CARDINAL HEALTH INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - February 7, 2017

Attached files

file filename
8-K - 8-K - CARDINAL HEALTH INCa17q2_8kx123116xform8-kxne.htm
Exhibit 99.1

coverpicture123115a01a02a03.jpg
FOR IMMEDIATE RELEASE
Media:
Ellen Barry
 
Investors:
Lisa Capodici
 
(614) 553-3858
 
 
(614) 757-5035
 
ellen.barry@cardinalhealth.com
 
 
lisa.capodici@cardinalhealth.com
Cardinal Health Reports Second-quarter Results for Fiscal Year 2017

•
Revenue increased 5 percent to $33.1 billion
•
GAAP1 operating earnings decreased 4 percent to $542 million, and non-GAAP operating earnings decreased 4 percent to $701 million
•
GAAP diluted earnings per share increased 4 percent to $1.02, and non-GAAP diluted earnings per share increased 3 percent to $1.34
•
Company updates fiscal year 2017 outlook

DUBLIN, Ohio, Feb. 7, 2017 - Cardinal Health (NYSE: CAH) today reported second-quarter fiscal year 2017 revenue of $33.1 billion, an increase of 5 percent. The company also reported a decline in GAAP operating earnings of 4 percent to $542 million and in non-GAAP operating earnings of 4 percent to $701 million. GAAP diluted earnings per share (EPS) increased 4 percent to $1.02, while non-GAAP diluted EPS increased 3 percent to $1.34.
“Our organization has shown great resilience in the first half of our fiscal 2017. While pricing in the generic pharmaceutical market was a significant headwind for our Pharmaceutical segment profit and our enterprise operating earnings, overall we are seeing greater growth in more lines of business than we’ve seen in some time,” said George Barrett, chairman and CEO of Cardinal Health. “Of particular note, we saw strong growth in our Specialty Solutions group, and our Medical segment, where virtually every part of that business grew.

“As we enter the second half of the year, our organization continues to work with a clear sense of purpose - patient-centered and squarely focused on helping our partners improve the quality, safety and efficiency of the healthcare system.”

Q2 FY17 summary
 
Q2 FY17
 
Q2 FY16
 
Y/Y
Revenue
$
33.1
 billion
 
$
31.4
 billion
 
5%
Operating earnings
$
542
 million
 
$
563
 million
 
(4)%
Non-GAAP operating earnings
$
701
 million
 
$
726
 million
 
(4)%
Net earnings attributable to Cardinal Health, Inc.
$
324
 million
 
$
326
 million
 
N.M
Non-GAAP net earnings attributable to Cardinal Health, Inc.
$
427
 million
 
$
430
 million
 
(1)%
Diluted EPS attributable to Cardinal Health, Inc.
$
1.02

 
$
0.98

 
4%
Non-GAAP diluted EPS attributable to Cardinal Health, Inc.
$
1.34

 
$
1.30

 
3%
Diluted EPS for the quarter benefitted from a lower effective tax rate and fewer weighted average shares outstanding than the same quarter in the prior fiscal year.
Segment results
Pharmaceutical segment
Second-quarter revenue for the Pharmaceutical segment increased 5 percent to $29.7 billion due to growth from existing Pharmaceutical Distribution customers and strong performance from the Specialty business.
Segment profit for the quarter decreased 14 percent to $537 million. This decrease was driven by generic pharmaceutical pricing and, to a lesser extent, the previously announced loss of a large Pharmaceutical Distribution customer. This was partially offset by solid performance from Red Oak Sourcing.
 
Q2 FY17
 
Q2 FY16
 
Y/Y
Revenue
$
29.7
 billion
 
$
28.3
 billion
 
5%
Segment profit
$
537
 million
 
$
627
 million
 
(14)%

Cardinal Health
Page 2

Medical segment
Second-quarter revenue for the Medical segment increased 8 percent to $3.4 billion, driven by contributions from net new and existing customers.
Segment profit increased 50 percent to $159 million due to the contribution from Cardinal Health Brand products, which includes Cordis. The increase reflects the $21 million unfavorable impact of the Cordis-related inventory fair value step-up in the second quarter of fiscal year 2016. Excluding this step-up, year-over-year Medical segment profit growth was 25 percent.
 
