10-Q 1 c58365_10q.htm

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

FORM 10-Q

 

 

 

 

 

 

(Mark One)

 

 

x

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

 

 

 

 

For the quarterly period ended June 30, 2009

 

 

 

 

or

 

 

 

o

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

 

 

 

 

For the transition period from __________ to __________.

 

 

 

 

 

 

 

 

 

Commission File Number 1-8269

 

 

 

 

 

 

OMNICARE, INC.

 

 


 

 

(Exact name of registrant as specified in its charter)

 


Delaware

 

31-1001351


 


(State or other jurisdiction of

 

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

incorporation or organization)

 

 

 

 

 

100 East RiverCenter Boulevard, Covington, Kentucky 41011


(Address of principal executive offices)          (Zip Code)

 

(859) 392-3300


(Registrant’s telephone number, including area code)

 


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


 

 

 

Indicate by check mark whether the registrant:

 

1)

has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and

 

2)

has been subject to such filing requirements for the past 90 days.

Yes x     No o

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 o     No o

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

Large accelerated filer  x

 

 

 

Accelerated filer                       o

Non-accelerated filer o

 

(Do not check if a smaller reporting company)

 

Smaller reporting company o

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

Yes o     No x

 

 

 

 

COMMON STOCK OUTSTANDING

 

 

 

 

Number of
Shares

 

Date

 


 


Common Stock, $1 par value

119,357,454

 

June 30, 2009



OMNICARE, INC. AND

SUBSIDIARY COMPANIES

FORM 10-Q QUARTERLY REPORT JUNE 30, 2009

INDEX

 

 

 

 

 

 

PAGE

 

PART I - FINANCIAL INFORMATION:

 

 

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

 

 

 

Consolidated Statements of Income –

 

 

 

Three and six months ended – June 30, 2009 and 2008

3

 

 

 

 

 

 

Consolidated Balance Sheets –

 

 

 

June 30, 2009 and December 31, 2008

4

 

 

 

 

 

 

Consolidated Statements of Cash Flows –

 

 

 

Six months ended – June 30, 2009 and 2008

5

 

 

 

 

 

 

Notes to Consolidated Financial Statements

6

 

 

 

 

 

ITEM 2.

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

45

 

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

76

 

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

77

 

 

 

 

 

 

 

 

 

 

PART II - OTHER INFORMATION:

 

 

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

78

 

 

 

 

 

ITEM 1A.

RISK FACTORS

81

 

 

 

 

 

ITEM 2.

UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

88

 

 

 

 

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

89

 

 

 

 

 

ITEM 6.

EXHIBITS

89

 



PART I - FINANCIAL INFORMATION:

ITEM 1. - FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended,
June 30,

 

Six months ended
June 30,

 

 

 


 


 

 

 

2009

 

2008
as adjusted
(Notes 2 & 3)

 

2009

 

2008
as adjusted
(Notes 2 & 3)

 

 

 


 


 


 


 

Net sales

 

$

1,540,507

 

$

1,522,712

 

$

3,082,612

 

$

3,053,150

 

 

Cost of sales

 

 

1,168,778

 

 

1,149,864

 

 

2,320,546

 

 

2,309,445

 

Heartland repack matters (Note 11)

 

 

815

 

 

1,560

 

 

1,917

 

 

3,134

 

 

 



 



 



 



 

Gross profit

 

 

370,914

 

 

371,288

 

 

760,149

 

 

740,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

203,491

 

 

226,951

 

 

419,624

 

 

453,178

 

Provision for doubtful accounts

 

 

22,710

 

 

24,093

 

 

47,981

 

 

52,245

 

Restructuring and other related charges (Note 10)

 

 

5,883

 

 

10,784

 

 

12,800

 

 

17,232

 

Litigation and other related professional fees (Note 11)

 

 

28,357

 

 

16,022

 

 

70,022

 

 

37,664

 

Heartland repack matters (Note 11)

 

 

381

 

 

180

 

 

1,272

 

 

499

 

Acquisition and other related costs (Note 4)

 

 

2,011

 

 

 

 

2,850

 

 

 

 

 



 



 



 



 

Operating income

 

 

108,081

 

 

93,258

 

 

205,600

 

 

179,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income

 

 

1,032

 

 

1,959

 

 

3,439

 

 

4,570

 

Interest expense

 

 

(29,775

)

 

(35,693

)

 

(61,062

)

 

(72,506

)

Amortization of discount on convertible notes (Note 6)

 

 

(6,927

)

 

(6,421

)

 

(13,724

)

 

(12,721

)

 

 



 



 



 



 

Income from continuing operations before income taxes

 

 

72,411

 

 

53,103

 

 

134,253

 

 

99,096

 

Income tax provision

 

 

30,417

 

 

19,609

 

 

60,031

 

 

38,065

 

 

 



 



 



 



 

Income from continuing operations

 

 

41,994

 

 

33,494

 

 

74,222

 

 

61,031

 

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

 

 

(13,275

)

 

(559

)

 

(14,609

)

 

(1,946

)

 

 



 



 



 



 

Net income

 

$

28,719

 

$

32,935

 

$

59,613

 

$

59,085

 

 

 



 



 



 



 

Earnings (loss) per common share - Basic :

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.36

 

$

0.28

 

$

0.64

 

$

0.51

 

Discontinued operations

 

 

(0.11

)

 

(0.00

)

 

(0.13

)

 

(0.02

)

 

 



 



 



 



 

Net income

 

$

0.25

 

$

0.28

 

$

0.51

 

$

0.50

 

 

 



 



 



 



 

Earnings (loss) per common share - Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.36

 

$

0.28

 

$

0.63

 

$

0.51

 

Discontinued operations

 

 

(0.11

)

 

(0.00

)

 

(0.12

)

 

(0.02

)

 

 



 



 



 



 

Net income

 

$

0.24

 

$

0.28

 

$

0.51

 

$

0.50

 

 

 



 



 



 



 

Dividends per common share

 

$

0.0225

 

$

0.0225

 

$

0.045

 

$

0.045

 

 

 



 



 



 



 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

116,852

 

 

117,901

 

 

116,652

 

 

118,874

 

 

 



 



 



 



 

Diluted

 

 

117,640

 

 

118,672

 

 

117,490

 

 

119,606

 

 

 



 



 



 



 

Comprehensive income

 

$

27,223

 

$

32,131

 

$

57,898

 

$

67,408

 

 

 



 



 



 



 

3


CONSOLIDATED BALANCE SHEETS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

June 30, 2009

 

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

 

 

 


 


 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

273,766

 

$

214,668

 

Restricted cash

 

 

2,484

 

 

1,891

 

Accounts receivable, less allowances of $322,375 (2008-$319,417)

 

 

1,270,946

 

 

1,337,558

 

Unbilled receivables, CRO

 

 

23,093

 

 

22,329

 

Inventories

 

 

338,453

 

 

449,023

 

Deferred income tax benefits

 

 

142,042

 

 

134,249

 

Other current assets

 

 

181,184

 

 

176,989

 

Current assets of discontinued operations

 

 

31,696

 

 

34,986

 

 

 



 



 

Total current assets

 

 

2,263,664

 

 

2,371,693

 

 

 



 



 

Properties and equipment, at cost less accumulated depreciation of $315,287 (2008-$300,880)

 

 

210,245

 

 

208,527

 

Goodwill

 

 

4,235,328

 

 

4,211,221

 

Identifiable intangible assets, less accumulated amortization of $166,411 (2008-$149,538)

 

 

311,793

 

 

329,446

 

Rabbi trust assets for settlement of pension obligations

 

 

130,506

 

 

134,587

 

Other noncurrent assets

 

 

128,644

 

 

137,526

 

Noncurrent assets of discontinued operations

 

 

45,846

 

 

57,245

 

 

 



 



 

Total noncurrent assets

 

 

5,062,362

 

 

5,078,552

 

 

 



 



 

Total assets

 

$

7,326,026

 

$

7,450,245

 

 

 



 



 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

240,328

 

$

333,728

 

Accrued employee compensation

 

 

35,884

 

 

50,082

 

Deferred revenue, CRO

 

 

14,798

 

 

23,227

 

Current debt

 

 

1,438

 

 

1,784

 

Other current liabilities

 

 

246,444

 

 

221,632

 

Current liabilities of discontinued operations

 

 

8,830

 

 

10,336

 

 

 



 



 

Total current liabilities

 

 

547,722

 

 

640,789

 

 

 



 



 

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

 

 

2,212,114

 

 

2,352,824

 

Deferred income tax liabilities

 

 

553,553

 

 

525,426

 

Other noncurrent liabilities

 

 

278,829

 

 

276,284

 

Noncurrent liabilities of discontinued operations

 

 

53

 

 

53

 

 

 



 



 

Total noncurrent liabilities

 

 

3,044,549

 

 

3,154,587

 

 

 



 



 

Total liabilities

 

 

3,592,271

 

 

3,795,376

 

 

 



 



 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

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

 

 

 

 

 

Common stock, $1 par value, 200,000,000 shares authorized, 126,692,600 shares issued (2008-125,583,300 shares issued)

 

 

126,693

 

 

125,583

 

Paid-in capital (Note 6)

 

 

2,255,393

 

 

2,224,129

 

Retained earnings

 

 

1,551,692

 

 

1,498,171

 

Treasury stock, at cost-7,335,100 shares (2008-7,135,300 shares)

 

 

(198,472

)

 

(193,178

)

Accumulated other comprehensive income (loss)

 

 

(1,551

)

 

164

 

 

 



 



 

Total stockholders’ equity

 

 

3,733,755

 

 

3,654,869

 

 

 



 



 

Total liabilities and stockholders’ equity

 

$

7,326,026

 

$

7,450,245

 

 

 



 



 

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

4


CONSOLIDATED STATEMENTS OF CASH FLOWS
OMNICARE, INC. AND SUBSIDIARY COMPANIES
UNAUDITED

(in thousands)

 

 

 

 

 

 

 

 

 

 

Six months ended
June 30,

 

 

 


 

 

 

2009

 

2008
as adjusted
(Notes 2 & 3)

 

 

 


 


 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

59,613

 

$

59,085

 

Loss from discontinued operations

 

 

14,609

 

 

1,946

 

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

 

 

 

 

 

 

 

Depreciation expense

 

 

25,467

 

 

23,612

 

Amortization expense

 

 

45,886

 

 

44,040

 

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

 

 

 

 

 

 

 

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

 

 

72,831

 

 

33,758

 

Inventories

 

 

112,253

 

 

51,672

 

Other current and noncurrent assets

 

 

(11,583

)

 

29,054

 

Accounts payable

 

 

(89,876

)

 

(40,302

)

Accrued employee compensation

 

 

(13,865

)

 

4,312

 

Deferred revenue

 

 

(8,412

)

 

706

 

Current and noncurrent liabilities

 

 

55,357

 

 

19,362

 

 

 



 



 

Net cash flows from operating activities of continuing operations

 

 

262,280

 

 

227,245

 

Net cash flows from operating activities of discontinued operations

 

 

662

 

 

1,367

 

 

 



 



 

Net cash flows from operating activities

 

 

262,942

 

 

228,612

 

 

 



 



 

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisition of businesses, net of cash received

 

 

(43,100

)

 

(90,988

)

Capital expenditures

 

 

(15,315

)

 

(27,430

)

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

 

 

843

 

 

(11,589

)

Other

 

 

(1,789

)

 

(6

)

 

 



 



 

Net cash flows used in investing activities of continuing operations

 

 

(59,361

)

 

(130,013

)

Net cash flows used in investing activities of discontinued operations

 

 

(444

)

 

(1,038

)

 

 



 



 

Net cash flows used in investing activities

 

 

(59,805

)

 

(131,051

)

 

 



 



 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net payments on revolving credit facility and term A loan

 

 

(150,000

)

 

(50,000

)

Payments on long-term borrowings and obligations

 

 

(993

)

 

(1,725

)

(Decrease) in cash overdraft balance

 

 

(137

)

 

(3,606

)

Payments for Omnicare common stock repurchases

 

 

 

 

(100,165

)

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

 

