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 March 31, 1995
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 March 31, 1995 was
10,872,703.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(000's omitted except share data)
(unaudited)
<CAPTION>
Three-month period ended
March 31,
1995 1994
<S> <C> <C>
Revenues:
Net sales $ 1,113,717 $ 916,839
Other income 534 652
1,114,251 917,491
Cost and expenses:
Cost of products sold 1,086,709 896,020
Selling, general and administrative 15,672 11,534
Depreciation and amortization 1,572 1,405
Interest 3,186 2,396
1,107,139 911,355
Earnings before income taxes 7,112 6,136
Provision for income taxes:
Current 3,516 3,116
Deferred (600) (600)
2,916 2,516
Net earnings $ 4,196 $ 3,620
Earnings per share:
Primary $ 0.37 $ 0.33
Fully diluted $ 0.33 $ 0.30
Average shares outstanding:
Primary 11,357,767 11,056,603
Fully diluted 14,886,240 14,453,828
(See accompanying notes to consolidated financial statements)
</TABLE>
<TABLE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000's omitted except share data)
(unaudited)
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash $ 41,946 $ 39,840
Short-term investments 696 1,024
Accounts receivable, less allowance for doubtful
accounts of $2,394 for 1995 and $2,455 for 1994 310,845 318,344
Finished goods inventory 270,801 374,557
Other current assets 9,057 2,922
633,345 736,687
Other assets 1,482 1,430
Fixed assets, at cost 55,886 53,983
Less: accumulated depreciation (17,550) (16,250)
38,336 37,733
Intangibles 29,868 27,597
TOTAL ASSETS $ 703,031 $ 803,447
LIABILITES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 105,500 $ 136,500
Accounts payable 333,283 404,813
Deferred income taxes (3,573) (3,542)
Other current liabilities 7,746 9,360
442,956 547,131
Long-term debt 69,345 69,461
Deferred income taxes 6,034 6,604
Shareholders' equity:
Common stock, $.01 par value authorized 30,000,000 shares;
issued 11,220,994 and 11,179,994 shares, respectively 3,310 3,310
Special shares, $.01 par value-authorized 1,000,000 shares
Additional paid in capital 83,137 82,652
Retained earnings 101,399 97,439
187,846 183,401
Less: 348,291 shares in treasury-at cost (3,150) (3,150)
Total shareholders' equity 184,696 180,251
Commitments and contingencies
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 703,031 $ 803,447 $
(See accompanying notes to consolidated financial statements)
</TABLE>
<TABLE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted except share data)
(unaudited)
<CAPTION>
Three-month period ended
March 31,
1995 1994
<S> <C> <C>
Cash flow from operating activities:
Net income $ 4,196 $ 3,620
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 1,572 1,405
Deferred income taxes (600) (600)
Loss (gain) on sale of marketable securities (47)
Loss (gain) on sale of fixed assets (6)
Change in assets and liabilities,
net of acquisition:
Accounts receivable 9,113 7,004
Finished goods inventory 104,206 87,699
Accounts payable (72,780) (114,800)
Other current assets and liabilities (8,247) 2,205
Net cash provided (used) by
operating activities 37,413 (13,473)
Cash flow from investing activities:
Purchase of fixed assets and other assets (1,604) (820)
Proceeds from sale of fixed assets 21
Proceeds from sale of investment securities 376 2,147
Acquisition of business (3,212)
Net cash provided (used) by
investing activities (4,440) 1,348
Cash flow from financing activities:
Proceeds from sale of stock 485 146
Reduction in long term debt (116) (93)
Proceeds under line of credit agreement 235,000 310,500
Payments under line of credit agreement (266,000) (312,000)
Dividends (236) (231)
Net cash provided (used) by
financing activities (30,867) (1,678)
Net increase (decrease) in cash 2,106 (13,803)
Cash at beginning of period 39,840 33,652
Cash at end of period $ 41,946 $ 19,849
(See accompanying notes to consolidated financial statements)
</TABLE>
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 month
periods ended March 31, 1995 and 1994 include all necessary
adjustments for fair presentation. Results for any interim period may
not be indicative of the results of the entire year.
2. Effective January 1, 1995, the Company, through its Priority
Healthcare Corporation subsidiary, acquired all of the outstanding
stock of the IV-One Companies. The IV-One Companies are comprised of
IV-1, Inc., IV-One Services, Inc., and National Pharmacy Providers,
Inc. These companies focus on high acuity specialty pharmacy services
for patients requiring home and ambulatory infusion therapy and will
be operated as subsidiaries of Priority Healthcare Corporation from
Altamonte Springs, Florida.
