FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended June 30, 2001
Commission File Number 1-8269
OMNICARE, INC.
----------------
Incorporated under the laws of the I.R.S. Employer Identification
State of Delaware No. 31-1001351
100 East RiverCenter Boulevard, Covington, Kentucky 41011
---------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (859) 392-3300
Indicate by check mark whether the registrant:
1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and
2) has been subject to such filing requirement for the past
90 days.
Yes x No
--------- ------
COMMON STOCK OUTSTANDING
Number of
Shares Date
------ ----
Common Stock, $1 par value 93,235,238 June 30, 2001
OMNICARE, INC. AND
SUBSIDIARY COMPANIES
INDEX
PAGE
----
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statement of Income -
Three and six months ended -
June 30, 2001 and 2000 3
Consolidated Balance Sheet -
June 30, 2001 and December 31, 2000 4
Consolidated Statement of Cash Flows -
Six months ended -
June 30, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
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 Six Months Ended
June 30, June 30,
---------------------------------- ------------------------------------
2001 2000 2001 2000
-------------- ----------------- ----------------- -----------------
Sales $ 530,065 $ 480,510 $ 1,053,710 $ 973,536
Cost of sales 388,002 353,716 771,383 714,125
--------- --------- ----------- ---------
Gross profit 142,063 126,794 282,327 259,411
Selling, general and administrative expenses 94,090 90,424 190,006 183,192
Other expense (Note 5) 3,000 - 4,817 -
Restructuring and other related charges (Note 3) - 6,150 - 10,428
--------- --------- ----------- ---------
Operating income 44,973 30,220 87,504 65,791
Investment income 748 357 1,222 816
Interest expense (14,415) (13,634) (28,324) (26,799)
--------- --------- ----------- ---------
Income before income taxes 31,306 16,943 60,402 39,808
Income taxes 11,910 6,267 22,962 14,739
--------- --------- ----------- ---------
Net income $ 19,396 $ 10,676 $ 37,440 $ 25,069
========= ========= =========== =========
Earnings per share:
Basic $ 0.21 $ 0.12 $ 0.40 $ 0.27
========= ========= =========== =========
Diluted $ 0.21 $ 0.12 $ 0.40 $ 0.27
========= ========= =========== =========
Weighted average number of common shares outstanding:
Basic 93,198 92,155 92,812 91,877
========= ========= =========== =========
Diluted 94,042 92,155 93,692 91,877
========= ========= =========== =========
Comprehensive income $ 18,758 $ 10,283 $ 36,925 $ 24,364
========= ========= =========== =========
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
June 30, December 31,
2001 2000
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 117,703 $ 111,607
Restricted cash 6,317 2,300
Accounts receivable, less allowance of $43,975 (2000-$40,497) 441,196 440,785
Unbilled receivables 26,627 18,933
Inventories 134,296 129,404
Deferred income tax benefits 21,500 26,338
Other current assets 91,656 88,371
---------- ----------
Total current assets 839,295 817,738
Properties and equipment, at cost less accumulated
depreciation of $146,209 (2000-$132,308) 155,512 158,535
Goodwill, less accumulated amortization of $131,867 (2000-$115,832) 1,146,171 1,168,151
Other noncurrent assets 78,582 65,794
---------- ----------
Total assets $2,219,560 $2,210,218
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 116,802 $ 118,941
Amounts payable pursuant to acquisition agreements 5,723 4,372
Current debt 333 1,619
Accrued employee compensation 21,641 30,113
Deferred revenue 21,099 28,333
Income taxes payable 63 14,238
Other current liabilities 57,752 59,393
---------- ----------
Total current liabilities 223,413 257,009
Long-term debt 50,705 435,706
5.0% convertible subordinated debentures, due 2007 345,000 345,000
8.125% senior subordinated notes, due 2011 375,000 -
Deferred income taxes 79,139 63,579
Amounts payable pursuant to acquisition agreements 6,821 12,675
Other noncurrent liabilities 30,448 27,826
---------- ----------
Total liabilities 1,110,526 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,
94,056,200 shares issued (2000-92,730,600 shares issued) 94,056 92,731
Paid-in capital 713,456 692,695
Retained earnings 348,897 315,638
---------- ----------
1,156,409 1,101,064
Treasury stock, at cost-821,000 shares (2000-574,200 shares) (16,256) (10,808)
Deferred compensation (27,438) (18,915)
Accumulated other comprehensive income (3,681) (2,918)
---------- ----------
Total stockholders' equity 1,109,034 1,068,423
---------- ----------
Total liabilities and stockholders' equity $2,219,560 $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 Flow
UNAUDITED
(In thousands)
Six Months Ended
June 30,
-------------------------------------
2001 2000
----------------- ------------------
Cash flows from operating activities:
Net income $ 37,440 $ 25,069
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation 16,322 17,322
Amortization 20,092 21,518
Provision for doubtful accounts 13,841 12,241
Deferred tax provision 22,101 2,900
Non-cash portion of restructuring charges - 1,701
Changes in assets and liabilities, net of effects from acquisition of
businesses:
Accounts receivable and unbilled receivables (15,131) (19,440)
Inventories (4,668) (14,578)
Current and noncurrent assets (7,080) (1,118)
Accounts payable (1,927) 4,749
Accrued employee compensation (6,294) (12,363)
Deferred revenue (7,234) 2,492
Current and noncurrent liabilities (13,406) 19,212
--------- --------
Net cash flows from operating activities 54,056 59,705
--------- --------
Cash flows from investing activities:
Acquisition of businesses (5,993) (25,662)
Capital expenditures (11,402) (16,224)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust (4,017) (4,733)
Other 293 200
--------- --------
Net cash flows from investing activities (21,119) (46,419)
--------- --------
Cash flows from financing activities:
Borrowings on line of credit facilities 70,000 -
Payments on line of credit facilities (455,000) (10,000)
Proceeds from long-term borrowings 375,000 -
Principal payments on long-term obligations (1,429) (1,528)
Fees paid for financing arrangements (14,418) -
Proceeds from and (payments) for exercise of stock options,
net of stock tendered in payment 3,587 (756)
Dividends paid (4,181) (4,147)
--------- --------
Net cash flows from financing activities (26,441) (16,431)
--------- --------
Effect of exchange rate changes on cash (400) (202)
--------- --------
Net increase (decrease) in cash and cash equivalents 6,096 (3,347)
Cash and cash equivalents at beginning of period 111,607 97,267
--------- --------
Cash and cash equivalents at end of period $ 117,703 $ 93,920
========= ========
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. Interim Financial Data
The interim financial data is unaudited; however, in the opinion of the
management of Omnicare, Inc., the interim data includes all adjustments (which
include only normal adjustments, except as described in Notes 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.