Q2 FY17
 
Q2 FY16
 
Y/Y
Revenue
$
3.4
 billion
 
$
3.2
 billion
 
8%
Segment profit
$
159
 million
 
$
106
 million
 
50%
Fiscal year 2017 outlook
As previously disclosed, the company does not provide GAAP EPS outlook, because it is unable to reliably forecast most of the items that are excluded from GAAP EPS to calculate non-GAAP EPS. These items could cause EPS to differ materially from non-GAAP EPS. See "Use of Non-GAAP Measures" following the attached schedules for additional explanation.
 
Having completed more than half its fiscal year, the company is adjusting its fiscal year 2017 guidance range for non-GAAP diluted EPS from continuing operations to $5.35 to $5.50 from $5.40 to $5.60. This now reflects non-GAAP EPS growth of 2 to 5 percent for the fiscal year.

More details about this outlook can be found on the company's webcast and accompanying slides; see below for details.

Additional second-quarter and recent highlights
•
Renewed Department of Defense medical/surgical distribution prime vendor agreement
•
Signed several new strategic distribution agreements that will enable Cordis, Cardinal Health's interventional vascular business, to rapidly expand its product portfolio in select countries globally
•
Recognized Cincinnati Children's Hospital Medical Center as the recipient of the 2016 Award for Excellence in Medication Safety from the Cardinal Health Foundation and the American Society of Health-System Pharmacists Foundation
•
Chairman and CEO George Barrett named chairman of the Healthcare Leadership Council; Pharmaceutical Segment CEO Jon Giacomin named chairman of the Healthcare Distribution Alliance board
Webcast
Cardinal Health will host a webcast today at 8:30 a.m. Eastern to discuss second-quarter results. To access the webcast and corresponding slide presentation, go to the Investor Relations page at ir.cardinalhealth.com. No access code is required.
Presentation slides and a webcast replay will be available on the Cardinal Health website at ir.cardinalhealth.com until Feb. 6, 2018.

Upcoming webcasted investor events
•
Barclays Global Healthcare Conference on March 16 at 8:30 a.m. Eastern in Miami
About Cardinal Health
Cardinal Health Inc. is a global integrated healthcare services and products company, providing customized solutions for hospital systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices worldwide. The company provides clinically-proven medical products and pharmaceuticals and cost-effective solutions that enhance supply chain efficiency. Cardinal Health connects patients, providers, payers, pharmacists and manufacturers for integrated care coordination and better patient management. Backed by nearly 100 years of experience, with more than 37,000 employees in nearly 60 countries, Cardinal Health ranks among the top 25 on the Fortune 500. For more information, visit cardinalhealth.com, follow @CardinalHealth on Twitter and connect on LinkedIn at linkedin.com/company/cardinal-health.

1. 
GAAP refers to U.S. generally accepted accounting principles. This news release includes GAAP financial measures as well as non-GAAP financial measures, which are financial measures not calculated in accordance with GAAP.  See “Use of non-GAAP Measures” following the attached schedules for definitions of the non-GAAP financial measures presented in this news release, and see the attached schedules for 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, financial information, earnings and analyst presentations, and information about upcoming presentations and events is routinely posted and accessible on the

Cardinal Health
Page 3

Investor Relations page 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.

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, trends 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 amount or rate of generic and branded pharmaceutical price appreciation or deflation and the timing of and benefit from generic pharmaceutical introductions; the ability to maintain the benefits from the generic sourcing venture with CVS Health; the ability to successfully integrate and realize the benefits from the acquisition of Cordis; 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 recent proposals to modify or repeal the Affordable Care Act; uncertainties with respect to U.S. tax and trade laws, including proposals relating to a "border adjustment tax" and new import tariffs; 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 Feb. 7, 2017. 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)
 
Second Quarter
 
 
(in millions, except per common share amounts)
2017
 
2016
 
% Change
Revenue
$
33,150

 
$
31,445

 
5
 %
Cost of products sold
31,548

 
29,836

 
6
 %
Gross margin
1,602

 
1,609

 
—
 %
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Distribution, selling, general and administrative expenses
910

 
922

 
(1
)%
Restructuring and employee severance
7

 
2

 
N.M.

Amortization and other acquisition-related costs
115

 
114

 
N.M.

