Cardinal Health 2012 Annual Report Download - page 21

Cardinal Health, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations
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is calculated as inventories divided by average daily cost of products sold
and chargeback billings during the last quarter of the reporting
period. DPO is calculated as accounts payable divided by average daily
cost of products sold and chargeback billings during the last quarter of the
reporting period. Chargeback billings are the difference between a
product’s wholesale acquisition cost and the contract price established
between the vendors and the end customer.
2012 2011 2010
Days sales outstanding 22.3 20.3 18.6
Days inventory on hand 23.9 22.5 21.5
Days payable outstanding 35.6 34.8 32.1
Changes in working capital can vary significantly depending on factors
such as the timing of inventory purchases, customer payments of accounts
receivable, and payments to vendors in the regular course of business.
DSO increased in fiscal 2012 as a result of the Medical segment's business
transformation project implementation, which led to an increase in trade
receivables at June 30, 2012. DIOH increased in fiscal 2012 as a result
of inventory increases related to on-boarding a new pharmaceutical
customer and the Medical segment's business transformation project
implementation.
The increase in DSO in fiscal 2011 was driven by the impact of acquisitions
and the increase in DPO was due to the timing of payments to vendors in
the regular course of business.
The cash and equivalents balance at the end of fiscal 2012 included $380
million of cash held by subsidiaries outside of the United States. Although
the vast majority of this cash is available for repatriation, permanently
bringing the money into the United States could trigger U.S. federal, state
and local income tax obligations. As a U.S. parent company, we may
temporarily access cash held by our foreign subsidiaries without becoming
subject to U.S. federal income tax through intercompany loans.
In fiscal 2013, we expect two matters to adversely affect our operating
cash flows by approximately $500 million compared to fiscal 2012.
Specifically, we anticipate that we will make cash payments to the IRS as
we work to reach resolution on audits of fiscal 2003 through 2005; however,
we can provide no assurance regarding the likelihood or timing of reaching
resolution.We also expect a negative working capital impact from the
expiration of our contract with Express Scripts, Inc.
Ownership of CareFusion Common Stock
During fiscal 2011 and 2010, we disposed of 30 million and 11 million
shares of CareFusion common stock for cash proceeds of $706 million
and $271 million, respectively. We have no remaining ownership in
CareFusion.
Credit Facilities and Commercial Paper
Our sources of liquidity include a $1.5 billion revolving credit facility and
a $950 million committed receivables sales facility program. At times,
availability under our committed receivables sales facility program may
be less than $950 million based on receivables concentration limits and
our outstanding eligible receivables balance. Our revolving credit facility
expires in May 2016 and our committed receivables sales facility program
expires in November 2012. We also have a commercial paper program
of up to $1.5 billion, backed by the revolving credit facility.
We had no outstanding borrowings from the commercial paper program
and no outstanding balance under the committed receivables sales facility
program at June 30, 2012 and 2011. We also had no outstanding balance
under the revolving credit facility at June 30, 2012 and 2011, except for
$44 million of standby letters of credit in each fiscal year. Our revolving
credit and committed receivables sales facility programs require us to
maintain a consolidated interest coverage ratio, as of any fiscal quarter
end, of at least 4-to-1 and a consolidated leverage ratio of no more than
3.25-to-1. As of June 30, 2012, we were in compliance with these financial
covenants.
Held-to-Maturity Investments
We held high quality investment grade held-to-maturity fixed income debt
securities with an amortized cost basis of $72 million and $142 million as
of June 30, 2012 and 2011, respectively. These investments vary in
maturity date, ranging from one to six months, and pay interest semi-
annually.
Long-Term Obligations
As of June 30, 2012, we had total long-term obligations of $2.9 billion
compared to $2.5 billion at June 30, 2011. In May 2012, we sold $250
million aggregate principal amount of fixed rate notes due 2017 with
interest at 1.900% per year (“1.900% Notes”) in a registered offering. The
1.900% Notes mature on June 15, 2017. In May 2012, we also sold $250
million aggregate principal amount of fixed rate notes due 2022 with
interest at 3.200% per year (“3.200% Notes”) in a registered offering. The
3.200% Notes mature on June 15, 2022. These notes are unsecured and
unsubordinated obligations and rank equally in right of payment with all
of our existing and future unsecured and unsubordinated indebtedness.
We used the proceeds to repay $206 million of our 5.65% Notes due
June 15, 2012. The remaining net proceeds will be used for general
corporate purposes, which may include repayment of other indebtedness,
including $300 million aggregate principal of our 5.50% Notes due
June 15, 2013.
Capital Expenditures
Capital expenditures during fiscal 2012, 2011 and 2010 were $263 million,
$291 million and $260 million, respectively, primarily related to information
technology projects.
We expect capital expenditures in fiscal 2013 to be less than in fiscal 2012.
We anticipate that we will be able to fund these expenditures through cash
provided by operating activities. Fiscal 2013 capital expenditures will be
largely focused on information technology projects.
Dividends
During fiscal 2012, we paid quarterly dividends of $0.215 per share, or
$0.86 per share on an annualized basis, an increase of 10 percent from
fiscal 2011. On May 2, 2012, our Board of Directors approved a 10 percent
increase in our quarterly dividend to $0.2375 per share, or $0.95 per share
on an annualized basis, payable on July 15, 2012 to shareholders of record
on July 1, 2012.
On August 8, 2012, our Board of Directors approved our 112th consecutive
regular quarterly dividend, payable to shareholders of record on October
1, 2012.
Share Repurchases
During fiscal 2012 and 2011, we repurchased $450 million and $250 million
of our Common Shares, respectively. At June 30, 2012, we had $300
million remaining under our then current repurchase authorization which
was to expire November 30, 2013.