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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, 1999
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)
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DELAWARE 31-1001351
(State of Incorporation) (I.R.S. Employer Identification No.)
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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:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock ($1 Par Value) New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
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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 29, 2000 ($9.1875 per share):
$824,071,342.
As of February 29, 2000, 92,125,514 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 2000 Annual Meeting of Stockholders, to be
held May 15, 2000, are incorporated by reference into Part III of this report.
Definitive copies of its 2000 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.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
PAGE
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ITEM 1. BUSINESS...................................................... 3
ITEM 2. PROPERTIES....................................................17
ITEM 3. LEGAL PROCEEDINGS............................................ 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS........................................ 21
EXECUTIVE OFFICERS OF THE COMPANY .......................... 21
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.............................. 22
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 RISKS........................................... 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA..........................................................38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE .................................................. 71
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT .............................................. 71
ITEM 11. EXECUTIVE COMPENSATION ...................................... 71
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ...................................... 71
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS .............................................. . 71
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K .................................... 71
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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. Further, the Company has had an active
institutional pharmacy acquisition program in effect since 1989. In 1999, the
Company completed the acquisition of five institutional pharmacy providers.
Additional information regarding the Company's acquisition program is presented
at "Note 2 - Acquisitions" of the Notes to Consolidated Financial Statements at
Item 8 of this Form 10-K. As a result of these activities, 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. In 1997, Omnicare completed the acquisition of its first
contract research organization ("CRO"). The Company subsequently acquired two
additional CROs in 1998, significantly increasing its presence in this
sector of the health care industry. In 1999, the Company implemented a
company-wide productivity and consolidation program to take place over the
remainder of 1999 and 2000. The program is designed to eliminate redundant
efforts and simplify work processes to maximize employee productivity and
standardize operations around best practices. Additional information about the
program is presented at "Note 12 - Restructuring and Other Related Charges" of
the Notes to Consolidated Financial Statements.
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. Pharmacy Services 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. At December 31, 1999, Omnicare provided these
services to approximately 631,200 residents in approximately 8,800 long-term
care facilities in 43 states. The Pharmacy Services segment provides no services
outside of the United States. The Company's other business segment is Contract
Research Organization Services ("CRO Services"). CRO Services is a leading
international provider of comprehensive product development and research
services to client companies in the pharmaceutical, biotechnology, medical
device and diagnostics industries, operating in 23 countries around the world.
Financial information regarding the Company's business segments is presented at
"Note 15 - Segment Information" of the Notes to Consolidated Financial
Statements.
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PHARMACY SERVICES SEGMENT
Omnicare purchases, repackages and dispenses prescription and
non-prescription medication in accordance with physician orders and delivers
such prescriptions 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 Geriatric Pharmaceutical Care
Guidelines'r'" below for further discussion.
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)
monitoring and monthly reporting on facility-wide drug usage; (iv) development
and maintenance of pharmaceutical policy and procedures manuals; and (v)
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 OSC2OR'r' (Omnicare System of
Clinical and Cost 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 Geriatric Pharmaceutical Care Guidelines'r'
In June 1994, to enhance the pharmaceutical care management services
that it offers, Omnicare introduced to its client nursing facilities and their
attending physicians the Omnicare Geriatric Pharmaceutical Care Guidelines'r'
(the "Omnicare Guidelines'r'") which it believes is the first clinically-based
formulary for the elderly residing in long-term care institutions. The Omnicare
Guidelines'r' presents an analysis ranking specific drugs in therapeutic classes
as Preferred, Acceptable or Unacceptable based solely on their disease-specific
clinical effectiveness in treating the elderly in nursing facilities. The
formulary takes into account such factors as pharmacology, safety and toxicity,
efficacy, drug administration, quality of life and other considerations specific
to the frail elderly population residing in nursing facilities. The clinical
evaluations and rankings were developed exclusively for the Company by the
Philadelphia College of Pharmacy, an academic institution recognized for its
expertise in geriatric long-term care. In addition, the Omnicare Guidelines'r'
provides relative cost information comparing the prices of the drugs to
patients, their insurers or other payors of the pharmacy bill.
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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' assists physicians in making the best clinical
choices of drug therapy for the patient at the lowest cost to the payor of the
pharmacy bill. Accordingly, the Company believes that the development of and
compliance with the Omnicare Guidelines'r' is important in lowering costs for
skilled nursing facilities operating under the Medicare Prospective Payment
System implemented during mid-1998 and, to a greater extent, during 1999.
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, such as congestive heart failure,
osteoporosis and atrial fibrillation. 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. These 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. 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
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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. The Company also
offers respiratory therapy products and durable medical equipment. In late 1999,
Omnicare initiated a program to provide on-site dialysis supplies and services
for residents of skilled nursing facilities. Omnicare continues to review the
expansion of these as well as other products and services that may further
enhance the ability of its client nursing facilities to care for their patients
in a cost-effective manner.
CONTRACT RESEARCH ORGANIZATION SERVICES SEGMENT
Omnicare's CRO Services segment 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, and clinical (phases I-IV)
development stages of pharmaceuticals by offering comprehensive and fully
integrated 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 and clinical
packaging. Including the conduct of business in the United States, CRO Services
operates in 23 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 and strengths, including its access to a large geriatric
population and its ability to collect data for disease and outcomes management.
Such assets and strengths 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.
PRODUCT AND MARKET DEVELOPMENT
Omnicare's Pharmacy Services and CRO Services businesses engage in a
continuing program for the development of new services and for marketing these
services. 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 significant portion of Omnicare's assets.
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MATERIALS/SUPPLIES
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.
SEASONALITY
The Company's business operations are not significantly impacted by
seasonality.
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.
CUSTOMERS
At December 31, 1999, Omnicare's Pharmacy Services segment served
631,200 residents in approximately 8,800 long-term care facilities and other
institutional health care settings.
The Company's CRO Services segment 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 consolidated revenues
during 1999. The Company's business would not be materially or adversely
affected by the loss of any one customer or small group of customers.
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.
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Pharmacy Services Segment
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. Where applicable, Omnicare's pharmacies
hold the requisite licenses 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.
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 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
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mix is in line with nursing home expenditures nationally. For the year ended
December 31, 1999, Omnicare's payor mix was approximately as follows: 48%
private pay and nursing facilities, 40% Medicaid, 3% Medicare and 9% other
private sources (including customers of the CRO business).
For those patients who are not covered by government-sponsored programs
or private insurance, Omnicare generally bills the patient directly 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 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. Federal regulations clarify that 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
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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 "BBA"), Medicare Part B
reimbursement for these drug 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 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.
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. 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.
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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. The Health
Insurance Portability and Accountability Act of 1996 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 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,
however, that such laws will be interpreted in the future in a manner consistent
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 1997 BBA was designed 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 mandated establishment of a
prospective payment system ("PPS") for Medicare skilled nursing facilities
("SNFs") under which facilities are 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 BBA 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
12
<PAGE>
mix adjustments that reflect the needs of such patients. The BBA also imposed
limits on annual updates in payments to Medicare SNFs, and instituted
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 BBA also imposed numerous other cost savings measures
affecting Medicare SNF services.
On July 30, 1999, the Health Care Financing Administration ("HCFA")
issued final regulations to implement the SNF PPS and consolidated billing
rules, and the updated payment rates for October 1, 1999 through September 30,
2000. The Company, as well as others in the long term care industry, concluded
that the PPS rates did not adequately compensate SNFs for the high medication
costs of some frail elderly Medicare beneficiaries. In response to these
concerns, on November 29, 1999, Congress enacted the Balanced Budget Refinement
Act ("BBRA"), which was designed to mitigate the effects of the BBA. The BBRA
allows SNFs to choose to receive the full federal PPS rates on or after December
15, 1999 (based upon the fiscal year-end of the SNF) rather than participating
in the three-year transition period. Also, effective April 1, 2000, the BBRA
temporarily increases the PPS per diem rates by 20 percent for 15 patient acuity
categories, including medically complex patients with generally higher pharmacy
costs, pending appropriate revisions to the PPS system. The increases will
continue until the later of (1) October 1, 2000, or (2) the date that HCFA
implements a refined PPS system that better accounts for medically-complex
patients. The revised rates may be more or less than the temporary 20% increase
under the BBRA. The BBRA also provides for a four percent increase in the
federal per diem rate for all patient acuity categories for fiscal years
commencing October 1, 2000 and 2001 (in addition to the 20% increase in the 15
high acuity categories). These changes should motivate nursing homes to increase
Medicare admissions, particularly among the more acutely ill, which should have
a salutary effect on the Company's business.
The BBA also mandated 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. Final rules
have not yet been issued.
The BBA 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.
Although it is unclear what the long-term impact of PPS will be, the
short-term impact of PPS has been evidenced by an erosion of census for some
facilities, lower acuity levels of residents in some nursing homes and an
unfavorable payor mix for the Company. While the Company expects that the impact
of PPS on the long-term care industry will continue to affect
13
<PAGE>
Omnicare and its clients in 2000, it appears that the unfavorable operating
trends experienced to date have begun to stabilize. Further, the Company
anticipates that federal and state governments will continue to review and
assess alternate health care delivery systems, payment methodologies and
operational requirements for health care providers including protection of
confidential patient information. It is not possible to predict the effect of
elements of potential legislation or regulation, or the interpretation or
administration of such legislation or regulation, including the adequacy and
timeliness of payment to or costs required to be incurred by client facilities,
on Omnicare's business. Accordingly, there can be no assurance that any such
future health care legislation or regulation 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.
CRO Services Segment
The clinical, manufacturing, analytical and clinical trial supply
services performed by Omnicare's CRO Services segment 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 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. GLPs and GMPs contain requirements
for facilities, equipment, supplies and personnel engaged in the conduct of
studies to which these regulations apply. The regulations, among other things,
require that written, standard operating procedures ("SOPs") 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 on-site inspections of testing procedures and facilities.
14
<PAGE>
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 submitted to such authorities are based on studies conducted in
accordance with GCP provisions and a set of regulations relating to the testing
of investigational new drugs ("INDs"). These provisions include: (i) complying
with specific regulations governing the selection of qualified investigators;
(ii) obtaining specific written commitments from the investigators and
disclosing potential financial conflicts of interest; (iii) verifying that full
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 ("EU") or other authorities during audits.
Non-compliance with GCP or IND requirements can result in the disqualification
of data collected during the clinical trial and may lead to debarrment of an
investigator or CRO if fraud is detected.
CRO Services' SOPs related to clinical studies are written in
accordance with regulations and guidelines which comply with a global standard,
including variations in the regions where they will be used, thus helping to
ensure acceptance of the research in product marketing applications. CRO
Services also complies with International Congress of Harmonization, EU GCP
regulations and U.S. GCP regulations for North America.
The Company's U.S. manufacturing, analytical and other laboratories are
subject to licensing and regulation under federal, state and local laws relating
to maintenance of appropriate processes and procedures under the Clinical
Laboratories Improvement Act ("CLIA"), 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
maintenance of trained personnel, proper equipment processes and procedures
required by CLIA regulations of HHS, and 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 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>
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 believes that it
competes favorably 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
the internal resources of its clients. 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 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.
ENVIRONMENTAL MATTERS
In operating its facilities, Omnicare makes every effort to comply with
applicable 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, 1999, Omnicare employed approximately 11,006 persons
(including 4,201 part-time employees), 10,591 and 415 of whom were located
within and outside the United States, respectively.
16
<PAGE>
ITEM 2 - PROPERTIES
Omnicare has offices, distribution centers and other key operating
facilities in various locations in and outside the United States. A list of the
more significant facilities operated by Omnicare as of December 31, 1999
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>
Spartanburg, South Carolina Distribution Center -- 10,000 July 8, 2000
Van Nuys, California Offices and Distribution Center -- 10,400 February 28, 2003
St. Petersburg, Florida Offices and Distribution Center -- 10,500 Month-to-Month
Des Plaines, Illinois Offices and Distribution Center -- 10,500 May 31, 2008
Rockford, Illinois Offices and Retail Outlet -- 11,000 February 28, 2004
Louisville, Kentucky Offices and Distribution Center -- 11,000 August 31, 2002
Yakima, Washington Offices and Distribution Center -- 11,000 February 28, 2005
Peoria, Illinois Offices and Distribution Center -- 11,022 June 30, 2001
South Elgin, Illinois Offices and Distribution Center -- 11,175 August 1, 2002
Omaha, Nebraska Offices and Distribution Center -- 11,250 March 31, 2001
Des Moines, Iowa Offices and Distribution Center -- 11,300 March 31, 2009
Thomasville, North Carolina Offices and Distribution Center -- 11,325 December 31, 2002
Rockford, Illinois Offices and Distribution Center -- 11,436 February 28, 2001
Alexandria, Louisiana Offices and Distribution Center -- 12,000 April 30, 2001
Dover, Ohio Offices and Distribution Center -- 12,000 December 12, 2008
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Leased
-------------------------------------
Owned Area
Location Type (sq. ft.) Area (sq. ft.) Expiration Date
---------------------------- ------------------------------- ---------- -------------- ------------------
<S> <C> <C> <C> <C>
Hallowell, Maine Offices and Distribution Center -- 13,000 September 30, 2002
Wessex Business Ctr., England Offices -- 13,000 June 30, 2001
Spokane, Washington Offices and Distribution Center -- 13,750 October 31, 2006
Ashland, Kentucky Offices and Distribution Center -- 14,000 October 31, 2003
Fort Wright, Kentucky Offices -- 14,237 March 31, 2008
New Brighton, Minnesota Offices and Distribution Center -- 14,400 Month-to-Month
West Boylston, Massachusetts Offices and Distribution Center -- 14,800 May 3, 2003
Englewood, Ohio Offices and Distribution Center -- 15,000 January 31, 2001
West Seneca, New York Offices and Distribution Center -- 15,000 April 30, 2004
Rochester, New York Offices and Distribution Center -- 15,000 December 31, 2003
Huber Heights, Ohio Distribution Center 15,000 -- --
Pompton Plains, New Jersey Offices and Distribution Center -- 16,041 July 31, 2001
Des Plaines, Illinois Offices and Distribution Center -- 16,173 May 31, 2008
Miami, Florida Offices and Distribution Center -- 16,665 November 30, 2001
Springfield, Missouri Offices and Distribution Center -- 17,000 September 30, 2002
Griffith, Indiana Offices and Distribution Center -- 17,100 May 31, 2002
Malta, New York Offices and Distribution Center -- 17,400 December 31, 2005
Peabody, Massachusetts Offices and Distribution Center -- 17,500 January 25, 2002
Plainview, New York Offices and Distribution Center -- 17,500 June 30, 2005
Milford, Ohio Offices and Distribution Center -- 18,000 December 31, 2000
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Leased
-------------------------------------
Owned Area
Location Type (sq. ft.) Area (sq. ft.) Expiration Date
---------------------------- ------------------------------- ---------- -------------- ------------------
<S> <C> <C> <C> <C>
Rockford, Illinois Offices and Distribution Center -- 18,000 November 30, 2009
Springfield, Ohio Offices and Distribution Center -- 18,000 December 12, 2003
Pittsburgh, Pennsylvania Offices and Distribution Center -- 18,334 January 31, 2009
Boca Raton, Florida Offices and Distribution Center -- 18,661 December 31, 2002
Greensburg, Pennsylvania Offices and Distribution Center -- 20,000 February 3, 2002
Mentor, Ohio Offices and Distribution Center -- 20,000 July 31, 2000
Ft. Washington, Pennsylvania Offices and Laboratories -- 20,000 December 31, 2000
Henderson, Kentucky Offices and Distribution Center -- 20,000 January 31, 2002
Decatur, Illinois Offices and Distribution Center 20,000 -- --
Wadsworth, Ohio Offices and Distribution Center -- 21,000 June 30, 2001
Golden Valley, Minnesota Offices and Distribution Center 21,545 -- --
Overland Park, Kansas Offices and Distribution Center -- 21,550 Month-to-Month
Portland, Oregon Offices and Distribution Center -- 23,700 April 30, 2008
Indianapolis, Indiana Offices and Distribution Center -- 23,740 July 31, 2001
Oklahoma City, Oklahoma Offices and Distribution Center -- 24,000 Month-to-Month
Cincinnati, Ohio Offices and Distribution Center -- 24,375 September 30, 2009
Columbus, Ohio Offices and Distribution Center -- 24,543 June 30, 2000
Troy, New York Offices -- 25,124 March 31, 2002
Salt Lake City, Utah Offices and Distribution Center -- 28,400 January 31, 2009
Livonia, Michigan Offices and Distribution Center -- 28,524 May 1, 2002
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Leased
-------------------------------------
Owned Area
Location Type (sq. ft.) Area (sq. ft.) Expiration Date
---------------------------- ------------------------------- ---------- -------------- ------------------
<S> <C> <C> <C> <C>
Blue Bell, Pennsylvania Offices -- 28,538 June 30, 2000
Kansas City, Missouri Offices and Distribution Center -- 29,948 October 21, 2009
St. Louis, Missouri Offices and Distribution Center -- 30,400 June 30, 2001
Hunt Valley, Maryland Offices and Distribution Center -- 30,600 January 31, 2002
King of Prussia, Pennsylvania Offices -- 33,500 June 30, 2000
Louisville, Kentucky Offices and Distribution Center -- 37,400 September 30, 2001
Florissant, Missouri Offices and Distribution Center 38,014 -- --
Perrysburg, Ohio Offices and Distribution Center 40,500 -- --
Milwaukee, Wisconsin Offices and Distribution Center -- 41,440 March 31, 2009
Newington, Connecticut Offices and Distribution Center -- 42,000 Month-to-Month
Covington, Kentucky Offices -- 42,400 December 31, 2012
Des Plaines, Illinois Offices and Distribution Center -- 47,971 May 31, 2008
Kirkland, Washington Offices and Distribution Center -- 52,040 April 15, 2003
Blue Bell, Pennsylvania Offices -- 67,039 June 30, 2000
Ft. Washington, Pennsylvania Offices and Laboratories -- 120,000 December 3, 2011
King of Prussia, Pennsylvania Offices -- 150,000 June 30, 2010
</TABLE>
20
<PAGE>
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 17, 2000 are as
follows:
<TABLE>
<CAPTION>
Name Age Office First Elected
---- --- ------ -------------
<S> <C> <C> <C>
Edward L. Hutton ..................... 80 Chairman May 20, l98l
Joel F. Gemunder ..................... 60 President May 20, l98l
Patrick E. Keefe ..................... 54 Executive Vice April 11, 1993
President - Operations
Timothy E. Bien ...................... 49 Senior Vice President - May 20, 1996
Professional Services
and Purchasing
Mary Lou Fox ......................... 68 Senior Vice President - May 20, 1996
Marketing
David W. Froesel, Jr. ................ 48 Senior Vice President March 4, 1996
and Chief Financial Officer
Cheryl D. Hodges ..................... 48 Senior Vice President August 4, l982
and Secretary
Peter Laterza ........................ 42 Vice President and August 5, 1998
General Counsel
</TABLE>
All of the executive officers listed above have been actively engaged
in the business of the Company or its predecessors for the past five years, with
the exception of Messrs. Froesel and Laterza. Mr. Froesel was Vice President of
Finance and Administration at Mallinckrodt Veterinary Inc. from May 1993 to
February 1996. From July 1989 to April 1993, he was Worldwide Corporate
Controller of Mallinckrodt Medical Inc. Mr. Laterza was Assistant General
Counsel of The Pittston Company from October 1993 to June 1998.
