UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 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)
(Zip Code)
(317) 298-9900
(Registrant's telephone number,
including area code)
No Change
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No _________
The number of shares of Common Stock outstanding as of September 30, 1995 was
11,133,103.
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)
<TABLE>
<CAPTION>
Nine-month period ended Three-month period ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 3,361,510 $ 2,916,445 $1,121,533 $1,012,641
Other income 1,820 1,976 816 656
3,363,330 2,918,421 1,122,349 1,013,297
Cost and expenses:
Cost of products sold 3,284,442 2,852,142 1,097,492 989,992
Selling, general and administrative 46,390 36,541 15,342 13,106
Depreciation and amortization 4,665 4,367 1,465 1,535
Interest 7,588 7,227 2,038 2,989
3,343,085 2,900,277 1,116,337 1,007,622
Earnings before income taxes 20,245 18,144 6,012 5,675
Provision for income taxes:
Current 10,100 9,239 3,065 2,927
Deferred (1,800) (1,800) (600) (600)
8,300 7,439 2,465 2,327
Net earnings $ 11,945 $ 10,705 $ 3,547 $ 3,348
Earnings per share:
Primary $ 1.04 $ 0.97 $ 0.31 $ 0.30
Fully diluted $ 0.92 $ 0.87 $ 0.28 $ 0.28
Average shares outstanding:
Primary 11,504,237 11,028,998 11,566,585 11,033,233
Fully diluted 15,142,825 14,558,179 15,205,173 14,562,414
(See accompanying notes to consolidated financial statements)
</TABLE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000's omitted except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash $ 24,943 $ 39,840
Short-term investments - 1,024
Accounts receivable, less allowance for doubtful
accounts of $2,277 for 1995 and $2,377 for 1994 305,122 318,344
Finished goods inventory 283,756 374,557
Other current assets 4,572 2,922
618,393 736,687
Other assets 1,396 1,430
Fixed assets, at cost 60,173 53,983
Less: accumulated depreciation (18,856) (16,250)
41,317 37,733
Intangibles 29,208 27,597
TOTAL ASSETS $ 690,314 $ 803,447
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 110,500 $ 136,500
Accounts payable 309,122 404,813
Deferred income taxes (3,574) (3,542)
Other current liabilities 5,700 9,360
421,748 547,131
Long-term debt 68,842 69,461
Deferred income taxes 4,834 6,604
Shareholders' equity:
Common stock, $.01 par value authorized 30,000,000 shares;
issued 11,481,394 and 11,179,994 shares, respectively 3,313 3,310
Special shares, $.01 par value-authorized 1,000,000 shares
Additional paid in capital 86,039 82,652
Retained earnings 108,688 97,439
198,040 183,401
Less: 348,291 shares in treasury-at cost (3,150) (3,150)
Total shareholders' equity 194,890 180,251
Commitments and contingencies
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 690,314 $ 803,447
(See accompanying notes to consolidated financial statements)
</TABLE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted except share data)
(unaudited)
<TABLE>
<CAPTION>
Nine-month period ended
September 30,
1995 1994
<S> <C> <C>
Cash flow from operating activities:
Net income $ 11,945 $ 10,705
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 4,665 4,368
Deferred income taxes (1,800) (1,800)
Loss (gain) on sale of marketable securities (96)
Loss (gain) on sale of fixed assets (56) (17)
Change in assets and liabilities,
net of acquisition:
Accounts receivable 14,621 16,228
Finished goods inventory 91,251 (31,492)
Accounts payable (96,941) (75,473)
Other current assets and liabilities (5,773) 3,735
Net cash provided (used) by
operating activities 17,816 (73,746)
Cash flow from investing activities:
Purchase of fixed assets and other assets (7,181) (2,647)
Proceeds from sale of fixed assets 373 133
Proceeds from sale of investment securities 1,298 3,113
Acquisition of business (3,279) (497)
Net cash provided (used) by
investing activities (8,789) 102
Cash flow from financing activities:
Proceeds from sale of stock 3,390 205
Reduction in long term debt (619) (277)
Proceeds under line of credit agreement 775,500 957,500
Payments under line of credit agreement (801,500) (889,500)
Dividends (695) (690)
Net cash provided (used) by
financing activities (23,924) 67,238
Net increase (decrease) in cash (14,897) (6,406)
Cash at beginning of period 39,840 33,653
Cash at end of period $ 24,943 $ 27,247
(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 and nine
month periods ended September 30, 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 are
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 purchased all
of the outstanding stock of the IV-One Companies for approximately
$2.2 million. The purchase price exceeded the fair value of the net
assets acquired and resulted in approximately $1.45 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 completed and, on November 9, 1995,
the wholesaler defendants filed a joint motion for summary judgment.
