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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-12591
CARDINAL HEALTH, INC.
(Exact name of Registrant as specified in its charter)
OHIO 31-0958666
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5555 GLENDON COURT, DUBLIN, OHIO 43016
(Address of principal executive offices) (Zip Code)
(614) 717-5000
Registrant's telephone number, including area code
Securities Registered Pursuant to Section 12(b) of the Act:
COMMON SHARES (WITHOUT PAR VALUE) NEW YORK STOCK EXCHANGE
(Title of Class) (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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of August 20, 1996, was approximately $4,346,376,000.
The number of Registrant's Common Shares outstanding as of August 20, 1996,
was as follows:
Common shares, without par value: 64,396,040
Class B common shares, without par value: 0
---------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1996 are incorporated by reference into Part I of this Annual
Report on Form 10-K.
Portions of the Registrant's Definitive Proxy Statement to be filed for its
1996 Annual Meeting of Shareholders are incorporated by reference into Part III
of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
ITEM PAGE
PART I
1. Business................................................................................ 3
2. Properties.............................................................................. 6
3. Legal Proceedings....................................................................... 6
4. Submission of Matters to a Vote of Security Holders..................................... 6
Executive Officers of the Registrant.................................................... 7
PART II
5. Market for the Registrant's Common Shares and Related Stockholder Matters............... 8
6. Selected Financial Data................................................................. 9
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................................... 10
8. Financial Statements and Supplementary Data............................................. 12
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................................ 33
PART III
10. Directors and Executive Officers of the Registrant...................................... 33
11. Executive Compensation.................................................................. 33
12. Security Ownership of Certain Beneficial Owners and Management.......................... 33
13. Certain Relationships and Related Transactions.......................................... 33
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................ 34
Signatures.............................................................................. 38
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PART I
ITEM 1: BUSINESS
GENERAL
Cardinal Health, Inc., an Ohio corporation formed in 1979, is structured as
a holding company operating through separate operating subsidiaries. These
operating subsidiaries are sometimes collectively referred to as the "Cardinal
Health" companies. As used in this report, the "Registrant" and the "Company"
refer to Cardinal Health, Inc. and its subsidiaries, unless the context requires
otherwise.
The Company is a leading health care service provider which offers an array
of value-added pharmaceutical distribution services to a broad base of
customers. It is one of the country's largest wholesale distributors of
pharmaceutical and related health care products to independent and chain
drugstores, hospitals, alternate care centers and the pharmacy departments of
supermarkets and mass merchandisers located throughout the continental United
States. Through its Pyxis Corporation subsidiary ("Pyxis"), the Company develops
and manufactures unique point-of-use systems which automate the distribution,
management and control of medications and supplies in hospitals and alternate
care facilities. The Company is also the largest franchisor of independent
retail pharmacies in the United States through its Medicine Shoppe
International, Inc. subsidiary ("Medicine Shoppe"). In addition, through its
Allied Pharmacy Service division ("Allied"), the Company is one of the country's
largest providers of pharmacy management services to hospitals.
As a full-service wholesale distributor, the Company complements its
distribution activities by offering a broad range of value-added support
services to assist the Company's 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. 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.
The Company operates several specialty health care businesses which offer
value-added services to the Company's customers and suppliers while providing
the Company with additional opportunities for growth and profitability. For
example, the Company operates a pharmaceutical repackaging program for both
independent and chain drugstore customers and serves as a distributor of
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. 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.
ACQUISITIONS
In the last five years, the Company has completed the following business
combinations. In October 1991, the Company expanded its markets into the
mid-South by acquiring Chapman Drug Company, based in Knoxville, Tennessee, for
$16.8 million in cash. In May 1993, the Company purchased Solomons Company, a
Savannah, Georgia based pharmaceutical wholesaler servicing customers located
primarily in the southeastern region of the United States, in exchange for
approximately 1,062,000 Common Shares. In December 1993, a subsidiary of the
Company merged with PRN Services, Inc., a distributor of oncology and other
specialty products to clinics and physician groups across the United States. In
February 1994, the Company merged with Whitmire Distribution Corporation
("Whitmire"), a Folsom, California based pharmaceutical 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.
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The Company has completed several additional business combinations since
the Whitmire Merger. On July 1, 1994, the Company purchased Humiston-Keeling,
Inc., a Calumet City, Illinois based pharmaceutical wholesaler serving customers
located primarily in the upper midwest region of the United States. On July 18,
1994, the Company merged with Behrens Inc., a Waco, Texas based pharmaceutical
wholesaler servicing customers located primarily in Texas and adjoining states.
On November 13, 1995, the Company merged with Medicine Shoppe, a St. Louis,
Missouri based franchisor of independent, apothecary-style retail pharmacies in
the United States and abroad. On May 7, 1996, the Company merged with Pyxis, a
San Diego, California based designer, manufacturer, marketer and servicer of
unique point-of-use systems which automate the distribution, management and
control of medications and supplies in hospitals and other health care
facilities. Pyxis had previously acquired Allied in August 1995, as well as the
Access automated medication management system which Pyxis acquired from
Lionville Systems, Inc. in January 1996.
On July 24, 1996, the Company announced that it had entered into a
definitive merger agreement with PCI Services, Inc. ("PCI"), a provider of
diversified packaging services to the pharmaceutical industry in the United
States and Europe. Under the terms of the transaction, PCI will become a wholly
owned subsidiary of the Company in a stock-for-stock merger. Subject to
adjustment upon certain events described in the merger agreement, the
shareholders of PCI will receive 0.336 Common Shares of the Company in exchange
for each common share of PCI. The Company will issue approximately 2.1 million
Common Shares in the acquisition of PCI. The transaction is expected to be
accounted for as a pooling-of-interests for financial reporting purposes and is
subject to certain conditions, including approval by PCI stockholders.
The Company continually evaluates possible candidates for acquisition and
intends to continue to seek opportunities to expand its health care operations
and services. For additional information concerning the acquisitions described
above, see Notes 2 and 17 of "Notes to Consolidated Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
CUSTOMERS AND SUPPLIERS
The Company regularly distributes pharmaceuticals, surgical and hospital
supplies, health and beauty care products, and related products and services to
hospitals, independent and chain drugstores, alternate care centers, and
pharmacy departments of supermarkets and mass merchandisers located throughout
the continental United States. In addition, the Company markets Pyxis' automated
dispensing systems to hospitals and alternate care centers in the U.S. and
Canada. Through Medicine Shoppe, the Company franchises retail pharmacies in the
U.S. and abroad. In fiscal 1996, the Company's largest customer, Kmart
Corporation ("Kmart"), accounted for approximately 12% of net revenues (by
dollar volume). The Company's business could be adversely affected if Kmart
were lost as a customer.
The Company obtains its products from many different suppliers, the largest
of which accounted for approximately 5.9% (by dollar volume) of its net revenues
in fiscal 1996. The Company's five largest suppliers accounted for approximately
22.5% (by dollar volume) of its net revenues during fiscal 1996, and the
Company's relationships with its suppliers are generally very good. The
Company's arrangements with its pharmaceutical 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.
While the Company's operations may show quarterly fluctuations, the Company
does not consider its business to be seasonal in nature on a consolidated basis.
COMPETITION
The Company's markets are highly competitive. As a pharmaceutical
wholesaler, 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 pharmaceutical wholesaling
operations 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
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support services. As a marketer of automated pharmaceutical dispensing systems,
the Company competes based upon its installed base of systems, its relationships
with customers, its customer service and support capabilities, its patents and
other intellectual property, and its ability to interface with customer
information systems. Potential competitors to the Pyxis system include both
existing domestic and foreign companies, as well as emerging companies that
supply products for specialized markets and other outside service providers.
Several smaller franchisors compete with Medicine Shoppe in the franchising of
pharmacies, where competition is based primarily upon price, benefits offered to
both the pharmacist and customer, access to third party programs, and the
reputation of the franchise. With its Allied subsidiary, the Company competes
with both national and regional hospital pharmacy management firms on the basis
of its established base of business, the effective use of automation equipment,
the development of clinical programs, and the quality of the services it
provides to its customers.
EMPLOYEES
At August 20, 1996, the Company had approximately 4,800 employees, of whom
approximately 350 are subject to collective bargaining agreements. The Company
considers its employee relations to be good.
INTELLECTUAL PROPERTY
The Company has applied to the United States Patent and Trademark Office
for registration of a number of trademarks, certain of which have been issued,
and also holds common law rights in various trademarks. The Company has also
applied for trademark registration for certain of its trademarks in certain
foreign jurisdictions. There can be no assurance that the Company will obtain
the registrations for which it has applied. The Company's principal trademarks
include CardinalCHOICE(TM), LEADER(R) DRUGSTORES, PYXIS(R), MEDSTATION(R),
SUPPLYSTATION(R), and THE MEDICINE SHOPPE(R).
The Company's Pyxis subsidiary holds certain United States patents relating
to certain aspects of its automated pharmaceutical dispensing systems and
intends to pursue additional patents as appropriate. The Company also owns
certain software, including software used for pharmaceutical purchasing and
inventory control, which is copyrighted and subject to the protection of
applicable copyright laws.
No assurances can be given that any intellectual property rights of the
Company will provide meaningful protection against competitive products or
otherwise be commercially valuable or that the Company will be successful in
obtaining additional patents or enforcing its proprietary rights against others.
REGULATORY MATTERS
The Company, as a distributor of prescription pharmaceuticals (including
certain controlled substances) and operator of pharmacy operations, 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 (the "FDA") and various state boards of
pharmacy or comparable agencies. In addition, the Company is subject to
requirements of the Controlled Substances 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. The Company is not
currently required to register or submit premarket notifications to the FDA for
its automated pharmaceutical dispensing systems. There can be no assurance,
however, that FDA policy in this regard will not change. The Company is also
subject to various Federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices, and the use and disposal of hazardous or potentially
hazardous substances. Through its Medicine Shoppe subsidiary, the Company is
subject to laws adopted by certain states which regulate franchise operations
and the franchisor-franchisee relationship, and similar legislation is proposed
in additional states. The most common provisions of such laws establish
restrictions on the ability of franchisors to terminate or to refuse to renew
franchise agreements. Federal Trade Commission rules also require franchisors
to make certain disclosures to prospective franchisees prior to the offer or
sale of franchises.
