-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PCU2elpQ6W1iAl4Wqt7M7cCxEbqKkwEgzq/qXx1V9ZNyhUOQECYpEhofvvowbzbB UTfV+vF984pIL/pLmPiCMA== 0000950152-97-008031.txt : 19971117 0000950152-97-008031.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950152-97-008031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDINAL HEALTH INC CENTRAL INDEX KEY: 0000721371 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 310958666 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11373 FILM NUMBER: 97718816 BUSINESS ADDRESS: STREET 1: 5555 GLENDON COURT CITY: DUBLIN STATE: OH ZIP: 43016 BUSINESS PHONE: 6147618700 MAIL ADDRESS: STREET 1: 5555 GLEDNON COURT CITY: DUBLIN STATE: OH ZIP: 43016 FORMER COMPANY: FORMER CONFORMED NAME: CARDINAL DISTRIBUTION INC DATE OF NAME CHANGE: 19920703 10-Q 1 CARDINAL HEALTH, INC./QUARTERLY REPORT/FORM 10-Q 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 Quarter Ended September 30, 1997 Commission File Number 0-12591 Cardinal Health, Inc. --------------------- (Exact name of registrant as specified in its charter) Ohio 31-0958666 ---- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 5555 GLENDON COURT, DUBLIN, OHIO 43016 (Address of principal executive offices and zip code) Registrant's telephone number, including area code (614) 717-5000 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 October 31, 1997 was as follows: Common Shares, without par value: 109,345,550 ------------------------------ 2 CARDINAL HEALTH, INC. AND SUBSIDIARIES Index *
Page No. -------- Part I. Financial Information: ---------------------- Item 1. Financial Statements: Consolidated Statements of Earnings for the Three Months Ended September 30, 1997 and 1996........................................................ 3 Consolidated Balance Sheets at September 30, 1997 and June 30, 1997................ 4 Consolidated Statements of Cash Flows for the Three Months Ended September 30, 1997 and 1996........................................................ 5 Notes to Consolidated Financial Statements......................................... 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............................................................ 7 Part II. Other Information: ------------------ Item 1. Legal Proceedings.................................................................. 9 Item 6. Exhibits and Reports on Form 8-K................................................... 10 * Items omitted are not applicable.
Page 2 3 PART I. FINANCIAL INFORMATION CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended September 30, 1997 1996 ----------------- ----------------- Net revenues $ 2,869,971 $ 2,535,476 Cost of products sold 2,647,506 2,338,348 ----------------- ----------------- Gross margin 222,465 197,128 Selling, general and administrative expenses 133,520 124,156 ----------------- ----------------- Operating earnings 88,945 72,972 Other income (expense): Interest expense (5,005) (6,606) Other, net-- primarily interest income 4,962 2,837 ----------------- ----------------- Earnings before income taxes 88,902 69,203 Provision for income taxes 34,672 27,802 ----------------- ----------------- Net earnings $ 54,230 $ 41,401 ================= ================= Earnings per Common Share: Primary $ 0.49 $ 0.39 Fully diluted $ 0.49 $ 0.39 Weighted average number of Common Shares outstanding: Primary 110,777 105,945 Fully diluted 110,940 106,150
See notes to consolidated financial statements. Page 3 4 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
September 30, June 30, 1997 1997 --------------- ---------------- ASSETS Current assets: Cash and equivalents $ 180,515 $ 243,061 Trade receivables 691,063 672,164 Current portion of net investment in sales-type leases 57,387 40,720 Merchandise inventories 1,627,640 1,453,120 Prepaid expenses and other 111,648 94,668 --------------- ---------------- Total current assets 2,668,253 2,503,733 --------------- ---------------- Property and equipment, at cost 491,663 476,544 Accumulated depreciation and amortization (206,493) (199,869) --------------- ---------------- Property and equipment, net 285,170 276,675 Other assets: Net investment in sales-type leases, less current portion 120,507 119,532 Goodwill and other intangibles 120,948 122,104 Other 78,007 86,502 --------------- ---------------- Total $ 3,272,885 $ 3,108,546 =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable, banks $ 22,329 $ 22,159 Current portion of long-term obligations 5,095 6,158 Accounts payable 1,239,463 1,135,951 Other accrued liabilities 243,383 244,491 --------------- ---------------- Total current liabilities 1,510,270 1,408,759 --------------- ---------------- Long-term obligations, less current portion 277,882 277,766 Deferred income taxes and other liabilities 89,580 89,821 Shareholders' equity: Common Shares, without par value 656,596 645,051 Retained earnings 750,798 699,366 Common Shares in treasury, at cost (6,432) (6,373) Other (5,809) (5,844) --------------- ---------------- Total shareholders' equity 1,395,153 1,332,200 --------------- ---------------- Total $ 3,272,885 $ 3,108,546 =============== ================
See notes to consolidated financial statements. Page 4 5 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended September 30, 1997 1996 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 54,230 $ 41,401 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation and amortization 15,243 10,829 Provision for bad debts 3,057 2,013 Change in operating assets and liabilities Increase in trade receivables (21,956) (46,348) Increase in merchandise inventories (174,520) (319,777) (Increase) decrease in net investment in sales-type leases (17,642) 3,414 Increase in accounts payable 103,512 114,570 Other operating items, net (10,168) 13,434 --------------- --------------- Net cash used in operating activities (48,244) (180,464) --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment 315 1,324 Additions to property and equipment (20,783) (14,487) Purchase of marketable securities available-for-sale -- (3,400) --------------- --------------- Net cash used in investing activities (20,468) (16,563) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowing activity 170 -- Reduction of long-term obligations (2,332) (2,936) Proceeds from issuance of Common Shares 11,093 19,171 Tax benefit of stock options -- 5,075 Dividends paid on Common Shares (2,722) (1,919) Purchase of treasury shares (43) (1,526) --------------- --------------- Net cash provided by financing activities 6,166 17,865 --------------- --------------- NET DECREASE IN CASH AND EQUIVALENTS (62,546) (179,162) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 243,061 304,281 --------------- --------------- CASH AND EQUIVALENTS AT END OF PERIOD $ 180,515 $ 125,119 =============== ===============