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.
21
<PAGE>
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 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
-------------------------- -----------------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter $36.06 $16.50 $39.63 $28.75
Second Quarter $27.81 $12.25 $39.63 $33.19
Third Quarter $12.75 $ 7.00 $41.13 $29.63
Fourth Quarter $14.25 $ 7.13 $34.75 $26.44
</TABLE>
The number of holders of record of Omnicare Common Stock on February
29, 2000 was 2,822. This figure does not include stockholders with shares held
under beneficial ownership in nominee name or within clearinghouse positions of
brokerage firms and banks.
Dividends
On February 3, 1999, the Board of Directors elected to increase the
quarterly cash dividend to $.0225 per share, for an annual rate of $.09 per
share in 1999. On February 2, 2000, the Board of Directors approved sustaining
the quarterly cash dividend rate of $.0225, for an indicated annual rate of $.09
per share in 2000. 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, 1999, no transactions were completed involving unregistered
Securities.
When such Securities are issued, they are 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 1999 acquisition transactions.
22
<PAGE>
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>
Omnicare, Inc. and Subsidiary Companies
Five-Year Summary of Selected Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the years ended and at December 31,
1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (a)(b)(c)
Sales ................................................. $ 1,861,921 $1,517,370 $1,034,384 $ 641,440 $ 477,359
=========== ========== ========== ========== =========
Income from continuing
operations ..................................... $ 57,721 $ 80,379 $ 54,105 $ 43,663 $ 17,521
Loss from discontinued operations ..................... -- -- (2,154)(d) (389)(d) (1,546)(d)
----------- ---------- ---------- ---------- ---------
Net income ............................................ 57,721 80,379 51,951 (d) 43,274 (d) 15,975 (d)
Deemed dividend on preferred stock .................... -- -- -- -- (2,712)(e)
----------- ---------- ---------- ---------- ---------
Net income available to
common stockholders ............................ $ 57,721 $ 80,379 $ 51,951 (d) $ 43,274 (d) $ 13,263 (d)(e)
=========== ========== ========== ========== =========
Earnings per share data:
Basic:
Income from continuing
operations available to
common stockholders ........................... $ 0.63 $ 0.90 $ 0.63 $ 0.62 $ 0.26
Loss from discontinued operations .............. -- -- (0.02)(d) -- (d) (0.02)(d)
----------- ---------- ---------- ---------- ---------
Net income available to
common stockholders ........................... $ 0.63 $ 0.90 $ 0.61 (d) $ 0.62 (d) $ 0.24 (d)(e)
=========== ========== ========== ========== =========
Diluted:
Income from continuing
operations available to
common stockholders ........................... $ 0.63 $ 0.90 $ 0.62 $ 0.57 $ 0.26
Loss from discontinued operations .............. -- -- (0.02)(d) -- (d) (0.02)(d)
----------- ---------- ---------- ---------- ---------
Net income available to
common stockholders ........................... $ 0.63 $ 0.90 $ 0.60 (d) $ 0.57 (d) $ 0.24 (d)(e)
=========== ========== ========== ========== =========
Dividends per share ................................... $ 0.09 $ 0.08 $ 0.07 $ 0.06 $ 0.05
=========== ========== ========== ========== =========
Weighted average number of common shares outstanding:
Basic ......................................... 90,999 89,081 85,692 69,884 56,216
=========== ========== ========== ========== =========
Diluted ....................................... 91,238 89,786 86,710 81,089 69,406
=========== ========== ========== ========== =========
BALANCE SHEET DATA: (a)(b)
Working capital ....................................... $ 430,102 $ 369,749 $ 354,825 $ 342,401 $ 112,091
Total assets .......................................... 2,167,973 1,903,829 1,412,146 828,309 405,312
Long-term debt (f)(g) ................................ 736,944 651,556 359,148 5,755 85,046
Stockholders' equity (h) ............................. 1,028,380 963,471 829,753 689,219 228,853
</TABLE>
24
<PAGE>
(a) The accompanying consolidated financial statements have been restated for
the 1995 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 1999 and 1998 net income amounts, and the 1997, 1996, and
1995 income from continuing operations amounts, are the following aftertax
charges (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Acquisition expenses, pooling-
of-interests $ (376) (1) $ 13,869 (1) $ 3,935 (1) $ 1,468 $ 989
Restructuring and other related charges 22,698 (2) 2,689 (2) 1,208 (2) - -
Other expenses - - 6,457 (3) 510 (4) -
Goodwill impairment charge - CompScript - - - - 3,862
--------- ---------- ----------- ---------- ----------
Total $ 22,322 $ 16,558 $ 11,600 $ 1,978 $ 4,851
========= ========== =========== ========== ==========
</TABLE>
(1) See Note 2 of the Notes to Consolidated Financial Statements.
(2) See Note 12 of the Notes to Consolidated Financial Statements.
(3) See Note 13 of the Notes to Consolidated Financial Statements.
(4) Represents the write-off (based on an independent appraisal) of acquired
research and development costs associated with IBAH's acquisition of
Research Biometrics, Inc.
(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. 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 $0.01
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 analagous 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, all of which were converted by October 1996.
(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.
25
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- --------------------------------------------------------------------------------
The following table presents sales and results of operations for Omnicare, Inc.
("Omnicare" or the "Company"), excluding certain special items such as
pooling-of-interests expenses, restructuring and other related charges, other
expenses and losses from discontinued operations (in thousands, except per share
amounts). Special items represent charges or expenses which management believes
are either one-time occurrences or otherwise not related to ongoing operations.
Such items are described further below and in the Company's Notes to
Consolidated Financial Statements. Such items have been shown separately in
order to facilitate analysis of the Company's operating trends.
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
---------------------------------------------------------
<S> <C> <C> <C>
Sales $ 1,861,921 $ 1,517,370 $1,034,384
============= ============= ==========
Net income, as reported $ 57,721 $ 80,379 $ 51,951
Acquisition expenses, pooling-of-interests (net of taxes) (376) 13,869 3,935
Restructuring and other related charges (net of
taxes) 22,698 2,689 1,208
Other expenses (net of taxes) -- -- 6,457
Loss from discontinued operations (net of taxes) -- -- 2,154
------------- ------------- ----------
Pro forma net income $ 80,043 $ 96,937 $ 65,705
============= ============= ==========
Earnings per share:
Net income, as reported $ .63 $ .90 $ .61
Acquisition expenses, pooling-of-interests (net of
taxes) -- .16 .05
Restructuring and other related charges (net of
taxes) .25 .03 .01
Other expenses (net of taxes) -- -- .08
Loss from discontinued operations (net of taxes) -- -- .02
------------- ------------- ----------
Basic (pro forma) $ .88 $ 1.09 $ .77
============= ============= ==========
Diluted (pro forma) $ .88 $ 1.08 $ .76
============= ============= ==========
</TABLE>
26
<PAGE>
1999 vs. 1998
- --------------------------------------------------------------------------------
Excluding the impact of acquisition-related expenses for pooling-of-interests
transactions and restructuring and other related charges from both periods, net
income for the year ended December 31, 1999 decreased 17% in comparison to net
income earned in 1998. Basic and diluted earnings per share in 1999, on this
basis, decreased 19% in comparison to 1998. Net income, and basic and diluted
earnings per share, in 1999 declined 28% and 30%, respectively, in comparison to
1998.
The reduction in earnings primarily reflects the difficult operating environment
in the long-term care industry. The implementation of the Prospective Payment
System ("PPS") for Medicare residents of skilled nursing facilities, as further
discussed in the Outlook section, created an unsettled operating environment
during 1999. Omnicare experienced PPS-related pricing pressure and demands for
per diem or capitated pricing from skilled nursing facility customers late in
1998 and to a greater extent in 1999. Much of this pricing pressure was offset
by the addition of new business, the benefits of increased compliance with
Omnicare's proprietary geriatric formulary, the Omnicare Geriatric
Pharmaceutical Care Guidelines'r', and reduced operating costs. However, the
continued reluctance on the part of some skilled nursing facilities to admit
Medicare residents, particularly those requiring complex care, owing to concerns
relating to the adequacy of reimbursement under PPS caused weak Medicare census
in many areas. Moreover, for many skilled nursing facilities, the average length
of stay for Medicare residents decreased. These factors contributed to
significantly reducing overall occupancy in the facilities Omnicare serves.
Additionally, the mix of residents in skilled nursing facilities adversely
affected Omnicare's results as some facilities attempted to avoid high acuity
patients, which impacted overall utilization of drugs. Reimbursement concerns
also increasingly drove many nursing facilities to admit residents funded by
payors other than Medicare. These trends continued throughout 1999 and had an
unfavorable impact on sales, profit margins and net income. The Company did,
however, see some stabilization of these trends during the latter part of 1999.
Despite the difficult operating environment, sales increased 23% in 1999 versus
1998. The sales increase represents the cumulative effect of the acquisition of
long-term care pharmacy providers and the continued internal growth of the
pharmacy services and contract research organization ("CRO") businesses. During
1999, the Company completed five institutional pharmacy acquisitions (excluding
insignificant purchases of other assets). Also increasing sales was the
full-year impact of 1998 acquisitions. The Company also increased 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. Additionally, the Company was able to increase internal growth
through the efforts of its CRO sales personnel by obtaining contracts from
pharmaceutical, biotechnology and medical device manufacturers for new contract
research business.
The Company's consolidated sales increased by $345 million in 1999 versus 1998.
The Company estimates that approximately $200 million of its consolidated
revenue growth in 1999 was attributable to acquisitions, of which $193 million
and $7 million related to the Pharmacy Services segment and CRO Services
segment, respectively.
27
<PAGE>
On June 2, 1999, Omnicare announced the completion of the acquisition of the
institutional pharmacy operations of Life Care Pharmacy Services, Inc. ("Life
Care"), an affiliate of Life Care Centers of America, for $63 million in cash
and 300,000 warrants to purchase Omnicare common stock at $29.70 per share. The
warrants have a seven-year term and are first exercisable in June 2002. Life
Care had, at the time of the acquisition, contracts to provide dispensing
services to approximately 17,000 residents in twelve states.
The Company estimates that internal growth contributed approximately $145
million of Omnicare's increased revenue in 1999 compared to 1998, of which $141
million and $4 million related to the Pharmacy Services segment and the CRO
Services segment, respectively. Revenues increased internally primarily through
new contracts with long-term care facilities obtained by the National Sales and
Marketing Group and by the pharmacy staff, and for the CRO segment through the
efforts of its sales personnel by obtaining contracts from pharmaceutical,
biotechnology and medical device manufacturers for new contract research
business. Additionally, 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 1999 was approximately
4% - 5%, and this trend is continuing in 2000. The Company is not able to
isolate and separately quantify accurately the increased volumes associated with
each of these factors. The factors favorably impacting revenues were offset in
part by a decrease of approximately $11 million in infusion therapy revenue
during the year, resulting primarily from the aforementioned reduction in
pricing, utilization and servicing of higher acuity patients as a result of PPS.
Acquisitions and internal growth brought the total number of nursing facility
residents served at December 31, 1999 to 631,200.
Gross profit as a percentage of sales decreased to 28.1% in 1999 from 30.2% in
1998. Numerous factors positively impacted gross profit including the Company's
purchasing leverage associated with purchases of pharmaceuticals, the leveraging
of fixed and variable overhead costs at the Company's pharmacies, benefits
realized from the Company's formulary compliance program, cost reductions
associated with the productivity and consolidation initiative, and changes in
sales mix including increased sales from contract research. These favorable
factors were more than offset by the aforementioned unfavorable impact of PPS on
the Pharmacy Services segment, in particular such factors as PPS-related pricing
pressure, a reduction in Medicare census at some skilled nursing facilities, a
decline in the average length of stay for Medicare residents and a shift in the
mix of patients served to lower acuity patients, all of which contributed to
reduced gross profit margin for the Company in 1999. In addition to the
initiation of productivity and consolidation programs in 1999 in part to lower
operating costs, the Company is also renegotiating or eliminating uneconomic
customer accounts in an effort to further offset the unfavorable impacts of PPS.
Sales mix for the Company includes primarily sales of pharmaceuticals and, to a
lesser extent, contract research services, infusion therapy products and
services, and medical supplies and other. Sales of pharmaceuticals account for
the majority of the Company's sales and gross profit.
28
<PAGE>
Contract research services, infusion therapy and medical supplies gross profits
are typically higher than gross profits associated with sales of
pharmaceuticals.
Increased leverage in purchasing favorably impacts gross profit and is primarily
derived through discounts from suppliers. Leveraging of fixed and variable
overhead costs primarily relates to generating higher sales volumes from
pharmacy facilities with no increase in fixed costs (e.g., rent) and minimal
increases in variable costs (e.g., utilities). The Company believes it will be
able to continue to leverage fixed and variable overhead costs through internal
growth.
As noted earlier herein, the Company is generally able to obtain price increases
to cover drug price inflation. In order to 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.
Selling, general and administrative ("operating") expenses for the year ended
December 31, 1999 increased 24% to $351,639,000 as compared to 1998 due
primarily to the overall growth of the Company. Operating expenses as a
percentage of sales of 18.9% in 1999 were modestly higher than the 18.7%
experienced in the prior year. Unfavorably impacting the year-to-year comparison
was an increase in the Company's provision for doubtful accounts brought about
by a deterioration in the financial condition of certain skilled nursing
facility clients as a result, in part, of the impact of PPS on their business,
causing an increase of 0.4 percentage points of sales.
Acquisition expenses for 1999 of $822,000 represent expenses related to a
pooling-of-interests transaction. Furthermore, during 1999, the Company recorded
income of $877,000 relating to the net reversal of estimated CompScript and IBAH
acquisition-related expenses resulting from the finalization of those costs
during the 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.
