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EX-12 - OMNICARE INCc59261_ex12.htm
EX-32.2 - OMNICARE INCc59261_ex32-2.htm
EX-31.2 - OMNICARE INCc59261_ex31-2.htm
EX-32.1 - OMNICARE INCc59261_ex32-1.htm
EX-31.1 - OMNICARE INCc59261_ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

 

(Mark One)

 

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009
or

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

 

Commission File Number 1-8269


 

 

 

 

OMNICARE, INC.

 

 

 

 

(Exact name of registrant as specified in its charter)


 

 

 

Delaware

 

31-1001351

 

 

 

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 


 

 

 

 

100 East RiverCenter Boulevard, Covington, Kentucky 41011

 

 

 

 

 

(Address of principal executive offices)                 (Zip Code)

 


 

 

 

 

(859) 392-3300

 

 

 

 

(Registrant’s telephone number, including area code)


 

 

 

 

 

 

 

(Former name, former address and former fiscal year, if changed since last report)

 


 

 

 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes [    ]     No [    ]   

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


 

 

 

 

 

Large accelerated filer [ x ]

Accelerated filer

[    ]

 

Non-accelerated filer   [    ] (Do not check if a smaller reporting company)

Smaller reporting company

[    ]

 

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [    ]     No [ x ]   


 

 

 

 

 

 

COMMON STOCK OUTSTANDING

 

 

 

 

 

 

 

Number of
Shares

 

Date

 

 

 

 

 

Common Stock, $1 par value

 

119,336,801

 

September 30, 2009

 



OMNICARE, INC. AND

SUBSIDIARY COMPANIES

FORM 10-Q QUARTERLY REPORT SEPTEMBER 30, 2009

INDEX

 

 

 

 

 

 

 

PAGE

 

 

 

 

 

PART I - FINANCIAL INFORMATION:

 

 

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

 

 

 

Consolidated Statements of Income –
Three and nine months ended – September 30, 2009 and 2008

 

3

 

 

 

 

 

Consolidated Balance Sheets –
September 30, 2009 and December 31, 2008

 

4

 

 

 

 

 

Consolidated Statements of Cash Flows –
Nine months ended – September 30, 2009 and 2008

 

5

 

 

 

 

 

Notes to Consolidated Financial Statements

 

6

 

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

45

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

77

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

 

79

 

 

 

 

 

PART II - OTHER INFORMATION:

 

 

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

 

79

 

 

 

 

ITEM 1A.

RISK FACTORS

 

82

 

 

 

 

ITEM 2.

UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

 

90

 

 

 

 

ITEM 6.

EXHIBITS

 

91



PART I - FINANCIAL INFORMATION:

ITEM 1. - FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended,
September 30,

 

Nine months ended
September 30,

 

 

 

 

 

 

 

 

 

2009

 

2008
as adjusted
(Notes 2 & 3)

 

2009

 

2008
as adjusted
(Notes 2 & 3)

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,543,901

 

$

1,578,251

 

$

4,626,513

 

$

4,631,401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

1,175,946

 

 

1,172,791

 

 

3,496,492

 

 

3,482,236

 

Repack matters (Note 11)

 

 

1,755

 

 

1,041

 

 

3,672

 

 

4,175

 

 

 

   

 

   

 

   

 

   

 

Gross profit

 

 

366,200

 

 

404,419

 

 

1,126,349

 

 

1,144,990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

203,394

 

 

228,325

 

 

623,018

 

 

681,503

 

Provision for doubtful accounts

 

 

23,098

 

 

27,180

 

 

71,079

 

 

79,425

 

Restructuring and other related charges (Note 10)

 

 

6,295

 

 

7,655

 

 

19,095

 

 

24,887

 

Litigation and other related professional fees (Note 11)

 

 

1,739

 

 

13,479

 

 

71,761

 

 

51,143

 

Repack matters (Note 11)

 

 

277

 

 

129

 

 

1,549

 

 

628

 

Acquisition and other related costs (Note 4)

 

 

(632

)

 

-

 

 

2,218

 

 

-

 

 

 

   

 

   

 

   

 

   

 

Operating income

 

 

132,029

 

 

127,651

 

 

337,629

 

 

307,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income

 

 

1,202

 

 

1,441

 

 

4,641

 

 

6,011

 

Interest expense

 

 

(29,588

)

 

(36,662

)

 

(90,650

)

 

(109,168

)

Amortization of discount on convertible notes (Note 6)

 

 

(7,059

)

 

(6,544

)

 

(20,783

)

 

(19,265

)

 

 

   

 

   

 

   

 

   

 

Income from continuing operations before income taxes

 

 

96,584

 

 

85,886

 

 

230,837

 

 

184,982

 

Income tax provision

 

 

17,838

 

 

31,536

 

 

77,869

 

 

69,601

 

 

 

   

 

   

 

   

 

     

Income from continuing operations

 

 

78,746

 

 

54,350

 

 

152,968

 

 

115,381

 

Loss from discontinued operations, including impairment charge of $12,065 aftertax during the nine months ended 2009 period (Note 3)

 

 

(6,231

)

 

(591

)

 

(20,840

)

 

(2,537

)

 

 

   

 

   

 

   

 

   

 

Net income

 

$

72,515

 

$

53,759

 

$

132,128

 

$

112,844

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share - Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.67

 

$

0.47

 

$

1.31

 

$

0.98

 

Discontinued operations

 

 

(0.05

)

 

(0.01

)

 

(0.18

)

 

(0.02

)

Net income

 

$

0.62

 

$

0.46

 

$

1.13

 

$

0.96

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share - Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.67

 

$

0.46

 

$

1.30

 

$

0.97

 

Discontinued operations

 

 

(0.05

)

 

(0.01

)

 

(0.18

)

 

(0.02

)

Net income

 

$

0.61

 

$

0.46

 

$

1.12

 

$

0.95

 

 

 

   

 

   

 

   

 

   

 

Dividends per common share

 

$

0.0225

 

$

0.0225

 

$

0.0675

 

$

0.0675

 

 

 

   

 

   

 

   

 

   

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

117,598

 

 

115,983

 

 

116,970

 

 

117,904

 

 

 

   

 

   

 

   

 

   

 

Diluted

 

 

118,145

 

 

117,483

 

 

117,711

 

 

118,764

 

 

 

   

 

   

 

   

 

   

 

Comprehensive income

 

$

75,031

 

$

54,540

 

$

132,929

 

$

121,948

 

 

 

   

 

   

 

   

 

   

 

The Notes to Consolidated Financial Statements are an integral part of these statements.

3


CONSOLIDATED BALANCE SHEETS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

September 30,
2009

 

December 31,
2008
as adjusted
(Notes 2 & 3)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

324,137

 

$

214,668

 

Restricted cash

 

 

2,929

 

 

1,891

 

Accounts receivable, less allowances of $327,729 (2008-$319,417)

 

 

1,248,370

 

 

1,337,558

 

Unbilled receivables, CRO

 

 

26,239

 

 

22,329

 

Inventories

 

 

345,554

 

 

449,023

 

Deferred income tax benefits

 

 

147,430

 

 

134,249

 

Other current assets

 

 

180,912

 

 

176,989

 

Current assets of discontinued operations

 

 

23,180

 

 

34,986

 

Total current assets

 

 

2,298,751

 

 

2,371,693

 

Properties and equipment, at cost less accumulated depreciation of $317,341 (2008-$300,880)

 

 

212,331

 

 

208,527

 

Goodwill

 

 

4,246,320

 

 

4,211,221

 

Identifiable intangible assets, less accumulated amortization of $176,365 (2008-$149,538)

 

 

305,678

 

 

329,446

 

Rabbi trust assets for settlement of pension obligations

 

 

134,048

 

 

134,587

 

Other noncurrent assets

 

 

150,048

 

 

137,526

 

Noncurrent assets of discontinued operations

 

 

44,724

 

 

57,245

 

Total noncurrent assets

 

 

5,093,149

 

 

5,078,552

 

Total assets

 

$

7,391,900

 

$

7,450,245

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

256,484

 

$

333,728

 

Accrued employee compensation

 

 

33,419

 

 

50,082

 

Deferred revenue, CRO

 

 

12,964

 

 

23,227

 

Current debt

 

 

176,374

 

 

1,784

 

Other current liabilities

 

 

289,736

 

 

221,632

 

Current liabilities of discontinued operations

 

 

9,098

 

 

10,336

 

Total current liabilities

 

 

778,075

 

 

640,789

 

Long-term debt, notes and convertible debentures (Note 6)

 

 

1,972,952

 

 

2,352,824

 

Deferred income tax liabilities

 

 

571,197

 

 

525,426

 

Other noncurrent liabilities

 

 

257,983

 

 

276,284

 

Noncurrent liabilities of discontinued operations

 

 

53

 

 

53

 

Total noncurrent liabilities

 

 

2,802,185

 

 

3,154,587

 

Total liabilities

 

 

3,580,260

 

 

3,795,376

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, no par value, 1,000,000 shares authorized, none issued and outstanding

 

 

-

 

 

-

 

Common stock, $1 par value, 200,000,000 shares authorized, 126,698,900 shares issued (2008-125,583,300 shares issued)

 

 

126,699

 

 

125,583

 

Paid-in capital (Note 6)

 

 

2,261,669

 

 

2,224,129

 

Retained earnings

 

 

1,621,516

 

 

1,498,171

 

Treasury stock, at cost-7,362,100 shares (2008-7,135,300 shares)

 

 

(199,209

)

 

(193,178

)

Accumulated other comprehensive income (loss)

 

 

965

 

 

164

 

Total stockholders’ equity

 

 

3,811,640

 

 

3,654,869

 

Total liabilities and stockholders’ equity

 

$

7,391,900

 

$

7,450,245

 

The Notes to Consolidated Financial Statements are an integral part of these statements.

4


CONSOLIDATED STATEMENTS OF CASH FLOWS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(in thousands)

 

 

 

 

 

 

 

 

 

 

Nine months ended
September 30,

 

 

 

2009

 

2008
as adjusted
(Notes 2 & 3)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

132,128

 

$

112,844

 

Loss from discontinued operations

 

 

20,840

 

 

2,537

 

Adjustments to reconcile net income to net cash flows from operating activities:

 

 

 

 

 

 

 

Depreciation expense

 

 

37,335

 

 

35,637

 

Amortization expense

 

 

68,022

 

 

67,358

 

Changes in assets and liabilities, net of effects from acquisition and divestiture of businesses:

 

 

 

 

 

 

 

Accounts receivable and unbilled receivables, net of provision for doubtful accounts

 

 

96,353

 

 

30,349

 

Inventories

 

 

106,001

 

 

33,189

 

Other current and noncurrent assets

 

 

13,971

 

 

3,480

 

Accounts payable

 

 

(75,293

)

 

(67,276

)

Accrued employee compensation

 

 

(15,766

)

 

27,254

 

Deferred revenue

 

 

(10,246

)

 

(2,059

)

Current and noncurrent liabilities

 

 

57,688

 

 

86,918

 

Net cash flows from operating activities of continuing operations

 

 

431,033

 

 

330,231

 

Net cash flows from operating activities of discontinued operations

 

 

568

 

 

1,654

 

Net cash flows from operating activities

 

 

431,601

 

 

331,885

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisition of businesses, net of cash received

 

 

(64,498

)

 

(201,032

)

Capital expenditures

 

 

(26,266

)

 

(45,679

)

Transfer of cash (to)/from trusts for employee health and severance costs, net of payments out of the trust

 

 

538

 

 

(11,419

)

Disbursements for loans and investments

 

 

(5,600

)

 

-

 

Other

 

 

(1,929

)

 

(574

)

Net cash flows used in investing activities of continuing operations

 

 

(97,755

)

 

(258,704

)

Net cash flows used in investing activities of discontinued operations

 

 

(504

)

 

(1,303

)

Net cash flows used in investing activities

 

 

(98,259

)

 

(260,007

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Net payments on revolving credit facility and term A loan

 

 

(225,000

)

 

(50,000

)

Payments on long-term borrowings and obligations

 

 

(1,376

)

 

(2,291

)

(Decrease) in cash overdraft balance

 

 

(1,723

)

 

(2,312

)

Payments for Omnicare common stock repurchases

 

 

-

 

 

(100,165

)

Proceeds / (payments) for stock awards and exercise of stock options, net of stock tendered in payment

 

 

10,164

 

 

(1,183

)

Excess tax benefits from stock-based compensation

 

 

2,367

 

 

750

 

Dividends paid

 

 

(8,043

)

 

(8,080

)

Net cash flows used in financing activities of continuing operations

 

 

(223,611

)

 

(163,281

)

Net cash flows provided by financing activities of discontinued operations

 

 

-

 

 

119

 

Net cash flows used in financing activities

 

 

(223,611

)

 

(163,162

)

 

Effect of exchange rate changes on cash

 

 

(198

)

 

(2,056

)

 

Net increase (decrease) in cash and cash equivalents

 

 

109,533

 

 

(93,340

)

Less increase in cash and cash equivalents of discontinued operations

 

 

64

 

 

470

 

Increase (decrease) in cash and cash equivalents of continuing operations

 

 

109,469

 

 

(93,810

)

Cash and cash equivalents at beginning of period

 

 

214,668

 

 

274,200

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

324,137

 

$

180,390

 

The Notes to Consolidated Financial Statements are an integral part of these statements.