 

9,464

 

 

(3,803

)

Excess tax benefits from stock-based compensation

 

 

2,366

 

 

82

 

Dividends paid

 

 

(5,352

)

 

(5,412

)

 

 



 



 

Net cash flows used in financing activities of continuing operations

 

 

(144,652

)

 

(164,629

)

Net cash flows provided by financing activities of discontinued operations

 

 

 

 

119

 

 

 



 



 

Net cash flows used in financing activities

 

 

(144,652

)

 

(164,510

)

 

 



 



 

Effect of exchange rate changes on cash

 

 

831

 

 

1,231

 

 

 



 



 

Net increase (decrease) in cash and cash equivalents

 

 

59,316

 

 

(65,718

)

Less increase in cash and cash equivalents of discontinued operations

 

 

218

 

 

448

 

 

 



 



 

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

 

 

59,098

 

 

(66,166

)

Cash and cash equivalents at beginning of period

 

 

214,668

 

 

274,200

 

 

 



 



 

Cash and cash equivalents at end of period

 

$

273,766

 

$

208,034

 

 

 



 



 

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

5


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

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

Interim Financial Data

The interim financial data is unaudited; however, in the opinion of the management of Omnicare, Inc., the interim data includes all adjustments (which include only normal adjustments, except as described in the “Restructuring and Other Related Charges” and “Commitments and Contingencies” notes) considered necessary for a fair statement of the consolidated results of operations, financial position and cash flows of Omnicare, Inc. and its consolidated subsidiaries (“Omnicare” or the “Company”). These financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in Omnicare’s Annual Report on Form 10-K for the year ended December 31, 2008 (“Omnicare’s 2008 Annual Report”) and any related updates included in the Company’s periodic quarterly Securities and Exchange Commission (“SEC”) filings. Certain reclassifications and adjustments (see “Change in Method of Accounting for Convertible Debt” note) of prior year amounts have been made to conform with the current year presentation. The December 31, 2008 Balance Sheet has been revised for a deferred income tax adjustment related to the retrospective application of the provisions of Financial Accounting Standards Board (“FASB”) Staff Position (FSP) No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). Additionally, the Company has discontinued a component of its pharmacy services business (see “Discontinued Operations” note). All amounts disclosed herein relate to the Company’s continuing operations unless otherwise stated.

Description of Business and Summary of Significant Accounting Policies

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

Concentration of Risk

The prescription drug benefit under Medicare Part D (“Part D”) became effective on January 1, 2006. As a result, providers of long-term care pharmacy services, including Omnicare, experienced a significant shift in payor mix beginning in 2006. Approximately 39% of the Company’s revenues in the six months ended June 30, 2009 were generated under the Part D program. The Company estimates that approximately 25% of these Part D revenues during the six months ended June 30, 2009 relate to patients enrolled in Part D prescription drug plans sponsored by UnitedHealth Group, Inc. and its affiliates (“United”). United and a small number

6


of other Part D Plan sponsors and pharmaceutical benefit managers reimburse a significant portion of the Company’s Part D revenues. Prior to the implementation of the Medicare Part D program, most of the Part D residents served by the Company were reimbursed under state Medicaid programs and, to a lesser extent, private pay sources.

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

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

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

On July 11, 2007, the Company commenced legal action against a group of its customers for, among other things, the collection of past-due receivables that are owed to the Company. Specifically, approximately $96 million (excluding interest) is owed to the Company by this group of customers as of June 30, 2009, of which approximately $90 million is past-due based on applicable payment terms (a significant portion of which is not reserved based on the relevant facts and circumstances).

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

7


Fair Value

On January 1, 2008, the Company adopted the provisions of SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines a hierarchy which prioritizes the inputs in fair value measurements. “Level 1” measurements are measurements using quoted prices in active markets for identical assets or liabilities. “Level 2” measurements use significant other observable inputs. “Level 3” measurements are measurements using significant unobservable inputs which require a company to develop its own assumptions. In recording the fair value of assets and liabilities, companies must use the most reliable measurement available. The impact to the Company’s consolidated results of operations, financial position and cash flows upon adoption of SFAS 157 was not material. The assets, as further described in detail at the “Fair Value” note of the Notes to the Consolidated Financial Statements in Omnicare’s 2008 Annual Report, measured at fair value as of June 30, 2009 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Based on

 

 

 

 

 

 


 

 

 

Fair Value
at June 30,
2009

 

Quoted Prices
in Active
Markets
(Level 1)

 

Other
Observable
Inputs
(Level 2)

 

Unobservable
Inputs
(Level 3)

 

 

 


 


 


 


 

Rabbi trust assets

 

$

130,506

 

$

130,506

 

$

 

$

 

Interest rate swap agreement - fair value hedge

 

 

2,228

 

 

 

 

2,228

 

 

 

Derivatives

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 

Total

 

$

132,734

 

$

130,506

 

$

2,228

 

$

 

 

 



 



 



 



 

In the second quarter of 2009, the Company adopted the provisions of FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1”), which requires disclosures about fair value of financial instruments for interim reporting periods. The fair value of the Company’s fixed-rate debt facilities is based on quoted market prices and is summarized as follows (in thousands):

Fair Value of Financial Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2009

 

December 31, 2008

 

 

 


 


 

Financial Instrument:

 

Book Value

 

Market Value

 

Book Value

 

Market Value

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

6.125% senior subordinated notes, due 2013, gross

 

$

250,000

 

$

226,600

 

$

250,000

 

$

208,800

 

6.75% senior subordinated notes, due 2013

 

 

225,000

 

 

203,600

 

 

225,000

 

 

189,000

 

6.875% senior subordinated notes, due 2015

 

 

525,000

 

 

477,800

 

 

525,000

 

 

446,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.00% junior subordinated convertible debentures, due 2033

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying value

 

 

198,030

 

 

 

 

 

197,029

 

 

 

 

Unamortized debt discount

 

 

146,970

 

 

 

 

 

147,971

 

 

 

 

 

 



 

 

 

 



 

 

 

 

Principal amount

 

 

345,000

 

 

244,600

 

 

345,000

 

 

250,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.25% convertible senior debentures, due 2035

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying value

 

 

759,908

 

 

 

 

 

747,185

 

 

 

 

Unamortized debt discount

 

 

217,592

 

 

 

 

 

230,315

 

 

 

 

 

 



 

 

 

 



 

 

 

 

Principal amount

 

 

977,500

 

 

672,000

 

 

977,500

 

 

565,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8


Common Stock Repurchase Program

On March 27, 2008, the Company announced that its Board of Directors authorized a program to repurchase, from time to time, shares of Omnicare’s outstanding common stock having an aggregate value of up to $100 million, depending on market conditions and other factors. During the first half of 2008, the Company repurchased approximately 4.1 million shares at a cost of approximately $100 million. Accordingly, the Company has utilized the full amount of share repurchase authority and completed the program. These repurchases were made in open market or privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18 and other applicable legal requirements.

Accumulated Other Comprehensive Income (Loss)

The accumulated other comprehensive income (loss) balances at June 30, 2009 and December 31, 2008, net of aggregate applicable tax benefits of $5.1 million and $2.5 million, respectively, by component and in the aggregate, follow (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30,
2009

 

December 31,
2008

 

 

 


 


 

Cumulative foreign currency translation adjustments

 

$

6,677

 

$

4,112

 

Unrealized gain on fair value of investments

 

 

2,751

 

 

7,340

 

Pension and postemployment benefits

 

 

(10,979

)

 

(11,288

)

 

 



 



 

Total accumulated other comprehensive (loss) income adjustments, net

 

$

(1,551

)

$

164

 

 

 



 



 

Noncontrolling Interests

Effective January 1, 2009, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 requires all entities to report noncontrolling (minority) interests in subsidiaries in the same way as equity in the consolidated financial statements. SFAS 160 is effective for the first annual reporting period beginning after December 15, 2008. The first quarter 2009 adoption of SFAS 160 had an immaterial effect on the Company’s consolidated results of operations, financial position and cash flows.

Subsequent Events

In the second quarter of 2009, the Company adopted the provisions of SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 requires that entities disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued. The Company evaluated subsequent events through July 30, 2009, which is the date the financial statements were issued, and noted no material subsequent events had occurred through this date warranting revision to the financial statements.

9


Income Taxes

The effective income tax rate was 42.0% and 44.7% for the three and six months ended June 30, 2009, respectively, as compared to the rate of 36.9% and 38.4%, respectively, for the same prior-year period. The year-over-year increase in the effective tax rate is primarily attributable to certain nondeductible litigation costs recognized in the 2009 periods. The effective tax rates in 2009 and 2008 are higher than the federal statutory rate largely as a result of the impact of state and local income taxes and various nondeductible expenses (including a portion of the aforementioned litigation costs in the 2009 periods).

Recently Issued Accounting Standards

In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSP FAS 132(R)-1”). Among other items, FSP FAS 132(R)-1 requires increased disclosures about plan assets in an employer’s defined benefit pension or other postretirement plans such as how investment allocation decisions are made; major categories of plan assets; inputs and valuation techniques used to measure the fair value of plan assets; the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and significant concentrations of risk within plan assets. The disclosures about plan assets required by FSP FAS 132(R)-1 shall be provided for fiscal years ending after December 15, 2009. The Company is evaluating the impact of this recently issued standard on its disclosures.

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 removes the concept of a qualifying special-purpose entity from Statement 140 and removes the exception from applying FASB Interpretation No. (“FIN”) 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“FIN 46(R)”), to qualifying special purpose entities. This statement requires that a transferor recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer of financial assets accounted for as a sale. SFAS 166 is effective for an entity’s first annual reporting period that begins after November 15, 2009. The Company does not anticipate the effect of this recently issued standard to be material to its consolidated results of operations, financial position and cash flows.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FIN 46(R)” (“SFAS 167”). SFAS 167 amends FIN 46(R) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. SFAS 167 is effective for an entity’s first annual reporting period that begins after November 15, 2009. The Company does not anticipate the effect of this recently issued standard to be material to its consolidated results of operations, financial position and cash flows.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hirearchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168 establishes the Codification as the source of

10


authoritative U.S. Generally Accepted Accounting Principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities.

Note 2 – Change in Method of Accounting for Convertible Debt

Effective January 1, 2009, the Company retrospectively adopted the provisions of FSP No. APB 14-1. Among other items, FSP APB 14-1 specifies that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that reflects the entity’s calculated nonconvertible debt borrowing rate when the debt was issued. Comparative financial statements for prior years have been adjusted to apply the new method retrospectively. The affected financial statement line items and the amount of the adjustments for the three and six month periods ending June 30, 2008 and as of December 31, 2008 follow (in thousands):

Income Statement
Three and Six Months Ended June 30, 2008

 

 

 

 

 

 

 

 

 

 

Three months
ended
June 30,
2008

 

Six months
ended
June 30,
2008

 

 

 


 


 

 

 

 

 

 

 

Amortization of discount on convertible notes (Note 6)

 

$

(6,421

)

$

(12,721

)

 

 

 

 

 

 

 

 

Interest expense

 

 

234

 

 

468

 

 

 



 



 

Income from continuing operations before income taxes

 

 

(6,187

)

 

(12,253

)

 

Income tax provision

 

 

2,317

 

 

4,589

 

 

 



 



 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

(3,870

)

$

(7,664

)

 

 



 



 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations:

 

 

 

 

 

 

 

Basic

 

$

(0.03

)

$

(0.06

)

 

 



 



 

Diluted

 

$

(0.03

)

$

(0.06

)

 

 



 



 

Comprehensive income

 

$

(3,870

)

$

(7,664

)

 

 



 



 

11


Balance Sheet
As of December 31, 2008

 

 

 

 

 

 

 

December 31,
2008

 

 

 


 

 

Other noncurrent assets

 

$

(9,473

)

 

 

 

 

 

Total noncurrent assets

 

 

(9,473

)

 

 

 

 

 

Total assets

 

 

(9,473

)

 

 

 

 

 

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

 

 

(378,286

)

 

 

 

 

 

Deferred income tax liabilities

 

 