On June 29, 1999, the Company announced its commitment to the implementation of
a company-wide productivity and consolidation program to take place over the
remainder of 1999 and 2000. This initiative is intended to gain maximum benefit
from the Company's acquisition program and to respond to changes in the
healthcare industry. The program is designed to eliminate redundant efforts and
simplify work processes to maximize employee productivity and standardize
operations around best practices. This will be achieved by reconfiguring the
roster of pharmacies and other operating locations through
consolidation/relocation of approximately 44 facilities, the closing of
approximately 20 sites and the creation of nine new sites. The plan is designed
to result in the reduction of the Company's work force by 15%, or approximately
1,700 full- and part-time employees, and annualized pretax savings of
approximately $46 million upon completion. In connection with this program, the
Company recorded restructuring and other related expenses of $35,394,000 in
1999, primarily comprised of employee severance, employment agreement buy-out
costs, lease termination costs, other assets and facility exit costs, and other
related charges. Restructuring and other related charges of $3,627,000 for 1998
29
<PAGE>
represent costs related to the restructuring of the CompScript mail order
business and the consolidation and restructuring of certain IBAH operations.
Investment income for 1999 was $1,532,000, a decrease of $1,824,000 in
comparison with 1998 resulting from a lower average invested cash balance during
1999. The use of cash is primarily attributable to the Company's acquisition
program and, to a lesser extent, capital expenditures.
Interest expense during 1999 was $46,166,000, an increase of $22,555,000 versus
the prior year largely reflecting the impact of increased net borrowings of $85
million and $75 million in 1999 under the Company's five-year, $400 million and
364-day, $400 million line of credit facilities, respectively. These increased
borrowings were utilized primarily to fund the Company's acquisition program.
Also impacting the comparison is the full-year effect in 1999 of interest
expense associated with a $250 million draw on the Company's five-year, $400
million line of credit facility late in the third quarter of 1998 in connection
with the Company's acquisition of the pharmacy business of Extendicare, Inc.
The effective tax rate decreased to 37.0% in 1999 from 40.8% in 1998, primarily
due to a reduction from 1998 in nondeductible acquisition expenses relating to
pooling-of-interests transactions and a decrease in state and local income taxes
in 1999 due to the Company's state tax planning programs. The Company expects
the benefit realized from the state tax planning programs to continue. The
effective tax rates in 1999 and 1998 are higher than the statutory rate
primarily due to state and local income taxes and various nondeductible expenses
(e.g., acquisition costs, etc.).
1998 vs. 1997
- --------------------------------------------------------------------------------
Excluding the impact of acquisition-related expenses for pooling-of-interests
transactions, restructuring and other related charges, other expenses and losses
from discontinued operations from 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. Net
income in 1998 increased in comparison to 1997 by 55%. Additionally, basic and
diluted earnings per share grew by 48% and 50%, respectively, during 1998 in
comparison to 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 CROs in 1998. 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 1997 acquisitions.
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 estimates that internal growth contributed
approximately $205 million of Omnicare's increased revenue in
30
<PAGE>
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 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.
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 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.
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. However, 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, as well as a
smaller sales base over which to leverage fixed and variable overhead costs.
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 relate to pooling transactions
completed by Omnicare, CompScript and IBAH during 1997.
Restructuring and other related charges of $3,627,000 for 1998 represent
severance and exit costs related to the restructuring of the CompScript mail
order pharmacy business and the consolidation and restructuring of certain IBAH
operations. Restructuring and other related charges included in 1997 represents
a charge taken by IBAH for $1,208,000 related primarily to the restructuring of
the International CRO business.
Other 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, as well as the $800,000
write-down of a note receivable by CompScript.
31
<PAGE>
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 five-year, $400 million revolving
line of credit to finance acquisitions during the latter part of 1998, and the
Company's $345,000,000 of 5.0% 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 in 1998 and 1997 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).
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.
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
- --------------------------------------------------------------------------------
Cash and cash equivalents at December 31, 1999 were $97.3 million versus $54.3
million at December 31, 1998. The Company generated positive cash flows from
operating activities of $101.1 million during the year ended December 31, 1999.
Focus on and improvement in the Company's management of working capital
significantly contributed to 1999 operating cash flows.
Acquisitions of businesses completed during 1999 required $144.1 million of cash
payments (including amounts payable pursuant to acquisition agreements relating
to pre-1999 acquisitions) which were primarily funded by borrowings under the
Company's revolving credit facilities during the first half of 1999.
Acquisitions were also funded, in part, with common stock of the Company. Shares
of common stock with a market value of approximately $11 million (0.5 million
shares) were issued in connection with 1999 acquisitions. Additional amounts
totaling $18.6 million may become payable through the year 2001 pursuant to the
terms of various acquisition agreements.
32
<PAGE>
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 through maturity, unless previously redeemed, at
the option of the holder at a price of $39.60 per share.
In 1996, the Company entered into a five-year agreement with a consortium of
sixteen banks for a $400 million revolving credit facility available through
2001. In 1998, the Company amended this five-year, $400 million line of credit
to permit an additional 364-day, $400 million line of credit, which is
convertible at maturity into a one-year term loan. During 1999, Omnicare renewed
this 364-day, $400 million revolving line of credit through September 2, 2000,
with no change in pricing or terms. 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, 1999 was $390 million. Interest rates and commitment
fees under the 364-day, $400 million line of credit are based on the Company's
debt ratings. Net of the $10 million paydown of debt in late 1999, the amount
outstanding at December 31, 1999 under the 364-day facility was $75 million.
The Company's current ratio at December 31, 1999 and December 31, 1998 was 2.3
to 1.0 and 2.6 to 1.0, respectively. The decrease in the current ratio is
primarily attributable to increased current liabilities recorded at December 31,
1999 versus 1998 relating to the September 2, 2000 maturity date for the $75
million outstanding under the 364-day, $400 million line of credit, as well as
the remaining reserve of approximately $18 million recorded in connection with
the Company's aforementioned productivity and consolidation initiative.
On February 2, 2000, the Company's Board of Directors declared a quarterly cash
dividend of 2.25 cents per share for an indicated annual rate of 9 cents per
share for 2000, which is consistent with 1999. Dividends of $8.2 million were
paid during the year ended December 31, 1999 versus the $6.8 million paid for
the year ended December 31, 1998.
The Company believes its sources of liquidity and capital are adequate for its
ongoing 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. 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 Prospective Payment System ("PPS") for Medicare-funded residents of skilled
nursing facilities. PPS became effective July 1, 1998
33
<PAGE>
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
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. The short-term impact of
PPS has been evidenced by an erosion of census for some facilities, lower acuity
levels of residents in some nursing homes and an unfavorable payor mix for the
Company. While the Company expects that the impact of PPS on the long-term care
industry will continue to affect Omnicare and its clients in 2000, it appears
that the unfavorable operating trends discussed herein have begun to stabilize.
Moreover, the recently enacted Balanced Budget Refinement Act ("BBRA")
temporarily increases the PPS per diem rates by 20 percent, effective April 1,
2000, for 15 patient acuity categories, including medically complex patients
with generally higher pharmacy costs, pending appropriate revisions to the PPS
system. The increases will continue until the later of (1) October 1, 2000, or
(2) the date the Health Care Financing Administration implements a refined PPS
system that better accounts for medically complex patients. The revised rates
may be more or less than the temporary 20% increase under the BBRA. The BBRA
also provides for a four percent increase in the federal per diem rate for all
patient acuity categories for fiscal years commencing October 1, 2000 and 2001
(in addition to the 20% increase in the 15 high acuity categories). These
changes should motivate nursing homes to increase Medicare admissions,
particularly among the more acutely ill, which should have a salutary effect on
the Company's business.
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. Although in the short-run management plans to view acquisitions of
institutional pharmacy providers cautiously given the volatility in earnings and
profitability of such acquisition candidates in 1999, the need to lower health
care costs will continue to drive ongoing industry consolidation which should
provide opportunities for future acquisitions. Moreover, the Company's
productivity and consolidation initiatives are slated to help increase
efficiencies and to provide opportunities for economies of scale to lower
overall costs. In addition, the expansion of Omnicare's clinical programs,
including its proprietary geriatric formulary and disease management programs,
lower costs for payors and patients, enhance the quality of care for the elderly
and provide growth opportunities for the Company.
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,
34
<PAGE>
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.
Although there can be no assurance that over the near term, as skilled nursing
facilities continue to adapt to PPS, there will be no material adverse effect on
the Company's financial condition and results of operations, management
believes, however, Omnicare is strategically positioned for sales and earnings
growth.
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.
The Company's primary market risk exposure relates to interest rate risk
exposure through its borrowings. The Company's debt obligations at December 31,
1999 include $390 million outstanding under its five-year, $400 million
variable-rate revolving line of credit facility at an approximate average rate
of 7.0% at December 31, 1999 (a one-hundred basis point change in interest rates
would impact interest expense by approximately $1.0 million per quarter), $75
million outstanding under its 364-day, $400 million variable-rate line of credit
facility at an approximate average rate of 7.5% at December 31, 1999 (a
one-hundred basis point change in interest rates would impact interest expense
by approximately $0.2 million per quarter) and $345 million outstanding under
convertible subordinated notes due in 2007, which accrue interest at a fixed
rate of 5.0%. The fair value of the Company's debt obligations approximates
their carrying value.
Impact of Year 2000
- --------------------------------------------------------------------------------
As a result of the Company's assessment, preparation, and remediation of its
internal information technology ("IT") and non-IT systems in preparation for the
Year 2000, Omnicare has not experienced any significant interruptions in its
operations or in its financial or non-financial activities resulting from the
Year 2000 issue. All system remediation was completed in 1999 using both
internal resources and external consultants. Approximately $8.1 million was
spent through December 31, 1999 (with hardware accounting for approximately 30
percent of these costs, and software and implementation approximating 70 percent
of these costs). The cost of remediation was funded from the Company's operating
cash flows. No IT projects with high priority were significantly delayed due to
the Year 2000 initiatives. As the Year 2000 progresses, the Company will
continue to monitor its systems for potential Year 2000 issues.
To date the Company has not been adversely affected by the failure of third
parties with whom the Company has dealings, particularly the Medicaid and
Medicare programs, to adequately address their Year 2000 issues, and claims to
these third-party payors have not been unjustifiably denied and/or delayed. The
Company has not had to implement its contingency plans established to address
the failure of its or other third-parties' systems. However, in the event that
this becomes necessary, it is management's current belief that these contingency
plans would
35
<PAGE>
satisfactorily address the risk associated with any absence of readiness
experienced by these programs and/or systems. There can be no assurance that
implementation of such plans will mitigate in whole or in part such risk.
Safe Harbor Statement under the Private Securities Litigation 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
operating environment, internal growth, drug price inflation, the expected
benefits from the Company's state tax planning programs, the impact of
purchasing leverage, the leveraging of costs, the benefits of formulary
compliance, the impact of Omnicare's productivity and consolidation initiative,
the ability to obtain discounts from pharmaceutical suppliers, opportunities for
economies of scale, management of working capital, expectations concerning sales
and earnings, the impact of laws and regulation on the Company's business, the
impact of Omnicare's clinical programs and consulting services, the impact of
demographic trends, 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 business, the adequacy and availability of
Omnicare's sources of liquidity and capital, 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: overall
economic, financial and business conditions, trends for the continued growth of
the businesses of Omnicare, financial deterioration of Omnicare's customers, the
effect of new government regulation and/or legislative initiatives or the
interpretation and application of such policies, the failure of the Company to
obtain or maintain required regulatory approvals or licenses, the impact and
pace of technological advances, the ability of Omnicare to obtain or maintain
rights to technology and other intellectual property, loss or delay of CRO
contracts for regulatory or other reasons, the ability to implement the
productivity and consolidation program and to realize anticipated benefits, 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, and residual problems resulting from
Year 2000 at Omnicare and/or its suppliers, customers and other payors.
36
<PAGE>
ITEM 7A - 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.
The Company's primary market risk exposure relates to interest rate risk
exposure through its borrowings. The Company's debt obligations at December 31,
1999 include $390 million outstanding under its five-year, $400 million
variable-rate revolving line of credit facility at an approximate average rate
of 7.0% at December 31, 1999 (a one-hundred basis point change in interest rates
would impact interest expense by approximately $1.0 million per quarter), $75
million outstanding under its 364-day, $400 million variable-rate line of credit
facility at an approximate average rate of 7.5% at December 31, 1999 (a
one-hundred basis point change in interest rates would impact interest expense
by approximately $0.2 million per quarter) and $345 million outstanding under
convertible subordinated notes due in 2007, which accrue interest at a fixed
rate of 5%. The fair value of the Company's debt obligations approximates their
carrying value.
37
<PAGE>
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 39
Consolidated Statement of Income 42
Consolidated Balance Sheet 43
Consolidated Statement of Cash Flows 44
Consolidated Statement of Stockholders' Equity 45
Notes to Consolidated Financial Statements 46
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.
38
<PAGE>
Report of Independent Accountants
To the Stockholders and
Board of Directors of Omnicare, Inc.
