Cardinal Health Reports Third Quarter Results for Fiscal Year 2020
DUBLIN, Ohio, May 11, 2020 /PRNewswire/ -- Cardinal Health (NYSE: CAH) today reported financial results for the third quarter of fiscal 2020 ended March 31, 2020.Third quarter revenue was $39.2 billion, an increase of 11% from the third quarter of last year.
Third quarter GAAP operating earnings increased 30% to $562 million. Non-GAAP operating earnings increased 8% to $719 million. GAAP diluted earnings per share (EPS) increased 20% to $1.19, while non-GAAP diluted EPS increased 2% to $1.62.
"I want to express my gratitude to our employees and our partners across the healthcare industry for their incredible efforts to help us perform our critical role in the supply chain during this unprecedented time," said Mike Kaufmann, CEO of Cardinal Health. "We remain committed to delivering products and solutions to front-line health care providers so they can safely serve and treat patients around the world. As we look toward and beyond the fourth quarter, we will continue to take strategic actions to fulfill this mission."
Q3 FY20 summary
Q3 FY20 Q3 FY19 Y/Y
Revenue
$39.2 billion
$35.2 billion 11%
---
Operating earnings 30%
$562 million
$432 million
---
Non-GAAP operating earnings
$719 million
$667 million 8%
---
Net earnings attributable to
Cardinal Health, Inc.
$350 million
$296 million
18%
---
Non-GAAP net earnings
attributable to Cardinal
Health, Inc.
$474 million
$475 million 0%
---
Diluted EPS attributable to
Cardinal Health, Inc. $1.19 $0.99 20%
---
Non-GAAP diluted EPS
attributable to Cardinal
Health, Inc. $1.62 $1.59 2%
---
During the third quarters of fiscal 2020 and 2019, GAAP effective tax rates were 26.8% and 20.0%, respectively. Non-GAAP effective tax rates were 25.7% and 21.6%, respectively.
Segment results
Pharmaceutical segment
Q3 FY20 Q3 FY19 Y/Y
Revenue
$35.1 billion
$31.4 billion 12%
---
Segment profit
$534 million
$536 million 0%
---
Third quarter revenue for the Pharmaceutical segment increased 12 percent to $35.1 billion, due to sales growth from Pharmaceutical Distribution customers and, to a lesser extent, Specialty Solutions customers. This growth included an acceleration in overall pharmaceutical sales in March, which the company believes was due to the COVID-19 pandemic.
Pharmaceutical segment profit was flat at $534 million in the third quarter. This reflects strong performance in the company's generics program and the adverse impact of Pharmaceutical Distribution customer contract renewals.
Medical segment
Q3 FY20 Q3 FY19 Y/Y
Revenue
$4.1 billion
$3.9 billion 5%
---
Segment profit
$178 million
$155 million 15%
---
Third quarter revenue for the Medical segment increased 5 percent to $4.1 billion, due to growth in products and distribution and Cardinal Health at Home.
Medical segment profit increased 15 percent to $178 million in the third quarter due to an increase in products and distribution, including benefits from global manufacturing and cost savings initiatives.
Fiscal year 2020 outlook
While both segments experienced a modest net positive impact in the third quarter from increased volume related to the COVID-19 pandemic, the company expects a significant net negative impact to fourth quarter financial results in both segments. This is driven most meaningfully by a decrease in volume related to the cancellation or deferral of elective medical procedures.
The company does not provide forward-looking guidance on a GAAP basis as certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated. See "Use of Non-GAAP Measures" following the attached schedules for additional explanation.
The company reaffirms its fiscal year 2020 guidance range for non-GAAP diluted earnings per share attributable to Cardinal Health, Inc. of $5.20 to $5.40.
Recent highlights
-- Jason Hollar joined the company on April 27 and will become Chief
Financial Officer on May 26. Jason previously served as CFO of Tenneco
Inc. and Sears Holdings Corporation.
-- Cardinal Health board of directors approved a quarterly dividend of
$0.4859 per share. The dividend will be payable on July 15, 2020 to
shareholders of record at the close of business on July 1, 2020.
-- The company was recognized as a "2020 NAFE Top Companies for Executive
Women" by the National Association for Female Executives for the ninth
consecutive year.
