0000950152-95-002183.txt : 19950925 0000950152-95-002183.hdr.sgml : 19950925 ACCESSION NUMBER: 0000950152-95-002183 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950921 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDINAL HEALTH INC CENTRAL INDEX KEY: 0000721371 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 310958666 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11373 FILM NUMBER: 95575341 BUSINESS ADDRESS: STREET 1: 655 METRO PL SOUTH STE 925 CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147618700 MAIL ADDRESS: STREET 1: 655 METRO PLACE SOUTH STREET 2: SUITE 925 CITY: DUBLIN STATE: OH ZIP: 43017 FORMER COMPANY: FORMER CONFORMED NAME: CARDINAL DISTRIBUTION INC DATE OF NAME CHANGE: 19920703 10-K 1 CARDINAL HEALTH, INC. 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------ FOR THE FISCAL YEAR ENDED JUNE 30, 1995 COMMISSION FILE NUMBER 0-12591 CARDINAL HEALTH, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 655 METRO PLACE SOUTH, SUITE 925, DUBLIN, OHIO (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 31-0958666 (I.R.S. EMPLOYER IDENTIFICATION NO.) 43017 (ZIP CODE) (614) 761-8700 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: COMMON SHARES (WITHOUT PAR VALUE) (TITLE OF CLASS) NEW YORK STOCK EXCHANGE NAME OF EACH EXCHANGE ON WHICH REGISTERED SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the Registrant as of September 15, 1995, was approximately $2,081,378,472. The number of Registrant's Common Shares outstanding as of September 15, 1995, was as follows: Common shares, without par value: 42,159,885 Class B common shares, without par value: 0 Documents Incorporated by Reference: Portions of the Registrant's Definitive Proxy Statement for its Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K. Page 1 of 52 Exhibit Index on Page 33 2 PART I ITEM 1: BUSINESS GENERAL Cardinal Health, Inc. (the "Company") is a national, full-service wholesaler distributing a broad line of pharmaceuticals, surgical and hospital supplies, therapeutic plasma and other specialty pharmaceutical products, health and beauty care products, and other items typically sold by hospitals, retail drug stores, and other health care providers. An important component of the Company's distribution activities is the broad range of support services it offers to its customers, which are designed to assist the Company's customers in maintaining and improving their market positions. These support services foster strong relationships between the Company and its customers by positioning the Company as a valuable resource capable of offering the centralized services which are increasingly important in today's competitive marketplace. The Company believes that in most instances it would not be economically feasible for its customers to develop and maintain these services independently. The Company is structured as a holding company operating through a number of separate operating subsidiaries. These separate operating subsidiaries are sometimes collectively referred to as the "Cardinal Health" companies. As used in this report, the "Registrant" and the "Company" refers to Cardinal Health, Inc. and subsidiaries, unless the context requires otherwise. Prior to February 7, 1994, the Company was known as Cardinal Distribution, Inc. SUPPORT SERVICES As a full-service wholesale distributor, the Company complements its distribution activities by offering a broad range of value-added support services to assist customers and suppliers in maintaining and improving their market positions and to strengthen the Company's role in the channel of distribution. These support services include computerized order entry and order confirmation systems, customized invoicing, generic sourcing programs, product movement and management reports, consultation on store operation and merchandising, and customer training. Most customers transmit merchandise orders directly to the Company's data processing system through computerized order entry devices. The Company's proprietary software systems feature customized databases specially designed to help its customers order more efficiently, contain costs, and monitor their purchases which are covered by group contract purchasing arrangements. SPECIALTY WHOLESALING In addition to its core wholesaling activities, the Company operates several specialty health care businesses which offer value-added services to its customers and suppliers while providing the Company with additional opportunities for growth and profitability. For example, the Company's National PharmPak Services, Inc. subsidiary operates a pharmaceutical repackaging program for both independent and chain customers. In January 1992, the Company formed National Specialty Services, Inc. ("NSS"), which distributes therapeutic plasma products and other specialty pharmaceuticals to hospitals, clinics and other managed care facilities on a nationwide basis through the utilization of telemarketing and direct mail programs. In December 1993, the Company expanded its specialty wholesaling business through a merger with PRN Services, Inc., ("PRN"), a distributor of oncology and other specialty products to clinics and physician groups across the United States. PRN operations were merged into NSS on December 31, 1994. These specialty distribution activities are part of the Company's overall strategy of developing diversified products and services to enhance the profitability of its business and that of its customers and suppliers. CUSTOMERS AND SUPPLIERS The Company regularly supplies pharmaceuticals, surgical and hospital supplies, health and beauty care products, and other items to hospitals, independent and chain drug stores, alternate care centers, and pharmacy departments of supermarkets and mass merchandisers located throughout the continental United States. In fiscal 1995, the Company's largest customer, K-Mart Corporation, accounted for approximately 11% of net sales (by dollar volume). Based upon dollar volume, in fiscal 1995, approximately 47% of the 1 3 Company's net sales were to hospitals and managed care facilities, approximately 28% of the Company's net sales were to chain drug stores and the pharmacy departments of supermarkets and mass merchandisers, approximately 20% of the Company's net sales were to independently owned drug stores, and approximately 5% of the Company's net sales were to other customers. The Company obtains its products from many different suppliers, the largest of which accounted for approximately 5.9% (by dollar volume) of its net sales in fiscal 1995. The Company's five largest suppliers accounted for approximately 22% (by dollar volume) of its net sales during fiscal 1995, and the Company's relationships with its suppliers are generally good. The Company's arrangements with its suppliers typically may be canceled by either the Company or the supplier upon 30 to 90 days prior notice although many of these arrangements are not governed by formal agreements. The loss of certain suppliers could adversely affect the Company's business if alternative sources of supply were unavailable. COMPETITION The Company's markets are highly competitive. The Company competes directly with other national and regional wholesalers, direct selling manufacturers, mail-order houses, and specialty distributors on the basis of price, breadth of product lines, marketing programs, and support services. The Company's businesses have narrow profit margins and, accordingly, the Company's earnings depend significantly on its ability to distribute a large volume and variety of products efficiently and to provide quality support services. ACQUISITIONS The Company has grown during the past five years as a result of both internal growth and business acquisitions. In June 1990, the Company purchased Ohio Valley-Clarksburg, Inc. of Wheeling, West Virginia, for $27,125,000 in a cash transaction expanding the Company's presence in southern Pennsylvania, Maryland, Virginia, and Washington, D.C. The Company expanded into the mid-south market in October 1991, by acquiring Chapman Drug Company, based in Knoxville, Tennessee for $16,800,000 in a cash transaction. In May 1993, the Company purchased Solomons Company, a Savannah, Georgia based drug wholesaler serving customers located primarily in the southeastern region of the United States. In December 1993, a subsidiary of the Company merged with PRN (see "Specialty Wholesaling" above). In February 1994, the Company completed its largest business combination to date when it combined with Whitmire Distribution Corporation ("Whitmire"), a Folsom, California based drug wholesaler (the "Whitmire Merger"). The majority of Whitmire's sales were concentrated in the western and central United States, complementing the Company's former concentration of sales in the eastern United States and positioning the combined company to service both customers and suppliers on a national basis. As a result of the Whitmire Merger, the Company now maintains a network of distribution centers enabling it to routinely serve the entire population of the continental U.S. on a next day basis. The Company has completed two additional business combinations since the Whitmire Merger. On July 1, 1994, the Company completed a business combination with Humiston-Keeling, Inc., a Calumet City, Illinois based drug wholesaler serving customers located primarily in the upper midwest region of the United States. On July 18, 1994, the Company completed a merger with Behrens Inc., a Waco, Texas based drug wholesaler serving customers located primarily in Texas and adjoining states. The Company recently signed a definitive merger agreement providing for the combination of Medicine Shoppe International, Inc. ("Medicine Shoppe"), a franchisor of independent retail pharmacies, with the Company. Under the terms of the transaction, shareholders of Medicine Shoppe will receive a fraction of a Common Share in exchange for each common share of Medicine Shoppe. The Company will issue between approximately 6.0 million and 6.8 million Common Shares in the transaction, depending in part upon the average closing price of the Common Shares over a specified period; under certain circumstances the Company could issue up to approximately 7.2 million Common Shares in the transaction. The Company has also agreed to convert existing Medicine Shoppe stock options (approximately 160,000 shares) into Company options at the same exchange rate as described above. If the transaction is completed, Medicine Shoppe will become a wholly-owned subsidiary of the Company. The transaction is subject to certain conditions, including approval by the Medicine Shoppe shareholders. 2 4 The Company continually evaluates possible candidates for acquisition and intends to continue to seek opportunities to expand its healthcare distribution operations and services. For additional information concerning the acquisitions described above, see Note 3 of "Notes to Consolidated Financial Statements." EMPLOYEES At September 1, 1995, the Company had approximately 4,000 employees, of which approximately 300 are subject to collective bargaining agreements. The Company considers its employee relations to be good. REGULATORY MATTERS The Company, as a distributor of prescription drugs, including certain controlled substances, is required to register for permits and/or licenses with, and comply with certain operating and security standards of, the United States Drug Enforcement Administration, the Food and Drug Administration and various state boards of pharmacy or comparable agencies. In addition, the Company is subject to requirements of the Controlled Substance Act and the Prescription Drug Marketing Act of 1987, an amendment to the Food, Drug and Cosmetic Act (the "FDCA") which requires each state to regulate the purchase and distribution of prescription drugs under prescribed minimum standards. National PharmPak Services, Inc., the Company's repackaging subsidiary, must comply with certain Good Manufacturing Practices as provided under the FDCA. The Company believes that it is in substantial compliance with all Federal and state statutes and regulations applicable to its activities. INDUSTRY CONSIDERATIONS An aging population, new product introductions, and a higher concentration of distribution through wholesalers are all factors which have created favorable growth patterns for the drug wholesaling industry. At the same time, it is also a very competitive industry undergoing rapid change and consolidation. A number of factors have in the recent past affected and are expected to continue to affect the business equation for the Company, including: (a) a greater mix of higher volume customers, where the lower cost of distribution and better asset management and cash flow enable the Company to offer lower pricing to the customer; (b) reduced inventory gains associated with lower drug price inflation, which are partially offset by corresponding decreases in last-in, first-out (LIFO) earnings charges and inventory carrying costs; (c) increased merchandising funding from manufacturers, particularly related to the growth in generic pharmaceuticals; (d) improved selling, general and administrative cost absorption due to significant productivity investments and the operating leverage associated with sales growth and acquisitions; and (e) increased sales and earnings from specialty distribution services. In response to cost containment pressure from private and governmental payers and the current focus on healthcare reform in the United States, customers are consolidating into super-regional and national affiliations while manufacturers are under increased pressure to slow the rate of drug price inflation and to seek more cost-effective methods of marketing and distributing their products. In this regard, drug wholesalers, including the Company, will be challenged to service customers over a wider geographic base, offer manufacturers more innovative marketing and distribution services, and provide both manufacturers and customers with the common system and reporting links necessary to streamline the efficient flow of product and information among distribution partners. OTHER During fiscal 1993, the Company recorded restructuring charges of $13.7 million, primarily related to the closing of certain non-core operations and the rationalization, standardization, and improvement of selected distribution operations, information systems and support functions. See Note 2 of "Notes to Consolidated Financial Statements" for further discussion. At June 30, 1995, the initiatives contemplated have been substantially completed in accordance with the original plan and all related funds have been expended. 3 5 ITEM 2: PROPERTIES Because of the nature of the Company's business, office and warehousing facilities are operated in widely dispersed locations across the United States. At September 1, 1995, the Company distributed products from thirty-six principal operating facilities located in twenty-three states, nine of which are owned by the Company and the balance of which are leased. The Company's principal executive offices currently consist of leased office space located at 655 Metro Place South, Dublin, Ohio. The Company has executed a lease to relocate its principal executive offices to another location in Dublin, Ohio before the end of calendar year 1995. The Company considers its operating properties to be in satisfactory condition and adequate to meet its present needs. However, the Company expects to make further additions, improvements, and consolidations to its properties as the Company's business continues to expand. For certain financial information regarding the Company's office and warehousing facilities, see Notes 5 and 9 of "Notes to Consolidated Financial Statements." ITEM 3: LEGAL PROCEEDINGS In November 1993, Cardinal and Whitmire were each named as defendants in a series of purported class action antitrust lawsuits which were later consolidated and transferred by the Judicial Panel for Multi-District Litigation to the United States District Court for the Northern District of Illinois (the "Brand Name Prescription Drug Litigation"). Subsequent to the consolidation, a new consolidated complaint ("amended complaint") was filed which included allegations that the wholesaler defendants, including Cardinal and Whitmire, conspired with manufacturers to inflate prices by using a chargeback pricing system. Cardinal and Whitmire have filed an answer denying the allegations in the amended complaint. In addition to the Federal court case described above, Whitmire has been named as a defendant in a series of state court cases alleging similar claims under various state laws regarding the sale of brand name prescription drugs. Effective October 26, 1994, the Company entered into a Judgment Sharing Agreement in the Brand Name Prescription Drug Litigation with other wholesaler and pharmaceutical manufacturer defendants. Under the Judgment Sharing Agreement: (a) the manufacturer defendants agreed to reimburse the wholesaler defendants for litigation costs incurred, up to an aggregate of $9 million; and (b) if a judgment is entered against both manufacturers and wholesalers, the total exposure for joint and several liability of the Company is limited to the lesser of 1% of such judgment or one million dollars. In addition, the Company has released any claims which it might have had against the manufacturers for the claims presented by the plaintiffs in the Brand Name Prescription Drug Litigation. The Judgment Sharing Agreement covers the Federal court litigation as well as the cases which have been filed in various state courts. On December 15, 1994, the plaintiffs filed a motion to declare the Judgment Sharing Agreement unenforceable. On April 10, 1995, the court denied that motion and ruled that the Judgment Sharing Agreement is valid and enforceable. The plaintiffs filed a motion for reconsideration of the court's April 10, 1995 ruling, and the court denied that motion and reaffirmed its earlier decision on April 24, 1995. The Company believes that both Federal and state allegations against Cardinal and Whitmire are without merit, and it intends to contest such allegations vigorously. The Company does not believe that the outcome of these lawsuits will have a material adverse effect on the Company's financial condition or results of operations. The Company also becomes involved from time to time in ordinary routine litigation incidental to its business, none of which is expected to have any material adverse effect on the Company's financial condition or results of operations. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 4 6 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows (information provided as of September 1, 1995):
