BERGEN BRUNSWIG CORPORATION
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934(NO FEE REQUIRED)
For the fiscal quarter ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________________ to ____________
Commission file number 1-5110
BERGEN BRUNSWIG CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-1444512
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Metropolitan Drive, Orange, California 92668-3510
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 385-4000
No Change
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Title of each class of Number of Shares Outstanding
Common Stock July 31, 1995
Class A Common Stock -
par value $1.50 per share 39,816,203
INDEX TO EXHIBITS FOUND ON PAGE 21
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, June
30, 1995 and September 30, 1994 3
Statements of Consolidated Earnings
for the third quarter and nine
months ended June 30, 1995 and 1994 4
Statements of Consolidated Cash
Flows for the nine months ended
June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Index to Exhibits 20
PART I. FINANCIAL INFORMATION
BERGEN BRUNSWIG CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND SEPTEMBER 30, 1994
(dollars in thousands)
(Unaudited)
--------------------------------------------------------------
-- ASSETS -- June 30, September 30,
1995 1994
--------------------------------------------------------------
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $ 50,937 $ 5,264
Accounts and notes receivable,
less allowance
for doubtful receivables:
$20,642 at June 30,1995
and $18,423 at September
30, 1994 540,937 523,202
Inventories 1,064,364 904,809
Income taxes receivable 990 1,788
Prepaid expenses 9,822 10,305
_________ _________
Total current assets 1,667,050 1,445,368
_________ _________
PROPERTY - At cost:
Land 12,098 10,923
Building and leasehold improvements 84,158 77,107
Equipment and fixtures 150,868 127,037
_______ _______
Total property 247,124 215,067
Less accumulated depreciation
and amortization 90,489 78,725
_______ _______
Property - net 156,635 136,342
_______ _______
OTHER ASSETS:
Excess of cost over net
assets of acquired companies 319,170 322,374
Investments 7,441 22,063
Noncurrent receivables 7,747 9,384
Deferred charges and other assets 56,027 59,526
_______ _______
Total other assets 390,385 413,347
_______ _______
TOTAL ASSETS $ 2,214,070 $ 1,995,057
============= ===============
----------------------------------------------------------------------
LIABILITIES AND June 30, September 30,
SHAREOWNERS EQUITY 1995 1994
----------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable 1,080,583 995,030
Accrued liabilities 79,709 111,043
Customer credit balances 84,589 82,787
Deferred income taxes 1,300 945
Current portion of long-
term obligations 1,187 1,307
_________ _________
Total current liabilities 1,247,368 1,191,112
_________ _________
LONG-TERM OBLIGATIONS:
7-3/8% senior notes 149,161 149,078
5-5/8% senior notes 99,968 99,926
7-1/4% senior notes 99,653 -
Revolving bank loan payable 60,000 40,000
7% convertible subordinated
debentures 20,914 20,934
6-7/8% exchangeable subordinated
debentures 10,575 10,575
Deferred income taxes 3,704 3,903
Other 15,047 17,678
_______ _______
Total long-term obligations 459,022 342,094
_______ _______
SHAREOWNERS' EQUITY:
Capital Stock:
Preferred-authorized 3,000,000
shares, issued: none - -
Class A Common-authorized 100,000,000
shares; issued 44,155,517 shares
at June 30, 1995 and 44,058,659
shares at September 30, 1994 66,233 66,088
Paid-in capital 162,540 155,079
Net unrealized loss on investments (410) -
Retained earnings 367,377 378,867
_______ _______
Total 595,740 600,034
Less Treasury shares, at cost:
4,361,914 shares at June 30,
1995 and 6,844,057 shares at
September 30, 1994 88,060 138,183
_______ _______
Total shareowner's equity 507,680 461,851
_______ _______
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $2,214,070 1,995,057
========== =========
<TABLE>
STATEMENTS OF CONSOLIDATED EARNINGS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED
JUNE 30, 1995 AND 1994
(in thousands except per share amounts)
(Unaudited)
THIRD QUARTER NINE MONTHS
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales and other revenues $ 2,157,361 $ 1,878,548 $ 6,225,440 $ 5,558,933
___________ ___________ ___________ ___________
Costs and expenses:
Cost of sales 2,033,311 1,767,176 5,857,899 5,229,558
Distribution, selling, general and
administrative expenses 88,268 79,872 263,204 242,696
_________ _________ _________ _________
Total costs and expenses 2,121,579 1,847,048 6,121,103 5,472,254
_________ _________ _________ _________
Operating earnings 35,782 31,500 104,337 86,679
Net interest expense 6,688 5,020 21,082 16,393
