-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q6k/PrX6QElLrVvo5GJaKrLioYK9BH9L6BNKm9zcIfcfn9mE8HBYz2/OZEDHbGr9 pZxXmOh0l/bzuc3HMGI+9w== 0000950152-04-007921.txt : 20041105 0000950152-04-007921.hdr.sgml : 20041105 20041104195046 ACCESSION NUMBER: 0000950152-04-007921 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041104 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041105 DATE AS OF CHANGE: 20041104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDINAL HEALTH INC CENTRAL INDEX KEY: 0000721371 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 310958666 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11373 FILM NUMBER: 041120947 BUSINESS ADDRESS: STREET 1: 7000 CARDINAL PLACE CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147573033 MAIL ADDRESS: STREET 1: 7000 CARDINAL PLACE CITY: DUBLIN STATE: OH ZIP: 43017 FORMER COMPANY: FORMER CONFORMED NAME: CARDINAL DISTRIBUTION INC DATE OF NAME CHANGE: 19920703 8-K 1 l10377ae8vk.txt CARDINAL HEALTH, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 4, 2004 CARDINAL HEALTH, INC. (Exact Name of Registrant as Specified in its Charter) OHIO (State or Other Jurisdiction of Incorporation) 1-11373 31-0958666 (Commission File Number) (IRS Employer Identification Number)
7000 CARDINAL PLACE, DUBLIN, OHIO 43017 (Address of Principal Executive Offices, Including Zip Code) (614) 757-5000 (Registrant's Telephone Number, Including Area Code) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The information set forth under this "Item 2.02 Results of Operations and Financial Condition" is intended to be furnished and such information, including the Exhibits attached hereto, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended. A copy of a press release announcing the Registrant's results for the first fiscal quarter ended September 30, 2004 is attached hereto as Exhibit 99.01. Attached hereto as Exhibit 99.02 is a discussion of the reasons why management believes that presenting results that exclude the impact of special charges provides a useful representation of the Registrant's current performance and trends. In addition, Exhibit 99.02 includes a discussion of certain items in the Company's segment disclosure that are either infrequent or will aid the reader in analyzing comparability between prior periods. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits 99.01 Press Release issued by the Registrant on November 4, 2004, and furnished under this Current Report. 99.02 Information provided by the Company on November 4, 2004, and furnished under this Current Report. -2- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Cardinal Health, Inc. (Registrant) Date: November 4, 2004 By: /s/ J. Michael Losh -------------------- Name: J. Michael Losh Title: Chief Financial Officer -3- EX-99.01 2 l10377aexv99w01.txt EXHIBIT 99.01 Exhibit 99.01 [CARDINAL HEALTH LOGO] 7000 Cardinal Place Dublin,OH 43017 www.cardinal.com FOR IMMEDIATE RELEASE CONTACTS: Media: Jim Mazzola Investors: Jim Hinrichs (614) 757-3690 (614) 757-7828 jim.mazzola@cardinal.com jim.hinrichs@cardinal.com ------------------------ ------------------------- CARDINAL HEALTH ANNOUNCES FIRST QUARTER RESULTS DUBLIN, OHIO, NOV. 4, 2004 -- Cardinal Health, Inc. (NYSE: CAH), the leading provider of products and services supporting the health care industry, today announced revenue for its first quarter rose 16 percent to $17.8 billion, while earnings from continuing operations declined to $217.8 million and diluted earnings per share from continuing operations declined to $0.50. Excluding special items of $20 million for the quarter ended Sept. 30, net earnings from continuing operations decreased 28 percent to $238 million compared to $332 million in the prior year. Earnings per diluted share from continuing operations before special items declined 26 percent to $0.55 versus $0.74 last year. The company generated strong cash flow from operations for the quarter of nearly $900 million, including net proceeds of $500 million realized through an accounts receivable securitization. Free cash