Filed by: Bergen Brunswig Corporation. This
Communication is filed pursuant to Rule 425
under The Securities Act of 1933, as amended,
and deemed filed pursuant to Rule 14a-12 of
the Securities Exchange Act of 1934.
Subject Company: Bergen Brunswig Corporation
Commission File Number: 1-5110
FORWARD-LOOKING STATEMENTS
The following communications contain certain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements are based on management's
current expectations and are subject to uncertainty and changes in
circumstances. Actual results may vary materially from the expectations
contained in the forward-looking statements. The forward-looking statements
herein include statements addressing future financial and operating results of
AmeriSource and Bergen Brunswig and the timing, benefits and other aspects of
the proposed merger.
The following factors, among others, could cause actual results to differ
materially from those described in the forward-looking statements: inability to
obtain, or meet conditions imposed for, governmental approvals for the
transaction; failure of the stockholders of AmeriSource and Bergen Brunswig to
approve the merger; the risk that the businesses of AmeriSource and Bergen
Brunswig will not be integrated successfully; failure to obtain and retain
expected synergies; and other economic, business, competitive and/or regulatory
factors affecting the businesses of AmeriSource and Bergen Brunswig generally.
More detailed information about these factors is set forth in AmeriSource's and
Bergen Brunswig's filings with the Securities and Exchange Commission, including
each of their Annual Reports on Form 10-K for fiscal 2000 and their most recent
quarterly reports on Form 10-Q. AmeriSource and Bergen Brunswig are under no
obligation to (and expressly disclaim any such obligation to) update or alter
their forward-looking statements whether as a result of new information, future
events or otherwise.
ADDITIONAL INFORMATION
In connection with their proposed merger, AmeriSource and Bergen Brunswig will
file a joint proxy statement/prospectus with the Securities and Exchange
Commission. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN
IMPORTANT INFORMATION. Investors and security holders may obtain a free copy of
the joint proxy statement/prospectus (when available) and other documents filed
by AmeriSource and Bergen Brunswig at the Securities and Exchange Commission's
web site at www.sec.gov. The joint proxy statement/prospectus and such other
documents may also be obtained for free from AmeriSource or from Bergen Brunswig
by directing such request to AmeriSource Health Corporation, General Counsel,
1300 Morris Drive, Suite 100, Chesterbrook, Pennsylvania 19087-5594, Telephone:
(610) 727-7000; or to Bergen Brunswig Corporation, Attention: Corporate
Secretary, 4000 Metropolitan Drive, Orange, California 92868-3510, Telephone:
(714) 385-4000.
PARTICIPANTS IN SOLICITATION
AmeriSource and Bergen Brunswig and their respective directors, executive
officers and other members of their management and employees may be deemed to be
participants in the solicitation of proxies from their respective stockholders
in connection with the proposed merger. Information concerning AmeriSource's
participants in the solicitation is set forth in AmeriSource's Current Report on
Form 8-K filed with the Securities and Exchange Commission on March 19, 2001,
and information concerning Bergen Brunswig's participants in the solicitation is
set forth in Bergen Brunswig's Current Report on Form 8-K filed with the
Securities and Exchange Commission on March 19, 2001.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 1
BERGEN BRUNSWIG
Moderator: Donna Dolan
April 26, 2001
1:00 pm CT
Operator: Good day, everyone. And welcome to this Bergen Brunswig
Corporation Second Quarter 2001 Period Ending March 31 Earnings Results
Conference Call. Today's call is being recorded. For opening remarks
and introductions, I would like to turn the call over to Miss Donna
Dolan. Please go ahead, ma'am.
Donna Dolan: Good morning and good afternoon. Welcome to Bergen Brunswig's
Second Quarter Conference Call for Fiscal 2001. We're happy you've
joined us. And we appreciate your participation.
I have with me today Bob Martini, our Chairman and CEO; and Neil
Dimick, our Chief Financial Officer. Both Bob and Neil will be speaking
from prepared comments.
At the end of the prepared remarks, we will open up the call for
questions, at which time you'll be able to address either Bob or Neil
or any of the Presidents of our Operating Divisions - Brent Martini of
the Drug Company, Steve Collis of Bergen Brunswig's Specialty Company,
or Chuck Carpenter of PharMerica.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 2
You should have received a copy of our news release this morning
announcing earnings for our quarter ended March 31, 2001. If you've not
received a copy of the press release, please call 714-385-4434. And one
will be faxed to you. A copy is also available on our Web site at
www.bergenbrunswig.com.
Before we get started, I'd like to remind you that, except for
historical information, all other information set forth in this press
release, such as earnings forecasts and earnings rate projections,
consist of forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to risks, uncertainties,
and other factors which could cause actual results to differ materially
from those projected or implied. Such statements may be identified by
the use of forward-looking language, such as may, will, should, expect,
anticipate, estimate, believe, think, continue, or the negatives or
other variations thereof or other similar terminology.
Such risks and uncertainties and the risks described in Exhibit 99A to
the Company's Annual Report on Form 10K for the year ended September
30, 2000, and in other reports and exhibits filed with the Securities
and Exchange Commission.
