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 MAY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 0-26416
------------------
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 June 28, 1996, 17,163,294 shares of the Registrant's Common Stock
were outstanding.
------------------------------------------------------------------------------
OWEN HEALTHCARE, INC.
FORM 10-Q (MAY 31, 1996)
TABLE OF CONTENTS
Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
November 30, 1995 and May 31, 1996......................... 3
Consolidated Statements of Income
Three and Six Months Ended May 31, 1995 and May 31, 1996... 4
Consolidated Statement of Stockholders' Equity
Year Ended November 30, 1995 and
Six Months Ended May 31, 1996.............................. 5
Consolidated Statements of Cash Flows
Six Months Ended May 31, 1995 and May 31, 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OWEN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
NOVEMBER 30, MAY 31,
1995 1996
------------ ----------
Audited Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 16,479 $ 17,013
Accounts and notes receivable, less allowance
for doubtful accounts of $4,123 and $5,255
in 1995 and 1996, respectively.................... 48,046 48,120
Inventories......................................... 35,428 39,324
Other current assets................................ 7,408 6,746
--------- ---------
Total current assets.............................. 107,361 111,203
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $21,350 and $24,875 in 1995
and 1996, respectively.............................. 14,194 15,702
NOTES RECEIVABLE, less allowance for doubtful
accounts of $571 and $457 in 1995 and 1996,
respectively........................................ 1,251 1,003
OTHER ASSETS.......................................... 2,451 2,576
PATENT, less accumulated amortization of $1,157
and $1,522 in 1995 and 1996, respectively........... 8,343 7,978
GOODWILL, less accumulated amortization
of $572 and $757 in 1995 and 1996, respectively..... 14,130 13,944
--------- ---------
$ 147,730 $ 152,406
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................$ 12,303 $ 14,532
Accrued compensation and benefits................... 15,852 12,739
Current maturities of long-term debt................ 1 3
Accrued taxes....................................... 1,152 712
Other current liabilities........................... 3,387 2,502
----------- ---------
Total current liabilities........................ 32,695 30,488
LONG-TERM DEBT (less current maturities).............. 2
DEFERRED INCOME TAXES................................. 3,799 4,542
OTHER LIABILITIES..................................... 934 885
----------- ---------
Total liabilities................................... 37,430 35,915
----------- ---------
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 69,494
Retained earnings................................... 42,244 48,399
Treasury stock, at cost, 1,845,877 and 1,693,954
shares in 1995 and 1996, respectively............. (6,096) (6,113)
----------- ---------
110,300 116,491
----------- ---------
Commitments and contingencies.......................
----------- ---------
$ 147,730 152,406
=========== =========
The accompanying notes are an integral part of this statement.
3
OWEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, SIX MONTHS ENDED MAY 31,
-------------------------- ------------------------
1995 1996 1995 1996
--------------------------- ------------------------
<S> <C> <C> <C> <C>
REVENUES.................................. $ 96,374 $ 107,202 $ 187,047 $ 214,445
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of goods sold and other direct..... 82,218 89,729 159,517 180,702
Selling, general and administrative..... 10,103 12,084 19,641 23,292
Research and development................ 117 302 120 426
--------- --------- --------- ---------
92,438 102,115 179,278 204,420
--------- --------- --------- ---------
OPERATING INCOME.......................... 3,936 5,087 7,769 10,025
Interest expense.......................... (951) (24) (1,750) (48)
Investment income......................... 5 86 9 168
Other income.............................. 124 198 264 377
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES................ 3,114 5,347 6,292 10,522
Provision for income taxes................ 1,292 2,219 2,611 4,367
--------- --------- --------- ---------
NET INCOME................................ $ 1,822 $ 3,128 $ 3,681 $ 6,155
========= ========= ========= =========
EARNINGS PER SHARE:
Primary................................. $ 0.17 $ 0.17 $ 0.35 $ 0.34
========= ========= ========= =========
Assuming full dilution.................. $ 0.15 $ 0.17 $ 0.30 $ 0.34
========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary................................. 10,583 18,193 10,595 18,208
========= ========= ========= =========
Assuming full dilution.................. 12,999 18,193 13,026 18,208
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
4
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 RETAINED TREASURY MENT FOR
OUTSTANDING VALUE STATED 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................... (90) -- -- -- (725) -- (725)
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
STOCK GRANT.......................... 5 -- 31 -- 16 -- 47
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................... (6) -- -- -- (115) -- (115)