Impairments and loss on disposal of assets, net
9

 
17

 
N.M.

Litigation (recoveries)/charges, net
19

 
(9
)
 
N.M.

Operating earnings
542

 
563

 
(4
)%
 
 
 
 
 
 
Other (income)/expense, net
7

 
(2
)
 
N.M.

Interest expense, net
44

 
45

 
(2
)%
Earnings before income taxes
491

 
520

 
(6
)%
 
 
 
 
 
 
Provision for income taxes
167

 
194

 
(14
)%
Net earnings
324

 
326

 
—
 %
 
 
 
 
 
 
Less: Net earnings attributable to noncontrolling interests
—

 
—

 
N.M.

Net earnings attributable to Cardinal Health, Inc.
$
324

 
$
326

 
—
 %
 
 
 
 
 
 
Earnings per common share attributable to Cardinal Health, Inc.:
 
 
 
 
 
Basic
$
1.02

 
$
0.99

 
3
 %
Diluted
1.02

 
0.98

 
4
 %
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
Basic
318

 
329

 
 
Diluted
319

 
332

 
 




Schedule 2
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
 
Year-to-Date
 
 
(in millions, except per common share amounts)
2017
 
2016
 
% Change
Revenue
$
65,189

 
$
59,499

 
10
 %
Cost of products sold
61,997

 
56,311

 
10
 %
Gross margin
3,192

 
3,188

 
—
 %
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Distribution, selling, general and administrative expenses
1,831

 
1,764

 
4
 %
Restructuring and employee severance
16

 
14

 
N.M.

Amortization and other acquisition-related costs
237

 
219

 
N.M.

Impairments and loss on disposal of assets, net
12

 
17

 
N.M.

Litigation (recoveries)/charges, net
20

 
(9
)
 
N.M.

Operating earnings
1,076

 
1,183

 
(9
)%
 
 
 
 
 
 
Other expense, net
3

 
6

 
N.M.

Interest expense, net
88

 
90

 
(2
)%
Earnings before income taxes
985

 
1,087

 
(9
)%
 
 
 
 
 
 
Provision for income taxes
351

 
377

 
(7
)%
Net earnings
634

 
710

 
(11
)%
 
 
 
 
 
 
Less: Net earnings attributable to noncontrolling interest
(1
)
 
(1
)
 
N.M.

Net earnings attributable to Cardinal Health, Inc.
$
633

 
$
709

 
(11
)%
 
 
 
 
 
 
Earnings per common share attributable to Cardinal Health, Inc.:
 
 
 
 
 
Basic
$
1.99

 
$
2.16

 
(8
)%
Diluted
1.97

 
2.14

 
(8
)%
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
Basic
319

 
329

 
 
Diluted
321

 
332

 
 



Schedule 3
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in millions)
December 31,
2016
 
June 30,
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
1,881

 
$
2,356

Trade receivables, net
7,533

 
7,405

Inventories, net
11,915

 
10,615

Prepaid expenses and other
1,824

 
1,580

Total current assets
23,153

 
21,956

 
 
 
 
Property and equipment, net
1,856

 
1,796

Goodwill and other intangibles, net
9,276

 
9,426

Other assets
736

 
944

Total assets
$
35,021

 
$
34,122

 
 
 
 
Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
18,857

 
$
17,306

Current portion of long-term obligations and other short-term borrowings
603

 
587

Other accrued liabilities
1,554

 
1,808

Total current liabilities
21,014

 
19,701

 
 
 
 
Long-term obligations, less current portion
4,859

 
4,952

Deferred income taxes and other liabilities
2,692

 
2,781

 
 
 
 
Redeemable noncontrolling interests
115

 
117

 
 
 
 
Total Cardinal Health, Inc. shareholders' equity
6,323

 
6,554

Noncontrolling interests
18

 
17

Total shareholders’ equity
6,341

 
6,571

Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
35,021

 
$
34,122




Schedule 4
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Second Quarter
 
Year-to-Date
(in millions)
2017
 
2016
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
 
 
 
Net earnings
$
324

 
$
326

 
$
634

 
$
710

 
 
 
 
 
 
 
 
Adjustments to reconcile net earnings to net cash from operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
166

