2
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-11355
BINDLEY WESTERN INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA 84-0601662
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10333 NORTH MERIDIAN STREET, SUITE 300
INDIANAPOLIS, INDIANA 46290
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(317) 298-9900
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 12 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO _________
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF SEPTEMBER 30, 1994 WAS
10,787,693.
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<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(000's omitted except share data)
(unaudited)
<CAPTION>
Nine-month period ended Three-month period ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues: $ 2,916,445 $ 2,452,371 $ 1,012,641 $ 844,815
Other income 1,976 3,406 656 2,330
2,918,421 2,455,777 1,013,297 847,145
Cost and expenses:
Cost of products sold 2,852,142 2,396,503 989,992 826,382
Selling, general and administrative 36,541 31,799 13,106 10,919
Depreciation and amortization 4,367 4,079 1,535 1,399
Interest 7,227 6,114 2,989 1,808
Write down of account receivable 1,420 1,420
2,900,277 2,439,915 1,007,622 841,928
Earnings before income taxes 18,144 15,862 5,675 5,217
Provision for income taxes:
Current 9,239 6,178 2,927 857
Deferred (1,800) 362 (600) 1,532
7,439 6,540 2,327 2,389
Net earnings $ 10,705 $ 9,322 $ 3,348 $ 2,828
Earnings per share:
Primary 0.97 0.86 0.30 0.26
Fully diluted 0.87 0.80 0.28 0.25
Average shares outstanding:
Primary 11,028,998 10,880,804 11,033,233 10,888,664
Fully diluted 14,558,179 14,286,597 14,562,414 14,294,457
<FN>
(See accompanying notes to consolidated financial statements)
</TABLE>
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<TABLE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000's omitted except share data)
(unaudited)
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash $ 27,247 $ 33,653
Short-term investments 1,516 4,629
Accounts receivable, less allowance for
doubtful accounts of $2,377 for 1994
and $2,416 for 1993 308,154 313,243
Finished goods inventory 358,863 310,758
Other current assets 1,988 3,129
697,768 665,412
Other assets 1,473 1,604
Fixed assets, at cost 55,880 52,347
Less: accumulated depreciation (17,694) (14,065)
38,186 38,282
Intangibles 26,383 26,906
TOTAL ASSETS $ 763,810 $ 732,204
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<TABLE>
<CAPTION>
LIABILITES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Short-term borrowings $ 176,000 $ 108,000
Accounts payable 330,497 377,730
Deferred income taxes (2,227) (2,227)
Other current liabilities 9,097 6,401
513,367 489,904
Long-term debt 69,456 69,733
Deferred income taxes 5,049 6,849
Shareholders' equity:
Common stock, $.01 par value authorized
30,000,000 shares;issued 11,135,984
and 11,120,934 shares, respectively 3,309 3,309
Special shares, $.01 par value
authorized 1,000,000 shares
Additional paid in capital 82,141 81,936
Retained earnings 93,638 83,623
179,088 168,868
Less: 348,291 shares in treasury-at cost (3,150) (3,150)
Total shareholders' equity 175,938 165,718
Commitments and contingencies
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 763,810 $ 732,204
<FN>
(See accompanying notes to consolidated financial statements)
</TABLE>
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<TABLE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted except share data)
(unaudited)
<CAPTION>
Nine-month period ended
September 30,
1994 1993
<S> <C> <C>
Cash flow from operating activities:
Net income $ 10,705 $ 9,322
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 4,368 4,079
Deferred income taxes (1,800) 362
Write down of account receivable 1,420
Loss (gain) on sale of marketable securities (1,450)
Loss (gain) on sale of fixed assets (17) (17)
Change in assets and liabilities,
net of acquisition:
Accounts receivable 16,228 (74,790)
Finished goods inventory (31,492) 37,905
Accounts payable (75,473) (66,657)
Other current assets and liabilities 3,735 (4,146)
Net cash provided (used) by
operating activities (73,746) (93,972)
Cash flow from investing activities:
Purchase of fixed assets and other assets (2,647) (5,118)
Proceeds from sale of fixed assets 133 1,165
Proceeds from sale of investment securities 3,113 12,332
Acquisition of business (497) (5,775)
Net cash provided (used) by
investing activities 102 2,604
Cash flow from financing activities:
Proceeds from sale of stock 205 232
Reduction in long term debt (277) 578
Proceeds under line of credit agreement 957,500 736,500
Payments under line of credit agreement (889,500) (659,000)
Dividends (690) (587)
Net cash provided (used) by
financing activities 67,238 77,723
Net increase (decrease) in cash (6,406) (13,645)
Cash at beginning of period 33,653 32,716
Cash at end of period $ 27,247 $ 19,071
<FN>
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN
PREPARED BY THE COMPANY WITHOUT AUDIT. CERTAIN INFORMATION AND
FOOTNOTE DISCLOSURES, INCLUDING SIGNIFICANT ACCOUNTING POLICIES,
NORMALLY INCLUDED IN FINANCIAL STATEMENTS PREPARED IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES HAVE BEEN CONDENSED
