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 March 31, 2001 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.)
7000 CARDINAL PLACE, DUBLIN, OHIO 43017
(Address of principal executive offices and zip code)
(614) 757-5000
(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 April 30, 2001 was as follows:
Common Shares, without par value: 445,839,803
2
CARDINAL HEALTH, INC. AND SUBSIDIARIES
Index *
Page No.
--------
Part I. FINANCIAL INFORMATION:
---------------------
Item 1. Financial Statements:
Condensed Consolidated Statements of Earnings for the Three and Nine Months
Ended March 31, 2001 and 2000 (unaudited).......................................... 3
Condensed Consolidated Balance Sheets at March 31, 2001 and
June 30, 2000 (unaudited).......................................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 2001 and 2000 (unaudited)................................................ 5
Notes to Condensed Consolidated Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................................ 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk......................... 17
Part II. OTHER INFORMATION:
-----------------
Item 1. Legal Proceedings.................................................................. 18
Item 5. Other Information.................................................................. 18
Item 6. Exhibits and Reports on Form 8-K................................................... 19
* Items not listed are inapplicable.
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PART I. FINANCIAL INFORMATION
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
----------- ------------ ------------ -----------
Revenue:
Operating revenue $ 10,334.2 $7,665.9 $28,405.8 $22,172.1
Bulk deliveries to customer warehouses 2,245.9 1,945.6 7,140.8 5,642.7
----------- ------------ ------------ -----------
Total revenue 12,580.1 9,611.5 35,546.6 27,814.8
Cost of products sold:
Operating cost of products sold 9,388.1 6,874.9 25,771.1 19,909.7
Cost of products sold - bulk deliveries 2,245.9 1,945.1 7,139.8 5,641.0
----------- ------------ ------------ -----------
Total cost of products sold 11,634.0 8,820.0 32,910.9 25,550.7
Gross margin 946.1 791.5 2,635.7 2,264.1
Selling, general and administrative expenses 509.9 425.9 1,469.0 1,289.0
Special charges 86.3 10.7 106.6 53.0
----------- ------------ ------------ -----------
Operating earnings 349.9 354.9 1,060.1 922.1
Interest expense and other 43.7 38.9 116.9 100.3
----------- ------------ ------------ -----------
Earnings before income taxes 306.2 316.0 943.2 821.8
Provision for income taxes 113.3 117.6 339.1 310.0
----------- ------------ ------------ -----------
Net earnings $192.9 $198.4 $604.1 $511.8
=========== ============ ============ ===========
Earnings per Common Share:
Basic $ 0.43 $0.45 $1.37 $1.16
Diluted $ 0.42 $0.44 $1.33 $1.14
Weighted average number of Common Shares outstanding:
Basic 444.3 440.5 441.6 440.0
Diluted 456.5 449.2 453.9 449.6
Cash dividends declared per Common Share $0.020 $0.017 $0.060 $0.050
See notes to condensed consolidated financial statements.
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CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN MILLIONS)
MARCH 31, JUNE 30,
2001 2000
--------------- ----------------
ASSETS
Current assets:
Cash and equivalents $396.2 $539.5
Trade receivables, net 2,862.3 2,398.8
Current portion of net investment in sales-type leases 214.3 187.7
Merchandise inventories 6,127.7 4,657.0
Prepaid expenses and other 765.1 663.4
--------------- ----------------
Total current assets 10,365.6 8,446.4
--------------- ----------------
Property and equipment, at cost 3,361.1 3,065.5
Accumulated depreciation and amortization (1,502.1) (1,337.2)
--------------- ----------------
Property and equipment, net 1,859.0 1,728.3
Other assets:
Net investment in sales-type leases, less current portion 631.8 578.6
Goodwill and other intangibles 1,142.2 1,043.7
Other 231.9 227.1
--------------- ----------------
Total $14,230.5 $12,024.1
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term obligations $12.1 $414.1
Current portion of long-term obligations 11.0 9.3
Accounts payable 5,141.9 3,895.1
Other accrued liabilities 1,185.5 1,228.2
--------------- ----------------
Total current liabilities 6,350.5 5,546.7
--------------- ----------------
Long-term obligations, less current portion 2,169.8 1,524.5
Deferred income taxes and other liabilities 618.0 552.5
Shareholders' equity:
Common Shares, without par value 1,766.6 1,509.6
Retained earnings 3,903.3 3,331.7
Common Shares in treasury, at cost (456.4) (346.6)
Other comprehensive income (115.9) (81.9)
Other (5.4) (12.4)
--------------- ----------------
Total shareholders' equity 5,092.2 4,400.4
--------------- ----------------
Total $14,230.5 $12,024.1
=============== ================
See notes to condensed consolidated financial statements.
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CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
NINE MONTHS ENDED
MARCH 31,
2001 2000
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $604.1 $511.8
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization 209.0 199.5
Provision for bad debts 16.2 17.0
Change in operating assets and liabilities, net of effects from acquisitions:
Increase in trade receivables (460.0) (440.7)
Increase in merchandise inventories (1,359.6) (1,404.8)
Increase in net investment in sales-type leases (79.8) (108.6)
Increase in accounts payable 1,135.7 827.6
Other operating items, net (77.3) 135.1
-------------- --------------
Net cash used in operating activities (11.7) (263.1)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash acquired (323.3) (67.5)
Proceeds from sale of property and equipment 17.8 43.3
Additions to property and equipment (234.8) (225.5)
Purchase of marketable securities available for sale - (7.7)
Proceeds from sale of marketable securities available for sale - 56.1
-------------- --------------
Net cash used in investing activities (540.3) (201.3)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in commercial paper and short-term debt (536.1) 1,072.0
Reduction of long-term obligations (40.7) (158.3)
Proceeds from long-term obligations, net of issuance costs 917.7 -
Proceeds from issuance of Common Shares 186.9 55.4
Dividends on Common Shares and cash paid
in lieu of fractional shares (26.5) (22.6)
Purchase of treasury shares (138.8) (341.4)
Other (1.4) (0.1)
-------------- --------------
Net cash provided by financing activities 361.1 605.0
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (190.9) 140.6
CHANGE IN BINDLEY WESTERN INDUSTRIES' FISCAL YEAR (SEE NOTE 4) 47.6 -
-------------- --------------
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 539.5 228.4
-------------- --------------
CASH AND EQUIVALENTS AT END OF PERIOD $396.2 $369.0
============== ==============
See notes to condensed consolidated financial statements.
