Attached files
| file | filename |
|---|---|
| 8-K - CURRENT REPORT - CARDINAL HEALTH INC | a16q3_8kx33116xform8-kxnew.htm |
Exhibit 99.1
FOR IMMEDIATE RELEASE
Media: | Debbie Mitchell | Investors: | Sally Curley | |
(614) 757-6225 | (614) 757-7115 | |||
debbie.mitchell@cardinalhealth.com | sally.curley@cardinalhealth.com | |||
CARDINAL HEALTH REPORTS STRONG THIRD-QUARTER RESULTS FOR FISCAL YEAR 2016
• | 21 percent increase in revenue to $30.7 billion |
• | 20 percent increase in non-GAAP1 operating earnings to $788 million |
• | 20 percent increase in non-GAAP diluted earnings per share to $1.43 |
• | Revised range of $5.17 to $5.27 for fiscal 2016 non-GAAP diluted earnings per share |
DUBLIN, Ohio, April 28, 2016 - Cardinal Health today reported third-quarter results for fiscal year 2016, including a 21 percent increase in revenue to $30.7 billion and a 20 percent increase in non-GAAP operating earnings to $788 million. Non-GAAP diluted earnings per share (EPS) increased 20 percent to $1.43. On a GAAP basis, operating earnings increased 11 percent to $656 million, and diluted EPS increased 7 percent to $1.17.
“We had a strong financial and operational performance in our fiscal third quarter. At the same time, we continued to enhance and grow enterprise-wide service and product lines, which are important to our customers and address some of health care’s most difficult challenges,” said George Barrett, chairman and chief executive officer of Cardinal Health. “We delivered double-digit growth in revenue and profit in both our Pharmaceutical and Medical reporting segments and had very solid performance across our lines of business.”
The company tightened the range for its fiscal 2016 non-GAAP diluted earnings per share guidance to $5.17 to $5.27 from the prior range of $5.15 to $5.35.
Q3 FY16 SUMMARY
Q3 FY16 | Q3 FY15 | Y/Y | |||||||
Revenue | $ | 30.7 | billion | $ | 25.4 | billion | 21% | ||
Operating earnings | $ | 656 | million | $ | 591 | million | 11% | ||
Non-GAAP operating earnings | $ | 788 | million | $ | 657 | million | 20% | ||
Net earnings attributable to Cardinal Health, Inc. | $ | 386 | million | $ | 365 | million | 6% | ||
Non-GAAP net earnings attributable to Cardinal Health, Inc. | $ | 472 | million | $ | 396 | million | 19% | ||
Diluted EPS attributable to Cardinal Health, Inc. | $ | 1.17 | $ | 1.09 | 7% | ||||
Non-GAAP diluted EPS attributable to Cardinal Health, Inc. | $ | 1.43 | $ | 1.19 | 20% | ||||
SEGMENT RESULTS
Pharmaceutical Segment
Third-quarter revenue for the Pharmaceutical segment increased 22 percent to $27.5 billion due to growth from new and existing customers as well as acquisitions.
Strong performance from both acquisitions and new and existing customers significantly contributed to segment profit growth of 16 percent to $660 million.
Q3 FY16 | Q3 FY15 | Y/Y | |||||||
Revenue | $ | 27.5 | billion | $ | 22.6 | billion | 22% | ||
Segment profit | $ | 660 | million | $ | 567 | million | 16% | ||
Medical Segment
Third-quarter revenue for the Medical segment increased 13 percent to $3.1 billion due to the net contribution from acquisitions as well as solid growth from existing businesses.
Segment profit increased 26 percent to $128 million due to the contribution from acquisitions, net of divestitures, and from Cardinal Health-branded products. Segment profit includes the $21 million negative impact of the Cordis-related inventory fair value step-up.
Q3 FY16 | Q3 FY15 | Y/Y | |||||||
Revenue | $ | 3.1 | billion | $ | 2.8 | billion | 13% | ||
Segment profit | $ | 128 | million | $ | 102 | million | 26% | ||
Cardinal Health
Page 2
ADDITIONAL THIRD-QUARTER AND RECENT HIGHLIGHTS
• | Announced agreement to acquire Curaspan Health Group Inc., a leader in discharge planning and care transitions technology for hospitals, health systems and post-acute providers |
• | Recognized as one of the Top Companies for Female Executives by the National Association for Female Executives |
• | Launched Cardinal Health MedSync Advantage™, a custom-built medication synchronization program to help community pharmacists improve medication adherence and patient outcomes and increase pharmacy efficiency |
• | Announced winners of the sixth annual Generation Rx awards, recognizing student pharmacists from across the country and a clinical professor of pharmacy for their ongoing efforts to help prevent prescription medication misuse |
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 ir.cardinalhealth.com. Alternatively, participants can call 913.312.1411 and use passcode 4332927.
