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 June 30, 1998
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 June 30, 1998 was
22,009,832.
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>
<S> <C> <C> <C> <C>
Six-month period ended Three-month period ended
June 30, June 30,
--------------------------------------------------------------------------
1998 1997 1998 1997
--------------------------------------------------------------------------
Revenues:
Net sales from stock $ 1,873,721 $ 1,273,501 $ 976,311 $ 643,445
Net brokerage sales 1,936,098 2,172,189 871,737 1,167,583
--------------------------------------------------------------------------
Total net sales 3,809,819 3,445,690 1,848,048 1,811,028
Other income 988 626 372 229
--------------------------------------------------------------------------
3,810,807 3,446,316 1,848,420 1,811,257
--------------------------------------------------------------------------
Cost and expenses:
Cost of products sold 3,719,455 3,378,863 1,800,807 1,777,031
Selling, general and administrative 51,288 37,291 26,683 18,657
Depreciation and amortization 4,021 3,723 2,075 1,909
Interest 8,591 7,762 4,601 4,294
--------------------------------------------------------------------------
3,783,355 3,427,639 1,834,166 1,801,891
--------------------------------------------------------------------------
Earnings before income taxes 27,452 18,677 14,254 9,366
--------------------------------------------------------------------------
Provision for income taxes 10,912 7,602 5,666 3,812
Minority interest in net income of
consolidated subsidiary 794 416
==========================================================================
Net earnings $ 15,746 $ 11,075 $ 8,172 $ 5,554
==========================================================================
Earnings per share:
Basic $ 0.74 $ 0.71 $ 0.38 $ 0.36
Diluted $ 0.71 $ 0.59 $ 0.36 $ 0.29
Average shares outstanding:
Basic 21,315,106 15,535,795 21,489,487 15,631,936
Diluted 22,067,317 21,227,115 22,465,407 21,323,256
</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>
<S> <C> <C>
June 30, December 31,
1998 1997
-------------------------------------------
Assets
Current assets:
Cash $ 23,391 $ 42,895
Accounts receivable, less allowance for doubtful
accounts of $3,925 for 1998 and $4,756 for 1997 500,348 606,265
Finished goods inventory 616,297 520,769
Deferred income taxes 10,907 9,707
Other current assets 7,030 5,389
-------------------------------------------
1,157,973 1,185,025
-------------------------------------------
-------------------------------------------
Other assets 57 76
-------------------------------------------
-------------------------------------------
Related party receivable 3,334 3,228
-------------------------------------------
Fixed assets, at cost 107,237 89,704
Less: accumulated depreciation (24,623) (22,076)
-------------------------------------------
82,614 67,628
-------------------------------------------
-------------------------------------------
Intangibles 34,128 35,050
-------------------------------------------
===========================================
Total assets $ 1,278,106 $ 1,291,007
===========================================
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 252,000 $ 147,000
Accounts payable 592,102 734,346
Other current liabilities 19,074 16,570
-------------------------------------------
863,176 897,916
-------------------------------------------
-------------------------------------------
Long-term debt 31,868 32,142
-------------------------------------------
-------------------------------------------
Deferred income taxes 4,343 4,343
-------------------------------------------
-------------------------------------------
Minority interest 11,803 11,010
-------------------------------------------
Shareholders' equity:
Common stock, $.01 par value authorized 30,000,000 shares;
issued 22,404,774 and 16,135,319 shares, respectively 3,830 3,359
Special shares, $.01 par value-authorized 1,000,000 shares
Additional paid in capital 216,640 198,764
Retained earnings 162,389 147,400
Unamortized value of restricted shares (11,526)
-------------------------------------------
371,333 349,523
Less: shares in treasury-at cost
394,942 and 380,942, respectively (4,417) (3,927)
-------------------------------------------
-------------------------------------------
Total shareholders' equity 366,916 345,596
-------------------------------------------
-------------------------------------------
Commitments and contingencies
-------------------------------------------
===========================================
Total liabilities and shareholders' equity $ 1,278,106 $ 1,291,007
===========================================
</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>
<S> <C> <C>
Six-month period ended
June 30,
---------------------------------------------------
1998 1997
---------------------------------------------------
Cash flow from operating activities:
Net income $ 15,746 $ 11,075
