<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1994 Commission File Number 0-12591
----------------- -------
CARDINAL HEALTH, INC.
--------------------
(Formerly known as Cardinal Distribution, Inc.)
(Exact name of registrant as specified in its charter)
Ohio 31-0958666
---- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
655 METRO PLACE SOUTH, SUITE 925, DUBLIN, OHIO 43017
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (614) 761-8700
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
------- -------
The number of Registrant's Common Shares outstanding at January 27,
1995 was as follows:
common shares, without par value ("Class A Common Shares") 41,869,453
<PAGE> 2
CARDINAL HEALTH, INC. Page 2 of 13
AND SUBSIDIARIES
Index
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1994 and
June 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Earnings for the Three and Six Months
Ended December 31, 1994 and December 31, 1993 . . . . . . . 4
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 1994 and December 31, 1993 . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . 6-7
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition . . . . . . . . . . . . . . . . . . 8-9
Part II. Other Information:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 10-13
<PAGE> 3
Page 3 of 13
PART I. FINANCIAL INFORMATION
CARDINAL HEALTH, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31, 1994 June 30, 1994
----------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 53,632 $ 54,941
Marketable securities 46,803
Trade receivables 511,254 340,911
Merchandise inventories 1,117,587 868,210
Prepaid expenses and other 21,912 23,062
----------- -----------
Total current assets 1,751,188 1,287,124
Property and equipment - at cost: 150,326 119,375
Accumulated depreciation and amortization (76,069) (59,346)
------------ ------------
Property and equipment - net 74,257 60,029
Other assets 74,144 48,449
----------- -----------
Total $ 1,899,589 $ 1,395,602
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable - banks $ 77,800 $ 25,000
Current portion of long-term obligations 3,490 2,929
Accounts payable 1,009,019 705,702
Other accrued liabilities 99,047 82,411
----------- -----------
Total current liabilities 1,189,356 816,042
Long-term obligations - less current portion 209,806 210,086
Other liabilities 980
Shareholders' equity:
Common Shares-without par value 343,237 255,458
Retained earnings 164,245 120,399
Common Shares in treasury, at cost (3,567) (3,390)
Unamortized restricted stock awards (3,488) (3,973)
---------- ----------
Total shareholders' equity 500,427 368,494
---------- -----------
Total $ 1,899,589 $ 1,395,602
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
Page 4 of 13
CARDINAL HEALTH, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- ------------------------------
December 31, December 31, December 31, December 31,
1994 1993 1994 1993
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales $1,985,863 $1,397,769 $3,804,550 $2,689,239
Cost of products sold 1,873,388 1,314,457 3,588,718 2,528,152
----------- ----------- ----------- -----------
Gross margin 112,475 83,312 215,832 161,087
Selling, general &
administrative exp. (73,800) (54,855) (146,001) (108,411)
----------- ----------- ----------- -----------
Operating earnings 38,675 28,457 69,831 52,676
Other income (expense):
Interest expense (4,390) (4,311) (8,246) (8,538)
Other, net 1,765 1,019 2,166 2,261
----------- ----------- ----------- -----------
Earnings before income
taxes 36,050 25,165 63,751 46,399
Provision for income
taxes (15,173) (10,072) (26,849) (18,980)
----------- ----------- ----------- ----------
Net earnings 20,877 15,093 36,902 27,419
Preferred dividends
declared/accretion (519) (1,039)
----------- ----------- ----------- -----------
Earnings available for
Common Shares $ 20,877 $ 14,574 $ 36,902 $ 26,380
=========== ============ =========== ===========
Earnings per
Common Share:
Primary $ 0.49 $ 0.37 $ 0.89 $ 0.67
Fully Diluted $ 0.49 $ 0.37 $ 0.88 $ 0.67
Weighted average
number of Common
Shares outstanding:
Primary 42,660 39,283 41,637 39,155
Fully diluted 42,693 39,345 41,728 39,227
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
Page 5 of 13
CARDINAL HEALTH, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------
December 31, December 31,
1994 1993
-------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 36,902 $ 27,419
Adjustments to reconcile net earnings to net cash
from operations:
Depreciation and amortization 10,282 8,228
Provision for bad debts 4,989 1,751
Change in operating assets and liabilities
net of effects from acquisitions:
Increase in trade receivables (120,377) (58,962)
Increase in merchandise inventories (204,813) (247,157)
Increase in accounts payable 211,509 265,734
Other operating items - net 1,082 (18,915)
----------- ----------
Net cash used in operating activities (60,426) (21,902)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash acquired (15,784)
Additions to property and equipment (13,137) (4,416)
