þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Ohio | 31-0958666 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
7000 Cardinal Place, Dublin, Ohio | 43017 |
(Address of principal executive offices) | (Zip Code) |
(614) 757-5000 | |
(Registrant’s telephone number, including area code) |
Large accelerated filer þ | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company o |
Emerging growth company o | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o |
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common shares (without par value) | CAH | New York Stock Exchange |
Cardinal Health Q3 Fiscal 2019 Form 10-Q |
Page | |
1 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
MD&A | Overview |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 2 |
MD&A | Overview |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||
(in millions) | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||
GAAP operating earnings | $ | 432 | $ | 546 | (21 | )% | $ | 1,752 | $ | 1,206 | 45 | % | |||||||||
Restructuring and employee severance | 53 | 2 | 97 | 155 | |||||||||||||||||
Amortization and other acquisition-related costs | 154 | 175 | 468 | 543 | |||||||||||||||||
Impairments and (gain)/loss on disposal of assets | 11 | (6 | ) | (492 | ) | 62 | |||||||||||||||
Litigation (recoveries)/charges, net | 17 | 64 | 20 | 155 | |||||||||||||||||
Non-GAAP operating earnings | $ | 667 | $ | 781 | (15 | )% | $ | 1,845 | $ | 2,121 | (13 | )% |
3 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
MD&A | Overview |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||
($ per share) | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||
GAAP (1) | $ | 0.99 | $ | 0.81 | 22 | % | $ | 3.88 | $ | 4.50 | (14 | )% | |||||||||
Restructuring and employee severance | 0.13 | 0.06 | 0.24 | 0.40 | |||||||||||||||||
Amortization and other acquisition-related costs | 0.39 | 0.42 | 1.18 | 1.27 | |||||||||||||||||
Impairments and (gain)/loss on disposal of assets | 0.03 | 0.02 | (1.20 | ) | 0.38 | ||||||||||||||||
Litigation (recoveries)/charges, net | 0.03 | 0.14 | 0.04 | 0.33 | |||||||||||||||||
Transitional tax benefit, net | 0.02 | (0.06 | ) | 0.03 | (2.88 | ) | |||||||||||||||
Non-GAAP (1) | $ | 1.59 | $ | 1.39 | 14 | % | $ | 4.17 | $ | 3.99 | 5 | % |
(1) | diluted earnings per share attributable to Cardinal Health, Inc. ("diluted EPS") |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 4 |
MD&A | Overview |
5 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
MD&A | Results of Operations |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||
(in millions) | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||
Pharmaceutical | $ | 31,361 | $ | 29,720 | 6 | % | $ | 96,516 | $ | 89,786 | 7 | % | |||||||||
Medical | 3,871 | 3,916 | (1 | )% | 11,678 | 11,684 | — | % | |||||||||||||
Total segment revenue | 35,232 | 33,636 | 5 | % | 108,194 | 101,470 | 7 | % | |||||||||||||
Corporate | (4 | ) | (3 | ) | 33 | % | (13 | ) | (10 | ) | 30 | % | |||||||||
Total revenue | $ | 35,228 | $ | 33,633 | 5 | % | $ | 108,181 | $ | 101,460 | 7 | % |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 6 |
MD&A | Results of Operations |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||
(in millions) | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||
Gross margin | $ | 1,764 | $ | 1,913 | (8 | )% | $ | 5,160 | $ | 5,446 | (5 | )% |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||
(in millions) | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||
SG&A expenses | $ | 1,097 | $ | 1,132 | (3 | )% | $ | 3,315 | $ | 3,325 | — | % |
7 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
MD&A | Results of Operations |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||
(in millions) | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||
Pharmaceutical | $ | 536 | $ | 596 | (10 | )% | $ | 1,388 | $ | 1,576 | (12 | )% | |||||||||
Medical | 155 | 199 | (22 | )% | 479 | 548 | (13 | )% | |||||||||||||
Total segment profit | 691 | 795 | (13 | )% | 1,867 | 2,124 | (12 | )% | |||||||||||||
Corporate | (259 | ) | (249 | ) | 4 | % | (115 | ) | (918 | ) | (87 | )% | |||||||||
Total consolidated operating earnings | $ | 432 | $ | 546 | (21 | )% | $ | 1,752 | $ | 1,206 | 45 | % |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 8 |
MD&A | Results of Operations |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Restructuring and employee severance | $ | 53 | $ | 2 | $ | 97 | $ | 155 | |||||||
Amortization and other acquisition-related costs | 154 | 175 | 468 | 543 | |||||||||||
Impairments and (gain)/loss on disposal of assets, net | 11 | (6 | ) | (492 | ) | 62 | |||||||||
Litigation (recoveries)/charges, net | 17 | 64 | 20 | 155 |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||||||||
(in millions) | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||
Other (income)/expense, net | $ | (13 | ) | $ | (2 | ) | N.M. | $ | 13 | $ | (6 | ) | N.M. | ||||||||
Interest expense, net | 75 | 84 | (11 | )% | 227 | 251 | (10 | )% | |||||||||||||
Loss on extinguishment of debt | — | — | N.M. | — | 2 | N.M. |
9 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
MD&A | Results of Operations |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 10 |
MD&A | Liquidity and Capital Resources |
11 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
MD&A | Liquidity and Capital Resources |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 12 |
MD&A | Other Items |
13 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
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 and credits from non-GAAP metrics facilitates comparison of our current financial results to our historical financial results and to our peer group companies’ financial results. |
• | State opioid assessment related to prior fiscal years is the portion of the New York State assessment under the Opioid Stewardship Act for prescription opioid medications that were sold or distributed in periods prior to fiscal 2019. This portion was excluded from non-GAAP financial measures because it related to sales in prior fiscal years and inclusion would have obscured analysis of the current fiscal year results of our underlying, ongoing business. Additionally, while the New York law would have required us to make payments on an ongoing basis, the portion of the assessment related to sales in periods prior to fiscal 2019 was contemplated to be a one-time, nonrecurring item. In December 2018, this assessment was declared to be unconstitutional. |
