Attached files
file | filename |
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EX-12 - OMNICARE INC | c59261_ex12.htm |
EX-32.2 - OMNICARE INC | c59261_ex32-2.htm |
EX-31.2 - OMNICARE INC | c59261_ex31-2.htm |
EX-32.1 - OMNICARE INC | c59261_ex32-1.htm |
EX-31.1 - OMNICARE INC | c59261_ex31-1.htm |
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UNITED STATES |
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SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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FORM 10-Q |
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(Mark One) |
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
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For
the quarterly period ended September 30, 2009 |
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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For the transition period from __________ to __________. |
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Commission File Number 1-8269 |
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OMNICARE, INC. |
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(Exact name of registrant as specified in its charter) |
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Delaware |
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31-1001351 |
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(State or other jurisdiction of |
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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100 East RiverCenter Boulevard, Covington, Kentucky 41011 |
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(Address of principal executive offices) (Zip Code) |
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(859) 392-3300 |
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(Registrants telephone number, including area code) |
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(Former name, former address and former fiscal year, if changed since last report) |
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Indicate by check mark whether the registrant: |
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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 |
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2) |
has been subject to such filing requirements for the past 90 days. |
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Yes [ x ] No [ ] |
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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). |
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Yes [ ] No [ ] |
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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. |
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Large accelerated filer [ x ] |
Accelerated filer |
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Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
Smaller reporting company |
[ ] |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
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Yes [ ] No [ x ] |
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COMMON STOCK OUTSTANDING |
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Number
of |
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Date |
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Common Stock, $1 par value |
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119,336,801 |
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September 30, 2009 |
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OMNICARE, INC. AND
SUBSIDIARY COMPANIES
FORM 10-Q QUARTERLY REPORT SEPTEMBER 30, 2009
INDEX
PART I - FINANCIAL INFORMATION:
ITEM 1. - FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(in thousands, except
per share data)
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Three
months ended, |
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Nine
months ended |
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2009 |
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2008 |
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2009 |
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2008 |
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Net sales |
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$ |
1,543,901 |
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$ |
1,578,251 |
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$ |
4,626,513 |
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$ |
4,631,401 |
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Cost of sales |
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1,175,946 |
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1,172,791 |
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3,496,492 |
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3,482,236 |
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Repack matters (Note 11) |
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1,755 |
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1,041 |
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3,672 |
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4,175 |
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Gross profit |
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366,200 |
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404,419 |
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1,126,349 |
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1,144,990 |
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Selling, general and administrative expenses |
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203,394 |
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228,325 |
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623,018 |
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681,503 |
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Provision for doubtful accounts |
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23,098 |
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27,180 |
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71,079 |
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79,425 |
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Restructuring and other related charges (Note 10) |
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6,295 |
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7,655 |
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19,095 |
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24,887 |
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Litigation and other related professional fees (Note 11) |
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1,739 |
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13,479 |
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71,761 |
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51,143 |
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Repack matters (Note 11) |
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277 |
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129 |
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1,549 |
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628 |
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Acquisition and other related costs (Note 4) |
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(632 |
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- |
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2,218 |
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- |
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Operating income |
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132,029 |
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127,651 |
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337,629 |
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307,404 |
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Investment income |
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1,202 |
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1,441 |
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4,641 |
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6,011 |
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Interest expense |
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(29,588 |
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(36,662 |
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(90,650 |
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(109,168 |
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Amortization of discount on convertible notes (Note 6) |
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(7,059 |
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(6,544 |
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(20,783 |
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(19,265 |
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Income from continuing operations before income taxes |
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96,584 |
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85,886 |
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230,837 |
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184,982 |
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Income tax provision |
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17,838 |
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31,536 |
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77,869 |
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69,601 |
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Income from continuing operations |
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78,746 |
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54,350 |
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152,968 |
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115,381 |
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Loss from discontinued operations, including impairment charge of $12,065 aftertax during the nine months ended 2009 period (Note 3) |
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(6,231 |
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(591 |
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(20,840 |
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(2,537 |
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Net income |
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$ |
72,515 |
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$ |
53,759 |
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$ |
132,128 |
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$ |
112,844 |
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Earnings (loss) per common share - Basic: |
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Continuing operations |
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$ |
0.67 |
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$ |
0.47 |
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$ |
1.31 |
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$ |
0.98 |
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Discontinued operations |
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(0.05 |
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(0.01 |
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(0.18 |
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(0.02 |
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Net income |
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$ |
0.62 |
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$ |
0.46 |
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$ |
1.13 |
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$ |
0.96 |
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Earnings (loss) per common share - Diluted: |
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Continuing operations |
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$ |
0.67 |
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$ |
0.46 |
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$ |
1.30 |
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$ |
0.97 |
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Discontinued operations |
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(0.05 |
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(0.01 |
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(0.18 |
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(0.02 |
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Net income |
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$ |
0.61 |
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$ |
0.46 |
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$ |
1.12 |
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$ |
0.95 |
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Dividends per common share |
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$ |
0.0225 |
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$ |
0.0225 |
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$ |
0.0675 |
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$ |
0.0675 |
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Weighted average number of common shares outstanding: |
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Basic |
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117,598 |
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115,983 |
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116,970 |
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117,904 |
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Diluted |
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118,145 |
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117,483 |
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117,711 |
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118,764 |
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Comprehensive income |
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$ |
75,031 |
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$ |
54,540 |
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$ |
132,929 |
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$ |
121,948 |
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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)
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September
30, |
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December
31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
324,137 |
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$ |
214,668 |
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Restricted cash |
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2,929 |
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1,891 |
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Accounts receivable, less allowances of $327,729 (2008-$319,417) |
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1,248,370 |
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1,337,558 |
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Unbilled receivables, CRO |
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26,239 |
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22,329 |
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Inventories |
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345,554 |
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449,023 |
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Deferred income tax benefits |
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147,430 |
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134,249 |
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Other current assets |
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180,912 |
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176,989 |
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Current assets of discontinued operations |
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23,180 |
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34,986 |
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Total current assets |
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2,298,751 |
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2,371,693 |
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Properties and equipment, at cost less accumulated depreciation of $317,341 (2008-$300,880) |
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212,331 |
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208,527 |
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Goodwill |
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4,246,320 |
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4,211,221 |
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Identifiable intangible assets, less accumulated amortization of $176,365 (2008-$149,538) |
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305,678 |
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329,446 |
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Rabbi trust assets for settlement of pension obligations |
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134,048 |
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134,587 |
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Other noncurrent assets |
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150,048 |
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137,526 |
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Noncurrent assets of discontinued operations |
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44,724 |
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57,245 |
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Total noncurrent assets |
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5,093,149 |
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5,078,552 |
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Total assets |
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$ |
7,391,900 |
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$ |
7,450,245 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
256,484 |
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$ |
333,728 |
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Accrued employee compensation |
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33,419 |
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50,082 |
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Deferred revenue, CRO |
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12,964 |
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23,227 |
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Current debt |
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176,374 |
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1,784 |
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Other current liabilities |
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289,736 |
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221,632 |
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Current liabilities of discontinued operations |
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9,098 |
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10,336 |
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Total current liabilities |
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778,075 |
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640,789 |
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Long-term debt, notes and convertible debentures (Note 6) |
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1,972,952 |
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2,352,824 |
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Deferred income tax liabilities |
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571,197 |
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525,426 |
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Other noncurrent liabilities |
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257,983 |
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276,284 |
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Noncurrent liabilities of discontinued operations |
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53 |
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53 |
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Total noncurrent liabilities |
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2,802,185 |
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3,154,587 |
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Total liabilities |
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3,580,260 |
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3,795,376 |
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Commitments and contingencies (Note 11) |
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Stockholders equity: |
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Preferred stock, no par value, 1,000,000 shares authorized, none issued and outstanding |
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- |
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- |
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Common stock, $1 par value, 200,000,000 shares authorized, 126,698,900 shares issued (2008-125,583,300 shares issued) |
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126,699 |
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125,583 |
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Paid-in capital (Note 6) |
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2,261,669 |
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2,224,129 |
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Retained earnings |
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1,621,516 |
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1,498,171 |
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Treasury stock, at cost-7,362,100 shares (2008-7,135,300 shares) |
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(199,209 |
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(193,178 |
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Accumulated other comprehensive income (loss) |
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965 |
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164 |
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Total stockholders equity |
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3,811,640 |
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3,654,869 |
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Total liabilities and stockholders equity |
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$ |
7,391,900 |
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$ |
7,450,245 |
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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)
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Nine
months ended |
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2009 |
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2008 |
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Cash flows from operating activities: |
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Net income |
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$ |
132,128 |
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$ |
112,844 |
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Loss from discontinued operations |
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20,840 |
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2,537 |
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Adjustments to reconcile net income to net cash flows from operating activities: |
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Depreciation expense |
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37,335 |
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35,637 |
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Amortization expense |
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68,022 |
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67,358 |
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Changes in assets and liabilities, net of effects from acquisition and divestiture of businesses: |
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Accounts receivable and unbilled receivables, net of provision for doubtful accounts |
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96,353 |
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30,349 |
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Inventories |
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106,001 |
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33,189 |
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Other current and noncurrent assets |
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13,971 |
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3,480 |
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Accounts payable |
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(75,293 |
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(67,276 |
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Accrued employee compensation |
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(15,766 |
) |
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27,254 |
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Deferred revenue |
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(10,246 |
) |
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(2,059 |
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Current and noncurrent liabilities |
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57,688 |
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86,918 |
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Net cash flows from operating activities of continuing operations |
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431,033 |
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330,231 |
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Net cash flows from operating activities of discontinued operations |
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568 |
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1,654 |
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Net cash flows from operating activities |
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431,601 |
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331,885 |
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Cash flows from investing activities: |
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Acquisition of businesses, net of cash received |
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(64,498 |
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(201,032 |
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Capital expenditures |
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(26,266 |
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(45,679 |
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Transfer of cash (to)/from trusts for employee health and severance costs, net of payments out of the trust |
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538 |
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(11,419 |
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Disbursements for loans and investments |
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(5,600 |
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- |
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Other |
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(1,929 |
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(574 |
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Net cash flows used in investing activities of continuing operations |
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(97,755 |
) |
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(258,704 |
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Net cash flows used in investing activities of discontinued operations |
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(504 |
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(1,303 |
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Net cash flows used in investing activities |
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(98,259 |
) |
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(260,007 |
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Cash flows from financing activities: |
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Net payments on revolving credit facility and term A loan |
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(225,000 |
) |
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(50,000 |
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Payments on long-term borrowings and obligations |
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(1,376 |
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(2,291 |
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(Decrease) in cash overdraft balance |
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(1,723 |
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(2,312 |
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Payments for Omnicare common stock repurchases |
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- |
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(100,165 |
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Proceeds / (payments) for stock awards and exercise of stock options, net of stock tendered in payment |
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10,164 |
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(1,183 |
) |
Excess tax benefits from stock-based compensation |
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2,367 |
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|
750 |
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Dividends paid |
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(8,043 |
) |
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(8,080 |
) |
Net cash flows used in financing activities of continuing operations |
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(223,611 |
) |
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(163,281 |
) |
Net cash flows provided by financing activities of discontinued operations |
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- |
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|
119 |
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Net cash flows used in financing activities |
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(223,611 |
) |
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(163,162 |
) |
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Effect of exchange rate changes on cash |
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(198 |
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(2,056 |
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Net increase (decrease) in cash and cash equivalents |
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109,533 |
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(93,340 |
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Less increase in cash and cash equivalents of discontinued operations |
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64 |
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|
470 |
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Increase (decrease) in cash and cash equivalents of continuing operations |
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109,469 |
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(93,810 |
) |
Cash and cash equivalents at beginning of period |
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214,668 |
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274,200 |
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Cash and cash equivalents at end of period |
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$ |
324,137 |
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$ |
180,390 |
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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 Omnicares Annual Report on Form 10-K for the year ended December 31, 2008 (Omnicares 2008 Annual Report) and any related updates included in the Companys 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 Companys description of business and significant accounting policies have been disclosed in Omnicares 2008 Annual Report. As previously stated, these financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in Omnicares 2008 Annual Report and any applicable updates contained in the Companys 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 Companys 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 Companys 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 Omnicares 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 Omnicares reimbursement under these programs and Omnicares 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 Companys 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 Omnicares customers are fully resolved, there can be no assurance that these matters will not adversely impact the Companys 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 Companys 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 Omnicares 2008 Annual Report, measured at fair value as of September 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on |
|
|||||||
|
|
Fair Value |
|
Quoted Prices |
|
Other |
|
Unobservable |
|
||||
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 Companys 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 Omnicares 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, |
|
December 31, |
|
||
|
|
|
|
||||
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 Companys 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 employers 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 entitys 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 enterprises variable interest or interests give it a controlling financial interest in a variable interest entity. This guidance is effective for an entitys 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 entitys 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 |
|
Nine months |
|
||
|
|
|
|
||||
|
|
|
|
|
|
||
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 |
|
|
|
|
|
||
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 Omnicares Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Companys 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, |
|
Nine
months ended |
|
||||||||
|
|
|
|
||||||||||
|
|
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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 |
|
CRO |
|
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 Companys 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, |
|
December 31, |
|
||
|
|
|
|
||||
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 Companys debt instruments, including related terms and certain financial covenants as well as a description of Omnicares Credit Agreement, have been disclosed in further detail at the Debt note of the Notes to Consolidated Financial Statements in Omnicares 2008 Annual Report.
At September 30, 2009, there was no outstanding balance under the Companys $800 million revolving credit facility, maturing on July 28, 2010 (Revolving Loans), and $175 million outstanding under the Companys 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 Companys convertible debt see the Debt note of the Notes to Consolidated Financial
15
Statements in Omnicares 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 entitys calculated nonconvertible debt borrowing rate when the debt was issued. The effect of this accounting change on the carrying amounts of the Companys debt and equity balances, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
September
30, |
|
December
31, |
|
||
|
|
|
|
||||
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 Omnicares 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 Omnicares 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, |
|
Nine months ended |
|
||||||||
|
|
|
|
||||||||||
|
|
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 |
|
Nine months ended |
|
||||||||
|
|
|
|
||||||||||
|
|
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- |
|
Weighted- |
|
Aggregate |
|
||||
|
|
|
|
|
|
||||||||
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- |
|
||
|
|
|
|
||||
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 Omnicares 2008 Annual Report. Expense relating primarily to the Companys 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 Omnicares 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, |
|
Nine
months ended |
|
||||||||
|
|
|
|
||||||||||
|
|
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 Companys 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 |
|
Common |
|
Per |
|
|||
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 |
|
Common |
|
Per |
|
|||
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 Companys 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 Companys 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 Companys 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 |
|
2009 |
|
Utilized |
|
Balance at |
||||
|
|
|
|
|||||||||
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 Companys recorded liabilities, future earnings will be charged or credited accordingly.
