Debt (Notes)

12 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

Debt

A summary of debt follows (in thousands):

	December 31,
	2012			2011
Revolving loans, due 2017	$	—		$	—
Senior term loan, due 2017	419,688			444,375
7.75% senior subordinated notes, due 2020	550,000			550,000
3.75% convertible senior subordinated notes, due 2025	318,054			575,000
4.00% junior subordinated convertible debentures, due 2033	345,000			345,000
3.25% convertible senior debentures, due 2035	427,500			452,500
3.75% convertible senior subordinated notes, due 2042	390,000			—
Capitalized lease and other debt obligations	23,685			15,054
Subtotal	2,473,927			2,381,929
Add interest rate swap agreements	46,090			35,473
(Subtract) unamortized debt discount	(462,274		)	(422,681		)
(Subtract) current portion of debt	(27,713		)	(26,447		)
Total long-term debt, net	$	2,030,030		$	1,968,274

The following is a schedule of required debt payments due during each of the next five years and thereafter, as of December 31, 2012 (in thousands):

Year ended
December 31,
2013	$	27,713
2014	27,995
2015	26,188
2016	25,091
2017	336,386
Later years	2,030,554
Total debt payments	$	2,473,927

Total cash interest payments made for the years ended December 31, 2012, 2011 and 2010 were $90.9 million, $111.1 million and $110.3 million excluding early redemption and tender premium payments.  As of December 31, 2012, the Company had approximately $11 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals.

Senior Credit Agreement

Revolving Loans and Term Loans

During 2012, the Company amended and extended its existing senior unsecured credit agreement (as amended and restated, the "Credit Facility"). The Credit Facility consists of a $300 million five-year senior unsecured revolving credit facility (the "Revolving Credit Facility") and a $425 million, five-year senior unsecured term loan facility (the "Term Loan"). The amendment and restatement, among other things, provided for (i) an extension of the maturity date of the credit facilities to September 28, 2017 and (ii) a reduction in pricing. The Credit Facility is guaranteed by the subsidiaries of the Company, subject to certain exceptions. The interest rate applicable to the Credit Facility is, at the Company's option, a floating base rate plus an applicable margin or the London interbank offered rate ("LIBOR") plus an applicable margin. Initially, the applicable margins were set to 0.75% with respect to the floating base rate loans and 1.75% with respect to the LIBOR loans. The applicable margins for the Credit Facility may increase or decrease based on the Company's consolidated total leverage ratio as specified in the Credit Facility. The interest rate on the Term Loan was 1.97% at December 31, 2012. In connection with the amendment and restatement, the Company recorded $2.0 million in new deferred debt issuance costs. Total debt issuance costs associated with the Credit Facility are $6.3 million, of which $0.3 million were amortized to interest expense in the year ended December 31, 2012.

The Credit Facility contains certain financial covenants requiring maintenance of certain interest coverage and leverage ratios, and customary affirmative and negative covenants including without limitation, a restriction on the payment of dividends.

At December 31, 2012, there was no outstanding balance under the Revolving Credit Facility and $419.7 million in loans outstanding under the Term Loan.

In connection with entering into the Credit Facility, the Company’s existing $750 million senior unsecured credit agreement, dated as of August 24, 2011 (the “Senior Credit Agreement”) was terminated.The Senior Credit Agreement consisted of a $300 million five-year senior unsecured revolving credit facility (the “2011 Revolving Credit Facility”) and a $450 million, five-year senior unsecured term loan facility (the “2011 Term Loan”). There was $433 million outstanding under the 2011 Term Loan at the time of its termination. Existing letters of credit under the Senior Credit Agreement were rolled over into or transferred to the Credit Facility. In connection with the termination of the Senior Credit Agreement, the Company wrote off approximately $8.3 million of deferred debt issuance costs, which was recorded in interest expense in the third quarter of 2012. Approximately $1.1 million of these expenses were amortized to expense in the year ended December 31, 2011.