These risks and uncertainties include, but are not limited to, the
costs and difficulties related to the integration of acquired
businesses, the loss or disruption of one or more key customer or
supplier relationships, changes in the distribution outsourcing pattern
for pharmaceutical products and/or services, the ability to obtain
general financing or financing rates that would be compatible with the
Company's business operations, and the costs and other effects of
governmental regulation and legal and administrative proceedings.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 3
The Company assumes no obligation to update the information presented
during this call. In addition, so that - just to make sure that you're
all aware of this - in connection with our proposed merger, AmeriSource
and Bergen Brunswig will file a joint proxy statement prospectus with
the Securities and Exchange Commission. Investors and security holders
are advised to read the joint proxy statement prospectus when it
becomes available, because it will contain important information.
Investors and security holders may obtain a free copy of the joint
proxy statement prospectus when available and other documents filed by
AmeriSource and Bergen Brunswig at the Securities and Exchange
Commission's Web site at www.sec.gov.
The joint proxy statement prospectus and other such documents may also
be obtained for free from AmeriSource or Bergen Brunswig by directing
such requests to AmeriSource Health Corporation General Counsel, 1300
Morris Drive, Suite 100, Chesterbrook, Pennsylvania 19087; or to Bergen
Brunswig Corporation, Attention Corporate Secretary, 4000 Metropolitan
Drive, Orange, California 92868.
AmeriSource and Bergen Brunswig and their respective directors,
executive officers, and other members of their management and employees
may be deemed to be participants in the solicitation of proxies from
their respective stockholders in connection with the proposed merger.
Information concerning AmeriSource's participants in the solicitation
is set forth in AmeriSource's current report on Form 8K filed with the
Securities and Exchange Commission on March 19, 2001. And information
concerning Bergen Brunswig's participants in the solicitation is set
forth in Bergen Brunswig's Current Report on Form 8K filed with the
Securities and Exchange Commission on March 19, 2001.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 4
If you would like to listen to a replay of this call, it will begin at
approximately 4:00 pm Eastern Daylight Time. The number is 800-203-1112
and the reservation number is 669821. Now I'll turn the call over to
Bob, who will make a few comments. And Neil will review the financials.
Bob.
Robert Martini: The quarter just reported and our six months' results have met
our expectations. And we are in continuous pursuit of achieving our
goals for the full year. We are focused on our core businesses'
revenues and earnings, reducing and liquidating less-than-acceptable
performing assets, generating cash, reducing debt.
And likewise, we have invested in high-return short-term predictable
investments, an area that we are positioned to pursue more
aggressively, particularly since the Fed has become our friend and the
Company has generated expanded financial capacity.
While we were - are pleased with the improvements, we are not satisfied
with our level of success. We have experienced a number of favorable
results. And compared to a year ago, when the healthcare industry was
not in favor nor was our industry segments in favor, nor was our
Company in favor, the planets are much more favorably aligned today.
Drug distribution has had a number of contract wins, which will more
than replace the loss of the Novation business, although these gains
were not available for the full year. Additionally, expense control in
that segment is exemplary.
Our entry into new customer service, Central Fill, was announced in a
joint venture with Longs, which will help our customers deal more
effectively with the pharmacist shortage and improve their
cost-effectiveness. This service is expected to be processing in June
of this year.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 5
The specialty group is showing strong revenue growth in each of its
businesses, with very gratifying returns. They have also completed a
common IR platform, which will give us improved expense control and
better communications.
We're particularly proud about our momentum in the oncology business,
where we are continually gaining market share. We are now the primary
distributor to over 40% of the nation's community-based oncologists.
The PharMerica business continues to show improvement and stability in
all areas. And it's exceeding our planned results. Cash receipts
continue to be strong for the quarter, reducing net days sales
outstanding by 24 days, and reflecting a 23% improvement compared to
the prior year. This validates the effort of our improved controls over
receivables. Additionally, PMSI, the Worker's Compensation Division,
continues to exceed our expectations.
You were all aware of our anticipated or announced transactions to
create a new company, which is to be called AmeriSource-Bergen
Corporation. We have been told by New York Stock Exchange that they
have reserved the symbol ABC in anticipation of our filing for a New
York Stock Exchange listing.
Meanwhile, the progress is moving forward. And as announced, we have
filed with the FTC. And the 30-day period expires at midnight, Eastern
Daylight Time on May 7. The customer receptivity has been very
supportive to the proposed transaction.
We plan to file an S4 with the SEC in mid-May. And the senior
management committee of the new company, AmeriSource-Bergen, is about
to award a contract to a management group that is expert in the
integration process. This will position the new company to properly
plan and expedite consolidation when the transaction receives the
anticipated approvals.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 6
We continue to be enthusiastic for what this transaction will do for
our customers, suppliers, shareholders, and opportunities that it will
provide for the associates that will represent the best in the
business.
Before I turn the discussion over to our financial expert and Chief
Financial Officer, Neil Dimick, we are proud to have been honored by
the Communicator Awards Organization for Excellence in Code of Conduct
and Business Practices, as communicated to our associates in what has
been entitled, "Legacy of Integrity."
Neil Dimick: Thank you, Bob. I'm going to comment about the revenues,
expenses, and earnings of the company and also comment on specific
segments and activity within those segments.
Respective revenues for the quarter ended March 31, 2001 - revenues
from continuing operations -- and this excludes bulk shipments -- were
a record $5 billion and 9.8 billion for the six months. This compares
to 4.6 billion and 9.1 billion for the same period last year. That's an
increase of 9% and 8%, respectively.
