FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended March 31, 2001
Commission File Number 1-8269
OMNICARE, INC.
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Incorporated under the laws of the I.R.S. Employer Identification
State of Delaware No. 31-1001351
100 East RiverCenter Boulevard, Covington, Kentucky 41011
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (859) 392-3300
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Indicate by check mark whether the registrant:
1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports) and
2) has been subject to such filing requirement for the past 90 days.
Yes x No
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COMMON STOCK OUTSTANDING
- ------------------------
Number of
Shares Date
------ ----
Common Stock, $1 par value 93,098,937 March 31, 2001
OMNICARE, INC. AND
SUBSIDIARY COMPANIES
INDEX
PAGE
----
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statement of Income -
Three months ended -
March 31, 2001 and 2000 3
Consolidated Balance Sheet -
March 31, 2001 and December 31, 2000 4
Consolidated Statement of Cash Flows -
Three months ended -
March 31, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Consolidated Statement of Income
UNAUDITED
(In thousands, except per share data)
Three Months Ended
March 31,
-----------------------------
2001 2000
-------- --------
Sales $523,645 $493,026
Cost of sales 383,381 360,409
-------- --------
Gross profit 140,264 132,617
Selling, general and administrative expenses 95,916 92,768
Other expense (Note 5) 1,817 -
Restructuring and other related charges (Note 3) - 4,278
-------- --------
Operating income 42,531 35,571
Investment income 474 459
Interest expense (13,909) (13,165)
-------- --------
Income before income taxes 29,096 22,865
Income taxes 11,052 8,472
-------- --------
Net income $ 18,044 $ 14,393
======== ========
Earnings per share:
Basic $ 0.20 $ 0.16
======== ========
Diluted $ 0.19 $ 0.16
======== ========
Weighted average number of common shares outstanding:
Basic 92,422 91,599
======== ========
Diluted 93,170 91,599
======== ========
Comprehensive income $ 18,167 $ 14,081
======== ========
The Notes to Consolidated Financial Statements are
an integral part of this statement.
3
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
(In thousands, except share data)
UNAUDITED
March 31, December 31,
2001 2000
--------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 115,266 $ 111,607
Restricted cash 6,396 2,300
Accounts receivable, less allowances of $42,216 (2000-$40,497) 446,968 440,785
Unbilled receivables 21,589 18,933
Inventories 116,038 129,404
Deferred income tax benefits 28,692 26,338
Other current assets 88,594 88,371
---------- ----------
Total current assets 823,543 817,738
Properties and equipment, at cost less accumulated
depreciation of $138,579 (2000-$132,308) 155,030 158,535
Goodwill, less accumulated amortization of $123,488 (2000-$115,832) 1,159,725 1,168,151
Other noncurrent assets 77,708 65,794
---------- ----------
Total assets $2,216,006 $2,210,218
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 114,254 $ 118,941
Amounts payable pursuant to acquisition agreements 4,597 4,372
Current debt 1,378 1,619
Accrued employee compensation 21,761 30,113
Deferred revenue 22,549 28,333
Income taxes payable 16,721 14,238
Other current liabilities 64,937 59,393
---------- ----------
Total current liabilities 246,197 257,009
Long-term debt 60,852 435,706
5.0% convertible subordinated debentures, due 2007 345,000 345,000
8.125% senior subordinated notes, due 2011 375,000 -
Deferred income taxes 61,403 63,579
Amounts payable pursuant to acquisition agreements 9,001 12,675
Other noncurrent liabilities 29,161 27,826
---------- ----------
Total liabilities 1,126,614 1,141,795
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized,
none issued and outstanding - -
Common stock, $1 par value, 200,000,000 shares authorized,
93,919,000 shares issued (2000-92,730,600 shares issued) 93,919 92,731
Paid-in capital 711,305 692,695
Retained earnings 331,599 315,638
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1,136,823 1,101,064
Treasury stock, at cost-820,000 shares (2000-574,200 shares) (16,214) (10,808)
Deferred compensation (28,422) (18,915)
Accumulated other comprehensive income (2,795) (2,918)
---------- ----------
Total stockholders' equity 1,089,392 1,068,423
---------- ----------
Total liabilities and stockholders' equity $2,216,006 $2,210,218
========== ==========
The Notes to Consolidated Financial Statements are
an integral part of this statement.
