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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended AUGUST 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 0-26416
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OWEN HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1329577
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9800 CENTRE PARKWAY, SUITE 1100
HOUSTON, TEXAS 77036-8279
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 777-8173
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 [ ]
As of October 4, 1996, 17,061,094 shares of the Registrant's Common Stock
were outstanding.
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<PAGE>
OWEN HEALTHCARE, INC.
FORM 10-Q (AUGUST 31, 1996)
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
November 30, 1995 and August 31, 1996.............................. 3
Consolidated Statements of Income
Three and Nine Months Ended August 31, 1995 and 1996............... 4
Consolidated Statement of Stockholders' Equity
Year Ended November 30, 1995 and
Nine Months Ended August 31, 1996.................................. 5
Consolidated Statements of Cash Flows
Nine Months Ended August 31, 1995 and 1996......................... 6
Notes to Consolidated Financial Statements......................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 8-11
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 12
Item 6. Exhibits and Reports on Form 8-K................................... 12
SIGNATURES................................................................. 13
2.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OWEN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
November 30, August 31,
1995 1996
Audited Unaudited
--------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 16,479 $ 14,606
Accounts and notes receivable, less allowance for
doubtful accounts of $4,123 and $5,602 in 1995 and 1996,
respectively .......................................................... 48,046 52,315
Inventories .............................................................. 35,428 45,270
Other current assets ..................................................... 7,408 7,035
--------- ---------
Total current assets ................................................... 107,361 119,226
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $21,350 and $26,485 in
1995 and 1996, respectively ........................................... 14,194 13,917
NOTES RECEIVABLE, less allowance for
doubtful accounts of $571 and $158 in
1995 and 1996, respectively ........................................... 1,251 346
OTHER ASSETS ............................................................... 2,451 2,959
PATENT, less accumulated amortization of $1,157
and $1,705 in 1995 and 1996, respectively ............................. 8,343 7,795
GOODWILL, less accumulated amortization
of $571 and $850 in 1995 and 1996, respectively ....................... 14,130 13,851
--------- ---------
$ 147,730 $ 158,094
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................................... $ 12,303 $ 17,034
Accrued compensation and benefits ........................................ 15,852 16,070
Current maturities of long-term debt ..................................... 1 2
Accrued taxes ............................................................ 1,152 827
Other current liabilities ................................................ 3,387 1,867
--------- ---------
Total current liabilities .............................................. 32,695 35,800
LONG-TERM DEBT (less current maturities) ................................... 2
DEFERRED INCOME TAXES ...................................................... 3,799 4,985
OTHER LIABILITIES .......................................................... 934 94
--------- ---------
Total liabilities......................................................... 37,430 40,879
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued,
Common stock, $.25 stated value, 40,000,000 shares
authorized, 18,845,748 issued ........................................ 4,711 4,711
Capital in excess of stated value ........................................ 69,441 69,663
Retained earnings ........................................................ 42,244 50,003
Treasury stock, at cost, 1,845,877 and 1,768,604
shares in 1995 and 1996, respectively ................................. (6,096) (7,162)
--------- ---------
110,300 117,215
--------- ---------
Commitments and contingencies
--------- ---------
$ 147,730 $ 158,094
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
3.
<PAGE>
OWEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three months ended August 31, Nine months ended August 31,
----------------------------- ----------------------------
1995 1996 1995 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
REVENUES ............................ $ 95,773 $ 107,251 $ 282,820 $ 321,696
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of goods sold and other direct 81,248 92,386 240,765 273,088
Selling, general and administrative 10,864 11,912 30,505 35,204
Research and development .......... 220 600 340 1,026
--------- --------- --------- ---------
92,332 104,898 271,610 309,318
--------- --------- --------- ---------
OPERATING INCOME .................... 3,441 2,353 11,210 12,378
Interest expense .................... (1,254) (47) (3,004) (95)
Investment income ................... 73 135 82 303
Other income ........................ 257 115 521 492
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES .......... 2,517 2,556 8,809 13,078
Provision for income taxes .......... 1,045 952 3,656 5,319
--------- --------- --------- ---------
NET INCOME .......................... $ 1,472 $ 1,604 $ 5,153 $ 7,759
========= ========= ========= =========
EARNINGS PER SHARE:
Primary ........................... $ 0.11 $ 0.09 $ 0.45 $ 0.43
========= ========= ========= =========
Assuming full dilution ............ $ 0.10 $ 0.09 $ 0.40 $ 0.43
========= ========= ========= =========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Primary ........................... 13,294 17,977 11,494 18,151
========= ========= ========= =========
Assuming full dilution ............ 14,938 17,977 13,726 18,151
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
4.
