Company Exploring Spin-Off of Clinical And Medical Products Businesses
DUBLIN, Ohio, Aug. 7 /PRNewswire-FirstCall/ -- Cardinal Health, a global provider of products and services that improve the safety and productivity of health care, today reported an increase in fiscal 2008 revenue of 5 percent to $91 billion and a 76 percent increase in GAAP earnings per share (EPS) to $3.64. On a non-GAAP basis, EPS grew 11 percent to $3.80(1) for the year.
As the company had forecasted, the medical supply chain segment improved profit in the second half of the year, driven by double-digit growth in its core U.S. medical distribution business. Significant steps were taken in the pharmaceutical distribution business during the year to accelerate a recovery, which the company expects in the second half of fiscal 2009.
Results during the quarter and year continued to highlight growth within the company's medical technology segments. Combined revenue for the Clinical Technologies and Services, and Medical Products and Technologies segments grew by 24 percent to $5.6 billion and profit increased 36 percent to nearly $800 million for the year.
Cardinal Health also announced that its board of directors has supported a management recommendation to actively explore a potential separation of the company's primary operating and reporting segments, which could involve a tax-free spin-off of the clinical and medical products businesses as a separate, publicly traded company. Cardinal Health plans to announce its decision within approximately 60 to 90 days.
"For two years, we have been taking steps to sharpen our focus on health care supply chain services and clinical and medical products, culminating with our announcement in July to operate these businesses in two distinct segments that reflect the unique characteristics and requirements of each," said R. Kerry Clark, chairman and chief executive officer of Cardinal Health. "As we now consider a spin-off of our clinical and medical products businesses, our goal is simple: to have two thriving businesses, delivering maximum value to customers and shareholders over the long term." Fiscal 2008 Results Consolidated revenue for fiscal 2008 grew 5 percent to $91 billion and GAAP earnings from continuing operations rose 58 percent to $1.3 billion. Diluted earnings per share from continuing operations grew 76 percent to $3.64, or 11 percent to $3.80 on a non-GAAP basis. Earnings in the prior year were negatively affected by a $600 million expense to resolve securities litigation.
During the fourth quarter, ended June 30, consolidated revenue increased 3 percent to $23 billion, and earnings from continuing operations increased 39 percent to $330 million. Earnings in the fourth quarter of the prior year were dampened by merger-related charges from the company's acquisition of VIASYS Healthcare. Excluding the impact of merger charges and other items, non-GAAP earnings from continuing operations increased 1 percent to $348 million(2), or 9 percent to $0.97 on a diluted per-share basis.
"Overall, fourth quarter results were in line with our expectations," Clark said. "We continued to demonstrate to customers the value of our clinically differentiated medical technologies, where we delivered a year of very strong growth on the top and bottom lines. We also made steady progress throughout the year in our medical supply chain segment and, in particular, are very pleased with the results in our hospital, lab and ambulatory care distribution business.
"In our pharmaceutical supply chain segment, we believe we are on the right path to resolve the license suspensions that have kept us from distributing controlled substances from three of our 24 distribution centers. This will be a critical step in our efforts to drive improvements in the business. And while we won't speculate on the ultimate outcome, we are in constructive settlement discussions with the DEA and have recorded a reserve of $23.5 million in connection with those discussions. We have made good progress in enhancing our controls and are eager to return to full service levels for our customers." Q4 and FY08 Summary
Q4 FY08 Q4 FY07 Y/Y FY08 Y/Y Revenue $23 billion $22 billion 3% $91 billion 5% Operating Earnings $543 million $421 million 29% $2.1 billion 55%
Non-GAAP Operating
Earnings(3) $568 million $538 million 6% $2.2 billion 3% Earnings from
Continuing Operations $330 million $238 million 39% $1.3 billion 58%
Non-GAAP Earnings from
Continuing Operations $348 million $345 million 1% $1.4 billion - Diluted EPS from
Continuing Operations $0.92 $0.61 51% $3.64 76%
Non-GAAP Diluted EPS from
Continuing Operations $0.97 $0.89 9% $3.80 11%
Fourth-quarter and full-year segment results
Revenue for the Healthcare Supply Chain Services - Pharmaceutical segment increased 1 percent to $19.8 billion for the quarter with sales to bulk customers increasing by 9 percent. Sales to non-bulk customers decreased by 5 percent, primarily due to the transfer of volume from non-bulk to bulk sales by a large customer and the loss of business associated with controlled substance anti-diversion efforts. As expected, segment profit declined 15 percent to $258 million, driven by previously disclosed customer re-pricings, and direct-store-door customer losses, including the impact of anti-diversion efforts. The profit decline was partially offset by branded pharmaceutical price increases and greater profit from distribution service agreement fees.
For the year, segment revenue reached $79.3 billion, an increase of 4 percent, and segment profit was $1.1 billion, declining 14 percent from last year.
