Cardinal Health 2014 Annual Report Download - page 15

Cardinal Health, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
13
Impairments and Loss on Disposal of Assets
During fiscal 2014, we recognized an $8 million loss to write
down property in Waukegan, Illinois in connection with our
Medical segment restructuring plan.
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 discussed further in the
Overview section and in Note 5 of the "Notes to Consolidated
Financial Statements". We also recognized an $8 million loss
during fiscal 2013 to write down commercial software under
development within our Pharmaceutical segment.
During fiscal 2012, we recognized a $16 million loss to write
down an indefinite-life intangible asset related to the P4
Healthcare trade name.
Litigation (Recoveries)/Charges, Net
We recognized income resulting from settlements of class action
antitrust claims in which we were a class member of $24 million
and $38 million during fiscal 2014 and 2013, respectively.
Earnings Before Income Taxes and Discontinued
Operations
In addition to the items discussed above, earnings before
income taxes and discontinued operations were impacted by
the following:
Earnings Before Income Taxes
and Discontinued Operations Change
(in millions) 2014 2013 2012 2014 2013
Other income, net $ (46) $ (15) $ (1) N.M. N.M.
Interest expense,
net 133 123 95 8% 29%
Other Income, Net
Other income, net for fiscal 2014 included a $32 million pre-tax
gain related to the sale of our minority equity interests in two
investments.
Interest Expense, Net
The increase in interest expense, net for fiscal 2014 and 2013
was primarily due to $1.3 billion of notes issued in connection
with the AssuraMed acquisition in fiscal 2013.
Provision for Income Taxes
Generally, fluctuations in the effective tax rate are due to
changes within international and U.S. state effective tax rates
resulting from our business mix and discrete items. A
reconciliation of the provision based on the federal statutory
income tax rate to our effective income tax rate from continuing
operations is as follows (see Note 8 of the "Notes to
Consolidated Financial Statements" for a detailed disclosure of
the effective tax rate reconciliation):
2014 2013 2012
Provision at Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal benefit 2.2 2.5 2.3
Foreign tax rate differential (1.2) (4.0) (2.2)
Nondeductible/nontaxable items (0.2) (0.5) —
Nondeductible goodwill impairment —33.2 —
Change in measurement of an
uncertain tax position and impact of
IRS settlements (0.4) (5.7) 0.9
Other (0.1) 1.8 1.0
Effective income tax rate 35.3% 62.3% 37.0%
Fiscal 2014 Compared to Fiscal 2013
The fiscal 2014 effective tax rate was impacted by net favorable
discrete items of $37 million, which reduced the rate by 2.1
percentage points. The discrete items include the favorable
impact of the settlement of federal and state tax controversies
($80 million) and release of valuation allowances ($12 million)
and the unfavorable impact of remeasurement of unrecognized
tax benefits ($65 million), primarily as a result of proposed
assessments of additional tax.
Fiscal 2013 Compared to Fiscal 2012
The fiscal 2013 effective tax rate was unfavorably impacted by
33.2 percentage points ($295 million) due to the nondeductibility
of substantially all of the goodwill impairment which was partially
offset by the favorable impact of the revaluation of our deferred
tax liability and related interest on unrepatriated foreign earnings
as a result of an agreement with tax authorities ($64 million or
7.2 percentage points).
Ongoing Audits
During fiscal 2014, the U.S. Internal Revenue Service ("IRS")
closed audits of fiscal years 2003 through 2005. The IRS is
currently conducting audits of fiscal years 2006 through 2010.