In our opinion, based on our audits and the reports of other auditors with
respect to 1997, 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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 revenues of $138,682,000 for the year ended
December 31, 1997. Those 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 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 auditing standards
generally accepted in the United States, 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
February 4, 2000
39
<PAGE>
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
the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides 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 the year then ended, in
conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young LLP
- --------------------------
Ernst & Young LLP
West Palm Beach, Florida
March 6, 1998
40
<PAGE>
Report of Independent Public Accountants
To IBAH, Inc.:
We have audited the consolidated statements of operations, stockholders' equity
and cash flows of IBAH, Inc. (a Delaware corporation) and Subsidiaries for the
year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of IBAH, Inc. and Subsidiaries' operations
and their cash flow for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/Arthur Andersen LLP
- -----------------------------
Arthur Andersen LLP
Philadelphia, Pa.,
February 5, 1998
41
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
Omnicare, Inc. and Subsidiary Companies
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Sales $ 1,861,921 $1,517,370 $1,034,384
Cost of sales 1,338,638 1,058,743 725,923
--------------- -------------- --------------
Gross profit 523,283 458,627 308,461
Selling, general and administrative expenses 351,639 283,438 199,050
Acquisition expenses, pooling-of-interests (Note 2) (55) 15,441 4,321
Restructuring and other related charges (Note 12) 35,394 3,627 1,208
Other expenses (Note 13) - - 6,313
--------------- -------------- --------------
Operating income 136,305 156,121 97,569
Investment income 1,532 3,356 5,720
Interest expense (46,166) (23,611) (6,556)
Other expenses (Note 13) - - (800)
--------------- -------------- --------------
Income before income taxes 91,671 135,866 95,933
Income taxes 33,950 55,487 41,828
--------------- -------------- --------------
Income from continuing operations 57,721 80,379 54,105
Loss from discontinued operations (Note 14) - - (2,154)
--------------- -------------- --------------
Net income $ 57,721 $ 80,379 $ 51,951
=============== ============== ==============
Earnings (loss) per share - Basic:
Continuing operations $ 0.63 $ 0.90 $ 0.63
Discontinued operations - - (0.02)
--------------- -------------- --------------
Net income $ 0.63 $ 0.90 $ 0.61
=============== ============== ==============
Earnings (loss) per share - Diluted:
Continuing operations $ 0.63 $ 0.90 $ 0.62
Discontinued operations - - (0.02)
--------------- -------------- --------------
Net income $ 0.63 $ 0.90 $ 0.60
=============== ============== ==============
Weighted average number of common shares outstanding:
Basic 90,999 89,081 85,692
=============== ============== ==============
Diluted 91,238 89,786 86,710
=============== ============== ==============
Comprehensive income $ 56,673 $ 80,431 $ 51,613
=============== ============== ==============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
42
<PAGE>
CONSOLIDATED BALANCE SHEET
Omnicare, Inc. and Subsidiary Companies
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1999 1998
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 97,267 $ 54,312
Accounts receivable, less allowances
of $36,883 (1998-$31,417) 422,283 363,796
Unbilled receivables 18,450 15,828
Inventories 120,280 117,936
Deferred income tax benefits 17,336 12,348
Other current assets 76,729 39,078
-------------- ---------------
Total current assets 752,345 603,298
Properties and equipment, at cost less accumulated
depreciation of $106,022 (1998-$76,854) 162,133 136,371
Goodwill, less accumulated amortization
of $83,243 (1998-$51,861) 1,188,941 1,110,254
Other assets 64,554 53,906
-------------- ---------------
Total assets $ 2,167,973 $ 1,903,829
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 108,189 $ 82,029
Amounts payable pursuant to acquisition agreements 9,053 10,230
Current portion of long-term debt 77,413 2,844
Accrued employee compensation 50,498 48,073
Deferred revenue 24,321 19,043
Other current liabilities 52,769 71,330
-------------- ---------------
Total current liabilities 322,243 233,549
Long-term debt 736,944 651,556
Deferred income taxes 37,360 16,230
Amounts payable pursuant to acquisition agreements 13,878 13,564
Other noncurrent liabilities 29,168 25,459
-------------- ---------------
Total liabilities 1,139,593 940,358
Stockholders' equity:
Preferred stock-authorized 1,000,000 shares without par value; none issued
Common stock-authorized 200,000,000 shares $1 par;
91,611,800 shares issued (1998-90,459,800 shares issued) 91,612 90,460
Paid-in capital 684,419 664,225
Retained earnings 275,114 225,937
-------------- ---------------
1,051,145 980,622
Treasury stock, at cost-325,500 shares (1998-194,900 shares) (6,950) (4,166)
Deferred compensation (14,098) (12,932)
Cumulative translation adjustment (1,717) (53)
-------------- ---------------
Total stockholders' equity 1,028,380 963,471
-------------- ---------------
Total liabilities and stockholders' equity $ 2,167,973 $ 1,903,829
============== ===============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
43
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Omnicare, Inc. and Subsidiary Companies
<TABLE>
<CAPTION>
(In thousands)
For the years ended December 31,
------------------------------------------
1999 1998 1997
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 57,721 $ 80,379 $ 51,951
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 69,364 47,636 31,105
Provision for doubtful accounts 22,056 12,405 8,370
Deferred tax provision 23,073 7,579 10,395
Non-cash portion of restructuring costs 4,198 1,948 170
Discontinued operations -- -- 2,154
Loss on note receivable -- -- 800
Changes in assets and liabilities, net of effects
from acquisition/disposal of businesses:
Accounts receivable and unbilled receivables (83,959) (84,276) (84,278)
Inventories 1,146 (18,786) (29,250)
Current and noncurrent assets (43,837) (15,466) (7,009)
Payables and accrued liabilities 25,886 28,972 15,343
Accrued employee compensation 15,202 3,999 4,294
Deferred revenue 5,278 (3,190) (951)
Current and noncurrent liabilities 4,986 28,307 7,141
------------- ------------ -------------
Net cash flows from operating activities 101,114 89,507 10,235
------------- ------------ -------------
Cash flows from investing activities:
Acquisition of businesses (144,079) (398,686) (409,348)
Capital expenditures (58,749) (53,179) (41,278)
Marketable securities - 2,084 905
Other (689) 63 (1,066)
------------- ------------ -------------
Net cash flows from investing activities (203,517) (449,718) (450,787)
------------- ------------ -------------
Cash flows from financing activities:
Borrowings on line of credit facilities 170,000 305,000 8,341
Payments on line of credit facilities (10,000) - -
Proceeds from long-term borrowings - - 354,951
Principal payments on long-term obligations (3,502) (22,796) (7,909)
Fees paid for financing arrangements (641) (1,761) (7,763)
(Payments) for and proceeds from exercise of stock options
and warrants, net of stock tendered in payment (2,152) 3,050 4,080
Dividends paid (8,203) (6,841) (5,596)
Effect of exchange rate changes on cash and other (144) (191) (451)
------------- ------------ -------------
Net cash flows from financing activities 145,358 276,461 345,653
------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents 42,955 (83,750) (94,899)
Cash and cash equivalents at beginning of period 54,312 138,062 232,961
------------- ------------ -------------
Cash and cash equivalents at end of period $ 97,267 $ 54,312 $138,062
============= ============ =============
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of this statement.
44
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Omnicare, Inc. and Subsidiary Companies
(In thousands, except per share data)
<TABLE>
<CAPTION>
Unallocated Cumulative Total
Common Paid-in Retained Treasury Deferred Stock of Translation Stockholders'
Stock Capital Earnings Stock Compensation ESOP Adjustment Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $82,754 $ 510,835 $ 106,560 $-- $ (9,503) $(1,660) $233 $ 689,219
Pooling-of-interests (Note 2) 1,221 660 (1,620) -- -- -- -- 261
Net income -- -- 51,951 -- -- -- -- 51,951
Dividends paid ($0.07 per share) -- -- (5,596) -- -- -- -- (5,596)
Stock and warrants issued in
connection with acquisitions 2,807 74,155 129 -- -- -- -- 77,091
Exercise of warrants 758 10,456 -- 42 -- -- -- 11,256
Exercise of stock options 294 701 -- (346) -- -- -- 649
Stock awards, net of amortization 421 11,539 -- (2,379) (5,304) -- -- 4,277
Decrease in unallocated stock of ESOP -- -- -- -- -- 720 -- 720
Other 6 771 (271) (243) -- -- (338) (75)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 88,261 609,117 151,153 (2,926) (14,807) (940) (105) 829,753
Pooling-of-interests (Note 2) 549 803 1,245 -- -- -- -- 2,597
Net income -- -- 80,379 -- -- -- -- 80,379
Dividends paid ($0.08 per share) -- -- (6,841) -- -- -- -- (6,841)
Stock and warrants issued in
connection with acquisitions 868 39,312 -- (4,107) -- -- -- 36,073
Exercise of warrants 175 1,965 -- 518 -- -- -- 2,658
Exercise of stock options 232 894 -- 3,669 -- -- -- 4,795
Stock awards, net of amortization 375 12,134 -- (1,320) 1,875 -- -- 13,064
Decrease in unallocated stock of ESOP -- -- -- -- -- 940 -- 940
Other -- -- 1 -- -- -- 52 53
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 90,460 664,225 225,937 (4,166) (12,932) -- (53) 963,471
Pooling-of-interests (Note 2) 333 326 (297) -- -- -- -- 362
Net income -- -- 57,721 -- -- -- -- 57,721
Dividends paid ($0.09 per share) -- -- (8,203) -- -- -- -- (8,203)
Stock and warrants issued in
connection with acquisitions 151 3,799 -- (3) -- -- -- 3,947
Stock acquired for benefit plans - -- -- (1,092) -- -- -- (1,092)
Exercise of warrants 52 697 -- -- -- -- -- 749
Exercise of stock options 14 (437) -- 806 -- -- -- 383
Stock awards, net of amortization 602 15,809 -- (2,495) (1,166) -- -- 12,750
Other - - (44) -- -- -- (1,664) (1,708)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $91,612 $ 684,419 $ 275,114 $ (6,950) $(14,098) $-- $(1,717) $ 1,028,380
===================================================================================================================================
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
45
<PAGE>
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.
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.
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, ranging from three to forty years.
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.
46
<PAGE>
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, 1999 or 1998.
Debt issuance costs as of December 31, 1999 and 1998 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.
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 units of service are 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.
47
<PAGE>
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. The 5.0% Convertible
Subordinated Notes due 2007 (issued in December 1997) were not included in the
1999, 1998 and 1997 diluted earnings per share calculations since the impact was
antidilutive.
COMPREHENSIVE INCOME
Comprehensive income of the Company differs from net income due to foreign
currency translation adjustments.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires recognition of all derivatives as either assets or liabilities measured
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities --
Deferral of the Effective Date of the FASB Statement No. 133," amended Statement
No. 133 to be effective for all fiscal years beginning after June 15, 2000. The
adoption of SFAS No. 133 is not expected to have a material effect on the
Company's consolidated financial statements.
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.
RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to conform with
the current year presentation.
48
<PAGE>
NOTE 2 -- ACQUISITIONS
Since 1989, the Company has been involved in a program to acquire providers of
pharmaceutical products 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, 1999, the Company completed five acquisitions
(excluding insignificant acquisitions), all of which were institutional pharmacy
businesses. Four of the acquisitions were accounted for as purchases and one as
a pooling-of-interests. The impact of the pooling-of-interests transaction on
the Company's historical consolidated financial statements was not material.
Consequently, prior period and current year financial statements were not
restated for this transaction.
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
were 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 were not 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.
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
49
<PAGE>
assumed. Purchase price allocations are subject to final determination within
one year after the acquisition date.
On June 2, 1999, Omnicare announced the completion of the acquisition of the
institutional pharmacy operations of Life Care Pharmacy Services, Inc. ("Life
Care"), an affiliate of Life Care Centers of America, for $63 million in cash
and 300,000 warrants to purchase Omnicare common stock at $29.70 per share. The
warrants have a seven-year term and are first exercisable in June 2002. Life
Care had, at the time of the acquisition, contracts to provide comprehensive
pharmacy and related consulting services to approximately 17,000 residents in
twelve states.
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 the 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 the 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
-----------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash $ 95,058 $342,460 $392,906
Amounts payable in the future 8,805 13,749 14,234
Common stock 2,482 22,314 75,244
Warrants 1,644 10,509 287
Assumption of indebtedness - - 2,520
-------- -------- --------
$107,989 $389,032 $485,191
======== ======== ========
</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.
Warrants outstanding issued in connection with acquisitions as of December 31,
1999 represent the right to purchase 2.1 million shares of Omnicare common
stock. These warrants can be
50
<PAGE>
exercised at any time through 2006 at prices ranging from $14.25 to $48.00 per
share. Warrants to purchase 52,000 shares of common stock, issued in prior
years, were exercised in 1999.
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, 1999 and
1998. Amounts contingently payable through 2001 totaled $18,575,000 as of
December 31, 1999 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, 1999 and 1998, are presented below. Such pro forma
presentation has been prepared assuming that the acquisitions had been made as
of January 1, 1998 and includes pooling-of-interests expenses and restructuring
and other related charges (in thousands, except per share data).
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998
-------------------------------
<S> <C> <C>
PRO FORMA
- ---------
Sales $1,883,987 $1,715,515
Net income 57,522 82,538
Earnings per share:
Basic $ 0.63 $ 0.92
Diluted $ 0.63 $ 0.92
</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.
51
<PAGE>
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 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 the 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, restructuring
and other related charges, other expenses 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
</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.
52
<PAGE>
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>
Balance at Balance at
Initial 1998 December 31, 1999 December 31,
Provision Activity 1998 Activity 1999
----------- ---------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Merger transaction costs $ 14,096 $ (7,536) $ 6,560 $ (6,560) $ --
Restructuring costs:
Employee severance 1,413 (395) 1,018 (1,018) --
Exit costs 2,214 (1,502) 712 (712) --
----------- ---------- -------------- ------------ -------------
Total $ 17,723 $ (9,433) $ 8,290 $ (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 were $1,948,000 of non-cash items. At December 31, 1999, all actions
relating to these restructuring activities were substantially complete.
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 $822,000 ($586,000 aftertax) for the 1999 transaction, $15,441,000
($13,869,000 aftertax) for the 1998 transactions, and $4,321,000 ($3,935,000
aftertax) for the 1997 transactions. During 1999, the Company recorded income of
$877,000 ($962,000 aftertax) relating to the net reversal of estimated
CompScript and IBAH acquisition-related expenses resulting from the finalization
of those costs.
NOTE 3 -- CASH AND CASH EQUIVALENTS
A summary of cash and cash equivalents follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------
<S> <C> <C>
Cash $37,115 $27,087
Money market funds 8,658 1,660
U.S. Treasury-backed repurchase agreements 51,494 20,308
Commercial paper -- 3,769
U.S. government securities -- 884
Corporate bonds -- 604
------- -------
$97,267 $54,312
======= =======
</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
53
<PAGE>
Company has a collateralized interest in the underlying securities of repurchase
agreements, which are segregated in the accounts of the bank counterparty.
NOTE 4 -- PROPERTIES AND EQUIPMENT
A summary of properties and equipment follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------------
<S> <C> <C>
Land $ 1,553 $ 1,456
Buildings 6,246 4,042
Computer hardware and software 103,164 68,083
Machinery and equipment 92,925 77,393
Furniture, fixtures and leasehold improvements 64,267 62,251
--------- ---------
268,155 213,225
Accumulated depreciation (106,022) (76,854)
--------- ---------
$ 162,133 $ 136,371
========= =========
</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, 1999 (in thousands):
<TABLE>
<S> <C>
2000 $ 19,925
2001 18,241
2002 14,252
2003 11,282
2004 9,319
Later years 46,652
-----------
Total minimum payments required $ 119,671
===========
</TABLE>
Total rent expense under operating leases for the years ended December 31, 1999,
1998 and 1997 were $25,307,000, $20,515,000 and $13,345,000, respectively.
54
<PAGE>
NOTE 6 - LONG-TERM DEBT
A summary of long-term debt follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
-------- --------
<S> <C> <C>
Revolving line-of-credit facilities $465,000 $305,000
Convertible Subordinated Notes due 2007 345,000 345,000
Capitalized lease obligations 4,357 4,400
-------- --------
814,357 654,400
Less current portion (77,413) (2,844)
-------- --------
$736,944 $651,556
======== ========
</TABLE>
The following is a schedule by year of required long-term debt payments as of
December 31, 1999 (in thousands):
<TABLE>
<S> <C>
2000 $ 77,413
2001 391,574
2002 285
2003 69
2004 10
Later years 345,006
---------
$ 814,357
=========
</TABLE>
Total interest payments made for the years ended December 31, 1999, 1998 and
1997 were $46,202,000, $22,079,000 and $4,986,000, 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 of deferred debt issuance costs relating to the 1997
Notes in each of the two years ended December 31, 1999.
ESOP Loan Guarantee
In 1988, the Company established an Employee Stock Ownership Plan ("ESOP") which
covers certain acquired entities' employees and corporate headquarter's
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-
55
<PAGE>
term debt and also as a reduction of stockholders' equity in the consolidated
balance sheet. The final installment payment on this obligation was made 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
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, 1999 and 1998.
The Company funded 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
--------------------------
<S> <C> <C>
Interest expense $ 30 $ 90
Principal payments 940 720
Dividends on ESOP stock (102) (100)
------ ------
$ 868 $ 710
====== ======
</TABLE>
Revolving Credit Facilities
In 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.
In 1998, the Company amended its five-year, $400 million line of credit to
permit an additional 364-day, $400 million line of credit, which is convertible
at maturity into a one-year term loan. During 1999, Omnicare renewed this
364-day, $400 million revolving line of credit through September 2, 2000, with
no change in pricing or terms. 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, 1999
was $390,000,000.
56
<PAGE>
Borrowings under the 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 a
fixed charge coverage ratio and minimum consolidated net worth levels. The
Company is in compliance with these covenants. The total amount outstanding
under the 364-day credit facility as of December 31, 1999 was $75,000,000. In
connection with the amended five-year agreement and the 364-day, $400 million
line of credit, the Company deferred $2.8 million in debt issuance costs in late
1998 which is being amortized over the life of the agreements.
The Company amortized $877,000 of deferred debt issuance costs relating to the
revolving credit facilities in 1999 and none in 1998.
NOTE 7 - 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, 1999, 1,720,000 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 stock available for grant at an exercise price of 125% of the
stock's fair market value at the date of grant. As of December 31, 1999, 5,000
shares were available for grant 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. As of
December 31, 1999, 328,000 shares were available for grant 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.
57
<PAGE>
Summary information for stock options is presented below (in thousands, except
exercise price data):
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
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 3,137 $23.03 3,206 $17.85 3,151 $14.78
Options granted 3,793 14.59 804 36.10 1,111 26.91
Options exercised (114) 11.74 (531) 12.66 (1,003) 17.11
Options forfeited (124) 32.72 (342) 26.19 (53) 31.40
- -----------------------------------------------------------------------------------------------------------------------------
Options outstanding, end of year 6,692 $18.42 3,137 $23.03 3,206 $17.85
- -----------------------------------------------------------------------------------------------------------------------------
Options exercisable, end of year 2,721 $17.16 1,598 $16.13 1,592 $13.01
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following summarizes information about stock options outstanding and
exercisable as of December 31, 1999 (in thousands, except exercise price data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------- ------------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1999 Life (in years) Price 1999 Price
- -------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.00 -$12.34 2,260 6.73 $10.27 1,720 $ 9.61
13.35 - 15.26 31 5.42 13.49 30 13.47
15.42 - 15.42 2,515 9.50 15.42 - -
17.55 - 77.24 1,886 7.56 32.28 971 30.65
- ----------------------------------------------------------------------------------------------------
$3.00 - $77.24 6,692 8.00 $18.42 2,721 $17.16
- ----------------------------------------------------------------------------------------------------
</TABLE>
Nonvested stock awards that are granted to key employees at the discretion of
the Compensation and Incentive Committee of the Board of Directors 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.
