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| CAH > SEC Filings for CAH > Form 10-Q on 7-May-2009 | All Recent SEC Filings |
7-May-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 March 31, 2009 and June 30, 2008, and for the condensed consolidated statements of earnings for the three and nine month periods ended March 31, 2009 and 2008. 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"), which are incorporated in this Form 10-Q by reference, and in Part II, Item 1A of this Form 10-Q. 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.
Although the Company has been negatively impacted by the current economic downturn as exhibited by the deferral of hospital capital spending affecting the Clinical and Medical Products segment and increased bad debt expense within the Healthcare Supply Chain Services segment, customer demand within the Healthcare Supply Chain Services segment remained relatively strong resulting in increased revenue and segment profit for the three months ended March 31, 2009. Demand for the Company's products and services during the three and nine months ended March 31, 2009 led to revenue of $24.9 billion, up 9%, and $74.4 billion, up 9%, respectively, from the same periods in the prior year. Operating earnings were approximately $496 million, down 14%, and $1.5 billion, down 8%, respectively, during the three and nine months ended March 31, 2009 from the same periods in the prior year. Operating earnings during the three months ended March 31, 2009 were negatively impacted by decreased gross margin ($66 million) offset by a decrease in SG&A expense ($4 million). During the nine months ended March 31, 2009 operating earnings were negatively impacted by increases in SG&A expenses ($71 million) and special items ($37 million) partially offset by increased gross margin ($18 million). Net earnings for the three and nine months ended March 31, 2009 were $313 million and $878 million, respectively, and net diluted earnings per Common Share were $0.87 and $2.43, respectively. See Note 10 of "Notes to the Condensed Consolidated Financial Statements" for a reconciliation of Basic EPS to Diluted EPS.
Cash provided by operating activities totaled $740 million during the nine months ended March 31, 2009, primarily due to earnings. Also included in cash provided by operating activities were $123 million of settlement proceeds related to the termination of certain fixed-to-floating interest rate swaps. Cash used in investing activities was $269 million primarily due to capital spending ($263 million). Cash used in financing activities was $396 million primarily due to the Company's repayment of long-term obligations ($310 million). Also during the nine months ended March 31, 2009, the Company paid $150 million in dividends.
Planned Spin-Off of CareFusion Corporation
On September 29, 2008, the Company announced that it intended to separate its clinical and medical products businesses from its other businesses, including its healthcare supply chain services business, through a pro rata distribution to the Company's shareholders of a wholly owned subsidiary formed for the purpose of holding the clinical and medical products businesses (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 its Clinical and Medical Products segment. On March 31, 2009, CareFusion Corporation, the subsidiary formed to effect the Planned Spin-Off, filed a Form 10 registration statement for the Planned Spin-Off outlining the Company's plan to spin off at least 80% of the outstanding common stock of CareFusion through a pro rata distribution to the Company's shareholders, with the Company retaining the remaining shares of CareFusion common stock. The Company is required to dispose of the shares of CareFusion common stock within five years of the distribution.
The Planned Spin-Off is subject to final approval by the Company's Board of Directors, as well as a number of additional conditions, including, among others:
• the receipt of opinions from Weil, Gotshal & Manges LLP and Wachtell, Lipton, Rosen & Katz, co- counsel to Cardinal Health, to the effect that the contribution and distribution will qualify as a transaction that is described in Sections 355(a) and 368(a)(1)(D) of the Code;
• the SEC declaring effective the Form 10 registration statement;
• receipt of investment grade credit ratings for each of the Company and CareFusion; and
• the completion of the financing necessary for a cash distribution from CareFusion to the Company prior to the Planned Spin-Off.
The Company continues to target the summer of 2009 to complete the Planned Spin-Off, although some of the conditions to completing the transaction may delay the Planned Spin-Off until later in the year. The Company's goal is to complete the Planned Spin-Off later this calendar year, but no assurance can be provided as to the timing of the Planned Spin-Off or that all conditions to the Planned Spin-Off will be met. See "Part II, Item 1A-Risk Factors" for certain risk factors relating to the Planned Spin-Off.
The Company currently anticipates expenditures associated with the Planned Spin-Off primarily consisting of employee-related costs, costs to start up certain stand-alone functions and information technology systems and other one-time transaction related costs. It expects such expenditures for both companies will be in the range of $200 million to $230 million in the period up to and including the effective date of the Planned Spin-Off, excluding expenditures or costs relating to taxes.
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