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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
transaction with Bindley Western Industries, Inc. ("Bindley") on
February 14, 2001, which was accounted for as a pooling of interests
business combination (see Note 4).
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, 2000 (the "2000 Form
10-K"). Without limiting the generality of the foregoing, Note 1 of the
"Notes to Consolidated Financial Statements" from the 2000 Form 10-K is
specifically incorporated herein by reference.
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.
In March 2000, the Company's Board of Directors authorized the
repurchase of Common Shares up to an aggregate amount of $750 million.
Through March 31, 2001, 7 million Common Shares, having an aggregate
cost of approximately $440.2 million had been repurchased via an
accelerated share repurchase program and placed into treasury shares.
In November 2000, the Company's Board of Directors rescinded the
remainder of this repurchase program.
During the quarter ended March 31, 2001, the Company issued 750,000
Common Shares for aggregate proceeds of $47.7 million, which are to be
used for general corporate purposes. The common shares were issued in
order for the Company to be able to satisfy all the conditions to
consummation of the merger with Bindley (See Note 4).
On November 1, 2000, the shareholders of the Company approved, and the
Company's articles of incorporation were amended to effect an increase
in the number of authorized Common Shares, without par value, from 500
million to 750 million.
On February 27, 2001, the Company declared a three-for-two stock split
which was distributed on April 20, 2001 to shareholders of record on
April 5, 2001. All share and per share amounts included in the
condensed consolidated financial statements have been adjusted to
retroactively reflect the stock split.
Note 3. The Company's comprehensive income consists of net earnings, foreign
currency translation adjustments, unrealized loss on investment and net
unrealized loss on derivative instruments as follows:
For the three months ended For the nine months ended
(in millions) March 31, March 31,
2001 2000 2001 2000
-------------- --------------- -------------- ---------------
Net earnings $ 192.9 198.4 $ 604.1 511.8
Foreign currency adjustments (1.5) (12.5) (22.6) (11.8)
Unrealized loss on investment - - (5.4) -
Net unrealized loss on derivative
instruments (5.5) - (6.0) -
------------- --------------- -------------- ---------------
Total comprehensive income $ 185.9 $ 185.9 $ 570.1 $ 500.0
============== =============== ============== ===============
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Note 4. On February 14, 2001, the Company completed a merger transaction
with Bindley ("Bindley Merger") which was accounted for as a pooling of
interests. In the Bindley Merger, the Company issued approximately 23.1
million Common Shares to Bindley stockholders and Bindley's outstanding
stock options were converted into options to purchase approximately 5.1
million Common Shares.
Bindley's fiscal year end was December 31. As a result of changing
Bindley's fiscal year end from December 31 to June 30 during the fiscal
year ended June 30, 2001, Bindley's results of operations for the six
months ended June 30, 2000 are not included in the combined results of
operations but are reflected as an adjustment to shareholders' equity.
Bindley's net revenue and net earnings excluding special charges were
$4.9 billion and $22.9 million, respectively. Including special charges
for the same period, Bindley's net loss was $2.8 million. Cash flows
from operating activities were $166.7 million, while cash flows used in
investing and financing activities were $5.7 million and $113.4
million, respectively.
The table below presents a reconciliation of total revenue and net
earnings available for Common Shares as reported in the accompanying
condensed consolidated financial statements with those previously
reported by the Company. The term "Cardinal Health" as used in the
table below refers to Cardinal Health, Inc. and subsidiaries prior to
the Bindley Merger.
Cardinal
(in millions) Health Bindley Combined
----------- ---------- -------------
Three months ended March 31, 2000
Total revenue $ 7,473.1 $ 2,138.4 $ 9,611.5
Net earnings $ 189.5 $ 8.9 $ 198.4
Nine months ended March 31, 2000
Total revenue $ 21,656.3 $ 6,158.5 $ 27,814.8
Net earnings $ 485.0 $ 26.8 $ 511.8
Adjustments affecting net earnings and shareholders' equity as a result
of Bindley adopting the Company's accounting practices related solely
to the impact of accounting for Bindley's inventory under the LIFO
method, which was previously accounted for under the FIFO method. The
beginning balance sheet cumulative adjustment was $9.7 million. There
were no material intercompany transactions.
On August 16, 2000, the Company completed the purchase of Bergen
Brunswig Medical Corporation ("BBMC") for approximately $180 million,
subject to post-closing adjustments. BBMC distributes medical, surgical
and laboratory supplies to doctors' offices, long-term care and nursing
centers, hospitals and other providers of care. In addition, the
Company also completed several other individually immaterial
acquisitions during the quarter and nine months ended March 31, 2001
for approximately $61 million and $143 million, respectively. These
transactions were accounted for under the purchase method of
accounting. The condensed consolidated financial statements include the
results of operations from each of these business combinations as of
the date of acquisition. Had the transactions occurred on July 1, 1999,
results of operations would not have differed materially from reported
results.
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Note 5. During the three and nine months ended March 31, 2001 and 2000, the
Company recorded costs of effecting mergers and subsequently
integrating the operations of the various merged companies. These costs
are classified as merger-related costs when incurred. The
merger-related costs are primarily a result of the merger transactions
with Bindley, Automatic Liquid Packaging, Inc. ("ALP"), Allegiance
Corporation ("Allegiance") and R.P. Scherer Corporation ("Scherer").
The following is a summary of the special charges for the three and
nine-month periods ended March 31, 2001 and 2000.