The trial of the cases has been rescheduled for April 1, 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 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 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. On
July, 11, 1995, the Company was informed by plaintiffs' counsel that
the Company would be dismissed as a defendant in their complaint.
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 consists primarily of the businesses formerly operated as Charise
Charles, PRN Medical, 3C Medical (3C) and the IV-One Companies (IV-One).
The Company's wholly owned subsidiary, PHC, acquired 3C Medical, a
distributor of hemodialysis products effective October 31, 1994. 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 are 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 acquired
companies had sales of $4.6 million for the third quarter ended September 30,
1995.
Net sales for the third quarter increased by 11% from $1.01 billion in 1994
to $1.12 billion, 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 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 16% over 1994.
Gross margin of $24.0 million in the third quarter of 1995 increased by 6%
over the third quarter 1994. The increase resulted from the overall increase in
net sales and growth in the alternate care and direct store delivery business.
The overall gross margin as a percentage of sales decreased in the third quarter
due to continuing competitive selling pressures and the timing of forward
purchasing opportunities, partially offset by the continued change in the sales
mix to the higher margin alternate care and direct store delivery business.
The increase in other income resulted from gains realized on the
liquidation of investments partially offset by a decrease in service fee income
on certain customer receivable balances.
Selling, general and administrative expenses increased from $13.1 million
in the third quarter of 1994 to $15.3 million in the third quarter of 1995. The
increase in the third quarter of 1995 included approximately $1.7 million
relating to the acquired companies. The remainder of the increase was related to
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.
Interest expense decreased from $3 million in the third quarter of 1994 to
$2 million in the third quarter of 1995. The Company had average short-term
borrowings under the bank credit agreement of $135 million at an average short-
term interest rate of 6.0% in the third quarter of 1994. For the third quarter
of 1995, the average short-term borrowings were $77 million at an average short-
term interest rate of 6.98%. 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 third quarter of 1995 and 1994.
The aforementioned comments regarding acquisitions should be considered
when comparing the nine months ended September 30, 1995 with the nine months
ended September 30, 1994. In addition, the Company acquired Kendall Drug
Company (Kendall), a wholesale pharmaceutical distributor, effective July 1,
1994. Therefore, the nine month periods ended September 30, 1995 and 1994
include Kendall activity for nine months and three months, respectively.
Net sales for the nine months ended September 30, 1994 increased by 15% to
$3.362 billion reflecting increases in all of the Company's operating units and
the increase of $123 million of Kendall, IV-One and 3C sales. Gross margin for
the nine months of 1994 was 2.20% of net sales compared to 2.29% in 1995. The
increase resulted from the overall increase in net sales and growth in the
higher margin alternate care and direct store delivery business. These
increases continue to be countered by ongoing competitive pressures in the
marketplace.
Selling, general and administrative expenses for the first nine months
increased to $46.4 million from $36.5 million. This includes an increase of
$4.2 million related to the acquired companies. The remainder of the increase
was related to 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.
Interest expense increased from $7.2 million in 1994 to $7.6 million in
1995. The average short-term interest rate increased from 5.4% to 7.1% for 1994
and 1995, respectively. The average borrowings outstanding decreased from $123
million for 1994 to $104 million in 1995. Funds received from customers in
respect of working capital carrying costs are treated as a reduction of interest
expense.
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 such 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 continues 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 nine month period ended September 30, 1995, the Company's
operations generated $17.8 million in cash. Decreases in accounts receivable
and inventories during the period provided $15 million and $91 million,
respectively. Decreases in accounts payable consumed $97 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 increased amounts of both net
working capital and cash.
Capital expenditures, predominantly for the expansion and automation of
existing warehouses and the investment in additional management information
systems were $7.2 million during the period. 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 $3.3 million.
The net decrease in borrowings under the bank credit agreement was $26
million during the period. At September 30, 1995 the Company had borrowed
$110.5 million under the bank credit agreement and had a remaining availability
of $139.5 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.
November 10, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 24,943
<SECURITIES> 0
<RECEIVABLES> 305,122
<ALLOWANCES> 2,277
<INVENTORY> 283,756
<CURRENT-ASSETS> 618,393
<PP&E> 60,173
<DEPRECIATION> 18,856
<TOTAL-ASSETS> 690,314
<CURRENT-LIABILITIES> 421,748
<BONDS> 68,842
<COMMON> 3,313
0
0
<OTHER-SE> 191,577
<TOTAL-LIABILITY-AND-EQUITY> 690,314
<SALES> 3,361,510
<TOTAL-REVENUES> 3,363,330
<CGS> 3,284,442
<TOTAL-COSTS> 3,343,085
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,784
<INTEREST-EXPENSE> 7,588
<INCOME-PRETAX> 20,245
<INCOME-TAX> 8,300
<INCOME-CONTINUING> 11,945
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,945
<EPS-PRIMARY> 1.04
<EPS-DILUTED> .92
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