Essential to care Q1FY2010 Investor/Analyst Call November 5, 2009 Exhibit 99.3 |
2 2 2 Forward-looking statements and GAAP reconciliation This presentation contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. 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 (but are not limited to) uncertainties and risks regarding the effect of the CareFusion spinoff on Cardinal Health; the performance of CareFusion and the proceeds realized from future sales of CareFusion stock; competitive pressures in Cardinal Health’s various lines of business; the loss of one or more key customer or supplier relationships or changes to the terms of those relationships; the timing of generic and branded pharmaceutical introductions and the frequency or rate of branded pharmaceutical price appreciation or generic pharmaceutical price deflation; changes in the distribution patterns or reimbursement rates for health care products and/or services; the results, consequences, effects or timing of any inquiry or investigation by any regulatory authority or any legal or administrative proceedings; the effects of disruptions in the financial markets, including uncertainties related to the availability and/or cost of credit on Cardinal Health’s customers and vendors; the ultimate features of government health care reform initiatives and their enactment and implementation; and conditions in the pharmaceutical market and general economic and market conditions. In addition, 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 (including all amendments to those reports) and exhibits to those reports. This presentation reflects management’s views as of Nov. 5, 2009. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement. In addition, this presentation includes non-GAAP financial measures. Cardinal Health provides definitions and reconciling information at the end of this presentation and on its investor relations page at www.cardinalhealth.com. A transcript of the conference call will be available on the investor relations page at www.cardinalhealth.com. |
4 4 4 Q1 FY10 Q1 FY09 Q1 FY10 Q1 FY09 Revenue $24,781 $23,437 % change 6% 11% Operating earnings $240 $287 $323 $311 % change (16)% (15)% 4% (13)% Ratio to revenue 0.97% 1.22% 1.30% 1.33% Earnings from continuing ops ($62) $172 $194 $168 % change N.M. (19)% 15% (24)% Ratio to revenue N.M. 0.73% 0.78% 0.72% Diluted EPS from continuing ops ($0.17) $0.48 $0.54 $0.47 % change N.M. (16)% 15% (22)% Asset Management Operating cash flow $406 ($155) Days Receivable 20.1 20.5 Days Inventory on Hand 23 26 Non-GAAP Basis ($M) GAAP Basis ($M) Q1 FY2010 Business Analysis |
5 5 5 Operating Earnings ($M) Earnings/(Loss) from Continuing Operations ($M) Diluted EPS from Continuing Operations Operating Earnings ($M) Earnings/(Loss) from Continuing Operations ($M) Diluted EPS from Continuing Operations GAAP $240 ($62) ($0.17) $287 $172 $0.48 Restructuring and Employee Severance (Note) $60 $42 $0.12 $21 $13 $0.04 Litigation Charges/(Credits), Net - - - - - - Impairments, Loss on Sale of Assets and Other, net $24 $16 $0.04 $4 ($17) ($0.05) Other Spinoff Costs (Note) - $198 $0.55 - - - Non-GAAP $323 $194 $0.54 $311 $168 $0.47 Spinoff Costs Included in Restructuring and Employee Severance $50 $36 Other Spinoff Costs - $198 Total Spinoff Costs $50 $234 Q1 FY 2009 Q1 FY 2010 Q1 FY2010 Operating Earnings and EPS Note: Costs associated with the spinoff are as follows: |
6 6 6 One-time Items Included In GAAP Financials (Net of Tax) • $42M - Restructuring and employee severance, primarily related to spinoff • $16M - Impairment • $198M - Other spinoff costs: – $172M tax charge related to the portion of non-U.S. earnings that will no longer be indefinitely invested offshore – $26M loss associated with the early retirement of long-term debt |
7 7 7 Other Items of Note Affecting Q1 Financials • Earlier-than-expected brand price inflation in pharmaceutical distribution • Accelerated revenue recognition in Medical related to the spinoff • Flu season • Lower y-on-y tax rate • Other expense/income |
8 8 8 Balance Sheet Items Related to CareFusion Spinoff Assets • $902M – Investment in CareFusion • $212M – Other assets – Receivable from CareFusion per our Tax Matters Agreement Liabilities • $2.1B – Long-term debt (+$350M - current portion of long-term debt) • $172M – Deferred income taxes and other liabilities – Tax charge related to the portion of non-U.S. earnings that will no longer be indefinitely invested offshore Shareholder’s Equity • $3.7B – Retained Earnings reduction – CareFusion spinoff was treated as a dividend to shareholders, and therefore is deducted from retained earnings |
9 Pharmaceutical Segment Business Analysis Highlights: • Revenue increased 5%, driven by strong growth in pharmaceutical distribution – Balanced sales growth with bulk at 6% and non-bulk at 5% • Segment profit decreased 2% due to year-on-year impact of generic launches and deflation, customer contract repricings and MSI transition, partially offset by nuclear pharmacy margin expansion • Overall disciplined cost control • Progress made with generic sourcing, contract compliance and customer-facing IT initiatives • Strong working capital management Revenue Segment Profit Segment Profit Margin $22,562 $208 0.92% Q1 FY10 ($M) $21,404 $213 1.00% Q1 FY09 ($M) 5% (2%) % Change |
