Cardinal Health 2015 Annual Report Download - page 57

Notes to Financial Statements
Cardinal Health | Fiscal 2015 Form 10-K 56
resulted in goodwill of $152 million and identifiable intangible assets,
primarily developed technology, of $133 million, with a weighted-
average useful life of 9 years.
Our fair value estimates utilize significant unobservable inputs and
thus represent Level 3 fair value measurements. The estimated fair
value of the identifiable intangible assets was determined primarily
using an income-based approach, which includes market participant
expectations of the cash flows that an asset could generate over its
remaining useful life, discounted back to present value using an
appropriate rate of return. The useful lives were determined primarily
using inputs of projected technology obsolescence rates. The
discount rate used to arrive at the present value of identifiable
intangible assets was 10 percent to reflect the internal rate of return
and uncertainty in the cash flow projections.
3. Restructuring and Employee Severance
The following table summarizes restructuring and employee
severance costs related to our restructuring activities:
(in millions) 2015 (3) 2014 (4) 2013 (5)
Employee-related costs (1) $ 34 $ 13 $ 59
Facility exit and other costs (2) 10 18 12
Total restructuring and
employee severance $ 44 $ 31 $ 71
(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.
(3) The majority of the restructuring and employee severance incurred during fiscal
2015 were related to restructuring activities within our Medical segment.
(4) Includes $10 million of primarily facility exit and other costs related to the
restructuring within our Medical segment described further below.
(5) Includes $30 million of employee-related costs and $10 million of facility exit
and other costs related to the restructuring within our Medical segment described
further below.
On January 30, 2013, we announced a restructuring plan within our
Medical segment. Under this restructuring plan, among other things,
we have reorganized our Medical segment, moved production of
procedure kits from our facility in Waukegan, Illinois to other facilities,
consolidated office space and sold property in Waukegan, Illinois,
and exited our gamma sterilization business in El Paso, Texas.
We did not recognize significant costs associated with this
restructuring plan during fiscal 2015. We recognized costs, on a pre-
tax basis, associated with this restructuring plan of $18 million and
$51 million in fiscal 2014 and 2013, respectively. Costs recognized
in fiscal 2014 included the loss to write down the property in
Waukegan, Illinois as discussed in Note 4. Costs recognized in fiscal
2013 included the loss to write down our gamma sterilization assets
as discussed in Note 4.
During the fourth quarter of fiscal 2013, we recognized $11 million of
employee-related costs related to a restructuring plan within our
Nuclear Pharmacy Services division.
The following table summarizes activity related to liabilities
associated with restructuring and employee severance:
(in millions) Employee- Related Costs Facility Exit and Other Costs Total
Balance at June 30, 2012 $ 16 $ 2 $ 18
Additions 63 2 65
Payments and other adjustments (24) (2) (26)
Balance at June 30, 2013 $ 55 $ 2 $ 57
Additions 23 1 24
Payments and other adjustments (54) (3) (57)
Balance at June 30, 2014 $ 24 $ — $ 24
Additions 34 1 35
Payments and other adjustments (36) (1) (37)
Balance at June 30, 2015 $ 22 $ — $ 22
4. Impairments and (Gain)/Loss on Disposal of
Assets
In connection with our Medical segment restructuring plan
announced on January 30, 2013 as discussed in Note 3, the property
in Waukegan, Illinois met the criteria for classification as held for sale
at June 30, 2014. As a result, during fiscal 2014, we recognized an
$8 million loss to write down this property to the estimated fair value,
less costs to sell, of $24 million, which was included in prepaid
expenses and other in the consolidated balance sheets at June 30,
2014. The fair value was estimated using inputs such as broker
listings and sales agreements and thus represents a Level 2
nonrecurring fair value measurement. We completed the sale of our
property in Waukegan, Illinois during the second quarter of fiscal
2015, which resulted in a $1 million loss on disposal of assets held
for sale.
Also in connection with our Medical segment restructuring plan,
during fiscal 2013 we recognized an $11 million loss to write down
our gamma sterilization assets in El Paso, Texas.
During fiscal 2013, we recognized an $829 million ($799 million, net
of tax) goodwill impairment charge related to our Nuclear Pharmacy
Services division, as previously disclosed.
We performed interim goodwill impairment testing for our Nuclear
Pharmacy Services division during the three months ended
December 31, 2012 as a result of significant softness in the low-
energy diagnostics market, and determined that there was no
impairment. During the second half of fiscal 2013, we experienced
sustained volume declines and price erosion for the core, low-energy
products provided by this division. In addition, we experienced
reduced sales for some existing high-energy diagnostic products,
slower-than-expected adoption of new high-energy diagnostic
products, and reimbursement developments that could have
adversely impacted the future growth of these products. Using this
information, we adjusted our outlook and long-term business plans
for this division during our annual budgeting process. This update
resulted in significant reductions in the anticipated future cash flows
and estimated fair value for this reporting unit.