4
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Consolidated Statement of Cash Flows
UNAUDITED
(In thousands)
Three Months Ended
March 31,
----------------------------
2001 2000
---------- ---------
Cash flows from operating activities:
Net income $ 18,044 $ 14,393
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation 8,266 8,859
Amortization 9,870 10,853
Provision for doubtful accounts 7,219 7,006
Deferred tax (benefit) provision (3,058) 1,248
Non-cash portion of restructuring charges - 724
Changes in assets and liabilities, net of effects from acquisition of
businesses:
Accounts receivable and unbilled receivables (9,132) (11,380)
Inventories 13,590 (7,835)
Current and noncurrent assets (3,045) (3,932)
Accounts payable (4,474) (8,825)
Accrued employee compensation (6,283) (6,867)
Deferred revenue (5,784) (1,806)
Current and noncurrent liabilities 6,895 25,043
--------- --------
Net cash flows from operating activities 32,108 27,481
--------- --------
Cash flows from investing activities:
Acquisition of businesses (5,154) (16,912)
Capital expenditures (4,606) (8,444)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust (4,096) (4,900)
Other 286 58
--------- --------
Net cash flows from investing activities (13,570) (30,198)
--------- --------
Cash flows from financing activities:
Borrowings on line of credit facilities 70,000 -
Payments on line of credit facilities (445,000) (10,000)
Proceeds from long-term borrowings 375,000 -
Fees paid for financing arrangements (14,314) -
Proceeds from and (payments) for exercise of stock options,
net of stock tendered in payment 1,964 (762)
Dividends paid (2,083) (2,074)
Other (350) (353)
--------- --------
Net cash flows from financing activities (14,783) (13,189)
--------- --------
Effect of exchange rate changes on cash (96) (40)
--------- --------
Net increase (decrease) in cash and cash equivalents 3,659 (15,946)
Cash and cash equivalents at beginning of period 111,607 97,267
--------- --------
Cash and cash equivalents at end of period $ 115,266 $ 81,321
========= ========
The Notes to Consolidated Financial Statements are
an integral part of this statement.
5
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
1. The interim financial data is unaudited; however, in the opinion of the
management of Omnicare, Inc., the interim data includes all adjustments (which
include only normal adjustments, except as described in Notes 3 and 5)
considered necessary for a fair presentation of the consolidated financial
position, results of operations and cash flows of Omnicare, Inc. and its
consolidated subsidiaries ("Omnicare" or the "Company"). These financial
statements should be read in conjunction with the Consolidated Financial
Statements and related notes included in Omnicare's Annual Report on Form 10-K
for the year ended December 31, 2000. Certain reclassifications of prior year
amounts have been made to conform with the current year presentation.
2. Based on the "management approach," as defined by Statement of Financial
Accounting Standards (SFAS) No. 131, Omnicare has two business segments. The
Company's largest segment is Pharmacy Services. Pharmacy Services provides
distribution of pharmaceuticals, related pharmacy consulting, data management
services and medical supplies to long-term care facilities in 43 states in the
United States of America ("USA"). The Company's other reportable segment is
Contract Research Organization ("CRO") Services, which provides comprehensive
product development services to client companies in pharmaceutical,
biotechnology, medical devices and diagnostics industries in 26 countries around
the world, including the USA.
The table below presents information about the reportable segments as
of and for the three months ended March 31, 2001 and 2000 (in thousands):
Three Months Ended March 31,
-------------------------------------------------------------------------
Corporate
Pharmacy CRO and Consolidated
2001: Services Services Consolidating Totals
- ----------------------------------------------------------------------------------------------------------------------------------
Sales $ 495,401 $ 28,244 $ - $ 523,645
Depreciation and amortization 16,624 1,137 375 18,136
Operating income (expense), excluding other (expense) 49,222 2,012 (6,886) 44,348
Other (expense) (1,817) - - (1,817)
Operating income (expense) 47,405 2,012 (6,886) 42,531
Total assets 1,955,775 111,299 148,932 2,216,006
Expenditures for additions to long-lived assets 4,310 77 219 4,606
=================================================================================================================================
2000:
- ----------------------------------------------------------------------------------------------------------------------------------
Sales $ 460,946 $ 32,080 $ - $ 493,026
Depreciation and amortization 18,465 1,005 242 19,712
Operating income (expense), excluding restructuring
and other related charges 43,341 2,732 (6,224) 39,849
Restructuring and other related charges (4,278) - - (4,278)
Operating income (expense) 39,063 2,732 (6,224) 35,571
Total assets 1,935,327 120,178 114,204 2,169,709
Expenditures for additions to long-lived assets 7,378 1,013 53 8,444
=================================================================================================================================
6
3. In 2000, the Company completed its previously disclosed productivity and
consolidation program (the "Program"). As part of the Program, the roster of
pharmacies and other operating locations was reconfigured through the
consolidation, relocation, closure and opening of sites, resulting in a net
reduction of 59 locations. The Program also resulted in the reduction of
the Company's work force by 16%, or approximately 1,800 full and part-time
employees, and annualized pretax savings in excess of $46 million upon
completion.
