Cardinal Health Reports Q4 and Fiscal 2017 Results, Provides 2018 Guidance
DUBLIN, Ohio, Aug. 2, 2017 /PRNewswire/ -- Cardinal Health (NYSE: CAH) today reported fourth-quarter fiscal year 2017 revenues of $33 billion, an increase of 5 percent from the fourth quarter last year, and fiscal 2017 revenues of $130 billion, an increase of 7 percent from the same period last year. For the quarter, GAAP diluted earnings per share (EPS) decreased 16 percent to $0.86, while non-GAAP diluted EPS increased 15 percent to $1.31. GAAP diluted EPS for fiscal year 2017 decreased 7 percent to $4.03, and non-GAAP diluted EPS increased 3 percent to $5.40.
"While these last 12 months were clearly a dynamic period in healthcare and certainly presented challenges for our fiscal 17, it was also a year in which we took important actions to strengthen our market positioning, grow our scale, add new, long-term drivers of growth, and improve the overall balance of our integrated portfolio," said George Barrett, chairman and CEO of Cardinal Health. "In spite of the challenges of the year, our team was able to deliver growth in non-GAAP EPS."
Q4 and year-end FY17 summary
Q4 FY17 Q4 FY16 Y/Y FY17 FY16 Y/Y
------- ------- --- ---- ---- ---
Revenue $33.0 billion $31.4 billion 5% $130.0 billion $121.5 billion 7%
------- ------------- ------------- --- -------------- -------------- ---
Operating
earnings
$439 million $620 million (29%) $2,120 million $2,459 million (14%)
--- ------------ ------------ ---- -------------- -------------- ----
Non-GAAP
operating
earnings $640 million $643 million (1%) $2,769 million $2,895 million (4%)
-------- ------------ ------------ --- -------------- -------------- ---
Net earnings
attributable
to
Cardinal
Health, Inc. $274 million $333 million (18%) $1,288 million $1,427 million (10%)
------------- ------------ ------------ ---- -------------- -------------- ----
Non-GAAP net
earnings
attributable
to
Cardinal
Health, Inc. $416 million $372 million 12% $1,727 million $1,732 million -
------------- ------------ ------------ --- -------------- -------------- ---
Diluted EPS $0.86 $1.02 (16%) $4.03 $4.32 (7%)
attributable
to
Cardinal
Health, Inc.
-------------
Non-GAAP
diluted EPS
attributable
to $1.31 $1.14 15% $5.40 $5.24 3%
Cardinal
Health, Inc.
-------------
Diluted EPS for the quarter and year benefitted from a lower effective tax rate and fewer weighted average shares outstanding than the prior-year periods.
Segment results
Pharmaceutical segment
Fourth-quarter revenue for the Pharmaceutical segment increased 5 percent to $29.6 billion due to growth from Pharmaceutical Distribution customers and strong performance from the Specialty Solutions business. Segment profit decreased 7 percent to $505 million. This decrease was driven by generic pharmaceutical pricing and the company's ongoing investment in its Pharmaceutical IT platform. These were partially offset by solid performance from Red Oak Sourcing.
Full-year revenue for the Pharmaceutical segment increased 7 percent to $116.5 billion due to growth from Pharmaceutical Distribution customers and strong performance from the Specialty Solutions business. Segment profit for the year decreased 12 percent to $2.2 billion driven by generic pharmaceutical pricing, and to a lesser extent, the impact of the loss of Safeway and reduced levels of branded manufacturer price appreciation. These were partially offset by solid performance from Red Oak Sourcing.
Q4 FY17 Q4 FY16 Y/Y FY17 FY16 Y/Y
------- ------- --- ---- ---- ---
Revenue $29.6 billion $28.2 billion 5% $116.5 billion $109.1 billion 7%
------- ------------- ------------- --- -------------- -------------- ---
Segment profit $505 million $542 million (7%) $2.2 billion $2.5 billion (12%)
-------------- ------------ ------------ --- ------------ ------------ ----
Medical segment
Revenue for the Medical segment increased 6 percent to $3.4 billion driven by contributions from new and existing customers. Segment profit increased 13 percent to $138 million reflecting solid performance from post-acute solutions, favorability from compensation-related items and growth in distribution services. These were partially offset by performance in Cardinal Health Branded products (including Cordis).
