<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Quarter Ended June 30, 2000
Commission File Number 1-8269
OMNICARE, INC.
Incorporated under the laws of the I.R.S. Employer Identification
State of Delaware No. 31-1001351
100 East RiverCenter Boulevard, Covington, Kentucky 41011
----------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (859) 392-3300
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Indicate by check mark whether the registrant:
1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports) and
2) has been subject to such filing requirement for the past 90 days.
Yes x No
--- ---
COMMON STOCK OUTSTANDING
------------------------
<TABLE>
<CAPTION>
Number of
Shares Date
---------- ----
<S> <C> <C>
Common Stock, $1 par value 92,169,311 June 30, 2000
</TABLE>
<PAGE>
OMNICARE, INC. AND
SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 2000 and December 31, 1999 3
Consolidated Statement of Income -
Three and six months ended -
June 30, 2000 and 1999 4
Consolidated Statement of Cash Flows -
Six months ended -
June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
UNAUDITED
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 93,920 $ 97,267
Restricted cash 4,733 --
Accounts receivable, less allowances of
$34,836 (1999-$36,883) 426,597 422,283
Unbilled receivables 18,965 18,450
Inventories 134,602 120,280
Deferred income tax benefits 18,339 17,336
Other current assets 77,767 76,729
---------- ----------
Total current assets 774,923 752,345
Properties and equipment, at cost less accumulated
depreciation of $121,304 (1999-$106,022) 159,709 162,133
Goodwill, less accumulated amortization
of $99,439 (1999-$83,243) 1,178,801 1,188,941
Other assets 64,364 64,554
---------- ----------
Total assets $ 2,177,797 $ 2,167,973
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 103,449 $ 108,189
Amounts payable pursuant to acquisition agreements 5,140 9,053
Current bank debt 67,043 77,413
Accrued employee compensation 32,698 50,498
Deferred revenue 26,813 24,321
Other current liabilities 75,414 52,769
---------- ----------
Total current liabilities 310,557 322,243
Long-term bank debt 390,830 391,944
5% convertible subordinated notes, due 2007 345,000 345,000
Deferred income taxes 39,185 37,360
Amounts payable pursuant to acquisition agreements 12,036 13,878
Other noncurrent liabilities 32,054 29,168
---------- ----------
Total liabilities 1,129,662 1,139,593
Stockholders' equity:
Preferred stock-authorized 1,000,000 shares without par value; none issued
Common stock-authorized 200,000,000 shares $1 par; 92,573,700 shares
issued (1999-91,611,800 shares issued) 92,574 91,612
Paid-in capital 691,416 684,419
Retained earnings 296,036 275,114
---------- ----------
1,080,026 1,051,145
Treasury stock, at cost - 404,400 shares (1999-325,500 shares) (7,878) (6,950)
Deferred compensation (21,177) (14,098)
Accumulated other comprehensive income (2,836) (1,717)
---------- ----------
Total stockholders' equity 1,048,135 1,028,380
---------- ----------
Total liabilities and stockholders' equity $ 2,177,797 $ 2,167,973
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
3
<PAGE>
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Consolidated Statement of Income
UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 480,510 $ 454,645 $ 973,536 $ 900,333
Cost of sales 353,716 322,607 714,125 632,500
--------- --------- --------- ---------
Gross profit 126,794 132,038 259,411 267,833
Selling, general and administrative expenses 90,424 85,546 183,192 167,529
Acquisition expenses, pooling-of-interests -- 822 -- 822
Restructuring and other related charges 6,150 26,713 10,428 26,713
--------- --------- --------- ---------
Operating income 30,220 18,957 65,791 72,769
Investment income 357 367 816 649
Interest expense (13,634) (10,848) (26,799) (20,829)
