Omnicare Reports Second-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 second quarter ended June 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 quarterly results that were consistent with our expectations and again reflect strong year-over-year earnings growth. Our financial performance continues to benefit from the execution of strategic objectives to enhance Omnicare’s growth and profitability along with certain favorable trends in the pharmaceutical marketplace. We achieved sequential net bed growth during the quarter along with continued strong growth in our specialty pharmacy business. Then, too, ongoing progress was made in our productivity improvement and cost reduction initiatives, both in terms of lowering operating costs and in increasing cash flow. In fact, our operating cash flow from continuing operations for the quarter was up 65% versus the prior-year quarter allowing us to further strengthen our financial position.”

Discontinued Operations

The Company also noted that, upon completion of a strategic review, it has determined that it will divest certain non-core home healthcare and related ancillary businesses, in order to focus on growth opportunities that better utilize Omnicare’s core competencies. As a result of this decision, Omnicare has retained a financial advisor to manage the divestiture of these businesses and, for accounting purposes, has begun to classify them as discontinued operations in the second quarter of 2009. Consequently, all financial results referenced in this press release are for continuing operations only, unless otherwise stated. The financial impact of such discontinued operations on the results for the three and six months ended June 30, 2009 and 2008 is shown in the Discontinued Operations Section of the attached Financial Information. Additional comparable historical information for the most recent six quarters and the full-year ended December 31, 2008 can be found on the Company’s Web site at www.omnicare.com.

Second-Quarter Results

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

• Earnings per diluted share from continuing operations were 36 cents versus 28 cents
• Income from continuing operations was $42.0 million as compared with $33.5 million
• Sales were $1,540.5 million as compared with $1,522.7 million

Results for both the second quarter of 2009 and 2008 include the impact of special items and accounting changes (described below) totaling $45.8 million pretax and $35.0 million pretax, respectively. Adjusting for these special items and accounting changes, results for the quarter ended June 30, 2009 and 2008, respectively, were as follows:

• Adjusted earnings per diluted share from continuing operations were 64 cents versus 47 cents
• Adjusted income from continuing operations was $74.8 million as compared with $55.3 million
• Sales were $1,540.5 million as compared with $1,522.7 million

Financial Position

Operating cash flow from continuing operations for the quarter ended June 30, 2009 was $141.5 million versus $85.7 million in the comparable prior-year quarter.

Earnings before interest, income taxes, depreciation and amortization (EBITDA) from continuing operations for the second quarter of 2009, including the special items discussed below, were $137.0 million versus $120.1 million in the second quarter of 2008. Excluding the special items and accounting changes, adjusted EBITDA from continuing operations in the 2009 quarter was $174.4 million versus $148.6 million in the 2008 quarter.

During the second 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 June 30, 2009, had $276.2 million in cash on its balance sheet. The Company’s total debt to total capital at June 30, 2009 was 37.2%, down approximately 320 basis points from 40.4% at June 30, 2008 (as restated for the adoption 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”).

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 financial 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 from continuing operations of $1,499.7 million for the second quarter of 2009 as compared with sales from continuing operations of $1,469.1 million reported in the second quarter of 2008. Adjusted operating profit from continuing operations in this business was $165.9 million in the 2009 second quarter as compared with the $145.4 million earned in the same 2008 quarter.

Revenues in the pharmacy services business for the second quarter of 2009 were higher than in the 2008 second quarter owing largely to drug price inflation and the increased use of certain higher acuity drugs, existing drugs with new therapeutic indications and biologic agents, along with strong growth in specialty pharmacy services. Partially offsetting these factors were the increased availability and utilization of generic drugs, reductions in reimbursement and/or utilization for certain drugs and a lower year-over-year net number of beds served, along with a shift in mix toward assisted living which typically has lower penetration rates. The year-over-year increase in second-quarter operating profit was due largely to higher utilization of generic drugs, drug price inflation, greater savings in the sourcing of pharmaceutical and non-drug items and the benefits of other cost reduction and productivity improvement initiatives, including the Omnicare Full Potential Plan, lower employee benefit costs and continued favorable performance in the specialty pharmacy business.

At June 30, 2009, Omnicare served long-term care facilities as well as chronic care and other settings comprising approximately 1,427,000 beds, including approximately 59,000 patients served under the patient assistance programs of its specialty pharmacy services business and 43,000 beds served as part of its discontinued operations. The total number of beds served from continuing operations at June 30, 2009 was therefore 1,384,000. The comparable numbers at March 31, 2009 were 1,425,000, including approximately 56,000 patients served under the patient assistance programs of the specialty pharmacy services business and 43,000 beds served in discontinued operations, or total beds served from continuing operations of 1,382,000. The comparable numbers at June 30, 2008 were 1,438,000 beds, including approximately 70,000 patients served under the patient assistance programs of the specialty pharmacy services business and 46,000 beds served in discontinued operations, or a total of 1,392,000 beds served from continuing operations at June 30, 2008. The Company noted that sequential quarterly growth in beds served in the second quarter was achieved despite approximately 6,800 beds voluntarily foregone owing to pricing or payment issues as well as facility closures or sales. Moreover, excluded from the number of beds served at June 30, 2009 was an acquisition of a 6,000-bed institutional pharmacy that was originally expected to be completed in June but has since closed in July.

CRO Business

The Company's CRO business generated revenues of $40.8 million on a GAAP basis for the second quarter of 2009 as compared with the $53.6 million in revenues generated in the same prior-year quarter. Included in the 2009 and 2008 periods were reimbursable out-of-pocket expenses totaling $5.2 million and $8.8 million, respectively. Excluding these reimbursable out-of-pocket expenses, adjusted revenues were $35.6 million for the 2009 second quarter as compared with $44.8 million for the same prior-year period. Adjusted operating profit for the 2009 second quarter totaled $1.6 million versus $4.4 million in the same prior-year period. Backlog at June 30, 2009 was $259.6 million.

