Attached files
| file | filename |
|---|---|
| 8-K - CURRENT REPORT - CARDINAL HEALTH INC | a14q3_8kx33114xform8-kxnew.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 2014 THIRD-QUARTER RESULTS
• | Non-GAAP operating earnings1 decreased 3 percent to $561 million; increased 7 percent to $508 million on a GAAP basis |
• | Non-GAAP diluted earnings per share from continuing operations decreased 16 percent to $1.01, or 9 percent to $0.91 on a GAAP basis |
• | Year-to-date non-GAAP operating earnings up 6 percent to $1.7 billion, or 4 percent to $1.5 billion on a GAAP basis |
• | FY14 guidance for non-GAAP diluted earnings per share from continuing operations of $3.75 - $3.85 reaffirmed |
DUBLIN, Ohio, May 1, 2014 - Cardinal Health today reported fiscal year 2014 third-quarter revenue of $21.4 billion and non-GAAP diluted earnings per share from continuing operations (EPS) of $1.01. Non-GAAP operating earnings decreased 3 percent to $561 million, reflecting the continuing impact of the previously announced Walgreens contract expiration.
“Our organization delivered a solid third quarter to our fiscal 2014, completing a first nine months of strong financial performance and excellent progress on our strategic initiatives,” said George Barrett, chairman and chief executive officer of Cardinal Health. “During the recent period, we strengthened our medical preferred products program with the announcement of the acquisition of AccessClosure and enhanced our specialty solutions capabilities with the acquisition of Sonexus Health.”
The company reaffirmed its FY14 guidance for non-GAAP diluted earnings per share from continuing operations of $3.75 to $3.85.
Q3 FY14 SUMMARY
Q3 FY14 | Q3 FY13 | Y/Y | |||||||
Revenue | $ | 21.4 | billion | $ | 24.6 | billion | (13)% | ||
Operating earnings | $ | 508 | million | $ | 475 | million | 7% | ||
Non-GAAP operating earnings | $ | 561 | million | $ | 579 | million | (3)% | ||
Earnings from continuing operations | $ | 315 | million | $ | 346 | million | (9)% | ||
Non-GAAP earnings from continuing operations | $ | 349 | million | $ | 412 | million | (15)% | ||
Diluted EPS from continuing operations | $ | 0.91 | $ | 1.00 | (9)% | ||||
Non-GAAP diluted EPS from continuing operations | $ | 1.01 | $ | 1.20 | (16)% | ||||
This year and the prior-year third-quarter EPS each benefited from an unusual item. In the third quarter of fiscal year 2014, as previewed on the Q2 FY14 earnings conference call, GAAP and non-GAAP EPS benefited from a $0.06 per share gain related to the sale of minority equity interests in two investments. For the third quarter of fiscal year 2013, GAAP and non-GAAP EPS contained an $0.18 per share benefit from a tax settlement.
SEGMENT RESULTS
Pharmaceutical Segment
Revenue for the Pharmaceutical segment declined 15 percent to $18.8 billion, and segment profit decreased 9 percent to $452 million. The decline in both segment revenue and profit was the result of the impact of the expiration of the Walgreens contract. The decline in segment revenue was partially offset by sales growth from new and existing customers, and the decline in segment profit was partially offset by strong performance from generic programs.
Q3 FY14 | Q3 FY13 | Y/Y | |||||||
Revenue | $ | 18.8 | billion | $ | 22.1 | billion | (15)% | ||
Segment profit | $ | 452 | million | $ | 498 | million | (9)% | ||
Medical Segment
Revenue for the Medical segment was up 7 percent to $2.7 billion, driven by the home health platform, reflecting the March 2013 acquisition of AssuraMed. Segment profit increased 11 percent to $111 million, primarily driven by home health. The increase was partially offset by the effect of overall procedural volume softness and reductions in Presource kitting volumes.
Q3 FY14 | Q3 FY13 | Y/Y | |||||||
Revenue | $ | 2.7 | billion | $ | 2.5 | billion | 7% | ||
Segment profit | $ | 111 | million | $ | 100 | million | 11% | ||
Cardinal Health
Page 2
ADDITIONAL THIRD-QUARTER AND RECENT HIGHLIGHTS
• | Cardinal Health confirms that the joint venture with CVS CareMark announced in December 2013, which will form the largest generic sourcing entity in the U.S., remains on track to be operational as soon as July 1, 2014. The U.S.-based joint venture will operate under the name Red Oak Sourcing, LLC, and will be located in Foxborough, Mass. |
• | The company announced an agreement to acquire AccessClosure, a leading manufacturer and distributor of extravascular closure devices in the U.S., expanding the Cardinal Health portfolio of preferred products that meets industry’s increasing demand for high quality, cost-efficient solutions. |
• | Cardinal Health enhanced its integrated services for biopharmaceutical manufacturers by acquiring privately held Sonexus Health, which offers a broad range of patient access, support and specialty commercialization services. |
CONFERENCE CALL
Cardinal Health will host a webcast and conference call today at 8:30 a.m. Eastern to discuss third-quarter results. To access the call and corresponding slide presentation, go to the Investors page at cardinalhealth.com or dial 913.312.1517, using conference ID# 5117583.
