Omnicare third quarter net sales increases from $1,543.9 million to $1,544.4 million

Oct 28 2010

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, 2010.

“Over the past quarter, we have instituted a number of organizational elements that we believe will make Omnicare a stronger operating company”

Commenting on the third-quarter results, John L. Workman, Omnicare's Executive Vice President and Chief Financial Officer, said, "During the quarter, prescription volumes increased, driven by growth in the average number of beds served as well as the benefit of one additional calendar day. Across our network, utilization was relatively stable sequentially and occupancy rates at customer facilities, while still lower, experienced improvement in the rate of decline. These factors, coupled with certain favorable pharmaceutical marketplace dynamics and continued robust growth in our specialty pharmacy business, largely drove performance for the quarter."

Third-Quarter Results

Financial results from continuing operations for the quarter ended September 30, 2010, as compared with the same prior-year period, were as follows:

• Net sales were $1,544.4 million as compared with $1,543.9 million
• Reported income / (loss) from continuing operations per share was $(0.88) versus $0.67
• Adjusted income from continuing operations (see discussion below and attached supplemental information) per share was $0.52 versus $0.76

Cash flows from continuing operations for the quarter ended September 30, 2010 was $116.4 million versus $168.8 million in the comparable prior-year quarter. Included in the third quarter of 2010 was a payment of approximately $21 million for a previously disclosed settlement reached in September 2010 as well as approximately $7 million of separation-related payments associated with three former Omnicare executives (excluding certain benefit plan payments funded with rabbi trust assets).

Earnings (loss) before interest, income taxes, depreciation and amortization (EBITDA) from continuing operations for the third quarter of 2010, including the special items and accounting changes discussed below, was $(39.5) million versus $159.0 million in the third quarter of 2009. Excluding the special items and accounting changes, adjusted EBITDA from continuing operations in the 2010 third quarter was $140.7 million versus $168.4 million in the 2009 third quarter.

Financial Position

The Company concluded the third quarter of 2010 with no borrowings outstanding on its revolving credit facility and $353.3 million in cash on its balance sheet. Omnicare's total debt to total capital at September 30, 2010 was 36.8%, up approximately 70 basis points from 36.1% at September 30, 2009.

With respect to its share repurchase program, the Company repurchased a total of 1.7 million shares of common stock during the quarter for an aggregate amount of $33.6 million. As of September 30, 2010, Omnicare had $117.2 million of availability under its current share repurchase 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 discussed 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 Investor Relations section of Omnicare's Web site at http://ir.omnicare.com. Additionally, the Company will make supplemental slides available in the same section on its Web site today that will include the number of scripts dispensed, beds served, and other information relevant to Omnicare's operations.

Pharmacy Services Business

Omnicare's pharmacy services business generated sales of $1,518.0 million for the third quarter of 2010 as compared with sales of $1,507.0 million reported in the third quarter of 2009. This quarter-over-quarter sales increase was primarily attributable to the effects of branded drug price inflation and growth in the Company's specialty pharmacy businesses. These factors were partially offset by the impact of lower prescription volumes largely due to a reduction in census at client facilities, reduced utilization for certain drugs and a lower average number of net beds served, along with a shift in mix toward assisted living which typically has lower penetration rates, increased availability and utilization of generic drugs, and reductions in reimbursement coupled with competitive pricing issues.

Adjusted operating profit in Omnicare's pharmacy services business was $137.0 million in the third quarter of 2010 as compared with the $164.4 million earned in the same 2009 quarter. This lower quarter-over-quarter operating profit in the third quarter was due largely to certain of the aforementioned items that had an unfavorable impact on net sales, primarily the reductions in prescription volumes, and reimbursement and competitive pricing issues. These factors were more than offset by the increased availability and utilization of higher margin generic drugs, the favorable effect of drug price inflation, the Company's cost reduction and productivity improvement initiatives and lower bad debt expense.

CRO Business

The Company's contract research business ("CRO") generated revenues of $26.4 million for the third quarter of 2010 as compared with the $36.9 million in revenues generated in the same prior-year quarter. The CRO business generated an adjusted operating loss for the 2010 third quarter of $(2.8) million versus an adjusted operating profit of $0.7 million in the same prior-year period. Backlog at September 30, 2010 was $147.0 million. As further discussed in the "Footnotes to Financial Information" section elsewhere herein, the Company recorded a $91 million goodwill impairment charge during the third quarter of 2010 relating to its CRO business.

Nine Months Results

Financial results from continuing operations for the nine months ended September 30, 2010, as compared with the same prior-year period, were as follows:

• Net sales were $4,587.8 million as compared with $4,626.5 million
• Reported income / (loss) from continuing operations per share was $(0.22) as compared with $1.30
• Adjusted income from continuing operations (see discussion below and attached supplemental information) per share was $1.59 as compared with $2.04

EBITDA from continuing operations for the first nine months of 2010, including the impact of special items and accounting changes, was $217.1 million versus $422.2 million in the comparable prior-year period. Excluding the special items, adjusted EBITDA from continuing operations in the first nine months of 2010 was $447.1 million as compared with $520.5 million in the first nine months of 2009.

Operating cash flow from continuing operations for the first nine months of 2010 totaled $269.6 million, which includes settlement payments of approximately $59 million, $7 million of separation-related payments and a $7.6 million tender premium relating to the Company's recent capital restructuring initiatives. Operating cash flows from continuing operations during the same period in 2009 was $431.0 million.

Special Items and Accounting Changes

The results for the third quarter of 2010 and 2009 include the impact of special items and accounting changes totaling approximately $203.1 million pretax ($162.0 million aftertax, or approximately $1.40 per share) and $17.5 million pretax ($10.8 million aftertax, or approximately $0.09 per diluted share), respectively.

Results for the first nine months of 2010 and 2009 include special items totaling $279.6 million pretax ($211.6 million aftertax, or approximately $1.81 per share) and $123.3 million pretax ($87.4 million aftertax, or approximately $0.74 per share), respectively.

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