Full-year revenue for the Medical segment increased 9 percent to $13.5 billion due to contributions from new and existing customers and, to a lesser extent, acquisitions. Segment profit increased 25 percent to $572 million due to the contribution from post-acute solutions, Cardinal Health Branded products (including Cordis), favorability from compensation-related items and growth in distribution services.
Q4 FY17 Q4 FY16 Y/Y FY17 FY16 Y/Y
------- ------- --- ---- ---- ---
Revenue $3.4 billion $3.2 billion 6% $13.5 billion $12.4 billion 9%
------- ------------ ------------ --- ------------- ------------- ---
Segment
profit $138 million $122 million 13% $572 million $457 million 25%
------- ------------ ------------ --- ------------ ------------ ---
Outlook
The company does not provide GAAP EPS outlook because it is unable to reliably forecast most of the items that are excluded from GAAP EPS to calculate non-GAAP EPS. These items could cause EPS to differ materially from non-GAAP EPS. See "Use of Non-GAAP Measures" following the attached schedules for additional explanation.
The company's fiscal year 2018 guidance range for non-GAAP diluted EPS from continuing operations is $4.85 to $5.10. This guidance now reflects incremental discrete items of $0.16 per share, identified since the early outlook announcement provided in April.
In a further comment on the year ahead, Barrett said: "As we indicated in our April early outlook, we expected our fiscal 2018 non-GAAP EPS to be down. Our perspective and operating expectations have not meaningfully changed. We are, however, taking some discrete actions, which will affect our EPS in FY18 and will improve our trajectory for 2019 and beyond. And we are targeting fiscal 2019 non-GAAP EPS of at least $5.60."
FY17 and recent highlights
-- Completed the acquisition of Medtronic's Patient Care, Deep Vein
Thrombosis and Nutritional Insufficiency business for $6.1 billion on
July 29, 2017
-- Acquired rights to Navidea's Lymphoseek, a radiopharmaceutical
diagnostic imaging agent
-- Convened the 27th annual Retail Business Conference, which provided one
of the industry's largest lineups of continuing education courses,
buying opportunities, and access to Cardinal Health solutions that help
independent pharmacists diversify and improve their business
-- Through the Cordis business, became the exclusive U.S. distributor of
the Tryton Side Branch Stent, the first dedicated bifurcation device to
receive regulatory approval in the U.S. to treat significant coronary
bifurcation lesions
-- Increased quarterly dividend by 3 percent to $0.4624 per share, or $1.85
on an annualized basis
Awards and recognition
Over the past year, Cardinal Health was recognized for its leadership and commitment to diversity and sustainability, including:
-- Named on the 2017 World's Most Admired Companies list by Fortune
-- Recognized by the National Association for Female Executives as a Top 60
Company for Executive Women for the sixth consecutive year
-- Included in Becker's Healthcare 150 Top Places to Work in Healthcare
2017 listing
-- Named to the Human Rights Campaign (HRC) Best Places to Work for LGBT
Equality for the fifth consecutive year based on ratings in HRC's 2017
Corporate Equality Index
-- Included in the Dow Jones Sustainability North American Company Index
for the eleventh consecutive year
Webcast
Cardinal Health will host a webcast today at 8:30 a.m. Eastern to discuss fourth-quarter and year-end results. To access the webcast and corresponding slide presentation, go to the Investor Relations page at ir.cardinalhealth.com. No access code is required.
Presentation slides and a webcast replay will be available on the Cardinal Health website at ir.cardinalhealth.com until Aug. 1, 2018.
