<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 June 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
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
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Number of
Shares Date
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Common Stock, $1 par value 89,411,372 June 30, 1998
<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 -
June 30, 1998 and December 31, 1997 3
Consolidated Statement of Income -
Three and six months ended -
June 30, 1998 and 1997 4
Consolidated Statement of Cash Flows -
Six months ended -
June 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 10
Part II. Other Information:
Item 2. Recent Sales of Unregistered Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
</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
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 68,723 $ 138,062
Accounts receivable, less allowances of
$20,397 (1997 - $17,994) 319,691 278,525
Inventories 93,074 90,366
Deferred income tax benefits 13,190 10,465
Other current assets 23,823 24,954
<S> <C> <C>
Total current assets 518,501 542,372
Properties and equipment, at cost less accumulated
depreciation of $63,719 (1997-$53,703) 113,301 101,662
Goodwill, less accumulated amortization
of $40,238 (1997-$30,247) 796,148 726,696
Other assets 43,456 41,416
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Total assets $ 1,471,406 $ 1,412,146
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 76,510 $ 54,840
Amounts payable pursuant to acquisition agreements 6,963 17,073
Current portion of long-term debt 5,661 13,252
Accrued employee compensation 25,271 34,304
Deferred revenue 20,734 22,270
Other current liabilities 53,436 45,808
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Total current liabilities 188,575 187,547
Long-term debt 350,711 359,148
Deferred income taxes 11,182 10,517
Amounts payable pursuant to acquisition agreements 11,866 10,404
Other noncurrent liabilities 20,840 14,777
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Total liabilities 583,174 582,393
Stockholders' equity:
Preferred stock-authorized 1,000,000 shares
without par value; none issued
Common stock-authorized 200,000,000 shares $1 par;
89,438,044 shares issued (1997 - authorized
110,000,000 shares; 88,260,600 shares issued) 89,438 88,261
Paid-in capital 636,551 609,117
Retained earnings 177,198 151,153
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903,187 848,531
Treasury stock, at cost - 26,672 shares (1997 - 102,046 shares) (970) (2,926)
Deferred compensation (13,889) (14,807)
Unallocated stock of ESOP (273) (940)
Translation adjustment 177 (105)
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Total stockholders' equity 888,232 829,753
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Contingencies (Note 4)
Total liabilities and stockholders' equity $ 1,471,406 $ 1,412,146
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</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 Six Months Ended
June 30, June 30,
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Sales $ 358,194 $ 236,896 $ 698,452 $ 449,320
Cost of sales 249,615 165,680 488,551 314,808
--------- --------- --------- ---------
Gross profit 108,579 71,216 209,901 134,512
Selling, general and administrative expenses 67,408 46,307 130,944 87,053
Acquisition expenses, pooling-of-interests 14,096 944 14,587 2,535
Restructuring costs 3,627 1,078 3,627 1,078
--------- --------- --------- ---------
Operating income 23,448 22,887 60,743 43,846
Investment income 977 1,456 2,423 3,487
Interest expense (4,435) (405) (9,206) (861)
Other expenses -- -- -- (800)
--------- --------- --------- ---------
Income before income taxes 19,990 23,938 53,960 45,672
Income taxes 11,884 10,217 25,448 19,679
--------- --------- --------- ---------
Income from continuing operations 8,106 13,721 28,512 25,993
Loss from discontinued operations -- (1,854) -- (2,154)
--------- --------- --------- ---------
Net income $ 8,106 $ 11,867 $ 28,512 $ 23,839
========= ========= ========= =========
Earnings per share:
Basic
Continuing operations $ 0.09 $ 0.16 $ 0.32 $ 0.31
Discontinued operations -- (0.02) -- (0.03)
--------- --------- --------- ---------
Net income $ 0.09 $ 0.14 $ 0.32 $ 0.28
========= ========= ========= =========
Diluted
Continuing operations $ 0.09 $ 0.16 $ 0.32 $ 0.30
Discontinued operations -- (0.02) -- (0.02)
--------- --------- --------- ---------
Net income $ 0.09 $ 0.14 $ 0.32 $ 0.28
========= ========= ========= =========
Weighted average number of common shares outstanding:
Basic 88,824 85,674 88,466 84,593
========= ========= ========= =========
Diluted 89,918 86,586 89,516 85,636
========= ========= ========= =========
</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) Six Months Ended
June 30,
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1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 28,512 $ 23,839
