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Cardinal Health Reports Fiscal 2014 Third-Quarter Results
05/01/2014
-- Non-GAAP operating earnings(1) 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 /PRNewswire/ -- 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 Q2FY14 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%

 

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.



SOURCE Cardinal Health, Inc.

For further information: Media: Debbie Mitchell, (614) 757-6225, debbie.mitchell@cardinalhealth.com; Investors: Sally Curley, (614) 757-7115, sally.curley@cardinalhealth.com
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