<PAGE> 1
UNITED STATES
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 QUARTERLY PERIOD ENDED JUNE 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8549
FOXMEYER HEALTH CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 25-1425889
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1220 Senlac Drive, Carrollton, Texas 75006
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 214-446-4800
----------------------
Indicate by check mark whether the registrant (1) had 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, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
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Number of shares of Common Stock outstanding as of August 10, 1995: 16,466,247
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PART 1. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In thousands, except per share amounts)
------------------------------------------------------------------------------------------------------------------------
Three months ended June 30,
------------------------------------------
1995 1994
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<S> <C> <C>
NET SALES $ 1,278,185 $ 1,177,921
COSTS AND EXPENSES
Cost of goods sold (exclusive of depreciation shown separately below) 1,214,462 1,113,703
Selling, general and administrative expenses 49,729 49,530
Depreciation and amortization 6,105 5,259
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7,889 9,429
Other income 6,715 2,521
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OPERATING INCOME 14,604 11,950
FINANCING COSTS
Interest expense 7,274 6,192
Interest income 1,261 1,677
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Financing costs, net 6,013 4,515
NATIONAL STEEL CORPORATION
Net preferred income 923 1,370
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INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION, EQUITY IN
LOSS OF AFFILIATES AND MINORITY INTEREST 9,514 8,805
Income tax provision 121 420
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INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY IN LOSS OF AFFILIATES AND
MINORITY INTEREST 9,393 8,385
Equity in loss of affiliates 1,240 569
Minority interest in results of operations of consolidated subsidiaries 635 2,487
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INCOME FROM CONTINUING OPERATIONS 7,518 5,329
DISCONTINUED OPERATIONS:
Loss from operations, net of applicable tax benefit of $953 in 1995 and
$83 in 1994, respectively 1,317 101
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NET INCOME 6,201 5,228
Preferred stock dividends 5,223 4,701
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NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 978 $ 527
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PER SHARE OF COMMON STOCK:
Income from continuing operations $ 0.14 $ 0.05
Loss from discontinued operations (0.08) (0.01)
========================================================================================================================
NET INCOME PER SHARE $ 0.06 $ 0.04
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AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 16,716 12,997
========================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In thousands of dollars)
-------------------------------------------------------------------------------------------------------------------
June 30, 1995 March 31, 1995
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ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 58,236 $ 35,232
Receivables - net 197,138 334,250
Inventories 810,592 820,818
Net assets of discontinued operations 18,025 -
Other current assets 52,286 38,394
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TOTAL CURRENT ASSETS 1,136,277 1,228,694
INVESTMENT IN NATIONAL STEEL CORPORATION 31,063 30,163
INVESTMENTS IN AFFILIATES 43,892 -
PROPERTY, PLANT AND EQUIPMENT 201,339 256,393
Less: allowances for depreciation and amortization 68,589 85,716
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NET PROPERTY, PLANT AND EQUIPMENT 132,750 170,677
OTHER ASSETS
Goodwill - net 205,089 209,749
Intangible assets - net 11,215 22,966
Pre-bankruptcy receivable from Phar-Mor, Inc. 5,963 5,963
Deferred tax asset, net of valuation allowance 44,444 52,408
Miscellaneous assets 45,907 56,376
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312,618 347,462
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TOTAL ASSETS $ 1,656,600 $ 1,776,996
===================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In thousands of dollars)
-------------------------------------------------------------------------------------------------------------------
June 30, 1995 March 31, 1995
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LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 625,325 $ 674,843
Accrued liabilities 48,819 64,655
Deferred income taxes 42,339 42,131
Long-term debt due within one year 16,095 2,540
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TOTAL CURRENT LIABILITIES 732,578 784,169
LONG-TERM DEBT 389,316 422,751
RESERVES AND OTHER LIABILITIES 50,886 70,676
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 771 20,231
REDEEMABLE PREFERRED STOCK 179,196 175,019
STOCKHOLDERS' EQUITY
Common stock, $5.00 par value; authorized 50,000,000 shares;
24,167,277 shares issued 120,836 120,836
Capital in excess of par value 209,110 209,110
