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Q4 FY14 Cardinal Health, Inc. Earnings Conference Call August 4, 2014 8:30AM Eastern

Operator: Good day and welcome to the Cardinal Health Fourth Quarter Fiscal Year 2014 Earnings Conference Call.

Today’s conference is being recorded. At this time, I would like to turn the conference over to Sally Curley, Senior

Vice President of Investor Relations. Please go ahead.

Sally Curley: Thank you, Tina, and welcome to Cardinal Health’s Fourth Quarter Fiscal 2014 Earnings and Fiscal 2015

Guidance Call. Today we will be making forward-looking statements. The matters addressed in these statements

are subject to risks and uncertainties that could cause actual results to differ materially from those projected or

implied. Please refer to the SEC filings in the Forward Looking Statement slide at the beginning of the

presentation found on the Investor page of our website for a description of those risks and uncertainties.

In addition, we will reference non-GAAP financial measures. Information about these measures is included at the

end of the slides. Our press release and details about upcoming events can be found on the IR section of our

website at cardinalhealth.com, so please make sure to visit the site often for updated information.

Now I would like to turn the call over to our Chairman and CEO, Mr. George Barrett. George.

George Barrett: Thanks Sally, and thank you to everyone for joining us this morning. Fiscal 2014 was an enormously

important year for Cardinal Health. Our organization exceeded our financial goals for the year along multiple

dimensions, revenue, gross margin dollars, non-GAAP operating earnings, and operating margin rate, and cash

flow.

Of particular note, we were able to absorb a revenue headwind of nearly $17 billion dollars due to the FY14 first

quarter expiration of the Walgreen’s contract and still grow our non-GAAP earnings over the prior year. At the


same time, we have been able to enhance our market position, deploy capital efficiently, and continue to grow the

talent so critical to our future.

Equally important, we began our fiscal 2015 stronger and better positioned than ever to address the needs of a

healthcare system looking for solutions to two very basic questions, how do we deliver better care more cost

effectively and who are those industry players who listen and act to bring innovative solutions to the table.

Answering these questions is at the heart of what we do and our team has approached this recognizing that we

need to compete and win every day in today’s marketplace while at the same time making the important moves to

adapt to a changing health care environment.

You could make a strong argument that this has been a transition year for the industry as well. It has been an

extraordinary 12 months in health care, particularly here in the U.S. Last fall we saw the first rollout of the

exchanges under the Affordable Care Act, and throughout the year, our system continued to explore different

models for providing coverage for patients, delivering care, and managing costs. We saw consumers playing a

more active role in their own healthcare, much of this fueled by the impact of the changing benefit design and we

saw some medical breakthroughs that expanded our system’s capacity to manage and even cure disease, but

also test our ability or readiness to pay for that innovation.

At the same time, we saw clear signs of an industry actively repositioning and consolidating upstream among

pharmaceutical and med tech manufacturers as well as among providers and health systems and a continued

blurring of the lines that delineated what used to be the distinct segments of the healthcare market. This has

certainly been a year of transition.

With that as context, let me talk about our performance in FY14. My remarks will focus broadly on our annual

fiscal 2014 and our 2015 outlook. As I mentioned in my opening remarks, fiscal year 2014 required some major

transitions for Cardinal Health after the expiration of the Walgreen’s contract, and given this headwind, I am

particularly pleased with our results.


Our revenues for the year excluding Walgreen’s grew by 8% fueled primarily by strong growth from existing

customers. Our reported revenues, including the impact from Walgreen’s for the year, declined by 10% to $91

billion dollars. Non-GAAP operating earnings rose 4% to $2.1 billion dollars while non-GAAP diluted earnings per

share were $3.84, up 3%, and our gross margin rate expanded by 80 basis points to 5.7% for the year.

Our team continued to drive capital efficiency this year, generating $2.5 billion dollars in cash from operations. We

returned over $1.1 billion dollars to shareholders in fiscal 2014 through both our strong dividend and share

buybacks, and I am very pleased that we were able to provide our investors with a total shareholder return of

46.7% for the year. Now let me turn to the segments.

Our Pharmaceutical segment more than met the challenge associated with the Walgreen’s contract expiration

actually delivering a profit increase while absorbing that $17 billion dollar revenue headwind. It is worth noting that

the rate of revenue growth excluding Walgreen’s would have been a robust 8% for our Pharmaceutical segment.

Our overall Pharmaceutical segment profit margin expanded almost 30 basis points for the year.

I would like to take a few minutes to cover a few strategic priority areas for our Pharma segment. There is little

doubt that generic drugs will continue to be a significant lever in holding down prescription drug costs. Current

data suggest that generics now represent over 85% of all prescriptions in the United States. We have significantly

increased our scale in Generics through our various internal and external moves, most notably our joint venture

with CVS Caremark, now named Red Oak Sourcing.

A few quick comments about Red Oak. We are extremely excited about our progress to date in getting to a go live

with Red Oak, which was formalized last month, and CVS Caremark has been a terrific partner throughout the

process. As we have worked through the details in our preparation for the launch, our enthusiasm has only

increased.


We have assembled a talented team with both Cardinal Health and CVS Caremark well represented. Our teams

have put in the hard work to manage through all of the intricate details so that we could go to the manufacturers

with one face and as one decision maker. We feel confident that our participation in Red Oak will ensure that

Cardinal Health is in the best position to serve our diverse mix of customers in this competitive landscape.

I understand that many of you will want to know more details about the impact, the value, and the mechanics of

the joint venture, but I will ask you to recognize that Red Oak has only just this past month been engaging in

discussions with manufacturers. It is important to respect the process and for us to let these negotiations proceed

between Red Oak and the manufacturers, and so other than the comments Jeff will be making, we will not provide

specifics on the mechanics or the exact value derived from the joint venture. Of course, the FY15 guidance

includes the assumptions associated with the net benefits from Red Oak.

You know that diversifying our customer base has been a priority. We’ve continued to grow our position with

independent pharmacies and other pharmacy channels over the year. Our portfolio of solutions for these

customers has never been more comprehensive and the response of the retailers has never been more

enthusiastic.

I just returned from RBC, our annual Retail Business Conference held in Washington DC last week. The gathering

of thousands of owners and pharmacists was our largest ever, reinforcing their importance to the healthcare

system and to Cardinal Health. The conference gave these retailers exposure to over 60 continuing education

courses and provided access to the latest tools, technologies, solutions, and innovative generic programs.

Special emphasis was placed on patient solutions that help with medication adherence and medication therapy

management. Our focus remains to help these critical members of the healthcare system improve patient care,

the breadth of their products and services, and the efficiency and profitability of their businesses.

