Filed by Cardinal Health, Inc.
Pursuant to Rule 425 under the Securities Exchange Act of 1933
Subject Company: Syncor International Corporation 000-8640
CARDINAL HEALTH'S TRADING ACTIVITY
Moderator: Steve Fischbach
July 2, 2002
2:30 pm CT
Operator: Good afternoon my name is Elizabeth and I will be your
conference facilitator today. At this time I would like to
welcome everyone to the Cardinal Health conference call.
All lines have been placed on mute to prevent any
background noise.
After the speaker's remarks there will be a question and
answer period. If you would like to ask a question during
this time simply press star then the number 1 on your
telephone key pad. If you would like to withdraw your
question press the # key.
Thank you Mr. Fischbach you may now begin your conference.
Steve Fischbach: Thank you good afternoon and welcome. I know
this is an unusual call for Cardinal but thanks for
joining us today, I know we have a big crowd. Speaking on
our call today will be Bob Walter, Chairman and CEO but
before we begin I would like to remind everyone that some
of the information discussed on today's call includes
forward-looking statements.
In addition, in connection with our proposed acquisition
of (Syncor) International; (Syncor) intends to mail a
proxy statement and prospectus to stockholders and
Cardinal Health, intends to file registration statement
related to that transaction. Information about the
transaction is available from Cardinal and (Syncor).
At this time I'll turn the call over to Bob Walter to
begin today's discussion.
Bob Walter: Good afternoon. Well I guess we've proven that we
can organize a call on short notice. I think we have on
this call between two and three times the number of
interested investors that we have on any of our normal
calls.
Let me say up front there will not be any surprises,
continued good performance by Cardinal. We are in an
unusual time where the environment is full of suspicion
rather than trust. That pendulum is clearly swung. It will
swing back.
Last Thursday a corporation said we are not subject to
accounting investigation and strongly believe that its
accounting is appropriate. The Corporation founded in 1908
- $177 billion in revenues and we're the largest US
corporation that was General Motors.
So last Thursday was General Motors day for talking about
the quality of what they do. Today is our day and next
week some other outstanding company will respond. As I say
the pendulum will swing back more to trust rather than to
suspicion.
Investors need to have confidence in the future and
frankly if you can't trust the reporting of the past how
can you trust forecasts for the future. Let me deal with
the issue of the past, the present and the future.
In the past on August 3 of this year we will have 19 years
since our initial public offering. That's 19 years of
living to a consistently high level of operational,
ethical and financial performance in our dealings with
customers, associates and shareholders.
The 19 years of open communications of our expectations
for the future, we have 19 years of detailed reporting and
we now report in four segments with a lot of detail within
each one of those segments.
We have 19 years of meeting or exceeding our financial
expectations and 19 years of responsible conservative
accounting. We have 19 years of - without disagreements
with outside auditors, no unusual accounting - I would
remind everybody that 98% of our revenues are from cash
receipts.
We have demonstrated a conservative approach over a very
long period of time. Our earnings approximately equal our
cash flow which is a very good test. We will - our
earnings this year will be more than 85% of our - our cash
flow I'm sorry will be more than 85% of our earnings.
Our level of debt is low and it always has been; another
reflection of our conservatism. The top level management,
here I'm referring to myself, has been in place all of
these 19 years, so I take a great deal of pride in this
ethical high performance standard environment.
Let's deal with the present. We are under no investigation
by the SEC, DEA, FDA or any other regulatory body.
Recognizing that these regulatory bodies have on-going and
routine reviews, but they are normal and routine.
Our transition from Arthur Andersen to Ernst & Young is
normal and customary. It is smooth, it is timely, it has
no surprises, it's very straight forward and our yearend
audit will be completed and earnings released on schedule.
Cardinal has always received an unqualified clean audit
opinion. Cardinal has fully complied with all accounting
rules and regulations, FASB and the SEC. The Auditor
change in 1999 was a result of a comprehensive process
that included the audit committee and involved all of the
public accounting firms.
The decision to select Arthur Andersen was made - was
based on the assessment that they were the most qualified
firm to serve Cardinal at that time.
Upon changing from Deloitte & Touche to Arthur Andersen,
Deloitte & Touche filed a letter with the SEC confirming
that there were no accounting issues or disagreements with
the Company that lead to their dismissal. That letter is
available to the public as part of the 8K filing that we
made relative to the auditor change.
Our auditor change from Arthur Andersen to Ernst & Young
was precipitated by the difficulties encountered by
Anderson as a firm. Once again our decision to change was
based upon a comprehensive process that involved the audit
committee and all of the public accounting firms.
We selected Ernst & Young. Anderson filed a letter with
the SEC confirming that there were no accounting issues or
disagreements with the Company that lead to their
dismissal. That letter is available to the public as part
of the 8K filing that we made relative to the auditor
change.
During these past 19 years we have demonstrated consistent
growth, rising returns on sales and capital, increased
diversity of earning sources, dramatic increases in
internal growth and in share market gains, all done with
relatively little debt and straight forward accounting.