Minimum pension liability (75,428) (75,428)
Net unrealized holding gain on marketable securities 838 2,374
Retained earnings 185,884 184,949
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441,240 441,841
Less: common stock in treasury - 7,718,516 shares at
June 30, 1995 and 7,735,552 shares at March 31, 1995 137,387 137,691
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TOTAL STOCKHOLDERS' EQUITY 303,853 304,150
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,656,600 $ 1,776,996
===================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In thousands of dollars)
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Three months ended June 30,
----------------------------------
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,201 $ 5,228
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES:
Minority interest in results of operations of consolidated subsidiaries 635 2,487
Depreciation and amortization 6,105 5,259
Other non-cash (credits) or charges (7,728) 705
Net preferred income from National Steel Corporation (923) (1,370)
Gain on sale of investments (463) (3,375)
Deferred tax provision 110 155
Provision for losses on accounts receivable 582 916
Equity in loss of affiliates 1,240 569
Cash provided (used) by working capital items, net of acquisitions:
Receivables 63,074 (8,479)
Inventories (65,790) (6,905)
Other assets (3,583) (2,618)
Accounts payable and accrued liabilities 33,713 44,131
Other (1,017) (2,169)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 32,156 34,534
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CASH FLOWS FROM INVESTING ACTIVITIES:
Disposition of Ben Franklin Retail Stores, Inc. (9,108) -
Purchase of property, plant and equipment (12,301) (6,459)
Proceeds from the sale of property, plant and equipment - 1,166
Acquisitions, net of cash acquired (2,452) (7,922)
Purchase of investments (36,218) (4,855)
Proceeds from the sale of investments 10,556 10,533
Other investing activities (172) -
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NET CASH USED BY INVESTING ACTIVITIES (49,695) (7,537)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities 2,726,480 363,151
Repayments under revolving credit facilities (2,684,180) (379,771)
Proceeds from issuance of long-term debt 1,700 6,900
Repurchase of common stock - (2,333)
Other debt repayments (1,666) (7,597)
Dividends paid to minority interests (932) (693)
Dividends paid on redeemable preferred stock (1,045) (1,155)
Other financing activities 186 1,443
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 40,543 (20,055)
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NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS 23,004 6,942
Cash and short-term investments, beginning of period 35,232 60,987
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CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 58,236 $ 67,929
===================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
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FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of FoxMeyer Health
Corporation and its subsidiaries (the "Corporation"). Ben Franklin Retail
Stores, Inc. ("Ben Franklin"), a 67.7%-owned subsidiary, is included in the
condensed consolidated financial statements at June 30, 1995 on an equity basis
(see Note 3). The Corporation has also shown its managed care and information
service businesses as discontinued operations in the accompanying statements
(see Note 4). In October 1994, the Corporation acquired the 19.5% of FoxMeyer
Corporation it did not already own. Therefore, a 19.5% minority interest
existed in the results of operations of FoxMeyer Corporation at June 30, 1994.
The accompanying condensed consolidated balance sheet of the Corporation as of
June 30, 1995, the condensed consolidated income statements for the three
months ended June 30, 1995 and 1994 and the condensed consolidated statements
of cash flows for the three months ended June 30, 1995 and 1994 are unaudited.
In the opinion of management, these statements have been prepared on the same
basis as the audited consolidated financial statements, and include all
adjustments necessary for the fair presentation of financial position, results
of operations and cash flows. Such adjustments, except for those adjustments
related to Ben Franklin and the Corporation's discontinued operations, were of
a normal recurring nature. The results of operations for the three months
ended June 30, 1995 are not necessarily indicative of the results that may be
expected for the entire year. The condensed consolidated balance sheet as of
March 31, 1995 was derived from audited financial statements but does not
include all disclosures required by generally accepted accounting principles.
Additional information is contained in the Corporation's Annual Report on Form
10-K filed with the Securities and Exchange Commission for the fiscal year
ended March 31, 1995, which should be read in conjunction with this quarterly
report.
NOTE 2 - NET INCOME PER SHARE OF COMMON STOCK
Net income per share is based on income after preferred stock dividend
requirements and the weighted average number of shares of common stock
outstanding during the period after giving effect to stock options considered
to be dilutive common stock equivalents. Fully diluted net income per share is
not presented as it is substantially the same as primary net income per share.