--------- --------- --------- ---------
Income before income taxes 16,943 8,476 39,808 52,589
Income taxes 6,267 3,598 14,739 19,904
--------- --------- --------- ---------
Net income $ 10,676 $ 4,878 $ 25,069 $ 32,685
========= ========= ========= =========
Earnings per share:
Basic $ 0.12 $ 0.05 $ 0.27 $ 0.36
========= ========= ========= =========
Diluted $ 0.12 $ 0.05 $ 0.27 $ 0.36
========= ========= ========= =========
Weighted average number of
common shares outstanding:
Basic 92,155 90,890 91,877 90,709
========= ========= ========= =========
Diluted 92,155 91,073 91,877 90,976
========= ========= ========= =========
Comprehensive income $ 10,283 $ 4,524 $ 24,364 $ 31,827
========= ========= ========= =========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
4
<PAGE>
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Consolidated Statement of Cash Flows
UNAUDITED
<TABLE>
<CAPTION>
(In thousands) Six Months Ended
June 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 25,069 $ 32,685
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation 17,322 14,679
Amortization 21,518 18,055
Provision for doubtful accounts 12,241 8,912
Deferred tax provision 2,900 2,112
Non-cash portion of restructuring charges 1,701 2,717
Changes in assets and liabilities, net of effects
from acquisition of businesses:
Accounts receivable and unbilled receivables (19,440) (39,502)
Inventories (14,578) (23,588)
Current and noncurrent assets (1,118) (29,213)
Payables and accrued liabilities 4,749 21,890
Accrued employee compensation (12,363) 20,413
Deferred revenue 2,492 2,923
Current and noncurrent liabilities 19,212 (1,364)
--------- ---------
Net cash flows from operating activities 59,705 30,719
--------- ---------
Cash flows from investing activities:
Acquisition of businesses (25,662) (125,713)
Capital expenditures (16,224) (33,335)
Transfer of cash to trusts for employee health and severance
costs, net of payments out of the trust (4,733) --
Other 200 (775)
--------- ---------
Net cash flows from investing activities (46,419) (159,823)
--------- ---------
Cash flows from financing activities:
Borrowings on line of credit facilities -- 170,000
Payments on line of credit facilities (10,000) --
Principal payments on long-term obligations (1,528) (1,526)
(Payments) for and proceeds from exercise of stock options
and warrants, net of stock tendered in payment (756) (2,102)
Dividends paid (4,147) (4,094)
--------- ---------
Net cash flows from financing activities (16,431) 162,278
--------- ---------
Effect of exchange rate changes on cash (202) 1,087
--------- ---------
Net increase (decrease) in cash and cash equivalents (3,347) 34,261
Cash and cash equivalents at beginning of period 97,267 54,312
--------- ---------
Cash and cash equivalents at end of period $ 93,920 $ 88,573
========= =========
Supplemental disclosures of cash flow information:
Income taxes (refunded) paid, net $ (5,713) $ 25,343
Interest paid 25,467 21,322
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of this
statement.
5
<PAGE>
OMNICARE, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
1. The interim financial data are unaudited; however, in the opinion of the
management of Omnicare, Inc., the interim data include all adjustments (which
include only normal adjustments) considered necessary for a fair presentation of
the consolidated financial position, results of operations and cash flows of
Omnicare, Inc. and its consolidated subsidiaries ("Omnicare" or the "Company").
These financial statements should be read in conjunction with the Consolidated
Financial Statements and related notes included in Omnicare's Annual Report on
Form 10-K for the year ended December 31, 1999. Certain reclassifications of
prior year amounts have been made to conform with the current year presentation.
