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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended NOVEMBER 30, 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
(State or other jurisdiction
of incorporation or organization)
75-1329577
(I.R.S. Employer
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
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act: Common Stock,
No Par Value
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of the Common Stock on
February 4, 1997, as reported by the New York Stock Exchange ("NYSE"), was
$372,586,788. Shares of Common Stock held by each officer and director and by
each person who owns 10% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of February 4, 1997, 17,146,084 shares of the registrant's Common Stock
were outstanding.
Portions of the definitive Proxy Statement for the Registrant's 1997 Annual
Meeting of Stockholders to be filed within 120 days, are incorporated by
reference into Part III hereof.
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I N D E X
PAGE
PART I
Item 1. Business...................................................3
Item 2. Properties.................................................9
Item 3. Liability and Insurance; Legal Proceedings.................9
Item 4. Submission of Matters to a Vote of Security Holders........9
Item (Unnumbered). Executive Officers of the Registrant .................. 10
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters.......................................12
Item 6. Selected Financial Data...................................13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................14
Item 8. Financial Statements and Supplementary Data...............18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................35
PART III
Item 10. Directors and Executive Officers of the Registrant........36
Item 11. Executive Compensation....................................36
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................36
Item 13. Certain Relationships and Related Transactions............36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................37
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PART I
ITEM 1. BUSINESS
GENERAL
Owen Healthcare, Inc. ("Owen" or the "Company") is the nation's leading
provider of fully integrated pharmacy management and information services in the
hospital marketplace, with more than 320 hospital pharmacies under management in
43 states at the end of fiscal 1996. Owen typically manages all aspects of its
hospital clients' pharmacy operations, including staffing, purchasing, inventory
control, medication dispensing, patient charge capture, administration, quality
control and information technology. Through its subsidiary, Meditrol Automation
Systems, Inc., Owen also manufactures, sells and supports its MediTROL(R)
system, which is comprised of one or more computer-controlled, automated
dispensing cabinets capable of being linked to the hospital's central
information system. A MediTROL unit located in patient care units, under
pharmacy control, allows authorized nursing personnel rapid access to
medications, enhances the accuracy of dispensing and patient charging, reduces
drug waste and diversion and eliminates many time-consuming drug distribution
and record keeping functions. Approximately 690 MediTROL units are currently
operating in 86 hospitals. In addition to its pharmacy management operations and
MediTROL automated medication management, Owen manages 26 healthcare materials
operations under outsourcing agreements and offers a hospital supply
classification system and price database on a subscription basis. Owen also
offers management services for retail pharmacies, primarily located on hospital
campuses, home infusion pharmaceutical and certain related services and clinical
pharmacy consulting services to managed care organizations. Hospital pharmacy
management accounted for approximately 88% of Owen's revenues in fiscal 1996.
For financial information about segments, see Note 10 to the Company's
Consolidated Financial Statements included elsewhere in this Form 10-K.
The Company believes the key to its success has been the quality of its
pharmacy management operations in combination with the following programs:
COST CONTAINMENT. At the center of Owen's cost containment efforts is its
proprietary Econotherapeutics(R) program, developed by the Company based on
over 26 years of experience in managing hospital pharmacies. Econotherapeutics
tailors cost-effective drug therapy to specific patient and hospital profiles.
Econotherapeutics focuses on providing physicians in Owen's client hospitals
with the information they need to make efficacious and safe drug therapy
decisions that also take into consideration the cost of alternative therapies.
HEALTHCARE INFORMATION TECHNOLOGY. Owen's proprietary pharmacy management
and information system, Omega-Rx(TM), gives pharmacists access to data regarding
drug interactions and contraindications, provides patient medication profiles,
captures patient charges, manages drug purchasing and tracks physician
prescribing patterns.
PROPOSED BUSINESS COMBINATION
On November 27, 1996, Owen executed an Agreement and Plan of Merger (the
"Merger Agreement") with Cardinal Health, Inc. ("Cardinal") providing for the
merger of a wholly-owned subsidiary of Cardinal with and into the Company. As a
result of the proposed merger, the Company will become a wholly-owned subsidiary
of Cardinal. Owen shareholders will be entitled to receive a fraction of a share
of Cardinal Common Stock of each outstanding share of Owen Common Stock held by
them (with cash in lieu of fractional shares) calculated by dividing $27.25 by
the average of the closing share price of Cardinal Common Stock on the New York
Stock Exchange during the last ten trading days ending on the sixth trading day
prior to the special meeting of Owen's shareholders called to approve the
merger, provided that, except in limited circumstances specified in the Merger
Agreement, the exchange ratio will be no more than 0.4974 and no less than
0.4500. The merger, which is expected to be completed in early 1997, is subject
to among other conditions, the applicable waiting period as prescribed under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, the registration of shares
to be issued in the merger, and approval by the stockholders of the Company.
This transaction is anticipated to be accounted for as a pooling-of-interests
for financial reporting purposes and treated for tax purposes as a tax-free
exchange.
INDUSTRY OVERVIEW
Hospitals are under increasing pressure from a variety of sources to
contain the rising costs of providing healthcare services, including the cost of
drug therapy. These cost containment pressures arise in part from the
implementation by Medicare and Medicaid programs of diagnosis-related group
payment systems under which hospitals are reimbursed for treatment of patients
on the basis of fees predetermined by federal or state regulators for a
particular illness without regard to the actual costs or charges related to
treating the patient. In addition, the dramatic growth of managed care
organizations, which typically pay hospitals on the basis of predetermined fees
based on the illness without
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regard to actual charges, a flat fee per patient day or a discounted percentage
of the actual patient charges, has resulted in greater cost sensitivity by
hospitals. At the same time, the number of charge-based patients covered by
traditional insurance has been declining. Furthermore, during the past decade,
cost containment pressures on hospitals, physicians and other healthcare
providers have led to the increased use of outpatient services, a reduction in
hospital admissions and earlier patient discharges, all of which have negatively
affected hospital revenues, forcing hospital administrators to focus on cost
containment.
The rising costs of drug therapy have been one of several significant
factors working against the ability of hospital administrators to control costs.
One component of drug therapy cost increases has been the introduction in recent
years of several new higher-priced drugs, which often have therapeutic value
similar to the generation of drugs they replaced. Drug manufacturers have
heavily marketed these newer drugs to physicians, which has resulted in
decreased use of older and less expensive off-patent drugs that have generic
equivalents. Many manufacturers have also introduced new bio-engineered drugs
that provide unique therapeutic results but at very high prices (sometimes
hundreds of dollars per dose). Owen believes that as a result of these factors,
drug costs will continue to rise, both in absolute terms and as a percentage of
total hospital costs.
In order to enhance cost containment efforts and focus on core services,
hospitals are increasingly turning to outsourcing various hospital functions. By
contracting with a full service pharmacy management firm, the hospital
eliminates difficulties in recruiting and retaining skilled hospital pharmacists
and in developing interaction between pharmacists and physicians and nurses,
which is essential to improving the quality and containing the cost of drug
therapy. The hospital also obtains access to the information technology
expertise and purchasing power of a firm focused on pharmacy services
management.
PHARMACY MANAGEMENT SERVICES
The Company provides fully-integrated pharmacy management and information
services to more than 320 hospitals in 43 states. The Company's pharmacy
management services include all aspects of hospital pharmacy operations,
including staffing, purchasing, inventory control, medication dispensing,
capturing patient charges, administration, quality control and information
technology. Owen's pharmacy management operations are designed to improve the
service and quality of pharmacy operations at its client hospitals. With its
over 26 years of experience in hospital pharmacy management, Owen has developed
standardized operational procedures and computer technology that give its
professional pharmacists the necessary tools to manage pharmacy operations
efficiently. These systems can reduce the delivery time for first doses and
emergency medication to the patient care areas, which Company surveys indicate
is a common concern of nursing personnel. Owen's pharmacists are also trained to
work to improve communications with nursing personnel and physicians.
COST CONTAINMENT. The Company's operating strategy is to employ its
proprietary program, Econotherapeutics, to create hospital-specific data bases
designed to determine for each patient the most efficacious, safe and
cost-effective drug therapy. The Company uses this information to actively
promote cost-effective drug therapy to prescribing physicians to enhance the
likelihood that such therapy will be prescribed.
Econotherapeutics is a proprietary medical information program that
provides physicians with the necessary information regarding drug therapy
alternatives, based on hospital-specific data, to practice cost-effective
medicine. The program contains information regarding drug interactions and
contraindications, hospital-specific information regarding matters such as
outcomes and resistance, patient-specific information regarding medical history
and illness, and pricing information with respect to therapeutically equivalent
indicated drug regimens. Econotherapeutics includes formulary programs under
which Owen pharmacists assist the medical staffs of client hospitals in
designating the use of particular drugs from among therapeutic alternatives
(including generic substitution), the use of more cost-effective delivery
systems and dose forms, and generally encouraging the pharmacist to participate
more actively in the care planning process.
Owen produces, copyrights and distributes its Drug Resource Action Manuals
("DRAMs") to its pharmacist constituency. DRAMs provide information on certain
drugs or drug classifications, present drug therapy information to be used by
the Owen pharmacists in development of the best practice drug therapy and
provide presentation materials to be used by the Owen pharmacist in
communicating with physicians. These manuals provide an overview of the subject
drug, address major issues, along
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with "how to" guidelines for identifying prescribing trends and providing
answers to commonly asked questions concerning the drug and its use.
Owen coordinates the research and educational support essential to the
Econotherapeutics program through a group of seven clinical pharmacists at its
home and regional offices. In addition, Econotherapeutics is implemented by over
100 clinical pharmacists located throughout Owen's pharmacy managed hospitals,
most of whom have advanced pharmacy degrees, and who assist in the training and
continuing education of Owen's pharmacists and in the analysis of
hospital-specific data on alternative drug therapies. Owen also provides an
information support line that responds to inquiries from pharmacists and
physicians in Owen's client hospitals.
HEALTHCARE INFORMATION TECHNOLOGY. Owen has developed a proprietary
software program, Omega-Rx, which it employs as a pharmacy and information
management system. Omega-Rx interfaces with the hospital's information system to
obtain patient admitting, discharge and transfer information and to download
patient charge information. Omega-Rx also improves the pharmacist's control over
the review of prescriptions for safety and the dispensing of patient doses by
giving pharmacists access to data regarding drug interactions and
contraindications, providing patient medication profiles and providing updated
information on allergies and a kinetics package which the pharmacist can use to
calculate accurate dosages for drugs that have a high potential for toxicity and
therefore cannot be given in standard doses. Omega-Rx also captures drug
utilization, manages drug purchasing and gives Owen pharmacists access to data
on the most frequently prescribed drugs in their hospitals as well as the
prescribing habits of each physician. This information allows the hospital and
the pharmacist to track the effectiveness of Econotherapeutics in changing
prescribing patterns and is used in performing drug utilization studies. Owen's
information systems also provide timely price changes to its hospital pharmacies
automatically. In addition to utilizing Omega-Rx to manage many of its hospital
pharmacies under contract, as of November 30, 1996, the Company had 32
commercial contracts for the use of Omega-Rx outside of its full service
pharmacy management contracts.
