Form 8-K |
Ohio | 1-11373 | 31-0958666 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
7000 Cardinal Place, Dublin, Ohio 43017 | ||
(Address of principal executive offices) (Zip Code) | ||
(614) 757-5000 | ||
(Registrant's telephone number, including area code) | ||
Exhibit Number | Exhibit Description |
99.1 |
Cardinal Health, Inc. | |||
(Registrant) | |||
Date: | February 7, 2019 | By: | /s/ Jorge M. Gomez |
Jorge M. Gomez | |||
Chief Financial Officer |
Media: | Brandi Martin | Investors: | Lisa Capodici | |
(614) 757-3383 | (614) 757-5035 | |||
brandi.martin@cardinalhealth.com | lisa.capodici@cardinalhealth.com |
• | Revenue increased 7 percent to $37.7 billion |
• | GAAP1 operating earnings increased 26 percent to $504 million, and non-GAAP operating earnings decreased 13 percent to $637 million |
• | GAAP diluted earnings per share decreased 72 percent to $0.93, and non-GAAP diluted earnings per share decreased 15 percent to $1.29 |
• | Company raises FY19 guidance |
Q2 FY19 | Q2 FY18 | Y/Y | |||||||
Revenue | $ | 37.7 | billion | $ | 35.2 | billion | 7% | ||
Operating earnings | $ | 504 | million | $ | 399 | million | 26% | ||
Non-GAAP operating earnings | $ | 637 | million | $ | 730 | million | (13)% | ||
Net earnings attributable to Cardinal Health, Inc. | $ | 280 | million | $ | 1.1 | billion | (73)% | ||
Non-GAAP net earnings attributable to Cardinal Health, Inc. | $ | 385 | million | $ | 478 | million | (19)% | ||
Diluted EPS attributable to Cardinal Health, Inc. | $ | 0.93 | $ | 3.33 | (72)% | ||||
Non-GAAP diluted EPS attributable to Cardinal Health, Inc. | $ | 1.29 | $ | 1.51 | (15)% |
Q2 FY19 | Q2 FY18 | Y/Y | |||||||
Revenue | $ | 33.7 | billion | $ | 31.1 | billion | 8% | ||
Segment profit | $ | 443 | million | $ | 514 | million | (14)% |
Q2 FY19 | Q2 FY18 | Y/Y | |||||||
Revenue | $ | 4.0 | billion | $ | 4.0 | billion | (1)% | ||
Segment profit | $ | 188 | million | $ | 220 | million | (14)% |
• | Cardinal Health board of directors approved a quarterly dividend of $0.4763 per share. The dividend will be payable on April 15, 2019 to shareholders of record at the close of business on April 1, 2019 |
• | Cardinal Health announced Brian Rice as EVP, Chief Information Officer and Customer Support Services |
• | Cardinal Health board of directors elected J. Michael Losh as an independent director serving as chairman of the Audit Committee |
• | The Cardinal Health Foundation announced a $530,000 grant to the Ohio Hospital Association (OHA) to identify and deploy best opioid prescribing practices for pain management among OHA member hospitals across the state |
• | Barclays Global Healthcare Conference on March 13 at 8:30 a.m. Eastern in Miami Beach, Fla. |
Second Quarter | Year-to-Date | ||||||||||||||||||||
(in millions, except per common share amounts) | 2019 | 2018 | % Change | 2019 | 2018 | % Change | |||||||||||||||
Revenue | $ | 37,740 | $ | 35,186 | 7 | % | $ | 72,953 | $ | 67,827 | 8 | % | |||||||||
Cost of products sold | 36,010 | 33,325 | 8 | % | 69,556 | 64,294 | 8 | % | |||||||||||||
Gross margin | 1,730 | 1,861 | (7 | )% | 3,397 | 3,533 | (4 | )% | |||||||||||||
Operating expenses: | |||||||||||||||||||||
Distribution, selling, general and administrative expenses | 1,064 | 1,131 | (6 | )% | 2,219 | 2,193 | 1 | % | |||||||||||||
Restructuring and employee severance | 12 | 21 | N.M. | 44 | 153 | N.M. | |||||||||||||||
Amortization and other acquisition-related costs | 157 | 184 | N.M. | 314 | 368 | N.M. | |||||||||||||||
Impairments and (gain)/loss on disposal of assets, net | 8 | 68 | N.M. | (503 | ) | 68 | N.M. | ||||||||||||||
Litigation (recoveries)/charges, net | (15 | ) | 58 | N.M. | 3 | 90 | N.M. | ||||||||||||||
Operating earnings | 504 | 399 | 26 | % | 1,320 | 661 | 100 | % | |||||||||||||
Other (income)/expense, net | 21 | (5 | ) | N.M. | 25 | (4 | ) | N.M. | |||||||||||||
