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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Ohio
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31-0958666
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification No.)
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7000 Cardinal Place, Dublin, Ohio
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43017
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(Address of principal executive offices)
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(Zip Code)
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(614) 757-5000
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(Registrant’s telephone number, including area code)
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Cardinal Health
Q3 Fiscal 2017 Form 10-Q
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Page
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1
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Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
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|
MD&A
|
Overview
|
|
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Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
2
|
MD&A
|
Overview
|
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
||||||||||||||||||
(in millions)
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
||||||||||
GAAP operating earnings
|
$
|
605
|
|
|
$
|
656
|
|
|
(8
|
)%
|
|
$
|
1,681
|
|
|
$
|
1,839
|
|
|
(9
|
)%
|
LIFO charges/(credits)
|
(9
|
)
|
|
12
|
|
|
|
|
—
|
|
|
51
|
|
|
|
||||||
Restructuring and employee severance
|
15
|
|
|
6
|
|
|
|
|
31
|
|
|
19
|
|
|
|
||||||
Amortization and other acquisition-related costs
|
128
|
|
|
108
|
|
|
|
|
365
|
|
|
327
|
|
|
|
||||||
Impairments and (gain)/loss on disposal of assets
|
2
|
|
|
—
|
|
|
|
|
15
|
|
|
17
|
|
|
|
||||||
Litigation (recoveries)/charges, net
|
18
|
|
|
5
|
|
|
|
|
37
|
|
|
(3
|
)
|
|
|
||||||
Non-GAAP operating earnings
|
$
|
759
|
|
|
$
|
788
|
|
|
(4
|
)%
|
|
$
|
2,129
|
|
|
$
|
2,251
|
|
|
(5
|
)%
|
3
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
MD&A
|
Overview
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
||||||||||||||||||
($ per share)
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
||||||||||
GAAP
(1)
|
$
|
1.20
|
|
|
$
|
1.17
|
|
|
3
|
%
|
|
$
|
3.17
|
|
|
$
|
3.30
|
|
|
(4
|
)%
|
LIFO charges/(credits)
|
(0.02
|
)
|
|
0.02
|
|
|
|
|
—
|
|
|
0.10
|
|
|
|
||||||
Restructuring and employee severance
|
0.03
|
|
|
0.01
|
|
|
|
|
0.06
|
|
|
0.04
|
|
|
|
||||||
Amortization and other acquisition-related costs
|
0.27
|
|
|
0.21
|
|
|
|
|
0.76
|
|
|
0.64
|
|
|
|
||||||
Impairments and (gain)/loss on disposal of assets
|
0.01
|
|
|
—
|
|
|
|
|
0.03
|
|
|
0.03
|
|
|
|
||||||
Litigation (recoveries)/charges, net
|
0.03
|
|
|
0.01
|
|
|
|
|
0.07
|
|
|
—
|
|
|
|
||||||
Non-GAAP
(1)
|
$
|
1.53
|
|
|
$
|
1.43
|
|
|
7
|
%
|
|
$
|
4.10
|
|
|
$
|
4.10
|
|
|
—
|
%
|
(1)
|
diluted earnings per share attributable to Cardinal Health, Inc. ("diluted EPS")
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
4
|
MD&A
|
Overview
|
|
|
|
|
5
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
MD&A
|
Results of Operations
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
||||||||||||||||||
(in millions)
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
||||||||||
Pharmaceutical
|
$
|
28,406
|
|
|
$
|
27,527
|
|
|
3
|
%
|
|
$
|
86,911
|
|
|
$
|
80,954
|
|
|
7
|
%
|
Medical
|
3,418
|
|
|
3,138
|
|
|
9
|
%
|
|
10,107
|
|
|
9,220
|
|
|
10
|
%
|
||||
Total segment revenue
|
31,824
|
|
|
30,665
|
|
|
4
|
%
|
|
97,018
|
|
|
90,174
|
|
|
8
|
%
|
||||
Corporate
|
(3
|
)
|
|
(3
|
)
|
|
N.M.
|
|
|
(8
|
)
|
|
(12
|
)
|
|
N.M.
|
|
||||
Total revenue
|
$
|
31,821
|
|
|
$
|
30,662
|
|
|
4
|
%
|
|
$
|
97,010
|
|
|
$
|
90,162
|
|
|
8
|
%
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
6
|
MD&A
|
Results of Operations
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
||||||||||||||||||
(in millions)
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
||||||||||
Gross margin
|
$
|
1,728
|
|
|
$
|
1,689
|
|
|
2
|
%
|
|
$
|
4,921
|
|
|
$
|
4,877
|
|
|
1
|
%
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
||||||||||||||||||
(in millions)
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
||||||||||
SG&A expenses
|
$
|
960
|
|
|
$
|
914
|
|
|
5
|
%
|
|
$
|
2,792
|
|
|
$
|
2,678
|
|
|
4
|
%
|
7
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
MD&A
|
Results of Operations
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
||||||||||||||||||
(in millions)
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
||||||||||
Pharmaceutical
|
$
|
611
|
|
|
$
|
660
|
|
|
(7
|
)%
|
|
$
|
1,682
|
|
|
$
|
1,945
|
|
|
(14
|
)%
|
Medical
|
148
|
|
|
128
|
|
|
16
|
%
|
|
435
|
|
|
335
|
|
|
30
|
%
|
||||
Total segment profit
|
759
|
|
|
788
|
|
|
(4
|
)%
|
|
2,117
|
|
|
2,280
|
|
|
(7
|
)%
|
||||
Corporate
|
(154
|
)
|
|
(132
|
)
|
|
(17
|
)%
|
|
(436
|
)
|
|
(441
|
)
|
|
1
|
%
|
||||
Total consolidated operating earnings
|
$
|
605
|
|
|
$
|
656
|
|
|
(8
|
)%
|
|
$
|
1,681
|
|
|
$
|
1,839
|
|
|
(9
|
)%
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
8
|
MD&A
|
Results of Operations
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
||||||||||||
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Restructuring and employee severance
|
$
|
15
|
|
|
$
|
6
|
|
|
$
|
31
|
|
|
$
|
19
|
|
Amortization and other acquisition-related costs
|
128
|
|
|
108
|
|
|
365
|
|
|
327
|
|
||||
Impairments and (gain)/loss on disposal of assets, net
|
2
|
|
|
—
|
|
|
15
|
|
|
17
|
|
||||
Litigation (recoveries)/charges, net
|
18
|
|
|
5
|
|
|
37
|
|
|
(3
|
)
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
||||||||||||||||
(in millions)
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
Change
|
||||||||
Other (income)/expense, net
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
N.M.
|
|
$
|
(2
|
)
|
|
$
|
5
|
|
|
N.M.
|
Interest expense, net
|
46
|
|
|
44
|
|
|
N.M.
|
|
134
|
|
|
134
|
|
|
N.M.
|
|
9
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
MD&A
|
Liquidity and Capital Resources
|
|
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
10
|
MD&A
|
Liquidity and Capital Resources
|
|
|
11
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
MD&A
|
Other Items
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
12
|
Explanation and Reconciliation of Non-GAAP Financial Measures
|
|
|
•
|
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 from non-GAAP metrics allows for a better comparison of our current financial results to our historical financial results and to our peer group companies’ financial results.
