DUBLIN, Ohio, Jan. 28, 2010 /PRNewswire-FirstCall/ — Cardinal Health today reported fiscal second-quarter results, with revenue increasing 3 percent to $24.9 billion and non-GAAP diluted earnings per share from continuing operations(1) increasing 12 percent to $0.57.
Highlights from the quarter include a 38 percent increase in profit from the Medical segment and continued improvement within the Pharmaceutical segment, with a decline in segment profit of 1 percent. The company also reported strong operating cash flow of $524 million and improvements in working capital for the quarter.
GAAP earnings from continuing operations were $230 million for the quarter, or $0.64 per share. GAAP results include a positive $0.07 per share net after-tax contribution, primarily from a previously disclosed insurance recovery and the gain on the sale of CareFusion stock, partially offset by restructuring expenses and other costs associated with the spinoff of CareFusion Corp.
"We are encouraged by our performance in the second quarter and in the first half of our fiscal year," said George Barrett, chairman and CEO of Cardinal Health. "These results reflect excellent progress on our key initiatives and customer focus across our businesses, as well as the benefit from external factors that were more pronounced than we had anticipated. Our medical segment has had particularly strong year-over-year growth, and our pharmaceutical segment continued its momentum, performing considerably better than we expected in the second quarter."
Q2 FY10 SUMMARY
Q2 FY10 Q2 FY09 Y/Y
------- ------- ---
Revenue $24.9 billion $24.1 billion 3%
------- ------------- ------------- ---
Operating Earnings $367 million $313 million 17%
------------------ ------------ ------------ ---
Non-GAAP Operating
Earnings(2) $358 million $337 million 6%
---------------------- ------------ ------------ ---
Earnings from Continuing
Operations $230 million $169 million 36%
------------------------ ------------ ------------ ---
Non-GAAP Earnings from
Continuing Operations(3) $207 million $183 million 13%
-------------------------- ------------ ------------ ---
Diluted EPS from
Continuing Operations $0.64 $0.47 36%
---------------------- ----- ----- ---
Non-GAAP Diluted EPS
from Continuing Operations $0.57 $0.51 12%
-------------------- ----- ----- ---
SECOND-QUARTER SEGMENT RESULTS
Pharmaceutical Segment
The Pharmaceutical segment increased revenue by 3 percent to $22.7 billion, primarily driven by increased sales to existing pharmaceutical distribution customers. Sales to non-bulk customers increased 7 percent to $11.7 billion and sales to bulk customers declined 1 percent to $11 billion. Segment profit declined 1 percent to $260 million as a result of fewer significant generic product launches versus the prior year period, the effect of customer contract repricings within the pharmaceutical distribution business and the expected impact from the Medicine Shoppe International franchisee contract transition. The decline in segment profit was partially offset by the positive margin impact from key initiatives including changes to the company's sourcing model, solid performance under its branded manufacturer agreements and disciplined cost controls.
Q2 FY10 Q2 FY09 Y/Y
------- ------- ---
Revenue $22.7 billion $22.1 billion 3%
------- ------------- ------------- ---
Segment Profit $260 million $263 million (1)%
-------------- ------------ ------------ ---
Medical Segment
Revenue for the Medical segment increased 9 percent to $2.2 billion, primarily from sales growth with existing customers. Segment profit grew 38 percent to $103 million, primarily driven by the sales growth and decreased cost of raw materials associated with commodity price movements. Segment profit was partially dampened from investments associated with the Medical Transformation project.
Q2 FY10 Q2 FY09 Y/Y
------- ------- ---
Revenue $2.2 billion $2.1 billion 9%
------- ------------ ------------ ---
Segment Profit $103 million $75 million 38%
-------------- ------------ ----------- ---
OUTLOOK
The company also raised its EPS outlook for the year and now expects full-year fiscal 2010 non-GAAP diluted earnings per share from continuing operations to be in the range of $2.08 to $2.18, up from the company's previous guidance range of $1.90 to $2.00.
"Based on our year-to-date performance and our best assessment of our current environment, our outlook for the full year has improved considerably since we last reported," Barrett said. "Although our journey is in its early stages, we are pleased with our rate of progress."
ADDITIONAL SECOND-QUARTER AND RECENT HIGHLIGHTS:
CONFERENCE CALL
Cardinal Health will host a conference call and webcast today at 8:30 a.m. EST to discuss second-quarter results. To access the call and corresponding slide presentation, go to the Investor page at cardinalhealth.com/investors or dial 617.213.4856, passcode 28763800. Presentation slides, an audio replay and transcript will be archived on the Web site after the conclusion of the meeting. The audio replay will also be available until 11:30 p.m. EST on Feb. 4 by dialing 617.801.6888, passcode 90738815.
UPCOMING EVENTS
Cardinal Health will be participating in the following health care investor conferences:
At these events, company executives will discuss Cardinal Health's diverse products and services, company performance and strategies for continued growth. To access more details and live webcasts of these events, including remarks or a transcript, go to the Investors page at cardinalhealth.com.
About Cardinal Health
Headquartered in Dublin, Ohio, Cardinal Health, Inc. (NYSE: CAH) is a Fortune 18 health care services company that improves the cost-effectiveness of health care. As the business behind health care, Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care while reducing costs, improving efficiency and quality, and increasing profitability. As one of the largest health care companies in the world, Cardinal Health is an essential link in the health care supply chain, providing pharmaceuticals and medical products to more than 40,000 locations each day. The company is also a leading manufacturer of medical and surgical products, including gloves, surgical apparel and fluid management products. In addition, the company supports the growing diagnostic industry by supplying medical products to clinical laboratories and operating the nation's largest network of radiopharmacies that dispense products to aid in the early diagnosis and treatment of disease. Cardinal Health employs more than 30,000 people worldwide. More information about the company may be found at cardinalhealth.com.
