Cardinal Health reported financial results for the first quarter of fiscal year 2014:
- Revenue decreased 5% to $24.5 billion due to contract expirations, but was partially offset by new customer growth.
- Operating earnings increased 3% to $471 million and the operating margin expanded to 1.92%.
- Non-GAAP earnings from continuing operations increased 35% to $378 million and diluted EPS increased 36% to $1.10.
- The Pharmaceutical segment saw a 7% decline in revenue but an 8% increase in segment profit. The Medical segment reported a 13% revenue increase and 43% gain in segment profit.
- For fiscal year 2014, Cardinal updated its non-GA
13. Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
(in millions, except per common share amounts)
GAAP
Restructuring and employee severance
Amortization and other acquisition-related costs
Impairments and loss on disposal of assets
Litigation (recoveries)/charges, net
Non-GAAP
GAAP
Restructuring and employee severance
Amortization and other acquisition-related costs
Impairments and loss on disposal of assets
Litigation (recoveries)/charges, net
Non-GAAP
Operating Earnings Before
Earnings
Incom e Taxes
Operating Grow th and Discontinued
Earnings
Rate
Operations
$
471
3% $
442
11
11
49
49
1
1
$
532
13 % $
503
$
$
457
5
28
1
(22)
469
11 % $
6% $
First Quarter 2014
Provision Earnings Earnings from
for
from
Continuing
Incom e Continuing Operations
Taxes
Operations Grow th Rate
$
102 $
340
25 %
4
7
18
31
1
$
124 $
378
35 %
439 $
5
28
1
(22)
451 $
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 w here it is incurred.
First Quarter 2013
167 $
272
2
3
10
18
1
(9)
(13)
170 $
281
Diluted EPS
Diluted EPS
from
from Continuing
Continuing
Operations
Operations
Grow th Rate
$
0.99
25 %
0.02
0.09
$
1.10
36 %
15 % $
9% $
0.79
0.01
0.05
(0.04)
0.81
16 %
11 %
14. Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
First Quarter
(in millions)
GAAP return on equity
Non-GAAP return on equity
Net earnings
Restructuring and employee severance, net of tax, in continuing operations
Amortization and other acquisition-related costs, net of tax, in continuing operations
Impairments and loss on disposal of assets, net of tax, in continuing operations
Litigation (recoveries)/charges, net, net of tax, in continuing operations
Adjusted net earnings
Annualized
Total shareholders' equity
Divided by average shareholders' equity
Non-GAAP return on equity
2013
17.3 %
2014
22.1 %
$
$
$
$
$
$
339
7
31
1
378
1,512
First
Quarter
2014
6,297
6,136
24.7 %
We apply varying tax rates depending on the item’s nature and tax jurisdiction w here it is incurred.
$
$
$
Fourth
Quarter
2013
5,975
$
$
271
3
18
1
(13)
280
1,120
First
Quarter
2013
6,281
6,263
17.9 %
$
Fourth
Quarter
2012
6,244
15. Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
First Quarter
(in millions)
GAAP effective tax rate from continuing operations 1
Non-GAAP effective tax rate from continuing operations
Earnings before income taxes and discontinued operations
Restructuring and employee severance
Amortization and other acquisition-related costs
Impairments and loss on disposal of assets
Litigation (recoveries)/charges, net
Adjusted earnings before income taxes and discontinued operations
Provision for income taxes
Restructuring and employee severance tax benefit
Amortization and other acquisition-related costs tax benefit
Impairments and loss on disposal of assets tax benefit
Litigation (recoveries)/charges, net tax expense
Adjusted provision for income taxes
2013
38.1 %
2014
23.2 %
$
442
11
49
1
503
$
$
102
4
18
124
$
Non-GAAP effective tax rate from continuing operations 1
$
439
5
28
1
(22)
451
$
$
167
2
10
(9)
170
$
37.8 %
24.7 %
First Quarter
2013
2014
Debt to total capital
Net debt to capital
Current portion of long-term obligations and other short-term borrow ings
Long-term obligations, less current portion
Debt
Cash and equivalents
Net debt
Total shareholders' equity
Capital
Net debt to capital
1
31 %
38 %
$
$
$
$
190
3,693
3,883
(2,753)
1,130
6,297
7,427
15 %
$
$
$
$
471
2,408
2,879
(2,440)
439
6,281
6,720
7%
The settlement of federal and state tax controversies favorably impacted, for fiscal 2014 first quarter, both the effective tax rate from continuing operations and nonGAAP effective tax rate from continuing operations by 14.3 and 12.6 percentage points, respectively. The fiscal 2014 first quarter non-GAAP effective tax rate from
continuing operations, excluding the impact of the tax settlement, w ould have been 37.3%.