<PAGE>
OWEN HEALTHCARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except per share data)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
Capital in Adjust-
Shares $.25 stated excess of stated Retained Treasury ment for
outstanding value value earnings stock ESOP Total
------- ------ -------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 30, 1994 . 9,817 $2,967 $ 10,799 $ 34,134 $(6,293) $(21,296) $ 20,311
PURCHASE OF SHARES
FOR TREASURY................ (90) (725) (725)
STOCK GRANT ................ 5 31 16 47
EXERCISE OF OPTIONS ........ 289 (86) 906 820
ESOP ADJUSTMENT ............ 21,296 21,296
NET INCOME ................. 8,110 8,110
PUBLIC STOCK OFFERING, NET . 4,598 1,149 49,505 50,654
CONVERSION OF SUBORDINATED
DEBT, NET ................ 2,381 595 9,192 9,787
------- ------ -------- -------- ------- -------- ---------
BALANCE AT NOVEMBER 30, 1995 17,000 4,711 69,441 42,244 (6,096) $ 110,300
PURCHASE OF SHARES FOR
TREASURY ................. (96) (1,221) (1,221)
EXERCISE OF OPTIONS ........ 198 47 691 738
NET INCOME ................. 7,759 7,759
TRANSFER OF SHARES HELD IN
ESCROW TO TREASURY ...... (25) (536) (536)
TAX BENEFIT FROM EXERCISE OF
STOCK OPTIONS ............ 175 175
------- ------ -------- -------- ------- -------- ---------
UNAUDITED BALANCE AT AUGUST
31, 1996 .................. 17,077 $4,711 $ 69,663 $ 50,003 $(7,162) $ $ 117,215
====== ====== ======== ======== ======= ======== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
5.
<PAGE>
OWEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
NINE MONTHS ENDED AUGUST 31,
----------------------------
1995 1996
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers ..................... $ 272,383 $ 318,590
Cash paid to suppliers and employees ............. (273,004) (312,231)
Interest received ................................ 603 478
Interest paid .................................... (3,017) (95)
Income taxes paid ................................ (3,899) (3,300)
--------- ---------
Net cash provided (used) by operating activities (6,934) 3,442
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ............ (5,946) (5,020)
Proceeds from sale of property and equipment ..... 104 189
--------- ---------
Net cash used in investing activities .......... (5,842) (4,831)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options ........................ 623
Payment of long-term debt ........................ (22,503) (1)
Purchase of shares for treasury .................. (701) (1,106)
Proceeds from sale of treasury stock ............. 622
Public stock offering ............................ 50,818
--------- ---------
Net cash provided (used) by financing activities 28,236 (484)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,460 (1,873)
CASH AND CASH EQUIVALENTS:
Beginning of period .............................. 6,071 16,479
--------- ---------
End of period .................................... $ 21,531 $ 14,606
========= =========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
Net income ..................................... $ 5,153 $ 7,759
Depreciation and amortization .................. 5,144 6,696
Provision for bad debts ........................ 1,007 235
Deferred income taxes .......................... (66) 799
Gain on disposition of assets .................. (17) (143)
Stock grant .................................... 47
Changes in assets and liabilities:
Accounts and notes receivable ................ (10,437) (3,599)
Inventories .................................. (9,316) (9,842)
Other assets ................................. 209 (747)
Accounts payable ............................. (1,565) 4,731
Accrued compensation and benefits ............ 2,979 218
Other liabilities ............................ (72) (2,665)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ... $ (6,934) $ 3,442
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
ESOP debt principal amortization ................. $ 250
=========
Exchange of shares to exercise options ........... $ 110 $ 115
========= =========
Convertible debt conversion ...................... $ 10,000
=========
Transfer of shares held in escrow to treasury .... $ 536
=========
The accompanying notes are an integral part of this statement.