Webcast
Cardinal Health will host a webcast today at 8:30 a.m. Eastern to discuss third quarter 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 until May 10, 2021.
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 enhances supply chain efficiency for clinically proven medical products, pharmaceuticals and cost-effective solutions. To combat prescription drug misuse, the Cardinal Health Foundation and its education partners created Generation Rx, a national drug prevention education and awareness program. The Foundation actively supports an array of other solutions, including efforts to reduce opioid prescribing, promote drug take back and safe disposal and expand collaborative community work.
Cardinal Health is backed by nearly 100 years of experience with operations in nearly 46 countries. For more information, visit cardinalhealth.com. Follow us on Twitter, Facebook and LinkedIn.
(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 email alerts when the company posts news releases, SEC filings and certain other information on its website.
Cautions Concerning Forward-Looking Statements
This 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 various accruals and estimates. 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 generic deflation and our ability to offset generic deflation and maintain other financial and strategic benefits through our generic sourcing venture with CVS Health and other components of our generics pharmaceutical program; risks associated with the distribution of opioids, including potential financial impact associated with the outcome of the ongoing lawsuits and investigations by certain governmental and regulatory authorities and the risks associated with the ongoing global settlement framework discussions, including the risk that we may fail to reach a settlement agreement or that a final settlement could require us to pay more than we currently anticipate; risks arising from the ongoing COVID-19 pandemic and our critical role in the global healthcare supply chain, including the possibility that continued deferrals and cancellations of elective medical procedures will result in a sustained reduction in demand for our products and the possibility of product shortages or supply disruptions from either new international regulations or forced shut downs of distribution or manufacturing facilities; risks associated with the recent recalls of our surgical gowns and affected Presource Packs, including the possibility of government investigations or actions by regulators which could result suspension of our ability to produce, distribute or sell products and civil or criminal sanction; our ability to manage uncertainties associated with the pricing of branded pharmaceuticals; risks associated with our ability to improve the performance of our Medical segment's Cardinal Health Brand Products business; uncertainties due to government health care reform; and risks associated with our cost savings initiatives, including the possibility that they could result in greater charges or expenses than we anticipate, could fail to achieve the desired efficiencies or strategic outcomes and could have unintended consequences, such as business disruption. 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 release reflects management's views as of May 11, 2020. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement.
Media:
Sarah Shew
Investors:
Kevin Moran
(614) 553-3401
(614) 757-7942
Sarah.Shew@cardinalhealth.com
Kevin.Moran@cardinalhealth.com
Schedule 1
---
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
Third Quarter
Year-to-Date
(in millions, except per common share amounts) 2020 2019 % Change 2020 2019 % Change
--- ---
Revenue $
39,157 $
35,228 11 $
116,233 $
108,181 7
% %
Cost of products sold 37,272 33,464 11 110,955 103,021 8
% %
--- ---
Gross margin 1,885 1,764 7 5,278 5,160 2
% %
Operating expenses:
Distribution, selling, general and administrative expenses 1,165 1,097 6 3,435 3,315 4
% %
Restructuring and employee severance (6) 53 80 97
Amortization and other acquisition-related costs 130 154 395 468
Impairments and (gain)/loss on disposal of assets, net (1) 11 7 (492)
Litigation (recoveries)/charges, net (1) 35 17 5,729 20
---
Operating earnings/(loss) 562 432 30
% (4,368) 1,752
N.M.
Other (income)/expense, net 19 (13) 21 13
Interest expense, net 60 75 (20)
%
% 189 227 (17)
Loss on extinguishment of debt 5 9
Earnings/(loss) before income taxes 478 370 29
% (4,587) 1,512
N.M.
Provision for/(benefit from) income taxes (2) 127 74 72
% (237) 342
N.M.
Net earnings/(loss) 351 296 19
% (4,350) 1,170
N.M.
Less: Net earnings attributable to noncontrolling interests (1) (2) (1)
---
Net earnings/(loss) attributable to Cardinal Health, Inc. $
350 $
296 18
% $
(4,352) $
1,169
N.M.
---
Earnings/(loss) per common share attributable to Cardinal Health, Inc.:
Basic $
1.20 $
0.99 21
% $
(14.84) $
3.89
N.M.
