<PAGE>
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, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-11355
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BINDLEY WESTERN INDUSTRIES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Indiana 84-0601662
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8909 Purdue Road
Indianapolis, Indiana 46268
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(Address of principal executive offices)
(Zip Code)
(317) 704-4000
--------------
(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
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The number of shares of Common Stock outstanding as of June 30, 1999 was
30,560,851.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(000's omitted except share data)
(unaudited)
<TABLE>
<CAPTION>
Six-month period ended Three-month period ended
June 30, June 30,
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1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Net sales from stock $ 2,422,573 $ 1,873,721 $ 1,206,001 $ 976,311
Net brokerage sales 1,597,600 1,936,098 839,215 871,737
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Total net sales 4,020,173 3,809,819 2,045,216 1,848,048
Other income 899 988 417 372
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4,021,072 3,810,807 2,045,633 1,848,420
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Cost and expenses:
Cost of products sold 3,924,234 3,719,455 1,996,454 1,800,807
Selling, general and administrative 52,088 51,288 26,789 26,683
Depreciation and amortization 4,424 4,021 2,416 2,075
Interest 10,610 8,591 5,086 4,601
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3,991,358 3,783,355 2,030,745 1,834,166
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Earnings before income taxes 29,716 27,452 14,888 14,254
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Provision for income taxes 11,812 10,912 5,918 5,666
Minority interest in net income of
consolidated subsidiary 794 416
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Net earnings $ 17,904 $ 15,746 $ 8,970 $ 8,172
============================================================
Earnings per share:
Basic $ 0.59 $ 0.55 $ 0.29 $ 0.29
Diluted $ 0.54 $ 0.54 $ 0.27 $ 0.27
Average shares outstanding:
Basic 30,315,296 28,420,141 30,484,564 28,652,649
Diluted 33,271,472 29,423,089 33,565,708 29,953,876
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000's omitted except share data)
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1999 1998
-------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 11,227 $ 42,982
Accounts receivable, less allowance for doubtful
accounts of $3,912 for 1999 and $3,558 for 1998 498,683 453,552
Finished goods inventory 810,053 659,484
Deferred income taxes 12,706 11,506
Other current assets 10,924 8,282
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1,343,593 1,175,806
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Other assets 19 38
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Fixed assets, at cost 120,312 119,243
Less: accumulated depreciation (28,582) (26,491)
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91,730 92,752
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Intangibles 17,615 17,979
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Total assets $1,452,957 $1,286,575
=========================
Liabilites and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 53,000 $ 19,500
Securitized borrowings 237,963 224,163
Private placement debt 30,000 30,000
Accounts payable 734,376 640,540
Note payable to Priority Healthcare Corporation 13,166 16,517
Other current liabilities 19,802 18,684
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1,088,307 949,404
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Long-term debt 13,865 628
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Deferred income taxes 3,202 3,202
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Shareholders' equity:
Common stock, $.01 par value authorized 53,333,333 shares;
issued 31,766,716 and 23,433,919 shares, respectively 3,381 3,376
Special shares, $.01 par value-authorized 1,000,000 shares
Additional paid in capital 217,059 213,462
Note receivable from officer (3,336) (3,228)
Retained earnings 147,808 130,412
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364,912 344,022
Less: shares in treasury-at cost
1,205,865 and 689,161 shares, respectively (17,329) (10,681)
-------------------------
Total shareholders' equity 347,583 333,341
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Commitments and contingencies
-------------------------
Total liabilities and shareholders' equity $1,452,957 $1,286,575
=========================
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted except share data)
(unaudited)
<TABLE>
<CAPTION>
Six-month period ended
June 30,
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 17,904 $ 15,746
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 4,424 4,021
Minority interest 794
Deferred income taxes (1,200) (1,200)
Amortization of restricted stock 811
Gain on sale of fixed assets (44)
Change in assets and liabilities,
Accounts receivable (45,130) 105,917
Finished goods inventory (150,570) (95,529)
Accounts payable 93,836 (142,244)
Other current assets and liabilities (1,523) 863