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 4,021 3,723
Deferred income taxes (1,200) (1,200)
Minority interest 794
Amortization of restricted shares 811
Gain on sale of fixed assets (44) (49)
Change in assets and liabilities:
Accounts receivable 105,917 (175,272)
Finished goods inventory (95,529) 80,855
Accounts payable (142,244) 4,003
Other current assets and liabilities 863 (2,441)
---------------------------------------------------
Net cash used by operating activities (110,865) (79,306)
---------------------------------------------------
Cash flow from investing activities:
Purchase of fixed assets and other assets (18,101) (5,188)
Proceeds from sale of fixed assets 79 79
Related party note receivable (105)
---------------------------------------------------
Net cash used by investing activities (18,127) (5,109)
---------------------------------------------------
Cash flow from financing activities:
Proceeds from sale of stock 6,009 3,691
Reduction in long term debt (274) (186)
Proceeds under line of credit agreement 989,500 671,500
Payments under line of credit agreement (884,500) (605,000)
Purchase of shares for treasury (490) (260)
Dividends (757) (469)
---------------------------------------------------
Net cash provided by financing activities 109,488 69,276
---------------------------------------------------
Net increase (decrease) in cash (19,504) (15,139)
Cash at beginning of period 42,895 63,658
===================================================
Cash at end of period $ 23,391 $ 48,519
===================================================
</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 and
six-month periods ended June 30, 1998 and 1997 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, 12 other pharmaceutical wholesalers
and 26 pharmaceutical manufacturers as defendants, In re Brand Name
Prescription Drugs Litigation, MDL 997, Second Consolidated and
Amended Class Action Complaint. 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 attorneys' fees. The Company has denied the complaint allegations.
Several of the manufacturer defendants and the class plaintiffs have
reached settlement agreements. The trial against the remaining
defendants, including the Company, is scheduled to begin on September
14, 1998.
On November 20, 1997, the trial court granted leave to certain retail
pharmacies which had "opted out" of the class action to amend their
complaints to add the wholesalers, including the Company, as
defendants. The majority of these "opt-out" complaints, which initially
named only pharmaceutical manufacturers as defendants, were filed in
1994 and 1995.
At this time, the Company has been served with 115 amended complaints
by the "opt-out" plaintiffs. One hundred eleven of these complaints
contain allegations and claims for relief that are substantially
similar to those in the federal class action. The four remaining
amended complaints add allegations that the defendants' conduct
violated state law. The Company has denied the complaint allegations.
On November 20, 1997, Eckerd Corporation filed a complaint naming 11
manufacturers and three wholesalers, including the Company, as
defendants. Also on November 20, 1997, American Drug Stores filed a
complaint naming 11 manufacturers and six wholesalers, including the
Company, as defendants. These complaints contain allegations and claims
for relief that are substantially similar to those in the federal class
action. The Company has denied the allegations in these complaints.
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 under the Alabama antitrust act. The Company has
denied the allegations of the complaint. An appeal is pending in the
Alabama Supreme Court on the question of whether the state antitrust
act applies to the transactions which are the subject of the lawsuit.
On June 16, 1998, a suit was filed in the Circuit Court for Cocke
County, Tennessee purportedly on behalf of consumers of prescription
drugs in the following states: Tennessee, Alabama, Arizona, Florida,
Kansas, Maine, Michigan, Minnesota, New Mexico, North Carolina, North
Dakota, South Dakota, West Virginia and Wisconsin. Graves et al. v.
Abbott Laboratories et al., Civil Action No. 25,109-II. The complaint
charges pharmaceutical manufacturers and wholesalers, including the
Company, with engaging in a price-fixing conspiracy in violation of the
Tennessee's Trade Practices Act and Consumer Protection Act, and the
unfair or deceptive trade practices statutes of the other Class
jurisdictions.
On October 21, 1994, the Company entered into an agreement with five
other wholesalers and 26 pharmaceutical manufacturers covering all of
the cases listed above. Among other things, the agreement provides that
for all judgments that might be entered against both the manufacturer
and wholesaler defendants, the Company's total exposure for joint and
several liability is limited to $1,000,000 and the six wholesaler
defendants are indemnified for $9,000,000 in related legal fees and
expenses.