Details of the year-to-date March 31, 2001 and December 31, 2000
activity relating to the Program follow (in thousands):
Balance at Utilized Balance at
December 31, during March 31,
2000 2001 2001
------------ ----------- ------------
Restructuring charges:
Employee severance $ 3,390 $ (1,734) $ 1,656
Employment agreement buy-outs 676 (453) 223
Lease terminations 2,593 (746) 1,847
Other assets and facility exit costs 2,538 (1,340) 1,198
----------- ----------- -----------
Total restructuring charges $ 9,197 $ (4,273) $ 4,924
=========== =========== ===========
Balance at Utilized Balance at
December 31, 2000 during December 31,
1999 Provision 2000 2000
------------------ ---------------- -------------------- -------------------
Restructuring charges:
Employee severance $ 8,461 $ 3,296 $ (8,367) $ 3,390
Employment agreement buy-outs 3,363 1,048 (3,735) 676
Lease terminations 4,523 1,881 (3,811) 2,593
Other assets and facility exit costs 1,648 10,627 (9,737) 2,538
---------- --------- ------------ ------------
Total restructuring charges $ 17,995 16,852 $ (25,650) $ 9,197
========== ============ ============
Other related charges 10,347
---------
Total restructuring and other
related charges $ 27,199
=========
In connection with the Program, Omnicare expensed a total of $4.3
million pretax ($2.7 million after taxes) in the first quarter of 2000, and
$62.6 million pretax ($39.8 million after taxes) for restructuring and other
related charges over the duration of the entire Program (including 1999
activity). The restructuring charges included severance pay, the buy-out of
employment agreements, the buy-out of lease obligations, the write-off of other
assets (representing approximately $11.0 million of pretax non-cash items over
the life of the Program) and facility exit costs. The other related charges
were primarily comprised of consulting fees and duplicate costs associated with
the Program, as well as the write-off of certain non-core health care
investments. As of March 31, 2001, the Company had paid approximately
$21.4 million of severance and other employee-related costs relating to the
employee reductions. The remaining liabilities at March 31, 2001 represent
amounts not yet paid relating to actions taken in connection with the Program
(primarily severance payments, lease payments and professional fees), and will
be adjusted as these matters are settled.
7
4. On March 20, 2001, the Company completed the offering of $375.0 million of
8.125% senior subordinated notes due 2011 (the "Senior Notes"), issued at par
through a private placement. Concurrent with the issuance of the Senior Notes,
the Company entered into a new three-year syndicated $495.0 million revolving
credit facility (the "Revolving Credit Facility"), including a $25.0 million
letter of credit subfacility, with various lenders. Net proceeds from the Senior
Notes of approximately $365.0 million and borrowings under the new credit
facility of $70.0 million were used to repay outstanding indebtedness under the
Company's existing credit facilities, which totaled $435.0 million at December
31, 2000, and such existing facilities were terminated. Subsequent to the
closing of the Revolving Credit Facility, the Company received commitments from
additional banks that allowed it to increase the size of the Revolving Credit
Facility to $500.0 million. The Revolving Credit Facility bears interest at the
Company's option at a rate equal to either (i) the higher of (a) the
administrative agent's prime rate and (b) the sum of the federal funds rate plus
0.50%, or (ii) LIBOR plus a margin that varies depending on certain ratings on
the Company's senior long-term debt. The current interest rate is LIBOR plus
1.375%. The Company is also charged a commitment fee, currently 0.375%, on the
unused portion of the Revolving Credit Facility that also varies depending on
such ratings. There is no utilization fee associated with the Revolving Credit
Facility. The Company classified the $435.0 million as long-term debt at
December 31, 2000 based on the transactions described above.
5. Included in the 2001 first quarter results is an other expense item totaling
$1.8 million pretax ($1.1 million aftertax, or 1 cent per diluted share). This
one-time charge represents a repayment to the Medicare Part B program of
overpayments made to one of the Company's pharmacy units during the period from
January 1997 through April 1998. As part of its corporate compliance program,
the Company learned of the overpayments, which related to Medicare Part B claims
that contained documentation errors, and notified the Health Care Financing
Administration for review and determination of the amount of overpayment.
