UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to Commission file number: 001-11519
BINDLEY WESTERN INDUSTRIES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Indiana 84-0601662
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8909 Purdue Road
Indianapolis, Indiana 46268
----------------------------
(Address of principal executive offices)
(Zip Code)
(317) 704-4000
--------------
(Registrant's telephone number,
including area code)
No Change
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes x No _________
---------
The number of shares of Common Stock outstanding as of September 30, 2000 was
35,349,179
This Form 10-Q/A is being filed by the Registrant to amend the financial
statements and other information contained herein to reflect a change in the
allocation of the purchase price of Central Pharmacy Services, Inc. to various
assets, including intangible assets and goodwill and their estimated useful
lives.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(000's omitted except share data)
(unaudited)
Nine-month period ended Three-month period ended
September 30, September 30,
--------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------
(Restated) (Restated) (Restated) (Restated)
Revenues:
Net sales from stock $ 4,760,588 $ 3,687,906 $ 1,527,680 $ 1,265,333
Net brokerage sales 2,466,242 2,470,677 777,630 873,077
--------------------------------------------------------------------
Total net sales 7,226,830 6,158,583 2,305,310 2,138,410
Other income 1,448 1,232 465 333
--------------------------------------------------------------------
7,228,278 6,159,815 2,305,775 2,138,743
--------------------------------------------------------------------
Cost of products sold 7,025,961 6,010,639 2,237,462 2,086,405
Selling, general and administrative 109,030 80,520 37,258 28,432
Depreciation and amortization 11,630 7,174 4,017 2,749
Interest 23,359 16,429 7,206 5,819
Unusual item 21,300 (5,000)
--------------------------------------------------------------------
7,191,280 6,114,762 2,280,943 2,123,405
--------------------------------------------------------------------
Earnings before income taxes 36,998 45,053 24,832 15,338
--------------------------------------------------------------------
Provision for income taxes 23,019 18,204 8,006 6,393
--------------------------------------------------------------------
Net earnings $ 13,979 $ 26,849 $ 16,826 $ 8,945
====================================================================
Earnings per share:
Basic $ 0.40 $ 0.87 $ 0.48 $ 0.28
Diluted $ 0.38 $ 0.79 $ 0.44 $ 0.25
Average shares outstanding:
Basic 34,529,602 30,780,576 35,014,326 31,695,962
Diluted 37,263,026 33,878,986 37,968,255 35,078,840
(See accompanying notes to consolidated financial statements)
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000's omitted except share data)
(unaudited)
September 30, December 31,
-------------------------------
2000 1999
-------------------------------
(Restated) (Restated)
Assets
Current assets:
Cash $ 82,170 $ 34,910
Accounts receivable, less allowance for doubtful
accounts of $9,547 for 2000 and 1999 619,706 721,829
Finished goods inventory 1,077,149 803,021
Deferred income taxes 14,968 13,168
Other current assets 11,740 9,926
-------------------------------
1,805,733 1,582,854
-------------------------------
Other assets 13 18
-------------------------------
Fixed assets, at cost 133,533 127,655
Less: accumulated depreciation (33,625) (26,287)
-------------------------------
99,908 101,368
-------------------------------
Intangibles including goodwill 83,247 81,976
-------------------------------
Total assets $ 1,988,901 $ 1,766,216
===============================
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 80,000 $ 45,000
Securitized borrowings 320,000 349,963
Accounts payable 1,049,993 864,271
Other current liabilities 39,749 25,957
-------------------------------
1,489,742 1,285,191
-------------------------------
Long-term debt 38,310 38,698
-------------------------------
Deferred income taxes 15,913 16,128
-------------------------------
Shareholders' equity:
Common stock, $.01 par value authorized 53,333,333 shares;
issued 36,579,807 and 35,213,201 shares, respectively 3,429 3,415
Special shares, $.01 par value-authorized 1,000,000 shares
Additional paid in capital 287,247 278,344
Note receivable from officer (3,390) (3,228)
Retained earnings 177,217 165,149
-------------------------------
464,503 443,680
Less: shares in treasury-at cost
1,230,628 and 1,212,232 shares, respectively (19,567) (17,481)
-------------------------------
Total shareholders' equity 444,936 426,199
-------------------------------
Commitments and contingencies
-------------------------------