1 – Non-GAAP diluted EPS from continuing operations: Non-GAAP earnings from continuing operations divided by diluted weighted average shares outstanding.
2 – Non-GAAP operating earnings: Operating earnings excluding (1) restructuring and employee severance, (2) impairments and loss on sale of assets, (3) litigation (credits)/charges, net, and (4) Other Spinoff Costs (as defined at the end of the attached tables) included within distribution, selling, general and administrative expenses.
3 – Non-GAAP earnings from continuing operations: Earnings from continuing operations excluding (1) restructuring and employee severance, (2) impairments and loss on sale of assets, (3) litigation (credits)/charges, net, (4) Other Spinoff Costs, and (5) gain on sale of CareFusion stock, each net of tax.
A reconciliation of the differences between these non-GAAP financial measures and their most directly comparable GAAP financial measures is provided in the attached tables and at cardinalhealth.com.
Cardinal Health uses its Web site as a channel of distribution for material company information. Important information, including news releases, analyst presentations and financial information regarding Cardinal Health is routinely posted and accessible on the investor page at cardinalhealth.com.
Cautions Concerning Forward-Looking Statements
This news release contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These risks and uncertainties include (but are not limited to) uncertainties and risks regarding the effect of the CareFusion spinoff on Cardinal Health; the performance of CareFusion and the proceeds realized from future sales of CareFusion stock; competitive pressures in Cardinal Health's various lines of business; the loss of one or more key customer or supplier relationships or changes to the terms of those relationships; the timing of generic and branded pharmaceutical introductions and the frequency or rate of branded pharmaceutical price appreciation or generic pharmaceutical price deflation; changes in the distribution patterns or reimbursement rates for health care products and/or services; the results, consequences, effects or timing of any inquiry or investigation by any regulatory authority or any legal or administrative proceedings; the effects of disruptions in the financial markets, including uncertainties related to the availability and/or cost of credit on Cardinal Health's customers and vendors; the ultimate features of government health care reform initiatives and their enactment and implementation; and conditions in the pharmaceutical market and general economic and market conditions. In addition, Cardinal Health is subject to additional risks and uncertainties described in Cardinal Health's Form 10-K, Form 10-Q and Form 8-K reports (including all amendments to those reports) and exhibits to those reports. This news release reflects management's views as of Jan. 28, 2010. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(in millions,
except per Second Quarter
Common Share --------------
amounts) 2010 2009 % Change
---- ----
Revenue $24,919.7 $24,117.8 3%
Cost of products
sold 23,962.0 23,202.7 3%
-------- --------
Gross margin 957.7 915.1 5%
Operating expenses
Distribution,
selling,
general and
administrative
expenses 605.2 578.5 5%
Restructuring
and employee
severance 10.7 16.9 N.M.
Impairments
and loss on
sale of assets 0.4 6.9 N.M.
Litigation
(credits)/
charges, net (25.4) (0.3) N.M.
----- ----
Operating
earnings 366.8 313.1 17%
Other (income)/
expense, net (25.6) 19.7 N.M.
Interest
expense, net 27.4 22.2 24%
---- ----
Earnings before
income taxes and
discontinued
operations 365.0 271.2 35%
Provision for
income taxes 134.8 102.2 32%
----- -----
Earnings from
continuing
operations 230.2 169.0 36%
Earnings from discontinued
operations (net of tax
expense of $2.4 million
and $56.7 million for the
second quarter of fiscal
2010 and 2009,
respectively) 4.3 147.5 N.M.
--- -----
Net earnings $234.5 $316.5 (26)%
------ ------
Basic earnings per Common Share:
Continuing operations $0.64 $0.48 33%
Discontinued operations 0.01 0.41 N.M.
---- ----
Net basic earnings per
Common Share $0.65 $0.89 (27)%
===== =====
Diluted earnings per Common Share:
Continuing operations $0.64 $0.47 36%
Discontinued operations 0.01 0.41 N.M.
---- ----
Net diluted earnings per
Common Share $0.65 $0.88 (26)%
===== =====
Weighted average number of Common Shares
outstanding:
Basic 359.0 357.3
Diluted 361.0 360.3
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Year-to-Date
------------
(in millions,
except per Common
Share amounts) 2010 2009 % Change
---- ----
Revenue $49,700.4 $47,554.9 5%
Cost of products
sold 47,833.9 45,738.6 5%
-------- --------
Gross margin 1,866.5 1,816.3 3%
Operating expenses
Distribution,
selling, general
and administrative
expenses 1,191.3 1,168.8 2%
Restructuring and employee
severance 70.4 37.6 N.M.
Impairments and loss on
sale of assets 24.0 10.5 N.M.
Litigation (credits)/
charges, net (25.9) (0.3) N.M.
----- ----
Operating earnings 606.7 599.7 1%
Other (income)/
expense, net (34.5) 22.2 N.M.
Interest expense, net 61.3 51.4 19%
Loss on extinguishment
of debt 39.9 - N.M.
---- -
Earnings before
income taxes and
discontinued operations 540.0 526.1 3%
Provision for income taxes 371.6 184.9 N.M.
----- -----
Earnings from
continuing operations 168.4 341.2 (51)%
Earnings from discontinued
operations (net of tax
expense of $28.4 million
and $88.7 million for
fiscal 2010 and 2009
year-to-date,
respectively) 27.9 224.4 N.M.
---- -----
Net earnings $196.3 $565.6 (65)%
------ ------
Basic earnings per Common Share:
Continuing operations $0.47 $0.96 (51)%
Discontinued operations 0.08 0.62 N.M.
---- ----
Net basic earnings per
Common Share $0.55 $1.58 (65)%
===== =====
Diluted earnings per Common Share:
Continuing operations $0.47 $0.95 (51)%
Discontinued operations 0.07 0.62 N.M.