135,328

 

 

 

 

 

 

Total noncurrent liabilities

 

 

(242,958

)

 

 

 

 

 

Total liabilities

 

 

(242,958

)

 

 

 

 

 

Paid-in capital (Note 6)

 

 

278,502

 

 

 

 

 

 

Retained earnings

 

 

(45,017

)

 

 

 

 

 

Total stockholders’ equity

 

 

233,485

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

 

(9,473

)

Statement of Cash Flows
Six Months Ended June 30, 2008

 

 

 

 

 

 

 

Six months
ended
June 30, 2008

 

 

 


 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income

 

$

(7,664

)

 

 

 

 

 

Amortization expense

 

 

12,721

 

 

 

 

 

 

Change in other current and noncurrent assets

 

 

(468

)

 

 

 

 

 

Change in current and noncurrent liabilities

 

 

(4,589

)

 

 

 

 

 

Net cash flows from operating activities

 

 

 

12


Note 3 – Discontinued Operations

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended,
June 30,

 

Six months ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Net sales

 

$

19,818

 

$

27,440

 

$

41,273

 

$

55,981

 

 

Loss from operations of disposal group, pretax

 

 

(2,008

)

 

(912

)

 

(4,222

)

 

(3,172

)

Income tax benefit

 

 

798

 

 

353

 

 

1,678

 

 

1,226

 

 

 



 



 



 



 

Loss from operations of disposal group, aftertax

 

 

(1,210

)

 

(559

)

 

(2,544

)

 

(1,946

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment charge, pretax

 

 

(14,492

)

 

 

 

(14,492

)

 

 

Income tax benefit on impairment charge

 

 

2,427

 

 

 

 

2,427

 

 

 

 

 



 



 



 



 

Impairment charge, aftertax

 

 

(12,065

)

 

 

 

(12,065

)

 

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, aftertax

 

$

(13,275

)

$

(559

)

$

(14,609

)

$

(1,946

)

 

 



 



 



 



 

Note 4 – Acquisitions

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

Effective January 1, 2009, the Company adopted the provisions of SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”) as amended by FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies” (“FSP FAS 141(R)-1”). SFAS 141R requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction at fair value; and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, including earn-out provisions. The 2009 implementation resulted in acquisition and other related costs of approximately $2.0 million and

13


$2.9 million pretax during the three and six months ended June 30, 2009, respectively, which were primarily related to professional fees for acquisitions completed during the six months ended June 30, 2009.

During the first six months of 2009, Omnicare completed four acquisitions of businesses in the Pharmacy Services segment, none of which were, individually or in the aggregate, significant to the Company. Acquisitions of businesses required outlays of $43.1 million (including amounts payable pursuant to acquisition agreements relating to pre-2009 acquisitions) in the six months ended June 30, 2009. The impact of these aggregate acquisitions on the Company’s overall goodwill balance has been reflected in the disclosures at the “Goodwill and Other Intangible Assets” note. The Company continues to evaluate the tax effects, identifiable intangible assets and other pre-acquisition contingencies relating to certain acquisitions. Omnicare is in the process of completing its allocation of the purchase price for certain acquisitions and, accordingly, the goodwill and other identifiable intangible assets balances are preliminary and subject to change. The net assets and operating results of acquisitions have been included in the Company’s consolidated financial statements from their respective dates of acquisition.

Note 5 - Goodwill and Other Intangible Assets

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

 

 

 

 

 

 

 

 

 

 

 

 

Pharmacy
Services

 

CRO
Services

 

Total

 

 


 


 


Balance as of December 31, 2008

 

$

4,121,208

 

$

90,013

 

$

4,211,221

Goodwill acquired in the six months ended June 30, 2009

 

 

21,332

 

 

 

 

21,332

Other

 

 

1,308

 

 

1,467

 

 

2,775

 

 



 



 



Balance as of June 30, 2009

 

$

4,143,848

 

$

91,480

 

$

4,235,328

 

 



 



 



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

The decrease in the June 30, 2009 net carrying amount of the Company’s other identifiable intangible assets of approximately $18 million from December 31, 2008 primarily relates to amortization expense recorded during the six-month period, partially offset by increases due primarily to customer relationship assets and non-compete agreements associated with recent acquisitions, which have a weighted-average life of approximately 10 years.

14


Note 6 - Debt

A summary of debt follows (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30,
2009

 

December 31,
2008

 

 

 


 


 

Revolving loans, due 2010, $800 million

 

$

 

$

 

Senior term A loan, due 2010

 

 

250,000

 

 

400,000

 

6.125% senior subordinated notes, due 2013

 

 

250,000

 

 

250,000

 

6.75% senior subordinated notes, due 2013

 

 

225,000

 

 

225,000

 

6.875% senior subordinated notes, due 2015

 

 

525,000

 

 

525,000

 

4.00% junior subordinated convertible debentures, due 2033

 

 

345,000

 

 

345,000

 

3.25% convertible senior debentures, due 2035

 

 

977,500

 

 

977,500

 

Capitalized lease and other debt obligations

 

 

3,386

 

 

4,381

 

 

 



 



 

Subtotal

 

 

2,575,886

 

 

2,726,881

 

Add interest rate swap agreement

 

 

2,228

 

 

6,013

 

(Subtract) unamortized debt discount

 

 

(364,562

)

 

(378,286

)

(Subtract) current portion of debt

 

 

(1,438

)

 

(1,784

)

 

 



 



 

Total long-term debt, net

 

$

2,212,114

 

$

2,352,824

 

 

 



 



 

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

At June 30, 2009, there was no outstanding balance under the Company’s $800 million revolving credit facility, maturing on July 28, 2010 (“Revolving Loans”), and $250 million outstanding under the Company’s senior term A loan facility, maturing on July 28, 2010 (the “Term Loans”). The Company repaid $150 million on the Term Loans during the six months ended June 30, 2009. The interest rate on the Term Loans was 2.07% at June 30, 2009. As of June 30, 2009, the Company had approximately $26 million outstanding relating to standby letters of credit, substantially all of which are subject to automatic annual renewals. The Company amortized to expense approximately $2.9 million and $3.6 million of deferred debt issuance costs during the six months ended June 30, 2009 and 2008, respectively.

The estimated floating interest rate on the interest rate swap agreement was 3.22% at June 30, 2009, as compared to the 6.125% stated rate on the corresponding senior subordinated notes due 2013 with remaining principal outstanding of $250 million at June 30, 2009.

The Company has two convertible debentures, the Series B 4.00% junior subordinated convertible debentures, due 2033 (the “New 4.00% Debentures”) and its 3.25% convertible senior debentures, due 2035 (“3.25% Convertible Debentures”). For further description of the Company’s convertible debt see the “Debt” note of the “Notes to Consolidated Financial Statements” in Omnicare’s 2008 Annual Report. Effective January 1, 2009, the Company retrospectively adopted the provisions of FSP APB 14-1 (see additional information at the

15


“Change in Method of Accounting for Convertible Debt” note). Among other items, FSP APB 14-1 specifies that issuers of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that reflects the entity’s calculated nonconvertible debt borrowing rate when the debt was issued. The effect of this accounting change on the carrying amounts of the Company’s debt and equity balances, are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30,
2009

 

December 31,
2008

 

 

 


 


 

Carrying value of equity component

 

$

441,318

 

$

441,318

 

 

 



 



 

 

 

 

 

 

 

 

 

Principal amount of convertible debt

 

$

1,322,500

 

$

1,322,500

 

Unamortized debt discount

 

 

(364,562

)

 

(378,286

)

 

 



 



 

Net carrying value of convertible debt

 

$

957,938

 

$

944,214

 

 

 



 



 

As of June 30, 2009, the remaining amortization period for the debt discount was approximately 24 and 6.5 years for the New 4.00% Debentures and 3.25% Convertible Debentures, respectively.

The effective interest rates for the liability components of the New 4.00% Debentures and the 3.25% Convertible Debentures were 8.01% and 7.625%, respectively. The impact of this accounting change was an increase in pretax interest expense of approximately $6.9 million and $13.7 million ($4.3 million and $8.5 million aftertax) for the three and six months ended June 30, 2009, respectively, and $6.4 million and $12.7 million ($4.0 million and $8.0 million aftertax) for the three and six months ended June 30, 2008, respectively.

Note 7 - Stock-Based Compensation

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

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

16


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended,
June 30,

 

Six months ended
June 30,

 

 


 


 

 

2009

 

2008

 

2009

 

2008

 

 


 


 


 


Stock awards

 

$

5,136

 

$

5,369

 

$

10,651

 

$

11,064

Stock options

 

 

1,334

 

 

1,214

 

 

2,651

 

 

2,245

 

 



 



 



 



Total stock-based compensation expense

 

$

6,470

 

$

6,583

 

$

13,302

 

$

13,309

 

 



 



 



 



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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

 

 

 


 


 

 

 

 

 

 

Expected volatility

 

 

36.3

%

 

30.8

%

 

 

 

 

 

Risk-free interest rate

 

 

2.4

%

 

3.1

%

 

 

 

 

 

Expected dividend yield

 

 

0.3

%

 

0.4

%

 

 

 

 

 

Expected term of options (in years)

 

 

4.8

 

 

4.7

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

 


 


 

 

2009

 

2008

 

2009

 

2008

 

 


 


 


 


Weighted average fair value per option

 

$

9.10

 

$

7.50

 

$

9.14

 

$

7.44

 

 



 



 



 



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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted-
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contractual
Term

 

Aggregate
Intrinsic
Value

 

 


 


 


 


Options outstanding, beginning of period

 

 

7,348

 

$

30.19

 

 

 

 

 

 

Options granted

 

 

63

 

 

27.63

 

 

 

 

 

 

Options exercised

 

 

(1,039

)

 

15.42

 

 

 

 

 

 

Options forfeited

 

 

(24

)

 

34.48

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Options outstanding, end of period

 

 

6,348

 

$

32.59

 

 

5.2

 

$

9,080

 

 



 



 



 



Options exercisable, end of period

 

 

5,133

 

$

32.88

 

 

4.4

 

$

7,801

 

 



 



 



 



The total exercise date intrinsic value of options exercised during the six months ended June 30, 2009 was $10.2 million.

17


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

 

 

 

 

 

 

 

 

 

Shares

 

Weighted-
Average
Grant Date
Price

 

 


 


Non-vested shares, beginning of period

 

 

2,167

 

$

34.23

Shares awarded

 

 

67

 

 

25.37

Shares vested

 

 

(464

)

 

32.29

Shares forfeited

 

 

(8

)

 

45.89

 

 



 

 

 

Non-vested shares, end of period

 

 

1,762

 

$

34.35

 

 



 



As of June 30, 2009, there was approximately $57 million of total unrecognized compensation cost related to non-vested stock awards and stock options granted to Omnicare employees, which is expected to be recognized as expense prospectively over a remaining weighted-average period of approximately five years. The total grant date fair value of shares vested during the six months ended June 30, 2009 related to stock awards and stock options was approximately $16.7 million.

The Company recorded charges relating to the prior implementation of SFAS 123R, which primarily relate to stock option expense, of approximately $1.4 million and $3.2 million for the three and six months ended June 30, 2009, respectively, and $1.2 million and $2.4 million for the three and six months ended June 30, 2008, respectively.

Note 8 - Employee Benefit Plans

The Company has various defined contribution savings plans under which eligible employees can participate by contributing a portion of their salary for investment, at the direction of each employee, in one or more investment funds, as further described in Omnicare’s 2008 Annual Report. Expense relating primarily to the Company’s matching contributions for these defined contribution plans was $1.8 million and $3.6 million for the three and six months ended June 30, 2009, respectively, and $1.7 million and $3.6 million for the three and six months ended June 30, 2008, respectively.