At the same time, our ability to serve hospitals and health systems with pharmaceutical products continues to

strengthen, including some of the important work we are doing with our clinical pharmacy teams to help with


discharge management. Specialty medicine and the services surrounding these innovations continues to play an

increasingly large role in our healthcare landscape and of course for Cardinal Health.

During fiscal 2014, we were able to deliver a 30% revenue growth in the Specialty Solutions group. We have

expanded our presence and specialty biopharmaceuticals, particularly in building out our tools to interface with

patients who need to be served in an integrated and high touch model. This enables us to serve the providers of

care to these unique patient populations and also to capture value as a partner to biopharmaceutical companies

who seek to get closer to the patient.

To support this program, we established a best in class patient centered HUB with the acquisition of Sonexus

Health in the third quarter of FY2014. This platform and experienced team is an important step to position

Cardinal Health to assist in these efforts and to deliver value-added services.

Moving to the Medical segment, fiscal 2014 revenues grew 9%, margin rate expanded by 35 basis points, and

segment profit grew at almost 20%. The delivery of medical care has been undergoing fairly rapid change and the

work of our Medical segment has been focused on aligning to address the evolution in the system. Just these

past few weeks we have formalized some adaptation to these changes, launching a team based approach to

addressing the needs of large integrated delivery networks. These are not sales teams, but rather business and

systems experts who are charged with delivering the full range and breadth of the Cardinal Health portfolio to

address the complex needs of these diverse customers.

As I mentioned earlier, we’ve seen consolidation among hospital systems, continued affiliation between doctors

and those systems, and some shifting sand as it relates to where care is delivered. On this last point, while the

sickest patients will continue to be served in Acute care settings, it is clear that many patients with lower acuity

will be served in different settings whether that’s a community hospital, a surgery center, a clinic, a physician’s

office, or even a home. This has been at the heart of our strategy to serve patients across the continuum of care.

In this context, the acquisition of AssuraMed about a year ago has been an important extension of our strategy. It

increased our touch points and created opportunities in a market that is growing an estimated 5% to 7% per year.


Most important for Cardinal Health, it is increasing our direct linkages with chronic patients. Through AssuraMed,

we have some form of interaction with the patient 44,000 times a day. With this increasing patient interaction, we

recently made the decision to rebrand our AssuraMed platform as Cardinal Health to Home - excuse me Cardinal

Health at Home.

As we told you at the time of the acquisition, we intended to increase the AssuraMed portfolio. We have in fact

broadened the product line as well as increased the number of Cardinal Health branded products to this important

channel of the Home. All told, we are extremely pleased with the progress here and the fact that AssuraMed

exceeded our full year accretion target of 18 cents per share.

Our medical consumables business has represented an opportunity to use our scale to bring significant savings to

the health care system while at the same time expanding our margins. Our consumables business grew faster

than the market this year, driven by share gains from new private label product launches, new channel

penetration, and from growth among our strategic accounts. We saw full year sales growth of 6% and launched

over 500 new SKUs during FY14.

During this past year, we’ve discussed with you the challenges many of our hospitals, IDN, and surgery center

customers face in managing physician preference items. These categories tend to consume resources and from

our perspective represent inefficiency. We’ve recognized an opportunity to bring standardization and with that real

time value to the system. We’ve positioned ourselves to address some critical pain points, building platforms in

orthopedic, wound management, and with our third quarter acquisition of AccessClosure, interventional

cardiovascular.

A few comments on China. China has continued to be an outstanding growth story for us. In 2014, we grew

revenues by 30%, reaching $2.6 billion dollars. We continue to build strong relationships with the biopharma and

medical device companies at a time where company reputation is particularly important. We’ve expanded our

geographic footprint and our lines of business, which now include 30 direct to patient pharmacies focused on

specialized pharmaceutical products.


Before I turn to 2015, one more note. It has been our practice to be transparent with you with regards to areas

where we need to be better. This was a year of enormous accomplishments, but we had a few areas that did not

satisfy our high expectations and fortunately, these are relatively small parts of our portfolio and in each case, we

are taking action to accelerate improvement, but I do want to call them out.

Canada was a particularly tough market for medical supplies this year and our business declined there year over

year. We believe that we’ve made the necessary moves to address the pressures of that market and we look

forward to recovery in that business.

Our work supplying medical products to small physician offices, it has not had the growth that we would like to

see. While we’ve had solid performance in most post-Acute settings including surgery centers and large practices,

we are committed to making greater progress within these smaller practices and are taking steps accordingly.

As we leave 2014 and turn to our fiscal 2015, we begin the year with increased scale in Generics, a more robust

specialty business, a reconfigured customer and product portfolio, and some important solution offerings for the

medical system, the flexibility that comes with financial strength, a deep bench of organizational talent, and a

sense of confidence in the future.

Most important, we believe our strategic priorities align with the needs of a system experiencing a rapid change -

new performance based models and a new world of bundled risk, changing network design, accountable care

organizations, and a more involved patient acting more like a consumer. So with this as backdrop, we are guiding

to a fiscal year 2015 non-GAAP EPS range of $4.10 to $4.30. This puts us on track to deliver on the long term

aspirations we laid out in our December Investor Day.

It is our year-end so I would like to voice a few thank yous. To our shareholders, we appreciate your support and

your high expectations. To our business partners, manufacturers, providers and caregivers, those who directly

touch patients, we thank you for putting your trust in us and allowing us to help you serve your patients. And to all


of my colleagues at Cardinal Health, my gratitude for your talents, your spirit, and your readiness to respond to

important challenges and to do so with your eyes always on the patient.

Before I turn the call over the Jeff, I want to make a few quick comments on our announcement about his

retirement, which will become effective following the end of our fiscal 2015. Jeff has been a talented and trusted

partner to me since my arrival at Cardinal Health. I’ve often leaned on his agile mind and his quick wit. Although

there will be no Derek Jeter farewell tour, we have a healthy transition scheduled and I know all of you will get

time with Jeff to thank him in the coming year. And of course, we will update you as we formalize our succession

plans.

And with that, I will turn the call over to Jeff.

Jeff Henderson: Thanks George and good morning everyone and by the way, I am counting on the Derek Jeter farewell

tour, but thank you for the comments.

I am happy to be reporting a solid finish to an important transition year. This morning, I will begin by highlighting

key financial trends and drivers of our fourth quarter results and then make a few comments on our full year

performance. I will also provide additional detail on our fiscal ’15 guidance including some of our key expectations

and underlying assumptions. You can refer to the slide presentation posted on our website as a guide to this

discussion.

Let’s start with consolidated results for the quarter. As we indicated during our third quarter call, achieving the

upper end of our non-GAAP EPS guidance range would really depend on two items, the impact resulting from

generic manufacturer price increases and our tax rate. During the quarter, we grew our non-GAAP EPS by 5% to

83 cents per share or $3.84 for the full year, a reflection of a relatively favorable outcome for both of these factors.

