<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 DECEMBER 31, 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 .
--- ---
Number of shares of Common Stock outstanding as of February 12, 1996:
16,612,909
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<PAGE> 2
PART 1. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------
Three months ended December 31,
--------------------------------------
1995 1994
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<S> <C> <C>
NET SALES $1,430,426 $1,207,743
COSTS AND EXPENSES
Cost of goods sold (exclusive of depreciation shown separately below) 1,366,693 1,142,810
Selling, general and administrative expenses 46,358 43,814
Depreciation and amortization 6,294 5,228
Unusual items 59,961 -
- ---------------------------------------------------------------------------------------------------------------------
(48,880) 15,891
Other income 2,495 4,387
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OPERATING INCOME (LOSS) (46,385) 20,278
FINANCING COSTS
Interest expense 9,964 6,056
Interest income 910 862
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Financing costs, net 9,054 5,194
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NATIONAL STEEL CORPORATION
Net preferred income 910 1,359
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INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION (BENEFIT),
EQUITY IN INCOME (LOSS) OF AFFILIATES AND MINORITY INTEREST (54,529) 16,443
Income tax provision (benefit) (16,467) 1,263
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY IN
INCOME (LOSS) OF AFFILIATES AND MINORITY INTEREST (38,062) 15,180
Equity in income (loss) of affiliates (1,644) 134
Minority interest in results of operations of consolidated subsidiaries 516 99
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INCOME (LOSS) FROM CONTINUING OPERATIONS (40,222) 15,215
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of applicable tax benefit of
$394 in 1994 - (515)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (40,222) 14,700
Preferred stock dividends 5,494 4,726
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NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ (45,716) $ 9,974
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PER SHARE OF COMMON STOCK:
Income (loss) from continuing operations $ (2.60) $ 0.63
Loss from discontinued operations - (0.03)
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NET INCOME (LOSS) PER SHARE $ (2.60) $ 0.60
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AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 17,561 16,615
=====================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------
Nine months ended December 31,
------------------------------------------
1995 1994
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<S> <C> <C>
NET SALES $4,029,147 $3,540,476
COSTS AND EXPENSES
Cost of goods sold (exclusive of depreciation shown separately below) 3,834,820 3,346,863
Selling, general and administrative expenses 148,871 140,365
Depreciation and amortization 18,342 15,803
Unusual items 59,961 -
- ---------------------------------------------------------------------------------------------------------------------
(32,847) 37,445
Other income 15,868 6,111
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OPERATING INCOME (LOSS) (16,979) 43,556
FINANCING COSTS
Interest expense 25,422 17,856
Interest income 2,989 3,391
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Financing costs, net 22,433 14,465
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NATIONAL STEEL CORPORATION
Net preferred income 2,750 4,093
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INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION (BENEFIT),
EQUITY IN INCOME (LOSS) OF AFFILIATES AND MINORITY INTEREST (36,662) 33,184
Income tax provision (benefit) (16,110) 2,586
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY IN
INCOME (LOSS) OF AFFILIATES AND MINORITY INTEREST (20,552) 30,598
Equity in income (loss) of affiliates (2,451) 596
Minority interest in results of operations of consolidated subsidiaries 1,580 3,782
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (24,583) 27,412
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of applicable tax benefit of $953
in 1995 and $676 in 1994, respectively (1,317) (814)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (25,900) 26,598
Preferred stock dividends 16,099 14,221
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NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ (41,999) $ 12,377
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Income (loss) from continuing operations $ (2.37) $ 0.93
Loss from discontinued operations (0.08) (0.06)
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NET INCOME (LOSS) PER SHARE $ (2.45) $ 0.87
- ---------------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 17,160 14,187
=====================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In thousands of dollars)
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December 31, March 31,
1995 1995
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<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS
Cash and short-term investments $ 29,965 $ 35,232
Receivables - net 255,760 334,250
Inventories 721,561 820,818
Net assets of discontinued operations 23,693 -
Other current assets 50,317 38,394
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TOTAL CURRENT ASSETS 1,081,296 1,228,694
INVESTMENT IN NATIONAL STEEL CORPORATION 32,849 30,163
INVESTMENTS IN AFFILIATES 52,015 4,912
PROPERTY, PLANT AND EQUIPMENT 201,466 256,393
Less: allowances for depreciation and amortization 65,502 85,716
- ------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 135,964 170,677
OTHER ASSETS
Goodwill - net 209,612 209,749
Intangible assets - net 11,703 22,966
Deferred tax asset, net of valuation allowance 54,631 52,408
Miscellaneous assets 37,580 57,427
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313,526 342,550
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TOTAL ASSETS $1,615,650 $1,776,996
======================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In thousands of dollars)
- ---------------------------------------------------------------------------------------------------
December 31, March 31,
1995 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES
Accounts payable $ 520,535 $ 674,843
Accrued liabilities 57,266 64,655
Deferred income taxes 32,828 42,131
Long-term debt due within one year 315,990 2,540
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 926,619 784,169
LONG-TERM DEBT 215,190 422,751
RESERVES AND OTHER LIABILITIES 45,588 70,676
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 10,267 20,231
REDEEMABLE PREFERRED STOCK 187,983 175,019
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 (loss) on marketable securities (2,084) 2,374
Retained earnings 113,071 184,949
- ---------------------------------------------------------------------------------------------------
365,505 441,841
Less: common stock in treasury - 7,612,601 shares at
December 31, 1995 and 7,735,552 shares at March 31, 1995 135,502 137,691
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 230,003 304,150
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,615,650 $1,776,996
===================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In thousands of dollars)
- ----------------------------------------------------------------------------------------------------------------
Nine months ended
December 31,
------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (25,900) $ 26,598
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES:
Minority interest in results of operations of consolidated subsidiaries 1,580 3,782
Depreciation and amortization 18,342 15,803