58
<PAGE>
Summary information relating to stock award grants is presented below:
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
-------------------------------------
<S> <C> <C> <C>
Nonvested shares 596,630 369,651 421,464
Unrestricted shares 5,308 5,600 6,000
Weighted-average grant date fair value $ 26.63 $ 31.75 $ 27.36
</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 1999, 1998 and 1997, the amount of compensation expense related
to stock awards charged against income was $3,787,000, $2,090,000 and
$1,312,000, 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 Accounting Principles Board Opinion No. 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 1999, 1998 and 1997:
risk-free interest rate of 6.75% (5.75% in 1998 and 6% in 1997), volatility of
41% (36% in 1998 and 35% in 1997), dividend yield of 0.8% (0.2% in 1998 and
1997) and expected life of 4.0 years (4.2 years in 1998 and 1997). The weighted
average fair value at grant date during 1999, 1998 and 1997 was $4.06, $13.38
and $11.87, respectively.
Pro forma data (including pooling-of-interests expenses, restructuring and other
related charges, other expenses 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,
PRO FORMA 1999 1998 1997
--------- ---------------------------------------
<S> <C> <C> <C>
Net income $ 53,604 $ 77,707 $ 49,923
Earnings per share:
Basic $ 0.59 $ 0.87 $ 0.58
Diluted $ 0.59 $ 0.87 $ 0.58
</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.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company subleases offices from Chemed Corporation ("Chemed"), a 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
59
<PAGE>
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, 1999, 1998 and 1997 were $1,890,000, $2,162,000 and $4,039,000,
respectively. Net amounts owed by the Company to Chemed as of December 31, 1999
and 1998 were $401,000 and $309,000, respectively.
NOTE 9 - EMPLOYEE BENEFIT PLANS
The Company has various defined contribution savings plans under which eligible
employees can participate by contributing a portion of their salary for
investment, at the direction of each employee, in one or more investment funds.
Several of the plans were adopted in connection with certain of the Company's
acquisitions. The plans are tax-deferred arrangements pursuant to Internal
Revenue Code ("IRC") Section 401(k) and are subject to the provisions of the
Employee Retirement Income Security Act ("ERISA"). The Company matches employee
contributions in varying degrees based on the contribution levels of the
employees.
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 IRC 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 ERISA.
In addition, the Company also has a supplemental pension plan in which certain
of its executive officers participate. Retirement benefits under the
supplemental pension plan are calculated on the basis of a specified percentage
of the executive's covered compensation, years of credited service and a vesting
schedule, as specified in the plan document.
Actuarial assumptions used to calculate the benefit obligations and expenses
include a 7.75% interest rate as of December 31, 1999 (6.75% and 7.0% at
December 31, 1998 and 1997, respectively), an expected long-term rate of return
on assets of 8% and a 6% rate of increase in compensation levels.
The aggregate Accumulated Benefit Obligation in excess of aggregate plan assets
("plan assets") as of December 31, 1999 and 1998 was $1.1 million and $1.9
million, respectively. The aggregate Projected Benefit Obligation ("PBO") in
excess of plan assets as of December 31, 1999 and 1998 was $6.6 million and $7.0
million, respectively. The decrease in the net PBO from the prior year primarily
relates to an increase in plan assets of $4.6 million due to employer
contributions, offset in part by plan amendments (supplemental pension plan) of
$1.8 million, interest expense of $1.2 million and service costs of $0.8
million. Plan assets amounted to $13.3 million and $8.7 million at December 31,
1999 and 1998, respectively.
60
<PAGE>
Expense relating to the Company's defined benefit plans for the years ended
December 31, 1999, 1998 and 1997 was $3,447,000, $2,462,000 and $2,552,000,
respectively. Expense relating to the Company's defined contribution plans
(including the ESOP described in Note 6 to the Consolidated Financial
Statements) for the years ended December 31, 1999, 1998 and 1997 was $2,524,000,
$1,648,000 and $741,000, respectively.
NOTE 10 - 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,
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 8,161 $ 44,958 $ 27,155
State and local 2,615 2,940 4,528
Foreign 101 10 --
-------- -------- --------
10,877 47,908 31,683
-------- -------- --------
Deferred:
Federal 23,134 7,131 8,734
State (61) 448 1,411
-------- -------- --------
23,073 7,579 10,145
-------- -------- --------
Income taxes $ 33,950 $ 55,487 $ 41,828
======== ======== ========
</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 $938,000,
$6,392,000 and $7,827,000 for 1999, 1998 and 1997, 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,
1999 1998 1997
---------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at the statutory rate $ 32,085 35.0% $ 47,553 35.0% $ 33,560 35.0%
State and local income taxes, net
of federal income tax benefit 1,660 1.8 3,012 2.2 4,115 4.3
Amortization of nondeductible
intangible assets 1,998 2.2 1,894 1.4 1,414 1.5
Nondeductible pooling-of-interests/merger expenses (1,197) (1.3) 2,291 1.7 1,079 1.1
Nondeductible other expenses (Note 13) -- -- -- -- 1,855 1.9
Effect of foreign losses not benefited -- -- -- -- 1,466 1.5
NOL carryforward (utilized) -- -- -- -- (2,694) (2.8)
Other (596) (0.7) 737 0.5 1,033 1.1
-------- ----- -------- ---- -------- ----
Total income taxes $ 33,950 37.0% $ 55,487 40.8% $ 41,828 43.6%
======== ===== ======== ==== ======== ====
</TABLE>
Income tax payments (net) made in 1999, 1998 and 1997 amounted to $18,629,000,
$27,252,000 and $22,824,000, respectively.
61
<PAGE>
A summary of deferred tax assets and liabilities follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
--------- ---------
<S> <C> <C>
Accounts receivable reserves $ 5,387 $ 2,715
Accrued liabilities 34,086 28,982
Other 1,118 816
------- -------
Gross deferred tax assets $40,591 $32,513
======= =======
Fixed assets and depreciation methods $17,004 $ 5,541
Amortization of intangibles 38,187 25,858
Other current and noncurrent assets 5,361 4,570
Other 63 426
------- -------
Gross deferred tax liabilities $60,615 $36,395
======= =======
</TABLE>
62
<PAGE>
NOTE 11 - 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, 1999
---------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amounts
--------------------------------------------------
<S> <C> <C> <C>
BASIC EPS
Net income $ 57,721 90,999 $ 0.63
==============
EFFECT OF DILUTIVE SECURITIES
Stock options and stock warrants - 239
----------- ----------
DILUTED EPS
Net income plus assumed conversions $ 57,721 91,238 $ 0.63
=========== ========== ==============
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amounts
--------------------------------------------------
<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
================ ================ ==============
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amounts
--------------------------------------------------
<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>
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
1999, 1998 and December 1997, but were not included in the computation of
diluted EPS because the impact during these periods was anti-dilutive.
63
<PAGE>
NOTE 12 - RESTRUCTURING AND OTHER RELATED CHARGES
In the second quarter of 1999, the Company announced a comprehensive
restructuring plan to streamline company-wide operations through the
implementation of a productivity and consolidation program. This program is in
response to the recent changes in the healthcare industry and will complement
Omnicare's ability to gain maximum benefits from its acquisition program. The
productivity and consolidation initiatives are expected to eliminate redundant
efforts, simplify work processes and apply technology to maximize employee
productivity, and standardize operations around best practices. Facilities in
overlapping geographic territories are being consolidated to better align
pharmacies around customers to improve efficiency and enhance the Company's
ability to deliver innovative services and programs to its customers.
Productivity initiatives are being introduced at the majority of the Company's
pharmacy and other operating locations, which totaled approximately 220 sites at
the commencement of the program. As part of the initiative, the roster of
pharmacies and other operating locations is being reconfigured through
consolidations/relocations of approximately 44 facilities, the closing of
approximately 20 sites and the creation of nine new sites. These strategic
measures are designed to lead to the net reduction of approximately 1,700 full-
and part-time positions upon completion of the plan.
In connection with this program, Omnicare recorded charges to operating expenses
totaling $35,394,000 ($22,698,000 after taxes) for restructuring and other
related charges for the year ended December 31, 1999. Additional charges of this
nature are expected to be incurred and expensed in 2000, at such time the
amounts are required to be recognized per generally accepted accounting
principles. The restructuring charges include severance pay, the buy-out of
current employment agreements, the buy-out of lease obligations, the write-off
of other assets (representing $4,198,000 of non-cash items) and facility exit
costs. The other related charges are primarily comprised of consulting fees and
duplicate costs associated with the program.
Details of the restructuring and other related charges relating to the
productivity and consolidation program follow (in thousands):
<TABLE>
<CAPTION>
Utilized as of Balance at
1999 December 31, December 31,
Provision 1999 1999
------------ ------------- --------------
<S> <C> <C> <C>
Restructuring charges:
Employee severance $ 12,178 $ (3,717) $ 8,461
Employement agreement buy-outs 6,740 (3,377) 3,363
Lease terminations 5,612 (1,089) 4,523
Other assets and facility exit costs 8,310 (6,662) 1,648
------------ ------------- --------------
Restructuring charges 32,840 $(14,845) $ 17,995
============= ==============
Other related charges 2,554
------------
Total restructuring and other related charges $ 35,394
============
</TABLE>
As of December 31, 1999, the Company had incurred approximately $7.1 million of
severance and other employee-related costs relating to the reduction of
approximately 673 employees. All
64
<PAGE>
remaining liabilities recorded at December 31, 1999 were classified as current
liabilities since the Company expects that the overall restructuring program
will be completed in 2000.
In connection with the 1998 pooling-of-interests transactions with CompScript
and IBAH, the Company recorded a restructuring charge of $3,627,000 before taxes
($2,689,000 after taxes), as further discussed at Note 2 to the Consolidated
Financial Statements.
During 1997, IBAH implemented a restructuring plan for its International
Division and recorded 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, 1999, the plan has been
completed. Resultantly, all of the employee terminations have occurred and
$636,000 of termination benefits have been paid. In addition, lease-related
costs of $572,000 have been paid.
NOTE 13 - OTHER EXPENSES
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 an unusual charge of
$6,313,000 ($5,958,000 after taxes) 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, 1999.
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.
NOTE 14 - 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 $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, 1999.
65
<PAGE>
NOTE 15 - 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, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Corporate
Pharmacy CRO and Consolidated
1999: Services Services Consolidating Totals
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 1,728,055 $ 133,866 $ - $ 1,861,921
Depreciation and amortization 62,589 5,734 1,041 69,364
Operating income (expense), excluding acquisition expenses
and restructuring and other related charges 181,087 16,550 (25,993) 171,644
Acquisition (expenses)/income 352 (297) - 55
Restructuring and other related charges (32,216) (3,178) - (35,394)
Operating income (expense) 149,223 13,075 (25,993) 136,305
Total assets 1,889,763 125,122 153,088 2,167,973
Expenditures for additions to long-lived assets 52,560 3,113 3,076 58,749
- --------------------------------------------------------------------------------------------------------------------------------
1998:
- --------------------------------------------------------------------------------------------------------------------------------
Sales $ 1,394,768 $ 122,602 $ - $ 1,517,370
Depreciation and amortization 41,994 5,091 551 47,636
Operating income (expense), excluding acquisition expenses
and restructuring and other related charges 185,305 12,725 (22,841) 175,189
Acquisition expenses (10,172) (5,269) - (15,441)
Restructuring and other related charges (1,245) (2,382) - (3,627)
Operating income (expense) 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
- --------------------------------------------------------------------------------------------------------------------------------
1997:
- --------------------------------------------------------------------------------------------------------------------------------
Sales $ 946,333 $ 88,051 $ - $ 1,034,384
Depreciation and amortization 26,211 4,660 234 31,105
Operating income (expense), excluding acquisition expenses,
restructuring and other related charges, and
other expenses 125,822 2,925 (19,336) 109,411
Acquisition expenses (2,359) (1,962) - (4,321)
Restructuring and other related charges - (1,208) - (1,208)
Other expenses (Note 13) (6,313) - - (6,313)
Operating income (expense) 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>
66
<PAGE>
The following summarizes sales and long-lived assets by geographic area as of
and for the years ended December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Sales Long-Lived Assets
- -------------------------------------------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $1,821,083 $1,483,443 $1,012,988 $159,530 $133,173 $ 98,541
Foreign 40,838 33,927 21,396 2,603 3,198 3,121
- -------------------------------------------------------------- ---------------------------------------
Total $1,861,921 $1,517,370 $1,034,384 $162,133 $136,371 $101,662
- -------------------------------------------------------------- ---------------------------------------
</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.
67
<PAGE>
NOTE 16 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following table presents the Company's quarterly financial information for
1999 and 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- -----------
1999 (a)
<S> <C> <C> <C> <C> <C>
Sales $ 445,688 $ 454,645 $ 474,007 $ 487,581 $ 1,861,921
Cost of sales 309,893 322,607 348,007 358,131 1,338,638
--------- --------- --------- --------- -----------
Gross profit 135,795 132,038 126,000 129,450 523,283
Selling, general and
administrative expenses 81,983 85,546 90,888 93,222 351,639
Acquisition expenses,
pooling-of-interests -- 822 (877) -- (55)
Restructuring and other
related charges -- 26,713 2,144 6,537 35,394
--------- --------- --------- --------- -----------
Operating income 53,812 18,957 33,845 29,691 136,305
Investment income 282 367 266 617 1,532
Interest expense (9,981) (10,848) (12,629) (12,708) (46,166)
--------- --------- --------- --------- -----------
Income before income taxes 44,113 8,476 21,482 17,600 91,671
Income taxes 16,306 3,598 7,538 6,508 33,950
--------- --------- --------- --------- -----------
Net income $ 27,807 $ 4,878 $ 13,944 $ 11,092 $ 57,721
========= ========= ========= ========= ===========
Earnings per share:
Basic $ 0.31 $ 0.05 $ 0.15 $ 0.12 $ 0.63
========= ========= ========= ========= ===========
Diluted $ 0.31 $ 0.05 $ 0.15 $ 0.12 $ 0.63
========= ========= ========= ========= ===========
Weighted average number of
common shares outstanding:
Basic 90,526 90,890 91,276 91,292 90,999
========= ========= ========= ========= ===========
Diluted 90,881 91,073 91,276 91,292 91,238
========= ========= ========= ========= ===========
Comprehensive income $ 27,303 $ 4,524 $ 14,083 $ 10,763 $ 56,673
========= ========= ========= ========= ===========
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- -----------
1998 (a)
<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
Restructuring and other
related charges -- 3,627 -- -- 3,627
--------- --------- --------- --------- -----------
Operating income 37,295 23,448 44,771 50,607 156,121
Investment income 1,446 977 623 310 3,356
Interest expense (4,771) (4,435) (5,301) (9,104) (23,611)
--------- --------- --------- --------- -----------
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:
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
========= ========= ========= ========= ===========
Comprehensive income $ 20,455 $ 8,235 $ 25,527 $ 26,214 $ 80,431
========= ========= ========= ========= ===========
</TABLE>
69
<PAGE>
Notes to Summary of Quarterly Results
(a) Included in the 1999 and 1998 net income amounts are the following
aftertax pooling-of-interests expenses and restructuring and other
related charges (in thousands):
<TABLE>
<CAPTION>
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
1999:
Acquisition expenses, pooling-
of-interests (Note 2) $ -- $ 586 $ (962) $ -- $ (376)
Restructuring and other
related charges (Note 12) -- 17,229 1,351 4,118 22,698
--------- --------- --------- --------- -----------
Total $ -- $ 17,815 $ 389 $ 4,118 $ 22,322
========= ========= ========= ========= ===========
1998:
Acquisition expenses, pooling-
of-interests (Note 2) $ 415 $ 12,702 $ -- $ 752 $ 13,869
Restructuring and other
related charges (Note 12) -- 2,689 -- -- 2,689
--------- --------- --------- --------- -----------
Total $ 415 $ 15,391 $ -- $ 752 $ 16,558
========= ========= ========= ========= ===========
</TABLE>
70
<PAGE>
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 2000 Proxy Statement which is incorporated herein
by reference.
ITEM 11 - EXECUTIVE COMPENSATION
Information required under this Item is set forth in the Company's 2000
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 2000
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 2000
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 1999 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.
71
<PAGE>
(a)(3) Exhibits
See Index of Exhibits.
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the
quarter ended December 31, 1999.
72
<PAGE>
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 2000.