On August 24, 2011, in connection with entering into the Senior Credit Agreement, the Company’s existing $400 million senior secured revolving credit facility, dated as of May 18, 2010 (the “2010 Revolving Credit Facility”) was terminated. There were no outstanding loans under the 2010 Revolving Credit Facility at the time of its termination. Existing letters of credit under the 2010 Revolving Credit Facility were rolled over into or transferred to the Senior Credit Agreement. In connection with the termination of the 2010 Revolving Credit Facility, the Company wrote off approximately $2.5 million of deferred debt issuance costs, which was recorded in interest expense in the third quarter of 2011. Approximately $1.1 million of these expenses were amortized to expense in the year ended December 31, 2010.

Senior Subordinated Notes

The Company completed, during the second quarter of 2003, its offering of $250 million of 6.125% senior subordinated notes due 2013 (the “6.125% Notes”).  In connection with the issuance of the 6.125% Notes, the Company deferred $6.6 million in debt issuance costs, of which approximately $0.2 million was amortized to expense in year ended December 31, 2011 and $0.7 million was amortized to expense in the year ended December 31, 2010.  

In 2011, the Company redeemed all $250 million aggregate principal amount of its outstanding 6.125% Notes. In connection with the redemption of the 6.125% Notes, the Company incurred debt redemption costs of approximately $1.6 million, which were recorded in interest expense for the year ended December 31, 2011.

In connection with its offering of the 6.125% Notes, the Company entered into an interest rate swap agreement with respect to all $250 million of the aggregate principal amount of the 6.125% Notes (the “6.125% Swap Agreement”).  In the second quarter of 2010, the counterparties to the interest rate swap agreement on the 6.125% Senior Notes terminated the swap agreement, effective June 1, 2010.  In connection with terminating the 6.125% Swap Agreement, the counterparties paid the Company approximately $2.6 million, which was being amortized as a reduction to interest expense over the remaining term of the 6.125% Notes until the redemption was completed in 2011.

Senior Subordinated Notes

On December 15, 2005, Omnicare completed its offering of $525 million aggregate principal amount of 6.875% Senior Subordinated Notes (the “6.875% Notes”).  In connection with the issuance of the 6.875% Notes, the Company deferred $10.7 million in debt issuance costs, of which approximately $1 million was amortized to expense in each of the years ended December 31, 2011 and 2010, respectively.  

In December 2010, the Company entered into a Swap Agreement on all $525 million of aggregate principal amount of the 6.875% Notes (“the 6.875% Swap Agreement”).  In the second quarter of 2011, the 6.875% Swap Agreement was terminated, and the Company began paying interest at the 6.875% stated rate effective May 11, 2011.

In 2011, the Company redeemed all $525 million aggregate principal amount of its outstanding 6.875% Notes. In connection with the redemption of the 6.875% Notes, the Company incurred debt redemption costs, of approximately $22 million, primarily in the third quarter, consisting of a $18 million call premium and net write-off of approximately $4 million of deferred debt issuance costs, which were recorded in interest expense for the year ended December 31, 2011.

Senior Subordinated Notes

As of December 31, 2012, the Company had $550 million aggregate principal outstanding of the Company's 7.75% Senior Subordinated Notes due 2020 (the "7.75%" Notes). On May 18, 2010, Omnicare, Inc. completed its initial offering of $400 million aggregate principal amount of the 7.75% Notes, (the “Initial 7.75% Notes”) and on September 20, 2011, the Company completed its offering of an additional $150 million aggregate principal amount of its 7.75% Notes (the "Additional 7.75% Notes"). In connection with the issuance of the 7.75% Notes, the Company deferred approximately $12.6 million in debt issuance costs, of which approximately $1.2 million, $1.1 million and $0.6 million was amortized to expense in the years ended December 31, 2012, 2011 and 2010, respectively.  The 7.75% Notes contain certain restrictive covenants and events of default customary for such instruments, including without limitation, restrictions on the payment of dividends, incurrence of additional debt and other restrictions contained in the indenture governing the 7.75% Notes.  The 7.75% Notes are guaranteed by the Company’s subsidiaries, subject to certain exceptions.

