<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 11, 1994
-------------------------
Cardinal Health, Inc. (formerly known as Cardinal Distribution, Inc.)
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 0-12591 31-0958666
-------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number
655 Metro Place South, Suite 925, Dublin, Ohio 43017
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 761-8700
----------------
<PAGE>
Item 5. Other Events
------------
On February 7, 1994, the Registrant announced that it completed its
merger of a wholly-owned subsidiary with and into Whitmire Distribution
Corporation. The restated supplemental consolidated financial statements
of the Registrant are filed herein pursuant to Part I Item 11 (b)(iii)
of Form S-3 in conjunction with the Registrant's shelf registration
statement previously filed on Form S-3 (file No. 33-62198).
Item 7. Financial Statements and Exhibits
---------------------------------
(a) Restated supplemental consolidated financial statements of Cardinal
Health, Inc. and Whitmire Distribution Corporation prepared under the
pooling of interests method of accounting:
. Independent Auditors' Reports
. FINANCIAL STATEMENTS:
Supplemental Consolidated Balance Sheets at March 31, 1992, March
31, 1993 and December 31, 1993
Supplemental Consolidated Statements of Earnings for the Fiscal
Years Ended March 31, 1991, March 31, 1992 and March 31, 1993
and the Nine Month Periods Ended December 31, 1992 and 1993
Supplemental Consolidated Statements of Shareholders' Equity for the
Fiscal Years Ended March 31, 1991, March 31, 1992 and March 31,
1993 and the Nine Month Periods Ended December 31, 1992 and 1993
Supplemental Consolidated Statements of Cash Flows for the Fiscal
Years Ended March 31, 1991, March 31, 1992 and March 31, 1993
and the Nine Month Periods Ended December 31, 1992 and 1993
Notes to Supplemental Consolidated Financial Statements
(c) Exhibits
23.01 Consent of Deloitte & Touche
23.02 Consent of Arthur Andersen & Co.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CARDINAL HEALTH, INC.
/s/David Bearman
Date: February 11, 1994 By: ______________________________
David Bearman
Senior Vice President and
Chief Financial Officer
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Shareholders and Directors of Cardinal Health, Inc.
(formerly known as Cardinal Distribution, Inc.)
We have audited the accompanying supplemental consolidated balance sheets of
Cardinal Health, Inc. (formerly known as Cardinal Distribution, Inc.) and
subsidiaries as of March 31, 1993 and 1992, and the related supplemental
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 1993. These supplemental
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these supplemental financial
statements based on our audits. The supplemental financial statements give
retroactive effect to the merger of a wholly owned subsidiary of Cardinal
Health, Inc. with and into Whitmire Distribution Corporation on February 7,
1994, which has been accounted for as a pooling of interests as described in
Note 1 to the supplemental financial statements. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling of interests method in financial statements that do
not include the date of consummation. These supplemental financial statements
do not extend through the date of consummation, however, they will become the
historical consolidated financial statements of Cardinal Health, Inc. and
subsidiaries after financial statements covering the date of consummation of the
business combination are issued. We did not audit the balance sheets (as
restated) of Whitmire Distribution Corporation as of July 3, 1993 and June 27,
1992, or the related statements of operations (as restated), stockholders'
equity (as restated) and cash flows (as restated) of Whitmire Distribution
Corporation for the years ended July 3, 1993, June 27, 1992 and June 29, 1991,
which statements reflect total assets of $451,855,000 and $371,180,000 as of
July 3, 1993 and June 27, 1992, respectively; net sales of $2,666,829,000,
$2,033,067,000 and $1,618,811,000 for the years ended July 3, 1993, June 27,
1992 and June 29, 1991, respectively; and net earnings (loss) available for
common shares before cumulative effect of change in accounting principle of
$4,039,000, $330,000 and $(548,000) for the years ended July 3, 1993, June 27,
1992 and June 29, 1991, respectively. 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
supplemental 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 supplemental financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the supplemental financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
supplemental financial statement presentation. We believe that our audits and
the report of the other auditors provide a reasonable basis for our opinion.
3
<PAGE>
In our opinion, based on our audits and the report of the other auditors, the
supplemental consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Cardinal Health, Inc. and
subsidiaries at March 31, 1993 and 1992, and the results of their operations and
their cash flows for each of the three years in the period ended March 31, 1993
in conformity with generally accepted accounting principles applicable after
consolidated financial statements are issued for a period which includes the
date of consummation of the business combination.
As discussed in Notes 1 and 7 to the supplemental 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.
/s/ Deloitte & Touche
Deloitte & Touche
Columbus, Ohio
February 10, 1994
4
<PAGE>
LETTERHEAD OF ARTHUR ANDERSEN & CO.
Report of Independent Public Accountants
To the Board of Directors of
Whitmire Distribution Corporation:
We have audited the balance sheets (as restated) of WHITMIRE DISTRIBUTION
CORPORATION (a Delaware corporation) as of July 3, 1993 and June 27, 1992, and
the related statements of operations (as restated), stockholders' equity (as
restated) and cash flows (as restated)(not presented separately herein) for each
of the three years in the period ended July 3, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Whitmire Distribution
Corporation as of July 3, 1993 and June 27, 1992, and the results of its
operations and its cash flows for each of the three years in the period ended
July 3, 1993, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen & Co.