Total liabilities and shareholders' equity $ 1,988,901 $ 1,766,216
===============================
(See accompanying notes to consolidated financial statements)
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted except share data)
(unaudited)
Nine-month period ended
September 30,
---------------------------
2000 1999
---------------------------
(Restated) (Restated)
Cash flow from operating activities:
Net income $ 13,979 $ 26,849
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 11,630 7,174
Deferred income taxes (2,040) (2,578)
Gain on sale of fixed assets (58)
Change in assets and liabilities, net of acquisition:
Accounts receivable 102,855 (197,860)
Finished goods inventory (274,075) (40,805)
Accounts payable 185,128 37,445
Other current assets and liabilities 11,845 4,629
---------------------------
Net cash provided (used) by operating activities 49,264 (165,146)
---------------------------
Cash flow from investing activities:
Purchase of fixed assets and other assets (13,731) (15,338)
Proceeds from sale of fixed assets 6,527 20,906
Acquisition of business (2,523)
---------------------------
Net cash provided (used) by investing activities (9,727) 5,568
---------------------------
Cash flow from financing activities:
Proceeds from sale of stock 7,232 4,876
Reduction in long term debt (387) (244)
Related party note receivable (162) (162)
Payment on note payable Priority Healthcare Corporation (3,350)
Proceeds under line of credit agreement 1,073,000 1,091,500
Payments under line of credit agreement (1,038,000) (958,500)
Proceeds of securitized borrowings 40,000 13,800
Payments of securitized borrowings (69,963)
Purchase of common shares for treasury (2,086) (6,800)
Dividends (1,911) (1,472)
---------------------------
Net cash provided (used) by financing activities 7,723 139,648
---------------------------
Net increase (decrease) in cash 47,260 (19,930)
Cash at beginning of period 34,910 42,982
---------------------------
Cash at end of period $ 82,170 $ 23,052
===========================
(See accompanying notes to consolidated financial statements)
BINDLEY WESTERN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. We have prepared the consolidated financial statements in this report
without audit. We condensed or omitted some information and footnote
disclosures, including significant accounting policies, that would normally
be included in financial statements prepared in accordance with generally
accepted accounting principles. We believe that the financial statements
for the three and nine-month periods ended September 30, 2000 and 1999
include all necessary adjustments which are of a normal recurring nature,
for fair presentation. Results for any interim period may not be indicative
of the results of the entire year.
2. Effective August 31, 1999 the Company acquired all of the common stock of
Central Pharmacy Services, Inc. ("Central Pharmacy"). Central Pharmacy
operates specialized pharmacies that prepare and deliver unit dose
radiopharmaceuticals for use in nuclear imaging procedures in hospitals and
clinics. Each share of Central Pharmacy was exchanged for 26.38 shares of
BWI common stock. BWI exchanged an aggregate of approximately 2.9 million
shares of its common stock valued at $17.03 per share for all of the common
stock of Central Pharmacy. In addition, outstanding Central Pharmacy
employee stock options were converted at the same exchange factor into
options to purchase approximately 300,000 shares of BWI common stock.
The merger with Central Pharmacy was originally accounted for as a pooling
of interests and was reflected for all periods presented, and the financial
statements of BWI have included the combined operations of both BWI and
Central Pharmacy. However, the Company subsequently determined that the
pooling of interests method was unavailable for the Central Pharmacy
acquisition because of a dividend paid to preferred shareholders of Central
Pharmacy immediately prior to the acquisition. Accordingly, the Company has
restated its financial statements and applied the purchase method of
accounting for the Central Pharmacy acquisition. The total purchase price
of $56,700,000, including acquisition costs, has been allocated based on
estimated fair values at the date of acquisition including net tangible
assets of $4,000,000; identified intangible assets of workforce in place of
$1,400,000 amortized on a straight line basis over 12 years, customer
relationships of $28,000,000 amortized on a straight line basis over 40
years and goodwill of $34,800,000 amortized on a straight line basis over
20 years; offset by $11,500,000 in deferred tax liabilities. The results of
operations of Central Pharmacy are included from the date of acquisition.