6.
<PAGE>
OWEN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
(Unaudited)
(1) INTERIM FINANCIAL INFORMATION
The consolidated interim financial statements of the Company presented
herein have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, certain information and
notes required by generally accepted accounting principles have been condensed
or omitted. In the opinion of management, these statements include all
adjustments (all of which consist of normal recurring adjustments except as
otherwise noted herein) necessary to present fairly the Company's financial
position and results of operations for the interim periods presented. These
statements should be read in conjunction with the audited financial statements
and notes thereto for the fiscal year ended November 30, 1995. The results of
operations for the three and nine months ended August 31, 1996 are not
necessarily indicative of the results of operations that may be expected for the
year ended November 30, 1996.
(2) RECLASSIFICATIONS
Certain amounts in the accompanying 1995 consolidated financial statements
have been reclassified to conform with the 1996 presentation.
(3) SEGMENT INFORMATION
The Company's operations are classified into two business segments:
healthcare management services and automated medication management. Operations
within the healthcare management services segment include pharmacy management
services, healthcare materials services and home infusion therapy, all provided
on a contract basis in the U.S. The automated medication management segment
includes the manufacture and sale of automated medication management systems for
use in healthcare facilities.
Operating income (loss) for each business segment is defined as revenues
less operating costs and expenses. Identifiable assets are those tangible and
intangible assets used exclusively in the operations of each business segment or
which are allocated when used jointly.
The following table shows revenues, operating income (loss) and other
financial information by business segment for the nine months ended August 31,
1996 (in thousands):
HEALTHCARE AUTOMATED
MANAGEMENT MEDICATION
SERVICES MANAGEMENT CONSOLIDATED
---------- ---------- ------------
Revenues ................................. $312,221 $ 9,475 $321,696
Operating income (loss) .................. 17,489 (5,111) 12,378
Identifiable assets ...................... 121,855 36,239 158,094
Capital expenditures ..................... 4,485 535 5,020
Depreciation and amortization expense .... 5,563 1,133 6,696
7.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Approximately 90% of Owen's revenues for both the three months and nine
months ended August 31, 1996 came from the management of hospital pharmacies.
The Company's largest client, a group of hospitals managed by a single hospital
management company, provided 17.0% of revenues during the nine month period
ended August 31, 1996 compared to 13.8% for all of fiscal year 1995. The
Company's five largest clients, all group hospitals, accounted for 43.8% of
revenues during the nine months ended August 31, 1996 compared to 39.9% for all
of fiscal 1995. The Company is the nation's largest hospital pharmacy management
company and provides other information technology and automated pharmaceutical
services.
Owen provides its hospital pharmacy services under contracts with a
variety of compensation arrangements, many of which include price guarantees and
other risk sharing arrangements. In addition, factors such as patient volumes,
intensity of services, patient mix, drug price changes, physician prescribing
patterns and changes in contract terms upon renewal affect the revenues and
margins derived from Owen's individual hospital clients. Because of the
differences in Owen's contracts among its hospital clients and the interaction
of the factors affecting revenues, Owen is unable to quantify the amount of
revenue increase attributable to any single factor. Although there has been, and
continues to be, a trend towards reduced inpatient hospital days that has
limited revenue growth at some locations and in some cases resulted in a decline
in revenues from individual hospitals, the Company has offset this trend by
adding new hospital contracts.