Diluted 1.19 0.99 20
% (14.84) (3) 3.88
N.M.
Weighted-average number of common shares outstanding:
Basic 292 298 293 301
Diluted 294 299 293 (3) 302
(1) Litigation (recoveries)/charges, net
includes a pre-tax charge of $5.63 billion
($5.14 billion after tax) recorded in the first
quarter of fiscal 2020 for the estimated
liability associated with lawsuits and claims
brought against us by states and political
subdivisions relating to the distribution of
prescription opioid pain medications. In October
2019, we agreed in principle to a global
settlement framework with a leadership group of
state attorneys general that is designed to
resolve all pending and future opioid lawsuits
and claims by states and political subdivisions.
The amount of ultimate loss may differ
materially from this accrual.
2 In connection with these matters, we recorded a
tax benefit of $487 million, which is net of
unrecognized tax benefits of $468 million,
during the first quarter of fiscal 2020,
reflecting our current assessment of the
estimated future deductibility of the amount
that may be paid under the $5.63 billion accrual
taken in connection with the opioid litigation.
The actual amount of tax benefit related to
uncertain tax positions may differ materially
from these estimates.
(3) Due to the net loss for the nine months ended
March 31, 2020, potentially dilutive common
shares have not been included in the denominator
of the dilutive per share computation due to
their anti-dilutive effect.
Schedule 2
---
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in millions) March 31, June 30,
2020 2019
--- ---
Assets
Current assets:
Cash and equivalents $
2,329 $
2,531
Trade receivables, net 9,019 8,448
Inventories, net 12,808 12,822
Prepaid expenses and
other 1,692 1,946
Total current assets 25,848 25,747
Property and equipment,
net 2,299 2,356
Goodwill and other
intangibles, net 11,378 11,808
Other assets 1,623 1,052
Total assets $
41,148 $
40,963
---
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $
21,984 $
21,535
Current portion of
long-term obligations
and other short-term
borrowings 508 452
Other accrued
liabilities 2,179 2,122
Total current
liabilities 24,671 24,109
Long-term obligations,
less current portion 6,754 7,579
Deferred income taxes
and other liabilities 8,517 2,945
Total shareholders'
equity 1,206 6,330
Total liabilities and
shareholders' equity $
41,148 $
40,963
---
Schedule 3
---
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited
)
Third Quarter Year-to-Date
(in millions) 2020 2019 2020 2019
--- ---
Cash flows from operating activities:
Net earnings/(loss) $
351 $
296 $
(4,350) $
1,170
Adjustments to reconcile net earnings/(loss) to net cash provided by operating activities:
Depreciation and amortization 224 261 688 759
Impairments and loss on sale of other investments - 2
Impairments and (gain)/loss on disposal of assets, net (1) 11 7 (492)
Loss on extinguishment of debt 5 9
Share-based compensation 27 23 68 64
Provision for bad debts 39 19 86 59
Change in operating assets and liabilities, net of effects from acquisitions and divestitures:
(Increase)/decrease in trade receivables (774) 35 (653) (156)
(Increase)/decrease in inventories 983 408 (8) (345)
Increase/(decrease) in accounts payable 525 (95) 448 846
Other accrued liabilities and operating items, net 297 522 5,425 309
---
Net cash provided by operating activities 1,676 1,480 1,720 2,216
Cash flows from investing activities:
Acquisition of subsidiaries, net of cash acquired - (17) (38)
Additions to property and equipment (90) (76) (239) (192)
Purchases of investments (12) (1) (18) (11)
Proceeds from sale of investments 4 1 6 3
Proceeds from divestitures, net of cash sold, and disposal of property and equipment - 9 2 749
---
