Cardinal Health Reports Fiscal 2013 First-Quarter Results

Q1 FY13

Q1 FY12

Y/Y

Revenue

$25.9 billion

$26.8 billion

(3%)

Operating Earnings

$457 million

$412 million

11%

Non-GAAP Operating Earnings

$469 million

$442 million

6%

Earnings from Continuing Operations

$272 million

$237 million

15%

Non-GAAP Earnings from Continuing Operations

$281 million

$256 million

9%

Diluted EPS from Continuing Operations

$0.79

$0.68

16%

Non-GAAP Diluted EPS from Continuing Operations

$0.81

$0.73

11%

Q1 FY13

Q1 FY12

Y/Y

Revenue

$23.5 billion

$24.4 billion

(4%)

Segment Profit

$400 million

$363 million

10%

Q1 FY13

Q1 FY12

Y/Y

Revenue

$2.4 billion

$2.4 billion

1%

Segment Profit

$74 million

$79 million

(6%)

Schedule 1

Cardinal Health, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings (Unaudited)

First Quarter

(in millions, except per Common Share amounts)

2013

2012

% Change

Revenue

$

25,889

$

26,792

(3)

%

Cost of products sold

24,730

25,708

(4)

%

Gross margin

1,159

1,084

7

%

Operating expenses:

Distribution, selling, general and administrative expenses

690

644

7

%

Restructuring and employee severance

5

3

N.M.

Acquisition-related costs

28

27

N.M.

Impairments and loss on disposal of assets

1

1

N.M.

Litigation (recoveries)/charges, net

(22)

(3)

N.M.

Operating earnings

457

412

11

%

Other (income)/expense, net

(8)

4

N.M.

Interest expense, net

26

23

11

%

Earnings before income taxes and discontinued operations

439

385

14

%

Provision for income taxes

167

148

13

%

Earnings from continuing operations

272

237

15

%

Loss from discontinued operations, net of tax

(1)

—

N.M.

Net earnings

$

271

$

237

15

%

Basic earnings per Common Share:

Continuing operations

$

0.80

$

0.69

16

%

Discontinued operations

—

—

N.M.

Net basic earnings per Common Share

$

0.80

$

0.69

16

%

Diluted earnings per Common Share:

Continuing operations

$

0.79

$

0.68

16

%

Discontinued operations

—

—

N.M.

Net diluted earnings per Common Share

$

0.79

$

0.68

16

%

Weighted-average number of Common Shares outstanding:

Basic

341

345

Diluted

344

349

Schedule 2

Cardinal Health, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions)

September 30,
2012

June 30,
2012

(Unaudited)

Assets

Current assets:

Cash and equivalents

$

2,440

$

2,274

Trade receivables, net

6,449

6,355

Inventories

8,105

7,864

Prepaid expenses and other

1,013

1,017

Total current assets

18,007

17,510

Property and equipment, net

1,511

1,551

Goodwill and other intangibles, net

4,441

4,392

Other assets

861

807

Total assets

$

24,820

$

24,260

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$

12,215

$

11,726

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

471

476

Other accrued liabilities

1,983

1,972

Total current liabilities

14,669

14,174

Long-term obligations, less current portion

2,408

2,418

Deferred income taxes and other liabilities

1,462

1,424

Total shareholders' equity

6,281

6,244

Total liabilities and shareholders' equity

$

24,820

$

24,260

Schedule 3

Cardinal Health, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

First Quarter

(in millions)

2013

2012

Cash flows from operating activities:

Net earnings

$

271

$

237

Loss from discontinued operations, net of tax

1

—

Earnings from continuing operations

272

237

Adjustments to reconcile earnings from continuing operations to net cash from operations:

Depreciation and amortization

88

78

Impairments and loss on disposal of assets

1

1

Share-based compensation

24

20

Provision for bad debts

1

1

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

Increase in trade receivables

(71)

(69)

Increase in inventories

(207)

(161)

Increase in accounts payable

464

410

Other accrued liabilities and operating items, net

(4)

(13)

Net cash provided by operating activities

568

504

Cash flows from investing activities:

Acquisition of subsidiaries, net of cash acquired

(100)

(7)

Additions to property and equipment

(26)

