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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
(Mark One) Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
[ X ]
For the fiscal year ended December 31, 1998
OR
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
[ ]
For the transition period from _________ to _________________ .
Commission file number 1-8269
OMNICARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1001351
(State of Incorporation) (I.R.S. Employer Identification No.)
OMNICARE, INC.
1600 RIVERCENTER II
100 EAST RIVERCENTER BOULEVARD
COVINGTON, KENTUCKY 41011
(Address of principal executive offices)
Registrant's telephone number, including area code: 606-392-3300
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock ($1 Par Value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
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 requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
--
Aggregate market value of the Registrant's voting stock held by
non-affiliates, based upon the closing price of said stock on the New York Stock
Exchange Composite Transaction Listing on February 26, 1999 ($23.94 per
share): $2,125,812,701.
As of February 28, 1999, 90,664,236 shares of the Common Stock, $1.00 par
value, of the Registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Omnicare, Inc.'s (Omnicare, the Company or the Registrant)
definitive Proxy Statement for its 1999 Annual Meeting of Stockholders, to be
held May 17, 1999, are incorporated by reference into Part III of this report.
Definitive copies of its 1999 Proxy Statement will be filed with the Securities
and Exchange Commission within 120 days of the end of the Company's fiscal year.
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OMNICARE, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
PAGE
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . 17
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS . . . . . . . . . . . . 22
EXECUTIVE OFFICERS OF THE COMPANY . . . . 22
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS . . . . 23
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. . . . . . . . . . 26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK. . . . . . . . . . . . 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA . . . . . . . . . . . . . . . . . . 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . 69
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT . . . . . . . . . . . . . 69
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . 69
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . 69
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . 69
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K . . . . . . . . . . 69
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PART I
ITEM 1 - BUSINESS
BACKGROUND
Omnicare, Inc. (the "Company" or "Omnicare") was incorporated in Delaware on
May 19, 1981 to conduct certain health care businesses contributed to it by W.R.
Grace & Co. and Chemed Corporation, and in July 1981 public trading of the
Company's Common Stock commenced. As part of a multi-year restructuring program
undertaken in 1985, the Company, through a series of divestitures and
acquisitions, redeployed all of its capital in the institutional pharmacy
business. As a result, Omnicare is today a leading provider of pharmacy services
to long-term care institutions such as skilled nursing facilities, assisted
living communities and other institutional health care facilities. Omnicare
purchases, repackages and dispenses pharmaceuticals, both prescription and
non-prescription, and provides computerized medical record-keeping and
third-party billing for residents in such facilities. Omnicare also provides
consultant pharmacist services, including evaluating residents' drug therapy,
monitoring the control, distribution and administration of drugs within the
nursing facility and assisting in compliance with state and federal regulations.
In addition, Omnicare provides ancillary services, such as infusion therapy,
distributes medical supplies and offers clinical and financial software
information systems to its client nursing facilities.
In December 1997, Omnicare completed the acquisition of its first contract
research organization ("CRO"), Coromed, Inc. During 1998, the Company completed
the acquisition of two additional CROs, IBAH, Inc. and Institute fur numerische
Statistik Dr. Haase GmbH ("IFNS"), significantly increasing its presence in this
rapidly growing sector of the health care industry which provides comprehensive
product development and research services to client companies in the
pharmaceutical, biotechnology, medical device and diagnostics industries.
The Company operates in two business segments. The largest segment, Pharmacy
Services, provides distribution of pharmaceuticals, related pharmacy consulting,
data management services and medical supplies to long-term care facilities. At
December 31, 1998, Omnicare provided these services to approximately 578,700
residents in 7,900 long-term care facilities in 42 states. The Pharmacy Services
segment provides no services outside of the United States. The Company's other
business segment is Contract Research Organization Services. Financial
information regarding the Company's business segments is presented at "Note 16-
Segment Information" of the Notes to Consolidated Financial Statements included
at Item 8 of this Report.
In 1998, the Company completed the acquisition of 12 institutional pharmacy
providers, a long-term care software company and two CROs. See "Note 2-
Acquisitions" of the Notes to Consolidated Financial Statements at Item 8 of
this Report for additional information.
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PHARMACY SERVICES
Omnicare purchases, repackages and dispenses prescription and non-
prescription medication in accordance with physician orders and delivers
such prescriptions at least daily to the nursing facility for administration to
individual residents by the facility's nursing staff. Omnicare typically
services nursing homes within a 150-mile radius of its pharmacy locations.
Omnicare maintains a 24-hour, on-call pharmacist service, 365 days per year, for
emergency dispensing and delivery or for consultation with the facility's staff
or the resident's attending physician.
Upon receipt of a prescription, the relevant resident information is entered
into Omnicare's computerized dispensing and billing systems. At that time, the
dispensing system checks the prescription for any potentially adverse drug
interactions or resident sensitivity. When required and/or specifically
requested by the physician or patient, branded drugs are dispensed; generic
drugs are substituted in accordance with applicable state and federal laws and
as requested by the physician or resident. The Company also provides therapeutic
interchange, with physician approval, in accordance with the Company's
pharmaceutical care guidelines. See "The Omnicare Guidelines(R)" below.
Omnicare provides a "unit dose" distribution system. Most of its
prescriptions are filled utilizing specialized unit-of-use packaging and
delivery systems. Maintenance medications are typically provided in 30-day
supplies utilizing either a box unit dose system or unit dose punch card system.
The unit dose system, preferred over the bulk delivery systems employed by
retail pharmacies, improves control over drugs in the nursing facility and
improves resident compliance with drug therapy by increasing the accuracy and
timeliness of drug administration.
Integral to Omnicare's drug distribution system is its computerized medical
records and documentation system. Omnicare provides to the facility computerized
medication administration records and physician's order sheets and treatment
records for each resident. Data extracted from these computerized records are
also formulated into monthly management reports on resident care and quality
assurance. The computerized documentation system, in combination with the unit
dose drug delivery system, results in greater efficiency in nursing time,
improved control, reduced drug waste in the facility and lower error rates in
both dispensing and administration. These benefits improve drug efficacy and
result in fewer drug-related hospitalizations.
CONSULTANT PHARMACIST SERVICES
Federal and state regulations mandate that nursing facilities, in addition
to providing a source of pharmaceuticals, retain consultant pharmacist services
to monitor and report on prescription drug therapy in order to maintain and
improve the quality of resident care. The Omnibus Budget Reconciliation Act
("OBRA") implemented in 1990 seeks to further upgrade and standardize care by
setting forth more stringent standards relating to planning, monitoring and
reporting on the progress of prescription drug therapy as well as facility-wide
drug usage.
Omnicare provides consultant pharmacist services which help clients comply
with such federal and state regulations applicable to nursing homes. The
services offered by Omnicare's consultant pharmacists include: (i)
comprehensive, monthly drug regimen reviews for each
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resident in the facility to assess the appropriateness and efficacy of drug
therapies, including a review of the resident's medical records, monitoring drug
reactions to other drugs or food, monitoring lab results and recommending
alternate therapies or discontinuing unnecessary drugs; (ii) participation on
the Pharmacy and Therapeutics, Quality Assurance and other committees of client
nursing facilities as well as periodic involvement in staff meetings; (iii)
monthly inspection of medication carts and storage rooms; (iv) monitoring and
monthly reporting on facility-wide drug usage and drug administration systems
and practices; (v) development and maintenance of pharmaceutical policy and
procedures manuals; and (vi) assistance to the nursing facility in complying
with state and federal regulations as they pertain to patient care.
Omnicare has also developed a proprietary software system for the use of its
consultant pharmacists. The system, called OSC (exponent 2) OR (R) (Omnicare
System of Cost and Clinical Outcomes Retrieval), enables Omnicare pharmacists
not only to perform their above described functions efficiently but also
provides the platform for consistent data retrieval for outcomes research and
management.
Additionally, Omnicare offers a specialized line of consulting services
which help nursing facilities to enhance care and reduce and contain costs as
well as to comply with state and federal regulations. Under this service line,
Omnicare provides: (i) data required for OBRA and other regulatory purposes,
including reports on psychotropic drug usage (chemical restraints), antibiotic
usage (infection control) and other drug usage; (ii) plan of care programs which
assess each patient's state of health upon admission and monitor progress and
outcomes using data on drug usage as well as dietary, physical therapy and
social service inputs; (iii) counseling related to appropriate drug usage and
implementation of drug protocols; (iv) on-site educational seminars for the
nursing facility staff on topics such as drug information relating to clinical
indications, adverse drug reactions, drug protocols and special geriatric
considerations in drug therapy, and information and training on intravenous drug
therapy and updates on OBRA and other regulatory compliance issues;(v) mock
regulatory reviews for nursing staffs; and (vi) nurse consultant services and
consulting for dietary, social services and medical records.
THE OMNICARE GUIDELINES(R)
In June 1994, to enhance the pharmaceutical care management services that it
offers, Omnicare introduced to its client nursing facilities and their attending
physicians the Omnicare Guidelines(R) which it believes is the first
clinically-based formulary for the elderly residing in long-term care
institutions. The Omnicare Guidelines(R) presents an analysis ranking specific
drugs in therapeutic classes as Preferred, Acceptable or Unacceptable based
solely on their disease-specific clinical effectiveness in treating the elderly
in nursing facilities. The formulary takes into account such factors as
pharmacology, safety and toxicity, efficacy, drug administration, quality of
life and other considerations specific to the frail elderly population residing
in nursing facilities. The clinical evaluations and rankings were developed
exclusively for the Company by the Philadelphia College of Pharmacy, an academic
institution recognized for its expertise in geriatric long-term care. In
addition, the Omnicare Guidelines(R) provides relative cost
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information comparing the prices of the drugs to patients, their insurers or
other payors of the pharmacy bill.
As the Omnicare Guidelines(R) focuses on health benefits, rather than solely
on cost, in assigning rankings, the Company believes that use of the Omnicare
Guidelines(R) will assist physicians in making the best clinical choices of drug
therapy for the patient at the lowest cost to the payor of the pharmacy bill.
The Company also believes that the development of and compliance with the
Omnicare Guidelines(R) will be increasingly important in lowering costs for
skilled nursing facilities operating under the Medicare Prospective Payment
System implemented during 1998.
DISEASE AND OUTCOMES MANAGEMENT
The Company has expanded upon the data in the Omnicare Guidelines(R) to
develop disease and outcomes management programs targeted at major categories of
disease commonly found in the elderly. These programs currently include
congestive heart failure, osteoporosis, atrial fibrillation and depression. Such
programs seek to identify patients who may be candidates for more clinically
efficacious drug therapy and to work with physicians to optimize pharmaceutical
care for these geriatric patients. Such programs enhance the quality of care of
elderly patients while reducing costs to the health care system which arise from
the adverse outcomes of sub-optimal or inappropriate drug therapy.
ANCILLARY SERVICES
Omnicare provides the following ancillary products and services to nursing
facilities:
Infusion Therapy Products and Services. With cost containment pressures in
health care, nursing facilities are called upon to treat moderately acute but
stabilized patients that would otherwise be treated in the more costly hospital
environment, provided that the nursing staff and pharmacy are capable of
supporting higher degrees of acuity. Omnicare provides infusion therapy support
services for such client nursing facilities and, to a lesser extent, hospice and
home care patients. Infusion therapy consists of the product (a nutrient,
antibiotic, chemotherapy or other drugs in solution) and the intravenous
administration of the product.
Omnicare prepares the product to be administered using proper equipment in a
sterile environment and then delivers the product to the nursing home for
administration by the nursing staff. Proper administration of intravenous ("IV")
drug therapy requires a highly trained nursing staff. Omnicare's consultant
pharmacists and nurse consultants operate an education and certification program
on IV therapy to assure proper staff training and compliance with regulatory
requirements in client facilities offering an IV program.
By providing an infusion therapy program, Omnicare enables its client
nursing facilities to admit and retain patients who otherwise would need to be
cared for in an acute-care facility.
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The most common infusion therapies Omnicare provides are total parenteral
nutrition, antibiotic therapy, chemotherapy, pain management and hydration.
Wholesale Medical Supplies/Medicare Part B Billing. Omnicare distributes
disposable medical supplies, including urological, ostomy, nutritional support
and wound care products and other disposables needed in the nursing home
environment. In addition, Omnicare provides direct Medicare billing services for
certain of these product lines for patients eligible under the Medicare Part B
program. As part of this service, Omnicare determines patient eligibility,
obtains certifications, orders products and maintains inventory on behalf of the
nursing facility. Omnicare also contracts to act as billing agent for certain
nursing homes that supply these products directly to the patient.
Other Services. Omnicare also provides clinical care plan and financial
information systems to its client facilities to assist them in determining
appropriate care as well as in predicting and tracking costs. Omnicare also
offers respiratory therapy products and durable medical equipment. Omnicare
continues to review the expansion of these as well as other products and
services that may further enhance the ability of its client nursing facilities
to care for their patients in a cost-effective manner.
CONTRACT RESEARCH ORGANIZATION SERVICES
Omnicare's Contract Research Organization Services ("CRO Services") provides
comprehensive product development services globally to client companies in the
pharmaceutical, biotechnology, medical devices and diagnostics industries. CRO
Services provides support for the design of regulatory strategy, pre-clinical
and clinical (phases I-IV) development stages of pharmaceuticals by offering
comprehensive and fully integrated biological, pharmacological, and chemical
research, as well as clinical, quality assurance, data management, medical
writing and regulatory support for its clients' drug development programs. CRO
Services also provides pharmaceutics services, in parallel with the stages
described above. This process involves product dose form development, including
the formulation of placebo and active drug, clinical manufacturing and process
development for commercial manufacturing, the development of analytical
methodology, execution of a high number of analytical tests, as well as
stability testing. In addition to conducting business in the United States, CRO
Services also operates in 22 other countries.
The Company believes that its involvement in the CRO business is a logical
adjunct to its core institutional pharmacy business and will serve to leverage
its assets, including its access to a large geriatric population and its ability
to collect data for disease and outcomes management. Such assets will be of
significant value in developing new drugs targeted at diseases of the elderly
and in meeting the Food and Drug Administration's geriatric dosing and labeling
requirements for all prescription drugs provided to the elderly as well as in
documenting health outcomes to payors and plan sponsors in a managed care
environment.
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PRODUCT AND MARKET DEVELOPMENT
Omnicare's Pharmacy Services and CRO Services businesses engage in a
continuing program for the development of new services and the marketing
thereof. While new service and new market development are important factors for
the growth of these businesses, Omnicare does not expect that any new service or
marketing efforts, including those in the developmental stage, will require the
investment of a material portion of Omnicare's assets.
MATERIALS/SUPPLY
Omnicare purchases pharmaceuticals through a wholesale distributor with whom
it has a prime vendor contract and, on an increasing basis, under contracts
negotiated directly with pharmaceutical manufacturers. The Company also is a
member of industry buying groups which contract with manufacturers for
discounted prices based on volume which are passed through to the Company by its
wholesale distributor. The Company has numerous sources of supply available to
it and has not experienced any difficulty in obtaining pharmaceuticals or other
products and supplies used in the conduct of its business.
PATENTS, TRADEMARKS AND LICENSES
Omnicare's business operations are not dependent upon any material patents,
trademarks or licenses.
INVENTORIES
Omnicare's pharmacies maintain adequate on-site inventories of
pharmaceuticals and supplies to ensure prompt delivery service to its customers.
The Company's primary wholesale distributor also maintains local warehousing in
most major geographic markets in which the Company operates.
COMPETITION
By its nature, the long-term care pharmacy business is highly regionalized
and, within a given geographic region of operations, highly competitive. In the
geographic regions it serves, Omnicare competes with numerous local retail
pharmacies, local and regional institutional pharmacies and pharmacies owned by
long-term care facilities. The Company is the largest independent institutional
pharmacy company in the U.S. Omnicare competes in this market on the basis of
quality, cost-effectiveness and the increasingly comprehensive and specialized
nature of its services along with the clinical expertise, pharmaceutical
technology and professional support it offers.
In its program of acquiring institutional pharmacy providers, the Company
competes with several other companies with similar acquisition strategies, some
of which may have substantial financial resources.
Omnicare's CRO Services competes against other full-service CROs and client
internal resources. The CRO industry is highly fragmented with a number of
full-service CROs and many small, limited-service providers, some of which serve
only local markets. Clients choose a CRO based on, among others, reputation,
references from existing clients, the client's relationship with the CRO, the
CRO's experience with the
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particular type of project and/or therapeutic area of clinical development, the
CRO's ability to add value to the client's development plan, the CRO's financial
stability and the CRO's ability to provide the full range of services required
by the client. Omnicare believes that it competes favorably in these respects.
CUSTOMERS
At December 31, 1998, Omnicare served 578,700 residents in 7,900 long-term
care facilities and other institutional health care settings. The Company's
business would not be materially or adversely affected by the loss of any one
customer or small group of customers.
The Company's CRO Services serves a broad range of clients, including most
of the major multinational pharmaceutical and many of the major biotechnology
companies as well as smaller companies in the pharmaceutical and biotechnology
industries. No single client comprised more than 10% of revenues during 1998.
GOVERNMENT REGULATION
Institutional pharmacies, as well as the long-term care facilities they
serve, are subject to extensive federal, state and local regulation. These
regulations cover required qualifications, day-to-day operations, reimbursement
and the documentation of activities. In addition, the Company's CRO Services
are also subject to substantial regulation, both domestically and abroad.
Omnicare continuously monitors the effects of regulatory activity on its
operations.
Licensure, Certification and Regulation. States generally require that
companies operating a pharmacy within the state be licensed by the state board
of pharmacy. The Company currently has pharmacy licenses for each location in
the states in which it operates pharmacies. In addition, the Company currently
delivers prescription products from its licensed pharmacies to four states in
which the Company does not operate a pharmacy. These states regulate
out-of-state pharmacies, however, as a condition to the delivery of prescription
products to patients in these states. Omnicare's pharmacies hold the requisite
licenses applicable in these states. In addition, Omnicare's pharmacies are
registered with the appropriate state and federal authorities pursuant to
statutes governing the regulation of controlled substances.
Client nursing facilities are also separately required to be licensed in the
states in which they operate and, if serving Medicare or Medicaid patients, must
be certified to be in compliance with applicable program participation
requirements. Client nursing facilities are also subject to the nursing home
reforms of the Omnibus Budget Reconciliation Act of 1987, which imposed strict
compliance standards relating to quality of care for nursing home operations,
including vastly increased documentation and reporting requirements. In
addition, pharmacists, nurses and other health care professionals who provide
services on the Company's behalf are in most cases required to obtain and
maintain professional licenses and are subject to state regulation regarding
professional standards of conduct.
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Federal and State Laws Affecting the Repackaging, Labeling, and Interstate
Shipping of Drugs. Federal and state laws impose certain repackaging, labeling,
and package insert requirements on pharmacies that repackage drugs for
distribution beyond the regular practice of dispensing or selling drugs
directly to patients at retail. A drug repackager must register with the Food
and Drug Administration. The Company holds all required registrations and
licenses, and its repackaging operations are believed to be in compliance with
applicable state and federal requirements.
State Laws Affecting Access to Services. Some states have enacted "freedom
of choice" or "any willing provider" requirements as part of their state
Medicaid programs or in separate legislation. These laws and regulations may
prohibit a third-party payor from restricting the pharmacies from which their
participants may purchase pharmaceuticals. Similarly, these laws may preclude a
nursing facility from requiring its patients to purchase pharmacy or other
ancillary medical services or supplies from particular providers that deal with
the nursing home. Such limitations may increase the competition which the
Company faces in providing services to nursing facility residents.
Medicare and Medicaid. The nursing home pharmacy business has long operated
under regulatory and cost containment pressures from state and federal
legislation primarily affecting Medicaid and, to a lesser extent, Medicare.
As is the case for nursing home services generally, Omnicare receives
reimbursement from the Medicaid and Medicare programs, directly from individual
residents (private pay), and from other payors such as third-party insurers. The
Company believes that its reimbursement mix is in line with nursing home
expenditures nationally. For the year ended December 31, 1998, Omnicare's payor
mix was approximately as follows:48% private pay and nursing facilities, 38%
Medicaid, 3% Medicare and 11% other private sources (including the CRO
business).
For those patients who are not covered by government-sponsored programs or
private insurance, Omnicare generally directly bills the patient or the
patient's responsible party on a monthly basis. Depending upon local market
practices, Omnicare may alternatively bill private patients through the nursing
facility. Pricing for private pay patients is based on prevailing regional
market rates or "usual and customary" charges.
The Medicaid program is a cooperative federal-state program designed to
enable states to provide medical assistance to aged, blind, or disabled
individuals, or members of families with dependent children whose income and
resources are insufficient to meet the costs of necessary medical services.
State participation in the Medicaid program is voluntary. To become eligible to
receive federal funds, a state must submit a Medicaid "state plan" to the
Secretary of the Department of Health and Human Services ("HHS") for approval.
The federal Medicaid statute specifies a variety of requirements which the state
plan must meet, including requirements relating to eligibility, coverage of
services, payment and administration.
Federal law and regulations contain a variety of requirements relating to
the furnishing of prescription drugs under Medicaid. First, states are given
authority, subject to certain standards, to limit or specify conditions for the
coverage of particular drugs. Second, federal Medicaid law establishes standards
affecting pharmacy practice. These
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standards include general requirements relating to patient counseling and drug
utilization review and more specific standards for nursing facilities relating
to drug regimen reviews for Medicaid patients in such facilities. Recent
regulations clarify that, under federal law a pharmacy is not required to meet
the general requirements for drugs dispensed to nursing facility residents if
the nursing facility complies with the drug regimen review standards. However,
the regulations indicate that states may nevertheless require pharmacies to
comply with the general requirements, regardless of whether the nursing facility
satisfies the drug regimen review requirement, and the states in which the
Company operates currently do require its pharmacies to comply with these
general standards.
Third, federal regulations impose certain requirements relating to
reimbursement for prescription drugs furnished to Medicaid patients. Among other
things, regulations establish "upper limits" on payment levels. In addition to
requirements imposed by federal law, states have substantial discretion to
determine administrative, coverage, eligibility and payment policies under their
state Medicaid programs which may affect the Company's operations. For example,
some states have enacted "freedom of choice" requirements which may prohibit a
nursing facility from requiring its residents to purchase pharmacy or other
ancillary medical services or supplies from particular providers that deal with
the nursing home. Such limitations may increase the competition which the
Company faces in providing services to nursing facility patients.
The Medicare program is a federally funded and administered health insurance
program for individuals age 65 and over or who are disabled. The Medicare
program consists of two parts: Part A, which covers, among other things,
inpatient hospital, skilled nursing facility, home health care and certain other
types of health care services; and Medicare Part B, which covers physicians'
services, outpatient services, and certain items and services provided by
medical suppliers. Medicare Part B also covers a limited number of specifically
designated prescription drugs. As part of the Balanced Budget Act of 1997 (the
"Balanced Budget Act"), reimbursement for Medicare Part B products is generally
limited to 95 percent of the published average wholesale price for such
products. An increasing number of Medicare beneficiaries are being served
through health maintenance organizations. In addition to the limited Medicare
coverage for specified products described above, some health maintenance
organizations providing health care benefits to Medicare beneficiaries may offer
expanded drug coverage. The Medicare program establishes certain requirements
for participation of providers and suppliers in the Medicare program. Pharmacies
are not subject to such certification requirements. Skilled nursing facilities
and suppliers of medical equipment and supplies, however, are subject to
specified standards. Failure to comply with these requirements and standards may
adversely affect an entity's ability to participate in the Medicare program and
receive reimbursement for services provided to Medicare beneficiaries.
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings,
and freezes and funding reductions, all of which may adversely affect the
Company's business. There can be no assurance that payments for pharmaceutical
supplies and services under governmental
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reimbursement programs will continue to be based on the current methodology or
remain comparable to present levels. In this regard, the Company may be subject
to rate reductions as a result of federal budgetary or other legislation related
to the Medicare and Medicaid programs. In addition, various state Medicaid
programs periodically experience budgetary shortfalls which may result in
Medicaid payment delays to the Company. To date, the Company has not experienced
any material adverse effect due to any such budgetary shortfall.
In addition, the failure, even if inadvertent, of Omnicare and/or its client
institutions to comply with applicable reimbursement regulations could adversely
affect Omnicare's business. Additionally, changes in such reimbursement programs
or in regulations related thereto, such as reductions in the allowable
reimbursement levels, modifications in the timing or processing of payments and
other changes intended to limit or decrease the growth of Medicaid and Medicare
expenditures, could adversely affect the Company's business.
Referral Restrictions. The Company is subject to federal and state laws
which govern financial and other arrangements between health care providers.
These laws include the federal anti-kickback statute, which prohibits, among
other things, knowingly and willfully soliciting, receiving, offering or paying
any remuneration directly or indirectly in return for or to induce the referral
of an individual to a person for the furnishing of any item or service for which
payment may be made in whole or in part under federal health care programs. Many
states have enacted similar statutes which are not necessarily limited to items
and services for which payment is made by federal health care programs.
Violations of these laws may result in fines, imprisonment, and exclusion from
the federal programs or other state-funded programs. Federal and state court
decisions interpreting these statutes are limited, but have generally construed
the statutes to apply if "one purpose" of remuneration is to induce referrals or
other conduct within the statute.
