Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------
FOR THE FISCAL YEAR ENDED JUNE 30, 1995 COMMISSION FILE NUMBER 0-12591
CARDINAL HEALTH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
655 METRO PLACE SOUTH,
SUITE 925, DUBLIN, OHIO
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
31-0958666
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
43017
(ZIP CODE)
(614) 761-8700
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON SHARES (WITHOUT PAR VALUE)
(TITLE OF CLASS)
NEW YORK STOCK EXCHANGE
NAME OF EACH EXCHANGE ON WHICH REGISTERED
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of September 15, 1995, was approximately $2,081,378,472.
The number of Registrant's Common Shares outstanding as of September 15,
1995, was as follows:
Common shares, without par value: 42,159,885
Class B common shares, without par value: 0
Documents Incorporated by Reference: Portions of the Registrant's Definitive
Proxy Statement for its Annual Meeting of Shareholders are incorporated by
reference into Part III of this Annual Report on Form 10-K.
Page 1 of 52
Exhibit Index on Page 33
2
PART I
ITEM 1: BUSINESS
GENERAL
Cardinal Health, Inc. (the "Company") is a national, full-service
wholesaler distributing a broad line of pharmaceuticals, surgical and hospital
supplies, therapeutic plasma and other specialty pharmaceutical products, health
and beauty care products, and other items typically sold by hospitals, retail
drug stores, and other health care providers. An important component of the
Company's distribution activities is the broad range of support services it
offers to its customers, which are designed to assist the Company's customers in
maintaining and improving their market positions. These support services foster
strong relationships between the Company and its customers by positioning the
Company as a valuable resource capable of offering the centralized services
which are increasingly important in today's competitive marketplace. The Company
believes that in most instances it would not be economically feasible for its
customers to develop and maintain these services independently.
The Company is structured as a holding company operating through a number
of separate operating subsidiaries. These separate operating subsidiaries are
sometimes collectively referred to as the "Cardinal Health" companies. As used
in this report, the "Registrant" and the "Company" refers to Cardinal Health,
Inc. and subsidiaries, unless the context requires otherwise. Prior to February
7, 1994, the Company was known as Cardinal Distribution, Inc.
SUPPORT SERVICES
As a full-service wholesale distributor, the Company complements its
distribution activities by offering a broad range of value-added support
services to assist customers and suppliers in maintaining and improving their
market positions and to strengthen the Company's role in the channel of
distribution. These support services include computerized order entry and order
confirmation systems, customized invoicing, generic sourcing programs, product
movement and management reports, consultation on store operation and
merchandising, and customer training. Most customers transmit merchandise orders
directly to the Company's data processing system through computerized order
entry devices. The Company's proprietary software systems feature customized
databases specially designed to help its customers order more efficiently,
contain costs, and monitor their purchases which are covered by group contract
purchasing arrangements.
SPECIALTY WHOLESALING
In addition to its core wholesaling activities, the Company operates
several specialty health care businesses which offer value-added services to its
customers and suppliers while providing the Company with additional
opportunities for growth and profitability. For example, the Company's National
PharmPak Services, Inc. subsidiary operates a pharmaceutical repackaging program
for both independent and chain customers. In January 1992, the Company formed
National Specialty Services, Inc. ("NSS"), which distributes therapeutic plasma
products and other specialty pharmaceuticals to hospitals, clinics and other
managed care facilities on a nationwide basis through the utilization of
telemarketing and direct mail programs. In December 1993, the Company expanded
its specialty wholesaling business through a merger with PRN Services, Inc.,
("PRN"), a distributor of oncology and other specialty products to clinics and
physician groups across the United States. PRN operations were merged into NSS
on December 31, 1994. These specialty distribution activities are part of the
Company's overall strategy of developing diversified products and services to
enhance the profitability of its business and that of its customers and
suppliers.
CUSTOMERS AND SUPPLIERS
The Company regularly supplies pharmaceuticals, surgical and hospital
supplies, health and beauty care products, and other items to hospitals,
independent and chain drug stores, alternate care centers, and pharmacy
departments of supermarkets and mass merchandisers located throughout the
continental United States. In fiscal 1995, the Company's largest customer,
K-Mart Corporation, accounted for approximately 11% of net sales (by dollar
volume). Based upon dollar volume, in fiscal 1995, approximately 47% of the
1
3
Company's net sales were to hospitals and managed care facilities, approximately
28% of the Company's net sales were to chain drug stores and the pharmacy
departments of supermarkets and mass merchandisers, approximately 20% of the
Company's net sales were to independently owned drug stores, and approximately
5% of the Company's net sales were to other customers.
The Company obtains its products from many different suppliers, the largest
of which accounted for approximately 5.9% (by dollar volume) of its net sales in
fiscal 1995. The Company's five largest suppliers accounted for approximately
22% (by dollar volume) of its net sales during fiscal 1995, and the Company's
relationships with its suppliers are generally good. The Company's arrangements
with its suppliers typically may be canceled by either the Company or the
supplier upon 30 to 90 days prior notice although many of these arrangements are
not governed by formal agreements. The loss of certain suppliers could adversely
affect the Company's business if alternative sources of supply were unavailable.
COMPETITION
The Company's markets are highly competitive. The Company competes directly
with other national and regional wholesalers, direct selling manufacturers,
mail-order houses, and specialty distributors on the basis of price, breadth of
product lines, marketing programs, and support services. The Company's
businesses have narrow profit margins and, accordingly, the Company's earnings
depend significantly on its ability to distribute a large volume and variety of
products efficiently and to provide quality support services.
ACQUISITIONS
The Company has grown during the past five years as a result of both
internal growth and business acquisitions. In June 1990, the Company purchased
Ohio Valley-Clarksburg, Inc. of Wheeling, West Virginia, for $27,125,000 in a
cash transaction expanding the Company's presence in southern Pennsylvania,
Maryland, Virginia, and Washington, D.C. The Company expanded into the mid-south
market in October 1991, by acquiring Chapman Drug Company, based in Knoxville,
Tennessee for $16,800,000 in a cash transaction. In May 1993, the Company
purchased Solomons Company, a Savannah, Georgia based drug wholesaler serving
customers located primarily in the southeastern region of the United States. In
December 1993, a subsidiary of the Company merged with PRN (see "Specialty
Wholesaling" above).
In February 1994, the Company completed its largest business combination to
date when it combined with Whitmire Distribution Corporation ("Whitmire"), a
Folsom, California based drug wholesaler (the "Whitmire Merger"). The majority
of Whitmire's sales were concentrated in the western and central United States,
complementing the Company's former concentration of sales in the eastern United
States and positioning the combined company to service both customers and
suppliers on a national basis. As a result of the Whitmire Merger, the Company
now maintains a network of distribution centers enabling it to routinely serve
the entire population of the continental U.S. on a next day basis.
The Company has completed two additional business combinations since the
Whitmire Merger. On July 1, 1994, the Company completed a business combination
with Humiston-Keeling, Inc., a Calumet City, Illinois based drug wholesaler
serving customers located primarily in the upper midwest region of the United
States. On July 18, 1994, the Company completed a merger with Behrens Inc., a
Waco, Texas based drug wholesaler serving customers located primarily in Texas
and adjoining states.
The Company recently signed a definitive merger agreement providing for the
combination of Medicine Shoppe International, Inc. ("Medicine Shoppe"), a
franchisor of independent retail pharmacies, with the Company. Under the terms
of the transaction, shareholders of Medicine Shoppe will receive a fraction of a
Common Share in exchange for each common share of Medicine Shoppe. The Company
will issue between approximately 6.0 million and 6.8 million Common Shares in
the transaction, depending in part upon the average closing price of the Common
Shares over a specified period; under certain circumstances the Company could
issue up to approximately 7.2 million Common Shares in the transaction. The
Company has also agreed to convert existing Medicine Shoppe stock options
(approximately 160,000 shares) into Company options at the same exchange rate as
described above. If the transaction is completed, Medicine Shoppe will become a
wholly-owned subsidiary of the Company. The transaction is subject to certain
conditions, including approval by the Medicine Shoppe shareholders.
2
4
The Company continually evaluates possible candidates for acquisition and
intends to continue to seek opportunities to expand its healthcare distribution
operations and services. For additional information concerning the acquisitions
described above, see Note 3 of "Notes to Consolidated Financial Statements."
EMPLOYEES
At September 1, 1995, the Company had approximately 4,000 employees, of
which approximately 300 are subject to collective bargaining agreements. The
Company considers its employee relations to be good.
REGULATORY MATTERS
The Company, as a distributor of prescription drugs, including certain
controlled substances, is required to register for permits and/or licenses with,
and comply with certain operating and security standards of, the United States
Drug Enforcement Administration, the Food and Drug Administration and various
state boards of pharmacy or comparable agencies. In addition, the Company is
subject to requirements of the Controlled Substance Act and the Prescription
Drug Marketing Act of 1987, an amendment to the Food, Drug and Cosmetic Act (the
"FDCA") which requires each state to regulate the purchase and distribution of
prescription drugs under prescribed minimum standards. National PharmPak
Services, Inc., the Company's repackaging subsidiary, must comply with certain
Good Manufacturing Practices as provided under the FDCA. The Company believes
that it is in substantial compliance with all Federal and state statutes and
regulations applicable to its activities.
INDUSTRY CONSIDERATIONS
An aging population, new product introductions, and a higher concentration
of distribution through wholesalers are all factors which have created favorable
growth patterns for the drug wholesaling industry. At the same time, it is also
a very competitive industry undergoing rapid change and consolidation. A number
of factors have in the recent past affected and are expected to continue to
affect the business equation for the Company, including: (a) a greater mix of
higher volume customers, where the lower cost of distribution and better asset
management and cash flow enable the Company to offer lower pricing to the
customer; (b) reduced inventory gains associated with lower drug price
inflation, which are partially offset by corresponding decreases in last-in,
first-out (LIFO) earnings charges and inventory carrying costs; (c) increased
merchandising funding from manufacturers, particularly related to the growth in
generic pharmaceuticals; (d) improved selling, general and administrative cost
absorption due to significant productivity investments and the operating
leverage associated with sales growth and acquisitions; and (e) increased sales
and earnings from specialty distribution services.
In response to cost containment pressure from private and governmental
payers and the current focus on healthcare reform in the United States,
customers are consolidating into super-regional and national affiliations while
manufacturers are under increased pressure to slow the rate of drug price
inflation and to seek more cost-effective methods of marketing and distributing
their products. In this regard, drug wholesalers, including the Company, will be
challenged to service customers over a wider geographic base, offer
manufacturers more innovative marketing and distribution services, and provide
both manufacturers and customers with the common system and reporting links
necessary to streamline the efficient flow of product and information among
distribution partners.
OTHER
During fiscal 1993, the Company recorded restructuring charges of $13.7
million, primarily related to the closing of certain non-core operations and the
rationalization, standardization, and improvement of selected distribution
operations, information systems and support functions. See Note 2 of "Notes to
Consolidated Financial Statements" for further discussion. At June 30, 1995, the
initiatives contemplated have been substantially completed in accordance with
the original plan and all related funds have been expended.
3
5
ITEM 2: PROPERTIES
Because of the nature of the Company's business, office and warehousing
facilities are operated in widely dispersed locations across the United States.
At September 1, 1995, the Company distributed products from thirty-six principal
operating facilities located in twenty-three states, nine of which are owned by
the Company and the balance of which are leased. The Company's principal
executive offices currently consist of leased office space located at 655 Metro
Place South, Dublin, Ohio. The Company has executed a lease to relocate its
principal executive offices to another location in Dublin, Ohio before the end
of calendar year 1995. The Company considers its operating properties to be in
satisfactory condition and adequate to meet its present needs. However, the
Company expects to make further additions, improvements, and consolidations to
its properties as the Company's business continues to expand.
For certain financial information regarding the Company's office and
warehousing facilities, see Notes 5 and 9 of "Notes to Consolidated Financial
Statements."