OR OMITTED. THE COMPANY BELIEVES THAT THE FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1994 AND
1993 INCLUDE ALL NECESSARY ADJUSTMENTS FOR FAIR PRESENTATION.
RESULTS FOR ANY INTERIM PERIOD MAY NOT BE INDICATIVE OF THE
RESULTS OF THE ENTIRE YEAR.
2. ON FEBRUARY 28, 1993 AND OCTOBER 6, 1993, THE COMPANY ACQUIRED
CHARISE CHARLES LTD., INC., A WHOLESALE ONCOLOGY AND DIALYSIS
PRODUCTS DISTRIBUTOR BASED IN ALTAMONTE SPRINGS, FLORIDA AND PRN
MEDICAL, INC., A WHOLESALE DISTRIBUTOR OF RENAL AND DIALYSIS
SUPPLIES AND EQUIPMENT BASED IN ORLANDO, FLORIDA, RESPECTIVELY.
THESE ACQUISITIONS WERE ACCOUNTED FOR AS PURCHASES AND,
ACCORDINGLY, THE 1993 FINANCIAL STATEMENTS INCLUDE CHARISE
CHARLES AND PRN'S RESULTS OF OPERATIONS FROM THE DATE OF
ACQUISITION. THE CONSIDERATION EXCHANGED BY THE COMPANY FOR
CHARISE CHARLES AND PRN APPROXIMATED $8 MILLION.
3. EFFECTIVE JULY 1, 1994, THE COMPANY ACQUIRED THE NET ASSETS OF
KENDALL DRUG COMPANY, A WHOLESALE PHARMACEUTICAL DISTRIBUTOR
BASED IN SHELBY, NORTH CAROLINA. THE PURCHASE PRICE OF
APPROXIMATELY $8.1 MILLION HAS BEEN ALLOCATED BASED ON A
PRELIMINARY DETERMINATION OF THE FAIR VALUE OF THE ASSETS
ACQUIRED AND LIABILITIES ASSUMED, AND APPROXIMATES THE FAIR VALUE
OF ASSETS PURCHASED.
4. THE COMPANY, SIX OTHER PHARMACEUTICAL WHOLESALERS, AND 24
PHARMACEUTICAL MANUFACTURERS WERE NAMED AS DEFENDANTS IN NINE
CIVIL LAWSUITS FILED DURING NOVEMBER 1993 IN FEDERAL COURT,
SOUTHERN DISTRICT OF NEW YORK. THE PLAINTIFFS, COMPRISED OF 14
INDEPENDENT DRUG STORES, ALLEGE IN PART THAT CHARGEBACK AGREEMENTS
BETWEEN PHARMACEUTICAL MANUFACTURERS AND WHOLESALERS CONSTITUTE
PRICE-FIXING ARRANGEMENTS IN VIOLATION OF FEDERAL ANTI-TRUST
LAWS. THE PLAINTIFFS SEEK INJUNCTIVE RELIEF, UNSPECIFIED TREBLE
DAMAGES, COSTS, INTEREST, AND ATTORNEYS FEES. THESE COMPLAINTS
ARE SIMILAR TO NUMEROUS OTHER LAWSUITS FILED BY INDEPENDENT AND
CHAIN DRUG STORES AGAINST PHARMACEUTICAL MANUFACTURERS IN FEDERAL
AND STATE COURTS THROUGHOUT THE UNITED STATES. A SMALL NUMBER OF
THESE CASES NAMED WHOLESALERS AS DEFENDANTS, BUT THE COMPANY IS
NOT NAMED AS THE DEFENDANT IN ANY CASE OUTSIDE THE SOUTHERN
DISTRICT OF NEW YORK. ON FEBRUARY 4, 1994, THE JUDICIAL PANEL ON
MULTI-DISTRICT LITIGATION ORDERED THE 1993 CASES CONSOLIDATED AND
TRANSFERRED TO THE NORTHERN DISTRICT OF ILLINOIS BEFORE JUDGE
CHARLES KOCORAS. ON OCTOBER 21, 1994, THE COMPANY ENTERED IN AN
AGREEMENT IN THESE CASES WITH FIVE OTHER WHOLESALERS AND 26
PHARMACEUTICAL MANUFACTURERS. AMONG OTHER THINGS, THE AGREEMENT
PROVIDES THAT: (A) IF A JUDGMENT IS ENTERED INTO AGAINST BOTH THE
MANUFACTURER AND WHOLESALER DEFENDANTS, THE TOTAL EXPOSURE FOR
JOINT AND SEVERAL LIABILITY OF THE COMPANY IS LIMITED TO
$1,000,000; (B) IF A SETTLEMENT IS ENTERED INTO BY, BETWEEN, AND
AMONG THE MANUFACTURER AND WHOLESALER DEFENDANTS, THE COMPANY HAS
NO MONETARY EXPOSURE FOR SUCH SETTLEMENT AMOUNT; (C) THE SIX
WHOLESALER DEFENDANTS WILL BE REIMBURSED BY THE 26 MANUFACTURER
DEFENDANTS FOR RELATED LEGAL FEES AND EXPENSES UP TO $9,000,000
TOTAL ( THE COMPANY'S INITIAL PORTION OF THIS AMOUNT IS