Sacramento, California
September 3, 1993 (except with respect
to the matter discussed in Note 10, as to
which the date is October 11, 1993)
5
<PAGE>
CARDINAL HEALTH, INC. AND SUBSIDIARIES
Supplemental Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, March 31, December 31,
(in thousands, except share amounts) 1992 1993 1993
- ---------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $7,156 $66,739 $71,756
Marketable securities 1,004 37,292 38,269
Trade receivables 247,757 248,398 323,209
Merchandise inventories 583,765 635,108 883,189
Prepaid expenses 6,195 8,295 20,142
--------------------------------
Total current assets 845,877 995,832 1,336,565
Property and equipment-at cost:
Land, buildings and improvements 26,465 28,229 27,953
Machinery and equipment 55,611 65,528 75,139
Furniture and fixtures 8,920 10,057 9,261
--------------------------------
Total 90,996 103,814 112,353
Accumulated depreciation and
amortization (33,448) (44,501) (53,058)
--------------------------------
Property and equipment-net 57,548 59,313 59,295
--------------------------------
Other assets 43,656 44,705 50,761
--------------------------------
Total $947,081 $1,099,850 $1,446,621
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
obligations $6,129 $5,436 $3,487
Accounts payable 357,625 485,978 801,056
Other accrued liablities 45,120 63,680 52,065
--------------------------------
Total current liabilities 408,874 555,094 856,608
Long-term obligations-less current
portion 304,943 275,789 211,413
Other liabilities 1,266 705 864
Redeemable preferred stock 19,560 20,400 20,400
Shareholders' equity:
Common shares-without par value
(see below) 162,799 172,367 249,855
Retained earnings 54,674 81,573 114,458
Common shares in treasury, at cost
(see below) (2,384) (3,074) (3,141)
Unamortized restricted stock awards (2,651) (3,004) (3,836)
--------------------------------
Total shareholders' equity 212,438 247,862 357,336
--------------------------------
Total $947,081 $1,099,850 $1,446,621
======== ========== ==========
Common Shares - authorized 40,000,000 40,000,000 40,000,000
- issued 23,661,309 23,943,376 27,925,377
- in treasury 148,312 172,311 173,935
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
CARDINAL HEALTH, INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
--------------------------------- -------------------------
March 31, March 31, March 31, December 31, December 31,
(in thousands, except per share amounts) 1991 1992 1993 1992 1993
- -----------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $2,803,111 $3,680,678 $4,633,375 $3,206,301 $4,002,451
Cost of products sold 2,596,914 3,423,845 4,336,082 2,998,966 3,760,491
----------------------------------- ------------------------
Gross margin 206,197 256,833 297,293 207,335 241,960
Selling, general and administrative
expenses (152,769) (184,523) (203,740) (149,742) (163,046)
Unusual items
Termination fee 13,466 13,466
Nonrecurring charges (13,657) (9,882)
Equity related transactions (1,973) (5,247) (1,973)
----------------------------------- ------------------------
Operating earnings 53,428 70,337 88,115 59,204 78,914
Other income (expense):
Interest expense (27,070) (28,073) (26,623) (21,751) (15,047)
Other, net-primarily interest income 4,454 5,389 4,765 3,763 3,232
----------------------------------- ------------------------
Earnings before income taxes and cumulative
effect of change in accounting
principle 30,812 47,653 66,257 41,216 67,099
Provision for income taxes 11,123 19,291 25,710 15,718 27,170
----------------------------------- ------------------------
Net earnings before cumulative effect of
change in accounting principle 19,689 28,362 40,547 25,498 39,929
Preferred dividends declared/accretion 2,840 2,840 2,876 2,148 1,758
----------------------------------- ------------------------
Net earnings available for common shares
before cumulative effect of change
in accounting principle 16,849 25,522 37,671 23,350 38,171
Cumulative effect of change in
accounting principle (10,000) (10,000)
----------------------------------- ------------------------
Net earnings available for common
shares $16,849 $25,522 $27,671 $13,350 $38,171
=================================== ========================
Earnings Per Common Share:
Primary
Net earnings before cumulative
effect of change
in accounting principle $0.67 $0.93 $1.37 $0.85 $1.27
Cumulative effect of change in
accounting principle (0.36) (0.36)
----------------------------------- ------------------------
Net earnings $0.67 $0.93 $1.01 $0.49 $1.27
=================================== ========================
Fully diluted
Net earnings before cumulative
effect of change
in accounting principle $0.67 $0.93 $1.33 $0.83 $1.24
Cumulative effect of change
in accounting principle (0.33) (0.34)
----------------------------------- ------------------------
Net earnings $0.67 $0.93 $1.00 $0.49 $1.24
=================================== ========================
Weighted Average Number of Common
Shares Outstanding:
Primary 25,265 27,433 27,449 27,437 30,087
=================================== ========================
Fully diluted 27,753 30,857 30,893 30,887 31,368
=================================== ========================
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
Cardinal Health, Inc. and Subsidiaries
Supplemental Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Shares Treasury Shares Unamortized Total
Shares Retained Restricted Shareholders'
(in thousands except share amounts) Issued Amount Earnings Shares Amount Stock Awards Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1990 12,284,619 $107,055 $14,455 (131,698) ($2,058) ($1,329) $118,123
Net earnings 19,689 19,689
Shares issued in connection with
stock options and warrants 28,790 194 194
Restricted stock awards 39,250 1,087 (1,087)
Amortization of restricted stock
awards 390 390
Shares issued pursuant to a
public offering 1,610,000 51,304 51,304
Treasury shares acquired and
restricted stock forfeitures (9,751) (125) 91 (34)
Dividends and preferred stock
accretion (3,798) (3,798)
5-for-4 stock split effected as a
stock dividend and cash paid in
lieu of fractional shares 2,662,026 (7) (7)
Miscellaneous other 137 137
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1991 16,624,685 159,777 30,339 (141,449) (2,183) (1,935) 185,998
Net earnings 28,362 28,362
Shares issued in connection with
stock options and warrants 3,245,398 521 174 695
Restricted stock awards 36,625 1,388 (1,388)
Amortization of restricted stock
awards 672 672
Treasury shares acquired (6,863) (201) (201)
Dividends and preferred stock
accretion (4,190) (4,190)
5-for-4 stock split effected as a
stock dividend and cash paid in
lieu of fractional shares 3,754,601 (11) (11)
Miscellaneous other 1,113 1,113
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1992 23,661,309 162,799 54,674 (148,312) (2,384) (2,651) 212,438
Net earnings before cumulative effect
of change in accounting principle 40,547 40,547
Cumulative effect of change in
accounting principle (10,000) (10,000)
Shares issued in connection with
stock options and warrants 279,677 2,322 2,322
Stock option compensation 5,247 5,247
Restricted stock awards 39,965 1,054 (1,054)
Amortization of restricted stock
awards 701 701
Treasury shares acquired (23,999) (690) (690)
Common shares repurchased and retired (37,575) (199) (199)
Dividends and preferred stock
accretion (4,488) (4,488)
Miscellaneous other 1,144 840 1,984
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1993 23,943,376 172,367 81,573 (172,311) (3,074) (3,004) 247,862
Net earnings 39,929 39,929