NOTE 3 - DISPOSITION OF BEN FRANKLIN
On July 12, 1995, the Board of Directors of the Corporation approved a plan to
distribute most of the Corporation's common stock holdings in Ben Franklin
through a dividend of Ben Franklin common stock to the holders of the
Corporation's common stock. Each stockholder of the Corporation is expected to
receive one share of Ben Franklin common stock for every six shares of the
Corporation's common stock. The exact date for the distribution has not been
set. The charge to stockholders' equity for the dividend of Ben Franklin
common stock will be based on the book value of the shares at the time of
distribution.
As a result of the planned distribution, the Corporation would own
approximately 17.5% of Ben Franklin. However, the Corporation believes it will
still exercise significant influence over Ben Franklin and, accordingly, will
account for Ben Franklin on an equity basis. Prior year results of operations
of Ben Franklin have been reclassified to reflect the current accounting
treatment. The consolidated balance sheet at June 30, 1995 includes the
Corporation's equity investment in Ben Franklin of $39.2 million in
"Investments in affiliates." The market value of the common stock of Ben
Franklin
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owned by the Corporation was approximately $19.4 million at June 30, 1995.
The consolidated balance sheet at March 31, 1995 has not been restated to
reflect the change to the equity method of accounting for Ben Franklin.
The following tables present the summarized financial information of Ben
Franklin on a 100% basis at June 30, 1995 and March 31, 1995 and for the three
months ended June 30, 1995 and June 30, 1994, respectively ( in thousands of
dollars):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
June 30,1995 March 31,1995
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 173,670 $ 154,286
Noncurrent assets 68,302 65,187
Current liabilities 98,056 88,656
Noncurrent liabilities 86,071 71,431
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three months ended June 30,
-----------------------------------
1995 1994
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 89,337 $ 75,172
Operating loss (1,019) (824)
Net loss (1,541) (846)
------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4 - DISCONTINUED OPERATIONS
On July 12, 1995, the Corporation adopted a plan to consolidate its managed
care and information services segments into a new organization, CareStream
Corporation ("CareStream"). As a result of this decision and the related
development of a formal plan to dispose of this segment of business, the
Corporation has shown the results of operations of CareStream as a loss from
discontinued operations for the three months ended June 30, 1995 and has
reclassified the Corporation's prior year income statement to reflect the
current accounting treatment of CareStream. Net revenue was $4.6 million and
$3.8 million for the three months ended June 30, 1995 and 1994, respectively.
The net assets of CareStream are shown on the consolidated balance sheet at
June 30, 1995 as "Net assets of discontinued operations" and consist of the
following (in thousands of dollars):
<TABLE>
<S> <C>
------------------------------------------------------------------------------------------------------------
Current assets $13,666
Current liabilities (11,428)
------------------------------------------------------------------------------------------------------------
Net working capital 2,238
Other assets, principally intangible assets 15,940
Long-term debt (153)
------------------------------------------------------------------------------------------------------------
Net assets $18,025
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</TABLE>
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NOTE 5 - INVESTMENTS
The Corporation's investments in marketable equity securities, included in
"Other current assets," are classified as "available for sale". The carrying
value and gross unrealized gains and losses are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
June 30, 1995 March 31, 1995
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carrying value $ 34,329 $ 18,219
Unrealized gains 2,130 2,509
Unrealized losses 1,167 196
-----------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds of $7.7 million were received during the three months ended June 30,
1995 from the sale of marketable equity securities resulting in gross realized
gains of $0.3 million and gross realized losses of $0.5 million. The cost of
securities sold was determined using the average cost method.
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental cash flow information is provided for interest and
income taxes paid and for noncash transactions (in thousands of dollars):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Three months ended June 30,
-------------------------------
1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest paid $ 10,633 $ 8,672
Income taxes paid 11 496
Noncash transactions:
Payment of dividends in kind on preferred stock 3,778 3,230
-----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Corporation has retained responsibility for certain potential environmental
liabilities attributable to former operating units and as a result is subject
to federal, state or local environmental laws, rules and regulations. The laws
generally impose joint and several liability on present and former owners and
operators, transporters and generators for remediation of contaminated
properties regardless of fault. The Corporation and its subsidiaries have
received various claims and demands from governmental agencies relating to
investigations and remedial actions to address environmental clean-up costs and
in some instances have been designated as a potentially responsible party by
the Environmental Protection Agency.
