DUBLIN, Ohio, Nov. 7, 2019 /PRNewswire/ -- Cardinal Health
(NYSE: CAH) today reported first quarter fiscal year 2020 revenue
of $37.3 billion, an increase of 6
percent from the first quarter last year.
First quarter GAAP operating loss was $5.3 billion and included a $5.6 billion accrual related to opioid
litigation. Non-GAAP operating earnings increased 6 percent
to $577 million. GAAP diluted loss per share was $16.65, while non-GAAP diluted earnings per share
(EPS) decreased 2 percent to $1.27.
"We are off to a solid start to fiscal year 2020, giving us
confidence in our operating rigor and path forward," said
Mike Kaufmann, CEO of Cardinal
Health. "Our disciplined cost management is enabling strategic
investment across the enterprise. We recognize that as our industry
and the healthcare sector continue to evolve, there is more work to
be done. Our core capabilities, deep industry knowledge and scale
position us to adapt and deliver long-term shareholder value."
Q1 FY20 summary
|
Q1
FY20
|
Q1
FY19
|
Y/Y
|
Revenue
|
$37.3
billion
|
$35.2
billion
|
6%
|
|
|
|
|
Operating
earnings/(loss)
|
$(5.3)
billion
|
$816
million
|
N.M.
|
Non-GAAP operating
earnings
|
$577
million
|
$542
million
|
6%
|
|
|
|
|
Net earnings/(loss)
attributable
to Cardinal Health, Inc.
|
$(4.9)
billion
|
$593
million
|
N.M.
|
Non-GAAP net earnings
attributable
to Cardinal Health, Inc.
|
$378
million
|
$396
million
|
(4)%
|
|
|
|
|
Diluted EPS/(loss per
share)
attributable to Cardinal Health, Inc.2
|
$(16.65)
|
$1.94
|
N.M.
|
Non-GAAP diluted EPS
attributable
to Cardinal Health, Inc.
|
$1.27
|
$1.29
|
(2)%
|
Segment results
Pharmaceutical segment
|
Q1
FY20
|
Q1
FY19
|
Y/Y
|
Revenue
|
$33.4
billion
|
$31.4
billion
|
6%
|
Segment
profit
|
$398
million
|
$409
million
|
(3)%
|
First quarter revenue for the Pharmaceutical segment increased 6
percent to $33.4 billion due to sales
growth from Pharmaceutical Distribution and Specialty Solutions
customers.
Pharmaceutical segment profit decreased 3 percent to
$398 million in the first quarter,
which reflects the adverse impact of Pharmaceutical Distribution
customer contract renewals, partially offset by benefits from cost
savings initiatives and the performance of Specialty Solutions.
Medical segment
|
Q1
FY20
|
Q1
FY19
|
Y/Y
|
Revenue
|
$3.9
billion
|
$3.8
billion
|
3%
|
Segment
profit
|
$170
million
|
$135
million
|
26%
|
First quarter revenue for the Medical segment increased 3
percent to $3.9 billion due to
organic growth across the segment, led by products and
distribution, and Cardinal Health at Home. This was partially
offset by the divestiture of the naviHealth business.
Medical segment profit increased 26 percent to $170 million in the first quarter, which reflects
the benefits from cost savings initiatives, as well as growth in
products and distribution, services, and Cardinal Health at Home.
This was partially offset by the divestiture of the naviHealth
business.
Outlook
The company does not provide a GAAP EPS outlook because it is
unable to reliably forecast most of the items that are excluded
from GAAP EPS to calculate non-GAAP EPS. These items could cause
EPS to differ materially from non-GAAP EPS. See "Use of Non-GAAP
Measures" following the attached schedules for additional
explanation.
The company reaffirms its fiscal year 2020 guidance range for
non-GAAP diluted earnings per share attributable to Cardinal
Health, Inc. of $4.85 to $5.10.
Opioid lawsuits developments
In October 2019, the company
agreed in principle to a global settlement framework with a
leadership group of four state attorneys general that is designed
to resolve all pending and potential opioid lawsuits by states and
political subdivisions. The global settlement framework includes,
among other significant components, an agreement in principle by
the company to pay up to $5.56
billion over 18 years. There is no assurance that a
definitive settlement agreement will be finalized by the necessary
parties or that the contingencies to any agreement will be
satisfied. The company also agreed to a $66
million settlement with two Ohio counties. In connection with these
matters, the company accrued $5.63
billion ($5.14 billion after
tax) which is excluded from its non-GAAP earnings.