flow for the quarter was $777 million. (See the attached financial table for a reconciliation of the non-GAAP amounts to their GAAP equivalents.) "As we anticipated, the first quarter was challenging and our results are clearly below our historic performance and long-term expectations," said Robert D. Walter, chairman and chief executive officer. "We are taking action in each segment to capitalize on the strategic opportunities that exist today in our business. We are very focused on realizing the value of what we've assembled and achieving the potential we have as an integrated company." SEGMENT RESULTS The company attributed earnings declines for the quarter to three primary factors: - Declines within the Pharmaceutical Distribution and Provider Services segment in margin earned from pharmaceutical manufacturers due to changes in their sales practices and product price increases that were substantially below the prior year -more- CARDINAL HEALTH ANNOUNCES FIRST QUARTER RESULTS PAGE 2 - Challenges in other business segments, including a decline in production of certain sterile products within the blow/fill/seal business of the Pharmaceutical Technologies and Services segment - Non-recurring items affecting the Medical Products and Services and Clinical Technologies and Services segments of $16.4 million and $20.6 million, respectively (Tables with specific segment results for the first quarter are attached and available at the Investor Relations page on www.cardinalhealth.com.) PHARMACEUTICAL DISTRIBUTION AND PROVIDER SERVICES - ------------------------------------------------- Segment revenues increased 16 percent for the quarter to $14.4 billion, while operating earnings declined by 29 percent to $163 million. The operating earnings decline was primarily the result of lower margins from manufacturers that have changed their selling practices, and the lack of manufacturer price increases during the quarter, as compared to prior year levels. The company is addressing the declines by transitioning distribution contracts to provide fee-based compensation, meaning fees will be paid by manufacturers for distribution services on a non-contingent basis as services are provided. This change is expected to improve returns and provide greater stability in future earnings. Progress was made during the quarter to transition these contracts, the company said. In August, Cardinal Health notified pharmaceutical manufacturers of a change in policy intended to transition existing contracts by the next anniversary date of current agreements or April 1, 2005. Expense control measures continued to drive efficiency within pharmaceutical distribution, with selling, general and administrative expenses as a percent of revenue declining over the prior year. Inventory levels at regional distribution centers are also expected to decline during the remainder of the year, as Cardinal Health's National Logistics Center is now operational. Based on strong cash flow and these expected inventory declines, the company announced today that it has fully repaid $1.25 billion in outstanding debt and decided not to move forward with a previously announced $500 million credit line that would have provided incremental borrowing capacity. MEDICAL PRODUCTS AND SERVICES - ----------------------------- During the quarter, the company recorded a $16.4 million charge for remaining latex litigation costs. This litigation, which began during the mid-1990's, is nearing conclusion and the charge is the company's current estimate of costs to resolve all remaining litigation and related matters, net of estimated insurance proceeds. This non-recurring item had the effect of lowering Medical Products and Services operating earnings for the quarter. Overall, the segment reported solid revenue growth in the quarter -- up 11 percent to $2.4 billion -- led by strong momentum in distribution revenue on health-systems contracts. The effect of the latex charge and margin pressure on manufactured products caused operating earnings to decline 14 percent to $138 million versus $160 million last year. Excluding the latex charge, operating earnings were $154 million, a decline of 4 percent versus the prior year. The profitability of manufactured products was negatively affected -more- CARDINAL HEALTH ANNOUNCES FIRST QUARTER RESULTS PAGE 3 by competitive pricing on a large group purchase organization contract and rising costs of raw materials used in manufacturing. Strong sales gains, new product introductions, ongoing cost reduction initiatives and continued strength in operations outside the U.S. are expected to contribute to improved earnings during the second half of the fiscal year in this segment. With these improvements, the company expects Medical Products and Services' earnings to return to growth rates that increase faster than revenue. PHARMACEUTICAL TECHNOLOGIES AND SERVICES - ---------------------------------------- Revenue and earnings comparisons within the Pharmaceutical Technologies and Services no longer measure the effect of foreign currency at a constant exchange rate, which negatively affected results for the quarter. Revenues increased 9 percent during the quarter to $705 million, driven by growth in nuclear pharmacy services, Intercare operations and improvements in the company's Somerset, N.J. development facility. Adjusting for the impact of the constant foreign currency exchange rates, revenues for the first quarter increased 11 percent. Operating earnings declined 24 percent to $81 million for the first quarter. Excluding the effect of constant foreign currency exchange rates, operating earnings declined 20 percent. Decreased earnings were the result of weakness in certain sterile manufacturing operations and short-term earnings declines in packaging services. Weakness in sterile manufacturing was the result of a decline in the core blow/fill/seal business and continued regulatory delays in the start up of new operations in Humacao, Puerto Rico. Costs associated with delays in Humacao totaled $5 million for the quarter, but these issues are expected to be resolved by the end of the second quarter. Partially offsetting earnings decreases in the blow/fill/seal and Humacao operations, the company's Albuquerque, N.M. sterile manufacturing operation continued to see strong demand and improved efficiency during the quarter, which is expected to lead the way for a significant contribution to the second half of 2005. Packaging services and pharmaceutical development are also expected to produce strong earnings growth for the balance of the year based on both the outlook for demand and efficiency initiatives underway. CLINICAL TECHNOLOGIES AND SERVICES - ---------------------------------- Results for this new segment, which include Cardinal Health's Alaris(R) products, Pyxis(R) products and Clinical Services and Consulting organizations, are being reported for the first time this quarter and replace the company's former Automation and Information Services segment. This new segment, which is expected to exceed $2 billion in revenues for the fiscal year, brings together extensive clinical expertise and market-leading products and services to help hospitals improve patient safety and clinical outcomes. Segment results for the quarter were affected by a one-time purchase-accounting adjustment to reflect the market value of Alaris inventory. This adjustment increased the value of Alaris inventory and effectively lowered first-quarter earnings by $20.6 million. In addition, the company said results for this segment will no longer include interest income -more- CARDINAL HEALTH ANNOUNCES FIRST QUARTER RESULTS PAGE 4 from leases previously sold to a third party. This change negatively affects comparisons to prior results. Revenues for the segment were $524 million for the quarter and operating earnings reached $46 million, or $67 million excluding the inventory adjustment. Revenues for Alaris products and Clinical Services and Consulting were strong, with solid operating earnings in both businesses excluding the impact of the Alaris inventory adjustment. Revenue and earnings both