UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT #1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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)
Registrant's telephone number, including area code: (317) 298-9900
Securities registered pursuant to Section 12(b) of the Act:
Common Stock ($.01 par value) New York Stock
Exchange
(Title of class)
(Name of exchange on which registered)
Securities registered pursuant to section 12(g) of the Act:
6-1/2% Convertible Subordinated Debentures
(Title of class)
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
$156,895,110
Aggregate market value of the voting stock held by nonaffiliates of the
registrant based on the last sale price for such stock at March 14, 1997
(assuming solely for the purposes of this calculation that all Directors and
Officers of the Registrant are "affiliates")
11,628,557
Number of shares of Common Stock outstanding as of March 14, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document have been incorporated by reference into this
annual report on Form 10-K:
IDENTITY OF DOCUMENT PARTS ON FORM 10-K INTO WHICH
DOCUMENT IS INCORPORATED
Proxy Statement to be filed for the
1997 Annual Meeting of Common
Shareholders
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The documents listed below are filed as a part of this report except as
otherwise indicated:
(a) 1. FINANCIAL STATEMENTS. The following described financial
statements, required to be filed by Item 8 and incorporated therein by reference
are set forth on pages F-1 through F-16.
Report of Independent Accountants 25
Statements of Earnings for each of the three years
in the period ended December 31, 1996 26
Balance Sheets as of December 31, 1996 and 1995 27
Statements of Cash Flows for each of the three years
in the period ended December 31, 1996 28
Statements of Shareholders' Equity for each of the
three years in the period ended December 31, 1996 29
Notes to Consolidated Financial Statements 30 to 43
(a) 2. FINANCIAL STATEMENT SCHEDULES. No financial statement schedules
are included as the information required by Rule 5-04 is not applicable, or is
not material.
(a) 3. EXHIBITS. The list of exhibits filed as part of this report is
incorporated herein by reference to the Index to Exhibits at Page 45.
(b) 4. No reports on Form 8-K were filed by the Registrant during the
last quarter covered by this report.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Bindley Western Industries, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) 1 on page 24 present fairly, in all material
respects, the financial position of Bindley Western Industries, Inc. and its
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Indianapolis, Indiana
February 28, 1997
CONSOLIDATED STATEMENTS OF
EARNINGS
BINDLEY WESTERN INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
<S> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
(In thousands, except share data)
Revenues:
Net sales $ 5,317,526 $ 4,670,153 $ 4,034,107
Other income 1,407 2,322 3,317
--------- --------- --------
5,318,933 4,672,475 4,037,424
Cost and expenses:
Cost of products sold 5,197,008 4,565,750 3,945,172
Selling, general and
administrative 70,531 62,555 50,279
Depreciation and amortization 6,719 6,279 5,813
Interest 12,992 10,127 11,185
Settlement of 1994 DEA
inspection matter 812
-------- -------- --------
5,288,062 4,644,711 4,012,449
Earnings before income taxes 30,871 27,764 24,975
---------- -------- --------
Provision for income taxes:
Current 14,896 13,944 11,800
Deferred (2,031) (2,561) (1,560)
--------- ---------- --------
12,865 11,383 10,240
Net earnings $ 18,006 $ 16,381 $ 14,735
Earnings per share:
Primary $ 1.52 $ 1.42 $ 1.34
Fully diluted 1.35 1.27 1.20
Average shares outstanding:
Primary 11,872,926 11,529,092 11,035,912
Fully diluted 15,372,519 15,042,597 14,539,770
(See accompanying notes to consolidated financial statements)
</TABLE>
CONSOLIDATED BALANCE SHEETS
BINDLEY WESTERN INDUSTRIES, INC.