18


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended,
June 30,

 

Six months ended
June 30,

 

 

 


 


 

 

 

2009

 

2008

 

2009

 

2008

 

 

 


 


 


 


 

Service cost

 

$

374

 

$

1,280

 

$

749

 

$

2,779

 

Interest cost

 

 

1,499

 

 

2,374

 

 

2,998

 

 

4,759

 

Amortization of deferred amounts (primarily prior actuarial losses)

 

 

250

 

 

3,674

 

 

500

 

 

7,347

 

Return on assets

 

 

(60

)

 

(54

)

 

(120

)

 

(108

)

Other

 

 

 

 

 

 

 

 

(268

)

 

 



 



 



 



 

Net periodic pension cost

 

$

2,063

 

$

7,274

 

$

4,127

 

$

14,509

 

 

 



 



 



 



 

As of June 30, 2009, the aggregate defined benefit plans’ liabilities total approximately $109 million. During the first six months of 2009, the Company made no payments related to funding the rabbi trusts for the settlement of the Company’s pension obligations, resulting in aggregate assets with a fair value of approximately $131 million at June 30, 2009. The aggregate defined benefit plans’ liabilities are the projected benefit obligation to be paid based upon services through retirement. The aggregate assets in the rabbi trusts are the amounts required to fund the lump sum benefits of the Excess Benefit Plan. These benefits are fully funded as of June 30, 2009.

19


Note 9 - Earnings Per Share Data

Basic earnings per share are computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share include the dilutive effect of stock options, warrants and restricted stock awards, as well as convertible debentures.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

 

 


 

2009:

 

Income
(Numerator)

 

Common
Shares
(Denominator)

 

Per
Common
Share
Amounts

 


 

Basic EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

41,994

 

 

 

 

$

0.36

 

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

 

 

(13,275

)

 

 

 

 

(0.11

)

 

 



 

 

 

 



 

Net income

 

 

28,719

 

 

116,852

 

$

0.25

 

 

 

 

 

 

 

 

 



 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

4.00% junior subordinated convertible debentures

 

 

71

 

 

275

 

 

 

 

Stock options, warrants and awards

 

 

 

 

513

 

 

 

 

 

 



 



 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations plus assumed conversions

 

 

42,065

 

 

 

 

$

0.36

 

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

 

 

(13,275

)

 

 

 

 

(0.11

)

 

 



 

 

 

 



 

Net income plus assumed conversions

 

$

28,790

 

 

117,640

 

$

0.24

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 


 

Basic EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

33,494

 

 

 

 

$

0.28

 

Loss from discontinued operations

 

 

(559

)

 

 

 

 

(0.00

)

 

 



 

 

 

 



 

Net income

 

 

32,935

 

 

117,901

 

$

0.28

 

 

 

 

 

 

 

 

 



 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

4.00% junior subordinated convertible debentures

 

 

69

 

 

275

 

 

 

 

Stock options, warrants and awards

 

 

 

 

496

 

 

 

 

 

 



 



 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations plus assumed conversions

 

 

33,563

 

 

 

 

$

0.28

 

Loss from discontinued operations

 

 

(559

)

 

 

 

 

(0.00

)

 

 



 

 

 

 



 

Net income plus assumed conversions

 

$

33,004

 

 

118,672

 

$

0.28

 

 

 



 



 



 

20


 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 


 

2009:

 

Income
(Numerator)

 

Common
Shares
(Denominator)

 

Per
Common
Share
Amounts

 


 

Basic EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

74,222

 

 

 

 

$

0.64

 

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

 

 

(14,609

)

 

 

 

 

(0.13

)

 

 



 

 

 

 



 

Net income

 

 

59,613

 

 

116,652

 

$

0.51

 

 

 

 

 

 

 

 

 



 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

4.00% junior subordinated convertible debentures

 

 

142

 

 

275

 

 

 

 

Stock options, warrants and awards

 

 

 

 

563

 

 

 

 

 

 



 



 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations plus assumed conversions

 

 

74,364

 

 

 

 

$

0.63

 

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

 

 

(14,609

)

 

 

 

 

(0.12

)

 

 



 

 

 

 



 

Net income plus assumed conversions

 

$

59,755

 

 

117,490

 

$

0.51

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 


 

Basic EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

61,031

 

 

 

 

$

0.51

 

Loss from discontinued operations

 

 

(1,946

)

 

 

 

 

(0.02

)

 

 



 

 

 

 



 

Net income

 

 

59,085

 

 

118,874

 

$

0.50

 

 

 

 

 

 

 

 

 



 

Effect of Dilutive Securities

 

 

 

 

 

 

 

 

 

 

4.00% junior subordinated convertible debentures

 

 

139

 

 

275

 

 

 

 

Stock options, warrants and awards

 

 

 

 

457

 

 

 

 

 

 



 



 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

Income from continuing operations plus assumed conversions

 

 

61,170

 

 

 

 

$

0.51

 

Loss from discontinued operations

 

 

(1,946

)

 

 

 

 

(0.02

)

 

 



 

 

 

 



 

Net income plus assumed conversions

 

$

59,224

 

 

119,606

 

$

0.50

 

 

 



 



 



 

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

During the three and six months ended June 30, 2009 and 2008, the anti-dilutive effect associated with certain stock options, warrants and awards was excluded from the computation of diluted EPS, since the exercise price was greater than the average market price of the Company’s common stock during these periods. The aggregate number of stock options, warrants and awards excluded from the computation of diluted EPS for the quarters ended June 30, 2009 and 2008 totaled 6.2 million and 7.5 million, respectively, and for the six months ended June 30, 2009 and 2008, totaled 6.2 million and 7.3 million, respectively.

Effective January 1, 2009, the Company adopted the provisions of FSP Emerging Issues Task Force (“EITF”) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP-EITF 03-6-1”). FSP-EITF 03-6-1 clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are to be included in the computation of earnings per share under the two-class method. FSP-EITF 03-

21


6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. FSP-EITF 03-6-1 did not have a material impact on the Company’s consolidated results of operations, financial position or cash flows.

Note 10 - Restructuring and Other Related Charges

Omnicare Full Potential Program

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

This program is expected to be completed over a multi-year period and is estimated to result in total pretax restructuring and other related charges of approximately $106 million. As presented in further detail below, the Company recorded restructuring and other related charges for the Omnicare Full Potential Plan of approximately $6 million and $13 million pretax (approximately $4 million and $8 million aftertax) during the three and six months ended June 30, 2009, respectively, and approximately $36 million pretax during the year ended December 31, 2008 (approximately $11 million and $17 million pretax in the three and six months ended June 30, 2008), or cumulative aggregate restructuring and other related charges of approximately $96 million before taxes through the second quarter of 2009. The remainder of the overall restructuring and other related charges will be recognized and disclosed prospectively, as the remaining portions of the project are finalized and implemented. The Company eliminated approximately 1,200 positions in completing its initial phase of the program. The remainder of the program is currently estimated to result in a net reduction of approximately 1,200 positions (1,900 positions eliminated, net of 700 new positions filled in different geographic locations as well as to perform new functions required by the hub-and-spoke model of operations), of which approximately 500 positions had been eliminated as of June 30, 2009. The foregoing reductions do not include additional savings expected from lower levels of overtime and reduced temporary labor. The Company currently estimates reductions in overtime, excess hours and temporary help, as well as productivity gains, to equal an additional 820 full-time equivalents. In addition, in July 2009, the Company implemented a temporary payroll containment and reduction program across the organization designed to facilitate the achievement of the productivity and efficiency goals associated with the Full Potential Plan.

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

22


Details of the Omnicare Full Potential Plan restructuring and other related charges follow (pretax, in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring charges:

 

Balance at
December 31,
2008

 

2009
Provision/
Accrual

 

Utilized
during
2009

 

Balance at
June 30,
2009

 


 


 


 


 


 

Employee severance

 

$

 

$

2,672

 

$

(2,570

)

$

102

 

Employment agreement buy-outs

 

 

35

 

 

113

 

 

(148

)

 

 

Lease terminations

 

 

8,885

 

 

1,204

 

 

(2,165

)

 

7,924

 

Other assets, fees and facility exit costs

 

 

2,394

 

 

4,885

 

 

(6,215

)

 

1,064

 

 

 



 



 



 



 

Total restructuring charges

 

$

11,314

 

 

8,874

 

$

(11,098

)

$

9,090

 

 

 



 

 

 

 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other related charges

 

 

 

 

 

3,926

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total restructuring and other related charges

 

 

 

 

$

12,800

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

As of June 30, 2009, the Company has made cumulative payments of approximately $19 million of severance and other employee-related costs for the Omnicare Full Potential Plan. The remaining liabilities at June 30, 2009, represent amounts not yet paid relating to actions taken in connection with the program (primarily lease payments and professional fees) and will be settled as these matters are finalized. The provision/accrual and corresponding payment amounts relating to employee severance are being accounted for primarily in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits;” and the provision/accrual and corresponding payment amounts relating to employment agreement buy-outs are being accounted for primarily in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”).

Note 11 - Commitments and Contingencies

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

As previously disclosed, the United States Attorney’s Office, District of Massachusetts is conducting an investigation relating to the Company’s relationships with certain manufacturers and distributors of pharmaceutical products and certain customers, as well as with respect to contracts with certain companies acquired by the Company. Any actions resulting from this investigation could result in civil or criminal proceedings against the Company. The Company believes that it has complied with all applicable laws and regulations with respect to these matters.

On October 27, 2008, the U.S. District Court in Boston, Massachusetts unsealed a qui tam complaint against the Company that was originally filed under seal with the court on July 16,

23


2002. This action was brought by Deborah Maguire as a private party “qui tam relator” on behalf of the federal government and various state governments. On September 16, 2008, the U.S. Government filed a Notice that it is not intervening in the action at this time.

A qui tam action is always filed under seal. Before a qui tam action is unsealed, and typically following an investigation by the government initiated after the filing of the qui tam action, the government is required to notify the court of its decision whether to intervene in the action. The government could seek to intervene in this qui tam action in the future with permission from the court. Where the government ultimately declines to intervene, the qui tam relators may continue to pursue the litigation at their own expense on behalf of the federal or state government and, if successful, would receive a portion of the government’s recovery. On April 2, 2009, counsel for Ms. Maguire served the Company with the complaint relating to this action.

The action brought by Ms. Maguire alleges civil violations of the False Claims Act, 31 U.S.C. (S) 3729 et seq. and various state false claims statutes based on allegations that the Company: submitted claims for name brand drugs when actually providing generic versions of the same drug to nursing homes; provided consultant pharmacist services to its customers at below-market rates to induce the referral of pharmaceutical business in violation of the Anti-Kickback Statute, 42 U.S.C. 1320a-7b; and accepted discounts from drug manufacturers in return for recommending that certain pharmaceuticals be prescribed to nursing home residents in violation of the Anti-Kickback Statute. The unsealed action seeks damages provided for in the False Claims Act and applicable state statutes.

In addition to the matters described above, on October 30 and 31, 2008, Omnicare was provided with copies of two complaints against Omnicare and other pharmaceutical manufacturer defendants that were previously filed under seal with the U.S. District Court in Boston, Massachusetts. One complaint was brought by Bernard Lisitza, and the other by David Kammerer, both as private party “qui tam relators” on behalf of the federal government and various state governments. The U.S. Government has notified the court that it is not intervening in these actions at this time.

The action brought by Mr. Kammerer alleges civil violations of the False Claims Act, 31 U.S.C. (S) 3729 et seq. and various state statutes based on allegations that Omnicare accepted rebates, post-purchase discounts, grants and other forms of remuneration from drug manufacturers in return for purchasing pharmaceuticals from those manufacturers and taking steps to increase the purchase of those manufacturers’ drugs in violation of the Anti-Kickback Statute, 42 U.S.C. (S) 1320a-7b and applicable state statutes. The action brought by Mr. Lisitza alleges civil violations of the False Claims Act and various state statutes based on allegations that Omnicare: accepted rebates from drug manufacturers in return for recommending to physicians that certain pharmaceuticals be prescribed to nursing home residents in violation of the Anti-Kickback Statute and applicable state statutes; made false statements and omissions to physicians in connection with its recommendations of those pharmaceuticals; and substituted certain pharmaceuticals without physician authorization. The unsealed actions seek damages provided for in the False Claims Act and applicable state statutes. On March 27 and April 3, 2009, counsel for Mr. Kammerer and Mr. Lisitza, respectively, served the Company with the complaints relating to their respective actions against the Company. The Company and counsel

24


for each of Ms. Maguire and Messrs. Kammerer and Lisitza subsequently stipulated that the Company shall have until September 29, 2009 to answer or otherwise respond to the complaints.