NAME AGE POSITIONS --------------------------------- --------------------------------------------------- Robert D. Walter 50 Chairman and Chief Executive Officer Melburn G. Whitmire 55 Vice Chairman John C. Kane 55 President and Chief Operating Officer David Bearman 49 Executive Vice President and Chief Financial and Accounting Officer George H. Bennett, Jr. 42 Executive Vice President, General Counsel and Secretary Anthony J. Campanaro 47 Executive Vice President -- Central Group James E. Clare 37 Executive Vice President -- Southern Group Gary E. Close 50 Executive Vice President -- Western Group Daniel P. Finkelman 39 Executive Vice President -- Marketing Phillip A. Greth 54 Executive Vice President -- Chief Information Officer James F. Millar 47 Executive Vice President -- Northern Group
Unless indicated to the contrary, the business experience summaries provided below for the Company's executive officers describe positions held by the named individuals during the last five years but may exclude other positions held with subsidiaries of the Company. Robert D. Walter has been a Director, Chairman of the Board and Chief Executive Officer of the Company since its formation in 1979 and has served as a director and officer of certain of the Company's subsidiaries since their formation or acquisition by the Company. Mr. Walter also serves as a director of Banc One Corporation, Columbia/HCA Healthcare Corporation and Westinghouse Electric Corporation. Melburn G. Whitmire has been a Director of the Company since January 1994 and was elected Vice Chairman of the Company in February 1994. Prior to that, Mr. Whitmire was Chairman of the Board, Chief Executive Officer and President of Whitmire Distribution Corporation, and he has continued to serve in those capacities for Whitmire following the Whitmire Merger. John C. Kane has been a Director of the Company since August 1993 and has been the Company's President and Chief Operating Officer since joining the Company in February 1993. Prior to that, Mr. Kane was employed by Abbott Laboratories (a pharmaceutical and healthcare manufacturer), where he served most recently as President of the Ross Laboratories Division. David Bearman has been an Executive Vice President of the Company since February 1994 and, prior to that, served as a Region President from May 1991 to February 1994 and as a Senior Vice President from October 1989. Mr. Bearman has also served as the Company's Chief Financial and Accounting Officer since joining the Company in October 1989 and serves in similar capacities for subsidiaries of the Company. Prior to joining the Company, Mr. Bearman served as the Chief Finance Executive of the Medical Systems Division of General Electric Company. George H. Bennett, Jr. has been Secretary of the Company since July 1994 and an Executive Vice President of the Company since February 1994. Prior to that, Mr. Bennett was a Senior Vice President and Chief Administrative Officer of the Company from May 1991. Mr. Bennett has also served as General Counsel of the Company since joining the Company in January 1984, and serves in a similar capacity for subsidiaries of the Company. Anthony J. Campanaro has been the Company's Executive Vice President -- Central Group since April 1995. Prior to that, Mr. Campanaro was the Company's Senior Vice President -- Retail Sales and Vice President -- Retail Sales. 5 7 James E. Clare has been the Company's Executive Vice President -- Southern Group since February 1994. Prior to that, Mr. Clare served as the Vice President -- Eastern Region of Whitmire Distribution Corporation and has continued to serve as an officer of Whitmire following the Whitmire Merger. Gary E. Close has been the Company's Executive Vice President -- Western Group since February 1994. Prior to that, Mr. Close served as the Executive Vice President -- Operations of Whitmire Distribution Corporation and has continued to serve as an officer of Whitmire following the Whitmire Merger. Daniel P. Finkelman has been the Company's Executive Vice President -- Marketing since joining the Company in May 1994. Prior to that, Mr. Finkelman was a principal with McKinsey and Company, Inc. (an international management consulting firm). Phillip A. Greth has been the Company's Executive Vice President -- Chief Information Officer since joining the Company in May 1995. Prior to that, Mr. Greth was the Director of Management Information Services, Ross Products Division, Abbott Laboratories. James F. Millar has been the Company's Executive Vice President -- Northern Group since February 1994. Prior to that, Mr. Millar served as a Region President from May 1991, a Senior Vice President of the Company from November 1992, and President of the Company's Cardinal Syracuse, Inc. subsidiary. PART II ITEM 5: MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS The Company's common shares, without par value (the "Common Shares") are quoted on the New York Stock Exchange under the symbol "CAH." Prior to listing on the New York Stock Exchange, the Common Shares were quoted on the Nasdaq National Market under the symbol "CDIC." The following table reflects the range of the reported high and low last sale prices of the Common Shares as reported on the New York Stock Exchange Composite Tape from September 7, 1994 through September 15, 1995 and on the Nasdaq National Market for all periods prior to September 7, 1994, and the per share dividends declared thereon. The information in the table has been adjusted to reflect all stock splits and stock dividends.
HIGH LOW DIVIDENDS ------ ------ --------- FISCAL 1994: Quarter Ended September 30, 1993.................... $30.00 $21.80 $.020 December 31, 1993..................... 38.41 28.80 .024 March 31, 1994........................ 40.59 33.30 .024 June 30, 1994......................... 40.80 34.41 .030 FISCAL 1995: Quarter Ended September 30, 1994.................... $42.13 $36.63 $.030 December 31, 1994..................... 48.25 41.13 .030 March 31, 1995........................ 50.88 44.25 .030 June 30, 1995......................... 47.50 42.25 .030 FISCAL 1996: Through September 15, 1995.............. $55.88 $43.75 $.030
At September 15, 1995, there were approximately 1,121 shareholders of record of the Company's Common Shares. The Company paid a 25% stock dividend on June 30, 1994, to effect a five-for-four stock split of the Company's Common Shares. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the 6 8 Company's Board of Directors and will depend upon the Company's future earnings, financial condition, capital requirements, and other factors. ITEM 6: SELECTED FINANCIAL DATA The following selected consolidated financial data of the Company was prepared giving retroactive effect to the business combination with Whitmire Distribution Corporation ("Whitmire") on February 7, 1994 (the "Whitmire Merger"), which was accounted for as a pooling-of-interests transaction. The term "Cardinal," as used herein, refers to Cardinal Health, Inc. and its subsidiaries prior to the Whitmire Merger. Cardinal's fiscal year had historically ended on March 31, while Whitmire's fiscal year had ended on the Saturday closest to the end of June. On March 1, 1994, the Company changed its fiscal year end from March 31 to June 30. As a result, for the fiscal year ended March 31, 1993, and prior years, the information presented is derived from consolidated financial statements which combine data from Cardinal for the fiscal years ended March 31, 1993, March 31, 1992 and March 31, 1991, with data from Whitmire for fiscal years ended July 3, 1993, June 27, 1992, and June 29, 1991, respectively. For the fiscal years ended June 30, 1995 and 1994, and the twelve months ended June 30, 1993, the information presented is derived from consolidated financial statements which combine data from Cardinal for the fiscal years ended June 30, 1995 and 1994, and the twelve months ended June 30, 1993, with data from Whitmire for the fiscal years ended June 30, 1995 and 1994, and July 3, 1993. Due to the different fiscal year ends of the merged companies, Whitmire's results of operations for the three months ended July 3, 1993, have been included in both the twelve months ended June 30, 1993, and the fiscal year ended March 31, 1993. The selected consolidated financial data below should be read in conjunction with the Company's consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 7 9 CARDINAL HEALTH, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TWELVE MONTHS FISCAL YEAR ENDED ENDED FISCAL YEAR ENDED ------------------------- ----------- ---------------------------------------- JUNE 30, JUNE 30, JUNE 30, MARCH 31, MARCH 31, MARCH 31, 1995 1994 1993 1993 1992 1991 ---------- ---------- ----------- ---------- ---------- ---------- (UNAUDITED) EARNINGS STATEMENT DATA: Net sales............................... $7,806,092 $5,790,411 $4,709,085 $4,633,375 $3,680,678 $2,803,111 Earnings available for Common Shares before cumulative effect of change in accounting principle.................. 84,973 33,931 39,298 37,671 25,522 16,849 Cumulative effect of change in accounting principle.................. (10,000) ---------- ---------- ----------- ---------- ---------- ---------- Net earnings available for Common Shares................................ $ 84,973 $ 33,931 $ 39,298 $ 27,671 $ 25,522 $ 16,849 ========= ========= =========== ========= ========= ========= Primary earnings per Common Share: Before cumulative effect of change in accounting principle................ $ 2.01 $ 0.86 $ 1.14 $ 1.10 $ 0.74 $ 0.53 Cumulative effect of change in accounting principle................ (0.29) ---------- ---------- ----------- ---------- ---------- ---------- Net................................... $ 2.01 $ 0.86 $ 1.14 $ 0.81 $ 0.74 $ 0.53 ========= ========= =========== ========= ========= ========= Fully diluted earnings per Common Share: Before cumulative effect of change in accounting principle................ $ 2.01 $ 0.86 $ 1.10 $ 1.06 $ 0.74 $ 0.53 Cumulative effect of change in accounting principle................ (0.26) ---------- ---------- ----------- ---------- ---------- ---------- Net................................... $ 2.01 $ 0.86 $ 1.10 $ 0.80 $ 0.74 $ 0.53 ========= ========= =========== ========= ========= ========= BALANCE SHEET DATA: Total assets............................ $1,841,804 $1,395,602 $1,150,423 $1,099,850 $ 947,081 $ 800,213 Long-term obligations................... 209,250 210,086 274,908 275,789 304,943 213,986 Redeemable preferred stock.............. 20,400 20,400 19,560 18,320 Shareholders' equity.................... 548,197 368,494 257,917 247,862 212,438 185,998 Cash dividends declared per Common Share................................. $ 0.12 $ 0.10 $ 0.08 $ 0.07 $ 0.06 $ 0.05
Net earnings and cash dividends per Common Share have been adjusted to reflect all stock dividends and stock splits. Amounts reflect business combinations in fiscal 1995, 1994, the twelve months ended June 30, 1993, fiscal 1992 and 1991. Fiscal 1994, the twelve months ended June 30, 1993, and fiscal 1993 amounts reflect the impact of Unusual Items (See Note 2 of "Notes to Consolidated Financial Statements"). 8 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis has been prepared giving retroactive effect to the pooling-of-interests business combination with Whitmire on February 7, 1994 (see Note 3 of "Notes to Consolidated Financial Statements"). See "Item 6: Selected Financial Data" for a discussion regarding the terms used herein, the periods used to combine Cardinal and Whitmire, and the change in the Company's fiscal year. The discussion and analysis presented below should be read in conjunction with the consolidated financial statements and related notes appearing in this report. RESULTS OF OPERATIONS Net Sales. Net sales in fiscal 1995 increased 35% compared with fiscal 1994 due to internal business growth of 25%, the acquisition of Humiston-Keeling, Inc. in July 1994, and the merger transaction with Behrens, Inc. in July 1994 (see Note 3 of "Notes to Consolidated Financial Statements"). The 25% increase in net sales in fiscal 1994 compared to fiscal 1993 was due to internal business growth of 20%, sales resulting from the acquisition of Solomons Company in May 1993 and the merger transaction with PRN Services, Inc. in December 1993 (see Note 3 of "Notes to Consolidated Financial Statements"). The internal business growth in both fiscal 1995 and fiscal 1994 resulted primarily from the addition of new customers (partially as a result of expanded sales territories), increased sales to existing customers, and price increases. Gross Margin. As a percentage of net sales, gross margin declined to 5.95% in fiscal 1995 from 6.13% in fiscal 1994 and 6.42% in fiscal 1993. The decreases in the gross margin percentages were due to lower selling margins, reflecting a more competitive market and a greater mix of higher volume customers, where a lower cost of distribution and better asset management and cash flow enable the Company to offer lower selling margins, offset in 1995 by a slight increase in purchasing gains associated with drug price inflation. The decline in the gross margin rate has moderated in 1995 from prior fiscal years to the point that the gross margin percentage for the fourth quarter of fiscal 1995 approximated that of the comparable quarter of fiscal 1994. This moderation is due primarily to a stabilization in the customer mix and growth in the higher margin specialty business units. Selling, General, and Administrative Expenses. Selling, general, and administrative expenses as a percentage of net sales have improved consistently from 4.40% in fiscal 1993 to 4.03% in fiscal 1994 and 3.85% in fiscal 1995. The improvements are due primarily to economies associated with the Company's significant sales growth, particularly with major customers where support costs are generally lower, consolidating distribution centers and administrative functions, and selectively automating facilities. Unusual Items. In February 1994, the Company recorded a charge to reflect estimated Whitmire Merger costs of approximately $35.9 million ($28.2 million net of tax), including (a) fees and other transaction costs related to the combination, and (b) other costs expected to be incurred in connection with the integration of Cardinal's and Whitmire's business operations. These estimated costs included approximately $7 million for investment banking, legal, accounting, and other related transaction fees and costs associated with the combination; $13 million for corporate integration and distribution rationalization; $6 million for integration of information systems; and $2 million for restructuring Whitmire's revolving credit agreement. Of these estimated costs, approximately $7 million pertained to the revaluation of certain operating assets and $2 million pertained to employee relocation, retraining and termination costs. At June 30, 1995, the Company had incurred actual costs aggregating approximately $26.9 million relative to the Whitmire Merger. The Company anticipates that the remainder of these costs will be expended in fiscal 1996. The current estimates of merger costs ultimately to be incurred are not materially different than the amounts originally recorded. During fiscal 1993, the Company received a termination fee of approximately $13.5 million resulting from the termination by Durr-Fillauer Medical, Inc. of its agreement to merge with the Company. Also during fiscal 1993, the Company recorded charges totaling approximately $13.7 million, primarily related to the closing of certain non-core operations and the rationalization, standardization and improvement of selected distribution operations, information systems and support functions. The charges included the write-down of certain assets, moving costs and other costs associated with the affected operations, and modification costs necessary to centralize and standardize certain information systems and support functions. At June 30, 1995, 9 11 the initiatives contemplated have been substantially completed in accordance with the original plan and all related funds have been expended. The modification of the terms of certain Whitmire stock options in fiscal 1993 resulted in a one-time stock option compensation charge of approximately $5.2 million (see Note 11 of "Notes to Consolidated Financial Statements"). Interest Expense. The increase in interest expense in fiscal 1995 is due to higher average short-term borrowings resulting from increased working capital requirements associated with the Company's growth. A portion of the funds used for the increased working capital requirements were provided by the proceeds from the issuance of approximately 1,867,000 of the Company's Common Shares ("Common Shares Offering") pursuant to a public offering completed on September 26, 1994 (see Note 11 of "Notes to Consolidated Financial Statements"). The decrease in interest expense in fiscal 1994 compared to fiscal 1993 is due primarily to the conversion in June 1993 of debt to equity of the Company's $75 million, 7.25% Convertible Debentures (see Note 11 of "Notes to Consolidated Financial Statements") and reduced borrowings under Whitmire's revolving credit agreements. The reduction in interest expense in fiscal 1994 as discussed above was partially offset by increased interest expense resulting from the sale by the Company of $100 million of 6.5% Notes on February 23, 1994 (see Note 5 of "Notes to Consolidated Financial Statements"). The Company has entered into various