---- ----
Net diluted Earnings
per Common Share $0.54 $1.57 (66)%
===== =====
Weighted average number of Common Shares
outstanding:
Basic 359.1 357.0
Diluted 361.1 361.2
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, June 30,
(in millions) 2009 2009
---- ----
Assets
Cash and equivalents $1,746.8 $1,221.6
Trade receivables, net 4,927.5 5,214.9
Inventories 7,961.0 6,832.8
Prepaid expenses and other 674.1 523.0
Assets from businesses held for sale and
discontinued operations 148.9 7,189.4
----- -------
Total current assets 15,458.3 20,981.7
-------- --------
Property and equipment, net 1,423.2 1,464.5
Investment in CareFusion 897.4 -
Goodwill and other intangibles, net 2,294.7 2,266.9
Other assets 747.9 405.7
----- -----
Total assets $20,821.5 $25,118.8
========= =========
Liabilities and Shareholders' Equity
Current portion of long-term obligations and
other short-term borrowings $12.7 $366.2
Accounts payable 10,543.1 9,041.9
Other accrued liabilities 1,609.9 1,496.2
Liabilities from businesses held for sale
and discontinued operations 37.3 1,370.9
---- -------
Total current liabilities 12,203.0 12,275.2
-------- --------
Long-term obligations, less current portion
and other short-term borrowings 2,099.2 3,271.6
Deferred income taxes and other liabilities 1,293.2 847.3
Total shareholders' equity 5,226.1 8,724.7
------- -------
Total liabilities and shareholders' equity $20,821.5 $25,118.8
========= =========
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Second Quarter Year-to-Date
-------------- ------------
(in millions) 2010 2009 2010 2009
---- ---- ---- ----
Cash Flows From Operating Activities:
Net earnings $234.5 $316.5 $196.3 $565.6
Earnings from discontinued
operations (4.3) (147.5) (27.9) (224.4)
---- ------ ----- ------
Earnings from continuing
operations 230.2 169.0 168.4 341.2
Adjustments to reconcile earnings from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 59.5 68.7 125.8 116.1
Loss on debt extinguishment - - 39.9 -
Gain on sale of investment (20.0) - (20.0) -
Impairments and loss on sale of
assets 0.4 6.9 24.0 10.5
Equity compensation 20.1 29.2 42.1 50.2
Provision for bad debts 9.1 9.4 21.4 21.8
Change in operating assets and liabilities, net of
effects from acquisitions:
Decrease/(Increase) in
trade receivables 985.3 619.6 269.2 (238.6)
Increase in inventories (1,099.2) (956.1) (1,127.2) (1,820.3)
Increase in
accounts payable 496.1 321.0 1,499.2 1,299.1
Other accrued
liabilities and
operating items,
net (159.7) (282.1) (259.0) (286.4)
------ ------ ------ ------
Net cash provided by/
(used in) operating
activities -continuing
operations 521.8 (14.4) 783.8 (506.4)
Net cash provided by
operating activities -
discontinued operations 2.3 380.7 146.8 717.6
--- ----- ----- -----
Net cash provided by operating
activities 524.1 366.3 930.6 211.2
----- ----- ----- -----
Cash Flows From Investing Activities:
Acquisition of subsidiaries, net
of divestitures and cash acquired - - (32.0) (6.2)
Proceeds from sale of property and
equipment - 11.6 4.3 12.3
Additions to property and
equipment (42.9) (73.0) (79.9) (130.5)
Proceeds from sale
of CareFusion common stock 135.0 - 135.0 -
----- ------ ----- -----
Net cash provided by/
(used in) investing
activities - continuing
operations 92.1 (61.4) 27.4 (124.4)
Net cash used in investing
activities - discontinued
operations - (19.9) (9.9) (51.7)
------ ----- ---- -----
Net cash provided by/(used in)
investing activities 92.1 (81.3) 17.5 (176.1)
---- ----- ---- ------
Cash Flows From Financing Activities:
Net change in commercial paper
and short-term borrowings - 100.0 - 101.1
Reduction of long-
term obligations (350.4) (153.8) (1,484.9) (304.5)
Proceeds from long-
term obligations,
net of issuance costs - 13.2 - 21.4
Proceeds from issuance of Common
Shares 9.2 2.8 27.9 20.7
Tax (expense)/ benefit from stock
options - (1.1) (6.1) 2.3
Payment of premiums for debt
extinguishment - - (66.4) -
Dividends on Common Shares (63.0) (50.2) (127.2) (100.0)
Purchase of
treasury shares (50.0) - (50.0) -
----- - ----- -
Net cash used in financing
activities - continuing
operations (454.2) (89.1) (1,706.7) (259.0)
Net cash provided by/(used in)
financing activities -
discontinued operations - (0.7) 1,283.8 (2.3)
Net cash used in financing
activities (454.2) (89.8) (422.9) (261.3)
------ ----- ------ ------
Net increase/(decrease) in cash
and equivalents 162.0 195.2 525.2 (226.2)
Cash and equivalents at
beginning of period 1,584.8 387.4 1,221.6 808.8
------- ----- ------- -----
Cash and equivalents at end
of period $1,746.8 $582.6 $1,746.8 $582.6
======== ====== ======== ======
CARDINAL HEALTH, INC. AND SUBSIDIARIES
BUSINESS ANALYSIS
TOTAL COMPANY
Non-GAAP
Second
Second Quarter Quarter
-------------- --------
(in millions) 2010 2009 2010 2009
---- ---- ---- ----
Revenue
Amount $24,920 $24,118
Growth Rate 3% 8%
Operating Earnings
Amount $367 $313 $358 $337
Growth Rate 17% (8)% 6% -
Earnings from Continuing Operations
Amount $230 $169 $207 $183
Growth Rate 36% (21)% 13% (15)%
-- ---
Non-GAAP
Year-to-Date Year-to-Date
------------ ------------
2010 2009 2010 2009
---- ---- ---- ----
Revenue
Amount $49,700 $47,555
Growth Rate 5% 9%
Operating Earnings
Amount $607 $600 $681 $648
Growth Rate 1% (11)% 5% (6)%
Earnings from Continuing Operations
Amount $168 $341 $401 $351
Growth Rate (51)% (20)% 14% (20)%
-- ---
-----------------------------
Refer to the GAAP / Non-GAAP Reconciliation for definitions and
calculations supporting the non-GAAP balances.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SEGMENT BUSINESS ANALYSIS
Second Quarter Second Quarter
-------------- --------------
(in millions) 2010 2009 (in millions) 2010 2009
---- ---- ---- ----
PHARMACEUTICAL MEDICAL
Revenue Revenue
Amount $22,695 $22,079 Amount $2,232 $2,057
Growth Rate 3% 8% Growth Rate 9% 4%
Mix 91% 91% Mix 9% 9%
Segment Profit Segment Profit
Amount $260 $263 Amount $103 $75
Growth Rate (1)% 12% Growth Rate 38% (24)%
Mix 72% 78% Mix 28% 22%
Segment Profit
Margin 1.14% 1.19% Segment Profit Margin 4.59% 3.62%
-------------- ---- ---- --------------------- ---- ----
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the three months ended December 31, 2009
was $24,920 million, which included total segment revenue of $24,927
million and Corporate revenue of $(7) million. Total consolidated revenue
for the three months ended December 31, 2008 was $24,118 million, which
included total segment revenue of $24,136 million and Corporate revenue of
$(18) million. Corporate revenue consists primarily of elimination of
inter-segment revenue.