The following table shows certain income statement and balance sheet line
items that have been restated:
Restated As Previously Reported
(000's) (000's)
-----------------------------------------------
Total net sales:
Three months ended 9/30/99 $2,138,410 $2,138,410
Nine months ended 9/30/99 6,158,583 6,158,583
Three months ended 9/30/00 2,305,310 2,305,310
Nine months ended 9/30/00 7,226,830 7,226,830
Net earnings:
Three months ended 9/30/99 8,945 8,901
Nine months ended 9/30/99 26,849 26,805
Three months ended 9/30/00 16,826 16,692
Nine months ended 9/30/00 13,979 13,576
Basic earnings per share:
Three months ended 9/30/99 .28 .28
Nine months ended 9/30/99 .87 .87
Three months ended 9/30/00 .48 .48
Nine months ended 9/30/00 .40 .39
Diluted earnings per share:
Three months ended 9/30/99 .25 .25
Nine months ended 9/30/99 .79 .79
Three months ended 9/30/00 .44 .44
Nine months ended 9/30/00 .38 .36
Balance sheet line items at December 31, 1999:
Intangibles 81,976 18,582
Deferred tax liability 16,128 4,703
Additional paid in capital 278,344 225,459
Retained earnings 165,149 166,550
Balance sheet line items at September 30, 2000:
Intangibles 83,247 71,480
Deferred tax liability 15,913 4,728
Additional paid in capital 287,247 287,247
Retained earnings 177,217 176,635
The following unaudited pro forma information presents the results of
operations of BWI as if the acquisition had taken place on January 1, 1999
(in thousands except for per share data):
Nine month Three month
period ended period ended
September 30, 1999 September 30, 1999
----------------------- --------------------------
Revenues $6,186,850 $2,145,845
Net Earnings 27,801 9,404
Earnings per share:
Basic .83 .28
Diluted .76 .25
Weighted Average Outstanding
Common shares:
Basic 33,370,816 33,633,394
Diluted 36,663,425 37,016,272
These unaudited pro forma results have been prepared for analysis purposes
only and include certain adjustments such as additional amortization
expenses related to intangible assets and goodwill. They do not purport to
be indicative of the results of operations that actually would have
resulted had the acquisition occurred on January 1, 1999 or of future
results of operations.
3. On March 27, 2000, the Company disclosed in its Form 10-K filing that it
was a potential defendant in an ongoing grand jury investigation being
conducted by the U. S. Attorney's Office in Las Vegas, NV. Then, on April
24, 2000, the Company announced in its first quarter 2000 earnings release
that it had entered into an agreement for the purpose of settling the
subject matter of the government's investigation, subject to court
approval.
In conformance with generally accepted accounting principles, the Company
recorded the amount of the tentative settlement plus the estimated fees and
expenses associated with its internal investigation and recorded an unusual
charge of $26.3 million ($25.8 million net of tax) for the March 31, 2000
quarter.
On August 29, 2000, we agreed to accept vicarious liability for the acts of
two former vice presidents of Bindley Western Drug Company, a division of
the Company. Both former employees have entered into plea agreements with
the government regarding their conduct, which occurred between 1995 and
1997. Under the doctrine of vicarious liability, an employer may be held
liable for the criminal conduct of its officers even when that conduct is
detrimental to the employer and contrary to its internal policies and
procedures. The government has agreed that all of the alleged criminal
conduct was attributable to these two former employees located in the San
Dimas, CA division and that the employees' improper activities occurred
without the knowledge of corporate officers in Bindley Western's
Indianapolis headquarters. One of these employees was terminated in January
1998 and the other resigned in October 1999.
The settlement required us to plead guilty to one charge of conspiracy to
commit interstate transportation of property obtained by fraud, and to pay
a fine of $20 million. The agreement imposes no probation and the
government agreed that no further criminal charges will be brought against
the Company, including its subsidiaries or affiliates, or any current or
former director, officer, or employee arising out of any matters associated
with the government's investigation. The agreement specifies that the
alleged conduct did not involve harm to public health or safety; that there
were no allegations of fraud against the United States or federal or state
healthcare systems; and, that the offense occurred despite the Company's
effective program to prevent violations of the law. The government also
confirmed that the Company committed no violations of the Prescription Drug
Marketing Act, a federal law applying to sales and purchases of
pharmaceutical products.
The $20 million fine was paid on August 29, 2000; As a result of this fine
being less than the tentative settlement recorded in the first quarter of
2000, a $5 million unusual benefit was recorded in the third quarter of
2000.
4. In a consolidated class action filed in the United States District Court
for the Northern District of Illinois in 1993, the Company, other
pharmaceutical wholesalers and pharmaceutical manufacturers were named as
defendants, In re Brand Name Prescription Drugs Litigation, MDL 997.
Plaintiffs alleged that pharmaceutical manufacturers and wholesalers
conspired to fix prices of brand-name prescription drugs sold to retail
pharmacies at artificially high levels in violation of the federal
antitrust laws. The plaintiffs sought injunctive relief, unspecified treble
damages, costs, interest and attorneys' fees. The Company denied the
complaint allegations.
Several of the manufacturer defendants and the class plaintiffs have
reached settlement agreements. Under these agreements, the settling
manufacturer defendants retain certain contingent liabilities under the
October 21, 1994 agreement discussed below. The trial against the remaining
defendants, including the Company, began on September 14, 1998. On November
30, 1998, the Court granted all remaining defendants' motions for judgments
as a matter of law, dismissing all In re Brand Name Prescription Drugs
class claims against the Company and other defendants. The class plaintiffs
appealed the Court's ruling and, on July 13, 1999, the appeals court
dismissed the wholesalers, including the Company, from the case.
