Cardinal Health Reports First Quarter Fiscal 2021 Results

DUBLIN, Ohio, Nov. 5, 2020 /PRNewswire/ -- Cardinal Health (NYSE: CAH) today reported first quarter fiscal year 2021 revenues of $39.1 billion, an increase of 5% from the first quarter of last year. First quarter GAAP operating loss was $624 million due to a $1.0 billion pre-tax accrual related to opioid litigation. This quarter's accrual is incremental to the $5.6 billion accrual recorded in the first quarter of fiscal year 2020. Non-GAAP operating earnings increased 7% to $618 million in the quarter. GAAP diluted loss per share was $0.86, and non-GAAP diluted earnings per share (EPS) increased 19% to $1.51. These results include a moderate negative impact from COVID-19, primarily concentrated in the Pharmaceutical segment.

"Our first quarter results and improved outlook for the year demonstrate the resilience of our business model," said Mike Kaufmann, CEO of Cardinal Health. "We delivered strong performance in both segments due to progress against our growth initiatives and disciplined expense management. As we continue to navigate the pandemic, we remain focused on optimizing our core businesses and making strategic investments that create long-term value for our shareholders, customers, communities and employees."

Q1 FY21 summary


                                  Q1 FY21            Q1 FY20         Y/Y



        Revenue         
       $39.1 billion  
       $37.3 billion          5%

    ---



        Operating
         loss(2)       
       $(624) million 
       $(5.3) billion  
     N.M.

    ---

        Non-GAAP
         operating
         earnings        
       $618 million   
       $577 million          7%

    ---



        Net loss
         attributable
         to Cardinal
         Health, Inc.  
       $(253) million 
       $(4.9) billion  
     N.M.

    ---

        Non-GAAP net
         earnings
         attributable
         to Cardinal
         Health, Inc.    
       $445 million   
       $378 million         18%

    ---



        Effective Tax
         Rate                       61.8%               7.9%

    ---

        Non-GAAP
         Effective Tax
         Rate                       23.1%              23.7%

    ---



        Diluted EPS
         attributable
         to Cardinal
         Health,
         Inc.(3)                  $(0.86)           $(16.65)  
     N.M.

    ---

        Non-GAAP
         diluted EPS
         attributable
         to Cardinal
         Health, Inc.               $1.51               $1.27          19%

    ---

Segment results

Pharmaceutical segment


                                Q1 FY21          Q1 FY20 Y/Y




       Revenue        
      $35.1 billion 
      $33.4 billion  5%

    ---


       Segment profit  
      $402 million  
      $398 million  1%

    ---

First quarter revenue for the Pharmaceutical segment increased 5% to $35.1 billion, driven by sales growth from Pharmaceutical Distribution and Specialty Solutions customers.

Pharmaceutical segment profit increased 1% to $402 million in the first quarter, due to a higher contribution from brand sales mix. As expected, segment profit growth was adversely affected by COVID-19-related volume declines.

Medical segment


                              Q1 FY21        Q1 FY20 Y/Y




       Revenue        
     $4.0 billion 
     $3.9 billion  1%

    ---


       Segment profit 
     $230 million 
     $170 million 36%

    ---

First quarter revenue for the Medical segment increased 1% to $4.0 billion, primarily due to sales growth from Cardinal Health at Home.

Medical segment profit increased 36% to $230 million in the first quarter due to cost savings, including global manufacturing efficiencies. The company estimates that COVID-19 had a minimal net impact on the segment's first quarter results, as the adverse effects of cancelled or deferred elective procedures were offset by the temporary reduction of certain costs and higher volumes in our lab business. Additionally, the impact of personal protective equipment (PPE) cost increases was mostly mitigated through price increases.

Fiscal year 2021 outlook(1
)
Cardinal Health is updating its fiscal year 2021 guidance range for non-GAAP diluted earnings per share attributable to Cardinal Health, Inc. to $5.65 to $5.95 from $5.25 to $5.65. This increased guidance range primarily reflects a combination of a lower-than-previously-expected net headwind related to COVID-19 and improved cost savings.

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.

Opioid lawsuits developments
In October 2019, the company agreed in principle to a global settlement framework with a leadership group of state attorneys general that is designed to resolve all pending and potential opioid lawsuits by states and political subdivisions. Negotiations under this settlement framework continue. In connection with the opioid lawsuits and these discussions, in the first quarter of fiscal year 2021, the company incurred a pre-tax charge of $1.02 billion. This is incremental to the $5.63 billion charge incurred in the first quarter of fiscal year 2020. The total pre-tax accrual for these matters at September 30, 2020 is $6.59 billion. These charges are excluded from the company's non-GAAP results.