Total consolidated operating earnings for the three months ended December
31, 2009 were $367 million, which included total segment profit of $363
million and Corporate profit of $4 million. Total consolidated operating
earnings for the three months ended December 31, 2008 were $313 million,
which included total segment profit of $338 million and Corporate loss of
$25 million. Corporate includes, among other things, restructuring and
employee severance, impairments and loss on sale of assets and litigation
(credits)/charges, net.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SEGMENT BUSINESS ANALYSIS
Year-to-Date Year-to-Date
------------ ------------
(in millions) 2010 2009 (in millions) 2010 2009
---- ---- ---- ----
PHARMACEUTICAL MEDICAL
Revenue Revenue
Amount $45,257 $43,483 Amount $4,469 $4,094
Growth Rate 4% 10% Growth Rate 9% 6%
Mix 91% 91% Mix 9% 9%
Segment Profit Segment Profit
Amount $468 $476 Amount $217 $172
Growth Rate (2)% (8)% Growth Rate 26% (1)%
Mix 68% 73% Mix 32% 27%
Segment Profit
Margin 1.03% 1.09% Segment Profit Margin 4.86% 4.21%
-------------- ---- ---- --------------------- ---- ----
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the six months ended December 31, 2009 was
$49,700 million, which included total segment revenue of $49,726 million
and Corporate revenue of $(26) million. Total consolidated revenue for
the six months ended December 31, 2008 was $47,555 million, which included
total segment revenue of $47,577 million and Corporate revenue of $(22)
million. Corporate revenue consists primarily of elimination of inter-
segment revenue.
Total consolidated operating earnings for the six months ended December
31, 2009 were $607 million, which included total segment profit of $685
million and Corporate loss of $78 million. Total consolidated operating
earnings for the six months ended December 31, 2008 were $600 million,
which included total segment profit of $648 million and Corporate loss of
$48 million. Corporate includes, among other things, restructuring and
employee severance, impairments and loss on sale of assets and litigation
(credits)/charges, net.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SCHEDULE OF NOTABLE ITEMS
Second Quarter Year-to-Date
-------------- ------------
(in millions, except per Common Share
amounts) 2010 2009 2010 2009
---- ---- ---- ----
Restructuring and Employee Severance
Restructuring and employee severance $(10.7) $(16.9) $(70.4) $(37.6)
Tax benefit 2.6 6.5 20.0 13.9
--- --- ---- ----
Restructuring and employee severance,
net of tax $(8.1) $(10.4) $(50.4) $(23.7)
===== ====== ====== ======
Decrease to diluted EPS from
continuing operations $(0.02) $(0.03) $(0.14) $(0.06)
====== ====== ====== ======
Impairments and Loss on Sale of Assets
Impairments and loss on sale of assets $(0.4) $(6.9) $(24.0) $(10.5)
Tax benefit 0.2 3.4 8.3 24.3
--- --- --- ----
Impairments and loss on sale of asset,
net of tax $(0.2) $(3.5) $(15.7) $13.8
===== ===== ====== =====
(Decrease)/increase to diluted EPS
from continuing operations $- $(0.01) $(0.04) $0.04
== ====== ====== =====
Litigation Credits/(Charges), Net
Litigation credits/(charges), net $25.4 $0.3 $25.9 $0.3
Tax expense (9.6) (0.1) (9.8) (0.1)
---- ---- ---- ----
Litigation credits/(charges), net, net
of tax $15.8 $0.2 $16.1 $0.2
===== ==== ===== ====
Increase to diluted EPS from
continuing operations $0.04 $- $0.04 $-
===== == ===== ==
Other Spin-Off Costs
Other spin-off costs 1 $(5.3) $- $(47.6) $-
Tax benefit/(expense) 2 1.4 - (154.5) -
--- -- ------ --
Other spin-off costs, net of tax $(3.9) $- $(202.1) $-
===== == ======= ==
Decrease to diluted EPS from
continuing operations $(0.01) $- $(0.56) $-
====== == ====== ==
Gain on Sale of CareFusion stock
Gain on sale of CareFusion stock 3 $20.0 $- $20.0 $-
Tax expense - - - -
-- -- -- --
Gain on sale of CareFusion stock, net
of tax $20.0 $- $20.0 $-
===== == ===== ==
Increase to diluted EPS from
continuing operations $0.06 $- $0.06 $-
===== == ===== ==
Weighted Average Number of Diluted
Shares Outstanding 361.0 360.3 361.1 361.2
(1) Other spin-off costs included in other (income)/expense, net for the
six months ended December 31, 2009 were $2.4 million. Other spin-off costs
also include the $39.9 million loss on extinguishment of debt for the six
months ended December 31, 2009.