2. Segment Information
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 and six months ended June 30, 2001 and 2000 (in thousands):
Three Months Ended June 30,
------------------------------------------------------------------
Corporate
Pharmacy CRO and Consolidated
2001: Services Services Consolidating Totals
- ----------------------------------------------------------------------------------------------------------------------------
Sales $ 498,178 $ 31,887 $ - $ 530,065
Depreciation and amortization 16,966 920 392 18,278
Operating income (expense), excluding other (expense) 52,305 2,801 (7,133) 47,973
Other (expense) (3,000) - - (3,000)
Operating income (expense) 49,305 2,801 (7,133) 44,973
Total assets 1,961,808 115,296 142,456 2,219,560
Expenditures for additions to long-lived assets 6,205 297 294 6,796
========================================================================================================================
2000:
- ------------------------------------------------------------------------------------------------------------------------
Sales $ 452,924 $ 27,586 $ - $ 480,510
Depreciation and amortization 17,806 1,027 295 19,128
Operating income (expense), excluding restructuring
and other related charges 43,003 1,042 (7,675) 36,370
Restructuring and other related charges (4,324) (1,826) - (6,150)
Operating income (expense) 38,679 (784) (7,675) 30,220
Total assets 1,947,884 119,214 110,699 2,177,797
Expenditures for additions to long-lived assets 6,355 1,090 335 7,780
========================================================================================================================
6
Six Months Ended June 30,
-----------------------------------------------------------
Corporate
Pharmacy CRO and Consolidated
2001: Services Services Consolidating Totals
- ------------------------------------------------------------------------------------------------------------------------
Sales $ 993,579 $ 60,131 $ - $1,053,710
Depreciation and amortization 33,590 2,057 767 36,414
Operating income (expense), excluding other (expense) 101,527 4,813 (14,019) 92,321
Other (expense) (4,817) - - (4,817)
Operating income (expense) 96,710 4,813 (14,019) 87,504
Total assets 1,961,808 115,296 142,456 2,219,560
Expenditures for additions to long-lived assets 10,515 374 513 11,402
========================================================================================================================
2000:
- ------------------------------------------------------------------------------------------------------------------------
Sales $ 913,870 $ 59,666 $ - $ 973,536
Depreciation and amortization 36,271 2,032 537 38,840
Operating income (expense), excluding restructuring
and other related charges 86,344 3,774 (13,899) 76,219
Restructuring and other related charges (8,602) (1,826) - (10,428)
Operating income (expense) 77,742 1,948 (13,899) 65,791
Total assets 1,947,884 119,214 110,699 2,177,797
Expenditures for additions to long-lived assets 13,733 2,103 388 16,224
========================================================================================================================
3. Restructuring and Other Related Charges
In 2000, the Company completed its previously disclosed productivity
and consolidation 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 June 30, 2001 and December 31, 2000
activity relating to the program follow (in thousands):
Balance at Utilized
December 31, during Balance at
2000 2001 June 30, 2001
------------ ------------- ---------------
Restructuring charges:
Employee severance $ 3,390 $ (2,602) $ 788
Employment agreement buy-outs 676 (676) -
Lease terminations 2,593 (1,292) 1,301
Other assets and facility exit costs 2,538 (1,881) 657
------- -------- -------
Total restructuring charges $ 9,197 $ (6,451) $ 2,746
======= ======== =======
7
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 $6.2
million and $10.4 million pretax ($3.9 million and $6.6 million after taxes, or
4 cents and 7 cents per diluted share, respectively) in the three and six months
ended June 2000, respectively. Additionally, $62.6 million pretax ($39.8 million
after taxes) was incurred 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 healthcare investments. As of June 30,
2001, the Company paid approximately $22.5 million of severance and other
employee-related costs relating to the employee reductions. The remaining
liabilities at June 30, 2001 represent amounts not yet paid relating to actions
taken in connection with the program (primarily severance payments and lease
payments), and will be adjusted as these matters are settled.
4. Long-Term Debt
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) LIBOR plus a margin that varies
depending on certain ratings on the Company's senior long-term debt; or ii) the
higher of (a) the administrative agent's prime rate, or (b) the sum of the
federal funds rate plus 0.50%. Additionally, the Company is charged a
commitment fee on the unused portion of the Revolving Credit Facility, which
also varies depending on such ratings. At June 30, 2001, the interest rate was
LIBOR plus 1.375% and the
8
commitment fee was 0.375%. There is no utilization fee associated with the
Revolving Credit Facility.