In connection with its offering of the Initial 7.75% Notes, the Company entered into an interest rate swap agreement (the "Initial 7.75% Swap Agreement") and in connection with its offering of the Additional 7.75% Notes, the Company entered into two swap agreements (the “Additional 7.75% Swap Agreements”) (collectively the "7.75% Swap Agreements"), which are designed to effectively lower the Company's cost, but subject the Company to variable interest rate risk.  Under the Initial 7.75% Swap Agreement the Company receives a fixed rate of 7.75% and pays a floating rate based on LIBOR with an interest period of six months, plus a spread of 3.87%.  Under the Additional 7.75% Swap Agreements the Company receives a fixed rate of 7.75% and pays a floating rate based on LIBOR with an interest period of six months, plus a weighted average spread of 5.32%. The floating rates for the 7.75% Swap Agreements are determined semi-annually, in arrears, two London Banking Days prior to the first of each December and June.  The Company records interest expense on the 7.75% Notes at the floating rates. The overall weighted average floating interest rate on the 7.75% Swap Agreements was 4.77% at December 31, 2012 .

The 7.75% Swap Agreements, which match the terms of the 7.75% Notes, are designated and accounted for as fair value hedges.  Accordingly, changes in the fair value of the interest rate swap agreements are offset by changes in the recorded carrying value of the related 7.75% Notes.  The fair value of the interest rate swap agreements, approximately $46 million and $35 million at December 31, 2012 and 2011, respectively, are recorded in “Other noncurrent assets” or “Other noncurrent liabilities” on the Consolidated Balance Sheets, as applicable, and as an adjustment to the book carrying value of the related 7.75% Notes.

Convertible Senior Subordinated Notes due 2025

On December 7, 2010, Omnicare completed its offering of $575 million aggregate principal amount of 3.75% convertible senior subordinated notes due 2025 (the “2025 Notes”).  The 2025 Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2011. The initial conversion rate is 36.4409 shares of common stock per $1,000 principal amount of 2025 Notes (equivalent to an initial conversion price of approximately $27.44 per share), subject to adjustment in certain circumstances. 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 a 23.5% premium to the $22.22 closing price of the Company's common stock on December 1, 2010.  The 2025 Notes are guaranteed by the Company’s subsidiaries, subject to certain excluded subsidiaries.  Embedded in the 2025 Notes are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision.  The embedded derivatives are valued periodically, and at period end, the values of the derivatives embedded in the 2025 Notes were not material.  However, the values are subject to change, based on market conditions, which could affect the Company’s future results of operations, financial position or cash flows. 

In connection with the issuance of the 2025 Notes, the Company has deferred approximately $9.4 million in debt issuance costs, of which approximately $0.4 million, $0.6 million and $0.1 million were amortized to expense for the years ended December 31, 2012, 2011 and 2010, respectively, in addition approximately $3.8 million were written off in connection with the repurchase. The Company recognized a non-cash loss on the debt exchange of approximately $33.3 million in the second quarter of 2012, which was reflected in "Other charges" on the Consolidated Statements of Comprehensive Income.

3.75% Convertible Senior Subordinated Notes due 2042

Omnicare entered into separate, privately negotiated exchange agreements under which, effective April 3, 2012, the Company retired $256.9 million in aggregate principal amount of outstanding 2025 Notes in exchange for its issuance of $390 million in aggregate principal amount of new 3.75% Convertible Senior Subordinated Notes due 2042 (the "2042 Notes"). The 2042 Notes are guaranteed by substantially all of the Company's subsidiaries, subject to certain exceptions.

The 2042 Notes mature in April 2042 and will pay interest semiannually at a rate of 3.75% per year. Commencing with the interest period beginning April 1, 2019, the 2042 Notes will also pay contingent interest under certain circumstances based on their then current trading price. The 2042 Notes are convertible, upon certain circumstances, into cash and, if applicable, shares of Omnicare common stock. The 2042 Notes have an initial conversion rate of 24.09639 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 $41.50 per share.