_________ _________ _________ _________
Earnings before taxes on income 29,094 26,480 83,255 70,286
Taxes on income 12,219 11,453 34,967 30,399
_________ _________ _________ __________
Net earnings $ 16,875 $ 15,027 $ 48,288 $ 39,887
=========== ========== ========= ===========
Earnings per common and
common equivalent share $ .42 $ .39 $ 1.22 $ 1.03
=========== ========== ========= ===========
Cash dividends per share:
Class A Common Stock $ .120 $ .114 $ .354 $ .324
=========== ========== ========= ==========
Class B Common Stock $ - $ - $ - $ 1.996
=========== ========== ========= ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
BERGEN BRUNSWIG CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED
JUNE 30, 1995 AND 1994
(in thousands)
1995 1994
Operating Activities (Unaudited)
Net earnings $ 48,288 $ 39,887
Adjustments to reconcile net
earnings to net cash flows
from operating activities:
Provision for doubtful accounts 4,383 3,725
Depreciation and amortization
of property 14,800 14,752
Deferred compensation 853 1,052
Amortization of customer lists 1,312 1,312
Amortization of excess of cost
over net assets of acquired
companies 6,673 6,502
Deferred income taxes 417 333
Amortization of original issue
discount on senior notes 128 126
Amortization of deferred financing costs 674 649
(Gain) loss on dispositions of property (154) 857
Effects of changes on:
Receivables (14,137) 2
Inventories (154,445) (186,418)
Prepaid expenses and other assets 1,193 (7,536)
Accounts payable 83,088 41,423
Accrued liabilities (32,939) (7,902)
Customer credit balances 1,802 13,371
Income taxes receivable 798 8,440
________ ________
Net cash flows from
operating activities (37,266) (69,425)
________ ________
Investing Activities
Investments 13,951 (1,332)
Property acquisitions (35,931) (17,860)
Proceeds from dispositions of property 1,446 2,573
________ ________
Net cash flows from
investing activities (20,534) (16,619)
________ ________
Financing Activities
Proceeds from issuance
of senior notes 99,650 -
Proceeds from revolving bank loan 20,000 40,000
Repayment of other obligations (3,455) (12,349)
Redemption of convertible
subordinated debentures (20) (505)
Redemption of exchangeable
subordinated debentures - (330)
Shareowners' equity transactions:
Exercise of stock options 1,315 180
Cash dividends on Common Stock (14,017) (12,490)
________ ________
Net cash flows from
financing activities 103,473 14,506
_______ ________
Net increase (decrease) in cash
and cash equivalents 45,673 (71,538)
Cash and cash equivalents at
beginning of period 5,264 85,762
_______ ________
Cash and cash equivalents at
end of period $ 50,937 $ 14,224
============ ============
Supplemental Cash Flow Disclosures
Cash paid during the period for:
Interest $ 16,486 $ 13,226
Income taxes 33,805 22,269
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. The consolidated financial statements include the accounts of Bergen
Brunswig Corporation and its subsidiaries (the "Company"), after
elimination of the effect of intercompany transactions and balances.
The Company records revenues when product is delivered to its customers.
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Investments include primarily debt instruments, primarily variable rate
demand notes having maturities of more than one year.
The excess of cost over net assets of acquired companies is amortized on
a straight-line basis principally over 40 years. Customer lists,
included in deferred charges and other assets, are amortized on a
straight-line basis over 15 years. At each balance sheet date
management reviews intangible assets for possible impairment based
on several criteria, including, but not limited to sales trends,
undiscounted operating cash flows and other operating factors.
On October 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Accordingly, the Company has classified its investments as
"available for sale" securities and has reported such investments at fair
value, with unrealized gains and losses excluded from earnings, and
reported as a separate component of shareowners' equity. Such unrealized
losses at June 30, 1995 were $419,000, net of deferred income taxes of
$267,000. Unrealized gains at June 30, 1995 were $9,000, net of deferred
income taxes of $6,000. Realized gains and losses on investments are
determined by the specific identification method and are included in
earnings. Such realized gains and losses were $454,000 and $9,000,
respectively, for the nine months ended June 30, 1995. Realized gains
were $968,000 for the nine months of the prior year.
These consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and related notes of
the Company contained in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994.