As previously disclosed, the U.S. Attorneys 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 Companys 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 manufacturers 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 manufacturers 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 drugs 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 Companys 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 Companys requirements under the CIA. The requirements of the Companys 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 Companys 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 Generals 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 patients 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 Companys 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 Companys 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 Companys 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 courts dismissal, dismissing plaintiffs 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 Funds 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 Courts 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 Omnicares 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 Companys 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 Attorneys Office, District of Massachusetts (including the aforementioned increase in the settlement reserve); the Companys lawsuit against United; the Companys 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 Generals 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 |
|
CRO |
|
Corporate
and |
|
Consolidated |
|
||||
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 |
|
CRO |
|
Corporate and |
|
Consolidated |
|
||||
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 Companys 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 |
|
Non- |
|
Consolidating/ |
|
Omnicare, |
|
|||||
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 |
|
Non- |
|
Consolidating/ |
|
Omnicare, |
|
|||||
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 |
|
Non- |
|
Consolidating/ |
|
Omnicare, |
|
|||||
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 |
|
Non- |
|
Consolidating/ |
|
Omnicare, |
|
|||||
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 |
|
Non-Guarantor |
|
Omnicare, Inc. |
|
||||
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 |
|
Non-Guarantor |
|
Omnicare, Inc. |
|
||||
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 Companys 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 |
||||||||||||||||
|
|
|
|
|||||||||||||
|
|
Three months ended September 30, |
|
|||||||||||||
|
|
|||||||||||||||
2009: |
|
Parent |
|
Guarantor |
|
Non- |
|
Consolidating/ |
|
Omnicare, |
|
|||||
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 |
||||||||||||||||
|
|
|
|
|||||||||||||
|
|
Nine months ended September 30, |
|
|||||||||||||
|
|
|||||||||||||||
2009: |
|
Parent |
|
Guarantor |
|
Non- |
|
Consolidating/ |
|
Omnicare, |
|
|||||
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 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009 (Unaudited): |
|
Parent |
|
Guarantor |
|
Non- |
|
Consolidating/ |
|
Omnicare, |
|
|||||
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 |
|
Non- |
|
Consolidating/ |
|
Omnicare, |
|
|||||
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 |
|
|
- |
|
|
- |
|
|
34,986 |
|
|
- |
|
|
34,986 |
|
|
|
|
|
|
|
|
||||||||||
Total current assets |
|
|
147,650 |
|
|
56 |
|
|
2,227,395 |
|
|
(3,408 |
) |
|
2,371,693 |
|
|
|
|
|
|
|
|
||||||||||
Properties and equipment, net |
|
|
- |
|
|
29 |
|
|
208,498 |
|
|
- |
|
|
208,527 |
|
Goodwill |
|
|
- |
|
|
- |
|
|
4,211,221 |
|
|
- |
|
|
4,211,221 |
|
Identifiable intangible assets, net |
|
|
- |
|
|
- |
|
|
329,446 |
|
|
- |
|
|
329,446 |
|
Other noncurrent assets |
|
|
40,171 |
|
|
19 |
|
|
231,923 |
|
|
- |
|
|
272,113 |
|
Noncurrent assets from discontinued operations |
|
|
- |
|
|
- |
|
|
57,245 |
|
|
- |
|
|
57,245 |
|
Investment in subsidiaries |
|
|
6,075,308 |
|
|
- |
|
|
- |
|
|
(6,075,308 |
) |
|
- |
|
|
|
|
|
|
|
|
||||||||||
Total assets |
|
$ |
6,263,129 |
|
$ |
104 |
|
$ |
7,265,728 |
|
$ |
(6,078,716 |
) |
$ |
7,450,245 |
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities - continuing operations (including intercompany) |
|
$ |
28,460 |
|
$ |
16 |
|
$ |
602,033 |
|
$ |
(56 |
) |
$ |
630,453 |
|
Current liabilities - discontinued operations |
|
|
- |
|
|
- |
|
|
10,336 |
|
|
- |
|
|
10,336 |
|
Long-term debt, notes and convertible debentures |
|
|
2,350,227 |
|
|
- |
|
|
2,597 |
|
|
- |
|
|
2,352,824 |
|
Deferred income tax liabilities, net-noncurrent |
|
|
229,573 |
|
|
- |
|
|
299,205 |
|
|
(3,352 |
) |
|
525,426 |
|
Other noncurrent liabilities |
|
|
- |
|
|
- |
|
|
276,284 |
|
|
- |
|
|
276,284 |
|
Noncurrent liabilities from discontinued operations |
|
|
- |
|
|
- |
|
|
53 |
|
|
- |
|
|
53 |
|
Stockholders equity |
|
|
3,654,869 |
|
|
88 |
|
|
6,075,220 |
|
|
(6,075,308 |
) |
|
3,654,869 |
|
|
|
|
|
|
|
|
||||||||||
Total liabilities and stockholders equity |
|
$ |
6,263,129 |
|
$ |
104 |
|
$ |
7,265,728 |
|
$ |
(6,078,716 |
) |
$ |
7,450,245 |
|
|
|
|
|
|
|
|
42
Note 13 - Guarantor Subsidiaries (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows - Unaudited |
|||||||||||||
(in thousands) |
|||||||||||||
|
|
Nine months ended September 30, |
|
||||||||||
|
|
||||||||||||
2009: |
|
Parent |
|
Guarantor |
|
Non-Guarantor |
|
Omnicare,
Inc. |
|
||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities |
|
$ |
(23,070 |
) |
$ |
- |
|
$ |
454,671 |
|
$ |
431,601 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash received |
|
|
- |
|
|
- |
|
|
(64,498 |
) |
|
(64,498 |
) |
Capital expenditures |
|
|
- |
|
|
- |
|
|
(26,266 |
) |
|
(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 |
|
|
- |
|
|
- |
|
|
(98,259 |
) |
|
(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 |
|
|
- |
|
|
(21,908 |
) |
|
109,533 |
|
Less increase in cash and cash equivalents of discontinued operations |
|
|
- |
|
|
- |
|
|
64 |
|
|
64 |
|
|
|
|
|
|
|
||||||||
Increase (decrease) in cash and cash equivalents of continuing operations |
|
|
131,441 |
|
|
- |
|
|
(21,972 |
) |
|
109,469 |
|
Cash and cash equivalents at beginning of period |
|
|
145,178 |
|
|
- |
|
|
69,490 |
|
|
214,668 |
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents at end of period |
|
$ |
276,619 |
|
$ |
- |
|
$ |
47,518 |
|
$ |
324,137 |
|
|
|
|
|
|
|
43
Note 13 - Guarantor Subsidiaries (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows - (Continued) - Unaudited |
|||||||||||||
(in thousands) |
|||||||||||||
|
|
Nine months ended September 30, |
|
||||||||||
|
|
||||||||||||
2008: |
|
Parent |
|
Guarantor |
|
Non-Guarantor |
|
Omnicare,
Inc. |
|
||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities |
|
$ |
(45,536 |
) |
$ |
- |
|
$ |
377,421 |
|
$ |
331,885 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash received |
|
|
- |
|
|
- |
|
|
(201,032 |
) |
|
(201,032 |
) |
Capital expenditures |
|
|
- |
|
|
- |
|
|
(45,679 |
) |
|
(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 |
|
|
- |
|
|
- |
|
|
(260,007 |
) |
|
(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 |
|
|
- |
|
|
- |
|
|
(2,056 |
) |
|
(2,056 |
) |
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) in cash and cash equivalents |
|
|
(50,188 |
) |
|
- |
|
|
(43,152 |
) |
|
(93,340 |
) |
Less increase in cash and cash equivalents of discontinued operations |
|
|
- |
|
|
- |
|
|
470 |
|
|
470 |
|
|
|
|
|
|
|
||||||||
(Decrease) in cash and cash equivalents of continuing operations |
|
|
(50,188 |
) |
|
- |
|
|
(43,622 |
) |
|
(93,810 |
) |
Cash and cash equivalents at beginning of period |
|
|
171,779 |
|
|
- |
|
|
102,421 |
|
|
274,200 |
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents at end of period |
|
$ |
121,591 |
|
$ |
- |
|
$ |
58,799 |
|
$ |
180,390 |
|
|
|
|
|
|
|
44
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
The following discussion should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information appearing elsewhere in this report. In addition, see Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information. The reader should also refer to the Consolidated Financial Statements and notes thereto and MD&A, including critical accounting policies, for the year ended December 31, 2008, which appear in the Companys Annual Report on Form 10-K, (Omnicares 2008 Annual Report), which was filed with the Securities and Exchange Commission on February 26, 2009. All amounts disclosed herein relate to the Companys continuing operations unless otherwise stated.
|
Overview of Three and Nine Months Ended September 30, 2009 and Results of Operations |
Omnicare, Inc. (Omnicare or the Company) is a leading geriatric pharmaceutical services company. Omnicare is the nations largest provider of pharmaceuticals and related pharmacy and ancillary services to long-term healthcare institutions. Omnicares clients include primarily skilled nursing facilities (SNFs), assisted living facilities (ALFs), retirement centers, independent living communities, hospitals, hospice, and other healthcare settings and service providers. At September 30, 2009, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,389,000 beds relating to continuing operations, including approximately 63,000 patients served by the patient assistance programs of its specialty pharmacy services business. The comparable number at December 31, 2008 was 1,390,000 relating to continuing operations (including approximately 68,000 patients served by patient assistance programs). The comparable number at September 30, 2008 was 1,387,000 relating to continuing operations (including approximately 67,000 patients served by patient assistance programs). Omnicare provides its pharmacy services in 47 states in the United States, the District of Columbia and Canada at September 30, 2009. Omnicare also provides comprehensive product development and research services for the pharmaceutical, biotechnology, nutraceutical, medical devices and diagnostic industries in 31 countries worldwide. For further description of the Companys business activities see the Business caption of Part I, Item 1 of Omnicares 2008 Annual Report.
The following summary table presents consolidated net sales and results of operations of Omnicare for the three and nine months ended September 30, 2009 and 2008 (in thousands, except per share amounts). In accordance with the Securities and Exchange Commission (SEC) release entitled Conditions for Use of Non-GAAP Financial Measures, the Company has disclosed in this MD&A, with the exception of EBITDA (discussed below) and days sales outstanding, only those measures that are in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended, |
|
Nine
months ended |
|
||||||||
|
|
|
|
||||||||||
|
|
2009 (b) |
|
2008
as |
|
2009 (b) |
|
2008
as |
|
||||
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,543,901 |
|
$ |
1,578,251 |
|
$ |
4,626,513 |
|
$ |
4,631,401 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
78,746 |
|
$ |
54,350 |
|
$ |
152,968 |
|
$ |
115,381 |
|
Discontinued operations, including impairment charge of $12,065 aftertax for the nine months ended 2009 period (b) |
|
|
(6,231 |
) |
|
(591 |
) |
|
(20,840 |
) |
|
(2,537 |
) |
|
|
|
|
|
|
||||||||
Net income |
|
$ |
72,515 |
|
$ |
53,759 |
|
$ |
132,128 |
|
$ |
112,844 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share - Basic:(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.67 |
|
$ |
0.47 |
|
$ |
1.31 |
|
$ |
0.98 |
|
Discontinued operations (b) |
|
|
(0.05 |
) |
|
(0.01 |
) |
|
(0.18 |
) |
|
(0.02 |
) |
Net income |
|
$ |
0.62 |
|
$ |
0.46 |
|
$ |
1.13 |
|
$ |
0.96 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning (loss) per common share - Diluted:(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.67 |
|
$ |
0.46 |
|
$ |
1.30 |
|
$ |
0.97 |
|
Discontinued operations (b) |
|
|
(0.05 |
) |
|
(0.01 |
) |
|
(0.18 |
) |
|
(0.02 |
) |
Net income |
|
$ |
0.61 |
|
$ |
0.46 |
|
$ |
1.12 |
|
$ |
0.95 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA from continuing operations(d) |
|
$ |
158,974 |
|
$ |
156,450 |
|
$ |
422,203 |
|
$ |
391,134 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA from continuing operations reconciliation to net cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA from continuing operations(d) |
|
$ |
158,974 |
|
$ |
156,450 |
|
$ |
422,203 |
|
$ |
391,134 |
|
(Subtract)/Add: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of investment income |
|
|
(28,386 |
) |
|
(35,221 |
) |
|
(86,009 |
) |
|
(103,157 |
) |
Income tax provision |
|
|
(17,838 |
) |
|
(31,536 |
) |
|
(77,869 |
) |
|
(69,601 |
) |
Changes in assets and liabilities, net of effects from acquisition and divestitures of businesses |
|
|
56,003 |
|
|
13,293 |
|
|
172,708 |
|
|
111,855 |
|
|
|
|
|
|
|
||||||||
Net cash flows from operating activities of continuing operations |
|
|
168,753 |
|
|
102,986 |
|
|
431,033 |
|
|
330,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities of discontinued operations |
|
|
(94 |
) |
|
287 |
|
|
568 |
|
|
1,654 |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities |
|
$ |
168,659 |
|
$ |
103,273 |
|
$ |
431,601 |
|
$ |
331,885 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
Effective January 1, 2009, Omnicare adopted the provisions of the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). Financial statements for all prior periods presented have been restated for this change in accounting. |
|
(b) |
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 Omnicares Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Companys 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. See further discussion at the Discontinued Operations note of the Notes to Consolidated Financial Statements. |
46
|
|
|
|
(c) |
Earnings per share 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. |
|
(d) |
EBITDA represents earnings before interest (net of investment income), income taxes, depreciation and amortization. Omnicare uses EBITDA primarily as an indicator of the Companys ability to service its debt, and believes that certain investors find EBITDA to be a useful financial measure for the same purpose. However, EBITDA does not represent net cash flows from operating activities, as defined by U.S. GAAP, and should not be considered as a substitute for operating cash flows as a measure of liquidity. The Companys calculation of EBITDA may differ from the calculation of EBITDA by others. |
|
Three Months Ended September 30, 2009 vs. 2008 |
Total net sales for the three months ended September 30, 2009 decreased to $1,543.9 million from $1,578.3 million in the comparable prior-year period. Income from continuing operations for the three months ended September 30, 2009 increased to $78.7 million from $54.4 million earned in the comparable 2008 period. Diluted earnings per share from continuing operations for the three months ended September 30, 2009 were $0.67 versus $0.46 in the same prior-year period. In total, including discontinued operations, net income for the three months ended September 30, 2009 was $72.5 million, or $0.61 per diluted share, as compared with $53.8 million, or $0.46 per diluted share, earned in the comparable prior-year period. EBITDA from continuing operations totaled $159.0 million for the three months ended September 30, 2009 as compared with $156.5 million for the same period of 2008. In the second quarter of 2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses that are non-strategic in nature. The disposal group, historically part of Omnicares Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Companys 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.
Net sales for the quarter were unfavorably impacted primarily by the unfavorable sales impact of the increased availability and utilization of generic drugs, reductions in reimbursement and/or utilization for certain drugs as well as competitive pricing issues, a lower average number of beds served year-over-year, along with a shift in mix towards assisted living, and lower sales in the Companys clinical research business. Partially offsetting these factors were the favorable impact of drug price inflation, the increased use of certain higher acuity drugs, biologic agents and existing drugs with new therapeutic indications, and acquisitions, as well as growth in specialty pharmacy services. See discussion of sales and operating profit results in more detail at the Pharmacy Services Segment and CRO Services Segment captions below.
The Company continues to be impacted by the unilateral reduction in April 2006 by UnitedHealth Group, Inc. and its affiliates (United) in the reimbursement rates paid by United to Omnicare by switching to its PacifiCare pharmacy network contract for services rendered by
47
Omnicare to beneficiaries of Uniteds drug benefit plans under the Medicare Part D program. The differential in reimbursement rates that resulted from Uniteds action, as compared with reimbursement rates under the originally negotiated contract, reduced sales and operating profit in the third quarter of 2009 by approximately $23 million (approximately $14 million aftertax), and cumulatively since April 2006 by approximately $367 million (approximately $227 million aftertax). This matter is currently the subject of litigation initiated by Omnicare and is before the federal appellate court in the Seventh Circuit Court of Appeals. See further discussion at the Legal Proceedings section at Part II, Item 1 of this Filing.
The Companys consolidated gross profit of $366.2 million for the three months ended September 30, 2009, was lower than the same prior-year period amount of $404.4 million. Gross profit as a percentage of total net sales of 23.7% in the three months ended September 30, 2009, was lower than the 25.6% experienced during the comparable 2008 period. Gross profit was unfavorably affected in the 2009 period largely by certain of the aforementioned items that reduced net sales, primarily the reductions in reimbursement and/or utilization for certain drugs, competitive pricing issues and the lower average number of beds served year-over-year. Partially offsetting these factors were the increased availability and utilization of higher margin generic drugs, purchasing improvements, the continued integration of acquisitions and productivity enhancements, and the favorable effect of drug price inflation.
Omnicares consolidated selling, general and administrative (operating) expenses for the three months ended September 30, 2009 of $203.4 million were lower than the comparable prior-year amount of $228.3 million by $24.9 million. Operating expenses as a percentage of net sales amounted to 13.2% in the third quarter of 2009, representing a decrease from the 14.5% experienced in the comparable prior-year period. Operating expenses for the quarter ended September 30, 2009 were favorably impacted largely by continued progress in the Companys productivity improvement initiatives, non-drug purchasing initiatives, reductions in employee benefit costs and the continued integration of prior-period acquisitions. These favorable items were partially offset by increased operating costs associated with recent acquisitions.
The provision for doubtful accounts for the three months ended September 30, 2009 was $23.1 million versus $27.2 million in the comparable prior-year period.