(2) The fiscal 2010 year-to-date tax expense associated with the other
spin-off costs includes $171.9 million related to the anticipated
repatriation of a portion of cash loaned to the Company's entities within
the United States.
(3) Included within other (income)/expense, net on the unaudited condensed consolidated statements of earnings.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
ASSET MANAGEMENT ANALYSIS
Second Year-To-
Quarter Date
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
Receivable Days 17.5 17.7
Days Inventory on Hand 27 28
Debt to Total Capital 29% 32%
Net Debt to Capital 7% 29%
Return on Equity 18.5% 15.8% 6.2% 14.3%
Non-GAAP Return on Equity 16.6% 17.2% 16.2% 17.0%
Return on Invested Capital 7.72% 7.09% 2.96% 6.35%
Non-GAAP Return on Invested Capital 6.98% 6.19% 6.57% 5.95%
Effective Tax Rate from Continuing Operations 36.9% 37.7% 68.8% 35.1%
Non-GAAP Effective Tax Rate from Continuing
Operations 38.5% 38.0% 37.0% 38.9%
-------------------------------------------------
Refer to the GAAP / Non-GAAP Reconciliation for non-GAAP calculations.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION
Second Quarter 2010
---------------------
Restruc-
turing Impairments Gain on
and and Litigation Other Sale of
Employee Loss on (Credits)/ Spin- Care-
Sever- Sale of Charges, Off Fusion Non-
GAAP ance Assets Net Costs Stock GAAP
(in millions,
except per Common
Share amounts)
Operating
Earnings
Amount $367 $11 - ($25) $5 - $358
Growth Rate 17 % 6%
Earnings Before
Income Taxes
and
Discontinued
Operations $365 $11 - ($25) $5 ($20) $336
Provision for
Income
Taxes (1) $135 $3 - ($10) $1 - $129
Earnings from
Continuing
Operations
Amount $230 $8 - ($16) $4 ($20) $207
Growth Rate 36% 13%
Diluted EPS from
Continuing
Operations
Amount $0.64 $0.02 - ($0.04) $0.01 ($0.06) $0.57
Growth Rate 36% 12%
Year-To-Date 2010
-----------------
Restruc-
turing Impairments Gain on
and and Litigation Other Sale of
Employee Loss on (Credits)/ Spin- Care-
Sever- Sale of Charges, Off Fusion Non-
GAAP ance Assets Net Costs Stock GAAP
Operating
Earnings
Amount $607 $70 $24 ($26) $5 - $681
Growth Rate 1 % 5%
Earnings
Before Income
Taxes and
Discontinued
Operations $540 $70 $24 ($26) $48 ($20) $636
Provision for
Income Taxes
(1) $372 $20 $8 ($10) ($155) - $236
Earnings from
Continuing
Operations
Amount $168 $50 $16 ($16) $202 ($20) $401
Growth Rate (51)% 14%
Diluted EPS
from
Continuing
Operations
Amount $0.47 $0.14 $0.04 ($0.04) $0.56 ($0.06) $1.11
Growth Rate (51)% 14%
Second Quarter 2009
-------------------
Restruc-
turing Impairments Gain on
and and Litigation Other Sale of
Employee Loss on (Credits)/ Spin- Care-
Sever- Sale of Charges, Off Fusion Non-
GAAP ance Assets Net Costs Stock GAAP
Operating
Earnings
Amount $313 $17 $7 - - - $337
Growth Rate (8)% -
Earnings Before
Income Taxes
and
Discontinued
Operations $271 $17 $7 - - - $295
Provision for
Income
Taxes (1) $102 $7 $3 - - - $112
Earnings from
Continuing
Operations
Amount $169 $10 $4 - - - $183
Growth Rate (21)% (15)%
Diluted EPS
from Continuing
Operations
Amount $0.47 $0.03 $0.01 - - - $0.51
Growth Rate (20)% (14)%
Year-To-Date 2009
-----------------
Restruc-
turing Impairments Gain on
and and Litigation Other Sale of
Employee Loss on (Credits)/ Spin- Care-
Sever- Sale of Charges, Off Fusion Non-
GAAP ance Assets Net Costs Stock GAAP
Operating
Earnings
Amount $600 $38 $11 - - - $648
Growth Rate (11)% (6)%
Earnings Before
Income Taxes
and
Discontinued
Operations $526 $38 $11 - - - $574
Provision for
Income
Taxes (1) $185 $14 $24 - - - $223
Earnings from
Continuing
Operations
Amount $341 $24 ($14) - - - $351
Growth Rate (20)% (20)%
Diluted EPS
from Continuing
Operations
Amount $0.95 $0.06 ($0.04) - - - $0.97
Growth Rate (18)% (18)%
The sum of the components may not equal the total due to rounding.