Certain reclassifications have been made in the consolidated financial
statements and notes to conform to fiscal 1995 presentations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
B. On September 15, 1992, the Company entered into a credit agreement (the
"Credit Agreement") with a group of banks providing the Company with a
three-year $300 million unsecured revolving line of credit to be used to
fund the fiscal 1993 acquisition of Durr-Fillauer Medical, Inc. ("Durr")
and to be used for general working capital purposes of the Company. On
October 7, 1994, the Credit Agreement was amended to, among other things,
increase the maximum borrowing to $350 million and to extend the maturity
date to September 15, 1997. Borrowings outstanding under the Credit
Agreement were $60.0 million at June 30, 1995. The maximum outstanding
borrowings under the Credit Agreement during the quarter ended June 30,
1995 were $255.0 million.
On May 23, 1995, the Company publicly sold $100 million aggregate
principal amount of 7 1/4 % Senior Notes due January 1, 2005 (the
"Notes"). The Notes were issued pursuant to the $400 million shelf
registration filed by the Company on December 1, 1992. On June 1, 1995,
the Company received net proceeds of $99.0 million (after underwriting
discount of $.6 million) from the Notes. Interest on the Notes is
payable semi-annually on June 1 and December 1 of each year, beginning
December 1, 1995. The Notes are not redeemable prior to maturity and are
not entitled to any sinking fund. The carrying value of the Notes
represents gross proceeds plus amortization of the original issue
discount ratably over the life of the issue. The net proceeds were used
to reduce the outstanding balance under the Credit Agreement.
C. On February 24, 1994 (the "Conversion Date"), in accordance with the
provisions of the Recapitalization Plan approved by the Company's
shareowners on January 31, 1989, all of the 100,492 then outstanding
shares of the Company's Class B Stock were automatically converted into
shares of the Company's Class A Common Stock at the stated conversion
rate of 9.5285 shares of Class A Common Stock for each share of Class B
Common Stock. All shares of Class B Common Stock were automatically
canceled.
On January 26, 1995, the Company declared a 5% stock dividend on the
Company's Class A Common Stock which was paid on March 1, 1995 to
shareowners of record on February 6, 1995. The dividend was charged to
retained earnings in the approximate amount of $44,207,000, which was
based on the closing price of $23.375 per share of Class A Common Stock
on the declaration date. Average shares outstanding and all per share
amounts included in the accompanying consolidated financial statements
and notes are based on the increased numbers of shares giving retroactive
effect to the stock dividend.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
D. Earnings per common and common equivalent share are based on the weighted
average number of shares of Class A Common Stock outstanding during each
period, the assumed conversion of the weighted average number of shares
of Class B Common Stock outstanding through the Conversion Date (See Note
C) and the assumed exercise of dilutive employees' stock options (less
the number of Treasury shares assumed to be purchased from the proceeds
using the average market price of the Company's Class A Common Stock),
after giving effect each period to the 5% stock dividend declared January
26, 1995. Earnings per share are based upon 40,049,920 shares and
38,916,047 shares for the third quarters ended June 30, 1995 and 1994,
respectively, and 39,728,822 shares and 38,541,085 shares for the
respective nine-month year-to-date periods.
E. On January 10, 1995, the Company completed the acquisition of Biddle &
Crowther Company ("B&C"), a privately-held medical-surgical supply
distributor headquartered in Seattle, Washington for 636,248 shares,
previously held as Treasury shares, of the Company's Class A Common Stock
valued at approximately $10.7 million, subject to adjustments after
completion of an acquisition audit. This acquisition has been accounted
for as a purchase and, accordingly, the accompanying consolidated
financial statements include B&C's results of operations and financial
position after January 10, 1995.
On August 2, 1995, the Company completed the acquisition of Colonial
Healthcare Supply Co. ("Colonial"), a privately-held medical-surgical
supply distributor headquartered in Lake Zurich, Illinois, for
approximately $47.6 million in cash. The purchase price is subject to
adjustment, principally after completion of an acquisition audit. This
acquisition, which will be accounted for as a purchase, was financed from
borrowings under the Credit Agreement.
