<PAGE> 1
UNITED STATES 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 The Quarter Ended December 31, 1998 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.)
5555 GLENDON COURT, DUBLIN, OHIO 43016
(Address of principal executive offices and zip code)
(614) 717-5000
(Registrant's telephone number, including area code)
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 the close of
business on February 4, 1999 was as follows:
Common Shares, without par value: 272,056,928
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CARDINAL HEALTH, INC. AND SUBSIDIARIES
Index *
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I. Financial Information:
---------------------
Item 1. Financial Statements:
Condensed Consolidated Statements of Earnings for the Three and Six Months
Ended December 31, 1998 and 1997 ................................................ 3
Condensed Consolidated Balance Sheets at December 31, 1998 and
June 30, 1998 ................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1998 and 1997....................................................... 5
Notes to Condensed Consolidated Financial Statements ............................ 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.......................................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................... 12
Part II. Other Information:
------------------
Item 1. Legal Proceedings................................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.............................. 13
Item 5. Other Information................................................................ 14
Item 6. Exhibits and Reports on Form 8-K................................................. 14
</TABLE>
* Items not listed are inapplicable.
<PAGE> 3
PART I. FINANCIAL INFORMATION
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Operating revenue $ 4,062,702 $ 3,277,748 $ 7,913,717 $ 6,300,157
Bulk deliveries to customer warehouses 999,813 750,590 1,781,493 1,431,745
----------- ----------- ----------- -----------
Total revenue 5,062,515 4,028,338 9,695,210 7,731,902
Cost of products sold:
Operating cost of products sold 3,701,325 2,978,705 7,231,233 5,723,468
Cost of products sold - bulk deliveries 999,813 750,590 1,781,493 1,431,745
----------- ----------- ----------- -----------
Total cost of products sold 4,701,138 3,729,295 9,012,726 7,155,213
Gross margin 361,377 299,043 682,484 576,689
Selling, general and administrative expenses 188,093 160,337 366,308 320,660
Merger-related costs (3,095) (3,189) (37,465) (5,372)
----------- ----------- ----------- -----------
Operating earnings 170,189 135,517 278,711 250,657
Other income (expense):
Interest expense (9,527) (7,211) (18,240) (14,454)
Other, net (2,383) 660 71 3,232
----------- ----------- ----------- -----------
Earnings before income taxes 158,279 128,966 260,542 239,435
Provision for income taxes 58,572 48,526 103,009 89,673
----------- ----------- ----------- -----------
Net earnings $ 99,707 $ 80,440 $ 157,533 $ 149,762
=========== =========== =========== ===========
Earnings per Common Share:
Basic $ 0.50 $ 0.40 $ 0.79 $ 0.75
Diluted $ 0.49 $ 0.40 $ 0.77 $ 0.74
Weighted average number of Common Shares outstanding:
Basic 200,836 199,388 200,655 198,996
Diluted 204,209 203,154 204,086 202,673
Cash dividends declared per Common Share $ 0.025 $ 0.0167 $ 0.05 $ 0.0333
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 4
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 236,543 $ 338,263
Trade receivables, net 1,105,931 989,583
Current portion of net investment in sales-type leases 103,343 75,450
Merchandise inventories 2,443,375 1,964,382
Prepaid expenses and other 148,272 137,417
----------- -----------
Total current assets 4,037,464 3,505,095
----------- -----------
Property and equipment, at cost 1,168,941 1,046,405
Accumulated depreciation and amortization (399,015) (347,468)
----------- -----------
Property and equipment, net 769,926 698,937
Other assets:
Net investment in sales-type leases, less current
portion 322,232 195,013
Goodwill and other intangibles 277,801 285,571
Other 100,567 98,490
----------- -----------
Total $ 5,507,990 $ 4,783,106
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, banks $ 106,371 $ 24,653
Current portion of long-term obligations 10,407 7,294
Accounts payable 1,918,800 1,714,108
Other accrued liabilities 239,413 247,661
----------- -----------
Total current liabilities 2,274,991 1,993,716
----------- -----------
Long-term obligations, less current portion 642,813 441,170
Deferred income taxes and other liabilities 371,307 324,145
Shareholders' equity:
Common Shares, without par value 976,250 944,833
Retained earnings 1,279,838 1,122,230
Common Shares in treasury, at cost (10,629) (9,469)
Cumulative foreign currency adjustment (21,050) (28,034)
Other (5,530) (5,485)
----------- -----------
Total shareholders' equity 2,218,879 2,024,075
----------- -----------
Total $ 5,507,990 $ 4,783,106
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 157,533 $ 149,762
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization 49,752 45,336
Provision for bad debts 5,119 5,856
Change in operating assets and liabilities:
Increase in trade receivables (116,058) (103,736)
Increase in merchandise inventories (476,602) (510,438)
Increase in net investment in sales-type leases (155,112) (28,451)
Increase in accounts payable 200,059 307,922
Other operating items, net 37,123 (26,857)
--------- ---------
Net cash used in operating activities (298,186) (160,606)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 2,506 1,365
Additions to property and equipment (110,096) (104,024)
Other - 1,715
--------- ---------
Net cash used in investing activities (107,590) (100,944)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowing activity 80,881 101,278
Reduction of long-term obligations (19,222) (8,327)
Proceeds from long-term obligations, net of issuance costs 219,696 26,827
Proceeds from issuance of Common Shares 18,695 14,590
Tax benefit of stock options 11,309 8,922
Dividends on Common Shares and cash paid
in lieu of fractional shares (8,609) (5,805)
Purchase of treasury shares (1,160) (983)
--------- ---------
Net cash provided by financing activities 301,590 136,502
EFFECT OF CURRENCY TRANSLATION ON CASH AND EQUIVALENTS 2,462 (578)
--------- ---------
NET DECREASE IN CASH AND EQUIVALENTS (101,724) (125,626)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 338,263 270,536
--------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $ 236,539 $ 144,910
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. The condensed consolidated financial statements of Cardinal Health,
Inc. (the "Company") include the accounts of all majority-owned
subsidiaries and all significant intercompany amounts have been
eliminated. The condensed consolidated financial statements contained
herein have been restated to give retroactive effect to the merger
transactions with MediQual Systems, Inc. ("MediQual") on February 18,
1998 and R.P. Scherer Corporation ("Scherer") on August 7, 1998, both
of which were accounted for as pooling of interests business
combinations (see Note 5).
These condensed 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. Except as disclosed elsewhere herein, all such
adjustments are of a normal and recurring nature.
The condensed 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, 1998, and in the
Company's Current Report on Form 8-K/A (Amendment No. 1) filed on
September 28, 1998.
Note 2. Basic earnings per Common Share ("Basic") is computed by dividing
net earnings (the numerator) by the weighted average number of Common
Shares outstanding during each period (the denominator). Diluted
earnings per Common Share is similar to the computation for Basic,
except that the denominator is increased by the dilutive effect of
stock options outstanding, computed using the treasury stock method.
Note 3. On August 12, 1998, the Company declared a three-for-two stock
split which was effected as a stock dividend and distributed on
October 30, 1998 to shareholders of record at the close of business on
October 9, 1998. All share and per share amounts included in the
condensed consolidated financial statements have been adjusted to
retroactively reflect the stock split.
Note 4. As of September 30, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 requires the presentation of comprehensive income and
its components in a full set of general purpose financial statements.
The Company's comprehensive income consists of net earnings and
foreign currency translation adjustments. For the three months ended
December 31, 1998, total comprehensive income was $106.3 million,
comprised of $99.7 million of net earnings and $6.6 million of gain on
foreign currency translation. Total comprehensive income for the
comparable period of fiscal year 1997 was $75.0 million, comprised of
$80.4 million of net earnings offset by $5.4 million of loss on
foreign currency translation. For the six months ended December 31,
1998, total comprehensive income was $164.5 million, comprised of
$157.5 million of net earnings and $7.0 million of gain on foreign
currency translation. Total comprehensive income for the first six
months of fiscal year 1997 was $143.2 million, comprised of $149.8
million of net earnings offset by $6.6 million of loss on foreign
currency translation.
Note 5. On August 7, 1998, the Company completed a merger transaction with
Scherer (the "Scherer Merger"). The Scherer Merger was accounted for
as a pooling of interests. The Company issued approximately 34.2
million Common Shares to Scherer stockholders and Scherer's
outstanding stock options were converted into options to purchase
approximately 3.5 million Common Shares.
The Company's fiscal year end is June 30 and Scherer's fiscal year end
was March 31. The condensed consolidated financial statements for the
three and six months ended December 31, 1998, combine the Company's
and Scherer's results for the same periods. For the three and six
months ended December 31, 1997, the condensed consolidated financial
statements combine the Company's three and six months ended December
31, 1997 results with Scherer's three and six months ended September
30, 1997 results, respectively. Due to the change in Scherer's fiscal
year end from March 31 to conform with the Company's June 30 fiscal
year end, Scherer's results of operations for the three months ended
June 30, 1998 will not be included in the combined results of
operations but will be reflected as an adjustment to combined retained
earnings. Scherer's net revenue and net earnings for this period were
$161.6 million
<PAGE> 7
and $8.6 million, respectively. Scherer's cash flows from operating
and financing activities for this period were $12.6 million and $32.6
million, respectively, while cash flows used in investing activities
were $12.2 million.
Note 6. Costs of effecting mergers and subsequently integrating the operations
of the various merged companies are recorded as merger-related costs
when incurred. During the three and six months ended December 31,
1998, merger-related costs totaling $3.1 million ($1.9 million, net of
tax) and $37.5 million ($29.7 million, net of tax) were recorded,
respectively. Of this amount, approximately $22.3 million related to
transaction and employee-related costs, and $12.5 million related to
business restructuring and asset impairment costs associated with the
Company's merger transaction with Scherer, which were recorded during
the first quarter of fiscal 1999. In addition, the Company recorded
costs of $1.1 million related to severance costs for a restructuring
associated with the change in management that resulted from the merger
with Owen Healthcare, Inc. and $4.8 million, of which $1.8 million was
recorded during the first quarter of fiscal 1999, related to
integrating the operations of companies that previously engaged in
merger transactions with the Company. Partially offsetting the charge
recorded was a $3.2 million credit, of which $2.2 million was recorded
during the first quarter of fiscal 1999, to adjust the estimated
transaction and termination costs previously recorded in connection
with the canceled merger transaction with Bergen Brunswig Corporation
("Bergen") (see Note 7). This adjustment relates primarily to services
provided by third parties engaged by the Company in connection with
the terminated Bergen transaction. The cost of such services was
estimated and recorded in the prior periods when the services were
performed. Actual billings were less than the estimate originally
recorded, resulting in a reduction of the current period
merger-related costs.
During the three and six month periods ended December 31, 1997,
merger-related costs recorded totaled $3.2 million ($1.9 million, net
of tax) and $5.4 million ($3.3 million, net of tax), respectively.
These charges related to integrating the operations of companies that
previously merged with the Company.
The net effect of the various merger-related costs recorded during the
three months ended December 31, 1998 and 1997 was to reduce net
earnings by $1.9 million to $99.7 million and by $1.9 million to $80.4
million, respectively, and to reduce reported diluted earnings per
Common Share by $0.01 per share to $0.49 per share and by $0.01 per
share to $0.40 per share, respectively. In addition, the net effect of
the various merger-related costs recorded during the six months ended
December 31, 1998 and 1997 was to reduce net earnings by $29.7 million
to $157.5 million and by $3.3 million to $149.8 million, respectively,
and to reduce reported diluted earnings per Common Share by $0.15 per
share to $0.77 per share and by $0.02 per share to $0.74 per share,
respectively.