Fourth-quarter revenue for the Healthcare Supply Chain Services - Medical segment increased 8 percent to $2.1 billion, driven by increased sales to existing hospital, laboratory and ambulatory customers. Segment profit for the quarter decreased 3 percent to $81 million, but included a previously disclosed corporate allocation adjustment that reduced profit by 6 percentage points. Strong, double-digit profit growth from the distribution of medical and surgical products in the U.S. partially offset the decline in segment profit from other factors. As the company had forecasted, segment profit grew in the second half of fiscal 2008 compared to the second half of fiscal 2007.
Full-year revenue for the segment increased 8 percent to $8.1 billion, and full-year profit declined 5 percent to $303 million.
The Medical Products and Technologies segment reported a 46 percent increase in fourth-quarter revenue to $727 million, primarily driven by the acquisitions of VIASYS Healthcare and Enturia, but also organic growth in the core infection prevention and respiratory businesses. Segment profit increased 63 percent to $95 million and included a favorable impact of 38 percentage points from acquisitions. During the quarter, the company discovered it had failed to recognize profit on a portion of intercompany sales from fiscal 2006 to 2008. As a result, approximately $16 million was recorded as income for the fourth quarter that pertained to prior periods. The VIASYS integration continues to be ahead of schedule to achieve planned synergy goals by 2010.
For the full year, segment revenue increased 47 percent to $2.7 billion and segment profit grew 52 percent to $300 million, including 39 percentage points from acquisitions.
Compared to a record quarter in the prior year, fourth-quarter revenue for the Clinical Technologies and Services segment increased 3 percent to $780 million, driven by continued strength in installations of medication dispensing products. Excluding Pharmacy Services, revenue increased 9 percent. Segment profit for the quarter exceeded company expectations, rising 8 percent to $156 million driven by favorable product mix and a positive impact from foreign exchange.
Full-year revenue for the segment increased 8 percent to $2.9 billion and segment profit increased 29 percent to $497 million.
Additional fourth-quarter and recent highlights include: -- Reaching a definitive agreement to sell Tecomet, a maker of orthopedic implants, to Charlesbank Capital Partners and Tecomet management, with plans to close within 60 days; -- Reaching a definitive agreement to acquire Borschow Medical and Hospital Supplies, Inc., the largest distributor of pharmaceutical products and medical supplies in Puerto Rico; -- Completing the acquisition of assets of privately held Enturia, Inc., the manufacturer of infection prevention products sold under the ChloraPrep(R) brand name; -- Introducing the Pyxis(R) DuoStation, a new system that leverages the company's industry-leading dispensing technologies to enable clinicians access to a patient's medications and medical supplies from one system; -- Launching four new offerings for retail independent pharmacies at the company's 19th annual Retail Business Conference, including a private-label brand of durable medical equipment, front-of-store management system, automated calling technology and automated pill counting systems; -- A three-year agreement to serve as primary supply chain partner for Prime Therapeutics, one of the nation's largest pharmacy benefit managers, which serves approximately 14.6 million members nationwide; -- Contracts with Premier for Alaris(R) infusion systems, Presource(R) custom procedure packs, Convertors(R) surgical drapes and gowns, third-party instrument repair, respiratory equipment, Pyxis(R) medication and supply automation products, and ChloraPrep(R) brand chlorhexidine gluconate (CHG) skin prep products.
Outlook "In fiscal 2009, we plan to make incremental investments of up to $100 million to strengthen R&D in the clinical and medical products business and improve information technology in the supply chain services business," Clark said. "These investments will affect our earnings growth rates in fiscal 2009, but are important, foundational moves that we believe will accelerate future growth in both segments." For fiscal 2009, the company expects revenue growth of 6 to 7 percent. Non-GAAP diluted EPS from continuing operations is expected to be in a range of $3.80 to $3.95 based on investments the company plans to make in new product development and information technology, and previously disclosed challenges in the pharmaceutical distribution business that are expected to continue through the first half of the fiscal year, coupled with a particularly unfavorable comparison in the first quarter due to strong branded price inflation in the prior year period.
As a result, non-GAAP EPS in the first quarter is expected to be around $0.70. The company forecasts EPS to return to more normal levels in the second quarter, with overall company results stronger in the second half of the year.
Fiscal 2009 Financial Goals
Revenue Growth 6-7%
Non-GAAP EPS $3.80 - $3.95 Segment Revenue Growth Profit Growth
Healthcare Supply Chain Services >6% Flat to (5%)
Clinical and Medical Products >10% >20%
(Please reference the company's slide presentation for corporate and segment assumptions related to fiscal 2009 guidance, including that the potential separation of the clinical and medical products businesses does not occur during fiscal 2009. The presentation is posted on the Investor page at http://www.cardinalhealth.com/).
The Healthcare Supply Chain Services segment is expected to return to profitable growth in the second half of the year. The first half of the year will continue to be affected by the company's ability to resolve license suspensions to distribute controlled substances from three of its pharmaceutical distribution centers, previously disclosed repricing of some major contracts and volatility in the Nuclear Pharmacy Services business leading to the launch of generic sestimibi.
