Cardinal Health Reports Fourth-quarter and Year-end Results for Fiscal Year 2018

Published: Aug 06, 2018

 

DUBLIN, Ohio, Aug. 6, 2018 /PRNewswire/ -- Cardinal Health (NYSE: CAH) today reported fourth-quarter fiscal year 2018 revenues of $35 billion, an increase of 7 percent from the fourth quarter last year, and fiscal year 2018 revenues of $137 billion, an increase of 5 percent from fiscal 2017.

Fourth-quarter GAAP operating earnings were a loss of $1.1 billion due to a Medical segment non-cash, goodwill impairment of $1.4 billion, which was primarily due to the performance of the Cordis business. Non-GAAP operating earnings were $465 million for the quarter. The company reported GAAP operating earnings of $126 million for fiscal year 2018 and non-GAAP operating earnings of $2.6 billion.

For the quarter, GAAP diluted earnings per share (EPS) were a loss of $3.76, while non-GAAP diluted EPS were $1.01. GAAP diluted EPS for fiscal year 2018 were $0.81, and non-GAAP diluted EPS were $5.00.

"Fiscal '18 was a challenging year, but we are making significant progress by taking decisive actions to drive growth, reduce costs and enhance profitability," said Mike Kaufmann, CEO of Cardinal Health. "We are on track, and Cardinal Health's best-in-class products and services continue to distinguish us with our customers and their patients."

Q4 and year-end FY18 summary

                          Q4 FY18             Q4 FY17              Y/Y          FY18                FY17                 Y/Y
                          -------             -------              ---          ----                ----                 ---

    Revenue                       $35 billion         $33 billion          7%        $137 billion        $130 billion           5%
    -------                       -----------         -----------         ---         ------------        ------------          ---


    Operating
    earnings/(loss)
                               $(1.1) billion        $439 million  N.M.              $126 million        $2.1 billion        (94)%
    ---                        --------------        ------------  ----              ------------        ------------         ----

    Non-GAAP                     $465 million        $640 million       (27)%        $2.6 billion        $2.8 billion         (7)%
    operating earnings
    ------------------


    Net earnings/(loss)
    attributable to
    Cardinal Health, Inc.      $(1.2) billion        $274 million  N.M.              $256 million        $1.3 billion        (80)%
    ---------------------      --------------        ------------  ----              ------------        ------------         ----

    Non-GAAP net                 $315 million        $416 million       (24)%        $1.6 billion        $1.7 billion         (9)%
    earnings/(loss)
    attributable to
    Cardinal Health, Inc.
    ---------------------


    Diluted EPS                       $(3.76)               $0.86   N.M.                     $0.81                $4.03         (80)%
    attributable to
    Cardinal Health, Inc.
    ---------------------

    Non-GAAP diluted                    $1.01                $1.31        (23)%               $5.00                $5.40          (7)%
    EPS attributable to
    Cardinal Health, Inc.
    ---------------------

Tax rates

During the fourth quarter of 2018 and 2017, GAAP effective tax rates were 1.8 percent and 25.8 percent, respectively. During fiscal years 2018 and 2017, GAAP effective tax rates were 213.8 percent and 32.7 percent, respectively. The fiscal year 2018 effective tax rates were adversely affected by the non-deductible Medical segment goodwill impairment. This unfavorable impact was partially offset in both the fourth quarter and fiscal year 2018 by net discrete tax benefits. Also, as previously disclosed, the fiscal year 2018 GAAP effective tax rate benefitted from transitional tax benefits of $2.97 per share due to the enactment of the U.S. Tax Cuts and Jobs Act ("U.S. tax reform") and a lower U.S. federal income tax rate.

During the fourth quarter of 2018 and 2017, the non-GAAP effective tax rates were 11.8 percent and 27.0 percent respectively. During fiscal years 2018 and 2017, the non-GAAP effective tax rates were 29.3 percent and 32.6 percent. The non-GAAP effective tax rates for the fourth quarter and fiscal year 2018 benefitted from net favorable discrete items and the lower U.S. federal income tax rate due to U.S. tax reform.