declined for Pyxis products, which negatively affected overall segment results. Clinical Technologies and Services results are expected to improve during the year through new Pyxis product introductions, better rationalization of existing product lines and efficiencies resulting from the formation of the segment. Over the long-term, segment growth will be driven by innovative product and service offerings that draw on the vast clinical resources assembled in this organization. CONFERENCE CALL AND INVESTOR MEETING Cardinal Health has scheduled a conference call for Fri., Nov. 5 at 10 a.m. Eastern Standard Time to discuss its first quarter results and provide a management update for invited analysts and investment professionals. To access the conference call, management update and the corresponding slide presentation, go to the Investor Relations page at www.cardinalhealth.com. The conference call and management update may also be accessed by calling 706-634-5100, passcode 1995153. An audio replay will be available until 11:30 p.m. on Nov. 9 at 706-645-9291, passcode 1995153. A transcript and audio replay will also be available at www.cardinalhealth.com. As previously disclosed, Cardinal Health's annual meeting of shareholders is scheduled for Dec. 8 in Dublin, Ohio. ABOUT CARDINAL HEALTH CARDINAL HEALTH, INC. (www.cardinalhealth.com) is the leading provider of products and services supporting the health care industry. Cardinal Health develops, manufactures, packages and markets products for patient care; develops drug-delivery technologies; distributes pharmaceuticals and medical, surgical and laboratory supplies; and offers consulting and other services that improve quality and efficiency in health care. Headquartered in Dublin, Ohio, Cardinal Health employs more than 55,000 people on six continents and produces annual revenues of more than $65 billion. Cardinal Health is ranked No.17 on the current Fortune 500 list and named one of the best U.S. companies by Forbes magazine for 2004. ### Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements 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 8-K and Form 10-Q reports (including all amendments to those reports) and exhibits to those reports, and include (but are not limited to) the costs, difficulties, and uncertainties related to the integration of -more- CARDINAL HEALTH ANNOUNCES FIRST QUARTER RESULTS PAGE 4 acquired businesses, the loss of one or more key customer or supplier relationships or changes to the terms of those relationships, 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 and administrative proceedings, the impact of previously announced restatements, and general economic and market conditions. Cardinal Health undertakes no obligation to update or revise any forward-looking statement. -more- CARDINAL HEALTH, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FIRST QUARTER --------------------------------------------- September September 2004 2003 % Change --------------------------------------------- Revenue $17,796.0 $15,388.2 16% Cost of products sold 16,709.5 14,315.4 17% ---------- ---------- Gross margin 1,086.5 1,072.8 1% Selling, general and administrative expenses 693.1 547.6 27% Special items - merger charges 16.9 8.6 N.M. - other 15.0 4.6 N.M. ---------- ---------- Operating earnings 361.5 512.0 (29)% Interest expense and other 41.2 28.0 47% ---------- ---------- Earnings before income taxes, discontinued operations and cumulative effect of change in accounting 320.3 484.0 (34)% Provision for income taxes 102.5 160.5 (36)% ---------- ---------- Earnings from continuing operations before cumulative effect of change in accounting 217.8 323.5 (33)% Loss from discontinued operations (net of tax $2.8 and $1.1 for the quarters ending September 30, 2004 and 2003, respectively) (4.5) (1.8) N.M. Cumulative effect of change in accounting - (38.5) N.M. ---------- ---------- Net earnings $ 213.3 $ 283.2 N.M. ========== ========== Basic earnings per Common Share: Continuing operations $ 0.50 $ 0.73 (32)% Discontinued operations (0.01) - N.M. Cumulative