Cardinal Health Reports First-Quarter Results

Q1 FY11

Q1 FY10

Y/Y

Revenue

$24.4 billion

$24.8 billion

(1)%

Operating Earnings

$364 million

$240 million

52%

Non-GAAP Operating Earnings(3)

$372 million

$323 million

15%

Earnings/(Loss) from Continuing Operations

$294 million

($62) million

N.M.

Non-GAAP Earnings from Continuing Operations

$225 million

$194 million

16%

Diluted EPS from Continuing Operations

$0.84

($0.17)

N.M.

Non-GAAP Diluted EPS from Continuing Operations

$0.64

$0.54

19%

Q1 FY11

Q1 FY10

Y/Y

Revenue

$22.3 billion

$22.6 billion

(1)%

Segment Profit

$296 million

$208 million

42%

Q1 FY11

Q1 FY10

Y/Y

Revenue

$2.17 billion

$2.24 billion

(3)%

Segment Profit

$83 million

$115 million

(28)%

CARDINAL HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

First Quarter

(in millions, except per Common Share amounts)

2011

2010

% Change

Revenue

$ 24,437.5

$ 24,780.7

(1)%

Cost of products sold

23,475.3

23,871.9

(2)%

Gross margin

962.2

908.8

6 %

Operating expenses

Distribution, selling, general and administrative expenses

591.9

586.1

1 %

Restructuring and employee severance

1.8

59.6

N.M.

Acquisition related costs

1.3

0.1

N.M.

Impairments and loss on sale of assets

1.9

23.6

N.M.

Litigation (credits)/charges, net

1.4

(0.5)

N.M.

Operating earnings

363.9

239.9

52 %

Other income, net

(7.5)

(8.9)

N.M.

Interest expense, net

22.0

33.9

(35)%

Loss on extinguishment of debt

-

39.9

N.M.

Gain on sale of investment in CareFusion

(74.8)

-

N.M.

Earnings before income taxes and discontinued operations

424.2

175.0

N.M.

Provision for income taxes

129.8

236.8

N.M.

Earnings/(loss) from continuing operations

294.4

(61.8)

N.M.

Earnings from discontinued operations (net of tax expense

of $0.0 million and $26.0 million for the first quarter of fiscal 2011 and 2010, respectively)

0.4

23.6

N.M.

Net earnings/(loss)

$      294.8

$      (38.2)

N.M.

Basic earnings/(loss) per Common Share:

Continuing operations

$        0.84

$      (0.17)

N.M.

Discontinued operations

-

0.06

N.M.

Net basic earnings/(loss) per Common Share

$        0.84

$      (0.11)

N.M.

Diluted earnings/(loss) per Common Share:

Continuing operations

$        0.84

$      (0.17)

N.M.

Discontinued operations

-

0.06

N.M.

Net diluted earnings/(loss) per Common Share

$        0.84

$      (0.11)

N.M.

Weighted average number of Common Shares outstanding:

Basic

348.9

359.1

Diluted(1)

351.9

359.1

(1)  Due to the loss from continuing operations and the net loss during the first quarter of fiscal 2010, dilutive potential Common Shares have not been included in the denominator of the dilutive per share computation due to their antidilutive effect.  

CARDINAL HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

June 30,

(in millions)

2010

2010

(UNAUDITED)

Assets

Cash and equivalents

$            2,712.2

$   2,755.3

Trade receivables, net

5,454.1

5,170.6

Inventories

7,087.5

6,355.9

Prepaid expenses and other

664.4

637.1

Total current assets

15,918.2

14,918.9

Property and equipment, net

1,475.3

1,468.8

Investment in CareFusion

-

691.5

Goodwill and other intangibles, net

2,896.9

2,253.2

Other assets

682.1

657.8

Total assets

$          20,972.5

$ 19,990.2

Liabilities and Shareholders' Equity

Accounts payable

$          10,532.3

$   9,494.9

Current portion of long-term obligations and other short-term borrowings

233.6

233.2

Other accrued liabilities

1,685.7

1,809.5

Total current liabilities

12,451.6

11,537.6

Long-term obligations, less current portion

1,906.4

1,896.1

Deferred income taxes and other liabilities

1,375.5

1,280.4

Total shareholders' equity

5,239.0

5,276.1

Total liabilities and shareholders' equity

$          20,972.5

$ 19,990.2

CARDINAL HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

First Quarter

(in millions)

