01—Abstract
Summary
Summary of the 10-K filed August 26, 2010. Cited figures are marked; the original filing is the authoritative source.
Cardinal Health, Inc. (CAH) reported its fiscal year 2010 results, marked by a significant transition following the spin-off of its CareFusion Corporation business in August 2009.
The company is now focused on two core segments: Pharmaceutical and Medical. Revenue for the fiscal year reached $98.5 billiona, a 3% increase over the prior year. Pharmaceutical segment revenue grew by 2% to $89.8 billion, driven by pharmaceutical price appreciation and volume growth, though this was partially offset by customer losses and pricing changes on renewed contracts.
The Medical segment saw a 7% revenue increase to $8.75 billionb, primarily due to higher volumes and new products. Net earnings from continuing operations for fiscal 2010 were $587 million, or $1.62 per diluted share, a decrease from $758 million in fiscal 2009, attributed to factors like pricing changes in the Pharmaceutical segment and strategic investments.
The company's financial position strengthened, with cash and equivalents increasing to $2.8 billionc from $1.2 billion, driven by operating cash flow. Cardinal Health also continued its capital allocation strategy, including dividend payments, share repurchases, and strategic acquisitions, notably the acquisition of Healthcare Solutions Holding, LLC in July 2010.
02—Key points
Key Highlights
- Revenue grew 3% year-over-year to $98.5 billion, driven by both Pharmaceutical and Medical segments.
- Pharmaceutical segment revenue increased 2% to $89.8 billion, supported by price appreciation and volume, but impacted by contract renewals and customer attrition.
- Medical segment revenue increased 7% to $8.75 billion, boosted by increased volumes and new product introductions.
- Net earnings from continuing operations declined to $587 million ($1.62/share) from $758 million ($2.10/share) in the prior year due to various factors including pricing pressures and strategic investments.
- Cash and equivalents significantly increased to $2.8 billion from $1.2 billion, indicating improved liquidity.
- The company repurchased $250 million of its common stock during the fiscal year and declared an 11% increase in its quarterly dividend.
- The spin-off of CareFusion Corporation was completed in August 2009, leaving Cardinal Health with two primary operating segments: Pharmaceutical and Medical.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Cardinal Health Inc kept $0.01.
- Revenue$98.50B100.0%
- Cost of revenue−$94.72B96.2%
- Gross profit$3.78B3.8%
- Operating costs−$2.47B2.5%
- Operating income$1.31B1.3%
- Interest, other & tax−$665.0M0.7%
- Net income$642.0M0.7%
Where FY2010 revenue went
$98.50B- Cost of revenue: $94.72B, 96% of revenue
- Net income: $642.0M, 0.7% of revenue
- SG&A: $2.40B, 2.4% of revenue
- Interest, other & tax: $665.0M, 0.7% of revenue
Kept 0.7% as net incomeNet income $642.0M · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed August 26, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $98.50B$95.99B | +2.6% |
| Cost of Revenue | $94.72B$92.24B | +2.7% |
| Gross Profit | $3.78B$3.75B | +0.9% |
| SG&A Expenses | $2.40B$2.33B | +2.7% |
| Operating Income | $1.31B$1.29B | +1.5% |
| Interest Expense | $113.00M$114.40M | −1.2% |
| Net Income | $642.00M$1.15B | −44.3% |
| EPS (Basic) | $1.79$3.22 | −44.4% |
| EPS (Diluted) | $1.77$3.18 | −44.3% |
| Shares Outstanding (Basic) | 359.00M357.60M | +0.4% |
| Shares Outstanding (Diluted) | 361.00M361.50M | −0.1% |
05—Questions
Frequently Asked Questions
What was the impact of the CareFusion spin-off on Cardinal Health's financials?
The spin-off of CareFusion Corporation, completed on August 31, 2009, resulted in the exclusion of CareFusion's results from Cardinal Health's continuing operations. While Cardinal Health retained a 19% stake, its financial reporting now focuses on its two core segments: Pharmaceutical and Medical. The spin-off also involved various separation agreements and a tax matters agreement, with Cardinal Health holding an indemnification receivable from CareFusion for certain tax exposures.
How did the Pharmaceutical segment perform in fiscal year 2010?
The Pharmaceutical segment's revenue increased by 2% to $89.8 billion, driven by pharmaceutical price appreciation and increased volume from existing customers. However, segment profit decreased by 3% due to pricing changes on renewed customer contracts, a transformation within the Medicine Shoppe franchise model, and a severe supply shortage in nuclear pharmacy. These factors were partially offset by disciplined cost controls and strong branded margin growth.
What are the main risks highlighted by Cardinal Health in this filing?
Key risks identified include intense competition leading to pricing pressure, significant revenue concentration from a few large customers (Walgreens and CVS), potential margin impacts from manufacturers' pricing and market forces, the evolving U.S. healthcare landscape due to recent legislation (e.g., the Affordable Care Act), stringent regulatory compliance requirements, potential adverse tax law changes, reliance on information systems, and risks associated with past acquisitions and future integration.
How did Cardinal Health manage its debt and capital resources in fiscal year 2010?
Cardinal Health reduced its long-term obligations significantly, from $3.6 billion to $1.9 billion, primarily due to a debt tender offer and the repayment of maturing notes. The company's liquidity improved, with cash and equivalents increasing to $2.8 billion. This improved financial position allowed for capital expenditures focused on IT projects, dividend payments (with an increase in the quarterly dividend), and share repurchases totaling $250 million. The company also had access to a $1.5 billion revolving credit facility and commercial paper program.
06—Continue