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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K/A
(Mark One) Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee
[ X ] Required)
For the fiscal year ended December 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (No Fee
Required)
For the transition period from to .
------------- -----------
Commission file number 1-8269
OMNICARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1001351
(State of Incorporation) (I.R.S. Employer Identification No.)
OMNICARE, INC.
50 EAST RIVERCENTER BOULEVARD
COVINGTON, KENTUCKY 41011
(Address of principal executive offices)
Registrant's telephone number, including area code: 606-655-1180
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock ($1 Par Value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
l934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
Aggregate market value of the Registrant's voting stock held by
non-affiliates, based upon the closing price of said stock on the New York Stock
Exchange Composite Transaction Listing on February 28, 1997 ($26.50 per share):
$2,088,809,818.
As of February 28, 1997, 78,823,012 shares of the Common Stock, $1.00 par
value, of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Omnicare, Inc.'s, (Omnicare, the Company or the
Registrant) definitive Proxy Statement for its 1997 Annual Meeting of
Stockholders, to be held May 19, 1997, are incorporated by reference into Part
III of this report. Definitive copies of its 1997 Proxy Statement will be filed
with the Securities and Exchange Commission within 120 days of the end of the
Company's fiscal year.
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OMNICARE, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
PAGE
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . 13
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS . . . . . . . . . . . . 16
EXECUTIVE OFFICERS OF THE COMPANY . . . . 17
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS . . . . 18
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. . . . . . . . . . 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA . . . . . . . . . . . . . . . . . . 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT . . . . . . . . . . . . . 47
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . 47
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K . . . . . . . . . . 47
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PART I
ITEM 1 - BUSINESS
BACKGROUND
Omnicare, Inc. (the "Company" or "Omnicare") was incorporated in Delaware
on May 19, 1981 to conduct certain health care businesses contributed to it by
W. R. Grace & Co. and Chemed Corporation, and in July 1981 public trading of the
Company's Common Stock commenced. As part of a multi-year restructuring program
undertaken in 1985, the Company, through a series of divestitures and
acquisitions, redeployed all of its capital in the long-term pharmacy business.
As a result, Omnicare is today a leading independent provider of pharmacy
services to long-term care institutions such as nursing homes, retirement
centers and other institutional health care facilities. The Company operates
principally in one business segment-institutional pharmacy services for the
long-term care market. At December 31, 1996, Omnicare provided these services to
approximately 300,000 residents in 3,700 nursing facilities located principally
in the states of Alabama, Connecticut, Georgia, Illinois, Indiana, Kansas,
Kentucky, Maine, Massachusetts, Michigan, Missouri, New Jersey, New York, North
Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Washington, West Virginia and
Wisconsin. The Company does not make any export sales.
In 1996, the Company completed the acquisition of 17 institutional pharmacy
providers. See "Note 2 - Acquisitions" of the Notes to Consolidated Financial
Statements at Item 8 of this Report for additional information.
PHARMACY SERVICES
Omnicare purchases, repackages and dispenses prescription and non-
prescription medication in accordance with physician orders and delivers such
prescriptions at least daily to the nursing facility for administration to
individual patients by the facility's nursing staff. Omnicare typically services
nursing homes within a 150-mile radius of its pharmacy locations. Omnicare
maintains a 24-hour, on-call pharmacist service, 365 days per year, for
emergency dispensing and delivery or for consultation with the facility's staff
or attending physician.
Upon receipt of a prescription, the relevant patient information is entered
into Omnicare's computerized dispensing and billing systems. At that time, the
dispensing system checks the prescription for any potentially adverse drug
interactions or patient sensitivity. When required and/or specifically requested
by the physician or patient, branded drugs are dispensed; generic drugs are
substituted in accordance with applicable state and federal laws and as
requested by the physician or patient. The Company also provides therapeutic
interchange, with physician approval, in accordance with the Company's
pharmaceutical care guidelines. See "THE OMNICARE GUIDELINES(R)" below.
Omnicare provides a "unit dose" distribution system. Most of its
prescriptions are filled utilizing specialized unit-of-use packaging and
delivery systems. Maintenance medications are typically provided in 30-day
supplies utilizing either a box unit dose system or unit dose punch card system.
The unit dose system, preferred over the bulk delivery systems
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employed by retail pharmacies, improves control over drugs in the nursing
facility and improves patient compliance with drug therapy by increasing the
accuracy and timeliness of drug administration.
Integral to Omnicare's drug distribution system is its computerized medical
records and documentation system. Omnicare provides to the facility computerized
medication administration records and physician's order sheets and treatment
records for each patient. Data extracted from these computerized records are
also formulated into monthly management reports on patient care and quality
assurance. The computerized documentation system, in combination with the unit
dose drug delivery system, results in greater efficiency in nursing time,
improved control, reduced drug waste in the facility and lower error rates in
both dispensing and administration. These benefits improve drug efficacy and
result in fewer drug-related hospitalizations.
CONSULTANT PHARMACIST SERVICES
Federal and state regulations mandate that nursing facilities, in addition
to providing a source of pharmaceuticals, retain consultant pharmacist services
to monitor and report on prescription drug therapy in order to maintain and
improve the quality of patient care. The Omnibus Budget Reconciliation Act
("OBRA") implemented in 1990 seeks to further upgrade and standardize care by
setting forth more stringent standards relating to planning, monitoring and
reporting on the progress of prescription drug therapy as well as facility-wide
drug usage.
Omnicare provides consultant pharmacist services which help clients comply
with such federal and state regulations applicable to nursing homes. The
services offered by Omnicare's consultant pharmacists include: (i)
comprehensive, monthly drug regimen reviews for each patient in the facility to
assess the appropriateness and efficacy of drug therapies, including a review of
the patient's medical records, monitoring drug reactions to other drugs or food,
monitoring lab results and recommending alternate therapies or discontinuing
unnecessary drugs; (ii) participation on the Pharmacy and Therapeutics, Quality
Assurance and other committees of client nursing facilities as well as periodic
involvement in staff meetings; (iii) monthly inspection of medication carts and
storage rooms; (iv) monitoring and monthly reporting on facility-wide drug usage
and drug administration systems and practices; (v) development and maintenance
of pharmaceutical policy and procedures manuals; and (vi) assistance to the
nursing facility in complying with state and federal regulations as they pertain
to patient care.
Additionally, Omnicare offers a specialized line of consulting services
which help nursing facilities to enhance care and reduce and contain costs as
well as to comply with state and federal regulations. Under this service line,
Omnicare provides: (i) data required for OBRA and other regulatory purposes,
including reports on psychotropic drug usage (chemical restraints), antibiotic
usage (infection control) and other drug usage; (ii) Plan of Care programs which
assess each patient's state of health upon admission and monitor progress and
outcomes using data on drug usage as well as dietary, physical therapy and
social service inputs; (iii) counseling related to appropriate drug usage and
implementation of drug protocols; (iv) on-site educational seminars for the
nursing facility staff on topics such as drug information relating to clinical
indications,
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adverse drug reactions, drug protocols and special geriatric considerations in
drug therapy, and information and training on intravenous drug therapy and
updates on OBRA and other regulatory compliance issues; (v) mock regulatory
reviews for nursing staffs; and (vi) nurse consultant services and consulting
for dietary, social services and medical records.
THE OMNICARE GUIDELINES(R)
In June 1994, to enhance the pharmaceutical care management services that it
offers, Omnicare introduced to its client nursing facilities and their attending
physicians the Omnicare GERIATRIC PHARMACEUTICAL CARE GUIDELINES(R) (THE
OMNICARE GUIDELINES(R)) which it believes is the first clinically-based
formulary for the elderly residing in long-term care institutions. THE OMNICARE
GUIDELINES(R) presents an analysis ranking specific drugs in therapeutic classes
as Preferred, Acceptable or Unacceptable based solely on their disease-specific
clinical effectiveness in treating the elderly in nursing facilities. The
formulary takes into account such factors as pharmacology, safety and toxicity,
efficacy, drug administration, quality of life and other considerations specific
to the frail elderly population residing in nursing facilities. The clinical
evaluations and rankings were developed exclusively for the Company by the
Philadelphia College of Pharmacy and Science, an academic institution recognized
for its expertise in geriatric long-term care. In addition, THE OMNICARE
GUIDELINES(R) provides relative cost information comparing the prices of the
drugs to patients, their insurers or other payors of the pharmacy bill.
As THE OMNICARE GUIDELINES(R) focuses on health benefits, rather than solely
on cost, in assigning rankings, the Company believes that use of THE OMNICARE
GUIDELINES(R) will assist physicians in making the best clinical choices of drug
therapy for the patient at the lowest cost to the payor of the pharmacy bill.
The Company also believes that the development of and subsequent compliance with
THE OMNICARE GUIDELINES(R) will lower costs for the patients it serves and
strengthen the Company's purchasing power with pharmaceutical manufacturers.
ANCILLARY SERVICES
Omnicare provides the following ancillary products and services to nursing
facilities:
Infusion Therapy Products and Services. With cost containment pressures in
health care, nursing facilities are increasingly providing subacute care as a
means of treating moderately acute but stabilized patients more cost-
effectively than hospitals, provided that the nursing staff and pharmacy are
capable of supporting higher degrees of acuity. Omnicare provides infusion
therapy support services for such residents in its client nursing facilities
and, to a lesser extent, hospice and home care patients. Infusion therapy
consists of the product (a nutrient, antibiotic, chemotherapy or other drugs in
solution) and the intravenous administration of the product.
Omnicare prepares the product to be administered using proper equipment in a
sterile environment and then delivers the product to the nursing home for
administration by the nursing staff. Proper administration of intravenous ("IV")
drug therapy requires a highly trained nursing staff. Omnicare's consultant
pharmacists and nurse consultants operate an
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education and certification program on IV therapy to assure proper staff
training and compliance with regulatory requirements in client facilities
offering an IV program.
By providing an infusion therapy program, Omnicare enables its client
nursing facilities to admit and retain patients who otherwise would need to be
cared for in an acute-care facility. The Company believes that by providing
these high-acuity pharmacy services it has a competitive advantage over other
pharmacy providers. The most common infusion therapies Omnicare provides are
total parenteral nutrition, antibiotic therapy, chemotherapy, pain management
and hydration.
Wholesale Medical Supplies/Medicare Part B Billing. Omnicare distributes
disposable medical supplies, including urological, ostomy, nutritional support
and wound care products and other disposables needed in the nursing home
environment. In addition, Omnicare provides direct Medicare billing services for
certain of these product lines for patients eligible under the Medicare Part B
program. As part of this service, Omnicare determines patient eligibility,
obtains certifications, orders products and maintains inventory on behalf of the
nursing facility. Omnicare also contracts to act as billing agent for certain
nursing homes that supply these products directly to the patient.
Other Services. Omnicare also provides respiratory therapy products and
durable medical equipment and offers clinical care plan and financial software
information systems to its client nursing facilities. Omnicare continues to
review the expansion of these as well as other products and services that may
further enhance the ability of its client nursing facilities to care for their
residents in a cost-effective manner.
PRODUCT AND MARKET DEVELOPMENT
Omnicare's pharmacy business engages in a continuing program for the
development of new services and the marketing thereof. While new service and new
market development are important factors for the growth of this business,
Omnicare does not expect that any new service or marketing effort, including
those in the developmental stage, will require the investment of a material
portion of Omnicare's assets.
MATERIALS/SUPPLY
Omnicare purchases pharmaceuticals through a wholesale distributor with whom
it has a prime vendor contract and, on an increasing basis, under contracts
negotiated directly with pharmaceutical manufacturers. The Company also is a
member of industry buying groups which contract with manufacturers for
discounted prices based on volume which are passed through to the Company by its
wholesale distributor. The Company has numerous sources of supply available to
it and has not experienced any difficulty in obtaining pharmaceuticals or other
products and supplies used in the conduct of its business.
PATENTS, TRADEMARKS AND LICENSES
Omnicare's business operations are not dependent upon any material patents,
trademarks or licenses.
