-----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, WKxbvz7ULqqzzx1xSF/BDSomwFSIdBpIx6O4SsyColNXhSHoM9gwFqAWLZe0Esq7 t5C6hGQ46mzSnB2Dhux2IQ== 0000950117-04-001803.txt : 20040510 0000950117-04-001803.hdr.sgml : 20040510 20040510151504 ACCESSION NUMBER: 0000950117-04-001803 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 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: 04792719 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 a37640.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 March 31, 2004 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 103,848,057 March 31, 2004
OMNICARE, INC. AND SUBSIDIARY COMPANIES INDEX
PAGE ---- PART I. FINANCIAL INFORMATION: ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Consolidated Statements of Income - Three months ended - March 31, 2004 and 2003 3 Consolidated Balance Sheets - March 31, 2004 and December 31, 2003 4 Consolidated Statements of Cash Flows - Three months ended - March 31, 2004 and 2003 5 Notes to Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 29 ITEM 4. CONTROLS AND PROCEDURES 30 PART II. OTHER INFORMATION: ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES 31 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 31
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME OMNICARE, INC. AND SUBSIDIARY COMPANIES UNAUDITED (In thousands, except per share data)
Three Months Ended March 31, -------------------- 2004 2003 -------- -------- Sales $977,742 $797,753 Reimbursable out-of-pockets 4,537 8,108 -------- -------- Total net sales 982,279 805,861 -------- -------- Cost of sales 723,074 589,792 Reimbursed out-of-pocket expenses 4,537 8,108 -------- -------- Total direct costs 727,611 597,900 -------- -------- Gross profit 254,668 207,961 Selling, general and administrative expenses 138,662 126,928 -------- -------- Operating income 116,006 81,033 Investment income 634 588 Interest expense (16,712) (16,456) -------- -------- Income before income taxes 99,928 65,165 Income taxes 36,437 24,742 -------- -------- Net income $ 63,491 $ 40,423 ======== ======== Earnings per share: Basic $ 0.61 $ 0.43 ======== ======== Diluted $ 0.61 $ 0.42 ======== ======== Weighted average number of common shares outstanding: Basic 103,458 94,386 ======== ======== Diluted 104,769 104,029 ======== ======== Dividends per share $ 0.0225 $ 0.0225 ======== ======== Comprehensive income $ 64,173 $ 41,420 ======== ========
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)
March 31, December 31, 2004 2003 ---------- ------------ ASSETS Current assets: Cash and cash equivalents $ 174,069 $ 187,413 Restricted cash 5,777 714 Deposit with drug wholesaler 44,000 -- Accounts receivable, less allowances of $120,289 (2003-$108,813) 737,078 678,255 Unbilled receivables 10,312 15,281 Inventories 322,022 326,550 Deferred income tax benefits 71,898 53,224 Other current assets 142,475 121,651 ---------- ---------- Total current assets 1,507,631 1,383,088 Properties and equipment, at cost less accumulated depreciation of $208,398 (2003-$200,498) 149,422 148,307 Goodwill 1,765,959 1,690,558 Other noncurrent assets 176,703 173,068 ---------- ---------- Total assets $3,599,715 $3,395,021 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 323,053 $ 296,089 Current debt 22,799 20,709 Accrued employee compensation 29,049 30,611 Deferred revenue 18,540 22,454 Income taxes payable 15,951 16,244 Other current liabilities 68,773 76,653 ---------- ---------- Total current liabilities 478,165 462,760 Long-term debt 214,651 135,855 8.125% senior subordinated notes, due 2011 375,000 375,000 6.125% senior subordinated notes, net, due 2013 237,735 226,822 4.0% contingent convertible notes, due 2033 345,000 345,000 Deferred income tax liabilities 86,559 50,913 Other noncurrent liabilities 110,721 122,647 ---------- ---------- Total liabilities 1,847,831 1,718,997 ---------- ---------- Commitments and contingencies (Note 8) 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, 105,882,400 shares issued (2003-105,050,900 shares issued) 105,882 105,051 Paid-in capital 1,023,121 986,138 Retained earnings 745,506 684,348 Treasury stock, at cost-2,034,300 shares (2003-1,863,000 shares) (53,630) (46,087) Deferred compensation (65,779) (49,528) Accumulated other comprehensive income (3,216) (3,898) ---------- ---------- Total stockholders' equity 1,751,884 1,676,024 ---------- ---------- Total liabilities and stockholders' equity $3,599,715 $3,395,021 ========== ==========
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)
Three Months Ended March 31, --------------------- 2004 2003 --------- --------- Cash flows from operating activities: Net income $ 63,491 $ 40,423 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation 9,081 9,568 Amortization 4,846 3,193 Provision for doubtful accounts 10,476 11,045 Deferred tax provision 14,808 13,469 Changes in assets and liabilities, net of effects from acquisition of businesses: Accounts receivable and unbilled receivables (49,744) (43,631) Inventories 12,172 (8,076) Current and noncurrent assets (59,991) 456 Accounts payable 23,619 (10,768) Accrued employee compensation (1,784) (2,509) Deferred revenue (3,914) 7,788 Current and noncurrent liabilities 698 (15,607) --------- --------- Net cash flows from operating activities 23,758 5,351 --------- --------- Cash flows from investing activities: Acquisition of businesses (105,936) (476,999) Capital expenditures (5,068) (3,990) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust (5,063) (2,654) Other 35 45 --------- --------- Net cash flows from investing activities (116,032) (483,598) --------- --------- Cash flows from financing activities: Borrowings on line of credit facilities 115,000 499,000 Payments on line of credit facilities and term A loan (34,103) (25,000) Payments on long-term borrowings and obligations (52) (146) Proceeds from (payments) for stock awards and exercise of stock options and warrants, net of stock tendered in payment 1,072 (3,117) Dividends paid (2,333) (2,125) --------- --------- Net cash flows from financing activities 79,584 468,612 --------- --------- Effect of exchange rate changes on cash (654) 689 --------- --------- Net decrease in cash and cash equivalents (13,344) (8,946) Cash and cash equivalents at beginning of period - unrestricted 187,413 137,936 --------- --------- Cash and cash equivalents at end of period - unrestricted $ 174,069 $ 128,990 ========= =========
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 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, 2003. Certain reclassifications of prior year amounts have been made to conform with the current year presentation. 2. Stock-Based Employee Compensation At March 31, 2004, the Company had three stock-based employee compensation plans. As permitted under United States 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 March 31, ---------------------------- 2004 2003 ------- ------- Net income, as reported $63,491 $40,423 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 1,810 1,251 Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects (6,177) (3,670) ------- ------- Pro forma net income $59,124 $38,004 ======= =======
6 Earnings per share: Basic - as reported $0.61 $0.43 ===== ===== Basic - pro forma $0.57 $0.40 ===== ===== Diluted - as reported $0.61 $0.42 ===== ===== Diluted - pro forma $0.56 $0.39 ===== =====
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 March 31, ---------------------------- 2004 2003 ------ ------ Volatility 57% 62% Risk-free interest rate 2.9% 3.0% Dividend yield 0.2% 0.3% Expected term of options (in years) 5.0 5.5 Weighted average fair value per option $21.62 $14.02