|
•
|
Restructuring and employee severance costs
are excluded because they relate to programs in which we fundamentally change our operations and because they are not part of the ongoing operations of our underlying business, which includes normal levels of reinvestment in the business.
|
•
|
Amortization and other acquisition-related costs
are excluded primarily for consistency with the presentation of the financial results of our peer group companies. Additionally, amortizations 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 allows for better comparison of historical, current and forecasted financial results. We also exclude other acquisition-related costs because they 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. They are also significantly impacted by the timing and size of acquisitions.
|
•
|
Impairments and gains 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 their exclusion results in a metric that more meaningfully reflects the sustainability of our operating performance.
|
•
|
Litigation recoveries or charges, net
are excluded because they often relate to events that may have occurred in prior or multiple periods, and are inherently unpredictable in timing and amount. In the third quarter of fiscal 2017, consistent with the presentation of financial results by peer medical device companies, in litigation recoveries or charges, net we began to classify accrued losses and legal fees, net of expected recoveries, related to mass tort product liability claims, including claims for injuries allegedly caused by Cordis OptEase and TrapEase inferior vena cava (IVC) filter products. Such amounts would not have materially affected litigation recoveries or charges, net in prior periods, so have not been reclassified for those periods.
|
•
|
Loss on extinguishment of debt
is excluded because it does not typically occur in the normal course of business operations 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 financing transactions.
|
13
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Explanation and Reconciliation of Non-GAAP Financial Measures
|
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
14
|
Explanation and Reconciliation of Non-GAAP Financial Measures
|
|
|
(in millions, except per common share amounts)
|
Operating Earnings
|
Operating Earnings Growth Rate
|
Earnings Before Income Taxes
|
Provision for Income Taxes
|
Net Earnings
1
|
Net Earnings
1
Growth Rate
|
Diluted EPS
1
|
Diluted EPS
1
Growth Rate
|
|||||||||||||
|
Three Months Ended March 31, 2017
|
||||||||||||||||||||
GAAP
|
$
|
605
|
|
(8
|
)%
|
$
|
564
|
|
$
|
182
|
|
$
|
381
|
|
(1
|
)%
|
$
|
1.20
|
|
3
|
%
|
LIFO charges/(credits)
|
(9
|
)
|
|
(9
|
)
|
(4
|
)
|
(5
|
)
|
|
(0.02
|
)
|
|
||||||||
Restructuring and employee severance
|
15
|
|
|
15
|
|
6
|
|
9
|
|
|
0.03
|
|
|
||||||||
Amortization and other acquisition-related costs
|
128
|
|
|
128
|
|
41
|
|
87
|
|
|
0.27
|
|
|
||||||||
Impairments and loss on disposal of assets
|
2
|
|
|
2
|
|
—
|
|
2
|
|
|
0.01
|
|
|
||||||||
Litigation (recoveries)/charges, net
|
18
|
|
|
18
|
|
7
|
|
11
|
|
|
0.03
|
|
|
||||||||
Non-GAAP
|
$
|
759
|
|
(4
|
)%
|
$
|
718
|
|
$
|
232
|
|
$
|
485
|
|
3
|
%
|
$
|
1.53
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Three Months Ended March 31, 2016
|
||||||||||||||||||||
GAAP
|
$
|
656
|
|
11
|
%
|
$
|
612
|
|
$
|
226
|
|
$
|
386
|
|
6
|
%
|
$
|
1.17
|
|
7
|
%
|
LIFO charges/(credits)
|
12
|
|
|
12
|
|
4
|
|
8
|
|
|
0.02
|
|
|
||||||||
Restructuring and employee severance
|
6
|
|
|
6
|
|
2
|
|
4
|
|
|
0.01
|
|
|
||||||||
Amortization and other acquisition-related costs
|
108
|
|
|
108
|
|
37
|
|
71
|
|
|
0.21
|
|
|
||||||||
Impairments and loss on disposal of assets
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
||||||||
Litigation (recoveries)/charges, net
|
5
|
|
|
5
|
|
2
|
|
3
|
|
|
0.01
|
|
|
||||||||
Non-GAAP
|
$
|
788
|
|
20
|
%
|
$
|
744
|
|
$
|
272
|
|
$
|
472
|
|
19
|
%
|
$
|
1.43
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Nine Months Ended March 31, 2017
|
||||||||||||||||||||
GAAP
|
$
|
1,681
|
|
(9
|
)%
|
$
|
1,549
|
|
$
|
533
|
|
$
|
1,014
|
|
(7
|
)%
|
$
|
3.17
|
|
(4
|
)%
|
LIFO charges/(credits)
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
||||||||
Restructuring and employee severance
|
31
|
|
|
31
|
|
12
|
|
19
|
|
|
0.06
|
|
|
||||||||
Amortization and other acquisition-related costs
|
365
|
|
|
365
|
|
120
|
|
245
|
|
|
0.76
|
|
|
||||||||
Impairments and loss on disposal of assets
|
15
|
|
|
15
|
|
4
|
|
11
|
|
|
0.03
|
|
|
||||||||
Litigation (recoveries)/charges, net
|
37
|
|
|
37
|
|
14
|
|
23
|
|
|
0.07
|
|
|
||||||||
Non-GAAP
|
$
|
2,129
|
|
(5
|
)%
|
$
|
1,997
|
|
$
|
684
|
|
$
|
1,311
|
|
(4
|
)%
|
$
|
4.10
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Nine Months Ended March 31, 2016
|
||||||||||||||||||||
GAAP
|
$
|
1,839
|
|
15
|
%
|
$
|
1,700
|
|
$
|
604
|
|
$
|
1,095
|
|
19
|
%
|
$
|
3.30
|
|
20
|
%
|
LIFO charges/(credits)
|
51
|
|
|
51
|
|
20
|
|
31
|
|
|
0.10
|
|
|
||||||||
Restructuring and employee severance
|
19
|
|
|
19
|
|
7
|
|
12
|
|
|
0.04
|
|
|
||||||||
Amortization and other acquisition-related costs
|
327
|
|
|
327
|
|
115
|
|
212
|
|
|
0.64
|
|
|
||||||||
Impairments and (gain)/loss on disposal of assets
|
17
|
|
|
17
|
|
7
|
|
10
|
|
|
0.03
|
|
|
||||||||
Litigation (recoveries)/charges, net
|
(3
|
)
|
|
(3
|
)
|
(3
|
)
|
—
|
|
|
—
|
|
|
||||||||
Non-GAAP
|
$
|
2,251
|
|
21
|
%
|
$
|
2,112
|
|
$
|
751
|
|
$
|
1,361
|
|
20
|
%
|
$
|
4.10
|
|
21
|
%
|
1
|
attributable to Cardinal Health, Inc.