EXERCISE OF OPTIONS.................. 183 -- 53 -- 634 -- 687
TRANSFER OF SHARES HELD IN
ESCROW TO TREASURY................. (25) -- -- -- (536) -- (536)
NET INCOME........................... -- -- -- 6,155 -- -- 6,155
-------- ---------- ---------- -------- -------- --------- --------
UNAUDITED BALANCE AT MAY 31,
1996.................................. 17,152 $ 4,711 $ 69,494 $ 48,399 $ (6,113) $ -- $116,491
======== ========== ========== ======== ======== ========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
5
OWEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED MAY 31,
-----------------------------
1995 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers ..................... $ 178,056 $ 215,278
Cash paid to suppliers and employees ............. (180,143) (207,182)
Interest received ................................ 273 292
Interest paid .................................... (1,447) (48)
Income taxes paid ................................ (3,552) (3,250)
--------- ---------
Net cash provided (used) by operating activities (6,813) 5,090
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ............ (4,116) (5,160)
Proceeds from sale of property and equipment ..... 27 32
--------- ---------
Net cash used in investing activities .......... (4,089) (5,128)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit loan ....... 9,850 --
Exercise of stock options ........................ 300 572
Payment of long-term debt ........................ (1) --
--------- ---------
Net cash provided by financing activities ...... 10,149 572
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ........................................ (753) 534
CASH AND CASH EQUIVALENTS:
Beginning of period .............................. 6,071 16,479
--------- ---------
End of period .................................... 5,318 $ 17,013
========= =========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income ..................................... $ 3,681 $ 6,155
Depreciation and amortization .................. 3,268 4,390
Provision for bad debts ........................ 621 92
Deferred income taxes .......................... (368) 291
Gain on disposition of assets .................. (10) 12
Changes in assets and liabilities:
Accounts and notes receivable ................ (8,991) (106)
Inventories .................................. (7,270) (3,896)
Other assets ................................. 396 410
Accounts payable ............................. (107) 2,229
Accrued compensation and benefits ............ 2,944 (3,113)
Other liabilities............................. (977) (1,374)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES.... $ (6,813) $ 5,090
========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
ESOP debt principal amortization.................. $ 250 --
========= =========
Exchange of shares to exercise options............ $ 60 $ 115
========= =========
Transfer of shares held in escrow to treasury..... -- $ 536
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
6
OWEN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 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 only 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
the operations for the six months ended May 31, 1996, are not necessarily
indicative of the results of operations that may be expected for the fiscal 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: health
care management services and automated medication management. Operations within
the health care management services segment include pharmacy management
services, healthcare materials services and home infusion therapy, all provided
on a contract basis in the United States. The automated medication management
segment includes the manufacture and sale of automated medication management
systems.
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 six months ended May 31, 1996
(in thousands):
HEALTHCARE AUTOMATED
MANAGEMENT MEDICATION
SERVICES MANAGEMENT CONSOLIDATED
---------- ---------- ------------
Revenues...................... $207,852 $ 6,593 $ 214,445
Operating income (loss)....... 12,148 (2,123) 10,025
Identifiable assets........... 114,299 38,107 152,406
Capital expenditures.......... 4,744 416 5,160
Depreciation and amortization
expense..................... 3,644 746 4,390
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Approximately 88% of Owen's revenues for the six months ended May 31, 1996
came from the management of hospital pharmacies. Owen's largest client,
Columbia/HCA Healthcare Corporation, provided 16.1% of revenues during the
six-month period ended May 31, 1996, compared to 13.8% for all of fiscal 1995.
The Company's five largest clients, all group hospitals, accounted for 44.3% of
revenues during the six months ended May 31, 1996 compared to 39.9% for all of
fiscal 1995. The Company also manufactures and sells automated pharmacy
dispensing systems, manages hospital materials departments, operates retail
pharmacies and provides home infusion pharmaceutical and certain related
services.
Owen provides its 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 which has limited revenue growth
at some locations and, in some cases resulted in a decline in revenues from
individual hospitals, the Company has historically been able to 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 margin 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 been in a hospital for at least one
year.