The Company's proprietary data retrieval and storage system, called
CONCERT which is in development, permits the Company to centralize data on drug
usage and prescribing patterns from hospitals that use Omega-Rx. The Company
believes the development of this coherent drug database will assist it in
containing costs and generating additional revenues through the sale of new
healthcare information-based products.
CONTRACTS. The Company typically contracts to provide pharmacy management
services with individual hospitals, although Owen has master contracts with
certain multi-hospital chains. Pricing terms vary, and fees paid to the Company
may be on the basis of a fixed charge per patient day, a fixed charge per
patient discharge or other fixed price criteria. Certain of the Company's
contracts provide for fees payable to the Company based on a per-unit charge for
each drug dispensed, which may be subject to a maximum per-patient charge per
day. In most cases, certain specified high-cost drugs are excluded from the
otherwise applicable pricing formula and charged to the hospital on a per-unit
basis, usually at a price based on Owen's cost. The pricing provisions of the
Company's contracts often include financial incentives for reducing drug costs
and financial penalties for exceeding certain drug cost targets. Under most of
its contracts, Owen is responsible for the cost of the drugs dispensed.
The Company's contracts typically have three-year terms. Between December
1, 1991 and November 30, 1996, Owen's pharmacy management contract annual
renewal rate averaged over 91%. Most of the contracts permit the hospital to
terminate the contract at will upon notice after a stated period, and many of
the contracts permit the hospital or Owen to terminate the contract in the event
that healthcare reform renders the contract economically disadvantageous to the
terminating party. The contracts generally provide for the hospital and Owen to
indemnify each other against certain liabilities.
PURCHASING. Owen supports its hospital pharmacies with group drug
purchasing and negotiates contracts with manufacturers utilizing its
Econotherapeutics research. Owen solicits discounts on drugs that have been
selected based on its commitment to favor the use of such drugs during the
contract term and its volume of purchases. During fiscal 1996, Owen estimates
that approximately 70% of its drugs and all of its intravenous solutions and
apparatus purchases were covered by contracts with drug vendors. Since each
individual pharmacy makes its own purchasing decisions, Owen's information
systems are essential to insure that its pharmacists receive updated information
as to which drugs are covered by national contracts and that each pharmacy
actually pays only the negotiated contract price. Owen estimates that its
pharmacy bid compliance in its managed pharmacies exceeded 97% during fiscal
1996. In May 1995, the Company entered into a five-year joint pharmaceuticals
purchasing arrangement with Columbia/HCA Healthcare
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Corporation wherein Owen manages and contract administration and compliance
reporting for both organizations and jointly manages the manufacture's bid
negotiations.
AUTOMATED MEDICATION MANAGEMENT
The Company's MediTROL system consists of one or more computer-controlled
pharmaceutical dispensing units and a related information system capable of
being linked to Omega-Rx and other hospital information systems. Owen believes
that automation represents a significant opportunity to improve the quality,
control and cost-effectiveness of the drug distribution system in hospitals. By
combining its pharmacy management expertise with the MediTROL system, the
Company believes it can enhance its ability to provide quality, cost-effective
pharmacy management services. In addition to utilizing the benefits of the
MediTROL system to expand its core business, the Company is marketing the
MediTROL system as a separate product for hospitals that do not use Owen's
pharmacy management services.
Under traditional hospital dispensing systems, medication orders are sent
to the hospital pharmacy, where they are filled, delivered to the patient's care
area and placed with that patient's supply of medications in a drawer in a
medication cart. The medication supply for each patient is replenished at
regular intervals, and the contents of each drawer are checked against that
patient's profile by a pharmacist. Unused medication is returned to the pharmacy
where it is manually restocked. Additional security measures must be taken with
respect to controlled substances, such as narcotics. Typically each dose is
recorded manually as it is administered to the patient. Remaining inventory must
be reconciled to controlled substance administration records upon each shift
change, and a similar reconciliation must occur between the unit's nursing
personnel and the pharmacy each time stock is replenished.
Locating MediTROL units in the patient care areas under the control of a
pharmacist offers many potential advantages over traditional dispensing systems,
including providing more rapid access to medications and enhancing the accuracy
of dispensing and patient charging. MediTROL is designed to be located in each
nursing unit as well as in emergency rooms, operating suites and intensive care
units. Owen believes that providing near-instant access to the majority of
medications used in the patient care area, eliminating the end-of-shift
narcotics count and producing an automated medication administration record can
produce significant time savings for nursing personnel. The MediTROL system
provides an audit trail for each item dispensed as well as for floor stock
medications and controlled substances. In addition, automation can substantially
reduce drug waste and diversion and eliminate many time consuming record-keeping
functions. The system requires pharmacist approval of all prescriptions by
computer link to the dispensing machine, which ensures that all prescriptions
are reviewed for safety, appropriateness and possible interactions. Unlike
competing products that give hospital personnel access to compartments or
drawers filled with multiple doses, the MediTROL system will dispense only the
medication prescribed for the patient utilizing unit dose form. Owen believes
that the ability to offer the benefits of automation with its pharmacy
management services will enable it to increase its penetration in the hospital
pharmacy products and services market.
The MediTROL product line currently consists of a model that is capable of
dispensing up to a total of 5,020 doses comprised of as many as 160 different
drugs, a model that can dispense as many as 2,510 doses comprised of up to 80
different drugs and a medical and surgical supply cabinet. Each of these
products can operate on a stand-alone basis, although in most applications the
full benefits offered by MediTROL products can be achieved only if all
dispensing and supply units operate as a fully-integrated system controlled by a
central computer interfaced with the hospital's information system.
During fiscal 1996, Owen delivered 384 MediTROL units to 57 hospitals, of
which 39 were existing Owen pharmacy management clients. Revenue from automated
medication management represented 3.3% of the Company's total revenues during
fiscal 1996.
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HEALTHCARE MATERIALS MANAGEMENT AND OTHER SERVICES
HEALTHCARE MATERIALS SERVICES; HMS SUPPLYLINE(R). At November 30, 1996,
the Company was providing healthcare materials management services to
approximately 26 hospitals in 17 states. Materials departments manage the wide
range of surgical and medical supplies used in a hospital. Owen typically
operates a materials management department by providing management personnel and
Owen's proprietary materials management software, while payments of vendor
invoices and most staffing remain the responsibility of the hospital client.
These contracts typically provide for a base fee to cover Owen's personnel and
other costs and an incentive arrangement based upon Owen's performance in
controlling costs. In some cases, however, Owen manages the entire materials
management department in the same manner as its typical pharmacy management
arrangements, hiring all department personnel and purchasing supplies for the
hospital. In selected situations, Owen also provides, on a subscription basis,
its proprietary materials management software and its HMS Supplyline products.
One concern of hospital administrators with regard to medical and surgical
supplies has been their inability to access reliable comparative pricing
information from manufacturers. In 1993, in response to this concern, Owen
introduced HMS Supplyline, a medical and surgical products database that enables
clients to compare their pricing to that of all other subscribers purchasing the
same brand item or cross-indexed equivalent. The system also provides for
monthly and quarterly purchasing analysis and quantified cost savings
opportunities. Each subscriber, as well as each Owen-managed materials
management department, submits medical and surgical supply invoices for
inclusion in the database. As the subscriber base grows, the database becomes
more comprehensive and statistically significant. In the quarter ended November
30, 1996, the Company's HMS division signed an agreement to provide Supplyline
services to all Columbia/HCA Healthcare Corporation hospitals.
The Company has begun marketing cooperative arrangements with two or more
hospitals under which it will provide a centralized materials management
facility and will be responsible for all materials purchasing, warehousing,
distribution and accounting for each hospital member on an aggregate basis. The
Company believes that the combined purchasing volume and reduction of personnel
will produce savings for member hospitals. The Company began operating its first
such cooperative agreement with two hospitals in August 1995.
Revenue from healthcare materials services and HMS Supplyline represented
4.4% of the Company's total revenues during fiscal 1996.
OTHER SERVICES. In addition to its pharmacy management services, the
Company provides home infusion pharmaceutical and certain related services and
retail pharmacy management services. As of November 30, 1996, Owen was providing
home infusion pharmaceutical and certain related services pursuant to agreements
with 34 hospitals, and 5 managed care organizations. These services include
provision of pharmaceuticals for a full range of intravenous therapies,
including hyperalimentation, antibiotic treatment, pain management and
chemotherapy. Owen applies certain elements of its Econotherapeutics program to
its home infusion services. The Company also manages 18 retail pharmacies,
primarily on client hospital campuses. As of November 30, 1996, the Company
provided pharmacy services to over 75,000 inmates in 65 prisons pursuant to a
contract with Correctional Medical Services, Inc.
MARKETING AND CUSTOMERS
The Company's primary market for pharmacy management and information
services consists of approximately 3,600 hospitals in the United States with 100
or more licensed beds. In recent years, Owen has become increasingly selective
in both obtaining and retaining hospital clients, electing not to continue
contracts at hospitals where terms, growth prospects, payment history or other
factors indicate that profitability standards would not be achieved. As a
result, the average licensed bed capacity of Owen's client hospitals has
increased in recent years. The following table depicts the growth in the average
bed size per contract hospital as of the dates indicated:
NOVEMBER 30,
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1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Average Licensed Bed Capacity 121 126 131 140 158
Owen markets pharmacy management services through a sales organization of
14 registered pharmacists. In addition, the Company's National Accounts group,
which consists of four registered pharmacists and one clinical pharmacist,
markets primarily to large investor-owned hospital chains, not-for-profit
hospital chains, the federal government and other healthcare systems.
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The process leading toward a new management contract begins with a survey
of the hospital's pharmacy, its drug utilization, historical cost and patient
demographics. Owen analyzes this hospital-specific data to develop a proposal to
determine the qualitative and quantitative impact that it can generate by
managing the pharmacy. This impact is quantified in a proposal which is specific
to the hospital's operations.
Since December 1, 1990 Owen's pharmacies under management have grown from
211 to more than 320 as of November 30, 1996. Over the same time period, Owen's
annual contract renewal rate has averaged in excess of 90%. While the initial
term of Owen's pharmacy management contracts is typically three years, Owen's
average pharmacy has been under management for 6.1 years as of November 30,
1996. The Company's largest client, Columbia/HCA Healthcare Corporation,
provided 18.0% of the Company's revenues during fiscal 1996. The Company's five
largest clients, all hospital groups, accounted for 30.7% of revenues in fiscal
1994, 39.9% in fiscal 1995 and 43.6% in fiscal 1996.
Owen markets its MediTROL automated medication management system through a
dedicated sales force of 17 sales professionals located in 3 regions of the
United States. The primary focus of the sales force is on hospitals in the
United States with 100 or more beds. The Company also markets MediTROL systems
in Canada through a representative specializing in hospital pharmacy products.
Owen's pharmacy management sales representatives are incorporating automated
medication management as an option into pharmacy management proposals to
potential clients. Owen's National Accounts group also assists in the marketing
of the MediTROL system to such entities. Owen believes that the bundling of
pharmacy management services with MediTROL technology will be increasingly
demanded by its clients.
In addition to the hospital market, Owen believes that potential demand
exists for automated medication dispensing technology in other markets, such as
alternate site healthcare providers, physician groups and clinics, managed care
organizations and correctional institutions. As in hospitals, controlled access
to the inventory and the resulting audit trail would reduce drug diversion, and
the linkage between the medication dispensed and patient identification would
reduce medication administration errors.
