-----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, UvIRWwIXoUzUJfCwvbb/EgrVViFidv6n5G+8FWoCHkJY6cIvBBzYcO7/fE5wQC6e K8YcmFcYrEnzf+WpVXAG/w== 0000950152-97-005623.txt : 19970807 0000950152-97-005623.hdr.sgml : 19970807 ACCESSION NUMBER: 0000950152-97-005623 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970806 SROS: NONE 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08269 FILM NUMBER: 97652203 BUSINESS ADDRESS: STREET 1: 50 E RIVERCENTER BLVD STREET 2: STE 1530 CITY: COVINGTON STATE: KY ZIP: 41011 BUSINESS PHONE: 5137626666 MAIL ADDRESS: STREET 1: 2800 CHEMED CENTER STREET 2: 255 EAST FIFTH ST CITY: CINCINNATI STATE: OH ZIP: 45202-4728 10-K/A 1 OMNICARE, INC. 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K/A (Mark One) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee [ X ] Required) For the fiscal year ended December 31, 1996 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) 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 of Incorporation) (I.R.S. Employer Identification No.) OMNICARE, INC. 50 EAST RIVERCENTER BOULEVARD COVINGTON, KENTUCKY 41011 (Address of principal executive offices) Registrant's telephone number, including area code: 606-655-1180 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- Common Stock ($1 Par Value) New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 l934 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 requirements for the past 90 days. Yes X No . ----- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- Aggregate market value of the Registrant's voting stock held by non-affiliates, based upon the closing price of said stock on the New York Stock Exchange Composite Transaction Listing on February 28, 1997 ($26.50 per share): $2,088,809,818. As of February 28, 1997, 78,823,012 shares of the Common Stock, $1.00 par value, of the Registrant were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of Omnicare, Inc.'s, (Omnicare, the Company or the Registrant) definitive Proxy Statement for its 1997 Annual Meeting of Stockholders, to be held May 19, 1997, are incorporated by reference into Part III of this report. Definitive copies of its 1997 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year. 2 OMNICARE, INC. 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I PAGE ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . 3 ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . 13 ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . 16 EXECUTIVE OFFICERS OF THE COMPANY . . . . 17 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS . . . . 18 ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . 26 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . 47 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . 47 ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . 47 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . 47 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . 47 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K . . . . . . . . . . 47 3 PART I ITEM 1 - BUSINESS BACKGROUND Omnicare, Inc. (the "Company" or "Omnicare") was incorporated in Delaware on May 19, 1981 to conduct certain health care businesses contributed to it by W. R. Grace & Co. and Chemed Corporation, and in July 1981 public trading of the Company's Common Stock commenced. As part of a multi-year restructuring program undertaken in 1985, the Company, through a series of divestitures and acquisitions, redeployed all of its capital in the long-term pharmacy business. As a result, Omnicare is today a leading independent provider of pharmacy services to long-term care institutions such as nursing homes, retirement centers and other institutional health care facilities. The Company operates principally in one business segment-institutional pharmacy services for the long-term care market. At December 31, 1996, Omnicare provided these services to approximately 300,000 residents in 3,700 nursing facilities located principally in the states of Alabama, Connecticut, Georgia, Illinois, Indiana, Kansas, Kentucky, Maine, Massachusetts, Michigan, Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Washington, West Virginia and Wisconsin. The Company does not make any export sales. In 1996, the Company completed the acquisition of 17 institutional pharmacy providers. See "Note 2 - Acquisitions" of the Notes to Consolidated Financial Statements at Item 8 of this Report for additional information. PHARMACY SERVICES Omnicare purchases, repackages and dispenses prescription and non- prescription medication in accordance with physician orders and delivers such prescriptions at least daily to the nursing facility for administration to individual patients by the facility's nursing staff. Omnicare typically services nursing homes within a 150-mile radius of its pharmacy locations. Omnicare maintains a 24-hour, on-call pharmacist service, 365 days per year, for emergency dispensing and delivery or for consultation with the facility's staff or attending physician. Upon receipt of a prescription, the relevant patient information is entered into Omnicare's computerized dispensing and billing systems. At that time, the dispensing system checks the prescription for any potentially adverse drug interactions or patient sensitivity. When required and/or specifically requested by the physician or patient, branded drugs are dispensed; generic drugs are substituted in accordance with applicable state and federal laws and as requested by the physician or patient. The Company also provides therapeutic interchange, with physician approval, in accordance with the Company's pharmaceutical care guidelines. See "THE OMNICARE GUIDELINES(R)" below. Omnicare provides a "unit dose" distribution system. Most of its prescriptions are filled utilizing specialized unit-of-use packaging and delivery systems. Maintenance medications are typically provided in 30-day supplies utilizing either a box unit dose system or unit dose punch card system. The unit dose system, preferred over the bulk delivery systems 3 4 employed by retail pharmacies, improves control over drugs in the nursing facility and improves patient compliance with drug therapy by increasing the accuracy and timeliness of drug administration. Integral to Omnicare's drug distribution system is its computerized medical records and documentation system. Omnicare provides to the facility computerized medication administration records and physician's order sheets and treatment records for each patient. Data extracted from these computerized records are also formulated into monthly management reports on patient care and quality assurance. The computerized documentation system, in combination with the unit dose drug delivery system, results in greater efficiency in nursing time, improved control, reduced drug waste in the facility and lower error rates in both dispensing and administration. These benefits improve drug efficacy and result in fewer drug-related hospitalizations. CONSULTANT PHARMACIST SERVICES Federal and state regulations mandate that nursing facilities, in addition to providing a source of pharmaceuticals, retain consultant pharmacist services to monitor and report on prescription drug therapy in order to maintain and improve the quality of patient care. The Omnibus Budget Reconciliation Act ("OBRA") implemented in 1990 seeks to further upgrade and standardize care by setting forth more stringent standards relating to planning, monitoring and reporting on the progress of prescription drug therapy as well as facility-wide drug usage. Omnicare provides consultant pharmacist services which help clients comply with such federal and state regulations applicable to nursing homes. The services offered by Omnicare's consultant pharmacists include: (i) comprehensive, monthly drug regimen reviews for each patient in the facility to assess the appropriateness and efficacy of drug therapies, including a review of the patient's medical records, monitoring drug reactions to other drugs or food, monitoring lab results and recommending alternate therapies or discontinuing unnecessary drugs; (ii) participation on the Pharmacy and Therapeutics, Quality Assurance and other committees of client nursing facilities as well as periodic involvement in staff meetings; (iii) monthly inspection of medication carts and storage rooms; (iv) monitoring and monthly reporting on facility-wide drug usage and drug administration systems and practices; (v) development and maintenance of pharmaceutical policy and procedures manuals; and (vi) assistance to the nursing facility in complying with state and federal regulations as they pertain to patient care. Additionally, Omnicare offers a specialized line of consulting services which help nursing facilities to enhance care and reduce and contain costs as well as to comply with state and federal regulations. Under this service line, Omnicare provides: (i) data required for OBRA and other regulatory purposes, including reports on psychotropic drug usage (chemical restraints), antibiotic usage (infection control) and other drug usage; (ii) Plan of Care programs which assess each patient's state of health upon admission and monitor progress and outcomes using data on drug usage as well as dietary, physical therapy and social service inputs; (iii) counseling related to appropriate drug usage and implementation of drug protocols; (iv) on-site educational seminars for the nursing facility staff on topics such as drug information relating to clinical indications, 4 5 adverse drug reactions, drug protocols and special geriatric considerations in drug therapy, and information and training on intravenous drug therapy and updates on OBRA and other regulatory compliance issues; (v) mock regulatory reviews for nursing staffs; and (vi) nurse consultant services and consulting for dietary, social services and medical records. THE OMNICARE GUIDELINES(R) In June 1994, to enhance the pharmaceutical care management services that it offers, Omnicare introduced to its client nursing facilities and their attending physicians the Omnicare GERIATRIC PHARMACEUTICAL CARE GUIDELINES(R) (THE OMNICARE GUIDELINES(R)) which it believes is the first clinically-based formulary for the elderly residing in long-term care institutions. THE OMNICARE GUIDELINES(R) presents an analysis ranking specific drugs in therapeutic classes as Preferred, Acceptable or Unacceptable based solely on their disease-specific clinical effectiveness in treating the elderly in nursing facilities. The formulary takes into account such factors as pharmacology, safety and toxicity, efficacy, drug administration, quality of life and other considerations specific to the frail elderly population residing in nursing facilities. The clinical evaluations and rankings were developed exclusively for the Company by the Philadelphia College of Pharmacy and Science, an academic institution recognized for its expertise in geriatric long-term care. In addition, THE OMNICARE GUIDELINES(R) provides relative cost information comparing the prices of the drugs to patients, their insurers or other payors of the pharmacy bill. As THE OMNICARE GUIDELINES(R) focuses on health benefits, rather than solely on cost, in assigning rankings, the Company believes that use of THE OMNICARE GUIDELINES(R) will assist physicians in making the best clinical choices of drug therapy for the patient at the lowest cost to the payor of the pharmacy bill. The Company also believes that the development of and subsequent compliance with THE OMNICARE GUIDELINES(R) will lower costs for the patients it serves and strengthen the Company's purchasing power with pharmaceutical manufacturers. ANCILLARY SERVICES Omnicare provides the following ancillary products and services to nursing facilities: Infusion Therapy Products and Services. With cost containment pressures in health care, nursing facilities are increasingly providing subacute care as a means of treating moderately acute but stabilized patients more cost- effectively than hospitals, provided that the nursing staff and pharmacy are capable of supporting higher degrees of acuity. Omnicare provides infusion therapy support services for such residents in its client nursing facilities and, to a lesser extent, hospice and home care patients. Infusion therapy consists of the product (a nutrient, antibiotic, chemotherapy or other drugs in solution) and the intravenous administration of the product. Omnicare prepares the product to be administered using proper equipment in a sterile environment and then delivers the product to the nursing home for administration by the nursing staff. Proper administration of intravenous ("IV") drug therapy requires a highly trained nursing staff. Omnicare's consultant pharmacists and nurse consultants operate an 5 6 education and certification program on IV therapy to assure proper staff training and compliance with regulatory requirements in client facilities offering an IV program. By providing an infusion therapy program, Omnicare enables its client nursing facilities to admit and retain patients who otherwise would need to be cared for in an acute-care facility. The Company believes that by providing these high-acuity pharmacy services it has a competitive advantage over other pharmacy providers. The most common infusion therapies Omnicare provides are total parenteral nutrition, antibiotic therapy, chemotherapy, pain management and hydration. Wholesale Medical Supplies/Medicare Part B Billing. Omnicare distributes disposable medical supplies, including urological, ostomy, nutritional support and wound care products and other disposables needed in the nursing home environment. In addition, Omnicare provides direct Medicare billing services for certain of these product lines for patients eligible under the Medicare Part B program. As part of this service, Omnicare determines patient eligibility, obtains certifications, orders products and maintains inventory on behalf of the nursing facility. Omnicare also contracts to act as billing agent for certain nursing homes that supply these products directly to the patient. Other Services. Omnicare also provides respiratory therapy products and durable medical equipment and offers clinical care plan and financial software information systems to its client nursing facilities. Omnicare continues to review the expansion of these as well as other products and services that may further enhance the ability of its client nursing facilities to care for their residents in a cost-effective manner. PRODUCT AND MARKET DEVELOPMENT Omnicare's pharmacy business engages in a continuing program for the development of new services and the marketing thereof. While new service and new market development are important factors for the growth of this business, Omnicare does not expect that any new service or marketing effort, including those in the developmental stage, will require the investment of a material portion of Omnicare's assets. MATERIALS/SUPPLY Omnicare purchases pharmaceuticals through a wholesale distributor with whom it has a prime vendor contract and, on an increasing basis, under contracts negotiated directly with pharmaceutical manufacturers. The Company also is a member of industry buying groups which contract with manufacturers for discounted prices based on volume which are passed through to the Company by its wholesale distributor. The Company has numerous sources of supply available to it and has not experienced any difficulty in obtaining pharmaceuticals or other products and supplies used in the conduct of its business. PATENTS, TRADEMARKS AND LICENSES Omnicare's business operations are not dependent upon any material patents, trademarks or licenses. 