Owen is aware of three circumstances that may have a negative impact on
the level of expected growth in its revenues and results of operations for the
remainder of fiscal 1996. First, Owen is currently experiencing very strong
growth in its hospital pharmacy services business. During the six months ended
May 31, 1996, Owen began operating seventeen new pharmacies with estimated
aggregate annual revenues of approximately $34 million. In addition, the Company
has either begun or expects to begin operating pharmacies during the third and
fourth quarter of fiscal 1996 fourteen additional pharmacies providing an
estimated $56 million of annual revenues. Owen has also recently begun the
operation of a consolidated pharmacy operation for a four hospital, 1,500 bed
integrated healthcare network in Virginia and has opened a central pharmacy
facility in Oklahoma for Correctional Medical Services which is expected, by the
end of the fiscal year, to serve the pharmaceutical needs of up to sixty prisons
and jails nationwide. Many of these new contracts involve very large and complex
operations and as a result are expected to have lower margins than Owen's
historical average and to take longer to achieve those margins.
Second, while the infrastructure build-up continues at the Company's
Meditrol(R) subsidiary to support anticipated growth, completed sales in the
first six months of fiscal 1996 were lower than expected. Meditrol contributed
approximately $6.6 million, or 3.1%, of revenues in the first six months of
fiscal 1996 principally from non-cancelable sales-type lease transactions and
outright sales. The Company is also aware of a trend which indicates that, in
the future, some of the Meditrol systems will be offered as part of the overall
Owen pharmacy management services. In installations where the Meditrol systems
are not separable from and contractually independent of the pharmacy management
agreements, revenues will be recognized over the time Owen manages the related
pharmacy rather than upon contracting for, and installation of, the systems.
Increases in this type of installation would negatively impact the timing of
revenues for the Company's automated medication management segment by postponing
the recognition of revenues. As a result of the uncertainty of the timing of the
completion of sales and the impact of installations as part of Owen's pharmacy
management services, the Company expects that revenues from Meditrol sales
during the third and fourth quarter will continue to be below expectations.
8
Finally, Owen has made a decision to curtail its home infusion services
offered to its client hospitals and to discontinue much of its infusion business
elsewhere due to an unsatisfactory trend in margins. As a result, Owen has
closed four therapy locations, leaving only two locations in operation. While
the reduction of this business segment is not expected to result in any
significant charge to earnings, the Company's revenues and earnings will be
negatively effected by the loss of the contribution that had been expected from
this business segment.
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 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 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
statement of income items for Owen's second quarter and first six months ended
May 31 of fiscal 1995 and 1996, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, SIX MONTHS ENDED MAY 31,
-------------------------- ------------------------
1995 1996 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
Revenues...................... 100.0% 100.0% 100.0% 100.0%
Cost of goods and other
direct expenses............. 85.3 83.7 85.2 84.2
Selling, general and
administrative.............. 10.5 11.3 10.5 10.9
Research and development...... 0.1 0.3 0.1 0.2
Operating income.............. 4.1 4.7 4.2 4.7
Interest and other, net....... (0.9) 0.3 (0.8) 0.2
Income before taxes........... 3.2 5.0 3.4 4.9
Net income.................... 1.9 2.9 2.0 2.9
</TABLE>
THREE MONTHS ENDED MAY 31, 1996 (SECOND QUARTER) COMPARED TO THREE MONTHS
ENDED MAY 31, 1995
Revenues were $107.2 million for the three months ended May 31, 1996
compared to $96.4 million for the same period in fiscal 1995, an increase of
$10.8 million, or 11.2%. Approximately 47.2% of the increase was due to new
pharmacy contracts begun during the first six months of 1996; approximately
79.3% of the increase was due to contracts begun in fiscal 1995 and operated for
the full second quarter in fiscal 1996, and approximately 10.2% of the increase
was due to an increase of $1.1 million in Meditrol sales, 36.9% of the increase
was offset by discontinued contracts.
Cost of goods and other direct expenses increased $7.5 million, or 9.1%,
to $89.7 million in the quarter ended May 31, 1996 as compared to $82.2 million
in the same period in fiscal 1995. Approximately 68.7% of the increase was due
to new pharmacy contracts begun during the first six months of fiscal 1996 and
approximately 86.0% was due to contracts commenced during fiscal 1995 and
operated for the full quarter in fiscal 1996. The remainder of the increase was
related to the cost of goods due to the Company's automated medication
management system, all partially offset by discontinued contracts.
