Cardinal Health Reports Second-Quarter Results For Fiscal 2016

- 23 percent increase in revenue to $31.4 billion

- 14 percent increase in non-GAAP1 operating earnings to $726 million

- 8 percent increase in non-GAAP diluted earnings per share to $1.30

- Reaffirms fiscal 2016 non-GAAP diluted earnings per share guidance range of $5.15 to $5.35

01 Feb, 2016, 07:00 ET from Cardinal Health

DUBLIN, Ohio, Feb. 1, 2016 /PRNewswire/ -- Cardinal Health today reported fiscal year 2016 second-quarter results, with revenue of $31.4 billion, an increase of 23 percent, and non-GAAP operating earnings of $726 million, an increase of 14 percent. Non-GAAP diluted earnings per share (EPS) increased 8 percent to $1.30. On a GAAP basis, operating earnings increased 3 percent to $563 million, and diluted EPS increased 14 percent to $0.98.

"Our performance in the second quarter of our fiscal 2016 reflects our deep commitment to serving a health system experiencing powerful changes," said George Barrett, chairman and chief executive officer of Cardinal Health. "We achieved strong revenue and operating growth. Both of our reporting segments continue to demonstrate very solid fundamentals and growth in our base of customers. Our organization continues to demonstrate discipline in executing on our priorities while strategically positioning us for the future."

Barrett noted that the company was reaffirming its fiscal 2016 non-GAAP diluted earnings per share guidance of $5.15 to $5.35, representing an 18 to 22 percent growth rate compared to fiscal 2015.

Q2 FY16 SUMMARY

 


Q2 FY16

Q2 FY15

Y/Y

Revenue

$31.4 billion

$25.5 billion

23%





Operating Earnings

 

$563 million

 

$546 million

 

3%

Non-GAAP Operating Earnings

 

$726 million

 

$639 million

 

14%





Net Earnings attributable to Cardinal Health, Inc.

 

$326 million

 

$289 million

 

13%

Non-GAAP Net Earnings attributable to Cardinal Health, Inc.

 

$430 million

 

$400 million

 

7%





Diluted EPS attributable to Cardinal Health, Inc.

$0.98

$0.86

14%

Non-GAAP Diluted EPS attributable to Cardinal Health, Inc.

 

$1.30

 

$1.20

 

8%

 

SEGMENT RESULTS

Pharmaceutical segment

Second-quarter revenue for the Pharmaceutical segment increased 25 percent to $28.3 billion.  

Segment profit for the quarter increased 16 percent to $627 million. The drivers for both segment revenue and profit were growth from existing and new customers as well as acquisitions.

 


Q2 FY16

Q2 FY15

Y/Y

Revenue

$28.3 billion

$22.6 billion

25%

Segment Profit

$627 million

$542 million

16%

 

Medical segment

Second-quarter revenue for the Medical segment increased 9 percent to $3.2 billion. This growth was primarily due to the net contribution from acquisitions and growth in the Cardinal Health at Home platform.

Segment profit declined 8 percent to $106 million. This includes the impact of the Cordis-related inventory fair value step-up. Excluding the step-up of $21 million, year-over-year Medical segment profit growth was 10 percent.

 


Q2 FY16

Q2 FY15

Y/Y

Revenue

$3.2 billion

$2.9 billion

9%

Segment Profit

$106 million

$115 million

(8)%

 

ADDITIONAL SECOND-QUARTER AND RECENT HIGHLIGHTS 

CONFERENCE CALL

Cardinal Health will host a webcast and conference call today at 8:30 a.m. Eastern to discuss second-quarter results. To access the call and corresponding slide presentation, go to ir.cardinalhealth.com.  Alternatively, participants can call 913.905.3226 and use passcode 852145.

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 Feb. 8 by dialing 719.457.0820, passcode 852145.

