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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
For the fiscal quarter ended March 31, 1998
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission file number 1-5110
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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 92868-3510
- --------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 385-4000
----------------------
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:
<TABLE>
<CAPTION>
Title of each class of Number of Shares Outstanding
Common Stock April 30, 1998
-------------------------- -----------------------------
<S> <C>
Class A Common Stock -
par value $1.50 per share 50,497,753
</TABLE>
1
<PAGE>
BERGEN BRUNSWIG CORPORATION
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INDEX
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, March
31, 1998 and September 30, 1997 3
Statements of Consolidated Earnings
for the second quarter and six months
ended March 31, 1998 and 1997 4
Statements of Consolidated Cash Flows
for the six months ended
March 31, 1998 and 1997 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 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Index to Exhibits 19
2
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BERGEN BRUNSWIG CORPORATION
---------------------------
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND SEPTEMBER 30, 1997
(dollars in thousands)
(Unaudited)
<CAPTION>
====================================================================================================================================
March 31, September 30, LIABILITIES AND March 31, September 30,
- - ASSETS - - 1998 1997 - - SHAREOWNERS' EQUITY - - 1998 1997
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents........... $ - $ 54,494 Accounts payable........................ $1,458,737 $1,336,070
Short-term investments.............. 2,267 2,786 Accrued liabilities..................... 89,586 82,070
Accounts and notes receivable, Customer credit balances................ 148,577 176,864
less allowance for doubtful Income taxes payable.................... 5,872 -
receivables: $33,579 at Deferred income taxes................... 24,598 28,281
March 31, 1998 and $29,022 Current portion of
at September 30, 1997............. 854,376 772,342 long-term obligations................. 1,021 1,021
Inventories......................... 1,598,034 1,309,359 ---------- ----------
Income taxes receivable............. - 6,628 Total current liabilities...... 1,728,391 1,624,306
Prepaid expenses.................... 8,419 9,866 ---------- ----------
---------- ---------- LONG-TERM OBLIGATIONS:
Total current assets....... 2,463,096 2,155,475 7 3/8% senior notes..................... 149,466 149,411
---------- ---------- 7 1/4% senior notes..................... 99,749 99,732
Revolving bank loan payable............. 325,000 140,000
7% convertible subordinated debentures.. 20,609 20,609
6 7/8% exchangeable
subordinated debentures............... 8,425 8,425
PROPERTY - at cost: Deferred income taxes................... 2,433 1,791
Land................................ 12,208 12,602 Other................................... 18,971 17,988
Building and leasehold improvements. 85,763 83,829 ---------- ----------
Equipment and fixtures.............. 168,372 173,875 Total long-term obligations 624,653 437,956
---------- ---------- ---------- ----------
Total property............. 266,343 270,306 SHAREOWNERS' EQUITY:
Less accumulated depreciation Capital stock:
and amortization.................. 129,767 131,944 Preferred - authorized 3,000,000
---------- ---------- shares; issued: none................ - -
Property - net............. 136,576 138,362 Class A Common - authorized
---------- ---------- 100,000,000 shares; issued:
55,881,034 shares at March
31, 1998 and 55,870,183 shares
at September 30, 1997............... 83,822 83,805
Paid-in capital......................... 156,444 156,361
OTHER ASSETS: Net unrealized gain on
Excess of cost over net assets investments, net of income tax of
of acquired companies - net....... 338,495 329,100 $332 at March 31, 1998 and $260
Investments......................... 5,999 5,895 at September 30, 1997................. 522 409
Noncurrent receivables.............. 13,574 12,651 Retained earnings....................... 520,608 492,565
Deferred charges and other assets... 68,657 65,640 ---------- ----------
---------- ---------- Total................................. 761,396 733,140
Total other assets......... 426,725 413,286 Less Treasury shares at cost:
---------- ---------- 5,440,389 shares at March 31,
1998 and 5,454,983 shares at
September 30, 1997.................... 88,043 88,279
---------- ----------
Total shareowners' equity...... 673,353 644,861
---------- ----------
TOTAL ASSETS.......................... $3,026,397 $2,707,123 TOTAL LIABILITIES AND SHAREOWNERS' EQUITY. $3,026,397 $2,707,123
========== ========== ========== ==========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BERGEN BRUNSWIG CORPORATION
---------------------------
STATEMENTS OF CONSOLIDATED EARNINGS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED
MARCH 31, 1997 AND 1996
(in thousands except per share amounts)
(Unaudited)
SECOND QUARTER SIX MONTHS
--------------------------- ---------------------------
1998 1997 1998 1997
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net sales and other revenues $ 3,373,583 $ 2,890,457 $ 6,542,619 $ 5,712,579
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 3,182,783 2,720,793 6,181,148 5,388,939
Distribution, selling, general
and administrative expenses 130,751 120,244 256,130 236,558
Merger expenses 9,800 5,800 9,800 5,800
------------ ------------ ------------ ------------
Total costs and expenses 3,323,334 2,846,837 6,447,078 5,631,297
------------ ------------ ------------ ------------
Operating earnings 50,249 43,620 95,541 81,282
Net interest expense 11,561 8,569 20,689 15,157