F. During the fourth quarter of fiscal 1993, the Company approved a
restructuring plan for its pharmaceutical distribution business which
resulted in a pre-tax charge of $33.0 million in fiscal 1993. The
restructuring plan consists of an accelerated consolidation of
pharmaceutical distribution facilities into larger, more efficient
regional distribution centers, the merging of duplicate operating
systems, the reduction of administrative support in areas not affecting
valued services to customers, and the discontinuance of services and
programs that do not meet the Company's strategic and economic return
objectives. The restructuring charge represents the costs associated
with restructure, primarily abandonment and severance. For those
activities or assets where the disposal is expected to result in a gain,
no gain will be recognized until realized.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
During fiscal 1994 and through June 30, 1995, 9 distribution facilities
were closed and workforce reductions were made. Charges to the
restructuring reserve have consisted primarily of asset write-offs,
moving and severance costs, facility abandonments and lease settlements
which, through June 30, 1995, have totaled approximately $21.0 million,
including approximately $3.7 million of non-cash charges. Management
anticipates that the remaining cash outflow should be substantially
completed by the end of the fourth quarter of fiscal 1995.
G. During the quarter ended March 31, 1994, the Company recorded a pre-tax
charge of $1.4 million ($0.8 million after tax) for the uninsured portion
of an earthquake loss sustained by the Company's Valencia, California
division on January 17, 1994.
H. In the opinion of management of the Company, the foregoing consolidated
financial statements reflect all adjustments necessary for a fair
statement of the results of the Company and its subsidiaries for the
periods shown and such adjustments are of a normal recurring nature.
Results of operations for the third quarter and first nine months of
fiscal 1995 are not necessarily indicative of results to be expected for
the full year.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the quarter ended June 30, 1995, net sales and other revenues increased
15%, while operating earnings and pre-tax earnings increased 14% and 10%,
respectively, from the quarter ended June 30, 1994. For the nine months ended
June 30, 1995, net sales and other revenues increased 12%, while operating
earnings and pre-tax earnings increased 20% and 18%, respectively, compared to
the nine-month period ended June 30, 1994. Operating earnings and pre-tax
earnings for the third quarter and first nine months of fiscal 1994 were
impacted by a pre-tax charge of $1.4 million for the uninsured portion of an
earthquake loss. See Note G of Notes to Consolidated Financial Statements.
All of the 15% increase in net sales and other revenues for the quarter,
reflects internal growth within the Company's existing pharmaceutical business.
Of the 12% increase in net sales and other revenues for the nine-month period,
approximately 1% in the aggregate is attributable to the acquisitions of
Southeastern Hospital Supply Corporation in April 1994 and Biddle & Crowther
Company in January 1995. Approximately 11% of the net sales and other
revenues increase reflects internal growth within the Company's existing
pharmaceutical business.
Earnings per share for the third quarter and first nine months of fiscal 1995
increased 8% and 18%, respectively, both on an increase of 3% in the average
number of common and common equivalent shares outstanding. The earthquake-
related charge in fiscal 1994 referred to above was equivalent to $.02 per
share.
Cost of sales increased 15% and 12% from the third quarter and nine-month
period of fiscal 1994, respectively, due mainly to the Company's increased
sales levels. The overall gross profit as a percent of net sales and other
revenues for the third quarter and first nine months of fiscal 1995, both
decreased due to price competition, partially offset by increased opportunities
for investment buying in the Company's pharmaceutical distribution business,
and by a higher mix of sales from the Company's higher gross margin medical-
surgical supply distribution business.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
In the pharmaceutical distribution industry, it has been customary to pass on
to customers price increases from manufacturers. Investment buying enables
distributors such as the Company to benefit from these anticipated price
increases. The rate or frequency of future price increases by manufacturers,
or the lack thereof, does influence the profitability of the Company.
Management of the Company anticipates further downward pressure on gross
margins in the Company's pharmaceutical distribution business during the
remainder of the fiscal year ending September 30, 1995 because of continued
price competition influenced by large buying groups. The Company expects that
this pressure on margins may be offset to some extent by increased sales of
more profitable products, such as generic drugs and medical-surgical supplies,
and continued reduction of distribution, selling, general and administrative
expenses as a percentage of net sales and other revenues through improved
operating efficiencies.