5. Other Expense
Included in the year-to-date June 2001 results are other expense items
totaling $1.8 million pretax ($1.1 million aftertax, or 1 cent per diluted
share) and $3.0 million pretax ($1.9 million aftertax, or 2 cents per diluted
share). The $1.8 million one-time charge recorded in the first quarter of 2001
represents a repayment to the Medicare Part B program of overpayments made to
one of the Company's pharmacy units during the period from January 1997 through
April 1998. As part of its corporate compliance program, the Company learned of
the overpayments, which related to Medicare Part B claims that contained
documentation errors, and notified the Health Care Financing Administration for
review and determination of the amount of overpayment. The $3.0 million one-time
charge recorded in the second quarter of 2001 represents a settlement during
June 2001 of certain contractual issues with a customer, which issues and amount
relate to prior year periods.
6. Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142").
SFAS 141, which supercedes Accounting Principles Board ("APB") Opinion
No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises", requires that all business combinations
entered into after the effective date of July 1, 2001 be accounted for by the
purchase method, defines criteria for recognition of intangible assets apart
from goodwill, and further defines disclosure requirements for business
combinations. Omnicare does not expect this standard to have a significant
impact on the Company's consolidated financial position, results of operations
and cash flows.
SFAS 142, which replaces APB Opinion No. 17, "Intangible Assets",
defines new accounting treatment for goodwill and other intangible assets. This
standard eliminates the amortization of goodwill and other intangible assets
that have indefinite lives, establishes a requirement that goodwill and
intangible assets with indefinite lives be tested annually for impairment,
provides specific guidance on the process for this testing at the reporting unit
level and requires disclosures of information about goodwill and other
intangible assets in the years subsequent to their acquisition that was not
previously required. SFAS 142 is effective for fiscal years beginning after
December 15, 2001, except that goodwill and intangible assets acquired after
June 30, 2001 will be immediately subject to the new provisions. The Company is
currently evaluating the impact of this new standard on Omnicare's consolidated
financial position, results of operations and cash flows. It is anticipated that
this new standard will serve to significantly increase the Company's net income.
Additionally, an impairment analysis will be conducted upon implementation of
SFAS 142 and required adjustments, if any, to the carrying value of goodwill
will be recognized during 2002 as a change in accounting principle.
9
7. Guarantor Subsidiaries
The Company's Senior Notes are fully and unconditionally guaranteed on
an unsecured, joint and several basis by certain wholly owned subsidiaries of
the Company (the "Guarantor Subsidiaries"). The following condensed
consolidating financial data illustrates the composition of Omnicare, Inc.
("Parent"), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries as of
June 30, 2001 and December 31, 2000 for the balance sheet, the statement of
income for each of the three and six month periods ended June 30, 2001 and 2000,
and the statement of cash flows for the six months ended June 30, 2001 and 2000
(in thousands). Separate complete financial statements of the respective
Guarantor Subsidiaries would not provide additional information which would be
useful in assessing the financial condition of the Guarantor Subsidiaries and
thus are not presented. No eliminations column is presented for the condensed
consolidating statement of cash flows since there were no significant
eliminating amounts during the periods presented.
10
Summary Consolidating Statement of Income
Three Months Ended June 30,
-----------------------------------------------------------------------
Omnicare, Inc.
Guarantor Non-Guarantor and
2001: Parent Subsidiaries Subsidiaries Eliminations Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------
Sales $ - $ 507,428 $ 41,752 $ (19,115) $ 530,065
Cost of sales - 369,676 37,441 (19,115) 388,002
--------- --------- --------- --------- ---------
Gross profit - 137,752 4,311 - 142,063
Selling, general and administrative expenses 4,052 84,174 5,864 - 94,090
Other expense - 3,000 - - 3,000
--------- --------- --------- --------- ---------
Operating income (4,052) 50,578 (1,553) - 44,973
Investment income 617 86 45 - 748
Interest expense (13,616) (587) (212) - (14,415)
--------- --------- --------- --------- ---------
Income before income taxes (17,051) 50,077 (1,720) - 31,306
Income taxes (6,479) 19,017 (628) - 11,910
Equity in net income of subsidiaries 29,968 - - (29,968) -
--------- --------- --------- --------- ---------
Net income $ 19,396 $ 31,060 $ (1,092) $ (29,968) $ 19,396
==================================================================================================================
2000:
- ------------------------------------------------------------------------------------------------------------------
Sales $ - $ 456,864 $ 41,741 $ (18,095) $ 480,510
Cost of sales - 335,802 36,009 (18,095) 353,716
--------- --------- --------- --------- ---------
Gross profit - 121,062 5,732 - 126,794
Selling, general and administrative expenses 3,106 80,202 7,116 - 90,424
Restructuring and other related charges - 5,386 764 - 6,150
--------- --------- --------- --------- ---------
Operating income (3,106) 35,474 (2,148) - 30,220
Investment income 337 (60) 80 - 357
Interest expense (13,290) (315) (29) - (13,634)
--------- --------- --------- --------- ---------
Income before income taxes (16,059) 35,099 (2,097) - 16,943
Income taxes (5,942) 12,524 (315) - 6,267
Equity in net income of subsidiaries 20,793 - - (20,793) -
--------- --------- --------- --------- ---------
Net income $ 10,676 $ 22,575 $ (1,782) $ (20,793) $ 10,676
==================================================================================================================
11
Summary Consolidating Statement of Income
Six Months Ended June 30,
------------------------------------------------------------------------------
Omnicare, Inc.