The Company is unable to form a reasonably reliable conclusion
regarding the likelihood of a favorable or unfavorable outcome of these
cases. 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 (now known as Priority Healthcare Services Corporation)
("PHSC"), 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 former director of the Company and formerly was Chief Executive
Officer and President of PHSC. The complaint alleges breach of
contract and defamation arising from the termination of Dr. Slama's
employment with PHSC in October 1996, and seeks damages in excess of
$3.4 million, punitive damages, attorneys' fees and costs. The Company
and PHSC believe Dr. Slama terminated his employment without "cause"
(as defined in his employment agreement), and alternatively, that PHSC
had grounds to terminate Dr. Slama for "cause" under his employment
agreement. The Company and PHSC 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 moved to dismiss
portions of the counterclaim, which motion was denied by the court on
July 14, 1997. The Company and PHSC thereafter filed an amended
counterclaim adding additional claims against Dr. Slama. On March 12,
1998, Dr. Slama filed a motion for leave to amend his complaint to add
Priority and William E. Bindley as defendants and to state
additional claims for breach of contract, breach of oral contract,
breach of fiduciary duty, securities fraud and conversion. On April 10,
1998, the Company filed its objection to Dr.Slama's motion. In
response, on May 1, 1998, Dr. Slama filed a second motion for leave
to amend his complaint, which alleges essentially the same claim as
contained in the first amended complaint. A hearing on Dr. Slama's
motion has been scheduled by the Court. The Company has entered into an
Indemnification and Hold Harmless Agreement with Priority, whereby the
Company has agreed to indemnify and hold harmless Priority and its
subsidiaries from and against any and all claims, losses,
liabilities, costs, damages, charges and expenses (including without
limitation legal and other professional fees) which they might incur or
which may be charged against them in any way based upon, connected with
or arising out of the lawsuit filed by Dr. Slama. The Company intends
to vigorously oppose Dr. Slama's most recent motion to amend his
complaint, and to vigorously defend the amended complaint in the event
his motion is granted. Discovery is proceeding, and the matter is
currently set for trial on March 9, 1999. The Company and PHSC 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. On June 3, 1998, a 4-for-3 stock split of the Company's Common Stock
was effected in the form of a stock dividend to all shareholders of
record at the close of business on May 21, 1998. Accordingly, all
historical weighted average shares and per share amounts have been
restated to reflect the stock split. Share amounts in the Consolidated
Balance Sheets reflect the actual share amounts outstanding for each
period presented.
5. The Company issued restricted stock grants to certain key executives
on March 26, 1998. The grants were subject to shareholder approval
which was received on May 21,1998. Pending the lapse of the forfeiture
and transfer restrictions established by the Compensation and Stock
Option Committee, the grantee generally will have all the rights of
a shareholder, including the right to vote the shares and the right to
receive all dividends thereon. Upon issuance of the stock grants,
unearned compensation equivalent to the market value at the date of
grant was recorded as unamortized value of restricted stock and is
being charged to earnings over the period during which the
restrictions lapse. During the second quarter of 1998, $811,000 of
compensation expense related to these restricted stock grants was
recorded.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations.
Effective July 31, 1997, the Company purchased substantially all of the
operating assets and assumed most of the liabilities and contractual obligations
of Tennessee Wholesale Drug Company, Inc. ("TWD"). TWD is a full-line,
full-service wholesale drug company with distribution facilities in Nashville,
Tennessee, Baltimore, Maryland and Tampa, Florida. Effective August 6, 1997,
Priority Healthcare Corporation ("PHC") a subsidiary of the Company, acquired
substantially all of the operating assets and assumed most of the liabilities of
Grove Way Pharmacy, Inc., a specialty distributor of vaccines and injectables
located in Castro Valley, California. The financial statements include the
results of operations from the respective effective dates of acquisition.
Net sales of $3,810 million for the first six-months of 1998 and
$1,848 million for the second quarter of 1998 represented a 10.6% and 2.0%
increase over the same periods of 1997, respectively. For the six-month period
and the second quarter, TWD sales were approximately $150 million and $75
million, respectively. The loss of the Rite Aid business in May of 1998
contributed to an 11% and 25% decrease in brokerage type sales (brokerage sales)
for the first six-months and second quarter of 1998, respectively. These sales
generate very little gross margin; however they do support the Company's
programs to attract more direct store delivery business from chain customers.