------------ ------------ ------------ ------------
Earnings before taxes on income 38,688 35,051 74,852 66,125
Taxes on income 19,880 14,546 34,707 27,442
------------ ------------ ------------ ------------
Net earnings $ 18,808 $ 20,505 $ 40,145 $ 38,683
============ ============ ============ ============
Earnings per share:
Basic $ .37 $ .41 $ .80 $ .77
============ ============ ============ ============
Diluted $ .37 $ .41 $ .78 $ .77
============ ============ ============ ============
Cash dividends per share
on Class A Common Stock $ .120 $ .096 $ .240 $ .192
============ ============ ============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
4
</TABLE>
<PAGE>
<TABLE>
BERGEN BRUNSWIG CORPORATION
---------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1997
(in thousands)
(Unaudited)
<CAPTION>
-------------------------
1998 1997
-------------------------
<S> <C> <C>
Operating Activities
- --------------------
Net earnings $ 40,145 $ 38,683
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Provision for doubtful accounts 7,317 6,836
Depreciation and amortization of property 12,221 13,432
Loss on dispositions of property 975 -
Amortization of customer lists 874 874
Amortization of excess of cost over
net assets of acquired companies 4,945 4,851
Amortization of other intangible assets 973 648
Amortization of original issue discount on senior notes 72 74
Deferred compensation 1,477 1,131
Deferred income taxes (3,112) (2,223)
Effects of changes, net of acquisitions
Receivables (86,315) (56,856)
Inventories (284,830) (137,054)
Income taxes receivable 12,500 3,730
Prepaid expenses and other assets (3,247) (5,004)
Accounts payable 116,256 60,286
Accrued liabilities 7,307 (10,777)
Customer credit balances (28,287) 2,673
----------- -----------
Net cash flows from operating activities (200,729) (78,696)
----------- -----------
Investing Activities
- --------------------
Sale (purchase) of other investments 600 (3,447)
Property acquisitions (11,015) (10,979)
Proceeds from property dispositions 65 -
Acquisition of business, less cash acquired (16,085) -
----------- -----------
Net cash flows from investing activities (26,435) (14,426)
----------- -----------
Financing Activities
- --------------------
Proceeds from revolving bank loan 185,000 108,000
Repayment of other obligations (563) (799)
Shareowners' equity transactions:
Exercise of stock options 335 1,656
Cash dividends on Common Stock (12,102) (9,623)
----------- -----------
Net cash flows from financing activities 172,670 99,234
----------- -----------
Net (decrease) increase in cash and cash equivalents (54,494) 6,112
Cash and cash equivalents at beginning of period 54,494 21,408
----------- -----------
Cash and cash equivalents at end of period $ - $ 27,520
=========== ===========
Supplemental Cash Flow Disclosures
- ----------------------------------
Cash paid during the period for:
Interest $ 20,251 $ 15,245
Income taxes, net of refunds 25,854 28,702
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
5
</TABLE>
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Bergen Brunswig Corporation, a New Jersey corporation formed in 1956,
and its subsidiaries (collectively, the "Company") are a diversified
drug and health care distribution organization and, as such, the
nation's largest supplier of pharmaceuticals to the managed care market
and the second largest wholesaler to the retail pharmacy market. The
Company is one of the largest pharmaceutical distributors to provide
both pharmaceuticals and medical-surgical supplies on a national basis.
The consolidated financial statements include the accounts of the
Company, after elimination of the effect of intercompany transactions
and balances.
The accompanying unaudited interim consolidated financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") for reporting on Form 10-Q
and do not include all of the information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles. The accompanying unaudited
interim consolidated financial statements should be read in conjunction
with the audited Consolidated Financial Statements and Notes to
Consolidated Financial Statements contained in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1997.
Certain reclassifications have been made in the consolidated financial
statements and notes to conform to fiscal 1998 presentations.
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles necessarily
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates and the reported
amounts of revenue and expense during the reporting periods. Actual
results could differ from these estimates and assumptions.
B. Service fee income related to bulk shipments of pharmaceuticals
included in net sales and other revenues for the second quarter and six
months ended March 31, 1998 and 1997, respectively, was not material to
the Company's overall gross profit for these periods. Service fee
income from bulk sales was $1.3 million and $.4 million for the second
quarter ended March 31, 1998 and 1997, respectively, and $2.0 million
and $.6 million for the comparable six-month periods. As a percentage
of the Company's total gross profit, such income amounted to .71% and
.25% for the second quarter ended March 31, 1998 and 1997,
respectively, and .54% and .19% of overall gross profit for the
comparable six-month periods.
Historically, the Company has reported as revenues the service fees
relating to bulk shipments of pharmaceuticals. The Company has been
advised that, instead of
6
<PAGE>
BERGEN BRUNSWIG CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
including service fees on a net basis within revenues, it should report
the gross dollar amount of such shipments as part of its revenues and
should report related costs in cost of sales. The Company will adopt
such presentation beginning with its audited consolidated financial
statements for its fiscal year ended September 30, 1998. The Company
believes that other companies in its industry will also be adopting
such a presentation.