Netted against these revenues were intercompany eliminations of 207
million for the quarter and 389 million for the six months. These were
sales of pharmaceutical products to subsidiaries, such as PharMerica.
Intercompany eliminations in fiscal 2000 were $170 million for the
second quarter and 340 million for the six months.
As you know, we operate in two segments - the pharmaceutical
distribution segment and PharMerica. I'm going to comment first on the
pharmaceutical distribution segment, which consists of Bergen Brunswig
Drug Company and Bergen Brunswig Specialty Group. They increased sales
by 10% to 4.9 billion in the second quarter and by 8% to 9.5 billion
for the six months.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 7
The Drug Company sales in the second quarter were 4.4 billion, a
year-over-year increase of 8%, while the six-month sales were up 6%.
These increases were limited by the loss of the majority of the
Novation revenues. While we've made significant progress in signing up
replacement business for that which was lost, the majority of these new
sales did not start until April of 2001.
Bergen Brunswig Drug Company's revenue mix for the quarter was 54%
retail, 46% health systems. This compares to a revenue mix of 50% each
for those businesses in the second quarter last year. The change in
these percentages reflects the strong gain in our retail chain business
in this quarter, as well as the effects of the loss of part of the
Novation business.
Customers on the retail side are growing faster than the health
system's business. Bergen Brunswig's Specialty Group's revenues were
$422 million for the quarter and 782 million for the six months. This
is an increase of 35% and 30%, respectively. The revenue mix for the
second quarter, for fiscal 2001, was 59% oncology; 35% nephrology,
plasma and biologicals; 5% vaccine and 1% other.
Our other operating segment, PharMerica, reported revenues of 340
million for the second quarter ended March 31, 2001. That's an increase
of 6% compared to last year's second quarter. For the six months,
PharMerica revenues increased 7% to 675 million.
The Long Term Care component of PharMerica's business saw virtually
flat sales for the quarter relative to the same quarter a year ago. On
a year-to-date basis, Long Term Care sales have increased 3%. This is
reflective to our attention of quality customers in the earnings.
PMSI, PharMerica's Worker's Compensation group, increased sales by 37%
by the second quarter, compared to last year, and 35% for the six
months.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 8
I'm going to comment now on gross profit margin, which declined by 31
basis points for the second quarter from last year's gross margin to
6.59%. This decrease was primarily to two factors - one, the decline in
the sell side margin experienced by the ((inaudible)), and the decline
in PharMerica's gross profit. This decline was offset somewhat by
improved buy-side margins on products sold through during the quarter.
At PharMerica, gross margin was 36% for the second quarter of fiscal
2001, compared to 38% a year ago. This decline primarily the result of
greater portion of sales coming from PMSI unit, that is, a sales mix,
and lower gross margins in the Long Term Care unit. However, we realize
that PMSI's operating expenses were lower. And it has a higher
operating profit margin than the Long Term Care unit.
Operating cost total distribution selling, general and administrative
expenses as a percentage of sales from continuing operations were 4.76%
for the second quarter, and 4.79% for the six months. This compares to
5.22% for the second quarter and 5.19% for the six months.
These decreases reflect cost containment in all three operating
subsidiaries - the ((inaudible)), the specialty group, and PharMerica,
with all units realizing double-digit basis point operating expense
improvement. In fact, operating expense as a percentage of sales are
lower than last year's second quarter by a minimum of 17 basis points
at each subsidiary.
PharMerica experienced the greatest reduction in expenses as a
percentage of sales due to its cost reduction efforts in its
operations, including bad debt expense improvement, as well, of course,
as elimination of 3.3 million in good will amortization in each of the
first two fiscal quarters.
In the Drug Company, operating expenses were unchanged on an absolute
basis to the prior year quarter, even with the 8% increase in sales.
Operating earnings for the second quarter -
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 9
Bergen's operating earnings from continuing operations were 91.3
million, an increase of 19% over last year's 76.9 million as a
percentage of sales. Operating earnings were 1.38% for the second
quarter, versus 1.68% for last year's second quarter. That's a margin
improvement of 15 basis points.
For the six months, operating earnings were 165.7 million versus last
year's 143.7 million, an increase of 15%. And as a percentage of sales,
operating earnings were 1.7% for the first half versus 1.58% for last
year's six months.
Operating earnings for Bergen's various segments in the second quarter
were as follows. Pharmaceutical distribution operating earnings were
96.7 million, an increase of 13%. PharMerica's operating earnings were
15.2 million. That's up 80%.
As a percentage of sales, PharMerica's operating earnings were 4.48%,
versus 2.64% for the same period a year ago. This reflects operating
expense improvements, including bad debt expense reduction, and good
will amortization elimination of approximately 3 million, as I
mentioned. Growth of EBITDA was 17%.
Net interest expense including distributions on the (toppers) was $43.1
million for the second quarter. This compared to $30 million a year
ago. That's an increase of over 40%. For the first six months, interest
expense including the (toppers) distribution increased about 34%. This
higher interest expense reflects the interest rates charged on our new
facility.
As you recall, it was April 22 last year when the new facility came in.
So we were operating a year ago under our old facility and had much
better spreads to ((inaudible)).