AND SUBSIDIARIES
DECEMBER 31, 1996 1995
(In thousands, except share data)
ASSETS
Current assets:
Cash $ 63,658 $ 34,819
Accounts receivable, less
allowance for doubtful accounts of
$2,664 for 1996 and $3,057
for 1995 346,802 397,924
Finished goods inventory 431,816 332,054
Deferred income taxes 4,560 4,605
Other current assets 4,129 7,964
------- -------
850,965 777,366
Other assets 1,160 1,220
Fixed assets, at cost 71,915 59,468
Less: accumulated depreciation (19,935) (18,736)
------- -------
51,980 40,732
Intangibles 37,101 29,390
TOTAL ASSETS $941,206 $848,708
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings $52,000 $ 74,500
Accounts payable 555,034 491,844
Other current liabilities 9,288 7,025
------- -------
616,322 573,369
Long-term debt 99,766 69,473
Deferred income taxes 3,030 5,106
Shareholders' equity:
Common stock. $.01 par value-
authorized 30,000,000 shares;
issued 11,871,042 and
11,562,388 shares, respectively 3,316 3,313
Special shares, $.01 par value-
authorized 1,000,000 shares
Additional paid in capital 91,964 87,707
Retained earnings 129,958 112,890
------- -------
225,238 203,910
Less: 348,291 shares in
treasury-at cost (3,150) (3,150)
Total shareholders' equity 222,088 200,760
Commitments and contingencies
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 941,206 $ 848,708
(See accompanying notes to consolidated financial statements)
CONSOLIDATED STATEMENTS OF CASH FLOWS
BINDLEY WESTERN INDUSTRIES, INC.
AND SUBSIDIARIES
FOR YEARS ENDED DECEMBER 31, 1996 1995 1994
(In thousands)
Cash flow from operating activities:
Net income $18,006 $ 16,381 $ 14,735
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 6,719 6,279 5,813
Deferred income taxes (2,031) (2,561) (1,560)
Writedown of accounts receivable
Gain on sale of marketable
securities (96) (183)
Gain on sale of fixed assets (58) (27) (57)
Change in assets and liabilities,
net of acquisitions:
Accounts receivable 51,826 (78,183) 6,327
Finished goods inventory (99,713) 42,953 (46,987)
Accounts payable 63,106 85,781 6,876
Other current assets and
liabilities 6,097 (7,537) 2,849
------- ------- ------
Net cash provided (used) by
operating activities 43,952 62,990 (12,187)
Cash flow from investing activities:
Purchase of fixed assets and
other assets (15,581) (7,922) (3,575)
Proceeds from sale of fixed assets 59 597 491
Proceeds from sale ofinvestment
securities 1,299 3,793
Acquisition of businesses (9,064) (4,125) (10,361)
--------- -------- --------
Net cash used by investing
activities (24,586) (10,151) (9,652)
Cash flow from financing
activities:
Proceeds from sale of stock 4,260 5,058 717
Addition (reduction) of long-
term debt, net 28,651 12 (272)
Proceeds under line of
credit agreement 1,064,000 1,049,000 1,184,500
Payments under line of
credit agreement (1,086,500) (1,111,000) (1,156,000)
Dividends (938) (930) (919)
------ ------ ------
Net cash provided (used) by
financing activities 9,473 (57,860) 28,026
------- ------- -------
Net increase (decrease) in cash 28,839 (5,021) 6,187
Cash at beginning of year 34,819 39,840 33,653
------- ------- ------
Cash at end of year $ 63,658 $ 34,819 $ 39,840
(See accompanying notes to consolidated financial statements)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
BINDLEY WESTERN INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
Common Stock Treasury Stock
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONAL SHARE
SHARES SHARES PAID IN RETAINED HOLDERS
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL EARNINGS EQUITY
(In thousands, except share data)
Balances at December 31, 1993 11,120,934 $ 3,309 348,291 $ (3,150) $81,936 $83,623 $165,718
Net earnings 14,735 14,735
Dividends (919) (919)
Shares issued upon exercise of
stock options 44,060 1 521 522
Shares issued upon acquisition
of business 15,000 195 195
------- ------- ------- -------- ------ -------- ----
Balances at December 31, 1994 11,179,994 3,310 348,291 (3,150) 82,652 97,439 180,251
Net earnings 16,381 16,381
Dividends (930) (930)
Shares issued upon exercise of
stock options 382,394 3 5,055 5,058
------- ------- ------- -------- ----- -------- -------
Balances at December 31, 1995 11,562,388 3,313 348,291 (3,150) 87,707 112,890 200,760
Net earnings 18,006 18,006
Dividends (938) (938)
Shares issued upon exercise of
stock options 308,654 3 4,257 4,260
----------- ------ ------ --------- --------- --------- --------
Balances at December 31, 1996 11,871,042 $ 3,316 348,291 $ (3,150) $ 91,964 $ 129,958 $222,088
</TABLE>
(See accompanying notes to consolidated financial statements)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
MARKETABLE SECURITIES. The Company substantially liquidated its investments
in debt and equity securities in 1995. At December 31, 1994, all securities
owned by the Company were categorized as available for sale.
INVENTORIES. Inventories are stated on the basis of lower of cost or
market using the first-in, first-out (FIFO) method.