From stock sales for the first six-months and second quarter increased 47.1% and
51.7%, over 1997, respectively. These sales include sales from the Company's
inventory to chain customers and direct store delivery business. The Company
continued its commitment to expand its presence in the direct store delivery
portion of the business through increased sales to existing customers and the
addition of new customers. For the six-month period of 1998, direct store
delivery sales increased 52.6% and represented 46.5% of total sales. For the
second quarter of 1998 direct store delivery sales increased 54.9% and
represented 50.0% of total sales. In both periods, the increase related to price
increases was approximately equal to the increase in the Consumer Price Index.
PHC sales for the six-month period increased 12% from $108.6 million in 1997 to
$122.1 in 1998. PHC sales for the second quarter increased 13% from $56.5
million in 1997 to $63.9 in 1998. This growth was essentially generated
internally and reflected primarily the addition of new customers, new product
introductions, additional sales to existing customers and, to a lesser extent,
inflationary price increases.
Gross margin of $90.4 million and $47.2 million for the six-months and
second quarter of 1998 represented increases of 35.2% and 39.0% over 1997,
respectively. TWD gross margin represented approximately 30% of the increase in
both periods while internal growth accounted for the remainder. The internal
growth was the result of the overall increase in net sales, and increased sales
to the higher margin alternate care/alternate site and direct store delivery
markets. The significant increase in the higher margin from stock sales resulted
in an increase in gross margin as a percent of net sales for the six-months from
1.94% in 1997 to 2.37% in 1998. For the second quarter, gross margin as a
percent of net sales increased from 1.88% in 1997 to 2.56% in 1998. The pressure
on sell side margins continued to be a significant factor in 1998 and the
purchasing gains associated with pharmaceutical price inflation remained
relatively constant. Gross margins for PHC of $13.7 million and $6.9 million for
the first six-months and second quarter of 1998 represented increases of 21% and
19% over the respective periods of 1997. The increase was attributable to the
distribution business having more sales of higher gross margin items and
increased sales in the higher margin pharmacy business.
Other income increased as a result of finance charges on certain
customers receivables and interest income related to PHC investing funds
received from its October 1997 Initial Public Offering.
Selling, general and administration ("SGA") expenses for the first
six-months increased from $37.3 million in 1997 to $51.3 million in 1998. For
the second quarter, SGA increased from $18.7 million in 1997 to $26.7 million in
1998. The first six-months and the second quarter of 1998 include incremental
SGA of $2.9 million and $1.1 million related to TWD, respectively. The second
quarter of 1998 also includes an $811,000 non-cash charge to compensation
expense associated with restricted stock grants. The remainder resulted from
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 PHC. 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. However, total SGA expense as a percent of from
stock sales for both the first six-months and the second quarter decreased from
2.9% in 1997 to 2.7% in 1998. Management remains focused on controlling SGA
through improved technology, better asset management and opportunities to
consolidate distribution centers as was the case with the Baltimore, Maryland
and Tampa, Florida facilities during the second quarter 1998. In 1998, SGA
includes non-recurring expenses of approximately $250,000 related to start up
expenses of new distribution centers in Portland, Oregon and Woodland,
California.
Depreciation and amortization on new facilities, expansion and
automation of existing facilities and investments in management information
systems resulted in increases in depreciation and amortization expense. For the
first six-months the expense increased from $3.7 million in 1997 to $4.0 million
in 1998. The increase for the second quarter was from $1.9 million in 1997 to
$2.1 million in 1998.
Interest expense for the first six-months increased from $7.8 million
in 1997 to $8.6 million in 1998. In 1997, average short-term borrowings
outstanding were $123 million at an average short term interest rate of 6.4%, as
compared to $212 million in 1998 at an average short-term interest rate of 6.4%.
In the second quarter, interest expense increased from $4.3 million in 1997 to
$4.6 million in 1998. Average short-term borrowings outstanding increased from
$148 million to $235 million and the average short-term interest rate decreased
from 6.5% to 6.4%. On August 27, 1997, the Company called for redemption all of
its outstanding 6 1/2% Convertible Subordinated Debentures Due 2002.
The provision for income taxes for the six-month period and second
quarter of 1998 represented 39.75% of earnings before taxes for both periods.
The provision for income taxes for the six-month period and second quarter of
1997 represented 40.70% of earnings before taxes for both periods.