C. The Company's credit agreement (the "Credit Agreement") allows
borrowings of up to $400 million and also allows borrowings under
discretionary credit lines ("discretionary lines") outside of the
Credit Agreement. Outstanding borrowings under the Credit Agreement and
discretionary lines were $325 million at March 31, 1998 and averaged
$423 million during the three months then ended. The Credit Agreement
has loan covenants which require the Company to maintain certain
financial statement ratios. The Company is in compliance with all
required ratios at March 31, 1998.
The Company filed a shelf registration statement with the SEC which
became effective on March 27, 1996. The registration statement allows
the Company to sell senior and subordinated debt or equity securities
to the public from time to time up to an aggregate maximum principal
amount of $400 million. The Company intends to use the net proceeds
from the sale of such securities for general corporate purposes, which
may include, without limitation, the repayment of indebtedness of the
Company or of any of its subsidiaries, possible acquisitions, capital
expenditures and working capital needs. Pending such application, the
net proceeds may be temporarily invested in short-term securities. No
offering has occurred since the effective date of the registration
statement. Any offering of such securities shall be made only by means
of a prospectus.
D. During the fiscal quarter ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share (EPS)," which replaced the previously reported primary and
fully diluted EPS with basic and diluted EPS. Unlike primary EPS, basic
EPS excludes any dilutive effects of options, warrants and convertible
securities. Diluted EPS is similar to the previously reported fully
diluted EPS. All EPS amounts for all fiscal periods have been presented
and, where necessary, restated to conform to the requirements of SFAS
No. 128.
The following table sets forth the computation of basic and diluted EPS
for the second quarter and six months ended March 31, 1998 and 1997,
respectively:
7
<PAGE>
BERGEN BRUNSWIG CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
<TABLE>
<CAPTION>
Second Quarter Six Months
--------------------------- --------------------------
Dollars in thousands, except EPS 1998 1997 1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator for both basic and
diluted EPS - net earnings $ 18,808 $ 20,505 $ 40,145 $ 38,683
============ ============ ============ ============
Denominator:
Denominator for basic EPS - weighted
average shares of Class A Common
Stock outstanding 50,433,968 50,149,038 50,429,594 50,126,686
Effect of dilutive employees' stock
options (dilutive potential common
shares) 764,309 440,878 751,013 436,679
------------ ------------ ------------ ------------
Denominator for diluted EPS - adjusted
weighted average shares and
assumed conversions 51,198,277 50,589,916 51,180,607 50,563,365
============ ============ ============ ============
Earnings per share:
Basic $ .37 $ .41 $ .80 $ .77
============ =========== ============ ============
Diluted $ .37 $ .41 $ .78 $ .77
============ =========== ============ ============
</TABLE>
E. On January 2, 1998, the Company completed the acquisition of
substantially all of the net assets of Besse Medical Services, Inc., a
privately-held distributor of injectables, diagnostics and medical
supplies located in Cincinnati, Ohio. The Company acquired assets at
fair value of approximately $6.6 million and assumed liabilities of
approximately $4.6 million. This acquisition has been accounted for as
a purchase for financial reporting purposes. The purchase price is
subject to adjustments after completion of the acquisition audit.
F. On August 23, 1997, the Company signed a definitive merger agreement
with Cardinal Health, Inc. ("Cardinal"), a distributor of
pharmaceuticals and provider of value-added pharmaceutical-related
services, headquartered in Dublin, Ohio. The merger agreement, which
has been unanimously approved by the Boards of Directors of the Company
and Cardinal, calls for the Company to become a wholly-owned subsidiary
of Cardinal. The combined company is expected to be known as Cardinal
Bergen Health, Inc. and would be headquartered in Dublin, Ohio. The
shareowners of both the Company and Cardinal approved the merger on
February 20, 1998. Under the terms of the proposed merger, shareowners
of the Company would receive 0.775 of a Cardinal Common Share in
exchange for each outstanding share of the Company's Class A Common
Stock. Cardinal would issue approximately 42 million Common Shares in
the transaction and would assume the Company's long-term debt which was
approximately $603 million at March 31, 1998. The merger of the two
companies has been structured as a tax-free transaction and would be
accounted for as a pooling of interests for financial reporting
purposes. On March 3, 1998, the Federal Trade Commission ("FTC")
8
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
announced that it had authorized litigation to challenge the merger. On
March 17, 1998, the Company and Cardinal announced that they would
contest the FTC's attempt to block the proposed merger. A ruling on the
FTC's motion for a preliminary injunction is anticipated to occur in
June or July 1998. The companies have agreed not to consummate the
merger pending a decision on the motion for a preliminary junction.
During the second quarter of fiscal 1998, the Company recorded a
pre-tax charge of $9.8 million ($9.8 million, net of tax, or $.19 per
diluted share) for expenses related to the merger.
