<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended September 30, 1998
Commission File Number 1-8269
OMNICARE, INC.
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Incorporated under the laws of the I.R.S. Employer Identification
State of Delaware No. 31-1001351
100 East RiverCenter Boulevard, Covington, Kentucky 41011
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (606) 392-3300
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Indicate by check mark whether the registrant:
1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports) and
2) has been subject to such filing requirement for the past 90 days.
Yes x No
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COMMON STOCK OUTSTANDING
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<TABLE>
<CAPTION>
Number of
Shares Date
------ ----
<S> <C> <C>
Common Stock, $1 par value 89,529,153 September 30, 1998
</TABLE>
<PAGE> 2
OMNICARE, INC. AND
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SUBSIDIARY COMPANIES
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Index
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30, 1998 and December 31, 1997 3
Consolidated Statement of Income -
Three and nine months ended -
September 30, 1998 and 1997 4
Consolidated Statement of Cash Flows -
Nine months ended -
September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 11
Part II. Other Information:
Item 2. Recent Sales of Unregistered Securities 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
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Item 1. Financial Statements
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OMNICARE, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
UNAUDITED
<TABLE>
<CAPTION>
(In thousands, except share data)
September 30, December 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 84,040 $ 138,062
Accounts receivable, less allowances of
$26,605 (1997 - $17,994) 348,769 278,525
Inventories 101,039 90,366
Deferred income tax benefits 18,115 10,465
Other current assets 32,147 24,954
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Total current assets 584,110 542,372
Properties and equipment, at cost less accumulated
depreciation of $78,661 (1997-$53,703) 129,001 101,662
Goodwill, less accumulated amortization
of $45,276 (1997-$30,247) 1,063,782 726,696
Other assets 51,720 41,416
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Total assets $1,828,613 $1,412,146
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 93,739 $ 54,840
Amounts payable pursuant to acquisition agreements 6,204 17,073
Current portion of long-term debt 2,547 13,252
Accrued employee compensation 36,629 34,304
Deferred revenue 14,398 22,270
Other current liabilities 64,157 45,808
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Total current liabilities 217,674 187,547
Long-term debt 636,409 359,148
Deferred income taxes 12,796 10,517
Amounts payable pursuant to acquisition agreements 14,618 10,404
Other noncurrent liabilities 22,100 14,777
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Total liabilities 903,597 582,393
Stockholders' equity:
Preferred stock-authorized 1,000,000 shares
without par value; none issued
Common stock-authorized 200,000,000 shares $1 par; 89,721,936 shares issued
(1997 - authorized 110,000,000 shares; 88,260,600 shares issued) 89,722 88,261
Paid-in capital 652,573 609,117
Retained earnings 201,145 151,153
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943,440 848,531
Treasury stock, at cost - 192,783 shares (1997 - 102,046 shares) (4,713) (2,926)
Deferred compensation (13,418) (14,807)
Unallocated stock of ESOP (132) (940)
Translation adjustment (161) (105)
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Total stockholders' equity 925,016 829,753
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Contingencies (Note 4)
Total liabilities and stockholders' equity $1,828,613 $1,412,146
========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
3
<PAGE> 4
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Consolidated Statement of Income
UNAUDITED
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -----------------------------
1998 1997 1998 1997
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Sales $ 383,647 $ 264,112 $ 1,082,099 $ 713,432
Cost of sales 267,168 185,349 755,719 500,157
---------- ---------- ------------ ----------
Gross profit 116,479 78,763 326,380 213,275
Selling, general and administrative expenses 71,708 50,209 202,652 137,262
Acquisition expenses, pooling-of-interests - - 14,587 2,535
Restructuring costs - - 3,627 1,078
Nonrecurring expenses - 6,313 - 6,313
---------- ---------- ------------ ----------
Operating income 44,771 22,241 105,514 66,087
Investment income 623 1,060 3,046 4,547
Interest expense (5,301) (1,291) (14,507) (2,152)
Other expenses - - - (800)
---------- ---------- ------------ ----------
Income before income taxes 40,093 22,010 94,053 67,682