6 7 INVENTORIES Omnicare's pharmacies maintain adequate on-site inventories of pharmaceuticals and supplies to ensure prompt delivery service to its customers. Inventories on hand are not considered to be high by industry standards. The Company's primary wholesale distributor also maintains local warehousing in most major geographic markets in which the Company operates. COMPETITION By its nature, the long-term care pharmacy business is highly regionalized and, within a given geographic region of operations, highly competitive. In the geographic regions it serves, Omnicare competes with numerous local retail pharmacies, local and regional institutional pharmacies and pharmacies owned by long-term care facilities. Omnicare competes in this market on the basis of quality, cost-effectiveness and the increasingly comprehensive and specialized nature of its services along with the clinical expertise, pharmaceutical technology and professional support it offers. In its program of acquiring institutional pharmacy providers, the Company competes with several other companies with similar acquisition strategies, some of which may have greater resources than the Company. No individual customer or market group is critical to the total sales of the Company's long-term care pharmacy business. GOVERNMENT REGULATION Institutional pharmacies, as well as the long-term care facilities they serve, are subject to extensive federal, state and local regulation. These regulations cover required qualifications, day-to-day operations, reimbursement and the documentation of activities. Omnicare continuously monitors the effects of regulatory activity on its operations. Licensure, Certification and Regulation. States generally require that companies operating a pharmacy within the state be licensed by the state board of pharmacy. The Company currently has pharmacy licenses for each location in the states in which it operates pharmacies. In addition, the Company currently delivers prescription products from its licensed pharmacies to 4 states in which the Company does not operate a pharmacy. These states regulate out-of-state pharmacies, however, as a condition to the delivery of prescription products to patients in such states. Omnicare's pharmacies hold the requisite licenses applicable in these states. In addition, Omnicare's pharmacies are registered with the appropriate state and federal authorities pursuant to statutes governing the regulation of controlled substances. Client nursing facilities are also separately required to be licensed in the states in which they operate and, if serving Medicare or Medicaid patients, must be certified to be in compliance with applicable program participation requirements. Client nursing facilities are also subject to the nursing home reforms of the Omnibus Budget Reconciliation Act of 1987, which imposed strict compliance standards relating to quality of care for nursing home operations, including vastly increased documentation and 7 8 reporting requirements. In addition, pharmacists, nurses and other health care professionals who provide services on the Company's behalf are in most cases required to obtain and maintain professional licenses and are subject to state regulation regarding professional standards of conduct. Federal and State Laws Affecting the Repacking, Labelling, and Interstate Shipping of Drugs. Federal and state laws impose certain repackaging, labelling, and package insert requirements on pharmacies that repackage drugs for distribution beyond the regular practice of dispensing or selling drugs directly to patients at retail. A drug repackager must register with the Food and Drug Administration. The Company holds all required registrations and licenses, and its repackaging operations are believed to be in compliance with applicable state and federal requirements. Medicare and Medicaid. The nursing home pharmacy business has long operated under regulatory and cost containment pressures from state and federal legislation primarily affecting Medicaid and, to a lesser extent, Medicare. As is the case for nursing home services generally, Omnicare receives reimbursement from the Medicaid and Medicare programs, directly from individual residents (private pay), and from other payors such as third-party insurers. The Company believes that its reimbursement mix is in line with nursing home expenditures nationally. For the year ended December 31, 1996, Omnicare's payor mix was approximately as follows: 54% private pay and nursing homes, 42% Medicaid, 3% Medicare and 1% insurance and other private sources. For those patients who are not covered by government-sponsored programs or private insurance, Omnicare generally directly bills the patient or the patient's responsible party on a monthly basis. Depending upon local market practices, Omnicare may alternatively bill private patients through the nursing facility. Pricing for private pay patients is based on prevailing regional market rates or "usual and customary" charges. The Medicaid program is a cooperative federal-state program designed to enable states to provide medical assistance to aged, blind, or disabled individuals, or members of families with dependent children whose income and resources are insufficient to meet the costs of necessary medical services. State participation in the Medicaid program is voluntary. To become eligible to receive federal funds, a state must submit a Medicaid "state plan" to the Secretary of the Department of Health and Human Services ("HHS") for approval. The federal Medicaid statute specifies a variety of requirements which the state plan must meet, including requirements relating to eligibility, coverage of services, payment and administration. 8 9 Federal law and regulations contain a variety of requirements relating to the furnishing of prescription drugs under Medicaid. First, states are given authority, subject to certain standards, to limit or specify conditions to the coverage of particular drugs. Second, federal Medicaid law establishes standards affecting pharmacy practice. These standards include general requirements relating to patient counseling and drug utilization review and more specific standards for nursing facilities relating to drug regimen reviews for Medicaid patients in such facilities. Recent regulations clarify that, under federal law, a pharmacy is not required to meet the general requirements for drugs dispensed to nursing facility residents if the nursing facility complies with the drug regimen review standards. However, the regulations indicate that states may nevertheless require pharmacies to comply with the general requirements, regardless of whether the nursing facility satisfies the drug regimen review requirement, and the states in which the Company operates currently do require its pharmacies to comply with these general standards. Third, federal regulations impose certain requirements relating to reimbursement for prescription drugs furnished to Medicaid patients. Among other things, regulations establish "upper limits" on payment levels. In addition to requirements imposed by federal law, states have substantial discretion to determine administrative, coverage, eligibility and payment policies under their state Medicaid programs which may affect the Company's operations. For example, some states have enacted "freedom of choice" requirements which may prohibit a nursing facility from requiring its residents to purchase pharmacy or other ancillary medical services or supplies from particular providers that deal with the nursing home. Such limitations may increase the competition which the Company faces in providing services to nursing facility patients. The Medicare program is a federally funded and administered health insurance program for individuals age 65 and over or who are disabled. The Medicare program consists of two parts: Part A, which covers, among other things, inpatient hospital, skilled nursing facility, home health care and certain other types of health care services; and Medicare Part B, which covers physicians' services, outpatient services, and certain items and services provided by medical suppliers. Medicare Part B also covers a limited number of specifically designated prescription drugs. The Medicare program establishes certain requirements for participation of providers and suppliers in the Medicare program. Pharmacies are not subject to such certification requirements. Skilled nursing facilities and suppliers of medical equipment and supplies, however, are subject to specified standards. Failure to comply with these requirements and standards may adversely affect an entity's ability to participate in the Medicare program and receive reimbursement for services provided to Medicare beneficiaries. The Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate adjustments, administrative rulings, and freezes and funding reductions, all of which may adversely affect the Company's business. There can be no assurance that payments for pharmaceutical supplies and services under governmental reimbursement programs will continue to be based on the current methodology or remain comparable to present levels. In this regard, the Company may be subject to rate reductions as a result of federal budgetary legislation related to the Medicare and Medicaid programs. In addition, various state Medicaid programs periodically experience budgetary shortfalls which may 9 10 result in Medicaid payment delays to the Company. To date, the Company has not experienced any material adverse effect due to any such budgetary shortfall. In addition, the failure, even if inadvertent, of Omnicare and/or its client institutions to comply with applicable reimbursement regulations could adversely affect Omnicare's business. Additionally, changes in such reimbursement programs or in regulations related thereto, such as reductions in the allowable reimbursement levels, modifications in the timing or processing of payments and other changes intended to limit or decrease the growth of Medicaid and Medicare expenditures, could adversely affect the Company's business. Referral Restrictions. The Company is subject to federal and state laws which govern financial and other arrangements between health care providers. These laws include the federal anti-kickback statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration directly or indirectly in return for or to induce the referral of an individual to a person for the furnishing of any item or service for which payment may be made in whole or in part under federal healthcare programs. Many states have enacted similar statutes which are not necessarily limited to items and services for which payment is made by federal healthcare programs. Violations of these laws may result in fines, imprisonment, and exclusion from the federal programs or other state-funded programs. Federal and state court decisions interpreting these statutes are limited, but have generally construed the statutes to apply if "one purpose" of remuneration is to induce referrals or other conduct within the statute. Federal regulations establish "safe harbors," which give immunity from criminal or civil penalties to parties meeting all of the safe harbor requirements. While the failure to satisfy all criteria for a safe harbor does not mean that an arrangement violates the statute, it may subject the arrangement to review by the HHS Office of Inspector General ("OIG"), which is charged with administering the federal anti-kickback statute. Federal legislation directed the OIG to establish procedures for obtaining advisory opinions on the application of the federal anti-kickback statute, and regulations were recently issued setting forth this new advisory opinion process. However, there is little experience with the new process. Further, the Clinton administration has proposed repealing the advisory opinion process as part of its fiscal year (FY) 1998 budget proposal. Thus, there is limited authority on qualification for a safe harbor upon which the Company can rely. The OIG issues "Fraud Alerts" identifying certain questionable arrangements and practices which it believes may implicate the federal anti-kickback statute. The OIG has issued a Fraud Alert providing its views on certain joint venture and contractual arrangements between health care providers. The OIG also issued a Fraud Alert concerning prescription drug marketing practices that could potentially violate the federal statute. Pharmaceutical marketing activities may implicate the federal anti-kickback statute because drugs are often reimbursed under the Medicaid program. According to the Fraud Alert, examples of practices that may implicate the statute include certain arrangements under which remuneration is made to pharmacists to recommend the use of a particular pharmaceutical product. 