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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 December 31, 1997
----------------------
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 January 31, 1998
-------------------------- -----------------------------
<S> <C>
Class A Common Stock -
par value $1.50 per share 50,430,239
</TABLE>
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1
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
INDEX
-----
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, December
31, 1997 and September 30, 1997 3
Statements of Consolidated Earnings
for the three months ended December
31, 1997 and 1996 4
Statements of Consolidated Cash Flows
for the three months ended
December 31, 1997 and 1996 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 15
Signatures 16
Index to Exhibits 17
2
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BERGEN BRUNSWIG CORPORATION
---------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1997
(dollars in thousands)
(Unaudited)
<CAPTION>
====================================================================================================================================
December 31, September 30, LIABILITIES AND December 31, September 30,
- - ASSETS - - 1997 1997 - - SHAREOWNERS' EQUITY - - 1997 1997
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents........... $ 21,191 $ 54,494 Accounts payable........................ $1,462,572 $1,336,070
Short-term investments.............. 2,271 2,786 Accrued liabilities..................... 70,979 82,070
Accounts and notes receivable, Customer credit balances................ 159,818 176,864
less allowance for doubtful Income taxes payable.................... 9,416 -
receivables: $30,703 at Deferred income taxes................... 29,030 28,281
December 31, 1997 and $29,022 Current portion of
at September 30, 1997............. 845,831 772,342 long-term obligations................. 1,021 1,021
Inventories......................... 1,627,240 1,309,359 ---------- ----------
Income taxes receivable............. - 6,628 Total current liabilities...... 1,732,836 1,624,306
Prepaid expenses.................... 13,244 9,866 ---------- ----------
---------- ---------- LONG-TERM OBLIGATIONS:
Total current assets....... 2,509,777 2,155,475 7 3/8% senior notes..................... 149,439 149,411
---------- ---------- 7 1/4% senior notes..................... 99,740 99,732
Revolving bank loan payable............. 368,000 140,000
7% convertible subordinated debentures.. 20,609 20,609
6 7/8% exchangeable
subordinated debentures............... 8,425 8,425
PROPERTY - at cost: Deferred income taxes................... 1,217 1,791
Land................................ 12,602 12,602 Other................................... 18,482 17,988
Building and leasehold improvements. 84,789 83,829 ---------- ----------
Equipment and fixtures.............. 176,717 173,875 Total long-term obligations 665,912 437,956
---------- ---------- ---------- ----------
Total property............. 274,108 270,306 SHAREOWNERS' EQUITY:
Less accumulated depreciation Capital stock:
and amortization.................. 138,413 131,944 Preferred - authorized 3,000,000
---------- ---------- shares; issued: none................ - -
Property - net............. 135,695 138,362 Class A Common - authorized
---------- ---------- 100,000,000 shares; issued:
55,881,034 shares at December
31, 1997 and 55,870,183 shares
at September 30, 1997 83,822 83,805
Paid-in capital......................... 156,423 156,361
OTHER ASSETS: Net unrealized gain on
Excess of cost over net assets investments, net of income tax of
of acquired companies - net....... 326,750 329,100 $51 at December 31, 1997 and $260
Investments......................... 5,225 5,895 at September 30, 1997................. 35 409
Noncurrent receivables.............. 13,890 12,651 Retained earnings....................... 507,851 492,565
Deferred charges and other assets... 67,263 65,640 ---------- ----------
---------- ---------- Total................................. 748,131 733,140
Total other assets......... 413,128 413,286 Less Treasury shares at cost:
---------- ---------- 5,454,983 shares at December 31,
1997 and September 30, 1997........... 88,279 88,279
---------- ----------
Total shareowners' equity...... 659,852 644,861
---------- ----------
