CARDINAL HEALTH INC - FORM 8-K - EX-99.1 - NEWS RELEASE - October 30, 2012

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8-K - CURRENT REPORT - CARDINAL HEALTH INCa13q1_8kx093012xform8-kxne.htm
Exhibit 99.1




FOR IMMEDIATE RELEASE

Media:    Debbie Mitchell
(614)757-6225
debbie.mitchell@cardinalhealth.com
 

Investors:    Sally Curley
(614) 757-7115
sally.curley@cardinalhealth.com

CARDINAL HEALTH REPORTS FISCAL 2013 FIRST-QUARTER RESULTS
•
Operating earnings increase 11 percent to $457 million, or 6 percent to $469 million on a non-GAAP basis1 
•
Diluted earnings per share from continuing operations increase 16 percent to $0.79, or 11 percent to $0.81 on a non-GAAP basis
•
Board of directors approves further 16 percent dividend increase
DUBLIN, Ohio, Oct. 30, 2012 - Cardinal Health today reported fiscal year 2013 first-quarter revenue of $25.9 billion and an 11 percent increase in non-GAAP diluted earnings per share (EPS) from continuing operations to $0.81.
In addition, the company reaffirmed its fiscal 2013 outlook for non-GAAP diluted EPS from continuing operations of $3.35 to $3.50.
“We were pleased to report a solid beginning to our fiscal 2013. As we had expected, revenue was down, as a result of the pharmaceutical industry's wave of brand-to-generic conversions. Our margin expansion continued to be strong, led by our Pharmaceutical segment and fueled by excellent contribution from our generic programs,” said George Barrett, chairman and chief executive officer of Cardinal Health. “Our Medical segment started the year more slowly than we planned, largely due to lighter than expected procedure volumes and some continued operational cleanup of our major systems and process transformation. We continue to target double digit segment profit growth for our Medical segment for fiscal year 2013.
“The just-announced decision to increase the dividend by another 16 percent underscores our commitment to a differentiated dividend. This adds to the 10.5 percent increase realized in July, bringing our anticipated annualized payout ratio to over 30 percent of our fiscal 2013 outlook for non-GAAP EPS. Combined with the $200 million in share repurchases completed year-to-date in fiscal 2013, these actions reinforce our commitment to returning capital to shareholders while driving the underlying growth in the business,” he continued.
Q1 FY13 SUMMARY
 
Q1 FY13
 
Q1 FY12
 
Y/Y
Revenue
$
25.9
 billion
 
$
26.8
 billion
 
(3)%
Operating Earnings
$
457
 million
 
$
412
 million
 
11%
Non-GAAP Operating Earnings
$
469
 million
 
$
442
 million
 
6%
Earnings from Continuing Operations
$
272
 million
 
$
237
 million
 
15%
Non-GAAP Earnings from Continuing Operations
$
281
 million
 
$
256
 million
 
9%
Diluted EPS from Continuing Operations
$
0.79

 
$
0.68

 
16%
Non-GAAP Diluted EPS from Continuing Operations
$
0.81

 
$
0.73

 
11%
SEGMENT RESULTS
Pharmaceutical segment
As expected, revenue for the Pharmaceutical segment declined 4 percent to $23.5 billion, driven primarily by brand-to-generic conversions, partially offset by sales to new customers within pharmaceutical distribution and higher specialty solutions volume. Segment profit increased 10 percent to $400 million, with the growth primarily reflecting contribution from our generics programs.
 
Q1 FY13
 
Q1 FY12
 
Y/Y
Revenue
$
23.5
 billion
 
$
24.4
 billion
 
(4)%
Segment Profit
$
400
 million
 
$
363
 million
 
10%
Medical segment
Revenue for the Medical segment was up 1 percent to $2.4 billion. Last year's acquisition of Futuremed and growth in our preferred products was partially offset by one fewer sales day and lower sales to existing customers due in part to lower-than-expected procedural volume in the hospital market. Segment profit declined 6 percent to $74 million primarily driven by the volume softness and the net impact of the information systems-related issues.
 