10 Medical Segment Business Analysis Highlights: • Revenue increased 10%, driven by organic growth, accelerated sales recognition related to the spinoff and flu-related sales – Strong sales growth in lab, ambulatory and Canada • Segment profit increased 17%, driven by organic growth, the accelerated benefit related to the spinoff, increased sales from flu orders and commodity cost decreases, partially offset by investment in the Medical Transformation program and the y-on-y impact of Tecomet/Medsystems divestitures • Progress made in Medical Transformation and customer-facing IT initiatives • Strong expense and capital management Revenue Segment Profit Segment Proft Margin $2,237 $115 5.13% Q1 FY10 ($M) $2,037 $98 4.81% Q1 FY09 ($M) 10% 17% % Change |
12 12 Pharmaceutical Segment FY2010 Business Trends and Expectations November 5, 2009 • Market factors: – Modest segment revenue growth – YoY decline in generic launches – Customer contract repricings • Key strategic moves benefiting the longer-term: – Portfolio repositioning to focus (divestitures) and optimize existing platforms (MSI) – Pfizer DSA transition timing – Sourcing model changes • Transformational investments: – Investments in customer-facing systems • Balance of year forecast assumes nuclear supply shortage resolves in January 2010 • Strong working capital management continues |
13 13 • Market factors: – Solid segment revenue growth – Positive impact from decreases in raw materials/COGS • Transformational investments: – Medical Transformation progressing – Progress in ambulatory care channel – investments continue • Improvement in Presource performance • Lean/operational excellence initiatives improving supply chain and working capital • Accelerated revenue recognition related to spinoff • Impact of flu Medical Segment FY10 Business Trends and Expectations November 5, 2009 |
14 14 CAH FY 2010 Financial Expectations November 5, 2009 FY10 outlook FY09 adjusted base financials Revenue: Low single digit growth $96B Non-GAAP EPS 1 : $1.90 - $2.00 $2.26 1 Non-GAAP diluted earnings per share from continuing operations |
15 15 CAH FY10 Overall Expectations November 5, 2009 FY10 outlook FY09 adjusted base financials Non-GAAP effective tax rate 36-37% 37% Diluted weighted average shares outstanding 361-362M 361.5M Interest and other, net ~$120M $128M Capital expenditures $200M - $250M $419M 1 1 Includes $150M synthetic lease retirement |
18 18 18 Q1 FY10 Trailing Five Quarters |
19 19 Segment Analysis: Q1FY10 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Revenue ($M) 21,404 22,079 22,118 22,263 22,562 Segment Profit ($M) 213 262 286 273 208 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Revenue ($M) 2,037 2,057 1,976 2,090 2,237 Segment Profit ($M) 98 75 129 83 115 Pharmaceutical Segment Medical Segment |
20 20 20 GAAP to Non-GAAP Reconciliation Statements |
CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION
| | | | | | | | | | | | | | | | | | | | | |
| | | First Quarter 2010 | |
(in millions, except per Common Share amounts) | | GAAP | | | Restructuring
and Employee
Severance1 | | Impairments and
Loss on Sale of
Assets | | | Litigation
(Credits)/
Charges, Net1 | | Other Spin-Off
Costs | | | Non-GAAP | |
Operating Earnings | | | | | | | | | | | | | | | | | | | | | |
Amount | | $ | 240 | | | $ | 60 | | $ | 24 | | | — | | | — | | | $ | 323 | |
Growth Rate | | | (16 | )% | | | | | | | | | | | | | | | | 4 | % |
Earnings Before Income Taxes and Discontinued Operations | | $ | 175 | | | $ | 60 | | $ | 24 | | | — | | $ | 42 | | | $ | 300 | |
Provision for Income Taxes | | $ | 237 | | | $ | 17 | | $ | 8 | | | — | | $ | (156 | ) | | $ | 106 | |
Earnings/(Loss) from Continuing Operations | | | | | | | | | | | | | | | | | | | | | |
Amount | | $ | (62 | ) | | $ | 42 | | $ | 16 | | | — | | $ | 198 | | | $ | 194 | |
Growth Rate | | | N.M. | | | | | | | | | | | | | | | | | 15 | % |
Diluted EPS from Continuing Operations | | | | | | | | | | | | | | | | | | | | | |
Amount2 | | $ | (0.17 | ) | | $ | 0.12 | | $ | 0.04 | | | — | | $ | 0.55 | | | $ | 0.54 | |
Growth Rate | | | N.M. | | | | | | | | | | | | | | | | | 15 | % |
| |
| | | First Quarter 2009 | |
| | | GAAP | | | Restructuring
and Employee
Severance1 | | Impairments and
Loss on Sale of
Assets | | | Litigation
(Credits)/
Charges, Net1 | | Other Spin-Off
Costs | | | Non-GAAP | |
Operating Earnings | | | | | | | | | | | | | | | | | | | | | |
Amount | | $ | 287 | | | $ | 21 | | $ | 4 | | | — | | | — | | | $ | 311 | |
Growth Rate | | | (15 | )% | | | | | | | | | | | | | | | | (13 | )% |
Earnings Before Income Taxes and Discontinued Operations | | $ | 255 | | | $ | 21 | | $ | 4 | | | — | | | — | | | $ | 279 | |
Provision for Income Taxes | | $ | 83 | | | $ | 7 | | $ | 21 | | | — | | | — | | | $ | 111 | |