TOTAL ASSETS.......................... $3,058,600 $2,707,123 TOTAL LIABILITIES AND SHAREOWNERS' EQUITY. $3,058,600 $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 THREE MONTHS ENDED
DECEMBER 31, 1997 AND 1996
(in thousands except per share amounts)
(Unaudited)
<CAPTION>
==================================
1997 1996
==================================
<S> <C> <C>
Net sales and other revenues $ 3,169,036 $ 2,822,122
----------- -----------
Costs and expenses:
Cost of sales 2,998,365 2,668,146
Distribution, selling, general
and administrative expenses 125,379 116,314
----------- -----------
Total costs and expenses 3,123,744 2,784,460
----------- -----------
Operating earnings 45,292 37,662
Net interest expense 9,128 6,588
----------- -----------
Earnings before taxes on income 36,164 31,074
Taxes on income 14,827 12,896
----------- -----------
Net earnings $ 21,337 $ 18,178
=========== ===========
Basic and diluted earnings per share $ .42 $ .36
=========== ===========
Cash dividends per share
of Class A Common Stock $ .120 $ .096
=========== ===========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
4
</TABLE>
<PAGE>
<TABLE>
BERGEN BRUNSWIG CORPORATION
---------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1997 AND 1996
(in thousands)
(Unaudited)
<CAPTION>
=============================
1997 1996
=============================
<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net earnings $ 21,337 $ 18,178
Adjustments to reconcile net earnings to net cash
flows from operating activities:
Provision for doubtful accounts 3,157 2,963
Depreciation and amortization of property 6,862 6,621
Loss on dispositions of property 18 -
Amortization of customer lists 437 437
Amortization of excess of cost over
net assets of acquired companies 2,431 2,427
Amortization of other intangible assets 559 558
Amortization of original issue discount on senior notes 36 37
Deferred compensation 858 515
Deferred income taxes 412 (484)
Effects of changes on:
Receivables (77,885) (58,434)
Inventories (317,881) (86,059)
Income taxes receivable 16,044 12,752
Prepaid expenses and other assets (6,043) (4,946)
Accounts payable 126,502 70,909
Accrued liabilities (11,091) (3,391)
Customer credit balances (17,046) 14,482
----------- -----------
Net cash flows from operating activities (251,293) (23,435)
----------- -----------
INVESTING ACTIVITIES
- --------------------
Property acquisitions (4,213) (3,488)
Sale (purchase) of other investments 575 (2,016)
----------- -----------
Net cash flows from investing activities (3,638) (5,504)
----------- -----------
FINANCING ACTIVITIES
- --------------------
Proceeds from revolving bank loan 228,000 12,000
Repayment of other obligations (399) (177)
Shareowners' equity transactions:
Exercise of stock options 78 520
Cash dividends on Common Stock (6,051) (4,812)
----------- -----------
Net cash flows from financing activities 221,628 7,531
----------- -----------
Net decrease in cash and cash equivalents (33,303) (21,408)
Cash and cash equivalents at beginning of period 54,494 21,408
----------- -----------
Cash and cash equivalents at end of period $ 21,191 $ -
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES
- ----------------------------------
Cash paid (received) during the period for:
Interest $ 7,354 $ 5,298
Income taxes - net of refunds (1,670) 2,398
<FN>
See accompanying Notes to Consolidated Financial Statements.
</FN>
</TABLE>
5
<PAGE>
BERGEN BRUNSWIG CORPORATION
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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
requires 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 three months ended December 31,
1997 and 1996, was not material to the Company's overall gross profit for
these periods. Service fee income from bulk sales was $.6 million and $.2
million for the three months ended December 31, 1997 and 1996,
respectively. As a percentage of the Company's total gross profit, such
income amounted to .35% and .11% of overall gross profit for the three
months ended December 31, 1997 and 1996, respectively.
6
<PAGE>
BERGEN BRUNSWIG CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Historically, the Company has reported as revenues the service fees
relating to bulk shipments of pharmaceuticals. 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 ending 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 $368 million at December 31, 1997 and averaged $377 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 December 31, 1997.