interest rate swap agreements, which serve to reduce the Company's aggregate interest cost on its $100 million 8% Notes (the "8% Notes"), in response to falling interest rates subsequent to the issuance of the 8% Notes (see Note 5 of "Notes to Consolidated Financial Statements"). The net effect of the swap agreements is that the Company exchanged its fixed rate position on the 8% Notes for a fixed rate of 5.1% for the period July 15, 1992, through March 1, 1993, a fixed rate of 6.5% for the period March 2, 1993, through March 1, 1994, and, thereafter, a fixed rate of 8.1% through March 1, 1997 (the maturity date of the 8% Notes). In May 1993, two of the offsetting swap agreements were canceled at no gain or loss to the Company. Provision for Income Taxes. The Company's provision for income taxes relative to pretax earnings decreased significantly in fiscal 1995 compared with fiscal 1994 due primarily to certain nondeductible costs associated with the Whitmire Merger recorded in the third quarter of fiscal 1994 (see Note 2 of "Notes to Consolidated Financial Statements"). Cumulative Effect of Change in Accounting Principle. Effective at the beginning of fiscal 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109). The cumulative effect of adopting SFAS No. 109 ($10 million) has been reported as a change in accounting principle retroactive to the beginning of fiscal 1993. The $10 million cumulative effect resulted primarily from the fact that SFAS No. 109 modifies the accounting for business combinations recorded using the purchase method. LIQUIDITY AND CAPITAL RESOURCES Working capital increased $130.2 million to $601.3 million at June 30, 1995, from $471.1 million at June 30, 1994, and included increased investments in merchandise inventories and trade receivables of $203.6 million and $175.4 million, respectively, increased holdings of cash and equivalents and marketable securities of $8.3 million and a decrease in notes payable-banks of $22.0 million, offset primarily by an increase in accounts payable of $253.6 million and an increase in accrued liabilities of $26.5 million. The increases in merchandise inventories and accounts payable reflect the timing of seasonal purchases and related payments, the Company's internal growth, and current year business combinations (see Note 3 of "Notes to Consolidated Financial Statements"). The increase in cash and equivalents, as well as the decrease in the notes payable-banks, reflect the timing of seasonal purchases and payments noted above and partial use of proceeds from the Common Shares Offering (see "Interest Expense," above). The increase in trade receivables was due primarily to increased sales (see "Net Sales", above) and current year business combinations completed in fiscal 1995 (see Note 3 of "Notes to Consolidated Financial Statements"). The increase in accrued liabilities is primarily due to the income tax liability arising from the current year net earnings. 10 12 Property and equipment, net of accumulated depreciation and amortization, increased by $35.2 million. This increase reflects the Company's continuing investment in management information systems, including customer support systems, and upgrade and automation of distribution facilities. Shareholders' equity increased to $548.2 million at June 30, 1995 from $368.5 million at June 30, 1994 due primarily to (a) the Common Shares Offering ($70.5 million), (b) net earnings of the Company of approximately $85.0 million, (c) the recording of tax benefits related to restricted stock and the exercise of stock options of approximately $18.1 million, and (d) the addition of Behrens Inc. shareholders' equity of approximately $9.8 million (see Note 3 of "Notes to Consolidated Financial Statements"), offset primarily by dividends paid by the Company of approximately $4.9 million. The Company has line-of-credit agreements with various bank sources aggregating $325 million, of which $100 million is represented by committed line-of-credit agreements and the balance is uncommitted. The Company had drawn upon $3.0 million of the available lines-of-credit at June 30, 1995, leaving $322 million available under the Company's existing line-of-credit agreements. As of June 30, 1995, the Company has the capacity to offer to the public debt securities of up to $200 million pursuant to Shelf Registrations filed with the Securities and Exchange Commission. The Company believes that it has adequate capital resources at its disposal to meet currently anticipated capital expenditures, routine business growth and expansion, and current and projected debt service. OTHER On August 26, 1995, the Company signed a definitive agreement with Medicine Shoppe International, Inc. ("Medicine Shoppe"), a franchisor of independent retail pharmacies. Under the terms of the transaction, shareholders of Medicine Shoppe will receive Company Common Shares in exchange for common shares of Medicine Shoppe. The Company will issue between approximately 6.0 million and 6.8 million Common Shares in the transaction, depending in part upon the average closing price of the Company Common Shares over a specified period. Under certain circumstances, the Company could issue up to approximately 7.2 million Company Common Shares in the transaction. The transaction is subject to certain conditions including approval of the Medicine Shoppe shareholders and is expected to be accounted for as a pooling-of-interests. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Independent Auditors' Reports Financial Statements: Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 1995, June 30, 1994, Twelve Months Ended June 30, 1993, and Fiscal Year Ended March 31, 1993 Consolidated Balance Sheets at June 30, 1995, and June 30, 1994 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 1995, June 30, 1994, and March 31, 1993 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1995, June 30, 1994, and March 31, 1993 Notes to Consolidated Financial Statements 11 13 INDEPENDENT AUDITORS' REPORT To the Shareholders and Directors of Cardinal Health, Inc.: We have audited the accompanying consolidated balance sheets of Cardinal Health, Inc. and subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the years ended June 30, 1995 and 1994 and March 31, 1993. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. The consolidated financial statements and financial statement schedule give retroactive effect to the pooling-of-interests business combination of Cardinal Health, Inc. and Whitmire Distribution Corporation on February 7, 1994, as described in Note 1 to the consolidated financial statements. We did not audit the statements of earnings, shareholders' equity, and cash flows of Whitmire Distribution Corporation for the year ended July 3, 1993, which statements reflect shareholders' equity of $2,223,000 as of July 3, 1993; net sales of $2,666,829,000 and net earnings available for common shares before cumulative effect of change in accounting principle of $4,039,000 for the year ended July 3, 1993. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Whitmire Distribution Corporation in the March 31, 1993 financial statements, is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cardinal Health, Inc. and subsidiaries at June 30, 1995 and 1994, and the results of their operations and their cash flows for the years ended June 30, 1995 and 1994 and March 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 7 to the consolidated financial statements, the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109 by applying it retroactively effective April 1, 1992. DELOITTE & TOUCHE LLP Columbus, Ohio August 14, 1995, except for Note 16, as to which the date is August 26, 1995 12 14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Whitmire Distribution Corporation: We have audited the statement of operations of Whitmire Distribution Corporation (a Delaware corporation), for the year ended July 3, 1993, and the related statements of stockholders' equity and cash flows for the year ended July 3, 1993 (not presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Whitmire Distribution Corporation for the year ended July 3, 1993, in conformity with generally accepted accounting principles. Arthur Andersen & Co. Sacramento, California September 3, 1993 (Except with respect to the matter discussed in Note 10, as to which date is October 11, 1993.) 13 15 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE TWELVE MONTHS FISCAL FISCAL YEAR ENDED ENDED YEAR ENDED ------------------------ ---------- ---------- JUNE 30, JUNE 30, JUNE 30, MARCH 31, 1995 1994 1993 1993 ---------- ---------- ---------- ---------- (UNAUDITED) Net sales.................................... $7,806,092 $5,790,411 $4,709,085 $4,633,375 Cost of products sold........................ 7,341,636 5,435,239 4,408,840 4,336,082 ---------- ---------- ---------- ---------- Gross margin................................. 464,456 355,172 300,245 297,293 Selling, general and administrative expenses................................... (300,817) (233,305) (205,161) (203,740) Unusual items: Merger costs............................... (35,880) Termination fee............................ 13,466 13,466 Restructuring and other charges............ (18,904) (18,904) ---------- ---------- ---------- ---------- Operating earnings........................... 163,639 85,987 89,646 88,115 Other income (expense): Interest expense........................... (19,341) (18,140) (26,174) (26,623) Other, net - primarily interest income..... 2,207 2,913 5,047 4,765 ---------- ---------- ---------- ---------- Earnings before income taxes and cumulative effect of change in accounting principle... 146,505 70,760 68,519 66,257 Provision for income taxes................... (61,532) (35,624) (26,345) (25,710) ---------- ---------- ---------- ---------- Earnings before cumulative effect of change in accounting principle.................... 84,973 35,136 42,174 40,547 Preferred dividends declared/accretion....... (1,205) (2,876) (2,876) ---------- ---------- ---------- ---------- Earnings available for Common Shares before cumulative effect of change in accounting principle.................................. 84,973 33,931 39,298 37,671 Cumulative effect of change in accounting principle.................................. (10,000) ---------- ---------- ---------- ---------- Net earnings available for Common Shares..... $ 84,973 $ 33,931 $ 39,298 $ 27,671 ========= ========= ========= ========= Primary earnings per Common Share: Before cumulative effect of change in accounting principle.................... $ 2.01 $ 0.86 $ 1.14 $ 1.10 Cumulative effect of change in accounting principle............................... (0.29) ---------- ---------- ---------- ---------- Net........................................ $ 2.01 $ 0.86 $ 1.14 $ 0.81 ========= ========= ========= ========= Fully diluted earnings per Common Share: Before cumulative effect of change in accounting principle.................... $ 2.01 $ 0.86 $ 1.10 $ 1.06 Cumulative effect of change in accounting principle............................... (0.26) ---------- ---------- ---------- ---------- Net........................................ $ 2.01 $ 0.86 $ 1.10 $ 0.80 ========= ========= ========= ========= Weighted average number of Common Shares outstanding: Primary.................................... 42,175 39,392 34,349 34,311 Fully diluted.............................. 42,221 39,477 38,653 38,616
The accompanying notes are an integral part of these statements. 14 16 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, JUNE 30, 1995 1994 ---------- ---------- ASSETS Current assets: Cash and equivalents.................................. $ 40,619 $ 54,941 Marketable securities available for sale.............. 22,576 Trade receivables..................................... 516,262 340,911 Merchandise inventories............................... 1,071,811 868,210 Prepaid expenses and other............................ 23,446 23,062 ---------- ---------- Total current assets............................. 1,674,714 1,287,124 ---------- ---------- Property and equipment -- at cost: Land, buildings and improvements...................... 46,554 28,354 Machinery and equipment............................... 113,123 81,925 Furniture and fixtures................................ 17,607 9,096 ---------- ---------- Total............................................ 177,284 119,375 Accumulated depreciation and amortization............. (82,056) (59,346) ---------- ---------- Property and equipment -- net......................... 95,228 60,029 Other assets............................................. 71,862 48,449 ---------- ---------- Total............................................ $1,841,804 $1,395,602 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable -- banks................................ $ 3,000 $ 25,000 Current portion of long-term obligations.............. 2,083 2,929 Accounts payable...................................... 949,992 696,357 Other accrued liabilities............................. 118,295 91,756 ---------- ---------- Total current liabilities........................ 1,073,370 816,042 ---------- ---------- Long-term obligations -- less current portion............ 209,250 210,086 Other liabilities........................................ 10,987 980 Shareholders' equity: Common Shares -- without par value.................... 345,538 255,458 Retained earnings..................................... 209,804 120,399 Common Shares in treasury, at cost.................... (4,011) (3,390) Unamortized restricted stock awards................... (3,134) (3,973) ---------- ---------- Total shareholders' equity....................... 548,197 368,494 ---------- ---------- Total............................................ $1,841,804 $1,395,602 ========= =========
The accompanying notes are an integral part of these statements. 15 17 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMMON SHARES TREASURY ------------------- SHARES SHARES RETAINED ------ ISSUED AMOUNT EARNINGS SHARES ------ -------- -------- ------ BALANCE, MARCH 31, 1992....................................................... 23,661 $162,799 $ 54,674 (148) Earnings before cumulative effect of change in accounting principle and preferred dividends......................................................... 40,547 Cumulative effect of change in accounting principle........................... (10,000) Shares issued in connection with stock options................................ 280 2,322 Stock option compensation..................................................... 5,247 Restricted stock awards....................................................... 40 1,054 Amortization of restricted stock awards....................................... Treasury shares acquired...................................................... (24) Shares repurchased and retired................................................ (38) (199) Dividends paid and preferred stock accretion.................................. (4,488) Tax benefits related to restricted stock and stock options.................... 1,984 Miscellaneous other........................................................... (840) 840 ------ -------- -------- ------ BALANCE, MARCH 31, 1993....................................................... 23,943 172,367 81,573 (172) Earnings before preferred dividends........................................... 35,136 Shares issued pursuant to the conversion of $75 million of convertible debentures.................................................................. 3,423 73,140 Shares issued pursuant to the acquisition of Solomons Company................. 849 18,006 Repurchase and retirement of shares owned by North American National Corporation................................................................. (580) (15,373) Shares issued in connection with stock options and warrants................... 2,531 1,025 Restricted stock awards....................................................... 47 1,984 Amortization of restricted stock awards....................................... Treasury shares acquired and restricted stock forfeitures..................... (8) Dividends paid................................................................ (3,935) 5-for-4 stock split effected as a stock dividend and cash paid in lieu of fractional shares........................................................... 7,564 (16) Adjustment to change fiscal year of Cardinal Health, Inc...................... 7,293 Equity of PRN Services, Inc. on merger date (see Note 3)...................... 237 34 348 Tax benefits related to restricted stock and stock options.................... 4,275 ------ -------- -------- ------ BALANCE, JUNE 30, 1994........................................................ 38,014 255,458 120,399 (180) Net earnings.................................................................. 84,973 Shares issued in connection with stock options................................ 1,312 961 Restricted stock awards....................................................... 2 64 Amortization of restricted stock awards....................................... Tax benefits related to restricted stock and stock options.................... 18,136 Treasury shares acquired...................................................... (13) Dividends paid................................................................ (4,896) Equity of Behrens Inc. on merger date (See Note 3)............................ 944 451 9,328 Shares issued in connection with stock offering............................... 1,867 70,468 ------ -------- -------- ------ BALANCE, JUNE 30, 1995........................................................ 42,139 $345,538 $209,804 (193) ====== ======== ======== ====== UNAMORTIZED TOTAL RESTRICTED SHAREHOLDERS' AMOUNT STOCK AWARDS EQUITY ------- ------------- ------------- BALANCE, MARCH 31, 1992....................................................... $(2,384) $(2,651) $ 212,438 Earnings before cumulative effect of change in accounting principle and preferred dividends......................................................... 