Quarterly dividend
Cardinal Health board of directors approved a quarterly dividend
of $0.4811 per share. The dividend
will be payable on January 15, 2020
to shareholders of record at the close of business on January 2, 2020.
Tax rate
During the first quarters of fiscal 2020 and 2019, GAAP
effective tax rates were 7.9 percent and 19.4 percent,
respectively. Non-GAAP effective tax rates were 23.7 percent and
14.0 percent, respectively.
The GAAP effective tax rate for the first quarter of fiscal 2020
was impacted by the assessment of the future deductibility of the
$5.6 billion opioid litigation
accrual.
The effective tax rates in the first quarter of fiscal 2019 were
affected by an approximately $0.18
per share positive impact of discrete tax benefits primarily
related to international legal entity changes.
Webcast
Cardinal Health will host a webcast today at 8 a.m. Eastern 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 6, 2020.
Upcoming webcasted investor events
- Credit Suisse 28th Annual Healthcare Conference on
November 12 at 2:25 p.m. Mountain in Scottsdale, Ariz.
- 38th Annual J.P. Morgan Healthcare Conference on
January 13-16, 2020 in San Francisco, Calif.
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.
1GAAP 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.
2Due to the net loss during the first quarter of
fiscal 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 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; our ability to manage
uncertainties associated with the pricing of branded
pharmaceuticals, including decreased branded inflation and possible
branded price reductions; 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 November 7, 2019. Except to the
extent required by applicable law, Cardinal Health undertakes no
obligation to update or revise any forward-looking statement.
Schedule 1
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
|
First
Quarter
|
(in millions, except
per common share amounts)
|
2020
|
|
2019
|
|
%
Change
|
Revenue
|
$
|
37,341
|
|
|
$
|
35,213
|
|
|
6
|
%
|
Cost of products
sold
|
35,662
|
|
|
33,546
|
|
|
6
|
%
|
Gross
margin
|
1,679
|
|
|
1,667
|
|
|
1
|
%
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Distribution,
selling, general and administrative expenses
|
1,107
|
|
|
1,155
|
|
|
(4)
|
%
|
Restructuring and
employee severance
|
30
|
|
|
32
|
|
|
(5)
|
%
|
Amortization and
other acquisition-related costs
|
132
|
|
|
156
|
|
|
(15)
|
%
|
Impairments and
(gain)/loss on disposal of assets, net
|
1
|
|
|
(511)
|
|
|
N.M.
|
Litigation
(recoveries)/charges, net 1
|
5,673
|
|
|
19
|
|
|
N.M.
|
Operating
earnings/(loss)
|
(5,264)
|
|
|
816
|
|
|
N.M.
|
|
|
|
|
|
|
Other
(income)/expense, net
|
14
|
|
|
3
|
|
|
N.M.
|
Interest expense,
net
|
66
|
|
|
77
|
|
|
(14)
|
%
|
Earnings/(loss)
before income taxes
|
(5,344)
|
|
|
736
|
|
|
N.M.
|
|
|
|
|
|
|
Provision
for/(benefit from) income taxes 2
|
(423)
|
|
|
142
|
|
|
N.M
|
Net
earnings/(loss)
|
(4,921)
|
|
|
594
|
|
|
N.M.
|
|
|
|
|
|
|
Less: Net earnings
attributable to noncontrolling interests
|
(1)
|
|
|
(1)
|
|
|
N.M.
|
Net
earnings/(loss) attributable to Cardinal Health,
Inc.
|
$
|
(4,922)
|
|
|
$
|
593
|
|
|
N.M.
|
|
|
|
|
|
|
Earnings/(loss)
per common share attributable to Cardinal Health,
Inc.:
|
|
|
|
|
|
Basic
|
$
|
(16.65)
|
|
|
$
|
1.95
|
|
|
N.M.
|
Diluted
|
(16.65)
|
3
|
|
1.94
|
|
|
N.M.
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding:
|
|
|
|
|
|
Basic
|
296
|
|
|
305
|
|
|
|
Diluted
|
296
|
3
|
|
306
|
|
|
|
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 four state
attorneys general from the multi-state task force that is
designed to resolve all pending and future opioid lawsuits and
claims by states and political subdivisions, but not private
plaintiffs (the "Settlement Framework"). We accrue for
contingencies when it is probable that a liability has been
incurred and the amount of the loss can be reasonably estimated.
Because loss contingencies are inherently unpredictable and
unfavorable developments or resolutions can occur, the assessment
is highly subjective and requires judgments about future events.