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 a webcast replay will be available on the Cardinal Health website at ir.cardinalhealth.com.
UPCOMING WEBCASTED INVESTOR EVENTS
• | William Blair’s 36th Annual Growth Stock Conference on June 15 at 8 a.m. Central in Chicago |
At the event, 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 this event, go to ir.cardinalhealth.com.
About Cardinal Health
Cardinal Health, Inc. (NYSE: CAH), a global health services and products company, brings scaled solutions that help our customers thrive in a changing world. We improve the cost-effectiveness of healthcare through solutions that improve the efficiency of the supply chain; optimize the process and performance of healthcare; provide clinically proven, daily use medical products and pharmaceuticals; and connect patients, providers, payers, pharmacists and manufacturers for seamless care coordination and better patient management. Backed by nearly 100 years of experience, we rank among the top 50 on the Fortune 500 and among the Fortune Global 100. We support our partners with more than 37,000 employees in nearly 60 countries worldwide. For more information, visit www.cardinalhealth.com and @CardinalHealth on Twitter.
Cardinal Health uses its website as a channel of distribution for material company information. Important information, including news releases, financial information, earnings and analyst presentations, and information about upcoming presentations and events is routinely posted and accessible at ir.cardinalhealth.com. In addition, the website allows investors and other interested persons to sign up automatically to receive e-mail alerts when the company posts news releases, SEC filings and certain other information on its website.
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. |
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 frequency or rate of pharmaceutical price appreciation or deflation and the timing of generic and branded pharmaceutical introductions; the ability to continue to achieve and maintain the benefits from the generic sourcing venture with CVS Health and from the acquisitions of Cordis and The Harvard Drug Group; the risk of non-renewal 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; 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; and changes in foreign currency rates and 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 April 28, 2016. 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) | 2016 | 2015 | % Change | |||||||
Revenue | $ | 30,662 | $ | 25,375 | 21 | % | ||||
Cost of products sold | 28,973 | 23,916 | 21 | % | ||||||
Gross margin | 1,689 | 1,459 | 16 | % | ||||||
Operating expenses: | ||||||||||
Distribution, selling, general, and administrative expenses | 914 | 803 | 14 | % | ||||||
Restructuring and employee severance | 6 | 7 | N.M. | |||||||
Amortization and other acquisition-related costs | 108 | 77 | N.M. | |||||||
Impairments and (gain)/loss on disposal of assets | — | (1 | ) | N.M. | ||||||
Litigation (recoveries)/charges, net | 5 | (18 | ) | N.M. | ||||||
Operating earnings | 656 | 591 | 11 | % | ||||||
Other (income)/expense, net | — | (2 | ) | N.M. | ||||||
Interest expense, net | 44 | 35 | 28 | % | ||||||
Earnings before income taxes | 612 | 558 | 10 | % | ||||||
Provision for income taxes | 226 | 193 | 17 | % | ||||||
Net earnings | 386 | 365 | 6 | % | ||||||
Less: Net earnings attributable to noncontrolling interests | — | — | N.M. | |||||||
Net earnings attributable to Cardinal Health, Inc. | $ | 386 | $ | 365 | 6 | % | ||||
Earnings per common share attributable to Cardinal Health, Inc.: | ||||||||||
Basic | $ | 1.18 | $ | 1.10 | 7 | % | ||||
Diluted | 1.17 | 1.09 | 7 | % | ||||||
Weighted-average number of common shares outstanding: | ||||||||||
Basic | 328 | 330 | ||||||||
Diluted | 331 | 334 | ||||||||
Schedule 2
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
Year-to-Date | ||||||||||
(in millions, except per common share amounts) | 2016 | 2015 | % Change | |||||||
Revenue | $ | 90,162 | $ | 74,983 | 20 | % | ||||
Cost of products sold | 85,285 | 70,729 | 21 | % | ||||||
Gross margin | 4,877 | 4,254 | 15 | % | ||||||
