, respectively. In connection with the aforementioned NCS and APS acquisitions, the Company borrowed $499.0 million and $90.0 million, respectively, under its Revolving Credit Facility in the first quarters of 2003 and 2002, respectively. The Company also completed its refinancing plan in June 2003, as discussed below, in which it raised $1,033.6 million. Partially offsetting these borrowings were payments on line of credit facilities and term loans of $589.0 million and $80.0 million during the nine months ended September 30, 2003 and 2002, respectively, as well as the early redemption and retirement during the nine months ended September 30, 2003 of $345.0 million of 5% convertible subordinated debentures due 2007 ("5% Convertible Debentures"). On August 7, 2003, 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 common share for 2003, consistent with the prior year. Dividends paid of $6.6 million during the nine months ended September 30, 2003 were also consistent with those paid in the comparable prior year period. The Company's current ratio (defined as current assets divided by current liabilities) of 2.9 to 1.0 at September 30, 2003 is lower than the 3.4 to 1.0 in existence at December 31, 2002, largely as a result of the current portion of the term loan (approximately $18.5 million) as well as the use of cash for the Company's acquisition of businesses. The acquisition of the SunScript pharmacy services business, accounted for as a purchase business combination, included cash consideration and transaction costs of approximately $79.0 million at closing. An additional $15.0 million is payable post closing, subject to reduction. The Company funded the acquisition from existing cash balances. The acquisition of NCS, accounted for as a purchase business combination, included cash consideration and transaction costs of approximately $500 million. The cash consideration included the payoff of certain NCS debt totaling approximately $325.5 million, which was 30 retired by Omnicare immediately following the acquisition. The Company initially financed the acquisition with available cash, working capital and borrowings under its three-year, $500.0 million Revolving Credit Facility. As discussed below, the Company refinanced the initial borrowings over a longer term. During the second quarter of 2003, the Company completed its offering of $250.0 million aggregate principal amount of 6.125% senior subordinated notes due 2013 ("6.125% Senior Notes"), issued at par and 6,468,750 shares of common stock, $1 par value, at $29.16 per share for gross proceeds of $189 million and the offering, through Omnicare Capital Trust I, a statutory trust formed by the Company (the "Trust"), of $345 million aggregate principal amount of convertible trust preferred securities due 2033 ("trust PIERS" or "Preferred Income Equity Redeemable Securities"). In connection with the offering of the trust PIERS, the Company issued a corresponding amount of contingent convertible notes due 2033 to the Trust. The trust PIERS offer fixed cash distributions at a rate of 4.0% per annum payable quarterly, and a conversion price of $40.82 under a contingent conversion feature whereby the holders may convert their trust PIERS if the closing sales price of Omnicare common stock for a predetermined period, beginning with the quarter ending September 30, 2003, is more than 130% of the then-applicable conversion price or, during a predetermined period, if the daily average of the trading prices for the trust PIERS is less than 105% of the average of the conversion values for the trust PIERS through 2028 (98% for any period thereafter through maturity). The trust PIERS also will pay contingent distributions, commencing with the quarterly distribution period beginning June 15, 2009, if the average trading prices of the trust PIERS for a predetermined period equals 115% or more of the stated liquidation amount of the trust PIERS. Embedded in the trust PIERS are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision. The embedded derivatives are periodically valued by a third party advisor, and at September 30, 2003 the values of both derivatives were not material. However, the values are subject to change, based on market conditions, which could affect the Company's future results of operations. Omnicare irrevocably and unconditionally guarantees, on a subordinated basis, certain payments to be made by the Trust in connection with the trust PIERS. The Company used a portion of the net proceeds from the common stock offering and the net proceeds from the trust PIERS offering to redeem the entire outstanding $345 million aggregate principal amount of the Company's 5% Convertible Debentures, with remaining proceeds being used for general corporate purposes. A portion of the 5% Convertible Debentures (approximately $106.5 million) were redeemed in June 2003. In July 2003, the Company redeemed the remainder of the 5% Convertible Debentures (approximately $238.5 million) completing its early redemption of the entire $345 million aggregate principal amount of the outstanding 5% Convertible Debentures (which were convertible into 8,712,121 shares of common stock). The total redemption price, including the call premium, was approximately $353.9 million. The call premium, along with the write-off of unamortized debt issuance costs associated with the 5% Convertible Debentures were recognized ratably in the quarter in which they were redeemed. Accordingly, an $8.6 million pre-tax charge ($5.3 million aftertax, or $0.05 per diluted share) was recognized in interest expense during the quarter ended September 30, 2003 for the call premium and the write-off of remaining unamortized debt issuance costs associated with the redemption of the 5% Convertible Debentures. A charge of $4.1 million pretax ($2.5 million aftertax, or $0.02 per diluted share) 31 was recorded in interest expense during the second quarter of 2003, representing the proportionate share of the call premium and unamortized debt issuance costs. In connection with the offerings, the Company also completed a new, four-year $750.0 million credit facility ("Credit Facility") consisting of a $250 million term loan commitment and a $500 million revolving credit commitment. The Company used the net proceeds from the 6.125% Senior Notes offering and borrowings of $250.0 million under the term loan portion of the new Credit Facility to repay the balance of the Company's existing credit facility of $474 million, with remaining proceeds being used for general corporate purposes. The Company paid down $50.0 million and $40.0 million on the term loan during the second and third quarters, respectively. The $160.0 million outstanding at September 30, 2003 under the term loan is due in quarterly installments, in varying amounts, through 2007, with approximately $18.5 million due within one year. The new Credit Facility bears interest at the Company's option at a rate equal to either: (i) London Interbank Offered Rate ("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 prime rate or (b) the sum of the federal funds effective rate plus 0.50%. Additionally, the Company is charged a commitment fee on the unused portion of the revolving credit portion of the Credit Facility, which also varies depending on such ratings. At September 30, 2003, the interest rate was LIBOR plus 1.375% and the commitment fee was 0.375%. There is no utilization fee associated with the Credit Facility. During the second quarter of 2003, the Company entered into an interest rate swap agreement ("Swap Agreement") on all $250.0 million of its aggregate principal amount of the 