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 three months ended December 31, 1997 and 1996:
7
<PAGE>
BERGEN BRUNSWIG CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
<TABLE>
<CAPTION>
Dollars in thousands, except EPS 1997 1996
--------------------------------------------------------------------------
<S> <C> <C>
Numerator for both basic and
diluted EPS - net earnings $ 21,337 $ 18,178
=========== ===========
Denominator:
Denominator for basic EPS - weighted
average shares of Class A Common
Stock outstanding 50,425,219 50,104,335
Effect of dilutive employees' stock
options (dilutive potential common
shares) 737,718 432,478
----------- -----------
Denominator for diluted EPS - adjusted
weighted average shares and
assumed conversions 51,162,937 50,536,813
=========== ===========
Basic and diluted earnings per share $ .42 $ .36
=========== ===========
</TABLE>
Employees' stock options to purchase approximately 559,000 shares of the
Company's Class A Common Stock were outstanding since November 14, 1997,
but were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the
shares of Class A Common Stock during the three months ended December 31,
1997 and, therefore, the effect would be antidilutive.
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.
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, provides 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. 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 $646.2 million at December 31, 1997. The merger of the two
8
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
companies has been structured as a tax-free transaction and would be
accounted for as a pooling of interests for financial reporting purposes.
The merger is currently expected to be completed by the end of the second
quarter of fiscal 1998, subject to the satisfaction of certain conditions,
including approvals by the Company's shareowners and Cardinal's
shareholders, and the receipt of certain regulatory approvals. The Company
and Cardinal have scheduled their special shareowners' meetings for
February 20, 1998 to vote on the proposed merger.
G. 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 three 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 include
"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 fiscal quarter ended December 31, 1997, net sales and other revenues
increased 12%, while operating earnings and pre-tax earnings increased 20% and
16%, respectively, from the fiscal quarter ended December 31, 1996.
Substantially all of the net sales and other revenues increase reflects internal
growth within both the Company's existing pharmaceutical and medical-surgical
supply distribution businesses.
Basic and diluted earnings per share for the first quarter of fiscal 1998 both
increased 17% compared to the first quarter of the prior fiscal year, on an
increase of 1% in the average number of equivalent shares outstanding.
Cost of sales increased 12% from the first fiscal quarter 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 first quarter 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. The gross profit
margin in the Company's pharmaceutical distribution business for the three-month
period of fiscal 1998 declined 1.5% from the comparable period 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 three-month
period of fiscal 1998 increased 4.2% over the same period a year ago, primarily
due to improved margins in the Company's acute care business. 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.
10
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
Management of the Company anticipates 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 and medical-surgical supplies, 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 increased 8% over the prior fiscal year quarter, while net sales and other
revenues increased 12%. These expenses decreased as a percent of net sales and
other revenues from 4.12% in the first quarter of fiscal 1997 to 3.96% in the
first quarter of fiscal 1998. The decreased DSG&A as a percent of net sales and
other revenues in the current fiscal year quarter reflects continued operating
efficiencies, experienced in both the Company's pharmaceutical and
medical-surgical businesses.
Net interest expense increased from $6.6 million for the first quarter of fiscal
1997 to $9.1 million for the first quarter of fiscal 1998, primarily due to
increased borrowings under the Credit Agreement and discretionary credit lines,
principally the result of a higher investment in inventory.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1997, capitalization consisted of 49% debt and 51% 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 credit lines offset by an increase in shareowners' equity of
$15.0 million. Borrowings under the Credit Agreement and discretionary credit
lines were $368.0 million and $140.0 million at December 31, 1997 and September
30, 1997, respectively. Cash and cash equivalents of $21.2 million at December
31, 1997 decreased from $54.5 million at September 30, 1997, 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 and
discretionary credit lines.
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.
11
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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 December 31, 1997. See Note C of Notes to Consolidated Financial
Statements.
Cash dividends on Class A Common Stock amounted to $6.1 million for the three
months ended December 31, 1997 and $4.8 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 January 27, 1998,
the Company declared a regular cash dividend of $.12 per share on its Class A
Common Stock, payable March 2, 1998 to shareowners of record on February 3,
1998.
Capital expenditures for the three months ended December 31, 1997 were $4.2
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 $2.2 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.
12
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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.
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, provides 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. 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 $646.2 million at December 31, 1997. 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. The merger is currently expected to be completed by the end of the
second quarter of fiscal 1998, subject to the satisfaction of certain
conditions, including approvals by the Company's shareowners and Cardinal's
shareholders, and the receipt of certain regulatory approvals. The Company and
Cardinal have scheduled their special shareowners' meetings for February 20,
1998 to vote on the proposed merger.