Note 7. On August 24, 1997, the Company and Bergen announced that they had
entered into a definitive merger agreement, as amended, pursuant to
which a wholly owned subsidiary of the Company would be merged with
and into Bergen (the "Bergen Merger Agreement"). On July 31, 1998, the
United States District Court for the District of Columbia granted the
Federal Trade Commission's request for a preliminary injunction to
halt the proposed merger. On August 7, 1998, the Company and Bergen
jointly terminated the Bergen Merger Agreement and, in accordance with
the terms of the Bergen Merger Agreement, the Company reimbursed
Bergen for $7 million of transaction costs. Additionally, the
termination of the Bergen Merger Agreement caused the costs incurred
by the Company (that would not have been deductible had the merger
been consummated) to become tax deductible for federal income tax
purposes, resulting in a tax benefit of $12.2 million. The obligation
to reimburse Bergen and the additional tax benefit were recorded in
the fourth quarter of the fiscal year ended June 30, 1998.
Note 8. On October 9, 1998, the Company announced that it had entered into a
definitive merger agreement with Allegiance Corporation
("Allegiance"). This merger transaction was completed on February 3,
1999, and will be accounted for as a pooling of interests for
financial reporting purposes. As part of the merger transaction with
Allegiance, the Company issued approximately 70.7 million Common
Shares to Allegiance stockholders and Allegiance's outstanding stock
options were converted into options to purchase approximately 10.3
million Common Shares. The Company has assumed approximately $892.1
million in long-term debt as part of the merger. The Company expects
to record a merger-related charge to reflect transaction and other
costs incurred as a result of the merger transaction with Allegiance
in the quarter ended March 31, 1999.
<PAGE> 8
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 combinations with
MediQual Systems, Inc. ("MediQual") on February 18, 1998 and R.P. Scherer
Corporation ("Scherer") on August 7, 1998. The discussion and analysis is
concerned with material changes in financial condition and results of operations
for the Company's condensed consolidated balance sheets as of December 31, 1998
and June 30, 1998, and for the condensed consolidated statements of earnings for
the three and six month periods ended December 31, 1998 and 1997.
This discussion and analysis should be read together with management's
discussion and analysis included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 and in the Company's Current Report on Form
8-K/A (Amendment No. 1) filed with the Securities and Exchange Commission on
September 28, 1998.
Portions of management's discussion and analysis presented below include
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The words "believe", "expect", "anticipate",
"project", and similar expressions, among others, identify "forward-looking
statements", which speak only as of the date the statement was made. Such
forward-looking statements are subject to risks, uncertainties and other factors
which could cause actual results to materially differ from those made, projected
or implied. The most significant of such risks, uncertainties and other factors
are described in this report and in Exhibit 99.01 to this Form 10-Q. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
RESULTS OF OPERATIONS
Operating Revenue. Operating revenue for the second quarter and six month
period of fiscal 1999 increased 24% and 26%, respectively, as compared to the
prior year. Distribution businesses (those whose primary operations involve the
wholesale distribution of pharmaceuticals, representing approximately 88% of
total operating revenue) grew at a rate of 25% and 28%, respectively, during the
three and six month periods ended December 31, 1998, while Service businesses
(those that provide services to the healthcare industry, primarily through
pharmacy franchising, pharmacy automation equipment, pharmacy management,
pharmaceutical packaging, drug delivery systems development and healthcare
information systems development) grew at a rate of 20% and 18%, respectively,
during the comparable periods of fiscal year 1998, primarily due to the
Company's pharmacy automation and pharmaceutical packaging businesses. The
majority of the operating revenue increase (approximately 74% and 75% for the
three and six month periods ended December 31, 1998, respectively) came from
existing customers in the form of increased volume and price increases. The
remainder of the growth came from the addition of new customers.
Bulk Deliveries to Customer Warehouses. The Company reports as revenue bulk
deliveries made to customers' warehouses, whereby the Company acts as an
intermediary in the ordering and subsequent delivery of pharmaceutical products.
Fluctuations in bulk deliveries result largely from circumstances that are
beyond the control of the Company, including consolidation within the chain
drugstore industry, decisions by chains to either begin or discontinue
warehousing activities, and changes in policies by manufacturers related to
selling directly to chain drugstore customers. Due to the lack of margin
generated through bulk deliveries, fluctuations in their amount have no
significant impact on the Company's operating earnings.
Gross Margin. For the three month periods ended December 31, 1998 and 1997,
gross margin as a percentage of operating revenue was 8.89% and 9.12%,
respectively. For the six month periods ended December 31, 1998 and 1997, gross
margin as a percentage of operating revenue was 8.62% and 9.15%, respectively.
The decrease in the gross margin percentage is due primarily to a greater mix of
lower margin Distribution business in the three and six months ended December
31, 1998, and a general decline in the Distribution businesses gross margin.
The Distribution businesses' gross margin as a percentage of operating
revenue decreased for the second quarter of the current fiscal year from 5.40% a
year ago to 5.29%. In addition, Distribution's gross margin as a percentage of
operating revenue was 5.17% and 5.47%, respectively for the six month periods
ended December 31, 1998 and 1997. These decreases were primarily due to the
impact of lower selling margins, as a result of a highly competitive market and
a greater mix of high volume customers, where a lower cost of distribution and
better asset
<PAGE> 9
management enable the Company to offer lower selling margins to its customers.
The Distribution businesses achieved 25% and 28% operating revenue growth during
the three and six months ended December 31, 1998, respectively, primarily
through the addition or expansion of business with large, high volume customers.
The Service businesses' gross margin as a percentage of operating revenue
for the second quarter of fiscal 1999 and fiscal 1998 was 32.73% and 31.96%,
respectively. For the six month periods ended December 31, 1998 and 1997,
Service's gross margin as a percentage of operating revenue was 31.92% and
31.76%, respectively. The slight improvement in gross margin rates experienced
by the Service businesses is a function of the mix of the various businesses.
Increased operating revenue for the Company's relatively high margin pharmacy
automation business was the primary contributor to the gross margin improvement.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of operating revenue declined to 4.63%
in the second quarter of fiscal 1999 compared to 4.89% for the same period of
fiscal 1998, and 4.63% for the six month period ended December 31, 1998 compared
to 5.09% for the same period in the prior year. The improvements in the second
quarter and six month period reflect economies associated with the Company's
revenue growth, as well as significant productivity gains resulting from
continued cost control efforts and the consolidation and selective automation of
operating facilities. The 17% and 14% growth in selling, general and
administrative expenses experienced in the three and six months ended December
31, 1998, respectively, was due primarily to increases in personnel costs and
depreciation expense, and compares favorably to the 24% and 26% growth in
operating revenue for the same respective periods.
Merger-Related Costs. Costs of effecting mergers and subsequently
integrating the operations of the various merged companies are recorded as
merger-related costs when incurred. During the three and six months ended
December 31, 1998, merger-related costs totaling $3.1 million ($1.9 million, net
of tax) and $37.5 million ($29.7 million, net of tax) were recorded,
respectively. Of this amount, approximately $22.3 million related to transaction
and employee-related costs, and $12.5 million related to business restructuring
and asset impairment costs associated with the Company's merger transaction with
Scherer, which were recorded during the first quarter of fiscal 1999. In
addition, the Company recorded costs of $1.1 million related to severance costs
for a restructuring associated with the change in management that resulted from
the merger transaction with Owen Healthcare, Inc. and $4.8 million, of which
$1.8 million was recorded during the first quarter of fiscal 1999, related to
integrating the operations of companies that previously engaged in merger
transactions with the Company. Partially offsetting the charge recorded was a
$3.2 million credit, of which $2.2 million was recorded during the first quarter
of fiscal 1999, to adjust the estimated transaction and termination costs
previously recorded in connection with the canceled merger transaction with
Bergen Brunswig Corporation ("Bergen") (see Note 7 of "Notes to Condensed
Consolidated Financial Statements"). This adjustment relates primarily to
services provided by third parties engaged by the Company in connection with the
terminated Bergen transaction. The cost of such services was estimated and
recorded in the prior periods when the services were performed. Actual billings
were less than the estimate originally recorded, resulting in a reduction of the
current period merger-related costs.
During the three and six months ended December 31, 1997, the Company
recorded costs of $3.2 million ($1.9 million, net of tax) and $5.4 million ($3.3
million, net of tax) respectively, related to integrating the operations of
companies that previously merged with Cardinal.
The Company estimates that it will incur additional merger-related costs
associated with the various mergers it has completed to date (primarily related
to the Scherer merger) of approximately $29.2 million ($17.9 million, net of
tax) in future periods (primarily fiscal 1999 and 2000) in order to properly
integrate operations and implement efficiencies. Such amounts will be charged to
expense when incurred. The estimate does not include merger-related costs
associated with the Company's merger transaction with Allegiance (see Note 8 of
"Notes to Condensed Consolidated Financial Statements" and "Other - Allegiance
Merger").
The effect of merger-related costs recorded during the three months ended
December 31, 1998 and 1997 was to reduce net earnings by $1.9 million to $99.7
million and by $1.9 million to $80.4 million, respectively, and to reduce
reported diluted earnings per Common Share by $0.01 per share to $0.49 per share
and by $0.01 per share to $0.40 per share, respectively. In addition,
merger-related costs recorded during the six month periods ended December 31,
1998 and 1997 reduced net earnings by $29.7 million to $157.5 million and by
$3.3 million to $149.8 million, respectively, and reduced reported diluted
earnings per Common Share by $0.15 per share to $0.77 per share and by $0.02 per
share to $0.74 per share, respectively.
Other Income (Expense). The increase in interest expense of $2.3 million in
the second quarter and $3.8 million during the first six months of fiscal 1999
compared to the same respective periods of fiscal 1998 is primarily due to the
Company's issuance of $150 million, 6.25% Notes due 2008, in a public offering
in July 1998 (see "Liquidity
<PAGE> 10
and Capital Resources"). The decrease in other income of $3.0 million in the
second quarter and $3.2 million during the first six months of fiscal 1999
compared to the same respective periods of fiscal 1998 is primarily due to the
increase in minority interests in the earnings of less than wholly owned
subsidiaries. The increase in minority interests was primarily the result of
increased profitability at the Company's majority owned German subsidiary.
Provision for Income Taxes. The Company's provision for income taxes
relative to pre-tax earnings was 37% and 38% for the second quarter of fiscal
1999 and 1998, respectively. The decrease is due primarily to the current year
utilization of certain net operating loss carryforwards for which no prior
benefit had been recognized. For the six month periods ended December 31, 1998
and 1997, the Company's income tax provision as a percentage of pre-tax earnings
was 40% and 38%, respectively. The increase in the effective tax rate for the
six months ended December 31, 1998 compared to the same period a year ago is due
primarily to nondeductible items associated with the current year's business
combinations (see Note 6 of "Notes to Condensed Consolidated Financial
Statements").
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $1,762 million at December 31, 1998 from
$1,511 million at June 30, 1998. This increase included additional investments
in merchandise inventories and trade receivables of $479.0 million and $116.3
million, respectively. Offsetting the increases in working capital was a
decrease in cash and equivalents of $101.7 million and an increase in accounts
payable of $204.7 million. The increase in merchandise inventories reflects
normal seasonal purchases of pharmaceutical inventories and the higher level of
current and anticipated business volume in pharmaceutical distribution
activities. The increase in trade receivables is consistent with the Company's
operating revenue growth (see "Operating Revenue" above). The change in cash and
equivalents and accounts payable is due primarily to the timing of inventory
purchases and related payments.
On July 13, 1998, the Company issued $150 million of 6.25% Notes due 2008,
the proceeds of which are expected to be used for working capital needs due to
the growth in the Company's business. The Company currently has the capacity to
issue $250 million of additional debt securities pursuant to a shelf
registration statement filed with the Securities and Exchange Commission.