Federal regulations establish "safe harbors," which give immunity from
criminal or civil penalties to parties meeting all of the safe harbor
requirements. While the failure to satisfy all criteria for a safe harbor does
not mean that an arrangement violates the statute, it may subject the
arrangement to review by the HHS Office of Inspector General ("OIG"), which is
charged with administering the federal anti-kickback statute. Until recently,
there were no procedures for obtaining binding interpretations or advisory
opinions from HHS on the application of the federal anti-kickback statute to an
arrangement or its qualification for a safe harbor upon which the Company could
rely. However, on August 21, 1996, the President signed into law the Health
Insurance Portability and Accountability Act of 1996, which requires the
Secretary of HHS to issue written advisory opinions regarding the applicability
of certain aspects of the anti-kickback statute to specific arrangements or
proposed arrangements. Advisory opinions are binding as to the Secretary and the
party requesting the opinion.
The OIG issues "Fraud Alerts" identifying certain questionable arrangements
and practices which it believes may implicate the federal anti-kickback statute.
The OIG has issued a Fraud Alert providing its views on certain joint venture
and contractual arrangements between health care providers. The OIG also issued
a Fraud Alert concerning
12
<PAGE> 13
prescription drug marketing practices that could potentially violate the federal
statute. Pharmaceutical marketing activities may implicate the federal
anti-kickback statute because drugs are often reimbursed under the Medicaid
program and, to a lesser extent, under the Medicare program. According to the
Fraud Alert, examples of practices that may implicate the statute include
certain arrangements under which remuneration is made to pharmacists to
recommend the use of a particular pharmaceutical product.
In addition, a number of states have undertaken enforcement actions against
pharmaceutical manufacturers involving pharmaceutical marketing programs,
including programs containing incentives to pharmacists to dispense one
particular product rather than another. These enforcement actions arose under
state consumer protection laws which generally prohibit false advertising,
deceptive trade practices, and the like.
The Company believes its contract arrangements with other health care
providers, its pharmaceutical suppliers and its pharmacy practices are in
compliance with applicable federal and state laws. There can be no assurance
that such laws will not, however, be interpreted in the future in a manner
inconsistent with the Company's interpretation and application.
Health Care Reform and Federal Budget Legislation. In recent years, a number
of legislative proposals have been introduced in Congress that would effect
major changes in the health care system, either nationally or at the state
level. The Balanced Budget Act signed into law on August 5, 1997, seeks to
achieve a balanced federal budget by, among other things, reducing federal
spending on the Medicare and Medicaid programs. With respect to Medicare, the
law mandates establishment of a prospective payment system ("PPS") for Medicare
skilled nursing facilities ("SNFs") under which facilities will be paid a
federal per diem rate for virtually all covered SNF services, including
ancillary services such as pharmacy. PPS is being phased in over three cost
reporting periods, starting with cost reporting periods beginning on or after
July 1, 1998. Prior to PPS, SNFs under Medicare received cost-based
reimbursement. In the accompanying Conference Report, the conferees specifically
noted that, to ensure that the frail elderly residing in SNFs receive needed and
appropriate medication therapy, the Secretary of HHS is to consider, as part of
the PPS for SNFs, the results of studies conducted by independent organizations,
including those which examine appropriate payment mechanism and payment rates
for medications therapy, and develop case mix adjustments that reflect the needs
of such patients. The Balanced Budget Act also imposes limits on annual updates
in payments to Medicare SNFs for routine services, and institutes consolidated
billing for SNF services for all non-physician Part B items and services for SNF
residents no longer eligible for Part A SNF care. While this provision was to
become effective July 1, 1998, it has been delayed indefinitely.
The Balanced Budget Act also imposes numerous other cost savings measures
affecting Medicare SNF services. On May 12, 1998, the Health Care Financing
Administration issued interim regulations to implement the SNF PPS and
consolidated billing rules, including the rates that were in effect from July 1,
1998 through September 30, 1998. The Company believes the PPS rates do not
adequately compensate SNFs for the high medication costs of some frail elderly
Medicare beneficiaries. The Company, among others, has submitted comments to the
Health Care Financing Administration on this issue recommending that the agency
modify the payment system to account for
13
<PAGE> 14
such costs.
The Balanced Budget Act also mandates that suppliers obtain a surety bond as
a condition of issuance or renewal of a Medicare Part B supplier number. In
January 1998, new rules were proposed to establish additional supplier
standards, including the requirement to obtain a surety bond. Under the
proposal, a supplier would be required to obtain a surety bond for each tax
identification number for which it has a Medicare supplier number.
The Balanced Budget Act also repealed the "Boren Amendment" federal payment
standard for Medicaid payments to Medicaid nursing facilities effective October
1, 1997. There can be no assurance that budget constraints or other factors will
not cause states to reduce Medicaid reimbursement to nursing facilities or that
payments to nursing facilities will be made on a timely basis. The law also
grants states greater flexibility to establish Medicaid managed care programs
without the need to obtain a federal waiver. Although these waiver projects
generally exempt institutional care, including nursing facility and
institutional pharmacy services, no assurances can be given that these programs
ultimately will not change the reimbursement system for long-term care,
including pharmacy services, from fee-for-service to managed care negotiated or
capitated rates.
The Company anticipates that federal and state governments will continue to
review and assess alternative health care delivery systems and payment
methodologies. It is not possible to predict the effect of PPS and other
elements of the recent budget legislation or the interpretation or
administration of such legislation, including the adequacy and timeliness of
payment to client facilities, on Omnicare's business. Accordingly, there can be
no assurance that these changes or any future health care legislation will not
adversely affect Omnicare's business.
Several state Medicaid programs have established mandatory statewide managed
care programs for Medicaid beneficiaries to control costs through negotiated or
capitated rates, as opposed to traditional cost-based reimbursement for Medicaid
services, and propose to use savings achieved through these programs to expand
coverage to those not previously eligible for Medicaid. HHS has approved waivers
for statewide managed care demonstration projects in several states and they are
pending for several other states. These demonstration projects generally exempt
institutionalized care, including nursing facility services, from the programs,
and the Company's operations have not been adversely affected in states with
managed care demonstration projects in effect. The Company is unable to predict
what impact, if any, future Medicaid managed care systems might have on the
Company's operations.
It is uncertain at this time what additional health care reform initiatives,
if any, will be implemented, or whether there will be other changes in the
administration of governmental health care programs or interpretations of
governmental policies or other changes affecting the health care system. There
can be no assurance that future health care or budget legislation or other
changes will not have an adverse effect on the business of the Company.
14
<PAGE> 15
Contract Research Organization Service. The preclinical, clinical,
manufacturing, analytical and clinical trial supply services performed by
Omnicare's CRO Services are subject to various regulatory requirements designed
to ensure the quality and integrity of the data or products of these services.
The industry standard for conducting preclinical and laboratory testing is
embodied in the good laboratory practice ("GLP") regulations. The requirements
for facilities engaging in pharmaceutical, analytical, manufacturing and
clinical trial supplies preparation, labeling and distribution are set forth in
the good manufacturing practice ("GMP") regulations. GLP and GMP regulations
have been mandated by the Food and Drug Administration ("FDA") and the European
Medicines Evaluation Agency (the "EMEA") and adopted by similar regulatory
authorities in other countries. GLP and GMP stipulate requirements for
facilities, equipment, supplies and personnel engaged in the conduct of studies
to which these regulations apply. The regulations require that written,
standardized procedures are followed during the conduct of studies and for the
recording, reporting and retention of study data and records. To help assure
compliance, Omnicare's CRO Services has a worldwide staff of experienced quality
assurance professionals which monitor ongoing compliance with GLP and GMP
regulations by auditing study data and conducting regular inspections of testing
procedures and facilities.
The industry standard for the conduct of clinical research and development
studies is embodied in good clinical practice ("GCP") regulations and
guidelines. The FDA and many other regulatory authorities require that study
results and data to be submitted to such authorities be based on studies
conducted in accordance with GCP provisions. These provisions include: (i)
complying with specific regulations governing the selection of qualified
investigators; (ii) obtaining specific written commitments from the
investigators; (iii) verifying that patient informed consent is obtained; (iv)
instructing investigators to maintain records and reports; (v) verifying drug
or device accountability; and (vi) permitting appropriate governmental
authorities access to data for their review. Records for clinical studies
must be maintained for specific periods for inspection by the FDA, European
Union or other authorities during audits. Non-compliance with GCP requirements
can result in the disqualification of data collected during the clinical
trial and may lead to debarrment.
CRO Services' standard operating procedures related to clinical studies are
written in accordance with regulations and guidelines appropriate to a
global standard with regional variations in the regions where they will be
used, thus helping to ensure compliance with GCP. CRO Services also complies
with International Congress of Harmonization, EU GCP regulations and U.S. GCP
regulations for North America.
The Company's United States manufacturing, analytical and other laboratories
are subject to licensing and regulation under federal, state and local laws
relating to hazard communication and employee right-to-know regulations, the
handling and disposal of medical specimens and hazardous waste and radioactive
materials, as well as the safety and health of laboratory employees. All of the
Company's laboratories are operated in material compliance with applicable
federal and state laws and regulations relating to the storage and disposal of
all laboratory specimens including the regulations of the Environmental
Protection Agency and the Occupational Safety and Health Administration. Certain
of the Company's facilities are engaged in drug development activities involving
controlled substances. The use of, and accountability for, controlled substances
are regulated by the United States Drug Enforcement Administration. Relevant
employees of the Company receive initial and periodic training to ensure
compliance with applicable hazardous material regulations and health and safety
guidelines.
Although the Company believes that it is currently in compliance in all
material respects with such federal, state and local laws, failure to
comply could subject the Company to denial of the right to conduct business,
fines, criminal penalties and other enforcement actions.
15
<PAGE> 16
ENVIRONMENTAL MATTERS
In operating its facilities, Omnicare makes every effort to comply with
pollution control laws. No major difficulties have been encountered in effecting
compliance. No material capital expenditures for environmental control
facilities are expected. While Omnicare cannot predict the effect which any
future legislation, regulations, or interpretations may have upon its
operations, it does not anticipate any changes that would have a material
adverse impact on its operations.
EMPLOYEES
At December 31, 1998, Omnicare employed approximately 11,560 persons
(including 2,674 part-time employees), 11,082 and 478 of whom were located
within and outside the United States, respectively.
16
<PAGE> 17
ITEM 2 - PROPERTIES
Omnicare has offices and distribution centers in various locations in the
United States. A list of the more significant facilities operated by Omnicare as
of December 31, 1998 follows. The owned properties are held in fee and are not
subject to any material encumbrance. Omnicare considers all of these facilities
to be in good operating condition and generally to be adequate for present and
anticipated needs.
<TABLE>
<CAPTION>
LEASED
-----------------------------------------------
OWNED AREA
LOCATION TYPE (SQ. FT.) AREA (SQ. FT.) EXPIRATION DATE
- --------------------------- --------------------------- ------------------ ------------------ --------------------------
<S> <C> <C> <C> <C>
Norwood, New Jersey Offices and Distribution -- 10,000 July 31, 1999
Center
St. Petersburg, Florida Offices and Distribution -- 10,000 Month-to-Month
Center
Allentown, Pennsylvania Offices and Distribution -- 10,000 January 31, 2000
Center
Bad Soden, Germany Offices -- 10,192 June 30, 2004
Rose Hill, North Carolina Offices and Distribution -- 11,000 Month-to-Month
Center
Rockford, Illinois Retail Outlet -- 11,000 February, 1999
Louisville, Kentucky Offices and Distribution -- 11,000 August 31, 1999
Center
Yakima, Washington Offices and Distribution -- 11,000 February 29, 2000
Center
Peoria, Illinois Offices and Distribution -- 11,022 June 30, 2001
Center
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
LEASED
OWNED AREA -----------------------------------------------
LOCATION TYPE (SQ. FT.) AREA (SQ. FT.) EXPIRATION DATE
- --------------------------- --------------------------- ------------------ ------------------ --------------------------
<S> <C> <C> <C> <C>
South Elgin, Illinois Offices and Distribution -- 11,075 August 1, 2002
Center
Rockford, Illinois Offices and Distribution -- 11,436 February 28, 2001
Center
Griffith, Indiana Offices and Distribution -- 11,500 March 30, 2001
Center
Augusta, Offices and Distribution -- 11,700 October 1, 2007
Maine Center
Spokane, Washington Offices and Distribution -- 11,750 October 31, 2006
Center
Alexandria, Louisiana Offices and Distribution -- 12,000 April 30, 2001
Center
Dover, Offices and Distribution -- 12,000 December 12, 2008
Ohio Center
Des Plaines, Illinois Offices and Distribution -- 12,744 May 31, 2008
Center
Hallowell, Offices and Distribution -- 13,000 October 31, 2002
Maine Center
Wessex Business Ctr., Offices -- 13,000 June 30, 1999
England
Malta, Offices and Distribution -- 13,546 December 31, 1999
New York Center
Salt Lake City, Utah Offices and Distribution -- 14,000 February 28, 1999
Center
Pittsburgh, Pennsylvania Offices and Distribution -- 14,000 December 31, 2001
Center
Fort Wright, Kentucky Offices -- 14,200 March 31, 2008
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
LEASED
OWNED AREA -----------------------------------------------
LOCATION TYPE (SQ. FT.) AREA (SQ. FT.) EXPIRATION DATE
--------------------------- --------------------------- ------------------ ------------------ --------------------------
<S> <C> <C> <C> <C>
New Brighton, Minnesota Offices and Distribution -- 14,400 March 31, 2000
Center
West Boylstonn, Offices and Distribution -- 14,800 May 3, 2003
Massachusetts Center
Englewood, Offices and Distribution -- 15,000 December 31, 2002
Ohio Center
Sheboygan, Wisconsin Offices and Distribution -- 15,000 September 31, 2003
Center
Wausau, Wisconsin Offices and Distribution -- 15,000 September 31, 2003
Center
Huber Heights, Offices and Distribution 15,000 -- --
Ohio Center
St. Louis, Missouri Offices and Distribution -- 15,200 December 31, 1999
Center
Pompton Plains, New Jersey Offices and Distribution -- 16,041 July 15, 2001
Center
Des Plaines, Illinois Offices and Distribution -- 16,173 May 31, 2008
Center
Miami, Offices and Distribution -- 16,665 November 30, 2001
Florida Center
Scwalbach, Germany Offices -- 16,725 August 31, 2003
Springfield, Missouri Offices and Distribution -- 17,000 September 30, 2002
Center
Overland Park, Kansas Offices and Distribution -- 17,409 September 30, 1999
Center
Peabody, Massachusetts Offices and Distribution -- 17,500 January 25, 2002
Center
Plainview, New York Offices and Distribution -- 17,500 June 30, 2005
Center
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
LEASED
OWNED AREA -----------------------------------------------
LOCATION TYPE (SQ. FT.) AREA (SQ. FT.) EXPIRATION DATE
- --------------------------- --------------------------- ------------------ ------------------ --------------------------
<S> <C> <C> <C> <C>
Milford, Ohio Offices and Distribution -- 18,000 December 31, 2000
Center
Cincinnati, Offices -- 18,000 September 30, 1999
Ohio
Boca Raton, Florida Offices and Distribution -- 18,661 December 31, 2002
Center
Indianapolis, Offices and Distribution -- 18,740 July 31, 2001
Indiana Center
Mentor, Offices and Distribution -- 20,000 July 31, 2000
Ohio Center
Ft. Washington, Offices and Laboratories -- 20,000 December 31, 2000
Pennsylvania
Decatur, Illinois Offices and Distribution 20,000 -- --
Center
Wadsworth, Ohio Offices and Distribution -- 21,000 June 30, 2001
Center
Prattville, Alabama Offices and Distribution -- 21,831 August 28, 2001
Center
Troy, Offices and Distribution -- 23,089 August 31, 1999
New York Center
Portland, Oregon Offices and Distribution -- 23,700 April 30, 2008
Center
Oklahoma City, Oklahoma Offices and Distribution -- 24,000 Month-to-Month
Center
Columbus, Offices and Distribution -- 24,543 June 30, 2000
Ohio Center
Skokie, Offices and Distribution -- 25,932 Month-to-Month
Illinois Center
Livonia, Michigan Offices and Distribution -- 28,524 May 1, 2002
Center
Blue Bell, Pennsylvania Offices -- 28,538 August 31, 1999
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
LEASED
OWNED AREA -----------------------------------------------
LOCATION TYPE (SQ. FT.) AREA (SQ. FT.) EXPIRATION DATE
- --------------------------- --------------------------- ------------------ ------------------ --------------------------
<S> <C> <C> <C> <C>
Hunt Valley, Maryland Offices and Distribution -- 30,600 January 31, 2002
Center
Louisville, Kentucky Offices and Distribution -- 37,400 September 30, 2001
Center
Florrisant, Missouri Offices and Distribution 38,014 -- --
Center
Perrysburg, Offices and Distribution 40,500 -- --
Ohio Center
Newington, Connecticut Offices and Distribution -- 42,000 Month-to-Month
Center
Covington, Kentucky Offices -- 42,400 December 31, 2012
Des Plaines, Illinois Offices and Distribution -- 47,971 May 31, 1999
Center
Kirkland, Washington Offices and Distribution -- 52,040 April 15, 2003
Center
Blue Bell, Pennsylvania Offices -- 67,039 June 30, 2000
Ft. Washington, Offices and Laboratories -- 80,000 December 3, 2011
Pennsylvania
</TABLE>
21
<PAGE> 22
ITEM 3 - LEGAL PROCEEDINGS
There are no pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which Omnicare or any of its
subsidiaries is a party or of which any of their property is the subject, and no
such proceedings are known to be contemplated by governmental authorities.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 19, 1999 are as follows:
Name Age Office First Elected
---- --- ------ -------------
Edward L. Hutton 79 Chairman May 20, 1981
Joel F. Gemunder 59 President May 20, 1981
Patrick E. Keefe 53 Executive Vice April 11, 1993
President - Operations
Timothy E. Bien 48 Senior Vice President- May 20, 1996
Professional Services
and Purchasing
Mary Lou Fox 67 Senior Vice President- May 20, 1996
Marketing
David W. Froesel, Jr. 47 Senior Vice President March 4, 1996
and Chief Financial
Officer
Cheryl D. Hodges 47 Senior Vice President August 4, 1982
and Secretary
All of the executive officers listed above have been actively engaged in
the business of the Company or its predecessors for the past five years, with
the exception of Mr. Froesel. Mr. Froesel was Vice President of Finance and
Administration at Mallinckrodt Veterinary Inc. from May 1993 to February 1996.
From July 1989 to April 1993, he was worldwide corporate controller of
Mallinckrodt Medical Inc.
Executive officers are elected for one-year terms at the annual
organizational meeting of the Board of Directors which follows the annual
meeting of stockholders each year.
22
<PAGE> 23
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK; HOLDERS OF RECORD
The Company's Common Stock is listed on the New York Stock Exchange. The
following table sets forth the ranges of high and low closing prices for the
Common Stock on the New York Stock Exchange during each of the calendar quarters
of 1998 and 1997.
1998 1997
--------------- ---------
High Low High Low
---- --- ---- ---
First Quarter $39.63 $28.75 $30.63 $23.50
Second Quarter 39.63 33.19 31.38 22.88
Third Quarter 41.13 29.63 32.50 26.88
Fourth Quarter 34.75 26.44 34.31 27.50
The number of holders of record of Omnicare Common Stock on February 26,
1999 was 2,673. This figure does not include stockholders with shares held under
beneficial ownership in nominee name or within clearinghouse positions of
brokerage houses and banks.
DIVIDENDS
On February 4, 1998, the Board of Directors elected to increase the
quarterly cash dividend to $.02 per share, for an indicated annual rate of $.08
per share in 1998. On February 3, 1999, the quarterly cash dividend was raised
to $.0225, for an indicated annual rate of $.09 per share in 1999. It is
presently intended that cash dividends will continue to be paid on a quarterly
basis; however, future dividends are necessarily dependent upon the Company's
earnings and financial condition and other factors not currently determinable.
RECENT SALES OF UNREGISTERED SECURITIES
The Company, as part of its ongoing acquisition program, issues its common
shares and warrants ("Securities") from time to time in private transactions not
registered under the Securities Act of 1933 in connection with the purchase of
the assets or stock of businesses acquired. During the quarter ended December
31, 1998, the Company completed two transactions involving unregistered
Securities. In connection with these and previous transactions, a total of
507,576 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. See Note 2 to Consolidated
Financial Statements for additional information regarding the 1998 acquisition
transactions.
ITEM 6 - SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data, which
should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
23
<PAGE> 24
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(in thousands, except per share data)
For the years ended and at December 31,
1998 1997 1996 1995 1994
--------------- --------------- ------------- ------------ ------------
INCOME STATEMENT DATA: (a)(b)(c)
<S> <C> <C> <C> <C> <C>
Sales $ 1,517,370 $ 1,034,384 $ 641,440 $ 477,359 $ 365,640
=============== =============== ============= ============ ============
Income (loss) from continuing
operations $ 80,379 $ 54,105 $ 43,663 $ 17,521 $ (6,557)
Loss from discontinued operations - (2,154)(d) (389)(d) (1,546)(d) (1,245)(d)
--------------- --------------- ------------- ------------ ------------
Net income (loss) 80,379 51,951 (d) 43,274 (d) 15,975 (d) (7,802)(d)
Deemed dividend on preferred stock - - - (2,712)(e) -
--------------- --------------- ------------- ------------ ------------
Net income (loss) available to common
stockholders $ 80,379 $ 51,951 (d) $ 43,274 (d) $ 13,263 (d)(e) $ (7,802)(d)
=============== =============== ============= ============ ============
Earnings per share data:
Basic:
Income (loss) from continuing
operations available to
common stockholders $ 0.90 $ 0.63 $ 0.62 $ 0.26 $ (0.13)
Loss from discontinued operations - (0.02)(d) - (d) (0.02)(d) (0.03)(d)
--------------- --------------- ------------- ------------ ------------
Net income (loss) available to
common stockholders $ 0.90 $ 0.61 (d) $ 0.62 (d) $ 0.24 (d)(e) $ (0.16)(d)
=============== =============== ============= ============ ============
Diluted:
Income (loss) from continuing
operations available to
common stockholders $ 0.90 $ 0.62 $ 0.57 $ 0.26 $ (0.13)
Loss from discontinued operations - (0.02)(d) - (d) (0.02)(d) (0.03)(d)
--------------- --------------- ------------- ------------ ------------
Net income (loss) available to
common stockholders $ 0.90 $ 0.60 (d) $ 0.57 (d) $ 0.24 (d)(e) $ (0.16)(d)
=============== =============== ============= ============ ============
Dividends per share $ 0.08 $ 0.07 $ 0.06 $ 0.05 $ 0.045
=============== =============== ============= ============ ============
Weighted average number of common shares outstanding:
Basic 89,081 85,692 69,884 56,216 48,336
============== =============== ============= =========== ============
Diluted 89,786 86,710 81,089 69,406 60,509
============== =============== ============= =========== ============
BALANCE SHEET DATA: (a)(b)
Working capital $ 369,749 $ 354,825 $ 342,401 $ 112,091 $ 127,875
Total assets 1,903,829 1,412,146 828,309 405,312 359,886
Long-term debt (f)(g) 651,556 359,148 5,755 85,046 89,645
Stockholders' equity (h)(i) 963,471 829,753 689,219 228,853 194,074
</TABLE>
24
<PAGE> 25
(a) The accompanying consolidated financial statements have been restated for
the 1994 to 1997 periods to include the results of operations of
CompScript, Inc. ("CompScript") and IBAH, Inc. ("IBAH"), acquired in June
1998 pooling-of-interests transactions.
(b) The Company has had an active acquisition program in effect since 1989. See
Note 2 of the Notes to Consolidated Financial Statements for information
concerning these acquisitions.
(c) Included in the 1998 net income and 1997, 1996, 1995 and 1994 income from
continuing operations amounts are the following aftertax
pooling-of-interests expenses and nonrecurring and other charges (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------ ----------- ------- --------
<S> <C> <C> <C> <C> <C>
Acquisition expenses, pooling-
of-interests $ 13,869 (1) $ 3,935 (1) $ 1,468 (1) $ 989 $ 1,860
Nonrecurring expenses 2,689 (2) 7,166 (2) 510 (2) - -
Other expense - 499 (3) - - -
Goodwill impairment charge - CompScript - - - 3,862 -
Write-off of acquired research
and development - IBAH - - - - 18,300
Loss on business start-up - CompScript - - - - 368
-------- -------- ------- ------- --------
Total $ 16,558 $ 11,600 $ 1,978 $ 4,851 $ 20,528
======== ======== ======= ======= ========
</TABLE>
(1) See Note 2 of the Notes to Consolidated Financial Statements.
(2) See Note 13 of the Notes to Consolidated Financial Statements.
(3) See Note 14 of the Notes to Consolidated Financial Statements.
(d) Represents the closure of the software commercialization unit of Research
Biometrics, Inc., a subsidiary of IBAH, in 1997 and 1996 and the
divestiture of the Drug Delivery Services Division of IBAH in 1995 and
1994. All operating results of these businesses have been reclassified from
continuing operations to discontinued operations.
(e) On August 11, 1995, IBAH completed a private equity placement of
approximately 1,000 shares of convertible preferred stock, par value $.01
per share, at a purchase price of $7.003125 per share, for a total of
$6,935, net of transaction costs. Each share of convertible preferred stock
was convertible into three shares of common stock. All of the preferred
stock was converted to common stock before or in conjunction with the 1998
acquisition of IBAH by Omnicare. Since the convertible preferred stock
shares were immediately convertible into common stock, the most beneficial
conversion discount was recorded analogous to a deemed dividend in the 1995
statement of income.
(f) In 1997, the Company issued $345,000 of Convertible Subordinated Notes due
2007 (See Note 6 of the Notes to Consolidated Financial Statements).