effect of change in accounting - (0.09) N.M. ---------- ---------- Net basic earnings per Common Share $ 0.49 $ 0.64 N.M. ========== ========== Diluted earnings per Common Share: Continuing operations $ 0.50 $ 0.72 (31)% Discontinued operations (0.01) - N.M. Cumulative effect of change in accounting - (0.09) N.M. ---------- ---------- Net diluted earnings per Common Share $ 0.49 $ 0.63 N.M. ========== ========== Weighted average number of shares outstanding: Basic 431.7 440.5 Diluted 434.7 446.4 - ---------------------------------------------------------------------------------------------------------------------------
The following table summarizes the impact of special items on net earnings and diluted earnings per Common Share in the quarters in which they were recorded:
Current Year Prior Year ------------------------ ------------------------ Net Diluted Net Diluted Earnings EPS Earnings EPS ------------------------ ------------------------ Impact of special items - merger charges $ (10.6) $ (0.03) $ (5.4) $ (0.01) - other (9.4) (0.02) (3.3) (0.01) ------- -------- ------ -------- Impact of special items $ (20.0) $ (0.05) $ (8.7) $ (0.02) ======= ======== ====== ========
-more- CARDINAL HEALTH, INC. CONSOLIDATED BALANCE SHEETS (IN MILLIONS) (UNAUDITED)
SEPTEMBER 30, June 30, September 30, 2004 2004 2003 ------------- ----------- ------------- ASSETS CURRENT ASSETS Cash and equivalents $ 1,152.4 $ 1,096.0 $ 992.0 Trade receivables 3,368.1 3,432.7 2,996.1 Current portion of investment in sales-type leases 207.3 202.1 196.0 Inventories 8,199.6 7,471.3 8,130.6 Prepaid expenses and other 814.7 795.4 732.2 Assets held for sale from discontinued operations 44.9 60.4 163.0 ----------- ----------- ----------- Total current assets 13,787.0 13,057.9 13,209.9 ----------- ----------- ----------- Property and equipment - net 2,399.9 2,364.0 2,079.9 Investment in sales-type leases 585.6 546.0 594.0 Other assets 5,496.6 5,401.2 2,637.7 ----------- ----------- ----------- TOTAL ASSETS $ 22,269.1 $ 21,369.1 $ 18,521.5 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable - banks and current portion of long-term obligations $ 362.4 $ 860.6 $ 217.1 Accounts payable 7,687.5 6,432.4 6,157.0 Other accrued liabilities 1,887.0 2,021.3 1,589.7 Liabilities from discontinued operations 55.4 55.1 62.2 ----------- ----------- ----------- Total current liabilities 9,992.3 9,369.4 8,026.0 ----------- ----------- ----------- Long-term obligations, less current portion 2,892.6 2,834.7 2,507.0 Deferred taxes and other liabilities 1,165.2 1,188.7 995.0 Total shareholders' equity 8,219.0 7,976.3 6,993.5 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 22,269.1 $ 21,369.1 $ 18,521.5 =========== =========== ===========
-- more -- CARDINAL HEALTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in millions)
THREE MONTHS ENDED --------------------------- SEPTEMBER 30, --------------------------- 2004 2003 ---------- ---------- Cash Flows From Operating Activities: Earnings from continuing operations before cumulative effect of change in accounting $ 217.8 $ 323.5 Adjustments to reconcile earnings from continuing operations before cumulative effect of change in accounting to net cash from operations: Depreciation and amortization 92.5 68.7 Change in operating assets and liabilities, net of effects from acquisitions: (Increase)/decrease in trade receivables 79.4 (210.5) Increase in inventories (723.0) (620.5) Increase in net investment in sales-type leases (44.8) (60.9) Increase in accounts payable 1,247.7 866.9 Other operating items - net 23.7 (73.1) ---------- ---------- Net cash provided by operating activities 893.3 294.1 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of subsidiaries, net of cash acquired (264.9) (15.0) Proceeds from sale of property, equipment, and other assets 4.2 2.5 Additions to property and equipment (107.5) (77.8) Proceeds from sale of discontinued operations 2.8 -- ---------- ---------- Net cash used in investing activities (365.4) (90.3) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in commercial paper and short-term debt (635.6) (0.1) Net change in long-term obligations 147.3 32.4 Proceeds from issuance of Common Shares 29.8 45.3 Purchase of Treasury Stock -- (1,000.0) Dividends on Common Shares (12.9) (13.4) ---------- ---------- Net cash used in financing activities (471.4) (935.8) ---------- ---------- NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS 56.5 (732.0) Cash and Equivalents at Beginning of Period 1,096.0 1,724.0 ---------- ---------- CASH AND EQUIVALENTS AT END OF PERIOD $ 1,152.5 $ 992.0 ========== ==========