 
169

 
339

 
306

Impairments and loss on sale of other investments
3

 
—

 
3

 
—

Impairments and loss on disposal of assets, net
9

 
17

 
12

 
17

Share-based compensation
24

 
26

 
47

 
56

Provision for bad debts
22

 
18

 
29

 
35

Change in fair value of contingent consideration obligation
—

 
(13
)
 
—

 
(14
)
Change in operating assets and liabilities, net of effects from acquisitions:
 
 
 
 
 
 
 
Decrease/(increase) in trade receivables
160

 
(45
)
 
(146
)
 
(393
)
Increase in inventories
(996
)
 
(1,070
)
 
(1,294
)
 
(1,565
)
Increase in accounts payable
1,284

 
2,006

 
1,563

 
2,431

Other accrued liabilities and operating items, net
(442
)
 
29

 
(529
)
 
(172
)
Net cash provided by operating activities
554

 
1,463

 
658

 
1,411

 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Acquisition of subsidiaries, net of cash acquired
(2
)
 
(1,885
)
 
(11
)
 
(3,284
)
Additions to property and equipment
(113
)
 
(92
)
 
(213
)
 
(175
)
Purchase of available-for-sale securities and other investments
(73
)
 
(62
)
 
(125
)
 
(88
)
Proceeds from sale of available-for-sale securities and other investments
38

 
32

 
72

 
57

Proceeds from maturities of available-for-sale securities
22

 
14

 
39

 
19

Proceeds from divestitures and disposal of property and equipment and held for sale assets
1

 
—

 
1

 
—

Net cash used in investing activities
(127
)
 
(1,993
)
 
(237
)
 
(3,471
)
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Payment of contingent consideration obligation
—

 
—

 
—

 
(23
)
Net change in short-term borrowings
8

 
3

 
33

 
39

Net purchase of noncontrolling interests
(2
)
 
—

 
(12
)
 
—

Reduction of long-term obligations
(59
)
 
—

 
(60
)
 
(4
)
Proceeds from interest rate swap terminations
—

 
—

 
14

 
—

Net tax proceeds/(withholdings) from share-based compensation
9

 
14

 
—

 
(7
)
Tax proceeds from share-based compensation
2

 
1

 
32

 
32

Dividends on common shares
(144
)
 
(128
)
 
(293
)
 
(259
)
Purchase of treasury shares
(350
)
 
—

 
(600
)
 
—

Net cash used in financing activities
(536
)
 
(110
)
 
(886
)
 
(222
)
 
 
 
 
 
 
 
 
Effect of exchange rates changes on cash and equivalents
(11
)
 
(10
)
 
(10
)
 
(10
)
 
 
 
 
 
 
 
 
Net decrease in cash and equivalents
(120
)
 
(650
)
 
(475
)
 
(2,292
)
Cash and equivalents at beginning of period
2,001

 
2,974

 
2,356

 
4,616

Cash and equivalents at end of period
$
1,881

 
$
2,324

 
$
1,881

 
$
2,324





Schedule 5
Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis
 
Second Quarter
 
 
Second Quarter
(in millions)
2017
 
2016
 
(in millions)
2017
 
2016
Pharmaceutical
 
 
 
 
Medical
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
Revenue
 
 
 
Amount
$
29,743

 
$
28,287

 
Amount
$
3,410

 
$
3,162

Growth rate
5
 %
 
25
%
 
Growth rate
8
%
 
9
 %
 
 
 
 
 
 
 
 
 
Segment profit
 
 
 
 
Segment profit
 
 
 
Amount
$
537

 
$
627

 
Amount
$
159

 
$
106

Growth rate
(14
)%
 
16
%
 
Growth rate1
50
%
 
(8
)%
Segment profit margin
1.81
 %
 
2.22
%
 
Segment profit margin
4.68
%
 
3.36
 %
1. 
Segment profit for three months ended December 31, 2015 includes a $21 million unfavorable impact of Cordis-related inventory fair value step-up. Excluding this step-up, year-over-year Medical segment profit growth was 25 percent and 10 percent for the three months ended December 31, 2016 and 2015, respectively.
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the three months ended December 31, 2016 was $33,150 million, which included total segment revenue of $33,153 million and Corporate revenue of $(3) million. Total consolidated revenue for the three months ended December 31, 2015 was $31,445 million, which included total segment revenue of $31,449 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 December 31, 2016 were $542 million, which included total segment profit of $696 million and Corporate costs of $(154) million. Total consolidated operating earnings for the three months ended December 31, 2015 were $563 million, which included total segment profit of $733 million and Corporate costs of $(170) 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 6
Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis
 