10 11 In addition, a number of states have undertaken enforcement actions against pharmaceutical manufacturers involving pharmaceutical marketing programs, including programs containing incentives to pharmacists to dispense one particular product rather than another. These enforcement actions arose under state consumer protection laws which generally prohibit false advertising, deceptive trade practices, and the like. The Company believes its contract arrangements with other health care providers, its pharmaceutical suppliers and its pharmacy practices are in compliance with these laws. There can be no assurance that such laws will not, however, be interpreted in the future in a manner inconsistent with the Company's interpretation and application. Health Care Reform and Federal Budget Legislation. In recent years, a number of legislative proposals have been introduced in Congress to reform the health care system. Currently, Congress and the Clinton administration are considering such reforms in the context of federal budget legislation. This legislation could result in significant reductions in payments to providers under the Medicaid and Medicare programs. With respect to Medicare, proposals include establishment of a prospective payment system for skilled nursing facilities ("SNFs"); limits on payments to Medicare SNFs for routine services; requiring consolidated billing by a SNF for all Part A and B claims for SNF residents; and other cost savings proposals affecting reimbursement for Medicare SNF services. The Administration also has proposed to eliminate the "mark-up" charged by physicians and suppliers on outpatient drugs, covered under Medicare Part B, by limiting payments to acquisition costs, subject to a limit. If enacted, there can be no assurance that such proposals could not have a material adverse effect on the business of Omnicare. While budget negotiations are continuing, the future of any reform proposals in Congress is unknown. In addition, a number of states have enacted and are considering various health care reforms, including reforms through Medicaid demonstration projects. Federal law allows HHS to authorize waivers of federal Medicaid program requirements, including requirements relating to coverage, free choice of providers and payment for health care services, in connection with state demonstration projects that promote Medicaid program objectives. HHS published procedures and public notice requirements designed to open the waiver approval process to public comment and to expedite processing. The Clinton Administration's FY 1998 budget proposal would eliminate the need for states to seek a federal waiver to implement a Medicaid managed care system. Several state Medicaid programs have established mandatory statewide managed care programs for Medicaid beneficiaries to control costs through negotiated or capitated rates, as opposed to traditional cost-based reimbursement for Medicaid services and propose to use savings achieved through these programs to expand coverage to those not previously eligible for Medicaid. HHS has approved waivers for statewide managed care demonstration projects in several states and are pending for several other states. These demonstration projects generally exempt institutionalized care, including nursing facility services, from the programs, and the Company's operations have not been adversely affected in states with managed care demonstration projects in effect. The Company is unable to predict what impact, if any, future Medicaid managed care systems might 11 12 have on the Company's operations. Because there are currently various reform proposals under consideration at the federal and state levels, it is uncertain at this time what health care reform initiatives, if any, will be implemented, or whether there will be other changes in the administration of governmental health care programs or interpretations of governmental policies or other changes affecting the health care system. There can be no assurance that future health care or budget legislation or other changes will not have an adverse effect on the business of the Company. ENVIRONMENTAL MATTERS In operating its facilities, Omnicare makes every effort to comply with pollution control laws. No major difficulties have been encountered in effecting compliance. No material capital expenditures for environmental control facilities are expected. While Omnicare cannot predict the effect which any future legislation, regulations, or interpretations may have upon its operations, it does not anticipate any changes that would have a material adverse impact on its operations. EMPLOYEES At December 31, 1996, Omnicare employed a total of 4,699 persons (including 1,220 part-time employees), all of whom were located within the United States. 12 13 ITEM 2 - PROPERTIES Omnicare has offices and distribution centers in various locations in the United States. A list of the major facilities operated by Omnicare as of December 31, 1996 follows. The owned property is held in fee and is not subject to any material encumbrance. Omnicare considers all of these facilities to be in good operating condition and generally to be adequate for present and anticipated needs. LEASED OWNED ----------------------------------- LOCATION TYPE AREA AREA EXPIRATION DATE - -------- ---- ---- ---- --------------- Folcroft, Offices and -- 6,101 sq. ft. March 1, Pennsylvania distribution 2001 center Lexington, Offices and -- 7,000 sq. ft. September 30, Kentucky distribution 1997 center St. Louis, Offices and -- 7,000 sq. ft. April 1, Missouri distribution 2005 center Racine, Offices and -- 7,500 sq. ft. December 17, Wisconsin distribution 2001 center Belleville, Offices and -- 8,300 sq. ft. March 31, Illinois distribution 1997 center Peabody, Offices and -- 8,510 sq. ft. February 1, Massachusetts distribution 1998 center Springfield, Offices and -- 8,745 sq. ft. February 28, Missouri distribution 1998 center Nitro, Offices and -- 9,000 sq. ft. March 10, West Virginia distribution 2003 center Hebron, Offices and -- 9,536 sq. ft. June 30, Kentucky distribution 1997 center Tonawanda, Offices and -- 9,600 sq. ft. July 30, New York distribution 2000 center Griffith, Offices and -- 10,600 sq. ft. March 31, Indiana distribution 2002 center 13 14 LEASED OWNED --------------------------------- LOCATION TYPE AREA AREA EXPIRATION DATE - -------- ---- ---- ---- --------------- Yakima, Offices and -- 11,000 sq. ft. February 28, Washington distribution 2000 center Newington, Offices and -- 11,600 sq. ft. June 10, Connecticut distribution 1998 center Dover, Offices and -- 12,000 sq. ft. December 31, Ohio distribution 2008 center Spokane, Offices and -- 13,750 sq. ft. January 31, Washington distribution 2007 center Dayton, Offices and -- 15,000 sq. ft. January 31, Ohio distribution 1998 center Portland, Offices and -- 15,880 sq. ft. March 31, Oregon distribution 2001 center Pompton Offices and -- 16,041 sq. ft. August 1, Plains, distribution 2001 New Jersey center Plainview, Offices and -- 17,550 sq. ft. June 30, New York distribution 2005 center Overland Park, Offices and -- 20,059 sq. ft. August 31, Kansas distribution 1999 center Wadsworth, Offices and -- 21,000 sq. ft. June 30, Ohio distribution 2001 center Perrysburg, Offices and 23,200 sq. ft. -- -- Ohio distribution center Decatur, Offices and 23,274 sq. ft. -- -- Illinois distribution center Indianapolis, Offices and -- 23,740 sq. ft. April 30, Indiana distribution 2006 center 14 15 LEASED OWNED ----------------------------------- LOCATION TYPE AREA AREA EXPIRATION DATE - -------- ---- ---- ---- --------------- Cincinnati, Offices and -- 24,375 sq. ft. September 30, Ohio distribution 1999 center Oklahoma City, Offices and -- 28,000 sq. ft. September 30, Oklahoma distribution 1998 center Livonia, Offices and -- 28,524 sq. ft. May 1, Michigan distribution 2002 center Skokie, Offices and -- 29,200 sq. ft. November 30, Illinois distribution 2000 center Louisville, Offices and -- 37,400 sq. ft. September 30, Kentucky distribution 2001 center Florissant, Offices and 37,753 sq. ft. -- -- Missouri distribution center Kirkland, Offices and -- 43,107 sq. ft. April 5, Washington distribution 2003 center 15 16 ITEM 3 - LEGAL PROCEEDINGS In May 1996, the Company became aware of a government investigation of Home Pharmacy Services, Inc. ("Home"), a wholly-owned subsidiary of the Company acquired in 1992, based in Belleville, Illinois and certain individuals at that unit. Home accounted for less than four percent of Omnicare's total sales and earnings in 1996. The Company is cooperating fully with the government's inquiry. Home continues to provide pharmacy services without interruption to nursing home residents in the region. The outcome of this investigation is not currently predictable. There are no other pending legal proceedings, other than ordinary routine litigation incidental to the business, to which Omnicare or any of its subsidiaries is a party or of which any of their property is the subject, and no such proceedings are known to be contemplated by governmental authorities. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 16 17 ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company as of March 25, 1997 are as follows: Name Age Office First Elected - ---------------- --- ---------------- ------------- Edward L. Hutton 77 Chairman May 20, 198l Joel F. Gemunder 57 President May 20, 198l Kenneth W. Chesterman 56 Executive Vice August 2, 1984 President Patrick E. Keefe 51 Executive Vice April 11, 1993 President - Operations Timothy E. Bien 46 Senior Vice President- May 20, 1996 Professional Services and Purchasing Mary Lou Fox 65 Senior Vice President- May 20, 1996 Marketing David W. Froesel, Jr. 45 Senior Vice President March 4, 1996 and Chief Financial Officer Robert F. Heath 49 Senior Vice President February 5, 1997 and General Counsel Cheryl D. Hodges 45 Senior Vice President August 4, 1982 and Secretary All of the executive officers listed above have been actively engaged in the business of the Company or its predecessors for the past five years, with the exception of Messrs. Keefe, Froesel and Heath. Mr. Keefe served as Vice President of Diagnostek, Inc. from April 1992 to April 1993. From September 1990 to April 1992, he was President of HPI Health Care Services, Inc. ("HPI"), a subsidiary of Diagnostek which it acquired from Omnicare in August 1989. He served as Executive Vice President of HPI from August 1984 until September 1990. Mr. Froesel was Vice President of Finance and Administration at Mallinckrodt Veterinary Inc. from May 1993 to February 1996. From July 1989 to April 1993, he was worldwide corporate controller of Mallinckrodt Medical Inc. Mr. Heath, who was newly elected in February 1997, was Associate General Counsel of GE Medical Systems, a division of the General Electric Company, from 1993 to 1997. He joined GE Medical in 1988. From 1984 to 1988, Mr. Heath worked as Senior Counsel of GE American Communications. Executive officers are elected for one-year terms at the annual organizational meeting of the Board of Directors which follows the annual meeting of stockholders each year. 17 18 PART II ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK; HOLDERS OF RECORD The Company's Common Stock is listed on the New York Stock Exchange. The following table sets forth the ranges of high and low closing prices for the Common Stock on the New York Stock Exchange during each of the calendar quarters of 1996 and 1995. All prices shown have been adjusted to reflect two-for-one stock splits in June 1996 and June 1995.
1996 1995 --------------- -------------- HIGH LOW HIGH LOW ---- --- ---- --- First Quarter $27.13 $19.69 $13.38 $10.31 Second Quarter 30.00 25.00 14.06 10.88 Third Quarter 30.50 22.00 19.50 13.44 Fourth Quarter 32.13 26.13 22.38 17.06
The number of holders of record of Omnicare Common Stock on February 28, 1997 was 1,981. This figure does not include stockholders with shares held under beneficial ownership in nominee name or within clearinghouse positions of brokerage houses and banks. DIVIDENDS Reflecting the Company's financial position and operating performance, on February 7, 1996, the Board of Directors elected to increase the quarterly cash dividend to $.015 per share, for an indicated annual rate of $.06 per share in 1996. On February 5, 1997, the quarterly cash dividend was raised to $.0175, for an indicated annual rate of $.07 per share in 1997. It is presently intended that cash dividends will continue to be paid on a quarterly basis; however, future dividends are necessarily dependent upon the Company's earnings and financial condition and other factors not currently determinable. RECENT SALES OF UNREGISTERED SECURITIES During the quarter ended December 31, 1996, the Company acquired Clasen L.T.C. Pharmacy, Roeschen's Healthcare Corporation and Pharmacon Corporation. In connection with these transactions, a total of 265,075 shares of common stock and 80,000 warrants (the "Securities") were issued. No underwriters were involved in these acquisition transactions. The Securities were issued in reliance on the exemption from registration contained at Section 4(2) of the Securities Act of 1933. The 80,000 warrants referred to above may be exercised at a price of $29.75 through December 10, 2002. See Note 2 to the Consolidated Financial Statements for additional information regarding the 1996 acquisition transactions. ITEM 6 - SELECTED FINANCIAL DATA The following table summarizes certain selected financial data, which should be read in conjunction with the Company's Consolidated Financial Statements and related Notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. 18 19 FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA (in thousands, except per share data)
For the years ended and at December 31, 1996 1995 1994 1993 1992 ------------------------------------------------------------------------------------------ INCOME STATEMENT DATA: (a)(b) Sales $536,604 $399,636 $307,655 $223,129 $157,406 ======== ======== ======== ======== ======== Income from continuing operations $ 43,450(c) $ 24,760(d) $ 13,531(e) $ 10,970(f) $ 5,873 Discontinued operations (a) - - - - 8,710(g) Cumulative effect of accounting change - - - 280(h) - -------- -------- -------- -------- -------- Net income $ 43,450(c) $ 24,760(d) $ 13,531(e) $ 11,250(f) $ 14,583 ======== ======== ======== ======== ======== Earnings per share data Primary: Income from continuing operations $ .64(c) $ .47(d) $ .30(e) $ .26(f) $ .14 Discontinued operations (a) - - - - .21(g) Cumulative effect of accounting change - - - - - -------- -------- -------- -------- -------- Net income $ .64(c) $ .47(d) $ .30(e) $ .26(f) $ .35 ======== ======== ======== ======== ======== Fully diluted: Continuing operations $ .61(c) $ .43(d) $ .30(e) $ .26(f) $ .14 Discontinued operations (a) - - - - .21(g) Cumulative effect of accounting change - - - - - -------- -------- -------- -------- -------- Net income $ .61(c) $ .43(d) $ .30(e) $ .26(f) $ .35 ======== ======== ======== ======== ======== Dividends per share $ .06 $ .05 $ .045 $ .04 $ .035 ======== ======== ======== ======== ======== BALANCE SHEET DATA: Working capital $329,002 $106,384 $125,550 $ 80,570 $ 25,792 Total assets 721,697 360,836 317,205 241,318 151,403 Long-term debt (i) 1,992 82,692 85,323 86,477 7,087 Stockholder's equity(j)(k) 634,378 214,761 180,104 102,750 94,333