The Clinical and Medical Products segment is expected to continue on a strong growth trajectory based on momentum in current product lines and approximately 50 new product introductions or enhancements planned during the next 18 months.
Conference Call Cardinal Health will host a conference call and webcast at 8:30 a.m. EDT to discuss the results. To access the call and corresponding slide presentation, go to the Investor page at http://www.cardinalhealth.com/. The conference call may also be accessed by calling 617-213-4850, conference passcode 97674427. An audio replay will be available until 11 p.m. EDT on Aug. 9 at 617-801-6888, passcode 28260453. A transcript and audio replay will also be available at http://www.cardinalhealth.com/.
About Cardinal Health Headquartered in Dublin, Ohio, Cardinal Health, Inc. (NYSE:CAH) is a $91 billion, global company serving the health care industry with products and services that help hospitals, physician offices and pharmacies reduce costs, improve safety, productivity and profitability, and deliver better care to patients. With a focus on making supply chains more efficient, reducing hospital-acquired infections and breaking the cycle of harmful medication errors, Cardinal Health develops market leading technologies, including Alaris(R) IV pumps, Pyxis(R) automated dispensing systems, MedMined(TM) infection surveillance services and the CareFusion(TM) patient identification system. The company also manufactures medical and surgical products and is one of the largest distributors of pharmaceuticals and medical supplies worldwide. Ranked No. 19 on the Fortune 500, Cardinal Health employs more than 40,000 people on five continents. More information about the company may be found at http://www.cardinalhealth.com/.
(1) Non-GAAP diluted EPS from continuing operations: Non-GAAP earnings
from continuing operations divided by diluted weighted average shares
outstanding.
(2) Non-GAAP earnings from continuing operations: Earnings from
continuing operations excluding special items and impairment charges
and other, both net of tax.
(3) Non-GAAP operating earnings: Operating earnings excluding special
items and impairment charges and other. A reconciliation of the differences between these non-GAAP financial measures and their most directly comparable GAAP financial measures is provided in the attached tables and at http://www.cardinalhealth.com/.
This news release contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in Cardinal Health's Form 10-K, Form 10-Q and Form 8-K reports (including all amendments to those reports) and exhibits to those reports, and include (but are not limited to) the following: uncertainties regarding the decision to explore the separation of the company's clinical and medical products businesses and regarding the impacts of such decision if the separation is accomplished; competitive pressures in Cardinal Health's various lines of business; the loss of one or more key customer or supplier relationships or changes to the terms of those relationships; uncertainties relating to timing of generic and branded pharmaceutical introductions and the frequency or rate of branded pharmaceutical price appreciation or generic pharmaceutical price deflation; changes in the distribution patterns or reimbursement rates for health-care products and/or services; the results, consequences, effects or timing of any inquiry or investigation by any regulatory authority or any legal or administrative proceedings; future actions of regulatory bodies or government authorities relating to Cardinal Health's manufacturing or sale of products and other costs or claims that could arise from its manufacturing, compounding or repackaging operations or from its other services; difficulties, delays or additional costs in implementing the restructuring program announced on July 8, 2008; the costs, difficulties and uncertainties related to the integration of acquired businesses; and conditions in the pharmaceutical market and general economic and market conditions. This news release reflects management's views as of Aug. 7, 2008. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Fourth Quarter
(in millions, except per Common Share
amounts) 2008 2007 % Change Revenue $22,925.6 $22,262.8 3 %
Cost of products sold 21,456.2 20,905.4 3 %
Gross margin 1,469.4 1,357.4 8 % Selling, general and administrative
expenses 901.3 819.3 10 %
Impairment charges and other (10.0) (0.6) N.M.
Special items:
Restructuring charges 10.9 11.7 N.M. Acquisition integration charges 25.1 87.5 N.M. Litigation and other (1.1) 19.0 N.M. Operating earnings 543.2 420.5 29 % Interest expense and other 47.4 19.1 148 %
Earnings before income taxes and
discontinued operations 495.8 401.4 24 % Provision for income taxes 165.6 163.7 1 %
Earnings from continuing operations 330.2 237.7 39 % Earnings / (loss) from discontinued
operations (net of tax expense
of $2.8 and $448.3 for the fourth
quarter of fiscal 2008 and 2007,
respectively) (3.6) 664.5 N.M.