On February 22, 2000, the United States Supreme Court denied the
plaintiffs' petition for certiorari, thus concluding the In re Brand Name
Prescription Drugs class action litigation.
The Company was also a defendant in approximately 115 additional cases
brought by plaintiffs who "opted out" of the federal class action described
above. One hundred eleven of these complaints contained allegations and
claims for relief that were substantially similar to those in the federal
class action. The four remaining complaints added allegations that the
defendants' conduct violated state law. The damages period in these cases
began in October 1993. The Company also denied the allegations in all of
these complaints. On November 6, 2000, the Court held that no reasonable
jury could predicate a finding of liability against the wholesalers
(including the Company) and, therefore, granted the wholesalers' motion for
summary judgment.
On November 20, 1997, two additional complaints were filed in the MDL 997
proceeding by Eckerd Corporation and American Drug Stores naming certain
pharmaceutical manufacturers and wholesalers, including the Company, as
defendants. These complaints contain allegations and claims for relief that
are substantially similar to those in the federal class action. The Company
has denied the allegations in these complaints. No trial date has been set
in these cases.
On July 1, 1996, the Company and several other wholesalers were joined as
the defendants in a seventh amended and restated complaint filed in the
Circuit Court of Greene County, Alabama, Durrett v. The Upjohn Company,
Civil Action No. 94-029. An order dismissing the action and taxing costs
against the plaintiffs was entered by the Circuit Court on November 29,
1999.
On June 16, 1998, a suit was filed in the Circuit Court for Cocke County,
Tennessee purportedly on behalf of consumers of prescription drugs in the
following states: Tennessee, Alabama, Arizona, Florida, Kansas, Maine,
Michigan, Minnesota, New Mexico, North Carolina, North Dakota, South
Dakota, West Virginia and Wisconsin. Graves et al. v. Abbott Laboratories
et al., Civil Action No. 25,109-II. The complaint charges that
pharmaceutical manufacturers and wholesalers, including the Company,
engaged in a price-fixing conspiracy in violation of Tennessee's Trade
Practices Act and Consumer Protection Act, and the unfair or deceptive
trade practices statutes of the other jurisdictions named therein. The
Company has denied the allegations of the complaint and all proceedings in
this suit have been stayed until further order of the Circuit Court.
On October 21, 1994, the Company entered into an agreement with the other
wholesalers and pharmaceutical manufacturers covering all of the cases
listed above. Among other things, the agreement provides that for all
judgments that might be entered against both the manufacturer and
wholesaler defendants, the Company's total exposure for joint and several
liability is limited to $1 million and the wholesaler defendants are
indemnified for $9 million in related legal fees and expenses. As a result
of the previously noted settlements, we have periodically received
reimbursement of our legal fees and expenses in excess of our proportionate
share of the $9 million, and we expect to receive reimbursement of
substantially all of such fees and expenses in the future.
The Company is unable to form a reasonably reliable conclusion regarding
the likelihood of a favorable or unfavorable outcome of these cases, each
of which is being defended vigorously. The Company believes the allegations
of liability are without merit with regard to the wholesaler defendants and
that the attendant liability of the Company, if any, would not have a
material adverse effect on the Company's financial condition or liquidity.
Adverse decisions, although not anticipated, could have a material adverse
effect on the Company's results of operations.
5. On June 25, 1999, a 4-for-3 stock split of our common stock was paid in the
form of a stock dividend to shareholders of record at the close of business
on June 11, 1999. We restated all historical weighted average shares and
per share amounts in this report to reflect these stock splits. Share
amounts in the Consolidated Balance Sheets reflect the actual share amounts
outstanding for each period presented.
6. Giving effect to the CPSI merger, we have two reportable segments. These
segments are BWI and Nuclear Pharmacy. These segments conduct substantially
all of their business within the United States. The BWI segment specializes
in the distribution of pharmaceuticals and related health care products to
chain drug companies which operate their own warehouses, individual drug
stores, supermarkets and mass retailers with their own pharmacies,
hospitals, clinics, HMOs, state and federal government agencies and other
health care providers. The Nuclear Pharmacy segment prepares and delivers
unit dose radiopharmaceuticals for use in nuclear imaging procedures in
hospitals and clinics. Our segments have separate management teams and
infrastructures to meet the specific needs of our customers and our
marketing strategies.