Special Charges Three Months Ended Nine Months Ended
March 31, March 31,
-----------------------------------------------------------------------------------------------------------
(in millions) 2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------------
Merger-Related Costs:
Transaction costs $ (20.8) $ - $ (20.8) $ (1.8)
Employee-related costs (29.0) (1.4) (39.7) (21.3)
Exit costs - distribution center consolidation (15.0) - (15.0) -
Other exit costs - (3.6) (0.2) (8.4)
Restructuring costs - (0.5) (1.6) (7.5)
Other integration costs (9.7) (5.2) (22.5) (14.0)
-----------------------------------------------------------------------------------------------------------
Total merger-related costs $ (74.5) $(10.7) $ (99.8) $ (53.0)
Other Special Charges:
Distribution center closures $(4.4) $ - $ (4.4) $ -
Manufacturing facility closures (2.2) - (2.2) -
Employee-related costs (5.2) - (5.2) -
Litigation settlement - - 5.0 -
-----------------------------------------------------------------------------------------------------------
Total other special charges $ (11.8) $ - $ (6.8) $ -
-----------------------------------------------------------------------------------------------------------
Total special charges $ (86.3) $(10.7) $(106.6) $ (53.0)
Tax effect of special charges 24.5 1.6 32.8 10.8
-----------------------------------------------------------------------------------------------------------
Net effect of special charges $ (61.8) $( 9.1) $ (73.8) $ (42.2)
===========================================================================================================
Merger-Related Costs
During the above stated periods, the Company incurred direct
transaction costs related to its merger transactions. These expenses
primarily include investment banking, legal, accounting and other
professional fees associated with the Bindley and ALP merger
transactions. In addition, the Company incurred employee-related costs,
which consist primarily of severance and transaction/stay bonuses as a
result of the Bindley, ALP, Allegiance and Scherer merger transactions.
Partially offsetting the transaction and employee-related costs
recorded during the nine months ended March 31, 2000 was a $10.3
million credit recorded in the first quarter of fiscal 2000 to adjust
the estimated employee-related costs previously recorded in connection
with the Allegiance merger transaction. Actual billings and
employee-related costs were less than the amounts originally
anticipated, resulting in a reduction of the merger-related costs.
The Company recorded a charge of $15.0 million during the three months
ended March 31, 2001 associated with the Company's plans to consolidate
distribution centers as a result of the Company's merger transaction
with Bindley. In connection with such consolidations, the Company has
incurred employee-related costs and exit costs related to the
termination of contracts and lease agreements during the quarter.
Other exit costs relate primarily to costs associated with lease
terminations and moving expenses as a direct result of the merger
transactions with ALP, Allegiance and Scherer.
The Company recorded charges of $1.6 million and $7.5 million during
the nine months ended March 31, 2001 and 2000, respectively, associated
with the business restructuring as a result of the Company's merger
transaction with Scherer. As part of the business restructuring, the
Company is closing certain facilities. In connection with such
closings, the Company has incurred employee-related costs, asset
impairment charges and exit costs related to the termination of
contracts and lease agreements.
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Other integration costs include charges related to integrating the
operations of previous merger transactions.
Other Special Charges
During the three months ended March 31, 2001, the Company recorded a
special charge of $5.0 million related to the rationalization of its
pharmaceutical distribution centers. Approximately, $4.4 million
related to asset impairments, lease exit costs and duplicate facility
costs resulting from the Company's decision to consolidate distribution
centers and relocate to a more modern distribution center. The
remaining amount related to employee severance costs.
In addition, during the three months ended March 31, 2001, the Company
recorded a special charge of $6.8 million related to the
rationalization of its health and nutrition manufacturing facilities.
Approximately, $2.2 million related to lease exit costs. The remaining
amount related to employee severance costs associated with the
rationalization.
During the nine months ended March 31, 2001, Bindley recorded a benefit
of approximately $5 million related to a reduction in a litigation
settlement accrual, which was previously recorded. The amount of the
final settlement was lower than originally anticipated.
The net of tax effect of the various special charges recorded during
the three months ended March 31, 2001 and 2000 was to reduce net
earnings by $61.8 million to $192.9 million and by $9.1 million to
$198.4 million, respectively, and to reduce reported diluted earnings
per Common Share by $0.14 per share to $0.42 per share and by $0.02 per
share to $0.44 per share, respectively. The net of tax effect of the
various special charges recorded during the nine months ended March 31,
2001 and 2000 was to reduce net earnings by $73.8 million to $604.1
million and by $42.2 million to $511.8 million, respectively, and to
reduce reported diluted earnings per Common Share by $0.16 per share to
$1.33 per share and by $0.09 per share to $1.14 per share,
respectively.
Note 6. The Company is organized based on the products and services it
offers. Under this organizational structure, the Company operates in
four business segments: Pharmaceutical Distribution and Provider
Services, Medical-Surgical Products and Services, Pharmaceutical
Technologies and Services and Automation and Information Services. The
Company has not made any significant changes in the segments reported
or the basis of measurement of segment profit or loss from the
information provided in the Company's 2000 Form 10-K.
The Pharmaceutical Distribution and Provider Services segment involves
the distribution of a broad line of pharmaceuticals, healthcare and
beautycare products, radiopharmaceuticals, therapeutic plasma and other
specialty pharmaceutical products and other items typically sold by
hospitals, retail drug stores and other healthcare providers. In
addition, this segment provides services to the healthcare industry
through integrated pharmacy management, temporary pharmacy staffing, as
well as franchising of apothecary-style retail pharmacies.
The Medical-Surgical Products and Services segment involves the
manufacture of medical, surgical and laboratory products and the
distribution of these and other products to hospitals, physician
offices, surgery centers and other healthcare providers, as well as
providing healthcare consulting services.
The Pharmaceutical Technologies and Services segment provides services
to the pharmaceutical manufacturing industry through the design of
unique drug delivery systems, liquid fill contract manufacturing and
comprehensive packaging services.
The Automation and Information Services segment provides services to
hospitals and other healthcare providers through pharmacy automation
equipment and clinical information system services.
The Company evaluates the performance of the segments based on
operating earnings after the corporate allocation of administrative
expenses. Special charges are not allocated to the segments.
