Cardinal Health Reports Fiscal 2015 Third-Quarter Results

Thursday, April 30, 2015

DUBLIN, Ohio, April 30, 2015 /PRNewswire/ -- Cardinal Health today reported fiscal year 2015 third-quarter revenue of $25.4 billion and non-GAAP diluted earnings per share (EPS) from continuing operations of $1.19. Non-GAAP operating earnings increased 17 percent to $657 million. On a GAAP basis, operating earnings increased 16 percent to $591 million, and diluted EPS from continuing operations increased 20 percent to $1.09.

"We're pleased to report strong overall results for the third quarter while continuing to make the moves to lead and create value in today's dynamic healthcare environment," said George Barrett, chairman and chief executive officer of Cardinal Health. "During this past quarter, we announced our plan to acquire Cordis, significantly enhancing our scale, product line and capabilities in the cardiovascular area. This move aligns squarely with our strategy around physician preference items. Further, our recent acquisition of the specialty distribution business of Metro Medical expands our scale in specialty pharma and extends our reach into additional therapeutic areas."

He continued, "In light of our performance to date, we are increasingly comfortable with the upper half of the guidance range of $4.28 to $4.38 for our fiscal 2015 non-GAAP diluted earnings per share from continuing operations."

Q3 FY15 SUMMARY



Q3 FY15

Q3 FY14

Y/Y

Revenue

$25.4 billion

$21.4 billion

18%









Operating Earnings

 

$591 million

 

$508 million

 

16%

Non-GAAP Operating Earnings

 

$657 million

 

$561 million

 

17%









Earnings from Continuing Operations

 

$365 million

 

 $315 million

 

16%

Non-GAAP Earnings from Continuing Operations

 

$396 million

 

$349 million

 

13%









Diluted EPS from Continuing Operations

 

$1.09

 

$0.91

 

20%

Non-GAAP Diluted EPS from Continuing Operations

 

$1.19

 

$1.01

 

18%

SEGMENT RESULTS

Pharmaceutical segment

Revenue for the Pharmaceutical segment increased 20 percent to $22.6 billion due to growth from existing and new customers. Segment profit increased 25 percent to $567 million, driven by strong performance under the company's generics program, which includes the net benefit of Red Oak Sourcing as well as the growth from existing and new customers.



Q3 FY15

Q3 FY14

Y/Y

Revenue

$22.6 billion

$18.8 billion

20%

Segment Profit

$567 million

$452 million

25%

Medical segment

Revenue for the Medical segment was up 4 percent to $2.8 billion, primarily due to contributions from acquisitions. Segment profit decreased 8 percent to $102 million as a result of reduced contribution from national brand distribution and the continued impact of market pressures in Canada.



Q3 FY15

Q3 FY14

Y/Y

Revenue

$2.8 billion

$2.7 billion

4%

Segment Profit

$102 million

$111 million

(8)%

ADDITIONAL THIRD-QUARTER AND RECENT HIGHLIGHTS 

  • Announced intent to acquire Cordis, a worldwide leader in cardiovascular medical products
  • Acquired the specialty distribution business of Metro Medical Inc., expanding scale and deepening reach into rheumatology, oncology and nephrology segments
  • Named one of the "Top 50 Companies for Executive Women" by the National Association for Female Executives
  • Ohio Children's Hospitals' Solutions for Patient Safety, a national program supported by Cardinal Health, announced estimated savings of more than $60 million and prevention of serious harm for 2,500 children

CONFERENCE CALL

The company will host a webcast and conference call today at 8:30 a.m. Eastern to discuss the results. To access the call and corresponding slide presentation, go to the Investors page at ir.cardinalhealth.com or dial 913.312.0400, using conference ID# 9697371. There is no access code required for the call.  

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 meeting. The audio replay will also be available until May 29 by dialing 719.457.0820, passcode 9697371.

UPCOMING WEBCASTED INVESTOR EVENTS

  • Bank of America Merrill Lynch 2015 Health Care Conference on May 13 at 8:00 a.m. local time in Las Vegas
  • Goldman Sachs 36th Annual Global Healthcare Conference on June 10 at 10:00 a.m. local time in Rancho Palos Verdes, Calif.

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 live webcasts of these events, go to the Investors page at ir.cardinalhealth.com.