ITEM 3: LEGAL PROCEEDINGS
In November 1993, Cardinal and Whitmire were each named as defendants in a
series of purported class action antitrust lawsuits which were later
consolidated and transferred by the Judicial Panel for Multi-District Litigation
to the United States District Court for the Northern District of Illinois (the
"Brand Name Prescription Drug Litigation"). Subsequent to the consolidation, a
new consolidated complaint ("amended complaint") was filed which included
allegations that the wholesaler defendants, including Cardinal and Whitmire,
conspired with manufacturers to inflate prices by using a chargeback pricing
system. Cardinal and Whitmire have filed an answer denying the allegations in
the amended complaint. In addition to the Federal court case described above,
Whitmire has been named as a defendant in a series of state court cases alleging
similar claims under various state laws regarding the sale of brand name
prescription drugs.
Effective October 26, 1994, the Company entered into a Judgment Sharing
Agreement in the Brand Name Prescription Drug Litigation with other wholesaler
and pharmaceutical manufacturer defendants. Under the Judgment Sharing
Agreement: (a) the manufacturer defendants agreed to reimburse the wholesaler
defendants for litigation costs incurred, up to an aggregate of $9 million; and
(b) if a judgment is entered against both manufacturers and wholesalers, the
total exposure for joint and several liability of the Company is limited to the
lesser of 1% of such judgment or one million dollars. In addition, the Company
has released any claims which it might have had against the manufacturers for
the claims presented by the plaintiffs in the Brand Name Prescription Drug
Litigation. The Judgment Sharing Agreement covers the Federal court litigation
as well as the cases which have been filed in various state courts. On December
15, 1994, the plaintiffs filed a motion to declare the Judgment Sharing
Agreement unenforceable. On April 10, 1995, the court denied that motion and
ruled that the Judgment Sharing Agreement is valid and enforceable. The
plaintiffs filed a motion for reconsideration of the court's April 10, 1995
ruling, and the court denied that motion and reaffirmed its earlier decision on
April 24, 1995.
The Company believes that both Federal and state allegations against
Cardinal and Whitmire are without merit, and it intends to contest such
allegations vigorously. The Company does not believe that the outcome of these
lawsuits will have a material adverse effect on the Company's financial
condition or results of operations.
The Company also becomes involved from time to time in ordinary routine
litigation incidental to its business, none of which is expected to have any
material adverse effect on the Company's financial condition or results of
operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
4
6
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows (information provided
as of September 1, 1995):
NAME AGE POSITIONS
--------------------------------- ---------------------------------------------------
Robert D. Walter 50 Chairman and Chief Executive Officer
Melburn G. Whitmire 55 Vice Chairman
John C. Kane 55 President and Chief Operating Officer
David Bearman 49 Executive Vice President and Chief
Financial and Accounting Officer
George H. Bennett, Jr. 42 Executive Vice President,
General Counsel and Secretary
Anthony J. Campanaro 47 Executive Vice President -- Central Group
James E. Clare 37 Executive Vice President -- Southern Group
Gary E. Close 50 Executive Vice President -- Western Group
Daniel P. Finkelman 39 Executive Vice President -- Marketing
Phillip A. Greth 54 Executive Vice President -- Chief Information
Officer
James F. Millar 47 Executive Vice President -- Northern Group
Unless indicated to the contrary, the business experience summaries
provided below for the Company's executive officers describe positions held by
the named individuals during the last five years but may exclude other positions
held with subsidiaries of the Company.
Robert D. Walter has been a Director, Chairman of the Board and Chief
Executive Officer of the Company since its formation in 1979 and has served as a
director and officer of certain of the Company's subsidiaries since their
formation or acquisition by the Company. Mr. Walter also serves as a director of
Banc One Corporation, Columbia/HCA Healthcare Corporation and Westinghouse
Electric Corporation.
Melburn G. Whitmire has been a Director of the Company since January 1994
and was elected Vice Chairman of the Company in February 1994. Prior to that,
Mr. Whitmire was Chairman of the Board, Chief Executive Officer and President of
Whitmire Distribution Corporation, and he has continued to serve in those
capacities for Whitmire following the Whitmire Merger.
John C. Kane has been a Director of the Company since August 1993 and has
been the Company's President and Chief Operating Officer since joining the
Company in February 1993. Prior to that, Mr. Kane was employed by Abbott
Laboratories (a pharmaceutical and healthcare manufacturer), where he served
most recently as President of the Ross Laboratories Division.
David Bearman has been an Executive Vice President of the Company since
February 1994 and, prior to that, served as a Region President from May 1991 to
February 1994 and as a Senior Vice President from October 1989. Mr. Bearman has
also served as the Company's Chief Financial and Accounting Officer since
joining the Company in October 1989 and serves in similar capacities for
subsidiaries of the Company. Prior to joining the Company, Mr. Bearman served as
the Chief Finance Executive of the Medical Systems Division of General Electric
Company.
George H. Bennett, Jr. has been Secretary of the Company since July 1994
and an Executive Vice President of the Company since February 1994. Prior to
that, Mr. Bennett was a Senior Vice President and Chief Administrative Officer
of the Company from May 1991. Mr. Bennett has also served as General Counsel of
the Company since joining the Company in January 1984, and serves in a similar
capacity for subsidiaries of the Company.
Anthony J. Campanaro has been the Company's Executive Vice President --
Central Group since April 1995. Prior to that, Mr. Campanaro was the Company's
Senior Vice President -- Retail Sales and Vice President -- Retail Sales.
5
7
James E. Clare has been the Company's Executive Vice President -- Southern
Group since February 1994. Prior to that, Mr. Clare served as the Vice President
-- Eastern Region of Whitmire Distribution Corporation and has continued to
serve as an officer of Whitmire following the Whitmire Merger.
Gary E. Close has been the Company's Executive Vice President -- Western
Group since February 1994. Prior to that, Mr. Close served as the Executive Vice
President -- Operations of Whitmire Distribution Corporation and has continued
to serve as an officer of Whitmire following the Whitmire Merger.
Daniel P. Finkelman has been the Company's Executive Vice President --
Marketing since joining the Company in May 1994. Prior to that, Mr. Finkelman
was a principal with McKinsey and Company, Inc. (an international management
consulting firm).
Phillip A. Greth has been the Company's Executive Vice President -- Chief
Information Officer since joining the Company in May 1995. Prior to that, Mr.
Greth was the Director of Management Information Services, Ross Products
Division, Abbott Laboratories.
James F. Millar has been the Company's Executive Vice President -- Northern
Group since February 1994. Prior to that, Mr. Millar served as a Region
President from May 1991, a Senior Vice President of the Company from November
1992, and President of the Company's Cardinal Syracuse, Inc. subsidiary.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER
MATTERS
The Company's common shares, without par value (the "Common Shares") are
quoted on the New York Stock Exchange under the symbol "CAH." Prior to listing
on the New York Stock Exchange, the Common Shares were quoted on the Nasdaq
National Market under the symbol "CDIC."
The following table reflects the range of the reported high and low last
sale prices of the Common Shares as reported on the New York Stock Exchange
Composite Tape from September 7, 1994 through September 15, 1995 and on the
Nasdaq National Market for all periods prior to September 7, 1994, and the per
share dividends declared thereon. The information in the table has been adjusted
to reflect all stock splits and stock dividends.
HIGH LOW DIVIDENDS
------ ------ ---------
FISCAL 1994:
Quarter Ended
September 30, 1993.................... $30.00 $21.80 $.020
December 31, 1993..................... 38.41 28.80 .024
March 31, 1994........................ 40.59 33.30 .024
June 30, 1994......................... 40.80 34.41 .030
FISCAL 1995:
Quarter Ended
September 30, 1994.................... $42.13 $36.63 $.030
December 31, 1994..................... 48.25 41.13 .030
March 31, 1995........................ 50.88 44.25 .030
June 30, 1995......................... 47.50 42.25 .030
FISCAL 1996:
Through September 15, 1995.............. $55.88 $43.75 $.030
At September 15, 1995, there were approximately 1,121 shareholders of
record of the Company's Common Shares.
The Company paid a 25% stock dividend on June 30, 1994, to effect a
five-for-four stock split of the Company's Common Shares. The Company
anticipates that it will continue to pay quarterly cash dividends in the future.
However, the payment and amount of future dividends remain within the discretion
of the
6
8
Company's Board of Directors and will depend upon the Company's future earnings,
financial condition, capital requirements, and other factors.
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company was
prepared giving retroactive effect to the business combination with Whitmire
Distribution Corporation ("Whitmire") on February 7, 1994 (the "Whitmire
Merger"), which was accounted for as a pooling-of-interests transaction. The
term "Cardinal," as used herein, refers to Cardinal Health, Inc. and its
subsidiaries prior to the Whitmire Merger. Cardinal's fiscal year had
historically ended on March 31, while Whitmire's fiscal year had ended on the
Saturday closest to the end of June. On March 1, 1994, the Company changed its
fiscal year end from March 31 to June 30. As a result, for the fiscal year ended
March 31, 1993, and prior years, the information presented is derived from
consolidated financial statements which combine data from Cardinal for the
fiscal years ended March 31, 1993, March 31, 1992 and March 31, 1991, with data
from Whitmire for fiscal years ended July 3, 1993, June 27, 1992, and June 29,
1991, respectively. For the fiscal years ended June 30, 1995 and 1994, and the
twelve months ended June 30, 1993, the information presented is derived from
consolidated financial statements which combine data from Cardinal for the
fiscal years ended June 30, 1995 and 1994, and the twelve months ended June 30,
1993, with data from Whitmire for the fiscal years ended June 30, 1995 and 1994,
and July 3, 1993. Due to the different fiscal year ends of the merged companies,
Whitmire's results of operations for the three months ended July 3, 1993, have
been included in both the twelve months ended June 30, 1993, and the fiscal year
ended March 31, 1993. The selected consolidated financial data below should be
read in conjunction with the Company's consolidated financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
7
9
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TWELVE
MONTHS
FISCAL YEAR ENDED ENDED FISCAL YEAR ENDED
------------------------- ----------- ----------------------------------------
JUNE 30, JUNE 30, JUNE 30, MARCH 31, MARCH 31, MARCH 31,
1995 1994 1993 1993 1992 1991
---------- ---------- ----------- ---------- ---------- ----------
(UNAUDITED)
EARNINGS STATEMENT DATA:
Net sales............................... $7,806,092 $5,790,411 $4,709,085 $4,633,375 $3,680,678 $2,803,111
Earnings available for Common Shares
before cumulative effect of change in
accounting principle.................. 84,973 33,931 39,298 37,671 25,522 16,849
Cumulative effect of change in
accounting principle.................. (10,000)
---------- ---------- ----------- ---------- ---------- ----------
Net earnings available for Common
Shares................................ $ 84,973 $ 33,931 $ 39,298 $ 27,671 $ 25,522 $ 16,849
========= ========= =========== ========= ========= =========
Primary earnings per Common Share:
Before cumulative effect of change in
accounting principle................ $ 2.01 $ 0.86 $ 1.14 $ 1.10 $ 0.74 $ 0.53
Cumulative effect of change in
accounting principle................ (0.29)
---------- ---------- ----------- ---------- ---------- ----------
Net................................... $ 2.01 $ 0.86 $ 1.14 $ 0.81 $ 0.74 $ 0.53
========= ========= =========== ========= ========= =========
Fully diluted earnings per Common Share:
Before cumulative effect of change in
accounting principle................ $ 2.01 $ 0.86 $ 1.10 $ 1.06 $ 0.74 $ 0.53
Cumulative effect of change in
accounting principle................ (0.26)
---------- ---------- ----------- ---------- ---------- ----------
Net................................... $ 2.01 $ 0.86 $ 1.10 $ 0.80 $ 0.74 $ 0.53
========= ========= =========== ========= ========= =========
BALANCE SHEET DATA:
Total assets............................ $1,841,804 $1,395,602 $1,150,423 $1,099,850 $ 947,081 $ 800,213
Long-term obligations................... 209,250 210,086 274,908 275,789 304,943 213,986
Redeemable preferred stock.............. 20,400 20,400 19,560 18,320
Shareholders' equity.................... 548,197 368,494 257,917 247,862 212,438 185,998
Cash dividends declared per Common
Share................................. $ 0.12 $ 0.10 $ 0.08 $ 0.07 $ 0.06 $ 0.05
Net earnings and cash dividends per Common Share have been adjusted to
reflect all stock dividends and stock splits.
Amounts reflect business combinations in fiscal 1995, 1994, the twelve
months ended June 30, 1993, fiscal 1992 and 1991.
