07.23.08
$12 Billion ($87B total)
Robert D. Walter, Executive Director
R. Kerry Clark, CEO and Chairman
Jeff Henderson, CFO
Dave Schlotterbeck, Vice Chairman and CEO, Clinical and
Medical Products
Jeff Henderson, CFO
Dwight Winstead, Group President, Clinical Technologies and Services
Mike Lynch, Group President, Medical Products and Technologies
For Cardinal Health, fiscal 2007 was a good year that “marked a return to strong growth with a more focused business model that we expect will provide a foundation for continued growth in the years to come,” wrote CEO R. Kerry Clark in a letter to shareholders.
As the year began, the company didn’t waste any time on creating that “more focused business model.”
Cardinal kicked off FY07 with plans to divest its $1.8 billion Pharmaceutical Technologies and Services division, which manufactures and packages 100 billion doses of medication a year for pharmaceutical and biotech firms. The unit employed roughly 10,000 people at more than 30 facilities worldwide. In April 2007, private equity firm the Blackstone Group (which is part of the group offering to purchase orthopedic manufacturer Biomet) stepped up as a buyer for $3.3 billion. Proceeds from the sale were used to repurchase Cardinal Health stock.
The company also reorganized its divisions during the first quarter of 2007 into the following four segments: Healthcare Supply Chain Services—Pharmaceutical; Healthcare Supply Chain Services—Medical; Clinical Technologies and Services; and Medical Products Manufacturing. This change was made to better align operations with the needs of customers and take advantages of internal synergies, according to the company.
More change came in May with a deal valued at $1.42 billion (in addition to the assumption of $50 million in debt). Cardinal Health purchased Viasys Healthcare, a manufacturer of respiratory care devices as well as neurological, audio and vascular diagnostics, disposable medical products used in surgical procedures and orthopedic implants. Cardinal Health expects the acquisition to boost its role in the $4 billion respiratory care market, as well as expand its medical product offerings. Viasys posted 2006 revenue of $610 million. The purchase of Viasys signaled Cardinal’s intention to become a larger player in the respiratory care market.
Clark, who took over as chairman and CEO in November, succeeding Cardinal Health founder Robert D. Walter (who became executive director and plans to retire at the end of the company’s 2008 fiscal year), characterized 2007 as “a breakout year” for the company’s Clinical Technologies and Medical Products sectors, which manufacture a range of products including intravenous infusion devices, automated dispensing and respiratory systems, in addition to infection prevention products. In total, the units accounted for more than 25% of the company’s profit. Revenue for fiscal 2007 (ended Sept. 30) was $4.5 billion, up 11% from fiscal 2006, and profit was $584 million, an increase of 20%.
With an expanding profit margin of 13%, Cardinal Health’s management expects the divisions to be an important driver of consolidated operating margins. Clinical Technologies and Services ($2.7 billion in revenue) grew 11%, while Medical Products Manufacturing ($1.8 billion) increased sales by 12%. Factors favorably impacting the bottom line included manufacturing cost reductions ($20 million) driven by strategic sourcing and expense control related to the company’s restructuring program, as well as growth from manufactured gloves and respiratory product lines.
The Healthcare Supply Chain Services—Medical unit reported $7.5 billion (4% growth) in revenue and $318 million in profit. The increase primarily was driven by increased volume from existing customers and a surge in new customer accounts, according to Cardinal Health.
Growth didn’t just come in balance sheet terms, however. In October, construction began on a $50 million, 250,000-square-foot expansion at the company’s headquarters in Ohio. The new West Campus facility will be home to the Healthcare Supply Chain Services sector.
Cardinal Health, the largest company in Ohio by revenue, employs nearly 3,500 people across the state, including 2,700 in Central Ohio. With the completion of the West Campus facility, Cardinal Health planned to add more than 700 additional jobs.
Fiscal 2007 also saw the conclusion of an ongoing legal battle for the company. Cardinal reached a final settlement with the Securities and Exchange Commission (SEC) and settled several related lawsuits concerning historical financial reporting practices that date back to fiscal 2000 and 2004. Under the agreement approved by the SEC, Cardinal Health paid a civil penalty of $35 million, retained an independent consultant to review certain company policies and procedures, and will be enjoined from future violations of certain provisions of the federal securities laws. Since the investigation began, Cardinal Health has made a number of important changes to its financial reporting and disclosure practices; hired a new chief financial officer, chief accounting officer and controller; and enhanced its Finance department staff to support the company’s size and growth. The company also created the position of chief ethics and compliance officer, which it filled in 2005.