5


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED

Note 1 - Interim Financial Data, Description of Business and Summary of Significant Accounting Policies

Interim Financial Data

The interim financial data is unaudited; however, in the opinion of the management of Omnicare, Inc., the interim data includes all adjustments (which include only normal adjustments, except as described in the “Restructuring and Other Related Charges” and “Commitments and Contingencies” notes) considered necessary for a fair statement of the consolidated results of operations, financial position 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, 2008 (“Omnicare’s 2008 Annual Report”) and any related updates included in the Company’s periodic quarterly Securities and Exchange Commission (“SEC”) filings. Certain reclassifications and adjustments (see “Change in Method of Accounting for Convertible Debt” note) of prior year amounts have been made to conform with the current year presentation. Further, the Company has discontinued a component of its pharmacy services business (see “Discontinued Operations” note). All amounts disclosed in these consolidated financial statements and related notes are presented on a continuing operations basis unless otherwise stated.

Description of Business and Summary of Significant Accounting Policies

The Company’s description of business and significant accounting policies have been disclosed in Omnicare’s 2008 Annual Report. As previously stated, these financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in Omnicare’s 2008 Annual Report and any applicable updates contained in the Company’s periodic quarterly SEC filings, including those presented below.

Concentration of Risk

The prescription drug benefit under Medicare Part D (“Part D”) became effective on January 1, 2006. As a result, providers of long-term care pharmacy services, including Omnicare, experienced a significant shift in payor mix beginning in 2006. Approximately 39% of the Company’s revenues in the nine months ended September 30, 2009 were generated under the Part D program. The Company estimates that approximately 25% of these Part D revenues during the nine months ended September 30, 2009 relate to patients enrolled in Part D prescription drug plans sponsored by UnitedHealth Group, Inc. and its affiliates (“United”). United and a small number of other Part D Plan sponsors and pharmaceutical benefit managers reimburse a significant portion of the Company’s Part D revenues. Prior to the implementation of the Medicare Part D program, most of the Part D residents served by the Company were reimbursed under state Medicaid programs and, to a lesser extent, private pay sources.

6


Under the Part D benefit, payment is determined in accordance with the agreements Omnicare has negotiated with the Part D Plans. The remainder of Omnicare’s billings are paid or reimbursed primarily by long-term care facilities (including revenues for residents funded under Medicare Part A) and other third party payors, including private insurers, state Medicaid programs, as well as individual residents.

The Medicaid and Medicare programs are highly regulated. The failure, even if inadvertent, of Omnicare and/or client facilities to comply with applicable reimbursement regulations could adversely affect Omnicare’s reimbursement under these programs and Omnicare’s ability to continue to participate in these programs. In addition, failure to comply with these regulations could subject the Company to other penalties.

As noted, the Company obtains reimbursement for drugs it provides to enrollees of a given Part D Plan pursuant to the agreement it negotiates with that Part D Plan. The Company has entered into such agreements with nearly all Part D Plan sponsors under which it will provide drugs and associated services to their enrollees. The Company continues to have ongoing discussions with Part D Plans and renegotiates these agreements in the ordinary course. Further, the proportion of the Company’s Part D business serviced under specific agreements may change over time based upon beneficiary choice, reassignment of dual eligibles to different Part D Plans or Part D Plan consolidation. As such, reimbursement under these agreements is subject to change. Moreover, as expected in the transition to a program of this magnitude, certain administrative and payment issues have arisen, resulting in higher operating expenses, as well as outstanding gross accounts receivable (net of allowances for contractual adjustments, and prior to any allowance for doubtful accounts), particularly for copays. As of September 30, 2009, copays outstanding from Part D Plans were approximately $17 million relating to 2006 and 2007. The Company is pursuing solutions, including legal actions against certain Part D Plans, to collect outstanding copays, as well as certain rejected claims.

On July 11, 2007, the Company commenced legal action against a group of its customers for, among other things, the collection of past-due receivables that are owed to the Company. Specifically, approximately $98 million (excluding interest) is owed to the Company by this group of customers as of September 30, 2009, of which approximately $92 million is past-due based on applicable payment terms (a significant portion of which is not reserved based on the relevant facts and circumstances).

Until these administrative and payment issues relating to the Part D Drug Benefit as well as the aforementioned legal action against a group of Omnicare’s customers are fully resolved, there can be no assurance that these matters will not adversely impact the Company’s results of operations, financial position or cash flows.

7


Fair Value

On January 1, 2008, the Company adopted the authoritative guidance for fair value measurements, which defines a hierarchy which prioritizes the inputs in fair value measurements. “Level 1” measurements are measurements using quoted prices in active markets for identical assets or liabilities. “Level 2” measurements use significant other observable inputs. “Level 3” measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions. In recording the fair value of assets and liabilities, companies must use the most reliable measurement available. The impact to the Company’s consolidated results of operations, financial position and cash flows upon adoption of this authoritative guidance was not material. The assets, as further described in detail at the “Fair Value” note of the Notes to the Consolidated Financial Statements in Omnicare’s 2008 Annual Report, measured at fair value as of September 30, 2009 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Based on

 

 

 

Fair Value
at September 30,
2009

 

Quoted Prices
in Active
Markets
(Level 1)

 

Other
Observable
Inputs
(Level 2)

 

Unobservable
Inputs
(Level 3)

 

Rabbi trust assets

 

$

134,048

 

$

134,048

 

$

-

 

$

-

 

Interest rate swap agreement - fair value hedge

 

 

6,326

 

 

-

 

 

6,326

 

 

-

 

Derivatives

 

 

-

 

 

-

 

 

-

 

 

-

 

Total

 

$

140,374

 

$

134,048

 

$

6,326

 

$

-

 

In 2009, the Company adopted the provisions of the authoritative guidance for interim disclosures about the fair value of financial instruments, which requires disclosures about fair value of financial instruments for interim reporting periods. The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices and is summarized as follows (in thousands):

Fair Value of Financial Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instrument:

 

 

September 30, 2009

 

December 31, 2008

 

 

 

Book Value

 

Market Value

 

Book Value

 

Market Value

 

6.125% senior subordinated notes, due 2013, gross

 

$

250,000

 

$

243,400

 

$

250,000

 

$

208,800

 

6.75% senior subordinated notes, due 2013

 

 

225,000

 

 

218,800

 

 

225,000

 

 

189,000

 

6.875% senior subordinated notes, due 2015

 

 

525,000

 

 

501,400

 

 

525,000

 

 

446,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.00% junior subordinated convertible debentures, due 2033

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying value

 

 

198,545

 

 

 

 

 

197,029

 

 

 

 

Unamortized debt discount

 

 

146,455

 

 

 

 

 

147,971

 

 

 

 

Principal amount

 

 

345,000

 

 

239,500

 

 

345,000

 

 

250,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.25% convertible senior debentures, due 2035

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying value

 

 

766,451

 

 

 

 

 

747,185

 

 

 

 

Unamortized debt discount

 

 

211,049

 

 

 

 

 

230,315

 

 

 

 

Principal amount

 

 

977,500

 

 

692,900

 

 

977,500

 

 

565,100

 

8


Common Stock Repurchase Program

During the second quarter of 2008, the Company repurchased approximately 4.1 million shares of Omnicare’s common stock at a cost of approximately $100 million under a stock buyback program authorized by its Board of Directors.

Accumulated Other Comprehensive Income (Loss)

The accumulated other comprehensive income (loss) balances at September 30, 2009 and December 31, 2008, net of aggregate applicable tax benefits of $4.2 million and $2.5 million, respectively, by component and in the aggregate, follow (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30,
2009

 

December 31,
2008

 

 

 

 

 

 

 

Cumulative foreign currency translation adjustments

 

$

7,691

 

$

4,112

 

Unrealized gain on fair value of investments

 

 

4,099

 

 

7,340

 

Pension and postemployment benefits

 

 

(10,825

)

 

(11,288

)

 

 

   

 

   

 

Total accumulated other comprehensive income adjustments, net

 

$

965

 

$

164

 

 

 

   

 

   

 

Noncontrolling Interests

Effective January 1, 2009, the Company adopted the provisions of the authoritative guidance for the reporting of noncontrolling interests in consolidated financial statements, which primarily requires all entities to report noncontrolling (minority) interests in subsidiaries in the same way as equity in the consolidated financial statements. This guidance is effective for the first annual reporting period beginning after December 15, 2008, and its first quarter 2009 adoption had an immaterial effect on the Company’s consolidated results of operations, financial position and cash flows.

Subsequent Events

In the second quarter of 2009, the Company adopted the provisions of the authoritative guidance for subsequent events, which requires that entities disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. The Company evaluated subsequent events through November 5, 2009, which is the date the financial statements were issued, and noted no material subsequent events had occurred through this date warranting revision to the financial statements.

9


Income Taxes

The effective income tax rate was 18.5% and 33.7% for the three and nine months ended September 30, 2009, respectively, as compared to the rate of 36.7% and 37.6%, respectively, for the same prior-year periods. The year-over-year decrease in the effective tax rate is largely due to the reduction of income tax expenses in the respective 2009 periods totaling approximately $19 million, primarily attributable to the reversal of certain unrecognized tax benefits for tax positions settled through the expiration of statutes of limitations, partially offset by certain nondeductible expenses recognized in the 2009 periods.

Recently Issued Accounting Standards

In December 2008, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance for employers’ disclosures about postretirement benefit plan assets, which, among other items, requires increased disclosures about plan assets in an employer’s defined benefit pension or other postretirement plans such as how investment allocation decisions are made; major categories of plan assets; inputs and valuation techniques used to measure the fair value of plan assets; the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and significant concentrations of risk within plan assets. The disclosures about plan assets required by the guidance shall be provided for fiscal years ending after December 15, 2009. The Company continues to evaluate the impact of this recently issued guidance on its disclosures.

In June 2009, the FASB issued authoritative guidance for accounting for transfers of financial assets which removes the concept of a qualifying special-purpose entity and also removes the exception from applying the authoritative guidance for consolidation of variable interest entities to qualifying special purpose entities. This guidance requires that a transferor recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. This new guidance is effective for an entity’s first annual reporting period that begins after November 15, 2009. The Company does not anticipate the effect of this recently issued guidance to be material to its consolidated results of operations, financial position and cash flows.

In June 2009, the FASB revised the authoritative guidance for variable interest entities to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This guidance is effective for an entity’s first annual reporting period that begins after November 15, 2009. The Company does not anticipate the effect of this recently issued guidance to be material to its consolidated results of operations, financial position and cash flows.

In June 2009, the FASB revised the authoritative guidance regarding the hierarchy of Generally Accepted Accounting Principles (“GAAP”), which establishes the Accounting Standards Codification as the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities.

10


Note 2 – Change in Method of Accounting for Convertible Debt

Effective January 1, 2009, the Company retrospectively adopted the provisions of the authoritative guidance regarding the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), which among other items, specifies that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that reflects the entity’s calculated nonconvertible debt borrowing rate when the debt was issued. Comparative financial statements for prior years have been adjusted to apply the new method retrospectively. The affected financial statement line items and the amount of the adjustments for the three and nine month periods ending September 30, 2008 follow (in thousands):

Income Statement
Three and Nine Months Ended September 30, 2008

 

 

 

 

 

 

 

 

 

 

Three months
ended
September 30,
2008

 

Nine months
ended
September 30,
2008

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of discount on convertible notes (Note 6)

 

$

(6,544

)

$

(19,265

)

 

 

 

 

 

 

 

 

Interest expense

 

 

234

 

 

702

 

 

 

   

 

   

 

 

Income from continuing operations before income taxes

 

 

(6,310

)

 

(18,563

)

 

 

 

 

 

 

 

 

Income tax provision

 

 

2,364

 

 

6,953

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

(3,946

)

$

(11,610

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations:

 

 

 

 

 

 

 

Basic

 

$

(0.03

)

$

(0.10

)

 

 

   

 

   

 

Diluted

 

$

(0.03

)

$

(0.10

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

(3,946

)

$

(11,610

)

 

 

   

 

   

 

11


Statement of Cash Flows
Nine Months Ended September 30, 2008

 

 

 

 

 

 

 

Nine months
ended
September 30, 2008

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income

 

$

(11,610

)

 

 

 

 

 

Amortization expense

 

 

19,265

 

 

 

 

 

 

Change in other current and noncurrent assets

 

 

(702

)

 

 

 

 

 

Change in current and noncurrent liabilities

 

 

(6,953

)

 

 

 

 

 

Net cash flows from operating activities

 

 

-

 

Note 3 – Discontinued Operations

In the second quarter of 2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses (“the disposal group”) that are non-strategic in nature. The disposal group, historically part of Omnicare’s Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Company’s institutional pharmacy acquisition program. The results from continuing operations for all periods presented have been revised to reflect the results of the disposal group as discontinued operations, including certain expenses of the Company related to the divestiture. The Company anticipates completing the divestiture within twelve months. Selected financial data related to the discontinued operations of this disposal group for the three and nine months ended September 30, 2009 and 2008 follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended,
September 30,

 

Nine months ended
September 30,

 

 

 

 

 

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

18,388

 

$

25,138

 

$

59,661

 

$

81,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations of disposal group, pretax

 

 

(10,107

)

 

(963

)

 

(14,329

)

 

(4,135

)

Income tax benefit

 

 

3,876

 

 

372

 

 

5,554

 

 

1,598

 

 

 

   

 

   

 

   

 

   

 

Loss from operations of disposal group, aftertax

 

 

(6,231

)

 

(591

)

 

(8,775

)

 

(2,537

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment charge, pretax

 

 

-

 

 

-

 

 

(14,492

)

 

-

 

Income tax benefit on impairment charge

 

 

-

 

 

-

 

 

2,427

 

 

-

 

 

 

   

 

   

 

   

 

   

 

Impairment charge, aftertax

 

 

-

 

 

-

 

 

(12,065

)

 

-

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, aftertax

 

$

(6,231

)

$

(591

)

$

(20,840

)

$

(2,537

)

 

 

   

 

   

 

   

 

   

 

12


Note 4 – Acquisitions

Since 1989, the Company has been involved in a program to acquire providers of pharmaceutical products and related pharmacy services to long-term care facilities and their residents as well as patients in other care settings. The Company’s strategy has included the acquisition of freestanding institutional pharmacy businesses as well as other assets, generally insignificant in size, which have been combined with existing pharmacy operations to augment their internal growth. From time-to-time the Company may acquire other businesses, such as pharmacy consulting companies, specialty pharmacy companies, medical supply and service companies, hospice pharmacy companies and companies providing distribution and product support services for specialty pharmaceuticals, as well as contract research organizations, which complement the Company’s core businesses.

