10-Q 1 a10qq32013.htm 10-Q 10Q Q3 2013


 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-8269

OMNICARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
31-1001351
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)

OMNICARE, INC.
900 OMNICARE CENTER
201 E. FOURTH STREET
CINCINNATI, OH  45202
(Address of Principal Executive Offices)
513-719-2600
(Registrant’s Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer   ý      Accelerated filer  ¨       Non-Accelerated filer  ¨       Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes  No ý
Common Stock Outstanding
 
Number of Shares
Date
Common Stock, $1 par value
102,980,361
September 30, 2013


 
 
 
 
 
 




OMNICARE, INC. AND

SUBSIDIARY COMPANIES

FORM 10-Q QUARTERLY REPORT SEPTEMBER 30, 2013

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
 
 
PAGE
ITEM 1.
FINANCIAL STATEMENTS (UNAUDITED)
 
 
 
 
Three and nine months ended September 30, 2013 and 2012
 
 
 
 
 
 
September 30, 2013 and December 31, 2012
 
 
 
 
 
 
Nine months ended September 30, 2013 and 2012
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II - OTHER INFORMATION
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
ITEM 5.
 
 
 
ITEM 6.









ITEM 1. - FINANCIAL STATEMENTS

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

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2013
 
2012
 
2013
 
2012
Net sales
 
$
1,581,001

 
$
1,501,348

 
$
4,675,901

 
$
4,630,443

Cost of sales
 
1,211,183

 
1,130,053

 
3,556,809

 
3,523,702

Gross profit
 
369,818

 
371,295

 
1,119,092

 
1,106,741

Selling, general and administrative expenses
 
195,382

 
203,550

 
600,896

 
605,552

Provision for doubtful accounts
 
25,177

 
24,047

 
74,749

 
72,556

Settlement, litigation and other related charges
 
143,484

 
4,931

 
169,615

 
38,227

Other charges
 
61,632

 
5,036

 
96,906

 
65,757

Operating income (loss)
 
(55,857
)
 
133,731

 
176,926

 
324,649

Interest expense, net of investment income
 
(34,922
)
 
(39,036
)
 
(94,005
)
 
(105,444
)
Income (loss) before income taxes
 
(90,779
)
 
94,695

 
82,921

 
219,205

Income tax (benefit) expense
 
(24,470
)
 
33,270

 
42,657

 
83,349

Net income (loss)
 
$
(66,309
)
 
$
61,425

 
$
40,264

 
$
135,856

 
 
 
 
 
 
 
 
 
Earnings (loss) per common share:
 
 
 
 

 
 
 
 

Basic
 
$
(0.65
)
 
$
0.56

 
$
0.39

 
$
1.23

Diluted
 
$
(0.65
)
 
$
0.55

 
$
0.37

 
$
1.19

 
 
 
 
 
 
 
 
 
Dividends per common share
 
$
0.14

 
$
0.14

 
$
0.42

 
$
0.28

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 

 
 

 
 

 
 

Basic
 
101,811

 
109,315

 
102,624

 
110,457

Diluted
 
101,811

 
111,951

 
109,612

 
113,968

 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
$
(66,305
)
 
$
63,354

 
$
40,170

 
$
136,518


The accompanying notes are an integral part of these financial statements.


3




CONSOLIDATED BALANCE SHEETS
OMNICARE,  INC.  AND  SUBSIDIARY  COMPANIES
UNAUDITED
(in thousands, except share data)
 
September 30,
2013
 
December 31,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
505,687

 
$
454,213

Restricted cash
5

 
1,066

Accounts receivable, less allowances of $209,140 (2012-$269,416)
741,053

 
857,052

Inventories
421,799

 
385,698

Deferred income tax benefits
98,089

 
136,186

Other current assets
312,226

 
254,644

Total current assets
2,078,859

 
2,088,859

Properties and equipment, at cost less accumulated depreciation
     of $342,659 (2012-$308,525)
310,225

 
282,660

Goodwill
4,253,461

 
4,256,959

Identifiable intangible assets, less accumulated amortization of
     $256,732 (2012-$236,116)
166,105

 
196,873

Other noncurrent assets
106,876

 
163,913

Total noncurrent assets
4,836,667

 
4,900,405

Total assets
$
6,915,526

 
$
6,989,264

LIABILITIES AND STOCKHOLDERS' EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
210,459

 
$
200,125

Accrued employee compensation
55,811

 
73,791

Current debt
548,519

 
27,713

Other current liabilities
309,211

 
180,385

Total current liabilities
1,124,000

 
482,014

Long-term debt, notes and convertible debentures
1,426,472

 
2,030,030

Deferred income tax liabilities
983,000

 
914,660

Other noncurrent liabilities
55,833

 
56,848

Total noncurrent liabilities
2,465,305

 
3,001,538

Total liabilities
3,589,305

 
3,483,552

Commitments and contingencies (Note 7)
 

 
 

Stockholders' equity:
 

 
 

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

 

Common stock, $1 par value, 200,000,000 shares authorized, 134,551,698
    shares issued (2012-133,503,156 shares issued)
134,552

 
133,503

Paid-in capital
2,392,566

 
2,419,970

Retained earnings
1,798,257

 
1,801,075

Treasury stock, at cost - 31,571,337 shares (2012-28,851,671 shares)
(996,240
)
 
(846,016
)
Accumulated other comprehensive income (loss)
(2,914
)
 
(2,820
)
Total stockholders' equity
3,326,221

 
3,505,712

Total liabilities and stockholders' equity
$
6,915,526

 
$
6,989,264


The accompanying notes are an integral part of these financial statements.

4



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED
(in thousands)
 
Nine months ended
September 30,
 
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
40,264

 
$
135,856

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation
43,748

 
38,256

Amortization
61,073

 
63,377

Debt redemption loss
55,652

 
47,558

Loss from disposition
36,062

 

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

 
 

Accounts receivable, net of provision for doubtful accounts
70,628

 
31,433

Inventories
(36,988
)
 
82,786

Current and noncurrent assets
(9,431
)
 
65,341

Accounts payable
21,823

 
(95,172
)
Accrued employee compensation
(17,941
)
 
1,883

Current and noncurrent liabilities
189,775

 
45,585

Net cash flows from operating activities
454,665

 
416,903

Cash flows from investing activities:
 
 
 

Acquisition of businesses, net of cash received
(3,798
)
 
(34,411
)
Disposition of business, net
11,083

 
19,207

Marketable securities
(620
)
 
(25,000
)
Capital expenditures
(74,127
)
 
(71,433
)
Other
1,061

 
1,348

Net cash flows used in investing activities
(66,401
)
 
(110,289
)
Cash flows from financing activities:
 

 
 

Payments on term loans
(15,938
)
 
(19,375
)
Proceeds from long-term borrowings and obligations

 
425,000

Payments on long-term borrowings and obligations
(190,403
)
 
(452,302
)
Fees paid for financing activities
(4,851
)
 
(7,164
)
Capped call transaction

 
(48,126
)
Decrease in cash overdraft balance
(11,490
)
 
(1,540
)
Payments for Omnicare common stock repurchases
(91,259
)
 
(110,919
)
Proceeds for stock awards and exercise of stock options, net of stock tendered in payment
17,934

 
5,710

Dividends paid
(43,011
)
 
(30,765
)
Other
2,228

 
13

Net cash flows used in financing activities
(336,790
)
 
(239,468
)
Net increase in cash and cash equivalents
51,474

 
67,146

Cash and cash equivalents at beginning of period
454,213

 
580,262

Cash and cash equivalents at end of period
$
505,687

 
$
647,408


The accompanying notes are an integral part of these financial statements.


5




Notes to Consolidated Financial Statements

Note 1 - Basis of Presentation

Omnicare, Inc. and its consolidated subsidiaries (“Omnicare” or the “Company”) have prepared the accompanying unaudited Consolidated Financial Statements in accordance with the accounting policies described in its consolidated financial statements and the notes thereto included in the Company's 2012 Annual Report on Form 10-K (“2012 Annual Report”), and the interim reporting requirements of Form 10-Q.  Accordingly, certain information and disclosures normally included in the annual financial statements have been condensed or omitted.  The Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes included in the 2012 Annual Report and any related updates included in the Company’s periodic Securities and Exchange Commission (“SEC”) filings.  In the second quarter of 2013, the Company concluded that the operations of its hospice pharmacy business were better aligned with the operation of its Long-Term Care Group ("LTC"), and began to review and manage the operations of this business as part of LTC. Accordingly, to align the reporting segments with the current way management reviews information to make operating decisions, assess performance and allocate resources, the results of the Company's hospice business are now reported in LTC. Additional information on the Company's reportable segments is presented at the "Segment Information" note of the Notes to Consolidated Financial Statements. Certain reclassifications of prior year amounts, primarily related to the reclassification of segment information, have been made to conform to the current year presentation.  