(g) In 1993, the Company issued $80,500 of Convertible Subordinated Notes due
2003 (See Note 6 of the Notes to Consolidated Financial Statements).
(h) In 1996, Omnicare and IBAH sold 6,241 (pre-1996 Omnicare stock split)
shares of Common Stock in public offerings, resulting in net proceeds of
$297,171 (See Note 7 of the Notes to Consolidated Financial Statements).
(i) In 1994, the Company sold approximately 6,495 shares of Common Stock in a
public offering, resulting in net proceeds of $59,211.
25
<PAGE> 26
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- --------------------------------------------------------------------------------
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.
The following table presents sales and results of operations for Omnicare, Inc.
(the "Company"), excluding pooling-of-interests expenses, nonrecurring and other
charges and losses from discontinued operations (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Sales $ 1,517,370 $ 1,034,384 $ 641,440
============= ============= =============
Net income, as reported $ 80,379 $ 51,951 $ 43,274
Acquisition expenses, pooling-of-interests
(net of taxes) 13,869 3,935 1,468
Nonrecurring and other expenses (net of taxes) 2,689 7,665 510
Loss from discontinued operations (net of taxes) - 2,154 389
------------- ------------- -------------
Pro forma net income $ 96,937 $ 65,705 $ 45,641
============= ============= =============
Earnings per share:
Net income, as reported $ .90 $ .61 $ .62
Acquisition expenses, pooling- of-interests
(net of taxes) .16 .05 .02
Nonrecurring and other expenses (net of taxes) .03 .09 .01
Loss from discontinued operations (net of taxes) - .02 -
------------- ------------- -------------
Basic (pro forma) $ 1.09 $ .77 $ .65
============= ============= =============
Diluted (pro forma) $ 1.08 $ .76 $ .59
============= ============= =============
</TABLE>
26
<PAGE> 27
1998 vs. 1997
- --------------------------------------------------------------------------------
Excluding the impact of acquisition-related expenses for pooling-of-interests
transactions, non-recurring charges and losses from discontinued operations for
both periods, net income for the year ended December 31, 1998 increased 48% over
net income earned in 1997. Basic and diluted earnings per share, on this basis,
for 1998 increased 42% over 1997.
Sales increased 47% in 1998 versus 1997. The sales increase is primarily the
result of completing 12 institutional pharmacy acquisitions (excluding
insignificant purchases of other assets) and the acquisition of one data
management business and two contract research organizations ("CRO") in 1998.
Also increasing sales was the inclusion for the entire year of 1997
acquisitions. As described in Note 2 to the Consolidated Financial Statements,
since 1989, the Company has been involved in a program to acquire providers of
pharmaceutical and related pharmacy management services and medical supplies to
long-term care facilities and their residents. This includes acquisitions of
freestanding institutional pharmacy businesses as well as other assets,
generally insignificant in size, which are combined with existing pharmacy
operations to augment their internal growth. From time to time, the Company may
acquire other health care related businesses such as long-term care software
companies, contract research organizations, pharmacy consulting companies and
medical supplies companies, which complement the Company's core business.
The Company also increases its revenues internally through the efforts of its
National Sales and Marketing Group and pharmacy staff in developing new pharmacy
contracts with long-term care facilities. Expansion of services such as infusion
therapy and the increasing acuity levels of residents in long-term care
facilities which result from efforts made to avoid or reduce hospitalization,
together with drug price inflation and other changes in sales mix, also
contribute to the Company's revenue growth. The Company also generates internal
growth through the efforts of its CRO sales personnel in obtaining contracts
from pharmaceutical, biotechnology and medical device manufacturers for new
contract research business.
The Company's total sales increased by $483 million in 1998 versus 1997. The
Company estimates that approximately $278 million of its consolidated revenue
growth in 1998 was attributable to acquisitions, of which $268 million and $10
million related to the Pharmacy Services segment and CRO Services segment,
respectively. The Company believes that additional revenue growth opportunities
through acquisitions exist in both segments. In addition, as disclosed in the
Outlook section of Management's Discussion and Analysis of Financial Condition
and Results of Operations, the health care industry's need to lower health care
costs as well as to advance the pace of new drug development is driving ongoing
industry consolidation which should continue to provide support for the
Company's acquisition program.
On September 17, 1998, Omnicare announced the completion of the acquisition of
the institutional pharmacy operations of Extendicare, Inc., operating under the
name of United Professional Companies, Inc. ("UPC"). The acquisition of the UPC
pharmacy business provided Omnicare contracts to provide pharmacy services to
approximately 55,000 residents of long-term care facilities in 12 states and
annualized revenues of approximately $166 million. The acquisition
27
<PAGE> 28
also offers Omnicare the opportunity to provide pharmacy services to 9,300
additional residents of long-term care facilities in Canada and the United
Kingdom. The purchase price consisted of $250 million in cash, 125,000 shares of
the Company's common stock and warrants to purchase up to 1.5 million shares of
the Company's common stock at $48.00 per share.
The Company estimates that internal growth contributed approximately $205
million of Omnicare's increased revenue in 1998 compared to 1997, of which $180
million and $25 million related to the Pharmacy Services segment and the CRO
Services segment, respectively. The Company's revenues attributable to infusion
therapy grew by approximately $57 million in 1998 compared to 1997. The Company
expects the trend toward the use of infusion therapy to continue as nursing
facilities treat elderly residents with more acute health problems. When
pharmaceutical prices are increased, the Company generally is able to obtain
price increases to cover such drug price inflation; therefore, such inflation
increases revenues. The Company estimates that drug price inflation for its
highest dollar volume products in 1998 was approximately 4%-5%, and this trend
is continuing in 1999. The remainder of Omnicare's increased revenues in 1998
compared to 1997 attributable to internal growth reflects interrelated factors
associated with sales mix, pricing and volume, acuity levels of residents and
efforts of the Company's National Sales and Marketing Group and pharmacy staff
in developing new pharmacy contracts. The Company is not able to isolate and
separately quantify accurately the increased volumes associated with each of
these individual factors.
Acquisitions and internal growth brought the total number of nursing facility
residents served at December 31, 1998 to 578,700.
Gross margin increased to 30.2% in 1998 from 29.8% in 1997. The Company's
purchasing leverage associated with purchases of pharmaceuticals, leveraging
fixed and variable overhead costs at the Company's pharmacies, changes in sales
mix including increased sales from infusion therapy and contract research
organizations positively impacted gross margins. This was partially offset by
the lower margins of the significant number of companies acquired by the Company
in 1998. Acquired companies generally have lower margins due to lesser
purchasing leverage prior to their acquisition by Omnicare. Further, smaller
companies acquired by Omnicare are not able to leverage fixed and variable
overhead costs to the same extent as Omnicare. These margins are expected to
increase after acquisition by Omnicare as the Company's sales and purchasing
programs are implemented and as overhead costs are leveraged.
Sales mix for the Company includes primarily sales of pharmaceuticals and, to a
lesser extent, infusion therapy products and services, contract research
services and medical supplies and other. Sales of pharmaceuticals account for
the majority of the Company's sales and gross profit. Infusion therapy, contract
research services and medical supplies gross margins are typically higher than
gross margins associated with sales of pharmaceuticals.
Increased leverage in purchasing favorably impacts gross margins and is
primarily derived from discounts from suppliers. Leveraging of fixed and
variable overhead costs primarily relates to generating higher sales volumes
from pharmacy facilities with no increase in fixed costs (e.g.,
28
<PAGE> 29
rent) and minimal increases in variable costs (e.g., utilities). The Company
believes it will be able to continue to leverage fixed and variable overhead
costs through internal growth.
As noted earlier herein, the Company is generally able to obtain price increases
to cover drug price inflation. In order to enhance its gross margins, the
Company strategically allocates its resources to those activities that will
increase internal sales growth and favorably impact sales mix or will lower
costs. In addition, through the ongoing development of its pharmaceutical
purchasing programs, the Company is able to obtain discounts and thereby manage
its pharmaceutical costs.
Operating expenses for the year ended December 31, 1998 increased 42% to
$283,438,000 as compared to 1997 due to the overall growth of the Company.
Operating expenses as a percentage of sales declined from 19.2% in 1997 to 18.7%
in 1998 as a result of leveraging the Company's fixed overhead costs through
acquisitions and internal growth, particularly within the Company's CRO Services
segment, which experienced a significant increase in sales due to internal
growth. This contributed to the significant increase in operating income within
the CRO Service segment during 1998 as compared to the prior year.
Acquisition expenses for 1998 of $15,441,000 represent expenses primarily
related to the Company's pooling-of-interests transactions with IBAH, Inc. and
CompScript, Inc. Acquisition expenses for 1997 related to pooling transactions
completed by Omnicare, CompScript and IBAH during 1997.
Nonrecurring and other expenses for 1998 represent charges related to the
restructuring of the CompScript mail order pharmacy business and the
consolidation and restructuring of certain IBAH operations. Nonrecurring
expenses in 1997 included $6,313,000 for the estimated costs and legal and other
expenses associated with resolving the investigation of the Company's
Belleville, Illinois subsidiary, Home Pharmacy. Also included in 1997
nonrecurring expenses is a restructuring charge taken by IBAH and a write-down
of a note receivable by CompScript.
Investment income decreased by 41%, or $2,364,000, to $3,356,000 in 1998
compared to 1997 resulting from reduced levels of average invested cash due to
the use of cash in the Company's acquisition program. Interest expense increased
to $23,611,000 in 1998 from $6,556,000 in 1997 due to borrowings of $305,000,000
from the Company's revolving line of credit to finance acquisitions during the
latter part of 1998, and the Company's $345,000,000 of 5% Convertible
Subordinated Notes issued in December 1997.
The effective tax rate decreased to 40.8% in 1998 from 43.6% in 1997, primarily
due to a decrease in state and local income taxes in 1998 attributable to state
tax planning programs. The Company expects the benefit realized from the state
tax planning programs to continue. The effective tax rates of 40.8% and 43.6% in
1998 and 1997, respectively, are higher than the statutory rate primarily due to
state and local income taxes and various nondeductible expenses (e.g.,
acquisition costs, nonrecurring charges and foreign losses not benefited).
29
<PAGE> 30
Discontinued operations for 1997 reflect IBAH's closure of the software
commercialization unit of Research Biometrics, Inc. in June 1997. Accordingly,
all operating results of this unit were reclassified from continuing operations
to discontinued operations. This unit recorded a net loss of $607,000 in 1997.
In addition, a loss on the disposal of this unit of $1,547,000 was reflected in
the 1997 consolidated statement of income.
1997 vs. 1996
- --------------------------------------------------------------------------------
Excluding the impact of acquisition-related expenses for pooling-of-interests
transactions, non-recurring charges and losses from discontinued operations for
both periods, net income for the year ended December 31, 1997 increased 44% over
net income earned in 1996. Basic earnings per share, on this basis, for 1997
increased 18% over 1996 and diluted earnings per share increased 29%.
Sales increased 61% in 1997 versus 1996. The sales increase was, in part, the
result of the completion of 25 acquisitions in 1997 (excluding insignificant
acquisitions), including 21 institutional pharmacy businesses, a long-term care
software company, two contract research organizations and a health economics
consulting business. Additionally, internal growth and the efforts of the
National Sales and Marketing Group and pharmacy staff added to the increase in
sales. Also increasing sales was the inclusion for the entire year of 1996
acquisitions.
The Company's total sales increased by $393 million in 1997 versus 1996. The
Company estimates that approximately $277 million of its consolidated revenue
growth in 1997 was attributable to acquisitions, of which $264 million and $13
million related to the Pharmacy Services segment and the CRO Services segment,
respectively. The Company estimates that internal growth contributed
approximately $116 million of Omnicare's increased revenue in 1997 compared to
1996, of which $103 million and $13 million related to the Pharmacy Services
segment and the CRO Services segment, respectively. The Company's revenues
attributable to infusion therapy grew by approximately $38 million in 1997
compared to 1996. The remainder of Omnicare's increased revenues in 1997
compared to 1996 attributable to internal growth reflects interrelated factors
associated with sales mix, pricing and volume, acuity levels of residents,
efforts of the Company's National Sales and Marketing Group and pharmacy staff
in developing new pharmacy contracts.
On September 16, 1997, Omnicare completed the acquisition of all outstanding
shares of American Medserve Corporation ("AMC"). AMC provided comprehensive
pharmacy and related services to approximately 51,400 residents in 720 long-term
care facilities in 11 states. The cash purchase price of AMC was approximately
$239.7 million, including bank debt totaling $16.7 million, which was retired
immediately following the acquisition.
Acquisitions and internal growth brought the total number of nursing facility
residents served (including CompScript) at December 31, 1997 to 461,300.
Gross margin decreased slightly from 30.1% in 1996 to 29.8% in 1997. The
Company's purchasing leverage associated with purchases of pharmaceuticals,
leveraging fixed and variable
30
<PAGE> 31
overhead costs at the Company's pharmacies, changes in sales mix including
increased infusion therapy sales, medical supplies and contract research
services positively impacted gross margins. However, this was offset by the
lower margins of the significant number of companies acquired by the Company in
1997.
Investment income decreased by 53% to $5,720,000 in 1997 as the Company utilized
the excess net proceeds from the March 1996 stock offering to finance 1997
acquisitions. Interest expense increased 51% from $4,332,000 in 1996 to
$6,556,000 in 1997 as a result of the Company borrowing on its available line of
credit and issuing $345 million of convertible subordinated debentures during
1997 in order to finance acquisitions.
The increase in the effective tax rate from 39.6% in 1996 to 43.6% in 1997 is
primarily attributable to an increase in state and local income taxes resulting
from acquired companies and the significant increase in nondeductible expenses
in 1997.
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 that are not Year 2000 compliant, Omnicare is currently correcting,
upgrading or replacing those systems with, among other systems, its new
proprietary information system, which 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 system remediation is
being completed using both internal resources and external consultants. The
Company estimates that the total costs associated with this project will range
from approximately $5.1 million to $6.8 million (with hardware accounting for
approximately 30 percent of these costs and software and implementation
approximating 70 percent of these costs). Approximately $1.7 million has been
spent to date. The cost of this project will be funded 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
31
<PAGE> 32
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 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.
Impact of Inflation
- --------------------------------------------------------------------------------
Inflation has not materially affected Omnicare's profitability inasmuch as price
increases have generally been obtained to cover inflationary drug cost
increases.
Liquidity and Capital Resources
- --------------------------------------------------------------------------------
Acquisitions completed during 1998 utilized cash of $382 million and deferred
cash payments of $16.7 million were made relating to pre-1998 acquisitions.
Acquisitions were also financed, in part, with common stock of the Company.
Shares of common stock with a market value of approximately $262 million (7.2
million shares) were issued in connection with 1998 acquisitions and
approximately 190,000 shares with a market value of approximately $6.9 million
were issued during 1998 in connection with pre-1998 acquisitions. Additional
amounts totaling $32 million may become payable through the year 2011 pursuant
to the terms of various acquisition agreements.
In December 1997, the Company issued $345,000,000 principal amount of 5.0%
Convertible Subordinated Notes ("Notes") due 2007. The Notes are convertible
into common stock at any time after March 4, 1998, through maturity, unless
previously redeemed, at the option of the holder at a price of $39.60 per share.
In October 1996, the Company entered into an agreement with a consortium of
sixteen banks for a $400 million revolving credit facility available through
2001. In December 1998, the Company amended this five-year, $400 million line of
credit to permit an additional 364-day, $400 million line of credit through
December 20, 1999, which can be converted at maturity into a one-year term loan.
Interest rates and commitment fees for the five-year, $400 million line of
credit facility are based on the Company's level of performance under certain
financial ratios, debt covenants and the amount of borrowings under the line of
credit. The total amount outstanding under this facility as of December 31, 1998
was $305,000,000. Interest rates and commitment fees under the 364-day, $400
million line of credit are based on the Company's debt ratings. No amounts were
outstanding at December 31, 1998 under the 364-day facility.
Omnicare's current ratio was 2.6 to 1.0 at December 31, 1998 as compared with
2.9 to 1.0 at December 31, 1997, the decline being primarily attributable to the
Company's utilization of cash
32
<PAGE> 33
to fund its acquisition program. Working capital at December 31, 1998 increased
to $369,749,000 from year-end 1997 working capital of $354,825,000. Book value
per common share increased to $10.67 as of December 31, 1998 from $9.41 at the
prior year end, primarily attributable to increased net income and to the impact
of stock issued in connection with acquisitions, partially offset by dividends
paid. Operating cash flow for 1998 increased to $89,507,000 compared to
$10,235,000 for 1997, attributable to the Company's increased net income and
improved management of working capital. The acquisition of IBAH in June 1998 in
a pooling-of-interests transaction also contributed to the year-to-year
improvement. Further, 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 1998.
On February 3, 1999, Omnicare's Board of Directors increased the quarterly cash
dividend by 13% to 2.25 cents per share for an indicated annual rate of 9 cents
per share for 1999, compared to 8 cents in 1998.
The Company believes that its sources of liquidity and capital are adequate for
its operating needs. There are no material commitments and contingencies
outstanding, other than additional acquisition-related payments to be made (see
Note 2 of the Notes to Consolidated Financial Statements). If needed, other
external sources of financing are readily available to the Company.
Outlook
- --------------------------------------------------------------------------------
The Company derives approximately one-half of its revenues directly and
indirectly from government sources, principally Medicaid and to a lesser extent
Medicare, and one-half from the private sector. In recent years, a number of
legislative proposals have been passed by Congress that effect major changes in
the health care system, both nationally and at the state level, including the
Balanced Budget Act of 1997 ("Balanced Budget Act") signed into law on August 5,
1997, which seeks to achieve a balanced federal budget by, among other things,
reducing federal spending on the Medicare program. The Balanced Budget Act made
substantial changes to the reimbursement policies applicable to various health
care providers, including the new Prospective Payment System ("PPS") for
Medicare-funded residents of skilled nursing facilities. PPS became effective
July 1, 1998 and is being phased-in over a three-year period. Prior to PPS,
skilled nursing facilities under Medicare received cost-based reimbursement.
Under PPS, Medicare pays skilled nursing facilities a fixed fee per patient per
day based upon the acuity level of the resident. This per diem payment covers
substantially all items and services furnished during a Medicare-covered stay,
including ancillary services such as pharmacy. Accordingly, under PPS, skilled
nursing facilities will have greater incentive to manage the utilization of
services effectively and to operate more efficiently. Although it is unclear
what the long-term impact of PPS will be, the Company believes that it is
well-positioned to assist skilled nursing facilities in accomplishing these
objectives. There can be no assurance, however, that over the shorter term as
skilled nursing facilities transition and adapt to PPS, there will be no
material adverse effect on the Company's financial condition and results of
operations.
33
<PAGE> 34
The Company anticipates that the government and the private sector will continue
to review, assess and alter health care delivery systems and payment
methodologies. While it is not possible to predict the effect of any future
initiatives on Omnicare's business, market forces nevertheless continue to
challenge health care providers to lower costs while maintaining or improving
quality. In this environment, the need to lower health care costs will drive
ongoing industry consolidation, which should continue to provide support for the
Company's acquisition program. Moreover, the development of the Company's
institutional pharmacy network in key geographic regions provides opportunities
for economies of scale and operating efficiencies to lower overall costs. In
addition, Omnicare's proprietary geriatric formulary not only lowers costs for
payors and patients, but also enhances the quality of care for the elderly.
Demographic trends also indicate that demand for long-term care will increase
well into the middle of the next century as the elderly population grows
significantly. Pharmaceutical therapy is generally considered the most
cost-effective form of treatment for chronic ailments afflicting the elderly
and, as such, is an essential part of long-term care. Omnicare believes it is
well positioned to meet the challenges of today's health environment through a
number of initiatives, including drug formulary management, cost-effective drug
purchasing and efficient delivery systems. Additionally, Omnicare's pharmacy
consulting services for nursing facilities identify, resolve and prevent drug
therapy-related problems, reducing costs to the health care system while also
promoting optimal patient outcomes. Moreover, the rate of new drug discovery
continues to accelerate, and pharmaceutical manufacturers, in order to keep
pace, have increasingly turned to contract research organizations to assist them
in accelerating drug research, development and commercialization, providing a
foundation for growth in the Company's contract research business. Management
believes Omnicare is strategically positioned for continued sales and earnings
growth in 1999.
Quantitative and Qualitative Disclosures about Market Risks
- --------------------------------------------------------------------------------
The Company does not have any financial instruments held for trading purposes
and does not hedge any of its market risks with derivative instruments.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
Regarding Forward-Looking Information
- --------------------------------------------------------------------------------
In addition to historical information, this report contains forward-looking
statements and performance trends that 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 forward-looking statements and trends include those relating to Omnicare's
acquisition program, internal growth trends, opportunities for expansion, trends
concerning sales mix including those relating to infusion therapy, expectations
regarding margins of acquired businesses, the impact of purchasing leverage on
margins, the leveraging of costs, the impact of drug price inflation, the impact
of industry consolidation, opportunities for economies of scale, the impact of
Omnicare's proprietary geriatric formulary, expectations concerning sales and
earnings, the impact of regulation including PPS on the Company's business, the
impact that acceleration in the rate of new drug discovery and outsourcing of
product development activities may have on the Company's contract research
34
<PAGE> 35
business, and the impact of the Year 2000 issue. 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, the
consummation and successful integration of acquisitions, the effect of new
government regulation and/or legislative initiatives including those relating to
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, loss or delay of CRO contracts for regulatory or other
reasons, 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, the impact of consolidation in the pharmaceutical
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.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any financial instruments held for trading purposes
and does not hedge any of its market risks with derivative instruments.
35
<PAGE> 36
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Financial Statement Schedule
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements:
Report of Independent Accountants 37
Consolidated Statement of Income 40
Consolidated Balance Sheet 41
Consolidated Statement of Cash Flows 42
Consolidated Statement of Stockholders'
Equity 43
Notes to Consolidated Financial
Statements 44
Financial Statement Schedule:
II - Valuation and Qualifying Accounts S-1
</TABLE>
All other financial statement schedules are omitted because they are not
applicable or because the required information is shown in the Consolidated
Financial Statements or notes thereto.
36
<PAGE> 37
Report of Independent Accountants
---------------------------------
To the Stockholders and
Board of Directors of Omnicare, Inc.
In our opinion, based upon our audits and the reports of other auditors with
respect to 1997 and 1996, the accompanying consolidated balance sheets and the
related consolidated statements of income and stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Omnicare, Inc. and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of CompScript, Inc., or IBAH, Inc., wholly-owned subsidiaries, which
statements reflect combined total assets of $122,517,000 at December 31, 1997
and combined total revenues of $138,682,000 and $104,836,000 for the years ended
December 31, 1997 and 1996, respectively. These statements were audited by other
auditors whose reports thereon have been furnished to us, and our opinion
expressed herein, insofar as it relates to the 1997 and 1996 amounts included
for CompScript, Inc. and IBAH, Inc. is based solely on the reports of the other
auditors. We conducted our audits of the consolidated financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
Cincinnati, Ohio
January 29, 1999
37
<PAGE> 38
Report of Independent Certified Public Accountants
The Board of Directors
and Shareholders
CompScript, Inc.