$1,000,000); AND (D) THE COMPANY IS TO RELEASE CERTAIN CLAIMS
WHICH IT MIGHT HAVE HAD AGAINST THE MANUFACTURER DEFENDANTS FOR
THE CLAIMS PRESENTED BY PLAINTIFFS IN THESE CASES. THE AGREEMENT
COVERS THE FEDERAL COURT LITIGATION AS WELL AS THE CASES WHICH
HAVE BEEN FILED IN VARIOUS STATE COURTS. AFTER DISCUSSIONS WITH
COUNSEL, MANAGEMENT OF THE COMPANY BELIEVES THAT THE ALLEGATIONS
OF LIABILITY SET FORTH IN THESE LAWSUITS ARE WITHOUT MERIT AS TO
THE WHOLESALER DEFENDANTS AND THAT ANY ATTENDANT LIABILITY OF THE
COMPANY, ALTHOUGH UNLIKELY, WOULD NOT HAVE A MATERIAL ADVERSE
EFFECT ON THE COMPANY'S FINANCIAL CONDITION.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The Company acquired Kendall Drug Company (Kendall), a distributor of
pharmaceuticals and related products effective July 1, 1994. In 1993, the
Company acquired Charise Charles LTD., Inc. (Charise Charles), a wholesale
distributor of oncology and dialysis products and PRN Medical Inc. (PRN), a
wholesale distributor of renal care and dialysis supplies and equipment. The
Charise Charles and PRN acquisitions were effective on February 28, 1993 and
October 6, 1993, respectively. The results of operations of the acquired
companies are included in the Company's financial statements from the respective
dates of acquisition. The third quarter ended September 30, 1994 includes $35
million of Kendall sales and $26 million of Charise Charles and PRN sales as
compared to $19 million of Charise Charles sales for the third quarter ended
September 30, 1993.
Net sales for the third quarter increased by 20% from $845 million in 1993 to
$1.013 billion, principally as a result of volume increases, although overall
price changes in the industry accounted for approximately 3%. The increase
reflected the aforementioned inclusion of Kendall, Charise Charles and PRN and
strength in all of the Company's operating units, especially the direct store
delivery segments of Bindley Western Drug Company. Direct store delivery sales
were 31% and 28% of total net sales for 1994 and 1993, respectively. This
represents a 34% increase over the 1993 quarter.
Gross margin of $22.6 million in the third quarter of 1994 increased by 23%
over 1993, primarily because of the increase in net sales. Gross margin as a
percentage of net sales increased from 2.18% in 1993 to 2.24% in 1994. The
increase resulted from the Company's continued efforts to expand revenues
in the higher margin direct store delivery and alternative care segments.
However, the competitive pressures in the market place and the lower level of
pharmaceutical price increases continue to exert pressures on gross margin. In
response to these trends, the Company is continuing to look for ways to lower
operating expenses and capitalize on its direct store delivery marketing
efforts.
The decrease in other income from $2.3 million in the third quarter of 1993 to
$656 thousand in the third quarter of 1994 resulted from gains on the sale of
marketable securities in 1993 and a reduction in service fee income on certain
customer receivable balances in 1994.