Q1 FY13
 
Q1 FY12
 
Y/Y
Revenue
$
2.4
 billion
 
$
2.4
 billion
 
1%
Segment Profit
$
74
 million
 
$
79
 million
 
(6)%

Cardinal Health
Page 2

ADDITIONAL FIRST-QUARTER AND RECENT HIGHLIGHTS
•
Elected Clayton M. Jones, chairman, president and CEO of Rockwell Collins, to board of directors.
•
Launched evidence-based clinical pathways with Health Alliance Plan and Physician Resource Management to improve quality and curb cancer care costs for patients in Michigan.
•
Launched ambulatory surgery center solution, Manage My ASC, to help surgical center owners and managers improve operational and financial performance.
•
Introduced SecureSeal™ Octyl Topical Skin Adhesive making the company's topical skin adhesive portfolio the most comprehensive in the market.
CONFERENCE CALL
Cardinal Health will host a webcast and conference call today at 8:30 a.m. Eastern time to discuss first-quarter results. To access the call and corresponding slide presentation, go to the Investors page at cardinalhealth.com. The call also can be accessed by dialing 224.357.2209. There is no access code for the call. Presentation slides and an audio replay will be archived on the website after the conclusion of the meeting. The audio replay will also be available until Nov. 30 by dialing 855.859.2056 or 404.537.3406, access code 35940715.
UPCOMING EVENTS
•
Annual Meeting of Shareholders at 8 a.m. local time on Nov. 2 at the company headquarters in Dublin, Ohio
•
Credit Suisse Healthcare Conference at 8:30 a.m. local time on Nov. 14 at the Arizona Biltmore Hotel in Phoenix.
At these events, Cardinal Health will discuss the company’s diverse products and services, company performance and strategies for continued growth. To access more details and live webcasts of these events, go to the Investors page at cardinalhealth.com.
About Cardinal Health
Headquartered in Dublin, Ohio, Cardinal Health, Inc. (NYSE: CAH) is a $108 billion health care services company that improves the cost-effectiveness of health care. As the business behind health care, Cardinal Health helps pharmacies, hospitals, ambulatory surgery centers and physician offices focus on patient care while reducing costs, enhancing efficiency and improving quality. Cardinal Health is an essential link in the health care supply chain, providing pharmaceuticals and medical products to more than 60,000 locations each day. The company is also a leading manufacturer of medical and surgical products, including gloves, surgical apparel and fluid management products. In addition, the company supports the growing diagnostic industry by supplying medical products to clinical laboratories and operating the nation's largest network of radiopharmacies that dispense products to aid in the early diagnosis and treatment of disease. Ranked #21 on the Fortune 500, Cardinal Health employs more than 30,000 people worldwide. More information about the company may be found at cardinalhealth.com and @CardinalHealth on Twitter.
1 
See the attached tables for definitions of the non-GAAP financial measures presented in this news release and reconciliations of the differences between the non-GAAP financial measures and their most directly comparable GAAP financial measures.
Cardinal Health uses its website as a channel of distribution for material company information. Important information, including news releases, analyst presentations and financial information regarding Cardinal Health is routinely posted and accessible on the Investors page at cardinalhealth.com.
Cautions Concerning Forward-Looking Statements
This news release contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. These statements may be identified by words such as "expect," "anticipate," "intend," "plan," "believe," "will," "should," "could," "would," "project," "continue," “likely,” and similar expressions, and include statements reflecting future results or guidance, statements of outlook and expense accruals. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These risks and uncertainties include 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, including our relationships with CVS Caremark Corporation and Walgreen Co.; the timing of generic and branded pharmaceutical introductions and the frequency or rate of pharmaceutical price appreciation or deflation; uncertainties due to government health care reform including federal health care reform legislation; changes in the distribution patterns or reimbursement rates for health care products and services; the effects of any investigation or action by any regulatory authority; changes in the cost of commodities such as oil-based resins, cotton, latex and diesel fuel; uncertainties concerning Cardinal Health's ability to achieve the expected benefits of its Medical segment's business transformation project; and with respect to future dividends, the decision by Cardinal Health's board of directors to declare such dividends, which decision will depend on Cardinal Health's surplus, earnings, cash flows, financial condition and prospects at the time any such action is considered. Cardinal Health is subject to additional risks and uncertainties described in Cardinal Health's Form 10-K, Form 10-Q and Form 8-K reports and exhibits to those reports. This news release reflects management's views as of October 30, 2012. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement.