Segment results

Pharmaceutical segment

Fourth-quarter revenue for the Pharmaceutical segment increased 6 percent to $31 billion due to sales growth from Pharmaceutical and Specialty Distribution customers. This was partially offset by the divestiture of the company's China distribution business and expiration of a large, mail-order customer contract, both of which were previously announced.

Segment profit for the quarter decreased 18 percent to $416 million primarily due to the negative impact from the company's generic program performance.

                   Q4 FY18             Q4 FY17            Y/Y       FY18              FY17               Y/Y
                   -------             -------            ---       ----              ----               ---

    Revenue                $31 billion        $30 billion        6%     $121 billion       $116 billion        4%
    -------                -----------        -----------       ---      ------------       ------------       ---

    Segment profit        $416 million       $505 million     (18)%       $2 billion         $2 billion      (9)%
    --------------        ------------       ------------      ----        ----------         ----------       ---

Medical segment

Fourth-quarter revenue for the Medical segment increased 14 percent to $4 billion, which was driven primarily by the acquisition of the Patient Recovery business.

Medical segment profit decreased by 17 percent, or $24 million, to $114 million in the fourth quarter driven by the performance of Cardinal Health Branded products, primarily Cordis, and compensation-related items. This was mostly offset by contributions from acquisitions.

             Q4 FY18       Q4 FY17       Y/Y        FY18         FY17          Y/Y
             -------       -------       ---        ----         ----          ---

    Revenue   $3.9 billion    $3 billion       14%  $16 billion   $14 billion      15%
    -------   ------------    ----------       ---   -----------   -----------      ---

     Segment
     profit   $114 million  $138 million     (17)% $662 million  $572 million      16%
     -------  ------------  ------------      ----  ------------  ------------      ---

Outlook

The company does not provide GAAP EPS outlook because it is unable to reliably forecast most of the items that are excluded from GAAP EPS to calculate non-GAAP EPS. These items could cause EPS to differ materially from non-GAAP EPS. See "Use of Non-GAAP Measures" following the attached schedules for additional explanation.

The company's fiscal year 2019 guidance range for non-GAAP diluted EPS from continuing operations is $4.90 to $5.15.

Recent highlights

  • Closed on partnership with Clayton, Dubilier & Rice to accelerate the growth of naviHealth, a market leader in post-acute care management. Cardinal Health retains approximately a 45 percent interest in naviHealth and, at closing, received net cash proceeds of $736 million and expects to record a pre-tax gain of more than $500 million in the first quarter of FY19.
  • The company exited its transition services agreements (TSA) with Medtronic for North America, Latin America and the Global Supply Chain during the last week of July and is on track for TSA exits in other regions in late calendar year 2018 and early 2019.
  • Awarded more than $3 million in grants to more than 70 nonprofit organizations to support local efforts to combat the opioid epidemic across Ohio, West Virginia, Kentucky and Tennessee. The grants were made through the Cardinal Health Foundation's Generation Rx program and are funded by Cardinal Health's Opioid Action Program.

FY18 awards and recognition highlights

Webcast

Cardinal Health will host a webcast today at 8:30 a.m. Eastern to discuss fourth-quarter and year-end results. To access the webcast and corresponding slide presentation, go to the Investor Relations page at ir.cardinalhealth.com. No access code is required.

Presentation slides and a webcast replay will be available on the Cardinal Health website at ir.cardinalhealth.com until August 5, 2019.