Earnings from continuing operations were 28.2 million for the quarter,
reflecting an increase of 19% from last year. For the six months, they
were up 11% to 49.5 million. On a per-share basis,
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 10
diluted earnings from continuing operations were 21 cents for the
second quarter. This compares to 18 cents last year, and 36 cents for
the first half compared to 33 a year ago.
Net earnings, which include the discontinued operations in prior year,
increased 63% for the quarter, compared to 17.3 million for the same
period a year ago. For the six months, net earnings increased 55% when
you include the effect of discontinued operations.
Our weighted average shares outstanding were 137 million for the second
quarter of fiscal 2001, versus 134.6 million for the same quarter a
year ago, and 136.6 million and 134.5 million for the respective
periods.
This increase in shares outstanding is not the result of sale of shares
or in the most part, not the result of the exercise of options. But
it's the effect of the treasury stock method of computing the fully
diluted earnings per share that's a result of our increase in our share
price value.
Commenting on the balance sheet, at the end of the quarter, we had no
borrowings against the revolving credit line. That's of our $1.5
billion bank credit facility, although the revolver was utilized
somewhat during the quarter. At the end of the quarter, we had 300
million of outstanding proceeds on our $350 million securitization
program.
Capital expenditures for the quarter were $10 million - year to date,
$16 million. And a comment on a few other balance sheet items -
accounts receivables were $1.2 billion. This is not significantly
different from fiscal 2000's year-end, although any borrowings against
the receivable securitization program are eliminated from the
receivable balance. Considering the effect of the receivable
securitization program, total receivables increased $80 million.
Inventories increased to 2.8 billion at March 31, which compares to 2.1
billion at year-end. Inventories increased primarily due to the buildup
to service, new customers, and also because of
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 11
opportunities in inventory investment. Accounts payable increased to
2.6 billion, an increase of about $600 million.
Other key items - depreciation in the second quarter was 11.3 million.
And total amortization was 7.7 million. Of the amortization expense,
4.7 million was related to good will; .9 million or 900,000 was related
to other intangibles. And approximately 2.1 million was related to
financing costs. And that 2.1 million is classified as interest
expense.
The income tax rate was 41.6% for the quarter in six months. This
includes the tax effect of the (toppers) distributions. Return on
committed capital was 24% for the quarter, compared to 21% last
quarter. This reflects our management of our working capital and also
our increased earnings. It includes, in our capital base, the
securitized borrowings that are on our receivables.
In the second quarter, Bergen generated positive operating cash flows
of approximately $90 million. And we anticipate at year-end, we will be
producing positive cash flows.
I'm going to now turn it over to questions. As we had mentioned
earlier, we have the executives of our core business here to respond to
questions. And we would be pleased to do that.
Donna Dolan: Toni?
Operator: Yes, thank you. Today's question and answer session will be
conducted electronically. If you would like to signal to ask a
question, please press the star key followed by the digit 1 on your
touchtone phone. Again, that is star 1 to signal. If you do find that
your question has been answered and would like to remove yourself from
the queue, please press star 2.
Again, that is star 1 to signal. We'll pause just a moment.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 12
We go first to Glen Santangelo with Salomon Smith Barney.
Glen Santangelo: Yeah, I just have a quick question for Neil. Neil, I just -
my question relates to the debt on the balance sheet. If I look at the
composition of your debt, you have various senior notes and term loans
outstanding.
And if I heard you correctly, there's no borrowing against the
revolver. And if I remember correctly, the terms of that revolver were
LiveWire plus 300. So can you just comment on - are a lot of these
notes and term loans - are they callable?
As I think about a potential deal with AmeriSource, I'm trying to get a
sense for what the real opportunity is here to restructure a lot of the
debt and bring down the borrowing costs. So if you could comment on
that, that'd be great.
And secondly, I just wanted to know - is there any update on the
Counsel Corp situation? Where do we stand? And should we expect that
litigation to be settled anytime soon?
Neil Dimick: Thank you, Glen. Let me comment on our debt. And yes, you're
right, there is some fixed rate longer-term - about $250 million of
bonds that are outstanding that would not be affected by the merger. As
we've mentioned before, the bank debt, which we don't have any
borrowings now outstanding under the revolver, but the term loans under
the bank debt would be affected. And all of those would be affected by
change in control.
With respect to floating rate versus fixed rate, and I may mention also
- the 300 million in trust preferred would not be affected by a change
in control. So it would essentially be the bank term loans and any
revolver that we have outstanding at any time.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 13
The total floating rate debt of the company is about $500 million. And
you're right. The rate on that is - plus it's technically a CP-plus,
around 300 basis points. And we also have the assets securitization,
receivable securitization that I've mentioned has gone down from 350 to
300 million. And that is a LiveWire rate that's just above 65.
Glen Santangelo: So if I hear you correctly, that 500 million theoretically
could be restructured. And the 300 million under the securitization
program could also be restructured.
Neil Dimick: Yes, and we also have the PharMerica bonds - 300 - that would
be - could be - we're still researching that legally. But that - it's
very likely that that would be taken as well.
That is as of today, Glen. Of course, during the buying season, we had
more outstanding under the revolver that would be affected as well.
Glen Santangelo: Sure, thanks. And just secondly, on the Counsel Corp issue.
Robert Martini: On Counsel Corp, Glen, the discovery is still in process.