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INVENTORIES
Omnicare's pharmacies maintain adequate on-site inventories of
pharmaceuticals and supplies to ensure prompt delivery service to its customers.
Inventories on hand are not considered to be high by industry standards. The
Company's primary wholesale distributor also maintains local warehousing in most
major geographic markets in which the Company operates.
COMPETITION
By its nature, the long-term care pharmacy business is highly regionalized
and, within a given geographic region of operations, highly competitive. In the
geographic regions it serves, Omnicare competes with numerous local retail
pharmacies, local and regional institutional pharmacies and pharmacies owned by
long-term care facilities. Omnicare competes in this market on the basis of
quality, cost-effectiveness and the increasingly comprehensive and specialized
nature of its services along with the clinical expertise, pharmaceutical
technology and professional support it offers.
In its program of acquiring institutional pharmacy providers, the Company
competes with several other companies with similar acquisition strategies, some
of which may have greater resources than the Company.
No individual customer or market group is critical to the total sales of the
Company's long-term care pharmacy business.
GOVERNMENT REGULATION
Institutional pharmacies, as well as the long-term care facilities they
serve, are subject to extensive federal, state and local regulation. These
regulations cover required qualifications, day-to-day operations, reimbursement
and the documentation of activities. Omnicare continuously monitors the effects
of regulatory activity on its operations.
Licensure, Certification and Regulation. States generally require that
companies operating a pharmacy within the state be licensed by the state board
of pharmacy. The Company currently has pharmacy licenses for each location in
the states in which it operates pharmacies. In addition, the Company currently
delivers prescription products from its licensed pharmacies to 4 states in which
the Company does not operate a pharmacy. These states regulate out-of-state
pharmacies, however, as a condition to the delivery of prescription products to
patients in such states. Omnicare's pharmacies hold the requisite licenses
applicable in these states. In addition, Omnicare's pharmacies are registered
with the appropriate state and federal authorities pursuant to statutes
governing the regulation of controlled substances.
Client nursing facilities are also separately required to be licensed in the
states in which they operate and, if serving Medicare or Medicaid patients, must
be certified to be in compliance with applicable program participation
requirements. Client nursing facilities are also subject to the nursing home
reforms of the Omnibus Budget Reconciliation Act of 1987, which imposed strict
compliance standards relating to quality of care for nursing home operations,
including vastly increased documentation and
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reporting requirements. In addition, pharmacists, nurses and other health care
professionals who provide services on the Company's behalf are in most cases
required to obtain and maintain professional licenses and are subject to state
regulation regarding professional standards of conduct.
Federal and State Laws Affecting the Repacking, Labelling, and Interstate
Shipping of Drugs. Federal and state laws impose certain repackaging, labelling,
and package insert requirements on pharmacies that repackage drugs for
distribution beyond the regular practice of dispensing or selling drugs directly
to patients at retail. A drug repackager must register with the Food and Drug
Administration. The Company holds all required registrations and licenses, and
its repackaging operations are believed to be in compliance with applicable
state and federal requirements.
Medicare and Medicaid. The nursing home pharmacy business has long operated
under regulatory and cost containment pressures from state and federal
legislation primarily affecting Medicaid and, to a lesser extent, Medicare.
As is the case for nursing home services generally, Omnicare receives
reimbursement from the Medicaid and Medicare programs, directly from individual
residents (private pay), and from other payors such as third-party insurers. The
Company believes that its reimbursement mix is in line with nursing home
expenditures nationally. For the year ended December 31, 1996, Omnicare's payor
mix was approximately as follows: 54% private pay and nursing homes, 42%
Medicaid, 3% Medicare and 1% insurance and other private sources.
For those patients who are not covered by government-sponsored programs or
private insurance, Omnicare generally directly bills the patient or the
patient's responsible party on a monthly basis. Depending upon local market
practices, Omnicare may alternatively bill private patients through the nursing
facility. Pricing for private pay patients is based on prevailing regional
market rates or "usual and customary" charges.
The Medicaid program is a cooperative federal-state program designed to
enable states to provide medical assistance to aged, blind, or disabled
individuals, or members of families with dependent children whose income and
resources are insufficient to meet the costs of necessary medical services.
State participation in the Medicaid program is voluntary. To become eligible to
receive federal funds, a state must submit a Medicaid "state plan" to the
Secretary of the Department of Health and Human Services ("HHS") for approval.
The federal Medicaid statute specifies a variety of requirements which the state
plan must meet, including requirements relating to eligibility, coverage of
services, payment and administration.
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Federal law and regulations contain a variety of requirements relating to
the furnishing of prescription drugs under Medicaid. First, states are given
authority, subject to certain standards, to limit or specify conditions to the
coverage of particular drugs. Second, federal Medicaid law establishes standards
affecting pharmacy practice. These standards include general requirements
relating to patient counseling and drug utilization review and more specific
standards for nursing facilities relating to drug regimen reviews for Medicaid
patients in such facilities. Recent regulations clarify that, under federal law,
a pharmacy is not required to meet the general requirements for drugs dispensed
to nursing facility residents if the nursing facility complies with the drug
regimen review standards. However, the regulations indicate that states may
nevertheless require pharmacies to comply with the general requirements,
regardless of whether the nursing facility satisfies the drug regimen review
requirement, and the states in which the Company operates currently do require
its pharmacies to comply with these general standards.
Third, federal regulations impose certain requirements relating to
reimbursement for prescription drugs furnished to Medicaid patients. Among other
things, regulations establish "upper limits" on payment levels. In addition to
requirements imposed by federal law, states have substantial discretion to
determine administrative, coverage, eligibility and payment policies under their
state Medicaid programs which may affect the Company's operations. For example,
some states have enacted "freedom of choice" requirements which may prohibit a
nursing facility from requiring its residents to purchase pharmacy or other
ancillary medical services or supplies from particular providers that deal with
the nursing home. Such limitations may increase the competition which the
Company faces in providing services to nursing facility patients.
The Medicare program is a federally funded and administered health insurance
program for individuals age 65 and over or who are disabled. The Medicare
program consists of two parts: Part A, which covers, among other things,
inpatient hospital, skilled nursing facility, home health care and certain other
types of health care services; and Medicare Part B, which covers physicians'
services, outpatient services, and certain items and services provided by
medical suppliers. Medicare Part B also covers a limited number of specifically
designated prescription drugs. The Medicare program establishes certain
requirements for participation of providers and suppliers in the Medicare
program. Pharmacies are not subject to such certification requirements. Skilled
nursing facilities and suppliers of medical equipment and supplies, however, are
subject to specified standards. Failure to comply with these requirements and
standards may adversely affect an entity's ability to participate in the
Medicare program and receive reimbursement for services provided to Medicare
beneficiaries.
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings,
and freezes and funding reductions, all of which may adversely affect the
Company's business. There can be no assurance that payments for pharmaceutical
supplies and services under governmental reimbursement programs will continue to
be based on the current methodology or remain comparable to present levels. In
this regard, the Company may be subject to rate reductions as a result of
federal budgetary legislation related to the Medicare and Medicaid programs. In
addition, various state Medicaid programs periodically experience budgetary
shortfalls which may
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result in Medicaid payment delays to the Company. To date, the Company has not
experienced any material adverse effect due to any such budgetary shortfall.
In addition, the failure, even if inadvertent, of Omnicare and/or its client
institutions to comply with applicable reimbursement regulations could adversely
affect Omnicare's business. Additionally, changes in such reimbursement programs
or in regulations related thereto, such as reductions in the allowable
reimbursement levels, modifications in the timing or processing of payments and
other changes intended to limit or decrease the growth of Medicaid and Medicare
expenditures, could adversely affect the Company's business.
Referral Restrictions. The Company is subject to federal and state laws
which govern financial and other arrangements between health care providers.
These laws include the federal anti-kickback statute, which prohibits, among
other things, knowingly and willfully soliciting, receiving, offering or paying
any remuneration directly or indirectly in return for or to induce the referral
of an individual to a person for the furnishing of any item or service for which
payment may be made in whole or in part under federal healthcare programs. Many
states have enacted similar statutes which are not necessarily limited to items
and services for which payment is made by federal healthcare programs.
Violations of these laws may result in fines, imprisonment, and exclusion from
the federal programs or other state-funded programs. Federal and state court
decisions interpreting these statutes are limited, but have generally construed
the statutes to apply if "one purpose" of remuneration is to induce referrals or
other conduct within the statute.
Federal regulations establish "safe harbors," which give immunity from
criminal or civil penalties to parties meeting all of the safe harbor
requirements. While the failure to satisfy all criteria for a safe harbor does
not mean that an arrangement violates the statute, it may subject the
arrangement to review by the HHS Office of Inspector General ("OIG"), which is
charged with administering the federal anti-kickback statute. Federal
legislation directed the OIG to establish procedures for obtaining advisory
opinions on the application of the federal anti-kickback statute, and
regulations were recently issued setting forth this new advisory opinion
process. However, there is little experience with the new process. Further, the
Clinton administration has proposed repealing the advisory opinion process as
part of its fiscal year (FY) 1998 budget proposal. Thus, there is limited
authority on qualification for a safe harbor upon which the Company can rely.
The OIG issues "Fraud Alerts" identifying certain questionable arrangements
and practices which it believes may implicate the federal anti-kickback statute.
The OIG has issued a Fraud Alert providing its views on certain joint venture
and contractual arrangements between health care providers. The OIG also issued
a Fraud Alert concerning prescription drug marketing practices that could
potentially violate the federal statute. Pharmaceutical marketing activities may
implicate the federal anti-kickback statute because drugs are often reimbursed
under the Medicaid program. According to the Fraud Alert, examples of practices
that may implicate the statute include certain arrangements under which
remuneration is made to pharmacists to recommend the use of a particular
pharmaceutical product.
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In addition, a number of states have undertaken enforcement actions against
pharmaceutical manufacturers involving pharmaceutical marketing programs,
including programs containing incentives to pharmacists to dispense one
particular product rather than another. These enforcement actions arose under
state consumer protection laws which generally prohibit false advertising,
deceptive trade practices, and the like. The Company believes its contract
arrangements with other health care providers, its pharmaceutical suppliers and
its pharmacy practices are in compliance with these laws.
There can be no assurance that such laws will not, however, be interpreted
in the future in a manner inconsistent with the Company's interpretation and
application.
Health Care Reform and Federal Budget Legislation. In recent years, a number
of legislative proposals have been introduced in Congress to reform the health
care system. Currently, Congress and the Clinton administration are considering
such reforms in the context of federal budget legislation. This legislation
could result in significant reductions in payments to providers under the
Medicaid and Medicare programs. With respect to Medicare, proposals include
establishment of a prospective payment system for skilled nursing facilities
("SNFs"); limits on payments to Medicare SNFs for routine services; requiring
consolidated billing by a SNF for all Part A and B claims for SNF residents; and
other cost savings proposals affecting reimbursement for Medicare SNF services.
The Administration also has proposed to eliminate the "mark-up" charged by
physicians and suppliers on outpatient drugs, covered under Medicare Part B, by
limiting payments to acquisition costs, subject to a limit. If enacted, there
can be no assurance that such proposals could not have a material adverse effect
on the business of Omnicare. While budget negotiations are continuing, the
future of any reform proposals in Congress is unknown.
In addition, a number of states have enacted and are considering various
health care reforms, including reforms through Medicaid demonstration projects.
Federal law allows HHS to authorize waivers of federal Medicaid program
requirements, including requirements relating to coverage, free choice of
providers and payment for health care services, in connection with state
demonstration projects that promote Medicaid program objectives. HHS published
procedures and public notice requirements designed to open the waiver approval
process to public comment and to expedite processing. The Clinton
Administration's FY 1998 budget proposal would eliminate the need for states to
seek a federal waiver to implement a Medicaid managed care system.