|
15
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Other
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
16
|
Other
|
|
Period
|
Total Number
of Shares Purchased (1) |
|
Average Price Paid per Share
|
|
Total Number of Shares
Purchased as Part of Publicly Announced Program (2) |
|
Approximate
Dollar Value of
Shares That May
Yet be Purchased
Under the Program (2)
(in millions)
|
||||||
January 2017
|
191
|
|
|
$
|
74.13
|
|
|
—
|
|
|
$
|
443
|
|
February 2017
|
171
|
|
|
80.09
|
|
|
—
|
|
|
443
|
|
||
March 2017
|
215
|
|
|
81.53
|
|
|
—
|
|
|
443
|
|
||
Total
|
577
|
|
|
$
|
78.66
|
|
|
—
|
|
|
$
|
443
|
|
(1)
|
Reflects
191
,
171
and
215
common shares purchased in January, February and March 2017, respectively, through a rabbi trust as investments of participants in our Deferred Compensation Plan.
|
(2)
|
On May 4, 2016, our Board of Directors approved a $1.0 billion share repurchase program that expires on December 31, 2019.
|
17
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Financial Statements
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
||||||||||||
(in millions, except per common share amounts)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Revenue
|
$
|
31,821
|
|
|
$
|
30,662
|
|
|
$
|
97,010
|
|
|
$
|
90,162
|
|
Cost of products sold
|
30,093
|
|
|
28,973
|
|
|
92,089
|
|
|
85,285
|
|
||||
Gross margin
|
1,728
|
|
|
1,689
|
|
|
4,921
|
|
|
4,877
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Distribution, selling, general and administrative expenses
|
960
|
|
|
914
|
|
|
2,792
|
|
|
2,678
|
|
||||
Restructuring and employee severance
|
15
|
|
|
6
|
|
|
31
|
|
|
19
|
|
||||
Amortization and other acquisition-related costs
|
128
|
|
|
108
|
|
|
365
|
|
|
327
|
|
||||
Impairments and loss on disposal of assets, net
|
2
|
|
|
—
|
|
|
15
|
|
|
17
|
|
||||
Litigation (recoveries)/charges, net
|
18
|
|
|
5
|
|
|
37
|
|
|
(3
|
)
|
||||
Operating earnings
|
605
|
|
|
656
|
|
|
1,681
|
|
|
1,839
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Other (income)/expense, net
|
(5
|
)
|
|
—
|
|
|
(2
|
)
|
|
5
|
|
||||
Interest expense, net
|
46
|
|
|
44
|
|
|
134
|
|
|
134
|
|
||||
Earnings before income taxes
|
564
|
|
|
612
|
|
|
1,549
|
|
|
1,700
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Provision for income taxes
|
182
|
|
|
226
|
|
|
533
|
|
|
604
|
|
||||
Net earnings
|
382
|
|
|
386
|
|
|
1,016
|
|
|
1,096
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Less: Net earnings attributable to noncontrolling interests
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
||||
Net earnings attributable to Cardinal Health, Inc.
|
$
|
381
|
|
|
$
|
386
|
|
|
$
|
1,014
|
|
|
$
|
1,095
|
|
|
|
|
|
|
|
|
|
||||||||
Earnings per common share attributable to Cardinal Health, Inc.:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
1.21
|
|
|
$
|
1.18
|
|
|
$
|
3.19
|
|
|
$
|
3.33
|
|
Diluted
|
1.20
|
|
|
1.17
|
|
|
3.17
|
|
|
3.30
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Weighted-average number of common shares outstanding:
|
|
|
|
|
|
|
|
||||||||
Basic
|
316
|
|
|
328
|
|
|
318
|
|
|
328
|
|
||||
Diluted
|
318
|
|
|
331
|
|
|
320
|
|
|
331
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Cash dividends declared per common share
|
$
|
0.4489
|
|
|
$
|
0.3870
|
|
|
$
|
1.3467
|
|
|
$
|
1.1610
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
18
|
Financial Statements
|
|
|
|
Three Months Ended March 31,
|
|
Nine Months Ended March 31,
|
||||||||||||
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Net earnings
|
$
|
382
|
|
|
$
|
386
|
|
|
$
|
1,016
|
|
|
$
|
1,096
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive loss:
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments and other
|
33
|
|
|
16
|
|
|
(47
|
)
|
|
(57
|
)
|
||||
Net unrealized gain/(loss) on derivative instruments, net of tax
|
2
|
|
|
(3
|
)
|
|
27
|
|
|
(4
|
)
|
||||
Total other comprehensive income/(loss), net of tax
|
35
|
|
|
13
|
|
|
(20
|
)
|
|
(61
|
)
|
||||
|
|
|
|
|
|
|
|
||||||||
Total comprehensive income
|
417
|
|
|
399
|
|
|
996
|
|
|
1,035
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Less: comprehensive income attributable to noncontrolling interests
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
||||
Total comprehensive income attributable to Cardinal Health, Inc.
|
$
|
416
|
|
|
$
|
399
|
|
|
$
|
994
|
|
|
$
|
1,034
|
|
19
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Financial Statements
|
|
|
(in millions)
|
March 31, 2017
|
|
June 30, 2016
|
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and equivalents
|
$
|
1,368
|
|
|
$
|
2,356
|
|
Trade receivables, net
|
7,505
|
|
|
7,405
|
|
||
Inventories, net
|
11,641
|
|
|
10,615
|
|
||
Prepaid expenses and other
|
1,769
|
|
|
1,580
|
|
||
Total current assets
|
22,283
|
|
|
21,956
|
|
||
|
|
|
|
||||
Property and equipment, net
|
1,849
|
|
|
1,796
|
|
||
Goodwill and other intangibles, net
|
9,287
|
|
|
9,426
|
|
||
Other assets
|
755
|
|
|
944
|
|
||
Total assets
|
$
|
34,174
|
|
|
$
|
34,122
|
|
|
|
|
|
||||
Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
17,535
|
|
|
$
|
17,306
|
|
Current portion of long-term obligations and other short-term borrowings
|
607
|
|
|
587
|
|
||
Other accrued liabilities
|
1,654
|
|
|
1,808
|
|
||
Total current liabilities
|
19,796
|
|
|
19,701
|
|
||
|
|
|
|
||||
Long-term obligations, less current portion
|
4,854
|
|
|
4,952
|
|
||
Deferred income taxes and other liabilities
|
2,742
|
|
|
2,781
|
|
||
|
|
|
|
||||
Redeemable noncontrolling interests
|
117
|
|
|
117
|
|
||
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Preferred shares, without par value:
|
|
|
|
||||
Authorized—
500 thousand
shares, Issued—
none
|
—
|
|
|
—
|
|
||
Common shares, without par value:
|
|
|
|
||||
Authorized—
755 million
shares, Issued—
327 million
shares and 364 million shares at
March 31, 2017
and June 30, 2016, respectively
|
2,684
|
|
|
3,010
|
|
||
Retained earnings
|
4,842
|
|
|
6,419
|
|
||
Common Shares in treasury, at cost:
11 million
shares and 42 million shares at
March 31, 2017
and June 30 2016, respectively
|
(744
|
)
|
|
(2,759
|
)
|
||
Accumulated other comprehensive loss
|
(136
|
)
|
|
(116
|
)
|
||
Total Cardinal Health, Inc. shareholders' equity
|
6,646
|
|
|
6,554
|
|
||
Noncontrolling interests
|
19
|
|
|
17
|
|
||
Total shareholders’ equity
|
6,665
|
|
|
6,571
|
|
||
Total liabilities, redeemable noncontrolling interests and shareholders’ equity
|
$
|
34,174
|
|
|
$
|
34,122
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
20
|
Financial Statements
|
|
|
|
Nine Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net earnings
|
$
|
1,016
|
|
|
$
|
1,096
|
|
|
|
|
|
||||
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
525