Schedule 1
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
 
First Quarter
 
 
(in millions, except per Common Share amounts)
2013
 
2012
 
% Change
Revenue
$
25,889

 
$
26,792

 
(3
)%
Cost of products sold
24,730

 
25,708

 
(4
)%
Gross margin
1,159

 
1,084

 
7
 %
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Distribution, selling, general and administrative expenses
690

 
644

 
7
 %
Restructuring and employee severance
5

 
3

 
N.M.

Acquisition-related costs
28

 
27

 
N.M.

Impairments and loss on disposal of assets
1

 
1

 
N.M.

Litigation (recoveries)/charges, net
(22
)
 
(3
)
 
N.M.

Operating earnings
457

 
412

 
11
 %
 
 
 
 
 
 
Other (income)/expense, net
(8
)
 
4

 
N.M.

Interest expense, net
26

 
23

 
11
 %
Earnings before income taxes and discontinued operations
439

 
385

 
14
 %
 
 
 
 
 
 
Provision for income taxes
167

 
148

 
13
 %
Earnings from continuing operations
272

 
237

 
15
 %
 
 
 
 
 
 
Loss from discontinued operations, net of tax
(1
)
 
—

 
N.M.

Net earnings
$
271

 
$
237

 
15
 %
 
 
 
 
 
 
Basic earnings per Common Share:
 
 
 
 
 
Continuing operations
$
0.80

 
$
0.69

 
16
 %
Discontinued operations
—

 
—

 
N.M.

Net basic earnings per Common Share
$
0.80

 
$
0.69

 
16
 %
 
 
 
 
 
 
Diluted earnings per Common Share:
 
 
 
 
 
Continuing operations
$
0.79

 
$
0.68

 
16
 %
Discontinued operations
—

 
—

 
N.M.

Net diluted earnings per Common Share
$
0.79

 
$
0.68

 
16
 %
 
 
 
 
 
 
Weighted-average number of Common Shares outstanding:
 
 
 
 
 
Basic
341

 
345

 
 
Diluted
344

 
349

 
 



Schedule 2
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions)
September 30,
2012
 
June 30,
2012
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
2,440

 
$
2,274

Trade receivables, net
6,449

 
6,355

Inventories
8,105

 
7,864

Prepaid expenses and other
1,013

 
1,017

Total current assets
18,007

 
17,510

 
 
 
 
Property and equipment, net
1,511

 
1,551

Goodwill and other intangibles, net
4,441

 
4,392

Other assets
861

 
807

Total assets
$
24,820

 
$
24,260

 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
12,215

 
$
11,726

Current portion of long-term obligations and other short-term borrowings
471

 
476

Other accrued liabilities
1,983

 
1,972

Total current liabilities
14,669

 
14,174

 
 
 
 
Long-term obligations, less current portion
2,408

 
2,418

Deferred income taxes and other liabilities
1,462

 
1,424

Total shareholders’ equity
6,281

 
6,244

Total liabilities and shareholders’ equity
$
24,820

 
$
24,260




Schedule 3
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
First Quarter
(in millions)
2013
 
2012
Cash flows from operating activities:
 
 
 
