1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For Quarter Ended June 30, 1996 Commission File Number 1-8269 OMNICARE, INC. -------------- Incorporated under the laws of I.R.S. Employer Identification State of Delaware No. 31-1001351 2800 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio 45202-4728 - --------------------------------------------------------------------- (Address of Principal Executive Offices and Zip Code) Registrant's telephone number, including area code (513) 762-6666 - ------------------------------------------------------------------- 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 65,533,796 June 30, 1996 2 OMNICARE, INC. AND ------------------ SUBSIDIARY COMPANIES -------------------- Index Page ---- Part I. Financial Information: Item 1. Financial Statements Consolidated Balance Sheet - June 30, 1996 and December 31, 1995 3 Consolidated Statement of Income - Three and six months ended - June 30, 1996 and 1995 4 Consolidated Statement of Cash Flow - Six months ended - June 30, 1996 and 1995 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 7 Part II. Other Information: Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K 11 -2- 3 Item 1. Financial Statements -------------------- OMNICARE, INC. AND SUBSIDIARY COMPANIES Consolidated Balance Sheet UNAUDITED (in thousands except share data) June 30, December 31, ASSETS 1996 1995 --------- -------- Current assets: Cash and cash equivalents $302,996 $ 40,137 Accounts receivable, less allowances of $5,368 (1995-$4,761) 89,364 80,247 Inventories 36,617 28,841 Deferred income tax benefits 6,614 6,600 Other current assets 8,194 5,247 -------- -------- Total current assets 443,785 161,072 Properties and equipment, at cost less accumulated depreciation of $22,751 (1995-$15,248) 40,661 32,458 Goodwill, less accumulated amortization of $12,627 (1995-$10,448) 168,955 157,843 Other assets 10,268 9,463 -------- -------- Total assets $663,669 $360,836 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 25,286 $ 22,020 Amounts payable pursuant to acquisition agreements 1,813 13,642 Current portion of long-term debt 1,101 1,051 Income taxes payable 1,117 - Accrued employee compensation 5,574 5,338 Liabilities relating to discontinued operations 1,090 1,547 Other current liabilities 13,162 11,090 --------- -------- Total current liabilities 49,143 54,688 Long-term debt 78,071 82,692 Deferred income taxes 3,339 2,621 Amounts payable pursuant to acquisition agreements 3,243 1,418 Other noncurrent liabilities 6,120 4,656 -------- -------- Total liabilities 139,916 146,075 -------- -------- Stockholders' equity: Preferred stock-authorized 1,000,000 shares without par value; none issued Common stock-authorized 110,000,000 shares $1 par; 65,595,496 shares issued (1995-26,344,508 pre stock split shares) 65,595 26,345 Paid-in capital 360,578 99,686 Retained earnings 110,355 93,598 -------- -------- 536,528 219,629 Treasury stock, at cost-61,700 shares (1995-24,268 pre stock split shares) (810) (482) Deferred compensation (10,005) (2,126) Unallocated stock of ESOP (1,960) (2,260) -------- -------- Total stockholders' equity 523,753 214,761 -------- -------- Total liabilities and stockholders' equity $663,669 $360,836 ======== ======== The Notes to Consolidated Financial Statements are an integral part of this statement. -3- 4 OMNICARE, INC. AND SUBSIDIARY COMPANIES Consolidated Statement of Income (in thousands except per share data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 1996 1995 1996 1995 ---- ---- ---- ---- Sales $121,833 $97,125 $239,018 $187,652 Cost of sales 86,738 70,168 170,291 136,047 -------- ------- -------- -------- Gross profit 35,095 26,957 68,727 51,605 Selling, general and administrative expenses 20,639 16,549 40,072 31,962 Acquisition expenses-pooling-of-interests - 1,292 - 1,292 -------- ------- -------- -------- Operating income 14,456 9,116 28,655 18,351 Investment income 4,018 985 4,578 2,081 Interest expense (1,215) (1,576) (2,535) (3,207) -------- ------- -------- -------- Income before income taxes 17,259 8,525 30,698 17,225 Income taxes 6,863 3,629 12,173 7,078 -------- ------- -------- -------- Net income $ 10,396 $ 4,896 $ 18,525 $ 10,147 ======== ======= ======== ======== Earnings per share(A): Primary $ .15 $ .09 $ .30 $ .19 Fully diluted $ .14 $ .09 $ .28 $ .18 Dividends paid per share(A) $ .015 $ .013 $ .03 $ .025 Weighted average number of common shares outstanding(A): Primary 67,341 52,460 61,595 52,200 ======== ======= ======== ======== Fully diluted 77,825 65,012 72,462 64,780 ======== ======= ======== ======== <FN> (A) Adjusted for two-for-one stock split distributed June 27, 1996. The Notes to Consolidated Financial Statements are an integral part of this statement. -4- 5 OMNICARE, INC. AND SUBSIDIARY COMPANIES Consolidated Statement of Cash Flow UNAUDITED (in thousands) Six Months Ended June 30, -------------------------- 1996 1995 -------- -------- Cash flow from operating activities: Net income $ 18,525 $ 10,147 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation and amortization 6,416 4,936 Provision for doubtful accounts 2,009 1,351 Deferred tax provision 811 368 Changes in assets and liabilities, net of effects from acquisition/disposal of businesses: Accounts receivable (9,954) (7,467) Inventories (6,288) (2,906) Current and noncurrent assets (3,097) (1,080) Income taxes payable 1,117 (1,557) Payables and accrued liabilities 3,357 1,423 Current and noncurrent liabilities 4,541 1,418 -------- -------- Net cash flow from operating activities 17,437 6,633 -------- -------- Cash flow from investing activities: Acquisition of businesses (19,819) (16,774) Capital expenditures (10,631) (6,718) Marketable securities - 19,240 Proceeds from sale of properties and equipment 94 187 Cash flow from discontinued operations (457) (410) -------- -------- Net cash flow from investing activities (30,813) (4,475) -------- -------- Cash flow from financing activities: Net borrowings (repayments) on line-of-credit - (3,670) Proceeds from long-term borrowings - 856 Principal payments on long-term obligations (318) (4,448) Net proceeds from stock offering 279,159 - Exercise of stock options and warrants, net (838) (84) Dividends paid (1,768) (1,275) -------- -------- Net cash flow from financing activities 276,235 (8,621) -------- -------- Net increase (decrease) in cash and cash equivalents 262,859 (6,463) Cash and cash equivalents at beginning of period 40,137 34,553 -------- -------- Cash and cash equivalents at end of period $302,996 $ 28,090 ======== ======== Supplemental disclosures of cash flow information Income taxes paid $ 8,530 $ 6,603 Interest paid 2,590 2,937 The Notes to Consolidated Financial Statements are an integral part of this statement. -5- 6 OMNICARE, INC. AND SUBSIDIARY COMPANIES Notes to Consolidated Financial Statements 1. The interim financial data are unaudited; however, in the opinion of the management of Omnicare, Inc., the interim data include all adjustments (which include only normal adjustments) considered necessary for a fair presentation of the consolidated financial position, results of operations and cash flow of Omnicare, Inc. and its consolidated subsidiaries ("Company"). 2. Since January 1, 1996, the Company has completed five acquisitions including Medical Arts Health Care, Inc. in Conyers, Georgia, Managed Health Care in Springfield, Missouri, and Pharmacy Care Systems Division of Big B, Inc. in Bessemer, Alabama, all in January, Benwood Pharmacy Services, Inc., Buffalo, New York, in February, and Prometheus Pharmacy Company, Inc. Newington, Connecticut, in June. All of these transactions have been accounted for as purchase transactions and, accordingly, the purchase price paid for each has been allocated to the fair value of the assets acquired and liabilities assumed. The results of operations of the acquired companies have been included in consolidated results of the Company from the effective dates of the acquisitions. 3. On May 20, 1996, the Board of Directors declared a two-for-one split of the Company's $1 par value common stock payable on June 27, 1996 to stockholders of record on June 5, 1996. As a result of the split, 32,697,700 additional shares were issued including 8,677 from treasury stock. Additional paid-in capital and treasury stock were reduced by $33,147,000 and $458,000, respectively. All references in the accompanying financial statements to the number of common shares and per share amounts for 1995 have been restated to reflect the stock split. -6- 7 Item 2. Management's Discussion and Analysis of Results ----------------------------------------------- of Operations