G. During the second quarter of fiscal 1997, the Company recorded a
one-time, pre-tax charge of $5.8 million ($3.4 million, net of income
tax benefit of $2.4 million, or $.06 per diluted share) for expenses
related to the terminated merger with IVAX Corporation ("IVAX") which
was terminated on March 20, 1997.
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 first six months of fiscal 1998 are not
necessarily indicative of results to be expected for the full fiscal
year or any other fiscal period.
9
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Portions of management's discussion and analysis presented below, consisting of
those statements which are not historical in nature, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are subject to risks, uncertainties and
other factors which could cause actual results to materially differ from those
projected or implied. The most significant of such risks, uncertainties and
other factors are described in Exhibit 99(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997 and are incorporated
herein by reference. The Company disclaims any obligation to update any
forward-looking statement.
Results of Operations
- ---------------------
For the quarter ended March 31, 1998, net sales and other revenues increased
17%, while operating earnings and pre-tax earnings increased 15% and 10%,
respectively, from the quarter ended March 31, 1997. For the six months ended
March 31, 1998, net sales and other revenues increased 15%, while operating
earnings and pre-tax earnings increased 18% and 13%, respectively, compared to
the six-month period ended March 31, 1997. Operating earnings and pre-tax
earnings for the second quarter and first six months of fiscal 1998 were
impacted by a pre-tax charge of $9.8 million for expenses related to the pending
merger with Cardinal. Operating earnings and pre-tax earnings for the second
quarter and first six months of fiscal 1997 were impacted by a pre-tax charge of
$5.8 million for expenses related to the terminated merger with IVAX. See Notes
F and G of Notes to Consolidated Financial Statements in Part I, Item 1 of this
Quarterly Report.
Substantially all of the net sales and other revenues increase for both the
quarter and six-month periods reflect internal growth within both the Company's
existing pharmaceutical and medical-surgical supply distribution businesses.
Had the Company not recorded the above-mentioned merger expenses of $9.8 million
($9.8 million, net of tax, or $.19 per diluted share) and $5.8 million ($3.4
million, net of tax, or $.06 per diluted share) in the second quarter of fiscal
1998 and 1997, respectively, operating earnings and pre-tax earnings would have
increased 22% and 19%, respectively, from the quarter ended March 31, 1997. For
the six months ended March 31, 1998, operating earnings and pre-tax earnings
would have increased 21% and 18%, respectively, compared to the six-month period
ended March 31, 1997. Excluding the merger expenses, diluted earnings per share
for the quarter and six months ended March 31, 1998 would have increased 19% and
18%, respectively, over the comparable periods of the prior year.
10
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Cost of sales increased 17% and 15% from the second fiscal quarter and six-month
period, respectively, a year ago, due mainly to the Company's increased sales
levels. The overall gross profit as a percent of net sales and other revenues
(gross profit margin) for the second quarter and first six months of fiscal 1998
decreased as a result of a decrease in gross margins due to continued price
competition and a lower mix of sales from the Company's higher gross margin
medical-surgical supply distribution business, partially offset by increased
opportunities for investment buying. The gross profit margin in the Company's
pharmaceutical distribution business for the second quarter and six-month period
of fiscal 1998 declined 2.62% and 1.83%, respectively, from the comparable
periods of the prior fiscal year, primarily due to competitive factors. The
gross profit margin in the Company's medical-surgical supply distribution
business for the second quarter and six-month period of fiscal 1998 increased
1.01% and 2.49%, respectively, over the same period a year ago, primarily due to
increased opportunities for investment buying. In both the pharmaceutical and
medical-surgical supply distribution industries, it has been customary to pass
on to customers price increases from manufacturers. Investment buying enables
distributors such as the Company to benefit from anticipated price increases.
During periods of low inflation, which has occurred the last few years,
wholesalers receive less benefit from manufacturers' price increases but also
incur lower LIFO charges. The rate or frequency of future price increases by
manufacturers, or the lack thereof, influences the profitability of the Company.
Management of the Company anticipates further downward pressure on gross margins
in the Company's pharmaceutical distribution and medical-surgical supply
businesses during fiscal 1998 because of continued price competition influenced
by large customers. The Company expects that these pressures on operating margin
may be offset to some extent by increased sales of more profitable products,
such as generic drugs, medical-surgical supplies and acute care products, and
continued reduction of distribution, selling, general and administrative
expenses ("DSG&A") as a percentage of net sales and other revenues through more
efficient operations.
DSG&A, including the merger expenses, increased 12% and 10% from the prior year
quarter and six-month period, respectively, while net sales and other revenues
increased 17% and 15% over the prior year quarter and six-month period,
respectively. These expenses as a percent of net sales and other revenues were
4.17% and 4.36% in the second quarter of fiscal 1998 and 1997, respectively, and
were 4.06% and 4.24% of net sales and other revenues in the current and prior
year six-month periods, respectively. Had the Company not recorded the merger
expenses in the second quarter of fiscal 1998 and 1997, DSG&A as a percent of
net sales and other revenues would have been 3.88% and 4.16% for the current and
prior year quarter, respectively, and 3.91% and 4.14% for the current and prior
six-month periods, respectively. The decreased DSG&A as a percent of net sales
and other revenues in the current year quarter and six-month periods reflects
continued operating efficiencies experienced in both the Company's
pharmaceutical and medical-surgical businesses.