Net earnings
$
271

 
$
237

Loss from discontinued operations, net of tax
1

 
—

Earnings from continuing operations
272

 
237

 
 
 
 
Adjustments to reconcile earnings from continuing operations to net cash from operations:
 
 
 
Depreciation and amortization
88

 
78

Impairments and loss on disposal of assets
1

 
1

Share-based compensation
24

 
20

Provision for bad debts
1

 
1

Change in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Increase in trade receivables
(71
)
 
(69
)
Increase in inventories
(207
)
 
(161
)
Increase in accounts payable
464

 
410

Other accrued liabilities and operating items, net
(4
)
 
(13
)
Net cash provided by operating activities
568

 
504

 
 
 
 
Cash flows from investing activities:
 
 
 
Acquisition of subsidiaries, net of cash acquired
(100
)
 
(7
)
Additions to property and equipment
(26
)
 
(45
)
Proceeds from maturities of held-to-maturity securities
23

 
10

Net cash used in investing activities
(103
)
 
(42
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Net change in short-term borrowings
(10
)
 
(5
)
Reduction of long-term obligations
(4
)
 
—

Proceeds from issuance of Common Shares
21

 
18

Tax disbursements from share-based compensation
(22
)
 
(17
)
Dividends on Common Shares
(84
)
 
(77
)
Purchase of treasury shares
(200
)
 
(300
)
Net cash used in financing activities
(299
)
 
(381
)
 
 
 
 
Net increase in cash and equivalents
166

 
81

Cash and equivalents at beginning of period
2,274

 
1,930

Cash and equivalents at end of period
$
2,440

 
$
2,011





Schedule 4
Cardinal Health, Inc. and Subsidiaries
Total Company Business Analysis
 
 
 
Non-GAAP
 
First Quarter
 
First Quarter
(in millions)
2013
 
2012
 
2013
 
2012
Revenue
 
 
 
 
 
 
 
Amount
$
25,889

 
$
26,792

 
 
 
 
Growth rate
(3
)%
 
10
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating earnings
 
 
 
 
 
 
 
Amount
$
457

 
$
412

 
$
469

 
$
442

Growth rate
11
 %
 
13
 %
 
6
%
 
16
%
 
 
 
 
 
 
 
 
Earnings from continuing operations
 
 
 
 
 
 
 
Amount
$
272

 
$
237

 
$
281

 
$
256

Growth rate
15
 %
 
(19
)%
 
9
%
 
11
%
Refer to the GAAP/Non-GAAP reconciliation for definitions and calculations supporting the Non-GAAP balances.


Schedule 5
Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis
 
First Quarter
 
 
First Quarter
(in millions)
2013
 
2012
 
(in millions)
2013
 
2012
Pharmaceutical
 
 
 
 
Medical
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
Revenue
 
 
 
Amount
$
23,498

 
$
24,418

 
Amount
$
2,393

 
$
2,380

Growth rate
(4
)%
 
10
%
 
Growth rate
1
 %
 
10
 %
Mix
91
 %
 
91
%
 
Mix
9
 %
 
9
 %
 
 
 
 
 
 
 
 
 
Segment profit
 
 
 
 
Segment profit
 
 
 
Amount
$
400

 
$
363

 
Amount
$
74

 
$
79

Growth rate
10
 %
 
19
%
 
Growth rate
(6
)%
 
(5
)%
Mix
84
 %
 
82
%
 
Mix
16
 %
 
18
 %
Segment profit margin
1.70
 %
 
1.49
%
 
Segment profit margin
3.11
 %
 
3.32
 %
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the three months ended September 30, 2012 was $25,889 million, which included total segment revenue of $25,891 million and Corporate revenue of $(2) million. Total consolidated revenue for the three months ended September 30, 2011 was $26,792 million, which included total segment revenue of $26,798 million and Corporate revenue of $(6) million. Corporate revenue consists primarily of elimination of inter-segment revenue.
Total consolidated operating earnings for the three months ended September 30, 2012 were $457 million, which included total segment profit of $474 million and Corporate costs of $(17) million. Total consolidated operating earnings for the three months ended September 30, 2011 were $412 million, which included total segment profit of $442 million and Corporate costs of $(30) million. Corporate includes, among other things, restructuring and employee severance, acquisition-related costs, impairments and loss on disposal of assets, litigation (recoveries)/charges, net and certain investment spending that are not allocated to the segments.