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Net cash used by operating activities (82,259) (110,865)
--------------------------------
Cash flow from investing activities:
Purchase of fixed assets and other assets (10,539) (18,101)
Proceeds from sale of fixed assets 20,906 79
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Net cash used by investing activities 10,367 (18,022)
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Cash flow from financing activities:
Proceeds from sale of stock 3,601 6,009
Reduction in long term debt (151) (274)
Related party note receivable (108) (105)
Payments on note payable Priority Healthcare Corporation (3,350)
Proceeds under line of credit agreement 596,000 989,500
Payments under line of credit agreement (562,500) (884,500)
Proceeds from securitized borrowings 13,800
Purchase of common shares for treasury (6,648) (490)
Dividends (507) (757)
--------------------------------
Net cash provided by financing activities 40,137 109,383
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Net increase (decrease) in cash (31,755) (19,504)
Cash at beginning of period 42,982 42,895
--------------------------------
Cash at end of period $ 11,227 $ 23,391
================================
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
-----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. We have prepared the consolidated financial statements in this report
without audit. We condensed or omitted some information and footnote
disclosures, including significant accounting policies, that would normally
be included in financial statements prepared in accordance with generally
accepted accounting principles. We believe that the financial statements
for the three and six-month periods ended June 30, 1999 and 1998 include
all necessary adjustments which are of a normal recurring nature, for fair
presentation. These financial statements should be read in conjunction
with the financial statements and notes included in our latest annual
report. Results for any interim period may not be indicative of the results
of the entire year.
2. Prescription Drug Price Litigation. We were named a defendant, along with
six other pharmaceutical wholesalers and 24 pharmaceutical manufacturers in
a consolidated class action filed in the United States District Court for
the Northern District of Illinois in 1993. (In re Brand Name Prescription
Drugs Litigation, MDL 997.) The complaint alleged that the defendants
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 complaint sought injunctive relief, unspecified treble
damages, costs, interest and attorneys' fees. Additional complaints were
filed in the federal class action by two chain drug companies naming
certain pharmaceutical manufacturers and wholesalers, including us, as
defendants. These complaints contain allegations and claims for relief
that are substantially similar to those in the earlier class action
complaint. In addition, we are a defendant in additional actions brought
by plaintiffs who "opted out" of the federal class action. The vast
majority of the complaints in these actions contain allegations and claims
for relief that are substantially similar to those in the federal class
action. The remaining complaints add allegations that the defendants'
conduct violated state law.
On July 1, 1996, we and several other wholesalers were joined as defendants
in a proceeding filed in the Circuit Court of Greene County, Alabama.
(Durrett v. The Upjohn Company, Civil Action No. 94-029.) The plaintiffs
claimed the prices of prescription drugs purchased in interstate commerce
were artificially high because of alleged illegal activities of the
defendant pharmaceutical manufacturers and wholesalers. The complaint
sought monetary damages, injunctive relief and punitive damages. On June
25, 1999, the Alabama Supreme Court ruled against the plaintiffs and
remanded the case to the trial court for dismissal.
On June 16, 1998, we were named a defendant in an action filed in the
Circuit Court for Cocke County, Tennessee purportedly on behalf of
consumers of
<PAGE>
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. 25,109-00.) The complaint
charges that pharmaceutical manufacturers and wholesalers, including us,
engaged in a price-fixing conspiracy in violation of Tennessee's Trade
Practices Act and Consumer Protection Act, and the unfair or deceptive
trade practices statutes of the other jurisdictions named therein.
We have denied any liability to the plaintiffs in the prescription drug
price litigation described above and have been defending ourselves
vigorously. On October 21, 1994, we entered into an agreement with the
other defendants, wholesalers and pharmaceutical manufacturers covering all
of the prescription drug price actions. Under this agreement: (1) the
manufacturer defendants agreed to reimburse us and the other wholesaler
defendants for litigation costs incurred, up to an aggregate amount of $9
million; and (2) if a judgment is entered against both manufacturers and
wholesalers, our total exposure for joint and several liability would be
limited to the lesser of 1% of such judgment or $1 million. In addition,
we have released any claims which we might have had against the
manufacturers for the claims presented by the plaintiffs in these actions.