Net cash provided by/(used in) investing activities (98) (84) (249) 511
Cash flows from financing activities:
Net change in short-term borrowings (683) (2)
Reduction of long-term obligations, net of issuance costs (95) (888) (2)
Net tax proceeds/(withholdings) from share-based compensation 7 (4) (13)
Dividends on common shares (141) (142) (428) (435)
Purchase of treasury shares - (350) (600)
Net cash used in financing activities (912) (142) (1,672) (1,050)
Effect of exchange rates changes on cash and equivalents 4 2 (1) (2)
Net increase/(decrease) in cash and equivalents 670 1,256 (202) 1,675
Cash and equivalents at beginning of period 1,659 2,182 2,531 1,763
Cash and equivalents at end of period $
2,329 $
3,438 $
2,329 $
3,438
---
Schedule 4
---
Cardinal Health, Inc. and Subsidiaries
Segment Information
Third Quarter
(in millions) 2020 2019
(in millions) 2020 2019
--- ---
Pharmaceutical
Medical
Revenue
Revenue
Amount $
35,112 $
31,361
Amount $
4,051 $
3,871
Growth rate 12 6
%
Growth rate 5
% % (1)
%
Segment profit
Segment profit
Amount $
534 $
536
Amount $
178 $
155
Growth rate - % (10)
Growth rate 15 (22)
%
% %
Segment profit margin 1.52 1.71
Segment profit margin 4.39 4.01
% %
% %
--- ---
Year-to-Date
(in millions) 2020 2019
(in millions) 2020 2019
--- ---
Pharmaceutical
Medical
Revenue
Revenue
Amount $
104,254 $
96,516
Amount $
11,991 $
11,678
Growth rate 8 7
%
Growth rate 3
% % %
Segment profit
Segment profit
Amount $
1,394 $
1,388
Amount(1) $
543 $
479
Growth rate - % (12)
Growth rate 13 (13)
%
% %
Segment profit margin 1.34 1.44
Segment profit margin 4.53 4.10
% %
% %
--- ---
1 Medical segment profit for
the nine months ended March
31, 2020 does not include $95
million incurred for
inventory write-offs and
certain remediation and
supply disruption costs
associated with the recently
announced voluntary surgical
gown-related recalls.
Schedule 5
---
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation(1)
Gross Operating Earnings Net Diluted
Margin SG&A(2) Earnings Before Provision for Earnings(3) Effective EPS(3)
Gross Growth Growth Operating Growth Income Income Net Growth Tax Diluted Growth
(in millions, except per common share amounts) Margin Rate SG&A(2) Rate Earnings Rate Taxes Taxes Earnings(3) Rate Rate EPS(3) Rate
--- ---
Third Quarter 2020
7 6 30 18 26.8 20
%
% %
GAAP $
1,885 % $
1,165 % $
562 $
478 $
127 $
350 $
1.19 %
--- ---
Surgical gown recall costs (1) (1) (1) (1)
Restructuring and employee severance - (6) (6) (3) (3) (0.01)
Amortization and other acquisition-related costs - 130 130 31 99 0.34
Impairments and (gain)/loss on disposal of assets, net - (1) (1) (1)
Litigation (recoveries)/charges, net - 35 35 8 27 0.09
Loss on extinguishment of debt - 5 1 4 0.01
Transitional tax benefit, net - 1 (1)
7 6 8 25.7 2
%
%
Non-GAAP $
1,884 % $
1,165 % $
719 $
639 $
164 $
474 % $
1.62 %
--- ---
Third Quarter 2019
GAAP $
1,764 (8) $
1,097 (3) $
432 (21) $
370 $
74 $
296 16 20.0 $
0.99 22
% % % % % %
--- ---
Restructuring and employee severance - 53 53 14 39 0.13
Amortization and other acquisition-related costs - 154 154 38 116 0.39
Impairments and (gain)/loss on disposal of assets, net - 11 11 4 7 0.03
Litigation (recoveries)/charges, net - 17 17 7 10 0.03
Transitional tax benefit, net - (5) 5 0.02
Non-GAAP $
1,764 (8) $
1,097 (3) $
667 (15) $
605 $
130 $
475 9 21.6 $
1.59 14
% % % % % %
--- ---
(1)For more information on these
measures, refer to the Use of Non-
GAAP Measures and Definitions
schedules.
(2)Distribution, selling, general
and administrative expenses.
(3)Attributable to Cardinal Health,
Inc.
The sum of the components may not
equal the total due to rounding.
We generally apply varying tax
rates depending on the item's
nature and tax jurisdiction where
it is incurred.