A trial date has not yet been set. And we are pursuing our clients
((inaudible)).
Glen Santangelo: Okay, thanks for the comments, guys.
Neil Dimick: Thank you, Glen.
Operator: We go next to David Risinger with Merrill Lynch.
David Risinger: Thanks very much. Would you please comment on the generic
(Caxall) impact on ASD's top line and the distribution segment
operating margin, please?
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 14
Robert Martini: David, we had a little problem hearing you. Could you speak
a little louder? I think we caught it - but one more time.
David Risinger: Sorry about that - would you comment on the generic (Caxall)
impact on ASD's top line and also on the distriubtion segment operating
margin?
Steve Collis: Hi, David. This is Steve Collis. I'll answer your question.
We - our records indicate that we repurchased almost 60% of our
((inaudible)) sales of this product, which is a good indication of our
prominence in this marketplace. And we are - it is more profitable than
some of the other leading products that we sell. It is more profitable
for us.
But more importantly, it gives us a chance to be a complete provider to
community oncologists, which we've never had the opportunity to do
before because of the importance of Bristol (Caxall) in any regimen
that an oncologist would be offering. So it's important for us
profitability-wise but maybe even more important from a strategic
perspective.
Neil Dimick: With respect to the margins, we don't disclose separately the
margins on the specialty business versus the drug business, because
they are in the same segment. But as you know, David, they have been
running 50 to 100 basis points better. There is a lot of quite low
margin business in the specialty group, as it relates to nephrology, as
you're also aware.
So the different segments - oncology would have - may have different
operating margins than other segments.
David Risinger: That's great. And with respect to forward buying, would you
just go into that a little bit more detail in terms of the impact on
the quarter and the opportunities going forward?
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 15
Man: Well, we saw, David, this quarter, one that was very similar
to prior years, except we did have more opportunity to participate. And
as you can see by our year-end inventories, we anticipate that there
still continues to be opportunity.
But I would not say that it's radically different or that Bergen has
taken a radically different approach to inventory than it has in the
past. That is, we do anticipate depreciation across all of our
inventory in the range of 4 to maybe 4-1/4%. And we just don't
anticipate any changes in that. And there's nothing that's really
changed from our perspective.
David Risinger: Great, thanks very much.
Man: Thank you.
Operator: We take our next question from Larry Marsh with Lehman
Brothers.
Larry Marsh: Thanks and good afternoon, everyone. And you certainly have
reservation on an interesting stock symbol. So that's - at least it'll
be easy to remember.
Just two follow-up questions - one would be - you may have touched on
this a little bit, Neil. But your interest expense in the quarter was
up a fair amount sequentially and certainly up year-over-year. And you
said you were able to participate in actively forward buying core,
where you weren't so much last - you're just a reflection - is that a
bit of an unusually high quarter in interest expense, given some of the
pullback you've seen in your net working capital investment? Or should
we anticipate that kind of level here for the next couple quarters?
Neil Dimick: No, I think that that - on a quarter-to-quarter basis - is
probably - is seasonally high this last quarter. The large increase
year-over-year in interest expense is really occasioned by us being
under a different credit facility, probably more than our absolute
borrowing.
BERGEN BRUNSWIG
Moderator: Donna Dolan
04-26-01/1:00 pm CT
Confirmation # 669821
Page 16
As you know, the credit facility that we were under last year, until
April 22, really provided for - it was LiveWire plus 20, I think. And
so when we moved to the new facility in April, which now next quarter
we're going to compare with, is when we really struck in real large
increase in our interest expense.
Having said that, yes, I think even though we saw our borrowings come
down to the very favorable levels, we're not in our revolver at the end
of the quarter. We did during the quarter - were in the revolver. We
were experiencing a lot of opportunities. And therefore, on a
quarter-over-quarter basis - probably saw more interest expense this
quarter than ((inaudible)). You can also see our accounts payable was
up. We had a change of about 440 million in accounts payable.
Larry Marsh: Okay. Quick question then, as well - I guess Novation on a
sequential basis saw a slight reduction in EBITDA. Is that just
attributed to seasonality? I know you talked about a little bit of
flatness in their Long Term Care topline. But what do you attribute
that to? Or do you just sort of think of that as seasonal?
Neil Dimick: Okay, I think - you'd said Novation. I think you may have
meant PharMerica.
Larry Marsh: I'm sorry - PharMerica.
Neil Dimick: Yes, and the question as I understood it was - that
quarter-over-quarter we're flat. I mentioned that our emphasis really
is on the quality of the book of business and the earnings growth. But
I'm going to let Chuck Carpenter, who's here with us, comment on that.
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Chuck Carpenter: Okay, thanks, Neil. Yeah, the revenue for PharMerica -
about a 6% increase over prior year. And quarter-to-quarter, they are
somewhat flat. Our PMSI division has experienced strong growth.
But on the Long Term Care side of our business, we have implemented
tougher credit policies. And so it is tougher for some of our customers
to qualify. So that has slowed down our growth somewhat. But we are
focusing on quality of the accounts that we serve as - in working with
our customers on a mutual program where they can pay us if they're
experiencing financial difficulty.
But it has impacted the revenue. But we're focusing on the bottom line
and improving our operation and our efficiency. And that's why you're
seeing that improvement in operating earnings.