• | Restructuring and employee severance costs are excluded because they are not part of the ongoing operations of our underlying business. |
• | Amortization and other acquisition-related costs, which include transaction costs, integration costs, and changes in the fair value of contingent consideration obligations, are excluded because they are not part of the ongoing operations of our underlying business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies' financial results. Additionally, costs for amortization of acquisition-related intangible assets are non-cash amounts, which are variable in amount and frequency and are significantly impacted by the timing and size of acquisitions, so their exclusion facilitates comparison of historical, current and forecasted financial results. We also exclude other acquisition-related costs, which are directly related to an acquisition but do not meet the criteria to be recognized on the acquired entity’s initial balance sheet as part of the purchase price allocation. These costs are also significantly impacted by the timing, complexity and size of acquisitions. |
• | Impairments and gain or loss on disposal of assets are excluded because they do not occur in or reflect the ordinary course of our ongoing business operations and are inherently unpredictable in timing and amount, and in the case of impairments, are non-cash amounts, so their exclusion facilitates comparison of historical, current and forecasted financial results. |
• | Litigation recoveries or charges, net are excluded because they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount. |
• | Loss on extinguishment of debt is excluded because it does not typically occur in the normal course of business and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt extinguishment transactions. |
• | Transitional tax benefit, net related to the Tax Cuts and Jobs Act is excluded because it results from the one-time impact of a very significant change in the U.S. federal corporate tax rate and, due to the significant size of the benefit, obscures analysis of trends and financial performance. The transitional tax benefit includes the initial estimate and subsequent adjustments for the re-measurement of deferred tax assets and liabilities due to the reduction of the U.S. federal corporate income tax rate and the repatriation tax on undistributed foreign earnings. |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 14 |
Explanation and Reconciliation of Non-GAAP Financial Measures |
15 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
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 Earnings1 | Net Earnings1 Growth Rate | Effective Tax Rate | Diluted EPS1,3,4 | Diluted EPS1 Growth Rate | ||||||||||||||
Three Months Ended March 31, 2019 | |||||||||||||||||||||||
GAAP | $ | 432 | (21 | )% | $ | 370 | $ | 74 | $ | 296 | 16 | % | 20.0 | % | $ | 0.99 | 22 | % | |||||
Restructuring and employee severance | 53 | 53 | 14 | 39 | 0.13 | ||||||||||||||||||
Amortization and other acquisition-related costs | 154 | 154 | 38 | 116 | 0.39 | ||||||||||||||||||
Impairments and (gain)/loss on disposal of assets, net | 11 | 11 | 4 | 7 | 0.03 | ||||||||||||||||||
Litigation (recoveries)/charges, net | 17 | 17 | 7 | 10 | 0.03 | ||||||||||||||||||
Transitional tax benefit, net2 | — | — | (5 | ) | 5 | 0.02 | |||||||||||||||||
Non-GAAP | $ | 667 | (15 | )% | $ | 605 | $ | 130 | $ | 475 | 9 | % | 21.6 | % | $ | 1.59 | 14 | % | |||||
Three Months Ended March 31, 2018 | |||||||||||||||||||||||
GAAP | $ | 546 | (10 | )% | $ | 464 | $ | 209 | $ | 255 | (33 | )% | 45.1 | % | $ | 0.81 | (33 | )% | |||||
Restructuring and employee severance | 2 | 2 | (17 | ) | 19 | 0.06 | |||||||||||||||||
Amortization and other acquisition-related costs | 175 | 175 | 44 | 131 | 0.42 | ||||||||||||||||||
Impairments and (gain)/loss on disposal of assets, net | (6 | ) | (6 | ) | (14 | ) | 8 | 0.02 | |||||||||||||||
Litigation (recoveries)/charges, net | 64 | 64 | 21 | 43 | 0.14 | ||||||||||||||||||
Transitional tax benefit, net2 | — | — | 17 | (17 | ) | (0.06 | ) | ||||||||||||||||
Non-GAAP | $ | 781 | 3 | % | $ | 700 | $ | 262 | $ | 437 | (10 | )% | 37.5 | % | $ | 1.39 | (9 | )% | |||||
Nine Months Ended March 31, 2019 | |||||||||||||||||||||||
GAAP | $ | 1,752 | 45 | % | $ | 1,512 | $ | 342 | $ | 1,169 | (18 | )% | 22.6 | % | $ | 3.88 | (14 | )% | |||||
Restructuring and employee severance | 97 | 97 | 25 | 72 | 0.24 | ||||||||||||||||||
Amortization and other acquisition-related costs | 468 | 468 | 112 | 356 | 1.18 | ||||||||||||||||||
Impairments and (gain)/loss on disposal of assets, net | (492 | ) | (492 | ) | (129 | ) | (363 | ) | (1.20 | ) | |||||||||||||
Litigation (recoveries)/charges, net | 20 | 20 | 7 | 13 | 0.04 | ||||||||||||||||||
Transitional tax benefit, net2 | — | — | (8 | ) | 8 | 0.03 | |||||||||||||||||
Non-GAAP | $ | 1,845 | (13 | )% | $ | 1,605 | $ | 349 | $ | 1,255 | — | % | 21.7 | % | $ | 4.17 | 5 | % | |||||
Nine Months Ended March 31, 2018 | |||||||||||||||||||||||
GAAP | $ | 1,206 | (28 | )% | $ | 959 | $ | (466 | ) | $ | 1,422 | 40 | % | (48.6 | )% | $ | 4.50 | 42 | % | ||||
Restructuring and employee severance | 155 | 155 | 29 | 126 | 0.40 | ||||||||||||||||||
Amortization and other acquisition-related costs | 543 | 543 | 143 | 400 | 1.27 | ||||||||||||||||||
Impairments and (gain)/loss on disposal of assets, net | 62 | 62 | (57 | ) | 119 | 0.38 | |||||||||||||||||
Litigation (recoveries)/charges, net | 155 | 155 | 51 | 104 | 0.33 | ||||||||||||||||||
Loss on extinguishment of debt | — | 2 | 1 | 1 | — | ||||||||||||||||||
Transitional tax benefit, net2 | — | — | 911 | (911 | ) | (2.88 | ) | ||||||||||||||||
Non-GAAP | $ | 2,121 | — | % | $ | 1,875 | $ | 612 | $ | 1,261 | (4 | )% | 32.6 | % | $ | 3.99 | (3 | )% |
1 | attributable to Cardinal Health, Inc. |
2 | Reflects the net transitional benefit from the remeasurement of our deferred tax assets and liabilities partially offset by the repatriation tax on cash and earnings of foreign subsidiaries. See Note 7 of the "Notes to Condensed Consolidated Financial Statements" for more information on the Tax Act. |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 16 |