Distribution, selling, general and administrative expenses, including the
earthquake-related charge in fiscal 1994, increased 11% and 8% over the prior
year quarter and nine-month period, respectively, while net sales and other
revenues increased 15% and 12% over the prior year quarter and nine-month
period, respectively. These expenses decreased as a percent of net sales and
other revenues from 4.3% in the third quarter of fiscal 1994 to 4.1% in the
third quarter of fiscal 1995 and were 4.2% and 4.4% of net sales and other
revenues in the current and prior year nine-month periods, respectively. Had
the Company not recorded the above mentioned $1.4 million pre-tax earthquake-
related charge in the second quarter of fiscal 1994, distribution, selling,
general and administrative expenses would have been 4.3% of net sales and other
revenues for the prior year nine-month period. The decreased distribution,
selling, general and administrative expenses as a percentage of net sales and
other revenues in the current year also reflect operating efficiencies
resulting from the positive effects of the Company's restructuring plan adopted
for its pharmaceutical distribution business in the fourth quarter of fiscal
1993 and the continuing consolidation of distribution branches into larger
regional distribution centers.
Net interest expense increased from $5.0 million to $6.7 million for the third
quarter, primarily due to interest on the new 7 1/4% Senior Notes and increased
borrowings and higher interest rates under the Credit Agreement. Net interest
expense increased from $16.4 million to $21.1 million for the nine-month
period, primarily due to increased borrowings and higher interest rates under
the Credit Agreement.
Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," which requires the Company to change its accounting
and reporting of investments. See Note A of Notes to Consolidated
Financial Statements.
Financial Condition
At June 30, 1995, capitalization consisted of 46% debt and 54% equity, as
compared to 41% and 59%, respectively, at September 30, 1994. The increased
debt percentage primarily reflects the new $100 million 7 1/4% Senior Notes and
additional borrowings under the Credit Agreement, due primarily to increased
investment in inventory. On October 7, 1994, the Credit Agreement was amended
to, among other things, increase the maximum borrowing to $350 million and to
extend the maturity date to September 15, 1997. Borrowings under the Credit
Agreement were $60.0 million and $40.0 million at June 30, 1995 and September
30, 1994, respectively. Cash and cash equivalents of $50.9 million at June 30,
1995 increased from $5.3 million at September 30, 1994, principally reflecting
the $100 million 7 1/4% Senior Notes and additional borrowings under the Credit
Agreement, partially offset by inventory purchases, property acquisitions and
other factors.
On May 23, 1995, the Company publicly sold $100 million aggregate principal
amount of 7 1/4% Senior Notes due June 1, 2005 (the "Notes"). The Notes were
issued pursuant to the $400 million shelf registration filed by the Company on
December 1, 1992. On June 1, 1995, the net proceeds of $99.0 million from the
sale of the Notes were used to reduce the outstanding balance under the Credit
Agreement. See Note B of Notes to Consolidated Financial Statements.
On January 10, 1995, the Company completed the acquisition of Biddle & Crowther
Company, a privately-held medical-surgical supply distributor headquartered in
Seattle, Washington for 636,248 shares, previously held as Treasury shares, of
the Company's Class A Common Stock valued at approximately $10.7 million,
subject to adjustments after completion of an acquisition audit. This
acquisition was accounted for as a purchase.
On August 2, 1995, the Company completed the acquisition of Colonial Healthcare
Supply Co. ("Colonial"), a privately-held medical-surgical supply distributor
headquartered in Lake Zurich, Illinois, for approximately $47.6 million in
cash. The purchase price is subject to adjustment, principally after
completion of an acquisition audit. This acquisition, which will be accounted
for as a purchase, was financed from borrowings under the Credit Agreement.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
On January 26, 1995, the Corporation declared a 5% stock dividend on the
Corporation's Class A Common Stock payable on March 1, 1995 to shareowners of
record on February 6, 1995. The dividend was charged to retained earnings in
the approximate amount of $44,207,000, which was based on the closing price of
$23.375 per share of Class A Common Stock on the declaration date.
Cash dividends on Class A Common Stock amounted to $14.0 million for the nine
months ended June 30, 1995 and $12.3 million for the same period in the prior
year, reflecting primarily a 20% increase in the quarterly dividend rate during
the second quarter of fiscal 1994. Cash dividends on Class B Common Stock
amounted to $.2 million for the nine months ended June 30, 1994.
On February 24, 1994, in accordance with the provisions of the Recapitalization
Plan approved by the Company's shareowners on January 31, 1989, all of the
100,492 then outstanding shares of the Company's Class B Stock were
automatically converted into shares of the Company's Class A Common Stock at
the stated conversion rate of 9.5285 shares of Class A Common Stock for each
share of Class B Common Stock.
Capital expenditures for the nine months ended June 30, 1995 were $35.9 million
and relate principally to the expansion of the Company into new locations and
additional investment in existing locations, the acquisition of automated
warehouse equipment, and additional investment in data processing equipment.