So far, fiscal 2008 hasn’t been without its share of inorganic growth. In March 2008, Cardinal Health announced plans to acquire the assets of privately held Enturia Inc. for $490 million. The cash transaction includes Enturia’s leading line of infection prevention products—sold under the ChloraPrep brand name—which are used in hospitals and surgery centers to disinfect the skin before surgical and vascular procedures to help prevent bloodstream and surgical site infections, two of the most common types of healthcare-associated infections (HAI) among patients.
There’s growth potential in the market. According to the US Centers for Disease Control and Prevention in Atlanta, GA, one in 20 patients, or nearly 2 million people per year, acquire an HAI, which results in nearly 100,000 deaths. Catheter-related bloodstream infections represent 19% of HAIs, and surgical site infections represent 23%. Beginning in October this year, the US Centers for Medicare and Medicaid Services no longer will reimburse hospitals for the added cost of treating certain HAIs, placing an increased economic burden on hospitals.
On the organic growth side, for the third quarter of fiscal year 2008 (ended March 31, the most recent results as of press time), the Medical Products and Technologies segment grew revenue by 48% to $679 million, driven by the acquisition of Viasys Healthcare and strong growth within the core infection prevention and medical specialty businesses. Segment profit grew 72% to $80 million on the Viasys addition, strong organic growth and the benefit of foreign exchange, the company reported.
Revenue for the Clinical Technologies and Services business increased by 11% to $747 million, driven by continued growth in customer installations for medication and supply dispensing products and infusion pumps. Segment profit increased by 29% to $127 million from a favorable product mix and improved operating leverage from expense management initiatives, the company reported. Segment profit for the quarter was partially offset by a $6.5 million reserve for a recall of integrated circuits and connectors on certain Alaris System infusion pumps. Cardinal Health officials indicated that the company would be ready to resolve the problem by the end of the 2008 calendar year. Alaris units were recalled by the company in 2007 after learning of a defect that could lead to over-infusion.
“Our Clinical and Medical products sector continued to deliver strong year-over-year growth, reflecting our leadership positions in medication dispensing, infusion, respiratory and infection prevention products,” Clark said. ”We will continue to invest in these businesses to strengthen our offerings for the future.”
For the first nine months of FY08, the company’s overall revenue was $68 billion, a 6% increase.
One area, in particular, that management cited for future growth was international sales. In fiscal 2007, less than 10% of the company’s earnings came from business outside the United States. For 2008, the company plans to more aggressively pursue sales beyond US borders.
KEY EXECUTIVES:
Robert D. Walter, Executive Director
R. Kerry Clark, CEO and Chairman
Jeff Henderson, CFO
Dave Schlotterbeck, Vice Chairman and CEO, Clinical and
Medical Products
Jeff Henderson, CFO
Dwight Winstead, Group President, Clinical Technologies and Services
Mike Lynch, Group President, Medical Products and Technologies
NO. OF EMPLOYEES:
43,500GLOBAL HEADQUARTERS:
Dublin, OHFor Cardinal Health, fiscal 2007 was a good year that “marked a return to strong growth with a more focused business model that we expect will provide a foundation for continued growth in the years to come,” wrote CEO R. Kerry Clark in a letter to shareholders.
As the year began, the company didn’t waste any time on creating that “more focused business model.”
Cardinal kicked off FY07 with plans to divest its $1.8 billion Pharmaceutical Technologies and Services division, which manufactures and packages 100 billion doses of medication a year for pharmaceutical and biotech firms. The unit employed roughly 10,000 people at more than 30 facilities worldwide. In April 2007, private equity firm the Blackstone Group (which is part of the group offering to purchase orthopedic manufacturer Biomet) stepped up as a buyer for $3.3 billion. Proceeds from the sale were used to repurchase Cardinal Health stock.
The company also reorganized its divisions during the first quarter of 2007 into the following four segments: Healthcare Supply Chain Services—Pharmaceutical; Healthcare Supply Chain Services—Medical; Clinical Technologies and Services; and Medical Products Manufacturing. This change was made to better align operations with the needs of customers and take advantages of internal synergies, according to the company.
More change came in May with a deal valued at $1.42 billion (in addition to the assumption of $50 million in debt). Cardinal Health purchased Viasys Healthcare, a manufacturer of respiratory care devices as well as neurological, audio and vascular diagnostics, disposable medical products used in surgical procedures and orthopedic implants. Cardinal Health expects the acquisition to boost its role in the $4 billion respiratory care market, as well as expand its medical product offerings. Viasys posted 2006 revenue of $610 million. The purchase of Viasys signaled Cardinal’s intention to become a larger player in the respiratory care market.