Effective January 1, 2009, the Company adopted the provisions of the authoritative guidance for business combinations, which requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction at fair value; and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, including earn-out provisions. The 2009 implementation resulted in acquisition and other related costs/(credits) of approximately $(0.6) million and $2.2 million pretax ($(0.4) million and $1.4 million, aftertax) during the three and nine months ended September 30, 2009, respectively, which were primarily related to professional fees and acquisition related restructuring costs for acquisitions completed during the 2009 periods, partially offset by a third quarter 2009 reduction in the Company’s original estimate of contingent consideration payable for an acquisition.

During the first nine months of 2009, Omnicare completed six acquisitions of businesses in the Pharmacy Services segment, none of which were, individually or in the aggregate, significant to the Company. Acquisitions of businesses required outlays of $64.5 million (including amounts payable pursuant to acquisition agreements relating to pre-2009 acquisitions) in the nine months ended September 30, 2009. The impact of these aggregate acquisitions on the Company’s overall goodwill balance has been reflected in the disclosures at the “Goodwill and Other Intangible Assets” note. The Company continues to evaluate the tax effects, identifiable intangible assets and other pre-acquisition contingencies relating to certain acquisitions. Omnicare is in the process of completing its allocation of the purchase price for certain acquisitions and, accordingly, the goodwill and other identifiable intangible assets balances are preliminary and subject to change. The net assets and operating results of acquisitions have been included in the Company’s consolidated financial statements from their respective dates of acquisition.

13


Note 5 - Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the nine months ended September 30, 2009, by business segment, are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Pharmacy
Services

 

CRO
Services

 

Total

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2008

 

$

4,121,208

 

$

90,013

 

$

4,211,221

 

Goodwill acquired in the nine months ended September 30, 2009

 

 

33,145

 

 

-

 

 

33,145

 

Other

 

 

(272

)

 

2,226

 

 

1,954

 

 

 

   

 

   

 

   

 

Balance as of September 30, 2009

 

$

4,154,081

 

$

92,239

 

$

4,246,320

 

 

 

   

 

   

 

   

 

The “Other” caption above includes the settlement of acquisition matters relating to prior-year acquisitions (including, where applicable, payments pursuant to acquisition agreements such as deferred payments, indemnification payments and payments originating from earnout provisions, as well as adjustments for the finalization of purchase price allocations, including identifiable intangible asset valuations). “Other” also includes the effect of adjustments due to foreign currency translations, which relate primarily to the Contract Research Organization (“CRO”) Services segment, as well as one pharmacy located in Canada which is included in the Pharmacy Services segment.

The decrease in the September 30, 2009 net carrying amount of the Company’s other identifiable intangible assets of approximately $24 million from December 31, 2008 primarily relates to amortization expense recorded during the nine-month period, partially offset by increases due primarily to customer relationship assets and non-compete agreements associated with recent acquisitions, which have a weighted-average life of approximately 10 years.

14


Note 6 - Debt

A summary of debt follows (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30,
2009

 

December 31,
2008

 

 

 

 

 

 

 

Revolving loans, due 2010, $800 million

 

$

-

 

$

-

 

Senior term A loan, due 2010

 

 

175,000

 

 

400,000

 

6.125% senior subordinated notes, due 2013

 

 

250,000

 

 

250,000

 

6.75% senior subordinated notes, due 2013

 

 

225,000

 

 

225,000

 

6.875% senior subordinated notes, due 2015

 

 

525,000

 

 

525,000

 

4.00% junior subordinated convertible debentures, due 2033

 

 

345,000

 

 

345,000

 

3.25% convertible senior debentures, due 2035

 

 

977,500

 

 

977,500

 

Capitalized lease and other debt obligations

 

 

3,004

 

 

4,381

 

 

 

   

 

   

 

Subtotal

 

 

2,500,504

 

 

2,726,881

 

Add interest rate swap agreement

 

 

6,326

 

 

6,013

 

(Subtract) unamortized debt discount

 

 

(357,504

)

 

(378,286

)

(Subtract) current portion of debt

 

 

(176,374

)

 

(1,784

)

 

 

   

 

   

 

Total long-term debt, net

 

$

1,972,952

 

$

2,352,824

 

 

 

   

 

   

 

The Company’s debt instruments, including related terms and certain financial covenants as well as a description of Omnicare’s Credit Agreement, have been disclosed in further detail at the “Debt” note of the Notes to Consolidated Financial Statements in Omnicare’s 2008 Annual Report.

At September 30, 2009, there was no outstanding balance under the Company’s $800 million revolving credit facility, maturing on July 28, 2010 (“Revolving Loans”), and $175 million outstanding under the Company’s senior term A loan facility, maturing on July 28, 2010 (the “Term Loans”). The Company repaid $225 million on the Term Loans during the nine months ended September 30, 2009. The interest rate on the Term Loans was 1.99% at September 30, 2009. As of September 30, 2009, the Company had approximately $26 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals. The Company amortized to expense approximately $4.2 million and $5.4 million of deferred debt issuance costs during the nine months ended September 30, 2009 and 2008, respectively.

The estimated floating interest rate on the interest rate swap agreement was 2.87% at September 30, 2009, as compared to the 6.125% stated rate on the corresponding senior subordinated notes due 2013 with remaining principal outstanding of $250 million at September 30, 2009.

The Company has two convertible debentures, the Series B 4.00% junior subordinated convertible debentures, due 2033 (the “New 4.00% Debentures”) and its 3.25% convertible senior debentures, due 2035 (“3.25% Convertible Debentures”). For further description of the Company’s convertible debt see the “Debt” note of the “Notes to Consolidated Financial

15


Statements” in Omnicare’s 2008 Annual Report. Effective January 1, 2009, the Company retrospectively adopted the provisions of the authoritative guidance regarding the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), which among other items, specifies that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that reflects the entity’s calculated nonconvertible debt borrowing rate when the debt was issued. The effect of this accounting change on the carrying amounts of the Company’s debt and equity balances, are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30,
2009

 

December 31,
2008

 

 

 

 

 

 

 

Carrying value of equity component

 

$

441,318

 

$

441,318

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Principal amount of convertible debt

 

$

1,322,500

 

$

1,322,500

 

Unamortized debt discount

 

 

(357,504

)

 

(378,286

)

 

 

   

 

   

 

Net carrying value of convertible debt

 

$

964,996

 

$

944,214

 

 

 

   

 

   

 

As of September 30, 2009, the remaining amortization period for the debt discount was approximately 23.75 and 6.25 years for the New 4.00% Debentures and 3.25% Convertible Debentures, respectively.

The effective interest rates for the liability components of the New 4.00% Debentures and the 3.25% Convertible Debentures were 8.01% and 7.625%, respectively. The impact of this accounting change was an increase in pretax interest expense of approximately $7.1 million and $20.8 million ($4.3 million and $12.8 million aftertax) for the three and nine months ended September 30, 2009, respectively, and $6.5 million and $19.3 million ($4.1 million and $12.0 million aftertax) for the three and nine months ended September 30, 2008, respectively.

Note 7 - Stock-Based Compensation

At September 30, 2009, the Company had four stock-based employee compensation plans under which incentive awards were outstanding, which are described in further detail at the “Stock-Based Compensation” note of the Notes to Consolidated Financial Statements in Omnicare’s 2008 Annual Report. Omnicare believes that the incentive awards issued under these plans serve to better align the interests of its employees with those of its stockholders. As further described in Omnicare’s 2008 Annual Report, non-vested stock awards are granted to key employees at the discretion of the Compensation and Incentive Committee of the Board of Directors.

16


Total pretax stock-based compensation expense recognized in the Consolidated Statement of Income as part of S,G&A expense for stock options and stock awards for the three and nine months ended September 30, 2009 and 2008 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended,
September 30,

 

Nine months ended
September 30,

 

 

 

 

 

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Stock awards

 

$

4,771

 

$

5,572

 

$

15,422

 

$

16,636

 

Stock options

 

 

1,299

 

 

1,370

 

 

3,950

 

 

3,615

 

 

 

   

 

   

 

   

 

   

 

Total stock-based compensation expense

 

$

6,070

 

$

6,942

 

$

19,372

 

$

20,251

 

 

 

   

 

   

 

   

 

   

 

The assumptions used to value stock options granted during the periods ended September 30, 2009 and 2008 are as follows:

 

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

Expected volatility

 

35.3

%

31.3

%

Risk-free interest rate

 

2.9

%

3.4

%

Expected dividend yield

 

0.4

%

0.3

%

Expected term of options (in years)

 

4.7

 

4.7

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
September 30,

 

Nine months ended
September 30,

 

 

 

 

 

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Weighted average fair value per option

 

$

7.98

 

$

9.48

 

$

8.69

 

$

7.52

 

 

 

   

 

   

 

   

 

   

 

17


A summary of stock option activity under the plans for the nine months ended September 30, 2009, is presented below (in thousands, except exercise price and term data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted-
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contractual
Term

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

 

 

Options outstanding, beginning of period

 

 

7,348

 

$

30.19

 

 

 

 

 

 

 

Options granted

 

 

102

 

 

26.15

 

 

 

 

 

 

 

Options exercised

 

 

(1,045

)

 

15.44

 

 

 

 

 

 

 

Options forfeited

 

 

(83

)

 

33.78

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

Options outstanding, end of period

 

 

6,322

 

$

32.53

 

 

4.9

 

$

4,040

 

 

 

   

 

   

 

   

 

   

 

Options exercisable, end of period

 

 

5,105

 

$

32.91

 

 

4.2

 

$

3,979

 

 

 

   

 

   

 

   

 

   

 

The total exercise date intrinsic value of options exercised during the nine months ended September 30, 2009 was $10.3 million.

A summary of non-vested restricted stock awards for the nine months ended September 30, 2009 is presented below (in thousands, except grant price data):

 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted-
Average
Grant Date
Price

 

 

 

 

 

 

 

Non-vested shares, beginning of period

 

 

2,167

 

$

34.23

 

Shares awarded

 

 

67

 

 

25.37

 

Shares vested

 

 

(469

)

 

32.34

 

Shares forfeited

 

 

(23

)

 

35.41

 

 

 

   

 

 

 

 

Non-vested shares, end of period

 

 

1,742

 

$

34.38

 

 

 

   

 

   

 

As of September 30, 2009, there was approximately $51 million of total unrecognized compensation cost related to non-vested stock awards and stock options granted to Omnicare employees, which is expected to be recognized as expense prospectively over a remaining weighted-average period of approximately five years. The total grant date fair value of shares vested during the nine months ended September 30, 2009 related to stock awards and stock options was approximately $17.1 million.

The Company recorded charges relating to the prior implementation of the authoritative guidance for share-based payments, which primarily relate to stock option expense, of approximately $1.1 million and $4.2 million pretax ($0.6 million and $2.6 million aftertax) for the three and nine months ended September 30, 2009, respectively, and $1.4 million and $3.8 million pretax ($0.8 million and $2.3 million, aftertax) for the three and nine months ended September 30, 2008, respectively.

18


Note 8 - 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, as further described in Omnicare’s 2008 Annual Report. Expense relating primarily to the Company’s matching contributions for these defined contribution plans was $1.6 million and $5.2 million for the three and nine months ended September 30, 2009, respectively, and $1.9 million and $5.5 million for the three and nine months ended September 30, 2008, respectively.

The Company has various defined benefit plans, as further described in Omnicare’s 2008 Annual Report. The following table presents the components of net periodic pension cost for all pension plans for the three and nine months ended September 30, 2009 and 2008 (pretax, in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended,
September 30,

 

Nine months ended
September 30,

 

 

 

 

 

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

375

 

$

1,280

 

$

1,124

 

$

4,059

 

Interest cost

 

 

1,499

 

 

2,374

 

 

4,497

 

 

7,133

 

Amortization of deferred amounts (primarily prior actuarial losses)

 

 

250

 

 

3,674

 

 

750

 

 

11,021

 

Return on assets

 

 

(60

)

 

(54

)

 

(180

)

 

(162

)

Other

 

 

-

 

 

-

 

 

-

 

 

(268

)

 

 

   

 

   

 

   

 

   

 

Net periodic pension cost

 

$

2,064

 

$

7,274

 

$

6,191

 

$

21,783

 

 

 

   

 

   

 

   

 

   

 

As of September 30, 2009, the aggregate defined benefit plans’ liabilities totaled approximately $111 million. During the first nine months of 2009, the Company made no payments related to funding the rabbi trusts for the settlement of the Company’s pension obligations. The fair value of these assets was approximately $134 million at September 30, 2009. The aggregate defined benefit plans’ liabilities are the projected benefit obligation to be paid based upon services through retirement. The aggregate assets in the rabbi trusts are the amounts required to fund the lump sum benefits of the Excess Benefit Plan. These benefits were fully funded as of September 30, 2009.

