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| Omnicare Reports Third Quarter 2002 Results |
COVINGTON, Ky. ¯ October 31, 2002 ¯ Omnicare, Inc. (NYSE:OCR) today reported financial results for its third quarter ended September 30, 2002. For the three months ended September 30, 2002, Omnicare earned 38 cents per diluted share, excluding restructuring charges associated with the previously announced second phase of the company's productivity and consolidation initiative, 52% higher than the 25 cents per diluted share earned in the comparable prior-year quarter, excluding restructuring charges in that period. Net income on this basis was $35.9 million in the 2002 quarter, up 55% from the $23.1 million reported in the 2001 period. Third-quarter 2002 sales of $664.7 million were 21% higher than the $547.8 million generated in the comparable 2001 quarter. Third quarter 2002 results included a final restructuring charge of $11.1 million pretax ($6.9 million after taxes) relating to the second phase of the company's productivity and consolidation initiative, which was completed on September 30, 2002. Included in the 2001 quarter was a charge of $15.4 million pretax ($9.6 million after taxes) related to the same initiative. As previously reported, effective January 1, 2002, Omnicare adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” and Emerging Issues Task Force Issue No. 01-14 (EITF No. 01-14), “Income Statement Characterization of Reimbursements Received for ‛Out-of-Pocket' Expenses Incurred.” In the third quarter of 2001, SFAS 142 would have had the effect of adding approximately $5.2 million after taxes (5 cents per diluted share) to net income. EITF No. 01-14 had the effect of increasing both sales and cost of sales by $7.4 million in the 2002 period and $6.7 million in the 2001 period. Accordingly, it has no impact on operating or net income. EITF No. 01-14 applies only to Omnicare's contract research (CRO) business. Including the impact of the accounting changes, and the restructuring charges in both periods, reported net income for the three months ended September 30, 2002 was $29.1 million (31 cents per diluted share) up 114% over the $13.6 million (14 cents per diluted share) earned in the comparable prior-year period. Earnings in Line with Expectations To facilitate comparisons of operating performance, all discussion below excludes the impact of accounting changes, restructuring charges and special items. For the three months ended September 30, 2002, net income reached $35.9 million, or 38 cents per diluted share, 27% higher than the $28.3 million, or 30 cents per diluted share, earned in the comparable prior-year quarter. Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $83.0 million for the third quarter of 2002, up 19% over EBITDA of $69.5 million in the same quarter last year. Third quarter 2002 sales reached $657.3 million, 21% higher than the $541.2 million recorded in the same period last year. “This marks our ninth consecutive quarter of sequential as well as year-over-year growth,” said Joel F. Gemunder, president and chief executive officer of Omnicare. “Contributing to our performance was our lowered overall cost structure and strengthened financial position. This, combined with our continuing efforts to build our franchise in the geriatric pharmaceutical marketplace, including the acquisition of American Pharmaceutical Services (APS) in January 2002, produced another strong quarter for Omnicare. “This quarter marks a continuation of our solid trends in revenue growth, increased profitability and strong cash flow. Excluding $39.9 million in advance purchases of pharmaceuticals (pre-buys) in the third quarter of 2002, cash flow from operations reached $87.2 million, 45% above the $60.2 million generated, on this basis, a year ago. After capital expenditures and cash dividends, free cash flow (excluding pre-buys) for the quarter was $77.2 million, 54% higher than the $50.2 million generated in the third quarter of 2001. Including pre-buys in both periods, cash flow from operations totaled $47.3 million, up 32% from $35.8 million generated in the comparable prior-year quarter. Free cash flow, including pre-buys, was $37.3 million, up 45% from $25.8 million in the same quarter a year ago. No matter how you measure it, our cash flow was very strong and demonstrates the quality of Omnicare's earnings,” continued Gemunder. Gemunder also noted that the company's financial position remains strong. Quarter-end cash balances were $175.6 million compared with $131.2 million a year ago. “During the quarter, we accelerated our debt repayment schedule, reducing the balance of our line of credit by $40 million. At September 30, 2002, the current ratio was a healthy 3.3 to 1, with total debt to total capitalization at 38%, or 230 basis points lower than one year ago.” Institutional Pharmacy Business Omnicare's institutional pharmacy business generated record revenues of $623.2 million for the third quarter, 22% higher than the $509.8 million reported last year. Operating profit in this business also reached a new quarterly record of $75.1 million, 19% higher than the $63.0 million earned in the third quarter of 2001. At September 30, 2002, Omnicare served approximately 746,000 residents versus 655,400 at September 30, 2001, an increase of nearly 14%. “The addition of APS, combined with new contract additions, the increasing market penetration of newer drugs and the continuing growth of our clinical and other service programs contributed to our strong sales in the institutional pharmacy business. As expected, third quarter acuity levels followed the typical seasonal pattern, with drug utilization, including infusion therapy, up modestly compared to the second quarter of 2002 and occupancy rates are reported to be stable to improving,” said Gemunder. “These factors combined to produce a substantial sales increase that was highly leveraged by our cost reduction efforts,” he added. “The quarter-over-quarter trend in the pharmacy operating margin is tracking with the expectations we described when we announced the acquisition of APS. After the initial impact of adding the lower-margin APS business during the first quarter, the ongoing integration is resulting in the anticipated synergies. As a result, we again saw sequential margin improvement, and we expect that trend to continue in the fourth