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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 September 30, 1995 Commission File Number 0-12591
Cardinal Health, 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 October 31,
1995 was as follows:
Common Shares, without par value: 42,199,518
----------
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CARDINAL HEALTH, INC.
AND SUBSIDIARIES
Index*
<TABLE>
<S> <C> <C>
Page No.
Part I. Financial Information:
---------------------
Item 1. Financial Statements
Consolidated Statements of Earnings for the Three Months
Ended September 30, 1995 and September 30, 1994 . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets at September 30, 1995 and
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1995 and September 30, 1994 . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 9-11
* Items deleted are inapplicable.
</TABLE>
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PART I. FINANCIAL INFORMATION
CARDINAL HEALTH, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
September 30, September 30,
1995 1994
------------- -----------
<S> <C> <C>
Net sales $2,033,034 $ 1,818,687
Cost of products sold 1,914,787 1,715,330
--------- ---------
Gross margin 118,247 103,357
Selling, general and administrative expenses (79,840) (72,201)
---------- ---------
Operating earnings 38,407 31,156
Other income (expense):
Interest expense (4,140) (3,856)
Other, net -- primarily interest income 1,119 401
------- --------
Earnings before income taxes 35,386 27,701
Provision for income taxes (14,859) (11,676)
--------- --------
Net earnings $ 20,527 $ 16,025
======= =======
Net earnings per Common Share:
Primary $ 0.48 $ 0.39
Fully diluted $ 0.48 $ 0.39
Weighted average number of Common
Shares outstanding:
Primary 42,796 40,614
Fully diluted 42,876 40,678
</TABLE>
See notes to consolidated financial statements.
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CARDINAL HEALTH, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995
------------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 42,729 $ 40,619
Marketable securities available for sale 19,501 22,576
Trade receivables 568,269 516,262
Merchandise inventories 1,120,739 1,071,811
Prepaid expenses and other 24,892 23,446
----------- -----------
Total current assets 1,776,130 1,674,714
----------- -----------
Property and equipment, at cost 186,667 177,284
Accumulated depreciation and amortization (86,867) (82,056)
----------- ------------
Property and equipment, net 99,800 95,228
Other assets 71,617 71,862
----------- -----------
Total $1,947,547 $1,841,804
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, banks $ 19,800 $ 3,000
Current portion of long-term obligations 2,102 2,083
Accounts payable 1,021,894 949,992
Other accrued liabilities 115,477 118,295
----------- -----------
Total current liabilities 1,159,273 1,073,370
----------- -----------
Long-term obligations, less current portion 208,179 209,202
Deferred tax and other liabilities 11,364 11,035
Shareholders' equity:
Common Shares, without par value 347,047 345,538
Retained earnings 229,073 209,804
Common Shares in treasury, at cost (4,189) (4,011)
Unamortized restricted stock awards (3,200) (3,134)
----------- -----------
Total shareholders' equity 568,731 548,197
----------- -----------
Total $1,947,547 $ 1,841,804
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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CARDINAL HEALTH, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
September 30, September 30,
1995 1994
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 20,527 $ 16,025
Adjustments to reconcile net earnings to net cash
from operations:
Depreciation and amortization 5,888 5,166
Provision for bad debts 1,749 1,650
Change in operating assets and liabilities,
net of effects from acquisitions:
Increase in trade receivables (53,756) (78,421)
Increase in merchandise inventories (48,928) (48,552)
Increase in accounts payable 71,902 139,706
Other operating items -- net (3,872) (1,586)
------- ---------
Net cash provided by (used in) operating activities (6,490) 33,988
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash acquired (15,784)
Additions to property and equipment (10,101) (6,833)
Purchase of marketable securities available for sale (20,000)
Proceeds from sale of marketable securities available for sale 23,075
-------- ------
Net cash used in investing activities (7,026) (22,617)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowing activity 16,800 (25,000)
Reduction of long-term obligations (1,004) (1,012)
Proceeds from issuance of Common Shares 1,252 70,792
Tax benefit of stock options 16,872
Dividends paid on Common Shares (1,258) (1,135)
Purchase of treasury shares (164) (48)
-------- -----------
Net cash provided by financing activities 15,626 60,469
------- --------
NET INCREASE IN CASH AND EQUIVALENTS 2,110 71,840
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 40,619 54,941
------- ---------
CASH AND EQUIVALENTS AT END OF YEAR $ 42,729 $ 126,781
======== =======
</TABLE>
See notes to consolidated financial statements.
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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. These 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
necessary for a fair presentation have been included. All such
adjustments are of a normal, recurring nature. Certain
reclassifications have been made to the comparative period's amounts
to conform with the classifications at September 30, 1995.
The consolidated financial statements included herein should be read
in conjunction with the audited consolidated financial statements and
related notes contained in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995.
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 from the date of grant computed using the treasury
stock method.
Note 3. During the three months ended September 30, 1995, the Company
incurred merger costs related to the Whitmire Distribution
Corporation ("Whitmire") merger of approximately $3.0 million and as
of September 30, 1995 has incurred aggregate costs of approximately
$29.9 million. The estimated remaining merger costs to be incurred
totaled $6.0 million at September 30, 1995, and the Company's current
estimates of the merger costs ultimately to be incurred are not
materially different than the amounts originally recorded. The
Company anticipates that the remainder of these costs will be
expended during fiscal 1996.
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 for cash of $33,334,000, in a transaction accounted for
by the purchase method.
Note 5. On July 18, 1994, the Company issued approximately 944,000 Common
Shares in a merger transaction 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,
the prior period has not been restated for the Behrens combination.
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.