There is no pre-registration for the call. Participants are advised to dial into the call at least 10 minutes prior to the start time.
Presentation slides and an audio replay will be archived on the Cardinal Health website after the conclusion of the conference call. The audio replay will also be available until May 8 by dialing 719.457.0820, passcode 5117583.
UPCOMING WEBCASTED INVESTOR EVENTS
• | Deutsche Bank Securities 39th Annual Health Care Conference at 9:20 a.m. local time on May 8 in Boston |
• | Bank of America Merrill Lynch 2014 Health Care Conference at 8:40 a.m. local time on May 15 in Las Vegas |
• | William Blair 34th Annual Growth Stock Conference at 2:00 p.m. local time on June 11 in Chicago |
At these events, Cardinal Health executives will discuss the company’s diverse products and services, company performance and strategies for continued growth. To access more details and a live webcast of the events, go to the Investors page at cardinalhealth.com.
About Cardinal Health
Headquartered in Dublin, Ohio, Cardinal Health, Inc. (NYSE: CAH) is a $101 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, clinical laboratories 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 and services to more than 100,000 locations each day and is also the industry-leading direct-to-home medical supplies distributor. The company is a leading manufacturer of medical and surgical products, including gloves, surgical apparel and fluid management products. In addition, the company operates the nation's largest network of radiopharmacies that dispense products to aid in the early diagnosis and treatment of disease. Ranked #19 on the Fortune 500, Cardinal Health employs 33,000 people worldwide. More information about the company may be found at www.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, investor 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 ability to achieve the expected benefits from the generic sourcing joint venture with CVS Caremark; the frequency or rate of pharmaceutical price appreciation or deflation and the timing of generic and branded pharmaceutical introductions; the non-renewal, early termination or a default under one or more key customer or supplier arrangements or changes to the terms of or level of purchases under those arrangements; the ability to achieve the expected benefits from the AccessClosure and Sonexus Health acquisitions; 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; and 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. 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 May 1, 2014. 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)
Third Quarter | ||||||||||
(in millions, except per common share amounts) | 2014 | 2013 | % Change | |||||||
Revenue | $ | 21,427 | $ | 24,552 | (13 | )% | ||||
Cost of products sold | 20,130 | 23,261 | (13 | )% | ||||||
Gross margin | 1,297 | 1,291 | — | % | ||||||
Operating expenses: | ||||||||||
Distribution, selling, general and administrative expenses | 736 | 712 | 3 | % | ||||||
Restructuring and employee severance | 5 | 33 | N.M. | |||||||
Amortization and other acquisition-related costs | 56 | 53 | N.M. | |||||||
Impairments and loss on disposal of assets | — | 21 | N.M. | |||||||
Litigation (recoveries)/charges, net | (8 | ) | (3 | ) | N.M. | |||||
Operating earnings | 508 | 475 | 7 | % | ||||||
Other income, net | (33 | ) | (6 | ) | N.M. | |||||
Interest expense, net | 34 | 34 | — | % | ||||||
Earnings before income taxes and discontinued operations | 507 | 447 | 14 | % | ||||||
Provision for income taxes | 192 | 101 | 90 | % | ||||||
Earnings from continuing operations | 315 | 346 | (9 | )% | ||||||
Loss from discontinued operations, net of tax | — | (1 | ) | N.M. | ||||||
Net earnings | $ | 315 | $ | 345 | (9 | )% | ||||
Basic earnings per common share: | ||||||||||
Continuing operations | $ | 0.92 | $ | 1.01 | (9 | )% | ||||
Discontinued operations | — | — | N.M. | |||||||
Net basic earnings per common share | $ | 0.92 | $ | 1.01 | (9 | )% | ||||
Diluted earnings per common share: | ||||||||||
Continuing operations | $ | 0.91 | $ | 1.00 | (9 | )% | ||||
Discontinued operations | — | — | N.M. | |||||||
Net diluted earnings per common share | $ | 0.91 | $ | 1.00 | (9 | )% | ||||
Weighted-average number of common shares outstanding: | ||||||||||