Investment income for the three months ended September 30, 2009 of $1.2 million was lower than the $1.4 million earned in the comparable prior-year period, primarily due to lower interest rates versus the prior year.
Interest expense for the three months ended September 30, 2009 of $29.6 million is lower than the $36.7 million in the comparable prior-year period, primarily due to lower debt outstanding resulting from payments aggregating $225 million on the Companys senior term A loan facility, maturing on July 28, 2010 (the Term Loans) during the third quarter of 2008 through the third quarter of 2009, payments of $39.1 million to pay off a term note payable in the fourth quarter of 2008 and lower interest rates on variable rate loans.
The effective income tax rate was 18.5% for the three months ended September 30, 2009, as compared to the third quarter of 2008 rate of 36.7%. The year-over-year decrease in the
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effective tax rate is largely due to the reduction of income tax expense in the 2009 period 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.
Special Items and Accounting Changes:
Financial results for the three months ended September 30, 2009 from continuing operations included the following charges totaling approximately $17.5 million pretax ($10.8 million aftertax), which primarily impacted the Pharmacy Services segment. Management believes that these items are either infrequent occurrences or otherwise not related to Omnicares ordinary course of business and/or are non-cash in nature:
(i) Operating income included restructuring and other related charges of approximately $6.3 million pretax ($3.9 million aftertax), relating to the implementation of the Omnicare Full Potential Plan, a major initiative primarily designed to re-engineer the pharmacy operating model to increase efficiency and enhance customer growth. See further discussion at the Restructuring and Other Related Charges note of the Notes to Consolidated Financial Statements and the Restructuring and Other Related Charges section of this MD&A.
(ii) During 2006, the Company experienced certain quality control and product recall issues, as well as fire damage, at one of its repackaging facilities, as described in further detail at the Commitments and Contingencies note of the Notes to Consolidated Financial Statements (the Repack Matters). In addressing and resolving these Repack Matters, the Company continues to experience increased costs and, as a result, the three months ended September 30, 2009 included special charges of $2.0 million pretax (approximately $1.8 million and $0.3 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($1.2 million aftertax) for these increased costs. 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.
(iii) Operating income included special litigation and other related professional fees of $1.7 million pretax ($1.1 million aftertax) for litigation-related professional expenses primarily in connection with the investigation by the United States Attorneys Office, District of Massachusetts, the Companys lawsuit against United, the Companys response to subpoenas it received relating to other legal proceedings to which the Company is not a party, the inquiry conducted by the Attorney Generals Office in Michigan relating to certain billing issues under the Michigan Medicaid program, certain other large customer disputes and the purported class and derivative actions. With respect to these proceedings to which the Company is a party, see further discussion at the Commitments and Contingencies note of the Notes to Consolidated Financial Statements, and the Legal Proceedings section at Part II, Item 1 of this Filing.
(iv) Operating income included acquisition and other related costs/(credit) of approximately $(0.6) million pretax ($(0.4) million aftertax) related to the implementation of the authoritative guidance for business combinations accounting change. These expenses were primarily related
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to a reduction in the Companys original estimate of contingent consideration payable for an acquisition, partially offset by professional fees and acquisition related restructuring costs for 2009 acquisitions. See further discussion at the Acquisitions note of the Notes to Consolidated Financial Statements.
(v) Operating expenses included approximately $1.1 million in pretax charges ($0.6 million aftertax) relating to the prior implementation of the authoritative guidance for share-based payment accounting change, which primarily relates to stock option expense. This guidance requires the Company to record compensation costs based on estimated fair values relating to share-based payment transactions, including stock options, in its consolidated financial statements.
(vi) The Company recorded a $7.1 million non-cash increase in pretax interest expense ($4.3 million aftertax) related to the retrospective adoption of the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) accounting change. See further discussion of this authoritative guidance, including the aforementioned amortization of discount on convertible notes, at the Debt note of the Notes to Consolidated Financial Statements.
Financial results for the three months ended September 30, 2008 from continuing operations included the following charges totaling approximately $28.8 million pretax ($17.6 million aftertax), which primarily impacted the Pharmacy Services segment. Management believes that these items are either infrequent occurrences or otherwise not related to Omnicares ordinary course of business and/or are non-cash in nature:
(i) Operating income included restructuring and other related charges of approximately $7.7 million pretax ($4.7 million aftertax), relating to the implementation of the Omnicare Full Potential Plan, a major initiative primarily designed to re-engineer the pharmacy operating model to increase efficiency and enhance customer growth. See further discussion at the Restructuring and Other Related Charges note of the Notes to Consolidated Financial Statements and the Restructuring and Other Related Charges section of this MD&A.
(ii) In addressing and resolving the Repack Matters, the Company continues to experience increased costs and as a result, the three months ended September 30, 2008 included special charges of $1.2 million pretax (approximately $1.0 million and $0.1 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($0.7 million aftertax) for these increased costs. 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, 2008, the Company has received no material insurance recoveries.
(iii) Operating income included special litigation and other related professional fees of $13.5 million pretax ($8.2 million aftertax) for litigation-related professional expenses primarily in connection with the Companys lawsuit against United, certain other large customer disputes, the investigation by the United States Attorneys Office, District of Massachusetts, the purported class and derivative actions, the investigation by the federal government and certain states
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relating to drug substitutions, and the Companys response to subpoenas it received relating to other legal proceedings to which the Company is not a party. With respect to these proceedings to which the Company is a party, see further discussion at the Commitments and Contingencies note of the Notes to Consolidated Financial Statements, and the Legal Proceedings section at Part II, Item 1 of this Filing.
(iv) The Company recorded a $6.5 million non-cash increase in pretax interest expense ($4.1 million aftertax) related to the retrospective adoption of the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) accounting change. See further discussion of this authoritative guidance, including this amortization of discount on convertible notes, at the Debt note of the Notes to Consolidated Financial Statements.
Pharmacy Services Segment
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2009 |
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2008
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Net sales |
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$ |
1,507,031 |
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$ |
1,526,787 |
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Operating income from continuing operations |
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$ |
158,814 |
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$ |
152,783 |
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(a) |
As discussed elsewhere herein, during the second quarter of 2009, the Company commenced activities to divest certain non-core businesses within its Pharmacy Services segment. The financial results have been revised to reflect such businesses as discontinued operations. |
Omnicares Pharmacy Services segment recorded sales of $1,507.0 million for the three months ended September 30, 2009, as compared with the same 2008 period amount of $1,526.8 million, a decrease of $19.8 million, or 1.3%. At September 30, 2009, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,389,000 beds relating to continuing operations, including approximately 63,000 patients served by the patient assistance programs of its specialty pharmacy business. The comparable number at September 30, 2008 was 1,387,000 relating to continuing operations (including approximately 67,000 patients served by patient assistance programs). Pharmacy Services sales were unfavorably impacted primarily by the increased availability and utilization of generic drugs, reductions in reimbursement and/or utilization of certain drugs as well as competitive pricing issues, a lower average number of beds served year-over-year, along with a shift in mix towards assisted living, which typically has lower penetration rates than skilled nursing facilities. Partially offsetting these factors were the favorable impact of drug price inflation, the increased use of certain higher acuity drugs, biologic agents and existing drugs with new therapeutic indications, and acquisitions, as well as growth in specialty pharmacy services. While the Company is focused on reducing its costs to mitigate the impact of drug pricing and reimbursement issues, there can be no assurance that such issues or other pricing and reimbursement pressures will not adversely impact the Pharmacy Services segment.
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Operating income of the Pharmacy Services segment was $158.8 million in the third quarter of 2009 as compared with the $152.8 million earned in the comparable period of 2008, or an increase of $6.0 million. As a percentage of the segments sales, operating income was 10.5% for the third quarter of 2009, compared with 10.0% in 2008. The 2009 quarter was favorably impacted largely by the increased availability and utilization of higher margin generic drugs, drug price inflation, growth in specialty pharmacy services, lower bad debt expense, and purchasing improvements, as well as by the continued progress in the Companys productivity improvement initiatives, the continued integration of prior-period acquisitions and the year-over-year impact of the previously mentioned special items. Operating income in 2009 was unfavorably affected primarily by the operating income effect of certain of the aforementioned items that reduced net sales.
The Company derives a significant portion of its revenues directly or indirectly from government-sponsored programs, principally the federal Medicare program and to a lesser extent state Medicaid programs. As part of ongoing operations, the Company and its customers are subject to regulatory changes in the level of reimbursement received from the Medicare and Medicaid programs.
In 1997 Congress mandated a prospective payment system (PPS) for reimbursement to skilled nursing facilities (SNFs) for their Medicare-eligible residents during a Medicare Part A-covered stay. Under PPS, Medicare pays SNFs a fixed fee per patient per day based upon the acuity level of the resident, covering substantially all items and services, including pharmacy services. PPS initially resulted in a significant reduction of reimbursement to SNFs. Although some of the reductions were subsequently mitigated, the PPS fundamentally changed the payment for Medicare SNF services.
In recent years, SNFs have received the full market basket inflation increase to annual rates. For fiscal year 2009, beginning October 1, 2008, SNFs received a 3.4 percent inflation update that increased overall payments to SNFs by $780 million. However, for fiscal year 2010, beginning on October 1, 2009, payments to SNFs were reduced by 1.1 percent, or by $360 million to SNFs overall, compared to fiscal year 2009 levels. While the payment levels reflect a 2.2 percent market basket inflation update, that amount was more than offset by a 3.3 percent ($1.050 billion) adjustment intended to recalibrate case mix weights to compensate for increased expenditures resulting from refinements made in January 2006. These or other reimbursement changes could have an adverse effect on the financial condition of the Companys SNF clients, which, in turn, could adversely affect the timing or level of their payments to Omnicare.
In December 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), which included a major expansion of the Medicare prescription drug benefit under a new Medicare Part D.
The Part D drug benefit permits Medicare beneficiaries to enroll in prescription drug plans offered by private entities which provide coverage of outpatient prescription drugs (collectively, Part D Plans). Part D Plans include plans providing the drug benefit on a stand-alone basis (known as prescription drug plans, or PDPs) and Medicare Advantage plans providing drug
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coverage as a supplement to an existing medical benefit under that Medicare Advantage plan (known as MA-PDs). Medicare beneficiaries generally have to pay a premium to enroll in a Part D Plan, with the premium amount varying from plan to plan, although the Centers for Medicare and Medicaid Services (CMS) provides various federal subsidies to Part D Plans to reduce the cost to beneficiaries. Medicare beneficiaries who are also entitled to benefits under a state Medicaid program (so-called dual eligibles) have their prescription drug costs covered by the Medicare drug benefit, unless they elect to opt out of Part D coverage. Many nursing home residents Omnicare serves are dual eligibles. In the third quarter of 2009, approximately 39% of Omnicares revenue was derived from beneficiaries covered under the federal Medicare Part D program.
CMS provides premium and cost-sharing subsidies to Part D Plans for dual eligible residents of nursing homes. Such dual eligibles are not required to pay a premium for enrollment in a Part D Plan, so long as the premium for the Part D Plan in which they are enrolled does not exceed the premium subsidy, nor are they required to meet deductibles or pay copayment amounts. Further, all dual eligibles who do not affirmatively enroll in a Part D Plan are automatically enrolled into a PDP by CMS on a random basis from among those PDPs meeting CMS criteria for low-income premiums in the PDP region, unless they elect to opt out of Part D coverage. Such dual eligible beneficiaries may select a different Part D Plan at any time through the Part D enrollment process. Also, dual eligibles who are qualifying covered retirees under an employer or union-sponsored qualified retiree prescription drug plan (plans which offer an alternative to Part D coverage supported by federal subsidies to the plan sponsor) will be determined to have elected not to enroll in a Part D Plan, unless they affirmatively enroll in a Part D Plan or contact CMS to indicate they wish to be auto-enrolled. In sum, dual eligible residents of nursing homes are entitled to have their prescription drug costs covered by a Part D Plan, provided that the prescription drugs which they are taking are either on the Part D Plans formulary, or an exception to the plans formulary is granted, subject to prior authorization or similar utilization management requirements for certain drugs. CMS requires the formularies of Part D Plans to include the types of drugs most commonly needed by Medicare beneficiaries and to offer an exceptions process to provide coverage for medically necessary drugs.
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 Companys Part D business serviced under specific agreements may change over time based upon beneficiary choice, reassignment of dual eligibles to different Part D Plans, Part D Plan consolidation and other factors. As such, reimbursement under these agreements is subject to change.
Moreover, as expected in the transition to a new 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 owed by Part D Plans for dual eligibles and other low income subsidy eligible beneficiaries. As of September 30, 2009, copays
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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 payors, to collect outstanding copays, as well as certain rejected claims. Participants in the long-term care pharmacy industry continue to address these issues with CMS and the Part D Plans and attempt to develop solutions. Among other things, on January 12, 2009, CMS finalized a change in its regulations requiring Part D Plan sponsors to accept and act upon certain types of documentation, referred to as best available evidence, to correct copays. Similarly, on October 9, 2009, CMS issued proposed rules that would make numerous changes to the regulations governing Part D, including certain Part D Plan payment rules and processes. Language in the preamble to the proposed rule suggests that Part D Plans would be required to correct and pay copay amounts within 45 days of receiving complete information for the copay reconciliation. However, until a final rule is issued and all administrative and payment issues are fully resolved, there can be no assurance that the Part D drug benefit will not adversely impact the Companys results of operations, financial position or cash flows.
For Medicare beneficiaries covered under a Medicare Part A stay, the Company receives reimbursement for drugs provided to such residents from the SNFs, in accordance with the terms of the agreements it has negotiated with each SNF. The Company also receives reimbursement from the state Medicaid programs for those Medicaid beneficiaries not eligible for the Part D program, including those under age 65 who are not disabled, and for certain drugs specifically excluded from Medicare Part D.
CMS has issued subregulatory guidance on many aspects of the Part D program, including the provision of pharmaceutical services to long-term care residents. CMS has also expressed some concerns about pharmacies receipt of discounts, rebates and other price concessions from drug manufacturers. For 2007 and 2008, CMS instructed Part D Plan sponsors to require pharmacies to disclose to the Part D Plan sponsor any discounts, rebates and other direct or indirect remuneration designed to directly or indirectly influence or impact utilization of Part D drugs. The Company reported information specified by CMS with respect to rebates received by the Company for 2007 and the first quarter of 2008 to those Part D Plans which agreed to maintain the confidentiality of such information. In November 2008, CMS suspended collection of the long-term care pharmacy rebate data from Part D Plan sponsors for calendar years 2008 and 2009. Instead, CMS intends to collect different non-rebate information to focus plan attention on network pharmacy compliance and appropriate drug utilization management. The new data would include the number and the cost of formulary versus non-formulary drugs dispensed by each pharmacy (whether long-term care or non-long-term care) in the Part D Plans pharmacy network. CMS will test the proposed reporting requirements with a small number of Part D Plan sponsors prior to calendar year 2010, when the new reporting requirements will become effective. CMS also issued a memo on November 25, 2008 reminding Part D Plan sponsors of the requirement to (1) provide convenient access to network long-term care pharmacies to all of their enrollees residing in long-term care facilities, and (2) exclude payment for drugs that are covered under a Medicare Part A stay that would otherwise satisfy the definition of a Part D drug. The Company will continue to work with Part D Plan sponsors to ensure compliance with CMSs evolving policies related to long-term care pharmacy services.
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On July 15, 2008, Congress enacted the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). This law includes further reforms to the Part D program. Among other things, as of January 1, 2010, the law requires that long-term care pharmacies have between 30 and 90 days to submit claims to a Part D Plan. As of January 1, 2009, Part D Plan sponsors must update the prescription drug pricing data they use to pay pharmacies at least every seven days. The law also expands the number of Medicare beneficiaries who are entitled to premium and cost-sharing subsidies by modifying previous income and asset requirements, eliminates late enrollment penalties for beneficiaries entitled to these subsidies, and limits the sales and marketing activities in which Part D Plan sponsors may engage. On September 18, 2008, CMS published final regulations implementing many of the MIPPA Part D provisions, and the agency published another interim final rule with comment period on January 16, 2009 implementing additional MIPPA provisions related to drug formularies and protected classes of drugs. Additional legislative proposals are pending before Congress that could further modify the Part D benefit, including proposals that could impact the payment available or pricing for drugs under Part D Plans. The Company cannot predict at this time whether such legislation will be enacted or the form any such legislation would take. The Company can make no assurances that future Part D legislation would not adversely impact its business.