Upcoming webcasted investor events

  • Morgan Stanley 16th Annual Global Healthcare Conference on Friday, Sept. 14 at 8:45 a.m. Eastern in New York City

About Cardinal Health
Cardinal Health, Inc. is a global, integrated healthcare services and products company, providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices worldwide. The company provides clinically proven medical products, pharmaceuticals and cost-effective solutions that enhance supply chain efficiency from hospital to home. To help combat prescription drug abuse, the company and its education partners created Generation Rx, a national drug education and awareness program. Backed by nearly 100 years of experience, with approximately 50,000 employees in nearly 60 countries, Cardinal Health ranks #14 on the Fortune 500. For more information, visit cardinalhealth.com, follow @CardinalHealth on Twitter, @cardinalhealthwings on Facebook and connect on LinkedIn at linkedin.com/ company/cardinal-health.

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.

Cardinal Health uses its website as a channel of distribution for material company information. Important information, including news releases, financial information, earnings and analyst presentations, and information about upcoming presentations and events is routinely posted and accessible on the Investor Relations page at ir.cardinalhealth.com. In addition, the website allows investors and other interested persons to sign up automatically to receive e-mail alerts when the company posts news releases, SEC filings and certain other information on its website.

Cautions Concerning Forward-Looking Statements
This news release contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. These statements may be identified by words such as "expect," "anticipate," "intend," "plan," "believe," "will," "should," "could," "would," "project," "continue," "likely," and similar expressions, and include statements reflecting future results or guidance, statements of outlook and expense accruals. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These risks and uncertainties include competitive pressures in Cardinal Health's various lines of business; the amount or rate of generic deflation and our ability to offset generic deflation and maintain other financial and strategic benefits through our generic sourcing venture with CVS Health; 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 stabilize the performance of our Cordis business; risks associated with the acquisition of the Patient Recovery business, including the ability to successfully integrate the acquired businesses and the ability to achieve the expected synergies and accretion in earnings; the risk of non-renewal under our contracts with CVS Health or one or more other key customer or supplier arrangements or changes to the pricing or other terms of or level of purchases under those arrangements; uncertainties due to government health care reform including federal health care reform legislation or administrative action; uncertainties with respect to the recently enacted Tax Cuts and Jobs Act; changes in the distribution patterns or reimbursement rates for health care products and services; risks associated with the distribution of opioids, including ongoing investigations and lawsuits by certain governmental and regulatory authorities, the potential financial impact of enacted and possible taxes or other assessments on the sale of opioids, and potential reputational or operational harm; and changes in foreign currency rates and the cost of commodities such as oil-based resins, cotton, latex and diesel fuel. Cardinal Health is subject to additional risks and uncertainties described in Cardinal Health's Form 10-K, Form 10-Q and Form 8-K reports and exhibits to those reports. This news release reflects management's views as of Aug. 6, 2018. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement.

 

                                                                                                                                                                                                                             Schedule 1
                                                                                                                                                                                                                             ----------

                                                                              Cardinal Health, Inc. and Subsidiaries

                                                                     Condensed Consolidated Statements of Earnings (Unaudited)


                                                                                         Fourth Quarter                                          Fiscal Year

    (in millions, except per common share amounts)                       2018                     2017                 % Change               2018                2017          % Change
    ---------------------------------------------                        ----                     ----                 --------               ----                ----          --------

    Revenue                                                                      $35,349                                        $32,966                     7%                              $136,809                 $129,976               5%

    Cost of products sold                                              33,614                               31,343                       7%                     129,628                       123,432           5%
    ---------------------                                              ------                               ------                      ---                      -------                       -------          ---

    Gross margin                                                        1,735                                1,623                       7%                       7,181                         6,544          10%


    Operating expenses:

    Distribution, selling, general and administrative expenses          1,270                                  983                      29%                       4,596                         3,775          22%

    Restructuring and employee severance                                   22                                   24                            N.M.                          176                             56          N.M.

    Amortization and other acquisition-related costs                      165                                  163                            N.M.                          707                            527          N.M.

    Impairments and (gain)/loss on disposal of assets, net(1)           1,354                                    3                            N.M.                        1,417                             18          N.M.