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 22,272 13,187
Provision for doubtful accounts 5,393 2,918
Deferred tax provision 3,996 3,159
Discontinued operations -- 2,154
Other 1,948 800
Changes in assets and liabilities, net of effects from acquisition/disposal of
businesses:
Accounts receivable (42,516) (37,774)
Inventories (2,001) (20,714)
Current and noncurrent assets 1,904 (9,587)
Payables and accrued liabilities 33,034 9,183
Deferred revenue (1,499) (2,447)
Current and noncurrent liabilities (2,498) 882
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Net cash flows from operating activities 48,545 (14,400)
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Cash flows from investing activities:
Acquisition of businesses (76,411) (99,931)
Capital expenditures (23,496) (16,893)
Other 2,135 2,787
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Net cash flows from investing activities (97,772) (114,037)
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Cash flows from financing activities:
Net proceeds from borrowings -- 4,406
Principal payments on long-term obligations (15,353) (1,851)
Exercise of stock options and warrants,
net of stock tendered in payment (1,533) 6,669
Dividends paid (3,277) (2,770)
Effect of exchange rate changes on cash 51 (404)
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Net cash flows from financing activities (20,112) 6,050
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Net increase (decrease) in cash and cash equivalents (69,339) (122,387)
Cash and cash equivalents at beginning of period 138,062 232,961
========= =========
Cash and cash equivalents at end of period $ 68,723 $ 110,574
========= =========
Supplemental disclosures of cash flow information
- -------------------------------------------------
Income taxes paid $ 15,779 $ 11,615
Interest paid 9,190 552
</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 eight acquisitions
(excluding insignificant purchases of other assets) of institutional pharmacy
businesses, one data management business and one contract research organization
(CRO). Seven 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 ten transactions added
approximately $198 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
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<S> <C> <C> <C> <C>
Three months ended June 30, 1998:
Sales $316,701 $14,388 $27,105 $358,194
Net income (excluding pooling expenses,
restructuring costs, other nonrecurring
expenses and discontinued operations) 22,237 277 983 23,497
Net income/(loss) 15,736 (2,445) (5,185) 8,106
Three months ended June 30, 1997:
Sales $203,060 $12,848 $20,988 $236,896
Net income/(loss) (excluding pooling expenses,
restructuring costs, other nonrecurring
expenses and discontinued operations) 15,713 (348) 260 15,625
Net income/(loss) 15,138 (423) (2,848) 11,867
</TABLE>
7
<PAGE> 8
<TABLE>
<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.
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>
<S> <C>
Merger transaction costs $14,096
Restructuring costs
Employee severance 1,413
Exit costs 2,214
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Total $17,723
=======
</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 will result in the reduction of approximately 20 employees.
Included in the exit costs are $1,948,000 of non-cash items. At June 30, 1998,
all liabilities relating to these actions were classified as current
liabilities.
Pharmacy Operations of Extendicare
- ----------------------------------
On July 30, 1998, Omnicare and Extendicare Health Services, Inc.
("EHSI"), a wholly-owned subsidiary of Extendicare Inc. ("Extendicare")
announced the execution of a definitive agreement pursuant to which Omnicare
will acquire the institutional pharmacy operations of EHSI 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 transaction is
structured as a purchase of assets.
8
<PAGE> 9
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. UPC's pharmacy revenues are currently running at
the annualized rate of approximately $163 million.
The transaction has been approved by the Board of Directors of both
Omnicare and Extendicare, and is subject to the expiration of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
satisfaction of certain other conditions. It is expected that the transaction
will close by September 30, 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 June 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 six months
ended June 30, 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. 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.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Results of Operations and
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Financial Condition
- -------------------
Results of Operations
- ---------------------
Quarter Ended June 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 presented herein to include the
results of operations, financial position and cash flows of CompScript and IBAH.