We apply varying tax rates depending on the item’s nature and tax jurisdiction w here it is incurred.
16. Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
Fiscal Year
2013
62.3 %
(in millions)
GAAP effective tax rate from continuing operations 1
Non-GAAP effective tax rate from continuing operations
Earnings/(loss) before income taxes and discontinued operations
Restructuring and employee severance
Amorization and other acquisition-related costs
Impairments and loss on disposal of assets
Litigation (recoveries)/charges, net
Adjusted earnings before income taxes and discontinued operations
Provision for income taxes
Restructuring and employee severance tax benefit
Amortization and other acquisition-related costs tax benefit
Impairments and loss on disposal of assets tax benefit
Litigation (recoveries)/charges, net tax expense
Adjusted provision for income taxes
Non-GAAP effective tax rate from continuing operations 1
$
$
$
$
888
71
158
859
(38)
1,938
553
27
52
37
(15)
654
33.7 %
We apply varying tax rates depending on the item’s nature and tax jurisdiction w here it is incurred.
1
For fiscal 2013, the revaluation of the deferred tax liability and related interest on unrepatriated foreign earnings as a result of an agreement
w ith 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, w ould have been 37.0%.
17. Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
First Quarter
(in millions)
Distribution, selling, general and administrative expenses
Restructuring and employee severance
Amortization and other acquisition-related costs
Impairments and loss on disposal of assets
Litigation (recoveries)/charges, net
Total GAAP operating expenses
GAAP operating expense grow th rate
Restructuring and employee severance
Amortization and other acquisition-related costs
Impairments and loss on disposal of assets
Litigation recoveries/(charges), net
Total Non-GAAP operating expenses
Non-GAAP operating expense grow th rate
2013
2014
$
$
$
732
11
49
1
793
13.0 %
(11)
(49)
(1)
732
6.1 %
$
$
690
5
28
1
(22)
702
$
(5)
(28)
(1)
22
690
18. Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
First Quarter
(in millions)
2013
2014
Revenue
$
24,523
$
GAAP operating earnings
Restructuring and employee severance
Amortization and other acquisition-related costs
Impairments and loss on disposal of assets
Litigation (recoveries)/charges, net
Non-GAAP operating earnings
$
471
11
49
1
532
$
GAAP operating earnings m argin rate
Non-GAAP operating earnings m argin rate
$
1.92 %
2.17 %
36bp
$
25,889
457
5
28
1
(22)
469
1.76 %
1.81 %
The sum of the components may not equal the total due to rounding.
Forw ard-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 forw ard-looking basis. The most directly comparable forw ard-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 forw ard-looking non-GAAP
measures to the most directly comparable forw ard-looking GAAP measures because w e cannot reliably forecast restructuring and employee severance, amortization
and other acquisition-related costs, impairments and loss on disposal of assets and litigation (recoveries)/charges, net, w hich 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.
19. Cardinal Health, Inc. and Subsidiaries
Schedule of Notable Item s
First Quarter
(in millions, except per common share amounts)
Restructuring and employee severance
Tax benefit
Restructuring and em ployee severance, net of tax
2013
2014
$
$
(11)
4
(7)
$
(5)
2
(3)
$
(0.02)
$
(0.01)
$
$
$
(45)
17
(28)
$
(21)
8
(13)
$
(0.08)
$
(0.04)
$
(3)
$
(7)
$
1
(2)
$
2
(5)
Decrease to diluted EPS from continuing operations
$
(0.01)
$
(0.01)
Total amortization and other acquisition-related costs 1
$
(49)
$
(28)
$
Decrease to diluted EPS from continuing operations
Am ortization and Other Acquisition-Related Costs
Amortization of acquisition-related intangible assets
Tax benefit
Am ortization of acquisition-related intangible assets, net of tax
Decrease to diluted EPS from continuing operations
Other acquisition-related costs
Tax benefit
Other acquisition-related costs, net of tax
Tax benefit1
10
18
1
$
(31)
$
(18)
$
(0.09)
$
(0.05)
$
$
-
$
(1)
(1)
Decrease to diluted EPS from continuing operations
$
-
$
-
Litigation recoveries/(charges), net
Tax expense
Litigation recoveries/(charges), net, net of tax
$
$
$
(1)
(1)
22
(9)
13
Increase to diluted EPS from continuing operations
$
-
$
Total am ortization and other acquisition-related costs, net of tax
Decrease to diluted EPS from continuing operations 1
Impairments and loss on disposal of assets
Tax benefit
Im pairm ents and loss on disposal of assets, net of tax
Weighted-average num ber of diluted shares outstanding
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 w here it is incurred.