2011

2010

Cash Flows From Operating Activities:

Net earnings/(loss)

$    294.8

$    (38.2)

Earnings from discontinued operations

(0.4)

(23.6)

Earnings/(loss) from continuing operations  

294.4

(61.8)

Adjustments to reconcile earnings/(loss) from continuing operations to net cash from operations:

Depreciation and amortization

68.5

66.3

Loss on extinguishment of debt

-

39.9

Gain on sale of investment in CareFusion

(74.8)

-

Impairments and loss on sale of assets

1.9

23.6

Share-based compensation

21.4

22.0

Provision for bad debts

2.7

12.3

Change in operating assets and liabilities, net of effects from acquisitions:

Increase in trade receivables

(272.3)

(716.1)

Increase in inventories

(731.8)

(28.1)

Increase in accounts payable

1,033.1

1,003.1

Other accrued liabilities and operating items, net

(125.4)

(99.6)

Net cash provided by operating activities - continuing operations

217.7

261.6

Net cash provided/(used in) operating activities - discontinued operations

(0.7)

144.4

Net cash provided by operating activities

217.0

406.0

Cash Flows From Investing Activities:

Acquisition of subsidiaries, net of cash acquired

(559.9)

(32.0)

Proceeds from sale of property and equipment

0.1

4.8

Additions to property and equipment

(62.0)

(37.0)

Proceeds from sale of investment in CareFusion

705.9

-

Net cash provided by/(used in) investing activities - continuing operations

84.1

(64.2)

Net cash used in investing activities - discontinued operations  

-

(9.9)

Net cash provided by/(used in) investing activities

84.1

(74.1)

Cash Flows From Financing Activities:

Reduction of long-term obligations

(0.4)

(1,134.4)

Proceeds from issuance of Common Shares

8.4

30.1

Tax disbursements from share-based compensation

(14.1)

(11.4)

Tax proceeds/(disbursements) from exercises of stock options

2.0

(6.2)

Payment of premiums for debt extinguishment

-

(66.4)

Dividends on Common Shares

(70.3)

(64.2)

Purchase of treasury shares

(269.8)

-

Net cash used in financing activities - continuing operations

(344.2)

(1,252.5)

Net cash provided by financing activities - discontinued operations

-

1,283.8

Net cash provided by/(used in) financing activities

(344.2)

31.3

Net increase/(decrease) in cash and equivalents

(43.1)

363.2

Cash and equivalents at beginning of period

2,755.3

1,221.6

Cash and equivalents at end of period

$ 2,712.2

$ 1,584.8

Supplemental Information:

Non-cash investing and financing transactions for:

Retained investment in CareFusion at date of Spin-Off

$            -

$    863.1

Non-cash dividend in connection with Spin-Off

$            -

$ 3,688.9

CARDINAL HEALTH, INC. AND SUBSIDIARIES

BUSINESS ANALYSIS

TOTAL COMPANY

Non-GAAP

First Quarter

First Quarter

(in millions)

2011

2010

2011

2010

Revenue

Amount

$24,438

$24,781

Growth Rate

(1)%

6 %

Operating Earnings

Amount

$364

$240

$372

$323

Growth Rate

52 %

(16)%

15 %

4 %

Earnings/(loss) from Continuing Operations

Amount

$294

($62)

$225

$194

Growth Rate

N.M.

N.M.

16 %

15 %

Refer to the GAAP / Non-GAAP Reconciliation for definitions and calculations supporting the non-GAAP balances.

