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 March 31, 1997
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 March 31, 1997 was
11,630,057.
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>
Three-month period ended
March 31,
1997 1996
<S> <C> <C>
Revenues:
Net sales from stock $ 634,624 $ 479,238
Net brokerage sales 1,000,039 709,750
Total net sales 1,634,663 1,188,988
Other income 396 364
1,635,059 1,189,352
Cost and expenses:
Cost of products sold 1,601,832 1,159,562
Selling, general and administrative 18,634 17,081
Depreciation and amortization 1,814 1,634
Interest 3,468 3,271
1,625,748 1,181,548
Earnings before income taxes 9,311 7,804
Provision for income taxes 3,790 3,200
Net earnings $ 5,521 $ 4,604
Earnings per share:
Primary $ 0.46 $ 0.39
Fully diluted $ 0.40 $ 0.35
Average shares outstanding:
Primary 12,113,719 11,850,074
Fully diluted 15,610,404 15,247,299
</TABLE>
(See accompanying notes to consolidated financial statements)
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000's omitted except share data)
(unaudited)
<TABLE>
March 31, December 31,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash $ 40,629 $ 63,658
Accounts receivable, less allowance for doubtful
accounts of $3,584 for 1997 and $2,664 for 1996 466,671 346,802
Finished goods inventory 358,378 431,816
Deferred income taxes 4,560 4,560
Other current assets 4,260 4,129
874,498 850,965
Other assets 1,116 1,160
Fixed assets, at cost 74,297 71,915
Less: accumulated depreciation (20,760) (19,935)
53,537 51,980
Intangibles 36,599 37,101
TOTAL ASSETS $ 965,750 $ 941,206
LIABILITES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 164,500 $ 52,000
Accounts payable 461,545 555,034
Other current liabilities 8,998 9,288
635,043 616,322
Long-term debt 99,773 99,766
Deferred income taxes 2,430 3,030
Shareholders' equity:
Common stock, $.01 par value authorized 30,000,000 shares;
issued 11,992,979 and 11,871,042 shares, respectively 3,318 3,316
Special shares, $.01 par value-authorized 1,000,000 shares
Additional paid in capital 93,366 91,964
Retained earnings 135,246 129,958
231,930 225,238
Less: shares in treasury-at cost
362,922 and 348,291 shares, respectively (3,426) (3,150)
Total shareholders' equity 228,504 222,088
Commitments and contingencies
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 965,750 $ 941,206
</TABLE>
(See accompanying notes to consolidated financial statements)
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted except share data)
(unaudited)
<TABLE>
Three-month period ended
March 31,
1997 1996
<S> <C> <C>
Cash flow from operating activities:
Net income $ 5,521 $ 4,604
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 1,814 1,634
Deferred income taxes (600) (600)
Gain on sale of fixed assets (38) (7)
Change in assets and liabilities,
net of acquisition:
Accounts receivable (119,869) 77,356
Finished goods inventory 73,438 29,078
Accounts payable (92,889) (126,497)
Other current assets and liabilities (1,021) (2,177)
Net cash used by operating activities (133,644) (16,609)
Cash flow from investing activities:
Purchase of fixed assets and other assets (2,843) (12,392)
Proceeds from sale of fixed assets 56 7
Acquisition of business (9,030)
Net cash used by investing activities (2,787) (21,415)
Cash flow from financing activities:
Proceeds from sale of stock 1,404 1,495
Addition (reduction) in long term debt 7 (131)
Proceeds under line of credit agreement 365,000 305,000
Payments under line of credit agreement (252,500) (266,000)
Purchase of common shares for treasury (276)
Dividends (233) (239)
Net cash provided by financing activities 113,402 40,125
Net increase (decrease) in cash (23,029) 2,101
Cash at beginning of period 63,658 34,819
Cash at end of period $ 40,629 $ 36,920
</TABLE>
(See accompanying notes to consolidated financial statements)
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,
1997 and 1996 include all necessary adjustments for fair presentation.
Results for any interim period may not be indicative of the results of
the entire year.
2. 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 twenty-six pharmaceutical manufacturers as defendants, In re Brand
Name Prescription Drugs Litigation, MDL 997. 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 issued a briefing scheduled on
May 9, 1997. The appellants must file one consolidated brief on May
23, 1997. The appellees brief, or separate briefs, are due on June 9,
1997 and appellant's reply brief is due on June 17, 1997. If the
Court of Appeals determines that oral argument is necessary, it will
be heard sometime during the month of June.
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.
The manufacturer 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. The defendants
submitted their appeal briefs on May 12, 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 twenty-six 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 twenty-six
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.
3. On October 7, 1996, the Company and its 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. Dr. Slama has moved to dismiss
portions of the counterclaim; the Company and NIS have filed a brief
opposing that motion and the Court has set the motion for hearing on
May 30, 1997. 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.
4. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128)
"Earnings per share". SFAS 128 requires the dual presentation of
basic earnings per share and diluted earnings per share. The Company
will adopt the provisions of SFAS 128 in the last quarter of 1997.
Pro forma basic earnings per share, which was calculated by dividing
income available to common stockholders by the weighted average number
of common shares outstanding, would have been $.48 per share for the
first quarter of 1997.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations.
Effective February 8, 1996, a newly formed subsidiary of the Company,
National Infusion Services, Inc. (NIS), acquired the assets of the infusion
services division of Infectious Disease of Indiana, P.S.C. The acquisition
was accounted for as a purchase and, accordingly, the 1996 financial
statements include the results of operations of NIS from the date of
acquisition.