Explanation and Reconciliation of Non-GAAP Financial Measures |
3 | GAAP diluted EPS for the three months ended March 31,2019 compared to the prior year period was favorably impacted by $0.36 per share, which includes $0.31 per share due to change in the effective tax rate and $0.05 per share due to the change in weighted average shares outstanding. GAAP diluted EPS for the nine months ended March 31, 2019 compared to the prior year period was unfavorably impacted by $(3.39) per share, which includes $(3.57) per share due to change in the effective tax rate and $0.18 per share due to the change in weighted average shares outstanding. The change in GAAP diluted EPS due to the effective tax rate is calculated as ((GAAP Earnings before Income Taxes for the current period times (one minus the current period GAAP Effective Tax Rate)) minus (GAAP Earnings before Income Taxes for the current period times (one minus the prior period GAAP Effective Tax Rate))) divided by the current period weighted average shares outstanding. The change in GAAP diluted EPS due to the weighted average shares outstanding is calculated as (GAAP Net Earnings for the current period divided by the current period weighted average shares outstanding) minus (GAAP Net Earnings for the current period divided by the prior period weighted average shares outstanding). |
4 | Non-GAAP diluted EPS for the three months ended March 31, 2019 compared to the prior year period was favorably impacted by $0.40 per share, which includes $0.32 per share due to change in the effective tax rate and $0.08 per share due to the change in weighted average shares outstanding. Non-GAAP diluted EPS for the nine months ended March 31, 2019 compared to the prior year period was favorably impacted by $0.77 per share, which includes $0.58 per share due to change in the effective tax rate and $0.19 per share due to the change in weighted average shares outstanding. The change in Non-GAAP diluted EPS due to the effective tax rate is calculated as ((Non-GAAP Earnings before Income Taxes for the current period times (one minus the current period Non-GAAP Effective Tax Rate)) minus (Non-GAAP Earnings before Income Tax for the current period times (one minus the prior period Non-GAAP Effective Tax Rate))) divided by the current period weighted average shares outstanding. The change in Non-GAAP diluted EPS due to the weighted average shares outstanding is calculated as (Non-GAAP Net Earnings for the current period divided by the current period weighted average shares outstanding) minus (Non-GAAP Net Earnings for the current period divided by the prior period weighted average shares outstanding). |
17 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Other |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs (2) | Approximate Dollar Value of Shares That May Yet be Purchased Under the Program (2) (in millions) | |||||||||
January 2019 | 259 | $ | 48.49 | — | $ | 1,293 | |||||||
February 2019 | 258 | 53.78 | — | 1,293 | |||||||||
March 2019 | 257 | 48.53 | — | 1,293 | |||||||||
Total | 774 | $ | 50.26 | — | $ | 1,293 |
(1) | Reflects 259, 258 and 257 common shares purchased in January, February and March 2019, respectively, through a rabbi trust as investments of participants in our Deferred Compensation Plan. |
(2) | On February 7, 2018, our Board of Directors approved a $1.0 billion share repurchase program that expires on December 31, 2020. On November 7, 2018, our Board of Directors approved an additional $1.0 billion share repurchase program that expires on December 31, 2021. As of March 31, 2019, we have $1.3 billion authorized for share repurchases remaining under these programs. |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 18 |
Financial Statements |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||
(in millions, except per common share amounts) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Revenue | $ | 35,228 | $ | 33,633 | $ | 108,181 | $ | 101,460 | |||||||
Cost of products sold | 33,464 | 31,720 | 103,021 | 96,014 | |||||||||||
Gross margin | 1,764 | 1,913 | 5,160 | 5,446 | |||||||||||
Operating expenses: | |||||||||||||||
Distribution, selling, general and administrative expenses | 1,097 | 1,132 | 3,315 | 3,325 | |||||||||||
Restructuring and employee severance | 53 | 2 | 97 | 155 | |||||||||||
Amortization and other acquisition-related costs | 154 | 175 | 468 | 543 | |||||||||||
Impairments and (gain)/loss on disposal of assets, net | 11 | (6 | ) | (492 | ) | 62 | |||||||||
Litigation (recoveries)/charges, net | 17 | 64 | 20 | 155 | |||||||||||
Operating earnings | 432 | 546 | 1,752 | 1,206 | |||||||||||
Other (income)/expense, net | (13 | ) | (2 | ) | 13 | (6 | ) | ||||||||
Interest expense, net | 75 | 84 | 227 | 251 | |||||||||||
Loss on extinguishment of debt | — | — | — | 2 | |||||||||||
Earnings before income taxes | 370 | 464 | 1,512 | 959 | |||||||||||
Provision for/(benefit from) income taxes | 74 | 209 | 342 | (466 | ) | ||||||||||
Net earnings | 296 | 255 | 1,170 | 1,425 | |||||||||||
Less: Net earnings attributable to noncontrolling interests | — | — | (1 | ) | (3 | ) | |||||||||
Net earnings attributable to Cardinal Health, Inc. | $ | 296 | $ | 255 | $ | 1,169 | $ | 1,422 | |||||||
Earnings per common share attributable to Cardinal Health, Inc.: | |||||||||||||||
Basic | $ | 0.99 | $ | 0.81 | $ | 3.89 | $ | 4.52 | |||||||
Diluted | 0.99 | 0.81 | 3.88 | 4.50 | |||||||||||
Weighted-average number of common shares outstanding: | |||||||||||||||
Basic | 298 | 313 | 301 | 314 | |||||||||||
Diluted | 299 | 315 | 302 | 316 | |||||||||||
Cash dividends declared per common share | $ | 0.4763 | $ | 0.4624 | $ | 1.4289 | $ | 1.3872 |
19 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Financial Statements |
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net earnings | $ | 296 | $ | 255 | $ | 1,170 | $ | 1,425 | |||||||
Other comprehensive income/(loss): | |||||||||||||||
Foreign currency translation adjustments and other | 13 | 110 | (16 | ) | 141 | ||||||||||
Amounts reclassified to earnings | — | (23 | ) | — | (23 | ) | |||||||||
Net unrealized gain/(loss) on derivative instruments, net of tax | (1 | ) | 3 | (3 | ) | 2 | |||||||||
Total other comprehensive income/(loss), net of tax | 12 | 90 | (19 | ) | 120 | ||||||||||