CARDINAL HEALTH, INC. AND SUBSIDIARIES

SEGMENT BUSINESS ANALYSIS

First Quarter

First Quarter

(in millions)

2011

2010

(in millions)

2011

2010

PHARMACEUTICAL

MEDICAL

Revenue

Revenue

Amount

$22,273

$22,562

Amount

$2,169

$2,237

Growth Rate

(1)%

5 %

Growth Rate

(3)%

10 %

Mix

91 %

91 %

Mix

9 %

9 %

Segment Profit

Segment Profit

Amount

$296

$208

Amount

$83

$115

Growth Rate

42 %

(2)%

Growth Rate

(28)%

17 %

Mix

78 %

64 %

Mix

22 %

36 %

Segment Profit Margin

1.33 %

0.92 %

Segment Profit Margin

3.82 %

5.13 %

Refer to definitions for an explanation of calculations.

Total consolidated revenue for the three months ended September 30, 2010 was $24,438 million, which included total segment revenue of $24,442 million and Corporate revenue of $(4) million.  Total consolidated revenue for the three months ended September 30, 2009 was $24,781 million, which included total segment revenue of $24,799 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 September 30, 2010 were $364 million, which included total segment profit of $379 million and Corporate loss of $(15) million. Total consolidated operating earnings for the three months ended September 30, 2009 were $240 million, which included total segment profit of $323 million and Corporate loss of $(83) million. Corporate includes, among other things, restructuring and employee severance, acquisition related costs, impairments and loss on sale of assets, litigation (credits)/charges, net and certain investment spending that are not allocated to the segments.

CARDINAL HEALTH, INC. AND SUBSIDIARIES

SCHEDULE OF NOTABLE ITEMS

First Quarter

(in millions, except per Common Share amounts)

2011

2010

Restructuring and Employee Severance

Restructuring and employee severance

$ (1.8)

$   (59.6)

 Tax benefit

0.6

17.4

Restructuring and employee severance, net of tax

$ (1.2)

$   (42.2)

Decrease to diluted EPS from continuing operations

$      -

$   (0.12)

Acquisition Related Costs

Acquisition related costs

$ (1.3)

$     (0.1)

 Tax benefit

0.2

-

Acquisition related costs, net of tax

$ (1.1)

$     (0.1)

Decrease to diluted EPS from continuing operations

$      -

$         -

Impairments and Loss on Sale of Assets

Impairments and loss on sale of assets

$ (1.9)

$   (23.6)

 Tax benefit

0.7

8.1

Impairments and loss on sale of asset, net of tax

$ (1.2)

$   (15.5)

Decrease to diluted EPS from continuing operations

$      -

$   (0.04)

Litigation Credits/(Charges), Net

Litigation credits/(charges), net

$ (1.4)

$      0.5

 Tax benefit/(expense)

0.6

(0.2)

Litigation credits/(charges), net, net of tax

$ (0.8)

$      0.3

Increase/(decrease) to diluted EPS from continuing operations

$      -

$         -

Other Spin-Off Costs

Other spin-off costs (1)

$ (1.6)

$   (42.3)

 Tax benefit/(expense) (2)

0.6

(155.9)

Other spin-off costs, net of tax

$ (1.0)

$ (198.2)

Decrease to diluted EPS from continuing operations

$      -

$   (0.55)

Gain on Sale of CareFusion Stock

Gain on sale of CareFusion stock

$ 74.8

$         -

 Tax expense

-

-

Gain on sale of CareFusion stock, net of tax

$ 74.8

$         -

Increase to diluted EPS from continuing operations

$ 0.21

$         -

Weighted Average Number of Diluted Shares Outstanding

Weighted average number of diluted shares outstanding

351.9

359.1

Antidilutive effect due to loss from continuing operations and net loss

-

1.9

Weighted average number of diluted shares outstanding for non-GAAP calculations

351.9

361.0

(1)  Other spin-off costs included in other income, net for the three months ended September 30, 2009 were $2.4 million. Other spin-off costs also included the $39.9 million loss on extinguishment of debt for the three months ended September 30, 2009. The remaining other spin-off costs are included within distribution, selling, general and administrative expenses for all periods presented.