Shares issued pursuant to the
conversion of $75 million of
convertible debentures 3,422,521 73,140 73,140
Shares issued pursuant to the
acquisition of Solomons 849,358 18,006 18,006
Repurchase and retirement of common
shares owned by North American
National Corporation (580,157) (15,373) (15,373)
Shares issued in connection with
stock options and warrants 20,753 353 353
Restricted stock awards 32,900 1,328 (1,328)
Amortization of restricted stock
awards 496 496
Treasury shares acquired (1,624) (67) (67)
Dividends and preferred stock
accretion (3,372) (3,372)
Adjustment to conform fiscal year of
Whitmire Distribution Corporation (4,020) (4,020)
Miscellaneous other 236,626 34 348 382
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 (unaudited) 27,925,377 $249,855 $114,458 (173,935) ($3,141) ($3,836) $357,336
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
CARDINAL HEALTH, INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
--------------------------------- -------------------------
March 31, March 31, March 31, December 31, December 31,
(in thousands) 1991 1992 1993 1992 1993
- ------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings before cumulative effect of
change in accounting principle $19,689 $28,362 $40,547 $25,498 $39,929
Adjustments to reconcile net earnings
before cumulative effect of change in
accounting principle to net cash
from operations:
Depreciation and amortization 12,600 18,036 18,260 13,175 12,971
Stock option compensation 5,247
Provision for deferred income taxes 1,000 3,293 (10,063)
Provision for bad debts 3,781 5,224 4,498 3,490 2,822
Change in operating assets and
liabilities net of effects from
acquisitions:
Increase in trade receivables (47,772) (30,611) (5,139) (31,498) (45,042)
Increase in merchandise
inventories (101,363) (129,016) (51,343) (111,406) (174,367)
Increase in accounts payable 79,743 36,489 128,353 228,019 309,470
Other operating items-net 3,777 (4,185) 10,746 (3,716) (20,393)
------------------------------- -------------------
Net cash provided by (used in)
operating activiites (28,545) (72,408) 141,106 123,562 125,390
------------------------------- -------------------
Cash flows from investing activities:
Acquisition of subsidiary, net of cash
acquired (27,125) (16,365)
Proceeds from sale of property and
equipment 715 298 111 141 1,247
Additions to property and equipment (19,498) (16,433) (14,620) (6,100) (12,748)
Purchase of marketable securities (69,174) (100,719) (330,371) (195,176)
Proceeds from sale of marketable
securities 52,671 120,035 294,083 1,004 194,199
------------------------------- -------------------
Net cash used in investing activities (62,411) (13,184) (50,797) (4,955) (12,478)
------------------------------- --------------------
Cash flows from financing activities:
Net short-term activity (1,285) (46,375) (5,226)
Reductions of long-term obligations (3,514) (15,020) (30,495) (3,583) (84,196)
Proceeds from long-term obligations 98,793 100,000 32,328
Issuance costs of long-term obligations (2,000) (2,468) (1,750)
Proceeds from issuance of common shares 51,498 695 2,322 2,309 353
Proceeds from issuance of preferred
shares 400 400
Net income tax credited to common shares 137 1,113 1,984
Dividends on common and preferred shares
and cash paid in lieu of fractional
shares (2,965) (3,361) (3,648) (2,655) (3,162)
Purchase of treasury shares (34) (201) (889) (663) (67)
Repurchase of common shares (15,373)
Miscellaneous other 178 (224)
------------------------------- ---------------------
Net cash provided by (used in) financing
activities 140,630 34,783 (30,726) 26,564 (107,895)
------------------------------- ---------------------
Net increase (decrease) in cash and
equivalents 49,674 (50,809) 59,583 145,171 5,017
Cash and equivalents at beginning of
period 8,291 57,965 7,156 7,156 66,739
------------------------------- ---------------------
Cash and equivalents at end of period $57,965 $7,156 $66,739 $152,327 $71,756
=============================== =====================
Supplemental disclosure of cash flow
information (Note 13):
Interest paid during the period (net of
capitalized amount) $24,546 $25,735 $25,889 $16,931 $15,113
=============================== =====================
Income taxes paid during the period $10,658 $16,740 $27,097 $16,750 $30,021
=============================== =====================
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is a full-service wholesaler distributing a broad line of
pharmaceuticals, surgical and hospital supplies, health and beauty care
products, and other items typically sold by retail drug stores, hospitals and
other health care providers. The Company is currently operating in only one
business segment.
BASIS OF PRESENTATION
The supplemental consolidated financial statements of Cardinal Health, Inc.
(formerly known as Cardinal Distribution, Inc.) and subsidiaries, all
collectively referred to as "Cardinal" or the "Company", have been prepared
to give retroactive effect to the merger of a wholly owned subsidiary of
Cardinal with and into Whitmire Distribution Corporation ("Whitmire") on
February 7, 1994. Generally accepted accounting principles proscribe giving
effect to a consummated business combination accounted for by the pooling of
interests method in financial statements that do not include the date of
consummation. These supplemental consolidated financial statements do not
extend through the date of consummation, however, they will become the
historical consolidated financial statements of the Company after financial
statements covering the date of consummation of the business combination are
issued.
The supplemental consolidated balance sheets present the consolidated balance
sheets of Cardinal as of March 31, 1992, March 31, 1993 and December 31,
1993, combined with the balance sheets of Whitmire as of June 27, 1992, July
3, 1993 and January 1, 1994, respectively. The supplemental consolidated
statements of earnings, shareholders' equity and cash flows present the
consolidated statements of earnings, shareholders' equity and cash flows of
Cardinal for the fiscal years ended March 31, 1991, March 31, 1992 and March
31, 1993, and for the nine months ended December 31, 1992 and December 31,
1993 combined with the statements of operations, shareholders' equity and
cash flows of Whitmire for the fiscal years ended June 29, 1991, June 27,
1992 and July 3, 1993, and for the nine months ended December 26, 1992 and
January 1, 1994, respectively.
Due to the different fiscal year ends of the merged companies, Whitmire's
results for the three months ended July 3, 1993, and the three months ended
June 27, 1992, have been included in both the respective fiscal years and the
interim periods presented. The operating results for these two periods are
summarized as follows:
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
-------------------
July 3, 1993 June 27, 1992
------------ -------------
(in thousands)
<S> <C> <C>
Net sales $763,178 $541,977
Net earnings (loss) 4,739 (691)
Preferred dividends declared/accretion (719) (710)
Net earnings (loss) available for common shares 4,020 (1,401)
</TABLE>
INTERIM FINANCIAL INFORMATION
Financial information for the nine-month periods ended December 31, 1992 and
1993, is unaudited; however, in the opinion of management, all adjustments,
necessary for a fair presentation have been included.
CASH EQUIVALENTS
The Company considers all liquid investments purchased with a maturity of
three months or less to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities are recorded at cost, which approximates market value.