40,547 Cumulative effect of change in accounting principle........................... (10,000) Shares issued in connection with stock options................................ 2,322 Stock option compensation..................................................... 5,247 Restricted stock awards....................................................... (1,054) Amortization of restricted stock awards....................................... 701 701 Treasury shares acquired...................................................... (690) (690) Shares repurchased and retired................................................ (199) Dividends paid and preferred stock accretion.................................. (4,488) Tax benefits related to restricted stock and stock options.................... 1,984 Miscellaneous other........................................................... ------- ------------- ------------- BALANCE, MARCH 31, 1993....................................................... (3,074) (3,004) 247,862 Earnings before preferred dividends........................................... 35,136 Shares issued pursuant to the conversion of $75 million of convertible debentures.................................................................. 73,140 Shares issued pursuant to the acquisition of Solomons Company................. 18,006 Repurchase and retirement of shares owned by North American National Corporation................................................................. (15,373) Shares issued in connection with stock options and warrants................... 1,025 Restricted stock awards....................................................... (1,984) Amortization of restricted stock awards....................................... 985 985 Treasury shares acquired and restricted stock forfeitures..................... (316) 30 (286) Dividends paid................................................................ (3,935) 5-for-4 stock split effected as a stock dividend and cash paid in lieu of fractional shares........................................................... (16) Adjustment to change fiscal year of Cardinal Health, Inc...................... 7,293 Equity of PRN Services, Inc. on merger date (see Note 3)...................... 382 Tax benefits related to restricted stock and stock options.................... 4,275 ------- ------------- ------------- BALANCE, JUNE 30, 1994........................................................ (3,390) (3,973) 368,494 Net earnings.................................................................. 84,973 Shares issued in connection with stock options................................ 961 Restricted stock awards....................................................... (64) Amortization of restricted stock awards....................................... 903 903 Tax benefits related to restricted stock and stock options.................... 18,136 Treasury shares acquired...................................................... (621) (621) Dividends paid................................................................ (4,896) Equity of Behrens Inc. on merger date (See Note 3)............................ 9,779 Shares issued in connection with stock offering............................... 70,468 ------- ------------- ------------- BALANCE, JUNE 30, 1995........................................................ $(4,011) $(3,134) $ 548,197 ======= ============= ============
The accompanying notes are an integral part of these statements. 16 18 CARDINAL HEALTH INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL YEAR ENDED ---------------------------------- MARCH JUNE 30, JUNE 30, 31, 1995 1994 1993 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Earnings before cumulative effect of change in accounting principle.......................... $ 84,973 $ 35,136 $ 40,547 Adjustments to reconcile earnings before cumulative effect of change in accounting principle to net cash from operations: Depreciation and amortization................... 21,209 16,971 18,260 Stock option compensation....................... 5,247 Provision for deferred income taxes............. 24,307 (11,374) (10,063) Provision for bad debts......................... 10,853 9,761 4,498 Change in operating assets and liabilities net of effects from acquisitions: Increase in trade receivables................. (130,574) (84,704) (5,139) Increase in merchandise inventories........... (159,036) (232,178) (51,343) Increase in accounts payable.................. 152,341 169,988 128,353 Other operating items - net................... 6,404 21,451 10,746 -------- -------- -------- Net cash provided by (used in) operating activities.................................... 10,477 (74,949) 141,106 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiary, net of cash acquired...................................... (16,447) Proceeds from sale of property and equipment.... 91 1,079 111 Additions to property and equipment............. (43,039) (11,229) (14,620) Purchase of marketable securities available for sale.......................................... (146,628) (115,241) (330,371) Proceeds from sale of marketable securities available for sale............................ 124,052 187,229 294,083 -------- -------- -------- Net cash provided by (used in) investing activities.................................... (81,971) 61,838 (50,797) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowing activity............... (22,000) 25,000 Reduction of short-term borrowing of an acquired subsidiary.................................... (5,226) Reduction of long-term obligations.............. (4,876) (92,701) (30,495) Proceeds from long-term obligations............. 100,000 Issuance costs of long-term obligations and other......................................... (873) Proceeds from issuance of Common Shares......... 71,429 1,025 2,322 Tax benefit of stock options.................... 18,136 4,275 1,984 Dividends on common and preferred shares and cash paid in lieu of fractional shares........ (4,896) (3,951) (3,648) Redemption of preferred stock................... (20,400) Purchase of treasury shares..................... (621) (307) (889) -------- -------- -------- Net cash provided by (used in) financing activities.................................... 57,172 6,842 (30,726) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS..................................... (14,322) (6,269) 59,583 CASH AND EQUIVALENTS AT BEGINNING OF YEAR......................................... 54,941 61,210 7,156 -------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR............... $ 40,619 $ 54,941 $ 66,739 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (NOTE 13): Interest paid during the year................... $ 20,166 $ 16,412 $ 25,889 Income taxes paid during the year............... $ 11,517 $ 35,974 $ 27,097
The accompanying notes are an integral part of these statements. 17 19 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cardinal Health, Inc. and subsidiaries (the "Company") is a full service wholesaler distributing a broad line of pharmaceuticals, surgical and hospital supplies, therapeutic plasma and other specialty pharmaceutical products, health and beauty care products, and other items typically sold by hospitals, retail drug stores, and other health care providers. The Company is currently operating in only one business segment. BASIS OF PRESENTATION The consolidated financial statements of the Company include the accounts of all majority-owned subsidiaries and all significant intercompany amounts have been eliminated. The consolidated financial statements give retroactive effect to the pooling-of-interests business combination with Whitmire Distribution Corporation (the "Whitmire Merger") on February 7, 1994 (see Note 3). The term "Cardinal," as used herein, refers to Cardinal Health, Inc. and its subsidiaries prior to the Whitmire Merger. Cardinal's fiscal year had historically ended on March 31, while Whitmire's fiscal year had ended on the Saturday closest to the end of June. On March 1, 1994, the Company changed its fiscal year end from March 31 to June 30. Accordingly, the accompanying consolidated financial statements for the fiscal years ended June 30, 1995 and June 30, 1994, and for the twelve months ended June 30, 1993, combine the information for Cardinal and Whitmire as of June 30, 1995, and for each of the three years then ended. The accompanying consolidated financial statements for the fiscal year ended March 31, 1993 combine information for Cardinal's fiscal year ended March 31, 1993 with Whitmire's fiscal year ended July 3, 1993. The consolidated statement of earnings for the twelve months ended June 30, 1993, is unaudited and is presented for the purpose of supplemental analysis. Due to the different fiscal period ends of the merged companies, the results of Whitmire for the three months ended July 3, 1993, have been included in the consolidated statements of earnings for both the periods ended June 30, 1993, and March 31, 1993. Cardinal's results of operations (exclusive of Whitmire) for the three months ended June 30, 1993, are not included in the consolidated statement of earnings but have been included as an adjustment in the consolidated statement of shareholders' equity. For the three months ended June 30, 1993, Cardinal's net sales and net earnings were $550,034,000 and $7,771,000, respectively. The cash provided by operating activities was $53,752,000, while the cash used in investing and financing activities was $36,521,000 and $22,760,000, respectively. Cardinal paid dividends of $478,000 during the three months ended June 30, 1993. CASH EQUIVALENTS The Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents. The carrying value of cash equivalents approximates their fair value. MARKETABLE SECURITIES AVAILABLE FOR SALE Effective July 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). Pursuant to SFAS No. 115, the Company has classified its investment in short-term municipal bonds as available-for-sale. The fair value of the bonds at June 30, 1995 approximates the original cost determined on a specific identification basis and, accordingly, no net unrealized gain or loss has been recorded as a separate component of shareholders' equity. Gross unrealized gains and losses are not significant at June 30, 1995. These bonds mature on various dates in fiscal 1996. Prior to the adoption of SFAS No. 115, the Company accounted for debt securities that were held for sale using the lower-of-cost or market rule. The adoption of SFAS No. 115 did not have a material effect on the Company's financial statements. 18 20 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED TRADE RECEIVABLES Trade receivables are presented net of the related allowance for doubtful accounts of approximately $28,275,000 and $21,594,000 at June 30, 1995, and June 30, 1994, respectively. MERCHANDISE INVENTORIES Substantially all merchandise inventories are stated at lower of cost, last-in, first-out (LIFO) method, or market. If the Company had used the first-in, first-out (FIFO) method of inventory valuation, which approximates current replacement cost, inventories would have been higher than reported at June 30, 1995, by $79,365,000 and at June 30, 1994, by $61,852,000. The June 30, 1994 difference between replacement costs and LIFO values, restated to reflect the pooling-of-interests combination with Behrens, Inc. (see Note 3), was $77,465,000. The impact of partial inventory liquidations in certain LIFO pools reduced the LIFO provision by approximately $2,500,000 in fiscal 1993. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization for financial reporting purposes are computed using the straight-line method over the estimated useful lives of the assets which range from three to forty years, including capital lease assets which are amortized over the terms of their respective leases. Amortization of capital lease assets is included in depreciation and amortization expense. Certain software costs related to internally developed or purchased software are capitalized and amortized using the straight-line method over the useful lives not exceeding three years. OTHER ASSETS Other assets primarily represent intangible assets related to the excess of cost over net assets of subsidiaries acquired and noncurrent deferred tax assets (see Note 7). Intangible assets are being amortized using the straight-line method over lives which range from ten to forty years. Accumulated amortization was $18,670,000 and $16,571,000 at June 30, 1995, and June 30, 1994, respectively. At each balance sheet date, a determination is made by management to ascertain whether the intangible assets have been impaired based on several criteria, including, but not limited to, sales trends, undiscounted operating cash flows, and other operating factors. SALES RECOGNITION The Company records sales when merchandise is shipped to its customers and the Company has no further obligation to provide services related to such merchandise. The Company also arranges for direct deliveries to be made to customer warehouses which are excluded from net sales and totaled $1,779,000,000, $562,000,000 and $467,000,000 in fiscal 1995, 1994 and 1993, respectively. The service fees related to direct deliveries are included in net sales and were not significant in fiscal 1995, 1994 or 1993. INCOME TAXES Effective as of the beginning of fiscal 1993, Cardinal began accounting for income taxes under the liability method by adopting Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). The cumulative effect of adopting this statement ($10,000,000) has been reported as a change in accounting principle retroactive to the beginning of fiscal 1993. Prior to the adoption of SFAS No. 109, income taxes were accounted for in accordance with Accounting Principles Board Opinion No. 11. 19 21 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED EARNINGS PER COMMON SHARE Primary earnings per Common Share are based on the weighted average number of Common Shares outstanding during each period and the dilutive effect of stock options and warrants from the date of grant computed using the treasury stock method. Fully diluted earnings per Common Share reflect: (a) the dilutive effect of stock options and warrants from the date of grant computed using the treasury stock method; and (b) the full conversion of the 7.25% Convertible Subordinated Debentures due 2015 through their conversion and redemption in July 1993 (see Note 11). Cash dividends paid per Common Share were $0.12, $0.09 and $0.07 for the fiscal years ended June 30, 1995 and 1994 and March 31, 1993, respectively. STOCK SPLIT The Company paid a 25% stock dividend on June 30, 1994, to effect a five-for-four stock split of the Company's Common Shares. All share and per share amounts included in the Consolidated Financial Statements, except the Consolidated Statements of Shareholders' Equity, have been adjusted to reflect this stock split. RECLASSIFICATIONS Certain reclassifications have been made to prior years' amounts to conform with the classifications used for 1995. 2. UNUSUAL ITEMS In February 1994, the Company recorded a charge to reflect estimated Whitmire Merger costs of approximately $35.9 million ($28.2 million net of tax), including (a) fees and other transaction costs related to the combination, and (b) other costs expected to be incurred in connection with the integration of Cardinal's and Whitmire's business operations. These estimated costs included approximately $7 million for investment banking, legal, accounting, and other related transaction fees and costs associated with the combination; $13 million for corporate integration and distribution rationalization; $6 million for integration of information systems; and $2 million for restructuring Whitmire's revolving credit agreement. Of these estimated costs, approximately $7 million pertained to the revaluation of certain operating assets and $2 million pertained to employee relocation, retraining and termination costs. At June 30, 1995, the Company had incurred actual costs aggregating approximately $26.9 million relating to the Whitmire Merger. The Company anticipates that the remainder of these costs will be expended in fiscal 1996. The current estimates of merger costs ultimately to be incurred are not materially different than the amounts originally recorded. During fiscal 1993, the Company received a termination fee of approximately $13.5 million, resulting from the termination by Durr-Fillauer Medical, Inc. of its agreement to merge with the Company. Also during fiscal 1993, the Company recorded charges totaling approximately $13.7 million, primarily related to the closing of certain non-core operations and the rationalization, standardization and improvement of selected distribution operations, information systems and support functions. The charges included the write-down of certain assets, moving costs and other costs associated with the affected operations, and modification costs necessary to centralize and standardize certain information systems and support functions. At June 30, 1995, the initiatives contemplated have been substantially completed in accordance with the original plan and all related funds have been expended. The modification of the terms of certain Whitmire stock options in fiscal 1993 also resulted in a one-time stock option compensation charge of approximately $5.2 million (see Note 11). 20 22 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following supplemental information, presented for purposes of facilitating meaningful comparisons to ongoing operations and to other companies in the drug distribution industry, summarizes the results of operations of the Company, adjusted on a pro forma basis to reflect (a) the elimination of the effect of the unusual items discussed above, and (b) the redemption of Whitmire's preferred stock pursuant to the terms of the Reorganization Agreement (see Note 3). Solely for purposes of the summary presented below, such redemption is assumed to have been funded from the liquidation of investments in tax-exempt marketable securities. Although not anticipated, unusual items of a similar nature could occur in the future.
