<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 March 31, 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
50 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) 291-6800
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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
- ------------------------
<TABLE>
<CAPTION>
Number of
Shares Date
------ ----
<S> <C> <C>
Common Stock, $1 par value 82,886,217 March 31, 1998
</TABLE>
<PAGE> 2
OMNICARE, INC. AND
------------------
SUBSIDIARY COMPANIES
--------------------
Index
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31, 1998 and December 31, 1997 3
Consolidated Statement of Income -
Three months ended -
March 31, 1998 and 1997 4
Consolidated Statement of Cash Flows -
Three months ended -
March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
Part II. Other Information:
Item 2. Recent Sales of Unregistered Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
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Item 1. Financial Statements
--------------------
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
(In thousands, except share data)
<TABLE>
<CAPTION>
UNAUDITED
March 31, December 31,
1998 1997
------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 119,882 $ 131,042
Accounts receivable, less allowances of
$17,817 (1997 - $15,872) 238,659 225,774
Inventories 98,018 87,186
Deferred income tax benefits 15,267 10,205
Other current assets 18,935 17,757
----------- -----------
Total current assets 490,761 471,964
Properties and equipment, at cost less accumulated
depreciation of $46,206 (1997-$42,204) 86,885 84,074
Goodwill, less accumulated amortization
of $32,297 (1997-$27,763) 720,270 693,007
Other assets 40,318 40,584
----------- -----------
Total assets $ 1,338,234 $ 1,289,629
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 60,432 $ 45,669
Amounts payable pursuant to acquisition agreements 6,000 17,073
Current portion of long-term debt 2,810 2,936
Income taxes payable 8,676 2,052
Accrued employee compensation 19,974 29,529
Other current liabilities 39,503 30,851
----------- -----------
Total current liabilities 137,395 128,110
Long-term debt 350,468 352,579
Deferred income taxes 9,168 10,302
Amounts payable pursuant to acquisition agreements 10,769 10,404
Other noncurrent liabilities 19,096 14,038
----------- -----------
Total liabilities 526,896 515,433
Stockholders' equity:
Preferred stock-authorized 1,000,000 shares
without par value; none issued
Common stock-authorized 110,000,000 shares
$1 par; 82,918,703 issued
(1997 - 82,254,711 shares) 82,919 82,255
Paid-in capital 542,045 526,727
Retained earnings 202,432 183,887
----------- -----------
827,396 792,869
Treasury stock, at cost - 32,486 shares (1997 - 102,046 shares) (1,223) (2,926)
Deferred compensation (14,421) (14,807)
Unallocated stock of ESOP (414) (940)
----------- -----------
Total stockholders' equity 811,338 774,196
----------- -----------
Contingencies (Note 3)
Total liabilities and stockholders' equity $ 1,338,234 $ 1,289,629
=========== ===========
</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
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Sales $ 299,752 $ 181,608
Cost of sales 212,734 128,903
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Gross profit 87,018 52,705
Selling, general and administrative expenses 51,347 30,570
Acquisition expenses, pooling-of-interests 491 978
--------- ---------
Operating income 35,180 21,157
Investment income 1,444 1,802
Interest expense (4,534) (290)
--------- ---------
Income before income taxes 32,090 22,669
Income taxes 12,741 9,226
--------- ---------
Net income $ 19,349 $ 13,443
========= =========
Earnings per share:
Basic $ 0.23 $ 0.17
========= =========
Diluted $ 0.23 $ 0.17
========= =========
Dividends paid per share: $ 0.02 $ 0.0175
========= =========
Weighted average number of
common shares outstanding:
Basic 82,439 78,065
========= =========
Diluted 82,695 78,218
========= =========
</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) Three Months Ended
March 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 19,349 $ 13,443
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 9,174 5,155
Provision for doubtful accounts 2,250 1,360
Deferred tax provision (1,133) 1,322
Changes in assets and liabilities, net of effects
from acquisition/disposal of businesses:
Accounts receivable (12,917) (14,670)
Inventories (10,687) (24,649)
Current and noncurrent assets (794) (11,014)
Payables and accrued liabilities 20,150 16,236
Current and noncurrent liabilities 5,851 2,299
--------- ---------
Net cash flows from operating activities 31,243 (10,518)
--------- ---------
Cash flows from investing activities:
Acquisition of businesses (29,415) (74,040)
Capital expenditures (7,955) (5,503)
Other (98) 8
--------- ---------
Net cash flows from investing activities (37,468) (79,535)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term obligations (1,163) (137)
Exercise of stock options and warrants,
net of stock tendered in payment (2,149) 4,105
Dividends paid (1,623) (1,367)
--------- ---------
Net cash flows from financing activities (4,935) 2,601
--------- ---------
Net increase (decrease) in cash and cash equivalents (11,160) (87,452)
Cash and cash equivalents at beginning of period 131,042 216,515
--------- ---------
Cash and cash equivalents at end of period $ 119,882 $ 129,063
========= =========
Supplemental disclosures of cash flow information
Income taxes paid $ 390 $ 5,151
Interest paid 184 138
</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 three acquisitions
(excluding insignificant purchases of pharmacy contracts and other assets) of
institutional pharmacy businesses and one data management business. All of the
institutional pharmacy transactions were accounted for as purchase transactions
and the data management business as a pooling-of-interests. These four
transactions added approximately $15 million in revenues on an annualized basis.