Larry Marsh: Okay. Maybe a quick - real quick final one - same question I
asked AmeriSource - obviously a chain drug store convention took place,
I guess, last week. Any reflection on kind of the tone from some of the
customers in that forum, maybe from Brent who never was there?
Neil Dimick: Yeah, Brent was actually there. And Brent, you may want to
comment on that.
Brent Martini: Well, yeah, in fact the - NACDS just wrapped up last night.
And I would say two things - that customers certainly understand the
nature of the combination, are very supportive, understand the
importance of having three major options to choose from, and really
think that Bergen and AmeriSource have a lot of complementary assets
and capabilities that bode well for them.
I would also say that customers are, as you might expect, still dealing
with AmeriSource and Bergen as separate entities and looking for
opportunities to build their relationships with us,
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whether it's our current customers or new potential customers. And
there's a fairly large book of business out there for all of us to be
pursuing right now. And so we're doing just that.
But I'd say it was a very, very positive meeting, both for Bergen
specifically in what we're doing with our customers, and for the
AmeriSource-Bergen combination.
Larry Marsh: Great. Thank you.
Operator: We go next to Robert Willoughby with Credit Suisse First
Boston.
Robert Willoughby: Thank you. Just looking at the growth rate for the
specialty distribution business, could you speak to the synergy with
the core drug wholesaling business and just your ability to continue to
grow that at an accelerated rate?
Neil Dimick: Yes, I'm going to have - this is Neil. I'm going to have Steve
comment on that question about synergy between the specialty business
and the core drug distribution business.
As you know, Robert, they were actually started because specialty is a
special class of customer - that is, the clinics - one that is not
traditionally serviced by our drug distribution business. So
inherently, you would assume there aren't a lot of synergies. On the
other hand, we've found a lot of opportunity, not necessarily on the
customer side, as much as on the supplier side.
Robert Willoughby: Sure.
Neil Dimick: ((inaudible)) jointly with some of these suppliers. And
Steve, maybe you can comment on the ((inaudible)).
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Steve Collis: Thank you, Neil. And Glen might have some interest in
commenting on this, as well. Sixty percent of our business is now
oncology. That is a unique specialty where there's almost 3000
practices in the country that are purchasing about $3 billion worth of
mainly intravenous medication. And that's a unique subset where we've -
we work with the ((inaudible)) on the procurement aspects that really
are covering that market pretty extensively ourselves and are very
knowledgeable about what every one of those practices do.
The balance of our revenues, about 42%, are very directly tied into
overall Bergen health systems strategy. And we work very closely with
the drug companies' directors and business development people to ensure
a total offering to health system members, both in the ((inaudible))
side area, as well as in the specialty needs and hospitals for RVIG,
albumin, et cetera.
So we do work very well in tandem. We are very bullish on our future
and believe that we fill a very needed mission in the Bergen arsenal of
Bergen offerings and have a good outlook for the future.
Robert Willoughby: And given the size of that oncology market and your
presence in it already, I mean, does it behoove you to do an
acquisition there to really dominate that sector?
Man: Let me comment on that, Steve. I think what you've heard
before is that our concentration has really been on running our present
core businesses and growing from within.
And of course, part of all of that is reducing non-performing assets
and that type of thing. So we have not directed our attention to that.
And that is a forward strategy that we might be positioned to pursue in
the not-too-distant future.
Steve Collis: There are about two companies that have about 70% of that
marketplace. We have about half of that 70%. And then you drop down
very quickly from there in terms of market share.
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Robert Willoughby: Thank you.
Man: Thank you.
Operator: We go next to Chris McFadden with Goldman Sachs.
Chris McFadden: Thank you and good afternoon, everyone. Two questions, if I
might - could you update us on the conversion process at Advanced
Paradigm, which I understand began earlier this month.
And secondly, could you comment on sort of the full year profit
improvement targets for PharMerica on the December conference call,
where you sort of talked about where we thought we could see them trend
to. And given this quarterly update, I was hoping you could again kind
of give us a feel for how you think that business could improve over
the quarter and the fiscal year. Thank you.
Man: We'll let Brent take the first part of that and then come back
to Chuck.
Brent Martini: Hi, Chris. On Advanced PCS, we actually got off to a
meticulous start on - at the beginning of this month. We had spent over
a month collaborating with our partners over there to make sure that we
had everything in place that we needed, both from a systems point of
view and a distribution point of view.
And I think if you check with them, they'd find that they're absolutely
delighted with the service that they're getting from the ((inaudible)).
So that's spot on what we had predicted. And obviously that'll help our
sales momentum and help us in the second half of the year.
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I also wanted to mention that we did bring on some other smaller
customers in the health systems area - comprehensive pharmacy services,
which is about a $60 million company and opportunity for us, as well as
(Maxor), which is about $40 million. And we also had the extension of a
DOD business in Hawaii and the Pacific Rim. So we did bring on a number
of other accounts.
And while we're talking about that, I wouldn't want to miss the
opportunity to point out that we have resigned both (Railey's) and
Public's, two of our larger retail customers. Public's in particular -
very aggressive growth plan for them, as well as significant growth
we've experienced. And so good things are happening.
The last piece, Chris, and I know you can relate to this, because you
measure customer satisfaction. I think we're the only wholesaler that
measures it on a quarterly basis for ourselves, but our customer
satisfaction index was the highest it's been in six quarters in this
last quarter.