Total comprehensive income | 308 | 345 | 1,151 | 1,545 | |||||||||||
Less: comprehensive income attributable to noncontrolling interests | — | — | (1 | ) | (3 | ) | |||||||||
Total comprehensive income attributable to Cardinal Health, Inc. | $ | 308 | $ | 345 | $ | 1,150 | $ | 1,542 |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 20 |
Financial Statements |
(in millions) | March 31, 2019 | June 30, 2018 | |||||
Assets | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 3,438 | $ | 1,763 | |||
Trade receivables, net | 7,879 | 7,800 | |||||
Inventories, net | 12,622 | 12,308 | |||||
Prepaid expenses and other | 1,643 | 1,926 | |||||
Assets held for sale | — | 756 | |||||
Total current assets | 25,582 | 24,553 | |||||
Property and equipment, net | 2,322 | 2,487 | |||||
Goodwill and other intangibles, net | 11,860 | 12,229 | |||||
Other assets | 1,045 | 682 | |||||
Total assets | $ | 40,809 | $ | 39,951 | |||
Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 20,517 | $ | 19,677 | |||
Current portion of long-term obligations and other short-term borrowings | 1,451 | 1,001 | |||||
Other accrued liabilities | 1,951 | 2,002 | |||||
Liabilities related to assets held for sale | — | 213 | |||||
Total current liabilities | 23,919 | 22,893 | |||||
Long-term obligations, less current portion | 7,629 | 8,012 | |||||
Deferred income taxes and other liabilities | 3,029 | 2,975 | |||||
Redeemable noncontrolling interests | — | 12 | |||||
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 at March 31, 2019 and June 30, 2018, respectively | 2,748 | 2,730 | |||||
Retained earnings | 5,386 | 4,645 | |||||
Common shares in treasury, at cost: 29 million shares and 18 million shares at March 31, 2019 and June 30, 2018, respectively | (1,793 | ) | (1,224 | ) | |||
Accumulated other comprehensive loss | (111 | ) | (92 | ) | |||
Total Cardinal Health, Inc. shareholders' equity | 6,230 | 6,059 | |||||
Noncontrolling interests | 2 | — | |||||
Total shareholders’ equity | 6,232 | 6,059 | |||||
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | $ | 40,809 | $ | 39,951 |
21 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Financial Statements |
Common Shares | Treasury Shares | Accumulated Other Comprehensive Income/(Loss) | Noncontrolling Interests | Total Shareholders’ Equity | |||||||||||||||||||||||||
(in millions) | Shares Issued | Amount | Retained Earnings | Shares | Amount | ||||||||||||||||||||||||
Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||
Balance at December 31, 2018 | 327 | $ | 2,728 | $ | 5,233 | (29 | ) | $ | (1,795 | ) | $ | (123 | ) | $ | — | $ | 6,043 | ||||||||||||
Net earnings | 296 | 296 | |||||||||||||||||||||||||||
Other comprehensive income/(loss), net of tax | 12 | 12 | |||||||||||||||||||||||||||
Employee stock plans activity, net of shares withheld for employee taxes | — | 20 | — | 2 | 22 | ||||||||||||||||||||||||
Treasury shares acquired | — | — | — | — | |||||||||||||||||||||||||
Dividends declared | (143 | ) | (143 | ) | |||||||||||||||||||||||||
Other | — | 2 | 2 | ||||||||||||||||||||||||||
Balance at March 31, 2019 | 327 | $ | 2,748 | $ | 5,386 | (29 | ) | $ | (1,793 | ) | $ | (111 | ) | $ | 2 | $ | 6,232 |
Three Months Ended March 31, 2018 | |||||||||||||||||||||||||||||
Balance at December 31, 2017 | 327 | $ | 2,694 | $ | 5,848 | (12 | ) | $ | (848 | ) | $ | (95 | ) | $ | 20 | $ | 7,619 | ||||||||||||
Net earnings | 255 | 255 | |||||||||||||||||||||||||||
Other comprehensive income/(loss), net of tax | 90 | 90 | |||||||||||||||||||||||||||
Purchase and divestiture of noncontrolling interests | (19 | ) | (19 | ) | |||||||||||||||||||||||||
Employee stock plans activity, net of shares withheld for employee taxes | — | 16 | — | 22 | 38 | ||||||||||||||||||||||||
Treasury shares acquired | (4 | ) | (300 | ) | (300 | ) | |||||||||||||||||||||||
Dividends declared | (144 | ) | (144 | ) | |||||||||||||||||||||||||
Other | (1 | ) | (1 | ) | |||||||||||||||||||||||||
Balance at March 31, 2018 | 327 | $ | 2,710 | $ | 5,958 | (16 | ) | $ | (1,126 | ) | $ | (5 | ) | $ | 1 | $ | 7,538 |
Nine Months Ended March 31, 2019 | |||||||||||||||||||||||||||||
Balance at June 30, 2018 | 327 | $ | 2,730 | $ | 4,645 | (18 | ) | $ | (1,224 | ) | $ | (92 | ) | $ | — | $ | 6,059 | ||||||||||||
Net earnings | 1,169 | 1 | 1,170 | ||||||||||||||||||||||||||
Other comprehensive income/(loss), net of tax | (19 | ) | (19 | ) | |||||||||||||||||||||||||
Employee stock plans activity, net of shares withheld for employee taxes | — | 18 | 1 | 31 | 49 | ||||||||||||||||||||||||
Treasury shares acquired | (12 | ) | (600 | ) | (600 | ) | |||||||||||||||||||||||
Dividends declared | (429 | ) | (429 | ) | |||||||||||||||||||||||||
Other | 1 | 1 | 2 | ||||||||||||||||||||||||||
Balance at March 31, 2019 | 327 | $ | 2,748 | $ | 5,386 | (29 | ) | $ | (1,793 | ) | $ | (111 | ) | $ | 2 | $ | 6,232 |
Nine Months Ended March 31, 2018 | |||||||||||||||||||||||||||||
Balance at June 30, 2017 | 327 | $ | 2,697 | $ | 4,967 | (11 | ) | $ | (731 | ) | $ | (125 | ) | $ | 20 | $ | 6,828 | ||||||||||||
Net earnings | 1,422 | 1,422 | |||||||||||||||||||||||||||
Other comprehensive income/(loss), net of tax | 120 | 120 | |||||||||||||||||||||||||||
Purchase and divestiture of noncontrolling interests | (19 | ) | (19 | ) | |||||||||||||||||||||||||
Employee stock plans activity, including tax benefit of $9 million | — | 13 | 1 | 55 | 68 | ||||||||||||||||||||||||
Treasury shares acquired | (6 | ) | (450 | ) | (450 | ) | |||||||||||||||||||||||
Dividends declared | (436 | ) | (436 | ) | |||||||||||||||||||||||||
Other | 5 | 5 | |||||||||||||||||||||||||||
Balance at March 31, 2018 | 327 | $ | 2,710 | $ | 5,958 | (16 | ) | $ | (1,126 | ) | $ | (5 | ) | $ | 1 | $ | 7,538 |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 22 |
Financial Statements |
Nine Months Ended March 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Cash flows from operating activities: | |||||||
Net earnings | $ | 1,170 | $ | 1,425 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization | 759 | 779 | |||||
Impairments and loss on sale of other investments | 2 | 6 | |||||
Impairments and (gain)/loss on disposal of assets, net | (492 | ) | 62 | ||||
Share-based compensation | 64 | 64 | |||||
Provision for bad debts | 59 | 50 | |||||