GAAP tax effect of opioid litigation charges
For fiscal 2021, including the tax effects of opioid litigation charges in the calculation of the company's estimated annual effective tax rate increased the amount of tax benefit in the current quarter by approximately $450 million and is expected to significantly increase the company's provision for income taxes during the remainder of the fiscal year. The company currently estimates net tax benefits of $35 million and $488 million for fiscal 2021 and 2020 in connection with the opioid lawsuit developments.

Recent highlights

    --  Cardinal Health announced that Sheri Edison joined the board of
        directors effective September 1. Ms. Edison currently serves as
        Executive Vice President and General Counsel for Amcor plc.
    --  Cardinal Health board of directors approved a quarterly dividend of
        $0.4859 per share. The dividend will be payable on January 15, 2021 to
        shareholders of record at the close of business on January 4, 2021.
    --  Cardinal Health continues to be recognized for its Diversity and
        Inclusion efforts, recently in the Forbes 2020 America's Best Employers
        for Women list, the Diversity Best Practices (DBP) Inclusion Index, and
        the 2020 LATINA Style, Inc. 50 report.

Upcoming webcasted investor events

    --  Credit Suisse 29th Annual Healthcare Conference at 1:15 p.m. EST,
        November 9
    --  39th Annual J.P. Morgan Healthcare Conference on January 11-14, 2021

Webcast
Cardinal Health will host a webcast today at 8:30 a.m. EST to discuss first 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 November 4, 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.

Contacts
Media: Sarah Shew, sarah.shew@cardinalhealth.com and 614.553.3401
Investors: Kevin Moran, kevin.moran@cardinalhealth.com and 614.757.7942

(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.

(2)GAAP operating loss included a $1.0 billion and $5.6 billion charge related to opioid litigation for the first quarter of 2021 and 2020, respectively.

(3)Due to the net loss during the first quarter of fiscal 2021 and 2020, potentially dilutive common shares have not been included in the denominator of the dilutive per share computation due to their anti-dilutive effect.

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 risks arising from the ongoing COVID-19 pandemic and our critical role in the global healthcare supply chain including the possibility that deferrals and cancellations of elective medical procedures will result in a sustained reduction in demand for our products, the possibility that we will not able to recoup or offset cost increases to source certain personal protective or other equipment and the possibility that we will experience supply disruptions of distribution or manufacturing facilities; 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 the financial impact associated with the outcome of the ongoing lawsuits and investigations by certain governmental and regulatory authorities and risks and uncertainties associated with the ongoing 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 associated with the manufacture and sourcing of certain products, including risks related to our ability and the ability of third-party manufacturers to comply with applicable regulations; our ability to manage uncertainties associated with the pricing of branded pharmaceuticals; 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 or internal controls deficiencies. 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 November 5, 2020. 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 Loss (Unaudited)




                                                                                                                                                                         
              
                First Quarter




       
                (in millions, except per common share amounts)                                                                              2021                                            2020                                        % Change

    ---                                                                                                                                                                                                                                         ---


       Revenue                                                                                                                                         $
              
                39,065                                                                 $
              37,341                                  5
                                                                                                                                                                                                                                                                                                          %



       Cost of products sold                                                                                                                  37,350                                                      35,662                                                                         5
                                                                                                                                                                                                                                                                                        %



       Gross margin                                                                                                                            1,715                                                       1,679                                                                         2
                                                                                                                                                                                                                                                                                        %





       
                Operating expenses:



       Distribution, selling, general and administrative expenses                                                                              1,137                                                       1,107                                                                         3
                                                                                                                                                                                                                                                                                        %



       Restructuring and employee severance                                                                                                       37                                                          30



       Amortization and other acquisition-related costs                                                                                          118                                                         132



       Impairments and (gain)/loss on disposal of assets, net                                                                                      9                                                           1



       Litigation (recoveries)/charges, net (1)                                                                                                1,038                                                       5,673

    ---


       Operating loss                                                                                                                          (624)                                                    (5,264)                                                            
            N.M.





       Other (income)/expense, net                                                                                                               (7)                                                         14



       Interest expense, net                                                                                                                      45                                                          66                                                                      (32)
                                                                                                                                                                                                                                                                                        %



       Loss on early extinguishment of debt                                                                                                        1



       Loss before income taxes                                                                                                                (663)                                                    (5,344)                                                             
            N.M





       Provision for/(benefit from) income taxes (2)                                                                                           (410)                                                      (423)                                                             
            N.M

    ---


       Net loss                                                                                                                                (253)                                                    (4,921)                                                             
            N.M





       Less: Net earnings attributable to noncontrolling interests                                                                                 -                                                        (1)

    ---


       
                Net loss attributable to Cardinal Health, Inc.                                                                                      $
              
                (253)                                                               $
              (4,922)                            
     N.M.