6.125% Senior Notes. Under the Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company will receive a fixed rate of 6.125% and pay a floating rate based on LIBOR with a maturity of six months plus a spread of 2.27%. The floating rate is determined semi-annually two London Banking Days prior to the first of each December and June, commencing December 1, 2003. The estimated LIBOR-based floating rate was 3.45% at September 30, 2003. The Swap Agreement, which matches the terms of the 6.125% Senior Notes, is designated and accounted for as a fair value hedge. The Company is accounting for the Swap Agreement in accordance with SFAS No. 133, as amended, so changes in fair value of the Swap Agreement are offset by changes in the recorded carrying value of the related 6.125% Senior Notes. The fair value of the Swap Agreement is recorded as a noncurrent liability and reduced the carrying value of the related 6.125% Senior Notes by $17.2 million as of September 30, 2003. The Company believes that net cash flows from operating activities, credit facilities and other short- and long-term debt financings, if any, will be sufficient to satisfy its future working capital needs, acquisition contingency commitments, debt servicing, capital expenditures 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 deemed appropriate. The Company believes that, if needed, these additional external sources of financing are readily available. 32 Disclosures About Off-Balance Sheet Arrangements and Aggregate Contractual Obligations - -------------------------------------------------------------------------------- At September 30, 2003, the Company had one unconsolidated entity, Omnicare Capital Trust I, which was established for the purpose of facilitating the trust PIERS offering. For financial reporting purposes, the Omnicare Capital Trust I is treated as an equity method investment of Omnicare. The contingent convertible notes issued by the Company to the Trust in connection with the trust PIERS are presented as a separate line item on Omnicare's consolidated balance sheet, and the related disclosures concerning the trust PIERS, the guarantee and the contingent convertible notes are included in Omnicare's notes to consolidated financial statements. Omnicare records interest payable to the Trust as interest expense in its consolidated statement of income. At September 30, 2003, the Company had no other unconsolidated entities, or any financial partnerships, such as entities often referred to as structured finance or special purpose entities, which might have been established for the purpose of facilitating off-balance sheet arrangements. The following summarizes the Company's contractual obligations at September 30, 2003, and the effect such obligations are expected to have on the Company's liquidity and cash flows in future periods (in thousands):
Less than After Total 1 year 1-3 years 4-5 years 5 years ----- ------ --------- --------- ------- Long-term debt obligations $1,130,000 $18,462 $ 59,487 $ 82,051 $970,000 Capital lease obligations 690 437 73 58 122 Operating lease obligations 119,833 20,388 41,309 37,899 20,237 ---------- ------- --------- -------- -------- Total contractual cash obligations $1,250,523 $39,287 $ 100,869 $120,008 $990,359 ========== ======= ========= ======== ========
Recently Issued Accounting Standards - -------------------------------------------------------------------------------- Effective January 1, 2003, the Company adopted 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" ("SFAS 145"), SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45") and FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). All accounting and disclosure relevant to this authoritative guidance has been incorporated into this Quarterly Report on Form 10-Q. The adoption of SFAS 145, SFAS 146, FIN 45 and FIN 46 did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In October 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 147, "Acquisition of Certain Financial Institutions." This pronouncement is not applicable to the Company. 33 In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure -- an amendment of SFAS 123" ("SFAS 148"). While limited in scope, SFAS 148 provides additional transition guidance for those entities that elect to voluntarily adopt the accounting provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). The standard is intended to encourage the adoption of the provisions of SFAS 123 by providing three transitional implementation methodologies. Even for those companies choosing not to adopt the provisions of SFAS 123, SFAS 148 includes new annual and interim disclosure requirements related to a company's issuance of stock compensation. The transition and disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The disclosure provisions of SFAS 148 have been incorporated into the notes to consolidated financial statements, and Omnicare currently intends to continue accounting for stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations, as permitted by U.S. GAAP. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This Statement was effective for the Company beginning July 1, 2003. The adoption of this Statement did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) in the statement of financial position. This Statement was effective for the Company for financial instruments entered into or modified after May 31, 2003. The adoption of this Statement did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. 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 acquisitions of NCS and SunScript, including Omnicare's ability to enhance the lower margin NCS and SunScript businesses through economies of scale, operational efficiencies, drug purchasing improvements and pharmacy consolidations; potential tax and accounting effects from the NCS acquisition; the impact of new pharmacy services contracts; the impact of clinical and other service programs; the impact of drug price inflation; the impact of penetration of new drugs; the impact of lower government reimbursement formulas in some states; trends concerning the number and usage of generic drugs; the impact of the productivity and 34 consolidation programs; the impact and timing of the integration of the NCS and SunScript acquisitions; the impact of the expiration of certain payments under BBRA and BIPA and the potential loss of revenues associated with the expiration of such payments; CMS estimates of increased Medicare payments to skilled nursing facilities for the 2004 federal fiscal year; expectations concerning the current patient classification system by CMS; the impact of healthcare funding issues generally; the impact of Medicare reform legislation under Congressional consideration; governmental budgetary and pricing pressures due to the economic downturn, and Omnicare's ability to adjust to such pricing pressures; the impact of streamlining and cost reduction measures at the CRO organization; trends concerning CRO backlog; purchasing leverage for pharmaceuticals; the formulary compliance program; the impact of contractual obligations on future periods; future valuations of the trust PIERS instruments; 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. 