    Litigation (recoveries)/charges, net                                    4                                   11                            N.M.                          159                             48          N.M.
    ------------------------------------                                  ---                                  ---                            ----                          ---                            ---          ----

    Operating earnings/(loss)                                         (1,080)                                 439                            N.M.                          126                          2,120         (94)%


    Other (income)/expense, net                                            29                                  (3)                           N.M.                           23                            (5)         N.M.

    Interest expense, net                                                  78                                   68                      15%                         329                           201          64%

    Loss on extinguishment of debt                                          -                                   -                           N.M.                            2                              -         N.M.
    ------------------------------                                        ---                                 ---                           ----

    Earnings/(loss) before income taxes                               (1,187)                                 374                            N.M.                        (228)                         1,924          N.M.


    Provision for/(benefit from) income taxes                            (21)                                  96                            N.M.                        (487)                           630          N.M.


    Net earnings/(loss)                                               (1,166)                                 278                            N.M.                          259                          1,294         (80)%


    Less: Net earnings attributable to noncontrolling interests             -                                 (4)                           N.M.                          (3)                           (6)         N.M.
    -----------------------------------------------------------           ---                                 ---                            ----                          ---

    Net earnings/(loss) attributable to Cardinal Health, Inc.                   $(1,166)                                          $274                   N.M.                                  $256                   $1,288            (80)%
    ---------------------------------------------------------                    -------                                           ----                   ----                                  ----                   ------             ----


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

    Basic                                                                        $(3.76)                                         $0.87                   N.M.                                 $0.82                    $4.06            (80)%

    Diluted                                                            (3.76)        (2)                     0.86                            N.M.                         0.81                           4.03         (80)%


    Weighted-average number of common shares outstanding:

    Basic                                                                 310                                  316                                         313                         317

    Diluted                                                               310         (2)                      318                                         315                         320
    -------                                                               ---         ---                       ---                                         ---                         ---


         (1)    In conjunction with the
                 preparation of our consolidated
                 financial statements for fiscal
                 year 2018, we recently
                 completed our annual goodwill
                 impairment test, which we
                 perform annually in the fourth
                 quarter. As part of this annual
                 test, we concluded that a
                 portion of our Medical segment
                 goodwill was impaired,
                 resulting in a non-cash
                 impairment charge of $1.4
                 billion during the fourth
                 quarter of fiscal 2018. This
                 impairment charge does not
                 impact our liquidity, cash
                 flows from operations, or
                 compliance with debt covenants.

         (2)    Due to the net loss during the
                 fourth quarter of fiscal 2018,
                 dilutive potential common
                 shares have not been included
                 in the denominator of the
                 dilutive per share computation
                 due to their antidilutive
                 effect.

 

 

                                                                                                                                                                                   Schedule 2
                                                                                                                                                                                   ----------

                                                                                                        Cardinal Health, Inc. and Subsidiaries

                                                                                                  Condensed Consolidated Balance Sheets (Unaudited)


    (in millions)                                                                                                                                   June 30,          June 30,

                                                                                                                                                         2018               2017
    ---                                                                                                                                                  ----               ----

                                                                                              Assets

    Current assets:

    Cash and equivalents                                                                                                                                       $1,763                        $6,879

    Trade receivables, net                                                                                                                              7,800                8,048

    Inventories, net                                                                                                                                   12,308               11,301

    Prepaid expenses and other                                                                                                                          1,926                2,117

    Assets held for sale                                                                                                                                  756                    -
    --------------------                                                                                                                                  ---                  ---

    Total current assets                                                                                                                               24,553               28,345


    Property and equipment, net                                                                                                                         2,487                1,879

    Goodwill and other intangibles, net                                                                                                                12,229                9,207

    Other assets                                                                                                                                          682                  681
                                                                                                                                                          ---

    Total assets                                                                                                                                              $39,951                       $40,112
    ------------                                                                                                                                              -------                       -------


                                                             Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity

    Current liabilities:

    Accounts payable                                                                                                                                          $19,677                       $17,906

    Current portion of long-term obligations and other short-term borrowings                                                                            1,001                1,327

    Other accrued liabilities                                                                                                                           2,002                      1,988