FIXED ASSETS. Depreciation is computed on the straight-line method for
financial reporting purposes. Accelerated methods are primarily used for income
tax purposes. Assets, valued at cost, are generally being depreciated over their
estimated useful lives as follows:
Estimated useful life (years)
Buildings and furnishings 5-35
Leasehold improvements 3-20
Transportation and other equipment 3-20
In the event facts and circumstances indicate an asset could be impaired,
an evaluation of the undiscounted estimated future cash flows is compared to the
asset's carrying amount to determine if a write-down is required.
DEBT ISSUE COSTS. Debt issue costs are amortized on a straight-line basis
over the life of the Convertible Subordinated Debentures (Debentures) and the
Senior Notes.
INTANGIBLES. The Company continually monitors its cost in excess of net
assets acquired (goodwill) and its other intangibles (customer lists and
covenants not to compete) to determine whether any impairment of these assets
has occurred. In making such determination, the Company evaluates the
performance, on an undiscounted basis, of the underlying businesses which gave
rise to such amounts. Goodwill is being amortized on the straight-line method
over periods not exceeding 40 years. Other intangibles are being amortized on
the straight-line method over six to 15 years.
EARNINGS PER SHARE. Primary earnings per share are computed based on the
average number of shares of common stock and equivalents outstanding during the
year. Common stock equivalents included in the computation represent shares
issuable upon assumed exercise of stock options which would have a dilutive
effect. Fully diluted earnings per share are computed based on the average
number of shares of common stock assumed to be outstanding during the year, as
if the Debentures had been converted into common stock and after giving effect
to the elimination of interest expense, net of tax benefit, applicable to the
Debentures.
INCOME TAXES. In accordance with the provisions of Statement of Accounting
Standards No. 109 "Accounting for Income Taxes," the Company accounts for income
taxes using the asset and liability method. The asset and liability method
requires the recognition of deferred tax assets and liabilities for expected
future tax consequences of temporary differences that currently exist between
the tax bases and financial reporting bases of the Company's assets and
liabilities.
USE OF ESTIMATES. The preparation of financial statements in accordance
with generally accepted accounting principles requires the use of estimates made
by management. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying values of cash, accounts
receivable, other current assets, short-term borrowings, accounts payable and
other current liabilities approximate their fair market values due to the short-
term maturity of these instruments. The fair market value of long term debt was
determined based on market quoted rates or was estimated using rates currently
available to the Company for debt with similar terms and maturities.
NEW ACCOUNTING STANDARDS. In June 1995, the FASB issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
lived Assets and for Long-lived Assets to Be Disposed of (SFAS 121), which
requires companies to review
long-lived assets and certain identifiable intangibles to be held, used or
disposed of, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company adopted
SFAS 121 in 1996, which did not have a significant effect on its financial
statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), which was
effective for transactions entered into in fiscal years beginning after December
15, 1995. The Company adopted SFAS 123 in 1996 and elected to continue to
measure stock based compensation using the intrinsic value based method of
accounting prescribed by APB Opinion 25, Accounting for Stock Issued to
Employees and accordingly, the Company did not recognize compensation cost in
the consolidated financial statements for options granted. The Company has
disclosed
pro forma financial information valuing stock-based compensation granted in 1995
and 1996 using the fair value based method of accounting. See Note 9 - Capital
Stock.
NOTE 2 - SHORT-TERM BORROWINGS
The Company's short-term bank line of credit was $270,000,000 as of
December 31,1996. The line was available, as necessary, for general corporate
purposes at rates based upon prevailing money market rates. At December 31,
1996, 1995 and 1994, the Company had borrowed on its short term line of credit
$52,000,000 at a rate of 6.4%, $74,500,000 at a rate of 6.9% and $136,500,000
at a rate of 6.9%, respectively.
No compensating balance is required on the line. Certain conditions
relating to the maintenance of working capital, net worth and corporate
existence have been imposed by the lenders.
A summary of 1996, 1995 and 1994 borrowings follows:
Maximum short-term Average Average
Year borrowings borrowings interest rate
(in thousands)
1996 $192,000 $118,655 6.4%
1995 $189,500 $104,465 7.1%
1994 $240,000 $142,275 5.9%
NOTE 3 - MARKETABLE SECURITIES AND INVESTMENT INCOME
The Company substantially liquidated its investments in debt and equity
securities in 1995. At December 31, 1994, all securities owned by the Company
were categorized as available for sale and had a maturity of five to ten years.