Again, some more detail in a moment.


Now to review the rest of the income statement starting with revenue. Consolidated revenue came in better than

expected down 10% to $22.9 billion dollars with the decline due to the expiration of the Walgreen’s contract.

Gross margin dollars were up slightly for the quarter, resulting in a gross margin rate 58 basis points higher than

the prior year’s Q4. This continues a 16-quarter trend of gross margin rate expansion.

SG&A expenses moderately increased by 2.5% in Q4, driven by recent acquisitions and year over year

compensation related items. Our core SG&A costs were slightly favorable to last year due to our continued focus

on operational efficiency.

Our consolidated non-GAAP operating margin rate increased 16 basis points to over 2%. Net interest and other

expense was favorable in the fourth quarter versus prior year due in part to lower interest expense. The non-

GAAP tax rate for the quarter was about 34% versus the prior year’s 37%. This period of lower rate is related to

favorable state tax outcomes in the quarter. Our fourth quarter non-GAAP diluted average shares outstanding

were $343 million, nearly $2 million favorable to last year’s period.

During the quarter, we repurchased about $285 million dollars worth of shares, bringing the full year repurchase

to $673 million dollars. We have over $700 million dollars remaining on our Board authorized repurchase

program.

Moving on to consolidated cash flows and the balance sheet, our operations generated $760 million dollars in

cash flow during the quarter. This brings the full year to approximately $2.5 billion dollars, including the expected

benefit of more than $500 million dollars from the unwind of the Walgreen’s business. We continue to make good

progress in reducing our overall network and capital days, which are down 1.8 days, largely related to a shift in

customer mix. Overall, we ended Q4 with a strong balance sheet, including a cash balance of $2.9 billion dollars

with $420 million dollars held internationally.

Now let’s move to segment performance starting with Pharma. Pharma segment revenues decreased 12% to

$20.1 billion dollars driven by the continued impact of the expiration of the Walgreen’s contract. The decline was


partially offset by organic sales growth, Specialty, and China. The contribution to revenue from Walgreen’s in the

prior year was approximately $5 billion dollars for the quarter. If you adjust for that contract loss, our Pharma

sales growth in Q4 was a strong 13% driven by both pricing and volume effects. Specialty Solutions had revenue

growth of 21% versus the same period last year.

Our China business also contributed to Pharma revenue growth. Total China sales were up 24% versus the prior

period. This was driven primarily by a local distribution business from both organic growth and as a result of our

strategic geographic expansion. Pharma segment profit decreased by 5% to $377 million dollars primarily driven

by the continued impact of the Walgreen’s contract termination, which was partially offset by strong performance

in our Generic programs.

While we are on the topic of Generics, I do want to mention that we saw sequential quarter increase in

contribution from generic manufacturer price increases, although it was not to the level we experienced in our

second quarter. Manufacturer price increases continue to impact a relatively small basket of generic items. The

overall Generic portfolio experienced net inflation in the low single digits in the quarter.

Very importantly, our Generic programs saw strong sales growth of about 9%, most notably driven by strong

double-digit growth in our SOURCE program. We also saw continued brand inflation in the low double digits,

about as we expected. Pharma segment profit margin rate increased by 14 basis points compared to the prior

year’s Q4, a reflection of the strength of our Generics programs and our continued focus on margin expansion.

Moving on to the Medical segment performance in the quarter, Medical revenues grew 4% in the fourth quarter

versus last year, driven by growth with existing customers including solid growth in our Strategic Hospital Network

Accounts and the benefit of acquisitions. Regarding our strategic hospital accounts, we saw low to mid-single digit

growth in this key customer category in both Q4 and the full year. This represents great work on the part of our

medical team given the continued challenging utilization environment and we expect more of the same in 2015

and beyond.


Medical segment profit declined 8%, which includes two items worth a combined negative $13 million dollars year

on year. The first of these was a year over year increase in incentive compensation, the majority of which is

based on total company performance that has been allocated to the segments. Secondly, we also had some

performance shortfalls in our medical business in Canada, which as George mentioned reflected substantial

market pressures related to medical spend. Excluding these two items, medical segment profits would have

shown solid growth.

Turning to slide number 8, you will see our consolidated GAAP results for the quarter. The 50 cent variance to

non-GAAP results was primarily driven by amortization and other acquisition related costs, which reduced our

GAAP results by 12 cents per share. In Q4 of last year, GAAP results were $2.51 lower than non-GAAP results

predominantly due to an impairment charge associated with our Nuclear division.

Now let me add a few additional comments on the full year. Fiscal 2014 non-GAAP operating earnings were up

4% and I am particularly pleased with our excellent progress on margin expansion with both a gross margin rate

and a non-GAAP operating margin rate increasing versus last year, up 80 basis points and 32 basis points,

respectively.

This is solid performance in a transition year and is a testament to our organization’s flexibility, adaptability, and

commitment to growth. Fiscal 2014 non-GAAP EPS was $3.84 up 3% versus last year. As a reminder, our fiscal

’13 non-GAAP earnings per share included a discreet positive 18 cent per share benefit from a tax settlement. In

fiscal ’14, our non-GAAP earnings per share included a net 2 cents per share benefit from two large offsetting tax

items. Excluding these items in both years, the company achieved non-GAAP earnings per share growth of 8%.

For the year, Pharma segment revenues declined 12% but were better than expected as organic customer growth

exceeded our original expectations. Full year Pharma segment profit increased over the prior year and the margin

rate expanded 27 basis points to 2.18%.


Our Medical segment achieved strong year over year growth with revenues up 9% and segment profit growth up

nearly 20% including the impact of AssuraMed. In addition, Medical reported segment profit margin rate

improvement up 35 basis points to 4.05%. Very importantly, during the year, we also made excellent progress

against all strategic priorities, which George shared in some detail in his remarks, while also returning $1.1 billion

to shareholders through share repurchase and dividends.

When I look at our entire fiscal 2014, I am extraordinarily proud of the growth and overall performance we were

able to achieve given the headwind we were facing from the considerable shift in our customer base. With a

strong 2014 behind us, I feel we are well positioned heading into a new fiscal year. Before discussing our fiscal

’15 outlook, I want to mention a change in the way we are providing guidance and reporting results going forward.

As noted in the release, we’ve redefined our non-GAAP earnings measures to exclude LIFO credits or charges.

This change in our non-GAAP definition comes after conducting research on comparable health care companies

and deciding to simplify comparisons of our results versus other peer companies. We felt that doing this now

when we do not have a LIFO charge in FY ’14 and do not expect one in fiscal ’15 made the most sense.