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The following table includes revenue and operating earnings for
the three and nine-month periods ended March 31, 2001 and 2000 for each
segment and reconciling items necessary to equal amounts reported in
the consolidated financial statements:
For the three months ended For the nine months ended
March 31, March 31,
---------------------------- -----------------------------
(in millions) Net Revenue Net Revenue
----------------------------- ----------------------------
2001 2000 2001 2000
-------------- -------------- ------------- -------------
Operating revenue:
Pharmaceutical Distribution and Provider
Services $ 8,447.9 $ 6,097.8 $ 22,928.5 $ 17,418.0
Medical-Surgical Products and Services 1,498.2 1,204.3 4,350.4 3,696.3
Pharmaceutical Technologies and Services 301.2 283.5 859.9 805.1
Automation and Information Services 112.3 102.3 321.9 276.2
Other (25.4) (22.0) (54.9) (23.5)
-------------- -------------- ------------- -------------
Total operating revenue 10,334.2 7,665.9 28,405.8 22,172.1
Bulk deliveries to customer warehouses:
Pharmaceutical Distribution and Provider
Services 2,245.9 1,945.6 7,140.8 5,642.7
-------------- -------------- ------------- -------------
Total net revenue $ 12,580.1 $ 9,611.5 $ 35,546.6 $ 27,814.8
=========================================================================================================
Operating Earnings Operating Earnings
----------------------------- ----------------------------
2001 2000 2001 2000
-------------- -------------- ------------- -------------
Operating earnings:
Pharmaceutical Distribution and Provider
Services $ 257.7 $ 187.5 $ 640.0 $ 486.6
Medical-Surgical Products and Services 112.0 93.2 320.2 268.6
Pharmaceutical Technologies and Services 50.0 52.5 158.8 148.9
Automation and Information Services 41.1 35.1 109.6 91.1
Corporate (1) (110.9) (13.4) (168.5) (73.1)
-------------- -------------- ------------- -------------
Total operating earnings $ 349.9 $ 354.9 $ 1,060.1 $ 922.1
=========================================================================================================
(1) Corporate operating earnings primarily consist of special
charges of $86.3 million and $10.7 million for the three
months ended March 31, 2001 and 2000, respectively, and $106.6
million and $53.0 million for the nine months ended March 31,
2001 and 2000, respectively, and unallocated corporate
depreciation and amortization and administrative expenses.
Note 7. On September 30, 1996, Baxter International Inc. ("Baxter") and its
subsidiaries transferred to Allegiance and its subsidiaries their U.S.
Healthcare distribution business, surgical and respiratory therapy
business and healthcare cost-saving business, as well as certain
foreign operations (the "Allegiance Business") in connection with a
spin-off of the Allegiance Business by Baxter. In connection with this
spin-off, Allegiance, which was acquired by the Company on February 3,
1999, agreed to indemnify certain claims related to the Allegiance
Business from Baxter Healthcare Corporation ("BHC"), including certain
claims of alleged personal injuries as a result of exposure to natural
rubber latex gloves. Allegiance will be defending and indemnifying BHC,
as contemplated by the agreements between Baxter and Allegiance, for
all expenses and potential liabilities associated with claims
pertaining to the litigation assumed by Allegiance. As of March 31,
2001, there were approximately 600 lawsuits involving BHC and/or
Allegiance containing allegations of sensitization to natural rubber
latex products. Some of the cases are now proceeding to trial. Because
of the increase in claims filed and the ongoing defense costs that will
be incurred, the Company believes it is probable that it will continue
to incur significant expenses related to the defense of cases involving
natural rubber latex gloves. At this time, the Company is unable to
evaluate the extent of any potential liability, and unable to estimate
any potential loss. AEIA, one of the insurers for the latex glove
litigation, has advised the Company of its intent to resolve through
arbitration the extent of its obligation to reimburse the Company for
certain defense costs and loss expenses incurred in connection with the
litigation. The Company believes a substantial portion of any liability
will be covered by
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insurance, subject to self-insurance retentions, exclusions,
conditions, coverage gaps, policy limits and insurer solvency.
The Company also becomes involved from time-to-time in other litigation
incidental to its business, including without limitation inclusion of
certain of its subsidiaries as a potentially responsible party for
environmental clean-up costs. Although the ultimate resolution of the
litigation referenced herein cannot be forecast with certainty, the
Company intends to vigorously defend itself and does not currently
believe that the outcome of any pending litigation will have a material
adverse effect on the Company's condensed consolidated financial
statements.
Note 8. The Company periodically sells trade receivables to a special
purpose accounts receivable and financing entity ("SPE"), which is
exclusively engaged in purchasing trade receivables from, and making
loans to, the Company. During the nine months ended March 31, 2001, the
SPE, which is consolidated by the Company, issued $400 million in
preferred variable rate debt securities to parties not affiliated with
the Company. Those preferred debt securities must be retired or
redeemed before the Company can have access to the SPE's receivables.
During the nine months ended March 31, 2001, the Company entered into
two interest rate swap agreements with a total notional amount of $250
million that mature through January 2003 to hedge interest rate
exposures related to a portion of the preferred debt securities.
Note 9. During the quarter ended March 31, 2001, the Company issued $500
million of 6.75% Notes due 2011, the proceeds of which were used
primarily for early redemption of Bindley debt. After such issuance,
the Company has the capacity to issue approximately $450 million of
additional equity or debt securities pursuant to a shelf registration
statement filed with the Securities and Exchange Commission.
During the nine months ended, March 31, 2001, the Company entered into
two interest rate swap agreements with a total notional amount of $250
million that mature through February 2011 to hedge a portion of the
change in fair value of the 6.75% Notes related to changes in interest
rates.
Note 10. As of July 1, 2000, the Company adopted the Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," as amended in June 2000 by
Statement of Financial Accounting Standards No. 138 ("SFAS 138"),
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities," which requires companies to recognize all derivatives as
either assets or liabilities in the balance sheet and measure such
instruments at fair value. The adoption of these statements did not
have a material impact on the Company's consolidated financial
statements.