Net earnings $326.6 $902.2 (64)%
Basic earnings / (loss) per Common Share:
Continuing operations $0.93 $0.63 48 %
Discontinued operations (0.01) 1.76 N.M. Net basic earnings per Common Share $0.92 $2.39 (62)% Diluted earnings / (loss) per Common Share:
Continuing operations $0.92 $0.61 51 %
Discontinued operations (0.01) 1.72 N.M. Net diluted earnings per Common Share $0.91 $2.33 (61)% Weighted average number of Common
Shares outstanding:
Basic 355.5 378.2
Diluted 359.8 387.4 CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Fiscal Year
(in millions, except per Common Share
amounts) 2008 2007 % Change Revenue $91,091.4 $86,852.0 5 %
Cost of products sold 85,457.3 81,606.7 5 %
Gross margin 5,634.1 5,245.3 7 % Selling, general and administrative
expenses 3,414.8 3,082.3 11 %
Impairment charges and other (32.0) 17.3 N.M.
Special items:
Restructuring charges 65.7 40.1 N.M. Acquisition integration charges 44.9 101.5 N.M. Litigation and other 12.0 630.4 N.M. Operating earnings 2,128.7 1,373.7 55 % Interest expense and other 171.4 121.4 41 %
Earnings before income taxes and
discontinued operations 1,957.3 1,252.3 56 % Provision for income taxes 632.8 412.6 53 %
Earnings from continuing operations 1,324.5 839.7 58 % Earnings / (loss) from discontinued
operations (net of tax expense
of $31.9 and $20.4 for fiscal 2008
and 2007, respectively) (15.3) 1,091.4 N.M.
Net earnings $1,309.2 $1,931.1 (32)%
Basic earnings / (loss) per Common Share:
Continuing operations $3.70 $2.13 74 %
Discontinued operations (0.04) 2.76 N.M. Net basic earnings per Common Share $3.66 $4.89 (25)% Diluted earnings / (loss) per Common Share:
Continuing operations $3.64 $2.07 76 %
Discontinued operations (0.04) 2.70 N.M. Net diluted earnings per Common Share $3.60 $4.77 (25)% Weighted average number of Common
Shares outstanding:
Basic 358.2 394.9
Diluted 364.0 404.7 CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, June 30,
(in millions) 2008 2007 Assets
Cash and equivalents $1,291.3 $1,308.8
Short-term investments available for sale - 132.0
Trade receivables, net 5,006.9 4,714.4
Current portion of net investment in
sales-type leases 383.7 354.8
Inventories 6,768.8 7,383.2
Prepaid expenses and other 593.1 651.3
Assets held for sale 140.4 -
Total current assets 14,184.2 14,544.5 Property and equipment, net 1,737.2 1,647.0
Net investment in sales-type leases,
less current portion 916.8 820.7
Goodwill and other intangibles, net 6,225.9 5,860.9
Other assets 384.1 280.7
Total assets $23,448.2 $23,153.8
Liabilities and Shareholders' Equity
Current portion of long-term
obligations and other short-term borrowings $159.0 $16.0
Accounts payable 8,311.8 9,162.2
Other accrued liabilities 1,881.1 2,247.3
Liabilities from businesses held for
sale and discontinued operations 15.4 34.2
Total current liabilities 10,367.3 11,459.7 Long-term obligations, less current
portion and other short-term borrowings 3,687.4 3,457.3
Deferred income taxes and other liabilities 1,637.4 859.9
Total shareholders' equity 7,756.1 7,376.9
Total liabilities and shareholders' equity $23,448.2 $23,153.8 CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Fourth Quarter Fiscal Year
(in millions) 2008 2007 2008 2007 Cash Flows From Operating
Activities:
Net earnings $326.6 $902.2 $1,309.2 $1,931.1
(Earnings) / loss from
discontinued operations 3.6 (664.5) 15.3 (1,091.4)
Earnings from continuing
operations 330.2 237.7 1,324.5 839.7
Adjustments to reconcile
earnings from continuing
operations to net cash
provided by / (used in)
operating activities:
Depreciation and
amortization 96.3 85.0 381.3 322.1
Asset impairments and other (10.6) 1.2 (31.4) 19.2
Purchased in-process
research and development 18.0 84.5 18.0 84.5
Equity compensation 35.6 28.8 122.3 138.1
Provision for deferred
income taxes 26.9 11.7 26.9 11.7
Provision for bad debts 3.8 7.0 26.1 24.0
Change in operating assets
and liabilities, net of
effects from acquisitions:
(Increase) / decrease in
trade receivables (17.8) 36.6 (312.7) (783.1)
Decrease in inventories 499.3 205.9 613.1 217.4
Increase in net investment
in sales-type leases (41.1) (53.8) (124.9) (130.8)
Increase / (decrease) in
accounts payable (595.9) (268.6) (813.1) 224.4
Increase / (decrease) in
other accrued liabilities
and operating items, net (98.0) (667.6) 329.0 35.8
Net cash provided by /
(used in) operating
activities - continuing