About Cardinal Health

Headquartered in Dublin, Ohio, Cardinal Health, Inc. (NYSE: CAH) is a $91 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 #22 on the Fortune 500, Cardinal Health employs 34,000 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, financial information, earnings and analyst presentations, and information about upcoming presentations and events is routinely posted and accessible on the Investors page at ir.cardinalhealth.com. In addition, our website allows investors and other interested persons to sign up automatically to receive e-mail alerts when we post news releases, SEC filings and certain other information on our 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 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 venture with CVS Health; the frequency or rate of pharmaceutical price appreciation or deflation and the timing of generic and branded pharmaceutical introductions; the ability to successfully complete the acquisition of Cordis on a timely basis and if completed to achieve the anticipated results from the Cordis acquisition; the 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; the ability to achieve anticipated results from the AccessClosure acquisition; 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 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 30, 2015. 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)

2015



2014



% Change

Revenue

$

25,375





$

21,427





18

%

Cost of products sold

23,916





20,130





19

%

Gross margin

1,459





1,297





12

%













Operating expenses:











Distribution, selling, general and administrative expenses

803





736





9

%

Restructuring and employee severance

7





5





N.M.

Amortization and other acquisition-related costs

77





56





N.M.

Impairments and (gain)/loss on disposal of assets

(1)









N.M.

Litigation (recoveries)/charges, net

(18)





(8)





N.M.

Operating earnings

591





508





16

%













Other income, net

(2)





(33)





N.M.

Interest expense, net

35





34





4

%

Earnings before income taxes and discontinued operations

558





507





10

%













Provision for income taxes

193





192





%

Earnings from continuing operations

365





315





16

%













Earnings from discontinued operations, net of tax









N.M.

Net earnings

$

365





$

315





16

%













Basic earnings per common share:











Continuing operations

$

1.10





$

0.92





20

%

Discontinued operations









N.M.

Net basic earnings per common share

$

1.10





$

0.92





20

%













Diluted earnings per common share:











Continuing operations

$

1.09





$

0.91





20

%

Discontinued operations









N.M.

Net diluted earnings per common share

$

1.09





$

0.91





20

%













Weighted-average number of common shares outstanding:











Basic

330





342







Diluted

334





347







 

 

 



Schedule 2



Cardinal Health, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings (Unaudited)





Year-to-Date





(in millions, except per common share amounts)

2015



2014



% Change

Revenue

$

74,983





$

68,190





10

%

Cost of products sold

70,729





64,285





10

%

Gross margin

4,254





3,905





9

%













Operating expenses:











Distribution, selling, general and administrative expenses

2,393





2,233





7

%

Restructuring and employee severance

33





25





N.M.

Amortization and other acquisition-related costs

190





160





N.M.

Impairments and (gain)/loss on disposal of assets

(19)





10





N.M.

Litigation (recoveries)/charges, net

54





(21)





N.M.

Operating earnings

1,603





1,498





7

%













Other income, net

(6)





(43)





N.M.

Interest expense, net

105





100





5

%

Loss on extinguishment of debt

60









N.M.

Earnings before income taxes and discontinued operations

1,444





1,441





%













Provision for income taxes

524





512





2

%

Earnings from continuing operations

920





929





(1)

%













Earnings from discontinued operations, net of tax





3





N.M.

Net earnings

$

920





$

932





(1)

%













Basic earnings per common share:











Continuing operations

$

2.77





$

2.72





2

%

Discontinued operations





0.01





N.M.

Net basic earnings per common share

$

2.77





$

2.73





1

%













Diluted earnings per common share:











Continuing operations

$

2.74





$

2.69





2

%

Discontinued operations





0.01





N.M.

Net diluted earnings per common share

$

2.74





$

2.70





1

%













Weighted-average number of common shares outstanding:











Basic

332





341







Diluted

336





346







 

 

 



Schedule 3



Cardinal Health, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets



(in millions)

March 31,

 2015



June 30,

 2014



(Unaudited)





Assets







Current assets:







Cash and equivalents

$

3,183





$

2,865



Trade receivables, net

6,095





5,380



Inventories, net

9,163





8,266



Prepaid expenses and other

1,190





1,428



Total current assets

19,631





17,939











Property and equipment, net

1,407





1,459



Goodwill and other intangibles, net

6,033





5,870



Other assets

817





765



Total assets

$

27,888





$

26,033











Liabilities and Shareholders' Equity







Current liabilities:







Accounts payable

$

13,851





$

12,149



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

283





801



Other accrued liabilities

2,261





2,165



Total current liabilities

16,395





15,115











Long-term obligations, less current portion

3,720





3,171



Deferred income taxes and other liabilities

1,404





1,346



Total shareholders' equity

6,369





6,401



Total liabilities and shareholders' equity

$

27,888





$

26,033



 

 

 



Schedule 4



Cardinal Health, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)





Third Quarter



Year-to-Date

(in millions)

2015



2014



2015



2014

Cash flows from operating activities:















Net earnings

$

365





$

315





$

920





$

932



Earnings from discontinued operations, net of tax













(3)



Earnings from continuing operations

365





315





920





929



















Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:















Depreciation and amortization

116





110





336





344



Loss on extinguishment of debt









60







Gain on sale of other investments





(32)





(5)





(32)



Impairments and (gain)/loss on disposal of assets

(1)









(19)





10



Share-based compensation

27





24





80





72



Provision for bad debts

16





2





42





31



Change in operating assets and liabilities, net of effects from acquisitions:















Decrease/(increase) in trade receivables

(427)





53





(718)





1,473



Decrease/(increase) in inventories

287





450





(850)





350



Increase/(decrease) in accounts payable

219





(304)





1,657





(1,392)



Other accrued liabilities and operating items, net

56





202





169





23



Net cash provided by operating activities

658





820





1,672





1,808



















Cash flows from investing activities:















Acquisition of subsidiaries, net of cash acquired

(233)





(118)





(319)





(168)



Additions to property and equipment

(56)





(48)





(139)





(138)



Purchase of available-for-sale securities and other investments

(27)





(27)





(134)





(27)



Proceeds from sale of available-for-sale securities and other investments

22





47





129





47



Proceeds from maturities of available-for-sale securities

8









24







Proceeds from divestitures and disposal of held for sale assets









53







Net cash used in investing activities

(286)





(146)





(386)





(286)



















Cash flows from financing activities:















Payment of contingent consideration obligation

(3)









(3)







Net change in short-term borrowings

9





(8)





(9)





65



Reduction of long-term obligations

(1)









(1,221)





(1)



Proceeds from long-term obligations, net of issuance costs









1,182







Net proceeds from issuance of common shares

24





80





59





219



Tax proceeds/(disbursements) from share-based compensation

14





(3)





56





36



Dividends on common shares

(113)





(104)





(346)





(312)



Purchase of treasury shares





(339)





(686)





(389)



Net cash used in financing activities

(70)





(374)





(968)





(382)



















Net increase in cash and equivalents

302





300





318





1,140



Cash and equivalents at beginning of period

2,881





2,741





2,865





1,901



Cash and equivalents at end of period

$

3,183





$

3,041





$

3,183





$

3,041



 

 

 

Schedule 5



Cardinal Health, Inc. and Subsidiaries

Total Company Business Analysis











Non-GAAP



Third Quarter



Third Quarter

(in millions)

2015



2014



2015



2014

Revenue















Amount

$

25,375





$

21,427











Growth rate

18

%



(13)

%

























Operating earnings















Amount

$

591





$

508





$

657





$

561



Growth rate

16

%



7

%



17

%



(3)

%

















Earnings from continuing operations















Amount

$

365





$

315





$

396





$

349



Growth rate

16

%



(9)

%



13

%



(15)

%

















Return on equity

23.4

%



19.2

%



25.4

%



21.3

%

















Effective tax rate from continuing operations

34.6

%



38.0

%



36.5

%



37.7

%

















Debt to total capital

39

%



38

%









Net debt to total capital









11

%



12

%

 









Non-GAAP



Year-to-Date



Year-to-Date

(in millions)

2015



2014



2015



2014

Revenue















Amount

$

74,983





$

68,190











Growth rate1

10

%



(10)

%

























Operating earnings















Amount

$

1,603





$

1,498





$

1,861





$

1,672



Growth rate

7

%



4

%



11

%



6

%

















Earnings from continuing operations















Amount

$

920





$

929





$

1,136





$

1,040



Growth rate

(1)

%



1

%



9

%



3

%

















Return on equity

19.5

%



19.6

%



24.1

%



21.9

%

















Effective tax rate from continuing operations

36.3

%



35.5

%



35.6

%



35.6

%



1Revenue from Walgreens was $3.3 billion for the nine months ended March 31, 2014.  Excluding the impact of the Walgreens contract expiration, the fiscal 2015 year-to-date revenue growth rate would have been 16 percent.