In September 2000, the Financial Accounting Standards Board issued the
Statement of Financial Accounting Standards No. 140 ("SFAS 140"),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which is effective for any activities
occurring after March 31, 2001. SFAS 140 replaces SFAS 125 "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities", therefore revising the disclosure for securitizations and
other transfers of financial assets or collateral. The Company does not
anticipate that the adoption of SFAS 140 will have a material impact on
the Company's consolidated financial statements.
On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statements" which
requires adoption during the fourth quarter of fiscal 2001. The Company
does not anticipate that the adoption of SAB 101 will have a material
impact on the Company's consolidated financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Management's discussion and analysis presented below has been prepared to
give retroactive effect to the pooling of interests business combination with
Bindley Western Industries, Inc. ("Bindley") on February 14, 2001. 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 March 31, 2001 and June 30, 2000, and for the condensed
consolidated statements of earnings for the three and nine-month periods ended
March 31, 2001 and 2000.
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, 2000.
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 Exhibit 99.01 to this Form 10-Q and are
incorporated herein by reference. The Company disclaims any obligation to update
any forward-looking statement.
GENERAL
The Company operates within four operating business segments:
Pharmaceutical Distribution and Provider Services, Medical-Surgical Products and
Services, Pharmaceutical Technologies and Services and Automation and
Information Services. See Note 6 of "Notes to Condensed Consolidated Financial
Statements" for a description of these segments.
RESULTS OF OPERATIONS
Operating Revenue Three months ended Nine months ended
March 31, 2001 March 31, 2001
--------------------------------------------------------------------
Percent of Total Percent of Total
Growth (1) Operating Revenues Growth (1) Operating Revenues
- ---------------------------------------------------------------------------------------------------------------------
Pharmaceutical Distribution and Provider
Services 39% 82% 32% 81%
Medical-Surgical Products and Services 24% 14% 18% 15%
Pharmaceutical Technologies and Services 6% 3% 7% 3%
Automation and Information Services 10% 1% 17% 1%
Total Company 35% 100% 28% 100%
- ---------------------------------------------------------------------------------------------------------------------
(1) The growth rate applies to the applicable three and nine-month periods
ended March 31, 2001 compared to the corresponding periods of the prior year.
Total operating revenue for the three and nine months ended March 31, 2001
increased 35% and 28%, respectively, compared to the same period of the prior
year. The majority of the operating revenue increase came from existing
customers in the form of increased volume and price increases. A portion of the
growth was a result of acquisitions during the nine months ended March 31, 2001
(see Note 4 of "Notes to Condensed Consolidated Financial Statements"). The
remainder of the growth came from the addition of new customers.
The Pharmaceutical Distribution and Provider Services segment's operating
revenue growth during the three and nine months ended March 31, 2001 was
primarily due to strong sales to all customer segments, especially pharmacy
chain stores. All operating revenue growth for this segment was internal and was
the result of increased volume to existing customers and new contracts.
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The increase in the Medical-Surgical Products and Services segment's
operating revenue over the quarter and nine months ended March 31, 2001 was
mainly due to an increase in sales of distributed products. Bergen Brunswig
Medical Corporation ("BBMC") was acquired in the first quarter of fiscal 2001
and accounted for as a purchase transaction. As prior year revenues for this
segment were not restated, the inclusion of BBMC revenues for the three and nine
months ended March 31, 2001 significantly increased revenues over the prior year
for distributed products.
The growth in operating revenue for the Pharmaceutical Technologies and
Services segment during the third quarter and first nine months of fiscal 2001
was the result of higher sales volume primarily from strong sales of the
Zydis(R) rapid-dissolving drug-delivery technology and sterile-liquid
pharmaceutical products. The growth was attributable to a mix of new products
and customers and increased volume from existing customers. A decline in the
overall market for health and nutrition supplements offset a portion of this
segment's growth.
The increase in operating revenue for the Automation and Information
Services segment during the three and nine months ended March 31, 2001 was
primarily due to sales of new products and further penetration of the market
with existing automation products.
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 customers'
industries, decisions by customers to either begin or discontinue warehousing
activities, and changes in policies by manufacturers related to selling directly
to 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 Three months ended Nine months ended
March 31, March 31,
- --------------------------------------------------------------------------------------------------------------------
(as a percentage of operating revenue) 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Pharmaceutical Distribution and Provider Services 5.41% 5.73% 5.21% 5.47%
Medical-Surgical Products and Services 21.97% 23.44% 22.01% 23.13%
Pharmaceutical Technologies and Services 31.98% 32.58% 33.39% 33.10%
Automation and Information Services 68.81% 70.05% 67.36% 69.69%
Total Company 9.15% 10.33% 9.28% 10.21%
- --------------------------------------------------------------------------------------------------------------------
The decrease in consolidated gross margin as a percentage of operating
revenue during the three and nine months ended March 31, 2001 as compared to the
prior year was due primarily to a greater mix of lower margin pharmaceutical
distribution, as well as a decrease in margins for the Medical-Surgical Products
and Services and Automation and Information Services segments. The
Pharmaceutical Distribution and Provider Services segment's mix increased to 82%
and 81% of total operating revenues for the three and nine months ended March
31, 2001, respectively, from 79% and 78% for the comparable periods of the prior
year.
The Pharmaceutical Distribution and Provider Services segment's gross
margin as a percentage of operating revenue decreased primarily as a result of
lower selling margins due to a greater mix of sales to retail pharmacy chains.
Such customers have a relatively lower margin in connection with a lower cost of
service (see discussion in selling, general and administrative expenses). This
decrease was partially offset by higher vendor margins from favorable price
increases and manufacturer marketing programs.
The decrease in the Medical-Surgical Products segment's gross margin during
the three and nine-month periods ended March 31, 2001 over the comparable
periods of prior year was primarily due to the purchase of BBMC. As expected,
this transaction shifted product mix toward lower margin distributed products.
The decrease in the Pharmaceutical Technologies and Services segment's
gross margin during the quarter ended March 31, 2001 was due primarily to
surplus manufacturing capacity as a result of the decline in the overall health
and nutrition markets. The Company during the quarter recorded a special charge
related to the costs to restructure the manufacturing facilities associated with
this market (See Note 4 of the "Notes to Condensed Consolidated Statements").