operations 246.7 (291.6) 1,559.1 1,003.0
Net cash provided by /
(used in) operating
activities - discontinued
operations (4.4) 104.9 (47.0) 220.1
Net cash provided by / (used
in) operating activities 242.3 (186.7) 1,512.1 1,223.1 Cash Flows From Investing
Activities:
Acquisition of subsidiaries,
net of divestitures and
cash acquired (475.9) (1,480.9) (514.9) (1,629.8)
Proceeds from sale of
property and equipment 22.4 5.6 32.6 9.2
Additions to property and
equipment (124.5) (114.3) (376.1) (357.4)
Sale of investment
securities available for
sale, net - 168.0 132.0 366.5
Net cash used in investing
activities - continuing
operations (578.0) (1,421.6) (726.4) (1,611.5)
Net cash provided by
investing activities -
discontinued operations - 3,228.9 - 3,148.7
Net cash provided by / (used
in) investing activities (578.0) 1,807.3 (726.4) 1,537.2 Cash Flows From Financing
Activities:
Net change in commercial
paper and short-term
borrowings (202.7) (293.3) (0.5) (38.9)
Reduction of long-term
obligations (4.6) (51.1) (21.5) (784.0)
Proceeds from long-term
obligations, net of
issuance costs 302.5 601.7 303.5 1,453.4
Proceeds from issuance of
Common Shares 18.6 233.7 227.9 552.6
Tax benefits from exercises
of stock options 26.8 1.1 42.1 29.9
Dividends on Common Shares (42.6) (34.9) (173.1) (144.4)
Purchase of Common Shares in
treasury - (1,636.7) (1,181.6) (3,662.0)
Net cash provided by /
(used in) financing
activities - continuing
operations 98.0 (1,179.5) (803.2) (2,593.4)
Net cash provided by /
(used in) financing
activities - discontinued
operations - 1.2 - (45.4)
Net cash provided by /
(used) in financing
activities 98.0 (1,178.3) (803.2) (2,638.8) Net increase / (decrease) in
cash and equivalents (237.7) 442.3 (17.5) 121.5 Cash and equivalents at
beginning of period 1,529.0 866.5 1,308.8 1,187.3 Cash and equivalents at end
of period $1,291.3 $1,308.8 $1,291.3 $1,308.8 CARDINAL HEALTH, INC. AND SUBSIDIARIES
BUSINESS ANALYSIS TOTAL COMPANY Non-GAAP
Fourth Quarter Fourth Quarter
(in millions) 2008 2007 2008 2007 Revenue
Amount $22,926 $22,263
Growth Rate 3 % 5 % Operating Earnings
Amount $543 $421 $568 $538
Growth Rate 29 % (14)% 6 % 3 % Earnings from Continuing Operations
Amount $330 $238 $348 $345
Growth Rate 39 % (22)% 1 % 5 % Non-GAAP
Fiscal Year Fiscal Year
(in millions) 2008 2007 2008 2007 Revenue
Amount $91,091 $86,852
Growth Rate 5 % 9 % Operating Earnings
Amount $2,129 $1,374 $2,219 $2,163
Growth Rate 55 % (26)% 3 % 12 % Earnings from Continuing Operations
Amount $1,325 $840 $1,385 $1,384
Growth Rate 58 % (28)% - 13 %
Refer to the GAAP / Non-GAAP Reconciliation for definitions and
calculations supporting the non-GAAP balances.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SEGMENT BUSINESS ANALYSIS
HEALTHCARE SUPPLY CHAIN SERVICES CLINICAL AND MEDICAL PRODUCTS
Fourth Quarter Fourth Quarter
(in millions) 2008 2007 (in millions) 2008 2007 PHARMACEUTICAL CLINICAL TECHNOLOGIES AND SERVICES Revenue Revenue
Amount $19,819 $19,556 Amount $780 $756
Growth Rate 1 % 4 % Growth Rate 3 % 17 %
Mix 85 % 86 % Mix 3 % 3 % Segment Profit Segment Profit
Amount $258 $303 Amount $156 $144
Growth Rate (15)% (3)% Growth Rate 8 % 50 %
Mix 44 % 52 % Mix 26 % 24 %
Segment Profit Segment Profit
Margin 1.30 % 1.55 % Margin 20.01 % 19.06 % MEDICAL MEDICAL PRODUCTS AND TECHNOLOGIES Revenue Revenue
Amount $2,082 $1,929 Amount $727 $500
Growth Rate 8 % 5 % Growth Rate 46 % 14 %
Mix 9 % 9 % Mix 3 % 2 % Segment Profit Segment Profit
Amount $81 $83 Amount $95 $58
Growth Rate (3)% (2)% Growth Rate 63 % 27 %
Mix 14 % 14 % Mix 16 % 10 %
Segment Profit Segment Profit
Margin 3.89 % 4.32 % Margin 13.01 % 11.60 %
Refer to definitions for an explanation of calculations.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SEGMENT BUSINESS ANALYSIS
HEALTHCARE SUPPLY CHAIN SERVICES CLINICAL AND MEDICAL PRODUCTS
Fiscal Year Fiscal Year
(in millions) 2008 2007 (in millions) 2008 2007 PHARMACEUTICAL CLINICAL TECHNOLOGIES AND SERVICES Revenue Revenue
Amount $79,284 $76,573 Amount $2,890 $2,687
Growth Rate 4 % 9 % Growth Rate 8 % 11 %
Mix 85 % 86 % Mix 3 % 3 % Segment Profit Segment Profit
Amount $1,122 $1,300 Amount $497 $386
Growth Rate (14)% 14 % Growth Rate 29 % 20 %
Mix 50 % 59 % Mix 22 % 18 %
Segment Profit Segment Profit
Margin 1.41 % 1.70 % Margin 17.18 % 14.35 % MEDICAL MEDICAL PRODUCTS AND TECHNOLOGIES Revenue Revenue