As George stated for fiscal ’15 we expect our non-GAAP earnings per share to be in the range of $4.10 to $4.30

and we expect revenues to increase modestly.

I will now walk through our other corporate assumptions for the year. We anticipate diluted weighted average

shares outstanding will be approximately $337 to $338 million, which implies that we intend to repurchase well

over $500 million dollars worth of shares during the year. We expect net interest and other expense of $140 to

$150 million dollars. As a reminder, the fiscal ’14 benefit of over $30 million related to gains on minority

investments is not expected to repeat.

For fiscal ’15, we expect capital expenditures of about $350 million dollars with the bulk of that spending on our

strategic priorities and IT investments. This amount is higher than historical averages as we focus on updating our

information systems within the Pharmaceutical segment, adding incremental manufacturing, and 3PL capacity in

certain areas, and continuing to build out our footprint in China.


We also expect amortization of intangible related assets from prior acquisitions to be approximately $177 million

dollars or about 33 cents per share. We are projecting an overall non-GAAP tax rate in the range of 36% to 37%.

This tax rate reflects our expectations of further discussions and potential settlement of outstanding audit periods

as well as the benefit of our tax planning efforts.

Finally, let me comment on a few segment specific assumptions. In Pharma, we are expecting a modest increase

in revenues versus prior year. As a reminder, the impact of the Walgreen’s contract expiration will not lap until

September, so we still have a negative impact of two full months or about $3 billion dollars in revenue and

effectively a full quarter of earnings.

As we noted on our first quarter call, given the nature of the wind down of the Walgreen’s contract, the expiration

did not significantly impact our operating earnings in Q1 of FY14 compared to the prior year period. With respect

to other key retail customer contracts, they will now extend beyond our fiscal 2015. We are planning for the brand

inflation rate to be similar to fiscal ’14.

Generic programs overall are expected to contribute positively to year over year profit. Included in this expectation

are a number of underlying assumptions.

First, we forecast a slight year over year decline in the benefit from new generic launches. Also, we have

moderation in generic manufactured price increases with less impact in fiscal ’15 than we experienced in fiscal

’14. Remember, the frequency of magnitude of these generic price increases are uncertain and difficult to predict.

Across the overall generic portfolio, our guidance range assumes slight deflation versus fiscal ’14, which is a fairly

typical pattern. Also included in our expectations for performance under Generics programs is a benefit resulting

from the formation of Red Oak Sourcing net of our payment to CVS Caremark. As George mentioned in his

remarks, we are pleased with the work we were able to accomplish with our partners at CVS, creating a mutually

beneficial long term joint venture.


As we work together to get this venture up and running over the six months that will lapse since the

announcement of the deal, we further refined certain aspects of our agreement and I would like to cover those

briefly.

First, the initial payment to CVS is delayed until fiscal 2015 second quarter, reflecting the operational ramp up

associated with this venture. To be clear, the total amount of a fixed payment from Cardinal to CVS over the life of

the ten year agreement remains the same, this is simply a slight timing shift. The actual quarterly fixed amount will

be $25.6 million spread over 39 quarters instead of 40.

The fixed payment of $25.6 million will be expensed evenly on a monthly basis, beginning with the realization of

meaningful benefits from the JV. With the operational ramp up, we have modeled minimal net benefits from the

JV in our first quarter of 2015. We expect during the course of the fiscal year that the value to us will ramp. The

payment expense will be reported in our cost of goods sold.

Second, if certain milestones are achieved, we will make additional predetermined quarterly payments to CVS

beginning in our fiscal 2016. This reflects the long term nature of the deal and it is designed to align incentives.

Again, all assumed benefits and expected payments are included in our fiscal ’15 guidance and longer term goals.

We are very pleased that we are able to get this joint venture up and running in early July as we had planned and

we look forward to our continued partnership with CVS and the opportunity to grow this strategic relationship.

Finally, to conclude, our Pharmaceutical segment assumptions, we expect continued growth in our Specialty and

China divisions as well as increased investment in information systems within the segment.

Looking to our Medical segment, we are planning for low to mid-single digit revenue growth. We also anticipate

continued segment profit growth and margin expansion primarily due to contributions to our strategic priorities in

the second half of the fiscal year. Our preferred product strategy will continue to develop as we move through the


fiscal year. As we’ve discussed before, preferred products are expected to be a contributor over the midterm as

we expand our portfolio particularly in the physician preference area.

Additionally, we continue to expect above market growth from Cardinal Health at Home, which is a new branding

we have rolled out for our AssuraMed platform. As our Medical segment performance ramps over fiscal ’15, we

expect a relatively flat utilization environment in the Acute settings and mid-single digit growth in the Home

setting. As always, we will keep our operations lean and use our flexible model to capture any upside related to

the utilization, should it appear.

Finally, when we net together our assumptions for a slight headwind from commodities with a positive impact from

foreign exchange, these net to essentially neutral on a year over year basis.

Before I leave guidance, I want to add a few comments related to the first quarter of 2015. Typically, we don’t give

quarterly guidance, but I do want to point out a few unique issues which will likely make Q1 our toughest quarter

on both an absolute earnings basis and year to year growth. From a compare standpoint, keep in mind that last

year’s first quarter had virtually a full quarter of earnings from Walgreen’s and a beneficial tax settlement of 18

cents. And again, we have not modeled net benefits in the JV in our fiscal 2015 Q1 but expect that during the

course of the year the value to us will ramp. And we will be investing to win in certain areas including the ramp up

of our physician preference platforms and our IT upgrades in the Pharma business.

With that, let me move on to my final remarks. On the whole, I am very proud of what we were able to accomplish

this year. At the beginning of fiscal ’14 we faced sizable challenges and I could not be more proud of the work of

our teams that resulted in the positive outcomes that we are reporting today. As we look forward, we have the

fundamental positioning and strategic alignment to make excellent progress against our long term goals of margin

expansion, earnings growth, and returns to shareholders.

And with that we can begin Q&A. Operator please take our first question.


Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If

you are using a speakerphone, please make sure your mute function is turned off to allow the signal to reach our

equipment. Please limit your question to one question and one follow up question.

At this time we will take our first question from Ross Muken of ISI Group.

Ross Muken: Good morning guys.

George Barrett: Good morning.

Ross Muken: So on the generic inflation front it seems just in general it is something that is incrementally hard to forecast

just because of some of these one off portfolios that you’ve talked about. In terms of getting the buying

organization you know kind of amenable to maybe you know trying to prebuy where there is opportunities or

where you see in a certain category, how do you foresee sort of your ability to kind of change the way you’ve

been doing business a bit to try to capture more of this.