11
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Net interest expense increased from $8.6 million for the second quarter of
fiscal 1997 to $11.6 million for the second quarter of fiscal 1998, and from
$15.2 million to $20.7 million for the comparable six-month periods, primarily
due to increased borrowings under the Credit Agreement, principally the result
of a higher investment in inventory.
Taxes on income were 51.4% and 41.5% of pre-tax earnings for the second quarter
of fiscal 1998 and 1997, respectively, and 46.4% and 41.5% for the comparable
six-month periods. The increase in the effective tax rate is primarily due to
the impact of the non-deductible merger expenses recorded in the second quarter
of fiscal 1998.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1998, capitalization consisted of 47% debt and 53% equity, compared
to 39% and 61%, respectively, at September 30, 1997. The increased debt
percentage primarily reflects increased borrowings under the Credit Agreement
and discretionary lines offset by an increase in shareowners' equity of $28.5
million. Borrowings under the Credit Agreement were $325.0 million and $140.0
million at March 31, 1998 and September 30, 1997, respectively. Cash and cash
equivalents decreased from $54.5 million at September 30, 1997 to zero at March
31, 1998, primarily resulting from a decrease in net cash flows from operating
activities principally due to increases in both accounts receivable and
investment in inventory (net of increases in trade accounts payable), partially
offset by the Company's profitable operations and increased borrowings under the
Credit Agreement.
The Company filed a shelf registration statement with the SEC which became
effective on March 27, 1996. The registration statement allows the Company to
sell senior and subordinated debt or equity securities to the public from time
to time up to an aggregate amount of $400 million. The Company intends to use
the net proceeds from the sale of any such securities for general corporate
purposes, which may include, without limitation, the repayment of indebtedness
of the Company or of any of its subsidiaries, possible acquisitions, capital
expenditures and working capital needs. See Note C of Notes to Consolidated
Financial Statements.
The Company's Credit Agreement provides for maximum borrowing of up to $400
million and has loan covenants which require the Company to maintain certain
financial statement ratios. The Company is in compliance with all required
ratios at March 31, 1998. See Note C of Notes to Consolidated Financial
Statements.
Cash dividends on Class A Common Stock amounted to $12.1 million for the six
months ended March 31, 1998 and $9.6 million for the same period in the prior
fiscal year, reflecting, primarily, a 25% increase in the quarterly dividend
rate during the third quarter of fiscal 1997. In addition, on April 23, 1998,
12
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
the Company declared a regular cash dividend of $.12 per share on Class A Common
Stock, payable June 1, 1998 to shareowners of record on May 4, 1998.
Capital expenditures for the six months ended March 31, 1998 were $11.0 million
and relate principally to additional investment in existing locations, the
acquisition of automated warehouse equipment and additional investments in data
processing equipment.
The Company believes that internally generated funds, funds available under the
existing Credit Agreement and discretionary credit lines and funds available
under the existing shelf registration will be sufficient to meet anticipated
cash and capital needs.
Other Matters
- -------------
The Company relies heavily on computer technology throughout its businesses to
effectively carry out its day-to-day operations. As the millennium approaches,
the Company is assessing all of its computer systems to ensure that they are
"Year 2000"-compliant. In this process, the Company expects to both replace some
systems and upgrade others which are not Year 2000-compliant, in order to meet
its internal needs and those of its customers. The Company expects its Year 2000
project to be completed on a timely basis. However, there can be no assurance
that the systems of other companies on which the Company may rely also will be
timely converted or that such failure to convert by another company would not
have an adverse effect on the Company's systems. To date, the Company has spent
approximately $3.2 million on the Year 2000 project. Costs related to this
project will continue through calendar 1999. These costs are difficult to
estimate accurately and they will not necessarily be incremental. The Company's
stated expectations regarding its Year 2000 project constitute forward-looking
statements. Actual results could differ materially from the Company's
expectations due to unanticipated technological difficulties, project vendor
delays and project vendor cost overruns. Reference is also made to the above
introductory paragraph of management's discussion and analysis in this Quarterly
Report.
On January 2, 1998, the Company completed the acquisition of substantially all
of the net assets of Besse Medical Services, Inc., a privately-held distributor
of injectables, diagnostics and medical supplies located in Cincinnati, Ohio.
The Company acquired assets at fair value of approximately $6.6 million and
assumed liabilities of approximately $4.6 million. This acquisition has been
accounted for as a purchase for financial reporting purposes. The purchase price
is subject to adjustments after completion of the acquisition audit.
On August 23, 1997, the Company signed a definitive merger agreement with
Cardinal Health, Inc. ("Cardinal"), a distributor of pharmaceuticals and
provider of value-added pharmaceutical-related services, headquartered in
Dublin, Ohio. The merger agreement, which has been unanimously approved by the
13
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
related services, headquartered in Dublin, Ohio. The merger agreement, which has
been unanimously approved by the Boards of Directors of the Company and
Cardinal, calls for the Company to become a wholly-owned subsidiary of Cardinal.