Net sales for the first quarter increased by 37% from $1,189 million
in 1996 to $1,635 million. This increase resulted entirely from internal
growth and was comprised of a 41% increase in brokerage type sales
(brokerage sales) and a 32% increase in sales from the Company's inventory
(from stock sales). Consolidations within both the wholesale and chain drug
industries provided substantial growth in brokerage sales. Brokerage sales
generate very little gross margin, however they provide for increased
working capital and support the Company's programs to attract more direct
store delivery business from these chain customers. While overall price
changes accounted for approximately 4% of the growth in from stock sales,
increased sales to existing and new customers were the primary components
of the increase. The Company experienced continued sales growth in most of
its operating units.
Gross margin of $32.8 million in 1997 represented an increase of 12%
over 1996. The increase resulted from the overall increase in net sales
and the increase in revenue from the higher margin alternate care/alternate
site and direct store delivery business. The significant increase in the
lower margin brokerage sales resulted in a reduction in gross margin as a
percent of net sales from 2.47% in 1996 to 2.01% in 1997. The pressure on
sell side margins continued to be a significant factor in 1997 and the
purchasing gains associated with pharmaceutical price inflation remained
relatively constant.
Other income remained relatively constant and represented finance
charges on certain customer receivable balances.
Selling, general and administration (SGA) expenses increased 9.1% from
$17.0 million in 1996 to $18.6 million in 1997. Normal inflationary
increases and costs to support the growing direct store delivery program of
Bindley Western Drug Company and the alternate care/alternate site business
of Priority Healthcare Corporation (PHC) have generated increased SGA
expenses. However, total SGA expense as a percent of from stock sales has
actually decreased from 3.6% in 1996 to 2.9% in 1997. Management remains
focused on controlling SGA through improved technology, better asset
management and opportunities to consolidate distribution centers. The cost
increases related to the direct store delivery and the alternate
care/alternate site programs include, among others, delivery expenses,
warehouse expense and labor costs, which are variable with the level of
sales volume. In 1996, SGA expense also included non-recurring expenses of
approximately $200,000 associated with the closing and consolidation of the
Brockton, Massachusetts and the Charlotte, North Carolina distribution
centers. SGA expenses will continue to increase as direct store delivery
and alternate care /alternate site sales increase.
Depreciation and amortization on new facilities, management
information systems and equipment caused depreciation and amortization
expense to increase from $1.63 million in 1996 to $1.81 million in 1997.
Interest expense increased from $3.27 million in 1996 to $3.47 million
in 1997. The average short-term borrowings outstanding decreased from $129
million in 1996 to $97 million in 1997 and the average short-term interest
rate decreased from 6.6% in 1996 to 6.3% in 1997. 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 provision for income taxes represented 40.7% and 41.0% of earnings
before taxes in the first quarter of 1997 and 1996, respectively.
The Company is still considering a pro rata distribution to its
shareholders of all of the stock of PHC. The proposed spin-off would
separate the Company's wholesale drug business from the wholesale drug and
alternate care/alternate site business of PHC. The contemplated spin-off
would be subject to, among other business considerations, obtaining a
favorable tax ruling and compliance with applicable securities and
governmental regulations and other business considerations.
LIQUIDITY-CAPITAL RESOURCES.
For the three month period ended March 31, 1997, the Company's
operations consumed $133.6 million in cash. The use of funds was primarily
a result of an increase in accounts receivable and a reduction in accounts
payable. This use was partially offset by the decrease in merchandise
inventories. The increase in accounts receivable was a direct result of
the increase in sales. The decrease in merchandise inventories resulted
from the Company selling off the safety stock it accumulated at the end of
1996. This stock was accumulated to reduce the possibility of shortages
due to certain vendors reducing shipments during the fourth quarter. This
reduction in safety stock and changes in certain vendors' payment terms
provided the reduction in accounts payable. 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 purchase of management
information systems and the expansion and automation of existing warehouses
were $2.8 million during the quarter.
The net increase in borrowings under the bank credit agreement was
$112.5 million during the period. At March 31, 1997 the Company had
borrowed $164.5 million under the bank credit agreement and had a remaining
availability of $105.5 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.
FORWARD LOOKING STATEMENTS.
Certain statements included in this annual report, which are not historical
facts, are forward looking statements. Such forward looking statements are made
pursuant to the safe harbor provisions of the Private/Securities Litigation
Reform act of 1995. These forward looking statements involve certain risks and
uncertainties including, but not limited to, changes in interest rates,
competitive pressures, changes in customer mix, financial stability of major
customers, investment procurement opportunities and changes in government
regulations or the interpretation thereof, which could cause actual results to
differ from those in the forward looking statements.
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, 1997 BINDLEY WESTERN INDUSTRIES, INC.
BY /s/ Thomas J. Salentine
Thomas J. Salentine
Executive Vice President
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 40,629
<SECURITIES> 0
<RECEIVABLES> 466,671
<ALLOWANCES> 3,584
<INVENTORY> 358,378
<CURRENT-ASSETS> 874,498
<PP&E> 74,297
<DEPRECIATION> 20,760
<TOTAL-ASSETS> 965,750
<CURRENT-LIABILITIES> 635,043
<BONDS> 99,773
0
0
<COMMON> 3,318
<OTHER-SE> 225,186
<TOTAL-LIABILITY-AND-EQUITY> 965,750
<SALES> 1,634,663
<TOTAL-REVENUES> 1,635,059
<CGS> 1,601,832
<TOTAL-COSTS> 1,625,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 939
<INTEREST-EXPENSE> 3,468
<INCOME-PRETAX> 9,311
<INCOME-TAX> 3,790
<INCOME-CONTINUING> 5,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,521
<EPS-PRIMARY> .46
<EPS-DILUTED> .40
</TABLE>