Upcoming webcasted investor events
-- Robert W. Baird's Global Healthcare Conference on Thursday, Sept. 7 at
9:05 a.m. Eastern in New York City
-- Morgan Stanley 15th Annual Global Healthcare Conference on Monday, Sept.
11 at 8:45 a.m. Eastern in New York City
About Cardinal Health
Cardinal Health, Inc. is a global, integrated healthcare services and products company, providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices worldwide. The company provides clinically proven medical products and pharmaceuticals and cost-effective solutions that enhance supply chain efficiency from hospital to home. Cardinal Health connects patients, providers, payers, pharmacists and manufacturers for integrated care coordination and better patient management. Because Cardinal Health helps ensure pharmacists and the consumers they serve have access to medications they need while working to help prevent prescription drug diversion, the company and its education partners created Generation Rx, a national program to help prevent the misuse of prescription medications. Backed by nearly 100 years of experience, with approximately 50,000 employees in nearly 60 countries, Cardinal Health ranks #15 on the Fortune 500. For more information, visit cardinalhealth.com, follow @CardinalHealth on Twitter and connect on LinkedIn at linkedin.com/ company/cardinal-health.
(1)GAAP refers to U.S. generally accepted accounting principles. This news release includes GAAP financial measures as well as non-GAAP financial measures, which are financial measures not calculated in accordance with GAAP. See "Use of Non-GAAP Measures" following the attached schedules for definitions of the non-GAAP financial measures presented in this news release, and see the attached schedules for 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 Investor Relations page 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 amount or rate of pharmaceutical price appreciation or deflation and the timing of and benefit from generic pharmaceutical introductions; the ability to maintain the benefits from the generic sourcing venture with CVS Health; risks associated with the recently completed acquisition of Medtronic's Patient Recovery Business, including the ability to retain the acquired businesses' customers and employees, the ability to successfully integrate the acquired businesses into our operations and the ability to achieve the expected synergies as well as accretion in earnings; 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 proposals to modify or repeal the Affordable Care Act; uncertainties with respect to U.S. tax or trade laws, including proposals relating to a "border adjustment tax" or new import tariffs; changes in the distribution patterns or reimbursement rates for health care products and services; the effects of any investigation or action by any governmental or regulatory authority, including litigation relating to opioid distribution; 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 August 2, 2017. 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)
Fourth Quarter
(in millions, except per common share amounts) 2017 2016 % Change
--------------------------------------------- ---- ---- --------
Revenue $32,966 $31,384 5%
Cost of products sold 31,343 29,719 5%
--------------------- ------ ------ ---
Gross margin 1,623 1,665 (3)%
Operating expenses:
Distribution, selling, general and administrative expenses 983 970 1%
Restructuring and employee severance 24 6 N.M.
Amortization and other acquisition-related costs 163 132 N.M.
Impairments and loss on disposal of assets, net 3 3 N.M.
Litigation (recoveries)/charges, net 11 (66) N.M.
------------------------------------ --- --- ----
Operating earnings 439 620 (29)%
Other (income)/expense, net (3) - N.M.
Interest expense, net 68 44 55%
--------------------- --- --- ---
Earnings before income taxes 374 576 (35)%
Provision for income taxes 96 241 (60)%
---
Net earnings 278 335 (17)%
Less: Net earnings attributable to noncontrolling interests (4) (2) N.M.
----------------------------------------------------------- --- --- ----
Net earnings attributable to Cardinal Health, Inc. $274 $333 (18)%
-------------------------------------------------- ---- ---- ----
Earnings per common share attributable to Cardinal Health, Inc.:
Basic $0.87 $1.03 (16)%
Diluted 0.86 1.02 (16)%
Weighted-average number of common shares outstanding:
Basic 316 324
Diluted 318 327
------- --- ---
Schedule 2
----------
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
Fiscal Year
(in millions, except per common share amounts) 2017 2016 % Change
--------------------------------------------- ---- ---- --------
Revenue $129,976 $121,546 7%
Cost of products sold 123,432 115,003 7%
--------------------- ------- ------- ---
Gross margin 6,544 6,543 - %
Operating expenses:
Distribution, selling, general and administrative expenses 3,775 3,648 3%
Restructuring and employee severance 56 25 N.M.