and Financial Condition. -------------------------------------- Results of Operations Net income for the second quarter ended June 30, 1996 rose 112% to $10,396,000 from the $4,896,000 earned in the second quarter of 1995. Primary earnings per share rose 67% to $.15 from the $.09 earned in the same period of 1995. Fully diluted earnings per share increased 56% to $.14 versus the $.09 earned a year ago. The average number of shares outstanding rose 28%, on a primary basis, and 20%, on a fully diluted basis, over the comparable prior-year period. Earnings for the second quarter of 1995 included a charge of $1,292,000 before taxes and $989,000 after taxes ($.02 per primary share and $.01 fully diluted) for expenses related to the acquisition of Specialized Pharmacy Services, Inc. in a pooling of interests transaction. Excluding this charge from the same period a year ago, earnings in the second quarter of 1996 rose 77%. Primary earnings per share, on this basis, rose 36%, while fully diluted earnings per share increased 40%. Sales for the second quarter increased 25% to $121,833,000 versus the $97,125,000 recorded a year ago. For the first six months of 1996, net income increased 83% to $18,525,000 over the $10,147,000 earned for the six months ended June 30, 1995. Primary earnings per share rose 58% to $.30 from the $.19 earned for the same period a year ago, while fully diluted earnings per share increased 56% to $.28 from the $.18 earned a year ago. Excluding the aforementioned charge for acquisition expenses, earnings for the first six months of 1996 rose 66%. Primary earnings per share, on this basis, increased 43% and fully diluted earnings rose 40%. Sales for the first six months of 1996 grew 27% to $239,018,000 from the $187,652,000 in the first half of 1995. The Company's sales and earnings momentum was attributed to its continued focus on acquisitions of institutional pharmacy providers, -7- 8 strong internal growth and further success in developing innovative geriatric pharmaceutical care programs. During the second quarter of 1996, one acquisition was completed, and, since June 30, 1996, one additional acquisition has been completed. Together, these acquisitions have added more than 15,500 new nursing facility residents to those already served by the Company. The June acquisition of Prometheus Pharmacy Company, Inc., based in Newington, Connecticut, added approximately 3,000 long-term care facility residents in Connecticut. Also, during August, the Company completed the acquisition of Pompton Nursing Home Suppliers, based in Pompton Plains, New Jersey, which serves over 12,500 residents of nursing homes and other long-term care facilities in New Jersey and New York. These acquisitions, combined with internal growth, bring the total number of nursing facility residents served to 250,000, up 31% over the number served one year ago and a gain of 9% since March 31, 1996. Also contributing to the Company's growth were higher acuity levels among nursing facility residents, the further expansion of infusion therapy services, and continued progress at Heartland Healthcare Services, a 50/50 partnership with Health Care and Retirement Corporation. Investment income, net of interest expense, of $2,803,000 and $2,043,000, for the three and six month periods ended June 30, 1996, respectively, increased by $3,394,000 and $3,169,000, respectively, over the same periods of 1995 due to an increase in the invested cash balance, owing primarily to the receipt of $298.3 million (before underwriting discounts and expenses) in gross proceeds from a public offering of 5,750,000 shares of common stock in March 1996. During the three and six month periods ended June 30, 1996, the effective tax rates of 39.8% and 39.7%, respectively, decreased 2.8 and 1.4 percentage points, respectively, over the comparable prior year periods. These 1996 decreases were caused by the unfavorable impact on last year's tax rates of the nondeductibility of a portion -8- 9 of the expenses related to the Specialized acquisition. Had these acquisition expenses not been incurred in 1995, the effective tax rates for the three and six month periods ended June 30, 1995 would have been 40.1% and 39.9%, respectively, which are comparable to the 1996 rates. Liquidity and Capital Resources Cash and cash equivalents