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. Acquisitions During the first quarter of 2004, the Company completed several acquisitions in its institutional pharmacy business which individually and in the aggregate were not significant. On July 15, 2003, Omnicare acquired 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 $83 million. The Company funded the acquisition of SunScript from existing cash balances. Up to an additional $15.0 million may become payable post-closing, subject to adjustment. At the time of the acquisition, SunScript provided pharmaceutical products and related consulting services to 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 in unrelated transactions). SunScript served these facilities through its network of 31 long-term care pharmacies. Omnicare has achieved 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 HealthCare, Inc. ("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 7 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." At the time of the acquisition, NCS provided professional pharmacy and related services to long-term care facilities, including skilled nursing 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. In addition to broadening its geographic reach, Omnicare achieved certain economies of scale and operational efficiencies from the acquisition. The net assets and operating results of NCS have been included from the date of acquisition in the Company's financial statements. Pro forma information for NCS and SunScript is not presented for the three months ended March 31, 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, and the impact of SunScript is not presented due to the lack of significance on the pro forma combined results. 4. Goodwill and Other Intangible Assets Changes in the carrying amount of goodwill for the three months ended March 31, 2004, by business segment, are as follows (in thousands):
Pharmacy CRO Services Services Total ---------- -------- ---------- Balance as of December 31, 2003 $1,649,604 $40,954 $1,690,558 Goodwill acquired in the three months ended March 31, 2004 73,743 -- 73,743 Other 1,670 (12) 1,658 ---------- ------- ---------- Balance as of March 31, 2004 $1,725,017 $40,942 $1,765,959 ========== ======= ==========
The "Other" caption above includes the settlement of acquisition matters relating to prior-year 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 Contract Research Organization ("CRO") Services. The Company's other intangible assets have not changed significantly from the balances at December 31, 2003. The Company is using an independent valuation firm to assist with the completion of the purchase price allocation for the SunScript acquisition, including the identification of goodwill and other identifiable intangible assets. Accordingly, the goodwill balance is preliminary and subject to change. 8 5. Debt and Issuance of Common Stock As discussed further below, 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 approximately $189 million, and the offering, through Omnicare Capital Trust I, a statutory trust formed by the Company (the "Trust"), of $345.0 million aggregate principal amount of convertible trust preferred securities due 2033 ("trust PIERS" or "Preferred Income Equity Redeemable Securities"). In early 2001, the Company entered into a three-year syndicated $500.0 million revolving line of credit facility (the "Revolving Credit Facility"), including a $25.0 million letter of credit subfacility, with various lenders. As previously discussed, in January 2003, the Company borrowed $499.0 million under the Revolving Credit Facility to finance its acquisition of NCS. In connection with the 2003 financings (described above), the Company entered into a new, four-year $750.0 million credit facility ("Credit Facility"), consisting of a $250.0 million term A loan commitment and a $500.0 million revolving credit commitment, including a $25.0 million letter of credit subfacility. The new Credit Facility bears interest at the Company's option at a rate equal to either: (i) the 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 March 31, 2004, 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. The Company used the net proceeds from the 6.125% Senior Notes offering and borrowings of $250.0 million under the term A loan portion of the new Credit Facility to repay the balance of the Company's existing Revolving Credit Facility of $474.0 million, with remaining proceeds being used for general corporate purposes. The Company paid down $4.1 million on the term A loan during the three months ended March 31, 2004. The $151.8 million outstanding at March 31, 2004 under the term A loan is due in quarterly installments, in varying amounts, through 2007, with approximately $22.6 million due within one year. There was $85.0 million outstanding as of March 31, 2004 under the revolving credit commitment of the Credit Facility. As described above, the Company completed, during the second quarter of 2003, its offering of $250.0 million of 6.125% Senior Notes due 2013. 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, in arrears, two London Banking Days prior to the first of each December and June, commencing December 1, 2003. The Company records interest expense on the 6.125% Senior Notes at the floating rate. The estimated LIBOR-based floating rate was 3.43% at March 31, 2004. The Swap Agreement, which matches the terms of the 6.125% Senior Notes, is designated and accounted for as a fair 9 value hedge. The Company is accounting for the Swap Agreement in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, so changes in the 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 of $12.3 million at March 31, 2004 is recorded as a noncurrent liability and a reduction to the carrying value of the related 6.125% Senior Notes. In connection with the offering of the trust PIERS in the second quarter of 2003, the Company issued a corresponding amount of contingent convertible notes due 2033 to the Trust. The Trust is a 100%-owned finance subsidiary of the Company. The Company has fully and unconditionally guaranteed the securities of the Trust. The trust PIERS offer fixed cash distributions at a rate of 4.0% per annum payable quarterly, and a fixed 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 March 31, 2004, 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 financial position, cash flows and 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. 6. Employee Benefit Plans The Company has various defined contribution savings plans under which eligible employees can participate by contributing a portion of their salary for investment, at the direction of each employee, in one or more investment funds. Expense relating to the Company's defined contribution plans for the three months ended March 31, 2004 and 2003 was $1.2 million and $1.0 million, respectively. The Company also has an excess benefit plan which provides retirement benefits to certain headquarters employees in amounts generally consistent with what they would have received under the Company's non-contributory, defined benefit pension plan (the "Qualified Plan"), frozen in 1993. The retirement benefits provided by the excess benefit plan are generally comparable to those that would have been earned in the Qualified Plan, if payments under the Qualified Plan were not limited by the Internal Revenue Code. The Company has established rabbi trusts, which are invested primarily in a mutual fund holding U.S. Treasury obligations, to provide for retirement obligations under the excess benefit plan. The Company's policy is to fund pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act ("ERISA"). 10 The following table presents the components of the Company's pension cost for each of the three months ended March 31, 2004 and 2003 (in thousands):
Three months ended March 31, ----------------- 2004 2003 ------ ------ Service cost $ 384 $ 394 Interest cost 527 411 Amortization of deferred amounts (primarily prior actuarial losses) 470 242 ------ ------ Net periodic pension cost $1,381 $1,047 ====== ======