Income taxes 14,353 10,614 39,801 30,293
---------- ---------- ------------ ----------
Income from continuing operations 25,740 11,396 54,252 37,389
Loss from discontinued operations - - - (2,154)
---------- ---------- ------------ ----------
Net income $ 25,740 $ 11,396 $ 54,252 $ 35,235
========== ========== ============ ==========
Earnings per share:
Basic
Continuing operations $ 0.29 $ 0.13 $ 0.61 $ 0.44
Discontinued operations - - - (0.03)
---------- ---------- ------------ ----------
Net income $ 0.29 $ 0.13 $ 0.61 $ 0.41
========== ========== ============ ==========
Diluted
Continuing operations $ 0.29 $ 0.13 $ 0.61 $ 0.43
Discontinued operations - - - (0.02)
---------- ---------- ------------ ----------
Net income $ 0.29 $ 0.13 $ 0.61 $ 0.41
========== ========== ============ ==========
Weighted average number of
common shares outstanding:
Basic 89,493 86,381 88,815 85,196
========== ========== ============ ==========
Diluted 90,054 87,436 89,647 86,246
========== ========== ============ ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
4
<PAGE> 5
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Consolidated Statement of Cash Flows
UNAUDITED
<TABLE>
<CAPTION>
(In thousands) Nine Months Ended
September 30,
------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 54,252 $ 35,236
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 34,176 20,852
Provision for doubtful accounts 8,357 4,340
Deferred tax provision 7,061 5,211
Discontinued operations - 2,154
Other 1,948 800
Changes in assets and liabilities, net of effects
from acquisition/disposal of businesses:
Accounts receivable (50,199) (59,407)
Inventories (2,560) (25,107)
Current and noncurrent assets (11,953) (10,517)
Payables and accrued liabilities 52,707 20,815
Deferred revenue (7,835) (359)
Current and noncurrent liabilities 1,007 4,618
-------- ---------
Net cash flows from operating activities 86,961 (1,364)
-------- ---------
Cash flows from investing activities:
Acquisition of businesses (366,632) (357,807)
Capital expenditures (38,724) (29,763)
Other 2,144 2,923
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Net cash flows from investing activities (403,212) (384,647)
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Cash flows from financing activities:
Net proceeds from borrowings 290,000 261,429
Principal payments on long-term obligations (22,082) (2,775)
Exercise of stock options and warrants,
net of stock tendered in payment (334) 7,655
Dividends paid (5,056) (4,178)
Effect of exchange rate changes on cash (299) (461)
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Net cash flows from financing activities 262,229 261,670
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Net increase (decrease) in cash and cash equivalents (54,022) (124,341)
Cash and cash equivalents at beginning of period 138,062 232,961
-------- ---------
Cash and cash equivalents at end of period $ 84,040 $ 108,620
======== =========
Supplemental disclosures of cash flow information
- -------------------------------------------------
Income taxes paid $16,328 $ 16,050
Interest paid 9,744 1,046
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
5
<PAGE> 6
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
1. The interim financial data are unaudited; however, in the opinion of
the management of Omnicare, Inc., the interim data include all adjustments
(which include only normal adjustments) considered necessary for a fair
presentation of the consolidated financial position, results of operations and
cash flows of Omnicare, Inc. and its consolidated subsidiaries ("Omnicare" or
the "Company"). Certain reclassifications of prior year amounts have been made
to conform with the current year presentation.
2. 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 other
assets, generally insignificant in size, which are combined with existing
pharmacy operations to augment their internal growth. The Company may, from time
to time, acquire certain non-pharmaceutical companies which complement the
Company's core business.
Since January 1, 1998, the Company has completed eleven acquisitions
(excluding insignificant purchases of other assets) of institutional pharmacy
businesses, one data management business and one contract research organization
(CRO). Ten of the institutional pharmacy transactions were accounted for as
purchase transactions, and one institutional pharmacy, the data management
business and the CRO, as poolings-of-interests. These thirteen transactions
added approximately $379 million in revenues on an annualized basis. For all
acquisitions accounted for as purchases, including insignificant purchases of
other assets, the purchase price paid for each has been allocated to the fair
value of the assets acquired and liabilities assumed and the results of
operations of the acquired companies have been included in the consolidated
results of the Company from the effective dates of the acquisitions.
