10-QPeriod: Q1 FY2007

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2006

Filed November 7, 2006For Securities:CAH

Summary

Cardinal Health Inc. (CAH) reported strong revenue growth of 11% for the third quarter ended September 30, 2006, reaching $21.4 billion, up from $19.2 billion in the prior year's quarter. This growth was primarily driven by the Healthcare Supply Chain Services – Pharmaceutical segment, which accounts for the majority of revenue. Operating earnings also saw a significant increase of 23% to $463.7 million, reflecting improved operational efficiency and the positive impact of reduced equity-based compensation expenses. The company is navigating several complex legal and regulatory matters, including ongoing SEC and U.S. Attorney investigations, shareholder litigation, and an FDA Class 1 recall of its Alaris SE pump. While these issues present potential risks and require significant management attention, the company has taken steps to address them, including reserving for potential settlements and incurring charges related to the pump recall. Despite these challenges, Cardinal Health demonstrated a solid financial performance in the quarter, with net earnings increasing by 19% to $270.7 million.

Key Highlights

  • 1Revenue increased by 11% to $21.4 billion, driven by strong performance in the Healthcare Supply Chain Services – Pharmaceutical segment.
  • 2Operating earnings grew by 23% to $463.7 million, indicating improved profitability.
  • 3Net earnings rose by 19% to $270.7 million, reflecting overall business strength.
  • 4The company repurchased approximately $445.3 million of its Common Shares during the quarter as part of a $2 billion share repurchase program.
  • 5A $13.5 million charge was recorded related to the Alaris SE pump recall, which was classified as a Class 1 recall by the FDA.
  • 6The company reached an agreement-in-principle with the SEC staff for a potential settlement, which would include a $35 million penalty.
  • 7Effective tax rate improved to 27.8% from 31.3% due to adjustments to tax reserves.

Frequently Asked Questions

The primary driver of Cardinal Health's revenue growth was its Healthcare Supply Chain Services – Pharmaceutical segment, which saw a 12% increase and accounts for approximately 85% of total company revenue. Strong performance with existing customers and market growth in the mail order business contributed significantly.

Cardinal Health is involved in several significant legal and regulatory matters, including an ongoing SEC investigation and a U.S. Attorney inquiry, shareholder and ERISA litigation, and an FDA Class 1 recall of its Alaris SE pump. The company has also reached an agreement-in-principle with the SEC for a potential settlement.

Cardinal Health announced a combined $2 billion share repurchase program in June and August 2006, planning to complete it over fiscal years 2007 and 2008. During the third quarter of fiscal 2006, the company repurchased approximately $445.3 million of its Common Shares under this program.

The company recorded a $13.5 million charge for the quarter related to the Alaris SE pump recall. While currently deemed not material to the company's overall results, additional remedial actions could make the impact material.