The combined company is expected to be known as Cardinal Bergen Health, Inc. and
would be headquartered in Dublin, Ohio. The shareowners of both the Company and
Cardinal approved the merger on February 20, 1998. Under the terms of the
proposed merger, shareowners of the Company would receive 0.775 of a Cardinal
Common Share in exchange for each outstanding share of the Company's Class A
Common Stock. Cardinal would issue approximately 42 million Common Shares in the
transaction and would assume the Company's long-term debt which was
approximately $603 million at March 31, 1998. The merger of the two companies
has been structured as a tax-free transaction and would be accounted for as a
pooling of interests for financial reporting purposes. On March 3, 1998, the
Federal Trade Commission ("FTC") announced that it had authorized litigation to
challenge the merger. On March 17, 1998, the Company and Cardinal announced that
they would contest the FTC's attempt to block the proposed merger. A ruling on
the FTC's motion for a preliminary injunction is anticipated to occur in June or
July 1998. The companies have agreed not to consummate the merger pending a
decision on the motion for a preliminary junction.
Historically, the Company has reported as revenues the service fees relating to
bulk shipments of pharmaceuticals. See Note B of Notes to Consolidated Financial
Statements. The Company has been advised that, instead of including service fees
on a net basis within revenues, it should report the gross dollar amount of such
shipments as part of its revenues and should report related costs in cost of
sales. The Company will adopt such presentation beginning with its audited
consolidated financial statements for its fiscal year ended September 30, 1998.
The Company believes that other companies in its industry will also be adopting
such a presentation.
14
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no new material developments in the legal proceedings
as previously reported in Part I, Item 3 of the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1997 filed with the Securities and
Exchange Commission on December 24, 1997, except as otherwise might be set forth
below.
As previously reported in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996, the Company entered into a sharing
agreement in October 1994, with five other wholesalers and 26 pharmaceutical
manufacturers in connection with a Federal class action and various state court
suits. 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 $1.0 million; (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 $9.0 million
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 the cases.
The agreement covers the Federal court litigation as well as the cases which
have been filed in various state courts. The effect of the agreement is that the
Company's maximum potential loss would be $1.0 million, regardless of the
outcome of the lawsuits, plus possible legal fee expenses in excess of the
Company's proportionate share of the $9 million reimbursement of such fees to be
paid by the manufacturer defendants. In addition to the above-mentioned Federal
class action and state court actions, the Company and other wholesaler
defendants have been added as defendants in a series of related antitrust
lawsuits brought by certain independent pharmacies who has opted out of the
class action cases and by certain chain drug and grocery stores. These lawsuits
are also covered by the sharing agreement described above.
On March 9, 1998, the U.S. Federal Trade Commission (the "FTC") filed
two complaints in the United States District Court for the District of Columbia
seeking preliminary injunctions blocking consummation of the Company's proposed
merger involving Cardinal Health, Inc. ("Cardinal") and the proposed merger of
McKesson Corporation and AmeriSource Healthcare Corporation. The two lawsuits
have been consolidated and will be heard together. On March 17, 1998, the
Company and Cardinal announced that they would contest the FTC's challenge to
the proposed merger; subsequently, McKesson and AmeriSource announced that they
would also contest the FTC's challenge to their proposed merger transaction. The
District Court has established a schedule for the consolidated action pursuant
to which expedited discovery is presently on-going and the hearing on the FTC's
preliminary injunction request is scheduled to commence on June 10, 1998. The
parties have agreed not to consummate their proposed mergers pending a decision
on the preliminary injunction, which is expected during June or July 1998. The
Company believes that the FTC's suit is without merit; the Company is
15
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
PART II. OTHER INFORMATION
vigorously contesting the FTC's request for a preliminary injunction, although
there can be no assurance that the Company will succeed in its efforts, that a
decision will be rendered before the end of July 1998 or that the proposed
merger transaction with Cardinal will be consummated.
The Company is also involved in various additional items of litigation.
Although the amount of liability at March 31, 1998 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 the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of the Company's shareowners was held on February 20,
1998 in Orange, California and the following matters were voted upon:
(a) Approval and adoption of the Agreement and Plan of Merger ("the
Merger"), dated as of August 23, 1997, by and among the Company,
Cardinal Health, Inc. and Bruin Merger Corp. The results of the vote of
the Company's shareowners were as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
----------- ---------- ------- ---------
<S> <C> <C> <C>
35,615,659 864,406 85,232 129,287
</TABLE>
(b) Adjournment of the Special Meeting, if necessary, to permit further
solicitation of proxies in the event there were not sufficient votes at
the time of the Special Meeting to approve the merger referred in item
(a) above. The results of the vote of the Company's shareowners were as
follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
----------- ---------- ------- ---------
<S> <C> <C> <C>
24,664,460 11,747,903 282,221 None
</TABLE>
16
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
--------
2(a)** Agreement and Plan of Merger, dated August 23,
1997, by and among Cardinal Health, Inc., Bruin
Merger Corp. and Bergen Brunswig Corporation is
set forth as Exhibit 99.1 in the Company's Current
Report on Form 8-K dated August 23, 1997.