Pooling-of-Interests Transactions
- ---------------------------------
The consolidated financial statements have been restated for all
periods to include the historical results of operations, financial position and
cash flows of the two entities acquired in June 1998 in pooling-of-interests
transactions, described as follows:
On June 26, 1998, Omnicare completed the acquisition of CompScript,
Inc. ("CompScript"). Pursuant to the terms of the merger agreement, CompScript
stockholders received .12947 of a share of Omnicare common stock for each share
owned of CompScript common stock. Omnicare issued approximately 1.8 million
shares of its common stock with a value of approximately $67 million in this
transaction, which was accounted for as a pooling-of-interests and a tax free
reorganization.
6
<PAGE> 7
CompScript is a Boca Raton, Florida-based provider of comprehensive
pharmacy management, infusion therapy and related consulting services to the
long-term care, alternate care and managed care markets. CompScript serves
approximately 20,000 residents in 137 long-term care facilities in five states.
CompScript operates seven pharmacy locations in the states of Florida, Ohio,
Louisiana, Alabama and Mississippi.
On June 29, 1998, Omnicare completed the acquisition of IBAH, Inc.
("IBAH"). Pursuant to the terms of the merger agreement, IBAH stockholders
received .1638 of a share of Omnicare common stock for each share owned of IBAH
common stock. Omnicare issued approximately 4.3 million shares of common stock
with a value of approximately $159 million in this transaction, which was
accounted for as a pooling-of-interests and a tax free reorganization.
IBAH, headquartered in Blue Bell, Pennsylvania, is a worldwide leader
in providing comprehensive product development services to client companies in
the pharmaceutical, biotechnology, medical device and diagnostics industries.
IBAH offers services for all stages of drug development, helping client
companies to accelerate products from discovery through development and
commercialization more rapidly and cost-effectively.
Summarized results of operations of Omnicare, Compscript and IBAH for
the period from January 1, 1998 through June 30, 1998 and January 1, 1997
through June 30, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Omnicare CompScript IBAH Combined
-------- ---------- ---- --------
<S> <C> <C> <C> <C>
Six months ended June 30, 1998:
Sales $616,453 $28,237 $53,762 $698,452
Net income (excluding pooling
expenses, restructuring costs,
other nonrecurring expenses and
discontinued operations) 42,001 575 1,742 44,318
Net income/(loss) 35,085 (2,147) (4,426) 28,512
Six months ended June 30, 1997:
Sales $384,668 $24,347 $40,305 $449,320
Net income/(loss) (excluding pooling
expenses, restructuring costs,
other nonrecurring expenses and
discontinued operations) 30,010 (852) 705 29,863
Net income/(loss) 28,581 (2,039) (2,703) 23,839
</TABLE>
In connection with the CompScript and IBAH mergers, in the 1998 second
quarter Omnicare recorded a charge to operating expenses of $17,723,000
($15,392,000 after taxes) for direct and other merger-related costs pertaining
to the merger transactions and certain related restructuring actions.
7
<PAGE> 8
Merger transaction costs consisted primarily of fees for investment
bankers, attorneys, accountants, financial printing and other related charges.
Restructuring costs include severance and exit costs. Details of these costs
follow (amounts in thousands):
<TABLE>
<CAPTION>
Utilized
as of Balance at
Initial September 30, September 30,
Provision 1998 1998
--------- ------- -------
<S> <C> <C> <C>
Merger transaction costs $14,096 $3,031 $11,065
Restructuring costs:
Employee severance 1,413 395 1,018
Exit costs 2,214 526 1,688
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Total $17,723 $3,952 $13,771
======= ====== =======
</TABLE>
Restructuring costs include the costs of restructuring the CompScript
mail order pharmacy business and the cancellation of certain of its vendor
agreements along with severance and exit costs associated with the consolidation
of certain IBAH facilities and the restructuring of its pharmaceutics business.
These actions resulted in the reduction of approximately 20 employees. Included
in the exit costs are $1,948,000 of non-cash items. At September 30, 1998, all
liabilities relating to these actions were classified as current liabilities.
Pharmacy Operations of Extendicare
- ----------------------------------
On September 16, 1998, Omnicare completed the acquisition of the
institutional pharmacy operations of Extendicare Health Services, Inc. ("EHSI"),
a wholly-owned subsidiary of Extendicare, Inc. (TSE/ME:EXE and EXE.A;
NYSE:EXE.A) for $250 million in cash, 125,000 shares of Omnicare common stock
and 1.5 million warrants to purchase Omnicare common stock at $48.00 per share.