So clearly we got some of the momentum back as far as being a good
operator and making sure our service levels and customer service were
at the levels that we had previously been at. So I'm pleased with that,
as well.
Chris McFadden: That's helpful. Could you give us a sense, Brent, on how you
think the expansion into a generics relationship with Advanced may roll
out over time, if that's an opportunity you think exists for you?
Brent Martini: Well, as we put in the press release, this is a branded
relationship to start with. And in fact, we're in Phoenix today meeting
with our partners to look for buying opportunities for both companies
working together. And so I don't want to make any predictions
((inaudible)) that.
But any customer that we don't currently enjoy generic relations with,
we have two or three options with regard to do so. And that's one of
the primary conversations we have with our
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customers for incremental profitability for them and us. So certainly
Advanced PCS would be one of those conversations, but not the only one.
We do have opportunities with repacked products and also the DME
products with a number of our customers that we've been pursuing. In
fact, we have just recently signed hundreds of our customers to an
automatic substitution program for all of our repackaged products,
which are the bulk bottled products that we repackage in our repack
group. So we're making progress on those incremental opportunities.
Chris McFadden: Great, thank you.
Robert Martini: Chris, I want to respond on PharMerica's. As you know, we
haven't given specific guidance as to different units. But we did talk
about PharMerica. I'm going to have Chuck re-comment on that. As you
are aware, we've seen almost a 200-basis point increase in the EBIT in
that business, a lot of it occasioned by the improvement in the
receivable and so forth. And Chuck can comment on those trends and the
outlook.
Chuck Carpenter: Thanks. Chris, thanks for the question. We're happy with the
results that we've received through the first two quarters of this
year. And we feel that that type of performance is sustainable and that
you'll see similar type results from PharMerica through the end of the
year.
We believe we have the right momentum around those initiatives that
we've implemented to improve our operations. And so we're not
anticipating that the type of performance that you've seen now should
change.
Chris McFadden: Okay, thank you.
Operator: We go next to John Ransom with Raymond James.
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John Ransom: Hi, just two points of clarification - not being familiar with
the tax rate on your good will, if there is any - what would be the -
what would have been the EPS assuming the new accounting pronouncement?
Robert Martini: I haven't computed what the EPS would be, assuming the new
accounting pronouncement. We've talked about the effects. We don't
believe that we'll have good will amortization going forward with the
new accounting pronouncement.
John Ransom: Sure.
Robert Martini: And we've disclosed how much good will - just commented on how
much good will is...
John Ransom: Is any of that good will deductible? Or is all
non-deductible, then we can do it ourselves?
Robert Martini: Yeah, it's - about 2.5 million is deductible and 2.1 million
is non-deductible. So about half of it is deductible.
John Ransom: Okay. And...
Robert Martini: The effect of that is about 3 cents. You'll have to compute
it yourself.
John Ransom: Okay. Good. I'll have to break out the 4-function
calculator. And secondly, the improvement in PharMerica - was the
improvement all attributed to the bad debt - to the favorable
comparison and bad debt to revenues?
Neil Dimick: Chuck, do you want to comment on that?
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Chuck Carpenter: Yeah, John, thanks for the question. The improvement came not
only from the improvement in the bad debt reserve. We definitely had
improvement in that area, but also in the operating costs of the
business.
John Ransom: Okay.
Chuck Carpenter: So we are operating more efficiently than we have in the past.
John Ransom: Are you seeing any - is there any change in the credit profile
of your clients? Or are you just screening them tighter, or maybe a
little bit of both?
Chuck Carpenter: Well, we're seeing somewhat of a healthier client. Our
customer has - had to adjust to the new inverse. We believe that
they're doing the things that they need to do within their operation.
John Ransom: Sure.
Chuck Carpenter: And with our, I would say, tougher credit policies, we have
made it a little bit more difficult to pick up new business. But the
strategy that we have in place is - drive efficiencies through our
existing business and do the right thing in issuing credit to our
customers. So we're going to stick with that. Right now it's the
winning formula for us.
John Ransom: And do you see - just last question - do you see any prospect
for a pickup in demand on a same-bed basis, if you will, as people
adjust to this new reimbursement climate?
Chuck Carpenter: We do. We're seeing trends at - the trends that we look at -
the AWP, our average price per prescription, which is driven through a
product selection. And then the other
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criteria that we look at is utilization or number of scripts per
resident. And we're seeing increases in both of those two numbers.
John Ransom: Is that coming out of the mom and pop's, as well as the chains
that you do business with?
Chuck Carpenter: Pretty much across the board.
John Ransom: Okay. Thanks very much.
Neil Dimick: Thank you, John. I just wanted to clarify. I had mentioned
three ((inaudible)) on a quarter. I think it'd be about 11 cents on a
year.
John Ransom: Thank you.
Operator: We go next to Ray Falci with Bear Stearns.
Ray Falci: Yeah, good afternoon. It's Ray Falci with Bear Stearns. Just
one minor housekeeping question - on the revenue mix, I think you said
54% retail, 46% institutional. I was wondering if you could break out
the retail for us, between chain and independent. I think you've done
that in the past.
Neil Dimick: We have not done that in the most recent past, because there's
becoming some real definitional problems because of food and drug
combos and what's a chain versus what is a small group of independents.