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Note 7. 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 Cardinal
Common Shares in exchange for common shares of Medicine Shoppe. The
Company expects to issue between 6.0 million and 6.8 million Common
Shares in the transaction, depending, in part, upon the average
closing price of Cardinal 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. On October 10, 1995 the Company filed a
Registration Statement on Form S-4 with the Securities and Exchange
Commission to register the Common Shares to be issued to Medicine
Shoppe shareholders upon consummation of the merger. On October 11,
1995, the Registration Statement was declared effective and a vote on
the transaction by Medicine Shoppe shareholders is scheduled for
November 13, 1995.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Management's discussion and analysis is presented below with regard to
material changes in financial condition and results of operations for the
Company's consolidated balance sheets as of September 30, 1995 and June 30,
1995, and for the consolidated statements of earnings for the three months
ended September 30, 1995 and September 30, 1994.
NET SALES. Net sales for the first quarter of fiscal 1996 increased
12% compared to the same period last year. The increase was entirely due to
internal business growth resulting from increased sales to existing customers
as well as the addition of new customers and price increases. The sales growth
rate continues to be above industry levels but is lower than reported in prior
periods because focus has been placed on achieving a better balance between
volume growth and margin improvement (see "Gross Margin" below).
GROSS MARGIN. As a percentage of net sales, gross margin increased to
5.82% in the first quarter of fiscal 1996 from 5.68% in the first quarter of
fiscal 1995. The increase in the gross margin percentage was primarily due to
growth in the Company's higher margin specialty businesses and expanded
marketing programs with existing customers and manufacturers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses improved as a percentage of net sales to 3.93% in the
first quarter of fiscal 1996 versus 3.97% in the prior year. The improvement
is primarily due to economies associated with the Company's sales growth,
particularly with major customers where support costs are generally lower, and
to consolidating distribution and administrative functions.
LIQUIDITY AND CAPITAL RESOURCE. Net working capital increased to
$616.9 million at September 30, 1995 from $601.3 million at June 30, 1995, and
included increased investments in trade receivables and merchandise inventories
of $52.0 million and $48.9 million, respectively, offset by an increase in
notes payable, banks of $16.8 million and accounts payable of $71.9 million.
The increase in trade receivables was due primarily to internal business growth
(see "Net Sales" above). The increases in merchandise inventories, notes
payable, banks and accounts payable reflect the timing of seasonal purchases
and related payments.
Property and equipment, at cost increased by $9.4 million from June
30, 1995. The property acquired included increased investment in management
information systems, customer support systems, and automation of
distribution facilities.
During the three months ended September 30, 1995, the Company incurred
merger costs related to the Whitmire merger of approximately $3.0 million (see
Note 3 of "Notes to Consolidated Financial Statements" for additional
information).
Shareholders' equity increased to $568.7 million at September 30, 1995
from $548.2 million at June 30, 1995 due primarily to net earnings of
approximately $20.5 million in the first quarter of fiscal 1996, less dividends
paid by the Company of approximately $1.3 million.
The Company has line-of-credit arrangements with various bank sources
aggregating $325 million, of which $100 million is represented by committed
line-of-credit arrangements and the balance is uncommitted. The amount
outstanding under such arrangements was $19.8 million and $3.0 million at
September 30, 1995 and June 30, 1995, respectively.
On August 26, 1995, the Company signed a definitive merger agreement
with Medicine Shoppe International, Inc. (see Note 7 of "Notes to Consolidated
Financial Statements" for additional information). If this transaction is
consummated, the Company expects to issue between 6.0 and 6.8 million Cardinal
Common Shares.
At September 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.
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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.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
As described in Item 3 of the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1995, 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").
No material developments occurred in connection with the Brand Name
Prescription Drug Litigation during the first quarter of fiscal 1996. 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 6: Exhibits and Reports on Form 8-K:
(a) Listing of Exhibits:
Exhibit 11.01: Computation of Per Share Earnings
Exhibit 27.01: Financial Data Schedule
(b) Reports on Form 8-K: The Company filed a Report on
Form 8-K on August 30, 1995, reporting under Item 5 the announcement
that the Company, Arch Merger Corp., a wholly-owned subsidiary of the
Company,and Medicine Shoppe International, Inc. had entered into an
Agreement and Plan of Merger .
<PAGE> 10
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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: November 3, 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)
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Exhibit 11.01
CARDINAL HEALTH, INC.
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
September 30, September 30,
1995 1994
----------- ------------
PRIMARY
- -------
<S> <C> <C>
Net earnings $20,527 $16,025
====== ======
Average shares outstanding 42,010 39,076
Dilutive effect of stock options 786 1,538
------ -------
Total 42,796 40,614
====== ======
Primary earnings per Common Share $0.48 $0.39
====== ======
FULLY DILUTED
- -------------
Net earnings $20,527 $16,025
====== ======
Average shares outstanding 42,010 39,076
Dilutive effect of stock options 866 1,602
------- -------
Total 42,876 40,678
====== ======
Fully diluted earnings per Common Share $0.48 $0.39
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 42,729
<SECURITIES> 19,501
<RECEIVABLES> 596,613
<ALLOWANCES> (28,344)
<INVENTORY> 1,120,739
<CURRENT-ASSETS> 1,776,130
<PP&E> 186,667
<DEPRECIATION> (86,867)
<TOTAL-ASSETS> 1,947,547
<CURRENT-LIABILITIES> 1,159,273
<BONDS> 208,179
<COMMON> 347,047
0
0
<OTHER-SE> 221,684
<TOTAL-LIABILITY-AND-EQUITY> 1,947,547
<SALES> 2,033,034
<TOTAL-REVENUES> 2,033,034
<CGS> 1,914,787
<TOTAL-COSTS> 1,914,787
<OTHER-EXPENSES> (79,840)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,140)
<INCOME-PRETAX> 35,386
<INCOME-TAX> (14,859)
<INCOME-CONTINUING> 20,527
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,527
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