The Corporation's reserves for potential environmental assessments or
remediation activities, penalties or fines that may be imposed for
non-compliance with such laws or regulations have not changed materially since
March 31, 1995. The Corporation's estimates of these costs are based on
currently available facts, existing technologies, presently enacted laws and
regulations and the professional judgment of consultants and counsel.
The amounts of reserves for environmental liabilities are difficult to estimate
due to such factors as the unknown extent of remedial actions that may be
required and, in the case of sites not owned by the Corporation, the unknown
extent of the Corporation's probable liability in proportion to the probable
liability of other parties. Moreover, the Corporation may have environmental
liabilities that the Corporation cannot in its judgment estimate at this time
and losses attributable to remediation costs may arise at other sites. The
Corporation cannot now estimate the additional cost and expenses it may incur
for such environmental liabilities. While management of the Corporation does
not
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<PAGE> 9
believe the liabilities associated with such other sites will have a material
adverse effect on its financial condition or results of operations, it
recognizes additional work may have to be performed to ascertain the ultimate
liability for such sites, and further information could ultimately change
management's current assessment.
There are various pending claims and lawsuits arising out of the normal conduct
of the Corporation. In the opinion of management, the ultimate outcome of
these claims and lawsuits will not have a material effect on the consolidated
financial condition or results of operations of the Corporation.
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<PAGE> 10
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
FoxMeyer Health Corporation and its subsidiaries (the "Corporation") reported
net income of $6.2 million for the three months ended June 30, 1995. This
represents an increase of approximately $1.0 million over the same period of
the prior fiscal year. Net income per share was $.06 per share for the three
months ended June 30, 1995 as compared to $.04 per share for the three months
ended June 30, 1994.
SIGNIFICANT TRANSACTIONS OCCURRING SINCE MARCH 31, 1995 INCLUDE THE FOLLOWING:
On July 12, 1995, the Corporation adopted a plan to consolidate its managed
care and information services segments into a new organization, CareStream
Corporation ("CareStream"). As a result of this decision and the related
development of a formal plan to dispose of this segment of business, the
Corporation has shown CareStream as a discountinued operation.
On July 12, 1995, the Corporation also approved a plan to distribute most of its
common stock holdings in Ben Franklin Retail Stores, Inc. ("Ben Franklin")
through a dividend of one share of Ben Franklin common stock for every 6 shares
of the Corporation's common stock. The Corporation currently owns 3.7 million
shares of Ben Franklin common stock or 67.7 %. After the distribution, the
Corporation expects to retain approximately 17.5% ownership in Ben Franklin.
The Corporation will continue to exert significant influence over Ben Franklin,
and, accordingly, will account for Ben Franklin on an equity basis.
With the planned distribution of Ben Franklin and CareStream, the Corporation
now conducts its business principally through only one operating unit, FoxMeyer
Corporation ("FoxMeyer"). The results of operations for Ben Franklin have been
stated on an equity basis for the three months ended June 30, 1995 and 1994.
The results of CareStream have been presented as a discontinued operation for
the three months ended June 30, 1995 and 1994.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THREE MONTHS ENDED JUNE 30, 1994
Net sales increased $100.3 million to $1,278.2 million for the three months
ended June 30, 1995, as compared to $1,177.9 million for the three months ended
June 30, 1994. Net sales increased in the Hospitals and Alternate Care
customer segment principally as a result of sales made through the University
Hospital Consortium ("UHC") contract which the Corporation only began servicing
in late fiscal 1995. Sales in the Independent customer segment also showed
strong improvements as the Corporation renewed its sales efforts in this
important segment.
Gross profit decreased $0.5 million to $63.7 million for the three months ended
June 30, 1995 as compared to the same period in the prior year. As a
percentage of sales, gross margin decreased from 5.5% to 5.0% of net sales for
the three months ended June 30, 1994 and 1995, respectively. Increased sales
to large volume, lower margin and lower cost-to-serve customers and continuing
price competition throughout the industry have contributed to this decrease.
The reduced availability of investment buying opportunities also continues to
exert pressure on gross margin. To offset these pressures, the Corporation
continues to emphasize and expand its offering of value-added services such as
private label, generic products and repackaging programs, all of which provide
significantly higher gross margin.
