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| CAH > SEC Filings for CAH > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-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 September 30, 2009 and June 30, 2009, and for the condensed consolidated statements of earnings for the three month periods ended September 30, 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 2009 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 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, Inc. (the "Company") is a leading provider of products and services that help improve the cost-effectiveness of health care. The Company helps pharmacies, hospitals and ambulatory care sites focus on patient care while helping reduce costs, improve efficiency and quality, and increase 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.
Demand for the Company's products and services during the three months ended September 30, 2009 led to revenue of $24.8 billion, up 6% from the same period in the prior year. Operating earnings were approximately $240 million, down $47 million or 16% from the same period in the prior year. Operating earnings were negatively impacted by an increase in impairments and loss on sale of assets ($20 million) which was primarily due to the recognition of a $23 million impairment charge related to the write-down of SpecialtyScripts, LLC ("SpecialtyScripts"), a business within the Pharmaceutical segment, to net expected fair value less costs to sell. In addition, operating earnings were also negatively impacted by an increase in restructuring and employee severance ($39 million) which was primarily due to costs incurred in connection with the spin-off of CareFusion (see below). Despite the 6% revenue growth, distribution, selling, general and administrative expense ("SG&A") decreased slightly from the prior year due to company-wide cost control initiatives ($4 million). In addition to the decrease in operating earnings described above, net earnings for the three months ended September 30, 2009 were adversely impacted by a tax charge of approximately $172 million related to the anticipated repatriation of certain foreign earnings, and a $40 million net loss on the extinguishment of debt. The Company had a net loss of $38 million for the three months ended September 30, 2009.The Company had net diluted loss per Common Share of $0.11 for the three months ended September 30, 2009. See Note 12 of "Notes to the Condensed Consolidated Financial Statements" for a reconciliation of Basic EPS to Diluted EPS.
Cash provided by operating activities totaled $406 million during the three months ended September 30, 2009, primarily due to operating earnings and changes in working capital. Cash used in investing activities was $74 million primarily due to capital spending ($37 million). Cash provided by financing activities was $31 million primarily due to permanent financing obtained by CareFusion (as defined below) prior to the Spin-Off (as defined below) ($1.4 billion) offset by the Company's repayment of long-term obligations ($1.2 billion which includes $66 million early tender premium). Also during the three months ended September 30, 2009, the Company paid $64 million in dividends.
Spin-Off of CareFusion Corporation
Effective August 31, 2009, the Company completed the spin-off of CareFusion Corporation ("CareFusion") through a pro rata distribution to its shareholders of approximately 81% of the then outstanding shares of CareFusion common stock (the "Spin-Off"). The Company first announced on September 29, 2008 that it intended to separate its clinical and medical products business from its other businesses. The Company has retained certain surgical and exam gloves, surgical drapes and apparel and fluid management businesses that were previously part of its Clinical and Medical Products segment.
CareFusion net assets are presented separately as assets from businesses held for sale and discontinued operations and the operating results of this business are presented within discontinued operations for all reporting periods.
Upon completion of the Spin-Off, the Company incurred a tax charge of approximately $172 million related to the anticipated repatriation of certain foreign earnings. This charge is included within the operating results for the three months ended September 30, 2009.
Relationship between the Company and CareFusion
On July 22, 2009, the Company and CareFusion entered into a separation agreement to effect the Spin-Off and provide a framework for the relationship between the Company and CareFusion after the Spin-Off. In addition, on August 31, 2009, the Company and CareFusion entered into a transition services agreement, a tax matters agreement, an employee matters agreement, intellectual property agreements and certain other commercial agreements. These agreements, including the separation agreement, provide for allocation between the Company and CareFusion of the Company's assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the Spin-Off and govern certain relationships between the Company and CareFusion after the Spin-Off. The Company and CareFusion also entered into a stockholder's and registration rights agreement pursuant to which, among other things, CareFusion agrees that, upon the request of the Company, CareFusion will use its commercially reasonable efforts to effect the registration under applicable federal and state securities laws of any shares of CareFusion common stock retained by Cardinal Health.
Pursuant to the transition services agreement, for the month ended September 30, 2009, the Company recognized approximately $13 million in transition service fee income which approximately offsets the costs associated with providing the transition services. Additionally, the Company purchased $106 million of CareFusion trade receivables pursuant to an accounts receivable factoring arrangement between the Company and CareFusion.
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