-- more -- - ------------------------------------------------------------------------------- CARDINAL HEALTH, INC. - FIRST QUARTER FY 2005 BUSINESS ANALYSIS ($ MILLIONS) - -------------------------------------------------------------------------------
PHARMACEUTICAL DISTRIBUTION AND PROVIDER SERVICES 2005 2004 ---- ---- . REVENUE ------- - Amount $14,402 $12,442 - Growth Rate 16% 17% - Mix 80% 80% . OPERATING EARNINGS ------------------ - Amount $ 163 $ 231 - Growth Rate (29)% (3)% - Mix 38% 41% - Ratio to Revenue 1.13% 1.86%
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MEDICAL PRODUCTS AND SERVICES 2005 2004 ---- ---- .. REVENUE ------- - Amount $2,393 $2,148 - Growth Rate 11% 13% - Mix 13% 14% .. OPERATING EARNINGS ------------------ - Amount $ 138 $ 160 - Growth Rate (14)% 12% - Mix 32% 28% - Ratio to Revenue 5.78% 7.47%
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PHARMACEUTICAL TECHNOLOGIES AND SERVICES 2005 2004 ---- ---- . REVENUE ------- - Amount $ 705 $ 647 - Growth Rate 9% 52% - Mix 4% 4% . OPERATING EARNINGS ------------------ - Amount $ 81 $ 106 - Growth Rate (24)% 47% - Mix 19% 19% - Ratio to Revenue 11.46% 16.44%
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CLINICAL TECHNOLOGIES AND SERVICES 2005 2004 ---- ---- . REVENUE ------- - Amount $ 524 $ 335 - Growth Rate 57% 2% - Mix 3% 2% . OPERATING EARNINGS ------------------ - Amount $ 46 $ 68 - Growth Rate (32)% 18% - Mix 11% 12% - Ratio to Revenue 8.76% 20.19%
--more-- CARDINAL HEALTH, INC. - FIRST QUARTER FY 2005 BUSINESS ANALYSIS ($ MILLIONS) TOTAL
2005 2004 ---- ---- . REVENUE - Amount $17,796 $15,388 Excluding Special Items ------------------------------ - Growth Rate 16% 18% 2005 2004 ---- ---- . OPERATING EARNINGS - Amount $ 362 $ 512 $393 $525 - Growth Rate (29)% 12% (25)% 10% . RATIO TO REVENUE - Gross Margin 6.10% 6.97% - Expenses 3.89% 3.56% - Special Items 0.18% 0.09% - Operating Earnings 2.03% 3.32% 2.21% 3.41% . NET EARNINGS * - Amount $ 218 $ 324 $238 $332 - Growth Rate (33)% 15% (28)% 12% - Ratio to Revenue 1.22% 2.10% 1.34% 2.16% . PRODUCTIVITY - Margin per Expense Dollar $ 1.57 $ 1.96 . ASSET MANAGEMENT - Operating Cash Flow $ 893 $ 294 - Free Cash Flow $ 777 $ 205 - Return on Invested Capital 4.62% 6.93% 4.99% 7.11%
* THE NET EARNINGS SECTION IS PRESENTED BEFORE DISCONTINUED OPERATIONS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING. SEE THE GAAP/NON-GAAP RECONCILIATION FOR THE CALCULATIONS AND DEFINITIONS SUPPORTING THE BALANCES EXCLUDING SPECIAL ITEMS. --more-- CARDINAL HEALTH, INC. - FIRST QUARTER FISCAL 2005 AND 2004 ASSET MANAGEMENT ANALYSIS ($ MILLIONS)
2005 2004 ---- ---- . RECEIVABLE DAYS 16.8 17.5 . DAYS INVENTORY ON HAND 39 45 . CASH $1,152 $ 992 . DEBT $3,255 $2,724 . EQUITY $8,219 $6,993 . NET DEBT/TOTAL CAPITAL 20% 20% . TANGIBLE NET WORTH $3,200 $4,653 . RETURN ON EQUITY 10.8% 17.6% EXCLUDING SPECIAL CHARGES 11.7% 18.1% . TAX RATE 32.0% 33.2% EXCLUDING SPECIAL CHARGES 32.5% 33.2%
SEE THE GAAP/NON-GAAP RECONCILIATION FOR THE CALCULATIONS AND DEFINITIONS SUPPORTING THE BALANCES EXCLUDING SPECIAL ITEMS. --more-- - ------------------------------------------------------------------------------- CARDINAL HEALTH, INC. - BUSINESS ANALYSIS RECONCILIATION ($ MILLIONS) - -------------------------------------------------------------------------------