Operating expenses: | ||||||||||
Distribution, selling, general, and administrative expenses | 2,678 | 2,393 | 12 | % | ||||||
Restructuring and employee severance | 19 | 33 | N.M. | |||||||
Amortization and other acquisition-related costs | 327 | 190 | N.M. | |||||||
Impairments and (gain)/loss on disposal of assets | 17 | (19 | ) | N.M. | ||||||
Litigation (recoveries)/charges, net | (3 | ) | 54 | N.M. | ||||||
Operating earnings | 1,839 | 1,603 | 15 | % | ||||||
Other (income)/expense, net | 5 | (6 | ) | N.M. | ||||||
Interest expense, net | 134 | 105 | 28 | % | ||||||
Loss on extinguishment of debt | — | 60 | N.M. | |||||||
Earnings before income taxes | 1,700 | 1,444 | 18 | % | ||||||
Provision for income taxes | 604 | 524 | 15 | % | ||||||
Net earnings | 1,096 | 920 | 19 | % | ||||||
Less: Net earnings attributable to noncontrolling interests | (1 | ) | — | N.M. | ||||||
Net earnings attributable to Cardinal Health, Inc. | $ | 1,095 | $ | 920 | 19 | % | ||||
Earnings per common share attributable to Cardinal Health, Inc.: | ||||||||||
Basic | $ | 3.33 | $ | 2.77 | 20 | % | ||||
Diluted | 3.30 | 2.74 | 20 | % | ||||||
Weighted-average number of common shares outstanding: | ||||||||||
Basic | 328 | 332 | ||||||||
Diluted | 331 | 336 | ||||||||
Schedule 3
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in millions) | March 31, 2016 | June 30, 2015 | |||||
Assets | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 2,598 | $ | 4,616 | |||
Trade receivables, net | 7,292 | 6,523 | |||||
Inventories, net | 10,910 | 9,211 | |||||
Prepaid expenses and other | 1,491 | 1,402 | |||||
Total current assets | 22,291 | 21,752 | |||||
Property and equipment, net | 1,683 | 1,506 | |||||
Goodwill and other intangibles, net | 9,150 | 6,018 | |||||
Other assets | 931 | 866 | |||||
Total assets | $ | 34,055 | $ | 30,142 | |||
Liabilities, Redeemable Noncontrolling Interests, and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 17,340 | $ | 14,368 | |||
Current portion of long-term obligations and other short-term borrowings | 351 | 281 | |||||
Other accrued liabilities | 1,694 | 2,594 | |||||
Total current liabilities | 19,385 | 17,243 | |||||
Long-term obligations, less current portion | 5,195 | 5,211 | |||||
Deferred income taxes and other liabilities | 2,628 | 1,432 | |||||
Redeemable noncontrolling interests | 117 | — | |||||
Total Cardinal Health, Inc. shareholders' equity | 6,713 | 6,256 | |||||
Noncontrolling interests | 17 | — | |||||
Total shareholders’ equity | 6,730 | 6,256 | |||||
Total liabilities, redeemable noncontrolling interests, and shareholders’ equity | $ | 34,055 | $ | 30,142 | |||
Schedule 4
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Third Quarter | Year-to-Date | ||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Cash flows from operating activities: | |||||||||||||||
Net earnings | $ | 386 | $ | 365 | $ | 1,096 | $ | 920 | |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 159 | 116 | 465 | 336 | |||||||||||
Loss on extinguishment of debt | — | — | — | 60 | |||||||||||
Gain on sale of other investments | — | — | — | (5 | ) | ||||||||||
Impairments and (gain)/loss on disposal of assets, net | — | (1 | ) | 17 | (19 | ) | |||||||||
Share-based compensation | 26 | 27 | 82 | 80 | |||||||||||
Provision for bad debts | 16 | 16 | 51 | 42 | |||||||||||
Change in fair value of contingent consideration obligation | (2 | ) | — | (16 | ) | — | |||||||||
Change in operating assets and liabilities, net of effects from acquisitions: | |||||||||||||||
Increase in trade receivables | (328 | ) | (427 | ) | (721 | ) | (718 | ) | |||||||
Decrease/(increase) in inventories | 108 | 287 | (1,457 | ) | (850 | ) | |||||||||
Increase in accounts payable | 408 | 219 | 2,839 | 1,657 | |||||||||||
Other accrued liabilities and operating items, net | 146 | 56 | (26 | ) | 169 | ||||||||||
Net cash provided by operating activities | 919 | 658 | 2,330 | 1,672 | |||||||||||
Cash flows from investing activities: | |||||||||||||||
Acquisition of subsidiaries, net of cash acquired | (99 | ) | (233 | ) | (3,383 | ) | (319 | ) | |||||||
Additions to property and equipment | (109 | ) | (56 | ) | (284 | ) | (139 | ) | |||||||