Guarantor Non-Guarantor and
2001: Parent Subsidiaries Subsidiaries Eliminations Subsidiaries
- -------------------------------------------------------------------------------------------------------------------------------
Sales $ - $ 1,007,964 $ 84,473 $ (38,727) $ 1,053,710
Cost of sales - 735,259 74,851 (38,727) 771,383
----------- ----------- ----------- ----------- -----------
Gross profit - 272,705 9,622 - 282,327
Selling, general and administrative expenses 7,945 169,685 12,376 - 190,006
Other expense - 4,817 - - 4,817
----------- ----------- ----------- ----------- -----------
Operating income (7,945) 98,203 (2,754) - 87,504
Investment income 1,012 97 113 - 1,222
Interest expense (27,018) (886) (420) - (28,324)
----------- ----------- ----------- ----------- -----------
Income before income taxes (33,951) 97,414 (3,061) - 60,402
Income taxes (12,901) 36,871 (1,008) - 22,962
Equity in net income of subsidiaries 58,490 - - (58,490) -
----------- ----------- ----------- ----------- -----------
Net income $ 37,440 $ 60,543 $ (2,053) $ (58,490) $ 37,440
============================================================================================================================
2000:
- -------------------------------------------------------------------------------------------------------------------------------
Sales $ - $ 924,861 $ 81,194 $ (32,519) $ 973,536
Cost of sales - 677,628 69,016 (32,519) 714,125
----------- ----------- ----------- ----------- -----------
Gross profit - 247,233 12,178 - 259,411
Selling, general and administrative expenses 6,203 162,447 14,542 - 183,192
Restructuring and other related charges - 9,664 764 - 10,428
----------- ----------- ----------- ----------- -----------
Operating income (6,203) 75,122 (3,128) - 65,791
Investment income 781 (96) 131 - 816
Interest expense (26,499) (201) (99) - (26,799)
----------- ----------- ----------- ----------- -----------
Income before income taxes (31,921) 74,825 (3,096) - 39,808
Income taxes (11,811) 27,029 (479) - 14,739
Equity in net income of subsidiaries 45,179 - - (45,179) -
----------- ----------- ----------- ----------- -----------
Net income $ 25,069 $ 47,796 $ (2,617) $ (45,179) $ 25,069
============================================================================================================================
12
Condensed Consolidating Balance Sheet
Omnicare, Inc.
Guarantor Non-Guarantor and
June 30, 2001 Parent Subsidiaries Subsidiaries Eliminations Subsidiaries
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 90,337 $ 21,631 $ 5,735 $ - $ 117,703
Restricted cash - 6,317 - - 6,317
Accounts receivable, net (including intercompany) - 416,837 34,815 (10,456) 441,196
Inventories - 125,973 8,323 - 134,296
Other current assets 1,701 133,673 4,409 - 139,783
---------- ---------- -------- ----------- ----------
Total current assets 92,038 704,431 53,282 (10,456) 839,295
---------- ---------- -------- ----------- ----------
Properties and equipment, net 4,058 138,463 12,991 - 155,512
Goodwill, net - 1,080,811 65,360 - 1,146,171
Other noncurrent assets 33,828 44,279 475 - 78,582
Investment in subsidiaries 1,766,202 - - (1,766,202) -
---------- ---------- -------- ----------- ----------
Total assets $1,896,126 $1,967,984 $132,108 $(1,776,658) $2,219,560
========== ========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other current liabilities (including intercompany) $ 16,316 $ 192,223 $ 25,330 $ (10,456) $ 223,413
---------- ---------- -------- ----------- ----------
Total current liabilities 16,316 192,223 25,330 (10,456) 223,413
---------- ---------- -------- ----------- ----------
Long-term debt 50,000 639 66 - 50,705
5.0% convertible subordinated debentures, due 2007 345,000 - - - 345,000
8.125% senior subordinated notes, due 2011 375,000 - - - 375,000
Other noncurrent liabilities 776 102,805 12,827 - 116,408
Stockholders' equity 1,109,034 1,672,317 93,885 (1,766,202) 1,109,034
---------- ---------- -------- ----------- ----------
Total liabilities and stockholders' equity $1,896,126 $1,967,984 $132,108 $(1,776,658) $2,219,560
=============================================================================================================================
December 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 48,663 $ 59,274 $ 3,670 $ - $ 111,607
Restricted cash - 2,300 - - 2,300
Accounts receivable, net (including intercompany) - 433,061 30,150 (22,426) 440,785
Inventories - 120,519 8,885 - 129,404
Other current assets 580 127,341 5,721 - 133,642
---------- ---------- -------- ----------- ----------
Total current assets 49,243 742,495 48,426 (22,426) 817,738
---------- ---------- -------- ----------- ----------
Properties and equipment, net 4,277 141,429 12,829 - 158,535
Goodwill, net - 1,101,120 67,031 - 1,168,151
Other noncurrent assets 29,640 35,251 903 - 65,794
Investment in subsidiaries 1,778,655 - - (1,778,655) -
---------- ---------- -------- ----------- ----------
Total assets $1,861,815 $2,020,295 $129,189 $(1,801,081) $2,210,218
========== ========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other current liabilities (including intercompany) $ 12,716 $ 230,415 $ 36,304 $ (22,426) $ 257,009
---------- ---------- -------- ----------- ----------
Total current liabilities 12,716 230,415 36,304 (22,426) 257,009
---------- ---------- -------- ----------- ----------
Long-term debt 435,000 633 73 - 435,706
5.0% convertible subordinated debentures, due 2007 345,000 - - - 345,000
Other noncurrent liabilities 676 102,405 999 - 104,080
Stockholders' equity 1,068,423 1,686,842 91,813 (1,778,655) 1,068,423
---------- ---------- -------- ----------- ----------
Total liabilities and stockholders' equity $1,861,815 $2,020,295 $129,189 $(1,801,081) $2,210,218
==============================================================================================================================
13
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30,
------------------------------------------------------
Omnicare, Inc.