This is a dramatic story of performance over a very long
period of time. We've demonstrated long-term increases in
strength in our market and in our financial and economic
resources.
Ours is not a quick one-time rise that might cause one to
consider whether there is a short half light to a shooting
star. We are marathon runners and darn good at it.
Now the future for us; I want to reaffirm the 2002,
reaffirm our fourth quarter expectations are to meet
consensus estimates of 73 cents a share. I want to
reaffirm that 2002 earnings will therefore reach consensus
of $2.63. I would like to reaffirm for 2003 expectations
for a 20% earnings growth, again with rising returns and
strong cash flow.
I want to reaffirm our cash flow expectations for our
fourth quarter which is our largest cash flow quarter and
affirm therefore our cash flow expectations for the full
2002 of $800 million to $900 million. And you will see in
2003 similar cash flow as we move into that year.
I want to confirm that our debt levels have and will
continue to stay conservative. Now why could I have such
confidence in the predictability of our future?
First of all we are in growth non-cyclical diverse large
markets. They're all around health care. We have market
leading positions in those markets. We have superior
resources.
There is a recurring nature of our business and we have
long-term relationships with these customers. We continue
to investment spend for the future and we build a cohesive
strategy built around health care.
We know our markets and we know our business well. Let me
summarize by saying in the last two weeks I've given
presentations at two analyst's conferences and the theme
for both of those was growth, rising returns, low risk in
uncertain times.
How appropriate those themes is for us today. I just
didn't realize how uncertain these times are for many
investors, but that theme describes Cardinal. I want to
confirm growth. I want to confirm that we'll continue to
have rising returns and I want to assure that the risks
around Cardinal are just the normal risks in any business.
They're manageable, they are not large, they are within
our plans. And they're certainly not in the area of any
past or future misrepresentation of accounting our
recordings.
I want to open this up to any questions. Operator could
you open this up for questions please.
Operator: At this time I would like to remind everyone if you would
like to ask a question please press star then the number 1
on your telephone key pad. We'll pause for just a moment
to compile the Q&A roster.
Your first question comes from (David Risenger) of Merrill
Lynch.
(David Risenger): Thanks very much and thank you for hosting this
call Bob. Would you please comment on the current audit
process that E&Ys going through for fiscal '02 and just
reconfirm that they are not re-auditing fiscal '00 and '01
and also just let us know when you expect the audit to be
completed and the 10K to be filed.
Bob Walter: They would - I've got (Dick) here and I'll let
(Dick) tell you what the process is. Let me give an
overview. It's a normal process when you change from one
auditor to the other, you know, I would remind everybody
Cardinal had the same auditor for 27 years.
We made a change at the time shortly after the merger well
with (Allegiance) and chose Arthur Andersen at that time.
We would not choose to change auditors, it's not our
choice to change auditors but our accounting is so
straight forward and our financial systems in place that
it's relatively simple.
Let me turn it over to (Dick) what the - to explain what
that process is. I would say to you - we announced about
six weeks ago that our fourth quarter earnings
announcement would be on August 6.
That's frankly about four or five business days later than
normal because I'm in Alaska with my family and I think I
ought to be here for our fourth quarter earnings
announcement. But any way other than that we would be
about three or four days earlier. So the audit will be
done way before that.
(Dick) you want to comment on the process.
(Dick): Yes (David) E&Y will be the auditors for fiscal
2002. They are not required and have no need to do any
re-auditing of 2000 or 2001. Those audits were
performed by Anderson and their audit opinion will
remain intact.
In terms of filing the 10K, you know, we're on our normal
timeline to, you know, file our 10K, you know, right
around the end of August early September.
(David Risenger): Great thanks very much.
Operator: Your next question comes from (Robert Willabe) of Credit
Suisse First Boston.
(Robert Willabe): Thank you do you for - what's left under the share
repurchase program and do you foresee any acceleration
there at the current levels?
Bob Walter: Hey Bob we have a share repurchase authorization
of approximately $500 million and I've been saying
publicly that I expect that we will have over the next
three years in excess of $3 billion of excess cash flow.
And I've been saying that I would expect to both invest
those funds in new ventures in the Company and to also use
some of those funds for share repurchase.
We've not announced an expansion to the share repurchase
program. I think at the end of the last quarter we
announced where we will run this share repurchase program
so far of the $500 million (Dick) I think it was something
like $100 some million, $116 million so we have a lot of
capacity under the current program and we certainly have a
lot of cash flow.
Our debt at the end of last quarter was below 20%. Debt to
total capital as I said we will have extremely strong cash
flow in our fourth quarter so
I certainly share repurchase opportunities, we're going to
be aggressive about it. We just haven't thought through
yet, you know, at what level we will - how much we might
expand that program.
Other questions?
Operator: Okay your next question comes from (Chris McFadden) of
Goldman Sachs & Company.
(Chris McFadden): (Unintelligible) Bob. Two questions if I might.
