Cardinal Health Reports Strong Q4 and Fiscal Year 2013 Non-GAAP Earnings; Provides Fiscal 2014 Outlook

Q4 FY13

Q4 FY12

Y/Y

FY13

FY12

Y/Y

Revenue

$25.4 billion

$26.8 billion

(5%)

$101.1 billion

$107.6 billion

(6%)

Operating Earnings/(Loss)

($442) million

$403 million

NM

$1.0 billion

$1.8 billion

(44%)

Non-GAAP Operating Earnings

$472 million

$425 million

11%

$2.0 billion

$1.9 billion

10%

Earnings/(Loss) from Continuing Operations

($586) million

$236 million

NM

$335 million

$1.1 billion

(69%)

Non-GAAP Earnings from Continuing Operations

$274 million

$255 million

7%

$1.3 billion

$1.1 billion

15%

Diluted EPS from Continuing Operations

$0.68

NM

$0.97

$3.06

(68%)

Non-GAAP Diluted EPS from Continuing Operations

$0.79

$0.73

8%

$3.73

$3.21

16%

Q4 FY13

Q4 FY12

Y/Y

FY13

FY12

Y/Y

Revenue

$22.8 billion

$24.3 billion

(6%)

$91.1 billion

$97.9 billion

(7)%

Segment Profit

$395 million

$354 million

11%

$1.7 billion

$1.6 billion

11%

Q4 FY13

Q4 FY12

FY13

FY12

Y/Y

Revenue

$2.7 billion

$2.4 billion

11%

$10.1 billion

$9.6 billion

4%

Segment Profit

$104 million

$79 million

31%

$372 million

$332 million

12%

Schedule 1

Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)

Fourth Quarter

(in millions, except per common share amounts)

2013

2012

% Change

Revenue

$

25,420

$

26,764

(5)%

Cost of products sold

24,173

25,628

(6)%

Gross margin

1,247

1,136

10%

Operating expenses:

Distribution, selling, general and administrative expenses

775

712

9%

Restructuring and employee severance

32

9

N.M.

Acquisition-related costs

52

11

N.M.

Impairments and loss on disposal of assets¹

832

1

N.M.

Litigation (recoveries)/charges, net

(2)

—

N.M.

Operating earnings/(loss)

(442)

403

N.M.

Other expense, net

2

1

N.M.

Interest expense, net

36

25

45%

Earnings/(loss) before income taxes and discontinued operations

(480)

377

N.M.

Provision for income taxes

106

141

(25)%

Earnings/(loss) from continuing operations

236

N.M.

Earnings from discontinued operations, net of tax

—

—

N.M.

Net earnings/(loss)

$

(586)

$

236

N.M.

Basic earnings/(loss) per common share:

Continuing operations

$

(1.72)

$

0.68

N.M.

Discontinued operations

—

—

N.M.

Net basic/(loss) earnings per common share

$

(1.72)

$

0.68

N.M.

Diluted earnings/(loss) per common share:

Continuing operations

$

(1.72)

$

0.68

N.M.

Discontinued operations

—

—

N.M.

Net diluted earnings/(loss) per common share

$

(1.72)

$

0.68

N.M.

Weighted-average number of common shares outstanding:

Basic

341

345

Diluted²

341

349

¹

²

Due to the loss from continuing operations and net loss during the fourth quarter of fiscal 2013, dilutive potential common shares have not been included in the denominator of the dilutive per share computation due to their antidulitive effect.

Schedule 2

Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings

Fiscal Year

(in millions, except per common share amounts)

2013

2012

% Change

(Unaudited)

Revenue

$

101,093

$

107,552

(6)%

Cost of products sold

96,172

103,011

(7)%

Gross margin

4,921

4,541

8%

Operating expenses:

Distribution, selling, general and administrative expenses

2,875

2,677

7%

Restructuring and employee severance

71

21

N.M.

Acquisition-related costs

158

33

N.M.

Impairments and loss on disposal of assets¹

859

21

N.M.

Litigation (recoveries)/charges, net

(38)

(3)

N.M.

Operating earnings

996

1,792

(44)%

Other income, net

(15)

(1)

N.M.

Interest expense, net

123

95

29%

Earnings before income taxes and discontinued operations

888

1,698

(48)%

Provision for income taxes

553

628

(12)%

Earnings from continuing operations

335

1,070

Loss from discontinued operations, net of tax

(1)

(1)

N.M.