Note 2 - Significant Accounting Policies

Interim Financial Data

The interim financial data is unaudited; however, in the opinion of Omnicare management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Omnicare consolidated results of operations, financial position and cash flows for the interim periods presented have been made.  All significant intercompany accounts and transactions have been eliminated.

Stock-Based Compensation

Stock-based compensation expense recognized in the Consolidated Statement of Comprehensive Income (Loss) for stock options, restricted stock units, performance share units and stock awards totaled approximately $5.0 million and $14.2 million for the three and nine months ended September 30, 2013, respectively, and $4.1 million and $13.0 million for the three and nine months ended September 30, 2012, respectively.

Accounts Receivable

The following table is an aging of the Company’s gross accounts receivable (net of allowances for contractual adjustments), aged based on payment terms and categorized based on the three primary types of accounts receivable characteristics (in thousands):
September 30, 2013
 
Current and 0-180 Days Past Due
 
181 Days and Over Past Due
 
Total
Medicare (Part D and Part B), Medicaid and Third-Party payors
 
$
210,957

 
$
67,697

 
$
278,654

Facility payors
 
351,162

 
163,069

 
514,231

Private Pay payors
 
72,631

 
84,677

 
157,308

Total gross accounts receivable
 
$
634,750

 
$
315,443

 
$
950,193

December 31, 2012
 
 
 
 
 
 
Medicare (Part D and Part B), Medicaid and Third-Party payors
 
$
238,348

 
$
163,773

 
$
402,121

Facility payors
 
383,848

 
168,945

 
552,793

Private Pay payors
 
70,835

 
100,719

 
171,554

Total gross accounts receivable
 
$
693,031

 
$
433,437

 
$
1,126,468



6



Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) ("AOCI") by component and in the aggregate, follows (in thousands):
 
 
September 30,
2013
 
December 31, 2012
Unrealized loss on fair value of investments
 
$
(695
)
 
$
(428
)
Pension and postemployment benefits
 
(2,219
)
 
(2,392
)
Total accumulated other comprehensive income (loss), net
 
$
(2,914
)
 
$
(2,820
)

The amounts are net of applicable tax benefits which were not material at September 30, 2013 and December 31, 2012. The reclassifications out of AOCI did not materially affect any individual line item on the Consolidated Statement of Comprehensive Income (Loss).

Fair Value

The Company’s financial assets and liabilities, measured at fair value on a recurring basis, were as follows (in thousands):
 
 
 
 
Based on
 
 
Fair Value
 
Quoted Prices in Active Markets
 (Level 1)
 
Other Observable Inputs
(Level 2)
 
Unobservable Inputs
(Level 3)
September 30, 2013
 
 
 
 
 
 
 
 
Bond portfolio
 
$
25,111

 
$

 
$
25,111

 
$

7.75% interest rate swap agreements - fair value hedge
 
23,570

 

 
23,570

 

Derivatives
 

 

 

 

Total
 
$
48,681

 
$

 
$
48,681

 
$

December 31, 2012
 
 
 
 
 
 
 
 
Bond portfolio
 
$
24,887

 
$

 
$
24,887

 
$

7.75% interest rate swap agreements - fair value hedge
 
46,090

 

 
46,090

 

Derivatives
 

 

 

 

Total
 
$
70,977

 
$

 
$
70,977

 
$

 
The fair value of the Company’s fixed-rate debt facilities are shown at the Debt note of the Notes to Consolidated Financial Statements.

Offsetting Assets and Liabilities

Effective January 1, 2013 the Company adopted Accounting Standards Update (“ASU”) 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities which clarifies ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. The amended standard requires an entity to disclose information about offsetting and related arrangements to enable users of the financial statements to understand the effect of those arrangements on its financial position.

The Company has interest rate swap agreements with multiple counterparties on its 7.75% Senior Subordinated Notes due 2020 (the "2020 Notes"), which are subject to this guidance. The following table presents these swap agreements offsetting securities as of September 30, 2013 and December 31, 2012:


7



 
 
 
 
Gross Amounts not offset in the statement of financial position
 
Interest Rate Swaps as of:
Gross amount of recognized assets (liabilities)
Gross amount offset in the statement of financial position
Net amount of assets (liabilities) presented in the statement of financial position
Financial instruments
Cash collateral received
Net amount
September 30, 2013
 
 
 
 
 
 
Swap A
$
11,969

$

$
11,969

$

$

$
11,969

Swap B
11,601


11,601



11,601

 
$
23,570

$

$
23,570

$

$

$
23,570

 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
Swap A
$
20,560

$

$
20,560

$

$

$
20,560

Swap B
20,011


20,011



20,011

Swap C
2,896


2,896



2,896

Swap D
2,623


2,623



2,623

 
$
46,090

$

$
46,090

$

$

$
46,090


In the third quarter of 2013, in connection with the repurchase of $150 million in aggregate principal amount of its outstanding 2020 Notes, the Company terminated the applicable swap agreements (Swap C and Swap D). See further discussion of Omnicare's debt repurchases at the "Debt" note of the Notes to Consolidated Financial Statements.

Income Taxes

The quarterly effective tax rates are different than the federal statutory rate largely as a result of the impact of state and local income taxes and certain non-deductible charges, including a litigation settlement charge recognized in 2013.   The year over year change in the effective tax rate is primarily due to certain non-deductible charges related to the disposition of businesses and the 2013 settlement charge. 

Other Charges

Other charges (on a pre-tax basis) consist of the following (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2013
 
2012
 
2013
 
2012
Debt related costs
$
50,868

 
$

 
$
50,868

 
$
35,092

Disposition of businesses
10,116

 
(7,680
)
 
38,902

 
(1,777
)
Separation costs
648

 
5,500

 
4,836

 
21,000

Acquisition and other related costs

 
(3,830
)
 
2,300

 
396

Restructuring charges

 
11,046

 

 
11,046

Total - other charges
$
61,632

 
$
5,036

 
$
96,906

 
$
65,757


The Company completed one acquisition in the three and nine months ended September 30, 2012 which was not considered significant to the operations of the Company. The Company recorded professional fees and acquisition related restructuring costs which were offset by a reduction of the Company's original estimate of contingent consideration payable for a prior acquisition during the three and nine months ended September 30, 2012.


8



Disposition of Businesses

In 2013, the Company completed the disposition of certain assets, primarily in its medical supply services business and in 2012, completed the dispositions of its Canadian pharmacy and the Company's pharmacy operational software businesses, which were not considered, individually or in the aggregate, significant to the operations of Omnicare. The Company recorded a charge on the disposition of these businesses of $10.1 million and $38.9 million ($9.4 million and $27.1 million after-tax), respectively, in the three and nine months ended September 30, 2013 and gains on disposition of businesses of $7.7 million and $1.8 million in the three and nine months ended September 30, 2012. These charges are reflected in the "Other charges" caption of the Consolidated Statement of Comprehensive Income (Loss).

Separation Costs

In the three and nine months ended September 30, 2013, the Company recorded separation related costs for certain employees of approximately $0.6 million and $4.8 million, respectively. In the three and nine months ended September 30, 2012, the Company recorded charges of approximately $5.5 million and $21 million, respectively, related to separation related costs with the former CEO and other former executives. These charges are reflected in the "Other charges" caption of the Consolidated Statement of Comprehensive Income (Loss).

Common Stock Repurchase Program

As part of the Company's share repurchase program, on May 23, 2013, the Company entered into an accelerated share repurchase agreement (“JP ASR”) with J.P. Morgan Securities LLC as agent for JPMorgan Chase Bank, National Association, London Branch ("JPMorgan"). Pursuant to the JP ASR, the Company made a $100 million payment to JPMorgan on May 24, 2013 and received an initial number of approximately 1.3 million shares of its outstanding common stock from JPMorgan on the same day. The initial shares were valued at $60 million and recorded in treasury stock. The remaining $40 million balance was recorded as an equity forward contract and was included in paid in capital at the time of the JP ASR. The equity forward contract was settled with approximately 0.4 million additional shares of the Company's common stock and $19.0 million in cash delivered by JPMorgan to the Company during the three months ended September 30, 2013.

In 2012, the Company entered into an accelerated share repurchase agreement (“GS ASR”) with Goldman, Sachs & Co. ("Goldman"). Pursuant to the GS ASR, the Company made a $250 million payment to Goldman on November 30, 2012 and received an initial number of approximately 5.8 million shares of its outstanding common stock from Goldman on the same day. The initial shares were valued at $200 million and recorded in treasury stock. The remaining $50 million balance was recorded as an equity forward contract, which was included in paid in capital at December 31, 2012. The equity forward contract was settled with approximately 0.6 million additional shares of the Company's common stock being delivered by Goldman to the Company during the three months ended June 30, 2013.

