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BERGEN'S FY 1986 ACQUISITIONS ADD $342 MIL. IN SALES -- ANNUAL REPORT

Executive Summary

Bergen Brunswig added $342 mil. in sales in fiscal 1986 with the acquisition of Berry Wholesale Drug ($45 mil.), Southwestern Drug ($140 mil.) and Los Angeles Drug ($157 mil.), according to the company's just-released annual report for 1986. The combined sales represent over 14% of Bergen's $2.4 bil. previous year sales, keeping the wholesaler on track for its announced volume growth target. At an October 1985 presentation, Chairman Emil Martini, Jr. told securities analysis: "Bergen Brunswig's general objective is growth of 25% annually. Through internal improvement and market expansion we aim for 15%, the remaining 10% to be achieved through acquisition." For the year ended Aug. 31, the company reported total sales of $3.1 bil., a 26% increase over the previous year. Net earnings, however, were off 11%, declining from $23.3 mil. to $20.7 mil. Bergen said its share of the pharmaceutical distribution has increased from 6% to almost 14% over the last ten years. "A series of events caused the decline in earnings beginning with the expense of consolidating facilities and integrating computer systems," the wholesaler explained, noting that consolidation of the acquisitions should be completed by the second half of fiscal 1987. "Higher interest and inventory costs resulted from selective forward buying in anticipation of price increases that did not fully materialize, a general inventory buildup from acquisitions and a higher LIFO inventory reserve addition." The company also noted that its gross margin was adversely affected by competitive pressure, "in part related to the company's decision to purchase only from the manufacturer and eliminate secondary source buying of pharmaceuticals." On Oct. 29, Bergen Brunswig announced that a class-action suit against the company had been filed in Los Angeles Federal Court alleging violations of federal securities laws in connection with information issued during fiscal 1986. According to Bergen, the suit argues that the wholesaler overstated 1986 earnings by understating inventory. The company switched from the FIFO method of valuing inventory to LIFO in fiscal 1986. "The company denies the material allegations of the complaint and expects to defend the action vigorously," Bergen emphasized. The company "believes it has always made full, fair and timely disclosure of all material facts and developments concerning its business and operations, and is of the opinion that the allegations contained in the suit are speculative and without merit."
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