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) |
|
|
|
Timothy E. Bien, Director* |
Charles H. Erhart, Jr., Director* |
Mary Lou Fox, Director* March 30, 2000
Thomas C. Hutton, Director* |
Patrick E. Keefe, Director* |
Sandra E. Laney, Director* |
Andrea R. Lindell, DNSc, RN, 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)
73
<PAGE>
Schedule II
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at charged Write-offs, Balance
Year ended beginning of to cost net of at end
December 31, period and expenses Acquisitions recoveries of period
- ------------ -------- ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible accounts receivable:
1999 $31,417 $22,056 $2,686 ($19,276) $36,883
1998 17,994 12,405 9,057 (8,039) 31,417
1997 6,790 8,370 10,002 (7,168) 17,994
</TABLE>
S-1
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Document Incorporated by Reference from a
Numbers Refer to Item 601 Regulation Previous Filing or Filed Herewith, as
S-K and Description of Exhibit Indicated Below
---------------------------------------- -------------------------------------------
<S> <C> <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) $400 million Credit Agreement (the Form 10-K
"Credit Agreement") among Omnicare, March 31, 1997
Inc., First National Bank of Chicago,
Agent, and certain banks dated as of
October 22, 1996
(4.2) Amendment No. 1 to the $400 million Form 10-K
Credit Agreement dated as of March 30, 1999
December 23, 1997
(4.3) Amendment No. 2 to the $400 million Form 8-K
Credit Agreement dated as of December 29, 1998
December 21, 1998
(4.4) Indenture dated as of December 10, 1997 Form S-3
between the Company and The First February 6, 1998
National Bank of Chicago, as Trustee
(4.5) $400 million, 364-Day Credit Agreement Form 8-K
among Omnicare, Inc., The First National December 29, 1998
Bank of Chicago, Agent, and certain
banks dated as of December 21, 1998
(4.6) Amendment No. 1 to the $400 million, Form 10-Q
364-Day Credit Agreement dated as of November 15, 1999
September 3, 1999
</TABLE>
E-1
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Document Incorporated by Reference from a
Numbers Refer to Item 601 Regulation Previous Filing or Filed Herewith, as
S-K and Description of Exhibit Indicated Below
---------------------------------------- -------------------------------------------
<S> <C> <C>
(4.7) Rights Agreement, and related Exhibits, Form 8-K
dated as of May 17, 1999 between May 18, 1999
Omnicare, Inc. and First Chicago Trust
Company of New York, as Rights Agent.
(10.1) Executive Salary Protection Plan, as Form 10-K
amended, 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
(10.6) 1998 Long-Term Employee Form 10-K
Incentive Plan March 30, 1999
(10.7) Amendment to 1998 Long-Term Employee Filed Herewith
Incentive Plan effective March 1, 2000
(10.8) Excess Benefits Plan Form 10-K
March 25, 1988
(10.9) Form of Indemnification Agreement with Form 10-K
Directors and Officers March 30, 1999
(10.10) Employment Agreements with J.F. Gemunder Form 10-K
and C.D. Hodges dated August 4, 1988 March 29, 1989
</TABLE>
E-2
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Document Incorporated by Reference from a
Numbers Refer to Item 601 Regulation Previous Filing or Filed Herewith, as
S-K and Description of Exhibit Indicated Below
---------------------------------------- -------------------------------------------
<S> <C> <C>
(10.11) Employment Agreement with Form 10-K
P.E. Keefe dated March 4, 1993 March 25, 1994
(10.12) Split Dollar Agreement with Form 10-K
E.L. Hutton dated June 1, 1995 March 25, 1996
(Agreement in the same form exists with
J.F. Gemunder)
(10.13) Split Dollar Agreement Form 10-K
dated June 1, 1995 (Agreements in the March 25, 1996
same form exist with the following
Executive Officers: T.E. Bien,
C.D. Hodges and P.E. Keefe)
(10.14) Annual Incentive Plan for Senior Proxy Statement for 1996 Annual Meeting of
Executive Officers Shareholders dated May 20, 1996
(10.15) Employment Agreement with T.E. Bien Form 10-K
dated January 1, 1994 March 31, 1997
(10.16) Employment Agreement with D.W. Form 10-K
Froesel, Jr. dated February 17, 1996 March 31, 1997
(10.17) Employment Agreement with Form 10-K
M.L. Fox dated April 4, 1996 March 31, 1997
(10.18) Consulting Agreement with Form 10-K
MLF Co. dated April 4, 1996 March 31, 1997
(10.19) Employment Agreement with P. Filed Herewith
Laterza dated August 5, 1998
(10.20) Form of Amendment to Employment Filed Herewith
Agreements with J.F. Gemunder, P.E.
Keefe and C.D. Hodges dated as of
February 25, 2000
</TABLE>
E-3
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Document Incorporated by Reference from a
Numbers Refer to Item 601 Regulation Previous Filing or Filed Herewith, as
S-K and Description of Exhibit Indicated Below
---------------------------------------- -------------------------------------------
<S> <C> <C>
(10.21) Amendment to Employment Agreement Filed Herewith
with J.F. Gemunder dated as of
March 1, 2000 (Amendments in the same
form exist with the following Executive
Officers: P.E. Keefe and C.D. Hodges)
(10.22) Form of Amendment to Employment Filed Herewith
Agreements with T.E. Bien, D.W.
Froesel, Jr. and P. Laterza dated as
of February 25, 2000
(12) Statement of Computation of Ratio of Filed Herewith
Earnings to Fixed Charges
(21) Subsidiaries of Omnicare, Inc. Filed Herewith
(23.1) Consent of PricewaterhouseCoopers LLP Filed Herewith
(23.2) Consent of Ernst and Young LLP Filed Herewith
(23.3) Consent of Arthur Andersen LLP Filed Herewith
(24) Powers of Attorney Filed Herewith
(27) Financial Data Schedule Filed Herewith
</TABLE>
E-4
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as ............... 'r'
<PAGE>
EXHIBIT 10.7
OMNICARE, INC.
1998 LONG-TERM EMPLOYEE
INCENTIVE PLAN (THE "PLAN")
STATEMENT OF AMENDMENT
EFFECTIVE MARCH 1, 2000
The first sentence of Section 4 of the Plan is hereby amended, in its entirety,
to read as follows:
"The aggregate number of shares of Common Stock that may be issued under the
Plan shall not exceed 3,500,000 shares."
<PAGE>
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into this 5th day of August, 1998 by and between OMNICARE, INC., a
Delaware corporation (the "Company") and PETER LATERZA ("Mr. Laterza").
WHEREAS, the Company desires to employ Mr. Laterza under the
terms and conditions of this Agreement for the purposes of providing
professional services as an attorney in connection with the Company's
institutional pharmacy business and such other businesses in which the Company
or its subsidiaries or affiliates may be engaged during the term of this
Agreement (referred to collectively as the "Business"), and Mr. Laterza desires
to be employed for that purpose;
THEREFORE, in consideration of these recitals and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
SECTION 1. EMPLOYMENT
1.1 Duties. The Company shall employ Mr. Laterza as Vice
President and General Counsel of the Company for the term of this Agreement. Mr.
Laterza shall perform and coordinate legal services for the Company and shall
report directly to the President of the Company. Mr. Laterza will perform such
other duties as may from time to time be assigned to him by the President of the
Company.
1.2 Performance. Mr. Laterza shall devote his exclusive and
full professional time and attention to his duties as an employee of the Company
and shall perform such duties in an efficient, trustworthy and businesslike
manner. In addition, Mr. Laterza shall not render to others any service of any
kind for compensation or engage in any other business activity, including
without limitation any involvement in any business in which Mr. Laterza has any
administrative or operating responsibility.
SECTION 2. COMPENSATION, BENEFITS AND EXPENSES
2.1 Base Salary. The Company shall pay to Mr. Laterza a salary
("Base Salary") of $190,000.00 payable in equal semi-monthly installments, or
more frequently if the President of the Company determines that such salary
shall be paid in more frequent installments. Mr. Laterza's Base Salary may be
reviewed every 14-15 months, and may be adjusted at the Company's discretion
taking into consideration Mr. Laterza's performance, Company performance and
general economic conditions.
2.2 Sign-On Bonus. The Company shall pay to Mr. Laterza a
sign-on bonus of $25,000.00.
<PAGE>
2.3 Initial Stock Options Grant. In August, 1998, the
President of the Company shall request the Incentive Committee to grant to Mr.
Laterza options to purchase, at a purchase price per share equal to the market
price thereof on the date of the grant, 10,500 shares of the Company's common
stock, par value $1.00 per share, which will vest in accordance with the terms
and conditions of the Company's plan. As a condition of his receipt of such
options, Mr. Laterza shall enter into a separate agreement with the Company
which reflects the foregoing as well as such restrictions, terms and conditions
as are then usual and customary under the Company's existing plan governing
stock options.
2.4 Annual Bonus. Mr. Laterza will be eligible to participate
in the Company's annual bonus program, which is subject to the approval of the
full Board of Directors of the Company. For 1998, the President of the Company
will request the Board of Directors to approve a minimum bonus of $40,000.00 for
Mr. Laterza in respect of his 1998 services.
2.5 Long-Term Incentive Program. Mr. Laterza will be eligible
to participate in the long-term incentive program as may be maintained by the
Company for its executives.
2.6 Executive Benefits Program. Mr. Laterza will be eligible
to participate in the benefits program provided by the Company to its
executives. In addition, the Company will contribute annually an amount equal to
6% of Mr. Laterza's annual cash compensation to a Rabbi Trust which will vest in
five equal annual installments commencing one year following the date each such
contribution is made.
2.7 Reimbursement of Business Expenses. The Company shall
reimburse Mr. Laterza for all authorized, ordinary and necessary business
expenses incurred by him in connection with the Business. Reimbursement of such
expenses shall be paid monthly, upon submission by Mr. Laterza to the Company of
vouchers itemizing such expenses in a form satisfactory to the Company, properly
identifying the nature and business purpose of any expenditures.
2.8 Relocation. The Company shall reimburse Mr. Laterza all
reasonable and customary out-of-pocket expenses associated with relocating Mr.
Laterza's family from Richmond, Virginia, to Cincinnati, Ohio, including any
significant bona fide loss on the sale of the residence in Richmond, all closing
costs associated with the sale of the residence in Richmond (including, but not
limited to, real estate commission, survey, title insurance, attorney's fees);
the packing and movement of household goods and transportation and hotel and
food expenses for Mr. Laterza and his family associated with house-hunting trips
to Cincinnati.
SECTION 3. TERM OF EMPLOYMENT
3.1 Term. The initial term of employment of Mr. Laterza
pursuant to this Agreement shall commence on August 5, 1998, and shall continue
for a period of two years, until August 4, 2000. Notwithstanding the foregoing,
this Agreement may be terminated at any time as described in Sections 3.2
through 3.6 hereof.
<PAGE>
3.2 Termination for Cause. The Company shall have the right to
terminate this Agreement by written notice for the following causes (a
"Termination for Cause"):
(a) Conduct which is materially detrimental to
the Company's reputation, goodwill or
business operations;
(b) Gross or habitual neglect of Mr. Laterza's
duties or obligations or breach of such
duties, or misconduct in discharging such
duties;
(c) Mr. Laterza's absence from his duties
without the consent of the President of the
Company;
(d) Mr. Laterza's failure or refusal to comply
with the policies, standards and regulations
of the Company or to follow the directions
of the President of the Company in complying
with those policies, standards and
regulations;
(e) Breach or threatened breach of the
restrictive covenants set forth in Section 4
of this Agreement;
(f) Commission by Mr. Laterza of any act of
fraud or dishonesty;
(g) Conviction of Mr. Laterza for, or entry of a
plea of guilty or nolo contendere by Mr.
Laterza with respect to, any criminal act.
Upon any Termination for Cause, all payments to Mr. Laterza
under Section 2 of this Agreement shall cease immediately, with the exception of
reimbursement of authorized, ordinary and necessary business expenses already
incurred, and any compensation already earned or vested as of that date.
3.3 Termination by the Company Due to Disability or Death. Mr.
Laterza acknowledges that his duties pursuant to this Agreement, including
without limitation Section 1.1, constitute the essential functions of his job.
If Mr. Laterza is unable to perform his duties under this Agreement by reason of
illness or other physical or mental disability, the Company may notify him that
an event of disability ("Event of Disability") exists, whereupon, provided he
remains disabled, Mr. Laterza shall continue to receive the compensation
described in Section 2 hereof for a period of three months after the date of the
Event of Disability. Such payments shall be reduced by any disability payment to
which Mr. Laterza may be entitled in lieu of such compensation, but not by any
disability payment for which Mr. Laterza has privately contracted without the
Company's involvement. At the expiration of the three month period, payment of
such compensation pursuant to Section 2 shall cease and this Agreement may be
terminated by the Company, at its sole discretion. The term "disability" as used
herein shall mean a condition which prohibits Mr. Laterza from performing his
duties under this Agreement with reasonable accommodation which he may request.
If Mr. Laterza should die before the termination of this Agreement, his
compensation under Section 2 hereof shall terminate upon the date of his death,
with the exception of
<PAGE>
reimbursement of authorized, ordinary and necessary business expenses already
incurred, and any compensation already earned or vested as of that date.
3.4 Termination for Reasons Other Than With Cause. The Company
shall have the right to terminate this Agreement without cause upon ten (10)
days written notice to Mr. Laterza. If the Company terminates this Agreement
without cause, Mr. Laterza shall receive his Base Salary as that term is defined
in Section 2.1 of this Agreement until the date of the expiration of this
Agreement, but in no event less than a period of one year, and any restricted
stock, stock options and the Rabbi Trust contributions Mr. Laterza has received
pursuant to Section 2.6 shall vest immediately upon termination. In the event of
termination without cause, Mr. Laterza acknowledges that the Company shall have
no obligations or liability to him whatsoever other than the obligations set
forth in this paragraph.
3.5 Voluntary Termination by Mr. Laterza. In the event Mr.
Laterza voluntarily terminates his employment for any reason, all payments to
Mr. Laterza under Section 2 shall cease, with the exception of reimbursement of
authorized, ordinary and necessary business expenses already incurred, and any
compensation already earned or vested as of that date.
3.6 Termination Due To A Change in Control. The Company shall
have the right to terminate this Agreement in the event of a change in control
in the Company. If the Company terminates this Agreement, following a change in
control, Mr. Laterza will receive his Base Salary and cash bonus compensation
for the unexpired term of this Agreement, plus an additional two years of Base
Salary and cash bonus compensation. For purposes of this Section 3.6, annual
cash bonus compensation after termination shall be equal to the last annual cash
bonus paid to Mr. Laterza prior to termination. In addition, the restricted
stock, stock options and Rabbi Trust contributions will vest immediately upon
termination. Notwithstanding the foregoing, payments to Mr. Laterza under this
Section, in the aggregate, shall be limited to an amount that does not
constitute an excess parachute payment under Section 280G of the Internal
Revenue Code of 1986, and any successor provisions thereof, and the regulations
thereunder.
SECTION 4. COVENANTS OF NONDISCLOSURE, NONSOLICITATION AND NONCOMPETITION
4.1 Nondisclosure. Mr. Laterza shall not at any time during or
after termination of his employment with the Company, directly or indirectly,
use any proprietary, "confidential information" of the Company, for any purpose
not associated with Company activities, or disseminate or disclose any such
information to any person or entity not affiliated with the Company. Such
proprietary, "confidential information" includes, without limitation, customer
lists, computer technology, programs and data, whether online or off-loaded on
disk format, sales, marketing and prospecting methodologies, plans and
materials, and any other such plans, programs, methodologies and materials used
in managing, marketing or furthering the Business. Upon termination of Mr.
Laterza's employment with the Company, Mr. Laterza will return all documents,
records, notebooks, manuals, plans and materials, computer disks and similar
repositories of or
<PAGE>
containing Company proprietary, "confidential information," including all copies
thereof, then in his possession or control, whether prepared by him or
otherwise. Mr. Laterza will undertake all reasonably necessary and appropriate
steps to ensure that the confidentiality of Company proprietary, "confidential
information" shall be maintained.
4.2 Nonsolicitation. While Mr. Laterza is employed by the
Company, and for a period of two (2) years following his termination whether
such termination was voluntary or involuntary, with or without cause, and within
the States in which the Company operates the Business, Mr. Laterza agrees to the
following:
(a) Not to directly or indirectly contact, solicit,
serve, cater or provide services to any customer, client,
organization or person who, or which, has had a business
relationship with the Company during the twelve (12) month
period preceding Mr. Laterza's termination;
(b) Not to directly or indirectly influence or
attempt to influence any customer, client, organization or
person who, or which, has had a business relationship with the
Company during the twelve (12) month period preceding Mr.