(1) The Company applies varying tax rates depending upon the tax
jurisdiction where the items are incurred.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION
Second Second
Quarter Quarter
------- -------
(in millions) 2010 2009
---- ----
GAAP Return on Invested Capital 7.72 % 7.09 %
Adjusted Net Earnings
Net earnings $234.5 $316.5
Restructuring and employee severance, net
of tax, in continuing operations(1) 8.1 10.4
Impairments and loss on sale of assets,
net of tax, in continuing operations(1) 0.2 3.5
Litigation (credits)/charges, net, net of
tax, in continuing operations(1) (15.8) (0.2)
Other spin-off costs, net of tax(1) 3.9 -
Gain on sale of CareFusion stock, net of
tax(1) (20.0) -
Other (income)/expense, net, net of
tax(1) (3.5) 12.6
Interest expense, net, net of tax(1) 17.1 14.2
CareFusion net earnings in discontinued
operations(2) (0.3) (147.0)
---- ------
Adjusted net earnings $224.2 $210.0
Annualized $896.8 $840.0
Second First Second First
Quarter Quarter Quarter Quarter
2010 2010 2009 2009
GAAP Total Invested Capital $12,819.9 $12,888.9 $19,522.8 $19,220.0
Non-GAAP Total Invested
Capital
Total shareholders' equity $5,226.1 $4,941.2 $8,127.9 $7,918.1
Current portion of long-
term obligations and other
short-term borrowings 12.7 362.3 459.0 158.0
Long-term obligations, less
current portion and other
short-term borrowings 2,099.2 2,103.5 3,385.8 3,593.3
Non-cash dividend related
to CareFusion spin-off - - (3,752.4) (3,752.4)
Current portion of long-
term obligations and other
short-term borrowings in
discontinued operations - - 7.2 7.3
Long-term obligations, less
current portion and other
short-term borrowings in
discontinued operations - - 3.4 3.7
Unrecorded goodwill(3) 5,481.9 5,481.9 5,481.9 5,481.9
Non-GAAP total invested
capital $12,819.9 $12,888.9 $13,712.8 $13,409.9
Average non-GAAP total
invested capital $12,854.4 $13,561.4
Non-GAAP Return on Invested
Capital 6.98% 6.19%
(1) The Company applies varying tax rates depending upon the tax
jurisdiction where the items are incurred.
(2) To properly reflect the impact of the spin-off, on a non-GAAP
basis, CareFusion net earnings included in discontinued operations
are excluded from adjusted net earnings for all periods presented.
(3) Unrecorded goodwill is $5.5 billion on a GAAP basis at December
31, 2009 and September 30, 2009, respectively. Unrecorded goodwill
is $7.5 billion on a GAAP basis at December 31, 2008 and September
30, 2008, respectively, of which $2.0 billion relates to CareFusion.
Accordingly, on a non-GAAP basis, unrecorded goodwill is $5.5
billion for all periods presented.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION
Year-To-Date Year-To-Date
------------ ------------
(in millions) 2010 2009
---- ----
GAAP Return on Invested Capital 2.96% 6.35%
Adjusted Net Earnings
Net earnings $196.3 $565.6
Restructuring and employee severance,
net of tax, in continuing operations(1) 50.4 23.7
Impairments and loss on sale of assets,
net of tax, in continuing operations(1) 15.7 (13.8)
Litigation (credits)/charges, net, net
of tax, in continuing operations(1) (16.1) (0.2)
Other spin-off costs, net of tax(1) 202.1 -
Gain on sale of CareFusion stock, net of
tax(1) (20.0) -
Other (income)/expense, net, net of
tax(1) (10.6) 14.2
Interest expense, net, net of tax(1) 38.2 32.8
CareFusion net earnings in discontinued
operations(2) (20.4) (221.0)
----- ------
Adjusted net earnings $435.6 $401.3
Annualized $871.2 $802.6
Second First Fourth Second First Fourth
Quarter Quarter Quarter Quarter Quarter Quarter
2010 2010 2009 2009 2009 2008
---- ---- ---- ---- ---- ----
GAAP Total
Invested
Capital $12,819.9 $12,888.9 $19,911.5 $19,522.8 $19,220.0 $19,133.4
Non-GAAP Total
Invested
Capital
Total
shareholders'
equity $5,226.1 $4,941.2 $8,724.7 $8,127.9 $7,918.1 $7,747.5
Current portion
of long-term
obligations and
other short-
term
borrowings 12.7 362.3 366.2 459.0 158.0 151.6
Long-term
obligations,
less current
portion and
other short-
term
borrowings 2,099.2 2,103.5 3,271.6 3,385.8 3,593.3 3,681.7
Non-cash
dividend
related to
CareFusion
spin- off - - (3,752.4) (3,752.4) (3,752.4) (3,752.4)
Current portion
of long-term
obligations and
other short-term
borrowings in
discontinued
operations - - 1.1 7.2 7.3 7.4
Long-term
obligations, less
current portion
and other short-
term borrowings
in discontinued
operations - - 8.4 3.4 3.7 5.7
Unrecorded
good-
will(3) 5,481.9 5,481.9 5,481.9 5,481.9 5,481.9 5,481.9
Non-GAAP
total
invested
capital $12,819.9 $12,888.9 $14,101.5 $13,712.8 $13,409.9 $13,323.4
Average non-
GAAP Total
invested
capital $13,270.1 $13,482.0
Non-GAAP
Return
on Invested
Capital 6.57% 5.95%
(1) The Company applies varying tax rates depending upon the tax
jurisdiction where the items are incurred.
(2) To properly reflect the impact of the spin-off, on a non-GAAP
basis, CareFusion net earnings included in discontinued operations
are excluded from adjusted net earnings for all periods presented.