Earnings from Continuing Operations | | | | | | | | | | | | | | | | | | | | | |
Amount | | $ | 172 | | | $ | 13 | | $ | (17 | ) | | — | | | — | | | $ | 168 | |
Growth Rate | | | (19 | )% | | | | | | | | | | | | | | | | (24 | )% |
Diluted EPS from Continuing Operations | | | | | | | | | | | | | | | | | | | | | |
Amount | | $ | 0.48 | | | $ | 0.04 | | $ | (0.05 | ) | | — | | | — | | | $ | 0.47 | |
Growth Rate | | | (16 | )% | | | | | | | | | | | | | | | | (23 | )% |
The sum of the components may not equal the total due to rounding.
| 1 | Beginning with the first quarter of fiscal 2010, the Company eliminated the category of special items on its condensed consolidated statements of earnings and began to use “restructuring and employee severance” and “litigation (credits)/charges, net.” Prior periods have been reclassified to conform with this new presentation. |
| 2 | The weighted average number of shares used in the non-GAAP calculation includes the dilutive potential Common Shares as there is income from continuing operations on a non-GAAP basis. |
CARDINAL HEALTH, INC. AND SUBSIDIARIES
GAAP / NON-GAAP RECONCILIATION
| | | | | | | | |
| | | First Quarter | |
(in millions) | | 2010 | | | 2009 | |
GAAP Effective Tax Rate from Continuing Operations | | | 135.3 | % | | | 32.4 | % |
Non-GAAP Effective Tax Rate from Continuing Operations | | | | | | | | |
Earnings before income taxes and discontinued operations | | $ | 175.0 | | | $ | 254.8 | |
Restructuring and employee severance | | | 59.7 | | | | 20.7 | |
Impairments and loss on sale of assets | | | 23.6 | | | | 3.6 | |
Litigation (credits)/charges, net | | | (0.5 | ) | | | — | |
Other spin-off costs | | | 42.3 | | | | — | |
| | | | | | | | |
Adjusted earnings before income taxes and discontinued operations | | $ | 300.1 | | | $ | 279.1 | |
Provision for income taxes | | $ | 236.8 | | | $ | 82.6 | |
Restructuring and employee severance tax benefit | | | 17.4 | | | | 7.4 | |
Impairments and loss on sale of assets tax benefit | | | 8.1 | | | | 20.9 | |
Litigation (credits)/charges, net tax expense | | | (0.2 | ) | | | — | |
Other spin-off costs tax expense | | | (155.9 | ) | | | — | |
| | | | | | | | |
Adjusted provision for income taxes | | $ | 106.2 | | | $ | 110.9 | |
Non-GAAP effective tax rate from continuing operations | | | 35.4 | % | | | 39.8 | % |
| |
| | | First Quarter | |
| | | 2010 | | | 2009 | |
Debt to Total Capital | | | 33 | % | | | 32 | % |
Net Debt to Capital | | | | | | | | |
Current portion of long-term obligations and other short-term borrowings | | $ | 362.3 | | | $ | 158.0 | |
Long-term obligations, less current portion and other short-term borrowings | | | 2,103.5 | | | | 3,593.3 | |
| | | | | | | | |
Debt | | $ | 2,465.8 | | | $ | 3,751.3 | |
Cash and equivalents | | | (1,584.8 | ) | | | (387.5 | ) |
| | | | | | | | |
Net debt | | $ | 881.0 | | | $ | 3,363.8 | |
Total shareholders’ equity | | $ | 4,941.2 | | | $ | 7,918.1 | |
Capital | | $ | 5,822.2 | | | $ | 11,281.9 | |
Net Debt to Capital | | | 15 | % | | | 30 | % |
Forward-Looking Non-GAAP Financial Measures
The Company presents non-GAAP earnings from continuing operations and non-GAAP effective tax rate from continuing operations (and presentations derived from these financial measures) on a forward-looking basis. The most directly comparable forward-looking GAAP measures are earnings from continuing operations and effective tax rate from continuing operations. The Company is unable to provide a quantitative reconciliation of these forward-looking non-GAAP measures to the most comparable forward-looking GAAP measures because the Company cannot reliably forecast restructuring and employee severance, impairments and loss on sale of assets, litigation (credits)/charges, net and other spin-off costs, which are difficult to predict and estimate and are primarily dependent on future events. Please note that the unavailable reconciling items could significantly impact the Company’s future financial results.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
DEFINITIONS
GAAP
Debt:long-term obligations plus short-term borrowings
Debt to Total Capital:debt divided by (debt plus total shareholders’ equity)
Diluted EPS from Continuing Operations: earnings from continuing operations divided by diluted weighted average shares outstanding
Effective Tax Rate from Continuing Operations: provision for income taxes divided by earnings before income taxes and discontinued operations
Operating Cash Flow: net cash provided by / (used in) operating activities
Other Spin-Off Costs: costs and tax charges incurred in connection with the Company’s spin-off of CareFusion that are not included in restructuring and employee severance, impairments and loss on sale of assets and litigation (credits)/charges, net. Other spin-off costs include, among other things, the loss on extinguishment of debt and the income tax charge related to the anticipated repatriation of a portion of cash loaned to the Company’s entities within the United States for the three months ended September 30, 2009.