Moreover, the global Settlement Framework is in its early phases,
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. We will regularly review these opioid
litigation matters to determine whether our accrual is adequate. We
are unable to reasonably estimate the liability associated with any
potential distribution of treatment medications and any incremental
costs for changes to our controlled substance anti-diversion
program that we may agree to under the Settlement Framework. 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 three
months ended September 30, 2019,
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. Tax benefits from uncertain tax positions
are recognized when it is more likely than not that the position
will be sustained upon examination of the technical merits of the
position, including resolutions of any related appeals or
litigation. The amount recognized is measured as the largest amount
of tax benefit that is greater than 50 percent likely of being
realized upon settlement. For tax benefits that do not qualify for
recognition, we recognize a liability for unrecognized tax
benefits. Our assumptions and estimates around this benefit and
uncertain tax position require significant judgment since the
definitive settlement terms and documentation, including provisions
related to deductibility, under the Settlement Framework have not
been negotiated and the U.S. tax law governing deductibility was
changed by the U.S. Tax Cuts and Jobs Act ("Tax Act"). We have made
reasonable estimates and recorded amounts based on management's
judgment and our current understanding of the Tax Act which is
subject to further interpretation by the U.S. Internal Revenue
Service ("IRS"). Further, it is possible that the tax authorities
could challenge our interpretation of the Tax Act or the estimates
and assumptions used to assess the future deductibility of these
benefits. The actual amount of tax benefit related to uncertain tax
positions may differ materially from these estimates.
3 Due to the net loss during the first quarter
of fiscal 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,
2019
|
|
June 30,
2019
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and
equivalents
|
$
|
1,212
|
|
|
$
|
2,531
|
|
Trade receivables,
net
|
8,190
|
|
|
8,448
|
|
Inventories,
net
|
12,458
|
|
|
12,822
|
|
Prepaid expenses and
other
|
1,855
|
|
|
1,946
|
|
Total current
assets
|
23,715
|
|
|
25,747
|
|
|
|
|
|
Property and
equipment, net
|
2,324
|
|
|
2,356
|
|
Goodwill and other
intangibles, net
|
11,658
|
|
|
11,808
|
|
Other
assets
|
1,482
|
|
|
1,052
|
|
Total
assets
|
$
|
39,179
|
|
|
$
|
40,963
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
|
19,724
|
|
|
$
|
21,535
|
|
Current portion of
long-term obligations and other short-term borrowings
|
631
|
|
|
452
|
|
Other accrued
liabilities
|
2,194
|
|
|
2,122
|
|
Total current
liabilities
|
22,549
|
|
|
24,109
|
|
|
|
|
|
Long-term
obligations, less current portion
|
7,360
|
|
|
7,579
|
|
Deferred income taxes
and other liabilities
|
8,367
|
|
|
2,945
|
|
|
|
|
|
Total shareholders'
equity
|
903
|
|
|
6,330
|
|
Total liabilities
and shareholders' equity
|
$
|
39,179
|
|
|
$
|
40,963
|
|
Schedule 3
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash
Flows (Unaudited)
|
First
Quarter
|
(in
millions)
|
2020
|
|
2019
|
Cash flows from
operating activities:
|
|
|
|
Net
earnings/(loss)
|
$
|
(4,921)
|
|
|
$
|
594
|
|
|
|
|
|
Adjustments to
reconcile net earnings/(loss) to net cash provided by/(used in)
operating activities:
|
|
|
|
Depreciation and
amortization
|
234
|
|
|
245
|
|
Impairments and
(gain)/loss on sale of other investments
|
—
|
|
|
2
|
|
Impairments and
(gain)/loss on disposal of assets, net
|
1
|
|
|
(511)
|
|
Share-based
compensation
|
20
|
|
|
19
|
|
Provision for bad
debts
|
29
|
|
|
21
|
|
Change in operating
assets and liabilities, net of effects from acquisitions and
divestitures:
|
|
|
|
(Increase)/decrease
in trade receivables
|
229
|
|
|
(302)
|
|
(Increase)/decrease
in inventories
|
356
|
|
|
(178)
|
|
Increase/(decrease)
in accounts payable
|
(1,812)
|
|
|
559
|
|
Other accrued
liabilities and operating items, net
|
5,211
|
|
|
(84)
|
|
Net cash provided
by/(used in) operating activities
|
(653)
|
|
|
365
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
Additions to property
and equipment
|
(72)
|
|
|
(58)
|
|
Purchase of
available-for-sale securities and other investments
|
(3)
|
|
|
(4)
|
|
Proceeds from sale of
available-for-sale securities and other investments
|
2
|
|
|
1
|
|
Proceeds from
divestitures, net of cash sold, and disposal of property and
equipment
|
—
|
|
|
740
|
|
Net cash provided
by/(used in) investing activities
|
(73)
|
|
|
679
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Net change in
short-term borrowings
|
(2)
|
|
|
—
|
|
Reduction of
long-term obligations
|
(74)
|
|
|
(1)
|
|
Net tax
proceeds/(withholdings) from share-based compensation
|
(13)
|
|
|
(13)
|
|
Dividends on common
shares
|
(146)
|
|
|
(150)
|
|
Purchase of treasury
shares
|
(350)
|
|
|
(600)
|
|
Net cash used in
financing activities
|
(585)
|
|
|
(764)
|
|
|
|
|
|
Effect of exchange
rates changes on cash and equivalents
|
(8)
|
|
|
2
|
|
|
|
|
|
Net
increase/(decrease) in cash and equivalents
|
(1,319)
|
|
|
282
|
|
Cash and equivalents
at beginning of period
|
2,531
|
|
|
1,763
|
|
Cash and
equivalents at end of period
|
$
|
1,212
|
|
|
$
|
2,045
|
|
Schedule 4
Cardinal Health, Inc. and Subsidiaries
Segment Information
First
Quarter
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
2020
|
|
2019
|
|
(in
millions)
|
2020
|
|
2019
|
Pharmaceutical
|
|
|
|
|
Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
Revenue
|
|
|
|
Amount
|
$
|
33,428
|
|
|
$
|
31,416
|
|
|
Amount
|
$
|
3,917
|
|
|
$
|
3,801
|
|
Growth
rate
|
6
|
%
|
|
9
|
%
|
|
Growth
rate
|
3
|
%
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
Segment
profit
|
|
|
|
Amount
|
$
|
398
|
|
|
$
|
409
|
|
|
Amount
|
$
|
170
|
|
|
$
|
135
|
|
Growth
rate
|
(3)
|
%
|
|
(12)
|
%
|
|
Growth
rate
|
26
|
%
|
|
5
|
%
|
Segment profit
margin
|
1.19
|
%
|
|
1.30
|
%
|
|
Segment profit
margin
|
4.33
|
%
|
|
3.55
|
%
|
Schedule 5
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP
Reconciliation1
|
|
|
|
|
Earnings/
|
|
|
Net
|
|
|
|
|
|
|
|
Operating
|
(Loss)
|
Provision
for/
|
|
Earnings/
|
|
|
Diluted
|
|
|
SG&A2
|
Operating
|
Earnings
|
Before
|
(Benefit
from)
|
Net
|
(Loss)3
|
Effective
|
|
EPS3
|
|
|
Growth
|
Earnings/
|
Growth
|
Income
|
Income
|
Earnings/
|
Growth
|
Tax
|
Diluted
|
Growth
|
(in millions, except
per common share amounts)
|
SG&A2
|
Rate
|
(Loss)
|
Rate
|
Taxes
|
Taxes
|
(Loss)3
|
Rate
|
Rate
|
EPS3,4
|
Rate
|
First Quarter
2020
|
GAAP
|
$
|
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
|
$
|
1,102
|
|
(2)
|
%
|
$
|
577
|
|
6
|
%
|
$
|
496
|
|
$
|
117
|
|
$
|
378
|
|
(4)
|
%
|
23.7
|
%
|
$
|
1.27
|
|
(2)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
2019
|
GAAP
|
$
|
1,155
|
|
9
|
%
|
$
|
816
|
|
211
|
%
|
$
|
736
|
|
$
|
142
|
|
$
|
593
|
|
416
|
%
|
19.4
|
%
|
$
|
1.94
|
|
439
|
%
|
State opioid
assessment related to prior fiscal years
|
(29)
|
|
|
29
|
|
|
29
|
|
8
|
|
21
|
|
|
|
0.07
|
|
|
Restructuring and
employee severance
|
—
|
|
|
32
|
|
|
32
|
|
8
|
|
24
|
|
|
|
0.08
|
|
|
Amortization and
other acquisition-related costs
|
—
|
|
|
156
|
|
|
156
|
|
36
|
|
120
|
|
|
|
0.39
|
|
|
Impairments and
(gain)/loss on disposal of assets, net
|
—
|
|
|
(511)
|
|
|
(511)
|
|
(134)
|
|
(377)
|
|
|
|
(1.23)
|
|
|
Litigation
(recoveries)/charges, net
|
—
|
|
|
19
|
|
|
19
|
|
5
|
|
14
|
|
|
|
0.05
|
|
|
Non-GAAP
|
$
|
1,126
|
|
6
|
%
|
$
|
542
|
|
(11)
|
%
|
$
|
461
|
|
$
|
65
|
|
$
|
396
|
|
14
|
%
|
14.0
|
%
|
$
|
1.29
|
|
18
|
%
|
1For more information on these measures, refer to the
Use of Non-GAAP Measures and Definitions schedules.