See notes to consolidated financial statements. Page 5 6 CARDINAL HEALTH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. The consolidated financial statements of the Company include the accounts of all majority-owned subsidiaries and all significant intercompany amounts have been eliminated. These consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by generally accepted accounting principles for interim reporting. In the opinion of management, all adjustments necessary for a fair presentation have been included. All such adjustments are of a normal and recurring nature. The consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company's annual report on Form 10-K for the fiscal year ended June 30, 1997. Note 2. Net earnings per Common Share are based on the weighted average number of Common Shares outstanding during each period and the dilutive effect of stock options from the date of grant, computed using the treasury stock method. Note 3. During the three months ended September 30, 1997, the Company expended approximately $4.8 million related to the costs previously recorded at the time of various mergers. The Company's current estimates of the merger-related costs ultimately to be expended are not materially different from the amounts originally recorded. Note 4. On May 27, 1997, the Company announced that it had entered into a definitive merger agreement with MediQual Systems, Inc. ("MediQual"), pursuant to which MediQual will become a wholly owned subsidiary of the Company in a stock-for-stock merger expected to be accounted for as a pooling-of-interests for financial reporting purposes. In connection with the merger, the Company estimates that it will issue approximately 0.6 million Common Shares. Upon consummation of the merger, the Company will record a merger-related charge to reflect transaction and other costs incurred as a result of the merger. The amount of this charge is not expected to be significant. The merger is expected to be completed by January 31, 1998, subject to the satisfaction of certain conditions, including approval by shareholders of MediQual. On August 23, 1997, the Company signed a definitive merger agreement with Bergen Brunswig Corporation ("Bergen"), a distributor of pharmaceuticals and medical-surgical supplies, pursuant to which Bergen will become a wholly owned subsidiary of the Company in a stock-for-stock merger expected to be accounted for as a pooling-of-interests for financial reporting purposes. Under the terms of the proposed merger, shareholders of Bergen will receive a fixed exchange ratio of .775 of a Company Common Share in exchange for each outstanding common share of Bergen. The Company will issue approximately 40 million Common Shares in the transaction and will also assume approximately $418 million in long-term debt. Upon consummation of the merger, the Company will record a merger-related charge to reflect transaction and other costs incurred as a result of the merger. Since the merger has not yet been consummated and transition plans are currently being developed, the amount of this charge cannot be estimated at this time. The merger is expected to be completed by the end of the third quarter of fiscal 1998, subject to the satisfaction of certain conditions, including approvals by the stockholders of Bergen and the Company's shareholders, and the receipt of certain regulatory approvals. Note 5. In February 1997, the Financial Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which simplifies the computation of earnings per share, and will require retroactive adoption in the quarter ending December 31, 1997. Had the new standard been applied in the current quarter, "basic" earnings per share (replaces primary) would have been $.01 higher than primary and "diluted" earnings per share would have been the same as fully diluted in the current presentation. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", both of which will require adoption in fiscal 1999. These new statements will not impact the Company's financial statements, but may require additional disclosures. The Company is presently evaluating the applicability of SFAS No.'s 130 and 131 to its operations. Page 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Management's discussion and analysis presented below is concerned with material changes in financial condition and results of operations for the Company's consolidated balance sheets as of September 30, 1997 and June 30, 1997, and for the consolidated statements of earnings for the three months ended September 30, 1997 and 1996. This 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, 1997. 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. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to materially differ from those projected or implied. The most significant of such risks, uncertainties and other factors are described in Exhibit 99.01 to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997 and are incorporated herein by reference. The Company disclaims any obligation to update any forward-looking statement. RESULTS OF OPERATIONS Net Revenues. Net revenues for the first quarter of fiscal 1998 increased 13% as compared to the first quarter in fiscal 1997. Distribution businesses (those whose primary operations involve the wholesale distribution of pharmaceuticals, representing 91% of total revenues) grew at a rate of 11% while Service businesses (those that provide services to the healthcare industry through pharmacy franchising, pharmacy automation equipment, pharmacy management, and pharmaceutical packaging) grew at a rate of 46% primarily on the strength of the Company's pharmacy automation and pharmacy management businesses. The majority of the revenue increase (approximately 65%) came from existing customers in the form of increased volume and price increases. The remainder of the growth came from the addition of new customers. Gross