During the first quarter of 2004, the Company made no payments related to funding plan assets for the settlement of the Company's pension obligations. In addition, the Company has supplemental pension plans ("SPPs") in which certain of its officers participate. Retirement benefits under the SPPs are calculated on the basis of a specified percentage of the officers' covered compensation, years of credited service and a vesting schedule, as specified in the plan documents. Expense relating to the SPPs was $0.2 million for the three month periods ended March 31, 2004 and 2003. 7. Restructuring Charges In connection with the previously disclosed second phase of its productivity and consolidation initiative (the "Phase II Program"), the Company had liabilities of $4.1 million at December 31, 2003, of which $0.5 million was utilized in the three months ended March 31, 2004. The remaining liabilities at March 31, 2004 of $3.6 million represent amounts not yet paid relating to actions taken (consisting primarily of lease payments), and will be adjusted as these matters are settled. 8. Commitments and Contingencies The Company continuously evaluates contingencies based upon the best available evidence. Management believes that allowances for loss have been provided to the extent necessary and that its assessment of contingencies is reasonable. To the extent that resolution of contingencies results in amounts that vary from management's estimates, future earnings will be charged or credited accordingly. As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries and similar actions by governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject. The Company is also involved in various legal actions arising in the normal course of business. Although occasional adverse outcomes (or settlements) may occur and could possibly have an adverse effect on the results of operations in any one accounting period, the Company believes that the final disposition of such matters will not have a material adverse effect on the Company's consolidated financial position. 11 9. 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") and the District of Columbia at March 31, 2004. The Company's other reportable segment is 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 at March 31, 2004, including the USA. The table below presents information about the reportable segments as of and for the three months ended March 31, 2004 and 2003 and should be read in conjunction with the paragraph that follows (in thousands):
Three Months Ended March 31, - ------------------------------------------------------------------------------------ Corporate Pharmacy CRO and Consolidated Services Services Consolidating Totals - ------------------------------------------------------------------------------------ 2004: Net sales $ 948,513 $ 33,766 $ -- $ 982,279 Depreciation and amortization 12,968 347 612 13,927 Operating income (expense) 123,430 3,208 (10,632) 116,006 Total assets 3,174,788 104,659 320,268 3,599,715 Capital expenditures 4,804 65 199 5,068 - ------------------------------------------------------------------------------------ 2003: Net sales $ 763,154 $ 42,707 $ -- $ 805,861 Depreciation and amortization 11,748 418 595 12,761 Operating income (expense) 85,370 4,730 (9,067) 81,033 Total assets 2,731,891 127,116 169,547 3,028,554 Capital expenditures 3,815 65 110 3,990 - ------------------------------------------------------------------------------------
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 amount, reimbursable out-of-pockets totaling $4.5 million for the three months ended March 31, 2004 ($8.1 million for the period ended March 31, 2003). 12 10. Guarantor Subsidiaries The Company's $375.0 million 8.125% 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 March 31, 2004 and December 31, 2003 for the balance sheet, and for the three months ended March 31, 2004 and 2003 for the statement of income and the statement of cash flows. 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 March 31, ------------------------------------------------------------------------- Guarantor Non-Guarantor Omnicare, Inc. Parent Subsidiaries Subsidiaries Eliminations and Subsidiaries -------- ------------ ------------- ------------ ---------------- 2004 Total net sales $ -- $952,784 $29,495 $ -- $982,279 Total direct costs -- 704,609 23,002 -- 727,611 -------- -------- ------- -------- -------- Gross profit -- 248,175 6,493 -- 254,668 Selling, general and administrative expenses 1,381 131,812 5,469 -- 138,662 -------- -------- ------- -------- -------- Operating income (loss) (1,381) 116,363 1,024 -- 116,006 Investment income 98 523 13 -- 634 Interest expense (15,157) (1,377) (178) -- (16,712) -------- -------- ------- -------- -------- Income (loss) before income taxes (16,440) 115,509 859 -- 99,928 Income tax (benefit) expense (6,001) 42,124 314 -- 36,437 Equity in net income of subsidiaries 73,930 -- -- (73,930) -- -------- -------- ------- -------- -------- Net income (loss) $ 63,491 $ 73,385 $ 545 $(73,930) $ 63,491 ======== ======== ======= ======== ======== 2003 Total net sales $ -- $778,088 $27,773 $ -- $805,861 Total direct costs -- 575,514 22,386 -- 597,900 -------- -------- ------- -------- -------- Gross profit -- 202,574 5,387 -- 207,961 Selling, general and administrative expenses 1,529 120,129 5,270 -- 126,928 -------- -------- ------- -------- -------- Operating income (loss) (1,529) 82,445 117 -- 81,033 Investment income 345 239 4 -- 588 Interest expense (15,943) (481) (32) -- (16,456) -------- -------- ------- -------- -------- Income (loss) before income taxes (17,127) 82,203 89 -- 65,165 Income tax (benefit) expense (6,508) 31,216 34 -- 24,742 Equity in net income of subsidiaries 51,042 -- -- (51,042) -- -------- -------- ------- -------- -------- Net income (loss) $ 40,423 $ 50,987 $ 55 $(51,042) $ 40,423 ======== ======== ======= ======== ========
13 10. Guarantor Subsidiaries (Continued) Condensed Consolidating Balance Sheets
(In thousands) Guarantor Non-Guarantor Omnicare, Inc. and Parent Subsidiaries Subsidiaries Eliminations Subsidiaries ---------- ------------ ------------- ------------ ------------------ As of March 31, 2004: ASSETS Cash and cash equivalents $ 119,301 $ 48,663 $ 6,105 $ -- $ 174,069 Restricted cash -- 5,777 -- -- 5,777 Deposit with drug wholesaler -- 44,000 -- -- 44,000 Accounts receivable, net (including intercompany) -- 729,524 13,113 (5,559) 737,078 Inventories -- 316,730 5,292 -- 322,022 Other current assets 481 221,757 2,447 -- 224,685 ---------- ---------- -------- ----------- ---------- Total current assets 119,782 1,366,451 26,957 (5,559) 1,507,631 ---------- ---------- -------- ----------- ---------- Properties and equipment, net -- 140,496 8,926 -- 149,422 Goodwill -- 1,697,058 68,901 -- 1,765,959 Other noncurrent assets 37,083 126,532 13,088 -- 176,703 Investment in subsidiaries 2,792,759 -- -- (2,792,759) -- ---------- ---------- -------- ----------- ---------- Total assets $2,949,624 $3,330,537 $117,872 $(2,798,318) $3,599,715 ========== ========== ======== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities (including intercompany) $ 19,741 $ 449,094 $ 14,889 $ (5,559) $ 478,165 Long-term debt 214,231 420 -- -- 214,651 8.125% senior subordinated notes, due 2011 375,000 -- -- -- 375,000 6.125% senior subordinated notes, net, due 2013 237,735 -- -- -- 237,735 4.0% contingent convertible notes, due 2033 345,000 -- -- -- 345,000 Other noncurrent liabilities 6,033 189,418 1,829 -- 197,280 Stockholders' equity 1,751,884 2,691,605 101,154 (2,792,759) 1,751,884 ---------- ---------- -------- ----------- ---------- Total liabilities and stockholders' equity $2,949,624 $3,330,537 $117,872 $(2,798,318) $3,599,715 ========== ========== ======== =========== ========== As of December 31, 2003: ASSETS Cash and cash equivalents $ 134,513 $ 48,940 $ 3,960 $ -- $ 187,413 Restricted cash -- 714 -- -- 714 Accounts receivable, net (including intercompany) -- 672,315 13,708 (7,768) 678,255 Inventories -- 321,465 5,085 -- 326,550 Other current assets 954 187,363 1,839 -- 190,156 ---------- ---------- -------- ----------- ---------- Total current assets 135,467 1,230,797 24,592 (7,768) 1,383,088 ---------- ---------- -------- ----------- ---------- Properties and equipment, net -- 139,108 9,199 -- 148,307 Goodwill -- 1,621,645 68,913 -- 1,690,558 Other noncurrent assets 33,390 128,147 11,531 -- 173,068 Investment in subsidiaries 2,627,756 -- -- (2,627,756) -- ---------- ---------- -------- ----------- ---------- Total assets $2,796,613 $3,119,697 $114,235 $(2,635,524) $3,395,021 ========== ========== ======== =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities (including intercompany) $ 38,383 $ 422,566 $ 9,579 $ (7,768) $ 462,760 Long-term debt 135,384 471 -- -- 135,855 8.125% senior subordinated notes, due 2011 375,000 -- -- -- 375,000 6.125% senior subordinated notes, net, due 2013 226,822 -- -- -- 226,822 4.0% contingent convertible notes, due 2033 345,000 -- -- -- 345,000 Other noncurrent liabilities -- 173,246 314 -- 173,560 Stockholders' equity 1,676,024 2,523,414 104,342 (2,627,756) 1,676,024 ---------- ---------- -------- ----------- ---------- Total liabilities and stockholders' equity $2,796,613 $3,119,697 $114,235 $(2,635,524) $3,395,021 ========== ========== ======== =========== ==========