Segment information for the three and nine-month periods ended September
30, 1999 and 2000 on a restated basis was as follows:
(in thousands) BWI Nuclear Pharmacy Total
----------------- ----------------- -------------
Nine-months ended September 30, 1999
Revenues $ 6,154,669 $ 3,914 $ 6,158,583
Segment operating earnings 61,087 395 61,482
Interest expense (16,429)
-------------
Earnings before income taxes 45,053
=============
Three-months ended September 30,1999
Revenues $ 2,134,496 $ 3,914 $ 2,138,410
Segment operating earnings 20,762 395 21,157
Interest expense (5,819)
-------------
Earnings before income taxes 15,338
=============
Nine-months ended September 30, 2000
Revenues $ 7,179,312 $ 47,518 $ 7,226,830
Segment operating earnings 76,611 5,046 81,657
Interest expense (23,359)
Unusual item (21,300)
-------------
-------------
Earnings before income taxes 36,998
=============
Three-months ended September 30, 2000
Revenues $2,288,228 $ 17,081 $ 2,305,309
Segment operating earnings 25,132 1,906 27,038
Interest expense (7,206)
Unusual item 5,000
-------------
Earnings before income taxes 24,832
=============
Operating earnings, as opposed to net earnings, have been determined to be
a better indicator of a segment's operating profitability for management
purposes. Total assets of the BWI segment have increased by 12.9% from
December 31, 1999 to September 30, 2000.
7. On April 19, 2000, CPSI purchased the stock of Premier Pharmacy Services
(PPS), a centralized nuclear pharmacy based in Indianapolis, Indiana, for
restricted shares of the Company's stock valued at $1,684,000 and
additional cash consideration. The acquisition was accounted for by the
purchase method and the financial statements include the results of
operations from the effective date of the acquisition.
8. The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the three and nine
month periods ended September 30, 2000 and 1999 on a restated basis:
For the Nine-Month Period ended For the Three Month Period ended
September 30, September 30,
-------------------------------- --------------- ----------------- ---------------- -----------------
(in thousands, except share data) 2000 1999 2000 1999
-------------------------------- --------------- ----------------- ---------------- -----------------
Basic:
Net earnings $ 13,979 $ 26,849 $ 16,826 $ 8,945
Basic shares
outstanding 34,529,602 30,780,576 35,014,326 31,695,962
Per share amount $ .40 $ .87 $ .48 $ .28
Diluted:
Net earnings $ 13,979 $ 26,849 $ 16,826 $ 8,945
Weighted shares
outstanding 34,529,602 30,780,576 35,014,326 31,695,962
Stock options 2,733,424 3,098,410 2,953,929 3,382,878
Diluted shares 37,263,026 33,878,986 37,968,255 35,078,840
Per share amount $ .38 $ .79 $ .44 $ .25
9. On December 4, 2000, it was announced that the Company agreed to merge with
Cardinal Health, Inc. The terms of the definitive agreement call for
Bindley Western shareholders to receive a fixed exchange of 0.4275 Cardinal
Health, Inc. common shares for each outstanding share of Bindley Western.
The transaction will include the assumption of Bindley Western's debt and
is intended to be accounted for as a pooling of interests for financial
reporting purposes and to be tax-free to the holders of Bindley Western
common shares. In connection with the transaction, the Company has issued
to Cardinal Health a stock option exercisable under certain circumstances
for newly issued shares equal to 19.9 percent of Bindley Western's
currently outstanding common shares.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
Effective August 31, 1999 the Company acquired all of the common stock
of Central Pharmacy Services, Inc. ("Central Pharmacy"). Central Pharmacy
operates specialized pharmacies that prepare and deliver unit dose
radiopharmaceuticals for use in nuclear imaging procedures in hospitals and
clinics. Each share of Central Pharmacy was exchanged for 26.38 shares of BWI
common stock. BWI exchanged an aggregate of approximately 2.9 million shares of
its common stock valued at $17.03 per share for all of the common stock of
Central Pharmacy. In addition, outstanding Central Pharmacy employee stock
options were converted at the same exchange factor into options to purchase
approximately 300,000 shares of BWI common stock.
The merger with Central Pharmacy was originally accounted for as a
pooling of interests and was reflected for all periods presented, and the
financial statements of BWI have included the combined operations of both BWI
and Central Pharmacy. However, the Company subsequently determined that the
pooling of interests method was unavailable for the Central Pharmacy acquisition
because of a dividend paid to preferred shareholders of Central Pharmacy
immediately prior to the acquisition. Accordingly, the Company has restated its
financial statements and applied the purchase method of accounting for the
Central Pharmacy acquisition. The total purchase price of $56,700,000, including
acquisition costs, has been allocated based on estimated fair values at the date
of acquisition including net tangible assets of $4,000,000; identified
intangible assets of workforce in place of $1,400,000 amortized on a straight
line basis over 12 years, customer relationships of $28,000,000 amortized on a
straight line basis over 40 years and goodwill of $34,800,000 amortized on a
straight line basis over 20 years; offset by $11,500,000 in deferred tax
liabilities. The results of operations of Central Pharmacy are included from the
date of acquisition.