2. Based on the "management approach," as defined by Statement of Financial
Accounting Standards (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 three and six months ended June 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------------------
Corporate
Pharmacy CRO and Consolidated
2000: Services Services Consolidating Totals
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 452,924 $ 27,586 $ -- $ 480,510
Depreciation and amortization 17,806 1,027 295 19,128
Operating income (expense), excluding restructuring and
other related charges 43,003 1,042 (7,675) 36,370
Restructuring and other related charges (4,324) (1,826) -- (6,150)
Operating income (expense) 38,679 (784) (7,675) 30,220
Total assets 1,947,884 119,214 110,699 2,177,797
Expenditures for additions to long-lived assets 6,355 1,090 335 7,780
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1999:
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 419,142 $ 35,503 $ -- $ 454,645
Depreciation and amortization 15,206 1,531 262 16,999
Operating income (expense), excluding acquisition expenses
and restructuring and other related charges 47,973 4,731 (6,212) 46,492
Acquisition expenses (822) -- -- (822)
Restructuring and other related charges (23,983) (2,730) -- (26,713)
Operating income (expense) 23,168 2,001 (6,212) 18,957
Total assets 1,882,437 121,712 141,075 2,145,224
Expenditures for additions to long-lived assets 16,371 985 996 18,352
------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------------------
Corporate
Pharmacy CRO and Consolidated
2000: Services Services Consolidating Totals
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 913,870 $ 59,666 $ -- $ 973,536
Depreciation and amortization 36,271 2,032 537 38,840
Operating income (expense), excluding restructuring and
other related charges 86,344 3,774 (13,899) 76,219
Restructuring and other related charges (8,602) (1,826) -- (10,428)
Operating income (expense) 77,742 1,948 (13,899) 65,791
Total assets 1,947,884 119,214 110,699 2,177,797
Expenditures for additions to long-lived assets 13,733 2,103 388 16,224
------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1999:
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 830,852 $ 69,481 $ -- $ 900,333
Depreciation and amortization 29,176 3,107 451 32,734
Operating income (expense), excluding acquisition
expenses and restructuring and other related charges 103,461 9,155 (12,312) 100,304
Acquisition expenses (822) -- -- (822)
Restructuring and other related charges (23,983) (2,730) -- (26,713)
Operating income (expense) 78,656 6,425 (12,312) 72,769
Total assets 1,882,437 121,712 141,075 2,145,224
Expenditures for additions to long-lived assets 29,446 1,553 2,336 33,335
------------------------------------------------------------------------------------------------------------------------
</TABLE>
3. 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 and 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 has recorded a total of
$45,822,000 ($29,267,000 after taxes) for restructuring and other related
charges, of which $6,150,000 ($3,874,000 after taxes) and $10,428,000
($6,569,000 after taxes) were recorded during the three and six months ended
June 30, 2000, respectively. Additional charges of this nature are expected
to be incurred and expensed during the remainder of 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 $5,899,000 of pretax non-cash items, cumulative
7
<PAGE>
through June 30, 2000) 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
Employment 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
-------- -------- --------
Total restructuring charges 32,840 $(14,845) $ 17,995
======== ========
Other related charges 2,554
--------
Total restructuring and other
related charges $ 35,394
========
<CAPTION>
Six Months Ended Utilized During
June 30, 2000 Six Months Ended Balance at
Provision June 30, 2000 June 30, 2000
--------- -------------- ---------------
<S> <C> <C> <C>
Restructuring charges:
Employee severance $ 1,574 $ (3,712) $ 6,323
Employment agreement buy-outs 288 (1,502) 2,149
Lease terminations 177 (757) 3,943
Other assets and facility exit costs 5,188 (4,504) 2,332
-------- -------- --------
Total restructuring charges 7,227 $(10,475) $ 14,747
======== ========
Other related charges 3,201
--------
Total restructuring and other
related charges $ 10,428
========
</TABLE>
As of June 30, 2000, the Company had incurred approximately $12.3 million
of severance and other employee-related costs relating to the reduction of
approximately 1,500 employees. All remaining liabilities recorded at June 30,
2000 were classified as current liabilities since the Company expects that the
overall restructuring program will be completed in 2000.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Quarter Ended June 2000 vs. 1999
Diluted earnings per share for the three months ended June 30, 2000 were
$0.16 as compared with $0.25 earned in the prior year quarter, excluding from
the periods $6,150,000 ($3,874,000 after taxes, or $0.04 per diluted share) and
$27,535,000 ($17,815,000 after taxes, or $0.20 per diluted share), respectively,
of restructuring and other related charges (relating to the Company's previously
announced productivity and consolidation initiative) and acquisition expenses.
Net income for the 2000 quarter, excluding restructuring and other related
charges and acquisition expenses, was $14,550,000 versus the $22,693,000 earned
in the comparable 1999 quarter. Earnings before interest, taxes, depreciation
and amortization ("EBITDA"), on this basis, totaled $55,498,000 for the three
months ended June 30, 2000 as compared with EBITDA of $63,491,000 earned in the
second quarter of 1999. Net income for the second quarter of 2000 was
$10,676,000 (or $0.12 per diluted share) as compared to $4,878,000 (or $0.05 per
diluted share) in the same period of 1999. Sales for the three months ended June
30, 2000 rose to $480,510,000 from the $454,645,000 recorded in the comparable
prior year period.