Amount $8,084 $7,514 Amount $2,696 $1,836
Growth Rate 8 % 4 % Growth Rate 47 % 12 %
Mix 9 % 9 % Mix 3 % 2 % Segment Profit Segment Profit
Amount $303 $318 Amount $300 $198
Growth Rate (5)% 1 % Growth Rate 52 % 20 %
Mix 14 % 14 % Mix 14 % 9 %
Segment Profit Segment Profit
Margin 3.75 % 4.23 % Margin 11.14 % 10.76 %
Refer to the definitions for an explanation of how the Company calculates
segment profit.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SCHEDULE OF NOTABLE ITEMS
Fourth Quarter Fiscal Year
(in millions, except per Common
Share amounts) 2008 2007 2008 2007
Special Items
Restructuring charges $(10.9) $(11.7) $(65.7) $(40.1)
Acquisition integration charges (25.1) (87.5) (44.9) (101.5)
Litigation and other 1.1 (19.0) (12.0) (630.4)
Total special items (34.9) (118.2) (122.6) (772.0)
Tax benefit 13.1 10.4 44.9 243.1
Special items, net of tax $(21.8) $(107.8) $(77.7) $(528.9) Decrease to diluted EPS from
continuing operations $(0.06) $(0.28) $(0.21) $(1.31)
Impairment Charges and Other
Impairment charges and other $10.0 $0.6 $32.0 $(17.3)
Tax benefit / (expense) (6.0) (0.2) (14.4) 1.6
Impairment charges and other, net
of tax $4.0 $0.4 $17.6 $(15.7) Increase / (decrease) to diluted
EPS from continuing operations $0.01 - $0.05 $(0.04)
Weighted Average Number of Diluted
Shares Outstanding 359.8 387.4 364.0 404.7 CARDINAL HEALTH, INC. AND SUBSIDIARIES
ASSET MANAGEMENT ANALYSIS
Fourth Quarter Fiscal Year
2008 2007 2008 2007
Receivable Days 20.9 20.5
Days Inventory on Hand 25 28
Debt to Total Capital 33 % 32 %
Net Debt to Capital 25 % 22 %
Return on Equity 17.3% 47.3% 17.8% 23.5%
Non-GAAP Return on Equity 18.4% 17.3% 19.0% 16.9%
Return on Invested Capital 6.90% 18.43% 7.01% 9.38%
Non-GAAP Return on Invested Capital 8.00% 7.00% 8.06% 7.14%
Effective Tax Rate from Continuing
Operations 33.4% 40.8% 32.3% 33.0%
Non-GAAP Effective Tax Rate from
Continuing Operations 33.7% 33.5% 32.6% 32.4%
Refer to the GAAP / Non-GAAP Reconciliation for non-GAAP calculations.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION Fourth Quarter 2008 Impairment
(in millions, except per Common Special Charges
Share amounts) GAAP Items and Other Non-GAAP Operating Earnings
Amount $543 $35 ($10) $568
Growth Rate 29 % 6 % Provision for Income Taxes $166 $13 ($6) $173 Earnings from Continuing Operations
Amount $330 $22 ($4) $348
Growth Rate 39 % 1 % Diluted EPS from Continuing Operations
Amount $0.92 $0.06 ($0.01) $0.97
Growth Rate 51 % 9%
Fiscal Year 2008 Impairment
(in millions, except per Common Special Charges
Share amounts) GAAP Items and Other Non-GAAP
Operating Earnings
Amount $2,129 $123 ($32) $2,219
Growth Rate 55 % 3 % Provision for Income Taxes $633 $45 ($14) $663 Earnings from Continuing Operations
Amount $1,324 $78 ($18) $1,385
Growth Rate 58 % - Diluted EPS from Continuing Operations
Amount $3.64 $0.21 ($0.05) $3.80
Growth Rate 76 % 11 % Fourth Quarter 2007
Impairment
Special Charges
GAAP Items and Other Non-GAAP Operating Earnings
Amount $421 $118 ($1) $538
Growth Rate (14)% 3 % Provision for Income Taxes $164 $10 - $174 Earnings from Continuing Operations
Amount $238 $108 - $345
Growth Rate (22)% 5 % Diluted EPS from Continuing Operations
Amount $0.61 $0.28 - $0.89
Growth Rate (15)% 14% Fiscal Year 2007
Impairment
Special Charges
GAAP Items and Other Non-GAAP
Operating Earnings
Amount $1,374 $772 $17 $2,163
Growth Rate (26)% 12 % Provision for Income Taxes $413 $243 $2 $657 Earnings from Continuing Operations
Amount $840 $529 $16 $1,384
Growth Rate (28)% 13 % Diluted EPS from Continuing Operations
Amount $2.07 $1.31 $0.04 $3.42
Growth Rate (24)% 20%
The sum of the components may not equal the total due to rounding CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION
Fourth Quarter Fiscal Year
(in millions) 2008 2007 2008 2007 GAAP Return on Equity 17.3% 47.3% 17.8% 23.5% Non-GAAP Return on Equity
Net earnings $326.6 $902.2 $1,309.2 $1,931.1
Special items, net of tax, in
continuing operations 21.8 107.8 77.7 528.9
Special items, net of tax, in
discontinued operations - - - 4.4
(Gain)/loss on sale of PTS,
net of tax, in discontinued
operations - (679.5) 7.6 (1,072.4)
Adjusted net earnings $348.4 $330.5 $1,394.5 $1,392.0 Annualized $1,393.6 $1,322.0 $1,394.5 $1,392.0 Divided by average
shareholders' equity(1) $7,574.7 $7,623.2 $7,340.5 $8,213.2 Non-GAAP return on equity 18.4% 17.3% 19.0% 16.9%