2Distribution, selling, general and administrative
expenses.
3Attributable to Cardinal Health, Inc.
4 First quarter fiscal 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 296 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 quarter. First quarter fiscal 2020 non-GAAP
diluted EPS is calculated using a weighted average of 297 million
common shares, which includes potentially dilutive shares.
5 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 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, evaluate
the balance sheet, engage in financial and operational planning,
and determine incentive compensation because we believe that these
measures provide additional perspective on and, in some
circumstances are more closely correlated to, the performance of
our underlying, ongoing business. We provide these non-GAAP
financial measures to investors as supplemental metrics to assist
readers in assessing the effects of items and events on our
financial and operating results on a year-over-year basis and in
comparing our performance to that of our competitors. However, the
non-GAAP financial measures that we use may be calculated
differently from, and therefore may not be comparable to, similarly
titled measures used by other companies. The non-GAAP financial
measures disclosed by us should not be considered a substitute for,
or superior to, financial measures calculated in accordance with
GAAP, and the financial results calculated in accordance with GAAP
and reconciliations to those financial statements set forth below
should be carefully evaluated.
Exclusions from Non-GAAP Financial Measures
Management believes it is useful to exclude the following items
from the non-GAAP measures presented in this earnings release for
its own and for investors' assessment of the business for the
reasons identified below:
- LIFO charges and credits are excluded because the factors that
drive last-in first-out ("LIFO") inventory charges or credits, such
as pharmaceutical manufacturer price appreciation or deflation and
year-end inventory levels (which can be meaningfully influenced by
customer buying behavior immediately preceding our fiscal
year-end), are largely out of our control and cannot be accurately
predicted. The exclusion of LIFO charges 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.
- 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 declared 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 impacted the Company's first quarter EPS
by $17.92, which includes a
$17.40 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 distribution, selling, general and administrative
expenses or Non-GAAP SG&A: distribution, selling, general
and administrative expenses, excluding state opioid assessments
related to prior fiscal years.
Non-GAAP operating earnings: operating earnings excluding
(1) LIFO charges/(credits), (2) state opioid assessment related to
prior fiscal years, (3) restructuring and employee severance, (4)
amortization and other acquisition-related costs, (5) impairments
and (gain)/loss on disposal of assets, and (6) litigation
(recoveries)/charges, net.
Non-GAAP earnings before income taxes: earnings before
income taxes excluding (1) LIFO charges/(credits), (2) state opioid
assessment related to prior fiscal years, (3) restructuring and
employee severance, (4) amortization and other acquisition-related
costs, (5) impairments and (gain)/loss on disposal of assets, (6)
litigation (recoveries)/charges, net, and (7) loss on
extinguishment of debt.
Non-GAAP effective tax rate: provision for (benefit from)
income taxes adjusted for (1) LIFO charges/(credits), (2) state
opioid assessment related to prior fiscal years, (3) restructuring
and employee severance, (4) amortization and other
acquisition-related costs, (5) impairments and (gain)/loss on
disposal of assets, (6) litigation (recoveries)/charges, net,
(7) loss on extinguishment of debt, and (8) transitional tax
benefit, (net) divided by (earnings before income taxes adjusted
for the first seven items).
Non-GAAP net earnings/(loss) attributable to Cardinal Health,
Inc.: net earnings/(loss) attributable to Cardinal Health, Inc.
excluding (1) LIFO charges/(credits), (2) state opioid assessment
related to prior fiscal years, (3) restructuring and employee
severance, (4) amortization and other acquisition-related costs,
(5) impairments and (gain)/loss on disposal of assets, (6)
litigation (recoveries)/charges, net, (7) loss on extinguishment of
debt, each net of tax, and (8) transitional tax benefit, net.
Non-GAAP diluted earnings/(loss) per share attributable to
Cardinal Health, Inc.: non-GAAP net earnings/(loss)
attributable to Cardinal Health, Inc. divided by diluted
weighted-average shares outstanding.
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SOURCE Cardinal Health