Moreover, CMS continues to issue guidance on and make other revisions to the Part D program. The Company is continuing to monitor issues relating to implementation of the Part D benefit, and until further agency guidance is known and until all administrative and payment issues associated with this massive program are fully resolved, there can be no assurance that the impact of the Part D rules, future legislative changes, or the outcome of other potential developments relating to its implementation on our business, results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.
The MMA also changed the Medicare payment methodology and conditions for coverage of certain items of durable medical equipment prosthetics, orthotics, and supplies (DMEPOS) under Medicare Part B. Approximately 1% of the Companys revenue is derived from beneficiaries covered under Medicare Part B. The changes include a temporary freeze in annual increases in payments for durable medical equipment from 2004 through 2008, new clinical conditions for payment, quality standards (applied by CMS-approved accrediting organizations), and competitive bidding requirements. Only suppliers that are winning bidders will be eligible to provide competitively-bid items to Medicare beneficiaries in the selected areas.
In mid-2007, CMS conducted a first round of bidding for 10 DMEPOS product categories in 10 competitive bidding areas, and announced winning bidders in March 2008. In light of concerns about implementation of the bidding program, in MIPPA Congress terminated the contracts awarded by CMS in the first round of competitive bidding, required that new bidding be conducted for the first round, and required certain reforms to the bidding process. Among other things, the law requires CMS to rebid those areas in 2009, with bidding for round two delayed until 2011. The delay is being financed by reducing Medicare fee schedule payments for all items covered by the round one bidding program by 9.5 percent nationwide effective January 1, 2009, followed by a 2 percent increase in 2014 (with certain exceptions). The legislation also includes a series of procedural improvements to the bidding process. CMS published an interim
55
final rule with comment period to implement the MIPPA competitive bidding changes on January 16, 2009, and on April 17, 2009 announced that it is proceeding with implementation of the January 16, 2009 rule after a brief delay. Bidding for the new round one of the program began October 21, 2009, and ends December 21, 2009. Contract suppliers are expected to be announced in June 2010, and the program is scheduled to go into effect January 1, 2011. The Company intends to participate in the new bidding process for round one.
CMS requires all existing DMEPOS suppliers to submit proof of accreditation by a deemed accreditation organization by September 30, 2009. MIPPA codifies the requirement that all suppliers be accredited by September 30, 2009 and extends the accreditation requirement to companies that subcontract with contract suppliers under the competitive bidding program. The Companys DMEPOS suppliers are accredited.
On January 2, 2009, CMS published a final rule requiring certain Medicare DMEPOS suppliers to furnish CMS with a $50,000 surety bond, although the required bond amount will be higher for certain high-risk suppliers with previous adverse legal actions. A separate surety bond will be required for each National Provider Identifier obtained for DMEPOS billing purposes, with limited exceptions. CMS did not establish exceptions from the bond requirement for pharmacies or for nursing facilities that bill for Medicare DMEPOS services provided to their own residents. The Company has secured surety bonds for its DMEPOS suppliers.
With respect to Medicaid, many states are facing budget pressures that could result in increased cost containment efforts on healthcare providers. States have considerable latitude in setting payment rates for nursing facilities. States also have flexibility to establish Medicaid managed care programs without the need to obtain a federal waiver. Although these waiver programs generally exempt institutional care, including nursing facilities and institutional pharmacy services, some states do use managed care principles in their long-term care programs. The Deficit Reduction Act (DRA), enacted in 2006, also gives states greater flexibility to expand access to home and community based services by allowing states to provide these services as an optional benefit without undergoing the waiver approval process, and includes a new demonstration to encourage states to provide long-term care services in a community setting to individuals who currently receive Medicaid services in nursing homes. Together, these provisions could increase state funding for home and community-based services, while prompting states to cut funding for nursing facilities. No assurances can be given that state Medicaid programs ultimately will not change the reimbursement system for long-term care or pharmacy services in a way that adversely impacts the Company.
The DRA also changed the so-called federal upper limit payment rules for multiple source prescription drugs covered under Medicaid. Like the current upper limit, it only applies to drug ingredient costs and does not include dispensing fees, which will continue to be determined by the states. First, the DRA redefined a multiple source drug subject to the upper limit rules to be a covered outpatient drug that has at least one other drug product that is therapeutically equivalent. Thus, the federal upper limit is triggered when there are two or more therapeutic equivalents, instead of three or more as was previously the case. Second, effective January 1, 2007, the DRA changed the federal upper payment limit from 150 percent of the lowest published price for a drug (which is usually the wholesale acquisition cost) to 250 percent of the lowest average
56
manufacturer price (AMP). Congress expected these DRA provisions to reduce federal and state Medicaid spending by $8.4 billion over five years. On July 17, 2007, CMS issued a final rule with comment period to implement changes to the upper limit rules. Among other things, the final rule: established a new federal upper limit calculation for multiple source drugs based on 250 percent of the lowest AMP in a drug class; required CMS to post AMP amounts on its web site; and established a uniform definition for AMP. Additionally, the final rule provided that sales of drugs to long-term care pharmacies for supply to nursing homes and assisted living facilities (as well as associated discounts, rebates or other price concessions) are not to be taken into account in determining AMP where such sales can be identified with adequate documentation, and that any AMPs which are not at least 40% of the next highest AMP will not be taken into account in determining the upper limit amount (the so-called outlier test). However, on December 19, 2007, the United States District Court for the District of Columbia issued a preliminary injunction that enjoins CMS from implementing provisions of the July 17, 2007 rule to the extent that it affects Medicaid reimbursement rates for retail pharmacies under the Medicaid program. The order also enjoins CMS from posting AMP data on a public website or disclosing it to states. As a result of this preliminary injunction, CMS did not post AMPs or new upper limit prices in late December 2007 based upon the July 17, 2007 final rule despite its earlier planned timetable, and the schedule for states to implement the new upper limits has been delayed until further notice. Separately, on March 14, 2008, CMS published an interim final rule with comment period revising the Medicaid rebate definition of multiple source drug set forth in the July 17, 2007 final rule. In short, the effect of the rule will be that federal upper limits apply in all states unless the state finds that a particular generic drug is not available within that state. While the rules effective date was April 14, 2008, it was subject to public comment. CMS also noted that the regulation is subject to the injunction by the United States District Court for the District of Columbia to the extent that it may affect Medicaid reimbursement rates for pharmacies. On October 7, 2008, CMS published the final version of this rule, responding to public comments received on the March 14, 2008 regulation. The final rule adopted the March 2008 interim final rule with technical changes effective November 6, 2008, although it continues to be subject to an injunction to the extent that it affects Medicaid pharmacy reimbursement rates. Moreover, MIPPA delayed the adoption of the DRAs new federal upper limit payment rules for Medicaid based on AMP for multiple source drugs and prevented CMS from publishing AMP data before October 1, 2009. To date, CMS has not issued a new rule or published such AMP data. Therefore, at this time upper payment limits continue to be determined under the pre-DRA rules. With the advent of Medicare Part D, the Companys revenues from state Medicaid programs are substantially lower than has been the case previously. However, some of the Companys agreements with Part D Plans and other payors have incorporated the Medicaid upper limit rules into the pricing mechanisms for prescription drugs. Until the litigation regarding the final rule is resolved and new upper limit amounts are published by CMS, the Company cannot predict the impact of the final rule on the Companys business. Further, there can be no assurance that federal upper limit payments under pre-DRA rules, CMS adoption of a revised rule under the DRA, Congressional action, or other efforts by payors to limit reimbursement for certain drugs will not adversely impact the Companys business.
MIPPA also seeks to promote e-prescribing by providing incentive payments for physicians and other practitioners paid under the Medicare physician fee schedule who are successful electronic prescribers. Specifically, successful electronic prescribers are to receive a 2 percent
57
bonus during 2009 and 2010, a 1 percent bonus for 2011 and 2012 and a 0.5 percent bonus for 2013; practitioners who are not successful electronic prescribers are penalized by a 1 percent reduction from the current fee schedule in 2012, a 1.5 percent reduction in 2013, and thereafter a 2 percent reduction. CMS has announced that to be a successful electronic prescriber and to receive an incentive payment for the 2009 e-prescribing reporting year, an eligible professional must report, using a qualified e-prescribing system, one of three e-prescribing measures in at least 50% of the cases in which the measure is reportable by the eligible professional during 2009. CMS has issued detailed guidelines on the specifications for qualified e-prescribing systems. The Company is closely monitoring developments related to this initiative, and will seek to make available systems under which prescribers may submit prescriptions to the Companys pharmacies electronically so as to enable them to qualify for the incentive payments.
Most recently, on February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. This $790 billion economic stimulus package includes a number of health care policy provisions, including approximately $19 billion in funding for health information technology infrastructure and Medicare and Medicaid incentives to encourage doctors, hospitals, and other providers to use health information technology to electronically exchange patients health information. The law also strengthens federal privacy and security provisions to protect personally-identifiable health information. In addition, the legislation increases Federal Medical Assistance Percentage (FMAP) payments by approximately $87 billion to help support state Medicaid programs in the face of budget shortfalls. The law also temporarily extends current Medicaid prompt payment requirements to nursing facility and hospital claims, requiring state Medicaid programs to reimburse providers for 90 percent of claims within 30 days of receipt and 99 percent of claims within 90 days of receipt. The Company is reviewing the new law and assessing the potential impact of the various provisions on the Company.
Two other recent actions at the federal level could impact Medicaid payments to nursing facilities. The Tax Relief and Health Care Act of 2006 modified several Medicaid policies including, among other things, reducing the limit on Medicaid provider taxes from 6 percent to 5.5 percent from January 1, 2008 through September 30, 2011. On February 22, 2008, CMS published a final rule that implements this legislation, and makes other clarifications to the standards for determining the permissibility of provider tax arrangements. Provisions of the rule were repeatedly delayed; currently the enforcement is delayed until June 30, 2010. Second, on May 29, 2007, CMS published a rule designed to ensure that Medicaid payments to governmentally-operated nursing facilities and certain other health care providers are based on actual costs and that state financing arrangements are consistent with the Medicaid statute. CMS estimates that the rule would save $120 million during the first year and $3.87 billion over five years, but Congress blocked the rule through April 1, 2009. The American Recovery and Reinvestment Act of 2009 expressed the sense of Congress that the Secretary of Health and Human Services should not promulgate the provider cost limit rule, citing a ruling by the United States District Court for the District of Columbia that the final rule was improperly promulgated.
Broader changes in federal healthcare policy have been proposed by President Obama and are currently under consideration by Congress. Specifically, on February 26, 2009, the Obama
58
Administration released its proposed federal budget for fiscal year 2010, which would establish a reserve fund of $633.8 billion over 10 years to finance comprehensive health reform. The reserve fund would be paid for by tax increases and health system savings. Among other things, the plan would reduce payments to Medicare Advantage plans and bundle payments to hospitals and certain post-acute providers for services provided within 30 days after discharge from the hospital. The proposal would also increase the Medicaid drug rebate level paid by pharmaceutical manufacturers to Medicaid for brand-name drugs, apply the rebate levels paid by pharmaceutical manufacturers to Medicaid on existing drugs to new formulations of those drugs, and allow states to collect rebates from pharmaceutical manufacturers on drugs provided through Medicaid managed care organizations. With regard to Medicare Part D, the plan would impose higher premiums on certain higher-income beneficiaries and expand oversight and program integrity activities related to the program. The proposal also would establish a regulatory pathway for approval of follow-on biologicals, take steps to promote generic drugs, and allow drug reimportation. Many provisions of the proposed budget would require Congressional approval to implement and would take effect after fiscal year 2010.
Congressional leaders have expressed their commitment to enacting major health reform legislation this year, including expanded access to insurance, possibly with a government health insurance option to compete with private plans. As part of this reform, Congress may also seek to rein in healthcare costs, which could include consideration of alternate healthcare delivery systems, revised payment methodologies and changes in operational requirements for healthcare providers. Congress is currently considering a variety of comprehensive plans, which are subject to extensive revision during the legislative process before a final plan emerges. Given the ongoing debate regarding the cost of healthcare, managed care, universal healthcare coverage, and other healthcare issues, we cannot predict with any degree of certainty what additional healthcare initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on the Companys business.
On October 4, 2006, the plaintiffs in New England Carpenters Health Benefits Fund et al. v. First DataBank, Inc. and McKesson Corporation, CA No. 1:05-CV-11148-PBS (United States District Court for the District of Massachusetts) and defendant First DataBank, Inc. (First DataBank) entered into a settlement agreement relating to First DataBanks publication of average wholesale price (AWP). AWP is a pricing benchmark that is widely used to calculate a portion of the reimbursement payable to pharmacy providers for the drugs and biologicals they provide, including under State Medicaid programs, Medicare Part D Plans and certain of the Companys contracts with long-term care facilities. The settlement agreement would have required First DataBank to cease publishing AWP two years after the settlement became effective unless a competitor of First DataBank was then publishing AWP, and would have required that First DataBank modify the manner in which it calculates AWP for over 8,000 distinct drugs (NDCs) from 125% of the drugs wholesale acquisition cost (WAC) price established by manufacturers to 120% of WAC until First DataBank ceased publishing same. In a related case, District Council 37 Health and Security Plan v. Medi-Span, CA No. 1:07-CV-10988-PBS (United States District Court for the District of Massachusetts), in which Medi-Span is accused of misrepresenting pharmaceutical prices by relying on and publishing First DataBanks price list, the parties entered into a similar settlement agreement. The Court granted preliminary approval of both agreements, but later, after hearing various objections to the
59
proposed settlements, indicated that it would not approve them. On May 29, 2008, the plaintiffs and First DataBank filed a new settlement that included a reduction in the number of NDCs to which a new mark-up over WAC would apply (20% vs. 25%) from over 8,000 to 1,356, and removed the provision requiring that AWP no longer be published in the future. First DataBank also agreed to contribute approximately $2 million to a settlement fund and for legal fees. On July 15, 2008, Medi-Span and the plaintiffs in that litigation also proposed an amended settlement agreement under which Medi-Span agreed to reduce the mark-up over WAC (from 20% to 25%) for only the smaller number of NDCs, the requirement that AWP not be published in the future was removed, and Medi-Span agreed to pay $500,000 for the benefit of the plaintiff class. First DataBank and Medi-Span, independent of these settlements, announced that they would, of their own volition, reduce to 20% the markup on all drugs with a mark-up higher than 20% and stop publishing AWP within two years after the changes in mark-up are implemented (in the case of First DataBank) or within two years after the settlement is finally approved (in the case of Medi-Span). On March 17, 2009 the Court approved the proposed settlements, with a modification by the Court requiring that the change in mark-ups take place 180 days after the order approving the settlements is entered. The Court entered an order approving the settlements on March 30, 2009. While several entities appealed the Courts order to the United States Court of Appeals for the First Circuit, on September 3, 2009 the Court of Appeals upheld the settlements. First DataBank and Medi-Span implemented the changes in AWP on September 26, 2009.
The Company has taken a number of steps to prevent or mitigate the adverse effect on the Companys reimbursement for drugs and biologicals which could otherwise result from these settlements, including negotiation of compensating adjustments to its rate formulas with nearly all Part D Plans and commercial insurers. For its client facilities that have historically been billed under formulas based on AWP, as of the effective date of the settlement the Company began calculating drug prices using formulas that are based on WAC rather than AWP in order to maintain the contract pricing in place prior to such effective date. For most state Medicaid programs reimbursing under an AWP formula, the Company is currently being reimbursed under old rate formulas using the new AWPs published in accordance with the settlements, resulting in lower reimbursement under these programs. Some states are currently considering adjusting their rate formulas in light of the settlements, and litigation has been commenced in certain states claiming that those states Medicaid programs are required to increase their rates. Because regulatory or legislative changes are typically required on a state-by-state basis in order to adjust Medicaid rate formulas and because of the pending litigation, the outcome, extent and timing of such actions is unclear. Given the continuing developments related to these settlements, there can be no assurance that the First DataBank and Medi-Span settlements and associated unilateral actions by First DataBank and Medi-Span, or actions, if any, by the Companys payors relating to AWP, will not have a further adverse impact on the Companys results of operations, financial position or cash flows.