Selling, general and administrative expenses increased from $10.9 million in the
third quarter of 1993 to $13.1 million in the third quarter of 1994. The
increase in 1994 included approximately $1 million related to Kendall and the
incremental increase of $345,000 related to Charise Charles and PRN. The
remainder of the increase is divided approximately equally between normal
inflationary increases in all divisions and costs to support the growing direct
store delivery program of Bindley Western Drug Company. The cost increases
related to the direct store delivery program include among others, delivery
expenses, warehouse supplies and labor costs, all of which are variable with the
level of sales volume. Although sales and marketing costs are also variable
with the level of sales volume, they are relatively insignificant and represent
less than .4% of net sales. Continuing increases in direct store delivery sales
will result in continuing increases in selling, general and administrative
expenses.
During the quarter, costs associated with the consolidation of distribution,
accounting and data processing functions for the Company's East Coast
operations approximated $400,000 and were charged to the reserve that was
established in 1993.
Depreciation and amortization increased from $1.4 million in the third quarter
of 1993 to $1.5 million in the third quarter of 1994. The increase resulted
from the inclusion of Kendall, Charise Charles and PRN and depreciation and
amortization on new facilities and equipment.
Interest expense increased from $1.8 million in the third quarter of 1993 as
compared to $3 million in the third quarter of 1994. The average short-term
interest rate increased from 4.7% in 1993 to 6.0% in 1994. and the average
short-term borrowings outstanding increased from $93 million in the third
quarter of 1993 to $135 million in the third quarter of 1994. Funds received in
respect of working capital carrying costs are treated as a reduction of interest
expense in both periods.
The provision for income taxes represented 41.0% and 45.8% of earnings before
taxes in the third quarter of 1994 and 1993, respectively. IN 1993, the
Company's effective income tax rate was increased from 39.0% to 40.0% on an
annual basis to give effect to the one percentage point increase in the Federal
Statutory rate which was retroactive to January 1, 1993. The cumulative effect
of the tax increase on the Company's net deferred tax liabilities resulted in an
effective rate of 45.8% in the third quarter.
The $1.42 million write down of account receivable in the third quarter of 1993
relates to the writedown of the Company's receivable from Reliable.
The aforementioned comments regarding Kendall, Charise Charles and PRN should be
considered when comparing the nine months ended September 30, 1994 with the nine
months ended September 30, 1993.
Net sales for the nine months ended September 30, 1994 increased by 19% to
$2.916 billion reflecting increases in all of the Company's operating units, the
increase of $35 million related to Kendall and the incremental increase of $32
million related to Charise Charles and PRN sales. Gross margin for the nine
months of 1994 was 2.20% of net sales compared to 2.28% in 1993. The decrease
was the result of a reduction in the level of pharmaceutical manufacturer price
increases and competitive pressures in the market place.
Selling, general and administrative expenses for the first nine months increased
to $36.5 million from $31.8 million because of $1 million related to Kendall and
the incremental increase of approximately $1.43 million related to Charise
Charles and PRN, normal inflationary increases and costs to support the full-
line, full-service program of Bindley Western Drug Company.
Interest expense increased from $6.1 million in 1993 to $7.2 million in 1994.
The average short-term interest rate increased from 4.9% to 5.4% for 1993 and
1994, respectively. The average borrowings outstanding increased from $98
million in 1993 to $123 million in 1994. Funds received from customers in
respect of working capital carrying costs are treated as a reduction of interest
expense.
Liquidity-Capital Resources.
For the nine month period ended September 30, 1994, the Company's operations
consumed $73.7 million in cash. Operational cash was provided by the reduction
of accounts receivable by $16.2 million. However, operational cash was used by
the reduction of accounts payable and the increase in inventory by $75.4 million
and $31.5 million, respectively. The continuing emphasis on the direct-store
delivery business has required an increase in both net working capital and cash.
Capital expenditures, predominantly for the purchase of data processing
equipment, were $2.6 million during the period. Proceeds from the sale of
marketable securities during the period were $3.1 million.
Net proceeds under the bank line of credit agreement were $68 million during the
period. At September 30, 1994 the Company had borrowed $176 million under the
bank credit agreement and had a remaining availability of $24 million.
The Company believes that its cash on hand, cash equivalents, line of credit and
working capital management efforts are sufficient to meet future capital
requirements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
NONE
(B) REPORTS ON FORM 8-K
NONE
<PAGE>
SIGNATURE
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.
NOVEMBER 11, 1994 BINDLEY WESTERN INDUSTRIES, INC.
BY /S/ THOMAS J. SALENTINE
THOMAS J. SALENTINE
EXECUTIVE VICE PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)