Excluding the impact of acquisition-related expenses for
pooling-of-interests transactions and other nonrecurring expenses from both
periods, diluted earnings per share from continuing operations for the three
months ended June 30, 1998 were $.26, up 44% from the $.18 earned in the same
period a year ago. Income from continuing operations, on this basis, for the
1998 quarter was up 50%, to $23,497,000 from the $15,625,000 earned from
continuing operations in the second quarter of 1997. Revenues for the 1998
quarter increased 51% to $358,194,000 versus the $236,896,000 recorded in the
comparable prior-year quarter. The 1998 quarter included pooling expenses of
$14,096,000 before taxes ($12,702,000 after taxes) covering transaction-related
expenses in the CompScript and IBAH acquisitions. The 1998 quarter also included
$3,627,000 before taxes ($2,689,000 after taxes) in nonrecurring charges related
to the restructuring of 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. The 1997 quarter included pooling
expenses of $944,000 before taxes ($826,000 after taxes) for transactions
completed by Omnicare, CompScript and IBAH and a restructuring charge of
$1,078,000 before taxes ($1,078,000 after taxes) recorded by IBAH.
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 second quarter of 1998, the Company acquired five
institutional pharmacy providers (including CompScript, but excluding
insignificant purchases of other assets) which when combined with internal
growth, brought the total number of nursing facility residents served to 496,000
at June 30, 1998, up 39% over the number served one year ago. These
transactions, together with the IBAH acquisition, added approximately $183
million in revenues on an annualized basis.
10
<PAGE> 11
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 and other changes in
sales mix.
Investment income for the three months ended June 30, 1998 was
$977,000, a decrease of $479,000 in comparison to the same period of 1997 due to
a lower average invested cash balance during the second quarter of 1998 than in
the second quarter of 1997. The use of cash is primarily attributable to the
Company's acquisition program.
Interest expense during the three months ended June 30, 1998 was
$4,435,000, an increase of $4,030,000 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 Company's effective tax rate in the second quarter of 1998 was
59.4% versus 42.7% in the comparable 1997 period. The increase was primarily
attributable to higher nondeductible pooling-of-interests expenses recorded in
the current year quarter versus the comparable prior year period.
Year-to-Date June 1998 vs. 1997
- -------------------------------
Excluding the acquisition-related pooling, restructuring and
nonrecurring charges from both periods, diluted earnings per share from
continuing operations for the six months ended June 30, 1998 of $.50 were 43%
higher than the $.35 earned from continuing operations in the first six months
of 1997. Income from continuing operations, on this basis, of $44,318,000 for
the first half of 1998 was 48% above the $29,863,000 earned from continuing
operations in the first half of 1997. Revenues for the 1998 period were
$698,452,000, up 55% over the $449,320,000 recorded in the first half of 1997.
The 1998 period included pooling expenses of $14,587,000 before taxes
($13,117,000 after taxes) consisting of those mentioned above, along with
$491,000 before taxes ($415,000 after taxes) in pooling expenses incurred in
connection with an acquisition completed by Omnicare during the first quarter,
and the aforementioned restructuring charges related to the IBAH and CompScript
transactions. The 1997 period includes pooling expenses of $2,535,000 before
taxes ($2,293,000 after taxes) consisting of those mentioned above and
$1,591,000 ($1,467,000 after taxes) related to pooling expenses incurred in
connection with acquisitions completed by Omnicare and CompScript during the
first quarter of 1997. The 1997 period also included nonrecurring expenses of
$1,878,000 before taxes ($1,577,000 after taxes) consisting of the previously
mentioned IBAH restructuring charge and a one-time charge of $800,000 ($499,000
after taxes) relating to the write-down of a note receivable of CompScript in
the first quarter of 1997.
11
<PAGE> 12
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 six months ended 1998, the Company acquired eight
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 496,000 at June 30, 1998, up 39% over the
number served one year ago. The Company also acquired a data management
business and a during this six-month period. These ten transactions added
approximately $198 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 and other changes in
sales mix.
Investment income for the six months ended June 30, 1998 was $2,423,000
a decrease of $1,064,000 in comparison to the same period of 1997 due to a lower
average invested cash balance during the first half of 1998 than in the first
half of 1997. The use of cash is primarily attributable to the Company's
acquisition program.