Fourth Quarter Fiscal Year
(in millions) 2008 2007 2008 2007 GAAP Return on Invested Capital 6.90% 18.43% 7.01% 9.38% Non-GAAP Return on Invested
Capital
Net earnings $326.6 $902.2 $1,309.2 $1,931.1
Special items, net of tax, in
continuing operations 21.8 107.8 77.7 528.9
Special items, net of tax, in
discontinued operations - - - 4.4
Interest expense and other,
net of tax 30.4 12.2 109.7 77.7
(Gain)/loss on sale of PTS,
net of tax, in discontinued
operations - (679.5) 7.6 (1,072.4)
Adjusted net earnings $378.8 $342.7 $1,504.2 $1,469.7 Annualized $1,515.2 $1,370.8 $1,504.2 $1,469.7 Divided by average total
invested capital(2) $18,940.1 $19,583.8 $18,665.9 $20,580.7 Non-GAAP return on invested
capital 8.00% 7.00% 8.06% 7.14%
(1) The average shareholders' equity shown above is calculated using
the average of the prior and current quarters except for fiscal
year which is calculated as the average of shareholders' equity
at the end of the prior years' fourth quarter plus each of the
current year quarters.
(2) Total invested capital is calculated as the sum of the current
portion of long-term obligations and other short-term borrowings,
long-term obligations, current portion of long-term obligations and
other short-term borrowings in discontinued operations, long-term
obligations in discontinued operations, total shareholders' equity
and unrecorded goodwill. The average total invested capital is
calculated using the average of total invested capital at the end of
the prior and current quarters except for year-to-date which is
calculated as the average of the prior years' fourth quarter plus
each of the current year quarters. Unrecorded goodwill is
$7.5 billion for all periods presented. Current portion of long-term
obligations and other short-term borrowings in discontinued
operations, and long-term obligations in discontinued operations were
$59.2 million, $46.6 million, $41.3 million and $12.3 million at June
30, 2006, September 30, 2006, December 31, 2006 and March 31, 2007,
respectively.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION
Fiscal Year
(in millions) 2008 2007
Revenue
Clinical Technologies and Services $2,890 $2,687
Medical Products and Technologies 2,696 1,836
Combined Revenue $5,586 $4,523 Combined Growth Rate 24 % Segment Profit
Clinical Technologies and Services $497 $386
Medical Products and Technologies 300 198
Combined Profit $797 $584 Combined Growth Rate 36 %
Fourth Quarter
(in millions) 2008 2007 Clinical Technologies and Services
revenue growth 3% Clinical Technologies and Services
revenue $779.8 $755.8
Less: Pharmacy Services business
unit revenue (194.8) (218.7)
Clinical Technologies and Services
revenue excluding Pharmacy Services
business unit revenue $585.0 $537.1 Clinical Technologies and Services
revenue growth excluding Pharmacy
Services business unit revenue 9% CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION
Fourth Quarter Fiscal Year
(in millions) 2008 2007 2008 2007
GAAP Effective Tax Rate from
Continuing Operations 33.4% 40.8% 32.3% 33.0% Non-GAAP Effective Tax Rate from
Continuing Operations
Earnings before income taxes and
discontinued operations $495.8 $401.4 $1,957.3 $1,252.3
Special items 34.9 118.2 122.6 772.0
Adjusted earnings before
income taxes and discontinued
operations $530.7 $519.6 $2,079.9 $2,024.3 Provision for income taxes $165.6 $163.7 $632.8 $412.6
Special items tax benefit 13.1 10.4 44.9 243.1
Adjusted provision for income
taxes $178.7 $174.1 $677.7 $655.7 Non-GAAP effective tax rate from
continuing operations 33.7% 33.5% 32.6% 32.4%
Fourth Quarter
2008 2007 Debt to Total Capital 33% 32% Net Debt to Capital
Current portion of long-term
obligations and other short-
term borrowings $159.0 $16.0
Long-term obligations, less
current portion and other
short-term borrowings 3,687.4 3,457.3
Debt $3,846.4 $3,473.3
Cash and equivalents (1,291.3) (1,308.8)
Short-term investments available
for sale - (132.0)
Net debt $2,555.1 $2,032.5
Total shareholders' equity $7,756.1 $7,376.9
Capital $10,311.2 $9,409.4
Net debt to capital 25% 22%
Forward-Looking Non-GAAP Financial Measures
The Company presents non-GAAP earnings from continuing operations and
non-GAAP effective tax rate from continuing operations (and presentations
derived from these financial measures) on a forward-looking basis. The
most directly comparable forward-looking GAAP measures are earnings from