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 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 attract new clients and service contracts and retain existing clients and service contracts; the ability to implement and expand clinical and other service programs; the impact of Omnicare's formulary compliance program; trends in drug pricing, including the impact of current drug price inflation; the ability to enhance market penetration of newer, branded drugs; trends in the use of generic drugs; trends in state reimbursement formulas; the impact of pending federal Medicare legislation; trends in CMS Medicare payments to skilled nursing facilities; pressures on federal and state Medicaid budgets and the impact of budget shortfalls which may result in delays and reductions in Medicaid reimbursements; 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; efforts by payors to control costs; the overall financial condition of Omnicare's customers; Omnicare's ability to assess and react to the financial condition of customers; the ability to implement productivity, consolidation and cost reduction efforts and to realize anticipated benefits; the ability to effectively integrate NCS, SunScript and other acquired companies, including the ability to realize anticipated economies of scale, cost synergies, pharmacy consolidation savings and profitability; the continued availability of suitable acquisition candidates; fluctuations in gross profit margins due to acquisitions and a shift toward newer branded drugs with lower profit margins; the timing and impact of advance purchases of pharmaceuticals; the impact of tax and accounting rules in connection with acquisitions; pricing and other competitive factors in the industry; the impact of seasonal illness trends on the business of Omnicare; the ability of vendors and business partners to provide products and services to Omnicare; the outcome of litigation; the failure of Omnicare or the long-term care facilities it serves to obtain or maintain required regulatory approvals or licenses; trends concerning delays in project commencement or continuation by CRO clients, as well as those concerning backlog and new CRO business; Omnicare's ability to take effective cost-reduction measures in response to CRO client delays; volatility in the CRO business; the ability of CRO projects to produce revenues in future periods; market conditions which may affect the valuation of the trust PIERS instruments; the ability to attract and retain needed management; potential 35 liability for losses not covered by, or in excess of, insurance; competition for qualified staff in the healthcare industry; 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; competition in the pharmaceutical, long-term care and contract research industries; changes in tax laws and regulations; volatility in the market for Omnicare's stock and in the financial markets generally; access to capital and financing; changes in international, economic and political conditions; interest rate and foreign currency fluctuations; the demand for Omnicare's products and services; variations in costs or expenses; and changes in accounting rules and standards. 36 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 September 30, 2003 include $160.0 million outstanding under the term loan portion of its June 2003 four-year, variable-rate Credit Facility at an interest rate of LIBOR plus 1.375%, or 2.5% at September 30, 2003 (a one-hundred basis point change in the interest rate would impact pretax interest expense by approximately $1.6 million per year); $375.0 million outstanding under its 8.125% fixed-rate senior subordinated notes (the "8.125% Senior Notes"), due 2011; $250.0 million outstanding under its 6.125% fixed-rate senior subordinated notes (the "6.125% Senior Notes"), due 2013; and $345.0 million outstanding under its 4.0% fixed-rate convertible debentures (the "4.0% Convertible Debentures"), due 2033. During the second quarter of 2003, the Company entered into an interest rate swap agreement ("Swap Agreement") on all $250.0 million of its aggregate principal amount of the 6.125% Senior Notes. Under the Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company will receive a fixed rate of 6.125% and pay a floating rate based on LIBOR with a maturity of six months plus a spread of 2.27%. The floating rate is determined semi-annually two London Banking Days prior to the first of each December and June, commencing December 1, 2003. The estimated LIBOR-based floating rate was 3.45% at September 30, 2003 (a one-hundred basis point change in the interest rate would impact pretax interest expense by approximately $2.5 million per year). The Swap Agreement, which matches the terms of the 6.125% Senior Notes, is designated and accounted for as a fair value hedge. The Company is accounting for the Swap Agreement in accordance with SFAS No. 133, as amended, so changes in fair value of the Swap Agreement are offset by changes in the recorded carrying value of the related 6.125% Senior Notes. The fair value of the Swap Agreement is recorded as a noncurrent liability and reduced the carrying value of the related 6.125% Senior Notes by $17.2 million as of September 30, 2003. At September 30, 2003, the fair value of Omnicare's Credit Facility approximates its carrying value, and the fair value of the 8.125% Senior Notes, 6.125% Senior Notes and 4.0% Convertible Debentures is approximately $405.9 million, $245.0 million and $388.1 million, respectively. Embedded in the trust PIERS are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision. The embedded derivatives are periodically valued by a third party advisor, and at September 30, 2003 the values of both derivatives were not material. However, the values are subject to change, based on market conditions, which could affect the Company's future results of operations. 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. 37 ITEM 4. CONTROLS AND PROCEDURES (a) Based on a recent evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in the Exchange Act Rules 13a-14 and 15d-14) are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in periodic reports filed under the Securities Exchange Act of 1934. (b) There were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 38 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Index of Exhibits. (b) Reports on Form 8-K On July 31, 2003, the Company reported that it had issued a press release announcing its financial results for the second quarter of 2003. 39 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Omnicare, Inc. Registrant Date: November 14, 2003 By: /s/ David W. Froesel, Jr. -------------------- ------------------------------ David W. Froesel, Jr. Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 40 INDEX OF EXHIBITS
Document Incorporated by Reference Number and Description of Exhibit from a Previous Filing, Filed Herewith (Numbers Coincide with Item 601 of Regulation S-K) or Furnished Herewith, as Indicated Below - -------------------------------------------------- --------------------------------------- (3.3) Second Amended and Restated By-laws Filed Herewith of Omnicare, Inc. (11) Computation of Earnings Per Common Share Filed Herewith (12) Computation of Ratio of Earnings to Fixed Filed Herewith Charges (31.1) Rule 13a-14(a) Certification of Chief Executive Filed Herewith Officer of Omnicare, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (31.2) Rule 13a-14(a) Certification of Chief Financial Filed Herewith Officer of Omnicare, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (32.1) Section 1350 Certification of Chief Executive Officer Furnished Herewith of Omnicare, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002* (32.2) Section 1350 Certification of Chief Financial Officer Furnished Herewith of Omnicare, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002*