Property and equipment, at cost, increased by $122.5 million from June 30,
1998. The increase was primarily due to ongoing plant expansion and
manufacturing equipment purchases in certain service businesses and additional
investments made for management information systems and upgrades to distribution
facilities.
Shareholders' equity increased to $2.2 billion at December 31, 1998 from
$2.0 billion at June 30, 1998, primarily due to net earnings of $157.5 million,
the investment of $18.7 million by employees of the Company through various
stock incentive plans and the adjustment related to the change in Scherer's
fiscal year of $8.6 million during the six month period ended December 31, 1998
(See Note 5 to the "Notes to Condensed Consolidated Financial Statements").
The Company believes that it has adequate capital resources at its disposal
to fund currently anticipated capital expenditures, business growth and
expansion, and current and projected debt service requirements, including those
related to pending business combinations. See "Other" below.
OTHER
Allegiance Merger. On October 9, 1998, the Company announced that it had
entered into a definitive merger agreement with Allegiance Corporation
("Allegiance"). This merger transaction was completed on February 3, 1999, and
will be accounted for as a pooling of interests for financial reporting
purposes. As part of the merger transaction with Allegiance, the Company issued
approximately 70.7 million Common Shares to Allegiance stockholders and
Allegiance's outstanding stock options were converted into options to purchase
approximately 10.3 million Common Shares. The Company has assumed approximately
$892.1 million in long-term debt as part of the merger. The Company expects to
record a merger-related charge to reflect transaction and other costs incurred
as a result of the merger transaction with Allegiance in the third quarter of
fiscal 1999. Additional merger-related costs associated with integrating the
separate companies and instituting efficiencies will be charged to expense in
subsequent periods when incurred. (See Note 8 of "Notes to the Condensed
Consolidated Financial Statements").
Termination Agreement. On August 24, 1997, the Company and Bergen announced
that they had entered into a definitive merger agreement, as amended, pursuant
to which a wholly owned subsidiary of the Company would be merged with and into
Bergen (the "Bergen Merger Agreement"). On July 31, 1998, the United States
District Court
<PAGE> 11
for the District of Columbia granted the Federal Trade Commission's request for
a preliminary injunction to halt the proposed merger. On August 7, 1998, the
Company and Bergen jointly terminated the Bergen Merger Agreement and, in
accordance with the terms of the Bergen Merger Agreement, the Company reimbursed
Bergen for $7 million of transaction costs. Additionally, the termination of the
Bergen Merger Agreement caused the costs incurred by the Company (that would not
have been deductible had the merger been consummated) to become tax deductible
for federal income tax purposes, resulting in a tax benefit of $12.2 million.
The obligation to reimburse Bergen and the additional tax benefit were recorded
in the fourth quarter of the fiscal year ended June 30, 1998.
Year 2000 Project. The Company utilizes computer technologies in each of
its businesses to effectively carry out its day-to-day operations. Computer
technologies include both information technology in the form of hardware and
software, as well as embedded technology in the Company's facilities and
equipment. Similar to most companies, the Company must determine whether its
systems are capable of recognizing and processing date sensitive information
properly as the year 2000 approaches. The Company is utilizing a multi-phased
concurrent approach to address this issue. The phases included in the Company's
approach are the awareness, assessment, remediation, validation and
implementation phases. The Company has completed the awareness phase of its
project. The Company has also substantially completed the assessment phase and
is well into the remaining phases. The Company is actively correcting and
replacing those systems which are not year 2000 ready in order to ensure the
Company's ability to continue to meet its internal needs and those of its
suppliers and customers. The Company currently intends to substantially complete
the remediation, validation and implementation phases of the year 2000 project
prior to June 30, 1999. This process includes the testing of critical systems to
ensure that year 2000 readiness has been accomplished. The Company currently
believes it will be able to modify, replace, or mitigate its affected systems in
time to avoid any material detrimental impact on its operations. If the Company
determines that it is unable to remediate and properly test affected systems on
a timely basis, the Company intends to develop appropriate contingency plans for
any such mission-critical systems at the time such determination is made. While
the Company is not presently aware of any significant probability that its
systems will not be properly remediated on a timely basis, there can be no
assurances that all year 2000 remediation processes will be completed and
properly tested before the year 2000, or that contingency plans will
sufficiently mitigate the risk of a year 2000 readiness problem.
The Company estimates that the aggregate costs of its year 2000 project
will be approximately $24 million, including costs incurred to date. A
significant portion of these costs are not likely to be incremental costs, but
rather will represent the redeployment of existing resources. This reallocation
of resources is not expected to have a significant impact on the day-to-day
operations of the Company. During the three and six month periods ended December
31, 1998, total costs of approximately $1.9 million and $3.2 million,
respectively, were incurred by the Company for this project, of which
approximately $0.7 million and $1.1 million, respectively, represented
incremental costs. Total accumulated costs of approximately $8.9 million have
been incurred by the Company through December 31, 1998, of which approximately
$2.7 million represented incremental expense. The anticipated impact and costs
of the project, as well as the date on which the Company expects to complete the
project, are based on management's best estimates using information currently
available and numerous assumptions about future events. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans. Based on its current estimates and information
currently available, the Company does not anticipate that the costs associated
with this project will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows in future
periods.
The Company has initiated formal communications with its significant
suppliers, customers, and critical business partners to determine the extent to
which the Company may be vulnerable in the event that those parties fail to
properly remediate their own year 2000 issues. The Company has taken steps to
monitor the progress made by those parties, and intends to test critical system
interfaces as the year 2000 approaches. The Company is in the process of
developing appropriate contingency plans in the event that a significant
exposure is identified relative to the dependencies on third-party systems.
Although the Company is not presently aware of any such significant exposure,
there can be no guarantee that the systems of third parties on which the Company
relies will be converted in a timely manner, or that a failure to properly
convert by another company would not have a material adverse effect on the
Company.
The potential risks associated with the year 2000 issues include, but are
not limited, to: temporary disruption of the Company's operations, loss of
communication services and loss of other utility services. The Company believes
that the most reasonably likely worst-case year 2000 scenario would be a loss of
communication services which could result in problems with receiving,
processing, tracking and billing customer orders; problems receiving, processing
and tracking orders placed with suppliers; and problems with banks and other
financial institutions. Currently, as part of the Company's normal business
contingency planning, a plan has been developed for business disruptions due to
natural disasters and power failures. The Company is in the process of enhancing
these contingency plans to include provisions for year 2000 issues, although it
will not be possible to develop contingency
<PAGE> 12
plans for all potential disruption. Although the Company anticipates that
minimal business disruption will occur as a result of the year 2000 issues,
based upon currently available information, incomplete or untimely resolution of
year 2000 issues by either the Company or significant suppliers, customers and
critical business partners could have a material adverse impact on the Company's
consolidated financial position, results of operations and/or cash flows in
future periods. The above discussion does not include the impact of the
Company's merger transaction with Allegiance which was completed on February 3,
1999.
The Euro Conversion. On January 1, 1999, certain member countries of the
European Union irrevocably fixed the conversion rates between their national
currencies and a common currency, the "Euro", which became their legal currency
on that date. The participating countries' former national currencies will
continue to exist as denominations of the Euro between January 1, 1999 and
January 1, 2002. The Company has addressed the business implications of
conversion to the Euro, including the need to adapt internal systems to
accommodate Euro-denominated transactions, the competitive implications of
cross-border price transparency, and other strategic implications. The Company
does not expect the conversion to the Euro to have a material impact on its
consolidated financial position, results of operations or cash flows in future
periods.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes there has been no material change in its exposure to
market risk from that discussed in the Company's Form 8-K/A (Amendment No. 1)
filed on September 28, 1998.
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The following disclosure should be read together with the disclosure
set forth in the Company's Form 10-K for the fiscal year ended June 30, 1998,
the Company's Form 10-Q for the quarter ended September 30, 1998, and the
Company's Forms 8-K filed with the Securities and Exchange Commission subsequent
to the end of the fiscal year ended June 30, 1998, and to the extent any such
statements constitute "forward looking statements", reference is made to Exhibit
99.01 of this Form 10-Q.
In November 1993, the Company and Whitmire Distribution Corporation
("Whitmire"), one of the Company's wholly-owned subsidiaries, as well as other
pharmaceutical wholesalers, were named as defendants in a series of purported
class action 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. Subsequent to the consolidation, a new
consolidated complaint was filed which included allegations that the wholesaler
defendants, including the Company and Whitmire, conspired with manufacturers to
inflate prices using a chargeback pricing system. The wholesaler defendants,
including the Company and Whitmire, entered into a Judgment Sharing Agreement
whereby the total exposure for the Company and its subsidiaries is limited to
$1,000,000 or 1% of any judgment against the wholesalers and the manufacturers,
whichever is less, and provided for the reimbursement mechanism of legal fees
and expenses. The trial of the class action lawsuit began on September 23, 1998.
On November 19, 1998, after the close of plaintiffs' case-in-chief, both the
wholesaler defendants and the manufacturer defendants moved for a judgment as a
matter of law in their favor. On November 30, 1998, the Court granted both of
these motions and ordered judgment as a matter of law in favor of both the
wholesaler defendants and the manufacturer defendants. On January 25, 1999, the
class plaintiffs filed notice of appeal of the District Court's decision by the
Court of Appeals for the Seventh Circuit. In addition to the federal court cases
described above, the Company and Whitmire have also been named as defendants in
a series of related antitrust lawsuits brought by chain drug stores and
independent pharmacies who opted out of the federal class action lawsuits, and
in a series of state court cases alleging similar claims under various state
laws regarding the sale of brand name prescription drugs. The Judgment Sharing
Agreement described above also covers these litigation matters.
On January 17, 1995, Burlington Drug Company ("Burlington Drug") filed
a complaint in the United States District Court for the District of Vermont
alleging that certain agreements between VHA, Inc. ("VHA") and the Company
violated federal antitrust statutes and that the Company had tortiously
interfered with Burlington Drug's contractual relations. The Company filed an
answer denying the allegations contained in the complaint. The District Court
granted Burlington Drug leave to file an amended and supplemental complaint on
July 10, 1997, and the trial was set to begin on February 8, 1999. On January
13, 1999, the District Court dismissed this action based upon a tentative
settlement agreement among the parties, allowing Burlington Drug to petition,
upon good cause shown within sixty days, to reopen the action if a settlement is
not consummated.
The Company consummated a merger transaction with Allegiance on
February 3, 1999. With respect to the legal proceedings in which Allegiance is
involved, reference is made to the Quarterly and Annual Reports on Forms 10-Q
and Form 10-K, respectively, filed by Allegiance with the Securities and
Exchange Commission.
On September 3, 1998, the United States Attorney for the District of
Massachusetts filed a civil complaint against the Company in the United States
District Court for the District of Massachusetts. The Complaint sought civil
penalties for alleged multiple violations of the Controlled Substance Abuse Act.
On December 17, 1998, the parties entered into a settlement agreement pursuant
to which all claims contained in the complaint were withdrawn, without admission
of liability by the Company, in exchange for a payment of $487,500.
The Company also becomes involved from time-to-time in other litigation
incidental to its business. Although the ultimate resolution of the litigation
referenced in this Item 1 cannot be forecast with certainty, the Company does
not believe that the outcome of these lawsuits will have a material adverse
effect on the Company's financial statements.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) Registrant's 1998 Annual Meeting of Shareholders was held on November
23, 1998.
(b) Proxies were solicited by Registrant's management pursuant to
Regulation 14A 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.
<PAGE> 14
(c) Matters voted upon at the Annual Meeting were as follows:
(1) Election of Robert L. Gerbig, George R. Manser, Jerry E.