The proceeds on sales of securities of $1,047,000 in 1995 and $2,524,000 in
1994, approximated their amortized cost.
Other Income for 1996 was substantially all interest income. For 1995 and 1994,
the balance consisted of interest income of $2,194,000 and $3,076,000, dividends
of $32,000 and $1,000 and Realized gains of $96,000 and $240,000, respectively.
NOTE 4- FIXED ASSETS
DECEMBER 31, 1996 1995
(in thousands)
Land $ 2,919 $ 2,919
Buildings and furnishings 24,356 22,864
Leasehold improvements 2,307 2,556
Transportation and
other equipment 42,333 31,129
71,915 59,468
Less: Accumulated
depreciation (19,935) (18,736)
$ 51,980 $ 40,732
NOTE 5- INTANGIBLES
DECEMBER 31, 1996 1995
(in thousands)
Goodwill $ 35,009 $ 28,673
Accumulated amortization
(4,875) (3,931)
Goodwill, net 30,134 24,742
Other 13,664 10,136
Accumulated amortization (6,697) (5,488)
Other, net 6,967 4,648
Intangibles, net $ 37,101 $ 29,390
NOTE 6- INCOME TAXES
The provision for income taxes includes state income taxes of $2,113,000,
$1,925,000, and $1,850,000 in 1996, 1995 and 1994 , respectively.
The following table indicates the significant elements contributing to the
difference between the U.S. federal statutory tax rate and the effective tax
rate:
<TABLE>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996 1995 1994
Percentage of earnings before taxes:
U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local taxes on income, net of
federal income tax benefit 4.4% 4.5% 4.8%
Other 2.3% 1.5% 1.2%
Effective rate 41.7% 41.0% 41.0%
</TABLE>
Presented below are the significant elements of the net deferred tax
balance sheet accounts at December 31, 1996 and 1995:
Deferred tax assets: 1996 1995
Current:
Accounts receivable $4,857 $ 4,893
Inventories 902 677
Deferred compensation 428 234
Other, net 769 1,197
Subtotal 6,956 7,001
Long-term:
Acquired net operating loss benefits
482 539
Other, net 1,127 1,300
Subtotal 1,609 1,839
Total deferred tax assets $ 8,565 $ 8,840
Deferred tax liabilities:
Current:
Change in tax method for inventories $ 2,396 $ 2,396
Subtotal 2,396 2,396
Long-term:
Fixed assets $ 3,557 3,486
Change in tax method for inventories
2,396
Other, net 1,082 1,063
Subtotal 4,639 6,945
Total deferred tax liabilities $ 7,035 $ 9,341
During 1992, the Company adopted the FIFO method of valuing inventories for
tax purposes. Prior to 1992, the Company used the LIFO method of valuing
inventories for tax purposes. The transition rules allow for the Company to
implement this change in accounting for tax purposes on a pro-rata basis over
the years 1992 through 1997.
In connection with the acquisition of Goold, the Company acquired federal
net operating loss carryforwards of $2,318,468. Due to certain tax law
limitations, annual utilization of the carryforward is limited to $162,945. The
remaining tax loss carryforward at December 31, 1996 is $1,541,243. The
carryover period expires in 2006.
NOTE 7 - LONG-TERM DEBT
The primary components of long-term debt at December 31, 1996 are
$67,350,000 of Debentures and $30,000,000 of Senior Notes. The remaining
$2,416,000 is comprised of mortgage obligations, and certain other debt related
to the purchase of the IV One Companies and NIS.
On September 24, 1992 and October 20, 1992, the Company concluded a public
offering of $65,000,000 and $2,350,000, respectively, of Convertible
Subordinated Debentures, Due 2002, for approximately $65,565,000, net of
underwriting and other costs. The 6.50% Debentures are convertible at any time
prior to maturity into the Company's common stock at $19.825 per share. The
Company may redeem the Debentures at a decreasing premium after October 1, 1996.
The market value of the 6.50% Debentures, based upon the publicly quoted
rate, was $71,391,000 and $70,212,375 as of December 31, 1996 and December 31,
1995, respectively.
On December 27, 1996, the Company completed a private placement of $30
million Senior Notes due December 27, 1999 at an interest rate of 7.25%. The
Company estimates the fair market value at December 31, 1996 approximates the
principle amount based on the proximity of the issuance date to the fiscal year
end.
In 1995, the Company purchased its corporate offices from a partnership
controlled by the Company's principal shareholder at its fair market value of
$1,450,000. Prior to the purchase, the Company leased the building under a
capitalized lease with a minimum annual rental of $111,000 at an implicit rate
of 10.5%.