(a) As a result of the December 1992 sale of the Veratex Group of businesses and the divestiture of Labtronics, Inc. which was completed in 1993, results have been restated to include these entities' results of operations as well as any gain or loss on dispositions as "discontinued operations." (b) The Company has had an active acquisition program in effect since 1989. See Note 2 of the Notes to Consolidated Financial Statements for information concerning these acquisitions. (c) Includes acquisition expenses related to the 1996 pooling-of-interests transaction of $690,000. Such expenses, on an aftertax basis, were $534,000, or $.01 per primary share. Net income, excluding these expenses, was $43,984,000, or $.65 per primary share ($.61 fully diluted). 19 20 (d) Includes acquisition expenses related to the 1995 Specialized pooling-of-interests transaction of $1,292,000. Such expenses, on an aftertax basis, were $989,000, or $.02 per primary share ($.01 fully diluted). Net income, excluding these expenses, was $25,749,000, or $.49 per primary share ($.44 fully diluted). (e) Includes acquisition expenses related to the 1994 Evergreen pooling-of-interests transaction of $2,380,000. Such expenses, on an aftertax basis, were $1,860,000, or $.04 per primary share ($.03 fully diluted). Net income, excluding these expenses, was $15,391,000, or $.34 per primary share ($.33 fully diluted). (f) Includes a one-time cumulative tax benefit of $450,000 or $.01 per share, arising from a change in tax laws enacted in August of 1993 relating to amortization of intangibles. (g) Includes aftertax gain of $5,198,000, or $.12 per share, related to the sale of the Veratex Group and the divestiture of Labtronics. (h) Aftertax gain representing the cumulative effect of a change in accounting for income taxes. (i) In 1993, the Company issued $80.5 million of Convertible Subordinated Notes due 2003 ("Notes"). In 1996, all of the remaining Notes were converted into common stock. (See Note 6 of the Notes to Consolidated Financial Statements). (j) In 1994, the Company sold 6,494,964 shares of common stock, in a public offering, resulting in net proceeds of $59,211,000. (k) In 1996, the Company sold 5,750,000 (pre-1996 stock split) shares of its common stock in a public offering, resulting in net proceeds of $279,159,000. (See Note 7 of the Notes to Consolidated Financial Statements). 20 21 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- (All share and per share data included in Management's Discussion and Analysis of Financial Condition and Results of Operations have been adjusted for the June 1996 and June 1995 two-for-one stock splits.) The following table presents sales and results of operations for Omnicare, Inc. (the Company), excluding pooling-of-interests expenses (in thousands, except per share amounts):
For the years ended December 31, 1996 1995 1994 ---- ---- ---- Sales $536,604 $399,636 $307,655 ======== ======== ======== Net income, as reported $ 43,450 $ 24,760 $ 13,531 Acquisition expenses, pooling- of-interests (net of taxes) 534 989 1,860 -------- -------- -------- Pro forma net income $ 43,984 $ 25,749 $ 15,391 ======== ======== ======== Pro forma earnings per share: Net income, as reported $ .64 $ .47 $ .30 Acquisition expenses, pooling- of-interests (net of taxes) .01 .02 .04 -------- -------- -------- Primary $ .65 $ .49 $ .34 ======== ======== ======== Fully diluted $ .61 $ .44 $ .33 ======== ======== ========
1996 vs. 1995 - ------------- Excluding the impact of charges taken for acquisitions accounted for as pooling-of-interests transactions, pro forma net income for the year ended December 31, 1996 increased 71% over net income earned in 1995. Primary earnings per share, on this basis, for 1996 increased 33% over 1995, and fully diluted earnings per share increased 39%. Sales increased 34% in 1996 versus 1995. The sales increase was the result of the completion of 17 institutional pharmacy acquisitions in 1996 and internal growth. As described in Note 2 to the Consolidated Financial Statements, since 1989, the Company has been involved in a program to acquire providers of pharmaceutical and related pharmacy management services and medical supplies to long-term care facilities and their residents. This includes acquisitions of freestanding institutional pharmacy businesses as well as pharmacy contracts and other assets, generally insignificant in size, which are combined with existing pharmacy operations to augment their internal growth. The Company also increases its revenues internally through the efforts of its National Sales and Marketing Group and pharmacy staff in developing new pharmacy contracts with long-term care facilities. Expansion of services such as infusion therapy and the increasing acuity levels of residents in long-term care facilities which results from efforts made to avoid or reduce hospitalization, together with drug price inflation and other changes in sales mix also contribute to the Company's revenue growth. The Company's total sales increased by $137 million in 1996 versus 1995. The Company estimates that approximately $60 million of its consolidated revenue growth in 1996 was attributable to acquisitions. The Company 21 22 believes that additional revenue growth opportunities through acquisitions exist in the institutional pharmacy industry and other related sectors. In addition, as disclosed in the Outlook section of Management's Discussion and Analysis of Financial Condition and Results of Operations, the health care industry's need to lower health care costs is driving ongoing industry consolidation which should continue to provide momentum for the Company's acquisition program. The Company estimates that internal growth contributed approximately $77 million of Omnicare's increased revenue in 1996 compared to 1995. The Company's revenues attributable to infusion therapy grew by approximately $16 million in 1996 compared to 1995. The Company expects the trend of increasing infusion therapy revenues to continue as nursing facilities treat elderly residents with more serious and costly health problems. When pharmaceutical prices are increased, the Company generally is able to obtain price increases to cover such drug price inflation; therefore such inflation increases revenues. The Company estimates that drug price inflation for its highest dollar volume products in 1996 was approximately 4%-5% and this trend is continuing in 1997. The remainder of Omnicare's increased revenues in 1996 compared to 1995 attributable to internal growth reflects interrelated factors associated with sales mix, pricing and volume, acuity levels of residents and efforts of the Company's National Sales and Marketing Group and pharmacy staff in developing and purchasing new pharmacy contracts. The Company is not able to isolate and separately quantify accurately the increased volumes associated with each of these individual factors. Acquisitions and internal growth brought the total number of nursing facility residents served at December 31, 1996 to 300,000, up 39% from the prior year end. Gross margin improvements from 28.0% in 1995 to 28.9% in 1996 resulted from changes in sales mix, including increased infusion therapy revenue, and the Company's purchasing leverage associated with purchases of pharmaceuticals and leveraging fixed and variable overhead costs at the Company's pharmacies. Sales mix for the Company includes primarily sales of pharmaceuticals and infusion therapy products and services, and, to a lesser extent, medical supplies and other. Sales of pharmaceuticals account for the majority of the Company's sales and gross profit. Infusion therapy and medical supplies gross margins are typically higher than gross margins associated with sales of pharmaceuticals. That portion of the Company's sales mix represented by infusion therapy has generally been increasing in recent years and, as noted earlier herein, this trend is expected to continue. Increased leverage in purchasing favorably impacts gross margins and is primarily derived from discounts from suppliers. Leveraging of fixed and variable overhead costs primarily relates to generating higher sales volumes from pharmacy facilities with no increase in fixed costs (e.g. rent) and minimal increases in variable costs (e.g. utilities). The Company believes it will be able to continue to leverage fixed and variable overhead costs through internal growth. As noted earlier herein, the Company is generally able to obtain price increases to cover drug price inflation. In order to control and improve its gross margins, the Company strategically allocates its resources to those activities which will increase internal sales growth and favorably impact sales mix or will lower costs. In addition, through the ongoing development of its pharmaceutical purchasing programs, the Company is able to obtain discounts and thereby manage its pharmaceutical costs. 22 23 Investment income increased by 225% to $11,285,000 in 1996 as the Company realized the benefit of investing the net proceeds of $279.2 million from the March 1996 stock offering for the majority of the year. Interest expense decreased 39% from $5,954,000 in 1995 to $3,652,000 in 1996, primarily due to the conversion of the Convertible Subordinated Notes during 1996. The effective tax rates of 39.9% in 1995 and 39.8% in 1996 are marginally higher than statutory rates due primarily to the nondeductibility of certain acquisition costs. 1995 vs. 1994 - ------------- Sales increased 30% in 1995 versus 1994. The sales increase was the result of nine institutional pharmacy acquisitions in 1995 (see Note 2 of the Consolidated Financial Statements) and internal growth. Internal growth resulted from the higher acuity levels of residents in client facilities, expansion of services such as infusion therapy, drug price inflation and the addition of new clients owing to the efforts of the Company's National Sales and Marketing Group, initiated late in 1994, and the pharmacy staff. Acquisitions and internal growth brought the total number of nursing facility residents served at December 31, 1995 to 216,500, up 47% from the prior year end. Gross margin improvements from 26.0% in 1994 to 28.0% in 1995 resulted from changes in sales mix, including increased infusion therapy revenue, and the Company's increased leverage in purchasing and fixed overhead costs. Excluding the aforementioned pro forma adjustments for pooling-of-interests expenses, operating income as a percent of sales increased from 9.8% in 1994 to 11.2% in 1995, primarily reflecting the gross margin improvement. Investment income increased by 120% to $3,475,000 in 1995 as the Company realized the benefit of invested cash during 1995 due to receipt of $59.2 million of net proceeds from the November 1994 stock offering. Interest expense decreased 9% from $6,533,000 in 1994 to $5,954,000 in 1995, primarily due to reductions in outstanding debt associated with Specialized Pharmacy Services, Inc. (Specialized) and Evergreen Pharmaceutical, Inc. (Evergreen) prior to acquisition by the Company; these acquisitions were accounted for as poolings-of-interests, and accordingly, Specialized and Evergreen are included in the Company's financial results for all years presented. The Company's effective tax rates decreased from 40.3% in 1994 to 39.9% in 1995. The effective tax rates are marginally higher than statutory rates due primarily to the nondeductibility of certain acquisition costs. Impact of Inflation - ------------------- Inflation has not materially affected Omnicare's profitability inasmuch as price increases have generally been obtained to cover inflationary drug cost increases. Liquidity and Capital Resources - ------------------------------- Acquisitions completed during 1996 utilized cash of $87.9 million and deferred cash payments of $9.0 million were made relating to pre-1996 acquisitions. Such acquisitions were also financed, in part, with common stock of the Company. Shares of common stock with a market value of approximately $20.2 million (698,093 shares) were issued in connection with 1996 acquisitions and 45,164 shares with a market value of $960,000 were issued in 1996 in connection with pre-1996 acquisitions. Additional amounts totaling $20 million may become payable through the year 2011 pursuant 23 24 to the terms of various acquisition agreements. On October 1, 1993, the Company issued $80,500,000 principal amount of 5.75% Convertible Subordinated Notes ("Notes") due 2003. The Notes were convertible into common stock at any time at the option of the holder at a price of $7.22 per share. The remaining Notes were converted in October 1996 into 10,201,700 shares of common stock. Prior to the October conversion, Notes were converted into 613,444 shares of common stock during 1996. In October 1996, the Company entered into an agreement with a consortium of sixteen banks for a $400 million revolving credit facility, replacing the prior $135 million facility. Interest rates and commitment fees for this new facility are based on the Company's level of performance under certain debt covenants. No amounts were outstanding at December 31, 1996 under the credit facility. At December 31, 1996, the Company had invested $200,230,000 in U.S. Treasury-backed repurchase agreements. These securities are usually held overnight, but in no case are they held longer than 30 days, under agreements to resell the securities to the counterparty. The Company has a collateralized interest in the underlying securities which are segregated in the accounts of the counterparty bank. Omnicare's current ratio increased to 6.3 to 1.0 at December 31, 1996 from 2.9 to 1.0 at December 31, 1995, and working capital at December 31, 1996 increased to $329,002,000 from year end 1995 working capital