|
|
|
465
|
|
||
Impairments and loss on sale of other investments
|
4
|
|
|
—
|
|
||
Impairments and loss on disposal of assets, net
|
15
|
|
|
17
|
|
||
Share-based compensation
|
73
|
|
|
82
|
|
||
Provision for bad debts
|
46
|
|
|
51
|
|
||
Change in fair value of contingent consideration obligation
|
—
|
|
|
(16
|
)
|
||
Change in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
||||
Increase in trade receivables
|
(107
|
)
|
|
(721
|
)
|
||
Increase in inventories
|
(1,010
|
)
|
|
(1,457
|
)
|
||
Increase in accounts payable
|
225
|
|
|
2,839
|
|
||
Other accrued liabilities and operating items, net
|
(327
|
)
|
|
(26
|
)
|
||
Net cash provided by operating activities
|
460
|
|
|
2,330
|
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
||||
Acquisition of subsidiaries, net of cash acquired
|
(113
|
)
|
|
(3,383
|
)
|
||
Additions to property and equipment
|
(293
|
)
|
|
(284
|
)
|
||
Purchase of available-for-sale securities and other investments
|
(188
|
)
|
|
(150
|
)
|
||
Proceeds from sale of available-for-sale securities and other investments
|
115
|
|
|
99
|
|
||
Proceeds from maturities of available-for-sale securities
|
49
|
|
|
37
|
|
||
Proceeds from divestitures and disposal of property and equipment and held for sale assets
|
1
|
|
|
—
|
|
||
Net cash used in investing activities
|
(429
|
)
|
|
(3,681
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
||||
Payment of contingent consideration obligation
|
(3
|
)
|
|
(23
|
)
|
||
Net change in short-term borrowings
|
25
|
|
|
34
|
|
||
Net purchase of noncontrolling interests
|
(12
|
)
|
|
(10
|
)
|
||
Reduction of long-term obligations
|
(60
|
)
|
|
(5
|
)
|
||
Proceeds from interest rate swap terminations
|
14
|
|
|
—
|
|
||
Net tax proceeds/(withholdings) from share-based compensation
|
20
|
|
|
(3
|
)
|
||
Excess tax benefits from share-based compensation
|
37
|
|
|
33
|
|
||
Dividends on common shares
|
(435
|
)
|
|
(386
|
)
|
||
Purchase of treasury shares
|
(600
|
)
|
|
(300
|
)
|
||
Net cash used in financing activities
|
(1,014
|
)
|
|
(660
|
)
|
||
|
|
|
|
||||
Effect of exchange rates changes on cash and equivalents
|
(5
|
)
|
|
(7
|
)
|
||
|
|
|
|
||||
Net decrease in cash and equivalents
|
(988
|
)
|
|
(2,018
|
)
|
||
Cash and equivalents at beginning of period
|
2,356
|
|
|
4,616
|
|
||
Cash and equivalents at end of period
|
$
|
1,368
|
|
|
$
|
2,598
|
|
21
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Notes to Financial Statements
|
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
22
|
Notes to Financial Statements
|
|
|
|
Three Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Employee-related costs (1)
|
$
|
14
|
|
|
$
|
6
|
|
Facility exit and other costs (2)
|
1
|
|
|
—
|
|
||
Total restructuring and employee severance
|
$
|
15
|
|
|
$
|
6
|
|
|
Nine Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Employee-related costs (1)
|
$
|
27
|
|
|
$
|
11
|
|
Facility exit and other costs (2)
|
4
|
|
|
8
|
|
||
Total restructuring and employee severance
|
$
|
31
|
|
|
$
|
19
|
|
(1)
|
Employee-related costs primarily consist of termination benefits provided to employees who have been involuntarily terminated and duplicate payroll costs during transition periods.
|
(2)
|
Facility exit and other costs primarily consist of lease termination costs, accelerated depreciation, equipment relocation costs, project consulting fees and costs associated with restructuring our delivery of information technology infrastructure services.
|
23
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Notes to Financial Statements
|
|
|
(in millions)
|
Employee-
Related Costs
|
|
Facility Exit
and Other Costs
|
|
Total
|
||||||
Balance at June 30, 2016
|
$
|
15
|
|
|
$
|
1
|
|
|
$
|
16
|
|
Additions
|
22
|
|
|
1
|
|
|
23
|
|
|||
Payments and other adjustments
|
(13
|
)
|
|
(1
|
)
|
|
(14
|
)
|
|||
Balance at March 31, 2017
|
$
|
24
|
|
|
$
|
1
|
|
|
$
|
25
|
|
(in millions)
|
Pharmaceutical
|
|
Medical
|
|
Total
|
||||||
Balance at June 30, 2016
|
$
|
2,919
|
|
|
$
|
4,248
|
|
|
$
|
7,167
|
|
Goodwill acquired, net of purchase price adjustments
|
21
|
|
|
36
|
|
|
57
|
|
|||
Foreign currency translation adjustments and other
|
(11
|
)
|
|
(4
|
)
|
|
(15
|
)
|
|||
Balance at March 31, 2017
|
$
|
2,929
|
|
|
$
|
4,280
|
|
|
$
|
7,209
|
|
|
March 31, 2017
|
||||||||||||
(in millions)
|
Gross
Intangible
|
|
Accumulated
Amortization
|
|
Net
Intangible
|
|
Weighted- Average Remaining Amortization Period (Years)
|
||||||
Indefinite-life intangibles:
|
|
|
|
|
|
|
|
||||||
IPR&D, trademarks and other
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
71
|
|
|
N/A
|
Total indefinite-life intangibles
|
71
|
|
|
—
|
|
|
71
|
|
|
N/A
|
|||
|
|
|
|
|
|
|
|
||||||
Definite-life intangibles:
|
|
|
|
|
|
|
|
||||||
Customer relationships
|
1,957
|
|
|
908
|
|
|
1,049
|
|
|
9
|
|||
Trademarks, trade names and patents
|
507
|
|
|
181
|
|
|
326
|
|
|
14
|
|||
Developed technology and other
|
905
|
|
|
273
|
|
|
632
|
|
|
9
|
|||
Total definite-life intangibles
|
3,369
|
|
|
1,362
|
|
|
2,007
|
|
|
10
|
|||
Total other intangible assets
|
$
|
3,440
|
|
|
$
|
1,362
|
|
|
$
|
2,078
|
|
|
N/A
|
|
June 30, 2016
|
||||||||||
(in millions)
|
Gross
Intangible
|
|
Accumulated
Amortization
|
|
Net
Intangible
|
||||||
Indefinite-life intangibles:
|
|
|
|
|
|
||||||
IPR&D, trademarks and other
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
72
|
|
Total indefinite-life intangibles
|
72
|
|
|
—
|
|
|
72
|
|
|||
|
|
|
|
|
|
||||||
Definite-life intangibles:
|
|
|
|
|
|
||||||
Customer relationships
|
1,946
|
|
|
737
|
|
|
1,209
|
|
|||
Trademarks, trade names and patents
|
508
|
|
|
140
|
|
|
368
|
|
|||
Developed technology and other
|
808
|
|
|
198
|
|
|
610
|
|
|||
Total definite-life intangibles
|
3,262
|
|
|
1,075
|
|
|
2,187
|
|
|||
Total other intangible assets
|
$
|
3,334
|
|
|
$
|
1,075
|
|
|
$
|
2,259
|
|
(in millions)
|
March 31, 2017
|
|
June 30, 2016
|
||||
Current available-for-sale securities:
|
|
|
|
||||
Commercial paper
|
$
|
2
|
|
|
$
|
—
|
|
Treasury bills
|
8
|
|
|
3
|
|
||
International bonds
|
2
|
|
|
2
|
|
||
Corporate bonds
|
70
|
|
|
58
|
|
||
U.S. agency bonds
|
5
|
|
|
6
|
|
||
Asset-backed securities
|
27
|
|
|
28
|
|
||
International equity securities
|
1
|
|
|
2
|
|
||
U.S. agency mortgage-backed securities
|
13
|
|
|
14
|
|
||
Total current available-for-sale securities
|
128
|
|
|
113
|
|
||
Long-term available-for-sale securities:
|
|
|
|
||||
Treasury bills
|
14
|
|
|
10
|
|
||
International bonds
|
3
|
|
|
1
|
|
||
Corporate bonds
|
19
|
|
|
36
|
|
||
U.S. agency bonds
|
—
|
|
|
9
|
|
||
Asset-backed securities
|
16
|
|
|
17
|
|
||
U.S. agency mortgage-backed securities
|
17
|
|
|
14
|
|
||
Total long-term available-for-sale securities