The Financial Accounting Standards Board (FASB) has issued Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", which
expands the use of fair value accounting for those securities. The Statement
must be implemented by the Company no later than the fiscal year beginning
April 1, 1994. Based upon the current components of the Company's marketable
securities portfolio, management does not believe that the new Statement will
have a material effect on the consolidated financial statements of the
Company.
TRADE RECEIVABLES
Trade receivables are presented net of the related allowance for doubtful
accounts of approximately $12,257,000 and $13,428,000 at March 31, 1992 and
1993, 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
March 31, 1992 by $46,274,000 and at March 31, 1993 by $55,374,000. The
impact of partial inventory liquidations in certain LIFO pools reduced the
fiscal 1993 LIFO provision by approximately $2,500,000.
11
<PAGE>
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.
OTHER ASSETS
Other Assets in the supplemental consolidated balance sheets primarily
represent noncurrent deferred tax assets (see Note 7) and intangible assets
related to the excess of cost over net assets of subsidiaries acquired.
Intangible assets are being amortized using the straight-line method over
lives which range from 35 to 40 years. Accumulated amortization was
$12,080,000 and $15,369,000 at March 31, 1992 and 1993, respectively.
INCOME TAXES
Effective as of the beginning of fiscal 1992, Whitmire began accounting for
income taxes under the liability method by adopting Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, with no
significant cumulative effect resulting from this change in accounting
principle. In the first quarter of fiscal 1994, Cardinal adopted SFAS No.
109 (see Note 7). The cumulative effect of adopting this statement
($10,000,000) has been reported as a change in accounting principle
retroactive to April 1, 1992 (the beginning of fiscal 1993). Prior to the
adoption of SFAS No. 109 the merged companies accounted for income taxes in
accordance with APB Opinion 11.
NET EARNINGS PER COMMON SHARE
Primary earnings per common share are based on the weighted average number of
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 1/4% Convertible
Subordinated Debentures due 2015 since issuance in July 1990 (see Note 5).
All net earnings per common share amounts have been restated to give
retroactive effect to stock dividends and stock splits.
SERVICE FEES
Service fees related to bulk sales of pharmaceuticals are included in net
sales. Such amounts are not significant in fiscal 1991, 1992 and 1993.
12
<PAGE>
CONFORMING RECLASSIFICATION
Certain customer service costs, historically reported by Cardinal in Cost of
Products Sold, have been reclassified to Selling, General and Administrative
Expenses in the supplemental consolidated statements of earnings in order to
conform with Whitmire's reporting presentation.
2. UNUSUAL ITEMS
In fiscal 1992, Whitmire completed certain equity transactions (see Note 12)
that resulted in the recording of an unusual expense of $1,973,000.
During fiscal 1993, Cardinal received a termination fee of approximately
$13,466,000, resulting from the termination by Durr-Fillauer Medical, Inc. of
its agreement to merge with Cardinal.
Also during fiscal 1993, the merged companies recorded nonrecurring charges
totaling $13,657,000, 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 include 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.
The modification of the terms of certain Whitmire stock options in fiscal
1993 resulted in a one-time stock option compensation charge (see Note 12).
The following supplemental information summarizes the results of operations
of the Company excluding the impact of the unusual items:
<TABLE>
<CAPTION>
(In thousands Fiscal year ended
------------------------------
except per share data) March 31, 1992 March 31, 1993
- ---------------------------------- -------------- --------------
<S> <C> <C>
Operating earnings $72,310 $93,553
Net earnings $27,495 $30,564
Net earnings per common share:
Primary $ 1.00 $ 1.11
Fully diluted $ 1.00 $ 1.10
================================== ======= =======
</TABLE>
3. ACQUISITIONS
On June 18, 1990, Cardinal acquired all of the issued and outstanding shares
of Ohio Valley-Clarksburg, Inc., a drug wholesaler based in Wheeling, West
Virginia, for cash of $27,125,000 in a transaction accounted for by the
purchase method. Had the acquisition occurred at the beginning of fiscal
1991, operating results on a pro forma basis would not have been
significantly different.
13
<PAGE>
On October 15, 1991, Cardinal acquired all of the issued and outstanding
shares of Chapman Drug Company, a drug wholesaler based in Knoxville,
Tennessee, for cash of $16,800,000 in a transaction accounted for by the
purchase method. Had the acquisition occurred at the beginning of fiscal
1992, operating results on a pro forma basis would not have been
significantly different.
On May 4, 1993, Cardinal acquired all of the outstanding capital stock of
Solomons Company, a wholesale drug distributor based in Savannah, Georgia, in
exchange for 849,358 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.
On December 17, 1993, Cardinal issued 236,626 common shares in a merger
transaction for all of the capital stock of PRN Services, Inc. ("PRN"), a
distributor of pharmaceuticals and medical supplies to oncologists and
oncology clinics. The transaction was accounted for as a pooling of
interests. 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 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 Cardinal Merger Corporation, a
wholly owned subsidiary of Cardinal, was merged with and into Whitmire
effective February 7, 1994 (the "Effective Time"). In the merger, which was
accounted for as a pooling of interests, holders of outstanding Whitmire
stock at the Effective Time received an aggregate of approximately 5,442,000
Cardinal common shares, without par value, and approximately 1,488,000 shares
of Cardinal's newly authorized Class b common shares, without par value, in
exchange for all of the previously outstanding stock of Whitmire. In
addition, Whitmire stock options outstanding at the Effective Time were
converted into options to purchase an aggregate of approximately 1,377,000
additional Cardinal common shares, without par value, pursuant to the terms
of the Reorganization Agreement.