Interest expense, net | 76 | 87 | (13 | )% | 152 | 168 | (10 | )% | |||||||||||||
Loss on extinguishment of debt | — | — | N.M. | — | 2 | N.M. | |||||||||||||||
Earnings before income taxes | 407 | 317 | 28 | % | 1,143 | 495 | 131 | % | |||||||||||||
Provision for/(benefit from) income taxes | 126 | (736 | ) | (117 | )% | 269 | (675 | ) | (140 | )% | |||||||||||
Net earnings | 281 | 1,053 | (73 | )% | 874 | 1,170 | (25 | )% | |||||||||||||
Less: Net earnings attributable to noncontrolling interests | (1 | ) | — | N.M. | (1 | ) | (2 | ) | N.M. | ||||||||||||
Net earnings attributable to Cardinal Health, Inc. | $ | 280 | $ | 1,053 | (73 | )% | $ | 873 | $ | 1,168 | (25 | )% | |||||||||
Earnings per common share attributable to Cardinal Health, Inc.: | |||||||||||||||||||||
Basic | $ | 0.94 | $ | 3.35 | (72 | )% | $ | 2.90 | $ | 3.70 | (22 | )% | |||||||||
Diluted | 0.93 | 3.33 | (72 | )% | 2.88 | 3.68 | (22 | )% | |||||||||||||
Weighted-average number of common shares outstanding: | |||||||||||||||||||||
Basic | 299 | 315 | 302 | 315 | |||||||||||||||||
Diluted | 300 | 316 | 303 | 317 |
(in millions) | December 31, 2018 | June 30, 2018 | |||||
Assets | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 2,182 | $ | 1,763 | |||
Trade receivables, net | 7,932 | 7,800 | |||||
Inventories, net | 13,037 | 12,308 | |||||
Prepaid expenses and other | 1,940 | 1,926 | |||||
Assets held for sale | — | 756 | |||||
Total current assets | 25,091 | 24,553 | |||||
Property and equipment, net | 2,376 | 2,487 | |||||
Goodwill and other intangibles, net | 11,973 | 12,229 | |||||
Other assets | 1,022 | 682 | |||||
Total assets | $ | 40,462 | $ | 39,951 | |||
Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 20,610 | $ | 19,677 | |||
Current portion of long-term obligations and other short-term borrowings | 1,450 | 1,001 | |||||
Other accrued liabilities | 1,764 | 2,002 | |||||
Liabilities related to assets held for sale | — | 213 | |||||
Total current liabilities | 23,824 | 22,893 | |||||
Long-term obligations, less current portion | 7,599 | 8,012 | |||||
Deferred income taxes and other liabilities | 2,996 | 2,975 | |||||
Redeemable noncontrolling interests | — | 12 | |||||
Total shareholders’ equity | 6,043 | 6,059 | |||||
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | $ | 40,462 | $ | 39,951 |
Second Quarter | Year-to-Date | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Cash flows from operating activities: | |||||||||||||||
Net earnings | $ | 281 | $ | 1,053 | $ | 874 | $ | 1,170 | |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 253 | 291 | 498 | 520 | |||||||||||
Impairments and (gain)/loss on sale of other investments | — | — | 2 | 6 | |||||||||||
Impairments and (gain)/loss on disposal of assets, net | 8 | 67 | (503 | ) | 68 | ||||||||||
Share-based compensation | 22 | 23 | 41 | 40 | |||||||||||
Provision for bad debts | 19 | 19 | 40 | 31 | |||||||||||
Change in operating assets and liabilities, net of effects from acquisitions and divestitures: | |||||||||||||||
(Increase)/decrease in trade receivables | 111 | (258 | ) | (191 | ) | (617 | ) | ||||||||
Increase in inventories | (575 | ) | (614 | ) | (753 | ) | (995 | ) | |||||||
Increase/(decrease) in accounts payable | 382 | 811 | 941 | 2,107 | |||||||||||
Other accrued liabilities and operating items, net | (129 | ) | (1,113 | ) | (213 | ) | (870 | ) | |||||||
Net cash provided by operating activities | 372 | 279 | 736 | 1,460 | |||||||||||
Cash flows from investing activities: | |||||||||||||||
Acquisition of subsidiaries, net of cash acquired | (21 | ) | (2 | ) | (21 | ) | (6,141 | ) | |||||||
Additions to property and equipment | (58 | ) | (101 | ) | (116 | ) | (168 | ) | |||||||
Purchase of available-for-sale securities and other investments | (6 | ) | (3 | ) | (10 | ) | (6 | ) | |||||||
Proceeds from sale of available-for-sale securities and other investments | — | 1 | 1 | 65 | |||||||||||