Owen includes the costs of pharmaceuticals and supplies as well as direct
compensation and other costs in cost of goods sold and other direct expenses.
Owen has historically negotiated discounted purchasing arrangements from its
major suppliers and sought to preserve its margins by utilizing its systems to
encourage purchasing compliance with these arrangements. Inflation in drug
costs, introduction of new and sometimes expensive drugs, and changes in
physician prescribing patterns can affect Owen's margins. Owen's margins can
also be affected by the extent to which it can pass through these cost
increases. Finally, margins from period to period are affected by the timing and
volume of new hospital contracts. Locations are generally more profitable as
they mature, particularly after Owen has operated a pharmacy for at least one
year.
Owen is currently experiencing a very strong demand for its hospital
pharmacy management services. For the nine months ended August 31, 1996,
estimated annualized revenue attributable to new business almost doubled the
estimated annualized revenue for contracts signed in any previous full fiscal
year. During the nine months ended August 31, 1996, the Company opened 34 new
hospital pharmacies with an estimated annual revenue of approximately $74.0
million, and has signed agreements with 15 pharmacies to open in the fourth
quarter with an annualized revenue of approximately $53.9 million. Some of these
openings involve large and complex operations and, as a result, are expected to
have lower margins than Owen's historical average and may take longer to reach
maturity.
Owen is aware of circumstances that may have a negative impact on the
results of operations for the remainder of fiscal 1996. First, the unprecedented
growth in the hospital pharmacy management business from new contracts requires
significant working capital, manpower and management time until the new pharmacy
operations reach maturity. Second, the infrastructure build-up continues at the
Company's MEDITROL(R) subsidiary to support anticipated growth. However,
completed sales in the first nine months of fiscal 1996 were lower than
expected. MEDITROL contributed approximately $9.5 million, or 3.0%, of revenues
in the first nine months of fiscal 1996 principally from non-cancelable
sales-type lease transactions and outright sales. Finally, the creation of
systems interfaces between MEDITROL software and the hospital customer
information systems is complex and unanticipated developments have arisen
delaying equipment delivery and sales recognition. As a result of the
uncertainty of the timing of the completion of sales, the Company expects that
revenues from MEDITROL sales during the fourth quarter will continue to be below
original expectations.
8.
<PAGE>
The Company historically has been able to pass drug price increases
through to clients, but recent trends toward fixed price risk-sharing contracts
have reduced its ability to do so. The Company expects this trend may continue
and to this extent may negatively impact margins.
The information in the preceding paragraphs contains forward-looking
information based on current information and expectations of the Company that
involve a number of uncertainties. Among the factors that could cause the actual
results to differ materially are: the timing of the execution of new contracts,
the costs, time and complexity involved in opening new pharmacies, changes in
competitive factors or regulations, the timing of sales of MEDITROL systems, the
ability of the company to hire and train efficiently and effectively sufficient
personnel to handle its expanding business and the Company's ability to control
increases in costs associated with its increased business.
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the Company's Financial
Statements and Notes thereto included elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, certain
statements of income items for Owen's third quarter and the first nine months
ended August 31 of fiscal 1995 and 1996, respectively:
Three months ended Nine months ended
August 31, August 31,
------------------ -------------------
1995 1996 1995 1996
------------------ -------------------
Revenues ............................ 100.0% 100.0% 100.0% 100.0%
Cost of goods and other ............. 84.8 86.1 85.1 84.9
Selling, general and administrative . 11.4 11.1 10.8 10.9
Research and development ............ 0.2 0.6 0.1 0.3
Operating income .................... 3.6 2.2 4.0 3.9
Interest and other income, net ...... (1.0) 0.2 (0.9) 0.2
Income before income taxes .......... 2.6 2.4 3.1 4.1
Net income .......................... 1.5 1.5 1.8 2.4
THREE MONTHS ENDED AUGUST 31, 1996 (THIRD QUARTER) COMPARED TO THREE MONTHS
ENDED AUGUST 31, 1995
Revenues were $107.3 million for the three months ended August 31, 1996
compared to $95.8 million for the same period in fiscal 1995, an increase of
$11.5 million, or 12.0%. Increases in revenues from new pharmacy contracts begun
during the first nine months of fiscal 1996 and contracts begun in fiscal 1995
and operated for the full quarter in 1996 accounted for the increase in revenue,
partially offset by discontinued contracts and lower MEDITROL sales of $1.8
million. MEDITROL sales were lower than anticipated as placements of equipment
were delayed pending the resolution of computer interface issues. MEDITROL had
total unit sales of 66 units for the quarter and units are now installed in 77
different hospitals.