(2)  For the three months ended September 30, 2009, the 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 our entities within the United States.

CARDINAL HEALTH, INC. AND SUBSIDIARIES

ASSET MANAGEMENT ANALYSIS

First Quarter

2011

2010

Days Sales Outstanding

19.9

20.1

Days Inventory on Hand

23.8

23.1

Days Payable Outstanding

35.4

33.8

Debt to Total Capital

29 %

33 %

Net Debt to Capital

(12)%

15 %

Return on Equity

22.4%

(2.2)%

Non-GAAP Return on Equity

17.1%

15.8%

Effective Tax Rate from Continuing Operations

30.6%

135.3 %

Non-GAAP Effective Tax Rate from Continuing Operations

37.1%

35.4 %

Refer to the GAAP / Non-GAAP Reconciliation for non-GAAP calculations.  Refer to DSO, DIOH and DPO below for definitions and calculation.

CARDINAL HEALTH, INC. AND SUBSIDIARIES

GAAP / NON-GAAP RECONCILIATION

First Quarter 2011

(in millions, except per Common Share amounts)

GAAP

Restructuring and Employee Severance

Acquisition Related Costs

Impairments and Loss on Sale of Assets

Litigation (Credits)/    Charges, Net

Other
Spin-Off Costs

Gain on Sale of CareFusion Stock

Non-GAAP

Operating Earnings

Amount

$364

$2

$1

$2

$1

$2

-

$372

Growth Rate

52 %

15 %

Earnings Before Income Taxes and Discontinued Operations

$424

$2

$1

$2

$1

$2

($75)

$357

Provision for Income Taxes (1)

$130

$1

-

$1

$1

$1

-

$133

Earnings from Continuing Operations

Amount

$294

$1

$1

$1

$1

$1

($75)

$225

Growth Rate

N.M.

16 %

Diluted EPS from Continuing Operations

Amount

$0.84

-

-

-

-

-

($0.21)

$0.64

Growth Rate

N.M.

19 %

First Quarter 2010

GAAP

Restructuring and Employee Severance

Acquisition Related Costs

Impairments and Loss on Sale of Assets

Litigation (Credits)/    Charges, Net

Other Spin-Off Costs

Gain on Sale of CareFusion Stock

Non-GAAP

Operating Earnings

Amount

$240

$60

-

$24

-

-

-

$323

Growth Rate

(16)%

4 %

Earnings Before Income Taxes and Discontinued Operations

$175

$60

-

$24

-

$42

-

$300

Provision for Income Taxes (1)

$237

$17

-

$8

-

($156)

-

$106

Earnings/(Loss) from Continuing Operations

Amount

($62)

$42

-

$16

-

$198

-

$194

Growth Rate

N.M.

15 %

Diluted EPS from Continuing Operations

Amount

($0.17)

$0.12

-

$0.04

-

$0.55

-

$0.54

Growth Rate

N.M.

15 %

The sum of the components may not equal the total due to rounding.

(1) We apply varying tax rates depending upon the tax jurisdiction where the items are incurred.

CARDINAL HEALTH, INC. AND SUBSIDIARIES

GAAP / NON-GAAP RECONCILIATION

First Quarter

First Quarter

(in millions)

2011

2010

GAAP Return on Equity

22.4 %

(2.2)%

Non-GAAP Return on Equity

Net earnings/(loss)

$           294.8

$           (38.2)

Restructuring and employee severance, net of tax, in continuing operations(1)

1.2

42.2

Acquisition related costs, net of tax, in continuing operations(1)

1.1

0.1

Impairments and loss on sale of assets, net of tax, in continuing operations(1)

1.2

15.5

Litigation (credits)/charges, net, net of tax, in continuing operations(1)

0.8

(0.3)

Other spin-off costs, net of tax(1)