14 10. Guarantor Subsidiaries (Continued) Condensed Consolidating Statements of Cash Flows
(In thousands) Three Months Ended March 31, ---------------------------------------------------------- Guarantor Non-Guarantor Omnicare, Inc. Parent Subsidiaries Subsidiaries and Subsidiaries -------- ------------ ------------- ---------------- 2004: Cash flows from operating activities: Provision for doubtful accounts $ -- $ 10,239 $ 237 $ 10,476 Other (25,887) 35,662 3,507 13,282 -------- --------- ------ --------- Net cash flows from operating activities (25,887) 45,901 3,744 23,758 -------- --------- ------ --------- Cash flows from investing activities: Acquisition of businesses -- (105,038) (898) (105,936) Capital expenditures -- (5,021) (47) (5,068) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust -- (5,063) -- (5,063) Other -- 35 -- 35 -------- --------- ------ --------- Net cash flows from investing activities -- (115,087) (945) (116,032) -------- --------- ------ --------- Cash flows from financing activities: Borrowings on line of credit facility 115,000 -- -- 115,000 Payments on line of credit facility and term A loan (34,103) -- -- (34,103) Payments on long-term borrowings and obligations (52) -- -- (52) Proceeds from stock awards and exercise of stock options and warrants, net of stock tendered in payment 1,072 -- -- 1,072 Dividends (2,333) -- -- (2,333) Other (68,909) 68,909 -- -- -------- --------- ------ --------- Net cash flows from financing activities 10,675 68,909 -- 79,584 -------- --------- ------ --------- Effect of exchange rate changes on cash -- -- (654) (654) -------- --------- ------ --------- Net increase (decrease) in cash and cash equivalents (15,212) (277) 2,145 (13,344) Cash and cash equivalents at beginning of period - unrestricted 134,513 48,940 3,960 187,413 -------- --------- ------ --------- Cash and cash equivalents at end of period - unrestricted $119,301 $ 48,663 $6,105 $ 174,069 ======== ========= ====== =========
15 10. Guarantor Subsidiaries (Continued) Condensed Consolidating Statements of Cash Flows - Continued
(In thousands) Three Months Ended March 31, ----------------------------------------------------------- Guarantor Non-Guarantor Omnicare, Inc. Parent Subsidiaries Subsidiaries and Subsidiaries --------- ------------ ------------- ---------------- 2003: Cash flows from operating activities: Provision for doubtful accounts $ -- $ 10,832 $ 213 $ 11,045 Other (9,086) 1,183 2,209 (5,694) --------- --------- ------- --------- Net cash flows from operating activities (9,086) 12,015 2,422 5,351 --------- --------- ------- --------- Cash flows from investing activities: Acquisition of businesses -- (475,373) (1,626) (476,999) Capital expenditures -- (3,943) (47) (3,990) Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust -- (2,654) -- (2,654) Other -- 45 -- 45 --------- --------- ------- --------- Net cash flows from investing activities -- (481,925) (1,673) (483,598) --------- --------- ------- --------- Cash flows from financing activities: Borrowings on line of credit facilities 499,000 -- -- 499,000 Payments on line of credit facilities (25,000) -- -- (25,000) Other (475,994) 470,644 (38) (5,388) --------- --------- ------- --------- Net cash flows from financing activities (1,994) 470,644 (38) 468,612 --------- --------- ------- --------- Effect of exchange rate changes on cash -- -- 689 689 --------- --------- ------- --------- Net increase (decrease) in cash and cash equivalents (11,080) 734 1,400 (8,946) 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 $ 84,613 $ 36,925 $ 7,452 $ 128,990 ========= ========= ======= =========
16 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." First Quarter Overview Omnicare, Inc. ("Omnicare" or the "Company") is a leading provider of pharmaceutical care for the elderly. Omnicare serves residents in long-term care facilities comprising approximately 1,050,000 beds in 47 states and the District of Columbia, making it the nation's largest provider of professional pharmacy, related consulting and data management services for skilled nursing, assisted living and other institutional healthcare providers. Omnicare also provides clinical research services for the pharmaceutical and biotechnology industries in 29 countries worldwide. Total consolidated net sales for the three months ended March 31, 2004 increased to $982.3 million from $805.9 million in the comparable prior year period. Consolidated net income for the 2004 first quarter was $63.5 million versus $40.4 million earned in the comparable 2003 period. Diluted earnings per share were $0.61 for the quarter ended March 31, 2004 versus $0.42 in the same prior year period. Consolidated earnings before interest (net of investment income), income taxes, depreciation and amortization ("EBITDA") for the three months ended March 31, 2004 totaled $129.9 million in comparison with $93.8 million for the same period of 2003. Omnicare's Pharmacy Services segment recorded sales of $948.5 million for the first quarter of 2004, an increase of 24% from the $763.2 million recorded in the comparable prior-year quarter of 2003. Contributing in large measure to the increase in sales was the acquisition of SunScript in July 2003, as well as a number of smaller acquisitions throughout the first quarter of 2004. Operating income of the Pharmacy Services segment was $123.4 million in the first quarter of 2004, an increase of 45% from the $85.4 million recorded in the first quarter of 2003. The improved operating income was primarily the result of the increased sales, as discussed above, and the ongoing benefits of the Company's acquisition integration efforts as well as productivity initiatives throughout the Pharmacy Services segment. Omnicare's Contract Research Organization ("CRO") Services segment recorded revenues of $33.8 million for the three months ended March 31, 2004, compared with $42.7 million recorded in the same prior year period. Operating income in the CRO Services segment for the first quarter of 2004 was $3.2 million compared with the $4.7 million recorded in the comparable prior-year period of 2003. Revenues and operating income in the CRO Services segment were lower in the three months ended March 31, 2004 than in same period of 2003 due primarily to client-driven cancellations or delays in the commencement or continuation of certain projects in the latter half of 2003. 17 Net cash flows from operating activities for the first-quarter ended March 31, 2004 was $23.8 million as compared with $5.4 million for the first quarter ended March 31, 2003. During the first quarter of 2004, the Company's investing activities included the completion of several acquisitions in its institutional pharmacy business which individually and in the aggregate were not significant. Borrowings on the credit facility, net of repayments of $30.0 million, totaled $85.0 million in the 2004 first quarter and were primarily used for payments relating to the acquisition of businesses. The Company also paid $4.1 million on the term A loan in the first quarter of 2004. At March 31, 2004, outstanding revolving credit borrowings were $85.0 million and the balance on the term A loan was $151.8 million. Results of Operations The following table presents the consolidated net sales and results of operations of Omnicare for each of the three months ended March 31, 2004 and 2003 (in thousands, except per share amounts).