Interest expense during the six months ended June 30, 1998 was
$9,206,000, an increase of $8,345,000 versus the comparable prior year period
primarily due to the $345,000,000, 5.0% Convertible Subordinated Notes issued in
December 1997.
The Company's effective tax rate during the June 1998 year to date
period was 47.2% versus 43.1% in the similar 1997 period. The increase was
primarily attributable to additional nondeductible pooling-of-interests
expenses recorded in the current year period versus the comparable prior year
prior.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents at June 30, 1998 were $69 million versus $138
million at December 31, 1997. Acquisitions of businesses through June 30, 1998
required $76 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 $48.5 million during the six months ended June
30, 1998. The improvement in net cash flow from operating activities during the
six months ended June 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 and
CompScript. 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 six months of 1998.
12
<PAGE> 13
The Company's capital requirements are primarily related to its
acquisition program. During the six months ended June 30, 1998, the Company made
ten acquisitions (excluding insignificant purchases of other assets) for an
aggregate capital investment of approximately $272 million. Such acquisitions
were financed from cash and cash equivalents and the issuance of approximately
6.5 million shares of common stock. There are no material commitments
outstanding at June 30, 1998, other than estimated future acquisition-related
payments to be made in accordance with purchase agreements.
The Company's current ratio at June 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 $3.3 million were paid during the six
months ended June 30, 1998 versus the $2.8 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.
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 six
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.
13
<PAGE> 14
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.
"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.
14
<PAGE> 15
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 June 30, 1998, the Company
completed four transactions involving unregistered Securities. In connection
with these transactions, a total of 301,379 shares of common stock 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.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Omnicare held its Annual Meeting of Stockholders on May 18, 1998.
(b) The names of each director elected at this Annual Meeting are as follows:
<TABLE>
<CAPTION>
<S> <C>
Edward L. Hutton Thomas C. Hutton
Joel F. Gemunder Patrick E. Keefe
Ronald K. Baur Sandra E. Laney
Timothy E. Bien Andrea R. Lindell, DNSc, RN
Charles H. Erhart, Jr. Sheldon Margen, M.D.
Mary Lou Fox Kevin J. McNamara
Cheryl D. Hodges D. Walter Robbins, Jr.
</TABLE>
With respect to the election of directors, the number of votes cast for
each nominee was as follows:
<TABLE>
<CAPTION>
Broker
Votes For Votes Withheld Non-Votes
--------- -------------- ---------
<S> <C> <C> <C>
E. L. Hutton 66,630,133 4,016,194 -0-
J. F. Gemunder 66,646,274 4,000,053 -0-
R. K. Baur 66,648,610 3,997,717 -0-
T. E. Bien 66,648,310 3,998,017 -0-
C. H. Erhart, Jr. 66,797,253 3,849,074 -0-
M. L. Fox 66,134,134 4,522,193 -0-
C. D. Hodges 66,646,813 3,999,514 -0-
T. C. Hutton 66,642,253 4,004,074 -0-
P. E. Keefe 66,648,410 3,997,917 -0-
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Broker
Votes For Votes Withheld Non-Votes
--------- -------------- ---------
<S> <C> <C> <C>
S. E. Laney 66,647,533 3,998,794 -0-
A. R. Lindell, DNSc, RN 66,780,451 3,865,876 -0-
S. Margen M.D. 66,742,825 3,903,502 -0-
K. J. McNamara 66,647,937 3,998,390 -0-
D.W. Robbins, Jr. 66,750,491 3,895,836 -0-
</TABLE>
(c) The Stockholders approved an amendment to the Company's Restated
Certificate of Incorporation increasing the number of authorized shares of
common stock from 110,000,000 to 200,000,000. 68,897,154 votes were cast in
favor of the amendment, 1,571,011 votes were cast against and 178,162 votes
abstained.
(d) The Stockholders ratified the selection by the Board of Directors of Price
Waterhouse LLP as independent accountants for the Company and its consolidated
subsidiaries for the 1998 year. 70,527,036 votes were cast in favor of the
proposal, 35,552 votes were cast against it and 83,739 votes abstained.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number Exhibit
------ -------
11 Computation of Earnings per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K - On April 20, 1998, a Form 8-K was filed to
report the settlement of a previously announced government
investigation. On May 19, 1998, a Form 8-K was filed to report the
unaudited sales and earnings of the Company for the month ended April
30, 1998.