Fiscal 1994, the twelve months ended June 30, 1993, and fiscal 1993 amounts
reflect the impact of Unusual Items (See Note 2 of "Notes to Consolidated
Financial Statements").
8
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis has been prepared giving retroactive
effect to the pooling-of-interests business combination with Whitmire on
February 7, 1994 (see Note 3 of "Notes to Consolidated Financial Statements").
See "Item 6: Selected Financial Data" for a discussion regarding the terms used
herein, the periods used to combine Cardinal and Whitmire, and the change in the
Company's fiscal year. The discussion and analysis presented below should be
read in conjunction with the consolidated financial statements and related notes
appearing in this report.
RESULTS OF OPERATIONS
Net Sales. Net sales in fiscal 1995 increased 35% compared with fiscal 1994
due to internal business growth of 25%, the acquisition of Humiston-Keeling,
Inc. in July 1994, and the merger transaction with Behrens, Inc. in July 1994
(see Note 3 of "Notes to Consolidated Financial Statements"). The 25% increase
in net sales in fiscal 1994 compared to fiscal 1993 was due to internal business
growth of 20%, sales resulting from the acquisition of Solomons Company in May
1993 and the merger transaction with PRN Services, Inc. in December 1993 (see
Note 3 of "Notes to Consolidated Financial Statements"). The internal business
growth in both fiscal 1995 and fiscal 1994 resulted primarily from the addition
of new customers (partially as a result of expanded sales territories),
increased sales to existing customers, and price increases.
Gross Margin. As a percentage of net sales, gross margin declined to 5.95%
in fiscal 1995 from 6.13% in fiscal 1994 and 6.42% in fiscal 1993. The decreases
in the gross margin percentages were due to lower selling margins, reflecting a
more competitive market and a greater mix of higher volume customers, where a
lower cost of distribution and better asset management and cash flow enable the
Company to offer lower selling margins, offset in 1995 by a slight increase in
purchasing gains associated with drug price inflation. The decline in the gross
margin rate has moderated in 1995 from prior fiscal years to the point that the
gross margin percentage for the fourth quarter of fiscal 1995 approximated that
of the comparable quarter of fiscal 1994. This moderation is due primarily to a
stabilization in the customer mix and growth in the higher margin specialty
business units.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses as a percentage of net sales have improved consistently
from 4.40% in fiscal 1993 to 4.03% in fiscal 1994 and 3.85% in fiscal 1995. The
improvements are due primarily to economies associated with the Company's
significant sales growth, particularly with major customers where support costs
are generally lower, consolidating distribution centers and administrative
functions, and selectively automating facilities.
Unusual Items. In February 1994, the Company recorded a charge to reflect
estimated Whitmire Merger costs of approximately $35.9 million ($28.2 million
net of tax), including (a) fees and other transaction costs related to the
combination, and (b) other costs expected to be incurred in connection with the
integration of Cardinal's and Whitmire's business operations. These estimated
costs included approximately $7 million for investment banking, legal,
accounting, and other related transaction fees and costs associated with the
combination; $13 million for corporate integration and distribution
rationalization; $6 million for integration of information systems; and $2
million for restructuring Whitmire's revolving credit agreement. Of these
estimated costs, approximately $7 million pertained to the revaluation of
certain operating assets and $2 million pertained to employee relocation,
retraining and termination costs. At June 30, 1995, the Company had incurred
actual costs aggregating approximately $26.9 million relative to the Whitmire
Merger. The Company anticipates that the remainder of these costs will be
expended in fiscal 1996. The current estimates of merger costs ultimately to be
incurred are not materially different than the amounts originally recorded.
During fiscal 1993, the Company received a termination fee of approximately
$13.5 million resulting from the termination by Durr-Fillauer Medical, Inc. of
its agreement to merge with the Company. Also during fiscal 1993, the Company
recorded charges totaling approximately $13.7 million, primarily related to the
closing of certain non-core operations and the rationalization, standardization
and improvement of selected distribution operations, information systems and
support functions. The charges included the write-down of certain assets, moving
costs and other costs associated with the affected operations, and modification
costs necessary to centralize and standardize certain information systems and
support functions. At June 30, 1995,
9
11
the initiatives contemplated have been substantially completed in accordance
with the original plan and all related funds have been expended.
The modification of the terms of certain Whitmire stock options in fiscal
1993 resulted in a one-time stock option compensation charge of approximately
$5.2 million (see Note 11 of "Notes to Consolidated Financial Statements").
Interest Expense. The increase in interest expense in fiscal 1995 is due to
higher average short-term borrowings resulting from increased working capital
requirements associated with the Company's growth. A portion of the funds used
for the increased working capital requirements were provided by the proceeds
from the issuance of approximately 1,867,000 of the Company's Common Shares
("Common Shares Offering") pursuant to a public offering completed on September
26, 1994 (see Note 11 of "Notes to Consolidated Financial Statements"). The
decrease in interest expense in fiscal 1994 compared to fiscal 1993 is due
primarily to the conversion in June 1993 of debt to equity of the Company's $75
million, 7.25% Convertible Debentures (see Note 11 of "Notes to Consolidated
Financial Statements") and reduced borrowings under Whitmire's revolving credit
agreements. The reduction in interest expense in fiscal 1994 as discussed above
was partially offset by increased interest expense resulting from the sale by
the Company of $100 million of 6.5% Notes on February 23, 1994 (see Note 5 of
"Notes to Consolidated Financial Statements").
The Company has entered into various interest rate swap agreements, which
serve to reduce the Company's aggregate interest cost on its $100 million 8%
Notes (the "8% Notes"), in response to falling interest rates subsequent to the
issuance of the 8% Notes (see Note 5 of "Notes to Consolidated Financial
Statements"). The net effect of the swap agreements is that the Company
exchanged its fixed rate position on the 8% Notes for a fixed rate of 5.1% for
the period July 15, 1992, through March 1, 1993, a fixed rate of 6.5% for the
period March 2, 1993, through March 1, 1994, and, thereafter, a fixed rate of
8.1% through March 1, 1997 (the maturity date of the 8% Notes). In May 1993, two
of the offsetting swap agreements were canceled at no gain or loss to the
Company.
Provision for Income Taxes. The Company's provision for income taxes
relative to pretax earnings decreased significantly in fiscal 1995 compared with
fiscal 1994 due primarily to certain nondeductible costs associated with the
Whitmire Merger recorded in the third quarter of fiscal 1994 (see Note 2 of
"Notes to Consolidated Financial Statements").
Cumulative Effect of Change in Accounting Principle. Effective at the
beginning of fiscal 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109). The cumulative
effect of adopting SFAS No. 109 ($10 million) has been reported as a change in
accounting principle retroactive to the beginning of fiscal 1993. The $10
million cumulative effect resulted primarily from the fact that SFAS No. 109
modifies the accounting for business combinations recorded using the purchase
method.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $130.2 million to $601.3 million at June 30,
1995, from $471.1 million at June 30, 1994, and included increased investments
in merchandise inventories and trade receivables of $203.6 million and $175.4
million, respectively, increased holdings of cash and equivalents and marketable
securities of $8.3 million and a decrease in notes payable-banks of $22.0
million, offset primarily by an increase in accounts payable of $253.6 million
and an increase in accrued liabilities of $26.5 million. The increases in
merchandise inventories and accounts payable reflect the timing of seasonal
purchases and related payments, the Company's internal growth, and current year
business combinations (see Note 3 of "Notes to Consolidated Financial
Statements"). The increase in cash and equivalents, as well as the decrease in
the notes payable-banks, reflect the timing of seasonal purchases and payments
noted above and partial use of proceeds from the Common Shares Offering (see
"Interest Expense," above). The increase in trade receivables was due primarily
to increased sales (see "Net Sales", above) and current year business
combinations completed in fiscal 1995 (see Note 3 of "Notes to Consolidated
Financial Statements"). The increase in accrued liabilities is primarily due to
the income tax liability arising from the current year net earnings.
10
12
Property and equipment, net of accumulated depreciation and amortization,
increased by $35.2 million. This increase reflects the Company's continuing
investment in management information systems, including customer support
systems, and upgrade and automation of distribution facilities.
Shareholders' equity increased to $548.2 million at June 30, 1995 from
$368.5 million at June 30, 1994 due primarily to (a) the Common Shares Offering
($70.5 million), (b) net earnings of the Company of approximately $85.0 million,
(c) the recording of tax benefits related to restricted stock and the exercise
of stock options of approximately $18.1 million, and (d) the addition of Behrens
Inc. shareholders' equity of approximately $9.8 million (see Note 3 of "Notes to
Consolidated Financial Statements"), offset primarily by dividends paid by the
Company of approximately $4.9 million.
The Company has line-of-credit agreements with various bank sources
aggregating $325 million, of which $100 million is represented by committed
line-of-credit agreements and the balance is uncommitted. The Company had drawn
upon $3.0 million of the available lines-of-credit at June 30, 1995, leaving
$322 million available under the Company's existing line-of-credit agreements.
As of June 30, 1995, the Company has the capacity to offer to the public
debt securities of up to $200 million pursuant to Shelf Registrations filed with
the Securities and Exchange Commission.
The Company believes that it has adequate capital resources at its disposal
to meet currently anticipated capital expenditures, routine business growth and
expansion, and current and projected debt service.
OTHER
On August 26, 1995, the Company signed a definitive agreement with Medicine
Shoppe International, Inc. ("Medicine Shoppe"), a franchisor of independent
retail pharmacies. Under the terms of the transaction, shareholders of Medicine
Shoppe will receive Company Common Shares in exchange for common shares of
Medicine Shoppe. The Company will issue between approximately 6.0 million and
6.8 million Common Shares in the transaction, depending in part upon the average
closing price of the Company Common Shares over a specified period. Under
certain circumstances, the Company could issue up to approximately 7.2 million
Company Common Shares in the transaction. The transaction is subject to certain
conditions including approval of the Medicine Shoppe shareholders and is
expected to be accounted for as a pooling-of-interests.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditors' Reports
Financial Statements:
Consolidated Statements of Earnings for the Fiscal Years Ended June 30,
1995, June 30, 1994, Twelve Months Ended June 30, 1993, and Fiscal Year
Ended March 31, 1993
Consolidated Balance Sheets at June 30, 1995, and June 30, 1994
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended
June 30, 1995, June 30, 1994, and March 31, 1993
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30,
1995, June 30, 1994, and March 31, 1993
Notes to Consolidated Financial Statements
11
13
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Directors of Cardinal Health, Inc.:
We have audited the accompanying consolidated balance sheets of Cardinal Health,
Inc. and subsidiaries as of June 30, 1995 and 1994, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for the years ended
June 30, 1995 and 1994 and March 31, 1993. Our audits also included the
financial statement schedule listed in the Index at Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. The
consolidated financial statements and financial statement schedule give
retroactive effect to the pooling-of-interests business combination of Cardinal
Health, Inc. and Whitmire Distribution Corporation on February 7, 1994, as
described in Note 1 to the consolidated financial statements. We did not audit
the statements of earnings, shareholders' equity, and cash flows of Whitmire
Distribution Corporation for the year ended July 3, 1993, which statements
reflect shareholders' equity of $2,223,000 as of July 3, 1993; net sales of
$2,666,829,000 and net earnings available for common shares before cumulative
effect of change in accounting principle of $4,039,000 for the year ended July
3, 1993. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for Whitmire Distribution Corporation in the March 31, 1993 financial
statements, is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Cardinal Health, Inc. and
subsidiaries at June 30, 1995 and 1994, and the results of their operations and
their cash flows for the years ended June 30, 1995 and 1994 and March 31, 1993
in conformity with generally accepted accounting principles. Also, in our
opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for income taxes to conform with Statement of
Financial Accounting Standards No. 109 by applying it retroactively effective
April 1, 1992.
DELOITTE & TOUCHE LLP
Columbus, Ohio
August 14, 1995, except for Note 16, as to which the date is August 26, 1995
12
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Whitmire Distribution Corporation:
We have audited the statement of operations of Whitmire Distribution Corporation
(a Delaware corporation), for the year ended July 3, 1993, and the related
statements of stockholders' equity and cash flows for the year ended July 3,
1993 (not presented herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Whitmire
Distribution Corporation for the year ended July 3, 1993, in conformity with
generally accepted accounting principles.
Arthur Andersen & Co.