Year-to-Date
 
 
Year-to-Date
(in millions)
2017
 
2016
 
(in millions)
2017
 
2016
Pharmaceutical
 
 
 
 
Medical
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
 
 
 
Revenue
 
 
 
Amount
$
58,505

 
$
53,427

 
Amount
$
6,690

 
$
6,081

Growth rate
10
 %
 
22
%
 
Growth rate
10
%
 
5
 %
 
 
 
 
 
 
 
 
 
Segment profit
 
 
 
 
Segment profit
 
 
 
Amount
$
1,071

 
$
1,285

 
Amount
$
286

 
$
207

Growth rate
(17
)%
 
29
%
 
Growth rate1
39
%
 
(10
)%
Segment profit margin
1.83
 %
 
2.41
%
 
Segment profit margin
4.28
%
 
3.40
 %
1. 
Segment profit for the six months ended December 31, 2015 includes the $21 million unfavorable impact of the Cordis-related inventory step-up. Excluding this step-up, year-over-year Medical segment profit growth was 25 percent and flat for the six months ended December 31, 2016 and 2015, respectively.
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the six months ended December 31, 2016 was $65,189 million, which included total segment revenue of $65,195 million and Corporate revenue of $(6) million. Total consolidated revenue for the six months ended December 31, 2015 was $59,499 million, which included total segment revenue of $59,508 million and Corporate revenue of $(9) 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 six months ended December 31, 2016 were $1,076 million, which included total segment profit of $1,357 million and Corporate costs of $(281) million. Total consolidated operating earnings for the six months ended December 31, 2015 were $1,183 million, which included total segment profit of $1,492 million and Corporate costs of $(309) 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
GAAP / Non-GAAP Reconciliation1 
 
 
Gross
 
Operating
Earnings
Provision
 
 
 
 
 
 
Margin
 
Earnings
Before
for
 
Net
 
Diluted
 
Gross
Growth
Operating
Growth
Income
Income
Net
Earnings2
Diluted
EPS2
(in millions, except per common share amounts)
Margin
Rate
Earnings
Rate
Taxes
Taxes
Earnings2
Growth Rate
EPS2,3,4
Growth Rate
Second Quarter 2017
GAAP
$
1,602

—
 %
$
542

(4
)%
$
491

$
167

$
324

—
 %
$
1.02

4
%
LIFO charges/(credits)
9

 
9

 
9

4

5

 
0.02

 
Restructuring and employee severance
—

 
7

 
7

2

5

 
0.01

 
Amortization and other acquisition-related costs
—

 
115

 
115

39

76

 
0.24

 
Impairments and (gain)/loss on disposal of assets
—

 
9

 
9

3

6

 
0.02

 
Litigation (recoveries)/charges, net
—

 
19

 
19

7

12

 
0.04

 
Non-GAAP
$
1,611

(2
)%
$
701

(4
)%
$
650

$
222

$
427

(1
)%
$
1.34

3
%
 
 
 
 
 
 
 
 
 
 
 
 
Second Quarter 2016
GAAP
$
1,609

11
 %
$
563

3
 %
$
520

$
194

$
326

13
 %
$
0.98

14
%
LIFO charges/(credits)
39

 
39

 
39

15

24

 
0.07

 
Restructuring and employee severance
—

 
2

 
2

1

1

 
—

 
Amortization and other acquisition-related costs
—

 
114

 
114

41

73

 
0.22

 
Impairments and (gain)/loss on disposal of assets
—

 
17

 
17

7

10

 
0.03

 
Litigation (recoveries)/charges, net
—

 
(9
)
 
(9
)
(5
)
(4
)
 
(0.01
)
 
Non-GAAP
$
1,648

13
 %
$
726

14
 %
$
683

$
253

$
430

7
 %
$
1.30

8
%
 
 
Gross
 
Operating
Earnings
Provision
 
 
 
 
 