COMPETITION
Owen operates in a highly competitive environment. Owen believes that the
principal competitive factors affecting its pharmacy management business are the
service and quality of its managed pharmacies and their contribution to cost
containment. Owen believes that its principal competition in the pharmacy
management area is from hospitals providing their own pharmacy management
services. In addition, Owen is aware of several firms competing on a national
and regional level. The field of automated medication management is also highly
competitive and includes at least six companies or subsidiaries or divisions of
companies. Although the Company believes it is competitive within its markets,
some of its competitors are substantially larger and have greater financial,
marketing, and other resources than Owen.
GOVERNMENT REGULATION
The Company's operations are subject to substantial government regulation.
In particular, Owen's pharmacy operations and its pharmacists are subject to
regulation by state and federal authorities, including state boards of pharmacy
and federal authorities with responsibility for monitoring the storage, handling
and dispensing of narcotics and other controlled substances. Owen uses extensive
training as well as standardized systems, procedures and periodic audits to
assist its pharmacies and employees in adhering to applicable governmental
regulations. Owen's quality control programs include periodic review of
compliance with legal requirements. Owen believes that its pharmacy operations
are in compliance with applicable state and federal requirements.
The Company's contractual arrangements with pharmaceutical manufacturers
and healthcare providers also subject it to Section 1128B(b) of the Social
Security Act (commonly known as the Federal Illegal Remuneration Law), which
prohibits financial arrangements between providers of healthcare services to
government healthcare programs (including Medicare and Medicaid) beneficiaries
and potential referral sources that are designed to induce patient referrals on
the purchasing, leasing, ordering or arranging for any good, service or item
paid for by such government programs. The Federal Illegal Remuneration Law
contains both civil and criminal sanctions. The prohibitions contained in the
statute have been broadly construed by federal cases and administrative agencies
charged with enforcement of the
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statute and apply to any type of financial transaction between the providers of
healthcare services to Medicare and Medicaid beneficiaries and referral sources.
In addition to the Federal Illegal Remuneration Law, Section 1877 of the Social
Security Act (commonly known as the Stark Law) imposes certain restrictions upon
referring physicians and providers of certain designated health services,
including outpatient prescription drugs, parenteral and enteral nutrients and
home health service under the Medicare and Medicaid programs. Subject to certain
exceptions, the Stark Law provides that if a physician (or a family member of a
physician) has a financial relationship with an entity (i) the physician may not
make a referral to the entity for the furnishing of designated health services
reimbursable under the Medicare and Medicaid programs, and (ii) the entity may
not bill for designated health services furnished pursuant to a prohibited
referral. Entities and physicians committing an act in violation of the Stark
Law are subject to civil monetary penalties and exclusion from Medicare and
Medicaid programs. Owen believes that it currently has no contractual or
financial relationship which would be considered to be in violation of the
Federal Illegal Remuneration Law or the Stark Law.
INTELLECTUAL PROPERTY
Owen seeks to protect its proprietary systems, trade secrets and
technology through a combination of patents and copyrights. In addition, the
MediTROL automated medication management system is the subject of a patent that
relates to certain aspects of centralized computer control by a pharmacist of
remote automated dispensing units. The MediTROL patent was issued in 1989 and
will expire in 2006.
EMPLOYEES
As of November 30, 1996, the Company had approximately 3,000 employees,
including approximately 680 part-time employees. The Company's employees are not
a party to any collective bargaining agreement. The Company believes its
relationship with its employees is good.
ITEM 2. PROPERTIES
Owen leases its home office in Houston, Texas and MediTROL's 53,000 square
foot manufacturing facility and office in Sugar Land, Texas. The Company also
leases regional offices in Atlanta, Georgia; St. Louis, Missouri; Newport Beach,
California; Covington, Louisiana; Ft. Lauderdale, Florida; and Abilene, Texas.
Most of Owen's operations are conducted on-site in facilities provided by
hospital clients.
In November, 1995, the Company entered into a leasing agreement for a
tract of land and construction of a new office building. The Company intends to
relocate its home office to this site no later than the expiration of its
existing lease in 1999. Total estimated cost of the project is currently
estimated at $32,000,000. Upon project completion, the Company's annual minimum
lease payments could approximate $3,000,000.
ITEM 3. LIABILITY AND INSURANCE; LEGAL PROCEEDINGS
Owen's pharmacy management operations involve the dispensing of millions
of doses of medications each year. While Owen has extensive systems and
procedures in place to prevent prescribing and dispensing errors, its operations
entail risks of error and liability claims. In addition, the Company's automated
medication management systems may expose the Company to product liability
claims. Owen maintains liability insurance to cover such risks at levels of
coverage and deductibles that it believes is adequate. Owen is a party to
various legal proceedings in the normal course of business and does not believe
that the outcome of any of such proceedings will have a material adverse effect
on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth fiscal quarter ended November 30, 1996.
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ITEM (UNNUMBERED). EXECUTIVE OFFICERS OF THE REGISTRANT
(Provided pursuant to General Instruction G.)
As of January 30, 1997, the current executive officers of Owen are as
follows:
NAME AGE POSITION
---- --- --------
Dian G. Owen 56 Chairman of the Board, Director
Carl E. Isgren 58 President and Chief Executive Officer; Director
Harlan C. Stai 50 Executive Vice President and Chief Operating
Officer, Pharmacy Division; Director
Stephen A. Drury 59 Executive Vice President and Secretary; Director
Stanley H. Florance 57 Senior Vice President, Finance and Chief Financial
Officer
Donald M. Jones 50 Senior Vice President, Director
Edward D. Zost, Sr. 51 Senior Vice President, Pharmacy Operations
Robert J. Rasmussen 49 Senior Vice President, Hospital Pharmacy Marketing
David E. Loebig 46 Senior Vice President and Chief Information Officer
M. Andy Marlatt 47 Senior Vice President, Assistant Secretary and
Chief Communications Officer
Dennis S. Stepanik 52 Senior Vice President, Chief Human Resources Officer
Bobby G. Parker 44 Senior Vice President, Healthcare Materials Services
Each officer of the Company is elected by the Board of Directors and holds
office until his successor is duly elected and qualified or until his or her
earlier death, resignation or removal.
Ms. Owen founded the Company with her husband in 1969 and has served as
Chairman of the Board of the Company since 1976, following her husband's death.
Ms. Owen is a member of the Board of Directors of the First National Bank of
Abilene, First Financial Bankshares, Inc. and West Texas Utilities Company.
Mr. Isgren has served as President and Chief Executive Officer and a
director of the Company since 1976. Mr. Isgren is a founding director and past
chairman of Houston's Drug-Free Business Initiative. Mr. Isgren serves on the
Board of Directors of the Federation of American Health Systems. Mr. Isgren
received his B.A. in Accounting/Economics from Rice University and is a
Certified Public Accountant.
Mr. Stai joined the Company in 1972 and has served as Executive Vice
President since 1975, as Chief Operating Officer, Hospital Pharmacy Services
since 1994 and has been a director since 1976. Mr. Stai is a member of the
Federation of American Health Systems and the American Management Association
and serves on the Board of Directors of the Houston Grand Opera. He received his
B.S. in Pharmacy from South Dakota State University and currently serves on the
South Dakota State University College of Pharmacy Development Committee.
Mr. Drury has served as Executive Vice President and Secretary of the
Company since he joined the Company in 1992, and has been a director since 1983.
Prior to joining Owen, he served as Senior Vice President and Chief Financial
Officer of Integrated Health Services, Inc. in Baltimore from 1989 to 1992, and
Senior Vice President of Thomson McKinnon Securities, Inc. and Managing Director
of its Health Care Capital Markets Group from 1985 to 1989. Mr. Drury received
his B.S. in Economics from Bradley University and his M.S. in Hospital and
Health Care Administration from the University of Iowa.
Mr. Florance joined the Company in 1983 as Controller and Treasurer and
has served as Senior Vice President, Finance and Chief Financial Officer since
1989. He is a member of the American Institute of Certified Public Accountants,
the Texas Society of Certified Public Accountants, the Financial Executives
Institute, the American Management Association and the ESOP Association. Mr.
Florance also serves on the Board of Directors of The Living Bank. He received
his B.A. in Business Administration from the University of Houston.
10
<PAGE>
Mr. Jones joined the Company in 1972, has served as Senior Vice President
of the Company since 1987 and has been a director since 1976. He is a member of
the American Society of Hospital Pharmacists, the Academy of Managed Care
Pharmacy, the Texas Pharmaceutical Association, the American Society of
Consultant Pharmacists and the American Pharmaceutical Association. Mr. Jones
received his B.S. in Pharmacy from the University of Houston.
Mr. Zost joined the Company in 1976 as Director of Pharmacy at Park Plaza
Hospital in Houston. He later served as a District Manager and Regional Manager.
Mr. Zost has served as Senior Vice President, Pharmacy Operations since 1989.
Mr. Zost is past president of the Texas Society of Hospital Pharmacists, past
president of the Texas Society of Hospital Pharmacists Research and Education
Foundation, past delegate to the American Society of Hospital Pharmacists House
of Delegates, a member of the Texas Society of Hospital Pharmacists and the
American Society of Hospital Pharmacists. Mr. Zost received his M.S. in Hospital
Pharmacy from the University of Texas.
Mr. Rasmussen joined the Company in 1973 as Director of Pharmacy, West
Paces Ferry Hospital in Atlanta. Subsequently he served as Regional Manager,
Marketing Representative, and has served as Senior Vice President, Hospital
Pharmacy Marketing since 1981. Mr. Rasmussen is a member of the American Society
of Hospital Pharmacists and a member of the American Management Association. He
received his B.S. in Pharmacy from the University of Wisconsin.
Mr. Loebig joined the Company in 1978 as a Director of Pharmacy and later
served as Mid-West Regional Manager for Operations. He has served as Senior Vice
President and Chief Information Officer since 1987. Mr. Loebig is a member of
the American Management Association, the College of Healthcare Information
Management Executives, the Health Care Information and Management Systems
Society and the American Society of Hospital Pharmacists. Mr. Loebig received
his B.S. in Pharmacy at the University of Iowa.
Ms. Marlatt joined the Company in 1974 as Home Office Manager and Director
of Administrative Services. She currently serves as Senior Vice President,
Assistant Secretary and Chief Communications Officer. Ms. Marlatt is a member of
the American Management Association and the ESOP Association. She received her
B.S. in Education from Lamar University in Beaumont, Texas.
Mr. Stepanik joined the Company in 1976 as Director of Training. He has
served as Senior Vice President and Chief Human Resources Officer since 1989.
Mr. Stepanik is a member of the American Management Association, the American
Society of Hospital Pharmacists, the American Pharmaceutical Association, the
Texas Society of Hospital Pharmacists, the American Society of Pharmacy Law and
the Texas Employment Law Council. Mr. Stepanik serves on the Board of Directors
of Pharmacy Automated Systems, Inc., Sdn. Bhd, a Malaysian corporation. Mr.
Stepanik received his B.S. in Pharmacy from Duquesne University, Pittsburgh.