Rite Aid Corp. informed the Company that Rite Aid signed a supply
agreement with McKesson Corp. that began in May 1998. In 1997, Rite Aid Corp.
comprised 18% of the Company's sales. However, the Company does not believe the
loss of this customer will negatively impact its results of operations. Sales to
Rite Aid were predominantly to their warehouses. In 1997 the resources the
Company expended on servicing Rite Aid's pharmaceutical warehouse programs were
such that they generated an overall negative return. In addition, the Company
was only servicing a portion of the Rite Aid California stores on a direct store
basis. The logistical costs involved in servicing these stores were high, and
thus, the contribution from the direct store delivery segment was not sufficient
to produce an overall favorable return.
On August 3, 1998, the Company announced that its Board of Directors
had approved a pro-rata distribution to its shareholders of all of the Class A
Common Stock of PHC. Such a distribution would separate the Company's wholesale
drug business from the alternate site, alternate care drug wholesale and
pharmacy business of PHC. Because the distribution is subject to the receipt of
a tax opinion that it will qualify as a tax-free spin-off, obtaining certain
regulatory approvals, finalization of distribution procedures with the Company's
transfer agent, and the implementation of certain administrative requirements
for PHC to operate as a stand-alone business, the Board did not establish a
record date or distribution date. The Company anticipates, however, that the
distribution could be effected as early as September 30, but in no event later
than December 31, 1998, subject to continued favorable market conditions.
Liquidity-Capital Resources.
For the six-month period ended June 30, 1998, the Company's operations
consumed $110.9 million in cash. The use of funds resulted from an increase in
inventories and a decrease in accounts payable. The increase in inventory
resulted from the increase in DSD sales and new bulk inventory acquisition and
purchasing management systems with certain customers. The reduction of accounts
payable is attributable to the timing of payments of invoices and the reduction
of brokerage type sales to Rite Aid. These uses of cash were offset by the
decrease in accounts receivables resulting from the reduction of brokerage sales
to Rite Aid. 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 the corporate
offices and warehouse facilities, the expansion and automation of existing
warehouses and the investment in additional management information systems were
$18.1 million for the first six-months of 1998.
On June 30, 1998, the Company negotiated an increase in its bank line
of credit from $270 million to $325 million. The net increase in borrowings
under the bank credit agreement was $105 million during the period. At June 30,
1998 the Company had borrowed $252 million under the bank credit agreement and
had a remaining availability of $73 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.
Year 2000.
The Company has conducted a review of its computer systems to
identify and address all code changes, testing, and implementation procedures
necessary to make its systems year 2000 compliant. The Company believes that
with the exception of the wholesale purchasing and accounting programs of the
J.E. Goold Division, which is based in Portland, Maine, all systems will be
fully compliant by the end of fiscal 1998. The J.E. Goold Division is scheduled
to be converted to the Company's system during the first quarter of 1999.
Although the Company will consider the status of a Company's computer systems in
evaluating any future acquisition opportunities, there can be no assurance that
acquisitions made or contemplated by the Company will be year 2000 compliant by
the date of purchase. There can also be no assurance that the systems of other
companies with which it transacts business will be updated or converted in a
timely manner, or that such failure will not have a material adverse effect on
the Company's operations. The Company estimates that it will incur approximately
$275,000 during fiscal 1998 and $200,000 during fiscal 1999 for the cost of this
project.
Forward Looking Statements.
Certain statements included in this quarterly 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, changes in government
regulations or the interpretation thereof and the ability of the Company and the
entities with which it transacts business to modify or redesign their computer
systems to work properly in the year 2000, which could cause actual results to
differ from those in the forward looking statements.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth in Note 2 to the Notes to Consolidated
Financial Statements set forth elsewhere in this Report is incorporated herein
by reference.
Item 4. Submission of matters to a Vote of Security Holders
a) The annual meeting of the shareholders of Bindley Western
Industries, Inc. was held on May 21, 1998.
b) The following directors were elected at the meeting: <TABLE>
<S> <C> <C> <C>
Votes for Votes against Abstentions
-------------------------------------------------------------
William E. Bindley 13,972,142 3 435,045
Robert L. Koch, II 13,972,145 0 435,045
James K. Risk, III 13,972,141 4 435,045
K. Clay Smith 13,972,145 0 435,045
J. Timothy McGinley 13,972,137 8 435,045
Michael D. McCormick 13,972,140 5 435,045
William F. Bindley, II 13,972,136 9 435,045
Thomas J. Salentine 13,972,145 0 435,045
Keith W. Burks 13,972,142 3 435,045
Seth B. Harris 13,971,645 500 435,045
Carolyn Y. Woo 13,971,242 903 435,045
</TABLE>
c) Other matters voted upon and the results of the voting were as
follows:
1) The shareholders voted 14,200,148
shares in the affirmative, 7,884 votes
in the negative and no abstentions to
appoint PricewaterhouseCoopers LLP as
auditors of the Corporation.