* A signed original of this written statement required by Section 906 has been provided to Omnicare, Inc. and will be retained by Omnicare, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. E-1 EX-3 3 ex3-3.txt EXHIBIT 3.3 Exhibit 3.3 SECOND AMENDED AND RESTATED BY-LAWS OF OMNICARE, INC. (a Delaware corporation) ARTICLE I Meetings of Stockholders Section 1.01. Place. Meetings of stockholders may be held at any place, within or outside the State of Delaware, as designated by the Board of Directors. Section 1.02. Annual Meetings. (a) General Rule. An annual meeting of stockholders entitled to notice thereof and to vote thereat pursuant to the provisions of the Certificate of Incorporation for the purpose of electing directors and transacting such other business as may come before it shall be held each year on such day and at such hour as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. (b) Business to be Conducted. Only such business shall be conducted at the annual meeting as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized Committee thereof), (b) brought before the meeting by or at the direction of a majority of the total number of directors which the corporation would have if there were no vacancies, or (c) otherwise properly requested to be brought before the meeting by a stockholder of record of the corporation who was a stockholder of record at the time of the giving of the notice provided for in Section 1.06, who is entitled to vote at the meeting and who has complied with the procedures of Section 1.02(c) and (d). (c) Determination of Propriety of Business. The chairman of an annual meeting shall, if he determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, declare to the meeting that the business was not properly brought before the meeting in accordance with the provisions of this Section 1.02 (including whether the stockholder or beneficial owner, if any, on whose behalf the proposal is made solicits (or is part of a group which solicits), or fails to solicit, as the case may be, proxies in support of such stockholder's proposal in compliance with such stockholder's notice as required by this Section 1.02), and if he should so determine, he shall so declare to the meeting any such business not properly brought before the meeting shall not be transacted, and such business shall be disregarded. (d) Stockholder Proposals. In addition to any other applicable requirements, for business to be properly requested to be brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing in proper form to the Secretary, such business must be a proper matter for stockholder action under the Delaware General Corporate Law ("DGCL") and, if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, solicits or participates in the solicitation of proxies in support of such proposal, the stockholder must have timely indicated its, or such beneficial owner's, intention to do so as provided below. To be timely, a stockholder's notice must be delivered to, or mailed to and received by, the Secretary of the corporation at the principal executive offices of the corporation not more than 120 days nor less than 90 days prior to the anniversary date of the prior year's annual meeting of the stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder to be timely must be delivered to, or mailed to and received by, the Secretary at the principal executive offices of the corporation not more than 120 days prior to such annual meeting and not later than the close of business on the tenth day following the day on which notice of the date of the annual meeting was mailed or public announcement of the date of the annual meeting was made, whichever first occurs. In no event shall the public announcement of an adjournment or postponement of a meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above. For purposes of this Section 1.02, the date of public announcement of a meeting or of an adjournment or postponement of a meeting shall include, but not be limited to, the date on which disclosure of the date of the meeting, adjournment or postponement is released to a national news service, or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 and 15(d) of the Securities Exchange Act of 1934, as amended, or the rules and regulations promulgated thereunder (the "Exchange Act"). (e) Form of Stockholder Proposals. To be in proper form, a stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend these By-Laws, the language of the proposed amendment), (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business and of the beneficial owner, if any, on whose behalf such proposal is being made, (c) the class and number of shares of the corporation which are owned beneficially and of record by the stockholder and the beneficial owner, (d) any material interest of the stockholder or beneficial owner in such business, (e) any other information that is required to be provided by the stockholder or beneficial owner pursuant to Section 14 of the Exchange Act, in such stockholder's or beneficial owner's capacity as a proponent of the stockholder proposal, and (f) whether either such stockholder or beneficial owner, alone or as part of a group, intends to deliver a proxy statement and/or form of proxy or to otherwise solicit or participate in the solicitation of proxies in favor of such proposal. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except business brought before the annual meeting in accordance with the procedures set forth in this Section 1.02. Notwithstanding the foregoing provisions of 2 this Section 1.02, a stockholder shall also comply with all applicable requirements of the Exchange Act with respect to matters set forth in this Section 1.02. Nothing in this Section 1.02 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Section 1.03. Special Meetings. Special meetings of stockholders, for any purpose or purposes, may be called at any time by the Chairman of the Board, the President or the Secretary, and shall be called by the Chairman of the Board, the President or the Secretary upon the written request of a majority of the Board of Directors or of the holders of record of shares having a majority of the voting power of the stock of the corporation then entitled to vote for the election of directors, such written request to state the purpose or purposes of the meeting and to be delivered to the Chairman of the Board, the President or the Secretary. Section 1.04. Notice and Waiver of Notice. Unless otherwise provided by law, notice of each meeting of stockholders of record stating the time, place and purpose or purposes thereof, shall be given to each stockholder of record entitled to vote at such meeting, not less than ten nor more than sixty days before the day on which the meeting is to be held, by delivering a written notice personally or mailing a written notice to each stockholder of record entitled to vote thereat or by providing notice in such other form and by such other method as may be permitted by the DGCL. If mailed, the notice shall be directed to the stockholder in a postage-prepaid envelope at his address as it appears on the stock books of the corporation unless, prior to the time of mailing, he shall have filed with the Secretary a written request that notices intended for him be mailed to some other address, in which case it shall be mailed to the address designated in such request. Notice of any meeting of stockholders need not be given to any person who may become a stockholder of record after the record date of such meeting fixed pursuant to Section 7.03, nor to any person who shall attend the meeting in person or by proxy nor to any stockholder who shall sign a waiver of such notice in writing either before, after or at the time of such meeting. Except as otherwise provided by law, notice