2(b)* First Amendment to Agreement and Plan of Merger,
dated as of August 23, 1997, by and among Cardinal
Health, Inc., Bruin Merger Corp. and Bergen
Brunswig Corporation, dated as of March 16, 1998.
27(a) Financial Data Schedule for the six months ended
March 31, 1998.
27(b) Restated Financial Data Schedule for the fiscal
years ended September 30, 1995, 1996 and 1997 and
for the period ended December 31, 1996.
27(c) Restated Financial Data Schedule for the periods
ended March 31, 1997, June 30, 1997 and December
31, 1997.
99** Statement Regarding Forward-Looking Information is
set forth as Exhibit 99(a) in the Company's Annual
Report on Form 10-K for the fiscal year ended
September 30, 1997.
* Incorporated herein by reference to the exhibits filed as
part of the Company's Current Report on Form 8-K relating to
the execution of an amendment to the definitive merger
agreement with Cardinal Health, Inc., filed with the
Securities and Exchange Commission on March 18, 1998.
** Document has heretofore been filed with the Securities and
Exchange Commission and is incoporated herein by reference
and made a part thereof.
(b) REPORTS ON FORM 8-K:
--------------------
On March 18, 1998, a Current Report on Form 8-K, dated March 17, 1998,
was filed, reporting under Items 5 and 7, the execution of the First
Amendment to Agreement and Plan of Merger, dated as of August 23, 1997,
by and among Cardinal Health, Inc., Bruin Merger Corp. and Bergen
Brunswig Corporation, dated as of March 16, 1998.
17
<PAGE>
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/ Donald R. Roden
------------------------------------------
Donald R. Roden
President and Chief Executive Officer
(Principal Executive Officer)
By /s/ Neil F. Dimick
------------------------------------------
Neil F. Dimick
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
May 11, 1998
18
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. PAGE NO.
- ----------- --------
2(a)** Agreement and Plan of Merger, dated August 23, 1997, by
and among Cardinal Health, Inc., Bruin Merger Corp. and
Bergen Brunswig Corporation is set forth as Exhibit 99.1
in the Company's Current Report on Form 8-K dated August
23, 1997.
2(b)* First Amendment to Agreement and Plan of Merger, dated as
of August 23, 1997, by and among Cardinal Health, Inc.,
Bruin Merger Corp. and Bergen Brunswig Corporation, dated
as of March 16, 1998.
27(a) Financial Data Schedule for the six months ended March 20
31, 1998.
27(b) Restated Financial Data Schedule for the fiscal years 21
ended September 30, 1995, 1996 and 1997 and for the
period ended December 31, 1996.
27(c) Restated Financial Data Schedule for the periods ended 22
March 31, 1997, June 30, 1997 and December 31, 1997.
99** Statement Regarding Forward-Looking Information is set
forth as Exhibit 99(a) in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997.
* Incorporated herein by reference to the exhibits filed as part of the
Company's Current Report on Form 8-K relating to the execution of an
amendment to the definitive merger agreement with Cardinal Health,
Inc., filed with the Securities and Exchange Commission on March 18,
1998.
** Document has heretofore been filed with the Securities and Exchange
Commission and is incoporated herein by reference and made a part
thereof.
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BERGEN BRUNSWIG CORPORATION FOR THE SIX
MONTH PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 887,955
<ALLOWANCES> 33,579
<INVENTORY> 1,598,034
<CURRENT-ASSETS> 2,463,096
<PP&E> 266,343
<DEPRECIATION> 129,767
<TOTAL-ASSETS> 3,026,397
<CURRENT-LIABILITIES> 1,728,391
<BONDS> 624,653
<COMMON> 83,822
0
0
<OTHER-SE> 589,531
<TOTAL-LIABILITY-AND-EQUITY> 3,026,397
<SALES> 0
<TOTAL-REVENUES> 6,542,619
<CGS> 6,181,148
<TOTAL-COSTS> 6,447,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,689
<INCOME-PRETAX> 74,852
<INCOME-TAX> 34,707
<INCOME-CONTINUING> 40,145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,145