19


Note 9 - 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, warrants and restricted stock awards, as well as convertible debentures.

The following is a reconciliation of the basic and diluted earnings per share (“EPS”) computations for both the numerator and denominator (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

2009:

 

Income
(Numerator)

 

Common
Shares
(Denominator)

 

Per
Common
Share
Amounts

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

78,746

 

 

 

 

$

0.67

 

Loss from discontinued operations

 

 

(6,231

)

 

 

 

 

(0.05

)

Net income

 

 

72,515

 

 

117,598

 

$

0.62

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

4.00% junior subordinated convertible debentures

 

 

71

 

 

275

 

 

 

 

Stock options, warrants and awards

 

 

-

 

 

272

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations plus assumed conversions

 

 

78,817

 

 

 

 

$

0.67

 

Loss from discontinued operations

 

 

(6,231

)

 

 

 

 

(0.05

)

Net income plus assumed conversions

 

$

72,586

 

 

118,145

 

$

0.61

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

54,350

 

 

 

 

$

0.47

 

Loss from discontinued operations

 

 

(591

)

 

 

 

 

(0.01

)

Net income

 

 

53,759

 

 

115,983

 

$

0.46

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

4.00% junior subordinated convertible debentures

 

 

70

 

 

275

 

 

 

 

Stock options, warrants and awards

 

 

-

 

 

1,225

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations plus assumed conversions

 

 

54,420

 

 

 

 

$

0.46

 

Loss from discontinued operations

 

 

(591

)

 

 

 

 

(0.01

)

Net income plus assumed conversions

 

$

53,829

 

 

117,483

 

$

0.46

 

20



 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

2009:

 

Income
(Numerator)

 

Common
Shares
(Denominator)

 

Per
Common
Share
Amounts

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

152,968

 

 

 

 

$

1.31

 

Loss from discontinued operations

 

 

(20,840

)

 

 

 

 

(0.18

)

Net income

 

 

132,128

 

 

116,970

 

$

1.13

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

4.00% junior subordinated convertible debentures

 

 

213

 

 

275

 

 

 

 

Stock options, warrants and awards

 

 

-

 

 

466

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations plus assumed conversions

 

 

153,181

 

 

 

 

$

1.30

 

Loss from discontinued operations

 

 

(20,840

)

 

 

 

 

(0.18

)

Net income plus assumed conversions

 

$

132,341

 

 

117,711

 

$

1.12

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

115,381

 

 

 

 

$

0.98

 

Loss from discontinued operations

 

 

(2,537

)

 

 

 

 

(0.02

)

Net income

 

 

112,844

 

 

117,904

 

$

0.96

 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

4.00% junior subordinated convertible debentures

 

 

209

 

 

275

 

 

 

 

Stock options, warrants and awards

 

 

-

 

 

585

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations plus assumed conversions

 

 

115,590

 

 

 

 

$

0.97

 

Loss from discontinued operations

 

 

(2,537

)

 

 

 

 

(0.02

)

Net income plus assumed conversions

 

$

113,053

 

 

118,764

 

$

0.95

 

EPS is reported independently for each amount presented. Accordingly, the sum of the individual amounts may not necessarily equal the separately calculated amounts for the corresponding period.

During the three and nine months ended September 30, 2009 and 2008, the anti-dilutive effect associated with certain stock options, warrants and awards was excluded from the computation of diluted EPS, since the exercise price was greater than the average market price of the Company’s common stock during these periods. The aggregate number of stock options, warrants and awards excluded from the computation of diluted EPS for the quarters ended September 30, 2009 and 2008 totaled 6.4 million and 4.5 million, respectively, and for the nine months ended September 30, 2009 and 2008, totaled 6.2 million and 6.7 million, respectively.

Effective January 1, 2009, the Company adopted the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities

21


and are to be included in the computation of earnings per share under the two-class method. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The adoption of this authoritative guidance did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

Note 10 - Restructuring and Other Related Charges

Omnicare Full Potential Program

In 2006, the Company commenced the implementation of the “Omnicare Full Potential” Plan, a major initiative primarily designed to re-engineer the Company’s pharmacy operating model to increase efficiency and enhance customer growth. The Omnicare Full Potential Plan is expected to optimize resources across the entire organization by implementing best practices, including the realignment and right-sizing of functions, and a “hub-and-spoke” model, whereby certain key administrative and production functions will be transferred to regional support centers (“hubs”) specifically designed and managed to perform these tasks, with local pharmacies (“spokes”) focusing on time-sensitive services and customer-facing processes. Additionally, in connection with this productivity enhancement initiative, the Company is also right-sizing and consolidating certain CRO operations.

This program is expected to be completed over a multi-year period and is estimated to result in total pretax restructuring and other related charges of approximately $106 million. As presented in further detail below, the Company recorded restructuring and other related charges for the Omnicare Full Potential Plan of approximately $6 million and $19 million pretax (approximately $4 million and $12 million aftertax) during the three and nine months ended September 30, 2009, respectively, and approximately $8 million and $25 million pretax in the three and nine months ended September 30, 2008, or cumulative aggregate restructuring and other related charges of approximately $102 million before taxes through the third quarter of 2009. The remainder of the overall restructuring and other related charges will be recognized and disclosed prospectively, as the remaining portions of the project are finalized and implemented. The Company eliminated approximately 1,200 positions in completing its initial phase of the program. The remainder of the program is currently estimated to result in a net reduction of approximately 1,200 positions (1,900 positions eliminated, net of 700 new positions filled in different geographic locations as well as to perform new functions required by the hub-and-spoke model of operations), of which approximately 860 positions had been eliminated as of September 30, 2009. The foregoing reductions do not include additional savings expected from lower levels of overtime and reduced temporary labor. The Company currently estimates reductions in overtime, excess hours and temporary help, as well as productivity gains, to equal an additional 820 full-time equivalents. In addition, in July 2009, the Company implemented a temporary payroll containment and reduction program across the organization designed to facilitate the achievement of the productivity and efficiency goals associated with the Full Potential Plan.

The restructuring charges primarily include severance pay, the buy-out of employment agreements, lease terminations, and other exit-related asset disposals, professional fees and

22


facility exit costs. The other related charges are primarily comprised of professional fees. Details of the Omnicare Full Potential Plan restructuring and other related charges follow (pretax, in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring charges:

 

Balance at
December 31,
2008

 

2009
Provision/
Accrual

 

Utilized
during
2009

 

Balance at
September 30,
2009

 

 

 

 

 

 

 

 

Employee severance

 

$

-

 

$

5,123

 

$

(5,097

)

$

26

Employment agreement buy-outs

 

 

35

 

 

135

 

 

(170

)

 

-

Lease terminations

 

 

8,885

 

 

4,021

 

 

(3,623

)

 

9,283

Other assets, fees and facility exit costs

 

 

2,394

 

 

4,945

 

 

(7,101

)

 

238

Total restructuring charges

 

$

11,314

 

 

14,224

 

$

(15,991

)

$

9,547

 

 

 

 

 

 

 

 

 

 

 

 

 

Other related charges

 

 

 

 

 

4,871

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total restructuring and other related charges

 

 

 

 

$

19,095

 

 

 

 

 

 

As of September 30, 2009, the Company has made cumulative payments of approximately $21 million of severance and other employee-related costs for the Omnicare Full Potential Plan. The remaining liabilities at September 30, 2009, represent amounts not yet paid relating to actions taken in connection with the program (primarily lease payments and professional fees) and will be settled as these matters are finalized. The provision/accrual and corresponding payment amounts relating to employee severance are being accounted for primarily in accordance with the authoritative guidance for employers’ accounting for postemployment benefits; and the provision/accrual and corresponding payment amounts relating to employment agreement buy-outs are being accounted for primarily in accordance with the authoritative guidance regarding accounting for costs associated with exit or disposal activities.

Note 11 - Commitments and Contingencies

Omnicare continuously evaluates contingencies based upon the best available information. The Company believes that liabilities have been recorded to the extent necessary in cases where the outcome is considered probable and reasonably estimable. To the extent that resolution of contingencies results in amounts that vary from the Company’s recorded liabilities, future earnings will be charged or credited accordingly.

As previously disclosed, the U.S. Attorney’s Office, District of Massachusetts had been investigating allegations under the False Claims Act, 31 U.S.C. (§) 3729, et seq. and various state false claims statutes in five qui tam complaints (Maguire, Kammerer, Lisitza and two sealed complaints) concerning the Company’s relationships with certain manufacturers and distributors of pharmaceutical products and certain customers, as well as with respect to contracts with certain companies acquired by the Company. The complaints in these cases, which have been dismissed with prejudice by the relators pursuant to the settlement described below, alleged that the Company violated the False Claims Act when it submitted claims for name brand drugs when actually providing generic versions of the same drug to nursing homes; provided consultant pharmacist services to its customers at below-market rates to induce the referral of pharmaceutical business; accepted discounts from drug manufacturers in return for recommending that certain pharmaceuticals be prescribed to nursing home residents; accepted rebates, post-purchase discounts, grants and other forms of remuneration from drug manufacturers in return for purchasing pharmaceuticals from those manufacturers and taking steps to increase the purchase of those manufacturers’ drugs; made false statements and omissions to physicians in connection with its recommendations of those pharmaceuticals; substituted certain pharmaceuticals without physician authorization; accepted payments from certain generic drug manufacturers in return for entering into purchase arrangements with them; acquired certain institutional pharmacies at above-market rates to obtain contracts between those pharmacies and nursing homes; and made a payment to certain nursing home chains in return for the referral of pharmaceutical business.

23


On November 2, 2009, the Company entered into a civil settlement agreement, without any finding of wrongdoing or any admission of liability, finalizing a previously disclosed agreement in principle, under which the Company has agreed to pay the federal government and participating state governments $98 million plus interest from June 24, 2009 (the date of the agreement in principle referenced above) and related expenses to settle various alleged civil violations of federal and state laws. The settlement agreements release the Company from claims that the Company allegedly violated various federal and state laws due to the Company having allegedly made a payment to certain nursing home chains in return for the referral of pharmaceutical business; allegedly provided consultant pharmacist services to its customers at rates below the Company's cost of providing the services and below fair market value to induce the referral of pharmaceutical business; allegedly accepted a payment from a generic drug manufacturer allegedly in exchange for purchasing that manufacturer’s products and recommending that physicians prescribe such products to nursing home patients; and allegedly accepted rebates, grants and other forms of remuneration from a drug manufacturer to induce the Company to recommend that physicians prescribe one of the manufacturer’s drugs, and the rebate agreements conditioned payment of the rebates upon the Company engaging in an “active intervention program” to convince physicians to prescribe the drug and requiring that all competitive products be prior authorized for the drug’s failure, where the Company failed to disclose to physicians that such intervention activities were a condition of it receiving such rebate payments.

The Company denies the contentions of the the qui tam relators and the federal government as set forth in the settlement agreement and the complaints. A substantial majority of states in which the Company does business are expected to participate in this settlement. In addition, the Department of Justice has advised the Company that it has no present intention of pursuing an investigation and/or filing suit under the False Claims Act against the Company with respect to allegations in the qui tam complaints that, during 1999-2003, pharmaceutical manufacturers named as defendants in the complaints made payments to the Company in return for the Company recommending and/or purchasing such manufacturers' drugs.

Pursuant to stipulations of dismissal executed in connection with the settlement agreement, the five complaints were dismissed. As part of the settlement agreement, the Company also entered into an amended and restated corporate integrity agreement (“CIA”) with the Department of Health and Human Services Office of the Inspector General with a term of five years from November 2, 2009. Pursuant to the CIA, the Company is required, among other things, to (i) create procedures designed to ensure that each existing, new or renewed arrangement with any actual or potential source of health care business or referrals to Omnicare or any actual or potential recipient of health care business or referrals from Omnicare does not violate the Anti-Kickback Statute or related regulations, directives and guidance, including creating and maintaining a database of such arrangements; (ii) retain an independent review organization to review the Company’s compliance with the terms of the CIA and report to OIG regarding that compliance; and (iii) provide training for certain Company employees as to the Company’s requirements under the CIA. The requirements of the Company’s prior corporate integrity agreement obligating the Company to create and maintain procedures designed to ensure that all therapeutic interchange programs are developed and implemented by Omnicare consistent with the CIA and federal and state laws for obtaining prior authorization from the prescriber before making a therapeutic interchange of a drug have been incorporated into the amended and restated CIA without modification. The requirements of the CIA are expected to result in increased costs to maintain the Company’s compliance program and greater scrutiny by federal regulatory authorities. Violations of the corporate integrity agreement could subject the Company to significant monetary penalties. Consistent with the CIA, the Company expects to review its contracts to ensure compliance with applicable laws and regulations. As a result of this review, the Company anticipates that pricing under its consultant pharmacist services contracts will need to be reviewed and may increase, and there can be no assurance that such pricing will not result in the loss of certain contracts.