8
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion should be read in conjunction with the
consolidated financial statements, related notes and other financial information
appearing elsewhere in this Filing. In addition, see "Safe Harbor Statement
under the Private Securities Litigation Reform Act of 1995 Regarding
Forward-Looking Information."
Results of Operations
Quarter Ended March 31, 2001 vs. 2000
Consolidated
Diluted earnings per share for the three months ended March 31, 2001
were $0.21, excluding the impact of a one-time other expense item (further
discussed below), as compared with $0.19 earned in the prior year quarter,
excluding restructuring and other related charges associated with a productivity
and consolidation initiative completed in 2000. Net income for the 2001 quarter,
on that basis, was $19.2 million versus the $17.1 million earned in the
comparable 2000 quarter. Earnings before interest, taxes, depreciation and
amortization ("EBITDA"), on the same basis, totaled $62.5 million for the
three months ended March 31, 2001 as compared with EBITDA of $59.6 million in
the first quarter of 2000. Sales for the three months ended March 31, 2001
rose to $523.6 million from the $493.0 million recorded in the comparable
prior year period.
Included in the 2001 quarterly results was a one-time charge of $1.8
million pretax ($1.1 million aftertax, or 1 cent per diluted share) representing
a repayment to the Medicare Part B program of overpayments made to one of the
Company's pharmacy units during the period from January 1997 through April 1998.
As part of its corporate compliance program, the Company learned of the
overpayments, which related to Medicare Part B claims that contained
documentation errors, and notified the Health Care Financing Administration for
review and determination of the amount of overpayment. Included in the 2000
quarter was a charge of $4.3 million pretax ($2.7 million aftertax, or 3 cents
per diluted share) related to the Company's previously reported productivity
and consolidation initiative (the "Program"). Including these items in both
quarters, earnings per diluted share were 19 cents in 2001 versus 16 cents in
2000; EBITDA was $60.7 million versus $55.3 million, respectively; and net
income was $18.0 million versus $14.4 million, respectively.
Pharmacy Services Segment
Omnicare's Pharmacy Services segment recorded sales of $495.4 million
for the first quarter of 2001, ahead of the comparable prior year quarter by
$34.5 million. Operating profit in this segment reached $49.2 million (excluding
the previously mentioned one-time charge), also ahead of the prior year quarter
amount of $43.3 million (excluding restructuring and other related charges).
Owing to the efforts of the Company's National Sales & Marketing Group and
pharmacy staff in developing new contracts, solid new account growth (including
additional business under the Company's contract with Marriott Senior Living
Communities), net of the elimination of certain high credit risk or uneconomic
accounts, increased the number of residents served to 645,100 as compared with
634,500 one year earlier. Additionally, higher drug utilization, the expansion
of clinical programs and drug price inflation contributed to increased sales.
Moreover, the increasing market penetration of newer
9
drugs, which often carry higher prices but are significantly more effective in
reducing overall healthcare costs than those they replace, served to increase
pharmacy sales. The increase in sales in relation to a lower operating cost
structure brought about by the completion of the Program in December 2000,
produced increased operating margins in the Pharmacy Services segment as well.
These factors, along with a gradually improving operating environment in the
skilled nursing facility market brought about by the implementation of the
Balanced Budget Refinement Act of 1999, favorably impacted the performance of
the Pharmacy Services segment during the quarter.
CRO Services Segment
Omnicare's Clinical Research ("CRO Services") segment recorded revenues
of $28.2 million during the first quarter of 2001 as compared to $32.1 million
recorded in the same prior year period, representing a decline of $3.9 million.
This decline was primarily related to the continued impact of delays in decision
making by pharmaceutical manufacturers in commencing clinical studies
experienced throughout 2000, relating in part to merger activities, as well as
the cancellation of planned projects prior to commencement. Operating profit in
this segment for the first quarter of 2001 was $2.0 million, a decline of $0.7
million in comparison to the same prior year quarter operating profit of $2.7
million, reflecting staffing and other expenses related to the initiation of
projects that will not produce revenues until subsequent periods. Given an
improving operating environment in the CRO Services segment due, in part, to
reduced merger activity in the pharmaceutical industry, the backlog of new
projects increased to approximately $213 million at March 31, 2001, representing
an increase of $71 million as compared to the backlog of approximately
$142 million at March 31, 2000.