of $106,384,000. This increase is primarily attributable to the cash proceeds received relating to the Company's March 1996 stock offering of 5,750,000 shares (pre-1996 stock split) of common stock, resulting in net proceeds of $279.2 million. Book value per common share increased to $8.24 per share as of December 31, 1996 from $4.08 per share at the prior year end, primarily attributable to the current year stock offering and net income, partially offset by dividends paid. On February 5, 1997, Omnicare's Board of Directors elected to increase the quarterly cash dividend by 17% to 1.75 cents per share for an indicated annual rate of 7 cents per share for 1997. The Company believes that its sources of liquidity and capital are adequate for its operating needs. There are no material commitments and contingencies outstanding, other than additional acquisition-related payments to be made (see Note 2 of the Consolidated Financial Statements). If needed, other external sources of financing are readily available to the Company. Outlook - ------- As in the past several years, federal policy makers continue to propose various plans to contain or reduce health care costs. While it is not possible to predict the future of any such proposals, market forces nevertheless continue to challenge health care providers to lower costs while maintaining or improving quality. In this environment, the need to lower health care costs will drive ongoing industry consolidation, which should continue to provide momentum for the Company's acquisition program. Moreover, the development of the Company's institutional pharmacy network in key geographic regions provides opportunities for economies of scale to lower overall costs. In addition, Omnicare's proprietary geriatric formulary not only lowers costs for payors and patients, but also enhances the quality of care for the elderly. Demographic trends also indicate that demand for long-term care will increase well into the middle of the next century as the elderly population grows significantly. Pharmaceutical therapy is generally considered the 24 25 most cost-effective form of treatment for chronic ailments afflicting the elderly and, as such, is an essential part of long-term care. Omnicare believes it is well positioned to meet the challenges of today's health environment through a number of initiatives, including drug formulary management, cost-effective drug purchasing and efficient delivery systems. Additionally, Omnicare's pharmacy consulting services for nursing facilities identify, resolve and prevent drug therapy-related problems, reducing costs to the health care system while also promoting optimal patient outcomes. Omnicare also recently agreed to acquire a contract research organization, which should provide additional opportunities to leverage the Company's geriatric pharmaceutical expertise. Management believes Omnicare is strategically positioned for continued sales and earnings growth in 1997. Safe Harbor Statement under the Private Securities Litigation Reform Act - ------------------------------------------------------------------------ of 1995 Regarding Forward-Looking Information - --------------------------------------------- In addition to historical information, this report contains forward-looking statements and performance trends which are subject to certain risks and uncertainties that could cause actual results to differ materially from these statements and trends. Such factors include, but are not limited to: the continued availability of suitable acquisition candidates; changing economic and market conditions that could impact the suitability of such candidates; Omnicare's ability to integrate acquisitions; the effect of changes in government regulation and reimbursement policies and in the interpretation and application of such policies; and the failure of the Company to obtain or maintain required regulatory approvals or licenses. See the "Competition," "Government Regulation" and "Legal Proceedings" sections at Item 1 of this report. 25 26 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements and Financial Statement Schedule Page ---- Financial Statements: Report of Independent Accountants 27 Consolidated Statement of Income 28 Consolidated Balance Sheet 29 Consolidated Statement of Cash Flows 30 Consolidated Statement of Stockholders' Equity 31 Notes to Consolidated Financial Statements 32 Financial Statement Schedule: II - Valuation and Qualifying Accounts S-1 All other financial statement schedules are omitted because they are not applicable or because the required information is shown in the Consolidated Financial Statements or notes thereto. 26 27 Report of Independent Accountants --------------------------------- To the Stockholders and Board of Directors of Omnicare, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Omnicare, Inc. and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP - ------------------------ Price Waterhouse LLP Cincinnati, Ohio January 29, 1997 27 28 CONSOLIDATED STATEMENT OF INCOME OMNICARE, INC. AND SUBSIDIARY COMPANIES
(In thousands, except per share data) For the years ended December 31, 1996 1995 1994 ------------------------------------------------ Sales $536,604 $399,636 $307,655 Cost of sales 381,768 287,715 227,533 -------- -------- -------- Gross profit 154,836 111,921 80,122 Selling, general and administrative expenses 89,636 66,970 50,111 Acquisition expenses, pooling- of-interests 690 1,292 2,380 -------- -------- -------- Operating income 64,510 43,659 27,631 Investment income 11,285 3,475 1,580 Interest expense (3,652) (5,954) (6,533) --------- -------- -------- Income before income taxes 72,143 41,180 22,678 Income taxes 28,693 16,420 9,147 -------- -------- -------- Net income $ 43,450 $ 24,760 $ 13,531 ======== ======== ======== Earnings per share: Primary $ .64 $ .47 $ .30 ======== ======== ======== Fully diluted $ .61 $ .43 $ .30 ======== ======== ======== Weighted average number of common shares outstanding: Primary 67,388 52,396 44,958 ======== ======== ======== Fully diluted 75,429 65,284 56,858 ======== ======== ======== The Notes to Consolidated Financial Statements are an integral part of this statement.
28 29 CONSOLIDATED BALANCE SHEET OMNICARE, INC. AND SUBSIDIARY COMPANIES
(In thousands, except share data) December 31, 1996 1995 ------------------------------------ ASSETS Current assets: Cash and cash equivalents $216,515 $ 40,137 Accounts receivable, less allowances of $5,631 (1995-$4,761) 118,913 80,247 Inventories 43,585 28,841 Deferred income tax benefits 6,036 6,600 Other current assets 5,686 5,247 -------- -------- Total current assets 390,735 161,072 Properties and equipment, at cost less accumulated depreciation of $28,415 (1995-$19,036) 56,055 32,458 Goodwill, less accumulated amortization of $15,550 (1995-$10,448) 259,507 157,843 Other assets 15,400 9,463 -------- -------- Total assets $721,697 $360,836 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 21,432 $ 22,020 Amounts payable pursuant to acquisition agreements 11,651 13,642 Current portion of long-term debt 1,199 1,051 Accrued employee compensation 10,645 5,338 Liabilities relating to discontinued operations 806 1,547 Other current liabilities 16,000 11,090 -------- ------- Total current liabilities 61,733 54,688 Long-term debt 1,992 82,692 Deferred income taxes 4,197 2,621 Amounts payable pursuant to acquisition agreements 9,088 1,418 Other noncurrent liabilities 10,309 4,656 -------- ------- Total liabilities 87,319 146,075 -------- ------- Stockholders' equity: Preferred stock-authorized 1,000,000 shares without par value; none issued Common stock-authorized 110,000,000 shares $1 par; 77,025,661 shares issued (1995-26,344,588 pre-1996 stock split shares) 77,026 26,345 Paid-in capital 433,117 99,686 Retained earnings 135,398 93,598 ---------- ---------- 645,541 219,629 Treasury stock, at cost-0 shares (1995-24,268 pre-1996 stock split shares) - (482) Deferred compensation (9,503) (2,126) Unallocated stock of ESOP (1,660) (2,260) ------- ------- Total stockholders' equity 634,378 214,761 ------- ------- Contingencies (Note 12) Total liabilities and stockholders' equity $721,697 $360,836 ======== ======== The Notes to Consolidated Financial Statements are an integral part of this statement.
29 30 CONSOLIDATED STATEMENT OF CASH FLOWS OMNICARE, INC. AND SUBSIDIARY COMPANIES
(In thousands) For the years ended December 31, 1996 1995 1994 ------------------------------------------------ Cash flows from operating activities: Net income $ 43,450 $ 24,760 $ 13,531 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 15,407 11,117 8,264 Provision for doubtful accounts 3,614 3,086 2,298 Deferred tax provision 3,083 1,750 917 Changes in assets and liabilities, net of effects from acquisition/disposal of businesses: Accounts receivable (31,555) (19,286) (14,192) Inventories (8,356) (4,930) (3,652) Current and noncurrent assets (8,625) (1,402) (443) Payables and accrued liabilities 882 4,335 2,785 Current and noncurrent liabilities 4,783 444 3,129 -------- ------- ------- Net cash flows from operating activities 22,683 19,874 12,637 -------- ------- ------- Cash flows from investing activities: Acquisition of businesses (96,895) (35,373) (40,084) Capital expenditures (26,716) (13,603) (9,659) Marketable securities - 45,245 (45,245) Proceeds from sales of properties and equipment 199 261 606 Cash flows from discontinued operations (741) (852) (1,370) ---------- --------- --------- Net cash flows from investing activities (124,153) (4,322) (95,752) ---------- --------- --------- Cash flows from financing activities: Net borrowings on line-of-credit - (3,670) (215) Proceeds from long-term borrowings - 5,343 141 Principal payments on long-term obligations (470) (9,130) (3,426) Net proceeds from stock offering 279,159 - 59,211 Proceeds from exercise of stock options and warrants, net of stock tendered in payment 3,059 70 1,291 Dividends paid (3,900) (2,581) (2,756) ---------- --------- --------- Net cash flows from financing activities 277,848 (9,968) 54,246 ---------- --------- -------- Net increase (decrease) in cash and cash equivalents 176,378 5,584 (28,869) Cash and cash equivalents at beginning of period 40,137 34,553 63,422 --------- -------- -------- Cash and cash equivalents at end of period $ 216,515 $ 40,137 $ 34,553 ========= ======== ======== The Notes to Consolidated Financial Statements are an integral part of this statement.
30 31 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Omnicare, Inc. And Subsidiary Companies
(In thousands, except per share data) Common Paid-in Retained Treasury Stock Capital Earnings Stock ---------- ----------- ----------- ------------ BALANCE AT DECEMBER 31, 1993 $13,098 $64,556 $59,382 $(31,126) Pooling-of-interests (Note 2) 371 (341) 1,120 - Net income - - 13,531 - Dividends paid ($.045 per share) - - (1,759) - Dividend to former owners of Evergreen - - (397) - Dividends to former owners of Lo-Med - - (402) - Stock issued in public offering 1,624 57,587 - - Stock and warrants issued in connection with acquisitions 75 3,616 - - Exercise of warrants - 529 - 658 Exercise of stock options 117 2,432 - (2,592) Stock awards, net of amortization 51 1,592 - - Decrease in unallocated stock of ESOP - - - - ---------- ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1994 15,336 129,971 71,475 (33,060) Net income - - 24,760 - Dividends paid ($.05 per share) - - (2,581) - Two-for-one stock split 10,429 (45,524) - 35,095 Conversion of subordinated debt 4 49 - - Stock and warrants issued in connection with acquisitions 254 10,632 - - Exercise of warrants - 298 - (298) Exercise of stock options 82 1,760 - (1,902) Stock awards, net of amortization 52 2,636 - (317) Decrease in unallocated stock of ESOP - - - - Other 188 (136) (56) - ---------- ----------- ----------- ------------ BALANCE AT DECEMBER 31, 1995 26,345 99,686 93,598 (482) Pooling-of-interests (Note 2) 193 (1,673) 2,250 - Net income - - 43,450 - Dividends paid ($.06 per share) - - (3,900) - Stock issued in public offering 5,750 273,409 - - Two-for-one stock split 32,689 (33,147) - 458 Conversion of subordinated debt 10,815 67,423 - - Stock and warrants issued in connection with acquisitions 540 16,156 - - Exercise of warrants 405 2,313 - 44 Exercise of stock options 97 (290) - 562 Stock awards, net of amortization 192 9,352 - (582) Decrease in unallocated stock of ESOP - - - - Other - (112) - - ---------- ----------- ----------- ------------ BALANCE AT DECEMBER 31, 1996 $77,026 $433,117 $135,398 $ - ======= ======== ======== ========= Unallocated Total Deferred Stock of Stockholders' Compensation ESOP Equity -------------- ------------- ---------------- BALANCE AT DECEMBER 31, 1993 $ - $ (3,160) $ 102,750 Pooling-of-interests (Note 2) - - 1,150 Net income - - 13,531 Dividends paid ($.045 per share) - - (1,759) Dividend to former owners of Evergreen - - (397) Dividends to former owners of Lo-Med - - (402) Stock issued in public offering - - 59,211 Stock and warrants issued in connection with acquisitions - - 3,691 Exercise of warrants - - 1,187 Exercise of stock options - - (43) Stock awards, net of amortization (858) - 785 Decrease in unallocated stock of ESOP - 400 400 ----------- -------- ----------- BALANCE AT DECEMBER 31, 1994 (858) (2,760) 180,104 Net income - - 24,760 Dividends paid ($.05 per share) - - (2,581) Two-for-one stock split - - - Conversion of subordinated debt - - 53 Stock and warrants issued in connection with acquisitions - - 10,886 Exercise of warrants - - - Exercise of stock options - - (60) Stock awards, net of amortization (1,268) - 1,103 Decrease in unallocated stock of ESOP - 500 500 Other - - (4) ----------- -------- ----------- BALANCE AT DECEMBER 31, 1995 (2,126) (2,260) 214,761 Pooling-of-interests (Note 2) - - 770 Net income - - 43,450 Dividends paid ($.06 per share) - - (3,900) Stock issued in public offering - - 279,159 Two-for-one stock split - - - Conversion of subordinated debt - - 78,238 Stock and warrants issued in connection with acquisitions - - 16,696 Exercise of warrants - - 2,762 Exercise of stock options - - 369 Stock awards, net of amortization (7,377) - 1,585 Decrease in unallocated stock of ESOP - 600 600 Other - - (112) ----------- -------- ----------- Balance at December 31, 1996 $ (9,503) $ (1,660) $ 634,378 =========== ======== =========== The Notes to Consolidated Financial Statements are an integral part of this statement.