Three Months Ended March 31, ------------------- 2004 2003 -------- -------- Total net sales $982,279 $805,861 ======== ======== Net income $ 63,491 $ 40,423 ======== ======== Earnings per share: Basic $ 0.61 $ 0.43 ======== ======== Diluted $ 0.61 $ 0.42 ======== ========
18 The Company believes that certain investors find 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 operating cash flows as a measure of liquidity or net income as an indicator of the Company's operating performance. The Company's calculation of EBITDA may differ from the calculation of EBITDA by others.
Three Months Ended March 31, ------------------- (in thousands) 2004 2003 -------- -------- EBITDA calculation: Net income $ 63,491 $ 40,423 Add: Interest expense, net of investment income 16,078 15,868 Income taxes 36,437 24,742 Depreciation and amortization 13,927 12,761 -------- -------- EBITDA $129,933 $ 93,794 ======== ======== EBITDA reconciliation to net cash flows from operating activities: EBITDA $129,933 $ 93,794 (Subtract)/Add: Interest expense, net of investment income (16,078) (15,868) Income taxes (36,437) (24,742) Changes in assets and liabilities, net of effects from acquisition of businesses (78,944) (72,347) Provision for doubtful accounts 10,476 11,045 Deferred tax provision 14,808 13,469 -------- -------- Net cash flows from operating activities $ 23,758 $ 5,351 ======== ========
Quarter Ended March 31, 2004 vs. 2003 Pharmacy Services Segment Omnicare's Pharmacy Services segment recorded sales of $948.5 million for the three months ended March 31, 2004, exceeding the 2003 amount of $763.2 million by $185.3 million, or 24.3%. At March 31, 2004, Omnicare served long-term care facilities comprising approximately 1,050,000 beds as compared with approximately 935,000 beds served at March 31, 2003. Contributing in large measure to the increase in sales and in beds served was the acquisition of SunScript in July 2003, as discussed below, as well as smaller acquisitions. Additionally, Pharmacy Services sales increased due to growth in new business, increasing occupancy in many areas, 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 19 are significantly more effective in reducing overall healthcare costs than those they replace. Partially offsetting the increase in sales were pricing pressures, including lower government reimbursement formulas and other cost control measures in some states, and the increasing number and usage of generic drugs. Operating income of the Pharmacy Services segment was $123.4 million in the first quarter of 2004, a $38.0 million improvement as compared with the $85.4 million earned in the comparable period of 2003. The improved operating income was primarily the result of increased sales, as discussed above, and the overall synergies from the integration of the NCS HealthCare, Inc. ("NCS") business and, to a lesser extent, the SunScript acquisition, as well as productivity initiatives throughout the Pharmacy Services segment. Although operating margins were initially unfavorably impacted by the addition of these lower-margin businesses, the integration efforts resulted in drug purchasing improvements, consolidation of redundant pharmacy locations and economies of scale, which serve to leverage the Company's operating cost structure. On July 15, 2003, Omnicare acquired 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 $83 million. Up to an additional $15.0 million may become payable post-closing, subject to adjustment. At the time of the acquisition, SunScript provided pharmaceutical products and related consulting services to 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 in unrelated transactions). SunScript served these facilities through its network of 31 long-term care pharmacies. 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 acquisition 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. At the time of the acquisition, NCS provided professional pharmacy and related services to long-term care facilities, including skilled nursing 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. The net assets and operating results of NCS have been included from the date of acquisition in the Company's financial statements. 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. In addition, healthcare funding issues, including pressures on federal and state Medicaid budgets due to the economy, coupled with growth in enrollees, the escalation in drug costs owing to higher drug utilization as the population ages and the introduction of new, more effacious, albeit more expensive medications, have led to decreasing reimbursement rates in certain states. On 20 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. This additional funding expires June 30, 2004. Economic conditions have improved in many areas, however, some states continue to experience budget shortfalls or other funding pressures, and they may consider implementing further reductions in Medicaid reimbursement and other cost control measures. 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 fully emerge, and there can be no assurance that such occurrence will not have an adverse impact on the Company's business. In December 2003, Congress enacted the Medicare Prescription Drug Improvement and Modernization Act of 2003 ("MMA"), which includes a major expansion of the Medicare prescription drug benefit under a new Medicare Part D. Under the MMA, Medicare beneficiaries may enroll in prescription drug plans offered by private entities, which will provide coverage of outpatient prescription drugs. Beginning in 2006, Medicare beneficiaries who are also entitled to benefits under a state Medicaid program (so-called "dual eligibles") will have their prescription drug costs covered by the new Medicare drug benefit, including nursing home residents served by the Company whose drug costs are currently covered by state Medicaid programs. Implementation of the new Medicare drug benefit will require implementing regulations currently under development by the Centers for Medicare & Medicaid Services ("CMS"). In addition, the Secretary of the Department of Health and Human Services is required to conduct a study of current standards of practice for pharmacy services provided to patients in long-term care settings, and, among other things, make recommendations regarding necessary actions and appropriate reimbursement to ensure the provision of prescription drugs to Medicare beneficiaries in nursing facilities consistent with existing patient safety and quality of care standards. Until the Part D benefit goes into effect on January 1, 2006, Medicare beneficiaries can receive assistance with their outpatient prescription drug costs beginning in June 2004 through a new prescription drug discount card program, which will give enrollees access to negotiated discounted prices for prescription drugs. PBM Plus Inc., an Omnicare subsidiary, has been selected by CMS as an endorsed sponsor to offer a Medicare prescription drug discount card. PBM Plus also received a special endorsement for long-term care to administer a transitional assistance benefit of $600 per year to certain qualified low-income seniors not currently receiving drug benefits from the Medicare and Medicaid programs. In addition, Omnicare is a member, together with several other national institutional pharmacies, in Long Term Care Pharmacy Alliance, LLC, which has also received the special long-term care endorsement from CMS to administer the transitional assistance benefit. The MMA also reforms the Medicare Part B prescription drug payment methodology. The Company's revenues for drugs dispensed under Medicare Part B are not significant in comparison to total revenues. The MMA also includes provisions that will institute administrative reforms designed to improve Medicare program operations. It is uncertain at this time the impact that the MMA's legislative reforms ultimately will have on the Company. CRO Services Segment Omnicare's CRO Services segment recorded revenues of $33.8 million for the three months ended March 31, 2004, which were $8.9 million, or 20.8%, lower than the $42.7 million recorded in the same prior year period. In accordance with Emerging Issues Task Force 21 ("EITF") Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred" ("EITF No. 01-14"), the Company included $4.5 million and $8.1 million of reimbursable out-of-pockets in its CRO Services segment reported revenue and direct cost amounts for the quarters ended March 31, 2004 and 2003, respectively. Revenues for the three months ended March 31, 2004 were lower than in the same prior year period largely due to the impact of client-driven cancellations or delays in the commencement or continuation of certain projects in the latter half of 2003, and a reduction in reimbursable out-of-pockets of $3.6 million under EITF No. 01-14. Operating income in the CRO Services segment was $3.2 million in the first quarter of 2004 compared with $4.7 million in