So basically what I am asking is it is hard to forecast, but if you could see it in a category, it is obviously quite

profitable. You know I get that it doesn’t go into the guidance because it is tough to predict, but how are you sort

of working with everyone to kind of make sure you are able to monetize this and then how does that also change

the way you then you deal with CVS on things like this?

George Barrett: Ross, it is George. Good morning and thanks for the question. So it is a little hard to answer this. Partly

as I said during my prepared comments, we are literally just this past month beginning negotiations. Let’s start

with some basics.

You are right. It is difficult to model price increases. We have talked a little bit about this in the past, which is while

it is difficult to sort of model the products, we think about the environment and what are the conditions like. And so

as we start thinking about our year, while we can’t model each product necessarily perfectly, we start thinking


about what are the conditions that lead to this, whether or not that is an intense regulatory environment or various

market disruptions.

So here is what I would say. We have an incredibly sophisticated team and I would say now teams put together

when we looked at Red Oak to evaluate the market and to build into our modeling all of the assumptions around

price and price increases, and I think we’ve done a reasonably good job of doing that. We do what we can and

then we build that into our forecast. So if you look at our FY ’15 guidance, it includes some assumptions about the

way products flow through and how they are priced.

But again, it is really hard for me to say too much about this in that we are just beginning these discussions with

manufacturers. But I will say this, I couldn’t be more excited about the quality and the knowhow and the

experience of the teams that have been put together to do this kind of work.

Ross Muken: George that was a much better answer than my question. So maybe just turning to the Medical side of

things. You guys have been pushing more on the preferred product side obviously with AccessClosure that gets

you deeper into cardio. You know you’ve done stuff in ortho, you know I think wound care makes sense as a

market. What’s the response you are getting incrementally as you guys continue to move forward with the

strategy and where are you seeing the most openness and where are you seeing sort of the most pushback at the

hospital level.

George Barrett: I think in general we are seeing a tremendous responsiveness and I would say it is pretty consistently

across the board at this point. Again, hospital systems are really facing different kinds of changes including

reimbursement models that look different, and so they are looking carefully not just about how they squeeze

costs, but how do they change behaviors. This is really a behavior change where they begin to think about forcing

more standardization on the commodity types of products that are in their medical products categories.

And I think our conversations have been really encouraging. I’ve been involved in some of those myself. Yeah

again we’ve said all along this is sort of a midterm driver because this is a change in behavior, but we are really


excited about the response and we are excited about the build out of our program, not just with the step into

interventional cardiology. But a little bit of the growth of the platform that we’ve got in ortho and the movement into

wound care, so we are really excited about it. We are getting a very positive response, but again I would say more

of a midterm driver as we think about the way this will ramp.

Operator: Our next question from Lisa Gill with JP Morgan.

Lisa Gill: Thanks very much and good morning. George can I just start with this quarter and just maybe if we can talk

about the revenue growth. Revenue growth coming in substantially better than our expectations. Did you see

anything on the Specialty side? Some of your competitors called out Hep C or do you think we are seeing the

beginning stages of the Affordable Care Act?

George Barrett: Hi, good morning, Lisa. That’s an interesting question. Let’s try the Hep C first. I would say this. The Hep

C products did have some impact on revenues, although I would say it was not that meaningful and less effect on

margins, so I wouldn’t say it was a major driver of our business.

.

What we are seeing I think - first of all again the balance of our portfolio of customers is improving. We are getting

great response. We’ve seen some important growth in our Strategic Accounts meaning I think we are identifying

the right customers who really are positioned to compete in a changing environment. So I think in general when I

look at execution, we manage this pretty rigorously. We are executing on the things that we are supposed to be

doing with our customers and I just think in general we’ve seen good performance on a revenue basis across the

business.

Specialty again - you mentioned specifically, just a reminder that the two Hep C drugs are going really primarily

through traditional distribution channels. They are unique drugs obviously in many ways, they address patient

populations with very special needs, but these are oral solids and they are moving through the traditional drug

channel rather than through Specialty. So our Specialty growth has really not been about that. It has been about

organic growth, picking up new accounts, and adding to our service package.


Lisa Gill: Okay great and then my second question would just be Med-Surg in Canada. Jeff called this out specifically as

an area or you called that out specifically as an area that didn’t meet your expectations. Can you just go into a

little more detail as to what is going on in that market right now? Is it a reimbursement issue, you know how do we

think about Med-Surg in Canada?

George Barrett: Let me let Jeff touch on it.

Jeff Henderson: Lisa, this is my home country. We have seen some pressures in the hospital market in Canada and it is

primarily related to reimbursement pressures on the hospitals via government funding changes. So there have

been generally low utilization and pressures on pricing over the past 6 to 12 months. But as George said, we are

taking the necessary steps to address those performance shortfalls organizationally and from a portfolio

standpoint and from a cost standpoint and we remain very encouraged that given the strength of our Canadian

business over the medium term we will see the business get back on the right track.

Operator: And our next question from Eric Percher with Barclays.

Eric Percher: Thank you, a question on capital allocation. Appreciate the detail around repurchase and IT investment. So

as you think back over the last year with investments and Specialty and Med-Surg, do you think we are seeing a

natural balance? I know you have more cash that you can put to use than just what you are generating. Where do

you think the opportunities are?

George Barrett: Eric, good morning. We’ve identified a number of areas that we have been public about that are high

priority for us and obviously we are doing everything we can in every one of those strategic areas to improve our

strategic positioning and to be in a position to win.

Where we can deploy capital against them we will, and so we’ve done some obviously major work in generics this

year, Specialty has been a target. Our consumables and physician preference item area has been an area of


priority for us. Obviously we would look at diversifying our customer base, the Home continues to be an area of

real interest for us. Think about again the continuum of care.

And then of course China has been our main priority in terms of our international expansion because we’ve seen

so much opportunity, but we will continue to look globally to see opportunities that really enhance our long term

positioning. Jeff do you want to add anything to it?

Jeff Henderson: From an external standpoint with respect to shareholder returns, obviously we remain very committed to

our dividend as demonstrated by our Board’s recent decision to increase the dividend by 13% heading into this

year. And as we’ve said consistently for the past several years, we will look at share repo opportunistically and

from a flexible standpoint to look for opportunities to buy back shares and enhance shareholder return again as

we did in 2014 and as have modeled for ’15 as well.

Eric Percher: And as you think about Specialty, it feels like you’ve tried to stay away from the lower margin areas and

build the services piece. Do you feel like there is more to be built there or do the acquisitions you’ve made this

year position you to grow organically?

George Barrett: Well I think there is more opportunity there. Again, if you think about what’s happening in the

Pharmaceutical side and the R&D side and the needs of these unique patient populations, the physicians that are

serving them, and the biopharmaceutical companies. I think there is real opportunity there and so we will continue

to look organically how we would build out those programs. We’ve got some really exciting work that we do on the

technology side internally, but if we see something externally that adds to our positioning we are certainly going to

be open to it.