As a result of the settlements discussed in the next paragraph, we expect
to receive reimbursement of substantially all of our legal fees and
expenses in excess of our proportionate share of the $9 million.
Several of the manufacturer defendants and the class plaintiffs have
reached settlement agreements with regard to the class action. The trial
against the remaining defendants, including us, began on September 14,
1998. On November 30, 1998, the Court granted all remaining defendants'
motions for judgments as a matter of law and dismissed all class claims
against us and other defendants. The class plaintiffs appealed the Court's
ruling, and, on July 13, 1999, the appeals court dismissed the wholesalers,
including us, from the case.
After discussions with counsel, we believe that any allegations of
liability against us in the remaining prescription drug pricing cases
described above are without merit and that any liability that we may have
is not likely to have a material adverse effect on our financial condition
or results of operations.
Other Legal Proceedings. We are also subject to ordinary and routine
lawsuits and governmental inspections, investigations and proceedings
incidental to our business, the outcome of which would not have a material
adverse effect on our financial condition or results of operations.
3. On June 3, 1998, a 4-for-3 stock split of our common stock was paid in the
form of a stock dividend to shareholders of record at the close of business
on May 21, 1998. On June 25, 1999, another 4-for-3 stock split of our
common stock was paid in the form of a stock dividend to shareholders of
record at the close of business on June 11, 1999. We restated all
historical weighted average shares and per share amounts in this report to
reflect these stock splits. Share amounts in the Consolidated Balance
Sheets reflect the actual share amounts outstanding for each period
presented.
<PAGE>
4. On April 30, 1999, we sold our corporate office building to an unrelated
party for approximately net book value and signed a 15 year lease for the
top two floors of the building. This lease meets the criteria of a capital
lease and resulted in the recording of an asset and liability in the amount
of the present value of minimum lease payments of $13.4 million. The asset
is being amortized over the term of the lease and the depreciation of the
asset is included in depreciation expense.
5. On December 31, 1998, we completed the spin-off of our subsidiary Priority
Healthcare Corporation ("Priority") by distributing to the holders of our
common stock all of the shares of Priority Class A Common Stock that we
owned. The spin-off resulted in the removal of $107.5 million of assets
and $37.2 million of liabilities from our Consolidated Balance Sheet as of
December 31, 1998. The results of operations for Priority, net of minority
interest, for the three and six-month periods ended June 30, 1998 are
included in our Consolidated Statement of Earnings because Priority
remained a subsidiary through December 31, 1998.
6. We had two reportable segments prior to the spin-off of Priority, BWI and
Priority. Both segments conducted substantially all of their business
within the United States. The BWI segment specialized in the distribution
of pharmaceuticals and related health care products to chain drug companies
which operate their own warehouses, individual drug stores, supermarkets
and mass retailers with their own pharmacies, hospitals, clinics, HMOs,
state and federal government agencies and other health care providers. The
Priority segment distributed specialty pharmaceuticals and related medical
supplies to the alternate site healthcare market and was a provider of
patient-specific, self-injectible biopharmaceuticals and disease treatment
services to individuals with chronic diseases. Our segments had separate
management teams and infrastructures to meet the specific needs of our
customers and our marketing strategies.
After the spin-off of Priority on December 31, 1998, we have only one
reportable segment. The assets, liabilities and equity of Priority are not
included in our December 31, 1998 or June 30, 1999 Consolidated Balance
Sheets and our Consolidated Statement of Earnings for the three and six
month periods ended June 30, 1999 do not include the results of operations
for Priority.