Sacramento, California
September 3, 1993
(Except with respect to the matter discussed in Note 10, as to which date is
October 11, 1993.)
13
15
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE
TWELVE
MONTHS FISCAL
FISCAL YEAR ENDED ENDED YEAR ENDED
------------------------ ---------- ----------
JUNE 30, JUNE 30, JUNE 30, MARCH 31,
1995 1994 1993 1993
---------- ---------- ---------- ----------
(UNAUDITED)
Net sales.................................... $7,806,092 $5,790,411 $4,709,085 $4,633,375
Cost of products sold........................ 7,341,636 5,435,239 4,408,840 4,336,082
---------- ---------- ---------- ----------
Gross margin................................. 464,456 355,172 300,245 297,293
Selling, general and administrative
expenses................................... (300,817) (233,305) (205,161) (203,740)
Unusual items:
Merger costs............................... (35,880)
Termination fee............................ 13,466 13,466
Restructuring and other charges............ (18,904) (18,904)
---------- ---------- ---------- ----------
Operating earnings........................... 163,639 85,987 89,646 88,115
Other income (expense):
Interest expense........................... (19,341) (18,140) (26,174) (26,623)
Other, net - primarily interest income..... 2,207 2,913 5,047 4,765
---------- ---------- ---------- ----------
Earnings before income taxes and cumulative
effect of change in accounting principle... 146,505 70,760 68,519 66,257
Provision for income taxes................... (61,532) (35,624) (26,345) (25,710)
---------- ---------- ---------- ----------
Earnings before cumulative effect of change
in accounting principle.................... 84,973 35,136 42,174 40,547
Preferred dividends declared/accretion....... (1,205) (2,876) (2,876)
---------- ---------- ---------- ----------
Earnings available for Common Shares before
cumulative effect of change in accounting
principle.................................. 84,973 33,931 39,298 37,671
Cumulative effect of change in accounting
principle.................................. (10,000)
---------- ---------- ---------- ----------
Net earnings available for Common Shares..... $ 84,973 $ 33,931 $ 39,298 $ 27,671
========= ========= ========= =========
Primary earnings per Common Share:
Before cumulative effect of change in
accounting principle.................... $ 2.01 $ 0.86 $ 1.14 $ 1.10
Cumulative effect of change in accounting
principle............................... (0.29)
---------- ---------- ---------- ----------
Net........................................ $ 2.01 $ 0.86 $ 1.14 $ 0.81
========= ========= ========= =========
Fully diluted earnings per Common Share:
Before cumulative effect of change in
accounting principle.................... $ 2.01 $ 0.86 $ 1.10 $ 1.06
Cumulative effect of change in accounting
principle............................... (0.26)
---------- ---------- ---------- ----------
Net........................................ $ 2.01 $ 0.86 $ 1.10 $ 0.80
========= ========= ========= =========
Weighted average number of Common Shares
outstanding:
Primary.................................... 42,175 39,392 34,349 34,311
Fully diluted.............................. 42,221 39,477 38,653 38,616
The accompanying notes are an integral part of these statements.
14
16
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, JUNE 30,
1995 1994
---------- ----------
ASSETS
Current assets:
Cash and equivalents.................................. $ 40,619 $ 54,941
Marketable securities available for sale.............. 22,576
Trade receivables..................................... 516,262 340,911
Merchandise inventories............................... 1,071,811 868,210
Prepaid expenses and other............................ 23,446 23,062
---------- ----------
Total current assets............................. 1,674,714 1,287,124
---------- ----------
Property and equipment -- at cost:
Land, buildings and improvements...................... 46,554 28,354
Machinery and equipment............................... 113,123 81,925
Furniture and fixtures................................ 17,607 9,096
---------- ----------
Total............................................ 177,284 119,375
Accumulated depreciation and amortization............. (82,056) (59,346)
---------- ----------
Property and equipment -- net......................... 95,228 60,029
Other assets............................................. 71,862 48,449
---------- ----------
Total............................................ $1,841,804 $1,395,602
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable -- banks................................ $ 3,000 $ 25,000
Current portion of long-term obligations.............. 2,083 2,929
Accounts payable...................................... 949,992 696,357
Other accrued liabilities............................. 118,295 91,756
---------- ----------
Total current liabilities........................ 1,073,370 816,042
---------- ----------
Long-term obligations -- less current portion............ 209,250 210,086
Other liabilities........................................ 10,987 980
Shareholders' equity:
Common Shares -- without par value.................... 345,538 255,458
Retained earnings..................................... 209,804 120,399
Common Shares in treasury, at cost.................... (4,011) (3,390)
Unamortized restricted stock awards................... (3,134) (3,973)
---------- ----------
Total shareholders' equity....................... 548,197 368,494
---------- ----------
Total............................................ $1,841,804 $1,395,602
========= =========
The accompanying notes are an integral part of these statements.
15
17
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON SHARES TREASURY
------------------- SHARES
SHARES RETAINED ------
ISSUED AMOUNT EARNINGS SHARES
------ -------- -------- ------
BALANCE, MARCH 31, 1992....................................................... 23,661 $162,799 $ 54,674 (148)
Earnings before cumulative effect of change in accounting principle and
preferred dividends......................................................... 40,547
Cumulative effect of change in accounting principle........................... (10,000)
Shares issued in connection with stock options................................ 280 2,322
Stock option compensation..................................................... 5,247
Restricted stock awards....................................................... 40 1,054
Amortization of restricted stock awards.......................................
Treasury shares acquired...................................................... (24)
Shares repurchased and retired................................................ (38) (199)
Dividends paid and preferred stock accretion.................................. (4,488)
Tax benefits related to restricted stock and stock options.................... 1,984
Miscellaneous other........................................................... (840) 840
------ -------- -------- ------
BALANCE, MARCH 31, 1993....................................................... 23,943 172,367 81,573 (172)
Earnings before preferred dividends........................................... 35,136
Shares issued pursuant to the conversion of $75 million of convertible
debentures.................................................................. 3,423 73,140
Shares issued pursuant to the acquisition of Solomons Company................. 849 18,006
Repurchase and retirement of shares owned by North American National
Corporation................................................................. (580) (15,373)
Shares issued in connection with stock options and warrants................... 2,531 1,025
Restricted stock awards....................................................... 47 1,984
Amortization of restricted stock awards.......................................
Treasury shares acquired and restricted stock forfeitures..................... (8)
Dividends paid................................................................ (3,935)
5-for-4 stock split effected as a stock dividend and cash paid in lieu of
fractional shares........................................................... 7,564 (16)
Adjustment to change fiscal year of Cardinal Health, Inc...................... 7,293
Equity of PRN Services, Inc. on merger date (see Note 3)...................... 237 34 348
Tax benefits related to restricted stock and stock options.................... 4,275
------ -------- -------- ------
BALANCE, JUNE 30, 1994........................................................ 38,014 255,458 120,399 (180)
Net earnings.................................................................. 84,973
Shares issued in connection with stock options................................ 1,312 961
Restricted stock awards....................................................... 2 64
Amortization of restricted stock awards.......................................
Tax benefits related to restricted stock and stock options.................... 18,136
Treasury shares acquired...................................................... (13)
Dividends paid................................................................ (4,896)
Equity of Behrens Inc. on merger date (See Note 3)............................ 944 451 9,328
Shares issued in connection with stock offering............................... 1,867 70,468
------ -------- -------- ------
BALANCE, JUNE 30, 1995........................................................ 42,139 $345,538 $209,804 (193)
====== ======== ======== ======
UNAMORTIZED TOTAL
RESTRICTED SHAREHOLDERS'
AMOUNT STOCK AWARDS EQUITY
------- ------------- -------------
BALANCE, MARCH 31, 1992....................................................... $(2,384) $(2,651) $ 212,438
Earnings before cumulative effect of change in accounting principle and
preferred dividends......................................................... 40,547
Cumulative effect of change in accounting principle........................... (10,000)
Shares issued in connection with stock options................................ 2,322
Stock option compensation..................................................... 5,247
Restricted stock awards....................................................... (1,054)
Amortization of restricted stock awards....................................... 701 701
Treasury shares acquired...................................................... (690) (690)
Shares repurchased and retired................................................ (199)
Dividends paid and preferred stock accretion.................................. (4,488)
Tax benefits related to restricted stock and stock options.................... 1,984
Miscellaneous other...........................................................
------- ------------- -------------
BALANCE, MARCH 31, 1993....................................................... (3,074) (3,004) 247,862
Earnings before preferred dividends........................................... 35,136
Shares issued pursuant to the conversion of $75 million of convertible
debentures.................................................................. 73,140
Shares issued pursuant to the acquisition of Solomons Company................. 18,006
Repurchase and retirement of shares owned by North American National
Corporation................................................................. (15,373)
Shares issued in connection with stock options and warrants................... 1,025
Restricted stock awards....................................................... (1,984)
Amortization of restricted stock awards....................................... 985 985
Treasury shares acquired and restricted stock forfeitures..................... (316) 30 (286)
Dividends paid................................................................ (3,935)
5-for-4 stock split effected as a stock dividend and cash paid in lieu of
fractional shares........................................................... (16)
Adjustment to change fiscal year of Cardinal Health, Inc...................... 7,293
Equity of PRN Services, Inc. on merger date (see Note 3)...................... 382
Tax benefits related to restricted stock and stock options.................... 4,275
------- ------------- -------------
BALANCE, JUNE 30, 1994........................................................ (3,390) (3,973) 368,494
Net earnings.................................................................. 84,973
Shares issued in connection with stock options................................ 961
Restricted stock awards....................................................... (64)
Amortization of restricted stock awards....................................... 903 903
Tax benefits related to restricted stock and stock options.................... 18,136
Treasury shares acquired...................................................... (621) (621)
Dividends paid................................................................ (4,896)
Equity of Behrens Inc. on merger date (See Note 3)............................ 9,779
Shares issued in connection with stock offering............................... 70,468
------- ------------- -------------
BALANCE, JUNE 30, 1995........................................................ $(4,011) $(3,134) $ 548,197
======= ============= ============
The accompanying notes are an integral part of these statements.
16
18
CARDINAL HEALTH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED
----------------------------------
MARCH
JUNE 30, JUNE 30, 31,
1995 1994 1993
-------- -------- --------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Earnings before cumulative effect of change in
accounting principle.......................... $ 84,973 $ 35,136 $ 40,547
Adjustments to reconcile earnings before
cumulative effect of change in accounting
principle to net cash from operations:
Depreciation and amortization................... 21,209 16,971 18,260
Stock option compensation....................... 5,247
Provision for deferred income taxes............. 24,307 (11,374) (10,063)
Provision for bad debts......................... 10,853 9,761 4,498
Change in operating assets and liabilities net
of effects from acquisitions:
Increase in trade receivables................. (130,574) (84,704) (5,139)
Increase in merchandise inventories........... (159,036) (232,178) (51,343)
Increase in accounts payable.................. 152,341 169,988 128,353
Other operating items - net................... 6,404 21,451 10,746
-------- -------- --------
Net cash provided by (used in) operating
activities.................................... 10,477 (74,949) 141,106
-------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of subsidiary, net of cash
acquired...................................... (16,447)
Proceeds from sale of property and equipment.... 91 1,079 111
Additions to property and equipment............. (43,039) (11,229) (14,620)
Purchase of marketable securities available for
sale.......................................... (146,628) (115,241) (330,371)
Proceeds from sale of marketable securities
available for sale............................ 124,052 187,229 294,083
-------- -------- --------
Net cash provided by (used in) investing
activities.................................... (81,971) 61,838 (50,797)
-------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net short-term borrowing activity............... (22,000) 25,000
Reduction of short-term borrowing of an acquired
subsidiary.................................... (5,226)
Reduction of long-term obligations.............. (4,876) (92,701) (30,495)
Proceeds from long-term obligations............. 100,000
Issuance costs of long-term obligations and
other......................................... (873)
Proceeds from issuance of Common Shares......... 71,429 1,025 2,322
Tax benefit of stock options.................... 18,136 4,275 1,984
Dividends on common and preferred shares and
cash paid in lieu of fractional shares........ (4,896) (3,951) (3,648)
Redemption of preferred stock................... (20,400)
Purchase of treasury shares..................... (621) (307) (889)
-------- -------- --------
Net cash provided by (used in) financing
activities.................................... 57,172 6,842 (30,726)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS..................................... (14,322) (6,269) 59,583
CASH AND EQUIVALENTS AT BEGINNING
OF YEAR......................................... 54,941 61,210 7,156
-------- -------- --------
CASH AND EQUIVALENTS AT END OF YEAR............... $ 40,619 $ 54,941 $ 66,739
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION (NOTE 13):
Interest paid during the year................... $ 20,166 $ 16,412 $ 25,889
Income taxes paid during the year............... $ 11,517 $ 35,974 $ 27,097
The accompanying notes are an integral part of these statements.