Six Months Results

Financial results for the six months ended June 30, 2009, 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 63 cents versus 51 cents
• Income from continuing operations was $74.2 million as compared with $61.0 million
• Sales were $3,082.6 million as compared with $3,053.2 million

Results for both the first half of 2009 and 2008 include the impact of special items and accounting changes (which are described later herein) of $105.8 million pretax and $71.2 million pretax, respectively. Adjusting for these special items, results for the six months ended June 30, 2009, as compared with the same prior-year period, were as follows:

• Adjusted earnings per diluted share from continuing operations were $1.29 versus $0.88
• Adjusted income from continuing operations was $150.8 million as compared with $104.9 million
• Adjusted sales were $3,082.6 million as compared with $3,053.2 million

EBITDA from continuing operations for the first six months of 2009, including the impact of special items and accounting changes, was $263.2 million versus $234.7 million in the comparable prior-year period. Excluding the special items, adjusted EBITDA from continuing operations in the first half of 2009 was $352.1 million as compared with $293.2 million in the first half of 2008.

Operating cash flow from continuing operations for the first half of 2009 totaled $262.3 million. Operating cash flow from continuing operations over the same period in 2008 was $227.2 million.

Special Items and Accounting Changes

As noted above, the results for the second quarter of 2009 from continuing operations include the impact of special items and accounting changes totaling approximately $45.8 million pretax ($32.8 million aftertax, or approximately 28 cents per diluted share). Operating income for the second quarter of 2009 includes special litigation charges of $28.4 million pretax associated with litigation and other professional fees in connection primarily with the Company’s lawsuit against UnitedHealth Group, Inc. and its affiliates ("United”); certain large customer disputes; and certain government inquiries, including a $23 million pretax addition to the settlement reserve pertaining to a previously-disclosed investigation by the U.S. Attorney’s Office, District of Massachusetts. The second-quarter results also include a pretax charge of $5.9 million for restructuring and other related costs associated primarily with the implementation of the Omnicare Full Potential Plan, $1.4 million in pretax charges relating primarily to stock option expense under Statement of Financial Accounting Standards ("SFAS”) 123R, and a pretax charge of $1.2 million relating to incremental costs associated with the closure of one of the Company’s repackaging operations.

As a result of the Company’s recent adoption of SFAS No. 141R, Business Combinations, the second quarter of 2009 also includes a pretax charge of $2.0 million, comprised primarily of professional fees associated with 2009 acquisitions. In addition, the Company retrospectively adopted FSP APB 14-1, effective January 1, 2009. This accounting change resulted in incremental, non-cash interest expense of $6.9 million pretax in the second quarter of 2009.

The results for the second quarter of 2008 from continuing operations include the impact of special items and an accounting change totaling $35.0 million pretax ($21.9 million aftertax, or approximately 18 cents per diluted share). Operating income for the second quarter of 2008 includes special litigation charges of $16.0 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 $10.8 million for restructuring and other related costs associated primarily with the implementation of the Omnicare Full Potential Plan and a pretax charge of $1.7 million relating to incremental costs associated with the closure of one of the Company’s repackaging operations. The second quarter of 2008 results also include incremental, non-cash interest expense of $6.4 million pretax related to the adoption of FSP APB 14-1.

Results for the first half of 2009 from continuing operations include special items totaling $105.8 million pretax ($76.6 million aftertax, or approximately 65 cents per diluted share), including $12.8 million pretax for restructuring and other related costs associated primarily with the implementation of the Omnicare Full Potential Plan, $70.0 million pretax associated with the above-mentioned litigation and related professional fees, pretax charges of $13.7 million pertaining to the adoption of FSP APB 14-1, $3.2 million in pretax charges relating primarily to stock option expense under SFAS 123R, $3.2 million pretax relating to incremental costs associated with the closure of one of the Company’s repackaging operations and $2.9 million pretax relating to the adoption of SFAS No. 141R.

Results for the first half of 2008 from continuing operations include special items totaling $71.2 million pretax ($43.8 million aftertax, or approximately 37 cents per diluted share), including $17.2 million pretax for restructuring and other related costs associated primarily with the implementation of the Omnicare Full Potential Plan, $37.7 million pretax associated with the above-mentioned litigation and related professional fees, pretax charges of $12.7 million pertaining to the adoption of FSP APB 14-1 and $3.6 million pretax relating to incremental costs associated with the closure of one of the Company’s repackaging operations.

Outlook

"We believe that we have the right strategy in place to develop and support growth opportunities and to capitalize on our scale advantages to increase productivity and reduce costs,” said Gemunder. "That said, we have seen additional reimbursement reductions on certain drugs as well as a challenging environment in the contract research business linger on. Looking ahead, we continue to believe that our diluted earnings per share from continuing operations, as adjusted for special items, for the full-year 2009 will be within our original range of guidance, albeit toward the lower end of that range. As such, we are refining our range of earnings guidance for the full-year 2009 to $2.50 to $2.55 per adjusted diluted share.

"Longer term, we believe the fundamentals underpinning our business remain sound. In light of demographics and the importance of pharmaceutical care to the treatment of the chronic diseases of aging, we believe demand for pharmacy services for the senior population should continue to grow. Given our market position and scale advantages, we believe we are well positioned to address both the growing care needs and cost concerns of this aging population.”

Webcast Today

Omnicare will hold a conference call to discuss second-quarter results today, Thursday, July 30, 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.