The increase in the Company's sales represents the cumulative effect of
its acquisitions of long-term care pharmacy providers in 1999 and the internal
growth of the pharmacy services business. Internal growth resulted primarily
from the efforts of the Company's National Sales and Marketing Group and
pharmacy staff in developing new pharmacy contracts and drug price inflation.
The reduction in earnings primarily reflects the difficult operating
environment in the long-term care industry originating as a result of the
implementation of the federal government's Prospective Payment System ("PPS")
for Medicare residents of skilled nursing facilities ("SNFs"). Because of the
substantial reduction in reimbursement for skilled nursing facilities brought
about by PPS, Omnicare experienced PPS-related pricing pressure from its skilled
nursing facility customers late in 1998, and to a greater extent in 1999.
Moreover, the increasing reluctance on the part of skilled nursing facilities to
admit Medicare residents, particularly those requiring complex care, owing to
concerns relating to the adequacy of reimbursement under PPS caused a
significant weakening in Medicare census in many areas, primarily during the
second quarter of 1999 and thereafter. Also, for many skilled nursing
facilities, the average length of stay for Medicare residents decreased. These
factors had the effect of significantly reducing overall occupancy in the
facilities Omnicare serves. Additionally, the mix of residents in skilled
nursing facilities adversely affected Omnicare's results as these facilities
attempted to avoid high acuity patients, which impacts overall utilization of
drugs. Reimbursement concerns have increasingly driven many nursing facilities
to admit residents funded by payors other than Medicare. Although these trends
appeared to be stabilizing in the first half of 2000, they had an unfavorable
impact on the year-to-year comparison of sales, profit margins and net income.
The impact of the implementation of PPS for Medicare residents in SNFs,
specifically lower reimbursement which has led to lower occupancy and acuity
levels, has continued to weaken the financial condition of many SNFs. Congress
attempted to remedy this situation by enacting the Balanced Budget Refinement
Act ("BBRA"), which was intended to provide a temporary increase in
reimbursement rates, particularly for higher acuity residents, to be effective
April 1, 2000. However, many of Omnicare's customers reported that payments at
these new rates had not been received during the second quarter, exacerbating
already severe cash flow problems in some facilities. It was therefore necessary
for Omnicare to apply more stringent standards in accepting new business, and to
continue aggressively withdrawing from uneconomic accounts and those with an
unstable financial condition, which served to offset the addition of new
accounts during the second quarter of 2000 and had a dampening effect on sales
growth. The number of residents served at June 30, 2000 was 629,000 as compared
to 625,000 served one year earlier.
Omnicare's CRO Services segment recorded sales of $27,586,000 during
the second quarter of 2000 as compared to $35,503,000 recorded in the same prior
year period, representing a decline of $7,917,000. This decline was primarily
the result of
9
<PAGE>
delays in decision making by pharmaceutical manufacturers in commencing clinical
studies, relating in part to merger activities, as well as the cancellation of
planned projects prior to commencement. Operating profit for the second quarter
of 2000, excluding restructuring and other related charges from both periods,
was $1,042,000, a decline of $3,689,000 in comparison to the same prior year
quarter operating profit of $4,731,000, owing primarily to the volatility in
sales arising from the aforementioned factors.
Gross profit as a percentage of sales decreased to 26.4% in 2000 from
29.0% in 1999, representing an overall decline of $5,244,000 to $126,794,000 in
the 2000 period. The positive impact on gross profit relating to the Company's
purchasing leverage associated with purchases of pharmaceuticals, leveraging
fixed and variable overhead costs at the Company's pharmacies and benefits
realized from the Company's formulary compliance program and productivity and
consolidation initiative were more than offset by the aforementioned unfavorable
impact of PPS on the Pharmacy Services segment and the less favorable
performance of the CRO Services segment.
