SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 7, 1996
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
CARDINAL HEALTH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
OHIO 0-12591 31-0958666
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION OF FILE NUMBER) IDENTIFICATION NO.)
INCORPORATION)
5555 GLENDON COURT, DUBLIN, OHIO 43016
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(614) 717-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
------- ------------------------------------
At special meetings of shareholders and stockhold-
ers, respectively, held on April 26, 1996, the shareholders
of Cardinal Health, Inc., an Ohio corporation ("Cardinal"),
and the stockholders of Pyxis Corporation, a Delaware corpo-
ration ("Pyxis"), voted upon and approved and adopted an
Agreement and Plan of Merger, dated as of February 7, 1996
(the "Merger Agreement"), by and among Pyxis, Cardinal, and
Aztec Merger Corp., a Delaware corporation and a wholly owned
subsidiary of Cardinal ("Subcorp"). Pursuant to the Merger
Agreement, Subcorp was merged with and into Pyxis (the
"Merger"), and each share of Pyxis common stock, $0.01 par
value ("Pyxis Common Stock"), was converted into .406557 of a
Cardinal common share, without par value ("Cardinal Common
Shares"), with cash in lieu of fractional shares. It is an-
ticipated that approximately 16,585,207 Cardinal Common
Shares will be issued pursuant to the Merger to former stock-
holders of Pyxis, inclusive of shares issuable upon exercise
of options to purchase Cardinal Common Shares into which out-
standing options to purchase Pyxis Common Stock were con-
verted in the Merger. The Merger became effective at 9:00
a.m. on May 7, 1996. As a result of the Merger, Pyxis became
a wholly owned subsidiary of Cardinal.
Pyxis designs, manufactures, markets and services
unique, point-of-use systems which automate the distribution,
management and control of medications and supplies in hospi-
tals and other health care facilities. Through its acquisi-
tion of Allied Pharmacy Management, Inc. in August 1995,
Pyxis also provides pharmacy management services to hospitals
and to long-term care and other healthcare providers.
Additional information concerning the Merger and
the transactions related thereto is contained in Cardinal's
Registration Statement on Form S-4 (Registration Number 333-
01927) filed with the Securities and Exchange Commission (the
"Commission") on March 25, 1996 and declared effective by the
Commission on March 27, 1996.
-1-
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
------- INFORMATION AND EXHIBITS
-----------------------------------------
(a) Financial Statements of Pyxis Corporation
-----------------------------------------
(i) Report of Independent Auditors
(ii) Consolidated Balance Sheets as of December 31,
1995 and December 31, 1994
(iii) Consolidated Statements of Income for the
three years ended December 31, 1995
(iv) Consolidated Statements of Stockholders' Eq-
uity for the three years ended December 31,
1995
(v) Consolidated Statements of Cash Flows for the
three years ended December 31, 1995
(vi) Notes to Consolidated Financial Statements
The above financial statements and report are set forth
as Annex A hereto and are incorporated herein by this
reference.
(b) Pro Forma Financial Information
-------------------------------
(i) Unaudited Pro Forma Combined Balance Sheet
combining the consolidated balance sheet of
Cardinal Health, Inc. as of December 31, 1995
with the consolidated balance sheet of Pyxis
Corporation as of December 31, 1995 (incorpo-
rated herein by reference to the information
contained under the caption "Unaudited Pro
Forma Combined Financial Information -- Unau-
dited Pro Forma Combined Balance Sheet" on
page 51 of the Joint Proxy Statement/
Prospectus of Cardinal and Pyxis dated March
28, 1996, filed by Cardinal with the
Commission on March 29, 1996, pursuant to Rule
424(b) of the Securities Act of 1933, as
amended).
(ii) Unaudited Pro Forma Combined Statements of
Earnings combining the consolidated statements
of earnings of Cardinal Health, Inc. for the
fiscal years ended June 30, 1995, June 30,
1994 and March 31, 1993 and for the six months
ended December 31, 1995 and December 31, 1994
-2-
with the consolidated statements of income of
Pyxis for the twelve month periods ended June
30, 1995, June 30, 1994 and March 31, 1993 and
for the six month periods ended December 31,
1995 and December 31, 1994 (incorporated
herein by reference to the information con-
tained under the caption "Unaudited Pro Forma
Combined Financial Information -- Unaudited
Pro Forma Combined Statements of Earnings" on
pages 52 through 56, inclusive, of the Joint
Proxy Statement/Prospectus of Cardinal and
Pyxis dated March 28, 1996, filed by Cardinal
with the Commission on March 29, 1996,
pursuant to Rule 424(b) of the Securities Act
of 1933, as amended).
(iii) Notes to Pro Forma Combined Financial Informa-
tion (incorporated herein by reference to the
information contained under the caption "Unau-
dited Pro Forma Combined Financial Information
-- Notes to Pro Forma Combined Financial In-
formation (Unaudited)" on pages 57 through 60,
inclusive, of the Joint Proxy Statement/
Prospectus of Cardinal and Pyxis dated March
28, 1996, filed by Cardinal with the
Commission on March 29, 1996, pursuant to Rule
424(b) of the Securities Act of 1933, as
amended).
(c) Exhibits
--------
23.1 Consent of Ernst & Young LLP.
99.1 Pages 51 through 60, inclusive, of the Joint
Proxy Statement/Prospectus of Cardinal and
Pyxis dated March 28, 1996, filed by Cardinal
with the Commission on March 29, 1996,
pursuant to Rule 424(b) of the Securities Act
of 1933, as amended (incorporated by reference
herein).