Schedule 5
---
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation(1)
Operating Earnings/ Net
Gross Earnings/ (Loss) Provision for/ Earnings/ Diluted
Margin SG&A(2) Operating (Loss) Before (Benefit from) Net (Loss)(3) Effective EPS(3)
Gross Growth Growth Earnings/ Growth Income Income Earnings/ Growth Tax Diluted Growth
(in millions, except per common share amounts) Margin Rate SG&A(2) Rate (Loss) Rate Taxes Taxes (Loss)(3) Rate Rate EPS3,4 Rate
--- ---
Year-to-Date 2020
2 4
%
GAAP $
5,278 % $
3,435 % $
(4,368) N.M $
(4,587) $
(237) $
(4,352) N.M 5.2 $
(14.84) N.M
---
Surgical gown recall costs 55 (40) 95 95 25 70 0.24
State opioid assessment related to prior fiscal years - (4) 4 4 1 3 0.01
Restructuring and employee severance - 80 80 18 62 0.21
Amortization and other acquisition-related costs - 395 395 98 297 1.01
Impairments and (gain)/loss on disposal of assets, net - 7 7 1 6 0.02
Litigation (recoveries)/charges, net5 - 5,729 5,729 509 5,220 17.80
Loss on extinguishment of debt - 9 2 7 0.02
Transitional tax benefit, net 12 (12) (0.04)
3 2
% % %
%
Non-GAAP $
5,333 % $
3,391 % $
1,942 5 $
1,732 $
429 $
1,300 4 24.8 $
4.41 6
--- ---
Year-to-Date 2019
GAAP $
5,160 (5) $
3,315 % $
1,752 45 $
1,512 $
342 $
1,169 (18) 22.6 $
3.88 (14)
%
% % % %
--- ---
Restructuring and employee severance - 97 97 25 72 0.24
Amortization and other acquisition-related costs - 468 468 112 356 1.18
Impairments and (gain)/loss on disposal of assets, net - (492) (492) (129) (363) (1.20)
Litigation (recoveries)/charges, net - 20 20 7 13 0.04
Transitional tax benefit, net - (8) 8 0.03
Non-GAAP $
5,160 (5) $
3,315 % $
1,845 (13) $
1,605 $
349 $
1,255 % 21.7
%
% % % $
4.17 5
--- ---
(1)For more information on these measures, refer
to the Use of Non-GAAP Measures and Definitions
schedules.
(2)Distribution, selling, general and
administrative expenses.
(3)Attributable to Cardinal Health, Inc.
4For the nine months ended March 31, 2020, GAAP
diluted loss per share attributable to Cardinal
Health, Inc. and the EPS impact from the GAAP to
non-GAAP per share reconciling items are
calculated using a weighted average of 293
million common shares, which excludes
potentially dilutive securities from the
denominator due to their anti-dilutive effects
resulting from our GAAP net loss for the period.
Year-to-date fiscal 2020 non-GAAP diluted EPS
is calculated using a weighted average of 295
million common shares, which includes
potentially dilutive shares.
5Litigation (recoveries)/charges, net includes a
pre-tax charge of $5.63 billion ($5.14 billion
after tax) recorded in the first quarter of
fiscal 2020 related to the opioid litigation.
The sum of the components may not equal the total
due to rounding.
We generally 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, engage in financial and operational planning, and, in most cases, 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 report 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 and credits from non-GAAP metrics facilitates comparison of
our current financial results to our historical financial results and to
our peer group companies' financial results.
-- Surgical gown recall costs includes inventory write-offs and certain
remediation and supply disruption costs arising from the January 2020
recall of select Association for the Advancement of Medical
Instrumentation ("AAMI") Level 3 surgical gowns and voluntary field
actions (a recall of some packs and a corrective action allowing
overlabeling of other packs) for Presource Procedure Packs containing
affected gowns. We have excluded these costs from our non-GAAP metrics
to allow investors to better understand the underlying operating results
of the business and to facilitate comparison of our current financial
results to our historical financial results and to our peer group
companies' financial results.
-- State opioid assessments related to prior fiscal years is the portion of
state assessments for prescription opioid medications that were sold or
distributed in periods prior to the fiscal year of the initial
assessment. This portion is excluded from non-GAAP financial measures
because it is retrospectively applied to sales in prior fiscal years and
inclusion would obscure analysis of the current fiscal year results of
our underlying, ongoing business. Additionally, while states' laws may
require us to make payments on an ongoing basis, the portion of the
assessment related to sales in prior periods are contemplated to be
one-time, nonrecurring items. Reversals of these accruals have occurred
when certain assessments were found by a Court unconstitutional.