Margin. For the three months ended September 30, 1997 and 1996, gross margin as a percentage of net revenues was 7.75% and 7.77%, respectively. The gross margin stability is a result of a higher mix of Services revenues in the first quarter of fiscal 1998 versus the same period of a year ago (9% in fiscal 1998 versus 7% in fiscal 1997) offset by a decline in Distribution gross margin. The Service businesses gross margin rate was 30.72% versus 34.29% last year. The decrease is primarily a function of the relatively higher revenue growth experienced in the pharmacy management operations, which have lower margins relative to the other Service businesses. The Distribution gross margin declined from 5.69% in the first quarter of fiscal 1997 to 5.43% in the current period. This decline in Distribution gross margin continues to reflect a highly competitive market and a greater mix of high volume customers, where a lower cost of distribution and better asset management enable the Company to offer lower selling margins to its customers. Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of net revenues improved to 4.65% for the three months ended September 30, 1997 from 4.89% for the prior period. The improvement reflects economies associated with the Company's revenue growth, as well as significant productivity gains resulting from continued cost control efforts and the consolidation and selective automation of operating facilities. Similar to gross margins, the shift in the current quarter to a greater mix of Services business caused a higher level of expenses (Services have a 17.93% ratio of expenses to revenues compared to Distribution with a ratio of 3.06%). The 8% growth in selling, general and administrative expenses experienced in the first quarter of fiscal 1998 was due primarily to increases in personnel costs and depreciation expense. Other Income (Expense). The decrease in interest expense of $1.6 million in the first quarter of fiscal 1998 compared to fiscal 1997 is primarily due to extinguishment of the Company's $100 million 8% Notes on March 1, 1997. The increase in other income is due to higher investment income, in part due to better asset management in the current quarter when only $63 million of cash was used, compared to a use of $179 million in the first quarter of fiscal 1997. Provision for Income Taxes. The Company's provision for income taxes relative to pretax earnings was 39% and 40% for the three months ended September 30, 1997 and September 30, 1996, respectively. The decrease in the effective tax rate is primarily due to a reduction in the state effective tax rate as a result of the change in the Company's business mix. Page 7 8 LIQUIDITY AND CAPITAL RESOURCES Working capital increased to $1,158 million at September 30, 1997 from $1,095 million at June 30, 1997. This increase included additional investments in merchandise inventories and trade receivables of $174.5 million and $18.9 million, respectively. Offsetting the increases in working capital was a decrease in cash and equivalents of $62.5 million and an increase in accounts payable of $103.5 million. The increase in merchandise inventories reflects the higher level of current and anticipated business volume in pharmaceutical distribution activities. The increase in trade receivables is consistent with the Company's net revenues growth (see "Net Revenues" above). The change in cash and equivalents and accounts payable is due primarily to the timing of inventory purchases and related payments. Property and equipment, at cost, increased by $15.1 million from June 30, 1997. The property acquired included increased investment in management information systems and customer support systems. Shareholders' equity increased to $1,395.2 million at September 30, 1997 from $1,332.2 million at June 30, 1997, primarily due to net earnings of $54.2 million and the investment of $11.1 million by employees of the Company through various stock incentive plans during the first quarter of fiscal 1998. OTHER On May 27, 1997, the Company announced that it had entered into a definitive merger agreement with MediQual Systems, Inc. ("MediQual"), pursuant to which MediQual will become a wholly owned subsidiary of the Company in a stock-for-stock merger expected to be accounted for as a pooling-of-interests for financial reporting purposes. In connection with the merger, the Company estimates that it will issue approximately 0.6 million Common Shares. Upon consummation of the merger, the Company will record a merger-related charge to reflect transaction and other costs incurred as a result of the merger. The amount of this charge is not expected to be significant. The merger is expected to be completed by January 31, 1998, subject to the satisfaction of certain conditions, including approval by shareholders of MediQual. On August 23, 1997, the Company signed a definitive merger agreement with Bergen Brunswig Corporation ("Bergen"), a distributor of pharmaceuticals and medical-surgical supplies, pursuant to which Bergen will become a wholly owned subsidiary of the Company in a stock-for-stock merger expected to be accounted for as a pooling-of-interests for financial reporting purposes. Under the terms of the proposed merger, shareholders of Bergen will receive a fixed exchange ratio of .775 of a Company Common Share in exchange for each outstanding common share of Bergen. The Company will issue approximately 40 million Common Shares in the transaction and will also assume approximately $418 million in long-term debt. Upon consummation of the merger, the Company will record a merger-related charge to reflect transaction and other costs incurred as a result of the merger. Since the merger has not yet been consummated and transition plans are currently being developed, the amount of this charge cannot be estimated at this time. The merger is expected to be completed by the end of the third quarter of fiscal 1998, subject to the satisfaction of certain conditions, including approvals by the stockholders of Bergen and the Company's shareholders, and the receipt of certain regulatory approvals. The Company utilizes computer technologies throughout its business to effectively carry out its day to day operations. Similar to most companies, the Company must determine whether its systems are capable of recognizing and processing date sensitive