Change in fair value of contingent consideration obligation | — | (2 | ) | ||||
Change in operating assets and liabilities, net of effects from acquisitions and divestitures: | |||||||
Increase in trade receivables | (156 | ) | (632 | ) | |||
Increase in inventories | (345 | ) | (865 | ) | |||
Increase in accounts payable | 846 | 1,635 | |||||
Other accrued liabilities and operating items, net | 309 | (308 | ) | ||||
Net cash provided by operating activities | 2,216 | 2,214 | |||||
Cash flows from investing activities: | |||||||
Acquisition of subsidiaries, net of cash acquired | (38 | ) | (6,142 | ) | |||
Additions to property and equipment | (192 | ) | (246 | ) | |||
Purchase of available-for-sale securities and other investments | (11 | ) | (7 | ) | |||
Proceeds from sale of available-for-sale securities and other investments | 3 | 65 | |||||
Proceeds from divestitures, net of cash sold, and disposal of property and equipment | 749 | 862 | |||||
Net cash provided by/(used in) investing activities | 511 | (5,468 | ) | ||||
Cash flows from financing activities: | |||||||
Payment of contingent consideration obligation | — | (22 | ) | ||||
Net change in short-term borrowings | — | (50 | ) | ||||
Purchase of noncontrolling interests | — | (106 | ) | ||||
Proceeds from long-term obligations, net of issuance costs | 1 | 3 | |||||
Reduction of long-term obligations | (3 | ) | (403 | ) | |||
Net tax withholdings from share-based compensation | (13 | ) | (3 | ) | |||
Dividends on common shares | (435 | ) | (436 | ) | |||
Purchase of treasury shares | (600 | ) | (450 | ) | |||
Net cash used in financing activities | (1,050 | ) | (1,467 | ) | |||
Effect of exchange rates changes on cash and equivalents | (2 | ) | 17 | ||||
Net increase/(decrease) in cash and equivalents | 1,675 | (4,704 | ) | ||||
Cash and equivalents at beginning of period | 1,763 | 6,879 | |||||
Cash and equivalents at end of period | $ | 3,438 | $ | 2,175 |
23 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Notes to Financial Statements |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 24 |
Notes to Financial Statements |
25 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Notes to Financial Statements |
Three Months Ended March 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Employee-related costs (1) | $ | 29 | $ | (1 | ) | ||
Facility exit and other costs (2) | 24 | 3 | |||||
Total restructuring and employee severance | $ | 53 | $ | 2 |
Nine Months Ended March 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Employee-related costs (1) | $ | 70 | $ | 18 | |||
Facility exit and other costs (2) | 27 | 137 | |||||
Total restructuring and employee severance | $ | 97 | $ | 155 |
(1) | Employee-related costs primarily consist of termination benefits provided to employees who have been involuntarily terminated, duplicate payroll costs and retention bonuses incurred during transition periods. |
(2) | Facility exit and other costs primarily consist of product distribution and lease contract termination costs, lease costs associated with vacant facilities, accelerated depreciation, equipment relocation costs, project consulting fees, costs associated with restructuring our delivery of information technology infrastructure services and certain other divestiture-related costs. |
(in millions) | Employee- Related Costs | Facility Exit and Other Costs | Total | ||||||||
Balance at June 30, 2018 | $ | 24 | $ | 4 | $ | 28 | |||||
Additions | 60 | 14 | 74 | ||||||||
Payments and other adjustments | (32 | ) | (2 | ) | (34 | ) | |||||
Balance at March 31, 2019 | $ | 52 | $ | 16 | $ | 68 |
(in millions) | Pharmaceutical | Medical | Total | ||||||||
Balance at June 30, 2018 | $ | 2,621 | $ | 5,695 | $ | 8,316 | |||||
Goodwill acquired, net of purchase price adjustments | 19 | 7 | 26 | ||||||||
Foreign currency translation adjustments and other | (3 | ) | (9 | ) | (12 | ) | |||||
Balance at March 31, 2019 | $ | 2,637 | $ | 5,693 | $ | 8,330 |
March 31, 2019 | |||||||||||||
(in millions) | Gross Intangible | Accumulated Amortization | Net Intangible | Weighted- Average Remaining Amortization Period (Years) | |||||||||
Indefinite-life intangibles: | |||||||||||||
IPR&D, trademarks and other | $ | 59 | $ | — | $ | 59 | N/A | ||||||
Total indefinite-life intangibles | 59 | — | 59 | N/A | |||||||||
Definite-life intangibles: | |||||||||||||
Customer relationships | 3,528 | 1,432 | 2,096 | 14 | |||||||||
Trademarks, trade names and patents | 669 | 283 | 386 | 14 | |||||||||
Developed technology and other | 1,563 | 574 | 989 | 12 | |||||||||
Total definite-life intangibles | 5,760 | 2,289 | 3,471 | 14 | |||||||||
Total other intangible assets | $ | 5,819 | $ | 2,289 | $ | 3,530 | N/A |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 26 |
Notes to Financial Statements |
June 30, 2018 | |||||||||||
(in millions) | Gross Intangible | Accumulated Amortization | Net Intangible | ||||||||
Indefinite-life intangibles: | |||||||||||
IPR&D, trademarks and other | $ | 62 | $ | — | $ | 62 | |||||
Total indefinite-life intangibles | 62 | — | 62 | ||||||||
Definite-life intangibles: | |||||||||||
Customer relationships | 3,513 | 1,191 | 2,322 | ||||||||
Trademarks, trade names and patents | 667 | 246 | 421 | ||||||||
Developed technology and other | 1,562 | 454 | 1,108 | ||||||||
Total definite-life intangibles | 5,742 | 1,891 | 3,851 | ||||||||
Total other intangible assets | $ | 5,804 | $ | 1,891 | $ | 3,913 |
27 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Notes to Financial Statements |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 28 |
Notes to Financial Statements |
29 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Notes to Financial Statements |
March 31, 2019 | |||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets: | |||||||||||||||
Cash equivalents | $ | 875 | $ | — | $ | — | $ | 875 | |||||||
Other investments (1) | 112 | — | — | 112 | |||||||||||
Liabilities: | |||||||||||||||
Forward contracts (2) | — | 5 | — | 5 |
June 30, 2018 | |||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets: | |||||||||||||||
Cash equivalents | $ | 200 | $ | — | $ | — | $ | 200 | |||||||
Other investments (1) | 117 | — | — | 117 | |||||||||||
Liabilities: | |||||||||||||||
Forward contracts (2) | — | (76 | ) | — | (76 | ) |
