Omnicare second-quarter earnings per diluted share decrease to 18 cents

Aug 7 2010

Omnicare, Inc. (NYSE:OCR), one of the nation's leading providers of pharmaceutical care for the elderly, reported today financial results for its second quarter ended June 30, 2010.

“While we are disappointed to be lowering our full-year 2010 guidance, we are looking at a variety of strategies to restore profitable top-line growth”

Financial results from continuing operations for the quarter ended June 30, 2010 under U.S. Generally Accepted Accounting Principles ("GAAP"), including restructuring and related charges, the impact of certain accounting rules and other special items described below, as compared with the same prior-year period, were as follows:

• Earnings per diluted share were 18 cents versus 36 cents
• Income from continuing operations was $21.4 million as compared with $42.0 million
• Sales were $1,519.1 million as compared with $1,540.5 million

Results for both the second quarter of 2010 and 2009 include the impact of special items and accounting changes (described below) totaling $54.0 million pretax and $45.8 million pretax, respectively. Adjusting for these special items and accounting changes, results from continuing operations for the quarters ended June 30, 2010 and 2009, respectively, were as follows:

• Adjusted earnings per diluted share were 48 cents versus 64 cents
• Adjusted income from continuing operations was $56.8 million as compared with $74.8 million
• Sales were $1,519.1 million as compared with $1,540.5 million

"The quarter's results were impacted by a marked deceleration in prescription volumes within our institutional pharmacy business as a result of lower occupancy rates within our customer facilities in certain areas, reduced utilization trends and a lower number of beds served. The reduced volumes also affected our ability to leverage our scale effectively through our drug purchasing contracts and operating infrastructure," said John L. Workman, Omnicare's Executive Vice President and Chief Financial Officer. "We are committed to devising strategies for growing our customer base more effectively, which we believe can increase prescription volumes irrespective of soft utilization and facility census trends."

Financial Position

Cash flow from continuing operations for the quarter ended June 30, 2010 was $35.3 million versus $141.5 million in the comparable prior-year quarter. Included in the second quarter of 2010 was a payment of $37.9 million on a previously disclosed settlement of $98 million (plus interest) reached in November 2009, as well as $7.3 million of tender premium relating to the early redemption of the Company's 6.75% notes.

Earnings before interest, income taxes, depreciation and amortization (EBITDA) from continuing operations for the second quarter of 2010, including the special items and accounting changes discussed below, was $106.8 million versus $137.0 million in the second quarter of 2009. Excluding the special items and accounting changes, adjusted EBITDA from continuing operations in the 2010 second quarter was $142.6 million versus $174.4 million in the 2009 second quarter.

During the second quarter of 2010, the Company completed a series of previously announced capital restructuring initiatives, including the following:

• Public offering of $400 million aggregate principal amount of 7.75% Senior Subordinated Notes due 2020, and concurrent entrance into interest rate swap agreements relating to these Senior Subordinated Notes
• Repurchase of approximately $217 million aggregate principal amount of its $225 million outstanding 6.75% Senior Subordinated Notes due 2013
• Completion of a new $400 million revolving credit facility
• Full extinguishment of the $50 million remaining on its senior term A loan
• Authorization of a new $200 million share repurchase program

The Company concluded the second quarter of 2010 with no borrowings outstanding on its revolving credit facility and $397.8 million in cash on its balance sheet. Omnicare's total debt to total capital at June 30, 2010 was 36.0%, down approximately 120 basis points from 37.2% at June 30, 2009.

With respect to its new share repurchase program, the Company repurchased a total of 2.0 million shares of stock during the quarter for an aggregate amount of $49.1 million. Following the share repurchase activity during the quarter, Omnicare has $150.9 million remaining under its current authorization.

To facilitate comparisons and to enhance the understanding of core operating performance, the discussion which follows 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 $1,491.8 million for the second quarter of 2010 as compared with sales of $1,499.7 million reported in the second quarter of 2009. Adjusted operating profit in this business was $142.8 million in the 2010 second quarter as compared with the $165.9 million earned in the same 2009 quarter.

During the second quarter of 2010, the Company dispensed 29,762,000 prescriptions, or 3.8% fewer than the 30,950,000 prescriptions dispensed during the same period last year. On a sequential basis, prescriptions declined 1.5% notwithstanding the benefit of one additional day in the second quarter of 2010. Adjusting for the extra day, prescription volume was 2.6% lower on a sequential basis.

At June 30, 2010, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,353,000 beds, which includes approximately 79,000 patients served under the patient assistance programs of its specialty pharmacy services business. The comparable number at March 31, 2010 was 1,370,000 beds served (including approximately 74,000 patients served under the patient assistance programs of the 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).