Longer term, funding for federal and state healthcare programs must consider the aging of the population and the growth in enrollees as eligibility is expanded; the escalation in drug costs owing to higher drug utilization among seniors and the introduction of new, more efficacious but also more expensive medications; the impact of the Medicare Part D program; and the long-term financing of the Medicare and Medicaid programs. Given competing national priorities, it remains
60
difficult to predict the outcome and impact on the Company of any changes in healthcare policy relating to the future funding of the Medicare and Medicaid programs.
Demographic trends indicate that demand for long-term care will increase well into the middle of this century as the elderly population grows significantly. Moreover, those over 65 consume a disproportionately high level of healthcare services, including prescription drugs, when compared with the under-65 population. There is widespread consensus that appropriate pharmaceutical care is generally considered the most cost-effective form of treatment for the chronic ailments afflicting the elderly and also one that is able to improve the quality of life. These trends not only support long-term growth for the geriatric pharmaceutical industry but also containment of healthcare costs and the well-being of the nations growing elderly population.
In order to fund this growing demand, the Company believes that the government and the private sector will continue to review, assess and possibly alter healthcare delivery systems and payment methodologies. While it cannot at this time predict the ultimate effect of any of these initiatives on Omnicares business, management believes that the Companys expertise in geriatric pharmaceutical care and pharmaceutical cost management position Omnicare to help meet the challenges of todays healthcare environment.
CRO Services Segment
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
||||
|
|
|
|||||
|
|
2009 |
|
2008 |
|
||
|
|
|
|
||||
|
|
|
|
|
|
|
|
Revenues |
|
$ |
36,870 |
|
$ |
51,464 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
Operating (loss)/income |
|
$ |
(1,959 |
) |
$ |
4,544 |
|
|
|
|
|
Omnicares CRO Services segment recorded revenues of $36.9 million for the three months ended September 30, 2009, which decreased by $14.6 million, or 28.4% from the $51.5 million recorded in the same prior-year period. In accordance with the authoritative guidance for income statement characterization of reimbursements received for out-of-pocket expenses incurred, the Company included $3.4 million and $8.3 million of reimbursable out-of-pockets in its CRO Services segment reported revenue and cost of sales amounts for the three months ended September 30, 2009 and 2008, respectively. Revenues for 2009 were lower than in the same prior-year period primarily due to lower levels of new business added along with the early termination and client-driven delays in the commencement of certain projects.
An operating loss in the CRO Services segment of $(2.0) million in the third quarter of 2009 compared with operating income of $4.5 million in the same quarter of 2008, a decrease of $6.5 million. As a percentage of the segments revenue, the operating loss was (5.3)% in the third quarter of 2009 compared with operating income of 8.8% of revenue in the same period of 2008. This decrease is primarily attributable to the aforementioned factors that reduced sales as well as restructuring charges of $2.6 million pretax ($1.6 million aftertax) in the three months ended September 30, 2009 incurred to rightsize and reposition the cost structure of the business.
61
Backlog at September 30, 2009 was $235.7 million, representing a decrease of $67.2 million from the December 31, 2008 backlog of $302.9 million, and a decrease of $92.3 million from the September 30, 2008 backlog of $328.0 million.
While volatility can occur from time to time in the contract research business owing to factors such as the success or failure of its clients compounds, the timing or budgetary constraints of its clients, or consolidation within our client base, new drug discovery remains an important priority of drug manufacturers. The Company believes that drug manufacturers, in order to optimize their research and development efforts, will continue to turn to contract research organizations to assist them in drug research development and commercialization.
|
Nine Months Ended September 30, 2009 vs. 2008 |
Total net sales for the nine months ended September 30, 2009 decreased slightly to $4,626.5 million from $4,631.4 million in the comparable prior-year period. Income from continuing operations for the nine months ended September 30, 2009 was $153.0 million versus $115.4 million earned in the comparable 2008 period. Diluted earnings per share from continuing operations for the nine months ended September 30, 2009 were $1.30 versus $0.97 in the same prior-year period. In total, including discontinued operations, net income for the nine months ended September 30, 2009 was $132.1 million, or $1.12 per diluted share, as compared with $112.8 million, or $0.95 per diluted share, earned in the comparable prior-year period. EBITDA from continuing operations totaled $422.2 million for the nine months ended September 30, 2009 as compared with $391.1 million for the same period of 2008. In the second quarter of 2009, the Company commenced activities to divest certain home healthcare and related ancillary businesses that are non-strategic in nature. The disposal group, historically part of Omnicares Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Companys 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.
Net sales for the nine months ended September 30, 2009 were favorably impacted primarily by drug price inflation, the increased use of certain higher acuity drugs, biologic agents and existing drugs with new therapeutic indications, and acquisitions, as well as growth in specialty pharmacy services. More than offsetting these factors were the unfavorable sales impact of the increased availability and utilization of generic drugs, reductions in reimbursement and/or utilization for certain drugs as well as competitive pricing issues, a lower average number of beds served year-over-year, a shift in mix towards assisted living and lower sales in the Companys clinical research business. See discussion of sales and operating profit results in more detail at the Pharmacy Services Segment and CRO Services Segment captions below.
The Company continues to be impacted by the unilateral reduction in April 2006 by United in the reimbursement rates paid by United to Omnicare by switching to its PacifiCare pharmacy network contract for services rendered by Omnicare to beneficiaries of Uniteds drug benefit plans under the Medicare Part D program. The differential in reimbursement rates that resulted
62
from Uniteds action, as compared with reimbursement rates under the originally negotiated contract, reduced sales and operating profit in the first nine months of 2009 by approximately $71 million (approximately $44 million aftertax), and cumulatively since April 2006 by approximately $367 million (approximately $227 million aftertax). This matter is currently the subject of litigation initiated by Omnicare and is before the federal appellate court in the Seventh Circuit Court of Appeals. See further discussion at the Legal Proceedings section at Part II, Item 1 of this Filing.
The Companys consolidated gross profit of $1,126.3 million decreased $18.7 million for the nine months ended September 30, 2009, from the same prior-year period amount of $1,145.0 million. Gross profit as a percentage of total net sales of 24.3% in the nine months ended September 30, 2009, was slightly lower than the 24.7% experienced during the comparable 2008 period. Gross profit was favorably affected in the 2009 period largely due to the increased availability and utilization of higher margin generic drugs, purchasing improvements, the continued integration of acquisitions and productivity enhancements, and the favorable effect of drug price inflation. More than offsetting these factors were certain of the aforementioned items that reduced net sales, primarily the reductions in reimbursement and/or utilization for certain drugs, competitive pricing issues and the lower average number of beds served year-over-year.
Omnicares consolidated operating expenses for the nine months ended September 30, 2009 of $623.0 million were lower than the comparable prior-year amount of $681.5 million by $58.5 million. Operating expenses as a percentage of net sales amounted to 13.5% in the first nine months of 2009, representing a decrease from the 14.7% experienced in the comparable prior-year period. Operating expenses for the nine months ended September 30, 2009 were favorably impacted largely by continued progress in the Companys productivity improvement initiatives, non-drug purchasing initiatives, reductions in employee benefit costs and the continued integration of prior-period acquisitions. These favorable items were partially offset by increased operating costs associated with recent acquisitions.
The provision for doubtful accounts for the nine months ended September 30, 2009 was $71.1 million versus $79.4 million in the comparable prior-year period.
Investment income for the nine months ended September 30, 2009 of $4.6 million was lower than the $6.0 million earned in the comparable prior-year period, primarily due to lower interest rates versus the prior year.
Interest expense for the nine months ended September 30, 2009 of $90.7 million is lower than the $109.2 million in the comparable prior-year period, primarily due to lower debt outstanding resulting from payments aggregating $275 million on the Term Loans throughout 2008 and through the first nine months of 2009, payments of $39.1 million to pay off a term note payable in the fourth quarter of 2008 and lower interest rates on variable rate loans.
The effective income tax rate was 33.7% for the nine months ended September 30, 2009, as compared to the rate of 37.6% for the same prior year period. The year-over-year decrease in the effective tax rate is largely due to the reduction of income tax expense in the 2009 period totaling approximately $19 million, primarily attributable to the reversal of certain unrecognized tax
63
benefits for tax positions settled through the expiration of statutes of limitations, partially offset by certain nondeductible litigation costs recognized in the 2009 period.
Special Items and Accounting Changes:
Financial results for the nine months ended September 30, 2009 from continuing operations included the following charges totaling approximately $123.3 million pretax ($87.4 million aftertax), which primarily impacted the Pharmacy Services segment. Management believes that these items are either infrequent occurrences or otherwise not related to Omnicares ordinary course of business and/or are non-cash in nature:
(i) Operating income included restructuring and other related charges of approximately $19.1 million pretax ($11.8 million aftertax), relating to the implementation of the Omnicare Full Potential Plan, a major initiative primarily designed to re-engineer the pharmacy operating model to increase efficiency and enhance customer growth. See further discussion at the Restructuring and Other Related Charges note of the Notes to Consolidated Financial Statements and the Restructuring and Other Related Charges section of this MD&A.
(ii) In addressing and resolving the previously mentioned Repack Matters, the Company continues to experience increased costs and, as a result, the nine months ended September 30, 2009 included special charges of $5.2 million pretax (approximately $3.7 million and $1.5 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($3.2 million aftertax) for these increased costs. 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.
(iii) Operating income included special litigation and other related professional fees of $71.8 million pretax ($55.6 million aftertax) for litigation-related settlements and professional expenses primarily in connection with the Companys lawsuit against United, the investigation by the United States Attorneys Office, District of Massachusetts, certain other large customer disputes, the Companys response to subpoenas it received relating to other legal proceedings to which the Company is not a party, the inquiry conducted by the Attorney Generals 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. With respect to these proceedings to which the Company is a party, see further discussion at the Commitments and Contingencies note of the Notes to Consolidated Financial Statements, and the Legal Proceedings section at Part II, Item 1 of this Filing.
64
(iv) Operating income included acquisition and other related costs of approximately $2.2 million pretax ($1.4 million aftertax) related to the implementation of the authoritative guidance for business combinations accounting change. These expenses were primarily related to professional fees for 2009 acquisitions, partially offset by a reduction in the Companys original estimate of contingent consideration payable for an acquisition. See further discussion at the Acquisitions note of the Notes to Consolidated Financial Statements.
(v) Operating expenses included approximately $4.2 million in pretax charges ($2.6 million aftertax) relating to the prior implementation of the authoritative guidance for share-based payments accounting change, which primarily relate to stock option expense. This guidance requires the Company to record compensation costs based on estimated fair values relating to share-based payment transactions, including stock options, in its consolidated financial statements.
(vi) The Company recorded a $20.8 million non-cash increase in pretax interest expense ($12.8 million aftertax) related to the retrospective adoption of the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) accounting change. See further discussion of this authoritative guidance, including this amortization of discount on convertible notes, at the Debt note of the Notes to Consolidated Financial Statements.
Financial results for the nine months ended September 30, 2008 from continuing operations included the following charges totaling approximately $100.1 million pretax ($61.5 million aftertax), which primarily impacted the Pharmacy Services segment. Management believes that these items are either infrequent occurrences or otherwise not related to Omnicares ordinary course of business and/or are non-cash in nature:
(i) Operating income included restructuring and other related charges of approximately $24.9 million pretax ($15.2 million aftertax), relating to the implementation of the Omnicare Full Potential Plan, a major initiative primarily designed to re-engineer the pharmacy operating model to increase efficiency and enhance customer growth. See further discussion at the Restructuring and Other Related Charges note of the Notes to Consolidated Financial Statements and the Restructuring and Other Related Charges section of this MD&A.
(ii) In addressing and resolving the Repack Matters, the Company continues to experience increased costs and as a result, the nine months ended September 30, 2008 included special charges of $4.8 million pretax (approximately $4.2 million and $0.6 million was recorded in the cost of sales and operating expense sections of the Consolidated Statements of Income, respectively) ($2.9 million aftertax) for these increased costs. 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, 2008, the Company has received no material insurance recoveries.
(iii) Operating income included special litigation and other related professional fees of $51.1 million pretax ($31.3 million aftertax) for litigation-related professional expenses primarily in connection with the Companys lawsuit against United, certain other large customer disputes, the
65
investigation by the United States Attorneys Office, District of Massachusetts, the purported class and derivative actions, the investigation by the federal government and certain states relating to drug substitutions, and the Companys response to subpoenas it received relating to other legal proceedings to which the Company is not a party. With respect to these proceedings to which the Company is a party, see further discussion at the Commitments and Contingencies note of the Notes to Consolidated Financial Statements, and the Legal Proceedings section at Part II, Item 1 of this Filing.
(iv) The Company recorded a $19.3 million non-cash increase in pretax interest expense ($12.0 million aftertax) related to the retrospective adoption of the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) accounting change. See further discussion of this authoritative guidance, including this amortization of discount on convertible notes, at the Debt note of the Notes to Consolidated Financial Statements.
Pharmacy Services Segment
|
|
|
|
|
|
|
|
|
|
Nine
months ended |
|
||||
|
|
|
|||||
|
|
2009 |
|
2008
as |
|
||
|
|
|
|
||||
| |||||||
Net sales |
|
$ |
4,504,097 |
|
$ |
4,477,133 |
|
|
|
|
|
||||
| |||||||
Operating income from continuing operations |
|
$ |
409,553 |
|
$ |
382,684 |
|
|
|
|
|
|
|
(a) |
As discussed elsewhere herein, during the second quarter of 2009, the Company commenced activities to divest certain non-core businesses within its Pharmacy Services segment. The financial results have been revised to reflect such businesses as discontinued operations. |
Omnicares Pharmacy Services segment recorded sales of $4,504.1 million for the nine months ended September 30, 2009, an increase from the comparable 2008 amount of $4,477.1 million by $27.0 million, or 0.6%. At September 30, 2009, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,389,000 beds relating to continuing operations, including approximately 63,000 patients served by the patient assistance programs of its specialty pharmacy business. The comparable number at September 30, 2008 was 1,387,000 relating to continuing operations (including approximately 67,000 patients served by patient assistance programs). Pharmacy Services sales were favorably impacted primarily by drug price inflation, the increased use of certain higher acuity drugs, biologic agents and existing drugs with new therapeutic indications, and acquisitions, as well as growth in specialty pharmacy services. Partially offsetting these factors were the increased availability and utilization of generic drugs, reductions in reimbursement and/or utilization of certain drugs as well as competitive pricing issues, a lower average number of beds served year-over-year, and a shift in mix towards assisted living, which typically has lower penetration rates than skilled nursing facilities. While the Company is focused on reducing its costs to mitigate the impact of drug pricing and reimbursement issues, there can be no assurance that such issues or other pricing and reimbursement pressures will not adversely impact the Pharmacy Services segment.
66
Operating income of the Pharmacy Services segment was $409.6 million in the first nine months of 2009, a $26.9 million increase as compared with the $382.7 million earned in the comparable period of 2008. As a percentage of the segments sales, operating income was 9.1% for the nine months ended September 30, 2009, compared with 8.5% in 2008. Operating income in 2009 was favorably impacted largely by the increased availability and utilization of higher margin generic drugs, drug price inflation, growth in specialty pharmacy services, lower bad debt expense, and purchasing improvements, as well as by the continued progress in the Companys productivity improvement initiatives and the continued integration of prior-period acquisitions. Operating income in 2009 was unfavorably affected primarily by the operating income effect of certain of the aforementioned items that reduced net sales and the year-over-year impact of the previously mentioned special items.
CRO Services Segment
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
||||
|
|
|
|||||
|
|
2009 |
|
2008 |
|
||
|
|
|
|
||||
| |||||||
Revenues |
|
$ |
122,416 |
|
$ |
154,268 |
|
|
|
|
|
||||
| |||||||
Operating income |
|
$ |
2,000 |
|
$ |
11,012 |
|
|
|
|
|
Omnicares CRO Services segment recorded revenues of $122.4 million for the nine months ended September 30, 2009, which decreased by $31.9 million, or 20.6% from the $154.3 million recorded in the same prior-year period. In accordance with the authoritative guidance for income statement characterization of reimbursements received for out-of-pocket expenses incurred, the Company included $14.3 million and $24.5 million of reimbursable out-of-pockets in its CRO Services segment reported revenue and cost of sales amounts for the nine months ended September 30, 2009 and 2008, respectively. Revenues for 2009 were lower than in the same prior-year period primarily due to lower levels of new business added along with the early termination and client-driven delays in the commencement of certain projects.