The following table reflects the results of operations of Cardinal and
Whitmire for the periods prior to the merger, adjusted on a pro forma
combined basis to reflect (i) the elimination of the effect of the unusual
items as discussed in Note 2 in the fiscal years ended March 31, 1992 and
1993 and the nine months ended December 31, 1992, as applicable; and (ii) the
redemption of Whitmire's Redeemable Preferred Stock pursuant to the terms of
the Reorganization Agreement. Such redemption is assumed to have been funded
from the liquidation of Cardinal's investments in tax-exempt marketable
securities. (in thousands, except per share amounts, excluding estimated
nonrecurring merger expenses of $28 million, net of tax):
14
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CARDINAL WHITMIRE ADJUSTMENTS RESULTS
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1991
- --------------------------------
Net sales $1,184,300 $1,618,811 $2,803,111
Net earnings (loss) available for
common shares before cumulative
effect of change in accounting
principle $ 17,397 $ (548) $1,549 $ 18,398
Net earnings per common share
before cumulative effect of change
in accounting principle:
Primary $ 0.73
Fully Diluted $ 0.73
FISCAL YEAR ENDED MARCH 31, 1992
- --------------------------------
Net sales $1,647,611 $2,033,067 $3,680,678
Net earnings available for common
shares before cumulative effect of
change in accounting principle $ 25,192 $ 330 $3,730 $ 29,252
Net earnings per common share
before cumulative effect of change
in accounting principle:
Primary $ 1.07
Fully Diluted $ 1.05
FISCAL YEAR ENDED MARCH 31, 1993
- --------------------------------
Net sales $1,966,546 $2,666,829 $4,633,375
Net earnings available for common
shares before cumulative effect of
change in accounting principle $ 33,632 $ 4,039 $5,194 $ 42,865
Net earnings per common share
before cumulative effect of change
in accounting principle:
Primary $ 1.56
Fully Diluted $ 1.49
NINE MONTHS ENDED DECEMBER 31, 1992
- -----------------------------------
(UNAUDITED)
Net sales $1,467,640 $1,738,661 $3,206,301
Net earnings available for common
shares before cumulative effect of
change in accounting principle $ 23,041 $ 309 $1,420 $ 24,770
Net earnings per common share
before cumulative effect of change
in accounting principle:
Primary $ 0.90
Fully Diluted $ 0.88
NINE MONTHS ENDED DECEMBER 31, 1993
- -----------------------------------
(UNAUDITED)
Net sales $1,805,065 $2,197,386 $4,002,451
Net earnings available for common
shares before cumulative effect of
change in accounting principle $ 27,925 $ 10,246 $1,383 $ 39,554
Net earnings per common share
before cumulative effect of change
in accounting principle:
Primary $ 1.32
Fully Diluted $ 1.29
</TABLE>
15
<PAGE>
4. NOTES PAYABLE - BANKS
Cardinal has entered into various line-of-credit arrangements which allow for
borrowings up to $131,000,000 at the banks' prime rate, the London Interbank
Offered Rate (LIBOR) plus 1/2%, Eurodollar rates, Federal Funds rates plus
1/2%, or money market rates. As of February 7, 1994, the amount available to
the Company under various line-of-credit arrangements has been increased to
$220,000,000.
In addition to the aforementioned credit arrangements, on September 1, 1992,
Cardinal entered into new revolving credit agreements (the "New Agreements")
with four banks which supersede the multi-year committed line-of-credit
agreement previously entered into by Cardinal with the same four banks on
August 31, 1990. The New Agreements have a maturity of less than one year,
are renewable on a quarterly basis, and allow Cardinal to borrow up to
$45,000,000 (none of which was in use at March 31, 1993) at either the prime
rate, Eurodollar rates plus 1/2%, or a mutually agreed upon rate. Cardinal
is required to pay a commitment fee at the annual rate of 1/8% on the average
daily unused amounts of the total credit allowed under the New Agreements.
As of February 7, 1994, additional revolving credit agreements have been
executed such that the aggregate amount available has been increased to
$95,000,000.
Total unused lines of credit at March 31, 1992 and 1993 were $156,500,000 and
$176,000,000 respectively.
The following summarizes notes payable - banks activity:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Weighted Average Interest Rates:
During the year 8.66% 5.92% 4.31%
At end of year 8.31% ------ ------
Maximum Amounts Borrowed $108,925,000 $136,750,000 $7,300,000
Average Amounts Borrowed $ 67,158,000 $ 71,780,000 $ 129,000
</TABLE>
The weighted average interest rates during the periods represent annualized
rates computed based on the number of days the borrowings were outstanding.
The average amounts borrowed were computed based on the average of the daily
amounts outstanding during the respective periods.
16
<PAGE>
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at March 31:
<TABLE>
<CAPTION>
1992 1993
---- ----
<S> <C> <C>
Notes; 8% due 1997 $100,000,000 $100,000,000
Revolving credit agreement; rates that
fluctuate based on
prime or LIBOR, due 1995 114,545,000 88,824,000
Convertible Subordinated Debentures;
7 1/4%, due 2015 75,000,000 75,000,000
Nonnegotiable Senior Debentures; 7.5%,
redeemed in 1993 2,000,000
Industrial development mortgage revenue
bonds; 8.5%, and
rates that fluctuate based on prime,
due in varying annual
installments through 2002 4,499,000 4,090,000
Mortgage note; 10.05%, due in monthly
installments through 2000 4,760,000 4,624,000
Secured note; 9.7%, due in monthly
installments through 1995 1,614,000 1,196,000
Other notes and capital lease
obligations 8,654,000 7,491,000
------------ ------------
Total $311,072,000 $281,225,000
Less Current Portion 6,129,000 5,436,000
------------ ------------
Long-Term Obligations - less Current
Portion $304,943,000 $275,789,000
============ ============
</TABLE>
On March 11, 1992, Cardinal sold $100,000,000 of its 8% Notes due March 1,
1997 (the "Notes") in a public offering. The Notes represent unsecured
obligations of the Company, are not redeemable prior to maturity and are not
subject to a sinking fund. Issuance costs of $718,000, incurred in
connection with the offering, are being amortized on a straight-line basis
over the period the Notes will be outstanding.
During the second quarter of fiscal 1993, Cardinal entered into various
interest rate swap agreements (the "First Agreements") which served to hedge
the Notes. The net effect of the First Agreements is that Cardinal exchanged
its 8% fixed rate position on the Notes for a fixed rate of 5.1% for the
period from July 15, 1992 through March 1, 1993, and, thereafter, a fixed
rate of 8.1% through March 1, 1997 (the maturity date of the related debt).
Due to the offsetting nature of the series of swaps as of March 31, 1993, the
fair value of those in a net receivable position approximates the fair value
of those in a net payable position.
Cardinal may be exposed to credit loss in the event of nonperformance by
other parties to the First Agreements, however, Cardinal does not anticipate
nonperformance by the counterparties. In May, 1993, two of the offsetting
swap agreements under the First Agreements were canceled at no gain or loss
to Cardinal.
Effective April 6, 1993, Cardinal entered into another interest rate swap
agreement (the "Second Agreement") which will serve to hedge the Notes. The
net effect of the Second Agreement is that Cardinal has exchanged its 8.1%
fixed rate position on the Notes for a fixed rate of 6.5% through March 1,
1994, and, thereafter, a variable rate dependent on the London Interbank
Offered Rate (LIBOR) through March 1, 1997.