We have audited the accompanying consolidated balance sheet of CompScript, Inc.
and Subsidiaries (the Company) as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the consolidated financial position of
CompScript, Inc. and Subsidiaries at December 31, 1997, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
- --------------------
West Palm Beach Florida
March 6, 1998
38
<PAGE> 39
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To IBAH, Inc.:
We have audited the accompanying consolidated balance sheets of IBAH, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1997 (not
presented herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IBAH, Inc. and subsidiaries as
of December 31, 1997, and the results of their operations and their cash flow
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
- -----------------------
Philadelphia, Pa.,
February 5, 1998
39
<PAGE> 40
CONSOLIDATED STATEMENT OF INCOME
Omnicare, Inc. and Subsidiary Companies
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 1,517,370 $ 1,034,384 $ 641,440
Cost of sales 1,058,743 725,923 448,241
----------- ----------- -----------
Gross profit 458,627 308,461 193,199
Selling, general and administrative expenses 283,438 199,050 126,596
Acquisition expenses, pooling-of-interests (Note 2) 15,441 4,321 1,624
Nonrecurring expenses (Note 13) 3,627 7,521 510
----------- ----------- -----------
Operating income 156,121 97,569 64,469
Investment income 3,356 5,720 12,139
Interest expense (23,611) (6,556) (4,332)
Other expense (Note 14) - (800) -
----------- ----------- -----------
Income before income taxes 135,866 95,933 72,276
Income taxes 55,487 41,828 28,613
----------- ----------- -----------
Income from continuing operations 80,379 54,105 43,663
Loss from discontinued operations (Note 15) - (2,154) (389)
----------- ----------- -----------
Net income $ 80,379 $ 51,951 $ 43,274
=========== =========== ===========
Earnings (loss) per share - Basic:
Continuing operations $ 0.90 $ 0.63 $ 0.62
Discontinued operations - (0.02) -
----------- ----------- -----------
Net income $ 0.90 $ 0.61 $ 0.62
=========== =========== ===========
Earnings (loss) per share - Diluted:
Continuing operations $ 0.90 $ 0.62 $ 0.57
Discontinued operations - (0.02) -
----------- ----------- -----------
Net income $ 0.90 $ 0.60 $ 0.57
=========== =========== ===========
Weighted average number of common shares outstanding:
Basic 89,081 85,692 69,884
=========== =========== ===========
Diluted 89,786 86,710 81,089
=========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
40
<PAGE> 41
CONSOLIDATED BALANCE SHEET
Omnicare, Inc. and Subsidiary Companies
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 54,312 $ 138,062
Accounts receivable, less allowances
of $31,417 (1997-$17,994) 379,624 278,525
Inventories 117,936 90,366
Deferred income tax benefits 12,348 10,465
Other current assets 39,078 24,954
----------- -----------
Total current assets 603,298 542,372
Properties and equipment, at cost less accumulated
depreciation of $76,854 (1997-$53,703) 136,371 101,662
Goodwill, less accumulated amortization
of $51,861 (1997-$30,247) 1,110,254 726,696
Other assets 53,906 41,416
----------- -----------
Total assets $ 1,903,829 $ 1,412,146
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 82,029 $ 54,840
Amounts payable pursuant to acquisition agreements 10,230 17,073
Current portion of long-term debt 2,844 13,252
Accrued employee compensation 48,073 34,304
Deferred revenue 19,043 22,270
Other current liabilities 71,330 45,808
----------- -----------
Total current liabilities 233,549 187,547
Long-term debt 651,556 359,148
Deferred income taxes 16,230 10,517
Amounts payable pursuant to acquisition agreements 13,564 10,404
Other noncurrent liabilities 25,459 14,777
----------- -----------
Total liabilities 940,358 582,393
Stockholders' equity:
Preferred stock-authorized 1,000,000 shares without par value; none issued
Common stock-authorized 110,000,000 shares $1 par;
90,459,800 shares issued (1997-88,260,600 shares issued) 90,460 88,261
Paid-in capital 664,225 609,117
Retained earnings 225,937 151,153
----------- -----------
980,622 848,531
Treasury stock, at cost - 194,872 shares (1997-102,046 shares) (4,166) (2,926)
Deferred compensation (12,932) (14,807)
Unallocated stock of ESOP -- (940)
Cumulative translation adjustment (53) (105)
----------- -----------
Total stockholders' equity 963,471 829,753
----------- -----------
Total liabilities and stockholders' equity $ 1,903,829 $ 1,412,146
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
41
<PAGE> 42
CONSOLIDATED STATEMENT OF CASH FLOWS
Omnicare, Inc. and Subsidiary Companies
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 80,379 $ 51,951 $ 43,274
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 47,636 31,105 18,934
Provision for doubtful accounts 12,405 8,370 4,457
Deferred tax provision 7,579 10,395 3,011
Discontinued operations - 2,154 389
Loss on note receivable - 800 -
Other 1,948 170 1,188
Changes in assets and liabilities, net of effects
from acquisition/disposal of businesses:
Accounts receivable (84,276) (84,278) (36,488)
Inventories (18,786) (29,250) (8,972)
Current and noncurrent assets (15,466) (7,009) (8,969)
Payables and accrued liabilities 32,971 19,637 5,536
Deferred revenue (3,190) (951) 3,816
Current and noncurrent liabilities 28,307 7,141 4,783
--------- --------- ---------
Net cash flows from operating activities 89,507 10,235 30,959
--------- --------- ---------
Cash flows from investing activities:
Acquisition of businesses (398,686) (409,348) (108,453)
Capital expenditures (53,179) (41,278) (30,234)
Marketable securities 2,084 905 (4,411)
Other 63 (1,066) (301)
--------- --------- ---------
Net cash flows from investing activities (449,718) (450,787) (143,399)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings on line-of-credit 305,000 8,341 470
Proceeds from long-term borrowings - 354,951 3,098
Principal payments on long-term obligations (22,796) (7,909) (4,966)
Fees paid for financing arrangements (1,761) (7,763) -
Net proceeds from stock offerings - - 297,171
Proceeds from exercise of stock options and warrants,
net of stock tendered in payment 3,050 4,080 5,444
Dividends paid (6,841) (5,596) (3,900)
Effect of exchange rate changes on cash (191) (451) (167)
--------- --------- ---------
Net cash flows from financing activities 276,461 345,653 297,150
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (83,750) (94,899) 184,710
Cash and cash equivalents at beginning of period 138,062 232,961 48,251
--------- --------- ---------
Cash and cash equivalents at end of period $ 54,312 $ 138,062 $ 232,961
========= ========= =========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
42
<PAGE> 43
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Omnicare, Inc. and Subsidiary Companies
(In thousands, except per share data)
<TABLE>
<CAPTION>
Common Paid-in Retained Treasury Deferred
Stock Capital Earnings Stock Compensation
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <
Balance at December 31, 1995 $ 30,689 $ 138,527 $ 64,718 $ (482) $ (2,126)
Pooling-of-interests (Note 2) 193 (1,673) 2,290 - -
Net income - - 43,274 - -
Dividends paid ($.06 per share) - - (3,900) - -
Stock issued in public offering 6,241 290,930 - - -
Two-for-one stock split 32,689 (33,147) - 458 -
Conversion of subordinated debt 10,815 67,423 - - -
Stock and warrants issued in
connection with acquisitions 1,277 33,408 - - -
Exercise of warrants 466 3,557 - 44 -
Exercise of stock options 262 657 - 562 -
Stock awards, net of amortization 192 9,352 - (582) (7,377)
Decrease in unallocated stock of ESOP - - - - -
Other (70) 1,801 178 - -
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 82,754 510,835 106,560 - (9,503)
Pooling-of-interests (Note 2) 1,221 660 (1,620) - -
Net income - - 51,951 - -
Dividends paid ($.07 per share) - - (5,596) - -
Stock and warrants issued in
connection with acquisitions 2,807 74,155 129 - -
Exercise of warrants 758 10,456 - 42 -
Exercise of stock options 294 701 - (346) -
Stock awards, net of amortization 421 11,539 - (2,379) (5,304)
Decrease in unallocated stock of ESOP - - - - -
Other 6 771 (271) (243) -
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 88,261 609,117 151,153 (2,926) (14,807)
Pooling-of-interests (Note 2) 549 803 1,245 - -
Net income - - 80,379 - -
Dividends paid ($.08 per share) - - (6,841) - -
Stock and warrants issued in
connection with acquisitions 868 39,312 - (4,107) -
Exercise of warrants 175 1,965 - 518 -
Exercise of stock options 232 894 - 3,669 -
Stock awards, net of amortization 375 12,134 - (1,320) 1,875
Decrease in unallocated stock of ESOP - - - - -
Other - - 1 - -
- -------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 90,460 $ 664,225 $ 225,937 $ (4,166) $ (12,932)
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Unallocated Total
Stock of Translation Stockholders'
ESOP Adjustment Equity
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $ (2,260) $ 122 $ 229,188
Pooling-of-interests (Note 2) - - 810
Net income - - 43,274
Dividends paid ($.06 per share) - - (3,900)
Stock issued in public offering - - 297,171
Two-for-one stock split - - -
Conversion of subordinated debt - - 78,238
Stock and warrants issued in
connection with acquisitions - - 34,685
Exercise of warrants - - 4,067
Exercise of stock options - - 1,481
Stock awards, net of amortization - - 1,585
Decrease in unallocated stock of ESOP 600 - 600
Other - 111 2,020
- -------------------------------------------------------------------------------------------
Balance at December 31, 1996 (1,660) 233 689,219
Pooling-of-interests (Note 2) - - 261
Net income - - 51,951
Dividends paid ($.07 per share) - - (5,596)
Stock and warrants issued in
connection with acquisitions - - 77,091
Exercise of warrants - - 11,256
Exercise of stock options - - 649
Stock awards, net of amortization - - 4,277
Decrease in unallocated stock of ESOP 720 - 720
Other - (338) (75)
- -------------------------------------------------------------------------------------------
Balance at December 31, 1997 (940) (105) 829,753
Pooling-of-interests (Note 2) - - 2,597
Net income - - 80,379
Dividends paid ($.08 per share) - - (6,841)
Stock and warrants issued in
connection with acquisitions - - 36,073
Exercise of warrants - - 2,658
Exercise of stock options - - 4,795
Stock awards, net of amortization - - 13,064
Decrease in unallocated stock of ESOP 940 - 940
Other - 52 53
- -------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ - $ (53) $ 963,471
===========================================================================================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
43
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Omnicare, Inc. include the accounts of
all wholly-owned subsidiaries ("Omnicare" or the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements and related footnotes have
been restated for all periods presented to include the results of operations,
cash flows and financial position of CompScript, Inc. and IBAH, Inc., acquired
in June 1998 pooling-of-interests transactions, as discussed in Note 2.
SEGMENT INFORMATION
In 1998, Omnicare adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise." The adoption of SFAS No. 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information (see "Segment Information" at Note 16).
TRANSLATION OF FOREIGN FINANCIAL STATEMENTS
Assets and liabilities of the Company's foreign operations are translated at the
year-end rate of exchange, and the income statements are translated at the
average rate of exchange for the year. Gains or losses from translating foreign
currency financial statements are accumulated in a separate component of
stockholders' equity.
CASH EQUIVALENTS
Cash equivalents include all investments in highly liquid instruments with
original maturities of three months or less.
44
<PAGE> 45
INVENTORIES
Inventories consist primarily of purchased pharmaceuticals and medical supplies
held for sale to customers and are stated at the lower of cost or market. Cost
is determined using the first-in, first-out ("FIFO") method.
PROPERTIES AND EQUIPMENT
Properties and equipment are stated at cost. Expenditures for maintenance,
repairs, renewals and betterments that do not materially prolong the useful
lives of the assets are charged to expense as incurred. Depreciation of
properties and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the lease terms, including renewal options, or their useful lives.
LEASES
Leases that substantially transfer all of the benefits and risks of ownership of
property to Omnicare or otherwise meet the criteria for capitalizing a lease
under generally accepted accounting principles are accounted for as capital
leases. An asset is recorded at the time a capital lease is entered into
together with its related long-term obligation to reflect its purchase and
financing. Property and equipment recorded under capital leases are depreciated
on the same basis as previously described. Rental payments under operating
leases are expensed as incurred.
GOODWILL, INTANGIBLES AND OTHER ASSETS
Intangible assets, comprised primarily of goodwill arising from business
combinations accounted for as purchase transactions, are amortized using the
straight-line method over forty years.
At each balance sheet date, the Company reviews the recoverability of goodwill.
The measurement of possible impairment is based primarily on the ability to
recover the balance of the goodwill from expected future operating cash flows on
an undiscounted basis. In management's opinion, no such impairment exists as of
December 31, 1998 or 1997.
Debt issuance costs as of December 31, 1998 and 1997 are included in other
assets and are amortized using the straight-line method over the life of the
related debt.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of all financial instruments of the Company approximates the
amounts presented on the consolidated balance sheet.
45
<PAGE> 46
REVENUE RECOGNITION
Revenue is recognized when products or services are provided to the customer. A
significant portion of the Company's revenues from sales of pharmaceutical and
medical products are reimbursable from Medicaid and Medicare programs. The
Company monitors its receivables from these reimbursement sources under policies
established by management and reports such revenues at the net realizable amount
expected to be received from these third-party payors.
Additionally, a portion of the Company's revenues are earned by performing
services under contracts with various pharmaceutical, biotechnology, medical
device and diagnostics companies, based on contract terms. Most of the contracts
provide for services to be performed on a units of service basis. These
contracts specifically identify the units of service and unit pricing. Under
these contracts, revenue is generally recognized upon completion of the units of
service, unless the unit of service is performed over an extended period of
time. For extended units of service, revenue is recognized based on labor hours
expended as a percentage of total labor hours expected to be expended. For
time-and-materials contracts, revenue is recognized at contractual hourly rates,
and for fixed-price contracts revenue is recognized using a method similar to
that used for extended units of service. The Company's contracts provide for
price renegotiations upon scope of work changes. The Company recognizes revenue
related to these scope changes when underlying services are performed and
realization is assured. In a number of cases, clients are required to make
termination payments in addition to payments for services already rendered. Any
anticipated losses resulting from contract performance are charged to earnings
in the period identified. Billings and payments are specified in each contract.
Revenue recognized in excess of billings is classified as unbilled receivables,
while billings in excess of revenue are classified as deferred revenue on the
accompanying balance sheets.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method under
which deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates to differences between the
tax bases of assets and liabilities and their reported amounts in the
consolidated financial statements.
EARNINGS PER SHARE DATA
Basic earnings per share are computed based on the weighted average number of
shares of common stock outstanding during the period. Diluted earnings per share
include the dilutive effect of stock options and warrants, and for the year
ended December 31, 1996, assumed the conversion of the 5.75% Convertible
Subordinated Notes due 2003 into common stock. Additionally, for the year ended
December 31, 1996, interest expense and amortization of debt issuance costs
arising from these convertible securities were added, net of related income
taxes, to income for the purpose of calculating diluted earnings per share. The
5.75% Convertible Subordinated Notes were converted on October 3, 1996;
accordingly, they had no impact on the diluted earnings per share calculation
subsequent to that date. The 5.0% Convertible
46
<PAGE> 47
Subordinated Notes due 2007 (issued in December 1997) were not included in the
1998 and 1997 diluted earnings per share calculations since the impact was
antidilutive.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted the provisions of SFAS Nos. 130,
131 and 132, "Reporting Comprehensive Income," "Disclosures about Segments of an
Enterprise and Related Information" and "Disclosure about Pensions and other
Post-Retirement Benefits," respectively. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses). Comprehensive income of the Company differs from
net income due to foreign currency translation adjustments. Omnicare's
comprehensive income for the years ended December 31, 1998, 1997 and 1996 was
$80,431, $51,613 and $43,385, respectively. 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 information is separately presented in Note 16 below. SFAS No. 132
amends certain reporting and disclosure requirements of SFAS Nos. 87 and 106.
The Company's reporting and disclosures were not significantly impacted by the
new pronouncement.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in 1998. 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. SFAS
No. 133 is not expected to significantly impact the Company's financial
position, results of operations or financial reporting.
In 1998, the American Institute of Certified Public Accountants 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.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
47
<PAGE> 48
RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to conform with
the current year presentation.
NOTE 2 - ACQUISITIONS
Since 1989, the Company has been involved in a program to acquire providers of
pharmaceutical and related pharmacy management services and medical supplies to
long-term care facilities and their residents. The Company's strategy includes
acquisitions of freestanding institutional pharmacy businesses as well as other
assets, generally insignificant in size, which are combined with existing
pharmacy operations to augment their internal growth. From time to time, the
Company may acquire other businesses such as long-term care software companies,
contract research organizations, pharmacy consulting companies and medical
supply companies, which complement the Company's core business.
During the year ended December 31, 1998, the Company completed 15 acquisitions
(excluding insignificant acquisitions), including 12 institutional pharmacy
businesses, a long-term care software company and two contract research
organizations. Eleven of the acquisitions were accounted for as purchases and
four as poolings-of-interests. The impact of the CompScript, Inc. ("CompScript")
and IBAH, Inc. ("IBAH") pooling-of-interests transactions, discussed below in
the "Pooling-of-Interests" section, on the Company's historical consolidated
financial statements was material. Consequently, Omnicare's financial statements
have been restated to include the accounts and results of operations of
CompScript and IBAH for all periods presented. The impact of the other two
pooling-of-interests transactions completed by Omnicare on the Company's
historical consolidated financial statements was not material. Consequently,
prior period and current year financial statements have not been restated for
these transactions.
During the year ended December 31, 1997, the Company completed 25 acquisitions
(excluding insignificant acquisitions), including 21 institutional pharmacy
businesses, a long-term care software company, two contract research
organizations and a health economics consulting business (completed by IBAH).
Eighteen of the acquisitions were accounted for as purchases and seven as
poolings-of-interests. The impact of four of the pooling-of-interests
transactions on the Company's historical consolidated financial statements was
not material. Consequently, prior period and current year financial statements
were not restated for these transactions. The remaining three
pooling-of-interests transactions were completed by CompScript and the accounts
and results of operations of these entities were included in the CompScript
financial statements used to prepare Omnicare's restated financial statements.
During the year ended December 31, 1996, the Company completed 22 acquisitions
(excluding insignificant acquisitions), including 19 institutional pharmacy
businesses, two long-term care software companies and a contract research
organization. Nineteen of the acquisitions were accounted for as purchases and
three as poolings-of-interests. The impact of one of the pooling-of-interests
transactions on the Company's historical consolidated financial statements was
not material. Consequently, prior period and current year financial statements
were not restated for
48
<PAGE> 49
this transaction. The remaining two pooling-of-interests transactions were
completed by CompScript and the accounts and results of operations of these
entities were included in the CompScript financial statements used to prepare
Omnicare's restated financial statements.
PURCHASES
For all acquisitions accounted for as purchases, including insignificant
acquisitions, the purchase price paid for each has been allocated to the fair
value of the assets acquired and liabilities assumed. Purchase price allocations
are subject to final determination within one year after the acquisition date.
On September 17, 1998, Omnicare announced the completion of the acquisition of
the institutional pharmacy operations of Extendicare Health Services, Inc.
("EHSI"), a wholly-owned subsidiary of Extendicare Inc. 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. Based in Milwaukee,
Wisconsin, the pharmacy business of EHSI, operating under the name United
Professional Companies, Inc., had, at the time of acquisition, contracts to
provide comprehensive pharmacy, related consulting and infusion therapy services
to approximately 55,000 residents in more than 550 facilities in 12 states.
On September 16, 1997, Omnicare completed the acquisition of all outstanding
shares of American Medserve Corporation ("AMC"). At the time of acquisition, AMC
was providing comprehensive pharmacy and related services to approximately
51,400 residents in 720 long-term care facilities in 11 states. The cash
purchase price of AMC was approximately $239.7 million, including bank debt
totaling $16.7 million, which was retired immediately following the acquisition.
The following table summarizes the aggregate purchase price for all businesses
acquired which have been accounted for as purchases (in thousands):
<TABLE>
<CAPTION>
Businesses acquired in
--------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash $342,460 $392,906 $ 86,953
Amounts payable in the future 13,749 14,234 19,026
Common stock 22,314 75,244 14,317
Warrants 10,509 287 696
Assumption of indebtedness - 2,520 5,296
-------- -------- --------
$389,032 $485,191 $126,288
======== ======== ========
</TABLE>
Cash in the above table represents payments made in the year of acquisition,
including retirement of indebtedness. This amount differs from cash paid for
acquisition of businesses in the Consolidated Statement of Cash Flows due
primarily to purchase price payments made during the year pursuant to
acquisition agreements entered into in prior years.
49
<PAGE> 50
Warrants outstanding issued in connection with acquisitions as of December 31,
1998 represent the right to purchase 2,076,431 shares of common stock. These
warrants can be exercised at any time through 2005 at prices ranging from $14.25
to $48.00 per share. Warrants to purchase 175,422 shares of common stock, issued
in prior years, were exercised in 1998.
The purchase agreements for acquisitions generally include provisions whereby
the seller will or may be paid additional consideration at a future date
depending on the passage of time and/or whether certain future events occur. The
agreements also include a number of representations and covenants by the seller
and provide that if those covenants are violated or found not to have been true,
Omnicare may offset any payments required to be made at a future date against
any claims it may have under the agreement caused by the covenant and
representation violations. There are no significant anticipated future offsets
against indemnity provisions or related accruals as of December 31, 1998 and
1997. Amounts contingently payable through 2000 totaled $31,745,400 as of
December 31, 1998 and, if paid, will be recorded as additional purchase price,
serving to increase goodwill in the period in which the contingencies are
resolved.
The results of operations of the companies acquired in purchase transactions
have been included in the consolidated results of operations of the Company from
the dates of acquisition.
Unaudited pro forma combined results of operations of the Company for the years
ended December 31, 1998 and 1997, are presented below. Such pro forma
presentation has been prepared assuming that the acquisitions had been made as
of January 1, 1997 and includes pooling-of-interests expenses, nonrecurring
items and discontinued operations (in thousands, except per share data).
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997
--------------------------------
<S> <C> <C>
Pro Forma
Sales $1,655,727 $1,330,357
Net income 81,089 36,297
Earnings per share:
Basic $ .91 $ .42
Diluted $ .90 $ .41
</TABLE>
The pro forma information does not purport to be indicative of operating results
which would have occurred had the acquisitions been made at the beginning of the
respective periods or of results which may occur in the future. The primary pro
forma adjustments reflect amortization of goodwill acquired on a straight-line
basis over 40 years and interest costs. The pro forma information does not give
effect to any synergies anticipated by the Company's management as a result of
the acquisitions, 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.
POOLING-OF-INTERESTS
On June 26, 1998, the Company completed the acquisition of CompScript, Inc. in a
pooling-of-interests transaction. Pursuant to the terms of the merger agreement,
CompScript
50
<PAGE> 51
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.
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. At the time of acquisition,
CompScript served approximately 20,000 residents in 137 long-term care
facilities in five states.
On June 29, 1998, the Company completed the acquisition of IBAH, Inc. in a
pooling-of-interests transaction. 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 its common stock with a value of approximately $159 million in this
transaction.
IBAH, headquartered in Blue Bell, Pennsylvania, is an international provider of
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, that are intended to help
client companies to accelerate products from discovery through development and
commercialization more cost-effectively.
Net sales and net income (including pooling-of-interests expenses, nonrecurring
items and discontinued operations) for Omnicare, CompScript and IBAH for the
periods prior to the transactions are as follows (in thousands):
<TABLE>
<CAPTION>
Omnicare CompScript IBAH Total
-------- ---------- ---- -----
<S> <C> <C> <C> <C>
Six months ended June 30, 1998
Sales $616,453 $28,237 $53,762 $ 698,452
Net income (loss) 35,085 (2,147) (4,426) 28,512
Year ended December 31, 1997
Sales $895,702 $50,631 $88,051 $1,034,384
Net income (loss) 55,705 (2,357) (1,397) 51,951
Year ended December 31, 1996
Sales $536,604 $42,716 $62,120 $ 641,440
Net income (loss) 43,450 (1,156) 980 43,274
</TABLE>
In connection with the CompScript and IBAH mergers, in the second quarter of
1998, Omnicare recorded a charge to operating expenses of $17,723,000
($15,391,000 after taxes) for direct and other merger-related costs pertaining
to the merger transactions and certain related restructuring actions.
51
<PAGE> 52
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 (in thousands):
<TABLE>
<CAPTION>
Utilized
as of Balance at
Initial December 31, December 31,
Provision 1998 1998
--------- ------------- ------------
<S> <C> <C> <C>
Merger transaction costs $14,096 $7,536 $6,560
Restructuring costs:
Employee severance 1,413 395 1,018
Exit costs 2,214 1,502 712
------- ------ ------
Total $17,723 $9,433 $8,290
======= ====== ======
</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 December 31, 1998, all liabilities
relating to these actions were classified as current liabilities.
In accordance with accounting rules for pooling-of-interests transactions,
charges to operating income for acquisition-related expenses were recorded upon
completion of the pooling acquisitions. These acquisition-related expenses
totaled $15,441,000 ($13,869,000 aftertax) for the 1998 transactions, $4,321,000
($3,935,000 aftertax) for the 1997 transactions and $1,624,000 ($1,468,000
aftertax) for the 1996 transactions.
NOTE 3 - CASH AND CASH EQUIVALENTS
A summary of cash and cash equivalents follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------------
<S> <C> <C>
Cash and cash equivalents:
Cash $27,087 $ 37,433
Money market funds 1,660 2,628
U.S. Treasury bills - 94,995
U.S. government securities 884 846
U.S. Treasury-backed repurchase agreements 20,308 2,061
Corporate bonds 604 -
Commercial paper 3,769 99
------- --------
$54,312 $138,062
======= ========
</TABLE>
Repurchase agreements represent investments in U.S. Treasury bills under
agreements to resell the securities to the counterparty, usually overnight, but
in no case longer than 30 days. The Company has a collateralized interest in the
underlying securities of repurchase agreements, which are segregated in the
accounts of the bank counterparty.
52
<PAGE> 53
NOTE 4 - PROPERTIES AND EQUIPMENT
A summary of properties and equipment follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------------------
<S> <C> <C>
Land $ 1,456 $ 1,456
Buildings 4,042 2,855
Machinery and equipment 119,929 104,966
Furniture, fixtures and leasehold improvements 87,798 46,088
-------- --------
213,225 155,365
Accumulated depreciation (76,854) (53,703)
--------- ----------
$136,371 $101,662
========= ==========
</TABLE>
NOTE 5 - LEASING ARRANGEMENTS
The Company has operating leases that cover various real and personal property.
In most cases, the Company expects that these leases will be renewed or replaced
by other leases in the normal course of business. There are no significant
contingent rentals in the Company's operating leases.
The following is a schedule of future minimum rental payments required under
operating leases that have initial or remaining noncancellable terms in excess
of one year as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999 $15,280
2000 11,699
2001 8,309
2002 5,860
2003 4,035
Later years 20,403
--------
Total minimum payments required $65,586
========
</TABLE>
Total rent expense under operating leases for the years ended December 31, 1998,
1997 and 1996 were $20,515,000, $13,345,000 and $9,809,000, respectively.
53
<PAGE> 54
NOTE 6 - LONG-TERM DEBT
A summary of long-term debt follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- ---------
<S> <C> <C>
Convertible Subordinated Notes due 2007 $345,000 $ 345,000
Revolving lines-of-credit 305,000 6,715
Employee Stock Ownership Plan ("ESOP") Loan Guarantee - 940
Term loan with bank, 7.90% to 8.05%, due 2000 - 2002 - 6,737
Other bank debt, LIBOR + 2.75%, due 1998 - 2001 - 4,820
Non-revolving equipment loan - 938
Capitalized lease obligations 4,400 6,199
Other - 1,051
-------- ---------
654,400 372,400
Less current portion (2,844) (13,252)
-------- ---------
$651,556 $ 359,148
======== =========
</TABLE>
The following is a schedule by year of required long-term debt payments as of
December 31, 1998 (in thousands):
<TABLE>
<S> <C>
1999 $ 2,844
2000 925
2001 305,430
2002 155
2003 42
Later years 345,004
--------
$654,400
========
</TABLE>
Total interest payments made for the years ended December 31, 1998, 1997 and
1996 were $22,079,000, $4,986,000 and $5,591,000, respectively.