Guarantor Non-Guarantor and
2001: Parent Subsidiaries Subsidiaries Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Provision for doubtful accounts $ - $ 13,109 $ 732 $ 13,841
Other (20,440) 57,465 3,190 40,215
-------- -------- ------- ----------
Net cash flows from operating activities (20,440) 70,574 3,922 54,056
-------- -------- ------- ----------
Cash flows from investing activities:
Acquisition of businesses - (5,993) - (5,993)
Capital expenditures - (9,987) (1,415) (11,402)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust - (4,017) - (4,017)
Other - 16 277 293
-------- -------- ------- ----------
Net cash flows from investing activities - (19,981) (1,138) (21,119)
-------- -------- ------- ----------
Cash flows from financing activities:
Borrowings on line of credit facilities 70,000 - - 70,000
Payments on line of credit facilities (455,000) - - (455,000)
Proceeds from long-term borrowings 375,000 - - 375,000
Fees paid for financing arrangements (14,418) - - (14,418)
Other 86,532 (88,236) (319) (2,023)
-------- -------- ------- ----------
Net cash flows from financing activities 62,114 (88,236) (319) (26,441)
-------- -------- ------- ----------
Effect of exchange rate changes on cash - - (400) (400)
-------- -------- ------- ----------
Net increase (decrease) in cash and cash equivalents 41,674 (37,643) 2,065 6,096
Cash and cash equivalents at beginning of period - unrestricted 48,663 59,274 3,670 111,607
-------- -------- ------- ----------
Cash and cash equivalents at end of period - unrestricted $ 90,337 $21,631 $ 5,735 $ 117,703
==================================================================================================================
2000:
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Provision for doubtful accounts $ - $ 11,619 $ 622 $ 12,241
Other (30,431) 77,989 (94) 47,464
-------- -------- ------- ----------
Net cash flows from operating activities (30,431) 89,608 528 59,705
-------- -------- ------- ----------
Cash flows from investing activities:
Acquisition of businesses - (25,662) - (25,662)
Capital expenditures (61) (14,262) (1,901) (16,224)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust - (4,733) - (4,733)
Other - 569 (369) 200
-------- -------- ------- ----------
Net cash flows from investing activities (61) (44,088) (2,270) (46,419)
-------- -------- ------- ----------
Cash flows from financing activities:
Payments on line of credit facilities (10,000) - - (10,000)
Other 31,452 (37,889) 6 (6,431)
-------- -------- ------- ----------
Net cash flows from financing activities 21,452 (37,889) 6 (16,431)
-------- -------- ------- ----------
Effect of exchange rate changes on cash - - (202) (202)
--------- ------------ ------------- ----------
Net (decrease) increase in cash and cash equivalents (9,040) 7,631 (1,938) (3,347)
Cash and cash equivalents at beginning of period - unrestricted 52,009 39,274 5,984 97,267
-------- -------- ------- ----------
Cash and cash equivalents at end of period - unrestricted $ 42,969 $ 46,905 $ 4,046 $ 93,920
==================================================================================================================
14
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, consideration should be given
to the disclosures at the "Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995 Regarding Forward-Looking Information" caption
below.
Results of Operations
Quarter Ended June 30, 2001 vs. 2000
Consolidated
Diluted earnings per share for the three months ended June 30, 2001
were $0.23, excluding the impact of a one-time item classified as other expense
(further discussed in the following paragraph), as compared with $0.16 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 second quarter, on that basis, was $21.3 million versus
the $14.6 million earned in the comparable 2000 quarter. Earnings before
interest, taxes, depreciation and amortization ("EBITDA"), on the same basis,
totaled $66.3 million for the three months ended June 30, 2001 as compared with
EBITDA of $55.5 million in the second quarter of 2000. Sales for the three
months ended June 30, 2001 rose to $530.1 million from the $480.5 million
recorded in the comparable prior year period.
Included in the 2001 quarterly results was a one-time charge of $3.0
million pretax ($1.9 million aftertax, or 2 cents per diluted share)
representing a settlement during the second quarter of certain contractual
issues with a customer, which issues and amount relate to prior year periods.
Included in the 2000 quarter was a charge of $6.2 million pretax ($3.9 million
aftertax, or 4 cents per diluted share) related to the Company's previously
reported productivity and consolidation program. Including these items in both
quarters, earnings per diluted share were 21 cents in 2001 versus 12 cents in
2000; EBITDA was $63.3 million versus $49.3 million, respectively; and net
income was $19.4 million versus $10.7 million, respectively.
Pharmacy Services Segment
Omnicare's Pharmacy Services segment recorded sales of $498.2 million
for the second quarter of 2001 as compared to $452.9 million recorded in the
same prior year period, representing an increase of $45.3 million. Operating
profit in this segment reached $52.3 million (excluding the previously mentioned
one-time charge), representing an increase of $9.3 million above the prior year
quarter amount of $43.0 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, net of
the elimination of certain high credit risk or uneconomic accounts, the number
of residents served at June 30, 2001 increased to approximately 650,100, from
629,000 one year earlier. Additionally, the increasing market penetration of
newer drugs, which often carry higher prices but are significantly more
effective in reducing overall healthcare costs than those they replace, served
to increase pharmacy sales. The increase in sales in relation to a lower
operating cost structure brought
15
about by the completion of the productivity and consolidation program in 2000,
produced increased operating margins in the Pharmacy Services segment. These
factors, along with a gradually improving operating environment in the skilled
nursing facility market, due in part to higher reimbursements under the Balanced
Budget Refinement Act of 1999 and the Benefits Improvement and Protection Act of
2000, favorably impacted the performance of the Pharmacy Services segment during
the quarter.
CRO Services Segment
Omnicare's Clinical Research ("CRO Services") segment recorded revenues
of $31.9 million during the second quarter of 2001 as compared to $27.6 million
recorded in the same prior year period, representing an increase of $4.3
million. Furthermore, operating profit in this segment for the second quarter of
2001 was $2.8 million, an increase of $1.8 million in comparison to the same
prior year quarter operating profit of $1.0 million (excluding restructuring
and other related charges). The improvements in revenue, owing to strong
business gains in prior quarters and the returning health of the industry,
coupled with the efforts made over the past year to integrate and streamline the
organization, produced these substantial increases in profitability. 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 approximately 23% from June 30, 2000, to $211 million at June
30, 2001.