Amortization and other acquisition-related costs 527 459 N.M.
Impairments and loss on disposal of assets, net 18 21 N.M.
Litigation (recoveries)/charges, net 48 (69) N.M.
------------------------------------ --- --- ----
Operating earnings 2,120 2,459 (14)%
Other (income)/expense, net (5) 5 N.M.
Interest expense, net 201 178 13%
Earnings before income taxes 1,924 2,276 (15)%
Provision for income taxes 630 845 (25)%
-------------------------- --- --- ----
Net earnings 1,294 1,431 (10)%
Less: Net earnings attributable to noncontrolling interests (6) (4) N.M.
----------------------------------------------------------- ---
Net earnings attributable to Cardinal Health, Inc. $1,288 $1,427 (10)%
-------------------------------------------------- ------ ------ ----
Earnings per common share attributable to Cardinal Health, Inc.:
Basic $4.06 $4.36 (7)%
Diluted 4.03 4.32 (7)%
Weighted-average number of common shares outstanding:
Basic 317 327
Diluted 320 330
------- --- ---
Schedule 3
----------
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in millions) June 30, June 30,
2017 2016
--- ---- ----
Assets
Current assets:
Cash and equivalents $6,879 $2,356
Trade receivables, net 8,048 7,405
Inventories, net 11,301 10,615
Prepaid expenses and other 2,117 1,580
-------------------------- ----- -----
Total current assets 28,345 21,956
Property and equipment, net 1,879 1,796
Goodwill and other intangibles, net 9,207 9,426
Other assets 681 944
---
Total assets $40,112 $34,122
------------ ------- -------
Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity
Current liabilities:
Accounts payable $17,906 $17,306
Current portion of long-term obligations and other short-term borrowings 1,327 587
Other accrued liabilities 1,988 1,808
------------------------- ----- -----
Total current liabilities 21,221 19,701
Long-term obligations, less current portion 9,068 4,952
Deferred income taxes and other liabilities 2,877 2,781
Redeemable noncontrolling interests 118 117
Total Cardinal Health, Inc. shareholders' equity 6,808 6,554
Noncontrolling interests 20 17
------------------------ --- ---
Total shareholders' equity 6,828 6,571
Total liabilities, redeemable noncontrolling interests and shareholders' equity $40,112 $34,122
------------------------------------------------------------------------------- ------- -------
Schedule 4
----------
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Fourth Quarter Fiscal Year
(in millions) 2017 2016 2017 2016
------------ ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net earnings $278 $335 $1,294 $1,431
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 192 176 717 641
Gain on sale of other investments - - 4 -
Gain on disposal of assets, net 3 4 18 21
Share-based compensation 23 29 96 111
Provision for deferred income taxes 291 87 291 87
Provision for bad debts 17 22 63 73
Change in fair value of contingent consideration obligation (5) - (5) (16)
Change in operating assets and liabilities, net of effects from acquisitions:
Increase in trade receivables (558) (145) (665) (866)
Decrease/(increase) in inventories 337 278 (673) (1,179)
Increase/(decrease) in accounts payable 329 (24) 564 2,815
Other accrued liabilities and operating items, net (183) (121) (520) (147)
--------------------------------------------------
Net cash provided by operating activities 724 641 1,184 2,971
Cash flows from investing activities:
Acquisition of subsidiaries, net of cash acquired (19) (231) (132) (3,614)
Additions to property and equipment (94) (181) (387) (465)
Purchase of available-for-sale securities and other investments (6) (50) (194) (200)
Proceeds from sale of available-for-sale securities and other investments 113 37 228 136
Proceeds from maturities of available-for-sale securities 28 13 77 50