In addition to the unsealed qui tam actions described above, the Company is aware of two other qui tam complaints against it and other companies that have been filed with the U.S. District Court in Boston, Massachusetts and remain under seal.

On or about June 24, 2009, the Company reached an agreement in principle, without admitting liability, with the U.S. Attorney’s Office, District of Massachusetts, pursuant to which the Company would pay $98 million plus interest from June 24, 2009 to settle the claims raised in the two sealed complaints, the Maguire, Kammerer and Lisitza complaints and other similar claims. This agreement in principle is subject to approval by the Company’s board of directors and agreement on the terms of the settlement documentation, including with respect to the similar claims referred to above. There can be no assurance as to whether any final settlement will be reached. If any final settlement is reached, there can be no assurance as to the scope, terms or ultimate cost to the Company thereof.

Omnicare recorded a special litigation charge of approximately $23 million and approximately $58 million pretax in its financial results for the three and six months ended June 30, 2009, respectively, in order to increase the settlement reserve it has established in connection with the investigation by the U.S. Attorney’s Office, District of Massachusetts and the related matters described above to approximately $98 million. This special litigation charge and the settlement reserve relate to the Company’s estimate of potential settlement amounts and associated costs under SFAS No. 5, “Accounting for Contingencies.” The Company cannot predict the ultimate outcome of this matter or the amount, if any, of additional charges that may be taken in the future in connection with this matter.

The Company believes that all of the allegations described above are without merit and intends to vigorously defend itself in these actions if pursued.

As previously disclosed, on November 14, 2006, the Company entered into a voluntary civil settlement of all federal and state civil claims arising from allegations relating to three generic pharmaceuticals provided by the Company in connection with the substitution of capsules for tablets (Ranitidine), tablets for capsules (Fluoxetine) and two 7.5 mg tablets for one 15 mg tablet (Buspirone). Another issue alleged by one qui tam relator remains under seal and was not resolved by the settlement. The settlement agreement did not include any finding of wrongdoing or any admission of liability. As part of the settlement agreement, on November 9, 2006, the Company entered into a Corporate Integrity Agreement with the Department of Health and Human Services Office of the Inspector General with a term of five years from November 9, 2006. The Corporate Integrity Agreement requires that the Company maintain its compliance program in accordance with the terms of the Corporate Integrity Agreement. The agreement contains specific requirements regarding the development and implementation of therapeutic interchange programs and the general training of certain Company employees as to the requirements of the Company’s compliance program and the Corporate Integrity Agreement. The requirements of the Corporate Integrity Agreement have resulted in increased costs to maintain the Company’s compliance program and could result in greater scrutiny by federal

25


regulatory authorities. Violations of the Corporate Integrity Agreement could subject the Company to significant monetary and/or administrative penalties.

As previously disclosed, on October 5, 2006, the Company entered into a voluntary settlement agreement and a Corporate Integrity Agreement with the State of Michigan to resolve the Michigan Attorney General’s investigation relating to certain billing issues under the Michigan Medicaid program at Specialized Pharmacy Services, a subsidiary of the Company located in Michigan. On October 26, 2007, the Company also entered into settlement agreements with the federal government and the State of Michigan to resolve certain hospice claims relating to Specialized Pharmacy Services. In connection with the settlements, the November 9, 2006 Corporate Integrity Agreement with the Department of Health and Human Services Office of the Inspector General was also amended to cover certain hospice billing matters. The settlement agreements do not include any finding of wrongdoing or any admission of liability. The Corporate Integrity Agreement with the State of Michigan requires that the Company and Specialized Pharmacy Services maintain Specialized Pharmacy Services’ compliance program in accordance with the terms of the Corporate Integrity Agreement. The agreement contains specific requirements regarding compliance with Medicaid policies governing access to pharmacy facilities and records, unit dose billing agreements, consumption billing, hospice patient terminal illness prescriptions and prescriptions dispensed after a patient’s death. The requirements of the Corporate Integrity Agreement have resulted in increased costs to maintain Specialized Pharmacy Services’ compliance program and could result in greater scrutiny by Michigan regulatory authorities. Violations of the Corporate Integrity Agreement could subject the Company to significant monetary and/or administrative penalties.

On February 2 and February 13, 2006, respectively, two substantially similar putative class action lawsuits, entitled Indiana State Dist. Council of Laborers & HOD Carriers Pension & Welfare Fund v. Omnicare, Inc., et al., No. 2:06cv26 (“HOD Carriers”), and Chi v. Omnicare, Inc., et al., No. 2:06cv31 (“Chi”), were filed against Omnicare and two of its officers in the United States District Court for the Eastern District of Kentucky purporting to assert claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeking, among other things, compensatory damages and injunctive relief. The complaints, which purported to be brought on behalf of all open-market purchasers of Omnicare common stock from August 3, 2005 through January 27, 2006, alleged that Omnicare had artificially inflated its earnings by engaging in improper generic drug substitution and that defendants had made false and misleading statements regarding the Company’s business and prospects. On April 3, 2006, plaintiffs in the HOD Carriers case formally moved for consolidation and the appointment of lead plaintiff and lead counsel pursuant to the Private Securities Litigation Reform Act of 1995. On May 22, 2006, that motion was granted, the cases were consolidated, and a lead plaintiff and lead counsel were appointed. On July 20, 2006, plaintiffs filed a consolidated amended complaint, adding a third officer as a defendant and new factual allegations primarily relating to revenue recognition, the valuation of receivables and the valuation of inventories. On October 31, 2006, plaintiffs moved for leave to file a second amended complaint, which was granted on January 26, 2007, on the condition that no further amendments would be permitted absent extraordinary circumstances. Plaintiffs thereafter filed their second amended complaint on January 29, 2007. The second amended complaint (i) expands the putative class to include all purchasers of Omnicare common stock from August 3,

26


2005 through July 27, 2006, (ii) names two members of the Company’s board of directors as additional defendants, (iii) adds a new plaintiff and a new claim for violation of Section 11 of the Securities Act of 1933 based on alleged false and misleading statements in the registration statement filed in connection with the Company’s December 2005 public offering, (iv) alleges that the Company failed to timely disclose its contractual dispute with UnitedHealth Group, Inc. and its affiliates (“United”), and (v) alleges that the Company failed to timely record certain special litigation reserves. The defendants filed a motion to dismiss the second amended complaint on March 12, 2007, claiming that plaintiffs had failed adequately to plead loss causation, scienter or any actionable misstatement or omission. That motion was fully briefed as of May 1, 2007. In response to certain arguments relating to the individual claims of the named plaintiffs that were raised in defendants’ pending motion to dismiss, plaintiffs filed a motion to add, or in the alternative, to intervene an additional named plaintiff, Alaska Electrical Pension Fund, on July 27, 2007. On October 12, 2007, the court issued an opinion and order dismissing the case and denying plaintiffs’ motion to add an additional named plaintiff. On November 9, 2007, plaintiffs filed a notice of appeal with the United States Court of Appeals for the Sixth Circuit with respect to the dismissal of their case. Oral argument was held on September 18, 2008.

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

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

27


The three and six months ended June 30, 2009 included a $28.4 million pretax charge ($22.0 million after taxes) and a $70.0 million pretax charge ($54.5 million after taxes), respectively, and the three and six months ended June 30, 2008 included a $16.0 million pretax charge ($10.1 million after taxes) and a $37.7 million pretax charge ($23.1 million after taxes), respectively, reflected in the “Litigation and other related professional fees” line of the Consolidated Statements of Income, primarily for litigation-related professional expenses in connection with the Company’s lawsuit against United, certain other large customer disputes, the investigation by the United States Attorney’s Office, District of Massachusetts; the purported class and derivative actions; the investigation by the federal government and certain states relating to drug substitutions; the Company’s response to subpoenas it received relating to other legal proceedings to which the Company is not a party; and the inquiry conducted by the Attorney General’s Office in Michigan relating to certain billing issues under the Michigan Medicaid program.

During 2006, the Company experienced certain quality control and product recall issues, as well as fire damage, at one of its repackaging facilities, Heartland Repack Services (“Heartland”). As a precautionary measure, the Company voluntarily and temporarily suspended operations at Heartland. During the time that the Heartland facility was closed, the Company conducted certain environmental tests at the facility. Based on the results of these tests, which showed very low levels of beta lactam residue, and the time and expense associated with completing the necessary remediation procedures, as well as the short remaining term on the lease for the current facility, the Company decided not to reopen the Heartland facility. The Company has been cooperating with federal and state officials who have been conducting investigations relating to the Repack Matters (as defined below). The Company continues to work to address and resolve certain remaining issues, and fully restore centralized repackaging to its original levels. In order to replace the capacity of the Heartland facility, the Company ramped-up production in its other repackaging facility, as well as onsite in its individual pharmacies. Further, in order to replace the repackaging capacity of the Heartland facility, on February 27, 2007, Omnicare entered into an agreement for the Repackaging Services division of Cardinal Health to serve as the contract repackager for pharmaceutical volumes previously repackaged at the Heartland facility. The agreement initially extends through October 2010. As a result, the Company has been and continues to be able to meet the needs of all of its client facilities and their residents. Addressing these issues served to increase costs and, as a result, the three months ended June 30, 2009 included special charges of approximately $1.2 million pretax (approximately $0.8 million and approximately $0.4 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($0.7 million after taxes) for additional costs precipitated by the quality control, product recall and fire damage issues at Heartland (“Repack Matters”). The associated costs for the six months ended June 30, 2009 totaled $3.2 million pretax ($1.9 million and $1.3 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($2.0 million after taxes). The three months ended June 30, 2008 included special charges of approximately $1.7 million pretax (approximately $1.5 million and approximately $0.2 million was recorded in the cost of sales and operating expenses sections of the Consolidated Statements of Income, respectively) ($1.1 million after taxes) for additional costs precipitated by the Repack Matters. The associated costs for the six months ended June 30, 2008 totaled $3.6 million pretax ($3.1 million and $0.5 million was recorded in the cost of sales and operating expenses sections of the

28


Consolidated Statements of Income, respectively) ($2.2 million after taxes). The Company maintains product recall, property and casualty and business interruption insurance, and the extent of insurance recovery for these expenses continues to be reviewed by its outside advisors. As of June 30, 2009, the Company has received no material insurance recoveries.