Consolidated
The Company's consolidated gross profit as a percentage of sales
increased to 26.8% in the second quarter of 2001 from 26.4% in 2000,
representing a year-to-year increase in gross profit of $15.3 million to $142.1
million. Positively impacting overall gross profit was the Company's purchasing
leverage associated with the procurement of pharmaceuticals and benefits
realized from the Company's formulary compliance program, as well as the
leveraging of fixed and variable overhead costs at the Company's pharmacies and
the reduced cost structure brought about by the productivity and consolidation
program completed in 2000. These favorable factors were offset in part by the
previously mentioned shift in mix towards newer, branded drugs which typically
produce higher gross profit, but lower gross margins. Also favorably impacting
consolidated gross profit was the previously mentioned improvements in the CRO
Services segment.
Omnicare's selling, general and administrative ("operating") expenses
for the quarter ended June 30, 2001 of $94.1 million were higher than the
comparable prior year amount of $90.4 million, by $3.7 million, due to the
overall growth of the business. However, operating expenses as a percentage of
sales totaled 17.8% in the 2001 second quarter, representing a decline from the
18.8% experienced in the comparable prior year period. This decline is primarily
due to improved leveraging of fixed and variable overhead costs over a higher
sales base and the favorable impact of the productivity and consolidation
program which was successfully completed in late 2000.
In connection with the productivity and consolidation program discussed
at length at the "Year-to-Date June 2001 vs. 2000" caption below, the Company
recorded pretax restructuring and other related charges of $6.2 million ($3.9
million aftertax, or 4 cents per diluted share) in the three months ended June
30, 2000, primarily comprised of employee severance, employment
16
agreement buy-out costs, lease termination costs, other assets and facility exit
costs, and other related charges.
Investment income for the three months ended June 30, 2001 was $0.7
million, an improvement of $0.4 million over the same period of 2000. Larger
average cash balances coupled with an increase in assets invested for settlement
of the Company's pension obligations, in the second quarter of 2001 versus the
comparable prior year period, were the primary drivers of the year-to-year
increase in investment income.
Interest expense during the three months ended June 30, 2001 was $14.4
million, an increase of $0.8 million versus the comparable prior year period.
This increase was largely due to the full-quarter impact of an increase in debt
issuance cost amortization, classified as interest expense, relating to the
first quarter 2001 debt transactions discussed at the "Liquidity and Capital
Resources" section below. Also unfavorably impacting second quarter 2001
interest expense, on a year-to-year basis, was a marginal increase in the
weighted-average interest rates paid on outstanding debt brought about by the
aforementioned debt transactions, which converted a majority of the related
outstanding debt from current to long-term in nature.
The increase in the effective tax rate to 38.0% in the second quarter
of 2001 from 37.0% 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 second quarters
are higher than the federal statutory rate primarily due to state and local
income taxes.
Year-to-Date June 2001 vs. 2000
Consolidated
Diluted earnings per share for the six months ended June 30, 2001 were
$0.43, excluding the impact of one-time items classified as other expense
discussed below, as compared with $0.34 earned in the prior year period,
excluding restructuring and other related charges associated with the
productivity and consolidation initiative completed in 2000. Net income for the
2001 period, on that basis, was $40.4 million versus the $31.6 million earned in
the comparable 2000 period. EBITDA, on the same basis, totaled $128.7 million
for the six months ended June 30, 2001 as compared with EBITDA of $115.1 million
in the same period of 2000. Sales for the year-to-date June 30, 2001 period rose
to $1,053.7 million from the $973.5 million recorded during the comparable prior
year period.
Included in the year-to-date June 2001 results were other expense items
totaling $4.8 million pretax ($3.0 million aftertax, or 3 cents per share). In
the first quarter of 2001, Omnicare recorded a $1.8 million pretax ($1.1 million
aftertax, or 1 cent per diluted share) one-time charge 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. Further,
17
the Company recorded a $3.0 million pretax ($1.9 million aftertax, or 2 cents
per diluted share) one-time charge in the second quarter of 2001, representing a
settlement in June 2001 of certain contractual issues with a customer, which
issues and amount relate to prior year periods. Included in the 2000 six month
period was an aggregate charge of $10.4 million pretax ($6.6 million aftertax,
or 7 cents per diluted share) relating to the productivity and consolidation
program. Including these special items in both six month periods, earnings per
diluted share were 40 cents in 2001 versus 27 cents in 2000; EBITDA was $123.9
million versus $104.6 million, respectively; and net income was $37.4 million
versus $25.1 million, respectively.
Pharmacy Services Segment
Omnicare's Pharmacy Services segment recorded sales of $993.6 million
for the six months ended June 30, 2001, ahead of the comparable prior year
period amount of $913.9 million, by $79.7 million. Operating profit in this
segment reached $101.5 million (excluding the previously mentioned one-time
charges), also ahead of the same prior year period amount of $86.3 million
(excluding restructuring and other related charges), by $15.2 million. The
favorable year-to-year results largely relate to 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, coupled with the efforts of the Company's National Sales &
Marketing Group and pharmacy staff in developing new contracts. Additionally,
higher drug utilization, the expansion of clinical programs and drug price
inflation contributed to increased sales. Moreover, the increasing market
penetration of newer drugs, which often carry higher prices but are
significantly more effective in reducing overall healthcare costs than those
they replace, served to increase pharmacy sales. The increase in sales, in
addition to a lower operating cost structure brought about by the completion of
the productivity and consolidation program in 2000, served to produce increased
operating margins. Collectively, 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 and the
Benefits Improvement and Protection Act of 2000, favorably impacted the
performance of the Pharmacy Services segment during the six-month period.