Net earnings

$

334

$

1,069

(69)%

Basic earnings per common share:

Continuing operations

$

0.98

$

3.10

(68)%

Discontinued operations

—

—

N.M.

Net basic earnings per Common Share

$

0.98

$

3.10

(68)%

Diluted earnings per common share:

Continuing operations

$

0.97

$

3.06

(68)%

Discontinued operations

—

—

N.M.

Net diluted earnings per common share

$

0.97

$

3.06

(68)%

Weighted-average number of common shares outstanding:

Basic

341

345

Diluted

344

349

¹

In conjunction with the preparation of our consolidated financial statements for the fiscal year ended June 30, 2013, we recently completed our annual goodwill impairment test, which we perform annually in the fourth quarter. As part of this annual test, we concluded that the entire goodwill amount of our Nuclear Pharmacy Services division was impaired, resulting in a non-cash impairment charge of $829 million ($799 million, net of tax) during the three months ended June 30, 2013. This impairment charge does not impact our liquidity, cash flows from operations, or compliance with debt covenants.

Schedule 3

Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

(in millions)

June 30,
2013

June 30,
2012

(Unaudited)

Assets

Current assets:

Cash and equivalents

$

1,901

$

2,274

Trade receivables, net

6,304

6,355

Inventories, net

8,373

7,864

Prepaid expenses and other

1,192

1,017

Total current assets

17,770

17,510

Property and equipment, net

1,489

1,551

Goodwill and other intangibles, net

5,574

4,392

Other assets

986

807

Total assets

$

25,819

$

24,260

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$

12,295

$

11,726

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

168

476

Other accrued liabilities

2,127

1,972

Total current liabilities

14,590

14,174

Long-term obligations, less current portion

3,686

2,418

Deferred income taxes and other liabilities

1,568

1,424

Total shareholders' equity

5,975

6,244

Total liabilities and shareholders' equity

$

25,819

$

24,260

Schedule 4

Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows

Fourth Quarter

Fiscal Year

(in millions)

2013

2012

2013

(Unaudited)

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net earnings/(loss)

$

(586)

$

236

$

334

$

1,069

Loss from discontinued operations, net of tax

—

—

1

1

Earnings/(loss) from continuing operations

(586)

236

335

1,070

Adjustments to reconcile earnings/(loss) from continuing operations to net cash provided by/(used in) operating

activities:

Depreciation and amortization

122

86

397

325

Impairments and loss on disposal of assets

832

1

859

21

Share-based compensation

25

22

93

85

Provision for deferred income taxes

21

158

21

158

Provision for bad debts

13

7

31

22

Change in fair value of contingent consideration obligation

—

(18)

—

(71)

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

      Decrease/(increase) in trade receivables

135

190

216

(129)

      Decrease/(increase) in inventories

(27)

375

(370)

(495)

      Increase/(decrease) in accounts payable

212

(893)

426

319

      Other accrued liabilities and operating items, net

(447)

(271)

(281)

(129)

Net cash provided by/(used in) operating activities

300

(107)

1,727

1,176

Cash flows from investing activities:

Acquisition of subsidiaries, net of cash acquired

(20)

(31)

(2,239)

(174)

Additions to property and equipment

(92)

(101)

(195)

(263)

Purchase of held-to-maturity securities and other investments

(6)

(25)

(12)

(35)

Proceeds from sale of property and equipment

—

—

—

3

Proceeds from maturities of held-to-maturity securities

—

46

71

92

Net cash used in investing activities

(118)

(111)

(2,375)

(377)

Cash flows from financing activities:

Payment of contingent consideration obligation

—

—

(4)

—

Net change in short-term borrowings

10

5

(1)

13

Reduction of long-term obligations

(303)

(206)

(305)

(251)

Proceeds from long-term obligations, net of issuance costs

—

496

1,286

496

Net proceeds from issuance of common shares

58

19

121

42

Tax disbursements from share-based compensation

(6)

(8)

(19)

(4)

Dividends on common shares

(95)

(74)

(353)

(300)

Purchase of treasury shares

(250)

(150)

(450)

(450)

Net cash provided by/(used in) financing activities

(586)

82

275

(454)

Net increase/(decrease) in cash and equivalents

(404)

(136)

(373)

345

Cash and equivalents at beginning of period

2,305

2,410

2,274

1,929

Cash and equivalents at end of period

$

1,901

$

2,274

$

1,901

$

2,274

Schedule 5

Cardinal Health, Inc. and Subsidiaries
Total Company Business Analysis

Non-GAAP

Fourth Quarter

Fourth Quarter

(in millions)

2013

2012

2013

2012

Revenue

Amount

$

25,420

$

26,764

Growth rate

(5)%

—%

Operating earnings/(loss)

Amount

$

(442)

$

403

$

472

$

425

Growth rate

N.M.