The warrants have a seven-year term and are first exercisable in September 2001.
The transaction was structured as a purchase of assets.
Based in Milwaukee, Wisconsin, the pharmacy business of EHSI, operating
under the name United Professional Companies, Inc. ("UPC"), has contracts to
provide comprehensive pharmacy, related consulting and infusion therapy services
to approximately 55,000 residents in more than 550 facilities in 12 states. This
transaction also offers Omnicare the opportunity to provide pharmacy services to
an additional 77 Extendicare facilities with capacity for 9,300 residents in
Canada and the United Kingdom.
8
<PAGE> 9
Unaudited pro forma combined results of operations of the Company,
including UPC, for the nine months ended September 30, 1998 and 1997, are
presented below. The UPC historical financial statements used to prepare this
pro forma information exclude certain overhead and facility costs incurred by
the overall UPC operations. Such pro forma presentation has been prepared
assuming that the UPC acquisition had been made as of the beginning of the
periods (in thousands, except per share data).
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
PRO FORMA
Sales $1,200,170 $783,360
Income from continuing operations 54,363 33,593
Earnings per share from
continuing operations:
Basic $ .61 $ .39
Diluted $ .61 $ .39
</TABLE>
The primary pro forma adjustments reflect amortization of goodwill
acquired on a straight-line basis over 40 years and interest costs on debt
incurred in conjunction with the UPC acquisition. The pro forma information does
not give effect to any synergies anticipated by the Company's management as a
result of the acquisition, in particular, improvements in gross margin
attributable to the Company's purchasing leverage associated with purchases of
pharmaceuticals and the elimination of duplicate payroll and other operating
expenses. Therefore, management believes that the pro forma financial
information is not necessarily indicative of future performance. The pro forma
information should be read in conjunction with the Company's restated 1997
consolidated financial statements and related notes thereto included in its Form
8-K filed with the Securities and Exchange Commission on September 28, 1998.
3. In 1997, IBAH closed the software commercialization business unit of
Resources Biometrics, Inc. ("RBI"), a wholly-owned subsidiary of IBAH.
Accordingly, all operating results were reclassified from continuing operations
to discontinued operations. In addition, a loss on disposal of this unit of
$1,547,000 was recorded. The remaining liabilities related to the loss on
disposal at September 30, 1998 are not significant.
4. On April 17, 1998, Omnicare announced that the previously announced
tentative settlement with the U.S. Attorney's office in the Southern District of
Illinois regarding the government's investigation of its subsidiary, Home
Pharmacy Services, Inc. ("HPSI"), was concluded in accordance with the terms
previously disclosed. The HPSI pharmacy operation accounted for less than 2% of
Omnicare's total sales and earnings (excluding nonrecurring expenses) for the
nine months ended September 30, 1998.
9
<PAGE> 10
As previously announced, in May 1996 the Company became aware of a
government investigation of HPSI, its institutional pharmacy subsidiary in
Belleville, Illinois, and certain individuals employed at that time. Omnicare
was informed that HPSI was the sole focus of the investigation and that neither
Omnicare nor any of its other operating units were targets of the inquiry.
Omnicare cooperated fully with the government investigation and, in August 1997,
announced that a tentative settlement had been reached. Omnicare recorded a
pretax charge to earnings in the third quarter of 1997 of $6.3 million to
establish a reserve for the estimated costs and legal and other expenses
associated with resolving the matter. The reserve was adequate to cover the
final settlement costs.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Results of Operations and
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Financial Condition
- -------------------
Results of Operations
- ---------------------
Quarter Ended September 1998 vs. 1997
- -------------------------------------
Diluted earnings per share from continuing operations for the three
months ended September 30, 1998 were $.29, up 45% from the $.20 per share
earned, excluding nonrecurring expenses, in the same period last year. Income
from continuing operations for the 1998 quarter was up 48% to $25,740,000 from
the $17,354,000 earned, excluding nonrecurring expenses, in the 1997 quarter.