In the nine months ended September 30, 2013, the Company repurchased approximately 2.5 million shares through authorized share repurchase programs (including shares purchased pursuant to the JP ASR and the GS ASR) at an aggregate cost of approximately $91.3 million, for a cumulative purchased amount of its common stock of approximately 21.7 million shares repurchased at an aggregate cost of approximately $721 million from the inception of the share repurchase programs in May 2010 through September 30, 2013. The Company had approximately $129 million of combined share repurchase authority remaining as of September 30, 2013, which expires on December 31, 2014.

Recently Issued Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this update require an entity to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the income statement or in the notes, significant amounts reclassified from accumulated other comprehensive income by the net income line item. The adoption of this amended guidance on January 1, 2013 did not have a material impact on the Company's consolidated results of operations, financial position and cash flows.


9



Note 3 - Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the nine months ended September 30, 2013 are as follows (in thousands):
 
 
 
 
 
 
 
 
 
Long-Term Care Group
 
Specialty Care Group
 
Total
Goodwill balance as of December 31, 2012
 
$
3,722,801

 
$
534,158

 
$
4,256,959

Other
 
(3,498
)
 

 
(3,498
)
Goodwill balance as of September 30, 2013
 
$
3,719,303

 
$
534,158

 
$
4,253,461


The Company’s intangible amortization expense for the three and nine months ended September 30, 2013 was approximately $9 million and $28 million, respectively, and was approximately $11 million and $33 million for the three and nine months ended September 30, 2012, respectively.

"Other" includes a reduction in goodwill related to the the disposition of the Company's medical supply services business.

Note 4 - Debt

A summary of debt follows (in thousands):
 
 
September 30,
2013
 
December 31,
2012
Revolving credit facility
 
$

 
$

Senior term loan, due 2017
 
403,750

 
419,688

7.75% senior subordinated notes, due 2020
 
400,000

 
550,000

3.75% convertible senior subordinated notes, due 2025
 
132,417

 
318,054

4.00% junior subordinated convertible debentures, due 2033
 
345,000

 
345,000

3.25% convertible senior debentures, due 2035
 
427,500

 
427,500

3.75% convertible senior subordinated notes, due 2042
 
390,000

 
390,000

3.50% convertible senior subordinated notes, due 2044
 
424,250

 

Capitalized lease and other debt obligations
 
22,594

 
23,685

Subtotal
 
2,545,511

 
2,473,927

Add interest rate swap agreements
 
23,570

 
46,090

(Subtract) unamortized debt discount
 
(594,090
)
 
(462,274
)
(Subtract) current portion of debt
 
(548,519
)
 
(27,713
)
Total long-term debt, net
 
$
1,426,472

 
$
2,030,030


Third Quarter 2013 Refinancing
On August 23, 2013, Omnicare entered into separate, privately negotiated exchange agreements under which the Company retired approximately $180.46 million in aggregate principal amount of outstanding 3.75% Convertible Senior Subordinated Notes due 2025 (the "2025 Notes") in exchange for the issuance of $424.25 million in aggregate principal amount of new 3.50% Convertible Senior Subordinated Notes due 2044 (the "2044 Notes"). The 2044 Notes are guaranteed by substantially all of the Company's subsidiaries, subject to certain exceptions.

The 2044 Notes mature in February 2044 and will pay regular cash interest semiannually in arrears at a rate of 3.50% per year. Commencing with the interest period beginning February 15, 2021 in the case of the downside trigger and the interest period beginning on February 15, 2024 in the case of the upside trigger, the 2044 Notes will also pay contingent interest under certain circumstances based on their then current trading price. The 2044 Notes are convertible, upon certain circumstances, into cash and, if applicable, shares of Omnicare common stock. The 2044 Notes have an initial conversion rate of 14.2857 shares of common stock per $1,000 original principal amount of notes (subject to adjustment in certain events). This is equivalent to an initial conversion price of approximately $70 per share.


10



Under certain circumstances based on the trading price of the Company's common stock, the Company has the right to redeem the 2044 Notes on or before February 15, 2019 by paying the principal amount of the 2044 Notes plus accrued but unpaid interest. After February 15, 2019 the Company may, at its option, redeem the 2044 Notes by paying the accreted issue price to date plus accrued but unpaid interest. In addition, holders may require the Company to repurchase all or a portion of their 2044 Notes upon a fundamental change (as defined in the indenture governing the 2044 Notes) at a cash repurchase price equal to the accreted issue price to date plus accrued but unpaid interest.

Additionally, the Company entered into separate, privately negotiated purchase agreements to repurchase approximately $5.15 million in aggregate principal amount of its outstanding 2025 Notes and $150 million in aggregate principal amount of its 2020 Notes. In connection with the repurchase of the 2020 Notes, the Company terminated the applicable swap agreements.

The Company recognized a net loss on the third quarter exchange transaction and repurchase transactions of approximately $50.9 million in the three and nine months ended September 30, 2013 which was reflected in "Other Charges" on the Consolidated Statement of Comprehensive Income (Loss). Operating income for the nine months ended September 30, 2012 includes a non-cash loss on the 2012 debt exchange of approximately $35.1 million which is reflected in "Other Charges" on the Consolidated Statement of Comprehensive Income (Loss).

3.75% Convertible Senior Subordinated Notes, due 2025
After the transactions noted above, Omnicare has outstanding approximately $132 million aggregate principal amount of 2025 Notes. The holders may convert their 2025 Notes, prior to December 15, 2023, on any date during any calendar quarter beginning after March 31, 2011 (and only during such calendar quarter) if the closing sale price of the Company's common stock was more than 130% of the then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on, and including, the last trading day of the previous quarter, or at any time on or after December 15, 2023 or under certain other specified circumstances. Upon conversion, the Company will pay cash and shares of its common stock, if any, based on a daily conversion value calculated on a proportionate basis for each day of the 25 trading-day cash settlement averaging period. The conversion price is $27.11 and the conversion threshold is $35.24 as of September 30, 2013. As of September 30, 2013, the aforementioned conversion threshold of the 2025 Notes had been attained. As a result, the 2025 Notes were convertible by the holders to cash and to common stock and have been classified as current debt, net of discount, on the Consolidated Balance Sheet as of September 30, 2013

4.00% Junior Subordinated Convertible Debentures, due 2033
Omnicare has outstanding $345 million aggregate principal amount of 4.00% junior subordinated convertible debentures, due 2033 (the “4.00% Convertible Debentures”). The 4.00% Convertible Debentures underlie the securities in the 4.00% Trust Preferred Income Equity Redeemable Securities ("Trust PIERS") of Omnicare Capital Trust I and Omnicare Capital Trust II (the "Series A Trust PIERS" and "Series B Trust PIERS", respectively). Each Trust PIERS represents an undivided beneficial interest in the assets of the applicable Trust, which assets consist solely of a corresponding amount of 4.00% Convertible Debentures. The Series B Trust PIERS have identical terms to the Series A Trust PIERS, except that the Series B Trust PIERS have a net share settlement feature. Holders may convert their Trust PIERS if the closing sales price of Company common stock for a predetermined period is more than 130% of the then-applicable conversion price. The conversion price is $40.82 and the conversion threshold is $53.07 as of September 30, 2013. As of September 30, 2013, the aforementioned conversion threshold had been attained. As a result, the Trust PIERS (and the underlying 4.00% Convertible Debentures) were convertible by the holders and have been classified as current debt, net of discount, on the Consolidated Balance Sheet as of September 30, 2013

In addition to the continued accrual of regular cash interest, contingent interest accrued on the Trust PIERS (and the underlying 4.00% Convertible Debentures) for the period from June 15, 2013 to September 14, 2013 and will accrue for the period from September 15, 2013 to December 14, 2013 at a rate of 0.125% of the average trading price of the Trust PIERS for the five trading days ended June 13, 2013 and September 12, 2013, respectively. Contingent cash interest of approximately $0.07 per $50 stated liquidation amount of Trust PIERS (and per $50 principal amount of the underlying 4.00% Convertible Debentures) was paid on September 16, 2013 and contingent cash interest of approximately $0.085 per $50 stated liquidation amount of Trust PIERS (and per $50 principal amount of the underlying 4.00% Convertible Debentures) is expected to be paid on December 16, 2013.