17
<PAGE>
During fiscal 1992, Whitmire entered into a new revolving credit agreement
under which it could borrow up to $210,000,000. During fiscal 1993, the
agreement was amended to provide for seasonal increases in the availability
up to $235,000,000. Interest was payable monthly at 1.5% over the prime rate
of a major bank or, at Whitmire's election, 3.25% over the London Interbank
Offered Rate. The average interest rate under the revolving credit agreement
at July 3, 1993, was 6.9%. This agreement replaced a $175,000,000 revolving
credit agreement and term loan with General Electric Capital Corporation.
Interest expense in 1992 includes charges of $1,837,000 associated with the
retirement of Whitmire's debt with General Electric Capital Corporation. On
February 7, 1994 this agreement was terminated.
On July 23, 1990, Cardinal sold $75,000,000 of 7 1/4% Convertible
Subordinated Debentures due 2015 (the "Subordinated Debentures") in a public
offering. The Subordinated Debentures were convertible into Cardinal common
shares at any time on or before July 1, 2015, unless previously redeemed, at
a conversion price of $21.89 per share. Issuance costs of $2,000,000
incurred in connection with the offering, were amortized on a straight-line
basis over the original period the Subordinated Debentures were to be
outstanding.
On June 11, 1993, Cardinal called the Subordinated Debentures for redemption,
effective as of July 2, 1993. Following this call, $74,920,000 of
Subordinated Debentures outstanding as of March 31, 1993 were converted into
3,422,521 common shares of Cardinal. The remaining $80,000 of Subordinated
Debentures outstanding as of March 31, 1993 were redeemed for cash. The pro
forma primary earnings per share of the Company, as if the above conversion
and redemption had occurred as of the date of the Subordinated Debentures
issuance in July 1990, would have been $0.69, $0.93 and $1.00 in fiscal 1991,
1992 and 1993, respectively.
Certain long-term obligations (excluding the Whitmire revolving credit
agreement described previously) are collateralized by property and equipment
of Cardinal with an aggregate book value of approximately $14,590,000 at
March 31, 1993.
Maturities of long-term debt and capital lease obligations for future fiscal
years are as follows (in thousands):
<TABLE>
<S> <C>
1994 $ 5,436
1995 91,558
1996 1,710
1997 101,025
1998 738
After 1998 80,758
---------- --------
Total $281,225
========== ========
</TABLE>
18
<PAGE>
6. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each material class of financial instruments for which estimates are
practicable:
Cash and equivalents, Marketable securities and Other accrued liabilities
The carrying amount at March 31, 1993, approximates the fair value because of
the short-term maturities of these items.
Long-term obligations
The Company's long-term obligations are composed of notes, a long-term
revolving credit agreement, convertible debentures, industrial development
mortgage revenue bonds and miscellaneous long-term debt instruments. 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.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The fair values do not include early redemption
premiums, underwriter's fees and commissions, and refunding costs (legal and
registration fees).
The estimated fair value of the Company's long-term obligations at March 31,
1993 is $313,704,000, as compared to the carrying amount of $281,225,000.
The fair value estimates presented herein are based on pertinent information
available to management as of March 31, 1993. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date, and current estimates of fair
values may differ significantly from the amounts presented herein.
7. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
----------------------------
1991 1992 1993
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 8,220 $12,260 $ 29,991
State and Local 2,922 4,790 5,782
------- ------- --------
Total 11,142 17,050 35,773
------- ------- --------
Deferred 1,000 3,293 (10,063)
Whitmire Net Operating Loss Benefit (1,019) (1,052)
------- ------- --------
Total Provision $11,123 $19,291 $ 25,710
======= ======= ========
</TABLE>
19
<PAGE>
A reconciliation of the Company's income tax provision and the provision
based on the Federal statutory income tax rate of 34.0% follows:
<TABLE>
<CAPTION>
Fiscal Year
------------
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Provision at Federal statutory rate 34.0% 34.0% 34.0%
State and local income taxes-net of
Federal benefit 6.9% 6.6% 5.0%
Income from tax-advantaged investments (3.1)% (2.5)% (1.4)%
Nondeductible expenses 1.7%
Valuation allowance 2.0%
NOL Benefit (3.3)% (2.2)%
Other 1.6% 0.9% 1.2%
- ------------------------------------------ ----- ----- -----
Effective Income Tax Rate 36.1% 40.5% 38.8%
========================================== ===== ===== =====
</TABLE>
Effective as of the beginning of fiscal 1992, Whitmire adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS
109). Under the provisions of SFAS 109, income taxes are recorded under the
liability method. SFAS 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 on retained earnings
as of the beginning of fiscal 1992 of Whitmire adopting SFAS 109 was not
material and has been included in the provision for income taxes, and not
separately presented in the accompanying supplemental consolidated statements
of earnings.
Effective April 1, 1993 (the beginning of fiscal 1994), Cardinal adopted SFAS
109. The cumulative effect of adopting this statement has been reported as a
change in accounting principle retroactive to April 1, 1992 (the beginning of
fiscal 1993).
As of March 31, 1993, after giving effect to the adoption of SFAS 109, the
components of the Company's deferred income tax assets (liabilities), the
current portion of which (a liability of $5,358,000) is included in the
Balance Sheet caption "Other Accrued Liabilities," and the noncurrent portion
of which (an asset of $1,822,000) is included in the Balance Sheet caption
"Other Assets," are as follows (in thousands):
<TABLE>
<S> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 4,823
Accrued liabilities 12,038
Stock option compensation 2,275
Other 1,878
--------
Total deferred income tax assets $ 21,014
--------
Deferred income tax liabilities:
Inventory basis differences $(20,282)
Property related (3,428)
Other (840)
--------
Total deferred income tax
liabilities $(24,550)
--------
Net deferred income tax liabilities $ (3,536)
========
</TABLE>
20
<PAGE>
8. EMPLOYEE RETIREMENT BENEFIT PLANS
Substantially all Cardinal non-union employees are enrolled in a Company-
sponsored contributory profit sharing and retirement savings plan which
includes features under Section 401(k) of the Internal Revenue Code.
Cardinal's contribution to the plan is determined by the Board of Directors
subject to certain minimum requirements as specified in the plan.
Qualified Cardinal union employees are covered by Company-sponsored and
multi-employer 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 plan on the Company's
consolidated financial statements is not material. Plan assets approximate
$1,400,000 and exceed the projected benefit obligation by approximately
$200,000 at March 31, 1993.