(1) | The other investments balance includes investments in mutual funds, which are used to offset fluctuations in deferred compensation liabilities. These mutual funds invest in the equity securities of companies with both large and small market capitalization and high-quality fixed income debt securities. The fair value of these investments is determined using quoted market prices. |
(2) | The fair value of interest rate swaps, foreign currency contracts, net investment hedges 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. |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 30 |
Notes to Financial Statements |
31 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Notes to Financial Statements |
(in millions) | March 31, 2019 | June 30, 2018 | |||||
Estimated fair value | $ | 8,925 | $ | 8,852 | |||
Carrying amount | 9,080 | 9,013 |
(in millions) | Foreign Currency Translation Adjustments | Unrealized Gain/(Loss) on Derivatives, net of tax | Accumulated Other Comprehensive Income/(Loss) | ||||||||
Balance at June 30, 2018 | $ | (113 | ) | $ | 21 | $ | (92 | ) | |||
Other comprehensive income/(loss), before reclassifications | (16 | ) | — | (16 | ) | ||||||
Amounts reclassified to earnings | — | (3 | ) | (3 | ) | ||||||
Other comprehensive income/(loss), net of tax | (16 | ) | (3 | ) | (19 | ) | |||||
Balance at March 31, 2019 | $ | (129 | ) | $ | 18 | $ | (111 | ) |
Three Months Ended March 31, | |||||
(in millions) | 2019 | 2018 | |||
Weighted-average common shares–basic | 298 | 313 | |||
Effect of dilutive securities: | |||||
Employee stock options, restricted share units and performance share units | 1 | 2 | |||
Weighted-average common shares–diluted | 299 | 315 |
Nine Months Ended March 31, | |||||
(in millions) | 2019 | 2018 | |||
Weighted-average common shares–basic | 301 | 314 | |||
Effect of dilutive securities: | |||||
Employee stock options, restricted share units and performance share units | 1 | 2 | |||
Weighted-average common shares–diluted | 302 | 316 |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 32 |
Notes to Financial Statements |
Three Months Ended March 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Pharmaceutical | $ | 31,361 | $ | 29,720 | |||
Medical | 3,871 | 3,916 | |||||
Total segment revenue | 35,232 | 33,636 | |||||
Corporate (1) | (4 | ) | (3 | ) | |||
Total revenue | $ | 35,228 | $ | 33,633 |
Nine Months Ended March 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Pharmaceutical | $ | 96,516 | $ | 89,786 | |||
Medical | 11,678 | 11,684 | |||||
Total segment revenue | 108,194 | 101,470 | |||||
Corporate (1) | (13 | ) | (10 | ) | |||
Total revenue | $ | 108,181 | $ | 101,460 |
(1) | Corporate revenue consists of the elimination of inter-segment revenue and other revenue not allocated to the segments. |
Three Months Ended March 31, 2019 | Nine Months Ended March 31, 2019 | ||||||
(in millions) | |||||||
Pharmaceutical distribution and specialty | $ | 31,146 | $ | 95,888 | |||
Nuclear and Precision Health Solutions (1) | 215 | 628 | |||||
Pharmaceutical segment revenue | 31,361 | 96,516 | |||||
Medical distribution and products (2) | 3,431 | 10,339 | |||||
Cardinal Health At Home | 440 | 1,339 | |||||
Medical segment revenue | 3,871 | 11,678 | |||||
Total segment revenue | 35,232 | 108,194 | |||||
Corporate (3) | (4 | ) | (13 | ) | |||
Total revenue | $ | 35,228 | $ | 108,181 |
(1) | Our Nuclear and Precision Health Solutions division was formerly referred to as our Nuclear Pharmacy Services division. |
(2) | Comprised of all Medical segment businesses except for Cardinal Health At Home division. |
(3) | Corporate revenue consists of the elimination of inter-segment revenue and other revenue not allocated to the segments. |
Three Months Ended March 31, 2019 | Nine Months Ended March 31, 2019 | ||||||
(in millions) | |||||||
United States | $ | 34,230 | $ | 105,190 | |||
International | 1,002 | 3,004 | |||||
Total segment revenue | 35,232 | 108,194 | |||||
Corporate (1) | (4 | ) | (13 | ) | |||
Total revenue | $ | 35,228 | $ | 108,181 |
(1) | Corporate revenue consists of the elimination of inter-segment revenue and other revenue not allocated to the segments. |
33 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Notes to Financial Statements |
Three Months Ended March 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Pharmaceutical | $ | 536 | $ | 596 | |||
Medical | 155 | 199 | |||||
Total segment profit | 691 | 795 | |||||
Corporate | (259 | ) | (249 | ) | |||
Total operating earnings | $ | 432 | $ | 546 |
Nine Months Ended March 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Pharmaceutical | $ | 1,388 | $ | 1,576 | |||
Medical | 479 | 548 | |||||
Total segment profit | 1,867 | 2,124 | |||||
Corporate | (115 | ) | (918 | ) | |||
Total operating earnings | $ | 1,752 | $ | 1,206 |
(in millions) | March 31, 2019 | June 30, 2018 | |||||
Pharmaceutical | $ | 21,426 | $ | 21,421 | |||
Medical | 15,548 | 16,066 | |||||
Corporate | 3,835 | 2,464 | |||||
Total assets | $ | 40,809 | $ | 39,951 |
Three Months Ended March 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Restricted share unit expense | $ | 17 | $ | 20 | |||
Employee stock option expense | 2 | 7 | |||||
Performance share unit expense | 4 | (4 | ) | ||||
Total share-based compensation | $ | 23 | $ | 24 |
Nine Months Ended March 31, | |||||||
(in millions) | 2019 | 2018 | |||||
Restricted share unit expense | $ | 47 | $ | 56 | |||
Employee stock option expense | 8 | 17 | |||||
Performance share unit expense | 9 | (9 | ) | ||||
Total share-based compensation | $ | 64 | $ | 64 |
(in millions, except per share amounts) | Restricted Share Units | Weighted-Average Grant Date Fair Value per Share | ||||
Nonvested at June 30, 2018 | 2 | $ | 71.58 | |||
Granted | 2 | 50.50 | ||||
Vested | (1 | ) | 74.99 | |||
Canceled and forfeited | — | — | ||||
Nonvested at March 31, 2019 | 3 | $ | 52.08 |
(in millions, except per share amounts) | Stock Options | Weighted-Average Exercise Price per Common Share | ||||
Outstanding at June 30, 2018 | 7 | $ | 64.50 | |||
Granted | — | — | ||||
Exercised | — | — | ||||
Canceled and forfeited | — | — | ||||
Outstanding at March 31, 2019 | 7 | $ | 63.92 | |||
Exercisable at March 31, 2019 | 6 | $ | 62.81 |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 34 |
Notes to Financial Statements |