3.75% Convertible Senior Subordinated Notes, due 2042
Omnicare has outstanding $390 million aggregate principal amount of 3.75% Convertible Senior Subordinated Notes due 2042 (the "2042 Notes").  The holders may convert their 2042 Notes, prior to April 1, 2040, on any date during any calendar quarter beginning after June 30, 2012 (and only during such calendar quarter) if the closing sale price of the Company's common stock was more than 130% of the then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on, and including, the last trading day of the previous quarter, or at any time on or after April 1, 2040 or under certain

11



other specified circumstances. Upon conversion, the Company will pay cash and shares of its common stock, if any, based on a daily conversion value calculated on a proportionate basis for each day of the 25 trading-day cash settlement averaging period. The conversion price is $41.50 and the conversion threshold is $53.95 as of September 30, 2013. As of September 30, 2013, the aforementioned conversion threshold of the 2042 Notes had been attained. As a result, the 2042 Notes were convertible by the holders to cash and to common stock and have been classified as current debt, net of discount, on the Consolidated Balance Sheet as of September 30, 2013

At September 30, 2013, there was no outstanding balance under the Company’s revolving credit facility and $404 million outstanding under the term loan.  The interest rate on the term loan was 1.93% at September 30, 2013. As of September 30, 2013, the Company had approximately $8 million outstanding relating to standby letters of credit, substantially all of which were subject to automatic annual renewals.

The weighted average floating interest rate on the interest rate swap agreements associated with the Company's fixed rate debt was 4.24% versus the 7.75% stated rate on the corresponding senior subordinated notes due 2020 with remaining principal balance of $400 million at September 30, 2013.

The Company amortized to expense approximately $0.9 million and $1.3 million of deferred debt issuance costs during the three months ended September 30, 2013 and 2012, respectively, and $2.8 million and $4.3 million in the nine months ended September 30, 2013 and 2012, respectively. Interest expense for the three and nine months ended September 30, 2013 includes the write-off of approximately $4.8 million in deferred debt issuance costs related to the third quarter exchange transaction and repurchase transactions. Interest expense for the three and nine months ended September 30, 2012 includes the write-off of approximately $8.3 million and $12.4 million, respectively, of deferred debt issuance costs associated with the Company's 2012 refinancing activities.

Information relating to the Company's convertible securities at September 30, 2013 is in the following table:
Convertible Debt
 
Carrying Value of Equity Component (in thousands)
 
Remaining Amortization Period
 
Effective Interest Rate
3.75% convertible senior subordinated notes, due 2025
 
$
11,437

 
12.25
 
8.25
%
4.00% junior subordinated convertible debentures, due 2033
 
$
151,665

 
19.75
 
8.01
%
3.25% convertible senior debentures, due 2035
 
$
245,433

 
2.25
 
7.63
%
3.75% convertible senior subordinated notes, due 2042
 
$
167,941

 
28.50
 
7.11
%
3.50% convertible senior subordinated notes, due 2044
 
$
208,200

 
30.40
 
7.70
%


12



The fair value of the Company’s fixed-rate debt facilities, excluding the previously disclosed swap values, is based on quoted market prices (Level II) and is summarized as follows (in thousands):
Fair Value of Financial Instruments
 
 
September 30, 2013
 
December 31, 2012
Financial Instrument
 
Book Value
 
Market Value
 
Book Value
 
Market Value
7.75% senior subordinated notes, due 2020
 
$
400,000

 
$
441,300

 
$
550,000

 
$
614,600

3.75% convertible senior subordinated notes, due 2025
 
 

 
 

 
 

 
 

Carrying value
 
86,769

 

 
204,608

 

Unamortized debt discount
 
45,648

 

 
113,446

 

Principal amount
 
132,417

 
279,600

 
318,054

 
459,600

4.00% junior subordinated convertible debentures, due 2033
 
 

 
 

 
 

 
 

Carrying value
 
208,349

 

 
206,266

 

Unamortized debt discount
 
136,651

 

 
138,734

 

Principal amount
 
345,000

 
470,800

 
345,000

 
331,600

3.25% convertible senior debentures, due 2035
 
 

 
 

 
 

 
 

Carrying value
 
389,180

 

 
377,782

 

Unamortized debt discount
 
38,320

 

 
49,718

 

Principal amount
 
427,500

 
453,200

 
427,500

 
425,400

3.75% convertible senior subordinated notes, due 2042
 
 

 
 

 
 

 
 

Carrying value
 
224,572

 

 
229,624

 

Unamortized debt discount
 
165,428

 

 
160,376

 

Principal amount
 
390,000

 
549,700

 
390,000

 
397,100

3.50% convertible senior subordinated notes, due 2044
 
 
 
 
 
 
 
 
Carrying value
 
216,207

 

 

 

Unamortized debt discount
 
208,043

 

 

 

Principal amount
 
424,250

 
403,000

 

 


Note 5 - Earnings (Loss) Per Share Data

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,
 
Nine months ended September 30,
2013:
 
Income (loss) (Numerator)
 
Common Shares(Denominator)
 
Per Common
Share Amounts
 
Income (Numerator)
 
Common Shares(Denominator)
 
Per Common
Share Amounts
Basic EPS
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
(66,309
)
 
101,811

 
$
(0.65
)
 
$
40,264

 
102,624

 
$
0.39

Effect of Dilutive Securities
 
 

 
 

 
 

 
 

 
 

 
 

Convertible securities
 

 

 
 

 
212

 
6,360

 
 

Stock options, units and awards
 

 

 
 

 

 
628

 
 

Diluted EPS
 
 

 
 

 
 

 
 

 
 

 
 

Net income (loss) plus assumed conversions
 
$
(66,309
)
 
101,811

 
$
(0.65
)
 
$
40,476

 
109,612

 
$
0.37

2012:
 
 

 
 

 
 

 
 

 
 

 
 

Basic EPS
 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
$
61,425

 
109,315

 
$
0.56

 
$
135,856

 
110,457

 
$
1.23

Effect of Dilutive Securities
 
 

 
 

 
 

 
 

 
 

 
 

Convertible securities
 
71

 
2,107

 
 

 
213

 
2,912

 
 

Stock options, warrants, units and awards
 

 
529

 
 

 

 
599

 
 

Diluted EPS
 
 

 
 

 
 

 
 

 
 

 
 

Net income plus assumed conversions
 
$
61,496

 
111,951

 
$
0.55

 
$
136,069

 
113,968

 
$
1.19


13




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.

The Company is required to include additional shares in its diluted shares outstanding calculation based on the treasury stock method when the average Omnicare stock market price for the applicable period exceeds the following amounts:

Convertible Debt
 
Price
3.75% convertible senior subordinated notes, due 2025
 
$
27.11

4.00% junior subordinated convertible debentures, due 2033
 
$
40.82

3.25% convertible senior debentures, due 2035
 
$
78.74

3.75% convertible senior subordinated notes, due 2042
 
$
41.50

3.50% convertible senior subordinated notes, due 2044
 
$
70.00


Weighted average shares outstanding, assuming dilution, excludes the impact of 0.3 million and 0.9 million stock options and awards for the three and nine months ended September 30, 2013, respectively, and 2.1 million for the three and nine months ended September 30, 2012, due to the exercise prices of these stock options and awards being greater than the average fair market value of our common stock during the period. The three months ended September 30, 2013 loss per share has been computed using basic weighted average shares outstanding, as the impact of the Company’s other potentially dilutive instruments, representing an additional 9.6 million of potentially dilutive shares, were anti-dilutive during these periods, due to the net loss incurred. Also, the Company has capped call provisions in place on our 3.75% convertible notes due 2042, which provide a hedge against economic dilution, but not against diluted share count under generally accepted accounting principles, up to an average stock price of approximately $65.00 through March 2016.

Note 6 - Restructuring and Other Related Charges

Company-wide Reorganization Program

The Company continues to make payments in connection with its Company-wide Reorganization Program (the “CWR Program”), primarily related to certain severance amounts and its relocation of the corporate office. As of September 30, 2013, the Company has made cumulative payments of approximately $3.2 million of severance and other employee-related costs for the CWR Program.  The Company had liabilities related to the CWR Program of approximately $8.5 million at December 31, 2012, with utilization of approximately $2.3 million in the nine months ended September 30, 2013. The remaining liabilities pursuant to the CWR Program of $6.2 million at September 30, 2013, represent amounts not yet paid relating to actions taken in connection with the CWR Program (primarily lease termination costs) and will be settled as these matters are finalized.