Whitmire's defined contribution retirement savings plan, which covers
substantially all of its employees after one year of service, provides for
regular contributions by Whitmire based on salaries of eligible employees.
In addition, employees may make pre-tax contributions up to 12% of their
salary, subject to statutory limitations. Whitmire will match a minimum of
25% to a maximum of 50% of the first 6% of salary contributed by the
employee, based upon Whitmire's earnings before taxes and amortization, but
after interest and depreciation. Payments upon retirement or termination of
employees are based on vested amounts credited to individual accounts.
Employee retirement benefit plans expense was as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
----------------------
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Defined contribution plans $2,191 $2,727 $3,400
Multi-employer plans 469 543 538
------ ------ ------
Total $2,660 $3,270 $3,938
====== ====== ======
</TABLE>
The FASB has issued Statement No. 112, "Employers' Accounting for
Postemployment Benefits" which requires employers to accrue for certain
postemployment benefits provided to former or inactive employees, their
beneficiaries, and covered dependents after employment, but before
retirement. This change must be implemented by the Company no later than the
fiscal year beginning April 1, 1994. Based upon preliminary estimates,
management does not believe that the new statement will have a material
effect on the consolidated financial statements of the Company.
21
<PAGE>
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 ten 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 March 31, 1993
are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1994 $ 9,484
1995 8,324
1996 7,418
1997 5,990
1998 4,419
After 1998 6,703
----------------------
Total $42,338
======================
</TABLE>
The minimum rental payments above have been reduced by sublease rentals of
approximately $341,000 in 1994, $328,000 in 1995, and $82,000 in 1996.
Rental expense (net of sublease rental income) relating to operating leases
and short-term cancelable leases was approximately $8,455,000, $8,990,000 and
$10,316,000 for fiscal 1991, 1992, and 1993, respectively.
In connection with its supplier relationship with various customers, the
Company has guaranteed certain indebtedness and lease payments. As of March
31, 1993, these guarantees total approximately $2,351,000.
The Company becomes involved in litigation arising out of its normal business
activities. In the opinion of management, the Company's liability, if any,
under any pending litigation would not materially affect its financial
position or results of operations.
10. PREFERRED SHARES AND REDEEMABLE PREFERRED STOCK
Cardinal is authorized to issue 500,000 nonvoting preferred shares without
par value. Preferences, limitations and other rights of such shares are to
be determined by the Board of Directors. No such preferred shares have been
issued as of March 31, 1993.
Whitmire had authorized 360,000 shares of redeemable preferred $.01 par value
stock. 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.
22
<PAGE>
The holders of Whitmire's 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 the Board of
Directors of Whitmire. 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 Senior Preferred Stock in eight
equal quarterly installments, commencing in October 1994. Whitmire would
have been required to redeem, at $100.00 per share plus accrued but unpaid
dividends, all shares of Series A Preferred Stock in July 1996. Whitmire has
charged shareholders' equity $840,000 in each of fiscal 1991, 1992 and 1993
for accretion relative to this mandatory redemption obligation. As of July
3, 1993, a total of $4,200,000 had been credited to redeemable preferred
stock through accretion. As of July 3, 1993, the aggregate redemption value
of Whitmire's Senior Preferred Stock and Series A Preferred Stock totals
$20,400,000.
Pursuant to the terms of the Reorganization Agreement between Cardinal and
Whitmire (See Note 3), Whitmire has redeemed all of its issued and
outstanding shares of Senior Preferred Stock and Series A Preferred Stock as
of February 7, 1994.
11. CARDINAL STOCK OPTIONS AND RESTRICTED SHARES
Cardinal maintains various stock option plans (the "Plans") for the benefit
of certain officers, directors and key employees. Under the Plans, at March
31, 1993 Cardinal was authorized to issue up to an aggregate of 1,386,719
common shares in the form of incentive stock options, non-qualified stock
options, and restricted shares. Options granted are generally exercisable
for periods up to ten years from the date of grant at a price approximating
fair market value at the date of grant.
In connection with a 1988 acquisition, Cardinal issued options for 106,348
shares at $9.31 per share. All of these options were exercised in fiscal
1993.
23
<PAGE>
The following summarizes all Cardinal stock option transactions from March 31,
1990 through March 31, 1993 giving retroactive effect to stock dividends and
stock splits:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE TOTAL
---------- -------------- -------------
<S> <C> <C> <C>
BALANCE, MARCH 31, 1990 605,335 $ 5.00-13.92 $ 5,416,000
Granted 134,281 17.12-27.80 2,690,000
Exercised (34,471) 5.00-13.92 (192,000)
Canceled (23,478) 9.73-13.92 (257,000)
- --------------------------- -------- ------------ -----------
BALANCE, MARCH 31, 1991 681,667 $ 5.00-27.80 $ 7,657,000
Granted 116,554 23.75-36.20 3,623,000
Exercised (92,753) 5.00- 9.73 (517,000)
Canceled (5,634) 9.73-36.00 (127,000)
- --------------------------- -------- ------------ -----------
BALANCE, MARCH 31, 1992 699,834 $ 5.00-36.20 $10,636,000
Granted 182,884 26.00-27.50 4,801,000
Exercised (279,249) 5.00-21.30 (2,319,000)
Canceled (12,540) 13.92-30.63 (279,000)
- --------------------------- -------- ------------ -----------
BALANCE, MARCH 31, 1993 590,929 $ 9.73-36.20 $12,839,000
</TABLE>
At March 31, 1993, 228,082 Cardinal shares under option were exercisable and
136,722 Cardinal shares were reserved for future grants.
The market value of restricted shares awarded by Cardinal 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 periods in which participants perform services, generally four to seven
years. As of March 31, 1993, 287,382 restricted shares have been issued, of
which 152,488 shares remain restricted and subject to forfeiture and 15,193
shares have been forfeited.
12. WHITMIRE STOCKHOLDERS' EQUITY
In the following discussion and in the supplemental consolidated financial
statements included herein, all share and per share amounts include
Whitmire's common stock, and options and warrants to purchase Whitmire common
stock, on the basis of the equivalent securities of Cardinal issued as a
result of the merger discussed in Note 3, pursuant to which each outstanding
share of Whitmire common stock was exchanged for 8.35 Cardinal shares and
each option to purchase a share of Whitmire common stock was exchanged for an
option to purchase 8.35 shares of Cardinal common stock.
During fiscal 1992, Whitmire completed a series of transactions which
affected its capitalization as follows:
o Warrants for the purchase of 1,252,500 shares of common stock were
returned to Whitmire and canceled.