The acquisition was accounted for as a purchase and, accordingly, the
1995 financial statements include the results of operations of the IV-
One Companies from the date of acquisition. The Company exchanged
approximately $2.2 million for all of the outstanding stock of the IV-
One Companies which exceeded the fair value of the net assets acquired
and resulted in approximately $1.42 million of intangible assets.
3. The Company is a defendant in a consolidated class action complaint
filed in the United States District Court for the Northern District of
Illinois which names the Company, five other pharmaceutical
wholesalers, and 26 pharmaceutical manufacturers as defendants.
Plaintiffs allege that chargeback agreements between pharmaceutical
manufacturers and wholesalers are the result of price-fixing
agreements in violation of the federal antitrust laws. The plaintiffs
seek injunctive relief, unspecified treble damages, costs, interest,
and attorneys fees. On November 15, 1994, plaintiffs' motion for
class certification was granted, and the certified class consists of
all persons or entities who purchased from the manufacturer or
wholesaler defendants from October 15, 1989 to the present, with the
exception of other manufacturers, other wholesalers, governmental
entities, mail order pharmacies, HMOs, hospitals, clinics, and nursing
homes. Discovery in the case is proceeding, and trial of the matter
is currently set for February 5, 1996. On October 21, 1994, the
Company entered into 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 Bindley Western is limited to
$1,000,000; (b) if a settlement is entered into by, between, and among
the manufacturer and wholesaler defendants, Bindley Western 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 the plaintiffs in
these cases. The agreement covers the federal court litigation as
well as cases which have been filed in various state courts.
On March 17, 1995, the Company was served a complaint that was filed
in the United States District Court for the Eastern District of
Arkansas by 148 independent pharmacies. The complaint names the
manufacturer and wholesaler defendants in the consolidated action plus
a number of regional wholesalers which sell pharmaceutical drugs in
Arkansas. No responsive pleadings have been filed at this time. If
the case goes forward, there is a reasonable likelihood that it will
be consolidated with the other cases already pending in the Northern
District of Illinois.
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.
4. On February 22, 1995, Pic `N Save, a 32 store chain based in
Jacksonville, Florida, filed a petition for reorganization under the
federal Bankruptcy Code. As of the date of filing, Pic `N Save was
indebted to the Company in an amount approximating $3.46 million.
During 1994, the Company's sales to Pic `N Save approximated $25
million. The Company is continuing to sell to Pic `N Save on a cash
basis.
Based on the most recent analysis of Pic `N Save's financial
condition, management believes that any uncollectible amounts would
not be material to the Company's financial position or cash flows.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations.
On June 23, 1994 the Company formed a new wholly owned subsidiary, Priority
Healthcare Corporation (PHC), to develop business opportunities in both the
provider and supplier markets. The new company is based in Altamonte Springs,
Florida and incorporates Charise Charles, PRN Medical, 3C Medical (3C) and the
IV-One Companies (IV-One).
The Company acquired Kendall Drug Company (Kendall), a wholesale
pharmaceutical distributor, effective July 1, 1994. Effective October 31, 1994,
the Company's wholly owned subsidiary, PHC, acquired 3C Medical, a distributor
of hemodialysis products. Effective January 1, 1995, the Company, through PHC,
acquired all of the outstanding stock of IV-One in a cash transaction. The IV-
One Companies are comprised of IV-1, Inc., IV-One Services, Inc., and National
Pharmacy Providers, Inc. These companies focus on high acuity specialty
pharmacy services for patients requiring home and ambulatory infusion therapy
and will be operated as subsidiaries of PHC. The results of operations for the
acquired companies are included in the Company's financial statements from the
date of acquisition. The first quarter ended March 31, 1995 included $47.1
million of acquired companies' sales.
Net sales for the first quarter increased by 21% from $917 million in 1994
to $1,114 million, principally as a result of volume increases, although overall
price changes in the industry accounted for approximately 4%. The increase
reflected the aforementioned inclusion of IV-One, Kendall and 3C and strength in
most of the Company's operating units, especially the direct store delivery
segment. For the 1995 quarter, direct store delivery sales were approximately
32% of total net sales and represented an increase of 38% over 1994.
Gross margin of $27.0 million in 1995 increased by 30% over 1994. The
increase resulted from the overall increase in net sales and growth in the
higher margin alternate care and direct store delivery business. This growth
increased gross margin as a percent of net sales from 2.27% in 1994 to 2.43% in
1995. The level of pharmaceutical manufacturer price increases remained
relatively constant, resulting in approximately the same level of forward
purchasing opportunities as 1994. In addition, there continues to be significant
competitive selling pressure in the marketplace.
The decrease in other income resulted from the liquidation of income
producing investments and a decrease in service fee income on certain customer
receivable balances.