|
69
|
|
|
87
|
|
||
Total available-for-sale securities
|
$
|
197
|
|
|
$
|
200
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
24
|
Notes to Financial Statements
|
|
|
25
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Notes to Financial Statements
|
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
26
|
Notes to Financial Statements
|
|
|
|
March 31, 2017
|
||||||||||||||
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Cash equivalents
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
Forward contracts (1)
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
||||
Available-for-sale securities (2)
|
—
|
|
|
197
|
|
|
—
|
|
|
197
|
|
||||
Other investments (3)
|
111
|
|
|
3
|
|
|
—
|
|
|
114
|
|
||||
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Contingent Consideration (4)
|
—
|
|
|
—
|
|
|
(38
|
)
|
|
(38
|
)
|
|
June 30, 2016
|
||||||||||||||
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Cash equivalents
|
$
|
516
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
516
|
|
Forward contracts (1)
|
—
|
|
|
19
|
|
|
—
|
|
|
19
|
|
||||
Available-for-sale securities (2)
|
—
|
|
|
200
|
|
|
—
|
|
|
200
|
|
||||
Other investments (3)
|
103
|
|
|
—
|
|
|
—
|
|
|
103
|
|
||||
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Contingent Consideration (4)
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
(19
|
)
|
(1)
|
The fair value of interest rate swaps, foreign currency contracts and commodity contracts is determined based on the present value of expected future cash flows considering the risks involved, including non-performance risk and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to determine the present value of expected future cash flows. The fair value of these derivative contracts, which are subject to master netting arrangements under certain circumstances, is presented on a gross basis in the condensed consolidated balance sheets.
|
(2)
|
We invest in marketable securities, which are classified as available-for-sale and are carried at fair value in the condensed consolidated balance sheets. Observable Level 2 inputs such as quoted prices for similar securities, interest rate spreads, yield curves and credit risk are used to determine the fair value. See
Note 5
for additional information regarding available-for-sale securities.
|
(3)
|
Level 1 other investments balance includes investments in mutual funds, which are used to offset fluctuations in deferred compensation liabilities. These mutual funds primarily invest in the equity securities of companies with large market capitalization and high quality fixed income debt securities. The fair value of these investments is determined using quoted market prices. Level 2 other investments are comprised of warrants for stock valued by utilizing observable inputs in a Black-Scholes model.
|
(4)
|
Contingent consideration represents the obligations incurred in connection with acquisitions. We do not deem the fair value of the contingent consideration obligations under any single acquisition to be significant. The estimate of fair value of the contingent consideration obligations requires subjective assumptions to be made regarding future business results, discount rates, discount periods and probabilities assigned to various potential business result scenarios and was determined using probability assessments with respect to the likelihood of reaching various targets or of achieving certain milestones. The fair value measurement is based on significant inputs unobservable in the market and thus represents a Level 3 measurement. Changes in current expectations of progress could change the probability of achieving the targets within the measurement periods and result in an increase or decrease in the fair value of the contingent consideration obligation.
|
(in millions)
|
Contingent Consideration Obligation
|
||
Balance at June 30, 2016
|
$
|
19
|
|
Additions from acquisitions
|
22
|
|
|
Changes in fair value of contingent consideration (1)
|
—
|
|
|
Payment of contingent consideration
|
(3
|
)
|
|
Balance at March 31, 2017
|
$
|
38
|
|
(1)
|
Amount is included in amortization and other acquisition-related costs in the condensed consolidated statements of earnings.
|
27
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Notes to Financial Statements
|
|
|
(in millions)
|
March 31, 2017
|
|
June 30, 2016
|
||||
Estimated fair value
|
$
|
5,628
|
|
|
$
|
5,780
|
|
Carrying amount
|
5,461
|
|
|
5,539
|
|
(in millions)
|
Redeemable Noncontrolling Interest
|
||
Balance at June 30, 2016
|
$
|
117
|
|
Net earnings attributable to redeemable noncontrolling interests
|
3
|
|
|
Net purchase of redeemable noncontrolling interests
|
(3
|
)
|
|
Balance at March 31, 2017
|
$
|
117
|
|
(in millions)
|
Foreign
Currency
Translation
Adjustments
|
|
Unrealized
Gain/(Loss) on
Derivatives,
net of tax
|
|
Accumulated Other
Comprehensive
Loss
|
||||||
Balance at June 30, 2016
|
$
|
(123
|
)
|
|
$
|
7
|
|
|
$
|
(116
|
)
|
Other comprehensive income/(loss), before reclassifications
|
(47
|
)
|
|
24
|
|
|
(23
|
)
|
|||
Amounts reclassified to earnings
|
—
|
|
|
3
|
|
|
3
|
|
|||
Other comprehensive income/(loss), net of tax
|
(47
|
)
|
|
27
|
|
|
(20
|
)
|
|||
Balance at March 31, 2017
|
$
|
(170
|
)
|
|
$
|
34
|
|
|
$
|
(136
|
)
|
|
Three Months Ended March 31,
|
||||
(in millions)
|
2017
|
|
2016
|
||
Weighted-average common shares–basic
|
316
|
|
|
328
|
|
Effect of dilutive securities:
|
|
|
|
||
Employee stock options, restricted share units and performance share units
|
2
|
|
|
3
|
|
Weighted-average common shares–diluted
|
318
|
|
|
331
|
|
|
Nine Months Ended March 31,
|
||||
(in millions)
|
2017
|
|
2016
|
||
Weighted-average common shares–basic
|
318
|
|
|
328
|
|
Effect of dilutive securities:
|
|
|
|
||
Employee stock options, restricted share units and performance share units
|
2
|
|
|
3
|
|
Weighted-average common shares–diluted
|
320
|
|
|
331
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
28
|
Notes to Financial Statements
|
|
|
|
Three Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Pharmaceutical
|
$
|
28,406
|
|
|
$
|
27,527
|
|
Medical
|
3,418
|
|
|
3,138
|
|
||
Total segment revenue
|
31,824
|
|
|
30,665
|
|
||
Corporate (1)
|
(3
|
)
|
|
(3
|
)
|
||
Total revenue
|
$
|
31,821
|
|
|
$
|
30,662
|
|
|
Nine Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Pharmaceutical
|
$
|
86,911
|
|
|
$
|
80,954
|
|
Medical
|
10,107
|
|
|
9,220
|
|
||
Total segment revenue
|
97,018
|
|
|
90,174
|
|
||
Corporate (1)
|
(8
|
)
|
|
(12
|
)
|
||
Total revenue
|
$
|
97,010
|
|
|
$
|
90,162
|
|
(1)
|
Corporate revenue consists of the elimination of inter-segment revenue and other revenue not allocated to the segments.