17
19
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cardinal Health, Inc. and subsidiaries (the "Company") is a full service
wholesaler distributing a broad line of pharmaceuticals, surgical and hospital
supplies, therapeutic plasma and other specialty pharmaceutical products, health
and beauty care products, and other items typically sold by hospitals, retail
drug stores, and other health care providers. The Company is currently operating
in only one business segment.
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts
of all majority-owned subsidiaries and all significant intercompany amounts have
been eliminated. The consolidated financial statements give retroactive effect
to the pooling-of-interests business combination with Whitmire Distribution
Corporation (the "Whitmire Merger") on February 7, 1994 (see Note 3). The term
"Cardinal," as used herein, refers to Cardinal Health, Inc. and its subsidiaries
prior to the Whitmire Merger. Cardinal's fiscal year had historically ended on
March 31, while Whitmire's fiscal year had ended on the Saturday closest to the
end of June. On March 1, 1994, the Company changed its fiscal year end from
March 31 to June 30. Accordingly, the accompanying consolidated financial
statements for the fiscal years ended June 30, 1995 and June 30, 1994, and for
the twelve months ended June 30, 1993, combine the information for Cardinal and
Whitmire as of June 30, 1995, and for each of the three years then ended. The
accompanying consolidated financial statements for the fiscal year ended March
31, 1993 combine information for Cardinal's fiscal year ended March 31, 1993
with Whitmire's fiscal year ended July 3, 1993. The consolidated statement of
earnings for the twelve months ended June 30, 1993, is unaudited and is
presented for the purpose of supplemental analysis.
Due to the different fiscal period ends of the merged companies, the
results of Whitmire for the three months ended July 3, 1993, have been included
in the consolidated statements of earnings for both the periods ended June 30,
1993, and March 31, 1993. Cardinal's results of operations (exclusive of
Whitmire) for the three months ended June 30, 1993, are not included in the
consolidated statement of earnings but have been included as an adjustment in
the consolidated statement of shareholders' equity. For the three months ended
June 30, 1993, Cardinal's net sales and net earnings were $550,034,000 and
$7,771,000, respectively. The cash provided by operating activities was
$53,752,000, while the cash used in investing and financing activities was
$36,521,000 and $22,760,000, respectively. Cardinal paid dividends of $478,000
during the three months ended June 30, 1993.
CASH EQUIVALENTS
The Company considers all liquid investments purchased with a maturity of
three months or less to be cash equivalents. The carrying value of cash
equivalents approximates their fair value.
MARKETABLE SECURITIES AVAILABLE FOR SALE
Effective July 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). Pursuant to SFAS No. 115, the
Company has classified its investment in short-term municipal bonds as
available-for-sale. The fair value of the bonds at June 30, 1995 approximates
the original cost determined on a specific identification basis and,
accordingly, no net unrealized gain or loss has been recorded as a separate
component of shareholders' equity. Gross unrealized gains and losses are not
significant at June 30, 1995. These bonds mature on various dates in fiscal
1996.
Prior to the adoption of SFAS No. 115, the Company accounted for debt
securities that were held for sale using the lower-of-cost or market rule. The
adoption of SFAS No. 115 did not have a material effect on the Company's
financial statements.
18
20
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
TRADE RECEIVABLES
Trade receivables are presented net of the related allowance for doubtful
accounts of approximately $28,275,000 and $21,594,000 at June 30, 1995, and June
30, 1994, respectively.
MERCHANDISE INVENTORIES
Substantially all merchandise inventories are stated at lower of cost,
last-in, first-out (LIFO) method, or market. If the Company had used the
first-in, first-out (FIFO) method of inventory valuation, which approximates
current replacement cost, inventories would have been higher than reported at
June 30, 1995, by $79,365,000 and at June 30, 1994, by $61,852,000. The June 30,
1994 difference between replacement costs and LIFO values, restated to reflect
the pooling-of-interests combination with Behrens, Inc. (see Note 3), was
$77,465,000. The impact of partial inventory liquidations in certain LIFO pools
reduced the LIFO provision by approximately $2,500,000 in fiscal 1993.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
for financial reporting purposes are computed using the straight-line method
over the estimated useful lives of the assets which range from three to forty
years, including capital lease assets which are amortized over the terms of
their respective leases. Amortization of capital lease assets is included in
depreciation and amortization expense. Certain software costs related to
internally developed or purchased software are capitalized and amortized using
the straight-line method over the useful lives not exceeding three years.
OTHER ASSETS
Other assets primarily represent intangible assets related to the excess of
cost over net assets of subsidiaries acquired and noncurrent deferred tax assets
(see Note 7). Intangible assets are being amortized using the straight-line
method over lives which range from ten to forty years. Accumulated amortization
was $18,670,000 and $16,571,000 at June 30, 1995, and June 30, 1994,
respectively. At each balance sheet date, a determination is made by management
to ascertain whether the intangible assets have been impaired based on several
criteria, including, but not limited to, sales trends, undiscounted operating
cash flows, and other operating factors.
SALES RECOGNITION
The Company records sales when merchandise is shipped to its customers and
the Company has no further obligation to provide services related to such
merchandise. The Company also arranges for direct deliveries to be made to
customer warehouses which are excluded from net sales and totaled
$1,779,000,000, $562,000,000 and $467,000,000 in fiscal 1995, 1994 and 1993,
respectively. The service fees related to direct deliveries are included in net
sales and were not significant in fiscal 1995, 1994 or 1993.
INCOME TAXES
Effective as of the beginning of fiscal 1993, Cardinal began accounting for
income taxes under the liability method by adopting Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The
cumulative effect of adopting this statement ($10,000,000) has been reported as
a change in accounting principle retroactive to the beginning of fiscal 1993.
Prior to the adoption of SFAS No. 109, income taxes were accounted for in
accordance with Accounting Principles Board Opinion No. 11.
19
21
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
EARNINGS PER COMMON SHARE
Primary earnings per Common Share are based on the weighted average number
of Common Shares outstanding during each period and the dilutive effect of stock
options and warrants from the date of grant computed using the treasury stock
method.
Fully diluted earnings per Common Share reflect: (a) the dilutive effect of
stock options and warrants from the date of grant computed using the treasury
stock method; and (b) the full conversion of the 7.25% Convertible Subordinated
Debentures due 2015 through their conversion and redemption in July 1993 (see
Note 11).
Cash dividends paid per Common Share were $0.12, $0.09 and $0.07 for the
fiscal years ended June 30, 1995 and 1994 and March 31, 1993, respectively.
STOCK SPLIT
The Company paid a 25% stock dividend on June 30, 1994, to effect a
five-for-four stock split of the Company's Common Shares. All share and per
share amounts included in the Consolidated Financial Statements, except the
Consolidated Statements of Shareholders' Equity, have been adjusted to reflect
this stock split.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to conform
with the classifications used for 1995.
2. UNUSUAL ITEMS
In February 1994, the Company recorded a charge to reflect estimated
Whitmire Merger costs of approximately $35.9 million ($28.2 million net of tax),
including (a) fees and other transaction costs related to the combination, and
(b) other costs expected to be incurred in connection with the integration of
Cardinal's and Whitmire's business operations. These estimated costs included
approximately $7 million for investment banking, legal, accounting, and other
related transaction fees and costs associated with the combination; $13 million
for corporate integration and distribution rationalization; $6 million for
integration of information systems; and $2 million for restructuring Whitmire's
revolving credit agreement. Of these estimated costs, approximately $7 million
pertained to the revaluation of certain operating assets and $2 million
pertained to employee relocation, retraining and termination costs. At June 30,
1995, the Company had incurred actual costs aggregating approximately $26.9
million relating to the Whitmire Merger. The Company anticipates that the
remainder of these costs will be expended in fiscal 1996. The current estimates
of merger costs ultimately to be incurred are not materially different than the
amounts originally recorded.
During fiscal 1993, the Company received a termination fee of approximately
$13.5 million, resulting from the termination by Durr-Fillauer Medical, Inc. of
its agreement to merge with the Company.
Also during fiscal 1993, the Company recorded charges totaling
approximately $13.7 million, primarily related to the closing of certain
non-core operations and the rationalization, standardization and improvement of
selected distribution operations, information systems and support functions. The
charges included the write-down of certain assets, moving costs and other costs
associated with the affected operations, and modification costs necessary to
centralize and standardize certain information systems and support functions. At
June 30, 1995, the initiatives contemplated have been substantially completed in
accordance with the original plan and all related funds have been expended.
The modification of the terms of certain Whitmire stock options in fiscal
1993 also resulted in a one-time stock option compensation charge of
approximately $5.2 million (see Note 11).
20
22
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following supplemental information, presented for purposes of
facilitating meaningful comparisons to ongoing operations and to other companies
in the drug distribution industry, summarizes the results of operations of the
Company, adjusted on a pro forma basis to reflect (a) the elimination of the
effect of the unusual items discussed above, and (b) the redemption of
Whitmire's preferred stock pursuant to the terms of the Reorganization Agreement
(see Note 3). Solely for purposes of the summary presented below, such
redemption is assumed to have been funded from the liquidation of investments in
tax-exempt marketable securities. Although not anticipated, unusual items of a
similar nature could occur in the future.
TWELVE
MONTHS
FISCAL YEAR ENDED ENDED FISCAL YEAR
------------------------- ---------- ENDED
(IN THOUSANDS, EXCEPT PER SHARE JUNE 30, JUNE 30, JUNE 30, ---------------
AMOUNTS) 1995 1994 1993 MARCH 31, 1993
------------------------------------- ---------- ---------- ---------- ---------------
(UNAUDITED)
Operating earnings, excluding unusual
items.............................. $163,639 $121,867 $ 95,084 $93,553
Earnings before cumulative effect of
change in accounting principle,
excluding unusual items............ 84,973 63,044 44,510 42,865
Earnings per Common Share before
cumulative effect of change in
accounting principle, excluding
unusual items:
Primary......................... $2.01 $1.60 $1.30 $1.25
Fully diluted................... 2.01 1.60 1.24 1.19
Operating earnings and net earnings as reported in the Company's historical
financial statements are reconciled to the respective amounts in the preceding
table as follows:
FISCAL YEAR ENDED TWELVE MONTHS ENDED JUNE FISCAL YEAR ENDED
JUNE 30, 1994 30, 1993 MARCH 31, 1993
------------------------- ------------------------- -------------------------
OPERATING NET OPERATING NET OPERATING NET
(IN THOUSANDS) EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS
------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
As reported, before cumulative
effect of change in
accounting principle........ $ 85,987 $ 33,931 $ 89,646 $ 39,298 $ 88,115 $ 37,671
Supplemental adjustments:
Merger costs............. 35,880 28,180
Preferred stock
redemptions............ 1,205 2,876 2,876
Interest adjustment on
preferred stock........ (272) (557) (575)
Termination fee............... (13,466) (7,163) (13,466) (7,163)
Restructuring charge.......... 13,657 7,265 13,657 7,265
Stock option charge........... 5,247 2,791 5,247 2,791
---------- ---------- ---------- ---------- ---------- ----------
As supplementally adjusted.... $121,867 $ 63,044 $ 95,084 $ 44,510 $ 93,553 $ 42,865
========== ========== ========== ========== ========== ==========
21
23
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. BUSINESS COMBINATIONS
On July 18, 1994, the Company issued approximately 944,000 Common Shares in
a merger transaction for all of the common shares of Behrens Inc., a drug
wholesaler based in Waco, Texas. The transaction was accounted for as a
pooling-of-interests business combination. The impact of the Behrens merger, on
both an historical and pro forma basis, is not significant. Accordingly, prior
periods have not been restated for the Behrens merger.