Consolidated
The Company's consolidated gross profit as a percentage of sales of
26.8% in the first quarter of 2001 was relatively consistent with the comparable
prior year quarter rate of 26.9%, and represented a year-to-year increase in
gross profit of $7.6 million to $140.3 million. Positively impacting gross
profit was the Company's purchasing leverage associated with the procurement of
pharmaceuticals and benefits realized from the Company's formulary compliance
program, as well as the leveraging of fixed and variable overhead costs at the
Company's pharmacies, and the reduced cost structure brought about by the
Program. These favorable factors were more than offset by the previously
mentioned less favorable performance of the CRO Services segment, along with
the above-described shift in mix toward newer, branded drugs which typically
produce higher gross profit, but lower gross profit margins.
Omnicare's selling, general and administrative ("operating") expenses
for the quarter ended March 31, 2001 of $95.9 million were higher than the
comparable prior year amount by $3.1 million due to the overall growth of the
business. Operating expenses as a percentage of sales, however, totaled 18.3% in
the 2001 first quarter, representing a decline from the 18.8% experienced in the
comparable prior year period. This decline is primarily due to the favorable
impact of the Program, which was successfully completed in 2000.
The Program was designed to gain maximum benefits from the Company's
acquisition program and to respond to changes in the healthcare industry. The
Program eliminated redundant efforts, simplified work processes and applied
technology to maximize employee productivity and standardize operations around
best practices. As part of the initiative, the roster of pharmacies and other
operating locations
10
was reconfigured through the consolidation, relocation, closure and opening of
sites, resulting in a net reduction of 59 locations. The Program resulted in the
reduction of 16% of the Company's workforce or approximately 1,800 full and
part-time employees, and annualized pretax savings in excess of $46 million upon
completion. In connection with the Program, the Company recorded pretax
restructuring and other related expenses of $4.3 million in the first quarter
of 2000, primarily comprised of employee severance, employment agreement buy-out
costs, lease termination costs, other assets and facility exit costs, and other
related charges.
Investment income and interest expense for the three months ended March
31, 2001 of $0.5 million and $13.9 million, respectively, were relatively
consistent with the comparable prior year quarter.
The increase in the effective tax rate to 38.0% in the first quarter of
2001 from 37.1% in the comparable prior year quarter is primarily attributable
to the full utilization in 2000 of certain benefits derived from the Company's
state tax planning program. While other state tax planning benefits will
continue, they will be realized at a different magnitude than was the case in
2000. The effective tax rates in the 2001 and 2000 first quarters are higher
than the federal statutory rate primarily due to state and local income taxes.
Liquidity and Capital Resources
Cash and cash equivalents (including restricted cash) at March 31, 2001
were $121.7 million compared to $113.9 million at December 31, 2000. The Company
generated positive net cash flows from operating activities of $32.1 million
during the three months ended March 31, 2001, which was used primarily for
acquisition-related payments (including amounts payable pursuant to acquisition
agreements relating to pre-2001 acquisitions), capital expenditures, debt
repayment, debt issuance costs and dividends. Improved management of working
capital contributed to the favorable operating cash flow results through March
31, 2001 as compared to the $27.5 million generated in the 2000 first quarter.
On March 20, 2001, the Company completed the offering of $375.0 million
of 8.125% senior subordinated notes due 2011 (the "Senior Notes"), issued at par
through a private placement. Concurrent with the issuance of the Senior Notes,
the Company entered into a new three-year syndicated $495.0 million revolving
credit facility (the "Revolving Credit Facility"), including a $25.0 million
letter of credit subfacility, with various lenders. Net proceeds from the Senior
Notes of approximately $365.0 million and borrowings under the new credit
facility of $70.0 million were used to repay outstanding indebtedness under the
Company's existing credit facilities, which totaled $435.0 million at December
31, 2000, and such existing facilities were terminated. Subsequent to the
closing of the Revolving Credit Facility, the Company received commitments
from additional banks that allowed it to increase the size of the Revolving
Credit Facility to $500.0 million. The Revolving Credit Facility currently
bears an interest rate of LIBOR plus 1.375%.
The Company's capital requirements are primarily comprised of ongoing
payments originating from its acquisition program and capital expenditures,
including
11
those related to investments in the Company's information technology systems.
There are no material commitments and contingencies outstanding at March 31,
2001, other than certain estimated acquisition-related payments to be made in
the future (e.g., earnout provisions, deferred consideration, indemnification
payments, etc.).
The Company's current ratio of 3.3 to 1.0 at March 31, 2001 was
relatively consistent with the 3.2 to 1.0 in existence at December 31, 2000.