continuing operations and effective tax rate from continuing operations. The Company is unable to provide a quantitative reconciliation of these
forward-looking non-GAAP measures to the most comparable forward-looking
GAAP measures because the Company cannot reliably forecast special items
and impairment charges and other, which are difficult to predict and
estimate and are primarily dependent on future events. Please note that
the unavailable reconciling items could significantly impact the
Company's future financial results.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
DEFINITIONS
GAAP
Debt: long-term obligations plus short-term borrowings
Debt to Total Capital: debt divided by (debt plus total shareholders' equity) Diluted EPS from Continuing Operations: earnings from continuing operations divided by diluted weighted average shares outstanding Effective Tax Rate from Continuing Operations: provision for income taxes divided by earnings before income taxes and discontinued operations Operating Cash Flow: net cash provided by / (used in) operating activities from continuing operations Segment Profit: segment revenue minus (segment cost of products sold and segment selling, general and administrative expenses) Segment Profit Margin: segment profit divided by segment revenue Segment Profit Mix: segment profit divided by total segment profit for all segments Return on Equity: annualized net earnings divided by average shareholders' equity Return on Invested Capital: annualized net earnings divided by (average total shareholders' equity plus debt plus unrecorded goodwill) Revenue Mix: segment revenue divided by total segment revenue for all segments NON-GAAP Net Debt to Capital: net debt divided by (net debt plus total shareholders' equity) Net Debt: debt minus (cash and equivalents and short-term investments available for sale) Non-GAAP Diluted EPS from Continuing Operations: non-GAAP earnings from continuing operations divided by diluted weighted average shares outstanding Non-GAAP Diluted EPS from Continuing Operations Growth Rate: (current period non-GAAP diluted EPS from continuing operations minus prior period non- GAAP diluted EPS from continuing operations) divided by prior period non-GAAP diluted EPS from continuing operations Non-GAAP Earnings from Continuing Operations: earnings from continuing operations excluding special items and impairment charges and other, both net of tax Non-GAAP Earnings from Continuing Operations Growth Rate: (current period non-GAAP earnings from continuing operations minus prior period non-GAAP earnings from continuing operations) divided by prior period non-GAAP earnings from continuing operations Non-GAAP Effective Tax Rate from Continuing Operations: (provision for income taxes adjusted for special items) divided by (earnings before income taxes and discontinued operations adjusted for special items) Non-GAAP Operating Earnings: operating earnings excluding special items and impairment charges and other Non-GAAP Operating Earnings Growth Rate: (current period non-GAAP operating earnings minus prior period non-GAAP operating earnings) divided by prior period non-GAAP operating earnings Non-GAAP Return on Equity: (annualized current period net earnings plus special items minus special items tax benefit) divided by average shareholders' equity (1) Non-GAAP Return on Invested Capital: (annualized net earnings plus special items minus special items tax benefit plus interest expense and other) divided by (average total shareholders' equity plus debt plus unrecorded goodwill) (1) (1) For the three months ended June 30, 2007, the numerator in calculating
this non-GAAP financial measure also excludes the $679.5 million gain,
net of tax, on the sale of PTS recorded in discontinued operations in
the fourth quarter of fiscal 2007. For the fiscal year ended June
30, 2008 and 2007 the numerator in calculating this non-GAAP financial
measure also excludes the respective $7.6 million and $(1,072.4)
million (gain) / loss, net of tax, on the sale of PTS recorded in
discontinued operations. DATASOURCE: Cardinal Health, Inc.
CONTACT: Jim Mazzola, +1-614-757-3690, , or Investors, Sally Curley, +1-614-757-7115, , both of Cardinal Health, Inc.
Web site: http://www.cardinalhealth.com/
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