12%

11%

13%

Earnings/(loss) from continuing operations

Amount

$

(586)

$

236

$

274

$

255

Growth rate

N.M.

14%

7%

19%

Non-GAAP

Fiscal Year

Fiscal Year

(in millions)

2013

2012

2013

2012

Revenue

Amount

$

101,093

$

107,552

Growth rate

(6)%

5%

Operating earnings

Amount

$

996

$

1,792

$

2,046

$

1,866

Growth rate

(44)%

18%

10%

13%

Earnings from continuing operations

Amount

$

335

$

1,070

$

1,284

$

1,119

Growth rate

(69)%

11%

15%

13%

Schedule 6

Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis

Fourth Quarter

Fourth Quarter

(in millions)

2013

2012

(in millions)

2013

2012

Pharmaceutical

Medical

Revenue

Revenue

Amount

$

22,783

$

24,335

Amount

$

2,697

$

2,432

Growth rate

(6)%

(1)%

Growth rate

11%

5%

Mix

89%

91%

Mix

11%

9%

Segment profit

Segment profit

Amount

$

395

$

354

Amount

$

104

$

79

Growth rate

11%

15%

Growth rate

31%

2%

Mix

79%

82%

Mix

21%

18%

Segment profit margin

1.73%

1.46%

Segment profit margin

3.86%

3.27%

Schedule 7

Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis

Fiscal Year

Fiscal Year

(in millions)

2013

2012

(in millions)

2013

2012

Pharmaceutical

Medical

Revenue

Revenue

Amount

$

91,097

$

97,925

Amount

$

10,060

$

9,642

Growth rate

(7)%

4%

Growth rate

4%

8%

Mix

90%

91%

Mix

10%

9%

Segment profit

Segment profit

Amount

$

1,734

$

1,558

Amount

$

372

$

332

Growth rate

11%

17%

Growth rate

12%

(11)%

Mix

82%

82%

Mix

18%

18%

Segment profit margin

1.90%

1.59%

Segment profit margin

3.70%

3.45%

Schedule 8

Cardinal Health, Inc. and Subsidiaries
Schedule of Notable Items

Fourth Quarter

Fiscal Year

(in millions, except per common share amounts)

2013

2012

2013

2012

Restructuring and employee severance

$

(32)

$

(9)

$

(71)

$

(21)

Tax benefit

12

3

27

8

Restructuring and employee severance, net of tax

$

(20)

$

(6)

$

(44)

$

(13)

Decrease to diluted EPS from continuing operations

$

(0.06)

$

(0.02)

$

(0.13)

$

(0.04)

Acquisition-Related Costs

Amortization of acquisition-related intangible assets

$

(48)

$

(20)

$

(118)

$

(78)

Tax benefit

18

8

43

29

Amortization of acquisition-related intangible assets, net of tax

$

(30)

$

(12)

$

(75)

$

(49)

Decrease to diluted EPS from continuing operations

$

(0.09)

$

(0.03)

$

(0.22)

$

(0.14)

Other acquisition-related costs¹

$

(4)

$

9

$

(41)

$

45

Tax benefit/(expense)¹

(4)

(10)

9

(20)

Other acquisition-related costs, net of tax

$

(8)

$

(1)

$

(32)

$

25

Increase/(decrease) to diluted EPS from continuing operations¹

$

(0.02)

$

—

$

(0.09)

$

0.07

Total acquisition-related costs²

$

(52)

$

(11)

$

(158)

$

(33)

Tax benefit/(expense)²

13

(2)

52

9

Total acquisition-related costs, net of tax²

$

(39)

$

(13)

$

(106)

$

(24)

Decrease to diluted EPS from continuing operations²

$

(0.11)

$

(0.04)

$

(0.31)

$

(0.07)

Impairments and loss on disposal of assets³

$

(832)

$

(1)

$

(859)

$

(21)