On February 12, 2001, the Company's Board of Directors declared a
quarterly cash dividend of 2.25 cents per share for an indicated annual rate of
9 cents per share in 2001. Dividends of $2.1 million paid during the three
months ended March 31, 2001 were consistent with those paid in the comparable
prior year period.
The Company believes its sources of liquidity and capital are adequate
for its ongoing operating needs. However, the Company may in the future, incur
additional indebtedness or issue additional equity. The Company believes that,
if needed, external sources of financing are readily available.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Regarding Forward-Looking Information
In addition to historical information, this report contains
forward-looking statements and performance trends that are subject to certain
known and unknown risks, uncertainties, contingencies and other factors that
could cause actual results, performance or achievements to differ materially
from those stated. Such forward-looking statements and trends include those
relating to internal growth resulting from the development of new contracts;
the impact of the contract with Marriott Senior Living Communities; drug
utilization rates; the expansion of clinical programs; drug price inflation;
the impact of penetration of new drugs; the impact of the productivity and
consolidation intiative; the operating environment for skilled nursing
facilities; the impact of delayed decision-making and project cancellation
by pharmaceutical manufacturers; the ability of CRO projects to produce
revenues in subsequent periods; the operating environment in the CRO
Services segment; purchasing leverage; the leveraging of costs; the
formulary compliance program; benefits from the Company's state tax planning
program; the adequacy and availability of Omnicare's sources of liquidity and
capital and the availability of external sources of financing. Such risks,
uncertainties, contingencies and other factors, many of which are beyond the
control of Omnicare, include, but are not limited to: overall economic,
financial and business conditions; delays in reimbursement by the government
and other payors to our customers; the overall financial condition of our
customers; the ability to assess and react to the financial condition of
customers; the impact of seasonality on the business of Omnicare; the continued
successful integration of the CRO business and acquired companies; the effect
of new government regulations, executive orders and/or legislative initiatives
including those relating to reimbursement and drug pricing policies and in the
interpretation and application of such policies; the outcome of litigation; the
failure of Omnicare to obtain or maintain required regulatory approvals or
licenses; loss or delay of CRO contracts for regulatory or other reasons; the
ability to attract or retain needed management; the ability to implement
additional opportunities for lowering costs and to realize anticipated benefits;
the impact and pace of technological advances; the ability to obtain or
maintain rights to data, technology and other intellectual property; the
impact of consolidation in the pharmaceutical and long-term care industries; the
continued availability of suitable acquisition candidates; changes in tax law
and regulation; trends for the continued growth of the businesses of Omnicare;
volatility in Omnicare's stock price; access to capital and financing; the
demand for Omnicare's products and services; pricing and other competitive
factors in the industry; and variations in costs or expenses.
12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not have any financial instruments held for trading
purposes and does not hedge any of its market risks with derivative instruments.
Omnicare's primary market risk exposure relates to interest rate risk
exposure through its borrowings. The Company's debt obligations at March 31,
2001 include $60.0 million outstanding under its three-year, $495.0 million
variable-rate revolving line of credit facility ("Revolving Credit Facility") at
an interest rate of LIBOR plus 1.375%, or 6.5% at March 31, 2001 (a
one-hundred basis point change in the interest rate would impact pretax interest
expense by approximately $0.2 million per quarter); $375.0 million outstanding
under its 8.125% senior subordinated notes ("Senior Notes") due 2011; and $345.0
million outstanding under convertible subordinated debentures due in 2007
("Convertible Debentures"), which accrue interest at a fixed rate of 5.0%. The
fair value of Omnicare's Revolving Credit Facility approximates its carrying
value, and the fair value of the Convertible Debentures and the Senior Notes is
$302.3 million and $384.4, million, respectively, at March 31, 2001.
On April 17, 2001 the Company increased the capacity of its $495.0
million variable-rate, revolving line of credit facility to $500.0 million.
13
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit
------- -------
11 Computation of Earnings Per Common Share
(b) Reports on Form 8-K
The Company filed Reports on Form 8-K on March 6, 2001 and
March 23, 2001, both of which related to its private placement
of the Senior Notes and establishment of the new Revolving
Credit Facility, as further disclosed in Note 4 to the
Company's March 31, 2001 consolidated financial statements and
related notes, located at Part 1, Item 1 of this Form 10-Q
Filing.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Omnicare, Inc.
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Registrant
Date May 15, 2001 By: /s/ David W. Froesel, Jr.
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David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer
and Director)
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