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 August 14, 1998 By /s/David W. Froesel, Jr.
------------------ ------------------------
David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
17
<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 Six Months Ended
June 30, June 30,
-------------------- --------------------
1998* 1997 1998* 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic Earnings
Income from continuing operations $ 8,106 $ 13,721 $ 28,512 $ 25,993
Loss from discontinued operations -- (1,854) -- (2,154)
-------- -------- -------- --------
Net income $ 8,106 $ 11,867 $ 28,512 $ 23,839
======== ======== ======== ========
Shares
Weighted average number of common
shares outstanding 88,824 85,674 88,466 84,593
======== ======== ======== ========
Basic earnings per common share
Income from continuing operations $ 0.09 $ 0.16 $ 0.32 $ 0.31
Loss from discontinued operations -- (0.02) -- (0.03)
-------- -------- -------- --------
Net income $ 0.09 $ 0.14 $ 0.32 $ 0.28
======== ======== ======== ========
Diluted Earnings
Income from continuing operations $ 8,106 $ 13,721 $ 28,512 $ 25,993
Loss from discontinued operations -- (1,854) -- (2,154)
-------- -------- -------- --------
Net income $ 8,106 $ 11,867 $ 28,512 $ 23,839
======== ======== ======== ========
Shares
Weighted average number of common
shares outstanding 88,824 85,674 88,466 84,593
Additional shares assuming conversion of
stock options and stock warrants 1,094 912 1,050 1,043
-------- -------- -------- --------
Average common shares outstanding
as adjusted 89,918 86,586 89,516 85,636
======== ======== ======== ========
Diluted earnings per common share
Income from continuing operations $ 0.09 $ 0.16 $ 0.32 $ 0.30
Loss from discontinued operations -- (0.02) -- (0.02)
-------- -------- -------- --------
Net income $ 0.09 $ 0.14 $ 0.32 $ 0.28
======== ======== ======== ========
</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 six months ended June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 68,723
<SECURITIES> 0
<RECEIVABLES> 340,088
<ALLOWANCES> 20,397
<INVENTORY> 93,074
<CURRENT-ASSETS> 518,501
<PP&E> 177,020
<DEPRECIATION> 63,719
<TOTAL-ASSETS> 1,471,406
<CURRENT-LIABILITIES> 188,575
<BONDS> 0
0
0
<COMMON> 89,438
<OTHER-SE> 798,794
<TOTAL-LIABILITY-AND-EQUITY> 1,471,406
<SALES> 698,452
<TOTAL-REVENUES> 698,452
<CGS> 488,551
<TOTAL-COSTS> 488,551
<OTHER-EXPENSES> 149,158
<LOSS-PROVISION> 5,393
<INTEREST-EXPENSE> 9,206
<INCOME-PRETAX> 53,960
<INCOME-TAX> 25,448
<INCOME-CONTINUING> 28,512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,512
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000353230
<NAME> OMNICARE, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 138,062
<SECURITIES> 0
<RECEIVABLES> 296,519
<ALLOWANCES> 17,994
<INVENTORY> 90,366
<CURRENT-ASSETS> 542,372
<PP&E> 155,365
<DEPRECIATION> 53,703
<TOTAL-ASSETS> 1,412,146
<CURRENT-LIABILITIES> 187,547
<BONDS> 0
0
0
<COMMON> 88,261
<OTHER-SE> 741,492
<TOTAL-LIABILITY-AND-EQUITY> 1,412,146
<SALES> 449,320
<TOTAL-REVENUES> 449,320
<CGS> 314,808
<TOTAL-COSTS> 314,808
<OTHER-EXPENSES> 91,466
<LOSS-PROVISION> 2,918
<INTEREST-EXPENSE> 861
<INCOME-PRETAX> 45,672
<INCOME-TAX> 19,679
<INCOME-CONTINUING> 25,993
<DISCONTINUED> (2,154)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,839
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