Mr. Parker joined the Company in 1981 as Director of Pharmacy at Good
Shepherd Medical Center in Longview, Texas. He has served as Senior Vice
President, Healthcare Materials Services since 1990. Mr. Parker is a member of
the Healthcare Financial Management Association and the American Society of
Hospital Materials Management. Mr. Parker received his B.S. in Pharmacy from
Northeast Louisiana University, Monroe, Louisiana.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock was initially listed in the National Quotation Bureau,
Inc. OTC Bulletin Board on May 12, 1994. Effective August 2, 1995, the Company's
stock commenced trading on NASDAQ under the symbol "OWEN." Effective May 24,
1996, the Company's stock commenced trading on the NYSE under the symbol "OWN."
Set forth below are (i) the high and low bid prices for the Common Stock
as reported in the OTC Bulletin Board from May 12, 1994 through August 1, 1995,
as adjusted to reflect the five-for-two split of the Common Stock declared on
June 12, 1995, (ii) the high and low bid prices for the Common Stock on the
NASDAQ from August 2, 1995 through May 24, 1996 and (iii) the high and low
closing sales prices on the NYSE Composite Tape since May 24, 1996. The
quotations reflect interdealer prices, without adjustment for retail mark-ups,
mark-downs or commissions and may not represent actual transactions.
HIGH LOW
---- ---
FISCAL 1995
Quarter Ended February 28, 1995 $ 7.50 $ 7.00
Quarter Ended May 31, 1995 9.30 7.20
Quarter Ended August 31, 1995 17.75 7.20
Quarter Ended November 30, 1995 22.00 15.50
FISCAL 1996
Quarter Ended February 29, 1996 $ 27.63 $ 19.75
Quarter Ended May 31, 1996 26.75 17.00
Quarter Ended August 31, 1996 18.63 11.25
Quarter Ended November 30, 1996 25.75 10.87
As of December 12, 1996, there were approximately 2,685 holders of record
of the Company's Common Stock.
Owen has not paid any cash dividends on its Common Stock since August 1991
and does not currently intend to pay cash dividends in the foreseeable future.
Owen currently intends to retain its earnings, if any, for the continued growth
of its business. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for the five fiscal years
ended November 30, 1996, should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes thereto included elsewhere in
the Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------------------------
1992 1993 1994(3) 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues ...................... $256,605 $290,277 $320,409 $383,995 $449,331
Net income .................... 2,583 4,803 5,191 8,110 10,907
Earnings per share:
Primary ................... $ 0.30 $ 0.56 $ 0.53 $ 0.62 $ 0.60
Assuming full dilution (1). 0.27 0.48 0.46 0.56 0.60
BALANCE SHEET DATA:
(at end of each period)
Total assets .................. $ 70,040 $ 76,867 $106,415 $147,730 $169,168
Working capital ............... 25,980 35,694 39,068 74,666 85,000
Long-term debt ................ 17,012 22,759 31,255 2 --
ESOP Common Stock(2) .......... 15,575 16,986 21,046 -- --
Stockholders' equity .......... 4,297 7,997 20,311 110,300 120,222
</TABLE>
- --------------------------
(1) Includes the dilutive effect of the shares of Common Stock issuable upon
conversion of the Company's 9.53% convertible, subordinated notes due
2001. These notes were converted into the Company's Common Stock in
August, 1995. See Note 4 to the Company's Consolidated Financial
Statements.
(2) Represented the Company's obligations to repurchase shares of Common Stock
owned by the Company's ESOP. Upon completion of the Company's offering of
Common Stock in August, 1995, this obligation terminated and such amount
was reclassified to stockholders' equity. See Note 7 to the Company's
Consolidated Financial Statements.
(3) Effective April 29, 1994, the Company acquired MediTROL in a transaction
accounted for as a purchase and the results of operations of MediTROL are
included in the Company's Consolidated Financial Statements from the date
of the acquisition. See Note 9 to the Company's Consolidated Financial
Statements.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
For fiscal years 1994 through 1996, an average of approximately 88% of
Owen's total revenue came from the management of hospital pharmacies. Owen's
largest client, a group of hospitals managed by a single hospital management
company, provided 13.8% and 18.0% of the Company's revenues during fiscal 1995
and fiscal 1996, respectively. The Company's five largest clients, all hospital
groups, accounted for 30.7% of revenues in fiscal 1994, 39.9% in fiscal 1995 and
43.6% in fiscal 1996. The Company is the nation's largest hospital pharmacy
management company and provides other information technology and automated
pharmaceutical 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 difference 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 results in a decline in revenues from
individual hospitals, the Company has historically 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 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 margin. Owen's margin 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 pharmacy for at least one year.
During fiscal 1996, Owen experienced a strong demand for its hospital
pharmacy management services. Estimated annualized revenue attributable to new
business was more than double the estimated annualized revenue for contracts
signed in any previous full fiscal year. During fiscal 1996, the Company opened
68 new hospital pharmacies with an estimated annual revenue of approximately
$148.6 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.
Certain circumstances negatively impacted the results of operations for
fiscal 1996. First, the unprecedented growth in the hospital pharmacy management
business from new contracts required significant working capital, manpower and
management time until the new pharmacy operations reach maturity. Second, the
infrastructure build-up continues at MediTROL to support anticipated growth,
yet, completed sales in fiscal 1996 were lower than expected. MediTROL
contributed approximately $14.8 million, or 3.3% of revenues in fiscal 1996,
principally from outright sales and non-cancelable sales-type lease
transactions. Finally, the creation of system interfaces between MediTROL
software and the hospital customer information systems is complex and has
delayed sales recognition.
The Company historically has been able to pass drug price increases
through to clients but recent trends toward fixed price and 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.
14
<PAGE>
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-K. See "Business
General-Proposed Business Combination."
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, certain
statements of income items for Owen's last three fiscal years:
YEAR ENDED NOVEMBER 30,
------------------------
1994 1995 1996
---- ---- ----
Revenues .............................. 100.0% 100.0% 100.0%
Cost of goods and other direct expenses 85.9 84.8 85.1
Selling, general and administrative ... 10.8 11.0 10.7
Research and development .............. 0.1 0.1 0.3
Operating income ...................... 3.2 4.1 3.9
Interest expense, investment and other
income, net ......................... (0.4) (0.5) 0.2
Income before income taxes ............ 2.8 3.6 4.1
Net income ............................ 1.6 2.1 2.4
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Revenues were $449.3 million for fiscal 1996 compared to $384.0 million
for fiscal 1995, an increase of $65.3 million or 17%. Approximately $49.2
million of the increase was due to new pharmacy contracts beginning in fiscal
1996. MediTROL sales accounted for $2.3 million, or 3.5%, of the increase with
the remainder due to pharmacy contracts commenced during fiscal 1995 and
operated for a full fiscal year as well as revenue growth at continuing
locations, which was partially offset by discontinued contracts.
Cost of goods and other direct expenses increased $56.7 million, or 17.4%,
in fiscal 1996 to $382.4 million from $325.7 million in fiscal 1995. New
pharmacy contracts commenced during 1996 caused an increase of $46.7 million, or
82.4% of the increase. The remainder of the increase was attributable to the
maturing of the pharmacy contracts commenced during fiscal 1995 plus MediTROL
increases, offset partially by discontinued contracts.
Selling, general and administrative expenses increased $5.7 million, or
13.5%, to $47.9 million in fiscal 1996 compared to $42.2 million in fiscal 1995.
Approximately $5.1 million, or 89%, of the increase was due to adding resources
related to the Company's automated medication management business. The remaining
increase was the result of resources added to support the growth in the
Company's pharmacy management and other product lines.
Research and development expenses grew $1.1 million, or 275%, to $1.5
million in fiscal 1996 from $0.4 million in fiscal 1995. The expenditures
represented development of products to support and complement the MediTROL
system.
Interest expense, other income and investment income, net, shifted from an
expense of $1.8 million in 1995 to income of $0.9 million in fiscal 1996. The
interest expense component decreased $2.9 million to $0.1 million in fiscal 1996
from $3.0 million in fiscal 1995. The Company had higher borrowing levels during
fiscal 1995 until the public offering of shares of Common Stock, after which all
of its debt was repaid. Investment income increased $0.1 million as a result of
the investment of funds received from the public offering. Other income declined
$0.4 million, primarily as a result of the Company's improved collection
efforts, reducing late charges and interest income from receivables.
MediTROL's pre-tax operating loss increased by $4.4 million from fiscal
1995 to fiscal 1996, as a result of lower than expected sales and increased
infrastructure costs. As a result of the foregoing, net income for fiscal 1996
was $10.9 million, an increase of $2.8 million, or 34.6%, from $8.1 million in
fiscal 1995.
15
<PAGE>
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Revenues were $384.0 million for fiscal 1995 compared to $320.4 million
for fiscal 1994, an increase of $63.6 million or 19.9%. Approximately $49.6
million of the increase was due to new pharmacy and new hospital materials
services contracts beginning in fiscal 1995. MediTROL sales accounted for $11.8
million, or 18.6%, of the increase with the remainder due to pharmacy contracts
commenced during fiscal 1994 and operated for a full fiscal year and revenue
growth at continuing locations, which was partially offset by discontinued
contracts.
Cost of goods and other direct expenses increased $50.6 million, or 18.4%,
in fiscal 1995 to $325.7 million from $275.1 million in fiscal 1994. MediTROL
accounted for $4.5 million, or 8.9%, of the increase. New pharmacy contracts
commenced during fiscal 1995 and the maturing of pharmacy contracts commenced
during fiscal 1994 accounted for the remainder of the increase. As a percent of
revenue, cost of goods and other direct expenses decreased from 85.9% to 84.8%,
due principally to MediTROL sales and sales-type leases which have higher
margins than contract management operations.
Selling, general and administrative expenses increased $7.4 million, or
21.3%, to $42.2 million in fiscal 1995 compared to $34.8 million in fiscal 1994.
Approximately $5.0 million, or 67.6%, of the increase was due to adding
resources related to the Company's automated medication management business. The
remaining $2.4 million of increase was the result of increased resources to
support the growth in the Company's pharmacy management and other product lines.
Research and development expenses grew $0.2 million, or 100%, to $0.4
million in fiscal 1995 from $0.2 million in fiscal 1994. The expenditures
represented development of products to support and complement the MediTROL
system.
Interest expense, other income and investment income, net, increased $0.4
million, or 28.6%, to $1.8 million in fiscal 1995 from $1.4 million in fiscal
1994. The interest expense component increased $0.3 million, or 11.1%, to $3.0
million in fiscal 1995 from $2.7 million in fiscal 1994. The Company had higher
borrowing levels during the first eight months of fiscal 1995 until the public
offering of shares, after which all of its debt was repaid. Charges for
repayment of long-term debt accounted for $0.4 million of the increase. Other
income declined $0.3 million, primarily as a result of the Company's improved
collection efforts, thus reducing late charges and interest income from
receivables. The Company recognized interest income from investments of $0.3
million in fiscal 1995. There was no such income in fiscal 1994.
MediTROL's pre-tax operating loss decreased by $2.1 million from fiscal
1994 to fiscal 1995, as a result of increased sales and sales-type lease
activity. As a result of the foregoing, net income for fiscal 1995 was $8.1
million, an increase of $2.9 million, or 55.8%, from $5.2 million in fiscal
1994.