Basic | 342 | 341 | ||||||||
Diluted | 347 | 345 | ||||||||
Schedule 2
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
Year-to-Date | ||||||||||
(in millions, except per common share amounts) | 2014 | 2013 | % Change | |||||||
Revenue | $ | 68,190 | $ | 75,673 | (10 | )% | ||||
Cost of products sold | 64,285 | 72,000 | (11 | )% | ||||||
Gross margin | 3,905 | 3,673 | 6 | % | ||||||
Operating expenses: | ||||||||||
Distribution, selling, general and administrative expenses | 2,233 | 2,099 | 6 | % | ||||||
Restructuring and employee severance | 25 | 39 | N.M. | |||||||
Amortization and other acquisition-related costs | 160 | 106 | N.M. | |||||||
Impairments and loss on disposal of assets | 10 | 27 | N.M. | |||||||
Litigation (recoveries)/charges, net | (21 | ) | (37 | ) | N.M. | |||||
Operating earnings | 1,498 | 1,439 | 4 | % | ||||||
Other income, net | (43 | ) | (17 | ) | N.M. | |||||
Interest expense, net | 100 | 87 | 15 | % | ||||||
Earnings before income taxes and discontinued operations | 1,441 | 1,369 | 5 | % | ||||||
Provision for income taxes | 512 | 448 | 14 | % | ||||||
Earnings from continuing operations | 929 | 921 | 1 | % | ||||||
Earnings/(loss) from discontinued operations, net of tax | 3 | (1 | ) | N.M. | ||||||
Net earnings | $ | 932 | $ | 920 | 1 | % | ||||
Basic earnings per common share: | ||||||||||
Continuing operations | $ | 2.72 | $ | 2.70 | 1 | % | ||||
Discontinued operations | 0.01 | — | N.M. | |||||||
Net basic earnings per common share | $ | 2.73 | $ | 2.70 | 1 | % | ||||
Diluted earnings/(loss) per common share: | ||||||||||
Continuing operations | $ | 2.69 | $ | 2.68 | — | % | ||||
Discontinued operations | 0.01 | (0.01 | ) | N.M. | ||||||
Net diluted earnings per common share | $ | 2.70 | $ | 2.67 | 1 | % | ||||
Weighted-average number of common shares outstanding: | ||||||||||
Basic | 341 | 341 | ||||||||
Diluted | 346 | 344 | ||||||||
Schedule 3
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions) | March 31, 2014 | June 30, 2013 | |||||
(Unaudited) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 3,041 | $ | 1,901 | |||
Trade receivables, net | 4,812 | 6,304 | |||||
Inventories, net | 8,030 | 8,373 | |||||
Prepaid expenses and other | 1,053 | 1,192 | |||||
Total current assets | 16,936 | 17,770 | |||||
Property and equipment, net | 1,404 | 1,489 | |||||
Goodwill and other intangibles, net | 5,593 | 5,574 | |||||
Other assets | 768 | 986 | |||||
Total assets | $ | 24,701 | $ | 25,819 | |||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 10,919 | $ | 12,295 | |||
Current portion of long-term obligations and other short-term borrowings | 241 | 168 | |||||
Other accrued liabilities | 1,987 | 2,127 | |||||
Total current liabilities | 13,147 | 14,590 | |||||
Long-term obligations, less current portion | 3,679 | 3,686 | |||||
Deferred income taxes and other liabilities | 1,343 | 1,568 | |||||
Total shareholders’ equity | 6,532 | 5,975 | |||||
Total liabilities and shareholders’ equity | $ | 24,701 | $ | 25,819 | |||
Schedule 4
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Third Quarter | Year-to-Date | ||||||||||||||
(in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Cash flows from operating activities: | |||||||||||||||
Net earnings | $ | 315 | $ | 345 | $ | 932 | $ | 920 | |||||||
(Earnings)/loss from discontinued operations, net of tax | — | 1 | (3 | ) | 1 | ||||||||||
Earnings from continuing operations | 315 | 346 | 929 | 921 | |||||||||||
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 110 | 99 | 344 | 275 | |||||||||||
Gain on sale of investments | (32 | ) | — | (32 | ) | — | |||||||||
Impairments and loss on disposal of assets | — | 21 | 10 | 27 | |||||||||||
Share-based compensation | 24 | 22 | 72 | 68 | |||||||||||
Provision for bad debts | 2 | 9 | 31 | 18 | |||||||||||
Change in operating assets and liabilities, net of effects from acquisitions: | |||||||||||||||
Decrease/(increase) in trade receivables | 53 | (147 | ) | 1,473 | 81 | ||||||||||
Decrease/(increase) in inventories | 450 | 193 | 350 | (343 | ) | ||||||||||
Increase/(decrease) in accounts payable | (304 | ) | 183 | (1,392 | ) | 214 | |||||||||
Other accrued liabilities and operating items, net | 202 | 263 | 23 | 166 | |||||||||||