2) The shareholders voted 8,754,617
shares in the affirmative, 2,637,118
votes in the negative, 105,780
abstentions and 2,909,675 broker
non-votes to approve the proposed
amendments to the Company's 1993 Stock
Option and Incentive Plan.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10-G (ii) Revolving Credit Promissory Note between
Registrant (Maker) and Priority Healthcare
Corporation (Holder)
27.1 Selected Financial Data Schedule
27.2- Restated Financial Data Schedules for Years
27.9 ended December 31, 1995 and 1996
and Periods ended March 31, 1996 and 1997, June 30, 1996
and 1997, and September 30, 1996 and 1997
27.10 Amended Financial Data Schedule for Period
Ended March 31, 1998
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
August 14, 1998 BINDLEY WESTERN INDUSTRIES, INC.
BY /s/ Thomas J. Salentine
Thomas J. Salentine
Executive Vice President
(Principal Financial Officer)
REVOLVING CREDIT PROMISSORY NOTE
U.S. $25,000,000.00 October 29, 1997
FOR VALUE RECEIVED, on or before December 31, 1999 (the
"Maturity Date"), BINDLEY WESTERN INDUSTRIES, INC., an Indiana corporation
(hereinafter called "Maker"), unconditionally promises to pay to the order of
PRIORITY HEALTHCARE CORPORATION, an Indiana corporation ("Lender"), at 285 West
Central Parkway, Altamonte Springs, Florida, or at such other place as the
holder hereof may direct in writing, the principal sum of Twenty Five Million
Dollars ($25,000,000.00), or such lesser amount as may be then outstanding, with
interest on the balance of principal outstanding from time to time from the date
hereof at a variable rate per annum equal to the "Incremental Borrowing Rate" of
Maker, as in effect from time to time, until the entire principal balance is
paid in full. For purposes hereof, the term "Incremental Borrowing Rate" shall
mean the per annum rate then in effect for advances to Maker under its Amended
and Restated Credit Agreement dated as of December 31, 1991, among Maker, Bank
One, Indiana, NA in its individual capacity and as agent for the other banks
party thereto, as such Amended and Restated Credit Agreement is amended and in
effect from time to time, or if such Amended and Restated Credit Agreement shall
no longer be in effect then the rate of interest then charged for advances under
any replacement revolving credit agreement of Maker.
All amounts payable under this Note shall be payable without
relief from valuation and appraisement laws, and with all collection costs and
attorneys' fees.
Interest accruing during each calendar quarter shall be due
and payable quarterly, on or before the fifth (5th) day of the next succeeding
calendar quarter, commencing on the fifth (5th) day of the calendar quarter
immediately following the date of this Note, and continuing thereafter until the
entire unpaid principal balance of this Note is paid in full. All payments, as
received, shall be applied first to the payment of interest accrued to the date
of receipt of payment and the balance, if any, shall be applied to principal.
The principal of this Note, and accrued, unpaid interest
thereon, shall be due and payable in full on the Maturity Date. The principal of
this Note may be prepaid in whole or in part without premium or penalty.
All payments of principal and interest shall be made in lawful
money of the United States of America and in immediately available funds.
Interest shall be calculated on the basis that an entire year's interest is
earned in 360 days. If any payment falls due on a day on which the holder is not
generally open for the conduct of its business, the due date thereof shall be
extended to the next succeeding day on which the holder is so open for business
and interest will be payable at the rate stated herein in respect of such
extension.
Maker and endorser(s), jointly and severally, waive demand and
presentment for payment, protest, notice of protest and notice of nonpayment or
dishonor of this Note and each of them consents to all extensions of the time of
payment thereof.