LIQUIDITY AND CAPITAL RESOURCES
Owen had cash and cash equivalents of $14.1 million at November 30, 1996,
compared to $16.5 million at November 30, 1995. The decrease in cash and cash
equivalents was the result of capital spending and expenditures related to the
treasury stock repurchase program partially offset by increases in cash provided
by operating activities. 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 required significant expenditures to build a
manufacturing, marketing and support infrastructure, reengineer the product and
develop new products, enhance the information system, and develop necessary
software. Owen has historically made significant investments in operating
assets, with purchases of property and equipment aggregating $23.9 million in
the three years ended November 30, 1996, of which $7.8 million was expended in
fiscal 1996 related principally to information technology equipment for contract
pharmacy management operations.
On June 28, 1996, the Company announced the commencement of a stock
repurchase program. Under the repurchase program, the Company could buy back in
open market transactions, block trades or private transactions, up to 500,000
shares of the Company's common stock (approximately 3.0% of the outstanding
shares) at market prices. Through November 30, 1996, the Company has repurchased
108,200 shares under this repurchase program. Consistent
16
<PAGE>
with the Merger Agreement with Cardinal, the Company's Board of Directors
terminated the share repurchase program on November 27, 1996.
As of November 30, 1996, the Company had working capital of $85.0 million
compared with $74.7 million at November 30, 1995, and its ratio of current
assets to current liabilities was 2.9 to 1 at November 30, 1996 compared to 3.3
to 1 at November 30, 1995. The decrease in the ratio of current assets to
current liabilities was attributable principally to new pharmacy contracts begun
in the last four months of fiscal 1996. Net accounts and notes receivable
increased $10.9 million and days in accounts receivable increased to 47.8 days
from 46.9 days at November 30, 1996, as compared to November 30, 1995,
respectively. This increase was primarily attributable to growth in new
business, all in the last four months of fiscal 1996. Inventories increased
$15.2 million during fiscal year 1996. Approximately $2.1 million of the
inventory increase for 1996 is attributable to growth in the MediTROL segment,
while net growth in hospital pharmacy inventories accounted for the remainder.
Outstanding long-term debt at November 30, 1996 was $1,000 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 November 30, 1996,
had $20.0 million of credit available. This line of credit has been extended
through March 31, 1997. During fiscal 1996, the Company borrowed once under this
line of credit and subsequently paid back the sums borrowed. There was no
outstanding balance at November 30, 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 November 30, 1996.
The Company commenced the manufacturing and marketing of its MediTROL
automated medication management system in fiscal 1995. The Company is
principally marketing its MediTROL systems as outright sales or 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 fiscal
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,
subject to creditworthiness 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 fiscal years 1995 and 1996, the Company received cash of $3.8 million
and $6.1 million, respectively, 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.
Owen expects to rely on a combination of internally generated funds and
borrowings to support its capital requirements and other liquidity needs. Owen
anticipates that capital expenditures will be approximately $13.0 million in
fiscal 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which addresses accounting for stock
options in addition to other stock-based compensation. The Company believes
that, as permitted by the standard, it will not change its existing accounting
for stock options. Additional disclosures, including pro forma effects on income
of the difference between existing and the new accounting methods, will be
required. The Company plans to adopt the disclosure provisions of the standard
during fiscal 1997.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Index to Financial Statements ----
Financial Statements as of November 30, 1995 and 1996 and for the three years
ended November 30, 1996
Report of Independent Accountants.....................................19
Consolidated Balance Sheets...........................................20
Consolidated Statements of Income.....................................21
Consolidated Statement of Stockholders' Equity........................22
Consolidated Statements of Cash Flows..............................23-24
Notes to Consolidated Financial Statements.........................25-34
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts and Reserves..........39
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Owen Healthcare, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Owen
Healthcare, Inc. and its subsidiaries (the "Company") at November 30, 1995 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended November 30, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on those financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Company
entered into an agreement in November, 1996 to merge with a subsidiary of
Cardinal Health, Inc.
PRICE WATERHOUSE LLP
Houston, Texas
January 30, 1997
19
<PAGE>
OWEN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
NOVEMBER 30,
----------------------
1995 1996
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................. $ 16,479 $ 14,128
Accounts and notes receivable, net ........ 48,046 58,104
Inventories ............................... 35,428 50,616
Other current assets ...................... 7,408 6,967
--------- ---------
Total current assets .................... 107,361 129,815
PROPERTY AND EQUIPMENT, NET ................. 14,194 14,556
NOTES RECEIVABLE ............................ 1,251 293
OTHER ASSETS ................................ 2,451 3,133
PATENT ...................................... 8,343 7,612
GOODWILL .................................... 14,130 13,759
--------- ---------
$ 147,730 $ 169,168
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................... $ 12,303 $ 22,802
Accrued compensation and benefits ......... 15,852 17,715
Current maturities of long-term debt ...... 1 1
Accrued taxes ............................. 1,152 2,040
Other current liabilities ................. 3,387 2,257
--------- ---------
Total current liabilities ............... 32,695 44,815
LONG-TERM DEBT .............................. 2
DEFERRED INCOME TAXES ....................... 3,799 4,055
OTHER LIABILITIES ........................... 934 76
--------- ---------
Total liabilities 37,430 48,946
--------- ---------
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
1995 and 1996 ........................... 4,711 4,711
Capital in excess of stated value ......... 69,441 69,683
Retained earnings ......................... 42,244 53,151
Treasury stock, at cost, 1,845,877
and 1,776,654 shares .................... (6,096) (7,323)
--------- ---------
110,300 120,222
Commitments and contingencies (Note 11) ...
--------- ---------
$ 147,730 $ 169,168
========= =========
The accompanying notes are an integral part of this statement.
20
<PAGE>
OWEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
YEAR ENDED NOVEMBER 30,
-----------------------------------
1994 1995 1996
--------- --------- ---------
REVENUES ............................ $ 320,409 $ 383,995 $ 449,331
--------- --------- ---------
COSTS AND EXPENSES:
Cost of goods sold and other direct 275,137 325,688 382,401
Selling, general and administrative 34,849 42,227 47,868
Research and development .......... 202 408 1,516
--------- --------- ---------
310,188 368,323 431,785
--------- --------- ---------
OPERATING INCOME .................... 10,221 15,672 17,546
Interest expense .................... (2,707) (3,035) (105)
Investment income ................... 258 374
Other income ........................ 1,320 1,003 645
--------- --------- ---------
INCOME BEFORE INCOME TAXES .......... 8,834 13,898 18,460
Provision for income taxes .......... 3,643 5,788 7,553
--------- --------- ---------
NET INCOME .......................... $ 5,191 $ 8,110 $ 10,907
========= ========= =========
EARNINGS PER SHARE:
Primary ........................... $ 0.53 $ 0.62 $ 0.60
========= ========= =========
Assuming full dilution ............ $ 0.46 $ 0.56 $ 0.60
========= ========= =========
WEIGHTED-AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary ........................... 9,748 13,150 18,104
========= ========= =========
Assuming full dilution ............ 12,223 15,004 18,254
========= ========= =========
The accompanying notes are an integral part of this statement.
21
<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, 1993 8,012 $ 2,500 $ 64 $ 28,943 $ (5,774) $ (17,736) $ 7,997
Acquisition of Meditrol, Inc...... 1,866 467 10,732 11,199
Purchase of shares for treasury... (75) (564) (564)
Stock bonus plan issuances........ 2 10 8 18
Exercise of options............... 12 (7) 37 30
ESOP adjustment................... (3,560) (3,560)
Net income........................ 5,191 5,191
--------- ---------- --------- -------- -------- --------- -----------
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
Public stock offering, net........ 4,598 1,149 49,505 50,654
Conversion of subordinated
debt, net....................... 2,381 595 9,192 9,787
ESOP adjustment................... 21,296 21,296
Net income........................ 8,110 8,110
--------- ---------- --------- -------- -------- --------- ----------
Balance at November 30, 1995 17,000 4,711 69,441 42,244 (6,096) 110,300
Purchase of shares for treasury . (114) (1,423) (1,423)
Stock grant....................... 2 16 8 24
Exercise of options............... 206 51 724 775
Transfer of shares held in
escrow to treasury.............. (25) (536) (536)
Tax benefit from exercise of
stock options................... 175 175
Net income........................ 10,907 10,907
--------- ---------- --------- -------- -------- --------- ----------
Balance at November 30, 1996........ 17,069 $ 4,711 $ 69,683 $ 53,151 $ (7,323) $ $ 120,222
========= ========== ========= ======== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE>
OWEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED NOVEMBER 30,
---------------------------------
1994 1995 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers ....... $ 317,595 $ 368,483 $ 438,586
Cash paid to suppliers and employees (304,290) (369,120) (427,376)
Interest received .................. 917 1,261 593
Interest paid ...................... (2,743) (3,082) (105)
Income taxes paid .................. (4,570) (5,238) (5,797)
--------- --------- ---------
Net cash provided (used) by
operating activities ........... 6,909 (7,696) 5,901
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,723) (10,291) (7,843)
Proceeds from sale of property
and equipment .................... 673 237 241
Acquisition of Meditrol, Inc. ...... (287)
--------- --------- ---------
Net cash used in investing
activities ..................... (5,337) (10,054) (7,602)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term loan ............ 76
Public stock offering, net ......... 50,654
Repayment of long-term debt ........ (1,969) (22,505) (2)
Purchase of treasury stock ......... (564) (701) (1,308)
Exercise of stock options .......... 30 710 660
Stock bonus plan issuances ......... 18
--------- --------- ---------
Net cash provided (used) by
financing activities ........... (2,409) 28,158 (650)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............... (837) 10,408 (2,351)
CASH AND CASH EQUIVALENTS:
Beginning of year .................. 6,908 6,071 16,479
--------- --------- ---------
End of year ........................ $ 6,071 $ 16,479 $ 14,128
========= ========= =========
The accompanying notes are an integral part of this statement.
23
<PAGE>
OWEN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Year ended November 30,
------------------------------
1994 1995 1996
-------- -------- --------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income ......................... $ 5,191 $ 8,110 $ 10,907
Depreciation and amortization ...... 5,113 7,013 9,104
Provision for doubtful accounts
and notes ........................ 1,474 1,260 496
Deferred income taxes .............. (1,114) 972 565
Gain on disposition of assets ...... (421) (81) (138)
Stock grant ........................ 47 24
Changes in assets and liabilities,
net of the effect of business
acquisition:
Accounts and notes receivable .... (2,860) (15,512) (9,596)
Inventories ...................... (2,872) (11,535) (15,188)
Other assets ..................... (1,005) (1,889) (1,841)
Accounts payable ................. 2,550 (1,605) 10,499
Accrued compensation and benefits 759 4,826 1,863
Other liabilities ................ 94 698 (794)
-------- -------- --------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES: $ 6,909 $ (7,696) $ 5,901
======== ======== ========
NONCASH INVESTING AND FINANCING
ACTIVITIES:
ESOP debt principal amortization ..... $ 500 $ 250
======== ========
Exchange of shares to exercise options $ 110 $ 115
======== ========
Conversion of subordinated debt ...... $ 10,000
========
Transfer of shares held in escrow to
treasury ............................. $ 536
========
Value of common stock issued in
MediTROL acquisition ............... $ 11,199
========
24
<PAGE>
OWEN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Owen Healthcare, Inc. (the "Company") was incorporated in Texas on July
15, 1970, and is engaged primarily in providing pharmacy management, materials
management and related operations on a contractual basis for acute care
hospitals nationwide. The Company also manufactures automated medication
management systems (MediTROL Systems) for sale or lease to healthcare providers
and for use in its pharmacy management operations.