(45)

Proceeds from maturities of held-to-maturity securities

23

10

Net cash used in investing activities

(103)

(42)

Cash flows from financing activities:

Net change in short-term borrowings

(10)

(5)

Reduction of long-term obligations

(4)

—

Proceeds from issuance of Common Shares

21

18

Tax disbursements from share-based compensation

(22)

(17)

Dividends on Common Shares

(84)

(77)

Purchase of treasury shares

(200)

(300)

Net cash used in financing activities

(299)

(381)

Net increase in cash and equivalents

166

81

Cash and equivalents at beginning of period

2,274

1,930

Cash and equivalents at end of period

$

2,440

$

2,011

Schedule 4

Cardinal Health, Inc. and Subsidiaries

Total Company Business Analysis

Non-GAAP

First Quarter

First Quarter

(in millions)

2013

2012

2013

2012

Revenue

Amount

$

25,889

$

26,792

Growth rate

(3)

%

10

%

Operating earnings

Amount

$

457

$

412

$

469

$

442

Growth rate

11

%

13

%

6

%

16

%

Earnings from continuing

 operations

Amount

$

272

$

237

$

281

$

256

Growth rate

15

%

(19)

%

9

%

11

%

Refer to the GAAP/Non-GAAP reconciliation for definitions and calculations supporting the Non-GAAP balances.

Schedule 5

Cardinal Health, Inc. and Subsidiaries

Segment Business Analysis

First Quarter

First Quarter

(in millions)

2013

2012

(in millions)

2013

2012

Pharmaceutical

Medical

Revenue

Revenue

Amount

$

23,498

$

24,418

Amount

$

2,393

$

2,380

Growth rate

(4)

%

10

%

Growth rate

1

%

10

%

Mix

91

%

91

%

Mix

9

%

9

%

Segment profit

Segment profit

Amount

$

400

$

363

Amount

$

74

$

79

Growth rate

10

%

19

%

Growth rate

(6)

%

(5)

%

Mix

84

%

82

%

Mix

16

%

18

%

Segment profit margin

1.70

%

1.49

%

Segment profit margin

3.11

%

3.32

%

Refer to definitions for an explanation of calculations.

Total consolidated revenue for the three months ended September 30, 2012 was $25,889 million, which included total segment revenue of $25,891 million and Corporate revenue of $(2) million. Total consolidated revenue for the three months ended September 30, 2011 was $26,792 million, which included total segment revenue of $26,798 million and Corporate revenue of $(6) million.  Corporate revenue consists primarily of elimination of inter-segment revenue.

Total consolidated operating earnings for the three months ended September 30, 2012 were $457 million, which included total segment profit of $474 million and Corporate costs of $(17) million. Total consolidated operating earnings for the three months ended September 30, 2011 were $412 million, which included total segment profit of $442 million and Corporate costs of $(30) million. Corporate includes, among other things, restructuring and employee severance, acquisition-related costs, impairments and loss on disposal of assets, litigation (recoveries)/charges, net and certain investment spending that are not allocated to the segments.

Schedule 6

Cardinal Health, Inc. and Subsidiaries

Schedule of Notable Items

First Quarter

(in millions, except per Common Share amounts)

2013

2012

Restructuring and employee severance

$

(5)

$

(3)

Tax benefit

2

1

Restructuring and employee severance, net of tax

$

(3)

$

(2)

Decrease to diluted EPS from continuing operations

$

(0.01)

$

(0.01)

Acquisition-Related Costs

Amortization of acquisition-related intangible assets

$

(21)

$

(19)

Tax benefit

8

6

Amortization of acquisition-related intangible assets, net of tax

$

(13)

$

(13)

Decrease to diluted EPS from continuing operations

$

(0.04)

$

(0.04)

Other acquisition-related costs

$

(7)

$

(9)

Tax benefit

2

3

Other acquisition-related costs, net of tax

$

(5)

$

(6)

Decrease to diluted EPS from continuing operations

$

(0.01)

$

(0.02)

Total acquisition-related costs¹

$

(28)

$

(27)

Tax benefit

10

9

Total acquisition-related costs, net of tax¹

$

(18)

$

(18)

Decrease to diluted EPS from continuing operations¹

$

(0.05)