Unusual items 55,240 -
Other non-cash (credits) or charges (12,018) 1,544
Net preferred income from National Steel Corporation (2,750) (4,093)
Gain on sale of investments (8,295) (3,962)
Deferred tax provision (benefit) (16,200) 1,704
Provision for losses on accounts receivable 3,758 (75)
Equity in loss of affiliates 2,451 -
Cash provided (used) by working capital items, net of acquisitions:
Receivables (4,543) (50,324)
Inventories 15,034 (264,299)
Other assets (1,834) 5,918
Accounts payable and accrued liabilities (87,700) 206,489
Proceeds from accounts receivable financing program - 75,000
Other (722) (914)
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (63,557) 13,171
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposition of Ben Franklin Retail Stores, Inc. (9,108) -
Purchase of property, plant and equipment (30,689) (40,756)
Proceeds from the sale of property, plant and equipment - 1,166
Acquisitions, net of cash acquired (4,202) (10,940)
Purchase of investments (79,870) (40,781)
Proceeds from the sale of investments 22,108 27,756
Cash used by discontinued operations (5,473) -
Other investing activities 1,866 (473)
- ----------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (105,368) (64,028)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities 1,090,080 835,531
Repayments under revolving credit facilities (942,880) (748,131)
Proceeds from issuance of long-term debt 21,696 11,482
Repurchase of common stock - (17,006)
Other debt repayments (2,011) (9,319)
Dividends paid to minority interests (1,133) (1,907)
Dividends paid on redeemable preferred stock (3,135) (3,465)
Other financing activities 1,041 1,977
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 163,658 69,162
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (5,267) 18,305
Cash and short-term investments, beginning of period 35,232 60,987
- ----------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 29,965 $ 79,292
================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 7
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of FoxMeyer Health
Corporation and its majority-owned subsidiaries (the "Corporation"). The
accompanying condensed consolidated balance sheet of the Corporation as of
December 31, 1995, the condensed consolidated statements of operations for the
three and nine months ended December 31, 1995 and 1994 and the condensed
consolidated statements of cash flows for the nine months ended December 31,
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 referenced in Note 3) are of a normal recurring nature. The
results of operations for the three and nine months ended December 31, 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
or is antidilutive.
NOTE 3 - UNUSUAL ITEMS
Unusual items consist of certain fiscal 1996 third quarter charges related to
the following: (i) charges for the closing or relocation of distribution
facilities including costs related to the shut-down of the Corporation's
trading operations, (ii) charges related to the closing of one of the
Corporation's data processing centers and the write-off of the remaining book
value of systems that are being replaced, (iii) severance costs for personnel
reductions involving approximately 110 employees, primarily at the
Corporation's corporate office, (iv) losses expected for certain customer
contracts, and (v) the write-off of certain impaired long-term assets.
Of the total charges, approximately $18.6 million will require future cash
expenditures primarily for the losses related to certain customer contracts,
severance costs and the closing of one of the Corporation's data processing
centers. The cash expenditures will occur primarily over the next fifteen
months, with the majority of expenditures expected in fiscal 1997.
NOTE 4 - 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
Retail Stores, Inc. ("Ben Franklin") through a dividend of Ben Franklin common
stock to the holders of the Corporation's common stock. On September 29, 1995,
each stockholder of the Corporation received one share of Ben Franklin common
stock for every six shares of the Corporation's common stock. The charge to
stockholders' equity for the distribution of Ben Franklin common stock of $29.7
million was based on the book value of the shares at the time of distribution.
6
<PAGE> 8
On September 29, 1995, as a result of the distribution, the Corporation's
ownership in Ben Franklin decreased from 67.7% to 17.4%. However, the
Corporation believes it still exercises 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 December 31,
1995 includes the Corporation's $8.3 million equity investment in Ben Franklin
in "Investments in affiliates." The market value of the common stock of Ben
Franklin owned by the Corporation was approximately $2.6 million at December
31, 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.
NOTE 5 - DISCONTINUED OPERATIONS
On July 12, 1995, the Corporation adopted a plan to consolidate its managed
care and certain 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 accounted for CareStream as a discontinued operation since
June 30, 1995. The loss from operations of CareStream for the three months
ended June 30, 1995, has been shown as a loss from discontinued operations. The
Corporation has deferred losses of $6.7 million (after tax) from operations of
CareStream after June 30,1995 to offset against the expected gain on the
disposition of CareStream. The Corporation's prior year income statements have
been reclassified to reflect the current accounting treatment of CareStream.
The net assets of CareStream consisting of those assets and liabilities which
will be assumed by CareStream and any deferred operating losses since June 30,
1995, are shown on the consolidated balance sheet at December 31, 1995 as "Net
assets of discontinued operations".
NOTE 6 - INVESTMENTS
In September 1995, the Corporation acquired a majority interest in Hamilton
Morgan L.L.C., a Delaware limited liability company (formerly known as the Haft
Group/Phar-Mor L.L.C.) ("Hamilton Morgan"). The acquisition of Hamilton Morgan
has been accounted for using the purchase method of accounting resulting in
goodwill of approximately $7.8 million. Hamilton Morgan subsequently acquired
an approximate 31% common stock investment in Phar-Mor, Inc. ("Phar-Mor"). The
investment in Phar-Mor through Hamilton Morgan together with the common stock
and warrants of Phar-Mor previously owned are carried as "Investments in
affiliates" at approximately $38.7 million. The Corporation accounts for its
investment which is equivalent to a 29.4% ownership interest in Phar-Mor, net
of minority interest, on an equity basis. The market value of the investment in
Phar-Mor is approximately $37.9 million at December 31, 1995.
At September 30, 1995, certain securities were reclassified from available for
sale to trading. As a result of this change in classification, approximately
$3.5 million was transferred from unrealized gains to realized gains and
included in "Other income" in the accompanying condensed financial statements.
NOTE 7 - DEBT
To fund the Corporation's purchase of a majority interest in Hamilton Morgan
(see Note 6), the Corporation entered into a $20 million credit agreement with
a bank (the "Morgan Facility"). The Morgan Facility matures September 6, 1998,
requires principal payments of $2.5 million each on September 6, 1996 and 1997,
and bears interest either at the prime rate plus 0.5% or a Euro-dollar rate (as
defined) plus 2%. The Morgan Facility is collateralized by (i) a portion of the
Corporation's shares of common stock of FoxMeyer Corporation ("FoxMeyer"), a
wholly-owned subsidiary of the Corporation, (ii) the Corporation's interest in
the Phar-Mor stock held by Hamilton Morgan and (iii) other marketable
securities. The Morgan Facility also contains net worth and other covenants.