Schedule 6
Cardinal Health, Inc. and Subsidiaries
Schedule of Notable Items
 
First Quarter
(in millions, except per Common Share amounts)
2013
 
2012
Restructuring and employee severance
$
(5
)
 
$
(3
)
Tax benefit
2

 
1

Restructuring and employee severance, net of tax
$
(3
)
 
$
(2
)
 
 
 
 
Decrease to diluted EPS from continuing operations
$
(0.01
)
 
$
(0.01
)
 
 
 
 
Acquisition-Related Costs
 
 
 
Amortization of acquisition-related intangible assets
$
(21
)
 
$
(19
)
Tax benefit
8

 
6

Amortization of acquisition-related intangible assets, net of tax
$
(13
)
 
$
(13
)
 
 
 
 
Decrease to diluted EPS from continuing operations
$
(0.04
)
 
$
(0.04
)
 
 
 
 
Other acquisition-related costs
$
(7
)
 
$
(9
)
Tax benefit
2

 
3

Other acquisition-related costs, net of tax
$
(5
)
 
$
(6
)
 
 
 
 
Decrease to diluted EPS from continuing operations
$
(0.01
)
 
$
(0.02
)
 
 
 
 
Total acquisition-related costs1
$
(28
)
 
$
(27
)
Tax benefit
10

 
9

Total acquisition-related costs, net of tax1
$
(18
)
 
$
(18
)
 
 
 
 
Decrease to diluted EPS from continuing operations1
$
(0.05
)
 
$
(0.05
)
 
 
 
 
Impairments and loss on disposal of assets
$
(1
)
 
$
(1
)
Tax benefit
—

 
—

Impairments and loss on disposal of assets, net of tax
$
(1
)
 
$
(1
)
 
 
 
 
Decrease to diluted EPS from continuing operations
$
—

 
$
—

 
 
 
 
Litigation recoveries/(charges), net
$
22

 
$
3

Tax expense
(9
)
 
(1
)
Litigation recoveries/(charges), net, net of tax
$
13

 
$
2

 
 
 
 
Increase to diluted EPS from continuing operations
$
0.04

 
$
0.01

 
 
 
 
Other Spin-Off Costs
$
—

 
$
(1
)
Tax benefit
—

 
1

Other Spin-Off Costs, net of tax
$
—

 
$
—

 
 
 
 
Decrease to diluted EPS from continuing operations
$
—

 
$
—

 
 
 
 
Weighted-average number of diluted shares outstanding
344
 
349
1 
The sum of the components may not equal the total due to rounding.
We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.


Schedule 7
Cardinal Health, Inc. and Subsidiaries
Asset Management Analysis
 
First Quarter
 
2013
 
2012
Days sales outstanding1
22.4

 
20.9

Days inventory on hand
25.4

 
23.0

Days payable outstanding
38.3

 
36.1

Net working capital days2
9.5

 
7.9


 
 
 
Debt to total capital
31
%
 
31
%
Net debt to capital
7
%
 
8
%
 
 
 
 
Return on equity
17.3
%
 
16.4
%
Non-GAAP return on equity
17.9
%
 
17.7
%
 
 
 
 
Effective tax rate from continuing operations
38.1
%
 
38.4
%
Non-GAAP effective tax rate from continuing operations
37.8
%
 
38.1
%
1 
We changed our method of calculating days sales outstanding and have revised prior year information to conform.
2 
The sum of the components may not equal the total due to rounding.
Refer to the GAAP/Non-GAAP reconciliation for definitions and calculations supporting the Non-GAAP balances. Refer to DSO, DIOH and DPO for definitions and calculations.