Purchase of available-for-sale securities and other investments | (62 | ) | (27 | ) | (150 | ) | (134 | ) | |||||||
Proceeds from sale of available-for-sale securities and other investments | 42 | 22 | 99 | 129 | |||||||||||
Proceeds from maturities of available-for-sale securities | 18 | 8 | 37 | 24 | |||||||||||
Proceeds from divestitures and disposal of held for sale assets | — | — | — | 53 | |||||||||||
Net cash used in investing activities | (210 | ) | (286 | ) | (3,681 | ) | (386 | ) | |||||||
Cash flows from financing activities: | |||||||||||||||
Payment of contingent consideration obligation | — | (3 | ) | (23 | ) | (3 | ) | ||||||||
Net change in short-term borrowings | (5 | ) | 9 | 34 | (9 | ) | |||||||||
Purchase of noncontrolling interests | (10 | ) | — | (10 | ) | — | |||||||||
Reduction of long-term obligations | (1 | ) | (1 | ) | (5 | ) | (1,221 | ) | |||||||
Proceeds from long-term obligations, net of issuance costs | — | — | — | 1,182 | |||||||||||
Net proceeds/(tax withholdings) from share-based compensation | 4 | 24 | (3 | ) | 59 | ||||||||||
Excess tax benefits from share-based compensation | 1 | 14 | 33 | 56 | |||||||||||
Dividends on common shares | (127 | ) | (113 | ) | (386 | ) | (346 | ) | |||||||
Purchase of treasury shares | (300 | ) | — | (300 | ) | (686 | ) | ||||||||
Net cash used in financing activities | (438 | ) | (70 | ) | (660 | ) | (968 | ) | |||||||
Effect of exchange rate changes on cash and equivalents | 3 | — | (7 | ) | — | ||||||||||
Net increase/(decrease) in cash and equivalents | 274 | 302 | (2,018 | ) | 318 | ||||||||||
Cash and equivalents at beginning of period | 2,324 | 2,881 | 4,616 | 2,865 | |||||||||||
Cash and equivalents at end of period | $ | 2,598 | $ | 3,183 | $ | 2,598 | $ | 3,183 | |||||||
Schedule 5
Cardinal Health, Inc. and Subsidiaries
Total Company Business Analysis
Non-GAAP | |||||||||||||||
Third Quarter | Third Quarter | ||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Revenue | |||||||||||||||
Amount | $ | 30,662 | $ | 25,375 | |||||||||||
Growth rate | 21 | % | 18 | % | |||||||||||
Gross Margin | |||||||||||||||
Amount1 | $ | 1,689 | $ | 1,459 | $ | 1,702 | $ | 1,459 | |||||||
Growth rate | 16 | % | 12 | % | 17 | % | 12 | % | |||||||
Operating earnings | |||||||||||||||
Amount | $ | 656 | $ | 591 | $ | 788 | $ | 657 | |||||||
Growth rate | 11 | % | 16 | % | 20 | % | 17 | % | |||||||
Net earnings attributable to Cardinal Health, Inc. | |||||||||||||||
Amount | $ | 386 | $ | 365 | $ | 472 | $ | 396 | |||||||
Growth rate | 6 | % | 16 | % | 19 | % | 13 | % | |||||||
Return on equity | 23 | % | 23.4 | % | 28.1 | % | 25.4 | % | |||||||
Effective tax rate | 36.9 | % | 34.6 | % | 36.6 | % | 36.5 | % | |||||||
Debt to total capital | 45 | % | 39 | % | |||||||||||
Net debt to capital | 31 | % | 11 | % | |||||||||||
Non-GAAP | |||||||||||||||
Year-to-Date | Year-to-Date | ||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Revenue | |||||||||||||||
Amount | $ | 90,162 | $ | 74,983 | |||||||||||
Growth rate | 20 | % | 10 | % | |||||||||||
Gross Margin | |||||||||||||||
Amount1 | $ | 4,877 | $ | 4,254 | $ | 4,929 | $ | 4,254 | |||||||
Growth rate | 15 | % | 9 | % | 16 | % | 9 | % | |||||||
Operating earnings | |||||||||||||||
Amount | $ | 1,839 | $ | 1,603 | $ | 2,251 | $ | 1,861 | |||||||
Growth rate | 15 | % | 7 | % | 21 | % | 11 | % | |||||||
Net earnings attributable to Cardinal Health, Inc. | |||||||||||||||
Amount | $ | 1,095 | $ | 920 | $ | 1,361 | $ | 1,136 | |||||||
Growth rate | 19 | % | (1 | )% | 20 | % | 9 | % | |||||||
Return on equity | 22.3 | % | 19.5 | % | 27.7 | % | 24.1 | % | |||||||
Effective tax rate | 35.5 | % | 36.3 | % | 35.6 | % | 35.6 | % | |||||||
1 | GAAP gross margin includes the negative impact of a $12 million LIFO charge in the third quarter of fiscal 2016 ($51 million year-to-date). |
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) | 2016 | 2015 | (in millions) | 2016 | 2015 | |||||||||||
Pharmaceutical | Medical | |||||||||||||||
Revenue | Revenue | |||||||||||||||
Amount | $ | 27,527 | $ | 22,605 | Amount | $ | 3,138 | $ | 2,774 | |||||||
Growth rate | 22 | % | 20 | % | Growth rate | 13 | % | 4 | % | |||||||