CRO Services Segment
Omnicare's CRO Services segment recorded revenues of $60.1 million
during the six months ended June 30, 2001, which were relatively consistent with
the $59.7 million recorded in the same prior year period. Operating profit in
this segment for the six months ended June 30, 2001 was $4.8 million, an
increase of $1.0 million in comparison to the same prior year period operating
profit of $3.8 million (excluding restructuring and other related charges).
The year-to-date June 2001 improvement in operating profit is the result of
several favorable trends experienced in the second quarter of 2001. These
trends included improvements in revenue, owing to strong business gains in
prior quarters and the returning health of the industry, coupled with the
efforts made over the past year to integrate and streamline the organization,
producing substantial increases in profitability in the second quarter of 2001.
18
Consolidated
The Company's consolidated gross profit as a percentage of sales of
26.8% in the six months ended June 30, 2001 improved as compared with the rate
of 26.6% experienced during the year-to-date June 30, 2000 period, and
represented a year-to-year increase in gross profit of $22.9 million to $282.3
million. Positively impacting overall gross profit was the Company's purchasing
leverage associated with the procurement of pharmaceuticals and benefits
realized from the Company's formulary compliance program, as well as the
leveraging of fixed and variable overhead costs at the Company's pharmacies and
the reduced cost structure brought about by the productivity and consolidation
program completed in 2000. These favorable factors were offset in part by the
previously mentioned shift in mix towards newer, branded drugs which typically
produce higher gross profit, but lower gross profit margins.
Omnicare's operating expenses for the six months ended June 30, 2001 of
$190.0 million were higher than the comparable prior year amount of $183.2
million, by $6.8 million, due to the overall growth of the business. Operating
expenses as a percentage of sales, however, totaled 18.0% in the 2001 six month
period, 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
productivity and consolidation program, which was successfully completed in late
2000, and the leveraging of fixed and variable overhead costs over a larger
sales base in 2001 than was the case in the comparable 2000 period.
In 2000, the Company completed its previously disclosed productivity
and consolidation 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 June 30, 2001 and December 31, 2000
activity relating to the program follow (in thousands):
Balance at Utilized Balance at
December 31, during June 30,
2000 2001 2001
------------ -------- -----------
Restructuring charges:
Employee severance $3,390 $(2,602) $ 788
Employment agreement buy-outs 676 (676) -
Lease terminations 2,593 (1,292) 1,301
Other assets and facility exit costs 2,538 (1,881) 657
------ -------- ------
Total restructuring charges $9,197 $(6,451) $2,746
====== ======== ======
19
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 $10.4
million pretax ($6.6 million after taxes, or 7 cents per diluted share) in the
six months ended June 30, 2000. Additionally, $62.6 million pretax ($39.8
million after taxes) was incurred 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 healthcare investments.
As of June 30, 2001, the Company paid approximately $22.5 million of severance
and other employee-related costs relating to the employee reductions. The
remaining liabilities at June 30, 2001 represent amounts not yet paid relating
to actions taken in connection with the program (primarily severance payments
and lease payments), and will be adjusted as these matters are settled.
Investment income for the six months ended June 30, 2001 was $1.2
million, an improvement of $0.4 million over the same period of 2000. Larger
average cash balances coupled with an increase in assets invested for settlement
of the Company's pension obligations, during 2001 as compared to the same 2000
period, were the primary drivers of the year-to-year increase in investment
income.
Interest expense during the six months ended June 30, 2001 was $28.3
million, an increase of $1.5 million versus the comparable prior year period.
This increase was largely due to the impact of an increase in debt issuance cost
amortization, classified as interest expense, relating to the first quarter 2001
debt transactions discussed at the "Liquidity and Capital Resources" section
below. Also unfavorably impacting 2001 interest expense, on a year-to-year
basis, was a marginal increase in the weighted-average interest rates paid on
outstanding debt brought about by the aforementioned debt transactions, which
converted a majority of the related outstanding debt from current to long-term
in nature.
The increase in the effective tax rate to 38.0% in the year-to-date
June 2001 period from 37.0% in the comparable prior year period 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
20
in 2000. The effective tax rates in the 2001 and 2000 six months periods 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 June 30, 2001
were $124.0 million compared to $113.9 million at December 31, 2000. The Company
generated positive net cash flows from operating activities of $54.1 million
(including the impact of purchasing pharmaceuticals in advance of price
increases, or "prebuys," of $34.2 million) during the six months ended June 30,
2001. These funds were used primarily for debt repayment, debt issuance costs,
capital expenditures, acquisition-related payments (including amounts payable
pursuant to acquisition agreements relating to pre-2001 acquisitions) and
dividends. Higher net income and improved management of accounts receivable and
inventories contributed to the favorable cash flows from operations through June
30, 2001 of approximately $88 million (excluding prebuys).
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. As of June 30, 2001, the Revolving Credit Facility
bears an interest rate of LIBOR plus 1.375%, and incurs commitment fees on the
unused portion at a rate of 0.375%.
The Company's capital requirements are primarily comprised of capital
expenditures, including those related to investments in the Company's
information technology systems, and ongoing payments originating from its
acquisition program. There are no material commitments and contingencies
outstanding at June 30, 2001, other than certain acquisition-related payments
potentially due in the future, including deferred payments, indemnification
payments and payments originating from earnout provisions.
The Company's current ratio of 3.8 to 1.0 at June 30, 2001 increased as
compared to the 3.2 to 1.0 in existence at December 31, 2000. This improvement
is due primarily to the combined effect of higher cash balances and inventory
levels (due to prebuys), as well as a reduction in aggregate current
liabilities, largely made possible as a result of the aforementioned favorable
operating cash flows generated during the six months ended June 30, 2001.