7
<PAGE> 9
In August and September 1995, FoxMeyer entered into amendments of the FoxMeyer
revolving credit facility (the "FoxMeyer Facility") which raised the amount
available under the facility to $295 million from $275 million and modified
certain covenant calculations. The amendments also allowed FoxMeyer to enter
into a $60 million seasonal credit facility (the "FoxMeyer Seasonal Credit
Facility"). The FoxMeyer Seasonal Credit Facility matures March 31, 1996, bears
interest at the higher of the prime rate or an average rate for certificates of
deposit plus 0.5% and contains certain covenants which are substantially the
same as those in the FoxMeyer Facility. In November 1995, FoxMeyer extended its
accounts receivable financing program (the "FoxMeyer Accounts Receivable
Facility") for an additional year.
As a result of the effect of the unusual items (see Note 3), FoxMeyer would
have been in violation of certain covenants under the FoxMeyer Facility, the
FoxMeyer Accounts Receivable Facility and the FoxMeyer Seasonal Credit
Facility. Lenders involved in these facilities have waived the covenant
requirements until March 4, 1996 to allow for modification of these agreements.
The Corporation's $15 million revolving credit facility (the "Holding Company
Facility") and the Morgan Facility contain cross-default provisions that would
cause these facilities to be in default if FoxMeyer is in default on its debt
agreements. Additionally, recognition of the unusual items has resulted in a
collateral base deficiency under the Holding Company Facility and the Morgan
Facility. The Corporation has requested, and anticipates receiving, a waiver of
this condition. Management believes that the modifications to all agreements
will be completed or a further extension of the waivers will be granted prior
to March 4, 1996. Pending resolution of these matters, $297.5 million of
long-term debt related to these facilities has been reclassified to "Long-term
debt due within one year" in the accompanying balance sheet.
NOTE 8 - 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>
- --------------------------------------------------------------------------------------------------------------
Nine months ended December 31,
----------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest paid $ 27,916 $ 23,246
Income taxes paid 199 917
Noncash transactions:
Payment of dividends in kind on preferred stock 11,700 9,748
Payment of dividend in common stock of Ben Franklin 29,697 -
Treasury stock exchanged for FoxMeyer common stock - 90,157
- --------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 10
NOTE 9 - 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 costs and expenses it may incur
for such environmental liabilities. While management of the Corporation does
not 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.
The Corporation has settled a claim related to its agreement to indemnify
National Steel Corporation ("NSC") for certain environmental claims. The
settlement of the claim for $3.6 million was paid from the Corporation's
environmental claim prepayment held by NSC leaving a balance of approximately
$7.0 million in this fund at December 31, 1995.
The Corporation entered into certain agreements in the current year with
Ashland Oil, Inc. ("Ashland") settling unresolved issues relating to the sale
of The Permian Corporation ("TPC") to Ashland in fiscal 1992. As a result of
the agreements, the Corporation has settled all outstanding claims and is
released from any additional claims in connection with the sale of TPC to
Ashland. Previously established reserves related to these claims by Ashland
were released and are included in "Other income".
There are various other 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.
9
<PAGE> 11
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 losses from continuing operations of $40.2 million and $24.6 million for
the three months and nine months ended December 31, 1995, respectively. This
represents a decrease of $55.4 million and $52.0 million from income from
continuing operations for the same periods in the prior year primarily as a
result of a $60.0 million ($39.0 million after tax) special non-recurring
charge recorded in the third quarter. Net loss per share was $2.60 per share
and $2.45 per share for the three and nine months ended December 31, 1995,
respectively, as compared to net income per share of $.60 and $.87 per share
for the same periods in the prior year.
SIGNIFICANT TRANSACTIONS OR EVENTS OCCURRING SINCE MARCH 31, 1995 INCLUDE THE
FOLLOWING:
On July 12, 1995, the Corporation adopted a plan to consolidate its managed
care and certain information services segments into a new organization,
CareStream Corporation ("CareStream"). As a result of this decision and the
development of a formal plan to dispose of this segment of business, the
Corporation has shown CareStream as a discontinued operation.
On September 29, 1995, the Corporation distributed 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 six shares of the
Corporation's common stock.
In September 1995, the Corporation acquired a majority interest in Hamilton
Morgan L.L.C., a Delaware limited liability company ("Hamilton Morgan").
Hamilton Morgan subsequently acquired an approximate 31% common stock
investment in Phar-Mor, Inc. ("Phar-Mor"). As a result of the Corporation's
ownership of Hamilton Morgan and the common stock of Phar-Mor the Corporation
previously owned, the Corporation owns, net of minority interest, approximately
29.4% of Phar-Mor.
With the actual distribution of Ben Franklin and the planned disposition of
CareStream, the Corporation now conducts its business principally through only
one operating unit, FoxMeyer Corporation ("FoxMeyer"). The results of
operations of Ben Franklin have been stated on an equity basis for the three
and nine months ended December 31, 1995 and 1994. The results of CareStream
have been presented as a discontinued operation for the three and nine months
ended December 31, 1995 and 1994.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1994
Net sales increased $222.7 million to $1,430.4 million for the three months
ended December 31, 1995, as compared to $1,207.7 million for the three months
ended December 31, 1994. Net sales increased significantly in the Hospitals and
Alternate Care customer segment principally as a result of sales made under the
new University Hospital Consortium ("UHC") contract. Sales in the Independent
and Bulk customer segments also showed improvement. Chain sales were
approximately at the same level as in the prior year.
Gross profit decreased $1.2 million to $63.7 million for the three months ended
December 30, 1995 as compared to the same period in the prior year. As a
percentage of sales, gross margin decreased from 5.4% to 4.5% of net sales for
the three months ended December 31, 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.