Segment profit | Segment profit | |||||||||||||||
Amount | $ | 660 | $ | 567 | Amount | $ | 128 | $ | 102 | |||||||
Growth rate | 16 | % | 25 | % | Growth rate1 | 26 | % | (8 | )% | |||||||
Segment profit margin | 2.40 | % | 2.51 | % | Segment profit margin | 4.08 | % | 3.66 | % | |||||||
1 | Segment profit includes a $21 million impact from the roll-out of the inventory fair value step up related to the Cordis acquisition for the three months ended March 31, 2016. Excluding the impact of the inventory fair value step up, Medical segment profit would have increased 47% for the three months ended March 31, 2016. |
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the three months ended March 31, 2016 was $30,662 million, which included total segment revenue of $30,665 million and Corporate revenue of $(3) million. Total consolidated revenue for the three months ended March 31, 2015 was $25,375 million, which included total segment revenue of $25,379 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 three months ended March 31, 2016 were $656 million, which included total segment profit of $788 million and Corporate costs of $(132) million. Total consolidated operating earnings for the three months ended March 31, 2015 were $591 million, which included total segment profit of $669 million and Corporate costs of $(78) million. Corporate includes, among other things, LIFO (charges)/credits, restructuring and employee severance, amortization and other acquisition-related costs, impairments and (gain)/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) | 2016 | 2015 | (in millions) | 2016 | 2015 | |||||||||||
Pharmaceutical | Medical | |||||||||||||||
Revenue | Revenue | |||||||||||||||
Amount | $ | 80,954 | $ | 66,440 | Amount | $ | 9,220 | $ | 8,540 | |||||||
Growth rate | 22 | % | 11 | % | Growth rate | 8 | % | 5 | % | |||||||
Segment profit | Segment profit | |||||||||||||||
Amount | $ | 1,945 | $ | 1,559 | Amount | $ | 335 | $ | 330 | |||||||
Growth rate | 25 | % | 14 | % | Growth rate1 | 1 | % | (5 | )% | |||||||
Segment profit margin | 2.40 | % | 2.35 | % | Segment profit margin | 3.63 | % | 3.86 | % | |||||||
1 | Segment profit includes a $43 million impact from the roll-out of the inventory fair value step up related to the Cordis acquisition for the nine months ended March 31, 2016. Excluding the impact of the inventory fair value step up, Medical segment profit growth would have been 14% for the nine months ended March 31, 2016. |
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the nine months ended March 31, 2016 was $90,162 million, which included total segment revenue of $90,174 million and Corporate revenue of $(12) million. Total consolidated revenue for the nine months ended March 31, 2015 was $74,983 million, which included total segment revenue of $74,980 million and Corporate revenue of $3 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, 2016 were $1,839 million, which included total segment profit of $2,280 million and Corporate costs of $(441) million. Total consolidated operating earnings for the nine months ended March 31, 2015 were $1,603 million, which included total segment profit of $1,889 million and Corporate costs of $(286) million. Corporate includes, among other things, LIFO charges/(credits), restructuring and employee severance, amortization and other acquisition-related costs, impairments and (gain)/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
GAAP / Non-GAAP Reconciliation
Net Earnings | Diluted | Diluted EPS | ||||||||||||||||||||||||
Gross | Operating | Earnings | Provision | Net Earnings | attributable | EPS | attributable | |||||||||||||||||||
Margin | Earnings | Before | for | attributable | to Cardinal | attributable | to Cardinal | |||||||||||||||||||
Gross | Growth | Operating | Growth | Income | Income | to Cardinal | Health, Inc. | to Cardinal | Health, Inc. | |||||||||||||||||
(in millions, except per common share amounts) | Margin | Rate | Earnings | Rate | Taxes | Taxes | Health, Inc. | Growth Rate | Health, Inc. | Growth Rate | ||||||||||||||||
Third Quarter 2016 | ||||||||||||||||||||||||||