|
|
Three Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Pharmaceutical
|
$
|
611
|
|
|
$
|
660
|
|
Medical
|
148
|
|
|
128
|
|
||
Total segment profit
|
759
|
|
|
788
|
|
||
Corporate
|
(154
|
)
|
|
(132
|
)
|
||
Total operating earnings
|
$
|
605
|
|
|
$
|
656
|
|
|
Nine Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Pharmaceutical
|
$
|
1,682
|
|
|
$
|
1,945
|
|
Medical
|
435
|
|
|
335
|
|
||
Total segment profit
|
2,117
|
|
|
2,280
|
|
||
Corporate
|
(436
|
)
|
|
(441
|
)
|
||
Total operating earnings
|
$
|
1,681
|
|
|
$
|
1,839
|
|
(in millions)
|
March 31,
2017 |
|
June 30,
2016 |
||||
Pharmaceutical
|
$
|
21,469
|
|
|
$
|
20,662
|
|
Medical
|
10,645
|
|
|
10,236
|
|
||
Corporate
|
2,060
|
|
|
3,224
|
|
||
Total assets
|
$
|
34,174
|
|
|
$
|
34,122
|
|
|
Three Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Restricted share unit expense
|
$
|
18
|
|
|
$
|
18
|
|
Employee stock option expense
|
4
|
|
|
6
|
|
||
Performance share unit expense
|
3
|
|
|
2
|
|
||
Total share-based compensation
|
$
|
25
|
|
|
$
|
26
|
|
29
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Notes to Financial Statements
|
|
|
|
Nine Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Restricted share unit expense
|
$
|
53
|
|
|
$
|
53
|
|
Employee stock option expense
|
14
|
|
|
16
|
|
||
Performance share unit expense
|
6
|
|
|
13
|
|
||
Total share-based compensation
|
$
|
73
|
|
|
$
|
82
|
|
(in millions, except per share amounts)
|
Restricted Share Units
|
|
Weighted-Average
Grant Date Fair
Value per Share
|
|||
Nonvested at June 30, 2016
|
2
|
|
|
$
|
71.73
|
|
Granted
|
1
|
|
|
82.37
|
|
|
Vested
|
(1
|
)
|
|
68.81
|
|
|
Canceled and forfeited
|
—
|
|
|
—
|
|
|
Nonvested at March 31, 2017
|
2
|
|
|
$
|
76.96
|
|
(in millions, except per share amounts)
|
Stock
Options
|
|
Weighted-Average
Exercise Price per
Common Share
|
|||
Outstanding at June 30, 2016
|
7
|
|
|
$
|
54.09
|
|
Granted
|
1
|
|
|
83.11
|
|
|
Exercised
|
(1
|
)
|
|
37.46
|
|
|
Canceled and forfeited
|
—
|
|
|
—
|
|
|
Outstanding at March 31, 2017
|
7
|
|
|
$
|
62.99
|
|
Exercisable at March 31, 2017
|
4
|
|
|
$
|
52.28
|
|
(in millions)
|
March 31, 2017
|
|
June 30, 2016
|
||||
Aggregate intrinsic value of outstanding options at period end
|
$
|
130
|
|
|
$
|
181
|
|
Aggregate intrinsic value of exercisable options at period end
|
127
|
|
|
161
|
|
(in years)
|
March 31, 2017
|
|
June 30, 2016
|
Weighted-average remaining contractual life of outstanding options
|
7
|
|
6
|
Weighted-average remaining contractual life of exercisable options
|
6
|
|
5
|
(in millions, except per share amounts)
|
Performance
Share Units
|
|
Weighted-Average
Grant Date Fair
Value per Share
|
|||
Nonvested at June 30, 2016
|
0.8
|
|
|
$
|
63.96
|
|
Granted
|
0.2
|
|
|
83.19
|
|
|
Vested (1)
|
(0.4
|
)
|
|
51.49
|
|
|
Canceled and forfeited
|
—
|
|
|
—
|
|
|
Nonvested at March 31, 2017
|
0.6
|
|
|
$
|
77.86
|
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
30
|
Notes to Financial Statements
|
|
|
31
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Exhibits
|
|
|
Exhibit
Number
|
Exhibit Description
|
2.1
|
Stock and Asset Purchase Agreement, dated April 18, 2017, by and between Cardinal Health, Inc. and Medtronic plc (incorporated by reference to Exhibit 2.1 to Cardinal Health’s Current Report on Form 8-K filed on April 18, 2017, File No. 1-11373)
|
3.1
|
Amended and Restated Articles of Incorporation of Cardinal Health, Inc., as amended (incorporated by reference to Exhibit 3.1 to Cardinal Health’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, File No. 1-11373)
|
3.2
|
Cardinal Health, Inc. Restated Code of Regulations (incorporated by reference to Exhibit 3.2 to Cardinal Health’s Current Report on Form 8-K filed on June 30, 2016, File No. 1-11373)
|
10.1
|
Commitment Letter, dated April 18, 2017, by and among Goldman Sachs Bank USA and Goldman Sachs Lending Partners LLC and Cardinal Health, Inc. (incorporated by reference to Exhibit 10.1 to Cardinal Health’s Current Report on Form 8-K filed on April 18, 2017, File No. 1-11373)
|
10.2
|
Amendment No. 1, dated as of May 1, 2017, to Amended and Restated Five-Year Credit Agreement as of June 16, 2016
|
12.1
|
Computation of Ratio of Earnings to Fixed Charges
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1
|
Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
99.1
|
Statement Regarding Forward-Looking Information
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
XBRL Taxonomy Definition Linkbase Document
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
32
|
Form 10-Q Cross Reference Index
|
|
|
Item Number
|
|
Page
|
|
|
|
|
Part I. Financial Information
|
|
Item 1
|
||
Item 2
|
||
Item 3
|
||
Item 4
|
||
|
|
|
|
Part II. Other Information
|
|
Item 1
|
||
Item 1A
|
||
Item 2
|
||
Item 3
|
Defaults Upon Senior Securities
|
N/A
|
Item 4
|
Mine Safety Disclosures
|
N/A
|
Item 5
|
Other Information
|
N/A
|
Item 6
|
||
|
N/A
|
Not applicable
|
|
33
|
Cardinal Health
|
Q3
Fiscal 2017 Form 10-Q
|
|
Additional Information
|
|
|
|
|
Cardinal Health, Inc.