Convertible Subordinated Notes
- ------------------------------
On December 10, 1997, the Company issued $345,000,000 principal amount of 5.0%
Convertible Subordinated Notes ("1997 Notes") due 2007. The 1997 Notes are
convertible into common stock at any time after March 4, 1998 at the option of
the holder at a price of $39.60 per share. In connection with the issuance of
the 1997 Notes, the Company deferred $8.5 million in debt issuance costs. The
Company amortized $850,000 and $51,000 of deferred debt issuance costs relating
to the 1997 Notes in 1998 and 1997, respectively.
On October 1, 1993, the Company issued $80,500,000 principal amount of 5.75%
Convertible Subordinated Notes ("1993 Notes") due 2003. The 1993 Notes were
convertible into common stock at any time at the option of the holder at a price
of $7.22 per share. The remaining 1993 Notes were converted in October 1996 into
10,201,700 shares of common stock. Prior to the October conversion, a portion of
the 1993 Notes were converted into 613,444 shares of common
54
<PAGE> 55
stock during 1996. In connection with the 1993 Notes conversions, the Company
recorded the $1.9 million in unamortized deferred debt issuance costs against
the paid-in capital balance for the common stock issued. The Company amortized
$220,000 of deferred debt issuance costs relating to the 1993 Notes in 1996
(prior to the final 1993 Notes conversion).
ESOP Loan Guarantee
- -------------------
In 1988, the Company established an Employee Stock Ownership Plan ("ESOP") which
currently covers certain acquired entities' employees and corporate headquarters
employees. The ESOP used proceeds from a $4 million bank loan to purchase
1,973,748 shares of the Company's common stock on the open market at prices
ranging from $1.94 to $2.13 per share. Inasmuch as the Company guaranteed the
repayment of this obligation, it recorded the ESOP's bank debt as long-term debt
and also as a reduction of stockholders' equity in the accompanying consolidated
balance sheet. This obligation was paid in its entirety in 1998.
The ESOP serviced its debt with Company contributions which were previously made
to the Company's Employee Savings and Investment Plan, and dividends received on
shares held by the ESOP. Principal and interest payments on the bank debt were
made in increasing quarterly installments over a ten-year period, the final
payment being due on December 31, 1998. The loan bore interest at the per annum
rate of 7% and was secured by the unallocated shares of common stock held by the
ESOP trust. There were no unallocated shares at December 31, 1998. The
unallocated shares had a fair market value equal to $9,738,000 as of December
31, 1997.
The Company funds ESOP expense as accrued. The components of total ESOP expense
are as follows (in thousands):
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Interest expense $ 30 $ 90 $ 145
Principal payments 940 720 600
Dividends on ESOP stock (102) (100) (90)
----- ----- -----
$ 868 $ 710 $ 655
===== ===== =====
</TABLE>
Revolving Credit Facilities
- ---------------------------
In October 1996, the Company negotiated a five-year, $400 million line of credit
agreement with a consortium of sixteen banks. Borrowings under this agreement
bear interest based upon LIBOR plus a spread of 25 to 60 basis points, dependent
upon the Company's fixed charge coverage ratio, or other rates negotiated with
the banks. Additionally, a commitment fee on the unused portion of the facility
ranges from 9 to 20 basis points, and is also based on the Company's fixed
charge coverage ratio. The agreement contains debt covenants which include the
fixed charge coverage ratio and minimum consolidated net worth.
55
<PAGE> 56
In December 1998, the Company amended its five-year, $400 million line of credit
dated October 1996 and entered into an additional 364-day, $400 million line of
credit which can be converted at maturity into a one-year term loan. Borrowings
under the amended five-year $400 million agreement bear interest based on LIBOR
plus a spread of 90 to 125 basis points, dependent upon the Company's fixed
charge coverage ratio. A commitment fee on the unused portion of the facility
ranges from 20 to 35 basis points, also dependent upon the Company's fixed
charge coverage ratio. A utilization fee has been added to this amended
agreement which requires an additional spread of 10 to 25 basis points whenever
borrowings exceed 50% of the $400 million line of credit. The amended agreement
contains debt covenants which include the fixed charge coverage ratio and
minimum consolidated net worth. The Company is in compliance with the covenants
of the amended five-year agreement. The total amount outstanding under the
amended five-year agreement as of December 31, 1998 was $305,000,000.
Borrowings under the new 364-day, $400 million line of credit bear interest
based on LIBOR plus a spread of 75 to 162.5 basis points, dependent on the
Company's debt ratings from Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group. A commitment fee on the unused portion of the facility
ranges from 10 to 25 basis points, and is also based on the Company's debt
ratings from Moody's and Standard & Poor's. The agreement contains debt
covenants which include the fixed charge coverage ratio and minimum consolidated
net worth. The Company is in compliance with these covenants. At December 31,
1998, there were no borrowings under the new credit facility. In connection with
the amended five-year agreement and the new 364-day, $400 million line of
credit, the Company deferred $1.8 million in debt issuance costs which is being
amortized over the life of the agreements.
NOTE 7 - PUBLIC OFFERING OF COMMON STOCK
In March 1996, the Company completed a public offering of 5,750,000 shares
(pre-1996 stock split) of common stock resulting in gross proceeds of
$298,281,000 (before underwriting discounts and expenses). In April 1996, IBAH
completed a public offering of its common stock that resulted in gross proceeds
of $19,500,000.
NOTE 8 - STOCK INCENTIVE PLANS
The Company has three stock incentive plans under which it may grant stock-based
incentives to key employees.
Under the 1992 Long-Term Stock Incentive Plan, the Company may grant stock
awards, and stock options may be granted at a price equal to the fair market
value at the date of grant. Under this plan, stock options generally become
exercisable beginning one year following the date of grant in four equal annual
installments. As of December 31, 1998, 1,380,376 shares were available for grant
under this plan.
During 1995, the Company's Board of Directors and stockholders approved the 1995
Premium-Priced Stock Option Plan, providing options to purchase 2,520,000 shares
of Company common
56
<PAGE> 57
stock available for grant at an exercise price of 125% of the stock's fair
market value at the date of grant. No options have been granted under this plan.
During 1998, the Company's Board of Directors approved the 1998 Long-Term
Employee Incentive Plan, under which the Company may grant stock-based
incentives to employees (excluding officers and directors of the Company) in an
aggregate amount up to 1,000,000 shares of Company common stock for
non-qualified options, stock awards and stock appreciation rights. No
stock-based incentives have been granted under this plan.
In connection with the 1998 pooling-of-interests business combinations described
in Note 2, the Company converted all outstanding options to purchase common
stock of CompScript, Inc. and IBAH, Inc. into options to acquire approximately
924,000 shares of the Company's common stock at exercise prices of $0.73 to
$77.24 per share.
Summary information for stock options is presented below (in thousands, except
exercise price data):
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of
year 3,206 $ 17.85 3,151 $ 14.78 2,717 $ 8.41
Options granted 804 36.10 1,111 26.91 902 30.35
Options exercised (531) 12.66 (1,003) 17.11 (436) 6.72
Options forfeited (342) 26.19 (53) 31.40 (32) 23.72
- ------------------------------------------------------------------------------------------------------------------
Options outstanding, end of year 3,137 $ 23.03 3,206 $ 17.85 3,151 $ 14.78
- ------------------------------------------------------------------------------------------------------------------
Options exercisable, end of year 1,598 1,592 1,563
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The following summarizes information about stock options outstanding and
exercisable as of December 31, 1998 (in thousands, except exercise price and
year data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------- -------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/98 Life (in years) Price at 12/31/98 Price
- --------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .73 - $12.13 1,188 4.80 $ 8.33 960 $ 7.44
13.35 - 30.22 946 7.69 25.98 464 23.95
31.25 - 36.72 803 9.54 36.20 16 34.02
37.77 - 77.24 200 7.48 43.53 158 44.17
- --------------------------------------------------- -------------------------------------------
$ .73 - $77.24 3,137 7.06 $23.03 1,598 $ 16.13
- --------------------------------------------------- -------------------------------------------
</TABLE>
57
<PAGE> 58
Nonvested stock awards that are granted to key employees at the discretion of
the Incentive Committee are restricted as to the transfer of ownership and
generally vest over a seven-year period with a greater proportion vesting in the
latter years. Unrestricted stock awards are granted annually to members of the
Board of Directors. The fair value of a stock award is equal to the fair market
value of a share of Company stock at the grant date.
Summary information relating to stock award grants is presented below:
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Nonvested shares 369,651 421,464 378,092
Unrestricted shares 5,600 6,000 6,400
Weighted-average grant date fair value $ 31.75 $ 27.36 $ 23.99
</TABLE>
When granted, the cost of nonvested stock awards is deferred and amortized over
the vesting period. Unrestricted stock awards are expensed during the year
granted. During 1998, 1997 and 1996, the amount of compensation expense related
to stock awards charged against income was $2,090,000, $1,312,000 and $937,000,
respectively.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company accounts for stock-based incentives granted under these plans according
to APB Opinion 25, "Accounting for Stock Issued to Employees." As a result, no
compensation cost has been recognized for the stock options granted under the
incentive plans. The fair value of each option at grant date is estimated using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996: risk-free interest rate of
5.75% (6% in 1997 and 1996), volatility of 36% (35% in 1997 and 32% in 1996),
dividend yield of 0.2% and expected life of 4.2 years. The weighted average fair
value at grant date during 1998, 1997 and 1996 was $13.38, $11.87 and $11.10,
respectively.
Pro forma data (including pooling-of-interests expenses, nonrecurring items and
discontinued operations) as though the Company had accounted for stock-based
compensation cost in accordance with SFAS No. 123 are as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
------------------------------
<S> <C> <C> <C>
Pro Forma
Net income $77,707 $49,923 $40,044
Earnings per share:
Basic $ .87 $ .58 $ .58
Diluted $ .87 $ .58 $ .53
</TABLE>
The above pro forma information includes only stock options granted in 1995 and
thereafter. Because it does not include stock options granted prior to 1995, the
pro forma effects are not representative of effects on net income or earnings
per share for future years.
58
<PAGE> 59
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company subleases offices from Chemed Corporation ("Chemed"), a 1%
stockholder, and is charged for the occasional use of Chemed's corporate
aviation department, consulting services pertaining to information systems
development and other incidental expenses based on Chemed's cost. The Company
believes that the method by which such charges are determined is reasonable and
that the charges are essentially equal to that which would have been incurred if
the Company had operated as an unaffiliated entity. Charges to the Company for
these services for the years ended December 31, 1998, 1997 and 1996 were
$2,162,000, $4,039,000 and $7,139,000, respectively. Net amounts owed by the
Company to Chemed as of December 31, 1998 and 1997 were $309,000 and $556,000,
respectively.
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company has a non-contributory, defined benefit pension plan covering
certain corporate headquarters employees and the employees of several companies
sold by the Company in 1992, for which benefits ceased accruing upon the sale
(the "Qualified Plan"). Benefits accruing under this plan to corporate
headquarters employees were fully vested and frozen as of January 1, 1994. The
Company also has an excess benefits plan which provides retirement payments to
participants in amounts consistent with what they would have received under the
Qualified Plan if payments to them under the Qualified Plan were not limited by
the Internal Revenue Code and other restrictions.
Retirement benefits are based primarily on an employee's years of service and
compensation near retirement. Plan assets are invested primarily in U.S.
Treasury obligations. The Company's policy is to fund pension costs in
accordance with the funding provisions of the Employee Retirement Income
Security Act.
Actuarial assumptions used to calculate the Accumulated Benefit Obligation and
net expenses include a 6.75% interest rate as of December 31, 1998 (7% and 7.25%
at December 31, 1997 and 1996, respectively), an expected long-term rate of
return on assets of 8% and a 6% rate of increase in compensation levels.
The Accumulated Benefit Obligation in excess of plan assets as of December 31,
1998 and 1997 was $8,214,000 and $5,008,000, respectively. In 1997, the Company
changed the actuarial assumptions used to determine the Accumulated Benefit
Obligation by using the actual compensation history of participants rather than
an estimated compensation history based on current compensation projected
backwards at the assumed rate of increase in compensation levels (6%). The net
expenses relating to the Company's defined contribution and defined benefit
plans (including the ESOP described in Note 6) for the years ended December 31,
1998, 1997 and 1996 were $4,110,000, $3,293,000 and $1,907,000, respectively.
59
<PAGE> 60
NOTE 11 - INCOME TAXES
The provision for income taxes for continuing operations is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
--------------------------------------
Current:
<S> <C> <C> <C>
Federal $44,968 $27,155 $21,762
State and local 2,940 4,528 3,836
------- ------- -------
47,908 31,683 25,598
------- ------- -------
Deferred:
Federal 7,131 8,734 2,974
State 448 1,411 41
------- ------- -------
7,579 10,145 3,015
------- ------- -------
Income Taxes $55,487 $41,828 $28,613
======= ======= =======
</TABLE>
Tax benefits related to the exercise of stock options, stock awards and stock
warrants have been credited to paid-in-capital in amounts of $6,392,000,
$7,827,000 and $2,243,000 for 1998, 1997 and 1996, respectively.
The difference between the Company's reported income tax expense and the federal
income tax expense computed at the statutory rate of 35% is explained in the
following table (in thousands):
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at the statutory rate $47,553 35.0% $33,560 35.0% $25,295 35.0%
State and local income taxes, net
of federal income tax benefit 3,012 2.2 4,115 4.3 2,482 3.4
Amortization of nondeductible
intangible assets 1,894 1.4 1,414 1.5 628 0.9
Nondeductible pooling-of-interest/merger expenses 2,291 1.7 1,079 1.1 408 0.6
Nondeductible nonrecurring charge (Note 13) - - 1,855 1.9 - -
Effect of foreign losses not benefited - - 1,466 1.5 484 0.7
NOL carryforward (utilized) - - (2,694) (2.8) (1,686) (2.3)
Other 737 0.5 1,033 1.1 1,002 1.3
------- ---- ------- ---- ------- ----
Total income taxes $55,487 40.8% $41,828 43.6% $28,613 39.6%
======= ==== ======= ==== ======= ====
</TABLE>
Income tax payments made in 1998, 1997 and 1996 amounted to $27,252,000,
$22,824,000 and $19,749,000, respectively.
60
<PAGE> 61
A summary of deferred tax assets and liabilities follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- -------
<S> <C> <C>
Accounts receivable reserves $ 2,715 $ 5,796
Accrued liabilities 28,982 12,259
Other 816 698
-------- -------
Gross deferred tax assets $32,513 $18,753
======== =======
Fixed assets and depreciation methods $ 5,541 $ 3,495
Amortization of intangibles 25,858 12,129
Other current and noncurrent assets 4,570 2,553
Other 426 628
-------- -------
Gross deferred tax liabilities $36,395 $18,805
======== =======
</TABLE>
61
<PAGE> 62
NOTE 12 - EARNINGS PER SHARE DATA
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share ("EPS") computations (in thousands, except
per share data):
<TABLE>
<CAPTION>
For the year ended December 31, 1998
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Net income $ 80,379 89,081 $ 0.90
=========
Effect of Dilutive Securities
Stock options and stock warrants - 705
---------- ------
Diluted EPS
Net income plus assumed conversions $ 80,379 89,786 $ 0.90
========== ====== =========
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1997
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income from continuing operations $ 54,105 85,692 $ 0.63
=========
Effect of Dilutive Securities
Stock options and stock warrants - 1,018
---------- ------
Diluted EPS
Income from continuing operations
plus assumed conversions $ 54,105 86,710 $ 0.62
========== ====== =========
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1996
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income from continuing operations $ 43,663 69,884 $ 0.62
=========
Effect of Dilutive Securities
Stock options and stock warrants - 3,256
1993 Convertible Subordinated Notes 2,266 7,949
---------- ------
Diluted EPS
Income from continuing operations
plus assumed conversions $ 45,929 81,089 $ 0.57
========== ====== =========
</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
1998 and December 1997, but were not included in the computation of diluted EPS
because the impact during these periods was anti-dilutive.
62
<PAGE> 63
NOTE 13 - NONRECURRING EXPENSES
In the second quarter of 1998, the Company recorded a nonrecurring charge
related to the restructuring of the CompScript mail order business and the
cancellation of certain of its vendor contracts along with the costs of
consolidation of certain IBAH facilities and the restructuring of its
pharmaceutics business of $3,627,000 before taxes ($2,689,000 after taxes, or
$.03 per basic and diluted share).
On April 17, 1998, Omnicare concluded 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 Belleville, Illinois subsidiary,
Home Pharmacy Services, Inc. In accordance with the terms of the tentative
settlement, in the third quarter of 1997, Omnicare recorded a nonrecurring
charge of $6,313,000 ($5,958,000 aftertax) for the estimated costs and legal and
other expenses associated with resolving the investigation. The $6,313,000
consisted of anticipated payments to the government agencies of $5,300,000 and
estimated legal and other professional fees directly attributable to the
investigation of $1,013,000. The reserve was adequate to cover the final
settlement. The settlement did not result in any criminal charges against Home
Pharmacy Services. Additionally, Home Pharmacy Services continues to participate
in government reimbursement programs under the terms of the settlement. Home
Pharmacy Services, which was acquired by Omnicare in 1992, has continued to
provide complete pharmacy services to nursing facility residents in its market
area without interruption. The pharmacy operation accounted for less than 2% of
Omnicare's total sales and net income for the year ended December 31, 1998.
During 1997, IBAH implemented a restructuring plan for its International
Division and recorded one-time restructuring charges of $1,208,000 ($1,208,000
after taxes), consisting primarily of termination benefits for 14 employees and
an accrual for lease-related charges. As of December 31, 1998, substantially all
of the employees had been terminated and $452,000 of termination benefits had
been paid. In addition, lease-related costs of $323,000 had been paid.
Substantially all of the remaining termination benefits and lease-related
charges are expected to be paid by the end of 1999.
On July 18, 1996, IBAH purchased all of the outstanding shares of stock of
Resource Biometrics, Inc. ("RBI"). In connection with the RBI acquisition, IBAH
allocated $510,000 ($510,000 after taxes) of the excess of purchase price over
book value on the acquisition date (based on an independent appraisal) to
acquired research and development, which was charged to the statement of income
as a nonrecurring item.
NOTE 14 - OTHER EXPENSE
In March 1997, CompScript recorded an $800,000 charge ($499,000 after taxes)
relating to the write-down of a note receivable from a former affiliate of
CompScript.
63
<PAGE> 64
NOTE 15 - DISCONTINUED OPERATIONS
On June 30, 1997, IBAH closed the software commercialization unit of RBI.
Accordingly, all operating results of this unit were reclassified from
continuing operations to discontinued operations. This unit recorded a net loss
of $389,000 for 1996 and $607,000 for the six months ended June 30, 1997. In
addition, a loss on the disposal of this unit of $1,547,000 was reflected in the
1997 consolidated statement of income. IBAH did not record an income tax benefit
on the loss from discontinued operations, as the realization of a corresponding
deferred tax asset was uncertain. The loss on disposal was comprised mainly of
severance, software asset write-offs, contract completion costs and future rent
related to abandoned office space. There were no remaining liabilities related
to the loss on disposal at December 31,1998.
NOTE 16 - SEGMENT INFORMATION
Based on the "management approach" as defined by SFAS No. 131, Omnicare has two
business segments. The Company's largest segment is Pharmacy Services. Pharmacy
Services provides distribution of pharmaceuticals, related pharmacy consulting,
data management services and medical supplies to long-term care facilities. The
Company's other reportable segment is Contract Research Organization ("CRO")
Services, which provides comprehensive product development services to client
companies in pharmaceutical, biotechnology, medical devices and diagnostics
industries.
The table below presents information about the reportable segments as of and for
the years ended December 31, 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998:
- -----
Corporate
Pharmacy CRO and Consolidated
Services Services Consolidating Totals
-------- -------- ------------- ------
<S> <C> <C> <C> <C>
Sales $1,394,768 $122,602 - $1,517,370
Depreciation and amortization 41,994 5,091 $ 551 47,636
Operating income, excluding
acquisition expenses and
nonrecurring expenses 185,305 12,725 (22,841) 175,189
Acquisition expenses (10,172) (5,269) - (15,441)
Nonrecurring expenses (1,245) (2,382) - (3,627)
Operating income 173,888 5,074 (22,841) 156,121
Total assets 1,686,643 120,693 96,493 1,903,829
Expenditures for additions
to long-lived assets 45,789 5,306 2,084 53,179
</TABLE>
64
<PAGE> 65
<TABLE>
<CAPTION>
1997:
- -----
Corporate
Pharmacy CRO and Consolidated
Services Services Consolidating Totals
-------- -------- ------------- ------
<S> <C> <C> <C> <C>
Sales $ 946,333 $ 88,051 - $ 1,034,384
Depreciation and amortization 26,211 4,660 $ 234 31,105
Operating income, excluding
acquisition expenses and
nonrecurring expenses 125,822 2,925 (19,336) 109,411
Acquisition expenses (2,359) (1,962) - (4,321)
Nonrecurring expenses (6,313) (1,208) - (7,521)
Operating income 117,150 (245) (19,336) 97,569
Total assets 1,141,298 104,569 166,279 1,412,146
Expenditures for additions
to long-lived assets 30,796 9,229 1,253 41,278
</TABLE>
<TABLE>
<CAPTION>
1996:
- -----
Corporate
Pharmacy CRO and Consolidated
Services Services Consolidating Totals
-------- -------- ------------- ------
<S> <C> <C> <C> <C>
Sales $ 579,320 $ 62,120 - $ 641,440
Depreciation and amortization 15,677 2,968 $ 289 18,934
Operating income, excluding
acquisition expenses and
nonrecurring expenses 78,338 1,464 (13,199) 66,603
Acquisition expenses (1,624) - - (1,624)
Nonrecurring expenses - (510) - (510)
Operating income 76,714 954 (13,199) 64,469
Total assets 517,152 92,126 219,031 828,309
Expenditures for additions
to long-lived assets 22,726 2,646 4,862 30,234
</TABLE>
The following summarizes sales and long-lived assets by geographic area as of
and for the years ended December 31, 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
Sales Long-Lived Assets
------------------------------------ ------------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States $1,483,443 $1,012,988 $ 620,545 $ 133,173 $ 98,541 $ 63,992
Foreign 33,927 21,396 20,895 3,198 3,121 2,093
---------- ---------- ---------- ---------- ---------- ----------
Total $1,517,370 $1,034,384 $ 641,440 $ 136,371 $ 101,662 $ 66,085
========== ========== ========== ========== ========== ==========
</TABLE>
Foreign sales are based on the country in which the sales originate. No
individual foreign country's sales were material to the consolidated sales of
Omnicare.
65
<PAGE> 66
NOTE 17 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following table presents the Company's quarterly financial information for
1998 and 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
----------- ----------- ----------- ----------- -----------
1998 (a)(c)
<S> <C> <C> <C> <C> <C>
Sales $ 340,258 $ 358,194 $ 383,647 $ 435,271 $ 1,517,370
Cost of sales 238,936 249,615 267,168 303,024 1,058,743
----------- ----------- ----------- ----------- -----------
Gross profit 101,322 108,579 116,479 132,247 458,627
Selling, general and
administrative expenses 63,536 67,408 71,708 80,786 283,438
Acquisition expenses, pooling-
of-interests 491 14,096 - 854 15,441
Nonrecurring expenses - 3,627 - - 3,627
----------- ----------- ----------- ----------- -----------
Operating income 37,295 23,448 44,771 50,607 156,121
Interest (expense), net of
investment income (3,325) (3,458) (4,678) (8,794) (20,255)
----------- ----------- ----------- ----------- -----------
Income before income taxes 33,970 19,990 40,093 41,813 135,866
Income taxes 13,564 11,884 14,353 15,686 55,487
----------- ----------- ----------- ----------- -----------
Net income $ 20,406 $ 8,106 $ 25,740 $ 26,127 $ 80,379
=========== =========== =========== =========== ===========
Earnings per share (b)
Basic $ 0.23 $ 0.09 $ 0.29 $ 0.29 $ 0.90
=========== =========== =========== =========== ===========
Diluted $ 0.23 $ 0.09 $ 0.29 $ 0.29 $ 0.90
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding:
Basic 88,114 88,824 89,493 89,868 89,081
=========== =========== =========== =========== ===========
Diluted 89,085 89,918 90,054 90,197 89,786
=========== =========== =========== =========== ===========
</TABLE>
66
<PAGE> 67
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1997 (a)(c)
Sales $ 212,424 $ 236,896 $ 264,112 $ 320,952 $ 1,034,384
Cost of sales 149,128 165,680 185,349 225,766 725,923
----------- ----------- ----------- ----------- -----------
Gross profit 63,296 71,216 78,763 95,186 308,461
Selling, general and
administrative expenses 40,746 46,307 50,209 61,788 199,050
Acquisition expenses, pooling-
of-interests 1,591 944 - 1,786 4,321
Nonrecurring expenses - 1,078 6,313 130 7,521
----------- ----------- ----------- ----------- -----------
Operating income 20,959 22,887 22,241 31,482 97,569
Interest (expense), net of
investment income 1,575 1,051 (231) (3,231) (836)
Other expenses (800) - - - (800)
----------- ----------- ----------- ----------- -----------
Income before income taxes 21,734 23,938 22,010 28,251 95,933
Income taxes 9,462 10,217 10,614 11,535 41,828
----------- ----------- ----------- ----------- -----------
Income from continuing operations 12,272 13,721 11,396 16,716 54,105
Loss from discontinued operations (d) (300) (1,854) - - (2,154)
----------- ----------- ----------- ----------- -----------
Net income $ 11,972 $ 11,867 $ 11,396 $ 16,716 $ 51,951
=========== =========== =========== =========== ===========
Earnings (loss) per share - Basic (b)
Continuing operations $ 0.15 $ 0.16 $ 0.13 $ 0.19 $ 0.63
Discontinued operations (d) (0.01) (0.02) - -- (0.02)
----------- ----------- ----------- ----------- -----------
Net income $ 0.14 $ 0.14 $ 0.13 $ 0.19 $ 0.61
=========== =========== =========== =========== ===========
Earnings (loss) per share - Diluted (b)
Continuing operations $ 0.15 $ 0.16 $ 0.13 $ 0.19 $ 0.62
Discontinued operations (d) (0.01) (0.02) - -- (0.02)
----------- ----------- ----------- ----------- -----------
Net income $ 0.14 $ 0.14 $ 0.13 $ 0.19 $ 0.60
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding:
Basic 83,498 85,674 86,381 87,165 85,692
=========== =========== =========== =========== ===========
Diluted 84,648 86,586 87,436 88,041 86,710
=========== =========== =========== =========== ===========
</TABLE>
67
<PAGE> 68
(a) The accompanying consolidated financial statements have been restated to
include the results of operations of CompScript, Inc. and IBAH, Inc.,
acquired in June 1998 pooling-of-interests transactions.