Laterza's termination to direct or transfer away any business
or patronage from the Company;
(c) Not to directly or indirectly solicit or attempt
to solicit any employee, officer or director to leave the
Company, or to contact any customer or client in order to
influence or attempt to influence the directing or
transferring of any business or patronage away from the
Company;
(d) Not to directly or indirectly interfere with or
disrupt any relationship, contractual or otherwise, between
the Company and its respective customers, clients, employees,
independent contractors, agents, suppliers, distributors or
other similar parties; and
(e) To advise any and all employers or potential
employers of Mr. Laterza's obligations hereunder.
4.3 Noncompetition. Mr. Laterza agrees that, during his
employment with the Company, and for two (2) years immediately after such
employment ceases, he will neither directly or indirectly engage or hold an
interest in any business competing with the Business as then conducted by the
Company or its respective successors, nor directly or indirectly have any
interest in, own, manage, operate, control, be connected with as a stockholder
(other than as a stockholder of less than five percent (5%) of a publicly held
corporation), joint venturer, officer, director, partner, employee or
consultant, or otherwise engage or invest or participate in, any business which
shall compete with the Business as then conducted by the Company, or its
respective successors, in the United States and such other defined geographic
areas in which the Company operates the Business.
4.4 Applicability. The provisions of Sections 4.1, 4.2 and 4.3
immediately preceding shall remain in effect in accordance with their respective
terms notwithstanding any
<PAGE>
termination of Mr. Laterza's employment with the Company or its successors,
regardless of the cause or circumstances thereof and whether such termination
was voluntary or involuntary. Further, Mr. Laterza's covenants of nondisclosure,
noncompetition and nonsolicitation along with the Company's remedies for the
breach or threatened breach of those covenants shall remain in effect in
accordance with their respective terms following any termination of this
Agreement.
4.5 Remedies. In view of the services which Mr. Laterza will
perform hereunder, which are special, unique, extraordinary and intellectual in
character, which place him in a position of confidence and trust with the
customers and employees of the Company and which provide him with access to
confidential financial information, trade secrets, "know-how" and other
confidential and proprietary information of the Company, in view of the
geographic scope and nature of the business in which the Company is engaged, and
recognizing the value of this Agreement to him, Mr. Laterza expressly
acknowledges that the restrictive covenants set forth in this Agreement,
including, without limitation, the duration, the business scope and the
geographic scope of such covenants, are necessary in order to protect and
maintain the proprietary interest and other legitimate business interests of the
Company, and that the enforcement of such restrictive covenants will not prevent
him from earning a livelihood. Mr. Laterza further acknowledges that the remedy
at law for any breach or threatened breach of this Agreement will be inadequate
and, accordingly, that the Company shall, in addition to all other available
remedies (including, without limitation, seeking such damages as it can show it
has sustained by reason of such breach), be entitled to injunctive or any other
appropriate form of equitable relief. In the event Mr. Laterza breaches or
threatens to breach these restrictive covenants, he shall not receive any
further payments from the Company pursuant to this Agreement.
SECTION 5. INDEMNIFICATION
5.1 Except to the extent prohibited by law, the Company shall
save and hold harmless the Mr. Laterza from and against any claim of liability
or loss (including reasonable attorney's fees) arising as a result of Mr.
Laterza's good faith activities in the course of his employment hereunder.
SECTION 6. MISCELLANEOUS PROVISIONS
6.1 Assignment and Successors. The rights and obligations of
the Company under this Agreement may be freely assigned and shall inure to the
benefit of and be binding upon the successors and assigns of the Company. Mr.
Laterza's obligation to provide services hereunder may not be assigned to or
assumed by any other person or entity.
6.2 Notices. All notices, requests, demands or other
communications under this Agreement shall be in writing and shall only be deemed
to be duly given if made in writing and sent by first class mail, overnight
courier, or telecopy to the following addresses:
<PAGE>
Cheryl D. Hodges, Senior Vice President
and Secretary
Omnicare, Inc.
2800 Chemed Center
255 E. Fifth Street
Cincinnati, Ohio 45202
and
Peter Laterza
908 Caitlin Drive
Union, KY 41091
6.3 Severability. Any provision of this Agreement which is
deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this paragraph, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provisions of this Agreement invalid, illegal, or unenforceable in any other
jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable
because its scope is considered excessive, such covenant shall be modified so
that the scope of the covenant is reduced only to the minimum extent necessary
to render the modified covenant valid, legal and enforceable.
6.4 Complete Agreement. This Agreement contains the entire
agreement between the parties and supersedes previous verbal and written
discussions, negotiations, agreements or understandings between the parties.
6.5 Amendment and Waiver. This Agreement may be modified,
amended or waived only by a written instrument signed by all the parties hereto.
No waiver or breach of any provision hereof shall be a waiver of any future
breach, whether similar or dissimilar in nature.
6.6 Injunctive Relief. The parties hereto agree that money
damages would be an inadequate remedy for the Company in the event of breach or
threatened breach of this Agreement and thus, in any such event, the Company
may, either with or without pursuing any potential damage remedies, immediately
obtain and enforce any injunction prohibiting Mr. Laterza from violating this
Agreement.
6.7 Applicable Law. This Agreement has been made and its
validity, performance and effect shall be determined in accordance with the laws
of the State of Ohio.
6.8 Consent to Jurisdiction. The parties hereby (a) agree that
any suit, proceeding or action at law or in equity (hereinafter referred to as
an "Action") arising out of or relating to this Agreement must be instituted in
state or federal court located within Hamilton County, Ohio, (b) waive any
objection which he or it may have now or hereafter to the laying of the venue of
any such Action, (c) irrevocably submit to the jurisdiction of any such court in
any such Action, and (d) hereby waive any claim or defense of inconvenient
forum. The parties irrevocably agree that service of any and all process which
may be served in any such Action may be served
<PAGE>
upon him or it by registered mail to the address referred to in Section 6.2
hereof or to such other address as the parties shall designate in writing by
notice duly given in accordance with Section 6.2 hereof and that such service
shall be deemed effective service of process upon the parties in any such
Action. The parties irrevocably agree that any such service of process shall
have the same force and validity as if service were made upon him or it
according to the law governing such service in the State of Ohio, and waives all
claims of error by reason of any such service.
6.9 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
6.10 Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any ways the meaning or
interpretation of this Agreement. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning, and not strictly
for or against any party hereto. In this Agreement, unless the context otherwise
requires, the masculine, feminine and neuter genders and the singular and the
plural include one another.
6.11 Non-Waiver of Rights and Breaches. No failure or delay of
any party herein in the exercise of any right given to such party hereunder
shall constitute a waiver thereof unless the time specified herein for the
exercise of such right has expired, nor shall any single or partial exercise of
any right preclude other or further exercise thereof or of any other right. The
waiver of a party hereto of any default of any other party shall not be deemed
to be a waiver of any subsequent default or other default by such party.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
OMNICARE, INC.
By: /s/ Joel F. Gemunder
-----------------------
Its: President
----------------------
/s/ Peter Laterza
---------------------------
Peter Laterza
<PAGE>
EXHIBIT 10.20
FORM OF
AMENDMENT TO EMPLOYMENT AGREEMENT
[EXECUTIVE] of ____________ ("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. (the
"Parent Company") as a result of a corporate restructuring of the Parent Company
and its affiliates.
(b) In connection with such restructuring, certain assets and
liabilities of the Parent Company were transferred to the Company effective
December 31, 1988, including an Employment Agreement between the Parent Company
and Employee dated _______ (the "Employment Agreement").
(c) The Company, as assignee, and Employee amended the Employment
Agreement by mutual written agreement on ____________________________ (the
"Prior Amendments").
2. Amendments
(a) Article 3 of the Employment Agreement is hereby amended by
renumbering Section 3.3 as Section 3.2 and renumbering Section 3.4 as Section
3.3 (to reflect the deletion of the prior Section 3.2 by the Prior Amendments),
and by adding a new Section 3.4 to read in its entirely as follows:
"Section 3.4 Parachute Tax Indemnity.
(a) If it shall be determined that any amount, right or
benefit paid, distributed or treated as paid or
distributed by the Company, the Parent Company or any of
its affiliates to or for the Employee's benefit (whether
paid or payable or distributed or distributable hereunder
or otherwise, including, without limitation, in
connection with a Change of Control (as defined in
Section 5.1 hereof), but determined without regard to any
additional payments required under this Section 3.4) (a
"Payment") would be subject to the excise tax imposed by
Section 4999 of the Code, or any interest or penalties
are incurred by the Employee with respect to such excise
tax (such excise tax, together with any such interest and
penalties, collectively, the "Excise Tax"), then the
Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that
after payment by the Employee of all federal, state and
local taxes
<PAGE>
(including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Employee retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the
Payments.
(b) All determinations required to be made under this Section
3.4, including whether and when a Gross-Up Payment is
required, the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized
accounting firm as shall be designated jointly by the
Employee and the Company (the "Accounting Firm"), which
shall be permitted to designate an independent counsel to
advise it for this purpose. The Accounting Firm shall
provide detailed supporting calculations both to the
Company and the Employee within 15 business days of the
receipt of notice from the Employee or the Company that
there has been a Payment, or such earlier time as is
requested by the Company. All fees and expenses of the
Accounting Firm and its legal counsel shall be paid by
the Company. Any Gross-Up Payment, as determined pursuant
to this Section 3.4, shall be paid by the Company to the
Employee (or to the Internal Revenue Service on the
Employee's behalf) within five days of the receipt of the
Accounting Firm's determination. All determinations made
by the Accounting Firm shall be binding upon the Company
and the Employee. As a result of the uncertainty
regarding the application of Section 4999 of the Code
hereunder, it is possible that the Internal Revenue
Service may assert that an Excise Tax is due that was not
included in the Accounting Firm's calculation of the
Gross-Up Payments (an "Underpayment"). In the event that
the Company exhausts its remedies pursuant to this
Section 3.4 and the Employee thereafter is required to
make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has
occurred and any additional Gross-Up Payments that are
due as a result thereof shall be promptly paid by the
Company to the Employee (or to the Internal Revenue
Service on Employee's behalf).
(c) The Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of
the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days
after the Employee receives written notification of such
claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be
paid. The Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on
which it gives such notice to the Company (or such
shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company
notifies the Employee in writing prior to the expiration
of such period that it desires to contest such claim, the
Employee shall: (i) give the Company
<PAGE>
all information reasonably requested by the Company
relating to such claim; (ii) take such action in
connection with contesting such claim as the Company
shall reasonably request in writing from time to time,
including, without limitation, accepting legal
representation with respect to such claim by an attorney
selected by the Company and reasonably acceptable to the
Employee and ceasing all efforts to contest such claim;
(iii) cooperate with the Company in good faith in order
to effectively contest such claim; and (iv) permit the
Company to participate in any proceeding relating to such
claim; provided, however, that the Company shall bear and
pay directly all reasonable costs and expenses (including
additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the
Employee harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such
representation and payment of costs and expense. Without
limiting the foregoing provisions of this Section 3.4,
the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct the Employee to pay the tax claimed
and sue for a refund or contest the claim in any
permissible manner, and the Employee agrees to prosecute
such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine
and direct; provided, however, that if the Company
directs the Employee to pay such claim and sue for a
refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis, and
shall indemnify and hold the Employee harmless, on an
after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and
further provided that any extension of the statute of
limitations relating to payment of taxes for the
Employee's taxable year with respect to which such
contested amount is claimed to be due is limited solely
to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or
contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing
authority.
(d) If, after the Employee's receipt of an amount advanced by
the Company pursuant to this Section 3.4, the Employee
becomes entitled to receive any refund with respect to
such claim, the Employee shall promptly pay to the
Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the Employee's receipt of an amount
advanced by the Company pursuant to this Section
<PAGE>
3.4, a determination is made that the Employee shall not
be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of
its intent to contest such denial of refund prior to the
expiration of 30 days after the Company's receipt of
notice of such determination, then such advance shall be
forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be
paid.
(e) The provisions of this Section 3.4 shall survive the
expiration of the Employee's term of employment
hereunder.
(b) Section 5.1 of the Employment Agreement is hereby amended to read
in its entirety as follows:
"Section 5.1 Breach by the Company. In the event that the
Company shall fail, in any material respect, to observe and perform its
obligations hereunder, the Employee may give written notice to the Company
specifying the nature of such failure. If within thirty (30) days after its
receipt of such notice the Company shall not have remedied such failure, the
Employee shall have the right and option to treat such failure as termination of
his employment by the Company Without Cause, to cease rendering services
hereunder and thereafter receive the severance benefits and have the other
rights and obligations provided for in Article 3 hereof in the case of a
termination by the Company Without Cause. The parties agree that a material
breach by the Company for purposes of this Section 5.1 shall include, but not be
limited to, a material reduction in Employee's title, authority or
responsibilities from those he was exercising on the date of execution of this
Agreement. Without limitation of the foregoing prior to a Change of Control, the
parties further agree that, following a Change of Control, a material breach by
the Company shall mean:
(a) the assignment to the Employee of any duties inconsistent
with the Employee's position, title, authority or
responsibilities as contemplated by Section 1.1 hereof,
or any action by the Company that results in a diminution
in such position, title, authority or responsibilities
(excluding for these purposes an isolated and
insubstantial action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Employee);
(b) any requirement that the Employee report to any person or
entity other than the Chairman of the Parent Company or
the Board of Directors of the Parent Company;
(c) any failure to nominate the Employee for election as
director of the ultimate parent corporation of the
Company;
(d) any failure by the Company or the Parent Company, as
applicable, to comply with the compensation and benefits
provisions of Section 2 hereof; and
<PAGE>
(e) the relocation of the Parent Company's principal
executive offices to a location more than 30 miles from
its current location in Covington, Kentucky.
In addition, the Employee may terminate his employment
voluntarily for any reason within the 120-day period following the occurrence of
the Change of Control and shall have the right and option to treat such
voluntary termination as termination by the Company without Cause in accordance
herewith.
For purposes of this Agreement, a "Change of Control" shall
mean the occurrence of one of the following events: (i) any Person becomes a
beneficial owner, directly or indirectly, of securities of the Parent Company
representing 20% or more of the combined voting power of the Parent Company's
then outstanding securities; (ii) the merger or consolidation of the Parent
Company with or into another entity (or other similar reorganization), whether
or not the Parent Company is the surviving corporation, in which the
stockholders of the Parent Company immediately prior to the effective date of
such transaction own less than 50% of the voting power in the surviving entity;
(iii) the sale or other disposition of all or substantially all of the assets of
the Parent Company, or a complete liquidation or dissolution of the Parent
Company; or (iv) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Parent
Company cease for any reason to constitute at least a majority of such Board of
Directors, unless the nomination for the election by the Parent 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 group, but excluding the
Parent Company, its affiliates, any employee benefit plan maintained by the
Parent 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.
<PAGE>
The remedy provided for in this Section 5.1 shall be in
addition to and not in limitation of any other remedies which would otherwise
exist as a matter of law."
(c) Article 6 is hereby amended by adding a new Section 6.7 reading as
follows:
"Section 6.7 No Mitigation or Offset. The Employee shall not be
required to seek other employment or to reduce any severance benefit payable to
him under Section 3.3 hereof, and no such severance benefit shall be reduced on
account of any compensation received by the Employee from the Company or any
other employment. The Company's obligations to the Employee hereunder,
including, without limitation, any obligation to provide severance benefits,
shall not be subject to set-off or counterclaim in respect of any debts or
liabilities of the Employee to the Company.
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 February 25, 2000.
OMNICARE MANAGEMENT COMPANY
____________________________________ By:____________________________
<PAGE>
EXHIBIT 10.21
FOURTEENTH
AMENDMENT TO EMPLOYMENT AGREEMENT
JOEL F. GEMUNDER 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, May 18, 1998, March 3, 1999 and February 25, 2000 (the
"Prior Amendments").
2. Amendments
(a) Section 1.2 of the Employment Agreement is amended by deleting the year
"2004" from the third line of Section 1.2 and substituting the year "2005"
therefor.
(b) The amount of unrestricted stock award recognized in lieu of incentive
compensation in 1999 is $1,132,517.
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 1, 2000.
OMNICARE MANAGEMENT COMPANY
/s/Joel F. Gemunder By: /s/Cheryl D. Hodges
- ------------------- -------------------
JOEL F. GEMUNDER Cheryl D. Hodges
<PAGE>
EXHIBIT 10.22
FORM OF
AMENDMENT TO EMPLOYMENT AGREEMENT
[EXECUTIVE]. of ______________ ("Employee"), and OMNICARE, INC., a
Delaware corporation with its principal place of business in Covington, Kentucky
(the "Company"), hereby agree as follows:
1. Recitals
(a) The Company and Employee are parties to an Employment Agreement
dated as of ________ (the "Employment Agreement").