-- Restructuring and employee severance costs are excluded because they are
not part of the ongoing operations of our underlying business.
-- Amortization and other acquisition-related costs, which include
transaction costs, integration costs, and changes in the fair value of
contingent consideration obligations, are excluded because they are not
part of the ongoing operations of our underlying business and to
facilitate comparison of our current financial results to our historical
financial results and to our peer group companies' financial results.
Additionally, costs for amortization 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 facilitates comparison of historical, current and
forecasted financial results. We also exclude other acquisition-related
costs, which 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. These costs are also
significantly impacted by the timing, complexity and size of
acquisitions.
-- Impairments and gain 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 are inherently unpredictable in timing and
amount, and in the case of impairments, are non-cash amounts, so their
exclusion facilitates comparison of historical, current and forecasted
financial results.
-- Litigation recoveries or charges, net are excluded because they often
relate to events that may have occurred in prior or multiple periods, do
not occur in or reflect the ordinary course of our business and are
inherently unpredictable in timing and amount.
-- Loss on extinguishment of debt is excluded because it does not typically
occur in the normal course of business 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 extinguishment transactions.
-- Transitional tax benefit, net related to the Tax Cuts and Jobs Act is
excluded because it results from the one-time impact of a very
significant change in the U.S. federal corporate tax rate and, due to
the significant size of the benefit, obscures analysis of trends and
financial performance. The transitional tax benefit includes the initial
estimate and subsequent adjustments for the re-measurement of deferred
tax assets and liabilities due to the reduction of the U.S. federal
corporate income tax rate and the repatriation tax on undistributed
foreign earnings.
The tax effect for each of the items listed above, other than the transitional tax benefit item, 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 document, the Company presents certain forward-looking non-GAAP metrics. The Company does not provide outlook on a GAAP basis because the items that the Company excludes from GAAP to calculate the comparable non-GAAP measure 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, management does not forecast many of the excluded items for internal use and therefore cannot create or rely on outlook done on a GAAP basis.
The occurrence, timing and amount of any of the items excluded from GAAP to calculate non-GAAP could significantly impact the Company's fiscal 2020 GAAP results. Over the past five fiscal years, the excluded items have impacted the Company's EPS from $0.75 to $4.19, which includes a goodwill impairment charge of $4.36 per share related to our Medical segment that we recognized in fiscal 2018. The excluded items for fiscal 2020 year to date period impacted the Company's EPS by $19.25, which includes a $17.53 charge related to the opioid litigation.
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 gross margin: gross margin, excluding LIFO charges/(credits) and surgical gown recall costs.
Non-GAAP distribution, selling, general and administrative expenses or Non-GAAP SG&A: distribution, selling, general and administrative expenses, excluding state opioid assessment related to prior fiscal years and surgical gown recall costs.
Non-GAAP operating earnings: operating earnings/(loss) excluding (1) LIFO charges/(credits), (2) surgical gown recall costs, (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, and (7) litigation (recoveries)/charges, net.
Non-GAAP earnings before income taxes: earnings/(loss) before income taxes excluding (1) LIFO charges/(credits), (2) surgical gown recall costs, (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, (7) litigation (recoveries)/charges, net, and (8) loss on extinguishment of debt.
Non-GAAP net earnings attributable to Cardinal Health, Inc.: net earnings/(loss) attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) surgical gown recall costs, (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, (7) litigation (recoveries)/charges, net, (8) loss on extinguishment of debt, each net of tax, and (9) transitional tax benefit, net.
Non-GAAP effective tax rate: provision for/(benefit from) income taxes adjusted for (1) LIFO charges/(credits), (2) surgical gown recall costs, (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, (7) litigation (recoveries)/charges, net, (8) loss on extinguishment of debt, and (9) transitional tax benefit, (net) divided by (earnings/(loss) before income taxes adjusted for the first eight items).
Non-GAAP diluted earnings per share attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.
View original content to download multimedia:http://www.prnewswire.com/news-releases/cardinal-health-reports-third-quarter-results-for-fiscal-year-2020-301056508.html
SOURCE Cardinal Health
