Omnicare Reports Third-Quarter Results

Omnicare, Inc. (NYSE:OCR), one of the nation's leading providers of pharmaceutical care for the elderly, reported today financial results for its third quarter ended September 30, 2009.

Commenting on the results for the quarter, Joel F. Gemunder, Omnicare’s president and chief executive officer, said, "We are pleased to report third quarter earnings (before tax benefits) that were consistent with Street consensus estimates and cash flow that continued exceptionally strong. During the quarter, we made further operational advancements within our pharmacy business, as we benefitted from incremental cost savings attributable to our productivity and cost reduction initiatives and delivered another quarter of net bed growth. Moreover, our specialty pharmacy business continued to generate substantial growth and our hospice pharmacy business also contributed positively to our performance for the quarter. These factors helped mitigate the effects of anticipated reimbursement actions on certain generic drugs and the softness in our contract research business in the quarter. Moreover, tight working capital management drove our highest quarterly cash flow output of the year-to-date, enabling us to further improve our financial position.”

Third-Quarter Results

Financial results from continuing operations for the quarter ended September 30, 2009 under U.S. Generally Accepted Accounting Principles ("GAAP”), including a favorable income tax benefit, restructuring and related charges, the effects of recently adopted accounting rules and other special items described below, as compared with the same prior-year period, were as follows:

• Earnings per diluted share were 67 cents versus 46 cents
• Income from continuing operations was $78.7 million as compared with $54.4 million
• Sales were $1,543.9 million as compared with $1,578.3 million

Results for both the third quarter of 2009 and 2008 include the impact of special items and accounting changes (described below) totaling $17.5 million pretax and $28.8 million pretax, respectively. Adjusting for these special items and accounting changes, but including the impact of the aforementioned favorable income tax adjustment, results from continuing operations for the quarter ended September 30, 2009 and 2008, respectively, were as follows:

• Adjusted earnings per diluted share were 76 cents versus 61 cents
• Adjusted income from continuing operations was $89.5 million as compared with $72.0 million
• Sales were $1,543.9 million as compared with $1,578.3 million

As mentioned above, the third quarter 2009 results include a favorable income tax adjustment of approximately $19 million, or 16 cents per diluted share, primarily attributable to the reversal of certain unrecognized tax benefits for tax positions settled through the expiration of statutes of limitations.

Financial Position

Operating cash flow for the quarter ended September 30, 2009 was $168.8 million versus $103.0 million in the comparable prior-year quarter. The 2008 third quarter included one extra weekly payment to the Company’s drug wholesaler of approximately $65 million.

Earnings before interest, income taxes, depreciation and amortization (EBITDA) for the third quarter of 2009, including the special items and accounting changes discussed below, were $159.0 million versus $156.5 million in the third quarter of 2008. Excluding the special items and accounting changes, adjusted EBITDA in the 2009 quarter was $168.4 million versus $178.8 million in the 2008 quarter.

During the third quarter of 2009, the Company repaid $75.0 million of its senior term A loan, had no borrowings outstanding on its revolving credit facility and, at September 30, 2009, had $327.1 million in cash on its balance sheet. The Company’s total debt to total capital at September 30, 2009 was 36.1%, down approximately 390 basis points from 40.0% at September 30, 2008 as restated for the retrospective adoption of the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement).

To facilitate comparisons and to enhance the understanding of core operating performance, this discussion includes financial measures that are adjusted from the comparable amount under GAAP to exclude the impact of the special items and accounting changes described elsewhere herein, and to present results on a continuing operations basis. For a detailed presentation of reconciling items and related definitions and components, please refer to the attached schedules or to reconciliation schedules posted on the Company’s Web site at www.omnicare.com.

Pharmacy Services Business

Omnicare's pharmacy services business generated sales of $1,507.0 million for the third quarter of 2009 as compared with sales of $1,526.8 million reported in the third quarter of 2008. Adjusted operating profit in this business was $164.4 million in the 2009 third quarter as compared with the $174.2 million earned in the same 2008 quarter.

At September 30, 2009, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,389,000 beds, including approximately 63,000 patients served under the patient assistance programs of its specialty pharmacy services business. The comparable number at June 30, 2009 was 1,384,000 beds (including approximately 59,000 patients served under the patient assistance programs of the specialty pharmacy services business). The comparable number at September 30, 2008 was 1,387,000 beds (including approximately 67,000 patients served under the patient assistance programs of the specialty pharmacy services business). The Company noted that sequential quarterly growth in beds served in the third quarter was achieved despite approximately 5,500 beds voluntarily foregone owing to pricing or payment issues as well as facility closures or sales.

Revenues in the pharmacy services business for the third quarter of 2009 were modestly lower than in the 2008 third quarter owing largely to the increased availability and utilization of generic drugs, reductions in reimbursement and/or utilization for certain drugs and a lower year-over-year average number of net beds served, along with a shift in mix toward assisted living which typically has lower penetration rates. These factors were largely offset by drug price inflation, continued strong growth in specialty pharmacy services and the increased use of certain higher acuity drugs. The year-over-year decrease in third-quarter operating profit was due primarily to reductions in reimbursement and/or utilization for certain drugs, partially offset by the increased use of higher margin generic drugs as well as reduced costs and increased productivity associated with the Full Potential Plan and strategic sourcing initiatives.