(b) Earnings per share is calculated independently for each quarter. The sum of
the quarters may not necessarily be equal to the full year earnings per
share amount.
(c) Included in the 1998 net income and 1997 income from continuing operations
amounts are the following aftertax pooling-of-interests expenses and
nonrecurring and other charges (in thousands):
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
1998
- ----
<S> <C> <C> <C> <C> <C>
Acquisition expenses, pooling-
of-interests (Note 2) $ 415 $12,702 $ - $ 752 $13,869
Nonrecurring expenses (Note 13) - 2,689 - - 2,689
------- ------- ------- ------- -------
Total $ 415 $15,391 $ - $ 752 $16,558
======= ======= ======= ======= =======
1997
- ----
Acquisition expenses, pooling-
of-interests (Note 2) $ 1,467 $ 826 $ - $ 1,642 $ 3,935
Nonrecurring expenses (Note 13) - 1,078 5,958 130 7,166
Other expense (Note 14) 499 - - - 499
------- ------- ------- ------- -------
Total $ 1,966 $ 1,904 $ 5,958 $ 1,772 $11,600
======= ======= ======= ======= =======
</TABLE>
(d) Relates to the discontinued operations of the software commercialization
unit of Research Biometrics, Inc., a subsidiary of IBAH. All operating
results of this business have been reclassified from continuing operations
to discontinued operations.
68
<PAGE> 69
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for information regarding the Company's executive officers
included in Part I of this Form 10-K, the information required under this Item
is set forth in the Company's 1999 Proxy Statement which is incorporated herein
by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Information required under this Item is set forth in the Company's 1999
Proxy Statement which is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is set forth in the Company's 1999
Proxy Statement which is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is set forth in the Company's 1999
Proxy Statement which is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The 1998 Consolidated Financial Statements of Omnicare are
included in Part II, Item 8.
(a)(2) Financial Statement Schedule
See Index to Financial Statements and Financial Statement
Schedule at Item 8 of this Filing.
(a)(3) Exhibits
See Index of Exhibits.
(b) Reports on Form 8-K
On November 30, 1998, a Form 8-K/A was filed relating to the
Company's acquisition of substantially all of the institutional
pharmacy assets of Extendicare Health Services, Inc. and certain
subsidiaries of Extendicare. On December 29, 1998, a Form 8-K/A
was filed relating to the Company's amendment of its $400
million Credit Agreement and its entering into a $400 million
364-Day Credit Agreement, both dated December 21, 1998.
69
<PAGE> 70
SIGNATURES
----------
Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, on this 30th day of
March 1999.
OMNICARE, INC.
/s/ David W. Froesel, Jr.
------------------------------------
David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of l934, this Report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Edward L. Hutton Chairman and Director )
- ------------------------ (Principal Executive Officer) )
Edward L. Hutton )
)
/s/Joel F. Gemunder President and Director )
- ------------------------ (Principal Executive Officer) )
Joel F. Gemunder )
)
/s/David W. Froesel, Jr. Senior Vice President and )
- ------------------------ Chief Financial Officer )
David W. Froesel, Jr. (Principal Financial and )
Accounting Officer) )
)
)
Ronald K. Baur, Director* )
Timothy E. Bien, Director* )
Charles H. Erhart, Jr., Director )
Mary Lou Fox, Director* )
Thomas C. Hutton, Director* March 30, 1999
Patrick E. Keefe, Director* )
Sandra E. Laney, Director* )
Andrea R. Lindell, Director* )
Sheldon Margen, M.D., Director )
Kevin J. McNamara, Director* )
</TABLE>
* Cheryl D. Hodges, by signing her name hereto, signs this document on
behalf of herself as a director and on behalf of each person indicated above
pursuant to a power of attorney duly executed by such person and filed with the
Securities and Exchange Commission.
/s/Cheryl D. Hodges
-----------------------------
Cheryl D. Hodges
(Attorney-in-Fact)
70
<PAGE> 71
Schedule II
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts (1)
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at charged Write-offs, Balance
beginning of to cost net of at end
period and expenses Acquisitions recoveries of period
------------ ------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for
uncollectible
accounts receivable
Year ended
December 31,
1998 $17,994 $12,405 $ 9,057 ($8,039) $31,417
1997 6,790 8,370 10,002 (7,168) 17,994
1996 5,991 4,457 322 (3,980) 6,790
Allowance for
uncollectible
accounts receivable,
discontinued operations
Year ended
December 31,
1998 $ - $ - $ - $ - $ -
1997 - - - - -
1996 282 - - (282) -
</TABLE>
(1) The consolidated financial statements, and accordingly, this schedule, have
been restated as of and for the years ended December 31, 1997 and 1996 to
include the financial position and results of operations of CompScript,
Inc. and IBAH, Inc., both acquired in June 1998 pooling-of-interests
transactions.
S-1
<PAGE> 72
<TABLE>
<CAPTION>
Numbers Refer to Item 601 Regulation S-K and Document Incorporated by Reference from a Previous Filing
Description of Exhibit or Filed Herewith, as Indicated Below
-------------------------------------------------- -----------------------------------------------------------
<S> <C>
(3.1) Restated Certificate of Incorporation of Form 10-K
Omnicare, Inc. March 31, 1997
(3.2) By-Laws of Omnicare, Inc., as amended Form S-3
September 28, 1998
(4.1) Credit Agreement (the "Credit Agreement") Form 10-K
among Omnicare, Inc., First National Bank March 31, 1997
of Chicago, Agent, and certain banks dated
as of October 22, 1996
(4.2) Amendment No. 1 to the Credit Agreement Filed Herewith
dated as of December 23, 1997
(4.3) Amendment No. 2 to the Credit Agreement Form 8-K
dated as of December 21, 1998 December 29, 1998
(4.4) Indenture dated as of December 10, 1997 between Form S-3
the Company and The First National Bank of February 6, 1998
Chicago, as Trustee
(4.5) 364-Day Credit Agreement among Omnicare, Inc., Form 8-K
The First National Bank of Chicago, Agent, and December 29, 1998
certain banks dated as of December 21, 1998
(10.1) Executive Salary Protection Plan, as amended, Form 10-K
May 22, 1981 March 25, 1996
(10.2) 1981 Stock Incentive Plan, as amended Form 10-K
March 25, 1988
(10.3) 1989 Stock Incentive Plan Proxy Statement for 1989 Annual Meeting of Stockholders
dated April 10, 1989
(10.4) 1992 Long-Term Stock Incentive Plan Proxy Statement for 1997 Annual Meeting of Stockholders
dated March 31, 1997
(10.5) 1995 Premium-Priced Stock Option Plan Proxy Statement for 1995 annual Meeting of Stockholders
dated April 10, 1995
</TABLE>
E-1
<PAGE> 73
<TABLE>
<CAPTION>
Numbers Refer to Item 601 Regulation S-K and Document Incorporated by Reference from a Previous Filing
Description of Exhibit or Filed Herewith, as Indicated Below
-------------------------------------------------- -----------------------------------------------------------
<S> <C>
(10.6) 1998 Long-Term Employee Incentive Plan Filed Herewith
(10.7) Excess Benefits Plan Form 10-K March 25, 1988
(10.8) Form of Indemnification Agreement with Directors Filed Herewith
and Officers
(10.9) Employment Agreements with J.F. Gemunder and Form 10-K
C.D. Hodges dated March 29, 1989
August 4, 1988
(10.10) Employment Agreement with Form 10-K
P.E. Keefe dated March 25, 1994
March 4, 1993
(10.11) Split Dollar Agreement with Form 10-K
E.L. Hutton dated March 25, 1996
June 1, 1995 (Agreement in the same form exists
with J.F. Gemunder)
(10.12) Split Dollar Agreement dated June 1, 1995 Form 10-K
(Agreements in the same form exist with the March 25, 1996
following Executive Officers: C.D. Hodges, P.E.
Keefe and T.E. Bien)
(10.13) Annual Incentive Plan for Senior Executive Proxy Statement for 1996 Annual Meeting of Shareholders
Officers dated May 20, 1996
(10.14) Employment Agreement with T.E. Bien dated Form 10-K
January 1, 1994 March 31, 1997
(10.15) Employment Agreement with D.W. Froesel dated Form 10-K
February 17, 1996 March 31, 1997
(10.16) Employment Agreement with Form 10-K
M.L. Fox dated April 4, 1996 March 31, 1997
(10.17) Consulting Agreement with Form 10-K
MLF Co. dated April 4, 1996 March 31, 1997
</TABLE>
E-2
<PAGE> 74
<TABLE>
<CAPTION>
Numbers Refer to Item 601 Regulation S-K and Document Incorporated by Reference from a Previous Filing
Description of Exhibit or Filed Herewith, as Indicated Below
-------------------------------------------------- -----------------------------------------------------------
<S> <C>
(10.18) Amendment to Employment Agreement with J.F. Filed Herewith
Gemunder dated as of March 3, 1999 (Amendments in
the same form exist with the following Executive
Officers:
P.E. Keefe and C.D. Hodges)
(10.19) Asset Purchase Agreement, dated as of July 29, Form 8-K
1998, among Omnicare, Inc., Badger Acquisition August 7, 1998
Corp., Extendicare Health Services, Inc., and
certain subsidiaries of Extendicare Health
Services, Inc.
(12) Statement of Computation of Ratio of Earnings to Filed Herewith
Fixed Charges
(21) Subsidiaries of Filed Herewith
Omnicare, Inc.
(23.1) Consent of Filed Herewith
PricewaterhouseCoopers LLP
(23.2) Consent of Filed Herewith
Ernst and Young LLP
(23.3) Consent of Filed Herewith
Arthur Andersen LLP
(24) Powers of Attorney Filed Herewith
(27) Financial Data Schedule Filed Herewith
</TABLE>
E-3
<PAGE> 1
EXHIBIT 4.2
AMENDMENT NO. 1 TO CREDIT AGREEMENT
This Amendment No. 1 (this "Amendment") is entered into as of
December 23, 1997 by and among Omnicare, Inc., a Delaware corporation (the
"Borrower"), the undersigned lenders (collectively, the "Lenders") and The First
National Bank of Chicago, as one of the Lenders and in its capacity as
contractual representative (the "Agent") on behalf of itself and the other
Lenders.
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower, the Lenders and the Agent have entered
into that certain Credit Agreement dated as of October 22, 1996 (as the same may
be amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement");
WHEREAS, the Borrower has notified the Lenders and the Agent
that the Borrower is in violation of Section 6.20 of the Credit Agreement with
respect to the Borrower's maintenance of Guaranties from the Initial Guarantors
and Supplemental Guarantors as of the date hereof (the "Applicable Default");
WHEREAS, the Borrower has requested the Required Lenders to
waive the Applicable Default and has requested the Required Lenders to amend the
Credit Agreement in certain other respects; and
WHEREAS, the Required Lenders and the Agent are willing to
waive the Applicable Default and to amend the Credit Agreement on the terms and
conditions herein set forth, it being expressly understood that this Amendment
shall in no event constitute a waiver by the Lenders or the Agent of any other
breach of the Credit Agreement or any of the Lender's or Agent's rights or
remedies with respect thereto;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings attributed to such terms in the
Credit Agreement.
2. AMENDMENT TO CREDIT AGREEMENT. Section 6.20 of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
6.20. SUPPLEMENTAL GUARANTORS. The Borrower will at all times
maintain Guaranties from the Initial Guarantors and Supplemental
Guarantors such that as of the end of each fiscal quarter (a) the
aggregate assets of the Borrower and the Guarantors are not less than
90% of the consolidated assets of the Borrower and its Subsidiaries and
(b) the aggregate gross revenues of the Borrower and the Guarantors
(calculated as of the last day
<PAGE> 2
of the Borrower's and the Guarantors' most recently ended fiscal
quarter for the four consecutive fiscal quarters ending with such
fiscal quarter) do not constitute less than 90% of the aggregate gross
revenues of the Borrower and its Subsidiaries (calculated as of the
last day of the Borrower's and its Subsidiaries' most recently ended
fiscal quarter for the four consecutive fiscal quarters ending with
such fiscal quarter); provided, that in the event that any Subsidiary
of the Borrower (other than a Guarantor) at any time has assets,
determined in accordance with GAAP, with a book value equal to or
greater than an amount equal to two and one half percent (2 1/2%) of
the consolidated assets of the Borrower and its Subsidiaries determined
as of the last day of the immediately preceding fiscal quarter, such
Subsidiary shall promptly execute and deliver a Guaranty as a
Supplemental Guarantor pursuant to this SECTION 6.20. In maintaining
such Guaranties, the guaranties executed by any Supplemental Guarantors
shall be executed and delivered to the Agent for the benefit of each of
the Lenders and shall be substantially identical to the guaranties
previously executed by each of the Initial Guarantors, together with
such supporting documentation, including corporate resolutions and
opinions of counsel with respect to such additional guaranty, as may be
reasonably required by the Agent and the Required Lenders.
3. WAIVER.
3.1. Upon the effectiveness of this Amendment in accordance
with the provisions of SECTION 4 below, the Agent and the Required Lenders
hereby waive the Applicable Default, and the Lenders' and the Agent's rights and
remedies arising therefrom.
4. CONDITIONS OF EFFECTIVENESS OF THIS AMENDMENT. This
Amendment shall become effective and be deemed effective as of the date hereof
(the "EFFECTIVE DATE"), if, and only if the Agent shall have received each of
the following:
(a) duly executed originals of this Amendment from the
Borrower and the Required Lenders;
(b) a reaffirmation from each of the Initial Guarantors and
Supplemental Guarantors in the form attached hereto as EXHIBIT A; and
(c) such other documents, instruments and agreements as the
Agent may reasonably request.
5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT.
5.1 Upon the effectiveness of this Amendment pursuant to
SECTION 4 hereof, on and after the Effective Date, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like
import and each reference to the Credit Agreement in each Loan Document shall
mean and be a reference to the Credit Agreement as amended hereby.
<PAGE> 3
5.2 Except as specifically amended above, all of the terms,
conditions and covenants of the Credit Agreement and the other Loan Documents
shall remain in full force and effect, and are hereby ratified and confirmed.
5.3 The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
(a) any right, power or remedy of any Lender or the Agent under the Credit
Agreement or any of the Loan Documents, or (b) any Default or Unmatured Default
under the Credit Agreement.
6. CHOICE OF LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
7. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed an original and
all of which taken together shall constitute one and the same agreement.
8. HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE> 4
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders
have executed this Amendment as of the date first above written.
OMNICARE, INC.
By: ______________________________
Name: David W. Froesel, Jr.
Title: Chief Financial Officer
Commitment:
- -----------
$50,000,000 THE FIRST NATIONAL BANK OF
CHICAGO, as a Lender and as Agent
By: ______________________________
Name:
Title:
$40,000,000 BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH, as a Lender
By: ______________________________
Name:
Title:
$40,000,000 COMERICA BANK
as a Lender
By:_______________________________
Name:
Title:
<PAGE> 5
$40,000,000 KEYBANK NATIONAL ASSOCIATION
as a Lender
By:_______________________________
Name:
Title:
$40,000,000 PNC BANK OHIO
as a Lender
By:_______________________________
Name:
Title:
$20,000,000 THE BANK OF NEW YORK
as a Lender
By:_______________________________
Name:
Title:
$20,000,000 BANQUE NATIONALE DE PARIS
as a Lender
By:_______________________________
Name:
Title:
$20,000,000 CIBC, INC.
as a Lender
By:_______________________________
Name:
Title:
<PAGE> 6
$20,000,000 FIFTH THIRD BANK
as a Lender
By:_______________________________
Name:
Title:
$20,000,000 THE FUJI BANK, LIMITED
as a Lender
By:_______________________________
Name:
Title:
$20,000,000 SAKURA BANK, LIMITED
as a Lender
By:______________________________
Name:
Title:
$20,000,000 THE SANWA BANK, LIMITED,
CHICAGO BRANCH, as a Lender
By:_____________________________
Name:
Title:
<PAGE> 7
$20,000,000 STAR BANK
as a Lender
By:_______________________________
Name:
Title:
$10,000,000 THE DAI-ICHI KANGYO BANK, LTD.,
CHICAGO BRANCH, as a Lender
By:_______________________________
Name:
Title:
$10,000,000 LONG TERM CREDIT BANK OF
JAPAN, LTD., as a Lender
By:_______________________________
Name:
Title:
$10,000,000 BANCA CRT S.P.A.
as a Lender
By:_______________________________
Name:
Title:
<PAGE> 8
EXHIBIT A
TO
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
Reaffirmation
-------------
Attached
<PAGE> 9
REAFFIRMATION
-------------
The undersigned hereby acknowledges receipt of a copy of
Amendment No. 1 to the Credit Agreement, dated as of October 22, 1996 by and
among Omnicare, Inc., a Delaware corporation (the "Borrower"), the undersigned
lenders (collectively, the "Lenders") and The First National Bank of Chicago, as
one of the Lenders and in its capacity as contractual representative (the
"Agent") on behalf of itself and the other Lenders (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT") which Amendment No. 1 is dated as of December __, 1997 (the
"AMENDMENT"). Capitalized terms used in this Reaffirmation and not defined
herein shall have the meanings given to them in the Credit Agreement. Without in
any way establishing a course of dealing by the Agent or any Lender, the
undersigned reaffirms the terms and conditions of the Guaranty executed by it
and acknowledges and agrees that such agreement and each and every other Loan
Document executed by the undersigned in connection with the Credit Agreement
remain in full force and effect and are hereby ratified, reaffirmed and
confirmed. All references to the Credit Agreement contained in the
above-referenced documents shall be a reference to the Credit Agreement as so
amended by the Amendment and as the same may from time to time hereafter be
amended, modified or restated.
[INSERT INITIAL GUARANTORS and
SUPPLEMENTAL GUARANTORS]
By:___________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.6
OMNICARE, INC.
1998 LONG-TERM EMPLOYEE INCENTIVE PLAN
1. PURPOSES. The purposes of this Plan are (a) to provide
Employees with an opportunity to share in the benefits associated with owning
Common Stock of the Company, thus providing an increased incentive for such
Employees to contribute to the future success and prosperity of the Company and
its Subsidiaries, (b) to further the identity of interests of Employees employed
by the Company and its Subsidiaries with the interests of the Company's
stockholders, (c) to induce the employment or continued employment of Employees,
and (d) to enable the Company to compete with other organizations offering
similar or other incentives in obtaining and retaining the services of
employees.
2. DEFINITIONS. Unless otherwise required by the context, the
following terms when used in this Plan shall have the meanings set forth in this
Section 2:
"Board of Directors": the Board of Directors of the
Company.
"Change of Control": actual knowledge by the Company that any
of the following events has occurred: (i) any Person becomes a beneficial owner,
directly or indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding securities; (ii) an
agreement to merge, consolidate the Company with or into another entity (or
other similar reorganization) in which the stockholders of the Company
immediately prior to the effective date of such transaction own less than 50% of
the voting power in the successor entity; (iii) an agreement to sell or
otherwise dispose of all or substantially all of the assets of the Company,
including a plan of liquidation; or (iv) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors cease for any reason to constitute at least a majority of the Board of
Directors, unless the nomination for the election by the Company's stockholders
of each new director was approved by a vote of at least one-half of the persons
who were directors at the beginning of the two-year period.
For purposes of this definition, a "person" shall mean any
individual, firm, company, partnership, other entity or
<PAGE> 2
group, but excluding the Company, its affiliates, any employee benefit plan
maintained by the Company, or an underwriter temporarily holding securities
pursuant to an offering of such securities.
For purposes of this definition, a Person shall be deemed the
"beneficial owner" of any securities (i) which such Person or any of its
Affiliates or Associates beneficially owns, directly or indirectly; or (ii)
which such Person or any of its Affiliates or Associates, has directly or
indirectly, (1) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (2) the right to vote pursuant to
any agreement, arrangement or understanding; or (iii) which are beneficially
owned, directly or indirectly, by any other Person with which such Person or any
of its Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any securities.
For purposes of this definition, the terms "Affiliate" or
"Associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 of the General Rules and Regulations promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as in effect on
the date the Plan is approved by the stockholders of the Company and becomes
effective.
"Code": the Internal Revenue Code of 1986, as amended
and from time to time in effect. References in the Plan to any
section of the Code also shall be deemed to refer to any related
Treasury regulations, whether proposed, temporary or final.
"Common Stock": the Common Stock of the Company, par
value $1.00 per share.
"Company": Omnicare, Inc., a Delaware corporation.
"Employee": an hourly or salaried employee of the Company or
of a Subsidiary, but excluding any "officer" of the Company within the meaning
of Rule 16a-1(f) of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time, who in accordance with
<PAGE> 3
any guidelines or rules established by the Committee is eligible to receive a
Stock Incentive grant hereunder.
"Fair Market Value": as applied to any date, the mean between
the high and low sales prices of a share of Common Stock on the principal stock
exchange on which the Company is listed, or, if it is not so listed, the mean
between the bid and the ask prices of a share of Common Stock in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System on such date or if no such sales or prices
were made or quoted on such date, on the next preceding date on which there were
sales or quotes of Common Stock on such exchange or market, as the case may be;
PROVIDED, HOWEVER, that, if the Common Stock is not so listed or quoted, Fair
Market Value shall be determined in accordance with the method approved by the
Board of Directors.
"Incentive Committee": the Incentive Committee
designated to administer this Plan pursuant to the provisions of
section 12 hereof.
"Option": an option to purchase shares of Common
Stock.
"Performance Objectives": stated criteria set forth in
a Stock Incentive, at the discretion of the Incentive Committee,
the successful attainment of which is specified in the Stock
Incentive as a condition precedent to the issuance, transfer or
retention of some or all of the shares of Common Stock covered by
the Stock Incentive.
"Plan": the 1998 Long-Term Employee Incentive Plan
herein set forth as the same may from time to time be amended.
"Reload Feature": a provision which the Incentive Committee
may, but shall not be required to include in an Option granted under this Plan
to the effect that at such time as the Option is exercised, the optionee shall
automatically be granted a new Option pursuant hereto to purchase a number of
shares equal to the number of shares purchased pursuant to the exercise or the
number of shares utilized by the optionee to pay the option exercise price
and/or the federal, state or local income tax to be withheld with respect to the
exercise, or any fraction, multiple or combination thereof as the Incentive
Committee may determine.
<PAGE> 4
"Stock Appreciation Right (SAR)": a right to receive cash,
shares of Common Stock, or a combination thereof, as the case may be, having an
aggregate value equal to the excess of the Fair Market Value of one share of
Common Stock on the date of exercise of such right over the Fair Market Value of
one such share on the date of grant (the "base price") of such right.
"Stock Award": an issuance or transfer of shares of
Common Stock at the time the Stock Incentive is granted or as
soon thereafter as practicable, or an undertaking to issue or
transfer such shares in the future.
"Stock Incentive": a stock incentive granted under
this Plan in one of the forms provided in Section 3 hereof.
"Subsidiary": a company or other form of business
association of which shares (or other ownership interests) having
50% or more of the voting power are owned or controlled, directly
or indirectly, by the Company.
3. GRANTS OF STOCK INCENTIVES. (a) Subject to the provisions
of this Plan, the Incentive Committee may at any time, or from time to time,
grant Stock Incentives under this Plan to, and only to, Employees.
(b) Stock Incentives may be granted in the following
forms:
(i) a Stock Award, or
(ii) an Option, or
(iii) a SAR, or
(iv) a combination of a Stock Award, an
Option and/or a SAR.