|
|
|
|
Date:
|
May 2, 2017
|
/s/ GEORGE S. BARRETT
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George S. Barrett
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Chairman and Chief Executive Officer
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/s/ MICHAEL C. KAUFMANN
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Michael C. Kaufmann
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Chief Financial Officer
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Cardinal Health
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Q3
Fiscal 2017 Form 10-Q
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34
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CARDINAL HEALTH, INC., as the Company
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By:
/s/ Michael Kaufmann
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Name: Michael Kaufmann
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Title: Chief Financial Officer
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JPMORGAN CHASE BANK, N.A, individually and as Administrative Agent
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By:
/s/ Erik Barragan
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Name: Erik Barragan
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Title: Authorized Officer
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Bank of America, N.A., as a Lender
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By:
/s/ Joseph L. Corah
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Name: Joseph L. Corah
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Title: Director
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THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as a Lender
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By:
/s/ Jaime Johnson
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Name: Jaime Johnson
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Title: Director
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Barclays Bank PLC, as a Lender
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By:
/s/ Christopher Aitkin
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Name: Christopher Aitkin
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Title: Assistant Vice President
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DEUTSCHE BANK AG NEW YORK BRANCH, as a Lender
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By:
/s/ Ming K. Chu
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Name: Ming K. Chu
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Title: Director
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By:
/s/ Virginia Cosenza
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Name: Virginia Cosenza
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Title: Vice President
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GOLDMAN SACHS BANK USA
, as a Lender
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By:
/s/ Robert Ehudin
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Name: Robert Ehudin
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Title: Authorized Signatory
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HSBC BANK USA, as a Lender
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By:
/s/ Jason Fuqua
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Name: Jason Fuqua
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Title: Vice President
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Morgan Stanley Bank N.A., as a Lender
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By:
/s/ Alice Lee
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Name: Alice Lee
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Title: Authorized Signatory
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WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
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By:
/s/ Andrea S. Chen
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Name: ANDREA S CHEN
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Title: MANAGING DIRECTOR
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U.S. Bank National Association, as a Lender
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By:
/s/ Joseph M. Schnorr
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Name: Joseph M. Schnorr
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Title: Senior Vice President
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CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK
, as a Lender
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By:
/s/ Gordon Yip
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Name: Gordon Yip
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Title: Director
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By:
/s/ Mark Koneval
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Name: Mark Koneval
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Title: Managing Director
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The Bank of Nova Scotia
, as a Lender
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By:
/s/ Michelle Phillips
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Name: Michelle Phillips
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Title: Execution Head & Director
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THE HUNTINGTON NATIONAL BANK, as a Lender
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By:
/s/ Peter M Kakoules
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Name: Peter M Kakoules
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Title: Vice President
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PNC Bank, National Association, as a Lender
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By:
/s/ Steven P. Shepard
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Name: Steven P. Shepard
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Title: Senior Vice President
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Standard Chartered Bank, as a Lender
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By:
/s/ Daniel Mattern
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Name: Daniel Mattern
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Title: Associate Director
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Standard Chartered Bank
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SunTrust Bank
, as a Lender
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By:
/s/ Dave Felty
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Name: Dave Felty
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Title: Managing Director
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Exhibit 12.1
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Fiscal Year Ended June 30,
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(in millions, except ratios)
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2012
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2013
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2014
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2015
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2016
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Nine Months Ended March 31, 2017
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Earnings from continuing operations before income taxes
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$
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1,698.1
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$
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888.3
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$
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1,798.3
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$
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1,967.3
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$
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2,275.6
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$
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1,549.2
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Plus fixed charges:
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Interest expense
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92.3
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119.2
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129.4
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137.0
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178.2
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132.3
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Capitalized interest
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6.0
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1.7
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1.2
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1.8
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5.6
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7.6
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Amortization of debt offering costs
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2.8
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3.5
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3.6
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7.6
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5.6
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4.3
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Interest portion of rent expense
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7.8
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8.3
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9.8
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9.6
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11.5
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9.9
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Fixed charges
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108.9
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132.7
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144.0
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156.0
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200.9
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154.1
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Plus: amortization of capitalized interest
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3.2
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3.4
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2.9
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2.4
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2.5
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2.5
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Less: capitalized interest
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(6.0
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)
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(1.7
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)
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(1.2
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(1.8
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)
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(5.6
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)
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(7.6
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)
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Earnings
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$
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1,804.2
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$
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1,022.7
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$
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1,944.0
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$
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2,123.9
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$
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2,473.4
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$
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1,698.2
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Ratio of earnings to fixed charges (1)
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16.6
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7.7
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13.5
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13.6
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12.3
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11.0
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(1)
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The ratio of earnings to fixed charges is computed by dividing fixed charges into earnings from continuing operations before income taxes plus fixed charges and capitalized interest. Fixed charges include interest expense, amortization of debt offering costs and the portion of rent expense that is deemed to be representative of the interest factor. Interest expense recorded on tax exposures has been recorded in income tax expense and has therefore been excluded from the calculation.
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Exhibit 31.1
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1.
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I have reviewed this Form 10-Q of Cardinal Health, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ G
EORGE
S. B
ARRETT
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George S. Barrett
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Chairman and Chief Executive Officer
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Exhibit 31.2
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1.