24


As previously disclosed, on November 14, 2006, the Company entered into a voluntary civil settlement of all federal and state civil claims arising from allegations relating to three generic pharmaceuticals provided by the Company in connection with the substitution of capsules for tablets (Ranitidine), tablets for capsules (Fluoxetine) and two 7.5 mg tablets for one 15 mg tablet (Buspirone). Another issue alleged by one qui tam relator remains under seal and was not resolved by the settlement. The settlement agreement did not include any finding of wrongdoing or any admission of liability. As part of the settlement agreement, on November 9, 2006, the Company entered into a Corporate Integrity Agreement with the Department of Health and Human Services Office of the Inspector General with a term of five years from November 9, 2006. This Corporate Integrity Agreement has been amended and restated as described above.

As previously disclosed, on October 5, 2006, the Company entered into a voluntary settlement agreement and a Corporate Integrity Agreement with the State of Michigan to resolve the Michigan Attorney General’s investigation relating to certain billing issues under the Michigan Medicaid program at Specialized Pharmacy Services, a subsidiary of the Company located in Michigan. On October 26, 2007, the Company also entered into settlement agreements with the federal government and the State of Michigan to resolve certain hospice claims relating to Specialized Pharmacy Services. In connection with the settlements, the November 9, 2006

25


Corporate Integrity Agreement with the Department of Health and Human Services Office of the Inspector General was also amended to cover certain hospice billing matters. The settlement agreements do not include any finding of wrongdoing or any admission of liability. The Corporate Integrity Agreement with the State of Michigan requires that the Company and Specialized Pharmacy Services maintain Specialized Pharmacy Services’ compliance program in accordance with the terms of the Corporate Integrity Agreement. The agreement contains specific requirements regarding compliance with Medicaid policies governing access to pharmacy facilities and records, unit dose billing agreements, consumption billing, hospice patient terminal illness prescriptions and prescriptions dispensed after a patient’s death. The requirements of the Corporate Integrity Agreement have resulted in increased costs to maintain Specialized Pharmacy Services’ compliance program and could result in greater scrutiny by Michigan regulatory authorities. Violations of the Corporate Integrity Agreement could subject the Company to significant monetary and/or administrative penalties.

On February 2 and February 13, 2006, respectively, two substantially similar putative class action lawsuits, entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26 (“HOD Carriers”), and Chi v. Omnicare, Inc., et al., No. 2:06cv31 (“Chi”), were filed against Omnicare and two of its officers in the United States District Court for the Eastern District of Kentucky purporting to assert claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeking, among other things, compensatory damages and injunctive relief. The complaints, which purported to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through January 27, 2006, alleged that Omnicare had artificially inflated its earnings by engaging in improper generic drug substitution and that defendants had made false and misleading statements regarding the Company’s business and prospects. On April 3, 2006, plaintiffs in the HOD Carriers case formally moved for consolidation and the appointment of lead plaintiff and lead counsel pursuant to the Private Securities Litigation Reform Act of 1995. On May 22, 2006, that motion was granted, the cases were consolidated, and a lead plaintiff and lead counsel were appointed. On July 20, 2006, plaintiffs filed a consolidated amended complaint, adding a third officer as a defendant and new factual allegations primarily relating to revenue recognition, the valuation of receivables and the valuation of inventories. On October 31, 2006, plaintiffs moved for leave to file a second amended complaint, which was granted on January 26, 2007, on the condition that no further amendments would be permitted absent extraordinary circumstances. Plaintiffs thereafter filed their second amended complaint on January 29, 2007. The second amended complaint (i) expands the putative class to include all purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, (ii) names two members of the Company’s board of directors as additional defendants, (iii) adds a new plaintiff and a new claim for violation of Section 11 of the Securities Act of 1933 based on alleged false and misleading statements in the registration statement filed in connection with the Company’s December 2005 public offering, (iv) alleges that the Company failed to timely disclose its contractual dispute with UnitedHealth Group, Inc. and its affiliates (“United”), and (v) alleges that the Company failed to timely record certain special litigation reserves. The defendants filed a motion to dismiss the second amended complaint on March 12, 2007, claiming that plaintiffs had failed adequately to plead loss causation, scienter or any actionable misstatement or omission. That motion was fully briefed as of May 1, 2007. In response to certain arguments relating to the individual claims of the named

26


plaintiffs that were raised in defendants’ pending motion to dismiss, plaintiffs filed a motion to add, or in the alternative, to intervene an additional named plaintiff, Alaska Electrical Pension Fund, on July 27, 2007. On October 12, 2007, the court issued an opinion and order dismissing the case and denying plaintiffs’ motion to add an additional named plaintiff. On November 9, 2007, plaintiffs filed a notice of appeal with the United States Court of Appeals for the Sixth Circuit with respect to the dismissal of their case. Oral argument was held on September 18, 2008. On October 21, 2009, the Sixth Circuit Court of Appeals generally affirmed the district court’s dismissal, dismissing plaintiff’s claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as affirming the denial of Alaskan Electrical Pension Fund’s motion to intervene. However, the appellate court reversed the dismissal of the claim brought for violation of Section 11 of the Securities Act of 1933, remanding the case to the district court for further proceedings, including application of the rule requiring plaintiffs to allege fraud with particularity to their Section 11 claim. On November 3, 2009, plaintiffs filed a motion in the Court of Appeals seeking a rehearing or a rehearing en banc with respect to a single aspect of the Court’s decision, namely, whether the federal rule requiring pleading with particularity should apply to their claim under Section 11 of the Securities Act.

On February 13, 2006, two substantially similar shareholder derivative actions, entitled Isak v. Gemunder, et al., Case No. 06-CI-390, and Fragnoli v. Hutton, et al., Case No. 06-CI-389, were filed in Kentucky State Circuit Court, Kenton Circuit, against the members of Omnicare’s board of directors, individually, purporting to assert claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment arising out of the Company’s alleged violations of federal and state health care laws based upon the same purportedly improper generic drug substitution that is the subject of the federal purported class action lawsuits. The complaints seek, among other things, damages, restitution and injunctive relief. The Isak and Fragnoli actions were later consolidated by agreement of the parties. On January 12, 2007, the defendants filed a motion to dismiss the consolidated action on the grounds that the dismissal of the substantially identical shareholder derivative action, Irwin v. Gemunder, et al., 2:06cv62, by the United States District Court for the Eastern District of Kentucky on November 20, 2006 should be given preclusive effect and thus bars re-litigation of the issues already decided in Irwin. Instead of opposing that motion, on March 16, 2007, the plaintiffs filed an amended consolidated complaint, which continues to name all of the directors as defendants and asserts the same claims, but attempts to bolster those claims by adding nearly all of the substantive allegations from the most recent complaint in the federal securities class action (see discussion of HOD Carriers above) and an amended complaint in Irwin that added the same factual allegations that were added to the consolidated amended complaint in the HOD Carriers action. On April 16, 2007, defendants filed a supplemental memorandum of law in further support of their pending motion to dismiss contending that the amended complaint should be dismissed on the same grounds previously articulated for dismissal, namely, the preclusive effect of the dismissal of the Irwin action. That motion has been fully briefed, oral argument was held on August 21, 2007, and the court reserved decision.

The Company believes the above-described purported class and derivative actions are without merit and will be vigorously defended.

The three and nine months ended September 30, 2009 included a $1.7 million pretax charge ($1.1 million after taxes) and a $71.8 million pretax charge ($55.6 million after taxes), respectively, and the three and nine months ended September 30, 2008 included a $13.5 million pretax charge ($8.2 million after taxes) and a $51.1 million pretax charge ($31.3 million after

27


taxes), respectively, reflected in the “Litigation and other related professional fees” line of the Consolidated Statements of Income, primarily for litigation-related settlements and professional expenses in connection with the investigation by the United States Attorney’s Office, District of Massachusetts (including the aforementioned increase in the settlement reserve); the Company’s lawsuit against United; the Company’s response to subpoenas it received relating to other legal proceedings to which the Company is not a party; certain other large customer disputes; the inquiry conducted by the Attorney General’s Office in Michigan relating to certain billing issues under the Michigan Medicaid program; the investigation by the federal government and certain states relating to drug substitutions; and the purported class and derivative actions.

During 2006, the Company experienced certain quality control and product recall issues, as well as fire damage, at one of its repackaging facilities. As a precautionary measure, the Company voluntarily and temporarily suspended operations at this facility. During the time that this facility was closed, the Company conducted certain environmental tests at the facility. Based on the results of these tests, which showed very low levels of beta lactam residue, and the time and expense associated with completing the necessary remediation procedures, as well as the short remaining term on the lease for the current facility, the Company decided not to reopen this facility. The Company has been cooperating with federal and state officials who have been conducting investigations relating to the Repack Matters (as defined below). The Company continues to work to address and resolve certain remaining issues, and fully restore centralized repackaging to its original levels. In order to replace the capacity of this facility, the Company ramped-up production in its other repackaging facility, as well as onsite in its individual pharmacies. Further, in order to replace the repackaging capacity of the closed facility, on February 27, 2007, Omnicare entered into an agreement for the Repackaging Services division of Cardinal Health to serve as the contract repackager for pharmaceutical volumes previously repackaged at the closed facility. The agreement initially extends through October 2010. As a result, the Company has been and continues to be able to meet the needs of all of its client facilities and their residents. Addressing these issues served to increase costs and, as a result, the three months ended September 30, 2009 included special charges of approximately $2.0 million pretax (approximately $1.8 million and approximately $0.3 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($1.2 million after taxes) for additional costs precipitated by the quality control, product recall and fire damage issues at this facility (“Repack Matters”). The associated costs for the nine months ended September 30, 2009 totaled $5.2 million pretax ($3.7 million and $1.5 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($3.2 million after taxes). The three months ended September 30, 2008 included special charges of approximately $1.2 million pretax (approximately $1.0 million and approximately $0.1 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($0.7 million after taxes) for additional costs precipitated by the Repack Matters. The associated costs for the nine months ended September 30, 2008 totaled $4.8 million pretax ($4.2 million and $0.6 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($2.9 million after taxes). The Company maintains product recall, property and casualty and business interruption insurance, and the extent of insurance recovery for these expenses, if any, continues to be reviewed by its insurers and outside advisors. As of September 30, 2009, the Company has received no material insurance recoveries.

28


Although the Company cannot know with certainty the ultimate outcome of the matters described in the preceding paragraphs other than as disclosed, there can be no assurance that the resolution of these matters will not have a material adverse impact on the Company’s consolidated results of operations, financial position or cash flows or, in the case of the investigations regarding certain drug substitutions and the Repack Matters, that these matters will be resolved in an amount that would not exceed the amount of the pretax charges recorded by the Company.

As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries and similar actions by third parties, as well as governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject. The Company is also involved in various legal actions arising in the normal course of business. These matters are continuously being evaluated and, in many cases, are being contested by the Company and the outcome is not predictable. Consequently, an estimate of the possible loss or range of loss associated with certain actions cannot be made. Although occasional adverse outcomes (or settlements) may occur and could possibly have an adverse effect on the results of operations and cash flows in any one accounting period, outside of the matters described in the preceding paragraphs, the Company is not aware of any such matters whereby it is presently believed that the final disposition will have a material adverse affect on the Company’s overall consolidated financial position.

The Company indemnifies the directors and officers of the Company for certain liabilities that might arise from the performance of their job responsibilities for the Company. Additionally, in the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this involves the resolution of claims made, or future claims that may be made, against the Company, its directors and/or officers, the outcomes of which is unknown and not currently predictable. Accordingly, no liabilities have been recorded for the indemnifications.

29


Note 12 - Segment Information

Based on the “management approach,” as defined in the authoritative guidance for segment reporting, Omnicare has two operating segments. The Company’s larger segment is Pharmacy Services. Pharmacy Services primarily provides distribution of pharmaceuticals, related pharmacy consulting and other ancillary services, data management services, medical supplies, and distribution and patient assistance services for specialty pharmaceuticals. The Company’s customers are primarily skilled nursing, assisted living, hospice and other providers of healthcare services in 47 states in the United States, the District of Columbia and in Canada at September 30, 2009. The Company’s other segment is CRO Services, which provides comprehensive product development and research services to client companies in pharmaceutical, biotechnology, nutraceutical, medical devices and diagnostics industries in 31 countries around the world at September 30, 2009, including the United States.