This Note evidences the obligation of Maker to repay loan
advances made from time to time under a credit facility in the maximum principal
sum of Twenty Five Million Dollars ($25,000,000.00). At Lender's sole
discretion, the principal of this Note may be borrowed, repaid, and reborrowed
from time to time prior to the Maturity Date. Maker's principal indebtedness on
this Note at any particular time shall be represented by the total of all loan
advances made to such time, less all principal payments made to such time. Maker
and all endorsers hereby authorize Lender and any holder of this Note to make
notations on the attached Schedule of Advances and Payments of Principal of all
advances made to Maker hereunder and all payments of principal.
Upon default in the payment of any installment of interest due
under this Note, which default shall remain uncured for a period of ten (10)
days from the date such installment is due, or at any time thereafter during the
continuance of such default, Lender shall be entitled by written notice to Maker
to declare the entire unpaid balance of principal and interest on this Note to
be immediately due and payable, whereupon the same shall become and be
immediately due and payable.
Signed and delivered as of the 29th day of October, 1997.
BINDLEY WESTERN INDUSTRIES, INC.
By: /s/ THOMAS J. SALENTINE
Name: Thomas J. Salentine
Title: Executive Vice President
(Principal Financial Officer)
<PAGE>
SCHEDULE OF ADVANCES AND PAYMENTS OF PRINCIPAL
Unpaid
Amount of Principal
Amount of Principal Balance Notation
Date Advance Paid of Note Made By:
- ------ ---------- ---------- ---------- ----------
- ------ ---------- ---------- ---------- ----------
- ------ ---------- ---------- ---------- ----------
- ------ ---------- ---------- ---------- ----------
- ------ ---------- ---------- ---------- ----------
- ------ ---------- ---------- ---------- ----------
- ------ ---------- ---------- ---------- ----------
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- ------ ---------- ---------- ---------- ----------
- ------ ---------- ---------- ---------- ----------
- ------ ---------- ---------- ---------- ----------
- ------ ---------- ---------- ---------- ----------
- ------ ---------- ---------- ---------- ----------
This is the attached Schedule of Advances and Payments of
Principal referred to in the Revolving Credit Promissory Note dated October 29,
1997, made by Bindley Western Industries, Inc. to the order of Priority
Healthcare Corporation.
Bindley Western Industries, Inc.
By:/s/ Thomas J. Salentine
Name: Thomas J. Salentine
Title: Executive Vice President
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000722808
<NAME> Bindley Western Industries
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 23,391
<SECURITIES> 0
<RECEIVABLES> 500,348
<ALLOWANCES> 3,925
<INVENTORY> 616,297
<CURRENT-ASSETS> 1,157,973
<PP&E> 107,237
<DEPRECIATION> 24,623
<TOTAL-ASSETS> 1,278,106
<CURRENT-LIABILITIES> 863,176
<BONDS> 31,868
0
0
<COMMON> 3,830
<OTHER-SE> 363,086
<TOTAL-LIABILITY-AND-EQUITY> 1,278,106
<SALES> 3,809,819
<TOTAL-REVENUES> 3,810,807
<CGS> 3,719,455
<TOTAL-COSTS> 3,783,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,591
<INCOME-PRETAX> 27,452
<INCOME-TAX> 10,912
<INCOME-CONTINUING> 15,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,746
<EPS-PRIMARY> .74<F1>
<EPS-DILUTED> .71<F1>
<FN>
<F1> Per share amounts reflect the 4-for-3 stock split paid on June 3, 1998,
to shareholders of record on May 21, 1998. Prior Financial Data Schedules
have not been restated for the stock split.