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I have reviewed this Form 10-Q of Cardinal Health, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ M
ICHAEL
C. K
AUFMANN
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Michael C. Kaufmann
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Chief Financial Officer
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Exhibit 32.1
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(1)
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the Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017
containing the financial statements of the Company (the “Periodic Report”), which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
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(2)
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the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ G
EORGE
S. B
ARRETT
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George S. Barrett
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Chairman and Chief Executive Officer
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/s/ M
ICHAEL
C. K
AUFMANN
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Michael C. Kaufmann
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Chief Financial Officer
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Exhibit 99.1
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•
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competitive pressures in the markets in which we operate, including pricing pressures;
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uncertainties relating to the pricing of generic pharmaceuticals;
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uncertainties relating to the timing, frequency and profitability of generic pharmaceutical launches;
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our ability to maintain the benefits of our generic pharmaceutical sourcing venture with CVS Health Corporation;
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with respect to our distribution agreements with branded pharmaceutical manufacturers, changes in the amount of service fees we receive or, in cases where part of our compensation under these agreements is branded pharmaceutical price appreciation, changes in the frequency or magnitude of such price appreciation;
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changes in the timing or frequency of the introduction of branded pharmaceuticals;
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uncertainties relating to the frequency or magnitude of branded pharmaceutical price appreciation;
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actions of regulatory bodies and other governmental authorities, including the U.S. Drug Enforcement Administration, certain agencies within the U.S. Department of Health and Human Services (including the U.S. Food and Drug Administration, Centers for Medicare and Medicaid Services, the Office of Inspector General and the Office for Civil Rights), the U.S. Nuclear Regulatory Commission, the U.S. Federal Trade Commission, the U.S. Customs and Border Protection, various state boards of pharmacy, state controlled substance agencies, state health departments, state insurance departments, state Medicaid departments or comparable regulatory bodies or governmental authorities or foreign equivalents that, in each case, could delay, limit or suspend product development, manufacturing, distribution, importation or sales or result in warning letters, recalls, seizures, injunctions or monetary sanctions;
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difficulties or delays in the development, production, manufacturing, sourcing and marketing of new or existing products and services, including difficulties or delays associated with obtaining requisite regulatory consents or approvals associated with those activities;
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risks arising from possible violations of healthcare fraud and abuse laws;
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costs or claims resulting from potential errors or defects in our manufacturing of medical devices or other products or in our compounding, repackaging, information systems or pharmacy management services that may injure persons or damage property or operations, including costs from remediation efforts or recalls and related product liability claims and lawsuits, including class actions;
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risks arising from possible violations of the U.S. Foreign Corrupt Practices Act, Chinese anti-corruption laws and other similar anti-corruption laws in other jurisdictions and U.S. and foreign export control, trade embargo and customs laws;
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risks arising from our collecting, handling and maintaining patient-identifiable health information and other sensitive personal and financial information, which are subject to federal, state and foreign laws that regulate the use and disclosure of such information;
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risks arising from certain of our businesses being Medicare-certified suppliers or participating in state Medicaid programs, which businesses are subject to accreditation and quality standards and other rules and regulations, including applicable billing, payment and record-keeping requirements;
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risks arising from certain of our businesses manufacturing pharmaceutical and medical products or repackaging pharmaceuticals that are purchased through federal or state healthcare programs, which businesses are subject to federal and state laws that establish eligibility for reimbursement by such programs;
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changes in laws or changes in the interpretation or application of laws or regulations, as well as possible failures to comply with applicable laws or regulations, including as a result of possible misinterpretations or misapplications;
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material reductions in purchases, non-renewal or early termination of contracts, or delinquencies or defaults by key customers;
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unfavorable changes to the terms of key customer or supplier relationships, or changes in customer mix;
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adverse changes in U.S. or foreign tax laws, including proposals relating to a U.S. "border adjustment tax" or import tariffs, or unfavorable challenges to our tax positions and payments to settle these challenges;
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uncertainties due to government healthcare reform, including possible modifications to, or repeal of, the Patient Protection and Affordable Care Act;
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changes in manufacturers' pricing, selling, inventory, distribution or supply policies or practices;
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changes in regulatory policies regarding pharmaceutical manufacturer product pricing practices;
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changes in hospital buying groups or hospital buying practices;
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changes in distribution or sourcing models for pharmaceutical and medical and surgical products, including an increase in direct and limited distribution;
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the risks of counterfeit products in the supply chain;
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changes to the prescription drug reimbursement formula and related reporting requirements for generic pharmaceuticals under Medicaid;
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increasing consolidation in the healthcare industry, which could give the resulting enterprises greater bargaining power and may increase pressure on prices for our products and services or result in the loss of customers;
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disruption or damage to, or failure of, our information systems, critical facilities, including our national logistics center, or distribution networks;
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risks to our business and information and controls systems in the event that the Pharmaceutical segment's multi-year systems replacement project or other business process improvements, infrastructure modernizations or initiatives to use third-party service providers for key systems and processes are not effectively implemented;
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any compromise of our information systems or of those of a third-party with whom we do business, including unauthorized access to or use or disclosure of sensitive information;
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the results, costs, effects or timing of any commercial disputes, government contract compliance matters, product liability claims or lawsuits, patent infringement claims,
qui tam
actions or other legal proceedings;
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possible losses relating to product liability claims regarding products for which we cannot obtain product liability insurance or for which such insurance is not adequate to cover our losses;
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our ability to maintain adequate intellectual property protections;
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the costs, difficulties and uncertainties related to the integration of acquired businesses, including liabilities relating to the operations or activities of such businesses prior to their acquisition, and uncertainties relating to our ability to achieve the anticipated results from acquisitions;
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risks and uncertainties relating to the consummation of our pending acquisition of Medtronic plc's Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency businesses, including our ability to successfully complete the acquisition on a timely basis, including receipt of required regulatory approvals and satisfaction of other closing conditions, and the conditions of the credit markets, which could affect our ability to issue debt to fund the acquisition on acceptable terms;
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risks and uncertainties if the pending acquisition of Medtronic plc's Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency businesses is consummated, including the following: we may fail to realize the synergies and other benefits we expect from the acquisition; the use of a significant portion of our cash and the incurrence of substantial indebtedness in connection with the financing of the acquisition may have an adverse effect on our liquidity, limit our flexibility in responding to other business opportunities, and increase our vulnerability to adverse economic and industry conditions; we may fail to retain key personnel of the acquired businesses; future developments may impair the value of our purchased goodwill or intangible assets; we may face difficulties establishing, integrating or combining operations and systems; we may face challenges retaining the customers of the acquired businesses; we may encounter unforeseen internal control, regulatory or compliance issues; and we may face other additional risks relating to regulatory matters, legal proceedings, tax laws or positions, supply interruptions, commodity price volatility and global operations, including the effects of local economic environments and currency volatility;
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risks and uncertainties relating to the acquisition of Cordis, including the ability to achieve the expected synergies and positive impact to operating results and the additional risks the Cordis acquisition subjects us to relating to regulatory matters, legal proceedings, tax laws or positions and global operations, including the effects of local economic environments and currency volatility;
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increased costs for commodities used in the Medical segment including various components, compounds, raw materials or energy such as oil-based resins, cotton, latex and other commodities;
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shortages in commodities, components, compounds, raw materials or energy used by our businesses, including supply disruptions of radioisotopes;
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the loss of, or default by, one or more key suppliers for which alternative suppliers may not be readily available;
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bankruptcy, insolvency or other credit failure of a customer or supplier that owes us a substantial amount;
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risks associated with global operations, including the effect of local economic environments, inflation, recession, currency volatility and global competition, in addition to risks associated with compliance with U.S. and international laws relating to global operations;
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risks associated with volatility and disruption to the global capital and credit markets, which may adversely affect our ability to access credit, our cost of credit and the financial soundness of our customers and suppliers;
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our ability to introduce and market new products and our ability to keep pace with advances in technology;
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the costs, effects, timing or success of restructuring programs or plans;
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significant charges to earnings if goodwill or intangible assets become impaired;
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uncertainties relating to general political, business, industry, regulatory and market conditions; and
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other factors described in the “Risk Factors” section of the 2016 Form 10-K.
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