During the fourth quarter of fiscal 1993, the Company approved a restructuring
plan for its pharmaceutical distribution business which resulted in a pre-tax
charge of $33.0 million in fiscal 1993. The restructuring plan consists of an
accelerated consolidation of pharmaceutical distribution facilities into
larger, more efficient regional distribution centers, the merging of duplicate
operating systems, the reduction of administrative support in areas not
affecting valued services to customers, and the discontinuance of services and
programs that do not meet the Company's strategic and economic return
objectives. The restructuring charge represents the costs associated with
restructure, primarily abandonment and severance. For those activities or
assets where the disposal is expected to result in a gain, no gain will be
recognized until realized.
During fiscal 1994 and through June 30, 1995, 9 distribution facilities were
closed and workforce reductions were made. Charges to the restructuring
reserve have consisted primarily of asset write-offs, moving and severance
costs, facility abandonments and lease settlements which, through June 30,
1995, have totaled approximately $21.0 million, including approximately $3.7
million of non-cash charges. Management anticipates that the remaining cash
outflow should be substantially completed by the end of the fourth quarter of
fiscal 1995.
The Company believes that internally generated funds, funds available under the
existing Credit Agreement and funds potentially available under the existing
shelf registration will be sufficient to meet its anticipated cash and capital
needs.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In connection with the acquisition of Durr, and for the purpose of settling the
expressed concern of the Attorneys General of the States of Alabama, Florida
and Louisiana (collectively, the "Attorneys General") over the alleged
potential lessening of competition in the wholesale distribution of
pharmaceutical products, the Company and Durr entered into an agreement dated
September 18, 1992, with the Attorneys General wherein the Company agreed that
(1) subject to certain exceptions, no then existing customer of either the
Company or Durr in Alabama, Florida and Louisiana (the "Customers") will suffer
a diminution of service levels until April 30, 1997, (2) except for price
increases resulting from taxes, fees or governmental charges, neither the
Company nor Durr will increase the markup percentage for the Customers in
Alabama, Florida and Louisiana for a period of two years and from September
1994 through April 1997 will not increase such percentage in excess of the
percentage increase in the Consumer Price Index; (3) Durr retain its
distribution facilities in Montgomery and Mobile, Alabama; Lakeland, Florida;
and Shreveport, Louisiana for a period of at least two years; (4) Durr maintain
and enhance its AccuNet(R) system for a period of at least two years; and
(5) the Company reimburse the States of Alabama, Florida and Louisiana for
their legal fees, costs and expenses incurred in the investigation of the
acquisition of Durr by the Company.
Drug Barn, Inc. ("Drug Barn"), a former retail pharmacy chain in the San
Francisco Bay Area, currently with two operating stores, owed the Company
approximately $6.2 million in principal obligations as of June 30, 1995, of
which approximately $1.2 million represents trade receivables and $5.0 million
represents a note which matured on March 25, 1993 and has not been paid to
date. The Company has a security interest in virtually all of Drug Barn's
assets, as well as personal guaranties, which collateralize the note and trade
receivables.
In May 1992, Drug Barn requested additional financing which the Company denied
to extend. In December 1992, Drug Barn commenced an action against the Company
in the Santa Clara Superior Court (State of California) alleging breach of
contract, misrepresentation and violations of certain California antitrust and
unfair practices laws. Drug Barn seeks a variety of damage claims including
compensatory, treble and punitive damages, an injunction against collection on
the note, and declaratory judgment as to Drug Barn's rights under the alleged
oral joint venture agreement with the Company. A trial is scheduled for
September 11, 1995 on all claims other than Drug Barn's antitrust claims.
On April 20, 1993, the Company filed a complaint in the Orange County Superior
Court (State of California), Case No. 709136 against Drug Barn and Milton
Sloban and Barbara Sloban, as guarantors on the defaulted note and open trade
receivables, alleging breach of contract and guaranty, and requesting judicial
foreclosure of and the possession of collateral. These matters will be heard in
the aforementioned September 11, 1995 trial.
Drug Barn commenced a Chapter 11 case in U.S. Bankruptcy Court for the Northern
District of California, Case No. 93-3-3437 TC, by filing a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code on July 29,
1993 and remains in possession pursuant to 11 U.S.C. Section 1107. The effect
of this filing is that the Company's action against Drug Barn has been
automatically stayed.
In April 1994, this matter was transferred to the San Francisco Superior Court
with the California state actions referenced in the next paragraph. A trial
date on principally the contract-related actions is anticipated during late
calendar 1995.