Several state Medicaid programs have established mandatory statewide managed
care programs for Medicaid beneficiaries to control costs through negotiated or
capitated rates, as opposed to traditional cost-based reimbursement for Medicaid
services and propose to use savings achieved through these programs to expand
coverage to those not previously eligible for Medicaid. HHS has approved waivers
for statewide managed care demonstration projects in several states and are
pending for several other states. These demonstration projects generally exempt
institutionalized care, including nursing facility services, from the programs,
and the Company's operations have not been adversely affected in states with
managed care demonstration projects in effect. The Company is unable to predict
what impact, if any, future Medicaid managed care systems might
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have on the Company's operations. Because there are currently various reform
proposals under consideration at the federal and state levels, it is uncertain
at this time what health care reform initiatives, if any, will be implemented,
or whether there will be other changes in the administration of governmental
health care programs or interpretations of governmental policies or other
changes affecting the health care system. There can be no assurance that future
health care or budget legislation or other changes will not have an adverse
effect on the business of the Company.
ENVIRONMENTAL MATTERS
In operating its facilities, Omnicare makes every effort to comply with
pollution control laws. No major difficulties have been encountered in effecting
compliance. No material capital expenditures for environmental control
facilities are expected. While Omnicare cannot predict the effect which any
future legislation, regulations, or interpretations may have upon its
operations, it does not anticipate any changes that would have a material
adverse impact on its operations.
EMPLOYEES
At December 31, 1996, Omnicare employed a total of 4,699 persons (including
1,220 part-time employees), all of whom were located within the United States.
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ITEM 2 - PROPERTIES
Omnicare has offices and distribution centers in various locations in the
United States. A list of the major facilities operated by Omnicare as of
December 31, 1996 follows. The owned property is held in fee and is not subject
to any material encumbrance. Omnicare considers all of these facilities to be in
good operating condition and generally to be adequate for present and
anticipated needs.
LEASED
OWNED -----------------------------------
LOCATION TYPE AREA AREA EXPIRATION DATE
- -------- ---- ---- ---- ---------------
Folcroft, Offices and -- 6,101 sq. ft. March 1,
Pennsylvania distribution 2001
center
Lexington, Offices and -- 7,000 sq. ft. September 30,
Kentucky distribution 1997
center
St. Louis, Offices and -- 7,000 sq. ft. April 1,
Missouri distribution 2005
center
Racine, Offices and -- 7,500 sq. ft. December 17,
Wisconsin distribution 2001
center
Belleville, Offices and -- 8,300 sq. ft. March 31,
Illinois distribution 1997
center
Peabody, Offices and -- 8,510 sq. ft. February 1,
Massachusetts distribution 1998
center
Springfield, Offices and -- 8,745 sq. ft. February 28,
Missouri distribution 1998
center
Nitro, Offices and -- 9,000 sq. ft. March 10,
West Virginia distribution 2003
center
Hebron, Offices and -- 9,536 sq. ft. June 30,
Kentucky distribution 1997
center
Tonawanda, Offices and -- 9,600 sq. ft. July 30,
New York distribution 2000
center
Griffith, Offices and -- 10,600 sq. ft. March 31,
Indiana distribution 2002
center
13
<PAGE> 14
LEASED
OWNED ---------------------------------
LOCATION TYPE AREA AREA EXPIRATION DATE
- -------- ---- ---- ---- ---------------
Yakima, Offices and -- 11,000 sq. ft. February 28,
Washington distribution 2000
center
Newington, Offices and -- 11,600 sq. ft. June 10,
Connecticut distribution 1998
center
Dover, Offices and -- 12,000 sq. ft. December 31,
Ohio distribution 2008
center
Spokane, Offices and -- 13,750 sq. ft. January 31,
Washington distribution 2007
center
Dayton, Offices and -- 15,000 sq. ft. January 31,
Ohio distribution 1998
center
Portland, Offices and -- 15,880 sq. ft. March 31,
Oregon distribution 2001
center
Pompton Offices and -- 16,041 sq. ft. August 1,
Plains, distribution 2001
New Jersey center
Plainview, Offices and -- 17,550 sq. ft. June 30,
New York distribution 2005
center
Overland Park, Offices and -- 20,059 sq. ft. August 31,
Kansas distribution 1999
center
Wadsworth, Offices and -- 21,000 sq. ft. June 30,
Ohio distribution 2001
center
Perrysburg, Offices and 23,200 sq. ft. -- --
Ohio distribution
center
Decatur, Offices and 23,274 sq. ft. -- --
Illinois distribution
center
Indianapolis, Offices and -- 23,740 sq. ft. April 30,
Indiana distribution 2006
center
14
<PAGE> 15
LEASED
OWNED -----------------------------------
LOCATION TYPE AREA AREA EXPIRATION DATE
- -------- ---- ---- ---- ---------------
Cincinnati, Offices and -- 24,375 sq. ft. September 30,
Ohio distribution 1999
center
Oklahoma City, Offices and -- 28,000 sq. ft. September 30,
Oklahoma distribution 1998
center
Livonia, Offices and -- 28,524 sq. ft. May 1,
Michigan distribution 2002
center
Skokie, Offices and -- 29,200 sq. ft. November 30,
Illinois distribution 2000
center
Louisville, Offices and -- 37,400 sq. ft. September 30,
Kentucky distribution 2001
center
Florissant, Offices and 37,753 sq. ft. -- --
Missouri distribution
center
Kirkland, Offices and -- 43,107 sq. ft. April 5,
Washington distribution 2003
center
15
<PAGE> 16
ITEM 3 - LEGAL PROCEEDINGS
In May 1996, the Company became aware of a government investigation of
Home Pharmacy Services, Inc. ("Home"), a wholly-owned subsidiary of the Company
acquired in 1992, based in Belleville, Illinois and certain individuals at that
unit. Home accounted for less than four percent of Omnicare's total sales and
earnings in 1996. The Company is cooperating fully with the government's
inquiry. Home continues to provide pharmacy services without interruption to
nursing home residents in the region. The outcome of this investigation is not
currently predictable.
There are no other pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which Omnicare or any of its
subsidiaries is a party or of which any of their property is the subject, and no
such proceedings are known to be contemplated by governmental authorities.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE> 17
ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 25, 1997 are as follows:
Name Age Office First Elected
- ---------------- --- ---------------- -------------
Edward L. Hutton 77 Chairman May 20, 198l
Joel F. Gemunder 57 President May 20, 198l
Kenneth W. Chesterman 56 Executive Vice August 2, 1984
President
Patrick E. Keefe 51 Executive Vice April 11, 1993
President - Operations
Timothy E. Bien 46 Senior Vice President- May 20, 1996
Professional Services
and Purchasing
Mary Lou Fox 65 Senior Vice President- May 20, 1996
Marketing
David W. Froesel, Jr. 45 Senior Vice President March 4, 1996
and Chief Financial
Officer
Robert F. Heath 49 Senior Vice President February 5, 1997
and General Counsel
Cheryl D. Hodges 45 Senior Vice President August 4, 1982
and Secretary
All of the executive officers listed above have been actively engaged in
the business of the Company or its predecessors for the past five years, with
the exception of Messrs. Keefe, Froesel and Heath. Mr. Keefe served as Vice
President of Diagnostek, Inc. from April 1992 to April 1993. From September
1990 to April 1992, he was President of HPI Health Care Services, Inc.
("HPI"), a subsidiary of Diagnostek which it acquired from Omnicare in August
1989. He served as Executive Vice President of HPI from August 1984 until
September 1990. Mr. Froesel was Vice President of Finance and Administration
at Mallinckrodt Veterinary Inc. from May 1993 to February 1996. From July
1989 to April 1993, he was worldwide corporate controller of Mallinckrodt
Medical Inc. Mr. Heath, who was newly elected in February 1997, was
Associate General Counsel of GE Medical Systems, a division of the General
Electric Company, from 1993 to 1997. He joined GE Medical in 1988. From
1984 to 1988, Mr. Heath worked as Senior Counsel of GE American
Communications.
Executive officers are elected for one-year terms at the annual
organizational meeting of the Board of Directors which follows the annual
meeting of stockholders each year.
17
<PAGE> 18
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK; HOLDERS OF RECORD
The Company's Common Stock is listed on the New York Stock Exchange. The
following table sets forth the ranges of high and low closing prices for the
Common Stock on the New York Stock Exchange during each of the calendar quarters
of 1996 and 1995. All prices shown have been adjusted to reflect two-for-one
stock splits in June 1996 and June 1995.
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $27.13 $19.69 $13.38 $10.31
Second Quarter 30.00 25.00 14.06 10.88
Third Quarter 30.50 22.00 19.50 13.44
Fourth Quarter 32.13 26.13 22.38 17.06
</TABLE>
The number of holders of record of Omnicare Common Stock on February 28,
1997 was 1,981. This figure does not include stockholders with shares held under
beneficial ownership in nominee name or within clearinghouse positions of
brokerage houses and banks.
DIVIDENDS
Reflecting the Company's financial position and operating performance, on
February 7, 1996, the Board of Directors elected to increase the quarterly cash
dividend to $.015 per share, for an indicated annual rate of $.06 per share in
1996. On February 5, 1997, the quarterly cash dividend was raised to $.0175, for
an indicated annual rate of $.07 per share in 1997. It is presently intended
that cash dividends will continue to be paid on a quarterly basis; however,
future dividends are necessarily dependent upon the Company's earnings and
financial condition and other factors not currently determinable.
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended December 31, 1996, the Company acquired Clasen
L.T.C. Pharmacy, Roeschen's Healthcare Corporation and Pharmacon Corporation. In
connection with these transactions, a total of 265,075 shares of common stock
and 80,000 warrants (the "Securities") were issued. No underwriters were
involved in these acquisition transactions.
The Securities were issued in reliance on the exemption from registration
contained at Section 4(2) of the Securities Act of 1933. The 80,000 warrants
referred to above may be exercised at a price of $29.75 through December 10,
2002. See Note 2 to the Consolidated Financial Statements for additional
information regarding the 1996 acquisition transactions.
ITEM 6 - SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data, which should
be read in conjunction with the Company's Consolidated Financial Statements and
related Notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
18
<PAGE> 19
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the years ended and at December 31,
1996 1995 1994 1993 1992
------------------------------------------------------------------------------------------
INCOME STATEMENT DATA: (a)(b)
<S> <C> <C> <C> <C> <C>
Sales $536,604 $399,636 $307,655 $223,129 $157,406
======== ======== ======== ======== ========
Income from continuing
operations $ 43,450(c) $ 24,760(d) $ 13,531(e) $ 10,970(f) $ 5,873
Discontinued operations (a) - - - - 8,710(g)
Cumulative effect of
accounting change - - - 280(h) -
-------- -------- -------- -------- --------
Net income $ 43,450(c) $ 24,760(d) $ 13,531(e) $ 11,250(f) $ 14,583
======== ======== ======== ======== ========
Earnings per share data
Primary:
Income from continuing
operations $ .64(c) $ .47(d) $ .30(e) $ .26(f) $ .14
Discontinued operations (a) - - - - .21(g)
Cumulative effect of
accounting change - - - - -
-------- -------- -------- -------- --------
Net income $ .64(c) $ .47(d) $ .30(e) $ .26(f) $ .35
======== ======== ======== ======== ========
Fully diluted:
Continuing operations $ .61(c) $ .43(d) $ .30(e) $ .26(f) $ .14
Discontinued operations (a) - - - - .21(g)
Cumulative effect of
accounting change - - - - -
-------- -------- -------- -------- --------
Net income $ .61(c) $ .43(d) $ .30(e) $ .26(f) $ .35
======== ======== ======== ======== ========
Dividends per share $ .06 $ .05 $ .045 $ .04 $ .035
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital $329,002 $106,384 $125,550 $ 80,570 $ 25,792
Total assets 721,697 360,836 317,205 241,318 151,403
Long-term debt (i) 1,992 82,692 85,323 86,477 7,087
Stockholder's equity(j)(k) 634,378 214,761 180,104 102,750 94,333
</TABLE>
(a) As a result of the December 1992 sale of the Veratex Group of
businesses and the divestiture of Labtronics, Inc. which was completed
in 1993, results have been restated to include these entities' results
of operations as well as any gain or loss on dispositions as
"discontinued operations."