GAAP | $ | 1,689 | 16 | % | $ | 656 | 11 | % | $ | 612 | $ | 226 | $ | 386 | 6 | % | $ | 1.17 | 7 | % | ||||||
LIFO charges/(credits) | 12 | 12 | 12 | 4 | 8 | 0.02 | ||||||||||||||||||||
Restructuring and employee severance | — | 6 | 6 | 2 | 4 | 0.01 | ||||||||||||||||||||
Amortization and other acquisition-related costs | — | 108 | 108 | 37 | 71 | 0.21 | ||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets | — | — | — | — | — | — | ||||||||||||||||||||
Litigation (recoveries)/charges, net | — | 5 | 5 | 2 | 3 | 0.01 | ||||||||||||||||||||
Non-GAAP | $ | 1,702 | 17 | % | $ | 788 | 20 | % | $ | 744 | $ | 272 | $ | 472 | 19 | % | $ | 1.43 | 20 | % | ||||||
Third Quarter 2015 | ||||||||||||||||||||||||||
GAAP | $ | 1,459 | 12 | % | $ | 591 | 16 | % | $ | 558 | $ | 193 | $ | 365 | 16 | % | $ | 1.09 | 20 | % | ||||||
Restructuring and employee severance | — | 7 | 7 | 3 | 4 | 0.01 | ||||||||||||||||||||
Amortization and other acquisition-related costs | — | 77 | 77 | 29 | 48 | 0.15 | ||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets | — | (1 | ) | (1 | ) | (1 | ) | — | — | |||||||||||||||||
Litigation (recoveries)/charges, net | — | (18 | ) | (18 | ) | 3 | (21 | ) | (0.07 | ) | ||||||||||||||||
Non-GAAP | $ | 1,459 | 12 | % | $ | 657 | 17 | % | $ | 624 | $ | 228 | $ | 396 | 13 | % | $ | 1.19 | 18 | % | ||||||
Net Earnings | Diluted | Diluted EPS | ||||||||||||||||||||||||
Gross | Operating | Earnings | Provision | Net Earnings | attributable | EPS | attributable | |||||||||||||||||||
Margin | Earnings | Before | for | attributable | to Cardinal | attributable | to Cardinal | |||||||||||||||||||
Gross | Growth | Operating | Growth | Income | Income | to Cardinal | Health, Inc. | to Cardinal | Health, Inc. | |||||||||||||||||
(in millions, except per common share amounts) | Margin | Rate | Earnings | Rate | Taxes | Taxes | Health, Inc. | Growth Rate | Health, Inc. | Growth Rate | ||||||||||||||||
Year-to-Date 2016 | ||||||||||||||||||||||||||
GAAP | $ | 4,877 | 15 | % | $ | 1,839 | 15 | % | $ | 1,700 | $ | 604 | $ | 1,095 | 19 | % | $ | 3.30 | 20 | % | ||||||
LIFO charges/(credits) | 51 | 51 | 51 | 20 | 31 | 0.10 | ||||||||||||||||||||
Restructuring and employee severance | — | 19 | 19 | 7 | 12 | 0.04 | ||||||||||||||||||||
Amortization and other acquisition-related costs | — | 327 | 327 | 115 | 212 | 0.64 | ||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets | — | 17 | 17 | 7 | 10 | 0.03 | ||||||||||||||||||||
Litigation (recoveries)/charges, net | — | (3 | ) | (3 | ) | (3 | ) | — | — | |||||||||||||||||
Non-GAAP | $ | 4,929 | 16 | % | $ | 2,251 | 21 | % | $ | 2,112 | $ | 751 | $ | 1,361 | 20 | % | $ | 4.10 | 21 | % | ||||||
Year-to-Date 2015 | ||||||||||||||||||||||||||
GAAP | $ | 4,254 | 9 | % | $ | 1,603 | 7 | % | $ | 1,444 | $ | 524 | $ | 920 | (1 | )% | $ | 2.74 | 2 | % | ||||||
Restructuring and employee severance | — | 33 | 33 | 12 | 21 | 0.06 | ||||||||||||||||||||
Amortization and other acquisition-related costs | — | 190 | 190 | 69 | 121 | 0.36 | ||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets | — | (19 | ) | (19 | ) | (10 | ) | (9 | ) | (0.03 | ) | |||||||||||||||
Litigation (recoveries)/charges, net | — | 54 | 54 | 8 | 46 | 0.14 | ||||||||||||||||||||
Loss on extinguishment of debt | — | — | 60 | 23 | 37 | 0.11 | ||||||||||||||||||||
Non-GAAP | $ | 4,254 | 9 | % | $ | 1,861 | 11 | % | $ | 1,763 | $ | 627 | $ | 1,136 | 9 | % | $ | 3.38 | 12 | % | ||||||
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
Third Quarter | |||||||||||||||
(in millions) | 2016 | 2015 | |||||||||||||
GAAP return on equity | 23 | % | 23.4 | % | |||||||||||
Non-GAAP return on equity | |||||||||||||||
Net earnings attributable to Cardinal Health, Inc. | $ | 386 | $ | 365 | |||||||||||
LIFO charges/(credits), net of tax | 8 | — | |||||||||||||
Restructuring and employee severance, net of tax | 4 | 4 | |||||||||||||
Amortization and other acquisition-related costs, net of tax | 71 | 48 | |||||||||||||
Litigation (recoveries)/charges, net, net of tax | 3 | (21 | ) | ||||||||||||
Adjusted net earnings attributable to Cardinal Health, Inc. | $ | 472 | $ | 396 | |||||||||||
Annualized | $ | 1,889 | $ | 1,584 | |||||||||||