Segment information for the three and six-month periods ended June 30, 1998
was as follows:
<TABLE>
<CAPTION>
(in thousands) BWI Priority Total
-------------------------------------------------------
Three-months ended June 30, 1998
<S> <C> <C> <C>
Revenues $1,784,124 $ 63,924 $1,848,048
Segment net earnings 5,902 2,270 8,172
Six-months ended June 30, 1998
Revenues $3,687,767 $122,052 $3,809,819
Segment net earnings 11,399 4,347 15,746
</TABLE>
7
<PAGE>
7. On July 26, 1999, we executed a definitive agreement to acquire Central
Pharmacy Services, Inc. ("CPSI) of Atlanta, Georgia for approximately $55
million of Bindley Western Common Stock. CPSI, which had sales of $33
million for the year ended December 31, 1998, operates specialized
pharmacies in 26 cities located in 13 states. These pharmacies prepare and
deliver unit dose radiopharmaceuticals for use in nuclear imaging
procedures in hospitals and clinics. The proposed transaction will be
accounted for as a pooling of interests and is subject to regulatory
approval and certain other conditions being satisfied prior to closing.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
On December 31, 1998, we completed the spin-off of our subsidiary
Priority Healthcare Corporation ("Priority") by distributing to the holders of
our common stock, all of the shares of Priority Class A Common Stock that we
owned. The spin-off resulted in the removal of $107.5 million of assets and
$37.2 million of liabilities from our Consolidated Balance Sheet as of December
31, 1998. The results of operations for Priority, net of minority interest, for
the three and six-month periods ended June 30, 1998 are included in our
Consolidated Statement of Earnings because Priority remained a subsidiary
through December 31, 1998.
Results of Operations
Net sales of $4,020 million for the first six months of 1999 represented a
5.5% increase over the first six months of 1998. Net sales of $2,046 million
for the second quarter of 1999 represented a 10.67% increase over the second
quarter of 1998. Priority sales accounted for approximately 3% of total sales
for both the first six months and the second quarter of 1998. Brokerage type
sales ("brokerage sales") in 1999 experienced a 17% decrease for the first six
months when compared to the same period in 1998, while brokerage sales for the
second quarter of 1999 experienced only a 4% decrease when compared to the
second quarter of 1998. These decreases resulted from the loss of a single
chain warehouse customer during the second quarter of 1998. Although brokerage
sales generate very little gross margin, they provide increased working capital
and support our programs to attract more direct store delivery business from
chain warehouse customers. Sales from inventory ("from stock sales") increased
29% in the first six months of 1999 when compared to the first six months of
1998 (38% when Priority's sales are excluded from 1998 results) and 24% for the
second quarter of 1999 when compared to the second quarter of 1998. From stock
sales include sales from inventory to chain warehouse customers and direct store
delivery sales. We continued to expand our presence in the direct store
delivery portion of the business through increased sales to existing customers
and the addition of new customers. Direct store delivery sales increased by 33%
for the first six months of 1999 (43% when Priority's sales are excluded from
1998 results) when compared to the first six months of 1998 and 27% for the
second quarter of 1999 when compared to the second quarter of 1998. As a
percentage of total sales, direct store delivery sales increased from 46% for
the first six months of 1998 to 59% for the first six months of 1999. This
increase is attributed to both the loss of the chain warehouse customer and the
increase in the direct store delivery sales. In both the first six months of
1999 and 1998, the increase related to price increases was approximately equal
to the increase in the Consumer Price Index.
Gross margin of $95.9 million for the first six months of 1999 represented
an increase of 6% over the first six months of 1998. The gross margin of
$48.8 million in the second quarter of 1999 represented a 3% increase over the
second quarter of 1998. However, when Priority's margins are excluded from the
1998 results, gross margins increased by 25% for the first six months and 21%
for the second quarter. In all periods, the pressure on sell side margins
continued to be a significant factor and the purchasing gains associated with
pharmaceutical price inflation remained relatively constant. Gross margin as a
percentage of net sales increased to 2.39% for the first six months of 1999 from
2.37% for the first six months of 1998 (2.01% after the exclusion of Priority).