information properly as the year 2000 approaches. The Company has completed a preliminary assessment of its year 2000 requirements and is currently correcting and replacing those systems which are not year 2000 compliant, in order to continue to meet its internal needs and those of its customers. The Company believes it will be able to modify or replace its affected systems in time to avoid any detrimental impact on its operations, and expects this process to be substantially completed by the end of calendar year 1998. The Company is currently developing a complete cost estimate, but does not anticipate that costs associated with this project will have a material adverse effect on the Company's financial statements in future periods. Page 8 9 PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS In November 1993, the Company and Whitmire Distribution Corporation ("Whitmire"), as well as other pharmaceutical wholesalers, were named as defendants in a series of purported class action antitrust lawsuits which were later consolidated and transferred by the Judicial Panel for Multi-District Litigation to the United States District Court for the Northern District of Illinois (the "Brand Name Prescription Drug Litigation"). Subsequent to the consolidation, a new consolidated complaint was filed which included allegations that the wholesaler defendants, including the Company and Whitmire (which is now a subsidiary of the Company), conspired with manufacturers to inflate prices by using a chargeback pricing system. In addition to the Federal court cases described above, the Company and Whitmire have also been named as defendants in a series of state court cases alleging similar claims under various state laws regarding the sale of brand name prescription drugs. These lawsuits are described in "Item 1 - Legal Proceedings" of Part II of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, which was filed with the Securities and Exchange Commission and is incorporated herein by reference. Effective October 26, 1994, the Company entered into a Judgment Sharing Agreement in the Brand Name Prescription Drug Litigation with other wholesaler and pharmaceutical manufacturer defendants. Under the Judgment Sharing Agreement: (a) the manufacturer defendants agreed to reimburse the wholesaler defendants for litigation costs incurred, up to an aggregate of $9 million; and (b) if a judgment is entered against both manufacturers and wholesalers, the total exposure for joint and several liability of the Company is limited to the lesser of 1% of such judgment or one million dollars. In addition, the Company has released any claims which it might have had against the manufacturers for the claims presented by the plaintiffs in the Brand Name Prescription Drug Litigation. The Judgment Sharing Agreement covers the federal court litigation as well as the cases which have been filed in various state courts. On December 15, 1994, the plaintiffs filed a motion to declare the Judgment Sharing Agreement unenforceable. On April 10, 1995, the court denied that motion and ruled that the Judgment Sharing Agreement is valid and enforceable. The plaintiffs filed a motion for reconsideration of the court's April 10, 1995 ruling, and the court denied that motion and reaffirmed its earlier decision on April 24, 1995. On November 9, 1995, the Company, along with the other wholesaler defendants, filed a motion for summary judgment in the Brand Name Prescription Drug Litigation. On April 4, 1996, summary judgment was granted in favor of the Company and the other wholesaler defendants. The plaintiffs appealed this decision. On August 15, 1997, the Court of Appeals for the Seventh Circuit, along with other rulings, reversed the District Court's decision granting summary judgment to the wholesaler defendants. On September 5, 1997, the wholesaler defendants filed a motion for this decision to be reconsidered by the Court of Appeals en banc. On October 8, 1997, the motion to reconsider was denied by the Court of Appeals. The wholesaler defendants plan to seek review of the Court of Appeals decision by the United States Supreme Court by writ of certiorari. The Company continues to believe that the allegations against Cardinal and Whitmire in such litigation are without merit, and it intends to contest such allegations vigorously. The Company also becomes involved from time to time in litigation incidental to its business. Although the ultimate resolution of the litigation referenced herein cannot be forecast with certainty, the Company does not believe that the outcome of these lawsuits will have a material adverse effect on the Company's financial statements. Page 9 10 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K: (a) Listing of Exhibits: Exhibit Exhibit Description ------- ------------------- Number ------ 2.01 Amended and Restated Agreement and Plan of Merger dated as of July 7, 1997, among MediQual Systems, Inc., Hub Merger Corp., and Registrant (1) 2.02 Amendment dated as of November 4, 1997 to the Amended and Restated Agreement and Plan of Merger dated as of July 7, 1997, among MediQual Systems, Inc., Hub Merger Corp., and Registrant 2.03 Agreement and Plan of Merger dated as of August 23, 1997, among the Registrant, Bruin Merger Corp., and Bergen Brunswig Corporation (2) 10.01 Cardinal Health, Inc. Incentive Deferred Compensation Plan, Amended and Restated Effective July 1, 1997* 11.01 Computation of Per Share Earnings 27.01 Financial Data Schedule 99.01 Statement Regarding Forward-Looking Information (3) - ------------------ (1) Included as an annex to the Proxy Statement/Prospectus included in the Registrant's Registration Statement on Form S-4 (No. 333-30889) filed with the Commission on July 8, 1997, and incorporated herein by reference. (2) Included as an exhibit to the Registrant's Current Report on Form 8-K/A, Amendment No. 1 (No. 0-12591) filed with the Commission on August 27, 1997, and incorporated herein by reference. (3) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1997 (No. 0-12591) filed with the Commission on September 29, 1997, and incorporated herein by reference. *Management contract or compensation plan or arrangement. (b) Reports on Form 8-K: On August 26 and 27, 1997, the Company filed a report on Form 8-K and 8-K/A, respectively, under Items 5 and 7 which reported, among other things, that