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ITEM 2: PROPERTIES
Due to the nature of the Company's business, its office, distribution,
assembly, and warehousing facilities are operated in widely dispersed locations
across the United States. At August 20, 1996, the Company had twenty-eight
principal pharmaceutical distribution facilities, four specialty distribution
facilities, and the Pyxis assembly operation located in an aggregate of
twenty-three states, seven of which are owned by the Company and the balance of
which are leased. The Company's principal executive offices are located in a
leased four-story building located at 5555 Glendon Court, Dublin, Ohio. 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 of its properties as the Company's
business continues to expand.
For certain financial information regarding the Company's facilities, see
Notes 5 and 9 of "Notes to Consolidated Financial Statements."
ITEM 3: LEGAL PROCEEDINGS
In November 1993, the Company and Whitmire, as well as other pharmaceutical
wholesalers, 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 was filed which
included allegations that the wholesaler defendants, including the Company and
Whitmire, conspired with manufacturers to inflate prices by using a chargeback
pricing system. In addition to the Federal court cases described above, the
Company and Whitmire have also been named as defendants in a series of state
court cases alleging similar claims under various state laws regarding the sale
of brand name prescription drugs. These lawsuits are described in "Item 1 -
Legal Proceedings" of Part II of the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, which was filed with the Securities and
Exchange Commission and is incorporated herein by reference. On November 9,
1995, the Company, along with the other wholesaler defendants, filed a motion
for summary judgment in the Brand Name Prescription Drug Litigation. On April 4,
1996, summary judgment was granted in favor of the Company and the other
wholesaler defendants. The plaintiffs have appealed this decision. The Company
believes that the allegations against Cardinal and Whitmire in such litigation
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 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
(a) A Special Meeting of the Company's shareholders was held on
April 26, 1996.
(b) Not applicable.
(c) The following matter was voted on at the Special Meeting:
Approval and adoption of the Agreement and Plan of Merger dated as of
February 7, 1996, by and among the Company, Aztec Merger Corp. ("Aztec"), and
Pyxis providing for the merger of Aztec with and into Pyxis. The results of the
shareholder vote on this proposal were: 38,529,233 votes for; 70,204 votes
against; 56,744 votes abstained; and 0 broker non-votes.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows (information provided
as of August 20, 1996):
NAME AGE POSITION
Robert D. Walter 51 Chairman and Chief Executive Officer
Melburn G. Whitmire 56 Vice Chairman
John C. Kane 56 President and Chief Operating Officer
David A. Abrahamson 56 Executive Vice President; President -- Medicine Shoppe
David Bearman 50 Executive Vice President and Chief Financial Officer
George H. Bennett, Jr. 43 Executive Vice President, General Counsel and Secretary
James F. Millar 48 Executive Vice President; President -- Cardinal Distribution
Lisa M. Dolin 37 Senior Vice President -- Specialty Companies
Richard J. Miller 39 Vice President, Controller and Principal Accounting Officer
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, Westinghouse Electric Corporation and Karrington Health,
Inc.
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.
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 health care manufacturer), where he served
most recently as President of the Ross Laboratories Division.
DAVID A. ABRAHAMSON has been an Executive Vice President of the Company
since August 1996 and President of Medicine Shoppe since May 1990.
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 of the Company from October 1989.
Mr. Bearman has also served as the Company's Chief Financial Officer since
joining the Company in October 1989. Prior to joining the Company, Mr. Bearman
was employed by General Electric Company (a diversified manufacturing,
technology and services 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.
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JAMES F. MILLAR has served as an Executive Vice President of the Company
since February 1994, and was named as President of the Company's Cardinal
Distribution pharmaceutical wholesaling business in June 1996. Prior to February
1994, Mr. Millar served in a series of increasingly senior regional operating
positions within the Company's pharmaceutical wholesaling business since he was
hired in 1987.
LISA M. DOLIN has been the Company's Senior Vice President -- Specialty
Companies since June 1996. She has served as President of the Company's National
PharmPak Services, Inc. subsidiary ("National PharmPak") since February 1995.
Prior to that, Ms. Dolin served as National PharmPak's Vice President and
General Manager beginning in October 1990.
RICHARD J. MILLER has been the Company's Principal Accounting Officer since
August 1996 and has served as Vice President, Controller since August 1995. Upon
joining the Company in July 1994, and until August 1995, he served as Vice
President, Auditing. Prior to that, Mr. Miller was a partner at Deloitte &
Touche LLP (an international accounting firm).
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 System 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 August 20, 1996 and on the Nasdaq
National Market System prior to September 7, 1994, and the per share dividends
declared thereon.
HIGH LOW DIVIDENDS
--------- -------- -----------
Fiscal 1995:
Quarter Ended
September 30, 1994 $42.13 $36.63 $0.03
December 31, 1994 48.25 41.13 0.03
March 31, 1995 50.88 44.25 0.03
June 30, 1995 47.50 42.25 0.03
Fiscal 1996:
Quarter Ended
September 30, 1995 $56.50 $43.75 $0.03
December 31, 1995 57.88 51.13 0.03
March 31, 1996 64.25 52.50 0.03
June 30, 1996 75.25 60.25 0.03
Fiscal 1997:
Through August 20, 1996 $72.50 $67.00 $0.03
As of August 20, 1996, there were approximately 2,400 shareholders of
record 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 Company's Board of Directors and will depend
upon the Company's future earnings, financial condition, capital requirements,
and other factors.
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ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company was
prepared giving retroactive effect to the business combinations with Whitmire
Distribution Corporation ("Whitmire") on February 7, 1994, Medicine Shoppe
International, Inc. ("Medicine Shoppe") on November 13, 1995, and Pyxis
Corporation ("Pyxis") on May 7, 1996, all of which were accounted for as
pooling-of-interests transactions.
On March 1, 1994, the Company changed its fiscal year end from March 31 to
June 30. As a result, for the fiscal years ended March 31, 1993 and 1992, the
information presented is derived from consolidated financial statements which
combine data from Cardinal, Medicine Shoppe and Pyxis for the fiscal years ended
March 31, 1993 and 1992, with data from Whitmire for fiscal years ended July 3,
1993 and June 27, 1992, respectively. For the fiscal years ended June 30, 1996,
1995 and 1994, the information presented is derived from consolidated financial
statements which combine data from Cardinal, Whitmire, Medicine Shoppe and Pyxis
for the fiscal years ended June 30, 1996, 1995 and 1994. 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."
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED
-----------------------------------------------------------------------------------
JUNE 30, June 30, June 30, March 31, March 31,
1996 1995 1994 1993 1992
--------------- --------------- --------------- --------------- ---------------
Earnings Statement Data:
Net revenues $8,862,425 $8,022,108 $5,963,280 $4,734,636 $3,739,700
Earnings available for Common Shares before
cumulative effect of change in accounting
principle $ 111,864 $ 137,534 $ 79,825 $ 65,086 $ 38,560
Cumulative effect of change in accounting
principle (10,000)
--------------- --------------- --------------- --------------- ---------------
Net earnings available for Common Shares $ 111,864 $ 137,534 $ 79,825 $ 55,086 $ 38,560
=============== =============== =============== =============== ===============
Primary earnings per Common Share:
Before cumulative effect of change in
accounting principle $ 1.73 $ 2.14 $ 1.30 $ 1.19 $ 0.83
Cumulative effect of change in accounting
principle (0.18)
--------------- --------------- --------------- --------------- ---------------
Net $ 1.73 $ 2.14 $ 1.30 $ 1.01 $ 0.83
=============== =============== =============== =============== ===============
Fully diluted earnings per Common Share:
Before cumulative effect of change in
accounting principle $ 1.73 $ 2.14 $ 1.30 $ 1.16 $ 0.83
Cumulative effect of change in accounting
principle (0.17)
--------------- --------------- --------------- --------------- ---------------
Net $ 1.73 $ 2.14 $ 1.30 $ 0.99 $ 0.83
=============== =============== =============== =============== ===============
Balance Sheet Data:
Total assets $2,681,095 $2,160,961 $1,636,382 $1,265,861 $1,023,485
Long-term obligations 265,144 209,214 210,196 276,748 306,066
Redeemable preferred stock 20,400 19,560
Convertible preferred stock 109
Shareholders' equity 930,710 799,559 567,345 395,762 281,651
Cash dividends declared per Common Share $ 0.12 $ 0.12 $ 0.10 $ 0.07 $ 0.06
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 1996, 1995, 1994 and 1992. Fiscal 1996, 1994 and 1993
amounts reflect the impact of unusual items primarily related to mergers. See
Note 2 of "Notes to Consolidated Financial Statements" for a further discussion
of unusual items affecting fiscal 1996 and 1994.
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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 combinations with Medicine Shoppe
which was completed on November 13, 1995 and Pyxis which was completed on May 7,
1996 (see Note 2 of "Notes to Consolidated Financial Statements"). The
discussion and analysis presented below should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
report.