The 1997 quarter included a nonrecurring charge of $6,313,000 ($5,958,000 after
taxes) for the costs and expenses associated with the settlement of the
government investigation of Home Pharmacy Services, Inc., a subsidiary of
Omnicare. Revenues for the three months ended September 30, 1998 rose 45% to
$383,647,000 from the $264,112,000 recorded in the comparable prior year period.
The increases in the Company's sales and earnings were the product of
its continued focus on acquisitions of long-term care pharmacy providers and
sustained internal growth.
During the third quarter of 1998, the Company acquired three
institutional pharmacy providers (excluding insignificant purchases of other
assets) which when combined with internal growth, brought the total number of
nursing facility residents served to 565,300 at September 30, 1998, up 32% over
the number served one year ago. These transactions added approximately $181
million in revenues on an annualized basis.
Internal growth resulted from an increase in acuity levels of residents
in client facilities, expansion of services such as infusion therapy, efforts of
the Company's National Sales and Marketing Group and pharmacy staff in
developing new pharmacy contracts, drug price inflation, growth in other
complementary non-pharmaceutical service businesses and other changes in sales
mix.
Investment income for the three months ended September 30, 1998 was
$623,000, a decrease of $437,000 in comparison to the same period of 1997 due to
a lower average invested cash balance during the third quarter of 1998 than in
the third quarter of 1997. The use of cash is primarily attributable to the
Company's acquisition program.
Interest expense during the three months ended September 30, 1998 was
$5,301,000, an increase of $4,010,000 versus the comparable prior year period
primarily due to the impact of interest expense associated with the
$345,000,000, 5.0% Convertible Subordinated Notes issued in December 1997.
The decrease in the effective tax rate to 35.8% in the third quarter of
1998 from 48.2% in the comparable prior year quarter is primarily attributable
to the existence of a nondeductible nonrecurring charge in 1997 and a decrease
in state and local income taxes in 1998.
11
<PAGE> 12
Year-to-Date September 1998 vs. 1997
- ------------------------------------
On June 26, 1998, the Company issued approximately 1.8 million shares
of its common stock for all of the outstanding common stock of Boca Raton,
Florida-based CompScript, Inc. ("CompScript"), a provider of pharmaceuticals to
long-term care facilities. Additionally, on June 29, 1998, the Company issued
approximately 4.3 million shares of its common stock for all outstanding
preferred and common stock of Blue Bell, Pennsylvania-based IBAH, Inc. ("IBAH"),
a worldwide leader in providing comprehensive product development services to
client companies in pharmaceutical, biotechnology, medical device and
diagnostics industries. Both of these transactions were accounted for as
pooling-of-interests and, accordingly, the Company's consolidated financial
statements have been restated for all periods prior to the pooling-of-interests
transactions to include the results of operations, financial position and cash
flows of CompScript and IBAH.
Excluding acquisition-related expenses for pooling-of-interests
transactions and other nonrecurring expenses from both periods, diluted earnings
per share for the nine months ended September 30, 1998 of $.78 were 42% higher
than the $.55 earned in the same period of 1997. Income from continuing
operations, on this basis, of $70,058,000 in the first nine months of 1998 was
48% above the $47,217,000 earned in the comparable 1997 period. Revenues for the
1998 period were $1,082,099,000, up 52% over the $713,432,000 recorded in the
first nine months of 1997. The 1998 period included pooling expenses of
$14,587,000 before taxes ($13,117,000 after taxes) relating to Omnicare's
acquisitions of IBAH, Inc. and CompScript, Inc. in the second quarter of 1998
and another transaction completed earlier in the year. The 1998 period also
included $3,627,000 before taxes ($2,689,000 after taxes) in nonrecurring
charges in the second quarter relating to the restructuring of the CompScript
mail order pharmacy business and the consolidation and restructuring of certain
IBAH operations. The 1997 period included pooling expenses of $2,535,000 before
taxes ($2,293,000 after taxes) consisting of acquisition expenses related to
pooling transactions completed by Omnicare, CompScript and IBAH during the
period. The 1997 period also included $8,191,000 ($7,535,000 after taxes)
consisting of the above-mentioned government settlement costs, a restructuring
charge taken by IBAH and a write-down of a note receivable by CompScript.
The increases in the Company's sales and earnings were the product of
its continued focus on acquisitions of long-term care pharmacy providers and
other complementary non-pharmaceutical service businesses and sustained internal
growth.