it had signed an Agreement and Plan of Merger, dated as of August 23, 1997, among the Company, Bruin Merger Corporation and Bergen Brunswig Corporation. Page 10 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CARDINAL HEALTH, INC. Date: November 14, 1997 By: /s/ John C. Kane ---------------- John C. Kane President and Chief Operating Officer By: /s/ David Bearman ----------------- David Bearman Executive Vice President and Chief Financial Officer (Principal Financial Officer) Page 11 EX-2.02 2 EXHIBIT 2.02 1 Exhibit 2.02 CARDINAL HEALTH, INC. 5555 Glendon Court Dublin, OH 43016 November 4, 1997 MediQual Systems, Inc. Suite 250 1900 West Park Drive Westborough, MA 01581 Attention: Mr. Eric Kriss, President Dear Eric: Reference is made to the Amended and Restated Agreement and Plan of Merger (the "Agreement") dated as of July 7, 1997, by and among Cardinal Health, Inc., an Ohio corporation ("Cardinal"), Hub Merger Corp., a Delaware corporation and a wholly owned subsidiary of Cardinal, and MediQual Systems, Inc., a Delaware corporation ("MediQual"). Section 7.1(c) of the Agreement provides that the Agreement may be terminated by either Cardinal or MediQual if the Merger (as defined in the Agreement) shall not have been consummated before November 30, 1997 (the "Right of Termination Date"), unless extended by the Boards of Directors of both Cardinal and MediQual (provided that the right to terminate the Agreement is not available to any party whose failure or whose affiliate's failure to perform any material covenant or obligation under the Agreement has been the cause of or resulted in the failure of the Merger to occur on or before the Right of Termination Date). As we have discussed, Cardinal and MediQual desire to extend the Right of Termination Date to January 31, 1998. Accordingly, the parties hereby extend the Right of Termination Date from November 30, 1997, to January 31, 1998. In consideration of the granting of such extension, the parties agree that if MediQual exercises its right to terminate the Agreement pursuant to Section 7.1(c) of the Agreement (as extended by the terms of this letter agreement), Cardinal will, at MediQual's request and as MediQual's sole and exclusive remedy, (i) reimburse MediQual for its reasonable out-of-pocket costs incurred in connection with the negotiation, preparation, execution and completion of the Agreement and related documentation, including reasonable fees and expenses of its counsel and accountants, such reimbursement not to exceed $300,000, (ii) reimburse MediQual for the actual out-of-pocket expenses incurred by MediQual after the date hereof in 2 MediQual Systems, Inc. November 4, 1997 Page 2 preparation for the contemplated integration of Cardinal and MediQual, such reimbursement to be limited to $5,000 for any single expenditure and $50,000 for all such expenditures, unless approved by Cardinal, and (iii) purchase from MediQual, on terms and conditions mutually agreeable to the parties, healthcare information products and services with an aggregate price of $500,000 during the twelve-month period ending on the first anniversary of the date of termination. In addition, this letter serves to make it clear that, for the purpose of the parenthetical clause in Section 7.1(c) which is summarized above, MediQual will not be deemed to have failed to perform a material covenant or obligation under the Agreement (such as the obligation to convene a stockholders' meeting to obtain approval of the Merger) if such failure results from a precondition to such a material covenant or obligation, which precondition is outside of MediQual's control, not being satisfied (such as the Registration Statement (as defined in the Agreement) not being declared effective so that MediQual is unable to distribute a Proxy Statement/Prospectus (as defined in the Merger Agreement) in connection with such a stockholders' meeting). To the extent necessary, this letter shall constitute an amendment to the Agreement. Each of Cardinal and MediQual represent to the other that its Board of Directors (or a duly authorized committee thereof) has approved this extension. Except as expressly provided herein, the Agreement shall remain in full force and effect in accordance with its terms. Very truly yours, CARDINAL HEALTH, INC. By: /s/ Brendan Ford --------------------------------- Name: Brendan Ford Title: Senior Vice President Corporate Development Accepted and agreed to this 12th day of November, 1997. MEDIQUAL SYSTEMS, INC. By: /s/ Eric Kriss --------------------------------- Name: Eric Kriss Title: Chief Executive Officer EX-10.01 3 EXHIBIT 10.01 1 EXHIBIT 10.01 CARDINAL HEALTH, INC. INCENTIVE DEFERRED COMPENSATION PLAN AMENDED AND RESTATED EFFECTIVE July 1, 1997 2 CARDINAL HEALTH, INC. INCENTIVE DEFERRED COMPENSATION PLAN (THE "PLAN") I PURPOSE ------- Cardinal Health, Inc. and its affiliates (collectively, the "Company") is willing to provide supplemental retirement benefits out of its general assets to certain key employees as an incentive for those individuals to continue their relationship with the Company and to provide the benefits such individuals could otherwise earn under the Cardinal Health, Inc. Profit Sharing and Retirement Savings Plan (the "Qualified Plan") if certain federal law restrictions did not apply. Only a select group of the Company's management or highly compensated employees will be eligible to participate in this program. The Company's goal is to retain and reward its key employees by helping them to accumulate benefits for a comfortable retirement. II ELIGIBILITY ----------- Selection of the Company employees eligible to participate in the Plan is within the sole discretion of the Chairman of Cardinal Health, Inc. Only high income or key management employees are eligible for selection by the Chairman. If you fall into one of these groups and are chosen by the Chairman to participate in the Plan, you will sign an Incentive Deferred Compensation Agreement which details the requirements you must satisfy to be eligible to receive this supplemental retirement benefit from the Company. The Chairman will review and determine his selections each year. Thus, selection in one year does not automatically confer a right to participate in succeeding years. III INCENTIVE DEFERRED COMPENSATION ACCUMULATIONS --------------------------------------------- The