Robertson, and Melburn G. Whitmire. The results of the
shareholder vote were as follows: Mr. Gerbig - 115,225,283
for, 0 against, 4,102,439 withheld, and 0 broker
non-votes; Mr. Manser - 115,210,909 for, 0 against,
4,116,813 withheld, and 0 broker non-votes; Dr. Robertson
- 115,199,117 for, 0 against, 4,133,605 withheld, and 0
broker non-votes; and Mr. Whitmire - 115,229,768 for, 0
against, 4,097,954 withheld, and 0 broker non-votes.
(2) Amendment of the Registrant's Articles of Incorporation
increasing the number of authorized Company common shares
from 300 million to 500 million. The results of the
shareholder vote were as follows: 114,841,226 for,
4,186,648 against, 299,848 withheld, and 0 broker
non-votes.
(3) Amendment and restatement of the Registrant's Code of
Regulations primarily to increase the maximum number of
members of the Registrant's Board of Directors from 14 to
16. The results of the shareholder vote were as follows:
105,649,422 for, 3,825,832 against, 343,493 withheld, and
9,508,975 broker non-votes.
(4) Amendment of the Registrant's Equity Incentive Plan
increasing the number of the Registrant's common shares
available for grant of awards under such plan. The results
of the shareholder vote were as follows: 73,309,518 for,
36,085,384 against, 422,653 withheld, and 9,510,167 broker
non-votes.
(5) Amendment of the Registrant's Performance-Based Incentive
Compensation Plan increasing the maximum award that may be
paid to a participant for any performance period. The
results of the shareholder vote were as follows:
113,197,420 for, 5,716,171 against, 413,131 withheld, and
1,000 broker non-votes.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
(a) Listing of Exhibits:
Exhibit Exhibit Description
------- -------------------
Number
------
3.01 Amended and Restated Articles of Incorporation of the Registrant,
as amended (1)
3.02 Restated Code of Regulations of the Registrant, as amended (1)
10.01 Registrant's Equity Incentive Plan, as amended*
10.02 Registrant's Performance-Based Incentive Compensation Plan, as
amended*
27.01 Financial Data Schedule - Six months ended December 31, 1998
27.02 Financial Data Schedule - Six months ended December 31, 1997
99.01 Statement Regarding Forward-Looking Information
- ------------------
(1) Included as an exhibit to the Registrant's Form 8-K filed November
24, 1998.
* Management contract or compensation plan or arrangement
(b) Reports on Form 8-K:
On October 13, 1998, the Company filed a Current Report on Form 8-K
under Item 5 which reported that the Company had signed an Agreement and Plan of
Merger, dated as of October 8, 1998, among the Company, Boxes Merger Corp. and
Allegiance Corporation.
<PAGE> 15
On November 24, 1998, the Company filed a Current Report on Form 8-K
under Item 5 which filed the Company's Amended and Restated Articles of
Incorporation of the Registrant, as amended, and the Company's Restated Code of
Regulations of the Registrant, as amended.
<PAGE> 16
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: February 11, 1999 By: /s/ Robert D. Walter
---------------------
Robert D. Walter
Chairman and Chief Executive Officer
By: /s/ Richard J. Miller
---------------------
Richard J. Miller
Vice President, Controller and
Acting Chief Financial Officer
<PAGE> 1
Exhibit 10.01
[Logo]
CARDINAL HEALTH, INC.
EQUITY INCENTIVE PLAN,
As Amended Through November 1998
SECTION 1. PURPOSE.
The purpose of the Cardinal Health, Inc. Equity Incentive Plan (the
"Plan") is to assist Cardinal Health, Inc. ("CAH") and its subsidiaries (CAH and
its subsidiaries, collectively, the "Company") in attracting and retaining
capable employees and directors. The Plan provides for long and short term
incentives to employees by encouraging and enabling them to participate in the
Company's future prosperity and growth. The Plan provides for equity ownership
opportunities and appropriate incentives to better match the interests of
employees and directors with those of shareholders.
These objectives will be promoted through the granting to employees of
equity-based awards (the "awards") including (i) Incentive Stock Options
("ISOs"), which are intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"); (ii) options which are not
intended to so qualify ("NQSOs") (ISOs and NQSOs are referred to together
hereinafter as "Stock Options"); (iii) Restricted Shares; (iv) Performance
Shares; (v) Performance Share Units and (vi) Incentive Compensation Restricted
Shares. Members of CAH's Board of Directors (the "Board") who do not serve as
employees of the Company ("Outside Directors") shall receive NQSOs from the Plan
only as provided herein.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Compensation and Personnel
Committee (the "Committee") of the Board which shall have the power and
authority to grant to eligible employees Stock Options, Restricted Shares,
Performance Shares, Performance Share Units and Incentive Compensation
Restricted Shares. In particular, the Committee shall have the authority to: (i)
select employees of the Company as recipients of awards; (ii) determine the
number and type of awards to be granted; (iii) determine the terms and
conditions, not inconsistent with the terms hereof, of any award; (iv) adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan as it shall,
<PAGE> 2
from time to time, deem advisable; (v) interpret the terms and provisions of the
Plan and any award granted and any agreements relating thereto; and (vi) take
any other actions the Committee considers appropriate in connection with, and
otherwise supervise the administration of, the Plan. All decisions made by the
Committee pursuant to the provisions hereof shall be made in the Committee's
sole discretion and shall be final and binding on all persons. Members of the
Committee shall be "disinterested persons" within the meaning of Rule 16b-3
("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
The Committee may designate persons other than its members to carry out
its responsibilities under such conditions and limitations as it may set, other
than its authority with regard to awards granted to persons subject to Section
16 of the Exchange Act ("Reporting Persons").
SECTION 3. ELIGIBILITY.
Employees of the Company and its subsidiaries who are responsible for
or contribute to the management, growth and/or profitability of the business of
the Company and/or subsidiary, in each case as determined by the Committee, are
eligible to be granted awards. The participants under the Plan who are not
Outside Directors shall be selected from time to time by the Committee, in its
sole discretion, from among those eligible. In addition, Outside Directors are
eligible to receive NQSOs as set forth in Section 9 ("Outside Director
Options"), and may not receive any other awards under this Plan. Members of the
Committee are eligible to receive Outside Director Options.
SECTION 4. SHARES SUBJECT TO PLAN.
The total number of the Company's common shares, without par value
("Shares"), reserved and available for distribution pursuant to awards
(including without limitation Outside Director Options) hereunder ("Available
Shares") shall be an amount equal to the sum of (a) 1.5% of the total
outstanding Shares as of the last day of the Company's immediately preceding
fiscal year, plus (b) the number of Shares available for grant under the Plan as
of November 23, 1998, plus (c) any Shares related to awards that, in whole or in
part, expire or are unexercised, forfeited, terminated, surrendered, canceled,
settled in such a manner that all or some of the Shares covered by an award are
not issued to a participant, or returned to the Company in payment of the
exercise price or tax withholding obligations in connection with outstanding
awards, plus (d) any unused portion of the Shares available under section (a)
above for the immediately preceding two fiscal years (but not prior to the
Company's fiscal year ending June 30, 1999) as a result of not being made
subject to a grant or award in such preceding two fiscal years. Notwithstanding
the foregoing, for the Company's fiscal year ending June 30, 1999, the number of
total outstanding Shares in section (a), above, shall be calculated as of
November 23, 1998, rather than June 30, 1998 (the last day of the immediately
preceding fiscal year). No more than 50% of the Available Shares shall be
granted in the form of Restricted Shares, Incentive Compensation Restricted
Shares, Performance Shares and
2
<PAGE> 3
Performance Share Units. The Available Shares may consist, in whole or in part,
of authorized but unissued Shares, treasury Shares, or previously issued Shares
re-acquired by the Company, including Shares purchased on the open market. The
maximum number of Shares with respect to which Stock Options, Performance Shares
and Performance Share Units may be granted to any single participant during any
single fiscal year of the Company shall be 375,000 Shares. The number of Shares
with respect to which ISOs may be granted shall not exceed 3,000,000. Any of the
Shares delivered upon the assumption of or in substitution for outstanding
grants made by a company or division acquired by the Company shall not decrease
the number of Shares available for grant under the Plan, except to the extent
otherwise provided by applicable law or regulation.
In the event of any stock dividend, stock split, share combination,
corporate separation or division (including, but not limited to, split-up,
spin-off, split-off or distribution to CAH shareholders other than a normal cash
dividend), or partial or complete liquidation, or any other corporate
transaction or event having any effect similar to any of the foregoing, then the
aggregate number of Shares reserved for issuance under the Plan, the limitation
on the number of Shares available under the Plan for issuance of Restricted
Shares, Incentive Compensation Restricted Shares, Performance Shares and
Performance Share Units, the limitation on the number of Shares subject to ISOs,
the limitations on the number of Shares subject to Stock Options or Performance
Shares or Performance Share Units granted to any single participant, the number
and exercise price of Shares subject to outstanding Stock Options, the purchase
price for Restricted Shares, the financial Performance Goals, if any, of the
Shares the subject of a Performance Share or Performance Share Unit award, the
number of Shares subject to a Performance Share or Performance Share Unit award
or granted by a Restricted Share or Incentive Compensation Restricted Share
award, and any other characteristics or terms of the awards or Plan limitations
as the Committee shall deem necessary or appropriate to reflect equitably the
effects of such changes, shall be appropriately substituted for new shares or
adjusted, as determined by the Committee in its discretion. Any such adjustments
made to NQSOs shall also be made to Outside Director Options.
If any recapitalization, reorganization, reclassification,
consolidation, merger of CAH or the Company or any sale of all or substantially
all of CAH's or the Company's assets to another person or entity or other
transaction which is effected in such a way that holders of Shares are entitled
to receive (either directly or upon subsequent liquidation) stock, securities,
or assets with respect to or in exchange for Shares (each an "Organic Change")
shall occur, in lieu of the Shares issuable upon exercise of a Stock Option or
Outside Director Option or pursuant to any other award under the Plan, the Stock
Option or Outside Director Option shall thereafter be exercisable for and other
awards shall be issuable in such shares of stock, securities or assets
(including cash) as may be issued or payable with respect to or in exchange for
the number of Shares immediately theretofore acquirable pursuant to such award
had such Organic Change not taken place (whether or not such Stock Option or
Outside Director Option is then exercisable or other awards are then vested)
after giving effect to any adjustments otherwise required or permitted under
this Plan.
3
<PAGE> 4
SECTION 5. STOCK OPTIONS.
References to Stock Options in this Section 5 shall not apply to
Outside Director Options. Stock Options may be granted alone or in addition to
other awards granted under the Plan. Any Stock Options granted under the Plan
shall be in such form as the Committee may from time to time approve and the
provisions of Stock Option awards need not be the same with respect to each
optionee. Stock Options granted under the Plan may be either ISOs or NQSOs. The
Committee may grant to any optionee ISOs, NQSOs or both types of Stock Options.
Anything in the Plan to the contrary notwithstanding, without the
consent of the optionee(s) affected, no provision of this Plan relating to ISOs
shall be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code or to disqualify any ISO under such Section 422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions not
inconsistent with the terms of the Plan as the Committee deems appropriate. Each
Stock Option grant shall be evidenced by an agreement executed on behalf of the
Company by an officer designated by the Committee and accepted by the optionee.
Such agreement shall describe the Stock Options and state that such Stock
Options are subject to all the terms and provisions of the Plan and shall
contain such other terms and provisions, not inconsistent with the Plan, as the
Committee may approve.
(a) Exercise Price. The exercise price per Share issuable upon exercise
of a Stock Option shall be no less than the fair market value per share on the
date the Stock Option is granted; provided, that if the optionee, at the time an
ISO is granted, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of CAH or any subsidiary, the exercise price shall
be at least 110% of the fair market value of the Shares subject to the ISO on
the date of grant. Fair market value on the date of grant shall be determined by
the Committee in good faith.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten years after
the date such Stock Option is granted.