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 ending September 30, 1998.
The Company believes that other companies in its industry will also be adopting
such a presentation.
13
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as set forth in this paragraph, 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:
(a) In the Brand Name Prescription Drug Litigation, the wholesaler
defendants have filed a petition seeking review by the United States
Supreme Court of the decision by the Court of Appeals for the Seventh
Circuit described in such Form 10-K. Trial has been set for this
litigation in September 1998. In recent weeks, the wholesaler defendants
(including the Company and, in one instance, Durr Drug Company) have been
added as defendants in a series of related antitrust lawsuits brought by
certain chain and independent pharmacies which had previously opted out of
the class action. These new actions are covered by the judgment sharing
agreement described below.
(b) In the Drug Barn proceedings, a California appellate court
upheld (in January 1998) the Company's jury verdict against Milton Sloban
(but did not uphold that verdict with respect to Mr. Sloban's wife). Mr.
Sloban is one of the guarantors of indebtedness from Drug Barn, Inc. to
the Company.
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 the Federal class action. 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 these cases. The agreement covers the Federal
court litigation as well as the cases which have been filed in the 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.
The Company is involved in various items of litigation. Although the
amount of liability at December 31, 1997 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.
14
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
--------
10 Waiver Agreement and Schedule
27 Financial Data Schedule for the three months ended 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.
* Document has heretofore been filed with the Securities and Exchange
Commission and is incorporated herein by reference and made a part
thereof.
(b) REPORTS ON FORM 8-K:
--------------------
There were no reports filed on Form 8-K during the three months ended
December 31, 1997.
1
15
<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)
February 6, 1998
16
<PAGE>
BERGEN BRUNSWIG CORPORATION
---------------------------
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. PAGE NO.
- ----------- --------
10 Waiver Agreement and Schedule 18
27 Financial Data Schedule for the three months ended 22
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.
* Document has heretofore been filed with the Securities and
Exchange Commission and is incoporated herein by reference
and made a part thereof.
17
Exhibit 10
AGREEMENT
THIS AGREEMENT ("Agreement") is made as of the 30th day of December,
1997, by and among Milan A. Sawdei (the "Executive"), BERGEN BRUNSWIG
CORPORATION (the "Company") and CARDINAL HEALTH, INC. ("Cardinal").
RECITALS
A. The Executive is an officer of the Company. As such, the Executive
previously entered into an employment agreement (the "Employment Agreement") and
a severance agreement (the "Severance Agreement") with the Company.
B. The Executive has received one or more loans under the Company's
Executive Loan Program (the "Loans").
C. At the time that the Company and Cardinal entered into their pending
Agreement and Plan of Merger, dated as of August 23, 1997 (the "Merger
Agreement"), the parties hereto entered into a supplemental agreement, dated as
of August 23, 1997 (the "Supplemental Agreement"), which, among other things,
amended the Employment Agreement and terminated the Severance Agreement, subject
to reinstatement of the Employment Agreement and Severance Agreement and
termination of substantially all of the provisions of the Supplemental Agreement
in the event of the termination of the Merger Agreement.
D. The Supplemental Agreement provides for the automatic forgiveness of
all Loans as of December 31, 1997, regardless of whether the Merger Agreement is
terminated.
E. The Executive is one of several executives who executed agreements
substantially similar to the Supplemental Agreement as of August 23, 1997. The
Company and Cardinal are currently negotiating agreements (the "Tier II
Supplemental Agreements") with four other officers of the Company (the "Tier II
Executives"). The Company and Cardinal are currently considering inserting
provisions in the Tier II Supplemental Agreements which constitute enhancements
for the Tier II Executives as compared with the provisions in the Supplemental
Agreement (the" Enhancements").
F. The Company desires to eliminate Section 8 of the Supplemental
Agreement, which Section provides for the automatic forgiveness of the Loans on
December 31, 1997. The Executive is willing to waive the Executive's rights
under Section 8 of the Supplemental Agreement and permit the elimination of such
Section 8, provided that the Company and Cardinal provide the assurances set
forth in Section 2 hereof.