    Liabilities related to assets held for sale                                                                                                           213                    -
    -------------------------------------------                                                                                                           ---                  ---

    Total current liabilities                                                                                                                          22,893               21,221


    Long-term obligations, less current portion                                                                                                         8,012                9,068

    Deferred income taxes and other liabilities                                                                                                         2,975                2,877


    Redeemable noncontrolling interests                                                                                                                    12                  118


    Total Cardinal Health, Inc. shareholders' equity                                                                                                    6,059                6,808

    Noncontrolling interests                                                                                                                                -                  20
    ------------------------                                                                                                                              ---                 ---

    Total shareholders' equity                                                                                                                          6,059                6,828

    Total liabilities, redeemable noncontrolling interests and shareholders' equity                                                                           $39,951                       $40,112
    -------------------------------------------------------------------------------                                                                           -------                       -------

 

 

                                                                                                                                                                                                                                  Schedule 3
                                                                                                                                                                                                                                  ----------

                                                                                                              Cardinal Health, Inc. and Subsidiaries

                                                                                                   Condensed Consolidated Statements of Cash Flows (Unaudited)


                                                                                                                                                                    Fourth Quarter                Fiscal Year

    (in millions)                                                                                                                                               2018               2017        2018                 2017
    ------------                                                                                                                                                ----               ----        ----                 ----


    Cash flows from operating activities:

    Net earnings/(loss)                                                                                                                                                $(1,166)                        $278                $259              $1,294


    Adjustments to reconcile net earnings to net cash provided by operating activities:

    Depreciation and amortization                                                                                                                                253                       192                    1,032       717

    Loss on extinguishment of debt                                                                                                                                 -                        -                       2         -

    Impairments and loss on sale of other investments                                                                                                              -                        -                       6         4

    Impairments and loss on disposal of assets, net                                                                                                            1,354                         3                    1,417        18

    Share-based compensation                                                                                                                                      21                        23                       85        96

    Provision for deferred income taxes                                                                                                                      (1,012)                      291                  (1,012)      291

    Provision for bad debts                                                                                                                                       35                        17                      111        63

    Change in fair value of contingent consideration obligation                                                                                                    -                      (5)                     (2)      (5)

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

       Increase in trade receivables                                                                                                                           (239)                    (558)                   (871)    (665)

       (Increase)/decrease in inventories                                                                                                                      (346)                      337                  (1,211)    (673)

       Increase in accounts payable                                                                                                                              939                       329                    2,574       564

       Other accrued liabilities and operating items, net                                                                                                        715                     (183)                     378     (520)
       --------------------------------------------------

    Net cash provided by operating activities                                                                                                                    554                       724                    2,768     1,184


    Cash flows from investing activities:

    Acquisition of subsidiaries, net of cash acquired                                                                                                              -                     (19)                 (6,142)    (132)

    Additions to property and equipment                                                                                                                        (138)                     (94)                   (384)    (387)

    Purchase of available-for-sale securities and other investments                                                                                              (2)                      (6)                     (9)    (194)

    Proceeds from sale of available-for-sale securities and other investments                                                                                      -                      113                       65       228

    Proceeds from maturities of available-for-sale securities                                                                                                      -                       28                        -       77

    Proceeds from divestitures, net of cash sold, and disposal of property and equipment                                                                           -                        2                      862         3
    ------------------------------------------------------------------------------------

    Net cash provided by/(used in) investing activities                                                                                                        (140)                       24                  (5,608)    (405)


    Cash flows from financing activities:

    Payment of contingent consideration obligation                                                                                                              (13)                        -                    (35)      (3)

    Net change in short-term borrowings                                                                                                                            -                     (22)                    (50)        3

    Purchase of noncontrolling interests                                                                                                                           -                        -                   (106)     (12)

    Reduction of long-term obligations                                                                                                                         (551)                    (250)                   (954)    (310)

    Proceeds from interest rate swap terminations                                                                                                                  -                        -                       -       14