(3) Unrecorded goodwill is $5.5 billion on a GAAP basis at December
31, 2009 and September 30, 2009, respectively. Unrecorded goodwill
is $7.5 billion on a GAAP basis at June 30, 2009, December 31, 2008,
September 30, 2008 and June 30, 2008, respectively, of which $2.0
billion relates to CareFusion. Accordingly, on a non-GAAP basis,
unrecorded goodwill is $5.5 billion for all periods presented.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION
Second Second
Quarter Quarter
------- -------
(in millions) 2010 2009
---- ----
GAAP Return on Equity 18.5 % 15.8%
Non-GAAP Return on Equity
Net earnings $234.5 $316.5
Restructuring and employee severance,
net of tax, in continuing operations(1) 8.1 10.4
Impairments and loss on sale of assets,
net of tax, in continuing operations(1) 0.2 3.5
Litigation (credits)/charges, net, net
of tax, in continuing operations(1) (15.8) (0.2)
Other spin-off costs, net of tax(1) 3.9 -
Gain on sale of CareFusion stock, net of
tax(1) (20.0) -
CareFusion net earnings in discontinued
operations(1, 2) (0.3) (147.0)
---- ------
Adjusted net earnings $210.6 $183.2
Annualized $842.4 $732.8
Second First Second First
Quarter Quarter Quarter Quarter
2010 2010 2009 2009
Non-GAAP
Shareholders' Equity
Total shareholders'
equity $5,226.1 $4,941.2 $8,127.9 $7,918.1
Non-cash dividend
related to
CareFusion
spin-off - - (3,752.4) (3,752.4)
Non-GAAP
shareholders'
equity $5,226.1 $4,941.2 $4,375.5 $4,165.7
Average non-
GAAP
shareholders'
equity 5,083.7 4,270.6
Non-GAAP return
on equity 16.6% 17.2%
(1)The Company applies varying tax rates depending upon the tax
jurisdiction where the items are incurred.
(2)To properly reflect the impact of the spin-off, on a non-GAAP basis,
CareFusion net earnings included in discontinued operations are
excluded from adjusted net earnings for all periods presented.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP /NON-GAAP RECONCILIATION
Year-To- Year-To-
Date Date
--------- ---------
(in millions) 2010 2009
---- ----
GAAP Return on Equity 6.2 % 14.3% %
Non-GAAP Return on Equity Net earnings $196.3 $565.6
Restructuring and employee severance,
net of tax, in continuing operations(1) 50.4 23.7
Impairments and loss on sale of assets,
net of tax, in continuing operations(1) 15.7 (13.8)
Litigation (credits)/charges, net, net
of tax, in continuing operations(1) (16.1) (0.2)
Other spin-off costs, net of tax(1) 202.1 -
Gain on sale of CareFusion stock,
net of tax(1) (20.0) -
CareFusion net earnings in Discontinued
operations(1, 2) (20.4) (221.0)
----- ------
Adjusted net earnings $408.0 $354.3
Annualized $816.0 $708.6
Second First Fourth Second First Fourth
Quarter Quarter Quarter Quarter Quarter Quarter
2010 2010 2009 2009 2009 2008
Non-GAAP
Shareholders'
Equity
Total
shareholders'
equity $5,226.1 $4,941.2 $8,724.7 $8,127.9 $7,918.1 $7,747.5
Non-cash
dividend
related to
CareFusion
spin-off - - (3,752.4) (3,752.4) (3,752.4) (3,752.4)
Non-GAAP
shareholders'
equity $5,226.1 $4,941.2 $4,972.3 $4,375.5 $4,165.7 $3,995.1
Average non-
GAAP
shareholders'
equity 5,046.5 4,178.8
Non-GAAP return
on equity 16.2% 17.0%
(1) The Company applies varying tax rates depending upon the tax
jurisdiction where the items are incurred.
(2) To properly reflect the impact of the spin-off, on a non-GAAP basis,
CareFusion net earnings included in discontinued operations are
excluded from adjusted net earnings for all periods presented.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION
Second Quarter Year-to-Date
-------------- ------------
(in millions) 2010 2009 2010 2009
---- ---- ---- ----
GAAP Effective Tax Rate
from Continuing
Operations 36.9% 37.7% 68.8% 35.1%
Non-GAAP Effective Tax
Rate from Continuing
Operations
Earnings before income
taxes and discontinued
operations $365.0 $271.2 $540.0 $526.1
Restructuring and
employee severance 10.7 16.9 70.4 37.6
Impairments and loss on
sale of assets 0.4 6.9 24.0 10.5
Litigation
(credits)/charges, net (25.4) (0.3) (25.9) (0.3)
Other spin-off costs 5.3 - 47.6 -
Gain on sale of
CareFusion stock (20.0) - (20.0) -
----- --- ----- ---
Adjusted earnings before
income taxes and
discontinued operations $336.0 $294.7 $636.1 $573.9
Provision for income
taxes(1) $134.8 $102.2 $371.6 $184.9
Restructuring and
employee severance tax
benefit(1) 2.6 6.5 20.0 13.9
Impairments and loss on
sale of assets, tax
benefit(1) 0.2 3.4 8.3 24.3
Litigation
(credits)/charges, net
tax expense(1) (9.6) (0.1) (9.8) (0.1)
Other spin-off costs tax
expense(1) 1.4 - (154.5) -
Gain on sale of
CareFusion stock tax
expense(1) - - - -
--- --- --- ---
Adjusted provision for
income taxes $129.4 $112.0 $235.6 $223.0
Non-GAAP effective tax
rate from continuing
operations 38.5% 38.0% 37.0% 38.9%
Second Quarter
--------------
2010 2009
---- ----
Debt to Total Capital 29% 32%
Net Debt to Capital
Current portion of long-term obligations
and other short-term borrowings $12.7 $459.0
Long-term obligations, less current
portion and other short-term borrowings 2,099.2 3,385.8
------- -------
Debt $2,111.9 $3,844.8
Cash and equivalents (1,746.8) (582.6)
-------- ------
Net debt $365.1 $3,262.2
Total shareholders' equity $5,226.1 $8,127.9
Capital $5,591.2 $11,390.1
Net Debt to Capital 7% 29%
(1) The Company applies varying tax rates depending upon the tax
jurisdiction where the items are incurred.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
Second Quarter
--------------
(in millions) 2010 2009
---- ----
Days Inventory on Hand
Inventories $7,961.0 $8,224.5
Cost of products sold $23,962.0 $23,202.7
Chargeback billings 2,790.8 2,972.4
Adjusted cost of products sold $26,752.8 $26,175.1
Adjusted cost of products sold divided by 90
days $297.3 $290.8
Days inventory on hand 27 28
Days Inventory on Hand: inventory divided by ((quarterly cost of
products sold plus chargeback billings) divided by 90 days). Chargeback
billings are the difference between a product's wholesale acquisition
cost and the contract price established between pharmaceutical
manufacturers and the end customers.