Purchase of marketable securities (144,628) (115,241)
Proceeds from sale of marketable securities 97,825 148,960
----------- ----------
Net cash provided by (used in) investing activities (75,724) 29,303
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of short-term borrowings of an acquired
subsidiary (5,226)
Net short-term activity 52,800
Reduction of long-term obligations (2,724) (1,074)
Proceeds from long-term obligations 11,338
Proceeds from issuance of Common Shares 70,966 353
Income tax credited to shareholders' equity 16,362
Dividends on common and preferred shares and cash paid
in lieu of fractional shares (2,386) (2,175)
Purchase of treasury shares (177) (58)
Debenture conversion costs charged to shareholders' equity (13)
---------- ----------
Net cash provided by financing activities 134,841 3,145
--------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (1,309) 10,546
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 54,941 61,210
---------- ----------
CASH AND EQUIVALENTS AT END OF YEAR $ 53,632 $ 71,756
========== ==========
Supplemental Disclosure of Noncash Investing & Financing Activities:
Debentures converted to Common Shares $ 74,920
Unamortized debenture offering costs charged
to Common Shares (1,767)
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
Page 6 of 13
CARDINAL HEALTH, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. 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 have been prepared to give retroactive effect to
the pooling-of-interests business combination with Whitmire
Distribution Corporation ("Whitmire") 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.
The consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q, and include all of the
information and disclosures required by generally accepted accounting
principles for interim reporting. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included.
These consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and related notes
of the Company contained in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994.
Note 2. 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.
The Company paid a 25% stock dividend on June 30, 1994, to effect a
five-for-four split of the Company's Common Shares. All share and
per share amounts included in the consolidated financial statements
have been adjusted to reflect this stock split.
Note 3. 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 Corp., a wholly owned subsidiary of Cardinal, was merged with
and into Whitmire effective February 7, 1994. In the 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 Class A Common Shares and approximately
1,861,000 Class B common shares, without par value, 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 Class A Common Shares pursuant to the terms of such
options and the Reorganization Agreement.
Note 4. On July 1, 1994, the Company purchased all of the common stock of
Humiston-Keeling, Inc., a Calumet City, Illinois-based wholesale drug
distributor, 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.
Note 5. On July 18, 1994, the Company issued Class A Common Shares in
exchange for all of the common shares of Behrens Inc., a Waco, Texas-
based wholesale drug distributor, in a transaction accounted for as a
pooling-of-interests business combination. The impact of the Behrens
combination, on both an historical and pro forma basis, is not
significant. Accordingly, prior periods have not been restated for
the Behrens combination.
<PAGE> 7
Page 7 of 13
Note 6. 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. 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.
Note 7. The net earnings and earnings per Common Share (on both a primary and
fully diluted basis), adjusted on a pro forma basis to reflect the
redemption of Whitmire's preferred stock pursuant to the terms of the
Reorganization Agreement (see Note 3), would have been $14,968,000
and $0.38, respectively, for the three months ended December 31, 1993
and $27,169,000 and $0.69, respectively, for the six months ended
December 31, 1993. Such redemption is assumed to have been funded
from the liquidation of investments in tax-exempt marketable
securities.
<PAGE> 8
Page 8 of 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Management's discussion and analysis presented below has been prepared
to give retroactive effect to the pooling-of-interests business combination
with Whitmire on February 7, 1994 (see Note 3 of "Notes to Consolidated
Financial Statements"). The discussion and analysis presented below is
concerned with material changes in financial condition and results of
operations for the Company's consolidated balance sheets as of December 31,
1994, and June 30, 1994, and for the consolidated statements of earnings for
the three and six month periods ended December 31, 1994 and December 31, 1993.
Unless indicated to the contrary for purposes of this discussion, all
references to "1995" and "1994" shall mean the Company's fiscal years ending
June 30, 1995 and June 30, 1994, respectively.