(c) Exercise of Stock Options. Stock Options shall become exercisable
at such time or times and subject to such terms and conditions (including,
without limitation, installment or cliff exercise provisions) as shall be
determined by the Committee. The Committee shall have the authority, in its
discretion, to accelerate the time at which a Stock Option shall be exercisable
whenever it may determine that such action is appropriate by reason of changes
in applicable tax or other law or other changes in circumstances occurring after
the award of such Stock Options.
4
<PAGE> 5
(d) Method of Exercise. Stock Options may be exercised in whole or in
part by giving written notice of exercise to the Company specifying the number
of Shares to be purchased. Payment in full of the exercise price shall be paid
in cash, or such other instrument as may be permitted in accordance with rules
or procedures adopted by the Committee. If approved by the Committee, payment in
full or in part may also be made: (i) by delivering Shares already owned by the
optionee having a total fair market value on the date of such delivery equal to
the option exercise price; (ii) by the delivery of cash on the extension of
credit by a broker-dealer to whom the optionee has submitted a notice of
exercise or an irrevocable election to effect such extension of credit; or (iii)
by any combination of the foregoing. No Shares shall be transferred until full
payment therefor has been made.
(e) Transferability of Stock Options. Except as otherwise provided
hereunder, Stock Options shall be transferable by the optionee only with prior
approval of the Committee and only in compliance with the restrictions imposed
under Section 16(b) of the Exchange Act and Section 422 of the Code, if
applicable. Any attempted transfer without Committee approval shall be null and
void. Unless Committee approval of the transfer shall have been obtained, all
Stock Options shall be exercisable during the optionee's lifetime only by the
optionee or the optionee's legal representative. Without limiting the generality
of the foregoing, the Committee may, in the manner established by the Committee,
provide for the irrevocable transfer, without payment of consideration, of any
Stock Option other than any ISO by an optionee to a member of the optionee's
family or to a trust or partnership whose beneficiaries are members of the
optionee's family. In such case, the Stock Option shall be exercisable only by
such transferee. For purposes of this provision, an optionee's "family" shall
include the optionee's spouse, children, grandchildren, nieces and nephews.
(f) Termination by Death. If an optionee's employment by or service to
the Company terminates by reason of death, then, unless otherwise determined by
the Committee within five days of such death, each Stock Option held by such
optionee shall thereafter be exercisable in full and any unvested portion
thereof shall immediately vest. Each Stock Option held by such optionee may
thereafter be exercised by the legal representative of the estate or by the
legatee of the optionee under the will of the optionee, for a period of one year
(or such other period as the Committee may specify at or after grant or death)
from the date of death or until the expiration of the stated term of such Stock
Option, whichever period is shorter.
(g) Termination by Reason of Retirement. If an optionee's employment by
or service to the Company terminates by reason of retirement, then, unless
otherwise determined by the Committee within sixty days of such retirement each
Stock Option held by such optionee may thereafter be exercised by the optionee
for a period of ninety days (or such other period as the Committee may specify
at or after grant or retirement) from the date of such termination of employment
or service, or until the expiration of the stated term of such Stock Option,
whichever period is shorter; provided, however, that, if
5
<PAGE> 6
the optionee dies within such ninety day period (or such other period), any
unexercised Stock Option held by such optionee shall thereafter be exercisable,
in full, for a period of one year (or such other period as the Committee may
specify at or after grant or death) from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is shorter.
In the event of termination of employment by reason of retirement, if an ISO is
exercised after the expiration of the exercise periods that apply for purposes
of Section 422 of the Code, such ISO shall thereafter be treated as an NQSO. For
purposes of the Plan, retirement shall mean voluntary termination of employment
by a participant from the Company after attaining age 55 and having at least
three years of service with the Company.
(h) Other Termination of Employment. If an optionee's employment by or
service to the Company terminates for any reason other than death or retirement,
any Stock Option held by such optionee which has not vested on such date of
termination will automatically terminate on the date of such termination. Unless
otherwise determined by the Committee at or after grant or termination, the
optionee will have ninety days (or such other period as the Committee may
specify at or after grant or termination) from the date of termination to
exercise any and all Stock Options that are then exercisable on the date of
termination; provided, however, that if the termination was for Cause, any and
all Stock Options held by that optionee may be immediately canceled by the
Committee. For purposes of the Plan, "Cause" means on account of any act of
fraud or intentional misrepresentation or embezzlement, misappropriation or
conversion of assets of the Company or any subsidiary, or the intentional and
repeated violation of the written policies or procedures of the Company.
(i) Effect of Termination of Optionee on Transferee. Except as
otherwise permitted by the Committee in its absolute discretion, no Stock Option
held by a transferee of an optionee pursuant to the fourth sentence of Section
5(e) shall remain exercisable for any period of time longer than would otherwise
be permitted under Sections 5(f), 5(g) or 5(h) without specification of other
periods by the Committee as provided in those Sections.
(j) ISO Limitations. To the extent required for "incentive stock
option" status under Section 422 of the Code, the aggregate fair market value
(determined as of the time of grant) of the Shares with respect to which ISOs
are exercisable for the first time by the optionee during any calendar year
under the Plan and any other stock option plan of the Company and its
affiliates, shall not exceed $100,000.
SECTION 6. RESTRICTED SHARES.
Restricted Shares may be granted alone or in addition to other awards
granted under the Plan. Any Restricted Shares granted under the Plan shall be
subject to the following restrictions and conditions, and shall contain such
additional terms and conditions not inconsistent with the terms of the Plan as
the Committee deems
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appropriate. The provisions of Restricted Share awards need not be the same with
respect to each recipient.
(a) Price. The purchase price for Restricted Shares shall be any price
set by the Committee and may be zero. Payment in full of the purchase price, if
any, shall be made in cash, or such other instrument as may be permitted in
accordance with rules or procedures adopted by the Committee. If approved by the
Committee, payment in full or part may also be made: (i) by delivering Shares
already owned by the grantee having a total fair market value on the date of
such delivery equal to the Restricted Share price; (ii) by the delivery of cash
on the extension of credit by a broker-dealer or an irrevocable election to
effect such extension of credit; or (iii) by any combination of the foregoing.
(b) Restricted Share Award Agreement. Each Restricted Share grant shall
be evidenced by an agreement executed on behalf of the Company by an officer
designated by the Committee. Such Restricted Share Award Agreement shall
describe the Restricted Shares and state that such Restricted Shares are subject
to all the terms and provisions of the Plan and shall contain such other terms
and provisions, consistent with the Plan, as the Committee may approve. At the
time the Restricted Shares are awarded, the Committee may determine that such
Shares shall, after vesting, be further restricted as to transferability or be
subject to repurchase by the Company upon occurrence of certain events
determined by the Committee, in its sole discretion, and specified in the
Restricted Share Award Agreement. Awards of Restricted Shares must be accepted
by a grantee thereof within a period of 30 days (or such other period as the
Committee may specify at grant) after the award date by executing the Restricted
Share Award Agreement and paying the price, if any, required under Section 6(a).
The prospective recipient of a Restricted Share award shall not have
any rights with respect to such award, unless and until such recipient has
executed an agreement evidencing the award and has delivered a fully executed
copy thereof to the Company, and has otherwise complied with the applicable
terms and conditions of such award.
(c) Share Restrictions. Subject to the provisions of this Plan and the
applicable Restricted Share Award Agreement, during a period set by the
Committee commencing with the date of such award and ending on such date as
determined by the Committee at grant (the "Restriction Period"), the participant
shall not be permitted to sell, transfer, pledge, assign or otherwise encumber
shares of Restricted Shares awarded under the Plan. In no event shall more than
10% of the Shares authorized for issuance under this Plan (as adjusted as
provided in Section 4) be granted in the form of Restricted Shares having a
restriction period of less than 3 years. The Committee shall have the authority,
in its absolute discretion, to accelerate the time at which any or all of the
restrictions shall lapse with respect to any Restricted Shares or to remove any
or all restrictions after the grant of such Restricted Shares, provided,
however, that such discretion shall be exercised subject to the limitations set
forth in the preceding sentence, excluding discretion exercised in connection
with a Grantee's termination of employment from the Company. Unless otherwise
determined by the Committee at or after grant or termination, if a participant's
employment by or service to the Company terminates during the Restriction
Period, all
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Restricted Shares held by such participant still subject to restriction shall be
forfeited by the participant.
(d) Stock Certificate and Legends. Each participant receiving a
Restricted Share award shall be issued a stock certificate in respect of such
Restricted Shares. Such certificate shall be registered in the name of such
participant. The Committee may require that the stock certificates evidencing
such shares be held in custody by the Company until the restrictions thereon
shall have lapsed, and that, as a condition of any Restricted Shares award, the
participant shall have delivered a stock power, endorsed in blank, relating to
the Shares covered by such award.
(e) Shareholder Rights. Except as provided in this Section 6, the
recipient shall have, with respect to the Restricted Shares covered by any
award, all of the rights of a shareholder of the Company, including the right to
vote the Shares, and the right to receive any dividends or other distributions,
with respect to the Shares, but subject, however, to those restrictions placed
on such Shares pursuant to this Plan and as specified by the Committee in the
Restricted Share Award Agreement.
(f) Expiration of Restriction Period. If and when the Restriction Period
expires without a prior forfeiture of the Restricted Shares subject to such
Restriction Period, unrestricted certificates for such shares shall be delivered
to the participant.
SECTION 7. PERFORMANCE SHARES AND PERFORMANCE SHARE UNITS.
Subject to the terms and conditions described herein, Performance
Shares and Performance Share Units may be granted to eligible participants at
any time and from time to time as determined by the Committee.
(a) Price. The purchase price for Performance Shares and Performance
Share Units shall be zero unless otherwise specified by the Committee.
(b) Performance Share Agreement. Subject to the provisions of this
Plan, all the terms and conditions of an award of Performance Shares or
Performance Share Units shall be determined by the Committee in its discretion.
Each Performance Share and Performance Share Unit shall be evidenced by an
agreement executed by the recipient of the Performance Share or Performance
Share Unit and on behalf of the Company by an officer designated by the
Committee. Such Performance Share or Performance Share Unit Award Agreement
shall describe the Performance Share or Performance Share Unit and state that
such Performance Share or Performance Share Unit is subject to all the terms and
provisions of the Plan and shall contain such other terms and provisions, not
inconsistent with the Plan, as the Committee may approve. Award of Performance
Shares and Performance Share Units must be accepted by a grantee thereof within
a period of 60 days (or such other period as the Committee may specify at grant)
after the award date by executing the Performance Share or Performance Share
Unit Award Agreement, and paying the price, if any, as required under Section
7(a).
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(c) Performance Periods. Any time period (the "Performance Period")
relating to a Performance Share or Performance Share Unit award shall be at
least one year in length. No more than two Performance Periods may begin in any
one fiscal year of the Company.