-3-
ANNEX A
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pyxis Corporation
We have audited the accompanying consolidated balance sheets of
Pyxis Corporation as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsi-
bility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Pyxis Corporation at December 31, 1995
and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
January 30, 1996,
except for Note 6, Note 7 ("Stockholder Rights Plan"),
and Note 13, for which the date is February 7, 1996
A-1
PYXIS CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
December 31,
----------------
1995 1994
------ -----
Current assets:
Cash and cash equivalents............... $23,618 $16,962
Short-term investments.................. 60,443 62,504
Accounts receivable, less allowance
for doubtful accounts of $1,307 and
$66 in 1995 and 1994, respectively.... 25,295 9,973
Net investment in sales-type leases..... 33,913 21,486
Inventories............................. 19,965 9,753
Deferred income taxes................... 8,964 9,750
Other current assets.................... 3,424 2,314
-------- --------
Total current assets.................. 175,622 132,742
Furniture and equipment, net.............. 14,731 7,360
Net investment in sales-type leases, less
current portion......................... 99,557 68,214
Intangibles, net.......................... 42,553 2,933
Prepaid service fees and other............ 3,755 970
-------- --------
$336,218 $212,219
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 7,452 $ 4,230
Accrued compensation and employee
benefits.............................. 2,940 2,504
Accrued marketing fees.................. 956 567
Accrued liabilities..................... 8,088 2,930
Short-term debt......................... 42,270 -
Current portion of long-term debt....... 2,962 92
-------- --------
Total current liabilities............. 64,668 10,323
Long-term debt, less current portion...... 2,943 86
Marketing fees and other liabilities...... 4,502 2,933
Deferred income taxes..................... 66,773 45,296
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par
value:
10,000,000 shares authorized, none
issued and outstanding at
December 31, 1995 and 1994 ......... - -
Common stock, $.01 par value:
100,000,000 shares authorized,
36,501,315 and 35,725,565 issued
and outstanding at December 31, 1995
and 1994, respectively.............. 365 357
Additional paid-in capital.............. 99,854 92,729
Unrealized loss on available-for-sale
securities, net of tax................ (217) (1,976)
Retained earnings....................... 97,330 62,471
-------- --------
Total stockholders' equity............ 197,332 153,581
-------- --------
$336,218 $212,219
======== ========
See accompanying notes.
A-2
PYXIS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Year ended December 31,
--------------------------------
1995 1994 1993
------ ------- --------
Revenues:
Pyxis Systems............. $ 175,583 $ 142,059 $ 100,171
Pharmacy Management ...... 27,304 - -
-------- -------- --------
Total revenues........... 202,887 142,059 100,171
Cost of revenues:
Pyxis Systems............. 56,818 38,211 28,237
Pharmacy Management....... 16,683 - -
-------- -------- --------
Total cost of revenues... 73,501 38,211 28,237
Gross profit................ 129,386 103,848 71,934
Operating expenses:
Selling, general and
administration........... 64,892 41,825 30,264
Reorganization expenses... 1,178 - -
Research, development and
engineering.............. 8,255 7,207 3,375
-------- -------- --------
Total operating expenses 74,325 49,032 33,639
-------- -------- --------
Income from operations...... 55,061 54,816 38,295
Other income (expense):
Loss on sale of lease
receivables.............. (5,026) (4,065) -
Interest income........... 10,622 7,915 5,184
Interest expense.......... (1,215) (101) (229)
-------- -------- --------
Total other income....... 4,381 3,749 4,955
-------- -------- --------
Income before income taxes.. 59,442 58,565 43,250
Provision for income taxes.. 24,583 23,978 17,733
-------- -------- --------
Net income.................. $ 34,859 $ 34,587 $ 25,517
======== ======== ========
Net income per common share
and common share
equivalents............... $ .93 $ .92 $ .68
======== ======== ========
Weighted average number of
common shares and common
share equivalents......... 37,620 37,556 37,396
======== ======== ========
See accompanying notes.
A-3
PYXIS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
Unrealized
loss on Total
Common stock Additional available- stock-
----------------- paid in for-sale Retained holders'
Shares Amount capital securities earnings equity
-------- -------- --------- ------------ -------- ------
Balance at
December 31,
1992 ............ 34,418 $ 344 $ 82,919 $ - $ 2,370 $ 85,633
Exercise of stock
options and issu-
ance of common
shares for cash.. 295 3 1,115 - - 1,118
Effect of Febru-
ary 1994 stock
split............ 295 3 - - (3) -
Tax benefit relat-
ed to employee
stock options
exercised........ - - 3,694 - - 3,694
Net income....... - - - - 25,517 25,517
------ ----- ------- ----- ------ -------
Balance at
December 31,
1993............. 35,008 350 87,728 - 27,884 115,962
Cumulative effect
of adjustment for
unrealized losses
on available-for-
sale securities,
net of income tax
of $32........... - - - (45) - (45)
Exercise of stock
options and issu-
ance of common
shares for cash.. 639 7 901 - - 908
Effect of February
1994 stock split 78 - - - - -
Tax benefit related
to employee stock
options exercised - - 4,100 - - 4,100
Change in unrealized
loss, net of income
tax of $1,341.... - - - (1,931) - (1,931)
Net income....... - - - - 34,587 34,587
------ ----- ------ ------ ------ ------
Balance at
December 31, 1994 35,725 357 92,729 (1,976) 62,471 153,581
Exercise of stock
options and issu-
ance of common
shares for cash.. 776 8 4,083 - - 4,091
Tax benefit relat-
ed to employee stock
options exercised - - 2,955 - - 2,955
Change in unreal-
ized loss, net of
income tax of
$(1,222)......... - - - 1,759 - 1,759
Accelerated vesting
of options....... - - 87 - - 87
Net income....... - - - - 34,859 34,859
------ ------ ------ ----- ------ ------
Balance at
December 31,
1995............. 36,501 $ 365 $ 99,854 $ (217) $ 97,330 $ 197,332
====== ====== ========= ======= ======== =========
See accompanying notes.