Note 7 - Commitments and Contingencies

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

On July 29, 2013, a complaint entitled James D. “Buddy” Caldwell, Attorney General, ex rel. State of Louisiana v. Abbott Laboratories, Inc., et al., No. 603091, was served on Omnicare. The initial complaint was first filed against Abbott on June 30, 2011. Omnicare and other defendants were added on July 9, 2013. The complaint was brought by the Louisiana Attorney General alleging certain activities in connection with agreements Omnicare had with Abbott, the manufacturer of the pharmaceutical Depakote, violated the Louisiana Medical Assistance Program Integrity Laws and Unfair Trade Practices Act. On August 27, 2013, the Company removed this action to the United States District Court for the Middle District of Louisiana. On September 26, 2013, the State moved to remand the case to state court. The Company has opposed that motion. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On May 23, 2013, a qui tam complaint entitled United States and the State of Illinois ex rel. Alan Litwiller v. Omnicare, Inc., No. 1:11-cv-08980, was unsealed by the U.S. District Court for the Northern District of Illinois, Eastern Division. The U.S. Department of Justice has notified the court that it has declined to intervene in this action. The complaint was brought by Alan Litwiller as a

14



private party qui tam relator on behalf of the federal government and the State of Illinois. The action alleges civil violations of the federal False Claims Act and analogous Illinois law based upon allegations that the Company agreed to forego collection of certain debts, provided certain credits or refunds to customers, provided charitable donations to charities associated with certain customers, and provided other services below cost for referrals of business in violation of the Anti-Kickback Statute. On September 16, 2013, the Company filed a motion to dismiss Relator’s claims. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On March 11, 2013, a qui tam complaint entitled United States et al. ex rel. Marc Silver, et al. v. Omnicare, Inc. et al. Civil No. 1:11-cv-01326, which had been filed under seal in the U.S. District Court for the District of New Jersey, was unsealed by the Court. The complaint was brought by Marc Silver as a private party qui tam relator on behalf of the federal government and several state governments. The action alleges civil violations of the federal False Claims Act and analogous state laws based upon allegations that the Company provided certain customer facilities with discounts and other forms of remuneration in return for referrals of business in violation of the Anti-Kickback Statute. The U.S. Department of Justice has notified the Court that it declined to intervene in this action. On August 30, 2013, the Company filed a motion to dismiss Relator’s claims. On October 22, 2013, as part of the agreement in principle to settle the claims alleged in the Gale complaint as described below, the Company agreed with the relator to settle certain federal claims alleged in the Silver complaint.  The remaining claims are still the subject of the Company’s motion to dismiss. The Company believes that the remaining allegations are without merit and intends to vigorously defend itself in this action.

On March 27, 2013, a qui tam complaint, entitled United States of America et. al. ex rel. Gil Pomeranz, Michael Gawronski and Larry Cobb v. Omnicare, Inc., et al., No. 2:11-cv-13831, was unsealed by the U.S. District Court for the Eastern District of Michigan, Southern Division. The case was filed on September 1, 2011 under seal in that Court. The U.S. Department of Justice notified the Court that it has declined to intervene in the action. The complaint was brought by Pomeranz, Gawronski, and Cobb as private party qui tam relators on behalf of the federal government and certain states. The action alleges civil violations of the False Claims Act based on allegations that the Company failed to comply with certain Michigan pharmacy regulations. On May 22, 2013 the Court granted Relators' motion to voluntarily dismiss the complaint.

On October 5, 2011, a qui tam complaint, entitled United States ex rel. Donald Gale v. Omnicare, Inc., No. 1:10-cv-0127, was served on the Company. The case had been filed on January 19, 2010 under seal with the U.S. District Court for the Northern District of Ohio, Eastern Division. The complaint was unsealed by the Court on June 9, 2011 after the U.S. Department of Justice notified the Court that it has declined to intervene in this action. The complaint was brought by Donald Gale as a private party qui tam relator on behalf of the federal government. The action alleges civil violations of the False Claims Act based on allegations that the Company provided certain customer facilities with discounts and other forms of remuneration in return for referrals of business in violation of the Anti-Kickback Statute, and offered pricing terms in violation of the "most favored customer" pricing laws of various state Medicaid plans. The Company filed a motion to dismiss on January 27, 2012. On September 26, 2012, the Court granted in part and denied in part the Company's motion to dismiss. On October 22, 2013 the Company reached an agreement in principle, without admitting liability, with the relator, pursuant to which the Company will pay $120 million, plus attorneys’ fees, to settle the relator’s claims, as well as certain claims raised in the Silver complaint described above.  This agreement in principle is subject to approval of the U.S. Department of Justice and execution of definitive settlement documentation.  The Company recorded a provision equal to the settlement amount and an estimate of legal fees in its financial results for the three and nine months ended September 30, 2013. While the Company believes that a final settlement will be reached, there can be no assurance that any final settlement agreement will be reached or as to the final terms of such settlement.  

On August 4, 2011, a qui tam complaint, entitled United States of America ex rel. Fox Rx, Inc. v. Omnicare, Inc. and Neighborcare, Inc., No. 1:11-cv-0962, that was filed under seal with the U.S. District Court for the Northern District of Georgia, was unsealed by the Court. The U.S. Department of Justice has declined to intervene in this action. The Company was served with the complaint on November 23, 2011. The complaint was brought by Fox Rx, Inc. as a qui tam relator on behalf of the federal government. The action alleges civil violations of the False Claims Act based on allegations that the Company billed Medicare Part D for medically unnecessary antipsychotic drugs, increased the dispensing fees by artificially shortening the supply of prescribed medication, submitted claims for antipsychotic drugs without complying with Fox Rx, Inc.'s prior approval requirements, and waived or failed to collect copayments from patients to induce the use of prescription drugs. The Company filed a motion to dismiss on December 21, 2011. On August 29, 2012, the Court granted the Company's motion to dismiss, though granting leave to replead certain counts. On September 18, 2012, the Relator filed its Third Amended Complaint reasserting its claims regarding copayments and antipsychotic drugs. On October 2 and 5, 2012, the Company filed motions to dismiss the Third Amended Complaint. On May 17, 2013, the Court granted in part and denied in part the Company's motions to dismiss. The Court dismissed all claims except those related to prescriptions filled for Fox patients between 2009 and 2010. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

15




On August 24, 2011, a class action complaint entitled Ansfield v. Omnicare, Inc., et al. was filed on behalf of a putative class of all purchasers of the Company's common stock from January 10, 2007 through August 5, 2010 against the Company and certain of its current and former officers in the U.S. District Court for the Eastern District of Kentucky, alleging violations of federal securities laws in connection with alleged false and misleading statements with respect to the Company's compliance with federal and state Medicare and Medicaid laws and regulations. On October 21, 2011, a class action complaint entitled Jacksonville Police & Fire Pension Fund v. Omnicare, Inc. et al. was filed on behalf of the same putative class of purchasers as is referenced in the Ansfield complaint, against the Company and certain of its current and former officers, in the U.S. District Court for the Eastern District of Kentucky. Plaintiffs allege substantially the same violations of federal securities law as are alleged in the Ansfield complaint. Both complaints seek unspecified money damages. The Court has appointed lead counsel and a consolidated amended complaint was filed on May 11, 2012. The Company filed a motion to dismiss on July 16, 2012. On March 27, 2013, the Court granted the Company's motion to dismiss and dismissed all claims with prejudice. On April 26, 2013 the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Sixth Circuit appealing the District Court's order dismissing the complaint with prejudice.

On October 29, 2010, a qui tam complaint entitled United States ex rel. Banigan and Templin, et al. v. Organon USA, Inc., Omnicare, Inc. and Pharmerica, Inc., Civil No. 07-12153-RWZ, that had been filed under seal with the U.S. District Court in Boston, Massachusetts, was ordered unsealed by the Court. The complaint was brought by James Banigan and Richard Templin, former employees of Organon, as private party qui tam relators on behalf of the federal government and several state and local governments. The action alleges civil violations of the False Claims Act based on allegations that Organon USA, Inc. and its affiliates paid the Company and several other long-term care pharmacies rebates, post-purchase discounts and other forms of remuneration in return for purchasing pharmaceuticals from Organon and taking steps to increase the purchase of Organon's drugs in violation of the Anti-Kickback Statute. The U.S. Department of Justice has notified the Court that it has declined to intervene in this action. The Court denied the Company's motion to dismiss on June 1, 2012. Discovery is ongoing in this matter. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

The U.S. Department of Justice, through the U.S. Attorney's Office for the District of South Carolina, is investigating whether the Company's activities in connection with agreements it had with the manufacturer of the pharmaceutical Aranesp violated the False Claims Act or the Anti-Kickback Statute. The Company is cooperating with this investigation and believes that it has complied with applicable laws and regulations with respect to this matter.

The U.S. Department of Justice, through the U.S. Attorney's Office for the Western District of Virginia, is investigating whether the Company's activities in connection with agreements it had with the manufacturer of the pharmaceutical Depakote violated the False Claims Act or the Anti-Kickback Statute. The Company is cooperating with this investigation and believes that it has complied with applicable laws and regulations with respect to this matter.