$

(0.05)

Impairments and loss on disposal of assets

$

(1)

$

(1)

Tax benefit

—

—

Impairments and loss on disposal of assets, net of tax

$

(1)

$

(1)

Decrease to diluted EPS from continuing operations

$

—

$

—

Litigation recoveries/(charges), net

$

22

$

3

Tax expense

(9)

(1)

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

$

13

$

2

Increase to diluted EPS from continuing operations

$

0.04

$

0.01

Other Spin-Off Costs

$

—

$

(1)

Tax benefit

—

1

Other Spin-Off Costs, net of tax

$

—

$

—

Decrease to diluted EPS from continuing operations

$

—

$

—

Weighted-average number of diluted shares outstanding

344

349

¹

The sum of the components may not equal the total due to rounding.

We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.

Schedule 7

Cardinal Health, Inc. and Subsidiaries

Asset Management Analysis

First Quarter

2013

2012

Days sales outstanding¹

22.4

20.9

Days inventory on hand

25.4

23.0

Days payable outstanding

38.3

36.1

Net working capital days²

9.5

7.9

Debt to total capital

31

%

31

%

Net debt to capital

7

%

8

%

Return on equity

17.3

%

16.4

%

Non-GAAP return on equity

17.9

%

17.7

%

Effective tax rate from continuing operations

38.1

%

38.4

%

Non-GAAP effective tax rate from continuing operations

37.8

%

38.1

%

¹  We changed our method of calculating days sales outstanding and have revised prior year information to conform.

²  The sum of the components may not equal the total due to rounding.

Refer to the GAAP/Non-GAAP reconciliation for definitions and calculations supporting the Non-GAAP balances. Refer to DSO, DIOH and DPO for definitions and calculations.

Schedule 8

Cardinal Health, Inc. and Subsidiaries

GAAP / Non-GAAP Reconciliation

First Quarter 2013

Operating

Earnings Before

Provision

Earnings

Earnings from

Diluted EPS

Diluted EPS

Earnings

Income Taxes

for

from

Continuing

from

from Continuing

(in millions, except per

Operating

Growth

and Discontinued

Income

Continuing

Operations

Continuing

Operations

  Common Share amounts)

Earnings

Rate

Operations

Taxes

Operations

Growth Rate

Operations

Growth Rate

GAAP

$

457

11

%

$

439

$

167

$

272

15

%

$

0.79

16

%

Restructuring and employee severance

5

5

2

3

0.01

Acquisition-related costs

28

28

10

18

0.05

Impairments and loss on disposal of assets

1

1

—

1

—

Litigation (recoveries)/charges, net

(22)

(22)

(9)

(13)

(0.04)

Other Spin-Off Costs

—

—

—

—

—

Non-GAAP

$

469

6

%

$

451

$

170

$

281

9

%

$

0.81

11

%

First Quarter 2012

GAAP

$

412

13

%

$

385

$

148

$

237

(19)

%

$

0.68

(19)

%

Restructuring and employee severance

3

3

1

2

0.01

Acquisition-related costs

27

27

9

18

0.05

Impairments and loss on disposal of assets

1

1

—

1

—

Litigation (recoveries)/charges, net

(3)

(3)

(1)

(2)

(0.01)

Other Spin-Off Costs

1

1

1

—

—

Non-GAAP

$

442

16

%

$

414

$

158

$

256

11

%

$

0.73

11

%

The sum of the components may not equal the total due to rounding.

We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.

Schedule 9

Cardinal Health, Inc. and Subsidiaries

GAAP / Non-GAAP Reconciliation

First Quarter

(in millions)

2013

2012

GAAP return on equity

17.3

%

16.4

%

Non-GAAP return on equity

Net earnings

$

271

$

237

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

3

2

Acquisition-related costs, net of tax, in continuing operations

18

18

Impairments and loss on disposal of assets, net of tax, in continuing operations

1

1

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

(13)

(2)

Other Spin-Off Costs, net of tax, in continuing operations

—

—

Adjusted net earnings

$

280

$

256

Annualized

$

1,120

$

1,024

First

Fourth

First

Fourth

Quarter

Quarter

Quarter

Quarter

2013

2012

2012

2011

Total shareholders' equity

$

6,281

$

6,244

$

5,714

$

5,849

Divided by average shareholders' equity

$

6,263

$

5,781

Non-GAAP return on equity

17.9

%

17.7

%

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

First Quarter

(in millions)