of any adjourned meeting of stockholders need not be given. Section 1.05. List of Stockholders. The Secretary, or other officer of the corporation who has charge of the stock ledger of the corporation, shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to such meeting, either at a place within the city where such meeting is to be held, which place shall be specified in the notice of such meeting, or, if not so specified, at the place where such meeting is to be held, and such list shall be produced and kept at the time and place of such meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 1.06. Organization. Meetings of the stockholders shall be presided over by the Chairman of the Board or by another chair designated by the Board of Directors; and the Secretary, or in the absence of the Secretary, a person appointed by the chairman of the meeting, 3 shall act as secretary of the meeting. The order of and the rules for conducting business at all meetings of the stockholders shall be determined by the chairman of the meeting. Section 1.07. Quorum. At all meetings of stockholders, the holders of record, present in person or by proxy, of shares having a majority of the voting power of the stock of the corporation entitled to vote thereat, shall be necessary and sufficient to constitute a quorum for the transaction of business. In the absence of a quorum, the holders of record of shares having a majority of the voting power of the stock of the corporation represented in person or by proxy at the time and place of the meeting, or of any adjournment thereof, may adjourn the meeting from time to time, without notice other than announcement at the time and place of such meeting or adjournment, until a quorum shall be present. At any adjourned session of any such meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. Section 1.08. Voting. When a quorum is present at any meeting of stockholders, the vote of the holders of shares having a majority of the voting power of the stock of the corporation represented and entitled to vote at such meeting shall decide any question brought before such meeting, unless the question is one upon which, by express provision of law or of the Certificate of Incorporation or these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. A stockholder may vote either in person or by proxy, but no proxy shall be voted or acted upon after three years from its date unless the proxy provides for a longer period. Section 1.09. Consent in Lieu of Meeting. Any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if consents in writing, setting forth the action so taken, shall be signed by the holders of record of shares having not less than the minimum voting power that would be necessary to take such action at a meeting at which all shares entitled to vote thereon were present and voted. Section 1.10. Inspectors. In advance of or at any meeting of the stockholders, the Board of Directors or the chairman of the meeting may, and shall if required by applicable law, appoint one or more inspectors of election and any substitute inspectors to act at the meeting or any adjournment thereof and make a written report thereof. Unless otherwise required by law, inspectors may be officers, employees or agents of the corporation. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. Upon request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. 4 ARTICLE II Directors Section 2.01. Number. The number of directors which shall constitute the whole Board of Directors shall be no fewer than three nor more than thirty. The first Board of Directors shall consist of three directors. Thereafter, within the minimum and maximum above specified, the number of directors which shall constitute the whole Board of Directors shall be determined by resolution of the Board of Directors or, in the absence thereof, shall be the number of directors elected at the preceding annual meeting of stockholders. Section 2.02. Election; Nomination. (a) General Rule. Directors shall be elected at each annual meeting of stockholders, and may also be elected as provided in Section 2.05 of this Article. Directors shall be chosen by a plurality of the votes cast. Directors need not be stockholders of the corporation. Only persons who are nominated in accordance with the procedures set forth in this Section 2.02 shall be eligible for election as directors. (b) Stockholder Nominations. Nominations of persons for election to the Board of Directors of the corporation may be made by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.02. Nominations by stockholders shall be timely submitted in writing to the Secretary in accordance with the provisions of Section 1.02. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person; (B) the principal occupation or employment of such person; (C) the class and number of shares of capital stock of the corporation which are beneficially owned by such person; (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) and between the beneficial owner and such nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Section 14 of the Exchange Act (including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to Section 1.02. (c) Determination of Propriety of Nominations. At the request of the Board of Directors, any person nominated by a stockholder for election as a director shall furnish to the Secretary that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these By-Laws; and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded. The foregoing notice provision shall 5 not apply to any person nominated by the Board of Directors for election as a director in the place of any person nominated by the Board who, after the notice of the meeting of stockholders has been mailed and prior to the meeting, dies or declines or is unable to serve as a director if nominated and elected. Section 2.03. The Chairman of the Board. The Board of Directors may elect from among its members one member to serve as Chairman of the Board, which member shall serve as Chairman of the Board until another member is elected to the position. The Chairman of the Board shall preside at all meetings of the Board of Directors and of the stockholders. Section 2.04. Term of Office. Each director shall serve until his successor is elected and qualified, or until his death, resignation, disqualification or removal. Section 2.05. Resignations; Filling of Vacancies. Any director may resign at any time by giving notice of such resignation to the Board of Directors, the Chairman of the Board, the President or the Secretary. Unless otherwise specified in such notice, such resignation shall be effective upon receipt of such notice by the Board of Directors or such officers. Vacancies in the Board of Directors, whether caused by resignation, removal, death or any other reason, and newly created directorships resulting from any increase in the authorized number of directors, may be filled either by majority vote of the directors then remaining in office (whether or not sufficient in number to constitute a quorum), or by a sole remaining director, or by a plurality of the votes cast at the meeting of stockholders held for that purpose. In the event that one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned effective at a future date, shall have power to fill the vacancy or vacancies which will result when such resignation or resignations become effective, the vote thereon to take effect when such resignation or resignations become effective. Section 2.06. Powers. The business and affairs of the corporation shall be managed by the Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by