Operator: And our next question is from Charles Rhyee from Cohen & Company.

Charles Rhyee: Yeah thanks guys. Hey, you know George and Jeff, just going back to Medical for a second, you know

so we always talk about Canada. You know what about on the alternate site? You know you’ve talked about the


small physician practice you know needing some work. Can you talk about - you know is this an issue of scale? Is

this an area where you think you need to invest more, maybe build more assets here, maybe talk about that area.

George Barrett: Good morning , Charles. Thanks. So I think we need to talk about the small physician office. It obviously

started from a small base, so certainly scale is helpful, but I would also say that our physical operational footprint

if you look at the way we are designed over many years, we are really more attuned to larger type customers.

So we’ve had to do some repositioning of our facilities and that sort of touch point with those smaller accounts. It

is just a little bit more like a - almost like a B2C than a B2B business and so I think we’ve just had to do some

thinking about how we position effectively both to touch them in a simple way and to serve them on our platform.

And so, we’ve been looking at various ways to enhance that capability and that position there.

Generally, going back to the beginning of your question, our Medical business actually is performing well. I mean

if you look at this in a low utilization environment and you take out the discrete factors that Jeff just described, our

core business is doing well. Our Strategic Accounts are growing, we grew our consumables, we’ve significantly

expanded our footprint on physician preference and AssuraMed achieved the numbers that we said they would

achieve in terms of accretion. So I am feeling pretty optimistic about the way we have positioned that business

and we will just wrestle through some of the smaller challenges.

Charles Rhyee: Okay, that’s great. You know if I recall though when you acquired AssuraMed last year - what a year and

a half ago ,you know that was sort of one of the things you talked about them bringing you sort of some expertise

in you know small picking and packing that could help your business. You know has that not yet translated or is

that still your - you know have we been closer to it?

George Barrett: Yes, actually a great observation. I should have pointed it out. I think it has been helpful but I would also

say this. We’ve had some real opportunity directly in the Home space and so as we’ve looked at this past year,

most of our efforts with the AssuraMed or Cardinal at Home - I managed somehow to bury the lead as I said


before in defining our new branding – Our Cardinal Health at Home actually has more significant opportunity

directly in that business and that’s really where we’ve devoted most of our energy.

Operator: We will take our next question from Robert Jones with Goldman Sachs.

Robert Jones: Thanks for the question. Just a couple on the assumptions around guidance. You know one I thought my

understanding here is that there would be more Brand to Generic conversions in fiscal ’15 versus ’14, so just

trying to understand the assumption a little bit better about less contribution from new Generic launches.

Jeff Henderson: Yeah, Bob this is Jeff. Yeah, what I said was that the benefit that accrued to us from new Generic

launches in ’15 we expected to be slightly less than ’14. You know whether the actual amount of Branded dollars

that goes generic or not increases or decreases is a different question, but we look at - when we look at each

launch on a case by case basis and you know look at whether it is exclusive or not and the timing etcetera, the

net result in our forecast is a slight decrease in the contribution from the new Generic launches.

Now obviously like every year, there is a certain amount of estimates and educated guess work that goes on and

every year turns out a little bit different than we expected and you know thankfully the last couple of years turned

out more positively than we expected. So we will continue to asses this as the year goes on, but based on our

best information right now, we think the benefit to us is a slight decrease.

Robert Jones: And I guess the follow up just around the assumptions again would be around the assumption around

slight generic deflation. You know I would think your average price per generic would be higher in ’15 relative to

’14 you know just again if I think about all of the attractive anticipated launches in ’15. I guess I’m just trying to

better understand you know if the expectation for slight generic deflation is on your total book or is this more a

comment on you know a like for like generic basis year over year?


Jeff Henderson: It’s like for like generic, Bob. The way we calculate generic deflation is we look at all of the generics we

had on our book the prior year and look at their expected prices as a portfolio for the next year, so it actually does

not include generics that launch over the course of the year, so it it’s a like for like analysis.

Operator: And we will take our next question from Glen Santangelo from Credit Suisse.

Jeff Bailin: Good morning it’s actually Jeff Bailin in for Glen. Thanks for taking the questions. So I know China has been a

nice growth driver for you guys and the company has employed some pretty rigorous standards looking at other

international markets. But as you consider the evolving marketplace and with your competitors currently in both

Europe and Brazil, do you have those markets seem incrementally more interesting than in the past right now?

George Barrett: Yeah so good morning Jeff. This is George speaking. I would say this. We have for many years, actually,

looked around the international environment to see where there are opportunities for us to bring our value into the

system and we have continued to look at Europe, Brazil has always been in our sights, we’ve mentioned that,

obviously China has been a priority for us. We will continue to evaluate whether or not we think that there is

opportunity and value for our shareholders in deploying capital into those markets.

To this date, we have continued to evaluate and we’ve made decisions based on what we see as the opportunity

to create value, sustainable competitive advantage, and value creation for our shareholders. So we will continue

to look at many markets. The fact that a competitor makes a move in one market is not our driver of strategy. Our

driver of strategy will be what do we do to compete effectively and create value for all of our shareholders.

Jeff Bailin: Appreciate that color and just a follow up on the sourcing JV with CVS. I know it is obviously in the early

months of that relationship, but anything you can comment on how your conversations with your other customers

have proceeded and in terms of any that might not buy generics from today perhaps being incrementally more

interested in being involved on their generic sourcing with Cardinal.


George Barrett: Yeah so , Jeff, I will give you a bit of a generalized answer because I have to. It’s a tricky area. But I

would say this. We have substantially through the joint venture Red Oak enhanced our scale and ultimately it is

about being in the most competitive position possible. I think the market is probably going through its own

changes various in the market if they look at their own ability to compete and compete effectively in this market.

I think this may create some opportunities for us, as companies look and see what their own capability looks like

and whether or not they need to rethink their own models. And so, I don’t think it would be unusual to expect that

that those kinds of conversations are going on in this market and I think we are extremely well positioned should

our customer base or some of the customer base we think the way their models work.

Operator: And our next question is from Ricky Goldwasser of Morgan Stanley.

Ricky Goldwasser: Yeah, hi. Good morning. First question just for some clarification on the progression of fiscal year ’15

guidance. So I know, Jeff, you said that the joint venture will - has an impact on 1Q ’15 in terms of the timing of

contribution of benefit versus payment. But just to clarify, do you expect the joint venture to be dilutive to your first

fiscal ’15 quarter or will you be able to offset the $25 million payment by the benefit from better sourcing?