Operating expenses increased $1.0 million to $55.8 million for the three months
ended June 30, 1995 as compared to $54.8 million for the three months ended
June 30, 1994. However, as a percentage of net sales, operating expenses
decreased from 4.7% for the three months ended June 30, 1994 to 4.4% for the
three months ended June 30, 1995. The percentage decrease is principally the
result of the Corporation's cost containment and cost reduction programs.
Additionally, the Corporation is realizing the benefits of further leverage of
its cost structure through additional sales to lower cost-to-serve high volume
accounts.
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<PAGE> 11
Other income increased $4.2 million to $6.7 million for the three months ended
June 30, 1995 as compared to the same period in the prior year. The increase
was primarily attributable to the reversal of certain reserves provided in
fiscal 1992 in connection with the sale of The Permian Corporation subsidiary.
Offsetting the increase are additional costs associated with expanding the
Corporation's accounts receivable financing program. In addition, the prior
year amount included certain non-recurring gains on real estate transactions.
Net financing costs increased $1.5 million to $6.0 million for the three months
ended June 30, 1995, as compared to $4.5 million for the three months ended
June 30, 1994. Interest income decreased $0.4 million primarily as a result of
the redemption of certain real estate notes receivable investments in late
fiscal 1995 and early fiscal 1996. Interest expense increased $1.1 million.
Average debt for the quarter increased by approximately $114.0 million over the
three months ended June 30, 1994. Such funds were used to finance the increase
in net working capital required to support expanded business and capital
investments. On average, the Corporation's cost of debt decreased 60 basis
points as compared to the three months ended June 30, 1994 reflecting a
decrease in the impact of the amortization of deferred loan costs and fixed
loan fees.
Management believes that the pressures currently being brought to bear on gross
margin, discussed above, will continue. The Corporation is aggressively
pursuing several long-term strategies to relieve this pressure and ultimately
strengthen its gross margins.
NATIONAL STEEL CORPORATION RESULTS
The net preferred income for National Steel Corporation was $0.9 million for
the three months ended June 30, 1995, compared to $1.4 million for the prior
year period. An increase in the expense related to the Weirton pension
obligation for the quarter ended June 30, 1995 is the primary reason for the
$0.5 million decrease.
INCOME TAXES
The current year and prior year income tax provisions were based on estimates
of the full year effective tax rate. The low effective tax rate for both
periods was the result of the reduction in the deferred tax asset valuation
allowance.
EQUITY IN LOSS OF AFFILIATES
The equity in loss of affiliates consists principally of Ben Franklin's loss
for the current and prior year periods. The increase in Ben Franklin's net
loss was primarily due to (i) an increased operating loss resulting from
start-up costs associated with the Cotter & Company agreement, (ii) an
increased seasonal loss due to operating 34 company-owned stores in the current
quarter compared to 16 stores in the prior year and (iii) higher interest
expense resulting from increased borrowings and higher interest rates than in
the same period of the prior year.
MINORITY INTEREST IN RESULTS OF OPERATIONS OF CONSOLIDATED SUBSIDIARIES
The decrease in minority interest was primarily attributable to the elimination
of the minority interest in FoxMeyer resulting from the Corporation's October
1994 acquisition of the 19.5% common stock interest in FoxMeyer that it did not
already own.
DISCONTINUED OPERATIONS
The loss from discontinued operations reflects the results of CareStream. The
increase in the loss as compared to the quarter ended June 30, 1994 is due to
incremental selling, general and administrative expenses associated with the
integration of additional business units, the development and implementation of
new managed care and technology-based products and the expansion of the client
base.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations (which includes working capital components) was
$32.2 million for the three months ended June 30, 1995. The change in working
capital components provided $27.4 million of funds. An increase in accounts
payable and accrued liabilities of $33.7 million as compared to March 31, 1995
accounted for most of the increase in funds. Inventory and accounts receivable
used $2.7 million of funds.
Cash used in investing activities was $49.7 million. Approximately $12.3
million of cash was used to purchase property and equipment during the period.
An additional $2.5 million was used to acquire other businesses. The
Corporation made other investments in marketable securities and real estate
which used approximately $25.7 million of cash, net of proceeds from the sale
of investments. The change to the equity method in accounting for Ben Franklin
resulted in the removal of Ben Franklin's cash of $9.1 million from the
consolidated cash balance.