The table below presents information about the segments as of and for the three and nine months ended September 30, 2009 and 2008, and should be read in conjunction with the paragraph that follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

2009:

 

Pharmacy
Services

 

CRO
Services

 

Corporate and
Consolidating

 

Consolidated
Totals

 

Net sales

 

$

1,507,031

 

$

36,870

 

$

-

 

$

1,543,901

 

Depreciation and amortization expense

 

 

(19,455

)

 

(526

)

 

(14,023

)

 

(34,004

)

Restructuring and other related charges

 

 

(2,448

)

 

(2,622

)

 

(1,225

)

 

(6,295

)

Litigation and other related professional fees

 

 

(1,739

)

 

-

 

 

-

 

 

(1,739

)

Repack matters

 

 

(2,032

)

 

-

 

 

-

 

 

(2,032

)

Acquisition and other related costs

 

 

632

 

 

-

 

 

-

 

 

632

 

Operating income (expense) from continuing operations

 

 

158,814

 

 

(1,959

)

 

(24,826

)

 

132,029

 

Total assets

 

 

6,726,811

 

 

167,875

 

 

497,214

 

 

7,391,900

 

Capital expenditures

 

 

(10,227

)

 

(571

)

 

(153

)

 

(10,951

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,526,787

 

$

51,464

 

$

-

 

$

1,578,251

 

Depreciation and amortization expense

 

 

(21,154

)

 

(473

)

 

(13,716

)

 

(35,343

)

Restructuring and other related charges

 

 

(6,806

)

 

-

 

 

(849

)

 

(7,655

)

Litigation and other related professional fees

 

 

(13,479

)

 

-

 

 

-

 

 

(13,479

)

Repack matters

 

 

(1,170

)

 

-

 

 

-

 

 

(1,170

)

Operating income (expense) from continuing operations

 

 

152,783

 

 

4,544

 

 

(29,676

)

 

127,651

 

Total assets

 

 

6,870,171

 

 

186,192

 

 

350,405

 

 

7,406,768

 

Capital expenditures

 

 

(17,968

)

 

(224

)

 

(57

)

 

(18,249

)

30



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

2009:

 

Pharmacy
Services

 

CRO
Services

 

Corporate and
Consolidating

 

Consolidated
Totals

 

 

Net sales

 

$

4,504,097

 

$

122,416

 

$

-

 

$

4,626,513

 

Depreciation and amortization expense

 

 

(61,682

)

 

(1,469

)

 

(42,206

)

 

(105,357

)

Restructuring and other related charges

 

 

(13,207

)

 

(3,327

)

 

(2,561

)

 

(19,095

)

Litigation and other related professional fees

 

 

(71,761

)

 

-

 

 

-

 

 

(71,761

)

Repack matters

 

 

(5,221

)

 

-

 

 

-

 

 

(5,221

)

Acquisition and other related costs

 

 

(2,218

)

 

-

 

 

-

 

 

(2,218

)

Operating income (expense) from continuing operations

 

 

409,553

 

 

2,000

 

 

(73,924

)

 

337,629

 

Total assets

 

 

6,726,811

 

 

167,875

 

 

497,214

 

 

7,391,900

 

Capital expenditures

 

 

(24,002

)

 

(1,313

)

 

(951

)

 

(26,266

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

                           

Net sales

 

$

4,477,133

 

$

154,268

 

$

-

 

$

4,631,401

 

Depreciation and amortization expense

 

 

(59,353

)

 

(1,362

)

 

(42,280

)

 

(102,995

)

Restructuring and other related charges

 

 

(21,124

)

 

(1,374

)

 

(2,389

)

 

(24,887

)

Litigation and other related professional fees

 

 

(51,143

)

 

-

 

 

-

 

 

(51,143

)

Repack matters

 

 

(4,803

)

 

-

 

 

-

 

 

(4,803

)

Operating income (expense) from continuing operations

 

 

382,684

 

 

11,012

 

 

(86,292

)

 

307,404

 

Total assets

 

 

6,870,171

 

 

186,192

 

 

350,405

 

 

7,406,768

 

Capital expenditures

 

 

(43,074

)

 

(2,294

)

 

(311

)

 

(45,679

)

In accordance with the authoritative guidance for income statement characterization of reimbursements received for “out-of-pocket” expenses incurred, Omnicare included in its reported CRO segment net sales amount, for the three and nine month periods ended September 30, 2009, reimbursable out-of-pockets totaling $3.4 million and $14.3 million, respectively and $8.3 million and $24.5 million for the three and nine months ended September 30, 2008, respectively.

Note 13 - Guarantor Subsidiaries

The Company’s 6.125% senior subordinated notes due 2013, the 6.75% senior subordinated notes due 2013 and the 6.875% senior subordinated notes due 2015 are fully and unconditionally guaranteed on an unsecured, joint and several basis by certain wholly-owned subsidiaries of the Company (the “Guarantor Subsidiaries”). The following condensed consolidating financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries as of September 30, 2009 and December 31, 2008 for the balance sheets as well as the three and nine months ended September 30, 2009 and 2008 for the statements of income, and the statements of cash flows for the nine months ended September 30, 2009 and 2008. Management believes separate complete financial statements of the respective Guarantor Subsidiaries would not provide information that would be necessary for evaluating the sufficiency of the Guarantor Subsidiaries, and thus are not presented. No consolidating/eliminating adjustment column is presented for the condensed consolidating statements of cash flows since there were no significant consolidating/eliminating adjustment amounts during the periods presented.

31


Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

 

 

2009:

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 

 

Net sales

 

$

-

 

$

1,499,286

 

$

44,615

 

$

-

 

$

1,543,901

 

Cost of sales

 

 

-

 

 

1,140,651

 

 

35,295

 

 

-

 

 

1,175,946

 

Repack matters

 

 

-

 

 

1,755

 

 

-

 

 

-

 

 

1,755

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

-

 

 

356,880

 

 

9,320

 

 

-

 

 

366,200

 

Selling, general and administrative expenses

 

 

3,350

 

 

192,716

 

 

7,328

 

 

-

 

 

203,394

 

Provision for doubtful accounts

 

 

-

 

 

22,627

 

 

471

 

 

-

 

 

23,098

 

Restructuring and other related charges

 

 

-

 

 

6,098

 

 

197

 

 

-

 

 

6,295

 

Litigation and other related professional fees

 

 

-

 

 

1,739

 

 

-

 

 

-

 

 

1,739

 

Repack matters

 

 

-

 

 

277

 

 

-

 

 

-

 

 

277

 

Acquisition and other related costs

 

 

-

 

 

(632

)

 

-

 

 

-

 

 

(632

)

 

 

   

 

   

 

   

 

   

 

   

 

Operating income (loss)

 

 

(3,350

)

 

134,055

 

 

1,324

 

 

-

 

 

132,029

 

Investment income

 

 

144

 

 

1,058

 

 

-

 

 

-

 

 

1,202

 

Interest expense, including amortization of discount on convertible notes

 

 

(36,432

)

 

(215

)

 

-

 

 

-

 

 

(36,647

)

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations before income taxes

 

 

(39,638

)

 

134,898

 

 

1,324

 

 

-

 

 

96,584

 

Income tax (benefit) expense

 

 

(15,316

)

 

32,623

 

 

531

 

 

-

 

 

17,838

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations

 

 

(24,322

)

 

102,275

 

 

793

 

 

-

 

 

78,746

 

Loss from discontinued operations

 

 

-

 

 

(5,351

)

 

(880

)

 

-

 

 

(6,231

)

Equity in net income of subsidiaries

 

 

96,837

 

 

-

 

 

-

 

 

(96,837

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income (loss)

 

$

72,515

 

$

96,924

 

$

(87

)

$

(96,837

)

$

72,515

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                 

Net sales

 

$

-

 

$

1,526,042

 

$

52,209

 

$

-

 

$

1,578,251

 

Cost of sales

 

 

-

 

 

1,132,662

 

 

40,129

 

 

-

 

 

1,172,791

 

Repack matters

 

 

-

 

 

1,041

 

 

-

 

 

-

 

 

1,041

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

-

 

 

392,339

 

 

12,080

 

 

-

 

 

404,419

 

Selling, general and administrative expenses

 

 

4,690

 

 

219,284

 

 

4,351

 

 

-

 

 

228,325

 

Provision for doubtful accounts

 

 

-

 

 

26,635

 

 

545

 

 

-

 

 

27,180

 

Restructuring and other related charges

 

 

-

 

 

7,655

 

 

-

 

 

-

 

 

7,655

 

Litigation and other related professional fees

 

 

-

 

 

13,479

 

 

-

 

 

-

 

 

13,479

 

Repack matters

 

 

-

 

 

129

 

 

-

 

 

-

 

 

129

 

 

 

   

 

   

 

   

 

   

 

   

 

Operating income (loss)

 

 

(4,690

)

 

125,157

 

 

7,184

 

 

-

 

 

127,651

 

Investment income

 

 

105

 

 

1,336

 

 

-

 

 

-

 

 

1,441

 

Interest expense, including amortization of discount on convertible notes

 

 

(42,235

)

 

(206

)

 

(765

)

 

-

 

 

(43,206

)

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations before income taxes

 

 

(46,820

)

 

126,287

 

 

6,419

 

 

-

 

 

85,886

 

Income tax (benefit) expense

 

 

(18,230

)

 

47,264

 

 

2,502

 

 

-

 

 

31,536

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations

 

 

(28,590

)

 

79,023

 

 

3,917

 

 

-

 

 

54,350

 

Loss from discontinued operations

 

 

-

 

 

(21

)

 

(570

)

 

-

 

 

(591

)

Equity in net income of subsidiaries

 

 

82,349

 

 

-

 

 

-

 

 

(82,349

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income

 

$

53,759

 

$

79,002

 

$

3,347

 

$

(82,349

)

$

53,759

 

 

 

   

 

   

 

   

 

   

 

   

 

32


Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

 

2009:

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 

 

Net sales

 

$

-

 

$

4,493,125

 

$

133,388

 

$

-

 

$

4,626,513

 

Cost of sales

 

 

-

 

 

3,389,810

 

 

106,682

 

 

-

 

 

3,496,492

 

Repack matters

 

 

-

 

 

3,672

 

 

-

 

 

-

 

 

3,672

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

-

 

 

1,099,643

 

 

26,706

 

 

-

 

 

1,126,349

 

Selling, general and administrative expenses

 

 

11,891

 

 

591,944

 

 

19,183

 

 

-

 

 

623,018

 

Provision for doubtful accounts

 

 

-

 

 

69,702

 

 

1,377

 

 

-

 

 

71,079

 

Restructuring and other related charges

 

 

-

 

 

18,603

 

 

492

 

 

-

 

 

19,095

 

Litigation and other related professional fees

 

 

-

 

 

71,761

 

 

-

 

 

-

 

 

71,761

 

Repack matters

 

 

-

 

 

1,549

 

 

-

 

 

-

 

 

1,549

 

Acquisition and other related costs

 

 

-

 

 

2,218

 

 

-

 

 

-

 

 

2,218

 

 

 

   

 

   

 

   

 

   

 

   

 

Operating income (loss)

 

 

(11,891

)

 

343,866

 

 

5,654

 

 

-

 

 

337,629

 

Investment income

 

 

680

 

 

3,961

 

 

-

 

 

-

 

 

4,641

 

Interest expense, including amortization of discount on convertible notes

 

 

(110,773

)

 

(659

)

 

(1

)

 

-

 

 

(111,433

)

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations before income taxes

 

 

(121,984

)

 

347,168

 

 

5,653

 

 

-

 

 

230,837

 

Income tax (benefit) expense

 

 

(46,805

)

 

122,453

 

 

2,221

 

 

-

 

 

77,869

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations

 

 

(75,179

)

 

224,715

 

 

3,432

 

 

-

 

 

152,968

 

Loss from discontinued operations, including impairment charge of $12,065 aftertax

 

 

-

 

 

(18,589

)

 

(2,251

)

 

-

 

 

(20,840

)

Equity in net income of subsidiaries

 

 

207,307

 

 

-

 

 

-

 

 

(207,307

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income

 

$

132,128

 

$

206,126

 

$

1,181

 

$

(207,307

)

$

132,128

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                 

Net sales

 

$

-

 

$

4,466,375

 

$

165,026

 

$

-

 

$

4,631,401

 

Cost of sales

 

 

-

 

 

3,352,441

 

 

129,795

 

 

-

 

 

3,482,236

 

Repack matters

 

 

-

 

 

4,175

 

 

-

 

 

-

 

 

4,175

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

-

 

 

1,109,759

 

 

35,231

 

 

-

 

 

1,144,990

 

Selling, general and administrative expenses

 

 

8,987

 

 

654,805

 

 

17,711

 

 

-

 

 

681,503

 

Provision for doubtful accounts

 

 

-

 

 

78,037

 

 

1,388

 

 

-

 

 

79,425

 

Restructuring and other related charges

 

 

-

 

 

24,663

 

 

224

 

 

-

 

 

24,887

 

Litigation and other related professional fees

 

 

-

 

 

51,143

 

 

-

 

 

-

 

 

51,143

 

Repack matters

 

 

-

 

 

628

 

 

-

 

 

-

 

 

628

 

 

 

   

 

   

 

   

 

   

 

   

 

Operating income (loss)

 

 

(8,987

)

 

300,483

 

 

15,908

 

 

-

 

 

307,404

 

Investment income

 

 

1,496

 

 

4,515

 

 

-

 

 

-

 

 

6,011

 

Interest expense, including amortization of discount on convertible notes

 

 

(124,319

)

 

(1,631

)

 

(2,483

)

 

-

 

 

(128,433

)

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations before income taxes

 

 

(131,810

)

 

303,367

 

 

13,425

 

 

-

 

 

184,982

 

Income tax (benefit) expense

 

 

(50,983

)

 

115,436

 

 

5,148

 

 

-

 

 

69,601

 

 

 

   

 

   

 

   

 

   

 

   

 

Income from continuing operations

 

 

(80,827

)

 

187,931

 

 

8,277

 

 

-

 

 

115,381

 

Loss from discontinued operations

 

 

-

 

 

(979

)

 

(1,558

)

 

-

 

 

(2,537

)

Equity in net income of subsidiaries

 

 

193,671

 

 

-

 

 

-

 

 

(193,671

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income

 

$

112,844

 

$

186,952

 

$

6,719

 

$

(193,671

)

$

112,844

 

 

 

   

 

   

 

   

 

   

 

   

 

33


Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2009 (Unaudited):

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 

                       