Proceeds from divestitures and disposal of property and equipment and held for sale assets 2 13 3 13
------------------------------------------------------------------------------------------
Net cash provided by/(used in) investing activities 24 (399) (405) (4,080)
Cash flows from financing activities:
Payment of contingent consideration obligation - (2) (3) (25)
Net change in short-term borrowings (22) (8) 3 26
Net purchase of noncontrolling interests - - (12) (10)
Reduction of long-term obligations (250) (1) (310) (6)
Proceeds from interest rate swap terminations - - 14 -
Proceeds from long-term obligations, net of issuance costs 5,171 - 5,171 -
Net tax proceeds/(withholdings) from share-based compensation 6 9 26 6
Excess tax benefits from share-based compensation (3) - 34 33
Dividends on common shares (142) (126) (577) (512)
Purchase of treasury shares - (351) (600) (651)
Net cash provided by/(used in) financing activities 4,760 (479) 3,746 (1,139)
Effect of exchange rates changes on cash and equivalents 3 (5) (2) (12)
Net increase/(decrease) in cash and equivalents 5,511 (242) 4,523 (2,260)
Cash and equivalents at beginning of period 1,368 2,598 2,356 4,616
Cash and equivalents at end of period $6,879 $2,356 $6,879 $2,356
------------------------------------- ------ ------ ------ ------
Schedule 5
----------
Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis
Fourth Quarter Fourth Quarter
(in millions) 2017 2016 (in millions) 2017 2016
------------ ---- ---- ------------ ---- ----
Pharmaceutical Medical
Revenue Revenue
Amount $29,552 $28,177 Amount $3,416 $3,210
Growth rate 5% 14% Growth rate 6% 12%
Segment profit Segment profit
Amount $505 $542 Amount $138 $122
Growth rate (7)% 1% Growth rate 13% 19%
Segment profit margin 1.71% 1.93% Segment profit margin 4.03% 3.81%
--------------------- ---- ---- --------------------- ---- ----
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the three months ended June 30, 2017 was $32,966 million, which included total segment revenue of $32,968 million and Corporate revenue of $(2) million. Total consolidated revenue for the three months ended June 30, 2016 was $31,384 million, which included total segment revenue of $31,387 million and Corporate revenue of $(3) 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 June 30, 2017 were $439 million, which included total segment profit of $643 million and Corporate costs of $(204) million. Total consolidated operating earnings for the three months ended June 30, 2016 were $620 million, which included total segment profit of $664 million and Corporate costs of $(44) 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. The increase in corporate costs is primarily due to the change in ligation (recoveries)/charges, net driven by the lack of litigation recoveries from the prior period recurring in the current period and the prior year LIFO credits that did not recur in the current period.
Schedule 6
----------
Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis
Fiscal Year Fiscal Year
(in millions) 2017 2016 (in millions) 2017 2016
------------ ---- ---- ------------ ---- ----
Pharmaceutical Medical
Revenue Revenue
Amount $116,463 $109,131 Amount $13,524 $12,430
Growth rate 7% 20% Growth rate 9% 9%
Segment profit Segment profit
Amount $2,187 $2,488 Amount $572 $457
Growth rate (12)% 19% Growth rate(1) 25% 6%
Segment profit margin 1.88% 2.28% Segment profit margin 4.23% 3.68%
--------------------- ---- ---- --------------------- ---- ----
1. Segment profit for the fiscal
year ended June 30, 2016
includes the $43 million
unfavorable impact of the
Cordis-related inventory fair
value step-up. Excluding this
step-up, year-over-year
Medical segment profit growth
was 14 percent and 15 percent
for the fiscal years ended June
30, 2017 and 2016,
respectively.