A-4
PYXIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
Year Ended December 31,
------------------------
1995 1994 1993
------ ------ ------
OPERATING ACTIVITIES
Net income ........................... $ 34,859 $ 34,587 $ 25,517
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 3,952 1,834 795
Provision for doubtful accounts..... 247 (96) 102
Deferred income taxes............... 24,837 23,978 17,583
Accelerated vesting of stock options 87 - -
Changes in operating assets and
liabilities:
Accounts receivable................ (8,272) (6,800) (2,076)
Inventories........................ (5,749) (5,285) (149)
Net investment in sales-type
leases (1)....................... (42,217) (38,199) (40,615)
Other assets....................... (3,221) (2,739) (471)
Accounts payable and accrued
liabilities...................... 2,491 2,563 3,557
Other liabilities.................. 1,888 1,369 1,383
----- ----- -----
Net cash provided by operating activities 8,902 11,212 5,626
INVESTING ACTIVITIES
Payment for purchase of Allied, net of
cash provided....................... (26,982) - -
Investment in equipment under operating
leases and demonstration equipment.. (2,895) (2,998) 278
Purchase of furniture and equipment... (4,714) (2,622) (1,221)
Purchase of investments............... (1,000) (147,534)(507,947)
Sale of investments................... 5,042 128,826 481,696
Maturity of investments............... - 2,000 13,891
Purchase of Lane Service Company...... - (2,898) -
Other................................. (66) (29) (5)
----- ------ ------
Net cash used in investing activities (30,615) (25,255) (13,308)
FINANCING ACTIVITIES
Proceeds from issuance of short-term
debt incurred to finance Allied
acquisition.......................... 42,000 - -
Payments on short-term note payable... (1,281) - -
Repayment of long-term debt assumed in
Allied acquisition................... (16,500) - -
Proceeds from long-term debt.......... 237 - 409
Payments on long-term debt............ (178) (766) (1,855)
Proceeds from sales of common stock... 4,091 908 1,118
Net cash provided by (used in) financing
activities........................... 28,369 142 (328)
------ --- ------
Increase (decrease) in cash and cash
equivalents.......................... 6,656 (13,901) (8,010)
----- ----- -----
Cash and cash equivalents at beginning
of period............................ 16,962 30,863 38,873
------ ------ ------
Cash and cash equivalents at end of
period............................... $ 23,618 $ 16,962 $ 30,863
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(1) The Company has the ability to sell
its sales-type lease receivable
portfolio
(2) Interest paid..................... $ 1,247 $ 101 $ 229
======= ======== ========
(3) Note payable issued in conjunction
with the repurchase of certain
lease receivables............... $ 1,552 $ - $ -
======= ======== ========
See accompanying notes.
A-5
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Pyxis Corporation (the "Company" or "Pyxis") is a Delaware
corporation which was incorporated in May 1987, and oper-
ates in two business segments: healthcare automation and
information management ("Pyxis Systems") and pharmacy man-
agement services ("Pharmacy Management"). Pyxis Systems
involves the design, manufacture, marketing and servicing
of unique, point-of-use systems which automate the distri-
bution, management and control of medications and supplies
in hospitals and other healthcare facilities located pri-
marily in the United States and Canada. Pharmacy Manage-
ment activities relate to Pyxis' wholly owned subsidiary,
Allied Pharmacy Management, Inc. and its subsidiaries
("Allied"), acquired in August 1995, to provide pharmacy
management services to hospitals, long-term care and other
healthcare providers in the United States.
Basis of Presentation
The consolidated financial statements include the accounts
of the Company, Pyxis Healthcare Systems, Inc., a wholly
owned Canadian subsidiary, which commenced operations in
July 1994, as well as the results of operations for Allied
subsequent to the date of its acquisition. The results of
Allied are not necessarily indicative of the results that
may be expected for the entire year. All material inter-
company balances and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Investments
Investments consist primarily of U.S. Government securi-
ties.
Effective January 1, 1994, the Company adopted Statement
of Financial Accounting Standards No. 115 (SFAS No. 115),
"Accounting for Certain Investments in Debt and Equity Se-
curities," which requires that management determine the
appropriate classification of investments at the time of
purchase and reevaluate such designation as of each
A-6
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
balance sheet date. At December 31, 1995, the Company
considered all investments as available for use in its
current operations, and therefore classified them as
short-term, available-for-sale investments. Available-for-
sale investments are stated at fair value, with unrealized
gains and losses (if any), net of tax, reported as a sepa-
rate component of stockholders' equity. Interest, divi-
dends, and realized gains and losses and declines in value
judged to be other than temporary are included in interest
income. The cost of securities sold is based on the spe-
cific identification method.
Inventories
Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Furniture and Equipment
Furniture and equipment is stated at cost and depreciated
over the estimated useful lives of the assets (3 to 10
years) using the straight-line method.
Intangibles
Intangibles are stated net of accumulated amortization and
are amortized over one to 35 years. The Company plans to
assess the carrying amount of goodwill on a periodic basis
and if the facts indicate that the intangible assets will
not be recoverable, as determined based on undiscounted
cash flows of the acquired business over the remaining am-
ortization period, the Company's carrying value of the ac-
quired intangibles will be reduced to their fair value.
Concentration of Credit Risk
The Company leases or sells its products and provides ser-
vices primarily to hospitals and other healthcare facili-
ties throughout the United States and Canada. Certain
leases originated by the Company are sold on a limited re-
course basis to its exclusive finance company. The Com-
pany maintains a reserve for potential credit losses and
such losses have been minimal. The Company invests its
excess cash primarily in U.S. government securities and
debt instruments of financial institutions and corpora-
tions with strong credit ratings. The Company has estab-
lished guidelines relative to diversification and maturi-
ties that maintain safety and liquidity. These guidelines
are periodically reviewed and modified to take advantage
of trends in yields and interest rates. The
A-7
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Company has not experienced any material losses on its
cash equivalents or investments.
Revenue Recognition
The Company's Pyxis Systems operations consist principally
of manufacturing and leasing those systems under
sales-type leases. In addition, the Company also sells
its systems outright and leases them under operating lease
contracts. Contract service and supplies for all Pyxis
Systems are also provided.
In accordance with generally accepted accounting prin-
ciples, revenues are recognized from sales-type leases
when the systems are installed, and/or the customer ac-
cepts the system, and the lease term becomes noncancel-
lable. Outright sales are recognized upon installation or
delivery, and customer acceptance. Unearned income on
sales-type leases is recognized using the interest method.