Selling, general and administration expenses increased from $11.5 million
in 1994 to $15.7 million in 1995. The increase in 1995 included approximately
$1.7 million for the acquired companies. The remainder of the increase was
related to consolidation efforts, the assimilation of recent acquisitions,
normal inflationary increases, and costs to support the growing direct store
delivery program of Bindley Western Drug Company and the alternate care business
of PHC. The cost increases related to the direct store delivery and the
alternate care programs include, among others, delivery expenses, warehouse
supplies and warehouse labor costs, all of which are variable with the level of
sales volume. Although sales and marketing expenses are also variable with the
level of sales volume, they are relatively insignificant. Continuing increases
in direct store delivery and alternate care sales will result in continuing
increases in selling, general and administrative expenses.
Depreciation and amortization increased from $1.4 million in 1994 to $1.6
million in 1995 as a result of depreciation and amortization on new facilities
and equipment.
Interest expense increased from $2.4 million in 1994 to $3.2 million in
1995. The average short-term borrowings outstanding increased from $129 million
in 1994 to $149 million in 1995 and the average short-term interest rate
increased from 4.9% in 1994 to 7.2% in 1995. Funds received from customers in
respect of working capital carrying cost are treated as a reduction of interest
expense.
The provision for income taxes represented 41.0% of earnings before taxes
in the first quarter of 1995 and 1994.
On February 22, 1995, Pic `N Save, a 32 store chain based in Jacksonville,
Florida, filed a petition for reorganization under the federal Bankruptcy Code.
As of the date of filing, Pic `N Save was indebted to the Company in an amount
approximating $3.46 million. During 1994, the Company's sales to Pic `N Save
approximated $25 million. The Company is continuing to sell to Pic `N Save on a
cash basis.
Based on the most recent analysis of Pic `N Save's financial condition,
management believes that any uncollectible amounts would not be material to the
Company's financial position or cash flows.
LIQUIDITY-CAPITAL RESOURCES.
For the three month period ended March 31, 1995, the Company's operations
generated $37.4 million in cash. Decreases in accounts receivable and
inventories during the period provided $9 million and $104 million,
respectively. Decreases in accounts payable consumed $73 million. The Company
continues to closely monitor working capital in relation to economic and
competitive conditions. However, the emphasis on direct-store delivery and
alternate care business will continue to require both net working capital and
cash.
Capital expenditures, predominantly for the expansion of the warehouse at
the Kendall division, were $1.6 million during the quarter. Amounts paid to
acquire the stock of the IV-One Companies and to satisfy amounts owed pursuant
to a prior year acquisition agreement totaled approximately $3.2 million in the
quarter.
The net decrease in borrowings under the bank credit agreement was $31
million during the period. At March 31, 1995 the Company had borrowed $105.5
million under the bank credit agreement and had a remaining availability of
$144.5 million.
The Company believes that its cash on hand, cash equivalents, line of
credit and working capital management efforts are sufficient to meet future
working capital requirements.
The Company's principal working capital needs are for inventory and
accounts receivable. The Company sells inventory to its chain drug warehouse
and other customers on various payment terms. This requires significant working
capital to finance inventory purchases and entails accounts receivable exposure
in the event any of its chain warehouse or other significant customers encounter
financial difficulties. Although the Company monitors closely the
creditworthiness of its major customers and, when feasible, obtains security
interests in the inventory sold, there can be no assurance that the Company will
not incur the write off or write down of chain warehouse or other significant
accounts receivable in the future.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Selected Financial Data Schedule per Item
601 (c) (1) (ii) of Regulation S-B and S-K
(b) Reports on Form 8-K
None
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.
May 9, 1995 BINDLEY WESTERN INDUSTRIES, INC.
BY /s/ Thomas J. Salentine
Thomas J. Salentine
Executive Vice President
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 41,946
<SECURITIES> 696
<RECEIVABLES> 310,845
<ALLOWANCES> 2,394
<INVENTORY> 270,801
<CURRENT-ASSETS> 633,345
<PP&E> 55,886
<DEPRECIATION> 17,550
<TOTAL-ASSETS> 703,031
<CURRENT-LIABILITIES> 442,956
<BONDS> 69,345
<COMMON> 3,310
0
0
<OTHER-SE> 181,386
<TOTAL-LIABILITY-AND-EQUITY> 703,031
<SALES> 1,113,717
<TOTAL-REVENUES> 114,251
<CGS> 1,086,709
<TOTAL-COSTS> 1,107,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,174
<INTEREST-EXPENSE> 3,186
<INCOME-PRETAX> 7,112
<INCOME-TAX> 2,916
<INCOME-CONTINUING> 4,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,196
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.33
</TABLE>
