10-QPeriod: Q1 FY2008

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2007

Filed November 7, 2007For Securities:CAH

Summary

Cardinal Health, Inc. reported revenue of $21.97 billion for the three months ended September 30, 2007, a 5% increase year-over-year, driven by pharmaceutical price appreciation, increased volume, and acquisitions. While revenue grew, operating earnings saw a more substantial 9% increase to $489.8 million, benefiting from a strong gross margin expansion. Net earnings rose 11% to $301.8 million, with diluted EPS reaching $0.82, a significant increase from the prior year, partly due to a lower share count from robust share repurchases. The company continues to manage significant restructuring and integration costs, which totaled $22.5 million in special items for the quarter. Additionally, Cardinal Health reached significant legal settlements, including a $600 million settlement for federal securities litigation and a $40 million settlement for ERISA litigation, aimed at resolving past uncertainties. The company's balance sheet shows total assets of $22.99 billion and total shareholders' equity of $7.07 billion, with substantial share repurchases continuing to reduce outstanding shares.

Key Highlights

  • 1Revenue increased by 5% to $21.97 billion for the quarter, driven by pharmaceutical price appreciation and volume growth.
  • 2Operating earnings grew by 9% to $489.8 million, reflecting improved gross margins that more than offset higher SG&A expenses.
  • 3Net earnings increased by 11% to $301.8 million, and diluted EPS rose to $0.82.
  • 4The company repurchased approximately $675 million of its common stock during the quarter under its ongoing share repurchase programs.
  • 5Significant legal settlements were reached, including a $600 million settlement for federal securities litigation and a $40 million settlement for ERISA litigation.
  • 6Special items, including restructuring and acquisition integration charges, totaled $22.5 million for the quarter.
  • 7The adoption of FIN No. 48 resulted in a $139.3 million reduction in retained earnings due to unrecognized tax benefits.

Frequently Asked Questions

Revenue growth was primarily driven by pharmaceutical price appreciation and increased volume from existing customers, contributing a combined $740 million. New contracts with bulk customers added $465 million, and acquisitions contributed $213 million. New customers also added $71 million to revenue.

Cardinal Health repurchased approximately $675 million of its common stock during the quarter. This led to a reduction in the weighted-average number of common shares outstanding, positively impacting both basic and diluted earnings per share.

The company announced a $600 million settlement for the federal securities litigation and a $40 million settlement for the ERISA litigation. Reserves for these settlements were established in prior quarters, and the company is working towards finalizing these resolutions to eliminate legal uncertainties.

Special items, which include restructuring charges, acquisition integration charges, and litigation and other costs, totaled $22.5 million for the quarter. These charges impacted operating earnings but are reported separately to provide a clearer view of ongoing operational performance.