24
<PAGE>
o Whitmire granted options to purchase 1,252,500 shares of common stock to
Melco Managers ("Melco") for distribution to key employees of Whitmire.
Melco was formed for the sole purpose of administering a management stock
option plan.
o Whitmire granted to its outside investors adjustment share rights
representing rights to purchase 5,566,669 shares of common stock. A
defined percentage of the adjustment share rights were cancelable yearly
(up to 100%) based upon Whitmire achieving specified financial targets.
o Whitmire issued 4,000 shares of Series A Preferred Stock to certain of its
outside investors as reimbursement of expenses associated with the
acquisition of their interest in Whitmire.
o Put and call provisions of Whitmire's remaining outstanding warrants were
canceled.
The fiscal 1992 Whitmire financial statements were restated to reflect fees
and expenses associated with the 1992 equity transactions of $1,973,000,
originally charged to equity, as a charge to operations.
During fiscal 1993, Whitmire and its principal outside investors agreed to
amend certain agreements which, among other things, canceled the adjustment
share rights and eliminated certain conditions relative to the exercise of
the options granted to Melco. For financial reporting purposes, the
modification of the terms of these options has been treated as if the options
were issued on the date that the terms were modified. Accordingly, Whitmire
has recorded a compensation charge totaling $5,247,000 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.
Following is a description of the components of Whitmire's equity:
Common Stock
At July 3, 1993, Whitmire had 2,264,762 shares reserved for issuance to the
holders of warrants to purchase common shares and 1,377,057 shares of common
stock reserved for issuance to the holders of common stock options. Of the
4,665,596 shares outstanding at July 3, 1993, 768,083 shares were non-voting
common stock.
Common Stock Warrants
Warrants to purchase 2,264,762 common shares were outstanding as of July 3,
1993, with an average exercise price of $0.10 per share. Pursuant to the
terms of the Reorganization Agreement between Cardinal and Whitmire (see Note
3), all of the outstanding warrants to purchase Whitmire common shares were
exercised prior to the consummation of the merger.
25
<PAGE>
Common Stock Options
Whitmire's common stock option plans were established to offer selected
employees an opportunity to acquire common stock of Whitmire. Under the
terms of the plans, both incentive and non-statutory options were granted.
Outstanding options generally vest ratably over a period of five years,
subject to certain conditions.
At July 3, 1993, options to acquire 1,377,057 shares were outstanding with an
average exercise price of $1.99. As of July 3, 1993, no options had been
exercised.
13. SUPPLEMENTAL INFORMATION REGARDING NONCASH INVESTING AND FINANCING
ACTIVITIES
Capital lease obligations of $285,000, $2,130,000 and $648,000 were incurred
in fiscal 1991, 1992 and 1993, respectively, as a result of the Company
entering into leases for equipment.
In conjunction with the acquisitions of Chapman and Ohio Valley (see Note 3),
liabilities were assumed as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------
March 31, 1991 March 31, 1992
-------------- --------------
<S> <C> <C>
Fair value of tangible asset acquired $57,143,000 $45,302,000
Cash paid for the issued and outstanding shares 27,125,000 16,800,000
- --------------------------------------------------- ----------- -----------
Liabilities assumed $30,018,000 $28,502,000
=================================================== =========== ===========
</TABLE>
Total debt assumed by the Company as a result of the acquisitions was
$10,281,000 in 1991 and $6,275,000 in 1992, and is included as a part of the
amount of liabilities assumed.
At June 29, 1991, June 27, 1992 and July 3, 1993, approximately $500,000 of
Whitmire senior preferred stock dividends were accrued but not yet paid.
26
<PAGE>
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
(in thousands, except per share data) Quarter Quarter Quarter Quarter
- ---------------------------------------------- ----------- ----------------------- -------------- ----------
<S> <C> <C> <C> <C>
FISCAL 1993:
Net sales $1,041,252 $1,111,449 $1,218,590 $1,262,084
Gross margin 67,089 69,082 77,983 83,139
Net earnings (loss) available for common
shares (3,490) 10,228 6,323 14,610
Net earnings (loss) per common share:
Primary
Net earnings before cumulative effect
of change in accounting principle $ 0.24 $ 0.37 $ 0.23 $ 0.53
Cumulative effect of change in
accounting principle (0.37)
---------- ---------- ---------- ----------
Net earnings (loss) $ (0.13) $ 0.37 $0.23 $0.53
========== ========== ========== ==========
Fully diluted
Net earnings before cumulative effect
of change in accounting principle $ 0.24 $ 0.36 $ 0.23 $ 0.50
Cumulative effect of change in
accounting principle (0.37)
---------- ---------- ---------- ----------
Net earnings (loss) $ (0.13) $ 0.36 $ 0.23 $ 0.50
========== ========== ========== ==========
FISCAL 1992:
Net sales $ 808,196 $ 864,888 $ 982,460 $1,025,134
Gross margin 55,316 58,566 67,958 74,993
Net earnings available for common shares 4,400 5,645 8,272 7,205
Net earnings per common share:
Primary $ 0.16 $ 0.21 $ 0.30 $ 0.26
Fully diluted $ 0.16 $ 0.21 $ 0.30 $ 0.26
</TABLE>
15. CARDINAL SHARES REPURCHASE
On April 14, 1993, Cardinal repurchased all of the 580,157 common shares
owned by subsidiaries of North American National Corporation, the Chairman of
which is also a director of Cardinal, at a price of $26.50 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.
27
<PAGE>
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
We consent to the incorporation by reference in Registration Statement No.
33-62198 of Cardinal Distribution, Inc. on Form S-3 and Registration Statements
No. 33-20895, as amended, No. 33-38021, No. 33-38022 and No. 33-42357 of
Cardinal Distribution, Inc. on Form S-8 of our report dated February 10, 1994,
appearing in this Current Report on Form 8-K of Cardinal Health, Inc. (formerly
known as Cardinal Distribution, Inc.) dated February 11, 1994.
/s/ DELOITTE & TOUCHE
DELOITTE & TOUCHE
Columbus, Ohio
February 10, 1994
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to incorporation of our
report included in this Form 8-K, into Cardinal Health, Inc.'s previously-filed
Registration Statement File No. 33-62198 on Form S-3 and Registration Statements
File No. 33-20895, as amended, No. 33-38021, No. 33-38022, and No. 33-42357 on
Form S-8.
/s/ Arthur Andersen & Co.
Sacramento, California
February 4, 1994