1.0

198.2

Gain on sale of CareFusion stock, net of tax(1)

(74.8)

-

CareFusion net earnings in discontinued operations(1, 2)

-

(20.1)

 Adjusted net earnings

$           225.3

$           197.4

 Annualized

$           901.2

$           789.6

First Quarter

Fourth Quarter

First Quarter

Fourth Quarter

2011

2010

2010

2009

Non-GAAP Shareholders' Equity

Total shareholders' equity

$        5,239.0

$           5,276.1

$        4,941.2

$           8,724.7

Non-cash dividend related to CareFusion spin-off

-

-

-

(3,688.9)

Non-GAAP shareholders' equity

$        5,239.0

$           5,276.1

$        4,941.2

$           5,035.8

 Divided by average shareholders' equity

5,257.6

4,988.5

Non-GAAP return on equity

17.1%

15.8%

(1)  We apply 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

First Quarter

(in millions)

2011

2010

GAAP Effective Tax Rate from Continuing Operations

30.6 %

135.3 %

Non-GAAP Effective Tax Rate from Continuing Operations

Earnings before income taxes and discontinued operations

$    424.2

$    175.0

Restructuring and employee severance

1.8

59.6

Acquisition related costs

1.3

0.1

Impairments and loss on sale of assets

1.9

23.6

Litigation (credits)/charges, net

1.4

(0.5)

Other spin-off costs

1.6

42.3

Gain on sale of CareFusion stock

(74.8)

-

 Adjusted earnings before income taxes and discontinued operations

$    357.4

$    300.1

Provision for income taxes(1)

$    129.8

$    236.8

Restructuring and employee severance tax benefit(1)

0.6

17.4

Acquisition related costs tax benefit(1)

0.2

-

Impairments and loss on sale of assets tax benefit(1)

0.7

8.1

Litigation (credits)/charges, net tax benefit/(expense)(1)

0.6

(0.2)

Other spin-off costs tax benefit/(expense)(1)

0.6

(155.9)

Gain on sale of CareFusion stock tax expense(1)

-

-

 Adjusted provision for income taxes

$    132.5

$    106.2

Non-GAAP effective tax rate from continuing operations

37.1%

35.4%

First Quarter

2011

2010

Debt to Total Capital

29%

33%

Net Debt to Capital

Current portion of long-term obligations and other short-term borrowings

$    233.6

$    362.3

Long-term obligations, less current portion

1,906.4

2,103.5

Debt

$ 2,140.0

$ 2,465.8

Cash and equivalents

(2,712.2)

(1,584.8)

 Net debt

$  (572.2)

$    881.0

Total shareholders' equity

$ 5,239.0

$ 4,941.2

Capital

$ 4,666.8

$ 5,822.2

 Net Debt to Capital

(12)%

15%

(1)  We apply varying tax rates depending upon the tax jurisdiction where the items are incurred.  

Forward-Looking Non-GAAP Financial Measures  

We present 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.  We are unable to provide a quantitative reconciliation of these forward-looking non-GAAP measures to the most directly comparable forward-looking GAAP measures because we cannot reliably forecast restructuring and employee severance, acquisition related costs, impairments and loss on sale of assets, litigation (credits)/charges, net, and other spin-off costs, which are difficult to predict and estimate and are primarily dependent on future events.  Please note that the unavailable reconciling items could significantly impact our future financial results.    

 CARDINAL HEALTH, INC. AND SUBSIDIARIES

First Quarter

(in millions)

2011

2010

Days Inventory on Hand

Inventories

$   7,087.5

$   6,861.9

Cost of products sold

$ 23,475.3

$ 23,871.9

Chargeback billings

3,289.1

2,843.4

 Adjusted cost of products sold

$ 26,764.4

$ 26,715.3

Adjusted cost of products sold divided by 90 days

$      297.4

$      296.8

Days inventory on hand

23.8

23.1

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 customer.

First Quarter

2011

2010

Days Payable Outstanding