</FN>
</TABLE>
<TABLE> <S> <C>
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<NAME> Bindley Western Industries
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 34,819
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<RECEIVABLES> 397,924
<ALLOWANCES> 3,057
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<CURRENT-LIABILITIES> 568,764
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0
0
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<INCOME-TAX> 11,383
<INCOME-CONTINUING> 16,381
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<EXTRAORDINARY> 0
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<NET-INCOME> 16,381
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
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<NAME> Bindley Western Industries
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 36,920
<SECURITIES> 0
<RECEIVABLES> 321,272
<ALLOWANCES> 2,468
<INVENTORY> 303,024
<CURRENT-ASSETS> 670,103
<PP&E> 70,931
<DEPRECIATION> 18,850
<TOTAL-ASSETS> 762,092
<CURRENT-LIABILITIES> 480,096
<BONDS> 70,870
3,315
0
<COMMON> 0
<OTHER-SE> 203,305
<TOTAL-LIABILITY-AND-EQUITY> 762,092
<SALES> 1,188,988
<TOTAL-REVENUES> 1,189,352
<CGS> 1,159,562
<TOTAL-COSTS> 1,181,548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,039
<INTEREST-EXPENSE> 3,271
<INCOME-PRETAX> 7,804
<INCOME-TAX> 3,200
<INCOME-CONTINUING> 4,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,604
<EPS-PRIMARY> .41
<EPS-DILUTED> .35
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000722808
<NAME> Bindley Western Industries
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 28,302
<SECURITIES> 0
<RECEIVABLES> 334,841
<ALLOWANCES> 2,572
<INVENTORY> 348,974
<CURRENT-ASSETS> 719,974
<PP&E> 71,589
<DEPRECIATION> 19,672
<TOTAL-ASSETS> 811,228
<CURRENT-LIABILITIES> 525,823
<BONDS> 70,717
0
0
<COMMON> 3,315
<OTHER-SE> 207,467
<TOTAL-LIABILITY-AND-EQUITY> 811,228
<SALES> 2,406,883
<TOTAL-REVENUES> 2,407,522
<CGS> 2,347,450
<TOTAL-COSTS> 2,392,615
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,972
<INTEREST-EXPENSE> 6,497
<INCOME-PRETAX> 14,907
<INCOME-TAX> 6,243
<INCOME-CONTINUING> 8,664
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,664
<EPS-PRIMARY> .77
<EPS-DILUTED> .66
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000722808
<NAME> Bindley Western Industries
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 36,606
<SECURITIES> 0
<RECEIVABLES> 383,111
<ALLOWANCES> 2,930
<INVENTORY> 316,306
<CURRENT-ASSETS> 745,213
<PP&E> 72,046
<DEPRECIATION> 19,980
<TOTAL-ASSETS> 836,021
<CURRENT-LIABILITIES> 547,075
<BONDS> 70,562
0
0
<COMMON> 3,315
<OTHER-SE> 211,762
<TOTAL-LIABILITY-AND-EQUITY> 836,021
<SALES> 3,743,149
<TOTAL-REVENUES> 3,744,102
<CGS> 3,654,068
<TOTAL-COSTS> 3,722,024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,873
<INTEREST-EXPENSE> 9,927
<INCOME-PRETAX> 22,078
<INCOME-TAX> 9,201
<INCOME-CONTINUING> 12,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,877
<EPS-PRIMARY> 1.14
<EPS-DILUTED> .98
</TABLE>
<TABLE> <S> <C>
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<NAME> Bindley Western Industries
<MULTIPLIER> 1000
<S> <C>
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<PERIOD-END> DEC-31-1996
<CASH> 63,658
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<RECEIVABLES> 346,802
<ALLOWANCES> 2,664
<INVENTORY> 431,816
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<DEPRECIATION> (19,935)
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0
0
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<SALES> 5,317,526
<TOTAL-REVENUES> 5,318,933
<CGS> 5,197,008
<TOTAL-COSTS> 5,288,062
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<INTEREST-EXPENSE> 12,992
<INCOME-PRETAX> 30,871
<INCOME-TAX> 12,865
<INCOME-CONTINUING> 18,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 18,006
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.36
</TABLE>
<TABLE> <S> <C>
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<NAME> Bindley Western Industries
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-END> MAR-31-1997
<CASH> 40,629
<SECURITIES> 0
<RECEIVABLES> 466,671
<ALLOWANCES> 3,584
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<DEPRECIATION> 20,760
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0
0
<COMMON> 3,318
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<CGS> 1,601,832
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<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> .48
<EPS-DILUTED> .40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
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<NAME> Bindley Western Industries
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
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<SECURITIES> 0
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3,319
0
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<DISCONTINUED> 0
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<EPS-PRIMARY> .95
<EPS-DILUTED> .79
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<TABLE> <S> <C>
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<NAME> Bindley Western Industries
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
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<PERIOD-END> SEP-30-1997
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0
0
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<CGS> 5,155,554
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<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.16
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<TABLE> <S> <C>
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<NAME> Bindley Western Industries
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 29,686
<SECURITIES> 0
<RECEIVABLES> 547,803
<ALLOWANCES> 4,297
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0
0
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</TABLE>