Under certain circumstances, the Company has the right to redeem the 2042 Notes on or before April 1, 2016 by paying a coupon make-whole amount plus accrued but unpaid interest. After April 1, 2016 the Company may, as its option, redeem the 2042 Notes by paying par plus accrued but unpaid interest. In addition, holders may require the Company to repurchase all or part of their 2042 Notes upon a fundamental change (as defined in the indenture governing the 2042 Notes) at a cash repurchase price equal to par plus accrued but unpaid interest.

In connection with the issuance of the 2042 Notes, the Company also entered into capped call transactions with a counterparty. The capped calls are subject to adjustment or termination upon the occurrence of specified events affecting the Company and are subject to additional disruption events that may give rise to termination. The capped call transactions are intended to reduce potential economic dilution upon conversion of the 2042 Notes.

In connection with the issuance of the 2042 Notes, the Company has deferred approximately $3.6 million in debt issuance costs, of which approximately $0.1 million were amortized to expense in the year ended December 31, 2012.

Junior Subordinated Convertible Debentures

During the first quarter of 2005, the Company completed its offer to exchange up to $345 million aggregate liquidation amount of 4.00% Trust Preferred Income Equity Redeemable Securities due 2033 of Omnicare Capital Trust I (the “Old Trust”), for an equal amount of Series B 4.00% Trust Preferred Income Equity Redeemable Securities  of Omnicare Capital Trust II (the “New Trust”).  The New Trust PIERS have substantially similar terms to the Old Trust PIERS, except that the New Trust PIERS have a net share settlement feature.  In connection with the exchange offer, the composition of the Company’s 4.00% junior subordinated convertible debentures underlying the trust PIERS was impacted.  Additional information regarding the 4.00% junior subordinated convertible debentures underlying the Old Trust PIERS and the New Trust PIERS is summarized below.

Original 4.00% Junior Subordinated Convertible Debentures

In connection with the offering of the Old Trust PIERS in the second quarter of 2003, the Company issued a corresponding amount of 4.00% junior subordinated convertible debentures (the “Old 4.00% Debentures”) due 2033 to the Old Trust.  The Old Trust is a 100%-owned finance subsidiary of the Company.  The Company has fully and unconditionally guaranteed the securities of the Old Trust.  The Old Trust PIERS offer fixed cash distributions at a rate of 4.00% per annum payable quarterly, and a fixed conversion price of $40.82 under a contingent conversion feature whereby the holders may convert their Old Trust PIERS if the closing sales price of Company common stock for a predetermined period, beginning with the quarter ending September 30, 2003, is more than 130% of the then-applicable conversion price or, during a predetermined period, if the daily average of the trading prices for the Old Trust PIERS is less than 105% of the average of the conversion values for the Old Trust PIERS through 2028 (98% for any period thereafter through maturity).  The Old Trust PIERS also will pay contingent distributions, commencing with the quarterly distribution period beginning June 15, 2009, if the average trading prices of the Old Trust PIERS for a predetermined period equals 115% or more of the stated liquidation amount of the Old Trust PIERS.  In this circumstance, the holder of the convertible debenture will receive 0.125 percent of the average trading price during the predetermined period.  Embedded in the Old Trust PIERS are two derivative instruments, specifically, a contingent interest provision and a contingent conversion parity provision.  The embedded derivatives are periodically valued, and at period end, the values of both derivatives embedded in the Old Trust PIERS were not material.  However, the values are subject to change, based on market conditions, which could affect the Company’s future results of operations, financial position or cash flows.  Omnicare irrevocably and unconditionally guarantees, on a subordinated basis, certain payments to be made by the Old Trust in connection with the Old Trust PIERS.  Subsequent to the first quarter 2005 exchange offer discussed in further detail at the Series B 4.00% Junior Subordinated Convertible Debentures caption below, the Company has $11,233,050 aggregate liquidation amount of the Old Trust PIERS and underlying Old 4.00% Debentures remaining outstanding at period end.