TWELVE MONTHS FISCAL YEAR ENDED ENDED FISCAL YEAR ------------------------- ---------- ENDED (IN THOUSANDS, EXCEPT PER SHARE JUNE 30, JUNE 30, JUNE 30, --------------- AMOUNTS) 1995 1994 1993 MARCH 31, 1993 ------------------------------------- ---------- ---------- ---------- --------------- (UNAUDITED) Operating earnings, excluding unusual items.............................. $163,639 $121,867 $ 95,084 $93,553 Earnings before cumulative effect of change in accounting principle, excluding unusual items............ 84,973 63,044 44,510 42,865 Earnings per Common Share before cumulative effect of change in accounting principle, excluding unusual items: Primary......................... $2.01 $1.60 $1.30 $1.25 Fully diluted................... 2.01 1.60 1.24 1.19
Operating earnings and net earnings as reported in the Company's historical financial statements are reconciled to the respective amounts in the preceding table as follows:
FISCAL YEAR ENDED TWELVE MONTHS ENDED JUNE FISCAL YEAR ENDED JUNE 30, 1994 30, 1993 MARCH 31, 1993 ------------------------- ------------------------- ------------------------- OPERATING NET OPERATING NET OPERATING NET (IN THOUSANDS) EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS ------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) As reported, before cumulative effect of change in accounting principle........ $ 85,987 $ 33,931 $ 89,646 $ 39,298 $ 88,115 $ 37,671 Supplemental adjustments: Merger costs............. 35,880 28,180 Preferred stock redemptions............ 1,205 2,876 2,876 Interest adjustment on preferred stock........ (272) (557) (575) Termination fee............... (13,466) (7,163) (13,466) (7,163) Restructuring charge.......... 13,657 7,265 13,657 7,265 Stock option charge........... 5,247 2,791 5,247 2,791 ---------- ---------- ---------- ---------- ---------- ---------- As supplementally adjusted.... $121,867 $ 63,044 $ 95,084 $ 44,510 $ 93,553 $ 42,865 ========== ========== ========== ========== ========== ==========
21 23 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 3. BUSINESS COMBINATIONS On July 18, 1994, the Company issued approximately 944,000 Common Shares in a merger transaction for all of the common shares of Behrens Inc., a drug wholesaler based in Waco, Texas. The transaction was accounted for as a pooling-of-interests business combination. The impact of the Behrens merger, on both an historical and pro forma basis, is not significant. Accordingly, prior periods have not been restated for the Behrens merger. On July 1, 1994, the Company acquired all of the outstanding stock of Humiston-Keeling, Inc., a drug wholesaler based in Calumet City, Illinois, for cash of $33,334,000 in a transaction accounted for by the purchase method. Had the purchase occurred at the beginning of fiscal 1994, operating results on a pro forma basis would not have been significantly different. On January 27, 1994, shareholders of Cardinal and Whitmire approved and adopted the Agreement and Plan of Reorganization dated October 11, 1993 (the "Reorganization Agreement"), pursuant to which a wholly owned subsidiary of Cardinal was merged with and into Whitmire effective February 7, 1994. In the Whitmire merger, which was accounted for as a pooling-of-interests business combination, holders of outstanding Whitmire common stock received an aggregate of approximately 6,802,000 Common Shares and approximately 1,861,000 Class B common shares in exchange for all of the previously outstanding common stock of Whitmire. In addition, Whitmire's outstanding stock options were converted into options to purchase an aggregate of approximately 1,721,000 additional Common Shares pursuant to the terms of such options and the Reorganization Agreement. On December 17, 1993, the Company issued approximately 296,000 Common Shares in a merger transaction for all of the capital stock of PRN Services, Inc., a distributor of pharmaceuticals and medical supplies to oncologists and oncology clinics. The transaction was accounted for as a pooling-of-interests business combination. The impact of the PRN merger, on both an historical and pro forma basis, is not significant. Accordingly, prior periods have not been restated for the PRN merger. On May 4, 1993, the Company acquired all of the outstanding capital stock of Solomons Company, a wholesale drug distributor based in Savannah, Georgia, in exchange for approximately 1,062,000 Common Shares. The transaction was accounted for by the purchase method. Had the acquisition occurred at the beginning of fiscal 1993, operating results on a pro forma basis would not have been significantly different. 4. NOTES PAYABLE -- BANKS The Company has entered into various uncommitted line-of-credit arrangements which allow for borrowings up to $225,000,000 and $221,000,000 at June 30, 1995 and 1994, respectively, at various money market rates. The amount outstanding under such arrangements was $3,000,000 and $25,000,000, at weighted average interest rates of 6.89% and 4.28%, at June 30, 1995 and 1994, respectively. In addition to the aforementioned credit arrangements, at June 30, 1995, the Company has revolving credit agreements with eight banks which have a maturity of less than one year, are renewable on a quarterly basis, and allow the Company to borrow up to $100,000,000 (none of which was in use at either June 30, 1995 or 1994). The Company is required to pay a commitment fee at the annual rate of .125% on the average daily unused amounts of the total credit allowed under the revolving credit agreements. Total available but unused lines of credit at June 30, 1995 and June 30, 1994 were $322,000,000 and $296,000,000, respectively. 22 24 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 5. LONG-TERM OBLIGATIONS Long-term obligations consist of the following (in thousands):
JUNE 30, JUNE 30, 1995 1994 -------- -------- Notes; 6.5% due 2004.................................................. $100,000 $100,000 Notes; 8% due 1997.................................................... 100,000 100,000 Primarily mortgage revenue bonds, notes and capital leases; 3.70% to 14.07%, and rates that fluctuate based on prime, due in varying installments through 2002........................................... 11,333 13,015 -------- -------- Total....................................................... 211,333 213,015 Less current portion.................................................. (2,083) (2,929) -------- -------- Long-term obligations -- less current portion......................... $209,250 $210,086 ======== ========
On February 23, 1994, the Company sold $100,000,000 of 6.5% Notes due 2004 (the "6.5% Notes") in a public offering. The 6.5% Notes represent unsecured obligations of the Company, are not redeemable prior to maturity and are not subject to a sinking fund. Issuance costs of approximately $860,000 incurred in connection with the offering are being amortized on a straight-line basis over the period the 6.5% Notes will be outstanding. The Company used the proceeds of this sale for general corporate purposes, including the repayment of bank lines of credit incurred as part of the Whitmire Merger (see Note 3). In anticipation of the sale of the 6.5% Notes, the Company entered into an interest rate hedge agreement, which was terminated at the approximate time of the issuance of the 6.5% Notes, resulting in a deferred gain of approximately $1.3 million which is being amortized as a reduction of interest expense over the period the 6.5% Notes are outstanding. On March 11, 1992, the Company sold $100,000,000 of 8% Notes due 1997 (the "8% Notes") in a public offering. The 8% Notes represent unsecured obligations of the Company, are not redeemable prior to maturity and are not subject to a sinking fund. Issuance costs of approximately $718,000 incurred in connection with the offering, are being amortized on a straight-line basis over the period the 8% Notes will be outstanding. The Company has entered into various interest rate swap agreements which serve to hedge the Company's aggregate interest cost on the 8% Notes, in response to falling interest rates subsequent to the issuance of the 8% Notes. The net effect of the swap agreements is that the Company exchanged its fixed rate position on the 8% Notes for a fixed rate of 5.1% for the period July 15, 1992, through March 1, 1993, a fixed rate of 6.5% for the period March 2, 1993, through March 1, 1994, and, thereafter, a fixed rate of 8.1% through March 1, 1997 (the maturity date of the 8% Notes). In May 1993, two of the offsetting swap agreements were canceled at no gain or loss to the Company. The notional principal in each of the four swap agreements outstanding at June 30, 1995 is $100 million. Due to the offsetting nature of the swaps, the market value of those in a net receivable position approximates the market value of those in a net payable position. The risk of accounting loss, based on a discounted cash flow assumption, in the event of nonperformance by counterparties with whom the Company is in a net receivable position is approximately $3 million as of June 30, 1995; however, based on the credit quality of the counterparties, the Company believes the likelihood of such a credit loss to be remote. The Company recognizes in income the periodic net cash settlements under the matched swap agreements as they accrue. Certain long-term obligations are collateralized by property and equipment of the Company with an aggregate book value of approximately $11,480,000 at June 30, 1995. 23 25 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Maturities of long-term obligations for future fiscal years are as follows (in thousands): 1996............ $ 2,083 1997............ 101,844 1998............ 1,043 1999............ 923 2000............ 873 Thereafter...... 104,567 -------- Total...... $211,333 ========
6. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and equivalents, marketable securities, notes payable -- banks and other accrued liabilities at June 30, 1995, and June 30, 1994, approximate their fair value because of the short-term maturities of these items. The estimated fair value of the Company's long-term obligations was $211,208,000 and $206,116,000 as compared to the carrying amounts of $211,333,000 and $213,015,000 at June 30, 1995, and June 30, 1994, respectively. The fair value of the Company's long-term obligations is estimated based on the quoted market prices for the same or similar issues and the current interest rates offered for debt of the same remaining maturities. 7. INCOME TAXES Effective the beginning of fiscal 1993, Cardinal adopted SFAS No. 109. Under the provisions of SFAS No. 109, income taxes are recorded under the liability method. SFAS No. 109 results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of existing differences between financial reporting and tax reporting bases of assets and liabilities (temporary differences), and operating loss and tax credit carryforwards for tax purposes. The cumulative effect of adopting SFAS No. 109 ($10,000,000) has been reported as a change in accounting principle retroactive to the beginning of fiscal 1993. The provision (credit) for income taxes consists of the following (in thousands):
FISCAL YEAR ------------------------------- 1995 1994 1993 ------- ------- ------- Current: Federal............. $33,232 $42,146 $29,991 State............... 3,993 4,852 5,782 ------- ------- ------- Total.......... 37,225 46,998 35,773 ------- ------- ------- Deferred................. 24,307 (11,374) (10,063) ------- ------- ------- Total provision.... $61,532 $35,624 $25,710 ======= ======= =======
24 26 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED A reconciliation of the Company's income tax provision and the provision based on the Federal statutory income tax rate follows:
FISCAL YEAR ---------------------------------- 1995 1994 1993 -------- -------- -------- Provision at Federal statutory rate.......... 35.0% 35.0% 34.0% State income taxes -- net of Federal benefit.................................... 4.5 4.5 5.0 Nondeductible expenses....................... 9.5 Other........................................ 2.5 1.3 (0.2) -------- -------- -------- Effective income tax rate.................... 42.0% 50.3% 38.8% ======== ======== ========
The components of the Company's deferred income tax assets (liabilities), the current portion (a liability of $15,095,000 and an asset of $4,990,000 at June 30, 1995, and June 30, 1994, respectively) is included in the Consolidated Balance Sheets captions "Other accrued liabilities" and "Prepaid expenses and other," and the noncurrent portion (a liability of $10,987,000 and an asset of $467,000 at June 30, 1995, and June 30, 1994, respectively) is included in the Consolidated Balance Sheets captions "Other liabilities" and "Other assets," are as follows (in thousands):
AS OF --------------------- JUNE 30, JUNE 30, 1995 1994 -------- -------- Deferred income tax assets: Allowance for doubtful accounts......... $ 10,987 $ 7,839 Accrued liabilities..................... 16,047 22,623 Stock option compensation............... 2,240 Other................................... 11,814 1,929 -------- -------- Total deferred income tax assets... 38,848 34,631 -------- -------- Deferred income tax liabilities: Inventory basis differences............. (46,588) (25,210) Property related........................ (4,512) (2,840) Other................................... (13,830) (1,124) -------- -------- Total deferred income tax liabilities...................... (64,930) (29,174) -------- -------- Net deferred income tax assets (liabilities).................... $(26,082) $ 5,457 ======== ========
8. EMPLOYEE RETIREMENT BENEFIT PLANS Substantially all of the Company's non-union employees are enrolled in Company-sponsored contributory profit sharing and retirement savings plans which include features under Section 401(k) of the Internal Revenue Code, and provide for matching Company contributions. The Company's contributions to the plans are determined by the Board of Directors subject to certain minimum requirements as specified in the plans. Qualified union employees are covered by Company-sponsored and multiemployer defined benefit pension plans under the provisions of collective bargaining agreements. Benefits under these plans are generally based on the employee's years of service and average compensation at retirement. The effect of the Company-sponsored defined benefit plans on the Company's consolidated financial statements is not material. 25 27 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Employee retirement benefit plans expense was as follows (in thousands):
FISCAL YEAR ---------------------------------- 1995 1994 1993 -------- -------- -------- Defined contribution plans......... $5,465 $3,917 $3,400 Multiemployer plans................ 637 522 538 -------- -------- -------- Total.................... $6,102 $4,439 $3,938 ======== ======== ========
The adoption of Financial Accounting Standards Board Statement No. 112 "Employer's Accounting for Postemployment Benefits" in 1995 had no material effect on the consolidated financial statements of the Company. 9. COMMITMENTS AND CONTINGENT LIABILITIES The Company leases certain warehouse and office facilities, vehicles, and data processing equipment under operating leases. The leases expire at various dates over the next twelve years. Certain of these leases provide for renewal options and/or contingent rentals based on various factors. The future minimum rental payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year at June 30, 1995, are as follows (in thousands): 1996............ $ 11,887 1997............ 10,151 1998............ 8,931 1999............ 7,584 2000............ 3,868 Thereafter...... 10,461 -------- Total...... $ 52,882 ========
The minimum rental payments above have been reduced by sublease rentals of approximately $438,000 in 1996 and $353,000 in 1997. Rental expense (net of sublease rental income) relating to operating leases and short-term cancelable leases was approximately $12,631,000, $11,189,000 and $10,316,000 in fiscal 1995, 1994, and 1993, respectively. In connection with its supplier relationship with various customers, the Company has guaranteed certain indebtedness and lease payments. As of June 30, 1995, these guarantees total approximately $1,633,000. During fiscal 1994, the Company began a program whereby certain customer notes receivables were sold, with full recourse, to a commercial bank. As of June 30, 1995, amounts outstanding on customer notes receivables sold to the commercial bank under this program totaled approximately $6,860,000. The Company becomes involved from time-to-time in litigation arising out of its normal business activities. In addition, in November 1993, Cardinal, Whitmire, five other pharmaceutical wholesalers, and twenty-four pharmaceutical manufacturers were named as defendants in a series of purported class action antitrust lawsuits alleging violations of various antitrust laws associated with the chargeback pricing system. The Company believes that the allegations set forth against Cardinal and Whitmire in these lawsuits are without merit. In the opinion of management, the Company's liability, if any, under any pending litigation would not have a material adverse effect on the Company's financial condition or results of operations. 26 28 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 10. REDEEMABLE PREFERRED STOCK The Company had authorized 360,000 shares of redeemable preferred $.01 par value stock in Whitmire. The redeemable preferred stock was divided into two series: 350,000 shares designated as Senior Preferred Stock and 10,000 shares designated as Series A Preferred Stock. The holders of the Whitmire redeemable preferred stock were entitled to cumulative annual dividends of $10.00 per share for Senior Preferred Stock and $10.125 for Series A Preferred Stock when and as declared by Whitmire's board of directors. In lieu of paying cash dividends to the holders of Senior Preferred Stock and Series A Preferred Stock, Whitmire could, at its election, pay scheduled dividends with additional shares of Senior Preferred Stock or Series A Preferred Stock, as appropriate. Whitmire would have been required to redeem, at $100.00 per share plus accrued but unpaid dividends, all shares of its Senior and Series A Preferred Stock commencing in October 1994 through July 1996. Stockholders' equity was charged $840,000 in fiscal 1993 for accretion relative to this mandatory redemption obligation. As of March 31, 1993, a total of $4,200,000 had been credited to redeemable preferred stock through accretion. Pursuant to the terms of the Reorganization Agreement between Cardinal and Whitmire (see Note 3), all of the outstanding shares of Whitmire Senior and Series A Preferred Stock were redeemed as of February 7, 1994, the date of the Whitmire Merger. 