Selling, general and administrative ("operating") expenses for the
quarter ended June 30, 2000 increased $4,878,000 to $90,424,000 as compared to
1999 due primarily to the overall growth of the Company. Operating expenses as a
percentage of sales of 18.8% in 2000 were flat with the comparable prior year
period. Operating expenses for the second quarter of 2000 were unfavorably
impacted as compared to the same prior year period due to an increase in
estimated retirement expense as a result of the modification of one of the
Company's retirement plans, causing an increase of approximately 0.3 percentage
points of sales. This increase in operating expenses was offset, on a percentage
of sales basis, by the favorable impact of the Company's productivity and
consolidation program.
In 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,
simplify work processes and apply technology 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 $46
million upon completion. In connection with this program, the Company recorded
pretax restructuring and other related expenses of $6,150,000 in the second
quarter of 2000, primarily comprised of employee severance, employment agreement
buy-out costs, lease termination costs, other assets and facility exit costs,
and other related charges.
10
<PAGE>
Investment income for the three months ended June 30, 2000 was relatively
consistent with the same period of 1999.
Interest expense during the three months ended June 30, 2000 was
$13,634,000, an increase of $2,786,000 versus the comparable prior year period
primarily due to the full-quarter impact in 2000 of interest expense associated
with a $110 million increase (offset in part by subsequent repayments
aggregating $20 million) in borrowings under the Company's line of credit
facilities during the second quarter of 1999, as well as an increase in
interest rates in the second quarter of 2000 as compared to the same period in
the prior year. The increases in the Company's line of credit borrowings in 1999
were primarily attributable to the Company's acquisition program.
The decrease in the effective tax rate to 37.0% in the second quarter of
2000 from 42.4% in the comparable prior year quarter is primarily attributable
to the existence of nondeductible acquisition expenses in the prior year quarter
relating to a pooling-of-interests transaction, whereas no such transaction
existed in the second quarter of 2000. The effective tax rates in the 2000 and
1999 second quarters are higher than the statutory rate primarily due to state
and local income taxes and the previously mentioned nondeductible acquisition
costs.
Year-to-Date June 2000 vs. 1999
Diluted earnings per share for the six months ended June 30, 2000 were
$0.34 as compared with $0.56 earned in the first half of 1999, excluding from
the periods $10,428,000 ($6,569,000 after taxes, or $0.07 per diluted share) and
$27,535,000 ($17,815,000 after taxes, or $0.20 per diluted share), respectively,
of restructuring and other related charges (relating to the Company's previously
announced productivity and consolidation initiative) and acquisition expenses.
Net income for the first half of 2000, excluding restructuring and other related
charges and acquisition expenses, was $31,638,000 versus the $50,500,000 earned
in the comparable 1999 period. EBITDA, on this basis, totaled $115,059,000 for
the first half of 2000 as compared with EBITDA of $133,038,000 earned in the
same 1999 period. Net income for the first half of 2000 was $25,069,000 (or
$0.27 per diluted share) as compared to $32,685,000 (or $0.36 per diluted
share) in the same period of 1999. Sales for the six months ended June 30,
2000 increased to $973,536,000 from the $900,333,000 recorded in the comparable
prior year period.
The increase in the Company's sales represents the cumulative effect of
its acquisitions of long-term care pharmacy providers in 1999 and the internal
growth of the pharmacy services business. These favorable factors were partially
offset by the previously discussed unfavorable impact of PPS, which had the
overall impact of reducing earnings on a year over year basis.
11
<PAGE>
Omnicare's CRO Services segment recorded sales of $59,666,000 during
the six months ended June 30, 2000 as compared to $69,481,000 recorded in the
same prior year period, representing a decline of $9,815,000. This decline was
primarily the result of delays in decision making by pharmaceutical
manufacturers in commencing clinical studies, relating in part to merger
activities, as well as the cancellation of planned projects prior to
commencement. Operating profit for the six month period, excluding restructuring
and other related charges from both periods, was $3,774,000, a decline of
$5,381,000 in comparison to the same prior year period operating profit of
$9,155,000, owing primarily to the volatility in sales arising from the
aforementioned factors.
Gross profit as a percentage of sales decreased to 26.6% in 2000 from
29.7% in 1999, representing an overall decline of $8,422,000 to $259,411,000 in
the period. The positive impact on gross profit relating to the Company's
purchasing leverage associated with purchases of pharmaceuticals, leveraging
fixed and variable overhead costs at the Company's pharmacies and benefits
realized from the Company's formulary compliance program and productivity and
consolidation initiative were more than offset by the aforementioned unfavorable
impact of PPS on the Pharmacy Services segment and the less favorable
performance of the CRO Services segment.