Third | Second | Third | Second | ||||||||||||
Quarter | Quarter | Quarter | Quarter | ||||||||||||
2016 | 2016 | 2015 | 2015 | ||||||||||||
Total Cardinal Health, Inc. shareholders' equity | $ | 6,713 | $ | 6,711 | $ | 6,369 | $ | 6,100 | |||||||
Divided by average Cardinal Health, Inc. shareholders' equity | $ | 6,712 | $ | 6,235 | |||||||||||
Non-GAAP return on equity | 28.1 | % | 25.4 | % | |||||||||||
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 10
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
Year-to-Date | |||||||||||||||||||||||||||||||
(in millions) | 2016 | 2015 | |||||||||||||||||||||||||||||
GAAP return on equity | 22.3 | % | 19.5 | % | |||||||||||||||||||||||||||
Non-GAAP return on equity | |||||||||||||||||||||||||||||||
Net earnings attributable to Cardinal Health, Inc. | $ | 1,095 | $ | 920 | |||||||||||||||||||||||||||
LIFO charges/(credits), net of tax | 31 | — | |||||||||||||||||||||||||||||
Restructuring and employee severance, net of tax | 12 | 21 | |||||||||||||||||||||||||||||
Amortization and other acquisition-related costs, net of tax | 212 | 121 | |||||||||||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets, net of tax | 10 | (9 | ) | ||||||||||||||||||||||||||||
Litigation (recoveries)/charges, net, net of tax | — | 46 | |||||||||||||||||||||||||||||
Loss on extinguishment of debt, net of tax | — | 37 | |||||||||||||||||||||||||||||
Adjusted net earnings attributable to Cardinal Health, Inc. | $ | 1,361 | $ | 1,136 | |||||||||||||||||||||||||||
Annualized | $ | 1,815 | $ | 1,515 | |||||||||||||||||||||||||||
Third | Second | First | Fourth | Third | Second | First | Fourth | ||||||||||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | Quarter | ||||||||||||||||||||||||
2016 | 2016 | 2016 | 2015 | 2015 | 2015 | 2015 | 2014 | ||||||||||||||||||||||||
Total Cardinal Health, Inc. shareholders' equity | $ | 6,713 | $ | 6,711 | $ | 6,505 | $ | 6,256 | $ | 6,369 | $ | 6,100 | $ | 6,256 | $ | 6,401 | |||||||||||||||
Divided by average Cardinal Health, Inc. shareholders' equity | $ | 6,546 | $ | 6,281 | |||||||||||||||||||||||||||
Non-GAAP return on equity | 27.7 | % | 24.1 | % | |||||||||||||||||||||||||||
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 11
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
Third Quarter | Year-to-Date | ||||||||||||||
(in millions) | 2016 | 2015 | 2016 | 2015 | |||||||||||
GAAP effective tax rate | 36.9 | % | 34.6 | % | 35.5 | % | 36.3 | % | |||||||
Non-GAAP effective tax rate | |||||||||||||||
Earnings before income taxes | $ | 612 | $ | 558 | $ | 1,700 | $ | 1,444 | |||||||
LIFO charges/(credits) | 12 | — | 51 | — | |||||||||||
Restructuring and employee severance | 6 | 7 | 19 | 33 | |||||||||||
Amortization and other acquisition-related costs | 108 | 77 | 327 | 190 | |||||||||||
Impairments and (gain)/loss on disposal of assets | — | (1 | ) | 17 | (19 | ) | |||||||||
Litigation (recoveries)/charges, net | 5 | (18 | ) | (3 | ) | 54 | |||||||||
Loss on extinguishment of debt | — | — | — | 60 | |||||||||||
Adjusted earnings before income taxes | $ | 744 | $ | 624 | $ | 2,112 | $ | 1,763 | |||||||
Provision for income taxes | $ | 226 | $ | 193 | $ | 604 | $ | 524 | |||||||
LIFO charges/(credits) tax benefit | 4 | — | 20 | — | |||||||||||
Restructuring and employee severance tax benefit | 2 | 3 | 7 | 12 | |||||||||||
Amortization and other acquisition-related costs tax benefit | 37 | 29 | 115 | 69 | |||||||||||
Impairments and (gain)/loss on disposal of assets tax benefit/(expense) | — | (1 | ) | 7 | (10 | ) | |||||||||
Litigation (recoveries)/charges, net tax benefit/(expense) | 2 | 3 | (3 | ) | 8 | ||||||||||
Loss on extinguishment of debt tax benefit | — | — | — | 23 | |||||||||||
Adjusted provision for income taxes | $ | 272 | $ | 228 | $ | 751 | $ | 627 | |||||||
Non-GAAP effective tax rate | 36.6 | % | 36.5 | % | 35.6 | % | 35.6 | % | |||||||
Third Quarter | |||||||||||||||
2016 | 2015 | ||||||||||||||
Debt to total capital | 45 | % | 39 | % | |||||||||||
Net debt to capital | |||||||||||||||
Current portion of long-term obligations and other short-term borrowings | $ | 351 | $ | 283 | |||||||||||