    Proceeds from long-term obligations, net of issuance costs                                                                                                     -                    5,171                        3     5,171

    Net tax proceeds/(withholdings) from share-based compensation                                                                                                  -                        6                      (3)       26

    Excess tax benefits from share-based compensation                                                                                                              -                      (3)                       -       34

    Dividends on common shares                                                                                                                                 (145)                    (142)                   (581)    (577)

    Purchase of treasury shares                                                                                                                                (100)                        -                   (550)    (600)

    Net cash provided by/(used in) financing activities                                                                                                        (809)                    4,760                  (2,276)    3,746


    Effect of exchange rates changes on cash and equivalents                                                                                                    (13)                        3                        4       (2)

    Cash reclassified to assets held for sale                                                                                                                    (4)                        -                     (4)        -


    Net increase/(decrease) in cash and equivalents                                                                                                            (412)                    5,511                  (5,116)    4,523

    Cash and equivalents at beginning of period                                                                                                                2,175                     1,368                    6,879     2,356

    Cash and equivalents at end of period                                                                                                                                $1,763                       $6,879              $1,763              $6,879
    -------------------------------------                                                                                                                                ------                       ------              ------              ------

 

 

                                                                                                                                                       Schedule 4
                                                                                                                                                       ----------

                                                                   Cardinal Health, Inc. and Subsidiaries

                                                                             Segment Information


                                                                               Fourth Quarter


    (in millions)          2018          2017           (in millions)                                            2018          2017
    ------------           ----          ----           ------------                                             ----          ----

    Pharmaceutical                                  Medical


    Revenue                                         Revenue

    Amount                       $31,455                                  29,552                          Amount                  $3,898                           $3,416

                                                               $

    Growth rate              6%                  5%                               Growth rate                       14%                     6%


    Segment profit                                  Segment profit

    Amount                          $416                                    $505                          Amount                    $114                             $138

    Growth rate           (18)%                (7)%                               Growth rate                     (17)%                    13%

    Segment profit margin 1.32%               1.71%                               Segment profit margin           2.92%                  4.03%
    ---------------------  ----                 ----                                ---------------------            ----                    ----



                                                                         Fiscal Year


    (in millions)          2018          2017           (in millions)                                            2018          2017
    ------------           ----          ----           ------------                                             ----          ----

    Pharmaceutical                                  Medical


    Revenue                                         Revenue

    Amount                      $121,241                                $116,463                          Amount                 $15,581                          $13,524

    Growth rate              4%                  7%                               Growth rate                       15%                     9%


    Segment profit                                  Segment profit

    Amount                        $1,992                                  $2,187                          Amount                    $662                             $572

    Growth rate            (9)%               (12)%                               Growth rate                        16   %(1)                25  %(2)

    Segment profit margin 1.64%               1.88%                               Segment profit margin           4.25%                  4.23%
    ---------------------  ----                 ----                                ---------------------            ----                    ----

    (1)          Segment profit includes a $64
                 million impact from the roll-
                 out of the inventory fair
                 value step up related to the
                 Patient Recovery acquisition
                 for the fiscal year 2018.
                 Excluding the impact of the
                 inventory fair value step up,
                 Medical segment profit would
                 have increased 27% for the
                 fiscal year 2018.


    (2)          Segment profit for fiscal year
                 2016 includes the $43 million
                 unfavorable impact of the
                 Cordis-related inventory
                 fair value step-up.
                 Excluding this step-up,
                 year-over-year Medical
                 segment profit growth was 14
                 percent for fiscal year 2017.