PROPOSED BUSINESS COMBINATION
In November, 1996, the Company entered into a Merger Agreement with
Cardinal Health, Inc. If completed, the merger is expected to be finalized in
the second quarter of 1997. Completion of the transaction is subject to, among
other conditions, the applicable waiting period as prescribed under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, the registration of shares
to be issued in the merger, and approval by the stockholders of the Company.
Under the terms of the Agreement, the Company's stockholders will receive
shares of Cardinal common stock based on a minimum fair value of $27.25 per Owen
share. In no event will the Owen stockholders receive greater than 0.4974 nor
less than 0.4500 Cardinal shares for each Owen share. The ratio will be
determined based upon a specified number of days trading before the stockholders
of Owen are expected to vote on the merger. However, if the Cardinal share value
falls below $46.133 per share, the management of Owen may consummate,
renegotiate or terminate the Merger Agreement. In the event of consummation, all
fractional shares will be settled for in cash.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany accounts and transactions have
been eliminated.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets, liabilities, revenues
and expenses, as well as the disclosure of contingent assets and liabilities.
Because of the inherent uncertainties in this process, actual future results
could differ from those expected at the reporting date.
REVENUE RECOGNITION
Revenues under management contracts are recognized as the related services
are rendered. Under certain contracts, fees for management services are
guaranteed by the Company not to exceed stipulated amounts or have other risk
sharing provisions. Revenues include the estimated effects of such contractual
guarantees and risk sharing provisions.
Revenues are recognized from sales-type leases of the MediTROL systems
when the lease becomes noncancelable and the Company's remaining installation
obligations are insignificant. Unearned income on sales-type leases is
recognized using the interest method. Outright sales are recognized upon
delivery and when remaining installation obligations are insignificant.
Warranty, training and related obligations are estimated and accrued at the time
of sale. Revenues from rentals, operating leases and service contracts are
recognized over their contractual terms.
A provision for doubtful accounts is made for revenues estimated to be
uncollectible.
CASH EQUIVALENTS AND INVESTMENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investment securities, if any, purchased with a maturity of three
months or less to be cash equivalents. Cash equivalents of $13,004,000 and
$9,986,000 at November, 1995 and 1996, respectively, were invested in a U.S.
Government debt security money market fund and short-term commercial paper in
corporations with strong credit ratings. The fair value of such investments
approximated cost at November 30, 1995 and 1996.
25
<PAGE>
The Company has classified all investments in debt securities as available
for use in current operations and has classified them as available-for-sale.
Net-of-tax unrealized gains and losses on such securities are reported as a
separate component of stockholder's equity. Investment earnings, realized gains
and losses and permanent declines in value, if any, are included in income. The
Company has to date invested only in highly liquid, short-term debt securities
for which cost approximated fair value.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounts and notes receivable, accounts payable and accrued liabilities
are substantially current or bear reasonable interest rates. As a result, the
carrying values of these financial instruments approximate fair value.
INVENTORIES
Inventories consist of pharmaceuticals and hospital supplies held for
resale and inventories related to manufactured MediTROL systems. At November 30,
1995 and 1996, MediTRol inventories, consisting principally of purchased
subassemblies and finished goods, were $4,831,000 and $6,904,000, respectively.
Inventories are valued at the lower of cost, as determined on a first-in,
first-out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Costs of repairs and maintenance
are charged to expense in the period incurred. Major improvements and
betterments which extend the useful lives of the related assets are capitalized.
Depreciation is provided utilizing the straight-line method over the economic
useful lives of the related assets.
DEFERRED CHARGES AND OTHER ASSETS
Certain identifiable incremental costs associated with obtaining or
renewing management contracts are deferred and amortized over one year or the
contract terms, normally one to three years. Such costs include primarily
commissions and one-time expenditures associated with the opening of a new
pharmacy. Costs incurred in conjunction with the issuance of indebtedness are
deferred and amortized over the term of the related debt.
INTANGIBLE ASSETS
The estimated fair value of the patent acquired in the acquisition of
Meditrol, Inc. is amortized on a straight-line basis over the 13 year life of
the patent. Goodwill is amortized on a straight-line basis over 40 years. The
carrying values of the patent and goodwill are reviewed for impairment if facts
and circumstances suggest that their carrying amounts may not be recoverable. At
November 30, 1995 and 1996, the accumulated amortization on the patent was
$1,157,000 and $1,888,000, respectively, and for goodwill was $572,000 and
$943,000, respectively.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in research, development and engineering of the Company's
automated medication management system and other projects are expensed as
incurred.
INCOME TAXES
Deferred income taxes are provided using the liability method for the
temporary differences between the financial reporting basis and income tax basis
of the Company's assets and liabilities. Deferred income taxes are
26
<PAGE>
measured based on the tax rates expected to be in effect when the temporary
differences are included in the Company's consolidated tax return.
EARNINGS PER SHARE
Earnings per share data is based on the weighted average number of common
shares and common share equivalents outstanding during the period. Primary
earnings per share includes the effects of outstanding stock options whenever
the effect is dilutive. Fully diluted earnings per share, for fiscal years 1994
and 1995, includes the effect of convertible subordinated notes whenever the
effect is dilutive.
NOTE 2 - ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable are due primarily from hospital clients and
consist of the following (in thousands):
NOVEMBER 30,
-------------------------
1995 1996
------------ ------------
Trade:
Accounts receivable........................... $ 48,537 $ 59,235
Notes receivable.............................. 3,202 1,514
Other........................................... 2,252 2,660
------------ ----------
53,991 63,409
Less - allowance for doubtful accounts and notes (4,694) (5,012)
------------ ----------
$ 49,297 $ 58,397
=========== ==========
The Company has negotiated extended payment plans for its fees due from
certain hospital clients which generally bear interest approximating the
Company's incremental borrowing rate. Notes also arise from hospitals' purchase
of inventory and fixtures and equipment upon contract terminations. The Company
considers such notes and payment plans to arise in the ordinary course of its
operations and are classified as such in the statements of cash flows.
The credit risk in accounts and notes receivable can be affected by
changes in reimbursement and other economic pressures impacting the acute care
segment of the healthcare industry. The Company conducts ongoing collectibility
reviews of its receivables and provides for estimated uncollectible accounts
based on several factors, including the financial stability and payment history
of individual hospitals clients. Where available, the Company secures its notes
receivable with liens on client assets. Losses on notes receivable have not
historically been significant. The carrying value of accounts and notes
receivable approximate fair value due to their generally short-term nature,
interest rates which approximate market rates and estimated allowance for
uncollectible accounts.
The Company's largest hospital company client provided 8.1% of revenues in
1994 and a different client provided 13.8% of revenues in 1995 and 18.0% in
1996. The Company's five largest clients provided 30.7% of revenues in 1994,
39.9% in 1995 and 43.6% in 1996.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands)
27
<PAGE>
NOVEMBER 30,
USEFUL LIVES ------------------------
(YEARS) 1995 1996
------------ ----------- ----------
Building............................ 15 $ 167 $
Information systems................. 3-5 21,102 27,146
Furniture and other equipment....... 5-7 14,103 15,536
Transportation equipment............ 3-7 172 172
----------- ----------
35,544 42,854
Less accumulated depreciation....... (21,350) (28,298)
----------- ----------
$ 14,194 $ 14,556
=========== ==========
NOTE 4 - INDEBTEDNESS
CREDIT AGREEMENTS
The Company's primary credit facility provides for a revolving credit
commitment of $20,000,000 which matures on March 31, 1997. Borrowings are at
interest rates based on the bank's prime or other negotiated rate and there is a
commitment fee of 1/8 of 1% per annum on the unused portion payable quarterly.
The maximum amount available under the revolving credit commitment was
$20,000,000 at November 30, 1996, and the maximum amounts outstanding under the
current and prior agreements were $9,100,000 in 1994, $19,850,000 in 1995 and
$1,575,000 in 1996. The weighted-average interest rates on the revolving credit
facility were 6.75% in 1994, 8.91% in 1995 and 8.25% in 1996.
The Company has an additional bank line of credit for overdraft protection
with a maximum available amount of $1,000,000 at November 30, 1996. The maximum
amounts outstanding were $850,000 in 1995 and $0 in 1996. The Company's
chairperson is a board member of the bank.
In August 1995, the Company repaid outstanding indebtedness consisting of
a $17,500,000 term note, $3,750,000 in senior notes payable and $13,575,000
under the revolving credit facility with the net proceeds of the Company's
offering of common stock. In addition, the holders of $10,000,000 of convertible
subordinated notes converted the notes into 2,380,952 shares of common stock.
RESTRICTIVE COVENANTS
The Company's credit agreements contain covenants which limit, among other
things, liens on assets, intercorporate investments, disposition of assets and
certain changes in operations. Certain financial ratios or amounts are also
required to be maintained, as defined in the agreements, including minimum
tangible net worth and working capital.
NOTE 5 - SALES-TYPE LEASING ARRANGEMENTS
As lessor, the Company enters into five-year sales-type leases of its
MediTROL systems which are secured by the underlying equipment. In 1995, the
Company entered into two vendor finance agreements under which noncancellable
sales-type lease receivables for MediTROL systems originated by the Company can
be sold to the finance companies on a limited credit recourse pool basis. The
agreements are for an unstated term and can be terminated upon notice with
respect to future sales. The Company is not required to sell the lease
receivables and those sold are subject to the finance companies' criteria,
including creditworthiness and related requirements. To date, substantially all
lease receivables have been sold shortly after origination. Realized gains or
losses on the sale of the receivables have been insignificant.
At November 30, 1995 and 1996, the Company's net investment in sales-type
leases, consisting principally of residual values and leases subsequently sold
to the finance companies shortly after year end, was approximately $2,700,000
and $1,914,000, respectively. During 1995 and 1996, the Company received
proceeds of $3,841,000 and
28
<PAGE>
$6,056,000, respectively, from the sales of lease receivables. The Company
provides a reserve for estimated credit losses and no losses were identified
during the fiscal years ended November 30, 1995 and 1996.