The U.S. Department of Justice is investigating whether certain of the Company's practices relating to customer collections violated the False Claims Act or the Anti-Kickback Statute. The Company is cooperating with this investigation and believes that it has complied with applicable laws and regulations with respect to this matter.

On March 22, 2013, a qui tam complaint entitled United States ex rel. Susan Ruscher, et al. v. Omnicare, Inc. et al., Civil No. 08-cv-3396, which had been filed under seal in the U.S. District Court for the Southern District of Texas, was unsealed by the court. The complaint was brought by Susan Ruscher as a private party qui tam relator on behalf of the federal government and several state governments. The action alleges civil violations of the federal False Claims Act and analogous state laws based upon allegations that the Company's practices relating to customer collections violated the Anti-Kickback Statute. The U.S. Department of Justice has notified the Court that it has declined to intervene in this action at this time. On September 6, 2013 Relator filed a Third Amended Complaint. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

On April 14, 2010, a purported shareholder derivative action, entitled Manville Personal Injury Settlement Trust v. Gemunder, et al., Case No. 10-CI-01212, was filed in Kentucky State Court, against certain current and former members of the Board and certain former officers of the Company, individually, purporting to assert claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, and waste of corporate assets arising out of alleged violations of federal and state laws prohibiting the payment of illegal kickbacks and the submission of false claims in connection with the Medicare and Medicaid healthcare programs. Plaintiff alleges that the Board and senior management caused the Company to violate these laws, which has resulted in over $100 million in fines and penalties paid by Omnicare and exposed the Company and certain individual defendants to potential civil and criminal liability. On April 27, 2011 the Court entered an order denying defendants' motion to dismiss the complaint for failure to make a

16



pre-suit demand and failure to state a claim. Defendants filed a notice of appeal from the decision in the Kentucky Court of Appeals, and plaintiff moved to dismiss that appeal on the grounds that the order denying defendants' motion to dismiss is not subject to an immediate appeal under Kentucky law. On October 6, 2011, the Kentucky Court of Appeals granted plaintiff's motion on the grounds that the appeal was premature. The individual defendants have denied all allegations of wrongdoing. On August 8, 2013, the parties entered into a definitive agreement to settle the claims asserted by plaintiff. The settlement, which is subject to court approval, would provide for, among other things: (i) the release by plaintiff and the Company of all claims that have been or could have been asserted against the individual defendants arising out of or relating to the subject matter of the action; (ii) an explicit disclaimer of wrongdoing or liability on the part of the individual defendants; and (iii) the adoption or continuation by the Company of certain corporate governance measures, as well as the creation of a settlement fund, funded by insurance proceeds in the amount of $16.7 million (less plaintiff's reasonable attorney fees), to be used by the Company over four years following the effective date of the settlement to implement, among other things, such corporate governance measures. On October 28, 2013 the Court will hold a hearing to determine whether to approve the settlement.  

On January 8, 2010, a qui tam complaint, entitled United States ex rel. Resnick and Nehls v. Omnicare, Inc., Morris Esformes, Phillip Esformes and Lancaster Ltd. d/b/a Lancaster Health Group, No. 1:07cv5777, that was filed under seal with the U.S. District Court in Chicago, Illinois was unsealed by the Court. The U.S. Department of Justice and the State of Illinois have notified the Court that they have declined to intervene in this action. The complaint was brought by Adam Resnick and Maureen Nehls as private party qui tam relators on behalf of the federal government and two state governments. The action alleges civil violations of the False Claims Act and certain state statutes based on allegations that Omnicare acquired certain institutional pharmacies at above-market rates in violation of the Anti-Kickback Statute and applicable state statutes. On December 1, 2010, Resnick filed a motion to withdraw as a relator, which the Court granted on December 14, 2010. The Company recorded a provision for this matter in the quarter ended June 30, 2012. On June 24, 2013 the Company entered into an agreement with the Relator to voluntarily dismiss the action and made settlement payments in an aggregate amount of approximately $20 million. The U.S. Department of Justice and named states consented to the dismissal. On July 11, 2013 the Court granted Relator's stipulated motion to voluntarily dismiss the claims against the Company.
 
On November 19, 2010, the Company was served with a second amended qui tam complaint entitled United States ex rel. Rostholder v. Omnicare, Inc. and Omnicare Distribution Center, LLC f/k/a Heartland Repack Services LLC, No. CCB-07-1283, that was filed under seal with the U.S. District Court in Baltimore, Maryland in May 2007. The U.S. Department of Justice notified the court on April 22, 2009 that it declined to intervene in this action. The complaint was brought by Barry Rostholder as a private party qui tam relator on behalf of the federal government and several state and local governments. The action, in general, alleges civil violations of the False Claims Act based on allegations that the Company submitted claims for reimbursement for drugs that were repackaged at its Heartland repackaging facility in violation of certain FDA regulations. These allegations arise from the previously disclosed issues experienced by the Company at its Heartland repackaging facility, which suspended operations in 2006. On September 30, 2011, the Company filed a motion to dismiss the lawsuit in its entirety. On August 14, 2012, the Court granted the Company's motion with prejudice as to the Relator and without prejudice as to the United States. Relator filed an amended motion for reconsideration on September 10, 2012. On October 19, 2012, the Court denied Relator's motion to reconsider. On November 16, 2012, Relator filed a Notice of Appeal to the U.S. Court of Appeals for the Fourth Circuit from the District Court's denial of the motion to reconsider and granting of the Company's motion to dismiss. The parties have submitted briefs to the Court of Appeals and the matter has been scheduled for oral argument on December 10, 2013. The Company believes that the allegations are without merit and intends to vigorously defend itself in this action.

As part of the previously disclosed civil settlement agreement entered into by the Company with the U.S. Attorney's Office, District of Massachusetts in November 2009, 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 (“OIG”) 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, 42 U.S.C. §1320a-7b(b) or related regulations, directives and guidance, including creating and maintaining a database of such arrangements; (ii) retain an independent review organization to review the Company's compliance with the terms of the CIA and report to OIG regarding that compliance; and (iii) provide training for certain Company employees as to the Company's requirements under the CIA. The requirements of the Company's prior corporate integrity agreement obligating the Company to create and maintain procedures designed to ensure that all therapeutic interchange programs are developed and implemented by Omnicare consistent with the CIA and federal and state laws for obtaining prior authorization from the prescriber before making a therapeutic interchange of a drug and to maintain procedures for the accurate preparation and submission of claims for federal health care program beneficiaries in hospice programs, have been incorporated into the amended and restated CIA without modification. The requirements of the CIA have resulted in increased costs to maintain the Company's compliance program and greater scrutiny by

17



federal regulatory authorities. Violations of the CIA could subject the Company to significant monetary penalties. Consistent with the CIA, the Company is reviewing its contracts to ensure compliance with applicable laws and regulations. As a result of this review, pricing under certain of its consultant pharmacist services contracts has increased and will continue to increase, and these price increases have resulted and may continue to result in the loss of certain contracts.

In February 2006, two substantially similar putative class action lawsuits were filed in the U.S. District Court for the Eastern District of Kentucky, and were consolidated and entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26. The amended consolidated complaint was filed against Omnicare, three of its officers and two of its directors and purported to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through July 27, 2006, as well as all purchasers who bought their shares in the Company's public offering in December 2005. The complaint contained claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (and Rule 10b-5) and Section 11 of the Securities Act of 1933 and sought, among other things, compensatory damages and injunctive relief. Plaintiffs alleged that Omnicare (i) artificially inflated its earnings (and failed to file GAAP-compliant financial statements) by engaging in improper generic drug substitution, improper revenue recognition and overvaluation of receivables and inventories; (ii) failed to timely disclose its contractual dispute with UnitedHealth Group Inc.; (iii) failed to timely record certain special litigation reserves; and (iv) made other allegedly false and misleading statements about the Company's business, prospects and compliance with applicable laws and regulations. The defendants filed a motion to dismiss the amended complaint on March 12, 2007, and on October 12, 2007, the district court dismissed the case. On November 9, 2007, plaintiffs appealed the dismissal to the U.S. Court of Appeals for the Sixth Circuit. On October 21, 2009, the Sixth Circuit Court of Appeals generally affirmed the district court's dismissal, dismissing plaintiff's claims for violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. However, the appellate court reversed the dismissal for the claim brought for violation of Section 11 of the Securities Act of 1933, and returned the case to the district court for further proceedings. On July 14, 2011, the district court granted plaintiffs' motion to file a third amended complaint. This complaint asserts a claim under Section 11 of the Securities Act of 1933 on behalf of all purchasers of Omnicare common stock in the December 2005 public offering. The new complaint alleges that the 2005 registration statement contained false and misleading statements regarding Omnicare's policy of compliance with all applicable laws and regulations with particular emphasis on allegations of violation of the federal Anti-Kickback Statute in connection with three of Omnicare's acquisitions, Omnicare's contracts with two of its suppliers and its provision of pharmacist consultant services. On August 19, 2011, the defendants filed a motion to dismiss plaintiffs' most recent complaint and on February 13, 2012 the district court dismissed the case and struck the case from the docket. On March 12, 2012, plaintiffs filed a notice of appeal in the U.S. Court of Appeals for the Sixth Circuit.  On May 23, 2013, the U.S. Court of Appeals affirmed in part and reversed and remanded in part the dismissal of Plaintiff's complaint.  On June 6, 2013, the Company petitioned the Court of Appeals for a rehearing en banc.  The petition for rehearing en banc was denied on July 23, 2013. On October 4, 2013 the Company filed a petition for writ of certiorari in the United States Supreme Court.