The following table shows certain income statement and balance sheet line items
that have been restated:
Restated As Previously Reported
(000's) (000's)
------------------------------------------------
Total net sales:
Three months ended 9/30/99 $2,138,410 $2,138,410
Nine months ended 9/30/99 6,158,583 6,158,583
Three months ended 9/30/00 2,305,310 2,305,310
Nine months ended 9/30/00 7,226,830 7,226,830
Net earnings:
Three months ended 9/30/99 8,945 8,901
Nine months ended 9/30/99 26,849 26,805
Three months ended 9/30/00 16,826 16,692
Nine months ended 9/30/00 13,979 13,576
Basic earnings per share:
Three months ended 9/30/99 .28 .28
Nine months ended 9/30/99 .87 .87
Three months ended 9/30/00 .48 .48
Nine months ended 9/30/00 .40 .39
Diluted earnings per share:
Three months ended 9/30/99 .25 .25
Nine months ended 9/30/99 .79 .79
Three months ended 9/30/00 .44 .44
Nine months ended 9/30/00 .38 .36
Balance sheet line items at December 31, 1999:
Intangibles 81,976 18,582
Deferred tax liability 16,128 4,703
Additional paid in capital 278,344 225,459
Retained earnings 165,149 166,550
Balance sheet line items at September 30, 2000:
Intangibles 83,247 71,480
Deferred tax liability 15,913 4,728
Additional paid in capital 287,247 287,247
Retained earnings 177,217 176,635
On April 19, 2000, CPSI purchased the stock of Premier Pharmacy
Services (PPS), a centralized nuclear pharmacy based in Indianapolis, Indiana,
for restricted shares of the Company's stock valued at $1,684,000 and additional
cash consideration. The acquisition was accounted for by the purchase method and
the financial statements include the results of operations from the effective
date of the acquisition.
Results of Operations
Net sales of $7,227 million for the first nine months of 2000
represented a 17.4% increase over the first nine months of 1999. Net sales of
$2,305 million for the third quarter of 2000 represented a 7.8% increase over
the third quarter of 1999. Nuclear Pharmacy sales were only included from the
date of acquisition for both the first nine months and the third quarter of
1999. In 2000, Nuclear Pharmacy sales accounted for less than 1% of sales in all
periods presented. In the third quarter of 2000, we entered into a new supplier
agreement with Eckerd Corporation. Under this agreement, we will no longer
service the lower margin Eckerd warehouse brokerage type sales ("brokerage
sales"). However, we have been awarded approximately 530 new direct store
delivery Eckerd stores. Brokerage sales remained relatively flat for the first
nine months of 2000 when compared to the same period in 1999, while brokerage
sales for the third quarter of 2000 experienced a 10.9% decrease when compared
to the third quarter of 1999. The decrease in the third quarter resulted from
the new agreement with Eckerd Corporation. Sales from inventory ("from stock
sales") increased 29.1% in the first nine months of 2000 when compared to the
first nine months of 1999 and 20.7% for the third quarter of 2000 when compared
to the third quarter of 1999. From stock sales include sales from inventory to
chain warehouse customers and direct store delivery sales. We continued to
expand our presence in the direct store delivery portion of the business through
increased sales to existing customers and the addition of new customers. Direct
store delivery sales increased by 30.9% for the first nine months of 2000 when
compared to the first nine months of 1999 and 22.9% for the third quarter of
2000 when compared to the third quarter of 1999. As a percentage of total sales,
direct store delivery sales increased from 58.2% for the first nine months of
1999 to 64.9% for the first nine months of 2000. In both the first nine months
of 2000 and 1999, the increase related to price increases was approximately
equal to the increase in the Consumer Price Index.
Gross margin of $200.9 million for the first nine months of 2000
represented an increase of 35.8% over the first nine months of 1999. Gross
margin of $67.8 million in the third quarter of 2000 represented a 30.5%
increase over the third quarter of 1999. Nuclear Pharmacy gross margins were
only included from the date of acquisition for both the first nine months and
the third quarter of 1999. In all periods, the pressure on sell side margins
continued to be a significant factor and the purchasing gains associated with
pharmaceutical price inflation remained relatively constant. Gross margin as a
percentage of net sales increased to 2.78% for the first nine months of 2000
from 2.40% for the first nine months of 1999. For the third quarter, gross
margin as a percentage of net sales increased to 2.94% in 2000 from 2.43% in
1999. This increase in gross margin was primarily the result of the inclusion of
the higher margin Nuclear Pharmacy sales for all periods in 2000, the change in
mix away from the lower margin brokerage sales to the higher margin from stock
sales and the increased generic sales of our BWI segment.