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)

2015



2014



(in millions)

2015



2014

Pharmaceutical









Medical

























Revenue









Revenue







Amount

$

22,605





$

18,762





Amount

$

2,774





$

2,657



Growth rate

20

%



(15)

%



Growth rate

4

%



7

%



















Segment profit









Segment profit







Amount

$

567





$

452





Amount

$

102





$

111



Growth rate

25

%



(9)

%



Growth rate

(8)

%



11

%

Segment profit margin

2.51

%



2.41

%



Segment profit margin

3.66

%



4.16

%



Refer to definitions for an explanation of calculations.



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. 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. 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, 2015 were $591 million, which included total segment profit of $669 million and Corporate costs of $(78) million. 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. Corporate includes, among other things, 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)

2015



2014



(in millions)

2015



2014

Pharmaceutical









Medical

























Revenue









Revenue







Amount

$

66,440





$

60,018





Amount

$

8,540





$

8,168



Growth rate1

11

%



(12)

%



Growth rate

5

%



11

%



















Segment profit









Segment profit







Amount

$

1,559





$

1,368





Amount

$

330





$

348



Growth rate

14

%



2

%



Growth rate

(5)

%



30

%

Segment profit margin

2.35

%



2.28

%



Segment profit margin

3.86

%



4.26

%



1Revenue from Walgreens was $3.3 billion for the nine months ended March 31, 2014.  Excluding the impact of the Walgreens contract expiration, the fiscal 2015 year-to-date Pharmaceutical segment revenue growth rate would have been 17 percent.



Refer to definitions for an explanation of calculations.



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. 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. 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, 2015 were $1,603 million, which included total segment profit of $1,889 million and Corporate costs of $(286) million. 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. Corporate includes, among other things, 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





Third Quarter 2015





Operating

Earnings Before

Provision

Earnings

Earnings from

Diluted EPS

Diluted EPS





Earnings

Income Taxes

for

from

Continuing

from

from Continuing

(in millions, except per common share amounts)

Operating

Growth

and Discontinued

Income

Continuing

Operations

Continuing

Operations

Earnings

Rate

Operations

Taxes

Operations

Growth Rate

Operations

Growth Rate

GAAP

$

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

$

657



17

%

$

624



$

228



$

396



13

%

$

1.19



18

%





















Third Quarter 2014

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 (gain)/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)

%

 





Year-to-Date 2015





Operating

Earnings Before

Provision

Earnings

Earnings from

Diluted EPS

Diluted EPS





Earnings

Income Taxes

for

from

Continuing

from

from Continuing

(in millions, except per common share amounts)

Operating

Growth

and Discontinued

Income

Continuing

Operations

Continuing

Operations

Earnings

Rate

Operations

Taxes

Operations

Growth Rate

Operations

Growth Rate

GAAP

$

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

$

1,861



11

%

$

1,763



$

627



$

1,136



9

%

$

3.38



12

%





















Year-to-Date 2014

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 (gain)/loss on disposal of assets

10





10



4



6





0.02





Litigation (recoveries)/charges, net

(21)





(21)



(8)



(13)





(0.04)





Loss on extinguishment of debt

















Non-GAAP

$

1,672



6

%

$

1,615



$

575



$

1,040



3

%

$

3.01



2

%



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)

2015







2014





GAAP return on equity

23.4

%







19.2

%





















Non-GAAP return on equity















Net earnings

$

365









$

315







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

4









3







Amortization and other acquisition-related costs, net of tax, in continuing operations

48









36







Impairments and (gain)/loss on disposal of assets, net of tax, in continuing operations















Litigation (recoveries)/charges, net, net of tax, in continuing operations

(21)









(5)







Adjusted net earnings

$

396









$

349







Annualized

$

1,584









$

1,396

























Third



Second



Third



Second



Quarter



Quarter



Quarter



Quarter



2015



2015



2014



2014

Total shareholders' equity

$

6,369





$

6,100





$

6,532





$

6,589



Divided by average shareholders' equity

$

6,235









$

6,560







Non-GAAP return on equity

25.4

%







21.3

%





































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)

2015















2014













GAAP return on equity

19.5

%















19.6

%













































Non-GAAP return on equity































Net earnings

$

920

















$

932















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

21

















16















Amortization and other acquisition-related costs, net of tax, in continuing operations

121

















102















Impairments and (gain)/loss on disposal of assets, net of tax, in continuing operations

