Cardinal Health 2013 Annual Report Download - page 23

Cardinal Health, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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in a registered offering $400 million aggregate principal amount of 1.7%
Notes that mature on March 15, 2018, $550 million aggregate principal
amount of 3.2% Notes that mature on March 15, 2023 and $350 million
aggregate principal amount of 4.6% Notes that mature on March 15, 2043.
We used cash on hand to repay $300 million of our 5.5% Notes that were
due on June 15, 2013.
Funding of AssuraMed Acquisition
We funded the acquisition of AssuraMed through the issuance of $1.3
billion in the notes described above and cash on hand. We obtained a
commitment letter in February 2013 from certain financial institutions for
a $1.3 billion unsecured bridge term loan facility that could have been
used to complete the acquisition. We incurred fees of $5 million related
to the facility, which are included in interest expense, net. No amounts
were drawn under the facility and we terminated the commitment letter in
connection with the notes offering.
Capital Expenditures
Capital expenditures during fiscal 2013, 2012 and 2011 were $195 million,
$263 million and $291 million, respectively, which were primarily related
to information technology projects.
We expect capital expenditures in fiscal 2014 to be between $245 million
and $265 million.
Dividends
During fiscal 2013, we paid quarterly dividends totaling $1.025 per share,
an increase of 19 percent from fiscal 2012. On May 1, 2013, our Board of
Directors approved a 10 percent increase in our quarterly dividend to
$0.3025 per share, or $1.21 per share on an annualized basis, payable
on July 15, 2013 to shareholders of record on July 1, 2013.
On August 7, 2013, our Board of Directors approved our 116th consecutive
regular quarterly dividend, payable to shareholders of record on October
1, 2013.
Share Repurchases
During fiscal 2013, we repurchased $450 million of our common shares.
We funded the repurchases with cash on hand. At June 30, 2013, we had
$400 million remaining under our current repurchase authorization which
expires August 31, 2015.
Interest Rate and Currency Risk Management
We use interest rate swaps, foreign currency forward contracts and
commodity swaps to manage our exposure to cash flow variability. We
also use interest rate swaps to protect the value of our debt and foreign
currency forward contracts to protect the value of our existing foreign
currency assets and liabilities. See "Quantitative and Qualitative
Disclosures About Market Risk" below as well as Notes 1 and 11 of the
“Notes to Consolidated Financial Statements” for information regarding
the use of financial instruments and derivatives as well as foreign currency,
interest rate and commodity exposures.
Off-Balance Sheet Arrangements
We had no significant off-balance sheet arrangements at June 30, 2013.
Contractual Obligations
At June 30, 2013, our contractual obligations, including estimated
payments due by period, are as follows:
(in millions) 2014 2015 to 2016 2017 to 2018 There- after Total
Long-term debt and short-term
borrowings (1) $ 167 $ 525 $ 1,344 $ 1,796 $ 3,832
Interest on long-term debt 153 273 182 627 1,235
Capital lease obligations (2) 1 21 — — 22
Other liabilities (3) 3 2 — — 5
Operating leases (4) 89 131 80 65 365
Purchase obligations (5) 137 54 24 25 240
Total contractual obligations $ 550 $ 1,006 $ 1,630 $ 2,513 $ 5,699
(1) Represents maturities of our long-term debt obligations and other short-term
borrowings excluding capital lease obligations described below. See Note 6 of the
“Notes to Consolidated Financial Statements” for further information.
(2) Represents maturities of our capital lease obligations included within long-term debt
in our consolidated balance sheets.
(3) Represents cash outflows by period for certain of our liabilities in which cash outflows
could be reasonably estimated. Certain long-term liabilities, such as unrecognized tax
benefits and deferred taxes, including those related to the audits of fiscal 2003 through
2010, have been excluded from the table above because of the inherent uncertainty
of the underlying 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.
(4) Represents minimum rental payments and the related estimated future interest
payments for operating leases having initial or remaining non-cancelable lease terms
as described in Note 8 of the “Notes to Consolidated Financial Statements.”
(5) A purchase obligation is defined as an agreement to purchase goods or services that
is legally enforceable and specifies all significant terms, including fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and
approximate timing of the transaction. The purchase obligation amounts disclosed
above represent estimates of the minimum for which we are obligated and the time
period in which cash outflows will occur. Purchase orders and authorizations to
purchase that involve no firm commitment from either party are excluded from the
above table. In addition, contracts that can be unilaterally canceled with no termination
fee or with proper notice are excluded from our total purchase obligations except for
the amount of the termination fee or the minimum amount of goods that must be
purchased during the requisite notice period.
Recent Financial Accounting Standards
See Note 1 of the “Notes to Consolidated Financial Statements” for a
discussion of recent financial accounting standards.
Critical Accounting Policies and Sensitive
Accounting Estimates
Critical accounting policies are those accounting policies that (i) can have
a significant impact on our financial condition and results of operations
and (ii) require use of complex and subjective estimates based upon past
experience and management’s judgment. Other people applying
reasonable judgment to the same facts and circumstances could develop
different estimates. Because estimates are inherently uncertain, actual
results may differ. In this section, we describe the significant policies
applied in preparing our consolidated financial statements that
management believes are the most dependent on estimates and
assumptions. For additional accounting policies, see Note 1 of the “Notes
to Consolidated Financial Statements.”