benefits provided to participants under their Incentive Deferred Compensation Agreements are paid from the Company's general assets. The program is, therefore, considered to be an "unfunded" arrangement as amounts are not set aside or held by the Company in a trust, escrow, or similar account or fiduciary relationship on your behalf. Each participant's rights to benefits under the Plan are equivalent to the rights of any unsecured general creditor of the Company. However, the Company may open accounts with one or more investment companies selected by the Chairman, in his discretion, including from among those used as investment options under the Qualified Plan, and may invest funds subject to this Plan in these mutual funds. -1- 3 Each participant may be permitted to direct how the portion of the Company's funds allocable to him or her is invested from among the available options, if such investment accounts are established. The Company currently expects any such options to be similar to those available under the Qualified Plan, but is not obligated to make these or any other particular investment options available. All investments shall at all times continue to be a part of the Company's general assets for all purposes. To measure the amount of the Company's obligations to a participant in this program, the Company will maintain a bookkeeping record or account of each participant's "Accumulations". There are three basic components of each participant's Accumulations: First, the Company may credit to your Accumulations each calendar year during which you are selected to participate in the Plan an amount equal to 3% of your compensation from the Company in excess of the compensation limit applicable to the Qualified Plan under the Internal Revenue Code (currently $160,000 per year) but not more than $100,000 above such compensation limit (currently a maximum of $260,000 per year). For this purpose, your compensation includes salary, commission and bonus payments made for the year, but does not include other cash or noncash compensation, expense reimbursements or other benefits provided by the Company, other than your own salary deferrals into this Plan or the Qualified Plan. In addition, the Company may make an additional profit sharing contribution to the Plan for a year, in the Company's discretion, to be credited to your Accumulations. One of the purposes of these contributions is to make up the portion of automatic and special profit sharing contributions to the Qualified Plan that you are losing due to the capping of pay eligible for consideration under the Qualified Plan under Internal Revenue Code rules. All contributions under this provision to your Accumulations, as adjusted for earnings or losses (described below), are referred to as your "PROFIT SHARING VALUE." Second, to encourage each participant to invest in his or her own future, you may also elect to defer your compensation from the Company. There are two types of deferral elections that you may make under the Plan. You may elect (within 30 days of when you first become eligible to participate in the Plan for your initial year of participation or, for subsequent years, not later than the December 31 prior to each such year) to defer payment of a portion of your compensation to be earned during the balance of the current or next calendar year, as applicable, as a credit to your Accumulations. Under special circumstances, the Chairman may also determine, in his discretion, that you may be periodically eligible to make a special election after the beginning of the year to defer any compensation for the remainder of the year which is not yet payable to you. Both types of voluntary deferrals, adjusted for earnings or losses as described below, are known as the "DEFERRAL VALUE." The minimum amount you may defer under either type of election is 1% of your compensation. The Company may, in its -2- 4 discretion, establish and change from time to time a maximum limitation on your deferral contributions. Also, who is eligible to participate in the deferral portion of the Plan is determined on a year to year basis by the Company. If you were a participant one year but are not eligible in a succeeding year, you will still be a participant, but will be treated as "inactive." Third, the Company will also match your deferral at the same rate it is generally matching 401(k) deferrals under the Qualified Plan for the period in question. Generally, however, a matching contribution shall only apply to deferrals with respect to your compensation up to $100,000 above the compensation limit applicable to the Qualified Plan under the Internal Revenue Code (currently, a maximum of $260,000 per year). Any "caps" on the match under the Qualified Plan will also apply to this Plan, with the match under this Plan being offset by the match to the Qualified Plan to the extent duplicative. For example, if the Qualified Plan match for the year is 75 cents on the dollar, up to the first 3% of salary deferrals, and you are eligible to defer 5% of the first $160,000 of pay to the Qualified Plan (under the special discrimination-testing rules of that plan), then only the first 3% of deferrals from the portion of your salary above $160,000 but less than $260,000 will be matched under this Plan. In addition to this formula match, the Company may make additional matching contributions for a year, in its sole discretion. All amounts credited to your Accumulations on a matching basis, adjusted for earnings or losses as described below, are referred to as your "MATCHING VALUE." EARNINGS (OR LOSSES): At least once each calendar year while you have a credit balance in your Accumulations, the Company will credit your Accumulations with earnings (or losses), if any, for the period since the last such crediting and determine the value of your Accumulations at that time. The earnings (or losses) may either be credited on the basis of the earnings (or losses) allocable to your directed portion of the Company investments, if any, or on the basis of a hypothetical earnings rate, as determined by the Company in its sole discretion. The Company also reserves the right to adjust the earnings (or losses) credited to your Accumulations and to determine the value of your Accumulations as of any date by adjusting such earnings (or losses) or such fair market value for