11. SHAREHOLDERS' EQUITY The Company's authorized capital shares consist of (a) 60,000,000 Class A common shares, without par value, of which 41,945,472 and 34,862,835 were outstanding and 193,292 and 179,878 were held in treasury at cost at June 30, 1995, and June 30, 1994, respectively: (b) 5,000,000 Class B common shares, without par value, of which none and 2,971,375 were outstanding at June 30, 1995 and June 30, 1994, respectively; and (c) 500,000 non-voting preferred shares without par value, none of which have been issued. The Class A common shares and Class B common shares are collectively referred to as common shares. The Class B common shares were issued to a former Whitmire stockholder in February 1994 in connection with the Whitmire Merger. All of the Class B common shares outstanding at June 30, 1994 were converted to Class A common shares during the year ended June 30, 1995. Prior to the conversion of Class B common shares, all holders of Class A common shares and Class B common shares participated equally in dividends when and as declared by the Company's Board of Directors. Holders of Class A common shares were entitled to one vote per share for the election of Directors and upon all matters on which shareholders were entitled to vote. Holders of Class B common shares were entitled to one-fifth of one vote per share in the election of Directors and upon all matters which shareholders were entitled to vote. On September 26, 1994, 8,050,000 of the Company's Common Shares were sold pursuant to a public offering. Approximately 1,867,000 Common Shares (the "New Shares") were sold by the Company, and approximately 6,183,000 Common Shares (the "Existing Shares") were sold by certain shareholders of the Company. The Existing Shares included all of the issued and outstanding Class B common shares, which were converted to Class A common shares prior to their sale to the public. Net proceeds received by the Company of approximately $70 million from the sale of the New Shares were used to finance working capital growth and for other general corporate purposes. The Company did not receive any of the proceeds from the sale of the Existing Shares. On June 11, 1993, the Company called its 7.25% convertible Subordinated Debentures due 2015 (the "Subordinated Debentures") for redemption, effective as of July 2, 1993. Following this call, $74,920,000 of Subordinated Debentures were converted into Common Shares of the Company. The remaining $80,000 of Subordinated Debentures outstanding were redeemed for cash. The amount credited to shareholders' equity as a result of the conversion of the Subordinated Debentures was reduced by unamortized offering costs of approximately $1,767,000 and costs directly related to the conversion of approximately $13,000. 27 29 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED During fiscal 1993, Whitmire canceled adjustment share rights, previously granted to outside investors, representing rights to purchase shares of Whitmire common stock (a defined percentage of the adjustment share rights were cancelable annually up to 100% based upon the achievement of certain financial targets). Additionally, certain conditions relative to the exercise of Whitmire options were eliminated. For financial reporting purposes, the modification of the terms of these options previously granted to key employees has been treated as if the options were issued on the date that the terms were modified. Accordingly, a compensation charge totaling approximately $5.2 million was recorded relative to these changes. The compensation charge is equal to the fair value (as determined by an independent appraisal) of the options on the date that the terms of the options were modified. Pursuant to the terms of the Reorganization Agreement (see Note 3), warrants to purchase shares of Whitmire common stock which, upon exercise became convertible into approximately 2,831,000 Common Shares at an average price of $.08 per share, were exercised prior to the consummation of the pooling-of- interests business combination of Cardinal and Whitmire. On Aril 14, 1993, the Company repurchased all of the Common Shares (approximately 725,000) owned by subsidiaries of North American National Corporation, the former Chairman of which is also a Director of the Company, at a price of $21.20 per share. Nearly all of these shares were subject to certain restrictions contained in a Shareholders Agreement among North American National Corporation and other individual shareholders, which restrictions were released as part of the repurchase transaction. 12. STOCK OPTIONS AND RESTRICTED SHARES The Company maintains stock incentive plans (the "Plans") for the benefit of certain officers, directors and key employees. Under the Plans, at June 30, 1995, the Company was authorized to issue up to an aggregate of 3,875,000 Common Shares in the form of incentive stock options, nonqualified stock options, and restricted shares. Options granted are generally exercisable for periods up to ten years from the date of grant at a price which equals fair market value at the date of grant. The following summarizes all stock option transactions under the Plans from March 31, 1992, through June 30, 1995, giving retroactive effect to stock dividends and stock splits (in thousands, except per share amounts):
NUMBER OF EXERCISE PRICES OPTIONS PER SHARE TOTAL --------------------------------------------------------------------------------------------- Balance Outstanding, March 31, 1992.......... 875 $ 4.00 - $28.96 $10,636 Granted................................. 229 20.80 - 22.00 4,801 Exercised............................... (349) 4.00 - 17.04 (2,319) Canceled................................ (16) 11.14 - 24.50 (279) --------------------------------------------------------------------------------------------- Balance Outstanding, March 31, 1993.......... 739 7.78 - 28.96 12,839 Granted................................. 751 23.20 - 38.60 26,286 Exercised............................... (58) 7.78 - 28.96 (787) Canceled................................ (35) 17.04 - 38.60 (899) --------------------------------------------------------------------------------------------- Balance Outstanding, June 30, 1994........... 1,397 7.78 - 38.60 37,439 Granted................................. 416 38.75 - 49.50 20,120 Exercised............................... (62) 7.78 - 38.60 (884) Canceled................................ (16) 21.00 - 49.50 (602) --------------------------------------------------------------------------------------------- Balance Outstanding, June 30, 1995........... 1,735 $ 7.78 - $49.50 $56,073
At June 30, 1995, approximately 476,000 option shares under the Plans were exercisable and approximately 2,723,000 Common Shares were reserved for issuance under the Plans. 28 30 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED In connection with the Whitmire Merger, outstanding Whitmire stock options granted to current or former Whitmire officers or employees were automatically converted into options ("Cardinal Exchange Options") to purchase an aggregate of approximately 1,721,000 additional Common Shares pursuant to the terms of such options and the Reorganization Agreement (see Note 3). Under the terms of their original issuance and as reflected in the Reorganization Agreement, the exercise price for substantially all of the Cardinal Exchange Options is remitted to certain former investors of Whitmire. Cardinal Exchange Options to purchase 1,250,000 and 271,000 Common Shares, with an average option price of $1.52 and $1.60, were exercised in fiscal 1995 and 1994, respectively. At June 30, 1995, Cardinal Exchange Options to purchase approximately 200,000 shares were outstanding with an average exercise price of $2.08 per share. Substantially all of the Cardinal Exchange Options outstanding at June 30, 1995, are 100% vested and are exercisable through October 25, 1995. The market value of restricted shares awarded by the Company is recorded as unamortized restricted stock awards and shown as a separate component of shareholders' equity. The compensation awards are amortized to expense over the period in which participants perform services, generally one to six years. As of June 30, 1995, approximately 416,000 restricted shares have been issued, of which approximately 148,000 shares remain restricted and subject to forfeiture and approximately 16,000 shares have been forfeited. 13. SUPPLEMENTAL INFORMATION REGARDING NONCASH INVESTING AND FINANCING ACTIVITIES In conjunction with the acquisitions of Humiston-Keeling and Solomons (see Note 3), liabilities were assumed as follows (in thousands):
FISCAL YEAR THREE MONTHS ENDED JUNE ENDED JUNE 30, 1995 30, 1993 ------------ ------------ Fair value of assets acquired.............................. $127,674 $ 44,468 Cash paid for the issued and outstanding shares............ 33,334 Common Shares issued for the issued and outstanding shares................................................... 18,006 ------------ ------------ Liabilities assumed........................................ $ 94,340 $ 26,462 ============ ============
Total debt assumed by the Company as a result of these acquisitions was $1,670,000 and $4,315,000 in fiscal 1995 and for the three months ended June 30, 1993, respectively, and is included as part of the amount of liabilities assumed. In conjunction with the pooling-of-interests combination with Behrens (see Note 3) in fiscal 1995, the historical cost of Behrens assets combined was approximately $25,396,000, and the total Behrens liabilities assumed (including total debt of approximately $1,336,000) were approximately $15,617,000. In conjunction with the pooling-of-interests combination with PRN (see Note 3) in fiscal 1994, the historical cost of PRN assets combined was approximately $16,946,000, and the total PRN liabilities assumed (including total debt of approximately $5,847,000) were approximately $16,564,000. 29 31 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following selected quarterly financial data for fiscal 1995 and 1994 reflects the amounts reported in previously filed quarterly reports:
(IN THOUSANDS, EXCEPT PER SHARE FIRST SECOND THIRD FOURTH AMOUNTS) QUARTER QUARTER QUARTER QUARTER TOTAL YEAR ------------------------------- ---------- ---------- ---------- ---------- ---------- Fiscal 1995: Net sales................. $1,818,687 $1,985,863 $1,987,973 $2,013,569 $7,806,092 Gross margin.............. 103,357 112,475 126,704 121,920 464,456 Selling, general and administrative expenses................ (72,201) (73,800) (76,488) (78,328) (300,817) Operating earnings........ 31,156 38,675 50,216 43,592 163,639 Net earnings available for Common Shares........... 16,025 20,877 25,906 22,165 84,973 Net earnings per Common Share: Primary.............. $0.39 $0.49 $0.61 $0.52 $2.01 Fully diluted........ 0.39 0.49 0.61 0.52 2.01 Fiscal 1994: Net sales................. $1,291,470 $1,397,769 $1,510,674 $1,590,498 $5,790,411 Gross margin.............. 77,775 83,312 98,371 95,714 355,172 Selling, general and administrative expenses................ (53,556) (54,855) (61,531) (63,363) (233,305) Operating earnings........ 24,219 28,457 960 32,351 85,987 Net earnings (loss) available for Common Shares.................. 11,806 14,574 (9,096) 16,647 33,931 Net earnings (loss) per Common Share: Primary.............. $0.30 $0.37 $(0.23) $0.42 $0.86 Fully diluted........ 0.30 0.37 (0.23) 0.42 0.86
The following supplemental information for fiscal 1994 excludes the impact of unusual items (see Note 2 for discussion of presentation) and assumes the redemption of Whitmire's preferred stock. Solely for the purposes of the supplemental information presented below, such redemption is assumed to have been funded from the liquidation of investments in tax-exempt marketable securities.
(IN THOUSANDS, EXCEPT PER SHARE FIRST SECOND THIRD FOURTH AMOUNTS) QUARTER QUARTER QUARTER QUARTER TOTAL YEAR ------------------------------- ---------- ---------- ---------- ---------- ---------- Fiscal 1994: Net sales................. $1,291,470 $1,397,769 $1,510,674 $1,590,498 $5,790,411 Gross margin.............. 77,775 83,312 98,371 95,714 355,172 Selling, general and administrative expenses................ (53,556) (54,855) (61,531) (63,363) (233,305) Operating earnings, excluding unusual item.................... 24,219 28,457 36,840 32,351 121,867 Net earnings available for Common Shares, excluding unusual items........... 12,201 14,968 19,228 16,647 63,044 Net earnings per Common Share, excluding unusual items: Primary.............. $0.31 $0.38 $0.49 $0.42 $1.60 Fully diluted........ 0.31 0.38 0.49 0.42 1.60
30 32 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Operating earnings and net earnings as reported in the Company's quarterly financial data for fiscal 1994 are reconciled to the respective amounts in the preceding table as follows:
FIRST SECOND (IN THOUSANDS) QUARTER QUARTER THIRD QUARTER ---------------------------------------------------------------------------------------------- Fiscal 1994: NET NET OPERATING NET EARNINGS EARNINGS EARNINGS EARNINGS ---------- ---------- ---------- ---------- As reported........................ $ 11,806 $ 14,574 $ 960 $ (9,096) Supplemental adjustments: Merger costs.................. 35,880 28,180 Preferred stock redemptions... 520 520 165 Interest adjustment on preferred stock............. (125) (126) (21) ---------- ---------- ---------- ---------- As supplementally adjusted.... $ 12,201 $ 14,968 $ 36,840 $ 19,228 ========== ========== ========== ==========
15. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS The Company's trade receivables are exposed to a concentration of credit risk with customers in the retail and health care sectors. However, the credit risk is limited due to the diversity of the customer base and its wide geographic dispersion. The Company performs ongoing credit evaluations of its customers' financial conditions and maintains reserves for credit losses. Such losses historically have been within the Company's expectations. During fiscal 1995, the Company's two largest customers accounted for 11% of net sales and 82% of direct deliveries, respectively. Trade receivables due from these two customers aggregated approximately 25% of total trade receivables at June 30, 1995. 16. SUBSEQUENT EVENT On August 26, 1995, the Company signed a definitive merger agreement with Medicine Shoppe International, Inc. ("Medicine Shoppe"), a franchisor of independent retail pharmacies. Under the terms of the transaction, shareholders of Medicine Shoppe will receive the Company's Common Shares in exchange for common shares of Medicine Shoppe. The Company will issue between approximately 6.0 million and 6.8 million Common Shares in the transaction, depending in part upon the average closing price of the Company's Common Shares over a specified period. Under certain circumstances, the Company could issue up to approximately 7.2 million Common Shares in the transaction. The transaction is subject to certain conditions including approval by Medicine Shoppe shareholders and is expected to be accounted for as a pooling-of-interests. 31 33 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. In accordance with General Instruction G(3) to Form 10-K, the information called for in this Item 10 relating to Directors is incorporated herein by reference to the Company's Definitive Proxy Statement, to be filed with the Securities and Exchange Commission (the "SEC"), pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934 (the "Exchange Act"), relating to the Company's Annual Meeting of Shareholders (the "Annual Meeting") under the caption "ELECTION OF DIRECTORS". Certain information relating to Executive Officers of the Company appears at pages 5 and 6 of this Form 10-K, which is hereby incorporated by reference. ITEM 11: EXECUTIVE COMPENSATION. In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 11 is incorporated herein by reference to the Company's Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A of the General Rules and Regulations under the Exchange Act, relating to the Company's Annual Meeting under the caption "EXECUTIVE COMPENSATION" (other than information set forth under the caption "Compensation Committee Report"). ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 12 is incorporated herein by reference to the Company's Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A of the General Rules and Regulations under the Exchange Act, relating to the Company's Annual Meeting under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT". ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 13 is incorporated herein by reference to the Company's Definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A of the General Rules and Regulations under the Exchange Act, relating to the Company's Annual Meeting under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and "EXECUTIVE COMPENSATION -- Compensation Committee Interlocks and Insider Participation". 32 34 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The following financial statements are included in Item 8 of this report:
PAGE --------------------- Independent Auditors' Reports........................................... 12-13 Financial Statements: Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 1995, June 30, 1994, Twelve Months Ended June 30, 1993, and Fiscal Year Ended March 31, 1993.................................. 14 Consolidated Balance Sheets at June 30, 1995, and June 30, 1994.... 15 Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 1995, June 30, 1994 and March 31, 1993....... 16 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1995, June 30, 1994 and March 31, 1993................... 17 Notes to Consolidated Financial Statements......................... 18-31
(a)(2) The following Supplemental Schedule is included in this report:
PAGE --------------------- Schedule II - Valuation and Qualifying Accounts.................... 36
All other schedules not listed above have been omitted as not applicable or because the required information is included in the Consolidated Financial Statements or in notes thereto. (a)(3) Exhibits required by S-K item 601:
EXHIBIT NUMBER EXHIBIT DESCRIPTION ---------- -------------------------------------------------------------------------------- 2.01 Agreement and Plan of Merger dated as of August 26, 1995, among the Registrant, Arch Merger Corp., and Medicine Shoppe International, Inc. (10) 3.01 Amended and Restated Articles of Incorporation of the Registrant, as amended. (1) 3.02 Restated Code of Regulations of the Registrant, as amended. (1) 4.01 Specimen Certificate for the Registrant's Class A Common Shares. 4.02 Indenture between the Registrant and Bank One, Indianapolis, NA relating to the Registrant's 8% Notes Due 1997. (2) 4.03 Indenture between the Registrant and Bank One, Indianapolis, NA relating to the Registrant's 6 1/2% Notes Due 2004. (1) 4.04 Registration Rights Agreement dated as of October 11, 1993, as amended, among the Registrant, certain former stockholders of Whitmire, and Robert D. Walter. (9)
Other long-term debt agreements of the Registrant are not filed pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K and the Registrant agrees to furnish copies of such agreements to the Securities and Exchange Commission upon its request.