 
Margin
 
Earnings
Before
for
 
Net
 
Diluted
 
Gross
Growth
Operating
Growth
Income
Income
Net
Earnings2
Diluted
EPS2
(in millions, except per common share amounts)
Margin
Rate
Earnings
Rate
Taxes
Taxes
Earnings2
Growth Rate
EPS2
Growth Rate
Year-to-Date 2017
GAAP
$
3,192

—
 %
$
1,076

(9
)%
$
985

$
351

$
633

(11
)%
$
1.97

(8
)%
LIFO charges/(credits)
9

 
9

 
9

4

5

 
0.02

 
Restructuring and employee severance
—

 
16

 
16

6

10

 
0.03

 
Amortization and other acquisition-related costs
—

 
237

 
237

79

158

 
0.49

 
Impairments and (gain)/loss on disposal of assets
—

 
12

 
12

4

8

 
0.02

 
Litigation (recoveries)/charges, net
—

 
20

 
20

8

12

 
0.04

 
Non-GAAP
$
3,201

(1
)%
$
1,370

(6
)%
$
1,279

$
452

$
826

(7
)%
$
2.57

(4
)%
 
 
 
 
 
 
 
 
 
 
 
 
Year-to-Date 2016
GAAP
$
3,188

14
 %
$
1,183

17
 %
$
1,087

$
377

$
709

28
 %
$
2.14

30
 %
LIFO charges/(credits)
39

 
39

 
39

15

24

 
0.07

 
Restructuring and employee severance
—

 
14

 
14

5

9

 
0.02

 
Amortization and other acquisition-related costs
—

 
219

 
219

78

141

 
0.42

 
Impairments and (gain)/loss on disposal of assets
—

 
17

 
17

7

10

 
0.03

 
Litigation (recoveries)/charges, net
—

 
(9
)
 
(9
)
(5
)
(4
)
 
(0.01
)
 
Non-GAAP
$
3,227

15
 %
$
1,463

22
 %
$
1,368

$
479

$
889

20
 %
$
2.68

22
 %
1For more information on these measures, refer to the Use of Non-GAAP Measures and Definitions schedules.
2attributable to Cardinal Health, Inc.
3GAAP diluted EPS for the three months ended December 31, 2016 compared to the prior year period was favorably impacted by $0.09, which includes $0.05 due to change in the effective tax rate and $0.04 due to the change in weighted average shares outstanding. The change in GAAP diluted EPS due to the effective tax rate is calculated as ((GAAP Earnings before Income Taxes for the current period times (one minus the current period GAAP Effective Tax Rate)) minus (GAAP Earnings before Income Taxes for the current period times (one minus the prior period GAAP Effective Tax Rate)))


divided by the current period weighted average shares outstanding. The change in GAAP diluted EPS due to the weighted average shares outstanding is calculated as (GAAP Net Earnings for the current period divided by the current period weighted average shares outstanding) minus (GAAP Net Earnings for the current period divided by the prior period weighted average shares outstanding).
4Non-GAAP diluted EPS for the three months ended December 31, 2016 compared to the prior year period was favorably impacted by $0.11, which includes $0.06 due to change in the effective tax rate and $0.05 due to the change in weighted average shares outstanding. The change in Non-GAAP diluted EPS due to the effective tax rate is calculated as ((Non-GAAP Earnings before Income Taxes for the current period times (one minus the current period Non-GAAP Effective Tax Rate)) minus (Non-GAAP Earnings before Income Tax for the current period times (one minus the prior period Non-GAAP Effective Tax Rate))) divided by the current period weighted average shares outstanding. The change in Non-GAAP diluted EPS due to the weighted average shares outstanding is calculated as (Non-GAAP Net Earnings for the current period divided by the current period weighted average shares outstanding) minus (Non-GAAP Net Earnings for the current period divided by the prior period weighted average shares outstanding).
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.
There were no losses on extinguishment of debt during the periods presented.