(b) The Company has had an active acquisition program in effect since 1989.
See Note 2 of the Notes to Consolidated Financial Statements for
information concerning these acquisitions.
(c) Includes acquisition expenses related to the 1996 pooling-of-interests
transaction of $690,000. Such expenses, on an aftertax basis, were
$534,000, or $.01 per primary share. Net income, excluding these
expenses, was $43,984,000, or $.65 per primary share ($.61 fully
diluted).
19
<PAGE> 20
(d) Includes acquisition expenses related to the 1995 Specialized
pooling-of-interests transaction of $1,292,000. Such expenses, on an
aftertax basis, were $989,000, or $.02 per primary share ($.01 fully
diluted). Net income, excluding these expenses, was $25,749,000, or
$.49 per primary share ($.44 fully diluted).
(e) Includes acquisition expenses related to the 1994 Evergreen
pooling-of-interests transaction of $2,380,000. Such expenses, on an
aftertax basis, were $1,860,000, or $.04 per primary share ($.03 fully
diluted). Net income, excluding these expenses, was $15,391,000, or
$.34 per primary share ($.33 fully diluted).
(f) Includes a one-time cumulative tax benefit of $450,000 or $.01 per
share, arising from a change in tax laws enacted in August of 1993
relating to amortization of intangibles.
(g) Includes aftertax gain of $5,198,000, or $.12 per share, related to
the sale of the Veratex Group and the divestiture of Labtronics.
(h) Aftertax gain representing the cumulative effect of a change in
accounting for income taxes.
(i) In 1993, the Company issued $80.5 million of Convertible Subordinated
Notes due 2003 ("Notes"). In 1996, all of the remaining Notes were
converted into common stock. (See Note 6 of the Notes to Consolidated
Financial Statements).
(j) In 1994, the Company sold 6,494,964 shares of common stock, in a public
offering, resulting in net proceeds of $59,211,000.
(k) In 1996, the Company sold 5,750,000 (pre-1996 stock split) shares of
its common stock in a public offering, resulting in net proceeds of
$279,159,000. (See Note 7 of the Notes to Consolidated Financial
Statements).
20
<PAGE> 21
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
(All share and per share data included in Management's Discussion and Analysis
of Financial Condition and Results of Operations have been adjusted for the June
1996 and June 1995 two-for-one stock splits.)
The following table presents sales and results of operations for Omnicare,
Inc. (the Company), excluding pooling-of-interests expenses (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales $536,604 $399,636 $307,655
======== ======== ========
Net income, as reported $ 43,450 $ 24,760 $ 13,531
Acquisition expenses, pooling-
of-interests (net of taxes) 534 989 1,860
-------- -------- --------
Pro forma net income $ 43,984 $ 25,749 $ 15,391
======== ======== ========
Pro forma earnings per share:
Net income, as reported $ .64 $ .47 $ .30
Acquisition expenses, pooling-
of-interests (net of taxes) .01 .02 .04
-------- -------- --------
Primary $ .65 $ .49 $ .34
======== ======== ========
Fully diluted $ .61 $ .44 $ .33
======== ======== ========
</TABLE>
1996 vs. 1995
- -------------
Excluding the impact of charges taken for acquisitions accounted for as
pooling-of-interests transactions, pro forma net income for the year ended
December 31, 1996 increased 71% over net income earned in 1995. Primary earnings
per share, on this basis, for 1996 increased 33% over 1995, and fully diluted
earnings per share increased 39%.
Sales increased 34% in 1996 versus 1995. The sales increase was the result of
the completion of 17 institutional pharmacy acquisitions in 1996 and internal
growth. As described in Note 2 to the Consolidated Financial Statements, since
1989, the Company has been involved in a program to acquire providers of
pharmaceutical and related pharmacy management services and medical supplies to
long-term care facilities and their residents. This includes acquisitions of
freestanding institutional pharmacy businesses as well as pharmacy contracts and
other assets, generally insignificant in size, which are combined with existing
pharmacy operations to augment their internal growth. The Company also increases
its revenues internally through the efforts of its National Sales and Marketing
Group and pharmacy staff in developing new pharmacy contracts with long-term
care facilities. Expansion of services such as infusion therapy and the
increasing acuity levels of residents in long-term care facilities which results
from efforts made to avoid or reduce hospitalization, together with drug price
inflation and other changes in sales mix also contribute to the Company's
revenue growth.
The Company's total sales increased by $137 million in 1996 versus 1995. The
Company estimates that approximately $60 million of its consolidated revenue
growth in 1996 was attributable to acquisitions. The Company
21
<PAGE> 22
believes that additional revenue growth opportunities through acquisitions exist
in the institutional pharmacy industry and other related sectors. In addition,
as disclosed in the Outlook section of Management's Discussion and Analysis of
Financial Condition and Results of Operations, the health care industry's need
to lower health care costs is driving ongoing industry consolidation which
should continue to provide momentum for the Company's acquisition program.
The Company estimates that internal growth contributed approximately $77
million of Omnicare's increased revenue in 1996 compared to 1995. The Company's
revenues attributable to infusion therapy grew by approximately $16 million in
1996 compared to 1995. The Company expects the trend of increasing infusion
therapy revenues to continue as nursing facilities treat elderly residents with
more serious and costly health problems. When pharmaceutical prices are
increased, the Company generally is able to obtain price increases to cover such
drug price inflation; therefore such inflation increases revenues. The Company
estimates that drug price inflation for its highest dollar volume products in
1996 was approximately 4%-5% and this trend is continuing in 1997. The remainder
of Omnicare's increased revenues in 1996 compared to 1995 attributable to
internal growth reflects interrelated factors associated with sales mix, pricing
and volume, acuity levels of residents and efforts of the Company's National
Sales and Marketing Group and pharmacy staff in developing and purchasing new
pharmacy contracts. The Company is not able to isolate and separately quantify
accurately the increased volumes associated with each of these individual
factors.
Acquisitions and internal growth brought the total number of nursing facility
residents served at December 31, 1996 to 300,000, up 39% from the prior year
end.
Gross margin improvements from 28.0% in 1995 to 28.9% in 1996 resulted from
changes in sales mix, including increased infusion therapy revenue, and the
Company's purchasing leverage associated with purchases of pharmaceuticals and
leveraging fixed and variable overhead costs at the Company's pharmacies.
Sales mix for the Company includes primarily sales of pharmaceuticals and
infusion therapy products and services, and, to a lesser extent, medical
supplies and other. Sales of pharmaceuticals account for the majority of the
Company's sales and gross profit. Infusion therapy and medical supplies gross
margins are typically higher than gross margins associated with sales of
pharmaceuticals. That portion of the Company's sales mix represented by
infusion therapy has generally been increasing in recent years and, as noted
earlier herein, this trend is expected to continue.
Increased leverage in purchasing favorably impacts gross margins and is
primarily derived from discounts from suppliers. Leveraging of fixed and
variable overhead costs primarily relates to generating higher sales volumes
from pharmacy facilities with no increase in fixed costs (e.g. rent) and
minimal increases in variable costs (e.g. utilities). The Company believes it
will be able to continue to leverage fixed and variable overhead costs through
internal growth.
As noted earlier herein, the Company is generally able to obtain price
increases to cover drug price inflation. In order to control and improve its
gross margins, the Company strategically allocates its resources to those
activities which will increase internal sales growth and favorably impact sales
mix or will lower costs. In addition, through the ongoing development of its
pharmaceutical purchasing programs, the Company is able to obtain discounts and
thereby manage its pharmaceutical costs.
22
<PAGE> 23
Investment income increased by 225% to $11,285,000 in 1996 as the Company
realized the benefit of investing the net proceeds of $279.2 million from the
March 1996 stock offering for the majority of the year. Interest expense
decreased 39% from $5,954,000 in 1995 to $3,652,000 in 1996, primarily due to
the conversion of the Convertible Subordinated Notes during 1996.
The effective tax rates of 39.9% in 1995 and 39.8% in 1996 are marginally
higher than statutory rates due primarily to the nondeductibility of certain
acquisition costs.
1995 vs. 1994
- -------------
Sales increased 30% in 1995 versus 1994. The sales increase was the result of
nine institutional pharmacy acquisitions in 1995 (see Note 2 of the Consolidated
Financial Statements) and internal growth. Internal growth resulted from the
higher acuity levels of residents in client facilities, expansion of services
such as infusion therapy, drug price inflation and the addition of new clients
owing to the efforts of the Company's National Sales and Marketing Group,
initiated late in 1994, and the pharmacy staff. Acquisitions and internal growth
brought the total number of nursing facility residents served at December 31,
1995 to 216,500, up 47% from the prior year end.
Gross margin improvements from 26.0% in 1994 to 28.0% in 1995 resulted from
changes in sales mix, including increased infusion therapy revenue, and the
Company's increased leverage in purchasing and fixed overhead costs. Excluding
the aforementioned pro forma adjustments for pooling-of-interests expenses,
operating income as a percent of sales increased from 9.8% in 1994 to 11.2% in
1995, primarily reflecting the gross margin improvement.
Investment income increased by 120% to $3,475,000 in 1995 as the Company
realized the benefit of invested cash during 1995 due to receipt of $59.2
million of net proceeds from the November 1994 stock offering. Interest expense
decreased 9% from $6,533,000 in 1994 to $5,954,000 in 1995, primarily due to
reductions in outstanding debt associated with Specialized Pharmacy Services,
Inc. (Specialized) and Evergreen Pharmaceutical, Inc. (Evergreen) prior to
acquisition by the Company; these acquisitions were accounted for as
poolings-of-interests, and accordingly, Specialized and Evergreen are included
in the Company's financial results for all years presented.
The Company's effective tax rates decreased from 40.3% in 1994 to 39.9% in
1995. The effective tax rates are marginally higher than statutory rates due
primarily to the nondeductibility of certain acquisition costs.
Impact of Inflation
- -------------------
Inflation has not materially affected Omnicare's profitability inasmuch as
price increases have generally been obtained to cover inflationary drug cost
increases.
Liquidity and Capital Resources
- -------------------------------
Acquisitions completed during 1996 utilized cash of $87.9 million and deferred
cash payments of $9.0 million were made relating to pre-1996 acquisitions. Such
acquisitions were also financed, in part, with common stock of the Company.
Shares of common stock with a market value of approximately $20.2 million
(698,093 shares) were issued in connection with 1996 acquisitions and 45,164
shares with a market value of $960,000 were issued in 1996 in connection with
pre-1996 acquisitions. Additional amounts totaling $20 million may become
payable through the year 2011 pursuant
23
<PAGE> 24
to the terms of various acquisition agreements.
On October 1, 1993, the Company issued $80,500,000 principal amount of 5.75%
Convertible Subordinated Notes ("Notes") due 2003. The Notes were convertible
into common stock at any time at the option of the holder at a price of $7.22
per share. The remaining Notes were converted in October 1996 into 10,201,700
shares of common stock. Prior to the October conversion, Notes were converted
into 613,444 shares of common stock during 1996.
In October 1996, the Company entered into an agreement with a consortium of
sixteen banks for a $400 million revolving credit facility, replacing the prior
$135 million facility. Interest rates and commitment fees for this new facility
are based on the Company's level of performance under certain debt covenants. No
amounts were outstanding at December 31, 1996 under the credit facility.
At December 31, 1996, the Company had invested $200,230,000 in U.S.
Treasury-backed repurchase agreements. These securities are usually held
overnight, but in no case are they held longer than 30 days, under agreements to
resell the securities to the counterparty. The Company has a collateralized
interest in the underlying securities which are segregated in the accounts of
the counterparty bank. Omnicare's current ratio increased to 6.3 to 1.0 at
December 31, 1996 from 2.9 to 1.0 at December 31, 1995, and working capital at
December 31, 1996 increased to $329,002,000 from year end 1995 working capital
of $106,384,000. This increase is primarily attributable to the cash proceeds
received relating to the Company's March 1996 stock offering of 5,750,000 shares
(pre-1996 stock split) of common stock, resulting in net proceeds of $279.2
million. Book value per common share increased to $8.24 per share as of December
31, 1996 from $4.08 per share at the prior year end, primarily attributable to
the current year stock offering and net income, partially offset by dividends
paid.