Operating income in the CRO Services segment was $2.0 million in the first nine months of 2009 compared with $11.0 million in 2008, a decrease of $9.0 million or 81.8%. As a percentage of the segments revenue, operating income was 1.6% in the first nine months of 2009 compared with 7.1% in the same period of 2008. This decrease is primarily attributable to the aforementioned factors that reduced sales as well as restructuring charges of $3.3 million pretax ($2.1 million aftertax) in the nine months ended September 30, 2009 incurred to rightsize and reposition the cost structure of the business.
While volatility can occur from time to time in the contract research business owing to factors such as the success or failure of its clients compounds, the timing or budgetary constraints of its clients, or consolidation within our client base, new drug discovery remains an important priority of drug manufacturers. The Company believes that drug manufacturers, in order to optimize
67
their research and development efforts, will continue to turn to contract research organizations to assist them in drug research development and commercialization.
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 Omnicares Pharmacy Services segment, primarily represents ancillary businesses which accompanied other more strategic assets obtained by Omnicare in connection with the Companys 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, |
|
Nine
months ended |
|
||||||||
|
|
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 |
) |
The loss from operations of disposal group for the three and nine month periods ended September 30, 2009, in comparison to the same prior year periods, primarily reflects the impact of reimbursement reductions from Medicare and other payor groups as well as increased provision for doubtful accounts, partially offset by reduced operating costs.
68
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 Companys 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 generate pretax savings in the range of $100 million to $120 million annually upon completion of the initiative. It is anticipated that approximately one-half of these savings will be realized in cost of sales, with the remainder being realized in operating expenses. The program is estimated to result in total pretax restructuring and other related charges of approximately $106 million over this implementation period. 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. Incremental capital expenditures related to this program are expected to total approximately $50 million to $55 million over the entire implementation period. 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 aforementioned savings anticipated upon completion of the program also include reductions in overtime, excess hours and temporary help, and other productivity gains, equal to 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.
69
The restructuring charges primarily include severance pay, the buy-out of employment agreements, lease terminations, and other exit-related asset disposals, professional fees and facility exit costs. The other related charges are primarily comprised of professional fees.
While the Company is working diligently to achieve the estimated savings as discussed above, there can be no assurances as to the ultimate outcome of the program, including the savings and/or related timing thereof, due to the inherent risks associated with the implementation of a project of this magnitude and the related new technologies. Specifically, the potential inability to successfully mitigate implementation risks, including but not necessarily limited to, dependence on third-party suppliers and consultants for the timely delivery of technology as well as its performance at expected capacities, compliance with federal, state and local regulatory requirements; reliance on information technology and telecommunications support, timely completion of facility lease transactions and/or leasehold improvements, and the ability to obtain adequate staffing levels, individually or in the aggregate, could affect the overall success of the program from a savings and/or timing standpoint.
See further discussion at the Restructuring and Other Related Charges note of the Notes to Consolidated Financial Statements.
|
Financial Condition, Liquidity and Capital Resources |
Cash and cash equivalents and restricted cash at September 30, 2009 were $327.1 million compared with $216.6 million at December 31, 2008 (including restricted cash amounts of $2.9 million and $1.9 million, respectively).
The Company generated positive net cash flows from operating activities of continuing operations of $431.0 million during the nine months ended September 30, 2009, compared with net cash flows from operating activities of continuing operations of $330.2 million during the nine months ended September 30, 2008. Compared to the same prior-year period, cash flow from operating activities was primarily favorably impacted by a reduction in inventory and accounts receivable during the period.
Net cash used in investing activities of continuing operations was $97.8 million and $258.7 million for the nine months ended September 30, 2009 and 2008, respectively. Acquisitions of businesses, primarily funded by operating cash flows, required outlays of $64.5 million (including amounts payable pursuant to acquisition agreements relating to pre-2009 acquisitions) in the first nine months of 2009. Acquisitions of businesses during the first nine months of 2008 required $201.0 million of cash payments (including amounts payable pursuant to acquisition agreements relating to pre-2008 acquisitions) which were primarily funded by invested cash and operating cash flows. Omnicares capital requirements, in addition to the payment of debt and dividends, are primarily comprised of its acquisition program and capital expenditures, largely relating to investments in the Companys information technology systems and the implementation of the Omnicare Full Potential Plan.
Net cash used in financing activities of continuing operations was $223.6 million for the nine months ended September 30, 2009 as compared to $163.3 million for the comparable prior-year
70
period. During the first nine months of 2009 and 2008, the Company paid down $225 million and $50 million, respectively, on the Term Loans.
At September 30, 2009, there were no outstanding borrowings under the $800 million revolving credit facility, and $175 million in borrowings were outstanding under Term Loans.
On August 10, 2009, the Companys Board of Directors declared a quarterly cash dividend of 2.25 cents per common share for an indicated annual rate of 9 cents per common share for 2009, which is consistent with the annual dividends per share actually paid in 2008. Aggregate dividends paid of $8.0 million during the nine month period ended September 30, 2009 were consistent with those paid in the comparable prior-year period.
During the second quarter of 2008, the Company repurchased approximately 4.1 million shares of Omnicares common stock at a cost of approximately $100 million under a stock buyback program authorized by its Board of Directors.
There were no known material commitments and contingencies outstanding at September 30, 2009, other than the contractual obligations summarized in the Disclosures About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements caption below; certain acquisition-related payments potentially due in the future, including deferred payments, indemnification payments and payments originating from earnout and other provisions that may become payable; as well as the matters discussed in the Commitments and Contingencies note of the Notes to Consolidated Financial Statements, and the Legal Proceedings section at Part II, Item 1 of this Filing.
The Company believes that net cash flows from operating activities, credit facilities and existing cash balances will be sufficient to satisfy its future working capital needs, acquisition contingency commitments, debt servicing, capital expenditures and other financing requirements for the foreseeable future. Additionally, the Company believes that external sources of financing, including short- and long-term debt financings, are available. Due to turmoil in the credit markets, Omnicare may not be able to refinance maturing debt at terms that are as favorable as those from which the Company previously benefited or at terms that are acceptable to Omnicare. In addition, no assurances can be given regarding the Companys ability to obtain additional financing in the future.
71
Disclosures About Aggregate Contractual Obligations and Off-Balance Sheet Arrangements
Aggregate Contractual Obligations:
The following table summarizes the Companys aggregate contractual obligations as of September 30, 2009, the nature of which is described in further detail at the Aggregate Contractual Obligations caption of the MD&A section at Part II, Item 7 of Omnicares 2008 Annual Report, and the effect such obligations are expected to have on the Companys liquidity and cash flows in future periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
Less Than 1 |
|
1-3 Years |
|
4-5 Years |
|
After 5 Years |
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Debt obligations |
|
$ |
2,497,500 |
|
$ |
175,000 |
|
$ |
250,000 |
|
$ |
225,000 |
|
$ |
1,847,500 |
Capital lease obligations |
|
|
3,004 |
|
|
1,374 |
|
|
1,237 |
|
|
205 |
|
|
188 |
Operating lease obligations |
|
|
145,683 |
|
|
38,940 |
|
|
46,432 |
|
|
32,827 |
|
|
27,484 |
Purchase obligations |
|
|
68,741 |
|
|
55,856 |
|
|
12,184 |
|
|
701 |
|
|
- |
Other current obligations |
|
|
283,954 |
|
|
283,954 |
|
|
- |
|
|
- |
|
|
- |
Other long-term obligations |
|
|
257,983 |
|
|
- |
|
|
209,171 |
|
|
23,490 |
|
|
25,322 |
Subtotal |
|
|
3,256,865 |
|
|
555,124 |
|
|
519,024 |
|
|
282,223 |
|
|
1,900,494 |
Future interest costs relating to debt and capital lease obligations |
|
|
1,477,410 |
|
|
107,144 |
|
|
208,190 |
|
|
186,516 |
|
|
975,560 |
Total contractual cash obligations |
|
$ |
4,734,275 |
|
$ |
662,268 |
|
$ |
727,214 |
|
$ |
468,739 |
|
$ |
2,876,054 |
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.
Off-Balance Sheet Arrangements:
A description of the Companys Off-Balance Sheet Arrangements, for which there were no significant changes during the 2009 third quarter, is presented at the Off-Balance Sheet Arrangements caption of Part II, Item 7 of Omnicares 2008 Annual Report.
Critical Accounting Policies
Allowance for Doubtful Accounts
Collection of accounts receivable from customers is the Companys primary source of operating cash flow and is critical to Omnicares operating performance, cash flows and financial condition. Omnicares primary collection risk relates to facility, private pay and Part D customers. The Company provides a reserve for accounts receivable considered to be at increased risk of becoming uncollectible by establishing an allowance to reduce the carrying value of such receivables to their estimated net realizable value. Omnicare establishes this allowance for doubtful accounts using the specific identification approach, and considering such factors as historical collection experience (i.e., payment history and credit losses) and creditworthiness, specifically identified credit risks, aging of accounts receivable by payor
72
category, current and expected economic conditions and other relevant factors. Management reviews this allowance for doubtful accounts on an ongoing basis for appropriateness. Judgment is used to assess the collectability of account balances and the economic ability of customers to pay.
The Company computes and monitors its accounts receivable days sales outstanding (DSO), a non-GAAP measure, in order to evaluate the liquidity and collection patterns of its accounts receivable. DSO is calculated by averaging the beginning and end of quarter accounts receivable, less contractual allowances and the allowance for doubtful accounts, to derive average accounts receivable and dividing average accounts receivable by the sales amount (excluding reimbursable out-of-pockets) for the related quarter. The resultant percentage is multiplied by 92 days to derive the DSO amount. Omnicares DSO approximated 75 days at September 30, 2009, which was lower than the December 31, 2008 amount of 79 days by approximately 4 days. Unfavorably impacting the overall DSO, as well as the 181 days and over past-due accounts receivable balance, is the aging in accounts receivable relating to several of the Companys larger nursing home chain customers, and the continued aging of copays and 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 and prior to any allowance for doubtful accounts) 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). The $98 million represents approximately 6 days of the overall DSO at September 30, 2009. As previously disclosed, the Company has experienced on-going administrative and payment issues associated with the Medicare Part D implementation, resulting in 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 payors, to collect outstanding copays, as well as certain rejected claims. Until all administrative and payment issues relating to the Part D Drug Benefit as well as the aforementioned legal action against a group of Omnicares customers are fully resolved, there can be no assurance that the impact of these matters on the Companys results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.
The allowance for doubtful accounts as of September 30, 2009 was $327.7 million, compared with $319.4 million at December 31, 2008. The allowance for doubtful accounts represented 20.8% and 19.3% of gross receivables (net of contractual allowances) as of September 30, 2009 and December 31, 2008, respectively. Unforeseen future developments could lead to changes in the Companys provision for doubtful accounts levels and future allowance for doubtful accounts percentages, which could materially impact the overall financial results, financial position or cash flows of the Company. For example, a one percentage point increase in the allowance for doubtful accounts as a percentage of gross receivables (net of allowances for contractual adjustments, and prior to allowances for doubtful accounts) as of September 30, 2009 would result in an increase to the provision for doubtful accounts and related allowance for doubtful accounts on the balance sheet of approximately $15.8 million pretax.
73
The following table is an aging of the Companys September 30, 2009, June 30, 2009 and December 31, 2008 gross accounts receivable (net of allowances for contractual adjustments, and prior to allowances for doubtful accounts), aged based on payment terms and categorized based on the four primary overall types of accounts receivable characteristics (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|||||||
|
|
|
||||||||
|
|
Current and |
|
181 Days and |
|
Total |
|
|||
|
|
|
|
|
||||||
Medicare (Part D and Part B), Medicaid and Third-Party payors |
|
$ |
348,102 |
|
$ |
178,267 |
|
$ |
526,369 |
|
Facility payors |
|
|
418,920 |
|
|
362,291 |
|
|
781,211 |
|
Private Pay payors |
|
|
108,052 |
|
|
142,023 |
|
|
250,075 |
|
CRO |
|
|
16,071 |
|
|
2,373 |
|
|
18,444 |
|
|
|
|
|
|
||||||
Total gross accounts receivable (net of contractual allowance adjustments) |
|
$ |
891,145 |
|
$ |
684,954 |
|
$ |
1,576,099 |
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|||||||
|
|
|
||||||||
|
|
Current and |
|
181 Days and |
|
Total |
|
|||
|
|
|
|
|
||||||
Medicare (Part D and Part B), Medicaid and Third-Party payors |
|
$ |
340,069 |
|
$ |
175,802 |
|
$ |
515,871 |
|
Facility payors |
|
|
446,817 |
|
|
363,006 |
|
|
809,823 |
|
Private Pay payors |
|
|
110,231 |
|
|
137,755 |
|
|
247,986 |
|
CRO |
|
|
17,601 |
|
|
2,040 |
|
|
19,641 |
|
|
|
|
|
|
||||||
Total gross accounts receivable (net of contractual allowance adjustments) |
|
$ |
914,718 |
|
$ |
678,603 |
|
$ |
1,593,321 |
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|||||||
|
|
|
||||||||
|
|
Current and |
|
181 Days and |
|
Total |
|
|||
|
|
|
|
|
||||||
Medicare (Part D and Part B), Medicaid and Third-Party payors |
|
$ |
377,765 |
|
$ |
173,307 |
|
$ |
551,072 |
|
Facility payors |
|
|
479,185 |
|
|
352,036 |
|
|
831,221 |
|
Private Pay payors |
|
|
117,543 |
|
|
129,530 |
|
|
247,073 |
|
CRO |
|
|
27,609 |
|
|
- |
|
|
27,609 |
|
|
|
|
|
|
||||||
Total gross accounts receivable (net of contractual allowance adjustments) |
|
$ |
1,002,102 |
|
$ |
654,873 |
|
$ |
1,656,975 |
|
|
|
|
|
|
74
Fair Value
On January 1, 2008, the Company adopted the provisions of 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 Companys consolidated results of operations, financial position and cash flows upon adoption of this guidance was not material.
See further discussion at the Fair Value note of the Notes to Consolidated Financial Statements.
Legal Contingencies
The status of certain legal proceedings has been updated at the Commitments and Contingencies note of the Notes to Consolidated Financial Statements, and the Legal Proceedings section at Part II, Item 1 of this Filing.
Acquisitions
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.
See further discussion at the Acquisitions note of the Notes to Consolidated Financial Statements.
Interest Expense
Effective January 1, 2009, the Company retrospectively adopted the provisions of the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). Among other items, this guidance 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 entitys calculated nonconvertible debt borrowing rate when the debt was issued. The 2009 implementation resulted in a non-cash increase in pretax interest expense of approximately $7 million and $21 million during the three and nine months ended September 30, 2009, respectively. Further, the Company reclassified approximately $441 million of convertible debt and related deferred debt issuance costs to equity in accordance with this new authoritative guidance.
75
See further discussion at the Debt note of the Notes to Consolidated Financial Statements.