NOTE 8 - PROFIT SHARING PLAN
The Company and its subsidiaries maintain a qualified Profit Sharing Plan
("Profit Sharing Plan") for eligible employees. All employees are generally
eligible to participate in the Profit Sharing Plan as of the first January 1,
April 1, July 1 or October 1 after having completed at least one year of service
(as defined in the Profit Sharing Plan) and having reached age 21.
The annual contribution of the Company and its subsidiaries to the Profit
Sharing Plan is at the discretion of the Board and is generally 8% of the
Participant's compensation for the year. The employer contribution for a year
is allocated among the Participants employed on the last day of the year in
proportion to their relative compensation for the year.TheCompany's
contributions to the plan for the years ended December 31, 1995 and 1994 were
$1,165,550 and $933,600, respectively, and are estimated to be $1,334,572 for
the year ended December 31, 1996.
Subject to limitations imposed by the Internal Revenue Code, a Participant
may in addition to receiving a share of the employer contribution, have a whole
percentage (ranging from 1% to 13%) of his or her compensation withheld from pay
and contributed to the Profit Sharing Plan and make "rollover" contributions to
the Profit Sharing Plan of qualifying distributions from other employers'
qualified plans.
A Participant's interest in amounts withheld from his or her pay and
contributed to the Profit Sharing Plan or in rollover contributions and in the
earnings on those amounts are fully vested at all times. A Participant's
interest in employer contributions made on his or her behalf and the earnings on
those contributions become 20% vested after three years of service and an
additional 20% vested during each of the next four years. A Participant's
interest in employer contributions made on his or her behalf and the earnings on
those contributions will also become fully vested when the employee retires at
age 65 or older, dies or becomes totally disabled.
All contributions to the Profit Sharing Plan are paid in cash to an
Indianapolis bank, as trustee, and are invested by the trustee until distributed
to Participants or their beneficiaries. Participants are permitted to direct
the trustee as to the investment of their accounts by choosing among several
investment funds that are offered under the Profit Sharing Plan, including one
fund consisting of common stock of the Company. Participants may elect to
invest in one fund or a combination of the available funds according to their
investment goals. If a Participant does not make an investment election, his or
her Profit Sharing Plan accounts will be invested in a fund designated by the
Company.
NOTE 9 - CAPITAL STOCK
The Company's capitalization presently consists of 30,000,000 authorized
shares of Common Stock and 1,000,000 authorized shares of Special Stock. Both
the Common Stock and Special Stock have a $.01 par value per share.
Prior to May 20, 1993, the Company had a 1983 Incentive Stock Option Plan,
a 1983 Nonqualified Option Plan, and a 1987 Stock Option and Incentive Plan.
The number of shares available for issuance pursuant to such plans aggregated
2,500,000 shares. Incentive stock options, granted at a minimum of 100% of fair
market value, and nonqualified stock options, granted at a minimum of 85% of
fair market value, both exercisable for up to 10 years from the date of grant,
were authorized under such plans.
On May 20, 1993, the Company's shareholders approved the 1993 Stock Option
and Incentive Plan authorizing 1,000,000 shares of the Company's common stock
for sale or award to officers and key employees (including any such officer or
employee who holds at least 10% of the Company's common stock) as stock options
or restricted stock. No further awards will be made from the shares of common
stock that remained available for grants under prior stock option plans.
On May 19, 1994, the Company's shareholders approved amendments to the
Company's 1983 Incentive Stock Option Plan, the 1983 Nonqualified Stock Option
Plan, the 1987 Stock Option and Incentive Plan and the 1993 Stock Option and
Incentive Plan to permit the Company's Compensation and Stock Option Committee
of the Board of Directors ("Committee") to allow participants under these plans,
including the holders of outstanding options, to exercise an option during its
term following cessation of employment by reason of death, disability or
retirement. Such amendments also permitted the Committee, in its sole
discretion, to change the exercise and termination terms of options granted if
such changes are otherwise consistent with applicable federal and state laws.
In addition, the 1993 plan was amended to (i) increase from 1,000,000 to
1,500,000 the number of shares authorized for issuance pursuant to awards made
under the 1993 plan; (ii) limit to 100,000 shares the number of shares that any
one participant may receive under the 1993 plan during any calendar year; and
(iii) provide that the Board of Directors may amend the 1993 plan in any respect
without shareholder approval, unless such approval is required to comply with
Rule 16b-3 under the Securities Exchange Act of 1934 or Section 422 of the
Internal Revenue Code of 1986. On May 16 1996, the Company's shareholders
approved an amendment to the 1993 Stock Option and Incentive Plan to increase by
1,500,000 the number of shares authorized for issuance pursuant to awards made
under the 1993 plan.