CRO Business

The Company's CRO business generated revenues of $36.9 million on a GAAP basis for the third quarter of 2009 as compared with the $51.5 million in revenues generated in the same prior-year quarter. Included in the 2009 and 2008 periods were reimbursable out-of-pocket expenses totaling $3.4 million and $8.3 million, respectively. Excluding these reimbursable out-of-pocket expenses, adjusted revenues were $33.5 million for the 2009 third quarter as compared with $43.2 million for the same prior-year period. Adjusted operating profit for the 2009 third quarter totaled $0.7 million versus $4.5 million in the same prior-year period. Backlog at September 30, 2009 was $235.7 million.

Nine Months Results

Financial results from continuing operations for the nine months ended September 30, 2009, as compared with the same prior-year period, including the impact of the favorable income tax adjustment and the special items and accounting changes described below were as follows:

• Earnings per diluted share were $1.30 versus 97 cents
• Income from continuing operations was $153.0 million as compared with $115.4 million
• Sales were $4,626.5 million as compared with $4,631.4 million

Results from continuing operations for both the first nine months of 2009 and 2008 include the impact of special items and accounting changes (which are described later herein) of $123.3 million pretax and $100.1 million pretax, respectively. Adjusting for these special items, but including the impact of the favorable income tax adjustment, results for the nine months ended September 30, 2009, as compared with the same prior-year period, were as follows:

• Adjusted earnings per diluted share were $2.04 versus $1.49
• Adjusted income from continuing operations was $240.3 million as compared with $176.8 million
• Sales were $4,626.5 million as compared with $4,631.4 million

As mentioned earlier herein, the 2009 year-to-date results include a favorable income tax adjustment of approximately $19 million, or 16 cents per diluted share, primarily attributable to the reversal of certain unrecognized tax benefits for tax positions settled through the expiration of statutes of limitations.

EBITDA for the first nine months of 2009, including special items and accounting changes, was $422.2 million versus $391.1 million in the comparable prior-year period. Excluding special items and accounting changes, adjusted EBITDA in the first nine months of 2009 was $520.5 million as compared with $472.0 million in the first nine months of 2008.

Operating cash flow for the first nine months of 2009 totaled $431.0 million. Operating cash flow over the same period in 2008 was $330.2 million. The 2008 period included one extra weekly payment to the Company’s drug wholesaler of approximately $65 million.

Special Items and Accounting Changes

As noted above, the results for the third quarter of 2009 include the impact of special items and accounting changes totaling approximately $17.5 million pretax ($10.8 million aftertax, or approximately 9 cents per diluted share). Operating income for the third quarter of 2009 includes a pretax charge of $6.3 million for restructuring and other related costs associated primarily with the implementation of the Omnicare Full Potential Plan, a pretax charge of $2.0 million relating to incremental costs associated with the closure of one of the Company’s repackaging operations, and $1.1 million in pretax charges relating primarily to stock option expense under the prior implementation of the authoritative guidance for share-based payment accounting change. The third-quarter results also include special litigation charges of $1.7 million pretax associated with litigation and other related professional fees in connection primarily with certain government inquiries, the Company’s lawsuit against UnitedHealth Group, Inc. and its affiliates ("United”), and certain large customer disputes.

As a result of the Company’s retrospective adoption of the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), effective January 1, 2009, results for the third quarter of 2009 also include an incremental, non-cash interest expense of $7.1 million pretax. In addition, the Company reported a pretax credit in the 2009 third quarter of $0.6 million comprised primarily of a reduction in the Company’s original estimate of contingent consideration payable for an acquisition under the recently adopted authoritative guidance for business combinations.

The results for the third quarter of 2008 include the impact of special items and an accounting change totaling $28.8 million pretax ($17.6 million aftertax, or approximately 15 cents per diluted share). Operating income for the third quarter of 2008 includes special litigation charges of $13.5 million pretax associated with litigation and other related professional fees in connection primarily with the Company’s lawsuit against United and certain large customer disputes, as well as previously disclosed government inquiries, a pretax charge of $7.7 million for restructuring and other related costs associated primarily with the implementation of the Omnicare Full Potential Plan, pretax charges of $6.5 million pertaining to the aforementioned adoption of the new convertible debt authoritative guidance, and a pretax charge of $1.2 million relating to incremental costs associated with the closure of one of the Company’s repackaging operations.

Results for the first nine months of 2009 include special items totaling $123.3 million pretax ($87.4 million aftertax, or approximately 74 cents per diluted share), including $71.8 million pretax associated with the above-mentioned litigation and other related professional fees, $19.1 million pretax for restructuring and other related costs associated primarily with the implementation of the Omnicare Full Potential Plan, pretax charges of $20.8 million pertaining to the adoption of the aforementioned new convertible debt authoritative guidance, $5.2 million pretax relating to incremental costs associated with the closure of one of the Company’s repackaging operations, $4.2 million in pretax charges relating primarily to stock option expense under share-based payment authoritative guidance, and $2.2 million pretax relating to the adoption of recently issued authoritative guidance for business combinations.