(d) Performance Goals. Performance Shares and Performance Share Units
shall be earned based upon the financial performance of the Company or an
operating group of the Company during a Performance Period. As to each
Performance Period, within such time as established by Section 162(m) of the
Code, the Committee will establish in writing targets for one of the following
performance measures of the Company (and/or an operating group of the Company,
if applicable) over the Performance Period ("Performance Goals"): (i) earnings,
(ii) return on capital, or (iii) any Performance Goal approved by the
shareholders of the Company in accordance with Section 162(m) of the Code. The
Performance Goals, depending on the extent to which they are satisfied, will
determine the number of Performance Shares or Performance Share Units, if any,
that will be earned by each participant. Attainment of the Performance Goals
will be calculated from the consolidated financial statements of the Company but
shall exclude (i) the effects of changes in federal income tax rates, (ii) the
effects of unusual, non-recurring and extraordinary items as defined by
Generally Accepted Accounting Principles ("GAAP"), and (iii) the cumulative
effect of changes in accounting principles in accordance with GAAP. The
Performance Goals may vary for different Performance Periods and need not be the
same for each participant receiving an award for a Performance Period. The
Committee may, in its absolute discretion, subject to the limitations of Section
11, vary the terms and conditions of any Performance Share or Performance Share
Unit award, including, without limitation, the Performance Period and
Performance Goals, without shareholder approval, as applied to any recipient who
is not a "covered employee" with respect to the Company as defined in Section
162(m) of the Code. In the event applicable tax or securities laws change to
permit the Committee discretion to alter the governing performance measures as
they pertain to covered employees without obtaining shareholder approval of such
changes, the Committee shall have sole discretion to make such changes without
obtaining shareholder approval.
(e) Earning of Performance Shares. Performance Shares shall be issued
to each recipient thereof on the later of such time as the Performance Goals are
established or the first day of the applicable Performance Period. The number of
Performance Shares awarded at such time shall be calculated based upon the
assumption that the Performance Goals for the applicable Performance Period will
be satisfied to the fullest extent. The Company, or its designated agent, shall
hold all Performance Shares issued to recipients prior to completion of the
Performance Period. Participants shall be entitled to all dividends and other
distributions earned in respect of such Performance Shares and shall be entitled
to vote such Performance Shares during the period from the initial award date to
the final adjustment of the Performance Shares. After the applicable Performance
Period shall have ended, the Committee shall certify in writing the extent to
which the established Performance Goals have been achieved. Subsequently, the
number of
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Performance Shares, if any, earned by the recipient over the Performance Period
shall be determined as a function of the extent to which the Performance Goals
for such Performance Period were achieved. If the Performance Goals are not
satisfied to the fullest extent, a recipient may earn less than the number of
Performance Shares originally awarded, or no Performance Shares at all. In
addition, whether or not the Performance Goals are satisfied to the fullest
extent, the Committee may exercise negative discretion to reduce the number of
Performance Shares or Performance Share Units to be issued if, in the
Committee's sole judgment, such negative discretion is appropriate in order to
act in the best interest of the Company and its shareholders. The factors to be
taken into account by the Committee when exercising negative discretion include,
but are not limited to, the achievement of measurable individual performance
objectives established by the Committee and communicated to the participant no
later than the ninetieth day of the Performance Period, and competitive pay
practices. Performance Shares shall be paid in the form of Shares. Unrestricted
certificates representing such number of Shares as equals the number of
Performance Shares earned under the award shall be delivered to the participant
as soon as practicable after the end of the applicable Performance Period.
(f) Earning of Performance Share Units. An account documenting
Performance Share Units awarded shall be established for each recipient thereof
on the later of such time as the Performance Goals are established or the first
day of the applicable Performance Period. The number of Performance Share Units
credited to a recipient's account at such time shall be calculated based upon
the assumption that the Performance Goals for the applicable Performance Period
will be satisfied to the fullest extent. After the applicable Performance Period
shall have ended, the Committee shall certify in writing the extent to which the
established Performance Goals have been achieved. Subsequently, the number of
Performance Share Units, if any, earned by the recipient over the Performance
Period shall be determined as a function of the extent to which the Performance
Goals for such Performance Period were achieved, adjusted, if applicable, in
accordance with the negative discretion of the Committee. A recipient may earn
less than the number of Performance Share Units originally awarded, or no
Performance Share Units at all. Performance Share Units shall be paid in the
form of Company check, the amount of which shall be calculated by multiplying
the fair market value per Share on the last day of the Performance Period by the
number of Performance Share Units, as adjusted pursuant to the last paragraph of
Section 4.
(g) Termination of Employment or Service Due to Death or at the Request
of the Company Without Cause. In the event the employment by or service of a
participant is terminated by reason of death, or by the Company without Cause
during a Performance Period, unless determined otherwise by the Committee, the
participant or his legal representative, as applicable, shall receive a prorated
payout with respect to the Performance Shares and Performance Share Units
relating to such Performance Period. The prorated payout shall be based upon the
length of time that the participant held the Performance Shares or Performance
Share Units during the Performance Period and the progress toward achievement of
the established Performance Goals. Distribution of earned Performance Shares and
Performance Share Units, if any, shall be made at the
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same time payments are made to participants who did not terminate employment
during the applicable Performance Period.
(h) Termination of Employment or Service for Other Reasons. In the
event that a participant's employment or service terminates for any reason other
than those reasons set forth in paragraph (g) of this Section 7, all Performance
Shares and Performance Share Units shall be forfeited by the participant to the
Company, except as otherwise determined by the Committee.
(i) Nontransferability. Except as otherwise provided herein, no
Performance Share or Performance Share Unit may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated. Further, a participant's rights
under the Plan shall be exercisable during the participant's lifetime only by
the participant or the participant's legal representative.
SECTION 8. INCENTIVE COMPENSATION RESTRICTED SHARES.
Each employee participating in this Plan who also participates in the
Company's Management Incentive Plan (the "Incentive Compensation Plan") may be
eligible, in the Committee's sole discretion, to elect to receive all or a
portion of the annual incentive compensation ("Incentive Compensation") payable
to the employee under the Incentive Compensation Plan in the form of Incentive
Compensation Restricted Shares. To elect the payout of all or a portion of
annual Incentive Compensation in Incentive Compensation Restricted Shares, an
employee must complete and submit to the Committee an Incentive Compensation
Restricted Shares Election Form after the Committee has determined the factor
set forth in Section 8(c)(B) and the vesting schedule of the Incentive
Compensation Restricted Shares, but in any event, prior to the date established
by the Committee for election of such deferral. The Incentive Compensation
Restricted Shares shall be evidenced by an Incentive Compensation Restricted
Shares Agreement executed on behalf of the Company by an officer designated by
the Committee and accepted by the employee. Such agreement shall describe the
Incentive Compensation Restricted Shares and state that such Incentive
Compensation Restricted Shares are subject to all terms and provisions, not
inconsistent with the Plan, as the Committee may approve. Terms and conditions
of Incentive Compensation Restricted Shares shall include the following:
(a) Deferral Election. Within such limits as the Committee may
establish, any portion of annual Incentive Compensation can be elected for
payout in Incentive Compensation Restricted Shares, in a dollar amount or as a
percentage of total Incentive Compensation, or as a percentage of total
Incentive Compensation with a stated maximum dollar amount.
(b) Issuance of Incentive Compensation Restricted Shares. Incentive
Compensation Restricted Shares will be issued on the same date that cash payouts
are
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made under the Incentive Compensation Plan, based on the fair market value of
the Shares on the date of the issuance.
(c) Number of Shares. The number of Incentive Compensation Restricted
Shares granted to an employee will equal the product of (A) that number of
Shares as have an aggregate fair market value equal to the dollar amount of the
annual Incentive Compensation to be received in the form of Incentive
Compensation Restricted Shares multiplied by (B) a factor greater than or equal
to 1.00, but less than or equal to 1.30, as determined by the Committee prior to
the date established by the Committee for the deferral election to be made.
(d) Termination of Employment Due to Death, Disability or Retirement or
at the Request of the Company Without Cause. If the employee's employment is
terminated by reason of death, disability or retirement or by the Company
without Cause, all of the restrictions applicable to unvested Incentive
Compensation Restricted Shares shall be waived and all Incentive Compensation
Restricted Shares shall be immediately vested. If the employee's employment is
terminated for any other reason, the Incentive Compensation Restricted Shares
held by that employee will be forfeited as of the date of such termination;
provided, however, that the Committee may, in its sole discretion, provide that
such Incentive Compensation Restricted Shares will not so terminate. In such
event, such Incentive Compensation Restricted Shares will vest in accordance
with the vesting schedule set forth in the Incentive Compensation Restricted
Shares Agreement or on such accelerated basis as the Committee may determine at
or after grant or termination of employment.
(e) Application of Section 6. Except to the extent inconsistent with
this Section 8, the provisions of Section 6 and all other provisions of the Plan
pertaining to Restricted Shares shall be applicable to Incentive Compensation
Restricted Shares.
SECTION 9. OUTSIDE DIRECTOR OPTIONS.
(a) Administration. Outside Directors shall be eligible to participate
in the Plan only as expressly set forth in this Section 9. The Committee shall
have no power to determine which Outside Directors will receive Outside Director
Options, the amount of such Outside Director Options, or the terms of such
Outside Director Options to the extent provided in subsections (b) through (i)
below. None of the provisions of Section 5 applicable to Stock Options shall be
applicable to Outside Director Options.
(b) Eligibility and Grant. Outside Director Options shall be NQSOs. All
Outside Director Options shall be evidenced by a written agreement, which shall
be dated as of the date on which an Outside Director Option is granted, signed
by an officer of the Company authorized by the Committee, and signed by the
Outside Director. Such agreement shall describe the Outside Director Options and
state that such Outside Director Options are subject to all terms and provisions
of the Plan.
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(c) Vesting. All Outside Director Options shall be fully vested on the
date of grant.
(d) Number of Shares. Each individual first elected or appointed to
serve as a director of the Company at or after adjournment of the Company's
annual meeting of shareholders (an "Annual Meeting") in 1997 who is an Outside
Director shall, upon such election or appointment, automatically be granted
options for that number of Shares having a fair market value of $150,000 (each
an "Initial Grant"). In addition, commencing immediately after the adjournment
of the Annual Meeting in 1997 and continuing on an annual basis, immediately
following the adjournment of each succeeding Annual Meeting thereafter during
the term of this Plan each Outside Director whose term did not expire at that
Annual Meeting and who has then served as a director of the Company for a
consecutive period of time which includes each of the last three Annual Meetings
(i.e., including the Annual Meeting then just adjourned) shall automatically be
granted additional Outside Director Options for that number of Shares having a
fair market value of $100,000 (each an "Annual Grant"). Beginning on July 1,
2000 and on every third July 1 thereafter, the dollar value of the Initial
Grants and Annual Grants shall automatically be increased under this Plan by a
percentage equal to that percentage by which the fair market value per Share has
increased in the immediately preceding three-year period, not to exceed a 45%
aggregate increase over any such three-year period. For purposes of this Section
9, fair market value means the last sale price of the Shares on the applicable
date (or, if no sale of Shares occurs on such date, on the next preceding date
on which a sale occurred) as reported on the New York Stock Exchange Composite
Tape.
(e) Exercise Price. The exercise price per Share purchasable under an
Outside Director Option shall be equal to the fair market value on the day the
Outside Director Option is granted.
(f) Maximum Term. Each Outside Director Option shall be exercisable for
ten years from the date of grant; provided, however, that in the event an
Outside Director's service to the Company is terminated for Cause, each Outside
Director Option held by that Outside Director on the date of termination shall
be canceled effective as of such termination date.
(g) Transferability of Outside Director Options. Outside Director
Options shall be transferable to the maximum extent permissible under Rule
16b-3, as amended from time to time.
(h) Method of Exercise. Outside Director Options may be exercised in
whole or in part by giving written notice of exercise to the Company specifying
the number of Shares to be purchased. No Shares shall be transferred until full
payment therefor has been made. Payment for exercise of an Outside Director
Option may be made (i) in cash, (ii) by delivery of Shares already owned by the
Outside Director, (iii) by delivery of cash on the extension of credit by a
broker-dealer to whom the Outside Director has submitted
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a notice of exercise or an irrevocable election to effect such extension of
credit, or (iv) by any combination of the foregoing.
