## 1. Summary of Significant Accounting Policies 

Cardinal Health, Inc., together with its subsidiaries (collectively the “Company”), is a pr ovider of services to the healthcare industry offering an array of value- added pharmaceutical and other healthcare products dis- tribution services and pharmaceutical-related products and services to a broad base of customers. The Company currently conducts its business within four business segments: Pharmaceutical Distribution and Provider Services, Medical-Surgical Products and Services, Phar- maceutical Technologies and Services and Automation and Information Services. See Note 12 for discussion related to the Company’s operating segments. 

Basis of Presentation. The consolidated financial statements of the Company include the accounts of all majority-owned subsidiaries and all significant inter com- pany accounts and transactions have been eliminated. In addition, the consolidated financial statements give retroactive effect to the mergers with MediQual Systems, Inc. (“MediQual”) on February 18, 1998; R.P. Scherer Corporation (“Scherer”) on August 7, 1998; Allegiance Corporation (“Allegiance”) on February 3, 1999; Pacific Surgical Innovations, Inc. (“PSI”) on May 21, 1999; and Automatic Liquid Packaging, Inc. (“ALP”) on September 10, 1999 (see Note 2). Such business combinations wer e accounted for under the pooling-of-interests method. 

The Company’s fiscal year end is June 30 and Scherer’s and PSI’s fiscal year ends were March 31 and September 30, respectively. For the fiscal year ended June 30, 1998, the consolidated financial statements combine the Company’s fiscal year ended June 30, 1998 with Scherer’s fiscal year ended March 31, 1998 and PSI’s fiscal year ended September 30, 1998. 

Due to the change in Scher er’s fiscal year end from March 31 to conform with the Company’s June 30 fiscal year end, Scherer’s results of operations for the thr ee months ended June 30, 1998 are not included in the combined results of operations but are reflected as an adjustment in the Consolidated Statements of Shareholders’ Equity. Scherer’s net revenue and net earnings for this period were $161.6 million and $8.6 million, r espectively. Scherer’s cash flows from operating and financing activi- ties for this period were $12.6 million and $32.6 million, respectively, while cash flows used in investing activities were $12.2 million. As a r esult of changing Allegiance’s 

fiscal year end from December 31 to June 30, the r esults of operations for the six months ended December 31, 1997 are included in the combined r esults of operations for both the fiscal years ended June 30, 1997 and 1998 and are reflected as an adjustment in the Consolidated State - ments of Shareholders’ Equity. Allegiance’s total revenue and net earnings for this period were $2.2 billion and $47.9 million, respectively. Allegiance’s cash flows from operating activities for this period wer e $147.2 million, while cash flows used in investing and financing activities were $63.7 million and $83.8 million, r espectively. 

In addition, the Company completed several individu - ally immaterial acquisitions during fiscal 2000, 1999 and 1998, which were accounted for under the pur chase method of accounting. The consolidated financial state - ments include the results of operations from each of these business combinations as of the date of acquisition. 

The preparation of financial statements in confor mity with generally accepted accounting principles r equires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts may dif fer from these estimated amounts. 

Cash Equivalents. The Company considers all liquid investments purchased with a maturity of thr ee months or less to be cash equivalents. The car rying value of cash equivalents approximates their fair value. Cash payments for interest were $113.5 million, $105.5 million, and $97.4 million and cash payments for income taxes wer e $106.4 million, $80.0 million, and $157.9 million for fiscal 2000, 1999, and 1998, r espectively. See Notes 2 and 4 for additional information regarding non-cash investing and financing activities. 

Receivables. Trade receivables are primarily comprised of amounts owed to the Company thr ough its pharmaceu- tical and other healthcare distribution activities and are presented net of an allowance for doubtful accounts of $61.6 million and $53.9 million at June 30, 2000 and 1999, respectively. 

The Company provides financing to various customers. Such financing arrangements range from one year to ten years, at interest rates that generally fluctuate with the prime rate. The financings may be collateralized, guaran - teed by third parties or unsecured. Finance notes and accrued interest receivable are $24.0 million and 