On July 1, 1994, the Company acquired all of the outstanding stock of
Humiston-Keeling, Inc., a drug wholesaler based in Calumet City, Illinois, for
cash of $33,334,000 in a transaction accounted for by the purchase method. Had
the purchase occurred at the beginning of fiscal 1994, operating results on a
pro forma basis would not have been significantly different.
On January 27, 1994, shareholders of Cardinal and Whitmire approved and
adopted the Agreement and Plan of Reorganization dated October 11, 1993 (the
"Reorganization Agreement"), pursuant to which a wholly owned subsidiary of
Cardinal was merged with and into Whitmire effective February 7, 1994. In the
Whitmire merger, which was accounted for as a pooling-of-interests business
combination, holders of outstanding Whitmire common stock received an aggregate
of approximately 6,802,000 Common Shares and approximately 1,861,000 Class B
common shares in exchange for all of the previously outstanding common stock of
Whitmire. In addition, Whitmire's outstanding stock options were converted into
options to purchase an aggregate of approximately 1,721,000 additional Common
Shares pursuant to the terms of such options and the Reorganization Agreement.
On December 17, 1993, the Company issued approximately 296,000 Common
Shares in a merger transaction for all of the capital stock of PRN Services,
Inc., a distributor of pharmaceuticals and medical supplies to oncologists and
oncology clinics. The transaction was accounted for as a pooling-of-interests
business combination. The impact of the PRN merger, on both an historical and
pro forma basis, is not significant. Accordingly, prior periods have not been
restated for the PRN merger.
On May 4, 1993, the Company acquired all of the outstanding capital stock
of Solomons Company, a wholesale drug distributor based in Savannah, Georgia, in
exchange for approximately 1,062,000 Common Shares. The transaction was
accounted for by the purchase method. Had the acquisition occurred at the
beginning of fiscal 1993, operating results on a pro forma basis would not have
been significantly different.
4. NOTES PAYABLE -- BANKS
The Company has entered into various uncommitted line-of-credit
arrangements which allow for borrowings up to $225,000,000 and $221,000,000 at
June 30, 1995 and 1994, respectively, at various money market rates. The amount
outstanding under such arrangements was $3,000,000 and $25,000,000, at weighted
average interest rates of 6.89% and 4.28%, at June 30, 1995 and 1994,
respectively.
In addition to the aforementioned credit arrangements, at June 30, 1995,
the Company has revolving credit agreements with eight banks which have a
maturity of less than one year, are renewable on a quarterly basis, and allow
the Company to borrow up to $100,000,000 (none of which was in use at either
June 30, 1995 or 1994). The Company is required to pay a commitment fee at the
annual rate of .125% on the average daily unused amounts of the total credit
allowed under the revolving credit agreements.
Total available but unused lines of credit at June 30, 1995 and June 30,
1994 were $322,000,000 and $296,000,000, respectively.
22
24
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
JUNE 30, JUNE 30,
1995 1994
-------- --------
Notes; 6.5% due 2004.................................................. $100,000 $100,000
Notes; 8% due 1997.................................................... 100,000 100,000
Primarily mortgage revenue bonds, notes and capital leases; 3.70% to
14.07%, and rates that fluctuate based on prime, due in varying
installments through 2002........................................... 11,333 13,015
-------- --------
Total....................................................... 211,333 213,015
Less current portion.................................................. (2,083) (2,929)
-------- --------
Long-term obligations -- less current portion......................... $209,250 $210,086
======== ========
On February 23, 1994, the Company sold $100,000,000 of 6.5% Notes due 2004
(the "6.5% Notes") in a public offering. The 6.5% Notes represent unsecured
obligations of the Company, are not redeemable prior to maturity and are not
subject to a sinking fund. Issuance costs of approximately $860,000 incurred in
connection with the offering are being amortized on a straight-line basis over
the period the 6.5% Notes will be outstanding. The Company used the proceeds of
this sale for general corporate purposes, including the repayment of bank lines
of credit incurred as part of the Whitmire Merger (see Note 3). In anticipation
of the sale of the 6.5% Notes, the Company entered into an interest rate hedge
agreement, which was terminated at the approximate time of the issuance of the
6.5% Notes, resulting in a deferred gain of approximately $1.3 million which is
being amortized as a reduction of interest expense over the period the 6.5%
Notes are outstanding.
On March 11, 1992, the Company sold $100,000,000 of 8% Notes due 1997 (the
"8% Notes") in a public offering. The 8% Notes represent unsecured obligations
of the Company, are not redeemable prior to maturity and are not subject to a
sinking fund. Issuance costs of approximately $718,000 incurred in connection
with the offering, are being amortized on a straight-line basis over the period
the 8% Notes will be outstanding.
The Company has entered into various interest rate swap agreements which
serve to hedge the Company's aggregate interest cost on the 8% Notes, in
response to falling interest rates subsequent to the issuance of the 8% Notes.
The net effect of the swap agreements is that the Company exchanged its fixed
rate position on the 8% Notes for a fixed rate of 5.1% for the period July 15,
1992, through March 1, 1993, a fixed rate of 6.5% for the period March 2, 1993,
through March 1, 1994, and, thereafter, a fixed rate of 8.1% through March 1,
1997 (the maturity date of the 8% Notes). In May 1993, two of the offsetting
swap agreements were canceled at no gain or loss to the Company. The notional
principal in each of the four swap agreements outstanding at June 30, 1995 is
$100 million. Due to the offsetting nature of the swaps, the market value of
those in a net receivable position approximates the market value of those in a
net payable position. The risk of accounting loss, based on a discounted cash
flow assumption, in the event of nonperformance by counterparties with whom the
Company is in a net receivable position is approximately $3 million as of June
30, 1995; however, based on the credit quality of the counterparties, the
Company believes the likelihood of such a credit loss to be remote. The Company
recognizes in income the periodic net cash settlements under the matched swap
agreements as they accrue.
Certain long-term obligations are collateralized by property and equipment
of the Company with an aggregate book value of approximately $11,480,000 at June
30, 1995.
23
25
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Maturities of long-term obligations for future fiscal years are as follows
(in thousands):
1996............ $ 2,083
1997............ 101,844
1998............ 1,043
1999............ 923
2000............ 873
Thereafter...... 104,567
--------
Total...... $211,333
========
6. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and equivalents, marketable securities, notes
payable -- banks and other accrued liabilities at June 30, 1995, and June 30,
1994, approximate their fair value because of the short-term maturities of these
items.
The estimated fair value of the Company's long-term obligations was
$211,208,000 and $206,116,000 as compared to the carrying amounts of
$211,333,000 and $213,015,000 at June 30, 1995, and June 30, 1994, respectively.
The fair value of the Company's long-term obligations is estimated based on the
quoted market prices for the same or similar issues and the current interest
rates offered for debt of the same remaining maturities.
7. INCOME TAXES
Effective the beginning of fiscal 1993, Cardinal adopted SFAS No. 109.
Under the provisions of SFAS No. 109, income taxes are recorded under the
liability method. SFAS No. 109 results in the recognition of deferred tax assets
and liabilities for the expected future tax consequences of existing differences
between financial reporting and tax reporting bases of assets and liabilities
(temporary differences), and operating loss and tax credit carryforwards for tax
purposes. The cumulative effect of adopting SFAS No. 109 ($10,000,000) has been
reported as a change in accounting principle retroactive to the beginning of
fiscal 1993.
The provision (credit) for income taxes consists of the following (in
thousands):
FISCAL YEAR
-------------------------------
1995 1994 1993
------- ------- -------
Current:
Federal............. $33,232 $42,146 $29,991
State............... 3,993 4,852 5,782
------- ------- -------
Total.......... 37,225 46,998 35,773
------- ------- -------
Deferred................. 24,307 (11,374) (10,063)
------- ------- -------
Total
provision.... $61,532 $35,624 $25,710
======= ======= =======
24
26
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A reconciliation of the Company's income tax provision and the provision
based on the Federal statutory income tax rate follows:
FISCAL YEAR
----------------------------------
1995 1994 1993
-------- -------- --------
Provision at Federal statutory rate.......... 35.0% 35.0% 34.0%
State income taxes -- net of Federal
benefit.................................... 4.5 4.5 5.0
Nondeductible expenses....................... 9.5
Other........................................ 2.5 1.3 (0.2)
-------- -------- --------
Effective income tax rate.................... 42.0% 50.3% 38.8%
======== ======== ========
The components of the Company's deferred income tax assets (liabilities),
the current portion (a liability of $15,095,000 and an asset of $4,990,000 at
June 30, 1995, and June 30, 1994, respectively) is included in the Consolidated
Balance Sheets captions "Other accrued liabilities" and "Prepaid expenses and
other," and the noncurrent portion (a liability of $10,987,000 and an asset of
$467,000 at June 30, 1995, and June 30, 1994, respectively) is included in the
Consolidated Balance Sheets captions "Other liabilities" and "Other assets," are
as follows (in thousands):
AS OF
---------------------
JUNE 30, JUNE 30,
1995 1994
-------- --------
Deferred income tax assets:
Allowance for doubtful accounts......... $ 10,987 $ 7,839
Accrued liabilities..................... 16,047 22,623
Stock option compensation............... 2,240
Other................................... 11,814 1,929
-------- --------
Total deferred income tax assets... 38,848 34,631
-------- --------
Deferred income tax liabilities:
Inventory basis differences............. (46,588) (25,210)
Property related........................ (4,512) (2,840)
Other................................... (13,830) (1,124)
-------- --------
Total deferred income tax
liabilities...................... (64,930) (29,174)
-------- --------
Net deferred income tax assets
(liabilities).................... $(26,082) $ 5,457
======== ========
8. EMPLOYEE RETIREMENT BENEFIT PLANS
Substantially all of the Company's non-union employees are enrolled in
Company-sponsored contributory profit sharing and retirement savings plans which
include features under Section 401(k) of the Internal Revenue Code, and provide
for matching Company contributions. The Company's contributions to the plans are
determined by the Board of Directors subject to certain minimum requirements as
specified in the plans.
Qualified union employees are covered by Company-sponsored and
multiemployer defined benefit pension plans under the provisions of collective
bargaining agreements. Benefits under these plans are generally based on the
employee's years of service and average compensation at retirement.
The effect of the Company-sponsored defined benefit plans on the Company's
consolidated financial statements is not material.
25
27
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Employee retirement benefit plans expense was as follows (in thousands):
FISCAL YEAR
----------------------------------
1995 1994 1993
-------- -------- --------
Defined contribution plans......... $5,465 $3,917 $3,400
Multiemployer plans................ 637 522 538
-------- -------- --------
Total.................... $6,102 $4,439 $3,938
======== ======== ========
The adoption of Financial Accounting Standards Board Statement No. 112
"Employer's Accounting for Postemployment Benefits" in 1995 had no material
effect on the consolidated financial statements of the Company.
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases certain warehouse and office facilities, vehicles, and
data processing equipment under operating leases. The leases expire at various
dates over the next twelve years. Certain of these leases provide for renewal
options and/or contingent rentals based on various factors.
The future minimum rental payments for operating leases having initial or
remaining non-cancelable lease terms in excess of one year at June 30, 1995, are
as follows (in thousands):
1996............ $ 11,887
1997............ 10,151
1998............ 8,931
1999............ 7,584
2000............ 3,868
Thereafter...... 10,461
--------
Total...... $ 52,882
========
The minimum rental payments above have been reduced by sublease rentals of
approximately $438,000 in 1996 and $353,000 in 1997. Rental expense (net of
sublease rental income) relating to operating leases and short-term cancelable
leases was approximately $12,631,000, $11,189,000 and $10,316,000 in fiscal
1995, 1994, and 1993, respectively.
In connection with its supplier relationship with various customers, the
Company has guaranteed certain indebtedness and lease payments. As of June 30,
1995, these guarantees total approximately $1,633,000.
During fiscal 1994, the Company began a program whereby certain customer
notes receivables were sold, with full recourse, to a commercial bank. As of
June 30, 1995, amounts outstanding on customer notes receivables sold to the
commercial bank under this program totaled approximately $6,860,000.
The Company becomes involved from time-to-time in litigation arising out of
its normal business activities. In addition, in November 1993, Cardinal,
Whitmire, five other pharmaceutical wholesalers, and twenty-four pharmaceutical
manufacturers were named as defendants in a series of purported class action
antitrust lawsuits alleging violations of various antitrust laws associated with
the chargeback pricing system. The Company believes that the allegations set
forth against Cardinal and Whitmire in these lawsuits are without merit. In the
opinion of management, the Company's liability, if any, under any pending
litigation would not have a material adverse effect on the Company's financial
condition or results of operations.