Cash provided by financing activities of $40.5 million resulted primarily from
additional net borrowings under the Corporation's various credit facilities of
$42.3 million. The proceeds from the additional borrowings were primarily used
to fund the purchase of property and equipment, acquisitions and other
investments.
Management assesses the Corporation's liquidity based on its major business
units: FoxMeyer and certain holding company, corporate office and other
miscellaneous activities (collectively, the "Holding Company") which includes
the Corporation's real estate partnership activities. While FoxMeyer is a
wholly-owned subsidiary of the Corporation, the FoxMeyer debt agreements limit
the ability of FoxMeyer to transfer funds to the Holding Company. The
following is a discussion of the liquidity and capital resources of each
business.
FOXMEYER
As of June 30, 1995, FoxMeyer had borrowed $175.1 million under its $275.0
million revolving credit facility (the "FoxMeyer Facility") at an average
interest rate of 6.6%. The average and maximum amounts borrowed during the
quarter ended June 30, 1995 under the FoxMeyer Facility were $164.1 million and
$227.4 million, respectively. Restrictions imposed by the FoxMeyer Facility
require that on the last day of any quarter, FoxMeyer's total indebtedness to
capitalization ratio, as defined therein, cannot exceed 0.6 to 1.0. Under the
requirements of this covenant, FoxMeyer was eligible to borrow an additional
$85.1 million at June 30, 1995.
FoxMeyer expects that cash flow from operations and continued maintenance of
its working capital facilities will provide adequate cash to fund seasonal
increases in inventories and receivables. As a result of increased inventory
levels due to new business from larger buying groups such as UHC and Rite-Aid,
and the costs of implementing new systems, it may be necessary for FoxMeyer to
expand existing lines of credit or seek alternative financing. FoxMeyer
believes that, if required, alternative financing can be obtained at reasonable
rates.
HOLDING COMPANY
The Holding Company has cash and short-term investments of approximately $26.5
million at June 30, 1995. In addition, the Holding Company had borrowed the
maximum amount of $15.0 million available under a revolving credit facility
(the "Holding Company Facility") at an average interest rate of 7.9%. The
average amount borrowed during the quarter under the Holding Company Facility
was $15.0 million. The Holding Company had also borrowed the maximum amount
available under a $30 million revolving loan agreement with FoxMeyer at June
30, 1995.
The Holding Company's cash requirements include the funding of monthly
operating expenses, lease commitments, benefit obligations, dividend payments
on the Corporation's convertible redeemable preferred stock and mandatory
sinking fund payments thereon, and cash outlays attributable to environmental
liabilities of previously owned businesses, the amounts and timing of which are
uncertain. In addition, the Holding Company intends to make additional real
estate and other investments.
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<PAGE> 13
The Holding Company will rely on cash on hand and dividends received on shares
of FoxMeyer common stock to meet the cash funding obligations described above.
The amount of dividends that FoxMeyer can pay to the Holding Company are
limited by FoxMeyer's debt agreements. The Holding Company expects to be able
to renew or replace its revolving credit facility before its expiration date of
April 1, 1996. The Holding Company expects to fund a substantial portion of
any real estate investments through additional non-recourse debt which
management believes will be available at reasonable rates. The Holding Company
has committed to invest up to $29 million to obtain an indirect ownership
interest in Phar-Mor, Inc. when it emerges from bankruptcy. Management is
currently pursuing bank financing for up to $20 million of the commitment with
the remainder being provided from the sources of cash described above.
12
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the matters reported in the Corporation's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995, the
following additional information is provided:
NATIONAL STEEL CORPORATION ("NSC")
With respect to the matter involving Lowry Landfill Site in
Aurora, Colorado, previously reported in the registrant's 1995
Form 10-K, the Alumet Partnership ("Alumet") has reached a
settlement with the Environmental Protection Agency and the
Department of Justice concerning any liability Alumet may have
with respect to this site. The terms of the settlement are
embodied in a consent decree that was executed by both Alumet and
the Department of Justice, lodged with the District Court for the
District of Colorado on July 10, 1995, and published for public
comment in the Federal Register on July 25, 1995. If the consent
decree is ultimately approved, Alumet will pay the sum of $7.3
million in full settlement of all third party claims, including
all claims by the government and by private plaintiffs (including
the City and County of Denver, Waste Management of Colorado, Inc.
and Chemical Waste Management) with respect to this matter. NSC's
share of the settlement will be 50% of the overall amount, or
$3.65 million, and will be paid by NSC out of the $10 million
deposited by the registrant with NSC as a prepayment of
indemnification obligations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Corporation held its 1995 annual meeting of
stockholders on August 8, 1995 (the "Annual Meeting").