Revenues from operating leases are recognized as earned
over the term of the lease. Revenues from service con-
tracts are recognized as earned over the term of the ser-
vice contract. Supply revenue is recognized upon ship-
ment.
Pharmacy Management contract revenue is earned by the Com-
pany, through Allied, in accordance with the individual
contractual arrangements. Under such contracts, Allied
charges the hospital under a monthly management fee ar-
rangement, a capitated fee arrangement or based on a por-
tion of the hospital's pharmacy charges to patients.
For long-term care customers, Allied purchases, dispenses
and delivers medications and supplies to the residents of
long-term care facilities. In addition, Allied provides
consulting services, clinical programs and on-call pharma-
ceutical services to the long-term care facility's staff
and attending physicians. Allied further provides infu-
sion therapy products and various supplies eligible under
the Medicare Part B insurance program. The Company
records revenue as services are provided and products are
delivered pursuant to various state Medicaid guidelines,
the Medicare Part B insurance program guidelines and nego-
tiated rates for private pay residents.
Per Share Information
Per share information is computed using the weighted aver-
age number of common shares and common share equivalents
outstanding which have a dilutive effect when
A-8
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
applying the treasury stock method. Common share
equivalents result from outstanding options to purchase
common stock.
New Accounting Standard
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121
(SFAS No. 121), "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for fiscal years beginning after December 15,
1995. SFAS No. 121 requires impairment losses to be re-
corded on long-lived assets used in operations when an in-
dication of impairment is present and the undiscounted
cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are
expected to be disposed of. The Company does not believe,
based on current circumstances, the effect of adoption of
SFAS No. 121 will be material.
Research and Development
Research and development charged against operations for
the years ended December 31, 1995, 1994 and 1993 was $4.1
million, $4.0 million and $1.7 million, respectively.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires manage-
ment to make estimates and assumptions that affect the
amounts reported in the financial statements and ac-
companying notes. Actual results could differ from those
estimates.
Reclassification
Certain prior year balances have been reclassified to con-
form to the 1995 presentation.
2. FINANCIAL STATEMENT DETAILS
Short-Term Investments
The following is a summary of available-for-sale invest-
ments (in thousands):
A-9
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Gross Estimated
Unrealized Fair
Cost Loss Value
------ ---------- ---------
December 31, 1995
U.S. Treasury Notes, maturing
February 15, 1997.............. $ 60,808 $ (369) $ 60,439
U.S. Corporate Securities........ 5,957 -- 5,957
------- ------- -------
$ 66,765 $ (369) $ 66,396
======== ======= ========
December 31, 1994
U.S. Treasury Notes, maturing
February 29, 1996.............. $ 5,034 $ (108) $ 4,926
U.S. Treasury Notes, maturing
February 15, 1997.............. 60,815 (3,241) 57,574
Commercial Paper................. 4,028 -- 4,028
-------- -------- --------
$ 69,877 $ (3,349) $ 66,528
======== ======== ========
The cost basis of short-term investments includes accrued
interest receivable at December 31, 1995 and 1994. The
U.S. Corporate Securities and Commercial Paper listed
above are included in cash and cash equivalents on the
balance sheet. Also, a $3,500 certificate of deposit in-
cluded in short-term investments on the balance sheet is
not included above as it is not classified as an
available-for-sale investment. Purchases of available-
for-sale investments totaled $22.8 million and $144 mil-
lion during the quarter and the year ended December 31,
1995. During the quarter and the year ended December 31,
1995, certain available-for-sale investments were sold
generating gross proceeds of $23.6 million and $140 mil-
lion, respectively, and realized gains of $87,000 and
$350,000, respectively. Unrealized holding losses on
available-for-sale investments, included as a separate
component of stockholders' equity, were $217,000 and $2.0
million at December 31, 1995 and 1994, respectively. Un-
realized gains and losses are realized if the investments
are sold prior to their maturity or, in the case of
losses, if the decline in fair value below cost is deemed
to be other-than-temporary. As discussed in Note 10 be-
low, $42.8 million of the U.S. Treasury Notes serve as
collateral for the $42.0 million short-term borrowing in-
curred to finance the Allied acquisition.
A-10
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Inventories
Inventories are stated at the lower of cost (first-in,
first-out method) or market and, at December 31, 1995, in-
clude drugs and supplies acquired by Allied for use under
both their acute and long-term care contracts. Invento-
ries consist of the following (in thousands):
December 31,
---------------
1995 1994
------ -----
Pharmaceuticals.................. $ 5,026 $ -
Purchased parts.................. 5,133 4,583
Finished goods................... 2,391 734
Units in transit................. 7,415 4,436
-------- -------
$ 19,965 $ 9,753
======== =======
Furniture and Equipment
Furniture and equipment consist of the following (in thou-
sands):
December 31,
---------------
1995 1994
------ -----
Furniture, fixtures and office
equipment...................... $ 10,048 $ 4,485
Demonstration equipment.......... 3,273 3,126
Equipment under operating
leases......................... 2,929 1,047
Manufacturing equipment.......... 1,676 1,080
Leasehold improvements........... 739 79
Pharmacy equipment............... 2,067 -
-------- -------
20,732 9,817
Less accumulated depreciation
and amortization............... (6,001) (2,457)
------- -------
$14,731 $ 7,360
======= =======
Accumulated depreciation for equipment under operating
leases was $516,000 at December 31, 1995 and $313,000 at
December 31, 1994.
A-11
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Intangibles
Intangibles relate primarily to goodwill associated with
the Company's acquisition of Allied, as well as contracts
and covenants not to compete associated with acquisitions
made by Allied. Goodwill, contracts and covenants not to
compete are amortized over periods of ten to thirty-five
years, ten years, and one to five years, respectively.
Intangibles consist of the following (in thousands):
December 31,
-----------------
1995 1994
--------- -------
Goodwill......................... $ 34,085 $ 2,399
Contracts........................ 7,602 -
Covenants not to compete......... 2,175 500
Patents.......................... 115 115
-------- -------
43,977 3,014
Less accumulated amortization.... (1,424) (81)
-------- -------
$ 42,553 $ 2,933
======== =======
Reorganization Expenses
Reorganization expenses consist of costs incurred in the
Company's reorganization and 4% workforce reduction which
occurred during December 1995.