FIRST QUARTER FISCAL 2005 EXCLUDING GAAP* SPECIAL SPECIAL BASIS ITEMS ITEMS ----- ------- --------- .. SPECIAL ITEMS ------------- - Merger related costs $ 16 $ 16 - - Other $ 15 $ 15 - .. OPERATING EARNINGS ------------------ - Amount $ 362 $ 31 $ 393 - Growth rate (29)% (25)% - Ratio to revenue (Return on Sales) 2.03% 2.21% .. NET EARNINGS** -------------- - Amount $ 218 $ 20 $ 238 - Growth rate (33)% (28)% - Ratio to revenue 1.22% 1.34% - Diluted EPS $0.50 $0.05 $0.55 .. INCOME TAX PROVISION -------------------- -Income tax provision $ 102 $ 11 $ 113
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FIRST QUARTER FISCAL 2004 EXCLUDING GAAP* SPECIAL SPECIAL BASIS ITEMS ITEMS ----- ------- --------- .. SPECIAL ITEMS ------------- - Merger related costs $ 9 $ 9 - - Other $ 4 $ 4 - .. OPERATING EARNINGS ------------------ - Amount $ 512 $ 13 $ 525 - Growth rate 12% 10% - Ratio to revenue (Return on Sales) 3.32% 3.41% .. NET EARNINGS** -------------- - Amount $ 324 $ 8 $ 332 - Growth rate 15% 12% - Ratio to revenue 2.10% 2.16% - Diluted EPS $0.72 $0.02 $0.74 .. INCOME TAX PROVISION -------------------- - Income tax provision $ 161 $ 5 $ 166
* GAAP - AMOUNTS THAT CONFORM WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. ** THE NET EARNINGS SECTION IS PRESENTED BEFORE DISCONTINUED OPERATIONS AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING. DEFINITIONS: Return on equity (excluding special items) = (Earnings from continuing operations + special items after tax) / average shareholders' equity Note: Average shareholders' equity used in the return on equity calculation was $8.1 billion and $7.4 billion in the first quarter of fiscal 2005 and 2004, respectively. EFFECTIVE TAX RATE (EXCLUDING SPECIAL ITEMS) = (Income tax provision + tax effect of special items) / (earnings before income taxes + special items) GROWTH RATE (EXCLUDING SPECIAL ITEMS) = (Current quarter earnings excluding special items - prior year quarter earnings excluding special items) / prior year quarter earnings excluding special items RATIO TO REVENUE (EXCLUDING SPECIAL ITEMS) = Current quarter earnings excluding special items / operating revenue FREE CASH FLOW = Operating cash flow - net property activity - dividends RETURN ON INVESTED CAPITAL (EXCLUDING SPECIAL ITEMS) = [Operating earnings excluding special items annualized x (1 - effective tax rate, excluding special items)] / average (equity + debt + unrecorded goodwill) Note: Average unrecorded goodwill used in return on invested capital calculation was $9.7 billion in fiscal 2005 and fiscal 2004. NET DEBT TO TOTAL CAPITAL = Net debt / (net debt + shareholders' equity) Note: Net debt = long-term obligations + short-term obligations + notes payable banks - cash ### - ------------------------------------------------------------------------------- CARDINAL HEALTH, INC. - GAAP / NON-GAAP RECONCILIATION - SEGMENT ANALYSIS - ------------------------------------------------------------------------------- ($ Millions)
FIRST QUARTER FY 2005 ------------------------------------------------------------------------------ Alaris EXCLUDING Inventory NON- GAAP Litigation Purchase Alaris PTS RECURRING BASIS * Reserve Accounting Acquisition Acquisitions ITEMS - --------------------------------------------------------------------------------------------------------------------------- MEDICAL PRODUCTS AND SERVICES: - Operating Earnings 138 16 -- -- -- 154 - Growth Rate (14)% (4)% PHARMACEUTICAL TECHNOLOGIES AND SERVICES: - Revenues 705 -- -- -- -- 705 - Growth Rate 9% 11% - Revenues 705 -- -- -- (58) 647 - Growth Rate 9% 4% - Operating Earnings 81 -- -- -- -- 81 - Growth Rate (24)% (20)% - Operating Earnings 81 -- -- -- (10) 71 - Growth Rate (24)% (28)% CLINICAL TECHNOLOGIES AND SERVICES: - Revenues 524 -- -- (150) -- 374 - Growth Rate 57% 13% - Operating Earnings 46 -- 21 -- -- 67 - Growth Rate (32)% 6% - ---------------------------------------------------------------------------------------------------------------------------