Series B 4.00% Junior Subordinated Convertible Debentures

On March 8, 2005, the Company completed the exchange of $333,766,950 aggregate liquidation amount of the Old Trust PIERS (representing 96.7% of the total liquidation amount of the Old Trust PIERS outstanding) for an equal amount of the New Trust PIERS, plus an exchange fee of $0.125 per $50 stated liquidation amount of Old Trust PIERS.  Each New Trust PIERS represents an undivided beneficial interest in the assets of the New Trust, which assets consist solely of a corresponding amount of Series B 4.00% junior subordinated convertible debentures (the “4.00% Convertible Debentures”) issued by the Company with a stated maturity of June 15, 2033.  The Company has fully and unconditionally guaranteed the securities of the New Trust.  Subsequent to the completion of the exchange offering and at period end, the Company has $333,766,950 of 4.00% Convertible Debentures outstanding.

The terms of the New Trust PIERS are substantially identical to the terms of the Old Trust PIERS, except that the New Trust PIERS are convertible into cash and, if applicable, shares of Company common stock, whereas the outstanding Old Trust PIERS are convertible only into Company common stock (except for cash in lieu of fractional shares).

The purpose of the exchange offer was to change the conversion settlement provisions of the Old Trust PIERS.  By committing to pay up to the stated liquidation amount of the New Trust PIERS to be converted in cash upon conversion, the Company is able to account for the New Trust PIERS under the treasury stock method.

As of December 31, 2012 and 2011, the aforementioned contingent threshold had not been met and, accordingly, the Old 4.00% Debentures and the 4.00% Convertible Debentures have been classified as long-term debt on the December 31, 2012 and 2011 Consolidated Balance Sheets.

In connection with the issuance of the Old 4.00% Debentures and the 4.00% Convertible Debentures, the Company has deferred $6.1 million in debt issuance costs, of which approximately $0.2 million was amortized to expense in each of the years ended December 31, 2012, 2011 and 2010.

Convertible Senior Debentures

On December 15, 2005, Omnicare completed its offering of $977.5 million aggregate principal amount of 3.25% convertible senior debentures due 2035 (with optional redemption by Omnicare on or after, and optional repurchase right of holders on, December 15, 2015, at par) (the “3.25% Convertible Debentures").  The 3.25% Convertible Debentures have an initial conversion price of approximately $79.73 per share under a contingent conversion feature whereby the holders may convert their 3.25% Convertible Debentures, prior to December 15, 2033, on any date during any fiscal quarter beginning after March 31, 2006 (and only during such fiscal quarter) if the closing sales 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 the last trading day of the previous fiscal quarter or during any five consecutive trading days period if, during each of the previous five consecutive trading days, the trading price of the convertible debentures for each day was less than 98 percent of the then current conversion price.  The 3.25% Convertible Debentures bear interest at a rate of 3.25% per year, subject to an upward adjustment on and after December 15, 2015 in certain circumstances, up to a rate not to exceed 1.99 times the original 3.25 percent interest rate per year.  The 3.25% Convertible Debentures also will pay contingent interest in cash, beginning with the six-month interest period commencing December 15, 2015, during any six-month period in which the trading price of the 3.25% Convertible Debentures for each of the five trading days ending on the second trading day immediately preceding the first day of the applicable six-month interest period equals or exceeds 120% of the principal amount of the 3.25% Convertible Debentures.  Embedded in the 3.25% Convertible Debentures are three derivative instruments, specifically, a contingent interest provision, an interest reset provision and a contingent conversion parity provision.  The embedded derivatives are valued periodically, and at period end, the values of the derivatives embedded in the 3.25% Convertible Debentures were not material.  However, the values are subject to change, based on market conditions, which could affect the Company’s future results of operations, financial position or cash flows.  In connection with the issuance of the 3.25% Convertible Debentures, the Company has deferred approximately $17.6 million in debt issuance costs, of which approximately $0.8 million, $1 million and $2 million were amortized to expense for the years ended December 31, 2012, 2011 and 2010, respectively.