3. LEASING ARRANGEMENTS, AS LESSOR
Sales-Type Leases
Sales-type leases are for terms ranging up to five years.
Lease receivables are generally collateralized by a
security interest in the underlying assets. Information
pertaining to the Company's net investment in sales-type
A-12
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
leases is as follows (in thousands):
December 31,
-------------------
1995 1994
-------- --------
Future minimum lease payments
receivable....................... $ 159,678 $ 108,195
Unearned income.................... (24,079) (17,004)
Estimated unguaranteed residual
values........................... 1,182 1,373
Allowance for doubtful accounts.... (3,311) (2,864)
-------- --------
Net investment in sales-type leases 133,470 89,700
Less current portion............... (33,913) (21,486)
-------- --------
$ 99,557 $ 68,214
======== ========
Future minimum receipts under sales-type lease contracts for
the years ending December 31 are as follows (in thousands):
1996............................. $ 43,069
1997............................. 38,604
1998............................. 35,562
1999............................. 27,545
2000............................. 14,898
---------
$ 159,678
=========
Cash flow may be accelerated if the lease contracts are sold to
third parties; accordingly the foregoing amounts may not
represent actual future cash collections or payments (see Note
5).
Operating Leases
The Company leases certain Pyxis Systems to customers under
operating leases that are generally for periods of less than
four years. Future minimum lease payments receivable under
noncancellable operating leases for the years ending December
31 are as follows (in thousands):
1996............................. $ 981
1997............................. 577
1998............................. 397
1999............................. 353
2000............................. 201
------
$2,509
======
A-13
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
4. LEASING ARRANGEMENTS, AS LESSEE
The Company leases its office and manufacturing facilities and
certain office equipment under noncancellable operating leases.
Certain of the leases are subject to normal escalation
provisions. Future minimum lease payments for all leases with
initial terms of one year or more for the years ending December
31 are as follows (in thousands):
1996............................ $ 1,519
1997............................ 1,538
1998............................ 980
1999............................ 105
2000............................ 54
--------
$ 4,196
========
Rent expense for the years ended December 31, 1995, 1994 and
1993 was $1.3 million, $494,000 and $362,000, respectively.
5. FINANCING ARRANGEMENTS
Since 1991, the Company has financed its working capital needs
through the sale of certain of its lease receivables. In March
1994, the Company entered into a new five-year financing and
servicing agreement with General Electric Capital Corporation
("GE Capital"), whereby GE Capital agreed to purchase a minimum
of $500 million of the Company's lease receivables, provided
that such lease receivables meet certain standards set by GE
Capital and the total investment by GE Capital in Pyxis lease
receivables at any one time not exceed $350 million. GE
Capital owned $148 million in Pyxis lease receivables at
December 31, 1995.
Under the agreement, in the event of a default by a lessee,
recourse is limited to an annual recourse pool established at
2.5% of the total financed amounts. At December 31, 1995 and
1994, these recourse pools were approximately $4.9 million and
$3.0 million, respectively.
The agreement also provides that GE Capital will perform
administrative services for both GE Capital and Pyxis owned
lease receivables on a fee basis and requires the Company, on a
A-14
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
quarterly basis, to sell GE Capital an amount equal to fifty
percent of the Company's newly originated lease receivables.
Additional lease receivable sales may be made to GE Capital
within the overall financing limits of the agreement.
In January 1996, the Company entered into a one-year
modification of the agreement with GE Capital. The
modification requires 1996 lease receivable financing to be the
greater of the stated volume under the agreement or $78.5
million. In exchange, GE Capital reduced its 1996 financing
rate and provided an interest rate hedge at 9.76% on $39.3
million of the 1996 volume. The Company may enter into
additional hedges related to its 1996 lease receivable
financings. The Company may also elect to break all or part of
these GE Capital hedge contracts for a variable break fee
payable to GE Capital.
Prior to 1994, the Company sold the majority of its sales-type
lease receivables shortly after recording the corresponding
sales revenue; consequently, any additional discount to arrive
at the estimated realizable value from the sale of the lease
receivables was also included in revenue from sales-type
leases. Realized gains and losses from the ultimate sale of
the receivables were immaterial.
As of December 31, 1995 and 1994, aggregate net sales-type
lease receivables sold associated with the funded lease
agreements were $195 million and $146 million, respectively.
Long-term debt is comprised primarily of notes payable to
previous owners of companies acquired by Allied, with $3.0
million and $2.6 million due in 1996 and 1997, respectively.
Payment requirements vary by note and interest rates range from
8.25% to 8.75%. Other long-term debt relates to miscellaneous
capital lease obligations. Future minimum principal payments
on long-term debt for the years ending December 31 are as
follows (in thousands):
1996............................. $ 2,962
1997............................. 2,588
1998............................. 205
1999............................. 101
2000............................. 49
-------
$ 5,905
=======
A-15
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
6. CONTINGENCIES
Since February 7, 1996, four lawsuits have been filed by Pyxis
stockholders in the Delaware Court of Chancery, New Castle
County, each naming as defendants Cardinal Health, Inc.
("Cardinal"), Pyxis and individual members of Pyxis' Board of
Directors. Each lawsuit, which purports to be a class action
brought on behalf of Pyxis' stockholders, alleges that the
consideration which Pyxis stockholders would receive pursuant
to the proposed merger discussed in Note 13 is inadequate, and
that the Pyxis directors have therefore breached their
fiduciary duties owed to Pyxis' stockholders. The suits seek
to enjoin the merger and to recover unspecified damages,
attorneys' fees and other relief. The Company intends to
vigorously defend these lawsuits. Based upon facts presently
known, the Company believes it has meritorious defenses and
that the resolution of these lawsuits will not have a material
adverse effect on the Company's financial condition or results
of operations. Accordingly, no liability that may occur has
been provided for in the accompanying financial statements.