    ---




       
                Loss per common share attributable to Cardinal Health, Inc.:



       Basic                                                                                                                                           $
              
                (0.86)                                                               $
              (16.65)                            
     N.M.



       Diluted                                                                                                                                (0.86)                               (3)                  (16.65)                                (3)                         
            N.M.





       
                Weighted-average number of common shares outstanding:



       Basic                                                                                                                                     293                                                         296



       Diluted                                                                                                                                   293                                                         296




                     (1) Litigation (recoveries)/charges, net includes pre-tax charges of $1.02 billion and $5.63 billion recorded in the first quarter of fiscal 2021 and 2020, respectively, related to the opioid litigation. 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, but not private plaintiffs. The amount of ultimate loss may
                      differ materially from this accrual. Definitive terms for the settlement continue to be negotiated, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be
                      satisfied.


                     2 For fiscal 2021, including the tax effects of opioid litigation charges in the calculation of the estimated annual effective tax rate increased the amount of tax benefit in the current quarter by approximately $450 million and is expected to
                      significantly increase the provision for income taxes during the remainder of the fiscal year. The current estimate of net tax benefits is $35 million and $488 million for fiscal 2021 and 2020 in connection with opioid lawsuit developments.



       
                (3) Due to the net loss during the first quarter of fiscal 2021 and 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)                                                                                                                                      September 30,                 June 30,
                                                                                                                                                                                 2020                      2020

    ---                                                                                                                                                                                                    ---

                                                                              
        
                Assets



       
                Current assets:



       Cash and equivalents                                                                                                                                                           $
      
      2,746                           $
       2,771



       Trade receivables, net                                                                                                                                                  8,637                            8,264



       Inventories, net                                                                                                                                                       13,439                           13,198



       Prepaid expenses and other                                                                                                                                              2,208                            1,707



       Total current assets                                                                                                                                                   27,030                           25,940





       Property and equipment, net                                                                                                                                             2,369                            2,366



       Goodwill and other intangibles, net                                                                                                                                    11,186                           11,275



       Other assets                                                                                                                                                            1,142                            1,185

    ---


       
                Total assets                                                                                                                                                     $
      
      41,727                          $
       40,766

    ---



                                                               
              
          Liabilities and Shareholders' Equity



       
                Current liabilities:



       Accounts payable                                                                                                                                                              $
      
      21,688                          $
       21,374



       Current portion of long-term obligations and other short-term borrowings                                                                                                   12                               10



       Other accrued liabilities                                                                                                                                               2,316                            2,231



       Total current liabilities                                                                                                                                              24,016                           23,615





       Long-term obligations, less current portion                                                                                                                             6,728                            6,765



       Deferred income taxes and other liabilities                                                                                                                             9,558                            8,594





       Total shareholders' equity                                                                                                                                              1,425                            1,792

    ---


       
                Total liabilities and shareholders' equity                                                                                                                       $
      
      41,727                          $
       40,766

    ---


                                                                                                                                                                                             
        
             
        Schedule 3

                                                                                                                                                                                                                        ---

                                                                                                         
         
                Cardinal Health, Inc. and Subsidiaries

                                                                                            
              
       Condensed Consolidated Statements of Cash Flows (Unaudited
     )




                                                                                                                                                                                    First Quarter




       
                (in millions)                                                                                                                                        2021                     2020

    ---                                                                                                                                                                                            ---


       
                Cash flows from operating activities:



       Net loss                                                                                                                                                               $
     
            (253)                     $
         (4,921)





       Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:



       Depreciation and amortization                                                                                                                                      205                               234



       Impairments and (gain)/loss on disposal of assets, net                                                                                                               9                                 1



       Share-based compensation                                                                                                                                            28                                20



       Provision for bad debts                                                                                                                                             16                                29



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



       (Increase)/decrease in trade receivables                                                                                                                         (388)                              229



       (Increase)/decrease in inventories                                                                                                                               (245)                              356



       Increase/(decrease) in accounts payable                                                                                                                            313                           (1,812)



       Other accrued liabilities and operating items, net                                                                                                                 585                             5,211

    ---


       Net cash provided by/(used in) operating activities                                                                                                                270                             (653)





       
                Cash flows from investing activities:



       Additions to property and equipment                                                                                                                               (78)                             (72)



       Purchases of investments                                                                                                                                          (17)                              (3)



       Proceeds from investments                                                                                                                                            1                                 2



       Net cash used in investing activities                                                                                                                             (94)                             (73)





       
                Cash flows from financing activities:



       Net change in short-term borrowings                                                                                                                                  -                              (2)



       Reduction of long-term obligations, net of issuance costs                                                                                                         (40)                             (74)



       Net tax proceeds withholdings from share-based compensation                                                                                                       (12)                             (13)



       Dividends on common shares                                                                                                                                       (146)                            (146)



       Purchase of treasury shares                                                                                                                                          -                            (350)

    ---


       Net cash used in financing activities                                                                                                                            (198)                            (585)





       Effect of exchange rates changes on cash and equivalents                                                                                                           (3)                              (8)





       Net decrease in cash and equivalents                                                                                                                              (25)                          (1,319)



       Cash and equivalents at beginning of period                                                                                                                      2,771                             2,531

    ---


       
                Cash and equivalents at end of period                                                                                                                     $
     
            2,746                        $
         1,212

    ---


                                                                                                                                                                                                               
         
                
           Schedule 4

                                                                                                                                                                                                                                                 ---

                                                                                                               
          
              Cardinal Health, Inc. and Subsidiaries

                                                                                                                     
            
                Segment Information




                                                                                                                        
            
                First Quarter

                                                                                                                                       ---



                     (in millions)                          2021                                   2020            
          
                (in millions)                                       2021                        2020

    ---                                                                                                                                                                                                      ---


       
                Pharmaceutical                                                                              
          
              Medical





       
                Revenue                                                                                     
          
              Revenue



       Amount                                                     $
              
                35,112                         $
              33,428                             
           Amount                $
           
             3,957                     $
       3,917



       Growth rate                                            5                                          6
        %                               
              Growth rate                           1
                                                               %                                                                                                                         
          %                                 3
        %





       
                Segment profit                                                                              
          
              Segment profit



       Amount                                                        $
              
                402                            $
              398                             
           Amount                  $
           
             230                       $
       170



       Growth rate                                            1                                        (3)
        %                               
              Growth rate                          36
                                                               %
                                                                                                                                                                                                %                                26
        %



       Segment profit margin                               1.14                                             1.19                                
              Segment profit margin                  5.81
                                                      
            %                                               %                                                                                                                        %
                                                                                                                                                                                                %                                    4.33

    ---                                                                                                                                                                                                                                      ---




       The sum of the components and certain computations may reflect rounding adjustments.


                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
      
            
     Schedule 5

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         ---

                                                                                                                                                                                                                                                                                                                                                           
              
                Cardinal Health, Inc. and Subsidiaries

                                                                                                                                                                                                                                                                                                                                                             
              
                GAAP / Non-GAAP Reconciliation(1)




                                                                                                                                                                                                                                                                              Earnings/



                                                                                                                 Gross                                                                                                                        Operating                           (Loss)                           Provision for/                                                                   Net                                                                                                     Diluted


                                                                                                               Margin                                               SG&A(2)                           Operating                           Earnings                            Before                           (Benefit from)                              Net                              Earnings(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

    ---                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           ---

                                                                                                                                                                                                                                                                                                                                                                     
              
                First Quarter 2021

                                                                                                                                                                                                                                                                                                                                                                                        ---

                                                                2



                                                                                                                                                                                                                                                                             %                                                                                                                                                                                                                                                                                                                                        %

       
                GAAP                                                                $
              
                1,715                      %                                                                            $
              
                1,137                       3                                                                                      $
              
                (624)                                                                  N.M.                                             $
         
            (663)           $
        
            (410)    $
         
            (253)       N.M.       61.8             $
            
           (0.86)            N.M.


        Surgical gown recalls costs                                                  2                                                       3                                                                                                        (1)                                                             (1)                                                                                                                                             (1)


        State opioid assessment related to
         prior fiscal years                                                          -                                                   (41)                                                                                                        41                                                               41                                                                         10                                                                     31                                                                        0.10


        Restructuring and employee
         severance                                                                   -                                                                                                                                                               37                                                               37                                                                          9                                                                     28                                                                        0.09


        Amortization and other
         acquisition-related costs                                                   -                                                                                                                                                              118                                                              118                                                                         29                                                                     89                                                                        0.30


        Impairments and (gain)/loss on
         disposal of assets                                                          -                                                                                                                                                                9                                                                9                                                                         16                                                                    (7)                                                                     (0.02)


