10-QPeriod: Q1 FY2002

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2001

Filed November 14, 2001For Securities:CAH

Summary

Cardinal Health Inc. (CAH) reported its financial results for the fiscal quarter ended September 29, 2001. The company demonstrated solid revenue growth, with total revenue increasing by 16% year-over-year to $11.77 billion. This growth was driven by all four business segments, particularly Pharmaceutical Distribution and Provider Services, which saw a 17% increase in operating revenue. Net earnings for the quarter were impacted by a cumulative effect of a change in accounting principle related to revenue recognition for pharmacy automation equipment, resulting in a reported net earning of $176.3 million, or $0.39 per diluted share, compared to $190.0 million, or $0.42 per diluted share, in the prior year's quarter. Excluding this accounting change, the company's operational performance remained strong. Despite a decrease in gross margin percentage due to a shift in product mix and increased inventory levels, the company managed its operating expenses effectively, with SG&A as a percentage of revenue declining. Significant merger-related costs continue to impact the financials, with an estimated $130 million expected in future periods. The company maintains a strong balance sheet, with shareholders' equity increasing and sufficient capital resources to fund future operations and growth. Investors should note the ongoing integration of recent acquisitions and the accounting changes that are shaping reported earnings.

Key Highlights

  • 1Total revenue grew by 16% to $11.77 billion for the quarter ended September 29, 2001, compared to $11.04 billion in the prior year.
  • 2Net earnings for the quarter were $176.3 million, a decrease from $190.0 million in the prior year, primarily due to a $70.1 million cumulative effect of a change in accounting principle.
  • 3Excluding the impact of the accounting change, net earnings before cumulative effect were $246.4 million, up from $190.0 million in the prior year's quarter.
  • 4The Pharmaceutical Distribution and Provider Services segment remains the largest revenue contributor, showing 17% operating revenue growth.
  • 5Gross margin as a percentage of operating revenue slightly decreased from 9.45% to 9.27%, influenced by a shift towards lower-margin distributed products.
  • 6Selling, general, and administrative expenses as a percentage of operating revenue decreased to 5.09% from 5.49%, reflecting cost control and economies of scale.
  • 7The company has authorized a $500 million share repurchase program, though no shares had been repurchased as of the quarter's end.

Frequently Asked Questions

The primary driver for the decrease in reported net earnings was a $70.1 million cumulative effect of a change in accounting principle related to the recognition of revenue for pharmacy automation equipment. Excluding this one-time accounting adjustment, the company's operational earnings showed an increase.

All four business segments experienced revenue growth. The Pharmaceutical Distribution and Provider Services segment led with a 17% increase. Medical-Surgical Products and Services grew by 10%, Pharmaceutical Technologies and Services by 11%, and Automation and Information Services by 20%.

Cardinal Health continues to incur merger-related costs due to recent acquisitions. The company estimates approximately $130 million ($80.6 million net of tax) in additional merger-related costs and integration expenses are expected in future periods, primarily fiscal years 2002 and 2003.

The company believes it has adequate capital resources to fund its anticipated capital expenditures, business growth, and debt service requirements, including those related to its ongoing business combinations. Working capital increased due to higher inventory levels, partially offset by effective asset management and increased accounts payable.