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.78
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BERGEN BRUNSWIG CORPORATION FOR THE FISCAL
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997 AND FOR THE PERIOD ENDED DECEMBER
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. EARNINGS PER SHARE INFORMATION HAS BEEN RESTATED TO CONFORM WITH THE
REQUIREMENTS OF SFAS NO. 128, EARNINGS PER SHARE. ALSO, EARNINGS PER SHARE AND
SHAREOWNERS' EQUITY INFORMATION HAVE BEEN RESTATED, WHERE APPLICABLE, TO GIVE
EFFECT TO THE 5-FOR-4 STOCK SPLIT DECLARED ON APRIL 24, 1997 AND PAID ON JUNE 2,
1997. FINANCIAL DATA SCHEDULES FOR YEARS PRIOR TO SEPTEMBER 30, 1995 AND FOR
INTERIM PERIODS PRIOR THE THREE MONTHS ENDED DECEMBER 31, 1996 HAVE NOT BEEN
RESTATED FOR THE STOCK SPLIT.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1995 SEP-30-1996 SEP-30-1997 SEP-30-1997
<PERIOD-END> SEP-30-1995 SEP-30-1996 SEP-30-1997 DEC-31-1996
<EXCHANGE-RATE> 1 1 1 1
<CASH> 64,400 21,408 54,494 0
<SECURITIES> 0 0 2,786 0
<RECEIVABLES> 603,830 690,714 801,364 749,189
<ALLOWANCES> 21,364 23,459 29,022 27,330
<INVENTORY> 1,158,465 1,220,975 1,309,359 1,307,034
<CURRENT-ASSETS> 1,843,885 1,932,209 2,155,475 2,040,524
<PP&E> 238,734 255,327 270,306 258,525
<DEPRECIATION> 85,675 112,600 131,944 118,931
<TOTAL-ASSETS> 2,405,530 2,489,826 2,707,123 2,597,079
<CURRENT-LIABILITIES> 1,328,410 1,491,585 1,624,306 1,573,228
<BONDS> 557,771 419,275 437,956 431,338
<COMMON> 82,845 83,282 83,805 83,337
0 0 0 0
0 0 0 0
<OTHER-SE> 436,504 495,684 561,056 509,176
<TOTAL-LIABILITY-AND-EQUITY> 2,405,530 2,489,826 2,707,123 2,597,079
<SALES> 0 0 0 0
<TOTAL-REVENUES> 8,447,607 9,942,697 11,660,496 2,822,122
<CGS> 7,944,396 9,368,893 11,006,065 2,668,146
<TOTAL-COSTS> 8,307,575 9,787,257 11,491,264 2,784,460
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 5,810 0 0 0
<INTEREST-EXPENSE> 30,542 30,170 30,793 6,588
<INCOME-PRETAX> 109,490 125,270 138,439 31,074
<INCOME-TAX> 45,548 51,737 56,760 12,896
<INCOME-CONTINUING> 63,942 73,533 81,679 18,178
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 63,942 73,533 81,679 18,178
<EPS-PRIMARY> 1.29 1.47 1.63 0.36
<EPS-DILUTED> 1.29 1.46 1.61 0.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BERGEN BRUNSWIG CORPORATION FOR PERIODS
ENDED MARCH 31, 1997, JUNE 30, 1997 AND DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS PER SHARE
INFORMATION HAS BEEN RESTATED TO CONFORM WITH THE REQUIREMENTS OF SFAS NO. 128,
EARNINGS PER SHARE. ALSO, EARNINGS PER SHARE AND SHAREOWNERS' EQUITY INFORMATION
HAVE BEEN RESTATED, WHERE APPLICABLE, TO GIVE EFFECT TO THE 5-FOR-4 STOCK SPLIT
DECLARED ON APRIL 24, 1997 AND PAID ON JUNE 2, 1997. FINANCIAL DATA SCHEDULES
FOR YEARS PRIOR TO SEPTEMBER 30, 1995 AND FOR INTERIM PERIODS PRIOR THE THREE
MONTHS ENDED DECEMBER 31, 1996 HAVE NOT BEEN RESTATED FOR THE STOCK SPLIT.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1997 SEP-30-1998
<PERIOD-END> MAR-31-1997 JUN-30-1997 DEC-31-1997
<EXCHANGE-RATE> 1 1 1
<CASH> 27,520 18,647 21,191
<SECURITIES> 0 0 0
<RECEIVABLES> 744,718 731,023 876,534
<ALLOWANCES> 27,491 27,779 30,703
<INVENTORY> 1,358,029 1,300,956 1,627,240
<CURRENT-ASSETS> 2,121,792 2,033,207 2,509,777
<PP&E> 264,619 271,561 274,108
<DEPRECIATION> 124,345 130,909 138,413
<TOTAL-ASSETS> 2,678,147 2,587,746 3,058,600
<CURRENT-LIABILITIES> 1,541,802 1,555,912 1,732,836
<BONDS> 527,151 404,012 665,912
<COMMON> 83,463 83,743 83,822
0 0 0
0 0 0
<OTHER-SE> 525,731 544,079 576,030
<TOTAL-LIABILITY-AND-EQUITY> 2,678,147 2,587,746 3,058,600
<SALES> 0 0 0
<TOTAL-REVENUES> 5,712,579 8,640,453 3,169,036
<CGS> 5,388,939 8,157,832 2,998,365
<TOTAL-COSTS> 5,631,297 8,513,916 3,123,744
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 15,157 23,305 9,128
<INCOME-PRETAX> 66,125 103,232 36,164
<INCOME-TAX> 27,442 42,325 14,827
<INCOME-CONTINUING> 38,683 60,907 21,337
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 38,683 60,907 21,337
<EPS-PRIMARY> 0.77 1.21 0.42
<EPS-DILUTED> 0.76 1.20 0.42
</TABLE>