During July 2010, Omnicare reached agreements to acquire institutional pharmacy businesses totaling in excess of 30,000 long-term care facility beds. These transactions are subject to regulatory and/or other customary approvals, and the Company expects to have these transactions completed by the end of the third quarter of 2010.

Revenues in the pharmacy services business for the second quarter of 2010 were lower than the 2009 second quarter owing largely to the impact of the increased availability and utilization of generic drugs, lower prescription volumes largely due to a reduction in occupancy rates at certain customer facilities, reduced utilization trends and a lower net number of beds served, along with a shift in mix toward assisted living which typically has lower penetration rates, and reductions in reimbursement coupled with competitive pricing issues. These factors were partially offset by the effects of drug price inflation and growth in the Company's specialty pharmacy businesses.

The lower year-over-year operating profit in the second quarter was due largely to the adverse effects of the reduced prescription volumes on the Company's drug purchasing and operational efficiencies and reductions in reimbursement and competitive pricing issues. These factors were partially offset by greater utilization of higher margin generic drugs, drug price inflation, and the benefits of other cost reduction and productivity improvement initiatives, including the Omnicare Full Potential Plan.

CRO Business

The Company's contract research business ("CRO") generated revenues of $27.4 million on a GAAP basis for the second quarter of 2010 as compared with the $40.8 million in revenues generated in the same prior-year quarter. Included in the 2010 and 2009 periods were reimbursable out-of-pocket expenses totaling $3.3 million and $5.2 million, respectively. Excluding these reimbursable out-of-pocket expenses, adjusted revenues were $24.0 million for the 2010 second quarter as compared with $35.6 million for the same prior-year period. The CRO business generated an adjusted operating loss for the 2010 second quarter of $(1.7) million versus an adjusted operating profit of $1.6 million in the same prior-year period. Backlog at June 30, 2010 was $139.8 million.

Six Months Results

Financial results from continuing operations for the six months ended June 30, 2010, as compared with the same prior-year period, including the impact of special items and accounting changes described below were as follows:

• Earnings per diluted share from continuing operations were 64 cents versus 63 cents
• Income from continuing operations was $75.7 million as compared with $74.2 million
• Sales were $3,043.4 million as compared with $3,082.6 million

Results for both the first half of 2010 and 2009 include the impact of special items and accounting changes (which are described later herein) of $76.5 million pretax and $105.8 million pretax, respectively. Adjusting for these special items, results for the six months ended June 30, 2010, as compared with the same prior-year period, were as follows:

• Adjusted earnings per diluted share from continuing operations were $1.06 versus $1.29
• Adjusted income from continuing operations was $125.3 million as compared with $150.8 million
• Adjusted sales were $3,043.4 million as compared with $3,082.6 million

EBITDA from continuing operations for the first six months of 2010, including the impact of special items and accounting changes, was $256.6 million versus $263.2 million in the comparable prior-year period. Excluding the special items, adjusted EBITDA from continuing operations in the first half of 2010 was $306.3 million as compared with $352.1 million in the first half of 2009.

Operating cash flow from continuing operations for the first half of 2010 totaled $153.1 million, which includes the aforementioned $37.9 million settlement payment and $7.3 million tender premium. Operating cash flow from continuing operations during the same period in 2009 was $262.3 million.

Special Items and Accounting Changes

As noted above, the results for the second quarter of 2010 and 2009 include the impact of special items and accounting changes totaling approximately $54.0 million pretax ($35.4 million aftertax, or approximately 30 cents per diluted share) and $45.8 million pretax ($32.8 million aftertax, or approximately 28 cents per diluted share), respectively.

Results for the first half of 2010 and 2009 include special items totaling $76.5 million pretax ($49.6 million aftertax, or approximately 42 cents per diluted share) and $105.8 million pretax ($76.6 million aftertax, or approximately 65 cents per diluted share), respectively.

The special items and accounting change impacts have been described in further detail in the "Footnotes to Financial Information" section elsewhere herein.

Outlook

In light of recent trends in Omnicare's prescription volumes as well as continued weakness in its CRO business, the Company now expects its adjusted diluted earnings per share to be in the range of $2.00 to $2.10 (excluding special items) for the full-year 2010. Operating cash flow for 2010 is expected to be in the range of $400 to $450 million (excluding legal settlements and tender premium payments).

"While we are disappointed to be lowering our full-year 2010 guidance, we are looking at a variety of strategies to restore profitable top-line growth," commented James D. Shelton, Omnicare's Interim President and Chief Executive Officer. "We believe Omnicare has an attractive platform with its unique market position and strong cash flow characteristics. We expect to utilize these strengths in a manner that is aligned with our commitment to enhance shareholder value."