Cardinal Health 2013 Annual Report Download - page 40

Cardinal Health, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
38
3. Restructuring and Employee Severance
The following table summarizes restructuring and employee severance
costs relating to our restructuring activities:
(in millions) 2013 (3) 2012 2011
Employee-related costs (1) $ 59 $ 20 $ 7
Facility exit and other costs (2) 12 1 8
Total $ 71 $ 21 $ 15
(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) 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, we are moving production
of procedure kits from our facility in Waukegan, Illinois to other facilities
and selling property and consolidating office space in Waukegan, Illinois.
In addition, we have reorganized our 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
costs and facility exit and other costs discussed above, as well as the
gamma sterilization assets write-down as discussed in Note 4. Of the
estimated $28 million remaining costs to be recognized through the end
of fiscal 2014, we estimate that approximately $3 million will be employee-
related costs; $11 million will be facility exit and other costs; and $14 million
will be an expected loss on disposal of the property in Waukegan, Illinois
described above. We have evaluated this property and have determined
that at June 30, 2013 it does not meet the criteria for classification as held
for sale.
We recognized $11 million of employee-related costs related to a
restructuring plan within our Nuclear Pharmacy Services division during
the fourth quarter of fiscal 2013.
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, 2010 $ 9 $ 7 $ 16
Additions 7 8 15
Payments and other adjustments (10) (11) (21)
Balance at June 30, 2011 $ 6 $ 4 $ 10
Additions 22 1 23
Payments and other adjustments (12) (3) (15)
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
4. Impairments and Loss on Disposal of Assets
During the fourth quarter of fiscal 2013, we recognized an $829 million
($799 million, net of tax) goodwill impairment charge related to our Nuclear
Pharmacy Services division, as discussed further in Note 5.
In connection with our Medical segment restructuring plan discussed in
Note 3, during fiscal 2013, we recognized an $11 million loss to write down
our gamma sterilization assets in El Paso, Texas to the estimated fair
value, less costs to sell, as these assets met the criteria for classification
as held for sale. The fair value of our gamma sterilization assets was
estimated using the expected selling price. These are unobservable inputs
and thus the fair value represents a Level 3 nonrecurring fair value
measurement.
Also during fiscal 2013, we recorded an $8 million write-off of commercial
software under development within our Pharmaceutical segment in
connection with our decision to discontinue this project.
During fiscal 2012, we recorded a charge of $16 million to write off an
indefinite-life intangible asset related to the P4 Healthcare trade name,
an asset within our Pharmaceutical segment. We rebranded P4
Healthcare under the Cardinal Health Specialty Solutions name.
5. Goodwill and Other Intangible Assets
Goodwill
The following table summarizes the changes in the carrying amount of
goodwill, by segment and in total:
(in millions) Pharmaceutical Medical Total
Balance at June 30, 2011 $ 2,853 $ 993 $ 3,846
Goodwill acquired, net of purchase price
adjustments 16 114 130
Foreign currency translation adjustments
and other 7 (5) 2
Balance at June 30, 2012 $ 2,876 $ 1,102 $ 3,978
Goodwill acquired, net of purchase price
adjustments 40 1,409 1,449
Foreign currency translation adjustments
and other 7 (4) 3
Impairment (829) — (829)
Balance at June 30, 2013 $ 2,094 $ 2,507 $ 4,601
The increase in the Medical segment goodwill during fiscal 2013 is
primarily due to the AssuraMed acquisition. Goodwill recognized in
connection with this acquisition primarily represents the expected benefits
from synergies of integrating this business, the existing workforce of the
acquired entity, expected growth from new customers and long-term brand
value. See Note 2 for further discussion of this acquisition.
The decrease in the Pharmaceutical segment goodwill during fiscal 2013
is primarily due to an $829 million ($799 million, net of tax) non-cash
goodwill impairment charge related to our Nuclear Pharmacy Services
division, which is included in impairments and loss on disposal of assets
in our consolidated statements of earnings. This impairment charge does
not impact our liquidity, cash flows from operations, or compliance with
debt covenants.