the Company's tax and other costs of providing this Plan. These earnings will compensate for the postponement of the receipt of the Accumulations and give you the benefit of tax-deferred growth of the accumulating amounts. Under current federal income tax rules, the amounts credited to your Accumulations, including earnings, will not be taxable income to you in the year they are credited to your account. You, or your beneficiaries in the event of your death, will generally be taxable on these amounts and the credited earnings only if and when benefits are actually paid to you. Thus, this program provides the opportunity to defer income and the payment of income taxes. -3- 5 IV BENEFITS -------- A. Vesting ------- If you participate in the deferral portion of the Plan, your Deferral Value will always be 100% "vested". This means you will always be entitled to receive benefits from this portion of your Accumulations. The portion of your Accumulations derived from the Profit Sharing Value and the Matching Value will not be fully vested until you complete 5 years of service for the Company. A "year of service" for this purpose means a period of 12 consecutive calendar months during which you were employed by the Company and worked at least 1,000 hours. Years of service are calculated from the date you were first hired as an employee by the Company, and anniversaries of that date. The schedule for vesting is as follows: Vested Years of Service Percentage ---------------- ---------- Less than 2 None 2 but less than 3 25% 3 but less than 4 50% 4 but less than 5 75% 5 or more 100% In addition, you also become 100% vested in your Accumulations upon your death or if you become permanently disabled prior to retirement or other termination of service with the Company, or upon a "Change in Control," regardless of your years of service. "Change in Control" means: (i) the purchase or other acquisition by any person, entity or group of persons (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934 ("Act"), or any comparable successor provisions), directly or indirectly, which results in beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of such person, entity or group of persons equalling 30 percent or more of either the outstanding common shares of Cardinal Health, Inc. ("Cardinal") or the combined voting power of the then-outstanding securities of Cardinal entitled to vote in the election of directors of Cardinal, or (ii) the approval by the shareholders of Cardinal of a reorganization, merger, or consolidation, with respect to which in each case persons who were shareholders of Cardinal immediately prior to such reorganization, merger or consolidation do not (solely because of their common shares of Cardinal owned immediately prior to such reorganization, merger, or consolidation) immediately thereafter, own more than 50 percent of the combined voting power entitled to vote in the election of directors of the then-outstanding securities of the reorganized, merged or -4- 6 consolidated company, or (iii) a liquidation or dissolution of Cardinal, or (iv) the sale of all or substantially all of Cardinal's assets. B. Forfeiture of Benefits ---------------------- If your employment with the Company terminates for any reason other than death, disability, or a Change in Control prior to the time you have completed 5 years of service, you will forfeit some or all (based on the above schedule) rights to receive benefits under the Plan, except that you will still be entitled to receive benefits based on your Deferral Value. C. Payment of Benefits. -------------------- 1. Retirement Benefits. You will be eligible to receive retirement benefits under the plan upon your retirement after attaining age 65 with five years of service. Retirement benefits will generally be paid as a monthly benefit payable for 60 months. The amount of your benefit will equal the amount necessary to amortize your total Accumulations over the 60 month period. The amount payable each month will either be based on an approximately equal amortization of principal plus actual earnings (or less actual losses) or an amortization based on an assumed interest rate declared by the Company from time to time during the period of distribution. You must give the Company at least 30 days advance written notice of your intention to retire and receive retirement benefits. Actual benefit payments will begin on the first day of the second month following your satisfaction of all requirements for payment. 2. Disability Benefits. If you become totally disabled before satisfying the requirements for retirement benefits, you will be eligible to receive payment of the amounts credited to your Accumulations as a monthly benefit commencing after six months of total disability and payable for 60 months. The amount of the benefit will be determined in the same manner as retirement benefits. For this purpose, "total disability" means a physical or mental condition which totally and presumably permanently prevents you from engaging in any substantially gainful activity. It is up to the Company to determine whether you qualify as being totally disabled and the Company may require you to submit to periodic medical examinations to confirm that you are, and continue to be, totally disabled. If your disability ends, your disability benefit payments will stop. However, you could continue to qualify for benefits under another provision of the Plan. 3. Death Benefits. In the event of your death while receiving benefit payments under the Plan, the Company will pay the beneficiary or beneficiaries designated by you any remaining payments due under the terms of your Incentive Deferred Compensation Agreement, using the same method of distribution in effect to you at the date of your death. In the event of death prior to beginning to receive benefits under the Incentive Deferred Compensation Agreement, the Company will pay any vested benefits to your beneficiary or beneficiaries, beginning as soon as practicable after your -5- 7 death. In this case, benefits will generally be paid as a monthly benefit payable for 60 months computed in the same manner as retirement benefits. The Company will provide you with the form for designating your beneficiary or beneficiaries. If you fail to make a beneficiary designation, or if your designated beneficiary predeceases you or cannot be located, any death benefits will be paid to your estate. 