On May 21, 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 $4.2 million paid during the six months ended
June 30, 2001 were consistent with those paid in the comparable prior year
period.
21
The Company believes its sources of liquidity and capital are adequate
for its ongoing operating needs. Omnicare may in the future incur additional
indebtedness or issue additional equity. The Company believes that, if needed,
external sources of financing are readily available.
Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142").
SFAS 141, which supercedes Accounting Principles Board ("APB") Opinion
No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises", requires that all business combinations
entered into after the effective date of July 1, 2001 be accounted for by the
purchase method, defines criteria for recognition of intangible assets apart
from goodwill, and further defines disclosure requirements for business
combinations. Omnicare does not expect this standard to have a significant
impact on the Company's consolidated financial position, results of operations
and cash flows.
SFAS 142, which replaces APB Opinion No. 17, "Intangible Assets",
defines new accounting treatment for goodwill and other intangible assets. This
standard eliminates the amortization of goodwill and other intangible assets
that have indefinite lives, establishes a requirement that goodwill and
intangible assets with indefinite lives be tested annually for impairment,
provides specific guidance on the process for this testing at the reporting unit
level and requires disclosures of information about goodwill and other
intangible assets in the years subsequent to their acquisition that was not
previously required. SFAS 142 is effective for fiscal years beginning after
December 15, 2001, except that goodwill and intangible assets acquired after
June 30, 2001 will be immediately subject to the new provisions. The Company is
currently evaluating the impact of this new standard on Omnicare's consolidated
financial position, results of operations and cash flows. It is anticipated that
this new standard will serve to significantly increase the Company's net income.
Additionally, an impairment analysis will be conducted upon implementation of
SFAS 142 and required adjustments, if any, to the carrying value of goodwill
will be recognized during 2002 as a change in accounting principle.
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 penetration of new drugs; the impact of the productivity and
consolidation program; the operating environment for skilled nursing facilities;
the operating environment in the CRO industry; the impact of the integration and
streamlining of the CRO organization; purchasing leverage; the formulary
compliance program; the leveraging of costs; benefits from the Company's state
tax planning program; the impact of the contract with Marriott Senior Living
Communities; drug utilization rates; the expansion of clinical programs; drug
price inflation; the adequacy and availability of Omnicare's sources of
liquidity and capital; the availability of
22
external sources of financing; and the impact of new accounting rules and
standards including SFAS 141 and SFAS 142. Such risks, uncertainties,
contingencies and other factors, many of which are beyond the control of
Omnicare, include, but are not limited to: overall economic, financial
and business conditions; trends for the continued growth of the businesses
of Omnicare; delays in reimbursement by the government and other payors
to customers and to Omnicare; 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 ability to implement additional opportunities for lowering costs and to
realize anticipated benefits; 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 of CRO projects to
produce revenues in subsequent periods; the ability to attract or retain needed
management; the impact and pace of technological advances; the ability to obtain
or maintain rights to data, technology and other intellectual property; the
impact of consolidation in the pharmaceutical and long-term care industries; the
continued availability of suitable acquisition candidates; changes in tax law
and regulation; volatility in Omnicare's stock price; access to capital and
financing; the demand for Omnicare's products and services; pricing and other
competitive factors in the industry; variations in costs or expenses; and
changes in accounting rules and standards.
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 June 30, 2001
include $50.0 million outstanding under its three-year, $500.0 million
variable-rate Revolving Credit Facility at an interest rate of LIBOR plus
1.375%, or 5.3% at June 30, 2001 (a one-hundred basis point change in the
interest rate would impact pretax interest expense by approximately $0.1 million
per quarter); $375.0 million outstanding under its 8.125% 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%.
At June 30, 2001, the fair value of Omnicare's Revolving Credit Facility
approximates its carrying value, and the fair value of the Senior Notes and
Convertible Debentures is $380.6 million and $304.5 million, respectively.
23
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Omnicare held its Annual Meeting of Stockholders on May 21, 2001.
(b) The names of each director elected at this Annual Meeting, as well as
the corresponding number of shares voted for, and withheld from, each
nominee follows:
Votes For Votes Withheld
--------- --------------
Edward L. Hutton 80,763,504 2,839,775
Joel F. Gemunder 80,779,484 2,823,795
Timothy E. Bien 80,780,173 2,823,106
Charles H. Erhart, Jr. 81,256,029 2,347,250
David W. Froesel, Jr. 80,783,780 2,819,499
Cheryl D. Hodges 80,779,706 2,823,573
Patrick E. Keefe 80,781,176 2,822,103
Sandra E. Laney 77,592,983 6,010,296
Andrea R. Lindell, DNSc, RN 81,278,773 2,324,506
Sheldon Margen, M.D. 81,259,951 2,343,328
Kevin J. McNamara 80,783,500 2,819,779
John H. Timoney 81,274,897 2,328,382
(c) The Stockholders ratified the selection by the Board of Directors of
PricewaterhouseCoopers LLP as independent accountants for the Company
and its consolidated subsidiaries for the 2001 year. A total of
82,784,495 votes were cast in favor of the proposal; 752,271 votes were
cast against it; 66,513 votes abstained; and there were no Broker
non-votes.
(d) The Stockholders re-approved the Company's Annual Incentive Plan for
Senior Executive Officers. A total of 76,682,004 votes were cast in
favor of the proposal; 6,802,703 were cast against it; 118,572 votes
abstained; and there were no Broker non-votes.
24
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 no Reports on Form 8-K during the quarter
ended June 30, 2001.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Omnicare, Inc.
--------------
Registrant
Date: August 13, 2001 By: /s/ David W. Froesel, Jr.
--------------- ---------------------------
David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
26