quarter.” CRO Business Omnicare Clinical Research, the company's CRO business, generated revenues of $34.0 million for the third quarter of 2002, increasing 8% over the prior-year quarter's revenues of $31.4 million. Operating profit reached a record of $5.4 million in the third quarter of 2002, 50% ahead of the $3.6 million earned in the prior-year period. “We are pleased with the CRO's growth in profitability this quarter despite some volatility in revenues related to client-driven delays in the commencement or continuation of certain projects,” said Gemunder. “These results are just another example of how our efforts to streamline the organization and reduce fixed costs to better match expenses with revenues have paid off. New business wins were solid and backlog increased to $201 million at September 30, 2002.” Nine Month Results Excluding the impact of restructuring charges, special items and accounting changes from both periods, Omnicare earned $1.07 per diluted share for the nine months ended September 30, 2002, 27% higher than the 84 cents per diluted share earned in the comparable prior-year period. Net income on this basis was $101.6 million in the first nine months of 2002, up 29% from the $79.0 million reported in the 2001 period. Sales for the nine-month period in 2002 of $1,936.4 million were 21% higher than the $1,594.9 million generated in the comparable 2001 period. In the first nine months of 2001, SFAS 142 would have had the effect of adding approximately $15.4 million after taxes (16 cents per diluted share) to net income. EITF No. 01-14 had the effect of increasing both sales and cost of sales by $20.8 million in the first nine months of 2002 and $18.8 million in the comparable 2001 period. Excluding pre-buys in the third quarter of both periods ($39.9 million and $24.4 million in 2002 and 2001, respectively), cash flow from operations for the first nine months of 2002 totaled $170.5 million, up 49% over the $114.3 million generated in the comparable prior-year period. Free cash flow (excluding pre-buys in the third quarter) for the year-to-date 2002 period reached $147.3 million, up 66% versus the $88.7 million generated in the same period of 2001. Including pre-buys, cash flow from operations for the first nine months of 2002 totaled $130.6 million, up 45% from the $89.9 million generated over the same period in 2001. Free cash flow (including pre-buys), on a year-to-date basis, was $107.4 million in the 2002 period, up 67% from the $64.3 million generated in the 2001 period. Including the impact of accounting changes, restructuring charges and special items in both periods, reported net income for the nine months ended September 30, 2002, was $87.2 million (92 cents per diluted share), up 71% over the $51.0 million (54 cents per diluted share) earned in the comparable prior-year period. Sales, on this basis, were $1,957.2 million in the first nine months of 2002, 21% higher than the $1,613.7 million generated in the prior-year period. Omnicare Outlook “Looking ahead, we continue to expect relative stability in the operating environment in long-term care highlighted by increasing Medicare admissions and improving occupancy in many areas,” stated Gemunder. “Although Congress adjourned until after the election before clarifying Medicare funding issues for our clients, it is expected to consider these issues upon its return. We remain optimistic that Congress will restore reimbursement to more appropriate levels at that time. “In a broader sense, we continue to see key issues related to healthcare funding, including the implementation of a Medicare drug benefit for seniors; the pressures on federal and state Medicaid budgets arising from the economic downturn coupled with growth in enrollees as eligibility is expanded; the escalation in drug costs owing to higher drug utilization among seniors and the introduction of new more efficacious but also more expensive medications; and the long-term financing of the entire Medicare program. Given competing national priorities, it remains difficult to predict the outcome and impact of any changes in healthcare policy relating to the future funding of the Medicare and Medicaid programs. “Nonetheless, we know that appropriate pharmaceutical care improves the quality of life and treatment outcomes for the elderly,” continued Gemunder. “Pharmaceuticals remain the most cost-effective means of treating the chronic illnesses of the frailest members of our society and, as such, should be considered nondiscretionary expenditures. Given demographics and the fact that those over 65 consume a disproportionately high percentage of pharmaceuticals versus the broader population, the geriatric pharmaceutical business offers meaningful solutions to containing healthcare costs while ensuring the well-being of the nation's growing elderly population. With Omnicare's expertise in geriatric pharmaceutical care and cost management, we have demonstrated to payors, including state Medicaid programs, that our advanced clinical programs yield substantially lower drug costs while protecting and enhancing the quality of care for beneficiaries. Accordingly, Omnicare is positioned at the forefront of these trends. “As we monitor the direction of healthcare policy, we remain committed to the strategy that has served us well in mitigating reimbursement risks and strengthening our position as a leader in the industry: maximizing cash flow, maintaining a strong financial position and enhancing the efficiency of our operations. Our second and smaller productivity and consolidation initiative announced last September, encompassing a reduction in operating locations and further streamlining of our CRO operations, now is complete and we have met all of the objectives we had established. Our integration plan for APS also is proceeding in accordance with our expectations. “From this base, we see numerous opportunities for organic growth to leverage our operating cost structure and we have the financial strength to pursue strategic acquisitions to complement that growth. Continued growth in our customer base in institutional pharmacy along with the opportunities we see in the expansion of our clinical programs, such as our proprietary formulary, the Omnicare Geriatric Pharmaceutical Care Guidelines®, and health management programs, dialysis services and in Omnicare Senior Health Outcomes®, and our