Recently Issued Accounting Standards
Information pertaining to recently issued accounting standards is further discussed at the Recently Issued Accounting Standards section of the Interim Financial Data, Description of Business and Summary of Significant Accounting Policies note of the Notes to Consolidated Financial Statements of this Filing.
|
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information |
In addition to historical information, this report contains certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, all statements regarding the intent, belief or current expectations regarding the matters discussed or incorporated by reference in this document (including statements as to beliefs, expectations, anticipations, intentions or similar words) and all statements which are not statements of historical fact. Such forward-looking statements, together with other statements that are not historical, are based on managements current expectations and involve known and unknown risks, uncertainties, contingencies and other factors that could cause results, performance or achievements to differ materially from those stated. The most significant of these risks and uncertainties are described in the Companys Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: overall economic, financial, political and business conditions; trends in the long-term healthcare, pharmaceutical and contract research industries; the ability to attract new clients and service contracts and retain existing clients and service contracts; the ability to consummate pending acquisitions; trends for the continued growth of the Companys businesses; trends in drug pricing; delays and reductions in reimbursement by the government and other payors to customers and to the Company; the overall financial condition of the Companys customers and the ability of the Company to assess and react to such financial condition of its customers; the ability of vendors and business partners to continue to provide products and services to the Company; the continued successful integration of acquired companies; the continued availability of suitable acquisition candidates; the ability to attract and retain needed management; competition for qualified staff in the healthcare industry; the demand for the Companys products and services; variations in costs or expenses; the ability to implement productivity, consolidation and cost reduction efforts and to realize anticipated benefits; the ability of clinical research projects to produce revenues in future periods; the potential impact of legislation, government regulations, and other government action and/or executive orders, including those relating to Medicare Part D, including its implementing regulations and any subregulatory guidance; reimbursement and drug pricing policies and changes in the interpretation and application of such policies, including changes in calculation of average wholesale price; government budgetary pressures and shifting priorities; federal and state budget shortfalls; efforts by payors to control costs; changes to or termination of the Companys contracts with Medicare Part D plan sponsors or to the proportion of the Companys Part D business covered by
76
specific contracts; the outcome of litigation; potential liability for losses not covered by, or in excess of, insurance; the impact of differences in actuarial assumptions and estimates as compared to eventual outcomes; events or circumstances which result in an impairment of assets, including but not limited to, goodwill and identifiable intangible assets; the final outcome of divestiture activities; market conditions; the outcome of audit, compliance, administrative, regulatory, or investigatory reviews; volatility in the market for the Companys stock and in the financial markets generally; access to adequate capital and financing; changes in international economic and political conditions and currency fluctuations between the U.S. dollar and other currencies; changes in tax laws and regulations; changes in accounting rules and standards; and costs to comply with our Corporate Integrity Agreements. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, the Companys actual results, performance or achievements could differ materially from those expressed in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as otherwise required by law, the Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omnicares primary market risk exposure relates to variable interest rate risk through its borrowings. Accordingly, market risk loss is primarily defined as the potential loss in earnings due to higher interest rates on variable-rate debt of the Company. The modeling technique used by Omnicare for evaluating interest rate risk exposure involves performing sensitivity analysis on the variable-rate debt, assuming a change in interest rates of 100 basis-points. The Companys debt obligations at September 30, 2009 include $175.0 million outstanding under the variable-rate Senior term A loan, due 2010, at an interest rate of 1.99% at September 30, 2009 (a 100 basis-point change in the interest rate would increase or decrease pretax interest expense by approximately $1.8 million per year); $250.0 million outstanding under its fixed-rate 6.125% Senior Notes, due 2013; $225.0 million outstanding under its fixed-rate 6.75% Senior Notes, due 2013; $525 million outstanding under its fixed-rate 6.875% Senior Notes, due 2015; $345.0 million outstanding under its fixed-rate 4.00% Convertible Debentures, due 2033; and $977.5 million outstanding under its fixed-rate 3.25% Convertible Debentures, due 2035 (with an optional repurchase right of holders on December 15, 2015). In connection with its offering of $250.0 million of 6.125% Senior Notes during 2003, the Company entered into a Swap Agreement on all $250.0 million of its aggregate principal amount of the 6.125% Senior Notes. Under the Swap Agreement, which hedges against exposure to long-term U.S. dollar interest rates, the Company receives a fixed rate of 6.125% and pays a floating rate based on LIBOR with a maturity of six months, plus a spread of 2.27%. The estimated LIBOR-based floating rate (including the 2.27% spread) was 2.87% at September 30, 2009 (a 100 basis-point change in the interest rate would increase or decrease pretax interest expense by approximately $2.5 million per year). The Swap Agreement, which matches the terms of the 6.125% Senior Notes, is designated and accounted for as a fair value hedge. The Company is accounting for the Swap Agreement in accordance with the authoritative guidance on derivatives and hedging, so changes in the fair value of the Swap Agreement are offset by changes in the recorded carrying value of
77
the related 6.125% Senior Notes. The fair value of the Swap Agreement is recorded as a noncurrent asset or (liability), with an offsetting increase or (decrease), respectively, to the book carrying value of the related 6.125% Senior Notes, and amounted to approximately $6.3 million at the end of the 2009 third quarter. Additionally, at September 30, 2009, the fair value of Omnicares variable rate debt facilities approximated the carrying value, as the effective interest rates fluctuate with changes in market rates.
The fair value of the Companys fixed-rate debt facilities is based on quoted market prices and is summarized as follows (in thousands):
Fair Value of Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
December 31, 2008 |
|
||||||||
|
|
|
|
|
||||||||||
Financial Instrument: |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Principal amount |
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977,500 |
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692,900 |
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977,500 |
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|
565,100 |
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Embedded in the Old Trust PIERS, the New Trust PIERS and the 3.25% Convertible Debentures are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision. In addition, the 3.25% Convertible Debentures include an interest reset provision. The embedded derivatives are periodically valued, and at period end, the values of the derivatives embedded in the Old Trust PIERS, the New Trust PIERS and the 3.25% Convertible Debentures were not material. However, the values are subject to change, based on market conditions, which could affect the Companys future consolidated results of operations, financial position or cash flows.
The Company has operations and revenue that occur outside of the U.S. and transactions that are settled in currencies other than the U.S. dollar, exposing it to market risk related to changes in foreign currency exchange rates. However, the substantial portion of the Companys operations and revenues and the substantial portion of the Companys overall consolidated cash settlements are exchanged in U.S. dollars. Therefore, changes in foreign currency exchange rates do not represent a substantial market risk exposure to the Company.
The Company does not have any financial instruments held for trading purposes.
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ITEM 4 - CONTROLS AND PROCEDURES
(a) Under applicable SEC regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the Companys disclosure controls and procedures, which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the SEC (such as this Form 10-Q) is recorded, processed, accumulated and communicated to the Companys management as appropriate to allow timely decisions regarding disclosure. Omnicare is an acquisitive company that continuously acquires and integrates new businesses. Throughout and following an acquisition, Omnicare focuses on analyzing the acquirees procedures and controls to determine their effectiveness and, where appropriate, implements changes to conform them to the Companys disclosure controls and procedures. The Companys Chief Executive Officer and Chief Financial Officer evaluated the Companys disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q and concluded that they are effective.
(b) There were no changes in the Companys internal control over financial reporting that occurred during the Companys quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
On May 18, 2006, an antitrust and fraud action entitled Omnicare, Inc. v. UnitedHealth Group, Inc., et al., 2:06-cv-00103-WOB, was filed by the Company in the United States District Court for the Eastern District of Kentucky against UnitedHealth Group, Inc., PacifiCare Health Systems, Inc., and RxSolutions, Inc. d/b/a Prescription Solutions, asserting claims of violations of federal and state antitrust laws, civil conspiracy and common law fraud arising out of an alleged conspiracy by defendants to illegally and fraudulently coordinate their negotiations with the Company for Medicare Part D contracts as part of an effort to defraud the Company and fix prices. The complaint seeks, among other things, damages, injunctive relief and reformation of certain contracts. On June 5, 2006, the Company filed a first supplemental and amended complaint in which it asserted the identical claims. In an order dated November 9, 2006, a motion by defendants to transfer venue to the United States District Court for the Northern District of Illinois was granted, but a motion to dismiss the antitrust claims was denied without prejudice, with leave to refile in the transferee court. On January 16, 2009 the United States District Court for the Northern District of Illinois granted a motion for summary judgment filed by the defendants. On January 21, 2009, the Company filed a Notice of Appeal of the judgment and the related orders to the Seventh Circuit Court of Appeals. On June 9, 2009, the Company filed its appellate brief in the Seventh Circuit Court of Appeals. On July 10, 2009, defendants filed their appellate brief, and on July 23, 2009, the Company filed its reply brief. The Seventh Circuit Court of Appeals has scheduled oral argument on the matter for November 13, 2009.
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The Company intends to pursue the appeal vigorously and seek reversal of the judgment and the lower courts orders.
As previously disclosed, the U.S. Attorneys 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 Companys 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.
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 manufacturers 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 manufacturers 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 drugs 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.
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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 Companys 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 Companys requirements under the CIA. The requirements of the Companys 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 Companys 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.
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 Companys 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 Companys 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 Companys 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 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 courts dismissal, dismissing plaintiffs claims for violati on 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 Funds 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.
Information pertaining to other Legal Proceedings involving the Company is further discussed in the Commitments and Contingencies note of the Notes to Consolidated Financial Statements of this Filing.
Although the Company cannot predict the ultimate outcome of the matters described in the preceding paragraphs other than as disclosed and elsewhere in this Filing, there can be no
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assurance that the resolution of these matters will not have a material adverse impact on the Companys consolidated results of operations, financial position or cash flows.
As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries and similar actions by governmental/regulatory authorities responsible for enforcing laws and regulations to which the Company is subject, including reviews of individual Omnicare pharmacys reimbursement documentation and administrative practices.
The Omnicare 2008 Annual Report on Form 10-K includes a detailed discussion of our risk factors. The information presented below updates and should be read in conjunction with the risk factors and information disclosed in that Form 10-K.
Risks Relating to Our Business
Federal and state healthcare legislation has significantly impacted our business, and future legislation and regulations are likely to affect us.
In recent years, federal legislation has resulted in major changes in the healthcare system, which significantly affected healthcare providers. Under PPS, Medicare pays SNFs a fixed fee per patient per day based upon the acuity level of the resident, covering substantially all items and services furnished during a Medicare-covered stay, including pharmacy services. PPS initially resulted in a significant reduction of reimbursement to SNFs. Congress subsequently sought to restore some of the reductions in reimbursement resulting from PPS. Although some of the reductions were subsequently mitigated, the PPS fundamentally changed the payment for Medicare SNF services.
In recent years, SNFs have received the full market basket increase to annual rates. For fiscal year 2009, beginning October 1, 2008, SNFs received a 3.4 percent inflation update that increased overall payments to SNFs by $780 million. However, for fiscal year 2010, beginning on October 1, 2009, payments to SNFs were reduced by 1.1 percent, or $360 million to SNFs overall, compared to fiscal year 2009 levels. While the payment levels reflect a 2.2 percent market basket inflation update, that amount was more than offset by a 3.3 percent ($1.050 billion) adjustment intended to recalibrate case mix weights to compensate for increased expenditures resulting from refinements made in January 2006. These or other reimbursement changes could have an adverse effect on the financial condition of the Companys SNF clients, which could, in turn, adversely affect the timing or level of their payments to Omnicare.
Similarly, the Medicare Part D prescription drug benefit significantly shifted the payor mix for our pharmacy services. Effective January 1, 2006, the Part D drug benefit permits Medicare beneficiaries to enroll in Part D Plans for their drug coverage. Medicare beneficiaries generally have to pay a premium to enroll in a Part D Plan, with the premium amount varying from plan to plan, although the Centers for Medicare and Medicaid Services (CMS) provides various federal subsidies to Part D Plans to reduce the cost to beneficiaries. Medicare beneficiaries who are also entitled to benefits under a state Medicaid program (so-called dual eligibles) have their
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prescription drug costs covered by the new Medicare drug benefit, unless they elect to opt out of Part D coverage. Many nursing home residents Omnicare serves are dual eligibles, whose drug costs were previously covered by state Medicaid programs. In the nine months ended September 30, 2009, approximately 39% of Omnicares revenue was derived from beneficiaries covered under the federal Medicare Part D program.
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. We have entered into such agreements with nearly all Part D Plan sponsors under which we provide drugs and associated services to their enrollees. We continue to have ongoing discussions with Part D Plans and renegotiate these agreements in the ordinary course. Further, the proportion of our Part D business serviced under specific agreements may change over time based upon beneficiary choice, reassignment of dual eligibles to different Part D Plans, Part D Plan consolidation and other factors. 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 owed by Part D Plans for dual eligibles and other low income subsidy eligible beneficiaries. 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 payors, to collect outstanding copays, as well as certain rejected claims. Participants in the long-term care pharmacy industry continue to address these issues with CMS and the Part D Plans and attempt to develop solutions. Among other things, on January 12, 2009, CMS finalized a change in its regulations requiring Part D Plan sponsors to accept and act upon certain types of documentation, referred to as best available evidence, to correct co-pays. Similarly, on October 9, 2009, CMS issued proposed rules that would make numerous changes to the regulations governing Part D, including certain Part D Plan payment rules and processes. Language in the preamble to the proposed rule suggests that Part D Plans would be required to correct and pay copay amounts within 45 days of receiving complete information for the copay reconciliation. However, until a final rule is issued and all administrative and payment issues are fully resolved, there can be no assurance that the Part D Drug benefit will not adversely impact our results of operations, financial position or cash flows.
CMS has issued subregulatory guidance on many aspects of the Part D program, including the provision of pharmaceutical services to long-term care residents. CMS has also expressed some concerns about pharmacies receipt of discounts, rebates and other price concessions from drug manufacturers. For 2007 and 2008, CMS instructed Part D Plan sponsors to require pharmacies to disclose to the Part D Plan sponsor any discounts, rebates and other direct or indirect remuneration designed to directly or indirectly influence or impact utilization of Part D drugs. The Company reported information specified by CMS with respect to rebates received by the Company for 2007 and the first quarter of 2008 to those Part D Plans which agreed to maintain the confidentiality of such information. In November 2008, CMS suspended collection of the long-term care pharmacy rebate data from Part D Plan sponsors for calendar years 2008 and 2009. Instead, CMS intends to collect different non-rebate information to focus plan attention on
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network pharmacy compliance and appropriate drug utilization management. The new data would include the number and the cost of formulary versus non-formulary drugs dispensed by each pharmacy (whether long-term care or non-long-term care) in the Part D Plans pharmacy network. CMS will test the proposed reporting requirements with a small number of Part D Plan sponsors prior to calendar year 2010, when the new reporting requirements will become effective. CMS also issued a memo on November 25, 2008 reminding Part D Plan sponsors of the requirement to (1) provide convenient access to network long-term care pharmacies to all of their enrollees residing in long-term care facilities, and (2) exclude payment for drugs that are covered under a Medicare Part A stay that would otherwise satisfy the definition of a Part D drug. The Company will continue to work with Part D Plan sponsors to ensure compliance with CMSs evolving policies related to long-term care pharmacy services.
MIPPA includes further reforms to the Part D program. As of January 1, 2009, the law also requires Part D Plan sponsors to update the prescription drug pricing data they use to pay pharmacies at least every seven days. As of January 1, 2010, the law requires that long-term care pharmacies have between 30 and 90 days to submit claims to a Part D Plan. The law also expands the number of Medicare beneficiaries who will be entitled to premium and cost-sharing subsidies by modifying previous income and asset requirements, eliminates late enrollment penalties for beneficiaries entitled to these subsidies, and limits the sales and marketing activities in which Part D Plan sponsors may engage, among other things. On September 18, 2008, CMS published final regulations implementing many of the MIPPA Part D provisions, and the agency published another interim final rule with comment period on January 16, 2009 implementing additional MIPPA provisions related to drug formularies and protected classes of drugs. Additional legislative proposals are pending before Congress that could further modify the Part D benefit, including proposals that could impact the payment available or pricing for drugs under Part D Plans. We cannot predict at this time whether such legislation will be enacted or the form any such legislation would take. We can make no assurances that future Part D legislation would not adversely impact our business.
Moreover, CMS continues to issue guidance on and make revisions to the Part D program. We are continuing to monitor issues relating to implementation of the Part D benefit, and until further agency guidance is known and until all administrative and payment issues associated with the transition to this massive program are fully resolved, there can be no assurance that the impact of the Part D rules, future legislative changes, or the outcome of other potential developments relating to its implementation on our business, results of operations, financial position or cash flows will not change based on the outcome of any unforeseen future developments.
The MMA also changed the Medicare payment methodology and conditions for coverage of certain items of DMEPOS under Medicare Part B. Approximately 1% of our revenue is derived from beneficiaries covered under Medicare Part B. The changes include a temporary freeze in annual increases in payments for durable medical equipment from 2004 through 2008, new clinical conditions for payment, quality standards (applied by CMS-approved accrediting organizations), and competitive bidding requirements. Only suppliers that are winning bidders will be eligible to provide competitively-bid items to Medicare beneficiaries in the selected areas.