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the fiscal year ended June 30, 2017 was $129,976 million, which included total segment revenue of $129,987 million and Corporate revenue of $(11) million. Total consolidated revenue for the fiscal year ended June 30, 2016 was $121,546 million, which included total segment revenue of $121,561 million and Corporate revenue of $(15) 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 fiscal year ended June 30, 2017 were $2,120 million, which included total segment profit of $2,759 million and Corporate costs of $(639) million. Total consolidated operating earnings for the fiscal year ended June 30, 2016 were $2,459 million, which included total segment profit of $2,945 million and Corporate costs of $(486) 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
GAAP / Non-GAAP Reconciliation(1)
Gross Operating Earnings Provision
Margin Earnings Before for Net Diluted
Gross Growth Operating Growth Income Income Net Earnings(2) Diluted EPS(2)
(in millions, except per common share Margin Rate Earnings Rate Taxes Taxes Earnings(2) Growth Rate EPS2,3,4 Growth Rate
amounts)
------- ---
Fourth Quarter 2017
GAAP $1,623 (3)% $439 (29)% $374 $96 $274 (18)% $0.86 (16)%
---- ------ --- ---- ---- ---- --- ---- ---- ----- ----
Restructuring and employee severance - 24 24 9 15 0.05
Amortization and other acquisition-related costs - 163 163 45 118 0.37
Impairments and (gain)/loss on disposal of assets - 3 3 1 2 0.01
Litigation (recoveries)/charges, net - 11 11 4 7 0.02
Non-GAAP $1,623 1% $640 (1)% $575 $155 $416 12% $1.31 15%
-------- ------ --- ---- --- ---- ---- ---- --- ----- ---
Fourth Quarter 2016
GAAP $1,665 14% $620 11% $576 $241 $333 14% $1.02 16%
---- ------ --- ---- --- ---- ---- ---- --- ----- ---
LIFO charges/(credits) (51) (51) (51) (20) (31) (0.10)
Restructuring and employee severance - 6 6 2 4 0.01
Amortization and other acquisition-related costs - 132 132 28 104 0.32
Impairments and (gain)/loss on disposal of assets - 3 3 - 3 0.01
Litigation (recoveries)/charges, net - (66) (66) (25) (41) (0.13)
Non-GAAP $1,614 11% $643 5% $599 $226 $372 12% $1.14 14%
-------- ------ --- ---- --- ---- ---- ---- --- ----- ---
Gross Operating Earnings Provision
Margin Earnings Before for Net Diluted
Gross Growth Operating Growth Income Income Net Earnings(2) Diluted EPS(2)
(in millions, except per common share Margin Rate Earnings Rate Taxes Taxes Earnings(2) Growth Rate EPS2,3,4 Growth Rate
amounts)
------- ---
Fiscal Year 2017
GAAP $6,544 $ - $2,120 (14)% $1,924 $630 $1,288 (10)% $4.03 (7)%
---- ------ --- --- ------ ---- ------ ---- ------ ---- ----- ---
Restructuring and employee severance - 56 56 20 36 0.11
Amortization and other acquisition-related costs - 527 527 165 362 1.13
Impairments and (gain)/loss on disposal of assets - 18 18 6 12 0.04
Litigation (recoveries)/charges, net - 48 48 19 29 0.09
Non-GAAP $6,544 - % $2,769 (4)% $2,572 $839 $1,727 - % $5.40 3%
-------- ------ --- --- ------ --- ------ ---- ------ --- --- ----- ---
Fiscal Year 2016
GAAP $6,543 15% $2,459 14% $2,276 $845 $1,427 18% $4.32 20%
---- ------ --- ------ --- ------ ---- ------ --- ----- ---
Restructuring and employee severance - 25 25 9 16 0.05
Amortization and other acquisition-related costs - 459 459 143 316 0.96
Impairments and (gain)/loss on disposal of assets - 21 21 6 15 0.04
Litigation (recoveries)/charges, net - (69) (69) (27) (42) (0.13)
Non-GAAP $6,543 15% $2,895 17% $2,711 $976 $1,732 18% $5.24 20%
-------- ------ --- ------ --- ------ ---- ------ --- ----- ---
(1)For more information on these measures, refer to the Use of Non-GAAP Financial Measures and Definitions schedules.
(2)attributable to Cardinal Health, Inc.