at June 30, 1996 increased by $262,859,000 to $302,996,000 from the $40,137,000 balance at December 31, 1995. In March 1996, the Company completed a public offering of 5,750,000 shares of common stock resulting in gross proceeds of $298,281,000 (before underwriting discounts and expenses). The Company's capital requirements are primarily related to its acquisition program. In the first half of 1996, the Company made five acquisitions for an aggregate capital investment of approximately $19 million. Such acquisitions were financed from cash and cash equivalents and the issuance of 210,588 shares of common stock with a market value of approximately $5.7 million. There are no material commitments outstanding at June 30, 1996 other than acquisition-related payments which may be made contingent on the performance of businesses acquired. The Company has a $135 million revolving credit facility with a consortium of six banks. No amounts were outstanding at June 30, 1996 under the credit facility. The Company's current ratio at June 30, 1996 and December 31, 1995 was 9.0 to 1 and 2.9 to 1, respectively. Dividends of $1,768,000 were paid during the six months ended June 30, 1996 versus the $1,275,000 paid in the prior year period. The Company believes its sources of capital are adequate for its needs. -9- 10 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 20, 1996. (b) The names of each director elected at this Annual Meeting are as follows: Edward L. Hutton Patrick E. Keefe Joel F. Gemunder Sandra E. Laney Ronald K. Baur Andrea R. Lindell Kenneth W. Chesterman Sheldon Margen, M.D. Charles H. Erhart, Jr. Kevin J. McNamara Mary Lou Fox John A. Mount Cheryl D. Hodges Timothy S. O'Toole Thomas C. Hutton D. Walter Robbins (c) The Stockholders then approved the adoption of the Company's Annual Incentive Plan for Senior Executive Officers. 26,035,893 votes were cast in favor of the proposal, 720,745 votes were cast against it and 114,587 votes abstained. (d) The Stockholders then approved the adoption of the amendment to the Company's Certificate of Incorporation increasing the number of authorized shares of Common Stock from 44,000,000 to 110,000,000. 20,278,006 votes were cast in favor of the proposal, 6,547,234 votes were cast against it, 45,985 votes abstained and 5,280,976 were broker non-votes. (e) The Stockholders then ratified the selection by the Board of Directors of Price Waterhouse LLP as independent accountants for the Company and its consolidated subsidiaries for the year 1996. 26,819,720 votes were cast in favor of the proposal, 20,079 votes were cast against it and 31,426 votes abstained. With respect to the election of directors, the number of votes cast for each nominee was as follows: Votes Broker Votes For Withheld Non-Votes --------- -------- --------- E. L. Hutton 24,901,394 406,798 -0- J. F. Gemunder 24,909,240 398,952 -0- R. K. Baur 24,912,689 395,503 -0- K. W. Chesterman 25,030,126 278,066 -0- C. H. Erhart, Jr. 25,179,929 128,263 -0- M. L. Fox 24,908,488 399,704 -0- C. D. Hodges 24,911,226 396,966 -0- T. C. Hutton 24,912,100 396,092 -0- P. E. Keefe 24,912,362 395,830 -0- S. E. Laney 24,911,992 396,200 -0- A. R. Lindell 25,306,426 1,766 -0- S. Margen 25,297,236 10,956 -0- K. J. McNamara 24,908,908 399,284 -0- J. A. Mount 25,305,741 2,451 -0- T. S. O'Toole 24,912,181 396,011 -0- D. W. Robbins 25,295,657 12,535 -0- -10- 11 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits Exhibit Number Exhibit ------ ------- 10 Material Contracts: Omnicare, Inc. Annual Incentive Plan for Senior Executive Officers was filed as an exhibit to its Proxy Statement for its 1996 Annual Meeting of Stockholders and is incorporated herein by reference. 11 Computation of Earnings per Share (b) Reports on Form 8-K - On May 15, 1996, a Form 8-K was filed to report the government investigation of the Company's institutional pharmacy subsidiary in Belleville, Illinois, Home Pharmacy Services, Inc. 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, 1996 By /s/ Joel F. Gemunder --------------------------- ------------------------------------- President (Principal Executive Officer) Date August 13, 1996 By /s/ David W. Froesel, Jr. --------------------------- ------------------------------------- Senior Vice President and Chief Financial Officer (Principal Financial Officer) -11-