4. Other Termination of Service. If your service with the Company terminates for any reason other than retirement, death, or total disability, then the vested portion of your Accumulations will be paid to you as a monthly benefit payable for 60 months computed in the same manner as retirement benefits, beginning as soon as administratively practicable after your employment terminates. 5. Payment Alternatives. At the Company's election, or upon your request, benefits may be paid in a lump sum or over a shorter or longer period of time than the 60 months generally called for, as described above. However, no request by you or your beneficiaries for a different payment method will be binding on the Company, and any accelerated or deferred payment of benefits shall be made only in the sole discretion of the Company. In addition, the Company may alter the payment method in effect from time to time in its discretion, for example, in order to avoid the loss of a deduction under Code Section 162(m). If the payment method is altered, the amount you or your beneficiaries will receive will be computed under one of the alternative methods for determining payment amounts provided for under the normal form of distribution for your Accumulations, determined by the Company in its discretion. 6. Change in Control. If a Change in Control occurs, and your employment with the Company (or its successor) terminates within two years after the Change in Control occurred, then you shall be entitled to receive your Accumulations in a single lump sum within 30 days of your termination of employment, notwithstanding any other provision of this Plan or your Incentive Deferred Compensation Agreement. Also, following a Change in Control, the Company's discretion to alter the payment methodology (described in Section 5, above) is limited to accelerating your benefits; the Company cannot, after a Change in Control, defer the commencement of payments or extend the period of distribution beyond the normal periods described in the preceding sections (1-4). -6- 8 V MISCELLANEOUS PROVISIONS ------------------------ A. No Right to Company Assets. --------------------------- As explained previously, this Incentive Deferred Compensation Plan is an unfunded arrangement and the agreement you will enter into with the Company does not create a trust or any kind of a fiduciary relationship between the Company and you, your designated beneficiaries or any other person. To the extent you, your designated beneficiaries, or any other person acquires a right to receive payments from the Company under the Incentive Deferred Compensation Agreement, that right is no greater than the right of any unsecured general creditor of the Company. B. Modification or Revocation. --------------------------- Your Incentive Deferred Compensation Agreement will continue in effect until revoked, terminated, or all benefits are paid, even during any period of time when you are an "inactive" participant because you are not designated by the Company as eligible to accumulate additional benefits. However, the Incentive Deferred Compensation Agreement and this Plan may be amended or revoked at any time, in whole or in part, by the Company in its sole discretion. Unless you agree otherwise, you will still be entitled to the vested benefit, if any, that you have earned through the date of any amendment or revocation. Such benefits will be payable at the times and in the amounts provided for in the Incentive Deferred Compensation Agreement, or the Company may elect to accelerate distribution and pay all amounts due immediately. C. Rights Preserved. ----------------- Nothing in the Incentive Deferred Compensation Agreement or this Plan gives any employee the right to continued employment by the Company. The relationship between you and the Company shall continue to be "at will" and may be terminated at any time by the Company or you, with or without cause, except as may be specifically set forth in any separate written employment agreement between you and the Company. D. Controlling Documents. ---------------------- This is merely a summary of the key provisions of the Incentive Deferred Compensation Agreement currently in use by the Company. In the event of any conflict between the provisions of this Plan and the Incentive Deferred Compensation Agreement, the agreement shall in all cases control. The Company has executed this amended and restated Plan in Dublin, Ohio on the date set forth below. -7- 9 Cardinal Health, Inc. By: /s/ George H. Bennett, Jr. ----------------------------- Its: Executive Vice President ---------------------------- Date: October 27, 1997 --------------------------- -8- EX-11.01 4 EXHIBIT 11.01 1 Exhibit 11.01 CARDINAL HEALTH, INC. COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended September 30, 1997 1996 ----------------- ----------------- PRIMARY: Net earnings $ 54,230 $ 41,401 ================= ================= Average shares outstanding 109,092 104,272 Dilutive effect of stock options 1,685 1,673 ----------------- ----------------- Weighted average number of Common Shares outstanding 110,777 105,945 ================= ================= Primary earnings per Common Share $ 0.49 $ 0.39 ================= ================= FULLY DILUTED: Net earnings $ 54,230 $ 41,401 ================= ================= Average shares outstanding 109,092 104,272 Dilutive effect of stock options 1,848 1,878 ----------------- ----------------- Weighted average number of Common Shares outstanding 110,940 106,150 ================= ================= Fully diluted earnings per Common Share $ 0.49 $ 0.39 ================= =================
Page 12 EX-27.1 5 EXHIBIT 27.1
5 1,000 3-MOS JUN-30-1997 JUL-01-1996 SEP-30-1996 182,854 0 694,887 (38,275) 1,592,393 2,528,087 289,892 (117,176) 2,995,824 1,508,503 263,655 0 0 582,840 521,489 2,995,824 2,535,476 2,535,476 2,338,348 2,338,348 124,156 0 (6,606) 69,203 27,802 41,401 0 0 0 41,401 0.39 0.39
EX-27.2 6 EXHIBIT 27.2
5 1,000 3-MOS JUN-30-1998 JUL-01-1997 SEP-30-1997 180,515 0 727,869 (36,806) 1,627,640 2,668,253 491,663 (206,493) 3,272,885 1,510,270 277,882 0 0 656,596 738,557 3,272,885 2,869,971 2,869,971 2,647,506 2,647,506 133,520 0 (5,005) 88,902 34,672 54,230 0 0 0 54,230 0.49 0.49
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