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

276,619

 

$

32,218

 

$

15,300

 

$

-

 

$

324,137

 

Restricted cash

 

 

-

 

 

2,929

 

 

-

 

 

-

 

 

2,929

 

Accounts receivable, net (including intercompany)

 

 

-

 

 

1,232,488

 

 

19,353

 

 

(3,471

)

 

1,248,370

 

Unbilled receivables, CRO

 

 

-

 

 

26,239

 

 

-

 

 

-

 

 

26,239

 

Inventories

 

 

-

 

 

338,401

 

 

7,153

 

 

-

 

 

345,554

 

Deferred income tax benefits, net-current

 

 

-

 

 

151,014

 

 

149

 

 

(3,733

)

 

147,430

 

Other current assets

 

 

1,076

 

 

174,961

 

 

4,875

 

 

-

 

 

180,912

 

Current assets from discontinued operations

 

 

-

 

 

17,234

 

 

5,946

 

 

-

 

 

23,180

 

 

 

   

 

   

 

   

 

   

 

   

 

Total current assets

 

 

277,695

 

 

1,975,484

 

 

52,776

 

 

(7,204

)

 

2,298,751

 

 

 

   

 

   

 

   

 

   

 

   

 

Properties and equipment, net

 

 

-

 

 

208,030

 

 

4,301

 

 

-

 

 

212,331

 

Goodwill

 

 

-

 

 

4,169,742

 

 

76,578

 

 

-

 

 

4,246,320

 

Identifiable intangible assets, net

 

 

-

 

 

294,649

 

 

11,029

 

 

-

 

 

305,678

 

Other noncurrent assets

 

 

33,993

 

 

250,053

 

 

50

 

 

-

 

 

284,096

 

Noncurrent assets from discontinued operations

 

 

-

 

 

21,189

 

 

23,535

 

 

-

 

 

44,724

 

Investment in subsidiaries

 

 

5,933,754

 

 

-

 

 

-

 

 

(5,933,754

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Total assets

 

$

6,245,442

 

$

6,919,147

 

$

168,269

 

$

(5,940,958

)

$

7,391,900

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities - continuing operations (including intercompany)

 

$

215,964

 

$

545,792

 

$

10,692

 

$

(3,471

)

$

768,977

 

Current liabilities - discontinued operations

 

 

-

 

 

7,390

 

 

1,708

 

 

-

 

 

9,098

 

Long-term debt, notes and convertible debentures

 

 

1,971,323

 

 

1,626

 

 

3

 

 

-

 

 

1,972,952

 

Deferred income tax liabilities, net-noncurrent

 

 

246,515

 

 

318,052

 

 

10,363

 

 

(3,733

)

 

571,197

 

Other noncurrent liabilities

 

 

-

 

 

257,983

 

 

-

 

 

-

 

 

257,983

 

Noncurrent liabilities from discontinued operations

 

 

-

 

 

-

 

 

53

 

 

-

 

 

53

 

Stockholders’ equity

 

 

3,811,640

 

 

5,788,304

 

 

145,450

 

 

(5,933,754

)

 

3,811,640

 

 

 

   

 

   

 

   

 

   

 

   

 

Total liabilities and stockholders’ equity

 

$

6,245,442

 

$

6,919,147

 

$

168,269

 

$

(5,940,958

)

$

7,391,900

 

 

 

   

 

   

 

   

 

   

 

   

 

34


Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets - (Continued)
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2008 (Unaudited):

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 

                       

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

145,178

 

$

44,109

 

$

25,381

 

$

-

 

$

214,668

 

Restricted cash

 

 

-

 

 

1,891

 

 

-

 

 

-

 

 

1,891

 

Accounts receivable, net (including intercompany)

 

 

-

 

 

1,314,760

 

 

54,862

 

 

(32,064

)

 

1,337,558

 

Unbilled receivables, CRO

 

 

-

 

 

22,329

 

 

-

 

 

-

 

 

22,329

 

Inventories

 

 

-

 

 

438,972

 

 

10,051

 

 

-

 

 

449,023

 

Deferred income tax benefits, net-current

 

 

1,202

 

 

132,991

 

 

56

 

 

-

 

 

134,249

 

Other current assets

 

 

1,270

 

 

170,615

 

 

5,104

 

 

-

 

 

176,989

 

Current assets from discontinued operations

 

 

-

 

 

27,979

 

 

7,007

 

 

-

 

 

34,986

 

 

 

   

 

   

 

   

 

   

 

   

 

Total current assets

 

 

147,650

 

 

2,153,646

 

 

102,461

 

 

(32,064

)

 

2,371,693

 

 

 

   

 

   

 

   

 

   

 

   

 

Properties and equipment, net

 

 

-

 

 

203,882

 

 

4,645

 

 

-

 

 

208,527

 

Goodwill

 

 

-

 

 

4,138,754

 

 

72,467

 

 

-

 

 

4,211,221

 

Identifiable intangible assets, net

 

 

-

 

 

325,559

 

 

3,887

 

 

-

 

 

329,446

 

Other noncurrent assets

 

 

40,171

 

 

231,895

 

 

47

 

 

-

 

 

272,113

 

Noncurrent assets from discontinued operations

 

 

-

 

 

33,375

 

 

23,870

 

 

-

 

 

57,245

 

Investment in subsidiaries

 

 

6,075,308

 

 

-

 

 

-

 

 

(6,075,308

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Total assets

 

$

6,263,129

 

$

7,087,111

 

$

207,377

 

$

(6,107,372

)

$

7,450,245

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities - continuing operations (including intercompany)

 

$

28,460

 

$

624,900

 

$

9,157

 

$

(32,064

)

$

630,453

 

Current liabilities - discontinued operations

 

 

-

 

 

8,170

 

 

2,166

 

 

-

 

 

10,336

 

Long-term debt, notes and convertible debentures

 

 

2,350,227

 

 

2,594

 

 

3

 

 

-

 

 

2,352,824

 

Deferred income tax liabilities, net-noncurrent

 

 

229,573

 

 

285,361

 

 

10,492

 

 

-

 

 

525,426

 

Other noncurrent liabilities

 

 

-

 

 

274,825

 

 

1,459

 

 

-

 

 

276,284

 

Noncurrent liabilities from discontinued operations

 

 

-

 

 

-

 

 

53

 

 

-

 

 

53

 

Stockholders’ equity

 

 

3,654,869

 

 

5,891,261

 

 

184,047

 

 

(6,075,308

)

 

3,654,869

 

 

 

   

 

   

 

   

 

   

 

   

 

Total liabilities and stockholders’ equity

 

$

6,263,129

 

$

7,087,111

 

$

207,377

 

$

(6,107,372

)

$

7,450,245

 

 

 

   

 

   

 

   

 

   

 

   

 

35


Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - Unaudited
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

   

2009:

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Omnicare, Inc.
and
Subsidiaries

 

                   

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows from operating activities

 

$

(23,070

)

$

463,818

 

$

(9,147

)

$

431,601

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of businesses, net of cash received

 

 

-

 

 

(64,498

)

 

-

 

 

(64,498

)

Capital expenditures

 

 

-

 

 

(25,528

)

 

(738

)

 

(26,266

)

Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust

 

 

-

 

 

538

 

 

-

 

 

538

 

Other

 

 

-

 

 

(8,033

)

 

-

 

 

(8,033

)

 

 

   

 

   

 

   

 

   

 

Net cash flows used in investing activities

 

 

-

 

 

(97,521

)

 

(738

)

 

(98,259

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on line of credit facilities and term A loan

 

 

(225,000

)

 

-

 

 

-

 

 

(225,000

)

Payments on long-term borrowings and obligations

 

 

(1,376

)

 

-

 

 

-

 

 

(1,376

)

(Decrease) increase in cash overdraft balance

 

 

(2,398

)

 

675

 

 

-

 

 

(1,723

)

Payments for stock awards and exercise of stock options, net of stock tendered in payment

 

 

10,164

 

 

-

 

 

-

 

 

10,164

 

Excess tax benefits from stock-based compensation

 

 

2,367

 

 

-

 

 

-

 

 

2,367

 

Dividends paid

 

 

(8,043

)

 

-

 

 

-

 

 

(8,043

)

Other

 

 

378,797

 

 

(378,797

)

 

-

 

 

-

 

 

 

   

 

   

 

   

 

   

 

Net cash flows used in financing activities

 

 

154,511

 

 

(378,122

)

 

-

 

 

(223,611

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

-

 

 

-

 

 

(198

)

 

(198

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

131,441

 

 

(11,825

)

 

(10,083

)

 

109,533

 

Less increase (decrease) in cash and cash equivalents of discontinued operations

 

 

-

 

 

66

 

 

(2

)

 

64

 

 

 

   

 

   

 

   

 

   

 

Increase (decrease) in cash and cash equivalents of continuing operations

 

 

131,441

 

 

(11,891

)

 

(10,081

)

 

109,469

 

Cash and cash equivalents at beginning of period

 

 

145,178

 

 

44,109

 

 

25,381

 

 

214,668

 

 

 

   

 

   

 

   

 

   

 

Cash and cash equivalents at end of period

 

$

276,619

 

$

32,218

 

$

15,300

 

$

324,137

 

 

 

   

 

   

 

   

 

   

 

36


Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Statements of Cash Flows - (Continued) - Unaudited
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

   

2008:

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Omnicare, Inc.
and
Subsidiaries

 

                   

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows from operating activities

 

$

(45,536

)

$

388,174

 

$

(10,753

)

$

331,885

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of businesses, net of cash received

 

 

-

 

 

(201,032

)

 

-

 

 

(201,032

)

Capital expenditures

 

 

-

 

 

(45,840

)

 

161

 

 

(45,679

)

Transfer of cash to trusts for employee health and severance costs, net of payments out of the trust

 

 

-

 

 

(11,419

)

 

-

 

 

(11,419

)

Other

 

 

-

 

 

(1,877

)

 

-

 

 

(1,877

)

 

 

   

 

   

 

   

 

   

 

Net cash flows used in investing activities

 

 

-

 

 

(260,168

)

 

161

 

 

(260,007

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on line of credit facilities and term A loan

 

 

(50,000

)

 

-

 

 

-

 

 

(50,000

)

Payments on long-term borrowings and obligations

 

 

(2,172

)

 

(119

)

 

-

 

 

(2,291

)

(Decrease) increase in cash overdraft balance

 

 

(4,026

)

 

1,714

 

 

-

 

 

(2,312

)

Payments for Omnicare common stock repurchase

 

 

(100,165

)

 

-

 

 

-

 

 

(100,165

)

Payments for stock awards and exercise of stock options, net of stock tendered in payment

 

 

(1,183

)

 

-

 

 

-

 

 

(1,183

)

Excess tax benefits from stock-based compensation

 

 

750

 

 

-

 

 

-

 

 

750

 

Dividends paid

 

 

(8,080

)

 

-

 

 

-

 

 

(8,080

)

Other

 

 

160,224

 

 

(160,105

)

 

-

 

 

119

 

 

 

   

 

   

 

   

 

   

 

Net cash flows used in financing activities

 

 

(4,652

)

 

(158,510

)

 

-

 

 

(163,162

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

-

 

 

1,752

 

 

(3,808

)

 

(2,056

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) in cash and cash equivalents

 

 

(50,188

)

 

(28,752

)

 

(14,400

)

 

(93,340

)

Less increase (decrease) in cash and cash equivalents of discontinued operations

 

 

-

 

 

492

 

 

(22

)

 

470

 

 

 

   

 

   

 

   

 

   

 

(Decrease) in cash and cash equivalents of continuing operations

 

 

(50,188

)

 

(29,244

)

 

(14,378

)

 

(93,810

)

Cash and cash equivalents at beginning of period

 

 

171,779

 

 

69,976

 

 

32,445

 

 

274,200

 

 

 

   

 

   

 

   

 

   

 

Cash and cash equivalents at end of period

 

$

121,591

 

$

40,732

 

$

18,067

 

$

180,390

 

 

 

   

 

   

 

   

 

   

 

37


Note 13 - Guarantor Subsidiaries (Continued)

The Company’s 3.25% convertible senior debentures due 2035 are fully and unconditionally guaranteed on an unsecured basis by Omnicare Purchasing Company, LP, a wholly-owned subsidiary of the Company (the “Guarantor Subsidiary”). The following condensed consolidating financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiary and the Non-Guarantor Subsidiaries as of September 30, 2009 and December 31, 2008 for the balance sheets as well as the three and nine months ended September 30, 2009 and 2008 for the statements of income, and the statements of cash flows for the nine months ended September 30, 2009 and 2008. Management believes separate complete financial statements of the respective Guarantor Subsidiary would not provide information that would be necessary for evaluating the sufficiency of the Guarantor Subsidiary, and thus are not presented. The Guarantor Subsidiary does not have any material net cash flows in the condensed consolidating statements of cash flows. No consolidating/eliminating adjustments column is presented for the condensed consolidating statements of cash flows since there were no significant consolidating/eliminating adjustment amounts during the periods presented.

