Company Quick10K Filing
Cardinal Health
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 301 $13,735
10-Q 2019-11-07 Quarter: 2019-09-30
10-K 2019-08-20 Annual: 2019-06-30
10-Q 2019-05-09 Quarter: 2019-03-31
10-Q 2019-02-07 Quarter: 2018-12-31
10-Q 2018-11-08 Quarter: 2018-09-30
10-K 2018-08-22 Annual: 2018-06-30
10-Q 2018-05-09 Quarter: 2018-03-31
10-Q 2018-02-08 Quarter: 2017-12-31
10-Q 2017-11-07 Quarter: 2017-09-30
10-K 2017-08-10 Annual: 2017-06-30
10-Q 2017-05-02 Quarter: 2017-03-31
10-Q 2017-02-07 Quarter: 2016-12-31
10-Q 2016-11-02 Quarter: 2016-09-30
10-K 2016-08-12 Annual: 2016-06-30
10-Q 2016-05-03 Quarter: 2016-03-31
10-Q 2016-02-02 Quarter: 2015-12-31
10-Q 2015-11-03 Quarter: 2015-09-30
10-K 2015-08-13 Annual: 2015-06-30
10-Q 2015-05-05 Quarter: 2015-03-31
10-Q 2015-02-03 Quarter: 2014-12-31
10-Q 2014-11-05 Quarter: 2014-09-30
10-K 2014-08-13 Annual: 2014-06-30
10-Q 2014-05-06 Quarter: 2014-03-31
10-Q 2014-02-06 Quarter: 2013-12-31
10-Q 2013-11-07 Quarter: 2013-09-30
10-K 2013-08-20 Annual: 2013-06-30
10-Q 2013-05-08 Quarter: 2013-03-31
10-Q 2013-02-06 Quarter: 2012-12-31
10-Q 2012-11-09 Quarter: 2012-09-30
10-K 2012-08-22 Annual: 2012-06-30
10-Q 2012-05-08 Quarter: 2012-03-31
10-Q 2012-02-07 Quarter: 2011-12-31
10-Q 2011-11-04 Quarter: 2011-09-30
10-K 2011-08-26 Annual: 2011-06-30
10-Q 2011-05-06 Quarter: 2011-03-31
10-Q 2011-02-08 Quarter: 2010-12-31
10-Q 2010-11-08 Quarter: 2010-09-30
10-K 2010-08-26 Annual: 2010-06-30
10-Q 2010-05-06 Quarter: 2010-03-31
10-Q 2010-02-05 Quarter: 2009-12-31
8-K 2019-11-07 Earnings, Regulation FD, Exhibits
8-K 2019-11-06 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-09-30 Enter Agreement, Exhibits
8-K 2019-08-07 Officers, Exhibits
8-K 2019-08-07 Earnings, Exit Costs, Regulation FD, Exhibits
8-K 2019-07-12 Earnings, Officers, Exhibits
8-K 2019-07-01 Officers
8-K 2019-06-27 Enter Agreement, Exhibits
8-K 2019-05-09 Earnings, Regulation FD, Exhibits
8-K 2019-02-19 Officers
8-K 2019-02-07 Earnings, Regulation FD, Exhibits
8-K 2018-12-05 Officers, Regulation FD, Exhibits
8-K 2018-11-08 Earnings, Regulation FD, Exhibits
8-K 2018-11-07 Shareholder Vote
8-K 2018-09-24 Officers, Exhibits
8-K 2018-09-01 Officers
8-K 2018-08-24 Officers
8-K 2018-08-06 Earnings, Regulation FD, Exhibits
8-K 2018-05-03 Earnings, Regulation FD, Exhibits
8-K 2018-03-09 Other Events, Exhibits
8-K 2018-02-07 Earnings, Officers, Regulation FD, Exhibits
8-K 2018-01-16 Officers
CAH 2019-09-30
EX-31.1 a20q110q93019exhibit311.htm
EX-31.2 a20q110q93019exhibit312.htm
EX-32.1 a20q110q93019exhibit321.htm
EX-99.1 a20q110q93019exhibit991.htm

Cardinal Health Earnings 2019-09-30

CAH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
MCK 24,784 61,680 53,806 217,440 11,762 812 1,925 30,529 5% 15.9 1%
ABC 18,082 38,479 35,489 177,248 4,986 957 1,485 19,267 3% 13.0 2%
DGX 13,740 11,760 6,301 7,572 2,606 781 1,489 17,443 34% 11.7 7%
CAH 13,735 40,963 34,635 145,534 6,835 1,365 3,046 18,783 5% 6.2 3%
HOLX 13,139 6,522 4,306 3,315 1,342 -30 485 15,764 40% 32.5 -0%
HLF 6,147 3,079 3,613 4,842 3,913 293 587 7,498 81% 12.8 10%
NUS 2,709 1,791 956 2,606 1,986 125 306 2,757 76% 9.0 7%
PETQ 698 524 186 629 101 9 19 761 16% 39.6 2%
ACET 29 753 703 683 87 -275 -207 305 13% -1.5 -36%

