Cardinal Health 2013 Annual Report Download

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2013 Annual Report
Essential to care™

Table of contents

  • Page 1
    2013 Annual Report Essential to care â„¢

  • Page 2
    ... not only will need continued innovation of pharmaceutical and medical products, but also cost-effective alternatives to mature products. 5. As parts of the system shift from fee-for-service to payment-for-outcomes, hospitals, Integrated Delivery Networks (IDNs) and providers will increasingly look...

  • Page 3
    ... the expiration of the Express Scripts contract in early fiscal 2013, as well as continued brand-to-generic pharmaceutical conversions. The segment delivered another year of strong profit growth and margin expansion while growing our customer base, expanding our generic programs, and broadening our...

  • Page 4
    .... Very importantly, our generics sales have nearly doubled. We have increased our position and our service and product offerings in hospitals; clinics; surgery centers; oncology, urology and rheumatology practices; doctors' offices, and now with the AssuraMed acquisition, the home. For the first...

  • Page 5
    ... improvement in generics profitability and overall segment margin due to utilization, customer and product mix, and program strength. We also see opportunities to grow both our specialty and biopharma businesses through innovation and new business models that create additional value for providers...

  • Page 6
    ... we do, we are committed to being an essential partner to help customers focus on their patients. . Because we know that together, we are Essential to careâ„¢ Better. Together. Consolidated financials Overall 107.55 102.64 101.09 1.51 Operating earnings 1.79 1.87 .996 1.64 2.05 Diluted EPS...

  • Page 7
    .... Cardinal Health is squarely aligned with where healthcare is going. Through our broad line of products and services, our scale and our ability to connect manufacturers to providers across the continuum of care, we can facilitate cost-effective, high-quality healthcare from the hospital to the home...

  • Page 8
    .... Our pharmaceutical, medical-surgical and laboratory offerings help improve clinical outcomes, drive efficiencies, reduce costs and improve patient safety. We provide resources to more than 85 % of U.S. hospitals. Physician Offices Cardinal Health equips our physician office customers with...

  • Page 9
    ... compete effectively in a rapidly changing landscape. We serve more than 10,000 retail chain 8,000 and nearly retail independent pharmacies. Home Healthcare We serve the growing number of aging and chronically ill patients in home settings through the 2013 acquisition of AssuraMed. Its Edgepark...

  • Page 10
    ... laboratory products from manufacturers to customers. Surgery Centers As the delivery of care migrates to more cost-effective settings, we are providing consistent, reliable service to support patient care. Our integrated inventory management and ordering solutions make back-office operations...

  • Page 11
    ... time-critical, patient-specific doses annually. Medical Clinics As patients seek care in non-acute settings, Cardinal Health is focused on helping clinics reduce costs, enhance efficiency and improve quality. We provide a full portfolio of medical-surgical products, pharmaceuticals and services...

  • Page 12
    ... Executive Vice President and President of Global Pharmaceuticals, Schering-Plough Corp. Calvin Darden (H) Retired Senior Vice President, U.S. Operations, United Parcel Service, Inc. Bruce L. Downey (A) Partner, New Spring Health Capital II, LP Retired Chairman and Chief Executive Officer, Barr...

  • Page 13
    ... Counsel and Corporate Secretary Jeffrey W. Henderson Chief Financial Officer Michael C. Kaufmann Chief Executive Officer, Pharmaceutical Segment Craig S. Morford Chief Legal and Compliance Officer Patricia B. Morrison Executive Vice President, Customer Care Shared Services and Chief Information...

  • Page 14
    ... include competitive pressures in Cardinal Health's various lines of business; the ability to achieve the expected benefits from the AssuraMed acquisition, including the expected accretion in non-GAAP earnings; the timing of generic and branded pharmaceutical introductions and the frequency...

  • Page 15
    2013 Financial Results Table of Contents Business Overview Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Report of Independent Registered Public Accounting Firm Consolidated ...

  • Page 16
    ... and other services and operates specialty pharmacies through Cardinal Health China. Medical Segment The Medical segment distributes a broad range of medical, surgical and laboratory products to hospitals, ambulatory surgery centers, clinical laboratories, physician offices and other healthcare...

  • Page 17
    ... of $829 million ($799 million, net of tax) related to our Nuclear Pharmacy Services division. On August 31, 2009, we separated the clinical and medical products businesses from our other businesses (the "CareFusion Spin-Off") through a pro rata distribution to shareholders of 81 percent of the then...

  • Page 18
    ...Notes to Consolidated Financial Statements" for additional information. Overview We are a healthcare services company providing pharmaceutical and medical products and services that help pharmacies, hospitals, ambulatory surgery centers, clinical laboratories, physician offices and other healthcare...

  • Page 19
    ... a positive impact on operating earnings in future periods. See Note 2 of the "Notes to Consolidated Financial Statements" for additional information on the AssuraMed acquisition. brand-to-generic conversions. Revenue from non-bulk sales was $61.3 billion and $57.7 billion for fiscal 2013 and 2012...