7. STOCKHOLDERS' EQUITY
Stock Option Plan
The 1991 Stock Plan (the "Plan") provides for the sale of stock
and the grant of stock options to employees, directors,
consultants and advisors of the Company. Options may be
designated as incentive stock options or nonstatutory stock
options; however, incentive stock options may be granted only
to employees of the Company. Options under the Plan have a
term of up to ten years and must be granted at not less than
the fair market value (par value for nonstatutory options) on
the date of grant.
Options granted pursuant to the Plan generally vest over four
years. The aggregate number of shares authorized for issuance
under the Plan is 7,100,000 shares. At December 31, 1995,
options as to 2,410,310 shares were exercisable and options as
to 598,204 shares were available for future grant.
The following table summarizes stock option activity through
December 31, 1995:
A-16
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Average
Number of Price per price
shares share per share
--------- ------------------------ ---------
Outstanding at December 31, 1992 3,161,530 $ .0500 to $ 16.8750 $ 1.82
Granted....................... 1,319,650 $ 16.9375 to $ 37.3750 $ 25.83
Exercised..................... (548,224) $ .0500 to $ 20.4375 $ .77
Cancellations................. (33,812) $ .0500 to $ 20.4375 $ 5.64
---------
Outstanding at December 31, 1993 3,899,144 $ .0500 to $ 37.3750 $ 10.03
Granted....................... 1,204,775 $ 17.1875 to $ 36.6250 $ 20.59
Exercised..................... (696,746) $ .0500 to $ 25.8750 $ .84
Cancellations................. (165,934) $ .0500 to $ 36.6250 $ 15.67
---------
Outstanding at December 31, 1994 4,241,239 $ .0500 to $ 37.3750 $ 14.31
Granted....................... 1,498,729 $ 11.7500 to $ 28.0000 $ 20.74
Exercised..................... (668,817) $ .0500 to $ 24.5000 $ 3.75
Cancellations................. (531,160) $ .0500 to $ 37.3750 $ 27.84
---------
Outstanding at December 31, 1995 4,539,991 $ .0500 to $ 34.1875 $ 16.41
=========
Employee Stock Purchase Plan
In March 1992, the Board of Directors and the stockholders of
the Company approved an Employee Stock Purchase Plan (the
"ESPP") to provide employees of the Company or its subsidiaries
with an opportunity to purchase common stock through payroll
deductions. Under the ESPP, 300,000 shares of common stock
have been reserved for issuance, subject to anti-dilution
adjustments. All full-time employees are eligible to partici-
pate in the ESPP after continuous employment with the Company
or its subsidiaries for six months, except that the six-month
waiting period did not apply to employees who enrolled in 1992.
For the years ended December 31, 1995 and 1994, 79,907 and
47,770 shares, respectively, were issued under the ESPP. As of
December 31, 1995, 92,433 shares are reserved for future
issuance.
Stockholder Rights Plan
In August 1994, the Company adopted a Stockholder Rights Plan
which provides for the distribution of a preferred stock
purchase right ("Right") as a dividend for each share of common
stock held of record at the close of business on August 24,
1994. Under certain circumstances involving an acquisition by
any person or group of 15% or more of the Company's common
stock, the Rights permit the holders (other than the 15%
holder) to purchase the Company's common stock at a 50%
discount upon payment of an exercise price of $225.00 (subject
A-17
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
to adjustment) per Right. In addition, in the event of certain
business combinations, the Rights permit the purchase of the
common stock of the acquiring entity at a 50% discount. Under
certain conditions, the Rights may be redeemed by the Board of
Directors in whole, but not in part, at a price of $.01 per
Right. The Rights expire in August 2004.
On February 6, 1996, the Pyxis Board of Directors approved an
amendment of the Rights Agreement dated August 5, 1994 between
Pyxis and First Interstate Bank (the "Rights Agreement") to,
among other things, provide that the execution of the Merger
Agreement between the Company and Cardinal and the granting of
a Stock Option for Cardinal to purchase a number of shares of
Pyxis common stock equal to approximately 19.9% of the number
of shares outstanding at February 7, 1996, subject to
adjustment under certain circumstances, exercisable upon the
occurrence of certain events would not cause Cardinal to be an
"acquiring person" as such term is defined in the Rights
Agreement.
8. SAVINGS PLANS
On January 1, 1991, the Company established a 401(k) Savings
Plan for substantially all of its employees who meet certain
service and age requirements. The Savings Plan was amended and
restated effective January 1, 1994. Participants may elect to
defer up to 20% of their compensation per year. Each year the
Company may provide a discretionary matching contribution. As
of December 31, 1995, the Company had not made a contribution
to the Savings Plan.
Allied maintains a defined contribution plan (401(k) Plan) for
substantially all of its employees who meet certain service and
age requirements. Allied, at its discretion, can make
contributions to such Plan of up to 5% of eligible
compensation. No contribution was made for the period
subsequent to the acquisition of Allied by the Company.
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.
A-18
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Significant components of the Company's deferred tax li-
abilities and assets are as follows (in thousands):
December 31,
------------------
1995 1994
-------- --------
Deferred tax liabilities:
Differences between financial
reporting and tax recognition of
revenues on lease contracts...... $ 109,292 $ 79,576
Other, net........................ 389 -
-------- --------
Total deferred tax liabilities... 109,681 79,576
Deferred tax assets:
Difference between financial
reporting and tax basis of
assets........................... 19,002 13,215
Difference between accrued and
deductible expenses.............. 4,102 2,427
Unrealized investment loss........ 151 1,373
Net operating loss carryforwards.. 30,357 28,669
Research and development credit
carryforwards.................... 1,276 874
-------- --------
Total deferred tax assets........ 54,888 46,558
Valuation allowance for deferred
tax assets....................... (3,016) (2,528)
-------- --------
Net deferred tax assets.......... 51,872 44,030
-------- --------
Net deferred tax liabilities..... $ 57,809 $ 35,546
======== ========
A valuation allowance of $3.0 million and $2.5 million at De-
cember 31, 1995 and 1994, respectively, has been provided
against the deferred tax asset related to state tax loss car-
ryforwards. Utilization of such carryforwards within the ap-
plicable statutory periods is uncertain.