Long-term obligations, less current portion | 5,195 | 3,720 | |||||||||||||
Debt | $ | 5,546 | $ | 4,003 | |||||||||||
Cash and equivalents | (2,598 | ) | (3,183 | ) | |||||||||||
Net debt | $ | 2,948 | $ | 820 | |||||||||||
Total Cardinal Health, Inc. shareholders' equity | 6,713 | 6,369 | |||||||||||||
Capital | $ | 9,661 | $ | 7,189 | |||||||||||
Net debt to capital | 31 | % | 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.
Forward-Looking Non-GAAP Financial Measures
We present non-GAAP net earnings attributable to Cardinal Health, Inc. and non-GAAP effective tax rate (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 net earnings attributable to Cardinal Health, Inc. and effective tax rate. 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 LIFO charges/(credits), restructuring and employee severance, amortization and other acquisition-related costs, impairments and (gain)/loss on disposal of assets, litigation (recoveries)/charges, net, and loss on extinguishment of debt, 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.
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 Cardinal Health, Inc. 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 Cardinal Health, Inc. shareholders’ equity).
Non-GAAP Diluted EPS attributable to Cardinal Health, Inc. or "Non-GAAP Diluted EPS" or "Non-GAAP Diluted Earnings Per Share": non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.
Non-GAAP Diluted EPS from continuing operations: non-GAAP earnings from continuing operations divided by diluted weighted-average shares outstanding.
Non-GAAP Effective Tax Rate: (provision for income taxes adjusted for (1) LIFO charges/(credits)1, (2) restructuring and employee severance2, (3) amortization and other acquisition-related costs3, (4) impairments and (gain)/loss on disposal of assets4, (5) litigation (recoveries)/charges, net5, and (6) loss on extinguishment of debt6) divided by (earnings before income taxes adjusted for the same six items).
Non-GAAP Gross Margin: Gross margin excluding LIFO charges/(credits).
Non-GAAP Net Earnings attributable to Cardinal Health, Inc. or "Non-GAAP Net Earnings": net earnings attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets, (5) litigation (recoveries)/charges, net, and (6) loss on extinguishment of debt, each net of tax.
Non-GAAP Earnings from Continuing Operations: earnings from continuing operations excluding (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets, (5) litigation (recoveries)/charges, net, and (6) loss on extinguishment of debt, each net of tax.
Non-GAAP Operating Earnings: operating earnings excluding (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets, and (5) litigation (recoveries)/charges, net.
Non-GAAP Return on Equity: (annualized current period net earnings attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets, (5) litigation (recoveries)/charges, net, and (6) loss on extinguishment of debt, each net of tax) divided by average Cardinal Health, Inc. shareholders’ equity.
Return on Equity: annualized current period net earnings attributable to Cardinal Health, Inc. divided by average Cardinal Health, Inc. shareholders’ equity.
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.
1 | The inventories of the Company's core pharmaceutical distribution facilities in the Pharmaceutical segment are valued at the lower of cost, using the LIFO method, or market. These charges or credits are included in cost of products sold, and represent changes in the Company's LIFO inventory reserve. |
2 | Programs by which 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 realignment of the management structure of a business unit in response to changing market conditions). |
3 | Costs that consist primarily of amortization of acquisition-related intangibles assets, transaction costs, integration costs, and changes in the fair value of contingent consideration obligations. |
4 | Asset impairments and (gains)/losses from the disposal of assets not eligible to be classified as discontinued operations are classified within impairments and (gain)/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. |
6 | Charges related to the make-whole premium on the redemption of notes. |