(in millions) | March 31, 2019 | June 30, 2018 | |||||
Aggregate intrinsic value of outstanding options at period end | $ | 12 | $ | 13 | |||
Aggregate intrinsic value of exercisable options at period end | 12 | 13 |
(in years) | March 31, 2019 | June 30, 2018 | |
Weighted-average remaining contractual life of outstanding options | 6 | 7 | |
Weighted-average remaining contractual life of exercisable options | 5 | 5 |
(in millions, except per share amounts) | Performance Share Units | Weighted-Average Grant Date Fair Value per Share | ||||
Nonvested at June 30, 2018 | 0.4 | $ | 66.13 | |||
Granted | 0.5 | 50.96 | ||||
Vested (1) | (0.1 | ) | 84.27 | |||
Canceled and forfeited | (0.1 | ) | 51.75 | |||
Nonvested at March 31, 2019 | 0.7 | $ | 51.30 |
(1) | No payout was made because the threshold performance goal was not met. |
35 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Exhibits |
Exhibit Number | Exhibit Description |
3.1 | |
3.2 | |
31.1 | |
31.2 | |
32.1 | |
99.1 | |
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 2019 Form 10-Q | 36 |
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 |
37 | Cardinal Health | Q3 Fiscal 2019 Form 10-Q |
Additional Information |
Cardinal Health, Inc. | ||
Date: | May 9, 2019 | /s/ MICHAEL C. KAUFMANN |
Michael C. Kaufmann | ||
Chief Executive Officer | ||
/s/ JORGE M. GOMEZ | ||
Jorge M. Gomez | ||
Chief Financial Officer |
Cardinal Health | Q3 Fiscal 2019 Form 10-Q | 38 |
Exhibit 31.1 |
1. | I have reviewed this Form 10-Q of Cardinal Health, Inc.; |
2. | 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; |
3. | 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; |
4. | 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: |
(a) | 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; |
(b) | 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; |
(c) | 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 |
(d) | 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 |
5. | 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): |
(a) | 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 |
(b) | 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. |
/s/ MICHAEL C. KAUFMANN | |
Michael C. Kaufmann | |
Chief Executive Officer |
Exhibit 31.2 |
1. | I have reviewed this Form 10-Q of Cardinal Health, Inc.; |
2. | 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; |
3. | 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; |
4. | 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: |
(a) | 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; |
(b) | 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; |
(c) | 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 |
(d) | 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 |
5. | 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): |
(a) | 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 |
(b) | 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. |
/s/ JORGE M. GOMEZ | |
Jorge M. Gomez | |
Chief Financial Officer |
Exhibit 32.1 |
(1) | the Annual Report on Form 10-Q for the quarter ended March 31, 2019 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 |
(2) | the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ MICHAEL C. KAUFMANN | |
Michael C. Kaufmann | |
Chief Executive Officer |
/s/ JORGE M. GOMEZ | |
Jorge M. Gomez | |
Chief Financial Officer |
Exhibit 99.1 |
• | competitive pressures in the markets in which we operate, including pricing pressures; |
• | uncertainties relating to the pricing of generic pharmaceuticals; |
• | uncertainties relating to the timing, frequency and profitability of generic pharmaceutical launches; |
• | our ability to maintain the benefits of our generic pharmaceutical sourcing venture with CVS Health Corporation; |
• | with respect to our distribution services 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 based on branded pharmaceutical price appreciation, changes in the frequency or magnitude of such price appreciation; |
• | changes in manufacturer approaches to pricing branded pharmaceutical products and risks related to our compensation under contractual arrangements with manufacturers being set as a percentage of the wholesale acquisition cost of branded pharmaceuticals; |
• | changes in the timing or frequency of the introduction of branded pharmaceuticals; |
• | our high sales concentration with certain key customers, including CVS Health Corporation and OptumRx; |
• | 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 authorities, 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; |
• | any compromise of our information systems or of those of a third-party service provider, including unauthorized access to or use or disclosure of company or customer information, disruption of access and ancillary risks associated with our ability to effectively manage any issues arising from any such compromise or disruption; |
• | possible losses that may arise or expenses that we may incur from the resolution and defense of the lawsuits and investigations in which we have been named relating to the distribution of prescription opioid pain medication; |
• | potential damage to our reputation, adverse operational impacts or other effects that may result from the national opioid epidemic and the allegations that have been made about our role in such epidemic; |
• | potential adverse impact to our financial results resulting from enacted and proposed state taxes or other assessments on the sale or distribution of opioid medications; |
• | risks and uncertainties relating to the acquisition of the Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency businesses from Medtronic plc (the "Patient Recovery Business"), including the ability to successfully integrate the acquired business into our operations; the ability to achieve the expected synergies and accretion in earnings; and unforeseen internal control, regulatory or compliance issues; |
• | uncertainties related to our ability to manage infrastructure and cost challenges within the Cordis business and to improve Cordis' performance; |
• | risks associated with the realignment of our Medical segment's supply chain and other businesses, including our ability to achieve the expected benefits from such realignment; |
• | 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; |