Other income is attributable primarily to finance charges on customers'
receivables and gains on the sale of fixed assets.
Selling, general and administrative ("SGA") expenses for the first nine
months of 2000 increased 35.4% from $80.5 million in 1999 to $109.0 million in
2000. For the third quarter, SGA increased 31.0% from $28.4 million in 1999 to
$37.3 million in 2000. A significant factor contributing to these increases is
that Nuclear Pharmacy SGA was only included from the date of acquisition for
both the first nine months and the third quarter of 1999. The remainder of the
increases is attributed to expenses related to new distribution centers opened
in 1999 in Milwaukee, Wisconsin, Kansas City, Missouri and Denver, Colorado,
normal inflationary increases and increased variable costs to support our
growing direct store delivery programs. These variable costs include, among
others, delivery expenses, warehouse expense and labor costs. SGA expenses will
continue to increase as direct store delivery sales increase. However, total SGA
expenses as a percent of from stock sales for the first nine months increased
slightly from 2.18% in 1999 to 2.29% in 2000. We remain focused on controlling
SGA through improved technology, better asset management and opportunities to
consolidate distribution centers.
Depreciation and amortization expense increased as a result of the
goodwill and intangibles associated with the acquisition of CPSI, the building
of new facilities, expansion and automation of existing facilities and
investments in management information systems. Depreciation and amortization
expense increased from $7.2 million in the first nine months of 1999 to $11.6
million in the first nine months 2000. For the third quarter, depreciation and
amortization expense increased from $2.7 million in 1999 to $4.0 million in
2000.
Interest expense for the nine-month period increased from $16.5 million
in 1999 to $23.4 million in 2000. For the third quarter, interest expense
increased from $5.8 million in 1999 to $7.2 million in 2000. The average
short-term borrowings outstanding for the nine-month period in 1999 were $320
million at an average short-term interest rate of 5.1%, as compared to $403
million at an average short-term interest rate of 6.5% in 2000. For the third
quarter of 1999, the average short-term borrowings outstanding were $315 million
in 1999 at an average short-term interest rate of 5.4%, as compared to $336
million at an average short-term interest rate of 6.9% in 2000. During the first
nine months of 2000, CPSI has incurred $73,035 of interest on their line of
credit at an average interest rate of 8.6%
The unusual item in 2000 represents the amount of the tentative
settlement with the government of $25 million plus the estimated fees and
expenses associated with its internal investigation of $1.3 million recorded in
the first quarter of 2000. This charge is offset by the $5 million benefit
resulting from the actual settlement being $20 million. This benefit was
recorded in the third quarter of 2000.
The provision for income taxes represented approximately 40.4% of
earnings before taxes for the first nine months of 1999 and 41.6% for the third
quarter of 1999. In 2000, the provision for income taxes represents 39.5% of
earnings before taxes and the effect of the nondeductible element of the unusual
item for the first nine months and 40.4% for the third quarter.
Liquidity-Capital Resources
For the nine-month period ended September 30, 2000, our operations
provided $49 million in cash. The source of funds resulted primarily from a
decrease in accounts receivables and an increase in accounts payable. The
decrease in accounts receivable is attributed to the timing of the reduction in
brokerage type sales to Eckerd and the startup of the additional direct store
delivery sales to Eckerd. The increase in accounts payable is attributed to the
timing of payments of invoices related to inventory purchases. These sources of
funds were somewhat offset by an increase in inventory resulting from increased
purchases associated with the startup of new direct store delivery customers and
buildups necessitated to assure adequate supply at year end. We continue to
closely monitor working capital in relation to economic and competitive
conditions. However, our emphasis on direct store delivery business will
continue to require both net working capital and cash.
On March 27, 2000, the Company disclosed in its Form 10-K filing that
it was a potential defendant in an ongoing grand jury investigation being
conducted by the U. S. Attorney's Office in Las Vegas, NV. Then, on April 24,
2000, the Company announced in its first quarter 2000 earnings release that it
had entered into an agreement for the purpose of settling the subject matter of
the government's investigation, subject to court approval.
In conformance with generally accepted accounting principles, the
Company recorded the amount of the tentative settlement plus the estimated fees
and expenses associated with its internal investigation and recorded an unusual
charge of $26.3 million ($25.8 million net of tax) for the March 31, 2000
quarter.