Schedule 8
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
 
Second Quarter
(in millions)
2017
 
2016
GAAP effective tax rate
34.0
%
 
37.3
%
 
 
 
 
Non-GAAP effective tax rate
 
 
 
Earnings before income taxes
$
491

 
$
520

LIFO charges
9

 
39

Restructuring and employee severance
7

 
2

Amortization and other acquisition-related costs
115

 
114

Impairments and loss on disposal of assets
9

 
17

Litigation (recoveries)/charges, net
19

 
(9
)
Adjusted earnings before income taxes
$
650

 
$
683

 
 
 
 
Provision for income taxes
$
167

 
$
194

LIFO charges tax benefit
4

 
15

Restructuring and employee severance tax benefit
2

 
1

Amortization and other acquisition-related costs tax benefit
39

 
41

Impairments and loss on disposal of assets tax benefit
3

 
7

Litigation (recoveries)/charges, net tax benefit/(expense)
7

 
(5
)
Adjusted provision for income taxes
$
222

 
$
253

 
 
 
 
Non-GAAP effective tax rate
34.2
%
 
37.1
%
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.



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 addition to analyzing our business based on financial information prepared in accordance with GAAP, we use these non-GAAP financial measures internally to evaluate our performance, evaluate the balance sheet, engage in financial and operational planning, and determine incentive compensation because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance to that of our competitors. However, the non-GAAP financial measures that we use 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 us 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 below should be carefully evaluated.
Exclusions from Non-GAAP Financial Measures
Management believes it is useful to exclude the following items from the non-GAAP measures presented in this earnings release for its own and for investors’ assessment of the business for the reasons identified below:
•
LIFO charges and credits are excluded because the factors that drive last-in first-out ("LIFO") inventory charges or credits, such as pharmaceutical manufacturer price appreciation or deflation and year-end inventory levels (which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end), are largely out of our control and cannot be accurately predicted. The exclusion of LIFO charges from non-GAAP metrics allows for a better comparison of our current financial results to our historical financial results and to our peer group companies’ financial results.
•
Restructuring and employee severance costs are excluded because they relate to programs in which we fundamentally change our operations and because they are not part of the ongoing operations of our underlying business, which includes normal levels of reinvestment in the business.
•
Amortization and other acquisition-related costs are excluded primarily for consistency with the presentation of the financial results of our peer group companies. Additionally, these non-cash amounts are variable in amount and frequency and are significantly impacted by the timing and size of acquisitions, so their exclusion allows for better comparison of historical, current and forecasted financial results. We exclude other acquisition-related costs because they are directly related to an acquisition but do not meet the criteria to be recognized on the acquired entity’s initial balance sheet as part of the purchase price allocation. They are also significantly impacted by the timing and size of acquisitions.
•
Impairments and gains or loss on disposal of assets are excluded because they do not occur in or reflect the ordinary course of our ongoing business operations and their exclusion results in a metric that more meaningfully reflects the sustainability of our operating performance.
•
Litigation recoveries or charges, net are excluded because they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount.
•
Loss on extinguishment of debt is excluded because it does not typically occur in the normal course of business and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt financing transactions.
The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the item and the jurisdiction(s) in which the item is recorded. The gross, tax and net impact of each item are presented with our GAAP to non-GAAP reconciliations.
Forward Looking Non-GAAP Measures
In this earnings release, the Company presents its outlook for fiscal 2017 non-GAAP EPS.  The Company does not provide EPS outlook, which is the most directly comparable GAAP measure to non-GAAP EPS, because changes in the items that the Company excludes from EPS to calculate non-GAAP EPS, described above, can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of the Company’s routine operating activities. Additionally, due to their unpredictability, management does not forecast many of the excluded items for internal use and therefore cannot create or rely on an EPS outlook.
The timing and amount of any of the excluded items could significantly impact the Company’s fiscal 2017 EPS. Over the past five fiscal years, the excluded items have lowered the Company’s EPS from $0.14 to $2.76, which includes a goodwill impairment charge of $2.32 per share related to our Nuclear Pharmacy Services division that we recognized in fiscal 2013. 





Definitions
Growth rate calculation: Growth rates in this earnings release are determined by dividing the difference between current period results and prior period results by prior period results.
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 earnings before income taxes: earnings before income taxes 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.
Non-GAAP effective tax rate: (provision for income taxes adjusted for (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) divided by (earnings before income taxes adjusted for the same six items).
Non-GAAP net earnings attributable to Cardinal Health, Inc.: 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 diluted EPS attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.



CARDINAL HEALTH INC Reports