Schedule 8
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
 
First Quarter 2013
 
 
Operating
Earnings Before
Provision
Earnings
Earnings from
Diluted EPS
Diluted EPS
 

Earnings
Income Taxes
for
from
Continuing
from
from Continuing
 
Operating
Growth
and Discontinued
Income
Continuing
Operations
Continuing
Operations
(in millions, except per Common Share amounts)
Earnings
Rate
Operations
Taxes
Operations
Growth Rate
Operations
Growth Rate
GAAP
$
457

11
%
$
439

$
167

$
272

15
 %
$
0.79

16
 %
Restructuring and employee severance
5

 
5

2

3

 
0.01

 
Acquisition-related costs
28

 
28

10

18

 
0.05

 
Impairments and loss on disposal of assets
1

 
1

—

1

 
—

 
Litigation (recoveries)/charges, net
(22
)
 
(22
)
(9
)
(13
)
 
(0.04
)
 
Other Spin-Off Costs
—

 
—

—

—

 
—

 
Non-GAAP
$
469

6
%
$
451

$
170

$
281

9
 %
$
0.81

11
 %
 
 
 
 
 
 
 
 
 
 
First Quarter 2012
GAAP
$
412

13
%
$
385

$
148

$
237

(19
)%
$
0.68

(19
)%
Restructuring and employee severance
3

 
3

1

2

 
0.01

 
Acquisition-related costs
27

 
27

9

18

 
0.05

 
Impairments and loss on disposal of assets
1

 
1

—

1

 
—

 
Litigation (recoveries)/charges, net
(3
)
 
(3
)
(1
)
(2
)
 
(0.01
)
 
Other Spin-Off Costs
1

 
1

1

—

 
—

 
Non-GAAP
$
442

16
%
$
414

$
158

$
256

11
 %
$
0.73

11
 %
The sum of the components may not equal the total due to rounding.
We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.


Schedule 9
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
 
First Quarter
 
 
(in millions)
2013
 
 
 
2012
 
 
GAAP return on equity
17.3
%
 
 
 
16.4
%
 
 
 
 
 
 
 
 
 
 
Non-GAAP return on equity
 
 
 
 
 
 
 
Net earnings
$
271

 
 
 
$
237

 
 
Restructuring and employee severance, net of tax, in continuing operations
3

 
 
 
2

 
 
Acquisition-related costs, net of tax, in continuing operations
18

 
 
 
18

 
 
Impairments and loss on disposal of assets, net of tax, in continuing operations
1

 
 
 
1

 
 
Litigation (recoveries)/charges, net, net of tax, in continuing operations
(13
)
 
 
 
(2
)
 
 
Other Spin-Off Costs, net of tax, in continuing operations
—

 
 
 
—

 
 
Adjusted net earnings
$
280

 
 
 
$
256

 
 
Annualized
$
1,120

 
 
 
$
1,024

 
 
 
 
 
 
 
 
 
 
 
First
 
Fourth
 
First
 
Fourth
 
Quarter
 
Quarter
 
Quarter
 
Quarter
 
2013
 
2012
 
2012
 
2011
Total shareholders' equity
$
6,281

 
$
6,244

 
$
5,714

 
$
5,849

Divided by average shareholders' equity
$
6,263

 
 
 
$
5,781

 
 
Non-GAAP return on equity
17.9
%
 
 
 
17.7
%
 
 
We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.