Operating expenses for the six months ended June 30, 2000 increased
$15,663,000 to $183,192,000 as compared to 1999 due primarily to the overall
growth of the Company. Operating expenses as a percentage of sales of 18.8% in
2000 were higher than the 18.6% experienced in the comparable prior year period.
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, accounting for an increase of
approximately 0.3 percentage points of sales. Operating expenses for the first
half of 2000 were also unfavorably impacted as compared to the same prior year
period due to an increase in estimated retirement expense as a result of the
aforementioned modification of a retirement plan, causing an additional increase
of approximately 0.3 percentage points of sales. These increases in operating
expenses were partially offset, on a percentage of sales basis, by the favorable
impact of the Company's productivity and consolidation program.
In connection with the productivity and consolidation program which the
Company commenced in 1999, Omnicare recorded pretax restructuring and other
related expenses of
12
<PAGE>
$10,428,000 during the first half of 2000, primarily comprised of employee
severance, employment agreement buy-out costs, lease termination costs, other
assets and facility exit costs, and other related charges.
Investment income for the six months ended June 30, 2000 was relatively
consistent with the same period of 1999.
Interest expense during the six months ended June 30, 2000 was $26,799,000,
an increase of $5,970,000 versus the comparable prior year period primarily due
to the full-period impact of interest expense associated with a $170 million
increase (offset in part by subsequent repayments aggregating $20 million) in
borrowings under the Company's line of credit facilities during the first half
of 1999, as well as an increase in interest rates in the first half of 2000 as
compared to the same period in the prior year. The increases in the Company's
line of credit borrowings in 1999 were primarily attributable to the Company's
acquisition program.
The decrease in the effective tax rate to 37.0% during the first half of
2000 from 37.8% in the comparable prior year period is primarily attributable to
the existence of nondeductible acquisition expenses in the prior year period
relating to a pooling-of-interests transaction, whereas no such transaction
existed in the first half of 2000. The effective tax rates in 2000 and 1999
periods are higher than the statutory rate primarily due to state and local
income taxes and the previously mentioned nondeductible acquisition costs.
Liquidity and Capital Resources
Cash and cash equivalents (including restricted cash) at June 30, 2000
were $98.7 million compared to $97.3 million at December 31, 1999. In October
1996, the Company entered into a five-year agreement with a consortium of
sixteen banks for a $400 million revolving credit facility available through
October 2001. The total amount outstanding under this facility as of June 30,
2000 was $390 million. 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. 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 facility through September 2000. The amount outstanding at June 30, 2000
under the 364-day facility was $65 million. Interest rates and commitment fees
under the 364-day, $400 million line of credit facility are based on the
Company's debt ratings. The Company expects that this credit line will be
renewed upon its maturity. The Company generated positive net cash flows from
operating activities of approximately $60 million during the six months ended
June 30, 2000, which was used primarily for acquisition-related payments
(including amounts payable pursuant to acquisition agreements relating to
pre-2000 acquisitions), capital expenditures, debt repayment and dividends.
Improved management of working capital significantly contributed to the
favorable operating cash flow results through June 30, 2000.
The Company's capital requirements are primarily related to its acquisition
program and, to a lesser extent, capital expenditures, including those related
to investments in the Company's information technology systems. There are no
material commitments outstanding at June 30,
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2000, other than estimated future acquisition-related payments to be made in
accordance with purchase agreements.
The Company's current ratio at June 30, 2000 and December 31, 1999 was 2.5
to 1.0 and 2.3 to 1.0, respectively. The increase in the current ratio is
primarily attributable to an increase in working capital combined with a $10
million reduction in current bank debt during the first half of 2000.
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 in 2000. Dividends of $ 4.1 million paid during the six months ended
June 30, 2000 were consistent with those paid in the comparable prior year
period.
The Company believes its sources of liquidity and capital are adequate for
its ongoing operating needs. If needed, other external sources of financing are
readily available to the Company.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Regarding Forward-Looking Information
In addition to historical information, this report contains forward-looking
statements and performance trends that are subject to certain known and unknown
risks, uncertainties, contingencies and other factors that could cause actual
results, performance or achievements to differ materially from those stated.