RESULTS OF OPERATIONS
NET REVENUES. Net revenues in fiscal 1996 increased 10% compared with
fiscal 1995 primarily due to the internal revenue growth from pharmaceutical
wholesaling activities, including the addition of new customers, increased
sales to existing customers and price increases. The 35% increase in net
revenues in fiscal 1995 compared to fiscal 1994 was due to internal business
growth of 25%, primarily in pharmaceutical wholesaling activities, the
acquisition of Humiston-Keeling, Inc. in July 1994, and the merger transaction
with Behrens Inc. in July 1994 (see Note 2 of "Notes to Consolidated Financial
Statements"). The internal business growth in fiscal 1995 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 revenues, gross margin increased to
8.07% for fiscal 1996 from 7.79% in fiscal 1995. This increase is primarily due
to the gross margin generated from the acquisition of pharmacy management
operations in fiscal 1996 (see Notes 1 and 2 of "Notes to Consolidated Financial
Statements"). Pharmacy management operations generally provide a higher gross
margin than pharmaceutical wholesaling activities. The gross margin ratio in
fiscal 1995 decreased from 8.17% in fiscal 1994 primarily due to decreases in
pharmaceutical selling margin rates, reflecting a more competitive market and a
greater mix of high volume customers, offset by a slight increase in purchasing
gains associated with pharmaceutical price inflation.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of net revenues increased to 4.89% in
fiscal 1996 compared to 4.72% in fiscal 1995. The increase in the selling,
general and administrative expenses as a percentage of net revenues in fiscal
1996 is due to the inclusion of pharmacy management services in current year
operations (see "Gross Margin" above). This increase was partially offset by
economies associated with the Company's revenue growth from pharmaceutical
wholesaling activities, as well as productivity gains resulting in part from
warehouse consolidations and management information system enhancements. The
decrease in the selling, general and administrative expenses as a percentage of
net revenues in fiscal 1995 from 4.90% in fiscal 1994 is due to economies
associated with the Company's revenue growth as well as consolidating
distribution centers and administrative functions, and selectively automating
facilities.
UNUSUAL ITEMS. During fiscal 1996, the Company recorded costs totaling
$67.3 million ($47.8 million, net of tax) related primarily to the mergers with
Medicine Shoppe and Pyxis (see Note 2 of "Notes to Consolidated Financial
Statements"). These costs included approximately $22.4 million for investment
advisor, legal, accounting, internal personnel and other transaction fees
associated with the business combinations; $14.7 million related to costs to
exit and restructure certain activities, including operating lease terminations
and asset impairment charges; $7.8 million related to employee retention,
employee severance, and other personnel costs; and $2.9 million for other
activities related to integrating operations and implementing efficiencies of
the merged companies. Certain of these amounts are based upon estimates and
actual amounts paid may ultimately differ from these estimates. As of June 30,
1996, the Company had paid approximately $22.1 million related to these charges.
If additional costs are incurred, such items will be expensed in subsequent
periods.
In fiscal 1994, the Company recorded a charge to reflect Whitmire Merger
costs of approximately $35.9 million ($28.2 million net of tax). These 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. At June 30, 1996, the Company had
disbursed all amounts related to these liabilities, with the actual amounts paid
approximating the original amounts recorded.
10
11
These items are considered unusual in nature in that the costs would
generally not have been incurred in the absence of the business combinations.
INTEREST EXPENSE. The increase in interest expense of $4.5 million in
fiscal 1996 compared to fiscal 1995 is due to the Company's issuance of $150
million, 6% Notes due 2006, in a public offering in January 1996. The increase
in interest expense of $1.1 million in fiscal 1995 compared to fiscal 1994 is
due to higher average short-term borrowings resulting from increased working
capital requirements associated with the Company's growth. The Company has
entered into various interest rate swap agreements (see Note 5 of "Notes to
Consolidated Financial Statements").
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
relative to pretax earnings was 44.6%, 41.1% and 44.8% for fiscal years 1996,
1995 and 1994, respectively. The fluctuation in the tax rate is primarily due to
certain nondeductible costs associated with the business combinations in fiscal
1996 and 1994 (see Note 7 of "Notes to Consolidated Financial Statements").
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $88.4 million to $854.1 million at June 30,
1996, from $765.7 million at June 30, 1995, and included increased investments
in merchandise inventories and trade receivables of $151.4 million and $42.7
million, respectively, and increased holdings of cash and equivalents and
marketable securities of $176.8 million. The increase was offset primarily by
an increase in accounts payable and the current portion of long-term debt of
$170.0 million and $102.8 million, respectively, and an increase in other
accrued liabilities of $29.8 million. The increases in inventories and accounts
payable are due to the Company's revenue growth, the procurement of
pharmaceutical inventory relative to an anticipated increase in business with a
large mass merchandising customer, and pharmaceutical price increases. The
increase in cash and equivalents, and marketable securities available-for-sale
reflect the timing of inventory purchases and payments noted above and a
partial use of proceeds from the Company's $150 million 6% Note offering (see
"Interest Expense," above). The increase in trade receivables was due primarily
to increased sales (see "Net Revenues", above). The increase in the current
portion of long-term debt is due to the Company's $100 million 8% Notes which
are due March 1997. Liabilities incurred in connection with the fiscal 1996
business combinations were the primary cause of the increase in the other
accrued liabilities.
Property and equipment, at cost increased by $69.7 million in fiscal 1996.
The property acquired included increased investment in management information
systems and customer support systems, as well as the construction and automation
of distribution facilities.
Goodwill and other intangibles increased by approximately $31.7 million to
$92.4 million due to purchase business combinations completed in the current
year, primarily related to the Company's point-of-use pharmacy systems and
pharmacy management services (see Note 2 of "Notes to Consolidated Financial
Statements").
Shareholders' equity increased to $930.7 million at June 30, 1996 from
$799.6 million at June 30, 1995 due primarily to net earnings of the Company of
approximately $111.9 million and proceeds and tax benefits from the exercise of
options under employee stock plans of $27.6 million, offset primarily by
dividends paid by the Company of approximately $7.6 million in fiscal 1996.
The Company has line-of-credit agreements with various bank sources
aggregating $345 million, of which $95 million is represented by committed
line-of-credit agreements and the balance is uncommitted. The Company had no
amounts outstanding under these lines at June 30, 1996.
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 requirements.
OTHER
PENDING BUSINESS COMBINATION. On July 24, 1996, the Company announced that
it had entered into a definitive merger agreement with PCI Services, Inc.
("PCI") pursuant to which PCI will become a wholly owned subsidiary of the
Company in a stock-for-stock merger expected to be accounted for as a
pooling-of-interests for financial reporting
11
12
purposes. In connection with the merger, the Company estimates that it will
issue approximately 2.1 million Common Shares. Under the terms of the merger
agreement, shareholders of PCI will receive 0.336 Common Shares for each share
of PCI that they own at the time the transaction is consummated, subject to
adjustment under specified circumstances. In addition, pursuant to the terms of
the merger agreement, options for PCI common stock will be converted into
equivalent options for approximately 158,000 Common Shares, based upon the
exchange ratio. Upon consummation of the merger, the Company will record a
one-time charge to reflect transaction and other costs incurred as a result of
the merger. The merger is expected to be completed in the fall of 1996, subject
to satisfaction of certain conditions, including approval by shareholders of
PCI.
The Company's trend with regard to acquisitions in fiscal 1996, and
continuing with the pending PCI transaction described above, has been to expand
its role as a health care service provider. This trend has resulted in
diversification into health care services which (a) complement the Company's
core pharmaceutical distribution business; (b) provide opportunities for the
Company to develop synergies with, and thus strengthen, the acquired business;
and (c) generally generate higher gross margins as a percentage of net revenues
than pharmaceutical distribution. As the health care industry continues to
consolidate, the Company expects to continually evaluate acquisition candidates
in both pharmaceutical distribution as well as other opportunities that would
expand its role as a health care service provider; however, there can be no
assurance that it will be able to successfully pursue any such opportunity or
consummate any such transaction.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS. In October 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," which requires
adoption no later than the Company's fiscal 1997. The new standard defines a
fair value method of accounting for stock options and similar equity
instruments, under which compensation cost is measured at the grant date based
on the fair value of the award and is recognized over the service period, which
is usually the vesting period. Pursuant to the new standard, companies are
encouraged, but not required, to adopt the fair value method of accounting for
employee stock-based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," but would be required to disclose in
the financial statements pro forma net income and earnings per share as if the
new method of accounting had been applied. The accounting requirements of the
new method are effective for all employee awards granted after the beginning of
the fiscal year of adoption. The Company has not yet determined if it will elect
to change to the fair value method, nor has it determined the effect the new
standard will have on net income and earnings per share should it elect to make
such a change. Adoption of the new standard will have no effect on the Company's
cash flows.
In addition, in March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting
For the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires adoption no later than the Company's fiscal 1997. SFAS No.
121 requires impairment losses to be recorded on long-lived assets used in
operations when an indication of impairment is present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses accounting for long-lived assets
that are expected to be disposed of. The Company does not believe, based on
current circumstances, the adoption of SFAS No. 121 will have a material effect
on financial condition or results of operations.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Reports
Financial Statements:
Consolidated Statements of Earnings for the Fiscal Years Ended
June 30, 1996, 1995 and 1994
Consolidated Balance Sheets at June 30, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the Fiscal
Years Ended June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Fiscal Years Ended
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
12
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, 1996 and 1995, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 1996. 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 Pyxis Corporation on May 7, 1996, as described in Note 2 to the
consolidated financial statements. We did not audit the financial statements of
Pyxis Corporation for any year, which statements reflect total assets
constituting 10.5% and 11.2%, respectively, of consolidated total assets at June
30, 1996 and 1995, and total revenues and net income constituting 2.5%, 2.0% and
2.1%, and 31.7%, 26.6% and 39.9%, respectively, for each of the three years in
the period ended June 30, 1996. 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 Pyxis Corporation, 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, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 1996
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.
DELOITTE & TOUCHE LLP
Columbus, Ohio
August 13, 1996
13
14
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Cardinal Health, Inc.
We have audited the consolidated balance sheets of Pyxis Corporation as of June
30, 1996 and 1995, and the related consolidated statements of income,
shareholder's equity, and cash flows for each of the three years in the period
ended June 30, 1996 (not included 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 audits.