31 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION Omnicare, Inc. ("Omnicare" or the "Company") primarily operates in one business segment which includes the distribution of pharmaceuticals, related pharmacy management services and medical supplies to long-term care institutions and their residents in the United States. The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. CASH EQUIVALENTS Cash equivalents include all investments in highly liquid instruments with original maturities of three months or less. INVENTORIES Inventories consist primarily of purchased pharmaceuticals and medical supplies held for sale to customers and are stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method. PROPERTIES AND EQUIPMENT Properties and equipment are stated at cost. Expenditures for maintenance, repairs, renewals and betterments that do not materially prolong the useful lives of the assets are charged to expense as incurred. Depreciation of properties and equipment is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease terms, including renewal options, or their useful lives. GOODWILL, INTANGIBLES AND OTHER ASSETS Intangible assets, comprised primarily of goodwill, arising from business combinations accounted for as purchase transactions are amortized using the straight-line method over their estimated useful lives, not in excess of forty years. On an annual basis, the Company reviews the recoverability of goodwill. The measurement of possible impairment is based primarily on the ability to recover the balance of the goodwill from expected future operating cash flows on an undiscounted basis. In management's opinion, no such impairment exists as of December 31, 1996 or 1995. Debt issuance costs as of December 31, 1995 are included in other assets and are amortized using the straight-line method over the life of the related debt. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of all financial instruments of the Company approximates the amounts presented on the consolidated balance sheet. 32 33 REVENUE RECOGNITION Revenue is recognized when products or services are provided to the customer. A significant portion of the Company's revenues from sales of pharmaceutical and medical products are reimbursable from Medicaid and Medicare programs. The Company monitors its receivables from these reimbursement sources under policies established by management and reports such revenues at the net realizable amount expected to be received from these third-party payors. INCOME TAXES The Company accounts for income taxes using the asset and liability method under which deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates to differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. PER SHARE DATA Primary earnings per share are computed based on the weighted average number of shares of common stock outstanding during the period and common stock equivalents, if material. Fully diluted earnings per share include common stock equivalents and for the years ended December 31, 1996, 1995 and 1994, assumed the conversion of the 5.75% Convertible Subordinated Notes due 2003 into common stock. Additionally, for the years ended December 31, 1996, 1995 and 1994, interest expense and amortization of debt issuance costs arising from these convertible securities were added, net of related income taxes, to income for the purpose of calculating fully diluted earnings per share. The Convertible Subordinated Notes were converted on October 3, 1996; accordingly, they had no impact on the fully diluted earnings per share calculation subsequent to that date. The Board of Directors declared a two-for-one split of the Company's $1 par value common stock effective June 27, 1996. As a result of the split, 32,697,700 additional shares were issued including 8,677 from treasury stock. Paid-in capital and treasury stock were reduced by $33,147,000 and $458,000, respectively. All references in the consolidated financial statements to the number of common shares and per share amounts have been adjusted to reflect the stock split, unless otherwise indicated. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 33 34 ACCOUNTING CHANGE Effective January 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." This statement establishes financial accounting and reporting standards for stock-based employee compensation plans. As permitted by SFAS No. 123, the Company continued to follow the measurement principles prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and has disclosed the pro forma impact of using the fair value measurement principles of SFAS No. 123 in the notes to the consolidated financial statements. RECLASSIFICATIONS Certain reclassifications of prior year amounts have been made to conform with the current year presentation. 34 35 NOTE 2 - ACQUISITIONS Since 1989, the Company has been involved in a program to acquire providers of pharmaceutical and related pharmacy management services and medical supplies to long-term care facilities and their residents. The Company's strategy includes acquisitions of freestanding institutional pharmacy businesses as well as pharmacy contracts and other assets, generally insignificant in size, which are combined with existing pharmacy operations to augment their internal growth. From time to time, the Company may acquire other businesses such as long-term care software companies, pharmacy consulting companies and medical supply companies. To date, none of these non-pharmacy acquisitions have been significant. During the year ended December 31, 1996, the Company completed 18 acquisitions (excluding insignificant acquisitions), including 17 institutional pharmacy businesses and a long-term care software company. Seventeen of the acquisitions were accounted for as purchases and one as a pooling-of-interests. During the year ended December 31, 1995, the Company completed 10 acquisitions (excluding insignificant acquisitions), including nine institutional pharmacy businesses and a long-term care software company. Nine of the acquisitions were accounted for as purchases and one as a pooling-of-interests. During the year ended December 31, 1994, the Company completed seven acquisitions (excluding insignificant acquisitions) of institutional pharmacy businesses. Five of the acquisitions were accounted for as purchases and two as poolings-of-interests. Purchases - --------- For all acquisitions accounted for as purchases, including insignificant acquisitions, the purchase price paid for each has been allocated to the fair value of the assets acquired and liabilities assumed. Purchase price allocations are subject to final determination within one year after the acquisition date. The following table summarizes the aggregate purchase price for all businesses acquired which have been accounted for as purchases (in thousands):
Businesses acquired in ------------------------------------------- 1996 1995 1994 ---- ---- ---- Cash $ 72,953 $21,309 $17,954 Amounts payable in the future 19,026 4,797 3,107 Common stock 13,814 10,856 2,819 Warrants 696 30 872 Assumption of indebtedness 4,831 197 2,027 ------ ------- ------- $111,320 $37,189 $26,779 ======== ======= =======
Cash in the above table represents payments made in the year of acquisition. This amount differs from cash paid for the acquisition of the businesses in the Consolidated Statement of Cash Flows due primarily to purchase price payments made during the year pursuant to acquisition agreements entered into in prior years. 35 36 Warrants outstanding as of December 31, 1996 represent the right to purchase 905,000 shares of common stock and were issued in connection with certain acquisitions. These warrants can be exercised at any time through 2002 at prices ranging from $7.70 to $29.18 per share. Warrants to purchase 407,000 shares of common stock, issued in prior years, were exercised in 1996. Amounts contingently payable totaled $19,995,000 as of December 31, 1996 and, if paid, will be recorded as additional purchase price, serving to increase goodwill in the period in which the contingencies are resolved. Amounts payable in the future are subject to set-off for claims of indemnity. The results of operations of the companies acquired in purchase transactions have been included in the consolidated results of operations of the Company from the dates of acquisition. Unaudited pro forma combined results of operations of the Company for the years ended December 31, 1996 and 1995, are presented below. Such pro forma presentation has been prepared assuming that the acquisitions had been made as of January 1, 1995 (in thousands, except per share data).
For the years ended December 31, 1996 1995 ----------------------------- Pro Forma --------- Sales $ 589,825 $ 494,185 Net income 45,228 25,702 Earnings per share: Primary $ .67 $ .48 Fully diluted $ .63 $ .44
The pro forma information does not purport to be indicative of operating results which would have occurred had the acquisitions been made at the beginning of the respective periods or of results which may occur in the future. Pooling-Of-Interests - -------------------- The impact of the 1996 pooling-of-interests transaction and one of the 1994 pooling-of-interests transactions on the Company's historical consolidated financial statements were not material; consequently, prior period and current year financial statements have not been restated for these transactions. 36 37 On June 30, 1995, the Company issued 806,370 shares of its common stock for all of the outstanding common stock of Specialized Pharmacy Services, Inc. ("Specialized"). On September 30, 1994, the Company issued 4,445,288 shares of its common stock for all the outstanding common stock of Evergreen Pharmaceutical, Inc. and Evergreen Pharmaceutical East, Inc. (collectively, "Evergreen"). These acquisitions were accounted for as poolings-of-interests and, accordingly, the Company's consolidated financial statements have been restated for all periods prior to the acquisitions to include the results of operations, financial position and cash flows of Specialized and Evergreen. Net sales and net income for Omnicare and Specialized prior to the Specialized transaction and Omnicare and Evergreen prior to the Evergreen transaction are as follows (in thousands): Omnicare Specialized Evergreen -------- ----------- --------- Six months ended June 30, 1995: Sales $171,211 $ 16,441 (a) Net income 9,861 286 (a) Year ended December 31, 1994: Sales 275,663 31,992 (a) Net income 13,406 125 (a) Nine months ended September 30, 1994: Sales 172,876 23,748 $25,324 Net income 7,091 66 1,877 (a) The results of operations of Evergreen are included in the consolidated results of Omnicare for these periods.