On December 16, 2010, Omnicare purchased $525 million aggregate principal amount of its outstanding 3.25% Convertible Debentures pursuant to a tender offer.  Total consideration required to complete the purchase, including accrued and unpaid interest, was approximately $498.8 million.  Also, in the second quarter of 2012, the Company purchased an additional $25 million aggregate principal amount of its 3.25% Convertible Debentures. After giving effect to the purchase of the tendered debentures, $428 million aggregate principal amount of the 3.25% Convertible Debentures remain outstanding.  In connection with the initial purchase of the 3.25% Convertible Debentures, the Company wrote-off debt issuance costs of $4.6 million, which were recorded in interest expense for the three months and year ended December 31, 2010.

Further, in connection with the extinguishment of $525 million of 3.25% Convertible Debentures, the Company was required to recognize a non-cash loss of $25.6 million due to its application of the authoritative guidance for extinguishments of convertible debt.  The Company also incurred $1.3 million of professional fees associated with the purchase of the 3.25% Convertible Debentures.  The aforementioned losses on extinguishment and related professional fees were recorded in the “Other Charges” caption of its Consolidated Statements of Comprehensive Income, during the three months and year ended December 31, 2010. In connection with the additional repurchase, the Company recognized a non-cash loss on the debt extinguishment of $1.8 million which was recorded in "Other Charges" during the second quarter of 2012.

Senior Subordinated Notes

In 2010 the Company completed the redemption of all $225 million aggregate principal amount of 6.75% senior subordinated notes due 2013 (the “6.75% Notes”).  In connection with the purchase of the 6.75% Notes, the Company incurred early redemption fees of $7.6 million and the write-off of debt issuance costs of $2.1 million, both of which were recorded in interest expense in the second quarter of the year ended December 31, 2010.  Additionally, the Company incurred approximately $0.4 million of professional fees associated with the purchase of the 6.75% Notes, which were recorded in selling, general and administrative expenses for the year ended December 31, 2010.

Favorably impacting operating cash flow was the excess of tax deductible interest expense over book interest expense related to the Company’s 4.00% Convertible Debentures, 3.25% Convertible Debentures and 3.75% Convertible Notes.  This resulted in an increase in the Company’s deferred tax liabilities during the year ended December 31, 2012, 2011 and 2010 of $15.0 million, $10.4 million and $30.3 million, respectively ($173 million cumulative as of December 31, 2012).  The recorded deferred tax liability could, under certain circumstances, be realized in the future upon conversion or redemption which would serve to reduce operating cash flows.

Information relating to the Company's convertible securities at December 31, 2012 can be found 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	$	27,230	13.00	8.250	%
4.00% junior subordinated convertible debentures, due 2033	$	151,655	20.50	8.010	%
3.25% convertible senior debentures, due 2035	$	245,433	3.00	7.630	%
3.75% convertible senior subordinated notes, due 2042	$	161,600	29.25	7.110	%

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

	December 31, 2012				December 31, 2011
Financial Instrument:	Book Value		Market Value		Book Value		Market Value
7.75% senior subordinated notes, due 2020, gross	$	550,000	$	614,600	$	550,000	$	591,300
3.75% convertible senior subordinated notes, due 2025
Carrying value	204,608		—		361,345		—
Unamortized debt discount	113,446		—		213,655		—
Principal amount	318,054		459,600		575,000		816,500
4.00% junior subordinated convertible debentures, due 2033
Carrying value	206,266		—		203,675		—
Unamortized debt discount	138,734		—		141,325		—
Principal amount	345,000		331,600		345,000		318,800
3.25% convertible senior debentures, due 2035
Carrying value	377,782		—		384,799		—
Unamortized debt discount	49,718		—		67,701		—
Principal amount	427,500		425,400		452,500		404,600
3.75% convertible senior debentures, due 2042
Carrying value	229,624		—		—		—
Unamortized debt discount	160,376		—		—		—
Principal amount	390,000		397,100		—		—