2013

2012

GAAP effective tax rate from continuing operations

38.1

%

38.4

%

Non-GAAP effective tax rate from continuing operations

Earnings before income taxes and discontinued operations

$

439

$

385

Restructuring and employee severance

5

3

Acquisition-related costs

28

27

Impairments and loss on disposal of assets

1

1

Litigation (recoveries)/charges, net

(22)

(3)

Other Spin-Off Costs

—

1

Adjusted earnings before income taxes and discontinued operations

$

451

$

414

Provision for income taxes

$

167

$

148

Restructuring and employee severance tax benefit

2

1

Acquisition-related costs tax benefit

10

9

Impairments and loss on disposal of assets tax benefit

—

—

Litigation (recoveries)/charges, net tax expense

(9)

(1)

Other Spin-Off Costs tax benefit

—

1

Adjusted provision for income taxes

$

170

$

158

Non-GAAP effective tax rate from continuing operations

37.8

%

38.1

%

First Quarter

2013

2012

Debt to total capital

31

%

31

%

Net debt to capital

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

$

471

$

333

Long-term obligations, less current portion

2,408

2,195

Debt

$

2,879

$

2,528

Cash and equivalents

(2,440)

(2,011)

Net debt

$

439

$

517

Total shareholders' equity

6,281

5,714

Capital

$

6,720

$

6,231

Net debt to capital

7

%

8

%

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

First Quarter

(in millions)

2013

2012

Days sales outstanding

22.4

20.9

Days inventory on hand

Inventories

$

8,105

$

7,497

Cost of products sold

$

24,730

$

25,708

Chargeback billings

3,976

3,610

Adjusted cost of products sold

$

28,706

$

29,318

Adjusted cost of products sold divided by 90 days

$

319

$

326

Days inventory on hand

25.4

23.0

Days payable outstanding

Accounts payable

$

12,215

$

11,749

Cost of products sold

$

24,730

$

25,708

Chargeback billings

3,976

3,610

Adjusted cost of products sold

$

28,706

$

29,318

Adjusted cost of products sold divided by 90 days

$

319

$

326

Days payable outstanding

38.3

36.1

Net working capital days¹

9.5

7.9

¹    The sum of the components may not equal the total due to rounding.

Days Sales Outstanding (DSO): trade receivables, net divided by (quarterly revenue divided by 90 days). Beginning in the first quarter of fiscal 2013, we changed our method of calculating DSO in order to align it with the 90-day convention that we use in the calculation of Days Inventory on Hand and Days Payable Outstanding. Prior to this change we calculated DSO by dividing trade receivable, net by (monthly revenue divided by 30 days). In connection with this change, we have revised prior year information to conform to the new method of calculating DSO.

Days Inventory on Hand: inventory divided by ((quarterly cost of products sold plus chargeback billings) divided by 90 days). Chargeback billings are the difference between a product's wholesale acquisition cost and the contract price established between pharmaceutical manufacturers and the end customer.

Days Payable Outstanding: accounts payable divided by ((quarterly cost of products sold plus chargeback billings) divided by 90 days).

Net Working Capital Days: days sales outstanding plus days inventory on hand less days payable outstanding. To conform to the new method of calculating DSO, we have revised prior year information.

¹     

In this earnings release growth rates are determined by dividing the difference between current period results and prior period results by prior period results.

²    

Programs whereby the Company fundamentally changes its operations such as closing and consolidating facilities, moving manufacturing of a product to another location, production or business process sourcing, employee severance (including rationalizing headcount or other significant changes in personnel) and realigning operations (including substantial realignment of the management structure of a business unit in response to changing market conditions).

³      

Costs that consist primarily of transaction costs, integration costs, changes in the fair value of contingent consideration obligations and amortization of acquisition-related intangible assets.

⁴      

Asset impairments and losses from the disposal of assets not eligible to be classified as discontinued operations are classified within impairments and loss on disposal of assets within the condensed consolidated statements of earnings.

⁵    

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