  • Page 20
    ... fiscal 2013 and 2012, respectively. The generic pharmaceutical programs discussed above primarily impacted segment profit from non-bulk sales. Medical Segment Profit The principal drivers for the increase in fiscal 2013 over fiscal 2012 were the positive impact of acquisitions and decreased cost of...

  • Page 21
    ... accounted for the unrecognized tax benefits related to them. The IRS had also proposed additional taxes of $450 million, excluding penalties and interest, related to the transfer of intellectual property among subsidiaries of an acquired entity prior to its acquisition by us, for which CareFusion...

  • Page 22
    ... of our pharmaceutical distribution contract with Express Scripts and brand-togeneric conversions. DSO increased in fiscal 2012 over fiscal 2011 due to the implementation of our Medical segment's business transformation project, which led to an increase in trade receivables at June 30, 2012. DIOH...

  • Page 23
    ...tax positions or because of the inability to reasonably estimate the timing of any cash outflows. See Note 7 of the "Notes to Consolidated Financial Statements" for further discussion of income taxes. Represents minimum rental payments and the related estimated future interest payments for operating...

  • Page 24
    Cardinal Health, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Allowance for Doubtful Accounts Trade receivables are primarily comprised of amounts owed to us through our distribution businesses and are presented net of an allowance for ...

  • Page 25
    .... Our reporting units are: Pharmaceutical operating segment (excluding our Nuclear Pharmacy Services division and Cardinal Health China - Pharmaceutical division); Nuclear Pharmacy Services division; Cardinal Health China - Pharmaceutical division; Medical operating segment (excluding our AssuraMed...

  • Page 26
    ...$ 2013 510 1,638 158 88 $ 2012 480 1,462 120 86 Share-Based Compensation Share-based compensation to employees is recognized in the consolidated statements of earnings based on the grant date fair value of the awards. The fair value of stock options is determined using a lattice valuation model. We...

  • Page 27
    ... changes. We maintain a hedging program to manage volatility related to these market exposures which employs operational, economic and derivative financial instruments in order to mitigate risk. See Notes 1 and 11 of the "Notes to Consolidated Financial Statements" for further discussion regarding...

  • Page 28
    ...ended June 30, 2013, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Cardinal Health, Inc. and subsidiaries' internal control over financial reporting as of June...

  • Page 29
    ... Health, Inc. and Subsidiaries Consolidated Statements of Earnings (in millions, except per common share amounts) Revenue Cost of products sold Gross margin Operating expenses: Distribution, selling, general and administrative expenses Restructuring and employee severance Acquisition-related costs...

  • Page 30
    ... of unrealized gain upon realization from sale of remaining investment in CareFusion, net of tax Total other comprehensive income/(loss), net of tax Total comprehensive income $ 18 13 - 31 365 $ (34) (6) - (40) 1,029 $ 72 (4) (61) 7 966 $ 2013 334 $ 2012 1,069 $ 2011 959 The accompanying notes...

  • Page 31
    ...taxes and other liabilities Shareholders' equity: Preferred shares, without par value: Authorized-500 thousand shares, Issued-none Common shares, without par value: Authorized-755 million shares, Issued-364 million shares at June 30, 2013 and 2012 Retained earnings Common shares in treasury, at cost...

  • Page 32
    Cardinal Health, Inc. and Subsidiaries Consolidated Statements of Shareholders' Equity Common Shares (in millions) Balance at June 30, 2010 Net earnings Other comprehensive income Employee stock plans activity, including tax impact of $14 million Treasury shares acquired Dividends declared Other ...

  • Page 33
    ... trade receivables Increase in inventories Increase in accounts payable Other accrued liabilities and operating items, net Net cash provided by operating activities Cash flows from investing activities: Acquisition of subsidiaries, net of cash acquired Additions to property and equipment Purchase of...

  • Page 34
    ... Statements 1. Basis of Presentation and Summary of Significant Accounting Policies Cardinal Health, Inc. is a healthcare services company providing pharmaceutical and medical products and services that help pharmacies, hospitals, ambulatory surgery centers, clinical laboratories, physician offices...

  • Page 35
    ... account for at least 10 percent of revenue and their corresponding percent of gross trade receivables. The customers in the table below are primarily serviced through our Pharmaceutical segment. Percent of Gross Trade Receivables at June 30 2013 19% 24% 2012 19% 25% 22% 23% Property and Equipment...

  • Page 36
    .... Our reporting units are: Pharmaceutical operating segment (excluding our Nuclear Pharmacy Services division and Cardinal Health China - Pharmaceutical division); Nuclear Pharmacy Services division; Cardinal Health China - Pharmaceutical division; Medical operating segment (excluding our AssuraMed...

  • Page 37
    ... services related to such merchandise. Revenue for deliveries that are directly shipped to customer warehouses from the manufacturer whereby we act as an intermediary in the ordering and delivery of products is recorded gross in accordance with accounting standards addressing reporting revenue...

  • Page 38
    ... and Employee Severance We consider restructuring activities to be programs whereby we fundamentally change our operations, such as closing and consolidating facilities, moving manufacturing of a product to another location, production or business process sourcing, employee severance (including...