On August 29, 2000, we agreed to accept vicarious liability for the
acts of two former vice presidents of Bindley Western Drug Company, a division
of the Company. Both former employees have entered into plea agreements with the
government regarding their conduct, which occurred between 1995 and 1997. Under
the doctrine of vicarious liability, an employer may be held liable for the
criminal conduct of its officers even when that conduct is detrimental to the
employer and contrary to its internal policies and procedures. The government
has agreed that all of the alleged criminal conduct was attributable to these
two former employees located in the San Dimas, CA division and that the
employees' improper activities occurred without the knowledge of corporate
officers in Bindley Western's Indianapolis headquarters. One of these employees
was terminated in January 1998 and the other resigned in October 1999.
The settlement required us to plead guilty to one charge of conspiracy
to commit interstate transportation of property obtained by fraud, and to pay a
fine of $20 million. The agreement imposes no probation and the government
agreed that no further criminal charges will be brought against the Company,
including its subsidiaries or affiliates, or any current or former director,
officer, or employee arising out of any matters associated with the government's
investigation. The agreement specifies that the alleged conduct did not involve
harm to public health or safety; that there were no allegations of fraud against
the United States or federal or state healthcare systems; and, that the offense
occurred despite the Company's effective program to prevent violations of the
law. The government also confirmed that the Company committed no violations of
the Prescription Drug Marketing Act, a federal law applying to sales and
purchases of pharmaceutical products.
The $20 million fine was paid on August 29, 2000; As a result of this
fine being less than the tentative settlement recorded in the first quarter of
2000, a $5 million unusual benefit was recorded in the third quarter of 2000.
Capital expenditures were $13.7 million during the first nine months of
2000. These were predominantly for distribution centers, the expansion and
automation of existing distribution centers and the investment in additional
management information systems.
Under our receivables securitization facility, we sell substantially
all of our receivables arising in connection with the sale of goods or the
rendering of services to Bindley Western Funding Corporation ("Funding Corp."),
a wholly owned special purpose corporation subsidiary. The receivables are sold
to Funding Corp. on a continuous basis. The cash generated by sales of interests
in the receivables and from collections on the receivables retained is used by
Funding Corp. to purchase additional receivables. The assets of Funding Corp.
are available first to satisfy any claims of Funding Corp. creditors.
Funding Corp. sells our receivables at specified discount rates to a
group of banks. At September 30, 2000, there were $320 million of receivables
interests outstanding that have been sold at an annual average discount rate of
6.6%. We account for the receivables facility as a financing transaction in our
consolidated financial statements.
Our bank credit facility allows us to borrow up to $150 million. The
net increase in borrowings under our bank credit agreement was $35 million
during the nine-month period. On October 31, 2000, we entered into a
multi-advance non-revolving credit facility for an additional $100 million with
Bank One. This additional facility will be available for our use until February
1, 2001.
We believe that our cash on hand, cash equivalents, line of credit and
working capital management efforts are sufficient to meet our future working
capital requirements.
Our principal working capital needs are for inventory and accounts
receivables. We sell inventory to our chain warehouse and other customers on
various payment terms. This requires significant working capital to finance
inventory purchases and entails accounts receivables exposure in the event any
of our chain warehouse or other significant customers encounter financial
difficulties. Although we monitor closely the creditworthiness of our major
customers and, when feasible, obtain security interests in the inventory sold,
we cannot assure you that we will not incur the write off or write down of chain
warehouse customer or other significant accounts receivables in the future.
Forward-Looking Statements
We make forward-looking statements in this report which represent our
expectations or beliefs about future events and financial performance.
Forward-looking statements are subject to known and unknown risks and
uncertainties, including:
o changes in interest rates;
o competitive pressures;
o changes in customer mix;
o financial stability of major customers and key suppliers;
o investment procurement opportunities;
o asserted and unasserted claims; and
o changes in governmental regulations or the interpretation and
enforcement of these regulations.
In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this report might not occur. In addition,
actual results could differ materially from those suggested by the
forward-looking statements, and therefore you should not place undue reliance on
the forward-looking statements. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
Item 3. Qualitative and Quantitative Disclosures About Market Risks
There have been no material changes in our market risk exposure from the risks
described in our Annual Report on Form 10-K/A for the year ended December 31,
1999.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth in Notes 3 and 4 to the Notes to
Consolidated Financial Statements set forth elsewhere in this Report is
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
December 21, 2000 BINDLEY WESTERN INDUSTRIES, INC.
BY /s/ Thomas J. Salentine
Thomas J. Salentine
Executive Vice President
(Principal Financial Officer)