NET SALES. Net sales increased 42% for the second quarter of Fiscal
1995, and 41% for the six-month period ended December 31, 1994, compared to the
same period last year. The increases in both the second quarter and six-month
period were due to internal business growth of 31% and sales resulting from the
acquisitions of Humiston-Keeling, Inc. (see Note 4 of "Notes to Consolidated
Financial Statements"), Behrens Inc. (see Note 5 of "Notes to Consolidated
Financial Statements"), and PRN Services, Inc. The internal business growth
resulted primarily from the addition of new customers and increased sales to
existing customers.
GROSS MARGIN. As a percentage of net sales, gross margin declined to
5.66% in the second quarter of Fiscal 1995 from 5.96% in the second quarter of
Fiscal 1994. The gross margin percentage for the six month period declined to
5.67% versus 5.99% last year. The decreases in the gross margin percentage in
both the second quarter and six-month period were primarily due to lower
selling margin rates, 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 enabled the Company to offer lower selling margins.
The Company expects the decline in gross margin rates to continue, but at a
more moderate rate.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses improved as a percentage of net sales to 3.72% in the
second quarter and 3.84% for the six month period of Fiscal 1995 versus 3.92%
and 4.03% for the same periods in the prior year. 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, and
to productivity improvements, including the consolidation of several
distribution centers and the ongoing modernization of existing facilities.
LIQUIDITY AND CAPITAL RESOURCES. Net working capital increased to
$561.8 million at December 31, 1994 from $471.1 million at June 30, 1994, and
included increased investments in merchandise inventories, trade receivables,
and cash and equivalents and marketable securities of $249.4 million, $170.3
million and $45.5 million respectively, offset primarily by increases in
accounts payable and notes payable - banks of $303.3 million and $52.8 million,
respectively. The increases in merchandise inventories, accounts payable and
notes payable - banks reflect the timing of seasonal purchases and related
payments and the acquisitions of Humiston-Keeling and Behrens. The increase in
trade receivables was due primarily to internal business growth (see "Net
Sales" above) and the acquisitions of Humiston-Keeling and Behrens (see Notes 4
and 5 of "Notes to Consolidated Financial Statements"). The increase in cash
and equivalents and marketable securities was due primarily to the net proceeds
received from the issuance of the Company's Common Shares pursuant to a public
offering (see Note 6 of "Notes to Consolidated Financial Statements).
<PAGE> 9
Page 9 of 13
Shareholders' equity increased to $500.4 million at December 31, 1994
from $368.5 million at June 30, 1994 due primarily to (a) the issuance of
approximately 1,867,000 of the Company's Common Shares pursuant to a public
offering (see Note 6 of "Notes to Consolidated Financial Statements"), (b) net
earnings of approximately $36.9 million in the six months ended December 31,
1994, (c) the recording of tax benefits related to the exercise of stock
options of approximately $16.4 million, and (d) the addition of Behrens
shareholders' equity of approximately $9.8 million at July 18, 1994 (the date
of the pooling-of-interests business combination) (see Note 5 of "Notes to
Consolidated Financial Statements"), offset primarily by (i) dividends paid by
the Company of approximately $2.4 million.
The Company has line-of-credit arrangements with various bank sources
aggregating $310 million, of which $100 million is represented by committed
line-of-credit arrangements and the balance is uncommitted. The amount
outstanding under such arrangement as of December 31, 1994 was $77.8 million.
On May 6, 1993, the Company filed with the Securities and Exchange
Commission a Registration Statement for the public offering, from time-to-time,
of its debt securities (the "Existing Debt Securities") issuable in one or more
series in an aggregate principal amount not to exceed $150 million. On
February 23, 1994, the Company sold $100 million of 6.5% Notes due 2004, the
net proceeds of which were used for general corporate purposes, including the
repayment of bank lines of credit incurred as part of the Whitmire Merger. At
December 31, 1994, $50 million of the Existing Debt Securities remain issuable.
On January 10, 1995, the Company filed with the Securities and
Exchange Commission a Registration Statement for the public offering, from
time-to-time, of an additional $150 million of its debt securities (the "New
Debt Securities"). As of January 27, 1995, the Registration Statement for the
public offering of the New Debt Securities had not yet been declared effective
by the Securities and Exchange Commission.