26
28
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. REDEEMABLE PREFERRED STOCK
The Company had authorized 360,000 shares of redeemable preferred $.01 par
value stock in Whitmire. The redeemable preferred stock was divided into two
series: 350,000 shares designated as Senior Preferred Stock and 10,000 shares
designated as Series A Preferred Stock.
The holders of the Whitmire redeemable preferred stock were entitled to
cumulative annual dividends of $10.00 per share for Senior Preferred Stock and
$10.125 for Series A Preferred Stock when and as declared by Whitmire's board of
directors. In lieu of paying cash dividends to the holders of Senior Preferred
Stock and Series A Preferred Stock, Whitmire could, at its election, pay
scheduled dividends with additional shares of Senior Preferred Stock or Series A
Preferred Stock, as appropriate.
Whitmire would have been required to redeem, at $100.00 per share plus
accrued but unpaid dividends, all shares of its Senior and Series A Preferred
Stock commencing in October 1994 through July 1996. Stockholders' equity was
charged $840,000 in fiscal 1993 for accretion relative to this mandatory
redemption obligation. As of March 31, 1993, a total of $4,200,000 had been
credited to redeemable preferred stock through accretion. Pursuant to the terms
of the Reorganization Agreement between Cardinal and Whitmire (see Note 3), all
of the outstanding shares of Whitmire Senior and Series A Preferred Stock were
redeemed as of February 7, 1994, the date of the Whitmire Merger.
11. SHAREHOLDERS' EQUITY
The Company's authorized capital shares consist of (a) 60,000,000 Class A
common shares, without par value, of which 41,945,472 and 34,862,835 were
outstanding and 193,292 and 179,878 were held in treasury at cost at June 30,
1995, and June 30, 1994, respectively: (b) 5,000,000 Class B common shares,
without par value, of which none and 2,971,375 were outstanding at June 30, 1995
and June 30, 1994, respectively; and (c) 500,000 non-voting preferred shares
without par value, none of which have been issued. The Class A common shares and
Class B common shares are collectively referred to as common shares.
The Class B common shares were issued to a former Whitmire stockholder in
February 1994 in connection with the Whitmire Merger. All of the Class B common
shares outstanding at June 30, 1994 were converted to Class A common shares
during the year ended June 30, 1995. Prior to the conversion of Class B common
shares, all holders of Class A common shares and Class B common shares
participated equally in dividends when and as declared by the Company's Board of
Directors. Holders of Class A common shares were entitled to one vote per share
for the election of Directors and upon all matters on which shareholders were
entitled to vote. Holders of Class B common shares were entitled to one-fifth of
one vote per share in the election of Directors and upon all matters which
shareholders were entitled to vote.
On September 26, 1994, 8,050,000 of the Company's Common Shares were sold
pursuant to a public offering. Approximately 1,867,000 Common Shares (the "New
Shares") were sold by the Company, and approximately 6,183,000 Common Shares
(the "Existing Shares") were sold by certain shareholders of the Company. The
Existing Shares included all of the issued and outstanding Class B common
shares, which were converted to Class A common shares prior to their sale to the
public. Net proceeds received by the Company of approximately $70 million from
the sale of the New Shares were used to finance working capital growth and for
other general corporate purposes. The Company did not receive any of the
proceeds from the sale of the Existing Shares.
On June 11, 1993, the Company called its 7.25% convertible Subordinated
Debentures due 2015 (the "Subordinated Debentures") for redemption, effective as
of July 2, 1993. Following this call, $74,920,000 of Subordinated Debentures
were converted into Common Shares of the Company. The remaining $80,000 of
Subordinated Debentures outstanding were redeemed for cash. The amount credited
to shareholders' equity as a result of the conversion of the Subordinated
Debentures was reduced by unamortized offering costs of approximately $1,767,000
and costs directly related to the conversion of approximately $13,000.
27
29
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
During fiscal 1993, Whitmire canceled adjustment share rights, previously
granted to outside investors, representing rights to purchase shares of Whitmire
common stock (a defined percentage of the adjustment share rights were
cancelable annually up to 100% based upon the achievement of certain financial
targets). Additionally, certain conditions relative to the exercise of Whitmire
options were eliminated. For financial reporting purposes, the modification of
the terms of these options previously granted to key employees has been treated
as if the options were issued on the date that the terms were modified.
Accordingly, a compensation charge totaling approximately $5.2 million was
recorded relative to these changes. The compensation charge is equal to the fair
value (as determined by an independent appraisal) of the options on the date
that the terms of the options were modified.
Pursuant to the terms of the Reorganization Agreement (see Note 3),
warrants to purchase shares of Whitmire common stock which, upon exercise became
convertible into approximately 2,831,000 Common Shares at an average price of
$.08 per share, were exercised prior to the consummation of the pooling-of-
interests business combination of Cardinal and Whitmire.
On Aril 14, 1993, the Company repurchased all of the Common Shares
(approximately 725,000) owned by subsidiaries of North American National
Corporation, the former Chairman of which is also a Director of the Company, at
a price of $21.20 per share. Nearly all of these shares were subject to certain
restrictions contained in a Shareholders Agreement among North American National
Corporation and other individual shareholders, which restrictions were released
as part of the repurchase transaction.
12. STOCK OPTIONS AND RESTRICTED SHARES
The Company maintains stock incentive plans (the "Plans") for the benefit
of certain officers, directors and key employees. Under the Plans, at June 30,
1995, the Company was authorized to issue up to an aggregate of 3,875,000 Common
Shares in the form of incentive stock options, nonqualified stock options, and
restricted shares. Options granted are generally exercisable for periods up to
ten years from the date of grant at a price which equals fair market value at
the date of grant.
The following summarizes all stock option transactions under the Plans from
March 31, 1992, through June 30, 1995, giving retroactive effect to stock
dividends and stock splits (in thousands, except per share amounts):
NUMBER OF EXERCISE PRICES
OPTIONS PER SHARE TOTAL
---------------------------------------------------------------------------------------------
Balance Outstanding, March 31, 1992.......... 875 $ 4.00 - $28.96 $10,636
Granted................................. 229 20.80 - 22.00 4,801
Exercised............................... (349) 4.00 - 17.04 (2,319)
Canceled................................ (16) 11.14 - 24.50 (279)
---------------------------------------------------------------------------------------------
Balance Outstanding, March 31, 1993.......... 739 7.78 - 28.96 12,839
Granted................................. 751 23.20 - 38.60 26,286
Exercised............................... (58) 7.78 - 28.96 (787)
Canceled................................ (35) 17.04 - 38.60 (899)
---------------------------------------------------------------------------------------------
Balance Outstanding, June 30, 1994........... 1,397 7.78 - 38.60 37,439
Granted................................. 416 38.75 - 49.50 20,120
Exercised............................... (62) 7.78 - 38.60 (884)
Canceled................................ (16) 21.00 - 49.50 (602)
---------------------------------------------------------------------------------------------
Balance Outstanding, June 30, 1995........... 1,735 $ 7.78 - $49.50 $56,073
At June 30, 1995, approximately 476,000 option shares under the Plans were
exercisable and approximately 2,723,000 Common Shares were reserved for issuance
under the Plans.
28
30
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In connection with the Whitmire Merger, outstanding Whitmire stock options
granted to current or former Whitmire officers or employees were automatically
converted into options ("Cardinal Exchange Options") to purchase an aggregate of
approximately 1,721,000 additional Common Shares pursuant to the terms of such
options and the Reorganization Agreement (see Note 3). Under the terms of their
original issuance and as reflected in the Reorganization Agreement, the exercise
price for substantially all of the Cardinal Exchange Options is remitted to
certain former investors of Whitmire. Cardinal Exchange Options to purchase
1,250,000 and 271,000 Common Shares, with an average option price of $1.52 and
$1.60, were exercised in fiscal 1995 and 1994, respectively. At June 30, 1995,
Cardinal Exchange Options to purchase approximately 200,000 shares were
outstanding with an average exercise price of $2.08 per share. Substantially all
of the Cardinal Exchange Options outstanding at June 30, 1995, are 100% vested
and are exercisable through October 25, 1995.
The market value of restricted shares awarded by the Company is recorded as
unamortized restricted stock awards and shown as a separate component of
shareholders' equity. The compensation awards are amortized to expense over the
period in which participants perform services, generally one to six years. As of
June 30, 1995, approximately 416,000 restricted shares have been issued, of
which approximately 148,000 shares remain restricted and subject to forfeiture
and approximately 16,000 shares have been forfeited.
13. SUPPLEMENTAL INFORMATION REGARDING NONCASH INVESTING AND FINANCING
ACTIVITIES
In conjunction with the acquisitions of Humiston-Keeling and Solomons (see
Note 3), liabilities were assumed as follows (in thousands):
FISCAL YEAR THREE MONTHS
ENDED JUNE ENDED JUNE
30, 1995 30, 1993
------------ ------------
Fair value of assets acquired.............................. $127,674 $ 44,468
Cash paid for the issued and outstanding shares............ 33,334
Common Shares issued for the issued and outstanding
shares................................................... 18,006
------------ ------------
Liabilities assumed........................................ $ 94,340 $ 26,462
============ ============
Total debt assumed by the Company as a result of these acquisitions was
$1,670,000 and $4,315,000 in fiscal 1995 and for the three months ended June 30,
1993, respectively, and is included as part of the amount of liabilities
assumed.
In conjunction with the pooling-of-interests combination with Behrens (see
Note 3) in fiscal 1995, the historical cost of Behrens assets combined was
approximately $25,396,000, and the total Behrens liabilities assumed (including
total debt of approximately $1,336,000) were approximately $15,617,000.
In conjunction with the pooling-of-interests combination with PRN (see Note
3) in fiscal 1994, the historical cost of PRN assets combined was approximately
$16,946,000, and the total PRN liabilities assumed (including total debt of
approximately $5,847,000) were approximately $16,564,000.
29
31
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following selected quarterly financial data for fiscal 1995 and 1994
reflects the amounts reported in previously filed quarterly reports:
(IN THOUSANDS, EXCEPT PER SHARE FIRST SECOND THIRD FOURTH
AMOUNTS) QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
------------------------------- ---------- ---------- ---------- ---------- ----------
Fiscal 1995:
Net sales................. $1,818,687 $1,985,863 $1,987,973 $2,013,569 $7,806,092
Gross margin.............. 103,357 112,475 126,704 121,920 464,456
Selling, general and
administrative
expenses................ (72,201) (73,800) (76,488) (78,328) (300,817)
Operating earnings........ 31,156 38,675 50,216 43,592 163,639
Net earnings available for
Common Shares........... 16,025 20,877 25,906 22,165 84,973
Net earnings per Common
Share:
Primary.............. $0.39 $0.49 $0.61 $0.52 $2.01
Fully diluted........ 0.39 0.49 0.61 0.52 2.01
Fiscal 1994:
Net sales................. $1,291,470 $1,397,769 $1,510,674 $1,590,498 $5,790,411
Gross margin.............. 77,775 83,312 98,371 95,714 355,172
Selling, general and
administrative
expenses................ (53,556) (54,855) (61,531) (63,363) (233,305)
Operating earnings........ 24,219 28,457 960 32,351 85,987
Net earnings (loss)
available for Common
Shares.................. 11,806 14,574 (9,096) 16,647 33,931
Net earnings (loss) per
Common Share:
Primary.............. $0.30 $0.37 $(0.23) $0.42 $0.86
Fully diluted........ 0.30 0.37 (0.23) 0.42 0.86
The following supplemental information for fiscal 1994 excludes the impact
of unusual items (see Note 2 for discussion of presentation) and assumes the
redemption of Whitmire's preferred stock. Solely for the purposes of the
supplemental information presented below, such redemption is assumed to have
been funded from the liquidation of investments in tax-exempt marketable
securities.