Schedule 10
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
 
First Quarter
(in millions)
2013
 
2012
GAAP effective tax rate from continuing operations
38.1
%
 
38.4
%
 
 
 
 
Non-GAAP effective tax rate from continuing operations
 
 
 
Earnings before income taxes and discontinued operations
$
439

 
$
385

Restructuring and employee severance
5

 
3

Acquisition-related costs
28

 
27

Impairments and loss on disposal of assets
1

 
1

Litigation (recoveries)/charges, net
(22
)
 
(3
)
Other Spin-Off Costs
—

 
1

Adjusted earnings before income taxes and discontinued operations
$
451

 
$
414

 
 
 
 
Provision for income taxes
$
167

 
$
148

Restructuring and employee severance tax benefit
2

 
1

Acquisition-related costs tax benefit
10

 
9

Impairments and loss on disposal of assets tax benefit
—

 
—

Litigation (recoveries)/charges, net tax expense
(9
)
 
(1
)
Other Spin-Off Costs tax benefit
—

 
1

Adjusted provision for income taxes
$
170

 
$
158

 
 
 
 
Non-GAAP effective tax rate from continuing operations
37.8
%
 
38.1
%
 
 
 
 
 
First Quarter
 
2013
 
2012
Debt to total capital
31
%
 
31
%
 
 
 
 
Net debt to capital
 
 
 
Current portion of long-term obligations and other short-term borrowings
$
471

 
$
333

Long-term obligations, less current portion
2,408

 
2,195

Debt
$
2,879

 
$
2,528

Cash and equivalents
(2,440
)
 
(2,011
)
Net debt
$
439

 
$
517

Total shareholders' equity
6,281

 
5,714

Capital
$
6,720

 
$
6,231

Net debt to capital
7
%
 
8
%
We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.
Forward-Looking Non-GAAP Financial Measures
We present non-GAAP earnings from continuing operations and non-GAAP effective tax rate from continuing operations (and presentations derived from these financial measures, including per share calculations) 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. We are unable to provide a quantitative reconciliation of these forward-looking non-GAAP measures to the most directly comparable forward-looking GAAP measures because we cannot reliably forecast restructuring and employee severance, acquisition-related costs, impairments and loss on disposal of assets, litigation (recoveries)/charges, net, and other spin-off costs, which are difficult to predict and estimate and are primarily dependent on future events. Please note that the unavailable reconciling items could significantly impact our future financial results.


Schedule 11
Cardinal Health, Inc. and Subsidiaries

 
First Quarter
(in millions)
2013
 
2012
Days sales outstanding
22.4

 
20.9

 
 
 
 
Days inventory on hand
 
 
 
Inventories
$
8,105

 
$
7,497

 
 
 
 
Cost of products sold
$
24,730

 
$
25,708

Chargeback billings
3,976

 
3,610

Adjusted cost of products sold
$
28,706

 
$
29,318

Adjusted cost of products sold divided by 90 days
$
319

 
$
326

Days inventory on hand
25.4

 
23.0

 
 
 
 
Days payable outstanding
 
 
 
Accounts payable
$
12,215

 
$
11,749

 
 
 
 
Cost of products sold
$
24,730

 
$
25,708

Chargeback billings
3,976

 
3,610

Adjusted cost of products sold
$
28,706

 
$
29,318

Adjusted cost of products sold divided by 90 days
$
319

 
$
326

Days payable outstanding
38.3

 
36.1

 
 
 
 
Net working capital days1
9.5

 
7.9

1 
The sum of the components may not equal the total due to rounding.
Days Sales Outstanding (DSO): trade receivables, net divided by (quarterly revenue divided by 90 days). Beginning in the first quarter of fiscal 2013, we changed our method of calculating DSO in order to align it with the 90-day convention that we use in the calculation of Days Inventory on Hand and Days Payable Outstanding. Prior to this change we calculated DSO by dividing trade receivable, net by (monthly revenue divided by 30 days). In connection with this change, we have revised prior year information to conform to the new method of calculating DSO.
Days Inventory on Hand: inventory divided by ((quarterly cost of products sold plus chargeback billings) divided by 90 days). Chargeback billings are the difference between a product’s wholesale acquisition cost and the contract price established between pharmaceutical manufacturers and the end customer.
Days Payable Outstanding: accounts payable divided by ((quarterly cost of products sold plus chargeback billings) divided by 90 days).
Net Working Capital Days: days sales outstanding plus days inventory on hand less days payable outstanding. To conform to the new method of calculating DSO, we have revised prior year information.