 

 

                                                                                                                                                                                                                 Schedule 5
                                                                                                                                                                                                                 ----------

                                                                                                          Cardinal Health, Inc. and Subsidiaries

                                                                                                             GAAP / Non-GAAP Reconciliation(1)


                                                        Operating Earnings/(Loss)      Provision for/

                                            Operating  Earnings    Before          (Benefit from)        Net           Net        Effective                     Diluted

                                            Earnings/    Growth    Income               Income        Earnings/    Earnings(2)       Tax          Diluted        EPS(2)

    (in millions, except per common share    (Loss)       Rate      Taxes               Taxes         (Loss)(2)    Growth Rate       Rate          EPS2,6     Growth Rate
    amounts)
    -------                                                                                                                                                           ---

                                                                                                    Fourth Quarter 2018

    GAAP                                                $(1,080)              N.M.                                      $(1,187)                          $(21)           $(1,166)     N.M.           1.8%              $(3.76)               N.M.
    ----                                                 -------               ----                                       -------                            ----             -------      ----            ---                ------                ----

    Restructuring and employee severance            22                           22                              (3)                          25                               0.08

    Amortization and other acquisition-            165                          165                               33                          132                               0.42
    related costs

    Impairments and (gain)/loss on disposal      1,354                        1,354                               13                        1,341                               4.30
    of assets, net5

    Litigation (recoveries)/charges, net             4                            4                              (4)                           8                               0.02

    Transitional tax benefit, net(3)                 -                           -                              25                         (25)                             (0.08)


    Non-GAAP                                                $465              (27)%                                          $358                             $43                $315     (24)%          11.8%               $1.014      (23)%
    --------                                                ----               ----                                           ----                             ---                ----      ----            ----                ------       ----


                                                                                                    Fourth Quarter 2017

    GAAP                                                    $439              (29)%                                          $374                             $96                $274     (18)%          25.8%                          $0.86       (16)%
    ----                                                    ----               ----                                           ----                             ---                ----      ----            ----                           -----        ----

    Restructuring and employee severance            24                           24                                9                           15                               0.05

    Amortization and other acquisition-            163                          163                               45                          118                               0.37
    related costs

    Impairments and (gain)/loss on disposal          3                            3                                1                            2                               0.01
    of assets, net

    Litigation (recoveries)/charges, net            11                           11                                4                            7                               0.02

    Non-GAAP                                                $640               (1)%                                          $575                            $155                $416       12%          27.0%                          $1.31         15%
    --------                                                ----                ---                                           ----                            ----                ----       ---            ----                           -----         ---

                                                                                                      Fiscal Year 2018

    GAAP                                                    $126              (94)%                                        $(228)                         $(487)               $259     (80)%         213.8%                          $0.81       (80)%
    ----                                                    ----               ----                                          -----                           -----                ----      ----           -----                           -----        ----

    Restructuring and employee severance           176                          176                               25                          151                               0.48

    Amortization and other acquisition-            707                          707                              176                          531                               1.69
    related costs

    Impairments and (gain)/loss on disposal      1,417                        1,417                             (44)                       1,461                               4.64
    of assets, net5

    Litigation (recoveries)/charges, net           159                          159                               48                          111                               0.35

    Loss on extinguishment of debt                   -                           2                                1                            1                                  -

    Transitional tax benefit, net(3)                 -                           -                             936                        (936)                             (2.97)
                                                   ---                                                                                                                     -----

    Non-GAAP                                              $2,585               (7)%                                        $2,233                            $655              $1,578      (9)%          29.3%               $5.004       (7)%
    --------                                              ------                ---                                         ------                            ----              ------       ---            ----                ------        ---


                                                                                                      Fiscal Year 2017

    GAAP                                                  $2,120              (14)%                                        $1,924                            $630              $1,288     (10)%          32.7%                          $4.03        (7)%
    ----                                                  ------               ----                                         ------                            ----              ------      ----            ----                           -----         ---

    Restructuring and employee severance            56                           56                               20                           36                               0.11

    Amortization and other acquisition-            527                          527                              165                          362                               1.13
    related costs

    Impairments and (gain)/loss on disposal         18                           18                                6                           12                               0.04
    of assets, net

    Litigation (recoveries)/charges, net            48                           48                               19                           29                               0.09

    Non-GAAP                                              $2,769               (4)%                                        $2,572                            $839              $1,727         -  %       32.6%                          $5.40          3%
    --------                                              ------                ---                                         ------                            ----              ------       ---  ---      ----                           -----         ---

    (1)          For more information on these
                 measures, refer to the Use of Non-
                 GAAP Measures and Definitions
                 schedules.