10
<PAGE> 12
Operating expenses, excluding the unusual items described below, increased
$3.6 million to $52.6 million as compared to $49.0 million for the three months
ended December 31, 1994. As a percentage of net sales, operating expenses
decreased from 4.1% to 3.7% for the three months ended December 31, 1995 as
compared to the three months ended December 31, 1994.
Unusual items consist of certain fiscal 1996 third quarter charges related to
the following: (i) charges for the closing or relocation of distribution
facilities including costs related to the shut-down of the Corporation's
trading operations, (ii) charges related to the closing of one of the
Corporation's data processing centers and the write-off of the remaining book
value of systems that are being replaced, (iii) severance costs for personnel
reductions primarily at the Corporation's corporate office, (iv) losses
expected for certain customer contracts and (v) the write-off of certain
impaired long-term assets. Of the total charges, approximately $18.6 million
will require future cash expenditures primarily for the losses related to
certain customer contracts, severance costs and the closing of one of the
Corporation's data processing centers. The cash expenditures will occur
primarily over the next fifteen months, with the majority of expenditures
expected in fiscal 1997.
Other income decreased $1.9 million to $2.5 million for the three months ended
December 31, 1995 as compared to $4.4 million for the three months ended
December 31, 1994. In addition to recurring items, for the three months ended
December 31, 1994, the Corporation recognized income from a contingent fee
arising from a fiscal 1990 asset sale net of a loss on the write-down of
certain long-term assets.
The Corporation has been pursuing several strategies to improve gross profit
and gross margin, to further reduce operating expenses and to better serve its
present and potential customers. Such strategies have included significant
expenditures for management information systems, expansion of its customer base
and implementation of new state-of-the-art warehouse facilities. The expected
benefits from these projects have not been realized as soon as were originally
projected and have or will require additional unanticipated operating and
capital expenditures to bring the projects to conclusion. Although management
believes that these efforts will ultimately strengthen its gross margin, lower
operating costs and improve customer service, failure to successfully implement
these strategies may reduce earnings in the near term and may result in less
benefit than originally planned.
NET FINANCING COSTS
Net financing costs increased $3.9 million to $9.1 million for the three months
ended December 31, 1995, as compared to $5.2 million for the three months ended
December 31, 1994. Interest income did not change significantly. Average debt
for the quarter increased by approximately $231.1 million over the three months
ended December 31, 1994. The additional borrowed 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 42
basis points as compared to the three months ended December 31, 1994.
NATIONAL STEEL CORPORATION RESULTS
The net preferred income for National Steel Corporation was $0.9 million for
the three months ended December 31, 1995, compared to $1.4 million for the
prior period. An increase in the expense related to the Weirton pension
obligation for the quarter ended December 31, 1995 is the primary reason for
the $0.5 million decrease.
INCOME TAXES
The income tax benefit for the three months ended December 31, 1995 and the
income tax provision for the three months ended December 31, 1994 were based on
estimates of the full year effective tax rate. The low effective tax rate for
the prior period was the result of the reduction in the deferred tax asset
valuation allowance.
11
<PAGE> 13
EQUITY IN INCOME (LOSS) OF AFFILIATES
The equity in income (loss) of affiliates represented the 17% of Ben Franklin
and the 47% of FoxMeyer Canada Inc.'s ("FoxMeyer Canada") loss for the current
period. The current period also includes the Corporation's equity in the income
of Phar-Mor. In the prior period, the equity in income of affiliates consisted
of 68% of Ben Franklin's income and 46% of FoxMeyer Canada's loss. The decrease
of $1.8 million in equity in income (loss) of affiliates is the result of the
effects of (i) the decrease in the Corporation's ownership of Ben Franklin,
(ii) the loss at Ben Franklin due primarily to an $11.2 million restructuring
charge for its wholesale operations and store closings in its retail business,
(iii) increased operating expenses and losses related to the expansion of
FoxMeyer Canada's business and (iv) the favorable results of Phar-Mor.
MINORITY INTEREST IN RESULTS OF OPERATIONS OF CONSOLIDATED SUBSIDIARIES
The increase in earnings attributable to minority interest was primarily due to
the increased results of the Corporation's real estate operations.
DISCONTINUED OPERATIONS
The loss from discontinued operations in the prior period reflects the results
of CareStream. The Corporation is currently deferring losses from CareStream's
operations which will be offset by the expected gain on the disposition of
CareStream.
NINE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1994
Net sales increased $488.6 million to $4,029.1 million for the nine months
ended December 31, 1995, as compared to $3,540.5 million for the nine months
ended December 31, 1994. Net sales increased significantly in the Hospitals and
Alternate Care customer segment principally as a result of sales made under the
new UHC contract. Sales in the Independent and Bulk customer segments also
showed improvement. Chain sales were at approximately the same level as in the
prior year.
Gross profit increased $0.7 million to $194.3 million for the nine months ended
December 31, 1995 as compared to the same period in the prior year. As a
percentage of sales, gross margin decreased from 5.5% to 4.8% of net sales for
the nine months ended December 31, 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.
Operating expenses, excluding the unusual items described below, increased
$11.0 million to $167.2 million for the nine months ended December 31, 1995 as
compared to $156.2 million for the nine months ended December 31, 1994.
However, as a percentage of net sales, operating expenses decreased from 4.4%
for the nine months ended December 31, 1994 to 4.2% for the nine months ended
December 31, 1995.
Unusual items consist of certain fiscal 1996 third quarter charges related to
the following: (i) charges for the closing or relocation of distribution
facilities including costs related to the shut-down of the Corporation's
trading operations, (ii) charges related to the closing of one of the
Corporation's data processing centers and the write-off of the remaining book
value of systems that are being replaced, (iii) severance costs for personnel
reductions primarily at the Corporation's corporate office, (iv) losses
expected for certain customer contracts and (v) the write-off of certain
impaired long-term assets.
Other income increased $9.8 million to $15.9 million for the nine months ended
December 31, 1995 as compared to the nine months ended December 31, 1994. In
addition to recurring items, for the nine months ended December 31, 1994, the
Corporation recognized income from a contingent fee arising from a fiscal 1990
asset sale net of a loss on the write-down of certain long-term assets. In the
current year, the Corporation entered into agreements with the purchaser of
The Permian Corporation releasing the Corporation from liabilities connected
with the sale of Permian in fiscal 1992 resulting in the release of previously
established reserves.