At December 31, 1995 and 1994, approximately $10.7 million and
$7.8 million, respectively, of the deferred tax assets relate
to tax benefits associated with disqualifying dispositions of
stock options. Such benefits are credited to additional paid-
in capital when realized.
A-19
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Approximately $151,000 and $1.4 million of the deferred tax as-
sets at December 31, 1995 and 1994, respectively, relate to un-
realized losses on investments which are taken as a reduction
against stockholders' equity.
Significant components of the provision for income taxes are as
follows (in thousands):
Year Ended December 31,
----------------------------
1995 1994 1993
-------- ------- -------
Current:
Federal......................... $ (190) $ - $ -
State........................... 44 - 150
-------- ------- --------
Total current (benefit)
expense........................ (146) - 150
-------- -------- --------
Deferred:
Federal......................... 21,278 21,608 14,469
State........................... 3,451 2,370 3,114
-------- -------- --------
Total deferred expense......... 24,729 23,978 17,583
-------- -------- --------
Total tax expense...............$ 24,583 $ 23,978 $ 17,733
======== ======== ========
The reconciliation of income tax computed at the federal
statutory tax rate to income tax expense for the years ended
December 31, 1995, 1994 and 1993 is as follows:
Year Ended December 31,
--------------------------
1995 1994 1993
------ ------ ------
Tax at U.S. statutory rate........ 35.0% 35.0% 35.0%
State income taxes, net of federal
tax benefit...................... 6.0% 6.0% 6.0%
Research credits.................. (1.0%) (1.5%) -
Other, net........................ 1.4% 1.5% -
------- ------- ------
41.4% 41.0% 41.0%
======= ======= ======
At December 31, 1995, the Company had federal and state tax net
operating loss carryforwards of approximately $79.6 million and
A-20
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
$61.4 million, respectively. The difference between the
federal carryforward and the tax loss carryforwards for state
purposes is primarily attributable to the 50% limitation on
loss carryforwards allocable to California. The state tax loss
carryforwards began expiring in 1994. The federal tax loss
carryforwards will begin expiring in 2002 unless previously
utilized. The Company also has federal and California research
and development tax credit carryforwards of $826,000 and
$449,000, respectively, which begin expiring in 2004 unless
previously utilized.
Pursuant to Sections 382 and 383 of the Internal Revenue Code
of 1986, use of a portion of the Company's net operating loss
and credit carryforwards will be limited because a cumulative
change in ownership of more than 50% within a three-year period
occurred during 1992 and will also occur with the proposed
merger discussed in Note 13. However, the Company does not
believe such change will have a material impact upon the
utilization of these carryforwards.
The Company is currently under examination by the Internal
Revenue Service for the three-year period ended December 31,
1994. The statute of limitations has expired for all years
prior to that three-year period. The Company does not
anticipate that the results of such audit, when resolved, will
have a material impact on net income or operating results.
10. ACQUISITION OF ALLIED PHARMACY MANAGEMENT, INC.
On August 7, 1995, the Company acquired all of the issued and
outstanding shares and rights to shares of Allied Pharmacy
Management, Inc., a provider of pharmacy management services to
hospitals and other healthcare providers, for $29.6 million in
cash, and $1.2 million in transaction fees pursuant to the
terms of the Stock Purchase Agreement dated as of June 15,
1995, as amended as of July 28, 1995, among the Company, Allied
and the securityholders of Allied. The transaction, which was
accounted for as a purchase, includes the acquisition of
accounts receivable, inventories, property and equipment, and
other tangible and intangible assets. The cost of the equity
acquired, the transaction fees and the $16.5 million of long-
term obligations paid off at closing were financed through the
use of $5.3 million of available cash and a short-term
borrowing of $42.0 million, collateralized by $42.8 million of
U.S. Treasury Notes. Subsequent to the end of the year, the
Company entered into new short-term borrowing arrangements with
similar terms. The following unaudited pro forma data reflects
the combined results of operations of the Company and Allied as
though the acquisition had occurred on January 1, 1994:
A-21
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
PRO FORMA RESULTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
December 31,
---------------------
1995 1994
--------- ---------
Revenues........................... $ 237,911 $ 188,653
Net income......................... $ 33,335 $ 32,442
Weighted average shares outstanding 37,620 37,556
Earnings per share................. $ 0.89 $ 0.86
11. BUSINESS SEGMENTS
For purposes of understanding the financial statements, the
Company's operations have been classified into the following
industry segments:
Pyxis Systems
This segment includes healthcare automation and information
management and consists primarily of activities relating to the
Company's MEDSTATION and SUPPLYSTATION product lines. In the
future, the ACCESS product line discussed in Note 13 will be
included in Pyxis Systems as well.
Pharmacy Management
This segment includes pharmacy management services provided to
hospitals and long-term care facilities and consists of the
business operations of the Company's wholly owned subsidiary,
Allied Pharmacy Management, Inc.
A-22
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Business segment financial data for the year ended December 31,
1995 is presented below (in thousands). As the Pharmacy Man-
agement segment did not exist prior to the Company's August 1995
acquisition of Allied, comparative information is not presented
for the years ended December 31, 1994 and 1993.
Year Ended
December 31, 1995
-----------------
Sales
Pyxis Systems......................... $ 175,583
Pharmacy Management................... 27,304
---------
Consolidated Total............... $ 202,887
=========
Operating Profit
Pyxis Systems....................... $ 66,775
Pharmacy Management................... 206
---------
Total Operating Profit........... 66,981
Corporate revenues and expenses....... (6,324)
Interest Expense...................... (1,215)
---------
Income Before Income Taxes $ 59,442
=========
Identifiable Assets
Pyxis Systems......................... $ 276,832
Pharmacy Management................... 59,039
Corporate............................. 347
---------
Consolidated Total............... $ 336,218
=========
Depreciation and Amortization
Pyxis Systems......................... $ 2,637
Pharmacy Management................... 1,242
Corporate............................. 73
---------
Consolidated Total............... $ 3,952
=========
Capital Expenditures
Pyxis Systems......................... $ 4,291
Pharmacy Management................... 264
Corporate............................. 159
---------
Consolidated Total............... $ 4,714
=========
Intersegment and foreign sales are insignificant. Identifiable
assets by segment include the assets directly identified with
those segments.