$
344
$
0.04
344
20. Cardinal Health, Inc. and Subsidiaries
Asset Managem ent Analysis
First Quarter
2013
2014
Debt to total capital
Net debt to capital
38 %
15 %
22.1 %
24.7 %
Effective tax rate from continuing operations 1
Non-GAAP effective tax rate from continuing
1
operations 1
17.3 %
17.9 %
23.2 %
Return on equity
Non-GAAP return on equity
31 %
7%
38.1 %
24.7 %
37.8 %
The settlement of federal and state tax controversies favorably impacted, for fiscal 2014 first quarter, both the effective tax rate from continuing operations and nonGAAP effective tax rate from continuing operations by 14.3 and 12.6 percentage points, respectively. The fiscal 2014 first quarter non-GAAP effective tax rate from
continuing operations, excluding the impact of the tax settlement, w ould have been 37.3%.
Refer to the GAAP/Non-GAAP reconciliation for definitions and calculations supporting the Non-GAAP balances.
Given the expiration of our pharmaceutical distribution contract w ith Walgreen Co. on August 31, 2013, w e do not believe that days sales outstanding, days inventory
on hand, days payable outstanding and net w orking capital days provide meaningful measures of our w orking capital performance in fiscal 2014 first quarter.
21. Cardinal Health, Inc. and Subsidiaries
Definitions
Debt: long-term obligations plus short-term borrow ings.
Debt to Total Capital: debt divided by (debt plus total shareholders’ equity).
Interest and Other, net: other (income)/expense, net plus interest expense, net.
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 w eighted-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 costs 2, (3) impairments and loss on disposal of assets 3 and (4) litigation (recoveries)/charges, net4, 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 loss on disposal of assets and (4) litigation (recoveries)/charges, net) divided by (earnings before income taxes and discontinued
operations adjusted for the same four items).
Non-GAAP Operating Earnings: operating earnings excluding (1) restructuring and employee severance, (2) amortization and other acquisition-related costs, (3) impairments
and loss on disposal of assets and (4) litigation (recoveries)/charges, net.
Non-GAAP Operating Earnings Margin Rate: current period non-GAAP operating earnings divided by revenue.
Non-GAAP Operating Expenses: operating expenses excluding (1) restructuring and employee severance, (2) amortization and other acquisition-related costs, (3)
impairments and loss on disposal of assets and (4) litigation (recoveries)/charges, net.
Non-GAAP Return on Equity: (annualized net earnings excluding (1) restructuring and employee severance, (2) amortization and other acquisition-related costs, (3)
impairments and loss on disposal of assets and (4) litigation (recoveries)/charges, net, each net of tax) and divided by average shareholders’ equity.
Return on Equity: annualized net earnings divided by average shareholders’ equity.
Revenue Mix: segment revenue divided by total segment revenue for all segments.
Segm ent Profit: segment revenue minus (segment cost of products sold and segment distribution, selling, general and administrative expenses).
Segm ent Profit Margin: segment profit divided by segment revenue.
Segm ent Profit Mix: segment profit divided by total segment profit for all segments.
1
Programs w hereby Cardinal Health 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).
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 losses from the disposal of assets not eligible to be classified as discontinued operations are classified w ithin impairments and loss on disposal of
assets w ithin the condensed consolidated statements of earnings.
4
Loss contingencies related to litigation and regulatory matters and income from favorable resolution of legal matters.