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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pyxis Corporation
at June 30, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended June 30,1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
August 2, 1996
14
15
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED JUNE 30,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
Net revenues $8,862,425 $8,022,108 $5,963,280
Cost of products sold 8,147,148 7,397,557 5,476,361
----------- ----------- ----------
Gross margin 715,277 624,551 486,919
Selling, general and administrative expenses 433,255 378,579 291,975
Unusual items (67,250) (35,880)
----------- ----------- ----------
Operating earnings 214,772 245,972 159,064
Other income (expense):
Interest expense (23,868) (19,403) (18,316)
Other, net-- primarily interest income 11,161 7,066 6,160
----------- ----------- ----------
Earnings before income taxes 202,065 233,635 146,908
Provision for income taxes 90,201 96,101 65,878
----------- ----------- ----------
Earnings before preferred dividends declared 111,864 137,534 81,030
Preferred dividends declared (1,205)
----------- ----------- ----------
Net earnings available for Common Shares $ 111,864 $ 137,534 $ 79,825
=========== =========== ===========
Earnings per Common Share:
Primary $ 1.73 $ 2.14 $ 1.30
Fully diluted $ 1.73 $ 2.14 $ 1.30
Weighted average number of Common Shares outstanding:
Primary 64,669 64,119 61,380
Fully diluted 64,743 64,170 61,399
The accompanying notes are an integral part of these statements.
15
16
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, JUNE 30,
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and equivalents $ 287,802 $ 64,589
Marketable securities available-for-sale 54,335 100,760
Trade receivables 564,881 522,230
Current portion of net investment in sales-type leases 37,953 30,119
Merchandise inventories 1,238,238 1,086,877
Prepaid expenses and other 56,568 47,107
----------- -----------
Total current assets 2,239,777 1,851,682
----------- -----------
Property and equipment, at cost:
Land, buildings and improvements 62,367 47,406
Machinery and equipment 162,525 119,122
Furniture and fixtures 40,692 29,398
----------- -----------
Total 265,584 195,926
Accumulated depreciation and amortization (112,122) (89,267)
----------- -----------
Property and equipment, net 153,462 106,659
Other assets:
Net investment in sales-type leases, less current portion 111,604 85,313
Goodwill and other intangibles 92,428 60,695
Other 83,824 56,612
----------- -----------
Total $2,681,095 $2,160,961
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, banks $ $ 3,000
Current portion of long-term obligations 106,007 3,162
Accounts payable 1,126,065 956,073
Other accrued liabilities 153,585 123,764
----------- -----------
Total current liabilities 1,385,657 1,085,999
----------- -----------
Long-term obligations, less current portion 265,144 209,214
Deferred income taxes and other liabilities 99,584 66,189
Shareholders' equity:
Common Shares, without par value 484,446 455,709
Retained earnings 455,690 351,441
Common Shares in treasury, at cost (5,426) (4,011)
Other (4,000) (3,580)
----------- -----------
Total shareholders' equity 930,710 799,559
----------- -----------
Total $2,681,095 $2,160,961
=========== ===========
The accompanying notes are an integral part of these statements.
16
17
CARDINAL HEALTH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
COMMON SHARES
-------------------
SHARES RETAINED
ISSUED AMOUNT EARNINGS
------- --------- -----------
BALANCE, JUNE 30, 1993 44,925 $272,460 $147,006
Earnings before preferred dividends declared 81,030
Shares issued pursuant to the conversion of $75 million of convertible debentures 3,423 73,140
Employee stock plans activity and issuance of Common Shares for cash,
including tax benefits of $7,969 2,834 12,045
Treasury shares acquired and shares retired (92) (191) (2,232)
Cumulative effect of adjustment for unrealized loss on marketable
securities available-for-sale
Dividends paid (7,645)
5-for-4 stock split effected as a stock dividend and cash paid in lieu of fractional
shares 7,564 (16)
Equity of PRN Services, Inc. on merger date (see Note 2) 237 34 348
------- --------- ---------
BALANCE, JUNE 30, 1994 58,891 357,488 218,491
Net earnings 137,534
Employee stock plans activity and issuance of Common Shares for cash,
including tax benefits of $22,236 1,684 27,602
Treasury shares acquired and shares retired (186) (300) (4,805)
Change in unrealized loss on marketable securities available-for-sale, net of tax
Dividends paid (9,107)
Equity of Behrens Inc. on merger date (see Note 2) 944 451 9,328
Shares issued in connection with stock offering 1,867 70,468
------- --------- ---------
BALANCE, JUNE 30, 1995 63,200 455,709 351,441
Net earnings 111,864
Employee stock plans activity and issuance of Common Shares for cash,
including tax benefits of $11,168 982 28,737
Treasury shares acquired and restricted stock forfeitures
Change in unrealized loss on marketable securities available-for-sale, net of tax
Dividends paid (7,615)
======= ========= =========
BALANCE, JUNE 30, 1996 64,182 $484,446 $455,690
======= ========= =========
TREASURY SHARES TOTAL
--------------- SHAREHOLDERS'
SHARES AMOUNT OTHER EQUITY
-------- ------- ---------- ----------
BALANCE, JUNE 30, 1993 (173) $(3,083) $(3,066) $ 413,317
Earnings before preferred dividends declared 81,030
Shares issued pursuant to the conversion of $75 million of convertible debentures 73,140
Employee stock plans activity and issuance of Common Shares for cash,
including tax benefits of $7,969 (907) 11,138
Treasury shares acquired and shares retired (7) (307) (2,730)
Cumulative effect of adjustment for unrealized loss on marketable
securities available-for-sale (1,271) (1,271)
Dividends paid (7,645)
5-for-4 stock split effected as a stock dividend and cash paid in lieu of fractional
shares (16)
Equity of PRN Services, Inc. on merger date (see Note 2) 382
-------- ------- ---------- ---------
BALANCE, JUNE 30, 1994 (180) (3,390) (5,244) 567,345
Net earnings 137,534
Employee stock plans activity and issuance of Common Shares for cash,
including tax benefits of $22,236 839 28,441
Treasury shares acquired and shares retired (13) (621) (5,726)
Change in unrealized loss on marketable securities available-for-sale, net of tax 825 825
Dividends paid (9,107)
Equity of Behrens Inc. on merger date (see Note 2) 9,779
Shares issued in connection with stock offering 70,468
-------- ------- ---------- ---------
BALANCE, JUNE 30, 1995 (193) (4,011) (3,580) 799,559
Net earnings 111,864
Employee stock plans activity and issuance of Common Shares for cash,
including tax benefits of $11,168 (1,173) 27,564
Treasury shares acquired and restricted stock forfeitures (29) (1,415) 307 (1,108)
Change in unrealized loss on marketable securities available-for-sale, net of tax 446 446
Dividends paid (7,615)
======== ======= ========== =========
BALANCE, JUNE 30, 1996 (222) $(5,426) $ (4,000) $ 930,710
======== ======= ========== =========
The accompanying notes are an integral part of these statements.
17
18
CARDINAL HEALTH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30,
------------------------------------
1996 1995 1994
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings before preferred dividends declared $ 111,864 $ 137,534 $ 81,030
Adjustments to reconcile earnings before preferred dividends declared
to net cash from operating activities:
Depreciation and amortization 32,488 24,342 18,650
Provision for deferred income taxes 20,530 49,568 10,798
Provision for bad debts 9,450 12,479 12,172
Change in operating assets and liabilities, net of effects from
acquisitions:
Increase in trade receivables (47,355) (137,476) (89,217)
Increase in merchandise inventories (148,431) (159,036) (232,178)
Increase in net investment in sales-type leases (34,125) (40,584) (40,710)
Increase in accounts payable 164,601 154,137 170,682
Other operating items, net 13,200 (10,048) 13,355
---------- ---------- ----------
Net cash provided by (used in) operating activities 122,222 30,916 (55,418)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiaries, net of cash acquired (36,244) (19,345)
Proceeds from sale of property and equipment 796 91 1,079
Additions to property and equipment (73,094) (50,654) (14,195)
Purchase of marketable securities available-for-sale (163,719) (169,599) (652,347)
Proceeds from sale of marketable securities available-for-sale 218,019 143,501 682,300
---------- ---------- ----------
Net cash provided by (used in) investing activities (54,242) (96,006) 16,837
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowing activity (3,000) (22,500) 25,000
Reduction of long-term obligations (10,570) (5,424) (99,403)
Proceeds from long-term obligations, net of issuance costs 148,960 99,498
Proceeds from issuance of Common Shares 17,398 75,770 2,293
Tax benefit of stock options 11,168 22,236 7,969
Dividends on common and preferred shares and cash paid
in lieu of fractional shares (7,615) (9,107) (7,661)
Redemption of preferred stock (20,400)
Purchase of treasury shares (1,108) (5,726) (2,730)
---------- ---------- ----------
Net cash provided by financing activities 155,233 55,249 4,566
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 223,213 (9,841) (34,015)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 64,589 74,430 108,445
---------- ---------- ----------
CASH AND EQUIVALENTS AT END OF YEAR $ 287,802 $ 64,589 $ 74,430
========== ========== ==========
The accompanying notes are an integral part of these statements.
18
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 health care
service provider which distributes 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. Through the
Company's subsidiary Pyxis Corporation ("Pyxis"), the Company manufactures,
leases, sells and services point-of-use pharmacy systems which automate the
distribution and management of medications and supplies in hospitals and other
health care facilities. Pharmacy management services are provided by the
Company's subsidiary Allied Pharmacy Service, Inc. ("Allied"). The Company is
also a franchisor of apothecary-style pharmacies through its subsidiary Medicine
Shoppe International, Inc. ("Medicine Shoppe"). See "Basis of Presentation" and
Note 2 below. The Company is currently operating in only one business segment,
primarily in the continental United States.