(3)GAAP diluted EPS for the three months ended June 30, 2017 compared to the prior year period was favorably impacted by $0.21, which includes $0.19 due to change in the effective tax rate and $0.02 due to the change in weighted average shares outstanding. GAAP diluted EPS for the twelve months ended June 30, 2017 compared to the prior year period was favorably impacted by $0.39, which includes $0.26 due to change in the effective tax rate and $0.13 due to the change in weighted average shares outstanding. The change in GAAP diluted EPS due to the effective tax rate is calculated as ((GAAP Earnings before Income Taxes for the current period times (one minus the current period GAAP Effective Tax Rate)) minus (GAAP Earnings before Income Taxes for the current period times (one minus the prior period GAAP Effective Tax Rate))) divided by the current period weighted average shares outstanding. The change in GAAP diluted EPS due to the weighted average shares outstanding is calculated as (GAAP Net Earnings for the current period divided by the current period weighted average shares outstanding) minus (GAAP Net Earnings for the current period divided by the prior period weighted average shares outstanding).
(4)Non-GAAP diluted EPS for the three months ended June 30, 2017 compared to the prior year period was favorably impacted by $0.22, which includes $0.19 due to change in the effective tax rate and $0.03 due to the change in weighted average shares outstanding. Non-GAAP diluted EPS for the twelve months ended June 30, 2017 compared to the prior year period was favorably impacted by $0.44, which includes $0.27 due to change in the effective tax rate and $0.17 due to the change in weighted average shares outstanding. The change in Non-GAAP diluted EPS due to the effective tax rate is calculated as ((Non-GAAP Earnings before Income Taxes for the current period times (one minus the current period Non-GAAP Effective Tax Rate)) minus (Non-GAAP Earnings before Income Tax for the current period times (one minus the prior period Non-GAAP Effective Tax Rate))) divided by the current period weighted average shares outstanding. The change in Non-GAAP diluted EPS due to the weighted average shares outstanding is calculated as (Non-GAAP Net Earnings for the current period divided by the current period weighted average shares outstanding) minus (Non-GAAP Net Earnings for the current period divided by the prior period weighted average shares outstanding).
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.
There were no losses on extinguishment of debt during the periods presented.
Schedule 8
----------
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
Fourth Quarter Fiscal Year
(in millions) 2017 2016 2017 2016
------------ ---- ---- ---- ----
GAAP effective tax rate 25.8% 41.8% 32.7% 37.1%
----------------------- ---- ---- ---- ----
Non-GAAP effective tax rate
Earnings before income taxes $374 $576 $1,924 $2,276
LIFO charges/(credits) - (51) - -
Restructuring and employee severance 24 6 56 25
Amortization and other acquisition-related costs 163 132 527 459
Impairments and loss on disposal of assets 3 3 18 21
Litigation (recoveries)/charges, net 11 (66) 48 (69)
Adjusted earnings before income taxes $575 $599 $2,572 $2,711
Provision for income taxes $96 $241 $630 $845
LIFO charges/(benefits) tax benefit/(expense) - (20) - -
Restructuring and employee severance tax benefit 9 2 20 9
Amortization and other acquisition-related costs tax benefit 45 28 165 143
Impairments and loss on disposal of assets tax benefit 1 - 6 6
Litigation (recoveries)/charges, net tax benefit/(expense) 4 (25) 19 (27)
Adjusted provision for income taxes $155 $226 $839 $976
Non-GAAP effective tax rate 27.0% 37.6% 32.6% 36.0%
--------------------------- ---- ---- ---- ----
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.
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 addition to analyzing our business based on financial information prepared in accordance with GAAP, we use these non-GAAP financial measures internally to evaluate our performance, evaluate the balance sheet, engage in financial and operational planning, and determine incentive compensation because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance to that of our competitors. However, the non-GAAP financial measures that we use 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 us 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 below should be carefully evaluated.