the same 2003 period. The operating income was unfavorably impacted by the lower revenues discussed above. Although the CRO Services segment experienced a year-over-year decline in revenues and operating income, the Company did see an increase in new business during the first quarter of 2004, which when combined with cost reduction efforts, led to improving quarterly profitability on a sequential basis in the CRO Services segment. Backlog at March 31, 2004 was $197.1 million, representing an increase of $16.7 million from the March 31, 2003 backlog of $180.4 million, and $14.3 million from the December 31, 2003 backlog of $182.8 million due to an increase in new business. Consolidated The Company's consolidated gross profit of $254.7 million increased $46.7 million during the first quarter of 2004 from the same prior-year period amount of $208.0 million. Gross profit as a percentage of total net sales of 25.9% in the three months ended March 31, 2004, was higher than the 25.8% experienced during the same period of 2003. Positively impacting overall gross profit margin were the Company's purchasing leverage associated with the procurement of pharmaceuticals due, in part, to the completion of the integration of the NCS business and, to a lesser extent, the SunScript business (net of the initial impact of adding these lower-margin businesses) and benefits realized from the Company's formulary compliance program, as well as the increased use of generic drugs. These favorable factors were 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, and pricing pressures, including lower government reimbursement formulas and other cost control measures in some states. Omnicare's selling, general and administrative ("operating") expenses for the quarter ended March 31, 2004 of $138.7 million were higher than the comparable year amount of $126.9 million by $11.8 million, due primarily to the overall growth of the business, including the acquisition of SunScript as well as other smaller acquisitions. Operating expenses as a percentage of total net sales, however, totaled 14.1% in the first quarter 2004, representing a decrease from the 15.8% experienced in the comparable prior-year period. This decrease is primarily due to the realization of synergies from the NCS and SunScript acquisitions, and the leveraging of fixed and variable overhead costs over a larger sales base in 2004 than that which existed in 2003. 22 Investment income for the three months ended March 31, 2004 of $0.6 million was consistent with the comparable prior year quarter. Interest expense for the three months ended March 31, 2004 of $16.7 million was relatively consistent with the $16.5 million in the comparable prior-year period. The effective income tax rate was 36.5% in the first quarter of 2004, slightly lower than the comparable prior year rate of 38%. The effective tax rates in 2004 and 2003 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 connection with the previously disclosed second phase of its productivity and consolidation initiative (the "Phase II Program"), the Company had liabilities of $4.1 million at December 31, 2003, of which $0.5 million was utilized in the three months ended March 31, 2004. The remaining liabilities at March 31, 2004 of $3.6 million represent amounts not yet paid relating to actions taken (consisting primarily of lease payments), and will be adjusted as these matters are settled. Financial Condition, Liquidity and Capital Resources Cash and cash equivalents at March 31, 2004 were $179.8 million compared with $188.1 million at December 31, 2003 (including restricted cash amounts of $5.8 million and $0.7 million, respectively). The Company generated positive net cash flows from operating activities of $23.8 million during the three months ended March 31, 2004, compared with net cash flows from operating activities of $5.4 million during the three months ended March 31, 2003. The increase in net cash flows from operating activities during the three months ended March 31, 2004 was driven primarily by earnings growth, as previously discussed in the "Results of Operations" caption above. During the first quarter of 2003, a slowdown in payments to all providers by the Illinois Department of Public Aid ("Illinois Medicaid") delayed approximately $56 million in payments to the Company, and these funds were received during the balance of the year. In the first quarter of 2004, another broad-based slowdown occurred in Illinois, impacting cash flow by approximately $29 million. Also, owing to a change in payment terms under the Company's new contract with its drug wholesaler, a one-time deposit of $44.0 million was made during the first quarter of 2004. Lastly, a statewide administrative backup in the transfer of Medi-Cal provider numbers affecting California-based pharmacies acquired in the SunScript and other acquisitions created a temporary delay in cash receipts of approximately $19 million. Operating cash flows, as well as borrowings on the line of credit facilities, were used primarily for acquisition-related payments, debt repayment, capital expenditures and dividends. 23 Net cash used in investing activities was $116.0 million and $483.6 million for the three months ended March 31, 2004 and 2003, respectively. Acquisitions of businesses required cash payments of $105.9 million (including amounts payable pursuant to acquisition agreements relating to pre-2004 acquisitions) in 2004, which were primarily funded by borrowings under the credit facility and existing cash balances. Acquisitions of businesses during 2003 required $477.0 million of cash payments (including amounts payable pursuant to acquisition agreements relating to pre-2003 acquisitions) which were primarily funded by borrowings under the Company's then existing revolving credit facility. Omnicare's capital requirements are primarily comprised of its acquisition program and capital expenditures, largely relating to investments in the Company's information technology systems. Net cash provided by financing activities was $79.6 million for the three months ended March 31, 2004. Borrowings on the credit facility, net of repayments of $30.0 million, totaled $85.0 million in the 2004 first quarter and were primarily used for payments relating to the acquisition of businesses. The Company also paid $4.1 million on the term A loan in the first quarter of 2004. At March 31, 2004, outstanding revolving credit borrowings were $85.0 million and the balance on the term A loan was $151.8 million. Net cash provided by financing activities was $468.6 million in the first quarter of 2003. In connection with the aforementioned NCS acquisition, the Company borrowed $499.0 million under its then existing revolving credit facility in the first quarter of 2003. Partially offsetting these 2003 borrowings were payments of $25.0 million on the revolving credit facility in the first quarter of 2003. On February 5, 2004, 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 2004. Aggregate dividends of $2.3 million paid during the three months ended March 31, 2004 were relatively consistent with those paid in the comparable prior year period. Disclosures About Off-Balance Sheet Arrangements and Aggregate Contractual Obligations At March 31, 2004, the Company had one unconsolidated entity, Omnicare Capital Trust I (the "Trust"), which was established for the purpose of facilitating the convertible trust preferred securities offering, due 2033 ("trust PIERS" or "Preferred Income Equity Redeemable Securities"). For financial reporting purposes, the Trust is treated as an equity method investment of Omnicare. The Trust is a 100%-owned finance subsidiary of the Company. The Company has fully and unconditionally guaranteed the securities of the Trust. The contingent convertible notes issued by the Company to the Trust in connection with the issuance by the Trust of 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 March 31, 2004, 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. 24 Except for the Company's long-term debt obligations, Omnicare's contractual obligations did not significantly change from December 31, 2003. The following table sets forth the Company's contractual long-term debt obligations at March 31, 2004 to include the net borrowings on the credit facility of $85.0 million in the 2004 first quarter, as well as the impact of a payment on the term A loan of $4.1 million. The table summarizes the effect such long-term debt obligations are expected to have on the Company's liquidity and cash flows in future periods. Contractual Long-Term Debt Obligations at March 31, 2004 (in thousands):
Total Less Than 1 Year 1-3 Years 4-5 Years After 5 Years ---------- ---------------- --------- --------- ------------- Long-term debt obligations $1,206,795 $22,564 $80,000 $134,231 $970,000 ========== ======= ======= ======== ========