Segment Profit: segment revenue minus (segment cost of products sold and segment distribution, selling, general and administrative expenses)
Segment Profit Margin:segment profit divided by segment revenue
Segment Profit Mix: segment profit divided by total segment profit for all segments
Return on Equity:annualized net earnings divided by average shareholders’ equity
Return on Invested Capital: annualized net earnings plus other (income)/expense, net plus interest expense, net divided by (average total shareholders’ equity plus debt plus unrecorded goodwill)
Revenue Mix:segment revenue divided by total segment revenue for all segments
NON-GAAP
Net Debt to Capital: net debt divided by (net debt plus total shareholders’ equity)
Net Debt:debt minus (cash and equivalents)
Non-GAAP Diluted EPS from Continuing Operations: non-GAAP earnings from continuing operations divided by diluted weighted average shares outstanding
Non-GAAP Diluted EPS from Continuing Operations Growth Rate:(current period non-GAAP diluted EPS from continuing operations minus prior period non-GAAP diluted EPS from continuing operations) divided by prior period non-GAAP diluted EPS from continuing operations
Non-GAAP Earnings from Continuing Operations:earnings from continuing operations excluding (1) restructuring and employee severance, (2) impairments and loss on sale of assets, (3) litigation (credits)/charges, net and (4) Other Spin-Off Costs, each net of tax
Non-GAAP Earnings from Continuing Operations Growth Rate: (current period non-GAAP earnings from continuing operations minus prior period non-GAAP earnings from continuing operations) divided by prior period non-GAAP earnings from continuing operations
Non-GAAP Effective Tax Rate from Continuing Operations: (provision for income taxes adjusted for (1) restructuring and employee severance, (2) impairments and loss on sale of assets, (3) litigation (credits)/charges, net and (4) Other Spin-Off Costs) divided by (earnings before income taxes and discontinued operations adjusted for (1) restructuring and employee severance, (2) impairments and loss on sale of assets, (3) litigation (credits)/charges, net and (4) Other Spin-Off Costs)
Non-GAAP Operating Earnings: operating earnings excluding (1) restructuring and employee severance, (2) impairments and loss on sale of assets, (3) litigation (charges)/credits and (4) Other Spin-Off Costs included within distribution, selling, general and administrative expenses.
Non-GAAP Operating Earnings Growth Rate:(current period non-GAAP operating earnings minus prior period non-GAAP operating earnings) divided by prior period non-GAAP operating earnings
Non-GAAP Return on Equity:(annualized current period net earnings excluding (1) restructuring and employee severance, (2) impairments and loss on sale of assets, (3) litigation (credits)/charges, net, (4) Other Spin-Off Costs and (5) CareFusion net earnings in discontinued operations, each net of tax) divided by average shareholders’ equity adjusted for the $3.7 billion non-cash dividend issued in connection with the spin-off
Non-GAAP Return on Invested Capital: (annualized net earnings excluding (1) restructuring and employee severance, (2) impairments and loss on sale of assets, (3) litigation (credits)/charges, net, (4) Other Spin-Off Costs, (5) other (income)/expense, net, (6) interest expense, net and (7) CareFusion net earnings in discontinued operations, each net of tax) divided by (average total shareholders’ equity adjusted for the $3.7 billion non-cash dividend issued in connection with the spin-off plus debt plus unrecorded goodwill excluding unrecorded goodwill attributed to CareFusion)