Proceeds from maturities of available-for-sale securities | — | — | 1 | — | |||||||||||
Proceeds from divestitures, net of cash sold, and disposal of property and equipment held for sale | — | — | 740 | 1 | |||||||||||
Net cash provided by/(used in) investing activities | (85 | ) | (105 | ) | 595 | (6,249 | ) | ||||||||
Cash flows from financing activities: | |||||||||||||||
Payment of contingent consideration obligation | — | (2 | ) | — | (17 | ) | |||||||||
Net change in short-term borrowings | — | 161 | — | 155 | |||||||||||
Purchase of noncontrolling interests | — | (103 | ) | — | (106 | ) | |||||||||
Proceeds from long-term obligations, net of issuance costs | — | 3 | — | 3 | |||||||||||
Reduction of long-term obligations | (1 | ) | (1 | ) | (2 | ) | (403 | ) | |||||||
Net tax proceeds/(withholdings) from share-based compensation | — | 2 | (13 | ) | (16 | ) | |||||||||
Dividends on common shares | (143 | ) | (146 | ) | (293 | ) | (296 | ) | |||||||
Purchase of treasury shares | — | — | (600 | ) | (150 | ) | |||||||||
Net cash used in financing activities | (144 | ) | (86 | ) | (908 | ) | (830 | ) | |||||||
Effect of exchange rates changes on cash and equivalents | (6 | ) | (2 | ) | (4 | ) | 7 | ||||||||
Change in cash held for sale | — | (18 | ) | — | (18 | ) | |||||||||
Net increase/(decrease) in cash and equivalents | 137 | 68 | 419 | (5,630 | ) | ||||||||||
Cash and equivalents at beginning of period | 2,045 | 1,181 | 1,763 | 6,879 | |||||||||||
Cash and equivalents at end of period | $ | 2,182 | $ | 1,249 | $ | 2,182 | $ | 1,249 |
Second Quarter | ||||||||||||||||
(in millions) | 2019 | 2018 | (in millions) | 2019 | 2018 | |||||||||||
Pharmaceutical | Medical | |||||||||||||||
Revenue | Revenue | |||||||||||||||
Amount | $ | 33,740 | $ | 31,146 | Amount | $ | 4,006 | $ | 4,044 | |||||||
Growth rate | 8 | % | 5 | % | Growth rate | (1 | )% | 19 | % | |||||||
Segment profit | Segment profit | |||||||||||||||
Amount | $ | 443 | $ | 514 | Amount | $ | 188 | $ | 220 | |||||||
Growth rate | (14 | )% | (4 | )% | Growth rate1 | (14 | )% | 38 | % | |||||||
Segment profit margin | 1.31 | % | 1.65 | % | Segment profit margin | 4.70 | % | 5.43 | % |
Year-to-Date | ||||||||||||||||
(in millions) | 2019 | 2018 | (in millions) | 2019 | 2018 | |||||||||||
Pharmaceutical | Medical | |||||||||||||||
Revenue | Revenue | |||||||||||||||
Amount | $ | 65,155 | $ | 60,066 | Amount | $ | 7,807 | $ | 7,768 | |||||||
Growth rate | 8 | % | 3 | % | Growth rate | 1 | % | 16 | % | |||||||
Segment profit | Segment profit | |||||||||||||||
Amount | $ | 851 | $ | 981 | Amount | $ | 323 | $ | 348 | |||||||
Growth rate | (13 | )% | (8 | )% | Growth rate1 | (7 | )% | 22 | % | |||||||
Segment profit margin | 1.31 | % | 1.63 | % | Segment profit margin | 4.14 | % | 4.48 | % |
Operating | Earnings | Provision | ||||||||||||||||||||||||||
SG&A2 | Earnings | Before | for | Net | Effective | Diluted | ||||||||||||||||||||||
Growth | Operating | Growth | Income | Income | Net | Earnings3 | Tax | Diluted | EPS3 | |||||||||||||||||||
(in millions, except per common share amounts) | SG&A2 | Rate | Earnings | Rate | Taxes | Taxes | Earnings3 | Growth Rate | Rate | EPS3 | Growth Rate | |||||||||||||||||
Second Quarter 2019 | ||||||||||||||||||||||||||||
GAAP | $ | 1,064 | (6 | )% | $ | 504 | 26 | % | $ | 407 | $ | 126 | $ | 280 | (73 | )% | 31.0 | % | $ | 0.93 | (72 | )% | ||||||
State opioid assessment related to prior fiscal years | 29 | (29 | ) | (29 | ) | (8 | ) | (21 | ) | (0.07 | ) | |||||||||||||||||
Restructuring and employee severance | — | 12 | 12 | 3 | 9 | 0.03 | ||||||||||||||||||||||
Amortization and other acquisition-related costs | — | 157 | 157 | 39 | 119 | 0.40 | ||||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets, net | — | 8 | 8 | 1 | 7 | 0.02 | ||||||||||||||||||||||
Litigation (recoveries)/charges, net | — | (15 | ) | (15 | ) | (4 | ) | (11 | ) | (0.04 | ) | |||||||||||||||||