Offsetting this decrease was an increase in margin primarily associated with the
continued focus on higher margin pharmaceutical products and services,
especially in liquid fill contract manufacturing, which had the strongest growth
in this segment. Gross margin during the nine months ended March 31, 2001 was
also favorably
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impacted by better profitability on certain vitamin products, as well as an
improvement in manufacturing processes as a result of improved productivity and
ongoing plant modernization.
The decrease in gross margin for the Automation and Information Services
segment for the periods ended March 31, 2001 was primarily due to product mix.
Selling, General & Administrative Expenses Three months ended Nine months ended
March 31, March 31,
- --------------------------------------------------------------------------------------------------------------------
(as a percentage of operating revenue) 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Pharmaceutical Distribution and Provider Services 2.36% 2.66% 2.42% 2.68%
Medical-Surgical Products and Services 14.49% 15.69% 14.65% 15.86%
Pharmaceutical Technologies and Services 15.39% 14.06% 14.92% 14.61%
Automation and Information Services 32.20% 35.74% 33.31% 36.69%
Total Company 4.93% 5.56% 5.17% 5.81%
- --------------------------------------------------------------------------------------------------------------------
The overall improvement in selling, general and administrative expenses as
a percentage of operating revenue for the three and nine months ended March 31,
2001 reflects economies of scale 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.
In addition, the Company is continuing to take advantage of synergies from
recent acquisitions to decrease selling, general and administrative expenses as
a percentage of operating revenues. Partially offsetting the improvement was an
increase in selling, general and administrative expenses as a percentage of
revenue for the Pharmaceutical Technologies and Services segment. The
unfavorable change is primarily a result of surplus capacity in the health and
nutritional manufacturing facilities for this segment (See discussion in the
operating revenue section).
The selling, general and administrative expenses increased overall during the
three and nine months ended March 31, 2001, 20% and 14% compared to the
respective periods a year ago, due primarily to increases in personnel costs and
depreciation expense. This overall increase in selling, general and
administrative expenses compares favorably to the 35% and 28% growth in
operating revenue for the same periods.
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Special Charges. During the three and nine months ended March 31, 2001 and 2000,
the Company recorded costs of effecting mergers and subsequently integrating the
operations of the various merged companies. These costs are classified as
merger-related costs when incurred. The merger-related costs are primarily a
result of the merger transactions with Bindley, Automatic Liquid Packaging, Inc.
("ALP"), Allegiance Corporation ("Allegiance") and R.P. Scherer Corporation
("Scherer"). The following is a summary of the special charges for the three and
nine-month periods ended March 31, 2001 and 2000.
Special Charges Three Months Ended Nine Months Ended
March 31, March 31,
-----------------------------------------------------------------------------------------------------------
(in millions) 2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------------
Merger-Related Costs:
Transaction costs $ (20.8) $ - $ (20.8) $ (1.8)
Employee-related costs (29.0) (1.4) (39.7) (21.3)
Exit costs - distribution center consolidation (15.0) - (15.0) -
Other exit costs - (3.6) (0.2) (8.4)
Restructuring costs - (0.5) (1.6) (7.5)
Other integration costs (9.7) (5.2) (22.5) (14.0)
-----------------------------------------------------------------------------------------------------------
Total merger-related costs $ (74.5) $(10.7) $ (99.8) $ (53.0)
Other Special Charges:
Distribution center closures $(4.4) $ - $ (4.4) $ -
Manufacturing facility closures (2.2) - (2.2) -
Employee-related costs (5.2) - (5.2) -
Litigation settlement - - 5.0 -
-----------------------------------------------------------------------------------------------------------
Total other special charges $ (11.8) $ - $ (6.8) $ -
-----------------------------------------------------------------------------------------------------------
Total special charges $ (86.3) $(10.7) $(106.6) $ (53.0)
Tax effect of special charges 24.5 1.6 32.8 10.8
-----------------------------------------------------------------------------------------------------------
Net effect of special charges $ (61.8) $( 9.1) $ (73.8) $ (42.2)
===========================================================================================================
Merger-Related Costs
During the above stated periods, the Company incurred direct transaction costs
related to its merger transactions. These expenses primarily include investment
banking, legal, accounting and other professional fees associated with the
Bindley and ALP merger transactions. In addition, the Company incurred
employee-related costs, which consist primarily of severance and
transaction/stay bonuses as a result of the Bindley, ALP, Allegiance and Scherer
merger transactions. Partially offsetting the transaction and employee-related
costs recorded during the nine months ended March 31, 2000 was a $10.3 million
credit recorded in the first quarter of fiscal 2000 to adjust the estimated
employee-related costs previously recorded in connection with the Allegiance
merger transaction. Actual billings and employee-related costs were less than
the amounts originally anticipated, resulting in a reduction of the
merger-related costs.
The Company recorded a charge of $15.0 million during the three months ended
March 31, 2001 associated with the Company's plans to consolidate distribution
centers as a result of the Company's merger transaction with Bindley. In
connection with such consolidations, the Company has incurred employee-related
costs and exit costs related to the termination of contracts and lease
agreements during the quarter.
Other exit costs relate primarily to costs associated with lease terminations
and moving expenses as a direct result of the merger transactions with ALP,
Allegiance and Scherer.
The Company recorded charges of $1.6 million and $7.5 million during the nine
months ended March 31, 2001 and 2000, respectively, associated with the business
restructuring as a result of the Company's merger transaction with Scherer. As
part of the business restructuring, the Company is closing certain facilities.
In connection with such
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closings, the Company has incurred employee-related costs, asset impairment
charges and exit costs related to the termination of contracts and lease
agreements.
Other integration costs include charges related to integrating the operations of
previous merger transactions.
Other Special Charges
During the three months ended March 31, 2001, the Company recorded a special
charge of $5.0 million related to the rationalization of its pharmaceutical
distribution centers. Approximately, $4.4 million related to asset impairments,
lease exit costs and duplicate facility costs resulting from the Company's
decision to consolidate distribution centers and relocate to a more modern
distribution center. The remaining amount related to employee severance costs.