Selling, general and administrative expenses increased $2.0 million, or
19.8%, to $12.1 million in the three months ended May 31, 1996 as compared to
$10.1 million in the same period in fiscal 1995. The increase was primarily the
result of adding resources related to the Company's automated medication
management system ($1.7 million) and healthcare management services business
($0.3 million).
9
Research and development expenses increased $185,000, or 158.1%, to
$302,000 for the second quarter of fiscal 1996, as compared to $117,000 for the
same period in fiscal 1995. The Company's research and development expenditures
are related to developing products to support and complement the Meditrol
system.
Interest expense declined $927,000, or 97.5%, to $24,000 for the second
quarter of 1996 as compared to $951,000 during the same period in fiscal 1995.
The Company paid off substantially all of its long-term debt with the proceeds
it received from the public offering of its stock in August, 1995.
Investment income and other income, net, increased $155,000, or 120.2%, to
$284,000 for the second quarter ended May 31, 1996 as compared to $129,000 for
the same period in fiscal 1995. Interest on funds in excess of those needed to
pay off the debt in August, 1995 accounted for most of this difference.
As a result of the foregoing, net income for the three months ended May
31, 1996 was $3.1 million, an increase of $1.3 million, or 72.2%, from $1.8
million in the same quarter of fiscal 1995.
SIX MONTHS ENDED MAY 31, 1996 COMPARED TO SIX MONTHS ENDED MAY 31, 1995
Revenues were $214.4 million, an increase of $27.4 million, or 14.7%, in
the six months ended May 31, 1996 compared to $187.0 million for the same period
in fiscal 1995. Approximately $6.3 million, or 23.0%, of the increase was due to
new pharmacy contracts begun during the first six months of fiscal 1996, and
approximately $23.0 million, or 83.9%, of the increase was due to contracts
commenced in fiscal 1995 and operated for the full six months of fiscal 1996.
Approximately $4.2 million, or 15.3%, of the increase was due to Meditrol sales.
A decrease of $12.1 million, or 44.2%, occurred due to discontinued contracts
while the remaining increase of approximately $6.0 million, or 1.9%, was
generated by same store pharmacies and other areas of the Company.
Cost of goods and other direct expenses increased $21.2 million, or 13.3%,
during the six months ended May 31, 1996, to $180.7 million as compared to
$159.5 million in the same period of fiscal 1995. Approximately $6.5 million, or
30.7%, of the increase was due to new pharmacy contracts begun during the first
six months of fiscal 1996 and approximately $19.4 million, or 91.5%, of the
increase was due to contracts commenced in 1995 and operated for the full six
months of fiscal 1996. Meditrol accounted for approximately $1.3 million, or
6.2%, of the increase. A decrease of approximately $10.5 million, or 49.5%, was
due to discontinued pharmacy contracts. Approximately $4.5 million, or 21.2%,
was made up of increased cost of goods in the same store pharmacies and other
areas of the Company.
Selling, general and administrative expenses increased $3.7 million, or
18.9%, to $23.3 million in the six months ended May 31, 1996 as compared to
$19.6 for the same period in fiscal 1995. The increase was the result of adding
resources to the Company's automated management system ($2.5 million) and the
Company's healthcare management services business ($1.2 million).
Research and development expenses increased $306,000, or 255.0%, during
the six months ended May 31, 1996 to $426,000 as compared to $120,000 for the
same period during fiscal 1995. These expenditures relate to Meditrol product
development and to support and complement its systems.
Interest expense decreased $1,702,000, or 97.3%, to $48,000 for the six
months ended May 31, 1996 as compared to $1,750,000 for the same period in
fiscal 1995. The Company used proceeds of its public offering in August, 1995 to
pay off substantially all of its long-term debt.
Investment and other income, net, increased $272,000, or 99.6%, to
$545,000 during the six months ended May 31, 1996 as compared to $273,000 during
the same period in fiscal 1995. Income from investment of excess funds from the
public offering accounted for most of the difference.
As a result of the foregoing, net income for the six months ended May 31,
1996 was $6.2 million, an increase of $2.5 million, or 67.6%, from $3.7 million
in the same period of fiscal 1995.