On February 13, 2006, two substantially similar shareholder derivative actions, entitled Isak v. Gemunder, et al., and Fragnoli v. Hutton, et al., were filed in Kentucky State court against certain current and former members of Omnicare's board of directors, individually, purporting to assert claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment arising out of the Company's alleged violations of federal and state health care laws based upon the same purportedly improper generic drug substitution that is the subject of the HOD Carriers federal securities litigation.   The Isak and Fragnoli cases were subsequently consolidated under Case No. 06-CI-00389 and given the caption In re Omnicare, Inc. Derivative Litigation.  The plaintiffs’ amended complaint sought, among other things, damages, restitution and injunctive relief.  The individual defendants have denied all allegations of wrongdoing.  In 2007, the individual defendants moved to dismiss the plaintiffs’ amended complaint in its entirety.  Following briefing, a hearing on that motion was held on August 21, 2007.  The motion remains pending.  On October 7, 2013, the parties entered into a definitive agreement to settle the claims asserted by plaintiffs. The settlement, which is subject to court approval, would provide for, among other things, the release by the plaintiffs and the Company of all claims that have been or could have been asserted against the individual defendants arising out of or relating to the subject matter of the action and an explicit disclaimer of wrongdoing or liability on the part of the individual defendants.  The terms of the proposed settlement are described in the Notice of Pendency and Proposed Settlement of Shareholder Derivative Litigation, which is attached hereto as Exhibit 99.1.  On December 2, 2013 the Court will hold a hearing to determine whether to approve the settlement.  

During 2006, the Company experienced certain quality control and product recall issues, as well as fire damage, at one of its repackaging facilities.  In connection with the resolution of these matters (the “Repack Matters”) the Company decided not to reopen this facility.  The Company has been cooperating with federal and state officials who have been conducting an investigation relating to the Repack Matters and certain billing issues.  The Company believes all investigations into the Repack Matters and billing issues have been resolved.


18



The three and nine months ended September 30, 2013 included charges of $143.5 million and $169.6 million, respectively, and approximately $4.9 million and $38.2 million for the three and nine months ended September 30, 2012, respectively, reflected in “Settlement, litigation and other related charges” on the Consolidated Statement of Comprehensive Income (Loss), primarily for estimated litigation and other related settlements and associated professional expenses for resolution of certain large customer disputes, certain regulatory matters with the federal government and various states, qui tam lawsuits, and costs associated with the purported class and derivative actions against the Company.  In connection with Omnicare's participation in Medicare, Medicaid and other healthcare programs, the Company is subject to various inspections, audits, inquiries and investigations by governmental/regulatory authorities responsible for enforcing the laws and regulations to which the Company is subject.  Further, the Company maintains a compliance program which establishes certain routine periodic monitoring of the accuracy of the Company's billing systems and other regulatory compliance matters and encourages the reporting of errors and inaccuracies.  As a result of the compliance program, Omnicare has made, and will continue to make, disclosures to the applicable governmental agencies of amounts, if any, determined to represent over-payments from the respective programs and, where applicable, those amounts, as well as any amounts relating to certain inspections, audits, inquiries and investigations activity are included in “Settlement, litigation and other related charges” on the Consolidated Statement of Comprehensive Income (Loss).

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

As part of its ongoing operations, the Company is subject to various inspections, audits, inquiries, investigations 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. Further, under the federal False Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. In addition to the inquiries discussed above, the Company from time to time receives government inquiries from federal and state agencies regarding compliance with various healthcare laws. The Company is also involved in various legal actions arising in the normal course of business. At any point in time, the Company is in varying stages of discussions on these matters. Omnicare records accruals for such contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These matters are continuously being evaluated and, in many cases, are being contested by the Company and the outcome is not predictable.

The inherently unpredictable nature of legal proceedings may be exacerbated by various factors from time to time, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes. With respect to violations of the False Claims Act, treble damages and/or additional penalties per claim will apply. Consequently, unless otherwise stated, no estimate of the possible loss or range of loss in excess of the amounts accrued, if any, can be made at this time regarding the matters described above. Further, there can be no assurance that the ultimate resolution of these matters, individually or in the aggregate, will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.

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


19



Note 8 - Segment Information

The Company is organized in two operating segments, LTC and Specialty Care Group (“SCG”). These segments are based on the operations of the underlying businesses and the customers they serve. The Company's larger reportable segment is LTC, which primarily provides distribution of pharmaceuticals, related pharmacy consulting and other ancillary services, as well as end-of-life pharmaceutical care management. LTC's customers are primarily skilled nursing, assisted living and other providers of healthcare services including hospice care agencies. The Company’s other reportable segment is SCG, which provides specialty pharmacy and key commercialization services for the biopharmaceutical industry. The primary components of the "Corporate/Other" segment are the Company's corporate management oversight and administration, including its information technology and data management services, as well as other consolidating and eliminating entries, which have not been charged to reportable segments. Beginning in the second quarter of 2013, the Company concluded that the operations of its hospice pharmacy business were better aligned with the operation of its LTC, and began to review and manage the operations of this business as part of LTC. Accordingly, to align the reporting segments with the current way management reviews information to make operating decisions, assess performance and allocate resources, the results of the Company's hospice business are now reported in LTC. All prior period segment information has been recast to reflect the new segment reporting. The Company evaluates the performance of its segments based on revenue and operating income, and does not include segment assets or nonoperating income/expense items for management reporting purposes.
 
 
For the three months ended September 30,
2013:
 
LTC
 
SCG
 
Corporate/Other
 
Consolidated
Totals
Net sales
 
$
1,219,994

 
$
360,847

 
$
160

 
$
1,581,001

Depreciation and amortization expense
 
(19,642
)
 
(1,176
)
 
(14,955
)
 
(35,773
)
Settlement, litigation and other related charges
 
(143,484
)
 

 

 
(143,484
)
Other charges
 
(10,764
)
 

 
(50,868
)
 
(61,632
)
Operating income (loss)
 
6,213

 
29,758

 
(91,828
)
 
(55,857
)
2012:
 
 
 
 
 
 
 
 
Net sales
 
$
1,218,282

 
$
280,036

 
$
3,030

 
$
1,501,348

Depreciation and amortization expense
 
(19,447
)
 
(2,278
)
 
(12,604
)
 
(34,329
)
Settlement, litigation and other related charges
 
(4,931
)
 

 

 
(4,931
)
Other charges
 
7,455

 

 
(12,491
)
 
(5,036
)
Operating income (loss)
 
165,180

 
24,879

 
(56,328
)
 
133,731

 
 
 
 
 
 
 
 
 
 
 
For the nine months ended September 30,
2013:
 
LTC
 
SCG
 
Corporate/Other
 
Consolidated
Totals
Net sales
 
$
3,646,081

 
$
1,028,490

 
$
1,330

 
$
4,675,901

Depreciation and amortization expense
 
(59,070
)
 
(3,433
)
 
(42,318
)
 
(104,821
)
Settlement, litigation and other related charges
 
(169,615
)
 

 

 
(169,615
)
Other charges
 
(44,065
)
 

 
(52,841
)
 
(96,906
)
Operating income (loss)
 
273,994

 
90,610

 
(187,678
)
 
176,926

2012:
 
 
 
 
 
 
 
 
Net sales
 
$
3,822,571

 
$
798,200

 
$
9,672

 
$
4,630,443

Depreciation and amortization expense
 
(57,225
)
 
(6,748
)
 
(37,660
)
 
(101,633
)
Settlement, litigation and other related charges
 
(38,027
)
 
(200
)
 