(i) Termination of Option. Except as otherwise provided herein, if an
Outside Director ceases to be a member of the Board for any reason, then all
Outside Director Options or any unexercised portion of such Outside Director
Options which otherwise are exerciseable shall terminate unless such Outside
Director Options are exercised within six months after the date such Outside
Director ceases to be a member of the Board (but in no event after expiration of
the original term of such Outside Director Options); provided that if such
Outside Director ceases to be a member of the Board by reason of such Outside
Director's death, the six-month period shall instead be a one-year period.
(j) Applicability of Other Provisions to Outside Director Options.
Except for Section 5 and except to the extent inconsistent with the provisions
of this Section 9, all other terms applicable to Stock Options set forth in
other sections of this Plan are applicable to Outside Director Options.
SECTION 10. CHANGE OF CONTROL PROVISIONS.
(a) Impact of Event. In the event of a "Change of Control" as defined
in Section 10(b), the following acceleration and valuation provisions shall
apply:
(i) On the date that such Change of Control is determined to
have occurred, any or all Stock Options awarded under this Plan not previously
exercisable and vested shall become fully exercisable and vested.
(ii) The restrictions applicable to any or all Restricted
Shares, Incentive Compensation Restricted Shares, Performance Shares and
Performance Share Units shall lapse and such shares and awards shall be fully
vested.
(b) Definition of "Change of Control". For purposes of Section 10(a), a
"Change of Control" shall mean:
(i) the acquisition by any individual, entity or group (within
the meaning of Section 13(d) (3) or 14(d) (2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 25% or more of either (x) the then outstanding common shares of
CAH (the "outstanding CAH Common Shares") or (y) the combined voting power of
the then outstanding voting securities of CAH entitled to vote generally in the
election of directors (the "Outstanding CAH Voting Securities"); provided,
however, that for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any acquisition directly from CAH
or any
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corporation controlled by CAH, (B) any acquisition by CAH or any corporation
controlled by CAH, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by CAH or any corporation controlled by CAH or
(D) any acquisition by any corporation pursuant to a transaction which complies
with clauses (x), (y) and (z) of subsection (iii) of this Section 10(b); or
(ii) individuals who, as of the Effective Date of this Plan,
constitute the Board of CAH (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of CAH; provided, however, that any
individual becoming a director subsequent to the Effective Date whose election,
or nomination for election by CAH's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(iii) approval by the shareholders of CAH of a reorganization,
merger or consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another corporation
(a "Business Combination"), in each case, unless, following such Business
Combination, (x) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding CAH Common Shares
and Outstanding CAH Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% (or such
lower percentage as may be determined by the Board of Directors of CAH prior to
such Business Combination) of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns CAH
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Outstanding CAH
Common Shares and Outstanding CAH Voting Securities, as the case may be, (y) no
Person (excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 25% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination (including any ownership that existed in the
Company or the company being acquired, if any) and (z) at least a majority of
the members of the board of directors of the corporation resulting from such
Business Combination were members of the
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Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(iv) approval by the shareholders of CAH of a complete
liquidation or dissolution of CAH.
SECTION 11. AMENDMENTS AND TERMINATION.
The Board may amend, alter or discontinue the Plan; provided, however,
no amendment, alteration or discontinuation shall be made which would impair the
rights of an optionee, participant or transferee pursuant to Section 5(e) under
any award theretofore granted, without the optionee's, participant's or
transferee's consent, or which, without the approval of CAH's shareholders,
would:
(a) except as expressly provided in the Plan, increase the total number
of Shares reserved for purposes of the Plan;
(b) change the class of individuals eligible to participate in the
Plan;
(c) extend the maximum option period of Stock Options or Outside
Director Options; or
(d) increase materially the benefits under the Plan.
The Committee may amend the terms of any award theretofore granted
(except an Outside Director Option), prospectively or retroactively; provided no
such amendment shall impair the rights of any holder without the holder's
consent; provided, further, no Stock Option may be amended so as to decrease the
exercise price of such Stock Option to reflect a decrease in the fair market
value of the underlying stock.
The provisions regarding Outside Director Options pursuant to Section 9
above shall not in any case be amended more often than once in any six-month
period other than to comply with changes in the Code or ERISA, or the rules
thereunder.
Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in applicable tax and securities
laws and accounting rules, as well as other developments.
SECTION 12. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments or deliveries of Shares not
yet made by the Company to a participant, optionee or transferee, nothing
contained herein shall give any such participant, optionee or transferee any
rights that are greater than those of a general creditor of the Company. The
Committee may authorize the creation of trusts or other
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arrangements to meet the obligations created under the Plan to deliver Shares or
payments hereunder consistent with the foregoing.
SECTION 13. GENERAL PROVISIONS.
(a) SHARE TRANSFER AND DISTRIBUTION. The Committee may require each
person purchasing Shares pursuant to a Stock Option, Outside Director Option,
Performance Share, Restricted Share or Incentive Compensation Restricted Share
award under the Plan to represent to and agree with the Company in writing that
the optionee or participant is acquiring the Shares without a view to the
distribution thereof. Any certificates for such Shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All Shares or other securities delivered under the Plan shall be
subject to such stop-transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Shares are
then listed and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any certificates evidencing
such Shares to make appropriate reference to such restrictions.
The Company shall not be required to deliver any Shares or other
securities under the Plan prior to such registration or other qualification of
such Shares or other securities under any state or federal law, rule or
regulation as the Committee shall determine to be necessary or advisable.
(b) Additional Arrangements. Nothing contained in this Plan shall
prevent the Company from adopting other or additional compensation arrangements
for its employees, consultants or Outside Directors.
(c) No Right to Award or Employment. No person shall have any claim or
right to be granted an award under this Plan and the grant of an award shall not
confer upon any participant any right to be retained as an employee or director
of CAH or any subsidiary, nor shall it interfere in any way with the right of
CAH or any subsidiary to terminate the employment or service as a director of
any of the Plan's participants at any time.
(d) Tax Withholding. The Company shall have the right to require the
grantee of Restricted Shares, Incentive Compensation Restricted Shares,
Performance Shares or Performance Share Units or other person receiving such
Shares to pay the Company the amount of any taxes which the Company is required
to withhold with respect to such Shares or, in lieu thereof, to retain, or sell
without notice, a sufficient number of Shares held by it to cover the amount
required to be withheld. The Company shall have the right to deduct from all
dividends paid with respect to Restricted Shares, Incentive Compensation
Restricted Shares, and Performance Shares the amount of any taxes which the
Company is required to withhold with respect to such dividend payments.
17
<PAGE> 18
The Company shall also have the right to require an optionee to pay to
the Company the amount of any taxes which the Company is required to withhold
with respect to the receipt by the optionee of Shares pursuant to the exercise
of a Stock Option, or, in lieu thereof, to retain, or sell without notice, a
number of Shares sufficient to cover the amount required to be withheld.
(e) Beneficiaries. The Committee shall establish such procedures as it
deems appropriate for a participant to designate a beneficiary to whom any
amounts payable in the event of the participant's death are to be paid.
(f) Laws Governing. The Plan and all awards made and action taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Ohio, except to the extent superseded by federal law.
(g) Government Regulation. Notwithstanding any provisions of the Plan
or any agreement made pursuant to the Plan, the Company's obligations under the
Plan and such agreement shall be subject to all applicable laws, rules and
regulations and to such approvals as may be required by any governmental or
regulatory agencies.
SECTION 14. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date (the "Effective Date") it is
approved by the shareholders of CAH. No grants shall be made under this Plan
prior to the Effective Date.
SECTION 15. TERM OF PLAN.
No award shall be granted pursuant to the Plan on or after the tenth
anniversary of the Effective Date of the Plan, but awards granted prior to such
tenth anniversary may extend beyond that date.
SECTION 16. INDEMNIFICATION.
No member of the Board or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any award
granted under the Plan. Each person who is or shall have been a member of the
Committee or of the Board shall be indemnified and held harmless by the Company
against and from any loss, cost, liability or expense that may be imposed upon
or reasonably incurred by him in connection with or resulting from any claim,
action, suit or proceeding to which he may be a party or in which he may be
involved by reason of any action taken or failure to act under or in connection
with this Plan or any award granted under this Plan and against
18
<PAGE> 19
and from any and all amounts paid by him in settlement thereof, with the
Company's approval, or paid by him, except a judgment based upon a finding of
bad faith, provided he shall give the Company an opportunity, at its own
expense, to handle and defend the same before he undertakes to handle and defend
it on his own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such person may be
entitled under the Company's Articles of Incorporation or Code of Regulations,
contained in any indemnification agreements, as a matter of law, or otherwise,
or any power that the Company may have to indemnify him or hold him harmless.
SECTION 17. SAVINGS CLAUSE.
In case any one or more of the provisions of this Plan shall be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby and the invalid, illegal or unenforceable provision shall be
deemed null and void; however, to the extent permissible by law, any provision
which could be deemed null and void shall first be construed, interpreted or
revised retroactively to permit this Plan to be construed so as to foster the
intent of this Plan.
This Plan is intended to comply in all respects with applicable law and
regulation, including Code Section 422 and, with respect to Reporting Persons,
Rule 16b-3. In case any one or more of the provisions of this Plan shall be held
to violate or be unenforceable in any respect under Code Section 422 or Rule
16b-3, then to the extent permissible by law, any provision which could be
deemed to violate or be unenforceable under Code Section 422 or Rule 16b-3 shall
first be construed, interpreted, or revised retroactively to permit the Plan to
be in compliance with Code Section 422 and Rule 16b-3. Notwithstanding anything
in this Plan to the contrary, the Committee, in its sole and absolute
discretion, may bifurcate this Plan so as to restrict, limit or condition the
use of any provision of this Plan to participants who are Reporting Persons or
covered employees as defined under Code Section 162(m) without so restricting,
limiting or conditioning this Plan with respect to other participants.
SECTION 18. AWARDS TO PARTICIPANTS OUTSIDE OF UNITED STATES.
The Committee may modify the terms of any award under the Plan granted
to a participant who, at the time of grant or during the term of the award, is
resident or employed outside of the United States in any manner deemed by the
Committee to be necessary or appropriate in order to accommodate differences in
local law, regulation, tax policy or custom, or so that the value and other
benefits of the award to the participant, as affected by foreign tax laws and
other restrictions applicable as a result of the participant's residence or
employment abroad, will be comparable to the value of such an award to a
participant who is resident or employed in the United States. Moreover, the
Committee may approve such supplements to, or amendments, restatements or
alternative versions of, this Plan as it may consider necessary or appropriate
for such purposes
19
<PAGE> 20
without thereby affecting the terms of this Plan as in effect for any other
purpose, provided that no such supplements, amendments, restatements or
alternative versions shall include any provisions that are inconsistent with the
terms of this Plan, as then in effect, unless this Plan could have been amended
to eliminate such inconsistency without further approval of the shareholders of
CAH.
20
<PAGE> 1
Exhibit 10.02
[CARDINAL LOGO]
CARDINAL HEALTH, INC.