In accordance with accounting rules for pooling-of-interests transactions, charges to operating income for acquisition-related expenses were recorded upon completion of the pooling acquisitions. These acquisition-related expenses totaled $690,000 ($534,000 aftertax) for the 1996 transaction, $1,292,000 ($989,000 aftertax) for the Specialized transaction and $2,380,000 ($1,860,000 aftertax) for the Evergreen transaction. NOTE 3 - CASH AND CASH EQUIVALENTS A summary of cash and cash equivalents follows (in thousands):
December 31, 1996 1995 --------------- Cash and cash equivalents: Cash $ 16,108 $ 7,418 Money market funds 177 197 U.S. Treasury-backed repurchase agreements 200,230 32,522 -------- ------- $216,515 $40,137 ======== =======
Repurchase agreements represent investments in U.S. Treasury bills under agreements to resell, usually overnight, but in no case longer than 30 days. The Company has a collateralized interest in the underlying securities, which are segregated in the accounts of the bank counterparty. 37 38 NOTE 4 - PROPERTIES AND EQUIPMENT
A summary of properties and equipment follows (in thousands): December 31, 1996 1995 ----------------- Land $ 1,355 $ 247 Buildings 2,459 1,496 Machinery and equipment 44,930 27,487 Furniture, fixtures and leasehold improvements 35,726 22,264 ------- -------- 84,470 51,494 Accumulated depreciation (28,415) (19,036) ------- -------- $56,055 $ 32,458 ======= ========
NOTE 5 - LEASING ARRANGEMENTS The Company has operating leases which cover various real and personal property. In most cases, the Company expects that these leases will be renewed or replaced by other leases in the normal course of business. There are no significant contingent rentals in the Company's operating leases. The following is a schedule of future minimum rental payments required under operating leases that have initial or remaining noncancellable terms in excess of one year as of December 31, 1996 (in thousands): 1997 $ 3,943 1998 3,446 1999 2,990 2000 2,263 2001 1,729 Later years 3,722 ------- Total minimum payments required $ 18,093 ======== Total rent expense under operating leases for the years ended December 31, 1996, 1995 and 1994 were $5,889,000, $4,567,000 and $3,470,000, respectively. 38 39 NOTE 6 - LONG-TERM DEBT A summary of long-term debt follows (in thousands):
December 31, 1996 1995 ---- ---- Convertible Subordinated Notes due 2003 $ - $80,445 Employee Stock Ownership Plan ("ESOP") Loan Guarantee 1,660 2,260 Capitalized lease obligations 1,531 1,038 ------- ------- 3,191 83,743 Less current portion (1,199) (1,051) ------- ------- $ 1,992 $82,692 ======= =======
The following is a schedule by year of required long-term debt payments as of December 31, 1996 (in thousands): 1997 $ 1,199 1998 1,443 1999 387 2000 162 2001 - Later years - ------- $ 3,191 ======= Total interest payments made for the years ended December 31, 1996, 1995 and 1994 were $4,968,000, $5,421,000 and $6,145,000, respectively. Convertible Subordinated Notes - ------------------------------ On October 1, 1993, the Company issued $80,500,000 principal amount of 5.75% Convertible Subordinated Notes ("Notes") due 2003. The Notes were convertible into common stock at any time at the option of the holder at a price of $7.22 per share. The remaining Notes were converted in October 1996 into 10,201,700 shares of common stock. Prior to the October conversion, Notes were converted into 613,444 shares of common stock during 1996. In connection with the Notes conversions, the Company recorded the $1.9 million in unamortized deferred debt issuance costs against the paid-in capital balance for the common stock issued. The Company amortized $220,000 of deferred debt issuance costs in 1996 (prior to the final Notes conversion) and $310,000 in 1995. ESOP Loan Guarantee - ------------------- In 1988, the Company established an Employee Stock Ownership Plan ("ESOP") which currently covers certain acquired entities' employees and corporate headquarters employees. The ESOP used proceeds from a $4 million bank loan to purchase 1,973,748 shares of the Company's common stock on the open market at prices ranging from $1.94 to $2.13 per share. Inasmuch as the Company has guaranteed the repayment of this obligation, it has recorded the ESOP's bank debt as long-term debt and also as a reduction of stockholders' equity in the accompanying consolidated balance sheet. 39 40 The ESOP services its debt with Company contributions which were previously made to the Company's Employee Savings and Investment Plan, and dividends received on shares held by the ESOP. Principal and interest payments on the bank debt are made in increasing quarterly installments over a ten-year period, the final payment being due on December 31, 1998. The loan bears interest at the per annum rate of 7% and is secured by the unallocated shares of common stock held by the ESOP trust. These unallocated shares had a fair market value equal to $18,515,000 and $18,230,000 as of December 31, 1996 and 1995, respectively. The Company funds ESOP expense as accrued. The components of total ESOP expense are as follows (in thousands):
For the years ended December 31, 1996 1995 1994 -------------------------- Interest expense $ 145 $ 182 $ 214 Principal payments 600 500 400 Dividends on ESOP stock ( 90) (76) (70) ---- ----- ----- $ 655 $ 606 $ 544 ===== ===== =====
Revolving Credit Facility - ------------------------- In October 1996, the Company negotiated a five-year, $400 million line of credit agreement with a consortium of sixteen banks, which replaced the existing $135 million revolving credit facility. Borrowings under this agreement bear interest based upon LIBOR plus a spread of 25 to 60 basis points, dependent upon the Company's Fixed Charge Coverage Ratio, or other rates negotiated with the banks. Additionally, a commitment fee on the unused portion of the facility ranges from 9 to 20 basis points, and is also based on the Company's Fixed Charge Coverage Ratio. The agreement also contains debt covenants which include the Fixed Charge Coverage Ratio and minimum consolidated net worth. The Company is in compliance with all of the covenants in the agreement. No amounts were outstanding under this agreement as of December 31, 1996. NOTE 7 - PUBLIC OFFERING OF COMMON STOCK In March 1996, the Company completed a public offering of 5,750,000 shares (pre-1996 stock split) of common stock resulting in gross proceeds of $298,281,000 (before underwriting discounts and expenses). NOTE 8 - STOCK INCENTIVE PLANS The Company has stock incentive plans under which it may grant stock options or stock awards to key employees at a price equal to the fair market value at the date of grant. Under these plans, stock options become exercisable beginning one year following the date of grant in four equal annual installments. As of December 31, 1996, 290,084 shares were available for granting. 40 41 Summary information for stock options relating to these plans is presented below (in thousands, except per share data):
1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE - ---------------------------------------------------------------------------------------------------------------------- Options outstanding, beginning of year 2,242 $ 7.89 1,526 $ 4.04 1,996 $ 3.89 Options granted 508 26.36 1,058 12.19 - - Options exercised (273) 7.03 (326) 3.65 (470) 3.41 Options forfeited (3) 26.22 (16) 12.13 - - - --------------------------------------------------------------------------------------------------------------------- Options outstanding, end of year 2,474 $11.76 2,242 $7.89 1,526 $4.04 - --------------------------------------------------------------------------------------------------------------------- Options exercisable, end of year 1,083 748 726 - ----------------------------------------------------------------------------------------------------------------------
The following summarizes information about stock options outstanding as of December 31, 1996 (in thousands, except per share data):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ---------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE REMAINING NUMBER CONTRACTUAL WEIGHTED NUMBER WEIGHTED RANGE OF EXERCISE OUTSTANDING AT LIFE(IN AVERAGE EXERCISABLE AVERAGE PRICES 12/31/96 YEARS) EXERCISE PRICE AT 12/31/96 EXERCISE PRICE - --------------------------------------------------------------------------------------------------------------- $ 2.78 - $ 4.64 1,018 5.37 $ 4.09 914 $ 4.10 11.39 - 12.13 934 8.17 12.10 165 12.11 18.41 - 25.75 34 9.24 22.29 4 18.41 26.22 - 28.25 488 9.24 26.38 - - - --------------------------------------------------------------------------------------------------------------- $ 2.78 - $28.25 2,474 7.24 $11.76 1,083 $ 5.37 - ---------------------------------------------------------------------------------------------------------------
41 42 During 1995, the Company's Board of Directors and stockholders approved the 1995 Premium-Priced Stock Option Plan, providing options to purchase 2,520,000 shares of Company common stock available for grant at an exercise price of 125% of the stock's fair market value at the date of grant. No options have been granted under this plan. Nonvested stock awards are granted to key employees at the discretion of the Incentive Committee. Nonvested stock awards are restricted as to the transfer of ownership and vest over 5 to 7 years. Unrestricted stock awards are granted annually to members of the Board of Directors. The fair value of a stock award is equal to the fair market value of a share of Company stock at the grant date. Summary information relating to stock award grants is presented below:
For the years ended December 31, 1996 1995 1994 ---- ---- ---- Nonvested shares 378,092 198,944 197,312 Unrestricted shares 6,400 6,400 7,200 Weighted-average grant $ 23.99 $ 11.68 $ 7.56 date fair value
When granted, the cost of nonvested stock awards is deferred and amortized over the vesting period. Unrestricted stock awards are expensed during the year granted. During 1996, 1995 and 1994, the amount of compensation expense related to stock awards charged against income was $937,000, $506,000 and $277,000, respectively. As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company accounts for stock options and stock awards granted under these plans according to APB Opinion 25, "Accounting for Stock Issued to Employees." As a result, no compensation cost has been recognized for the stock options granted under the incentive plans. The fair value of each option at grant date is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995: risk-free interest rate of 6%, volatility of 32%, dividend yield of 0.2% and expected life of 4.2 years. The weighted average fair value at grant date during 1996 and 1995 was $9.13 and $4.22, respectively. No options were granted during 1994. Unaudited pro forma data as though the Company had accounted for stock- based compensation cost in accordance with SFAS No. 123 are as follows (in thousands, except per share data):
For the years ended December 31, 1996 1995 ---- ---- Pro Forma --------- Net income $ 42,269 $ 24,225 Earnings per share: Primary $ .63 $ .46 Fully diluted $ .60 $ .42
The above pro forma information includes only stock options granted in 1996 and 1995. Because it does not include stock options granted prior to 1995, the pro forma effects are not representative of effects on net income or earnings per share for future years. 42 43 NOTE 9- RELATED PARTY TRANSACTIONS The Company contracted with a division of Chemed Corporation ("Chemed"), a 1% stockholder, to assist in the development of a new information system to integrate and standardize all operational and financial reporting functions. The Company also subleases its corporate offices from Chemed and is charged for the occasional use of Chemed's corporate aviation department and other incidental expenses based on Chemed's cost. The Company believes that the method by which such charges are determined is reasonable and that the charges are essentially equal to that which would have been incurred if the Company had operated as an unaffiliated entity. Charges to the Company for these services for the years ended December 31, 1996, 1995 and 1994 were $7,139,000, $4,535,000 and $2,951,000, respectively. Net amounts owed by the Company to Chemed as of December 31, 1996 and 1995 were $946,000 and $667,000, respectively. NOTE 10 - EMPLOYEE BENEFIT PLANS The Company has a non-contributory, defined benefit pension plan covering certain corporate headquarters employees and the employees of several companies sold by the Company in 1992, for which benefits ceased accruing upon the sale (the "Qualified Plan"). Benefits accruing under this plan to corporate headquarters employees were fully vested and frozen as of January 1, 1994. The Company also has an excess benefits plan which provides retirement payments to participants in amounts consistent with what they would have received under the Qualified Plan if payments to them under the Qualified Plan were not limited by the Internal Revenue Code and other restrictions. Retirement benefits are based primarily on an employee's years of service and compensation near retirement. Plan assets are invested primarily in U.S. Treasury obligations. The Company's policy is to fund pension costs in accordance with the funding provisions of the Employee Retirement Income Security Act. Actuarial assumptions used to calculate the Accumulated Benefit Obligation and net expenses include a 7.25% interest rate as of December 31, 1996 and 1995 (8% at December 31, 1994), an expected long-term rate of return on assets of 8% and a 6% rate of increase in compensation levels in years prior to 1994. The Accumulated Benefit Obligation in excess of plan assets as of December 31, 1996 and 1995 was $7,422,000 and $3,188,000, respectively. The net expenses relating to the Company's defined contribution and defined benefit plans (including the ESOP described in Note 6) for the years ended December 31, 1996, 1995 and 1994 were $1,907,000, $1,663,000 and $1,481,000, respectively. 43 44 NOTE 11 - INCOME TAXES The provision for income taxes is comprised of the following (in thousands):