This increase in gross margins was the result of the
<PAGE>
change in mix away from the lower margin brokerage sales to the higher margin
from stock sales. This change in mix resulted from both the loss of the chain
warehouse customer and the increase in direct store delivery business. For the
second quarter, gross margins as a percentage of net sales decreased from 2.56%
in 1998 (2.26% after the exclusion of Priority) to 2.38% in 1999. This decrease
was the result of the diminishing impact of the loss of the chain warehouse
customer in the second quarter and the inclusion of Priority in the 1998
results.
Other income decreased because the 1999 results did not include the
interest income that Priority had earned on the proceeds of its October 1997
initial public offering. Other income for 1999 is attributed to finance charges
on customers' receivables.
Selling, general and administrative ("SGA") expenses for the first six
months of 1999 increased 2% from $51.3 million in 1998 to $52.1 million in 1999.
For the second quarter, SGA increased .4% from $26.7 million in 1998 to
$26.8 million in 1999. When Priority is excluded from the 1998 results, the
increase in SGA was 16% for the first six months and 13% for the second. This
increase is the result of normal inflationary increases and increased variable
costs to support our growing direct store delivery programs. These variable
costs include, among others, delivery expenses, warehouse expense and labor
costs. SGA expenses will continue to increase as direct store delivery sales
increase. However, total SGA expense as a percent of from stock sales for the
first six months decreased from 2.7% (2.6% excluding Priority) in 1998 to 2.2%
in 1999. We remain focused on controlling SGA through improved technology,
better asset management and opportunities to consolidate distribution centers.
In 1999, SGA included $300,000 of charges associated with the start-up of new
distribution centers in Milwaukee, Wisconsin, Kansas City, Missouri and Denver,
Colorado. SGA in 1998 included expenses of approximately $250,000 related to
start up expenses of new distribution centers in Portland, Oregon and Woodland,
California.
Depreciation and amortization expense increased as a result of the building
of new facilities, expansion and automation of existing facilities and
investments in management information systems. Depreciation and amortization
expense increased from $4.0 million ($3.4 million excluding Priority) in the
first six months of 1998 to $4.4 million in the first six months 1999. For the
second quarter, depreciation and amortization expense increased from
$2.1 million ($1.8 million excluding Priority) in 1998 to $2.4 million in 1999.
Interest expense for the six-month period increased from $8.6 million in
1998 to $10.6 million in 1999. For the second quarter, interest expense
increased from $4.6 million in 1998 to $5.1 million in 1999. The average short-
term borrowings outstanding for the six-month period in 1998 were $212 million
at an average short-term interest rate of 6.4%, as compared to $324 million at
an average short-term interest rate of 5.0% in 1999. For the second quarter,
the average short-term borrowings outstanding were $235 million at an average
short-term interest rate of 6.4%, as compared to $312 million at an average
short-term interest rate of 4.8% in 1999.
The provision for income taxes represented 39.75% of earnings before taxes
for the first six months and the second quarter of both 1998 and 1999.
On July 26, 1999, we executed a definitive agreement to acquire
Central Pharmacy Services, Inc. ("CPSI) of Atlanta, Georgia for approximately
$55 million of Bindley Western Common Stock. CPSI, which had sales of
$33 million for the year ended December 31, 1998, operates specialized
pharmacies in 26 cities located in 13 states. These pharmacies prepare
<PAGE>
and deliver unit dose radiopharmaceuticals for use in nuclear imaging procedures
in hospitals and clinics. The proposed transaction will be accounted for as a
pooling of interests and is subject to regulatory approval and certain other
conditions being satisfied prior to closing.
Liquidity-Capital Resources
For the six-month period ended June 30, 1999, our operations consumed
$82.3 million in cash. The use of funds resulted from an increase in accounts
receivables and inventories. These uses were offset by an increase in accounts
payable. The increase in accounts receivables is a direct result of the increase
in direct store sales. The increase in inventories resulted from increased
purchases associated with the start up of our new distribution centers in
Milwaukee, Wisconsin and Kansas City, Missouri and additional volume associated
with the inventory and purchasing management systems with certain customers. The
increase in accounts payable is attributed to the timing of payments of invoices
related to inventory purchases. We continue to closely monitor working capital
in relation to economic and competitive conditions. However, our emphasis on
direct store delivery business will continue to require both net working capital
and cash.