        Litigation (recoveries)/charges,
         net5                                                                        -                                                                                                                                                            1,038                                                            1,038                                                                        479                                                                    559                                                                        1.91


        Loss on early extinguishment of
         debt                                                                        -                                                                                                                                                                                                                                1                                                                          1


                                                                2


                                                                                                                                                                                                                                                                                                                                                                                                                                                                      %                                                                                                                                    %                                                              %
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      %

       
                Non-GAAP                                                            $
              
                1,717                      %                                                                            $
              
                1,099                                                   %                                                           $
              
                618                                                                      7                                                $
        
             580             $
         
            134     $
        
               445         18         23.1              $
        
                1.51             19


                                                                                                                                                                                                                                                                              
              First Quarter 2020




       GAAP                                                                                          $
              1,679                      1                                                                                          $
              1,107                     (4)                                                                                                $
              (5,264)                                                        
              N.M                                                   $
          (5,344)                  $
          (423)          $
          (4,922)     
     N.M.        7.9

                                                                                                                                            %                                                                                                                                %                                                                                                                                                                                                                                                                                                                                        %                       $
        (16.65)          
     N.M.


        State opioid assessment related to
         prior fiscal years                                                          -                                                    (5)                                                                                                         5                                                                5                                                                          1                                                                      4                                                                        0.01


        Restructuring and employee
         severance                                                                   -                                                                                                                                                               30                                                               30                                                                          8                                                                     22                                                                        0.08


        Amortization and other
         acquisition-related costs                                                   -                                                                                                                                                              132                                                              132                                                                         34                                                                     98                                                                        0.33


        Impairments and (gain)/loss on
         disposal of assets, net                                                     -                                                                                                                                                                1                                                                1                                                                                                                                                1


        Litigation (recoveries)/charges,
         net5                                                                        -                                                                                                                                                            5,673                                                            5,673                                                                        498                                                                  5,175                                                                       17.51



       Non-GAAP                                                                                      $
              1,679                      1                                                                                          $
              1,102                     (2)                                                                                                    $
              577                                                                      6                                                       $
           496                     $
          117            $
             378        (4)        23.7                     $
              1.27            (2)
                                                                                                                                                                                                                                                                                                                                                                                                                                                                      %                                                                                                                                    %
                                                                                                                                            %                                                                                                                                %                                                                                                                                                                                                                                                                                                                                        %                                                   %

    ---                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            ---




       
                (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.


                     4First quarter fiscal 2021 and 2020 GAAP diluted loss per share attributable to Cardinal Health, Inc. ("GAAP diluted EPS") and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 293 and 296 million common shares, respectively, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the quarter. First quarter fiscal 2021
                      and 2020 non-GAAP diluted EPS is calculated using a weighted average of 295 and 297 million common shares, respectively, which includes potentially dilutive shares.


                     5Litigation (recoveries)/charges, net includes pre-tax charges of $1.02 billion and $5.63 billion recorded in the first quarter of fiscal 2021 and 2020, respectively, related to the opioid litigation. For fiscal 2021, including the tax effects of opioid litigation charges in the calculation of the estimated annual effective tax rate increased the amount of tax benefit in the current quarter by approximately $450 million and is expected to significantly increase
                      the provision for income taxes during the remainder of the fiscal year. The current estimate of net tax benefits is $35 million and $488 million for fiscal 2021 and 2020 in connection with opioid lawsuit developments.



       The sum of the components and certain computations may reflect rounding adjustments.



       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, 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 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. We did not recognize any
        LIFO charges or credits during the periods presented.
    --  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 period in which the expense is
        incurred. 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 the underlying assessments were invalidated by a Court.
    --  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 early 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 2021 GAAP results. Over the past five fiscal years, the excluded items have impacted the Company's EPS from $0.75 to $18.06, which includes a $17.54 charge related to the opioid litigation we recognized in fiscal 2020. The excluded items for fiscal 2021 impacted the Company's first quarter EPS by $2.37, which includes a $1.87 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.

Interest and Other, net: other (income)/expense, net plus interest expense, net.

Segment Profit: segment revenue minus (segment cost of products sold and segment distribution, selling, general, and administrative expenses).

Segment Profit Margin: segment profit divided by segment revenue.

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 surgical gown recall costs and state opioid assessment related to prior fiscal years.

Non-GAAP operating earnings: operating 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: 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 early extinguishment of debt.

Non-GAAP net earnings attributable to Cardinal Health, Inc.: net 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 early 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 early extinguishment of debt, and (9) transitional tax benefit, (net) divided by (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.

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SOURCE Cardinal Health