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In mid-2007, CMS conducted a first round of bidding for 10 DMEPOS product categories in 10 competitive bidding areas, and announced winning bidders in March 2008. In light of concerns about implementation of the bidding program, in MIPPA Congress terminated the contracts awarded by CMS in the first round of competitive bidding, required that new bidding be conducted for the first round, and required certain reforms to the bidding process. The law requires CMS to rebid those areas in 2009, with bidding for round two delayed until 2011. The delay is being financed by reducing Medicare fee schedule payments for all items covered by the round one bidding program by 9.5 percent nationwide effective January 1, 2009, followed by a 2 percent increase in 2014 (with certain exceptions). The legislation also includes a series of procedural improvements to the bidding process. CMS published an interim final rule with comment period to implement the MIPPA competitive bidding changes on January 16, 2009, and on April 17, 2009 announced that it is proceeding with implementation of the January 16, 2009 rule after a brief delay. According to a tentative schedule CMS announced at a public meeting on June 4, 2009, while bidding for the new round one of the program will take place later this year, CMS does not expect the program to go into effect until January 1, 2011. We intend to participate in the new bidding process for round one. There is no assurance that we will be a successful bidder in the DMEPOS competitive bidding process.
With respect to Medicaid, many states are facing budget pressures that could result in increased cost containment efforts on healthcare providers. States have considerable latitude in setting payment rates for nursing facility services. States also have flexibility to establish Medicaid managed care programs without the need to obtain a federal waiver. Although these waiver programs generally exempt institutional care, including nursing facilities and institutional pharmacy services, some states do use managed care principles in their long-term care programs. The DRA also gives states greater flexibility to expand access to home and community based services by allowing states to provide these services as an optional benefit without undergoing the waiver approval process, and includes a new demonstration to encourage states to provide long-term care services in a community setting to individuals who currently receive Medicaid services in nursing homes. Together, these provisions could increase state funding for home and community-based services, while prompting states to cut funding for nursing facilities. No assurances can be given that state Medicaid programs ultimately will not change the reimbursement system for long-term care or pharmacy services in a way that adversely impacts the Company.
The DRA also changed the so-called federal upper limit payment rules for multiple source prescription drugs covered under Medicaid. Like the current upper limit, it only applies to drug ingredient costs and does not include dispensing fees, which will continue to be determined by the states. First, the DRA redefined a multiple source drug subject to the upper limit rules to be a covered outpatient drug that has at least one other drug product that is therapeutically equivalent. Thus, the federal upper limit is triggered when there are two or more therapeutic equivalents, instead of three or more as was previously the case. Second, effective January 1, 2007, the DRA changed the federal upper payment limit from 150 percent of the lowest published price for a drug (which is usually the wholesale acquisition cost) to 250 percent of the lowest average manufacturer price (AMP). Congress expected these DRA provisions to reduce federal and state Medicaid spending by $8.4 billion over five years. On July 17, 2007, CMS issued a final
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rule with comment period to implement changes to the upper limit rules. Among other things, the final rule: established a new federal upper limit calculation for multiple source drug based on 250 percent of the lowest AMP in a drug class; required CMS to post AMP amounts on its web site; and established a uniform definition for AMP. Additionally, the final rule provided that sales of drugs to long-term care pharmacies for supply to nursing homes and assisted living facilities (as well as associated discounts, rebates or other price concessions) are not to be taken into account in determining AMP where such sales can be identified with adequate documentation, and that any AMPs which are not at least 40% of the next highest AMP will not be taken into account in determining the upper limit amount (the so-called outlier test). However, on December 19, 2007, the United States District Court for the District of Columbia issued a preliminary injunction that enjoins CMS from implementing provisions of the July 17, 2007 rule to the extent that it affects Medicaid reimbursement rates for retail pharmacies under the Medicaid program. The order also enjoins CMS from posting AMP data on a public website or disclosing it to states. As a result of this preliminary injunction, CMS did not post AMPs or new upper limit prices in late December 2007 based upon the July 17, 2007 final rule despite its earlier planned timetable, and the schedule for states to implement the new upper limits has been delayed until further notice. Separately, on March 14, 2008, CMS published an interim final rule with comment period revising the Medicaid rebate definition of multiple source drug set forth in the July 17, 2007 final rule. In short, the effect of the rule will be that federal upper limits apply in all states unless the state finds that a particular generic drug is not available within that state. While the rules effective date was April 14, 2008, it is subject to public comment. CMS also noted that the regulation is subject to the injunction by the United States District Court for the District of Columbia to the extent that it may affect Medicaid reimbursement rates for pharmacies. On October 7, 2008, CMS published the final version of this rule, responding to public comments received on the March 14, 2008 regulation. The final rule adopted the March 2008 interim final rule with technical changes effective November 6, 2008, although it continues to be subject to an injunction to the extent that it affects Medicaid pharmacy reimbursement rates. Moreover, MIPPA delayed the adoption of the DRAs new federal upper limit payment rules for Medicaid based on AMP for multiple source drugs and prevented CMS from publishing AMP data before October 1, 2009. To date, CMS has not issued a new rule or published such AMP data. Therefore, at this time upper payment limits continue to be determined under the pre-DRA rules. With the advent of Medicare Part D, our revenues from state Medicaid programs are substantially lower than has been the case previously. However, some of our agreements with Part D Plans and other payors have incorporated the Medicaid upper limit rules into the pricing mechanisms for prescription drugs. Until the litigation regarding the final rule is resolved and new upper limit amounts are published by CMS, we cannot predict the impact of the final rule on our business. Further, there can be no assurance that federal upper limit payments under pre-DRA rules, CMS adoption of a revised rule under the DRA, Congressional action, or other efforts by payors to limit reimbursement for certain drugs will not adversely impact our business.
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. This $790 billion economic stimulus package includes a number of health care policy provisions, including approximately $19 billion in funding for health information technology infrastructure and Medicare and Medicaid incentives to encourage doctors, hospitals, and other providers to use health information technology to electronically exchange patients health information. The law also strengthens federal privacy and security
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provisions to protect personally-identifiable health information. In addition, the legislation increases Federal Medical Assistance Percentage (FMAP) payments by approximately $87 billion to help support state Medicaid programs in the face of budget shortfalls. The law also temporarily extends current Medicaid prompt payment requirements to nursing facility and hospital claims, requiring state Medicaid programs to reimburse providers for 90 percent of claims within 30 days of receipt and 99 percent of claims within 90 days of receipt. Omnicare is reviewing the new law and assessing the potential impact of the various provisions on the Company.
Two other recent actions at the federal level could impact Medicaid payments to nursing facilities. The Tax Relief and Health Care Act of 2006 modified several Medicaid policies including, among other things, reducing the limit on Medicaid provider taxes from 6 percent to 5.5 percent from January 1, 2008 through September 30, 2011. On February 22, 2008, CMS published a final rule that implements this legislation, and makes other clarifications to the standards for determining the permissibility of provider tax arrangements. Provisions of the rule were repeatedly delayed; currently enforcement is delayed until June 30, 2010. Second, on May 21, 2007, CMS published a rule designed to ensure that Medicaid payments to governmentally-operated nursing facilities and certain other health care providers are based on actual costs and that state financing arrangements are consistent with the Medicaid statute. CMS estimates that the rule would save $120 million during the first year and $3.87 billion over five years, but Congress blocked the rule through April 1, 2009. The American Recovery and Reinvestment Act of 2009 expresses the sense of Congress that the Secretary of Health and Human Services should not promulgate the provider cost limit rule, citing a ruling by the United States District Court for the District of Columbia that the final rule was improperly promulgated.
Broader changes in federal healthcare policy have been proposed by President Obama and are currently under consideration by Congress this year. Specifically, on February 26, 2009, the Obama Administration released its proposed federal budget for fiscal year 2010, which would establish a reserve fund of $633.8 billion over 10 years to finance comprehensive health reform. The reserve fund would be paid for by tax increases and health system savings. Among other things, the plan would reduce payments to Medicare Advantage plans and bundle payments to hospitals and certain post-acute providers for services provided within 30 days after discharge from the hospital. The proposal would also increase the Medicaid drug rebate level paid by pharmaceutical manufacturers to Medicaid for brand-name drugs, apply the rebate levels paid by pharmaceutical manufacturers to Medicaid on existing drugs to new formulations of those drugs, and allow states to collect rebates from pharmaceutical manufacturers on drugs provided through Medicaid managed care organizations. With regard to Medicare Part D, the plan would impose higher premiums on certain higher-income beneficiaries and expand oversight and program integrity activities related to the program. The proposal also would establish a regulatory pathway for approval of follow-on biologicals, take steps to promote generic drugs, and allow drug reimportation. It should be noted that many provisions of the proposed budget would require Congressional approval to implement and would take effect after fiscal year 2010.
Congressional leaders have expressed their commitment to enacting major health reform legislation this year, including expanded access to insurance, possibly with a government health insurance option to compete with private plans. As part of this reform, Congress may also seek
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to rein in healthcare costs, which could include consideration of alternate healthcare delivery systems, revised payment methodologies and changes in operational requirements for healthcare providers. Congress is currently considering a variety of comprehensive plans, which are subject to extensive revision during the legislative process before a final plan emerges. Given the ongoing debate regarding the cost of healthcare, managed care, universal healthcare coverage, and other healthcare issues, we cannot predict with any degree of certainty what additional healthcare initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on our business.
Changes in the use of the average wholesale price as a benchmark from which pricing in the pharmaceutical industry is negotiated could adversely affect the Company.
On October 4, 2006, the plaintiffs in New England Carpenters Health Benefits Fund et al. v. First DataBank, Inc. and McKesson Corporation, CA No. 1:05-CV-11148-PBS (United States District Court for the District of Massachusetts) and defendant First DataBank, Inc. (First DataBank) entered into a settlement agreement relating to First DataBanks publication of average wholesale price (AWP). AWP is a pricing benchmark that is widely used to calculate a portion of the reimbursement payable to pharmacy providers for the drugs and biologicals they provide, including under State Medicaid programs, Medicare Part D Plans and certain of the Companys contracts with long-term care facilities. The settlement agreement would have required First DataBank to cease publishing AWP two years after the settlement became effective unless a competitor of First DataBank was then publishing AWP, and would have required that First DataBank modify the manner in which it calculates AWP for over 8,000 distinct drugs (NDCs) from 125% of the drugs wholesale acquisition cost (WAC) price established by manufacturers to 120% of WAC until First DataBank ceased publishing same. In a related case, District Council 37 Health and Security Plan v. Medi-Span, CA No. 1:07-CV-10988-PBS (United States District Court for the District of Massachusetts), in which Medi-Span is accused of misrepresenting pharmaceutical prices by relying on and publishing First DataBanks price list, the parties entered into a similar settlement agreement. The Court granted preliminary approval of both agreements, but later after hearing various objections to the proposed settlements, indicated that it would not approve them. On May 29, 2008, the plaintiffs and First DataBank filed a new settlement that included a reduction in the number of NDCs to which a new mark-up over WAC would apply (20% vs. 25%) from over 8,000 to 1,356, and removed the provision requiring that AWP no longer be published in the future. First DataBank also agreed to contribute approximately $2 million to a settlement fund and for legal fees. On July 15, 2008, Medi-Span and the plaintiffs in that litigation also proposed an amended settlement agreement under which Medi-Span agreed to reduce the mark-up over WAC (from 20% to 25%) for only the smaller number of NDCs, the requirement that AWP not be published in the future was removed, and Medi-Span agreed to pay $500,000 for the benefit of the plaintiff class. First DataBank and Medi-Span, independent of these settlements, announced that they would, of their own volition, reduce to 20% the mark-up on all drugs with a mark-up higher than 20% and stop publishing AWP within two years after the changes in mark-up are implemented (in the case of First DataBank) or within two years after the settlement is finally approved (in the case of Medi-Span). On March 17, 2009 the Court approved the proposed settlements, with a modification by the Court requiring that the change in mark-ups take place 180 days after the order approving the settlements is entered. The Court entered an order approving the settlements
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on March 30, 2009. While several entities appealed the Courts order to the United States Court of Appeals for the First Circuit, on September 3, 2009 the Court of Appeals upheld the settlements. First DataBank and Medi-Span implemented the changes in AWP on September 26, 2009.
The Company has taken a number of steps to prevent or mitigate the adverse effect on the Companys reimbursement for drugs and biologicals which could otherwise result from these settlements. For most state Medicaid programs reimbursing under an AWP formula, the Company is currently being reimbursed under old rate formulas using the new AWPs published in accordance with the settlements, resulting in lower reimbursement under these programs. There can be no assurance that the First DataBank and Medi-Span settlements and associated unilateral actions by First DataBank and Medi-Span, or actions, if any, by the Companys payors relating to AWP, will not have a further adverse impact on the Companys results of operations, financial position or cash flows. (See Managements Discussion and Analysis of Results of Operation and Financial Condition Pharmacy Services.)
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ITEM 2 - UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
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(c) |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
A summary of the Companys repurchases of Omnicare, Inc. common stock during the quarter ended September 30, 2009 is as follows (in thousands, except per share data):
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Period |
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Total
Number |
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Average |
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Number
of |
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Maximum
Number (or |
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July 1 - 31, 2009 |
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10 |
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$ |
23.91 |
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- |
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$ |
- |
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August 1 - 31, 2009 |
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1 |
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23.35 |
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- |
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- |
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September 1 - 30, 2009 |
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1 |
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23.42 |
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- |
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- |
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Total |
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12 |
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$ |
23.83 |
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- |
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$ |
- |
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(a) |
During the third quarter of 2009, the Company purchased 12 shares of Omnicare common stock in connection with its employee benefit plans, including any purchases associated with the vesting of restricted stock awards. These purchases were not made pursuant to a publicly announced repurchase plan or program. |
90
See Index of Exhibits.
91
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Omnicare, Inc. |
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Registrant |
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Date: November 5, 2009 |
By: |
/s/ David W. Froesel, Jr. |
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David W. Froesel, Jr. |
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Senior Vice President and |
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Chief Financial Officer |
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(Principal Financial and |
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Accounting Officer) |
INDEX OF EXHIBITS
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Number and
Description of Exhibit |
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Document Incorporated by Reference from a Previous Filing, Filed Herewith or Furnished Herewith, as Indicated Below |
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(3.1) |
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Restated Certificate of Incorporation of Omnicare, Inc. (as amended) |
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Form 10-K |
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(3.3) |
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Third Amended and Restated By-Laws of Omnicare, Inc. |
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Form 8-K |
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(10.1) |
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Letter, dated July 27, 2009, to Joel F. Gemunder Regarding Temporary Salary Reduction Program |
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Form 10-Q |
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(10.2) |
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Letter, dated July 27, 2009, to Patrick E. Keefe Regarding Temporary Salary Reduction Program |
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Form 10-Q |
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(10.3) |
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Letter, dated July 27, 2009, to David W. Froesel, Jr. Regarding Temporary Salary Reduction Program |
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Form 10-Q |
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(10.4) |
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Letter, dated July 27, 2009, to Cheryl D. Hodges Regarding Temporary Salary Reduction Program |
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Form 10-Q |
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(10.5) |
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Letter, dated July 27, 2009, to Jeffrey M. Stamps Regarding Temporary Salary Reduction Program |
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Form 10-Q |
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(12) |
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Statement of Computation of Ratio of Earnings to Fixed Charges |
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Filed Herewith |
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(31.1) |
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Rule 13a-14(a) Certification of Chief Executive Officer of Omnicare, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 |
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Filed Herewith |
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(31.2) |
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Rule 13a-14(a) Certification of Chief Financial Officer of Omnicare, Inc. in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 |
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Filed Herewith |
E-1
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Number and
Description of Exhibit |
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Document Incorporated by Reference from a Previous Filing, Filed Herewith or Furnished Herewith, as Indicated Below |
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||||
(32.1) |
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Section 1350 Certification of Chief Executive Officer of Omnicare, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002** |
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Furnished Herewith |
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(32.2) |
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Section 1350 Certification of Chief Financial Officer of Omnicare, Inc. in accordance with Section 906 of the Sarbanes-Oxley Act of 2002** |
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Furnished Herewith |
** A signed original of this written statement required by Section 906 has been provided to Omnicare, Inc. and will be retained by Omnicare, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
E-2