Such forward-looking statements and trends include those relating to Omnicare's
acquisition program, internal growth trends, Omnicare's operating environment,
the impact of PPS, nursing home admission and occupancy trends, census and
length of stay trends, the impact of delayed decision-making and project
cancellation by pharmaceutical manufacturers, purchasing leverage, the
leveraging of costs, the formulary compliance program, the impact of the
financial condition of skilled nursing facilities on Omnicare's performance,
the impact of implementation of higher reimbursement rates under BBRA, the
impact of the productivity and consolidation program, the Company's capital
requirements, expectations concerning the renewal of the Company's 364-day
credit facility and the adequacy and availability of Omnicare's sources of
liquidity and capital. 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, the ability
to assess and react to the financial condition of customers, the impact of
seasonality on the business of Omnicare, the successful integration of acquired
companies, the effect of new government regulation and/or legislative
initiatives including those relating to reimbursement and drug pricing policies
and in the interpretation and application of such policies, the failure of
Omnicare to obtain or maintain required regulatory approvals or licenses, 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 impact and pace of technological advances, the ability to obtain
or maintain rights to data, technology and other intellectual property, the
impact of consolidation in the pharmaceutical industry, changes in tax law and
regulation, trends for the continued growth of the businesses of Omnicare,
volatility in Omnicare's stock price, the demand for Omnicare's products and
services, pricing and other competitive factors in the industry and variations
in costs or expenses.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not have any financial instruments held for trading
purposes and does not hedge any of its market risks with derivative instruments.
The Company's primary market risk exposure relates to interest rate risk
exposure through its borrowings. The Company's debt obligations at June 30, 2000
include $390 million outstanding under its five-year, $400 million variable-rate
revolving line of credit facility at an approximate average rate of 7.8% at June
30, 2000 (a one-hundred basis point change in interest rates would impact
interest expense by approximately $1.0 million per quarter), $65 million
outstanding under its 364-day, $400 million variable-rate revolving line of
credit facility at an approximate average rate of 7.2% at June 30, 2000 (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.
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PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Omnicare held its Annual Meeting of Stockholders on May 15, 2000.
(b) The names of each director elected at this Annual Meeting are as
follows:
Edward L. Hutton Patrick E. Keefe
Joel F. Gemunder Sandra E. Laney
Charles H. Erhart, Jr. Andrea R. Lindell, DNSc, RN
Mary Lou Fox Sheldon Margen, M.D.
David W. Froesel, Jr. Kevin J. McNamara
Cheryl D. Hodges John H. Timoney
Thomas C. Hutton
With respect to the election of directors, the number of votes cast
for each nominee was as follows:
Votes For Votes Withheld
E. L. Hutton 75,618,538 2,372,337
J. F. Gemunder 75,647,449 2,343,426
C. H. Erhart, Jr. 75,960,236 2,030,639
M. L. Fox 75,644,585 2,346,590
D. W. Froesel, Jr. 75,662,248 2,328,627
C. D. Hodges 75,660,369 2,330,506
T. C. Hutton 75,652,406 2,338,469
P. E. Keefe 75,664,318 2,326,557
S. E. Laney 75,991,061 1,999,814
A. R. Lindell, DNSc, RN 75,993,291 1,997,584
S. Margen, M.D. 75,991,767 1,999,108
K. J. McNamara 75,645,254 2,345,621
J. H. Timoney 75,995,063 1,995,812
(c) The Stockholders ratified the selection by the Board of Directors of
PricewaterhouseCoopers LLP as independent accountants for the Company
and its consolidated subsidiaries for the 2000 year. A total of
77,469,691 votes were cast in favor of the proposal, 293,482 votes
were cast against it, 227,702 votes abstained and there were no Broker
non-votes.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on June 27, 2000 to report its
preliminary estimate of second quarter 2000 operating results.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Omnicare, Inc.
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Registrant
Date August 14, 2000 By: /s/ David W. Froesel, Jr.
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David W. Froesel, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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STATEMENT OF DIFFERENCES
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The registered trademark symbol shall be expressed as........................'r'