law or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. ARTICLE III Meetings of the Board of Directors Section 3.01. Place. Meetings of directors, both regular and special, may be held either within or without the State of Delaware. Section 3.02. Annual and Regular Meetings. The annual meeting of the Board of Directors for the election of officers, and for the transaction of such business as may be deemed desirable by the directors present, shall be held in each year immediately following the annual meeting of stockholders, at the place of such meeting, or at such time and place as the retiring Board of Directors may have designated. If the annual meeting of the Board of Directors is so held, no notice thereof need be given. If the annual meeting shall be held as soon after the annual meeting of stockholders as practicable, upon notice as required for special meetings of the Board 6 of Directors under Section 3.03. The Board of Directors from time to time may provide for the holding of regular meetings and fix the times and places of such meetings, and no notice need be given of regular meetings held at the times and places so fixed. Section 3.03. Special Meetings and Notice thereof; Waiver of Notice. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the President or the Secretary, and shall be called by the Chairman of the Board, the President or the Secretary upon the written request of any two directors, such written request to state the purpose or purposes of the meeting and to be delivered to the Chairman of the Board, the President or the Secretary. Notice of each special meeting of the Board of Directors shall be mailed to each director, postage prepaid, addressed to him at his residence or his usual place of business, at least two days before the day on which the meeting is to be held, or shall be sent to him at such place by telegram, radio or cable or shall be telephoned or delivered to him personally not later than the day before the meeting is to be held. Notice of any special meeting need not be given to any director who shall attend such meeting in person or who shall waive notice thereof in writing or by telegram, radio or cable, either before, after or at the time of such meeting. Except as otherwise provided by law, notice of any adjourned meeting of the Board of Directors need not be given. Section 3.04. Quorum. At each meeting of the Board of Directors (subject to the provision of Section 2.04 regarding the filling of vacancies), the presence of a majority of the total number of directors constituting the whole Board of Directors shall constitute a quorum for the transaction of business. Except as otherwise provided in these By-Laws, the vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present at the time and place of any meeting or of any adjournment thereof (or if only one director be present, then that one) may adjourn the meeting from time to time, without notice other than announcement at the time and place of such meeting or adjournment, until a quorum shall be present. At any adjourned session of any such meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. Section 3.05. Consent in Lieu of Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as applicable, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee, as applicable. Section 3.06. Participation of Telephone. Directors may participate in any meeting of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and such participation shall constitute such directors' presence at such meeting. 7 ARTICLE IV Executive Committee and Other Committees Section 4.01. Creation of Committee. The Board of Directors may, by action of a majority of the whole Board of Directors, designate an Executive Committee and/or one or more other committees, each consisting of two or more directors. Section 4.02. Powers of Committee. Subject to any limitations imposed by law or by resolution adopted by a majority of the whole Board of Directors, the Executive Committee shall have and may exercise, when the Board of Directors is not in session, all power and authority of the Board of Directors in the management of the business and affairs of the corporation, except any power or authority in reference to (a) amending the Certificate of Incorporation, (b) approving an agreement of merger or consolidation, (c) recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (d) approving the dissolution of the corporation or the revocation of a dissolution, (e) altering, amending or repealing these By-Laws, (f) declaring a dividend or authorizing any other distribution to the stockholders, (g) authorizing the issuance of capital stock of the corporation, or any rights, options or warrants to acquire the same, except pursuant to a plan previously approved by the Board of Directors, (h) designating any committee of the Board of Directors or appointing or removing a member of any committee designated by the Board of Directors, (i) filling vacancies on the Board of Directors, or (j) electing or removing the Chairman of the Board or an officer of the corporation. Each other committee shall have and may exercise, when the Board of Directors is not in session, such powers, not exceeding those which may be granted to the Executive Committee, as the Board of Directors shall confer. Section 4.03. Meetings and Proceedings. Except as otherwise provided in these By-Laws or by resolutions of the Board of Directors, each committee may adopt its own rules governing the conduct of its proceedings. All action by any committee shall be reported to the Board of Directors at the next meeting thereof and shall be subject to revision and alteration by the Board of Directors, provided that no such revision or alteration shall affect the rights of third parties. At each meeting of any committee, the presence of a majority of the total number of members constituting the committee shall constitute a quorum for the transaction of business. The vote of a majority of the members of the committee present at any meeting at which a quorum is present shall be the action of the committee. Section 4.04. Term of Office; Resignations; Removals; Filling of Vacancies. The term of office of a member of a committee shall be as provided in the resolution of the Board of Directors designating the committee or designating him as a member but shall not exceed his term of office as a director. If prior to the end of his term of office as a member of a committee a member should cease to be a director, he shall cease to be a member of the committee. Any member of any committee may resign at any time by giving notice of such resignation to the Board of Directors, the Chairman of the Board, the President or the Secretary. Unless otherwise specified in such notice, such resignation shall be effective upon receipt of such notice by the Board of Directors or such officer. Any member of any committee may be removed at any time from such committee, either for or without cause, by action of a majority of the whole Board of 8 Directors. Vacancies in any committee may be filled by the Board of Directors by action of a majority of the whole Board of Directors. ARTICLE V Officers Section 5.01. Election; Number; Qualifications; Term. The officers of the corporation shall be elected by a majority of the whole Board of Directors, and shall include a President, one or more Vice Presidents, a Secretary, one or more Assistant Secretaries, a Treasurer, one or more Assistant Treasurers and such other officers as may be elected in the discretion of the Board of Directors. Any two or more offices may be held by the same person. Officers need not be