Net cash provided by operating activities | 820 | 989 | 1,808 | 1,427 | |||||||||||
Cash flows from investing activities: | |||||||||||||||
Acquisition of subsidiaries, net of cash acquired | (118 | ) | (2,093 | ) | (168 | ) | (2,219 | ) | |||||||
Additions to property and equipment | (48 | ) | (41 | ) | (138 | ) | (103 | ) | |||||||
Purchase of other investments | (27 | ) | (6 | ) | (27 | ) | (6 | ) | |||||||
Proceeds from sale of other investments | 47 | — | 47 | — | |||||||||||
Proceeds from maturities of held-to-maturity securities | — | — | — | 71 | |||||||||||
Net cash used in investing activities | (146 | ) | (2,140 | ) | (286 | ) | (2,257 | ) | |||||||
Cash flows from financing activities: | |||||||||||||||
Net change in short-term borrowings | (8 | ) | (28 | ) | 65 | (11 | ) | ||||||||
Reduction of long-term obligations | — | — | (1 | ) | (6 | ) | |||||||||
Proceeds from long-term obligations, net of issuance costs | — | 1,286 | — | 1,286 | |||||||||||
Net proceeds from issuance of common shares | 80 | 37 | 219 | 63 | |||||||||||
Tax proceeds/(disbursements) from share-based compensation | (3 | ) | (1 | ) | 36 | (13 | ) | ||||||||
Dividends on common shares | (104 | ) | (93 | ) | (312 | ) | (258 | ) | |||||||
Purchase of treasury shares | (339 | ) | — | (389 | ) | (200 | ) | ||||||||
Net cash provided by/(used in) financing activities | (374 | ) | 1,201 | (382 | ) | 861 | |||||||||
Net increase in cash and equivalents | 300 | 50 | 1,140 | 31 | |||||||||||
Cash and equivalents at beginning of period | 2,741 | 2,255 | 1,901 | 2,274 | |||||||||||
Cash and equivalents at end of period | $ | 3,041 | 2,305 | $ | 3,041 | $ | 2,305 | ||||||||
Schedule 5
Cardinal Health, Inc. and Subsidiaries
Total Company Business Analysis
Non-GAAP | |||||||||||||||
Third Quarter | Third Quarter | ||||||||||||||
(in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Revenue | |||||||||||||||
Amount | $ | 21,427 | $ | 24,552 | |||||||||||
Growth rate | (13 | )% | (9 | )% | |||||||||||
Operating earnings | |||||||||||||||
Amount | $ | 508 | $ | 475 | $ | 561 | $ | 579 | |||||||
Growth rate | 7 | % | (10 | )% | (3 | )% | 11 | % | |||||||
Earnings from continuing operations | |||||||||||||||
Amount | $ | 315 | $ | 346 | $ | 349 | $ | 412 | |||||||
Growth rate | (9 | )% | 4 | % | (15 | )% | 26 | % | |||||||
Non-GAAP | |||||||||||||||
Year-to-Date | Year-to-Date | ||||||||||||||
(in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Revenue | |||||||||||||||
Amount | $ | 68,190 | $ | 75,673 | |||||||||||
Growth rate | (10 | )% | (6 | )% | |||||||||||
Operating earnings | |||||||||||||||
Amount | $ | 1,498 | $ | 1,439 | $ | 1,672 | $ | 1,574 | |||||||
Growth rate | 4 | % | 4 | % | 6 | % | 9 | % | |||||||
Earnings from continuing operations | |||||||||||||||
Amount | $ | 929 | $ | 921 | $ | 1,040 | $ | 1,010 | |||||||
Growth rate | 1 | % | 10 | % | 3 | % | 17 | % | |||||||
Refer to the GAAP/Non-GAAP reconciliation for definitions and calculations supporting the Non-GAAP balances.
Schedule 6
Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis
Third Quarter | Third Quarter | |||||||||||||||
(in millions) | 2014 | 2013 | (in millions) | 2014 | 2013 | |||||||||||
Pharmaceutical | Medical | |||||||||||||||
Revenue | Revenue | |||||||||||||||
Amount | $ | 18,762 | $ | 22,070 | Amount | $ | 2,657 | $ | 2,484 | |||||||
Growth rate | (15 | )% | (10 | )% | Growth rate | 7 | % | 3 | % | |||||||
Mix | 88 | % | 90 | % | Mix | 12 | % | 10 | % | |||||||
Segment profit | Segment profit | |||||||||||||||
Amount | $ | 452 | $ | 498 | Amount | $ | 111 | $ | 100 | |||||||
Growth rate | (9 | )% | 12 | % | Growth rate | 11 | % | 12 | % | |||||||
Mix | 80 | % | 83 | % | Mix | 20 | % | 17 | % | |||||||
Segment profit margin | 2.41 | % | 2.26 | % | Segment profit margin | 4.16 | % | 4.01 | % | |||||||
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the three months ended March 31, 2014 was $21,427 million, which included total segment revenue of $21,419 million and Corporate revenue of $8 million. Total consolidated revenue for the three months ended March 31, 2013 was $24,552 million, which included total segment revenue of $24,554 million and Corporate revenue of $(2) million. Corporate revenue consists primarily of elimination of inter-segment revenue and other revenue not allocated to the segments.