EXHIBIT NUMBER EXHIBIT DESCRIPTION ---------- -------------------------------------------------------------------------------- 10.01 Stock Incentive Plan of the Registrant, as amended. (9)* 10.02 Directors' Stock Option Plan of the Registrant, as amended and restated. (9) 10.03 Employment Agreement dated October 11, 1993, among Whitmire, Melburn G. Whitmire and the Registrant, as amended. (4)* 10.04 Employment Agreement dated October 11, 1993, among Whitmire, Gary E. Close, and the Registrant, as amended. (4)*
33 35
EXHIBIT NUMBER EXHIBIT DESCRIPTION ---------- -------------------------------------------------------------------------------- 10.05 Employment Agreement dated October 11, 1993, among Whitmire, James E. Clare, and the Registrant. (4)* 10.06 Form of Indemnification Agreement between the Registrant and individual directors. (5) 10.07 Form of Indemnification Agreement between the Registrant and individual officers. (6)* 10.08 Form of Indemnification Agreement between Whitmire and directors and officers of Whitmire. (9)* 10.09 Split Dollar Agreement dated April 16, 1993, among the Registrant, Robert D. Walter, and Bank One Ohio Trust Company, NA, Trustee U/A dated April 16, 1993 FBO Robert D. Walter. (9)* 10.10 Whitmire Distribution Corporation Selective Deferred Compensation Plan, as amended, and form of related Split-Dollar Agreements. (9)* 10.11 Lease for portions of the Registrant's Columbus Investment Property dated July 7, 1958, as amended. (7) 10.12 Cardinal Health, Inc. Incentive Deferred Compensation Plan, Amended and Restated Effective July 1, 1995.* 10.13 Shareholders Agreement dated July 13, 1984, as amended. (8) 11.01 Statement concerning computation of per share earnings. 21.01 List of subsidiaries of the Registrant. 23.01 Consent of Deloitte & Touche LLP. 23.02 Consent of Arthur Andersen LLP. 27.01 Financial Data Table
--------------- (1) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (No. 0-12591) and incorporated herein by reference. (2) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1992 (No. 0-12591) and incorporated herein by reference. (3) Included as an exhibit to the Registrant's Statement on Form S-8 (No. 33-52535) and incorporated herein by reference. (4) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1993 (No. 0-12591) and incorporated herein by reference. (5) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 29, 1986 (No. 0-12591) and incorporated herein by reference. (6) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 28, 1987 (No. 0-12591) and incorporated herein by reference. (7) Included as an exhibit to the Registrant's Registration Statement on Form S-1 (No. 2-84444) and incorporated herein by reference. (8) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1993 (No. 0-12592) and incorporated herein by reference. (9) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994 (No. 0-12591) and incorporated herein by reference. (10) Included as an exhibit to the Registrant's Schedule 13D reporting Registrant's beneficial ownership of shares of Medicine Shoppe International, Inc. (No. 0-13008) and incorporated herein by reference. * Management contract or compensation plan or arrangement. (b) Reports on Form 8-K: None. 34 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CARDINAL HEALTH, INC. September 19, 1995 By: /s/ ROBERT D. WALTER Robert D. Walter, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
NAME TITLE DATE ----------------------------------- ---------------------------------------------------------- /s/ ROBERT D. WALTER Chairman, Chief Executive Officer and September 19, 1995 Robert D. Walter Director (principal executive officer) /s/ DAVID BEARMAN Executive Vice President and Chief September 19, 1995 David Bearman Financial Officer (principal financial officer and principal accounting officer) /s/ JOHN C. KANE President, Chief Operating Officer September 19, 1995 John C. Kane and Director /s/ JOHN F. FINN Director September 19, 1995 John F. Finn /s/ ROBERT L. GERBIG Director September 19, 1995 Robert L. Gerbig /s/ JOHN F. HAVENS Director September 19, 1995 John F. Havens /s/ REGINA E. HERZLINGER Director September 19, 1995 Regina E. Herzlinger /s/ GEORGE R. MANSER Director September 19, 1995 George R. Manser /s/ JOHN B. MCCOY Director September 19, 1995 John B. McCoy Director September , 1995 Michael E. Moritz /s/ JERRY E. ROBERTSON Director September 19, 1995 Jerry E. Robertson /s/ L. JACK VAN FOSSEN Director September 19, 1995 L. Jack Van Fossen /s/ MELBURN G. WHITMIRE Director September 19, 1995 Melburn G. Whitmire
35 37 CARDINAL HEALTH, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR FISCAL YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994, THREE MONTHS ENDED JUNE 30, 1993, AND THE FISCAL YEAR ENDED MARCH 31, 1993 (IN THOUSANDS)
COLUMN B COLUMN C COLUMN E ----------- -------------------------- ----------- COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT ----------- BEGINNING COSTS AND OTHER ------------ END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD -------------------------------------- ----------- ------------ ------------ ----------- Valuation allowance for doubtful receivables: $ 177(1) 1,828(3) ------------ Fiscal Year 1995........... $21,594 $10,853 $ 2,005 $ (6,177)(2) $28,275 =========== =========== ============ ============ =========== $ 308(1) 648(3) ------------ Fiscal Year 1994........... $15,108 $ 9,761 $ 956 $ (4,231)(2) $21,594 =========== =========== ============ ============ =========== $ 38(1) 1,410(3) ------------ Three-months ended June 30, 1993 (4) (Columns C & D Cardinal only).................... $13,428 $ 606 $ 1,448 $ (374)(2) $15,108 =========== =========== ============ ============ =========== Fiscal Year 1993........... $12,257 $ 4,498 $ 136(1) $ (3,463)(2) $13,428 =========== =========== ============ ============ ===========
--------------- (1) Recovery of amounts provided for or written off in prior years. (2) Current year write-off of uncollectible accounts. (3) Amount arises from the acquisition of a subsidiary. (4) See Note 1 of "Notes to Consolidated Financial Statements" regarding basis of presentation. 36 EX-4.01 2 EXHIBIT 4.01 1 Exhibit 4.01 ------------ COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO [logo] CARDINAL SHARES HEALTH, INC. THIS CERTIFICATE IS TRANSFERABLE IN INDIANAPOLIS, IN OR NEW YORK, N.Y. SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 14149Y108 THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE COMMON SHARES, WITHOUT PAR VALUE, OF Cardinal Health, Inc., transferable only on the books of the corporation by the holder of this certificate in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Dated: /s/ Robert A. Walter CHAIRMAN OF THE BOARD COUNTERSIGNED AND REGISTERED BANK ONE, INDIANAPOLIS, NA (Indianapolis, Indiana) Transfer Agent and Registrar By /s/ George H. Bennett Jr. Authorized Signature SECRETARY 2 Cardinal Health, Inc. will mail to each shareholder without charge within five days of receipt of written request therefor a copy of the express terms, if any, of the shares represented by this certificate and of the other class or classes and series of shares, if any, which the corporation is authorized to issue. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian TEN ENT - as tenants by the entireties ---------- ----------- JT TEN - as joint tenants with right of (Cust) (Minor) survivorship and not as tenants under the Uniform Gift to Minors in common Act ---------------------------- (State) Additional abbreviations may also be used though not in the above list.
For value received, the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________________________________________________ (PLEASE PRINT OR TYPE ASSIGNEE'S NAME AND ADDRESS, INCLUDING ZIP CODE _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ of the shares represented by this certificate, and hereby irrevocably constitute(s) and appoint(s) ______________________________________________________________________________ attorney, with full power of substitution, to transfer the shares on the books of the corporation. Dated ------------------------------- -------------------------------------- -------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. EX-10.12 3 EXHIBIT 10.12 1 EXHIBIT 10.12 CARDINAL HEALTH, INC. INCENTIVE DEFERRED COMPENSATION PLAN (THE "PLAN") I PURPOSE ------- Cardinal Health, Inc. and its affiliates (collectively, the "Company") is willing to provide supplemental retirement benefits out of its general assets to certain key employees as an incentive for those individuals to continue their relationship with the Company and to provide the benefits such individuals could otherwise earn under the Cardinal Health, Inc., Profit Sharing and Retirement Savings Plan (the "Qualified Plan") if certain federal law restructions did not apply. Only a select group of the Company's management or highly compensated employees will be eligible to participate in this program. The Company's goal is to retain and reward its key employees by helping them to accumulate benefits for a comfortable retirement. II ELIGIBILITY ----------- Selection of the Company employees eligible to participate in the Plan is within the sole discretion of the Chairman of Cardinal Health, Inc. Only high income or key management employees are eligible for selection by the Chairman. If you fall into one of these groups and are chosen by the Chairman to participate in the Plan, you will sign an Incentive Deferred Compensation Agreement which details the requirements you must satisfy to be eligible to receive this supplemental retirement benefit from the Company. The Chairman will review and determine his selections each year. Thus, selection in one year does not automatically confer a right to participate in succeeding years. III INCENTIVE DEFERRED COMPENSATION ACCUMULATIONS --------------------------------------------- The benefits provided to participants under their Incentive Deferred Compensation Agreements are paid from the Company's general assets. The program is, therefore, considered to be an "unfunded" arrangement as amounts are not set aside or held by the Company in a trust, escrow, or similar account or fiduciary relationship on your behalf. Each participant's rights to benefits under the Plan are equivalent to the rights of any unsecured general creditor of the Company. However, the Company may open accounts with one or more investment companies selected by the Chairman, in his discretion, including from among those used as investment options under the Qualified Plan, and may invest funds subject to this Plan in these mutual funds. Each participant may be permitted to direct how the portion of the Company's -1- 2 funds allocable to him or her is invested from among the available options, if such investment accounts are established. The Company currently expects any such options to be similar to those available under the Qualified Plan, but is not obligated to make these or any other particular investment options available. All investments shall at all times continue to be a part of the Company's general assets for all purposes. To measure the amount of the Company's obligations to a participant in this program, the Company will maintain a bookkeeping record or account of each participant's "Accumulations". There are three basic components of each participant's Accumulations: First, the Company may credit to your Accumulations each calendar year during which you are selected to participate in the Plan an amount equal to 3% of your compensation from the Company in excess of the compensation limit applicable to the Qualified Plan under the Internal Revenue Code (currently $150,000 per year) but not more than $250,000. For this purpose, your compensation includes salary, commission and bonus payments made for the year, but does not include other cash or noncash compensation, expense reimbursements or other benefits provided by the Company, other than your own salary deferrals into this Plan or the Qualified Plan. In addition, the Company may make an additional profit sharing contribution to the Plan for a year, in the Company's discretion, to be credited to your Accumulations. One of the purposes of these contributions is to make up the portion of automatic and special profit sharing contributions to the Qualified Plan that you are losing due to the capping of pay eligible for consideration under the Qualified Plan under Internal Revenue Code rules. All contributions under this provision to your Accumulations, as adjusted for earnings or losses (described below), are referred to as your "PROFIT SHARING VALUE." Second, to encourage each participant to invest in his or her own future, you may also elect to defer your compensation from the Company. These are two types of deferral elections that you may make under the Plan. You may elect (within 30 days of when you first become eligible to participate in the Plan for your initial year of participation or, for subsequent years, not later than the December 31 prior to each such year) to defer payment of a portion of your compensation to be earned during the balance of the current or next calendar year, as applicable, as a credit to your Accumulations. Under special circumstances, the Chairman may also determine, in his discretion, that you may be periodically eligible to make a special election after the beginning of the year to defer any compensation for the remainder of the year which is not yet payable to you. This second source of Accumulations, adjusted for earnings or losses as described below, is known as the "DEFERRAL VALUE." The minimum amount you may defer under either type of election is 1%, and the maximum amount you may defer in the aggregate is 15% (of the first $250,000 of your compensation), less the amount deferrable through the Qualified Plan. Also, who is eligible to participate in the deferral portion of the Plan is determined on a year to year basis -2- 3 by the Company. If you were a participant one year but are not eligible in a succeeding year, you will still be a participant, but will be treated as "inactive." Third, the Company will also match your deferral at the same rate it is generally matching 401(k) deferrals under the Qualified Plan for the period in question. Any "caps" on the match under the Qualified Plan will also apply to this Plan, with the match under this Plan being offset by the match to the Qualified Plan to the extent duplicative. For example, if the Qualified Plan match for the year is 75 cents on the dollar, up to the first 3% of salary deferrals, and you are eligible to defer 5% of the first $150,000 of pay to the Qualified Plan (under the special discrimination-testing rules of that plan), then only the first 3% of deferrals from the portion of your salary above $150,000 but less than $250,000 will be matched under this Plan. The amounts credited to your Accumulations on a matching basis, adjusted for earnings or losses as described below, are referred to as your "MATCHING VALUE." EARNINGS (OR LOSSES): At least once each calendar year while you have a credit balance in your Accumulations, the Company will credit your Accumulations with earnings (or losses), if any, for the period since the last such crediting and determine the value of your Accumulations at that time. The earnings (or losses) may either be credited on the basis of the earnings (or losses) allocable to your directed portion of the Company investments, if any, or on the basis of a hypothetical earnings rate, as determinied by the Company in its sole discretion. The Company also reserves the right to adjust the earnings (or losses) credited to your Accumulations and to determine the value of your Accumulations as of any date by adjusting such earnings (or losses) or such fair market value for the Company's tax and other costs of providing this Plan. These earnings will compensate for the