Forward-Looking Non-GAAP Financial Measures
The Company presents non-GAAP earnings from continuing operations
and non-GAAP effective tax rate from continuing operations (and
presentations derived from these financial measures, including per
share calculations) on a forward-looking basis. The most directly
comparable forward-looking GAAP measures are earnings from
continuing operations and effective tax rate from continuing
operations. The Company is unable to provide a quantitative
reconciliation of these forward-looking non-GAAP measures to the
most directly comparable forward-looking GAAP measures because the
Company cannot reliably forecast restructuring and employee
severance, impairments and loss on sale of assets, litigation
(credits)/charges, net, other spin-off costs and gains or losses on
sale of CareFusion stock, which are difficult to predict and
estimate and are primarily dependent on future events. Please note
that the unavailable reconciling items could significantly impact
the Company's future financial results.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
DEFINITIONS
GAAP
Debt: long-term obligations plus short-term borrowings
Debt to Total Capital: debt divided by (debt plus total shareholders'
equity)
Diluted EPS from Continuing Operations: earnings from continuing
operations divided by diluted weighted average shares outstanding
Effective Tax Rate from Continuing Operations: provision for income taxes
divided by earnings before income taxes and discontinued operations
Gain on Sale of CareFusion Stock: realized gains and losses from the sale
of the Company's ownership of CareFusion common stock retained in
connection with the spin-off
Other Spin-Off Costs: costs and tax charges incurred in connection with
the Company's spin-off of CareFusion that are not included in
restructuring and employee severance, impairments and loss on sale of
assets and litigation (credits)/charges, net. Other spin-off costs
include, among other things, the loss on extinguishment of debt and the
income tax charge related to the anticipated repatriation of a portion of
cash loaned to the Company's entities within the United States
Receivable Days: trade receivables, net divided by (monthly revenue
divided by 30 days)
Segment Profit: segment revenue minus (segment cost of products sold and
segment distribution, selling, general and administrative expenses)
Segment Profit Margin: segment profit divided by segment revenue
Segment Profit Mix: segment profit divided by total segment profit for
all segments
Return on Equity: annualized net earnings divided by average
shareholders' equity
Return on Invested Capital: annualized net earnings plus other
(income)/expense, net plus interest expense, net divided by (average
total shareholders' equity plus debt plus unrecorded goodwill)
Revenue Mix: segment revenue divided by total segment revenue for all
segments
NON-GAAP
Net Debt to Capital: net debt divided by (net debt plus total
shareholders' equity)
Net Debt: debt minus (cash and equivalents)
Non-GAAP Diluted EPS from Continuing Operations: non-GAAP earnings from
continuing operations divided by diluted weighted average shares
outstanding
Non-GAAP Diluted EPS from Continuing Operations Growth Rate: (current
period non-GAAP diluted EPS from continuing operations minus prior period
non-GAAP diluted EPS from continuing operations) divided by prior period
non-GAAP diluted EPS from continuing operations
Non-GAAP Earnings from Continuing Operations: earnings from continuing
operations excluding (1) restructuring and employee severance, (2)
impairments and loss on sale of assets, (3) litigation (credits)/charges,
net, (4) Other Spin-Off Costs and (5) gain on sale of CareFusion stock,
each net of tax
Non-GAAP Earnings from Continuing Operations Growth Rate: (current period
non-GAAP earnings from continuing operations minus prior period non-GAAP
earnings from continuing operations) divided by prior period non-GAAP
earnings from continuing operations
Non-GAAP Effective Tax Rate from Continuing Operations: (provision for
income taxes adjusted for (1) restructuring and employee severance, (2)
impairments and loss on sale of assets, (3) litigation (credits)/charges,
net, (4) Other Spin-Off Costs and (5) gain on sale of CareFusion stock)
divided by (earnings before income taxes and discontinued operations
adjusted for (1) restructuring and employee severance, (2) impairments
and loss on sale of assets, (3) litigation (credits)/charges, net, (4)
Other Spin-Off Costs and (5) gain on sale of CareFusion stock)
Non-GAAP Operating Earnings: operating earnings excluding (1)
Restructuring and employee severance, (2) impairments and loss on sale
of assets, (3) litigation credits/(charges), net and (4) Other Spin-Off
Costs included within distribution, selling, general and administrative
expenses
Non-GAAP Operating Earnings Growth Rate: (current period non-GAAP
operating earnings minus prior period non-GAAP operating earnings)
divided by prior period non-GAAP operating earnings
Non-GAAP Return on Equity: (annualized current period net earnings
excluding (1) restructuring and employee severance, (2) impairments and
loss on sale of assets, (3) litigation (credits)/charges, net, (4) Other
Spin-Off Costs, (5) CareFusion net earnings in discontinued operations
and (6) gain on sale of CareFusion stock, each net of tax) divided by
average shareholders' equity adjusted for the $3.7 billion non-cash
dividend issued in connection with the spin-off
Non-GAAP Return on Invested Capital: (annualized net earnings excluding
(1) restructuring and employee severance, (2) impairments and loss on
sale of assets, (3) litigation (credits)/charges, net, (4) Other Spin-Off
Costs, (5) gain on sale of CareFusion stock, (6) other (income)/expense,
net, (7) interest expense, net and (8) CareFusion net earnings in
discontinued operations, each net of tax) divided by (average total
shareholders' equity adjusted for the $3.7 billion non-cash dividend
issued in connection with the spin-off plus debt plus unrecorded goodwill
excluding unrecorded goodwill attributed to CareFusion)
SOURCE: Cardinal Health, Inc.
Website: www.cardinalhealth.com