Tax benefit³

30

1

37

8

Impairments and loss on disposal of assets, net of tax

$

(802)

$

—

$

(822)

$

(13)

Decrease to diluted EPS from continuing operations³

$

(2.32)

$

—

$

(2.39)

$

(0.04)

Litigation recoveries/(charges), net

$

2

$

—

$

38

$

3

Tax expense

(1)

—

(15)

(1)

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

$

1

$

—

$

23

$

2

Increase to diluted EPS from continuing operations

$

—

$

—

$

0.07

$

0.01

Other Spin-Off Costs

$

—

$

—

$

—

$

(2)

Tax benefit

—

—

—

1

Other Spin-Off Costs, net of tax

$

—

$

—

$

—

$

(1)

Decrease to diluted EPS from continuing operations

$

—

$

—

$

—

$

—

Weighted-average number of common shares outstanding:

Weighted-average number of diluted shares outstanding

341

349

344

349

Antidilutive effect due to loss from continuing operations

4

—

—

—

Weighted-average number of diluted shares outstanding for non-GAAP calculations

345

349

344

349

¹ 

Fiscal 2012 includes a $71 million decrease in the fair value of the total contingent consideration obligation related to the P4 Healthcare acquisition for the fiscal year. The related tax expense was $29 million and diluted EPS from continuing operations increased $0.13.

² 

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

³ 

Fourth quarter and fiscal 2013 include an $829 million goodwill impairment charge related to our Nuclear Pharmacy Services division. The related tax benefit was $30 million and diluted EPS from continuing operations decreased $2.32.

Schedule 9

Cardinal Health, Inc. and Subsidiaries
Asset Management Analysis

Fourth Quarter

Fiscal Year

2013

2012

2013

2012

Days sales outstanding¹

22.3

21.4

Days inventory on hand

26.5

23.9

Days payable outstanding

38.9

35.6

Net working capital days²

9.9

9.6

Debt to total capital

39%

32%

Net debt to capital

25%

9%

Return on equity

(36.6)%

15.1%

5.2%

17.8%

Non-GAAP return on equity

17.1%

16.3%

20.1%

18.6%

Effective tax rate from continuing operations^3,4,5

(21.9)%

37.4%

62.3%

37.0%

Non-GAAP effective tax rate from continuing operations^4,5

36.9%

36.0%

33.7%

36.8%

¹ 

We changed our method of calculating days sales outstanding and have revised prior-year information to conform, refer to Schedule 14.

² 

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

³ 

For the fourth quarter of fiscal 2013, the goodwill impairment charge related to our Nuclear Pharmacy Services division decreased the effective tax rate from continuing operations by 60.6 percentage points.

⁴ 

For fiscal 2013, the goodwill impairment charge related to our Nuclear Pharmacy Services division increased the effective tax rate from continuing operations by 28.3 percentage points. In addition, the revaluation of the deferred tax liability and related interest on unrepatriated foreign earnings as a result of an agreement with tax authorities reduced, for fiscal 2013, both the effective tax rate from continuing operations and non-GAAP effective tax rate from continuing operations by 7.2 and 3.3 percentage points, respectively. The fiscal 2013 non-GAAP effective tax rate from continuing operations, excluding the impact of the tax settlement, would have been 37.0%.

⁵  

Fiscal 2013 includes an out-of-period increase in income tax expense of $14 million recorded during the fourth quarter, related to uncertain tax benefits.

Schedule 10

Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation

Fourth Quarter 2013

Operating

Earnings / (Loss)

Provision

Earnings

Earnings from

Diluted EPS

Diluted EPS

Operating

Earnings

Before Income Taxes

for

/ (Loss) from

Continuing

from

from Continuing

Earnings

Growth

and Discontinued

Income

Continuing

Operations

Continuing

Operations

(in millions, except per common share amounts)

/ (Loss)

Rate

Operations

Taxes

Operations

Growth Rate

Operations¹

Growth Rate

GAAP

$

(442)

N.M.

$

$

106

$

(586)

N.M.

$

N.M.

Restructuring and employee severance

32

32

12

20

0.06

Acquisition-related costs

52

52

13

39

0.11

Impairments and loss on disposal of assets

832

832

30

802

2.32

Litigation (recoveries)/charges, net

(2)

(2)

(1)

(1)

—

Other Spin-Off Costs

—

—

—

—

—

Non-GAAP

$

472

11%

$

434