10-QPeriod: Q2 FY2001

CARDINAL HEALTH INC Quarterly Report for Q2 Ended Dec 31, 2000

Filed February 14, 2001For Securities:CAH

Summary

Cardinal Health, Inc. reported robust revenue growth for the three and six months ended December 31, 2000, with a 24% and 22% increase, respectively, year-over-year. This growth was primarily driven by increased volumes and price increases from existing customers, alongside contributions from acquisitions. The Pharmaceutical Distribution and Provider Services segment remains the largest contributor to revenue. While gross margins saw a slight decrease due to a shift towards lower-margin products and services, operating expenses as a percentage of revenue improved, demonstrating effective cost control and economies of scale. The company continues to manage integration costs from past mergers, with a significant portion of merger-related expenses already recorded. Financially, Cardinal Health demonstrated strong operational cash flow generation, though the period saw a net decrease in cash and equivalents primarily due to significant investments in inventory and trade receivables, as well as strategic acquisitions and share repurchases. The company strengthened its financial position by increasing its commercial paper program and maintaining a substantial bank credit facility. Looking ahead, the company announced a significant merger agreement with Bindley Western Industries, Inc., expected to close in February 2001, indicating continued strategic expansion. Investors should note the ongoing legal proceedings related to natural rubber latex gloves, although the company believes it will be covered by insurance.

Key Highlights

  • 1Total revenue for the six months ended December 31, 2000, reached $18.37 billion, a 22% increase from the prior year's $14.18 billion.
  • 2Net earnings for the six months ended December 31, 2000, were $382.4 million, up from $295.5 million in the same period last year, with diluted EPS at $1.34 compared to $1.03.
  • 3The Pharmaceutical Distribution and Provider Services segment, the largest by revenue, grew by 25% year-over-year for the six-month period.
  • 4Merger-related costs for the six months ended December 31, 2000, were $24.3 million, a decrease from $42.3 million in the prior year, reflecting ongoing integration efforts.
  • 5Total assets grew to $12.33 billion at December 31, 2000, up from $10.26 billion at June 30, 2000, driven by increases in trade receivables and inventories.
  • 6The company has a pending merger agreement with Bindley Western Industries, Inc., expected to close in February 2001, which will be accounted for as a pooling-of-interests.
  • 7Significant investments were made in inventories ($1.24 billion increase) and trade receivables ($458.4 million increase) during the six months ended December 31, 2000.

Frequently Asked Questions

Cardinal Health reported a significant increase in total revenue, reaching $18.37 billion, a 22% rise compared to $14.18 billion in the prior year's period. Net earnings also saw a substantial increase to $382.4 million from $295.5 million, with diluted earnings per share improving to $1.34 from $1.03. This strong performance was driven by growth across its business segments, particularly Pharmaceutical Distribution and Provider Services, and strategic acquisitions.

Merger-related costs have decreased year-over-year, with $24.3 million recorded for the six months ended December 31, 2000, compared to $42.3 million in the prior year. While these costs reduced net earnings by $16.4 million (after tax) for the period, the company is actively managing integration expenses. The company estimates an additional $65.7 million in future merger-related and integration costs.

Working capital increased to $3.4 billion at December 31, 2000. The company has increased its commercial paper program to $1.5 billion and maintains a $1.5 billion unsecured bank credit facility. While there was a net decrease in cash and equivalents, this was largely due to increased investments in inventory and receivables, strategic acquisitions, and share repurchases. The company believes it has adequate capital resources for its anticipated needs.

The company is involved in litigation related to natural rubber latex gloves, stemming from the acquisition of Allegiance Corporation. As of December 31, 2000, approximately 571 lawsuits were pending. While the company believes a substantial portion of any potential liability will be covered by insurance, the exact extent of liability cannot be estimated at this time. The company generally believes that the outcome of its litigation will not have a material adverse effect on its financial statements.