(b) The Employment Agreement may be amended by a written instrument
signed by both parties.
2. Amendments
(a) Section 3.5 of the Employment Agreement is hereby amended by
deleting the last sentence thereof, which limits aggregate payments thereunder
to an amount that does not constitute an excess parachute payment, and by
designating the first paragraph thereof as subsection (a).
(b) Section 3.5 of the Employment Agreement is hereby amended by adding
new subsections (b), (c), and (d), to read in their entirety as follows:
"(b) In the event that the Company, following a change in
control, shall commit a material breach of its
obligations hereunder, and the Company shall not have
remedied such breach within thirty (30) days after
receipt of written notice from Employee specifying
the nature of such breach, Employee shall have the
right and option to treat such breach as a
termination of his employment by the Company pursuant
to Section 3.4. The parties agree that, for purposes
of this Section 3.5, a material breach by the Company
shall mean :
(i) the assignment to Employee of any duties
inconsistent with his position, authority or
responsibilities as contemplated by Section
1.1 hereof, or any action by the Company
that results in a diminution in such
position, authority or responsibilities
(excluding for these purposes an isolated
and insubstantial action not taken in bad
faith and which is remedied by the Company
promptly after receipt of notice thereof
given by Employee);
<PAGE>
(ii) any requirement that Employee report to any
person other than the President or the Board
of Directors of the Company;
(iii) any failure by the Company to comply with
the compensation and benefits provisions of
Section 2 hereof; and
(iv) the relocation of the Company's principal
executive offices to a location more than 30
miles from its current location in
Covington, Kentucky.
In addition, Employee may terminate his employment
voluntarily for any reason within the 120-day period
following the occurrence of the Change in Control
and, Section 3.6 to the contrary notwithstanding,
shall have the right and option to treat such
voluntary termination as a termination of his
employment by the Company pursuant to Section 3.4.
(c) For purposes of this Agreement, a "change in control"
of the Company shall mean the occurrence of one of
the following events: (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) the merger or
consolidation of the Company with or into another
entity (or other similar reorganization), whether or
not the Company is the surviving corporation, 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 surviving
entity; (iii) the sale or other disposition of all or
substantially all of the assets of the Company, or a
complete liquidation or dissolution of the Company;
or (iv) during any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board of Directors of the Company
cease for any reason to constitute at least a
majority of such 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 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
<PAGE>
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.
(d) The remedy provided for in this Section 3.5 shall be
in addition to and not in limitation of any other
remedies which would otherwise exist as a matter of
law."
(c) Section 3 of the Employment Agreement is hereby amended by adding a
new Section 3.7 to read in its entirety as follows:
"Section 3.7 Parachute Tax Indemnity.
(a) If it shall be determined that any amount, right or
benefit paid, distributed or treated as paid or
distributed by the Company or any of its affiliates
to or for Employee's benefit (whether paid or payable
or distributed or distributable hereunder or
otherwise, including, without limitation, in
connection with a change in control of the Company,
but determined without regard to any additional
payments required under this Section 3.7) (a
"Payment") would be subject to the excise tax imposed
by Section 4999 of the Code, or any interest or
penalties are incurred by Employee with respect to
such excise tax (such excise tax, together with any
such interest and penalties, collectively, the
"Excise Tax"), then Employee shall be entitled to
receive an additional payment (a "Gross-Up Payment")
in an amount such that after payment by Employee of
all federal, state and local taxes (including any
interest or penalties imposed with respect to such
taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) All determinations required to be made under this
Section 3.7, including whether and when a Gross-Up
Payment is required, the amount of such Gross-Up
Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a
nationally recognized accounting firm as shall be
designated jointly by Employee and the Company (the
<PAGE>
"Accounting Firm"), which shall be permitted to
designate an independent counsel to advise it for
this purpose. The Accounting Firm shall provide
detailed supporting calculations both to the Company
and Employee within 15 business days of the receipt
of notice from Employee or the Company that there has
been a Payment, or such earlier time as is requested
by the Company. All fees and expenses of the
Accounting Firm and its legal counsel shall be paid
by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 3.7, shall be paid by the
Company to Employee (or to the Internal Revenue
Service on Employee's behalf) within five days of the
receipt of the Accounting Firm's determination. All
determinations made by the Accounting Firm shall be
binding upon the Company and Employee. As a result of
the uncertainty regarding the application of Section
4999 of the Code hereunder, it is possible that the
Internal Revenue Service may assert that an Excise
Tax is due that was not included in the Accounting
Firm's calculation of the Gross-Up Payments (an
"Underpayment"). In the event that the Company
exhausts its remedies pursuant to this Section 3.7
and Employee thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has
occurred and any additional Gross-Up Payments that
are due as a result thereof shall be promptly paid by
the Company to Employee (or to the Internal Revenue
Service on Employee's behalf).
(c) Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if
successful, would require the payment by the Company
of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten
business days after Employee receives written
notification of such claim and shall apprise the
Company of the nature of such claim and the date on
which such claim is requested to be paid. Employee
shall not pay such claim prior to the expiration of
the 30-day period following the date on which it
gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes
with respect to such claim is due). If the Company
notifies Employee in writing prior to the expiration
of such period that it desires to contest such claim,
Employee shall: (i) give the Company all information
reasonably requested by the Company relating to such
claim; (ii) take such action in connection with
contesting such claim as the Company shall reasonably
request in writing from time to time, including,
without limitation, accepting legal representation
with respect to such claim by an attorney selected by
the Company and reasonably acceptable to Employee and
ceasing all efforts to contest such claim; (iii)
cooperate with the Company in good faith in order to
effectively contest such claim; and (iv) permit the
Company to participate in any proceeding relating to
such claim; provided, however, that the Company shall
bear and pay directly all reasonable costs and
expenses (including additional interest and
penalties) incurred in connection with such contest
and shall indemnify and hold
<PAGE>
Employee harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result
of such representation and payment of costs and
expense. Without limiting the foregoing provisions of
this Section 3.7, the Company shall control all
proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and
all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct
Employee to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and
Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine and
direct; provided, however, that if the Company
directs Employee to pay such claim and sue for a
refund, the Company shall advance the amount of such
payment to Employee, on an interest-free basis, and
shall indemnify and hold Employee harmless, on an
after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect
thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such
advance; and further provided that any extension of
the statute of limitations relating to payment of
taxes for Employee's taxable year with respect to
which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore,
the Company's control of the contest shall be limited
to issues with respect to which a Gross-Up Payment
would be payable hereunder and Employee shall be
entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the Employee's receipt of an amount
advanced by the Company pursuant to this Section 3.7,
Employee becomes entitled to receive any refund with
respect to such claim, Employee shall promptly pay to
the Company the amount of such refund (together with
any interest paid or credited thereon after taxes
applicable thereto). If, after Employee's receipt of
an amount advanced by the Company pursuant to this
Section 3.7, a determination is made that Employee
shall not be entitled to any refund with respect to
such claim and the Company does not notify Employee
in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after the
Company's receipt of notice of such determination,
then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
(e) The provisions of this Section 3.7 shall survive the
expiration of Employee's term of employment
hereunder."
(d) Article 6 is hereby amended by adding a new Section 6.12 reading as
follows:
<PAGE>
"Section 6.12 No Mitigation or Offset. Employee shall not be
required to seek other employment or to reduce any severance benefit payable to
him under Section 3 hereof, and no such severance benefit shall be reduced on
account of any compensation received by Employee from the Company or any other
employment. The Company's obligations to Employee hereunder, including, without
limitation, any obligation to provide severance benefits, shall not be subject
to set-off or counterclaim in respect of any debts or liabilities of Employee to
the Company."
3. General
Except 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 February 25, 2000.
OMNICARE, INC.
By:
__________________________________ ____________________________________
<PAGE>
EXHIBIT 12
Omnicare, Inc.
Computation of Ratio of Earnings to Fixed Charges
(in thousands)
<TABLE>
<CAPTION>
For the years ended December 31,
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Income before Income Taxes (1) $ 91,671 $ 135,866 $ 95,933
Add:
Interest on Indebtedness 44,439 22,727 6,505
Amortization of Debt Expense 1,727 884 51
Interest Portion of Rent Expense 8,436 6,838 4,448
----------- ---------- ---------
Income as Adjusted $ 146,273 $ 166,315 $ 106,937
=========== ========== =========
Fixed Charges
Interest on Indebtedness $ 44,439 $ 22,727 $ 6,505
Amortization of Debt Expense 1,727 884 51
Capitalized Interest 1,688 976 744
Interest Portion of Rent Expense 8,436 6,838 4,448
----------- ---------- ---------
Fixed Charges $ 56,290 $ 31,425 $ 11,748
=========== ========== =========
Ratio of Earnings to Fixed Charges (2) 2.6 x 5.3 x 9.1 x
=========== ========== =========
</TABLE>
(1) Includes certain special items such as pooling-of-interests expenses,
restructuring and other related charges, other expenses, and losses from
discontinued operations. See the Notes to Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results
of Operations for a further description of these special items.
(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>
EXHIBIT 21
Subsidiaries of Omnicare. Inc.
The following is a list of subsidiaries of the Company as of December 31,
1999. 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, 1999 and were 100% owned
at December 31, 1999, with the exception of Omnicare Pharmacy and Supply
Services, Inc., which has 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, Stephens Drugs Delaware 100%
Anderson Medical Services, Inc. Delaware 100%
Bach's Pharmacy Services, LLC Delaware 100%
Badger Acquisition of Allentown LLC Omnicare Pharmacy Services of Eastern Delaware 100%
Pennsylvania
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 Omnicare Health Network 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 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%
CompScript - Boca, Inc. Florida 100%
CompScript - Mobile, Inc. Delaware 100%
CompScript, Inc. Florida 100%
Consulting and Pharmaceutical Services, Inc. Delaware 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOING BUSINESS AS NAME STATE OF
LEGAL NAME (IF OTHER THAN LEGAL NAME) INCORPORATION % OWNED
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Coromed, Inc. Delaware 100%
CP Acquisition Corp. Central Pharmacy Oklahoma 100%
Creekside Managed Care Pharmacy, Inc. Delaware 100%
CTLP Acquisition Corp. Care Tech Delaware 100%
D & R Pharmaceutical Services, Inc. Kentucky 100%
Dixon Pharmacy, Inc. Illinois 100%
Electra Acquisition Corp. Prometheus Pharmacy Systems, Inc. Delaware 100%
Enloe Drugs, Inc. Delaware 100%
Euro Bio-Pharm Clinical Services, Inc. Delaware 100%
Evergreen Pharmaceutical, Inc. Washington 100%
Evergreen Spokane, Inc. Washington 100%
Evergreen Wound Management, Inc. Delaware 100%
Hardardt Group, Inc., The Delaware 100%
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%
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. Delaware 100%
JHC Acquisition, Inc. Jacobs Health Care Systems Delaware 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%
LCPS Acquisition, LLC Medilife Pharmacy 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 MCS, Inc. Kansas 100%
Medical Services Consortium, Inc. Compscript - Miami Florida 100%
MOSI Acquisition Corp. Medical Outpatient Services Delaware 100%
Nihan & Martin, Inc. Delaware 100%
NIV Acquisition Corp. Denman Pharmacy Services Delaware 100%
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%
OFL Corp. Delaware 100%
Omnicare Air Transport Services, Inc. Delaware 100%
Omnicare Holding Company Delaware 100%
Omnicare Management Company Delaware 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DOING BUSINESS AS NAME STATE OF
LEGAL NAME (IF OTHER THAN LEGAL NAME) INCORPORATION % OWNED
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Omnicare of Northeast Iowa, LLC Delaware 100%
Omnicare Pennsylvania Med Supply, LLC Delaware 100%
Omnicare Pharmacies of Pennsylvania East, LLC Delaware 100%
Omnicare Pharmacies of Pennsylvania West, Inc. Pennsylvania 100%
Omnicare Pharmacy of Tennessee, LLC Delaware 100%
Omnicare Pharmacy and Supply Services, Inc. South Dakota 80%
Omnicare Pharmacy of Colorado, LLC Delaware 100%
Omnicare Pharmacy of Massachusetts, LLC Delaware 100%
Omnicare Pharmacy of the Midwest, Inc. Delaware 100%
Omnicare.com, Inc. Delaware 100%
PBM-Plus, Inc. Wisconsin 100%
PCI Acquisition, LLC Delaware 100%
Pharmacon Corp. New York 100%
Pharmacy Associates of Glens Falls, Inc. Royal Care Pharmacy Services New York 100%
Pharmacy Consultants, Inc. South Carolina 100%
Pharmed Holdings, Inc. Delaware 100%
PIP Acquisition Corp. Premiere Institutional Pharmacy, Inc. California 100%
Pompton Nursing Home Suppliers, Inc. Delaware 100%
PRN Pharmaceutical Services, Inc. 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%
SHC Acquisition Co., LLC Synergy Delaware 100%
Shore Pharmaceutical Providers, Inc. Delaware 100%
Southside Apothecary, Inc. New York 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 Group Delaware 100%
Three Forks Apothecary, Inc. Kentucky 100%
UC Acquisition Corp. UniCare, Inc. Delaware 100%
United Health Care, Inc. Oklahoma 100%
Value Health Care Services, Inc. Delaware 100%
Value Pharmacy, Inc. Massachusetts 100%
Vital Care Infusions, Inc. New York 100%
Westhaven Services Co. Ohio 100%
Williamson Drug Company, Incorporated Virginia 100%
Winslow's Pharmacy New Jersey 100%
<CAPTION>
FOREIGN ENTITIES COUNTRY % OWNED
<S> <C> <C>
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>
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, 333-68443, 333-78965 and 333-82665),
Form S-4 (Nos. 333-53637 and 333-53749, insofar as it relates to Post-Effective
Amendments No. 1 to Forms S-8 filed on June 26, 1998 and June 29, 1998,
respectively, and 333-80917) and Form S-8 (Nos. 2-78161, 33-34635, 33-48209,
33-88856, 333-02667, 333-45801, 333-48067, 333-77845 and 333-95949) of
Omnicare, Inc. of our report dated February 4, 2000 appearing on page 39 of
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 27, 2000
<PAGE>
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, 333-68443,
333-78965 and 333-82665), Form S-4 (Nos. 333-53637 and 333-53749, insofar as it
relates to Post-Effective Amendments No. 1 to Forms S-8 filed on June 26, 1998
and June 29, 1998, respectively, and 333-80917) and Form S-8 (Nos. 2-78161,
33-34635, 33-48209, 33-88856, 333-02667, 333-45801, 333-48067, 333-77845 and
333-95949) 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 the year then ended included in
this Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
- ---------------------
Ernst & Young LLP
West Palm Beach
March 27, 2000
<PAGE>
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, 333-68443, 333-78965 and
333-82665), Form S-4 (File Nos. 333-53637 and 333-53749, insofar as it relates
to Post-Effective Amendment No. 1 to Forms S-8 filed on June 26, 1998 and
June 29, 1998, respectively, and 333-80917) and Form S-8 (File Nos. 2-78161,
33-34635, 33-48209, 33-88856, 333-02667, 333-45801, 333-48067, 333-77845 and
333-95949).
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
Philadelphia, Pa.,
March 27, 2000
<PAGE>
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, 1999, 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, 2000
/s/Timothy E. Bien
------------------------
Timothy E. Bien
<PAGE>
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, 1999, 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 21, 2000
/s/Charles Erhart, Jr.
------------------------
Charles Erhart, Jr.
<PAGE>
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, 1999, 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, 2000
/s/Mary Lou Fox
------------------------
Mary Lou Fox
<PAGE>
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, 1999, 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 21, 2000
/s/Thomas C. Hutton
------------------------
Thomas C. Hutton
<PAGE>
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, 1999, 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, 2000
/s/Patrick E. Keefe
------------------------
Patrick E. Keefe
<PAGE>
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, 1999, 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 20, 2000
/s/Sandra E. Laney
------------------------
Sandra E. Laney
<PAGE>
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, 1999, 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, 2000
/s/Andrea R. Lindell
-------------------------------
Andrea R. Lindell, DNSc, RN
<PAGE>
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, 1999, 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 20, 2000
/s/Sheldon Margen, M.D.
------------------------
Sheldon Margen, M.D.
<PAGE>
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, 1999, 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 20, 2000
/s/Kevin J. McNamara
------------------------
Kevin J. McNamara
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<NAME> OMNICARE, INC.
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