On February 5, 1997, Omnicare's Board of Directors elected to increase the
quarterly cash dividend by 17% to 1.75 cents per share for an indicated annual
rate of 7 cents per share for 1997.
The Company believes that its sources of liquidity and capital are adequate
for its operating needs. There are no material commitments and contingencies
outstanding, other than additional acquisition-related payments to be made (see
Note 2 of the Consolidated Financial Statements). If needed, other external
sources of financing are readily available to the Company.
Outlook
- -------
As in the past several years, federal policy makers continue to propose
various plans to contain or reduce health care costs. While it is not possible
to predict the future of any such proposals, market forces nevertheless continue
to challenge health care providers to lower costs while maintaining or improving
quality. In this environment, the need to lower health care costs will drive
ongoing industry consolidation, which should continue to provide momentum for
the Company's acquisition program. Moreover, the development of the Company's
institutional pharmacy network in key geographic regions provides opportunities
for economies of scale to lower overall costs. In addition, Omnicare's
proprietary geriatric formulary not only lowers costs for payors and patients,
but also enhances the quality of care for the elderly.
Demographic trends also indicate that demand for long-term care will increase
well into the middle of the next century as the elderly population grows
significantly. Pharmaceutical therapy is generally considered the
24
<PAGE> 25
most cost-effective form of treatment for chronic ailments afflicting the
elderly and, as such, is an essential part of long-term care. Omnicare believes
it is well positioned to meet the challenges of today's health environment
through a number of initiatives, including drug formulary management,
cost-effective drug purchasing and efficient delivery systems. Additionally,
Omnicare's pharmacy consulting services for nursing facilities identify, resolve
and prevent drug therapy-related problems, reducing costs to the health care
system while also promoting optimal patient outcomes. Omnicare also recently
agreed to acquire a contract research organization, which should provide
additional opportunities to leverage the Company's geriatric pharmaceutical
expertise. Management believes Omnicare is strategically positioned for
continued sales and earnings growth in 1997.
Safe Harbor Statement under the Private Securities Litigation Reform Act
- ------------------------------------------------------------------------
of 1995 Regarding Forward-Looking Information
- ---------------------------------------------
In addition to historical information, this report contains forward-looking
statements and performance trends which are subject to certain risks and
uncertainties that could cause actual results to differ materially from these
statements and trends. Such factors include, but are not limited to: the
continued availability of suitable acquisition candidates; changing economic and
market conditions that could impact the suitability of such candidates;
Omnicare's ability to integrate acquisitions; the effect of changes in
government regulation and reimbursement policies and in the interpretation and
application of such policies; and the failure of the Company to obtain or
maintain required regulatory approvals or licenses. See the "Competition,"
"Government Regulation" and "Legal Proceedings" sections at Item 1 of this
report.
25
<PAGE> 26
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Financial Statement Schedule
Page
----
Financial Statements:
Report of Independent Accountants 27
Consolidated Statement of Income 28
Consolidated Balance Sheet 29
Consolidated Statement of Cash Flows 30
Consolidated Statement of Stockholders'
Equity 31
Notes to Consolidated Financial
Statements 32
Financial Statement Schedule:
II - Valuation and Qualifying Accounts S-1
All other financial statement schedules are omitted because they are not
applicable or because the required information is shown in the Consolidated
Financial Statements or notes thereto.
26
<PAGE> 27
Report of Independent Accountants
---------------------------------
To the Stockholders and
Board of Directors of Omnicare, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Omnicare, Inc. and its subsidiaries at December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Cincinnati, Ohio
January 29, 1997
27
<PAGE> 28
CONSOLIDATED STATEMENT OF INCOME
OMNICARE, INC. AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
(In thousands, except per share data)
For the years ended December 31,
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Sales $536,604 $399,636 $307,655
Cost of sales 381,768 287,715 227,533
-------- -------- --------
Gross profit 154,836 111,921 80,122
Selling, general and administrative
expenses 89,636 66,970 50,111
Acquisition expenses, pooling-
of-interests 690 1,292 2,380
-------- -------- --------
Operating income 64,510 43,659 27,631
Investment income 11,285 3,475 1,580
Interest expense (3,652) (5,954) (6,533)
--------- -------- --------
Income before income taxes 72,143 41,180 22,678
Income taxes 28,693 16,420 9,147
-------- -------- --------
Net income $ 43,450 $ 24,760 $ 13,531
======== ======== ========
Earnings per share:
Primary $ .64 $ .47 $ .30
======== ======== ========
Fully diluted $ .61 $ .43 $ .30
======== ======== ========
Weighted average number of
common shares outstanding:
Primary 67,388 52,396 44,958
======== ======== ========
Fully diluted 75,429 65,284 56,858
======== ======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
28
<PAGE> 29
CONSOLIDATED BALANCE SHEET
OMNICARE, INC. AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
(In thousands, except share data)
December 31,
1996 1995
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $216,515 $ 40,137
Accounts receivable, less allowances
of $5,631 (1995-$4,761) 118,913 80,247
Inventories 43,585 28,841
Deferred income tax benefits 6,036 6,600
Other current assets 5,686 5,247
-------- --------
Total current assets 390,735 161,072
Properties and equipment, at cost less accumulated
depreciation of $28,415 (1995-$19,036) 56,055 32,458
Goodwill, less accumulated amortization
of $15,550 (1995-$10,448) 259,507 157,843
Other assets 15,400 9,463
-------- --------
Total assets $721,697 $360,836
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,432 $ 22,020
Amounts payable pursuant to acquisition agreements 11,651 13,642
Current portion of long-term debt 1,199 1,051
Accrued employee compensation 10,645 5,338
Liabilities relating to discontinued operations 806 1,547
Other current liabilities 16,000 11,090
-------- -------
Total current liabilities 61,733 54,688
Long-term debt 1,992 82,692
Deferred income taxes 4,197 2,621
Amounts payable pursuant to acquisition agreements 9,088 1,418
Other noncurrent liabilities 10,309 4,656
-------- -------
Total liabilities 87,319 146,075
-------- -------
Stockholders' equity:
Preferred stock-authorized 1,000,000 shares
without par value; none issued
Common stock-authorized 110,000,000 shares
$1 par; 77,025,661 shares issued
(1995-26,344,588 pre-1996 stock split shares) 77,026 26,345
Paid-in capital 433,117 99,686
Retained earnings 135,398 93,598
---------- ----------
645,541 219,629
Treasury stock, at cost-0 shares
(1995-24,268 pre-1996 stock split shares) - (482)
Deferred compensation (9,503) (2,126)
Unallocated stock of ESOP (1,660) (2,260)
------- -------
Total stockholders' equity 634,378 214,761
------- -------
Contingencies (Note 12)
Total liabilities and stockholders' equity $721,697 $360,836
======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
29
<PAGE> 30
CONSOLIDATED STATEMENT OF CASH FLOWS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
(In thousands) For the years ended December 31,
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 43,450 $ 24,760 $ 13,531
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 15,407 11,117 8,264
Provision for doubtful accounts 3,614 3,086 2,298
Deferred tax provision 3,083 1,750 917
Changes in assets and liabilities, net of effects
from acquisition/disposal of businesses:
Accounts receivable (31,555) (19,286) (14,192)
Inventories (8,356) (4,930) (3,652)
Current and noncurrent assets (8,625) (1,402) (443)
Payables and accrued liabilities 882 4,335 2,785
Current and noncurrent liabilities 4,783 444 3,129
-------- ------- -------
Net cash flows from operating activities 22,683 19,874 12,637
-------- ------- -------
Cash flows from investing activities:
Acquisition of businesses (96,895) (35,373) (40,084)
Capital expenditures (26,716) (13,603) (9,659)
Marketable securities - 45,245 (45,245)
Proceeds from sales of properties and equipment 199 261 606
Cash flows from discontinued operations (741) (852) (1,370)
---------- --------- ---------
Net cash flows from investing activities (124,153) (4,322) (95,752)
---------- --------- ---------
Cash flows from financing activities:
Net borrowings on line-of-credit - (3,670) (215)
Proceeds from long-term borrowings - 5,343 141
Principal payments on long-term obligations (470) (9,130) (3,426)
Net proceeds from stock offering 279,159 - 59,211
Proceeds from exercise of stock options and warrants,
net of stock tendered in payment 3,059 70 1,291
Dividends paid (3,900) (2,581) (2,756)
---------- --------- ---------
Net cash flows from financing activities 277,848 (9,968) 54,246
---------- --------- --------
Net increase (decrease) in cash and cash equivalents 176,378 5,584 (28,869)
Cash and cash equivalents at beginning of period 40,137 34,553 63,422
--------- -------- --------
Cash and cash equivalents at end of period $ 216,515 $ 40,137 $ 34,553
========= ======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
30
<PAGE> 31
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Omnicare, Inc. And Subsidiary Companies
<TABLE>
<CAPTION>
(In thousands, except per share data)
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $13,098 $64,556 $59,382 $(31,126)
Pooling-of-interests (Note 2) 371 (341) 1,120 -
Net income - - 13,531 -
Dividends paid ($.045 per share) - - (1,759) -
Dividend to former owners of Evergreen - - (397) -
Dividends to former owners of Lo-Med - - (402) -
Stock issued in public offering 1,624 57,587 - -
Stock and warrants issued in
connection with acquisitions 75 3,616 - -
Exercise of warrants - 529 - 658
Exercise of stock options 117 2,432 - (2,592)
Stock awards, net of amortization 51 1,592 - -
Decrease in unallocated stock of ESOP - - - -
---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1994 15,336 129,971 71,475 (33,060)
Net income - - 24,760 -
Dividends paid ($.05 per share) - - (2,581) -
Two-for-one stock split 10,429 (45,524) - 35,095
Conversion of subordinated debt 4 49 - -
Stock and warrants issued in
connection with acquisitions 254 10,632 - -
Exercise of warrants - 298 - (298)
Exercise of stock options 82 1,760 - (1,902)
Stock awards, net of amortization 52 2,636 - (317)
Decrease in unallocated stock of ESOP - - - -
Other 188 (136) (56) -
---------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1995 26,345 99,686 93,598 (482)
Pooling-of-interests (Note 2) 193 (1,673) 2,250 -
Net income - - 43,450 -
Dividends paid ($.06 per share) - - (3,900) -
Stock issued in public offering 5,750 273,409 - -
Two-for-one stock split 32,689 (33,147) - 458
Conversion of subordinated debt 10,815 67,423 - -
Stock and warrants issued in
connection with acquisitions 540 16,156 - -
Exercise of warrants 405 2,313 - 44
Exercise of stock options 97 (290) - 562
Stock awards, net of amortization 192 9,352 - (582)
Decrease in unallocated stock of ESOP - - - -
Other - (112) - -
---------- ----------- ----------- ------------
BALANCE AT DECEMBER 31, 1996 $77,026 $433,117 $135,398 $ -
======= ======== ======== =========
Unallocated Total
Deferred Stock of Stockholders'
Compensation ESOP Equity
-------------- ------------- ----------------
BALANCE AT DECEMBER 31, 1993 $ - $ (3,160) $ 102,750
Pooling-of-interests (Note 2) - - 1,150
Net income - - 13,531
Dividends paid ($.045 per share) - - (1,759)
Dividend to former owners of Evergreen - - (397)
Dividends to former owners of Lo-Med - - (402)
Stock issued in public offering - - 59,211
Stock and warrants issued in
connection with acquisitions - - 3,691
Exercise of warrants - - 1,187
Exercise of stock options - - (43)
Stock awards, net of amortization (858) - 785
Decrease in unallocated stock of ESOP - 400 400
----------- -------- -----------
BALANCE AT DECEMBER 31, 1994 (858) (2,760) 180,104
Net income - - 24,760
Dividends paid ($.05 per share) - - (2,581)
Two-for-one stock split - - -
Conversion of subordinated debt - - 53
Stock and warrants issued in
connection with acquisitions - - 10,886
Exercise of warrants - - -
Exercise of stock options - - (60)
Stock awards, net of amortization (1,268) - 1,103
Decrease in unallocated stock of ESOP - 500 500
Other - - (4)
----------- -------- -----------
BALANCE AT DECEMBER 31, 1995 (2,126) (2,260) 214,761
Pooling-of-interests (Note 2) - - 770
Net income - - 43,450
Dividends paid ($.06 per share) - - (3,900)
Stock issued in public offering - - 279,159
Two-for-one stock split - - -
Conversion of subordinated debt - - 78,238
Stock and warrants issued in
connection with acquisitions - - 16,696
Exercise of warrants - - 2,762
Exercise of stock options - - 369
Stock awards, net of amortization (7,377) - 1,585
Decrease in unallocated stock of ESOP - 600 600
Other - - (112)
----------- -------- -----------
Balance at December 31, 1996 $ (9,503) $ (1,660) $ 634,378
=========== ======== ===========
<FN>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Omnicare, Inc. ("Omnicare" or the "Company") primarily operates in one
business segment which includes the distribution of pharmaceuticals, related
pharmacy management services and medical supplies to long-term care institutions
and their residents in the United States. The consolidated financial statements
include the accounts of the Company and all majority-owned subsidiaries.