directors or stockholders of the corporation. Each officer shall hold office until his successor is elected and qualified, or until his death, resignation, disqualification or removal. Section 5.02. Powers and Duties in General. In addition to the powers and duties prescribed by these By-Laws or assigned to them by the Board of Directors, the officers and assistant officers shall have such powers and duties as are usually incident to their respective offices, subject to the control of the Board of Directors. Section 5.03. The President. The President shall be the Chief Executive Officer of the Corporation and shall, subject to the direction of the Board of Directors, have general charge of the business and affairs of the Corporation and general supervision of its officers, employees and agents. The President shall, during any absence of the Chairman of the Board, preside at meetings of the stockholders and carry out all of the duties of the Chairman of the Board, and preside at meetings of the Board of Directors. He shall also perform such other duties as may be assigned to him by the Board of Directors and he shall prepare and present reports to the Board concerning the state of the corporation's business and affairs. The Board may designate one of the other officers of the corporation to perform the duties of the President in his absence. Section 5.04. The Vice Presidents. An Executive Vice President, a Senior Vice President or Vice President shall perform such duties as from time to time may be assigned to him by the President or by the Board of Directors or by any committee thereunto authorized. Section 5.05. The Secretary. The Secretary shall cause the minutes of all proceedings of the stockholders and the Board of Directors to be recorded in the minute book of the corporation, shall cause all notices to be duly given in accordance with the provisions of these By-Laws and as required by law, and shall have charge and custody of the records and the seal of the corporation. Section 5.06. The Treasurer. The Treasurer shall have charge and custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements, shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated in accordance with these By-Laws, and shall render a report and account of the transactions of the corporation and of the financial condition of the 9 corporation whenever so required by the Board of Directors, the Chairman of the Board or the President. Section 5.07. Resignations; Removals; Filling of Vacancies. Any officer may resign at any time by giving notice of such resignation to the Board of Directors, the Chairman of the Board, the President or the Secretary. Unless otherwise specified in such notice, such resignation shall be effective upon receipt of such notice by the Board of Directors or such officer. Any officer may be removed at any time, either for or without cause, by action of a majority of the whole Board of Directors. Section 5.08. Bonding. None of the officers, assistant officers and other employees, agents or representatives of the corporation shall be required to give bond unless the Board of Directors shall in its discretion require any such bond or bonds. Any bond so required shall be payable to the corporation in such amount and with such conditions and security as the Board of Directors may require. ARTICLE VI Instruments, Deposits, Checks, Proxies Section 6.01. Execution of Instruments. The President or any Vice President may enter into any contract or execute and deliver any instrument (including, but not limited to, any check, bill of exchange, order for the payment of money, promissory note, acceptance, evidence of indebtedness or proxy to vote with respect to shares of stock of another corporation owned by or standing in the name of the corporation) in the name and on behalf of the corporation, subject to the control of the Board of Directors. The Board of Directors may authorize any officer, employee or agent to enter into any contract or execute and deliver any such instrument in the name and on behalf of the corporation, and such authorization may be general or confined to specific instances. To the extent authorized by the Board of Directors the signature of any such person may be a facsimile. Section 6.02. Deposits. Monies and other valuable effects of the corporation may be deposited from time to time to the credit of the corporation with such depositories as may be selected by the Board of Directors or by any committee, officer or agent of the corporation to whom power of selection may be delegated from time to time by the Board of Directors. ARTICLE VII Stock Certificates; Registered Holders Section 7.01. Issuance; Signatures. Every holder of stock of the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by the President or a Vice President, and by either the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of shares owned by him in the corporation. If such certificate is countersigned by a transfer agent other than the corporation or one of its employees, or a registrar other than the corporation or its employees, any other signature on the certificate 10 may be a facsimile. Stock certificates shall be in such form as shall be approved by the Board of Directors. Section 7.02. Continuing Validity of Signatures. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise, before such certificate is issued, such certificate may nevertheless be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 7.03. Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive any dividend payment, distribution or allotment of rights, or entitled to exercise rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting nor more than sixty days prior to any other action, and only such stockholders as shall be stockholders of record on the record date so fixed shall be entitled to such notice of or to be present or to vote at such meeting or any adjournment thereof, or to express such consent, or to receive such payment, distribution or allotment, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. Section 7.04. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to have the rights of a stockholder with respect thereto, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 7.05. Lost Certificates. When any certificate of stock is alleged to have been lost, destroyed or wrongfully taken the corporation shall issue a new certificate if the owner (a) so requests before the corporation has notice that the certificate has been acquired by a bona fide purchaser, (b) files with the corporation a sufficient indemnity bond and (c) satisfies any other reasonable requirements imposed by the corporation. The Board of Directors may waive the requirement of any such indemnity bond. ARTICLE VIII Miscellaneous Section 8.01. Offices. The principal office of the corporation in the State of Delaware shall be at 100 West Tenth Street, Wilmington, Delaware. The corporation may also have offices at other places within or without the State of Delaware. Section 8.02. Fiscal Year. The fiscal year of the corporation shall begin on the 1st day of January in each year, and shall end on the 31st day of December in such year. 11 Section 8.03. Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced. Section 8.04. Compensation of Directors. The Board of Directors shall have authority to fix the compensation of directors, including the Chairman of the Board. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance of each meeting of the Board of Directors and/or a stated salary as director. Members of committees may be allowed like compensation and expenses for attending committee meetings. No such payment shall preclude any director or committee member from serving the corporation in any other capacity and receiving compensation therefor. Section 8.05. Compensation of Officers and Employees. The compensation of the President and, to the extent the Board of Directors shall deem advisable, the compensation of all other officers, employees, agents and representatives of the corporation shall be fixed by the Board of Directors or in accordance with procedures adopted by it. Compensation may be contingent and/or measured in whole or in part by the profits of the corporation and its subsidiaries or a segment thereof. Bonuses, other extra or incentive compensation, deferred compensation and retirement benefits may be paid. Such amounts may be payable in cash, stock of the corporation or other property. The Board of Directors may delegate the authority contained in this section to such directors, officers, employees or agents of the corporation as the Board of Directors deems advisable. Section 8.06. Amendment of By-Laws. The By-Laws may be altered, amended or repealed from time to time, and new By-Laws may be made and adopted, by action of a majority of the whole Board of Directors or by the stockholders. 12 EX-11 4 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 Nine Months Ended September 30, September 30, --------------------- --------------------- 2003 2002 2003 2002 -------- ------- -------- ------- Basic Earnings: Net income $ 48,830 $29,066 $132,754 $87,200 ======== ======= ======== ======= Shares Weighted average number of common shares outstanding 101,965 94,245 97,490 94,129 ======== ======= ======== ======= Basic EPS $ 0.48 $ 0.31 $ 1.36 $ 0.93 ======== ======= ======== ======= Diluted Earnings (a)(b): Net income $ 48,830 $29,066 $132,754 $87,200 Interest expense related to 5.0% Convertible Debentures, net of taxes -- -- 4,870 -- -------- ------- -------- ------- Net income, as adjusted, for purposes of calculating diluted EPS $ 48,830 $29,066 $137,624 $87,200 ======== ======= ======== ======= Shares Weighted average number of common shares outstanding 101,965 94,245 97,490 94,129 Additional shares assuming conversion of: Stock options and stock warrants (c) 979 465 687 791 Convertible Debentures -- -- 4,840 -- -------- ------- -------- ------- Weighted average common shares outstanding, as adjusted 102,944 94,710 103,017 94,920 ======== ======= ======== ======= Diluted EPS $ 0.47 $ 0.31 $ 1.34 $ 0.92 ======== ======= ======== =======
(a) The nine month period ended September 30, 2003 includes the dilutive effect of the $345.0 million of 5.0% Convertible Debentures, which assumes conversion using the "if converted" method. Under that method, the Convertible Debentures are assumed to be converted to common shares (weighted for the number of days assumed to be outstanding during the period) and interest expense, net of taxes, related to the Convertible Debentures is added back to net income. On July 14, 2003, the Company completed the early redemption of the entire $345.0 million aggregate principal amount of the outstanding 5% Convertible Debentures. The Convertible Debentures, which were convertible at $39.60 per share, were outstanding during the three and nine months ended September 30, 2002, but were not included in the computation of diluted EPS during the three and nine months ended September 30, 2002 because the impact was anti-dilutive. (b) The $345.0 millon of 4.0% convertible trust preferred securities due 2033, which are convertible at $40.82 per share (under a contingent conversion feature whereby the holders may convert their trust PIERS if the closing sales price of Omnicare common stock for a predetermined period, beginning with the quarter ending September 30, 2003, is more than 130% of the then-applicable conversion price or, during a predetermined period, if the daily average of the trading prices for the trust PIERS is less than 105% of the average of the conversion values for the trust PIERS through 2028, 98% for any period thereafter through maturity), were outstanding during the three and nine months ended September 30, 2003, but were not included in the computation of diluted EPS because the impact was anti-dilutive. (c) During the three months and nine months ended September 30, 2003 and 2002, the anti-dilutive effect associated with selected 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 September 30, 2003 and 2002 totaled 2.7 million and 5.5 million, respectively. Further, 3.0 million and 4.5 million anti-dilutive options and warrants were excluded from the year-to-date September 30, 2003 and 2002, respectively. EX-12 5 ex12.txt EXHIBIT 12 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES OMNICARE, INC. AND SUBSIDIARY COMPANIES UNAUDITED (in thousands)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ------------------------- 2003 2002 2003 2002 -------- ------- -------- -------- Income before Income Taxes $ 78,227 $46,895 $213,570 $140,625 Add: Interest Expense 25,175 13,355 61,562 40,041 Amortization of Debt Expense 1,141 984 3,085 2,949 Interest Portion of Rent Expense 3,080 3,118 9,198 7,890 -------- ------- -------- -------- Adjusted Income $107,623 $64,352 $287,415 $191,505 ======== ======= ======== ======== Fixed Charges Interest Expense $ 25,175 $13,355 $ 61,562 $ 40,041 Amortization of Debt Expense 1,141 984 3,085 2,949 Interest Portion of Rent Expense 3,080 3,118 9,198 7,890 -------- ------- -------- -------- Fixed Charges $ 29,396 $17,457 $ 73,845 $ 50,880 ======== ======= ======== ======== Ratio of Earnings to Fixed Charges (1) 3.7 x 3.7 x 3.9 x 3.8 x ======== ======= ======== ========
(1) The ratio of earnings to fixed charges has been computed by dividing earnings before income taxes plus fixed charges by fixed charges. Fixed charges consist of interest expense on debt (including the amortization of debt expense) and one-third (the proportion deemed representative of the interest portion) of rent expense. EX-31 6 ex31-1.txt EXHIBIT 31.1 Exhibit 31.1 RULE 13a-14(a) CERTIFICATION IN ACCORDANCE WITH SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Joel F. Gemunder, President and Chief Executive Officer of Omnicare, Inc. (the "Company"), certify that: 1. I have reviewed this report on Form 10-Q of the Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: November 14, 2003 /s/ Joel F. Gemunder -------------------- Joel F. Gemunder President and Chief Executive Officer EX-31 7 ex31-2.txt EXHIBIT 31.2 Exhibit 31.2 RULE 13a-14(a) CERTIFICATION IN ACCORDANCE WITH SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, David W. Froesel, Jr., Senior Vice President and Chief Financial Officer of Omnicare, Inc. (the "Company"), certify that: 1. I have reviewed this report on Form 10-Q of the Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: November 14, 2003 /s/ David W. Froesel, Jr. ------------------------- David W. Froesel, Jr. Senior Vice President and Chief Financial Officer EX-32 8 ex32-1.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 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 September 30, 2003 (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: November 14, 2003 /s/ Joel F. Gemunder ------------------------------------- Joel F. Gemunder President and Chief Executive Officer EX-32 9 ex32-2.txt EXHIBIT 32.2 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 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 September 30, 2003 (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: November 14, 2003 ----------------- /s/ David W. Froesel, Jr. ------------------------- David W. Froesel, Jr. Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----