During the nine months ended 1998, the Company acquired eleven
institutional pharmacy providers (excluding insignificant purchases of other
assets) which when combined with internal growth, brought the total number of
nursing facility residents served to 565,300 at September 30, 1998, up 32% over
the number served one year ago. The Company also acquired a data management
business and a contract research organization ("CRO") during this nine-month
period. These thirteen transactions added approximately $379 million in revenues
on an annualized basis.
12
<PAGE> 13
Internal growth resulted from an increase in acuity levels of residents
in client facilities, expansion of services such as infusion therapy, efforts of
the Company's National Sales and Marketing Group and pharmacy staff in
developing new pharmacy contracts, drug price inflation, growth in other
complementary non-pharmaceutical service businesses and other changes in sales
mix.
Investment income for the nine months ended September 30, 1998 was
$3,046,000, a decrease of $1,501,000 in comparison to the same period of 1997
due to a lower average invested cash balance during the first three quarters of
1998 than in the first three quarters of 1997. The use of cash is primarily
attributable to the Company's acquisition program.
Interest expense during the nine months ended September 30, 1998 was
$14,507,000, an increase of $12,355,000 versus the comparable prior year period
primarily due to the $345,000,000, 5.0% Convertible Subordinated Notes issued in
December 1997.
The decrease in the effective tax rate to 42.3% for the nine months
ended September 30, 1998 from 44.8% in the similar 1997 period is primarily
attributable to a decrease in state and local income taxes in 1998. The
effective tax rates of 42.3% and 44.8% in 1998 and 1997, respectively, are
higher than the Federal statutory rate of 35% primarily due to state and local
income taxes and various nondeductible expenses (e.g., acquisition costs and
nonrecurring charges).
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents at September 30, 1998 were $84 million versus
$138 million at December 31, 1997. Acquisitions of businesses through September
30, 1998 required $367 million of cash payments (including $250 million relating
to the Company's acquisition of United Professional Companies, or "UPC," in
September 1998 and other amounts payable pursuant to acquisition agreements
relating to pre-1998 acquisitions) which were funded by the reduction in cash
and cash equivalents, the use of cash flows generated from the first nine months
operating activities and the third quarter utilization of $290 million from the
Company's $400 million revolving credit facility. The Company generated positive
net cash flows from operating activities of $87 million during the nine months
ended September 30, 1998. The improvement in net cash flows from operating
activities during the nine months ended September 30, 1998 versus the comparable
prior year period is primarily attributable to improved management of working
capital and changes in estimated tax assets and liabilities as well as the
acquisitions of IBAH, CompScript and UPC. Specifically, there was a significant
increase in inventories during the first quarter of 1997 associated with a
change in pricing and payment terms with the Company's primary supplier of
pharmaceuticals from four weeks to one week and the purchase of inventories in
advance of pharmaceutical price increases from manufacturers, whereas neither of
these circumstances significantly impacted the first three quarters of 1998.
The Company's capital requirements are primarily related to its
acquisition program. During the nine months ended September 30, 1998, the
Company made thirteen acquisitions (excluding insignificant purchases of other
assets) for an aggregate capital investment of approximately $580 million. Such
acquisitions were financed from cash and cash equivalents and the issuance of
approximately 6.6 million shares of common stock. There are no material
commitments outstanding at September 30, 1998, other than estimated future
acquisition-related payments to be made in accordance with purchase agreements.
13
<PAGE> 14
The Company's current ratio at September 30, 1998 and December 31, 1997
was 2.7 to 1.0 and 2.9 to 1.0, respectively. The decline in the current ratio is
primarily attributable to the Company's utilization of cash to fund its
acquisition program.
On February 4, 1998, the Company's Board of Directors increased the
quarterly cash dividend by 14% to 2 cents per share for an indicated annual rate
of 8 cents per share in 1998. Dividends of $5.1 million were paid during the
nine months ended September 30, 1998 versus the $4.2 million paid in the
comparable prior year period.
The Company believes its sources of liquidity and capital are adequate
for its ongoing operating needs. If needed, other external sources of financing
are readily available to the Company.
Impact of Year 2000
- -------------------
The Company utilizes information systems throughout its business to
carry out its day-to-day operations. Further, the Company has and will continue
to invest in financial and operational systems to support its growth strategy.