UPCOMING WEBCASTED INVESTOR EVENTS

  • Leerink Partners Fifth Annual Global Healthcare Conference on Feb. 10 at 8:50 a.m. Eastern in New York

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
Headquartered in Dublin, Ohio, Cardinal Health, Inc. (NYSE: CAH) is a $103 billion health care services company that improves the cost-effectiveness of 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 #26 on the Fortune 500, Cardinal Health employs more than 36,000 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 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 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 Feb. 1, 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)

Second Quarter

(in millions, except per common share amounts)

2016

2015

% Change

Revenue

$

31,445

$

25,537

23

%

Cost of products sold

29,836

24,083

24

%

Gross margin

1,609

1,454

11

%

Operating expenses:

Distribution, selling, general, and administrative expenses

922

815

13

%

Restructuring and employee severance

2

7

N.M.

Amortization and other acquisition-related costs

114

60

N.M.

Impairments and (gain)/loss on disposal of assets

17

(18)

N.M.

Litigation (recoveries)/charges, net

(9)

44

N.M.

Operating earnings

563

546

3

%

Other income, net

(2)

(1)

N.M.

Interest expense, net

45

36

24

%

Loss on extinguishment of debt

60

N.M.

Earnings before income taxes

520

451

15

%

Provision for income taxes

194

162

20

%

Net earnings

326

289

12

%

Less: Net earnings attributable to noncontrolling interests

N.M.

Net earnings attributable to Cardinal Health, Inc.

$

326

$

289

13

%

Earnings per common share attributable to Cardinal Health, Inc.:

Basic

$

0.99

$

0.87

14

%

Diluted

0.98

0.86

14

%

Weighted-average number of common shares outstanding:

Basic

329

331

Diluted

332

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

$

59,499

$

49,607

20

%

Cost of products sold

56,311

46,813

20

%

Gross margin

3,188

2,794

14

%

Operating expenses:

Distribution, selling, general, and administrative expenses

1,764

1,590

11

%

Restructuring and employee severance

14

26

N.M.

Amortization and other acquisition-related costs

219

112

N.M.

Impairments and (gain)/loss on disposal of assets

17

(18)

N.M.

Litigation (recoveries)/charges, net

(9)

72

N.M.

Operating earnings

1,183

1,012

17

%

Other (income)/expense, net

6

(4)

N.M.

Interest expense, net

90

70

28

%

Loss on extinguishment of debt

60

N.M.

Earnings before income taxes

1,087

886

23

%

Provision for income taxes

377

331

14

%

Net earnings

710

555

28

%

Less: Net earnings attributable to noncontrolling interests

(1)

N.M.

Net earnings attributable to Cardinal Health, Inc.

$

709

$

555

28

%

Earnings per common share attributable to Cardinal Health, Inc.:

Basic

$

2.16

$

1.66

30

%

Diluted

2.14

1.65

30

%

Weighted-average number of common shares outstanding:

Basic

329

333

Diluted

332

337

 

 

Schedule 3

Cardinal Health, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions)

December 31,  2015

June 30,  2015

(Unaudited)

Assets

Current assets:

Cash and equivalents

$

2,324

$

4,616

Trade receivables, net

6,980

6,523

Inventories, net

11,007

9,211

Prepaid expenses and other

1,518

1,402

Total current assets

21,829

21,752

Property and equipment, net

1,651

1,506

Goodwill and other intangibles, net

9,113

6,018

Other assets

914

866

Total assets

$

33,507

$

30,142

Liabilities, Redeemable Noncontrolling Interests, and Shareholders' Equity

Current liabilities:

Accounts payable

$

16,919

$

14,368

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

354

281

Other accrued liabilities

1,606

2,594

Total current liabilities

18,879

17,243

Long-term obligations, less current portion

5,171

5,211

Deferred income taxes and other liabilities

2,609

1,432

Redeemable noncontrolling interests

120

Total Cardinal Health, Inc. shareholders' equity

6,711

6,256

Noncontrolling interests

17

Total shareholders' equity

6,728

6,256

Total liabilities, redeemable noncontrolling interests, and shareholders' equity

$

33,507

$

30,142

 

 

Schedule 4

Cardinal Health, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

Second Quarter

Year-to-Date

(in millions)

2016

2015

2016

2015

Cash flows from operating activities:

Net earnings

$

326

$

289

$

710

$

555

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization

169

112

306

220

Loss on extinguishment of debt

60

60

Gain on sale of other investments

(5)

Impairments and (gain)/loss on disposal of assets, net

17

(18)

17

(18)

Share-based compensation

26

28

56

53

Provision for bad debts

18

14

35

26

Change in fair value of contingent consideration obligation

(13)

(14)

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

Increase in trade receivables

(45)

(393)

(291)

Increase in inventories

(1,070)

(1,336)

(1,565)

(1,137)

Increase in accounts payable

2,006

1,595

2,431

1,438

Other accrued liabilities and operating items, net

29

209

(172)

113

Net cash provided by operating activities

1,463

953

1,411

1,014

Cash flows from investing activities:

Acquisition of subsidiaries, net of cash acquired

(1,885)

(25)

(3,284)

(86)

Additions to property and equipment

(92)

(47)

(175)

(83)

Purchase of available-for-sale securities and other investments

(62)

(32)

(88)

(107)

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

32

16

57

107

Proceeds from maturities of available-for-sale securities

14

16

19

16

Proceeds from divestitures and disposal of held for sale assets

53

53

Net cash used in investing activities

(1,993)

(19)

(3,471)

(100)

Cash flows from financing activities:

Payment of contingent consideration obligation

(23)

Net change in short-term borrowings

3

(58)

39

(18)

Reduction of long-term obligations

(1,220)

(4)

(1,220)

Proceeds from long-term obligations, net of issuance costs

1,182

1,182

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

14

10

(7)

35

Tax proceeds from share-based compensation

1

4

32

42

Dividends on common shares

(128)

(114)

(259)

(233)

Purchase of treasury shares

(326)

(686)

Net cash used in financing activities

(110)

(522)

(222)

(898)

Effect of exchange rate changes on cash and equivalents

(10)

(10)

Net increase/(decrease) in cash and equivalents

(650)

412

(2,292)

16

Cash and equivalents at beginning of period

2,974

2,469

4,616

2,865

Cash and equivalents at end of period

$

2,324

$

2,881

$

2,324

$

2,881

 

 

Schedule 5

Cardinal Health, Inc. and Subsidiaries

Total Company Business Analysis

Non-GAAP

Second Quarter

Second Quarter

(in millions)

2016

2015

2016

2015

Revenue

Amount

$

31,445

$

25,537

Growth rate

23

%

15

%

Gross Margin

Amount1

$

1,609

$

1,454

$

1,648

$

1,454

Growth rate

11

%

8

%

13

%

8

%

Operating earnings

Amount

$

563

$

546

$

726

$

639

Growth rate

3

%

5

%

14

%

10

%

Net earnings attributable to Cardinal Health, Inc.

Amount

$

326

$

289

$

430

$

400

Growth rate

13

%

5

%

7

%

28

%

Return on equity

19.7

%

18.7

%

26.0

%

25.9

%

Effective tax rate

37.3

%

36.0

%

37.1

%

33.8

%

Debt to total capital

45

%

39

%

Net debt to capital

32

%

15

%

Non-GAAP

Year-to-Date

Year-to-Date

(in millions)

2016

2015

2016

2015

Revenue

Amount

$

59,499

$

49,607

Growth rate

20

%

6

%

Gross Margin

Amount1

$

3,188

$

2,794

$

3,227

$

2,794

Growth rate

14

%

7

%

15

%

7

%

Operating earnings

Amount

$

1,183

$

1,012

$

1,463

$

1,204

Growth rate

17

%

2

%

22

%

8

%

Net earnings attributable to Cardinal Health, Inc.

Amount

$

709

$

555

$

889

$

740

Growth rate

28

%

(10)

%

20

%

7

%

Return on equity

21.8

%

17.8

%

27.4

%

23.7

%

Effective tax rate

34.7

%

37.4

%

35.0

%

35.0

%

1

Gross margin includes the negative impact of a $39 million LIFO charge in the second quarter.