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

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

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

29


Note 12 - Segment Information

Based on the “management approach,” as defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” Omnicare has two operating segments. The Company’s larger segment is Pharmacy Services. Pharmacy Services primarily provides distribution of pharmaceuticals, related pharmacy consulting and other ancillary services, data management services, medical supplies, and distribution and patient assistance services for specialty pharmaceuticals. The Company’s customers are primarily skilled nursing, assisted living, hospice and other providers of healthcare services in 47 states in the United States, the District of Columbia and in Canada at June 30, 2009. The Company’s other segment is CRO Services, which provides comprehensive product development and research services to client companies in pharmaceutical, biotechnology, nutraceutical, medical devices and diagnostics industries in 31 countries around the world at June 30, 2009, including the United States.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

 

 


 

2009:

 

Pharmacy
Services

 

CRO
Services

 

Corporate and
Consolidating

 

Consolidated
Totals

 










 

Net sales

 

$

1,499,704

 

$

40,803

 

$

 

$

1,540,507

 

Depreciation and amortization expense

 

 

(21,385

)

 

(469

)

 

(13,983

)

 

(35,837

)

Restructuring and other related charges

 

 

(4,761

)

 

(653

)

 

(469

)

 

(5,883

)

Litigation and other related professional fees

 

 

(28,357

)

 

 

 

 

 

(28,357

)

Heartland repack matters

 

 

(1,196

)

 

 

 

 

 

(1,196

)

Acquisition and other related costs

 

 

(2,011

)

 

 

 

 

 

(2,011

)

Operating income (expense) from continuing operations

 

 

129,557

 

 

967

 

 

(22,443

)

 

108,081

 

Total assets

 

 

6,724,776

 

 

162,785

 

 

438,465

 

 

7,326,026

 

Capital expenditures

 

 

(6,252

)

 

(222

)

 

(244

)

 

(6,718

)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 















Net sales

 

$

1,469,081

 

$

53,631

 

$

 

$

1,522,712

 

Depreciation and amortization expense

 

 

(19,344

)

 

(450

)

 

(13,427

)

 

(33,221

)

Restructuring and other related charges

 

 

(9,222

)

 

(600

)

 

(962

)

 

(10,784

)

Litigation and other related professional fees

 

 

(16,022

)

 

 

 

 

 

(16,022

)

Heartland repack matters

 

 

(1,740

)

 

 

 

 

 

(1,740

)

Operating income (expense) from continuing operations

 

 

118,415

 

 

3,800

 

 

(28,957

)

 

93,258

 

Total assets

 

 

6,915,425

 

 

194,286

 

 

362,528

 

 

7,472,239

 

Capital expenditures

 

 

(13,714

)

 

(1,728

)

 

(81

)

 

(15,523

)

30


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 


 

2009:

 

 

Pharmacy
Services

 

 

CRO
Services

 

 

Corporate and
Consolidating

 

 

Consolidated
Totals

 














 

Net sales

 

$

2,997,066

 

$

85,546

 

$

 

$

3,082,612

 

Depreciation and amortization expense

 

 

(42,227

)

 

(943

)

 

(28,183

)

 

(71,353

)

Restructuring and other related charges

 

 

(10,759

)

 

(705

)

 

(1,336

)

 

(12,800

)

Litigation and other related professional fees

 

 

(70,022

)

 

 

 

 

 

(70,022

)

Heartland repack matters

 

 

(3,189

)

 

 

 

 

 

(3,189

)

Acquisition and other related costs

 

 

(2,850

)

 

 

 

 

 

(2,850

)

Operating income (expense) from continuing operations

 

 

250,739

 

 

3,959

 

 

(49,098

)

 

205,600

 

Total assets

 

 

6,724,776

 

 

162,785

 

 

438,465

 

 

7,326,026

 

Capital expenditures

 

 

(13,775

)

 

(742

)

 

(798

)

 

(15,315

)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 














 

Net sales

 

$

2,950,346

 

$

102,804

 

$

 

$

3,053,150

 

Depreciation and amortization expense

 

 

(38,199

)

 

(889

)

 

(28,564

)

 

(67,652

)

Restructuring and other related charges

 

 

(14,318

)

 

(1,374

)

 

(1,540

)

 

(17,232

)

Litigation and other related professional fees

 

 

(37,664

)

 

 

 

 

 

(37,664

)

Heartland repack matters

 

 

(3,633

)

 

 

 

 

 

(3,633

)

Operating income (expense) from continuing operations

 

 

229,901

 

 

6,468

 

 

(56,616

)

 

179,753

 

Total assets

 

 

6,915,425

 

 

194,286

 

 

362,528

 

 

7,472,239

 

Capital expenditures

 

 

(25,106

)

 

(2,070

)

 

(254

)

 

(27,430

)

In accordance with Emerging Issues Task Force (“EITF”) Issue No. 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred” (“EITF No. 01-14”), Omnicare included in its reported CRO segment net sales amount, for the three and six month periods ended June 30, 2009, reimbursable out-of-pockets totaling $5.2 million and $10.9 million, respectively and $8.8 million and $16.2 million for the three and six months ended June 30, 2008, respectively.

Note 13 - Guarantor Subsidiaries

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

31


Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

 

 


 

2009:

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 












 

Net sales

 

$

 

$

1,496,113

 

$

44,394

 

$

 

$

1,540,507

 

Cost of sales

 

 

 

 

1,133,316

 

 

35,462

 

 

 

 

1,168,778

 

Heartland matters

 

 

 

 

815

 

 

 

 

 

 

815

 

 

 



 



 



 



 



 

Gross profit

 

 

 

 

361,982

 

 

8,932

 

 

 

 

370,914

 

Selling, general and administrative expenses

 

 

1,603

 

 

194,925

 

 

6,963

 

 

 

 

203,491

 

Provision for doubtful accounts

 

 

 

 

22,254

 

 

456

 

 

 

22,710

 

Restructuring and other related charges

 

 

 

 

5,588

 

 

295

 

 

 

 

5,883

 

Litigation and other related professional fees

 

 

 

 

28,357

 

 

 

 

 

 

28,357

 

Repack matters

 

 

 

 

381

 

 

 

 

 

 

381

 

Acquisition and other related costs

 

 

 

 

2,011

 

 

 

 

 

 

2,011

 

 

 



 



 



 



 



 

Operating income (loss)

 

 

(1,603

)

 

108,466

 

 

1,218

 

 

 

 

108,081

 

Investment income

 

 

100

 

 

932

 

 

 

 

 

 

1,032

 

Interest expense, including amortization of discount on convertible notes

 

 

(36,513

)

 

(188

)

 

(1

)

 

 

 

(36,702

)

 

 



 



 



 



 



 

Income (loss) from continuing operations before income taxes

 

 

(38,016

)

 

109,210

 

 

1,217

 

 

 

 

72,411

 

Income tax (benefit) expense

 

 

(14,519

)

 

44,455

 

 

481

 

 

 

 

30,417

 

 

 



 



 



 



 



 

Income from continuing operations

 

 

(23,497

)

 

64,755

 

 

736

 

 

 

 

41,994

 

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

 

 

 

 

(12,620

)

 

(655

)

 

 

 

(13,275

)

Equity in net income of subsidiaries

 

 

52,216

 

 

 

 

 

 

(52,216

)

 

 

 

 



 



 



 



 



 

Net income

 

$

28,719

 

$

52,135

 

$

81

 

$

(52,216

)

$

28,719

 

 

 



 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

















 

Net sales

 

$

 

$

1,465,703

 

$

57,009

 

$

 

$

1,522,712

 

Cost of sales

 

 

 

 

1,104,369

 

 

45,495

 

 

 

 

1,149,864

 

Heartland matters

 

 

 

 

1,560

 

 

 

 

 

 

1,560

 

 

 



 



 



 



 



 

Gross profit

 

 

 

 

359,774

 

 

11,514

 

 

 

 

371,288

 

Selling, general and administrative expenses

 

 

2,349

 

 

218,582

 

 

6,020

 

 

 

 

226,951

 

Provision for doubtful accounts

 

 

 

 

23,679

 

 

414

 

 

 

 

24,093

 

Restructuring and other related charges

 

 

 

 

10,560

 

 

224

 

 

 

 

10,784

 

Litigation and other related professional fees

 

 

 

 

16,022

 

 

 

 

 

 

16,022

 

Repack matters

 

 

 

 

180

 

 

 

 

 

 

180

 

 

 



 



 



 



 



 

Operating income (loss)

 

 

(2,349

)

 

90,751

 

 

4,856

 

 

 

 

93,258

 

Investment income

 

 

817

 

 

1,142

 

 

 

 

 

 

1,959

 

Interest expense, including amortization of discount on convertible notes

 

 

(41,033

)

 

(270

)

 

(811

)

 

 

 

(42,114

)

 

 



 



 



 



 



 

Income (loss) from continuing operations before income taxes

 

 

(42,565

)

 

91,623

 

 

4,045

 

 

 

 

53,103

 

Income tax (benefit) expense

 

 

(15,985

)

 

34,054

 

 

1,540

 

 

 

 

19,609

 

 

 



 



 



 



 



 

Income from continuing operations

 

 

(26,580

)

 

57,569

 

 

2,505

 

 

 

 

33,494

 

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

 

 

 

 

(83

)

 

(476

)

 

 

 

(559

)

Equity in net income of subsidiaries

 

 

59,515

 

 

 

 

 

 

(59,515

)

 

 

 

 



 



 



 



 



 

Net income

 

$

32,935

 

$

57,486

 

$

2,029

 

$

(59,515

)

$

32,935

 

 

 



 



 



 



 



 

32


Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 


 

2009:

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 












 

Net sales

 

$

 

$

2,993,839

 

$

88,773

 

$

 

$

3,082,612

 

Cost of sales

 

 

 

 

2,249,159

 

 

71,387

 

 

 

 

2,320,546

 

Heartland matters

 

 

 

 

1,917

 

 

 

 

 

 

1,917

 

 

 



 



 



 



 



 

Gross profit

 

 

 

 

742,763

 

 

17,386

 

 

 

 

760,149

 

Selling, general and administrative expenses

 

 

8,541

 

 

399,228

 

 

11,855

 

 

 

 

419,624

 

Provision for doubtful accounts

 

 

 

 

47,075

 

 

906

 

 

 

47,981

 

Restructuring and other related charges

 

 

 

 

12,505

 

 

295

 

 

 

 

12,800

 

Litigation and other related professional fees

 

 

 

 

70,022

 

 

 

 

 

 

70,022

 

Repack matters

 

 

 

 

1,272

 

 

 

 

 

 

1,272

 

Acquisition and other related costs

 

 

 

 

2,850

 

 

 

 

 

 

2,850

 

 

 



 



 



 



 



 

Operating income (loss)

 

 

(8,541

)

 

209,811

 

 

4,330

 

 

 

 

205,600

 

Investment income

 

 

536

 

 

2,903

 

 

 

 

 

 

3,439

 

Interest expense, including amortization of discount on convertible notes

 

 

(74,341

)

 

(444

)

 

(1

)

 

 

 

(74,786

)

 

 



 



 



 



 



 

Income (loss) from continuing operations before income taxes

 

 

(82,346

)

 

212,270

 

 

4,329

 

 

 

 

134,253

 

Income tax (benefit) expense

 

 

(31,489

)

 

89,830

 

 

1,690

 

 

 

 

60,031

 

 

 



 



 



 



 



 

Income from continuing operations

 

 

(50,857

)

 

122,440

 

 

2,639

 

 

 

 

74,222

 

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

 

 

 

 

(13,238

)

 

(1,371

)

 

 

 

(14,609

)

Equity in net income of subsidiaries

 

 

110,470

 

 

 

 

 

 

(110,470

)

 

 

 

 



 



 



 



 



 

Net income

 

$

59,613

 

$

109,202

 

$

1,268

 

$

(110,470

)

$

59,613

 

 

 



 



 



 



 



 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

















 

Net sales

 

$

 

$

2,940,333

 

$

112,817

 

$

 

$

3,053,150

 

Cost of sales

 

 

 

 

2,219,779

 

 

89,666

 

 

 

 

2,309,445

 

Heartland matters

 

 

 

 

3,134

 

 

 

 

 

 

3,134

 

 

 



 



 



 



 



 

Gross profit

 

 

 

 

717,420

 

 

23,151

 

 

 

 

740,571

 

Selling, general and administrative expenses

 

 

4,297

 

 

435,521

 

 

13,360

 

 

 

 

453,178

 

Provision for doubtful accounts

 

 

 

 

51,402

 

 

843

 

 

 

 

52,245

 

Restructuring and other related charges

 

 

 

 

17,008

 

 

224

 

 

 

 

17,232

 

Litigation and other related professional fees

 

 

 

 

37,664

 

 

 

 

 

 

37,664

 

Repack matters

 

 

 

 

499

 

 

 

 

 

 

499

 

 

 



 



 



 



 



 

Operating income (loss)

 

 

(4,297

)

 

175,326

 

 

8,724

 

 

 

 

179,753

 

Investment income

 

 

1,391

 

 

3,179

 

 

 

 

 

 

4,570

 

Interest expense, including amortization of discount on convertible notes

 

 

(82,084

)

 

(1,425

)

 

(1,718

)

 

 

 

(85,227

)

 

 



 



 



 



 



 

Income (loss) from continuing operations before income taxes

 

 

(84,990

)

 

177,080

 

 

7,006

 

 

 

 

99,096

 

Income tax (benefit) expense

 

 

(32,753

)

 

68,106

 

 

2,712

 

 

 

 

38,065

 

 

 