12
<PAGE> 14
NET FINANCING COSTS
Net financing costs increased $7.9 million to $22.4 million for the nine months
ended December 31, 1995, as compared to $14.5 million for the nine months ended
December 31, 1994. Interest income decreased $0.4 million primarily as a result
of the early repayment of certain real estate notes receivable investments in
late fiscal 1995 and early fiscal 1996. Average debt for the nine months
increased by approximately $173.9 million over the nine months ended December
31, 1994. The additional borrowed 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 67 basis
points as compared to the nine months ended December 31, 1994.
NATIONAL STEEL CORPORATION RESULTS
The net preferred income for National Steel Corporation was $2.8 million for
the nine months ended December 31, 1995, compared to $4.1 million for the prior
period. An increase in the expense related to the Weirton pension obligation
for the nine months ended December 31, 1995 is the primary reason for the $1.3
million decrease.
INCOME TAXES
The income tax benefit for the nine months ended December 31, 1995 and the
income tax provision for the nine months ended December 31, 1994 were based on
estimates of the full year effective tax rate. The low effective tax rate for
the prior period was the result of the reduction in the deferred tax asset
valuation allowance.
EQUITY IN INCOME (LOSS) OF AFFILIATES
The equity in income (loss) of affiliates primarily represented the 68% and 17%
of Ben Franklin's results for the first six months and next three months of
fiscal 1996, respectively, and the 47% of FoxMeyer Canada's loss for the
current period. The current period also included the Corporation's equity in
the income of Phar-Mor. In the prior period, the equity in income of affiliates
consisted of 68% of Ben Franklin's income and 46% of FoxMeyer Canada's loss. The
decrease of $3.0 million in equity in income (loss) of affiliates is the
result of the effects of (i) the decrease in the Corporation's ownership of Ben
Franklin, (ii) the decrease in results at Ben Franklin due primarily to an $11.2
million restructuring charge for its wholesale operations and store closings in
its retail business, (iii) increased operating expenses and losses related to
the expansion of FoxMeyer Canada's business and (iii) the favorable results of
Phar-Mor.
MINORITY INTEREST IN RESULTS OF OPERATIONS OF CONSOLIDATED SUBSIDIARIES
The decrease in earnings attributable to minority interest was primarily due
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 in the
prior year and for the three months ended June 30, 1995. The results of
operations for CareStream subsequent to June 30, 1995 have been deferred
pending its ultimate disposition.
13
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations (which includes working capital components) was
$63.6 million for the nine months ended December 31, 1995. The change in
working capital components used $79.0 million of funds. A decrease in accounts
payable and accrued liabilities of $87.7 million as compared to March 31, 1995
accounted for most of the decrease in funds. The decrease in inventory provided
$15.0 million of funds.
Cash used in investing activities was $105.4 million. Approximately $30.7
million of cash was used to purchase property and equipment during the period.
An additional $4.2 million was used to acquire other businesses. The
Corporation made other investments in marketable securities and real estate
which used approximately $57.8 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 $163.7 million resulted primarily from
additional net borrowings under the Corporation's various credit facilities of
$147.2 million. The proceeds from the additional borrowings were primarily used
to fund operations, the purchase of property and equipment, acquisitions and
other investments.
Management assesses the Corporation's liquidity separately between 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 December 31, 1995, FoxMeyer had borrowed $280.0 million under its $295.0
million revolving credit facility (the "FoxMeyer Facility"), which expires
December 31, 1997, at an average interest rate of 6.6%. In addition, no funds
were borrowed under a $60 million seasonal credit facility (the "FoxMeyer
Seasonal Credit Facility"). The FoxMeyer Seasonal Credit Facility matures March
31, 1996, and bears interest at the higher of the prime rate or an average rate
for certificates of deposit plus 0.5%. The FoxMeyer Seasonal Credit Facility
also contains certain covenants which are substantially the same as those in
the FoxMeyer Facility. The average and maximum amounts borrowed during the nine
months ended December 31, 1995 under the FoxMeyer Facility and the FoxMeyer
Seasonal Credit Facility were $224.3 million and $341.0 million, respectively.
As a result of the effect of the unusual items, FoxMeyer would have been in
violation of certain covenants under the FoxMeyer Facility, its accounts
receivable financing facility and the FoxMeyer Seasonal Credit Facility.
Lenders involved in these facilities have waived the covenant requirements
until March 4, 1996 to allow for modification of these agreements. Management
of FoxMeyer expects that the modifications will be completed or a further
extension of the waivers will be granted prior to March 4, 1996.
FoxMeyer believes that it will generate sufficient cash flow from operations
that along with the continued maintenance of its working capital facilities
will provide adequate cash to fund its requirements.
HOLDING COMPANY
The Holding Company has cash and short-term investments of approximately $5.6
million at December 31, 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"), which matures April 1, 1996, at an average
interest rate of 7.8%. The average amount borrowed during the nine months ended
December 31, 1995 was $15.0 million. The Holding Company Facility is
collateralized by a portion of the common stock of FoxMeyer.
The Holding Company borrowed $20.0 million under a new credit agreement (the
"Morgan Facility") in September 1995 in connection with the acquisition of a
majority interest in Hamilton Morgan. The Morgan Facility matures September 6,
1998 and requires principal payments of $2.5 million each on September 6, 1996
and 1997. The Morgan Facility bears interest either at the prime rate plus 0.5%
or a Euro-dollar rate (as defined) plus 2% and is collateralized by a portion
of the common stock of FoxMeyer and other marketable securities.
14
<PAGE> 16
The Holding Company's cash requirements include the funding of monthly
operating expenses, lease commitments, benefit obligations, principal payments
under the Morgan Facility, dividend payments on the Corporation's 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. The Holding Company's real estate
operations are presently generating excess cash flow. In addition, the Holding
Company may make additional real estate and other investments.