• | manufacturing disruptions, whether due to regulatory action, production quality deviations, safety issues or raw material shortages or defects, or because a key product is manufactured at a single manufacturing facility with limited alternate facilities; |
• | risks arising from possible violations of healthcare fraud and abuse laws; |
• | 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 action lawsuits; |
• | risks arising from possible violations of the U.S. Foreign Corrupt Practices Act and other similar anti-corruption laws in other jurisdictions and U.S. and foreign export control, trade embargo and customs laws; |
• | 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; |
• | risks arising from certain of our businesses being Medicare-certified suppliers or participating in other federal and state healthcare programs, such as state Medicaid programs and the federal 340B drug pricing program, which businesses are subject to accreditation and quality standards and other rules and regulations, including applicable reporting, billing, payment and record-keeping requirements; |
• | risks arising from certain of our businesses manufacturing pharmaceutical and medical products or repackaging pharmaceuticals that are purchased or reimbursed through, or are otherwise governed by, federal or state healthcare programs, which businesses are subject to federal and state laws that establish eligibility for reimbursement by such programs and other applicable standards and regulations; |
• | 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; |
• | material reductions in purchases, pricing changes, non-renewal, early termination, or delinquencies or defaults under contracts with key customers; |
• | unfavorable changes to the terms of key customer or supplier relationships, or changes in customer mix; |
• | risks arising from changes in U.S. or foreign tax laws, including our ability to effectively implement and account for the recently enacted Tax Cuts and Jobs Act and unfavorable challenges to our tax positions and payments to settle these challenges; |
• | uncertainties due to possible government healthcare reform, including proposals related to Medicare drug rebate arrangements, possible repeal or replacement of major parts of the Patient Protection and Affordable Care Act and the possible adoption of Medicare-For-All; |
• | reductions or limitations on governmental funding at the state or federal level or efforts by healthcare insurance companies to limit payments for products and services; |
• | changes in manufacturers' pricing, selling, inventory, distribution or supply policies or practices; |
• | changes in legislation or regulations governing prescription drug pricing, healthcare services or mandated benefits; |
• | changes in hospital buying groups or hospital buying practices; |
• | changes in distribution or sourcing models for pharmaceutical and medical and surgical products, including an increase in direct and limited distribution; |
• | the risks of counterfeit products in the supply chain; |
• | changes to the prescription drug reimbursement formula and related reporting requirements for generic pharmaceuticals under Medicaid; |
• | 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; |
• | disruption, damage or lack of access to, or failure of, our or our third-party service providers' information systems, our critical facilities, including our national logistics center, or our distribution networks; |
• | risks to our business and information and controls systems in the event that business process improvements, infrastructure modernizations or initiatives to use third-party service providers for key systems and processes are not effectively implemented; |
• | the results, costs, effects or timing of any commercial disputes, government contract compliance matters, patent infringement claims, qui tam actions, government investigations or other legal proceedings; |
• | possible losses relating to product liability lawsuits and claims regarding products for which we cannot obtain product liability insurance or for which such insurance may not be adequate to cover our losses, including the product liability lawsuits we are currently defending relating to alleged personal injuries associated with the use of Cordis inferior vena cava filter products; |
• | our ability to maintain adequate intellectual property protections; |
• | 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; |
• | our ability to manage and complete divestitures or other strategic business combination transactions, including our ability to find buyers or other strategic exit opportunities and risks associated with the possibility that we could experience greater dis-synergies than anticipated or otherwise fail to achieve our strategic objectives; |
• | increased costs for commodities and other materials used in the Medical segment manufacturing, including various components, compounds, raw materials or energy such as oil-based resins, pulp, cotton, latex and other commodities; |
• | shortages in commodities, components, compounds, raw materials or energy used by our businesses, including supply disruptions of radioisotopes; |
• | the loss of, or default by, one or more key suppliers for which alternative suppliers may not be readily available; |
• | bankruptcy, insolvency or other credit failure of a customer or supplier that owes us a substantial amount; |
• | 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 including currently proposed tariffs; |
• | risks associated with our use of and reliance on the global capital and credit markets, including our ability to access credit and our cost of credit, which may adversely affect our ability to efficiently fund our operations or undertake certain expenditures; |
• | our ability to introduce and market new products and our ability to keep pace with advances in technology; |
• | the costs, effects, timing or success of restructuring programs or plans; |
• | significant charges to earnings if goodwill or intangible assets become impaired; |
• | uncertainties relating to general political, business, industry, regulatory and market conditions; and |
• | other factors described in the “Risk Factors” section of the 2018 Form 10-K. |
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