Cost of goods and other direct expenses increased $11.2 million, or 13.8%,
to $92.4 million in the quarter ended August 31, 1996, compared to $81.2 million
in the same period in fiscal 1995. Approximately 86.9% of the increase was due
to new pharmacy contracts begun during the first nine months of fiscal 1996,
with the remainder due to contracts commenced after the comparable quarter in
fiscal 1995, partially offset by a reduction in the cost of goods related to the
Company's automated medication management system.
Selling, general and administrative expenses increased $1.0 million, or
9.2%, to $11.9 million in the quarter ended August 31, 1996, compared to $10.9
million in the same period in fiscal 1995. The increase was primarily the result
of adding resources for the Company's hospital pharmacy growth and to the
Company's automated medication management system.
Research and development expenses grew to $600,000 in the quarter ended
August 31, 1996 from $220,000 for the same period in fiscal 1995. These
expenditures represented development of new products for the MEDITROL product
line.
9.
<PAGE>
Interest expense for the most recent quarter declined $1.2 million, or
96.2%, to $47,000 in the third quarter of fiscal 1996. The Company paid off
substantially all of its long-term debt with the proceeds it received from the
public offering of its common stock in August, 1995.
Investment income and other income, net, decreased $80,000 to $250,000 for
the quarter ended August 31, 1996, compared to $330,000 for the same period for
fiscal 1995. Interest income from notes receivable was lower as outstanding
notes receivable balances declined from period to period.
As a result of the foregoing, net income for the third quarter of fiscal
1996 was $1.6 million, up $0.1 million, or 6.7%, from $1.5 million in the same
quarter of fiscal 1995.
NINE MONTHS ENDED AUGUST 31, 1996, COMPARED TO NINE MONTHS ENDED AUGUST 31,
1995
Revenues were $321.7 million, an increase of $38.9 million, or 13.8%, in
the nine months ended August 31, 1996, compared to $282.8 million for the same
period in fiscal 1995. A $19.2 million, or 49.4%, increase was due to new
pharmacy contracts begun during the first nine months of fiscal 1996, and
approximately $26.6 million, or 68.4%, was due to contracts commenced in fiscal
1995 and operated for the full nine months of fiscal 1996. Approximately $2.4
million, or 6.2%, was due to an increase in MEDITROL sales. A decrease of $16.1
million, or 41.4% of the change, occurred due to discontinued contracts while an
additional increase of $6.8 million, or 17.4%, was generated by same store
pharmacies and other operations.
Cost of goods and other direct expenses increased $32.3 million, or 13.4%,
during the nine months ended August 31, 1996, to $273.1 million compared to
$240.8 million in the same period of fiscal 1995. A $14.0 million, or 43.3%,
increase was due to new pharmacy contracts begun during the first nine months of
fiscal 1996 and $16.6 million, or 51.4%, was due to contracts commenced in
fiscal 1995 and operated for the full nine months of fiscal 1996. MEDITROL
accounted for a $1.1 million, or 3.4%, increase. A decrease of $9.2 million, or
28.5% of the change, was due to discontinued pharmacy contracts. Approximately
$9.8 million, or 30.4%, was made up of increased cost of goods in the same store
pharmacies and other operations.