The Holding Company Facility and the Morgan Facility contain cross-default
provisions that would put these facilities in default if FoxMeyer should be in
default on its debt agreements. Additionally, recognition of the unusual items
has resulted in a collateral base deficiency under the Holding Company Facility
and the Morgan Facility. The Corporation has requested, and anticipates
receiving, a waiver of this condition.
The Holding Company will rely on cash on hand, excess cash flow from its real
estate operations, and the sale of certain investments to meet the cash funding
obligations described above. The Holding Company expects to be able to renew or
replace the Holding Company Facility before its expiration date of April 1,
1996. If the cash flows described above do not meet management's expectations,
or the Corporation is unable to maintain the Holding Company Facility, the
Corporation may be required to sell other assets or seek alternate financing to
meet its cash outflows.
OTHER
The Financial Accounting Standards Board has issued two statements that may
impact the Corporation's accounting and reporting of certain financial
statement information. Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", will be effective for fiscal years beginning after
December 15, 1995. While the Corporation has not currently adopted SFAS No.
121, the Corporation does not anticipate any material adverse charges resulting
from the adoption of this pronouncement. SFAS No. 123, "Accounting for
Stock-Based Compensation", becomes effective for transactions entered into in
fiscal years that begin after December 15, 1995. The Corporation will continue
to account for the grant of stock options under the "intrinsic value" method of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The implementation of other required accounting procedures and the
information required to be disclosed under SFAS No. 123 will have no effect on
the financial condition or results of operations of the Corporation.
15
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10-A - Fifth Amendment dated as of November 21, 1995 to the Trade
Receivables Purchase and Sale Agreement dated as of
October 29, 1993 among FoxMeyer Corporation, Corporate
Asset Funding Company, Inc., Enterprise Funding
Corporation, Citibank, N.A., NationsBank of North
Carolina, N.A., individually and as Co-Agent, CitiCorp
North America, Inc., individually and as agent, and the
Bank Listed therein.
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 December 31, 1995.
16
<PAGE> 18
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: February 13, 1996
17
<PAGE> 19
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10-A - Fifth Amendment dated as of November 21, 1995 to the Trade
Receivables Purchase and Sale Agreement dated as of
October 29, 1993 among FoxMeyer Corporation, Corporate
Asset Funding Company, Inc., Enterprise Funding
Corporation, Citibank, N.A., NationsBank of North
Carolina, N.A., individually and as Co-Agent, CitiCorp
North America, Inc., individually and as agent, and the
Bank Listed therein.
11 - Computation of Earnings Per Common Share
27 - Financial Data Schedule
<PAGE> 1
FIFTH AMENDMENT
Dated as of November 21, 1995
THIS FIFTH AMENDMENT (this "Fifth Amendment") is entered into
among FOXMEYER CORPORATION (formerly FoxMeyer Acquisition Corp., the successor
in interest by merger to FoxMeyer Corporation), a Delaware corporation (the
"Seller"), CORPORATE ASSET FUNDING COMPANY, INC., a Delaware corporation
("CAFCO"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation ("Enterprise"
and, together with CAFCO, the "Investors" and individually an "Investor"),
CITIBANK, N.A., a national banking association ("Citibank"), NATIONSBANK, N.A.,
a national banking association, individually ("NationsBank") and as co-agent
(the "Co- Agent"), CITICORP NORTH AMERICA, INC., individually ("CNAI") and as
agent the ("Agent"), and the other financial institutions listed on the
signature pages hereof under the heading "A Syndicate Banks" (the "A Syndicate
Banks") or "B Syndicate Banks", respectively (the "B Syndicate Banks" and,
together with Citibank, NationsBank and the A Syndicate Banks, the "Banks").
PRELIMINARY STATEMENTS. (1) The Seller, the Investors, the
Agent and the Co-Agent are party to that certain Trade Receivables Purchase and
Sale Agreement dated as of October 29, 1993, as amended by the Amendment dated
as of October 27, 1994, the Second Amendment dated as of November 22, 1994, the
Third Amendment dated as of April 26, 1995 and the Fourth Amendment dated as of
September 30, 1995 (said Agreement as so amended being the "Investor
Agreement"). The Seller, the Banks, CNAI, the Agent and the Co-Agent are party
to that certain Trade Receivables Purchase and Sale Agreement dated as of
October 29, 1993, as amended by the Amendment dated as of October 27, 1994, the
Second Amendment dated as of November 22, 1994, the Third Amendment dated as of
April 26, 1995 and the Fourth Amendment dated as of September 30, 1995 (said
Agreement as so amended being the "Parallel Purchase Commitment" and, together
with the Investor Agreement, the "Agreements"). The Agent and the A Syndicate
Banks are party to that certain Asset Purchase Agreement dated as of November
3, 1994, as amended by the Amendment dated as of October 27, 1994 and the
Second Amendment dated as of November 22, 1994 (said Asset Purchase Agreement
as so amended being the "Asset Purchase Agreement"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings set forth in
the respective Agreements.
(2) The Seller, the Investors, Citibank, NationsBank, the
other Banks, CNAI, the Agent and the Co-Agent, on the terms and conditions
stated below, have agreed, among other things, to extend the Facility
Termination Date under the Investor Agreement, the Commitment
<PAGE> 2
2
Termination Date under the Parallel Purchase Commitment and the Purchase
Termination Date under the Asset Purchase Agreement (in the case of the A
Syndicate Banks), in each case to November 19, 1996 and to amend the definition
of "Obligor" in the Agreements so as to include Phar-Mor, Inc. as an Obligor.
SECTION 1. Amendments to the Investor Agreement. The
Investor Agreement is, effective, in the case of subsection (a) below, as of
the date hereof and, in the case of subsection (b) below, October 16, 1995, and
subject to the satisfaction of the conditions precedent set forth in Section 4
hereof, hereby amended as follows:
(a) The definition of the term "Facility Termination
Date", contained in Section 1.01 thereof, is amended by replacing the date
"November 21, 1995" contained therein with the date "November 19, 1996".
(b) The definition of the term "Obligor", contained in
Section 1.01 thereof, is amended by deleting "Phar-Mor, Inc.," from the
parenthetical clause contained therein.