Total consolidated operating earnings for the three months ended March 31, 2014 were $508 million, which included total segment profit of $563 million and Corporate costs of $(55) million. Total consolidated operating earnings for the three months ended March 31, 2013 were $475 million, which included total segment profit of $598 million and Corporate costs of $(123) million. Corporate includes, among other things, restructuring and employee severance, amortization and other 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 7
Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis
Year-to-Date | Year-to-Date | |||||||||||||||
(in millions) | 2014 | 2013 | (in millions) | 2014 | 2013 | |||||||||||
Pharmaceutical | Medical | |||||||||||||||
Revenue | Revenue | |||||||||||||||
Amount | $ | 60,018 | $ | 68,314 | Amount | $ | 8,168 | $ | 7,363 | |||||||
Growth rate | (12 | )% | (7 | )% | Growth rate | 11 | % | 2 | % | |||||||
Mix | 88 | % | 90 | % | Mix | 12 | % | 10 | % | |||||||
Segment profit | Segment profit | |||||||||||||||
Amount | $ | 1,368 | $ | 1,339 | Amount | $ | 348 | $ | 268 | |||||||
Growth rate | 2 | % | 11 | % | Growth rate | 30 | % | 6 | % | |||||||
Mix | 80 | % | 83 | % | Mix | 20 | % | 17 | % | |||||||
Segment profit margin | 2.28 | % | 1.96 | % | Segment profit margin | 4.26 | % | 3.63 | % | |||||||
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the nine months ended March 31, 2014 was $68,190 million, which included total segment revenue of $68,186 million and Corporate revenue of $4 million. Total consolidated revenue for the nine months ended March 31, 2013 was $75,673 million, which included total segment revenue of $75,677 million and Corporate revenue of $(4) million. Corporate revenue consists primarily of elimination of inter-segment revenue and other revenue not allocated to the segments.
Total consolidated operating earnings for the nine months ended March 31, 2014 were $1,498 million, which included total segment profit of $1,716 million and Corporate costs of $(218) million. Total consolidated operating earnings for the nine months ended March 31, 2013 were $1,439 million, which included total segment profit of $1,607 million and Corporate costs of $(168) million. Corporate includes, among other things, restructuring and employee severance, amortization and other 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 8
Cardinal Health, Inc. and Subsidiaries
Schedule of Notable Items
Third Quarter | Year-to-Date | ||||||||||||||
(in millions, except per common share amounts) | 2014 | 2013 | 2014 | 2013 | |||||||||||
Restructuring and employee severance | $ | (5 | ) | $ | (33 | ) | $ | (25 | ) | $ | (39 | ) | |||
Tax benefit | 2 | 12 | 9 | 15 | |||||||||||
Restructuring and employee severance, net of tax | $ | (3 | ) | $ | (21 | ) | $ | (16 | ) | $ | (24 | ) | |||
Decrease to diluted EPS from continuing operations | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.05 | ) | $ | (0.07 | ) | |||
Amortization and Other Acquisition-Related Costs | |||||||||||||||
Amortization of acquisition-related intangible assets | $ | (46 | ) | $ | (26 | ) | $ | (138 | ) | $ | (69 | ) | |||
Tax benefit | 17 | 10 | 50 | 25 | |||||||||||
Amortization of acquisition-related intangible assets, net of tax | $ | (29 | ) | $ | (16 | ) | $ | (88 | ) | $ | (44 | ) | |||
Decrease to diluted EPS from continuing operations | $ | (0.08 | ) | $ | (0.05 | ) | $ | (0.25 | ) | $ | (0.13 | ) | |||
Other acquisition-related costs | $ | (9 | ) | $ | (26 | ) | $ | (23 | ) | $ | (37 | ) | |||
Tax benefit | 3 | 10 | 8 | 13 | |||||||||||
Other acquisition-related costs, net of tax | $ | (6 | ) | $ | (16 | ) | $ | (15 | ) | $ | (24 | ) | |||
Decrease to diluted EPS from continuing operations | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.07 | ) | |||
Total amortization and other acquisition-related costs1 | $ | (56 | ) | $ | (53 | ) | $ | (160 | ) | $ | (106 | ) | |||
Tax benefit1 | 20 | 20 | 58 | 38 | |||||||||||