In addition, during the three months ended March 31, 2001, the Company recorded
a special charge of $6.8 million related to the rationalization of its health
and nutrition manufacturing facilities. Approximately, $2.2 million related to
lease exit costs. The remaining amount related to employee severance costs
associated with the rationalization.
During the nine months ended March 31, 2001, Bindley recorded a benefit of
approximately $5 million related to a reduction in a litigation settlement
accrual, which was previously recorded. The amount of the final settlement was
lower than originally anticipated.
The net of tax effect of the various special charges recorded during the three
months ended March 31, 2001 and 2000 was to reduce net earnings by $61.8 million
to $192.9 million and by $9.1 million to $198.4 million, respectively, and to
reduce reported diluted earnings per Common Share by $0.14 per share to $0.42
per share and by $0.02 per share to $0.44 per share, respectively. The net of
tax effect of the various special charges recorded during the nine months ended
March 31, 2001 and 2000 was to reduce net earnings by $73.8 million to $604.1
million and by $42.2 million to $511.8 million, respectively, and to reduce
reported diluted earnings per Common Share by $0.16 per share to $1.33 per share
and by $0.09 per share to $1.14 per share, respectively.
The Company estimates that it will incur additional merger-related costs and
integration expenses associated with the various mergers it has completed to
date (primarily related to the Bindley, BBMC, ALP and Allegiance mergers) of
approximately $160.5 million ($101.1 million, net of tax) in future periods
(primarily through fiscal 2003), related to facility consolidations, the exit of
contractual arrangements, employee-related costs, and costs to properly
integrate operations and implement efficiencies. Such amounts will be charged to
expense when incurred.
Provision for Income Taxes. The Company's provision for income taxes as a
percentage of pre-tax earnings was 37.0% and 37.2% for the third quarters of
fiscal 2001 and 2000, respectively. For the nine-month periods ended March 31,
2001 and 2000, the Company's income tax provision as a percentage of pre-tax
earnings was 36.0% and 37.7%, respectively. The decrease in the effective tax
rate for the periods was primarily the result of two factors. First, the tax
rate decreased due to lower nondeductible items associated with the business
combinations in the current year as compared to the prior year. The second
factor resulting in a decrease in the effective tax rate was the favorable mix
of international and domestic business. The provision for income taxes excluding
the impact of special charges was 35.1% and 36.5%, respectively, for the
quarters ended March 31, 2001 and 2000 and 35.4% and 36.7%, respectively, for
the nine months ended March 31, 2001 and 2000.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $4.0 billion at March 31, 2001 from $2.9
billion at June 30, 2000. This increase from June 30, 2000 included additional
investments in inventories and trade receivables of $1.5 billion and $0.5
billion, respectively. In addition, the Company paid down its securitized
borrowings during the current quarter resulting in a decrease in short term
obligations of approximately $0.4 billion. Offsetting the increases in current
assets was an increase in accounts payable of $1.2 billion. The Company's
inventory levels have risen due to the higher volume of current and anticipated
business in pharmaceutical distribution activities. A portion of the inventory
increase can also be attributed to the Company investing in inventories in
conjunction with various vendor-margin programs. In addition, the change in
accounts payable is due primarily to the timing of inventory purchases and
related payments.
During the first quarter of fiscal 2001, the Company increased the capacity
under its commercial paper program from $1.0 billion to $1.5 billion in
aggregate maturity value. At March 31, 2001, commercial paper with an aggregate
maturity value of $173.6 million was outstanding with a market interest rate
based upon LIBOR. The
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Company also maintains a $1.5 billion unsecured bank credit facility. This
credit facility exists to support issuance of commercial paper and other
short-term borrowings.
The Company periodically sells trade receivables to a special purpose
accounts receivable and financing entity ("SPE"), which is exclusively engaged
in purchasing trade receivables from, and making loans to, the Company. During
the nine months ended March 31, 2001, the SPE, which is consolidated by the
Company, issued $400 million in preferred debt securities to parties not
affiliated with the Company. Those preferred debt securities must be retired or
redeemed before the Company can have access to the SPE's receivables (see Note 8
of "Notes to Condensed Consolidated Financial Statements").
The Company filed a combination shelf debt and equity registration
statement on Form S-3 with the Securities and Exchange Commission, which was
declared effective on September 29, 2000. During the quarter ended March 31,
2001, the Company issued 750,000 Common Shares for aggregate proceeds of $47.7
million, which are to be used for general corporate purposes. The common shares
were issued in order for the Company to be able to satisfy all the conditions to
consummation of the merger with Bindley (See Note 2 of the "Notes to Condensed
Consolidated Financial Statements"). In addition, the Company issued $500
million of 6.75% Notes due 2011, the proceeds of which were used for early
redemption of Bindley debt and for repayment of a portion of the Company's
commercial paper and general corporate purposes, which include working capital,
capital expenditures, repayment or refinancing of indebtedness, acquisitions and
investments. After such issuances, the Company has the capacity to issue
approximately $450 million of additional equity or debt securities pursuant to
the shelf registration statement.
Property and equipment, at cost, increased by $295.6 million from June 30,
2000. The increase was the result of two main factors. First, the Company is
involved in ongoing plant expansion and manufacturing equipment purchases in
certain businesses, as well as additional investments made for management
information systems and upgrades to distribution facilities. Second, the Company
completed several acquisitions in the first nine months of fiscal year 2001 that
were accounted for as purchase transactions (see Note 4 of "Notes to Condensed
Consolidated Financial Statements").
Shareholders' equity increased to $5.1 billion at March 31, 2001 from $4.4
billion at June 30, 2000, primarily due to net earnings of $604.1 million and
the investment of $186.9 million by employees of the Company through various
stock incentive plans. These increases were offset by an increase in treasury
stock due to the settlement of the accelerated share repurchase program in the
amount of $137.4 million (see Note 2 of "Notes to Condensed Consolidated
Financial Statements"). In addition, shareholders' equity decreased due to
dividends paid of $26.5 million.