For all acquisitions accounted for as purchases, including insignificant
purchases of pharmacy contracts and other assets, the purchase price paid for
each has been allocated to the fair value of the assets acquired and liabilities
assumed. The results of operations of the acquired companies have been included
in the consolidated results of the Company from the effective dates of the
acquisitions. The impact of the pooling-of-interests transaction on the
Company's historical consolidated financial statements was not material;
consequently, prior period and current year financial statements have not been
restated for this transaction.
CompScript
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On February 23, 1998, Omnicare and CompScript, Inc. (CompScript)
(NASDAQ:CPRX) announced the execution of a definitive merger agreement pursuant
to which Omnicare will acquire CompScript through the merger of a wholly-owned
subsidiary of Omnicare with CompScript. In the merger, each outstanding
CompScript common share will be converted into $4.50 market value of Omnicare
common shares, subject to the terms of the merger agreement. Omnicare expects to
issue approximately $63.3 million in Omnicare stock. In addition, CompScript has
approximately $7.5 million in debt. The transaction is structured as a pooling-
of-interests and a tax-free reorganization.
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-
6
<PAGE> 7
term care facilities in five states. CompScript operates seven pharmacy
locations in the states of Florida, Ohio, Louisiana, Alabama and Mississippi.
CompScript's annualized revenues are approximately $53.0 million based on the
fourth quarter of 1997.
The transaction, which has been approved by the Boards of Directors of
both Omnicare and CompScript, is subject to the approval of CompScript's
shareholders, the expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Act, and certain other terms and conditions. In connection with this
transaction, CompScript has granted Omnicare an option to purchase up to 19.9%
of CompScript's common shares, exercisable upon the occurrence of certain
circumstances specified in the agreement. It is anticipated that the transaction
will be completed prior to the end of the third quarter of 1998.
IBAH
- ----
On March 31, 1998, Omnicare and IBAH, Inc. (IBAH) (NASDAQ:IBAH)
announced the execution of a definitive agreement under which Omnicare will
acquire IBAH, the fifth largest global contract research organization ("CRO"),
in a stock-for-stock merger. In the merger, each outstanding IBAH common share
will be converted into $5.75 market value of Omnicare common shares, subject to
the terms of the agreement. Omnicare expects to issue approximately $169 million
in Omnicare stock. The transaction is structured as a pooling-of-interests and a
tax-free reorganization.
The definitive agreement has been approved by both Boards of Directors
and is subject to the approval of IBAH's shareholders, the expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Act, and certain other
terms and conditions. In connection with this transaction, IBAH has granted
Omnicare an option to purchase up to 19.9% of IBAH's common shares exercisable
upon the occurrence of certain circumstances specified in the agreement. It is
anticipated that the transaction will be completed by the end of the third
quarter of 1998.
IBAH, Inc., 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. IBAH's net revenues are
running at the annualized rate of approximately $99 million based on the fourth
quarter of 1997.
7
<PAGE> 8
3. 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"), has been concluded on the terms previously disclosed.
The HPSI pharmacy operation accounted for less than 3% of Omnicare's total sales
and earnings for the three months ended March 31, 1998.
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.
In anticipation of the completion of the settlement, 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 is adequate to cover
the final settlement costs.
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition
- -------------------
Results of Operations
- ---------------------
Quarter Ended March 1998 vs. 1997
- ---------------------------------
Excluding the impact of acquisition related expenses for
pooling-of-interests transactions from both periods, net income for the quarter
ended March 31, 1998 was up 38% to $19,764,000 from the $14,297,000 earned in
the same period a year ago. Basic and diluted earnings per share, on this basis,
were $.24, up 33% from the $.18 earned in the comparable prior-year period. The
1998 quarter included pooling expenses of $491,000 before taxes ($415,000 after
taxes) while the 1997 quarter included $978,000 before taxes ($854,000 after
taxes) in pooling expenses. Sales for the first quarter of 1998 increased 65% to
$299,752,000 versus the $181,608,000 recorded in the comparable prior-year
quarter.
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 first quarter of 1998, the Company acquired three
institutional pharmacy providers (excluding insignificant purchases of pharmacy
contracts and other assets), which when combined with internal growth, brought
the total number of nursing facility residents served to 457,200 at March 31,
1998, up 35% over the number served one year ago. The Company also acquired a
data management business during the quarter. These four transactions added
approximately $15 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 and purchasing new pharmacy contracts, drug price inflation and other
changes in sales mix.
Investment income for the three months ended March 31, 1998 decreased
by $358,000 in comparison to the same period of 1997 due to a lower average
invested cash balance during the first quarter of 1998 than in the first quarter
of 1997. The use of cash is primarily attributable to the Company's acquisition
program.