postponement of the receipt of the Accumulations and give you the benefit of tax-deferred growth of the accumulating amounts. Under current federal income tax rules, the amounts credited to your Accumulations, including earnings, will not be taxable income to you in the year they are credited to your acocunt. You, or your beneficiaries in the event of your death, will generally be taxable on these amounts and the credited earnings only if and when benefits are actually paid to you. Thus, this program provides the opportunity to defer income and the payment of income taxes. IV BENEFITS -------- A. VESTING ------- If you participate in the deferral portion of the Plan, your Deferral Value will always be 100% "vested". This means you will always be entitled to receive benefits from this portion of your Accumulations. -3- 4 The portion of your Accumulations derived from the Profit Sharing Value and the Matching Value will not be fully vested until you complete 5 years of service for the Company. A "year of service" for this purpose means a period of 12 consecutive calendar months during which you were employed by the Company and worked at least 1,000 hours. Years of service are calculated from the date you were first hired as an employee by the Company, and anniversaries of that date. The schedule for vesting is as follows: Vested Years of Service Percentage ---------------- ---------- Less than 2 None 2 but less than 3 25% 3 but less than 4 50% 4 but less than 5 75% 5 or more 100% In addition, you also become 100% vested in your Accumulations upon your death or if you become permanently disabled prior to retirement or other termination of service with the Company, or upon a "Change in Control," regardless of your years of service. "Change in Control" means: (i) the purchase or other acquisition by any person, entity or group of persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable successor provisions), directly or indirectly, which results in beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of such person, entity or group of persons equalling 30 percent or more of either the outstanding common shares of Cardinal Health, Inc. ("Cardinal") or the combined voting power of the then-outstanding securities of Cardinal entitled to vote in the election of directors of Cardinal, or (ii) the approval by the shareholders of Cardinal of a reorganization, merger, or consolidation, with respect to which in each case persons who were shareholders of Cardinal immediately prior to such reorganization, merger or consolidation do not (solely because of their common shares of Cardinal owned immediately prior to such reorganization, merger, or consolidation) immediately thereafter, own more than 50 percent of the combined voting power entitled to vote in the election of directors of the then-outstanding securities of the reorganized, merged or consolidated company, or (iii) a liquidation or dissolution of Cardinal, or (iv) the sale of all or substantially all of Cardinal's assets. B. Forfeiture of Benefits ---------------------- If your employment with the Company terminates for any reason other than death, disability, or a Change in Control prior to the time you have completed 5 years of service, you will forfeit some or all (based on the above schedule) rights to receive benefits under the Plan, except that you will still be entitled to receive benefits based on your Deferral Value. -4- 5 C. Payment of Benefits. ------------------- 1. RETIREMENT BENEFITS. You will be eligible to receive ------------------- retirement benefits under the plan upon your retirement after attaining age 65 with five years of service. Retirement benefits will generally be paid as a monthly benefit payable for 60 months. The amount of your benefit will equal the amount necessary to amortize your total Accumulations over the 60 month period. The amount payable each month will either be based on an approximately equal amortization of principal plus actual earnings (or less actual losses) or an amortization based on an assumed interest rate declared by the Company from time to time during the period of distribution. You must give the Company at least 30 days advance written notice of your intention to retire and receive retirement benefits. Actual benefit payments will begin on the first day of the second month following your satisfaction of all requirements for payment. 2. DISABILITY BENEFITS. If you become totally disabled ------------------- before satisfying the requirements for retirement benefits, you will be eligible to receive payment of the amounts credited to your Accumulations as a monthly benefit commencing after six months of total disability and payable for 60 months. The amount of the benefit will be determined in the same manner as retirement benefits. For this purpose, "total disability" means a physical or mental condition which totally and presumably permanently prevents you from engaging in any substantially gainful activity. It is up to the Company to determine whether you qualify as being totally disabled and the Company may require you to submit to periodic medical examinations to confirm that you are, and continue to be, totally disabled. If your disability ends, your disability benefit payments will stop. However, you could continue to qualify for benefits under another provision of the Plan. 3. DEATH BENEFITS. In the event of your death while -------------- receiving benefit payments under the Plan, the Company will pay the beneficiary or beneficiaries designated by you any remaining payments due under the terms of your Incentive Deferred Compensation Agreement, using the same method of distribution in effect to you at the date of your death. In the event of death prior to beginning to receive benefits under the Incentive Deferred Compensation Agreement, the Company will pay any vested benefits to your beneficiary or beneficiaries, beginning as soon as practicable after your death. In this case, benefits will generally be paid as a monthly benefit payable for 60 months computed in the same manner as retirement benefits. The Company will provide you with the form for designating your beneficiary or beneficiaries. If you fail to make a beneficiary designation, or if your designated beneficiary predeceases you or cannot be located, any death benefits will be paid to your estate. 4. OTHER TERMINATION OF SERVICE. If your service with the ---------------------------- Company terminates for any reason other than retirement, death, or total disability, then the vested portion of your Accumulations will be paid to you as a monthly benefit payable for 60 months computed in the same manner as retirement benefits, beginning as soon as administratively practicable after your employment terminates. -5- 6 5. PAYMENT ALTERNATIVES. At the Company's election, or -------------------- upon your request, benefits may be paid in a lump sum or over a shorter or longer period of time than the 60 months generally called for, as described above. However, no request by you or your beneficiaries for a different payment method will be binding on the Company, and any accelerated or deferred payment of benefits shall be made only in the sole discretion of the Company. In addition, the Company may alter the payment method in effect from time to time in its discretion, for example, in order to avoid the loss of a deduction under Code Sec. 162(m). If the payment method is altered, the amount you or your beneficiaries will receive will be computed under one of the alternative methods for determining payment amounts provided for under the normal form of distribution for your Accumulations, determined by the Company in its discretion. 6. CHANGE IN CONTROL. If a Change in Control occurs, and ----------------- your employment with the Company (or its successor) terminates within two years after the Change in Control occurred, then you shall be entitled to receive your Accumulations in a single lump sum within 30 days of your termination of employment, notwithstanding any other provision of this Plan or your Incentive Deferred Compensation Agreement. Also, following a Change in Control, the Company's discretion to alter the payment methodology (described in Sec. 5, above) is limited to accelerating your benefits; the Company cannot, after a Change in Control, defer the commencement of payments or extend the period of distribution beyond the normal period described in the preceding sections (1-4). V MISCELLANEOUS PROVISIONS ------------------------ A. NO RIGHT TO COMPANY ASSETS. -------------------------- As explained previously, this Incentive Deferred Compensation Plan is an unfunded arrangement and the agreement you will enter into with the Company does not create a trust or any kind of a fiduciary relationship between the Company and you, your designated beneficiaries or any other person. To the extent you, your designated beneficiaries, or any other person acquires a right to receive payments from the Company under the Incentive Deferred Compensation Agreement, that right is no greater than the right of any unsecured general creditor of the Company. B. MODIFICATION OR REVOCATION. -------------------------- Your Incentive Deferred Compensation Agreement will continue in effect until revoked, terminated, or all benefits are paid, even during any period of time when you are an "inactive" participant because you are not designated by the Company as eligible to accumulate additional benefits. However, the Incentive Deferred Compensation Agreement and this Plan may be amended or revoked at any time, in whole or in part, by the Company in its sole discretion. Unless you agree otherwise, you will still be -6- 7 entitled to the vested benefit, if any, that you have earned through the date of any amendment or revocation. Such benefits will be payable at the times and in the amounts provided for in the Incentive Deferred Compensation Agreement, or the Company may elect to accelerate distribution and pay all amounts due immediately. C. Rights Preserved. ---------------- Nothing in the Incentive Deferred Compensation Agreement or this Plan gives any employee the right to continued employment by the Company. The relationship between you and the Company shall continue to be "at will" and may be terminated at any time by the Company or you, with or without cause, except as may be specifically set forth in any separate written employment agreement between you and the Company. D. Controlling Documents. --------------------- This is merely a summary of the key provisions of the Incentive Deferred Compensation Agreement currently in use by the Company. In the event of any conflict between the provisions of this Plan and the Incentive Deferred Compensation Agreement, the agreement shall in all cases control. The Company has executed this Plan in Dublin, Ohio on the date set forth below. Cardinal Health, Inc. By: /s/ Lisa Stillings --------------------------- Its: Director, Benefits -------------------------- Date: June 19, 1995 ------------------------- -7- EX-11.01 4 EXHIBIT 11.01 1 EXHIBIT 11.01 FORM 10-K CARDINAL HEALTH, INC. COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, JUNE 30, MARCH 31, 1995 1994 1993 ------------ ------------ ------------ FULLY DILUTED Average shares outstanding.................. 41,149 35,696 29,611 Net effect of dilutive stock options and warrants-based on the treasury stock method using the higher of the average or end of period market price................ 1,072 3,781 4,722 Assumed conversion of 7.25% convertible debentures................................ 4,283 ------------ ------------ ------------ Total....................................... 42,221 39,477 38,616 ============ ============ ============ Earnings available for Common Shares before cumulative effect of change in accounting principle................................. $ 84,973 $ 33,931 $ 37,671 Add 7.25% convertible debenture interest net of income tax effect...................... 3,264 ------------ ------------ ------------ Fully diluted net earnings before cumulative effect of change in accounting principle................................. 84,973 33,931 40,935 Cumulative effect of change in accounting principle................................. (10,000) ------------ ------------ ------------ Fully diluted net earnings.................. $ 84,973 $ 33,931 $ 30,935 ============ ============ ============ Per share amounts: Earnings before cumulative effect of change in accounting principle....... $ 2.01 $ 0.86 $ 1.06 Cumulative effect of change in accounting principle................. (0.26) ------------ ------------ ------------ Net earnings........................... $ 2.01 $ 0.86 $ 0.80 ============ ============ ============
37 EX-21.01 5 EXHIBIT 21.01 1 Exhibit 21.01 ------------- SUBSIDIARIES OF THE REGISTRANT ------------------------------ NAME OF SUBSIDIARY STATE OF INCORPORATION ------------------ ---------------------- I. CDI Investments, Inc. Delaware II. Elliott Drug Company New York III. Cardinal Syracuse, Inc. New York IV. Bailey Drug Company Delaware V. James W. Daly, Inc. Massachusetts VI. Marmac Distributors, Inc. Connecticut VII. Cardal, Inc. Ohio VIII. National PharmPak Services, Inc. Ohio IX. Phillipi Holdings, Inc. Ohio X. Cardinal Health Systems, Inc. Ohio XI. Ohio Valley-Clarksburg, Inc. Delaware XII. Chapman Drug Company Tennessee XIII. National Specialty Services, Inc. Tennessee XIV. Leader Drugstores, Inc. Delaware XV. Solomons Company Georgia XVI. Cardinal West, Inc. Nevada XVII. Cardinal Florida, Inc. Florida XVIII. Cardinal Mississippi, Inc. Mississippi XIX. Whitmire Distribution Corporation Delaware XX. Medical Strategies, Inc. Massachusetts 2 SUBSIDIARIES OF THE REGISTRANT ------------------------------ NAME OF SUBSIDIARY STATE OF INCORPORATION ------------------ ---------------------- XXI. Humiston-Keeling, Inc. Illinois XXII. Behrens Inc. Texas XXIII. Vital Software, Inc. Ohio XXIV. Assisted Care Partners, Inc. Ohio XXV. Williams Drugs Distributors Inc. Delaware XXVI. Renlar Systems, Inc. Kentucky EX-23.01 6 EXHIBIT 23.01 1 Exhibit 23.01 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-57223 and No. 33-62198 of Cardinal Health, Inc. on Form S-3 and Registration Statements No. 33-20895, No. 33-38021, No. 33-38022, No. 33-42357, No. 33-52535, No. 33-52537, and No. 33-52539 of Cardinal Health, Inc. on Form S-8 of our report dated August 14, 1995, except for Note 16, as to which the date is August 26, 1995 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the change in the method of accounting for income taxes) appearing in this Annual Report on Form 10-K of Cardinal Health, Inc. for the year ended June 30, 1995. DELOITTE & TOUCHE LLP Columbus, Ohio September 19, 1995 EX-23.02 7 EXHIBIT 23.02 1 Exhibit 23.02 Consent of Independent Public Accountants As independent public accountants, we hereby consent to incorporation by reference in Registration Statements No. 33-57223 and No. 33-62198 of Cardinal Health, Inc. on Form S-3 and Registration Statements No. 33-20895, No. 33-38021, No. 33-38022, No. 33-42357, No. 33-52535, No. 33-52537 and No. 33-52539 of Cardinal Health, Inc. on Form S-8 of our report for Whitmire Distribution Corporation dated September 3, 1993 appearing in this Annual Report on Form 10-K of Cardinal Health, Inc. for the year ended June 30, 1995. It should be noted that we have not audited any financial statements of Whitmire Distribution Corporation subsequent to June 30, 1993 or performed any audit procedures subsequent to the date of our report. Arthur Andersen LLP Sacramento, California September 19, 1995 EX-27.01 8 EXHIBIT 27.01
5 1,000 YEAR JUN-30-1995 JUL-1-1994 JUN-30-1995 40,619 22,576 544,725 (28,463) 1,071,811 1,674,714 177,284 (82,056) 1,841,804 1,073,370 209,250 345,538 0 0 202,659 1,841,804 7,806,092 7,806,092 7,341,636 7,341,636 (300,817) 0 (19,341) 146,505 (61,532) 84,973 0 0 0 84,973 2.01 2.01