10-QPeriod: Q2 FY2007

CARDINAL HEALTH INC Quarterly Report for Q2 Ended Dec 31, 2006

Filed February 8, 2007For Securities:CAH

Summary

Cardinal Health Inc. (CAH) reported robust revenue growth for the quarter ending December 31, 2006, with a 13% increase year-over-year, reaching $21.8 billion. This growth was driven by strong performance across all four reportable segments, particularly in the Healthcare Supply Chain Services – Pharmaceutical segment, which constitutes the majority of the company's revenue. Net earnings saw a significant surge of 143% to $739.3 million, largely due to a substantial contribution from discontinued operations, which included a significant tax benefit related to the planned divestiture of the Pharmaceutical Technologies and Services segment. The company also announced a significant strategic move: a $3.3 billion cash sale of its Pharmaceutical Technologies and Services segment to an affiliate of The Blackstone Group, expected to close in the fourth quarter of fiscal year 2007. Proceeds from this sale are earmarked for share repurchases, underscoring a commitment to returning value to shareholders. Despite ongoing legal proceedings and an SEC investigation, the company is managing these challenges, with an agreement-in-principle reached on a potential settlement with the SEC involving a $35 million penalty. Financially, Cardinal Health demonstrated solid operational cash flow generation. The company also announced an increased share repurchase authorization, bringing the total to $4.5 billion, signaling confidence in its future prospects and commitment to shareholder returns. The balance sheet remains strong with total assets of $24.1 billion and total shareholders' equity of $8.9 billion.

Key Highlights

  • 1Revenue increased by 13% to $21.8 billion for the quarter ended December 31, 2006, compared to the prior year period, indicating strong top-line growth across segments.
  • 2Net earnings surged by 143% to $739.3 million, significantly boosted by earnings from discontinued operations, including a notable tax benefit.
  • 3Announced the sale of the Pharmaceutical Technologies and Services segment for approximately $3.3 billion to an affiliate of The Blackstone Group, with an expected closing in Q4 FY2007.
  • 4Increased total share repurchase authorization to $4.5 billion, with plans to use proceeds from the PTS segment sale for repurchases.
  • 5Operating earnings from continuing operations increased by 12% to $512.1 million, demonstrating continued operational strength.
  • 6Maintained a strong balance sheet with total assets of $24.1 billion and total shareholders' equity of $8.9 billion at December 31, 2006.
  • 7Received a $35 million penalty as part of an agreement-in-principle to settle an SEC investigation, with $35 million already reserved.

Frequently Asked Questions

For the quarter ended December 31, 2006, Cardinal Health reported a 13% increase in revenue to $21.8 billion and a significant 143% increase in net earnings to $739.3 million. Earnings from continuing operations showed a 10% increase to $315.7 million, while earnings from discontinued operations, boosted by a substantial tax benefit, contributed significantly to the net earnings.

The most significant strategic development is the agreement to sell its Pharmaceutical Technologies and Services segment for approximately $3.3 billion cash. Additionally, the company announced an increased share repurchase program, bringing the total authorization to $4.5 billion, and plans to use proceeds from the divestiture to fund these repurchases.

Cardinal Health is involved in several significant legal proceedings, including shareholder and ERISA litigation, derivative actions, and investigations by the SEC and the U.S. Attorney's Office. The company has reached an agreement-in-principle with the SEC regarding a potential settlement that includes a $35 million penalty, for which a reserve has been recorded. The company also faces risks associated with the Alaris® SE pump recall and is working to comply with a Consent Decree with the FDA.

The company's balance sheet as of December 31, 2006, shows total assets of $24.1 billion and total shareholders' equity of $8.9 billion. Cash flow from operating activities for the six months ended December 31, 2006, was $639.4 million, a decrease from the prior year, partly due to a $550 million repurchase of trade receivables. Cash used in investing activities was $238.3 million, primarily for capital expenditures and acquisitions, while financing activities used $584.1 million, largely for share repurchases and debt repayment.