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

Second Quarter

Second Quarter

(in millions)

2016

2015

(in millions)

2016

2015

Pharmaceutical

Medical

Revenue

Revenue

Amount

$

28,287

$

22,627

Amount

$

3,162

$

2,914

Growth rate

25

%

16

%

Growth rate

9

%

4

%

Segment profit

Segment profit

Amount

$

627

$

542

Amount

$

106

$

115

Growth rate

16

%

12

%

Growth rate1

(8)

%

(12)

%

Segment profit margin

2.22

%

2.39

%

Segment profit margin

3.36

%

3.96

%

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 December 31, 2015. Excluding the impact of the inventory fair value step up, Medical segment profit would have increased 10% for the three months ended December 31, 2015.

Refer to definitions for an explanation of calculations.

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. Total consolidated revenue for the three months ended December 31, 2014 was $25,537 million, which included total segment revenue of $25,541 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, 2015 were $563 million, which included total segment profit of $733 million and Corporate costs of $(170) million. Total consolidated operating earnings for the three months ended December 31, 2014 were $546 million, which included total segment profit of $657 million and Corporate costs of $(111) 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

$

53,427

$

43,836

Amount

$

6,081

$

5,766

Growth rate

22

%

6

%

Growth rate

5

%

5

%

Segment profit

Segment profit

Amount

$

1,285

$

992

Amount

$

207

$

229

Growth rate

29

%

8

%

Growth rate1

(10)

%

(4)

%

Segment profit margin

2.41

%

2.26

%

Segment profit margin

3.40

%

3.96

%

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 six months ended December 31, 2015. Excluding the impact of the inventory fair value step up, Medical segment profit growth would have been flat for the six months ended December 31, 2015.

 Refer to definitions for an explanation of calculations.

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. Total consolidated revenue for the six months ended December 31, 2014 was $49,607 million, which included total segment revenue of $49,602 million and Corporate revenue of $5 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, 2015 were $1,183 million, which included total segment profit of $1,492 million and Corporate costs of $(309) million. Total consolidated operating earnings for the six months ended December 31, 2014 were $1,012 million, which included total segment profit of $1,221 million and Corporate costs of $(209) 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.

Margin

Rate

Earnings

Rate

Taxes

Taxes

Health, Inc.

Growth Rate

Health, Inc.

Growth Rate1

(in millions, except per common share amounts)

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

%

Second Quarter 2015

GAAP

$

1,454

8

%

$

546

5

%

$

451

$

162

$

289

5

%

$

0.86

9

%

Restructuring and employee severance

7

7

3

4

0.01

Amortization and other acquisition-related costs

60

60

22

38

0.11

Impairments and (gain)/loss on disposal of assets

(18)

(18)

(10)

(8)

(0.03)

Litigation (recoveries)/charges, net

44

44

4

40

0.12

Loss on extinguishment of debt

60

23

37

0.11

Non-GAAP

$

1,454

8

%

$

639

10

%

$

604

$

204

$

400

28

%

$

1.20

33

%

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.

Margin

Rate

Earnings

Rate

Taxes

Taxes

Health, Inc.

Growth Rate

Health, Inc.

Growth Rate

(in millions, except per common share amounts)

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

%

Year-to-Date 2015

GAAP

$

2,794

7

%

$

1,012

2

%

$

886

$

331

$

555

(10)

%

$

1.65

(7)

%

Restructuring and employee severance

26

26

9

17

0.05

Amortization and other acquisition-related costs

112

112

41

71

0.21

Impairments and (gain)/loss on disposal of assets

(18)

(18)

(10)

(8)

(0.02)

Litigation (recoveries)/charges, net

72

72

4

68

0.20

Loss on extinguishment of debt

60

23

37

0.11

Non-GAAP

$

2,794

7

%

$

1,204

8

%

$

1,138

$

399

$

740

7

%

$

2.19

10

%

       1 The $56 million remeasurement of unrecognized tax benefits reduced, for fiscal 2014 second quarter, both diluted EPS from continuing operations and non-GAAP diluted EPS from continuing operations by $0.16. The fiscal 2015 second quarter growth rates for diluted EPS from continuing operations and non-GAAP diluted EPS from continuing operations, excluding the impact of the tax remeasurement, would have been (10) percent and 13 percent, respectively.