Selling, general and administrative expenses increased $4.7 million, or
15.4% to $35.2 million in the first nine months of fiscal 1996, compared to
$30.5 million for the same period in fiscal 1995. The increase was primarily the
result of increases necessary to support the growth in the Company's pharmacy
management business and adding resources related to the Company's automated
medication management business.
Research and development expenses increased $686,000, or 201.8%, to $1
million during the first nine months of fiscal 1996 from $340,000 in the same
period fiscal 1995. The Company's research and development expenditures are
related to developing new products to support and complement the MEDITROL
product line.
Interest expense decreased $2.9 million, or 96.7%, to $95,000 for the
first nine months ended August 31, 1996, compared to $3.0 million for the same
period in fiscal 1995. The Company used proceeds received from its public
offering in August, 1995 to pay off substantially all of its long-term debt.
Investment and other income, net, increased $192,000, or 31.8%, to
$795,000 during the nine months ended August 31, 1996, compared to $603,000
during the same period in fiscal 1995. Investment income was higher due to
average investable cash being higher, partiallly offset by a decrease in
interest income from notes receivable as outstanding notes receivable balances
declined from period to period.
As a result of the foregoing, net income for the first nine months of
fiscal 1996 was $7.8 million, an increase of $2.6 million, or 50.0%, from $5.2
million in the same period of fiscal 1995.
10.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Owen had cash and cash equivalents of $14.6 million at August 31, 1996
compared to $16.5 million at November 30, 1995. In addition to cash flow from
operations, Owen has historically financed its working capital and other
liquidity needs through bank and other institutional indebtedness. New pharmacy
management contracts typically require funds to acquire inventory, place
personnel and equipment in the client locations and to finance accounts
receivable. The Company's automated medication management business has also
required significant expenditures to build marketing and support infrastructure,
develop new products, enhance the information system, and develop necessary
software. Owen expects to continue to rely on a combination of internally
generated funds and borrowings to support its capital requirements and other
liquidity needs. During the first nine months, the Company expended
approximately $5.0 million on capital assets and anticipates that capital
expenditures will total approximately $8.0 million in fiscal 1996.
On June 28, 1996, the Company announced the commencement of a stock
repurchase program. Under the repurchase program, the Company may buy back in
open market transactions, block trades or private transactions, up to 500,000
shares of the Company's common stock (approximately 3% of the outstanding
shares) at market prices. Through August 31, 1996, the Company has repurchased
90,100 shares under this repurchase program.
As of August 31, 1996, the Company had working capital of $83.4 million
compared to $74.7 million at November 30, 1995, and its ratio of current assets
to current liabilities was 3.3 to 1 at August 31, 1996 and at November 30, 1995.
Net accounts and notes receivable increased $3.4 million during the nine months
ended August 31, 1996 and the days in accounts and notes receivable decreased to
45.2 days from 46.9 days as of November 30, 1995. Inventories increased $9.8
million during the first nine months of fiscal 1996.
Outstanding debt at August 31, 1996 was $2,000 compared to $3,000 at
November 30, 1995. Effective August 21, 1995 the Company renegotiated its
revolving line of credit with a commercial bank and at August 31, 1996 had $20.0
million of credit available. This line of credit has been extended through March
31, 1997. During the nine months ended August 31, 1996, the Company borrowed
once under this line of credit and subsequently paid back the sums borrowed.
There was no outstanding balance at August 31, 1996. The interest rate on
amounts outstanding under this credit facility is equal to the bank's prime rate
or other negotiated rates, which approximated 8.25% at August 31, 1996.
The Company commenced the manufacturing and marketing of its MEDITROL
automated medication management system during the early part of fiscal 1995. The
Company is principally marketing MEDITROL under sales-type leases whereby
revenues are recognized when the systems are installed and/or accepted by the
customer and applicable lease accounting requirements are met. Reserves for
credit losses and warranty obligations are maintained. The Company has entered
into vendor finance agreements under which sales-type lease receivables for
MEDITROL equipment originated by the Company are sold on a limited credit
recourse pool basis to the finance companies, after meeting certain credit
worthiness and related requirements. Under the agreements, there is no
obligation for the finance companies to purchase the MEDITROL lease receivables
nor must the Company offer the receivables for sale. There are no stated maximum
amounts which can be purchased and the agreements can be unilaterally
terminated, although the Company is not aware of any intent to do so. During the
first nine months of fiscal 1996, the Company received cash of $5.5 million from
the sale of lease receivables with immaterial gain or loss. These financing
facilities are not available in other than non-cancelable sales-type lease
transactions.