The Company believes that it has adequate resources at its disposal to
meet currently anticipated capital expenditures, routine business growth and
expansion, and current and projected debt service, including the additional
liquidity and capital requirements associated with recent business combinations
(see Notes 3, 4 and 5 of "Notes to Consolidated Financial Statements").
<PAGE> 10
Page 10 of 13
PART II. OTHER INFORMATION
Item 1. 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 into 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. The Company believes that the
plaintiff's motion is without merit and, together with the other parties to the
Judgment Sharing Agreement, has filed a memorandum against the plaintiff's
motion. The court is not expected to rule on the plaintiff's motion prior to
the third week of February, 1995.
The Company believes that both the federal and state court allegations
against Cardinal and Whitmire are without merit, and it intends to contest such
allegations vigorously.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Registrant's 1994 Annual Meeting of Shareholders was held on
November 8, 1994.
(b) Proxies were solicited by Registrant's management pursuant to
Regulation 14 under the Securities Exchange Act of 1934; there was
no solicitation in opposition to management's nominees as listed
in the proxy statement; and all director nominees were elected to
the class indicated in the proxy statement pursuant to the vote of
the Registrant's shareholders.
(c) Matters voted upon at the Annual Meeting were as follows:
(1) Election of John F. Finn, John F. Havens, L. Jack Van Fossen,
and Robert D. Walter as directors of the Company. The results
of the shareholder vote were as follows: Mr. Finn, 25,864,940
for, 16,058 against, 2,538 withheld, and 14,433,783 broker
non- vote; Mr. Havens, 25,854,563 for, 16,058 against, 12,915
withheld, and 14,433,783 broker non-vote; Mr. Van Fossen,
24,212,951 for, 16,058 against, 1,654,527 withheld, and
14,433,783 broker non-vote; Mr. Walter 25,865,375 for, 16,058
against, 2,103 withheld, and 14,433,783 broker non-vote.
Item 6. Exhibits and Reports on Form 8-K.
(a) Listing of Exhibits:
Exhibit 11.01 Computation of Fully Diluted Earnings Per Share
Exhibit 27.01 Financial Data Table
(b) Reports on Form 8-K:
None
<PAGE> 11
Page 11 of 13
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 thereunto duly authorized.
CARDINAL HEALTH, INC.
Date: January 30, 1995 By: /s/ Robert D. Walter
--------------------------
Robert D. Walter Chairman
and Chief Executive Officer
By: /s/ David Bearman
--------------------------
David Bearman Executive
Vice President and
Chief Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
<PAGE> 1
Page 12 of 13
Exhibit 11.01
CARDINAL HEALTH, INC.
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------- -----------------------------------
December 31, December 31, December 31, December 31,
1994 1993 1994 1993
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
FULLY DILUTED
Average shares
outstanding 41,726 34,430 40,401 34,385
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 967 4,915 1,327 4,842
------ ------- ------- -------
Total 42,693 39,345 41,728 39,227
====== ====== ====== ======
Earnings available for
Common Shares $20,877 $14,574 $ 36,902 $26,380
====== ====== ====== ======
Earnings per Common
Share $ 0.49 $ 0.37 $ .88 $ 0.67
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 53,632
<SECURITIES> 46,803
<RECEIVABLES> 538,124
<ALLOWANCES> (26,870)
<INVENTORY> 1,117,587
<CURRENT-ASSETS> 1,751,188
<PP&E> 150,326
<DEPRECIATION> (76,069)
<TOTAL-ASSETS> 1,899,589
<CURRENT-LIABILITIES> 1,189,356
<BONDS> 209,806
<COMMON> 343,237
0
0
<OTHER-SE> 157,190
<TOTAL-LIABILITY-AND-EQUITY> 1,899,589
<SALES> 3,804,550
<TOTAL-REVENUES> 3,804,550
<CGS> (3,588,718)
<TOTAL-COSTS> (3,588,718)
<OTHER-EXPENSES> (146,001)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8,246)
<INCOME-PRETAX> 63,751
<INCOME-TAX> (26,849)
<INCOME-CONTINUING> 36,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,902
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.88
</TABLE>