Clark, who took over as chairman and CEO in November, succeeding Cardinal Health founder Robert D. Walter (who became executive director and plans to retire at the end of the company’s 2008 fiscal year), characterized 2007 as “a breakout year” for the company’s Clinical Technologies and Medical Products sectors, which manufacture a range of products including intravenous infusion devices, automated dispensing and respiratory systems, in addition to infection prevention products. In total, the units accounted for more than 25% of the company’s profit. Revenue for fiscal 2007 (ended Sept. 30) was $4.5 billion, up 11% from fiscal 2006, and profit was $584 million, an increase of 20%.
With an expanding profit margin of 13%, Cardinal Health’s management expects the divisions to be an important driver of consolidated operating margins. Clinical Technologies and Services ($2.7 billion in revenue) grew 11%, while Medical Products Manufacturing ($1.8 billion) increased sales by 12%. Factors favorably impacting the bottom line included manufacturing cost reductions ($20 million) driven by strategic sourcing and expense control related to the company’s restructuring program, as well as growth from manufactured gloves and respiratory product lines.
The Healthcare Supply Chain Services—Medical unit reported $7.5 billion (4% growth) in revenue and $318 million in profit. The increase primarily was driven by increased volume from existing customers and a surge in new customer accounts, according to Cardinal Health.
Growth didn’t just come in balance sheet terms, however. In October, construction began on a $50 million, 250,000-square-foot expansion at the company’s headquarters in Ohio. The new West Campus facility will be home to the Healthcare Supply Chain Services sector.
Cardinal Health, the largest company in Ohio by revenue, employs nearly 3,500 people across the state, including 2,700 in Central Ohio. With the completion of the West Campus facility, Cardinal Health planned to add more than 700 additional jobs.
Fiscal 2007 also saw the conclusion of an ongoing legal battle for the company. Cardinal reached a final settlement with the Securities and Exchange Commission (SEC) and settled several related lawsuits concerning historical financial reporting practices that date back to fiscal 2000 and 2004. Under the agreement approved by the SEC, Cardinal Health paid a civil penalty of $35 million, retained an independent consultant to review certain company policies and procedures, and will be enjoined from future violations of certain provisions of the federal securities laws. Since the investigation began, Cardinal Health has made a number of important changes to its financial reporting and disclosure practices; hired a new chief financial officer, chief accounting officer and controller; and enhanced its Finance department staff to support the company’s size and growth. The company also created the position of chief ethics and compliance officer, which it filled in 2005.
So far, fiscal 2008 hasn’t been without its share of inorganic growth. In March 2008, Cardinal Health announced plans to acquire the assets of privately held Enturia Inc. for $490 million. The cash transaction includes Enturia’s leading line of infection prevention products—sold under the ChloraPrep brand name—which are used in hospitals and surgery centers to disinfect the skin before surgical and vascular procedures to help prevent bloodstream and surgical site infections, two of the most common types of healthcare-associated infections (HAI) among patients.
There’s growth potential in the market. According to the US Centers for Disease Control and Prevention in Atlanta, GA, one in 20 patients, or nearly 2 million people per year, acquire an HAI, which results in nearly 100,000 deaths. Catheter-related bloodstream infections represent 19% of HAIs, and surgical site infections represent 23%. Beginning in October this year, the US Centers for Medicare and Medicaid Services no longer will reimburse hospitals for the added cost of treating certain HAIs, placing an increased economic burden on hospitals.
On the organic growth side, for the third quarter of fiscal year 2008 (ended March 31, the most recent results as of press time), the Medical Products and Technologies segment grew revenue by 48% to $679 million, driven by the acquisition of Viasys Healthcare and strong growth within the core infection prevention and medical specialty businesses. Segment profit grew 72% to $80 million on the Viasys addition, strong organic growth and the benefit of foreign exchange, the company reported.
Revenue for the Clinical Technologies and Services business increased by 11% to $747 million, driven by continued growth in customer installations for medication and supply dispensing products and infusion pumps. Segment profit increased by 29% to $127 million from a favorable product mix and improved operating leverage from expense management initiatives, the company reported. Segment profit for the quarter was partially offset by a $6.5 million reserve for a recall of integrated circuits and connectors on certain Alaris System infusion pumps. Cardinal Health officials indicated that the company would be ready to resolve the problem by the end of the 2008 calendar year. Alaris units were recalled by the company in 2007 after learning of a defect that could lead to over-infusion.
“Our Clinical and Medical products sector continued to deliver strong year-over-year growth, reflecting our leadership positions in medication dispensing, infusion, respiratory and infection prevention products,” Clark said. ”We will continue to invest in these businesses to strengthen our offerings for the future.”
For the first nine months of FY08, the company’s overall revenue was $68 billion, a 6% increase.
One area, in particular, that management cited for future growth was international sales. In fiscal 2007, less than 10% of the company’s earnings came from business outside the United States. For 2008, the company plans to more aggressively pursue sales beyond US borders.