11.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to certain lawsuits and other potential claims
arising in the ordinary course of its business. The claims, which are
substantially covered by insurance policies, are in various stages of discovery
and some may ultimately be brought to trial. It is management's opinion that
resolution of these matters will not have a material adverse effect on the
Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Page
(a) Exhibits:
Exhibit 11.1 - Statement regarding computation of per share earnings.. 14
(b) Reports on Form 8-K:
None.
12.
<PAGE>
SIGNATURES
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.
OWEN HEALTHCARE, INC.
By:/s/ CARL E. ISGREN
Carl E. Isgren, President
(Chief Executive Officer)
Date: October 11, 1996
By: /s/ STANLEY H. FLORANCE
Stanley H. Florance,
Senior Vice President
(Chief Financial Officer)
Date: October 11, 1996
13.
EXHIBIT 11.1
OWEN HEALTHCARE, INC.
<TABLE>
<CAPTION>
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
Unaudited
Three months ended August 31, Nine months ended August 31,
---------------------------- ----------------------------
1995 1996 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY:
Earnings applicable to Common Stock ................... $ 1,472 $ 1,604 $ 5,153 $ 7,759
------- ------- ------- -------
Weighted average shares outstanding .................. 12,221 17,117 10,599 17,093
Dilutive effects of stock options .................... 1,073 859 895 1,058
------- ------- ------- -------
Common and common equivalent shares .................. 13,294 17,976 11,494 18,151
======= ======= ======= =======
Earnings per common and common equivalent share ...... $ 0.11 $ 0.09 $ 0.45 $ 0.43
======= ======= ======= =======
ASSUMING FULL DILUTION:
Earnings applicable to Common Stock .................. $ 1,472 $ 1,604 $ 5,153 $ 7,759
Reduction of convertible debt interest expense, net of
tax and corporate bonus effect ..................... 73 -- 270 --
------- ------- ------- -------
Earnings applicable to Common Stock, as adjusted ..... $ 1,545 $ 1,604 $ 5,423 $ 7,759
------- ------- ------- -------
Primary common and common equivalent shares .......... 13,294 17,976 11,494 18,151
Additional Incremental shares for options ............ 32 107
Weighted average shares issuable upon conversion of
debt ................................................ 1,612 -- 2,125 --
------- ------- ------- -------
Weighted average common and common equivalent
shares outstanding, as adjusted ..................... 14,938 17,976 13,726 18,151
======= ======= ======= =======
Earnings per common and common equivalent share ...... $ 0.10 $ 0.09 $ 0.40 $ 0.43
======= ======= ======= =======
</TABLE>
14.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM QUARTERLY REPORT AS OF AUGUST 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANICAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> AUG-31-1996
<CASH> 2,000
<SECURITIES> 12,606
<RECEIVABLES> 58,421
<ALLOWANCES> 5,760
<INVENTORY> 7,035
<CURRENT-ASSETS> 119,226
<PP&E> 40,402
<DEPRECIATION> 26,485
<TOTAL-ASSETS> 158,094
<CURRENT-LIABILITIES> 35,800
<BONDS> 0
0
0
<COMMON> 4,711
<OTHER-SE> 112,504
<TOTAL-LIABILITY-AND-EQUITY> 158,094
<SALES> 0
<TOTAL-REVENUES> 321,696
<CGS> 273,088
<TOTAL-COSTS> 309,318
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 235
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> 13,078
<INCOME-TAX> 5,319
<INCOME-CONTINUING> 7,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,759
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