 



 



 



 



 

Income from continuing operations

 

 

(52,237

)

 

108,974

 

 

4,294

 

 

 

 

61,031

 

Loss from discontinued operations

 

 

 

 

(1,024

)

 

(922

)

 

 

 

(1,946

)

Equity in net income of subsidiaries

 

 

111,322

 

 

 

 

 

 

(111,322

)

 

 

 

 



 



 



 



 



 

Net income

 

$

59,085

 

$

107,950

 

$

3,372

 

$

(111,322

)

$

59,085

 

 

 



 



 



 



 



 

33


Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2009 (Unaudited):

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 













ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

215,404

 

$

42,368

 

$

15,994

 

$

 

$

273,766

 

Restricted cash

 

 

 

 

2,484

 

 

 

 

 

 

2,484

 

Accounts receivable, net (including intercompany)

 

 

 

 

1,253,755

 

 

38,242

 

 

(21,051

)

 

1,270,946

 

Unbilled receivables, CRO

 

 

 

 

23,093

 

 

 

 

 

 

23,093

 

Inventories

 

 

 

 

331,098

 

 

7,355

 

 

 

 

338,453

 

Deferred income tax benefits, net-current

 

 

 

 

144,568

 

 

150

 

 

(2,676

)

 

142,042

 

Other current assets

 

 

1,209

 

 

175,111

 

 

4,864

 

 

 

 

181,184

 

Current assets from discontinued operations

 

 

 

 

24,814

 

 

6,882

 

 

 

 

31,696

 

 

 



 



 



 



 



 

Total current assets

 

 

216,613

 

 

1,997,291

 

 

73,487

 

 

(23,727

)

 

2,263,664

 

 

 



 



 



 



 



 

Properties and equipment, net

 

 

 

 

206,102

 

 

4,143

 

 

 

 

210,245

 

Goodwill

 

 

 

 

4,161,904

 

 

73,424

 

 

 

 

4,235,328

 

Identifiable intangible assets, net

 

 

 

 

300,875

 

 

10,918

 

 

 

 

311,793

 

Other noncurrent assets

 

 

31,222

 

 

227,876

 

 

52

 

 

 

 

259,150

 

Noncurrent assets from discontinued operations

 

 

 

 

22,070

 

 

23,776

 

 

 

 

45,846

 

Investment in subsidiaries

 

 

5,958,578

 

 

 

 

 

 

(5,958,578

)

 

 

 

 



 



 



 



 



 

Total assets

 

$

6,206,413

 

$

6,916,118

 

$

185,800

 

$

(5,982,305

)

$

7,326,026

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities (including intercompany)

 

$

21,143

 

$

537,803

 

$

9,827

 

$

(21,051

)

$

547,722

 

Long-term debt, notes and convertible debentures

 

 

2,210,166

 

 

1,945

 

 

3

 

 

 

 

2,212,114

 

Deferred income tax liabilities, net-noncurrent

 

 

241,349

 

 

304,709

 

 

10,171

 

 

(2,676

)

 

553,553

 

Other noncurrent liabilities

 

 

 

 

278,829

 

 

 

 

 

 

278,829

 

Noncurrent liabilities from discontinued operations

 

 

 

 

 

 

53

 

 

 

 

53

 

Stockholders’ equity

 

 

3,733,755

 

 

5,792,832

 

 

165,746

 

 

(5,958,578

)

 

3,733,755

 

 

 



 



 



 



 



 

Total liabilities and stockholders’ equity

 

$

6,206,413

 

$

6,916,118

 

$

185,800

 

$

(5,982,305

)

$

7,326,026

 

 

 



 



 



 



 



 

34


Note 13 - Guarantor Subsidiaries (Continued)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2008:

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 













ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

145,178

 

$

44,109

 

$

25,381

 

$

 

$

214,668

 

Restricted cash

 

 

 

 

1,891

 

 

 

 

 

 

1,891

 

Accounts receivable, net (including intercompany)

 

 

 

 

1,314,760

 

 

54,862

 

 

(32,064

 )

 

1,337,558

 

Unbilled receivables, CRO

 

 

 

 

22,329

 

 

 

 

 

 

22,329

 

Inventories

 

 

 

 

438,972

 

 

10,051

 

 

 

 

449,023

 

Deferred income tax benefits, net-current

 

 

1,202

 

 

132,991

 

 

56

 

 

 

 

134,249

 

Other current assets

 

 

1,270

 

 

170,615

 

 

5,104

 

 

 

 

176,989

 

Current assets from discontinued operations

 

 

 

 

27,979

 

 

7,007

 

 

 

 

34,986

 

 

 



 



 



 



 



 

Total current assets

 

 

147,650

 

 

2,153,646

 

 

102,461

 

 

(32,064

 )

 

2,371,693

 

 

 



 



 



 



 



 

Properties and equipment, net

 

 

 

 

203,882

 

 

4,645

 

 

 

 

208,527

 

Goodwill

 

 

 

 

4,138,754

 

 

72,467

 

 

 

 

4,211,221

 

Identifiable intangible assets, net

 

 

 

 

325,559

 

 

3,887

 

 

 

 

329,446

 

Other noncurrent assets

 

 

40,171

 

 

231,895

 

 

47

 

 

 

 

272,113

 

Noncurrent assets from discontinued operations

 

 

 

 

33,375

 

 

23,870

 

 

 

 

57,245

 

Investment in subsidiaries

 

 

6,075,308

 

 

 

 

 

 

(6,075,308

)

 

 

 

 



 



 



 



 



 

Total assets

 

$

6,263,129

 

$

7,087,111

 

$

207,377

 

$

(6,107,372

)

$

7,450,245

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities (including intercompany)

 

$

28,460

 

$

633,070

 

$

11,323

 

$

(32,064

 )

$

640,789

 

Long-term debt, notes and convertible debentures

 

 

2,350,227

 

 

2,594

 

 

3

 

 

 

 

2,352,824

 

Deferred income tax liabilities, net-noncurrent

 

 

229,573

 

 

285,361

 

 

10,492

 

 

 

 

525,426

 

Other noncurrent liabilities

 

 

 

 

274,825

 

 

1,459

 

 

 

 

276,284

 

Noncurrent liabilities from discontinued operations

 

 

 

 

 

 

53

 

 

 

 

53

 

Stockholders’ equity

 

 

3,654,869

 

 

5,891,261

 

 

184,047

 

 

(6,075,308

)

 

3,654,869

 

 

 



 



 



 



 



 

Total liabilities and stockholders’ equity

 

$

6,263,129

 

$

7,087,111

 

$

207,377

 

$

(6,107,372

)

$

7,450,245

 

 

 



 



 



 



 



 

35


Note 13 - Guarantor Subsidiaries (Continued)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 



2009:

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Omnicare, Inc.
and
Subsidiaries

 











Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows from operating activities

 

$

(24,797

)

$

297,991

 

$

(10,252

)

$

262,942

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of businesses, net of cash received

 

 

 

 

(43,100

)

 

 

 

(43,100

)

Capital expenditures

 

 

 

 

(15,120

)

 

(195

)

 

(15,315

)

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

 

 

 

 

843

 

 

 

 

843

 

Other

 

 

 

 

(2,233

)

 

 

 

(2,233

)

 

 



 



 



 



 

Net cash flows used in investing activities

 

 

 

 

(59,610

)

 

(195

)

 

(59,805

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on line of credit facilities and term A loan

 

 

(150,000

)

 

 

 

 

 

(150,000

)

Payments on long-term borrowings and obligations

 

 

(993

)

 

 

 

 

 

(993

)

(Decrease) increase in cash overdraft balance

 

 

(671

)

 

534

 

 

 

 

(137

)

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

 

 

9,464

 

 

 

 

 

 

9,464

 

Excess tax benefits from stock-based compensation

 

 

2,366

 

 

 

 

 

 

2,366

 

Dividends paid

 

 

(5,352

)

 

 

 

 

 

(5,352

)

Other

 

 

240,209

 

 

(240,209

)

 

 

 

 

 

 



 



 



 



 

Net cash flows used in financing activities

 

 

95,023

 

 

(239,675

)

 

 

 

(144,652

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

 

 

 

 

831

 

 

831

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

70,226

 

 

(1,294

)

 

(9,616

)

 

59,316

 

Less increase in cash and cash equivalents of discontinued operations

 

 

 

 

447

 

 

(229

)

 

218

 

 

 



 



 



 



 

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

 

 

70,226

 

 

(1,741

)

 

(9,387

)

 

59,098

 

Cash and cash equivalents at beginning of period

 

 

145,178

 

 

44,109

 

 

25,381

 

 

214,668

 

 

 



 



 



 



 

Cash and cash equivalents at end of period

 

$

215,404

 

$

42,368

 

$

15,994

 

$

273,766

 

 

 



 



 



 



 

36


Note 13 - Guarantor Subsidiaries (Continued)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 



2008:

 

Parent

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Omnicare, Inc.
and
Subsidiaries

 











Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows from operating activities

 

$

(20,886

)

$

263,011

 

$

(13,513

)

$

228,612

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of businesses, net of cash received

 

 

 

 

(90,988

)

 

 

 

(90,988

)

Capital expenditures

 

 

 

 

(27,233

)

 

(197

)

 

(27,430

)

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

 

 

 

 

(11,589

)

 

 

 

(11,589

)

Other

 

 

 

 

(1,044

)

 

 

 

(1,044

)

 

 



 



 



 



 

Net cash flows used in investing activities

 

 

 

 

(130,854

)

 

(197

)

 

(131,051

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on line of credit facilities and term A loan

 

 

(50,000

)

 

 

 

 

 

(50,000

)

Payments on long-term borrowings and obligations

 

 

(1,606

)

 

(119

)

 

 

 

(1,725

)

(Decrease) increase in cash overdraft balance

 

 

(4,032

)

 

426

 

 

 

 

(3,606

)

Payments for Omnicare common stock repurchase

 

 

(100,165

)

 

 

 

 

 

(100,165

)

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

 

 

(3,803

)

 

 

 

 

 

(3,803

)

Excess tax benefits from stock-based compensation

 

 

82

 

 

 

 

 

 

82

 

Dividends paid

 

 

(5,412

)

 

 

 

 

 

(5,412

)

Other

 

 

149,929

 

 

(149,810

)

 

 

 

119

 

 

 



 



 



 



 

Net cash flows used in financing activities

 

 

(15,007

)

 

(149,503

)

 

 

 

(164,510

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

 

 

 

 

1,231

 

 

1,231

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(35,893

)

 

(17,346

)

 

(12,479

)

 

(65,718

)

Less increase in cash and cash equivalents of discontinued operations

 

 

 

 

396

 

 

52

 

 

448

 

 

 



 



 



 



 

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

 

 

(35,893

)

 

(17,742

)

 

(12,531

)

 

(66,166

)

Cash and cash equivalents at beginning of period

 

 

171,779

 

 

69,976

 

 

32,445

 

 

274,200

 

 

 



 



 



 



 

Cash and cash equivalents at end of period

 

$

135,886

 

$

52,234

 

$

19,914

 

$

208,034

 

 

 



 



 



 



 

37


Note 13 - Guarantor Subsidiaries (Continued)

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

38


Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

 

 



2009:

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 













Net sales

 

$

 

$

 

$

1,540,507

 

$

 

$

1,540,507

 

Cost of sales

 

 

 

 

 

 

1,168,778

 

 

 

 

1,168,778

 

Heartland matters

 

 

 

 

 

 

815

 

 

 

 

815

 

 

 



 



 



 



 



 

Gross profit

 

 

 

 

 

 

370,914

 

 

 

 

370,914

 

Selling, general and administrative expenses

 

 

1,603

 

 

396

 

 

201,492

 

 

 

 

203,491

 

Provision for doubtful accounts

 

 

 

 

 

 

22,710

 

 

 

 

22,710

 

Restructuring and other related charges

 

 

 

 

 

 

5,883

 

 

 

 

5,883

 

Litigation and other related professional fees

 

 

 

 

 

 

28,357

 

 

 

 

28,357

 

Repack matters

 

 

 

 

 