Exclusions from Non-GAAP Financial Measures
Management believes it is useful to exclude the following items from the non-GAAP measures presented in this earnings release for its own and for investors' assessment of the business for the reasons identified below:
-- LIFO charges and credits are excluded because the factors that drive
last-in first-out ("LIFO") inventory charges or credits, such as
pharmaceutical manufacturer price appreciation or deflation and year-end
inventory levels (which can be meaningfully influenced by customer
buying behavior immediately preceding our fiscal year-end), are largely
out of our control and cannot be accurately predicted. The exclusion of
LIFO charges from non-GAAP metrics allows for a better comparison of our
current financial results to our historical financial results and to our
peer group companies' financial results.
-- Restructuring and employee severance costs are excluded because they
relate to programs in which we fundamentally change our operations and
because they are not part of the ongoing operations of our underlying
business.
-- Amortization and other acquisition-related costs are excluded primarily
for consistency with the presentation of the financial results of our
peer group companies. Additionally, costs for amortizations of
acquisition-related intangible assets are non-cash amounts, which are
variable in amount and frequency and are significantly impacted by the
timing and size of acquisitions, so their exclusion allows for better
comparison of historical, current and forecasted financial results. We
also exclude other acquisition-related costs because they are directly
related to an acquisition but do not meet the criteria to be recognized
on the acquired entity's initial balance sheet as part of the purchase
price allocation. They are also significantly impacted by the timing and
size of acquisitions.
-- Impairments and gains or loss on disposal of assets are excluded because
they do not occur in or reflect the ordinary course of our ongoing
business operations and their exclusion results in a metric that more
meaningfully reflects the sustainability of our operating performance.
-- Litigation recoveries or charges, net are excluded because they often
relate to events that may have occurred in prior or multiple periods,
and are inherently unpredictable in timing and amount. In the third
quarter of fiscal 2017, consistent with the presentation of financial
results by peer medical device companies, in litigation recoveries or
charges, net we began to classify accrued losses and legal fees, net of
expected recoveries, related to mass tort product liability claims,
including claims for injuries allegedly caused by Cordis OptEase and
TrapEase inferior vena cava (IVC) filter products. Such amounts would
not have materially affected litigation recoveries or charges, net in
prior periods, so have not been reclassified for those periods.
-- Loss on extinguishment of debt is excluded because it does not typically
occur in the normal course of business operations and may obscure
analysis of trends and financial performance. Additionally, the amount
and frequency of this type of charge is not consistent and is
significantly impacted by the timing and size of debt financing
transactions.
The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the item and the jurisdiction(s) in which the item is recorded. The gross, tax and net impact of each item are presented with our GAAP to non-GAAP reconciliations.
Forward Looking Non-GAAP Measures
In this earnings release, the Company presents its outlook for fiscal 2018 non-GAAP EPS. The Company does not provide EPS outlook, which is the most directly comparable GAAP measure to non-GAAP EPS, because changes in the items that the Company excludes from EPS to calculate non-GAAP EPS, described above, can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of the Company's routine operating activities. Additionally, due to their unpredictability, management does not forecast many of the excluded items for internal use and therefore cannot create or rely on an EPS outlook. For fiscal 2018, the Company expects the acquisition of the Patient Recovery Business to significantly increase amortization and other acquisition-related costs.
The timing and amount of any of the excluded items could significantly impact the Company's fiscal 2018 EPS. Over the past five fiscal years, the excluded items have lowered the Company's EPS from $0.47 to $2.76, which includes a goodwill impairment charge of $2.32 per share related to our Nuclear Pharmacy Services division that we recognized in fiscal 2013.
Definitions
Growth rate calculation: Growth rates in this earnings release are determined by dividing the difference between current period results and prior period results by prior period results.
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 earnings before income taxes: earnings before income taxes 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.
Non-GAAP effective tax rate: (provision for income taxes adjusted for (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) divided by (earnings before income taxes adjusted for the same six items).
Non-GAAP net earnings attributable to Cardinal Health, Inc.: 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 diluted EPS attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.
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SOURCE Cardinal Health