Between August 3, 1993 and February 14, 1994, the Company, along with various
other pharmaceutical industry-related companies, was named as a defendant in
eight separate state antitrust actions in three courts in California. These
lawsuits are more fully detailed in "Item 3 - Legal Proceedings" of Part I of
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994
as filed with the Securities and Exchange Commission and is incorporated herein
by reference. In April 1994, these California state actions were all
coordinated as Pharmaceutical Cases I, II, and III, and assigned to a
single judge in San Francisco Superior Court. On August 22, 1994, a
Consolidated Amended Complaint ("California Complaint"), which supersedes and
amends the eight prior complaints, was filed in these actions.
The California Complaint alleges that the Company and 35 other pharmaceutical
industry-related companies violated California's Cartwright Act, Unfair
Practices Act, and the Business and Professions Code unfair competition
statute. The California Complaint alleges that defendants jointly and
separately engaged in secret rebating, price fixing and price discrimination
between plaintiffs and plaintiffs' alleged competitors who sell pharmaceuticals
to patients or retail customers. Plaintiffs seek, on behalf of themselves and
a class of similarly situated California pharmacies, injunctive relief and
treble damages in an amount to be determined at trial. The judge struck the
class allegations from the Unfair Practices Act claims.
Between August 12, 1993 and November 29, 1993, the Company was also named in 11
separate Federal antitrust actions. All 11 actions were consolidated into one
multidistrict action in the Northern District of Illinois entitled, In Re
Brand-Name Prescription Drugs Antitrust Litigation, No. 94 C. 897 (MDL 997).
In March, 1994, plaintiffs in these 11 actions filed a consolidated amended
class action complaint ("Federal Complaint") which amended and superseded all
previously filed Federal complaints against the Company. The Federal
Complaint names the Company and 30 other pharmaceutical industry-related
companies. The Federal Complaint alleges, on behalf of a nationwide class
of retail pharmacies, that the Company conspired with other wholesalers and
manufacturers to discriminatorily fix prices in violation of Section 1 of the
Sherman Act. The Federal Complaint seeks injunctive relief and treble
damages. In November, 1994, the Federal court certified the class defined in
the Federal Complaint for the time period October 15, 1989 to the present.
These lawsuits are more fully detailed in "Item 3 - Legal Proceedings" of
Part I of the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994 as filed with the Securities and Exchange Commission and is
incorporated herein by reference. On January 13, 1995, the Company was
named along with 30 other pharmaceutical industry-related companies in a
separate complaint filed in the U.S. District Court, Northern District of
Illinois entitled Publix Supermarkets v. Abbott Laboratories, et al.,
Case No. 94C0246, alleging similar claims as in the Federal Complaint.
The Company was dropped as a defendant in this matter on February 23, 1995.
On March 9, 1995, the Company was named along with 30 other pharmaceutical
industry-related companies in a separate complaint filed in the U.S. District
Court, Eastern District of Arkansas entitled Lawrence Adams d/b/a
Mc Spadden Drug Store, et al. v. Abbott Laboratories, et al.,
Case No. LR-C-95-153, alleging similar claims as in the Federal complaint.
The Company believes that this action will be consolidated into the Federal
multidistrict action.
On May 2, 1994, the Company and Durr Drug Company were named as defendants,
along with 25 other pharmaceutical related-industry companies, in a state
antitrust class action in the Circuit Court of Greene County, Alabama entitled
Durrett v. UpJohn Company, et al., No. 94-029 ("Alabama Complaint"). The
Alabama Complaint alleges on behalf of a class of Alabama retail pharmacies and
a class of Alabama consumers that the defendants conspired to discriminatorily
fix prices to plaintiffs at artificially high levels. The Alabama complaint
seeks injunctive relief and treble damages.
On October 21, 1994, the Company entered into a sharing agreement with five
other wholesalers and 26 pharmaceutical manufacturers. Among other things, the
agreement provides that: (a) if a judgment is entered into against both the
manufacturer and wholesaler defendants, the total exposure for joint and
several liability of the Company is limited to $1,000,000; (b) if a settlement
is entered into by, between, and among the manufacturer and wholesaler
defendants, the Company has no monetary exposure for such settlement amount;
(c) the six wholesaler defendants will be reimbursed by the 26 pharmaceutical
defendants for related legal fees and expenses up to $9,000,000 total (of which
the Company will receive a proportionate share) and (d) the Company is to
release certain claims which it might have had against the manufacturer
defendants for the claims presented by the plaintiffs in these cases. The
agreement covers the Federal court litigation as well as the cases which have
been filed in various state courts. In December 1994, plaintiffs in the
Federal action moved to set aside the agreement, but plaintiffs motion was
denied on April 25, 1995. After discussions with counsel, management of the
Company believes that the allegations of liability set forth in these lawsuits
are without merit as to the wholesaler defendants and that any attendant
liability of the Company, although unlikely, would not have a material adverse
effect on the Company's financial condition.