(9)

















6















Litigation (recoveries)/charges, net, net of tax, in continuing operations

46

















(13)















Loss on extinguishment of debt, net of tax, in continuing operations

37































Adjusted net earnings

$

1,136

















$

1,043















Annualized

$

1,515

















$

1,391

















































Third



Second



First



Fourth



Third



Second



First



Fourth



Quarter



Quarter



Quarter



Quarter



Quarter



Quarter



Quarter



Quarter



2015



2015



2015



2014



2014



2014



2014



2013

Total shareholders' equity

$

6,369





$

6,100





$

6,256





$

6,401





$

6,532





$

6,589





$

6,297





$

5,975



Divided by average shareholders' equity

$

6,281

















$

6,348















Non-GAAP return on equity

24.1

%















21.9

%















































































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)

2015



2014



2015



2014

GAAP effective tax rate from continuing operations

34.6

%



38.0

%



36.3

%



35.5

%

















Non-GAAP effective tax rate from continuing operations















Earnings before income taxes and discontinued operations

$

558





$

507





$

1,444





$

1,441



Restructuring and employee severance

7





5





33





25



Amortization and other acquisition-related costs

77





56





190





160



Impairments and (gain)/loss on disposal of assets

(1)









(19)





10



Litigation (recoveries)/charges, net

(18)





(8)





54





(21)



Loss on extinguishment of debt









60







Adjusted earnings before income taxes and discontinued operations

$

624





$

560





$

1,763





$

1,615



















Provision for income taxes

$

193





$

192





$

524





$

512



Restructuring and employee severance tax benefit

3





2





12





9



Amortization and other acquisition-related costs tax benefit

29





20





69





58



Impairments and (gain)/loss on disposal of assets tax benefit/(expense)

(1)









(10)





4



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

3





(3)





8





(8)



Loss on extinguishment of debt tax benefit









23







Adjusted provision for income taxes

$

228





$

211





$

627





$

575



















Non-GAAP effective tax rate from continuing operations

36.5

%



37.7

%



35.6

%



35.6

%



















Third Quarter











2015



2014









Debt to total capital

39

%



38

%

























Net debt to capital















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

$

283





$

241











Long-term obligations, less current portion

3,720





3,679











Debt

$

4,003





$

3,920











Cash and equivalents

(3,183)





(3,041)











Net debt

$

820





$

879











Total shareholders' equity

6,369





6,532











Capital

$

7,189





$

7,411











Net debt to capital

11

%



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.

 

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 (gain)/loss on disposal of assets, litigation (recoveries)/charges, net, LIFO charges/(credits) 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.

In fiscal 2015, the Company began excluding last-in, first-out ("LIFO") inventory charges/(credits)5 from its non-GAAP earnings, for consistency with the presentation by some of its peers. The Company did not record any LIFO charges or credits in the first, second or third quarters of fiscal 2015 or 2014, respectively.  In the second quarter of fiscal 2015, the Company excluded the loss on extinguishment of debt6 related to the early redemption of debt that occurred in December 2014 from its non-GAAP earnings.

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 (gain)/loss on disposal of assets3, (4) litigation (recoveries)/charges, net4, (5) LIFO charges/(credits) and (6) loss on extinguishment of debt, 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 (gain)/loss on disposal of assets, (4) litigation (recoveries)/charges, net, (5) LIFO charges/(credits) and (6) loss on extinguishment of debt) divided by (earnings before income taxes and discontinued operations adjusted for the same six items).

Non-GAAP Operating Earnings: operating earnings excluding (1) restructuring and employee severance, (2) amortization and other acquisition-related costs, (3) impairments and (gain)/loss on disposal of assets, (4) litigation (recoveries)/charges, net and (5) LIFO charges/(credits).

Non-GAAP Return on Equity: (annualized current period net earnings excluding (1) restructuring and employee severance, (2) amortization and other acquisition-related costs, (3) impairments and (gain)/loss on disposal of assets, (4) litigation (recoveries)/charges, net, (5) LIFO charges/(credits) and (6) loss on extinguishment of debt, each net of tax) divided by average shareholders' equity.

Return on Equity: annualized current period net earnings divided by average 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

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).





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 (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.





4

Loss contingencies related to litigation and regulatory matters and income from favorable resolution of legal matters.





5

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.





6

Charges related to the make-whole premium on the redemption of notes.

 

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SOURCE Cardinal Health

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