Results for the first nine months of 2008 include special items totaling $100.1 million pretax ($61.5 million aftertax, or approximately 52 cents per diluted share), including $51.1 million pretax associated with the above-mentioned litigation and other related professional fees, $24.9 million pretax for restructuring and other related costs associated primarily with the implementation of the Omnicare Full Potential Plan, pretax charges of $19.3 million pertaining to the adoption of the aforementioned new convertible debt authoritative guidance, and $4.8 million pretax relating to incremental costs associated with the closure of one of the Company’s repackaging operations.

Outlook

The Company also noted that, with one quarter remaining, it is tightening its range of full-year 2009 earnings guidance to $2.50-$2.52 per diluted share from continuing operations, as adjusted to exclude special items and accounting changes. Incremental to this range will be the favorable income tax adjustment that benefitted its third quarter results of 16 cents per diluted share and a similar tax benefit of approximately 10 cents per diluted share that is expected in the fourth quarter. Additionally, in light of its strong cash flow for the year-to-date, the Company increased its full-year 2009 cash flow guidance to $500-$550 million (excluding one-time litigation payments).

Webcast Today

Omnicare will hold a conference call to discuss third-quarter results today, Thursday, November 5, at 11:00 a.m. ET. The conference call will be webcast live at Omnicare's Web site at www.omnicare.com by clicking on "Investors" and then on "Conference Calls," and will be accessible by telephone at the following numbers:

An online replay will be available at www.omnicare.com beginning approximately two hours after the completion of the live call and will remain available for 14 days.

Omnicare, Inc. (NYSE:OCR), a Fortune 500 company based in Covington, Kentucky, is a leading provider of pharmaceutical care for the elderly. Omnicare serves residents in long-term care facilities, chronic care and other settings comprising approximately 1.4 million beds in 47 states, the District of Columbia and Canada. Omnicare is the largest U.S. provider of professional pharmacy, related consulting and data management services for skilled nursing, assisted living and other institutional healthcare providers as well as for hospice patients in homecare and other settings. Omnicare's pharmacy services also include distribution and patient assistance services for specialty pharmaceuticals. Omnicare offers clinical research services for the pharmaceutical and biotechnology industries in 31 countries worldwide. For more information, visit the company's Web site at www.omnicare.com.

Forward-Looking Statements

In addition to historical information, this press release contains certain statements that constitute "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, all statements regarding the intent, belief or current expectations regarding the matters discussed or incorporated by reference in this document (including statements as to "beliefs,” "expectations,” "anticipations,” "intentions” or similar words) and all statements which are not statements of historical fact. Such forward-looking statements, together with other statements that are not historical, are based on management’s current expectations and involve known and unknown risks, uncertainties, contingencies and other factors that could cause results, performance or achievements to differ materially from those stated. The most significant of these risks and uncertainties are described in the Company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: overall economic, financial, political and business conditions; trends in the long-term healthcare, pharmaceutical and contract research industries; the ability to attract new clients and service contracts and retain existing clients and service contracts; the ability to consummate pending acquisitions; trends for the continued growth of the Company’s businesses; trends in drug pricing; delays and reductions in reimbursement by the government and other payors to customers and to the Company; the overall financial condition of the Company’s customers and the ability of the Company to assess and react to such financial condition of its customers; the ability of vendors and business partners to continue to provide products and services to the Company; the continued successful integration of acquired companies; the continued availability of suitable acquisition candidates; the ability to attract and retain needed management; competition for qualified staff in the healthcare industry; the demand for the Company’s products and services; variations in costs or expenses; the ability to implement productivity, consolidation and cost reduction efforts and to realize anticipated benefits; the ability of clinical research projects to produce revenues in future periods; the potential impact of legislation, government regulations, and other government action and/or executive orders, including those relating to Medicare Part D, including its implementing regulations and any subregulatory guidance, reimbursement and drug pricing policies and changes in the interpretation and application of such policies, including changes in the calculation of average wholesale price; government budgetary pressures and shifting priorities; federal and state budget shortfalls; efforts by payors to control costs; changes to or termination of the Company’s contracts with Medicare Part D plan sponsors or to the proportion of the Company’s Part D business covered by specific contracts; the outcome of litigation; potential liability for losses not covered by, or in excess of, insurance; the impact of differences in actuarial assumptions and estimates as compared to eventual outcomes; events or circumstances which result in an impairment of assets, including but not limited to, goodwill and identifiable intangible assets; the final outcome of divestiture activities; market conditions; the outcome of audit, compliance, administrative, regulatory or investigatory reviews; volatility in the market for the Company’s stock and in the financial markets generally; access to adequate capital and financing; changes in international economic and political conditions and currency fluctuations between the U.S. dollar and other currencies; changes in tax laws and regulations; changes in accounting rules and standards; and costs to comply with the Company’s Corporate Integrity Agreements. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, the Company’s actual results, performance or achievements could differ materially from those expressed in, or implied by, such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as otherwise required by law, the Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.