Firstly is there any element of your pending relationship,
your pending merger with (Syncor) that would be
potentially dislocated because of some of the share value
decline that we've seen, and then secondly you along with
900 other companies were included in a list published by
the SEC late last week asking for yourself and (Dick) to
swore an affidavit concerning financial reporting.
Could you just comment on that process and how you and
(Dick) would plan to respond to it and under what
timeline? Thank you.
Bob Walter: Okay with regard to (Syncor) the merger agreement
is on file and so that's a public document today, the
merger agreement is - provides for a fixed exchange ratio
and without a collar.
And with regard to sworn affidavits I don't know what all
the details of it are, I certainly don't have any problem
swearing, attesting to the financial health and accuracy
of our financial statement. I'm sure (Dick) doesn't either
but (Dick) you might comment on - you might comment on
what you've read so far.
(Dick): Yes, you know, on that (Chris) I think it's consistent we
have been in prior years provided a management
responsibility statement so we've already been taking that
responsibility and signing for it personally. I think, you
know, just making all companies do that and from a timing
perspective I think we're required to do that with the
filing of our annual 10K.
(Chris McFadden): Thank you.
Operator: Your next question comes from (John Creegar) of
(Folum Blair).
(John Creegar): Thanks very much. Once your first audit is
complete with E&Y will you still need to deal with trying
to get consent from Arthur Andersen to publish historical
financials?
Bob Walter: Let me ask (Dick) and (Dick) may comment on this
whole thing - process. He knows the technical aspects.
It's hard to get somebody to attest to something if they
don't exist. And I think the SEC contemplated - I think
that might be a problem in the future for all of the
public clients of Arthur Andersen's, so they provided for
exactly what words you can use and how you go about this
thing.
So assuming there's somebody on the other side to sign
something then I would tell you as an example in the
Columbus office I'm told that there's less than a handful,
less than a handful of people that are still even in the
Columbus office, but (Dick) why don't you talk about what
is the process.
I'm going to say this is not a complicated accounting
company for starters and so its relatively easy for a new
accounting firm to step in here, but (Dick) why don't you
comment on both of those things I...
(Dick): Yes I guess in terms of when a consent would be required,
basically Arthur Andersen are the auditors of record for
our fiscal 2000 and 2001 years, so any time we want to use
those audited financial statements if Arthur Andersen were
still in existence we would have obtained a consent from
them in terms of their acknowledgement of our use of that
financial information.
So in the future any time we have a registration statement
or filing where we incorporate those financial statements
into that filing, we would have required a consent from
Arthur Andersen. We'll avail ourselves of the, you know,
the disclosure that we made in the S8 that the SEC has
provided, you know, discussing the fact that Arthur
Andersen doesn't have the personnel available to provide
that consent.
So I guess any time you see the 2000 or 2001 financial
statements that will be the kind of disclosure you'd
expect to see.
(John Creegar): Great thanks (Dick).
Bob Walter: I think any comment on just on - my comment on is
relatively straight forward. We don't have
complicated partnerships and things like this. Just a
transition from one auditor to another in our case.
(Dick): I think that is a good point in terms of the ease of
transition, I think (Bob) mentioned in his remarks that,
you know, 98% of our revenues come from transactions where
the produce is delivered and so there's not a, you know,
there's not a situation where you have unusually complex
or sophisticated off-balance sheet financing or
transactions that would make the audit overly complex.
Cardinal's not a large company with, you know, a
significant business but, you know, in the overall scheme
of things I think our accounting is straight forward and,
you know, relatively easy for the auditing firm to get
their hands around.
Bob Walter: Okay we'll take one more question and then we'll try and
wrap it up here.
Operator: Your final question comes from (Lisa Gill) of JP Morgan.
(Lisa Gill): Actually my questions have been answered and my question
was just going to be about the difficulty of the audit
process moving from one to the other.
(Dick) if you can just elaborate a little bit though -
just being a previous auditor myself - I'm wondering are
they going to review the 2001 audit findings from Arthur
Andersen. I mean what do they do to get themselves
comfortable with Cardinal and as far as the previous audit
findings that Arthur Andersen had?
(Dick): You know, the auditing standards provide for successor and
predecessor auditor cooperation and Arthur Andersen has
been extremely helpful and willing to cooperate in that
process so part of the procedures that E&Y has already
performed has been a review of those prior years work
papers to allow them to both become educated and help
establish their audit base for the 2002 year.
(Lisa Gill): Okay great thanks.
Bob Walter: Okay thank you for attending. I view this as an
opportunity, I've seen it before. The pendulum as I talked
about, the pendulum between suspicion and trust is shifted
for general corporate America. You should be confident in
Cardinal, confident about the industry which we compete,
confident of our positions and confident in the way we
report to you.
So we will have our fourth quarter earnings announcement
on August 6 and I expect that to be upbeat. Thank you very
much.
Operator: Thank you this concludes today's Cardinal Health's
Conference Call. You may now disconnect.
END