Jeff Henderson: Yeah thanks for the question, Ricky. First of all, I don’t expect that we will expense the full amount of the

$25.6 million payment in Q1. As I indicated on the call it is a bit of a subtly but we will begin expensing that on a

monthly basis once substantial benefits or material benefits begin to be realized.

I think the more important part of your question though is whether we expect net benefits in Q1 and I would say,

yes we do, but I would say not to any meaningful extent. But I do expect the benefits to slightly outweigh any

expense that we will incur in Q1.

Ricky Goldwasser: Okay, that’s helpful. And then secondly, just a basket topic of generic price inflation. So you talked in

your prepared remarks about inflation being - net inflation being in the low single digits. Your competitors as well

as our checks point to high single digits in the quarter. I know you also talked about your generic basket and your


portfolio. So can you just explain to us why would your basket be different versus your competitors assuming that

you are seeing inflation on retail drugs which I assume you have like similar share within the retail market as

you’re two other competitors.

Jeff Henderson: Good question, Ricky. First of all, I don’t know exactly how our competitors calculate the generic or

inflation or deflation. As I said to Bob earlier on though, we calculate it based on a like for like analysis of drugs

that existed last year versus the price of those drugs this year looking at the entire portfolio weighted for the

volume that we have.

Now, again, it’s possible they calculate it slightly different and it’s also possible that our mix of business is

different. We tend to have less mail order for example than our competitors may. We may carry slightly different

levels of inventory et cetera, so I can’t speak for our competitors, but you know as I said, I think low single digits

accurately describes what we saw during the quarter.

George Barrett: And Ricky I will just add that it would be hard to actually explain the reason that there is really any

difference. This probably has to do with calculation. However, one company calculates versus another, but the

market is the market, so I am not sure there is really a difference.

Operator: And our next question from David Larsen with Leerink Partners.

David Larsen: Hi, can you talk about your ability to ship products to large doc offices on hospital campuses versus the

smaller doc offices in the community setting and the progress you are making in shipping to alternate sites of

care? Thanks.

George Barrett: Yeah, sure I will start. Again, I think our ability to serve in general across a system, David, is very strong.

It is probably the most challenging for us historically when we deal with very, very small practices. Just in that the

number of SKUs that they might order, the way they order, and sort of the pick/pack operations are not - weren’t

quite as designed for those.


But our ability to serve across the channel is really high. We got recognized again this year by Gartner as the

number one Supply Chain Company in Healthcare. This is an area of real strength and fluency for us across the

board but there are some little gaps where I think we need to do some things differently or better and we will

continue to do that.

David Larsen: Okay, so when you approach an IDN you can ship products to all of their doc offices across all of their

sites of care, pretty much.

George Barrett: Yeah, when we got to an IDN we are able to make a very comprehensive offer and that is important for

our strategy.

David Larsen: Thanks a lot.

George Barrett: You are welcome.

Operator: And our next question is from John Kreger with William Blair.

John Kreger: Hi, thanks very much. A follow up question on Medical. Can you talk about your preferred product pipeline. I

think you said you launched about 500 in fiscal ’14. What would your expectation be for ’15?

George Barrett: You know we have not at this point shared publicly where we are in terms of our internal target, but I

don’t think it would be unrealistic to expect a similar number. We are aggressively going after this and so yeah, I

would say it wouldn’t be surprising if we were in the same kind of range.

John Kreger: Great thanks and Jeff I believe you mentioned as you talked about the sourcing venture that there could be

an added milestone starting in ’16. Could you just talk a bit more about that? What sort of metrics would trigger

that? Should we assume that that’s an annual payment or more of a quarterly true up?


Jeff Henderson: Yeah, I don’t want to get into a lot of detail there, but first of all, you know the fixed payment, the billion

dollars in total you know basically stays intact versus what we discussed earlier. But as we went through the

formation of the joint venture, looked at the long term nature of the deal, looked at the desire to create common

incentives going forward, we did agree that again achieving certain milestones -and I won’t go into specifically

what those are. But should we achieve certain milestones there would be additional payments that would be

made on a quarterly basis after achieving those milestones. That’s probably all the detail I want to get into at this

point, John.

Operator: And our next question is from Greg Bolan with Sterne Agee.

Greg Bolan: Hey, thanks for taking the questions. So just on the Medical segment operating margin, I understand Canada

was one source of the weakness the other maybe a little bit with your performance on the Ambulatory side, but

just as we think about fiscal ’15 and we think about the margins that you guys put up this quarter, what - it sounds

like you guys have made some - possibly done some restructuring in Canada and made some pretty decent

changes.

What as we think about kind of the - I guess the trajectory of Medical segment operating income should we kind of

be thinking about throughout fiscal ’15. Is it just kind of - maybe this is kind of a low point and it is kind of off of

that point. Maybe kind of a descending trajectory or is it going to be somewhat spotty or how should we be

thinking about Medical?

Jeff Henderson: Hi Greg. Good question. Thank you. First of all, just to clarify the two biggest negative drivers in Q4 were

Canada as you referenced and it has been compensation and the amount that was pushed down to the segment

based on overall corporate performance was higher than last year. Now George also indicated some

disappointment with our performance in the small physician’s office, but from a quantitative standpoint that was

not one of the bigger drivers in the quarter.


Getting to the root of your question, going forward, you know we do expect over time to continue to drive margin

expansion within the Medical segment and obviously segment profit growth as well. However, that will not

necessarily be consistent every quarter and in terms of the profile next year I expect most of the beneficial

improvement will be back loaded towards the second two quarters of the year.

The first half of the year will be largely about continuing to invest in our strategic priorities particularly our

physician preference items to ensure that we are reaching critical mass in those areas and I expect to begin to

seeing the fruits of those labors at the end of the second half of the year and beyond.

Greg Bolan: That’s great. Thanks. And I am sorry if I missed this, but just the CAPEX guidance for fiscal ’15 obviously

going higher. Can you just remind me what’s driving that please?

Jeff Henderson: Yes, a number of things. First of all, we are going to continue to invest to improve and expand our

information systems within the Pharmaceutical segment. That’s number one. Number two, we’re increasing

capacity both for some of our preferred product manufacturing and for our 3PL capacity and capabilities. And we

are going to continue to invest and expand our geographic presence in China. Those are some of the major

items. I would generally characterize it though as investments in IT and investments in our key strategic priorities

including the ones I just mentioned.

Operator: And our next question from George Hill with Deutshce Bank.

George Hill: Hey, good morning Jeff and George and thanks for taking the question.

George Barrett: Good morning, George.