Cardinal Health, Inc. and Subsidiaries

Use of Non-GAAP Measures
This earnings release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). In general, the measures exclude items and charges that (i) management does not believe reflect Cardinal Health, Inc.'s (the "Company") core business and relate more to strategic, multi-year corporate activities; or (ii) relate to activities or actions that may have occurred over multiple or in prior periods without predictable trends. Management uses these non-GAAP financial measures internally to evaluate the Company’s performance, evaluate the balance sheet, engage in financial and operational planning and determine incentive compensation.
Management provides these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on its financial and operating results and in comparing the Company’s performance to that of its competitors. However, the non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies.
The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth above should be carefully evaluated.
Definitions
Debt: long-term obligations plus short-term borrowings.
Debt to Total Capital: debt divided by (debt plus total shareholders’ equity).
Net Debt: a Non-GAAP measure defined as debt minus (cash and equivalents).
Net Debt to Capital: a Non-GAAP measure defined as net debt divided by (net debt plus total shareholders’ equity).
Non-GAAP Diluted EPS from Continuing Operations and growth rate calculation1: non-GAAP earnings from continuing operations divided by diluted weighted-average shares outstanding.
Non-GAAP Earnings from Continuing Operations and growth rate calculation: earnings from continuing operations excluding (1) restructuring and employee severance2, (2) acquisition-related costs3, (3) impairments and loss on disposal of assets4, (4) litigation (recoveries)/charges, net5 and (5) Other Spin-Off Costs, each net of tax.
Non-GAAP Effective Tax Rate from Continuing Operations: (provision for income taxes adjusted for (1) restructuring and employee severance, (2) acquisition-related costs, (3) impairments and loss on disposal of assets, (4) litigation (recoveries)/charges, net and (5) Other Spin-Off Costs) divided by (earnings before income taxes and discontinued operations adjusted for the same five items).
Non-GAAP Operating Earnings and growth rate calculation: operating earnings excluding (1) restructuring and employee severance, (2) acquisition-related costs, (3) impairments and loss on disposal of assets, (4) litigation (recoveries)/charges, net and (5) Other Spin-Off Costs.
Non-GAAP Return on Equity: (annualized net earnings excluding (1) restructuring and employee severance, (2) acquisition-related costs, (3) impairments and loss on disposal of assets, (4) litigation (recoveries)/charges, net and (5) Other Spin-Off Costs, each net of tax) and divided by average shareholders’ equity.
Other Spin-Off Costs: costs incurred in connection with our Spin-Off of CareFusion which are included in distribution, selling, general and administrative expenses.
Return on Equity: annualized net earnings divided by average shareholders’ equity.
Revenue Mix: segment revenue divided by total segment revenue for all segments.
Segment Profit: segment revenue minus (segment cost of products sold and segment distribution, 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.
1 
In this earnings release growth rates are determined by dividing the difference between current period results and prior period results by prior period results.
2 
Programs whereby the Company fundamentally changes its operations such as closing and consolidating facilities, moving manufacturing of a product to another location, production or business process sourcing, employee severance (including rationalizing headcount or other significant changes in personnel) and realigning operations (including substantial realignment of the management structure of a business unit in response to changing market conditions).
3 
Costs that consist primarily of transaction costs, integration costs, changes in the fair value of contingent consideration obligations and amortization of acquisition-related intangible assets.
4 
Asset impairments and losses from the disposal of assets not eligible to be classified as discontinued operations are classified within impairments and loss on disposal of assets within the condensed consolidated statements of earnings.
5 
Loss contingencies related to litigation and regulatory matters and income from favorable resolution of legal matters.

CARDINAL HEALTH INC Reports