10
LIQUIDITY AND CAPITAL RESOURCES
Owen had cash and cash equivalents of $17.0 million at May 31, 1996
compared to $16.5 million at November 30, 1995. The increase of $0.5 million in
cash and cash equivalents was caused by continued collection efforts. 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 a manufacturing,
marketing and support infrastructure, reengineer the product, 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 six months,
the Company expended approximately $5.2 million on capital assets and
anticipates that capital expenditures will total approximately $10.0 million in
fiscal 1996.
On June 28, 1996, the Company announced commencement of a stock repurchase
program. Under the Company's stock 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. Such purchases, if made, are expected to be funded out
of general funds of the Company.
As of May 31, 1996, the Company had working capital of $80.7 million
compared to $74.7 million at November 30, 1995, and its ratio of current assets
to current liabilities was 3.6 to 1 at May 31, 1996 compared to 3.3 to 1 at
November 30, 1995. Net accounts and notes receivable decreased $0.2 million
during the six months ended May 31, 1996 and the days in accounts and notes
receivable decreased to 41.9 days from 46.9 days as of November 30, 1995.
Inventories increased $3.9 million during the first six months of fiscal 1996.
Outstanding debt at May 31, 1996 and November 30, 1995 was unchanged at
$3,000. Effective August 21, 1995 the Company renegotiated its revolving line of
credit with a commercial bank and at May 31, 1996 had $20.0 million of credit
available. This line of credit has been extended through March 31, 1997. During
the six months ended May 31, 1996, the Company borrowed once under this line of
credit and subsequently paid back the sums borrowed. There was no outstanding
balance at May 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 May 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 its Meditrol systems 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. In April and May,
1995, the Company entered into two 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 six months of fiscal 1996, the Company received cash
of $4.0 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
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
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: July 12, 1996
By: /s/ STANLEY H. FLORANCE
Stanley H. Florance, Senior Vice President
(Chief Financial Officer)
Date: July 12, 1996
13
EXHIBIT 11.1
OWEN HEALTHCARE, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, SIX MONTHS ENDED MAY 31,
-------------------------- ------------------------
1995 1995 1995 1996
-------- -------- --------- --------
<S> <C> <C> <C> <C>
PRIMARY:
Earnings applicable to Common Stock...... $ 1,822 $ 3,128 $ 3,681 $ 6,155
-------- -------- --------- --------
Weighted average shares outstanding..... 9,763 17,106 9,790 17,076
Dilutive effects of stock options....... 820 1,087 805 1,132
-------- -------- --------- --------
Common and common equivalent shares..... 10,583 18,193 10,595 18,208
======== ======== ========= ========
Earnings per common and common
equivalent shares..................... $ 0.17 $ 0 .17 $ 0.35 $ 0.34
======== ======== ========= ========
ASSUMING FULL DILUTION:
Earnings applicable to Common Stock..... $ 1,822 $ 3,128 $ 3,681 $ 6,155
Reduction of convertible debt interest
expense, net of tax and corporate
bonus effect.......................... 100 -- 198 --
-------- -------- --------- --------
Earnings applicable to Common Stock,
as adjusted........................... $ 1,922 $ 3,128 $ 3,879 $ 6,155
-------- -------- --------- --------
Primary common and common equivalent
shares................................ 10,583 18,193 10,595 18,208
Additional incremental shares for
options............................... 36 -- 51 --
Weighted average shares issuable
upon conversion of debt............... 2,380 -- 2,380 --
-------- -------- --------- --------
Weighted average common and common
equivalent shares outstanding, as
adjusted.............................. 12,999 18,193 13,026 18,208
======== ======== ========= ========
Earnings per common and common
equivalent share...................... $ 0.15 $ 0.17 $ 0.30 $ 0.34
======== ======== ========= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME
FILED AS PART OF THE ANNUAL REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-01-1996
<CASH> 17013
<SECURITIES> 0
<RECEIVABLES> 53375
<ALLOWANCES> 5255
<INVENTORY> 39324
<CURRENT-ASSETS> 111203
<PP&E> 40577
<DEPRECIATION> 24875
<TOTAL-ASSETS> 152406
<CURRENT-LIABILITIES> 30488
<BONDS> 0
0
0
<COMMON> 4711
<OTHER-SE> 111780
<TOTAL-LIABILITY-AND-EQUITY> 152406
<SALES> 107202
<TOTAL-REVENUES> 0
<CGS> 89729
<TOTAL-COSTS> 102115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 5347
<INCOME-TAX> 2219
<INCOME-CONTINUING> 3128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3128
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