But we have seen more chain emphasis, as we've talked about - with
Wayne ((inaudible)) and Freds, primarily in the most recent periods.
But I don't think that we've broken that out.
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Ray Falci: Okay, I guess I thought I had seen it on a presentation on
your Web site. But that's not a big deal.
Brent Martini: Well, Neil, I think - this is Brent - that the safest bet is -
of the retail, 50% is independent and the other 50% is split pretty
evenly between chain and food and drug, the way we define it. So you've
got - those numbers, I think, are out there.
Neil Dimick: Okay, that's good guidance, thanks.
Ray Falci: Okay, I appreciate that. And then just the only follow-up
question I had - on your, I think, one of your opening remarks, you
talked about the gross margin pressure. And you talked about some of
the facts. And I thought I heard you say there's a minor component of
sell-side margin decline taking place there. And I just wanted you to
elaborate on that a little, if you could.
Neil Dimick: Well, I think what we've seen is not different this quarter
from previous quarters. And that is - some call is mix. Certainly
there's competitive pressures that are causing what we refer to as the
sell-side portion of the margin to go down. This has been offset
somewhat by strength in other areas, either in offerings, in other mix,
or in the buy side.
But the net effect of the decrease, year-over-year, in margins that
we're seeing - we haven't broken out how much is mix versus how much is
the competitive environment. But it is very much related to both of
those items. And we haven't quantified that. I don't think any
wholesaler has quantified the break between the marketing side of the
margin and the buy side of the margin.
Brent Martini: Neil, this is Brent. The one thing I would add to that is - to
the extent that a number of generic products have been postponed, that
impacts both the buy and the sell side, because there's obviously
better margin in that on both sides for us. And this last quarter, we
had really
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Page 27
very limited new generics coming on stream. So I'd say that's important
to look at going forward, as well.
Neil Dimick: Thank you, Brent.
Ray Falci: That's great color. Thank you very much.
Neil Dimick: Thank you.
Operator: We'll take our next question from Seth Teich with First Union
Securities.
Seth Teich: Hi. I just have a few quick questions. I was wondering if
you could tell us what the average borrowings for the quarter was.
Neil Dimick: Okay, the average outstanding on the variable rate borrowings
- the asset - including the asset securitization program, was 1 billion
45 million.
Seth Teich: Great. And then, as it related to PharMerica, we've had three
sequential declines in the absolute SG&A costs. Do you expect that will
continue for the next quarter or two? Or do you expect them to pick
back up?
Chuck Carpenter: This is Chuck. We expect to continue improvement on those
operating expenses. We've rolled out a new operating system. And over
the last year, we converted most of our pharmacies to this platform.
We're following up with training and other initiatives to drive
efficiencies through that new system. So we believe that those
operating efficiencies will continue to flow through.
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Seth Teich: Okay, great. And then are you seeing a return of IV therapy
sales in the PharMerica business?
Chuck Carpenter: The IV business is pretty flat. We're really not seeing a
spike in that. There may be a slight increase. But it - I don't
attribute that to a trend or anything. It just may be the occupancy at
a given time may be a few more IV patients. But it's been pretty flat.
Seth Teich: Okay, great, thanks very much.
Operator: Once again, that is star 1 to signal to ask a question.
We go next to Leonard Yaffe with Bank of America Securities.
Leonard Yaffe: Hi, the opportunities in the specialty distribution business
seem to be increasing pretty dramatically as more and more therapies
come on that are biotech origin. I was just wondering if you could
highlight for us maybe three or four of the next major therapies that
you see introducing over the next one to two years and how they might
affect your business.
Steve Collis: Hi, Len, thank you. We - right now, we are working through our
basic medical division with other therapies, not oncology. For example,
we're working with (Tenneco) with Remicade in the rheumatology market.
We potentially believe there could be some therapies that are
interesting in Genentech's product for allergies. There's a (gastrite)
((inaudible)) product.
But again, the scope and the ease of use that oncologists have in
administering these medications is pretty unique and also it's
((inaudible)). We haven't seen other specialties adopting these
therapies nearly as readily for in-office administration.
Some of these products might be used through home health companies or
even directly in the patient's home. And we haven't addressed that
directly. But we'll work through Bergen partners
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to address those. I wanted to answer your question completely. But
probably that's all we can say right now.
Leonard Yaffe: Great, thank you.
Donna Dolan: Okay, Toni? I think we'd like to close it now. We'll return
to Bob for some closing comments.
Robert Martini: And I'd just like to summarize very quickly and also invite
any of you that haven't had an opportunity or you have any second
thoughts concerning questions - we would be happy to receive those
questions from you offline. But we see improvements in the healthcare
sector, improvements in our own sector, and improvements in our
company.
The lost revenues have been replaced. Our revenue gains and earnings
gains are in all businesses - exemplary expense controls on the part of
all our three businesses - singular ((inaudible)) platform in each
business that is current state-of-the-art with capacity to handle
growth, debt reduction, plentiful liquidity with deescalating rates,
vigorous control of assets, greater stability, and lastly pursuing an
extraordinary transaction destined to be the industry leader.
I'd like to thank you all very much for your participation. This does
conclude our call. Good day.
Operator: This does conclude today's Bergen Brunswig Corporation Second
Quarter 2001 Earnings Conference. You may disconnect at this time.
END