(b) At the Annual Meeting, the following individuals were
elected as directors of the Corporation, each to serve
until the annual meeting of stockholders to be held in
1998:
Paul M. Finfer
Alfred H. Kingon
The terms of office of the following directors of the Corporation
continued after the Annual Meeting:
Abbey J. Butler
Melvyn J. Estrin
Thomas L. Anderson
Sheldon W. Fantle
William G. Tull
(c) The number of votes cast for, or withheld, with respect to
the election of directors, was as follows:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Paul M. Finfer 14,712,059 219,927
Alfred H. Kingon 14,697,917 234,069
</TABLE>
13
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Computation of Earnings Per Common Share
27 - Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any Current Reports on Form 8-K during
the three months ended June 30, 1995.
14
<PAGE> 16
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.
FOXMEYER HEALTH CORPORATION
By: /s/ Edward L. Massman
-----------------------------------
Edward L. Massman
Vice President and Controller
(Chief Accounting Officer)
Date: August 11, 1995
15
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
11 - Computation of Earnings Per Common Share
27 - Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(In thousands, except per share data)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
For the Three Months Ended
June 30,
-------------------------------------
1995 1994
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations $ 7,518 $ 5,329
Deduct dividends on preferred shares 5,223 4,701
---------------- ---------------
Income from continuing operations applicable to common stockholders $ 2,295 $ 628
================ ===============
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations $ (1,317) $ (101)
================ ===============
SHARES
Weighted average number of common shares outstanding 16,716 12,997
================ ===============
Income from continuing operations $ 0.14 $ 0.05
Loss from discontinued operations (0.08) (0.01)
---------------- ---------------
Net income $ 0.06 $ 0.04
================ ===============
ASSUMING FULL DILUTION
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations $ 7,518 $ 5,329
Dividends on non-convertible preferred shares 4,178 3,546
Dividends on convertible preferred shares (conversion of preferred
shares would be anti-dilutive) 1,045 1,155
---------------- ---------------
Income from continuing operations applicable to common stockholders $ 2,295 $ 628
================ ===============
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations $ (1,317) $ (101)
================ ===============
SHARES
Weighted average number of common shares outstanding 16,716 12,997
Conversion of preferred stock (anti-dilutive) - -
Additional dilutive effect of outstanding options (as determined
by the treasury stock method) - 8
Assuming conversion of National Steel Corporation 4 5/8% convertible
debentures - 39
---------------- ---------------
Weighted average number of common shares outstanding as adjusted 16,716 13,044
================ ===============
Income from continuing operations $ 0.14 $ 0.05
Loss from discontinued operations (0.08) (0.01)
---------------- ---------------
Net income** $ 0.06 $ 0.04
================ ===============
--------------------------------------------------------------------------------------------------------------
</TABLE>
** This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 58,236
<SECURITIES> 34,329
<RECEIVABLES> 203,764
<ALLOWANCES> 6,626
<INVENTORY> 810,592
<CURRENT-ASSETS> 1,136,277
<PP&E> 201,339
<DEPRECIATION> 68,589
<TOTAL-ASSETS> 1,656,600
<CURRENT-LIABILITIES> 732,578
<BONDS> 389,316
<COMMON> 120,836
179,196
0
<OTHER-SE> 320,404
<TOTAL-LIABILITY-AND-EQUITY> 1,656,600
<SALES> 1,278,185
<TOTAL-REVENUES> 1,278,185
<CGS> 1,214,462
<TOTAL-COSTS> 1,214,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 582
<INTEREST-EXPENSE> 7,274
<INCOME-PRETAX> 9,514
<INCOME-TAX> 121
<INCOME-CONTINUING> 7,518
<DISCONTINUED> (1,317)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,201
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