Capital expenditures were $10.5 million during the first six months of
1999. These were predominantly for the corporate offices and warehouse
facilities, the expansion and automation of existing warehouses and the
investment in additional management information systems.
On April 30, 1999, we sold our corporate office building to an unrelated
party and signed a 15 year lease for the top two floors of the building. This
lease meets the criteria of a capital lease and resulted in the recording of an
asset and liability in the amount of the present value of minimum lease payments
of $13.4 million. The asset is being amortized over the term of the lease and
the depreciation of the asset is included in depreciation expense.
Under our receivables securitization facility, we sell substantially all of
our receivables arising in connection with the sale of goods or the rendering of
services to Bindley Western Funding Corporation ("Funding Corp."), a wholly
owned special purpose corporation subsidiary. The Receivables are sold to
Funding Corp. on a continuous basis. The cash generated by sales of interests
in the receivables and from collections on the receivables retained is used by
Funding Corp. to purchase additional receivables. The assets of Funding Corp.
are available first to satisfy any claims of Funding Corp. creditors.
Funding Corp. sells our receivables at specified discount rates to a group
of banks. At June 30, 1999, there were $238 million of receivables interests
outstanding that have been sold at an annual average discount rate of 5.0%. We
account for the receivables facility as a financing transaction in our
consolidated financial statements.
Our bank credit facility allows us to borrow up to $174.5 million. The net
increase in borrowings under our bank credit agreement was $33.5 million during
the period. At June 30, 1999, we had outstanding borrowings of $53 million and
a remaining availability of $121.5 million.
We believe that our cash on hand, cash equivalents, line of credit and
working capital management efforts are sufficient to meet our future working
capital requirements.
Our principal working capital needs are for inventory and accounts
receivables. We sell
<PAGE>
inventory to our chain warehouse and other customers on various payment terms.
This requires significant working capital to finance inventory purchases and
entails accounts receivables exposure in the event any of our chain warehouse or
other significant customers encounter financial difficulties. Although we
monitor closely the creditworthiness of our major customers and, when feasible,
obtain security interests in the inventory sold, we cannot assure you that we
will not incur the write off or write down of chain warehouse customer or other
significant accounts receivables in the future.
Year 2000
The year 2000 will pose a unique set of challenges to those industries
reliant on information technology. As a result of the methods employed by early
programmers, many software applications and operational programs may be unable
to distinguish the year 2000 from the year 1900. If not effectively addressed,
this problem could result in the production of inaccurate data, or in the worst
case, the inability of the systems to continue to function altogether. We and
other companies in the same business are vulnerable to this problem because we
depend on our distribution and communications systems.
Our Daily Sales System, which controls ordering, pricing, inventory
control, and shipping, accounting for 70% of our total investment in software,
was initially designed and programmed to be Year 2000 compliant. All remaining
systems have been remediated to be year 2000 compliant and are currently being
tested. Furthermore, all major software purchases that we made within the past
three years have been warranted to be compliant by the vendor. We have upgraded
and replaced our hardware and network systems for reasons other than Year 2000
compliance, however, this new hardware and network systems will be fully tested
during 1999 to determine if they are also Year 2000 compliant. We estimate the
total cumulative costs to make our systems compliant for the Year 2000 is
approximately $1 million, of which approximately $850,000 had been incurred as
of June 30, 1999.
We believe that the expenditures required to make our systems Year 2000
compliant will not have a materially adverse effect on our future performance.
However, the Year 2000 problem is pervasive and complex and can potentially
affect any computer process. Accordingly, we cannot assure you that Year 2000
compliance can be achieved without additional unanticipated expenditures and
uncertainties that might affect our future financial results.
Moreover, to operate our business, we rely on governmental agencies,
utility companies, telecommunications companies, shipping companies, suppliers
and other third party service providers over which we can assert little control.