Transitional tax benefit, net5 | — | — | — | (3 | ) | 3 | 0.01 | |||||||||||||||||||||
Non-GAAP | $ | 1,093 | (3 | )% | $ | 637 | (13 | )% | $ | 540 | $ | 154 | $ | 385 | (19 | )% | 28.5 | % | $ | 1.29 | (15 | )% | ||||||
Second Quarter 2018 | ||||||||||||||||||||||||||||
GAAP | $ | 1,131 | 24 | % | $ | 399 | (26 | )% | $ | 317 | $ | (736 | ) | $ | 1,053 | 225 | % | (231.9 | )% | $ | 3.33 | 226 | % | |||||
Restructuring and employee severance | — | 21 | 21 | (2 | ) | 23 | 0.07 | |||||||||||||||||||||
Amortization and other acquisition-related costs | — | 184 | 184 | 41 | 143 | 0.46 | ||||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets, net | — | 68 | 68 | (43 | ) | 111 | 0.35 | |||||||||||||||||||||
Litigation (recoveries)/charges, net | — | 58 | 58 | 17 | 41 | 0.13 | ||||||||||||||||||||||
Transitional tax benefit, net5 | — | — | — | 894 | (894 | ) | (2.83 | ) | ||||||||||||||||||||
Non-GAAP | $ | 1,131 | 24 | % | $ | 730 | 4 | % | $ | 648 | $ | 171 | $ | 478 | 12 | % | 26.2 | % | $ | 1.51 | 13 | % |
Year-to-Date 2019 | ||||||||||||||||||||||||||||
GAAP | $ | 2,219 | 1 | % | $ | 1,320 | 100 | % | $ | 1,143 | $ | 269 | $ | 873 | (25 | )% | 23.5 | % | $ | 2.88 | (22 | )% | ||||||
Restructuring and employee severance | — | 44 | 44 | 11 | 33 | 0.11 | ||||||||||||||||||||||
Amortization and other acquisition-related costs | — | 314 | 314 | 74 | 240 | 0.79 | ||||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets, net4 | — | (503 | ) | (503 | ) | (133 | ) | (370 | ) | (1.22 | ) | |||||||||||||||||
Litigation (recoveries)/charges, net | — | 3 | 3 | — | 3 | 0.01 | ||||||||||||||||||||||
Transitional tax benefit, net5 | — | — | — | (3 | ) | 3 | 0.01 | |||||||||||||||||||||
Non-GAAP | $ | 2,219 | 1 | % | $ | 1,178 | (12 | )% | $ | 1,001 | $ | 218 | $ | 782 | (5 | )% | 21.8 | % | $ | 2.58 | (1 | )% | ||||||
Year-to-Date 2018 | ||||||||||||||||||||||||||||
GAAP | $ | 2,193 | 20 | % | $ | 661 | (39 | )% | $ | 495 | $ | (675 | ) | $ | 1,168 | 85 | % | (136.6 | )% | $ | 3.68 | 87 | % | |||||
Restructuring and employee severance | — | 153 | 153 | 45 | 108 | 0.34 | ||||||||||||||||||||||
Amortization and other acquisition-related costs | — | 368 | 368 | 98 | 270 | 0.85 | ||||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets, net | — | 68 | 68 | (43 | ) | 111 | 0.35 | |||||||||||||||||||||
Litigation (recoveries)/charges, net | — | 90 | 90 | 30 | 60 | 0.19 | ||||||||||||||||||||||
Loss on extinguishment of debt | — | — | 2 | 1 | 1 | — | ||||||||||||||||||||||
Transitional tax benefit, net5 | — | — | — | 894 | (894 | ) | (2.82 | ) | ||||||||||||||||||||
Non-GAAP | $ | 2,193 | 20 | % | $ | 1,340 | (2 | )% | $ | 1,175 | $ | 350 | $ | 823 | — | % | 29.7 | % | $ | 2.60 | 1 | % |
• | 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 assessment related to prior fiscal years is the portion of the New York State assessment for prescription opioid medications that were sold or distributed in periods prior to fiscal 2019. This portion was excluded from non-GAAP financial measures because it related to sales in prior fiscal years and inclusion would have obscured analysis of the current fiscal year results of our underlying, ongoing business. Additionally, while the New York law would have required us to make payments on an ongoing basis, the portion of the assessment related to sales in periods prior to fiscal 2019 was contemplated to be a one-time, nonrecurring item. In December 2018, this assessment was declared unconstitutional. The charges we had previously recorded for the assessment related to periods prior to fiscal 2019 were reversed in the second quarter of our fiscal 2019 and also excluded from non-GAAP financial measures. |
• | 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 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. |
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