Cardinal Health 2014 Annual Report Download - page 14

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Cardinal Health, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
12
Distribution, Selling, General and Administrative
("SG&A") Expenses
SG&A Expenses Change
(in millions) 2014 2013 2012 2014 2013
SG&A expenses $ 3,028 $ 2,875 $ 2,677 5% 7%
SG&A expenses increased during fiscal 2014 over fiscal 2013
primarily due to acquisitions ($129 million).
SG&A expenses increased during fiscal 2013 over fiscal 2012
primarily due to acquisitions ($84 million) and investment
spending ($17 million).
Segment Profit and Consolidated Operating
Earnings
Segment Profit and
Operating Earnings Change
(in millions) 2014 2013 2012 2014 2013
Pharmaceutical $ 1,745 $ 1,734 $ 1,558 1% 11 %
Medical 444 372 332 19% 12 %
Total segment
profit 2,189 2,106 1,890 4% 11 %
Corporate (304) (1,110) (98) N.M. N.M.
Total operating
earnings $ 1,885 $ 996 $ 1,792 89% (44)%
Segment Profit
We evaluate segment performance based upon segment profit,
among other measures. See Note 15 of the "Notes to
Consolidated Financial Statements" for additional information
on segment profit.
Pharmaceutical Segment Profit
The increase in fiscal 2014 over fiscal 2013 reflected the positive
impact of sales growth, which primarily reflects growth from
existing customers, and was largely offset by the impact of the
Walgreens contract expiration. The impact of gross margin rate,
apart from the impact of the Walgreens contract expiration, was
flat for fiscal 2014. Gross margin rate was positively impacted
by strong performance from generic programs, including the
impact of generic pharmaceutical price appreciation, and was
adversely impacted by customer pricing changes.
The principal drivers for the increase in fiscal 2013 over fiscal
2012 were strong performance in our generic pharmaceutical
programs and increased margin from branded pharmaceutical
distribution agreements. These benefits were partially offset by
the unfavorable impact of pharmaceutical distribution pricing
changes and significant market softness in our Nuclear
Pharmacy Services division.
Medical Segment Profit
The principal driver for the increase in fiscal 2014 over fiscal
2013 was the positive impact of acquisitions.
The principal drivers for the increase in fiscal 2013 over fiscal
2012 were the positive impact of acquisitions and decreased
cost of commodities used in our self-manufactured products,
partially offset by the unfavorable impact of pricing changes,
driven in part by customer and product mix. Segment profit was
also moderated by softness in procedural-based utilization. The
2.3 percent excise tax on certain manufactured or imported
medical devices that became effective January 1, 2013 had a
slightly unfavorable impact on segment profit.
Corporate
As discussed further below, the principal driver for the change
in Corporate in fiscal 2014 and fiscal 2013 was an $829
million non-cash goodwill impairment charge recognized in
fiscal 2013 related to our Nuclear Pharmacy Services division.
Consolidated Operating Earnings
In addition to revenue, gross margin and SG&A expenses
discussed above, operating earnings were impacted by the
following:
(in millions) 2014 2013 2012
Restructuring and employee severance $ 31 $ 71 $ 21
Amortization and other acquisition-related
costs 223 158 33
Impairments and loss on disposal of assets 15 859 21
Litigation (recoveries)/charges, net (21) (38) (3)
Restructuring and Employee Severance
In addition to other restructuring activities during fiscal 2014 and
2013, we recognized restructuring costs of $10 million and $40
million, respectively, related to the restructuring plan in our
Medical segment. We also 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.
Amortization and Other Acquisition-Related Costs
Amortization of acquisition-related intangible assets was $187
million, $118 million and $78 million for fiscal 2014, 2013 and
2012, respectively. The increase in amortization during 2014
and 2013 was primarily due to intangible assets from the
acquisition of AssuraMed. We also recognized transaction costs
associated with the purchase of AssuraMed of $20 million during
fiscal 2013.
Amortization and other acquisition-related costs for fiscal 2012
included income recognized upon adjustment of the contingent
consideration obligation incurred in connection with the
Healthcare Solutions Holding, LLC ("P4 Healthcare")
acquisition ($71 million). In early fiscal 2013, we terminated and
settled the remaining contingent consideration obligation for $4
million.