NOTE 6 - INCOME TAXES
The components of the Company's provision for income taxes are as follows
(in thousands):
NOVEMBER 30,
----------------------------
1994 1995 1996
------- ------- -------
Current:
Federal.............................. $ 3,912 $ 4,010 $ 5,556
State............................... 845 806 1,432
Deferred:
Federal.............................. (919) 819 537
State................................ (195) 153 28
------- ------- -------
$ 3,643 $ 5,788 $ 7,553
======= ======= =======
The provision for income taxes varies from the expected amount which would
be obtained by applying the statutory federal income tax rate to pretax
accounting income due to the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------
1994 1995 1996
--------------- ---------------- ----------------
Amount % Amount % Amount %
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed expected federal tax ......... $ 3,004 34.0 $ 4,864 35.0 $ 6,461 35.0
Benefit of graduated federal tax rate . (99) (0.7) (99) (0.5)
State taxes, net of federal benefit ... 429 4.9 633 4.6 931 5.0
Nondeductible items ................... 223 2.5 469 3.4 195 1.0
Other, net ............................ (13) (0.1) (79) (0.7) 65 0.4
------- ---- ------- ---- ------- ----
$ 3,643 41.3 $ 5,788 41.6 $ 7,553 40.9
======= ==== ======= ==== ======= ====
</TABLE>
Deferred tax assets (liabilities) are comprised of the following (in
thousands):
NOVEMBER 30,
-----------------
1995 1996
-------- -------
Provision for doubtful accounts.............. $ 1,782 $ 1,905
Accrued compensation and benefits............ 2,215 2,685
Other accruals not currently deductible...... 1,391 1,265
Inventory valuation.......................... 337 708
------- -------
Gross deferred tax assets............... 5,725 6,563
------- -------
Patent....................................... (3,245) (2,893)
Sales-type lease revenue recognition......... (1,613) (2,567)
Accrued vendor rebates....................... (399) (560)
Deferred commissions and opening costs....... (584)
Prepaids and other........................... (479) (536)
-------- -------
Gross deferred tax liabilities.......... (5,736) (7,140)
-------- -------
$ (11) $ (577)
======= =======
Deferred income taxes are included in the accompanying balance sheet as
follows (in thousands):
29
<PAGE>
NOVEMBER 30,
-----------------
1995 1996
-------- -------
Other current assets......................... $ 3,788 $ 3,478
Deferred income taxes........................ (3,799) (4,055)
-------- -------
$ (11) $ (577)
======== =======
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has an Employee Stock Ownership Plan (ESOP) which, in July
1985, purchased 2,853,300 shares of Common Stock from the Company's stockholders
with the proceeds of a $5,000,000 bank loan. The loan was secured by a guarantee
of the Company and the unreleased shares of the Company's Common Stock held by
the ESOP. The Company contributed to the ESOP those funds necessary to pay both
principal and interest due on the ESOP debt. The last payment on the debt was
made on May 31, 1995.
Under certain circumstances until the Company's Common Stock was publicly
traded, the ESOP was required to purchase vested stock from terminated plan
participants. To the extent funds in the ESOP were not sufficient to purchase
the shares, the Company was required to satisfy the purchase obligation.
Accordingly, the estimated fair value of shares held by the ESOP less remaining
ESOP debt was reflected outside of stockholders' equity as ESOP Common Stock
with the offsetting Adjustment for ESOP included as a reduction of stockholders'
equity. Upon completion of the public offering of Common Stock in August 1995,
the obligation to purchase the shares terminated and the ESOP Common Stock
amount was reclassified to stockholders' equity.
The Company purchased 76,257 and 78,813 shares of Common Stock to satisfy
the ESOP obligation and recorded additional contributions of $128,000 and
$111,000 in 1994 and 1995, respectively. As of December 31, 1995, all remaining
143,000 unallocated and forfeited shares were allocated to participant accounts.
As of January 2, 1996, contributions to the ESOP were suspended and all
participants became fully vested.
The Company recognized compensation cost for the ESOP debt service,
additional contributions to satisfy ESOP obligations and plan operating
expenses. All ESOP shares have been included in earnings per share calculations.
At November 30, 1996, the ESOP held 2,619,953 shares of the Company's
outstanding Common Stock.
The Company also has a defined contribution 401(k) Savings Plan (Plan)
covering substantially all employees with at least one year's service.
Participants may contribute from two to ten percent of their eligible
compensation. The Company's contributions to the Plan are discretionary. All
participant contributions are 100% vested. As of January 1, 1995, the Plan began
allowing for discretionary profit sharing contributions to the Plan by the
Company. The Company's contributions made to the profit sharing portion of the
Plan are subject to a seven-year vesting schedule.
The components of the Company's contributions to its employee benefit
plans are as follows (in thousands):
NOVEMBER 30,
----------------------
1994 1995 1996
------ ------ ------
ESOP debt principal reduction ...... $ 500 $ 250
Interest on ESOP debt .............. 33 7
Discretionary employer contributions 170 699 $2,014
Benefit plan expenses .............. 252 175 99
------ ------ ------
$ 955 $1,131 $2,113
====== ====== ======
NOTE 8 - STOCK OPTIONS
The Company has a 1987 Stock Option Plan covering directors, officers and
certain employees, a 1992 and 1996 Stock Option Plan covering key employees and
a Non-Employee Directors' Option Plan covering members of the
30
<PAGE>
Company's Board of Directors who are not employees. Employee option vesting and
other terms are determined by a committee of the Board of Directors at date of
grant for the 1987, 1992 and 1996 Plans. Option vesting under these Plans have
generally been provided ratably over a five-year period. The Non-Employee
Directors' Option Plan provides for the grant of 12,500 options to purchase
Common Stock upon election to the Board of Directors and 6,250 additional
options at the third anniversary date if the individual is still a Director, all
with ratable vesting over three years. All options to purchase Common Stock
under the plans have been granted at prices at least equal to fair market value
at the date of grant. The exercise price of options granted, if any, to the
Company's principal stockholder must be at 110% of fair value.
There are 3,200,000 shares of Common Stock reserved under the plans. At
November 30, 1996 there were 1,083,900 options to purchase shares of Common
Stock available for grant and 1,104,733 options to purchase Common Stock were
exercisable.
The following table summarizes the stock option activity for the combined
plans:
OPTIONS OPTION
OUTSTANDING PRICE PER SHARE
----------- ---------------
Balance at November 30, 1993........... 1,718,250 $ 1.60 - $ 6.16
Granted................................ 45,750 $ 7.20 - $ 7.40
Exercised.............................. (12,850) $ 1.60 - $ 5.60
Canceled............................... (26,650) $ 2.85 - $ 5.60
---------
Balance at November 30, 1994........... 1,724,500 $ 1.60 - $ 7.40
Granted................................ 242,300 $ 7.70 - $16.50
Exercised.............................. (288,784) $ 1.60 - $ 7.70
Canceled............................... (107,550) $ 1.76 - $ 7.70
---------
Balance at November 30, 1995........... 1,570,466 $ 1.60 - $16.50
Granted................................ 249,500 $11.88 - $22.25
Exercised.............................. (206,053) $ 1.60 - $ 7.70
Canceled............................... (27,800) $ 5.60 - $ 7.70
---------
Balance at November 30, 1996........... 1,586,113 $ 1.60 - $22.25
=========
NOTE 9 - ACQUISITION OF MEDITROL, INC.
Effective April 29, 1994, the Company acquired Meditrol, Inc., a
manufacturer and marketer of automated medication management systems located in
South Dakota. The total consideration was valued at $21,147,000, consisting of
$8,959,000 in cash which was substantially financed through $8,853,000 of bank
borrowings, 1,866,395 shares of Company Common Stock valued at $11,199,000 and
acquisition costs of $989,000. The Company allocated $9,500,000 of the
consideration to patents, $14,701,000 to goodwill, $1,483,000 to tangible assets
and assumed $4,537,000 in liabilities.
The acquisition was accounted for under the purchase method of accounting
and the results of operations of Meditrol, Inc. are included in the consolidated
financial statements from the date of acquisition. The following unaudited pro
forma information assumes that the acquisition was consummated as of the
beginning of the period presented. The pro forma information does not purport to
be indicative of the results of operations that actually would have been
attained if the acquisition had occurred at this date or results which may occur
in the future.
31
<PAGE>
YEAR ENDED NOVEMBER 30,
1994
------------
Revenues........................... $321,176,000
Net income......................... $ 4,815,000
Earnings per common share:
Primary............................ $ .46
Assuming full dilution............. $ .40
NOTE 10 - 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 providing pharmacy and
materials management services, home infusion therapy and related operations on a
contractual basis substantially all in the United States. The automated
medication management segment includes the manufacture and sale of automated
medication management systems for use in health care 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 years ended November 30, 1994
through 1996 (in thousands):
HEALTH CARE AUTOMATED
MANAGEMENT MEDICATION
SERVICES MANAGEMENT CONSOLIDATED
----------- ---------- ------------
1994:
- -----
Revenues............................... $ 319,810 $ 599 $ 320,409
Operating income (loss)................ 14,073 (3,852) 10,221
Identifiable assets.................... 79,525 26,890 106,415
Capital expenditures................... 5,417 306 5,723
Depreciation and amortization expense.. 4,427 686 5,113
1995:
- -----
Revenues............................... $ 371,579 $ 12,416 $ 383,995
Operating income (loss)................ 17,435 (1,763) 15,672
Identifiable assets.................... 110,335 37,395 147,730
Capital expenditures................... 8,784 1,507 10,291
Depreciation and amortization expense.. 5,768 1,245 7,013
1996:
- -----
Revenues............................... $ 434,567 $ 14,764 $ 449,331
Operating income (loss)................ 23,687 (6,141) 17,546
Identifiable assets.................... 129,496 39,672 169,168
Capital expenditures................... 7,279 564 7,843
Depreciation and amortization expense.. 7,587 1,517 9,104
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company maintains occurrence-based professional liability insurance
coverage in individual claim and aggregate amounts that it considers adequate.
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
32
<PAGE>
various stages of discovery and some may ultimately be brought to trial. It is
management's opinion that settlements, if any, will not have a material adverse
effect on the Company.
In November 1995, the Company entered into a leasing agreement for an
eight-acre tract of land and construction of a new office building. The Company
is to occupy the new building no later than at expiration of its existing
headquarters lease in April 1999. The initial term of the lease is for a
seven-year period ending November 2002 with five optional five-year renewal
periods. In the event of termination, the Company is required to either purchase
the property at its acquisition cost or arrange for the sale of the property to
a third party. The Company will be liable to the lessor for substantially all of
any deficiency of sales proceeds less than the original acquisition cost.
The total estimated cost of the project is $32,000,000. As of November 30,
1996 the amount expended to date was approximately $2,270,355. Upon project
completion, the Company's annual minimum lease payments could approximate
$3,000,000.
Future minimum commitments under noncancelable operating leases, primarily
for office space, are $3,159,000 in 1997, $3,227,000 in 1998, $3,291,000 in
1999, $2,886,000 in 2000, $2,923,000 in 2001, and $33,212,000 thereafter. Rental
expense on noncancelable operating leases for the years ended November 30, 1994,
1995 and 1996 was approximately $1,735,000, $2,040,000 and $2,610,000,
respectively.
NOTE 12 - RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation", which addresses accounting for stock
options in addition to other stock-based compensation. The Company believes
that, as permitted by the standard, it will not change its existing accounting
for stock options. Additional disclosures, including pro forma effects on income
of the difference between existing and new accounting methods, will be required.
The Company plans to adopt the disclosure provisions of the standard during
fiscal 1997.
NOTE 13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents selected information for each of the fiscal
quarters during the years ended November 30, 1995 and 1996 (dollars in
thousands, except per share data).