38


Note 13 - Guarantor Subsidiaries (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summary Consolidating Statements of Income - Unaudited
(in thousands)

 

 

 

 

 

 

Three months ended September 30,

 

 

 

   

2009:

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 

                       

Net sales

 

$

-

 

$

-

 

$

1,543,901

 

$

-

 

$

1,543,901

 

Cost of sales

 

 

-

 

 

-

 

 

1,175,946

 

 

-

 

 

1,175,946

 

Repack matters

 

 

-

 

 

-

 

 

1,755

 

 

-

 

 

1,755

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

-

 

 

-

 

 

366,200

 

 

-

 

 

366,200

 

Selling, general and administrative expenses

 

 

3,350

 

 

306

 

 

199,738

 

 

-

 

 

203,394

 

Provision for doubtful accounts

 

 

-

 

 

-

 

 

23,098

 

 

-

 

 

23,098

 

Restructuring and other related charges

 

 

-

 

 

-

 

 

6,295

 

 

-

 

 

6,295

 

Litigation and other related professional fees

 

 

-

 

 

-

 

 

1,739

 

 

-

 

 

1,739

 

Repack matters

 

 

-

 

 

-

 

 

277

 

 

-

 

 

277

 

Acquisition and other related costs

 

 

-

 

 

-

 

 

(632

)

 

-

 

 

(632

)

 

 

   

 

   

 

   

 

   

 

   

 

Operating income (loss)

 

 

(3,350

)

 

(306

)

 

135,685

 

 

-

 

 

132,029

 

Investment income

 

 

144

 

 

-

 

 

1,058

 

 

-

 

 

1,202

 

Interest expense, including amortization of discount on convertible notes

 

 

(36,432

)

 

-

 

 

(215

)

 

-

 

 

(36,647

)

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations before income taxes

 

 

(39,638

)

 

(306

)

 

136,528

 

 

-

 

 

96,584

 

Income tax (benefit) expense

 

 

(15,316

)

 

(116

)

 

33,270

 

 

-

 

 

17,838

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations

 

 

(24,322

)

 

(190

)

 

103,258

 

 

-

 

 

78,746

 

Loss from discontinued operations

 

 

-

 

 

-

 

 

(6,231

)

 

-

 

 

(6,231

)

Equity in net income of subsidiaries

 

 

96,837

 

 

-

 

 

-

 

 

(96,837

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income (loss)

 

$

72,515

 

$

(190

)

$

97,027

 

$

(96,837

)

$

72,515

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                 

Net sales

 

$

-

 

$

-

 

$

1,578,251

 

$

-

 

$

1,578,251

 

Cost of sales

 

 

-

 

 

-

 

 

1,172,791

 

 

-

 

 

1,172,791

 

Repack matters

 

 

-

 

 

-

 

 

1,041

 

 

-

 

 

1,041

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

-

 

 

-

 

 

404,419

 

 

-

 

 

404,419

 

Selling, general and administrative expenses

 

 

4,690

 

 

365

 

 

223,270

 

 

-

 

 

228,325

 

Provision for doubtful accounts

 

 

-

 

 

-

 

 

27,180

 

 

-

 

 

27,180

 

Restructuring and other related charges

 

 

-

 

 

-

 

 

7,655

 

 

-

 

 

7,655

 

Litigation and other related professional fees

 

 

-

 

 

-

 

 

13,479

 

 

-

 

 

13,479

 

Repack matters

 

 

-

 

 

-

 

 

129

 

 

-

 

 

129

 

 

 

   

 

   

 

   

 

   

 

   

 

Operating income (loss)

 

 

(4,690

)

 

(365

)

 

132,706

 

 

-

 

 

127,651

 

Investment income

 

 

105

 

 

-

 

 

1,336

 

 

-

 

 

1,441

 

Interest expense, including amortization of discount on convertible notes

 

 

(42,235

)

 

-

 

 

(971

)

 

-

 

 

(43,206

)

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations before income taxes

 

 

(46,820

)

 

(365

)

 

133,071

 

 

-

 

 

85,886

 

Income tax (benefit) expense

 

 

(18,230

)

 

(146

)

 

49,912

 

 

-

 

 

31,536

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations

 

 

(28,590

)

 

(219

)

 

83,159

 

 

-

 

 

54,350

 

Loss from discontinued operations

 

 

-

 

 

-

 

 

(591

)

 

-

 

 

(591

)

Equity in net income of subsidiaries

 

 

82,349

 

 

-

 

 

-

 

 

(82,349

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income (loss)

 

$

53,759

 

$

(219

)

$

82,568

 

$

(82,349

)

$

53,759

 

 

 

   

 

   

 

   

 

   

 

   

 

39


Note 13 - Guarantor Subsidiaries (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summary Consolidating Statements of Income - Unaudited
(in thousands)

 

 

 

 

 

 

Nine months ended September 30,

 

 

 

   

2009:

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 

                       

Net sales

 

$

-

 

$

-

 

$

4,626,513

 

$

-

 

$

4,626,513

 

Cost of sales

 

 

-

 

 

-

 

 

3,496,492

 

 

-

 

 

3,496,492

 

Repack matters

 

 

-

 

 

-

 

 

3,672

 

 

-

 

 

3,672

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

-

 

 

-

 

 

1,126,349

 

 

-

 

 

1,126,349

 

Selling, general and administrative expenses

 

 

11,891

 

 

1,123

 

 

610,004

 

 

-

 

 

623,018

 

Provision for doubtful accounts

 

 

-

 

 

-

 

 

71,079

 

 

-

 

 

71,079

 

Restructuring and other related charges

 

 

-

 

 

-

 

 

19,095

 

 

-

 

 

19,095

 

Litigation and other related professional fees

 

 

-

 

 

-

 

 

71,761

 

 

-

 

 

71,761

 

Repack matters

 

 

-

 

 

-

 

 

1,549

 

 

-

 

 

1,549

 

Acquisition and other related costs

 

 

-

 

 

-

 

 

2,218

 

 

-

 

 

2,218

 

 

 

   

 

   

 

   

 

   

 

   

 

Operating income (loss)

 

 

(11,891

)

 

(1,123

)

 

350,643

 

 

-

 

 

337,629

 

Investment income

 

 

680

 

 

-

 

 

3,961

 

 

-

 

 

4,641

 

Interest expense, including amortization of discount on convertible notes

 

 

(110,773

)

 

-

 

 

(660

)

 

-

 

 

(111,433

)

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations before income taxes

 

 

(121,984

)

 

(1,123

)

 

353,944

 

 

-

 

 

230,837

 

Income tax (benefit) expense

 

 

(46,805

)

 

(431

)

 

125,105

 

 

-

 

 

77,869

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations

 

 

(75,179

)

 

(692

)

 

228,839

 

 

-

 

 

152,968

 

Loss from discontinued operations, including impairment charge of $12,065 aftertax

 

 

-

 

 

-

 

 

(20,840

)

 

-

 

 

(20,840

)

Equity in net income of subsidiaries

 

 

207,307

 

 

-

 

 

-

 

 

(207,307

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income (loss)

 

$

132,128

 

$

(692

)

$

207,999

 

$

(207,307

)

$

132,128

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                 

Net sales

 

$

-

 

$

-

 

$

4,631,401

 

$

-

 

$

4,631,401

 

Cost of sales

 

 

-

 

 

-

 

 

3,482,236

 

 

-

 

 

3,482,236

 

Repack matters

 

 

-

 

 

-

 

 

4,175

 

 

-

 

 

4,175

 

 

 

   

 

   

 

   

 

   

 

   

 

Gross profit

 

 

-

 

 

-

 

 

1,144,990

 

 

-

 

 

1,144,990

 

Selling, general and administrative expenses

 

 

8,987

 

 

1,011

 

 

671,505

 

 

-

 

 

681,503

 

Provision for doubtful accounts

 

 

-

 

 

-

 

 

79,425

 

 

-

 

 

79,425

 

Restructuring and other related charges

 

 

-

 

 

-

 

 

24,887

 

 

-

 

 

24,887

 

Litigation and other related professional fees

 

 

-

 

 

-

 

 

51,143

 

 

-

 

 

51,143

 

Repack matters

 

 

-

 

 

-

 

 

628

 

 

-

 

 

628

 

 

 

   

 

   

 

   

 

   

 

   

 

Operating income (loss)

 

 

(8,987

)

 

(1,011

)

 

317,402

 

 

-

 

 

307,404

 

Investment income

 

 

1,496

 

 

-

 

 

4,515

 

 

-

 

 

6,011

 

Interest expense, including amortization of discount on convertible notes

 

 

(124,319

)

 

-

 

 

(4,114

)

 

-

 

 

(128,433

)

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations before income taxes

 

 

(131,810

)

 

(1,011

)

 

317,803

 

 

-

 

 

184,982

 

Income tax (benefit) expense

 

 

(50,983

)

 

(396

)

 

120,980

 

 

-

 

 

69,601

 

 

 

   

 

   

 

   

 

   

 

   

 

Income (loss) from continuing operations

 

 

(80,827

)

 

(615

)

 

196,823

 

 

-

 

 

115,381

 

Loss from discontinued operations

 

 

-

 

 

-

 

 

(2,537

)

 

-

 

 

(2,537

)

Equity in net income of subsidiaries

 

 

193,671

 

 

-

 

 

-

 

 

(193,671

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Net income (loss)

 

$

112,844

 

$

(615

)

$

194,286

 

$

(193,671

)

$

112,844

 

 

 

   

 

   

 

   

 

   

 

   

 

40


Note 13 - Guarantor Subsidiaries (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidating Balance Sheets
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2009 (Unaudited):

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 

                       

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

276,619

 

$

-

 

$

47,518

 

$

-

 

$

324,137

 

Restricted cash

 

 

-

 

 

-

 

 

2,929

 

 

-

 

 

2,929

 

Accounts receivable, net (including intercompany)

 

 

-

 

 

54

 

 

1,248,370

 

 

(54

)

 

1,248,370

 

Unbilled receivables, CRO

 

 

-

 

 

-

 

 

26,239

 

 

-

 

 

26,239

 

Inventories

 

 

-

 

 

-

 

 

345,554

 

 

-

 

 

345,554

 

Deferred income tax benefits, net-current

 

 

-

 

 

-

 

 

151,163

 

 

(3,733

)

 

147,430

 

Other current assets

 

 

1,076

 

 

-

 

 

179,836

 

 

-

 

 

180,912

 

Current assets from discontinued operations

 

 

-

 

 

-

 

 

23,180

 

 

-

 

 

23,180

 

 

 

   

 

   

 

   

 

   

 

   

 

Total current assets

 

 

277,695

 

 

54

 

 

2,024,789

 

 

(3,787

)

 

2,298,751

 

 

 

   

 

   

 

   

 

   

 

   

 

Properties and equipment, net

 

 

-

 

 

21

 

 

212,310

 

 

-

 

 

212,331

 

Goodwill

 

 

-

 

 

-

 

 

4,246,320

 

 

-

 

 

4,246,320

 

Identifiable intangible assets, net

 

 

-

 

 

-

 

 

305,678

 

 

-

 

 

305,678

 

Other noncurrent assets

 

 

33,993

 

 

19

 

 

250,084

 

 

-

 

 

284,096

 

Noncurrent assets from discontinued operations

 

 

-

 

 

-

 

 

44,724

 

 

-

 

 

44,724

 

Investment in subsidiaries

 

 

5,933,754

 

 

-

 

 

-

 

 

(5,933,754

)

 

-

 

 

 

   

 

   

 

   

 

   

 

   

 

Total assets

 

$

6,245,442

 

$

94

 

$

7,083,905

 

$

(5,937,541

)

$

7,391,900

 

 

 

   

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities - continuing operations (including intercompany)

 

$

215,964

 

$

7

 

$

553,060

 

$

(54

)

$

768,977

 

Current liabilities - discontinued operations

 

 

-

 

 

-

 

 

9,098

 

 

-

 

 

9,098

 

Long-term debt, notes and convertible debentures

 

 

1,971,323

 

 

-

 

 

1,629

 

 

-

 

 

1,972,952

 

Deferred income tax liabilities, net-noncurrent

 

 

246,515

 

 

-

 

 

328,415

 

 

(3,733

)

 

571,197

 

Other noncurrent liabilities

 

 

-

 

 

-

 

 

257,983

 

 

-

 

 

257,983

 

Noncurrent liabilities from discontinued operations

 

 

-

 

 

-

 

 

53

 

 

-

 

 

53

 

Stockholders’ equity

 

 

3,811,640

 

 

87

 

 

5,933,667

 

 

(5,933,754

)

 

3,811,640

 

 

 

   

 

   

 

   

 

   

 

   

 

Total liabilities and stockholders’ equity

 

$

6,245,442

 

$

94

 

$

7,083,905

 

$

(5,937,541

)

$

7,391,900

 

 

 

   

 

   

 

   

 

   

 

   

 

41


Note 13 - Guarantor Subsidiaries (Continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidating Balance Sheets - (Continued)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2008 (Unaudited):

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 

                       

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

145,178

 

$

-

 

$

69,490

 

$

-

 

$

214,668

 

Restricted cash

 

 

-

 

 

-

 

 

1,891

 

 

-

 

 

1,891

 

Accounts receivable, net (including intercompany)

 

 

-

 

 

56

 

 

1,337,558

 

 

(56

)

 

1,337,558

 

Unbilled receivables, CRO

 

 

-

 

 

-

 

 

22,329

 

 

-

 

 

22,329

 

Inventories

 

 

-

 

 

-

 

 

449,023

 

 

-

 

 

449,023

 

Deferred income tax benefits, net-current

 

 

1,202

 

 

-

 

 

136,399

 

 

(3,352

)

 

134,249

 

Other current assets

 

 

1,270

 

 

-

 

 

175,719

 

 

-

 

 

176,989

 

Current assets from discontinued operations