  • Page 39
    ... of AssuraMed, a provider of medical supplies to homecare providers and patients in the home, expands our ability to serve this patient base. Transaction costs associated with the purchase of AssuraMed were $20 million and are included in acquisition-related costs in the consolidated statements of...

  • Page 40
    ...Medical segment and plan to sell our sterilization processes in El Paso, Texas. At this time, we estimate the total costs associated with this restructuring plan to be approximately $79 million on a pre-tax basis, of which $51 million was recognized during fiscal 2013, including the employee-related...

  • Page 41
    ... financial statements for fiscal 2013, we recently completed our annual goodwill impairment test, which we perform annually in the fourth quarter. As previously disclosed in our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2012, and March 31, 2013, our Nuclear Pharmacy Services...

  • Page 42
    ...borrowings for general corporate purposes. On June 4, 2013 we extended the term of the revolving credit facility to June 4, 2018. On November 6, 2012, we renewed our $950 million committed receivables sales facility program through Cardinal Health Funding, LLC ("CHF") until November 6, 2014. CHF was...

  • Page 43
    Cardinal Health, Inc. and Subsidiaries Notes to Consolidated Financial Statements federal statutory income tax rate to our effective income tax rate from continuing operations: Provision at Federal statutory rate State and local income taxes, net of federal benefit Foreign tax rate differential ...

  • Page 44
    .... Lakeland, Florida Distribution Center DEA Investigation and Related Matters In February 2012, the U.S. Drug Enforcement Administration (the "DEA") issued an order to show cause and immediate suspension of our Lakeland, Florida distribution center's registration to distribute controlled substances...

  • Page 45
    ...controlled substances. In addition to injunctive and other equitable relief, the complaints seek monetary damages and the creation of a court-supervised fund, to be financed by the defendants in these actions, for a medical monitoring program focused on prescription drug abuse. Qui Tam Action Our P4...

  • Page 46
    ... Commodity contracts (3) Pay-floating interest rate swaps (4) Total liabilities (1) (2) (3) (4) $ $ 1 - 11 12 $ $ 1 1 - 2 $ $ 4 20 - 24 $ $ 2 - 49 51 2013 2012 11. Financial Instruments We utilize derivative financial instruments to manage exposure to certain risks related to our ongoing operations...

  • Page 47
    Cardinal Health, Inc. and Subsidiaries Notes to Consolidated Financial Statements The following tables summarize the outstanding interest rate swaps designated as fair value hedges at June 30: 2013 (in millions) Pay-floating interest rate swaps Notional Amount $ 1,138 Maturity Date Jun 2015 - Jun ...

  • Page 48
    ... for general corporate purposes. Included in other income, net in the consolidated statements of earnings. Fair Value of Financial Instruments The carrying amounts of cash and equivalents, trade receivables, net, accounts payable and other accrued liabilities at June 30, 2013 and 2012 approximate...

  • Page 49
    ... to hospitals, ambulatory surgery centers, clinical laboratories, physician offices and other healthcare providers in the United States, Canada and China and to patients in the home in the United States. This segment also manufactures, sources and develops its own line of private brand medical and...

  • Page 50
    ... in no impact to segment profit or consolidated operating earnings. 2013 $ 46 48 101 $ 195 $ $ 2012 44 100 119 263 $ $ 2011 55 123 113 291 (in millions) Pharmaceutical Medical Corporate Total additions to property and equipment The total tax benefit related to share-based compensation was $32...

  • Page 51
    Cardinal Health, Inc. and Subsidiaries Notes to Consolidated Financial Statements The following tables provide additional data related to stock option activity: (in millions, except per share amounts) Aggregate intrinsic value of exercisable options at period end Aggregate intrinsic value of ...

  • Page 52
    ...-tax $ Weighted-average period over which performance share unit cost is expected to be recognized (in years) First (in millions, except per common share amounts) Quarter Fiscal 2012 Revenue Gross margin Distribution, selling, general and administrative expenses Earnings from continuing operations...

  • Page 53
    ...of AssuraMed, Inc. In our opinion, Cardinal Health, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of June 30, 2013, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting...

  • Page 54
    Cardinal Health, Inc. and Subsidiaries Shareholder and Company Information and Performance Graphs Shareholder and Company Information Our common shares are listed on the New York Stock Exchange under the symbol "CAH." The following table reflects the range of the reported high and low closing ...

  • Page 55
    Corporate and investor information Corporate offices Cardinal Health 7000 Cardinal Place Dublin, Ohio 43017 614.757.5000 www.cardinalhealth.com Twitter: @CardinalHealth Common shares Cardinal Health common shares are listed on the New York Stock Exchange under the ticker symbol "CAH" and are a ...

  • Page 56
    © 2013 Cardinal Health. All rights reserved. CARDINAL HEALTH, the Cardinal Health LOGO and Essential to care are trademarks or registered trademarks of Cardinal Health. All other marks are the property of their respective owners. Lit. No. 5MC11589 (09/2013)