CASH EQUIVALENTS
Cash equivalents include all investments in highly liquid instruments with
original maturities of three months or less.
INVENTORIES
Inventories consist primarily of purchased pharmaceuticals and medical
supplies held for sale to customers and are stated at the lower of cost or
market. Cost is determined using the first-in, first-out ("FIFO") method.
PROPERTIES AND EQUIPMENT
Properties and equipment are stated at cost. Expenditures for maintenance,
repairs, renewals and betterments that do not materially prolong the useful
lives of the assets are charged to expense as incurred. Depreciation of
properties and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the lease terms, including renewal options, or their useful lives.
GOODWILL, INTANGIBLES AND OTHER ASSETS
Intangible assets, comprised primarily of goodwill, arising from business
combinations accounted for as purchase transactions are amortized using the
straight-line method over their estimated useful lives, not in excess of forty
years.
On an annual basis, the Company reviews the recoverability of goodwill. The
measurement of possible impairment is based primarily on the ability to recover
the balance of the goodwill from expected future operating cash flows on an
undiscounted basis. In management's opinion, no such impairment exists as of
December 31, 1996 or 1995.
Debt issuance costs as of December 31, 1995 are included in other assets and
are amortized using the straight-line method over the life of the related debt.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of all financial instruments of the Company approximates the
amounts presented on the consolidated balance sheet.
32
<PAGE> 33
REVENUE RECOGNITION
Revenue is recognized when products or services are provided to the
customer. A significant portion of the Company's revenues from sales of
pharmaceutical and medical products are reimbursable from Medicaid and Medicare
programs. The Company monitors its receivables from these reimbursement sources
under policies established by management and reports such revenues at the net
realizable amount expected to be received from these third-party payors.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
under which deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates to differences
between the tax bases of assets and liabilities and their reported amounts in
the consolidated financial statements.
PER SHARE DATA
Primary earnings per share are computed based on the weighted average number
of shares of common stock outstanding during the period and common stock
equivalents, if material. Fully diluted earnings per share include common stock
equivalents and for the years ended December 31, 1996, 1995 and 1994, assumed
the conversion of the 5.75% Convertible Subordinated Notes due 2003 into common
stock. Additionally, for the years ended December 31, 1996, 1995 and 1994,
interest expense and amortization of debt issuance costs arising from these
convertible securities were added, net of related income taxes, to income for
the purpose of calculating fully diluted earnings per share. The Convertible
Subordinated Notes were converted on October 3, 1996; accordingly, they had no
impact on the fully diluted earnings per share calculation subsequent to that
date.
The Board of Directors declared a two-for-one split of the Company's $1 par
value common stock effective June 27, 1996. As a result of the split, 32,697,700
additional shares were issued including 8,677 from treasury stock. Paid-in
capital and treasury stock were reduced by $33,147,000 and $458,000,
respectively.
All references in the consolidated financial statements to the number of
common shares and per share amounts have been adjusted to reflect the stock
split, unless otherwise indicated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
33
<PAGE> 34
ACCOUNTING CHANGE
Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. As permitted by SFAS No.
123, the Company continued to follow the measurement principles prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and has disclosed the pro forma impact of using the fair value
measurement principles of SFAS No. 123 in the notes to the consolidated
financial statements.
RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
34
<PAGE> 35
NOTE 2 - ACQUISITIONS
Since 1989, the Company has been involved in a program to acquire
providers of pharmaceutical and related pharmacy management services and medical
supplies to long-term care facilities and their residents. The Company's
strategy includes acquisitions of freestanding institutional pharmacy businesses
as well as pharmacy contracts and other assets, generally insignificant in size,
which are combined with existing pharmacy operations to augment their internal
growth. From time to time, the Company may acquire other businesses such as
long-term care software companies, pharmacy consulting companies and medical
supply companies. To date, none of these non-pharmacy acquisitions have been
significant.
During the year ended December 31, 1996, the Company completed 18
acquisitions (excluding insignificant acquisitions), including 17 institutional
pharmacy businesses and a long-term care software company. Seventeen of the
acquisitions were accounted for as purchases and one as a pooling-of-interests.
During the year ended December 31, 1995, the Company completed 10
acquisitions (excluding insignificant acquisitions), including nine
institutional pharmacy businesses and a long-term care software company. Nine of
the acquisitions were accounted for as purchases and one as a
pooling-of-interests.
During the year ended December 31, 1994, the Company completed seven
acquisitions (excluding insignificant acquisitions) of institutional pharmacy
businesses. Five of the acquisitions were accounted for as purchases and two as
poolings-of-interests.
Purchases
- ---------
For all acquisitions accounted for as purchases, including insignificant
acquisitions, the purchase price paid for each has been allocated to the
fair value of the assets acquired and liabilities assumed. Purchase price
allocations are subject to final determination within one year after the
acquisition date.
The following table summarizes the aggregate purchase price for all
businesses acquired which have been accounted for as purchases (in thousands):
<TABLE>
<CAPTION>
Businesses acquired in
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash $ 72,953 $21,309 $17,954
Amounts payable in the future 19,026 4,797 3,107
Common stock 13,814 10,856 2,819
Warrants 696 30 872
Assumption of indebtedness 4,831 197 2,027
------ ------- -------
$111,320 $37,189 $26,779
======== ======= =======
</TABLE>
Cash in the above table represents payments made in the year of acquisition.
This amount differs from cash paid for the acquisition of the businesses in the
Consolidated Statement of Cash Flows due primarily to purchase price payments
made during the year pursuant to acquisition agreements entered into in prior
years.
35
<PAGE> 36
Warrants outstanding as of December 31, 1996 represent the right to purchase
905,000 shares of common stock and were issued in connection with certain
acquisitions. These warrants can be exercised at any time through 2002 at prices
ranging from $7.70 to $29.18 per share. Warrants to purchase 407,000 shares of
common stock, issued in prior years, were exercised in 1996.
Amounts contingently payable totaled $19,995,000 as of December 31, 1996
and, if paid, will be recorded as additional purchase price, serving to increase
goodwill in the period in which the contingencies are resolved. Amounts payable
in the future are subject to set-off for claims of indemnity.
The results of operations of the companies acquired in purchase transactions
have been included in the consolidated results of operations of the Company from
the dates of acquisition.
Unaudited pro forma combined results of operations of the Company for the
years ended December 31, 1996 and 1995, are presented below. Such pro forma
presentation has been prepared assuming that the acquisitions had been made as
of January 1, 1995 (in thousands, except per share data).
<TABLE>
<CAPTION>
For the years
ended December 31,
1996 1995
-----------------------------
<S> <C> <C>
Pro Forma
---------
Sales $ 589,825 $ 494,185
Net income 45,228 25,702
Earnings per share:
Primary $ .67 $ .48
Fully diluted $ .63 $ .44
</TABLE>
The pro forma information does not purport to be indicative of operating
results which would have occurred had the acquisitions been made at the
beginning of the respective periods or of results which may occur in the future.
Pooling-Of-Interests
- --------------------
The impact of the 1996 pooling-of-interests transaction and one of the 1994
pooling-of-interests transactions on the Company's historical consolidated
financial statements were not material; consequently, prior period and current
year financial statements have not been restated for these transactions.
36
<PAGE> 37
On June 30, 1995, the Company issued 806,370 shares of its common stock for
all of the outstanding common stock of Specialized Pharmacy Services, Inc.
("Specialized"). On September 30, 1994, the Company issued 4,445,288 shares of
its common stock for all the outstanding common stock of Evergreen
Pharmaceutical, Inc. and Evergreen Pharmaceutical East, Inc. (collectively,
"Evergreen"). These acquisitions were accounted for as poolings-of-interests
and, accordingly, the Company's consolidated financial statements have been
restated for all periods prior to the acquisitions to include the results of
operations, financial position and cash flows of Specialized and Evergreen. Net
sales and net income for Omnicare and Specialized prior to the Specialized
transaction and Omnicare and Evergreen prior to the Evergreen transaction are as
follows (in thousands):
<TABLE>
Omnicare Specialized Evergreen
-------- ----------- ---------
<S> <C> <C> <C>
Six months ended June 30, 1995:
Sales $171,211 $ 16,441 (a)
Net income 9,861 286 (a)
Year ended December 31, 1994:
Sales 275,663 31,992 (a)
Net income 13,406 125 (a)
Nine months ended September 30, 1994:
Sales 172,876 23,748 $25,324
Net income 7,091 66 1,877
<FN>
(a) The results of operations of Evergreen are included in the
consolidated results of Omnicare for these periods.
</TABLE>
In accordance with accounting rules for pooling-of-interests transactions,
charges to operating income for acquisition-related expenses were recorded upon
completion of the pooling acquisitions. These acquisition-related expenses
totaled $690,000 ($534,000 aftertax) for the 1996 transaction, $1,292,000
($989,000 aftertax) for the Specialized transaction and $2,380,000 ($1,860,000
aftertax) for the Evergreen transaction.
NOTE 3 - CASH AND CASH EQUIVALENTS
A summary of cash and cash equivalents follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
---------------
<S> <C> <C>
Cash and cash equivalents:
Cash $ 16,108 $ 7,418
Money market funds 177 197
U.S. Treasury-backed repurchase
agreements 200,230 32,522
-------- -------
$216,515 $40,137
======== =======
</TABLE>
Repurchase agreements represent investments in U.S. Treasury bills under
agreements to resell, usually overnight, but in no case longer than 30 days. The
Company has a collateralized interest in the underlying securities, which are
segregated in the accounts of the bank counterparty.
37
<PAGE> 38
NOTE 4 - PROPERTIES AND EQUIPMENT
<TABLE>
<CAPTION>
A summary of properties and equipment follows (in thousands):
December 31,
1996 1995
-----------------
<S> <C> <C>
Land $ 1,355 $ 247
Buildings 2,459 1,496
Machinery and equipment 44,930 27,487
Furniture, fixtures
and leasehold improvements 35,726 22,264
------- --------
84,470 51,494
Accumulated depreciation (28,415) (19,036)
------- --------
$56,055 $ 32,458
======= ========
</TABLE>
NOTE 5 - LEASING ARRANGEMENTS
The Company has operating leases which cover various real and personal
property. In most cases, the Company expects that these leases will be renewed
or replaced by other leases in the normal course of business. There are no
significant contingent rentals in the Company's operating leases.