4. STOCK SUBJECT TO THIS PLAN. The aggregate number of shares
of Common Stock that may be issued under the Plan shall not exceed 1,000,000
shares. Shares shall be deemed to have been issued under the Plan only to the
extent actually issued and delivered pursuant to a Stock Incentive grant. To the
extent that a Stock Incentive lapses or the rights of its grantee are otherwise
canceled or any shares of Common Stock are tendered to pay for the exercise of
an Option, such shares of Common Stock shall again be available for grants under
the Plan. The aggregate number of shares which may be issued under the
<PAGE> 5
Plan shall be subject to adjustment in the same manner as provided in Section 9
hereof with respect to shares of Common Stock subject to Stock Incentives then
outstanding. Shares of Common Stock which may be issued pursuant to Stock
Incentives granted under this Plan may be either authorized but unissued shares
or shares held in the Company's treasury, or any combination thereof.
5. STOCK AWARDS. Stock Incentives in the form of Stock Awards
shall be subject to the following provisions:
(a) A Stock Award shall be granted for such lawful
consideration as the Incentive Committee may determine.
(b) Shares of Common Stock subject to a Stock Award may be
issued or transferred to the Employee at the time the Stock Award is granted, or
at any time subsequent thereto, or in installments from time to time, as the
Incentive Committee shall determine. In the event that any such issuance or
transfer shall not be made to the Employee at the time the Stock Award is
granted, the Incentive Committee may provide for payment to such Employee,
either in cash or in shares of Common Stock from time to time or at the time or
times such shares shall be issued or transferred to such Employee, of amounts
not exceeding the dividends which would have been payable to such Employee in
respect of such shares (as adjusted under section 9) if they had been issued or
transferred to such Employee at the time such Stock Award was granted. Any
amount payable in shares of Common Stock under the terms of a Stock Award may,
at the discretion of the Company, be paid in cash, on each date on which
delivery of shares would otherwise have been made, in an amount equal to the
Fair Market Value on such date of the shares which would otherwise have been
delivered.
(c) A Stock Award shall be subject to such terms and
conditions, including, without limitation, restrictions on sale or other
disposition of the Stock Award or of the shares issued or transferred pursuant
to such Stock Award, as the Incentive Committee shall determine; PROVIDED,
HOWEVER, that upon the issuance or transfer of shares pursuant to a Stock Award,
the recipient shall, with respect to such shares, be and become a stockholder of
the Company fully entitled to receive dividends, to vote and to exercise all
other rights of a stockholder except to the extent otherwise provided in the
Stock Award. The Incentive Committee may, in its sole discretion, but shall not
be
<PAGE> 6
required to, specify in any Stock Award that the issuance, transfer and/or
retention of some or all of the shares of Common Stock covered by the Stock
Award shall be subject to the attainment of Performance Objectives. Each Stock
Award shall be evidenced by a written instrument in such form as the Incentive
Committee shall determine, provided such written instrument is consistent with
this Plan and incorporates it by reference.
(d) In the event the holder of shares of Common Stock subject
to a Stock Award dies prior to the time such share are no longer subject to
forfeiture pursuant to the terms of the Stock Award, the estate of such holder
may retain such shares subject to the restrictions set forth in the Stock Award.
6. OPTIONS. Stock Incentives in the form of Options shall be
subject to the following provisions:
(a) Upon the exercise of an Option, the purchase price shall
be paid in cash or, unless otherwise provided by the Incentive Committee (and
subject to such terms and conditions as are specified in the Option or by the
Incentive Committee), in shares of Common Stock held by the optionee for at
least 6 months delivered to the Company by the optionee, or in a combination of
such payment methods. Shares of Common Stock thus delivered or withheld shall be
valued at their Fair Market Value on the date of the exercise. The purchase
price per share shall be not less than 100% of the Fair Market Value of a share
of Common Stock on the date the Option is granted.
(b) Each Option shall become exercisable in full or in part in
accordance with the schedule as specified by the Incentive Committee. Unless
otherwise provided in the Option, an Option, to the extent it is or becomes
exercisable, may be exercised at any time in whole or in part until the
expiration or termination of the Option. Any term or provision in any
outstanding Option specifying that the Option not be immediately exercisable or
that it be exercisable in installments may be modified at any time during the
life of the Option by the Incentive Committee; PROVIDED, HOWEVER, no such
modifications of an outstanding Option shall, without the consent of the
optionee, adversely affect any Option theretofore granted to him.
<PAGE> 7
(c) An Option, to the extent that it shall not have been
exercised, shall terminate when the optionee ceases to be an employee of the
Company or a Subsidiary, unless he ceases to be an employee because of his
resignation with the consent of the Incentive Committee (which consent may be
given before or after resignation), or by reason of his death, incapacity or
retirement under a retirement plan of the Company or a Subsidiary. Except as
provided in the next sentence, if the optionee ceases to be an employee by
reason of such resignation, the Option shall terminate three months after he
ceases to be an employee. If the optionee ceases to be an employee by reason of
such death, incapacity or retirement, or if he should die during the three-month
period referred to in the preceding sentence, the Option shall terminate 15
months after he ceases to be an employee. Where an Option is exercised more than
three months after the optionee ceased to be an employee, the Option may be
exercised only to the extent it could have been exercised on the date three
months after he ceased to be an employee. A leave of absence for military or
governmental service or for other purposes shall not, if approved by the
Incentive Committee, be deemed a termination of employment within the meaning of
this paragraph (c); PROVIDED, HOWEVER, that an Option may not be exercised
during any such leave of absence. Notwithstanding the foregoing provisions of
this paragraph (c) or any other provisions of this Plan, no Option shall be
exercisable after expiration of the term for which the Option was granted, which
shall in no event exceed 10 years. Where an Option is granted for a term of less
than 10 years, the Incentive Committee may, at any time prior to the expiration
of the Option, extend its term for a period ending not later than 10 years from
the date the Option was granted. Such an extension shall not be deemed the grant
of an Option under this Plan.
(d) Options shall be granted for such lawful consideration as
the Incentive Committee shall determine.
(e) Neither the Company nor any Subsidiary may directly or
indirectly lend any money to any person for the purpose of assisting him to
purchase or carry shares of Common Stock issued or transferred upon the exercise
of an Option.
(f) No Option nor any right thereunder may be assigned or
transferred by the optionee except by will or the laws of descent and
distribution or pursuant to a
<PAGE> 8
qualified domestic relations order (as defined in the Code or the Employee
Retirement Income Security Act of 1974).
(g) If so provided in the Option or if so authorized by the
Incentive Committee and subject to such terms and conditions as are specified in
the Option or by the Incentive Committee, the Company shall have the right, upon
or without the request of the holder of the Option and at any time or from time
to time, to cancel all or a portion of the Option then subject to exercise and
either (i) pay the holder an amount of money equal to the excess, if any, of the
Fair Market Value, at such time or times, of the shares subject to the portion
of the Option so canceled over the aggregate purchase price of such shares, or
(ii) issue or transfer shares of Common Stock to the holder with a Fair Market
Value, at such time or times, equal to such excess.
(h) Each Option shall be evidenced by a written instrument,
which shall contain such terms and conditions (including, without limitation,
Performance Objectives and/or a Reload Feature), and shall be in such form, as
the Incentive Committee may determine, provided the Option is consistent with
this Plan and incorporates it by reference. Notwithstanding the preceding
sentence, an Option if so recommended by the Incentive Committee, may include
restrictions and limitations in addition to those provided for in this Plan.
(i) Any federal, state or local withholding taxes payable by
an optionee upon the exercise of an Option shall be paid in cash or, unless
otherwise provided by the Incentive Committee, by the surrender of shares of
Common Stock or the withholding of shares of Common Stock to be issued to the
optionee, or in any combination thereof, or in such other form as the Incentive
Committee may authorize from time to time. All such shares so surrendered or
withheld shall be valued at Fair Market Value on the date they are surrendered
to the Company authorized to be withheld.
(j) Any Option granted hereunder shall be a nonqualified stock
option and shall not be an incentive stock option under the provisions of
Section 422 of the Code.
7. STOCK APPRECIATION RIGHTS. Stock Incentives in the
form of Stock Appreciation Rights (SAR's) shall be subject to the
following provisions:
<PAGE> 9
(a) Each SAR shall be evidenced by a written instrument (the
"SAR Agreement") specifying the number of shares of Common Stock to which it
relates and containing such other terms and conditions (which may, but need not,
include Performance Objectives), and shall be in such form as the Incentive
Committee may determine, provided the SAR is consistent with this Plan and
incorporates it by reference.
(b) Each SAR Agreement shall specify the period during which
the pertinent SAR(s) may be exercised and shall provide that the SAR(s) shall
expire at the end of such period(or periods); provided that such expiration date
shall not be later than 10 years from the date of grant thereof. Except as
otherwise provided herein, any SAR must be exercised during the period of the
holder's employment with the Company. Each SAR may only be exercisable in
accordance with the schedule as specified by the Incentive Committee. Unless
otherwise provided in the SAR Agreement, a SAR, to the extent it is or becomes
exercisable, may be exercised at any time in whole or in part until the
expiration or termination of the SAR. Any term or provision in any outstanding
SAR specifying that the SAR not be immediately exercisable or that it be
exercisable in installments may be modified at any time during the life of the
SAR by the Incentive Committee; PROVIDED, HOWEVER, no such modifications of an
outstanding SAR shall, without the consent of the grantee, adversely affect any
SAR theretofore granted to him.
(c) Each SAR shall be exercisable during the life of the
grantee only by him and, after his death, only by his estate or by a person who
acquired the right to exercise the SAR by will or the laws of descent and
distribution. A SAR, to the extent that it shall not have been exercised, shall
terminate when the grantee ceases to be an employee of the Company or a
Subsidiary, unless he ceases to be an employee because of his resignation with
the consent of the Incentive Committee (which consent may be given before or
after resignation), or by reason of his death, incapacity or retirement under a
retirement plan of the Company or a Subsidiary. Except as provided in the next
sentence, if the grantee ceases to be an employee by reason of such resignation,
the SAR shall terminate three months after he ceases to be an employee. If the
grantee ceases to be an employee by reason of such death, incapacity or
retirement, or if he should die during the three-month period referred
<PAGE> 10
to in the preceding sentence, the SAR shall terminate 15 months after he ceases
to be an employee. Where a SAR is exercised more than three months after the
grantee ceased to be an employee, the SAR may be exercised only to the extent it
could have been exercised on the date three months after he ceased to be an
employee. A leave of absence for military or governmental service or for other
purposes shall not, if approved by the Incentive Committee, be deemed a
termination of employment within the meaning of this paragraph (c); PROVIDED,
HOWEVER, that a SAR may not be exercised during any such leave of absence.
(d) No SAR may be assigned or transferred by the grantee
except by will or the laws of descent and distribution.
(e) If the form of consideration to be received upon exercise
of the SAR is not specified in the agreement governing the SAR, upon the
exercise thereof, the holder may request the form of consideration he wishes to
receive in satisfaction of such SAR, which may be in shares of Common Stock
(valued at Fair Market Value on the date of exercise of the SAR), or in cash, or
partly in cash and partly in shares of Common Stock, as the holder shall
request; PROVIDED, HOWEVER, that the Incentive Committee, in its sole
discretion, may consent to or disapprove any request of the grantee to receive
cash in full or partial settlement of such SAR.
(f) Any federal, state or local withholding taxes payable by a
grantee upon the exercise of a SAR shall be paid in cash or, unless otherwise
provided by the Incentive Committee, by the surrender of shares of Common Stock
or the withholding of shares of Common Stock to be issued to the grantee, or in
any combination thereof, or in such other form as the Incentive Committee may
authorize from time to time. All such shares so surrendered or withheld shall be
valued at Fair Market Value on the date they are surrendered to the Company
authorized to be withheld.
8. COMBINATION OF STOCK AWARDS AND OPTIONS. Stock Incentives
authorized by Section 3(b)(iv) hereof in the form of combinations of Stock
Awards, Options and/or SAR's shall be subject to the following provisions:
(a) A Stock Incentive may be any combination or combinations
of Stock Awards, Options and/or SAR's; PROVIDED, HOWEVER, that the terms and
conditions of such
<PAGE> 11
Stock Incentive pertaining to a Stock Award are consistent with section 5
hereof, the terms and conditions of such Stock Incentive pertaining to an Option
are consistent with Section 6 hereof, and the terms and conditions of such Stock
Incentive pertaining to a SAR are consistent with section 7 hereof.
(b) Such combination Stock Incentive shall be subject to such
other terms and conditions as the Incentive Committee may determine, including,
without limitation, a provision terminating in whole or in part a portion
thereof upon the exercise in whole or in part of another portion thereof. Such
combination Stock Incentive shall be evidenced by a written instrument in such
form as the Incentive Committee shall determine, provided it is consistent with
this Plan and incorporates it by reference.
9. ADJUSTMENT PROVISIONS. In the event that any spinoff of
assets, recapitalization, reclassification, split-up or consolidation of shares
of Common Stock shall be effected, or the outstanding shares of Common Stock
are, in connection with a merger or consolidation of the Company or a sale by
the Company of all or a part of its assets, exchanged for a different number of
class of shares of stock or other securities of the Company or for shares of the
stock or other securities of any other company, or a record date for
determination of holders of Common Stock entitled to receive a dividend payable
in Common Stock shall occur, (a) the number and class of shares or other
securities that may be issued or transferred pursuant to Stock Incentives or
with respect to which a cash payment pursuant to the Stock Incentives is
determinable, (b) the number and class of shares or other securities which have
not been issued or transferred under outstanding Stock Incentives, (c) the
purchase price or base price per share or other security under outstanding
Options or SAR's, and (d) the price to be paid by the Company or a Subsidiary
for shares or other securities issued or transferred pursuant to Stock
Incentives which are subject to a right of the Company or a Subsidiary to
reacquire such shares or other securities, shall in each case be equitably
adjusted.
10. ACCELERATION. In the event of a Change of Control, any
outstanding Stock Award, Option or SAR shall fully and immediately vest (without
regard to any limitation imposed by the Plan or the Incentive Committee at the
time the Stock Incentive was granted, which permits all or any part of the Stock
Incentive to vest only after the lapse of
<PAGE> 12
time or the attainment of Performance Objectives or other conditions to
vesting), and any outstanding Option or SAR shall remain exercisable until the
expiration of such Stock Incentive. Notwithstanding any provision to the
contrary, in the event of a Change of Control, at the discretion of the
Committee, the Company shall have the right, without the consent of the grantee,
(i) to cancel all or a portion of any outstanding Option or SAR then subject to
exercise and either pay the holder an amount of money equal to the excess, if
any, of the Fair Market Value, at such time, of the shares subject to the
portion of the Option or SAR so canceled over the aggregate purchase price or
base price of such shares, or issue or transfer shares of Common Stock to the
holder with a Fair Market Value, at such time or times, equal to such excess,
and (ii) to cancel all or a portion of any outstanding Stock Award and pay the
holder an amount of money equal to the Fair Market Value of the shares subject
to the Stock Award.
11. TERM. This Plan shall be effective upon adoption and shall
remain in effect until such time as it is terminated by the Board of Directors.
12. ADMINISTRATION. (a) The Plan shall be administered by the
Incentive Committee, which shall consist of not less than three directors of the
Company as appointed or elected by the Board of Directors. Grants of Stock
Incentives may be recommended by the Incentive Committee either in or without
consultation with employees, but, anything in this Plan to the contrary
notwithstanding, the Incentive Committee shall have full authority to act in the
matter of selection of Employees who will receive Stock Incentive grants and in
determining the number of Stock Incentives to be granted to them.
(b) The Incentive Committee may establish such rules and
regulations, not inconsistent with the provisions of this Plan, as it deems
necessary to determine eligibility to participate in this Plan and for the
proper administration of this Plan, and may amend or revoke any rule or
regulation so established. The Incentive Committee may make such determinations
and interpretations under or in connection with this Plan as it deems necessary
or advisable. All such rules, regulations, determinations and interpretations
shall be binding and conclusive upon the Company, its Subsidiaries, its
stockholders and all employees, and upon their respective legal representatives,
<PAGE> 13
beneficiaries, successors and assigns and upon all other persons claiming under
or through any of them.
(c) Members of the Board of Directors and members of the
Incentive Committee acting under this Plan shall be fully protected in relying
in good faith upon the advice of counsel and shall incur no liability except for
gross negligence or willful misconduct in the performance of their duties.
13. ACQUISITIONS. If the Company or any Subsidiary should
merge or consolidate with, or purchase stock or assets or otherwise acquire the
whole or part of the business of, another company, the Company in connection
therewith, upon the recommendation of the Incentive Committee and the approval
of the Board of Directors, (a) may assume, in whole or in part and with or
without modifications or conditions, any stock options granted by the acquired
company to its employees, in their capacity as such, or (b) may grant new
Options in substitution therefor; provided that the granting of an Option with
the terms and conditions of the assumed or substitute options is permissible
under either this Plan or a plan approved by the shareholders of the acquired
company. For the purposes of the preceding sentence, the permissibility of the
granting of an option under a plan shall be determined as of the date of grant
of the original option by the acquired company and not as of the date of
assumption or substitution by the Company.
14. GENERAL PROVISIONS. (a) Nothing in this Plan nor in any
instrument executed pursuant hereto shall confer upon any employee any right to
continue in the employ of the Company or a Subsidiary, or shall affect the right
of the Company or of a Subsidiary to terminate the employment of any employee
with or without cause.
(b) No shares of Common Stock shall be issued or transferred
pursuant to a Stock Incentive unless and until all legal requirements applicable
to the issuance or transfer of such shares, in the opinion of counsel to the
Company, have been complied with. In connection with any such issuance or
transfer the person acquiring the shares shall, if requested by the Company,
give assurances, satisfactory to counsel to the Company, that the shares are
being acquired for investment and not with a view to resale or distribution
thereof and assurances in respect of such other matters as the Company or a
Subsidiary may deem
<PAGE> 14
desirable to assure compliance with all applicable legal requirements.
(c) No employee (individually or as a member of a group), and
no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any shares of Common Stock allocated or
reserved for the purposes of this Plan or subject to any Stock Incentive except
as to shares of Common Stock, if any, as shall have been issued or transferred
to him.
(d) The Company or a Subsidiary may, with the approval of the
Incentive Committee, enter into an agreement or other commitment to grant a
Stock Incentive in the future to a person who is or will be an Employee at the
time of grant, and, notwithstanding any other provision of this Plan, any such
agreement or commitment shall not be deemed the grant of a Stock Incentive until
the date on which the Company takes action to implement such agreement or
commitment.
(e) In the case of a grant of a Stock Incentive to an employee
of a Subsidiary, such grant may, if the Incentive Committee so directs, be
implemented by the Company issuing or transferring the shares, if any, covered
by the Stock Incentive to the Subsidiary, for such lawful consideration as the
Incentive Committee may specify, upon the condition or understanding that the
Subsidiary will transfer the shares to the employee in accordance with the terms
of the Stock Incentive specified by the Incentive Committee pursuant to the
provisions of this Plan. Notwithstanding any other provision hereof, such Stock
Incentive may be issued by and in the name of the Subsidiary and shall be deemed
granted on the date it is approved by the Incentive Committee on the date it is
delivered by the Subsidiary or on such other date between said two dates, as the
Incentive Committee shall specify.
(f) The Company or a Subsidiary may make such provisions as it
may deem appropriate for the withholding of any taxes which the Company or a
Subsidiary determines it is required to withhold in connection with any Stock
Incentive.
(g) Nothing in this Plan is intended to be a substitute for,
or shall preclude or limit the establishment or continuation of, any other plan,
practice or arrangement for the payment of compensation or fringe benefits to
employees generally, or to any class or group of employees,
<PAGE> 15
which the Company or any Subsidiary or other affiliate now has or may hereafter
lawfully put into effect, including, without limitation, any retirement,
pension, group insurance, stock purchase, stock bonus or stock option plan.
15. AMENDMENTS AND DISCONTINUANCE. (a) This Plan may be
amended by the Board of Directors upon the recommendation of the Incentive
Committee.
(b) The Board of Directors may by resolution adopted by a
majority of the entire Board of Directors discontinue this Plan.
(c) Notwithstanding the foregoing, no amendment or
discontinuance of this Plan by the Board of Directors or the stockholders of the
Company shall, without the consent of the employee, adversely affect any Stock
Incentive theretofore granted to him.
<PAGE> 1
EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
-------------------------
AGREEMENT, effective as of ____________, between Omnicare, Inc., a Delaware
corporation (the "Company"), and _______________ (the "Indemnitee"), a director
or officer, or both, of the Company.
WHEREAS, in recognition of Indemnitee's need for protection against
personal liability, in order to enhance Indemnitee's continued service to the
Company and Indemnitee's reliance on the provisions of the Company's Restated
Certificate of Incorporation requiring indemnification under certain
circumstances, and in part to provide Indemnitee with specific contractual
assurance that the protection promised by such certificate will be available,
the Company wishes to provide in this Agreement for the indemnification of
Indemnitee to the full extent permitted by law, including the advancement of
expenses prior to a final disposition.
NOW THEREFORE, in consideration of the premises and with the intention to
be legally bound hereby, the parties hereto agree as follows:
SECTION 1. RIGHT TO INDEMNIFICATION. The Company shall to the full extent
permitted by applicable law, as in effect at the time indemnification is sought,
indemnify Indemnitee in the event he or she becomes involved in any manner
(including, without limitation, as a party or a witness) or is threatened to be
made so involved in any threatened, pending or completed investigation, claim,
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including without limitation, any action, suit or proceeding by
or in the right of the Company to procure a judgment in its favor) (a
"Proceeding") by reason of the fact that he or she is or was a director or
officer of the Company
<PAGE> 2
or is or was serving, at the request of the Company, as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust or other enterprise (including, without limitation, any employee benefit
plan) against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or by her in
connection with such Proceeding. Such indemnification shall be a contract right
and shall include the right to receive payment of any expenses incurred by
Indemnitee, as provided in Section 3 hereof, in connection with such Proceeding
prior to a final disposition with respect to such Proceeding, consistent with
the provisions of applicable law as then in effect.
SECTION 2. INDEMNIFICATION; NOT EXCLUSIVE RIGHT. The right of
indemnification provided in this Agreement shall not be exclusive of any other
rights to which Indemnitee may otherwise be entitled under any provision of the
Company's Restated Certificate of Incorporation or By-Laws or pursuant to any
vote of Disinterested Directors (hereinafter defined), or otherwise, and the
provisions of this Agreement shall inure to the benefit of the heirs and legal
representatives of Indemnitee and shall be applicable to Proceedings commenced
or continuing after execution of this Agreement, whether arising from acts or
omissions occurring before or after its execution. All agreements and
obligations of the Company contained herein shall continue during the period
this Agreement is in effect and Indemnitee is a director or officer of the
Company (whether or not Indemnitee remains in the same capacity held at the time
this Agreement was executed) and shall continue thereafter so long as Indemnitee
shall be subject to any possible Proceeding by reason of the fact that
Indemnitee was a
2
<PAGE> 3
director or officer of the Company or served in any other capacity referred to
herein.
SECTION 3. ADVANCEMENT OF EXPENSES; PROCEDURES; PRESUMPTIONS AND EFFECT OF
CERTAIN PROCEEDINGS; REMEDIES. In furtherance but not in limitation of the
foregoing provisions, the following procedures, presumptions and remedies shall
apply with respect to advancement of expenses and the right to indemnification
under this Agreement:
(a) ADVANCEMENT OF EXPENSES. All expenses reasonably incurred by
or on behalf of Indemnitee in connection with any Proceeding shall be
advanced from time to time to Indemnitee by the Company within 20 days
after receipt by the Company of a statement or statements from
Indemnitee requesting such advance or advances, whether prior to or
after final disposition of such Proceeding. Such statement or
statements shall describe in reasonable detail the expenses incurred
by Indemnitee, shall be accompanied by reasonable evidence thereof
and, if required by law at the time of such advance, shall include or
be accompanied by an undertaking by or on behalf of Indemnitee to
repay the amount advanced if it ultimately should be determined that
Indemnitee is not entitled to be indemnified against such expenses
pursuant to this Agreement or otherwise.
(b) PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION. (i) To obtain indemnification under this Agreement,
Indemnitee shall submit to the Secretary of the Company a written
request, including such documentation and information as is reasonably
available to Indemnitee and reasonably necessary to determine whether
and to what extent Indemnitee is entitled to indemnification (the
"Supporting Documentation"). The determination of Indemnitee's
entitlement
3
<PAGE> 4
to indemnification shall be made not later than 60 days after receipt
by the Company of the written request for indemnification together
with the Supporting Documentation. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise
the Board of Directors in writing that Indemnitee has requested
indemnification.
(ii) Indemnitee's entitlement to indemnification under this
Agreement shall be determined in one of the following ways: (A)
by a majority vote of the Disinterested Directors, if they
constitute a quorum of the Board of Directors; (B) by a written
opinion of Independent Counsel (as hereinafter defined) if (1) a
Change of Control (as hereinafter defined) shall have occurred
and Indemnitee so requests or (2) a quorum of the Board of
Directors consisting of Disinterested Directors is not obtainable
or, even if obtainable, a majority of such Disinterested
Directors so directs; (C) by the stockholders of the Company (but
only if a majority of the Disinterested Directors, if they
constitute a quorum of the Board of Directors, presents the issue
of entitlement to indemnification to the stockholders for their
determination); or (D) as provided in Section 3(c).
(iii) In the event that determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to
Section 3(b)(ii)(B), a majority of the Disinterested Directors
shall select Independent Counsel, but
4
<PAGE> 5
only an Independent Counsel to which Indemnitee does not
reasonably object; provided, however, that if a Change of Control
shall have occurred, Indemnitee shall select such Independent
Counsel, but only an Independent Counsel to which the Board of
Directors does not reasonably object.