In accordance with the provisions of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123), the Company has
elected to continue following Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations
in accounting for its stock option plans, and accordingly, generally does not
recognize compensation expense related to these options. If the Company had
elected to recognize compensation expense based on the fair value of the
options at the grant date as prescribed by SFAS 123, pro forma net income and
earnings would have been:
1996 1995
(In thousands, except share data)
Net earnings - as reported $ 18,006 $ 16,381
Net earnings - pro forma $ 16,019 $ 16,135
Earnings per share
Primary - as reported 1.52 1.42
Primary - pro forma 1.35 1.40
Fully diluted - as reported 1.35 1.27
Fully diluted - pro forma 1.21 1.25
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions for the years ended,
1996 1995
Risk free interest rates 6.05% 5.69%
Expected dividend yields .41% .41%
Expected life of options 4.60 4.58
Volatility of stock price 29.43% 32.26%
Weighted average fair value of options $ 6.20 $ 6.09
Compensation expense based on the fair value of options granted prior to
January 1, 1995 were not included in the preceding pro forma calculations.
Therefore, the resulting pro forma compensation cost may not be representative
of that to be expected in future years.
Changes in stock options under all plans are shown below:
NUMBER OF SHARES WEIGHTED AVERAGE
EXERCISE PRICE
Options outstanding
at December 31, 1993 2,016,204 $ 11.91
Forfeited during 1994 ( 51,200) $ 12.42
Granted during 1994 708,417 $ 13.21
Exercised during 1994 ( 43,950) $ 11.26
Options outstanding
at December 31, 1994 2,629,471 $ 12.26
Forfeited during 1995 (102,598) $ 13.12
Granted during 1995 647,300 $ 17.17
Exercised during 1995 (382,394) $ 11.34
Options outstanding
at December 31, 1995 2,791,779 $ 13.50
Forfeited during 1996 ( 56,600) $ 17.55
Granted during 1996 848,775 $ 18.01
Exercised during 1996 (308,654) $ 11.51
Options outstanding
at December 31, 1996 3,275,300 $ 14.78
Exercisable
at December 31, 1996 1,908,718
Available for grant
at December 31, 1996 344,106
In certain cases, the exercise of stock options results in state and
federal income tax deductions to the Company on the difference between the
market price at the date of exercise and the option price. The tax benefits
obtained from these deductions are included in additional paid in capital.
Additional information regarding options outstanding at December 31, 1996
are shown below:
<TABLE>
Exercise Price Range
<S> <C> <C> <C> <C>
$5.42 - $9.99 $10.25 -$16.75 $17.00 - $20.08 Total
Number of options
outstanding 321,850 1,419,975 1,533,475 3,275,300
Weighted average
exercise price $ 8.70 $ 12.87 $ 17.83 $ 14.78
Remaining contractual life
3.24 7.33 8.85 7.64
Number of shares
exercisable 321,850 1,044,642 542,226 1,908,718
Weighted average
exercisable price $ 8.70 $ 12.66 $ 17.38 $ 13.33
</TABLE>
NOTE 10 - COMMITMENTS
The Company leases warehouse and office space under noncancelable operating
leases expiring at various dates through 2001, with options to renew for various
periods. Minimum commitments under leases aggregate $1,675,000 for 1997,
$927,000 for 1998 and $394,000 for 1999, $383,000 for 2000 and 19,000 for 2001.
The consolidated rent expense for the years ended December 31, 1996, 1995
and 1994 was $1,519,919, $1,708,691 and $1,500,082 respectively, of which
approximately $208,728 in 1996, $76,875 in 1995 and $45,000 in 1994 pertained
to leases with terms of one year or less.
NOTE 11 - MAJOR CUSTOMERS
The Company services customers in 50 states and Puerto Rico from its 12
distribution centers located in nine states. Its principal customers are chain
drug companies that operate their own warehouses. Other customers include
independent drug stores, chain drug stores, hospitals, clinics, HMOs, state and
federal government agencies and other health care providers. The following
chain drug warehouse customers each accounted for over 10% of the Company's net
sales during the years shown: Eckerd Corporation (17%), Rite Aid Corporation
(14%) and Revco D.S., Inc. (12%) in 1996; Eckerd Corporation (19%), Rite Aid
Corporation (15%) and Revco D.S., Inc. (10%) in 1995; and Eckerd Corporation
(22%) and Rite Aid Corporation (11%) in 1994. Sales to these customers
aggregated 43%, 44% and 33% of net sales in 1996, 1995 and 1994 respectively.