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

Second Quarter

(in millions)

2016

2015

GAAP return on equity

19.7

%

18.7

%

Non-GAAP return on equity

Net earnings attributable to Cardinal Health, Inc.

$

326

$

289

LIFO charges/(credits), net of tax

24

Restructuring and employee severance, net of tax

1

4

Amortization and other acquisition-related costs, net of tax

73

38

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

10

(8)

Litigation (recoveries)/charges, net, net of tax

(4)

40

Loss on extinguishment of debt, net of tax

37

Adjusted net earnings attributable to Cardinal Health, Inc.

$

430

$

400

Annualized

$

1,720

$

1,600

Second

First

Second

First

Quarter

Quarter

Quarter

Quarter

2016

2016

2015

2015

Total Cardinal Health, Inc. shareholders' equity

$

6,711

$

6,505

$

6,100

$

6,256

Divided by average Cardinal Health, Inc. shareholders' equity

$

6,608

$

6,178

Non-GAAP return on equity

26.0

%

25.9

%

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

21.8

%

17.8

%

Non-GAAP return on equity

Net earnings attributable to Cardinal Health, Inc.

$

709

$

555

LIFO charges/(credits), net of tax

24

Restructuring and employee severance, net of tax

9

17

Amortization and other acquisition-related costs, net of tax

141

71

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

10

(8)

Litigation (recoveries)/charges, net, net of tax

(4)

68

Loss on extinguishment of debt, net of tax

37

Adjusted net earnings attributable to Cardinal Health, Inc.

$

889

$

740

Annualized

$

1,778

$

1,480

Second

First

Fourth

Second

First

Fourth

Quarter

Quarter

Quarter

Quarter

Quarter

Quarter

2016

2016

2015

2015

2015

2014

Total Cardinal Health, Inc. shareholders' equity

$

6,711

$

6,505

$

6,256

$

6,100

$

6,256

$

6,401

Divided by average Cardinal Health, Inc. shareholders' equity

$

6,491

$

6,252

Non-GAAP return on equity

27.4

%

23.7

%

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

Second Quarter

Year-to-Date

(in millions)

2016

2015

2016

2015

GAAP effective tax rate

37.3

%

36.0

%

34.7

%

37.4

%

Non-GAAP effective tax rate

Earnings before income taxes

$

520

$

451

$

1,087

$

886

LIFO charges/(credits)

39

39

Restructuring and employee severance

2

7

14

26

Amortization and other acquisition-related costs

114

60

219

112

Impairments and (gain)/loss on disposal of assets

17

(18)

17

(18)

Litigation (recoveries)/charges, net

(9)

44

(9)

72

Loss on extinguishment of debt

60

60

Adjusted earnings before income taxes

$

683

$

604

$

1,368

$

1,138

Provision for income taxes

$

194

$

162

$

377

$

331

LIFO charges/(credits) tax benefit

15

15

Restructuring and employee severance tax benefit

1

3

5

9

Amortization and other acquisition-related costs tax benefit

41

22

78

41

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

7

(10)

7

(10)

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

(5)

4

(5)

4

Loss on extinguishment of debt tax benefit

23

23

Adjusted provision for income taxes

$

253

$

204

$

479

$

399

Non-GAAP effective tax rate

37.1

%

33.8

%

35.0

%

35.0

%

Second Quarter

2016

2015

Debt to total capital

45

%

39

%

Net debt to capital

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

$

354

$

270

Long-term obligations, less current portion

5,171

3,706

Debt

$

5,525

$

3,976

Cash and equivalents

(2,324)

(2,881)

Net debt

$

3,201

$

1,095

Total Cardinal Health, Inc. shareholders' equity

6,711

6,100

Capital

$

9,912

$

7,195

Net debt to capital

32

%

15

%

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.

 

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.

 

SOURCE Cardinal Health



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