(c) PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. Except
as otherwise expressly provided in this Agreement, Indemnitee
shall be presumed to be entitled to indemnification under this
Agreement upon submission of a request for indemnification
together with the Supporting Documentation in accordance with
Section 3(b)(i), and thereafter the Company shall have the burden
of proof to overcome that presumption in reaching a contrary
determination. In any event, if the person or persons empowered
under Section 3(b) to determine entitlement to indemnification
shall not have been appointed or shall not have made a
determination within 60 days after receipt by the Company of the
request therefore, together with the Supporting Documentation,
Indemnitee shall be entitled to such indemnification unless (A)
Indemnitee misrepresented or failed to disclose a material fact
in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law.
The termination of any Proceeding described in Section 1, or of
any claim, issue or matter therein, by judgment, order,
settlement or conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, adversely affect the right
of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith or in a manner which he or
she reasonably believed to be in or not opposed to the best
interests of the
5
<PAGE> 6
Company or, with respect to any criminal Proceeding, that
Indemnitee had reasonable cause to believe that his or her
conduct was unlawful.
(d) REMEDIES OF INDEMNITEE. (i) In the event that a
determination is made pursuant to Section 3(b) that Indemnitee is
not entitled to indemnification under this Agreement, (A)
Indemnitee shall be entitled to seek an adjudication of his or
her entitlement to such indemnification either, at Indemnitee's
sole option, in (1) an appropriate court of the State of Delaware
or in any other court of competent jurisdiction or (2) an
arbitration to be conducted by a single arbitrator pursuant to
the commercial arbitration rules of the American Arbitration
Association; (B) any such judicial proceeding or arbitration
shall be DE NOVO and Indemnitee shall not be prejudiced by reason
of such prior adverse determination; and (C) in any such judicial
proceeding or arbitration, the Company shall have the burden of
proving that Indemnitee is not entitled to indemnification under
this Agreement.
(ii) If a determination shall have been made or deemed
to have been made pursuant to Section 3(b) or (c) that
Indemnitee is entitled to indemnification, the Company shall
be obligated to pay the amounts constituting such
indemnification within five days after such determination
has been made, whether by action or inaction, and shall be
conclusively bound by such determination unless (A)
Indemnitee misrepresented or failed to disclose a material
fact in making the request for indemnification or in the
Supporting Documentation or (B) such indemnification is
prohibited by law.
6
<PAGE> 7
In the event that (C) advancement of expenses is not timely
made pursuant to Section 3(a) or (D) payment of
indemnification is not made within five days after a
determination of entitlement to indemnification has been
made, whether by action or inaction, pursuant to Section
3(b) or (c), Indemnitee shall be entitled to seek judicial
enforcement of the Company's obligation to pay to Indemnitee
such advancement of expenses or indemnification.
Notwithstanding the foregoing, the Company may bring an
action, in an appropriate court in the State of Delaware or
in any other court of competent jurisdiction, contesting the
right of Indemnitee to receive indemnification hereunder due
to the occurrence of an event described in subclause (A) or
(B) of this clause (ii) (a "Disqualifying Event"); provided,
however, that in any such action the Company shall have the
burden of proving the occurrence of such Disqualifying
Event.
(iii) The Company shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to
this Section 3(d) that the procedures and presumptions of
this Agreement are not valid, binding and enforceable and
shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions
of this Agreement.
(iv) In the event that Indemnitee, pursuant to Section
3(c) or (d), seeks a judicial
7
<PAGE> 8
adjudication of, or an award in arbitration to enforce his
or her rights under, or to recover damages for breach of,
this Agreement, Indemnitee shall be entitled to recover from
the Company, and shall be indemnified by the Company
against, any expenses actually and reasonably incurred by
him or by her if Indemnitee prevails in such judicial
adjudication or arbitration. If it shall be determined in
such judicial adjudication or arbitration that Indemnitee is
entitled to receive part but not all of the indemnification
or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication or
arbitration shall be prorated accordingly.
(e) DEFINITIONS. For purposes of this Section 3: (i) "Change
in Control" means a change in control of the Company of a nature
that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of
1934 (the "Act"), whether or not the Company is then subject to
such reporting requirement; provided that, without limitation,
such a change in control shall be deemed to have occurred if (A)
any "person" (as such term is used in Sections 13(d) and 14(d) of
the Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities without the prior
approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to such acquisition; (B)
the Company
8
<PAGE> 9
is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which
members of the Board of Directors in office immediately prior to
such transaction or event constitute less than a majority of the
Board of Directors thereafter; or (C) during any period of two
consecutive years, individuals who at the beginning of such
period constituted the Board of Directors (including for this
purpose any new director whose election or nomination for
election by the Company's stockholders was approved by a vote of
at least a majority of the directors then still in office who
were directors at the beginning of such period) cease for any
reason to constitute at least a majority of the Board of
Directors.
(ii) "Disinterested Director" means a director of the
Company who is not or was not a party to the Proceeding in
respect of which indemnification is sought by Indemnitee.
(iii) "Independent Counsel" means a law firm or a
member of a law firm that neither presently is, nor in the
past five years has been, retained to represent: (a) the
Company or Indemnitee in any matter material to either such
party or (b) any other party to the Proceeding giving rise
to a claim for indemnification under this Agreement.
Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing
under the law of the State of Delaware, would have a
conflict of interest in representing either the Company or
9
<PAGE> 10
Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
SECTION 4. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, all portions of any paragraph of
this Agreement containing any such provisions held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the full extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
SECTION 5. CANCELLATION. The Company may cancel the provisions of this
Agreement prospectively only upon 30 days' written notice to Indemnitee, in
order to afford Indemnitee an opportunity to resign as a director and/or officer
rather than continue to serve without the rights to indemnification provided
herein.
SECTION 6. AMENDMENTS AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
SECTION 7. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such
10
<PAGE> 11
payment to all of the rights of recovery of Indemnitee, who shall execute all
papers required and shall do everything that may be necessary to secure such
right, including the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
SECTION 8. NO DUPLICATION OF PAYMENT. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, By-Law or otherwise) of the amounts otherwise
indemnifiable hereunder.
SECTION 9. INSURANCE. If at any time the Company's insurance coverage with
respect to directors and officers liability is amended with respect to, among
other things, exceptions to coverage, amount of coverage or deductible amounts
or if such coverage is cancelled, or lapses, the Company shall notify existing
directors and officers of the occurrence of the amendment, cancellation or lapse
within 30 days of any such occurrence.
SECTION 10. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws. Executed this _____ day of _______________.
Omnicare, Inc.
By:
- --------------------- -----------------------------------
"Indemnitee" Joel F. Gemunder
President
11
<PAGE> 1
EXHIBIT 10.18
TWELFTH
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
JOEL F. GEMUDER of Cincinnati, Ohio ("Employee"), and OMNICARE MANAGEMENT
COMPANY, a Delaware corporation with its principal place of business in
Covington, Kentucky (the "Company"), hereby agree as follows:
1. Recitals
(a) The Company is an indirect subsidiary of Omnicare, Inc. as a result
of a corporate restructuring of Omnicare, Inc. and its affiliates.
(b) In connection with such restructuring certain assets and liabilities
of Omnicare, Inc. were transferred to the Company effective December 31, 1988,
including an Employment Agreement between Omnicare, Inc, and Employee dated
August 4, 1988 (the "Employment Agreement").
(c) The Company, as assignee, and Employee amended the Employment Agreement
by mutual written agreement on December 31, 1988, May 23, 1989, May 22,
1990, May 21, 1991, May 19, 1992, May 17, 1993, May 16, 1994, May 15, 1995,
May 20, 1996, May 19, 1997 and May 18, 1998 (the "Prior Amendments").
2. Amendments
(a) Section 1.2 of the Employment Agreement is amended by deleting the year
"2003" from the third line of Section 1.2 and substituting the year "2004"
therefor.
(b) The amount of unrestricted stock award recognized in lieu of incentive
compensation in 1998 is $843,779.
3. General
Except as previously changed by the Prior Amendments and as specifically
amended herein, the Employment Agreement will remain in full force and effect
in accordance with its original terms, conditions and provisions.
IN WITNESS WHEREOF, the parties have duly executed this amendatory agreement
as of March 3, 1999.
OMNICARE MANAGEMENT COMPANY
____________________________ By: __________________________
JOEL F. GEMUNDER Cheryl D. Hodges
<PAGE> 1
EXHIBIT 12
Omnicare, Inc.
Computation of Ratio of Earnings to Fixed Charges (1)
(in thousands)
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Income before Income Taxes $ 135,866 $ 95,933 $ 72,276
Add:
Interest on Indebtedness 22,727 6,505 4,112
Amortization of Debt Expense 884 51 220
Interest Portion of Rent Expense 6,838 4,448 3,270
----------------- --------------- ---------------
Income as Adjusted $ 166,315 $ 106,937 $ 79,878
================= =============== ===============
Fixed Charges
Interest on Indebtedness $ 22,727 $ 6,505 $ 4,112
Amortization of Debt Expense 884 51 220
Capitalized Interest 976 744 386
Interest Portion of Rent Expense 6,838 4,448 3,270
----------------- --------------- ---------------
Fixed Charges $ 31,425 $ 11,748 $ 7,988
================= =============== ===============
Ratio of Earnings to Fixed Charges (2) 5.3 x 9.1 x 10.0 x
================= =============== ===============
</TABLE>
(1) The consolidated financial statements, and accordingly, these computations,
have been restated for the years ended December 31, 1997 and 1996 to
include the results of operations of CompScript, Inc. and IBAH, Inc., both
acquired in June 1998 pooling-of-interests transactions.
(2) The ratio of earnings to fixed charges has been computed by dividing
earnings before income taxes plus fixed charges (excluding capitalized
interest expense) by fixed charges. Fixed charges consist of interest
expense on debt (including capitalized interest) and one-third (the
proportion deemed representative of the interest portion) of rent expense.
<PAGE> 1
EXHIBIT 21
Subsidiaries of Omnicare, Inc.
- ------------------------------
The following is a list of subsidiaries of the Company as of December 31,
1998. Other subsidiaries which have been omitted from the list would not, when
considered in the aggregate, constitute a significant subsidiary. Each of the
companies is incorporated under the laws of the state following its name.
All of the companies listed below are included in the consolidated
financial statements of the Company as of December 31, 1998 and were 100% owned
at December 31, 1998, with the exception of Omnicare Pharmacy and Supply
Services, Inc. and CompScript - Boca, Inc., which have stock held by minority
interests.
<TABLE>
<CAPTION>
DOING BUSINESS AS NAME STATE OF
LEGAL NAME (IF OTHER THAN LEGAL NAME) INCORPORATION % OWNED
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AAHS Acquisition Corp. A-Avenue Health Services Delaware 100%
Accu-Med Services, Inc. Delaware 100%
ACP Acquisition Corp. Add-On Health Systems Delaware 100%
AMC - New York, Inc. Royal Care Holdings, Inc. Delaware 100%
AMC - Tennessee, Inc. The Pharmacy Delaware 100%
AMC Regional Holdings, Inc. Delaware 100%
American Medserve Corporation Delaware 100%
Anderson Medical Services, Inc. Delaware 100%
Apex Long Term Care Pharmacy, Inc. Delaware 100%
Atlantic Medical Group, LLC Maryland 100%
Badger Acquisition LLC Delaware 100%
Badger Acquisition of Allentown, LLC Delaware 100%
Badger Acquisition of Brooksville, LLC Delaware 100%
Badger Acquisition of Indiana, LLC Delaware 100%
Badger Acquisition of Kentucky, LLC Delaware 100%
Badger Acquisition of Michigan, LLC QD Pharmacy Delaware 100%
Badger Acquisition of Minnesota, LLC Delaware 100%
Badger Acquisition of Ohio, LLC Delaware 100%
Badger Acquisition of Orlando, LLC Home Care Pharmacy of Florida Delaware 100%
Badger Acquisition of Pittsburgh, LLC United Pharmacy Associates Delaware 100%
Badger Acquisition of Tampa, LLC Bay Pharmacy Delaware 100%
Badger Acquisition of Texas, LLC Delaware 100%
Badger Acquisition of Washington United Pharmacy Associates Delaware 100%
Badger Acquisition of Wisconsin, LLC Delaware 100%
Beeber Pharmacies, Inc. Ohio 100%
Bio-Pharm International, Inc. Delaware 100%
BPNY Acquisition Corp. Brookside Park Pharmacy Delaware 100%
BPTX Acquisition Corp. Brookside Park Pharmacy of Texas Delaware 100%
Campo Medical Pharmacy, Inc. Louisiana 100%
Care Pharmaceutical Services, Inc. Delaware 100%
Catapharm Corp. Delaware 100%
CHP Acquisition Corp. Cherry Hill Pharmacy Delaware 100%
CIP Acquisition Corp. Carter's Institutional Pharmacy Delaware 100%
CMD Acquisition Corp. Omnicare Pharmacy Services of Pittsburgh Delaware 100%
CompScript - Boca, Inc. Florida 93%
CompScript - Mobile, Inc. Delaware 100%
CompScript, Inc. Florida 100%
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
Consulting and Pharmaceutical Services, Inc. Delaware 100%
Coromed, Inc. Delaware 100%
CP Acquisition Corp. Central Pharmacy Oklahoma 100%
Creekside Managed Care Pharmacy, LLC Delaware 100%
CTLP Acquisition Corp. Care Tech Delaware 100%
D & R Pharmaceutical Services, Inc. Kentucky 100%
Datascript Corp. Delaware 100%
Dixon Pharmacy, Inc. Illinois 100%
Downeast Pharmacy Long Term Care, Inc. Downeast Pharmacy of Winthrop LTC Maine 100%
Downeast Pharmacy of Bangor, Inc. Downeast Pharmacy of Brewer LTC Maine 100%
Downeast Pharmacy of Sanford, Inc. Maine 100%
Downeast Pharmacy, Inc. Maine 100%
Dynatran Computer Systems, Inc. Delaware 100%
Electra Acquisition Corp. Prometheus Pharmacy Systems, Inc. Delaware 100%
Enloe Drugs, Inc. Delaware 100%
Euro-Pharm Clincial Services, Inc. Delaware 100%
Evergreen Pharmaceutical, Inc. Washington 100%
Evergreen Spokane, Inc. Washington 100%
Evergreen Wound Management, Inc. Delaware 100%
Freed's Pharmacy, Inc. Delaware 100%
Gatti LTC Services, Inc. Pennsylvania 100%
Hardardt Group, Inc., The Delaware 100%
HCC Medical Supply, Inc. Pennsylvania 100%
Heartland Healthcare Services Ohio 50%
HMIS, Inc. Delaware 100%
Home Care Pharmacy, Inc. Delaware 100%
Home Pharmacy Services, Inc. Missouri 100%
Hospice Acquisition One Corp. Delaware 100%
Hospice Acquisition Two Corp. Delaware 100%
Hospice Care of Oklahoma, LLC Oklahoma 100%
Hospice of the Heartland, LLC Oklahoma 100%
Howard's Pharmacy, Inc. Ohio 100%
Hytree Pharmacy, Inc. Ohio 100%
IBAH Pharmaceutics Services, Inc. Delaware 100%
IBAH, Inc. Delaware 100%
Interlock Pharmacy Systems, Inc. Missouri 100%
JHC Acquisition, Inc. Jacobs Health Care Systems Delaware 100%
KLB Pharmacy, LLC Ohio 100%
Konsult, Inc. Delaware 100%
Langsam Health Services, Inc. Sequoia Health Services, Inc. Delaware 100%
Langsam Medical Products, Inc. Sequoia Medical Products, Inc. Delaware 100%
Lawrence Medical Supply, Inc. Delaware 100%
LifeMed, LLC Delaware 100%
Lo-Med Prescription Services, Inc. Ohio 100%
LPI Acquisition Corp. Lipira Pharmacy Delaware 100%
Managed Healthcare, Inc. Delaware 100%
Med World Acquisition Corp. Delaware 100%
Medical Arts Health Care, Inc. Georgia 100%
Medical Communications Software Kansas 100%
Medical Services Consortium, Inc. Compscript - Miami Florida 100%
MOSI Acquisition Corp. Medical Outpatient Services Delaware 100%
MSD Acquisition Corp. Squire Drugs, Inc. Delaware 100%
Nihan & Martin, Inc. Delaware 100%
NIV Acquisition Corp. Denman Pharmacy Services Delaware 100%
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
North Shore Pharmacy Services, Inc. Delaware 100%
Northwest Pharmaceutical, Inc. Delaware 100%
OCR Services Corporation Delaware 100%
OCR-RA Acquisition Corp. Long Term Care Pharmacy Delaware 100%
Omnicare Air Transport Services, Inc. Delaware 100%
Omnicare Holding Company Delaware 100%
Omnicare Management Company Delaware 100%
Omnicare Pharmacy and Supply Services, Inc. South Dakota 80%
Omnicare Pharmacy Services, Inc. HPI Health Care Services, Inc Delaware 100%
Pharmacon Corp. New York 100%
Pharmacy Acquisition, Inc. Clasen Pharmacy Delaware 100%
Pharmacy Associates of Glens Falls, Inc. Royal Care Pharmacy Services New York 100%
Pharmed Holdings, Inc. Delaware 100%
PIP Acquisition Corp. Premier Institutional Pharmacy, Inc. California 100%
Pompton Nursing Home Suppliers, Inc. Delaware 100%
PRN Pharmaceutical Services, Inc. Delaware 100%
RDSI Acquisition Corp. Delaware 100%
Resource Biometrics, Inc. California 100%
Robby Acquisition Corp. Robby Pharmacy Services, Inc. Delaware 100%
Roeschen's Healthcare Corp. Wisconsin 100%
SC Acquisition Corp. Pharm-Corp of Maine & Spectrum Care Delaware 100%
Shore Pharmaceutical Providers, Inc. Delaware 100%
SIV Acqusition Corp. Delaware 100%
Southside Apothecary, Inc. New York 100%
Specialized Patient Care Services, Inc. Alabama 100%
Specialized Pharmacy Services, Inc. Michigan 100%
Sterling Healthcare Services, Inc. Delaware 100%
Superior Care Pharmacy, Inc. Delaware 100%
Swish, Inc. Delaware 100%
TCPI Acquisition Corp. Total Care Pharmacy Delaware 100%
THG Acquisition Corp. Tandem Health Services Delaware 100%
Three Forks Apothecary, Inc. Kentucky 100%
UC Acquisition Corp. UniCare, Inc. Delaware 100%
Value Health Care Services, Inc. Delaware 100%
Value Pharmacy, Inc. Massachussets 100%
Vital Care Infusions, Inc. New York 100%
Weber Medical Systems, Inc. Delaware 100%
Westhaven Services Co. Ohio 100%
Williamson Drug Company, Incorporated Virginia 100%
Winslow's Pharmacy New Jersey 100%
WVP Acquisition Corp. West-Val Care, Inc. Delaware 100%
FOREIGN ENTITIES COUNTRY % OWNED
Institute Fur Numersche Statistik GmbH Germany 100%
Euro Bio-Pharm, Ltd. UK 100%
IBAH N.V./S.A. Belgium 100%
Euro Bio-Pharm Clinical Services GmbH Germany 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 33-81644,
33-83752, 33-59689, 33-62965, 333-07695, 333-00635, 333-33279, 333-36665,
333-45825, 333-48059, 333-57731, 333-64441 and 333-68443), Form S-4 (Nos.
333-53749 and 333-53637, insofar as it relates to Post-Effective Amendment No. 1
to Form S-8 filed on June 26, 1998), and Form S-8 (Nos. 2-78l6l, 33-34635,
33-48209, 33-88856, 333-02667, 333-45801 and 333-48067) of Omnicare, Inc. of our
report dated January 29, 1999 appearing on page 37 of this Form 10-K.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 30, l999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 33-81644, 33-83752, 33-59689, 33-62965, 333-07695, 333-00635,
333-33279, 333-36665, 333-45825, 333-48059, 333-57731, 333-64441 and 333-68443);
Form S-4 Nos. 333-53749 and 333-53637, insofar as it relates to Post-Effective
Amendment No. 1 to Form S-8 filed on June 26, 1998; and Form S-8 Nos. 2-78161,
33-34635, 33-48209, 33-88856, 333-02667, 333-45801 and 333-48067) of Omnicare,
Inc. and in the related Prospectus of our report dated March 6, 1998, with
respect to the consolidated financial statements of CompScript, Inc. as of
December 31, 1997 and for each of the two years in the period ended
December 31, 1997 included in this Annual Report (Form 10-K) for the year ended
December 31, 1998.
/s/ Ernst & Young LLP
- ---------------------
West Palm Beach, Florida
March 30, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K and to the incorporation of our report into
Omnicare, Inc.'s previously filed Registration Statements on Form S-3 (File Nos.
33-81644, 33-83752, 33-59689, 33-62965, 333-07695, 333-00635, 333-33279,
333-36665, 333-45825, 333-48059, 333-57731, 333-64441 and 333-68443), Form S-4
(File Nos. 333-53749 and 333-53637, insofar as it relates to Post-Effective
Amendment No. 1 to Form S-8 filed on June 26, 1998) and Form S-8 (File Nos.
2-78161, 33-34635, 33-48209, 33-88856, 333-02667, 333-45801 and 333-48067).
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
Philadelphia, Pa.,
March 26, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned director of OMNICARE, INC. ("Company") hereby appoints
EDWARD L. HUTTON, JOEL F. GEMUNDER and CHERYL D. HODGES as his true and lawful
attorneys-in-fact for the purpose of signing the Company's Annual Report on Form
10-K for the year ended December 31, 1998, and all amendments thereto, to be
filed with the Securities and Exchange Commission. Each of such
attorneys-in-fact is appointed with full power to act without the other.
Dated: March 24, 1999
/s/Ronald K. Baur
----------------------
Ronald K. Baur
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned director of OMNICARE, INC. ("Company") hereby appoints
EDWARD L. HUTTON, JOEL F. GEMUNDER and CHERYL D. HODGES as his true and lawful
attorneys-in-fact for the purpose of signing the Company's Annual Report on Form
10-K for the year ended December 31, 1998, and all amendments thereto, to be
filed with the Securities and Exchange Commission. Each of such
attorneys-in-fact is appointed with full power to act without the other.
Dated: March 22, 1999
/s/Timothy E. Bien
-----------------------
Timothy E. Bien
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned director of OMNICARE, INC. ("Company") hereby appoints
EDWARD L. HUTTON, JOEL F. GEMUNDER and CHERYL D. HODGES as his true and lawful
attorneys-in-fact for the purpose of signing the Company's Annual Report on Form
10-K for the year ended December 31, 1998, and all amendments thereto, to be
filed with the Securities and Exchange Commission. Each of such
attorneys-in-fact is appointed with full power to act without the other.
Dated: March 22, 1999
/s/Mary Lou Fox
-----------------------
Mary Lou Fox
<PAGE> 4
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned director of OMNICARE, INC. ("Company") hereby appoints
EDWARD L. HUTTON, JOEL F. GEMUNDER and CHERYL D. HODGES as his true and lawful
attorneys-in-fact for the purpose of signing the Company's Annual Report on Form
10-K for the year ended December 31, 1998, and all amendments thereto, to be
filed with the Securities and Exchange Commission. Each of such
attorneys-in-fact is appointed with full power to act without the other.
Dated: March 22, 1999
/s/Thomas C. Hutton
--------------------------
Thomas C. Hutton
<PAGE> 5
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned director of OMNICARE, INC. ("Company") hereby appoints
EDWARD L. HUTTON, JOEL F. GEMUNDER and CHERYL D. HODGES as his true and lawful
attorneys-in-fact for the purpose of signing the Company's Annual Report on Form
10-K for the year ended December 31, 1998, and all amendments thereto, to be
filed with the Securities and Exchange Commission. Each of such
attorneys-in-fact is appointed with full power to act without the other.
Dated: March 22, 1999
/s/Patrick E. Keefe
----------------------------
Patrick E. Keefe
<PAGE> 6
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned director of OMNICARE, INC. ("Company") hereby appoints
EDWARD L. HUTTON, JOEL F. GEMUNDER and CHERYL D. HODGES as his true and lawful
attorneys-in-fact for the purpose of signing the Company's Annual Report on Form
10-K for the year ended December 31, 1998, and all amendments thereto, to be
filed with the Securities and Exchange Commission. Each of such
attorneys-in-fact is appointed with full power to act without the other.
Dated: March 23, 1999
/s/Sandra E. Laney
--------------------------
Sandra E. Laney
<PAGE> 7
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned director of OMNICARE, INC. ("Company") hereby appoints
EDWARD L. HUTTON, JOEL F. GEMUNDER and CHERYL D. HODGES as his true and lawful
attorneys-in-fact for the purpose of signing the Company's Annual Report on Form
10-K for the year ended December 31, 1998, and all amendments thereto, to be
filed with the Securities and Exchange Commission. Each of such
attorneys-in-fact is appointed with full power to act without the other.
Dated: March 23, 1999
/s/Andrea R. Lindell
-------------------------
Andrea R. Lindell
<PAGE> 8
EXHIBIT 24
POWER OF ATTORNEY
-----------------
The undersigned director of OMNICARE, INC. ("Company") hereby appoints
EDWARD L. HUTTON, JOEL F. GEMUNDER and CHERYL D. HODGES as his true and lawful
attorneys-in-fact for the purpose of signing the Company's Annual Report on Form
10-K for the year ended December 31, 1998, and all amendments thereto, to be
filed with the Securities and Exchange Commission. Each of such
attorneys-in-fact is appointed with full power to act without the other.
Dated: March 23, 1999
/s/Kevin J. McNamara
-------------------------
Kevin J. McNamara
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