(IN THOUSANDS, EXCEPT PER SHARE FIRST SECOND THIRD FOURTH
AMOUNTS) QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
------------------------------- ---------- ---------- ---------- ---------- ----------
Fiscal 1994:
Net sales................. $1,291,470 $1,397,769 $1,510,674 $1,590,498 $5,790,411
Gross margin.............. 77,775 83,312 98,371 95,714 355,172
Selling, general and
administrative
expenses................ (53,556) (54,855) (61,531) (63,363) (233,305)
Operating earnings,
excluding unusual
item.................... 24,219 28,457 36,840 32,351 121,867
Net earnings available for
Common Shares, excluding
unusual items........... 12,201 14,968 19,228 16,647 63,044
Net earnings per Common
Share, excluding unusual
items:
Primary.............. $0.31 $0.38 $0.49 $0.42 $1.60
Fully diluted........ 0.31 0.38 0.49 0.42 1.60
30
32
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Operating earnings and net earnings as reported in the Company's quarterly
financial data for fiscal 1994 are reconciled to the respective amounts in the
preceding table as follows:
FIRST SECOND
(IN THOUSANDS) QUARTER QUARTER THIRD QUARTER
----------------------------------------------------------------------------------------------
Fiscal 1994: NET NET OPERATING NET
EARNINGS EARNINGS EARNINGS EARNINGS
---------- ---------- ---------- ----------
As reported........................ $ 11,806 $ 14,574 $ 960 $ (9,096)
Supplemental adjustments:
Merger costs.................. 35,880 28,180
Preferred stock redemptions... 520 520 165
Interest adjustment on
preferred stock............. (125) (126) (21)
---------- ---------- ---------- ----------
As supplementally adjusted.... $ 12,201 $ 14,968 $ 36,840 $ 19,228
========== ========== ========== ==========
15. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The Company's trade receivables are exposed to a concentration of credit
risk with customers in the retail and health care sectors. However, the credit
risk is limited due to the diversity of the customer base and its wide
geographic dispersion. The Company performs ongoing credit evaluations of its
customers' financial conditions and maintains reserves for credit losses. Such
losses historically have been within the Company's expectations.
During fiscal 1995, the Company's two largest customers accounted for 11%
of net sales and 82% of direct deliveries, respectively. Trade receivables due
from these two customers aggregated approximately 25% of total trade receivables
at June 30, 1995.
16. SUBSEQUENT EVENT
On August 26, 1995, the Company signed a definitive merger agreement with
Medicine Shoppe International, Inc. ("Medicine Shoppe"), a franchisor of
independent retail pharmacies. Under the terms of the transaction, shareholders
of Medicine Shoppe will receive the Company's Common Shares in exchange for
common shares of Medicine Shoppe. The Company will issue between approximately
6.0 million and 6.8 million Common Shares in the transaction, depending in part
upon the average closing price of the Company's Common Shares over a specified
period. Under certain circumstances, the Company could issue up to approximately
7.2 million Common Shares in the transaction. The transaction is subject to
certain conditions including approval by Medicine Shoppe shareholders and is
expected to be accounted for as a pooling-of-interests.
31
33
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
In accordance with General Instruction G(3) to Form 10-K, the information
called for in this Item 10 relating to Directors is incorporated herein by
reference to the Company's Definitive Proxy Statement, to be filed with the
Securities and Exchange Commission (the "SEC"), pursuant to Regulation 14A of
the General Rules and Regulations under the Securities Exchange Act of 1934 (the
"Exchange Act"), relating to the Company's Annual Meeting of Shareholders (the
"Annual Meeting") under the caption "ELECTION OF DIRECTORS". Certain information
relating to Executive Officers of the Company appears at pages 5 and 6 of this
Form 10-K, which is hereby incorporated by reference.
ITEM 11: EXECUTIVE COMPENSATION.
In accordance with General Instruction G(3) to Form 10-K, the information
called for by this Item 11 is incorporated herein by reference to the Company's
Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A
of the General Rules and Regulations under the Exchange Act, relating to the
Company's Annual Meeting under the caption "EXECUTIVE COMPENSATION" (other than
information set forth under the caption "Compensation Committee Report").
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
In accordance with General Instruction G(3) to Form 10-K, the information
called for by this Item 12 is incorporated herein by reference to the Company's
Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A
of the General Rules and Regulations under the Exchange Act, relating to the
Company's Annual Meeting under the caption "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT".
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In accordance with General Instruction G(3) to Form 10-K, the information
called for by this Item 13 is incorporated herein by reference to the Company's
Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A
of the General Rules and Regulations under the Exchange Act, relating to the
Company's Annual Meeting under the caption "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" and "EXECUTIVE COMPENSATION -- Compensation Committee Interlocks
and Insider Participation".
32
34
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are included in Item 8 of this report:
PAGE
---------------------
Independent Auditors' Reports........................................... 12-13
Financial Statements:
Consolidated Statements of Earnings for the Fiscal Years Ended June
30, 1995, June 30, 1994, Twelve Months Ended June 30, 1993, and
Fiscal Year Ended March 31, 1993.................................. 14
Consolidated Balance Sheets at June 30, 1995, and June 30, 1994.... 15
Consolidated Statements of Shareholders' Equity for the Fiscal
Years Ended June 30, 1995, June 30, 1994 and March 31, 1993....... 16
Consolidated Statements of Cash Flows for the Fiscal Years Ended
June 30, 1995, June 30, 1994 and March 31, 1993................... 17
Notes to Consolidated Financial Statements......................... 18-31
(a)(2) The following Supplemental Schedule is included in this report:
PAGE
---------------------
Schedule II - Valuation and Qualifying Accounts.................... 36
All other schedules not listed above have been omitted as not applicable or
because the required information is included in the Consolidated Financial
Statements or in notes thereto.
(a)(3) Exhibits required by S-K item 601:
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
---------- --------------------------------------------------------------------------------
2.01 Agreement and Plan of Merger dated as of August 26, 1995, among the Registrant,
Arch Merger Corp., and Medicine Shoppe International, Inc. (10)
3.01 Amended and Restated Articles of Incorporation of the Registrant, as amended.
(1)
3.02 Restated Code of Regulations of the Registrant, as amended. (1)
4.01 Specimen Certificate for the Registrant's Class A Common Shares.
4.02 Indenture between the Registrant and Bank One, Indianapolis, NA relating to the
Registrant's 8% Notes Due 1997. (2)
4.03 Indenture between the Registrant and Bank One, Indianapolis, NA relating to the
Registrant's 6 1/2% Notes Due 2004. (1)
4.04 Registration Rights Agreement dated as of October 11, 1993, as amended, among
the Registrant, certain former stockholders of Whitmire, and Robert D. Walter.
(9)
Other long-term debt agreements of the Registrant are not filed pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K and the Registrant agrees to furnish copies
of such agreements to the Securities and Exchange Commission upon its request.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
---------- --------------------------------------------------------------------------------
10.01 Stock Incentive Plan of the Registrant, as amended. (9)*
10.02 Directors' Stock Option Plan of the Registrant, as amended and restated. (9)
10.03 Employment Agreement dated October 11, 1993, among Whitmire, Melburn G. Whitmire
and the Registrant, as amended. (4)*
10.04 Employment Agreement dated October 11, 1993, among Whitmire, Gary E. Close, and
the Registrant, as amended. (4)*
33
35
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
---------- --------------------------------------------------------------------------------
10.05 Employment Agreement dated October 11, 1993, among Whitmire, James E. Clare, and
the Registrant. (4)*
10.06 Form of Indemnification Agreement between the Registrant and individual
directors. (5)
10.07 Form of Indemnification Agreement between the Registrant and individual
officers. (6)*
10.08 Form of Indemnification Agreement between Whitmire and directors and officers of
Whitmire. (9)*
10.09 Split Dollar Agreement dated April 16, 1993, among the Registrant, Robert D.
Walter, and Bank One Ohio Trust Company, NA, Trustee U/A dated April 16, 1993
FBO Robert D. Walter. (9)*
10.10 Whitmire Distribution Corporation Selective Deferred Compensation Plan, as
amended, and form of related Split-Dollar Agreements. (9)*
10.11 Lease for portions of the Registrant's Columbus Investment Property dated July
7, 1958, as amended. (7)
10.12 Cardinal Health, Inc. Incentive Deferred Compensation Plan, Amended and Restated
Effective July 1, 1995.*
10.13 Shareholders Agreement dated July 13, 1984, as amended. (8)
11.01 Statement concerning computation of per share earnings.
21.01 List of subsidiaries of the Registrant.
23.01 Consent of Deloitte & Touche LLP.
23.02 Consent of Arthur Andersen LLP.
27.01 Financial Data Table
---------------
(1) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994 (No. 0-12591) and incorporated herein
by reference.
(2) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1992 (No. 0-12591) and incorporated herein
by reference.
(3) Included as an exhibit to the Registrant's Statement on Form S-8 (No.
33-52535) and incorporated herein by reference.
(4) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1993 (No. 0-12591) and incorporated
herein by reference.
(5) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 29, 1986 (No. 0-12591) and incorporated herein
by reference.
(6) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 28, 1987 (No. 0-12591) and incorporated herein
by reference.
(7) Included as an exhibit to the Registrant's Registration Statement on Form
S-1 (No. 2-84444) and incorporated herein by reference.
(8) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1993 (No. 0-12592) and incorporated herein
by reference.
(9) Included as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1994 (No. 0-12591) and incorporated herein
by reference.
(10) Included as an exhibit to the Registrant's Schedule 13D reporting
Registrant's beneficial ownership of shares of Medicine Shoppe
International, Inc. (No. 0-13008) and incorporated herein by reference.
* Management contract or compensation plan or arrangement.
(b) Reports on Form 8-K: None.
34
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARDINAL HEALTH, INC.
September 19, 1995
By: /s/ ROBERT D. WALTER
Robert D. Walter, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
NAME TITLE DATE
----------------------------------- ----------------------------------------------------------
/s/ ROBERT D. WALTER Chairman, Chief Executive Officer and September 19, 1995
Robert D. Walter Director (principal executive
officer)
/s/ DAVID BEARMAN Executive Vice President and Chief September 19, 1995
David Bearman Financial Officer (principal
financial officer and principal
accounting officer)
/s/ JOHN C. KANE President, Chief Operating Officer September 19, 1995
John C. Kane and Director
/s/ JOHN F. FINN Director September 19, 1995
John F. Finn
/s/ ROBERT L. GERBIG Director September 19, 1995
Robert L. Gerbig
/s/ JOHN F. HAVENS Director September 19, 1995
John F. Havens
/s/ REGINA E. HERZLINGER Director September 19, 1995
Regina E. Herzlinger
/s/ GEORGE R. MANSER Director September 19, 1995
George R. Manser
/s/ JOHN B. MCCOY Director September 19, 1995
John B. McCoy
Director September , 1995
Michael E. Moritz
/s/ JERRY E. ROBERTSON Director September 19, 1995
Jerry E. Robertson
/s/ L. JACK VAN FOSSEN Director September 19, 1995
L. Jack Van Fossen
/s/ MELBURN G. WHITMIRE Director September 19, 1995
Melburn G. Whitmire
35
37
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994,
THREE MONTHS ENDED JUNE 30, 1993, AND THE FISCAL YEAR ENDED MARCH 31, 1993
(IN THOUSANDS)
COLUMN B COLUMN C COLUMN E
----------- -------------------------- -----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
----------- BEGINNING COSTS AND OTHER ------------ END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
-------------------------------------- ----------- ------------ ------------ -----------
Valuation allowance for
doubtful receivables:
$ 177(1)
1,828(3)
------------
Fiscal Year 1995........... $21,594 $10,853 $ 2,005 $ (6,177)(2) $28,275
=========== =========== ============ ============ ===========
$ 308(1)
648(3)
------------
Fiscal Year 1994........... $15,108 $ 9,761 $ 956 $ (4,231)(2) $21,594
=========== =========== ============ ============ ===========
$ 38(1)
1,410(3)
------------
Three-months ended
June 30, 1993 (4)
(Columns C & D Cardinal
only).................... $13,428 $ 606 $ 1,448 $ (374)(2) $15,108
=========== =========== ============ ============ ===========
Fiscal Year 1993........... $12,257 $ 4,498 $ 136(1) $ (3,463)(2) $13,428
=========== =========== ============ ============ ===========
---------------
(1) Recovery of amounts provided for or written off in prior years.
(2) Current year write-off of uncollectible accounts.
(3) Amount arises from the acquisition of a subsidiary.
(4) See Note 1 of "Notes to Consolidated Financial Statements" regarding basis
of presentation.
36