SECTION 2. Amendments to the Parallel Purchase Commitment.
The Parallel Purchase Commitment is, effective, in the case of subsection (a)
below, as of the date hereof and, in the case of subsection (b) below, October
16, 1995, and subject to the satisfaction of the conditions precedent set forth
in Section 4 hereof, hereby amended as follows:
(a) The definition of the term "Commitment Termination
Date", contained in Section 1.01 thereof, is amended by replacing the date
"November 21, 1995" contained therein with the date "November 19, 1996".
(b) The definition of the term "Obligor", contained in
Section 1.01 thereof, is amended by deleting "Phar-Mor, Inc.," from the
parenthetical clause contained therein.
SECTION 3. Amendment to the Asset Purchase Agreement. The
Asset Purchase Agreement is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 4 hereof, hereby
amended by amending the definition of the term "Purchase Termination Date"
contained therein by replacing the date "November 21, 1995" set forth on the
signature page thereto of each A Syndicate Bank opposite the caption "Purchase
Termination Date" with the date "November 19, 1996".
SECTION 4. Conditions Precedent. Sections 1, 2 and 3 of this
Fifth Amendment shall become effective as of the date hereof when, and only
when, all of the following have occurred:
(a) the Agent shall have received counterparts of this
Fifth Amendment executed by Citibank, Nationsbank, each of the other Banks (or,
as to any Banks, advice
<PAGE> 3
3
satisfactory to the Agent that such Banks have duly executed such amendment),
the Seller, each Investor, CNAI, the Co-Agent and the Agent, and of the consent
to this Fifth Amendment set forth on the signature pages hereof executed by
each Selling Subsidiary; and
(b) the fee payable to the Agent and the Co-Agent,
respectively, referred to in the letter agreement dated the date hereof between
the Seller and the Agent and the Co-Agent shall have been paid by the Seller.
SECTION 5. Representations and Warranties of the Seller. The
Seller represents and warrants as follows:
(a) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction indicated at
the beginning of this Fifth Amendment.
(b) The execution, delivery and performance by the Seller
of this Fifth Amendment, and the performance by the Seller of the Agreements as
amended by this Fifth Amendment, are within the Seller's corporate powers, have
been duly authorized by all necessary corporate action and do not (i)
contravene the Seller's charter or by-laws or law or any contractual
restriction binding on or affecting the Seller, or (ii) result in or require
the creation of any Adverse Claim upon or with respect to any of its properties
(other than pursuant thereto), or (iii) require compliance with any bulk sales
act or similar law.
(c) No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Seller of this
Fifth Amendment or the performance by the Seller of the Agreements as amended
by this Fifth Amendment.
(d) This Fifth Amendment and the Agreements as amended by
this Fifth Amendment constitute the legal, valid and binding obligations of the
Seller enforceable against the Seller in accordance with their respective
terms, subject to the effect of the bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and by general
principles of equity.
SECTION 6. Reference to and Effect on the Agreements (a)
Upon the effectiveness of Sections 1,2 and 3 hereof, on and after the date of
this Fifth Amendment, each reference in either Agreement or the Asset Purchase
Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like
import, and each reference to either Agreement or the Asset Purchase Agreement
in the other Agreement, the Fee Letter, the Asset Purchase Agreement, any
Selling Subsidiary Letter, any letter agreement with any Bank or any other
document delivered in connection with either Agreement, shall mean and be a
reference to such Agreement or the Asset Purchase Agreement, respectively, as
amended and modified hereby.
<PAGE> 4
4
(b) Except as specifically amended and modified above,
the Agreements, the Certificates, the Fee Letter, the Asset Purchase Agreement,
the Selling Subsidiary Letters, the respective letter agreements between the
Agent or the Co-Agent, as applicable, and the respective Banks and the other
documents delivered in connection with the Agreements are and shall continue to
be in full force and effect and are hereby ratified and confirmed.
SECTION 7. Cost and Expenses. The Seller agrees to pay on
demand all costs and expenses of each of the Agent and the Co-Agent,
respectively, in connection with the preparation, execution and delivery of
this Fifth Amendment and the other instruments and documents to be delivered
hereunder, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Agent and the Co-Agent, respectively, with respect
thereto and with respect to advising the Agent or the Co-Agent as to its rights
and responsibilities hereunder and thereunder. The Seller further agrees to
pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Fifth
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section 7.
SECTION 8. Execution in Counterparts. This Fifth Amendment
may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of a
signature page to this Fifth Amendment and the consent referred to below by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Fifth Amendment and such consent.
SECTION 9. Governing Law. This Fifth Amendment shall be
governed by and construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Amendment to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
FOXMEYER CORPORATION
By:
-----------------------------------------------
Title:
<PAGE> 5
5
CORPORATE ASSET FUNDING
COMPANY, INC.
By: CITICORP NORTH AMERICA, INC
its Attorney-in-fact
By:
-----------------------------------------------
Vice President
ENTERPRISE FUNDING CORPORATION
By:
-----------------------------------------------
Title:
CITIBANK, N.A.
By:
-----------------------------------------------
Vice President
NATIONSBANK, N.A.,
individually and as Co-Agent
By:
-----------------------------------------------
Title:
CITICORP NORTH AMERICA, INC.,
individually and as Agent
By:
-----------------------------------------------
Vice President
<PAGE> 6
6
A SYNDICATE BANKS
-----------------
BANK OF AMERICA ILLINOIS
(formerly Continental Bank, N.A.)