On March 16, 2000, the Company's Board of Directors authorized the
repurchase of up to an aggregate of $750 million of Common Shares. Through
November 2000, approximately 7 million Common Shares, having an aggregate cost
of $440.2 million, had been repurchased under an accelerated share repurchase
program and placed into treasury shares. In November 2000, the Company's Board
of Directors rescinded the remainder of this repurchase program.
The Company believes that it has adequate capital resources at its disposal
to fund currently anticipated capital expenditures, business growth and
expansion, as well as current and projected debt service requirements.
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 10-K for the fiscal year
ended June 30, 2000.
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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, 2000, Form 10-Q
for the quarter ended September 30, 2000 and Form 10-Q for the quarter ended
December 31, 2000. To the extent any such statements constitute "forward looking
statements" reference is made to Exhibit 99.01 of this Form 10-Q.
On September 30, 1996, Baxter International Inc. ("Baxter") and its subsidiaries
transferred to Allegiance and its subsidiaries their U.S. Healthcare
distribution business, surgical and respiratory therapy business and healthcare
cost-saving business, as well as certain foreign operations (the "Allegiance
Business") in connection with a spin-off of the Allegiance Business by Baxter.
In connection with this spin-off, Allegiance, which was acquired by the Company
on February 3, 1999, agreed to indemnify certain claims related to the
Allegiance Business from Baxter Healthcare Corporation ("BHC"), including
certain claims of alleged personal injuries as a result of exposure to natural
rubber latex gloves. Allegiance will be defending and indemnifying BHC, as
contemplated by the agreements between Baxter and Allegiance, for all expenses
and potential liabilities associated with claims pertaining to the litigation
assumed by Allegiance. As of March 31, 2001, there were approximately 600
lawsuits involving BHC and/or Allegiance containing allegations of sensitization
to natural rubber latex products. Some of the cases are now proceeding to trial.
Because of the increase in claims filed and the ongoing defense costs that will
be incurred, the Company believes it is probable that it will continue to incur
significant expenses related to the defense of cases involving natural rubber
latex gloves. At this time, the Company is unable to evaluate the extent of any
potential liability, and unable to estimate any potential loss. AEIA, one of the
insurers for the latex glove litigation, has advised the Company of its intent
to resolve through arbitration the extent of its obligation to reimburse the
Company for certain defense costs and loss expenses incurred in connection with
the litigation. The Company believes a substantial portion of any liability will
be covered by insurance, subject to self-insurance retentions, exclusions,
conditions, coverage gaps, policy limits and insurer solvency.
The Company also becomes involved from time-to-time in other litigation
incidental to its business, including without limitation inclusion of certain of
its subsidiaries as a potentially responsible party for environmental clean-up
costs. Although the ultimate resolution of the litigation referenced herein
cannot be forecast with certainty, the Company intends to vigorously defend
itself and does not currently believe that the outcome of any pending litigation
will have a material adverse effect on the Company's condensed consolidated
financial statements.
ITEM 5: OTHER INFORMATION
On February 28, 2001, John C. Kane retired from the Board of Directors of the
Company. The size of the Board has been reduced from 14 to 13 as a result.
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
Listing of Exhibits:
Exhibit Exhibit Description
Number
3.01 Amended and Restated Articles of Incorporation, as amended (1)
3.02 Restated Code of Regulations, as amended (2)
4.01 364-Day Credit Agreement dated as of March 29, 2001 among the
Company, certain subsidiaries of the Company, certain lenders,
Bank One, NA, as Administrative Agent, Bank of America N.A., as
Syndication Agent, Citicorp USA, Inc., as Co-Documentation Agent,
Credit Suisse First Boston, as Co-Documentation Agent, and
Deutsche Banc Alex. Brown Inc., as Co-Documentation Agent
10.01 Bindley Western Industries, Inc. 1993 Stock Option and Incentive
Plan (3) *
10.02 Bindley Western Industries, Inc. 2000 Stock Option and Incentive
Plan (3) *
10.03 Executive Agreement among William E. Bindley ("Mr. Bindley"),
Bindley Western Industries, Inc. ("Bindley") and the Company
dated as of December 2, 2000 (Termination Benefits Agreement
between Mr. Bindley and Bindley referenced in the Executive
Agreement is incorporated by reference as indicated in footnote 4
below)*
99.01 Statement Regarding Forward-Looking Information (5)
- ----------------
(1) Included as an exhibit to the Registrant's Current Report on Form
8-K filed November 24, 1998 (File No. 0-12591) and the
Registrant's Registration Statement on Form S-4 (No. 333-53394)
and incorporated herein by reference.
(2) Included as an exhibit to the Registrant's Current Report on Form
8-K filed November 24, 1998 (File No. 0-12591) and incorporated
herein by reference.
(3) Included as an exhibit to the Company's Post-Effective Amendment
No. 1 on Form S-8 to Form S-4 Registration Statement (No.
333-53394-01) and incorporated herein by reference.
(4) Included as an exhibit to Bindley Western Industries, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996 (File No. 0-11355) and incorporated herein by reference.
(5) Included as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2000 (File No.
0-12591) and incorporated herein by reference.
* Management contract or compensation plan or arrangement
Reports on Form 8-K:
On February 2, 2001, the Company filed a Current Report on Form 8-K under
Item 7 which filed as an exhibit a Placement Agency Agreement between the
Company and Banc of America Securities LLC dated as of February 2, 2001.
On February 8, 2001, the Company filed a Current Report on Form 8-K under
Item 7 which filed as exhibits a Form of Underwriting Agreement between the
Company and certain underwriters relating to the offering of 6.75% Notes due
2001 by the Company and a Statement Regarding Computation of Ratios of Earnings
to Fixed Charges.
On February 15, 2001, the Company filed a Current Report on Form 8-K under
Item 5 which reported the closing of the Bindley Merger, pursuant to which
Bindley became a wholly owned subsidiary of the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARDINAL HEALTH, INC.
Date: May 10, 2001 By: /s/ Robert D. Walter
----------------------------
Robert D. Walter
Chairman and Chief Executive Officer
By: /s/ Richard J. Miller
----------------------------
Richard J. Miller
Executive Vice President and Chief
Financial Officer