PERFORMANCE-BASED INCENTIVE COMPENSATION PLAN
1. PURPOSE. The purpose of the Cardinal Health, Inc. Performance-Based Incentive
Compensation Plan (the "Plan") is to advance the interests of Cardinal Health,
Inc. and its shareholders by providing certain of its key executives with
incentive compensation which is tied to the achievement of pre-established and
objective performance goals. The Plan is intended to provide participants with
incentive compensation which is not subject to the deduction limitation rules
prescribed under Section 162(m) ("Section 162(m)") of the Internal Revenue Code
of 1986, as amended from time to time (the "Code"), and should be construed to
the extent possible as providing for remuneration which is performance-based
compensation within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2. DEFINITIONS. Whenever used herein, the following terms shall have their
respective meanings set forth below:
a. "Award" means the amount payable to a Participant in accordance with
Section 6 of the Plan.
b. "Committee" means the Compensation and Personnel Committee (the
"Committee") of the Board of Directors of Cardinal Health, Inc. The Committee
shall be comprised of two or more "outside directors" as that term is defined in
Section 162(m) of the Code and the regulations promulgated thereunder, as
amended from time to time.
c. "Company" means Cardinal Health, Inc. and its subsidiaries.
d. "Effective Date" means the date set forth in Section 9(a) of the
Plan.
e. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
f. "Participant" means an individual eligible to participate hereunder,
as determined by the Committee, each of whom shall be an executive officer of
the Company.
g. "Performance Period" means any time period established by the
Committee for which the attainment of Performance Goal(s) relating to an Award
will be determined.
h. "Performance Goal" means any performance goal determined by the
Committee in accordance with Section 5 of the Plan.
i. "Target Award" means the amount of any Award as established by the
Committee that would be payable to a Participant for any Performance Period if
the Performance
<PAGE> 2
Goals for the Performance Period were fully (100%) achieved and no negative
discretion was exercised by the Committee in regard to that Award pursuant to
the last sentence of Section 6.
3. ADMINISTRATION. The Plan shall be administered by the Committee. Subject to
the provisions of the Plan, the Committee will have full authority to interpret
the Plan, to establish and amend rules and regulations relating to it, to
determine the terms and provisions for making Awards and to make all other
determinations necessary or advisable for the administration of the Plan. All
decisions made by the Committee pursuant to the provisions hereof shall be made
in the Committee's sole discretion and shall be final and binding on all
persons.
4. ELIGIBILITY. The Committee shall designate the Participants eligible to
receive Awards for each Performance Period and establish the Performance Goals
applicable to each Participant for each Performance Period. An individual who
becomes eligible to participate in the Plan during the Performance Period may be
approved by the Committee for a partial period of participation. In such case,
the Participant's Target Award and Award will be based upon performance during
the portion of the Performance Period during which the Participant participates
in the Plan, and the amount of the Target Award will be pro-rated based on the
percentage of time the Participant participates in the Plan during the
Performance Period.
5. ESTABLISHMENT OF TARGET AWARDS, PERFORMANCE PERIODS AND PERFORMANCE GOALS.
For each Performance Period established by the Committee, the Committee shall
establish a Target Award for each Participant. Awards shall be earned based upon
the financial performance of the Company or one or more operating groups of the
Company during a Performance Period; provided, however, the maximum Award that
may be paid to any single Participant for any Performance Period is the product
of $3 million multiplied by the number of 12-month periods contained within the
relevant Performance Period. As to each Performance Period, within such time as
established by Section 162(m) of the Code, the Committee will establish in
writing Performance Goals based on one or more of the following performance
measures of the Company (and/or one or more operating groups of the Company, if
applicable) over the Performance Period: (i) return on equity, (ii) earnings per
share, (iii) earnings from operations, and/or (iv) any other objective business
criteria approved by the shareholders of Cardinal Health, Inc. in accordance
with the requirements for "qualified performance-based compensation" within the
meaning of the regulations under Section 162(m). Except as otherwise provided
herein, the extent to which the Performance Goals are satisfied will determine
the amount of the Award, if any, that will be earned by each Participant. The
Performance Goals may vary for different Performance Periods and need not be the
same for each Participant eligible for an Award for a Performance Period.
6. EARNING OF AWARDS. At the end of each Performance Period, the Award will be
computed for each Participant. Payment of Awards, if any, will be made in cash,
subject to applicable tax withholding. Prior to payment of any Award, the
Committee shall certify in writing the extent to which the established
Performance Goals have been achieved. If the Performance Goals are not satisfied
to the fullest extent, a recipient may earn less than the full Target Award or
no Award at all. In addition, the Committee may in its sole discretion reduce
individual Awards otherwise payable pursuant to the Performance Goals.
2
<PAGE> 3
7. TERMINATION OF EMPLOYMENT. In the event the employment of a Participant is
terminated by reason of death or disability during a Performance Period, unless
determined otherwise by the Committee, the Participant or his legal
representative, as applicable, shall receive a prorated payout with respect to
the Award relating to such Performance Period. The prorated payout shall be
based upon the length of time that the Participant was employed by the Company
during the Performance Period and the progress toward achievement of the
established Performance Goal(s) during the portion of the Performance Period
during which the Participant was employed by the Company. Payment of the Award,
if any, shall be made at the same time payments are made to Participants who did
not terminate employment during the applicable Performance Period. In the event
of a Participant's termination of employment by the Company for any other reason
prior to the end of the Performance Period with respect to an Award, the
Participant shall not be entitled to any payment with respect to such Award.
8. AMENDMENT AND TERMINATION. The Committee may amend, modify or terminate the
Plan at any time and from time to time. Shareholder approval of such actions
will be required only as required by applicable law. Notwithstanding the
foregoing, no amendment, modification or termination shall affect the payment of
an Award for a Performance Period that has already ended or increase the amount
of any Award.
9. GENERAL PROVISIONS.
a. EFFECTIVE DATE. The Plan shall become effective as of July 1, 1996,
subject to its approval by the shareholders of Cardinal Health, Inc.
b. NON-TRANSFERABILITY. Any interest of any Participant under the Plan
may not be sold, transferred, alienated, assigned or encumbered, other than by
will or pursuant to the laws of descent and distribution, and any attempt to
take any such action shall be null and void.
c. SEVERABILITY. In the event any provision of the Plan is held to be
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of the Plan, and the Plan shall be construed and
enforced as if such illegal or invalid provisions had never been contained in
the Plan.
d. ADDITIONAL ARRANGEMENTS. Nothing contained in this Plan shall
prevent the Company from adopting other or additional compensation arrangements
for any Participant.
e. NO RIGHT TO AWARD OR EMPLOYMENT; UNIFORMITY. No person shall have
any claim or right to be granted an Award under this Plan and the grant of an
Award shall not confer upon any Participant any right to be retained as an
employee of Cardinal Health, Inc. or any of its subsidiaries, nor shall it
interfere in any way with the right of Cardinal Health, Inc. or any subsidiary
to terminate the employment of any Participant at any time or to increase or
decrease the compensation of any Participant. There is no obligation for
uniformity of treatment of Participants.
f. TAX WITHHOLDING. The Company shall have the right to withhold or
require Participants to pay the Company the amount of any taxes which the
Company is required to withhold with respect to such Award.
3
<PAGE> 4
g. BENEFICIARIES. The Committee may establish such procedures as it
deems appropriate for a participant to designate a beneficiary to whom any
amounts payable in the event of the Participant's death are to be paid. If no
beneficiary is designated, the right of the Participant to receive any payment
under this Plan will pass to the Participant's estate.
h. LAWS GOVERNING. The Plan and all Awards made and action taken
hereunder shall be governed by and construed in accordance with the laws of the
State of Ohio, except to the extent superseded by federal law.
i. GOVERNMENT REGULATION. Notwithstanding any provisions of the Plan or
any agreement made pursuant to the Plan, the Company's obligations under the
Plan and such agreement shall be subject to all applicable laws, rules and
regulations and to such approvals as may be required by any governmental or
regulatory agencies.
j. UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an
unfunded plan for incentive compensation. With respect to any payments not yet
made by the Company to a Participant or beneficiary, nothing contained herein
shall give any such Participant or beneficiary any rights that are greater than
those of a general creditor of the Company.
4
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 236,543
<SECURITIES> 0
<RECEIVABLES> 1,145,328
<ALLOWANCES> (39,397)
<INVENTORY> 2,443,375
<CURRENT-ASSETS> 4,037,464
<PP&E> 1,168,941
<DEPRECIATION> (399,015)
<TOTAL-ASSETS> 5,507,990
<CURRENT-LIABILITIES> 2,274,991
<BONDS> 642,813
0
0
<COMMON> 976,250
<OTHER-SE> 1,242,629
<TOTAL-LIABILITY-AND-EQUITY> 5,507,990
<SALES> 9,695,210
<TOTAL-REVENUES> 9,695,210
<CGS> 9,012,726
<TOTAL-COSTS> 9,012,726
<OTHER-EXPENSES> 366,308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18,240)
<INCOME-PRETAX> 260,542
<INCOME-TAX> 103,009
<INCOME-CONTINUING> 157,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,533
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.77
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 144,910
<SECURITIES> 0
<RECEIVABLES> 933,713
<ALLOWANCES> (38,417)
<INVENTORY> 2,005,938
<CURRENT-ASSETS> 3,212,456
<PP&E> 990,292
<DEPRECIATION> (337,615)
<TOTAL-ASSETS> 4,395,263
<CURRENT-LIABILITIES> 1,894,820
<BONDS> 439,139
0
0
<COMMON> 932,584
<OTHER-SE> 928,784
<TOTAL-LIABILITY-AND-EQUITY> 4,395,263
<SALES> 7,731,902
<TOTAL-REVENUES> 7,731,902
<CGS> 7,155,213
<TOTAL-COSTS> 7,155,213
<OTHER-EXPENSES> 320,660
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (14,454)
<INCOME-PRETAX> 239,435
<INCOME-TAX> 89,673
<INCOME-CONTINUING> 149,762
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149,762
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.74
</TABLE>
<PAGE> 1
Exhibit 99.01
CARDINAL HEALTH, INC.
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for "forward-looking statements" (as defined in the
Act). The Company's Form 10-K, the Company's Annual Report to Shareholders, any
Form 10-Q or any Form 8-K of the Company, or any other written or oral
statements made by or on behalf of the Company may include or incorporate by
reference forward-looking statements which reflect the Company's current view
(as of the date such forward-looking statement is made) with respect to future
events, prospects, projections or financial performance. These forward-looking
statements are subject to certain uncertainties and other factors that could
cause actual results to differ materially from those made, implied or projected
in such statements. These uncertainties and other factors include, but are not
limited to:
- - uncertainties relating to general economic conditions;
- - the loss of one or more key customer or supplier relationships,
including pharmaceutical and medical/surgical manufacturers for which
alternative supplies may not be available;
- - the malfunction or failure of the Company's information systems,
including malfunctions or failures associated with Year 2000 readiness
problems;
- - the costs and/or difficulties related to the integration of recently
acquired businesses;
- - changes to the presentation of financial results and position resulting
from adoption of new accounting principles or upon the advice of the
Company's independent auditors, or the staff of the Securities and
Exchange Commission;
- - changes in the distribution or outsourcing pattern for pharmaceutical
and medical/surgical products and/or services, including any increase
in direct distribution or decrease in contract packaging by
pharmaceutical manufacturers;
- - changes in, or failure to comply with, government regulations;
- - the costs and other effects of legal and administrative proceedings;
- - injury to person or property resulting from the Company's packaging,
repackaging, delivery system development, and manufacturing operations
or pharmacy management services;
- - competitive factors in the Company's healthcare service businesses,
including pricing pressures;
- - unforeseen changes in the Company's existing agency and distribution
arrangements;
- - the continued financial viability and success of the Company's
customers, suppliers, and franchisees;
- - technological developments and products offered by competitors;
- - failure to retain or continue to attract senior management or key
personnel;
- - risks associated with international operations, including fluctuations
in currency exchange ratios and risks associated with implementation of
the Euro currency;
- - successful challenges to the validity of the Company's patents,
copyrights and/or trademarks;
- - difficulties or delays in the development, production and marketing of
new products and services;
- - strikes or other labor disruptions;
- - labor and employee benefit costs;
- - pharmaceutical and medical/surgical manufacturers' pricing policies and
overall drug price inflation;
- - changes in hospital buying groups or hospital buying practices; and
- - other factors referenced in the Form 10-K, Form 10-Q or other filings
or written or oral statements made by or on behalf of the Company.
The words "believe", "expect", "anticipate", "project", and similar
expressions identify "forward-looking statements", which speak only as of the
date the statement was made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