For the years ended December 31, 1996 1995 1994 -------------------------- Current: Federal $21,917 $13,197 $ 7,158 State and local 3,693 1,473 1,072 ------- ------- ------- 25,610 14,670 8,230 ------- ------- ------- Deferred: Federal 2,993 1,272 802 State 90 478 115 ------- ------- ------ 3,083 1,750 917 ------- ------- ------ Income taxes $28,693 $16,420 $9,147 ======= ======= ======
Tax benefits related to the exercise of stock options and stock awards have been credited to paid-in capital in amounts of $2,243,000, $1,357,000 and $947,000 for 1996, 1995 and 1994, respectively. The difference between the Company's reported income tax expense and the federal income tax expense computed at the statutory rate of 35% is explained in the following table (in thousands):
For the years ended December 31, 1996 1995 1994 --------------------------------------------------------------- Federal income tax at the statutory rate $25,250 35.0% $14,413 35.0% $7,937 35.0% State and local income taxes, net of federal income tax benefit 2,459 3.4 1,268 3.1 772 3.4 Amortization of nondeductible intangible asset 448 0.6 408 1.0 372 1.6 Other 536 0.8 331 0.8 66 0.3 ------- ----- ------- ---- ------ ----- Income Taxes $28,693 39.8% $16,420 39.9% $9,147 40.3% ======= ===== ======= ===== ====== =====
Income tax payments made in 1996, 1995 and 1994 amounted to $19,749,000, $14,014,000 and $5,569,000, respectively. A summary of deferred tax assets and liabilities follows (in thousands):
December 31, 1996 1995 ------ ----- Accounts receivable reserves $3,912 $4,469 Accrued liabilities 3,841 4,929 Other 106 104 ------ ------ Gross deferred tax assets $7,859 $9,502 ====== ====== Fixed assets and depreciation methods $ 945 $ 973 Amortization of intangibles 4,046 3,798 Other 1,029 752 ------ ------ Gross deferred tax liabilities $6,020 $5,523 ====== ======
44 45 The Company has evaluated its net deferred tax asset position and has concluded that a valuation allowance is not required as these net assets are more likely than not to be realized. NOTE 12 - CONTINGENCIES In May 1996, the Company became aware of a government investigation of Home Pharmacy Services, Inc. ("Home"), a wholly-owned subsidiary of the Company acquired in 1992, based in Belleville, Illinois and certain individuals at that unit. Home accounted for less than four percent of Omnicare's total sales and earnings in 1996. The Company is cooperating fully with the government's inquiry. Home continues to provide pharmacy services without interruption to nursing home residents in the region. The outcome of this investigation is not currently predictable. 45 46 NOTE 13 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED) The following table presents the Company's quarterly financial information for 1996 and 1995 (in thousands, except per share data):
First Second Third Fourth Full Quarter Quarter Quarter Quarter Year -------------------------------------------------------------------------- 1996 Sales $117,185 $121,833 $140,733 $156,853 $536,604 Cost of sales 83,553 86,738 100,111 111,366 381,768 -------- -------- -------- -------- -------- Gross profit 33,632 35,095 40,622 45,487 154,836 Selling, general and administrative expenses 19,433 20,639 23,213 26,351 89,636 Acquisition expenses, pooling- of-interests - - - 690(b) 690(b) -------- -------- -------- -------- -------- Operating income 14,199 14,456 17,409 18,446(b) 64,510(b) Investment income, net of interest (expense) (760) 2,803 2,512 3,078 7,633 -------- -------- -------- -------- -------- Income before income taxes 13,439 17,259 19,921 21,524(b) 72,143(b) Income taxes 5,310 6,863 8,108 8,412 28,693 -------- -------- -------- -------- -------- Net income $ 8,129 $ 10,396 $ 11,813 $13,112(b) $43,450(b) ======== ======== ======== ======== ======== Earnings per share(a): Primary $ .15 $ .15 $ .17 $ .17(b) $ .64(b) ======== ======== ======== ======== ======== Fully diluted $ .13 $ .14 $ .16 $ .17(b) $ .61(b) ======== ======== ======== ======== ======== 1995 Sales $ 90,527 $97,125 $102,145 $109,839 $399,636 Cost of sales 65,879 70,168 73,198 78,470 287,715 -------- ------- -------- -------- ------- Gross profit 24,648 26,957 28,947 31,369 111,921 Selling, general and administrative expenses 15,413 16,549 16,789 18,219 66,970 Acquisition expenses, pooling- of-interests - 1,292(c) - - 1,292(c) -------- ---------- -------- ------- ------- Operating income 9,235 9,116(c) 12,158 13,150 43,659(c) Interest (expense), net of investment income (535) (591) (638) (715) (2,479) -------- ------- -------- ------- ------- Income before income taxes 8,700 8,525(c) 11,520 12,435 41,180(c) Income taxes 3,449 3,629 4,585 4,757 16,420 -------- ------- -------- -------- -------- Net income $ 5,251 $ 4,896(c) $ 6,935 $ 7,678 $24,760(c) ======== ======= ======== ======== ======= Earnings per share(a): Primary $ .10 $ .09(c) $ .13 $ .14 $ .47(c) ======== ======= ======== ======== ======= Fully diluted $ .09 $ .09(c) $ .12 $ .13 $ .43(c) ======== ======= ======== ======== ======= (a) Earnings per share is calculated independently for each quarter and the sum of the quarters may not necessarily be equal to the full year earnings per share amount. (b) Includes acquisition-related expenses of $690,000 relating to the 1996 pooling-of-interests transaction. Such expenses, on an aftertax basis, were $534,000. Net income, excluding these expenses, was $13,646,000 for the fourth quarter, or $.17 per share (primary and fully diluted) and $43,984,000 for the full year 1996, or $.65 per primary share and $.61 fully diluted. (c) Includes acquisition-related expenses of $1,292,000 relating to the 1995 pooling-of-interests transaction. Such expenses, on an aftertax basis, were $989,000. Net income, excluding these expenses, was $5,885,000 for the second quarter, or $0.11 per share (primary and fully diluted) and $25,749,000 for the full year 1995, or $.49 per primary share and $.44 fully diluted.
46 47 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Except for information regarding the Company's executive officers included in Part I of this Form 10-K, the information required under this Item is set forth in the Company's 1997 Proxy Statement which is incorporated herein by reference. ITEM 11 - EXECUTIVE COMPENSATION Information required under this Item is set forth in the Company's 1997 Proxy Statement which is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this Item is set forth in the Company's 1997 Proxy Statement which is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this Item is set forth in the Company's 1997 Proxy Statement which is incorporated herein by reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a)(1) Financial Statements The 1996 Consolidated Financial Statements of Omnicare are included in Part II, Item 8. (a)(2) Financial Statement Schedule See Index to the Financial Statement Schedule at page 26 of this Report. (a)(3) Exhibits See Index to Exhibits starting at page E-1 of this Report. (b) Reports on Form 8-K During the quarter ended December 31, 1996, the Company did not file any Report on Form 8-K. 47 48 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of l934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OMNICARE, INC. Date August 6, 1997 /s/ David W. Froesel, Jr. -------------- --------------------------- David W. Froesel, Jr. Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 48 49 Schedule II OMNICARE, INC. AND SUBSIDIARY COMPANIES Valuation and Qualifying Accounts (in thousands)
Additions Balance at charged Write-offs Balance beginning of to cost net of at end period and expenses Acquisitions recoveries of period ------ ------------ ------------ ---------- --------- Allowance for uncollectible accounts receivable Year ended December 31, 1996 $4,761 $3,614 $105 $(2,849) $5,631 1995 3,681 3,086 239 (2,245) 4,761 1994 3,187 2,298 722 (2,526) 3,681 Allowance for uncollectible accounts receivable, discontinued operations Year ended December 31, 1996 $ 282 $ - $ - $ (282) $ - 1995 282 - - - 282 1994 288 - - (6) 282
S-1 50 INDEX OF EXHIBITS ----------------- Previous Document or Location Herein -------------------------------- Number Refers to Item 601 Regulation S-K and Type of Filing Previous Exhibit Description of Exhibit and Filing Date Page Number ---------------------- --------------- ----------- (3.1) Restated Certificate of Form 10-K E-5 - E-8 Incorporation of Omnicare, March 31, 1997 Inc. (3.2) By-Laws of Omnicare, Inc., Form 10-K E-4 - E-13 as amended March 26, 1993 (4) Credit Agreement among Form 10-K E-9 - E-61 Omnicare, Inc., March 31, 1997 First National Bank of Chicago, Agent, and certain banks dated as of October 22, 1996 (10.1) Executive Salary Protec- Form 10-K E-3 - E-8 tion Plan, as amended, March 25, 1996 May 22, 1981 (10.2) 1981 Stock Incentive Plan, Form 10-K E-3 - E-14 as amended March 25, 1988 (10.3) 1989 Stock Incentive Plan Proxy Statement A-1 - A-6 for 1989 Annual Meeting of Stock- holders dated April 10, 1989 (10.4) 1992 Long-Term Stock Proxy Statement A-1 - A-9 Incentive Plan for 1992 Annual Meeting of Stock- holders dated April 6, 1992 (10.5) 1995 Premium-Priced Proxy Statement A-1 - A-6 Stock Option Plan for 1995 Annual Meeting of Stock- holders dated April 10, 1995 E-1 51 INDEX OF EXHIBITS ----------------- Previous Document or Location Herein -------------------------------- Number Refers to Item 601 Regulation S-K and Type of Filing Previous Exhibit Description of Exhibit and Filing Date Page Number ---------------------- --------------- ----------- (10.6) Excess Benefits Plan Form 10-K E-22 - E-32 March 25, 1988 (10.7) Form of Indemnification Proxy Statement A-1 - A-4 Agreement with Directors for 1987 Annual and Officers Meeting of Stock- holders dated April 14, 1987 (10.8) Employment Agreements Form 10-K E-83 - E-126 with J. F. Gemunder and March 29, 1989 C. D. Hodges dated August 4, 1988 (10.9) Amendment to Employment Form 10-K E-32 - E-35 Agreements with J. F. March 25, 1994 Gemunder and C. D. Hodges dated May 17, 1993 (10.10) Employment Agreement Form 10-K E-36 - E-52 with T. R. Marsh dated March 25, 1994 August 4, 1988 and Amendment dated May 17, 1993 (10.11) Employment Agreement with Form 10-K E-4 - E-18 P. E. Keefe dated March March 25,1994 4, 1993 (10.12) Employment Agreement with Form 10-K E-19 - E-31 K. W. Chesterman dated March 25, 1994 May 17, 1993 (10.13) Amendment to Employment Form 10-K E-3 - E-7 Agreements with March 25, 1995 J. F. Gemunder, K. W. Chesterman, P. E. Keefe, C. D. Hodges and T. R. Marsh dated May 16, 1994 E-2 52 INDEX OF EXHIBITS ----------------- Previous Document or Location Herein --------------------------------- Number Refers to Item 601 Regulation S-K and Type of Filing Previous Exhibit Description of Exhibit and Filing Date Page Number ---------------------- --------------- ----------- (10.14) Amendment to Employment Form 10-K E-9 - E-12 Agreements with March 25, 1996 J. F. Gemunder, K. W. Chesterman, P. E. Keefe and C. D. Hodges dated May 15, 1995 (10.15) Split Dollar Agreement Form 10-K E-13 - E-24 with E. L. Hutton dated March 25, 1996 June 1, 1995 (Agreement in the same Form exists with J. F. Gemunder) (10.16) Split Dollar Agreement Form 10-K E-25 - E-35 with K. W. Chesterman dated March 25, 1996 June 1, 1995 (Agreements in the same Form exist with the following Executive Officers: C. D. Hodges, P. E. Keefe and T. E. Bien) (10.17) Annual Incentive Plan for Proxy Statement A-1 - A-3 Senior Executive Officers for 1996 Annual Meeting of Shareholders dated May 20, 1996 (10.18) Employment Agreement with Form 10-K E-62 - E-67 T. E. Bien dated March 31, 1997 January 1, 1994 (10.19) Employment Agreement with Form 10-K E-68 - E-73 D. W. Froesel dated March 31, 1997 February 17, 1996 (10.20) Employment Agreement with Form 10-K E-74 - E-83 M. L. Fox dated March 31, 1997 April 4, 1996 (10.21) Consulting Agreement with Form 10-K E-84 - E-91 MLF Co. dated April 4, 1996 March 31, 1997 (10.22) Amendment to Employment Form 10-K E-92 - E-95 Agreement with J. F. Gemunder March 31, 1997 dated May 20, 1996 (Amendments in the same Form exist with the following Executive Officers: K. W. Chesterman, P. E. Keefe, And C. D. Hodges) E-3 53 INDEX OF EXHIBITS ----------------- Previous Document or Location Herein -------------------------------- Number Refers to Item 601 Regulation S-K and Type of Filing Previous Exhibit Description of Exhibit and Filing Date Page Number ---------------------- --------------- ----------- (11) Statement of Computation Form 10-K E-96 of Earnings per Common Share March 31, 1997 (12) Statement of Computation of Ratio Form 10-K E-97 of Earnings to Fixed Charges March 31, 1997 (21) Subsidiaries of Omnicare, Inc. Form 10-K E-98 - E-99 March 31, 1997 (23) Consent of Price Waterhouse LLP Form 10-K E-100 March 31, 1997 (24) Powers of Attorney Form 10-K E-101 - E-113 March 31, 1997 E-4 -----END PRIVACY-ENHANCED MESSAGE-----