pharmaceutical case management services for the broader based senior marketplace, will drive growth. Then too, we see a positive long-term outlook in Omnicare Clinical Research as we benefit from the streamlining and globalization of our business, our unique capabilities in the geriatric market and the strength of our presence in the overall drug development marketplace. “Our strong underlying fundamentals and our sound strategy, combined with our demonstrated ability to maintain financial strength and flexibility, and the numerous opportunities to leverage our business, make us confident that we are on track for solid top and bottom line growth in 2002 and beyond,” Gemunder concluded. Omnicare will host a conference call to discuss third-quarter results today, October 31, at 11 a.m. EST. Those interested may access a live audio broadcast of the call via webcast. The webcast can be accessed at http://www.firstcallevents.com/service/ajwz366643225gf12.html or via the Investor Relations site at www.omnicare.com. A replay of the broadcast will also be available for the next 14 days on the company's Web site or by calling 1-800-642-1687 (United States and Canada) or 1-706-634-6522 (international) and referencing confirmation code number 600-2426. Omnicare, based in Covington, Kentucky, is a leading provider of pharmaceutical care for the elderly. Omnicare serves approximately 746,000 residents in long-term care facilities in 45 states, making it the nation's largest provider of professional pharmacy, related consulting and data management services for skilled nursing, assisted living and other institutional healthcare providers. Omnicare also provides clinical research services for the pharmaceutical and biotechnology industries in 28 countries worldwide. For more information, visit the company's Web site at http://www.omnicare.com. Statements in this press release concerning Omnicare's business outlook or position or future economic performance; the impact of Omnicare's lowered cost structure; the financial condition of Omnicare; Omnicare's strength in the geriatric pharmaceutical marketplace; the impact of the acquisition and integration of APS; expectations concerning pharmaceutical price increases and the impact of pre-buys on costs; the impact of new business; the impact of penetration of new drugs; the impact of clinical programs; trends concerning acuity and occupancy; the impact of Omnicare's productivity, consolidation and cost reduction efforts; expectations concerning margins; trends concerning commencement or continuation of CRO projects, new business wins and backlog; the impact of the streamlining of Omnicare's CRO operations; the operating environment in the long-term care industry; expectations concerning Medicare reimbursement trends and Congressional action with respect thereto; the impact of healthcare funding issues; the impact of demographic trends; opportunities to contain healthcare costs while ensuring the well-being of the elderly population; expectations concerning growth; expectations concerning acquisitions; opportunities to expand Omnicare's clinical programs; trends concerning the drug development marketplace, together with other statements that are not historical, are forward-looking statements that are estimates reflecting the best judgment of Omnicare based on currently available information. Such forward-looking statements involve actual known and unknown risks, uncertainties, contingencies and other factors that could cause actual results, performance or achievements to differ materially from those stated. Such risks, uncertainties, contingencies and other factors, many of which are beyond the control of Omnicare, include overall economic, financial and business conditions; trends for the continued growth of the businesses of Omnicare; the ability to implement productivity, consolidation and cost reduction efforts and to realize anticipated benefits; the impact and pace of pharmaceutical price increases; delays and further reductions in governmental reimbursement to customers and to Omnicare as a result of pressure on federal and state budgets due to the continuing economic downturn and other factors; the overall financial condition of Omnicare's customers; Omnicare's ability to assess and react to the financial condition of its customers; the impact of seasonality on the business of Omnicare; the ability of vendors to continue to provide products and services to Omnicare; the continued successful integration of Omnicare's clinical research business and acquired companies, including APS and the proposed acquisition of NCS Healthcare, Inc., and the ability to realize anticipated economies of scale and cost synergies; the continued availability of suitable acquisition candidates; the ability to consummate an acquisition of NCS; pricing and other competitive factors in the industry; increases or decreases in reimbursement; the effect of new government regulations, executive orders and/or legislative initiatives, including those relating to reimbursement and drug pricing policies and changes in the interpretation and application of such policies; government budgetary pressures and shifting priorities; efforts by payors to control costs; the outcome of litigation; the failure of Omnicare to obtain or maintain required regulatory approvals or licenses; loss or delay of contracts pertaining to Omnicare's contract research organization business for regulatory or other reasons; the ability of clinical research projects to produce revenues in future periods; the ability to attract and retain needed management; the impact and pace of technological advances; the ability to obtain or maintain rights to data, technology and other intellectual property; the impact of consolidation in the pharmaceutical and long-term care industries; volatility in the market for Omnicare's stock, the stock of Genesis Health Ventures, the stock of NCS and in the financial markets generally; access to capital and financing; the demand for Omnicare's products and services; variations in costs or expenses; the continued availability of suitable acquisition candidates; changes in tax law and regulation; changes in accounting rules and standards; and other risks and uncertainties described in Omnicare's reports and filings with the Securities and Exchange Commission. 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