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 approximately $189 million, and the offering, through the Trust, of $345.0 million aggregate principal amount of convertible trust preferred securities due 2033. In March 2001, the Company entered into a three-year syndicated $500.0 million revolving line of credit facility (the "Revolving Credit Facility"), including a $25.0 million letter of credit subfacility, with various lenders. In January 2003, the Company borrowed $499.0 million under the Revolving Credit Facility to finance its acquisition of NCS (see Note 3 of the Notes to Consolidated Financial Statements). The Revolving Credit Facility was retired in connection with the mid-2003 refinancing transactions, as further discussed below. In connection with the mid-2003 financings, the Company entered into a new, four-year $750.0 million credit facility ("Credit Facility") consisting of a $250.0 million term A loan commitment and a $500.0 million revolving credit commitment, including a $25.0 million letter of credit subfacility. The new Credit Facility bears interest at the Company's option at a rate equal to either: (i) the 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 March 31, 2004, 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. The Company used the net proceeds from the 6.125% Senior Notes offering and borrowings of $250.0 million under the term A loan portion of the new Credit Facility to repay the balance of the Company's existing Revolving Credit Facility of $474.0 million, with remaining proceeds being used for general corporate purposes. The Company paid down $4.1 million on the term A loan during the three months ended March 31, 2004. The $151.8 million outstanding at March 31, 2004 under the term A loan is due in quarterly installments, in varying 25 amounts, through 2007, with approximately $22.6 million due within one year. There was $85.0 million outstanding as of March 31, 2004 under the revolving credit commitment of the Credit Facility. As described above, the Company completed, during the second quarter of 2003, its offering of $250.0 million of 6.125% Senior Notes due 2013. 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, in arrears, two London Banking Days prior to the first of each December and June, commencing December 1, 2003. The Company records interest expense on the 6.125% Senior Notes at the floating rate. The estimated LIBOR-based floating rate was 3.43% at March 31, 2004. 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 Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), so changes in the 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 of $12.3 million at March 31, 2004 is recorded as a noncurrent liability and a reduction to the carrying value of the related 6.125% Senior Notes. In connection with the offering of the trust PIERS in the second quarter of 2003, 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 fixed 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 March 31, 2004, 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 financial position, cash flows and 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 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. While no such plans currently exist, the 26 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. Recently Issued Accounting Standards All recently issued accounting standards applicable to the Company have been adopted. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information In addition to historical information, this report contains certain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are made on the basis of management's views and assumptions regarding business performance as of the time the statements are made, and management does not undertake any obligation to update these statements. These forward-looking statements include, but are not limited to, all statements regarding the intent, belief or current expectations regarding the matters discussed or incorporated by reference in this document (including statements as to "beliefs," "expectations," "anticipations," "intentions" or similar words) and all statements which are not statements of historical fact. Forward-looking statements in this report include, but are not limited to, the following: expectations concerning the Company's financial performance, results of operations, sales, earnings or business outlook; trends in the long-term healthcare and contract research industries generally; the impact of continued pricing pressures and the economy on federal and state Medicaid budgets, reimbursement rates and other cost control measures; the impact of the MMA; trends in healthcare funding issues, including, but not limited to, state Medicaid budgets; the impact of any changes in healthcare policy relating to the future funding of the Medicaid and Medicare programs; expectations concerning capital expenditure requirements; valuations of derivative instruments embedded in the Company's trust PIERS instruments; the adequacy and availability of the Company's sources of liquidity and capital; payments of future quarterly dividends; and the adequacy of the Company's net cash flows from operating activities, credit facilities and other long and short-term debt financings to satisfy the Company's future working capital needs, acquisition contingency commitments, debt servicing, capital expenditures and other financing requirements for the foreseeable future. These forward-looking statements, together with other statements that are not historical, involve known and unknown risks, uncertainties, contingencies and other factors that could cause 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 the Company, include, but are not limited to: overall economic, financial, political and business conditions; trends in the long-term healthcare and contract research industries; competition in the pharmaceutical, long-term care and contract research industries; the impact of consolidation in the pharmaceutical and long-term care industries; trends in long-term care occupancy rates and 27 demographics; the ability to attract new clients and service contracts and retain existing clients and service contracts; trends for the continued growth of the Company's businesses; expectations concerning the development and performance of the Company's informatics business; the effectiveness of the Company's formulary compliance program; trends in drug pricing, including the impact and pace of pharmaceutical price increases; delays and reductions in reimbursement by the government and other payors to customers and to the Company as a result of pressures on federal and state budgets or for other reasons; the overall financial condition of the Company's customers; the ability of the Company to assess and react to the financial condition of its customers; the effectiveness of the Company's pharmaceutical purchasing programs and its ability to obtain discounts and manage pharmaceutical costs; the ability of vendors and business partners to continue to provide products and services to the Company; the continued successful integration of acquired companies and the ability to realize anticipated sales, economies of scale, cost synergies and profitability; the continued availability of suitable acquisition candidates; pricing and other competitive factors in the industry; increases or decreases in reimbursement rates and the impact of other cost control measures; the impact on the Company's sales, profits and margins resulting from market trends in the use of newer branded drugs versus generic drugs; the number and usage of generic drugs and price competition in the drug marketplace; the ability to attract and retain needed management; 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 demand for the Company's products and services; variations in costs or expenses; the ability to implement productivity, consolidation and cost reduction efforts and to realize anticipated benefits; the ability of clinical research projects to produce revenues in future periods; the ability to benefit from streamlining and globalization efforts at the CRO; trends concerning CRO backlog; the effectiveness of the Company's implementation and expansion of its clinical and other service programs; the effect of new legislation, government regulations, and/or executive orders, including those relating to reimbursement and drug pricing policies and changes in the interpretation and application of such policies; the impact of the MMA and its implementing regulations; legislation and regulations affecting payment and reimbursement rates for skilled nursing facilities; trends in federal and state budgets and their impact on Medicaid reimbursement rates; government budgetary pressures and shifting priorities; the Company's ability to adjust to federal and state budget shortfalls; efforts by payors to control costs; the failure of the Company or the long-term care facilities it serves to obtain or maintain required regulatory approvals or licenses; loss or delay of contracts pertaining to the CRO business for regulatory or other reasons; the outcome of litigation; potential liability for losses not covered by, or in excess of, insurance; the impact of differences in actuarial assumptions and estimates pertaining to employee benefit plans; events or circumstances which result in an impairment of goodwill; market conditions which adversely affect the valuation of the trust PIERS instruments; the outcome of audit, compliance, administrative or investigatory reviews; volatility in the market for the Company's stock and in the financial markets generally; market conditions generally; access to adequate capital and financing; changes in international economic and political conditions and currency fluctuations between the U.S. dollar and other currencies; interest rate risk on borrowings; changes in tax laws and regulations; changes in accounting rules and standards; and other risks and uncertainties described in the Company's reports and filings with the Securities and Exchange Commission. 