FIRST QUARTER FY 2004 ------------------------------------------------------------ EXCLUDING Foreign Interest NON- GAAP Currency Income PTS RECURRING BASIS * Adjustment Adjustment Dispositions ITEMS - -------------------------------------------------------------------------------------------------------- MEDICAL PRODUCTS AND SERVICES: - Operating Earnings 160 -- -- 160 - Growth Rate PHARMACEUTICAL TECHNOLOGIES AND SERVICES: - Revenues 647 (14) -- 633 - Growth Rate - Revenues 647 (14) -- (13) 620 - Growth Rate - Operating Earnings 106 (5) -- 101 - Growth Rate - Operating Earnings 106 (5) -- (2) 99 - Growth Rate CLINICAL TECHNOLOGIES AND SERVICES: - Revenues 335 -- (5) 330 - Growth Rate - Operating Earnings 68 -- (5) 63 - Growth Rate - --------------------------------------------------------------------------------------------------------
* GAAP - Amounts that conform with generally accepted accounting principles. ### EX-99.02 3 l10377aexv99w02.txt EXHIBIT 99.02 Exhibit 99.02 The Company incurred special items during the first quarter, consisting primarily of merger-related charges of $16.9 million, restructuring charges of $7.5 million and costs related to the SEC investigation and Audit Committee internal review of $7.5 million. Merger-related charges include such items as employee-related costs, costs associated with exit and consolidation of facilities as well as costs of integrating acquired businesses. Restructuring charges primarily relate to decisions made by management to incur costs to realign components of its business operations to meet current business demands. Costs related to the SEC investigation and Audit Committee internal review primarily include legal fees and document preservation and production costs. On an after-tax basis, these special items totaled $20.0 million versus $8.7 million for the year-earlier period. In the opinion of management, these items, by their nature, rarely have predictable trends and are not truly reflective of ongoing operating results. Therefore, the Company presents its results on both a GAAP basis (GAAP) and a GAAP basis excluding these items ("adjusted"). Management uses "adjusted" results to measure its performance, in addition to the GAAP results. As the Company's core business is providing health care products and services to the healthcare industry, management finds it useful to use a metric that does not include charges and gains associated with restructuring, merger-related activity and litigation. While these may be recurring items for the Company, management believes they are not reflective of the day-to-day offering of its products and services and relate more to strategic, multi-year corporate actions that tend to mask the trends and financial performance of the Company's products and services. Management also believes that investors may also find an unmasked view of the Company's core operations to be useful. In addition, the Company has identified certain items in its segment discussion that are either infrequent or will aid the reader in analyzing comparability between prior periods. These items include a $16.4 million litigation charge within the Company's Medical Products and Services segment and a $20.6 million charge in the Company's Clinical Technologies and Services segment, as a result of a purchase-accounting inventory adjustment associated with the Alaris acquisition. In addition, the Company quantified the impact of not measuring its international subsidiaries within the Pharmaceutical Technologies and Services segment using a constant foreign exchange rate. The Company provided information regarding the impact of each of these items on the applicable segment's results. The Company believes this information is useful for investors' assessment of the business segments operating trends. Management encourages readers to rely upon the GAAP numbers, but includes the GAAP amounts that have been adjusted as a supplemental metric to assist readers. It should be noted that the items being adjusted from the GAAP results represent actual income or expense to the Company. These items impact operating cash flow available to support on-going operations. As such, these items are an important component of the financial performance of the Company and any metric excluding them will present an incomplete picture. -----END PRIVACY-ENHANCED MESSAGE-----