The following is a schedule of future minimum rental payments required under
operating leases that have initial or remaining noncancellable terms in excess
of one year as of December 31, 1996 (in thousands):
1997 $ 3,943
1998 3,446
1999 2,990
2000 2,263
2001 1,729
Later years 3,722
-------
Total minimum payments required $ 18,093
========
Total rent expense under operating leases for the years ended December 31,
1996, 1995 and 1994 were $5,889,000, $4,567,000 and $3,470,000, respectively.
38
<PAGE> 39
NOTE 6 - LONG-TERM DEBT
A summary of long-term debt follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Convertible Subordinated Notes due 2003 $ - $80,445
Employee Stock Ownership Plan ("ESOP")
Loan Guarantee 1,660 2,260
Capitalized lease obligations 1,531 1,038
------- -------
3,191 83,743
Less current portion (1,199) (1,051)
------- -------
$ 1,992 $82,692
======= =======
</TABLE>
The following is a schedule by year of required long-term debt payments as
of December 31, 1996 (in thousands):
1997 $ 1,199
1998 1,443
1999 387
2000 162
2001 -
Later years -
-------
$ 3,191
=======
Total interest payments made for the years ended December 31, 1996, 1995 and
1994 were $4,968,000, $5,421,000 and $6,145,000, respectively.
Convertible Subordinated Notes
- ------------------------------
On October 1, 1993, the Company issued $80,500,000 principal amount of 5.75%
Convertible Subordinated Notes ("Notes") due 2003. The Notes were convertible
into common stock at any time at the option of the holder at a price of $7.22
per share. The remaining Notes were converted in October 1996 into 10,201,700
shares of common stock. Prior to the October conversion, Notes were converted
into 613,444 shares of common stock during 1996. In connection with the Notes
conversions, the Company recorded the $1.9 million in unamortized deferred debt
issuance costs against the paid-in capital balance for the common stock issued.
The Company amortized $220,000 of deferred debt issuance costs in 1996 (prior to
the final Notes conversion) and $310,000 in 1995.
ESOP Loan Guarantee
- -------------------
In 1988, the Company established an Employee Stock Ownership Plan ("ESOP")
which currently covers certain acquired entities' employees and corporate
headquarters employees. The ESOP used proceeds from a $4 million bank loan to
purchase 1,973,748 shares of the Company's common stock on the open market at
prices ranging from $1.94 to $2.13 per share. Inasmuch as the Company has
guaranteed the repayment of this obligation, it has recorded the ESOP's bank
debt as long-term debt and also as a reduction of stockholders' equity in the
accompanying consolidated balance sheet.
39
<PAGE> 40
The ESOP services its debt with Company contributions which were previously
made to the Company's Employee Savings and Investment Plan, and dividends
received on shares held by the ESOP. Principal and interest payments on the bank
debt are made in increasing quarterly installments over a ten-year period, the
final payment being due on December 31, 1998. The loan bears interest at the per
annum rate of 7% and is secured by the unallocated shares of common stock held
by the ESOP trust. These unallocated shares had a fair market value equal to
$18,515,000 and $18,230,000 as of December 31, 1996 and 1995, respectively.
The Company funds ESOP expense as accrued. The components of total ESOP
expense are as follows (in thousands):
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
--------------------------
<S> <C> <C> <C>
Interest expense $ 145 $ 182 $ 214
Principal payments 600 500 400
Dividends on ESOP stock ( 90) (76) (70)
---- ----- -----
$ 655 $ 606 $ 544
===== ===== =====
</TABLE>
Revolving Credit Facility
- -------------------------
In October 1996, the Company negotiated a five-year, $400 million line of
credit agreement with a consortium of sixteen banks, which replaced the existing
$135 million revolving credit facility. Borrowings under this agreement bear
interest based upon LIBOR plus a spread of 25 to 60 basis points, dependent upon
the Company's Fixed Charge Coverage Ratio, or other rates negotiated with the
banks. Additionally, a commitment fee on the unused portion of the facility
ranges from 9 to 20 basis points, and is also based on the Company's Fixed
Charge Coverage Ratio. The agreement also contains debt covenants which include
the Fixed Charge Coverage Ratio and minimum consolidated net worth. The Company
is in compliance with all of the covenants in the agreement. No amounts were
outstanding under this agreement as of December 31, 1996.
NOTE 7 - PUBLIC OFFERING OF COMMON STOCK
In March 1996, the Company completed a public offering of 5,750,000 shares
(pre-1996 stock split) of common stock resulting in gross proceeds of
$298,281,000 (before underwriting discounts and expenses).
NOTE 8 - STOCK INCENTIVE PLANS
The Company has stock incentive plans under which it may grant stock options
or stock awards to key employees at a price equal to the fair market value at
the date of grant. Under these plans, stock options become exercisable beginning
one year following the date of grant in four equal annual installments. As of
December 31, 1996, 290,084 shares were available for granting.
40
<PAGE> 41
Summary information for stock options relating to these plans is presented
below (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 2,242 $ 7.89 1,526 $ 4.04 1,996 $ 3.89
Options granted 508 26.36 1,058 12.19 - -
Options exercised (273) 7.03 (326) 3.65 (470) 3.41
Options forfeited (3) 26.22 (16) 12.13 - -
- ---------------------------------------------------------------------------------------------------------------------
Options outstanding,
end of year 2,474 $11.76 2,242 $7.89 1,526 $4.04
- ---------------------------------------------------------------------------------------------------------------------
Options exercisable,
end of year 1,083 748 726
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The following summarizes information about stock options
outstanding as of December 31, 1996 (in thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE
REMAINING
NUMBER CONTRACTUAL WEIGHTED NUMBER WEIGHTED
RANGE OF EXERCISE OUTSTANDING AT LIFE(IN AVERAGE EXERCISABLE AVERAGE
PRICES 12/31/96 YEARS) EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.78 - $ 4.64 1,018 5.37 $ 4.09 914 $ 4.10
11.39 - 12.13 934 8.17 12.10 165 12.11
18.41 - 25.75 34 9.24 22.29 4 18.41
26.22 - 28.25 488 9.24 26.38 - -
- ---------------------------------------------------------------------------------------------------------------
$ 2.78 - $28.25 2,474 7.24 $11.76 1,083 $ 5.37
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 42
During 1995, the Company's Board of Directors and stockholders
approved the 1995 Premium-Priced Stock Option Plan, providing options to
purchase 2,520,000 shares of Company common stock available for grant at an
exercise price of 125% of the stock's fair market value at the date of grant. No
options have been granted under this plan.
Nonvested stock awards are granted to key employees at the discretion of the
Incentive Committee. Nonvested stock awards are restricted as to the transfer
of ownership and vest over 5 to 7 years. Unrestricted stock awards are granted
annually to members of the Board of Directors. The fair value of a stock award
is equal to the fair market value of a share of Company stock at the grant date.
Summary information relating to stock award grants is presented below:
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Nonvested shares 378,092 198,944 197,312
Unrestricted shares 6,400 6,400 7,200
Weighted-average grant $ 23.99 $ 11.68 $ 7.56
date fair value
</TABLE>
When granted, the cost of nonvested stock awards is deferred and amortized
over the vesting period. Unrestricted stock awards are expensed during the year
granted. During 1996, 1995 and 1994, the amount of compensation expense related
to stock awards charged against income was $937,000, $506,000 and $277,000,
respectively.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for stock options and stock awards granted under these plans
according to APB Opinion 25, "Accounting for Stock Issued to Employees." As a
result, no compensation cost has been recognized for the stock options granted
under the incentive plans. The fair value of each option at grant date is
estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995: risk-free
interest rate of 6%, volatility of 32%, dividend yield of 0.2% and expected life
of 4.2 years. The weighted average fair value at grant date during 1996 and 1995
was $9.13 and $4.22, respectively. No options were granted during 1994.
Unaudited pro forma data as though the Company had accounted for stock-
based compensation cost in accordance with SFAS No. 123 are as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995
---- ----
<S> <C> <C>
Pro Forma
---------
Net income $ 42,269 $ 24,225
Earnings per share:
Primary $ .63 $ .46
Fully diluted $ .60 $ .42
</TABLE>
The above pro forma information includes only stock options granted in 1996
and 1995. Because it does not include stock options granted prior to 1995, the
pro forma effects are not representative of effects on net income or earnings
per share for future years.
42
<PAGE> 43
NOTE 9- RELATED PARTY TRANSACTIONS
The Company contracted with a division of Chemed Corporation ("Chemed"), a
1% stockholder, to assist in the development of a new information system to
integrate and standardize all operational and financial reporting functions. The
Company also subleases its corporate offices from Chemed and is charged for the
occasional use of Chemed's corporate aviation department and other incidental
expenses based on Chemed's cost. The Company believes that the method by which
such charges are determined is reasonable and that the charges are essentially
equal to that which would have been incurred if the Company had operated as an
unaffiliated entity. Charges to the Company for these services for the years
ended December 31, 1996, 1995 and 1994 were $7,139,000, $4,535,000 and
$2,951,000, respectively. Net amounts owed by the Company to Chemed as of
December 31, 1996 and 1995 were $946,000 and $667,000, respectively.
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company has a non-contributory, defined benefit pension plan covering
certain corporate headquarters employees and the employees of several companies
sold by the Company in 1992, for which benefits ceased accruing upon the sale
(the "Qualified Plan"). Benefits accruing under this plan to corporate
headquarters employees were fully vested and frozen as of January 1, 1994. The
Company also has an excess benefits plan which provides retirement payments to
participants in amounts consistent with what they would have received under the
Qualified Plan if payments to them under the Qualified Plan were not limited by
the Internal Revenue Code and other restrictions.
Retirement benefits are based primarily on an employee's years of service
and compensation near retirement. Plan assets are invested primarily in U.S.
Treasury obligations. The Company's policy is to fund pension costs in
accordance with the funding provisions of the Employee Retirement Income
Security Act.
Actuarial assumptions used to calculate the Accumulated Benefit Obligation
and net expenses include a 7.25% interest rate as of December 31, 1996 and 1995
(8% at December 31, 1994), an expected long-term rate of return on assets of 8%
and a 6% rate of increase in compensation levels in years prior to 1994.
The Accumulated Benefit Obligation in excess of plan assets as of December
31, 1996 and 1995 was $7,422,000 and $3,188,000, respectively. The net expenses
relating to the Company's defined contribution and defined benefit plans
(including the ESOP described in Note 6) for the years ended December 31, 1996,
1995 and 1994 were $1,907,000, $1,663,000 and $1,481,000, respectively.
43
<PAGE> 44
NOTE 11 - INCOME TAXES
The provision for income taxes is comprised of the following (in thousands):
<TABLE>
<CAPTION>
For the years
ended December 31,
1996 1995 1994
--------------------------
<S> <C> <C> <C>
Current:
Federal $21,917 $13,197 $ 7,158
State and local 3,693 1,473 1,072
------- ------- -------
25,610 14,670 8,230
------- ------- -------
Deferred:
Federal 2,993 1,272 802
State 90 478 115
------- ------- ------
3,083 1,750 917
------- ------- ------
Income taxes $28,693 $16,420 $9,147
======= ======= ======
</TABLE>
Tax benefits related to the exercise of stock options and stock awards have
been credited to paid-in capital in amounts of $2,243,000, $1,357,000 and
$947,000 for 1996, 1995 and 1994, respectively.
The difference between the Company's reported income tax expense and the
federal income tax expense computed at the statutory rate of 35% is explained in
the following table (in thousands):
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at the
statutory rate $25,250 35.0% $14,413 35.0% $7,937 35.0%
State and local income taxes,
net of federal income tax benefit 2,459 3.4 1,268 3.1 772 3.4
Amortization of nondeductible
intangible asset 448 0.6 408 1.0 372 1.6
Other 536 0.8 331 0.8 66 0.3
------- ----- ------- ---- ------ -----
Income Taxes $28,693 39.8% $16,420 39.9% $9,147 40.3%
======= ===== ======= ===== ====== =====
</TABLE>
Income tax payments made in 1996, 1995 and 1994 amounted to $19,749,000,
$14,014,000 and $5,569,000, respectively.