The Company is involved in various additional items of litigation. Although
the amount of liability at June 30, 1995 with respect to these items of
litigation cannot be ascertained, in the opinion of management, any resulting
future liability will not have a material adverse effect on its consolidated
financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11 Computation of earnings per share for the third quarter and nine
months ended June 30, 1995 and 1994.
27 Financial Data Schedule for the nine months ended June 30, 1995.
(b) REPORTS ON FORM 8-K DURING THE QUARTER ENDED JUNE 30, 1995:
(1) On April 25, 1995, a Current Report on Form 8-K, dated April 24,
1995, was filed, reporting under Items 5 and 7 additional
financial information relative to the Company's 1994 fiscal year.
(2) On May 23, 1995, a Current Report on Form 8-K, dated May 23, 1995,
was filed, reporting under Item 7 (c) certain exhibits relating to
the Company's public offering of its 7 1/4% Senior Notes due 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BERGEN BRUNSWIG CORPORATION
By /s/ Robert E. Martini
Robert E. Martini
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By /s/ Neil F. Dimick
Neil F. Dimick
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
August 11, 1995
BERGEN BRUNSWIG CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. PAGE NO.
11
Computation of earnings per share for the third 21
quarter and nine months ended June 30, 1995 and 1994.
27
Financial Data Schedule for the nine months 22
ended June 30, 1995.
EXHIBIT 11
BERGEN BRUNSWIG CORPORATION
COMPUTATION OF EARNINGS PER SHARE
FOR THE THIRD QUARTER AND NINE MONTHS ENDED
JUNE 30, 1995 AND 1994
(in thousands except share and per share amounts)
(Unaudited)
<TABLE>
THIRD QUARTER NINE MONTHS
1995 1994 1995 1994
<C> <S> <S> <S> <S>
DATA AS TO EARNINGS - Net Earnings $ 16,875 $ 15,027 $ 48,288 $ 39,887
======== ======== ======== ========
DATA AS TO NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES:
Weighted average number
of shares outstanding:
Class A Common Stock 39,783,491 38,834,966 39,511,093 37,934,331
Class B Common Stock - - - 54,234
Shares of Class A Common
Stock to be issued from
assumed conversion of
remainder of Class B Stock - - - 462,533
Common equivalent shares
assuming issuance of shares
represented by outstanding
employees' stock options:
Additional shares assumed
to be issued 1,455,659 566,062 1,290,659 604,084
Reduction of such additional
shares assuming proceeds
invested in treasury stock
(at average market prices
during each period) (1,189,230) (484,981) (1,072,930) (514,097)
=========== ========= =========== =========
Average number of
common and common
equivalent shares
outstanding 40,049,920 38,916,047 39,728,822 38,541,085
========== =========== ========== ==========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE OUTSTANDING: $ .42 $ .39 $ 1.22 $ 1.03
=========== ========== ========== ==========
</TABLE>
Reference is made to Notes C and D in the accompanying Notes to Consolidated
Financial Statements.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 50,937
<SECURITIES> 0
<RECEIVABLES> 540,937
<ALLOWANCES> 20,642
<INVENTORY> 1,064,364
<CURRENT-ASSETS> 1,667,050
<PP&E> 247,124
<DEPRECIATION> 90,489
<TOTAL-ASSETS> 2,214,070
<CURRENT-LIABILITIES> 1,247,368
<BONDS> 380,271
<COMMON> 66,233
0
0
<OTHER-SE> 441,447
<TOTAL-LIABILITY-AND-EQUITY> 2,214,070
<SALES> 0
<TOTAL-REVENUES> 6,225,440
<CGS> 5,857,899
<TOTAL-COSTS> 6,121,103
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,383
<INTEREST-EXPENSE> 21,082
<INCOME-PRETAX> 83,255
<INCOME-TAX> 34,967
<INCOME-CONTINUING> 48,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,288
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