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts
of all majority-owned subsidiaries and all significant intercompany accounts and
transactions have been eliminated. In addition, the consolidated financial
statements give retroactive effect to the pooling-of-interests business
combinations with Whitmire Distribution Corporation ("Whitmire") on February 7,
1994, Medicine Shoppe on November 13, 1995, and Pyxis on May 7, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual amounts may differ from these amounts.
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
The Company has classified its investment in municipal bonds and U.S.
Treasury obligations as available-for-sale. The fair value of the marketable
securities approximates the original costs determined on a specific
identification basis at June 30, 1996. Gross and net realized and unrealized
holding gains and losses were not material in any period presented in the
accompanying financial statements. The Company's marketable securities
available-for-sale mature on various dates in fiscal 1997.
RECEIVABLES
Trade receivables are primarily comprised of amounts owed to the Company
through its pharmaceutical wholesaling activities and are presented net of an
allowance for doubtful accounts of $32,414,000 and $31,529,000 at June 30, 1996
and 1995, respectively.
Medicine Shoppe provides financing to selected franchisees primarily for
development, acquisition and conversion costs, exclusive of origination fees.
Such financing arrangements generally require repayment in seven to ten years,
at interest rates which fluctuate with the prime rate. Most of these financings
are collateralized by property of the franchisees or by third-party guarantors.
Finance notes and accrued interest receivable were $36,438,000 and $32,340,000
at June 30, 1996 and 1995, respectively (the current portion was $5,827,000 and
$5,062,000, respectively), and are included in other assets. These amounts are
reported net of an allowance for doubtful accounts of $8,042,000 and $7,385,000
at June 30, 1996 and 1995, respectively.
19
20
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MERCHANDISE INVENTORIES
Substantially all merchandise inventories (83% in 1996 and 91% in 1995) are
stated at lower of cost, using the 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, 1996, by $76,321,000 and at June 30, 1995,
by $79,365,000.
The Company continues to consolidate locations, automate selected
distribution facilities and invest in management information systems which
achieve efficiencies in inventory management processes. As a result of the
facility and related inventory consolidations and the operational efficiencies
achieved in fiscal 1996, the Company had partial inventory liquidations in
certain LIFO pools which reduced the LIFO provision by approximately $7 million.
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 five years.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles primarily represent intangible assets
related to the excess of cost over net assets of subsidiaries acquired.
Intangible assets are being amortized using the straight-line method over lives
which range from ten to forty years. Accumulated amortization was $23,901,000
and $18,819,000 at June 30, 1996 and 1995, 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.
REVENUE RECOGNITION
The Company records revenues 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 revenues and totaled
$2,179,000,000, $1,779,000,000 and $562,000,000 in fiscal 1996, 1995 and 1994,
respectively. The service fees related to direct deliveries are included in net
revenues and were not significant in any of the fiscal years presented.
Revenues are recognized from sales-type leases of point-of-use pharmacy
systems when the systems are installed, and/or the customer accepts the system,
and the lease becomes noncancellable. Unearned income on sales-type leases is
recognized using the interest method. Sales of point-of-use pharmacy systems are
recognized upon installation/delivery and customer acceptance. Revenues for
systems installed under operating lease arrangements are recognized over the
lease term as it becomes receivable according to the provisions of the lease.
The revenue from such operating leases is not significant.
The Company earns franchise and origination fees from its apothecary-style
pharmacy franchisees. Franchise fees represent monthly fees based upon
franchisees' sales and are recognized as revenues when they are earned.
Origination fees from signing new franchise agreements are recognized as
revenues when the new franchise store is opened. Master franchise origination
fees are recognized as revenues when all significant conditions relating to the
master franchise agreement have been satisfied by the Company.
Pharmacy management revenue is recognized according to the contracts
established. A fee is charged under such contracts through a monthly management
fee arrangement, a capitated fee arrangement or a portion of the hospital
charges to patients.
20
21
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EARNINGS PER COMMON SHARE
Primary and fully diluted earnings per Common Share are computed using the
treasury stock method and are based on the weighted average number of Common
Shares outstanding during each period and the dilutive effect of stock options
from the date of grant.
Excluding dividends paid by all entities with which the Company has merged,
the Company paid cash dividends per Common Share of $0.12, $0.12 and $0.09 for
the fiscal years ended June 30, 1996, 1995 and 1994, 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.
2. BUSINESS COMBINATIONS
Effective May 7, 1996, a wholly owned subsidiary of the Company was merged
with and into Pyxis (the "Pyxis Merger"). The Pyxis Merger was accounted for as
a pooling-of-interests business combination, and the Company issued
approximately 15,076,000 Common Shares to Pyxis shareholders. In addition,
Pyxis' outstanding stock options were converted into options to purchase
approximately 1,562,000 additional Common Shares.
The table below presents a reconciliation of net revenues and net earnings
available for Common Shares as reported in the accompanying consolidated
financial statements with those previously reported by the Company (in
thousands).
Cardinal
Health Pyxis Combined
---------------- ---------------- ----------------
Fiscal year ended June 30, 1994:
Net revenues $ 5,838,574 $ 124,706 $ 5,963,280
Net earnings available for Common Shares $ 47,990 $ 31,835 $ 79,825
Fiscal year ended June 30, 1995:
Net revenues $ 7,859,919 $ 162,189 $ 8,022,108
Net earnings available for Common Shares $ 101,000 $ 36,534 $ 137,534
Nine Months Ended March 31, 1996:
Net revenues $ 6,381,569 $ 160,376 $ 6,541,945
Net earnings available for Common Shares $ 79,003 $ 24,804 $ 103,807
Adjustments affecting net income and shareholders' equity resulting from
the Pyxis Merger to adopt the same accounting practices were not material for
any periods presented herein. There were no material intercompany transactions.
On November 13, 1995, a wholly owned subsidiary of the Company was merged
with and into Medicine Shoppe. The Medicine Shoppe merger was accounted for as a
pooling-of-interests business combination. The Company issued approximately
6,426,000 Common Shares to Medicine Shoppe shareholders. In addition, Medicine
Shoppe's outstanding stock options were converted into options to purchase
approximately 121,000 Common Shares.
During fiscal 1996, the Company recorded costs totaling $67.3 million
($47.8 million, net of tax) related primarily to the mergers with Medicine
Shoppe and Pyxis. These costs included approximately $22.4 million for
investment advisor, legal, accounting, internal personnel and other transaction
fees associated with the business combinations; $14.7 million related to costs
to exit and restructure certain activities, including operating lease
terminations and asset impairment charges; $7.8 million related to employee
retention, employee severance, and other personnel costs; and $2.9 million for
other activities related to integrating operations and implementing efficiencies
of
21
22
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the merged companies. Certain of these amounts are based upon estimates and
actual amounts paid may ultimately differ from these estimates. As of June 30,
1996, the Company had paid approximately $22.1 million related to these charges.
If additional costs are incurred, such items will be expensed in subsequent
periods.
During fiscal 1996, the Company completed two business combinations which
were accounted for under the purchase method of accounting. These business
combinations were primarily related to the Company's point-of-use pharmacy
systems and pharmacy management services. The aggregate purchase price, which
was paid primarily in cash, including fees and expenses, was $40.0 million.
Liabilities of the operations assumed were approximately $33.2 million,
consisting primarily of debt of $27.8 million. Had the purchases occurred at the
beginning of fiscal 1995, operating results for fiscal 1996 and 1995 on a pro
forma basis would not have been significantly different.
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. ("Behrens"), a
pharmaceutical wholesaler based in Waco, Texas. The transaction was accounted
for as a pooling-of-interests business combination. The historical cost of
Behrens assets combined was approximately $25,396,000, and the total liabilities
assumed (including total debt of approximately $1,336,000) were approximately
$15,617,000. 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 pharmaceutical wholesaler based in Calumet City,
Illinois, for cash of $33,334,000 and assumed total liabilities of $94,390,000
(including total debt of approximately $1,670,000) in a transaction accounted
for by the purchase method.
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 holders of outstanding Whitmire common stock received an
aggregate of approximately 6,802,000 Class A common shares and approximately
1,861,000 Class B common shares in exchange for all of the previously
outstanding common stock of Whitmire (all Class B common shares were converted
into Class A common shares in fiscal 1995). 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.
In fiscal 1994, the Company recorded a charge to reflect Whitmire Merger
costs of approximately $35.9 million ($28.2 million net of tax). These 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. At June 30, 1996, the Company had
disbursed all amounts related to these liabilities, with the actual amounts paid
approximating the original amounts recorded.
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. ("PRN"), 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 historical cost of PRN assets
combined was approximately $16,946,000, and the total liabilities assumed
(including total debt of approximately $5,847,000) were approximately
$16,564,000. 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.
22
23
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following supplemental information, which is presented for purposes of
facilitating meaningful comparisons to ongoing operations and to other
companies, summarizes the results of operations of the Company, adjusted on a
pro forma basis to reflect (a) the elimination of the effect of the merger costs
discussed above, and (b) the redemption of Whitmire's preferred stock pursuant
to the terms of the Reorganization Agreement. 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.