 
(38,227
)
Other charges
 
(3,674
)
 

 
(62,083
)
 
(65,757
)
Operating income (loss)
 
440,102

 
72,557

 
(188,010
)
 
324,649



20




Note 9 - Guarantor Subsidiaries

The Company’s 7.75% Senior Subordinated Notes due 2020, 3.75% Convertible Senior Subordinated Notes due 2025, 3.75% Convertible Senior Subordinated Notes due 2042 and the 3.50% Convertible Senior Subordinated Notes, due 2044 are fully and unconditionally guaranteed, subject to certain customary release provisions, on an unsecured, joint and several basis by certain wholly-owned subsidiaries of the Company (the “Guarantor Subsidiaries”).  The following condensed consolidating unaudited financial data illustrates the composition of Omnicare, Inc. (“Parent”), the Guarantor Subsidiaries and the non-guarantor Subsidiaries as of September 30, 2013 and December 31, 2012 for the balance sheets, as well as the three and nine months ended September 30, 2013 and 2012 for the statements of comprehensive income (loss) and the statements of cash flows for the nine months ended September 30, 2013 and 2012.  Management believes separate complete financial statements of the Guarantor Subsidiaries would not provide information that would be necessary for evaluating the sufficiency of the Guarantor Subsidiaries, and thus are not presented.  The equity method has been used with respect to the Parent company’s investment in subsidiaries.  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.

Summary Consolidating
Statements of Comprehensive Income (Loss)
(in thousands)
 
 
For the three months ended September 30,
2013:
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating / 
Eliminating Adjustments
 
Omnicare, Inc. and Subsidiaries
Net sales
 
$

 
$
1,550,628

 
$
30,373

 
$

 
$
1,581,001

Cost of sales
 

 
1,193,518

 
17,665

 

 
1,211,183

Gross profit
 

 
357,110

 
12,708

 

 
369,818

Selling, general and administrative expenses
 
1,504

 
189,532

 
4,346

 

 
195,382

Provision for doubtful accounts
 

 
24,699

 
478

 

 
25,177

Settlement, litigation and other related charges
 

 
143,484

 

 

 
143,484

Other charges
 

 
54,361

 
7,271

 

 
61,632

Operating income (loss)
 
(1,504
)
 
(54,966
)
 
613

 

 
(55,857
)
Interest expense, net of investment income
 
(34,583
)
 
(341
)
 
2

 

 
(34,922
)
Income (loss) before income taxes
 
(36,087
)
 
(55,307
)
 
615

 

 
(90,779
)
Income tax (benefit) expense
 
(14,190
)
 
(13,390
)
 
3,110

 

 
(24,470
)
Equity of net income of subsidiaries
 
(44,412
)
 

 

 
44,412

 

Net income (loss)
 
$
(66,309
)
 
$
(41,917
)
 
$
(2,495
)
 
$
44,412

 
$
(66,309
)
Comprehensive income (loss)
 
$
(66,305
)
 
$
(41,917
)
 
$
(2,495
)
 
$
44,412

 
$
(66,305
)
2012:
 
 

 
 

 
 

 
 

 
 

Net sales
 
$

 
$
1,467,240

 
$
34,108

 
$

 
$
1,501,348

Cost of sales
 

 
1,108,650

 
21,403

 

 
1,130,053

Gross profit
 

 
358,590

 
12,705

 

 
371,295

Selling, general and administrative expenses
 
988

 
196,993

 
5,569

 

 
203,550

Provision for doubtful accounts
 

 
23,591

 
456

 

 
24,047

Settlement, litigation and other related charges
 

 
4,931

 

 

 
4,931

Other charges
 

 
14,951

 
(9,915
)
 

 
5,036

Operating income (loss)
 
(988
)
 
118,124

 
16,595

 

 
133,731

Interest expense, net of investment income
 
(37,625
)
 
(1,359
)
 
(52
)
 

 
(39,036
)
Income (loss) before income taxes
 
(38,613
)
 
116,765

 
16,543

 

 
94,695

Income tax (benefit) expense
 
(15,116
)
 
45,717

 
2,669

 

 
33,270

Equity of net income of subsidiaries
 
84,922

 

 

 
(84,922
)
 

Net income
 
$
61,425

 
$
71,048

 
$
13,874

 
$
(84,922
)
 
$
61,425

Comprehensive income
 
$
63,354

 
$
71,048

 
$
15,801

 
$
(86,849
)
 
$
63,354



21





Note 9 - Guarantor Subsidiaries (Continued)


Summary Consolidating
Statements of Comprehensive Income (Loss)
(in thousands)
 
 
For the nine months ended September 30,
2013:
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating / 
Eliminating Adjustments
 
Omnicare, Inc. and Subsidiaries
Net sales
 
$

 
$
4,579,718

 
$
96,183

 
$

 
$
4,675,901

Cost of sales
 

 
3,501,068

 
55,741

 

 
3,556,809

Gross profit
 

 
1,078,650

 
40,442

 

 
1,119,092

Selling, general and administrative expenses
 
3,696

 
582,512

 
14,688

 

 
600,896

Provision for doubtful accounts
 

 
73,301

 
1,448

 

 
74,749

Settlement, litigation and other related charges
 

 
169,615

 

 

 
169,615

Other charges
 

 
89,635

 
7,271

 

 
96,906

Operating income (loss)
 
(3,696
)
 
163,587

 
17,035

 

 
176,926

Interest expense, net of investment income
 
(92,757
)
 
(884
)
 
(364
)
 

 
(94,005
)
Income (loss) before income taxes
 
(96,453
)
 
162,703

 
16,671

 

 
82,921

Income tax (benefit) expense
 
(37,395
)
 
70,770

 
9,282

 

 
42,657

Equity of net income of subsidiaries
 
99,322

 

 

 
(99,322
)
 

Net income
 
$
40,264

 
$
91,933

 
$
7,389

 
$
(99,322
)
 
$
40,264

Comprehensive income
 
$
40,170

 
$
91,933

 
$
7,389

 
$
(99,322
)
 
$
40,170

2012:
 
 

 
 

 
 

 
 

 
 

Net sales
 
$

 
$
4,525,967

 
$
104,476

 
$

 
$
4,630,443

Cost of sales
 

 
3,456,366

 
67,336

 

 
3,523,702

Gross profit
 

 
1,069,601

 
37,140

 

 
1,106,741

Selling, general and administrative expenses
 
3,110

 
586,237

 
16,205

 

 
605,552

Provision for doubtful accounts
 

 
71,176

 
1,380

 

 
72,556

Settlement, litigation and other related charges
 

 
38,227

 

 

 
38,227

Other charges
 
35,092

 
34,677

 
(4,012
)
 

 
65,757

Operating income (loss)
 
(38,202
)
 
339,284

 
23,567

 

 
324,649

Interest expense, net of investment income
 
(103,146
)
 
(1,897
)
 
(401
)
 

 
(105,444
)
Income (loss) from continuing operations before income taxes
 
(141,348
)
 
337,387

 
23,166

 

 
219,205

Income tax (benefit) expense
 
(54,772
)
 
130,624

 
7,497

 

 
83,349

Equity of net income of subsidiaries
 
222,432

 

 

 
(222,432
)
 

Net income
 
$
135,856

 
$
206,763

 
$
15,669

 
$
(222,432
)
 
$
135,856

Comprehensive income
 
$
136,518

 
$
206,763

 
$
17,053

 
$
(223,816
)
 
$
136,518



22



Note 9 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets
(in thousands)
As of September 30, 2013:
 
Parent
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Omnicare, Inc. and Subsidiaries
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
428,003

 
$
64,975

 
$
12,709

 
$

 
$
505,687

Restricted cash
 

 
5

 

 

 
5

Accounts receivable, net (including intercompany)
 

 
736,423

 
312,572

 
(307,942
)
 
741,053

Inventories
 

 
414,238

 
7,561

 

 
421,799

Deferred income tax benefits, net-current
 

 
98,294

 

 
(205
)
 
98,089

Other current assets
 
2,683

 
287,807

 
21,736

 

 
312,226

Total current assets
 
430,686

 
1,601,742

 
354,578

 
(308,147
)
 
2,078,859

Properties and equipment, net
 

 
305,542

 
4,683

 

 
310,225

Goodwill
 

 
4,224,637

 
28,824

 

 
4,253,461

Identifiable intangible assets, net
 

 
163,718

 
2,387

 

 
166,105

Other noncurrent assets
 
47,654

 
59,200

 
22

 

 
106,876

Investment in subsidiaries
 
5,194,188

 

 

 
(5,194,188
)
 

Total assets
 
$
5,672,528

 
$
6,354,839

 
$
390,494

 
$