Our ability to conduct our business is dependent upon the ability of these third
parties to avoid Year 2000 related disruptions. We are in the process of
contacting our third party service providers about their Year 2000 readiness,
but we have not yet received complete assurance from such third parties about
their Year 2000 compliance. If our key third party service providers do not
adequately address their Year 2000 issues, our business may be materially
affected, which could result in a materially adverse effect on our results of
operations and financial condition.
We have not to date developed any formal contingency plans, as such plans
will depend in part on the responses from our third party service providers.
However, if required, critical functions could be handled on an alternative
basis until such time that the Year 2000 malfunction was identified and
resolved.
<PAGE>
Forward-Looking Statements
We make forward-looking statements in this report which represent our
expectations or beliefs about future events and financial performance. Forward-
looking statements are subject to known and unknown risks and uncertainties,
including:
. changes in interest rates;
. competitive pressures;
. changes in customer mix;
. financial stability of major customers and key suppliers;
. investment procurement opportunities;
. changes in governmental regulations or the interpretation and enforcement
of these regulations;
. asserted and unasserted claims; and
. our ability and the ability of entities with which we do business to modify
or redesign our and their computer systems to work properly in the year
2000.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this report might not occur. In addition, actual results
could differ materially from those suggested by the forward-looking statements,
and therefore you should not place undue reliance on the forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 3. Qualitative and Quantitative Disclosures About Market Risks
There have been no material changes in our market risk exposure from the risks
described in our Annual Report on Form 10-K for the year ended December 31,
1998.
<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 20, 1999.
b) The following directors were elected at the meeting:
<TABLE>
<CAPTION>
Votes for Votes against Abstentions
--------------------------------------------------
<S> <C> <C> <C>
William E. Bindley 20,903,397 0 15,305
Robert L. Koch, II 20,901,916 0 16,786
James K. Risk, III 20,902,722 0 15,980
K. Clay Smith 20,902,722 0 15,980
J. Timothy McGinley 20,902,712 0 15,990
Michael D. McCormick 20,903,394 0 15,308
William F. Bindley, II 20,903,127 0 15,575
Thomas J. Salentine 20,903,397 0 15,305
Keith W. Burks 20,903,397 0 15,305
Seth B. Harris 20,902,734 0 15,968
Carolyn Y. Woo 20,902,464 0 16,238
</TABLE>
c) Other matters voted upon and the results of the voting were
as follows:
1) The shareholders voted 20,896,819 shares in the
affirmative, 7,505 votes in the negative and 14,378
abstentions to appoint PricewaterhouseCoopers LLP as
auditors of the Corporation.
2) The shareholders voted 20,581,002 shares in the
affirmative, 286,654 votes in the negative, 51,046
abstentions and no broker non-votes to approve the
proposed amendment to the Company's 1993 Stock Option
and Incentive Plan.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10-D (v)* First Amendment to Bindley Western Industries,
Inc. Outside Directors Stock Option Plan
27. Selected Financial Data Schedule
(b) Reports on Form 8-K
None
*The included exhibit is a compensating plan or arrangement
required to be filed by item 6 of Regulation S-K.
<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 16, 1999 BINDLEY WESTERN INDUSTRIES, INC.
BY /s/ Thomas J. Salentine
-----------------------
Thomas J. Salentine
Executive Vice President
(Principal Financial Officer)
<PAGE>
EXHIBIT 10-D(V)
FIRST AMENDMENT TO
BINDLEY WESTERN INDUSTRIES, INC.
OUTSIDE DIRECTORS STOCK OPTION PLAN
WHEREAS, the Board of Directors of Bindley Western Industries, Inc. (the
"Company") adopted the Bindley Western Industries, Inc. Outside Directors Stock
Option Plan (the "Plan") on March 29, 1991; and
WHEREAS, the Plan was approved by the shareholders of the Company on May
14, 1991; and
WHEREAS, the Company now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Paragraph 6 of the Plan is hereby amended to read in its entirety as
follows:
6. Option Grants. On June 1 of each year, commencing June 1, 1991,
each Eligible Director on such date shall be automatically granted an
Option to purchase 1,000 shares of Common Stock. Each Option shall be
evidenced by an agreement in such form as the Committee shall prescribe
from time to time in accordance with the Plan and shall comply with the
following terms and conditions and such additional terms and conditions not
inconsistent with the Plan as may from time to time be prescribed by the
Committee.