A summary of deferred tax assets and liabilities follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
------ -----
<S> <C> <C>
Accounts receivable reserves $3,912 $4,469
Accrued liabilities 3,841 4,929
Other 106 104
------ ------
Gross deferred tax assets $7,859 $9,502
====== ======
Fixed assets and depreciation methods $ 945 $ 973
Amortization of intangibles 4,046 3,798
Other 1,029 752
------ ------
Gross deferred tax liabilities $6,020 $5,523
====== ======
</TABLE>
44
<PAGE> 45
The Company has evaluated its net deferred tax asset position and has
concluded that a valuation allowance is not required as these net assets are
more likely than not to be realized.
NOTE 12 - CONTINGENCIES
In May 1996, the Company became aware of a government investigation of Home
Pharmacy Services, Inc. ("Home"), a wholly-owned subsidiary of the Company
acquired in 1992, based in Belleville, Illinois and certain individuals at that
unit. Home accounted for less than four percent of Omnicare's total sales and
earnings in 1996. The Company is cooperating fully with the government's
inquiry. Home continues to provide pharmacy services without interruption to
nursing home residents in the region. The outcome of this investigation is not
currently predictable.
45
<PAGE> 46
NOTE 13 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following table presents the Company's quarterly financial information
for 1996 and 1995 (in thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
--------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C>
Sales $117,185 $121,833 $140,733 $156,853 $536,604
Cost of sales 83,553 86,738 100,111 111,366 381,768
-------- -------- -------- -------- --------
Gross profit 33,632 35,095 40,622 45,487 154,836
Selling, general and
administrative expenses 19,433 20,639 23,213 26,351 89,636
Acquisition expenses, pooling-
of-interests - - - 690(b) 690(b)
-------- -------- -------- -------- --------
Operating income 14,199 14,456 17,409 18,446(b) 64,510(b)
Investment income, net of
interest (expense) (760) 2,803 2,512 3,078 7,633
-------- -------- -------- -------- --------
Income before income taxes 13,439 17,259 19,921 21,524(b) 72,143(b)
Income taxes 5,310 6,863 8,108 8,412 28,693
-------- -------- -------- -------- --------
Net income $ 8,129 $ 10,396 $ 11,813 $13,112(b) $43,450(b)
======== ======== ======== ======== ========
Earnings per share(a):
Primary $ .15 $ .15 $ .17 $ .17(b) $ .64(b)
======== ======== ======== ======== ========
Fully diluted $ .13 $ .14 $ .16 $ .17(b) $ .61(b)
======== ======== ======== ======== ========
1995
Sales $ 90,527 $97,125 $102,145 $109,839 $399,636
Cost of sales 65,879 70,168 73,198 78,470 287,715
-------- ------- -------- -------- -------
Gross profit 24,648 26,957 28,947 31,369 111,921
Selling, general and
administrative expenses 15,413 16,549 16,789 18,219 66,970
Acquisition expenses, pooling-
of-interests - 1,292(c) - - 1,292(c)
-------- ---------- -------- ------- -------
Operating income 9,235 9,116(c) 12,158 13,150 43,659(c)
Interest (expense), net of
investment income (535) (591) (638) (715) (2,479)
-------- ------- -------- ------- -------
Income before income taxes 8,700 8,525(c) 11,520 12,435 41,180(c)
Income taxes 3,449 3,629 4,585 4,757 16,420
-------- ------- -------- -------- --------
Net income $ 5,251 $ 4,896(c) $ 6,935 $ 7,678 $24,760(c)
======== ======= ======== ======== =======
Earnings per share(a):
Primary $ .10 $ .09(c) $ .13 $ .14 $ .47(c)
======== ======= ======== ======== =======
Fully diluted $ .09 $ .09(c) $ .12 $ .13 $ .43(c)
======== ======= ======== ======== =======
<FN>
(a) Earnings per share is calculated independently for each quarter and
the sum of the quarters may not necessarily be equal to the full year
earnings per share amount.
(b) Includes acquisition-related expenses of $690,000 relating to the
1996 pooling-of-interests transaction. Such expenses, on an aftertax
basis, were $534,000. Net income, excluding these expenses, was
$13,646,000 for the fourth quarter, or $.17 per share (primary and
fully diluted) and $43,984,000 for the full year 1996, or $.65 per
primary share and $.61 fully diluted.
(c) Includes acquisition-related expenses of $1,292,000 relating to the
1995 pooling-of-interests transaction. Such expenses, on an aftertax
basis, were $989,000. Net income, excluding these expenses, was
$5,885,000 for the second quarter, or $0.11 per share (primary and
fully diluted) and $25,749,000 for the full year 1995, or $.49 per
primary share and $.44 fully diluted.
</TABLE>
46
<PAGE> 47
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for information regarding the Company's executive officers
included in Part I of this Form 10-K, the information required under this Item
is set forth in the Company's 1997 Proxy Statement which is incorporated herein
by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Information required under this Item is set forth in the Company's 1997
Proxy Statement which is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is set forth in the Company's 1997
Proxy Statement which is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is set forth in the Company's 1997
Proxy Statement which is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The 1996 Consolidated Financial Statements of Omnicare are
included in Part II, Item 8.
(a)(2) Financial Statement Schedule
See Index to the Financial Statement Schedule at page 26 of this
Report.
(a)(3) Exhibits
See Index to Exhibits starting at page E-1 of this Report.
(b) Reports on Form 8-K
During the quarter ended December 31, 1996, the Company did not
file any Report on Form 8-K.
47
<PAGE> 48
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of l934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
OMNICARE, INC.
Date August 6, 1997 /s/ David W. Froesel, Jr.
-------------- ---------------------------
David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
48
<PAGE> 49
Schedule II
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at charged Write-offs Balance
beginning of to cost net of at end
period and expenses Acquisitions recoveries of period
------ ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for
uncollectible
accounts receivable
Year ended
December 31,
1996 $4,761 $3,614 $105 $(2,849) $5,631
1995 3,681 3,086 239 (2,245) 4,761
1994 3,187 2,298 722 (2,526) 3,681
Allowance for
uncollectible
accounts receivable,
discontinued operations
Year ended
December 31,
1996 $ 282 $ - $ - $ (282) $ -
1995 282 - - - 282
1994 288 - - (6) 282
</TABLE>
S-1
<PAGE> 50
INDEX OF EXHIBITS
-----------------
Previous Document
or Location Herein
--------------------------------
Number Refers to Item 601
Regulation S-K and Type of Filing Previous Exhibit
Description of Exhibit and Filing Date Page Number
---------------------- --------------- -----------
(3.1) Restated Certificate of Form 10-K E-5 - E-8
Incorporation of Omnicare, March 31, 1997
Inc.
(3.2) By-Laws of Omnicare, Inc., Form 10-K E-4 - E-13
as amended March 26, 1993
(4) Credit Agreement among Form 10-K E-9 - E-61
Omnicare, Inc., March 31, 1997
First National Bank of
Chicago, Agent, and certain
banks dated as of
October 22, 1996
(10.1) Executive Salary Protec- Form 10-K E-3 - E-8
tion Plan, as amended, March 25, 1996
May 22, 1981
(10.2) 1981 Stock Incentive Plan, Form 10-K E-3 - E-14
as amended March 25, 1988
(10.3) 1989 Stock Incentive Plan Proxy Statement A-1 - A-6
for 1989 Annual
Meeting of Stock-
holders dated
April 10, 1989
(10.4) 1992 Long-Term Stock Proxy Statement A-1 - A-9
Incentive Plan for 1992 Annual
Meeting of Stock-
holders dated
April 6, 1992
(10.5) 1995 Premium-Priced Proxy Statement A-1 - A-6
Stock Option Plan for 1995 Annual
Meeting of Stock-
holders dated
April 10, 1995
E-1
<PAGE> 51
INDEX OF EXHIBITS
-----------------
Previous Document
or Location Herein
--------------------------------
Number Refers to Item 601
Regulation S-K and Type of Filing Previous Exhibit
Description of Exhibit and Filing Date Page Number
---------------------- --------------- -----------
(10.6) Excess Benefits Plan Form 10-K E-22 - E-32
March 25, 1988
(10.7) Form of Indemnification Proxy Statement A-1 - A-4
Agreement with Directors for 1987 Annual
and Officers Meeting of Stock-
holders dated
April 14, 1987
(10.8) Employment Agreements Form 10-K E-83 - E-126
with J. F. Gemunder and March 29, 1989
C. D. Hodges dated
August 4, 1988
(10.9) Amendment to Employment Form 10-K E-32 - E-35
Agreements with J. F. March 25, 1994
Gemunder and C. D. Hodges
dated May 17, 1993
(10.10) Employment Agreement Form 10-K E-36 - E-52
with T. R. Marsh dated March 25, 1994
August 4, 1988 and Amendment
dated May 17, 1993
(10.11) Employment Agreement with Form 10-K E-4 - E-18
P. E. Keefe dated March March 25,1994
4, 1993
(10.12) Employment Agreement with Form 10-K E-19 - E-31
K. W. Chesterman dated March 25, 1994
May 17, 1993
(10.13) Amendment to Employment Form 10-K E-3 - E-7
Agreements with March 25, 1995
J. F. Gemunder,
K. W. Chesterman,
P. E. Keefe,
C. D. Hodges
and T. R. Marsh dated
May 16, 1994
E-2
<PAGE> 52
INDEX OF EXHIBITS
-----------------
Previous Document
or Location Herein
---------------------------------
Number Refers to Item 601
Regulation S-K and Type of Filing Previous Exhibit
Description of Exhibit and Filing Date Page Number
---------------------- --------------- -----------
(10.14) Amendment to Employment Form 10-K E-9 - E-12
Agreements with March 25, 1996
J. F. Gemunder,
K. W. Chesterman,
P. E. Keefe and
C. D. Hodges dated
May 15, 1995
(10.15) Split Dollar Agreement Form 10-K E-13 - E-24
with E. L. Hutton dated March 25, 1996
June 1, 1995 (Agreement
in the same Form exists
with J. F. Gemunder)
(10.16) Split Dollar Agreement Form 10-K E-25 - E-35
with K. W. Chesterman dated March 25, 1996
June 1, 1995 (Agreements in
the same Form exist with the
following Executive Officers:
C. D. Hodges, P. E. Keefe
and T. E. Bien)
(10.17) Annual Incentive Plan for Proxy Statement A-1 - A-3
Senior Executive Officers for 1996 Annual
Meeting of
Shareholders dated
May 20, 1996
(10.18) Employment Agreement with Form 10-K E-62 - E-67
T. E. Bien dated March 31, 1997
January 1, 1994
(10.19) Employment Agreement with Form 10-K E-68 - E-73
D. W. Froesel dated March 31, 1997
February 17, 1996
(10.20) Employment Agreement with Form 10-K E-74 - E-83
M. L. Fox dated March 31, 1997
April 4, 1996
(10.21) Consulting Agreement with Form 10-K E-84 - E-91
MLF Co. dated April 4, 1996 March 31, 1997
(10.22) Amendment to Employment Form 10-K E-92 - E-95
Agreement with J. F. Gemunder March 31, 1997
dated May 20, 1996
(Amendments in the same Form
exist with the following
Executive Officers:
K. W. Chesterman, P. E. Keefe,
And C. D. Hodges)
E-3
<PAGE> 53
INDEX OF EXHIBITS
-----------------
Previous Document
or Location Herein
--------------------------------
Number Refers to Item 601
Regulation S-K and Type of Filing Previous Exhibit
Description of Exhibit and Filing Date Page Number
---------------------- --------------- -----------
(11) Statement of Computation Form 10-K E-96
of Earnings per Common Share March 31, 1997
(12) Statement of Computation of Ratio Form 10-K E-97
of Earnings to Fixed Charges March 31, 1997
(21) Subsidiaries of Omnicare, Inc. Form 10-K E-98 - E-99
March 31, 1997
(23) Consent of Price Waterhouse LLP Form 10-K E-100
March 31, 1997
(24) Powers of Attorney Form 10-K E-101 - E-113
March 31, 1997
E-4