Incorporated in this process is the continuing assessment of the Company's Year
2000 compliance. The Company currently considers its internal information
technology ("IT") systems to be substantially Year 2000 compliant. For those
systems which are not Year 2000 compliant, Omnicare is currently correcting,
upgrading or replacing those systems with, among other systems, its new
proprietary information system, which system is Year 2000 compliant. The Company
believes it will be able to modify or replace its affected systems in time to
avoid any interruptions in its operations and anticipates that such remediation
will be completed during the second half of 1999. The Company estimates that the
costs associated with this project will range from approximately $4.2 million to
$5.2 million (with hardware accounting for approximately 40 percent of these
costs and software and implementation accounting for approximately 60 percent of
these costs), of which approximately $1.2 million has been spent through
September 30, 1998. The cost of this project will be funded primarily from the
Company's operating cash flows. No IT projects with high priority have been
significantly delayed due to the Year 2000 initiatives. The Company does not
anticipate any significant implications with respect to Year 2000 issues
relating to non-IT systems.
While the Company believes its plan for Year 2000 compliance will be
completed on a timely basis and within the foregoing estimates, there can be no
assurance that the remedial actions being implemented by the Company will be
completed in a timely manner; nor can assurance be given that any inability to
complete remedial action in a timely manner will not impact adversely operations
or financial results. Moreover, there can be no assurance that the costs
associated with the remediation will not exceed the foregoing estimates.
The failure by third parties with whom the Company has dealings,
particularly the Medicaid and Medicare programs, to adequately address their
Year 2000 issues could adversely affect the Company, and claims to these third
party payors could be unjustifiably denied and/or delayed. As a result, the
Company's accounts receivable balance could increase, unfavorably impacting
operating cash flows. The Company is communicating with each of these programs
to determine the extent to which it may be impacted by any Year 2000 issues not
yet resolved by
14
<PAGE> 15
these programs. The Company has developed a contingency plan which, if
necessary, would call for the submission of reimbursement claims using universal
claim (paper) forms to the programs in the event that computerized processing is
not feasible in the Year 2000. While it is management's current belief that this
contingency plan would satisfactorily address the risk associated with any
absence of readiness experienced by these programs, there can be no assurance
that implementation of such plan will mitigate in whole or in part such risk.
Recently Issued Accounting Standards
- ------------------------------------
In 1997, the Financial Accounting Standards Board (the "Board") issued
Statement of Financial Accounting Standards ("SFAS") Nos. 130 and 131,
"Reporting Comprehensive Income" and "Disclosures about Segments of an
Enterprise and Related Information," respectively. Effective January 1, 1998,
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses). SFAS No. 130
did not impact the Company's reporting and disclosures during the first nine
months of 1998. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997, although it is not applicable to interim periods in the
initial year of adoption. SFAS No. 131 requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is not
expected to significantly impact the Company's reporting and disclosures.
In 1998, SFAS Nos. 132 and 133, "Disclosure about Pensions and other
Post-Retirement Benefits" and "Accounting for Derivative Instruments and Hedging
Activities," respectively, were issued by the Board. SFAS No. 132 is effective
for fiscal years beginning after December 15, 1997, although it is not
applicable to interim periods in the initial year of adoption. SFAS No. 132
amends certain reporting and disclosure requirements of SFAS Nos. 87 and 106,
while SFAS No. 133 standardizes the accounting for derivative instruments by
requiring that all derivatives be recognized as assets and liabilities and be
measured at fair value. SFAS No. 133 is applicable for fiscal years beginning
after June 15, 1999, but earlier application is permitted as of the beginning of
any fiscal quarter subsequent to June 15, 1998. SFAS Nos. 132 and 133 are not
expected to significantly impact the Company's financial position, results of
operations or financial reporting.
The American Institute of Certified Public Accountants recently issued
Statement of Position ("SOP") Nos. 98-1 and 98-5, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" and "Start-Up
Activities," respectively. SOP 98-1 provides guidance on accounting for the
costs of computer software developed or obtained for internal use. SOP 98-5
requires costs of start-up activities and organization costs to be expensed as
incurred. These statements are effective for financial statements for fiscal
years beginning after December 15, 1998. SOP Nos. 98-1 and 98-5 are not expected
to have a significant impact on the Company's financial position, results of
operations or financial reporting.
