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| CAH > SEC Filings for CAH > Form 10-Q on 9-Feb-2009 | All Recent SEC Filings |
9-Feb-2009
Quarterly Report
The discussion and analysis presented below is concerned with material changes in financial condition and results of operations for the Company's condensed consolidated balance sheets as of December 31, 2008 and June 30, 2008, and for the condensed consolidated statements of earnings for the three and six month periods ended December 31, 2008 and 2007. This discussion and analysis should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the 2008 Form 10-K.
Portions of this Form 10-Q (including information incorporated by reference) include "forward-looking statements." The words "believe," "expect," "anticipate," "project," and similar expressions, among others, generally identify "forward-looking statements," which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. The most significant of these risks, uncertainties and other factors are described in Exhibit 99.1 to this Form 10-Q and in the 2008 Form 10-K (under "Item 1A: Risk Factors") and are incorporated in this Form 10-Q by reference. Except to the extent required by applicable law, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Overview
Cardinal Health is a leading provider of products and services that help improve the safety and productivity of healthcare. The Company is one of the largest distributors of pharmaceuticals and medical supplies. The Company also manufactures medication infusion and dispensing products, respiratory equipment and surgical instruments and provides leading technologies and services that help hospitals prevent medication errors, reduce hospital-acquired infections and manage medications and supplies more efficiently. Customers include hospitals and clinics, some of the largest drug store chains in the United States, and many other healthcare providers and retail outlets. The Company believes that its depth and breadth of products is unique in the industry and gives it a competitive advantage.
Continued demand for the Company's products and services during the three and six months ended December 31, 2008 led to revenue of $25.1 billion, up 8%, and $49.4 billion, up 9%, respectively, from the same periods in the prior year. Operating earnings were approximately $538 million and $964 million, respectively, an increase of 4% during the three months ended December 31, 2008 and a decrease of 4% during the six months ended December 31, 2008 from the same periods in the prior year. Operating earnings were favorably impacted by increased gross margin ($62 million and $84 million, respectively) offset by increases in SG&A expenses ($23 million and $75 million, respectively). Net earnings for the three and six months ended December 31, 2008 were $317 million and $566 million, respectively, and net diluted earnings per Common Share were $0.88 and $1.57, respectively. See Note 10 in "Notes to the Condensed Consolidated Financial Statements" for a reconciliation of Basic EPS to Diluted EPS.
Cash used in operating activities totaled $81 million during the six months ended December 31, 2008, primarily due to changes in the Company's working capital. Cash used in operating activities included the favorable impact of the $450 million outstanding under the committed receivables sales facility program at December 31, 2008. This impact will reverse once repayment is made. Cash used in investing activities was $176 million primarily due to capital spending ($182 million). Cash used in financing activities was $261 million primarily due to the Company's repayment of long-term obligations ($307 million). Also during the six months ended December 31, 2008, the Company paid $100 million in dividends or $0.14 per share.
Planned Spin-Off of Clinical and Medical Products Businesses
On September 29, 2008, the Company announced that it plans to spin off most of its clinical and medical products businesses from its remaining businesses through a pro rata distribution to the Company's shareholders (the "Planned Spin-Off"). The Company will retain certain surgical and exam gloves, drapes and apparel and fluid management businesses that are currently part of the Clinical and Medical Products segment. Completion of the Planned Spin-Off is subject to final approval by the Company's Board of Directors, confirmation of the tax-free nature of the Planned Spin-Off and the effectiveness of a Form 10 registration statement that will be filed with the SEC. While it is currently anticipated that the Planned Spin-Off will be completed by the middle of calendar 2009, there can be no assurance as to the timing or terms of the Planned Spin-Off should it be completed. See "Part II, Item 1A-Risk Factors" for certain risk factors relating to the Planned Spin-Off.
In connection with the Planned Spin-Off, the Company has announced that R. Kerry Clark will continue to lead the Company through the Planned Spin-Off and then retire as the Company's Chairman and Chief Executive Officer. Following Mr. Clark's retirement, George S. Barrett, Vice Chairman of Cardinal Health and Chief Executive Officer of Healthcare Supply Chain Services, is expected to become the Company's Chairman and Chief Executive Officer. Jeffrey W. Henderson will remain the Company's Chief Financial Officer. David L. Schlotterbeck, Vice Chairman of Cardinal Health and Chief Executive Officer of Clinical and Medical Products, is expected to become Chairman and Chief Executive Officer of the spin-off company.
The Company currently anticipates the total expenditures associated with the Planned Spin-Off for both businesses will be in the range of $200 million to $230 million in the period up to and including the day of the spin-off. These expenditures will primarily consist of employee-related costs, including severance, stand-up costs for various operations and systems and one-time transaction related costs.
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