Fiscal Year Ended
------------------------------------------------
June 30, June 30, June 30,
(In thousands, except per share amounts) 1996 1995 1994
--------------- -------------- --------------
Operating earnings, excluding unusual items $ 282,022 $ 245,972 $ 194,944
Earnings available for Common Shares 159,697 137,534 108,938
Earnings per Common Share, excluding
unusual items:
Primary $ 2.47 $ 2.14 $ 1.77
Fully diluted $ 2.47 $ 2.14 $ 1.77
Operating earnings and net earnings available for Common Shares
("Earnings") as reported in the Company's consolidated financial statements are
reconciled to the respective amounts in the preceding table as follows:
Fiscal Year Fiscal Year
Ended June 30, 1996 Ended June 30, 1994
----------------------------- -----------------------------
Operating Operating
(In thousands) Earnings Earnings Earnings Earnings
------------- ------------- ------------- -------------
As reported $ 214,772 $ 111,864 $ 159,064 $ 79,825
Supplemental adjustments:
Unusual items, primarily merger costs 67,250 47,833 35,880 28,180
Preferred stock redemptions 1,205
Interest adjustment on preferred stock (272)
------------- ------------- ------------- -------------
As supplementally adjusted $ 282,022 $ 159,697 $ 194,944 $ 108,938
============= ============= ============= =============
3. LEASES
Sales-Type Leases
The Company's sales-type leases are for terms generally ranging up to five
years. Lease receivables are generally collateralized with the underlying
equipment. The components of the Company's net investment in sales-type leases
are as follows (in thousands):
June 30, June 30,
1996 1995
-------------- ---------------
Future minimum lease payments receivable $ 176,963 $ 139,305
Unguaranteed residual values 1,457 1,302
Unearned income (25,637) (22,275)
Allowance for uncollectible minimum lease payments
receivable (3,226) (2,900)
-------------- ---------------
Net investment in sales-type leases $ 149,557 $ 115,432
Less: current portion 37,953 30,119
-------------- ---------------
Net investment in sales-type leases, less current
portion $ 111,604 $ 85,313
============== ===============
23
24
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments to be received pursuant to sales-type leases
are as follows at June 30, 1996:
1997 $ 47,981
1998 44,918
1999 39,755
2000 28,566
2001 15,155
Thereafter 588
--------------
Total $ 176,963
==============
Lease Related Financing Arrangements
Prior to the merger on May 7, 1996, Pyxis had financed its working capital
needs through the sale of certain lease receivables to a non-bank financing
company. In March 1994, Pyxis entered into a five-year financing and servicing
agreement with the financing company, whereby the financing company agreed to
purchase a minimum of $500 million of Pyxis' lease receivables under certain
conditions, provided that the total investment in the lease receivables at any
one time does not exceed $350 million. The aggregate lease receivables sold
under this arrangement totaled approximately $233 million and $154 million at
June 30, 1996 and 1995, respectively. As a result of the merger, the Company
intends to amend the agreement with the financing company and has made provision
for the estimated cost of exiting the arrangement.
4. NOTES PAYABLE, BANKS
The Company has entered into various uncommitted line-of-credit
arrangements which allow for borrowings up to $250,000,000 at June 30, 1996, at
various money market rates. No amounts were outstanding under such arrangements
at June 30, 1996, and $3,000,000, at a weighted average interest rate of 6.89%,
was outstanding at June 30, 1995. In addition, the Company has revolving credit
agreements, which have a maturity of less than one year, with seven banks. These
credit agreements are renewable on a quarterly basis and allow the Company to
borrow up to $95,000,000 (none of which was in use at June 30, 1996). 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. The total available but unused lines of credit at June 30,
1996 were $345,000,000.
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
June 30, June 30,
1996 1995
-------------- ---------------
Notes; 6.0% due 2006 $ 150,000 $
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; interest averaging 7.14% in 1996 and
8.78% in 1995, due in varying installments
through 2002 21,151 12,376
-------------- ---------------
Total $ 371,151 $ 212,376
Less: current portion 106,007 3,162
-------------- ---------------
Long-term obligations, less current portion $ 265,144 $ 209,214
============== ===============
24
25
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 23, 1996, the Company sold $150 million of 6% Notes due 2006
(the "6% Notes") in a public offering. The 6% 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 $1.3 million incurred
in connection with the offering are being amortized on a straight-line basis
over the period the 6% Notes will be outstanding.
On February 23, 1994, the Company sold $100 million 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 8% Notes represent unsecured obligations of the Company, are not
redeemable prior to maturity and are not subject to a sinking fund.
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 in
1992. 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, 1996 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 discounted cash
flows, in the event of nonperformance by counterparties with whom the Company is
in a net receivable position is approximately $777,000 as of June 30, 1996;
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 $10,542,000 at June
30, 1996.
Maturities of long-term obligations for future fiscal years are as follows
(in thousands):
1997 $ 106,007
1998 4,933
1999 2,836
2000 1,897
2001 1,547
Thereafter 253,931
--------------
Total $ 371,151
==============
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, 1996 and 1995,
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
$354,197,000 and $212,251,000 as compared to the carrying amounts of
$371,151,000 and $212,376,000 at June 30, 1996 and 1995, 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.
25
26
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
Fiscal Year Ended
------------------------------------------------
June 30, June 30, June 30,
1996 1995 1994
--------------- -------------- ---------------
Current:
Federal $ 62,030 $ 41,882 $ 49,707
State 7,641 4,651 5,373
--------------- -------------- ---------------
Total 69,671 46,533 55,080
Deferred 20,530 49,568 10,798
--------------- -------------- ---------------
Total provision $ 90,201 $ 96,101 $ 65,878
=============== ============== ===============
A reconciliation of the provision based on the Federal statutory income tax
rate to the Company's income tax provision is as follows:
Fiscal Year Ended
--------------------------------------------------
June 30, June 30, June 30,
1996 1995 1994
--------------- --------------- ---------------
Provision at Federal
statutory rate 35.0 % 35.0 % 35.0 %
State income taxes, net of
Federal benefit 4.8 4.7 4.6
Nondeductible expenses 4.4 4.6
Other 0.4 1.4 0.6
--------------- --------------- ---------------
Effective income tax rate 44.6 % 41.1 % 44.8 %
=============== =============== ===============
Deferred income taxes arise from temporary differences between financial
reporting and tax reporting bases of assets and liabilities, and operating loss
and tax credit carryforwards for tax purposes. The components of the deferred
income tax assets and liabilities are as follows (in thousands):
June 30, June 30,
1996 1995
--------------- --------------
Deferred income tax assets:
Allowance for doubtful accounts $ 8,861 $ 14,305
Accrued liabilities 21,412 19,408
Property related 14,233 9,256
Net operating loss carryforwards 27,270 28,550
Other 20,442 15,587
--------------- --------------
Total deferred income tax assets 92,218 87,106
Valuation allowance for deferred income tax assets (2,373) (2,747)
--------------- --------------
Net deferred income tax assets 89,845 84,359
--------------- --------------
Deferred income tax liabilities:
Inventory basis differences (42,102) (46,471)
Revenues on lease contracts (122,417) (93,713)
Other (15,642) (16,744)
--------------- --------------
Total deferred income tax liabilities (180,161) (156,928)
--------------- --------------
Net deferred income tax liabilities $ (90,316) $ (72,569)
=============== ==============
26
27
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The above amounts are classified in the consolidated balance sheets as
follows (in thousands):
June 30, June 30,
1996 1995
-------------- --------------
Other accrued liabilities $ (453) $ (11,364)
Deferred income taxes and other liabilities (89,863) (61,205)
-------------- --------------
Net deferred income tax liabilities $ (90,316) $ (72,569)
============== ==============
At June 30, 1996 and 1995, as a result of the Pyxis Merger, the Company had
Federal net operating loss carryforwards of $73 million. Also at June 30, 1996
and 1995, the Company had state net operating loss carryforwards of $50 million
and $56 million, respectively. A valuation allowance of $2.4 million and $2.7
million at June 30, 1996 and 1995, respectively, has been provided for the state
net operating loss carryforwards as utilization of such carryforwards within the
applicable statutory periods is uncertain. In addition, use of the Company's net
operating loss carryforwards will be limited due to the change in control of
Pyxis. The Federal net operating loss carryforwards begin expiring in 2001 and
the state net operating loss carryforwards began expiring in 1994.
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 Company matching and profit sharing 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 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 total expense for employee retirement benefit plans was as follows (in
thousands):
Fiscal Year Ended
------------------------------------------------
June 30, June 30, June 30,
1996 1995 1994
--------------- --------------- --------------
Defined contribution plans $ 7,233 $ 5,611 $ 4,053
Multiemployer plans 711 637 522
--------------- --------------- --------------
Total $ 7,944 $ 6,248 $ 4,575
=============== =============== ==============
9. COMMITMENTS AND CONTINGENT LIABILITIES
The future minimum rental payments for operating leases having initial or
remaining noncancelable lease terms in excess of one year at June 30, 1996, are
as follows (in thousands):
1997 $ 14,133
1998 12,151
1999 8,500
2000 4,233
2001 2,551
Thereafter 7,658
--------------
Total $ 49,226
==============
27
28
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rental expense relating to operating leases was approximately $20,607,000,
$14,637,000 and $12,645,000 in fiscal 1996, 1995, and 1994, respectively.
Sublease rental income was not material for any period presented herein.
As of June 30, 1996, amounts outstanding on customer notes receivable sold
with full recourse to a commercial bank totaled approximately $13,923,000. The
Company also has outstanding guarantees of indebtedness and financial assistance
commitments which totaled approximately $2,822,000 at June 30, 1996.
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.
10. REDEEMABLE PREFERRED STOCK
Prior to February 7, 1994, Whitmire had outstanding 360,000 shares of
redeemable preferred $.01 par value stock. 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. Pursuant to the terms of the Reorganization Agreement between Cardinal and
Whitmire (see Note 2), 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
At June 30, 1996, the Company's authorized capital shares consisted of (a)
100,000,000 Class A common shares, without par value, of which 63,959,267 and
63,006,246 (as adjusted to reflect business combinations) were outstanding and
222,626 and 193,292 were held in treasury at cost at June 30, 1996 and 1995,
respectively; (b) 5,000,000 Class B common shares, without par value, of which
none were outstanding at either balance sheet date; 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.
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 were sold
by the Company, and approximately 6,183,000 Common Shares (the "Existing
Shares") were sold by certain shareholders of the Company. The Company did not
receive any of the proceeds from the sale of the Existing Shares.
12. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The Company's trade receivables, finance notes and accrued interest
receivable, and lease 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 supporting collateral and the diversity of the customer base,
including 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 1996, the Company's two largest customers individually
accounted for 12% of net revenues and 70% of direct deliveries, respectively.
During fiscal 1995, the Company's two largest customers individually accounted
for 11% of net revenues and 82% of direct deliveries, respectively. Trade
receivables due from these two customers aggregated approximately 25% of total
trade receivables at June 30, 1996 and 1995.
28
29
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS AND RESTRICTED SHARES
The Company maintains stock incentive plans (the "Plans") for the benefit
of certain officers, directors and key employees. 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. On November 14, 1995, the
Company's shareholders approved a new equity incentive plan (the "New Plan")
which authorized the issuance of up to an aggregate of 2,000,000 Common Shares
in the form of incentive stock options, nonqualified stock options, performance
shares and restricted shares. The Common Shares authorized for issuance under
the New Plan are in addition to 1,766,000 Common Shares which were issuable
pursuant to stock options outstanding immediately prior to the approval of the
New Plan and the 1,562,000 stock options which were issuable pursuant to the
Pyxis Merger.
The following summarizes all stock option transactions for the Company
(excluding Whitmire, see below) under the Plans from June 30, 1993, through June
30, 1996, giving retroactive effect to conversions of options in connection with
merger transactions and stock splits (in thousands, except per share amounts):
Number Exercise Prices
of Options Per Share Total
------------- ---------------------- -------------
Balance Outstanding, June 30, 1993 2,134 $ 0.12 - $ 57.80 $ 26,806
Granted 1,534 24.20 - 91.93 74,258
Exercised (314) 0.12 - 63.64 (1,676)
Canceled (41) 0.12 - 84.09 (1,155)
------------- -------------
Balance Outstanding, June 30, 1994 3,313 0.12 - 91.93 98,233
Granted 830 36.23 - 64.26 40,671
Exercised (413) 0.12 - 60.26 (4,465)
Canceled (112) 0.12 - 91.93 (4,963)
------------- -------------
Balance Outstanding, June 30, 1995 3,618 0.12 - 91.93 129,476
Granted 958 28.90 - 72.38 51,008
Exercised (661) 0.12 - 68.87 (15,609)
Canceled (399) 6.15 - 91.93 (23,403)
------------- ----------
Balance Outstanding, June 30, 1996 3,516 $ 0.12 - $ 84.09 $ 141,472
============= =============
At June 30, 1996, approximately 2,118,000 option shares under the Plans
were exercisable. In addition to the options outstanding and restricted shares
granted, approximately 1,472,000 shares are available to be issued pursuant to
the Plans.
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 2). 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
190,000, 1,250,000 and 271,000 Common Shares, with an average option price of
$2.06, $1.52 and $1.60, were exercised in fiscal 1996, 1995 and 1994,
respectively. At June 30, 1996, substantially all Cardinal Exchange Options had
been exercised.
The market value of restricted shares awarded by the Company is recorded in
the other component of shareholders' equity in the accompanying balance sheets.
The compensation awards are amortized to expense over the period in which
participants perform services, generally one to six years. As of June 30, 1996,
approximately 467,000 restricted shares have been issued, of which approximately
158,000 shares remain restricted and subject to forfeiture and approximately
26,000 shares have been forfeited.
29
30
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following selected quarterly financial data (in thousands, except per
share amounts) for fiscal 1996 and 1995 has been restated to reflect the
pooling-of-interests business combinations (see Note 2):
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------------- ------------- ------------- ------------- --------------
Fiscal 1996:
Net revenues $ 2,096,845 $ 2,188,619 $ 2,256,481 $ 2,320,480 $ 8,862,425
Gross margin 164,046 174,667 189,062 187,502 715,277
Selling, general and administrative
expenses 107,358 107,103 107,748 111,046 433,255
Operating earnings 56,688 50,012 81,314 26,758 214,772
Net earnings available for Common Shares 31,916 26,542 45,349 8,057 111,864
Net earnings per Common Share:
Primary $ 0.49 $ 0.41 $ 0.70 $ 0.12 $ 1.73
Fully diluted 0.49 0.41 0.70 0.12 1.73
- --------------------------------------------------------------------------------------------------------------------------
Fiscal 1995:
Net revenues $ 1,868,932 $ 2,039,393 $ 2,041,440 $ 2,072,343 $ 8,022,108
Gross margin 140,595 153,631 165,986 164,339 624,551
Selling, general and administrative
expenses 90,271 93,949 95,553 98,806 378,579
Operating earnings 50,324 59,682 70,433 65,533 245,972
Net earnings available for Common Shares 28,269 34,310 38,846 36,109 137,534
Net earnings per Common Share:
Primary $ 0.45 $ 0.53 $ 0.60 $ 0.56 $ 2.14
Fully diluted 0.45 0.53 0.60 0.56 2.14
The following supplemental information for fiscal 1996 excludes the impact
of unusual items (in thousands, except per share amounts). See Note 2 for
additional information.
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------------- ------------- ------------- ------------- -------------
Fiscal 1996:
Net revenues $ 2,096,845 $ 2,188,619 $ 2,256,481 $ 2,320,480 $ 8,862,425
Gross margin 164,046 174,667 189,062 187,502 715,277
Selling, general and administrative
expenses 107,358 107,103 107,748 111,046 433,255
Operating earnings, excluding unusual items 56,688 67,564 81,314 76,456 282,022
Net earnings available for Common Shares,
excluding unusual items 31,916 39,037 45,349 43,395 159,697
Net earnings per Common Share,
excluding unusual items:
Primary $ 0.49 $ 0.60 $ 0.70 $ 0.67 $ 2.47
Fully diluted 0.49 0.60 0.70 0.67 2.47
Operating earnings and net earnings available for Common Shares
("Earnings") as reported in the Company's selected quarterly financial data for
fiscal 1996 are reconciled to the respective amounts in the preceding table as
follows (in thousands):
Second Quarter Fourth Quarter
---------------------------- ----------------------------
Operating Operating
Earnings Earnings Earnings Earnings
-------------- ------------- -------------- -------------
Fiscal 1996:
As reported $ 50,012 $ 26,542 $ 26,758 $ 8,057
Supplemental adjustments:
Unusual items, primarily
merger costs 17,552 12,495 49,698 35,338
-------------- ----------- -------------- -----------
As supplementally adjusted $ 67,564 $ 39,037 $ 76,456 $ 43,395
============== =========== ============== ===========
The above selected quarterly financial data differs from amounts previously
reported by the Company due to the Pyxis Merger. Amounts reported by the Company
prior to the Pyxis Merger (completed May 7, 1996) are presented
30
31
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
below and differ from the above selected quarterly financial data solely due to
the addition of Pyxis amounts pursuant to the pooling-of-interests accounting
method for business combinations (in thousands, except per share amounts).
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
-------------- ------------- ------------- ------------- --------------
Fiscal 1996:
Net revenues $ 2,047,138 $ 2,131,627 $ 2,202,804
Gross margin 130,012 136,494 150,926
Selling, general and administrative
expenses 87,217 83,125 84,117
Operating earnings 42,795 36,995 66,809
Net earnings available for Common Shares 23,492 18,714 36,797
Net earnings per Common Share:
Primary $ 0.48 $ 0.38 $ 0.75
Fully diluted 0.48 0.38 0.75
-------------- ------------- ------------- ------------- --------------
Fiscal 1995:
Net revenues $ 1,832,128 $ 1,999,267 $ 2,001,250 $ 2,027,274 $ 7,859,919
Gross margin 114,082 123,627 137,992 133,509 509,210
Selling, general and administrative
expenses 77,358 78,824 81,660 83,671 321,513
Operating earnings 36,724 44,803 56,332 49,838 187,697
Net earnings available for Common Shares 19,710 24,942 29,986 26,362 101,000
Net earnings per Common Share:
Primary $ 0.42 $ 0.51 $ 0.61 $ 0.53 $ 2.07
Fully diluted 0.42 0.51 0.61 0.53 2.07
15. SUPPLEMENTAL CASH FLOW INFORMATION
Income tax and interest payments for the fiscal years ended June 30, 1996,
1995 and 1994 were as follows (in thousands):
Fiscal Year Ended
------------------------------------------------
June 30, June 30, June 30,
1996 1995 1994
-------------- -------------- ---------------
Interest paid $ 18,537 $ 20,259 $ 16,588
Income taxes paid $ 56,659 $ 20,692 $ 44,454
See Note 2 for additional information regarding non cash investing and
financing activities.
16. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption no later than the Company's fiscal 1997.
The new standard defines a fair value method of accounting for stock options and
similar equity instruments, under which compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but not required,
to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in the financial
statements pro forma net income and earnings per share as if the new method of
accounting had been applied.
The accounting requirements of the new method are effective for all
employee awards granted after the beginning of the fiscal year of adoption. The
Company has not yet determined if it will elect to change to the fair value
method,
31
32
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
nor has it determined the effect the new standard will have on net
income and earnings per share should it elect to make such a change. Adoption of
the new standard will have no effect on the Company's cash flows.
In addition, in March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting
For the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires adoption no later than the Company's fiscal 1997. SFAS No.
121 requires impairment losses to be recorded on long-lived assets used in
operations when an indication of impairment is present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses accounting for long-lived assets
that are expected to be disposed of. The Company does not believe, based on
current circumstances, the adoption of SFAS No. 121 will have a material effect
on financial condition or results of operations.