18
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants set forth
herein and in Order to induce the Company to provide to the Executive the
enhancements to be offered to the Tier II Executives, the parties hereto hereby
agree as follows:
1. The Executive hereby waives all of the Executive's rights under
Section 8 of the Supplemental Agreement, which provision is hereby deemed
eliminated from the Supplemental Agreement. As a result, the Loans will not be
forgiven as of December 31, 1997. Such waiver shall apply regardless of whether
the Executive agrees to execute the amendment described in Section 2 hereof. In
the event that the Executive does not agree to execute the amendment described
in Section 2 hereof, the Company and Cardinal will offer to the Executive the
opportunity to execute an alternative amendment to the Executive's Supplemental
Agreement which will provide the assurance described in clause (ii) of Section 2
hereof.
2. The Company and Cardinal will offer to the Executive the opportunity
to enter into an amendment to the Executive's Supplemental Agreement, which
amendment will, among other things, (i) provide to the Executive substantially
the same Enhancements (subject to substantially the same conditions) as shall be
made generally available to the Tier II Executives in the Tier II Supplemental
Agreements and (ii) assure the Executive that the Loans will be forgiven (a) on
the third anniversary of the date on which the Merger Agreement is terminated,
if the Executive remains employed by the Company through that date, or on the
third anniversary of the date on which the merger described in the Merger
Agreement is consummated, if the Executive remains employed by the Company
through that date, or (b) if the Executive's employment or Employment Agreement
is terminated prior to either of such third year anniversary dates (and then on
such date of termination), (1) as a result of the Executive's death, (2) as a
result of the Executive's disability (in accordance with Section 6(b) of the
Employment Agreement as amended by the Supplemental Agreement),(3) by the
Company without "Cause" (as defined in Section 6(d) of the Employment Agreement
as amended by the Supplemental Agreement) or (4) by the Executive for "Good
Reason" (as defined in Section 6(e) of the Employment Agreement as amended by
the Supplemental Agreement).
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
"The Company"
BERGEN BRUNSWIG CORPORATION,
a New Jersey corporation
By: /s/ William J. Elliott
-----------------------------------------
Its: Executive Vice President
-----------------------------------------
"The Executive"
/s/ Milan A. Sawdei
-----------------------------------------
"Cardinal"
CARDINAL HEALTH, INC., an Ohio corporation
By: /s/ George H. Bennett
-----------------------------------------
Its: Executive Vice President
-----------------------------------------
20
<PAGE>
SCHEDULE 10
-----------
The Company has entered into waiver agreements, a form of which is set
forth as Exhibit 10, with eight senior management employees - Linda M. Burkett,
Charles J. Carpenter, Neil F. Dimick, William J. Elliot, Brent R. Martini,
Donald R. Roden, Milan A. Sawdei and Carol E. Scherman. The waiver agreement
contains a waiver of the provision in each such employee's Supplemental
Agreement (Exhibit 10(n) of the Company's Annual Report on Form 10-K for the
year ended September 30, 1997) which, in the absence of such waiver, would have
resulted in the automatic forgiveness of certain loans as of December 31, 1997.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BERGEN BRUNSWIG CORPORATION FOR THE
QUARTERLY PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 21,191
<SECURITIES> 0
<RECEIVABLES> 876,534
<ALLOWANCES> 30,703
<INVENTORY> 1,627,240
<CURRENT-ASSETS> 2,509,777
<PP&E> 274,108
<DEPRECIATION> 138,413
<TOTAL-ASSETS> 3,058,600
<CURRENT-LIABILITIES> 1,732,836
<BONDS> 665,912
<COMMON> 83,822
0
0
<OTHER-SE> 576,030
<TOTAL-LIABILITY-AND-EQUITY> 3,058,600
<SALES> 0
<TOTAL-REVENUES> 3,169,036
<CGS> 2,998,365
<TOTAL-COSTS> 3,123,744
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,128
<INCOME-PRETAX> 36,164
<INCOME-TAX> 14,827
<INCOME-CONTINUING> 21,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,337
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