12. QUARTERLY RESULTS OF OPERATIONS AND STOCK INFORMATION
(UNAUDITED)
The following is a summary of the quarterly results of opera-
tions and Common Stock price ranges for the years ended Decem-
ber 31, 1995 and 1994 (in thousands except per share and stock
price data):
A-23
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
Three Months Ended
------------------------------------------
March 31 June 30 September 30 December 31
---------- ------- ------------ -----------
1995
----
Sales.................. $ 40,464 $ 44,610 $ 54,485 $ 63,328
Gross profit........... 28,268 30,371 33,985 36,762
Net income............. 8,860 9,747 8,424 7,828
Earnings per share..... 0.24 0.26 0.22 0.21
Common stock price
range:
High................. 23.625 25.875 26.875 20.125
Low.................. 16.625 18.750 18.250 11.750
1994
----
Sales.................. $ 30,655 $ 34,632 $ 36,717 $ 40,055
Gross profit........... 22,167 25,322 26,426 29,933
Net income............. 8,127 8,533 8,559 9,368
Earnings per share..... 0.22 0.23 0.23 0.25
Common stock price
range:
High................. 37.750 27.250 28.500 27.250
Low.................. 22.500 16.500 17.250 16.000
The Company's Common Stock is traded in the Nasdaq National
Market (the "NNM") under the symbol PYXS. The above prices
reflect the high and low sale prices as reported on the NNM.
13. SUBSEQUENT EVENTS
Merger with Cardinal Health, Incorporated
On February 7, 1996, the Company and Cardinal Health, Inc.
("Cardinal") executed an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which a wholly owned subsidiary
of Cardinal will be merged into Pyxis and Pyxis will become a
wholly owned subsidiary of Cardinal (the "Merger") in a stock-
for-stock merger intended to quality as a tax-free reorganiza-
tion within the meaning of section 368(a) of the Internal Rev-
enue Code of 1986, as amended, and accounted for as a pooling-
of-interests for financial reporting purposes. Under the terms
of the Merger Agreement, stockholders of Pyxis will receive
0.406557 Cardinal Common Shares for each share of Pyxis they
own at the time the transaction is consummated, subject to
adjustment under specified circumstances. In addition, options
for Pyxis common stock will be converted into equivalent
A-24
PYXIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
options for Cardinal Common Shares, based upon the exchange ra-
tio. In connection with the transaction, Pyxis has granted to
Cardinal an option to purchase a number shares of Pyxis common
stock equal to approximately 19.9% of the number of shares out-
standing at February 7, 1996, subject to adjustment under cer-
tain circumstances, exercisable upon the occurrence of certain
events. The merger is expected to be completed by early sum-
mer, subject to approval by stockholders of Pyxis and Cardinal,
and the receipt of requisite regulatory approvals. In connec-
tion with the transaction, certain Pyxis stockholders who are
also directors of Pyxis entered into Support/Voting Agreements
with Cardinal.
All fees and expenses related to the agreement will be expensed
as required under the pooling-of-interests accounting method.
These expenses have not been reflected in the consolidated
statements of income.
Purchase of ACCESS Product Line
On January 29, 1996, the Company acquired the ACCESS medication
system product line and certain ancillary rights from Lionville
Systems, Inc. ("Lionville") for $9.2 million in cash, $5.5 mil-
lion in long-term obligations, and $105,000 in estimated trans-
action fees pursuant to the terms of the Asset Purchase Agree-
ment dated as of January 29, 1996 between the Company, Lion-
ville, and certain of Lionville's owners. The transaction in-
cludes the acquisition of inventories, certain contracts, pat-
ents, and other tangible and intangible assets. The $9.2 mil-
lion payment made at closing was financed through the use of
available cash. Long-term obligations consist of $3.25 million
in promissory notes bearing interest at 8.5% per annum, and
$2.3 million in non-compete covenants and consulting agreements
with certain of Lionville's owners. Payments on these obliga-
tions will be made over the next five years.
A-25
SIGNATURE
Pursuant to the requirements of the Securities Ex-
change Act of 1934, the Registrant has duly caused this re-
port to be signed on its behalf by the undersigned hereunto
duly authorized.
CARDINAL HEALTH, INC.
Dated: May 8, 1996 By: /s/ George H. Bennett, Jr.
---------------------------
George H. Bennett, Jr.
Executive Vice President,
General Counsel and
Secretary
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
23.1 Consent of Ernst & Young LLP.
99.1 Pages 51 through 60, inclusive, of the Joint
Proxy Statement/Prospectus of Cardinal Health,
Inc. (Commission File No. 0-12591) and Pyxis
Corporation (Commission File No. 0-19973)
dated March 28, 1996, filed by Cardinal with
the Commission on March 29, 1996, pursuant to
Rule 424(b) of the Securities Act of 1933, as
amended (incorporated by reference herein).
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated January 30, 1996,
except for Note 6, Note 7 ("Stockholder Rights Plan"), and
Note 13, for which the date is February 7, 1996, with respect
to the consolidated financial statements of Pyxis Corporation
included in this Current Report on Form 8-K of Cardinal
Health, Inc., and to the incorporation by reference of the
above referenced report into Cardinal Health, Inc.'s
previously filed Registration Statement File No. 33-57223 on
Form S-3 and Registration Statements File No. 33-20895, No.
33-38021, No. 33-38022, No. 33-42357, No. 33-52535, No. 33-
52537, No. 33-52539, No. 33-64337, and No. 33-63283-01 on
Form S-8.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
May 3, 1996