17. SUBSEQUENT EVENT
On July 24, 1996, the Company announced that it had entered into a
definitive merger agreement with PCI Services, Inc. ("PCI") pursuant to which
PCI will become a wholly owned subsidiary of the Company in a stock-for-stock
merger expected to be accounted for as a pooling-of-interests for financial
reporting purposes. In connection with the merger, the Company estimates that it
will issue approximately 2.1 million Common Shares. Under the terms of the
merger agreement, shareholders of PCI will receive 0.336 Common Shares for each
share of PCI that they own at the time the transaction is consummated, subject
to adjustment under specified circumstances. In addition, pursuant to the terms
of the merger agreement, options for PCI common stock will be converted into
equivalent options for approximately 157,920 Common Shares, based upon the
exchange ratio. Upon consummation of the merger, the Company will record a
one-time charge to reflect transaction and other costs incurred as a result of
the merger. The merger is expected to be completed in the fall of 1996, subject
to satisfaction of certain conditions, including approval by shareholders of
PCI.
32
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 7 and 8 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".
33
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........................................13
Financial Statements:
Consolidated Statements of Earnings for the Fiscal Years Ended
June 30, 1996, 1995 and 1994...................................... 15
Consolidated Balance Sheets at June 30, 1996 and 1995............... 16
Consolidated Statements of Shareholders' Equity for the Fiscal
Years Ended June 30, 1996, 1995 and 1994.......................... 17
Consolidated Statements of Cash Flows for the Fiscal Years Ended
June 30, 1996, 1995 and 1994...................................... 18
Notes to Consolidated Financial Statements.......................... 19
(a)(2) The following Supplemental Schedule is included in this report:
PAGE
----
Schedule II - Valuation and Qualifying Accounts..................... 39
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 Item 601 of Regulation S-K:
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. (1)
2.02 Agreement and Plan of Merger dated as of February 7, 1996, among the
Registrant, Aztec Merger Corp., and Pyxis Corporation. (2)
2.03 Agreement and Plan of Merger dated as of July 23, 1996 among the
Registrant, Panther Merger Corp., PCI Services, Inc. and MEDIQ
Incorporated. (3)
3.01 Amended and Restated Articles of Incorporation of the Registrant, as
amended. (4)
3.02 Restated Code of Regulations of the Registrant, as amended. (5)
4.01 Specimen Certificate for the Registrant's Class A Common Shares. (4)
4.02 Indenture between the Registrant and Bank One, Indianapolis, NA
relating to the Registrant's 8% Notes Due 1997. (6)
34
35
4.03 Indenture between the Registrant and Bank One, Indianapolis, NA
relating to the Registrant's 6 1/2% Notes Due 2004 and 6% Notes Due
2006. (5)
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 SEC upon its request.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------- -------------------
10.01 Stock Incentive Plan of the Registrant, as amended. (12)*
10.02 Directors' Stock Option Plan of the Registrant, as amended and
restated. (12)
10.03 Equity Incentive Plan of the Registrant. (4)*
10.04 Amended and Restated 1991 Stock Plan of Pyxis Corporation. (13)*
10.05 1990 Stock Option Plan of Medicine Shoppe International, Inc. (14)*
10.06 Employee Incentive Stock Option Plan of Medicine Shoppe
International, Inc. (14)*
10.07 Executive Choice Plan of Medicine Shoppe International, Inc. (14)*
10.08 Employment Agreement dated October 11, 1993, among Whitmire, Melburn
G. Whitmire and the Registrant, as amended. (7)*
10.09 Employment Agreement dated August 26, 1995, among Medicine Shoppe,
David A. Abrahamson and the Registrant. *
10.10 Form of Indemnification Agreement between the Registrant and
individual directors. (8)
10.11 Form of Indemnification Agreement between the Registrant and
individual officers. (9)*
10.12 Form of Indemnification Agreement between Whitmire and directors and
officers of Whitmire. (12)*
10.13 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. (12)*
10.14 Lease for portions of the Registrant's Columbus Investment Property
dated July 7, 1958, as amended. (10)
10.15 Cardinal Health, Inc. Incentive Deferred Compensation Plan, Amended
and Restated Effective November 13, 1995.
10.16 Shareholders Agreement dated July 13, 1984, as amended. (11)
10.17 Master Agreement and related documents, dated as of July 19, 1996
among the Registrant and/or its subsidiaries, SunTrust Banks, Inc.,
PNC Leasing Corp. and SunTrust Bank, Atlanta.
10.18 Vendor Program Agreement dated as of October 10, 1991 by and between
General Electric Capital Corporation and Pyxis Corporation, as
amended on December 13, 1991, January 15, 1993 and March 10, 1994.
11.01 Statement concerning computation of per share earnings.
35
36
21.01 List of subsidiaries of the Registrant.
23.01 Consent of Deloitte & Touche LLP.
23.02 Consent of Ernst & Young LLP.
27.01 Financial Data Table
- ------------------
(1) Included as an exhibit to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995 (No. 0-12591) and
incorporated herein by reference.
(2) Included as an exhibit to the Registrant's Schedule 13D reporting
Registrant's beneficial ownership of shares of Pyxis Corporation (No.
5-43690) and incorporated herein by reference.
(3) Included as an exhibit to the Registrant's Schedule 13D reporting
Registrant's beneficial ownership of shares of PCI Services, Inc.
(No. 5-42666) 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, 1995 (No. 0-12591) and
incorporated herein by reference.
(5) 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.
(6) 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.
(7) 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 as an
exhibit to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995 (No. 0-12591) 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 29, 1986 (No. 0-12591) 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 March 28, 1987 (No. 0-12591) and
incorporated herein by reference.
(10) Included as an exhibit to the Registrant's Registration Statement on
Form S-1 (No. 2-84444) and incorporated herein by reference.
(11) 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.
(12) 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.
(13) Included as an exhibit to the Registrant's Post-Effective Amendment
No. 1 on Form S-8 to Form S-4 Registration Statement (No.
333-01927-01).
(14) Included as an exhibit to the Registrant's Post-Effective Amendment
No. 1 on Form S-8 to Form S-4 Registration Statement (No.
33-63283-01).
* Management contract or compensation plan or arrangement.
36
37
(b) Reports on Form 8-K:
On April 23, 1996, the Company filed a Report on Form 8-K under Item 5 which
set forth the results for the fiscal quarter ended March 31, 1996 as contained
in the Company's press release dated April 22, 1996.
On May 8, 1996, the Company filed a Report on Form 8-K under Item 2 which
reported that it had completed its merger of a wholly owned subsidiary with and
into Pyxis Corporation ("Pyxis") on May 7, 1996. Pursuant to Item 7, the Form
8-K included the required audited financial statements of Pyxis and the required
combined unaudited pro forma financial information of the Company and Pyxis.
37
38
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.
August 26, 1996 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 August 26, 1996
- --------------------------------------- Director (principal executive officer)
Robert D. Walter
/s/ DAVID BEARMAN Executive Vice President and Chief Financial August 26, 1996
- --------------------------------------- Officer (principal financial officer)
David Bearman
/s/ RICHARD J. MILLER Vice President, Controller and Principal August 26, 1996
- --------------------------------------- Accounting Officer
Richard J. Miller
/s/ JOHN C. KANE President, Chief Operating Officer August 26, 1996
- --------------------------------------- and Director
John C. Kane
/s/ JOHN F. FINN Director August 26, 1996
- ---------------------------------------
John F. Finn
/s/ ROBERT L. GERBIG Director August 26, 1996
- ---------------------------------------
Robert L. Gerbig
/s/ JOHN F. HAVENS Director August 26, 1996
- ---------------------------------------
John F. Havens
/s/ REGINA E. HERZLINGER Director August 26, 1996
- ---------------------------------------
Regina E. Herzlinger
/s/ J. MICHAEL LOSH Director August 26, 1996
- ---------------------------------------
J. Michael Losh
/s/ GEORGE R. MANSER Director August 26, 1996
- ---------------------------------------
George R. Manser
/s/ JOHN B. McCOY Director August 26, 1996
- ---------------------------------------
John B. McCoy
/s/ JERRY E. ROBERTSON Director August 26, 1996
- ---------------------------------------
Jerry E. Robertson
/s/ L. JACK VAN FOSSEN Director August 26, 1996
- ---------------------------------------
L. Jack Van Fossen
/s/ MELBURN G. WHITMIRE Director August 26, 1996
- ---------------------------------------
Melburn G. Whitmire
38
39
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------ ---------- -------------------------- -------------- ----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (1) DEDUCTIONS (2) OF PERIOD
- ------------------------------------------------ ---------- ----------- ------------ -------------- ----------
Fiscal Year 1996:
Account receivable $ 31,529 $ 8,037 $ 1,435 $ (8,587) $ 32,414
Finance notes receivable 7,385 1,087 9 (439) 8,042
Net investment in sales-type leases 2,900 326 3,226
-------- -------- -------- -------- --------
$ 41,814 $ 9,450 $ 1,444 $ (9,026) $ 43,682
======== ======== ======== ======== ========
Fiscal Year 1995:
Account receivable $ 24,876 $ 11,602 $ 2,005 $ (6,954) $ 31,529
Finance notes receivable 7,275 724 (614) 7,385
Net investment in sales-type leases 2,747 153 2,900
-------- -------- -------- -------- --------
$ 34,898 $ 12,479 $ 2,005 $ (7,568) $ 41,814
======== ======== ======== ======== ========
Fiscal Year 1994:
Account receivable $ 18,457 $ 10,560 $ 956 $ (5,097) $ 24,876
Finance notes receivable 6,980 953 (658) 7,275
Net investment in sales-type leases 2,088 659 2,747
-------- -------- -------- -------- --------
$ 27,525 $ 12,172 $ 956 $ (5,755) $ 34,898
======== ======== ======== ======== ========
1 During fiscal 1996, 1995 and 1994 recoveries of amounts provided for or
written off in prior years were $324,000, $177,000 and $308,000,
respectively, and increases from acquisitions of subsidiaries were
$1,120,000, $1,828,000 and $648,000, respectively.
2 Write-off of uncollectible accounts.
39