By:
--------------------------------
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
--------------------------------
Title:
FIRST BANK NATIONAL ASSOCIATION
By:
--------------------------------
Title:
B SYNDICATE BANKS
-----------------
THE FUJI BANK, LTD. - HOUSTON
AGENCY
By:
--------------------------------
Title:
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS
By:
--------------------------------
Title:
THE BANK OF TOKYO, LTD.,
acting through its Dallas Agency
By:
--------------------------------
Title:
<PAGE> 7
November 21, 1995
FoxMeyer Corporation
1220 Senlac Drive
Carrollton, Texas 75006
FoxMeyer Corporation
Fifth Amendment
Ladies and Gentlemen:
As contemplated by Section 4(b) of the Fifth
Amendment dated as of the date hereof of (the "Fifth Amendment") to the Trade
Receivables Purchase and Sale Agreements dated as of October 29, 1993, as
amended, among FoxMeyer Corporation as Seller and, as applicable, Corporate
Asset Funding Company, Inc., Enterprise Funding Corporation, Citibank, N.A.,
NationsBank, N.A., individually ("NationsBank") and as co-agent (the
"Co-Agent"), Citicorp North America, Inc., individually ("CNAI") and as agent
(the "Agent"), and the other financial institutions listed on the signature
pages thereof under the heading "A Syndicate Banks" (the "A Syndicate Banks")
or "B Syndicate Banks" (the "B Syndicate Banks"), respectively, the undersigned
hereby agrees to pay the Agent and the Co-Agent, for the accounts of CNAI and
Nationsbank, respectively, in lawful money of the United States of America in
same day funds, a fee in the aggregate amount of 0.05 of 1% of the aggregate
Purchase Limit (as defined in the Investor Agreement as defined and referred to
in said Fifth Amendment), of which aggregate amount 60% shall be payable to the
Agent for the account of CNAI and 40% shall be payable to the Co-Agent for the
account of NationsBank. Such fee shall be payable on the date of said Fifth
Amendment, and the payment of such fee shall constitute satisfaction of the
condition precedent set forth in such Section 4(b).
Very truly yours,
CITICORP NORTH AMERICA, INC.
By
--------------------------
Title:
<PAGE> 8
2
NATIONSBANK, N.A.
By
-------------------------------
Title:
ACCEPTED this ___ day
of November, 1995
FOXMEYER CORPORATION
By
--------------------------------
Title:
<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
December 31,
---------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income (loss) from continuing operations $(40,222) $15,215
Deduct dividends on preferred shares 5,494 4,726
-------- -------
Income (loss) from continuing operations applicable to stockholders $(45,716) $10,489
======== =======
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations $ - $ (515)
======== =======
SHARES
Weighted average number of common shares outstanding 17,561 16,615
======== =======
Income (loss) from continuing operations $ (2.60) $ 0.63
Loss from discontinued operations - (0.03)
-------- -------
Net income (loss) $ (2.60) $ 0.60
======== =======
ASSUMING FULL DILUTION
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income (loss) from continuing operations $(40,222) $15,215
Dividends on non-convertible preferred shares 4,449 3,571
Dividends on convertible preferred shares (conversion of preferred
shares would be anti-dilutive) 1,045 1,155
-------- -------
Income (loss) from continuing operations applicable to common
stockholders $(45,716) $10,489
======== =======
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations $ - $ (515)
-------- -------
SHARES
Weighted average number of common shares outstanding 17,561 16,615
Conversion of preferred stock (anti-dilutive) - -
Additional dilutive effect of outstanding options (as determined
by the treasury stock method) 92 1
Assuming conversion of National Steel Corporation 4 5/8%
convertible debentures - -
-------- -------
Weighted average number of common shares outstanding as adjusted 17,653 16,616
======== =======
Income (loss) from continuing operations $ (2.59) $ 0.63
Loss from discontinued operations - (0.03)
-------- -------
Net income (loss)** $ (2.59) $ 0.60
======== =======
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended
December 31,
-----------------------------
1995 1994
<S> <C> <C>
PRIMARY
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income (loss) from continuing operations $(24,583) $27,412
Deduct dividends on preferred shares 16,099 14,221
-------- -------
Income (loss) from continuing operations applicable to stockholders $(40,682) $13,191
======== =======
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations $ (1,317) $ (814)
======== =======
SHARES
Weighted average number of common shares outstanding 17,160 14,187
======== =======
Income (loss) from continuing operations $ (2.37) $ 0.93
Loss from discontinued operations (0.08) (0.06)
-------- -------
Net income (loss) $ (2.45) $ 0.87
======== =======
ASSUMING FULL DILUTION
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income (loss) from continuing operations $(24,583) $27,412
Dividends on non-convertible preferred shares 12,964 10,756
Dividends on convertible preferred shares (conversion of preferred
shares would be anti-dilutive) 3,135 3,465
-------- -------
Income (loss) from continuing operations applicable to common
stockholders $(40,682) $13,191
======== =======
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations $ (1,317) $ (814)
======== =======
SHARES
Weighted average number of common shares outstanding 17,160 14,187
Conversion of preferred stock (anti-dilutive) - -
Additional dilutive effect of outstanding options (as determined
by the treasury stock method) 459 3
Assuming conversion of National Steel Corporation 4 5/8%
convertible debentures - 13
-------- -------
Weighted average number of common shares outstanding as adjusted 17,619 14,203
======== =======
Income (loss) from continuing operations $ (2.31) $ 0.93
Loss from discontinued operations (0.07) (0.06)
-------- -------
Net income (loss)** $ (2.38) $ 0.87
======== =======
</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%.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 29,965
<SECURITIES> 37,462
<RECEIVABLES> 262,997
<ALLOWANCES> 7,237
<INVENTORY> 721,561
<CURRENT-ASSETS> 1,081,296
<PP&E> 201,466
<DEPRECIATION> 65,502
<TOTAL-ASSETS> 1,615,650
<CURRENT-LIABILITIES> 926,619
<BONDS> 215,190
<COMMON> 120,836
187,983
0
<OTHER-SE> 109,167
<TOTAL-LIABILITY-AND-EQUITY> 1,615,650
<SALES> 4,029,147
<TOTAL-REVENUES> 4,029,147
<CGS> 3,834,820
<TOTAL-COSTS> 3,834,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,758
<INTEREST-EXPENSE> 25,422
<INCOME-PRETAX> (36,662)
<INCOME-TAX> (16,110)
<INCOME-CONTINUING> (24,583)
<DISCONTINUED> (1,317)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,900)
<EPS-PRIMARY> (2.45)
<EPS-DILUTED> (2.45)
</TABLE>