 

381

 

 

 

 

381

 

Acquisition and other related costs

 

 

 

 

 

 

2,011

 

 

 

 

2,011

 

 

 



 



 



 



 



 

Operating income (loss)

 

 

(1,603

)

 

(396

)

 

110,080

 

 

 

 

108,081

 

Investment income

 

 

100

 

 

 

 

932

 

 

 

 

1,032

 

Interest expense, including amortization of discount on convertible notes

 

 

(36,513

)

 

 

 

(189

)

 

 

 

(36,702

)

 

 



 



 



 



 



 

Income (loss) from continuing operations before income taxes

 

 

(38,016

)

 

(396

)

 

110,823

 

 

 

 

72,411

 

Income tax (benefit) expense

 

 

(14,519

)

 

(154

)

 

45,090

 

 

 

 

30,417

 

 

 



 



 



 



 



 

Income from continuing operations

 

 

(23,497

)

 

(242

)

 

65,733

 

 

 

 

41,994

 

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

 

 

 

 

 

 

(13,275

)

 

 

 

(13,275

)

Equity in net income of subsidiaries

 

 

52,216

 

 

 

 

 

 

(52,216

)

 

 

 

 



 



 



 



 



 

Net income

 

$

28,719

 

$

(242

)

$

52,458

 

$

(52,216

)

$

28,719

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


















Net sales

 

$

 

$

 

$

1,522,712

 

$

 

$

1,522,712

 

Cost of sales

 

 

 

 

 

 

1,149,864

 

 

 

 

1,149,864

 

Heartland matters

 

 

 

 

 

 

1,560

 

 

 

 

1,560

 

 

 



 



 



 



 



 

Gross profit

 

 

 

 

 

 

371,288

 

 

 

 

371,288

 

Selling, general and administrative expenses

 

 

2,349

 

 

346

 

 

224,256

 

 

 

 

226,951

 

Provision for doubtful accounts

 

 

 

 

 

 

24,093

 

 

 

 

24,093

 

Restructuring and other related charges

 

 

 

 

 

 

10,784

 

 

 

 

10,784

 

Litigation and other related professional fees

 

 

 

 

 

 

16,022

 

 

 

 

16,022

 

Repack matters

 

 

 

 

 

 

180

 

 

 

 

180

 

 

 



 



 



 



 



 

Operating income (loss)

 

 

(2,349

)

 

(346

)

 

95,953

 

 

 

 

93,258

 

Investment income

 

 

817

 

 

 

 

1,142

 

 

 

 

1,959

 

Interest expense, including amortization of discount on convertible notes

 

 

(41,033

)

 

 

 

(1,081

)

 

 

 

(42,114

)

 

 



 



 



 



 



 

Income (loss) from continuing operations before income taxes

 

 

(42,565

)

 

(346

)

 

96,014

 

 

 

 

53,103

 

Income tax (benefit) expense

 

 

(15,985

)

 

(130

)

 

35,724

 

 

 

 

19,609

 

 

 



 



 



 



 



 

Income from continuing operations

 

 

(26,580

)

 

(216

)

 

60,290

 

 

 

 

33,494

 

Loss from discontinued operations

 

 

 

 

 

 

(559

)

 

 

 

(559

)

Equity in net income of subsidiaries

 

 

59,515

 

 

 

 

 

 

(59,515

)

 

 

 

 



 



 



 



 



 

Net income

 

$

32,935

 

$

(216

)

$

59,731

 

$

(59,515

)

$

32,935

 

 

 



 



 



 



 



 

39


Note 13 - Guarantor Subsidiaries (Continued)

Summary Consolidating Statements of Income - Unaudited
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 



2009:

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 













Net sales

 

$

 

$

 

$

3,082,612

 

$

 

$

3,082,612

 

Cost of sales

 

 

 

 

 

 

2,320,546

 

 

 

 

2,320,546

 

Heartland matters

 

 

 

 

 

 

1,917

 

 

 

 

1,917

 

 

 



 



 



 



 



 

Gross profit

 

 

 

 

 

 

760,149

 

 

 

 

760,149

 

Selling, general and administrative expenses

 

 

8,541

 

 

817

 

 

410,266

 

 

 

 

419,624

 

Provision for doubtful accounts

 

 

 

 

 

 

47,981

 

 

 

 

47,981

 

Restructuring and other related charges

 

 

 

 

 

 

12,800

 

 

 

 

12,800

 

Litigation and other related professional fees

 

 

 

 

 

 

70,022

 

 

 

 

70,022

 

Repack matters

 

 

 

 

 

 

1,272

 

 

 

 

1,272

 

Acquisition and other related costs

 

 

 

 

 

 

2,850

 

 

 

 

2,850

 

 

 



 



 



 



 



 

Operating income (loss)

 

 

(8,541

)

 

(817

)

 

214,958

 

 

 

 

205,600

 

Investment income

 

 

536

 

 

 

 

2,903

 

 

 

 

3,439

 

Interest expense, including amortization of discount on convertible notes

 

 

(74,341

)

 

 

 

(445

)

 

 

 

(74,786

)

 

 



 



 



 



 



 

Income (loss) from continuing operations before income taxes

 

 

(82,346

)

 

(817

)

 

217,416

 

 

 

 

134,253

 

Income tax (benefit) expense

 

 

(31,489

)

 

(315

)

 

91,835

 

 

 

 

60,031

 

 

 



 



 



 



 



 

Income from continuing operations

 

 

(50,857

)

 

(502

)

 

125,581

 

 

 

 

74,222

 

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

 

 

 

 

 

 

(14,609

)

 

 

 

(14,609

)

Equity in net income of subsidiaries

 

 

110,470

 

 

 

 

 

 

(110,470

)

 

 

 

 



 



 



 



 



 

Net income

 

$

59,613

 

$

(502

)

$

110,972

 

$

(110,470

)

$

59,613

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


















Net sales

 

$

 

$

 

$

3,053,150

 

$

 

$

3,053,150

 

Cost of sales

 

 

 

 

 

 

2,309,445

 

 

 

 

2,309,445

 

Heartland matters

 

 

 

 

 

 

3,134

 

 

 

 

3,134

 

 

 



 



 



 



 



 

Gross profit

 

 

 

 

 

 

740,571

 

 

 

 

740,571

 

Selling, general and administrative expenses

 

 

4,297

 

 

646

 

 

448,235

 

 

 

 

453,178

 

Provision for doubtful accounts

 

 

 

 

 

 

52,245

 

 

 

 

52,245

 

Restructuring and other related charges

 

 

 

 

 

 

17,232

 

 

 

 

17,232

 

Litigation and other related professional fees

 

 

 

 

 

 

37,664

 

 

 

 

37,664

 

Repack matters

 

 

 

 

 

 

499

 

 

 

 

499

 

 

 



 



 



 



 



 

Operating income (loss)

 

 

(4,297

)

 

(646

)

 

184,696

 

 

 

 

179,753

 

Investment income

 

 

1,391

 

 

 

 

3,179

 

 

 

 

4,570

 

Interest expense, including amortization of discount on convertible notes

 

 

(82,084

)

 

 

 

(3,143

)

 

 

 

(85,227

)

 

 



 



 



 



 



 

Income (loss) from continuing operations before income taxes

 

 

(84,990

)

 

(646

)

 

184,732

 

 

 

 

99,096

 

Income tax (benefit) expense

 

 

(32,753

)

 

(250

)

 

71,068

 

 

 

 

38,065

 

 

 



 



 



 



 



 

Income from continuing operations

 

 

(52,237

)

 

(396

)

 

113,664

 

 

 

 

61,031

 

Loss from discontinued operations

 

 

 

 

 

 

(1,946

)

 

 

 

(1,946

)

Equity in net income of subsidiaries

 

 

111,322

 

 

 

 

 

 

(111,322

)

 

 

 

 



 



 



 



 



 

Net income

 

$

59,085

 

$

(396

)

$

111,718

 

$

(111,322

)

$

59,085

 

 

 



 



 



 



 



 

40


Note 13 - Guarantor Subsidiaries (Continued)

Condensed Consolidating Balance Sheets
(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2009 (Unaudited):

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 













ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

215,404

 

$

 

$

58,362

 

$

 

$

273,766

 

Restricted cash

 

 

 

 

 

 

2,484

 

 

 

 

2,484

 

Accounts receivable, net (including intercompany)

 

 

 

 

40

 

 

1,270,946

 

 

(40

)

 

1,270,946

 

Unbilled receivables, CRO

 

 

 

 

 

 

23,093

 

 

 

 

23,093

 

Inventories

 

 

 

 

 

 

338,453

 

 

 

 

338,453

 

Deferred income tax benefits, net-current

 

 

 

 

 

 

144,718

 

 

(2,676

)

 

142,042

 

Other current assets

 

 

1,209

 

 

 

 

179,975

 

 

 

 

181,184

 

Current assets from discontinued operations

 

 

 

 

 

 

31,696

 

 

 

 

31,696

 

 

 



 



 



 



 



 

Total current assets

 

 

216,613

 

 

40

 

 

2,049,727

 

 

(2,716

)

 

2,263,664

 

 

 



 



 



 



 



 

Properties and equipment, net

 

 

 

 

23

 

 

210,222

 

 

 

 

210,245

 

Goodwill

 

 

 

 

 

 

4,235,328

 

 

 

 

4,235,328

 

Identifiable intangible assets, net

 

 

 

 

 

 

311,793

 

 

 

 

311,793

 

Other noncurrent assets

 

 

31,222

 

 

19

 

 

227,909

 

 

 

 

259,150

 

Noncurrent assets from discontinued operations

 

 

 

 

 

 

45,846

 

 

 

 

45,846

 

Investment in subsidiaries

 

 

5,958,578

 

 

 

 

 

 

(5,958,578

)

 

 

 

 



 



 



 



 



 

Total assets

 

$

6,206,413

 

$

82

 

$

7,080,825

 

$

(5,961,294

)

$

7,326,026

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities (including intercompany)

 

$

21,143

 

$

3

 

$

526,616

 

$

(40

)

$

547,722

 

Long-term debt, notes and convertible debentures

 

 

2,210,166

 

 

 

 

1,948

 

 

 

 

2,212,114

 

Deferred income tax liabilities, net-noncurrent

 

 

241,349

 

 

 

 

314,880

 

 

(2,676

)

 

553,553

 

Other noncurrent liabilities

 

 

 

 

 

 

278,829

 

 

 

 

278,829

 

Noncurrent liabilities from discontinued operations

 

 

 

 

 

 

53

 

 

 

 

53

 

Stockholders’ equity

 

 

3,733,755

 

 

79

 

 

5,958,499

 

 

(5,958,578

)

 

3,733,755

 

 

 



 



 



 



 



 

Total liabilities and stockholders’ equity

 

$

6,206,413

 

$

82

 

$

7,080,825

 

$

(5,961,294

)

$

7,326,026

 

 

 



 



 



 



 



 

41


Note 13 - Guarantor Subsidiaries (Continued)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2008:

 

Parent

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating/
Eliminating
Adjustments

 

Omnicare,
Inc. and
Subsidiaries

 












 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

145,178

 

$

 

$

69,490

 

$

 

$

214,668

 

Restricted cash

 

 

 

 

 

 

1,891

 

 

 

 

1,891

 

Accounts receivable, net (including intercompany)

 

 

 

 

56

 

 

1,337,558

 

 

(56

)

 

1,337,558

 

Unbilled receivables, CRO

 

 

 

 

 

 

22,329

 

 

 

 

22,329

 

Inventories

 

 

 

 

 

 

449,023

 

 

 

 

449,023

 

Deferred income tax benefits, net-current

 

 

1,202

 

 

 

 

136,399

 

 

(3,352

)

 

134,249

 

Other current assets

 

 

1,270

 

 

 

 

175,719

 

 

 

 

176,989

 

Current assets from discontinued operations

 

 

 

 

 

 

34,986

 

 

 

 

34,986

 

 

 



 



 



 



 



 

Total current assets

 

 

147,650

 

 

56

 

 

2,227,395

 

 

(3,408

)

 

2,371,693