(a) The Option exercise price per share shall be eighty-five percent
(85%) of the Fair Market Value of a share of Common Stock on the date the
Option is granted.
(b) The Option shall not be transferable by the Grantee otherwise than
by will or the laws of descent and distribution, and shall be exercisable
during his lifetime only by him.
(c) The Option shall not be exercisable before the expiration of six
months from the date it is granted and after the expiration of up to ten
years from the date it is granted.
(d) Payment of the Option price shall be made at the time the Option
is exercised, and shall be made in United States dollars by cash or check.
(e) An Option shall not be exercisable unless the person exercising
the Option has been, at all times during the period beginning with the date
of grant of the Option and ending on the date of such exercise, in
continuous service on the Board, except that
(i) if any Grantee of an Option shall die or become permanently
disabled or shall retire with the consent of the Board, holding an
Option that has not expired and has not been fully exercised, he or
his executor, administrators, heirs, or distributees, as the case may
be, may, at any time within one
-1-
<PAGE>
year after the date of such event (but in no event after the
Option has expired under the provisions of subparagraph 6(c)
above), exercise the Option with respect to any shares as to
which the Grantee could have exercised the Option at the time of
his death, disability, or retirement; or
(ii) if a Grantee shall cease to serve as a director of the
Company for any reason other than those set forth in 6(e)(i)
above, while holding an Option that has not expired and has not
been fully exercised, the Grantee, at any time within three
months of the date he ceased to be such an Eligible Director (but
in no event after the Option has expired under the provisions of
subparagraph 6(c) above), may exercise the Option with respect to
any shares of Common Stock as to which he could have exercised
the Option on the date he ceased to be such an Eligible Director.
(f) Each Grantee of an Option shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment of,
any federal, state, or local taxes of any kind required by law to be
withheld with respect to the shares of Common Stock as to which an
Option is being exercised.
2. Paragraph 7 of the Plan is hereby amended to read in its
entirety as follows:
7. Dilution and Other Adjustments. In the event of any change in
the outstanding Common Stock by reason of any stock split, stock
dividend, recapitalization, merger, consolidation, reorganization,
combination or exchange of shares or other similar event, the number
or kind of shares that may be issued under the Plan pursuant to
Paragraph 5 above, the number or kind of shares subject to any
outstanding Option, and the Option price per share under any
outstanding Option, shall be automatically adjusted so that the
proportionate interest of the Eligible Directors or of the Grantee
shall be maintained as before the occurrence of such event. Any
adjustment in outstanding Options shall be made without change in the
total Option exercise price applicable to the unexercised portion of
such Options and with a corresponding adjustment in the Option
exercise price per share. Any adjustment permitted by this Paragraph
shall be conclusive and binding for all purposes of the Plan.
3. This First Amendment to the Plan shall become effective upon its
adoption by the Board of Directors of the Company.
Adopted by the Board of Directors of Bindley
Western Industries, Inc. as of May 20, 1999
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,227
<SECURITIES> 0
<RECEIVABLES> 498,683
<ALLOWANCES> 3,912
<INVENTORY> 810,053
<CURRENT-ASSETS> 1,343,593
<PP&E> 120,312
<DEPRECIATION> 28,582
<TOTAL-ASSETS> 1,452,957
<CURRENT-LIABILITIES> 1,088,307
<BONDS> 13,865
0
0
<COMMON> 3,381
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<TOTAL-LIABILITY-AND-EQUITY> 1,452,957
<SALES> 4,020,173
<TOTAL-REVENUES> 4,021,072
<CGS> 3,924,234
<TOTAL-COSTS> 3,991,356
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<INTEREST-EXPENSE> 10,610
<INCOME-PRETAX> 29,716
<INCOME-TAX> 11,812
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,904
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.54
</TABLE>