Total amortization and other acquisition-related costs, net of tax1 | $ | (36 | ) | $ | (33 | ) | $ | (102 | ) | $ | (68 | ) | |||
Decrease to diluted EPS from continuing operations1 | $ | (0.10 | ) | $ | (0.10 | ) | $ | (0.30 | ) | $ | (0.20 | ) | |||
Impairments and loss on disposal of assets | $ | — | $ | (21 | ) | $ | (10 | ) | $ | (27 | ) | ||||
Tax benefit | — | 6 | 4 | 7 | |||||||||||
Impairments and loss on disposal of assets, net of tax | $ | — | $ | (15 | ) | $ | (6 | ) | $ | (20 | ) | ||||
Decrease to diluted EPS from continuing operations | $ | — | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.06 | ) | ||||
Litigation recoveries/(charges), net | $ | 8 | $ | 3 | $ | 21 | $ | 37 | |||||||
Tax expense | (3 | ) | (1 | ) | (8 | ) | (14 | ) | |||||||
Litigation recoveries/(charges), net, net of tax | $ | 5 | $ | 2 | $ | 13 | $ | 23 | |||||||
Increase to diluted EPS from continuing operations | $ | 0.01 | $ | — | $ | 0.04 | $ | 0.06 | |||||||
Weighted-average number of diluted shares outstanding | 347 | 345 | 346 | 344 | |||||||||||
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 9
Cardinal Health, Inc. and Subsidiaries
Asset Management Analysis
Third Quarter | Year-to-Date | ||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||
Days sales outstanding | 20.2 | 23.5 | |||||||||
Days inventory on hand | 28.7 | 27.5 | |||||||||
Days payable outstanding | 39.0 | 39.8 | |||||||||
Net working capital days | 9.9 | 11.2 | |||||||||
Debt to total capital | 38 | % | 38 | % | |||||||
Net debt to capital | 12 | % | 21 | % | |||||||
Return on equity | 19.2 | % | 20.7 | % | 19.6 | % | 18.9 | % | |||
Non-GAAP return on equity | 21.3 | % | 24.7 | % | 21.9 | % | 20.8 | % | |||
Effective tax rate from continuing operations1 | 38.0 | % | 22.7 | % | 35.5 | % | 32.7 | % | |||
Non-GAAP effective tax rate from continuing operations1 | 37.7 | % | 25.1 | % | 35.6 | % | 32.8 | % | |||
1 | The revaluation of the deferred tax liability and related interest on unrepatriated foreign earnings as a result of an agreement with tax authorities reduced, for fiscal 2013 third quarter, both the effective tax rate from continuing operations and non-GAAP effective tax rate from continuing operations by 14.2 and 11.6 percentage points, respectively. The fiscal 2013 third quarter non-GAAP effective tax rate from continuing operations, excluding the impact of the tax settlement, would have been 36.7%. |
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 10
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
Third Quarter 2014 | |||||||||||||||||||||
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 | $ | 508 | 7 | % | $ | 507 | $ | 192 | $ | 315 | (9 | )% | $ | 0.91 | (9 | )% | |||||
Restructuring and employee severance | 5 | 5 | 2 | 3 | 0.01 | ||||||||||||||||
Amortization and other acquisition-related costs | 56 | 56 | 20 | 36 | 0.10 | ||||||||||||||||
Impairments and loss on disposal of assets | — | — | — | — | — | ||||||||||||||||
Litigation (recoveries)/charges, net | (8 | ) | (8 | ) | (3 | ) | (5 | ) | (0.01 | ) | |||||||||||
Non-GAAP | $ | 561 | (3 | )% | $ | 560 | $ | 211 | $ | 349 | (15 | )% | $ | 1.01 | (16 | )% | |||||
Third Quarter 2013 | |||||||||||||||||||||
GAAP | $ | 475 | (10 | )% | $ | 447 | $ | 101 | $ | 346 | 4 | % | $ | 1.00 | 5 | % | |||||
Restructuring and employee severance | 33 | 33 | 12 | 21 | 0.06 | ||||||||||||||||
Amortization and other acquisition-related costs | 53 | 53 | 20 | 33 | 0.10 | ||||||||||||||||
Impairments and loss on disposal of assets | 21 | 21 | 6 | 15 | 0.04 | ||||||||||||||||
Litigation (recoveries)/charges, net | (3 | ) | (3 | ) | (1 | ) | (2 | ) | — | ||||||||||||
Non-GAAP | $ | 579 | 11 | % | $ | 551 | $ | 138 | $ | 412 | 26 | % | $ | 1.20 | 28 | % | |||||
Year-to-Date 2014 | |||||||||||||||||||||
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 | $ | 1,498 | 4 | % | $ | 1,441 | $ | 512 | $ | 929 | 1 | % | $ | 2.69 | — | % | |||||