The Company sells inventory to its chain drug warehouse and other customers on
various payment terms. This entails accounts receivable exposure, especially if
any of its chain warehouse 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 writedown of chain
drug accounts receivable in the future.
NOTE 12 - STATEMENT OF CASH FLOWS
Cash paid for interest expense and income taxes was as follows:
DECEMBER 31, 1996 1995 1994
(in thousands)
Interest $ 13,126 $ 13,395 $ 13,679
Income taxes $ 13,640 $ 16,469 $ 8,003
Presented below is a brief discussion of recent acquisitions by the Company.
The purchase price has been allocated based on a determination of the fair value
of the assets acquired and liabilities assumed. The goodwill associated with
these acquisitions is being amortized on a straight line basis not exceeding 40
years. All acquisitions were treated as purchases and the financial statements
include the results of operations from the respective effective date of
acquisition. Results of operations of the acquired companies from January 1 of
the year of acquisition to the effective dates of the transactions are not
material to the consolidated results of operations of the Company for the
respective years.
Effective July 1, 1994 and October 31, 1994, the Company purchased Kendall
Drug Co. (Kendall), a wholesale pharmaceutical distributor based in Shelby, NC
and 3C Medical, Inc. (3C), a distributor of hemodialysis products based in
Santa Ana, CA, respectively. The Company expended approximately $8.1 million
for the acquisition of Kendall which approximated the fair value of the net
assets acquired. The Company exchanged 15,000 shares of its common stock (market
value $195,000) and approximately $1.2 million in cash for 3C which exceeded the
fair value of the net assets acquired and resulted in approximately $1.1 million
of intangible assets.
Effective January 1, 1995, the Company purchased the IV One Companies (IV
One). IV One is 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.
The consideration exchanged for IV One was approximately $2.9 million which
exceeded the fair value of net assets acquired and resulted in approximately
$2.1 million of intangible assets.
In January, 1996, the Company formed a new subsidiary, National Infusion
Services, Inc.(NIS). Effective February 8, 1996, the Company through its NIS
subsidiary purchased the assets of the infusion services division of Infectious
Disease of Indiana P.S.C. NIS is a provider of quality care to patients in a
variety of settings. In February of 1997, the corporate name was changed from
NIS to Priority Healthcare Services Corporation (PHS). The Company acquired the
assets of NIS for approximately $9 million in cash and incurred a long-term
obligation of approximately $1.5 million, resulting in approximately $9.8
million in intangible assets.
NOTE 13 - LEGAL PROCEEDINGS
The Company is a defendant in a consolidated class action filed in the
United States District Court for the Northern District of Illinois in 1993 which
names the Company, five other pharmaceutical wholesalers and 26 pharmaceutical
manufacturers as defendants. Plaintiffs allege that pharmaceutical
manufacturers and wholesalers conspired to fix prices of brand-name prescription
drugs sold to retail pharmacies at artificially high levels in violation of the
federal antitrust laws. The plaintiffs seek injunctive relief, unspecified
treble damages, costs, interest and attorney's fees. The Company has denied the
complaint allegations.
In April, 1996, the Court granted the wholesalers motion for summary
judgment and dismissed the wholesaler defendants, including the Company, from
the action finding that there was no evidence in the record that the wholesaler
defendants had conspired with the pharmaceutical manufacturer defendants. The
class action plaintiffs have appealed this decision to the U.S. Court of Appeals
for the Seventh Circuit. The appellate court has not issued a briefing or
hearing schedule as of this time. The trial court on January 30, 1997 denied
the plaintiffs motion under Fed. R. Civ. P. 60(b) to reopen the summary judgment
issues involving the wholesaler defendants.
A majority of the manufacturer defendants and the class plaintiffs have
reached a settlement agreement, which was approved by the Court. The decision
approving the settlement agreement has also been appealed to the Seventh
Circuit.
On July 1, 1996, the Company and several other wholesalers were joined as
the defendants in a seventh amended and restated complaint filed in the Circuit
Court of Greene County, Alabama, Durrett v. The Upjohn Company, civil action
no. 94-029. The case was first filed in 1994. The plaintiffs claim the prices
of prescription drugs they purchase in interstate commerce are artificially high
because of alleged illegal activities of the defendant pharmaceutical
manufacturers and wholesalers. The plaintiffs seek monetary damages, injunctive
relief and punitive damages. The Company has denied the allegations of the
complaint.