28 Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, the Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as otherwise required by law, the Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 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 March 31, 2004 include $151.8 million outstanding under the term A loan portion, and $85.0 million drawn on the revolving credit commitment portion, of its June 2003 four-year, variable-rate Credit Facility at an interest rate of LIBOR plus 1.375%, or 2.47% at March 31, 2004 (a 100 basis point change in the interest rate would impact pretax interest expense by approximately $2.4 million per year); $375.0 million outstanding under its fixed-rate 8.125% senior subordinated notes due 2011 ("8.125% Senior Notes"), due 2011; $250.0 million outstanding under its fixed-rate 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 a 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 estimated LIBOR-based floating rate was 3.43% at March 31, 2004 (a 100 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 133, as amended, so changes in the 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 of $12.3 million at March 31, 2004 is recorded as a noncurrent liability and a reduction to the carrying value of the related 6.125% Senior Notes. At March 31, 2004, 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 $418.1 million, $260.6 million and $452.0 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 March 31, 2004, 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 financial position, cash flows and results of operations. 29 The Company has operations and revenue that occur outside of the 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. 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-15(e) and 15d-15(e)) 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 or submitted 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, our internal control over financial reporting. 30 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES A summary of the Company's repurchases during the quarter ended March 31, 2004 is as follows (in thousands):
Maximum Number Total Number of (or Approximate Dollar Total Shares Purchased as Value) of Shares that Number of Part of Publicly May Yet Be Shares Average Price Announced Purchased Under the Period Purchased (a) Paid per Share Plans or Programs Plans or Programs - ------------------- ------------- -------------- ------------------- ---------------------- January 1-31, 2004 -- $ -- -- -- February 1-29, 2004 94 43.87 -- -- March 1-31, 2004 68 45.49 -- -- --- --- --- Total 162 $44.55 -- -- === ====== === ===
(a) During the first quarter of 2004, the Company purchased 162,000 shares of Omnicare common stock in connection with its employee benefit plans, including purchases associated with stock option exercises and the vesting of restricted stock awards. These purchases were not made pursuant to a publicly announced repurchase plan or program. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Index of Exhibits. (b) Reports on Form 8-K During the quarter ended March 31, 2004, the Company submitted, on February 12, 2004, a Report on Form 8-K reporting that it had issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2003. 31 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: May 10, 2004 By: /s/ David W. Froesel, Jr. ------------------------------------ David W. Froesel, Jr. Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 32 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 - -------------------------------------------------------------------------------- ------------------------------------------ (11) Computation of Earnings Per Common Share Filed Herewith (12) Computation of Ratio of Earnings to Fixed Charges Filed Herewith (31.1) Rule 13a-14(a) Certification of Chief Executive Officer of Omnicare, Inc. Filed Herewith in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (31.2) Rule 13a-14(a) Certification of Chief Financial Officer of Omnicare, Inc. Filed Herewith in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (32.1) Section 1350 Certification of Chief Executive Officer of Omnicare, Inc. Furnished Herewith in accordance with Section 906 of the Sarbanes-Oxley Act of 2002* (32.2) Section 1350 Certification of Chief Financial Officer of Omnicare, Inc. Furnished Herewith 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-11 2 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 March 31, ------------------- 2004 2003 -------- -------- Basic Earnings: Net income $ 63,491 $ 40,423 ======== ======== Shares Weighted average number of common shares outstanding 103,458 94,386 ======== ======== Basic EPS $ 0.61 $ 0.43 ======== ======== Diluted Earnings (a)(b): Net income $ 63,491 $ 40,423 Interest expense related to 5.0% Convertible Debentures, net of taxes -- 2,922 -------- -------- Net income, as adjusted, for purposes of calculating diluted EPS $ 63,491 $ 43,345 ======== ======== Shares Weighted average number of common shares outstanding 103,458 94,386 Additional shares assuming conversion of: Stock options and stock warrants (c) 1,311 931 5.0% Convertible Debentures -- 8,712 -------- -------- Weighted average common shares outstanding, as adjusted 104,769 104,029 ======== ======== Diluted EPS $ 0.61 $ 0.42 ======== ========
(a) The three month period ended March 31, 2003 includes the dilutive effect of the $345.0 million of 5.0% convertible subordinated debentures ("5.0% Convertible Debentures"), which assumes conversion using the "if converted" method. Under that method, the 5.0% 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 5.0% Convertible Debentures is added back to net income. In July 2003, the Company completed the early redemption of the entire $345.0 million aggregate principal amount of the outstanding 5.0% Convertible Debentures. (b) The $345.0 million of 4.0% convertible trust preferred securities due 2033, which are convertible at a fixed 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), were outstanding during the three months ended March 31, 2004, but were not included in the computation of diluted EPS because the impact was anti-dilutive. (c) During the three months ended March 31, 2004 and 2003, 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 March 31, 2004 and 2003 totaled 2.0 million and 5.1 million, respectively. EX-12 3 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 March 31, ------------------ 2004 2003 -------- ------- Income before Income Taxes $ 99,928 $65,165 Add: Interest Expense 15,561 15,472 Amortization of Debt Expense 1,151 984 Interest Portion of Rent Expense 3,455 3,133 -------- ------- Adjusted Income $120,095 $84,754 ======== ======= Fixed Charges Interest Expense $ 15,561 $15,472 Amortization of Debt Expense 1,151 984 Interest Portion of Rent Expense 3,455 3,133 -------- ------- Fixed Charges $ 20,167 $19,589 ======== ======= Ratio of Earnings to Fixed Charges (1) 6.0x 4.3x ======== =======
(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 4 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: May 10, 2004 /s/ Joel F. Gemunder ------------------------------------- Joel F. Gemunder President and Chief Executive Officer EX-31 5 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: May 10, 2004 /s/ David W. Froesel, Jr. ------------------------------------------------- David W. Froesel, Jr. Senior Vice President and Chief Financial Officer EX-32 6 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 March 31, 2004 (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: May 10, 2004 /s/ Joel F. Gemunder ---------------------------------------- Joel F. Gemunder President and Chief Executive Officer EX-32 7 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 March 31, 2004 (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: May 10, 2004 /s/ David W. Froesel, Jr. ---------------------------------------- David W. Froesel, Jr. Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----