Restructuring and employee severance | 25 | 25 | 9 | 16 | 0.05 | ||||||||||||||||
Amortization and other acquisition-related costs | 160 | 160 | 58 | 102 | 0.30 | ||||||||||||||||
Impairments and loss on disposal of assets | 10 | 10 | 4 | 6 | 0.02 | ||||||||||||||||
Litigation (recoveries)/charges, net | (21 | ) | (21 | ) | (8 | ) | (13 | ) | (0.04 | ) | |||||||||||
Non-GAAP | $ | 1,672 | 6 | % | $ | 1,615 | $ | 575 | $ | 1,040 | 3 | % | $ | 3.01 | 2 | % | |||||
Year-to-Date 2013 | |||||||||||||||||||||
GAAP | $ | 1,439 | 4 | % | $ | 1,369 | $ | 448 | $ | 921 | 10 | % | $ | 2.68 | 12 | % | |||||
Restructuring and employee severance | 39 | 39 | 15 | 24 | 0.07 | ||||||||||||||||
Amortization and other acquisition-related costs | 106 | 106 | 38 | 68 | 0.20 | ||||||||||||||||
Impairments and loss on disposal of assets | 27 | 27 | 7 | 20 | 0.06 | ||||||||||||||||
Litigation (recoveries)/charges, net | (37 | ) | (37 | ) | (14 | ) | (23 | ) | (0.06 | ) | |||||||||||
Non-GAAP | $ | 1,574 | 9 | % | $ | 1,504 | $ | 494 | $ | 1,010 | 17 | % | $ | 2.94 | 19 | % | |||||
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 11
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
Third Quarter | |||||||||||||||
(in millions) | 2014 | 2013 | |||||||||||||
GAAP return on equity | 19.2 | % | 20.7 | % | |||||||||||
Non-GAAP return on equity | |||||||||||||||
Net earnings | $ | 315 | $ | 345 | |||||||||||
Restructuring and employee severance, net of tax, in continuing operations | 3 | 21 | |||||||||||||
Amortization and other acquisition-related costs, net of tax, in continuing operations | 36 | 33 | |||||||||||||
Impairments and loss on disposal of assets, net of tax, in continuing operations | — | 15 | |||||||||||||
Litigation (recoveries)/charges, net, net of tax, in continuing operations | (5 | ) | (2 | ) | |||||||||||
Adjusted net earnings | $ | 349 | $ | 412 | |||||||||||
Annualized | $ | 1,396 | $ | 1,648 | |||||||||||
Third | Second | Third | Second | ||||||||||||
Quarter | Quarter | Quarter | Quarter | ||||||||||||
2014 | 2014 | 2013 | 2013 | ||||||||||||
Total shareholders' equity | $ | 6,532 | $ | 6,589 | $ | 6,830 | $ | 6,542 | |||||||
Divided by average shareholders' equity | $ | 6,560 | $ | 6,686 | |||||||||||
Non-GAAP return on equity | 21.3 | % | 24.7 | % | |||||||||||
We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.
Schedule 12
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
Year-to-Date | |||||||||||||||||||||||||||||||
(in millions) | 2014 | 2013 | |||||||||||||||||||||||||||||
GAAP return on equity | 19.6 | % | 18.9 | % | |||||||||||||||||||||||||||
Non-GAAP return on equity | |||||||||||||||||||||||||||||||
Net earnings | $ | 932 | $ | 920 | |||||||||||||||||||||||||||
Restructuring and employee severance, net of tax, in continuing operations | 16 | 24 | |||||||||||||||||||||||||||||
Amortization and other acquisition-related costs, net of tax, in continuing operations | 102 | 68 | |||||||||||||||||||||||||||||
Impairments and loss on disposal of assets, net of tax, in continuing operations | 6 | 20 | |||||||||||||||||||||||||||||
Litigation (recoveries)/charges, net, net of tax, in continuing operations | (13 | ) | (23 | ) | |||||||||||||||||||||||||||
Adjusted net earnings | $ | 1,043 | $ | 1,009 | |||||||||||||||||||||||||||
Annualized | $ | 1,391 | $ | 1,345 | |||||||||||||||||||||||||||
Third | Second | First | Fourth | Third | Second | First | Fourth | ||||||||||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | ||||||||||||||||||||||||
2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | 2012 | ||||||||||||||||||||||||
Total shareholders' equity | $ | 6,532 | $ | 6,589 | $ | 6,297 | $ | 5,975 | $ | 6,830 | $ | 6,542 | $ | 6,281 | $ | 6,244 | |||||||||||||||
Divided by average shareholders' equity | $ | 6,348 | $ | 6,474 | |||||||||||||||||||||||||||
Non-GAAP return on equity | 21.9 | % | 20.8 | % | |||||||||||||||||||||||||||
We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.