The Company's effective tax rate in the first quarter of 1998 was 39.7%
versus 40.7% in the comparable 1997 period. The decrease was primarily
attributable to a reduction in nondeductible pooling-of-interests expenses in
the current year quarter versus the comparable prior year period.
9
<PAGE> 10
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents at March 31, 1998 were $120 million versus
$131 million at December 31, 1997. Acquisitions of businesses in the first
quarter of 1998 required $29 million of cash payments (including amounts payable
pursuant to acquisition agreements relating to pre-1998 acquisitions) which were
funded by the reduction in cash and cash equivalents and the use of cash flows
generated from first quarter operating activities. The Company generated
positive net cash flow from operating activities of $31 million during the three
months ended March 31, 1998. The improvement in net cash flow from operating
activities during the three months ended March 31, 1998 versus the comparable
prior year period is primarily attributable to improved management of
working capital and changes in estimated tax assets and liabilities.
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 quarter of 1998.
The Company's capital requirements are primarily related to its
acquisition program. During the three months ended March 31, 1998, the Company
made four acquisitions (excluding insignificant purchases of other assets) for
an aggregate capital investment of approximately $14 million. Such acquisitions
were financed from cash and cash equivalents and the issuance of approximately
156,000 shares of common stock. There are no material commitments outstanding at
March 31, 1998, other than estimated future acquisition-related payments to be
made in accordance with purchase agreements.
The Company's current ratio at March 31, 1998 and December 31, 1997 was
3.6 to 1.0 and 3.7 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 $1.6 million were paid during
the three months ended March 31, 1998 versus the $1.4 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.
10
<PAGE> 11
Recently Issued Accounting Standards
- ------------------------------------
In 1997, the Financial Accounting Standards 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. 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. 130 did not impact the Company's reporting and disclosures during the
first quarter of 1998. Further, SFAS No. 131 is not expected to significantly
impact the Company's reporting and disclosures.
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, reporting and disclosures.
"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
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; the failure of the Company to obtain or maintain
required regulatory approvals or licenses; and other risks and uncertainties as
described in the Company's 1997 Report on Form 10-K for the year ended December
31, 1997.
11
<PAGE> 12
PART II. -- OTHER INFORMATION
-----------------------------
Item 2. Recent Sales of Unregistered Securities
---------------------------------------
The Company, as part of its ongoing acquisition program, issues its
common shares and warrants ("Securities") from time to time in private
transactions in connection with the purchase of the assets or stock of
businesses acquired. During the quarter ended March 31, 1998, the Company
completed three transactions involving unregistered Securities. In connection
with these and a prior transaction, a total of 309,912 shares of common stock
and 80,000 warrants 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. See Note 2
to the Consolidated Financial Statements for additional information regarding
the 1998 acquisition transactions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit
------ -------
11 Computation of Earnings per Common Share
(b) Reports on Form 8-K - On February 18, 1998, a Form 8-K was filed to
report the sales and earnings of the Company for the month ended
January 31, 1998.
12
<PAGE> 13
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 May 15, 1998 By /s/David W. Froesel, Jr.
------------------------------- ------------------------
David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<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
March 31,
----------------------
1998* 1997
------- -------
<S> <C> <C>
Basic Earnings
Net income $19,349 $13,443
Other -- 4
------- -------
Net income as adjusted $19,349 $13,447
======= =======
Shares
Weighted average number of common
shares outstanding 82,439 78,065
======= =======
Basic earnings per common share $ 0.23 $ 0.17
======= =======
Diluted Earnings
Net income $19,349 $13,443
Other -- 4
------- -------
Net income as adjusted $19,349 $13,447
======= =======
Shares
Weighted average number of common
shares outstanding 82,439 78,065
Additional shares assuming conversion of
stock options and stock warrants 256 153
------- -------
Average common shares outstanding and
equivalent as adjusted 82,695 78,218
======= =======
Diluted earnings per common share $ 0.23 $ 0.17
======= =======
</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 quarter ended March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 119,882
<SECURITIES> 0
<RECEIVABLES> 256,476
<ALLOWANCES> 17,817
<INVENTORY> 98,018
<CURRENT-ASSETS> 490,761
<PP&E> 133,091
<DEPRECIATION> 46,206
<TOTAL-ASSETS> 1,338,234
<CURRENT-LIABILITIES> 137,395
<BONDS> 0
0
0
<COMMON> 82,919
<OTHER-SE> 728,419
<TOTAL-LIABILITY-AND-EQUITY> 1,338,234
<SALES> 299,752
<TOTAL-REVENUES> 299,752
<CGS> 212,734
<TOTAL-COSTS> 212,734
<OTHER-EXPENSES> 51,838
<LOSS-PROVISION> 2,250
<INTEREST-EXPENSE> 4,534
<INCOME-PRETAX> 32,090
<INCOME-TAX> 12,741
<INCOME-CONTINUING> 19,349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,349
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