15
<PAGE> 16
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
- ------------------------------------------------------------------------------
1995 Regarding Forward-Looking Information
- ------------------------------------------
In addition to historical information, this Form 10-Q contains
forward-looking statements and performance trends which are subject to certain
known and unknown risks, uncertainties, contingencies and other factors that
could cause actual results, performance or achievements to differ materially
from those stated. Such risks, uncertainties, contingencies and other factors,
many of which are beyond the control of Omnicare, include, but are not limited
to: the continued availability of suitable acquisition candidates; overall
economic and business conditions; 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; the failure of the Company
to obtain or maintain required regulatory approvals or licenses, trends for the
continued growth of the businesses of Omnicare, the realization of anticipated
revenues, profitability and cost synergies; the demand for Omnicare's products
and services; pricing and other competitive factors in the industry; variations
in costs or expenses; changes in the scope of Year 2000 initiatives; and delays
or problems in the implementation of Year 2000 initiatives by Omnicare and/or
its suppliers and customers.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Omnicare, Inc.
Registrant
Date November 16, 1998 By /s/David W. Froesel, Jr.
---------------------- ------------------------
David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
<PAGE> 1
Exhibit 11
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Computation of Earnings Per Common Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
1998* 1997 1998* 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic Earnings
Income from continuing operations $ 25,740 $ 11,396 $ 54,252 $ 37,389
Loss from discontinued operations - - - (2,154)
-------- -------- -------- --------
Net income $ 25,740 $ 11,396 $ 54,252 $ 35,235
======== ======== ======== ========
Shares
Weighted average number of common
shares outstanding 89,493 86,381 88,815 85,196
======== ======== ======== ========
Basic earnings per common share
Income from continuing operations $ 0.29 $ 0.13 $ 0.61 $ 0.44
Loss from discontinued operations - - - (0.03)
-------- -------- -------- --------
Net income $ 0.29 $ 0.13 $ 0.61 $ 0.41
======== ======== ======== ========
Diluted Earnings
Income from continuing operations $ 25,740 $ 11,396 $ 54,252 $ 37,389
Loss from discontinued operations - - - (2,154)
-------- -------- -------- --------
Net income $ 25,740 $ 11,396 $ 54,252 $ 35,235
======== ======== ======== ========
Shares
Weighted average number of common
shares outstanding 89,493 86,381 88,815 85,196
Additional shares assuming conversion of
stock options and stock warrants 561 1,055 832 1,050
-------- -------- -------- --------
Average common shares outstanding
as adjusted 90,054 87,436 89,647 86,246
======== ======== ======== ========
Diluted earnings per common share
Income from continuing operations $ 0.29 $ 0.13 $ 0.61 $ 0.43
Loss from discontinued operations - - - (0.02)
-------- -------- -------- --------
Net income $ 0.29 $ 0.13 $ 0.61 $ 0.41
======== ======== ======== ========
</TABLE>
* The $345,000,000 of 5.0% Convertible Subordinated Notes due 2007 that are
convertible into 8,712,121 shares at $39.60 per share were outstanding
during the three and nine months ended September 30, 1998 but were not
included in the computation of diluted EPS because the impact was
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000353230
<NAME> OMNICARE, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 84,040
<SECURITIES> 0
<RECEIVABLES> 375,374
<ALLOWANCES> 26,605
<INVENTORY> 101,039
<CURRENT-ASSETS> 584,110
<PP&E> 207,662
<DEPRECIATION> 78,661
<TOTAL-ASSETS> 1,832,698
<CURRENT-LIABILITIES> 217,674
<BONDS> 0
0
0
<COMMON> 89,722
<OTHER-SE> 835,294
<TOTAL-LIABILITY-AND-EQUITY> 1,832,698
<SALES> 1,082,099
<TOTAL-REVENUES> 1,082,099
<CGS> 755,719
<TOTAL-COSTS> 755,719
<OTHER-EXPENSES> 202,652
<LOSS-PROVISION> 8,357
<INTEREST-EXPENSE> 14,507
<INCOME-PRETAX> 94,053
<INCOME-TAX> 39,801
<INCOME-CONTINUING> 54,252
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,252
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