Schedule 13
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
Third Quarter | Year-to-Date | ||||||||||||||
(in millions) | 2014 | 2013 | 2014 | 2013 | |||||||||||
GAAP effective tax rate from continuing operations1 | 38.0 | % | 22.7 | % | 35.5 | % | 32.7 | % | |||||||
Non-GAAP effective tax rate from continuing operations | |||||||||||||||
Earnings before income taxes and discontinued operations | $ | 507 | $ | 447 | $ | 1,441 | $ | 1,369 | |||||||
Restructuring and employee severance | 5 | 33 | 25 | 39 | |||||||||||
Amortization and other acquisition-related costs | 56 | 53 | 160 | 106 | |||||||||||
Impairments and loss on disposal of assets | — | 21 | 10 | 27 | |||||||||||
Litigation (recoveries)/charges, net | (8 | ) | (3 | ) | (21 | ) | (37 | ) | |||||||
Adjusted earnings before income taxes and discontinued operations | $ | 560 | $ | 551 | $ | 1,615 | $ | 1,504 | |||||||
Provision for income taxes | $ | 192 | $ | 101 | $ | 512 | $ | 448 | |||||||
Restructuring and employee severance tax benefit | 2 | 12 | 9 | 15 | |||||||||||
Amortization and other acquisition-related costs tax benefit | 20 | 20 | 58 | 38 | |||||||||||
Impairments and loss on disposal of assets tax benefit | — | 6 | 4 | 7 | |||||||||||
Litigation (recoveries)/charges, net tax expense | (3 | ) | (1 | ) | (8 | ) | (14 | ) | |||||||
Adjusted provision for income taxes | $ | 211 | $ | 138 | $ | 575 | $ | 494 | |||||||
Non-GAAP effective tax rate from continuing operations1 | 37.7 | % | 25.1 | % | 35.6 | % | 32.8 | % | |||||||
Third Quarter | |||||||||||||||
2014 | 2013 | ||||||||||||||
Debt to total capital | 38 | % | 38 | % | |||||||||||
Net debt to capital | |||||||||||||||
Current portion of long-term obligations and other short-term borrowings | $ | 241 | $ | 446 | |||||||||||
Long-term obligations, less current portion | 3,679 | 3,714 | |||||||||||||
Debt | $ | 3,920 | $ | 4,160 | |||||||||||
Cash and equivalents | (3,041 | ) | (2,305 | ) | |||||||||||
Net debt | $ | 879 | $ | 1,855 | |||||||||||
Total shareholders' equity | 6,532 | 6,830 | |||||||||||||
Capital | $ | 7,411 | $ | 8,685 | |||||||||||
Net debt to capital | 12 | % | 21 | % | |||||||||||
1 | The revaluation of the deferred tax liability and related interest on unrepatriated foreign earnings as a result of an agreement with tax authorities reduced, for fiscal 2013 third quarter, both the effective tax rate from continuing operations and non-GAAP effective tax rate from continuing operations by 14.2 and 11.6 percentage points, respectively. The fiscal 2013 third quarter non-GAAP effective tax rate from continuing operations, excluding the impact of the tax settlement, would have been 36.7%. |
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, amortization and other acquisition-related costs, impairments and loss on disposal of assets and litigation (recoveries)/charges, net, 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 14
Cardinal Health, Inc. and Subsidiaries
Third Quarter | |||||||
(in millions) | 2014 | 2013 | |||||
Days sales outstanding | 20.2 | 23.5 | |||||
Days inventory on hand | |||||||
Inventories, net | $ | 8,030 | $ | 8,328 | |||
Cost of products sold | $ | 20,130 | $ | 23,261 | |||
Chargeback billings | 5,081 | 3,974 | |||||
Adjusted cost of products sold | $ | 25,211 | $ | 27,235 | |||
Adjusted cost of products sold divided by 90 days | $ | 280 | $ | 303 | |||
Days inventory on hand | 28.7 | 27.5 | |||||
Days payable outstanding | |||||||
Accounts payable | $ | 10,919 | $ | 12,049 | |||
Cost of products sold | $ | 20,130 | $ | 23,261 | |||
Chargeback billings | 5,081 | 3,974 | |||||
Adjusted cost of products sold | $ | 25,211 | $ | 27,235 | |||
Adjusted cost of products sold divided by 90 days | $ | 280 | $ | 303 | |||
Days payable outstanding | 39.0 | 39.8 | |||||
Net working capital days | 9.9 | 11.2 | |||||
The sum of the components may not equal the total due to rounding.
Days Sales Outstanding: trade receivables, net divided by (quarterly revenue divided by 90 days).
Days Inventory on Hand: inventories, net 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.
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.
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: non-GAAP earnings from continuing operations divided by diluted weighted-average shares outstanding.
Non-GAAP Earnings from Continuing Operations: earnings from continuing operations excluding (1) restructuring and employee severance1, (2) amortization and other acquisition-related costs2, (3) impairments and loss on disposal of assets3 and (4) litigation (recoveries)/charges, net4, each net of tax.
Non-GAAP Effective Tax Rate from Continuing Operations: (provision for income taxes adjusted for (1) restructuring and employee severance, (2) amortization and other acquisition-related costs, (3) impairments and loss on disposal of assets and (4) litigation (recoveries)/charges, net) divided by (earnings before income taxes and discontinued operations adjusted for the same four items).
Non-GAAP Operating Earnings: operating earnings excluding (1) restructuring and employee severance, (2) amortization and other acquisition-related costs, (3) impairments and loss on disposal of assets and (4) litigation (recoveries)/charges, net.
Non-GAAP Return on Equity: (annualized net earnings excluding (1) restructuring and employee severance, (2) amortization and other acquisition-related costs, (3) impairments and loss on disposal of assets and (4) litigation (recoveries)/charges, net, each net of tax) and divided by average shareholders’ equity.
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 | 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). |
2 | Costs that consist primarily of amortization of acquisition-related intangible assets, transaction costs, integration costs and changes in the fair value of contingent consideration obligations. |
3 | 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. |
4 | Loss contingencies related to litigation and regulatory matters and income from favorable resolution of legal matters. |