33
<PAGE>
QUARTER ENDED
-----------------------------------------------------
FEBRUARY
28-29 MAY 31 AUGUST 31 NOVEMBER 30
---------- ---------- ---------- -----------
1995:
- -----
Revenues ............... $ 90,673 $ 96,374 $ 95,773 $ 101,175
Operating income ....... 3,833 3,936 3,441 4,462
Net income ............. 1,859 1,822 1,472 2,957
Earnings per share:
Primary .............. $ 0.18 $ 0.17 $ 0.11 $ 0.16
Assuming full dilution $ 0.15 $ 0.15 $ 0.10 $ 0.16
1996:
- -----
Revenues ............... $ 107,243 $ 107,202 $ 107,251 $ 127,635
Operating income ....... 4,938 5,087 2,353 5,168
Net income ............. 3,027 3,128 1,604 3,148
Earnings per share:
Primary .............. $ 0.17 $ 0.17 $ 0.09 $ 0.18
Assuming full dilution $ 0.17 $ 0.17 $ 0.09 $ 0.17
34
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
35
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the Company's 1997
Annual Meeting of Stockholders unless the Company's proposed merger with
Cardinal is consummated prior to such meeting and the Company is no longer
required to file its Proxy Statement. See also "Item (Unnumbered). Executive
Officers of the Registrant" appearing in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the Company's 1997
Annual Meeting of Stockholders unless the Company's proposed merger with
Cardinal is consummated prior to such meeting and the Company is no longer
required to file its Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the Company's 1997
Annual Meeting of Stockholders unless the Company's proposed merger with
Cardinal is consummated prior to such meeting and the Company is no longer
required to file its Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the Company's 1997
Annual Meeting of Stockholders unless the Company's proposed merger with
Cardinal is consummated prior to such meeting and the Company is no longer
required to file its Proxy Statement.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements. See Index at Item 8.
2. Financial Statement Schedules.
The following financial statement schedule is included in this
report:
Schedule II - Valuation and Qualifying Accounts and Reserve
All other schedules are omitted because the information is not
required or because the information required is in the financial
statements or notes thereto.
3. Exhibits. The following exhibits are filed as a part of this report:
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
2.1 -- Agreement and Plan of Merger dated as of November 27, 1996, by and
among the Company, Cardinal Health, Inc. and Owl Merger Corp.
(incorporated by reference to Exhibit 2.1 of the Company's Current
Report on Form 8-K filed December 4, 1996).
2.2 -- Stock Option Agreement, dated as of November 27, 1996, by and between
Cardinal Health, Inc. and the Company.
3.1 -- Restated Articles of Incorporation, as amended, (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-4 (Reg. No. 33-75456)); Articles of Amendment to Restated
Articles of Incorporation, dated August 25, 1994 (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-93496)).
3.2 -- Bylaws of Owen (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-4 (Reg. No. 33-75456));
Amendment to Bylaws adopted June 12, 1995 (incorporated by reference
to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 1995).
4.1 -- Specimen Stock Certificate (incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-1 (Reg. No.
33-93496)).
#10.1 -- 1987 Stock Option Plan (incorporated by reference to Exhibit 10.1
to the Company's Registration Statement on Form S-4 (Reg. No.
33-75456)).
#10.2 -- 1992 Stock Option Plan (incorporated by reference to Exhibit 10.2
to the Company's Registration Statement on Form S-4 (Reg. No.
33-75456)).
#10.3 -- 1992 Non-Employee Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement Form
S-4 (Reg. No. 33-75456)).
10.4 -- Credit Agreement between Owen Healthcare, Inc. and Texas Commerce
Bank National Association dated October 11, 1995 and effective as of
August 21, 1995 (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on November 30, 1995).
#10.5 -- Form of Salary Continuation Agreements between Owen Healthcare,
Inc. and its officers (incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-4 (Reg. No. 33-75456)).
10.6 -- Lease Agreement relating to Owen's home office in Houston, Texas,
including amendments (incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-4 (Reg. No. 33-75456)).
10.7 -- Synthetic Leases with Brazos Enclave Development, Inc. dated
November 29, 1995 (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on November 30, 1995).
10.8 -- Lease Agreement dated January 25, 1995 (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on November 30, 1995).
#10.9 -- Form of Consulting Agreement between Owen Healthcare, Inc. and
Robert L. Williams (incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-4 (Reg. No. 33-75456)).
#10.10 -- 1996 Stock Option Plan (incorporated by reference to Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 1995).
*11.1 -- Statement re computation of per share earnings.
*21.1 -- Subsidiaries of Owen.
*23.1 -- Consent of Price Waterhouse LLP
- ------------
* Filed herewith.
# Management Compensation Plan or Agreement
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: February 7, 1997
OWEN HEALTHCARE, INC.
By: /s/ CARL E. ISGREN
Carl E. Isgren
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Dian G. Owen Chairman of the Board February 7, 1997
Dian G. Owen
/s/ Carl E. Isgren President, Chief Executive February 7, 1997
Carl E. Isgren Officer and Director
/s/ Harlan C. Stai Executive Vice President, February 7, 1997
Harlan C. Stai Chief Operating Officer
and Director
/s/ Stephen A. Drury Executive Vice President, February 7, 1997
Stephen A. Drury Corporate Secretary
and Director
/s/ Stanley H. Florance Senior Vice President and February 7, 1997
Stanley H. Florance Chief Financial Officer
/s/ Donald M. Jones Senior Vice President and February 7, 1997
Donald M. Jones and Director
/s/ Robert M. Rutledge Director February 7, 1997
Robert M. Rutledge
/s/ J.D. Epstein Director February 7, 1997
J.D. Epstein
/s/ Diane Peterson Director February 7, 1997
Diane Peterson
/s/ Robert L. Williams Director February 7, 1997
Robert L. Williams
/s/ Hugh M. Morrison Director February 7, 1997
Hugh M. Morrison
38
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
ADDITIONS
----------------------
CHARGED COLLECTIONS
BALANCE AT TO COSTS ON ACCOUNTS BALANCE
BEGINNING AND PREVIOUSLY DEDUCTIONS- AT END OF
OF PERIOD EXPENSES WRITTEN OFF WRITE OFFS PERIOD
- --------------------- ----------- -------- ----------- ----------- --------
Reserve for Doubtful
Accounts and Notes
Receivable for the
years ended
November 30:
1994 $ 3,588 $1,474 $ 20 $ 1,033 $ 4,049
1995 4,049 1,260 17 632 4,694
1996 4,694 496 19 197 5,012
- --------------------- ----------- -------- ----------- ----------- --------
39
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
2.1 -- Agreement and Plan of Merger dated as of April 7, 1994, by and
among the Company, Meditrol, Inc., OHC, Inc. and certain stockholders
of Meditrol, Inc. (incorporated by reference to Exhibit 2.1 of the
Company's Registration Statement on Form S-4 (Reg. No. 33-75456)).
3.1 -- Restated Articles of Incorporation, as amended, (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-4 (Reg. No. 33-75456)); Articles of Amendment to Restated
Articles of Incorporation, dated August 25, 1994 (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-93496)).
3.2 -- Bylaws of Owen (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-4 (Reg. No. 33-75456));
Amendment to Bylaws adopted June 12, 1995.
4.1 -- Specimen Stock Certificate (incorporated by reference to Exhibit
4.2 to the Company's Registration Statement on Form S-1 (Reg. No.
33-93496)).
#10.1 -- 1987 Stock Option Plan (incorporated by reference to Exhibit 10.1
to the Company's Registration Statement on Form S-4 (Reg. No.
33-75456)).
#10.2 -- 1992 Stock Option Plan (incorporated by reference to Exhibit 10.2
to the Company's Registration Statement on Form S-4 (Reg. No.
33-75456)).
#10.3 -- 1992 Non-Employee Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.3 to the Company's Registration Statement Form
S-4 (Reg. No. 33-75456)).
10.4 -- Credit Agreement between Owen Healthcare, Inc. and Texas Commerce
Bank National Association dated October 11, 1995 and effective as of
August 21, 1995 (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on November 30, 1995).
#10.5 -- Form of Salary Continuation Agreements between Owen Healthcare,
Inc. and its officers (incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-4 (Reg. No. 33-75456)).
10.6 -- Lease Agreement relating to Owen's home office in Houston, Texas,
including amendments (incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-4 (Reg. No. 33-75456)).
10.7 -- Synthetic Leases with Brazos Enclave Development, Inc. dated
November 29, 1995 (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on November 30, 1995).
10.8 -- Lease Agreement dated January 25, 1995 (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on November 30, 1995).
#10.9 -- Form of Consulting Agreement between Owen Healthcare, Inc. and
Robert L. Williams (incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-4 (Reg. No. 33-75456)).
#10.10 -- 1996 Stock Option Plan (incorporated by reference to Exhibit 10.10 to
the Company's Annual Report on November 30, 1995).
*11.1 -- Statement re computation of per share earnings.
*21.1 -- Subsidiaries of Owen.
*23.1 -- Consent of Price Waterhouse LLP
- ------------
* Filed herewith.
# Management Compensation Plan or Agreement
40
EXHIBIT 11.1
OWEN HEALTHCARE, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
UNAUDITED
YEAR ENDED NOVEMBER 30,
--------------------------
1994 1995 1996
------ ------- -------
PRIMARY:
Earnings Applicable to Common Stock .............. $5,191 $ 8,110 $10,907
Weighted Average Shares Outstanding ............. 9,078 12,196 17,086
Dilutive Effects of Stock Options ............... 670 954 1,018
------ ------- -------
Common and Common Equivalent Shares ............. 9,748 13,150 18,104
====== ======= =======
Earnings Per Common and Common
Equivalent Share ............................. $ .53 $ .62 $ .60
====== ======= =======
ASSUMING FULL DILUTION:
Earnings Applicable to Common Stock .............. $5,191 $ 8,110 $10,907
Reduction of Convertible Debt Interest
Expense, Net of Tax and Corporate
Bonus Effect ................................... 394 270
------ ------- -------
Earnings Applicable to Common Stock, as adjusted. $5,585 $ 8,380 $10,907
------ ------- -------
Primary Common and Common Equivalent Shares ..... 9,748 13,150 18,104
Additional Incremental Shares for Options ....... 95 260 150
Weighted Average Shares Issuable Upon
Conversion of Debt ............................ 2,380 1,594
------ ------- -------
Weighted Average Common and Common Equivalent
Shares Outstanding, as adjusted ................ 12,223 15,004 18,254
====== ======= =======
Earnings Per Common and Common Equivalent Share . $ .46 $ .56 $ .60
====== ======= =======
EXHIBIT 21.1
OWEN HEALTHCARE, INC.
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY NAME STATE OF INCORPORATION
--------------------------------- ----------------------
Meditrol, Inc. Nevada
Meditrol Automation Systems, Inc. Texas
Owen Healthcare Building, Inc. Texas
Owen Shared Services, Inc. Texas
Owen International Ventures, Ltd. Hamilton, Bermuda
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on From S-8 (No. 33-95668) of Owen Healthcare, Inc. of our report
dated January 30, 1997 appearing on page 19 Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Houston, TX
January 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE YEARLY REPORT AS OF NOVEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 4,142
<SECURITIES> 9,986
<RECEIVABLES> 63,409
<ALLOWANCES> 5,012
<INVENTORY> 50,616
<CURRENT-ASSETS> 129,815
<PP&E> 42,854
<DEPRECIATION> 28,298
<TOTAL-ASSETS> 169,168
<CURRENT-LIABILITIES> 44,815
<BONDS> 0
0
0
<COMMON> 4,711
<OTHER-SE> 115,511
<TOTAL-LIABILITY-AND-EQUITY> 169,168
<SALES> 0
<TOTAL-REVENUES> 449,331
<CGS> 382,401
<TOTAL-COSTS> 431,785
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 496
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 18,460
<INCOME-TAX> 7,553
<INCOME-CONTINUING> 10,907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,907
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