Defendants filed motions to dismiss and for judgment on the pleadings
arguing that the Alabama Antitrust Statute applies only to intrastate commerce.
The trial court denied defendants' motion and defendants have appealed the issue
to the Alabama Supreme Court, which accepted the appeal on February 7, 1997. In
addition, plaintiffs' motion for class certification is pending before trial
court.
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: (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 the plaintiffs in these cases. The
agreement covers the federal court litigation as well as cases which have been
filed in various state courts.
The Company is unable to form a reasonably reliable conclusion regarding
the likelihood of a favorable or unfavorable outcome of these cases. As
confirmed by the Federal Court's decision, the Company believes the allegations
of liability are without merit with regard to the wholesaler defendants and that
the attendant liability of the Company, if any, would not have a material
adverse effect on the Company's financial condition or liquidity. Adverse
decisions, although not anticipated, could have an adverse material effect on
the Company's results of operations.
On October 7, 1996, the Company and its indirect subsidiary, National
Infusion Services, ("NIS"), were named as defendants in an action filed by
Thomas G. Slama, M.D. in the Superior Court of Hamilton County, Indiana which is
now pending in that Court as Cause No. 29D03-9702-CP-81. Dr. Slama is a
director of the Company and formerly was Chief Executive Officer and President
of NIS. The complaint alleges breach of contract and defamation arising from
the termination of Dr. Slama's employment with NIS in October 1996, and seeks
damages in excess of $3.4 million, punitive damages, attorneys fees and costs.
The Company and NIS believe Dr. Slama terminated his employment without "cause"
(as defined in his employment agreement), and alternatively, that NIS had
grounds to terminate Dr. Slama for "cause" under his employment agreement. The
Company and NIS have answered the complaint, denying the merits of Dr. Slama's
claims, and have also filed a counterclaim against Dr. Slama seeking, among
other things, declaratory relief, compensatory and (in some instances) treble
damages, punitive damages, attorneys' fees, interest and costs. The Company and
NIS are contesting Dr. Slama's complaint and pursuing their counterclaim
vigorously. Although the outcome of any litigation is uncertain, the Company
believes after consultation with its counsel that the attendant liability of
the Company, if any, should not have a material adverse effect on the Company's
financial condition or liquidity. An adverse decision, although not
anticipated, could have a material effect on the Company's results of
operations.
On January 11, 1996, the Company was informed by the U.S. Attorney's office
in Indianapolis that the Drug Enforcement Administration ("DEA") was alleging
multiple violations of the recordkeeping and reporting regulations of the
Controlled Substances Act ("Act") resulting from a routine inspection of the
Company's Indianapolis Distribution Center during January and February 1994. On
November 7, 1996, the Company entered into a Civil Consent Decree with the
United States and the DEA resolving all issues relating to its Indianapolis
Distribution Center's alleged failure to comply with the Act. In exchange for
the settlement of all civil and administrative issues, the Company paid
$700,000, and agreed to pay an additional $300,000 if the Company does not
substantially comply with the terms of the Civil Consent Decree over the next
two years. The Company does not believe the amount of the settlement will
exceed the charge recognized by the Company in 1996, which included estimated
related professional fees of $112,000.
NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
The following table presents the quarterly financial data for 1996 and 1995.
<S> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(in thousands, except per share data)
1996
Net sales $1,188,988 $1,217,896 $1,336,265 $1,574,377
Gross margin 29,426 30,008 29,649 31,435
Net earnings 4,604 4,060 4,213 5,129
Earnings per share:
Primary $ .39 $ .34 $ .35 $ .43
Fully Diluted .35 .31 .32 .37
1995
Net sales $1,113,717 $1,126,260 $1,121,533 $1,308,643
Gross margin 27,008 26,020 24,041 27,335
Net earnings 4,196 4,201 3,547 4,436
Earnings per share:
Primary $ .37 $ .37 $ .31 $ .38
Fully Diluted .33 .33 .28 .34
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
OCTOBER 13, 1997 BINDLEY WESTERN INDUSTRIES, INC.
By /s/ Thomas J. Salentine
THOMAS J. SALENTINE
EXECUTIVE VICE PRESIDENT
(PRINCIPAL FINANCIAL OFFICER)