    (2)          attributable to Cardinal Health,
                 Inc.


    (3)          Reflects the estimated net
                 transitional benefit from the re-
                 measurement of our deferred tax
                 assets and liabilities partially
                 offset by the repatriation tax on
                 cash and earnings of foreign
                 subsidiaries.  We have not yet
                 completed our analysis of the
                 impact of the Tax Act and, as
                 such, these amounts are
                 provisional estimates and we may
                 record additional provisional
                 amounts or adjustments to the
                 provisional amounts in future
                 periods.


    4            Non-GAAP EPS for fourth quarter
                 and fiscal year 2018 includes a
                 $0.07 and $0.43 benefit from
                 applying a lower federal tax rate
                 to our year-to-date U.S. pre-
                 tax non-GAAP earnings. Excluding
                 this benefit, non-GAAP EPS would
                 have been $0.94 and $4.57 for
                 fourth quarter and fiscal year
                 2018, respectively.


    5            Fourth quarter and fiscal year 2018
                 include a goodwill impairment
                 charge of $1.4 billion related to
                 our Medical segment.


    6            Fourth quarter fiscal 2018 GAAP
                 diluted loss per share is
                 calculated using a weighted
                 average of 310 million common
                 shares and excludes dilutive
                 securities from the denominator
                 due to their anti-dilutive
                 effects resulting from our GAAP
                 net loss for the quarter. Fourth
                 quarter fiscal 2018 non-GAAP
                 diluted EPS and the EPS impact
                 from the GAAP to non-GAAP per
                 share reconciling items are
                 calculated using a weighted
                 average of 312 million common
                 shares, which includes potentially
                 dilutive securities. The inclusion
                 of approximately 2 million
                 dilutive shares in the GAAP to
                 non-GAAP per share reconciling
                 items has a $0.02 impact on our
                 non-GAAP EPS calculation.

The sum of the components may not equal the total due to rounding.

We generally apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.

Cardinal Health, Inc. and Subsidiaries

Use of Non-GAAP Measures
This earnings release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP").

In addition to analyzing our business based on financial information prepared in accordance with GAAP, we use these non-GAAP financial measures internally to evaluate our performance, engage in financial and operational planning, and 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.
  • 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 primarily for consistency with the presentation of the financial results of our peer group companies. 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 during the one-year measurement period 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 measurement period 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, both of which are subject to adjustment during an up to 12 month measurement period.

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 changes in 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 reliability 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 timing and amount of any of the items excluded from GAAP to calculate non-GAAP could significantly impact the Company's fiscal 2019 GAAP results. Over the past five years, the excluded items have lowered the Company's EPS from $0.47 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.

Definitions

Growth rate calculation: growth rates in this earnings release are determined by dividing the difference between current-period results and prior-period results by prior-period results.

Non-GAAP operating earnings: operating earnings excluding (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets and (5) litigation (recoveries)/charges, net.

Non-GAAP earnings before income taxes: earnings before income taxes excluding (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets, (5) litigation (recoveries)/charges, net and (6) loss on extinguishment of debt.

Non-GAAP effective tax rate: (provision for income taxes adjusted for (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets, (5) litigation (recoveries)/charges, net, (6) loss on extinguishment of debt, and (7) transitional tax benefit, (net) divided by (earnings before income taxes adjusted for the first six items).

Non-GAAP net earnings attributable to Cardinal Health, Inc.: net earnings attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets, (5) litigation (recoveries)/charges, net, (6) loss on extinguishment of debt, each net of tax, and (7) transitional tax benefit, net.

Non-GAAP diluted EPS attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.

 

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SOURCE Cardinal Health

 
 
Company Codes: NYSE:CAH
 

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