10-KPeriod: FY2009

CARDINAL HEALTH INC Annual Report, Year Ended Jun 30, 2009

Filed August 27, 2009For Securities:CAH

Summary

Cardinal Health Inc.'s 2009 10-K filing highlights a significant strategic shift with the planned spin-off of its CareFusion Corporation business. This separation aims to streamline the company by divesting its clinical and medical products segment, allowing Cardinal Health to focus primarily on its core healthcare supply chain services, particularly pharmaceutical distribution. The company is also undergoing changes to its reportable segments to reflect this strategic realignment. Financially, the company operates within a competitive landscape across its segments, with the pharmaceutical supply chain business facing particular margin pressures due to customer discounts and manufacturer incentives. The filing also details various acquisitions and divestitures over the past five years, indicating a dynamic approach to portfolio management. Investors should pay close attention to the impact of the CareFusion spin-off and the ongoing competitive pressures on margins within the pharmaceutical distribution segment.

Financial Highlights

50 data points
Beta

Revenue

$95.99B

3.9% Gross Margin

Net Income

$1.15B

1.2% Net Margin

EPS (Diluted)

$3.18

Total Assets

$25.12B

Cash & Equivalents

$1.22B

Free Cash Flow

$1.00B

Financial Statements
Beta
Revenue$95.99B
Cost of Revenue$92.24B
Gross Profit$3.75B
SG&A Expenses$2.33B
Operating Income$1.29B
Interest Expense$114.40M
Net Income$1.15B
EPS (Basic)$3.22
EPS (Diluted)$3.18
Shares Outstanding (Basic)357.60M
Shares Outstanding (Diluted)361.50M

Key Highlights

  • 1Planned spin-off of CareFusion Corporation, separating clinical and medical products businesses from healthcare supply chain services.
  • 2Strategic focus shifting towards the core pharmaceutical distribution business.
  • 3Significant customer concentration, with the top five customers (including CVS and Walgreen) accounting for 54% of fiscal 2009 revenue.
  • 4Active acquisition and divestiture strategy, including the acquisition of VIASYS Healthcare Inc. and Enturia Inc., and divestitures of Tecomet, MedSystems, and plans to divest the UK-based Martindale injectable manufacturing business.
  • 5Regulatory scrutiny and settlements, including a $34.0 million settlement with the DEA regarding controls against diversion of controlled substances.
  • 6The pharmaceutical supply chain business operates on narrow profit margins heavily influenced by customer discounts, manufacturer cash discounts, distribution service agreement fees, and pharmaceutical price appreciation.
  • 7Changes to reportable segments for fiscal 2010, with a post-spin-off structure of Pharmaceutical and Medical segments.

Frequently Asked Questions

The spin-off of CareFusion Corporation is a major strategic move for Cardinal Health. It will separate the clinical and medical products businesses, allowing Cardinal Health to concentrate on its core healthcare supply chain services, primarily pharmaceutical distribution. This is expected to simplify the company's structure and sharpen its strategic focus.

The pharmaceutical supply chain business is a key segment. Its gross margin is influenced by several factors including customer discounts, manufacturer cash discounts, distribution service agreement fees, pharmaceutical price appreciation, and manufacturer rebates and incentives. The business operates on narrow profit margins, making efficient management of these factors critical.

Cardinal Health has a significant concentration of revenue from its largest customers. In fiscal 2009, CVS Caremark Corporation and Walgreen Co. alone accounted for approximately 21% and 23% of total revenue, respectively. The top five customers collectively represented about 54% of revenue, all within the Healthcare Supply Chain Services segment. The loss of one or more of these major customers could materially impact the company's financial performance.

The company is subject to extensive regulations in its pharmaceutical distribution and manufacturing operations. This includes compliance with DEA and FDA regulations concerning controlled substances, leading to a $34.0 million settlement in fiscal 2009. Other regulatory areas include prescription drug pedigree tracking, healthcare fraud and abuse laws, environmental laws, and health information practices (HIPAA/HITECH Act), all of which carry potential for civil and criminal penalties and could affect operations.