George Hill: And I will say Jeff I look forward to grabbing a Blue or a Canadian at some point during the farewell tour. And

just maybe I missed this point already, but I actually thought that your fiscal ’15 was going to be a better generics

launch here than your fiscal ’14 given some of the drugs that have been pushed out and what the calendar kind of


looks like for your fiscal ’15. I guess is there any more color you can give us on why fiscal ’15 isn’t an

improvement from the launch calendar perspective or kind of maybe what you are seeing that we are not seeing?

Jeff Henderson: So first of all, I would not describe that as a major drop off. It’s like the decline in terms of the expected

impact and obviously it depends on what assumptions you make for some of the larger launches. For example,

the Nexium launch is still a big question mark right regarding when and how it is going to get launched. So

depending on what you assume for that, that can have a fairly material impact on the overall assumptions for the

year. So it really comes down to our assumptions by each of the individual major launches and obviously you

know we could be wrong and we tend to model these things relatively conservatively.

George Hill: Okay and then maybe just a follow up on the incremental payments that would get made as part of Red Oak.

I would imagine that would assume that you guys are going to deliver earnings performance above and beyond

the original agreement if you guys are required to make incremental payments to CVS. And then I might even ask

what that kind of - why renegotiate the deal that way. I mean I thought part of the deal was that you guys are

making $100 million dollar payments such that you can enjoy some more of the upside. What led to CVS having

the ability to call back some of the upside?

George Barrett: Yeah George so let’s - I think in general we’ve - as we got through the process and more information and

more data and the teams got together we felt it was appropriate to make a number of adaptations. Again, this is a

long term deal and we want to make sure that it reflects the right value creation for both parties, so we did make

some modifications that under certain circumstances and certain milestones are achieved we would make some

additional payment.

This - we feel very positive about this and the final terms of our agreement and the strength of the relationship

and economics that will flow from it. I guess we will leave it at that.

Operator: And our next question from Steven Valiquette, UBS.


Steven Valiquette: Thanks good morning, just a few extra quick ones here on the Medical segment. You know I guess

first for the AccessClosure deal that closed in mid-May, did that provide a positive EBIT contribution or even a

loss in the quarter just from the deal mechanics? And would that deal still be hopefully slightly accretive in fiscal

’15?

Jeff Henderson: Yeah, hi Steve, it’s Jeff. It was effectively neutral to our Q4 given that we are still just ramping it up and

continuing to invest to expand our capabilities there. And yes, our assessment of it being slightly accretive in FY

’15 has not changed. If anything, we are even more enthusiastic about the potential that hopefully it can bring to

us in the future.

George Barrett: Yeah, there is - this Minx product line is really one we are very excited about and so as Jeff said we are

feeling pretty enthusiastic about the way this is unfolding.

Steven Valiquette: Okay, one other quick one just on Red Oak even though the party is just getting started there. Can

you remind us again of the just feasibility of other partners potentially joining in in that JV? We’ve seen with some

of the other ones in the industry that other parties have come on later which have enhanced those and I’m just

curious you know again just you know let’s say the feasibility of that happening for Red Oak. Thanks.

George Barrett: So Steve we obviously - we have always the opportunity to expand our customer base, bringing people

into the venture itself is a different story. Today our joint venture is strictly between CVS Caremark and Cardinal

Health and we are thrilled about that relationship, but we always have the opportunity to again take advantage of

the scale that we’ve achieved and serve customers of every kind around the system.

Operator: We will take our next question from Garen Sarafian of Citibank.

Garen Sarafian: Good morning guys, thanks for taking the questions. I first want to follow up on the JV questions. I

understand things - it sounds like things were fluid in terms of as you looked at the deal and you guys need some

adjustments, but I am just wondering does it continue to be a fluid kind of a situation where you know terms and


payments might change one way or the other as you go through this year or is this sort of the final leg as you

guys were finalizing the deal?

George Barrett: Yeah, I think we have - thanks for the question Garen and good morning. I think we have at this point

finalized all of the agreements that formed the venture. Obviously it is a fluid market, so we are always, as a

company, as we sell products, we respond to market conditions. But all of the terms that are a part of the joint

venture agreement are now done and complete. Red Oak is formed, it’s got leadership and talent, and it is

negotiating directly with manufacturers today.

Garen Sarafian: Got it, great. And then just a follow up on this fiscal year. Just on the distribution at EPS. I know you try

to stay away from giving quarterly guidance, but there seems to be you know first quarter - some comments that it

will be the most challenging through this year. With Red Oak coming onto the back half of the year, it looks like

the slope may be a little bit steeper towards the back end, but when I look at your historical numbers, the back

half really hasn’t exceeded about 53%, 54% of your annual earnings. So do you expect this year to be higher than

that or if you could just give us any sort of quarterly progression that would be really helpful. Thanks.

Jeff Henderson: Yeah, thanks. I’m not going to get into too much detail because I don’t want to get down a slippery slope

of providing detailed quarterly guidance. I will repeat what I said though that we do expect Q1 to be the lightest.

And just to clarify what you said, we expect meaningful net benefits from the CVS JV to begin to materialize at the

end of Q1 and not towards the second half of the year as you mentioned, but yes, Q1 should be the lightest.

Beyond that, I would say the rest of the quarters - fair amount of consistency.

We do have historical seasonality which tends to make our Q3 larger than the other quarters. Over the last couple

of years though, that seasonality has continued to reduce as Generics have taken up a bigger portion of the

portfolio as less and less of our Branded income comes from contingent payments and you know Branded price

increases have tended to be spread more evenly throughout the year.


With that all said, I would expect our Q3 still would be the strongest quarter of the year, although probably less

extreme than we might have seen two or three years ago.

Operator: And we will take our final question from Robert Willoughby with Bank of America Merrill Lynch.

Robert Willoughby: George you had mentioned the possibility of expanding your relationship with CVS with Walgreen’s

gone and the joint venture kind of up and running. Any updates here in terms of any kind of meaningful

relationship expansions?

George Barrett: Good morning , Bob. Yeah, here is what I would say. Again, I will probably have to reiterate what I said

earlier. I think our relationship has probably never been stronger. We continue to explore ways to create value for

one another and I fully expect that to continue so I can’t provide any more specifics than that other than to say

that we are working our way through the incredibly intricate details of getting to this go-live has only strengthened

I think our relationship and we feel good about that, so it is probably as much as I can say.

Robert Willoughby: Thank you.

Sally Curley: Operator, I think that was our last question?

Operator: Yes, that does conclude the question and answer session. Mr. Barrett at this time I would like to turn the

conference back over to you for additional or closing remarks.

George Barrett: Great. Thanks very much. Listen, thank you to all for joining us today and giving us a chance to cover

what was a really important and I think successful 2014. We look forward to our FY ’15 and seeing all of you

soon. Thanks for dialing in.

Operator: This does conclude today’s conference. Thank you for your participation.

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