Document
false--06-30Q12020000072137175500000075500000032700000032700000080000000002500000500000002800000034000000 0000721371 2019-07-01 2019-09-30 0000721371 2019-10-31 0000721371 2018-07-01 2018-09-30 0000721371 2019-06-30 0000721371 2019-09-30 0000721371 us-gaap:TreasuryStockMember 2019-06-30 0000721371 us-gaap:CommonStockMember 2019-07-01 2019-09-30 0000721371 us-gaap:RetainedEarningsMember 2019-09-30 0000721371 us-gaap:TreasuryStockMember 2019-07-01 2019-09-30 0000721371 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0000721371 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0000721371 us-gaap:RetainedEarningsMember 2019-06-30 0000721371 us-gaap:NoncontrollingInterestMember 2019-09-30 0000721371 us-gaap:CommonStockMember 2019-06-30 0000721371 us-gaap:CommonStockMember 2019-09-30 0000721371 us-gaap:NoncontrollingInterestMember 2019-07-01 2019-09-30 0000721371 us-gaap:NoncontrollingInterestMember 2019-06-30 0000721371 us-gaap:TreasuryStockMember 2019-09-30 0000721371 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0000721371 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0000721371 us-gaap:CommonStockMember 2018-09-30 0000721371 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0000721371 us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0000721371 us-gaap:TreasuryStockMember 2018-06-30 0000721371 us-gaap:NoncontrollingInterestMember 2018-06-30 0000721371 us-gaap:CommonStockMember 2018-07-01 2018-09-30 0000721371 us-gaap:TreasuryStockMember 2018-07-01 2018-09-30 0000721371 us-gaap:TreasuryStockMember 2018-09-30 0000721371 2018-09-30 0000721371 us-gaap:NoncontrollingInterestMember 2018-09-30 0000721371 us-gaap:RetainedEarningsMember 2018-09-30 0000721371 2018-06-30 0000721371 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0000721371 us-gaap:RetainedEarningsMember 2018-06-30 0000721371 us-gaap:CommonStockMember 2018-06-30 0000721371 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0000721371 2019-07-01 0000721371 us-gaap:EmployeeSeveranceMember 2019-09-30 0000721371 us-gaap:EmployeeSeveranceMember 2019-07-01 2019-09-30 0000721371 us-gaap:FacilityClosingMember 2019-06-30 0000721371 us-gaap:EmployeeSeveranceMember 2019-06-30 0000721371 us-gaap:FacilityClosingMember 2019-09-30 0000721371 us-gaap:FacilityClosingMember 2019-07-01 2019-09-30 0000721371 cah:EnterpriseWideCostSavingMeasuresMember 2019-07-01 2019-09-30 0000721371 cah:EnterpriseWideCostSavingMeasuresMember 2018-07-01 2018-09-30 0000721371 cah:IPRDTrademarksandOtherMember 2019-06-30 0000721371 cah:TrademarksAndPatentsMember 2019-06-30 0000721371 us-gaap:CustomerRelationshipsMember 2019-06-30 0000721371 us-gaap:DevelopedTechnologyRightsMember 2019-06-30 0000721371 cah:MedicalMember 2019-06-30 0000721371 cah:PharmaceuticalMember 2019-07-01 2019-09-30 0000721371 cah:PharmaceuticalMember 2019-06-30 0000721371 cah:MedicalMember 2019-07-01 2019-09-30 0000721371 cah:MedicalMember 2019-09-30 0000721371 cah:PharmaceuticalMember 2019-09-30 0000721371 us-gaap:DevelopedTechnologyRightsMember 2019-09-30 0000721371 us-gaap:DevelopedTechnologyRightsMember 2019-07-01 2019-09-30 0000721371 cah:IPRDTrademarksandOtherMember 2019-09-30 0000721371 us-gaap:CustomerRelationshipsMember 2019-09-30 0000721371 cah:TrademarksAndPatentsMember 2019-09-30 0000721371 cah:TrademarksAndPatentsMember 2019-07-01 2019-09-30 0000721371 us-gaap:CustomerRelationshipsMember 2019-07-01 2019-09-30 0000721371 cah:NaviHealthMember 2018-08-01 0000721371 cah:NaviHealthMember 2018-07-01 2018-09-30 0000721371 cah:NaviHealthMember 2018-08-01 2018-08-31 0000721371 cah:NaviHealthMember 2019-06-30 0000721371 cah:NaviHealthMember 2019-09-30 0000721371 2019-07-01 2019-07-01 0000721371 srt:MinimumMember 2019-09-30 0000721371 srt:MaximumMember 2019-09-30 0000721371 cah:OperatingLeaseMember 2019-09-30 0000721371 cah:FinanceLeaseMember 2019-09-30 0000721371 cah:ASC842Member 2019-07-01 2019-07-01 0000721371 us-gaap:CommercialPaperMember 2019-06-30 0000721371 us-gaap:RevolvingCreditFacilityMember 2019-06-30 0000721371 cah:ShortTermCreditFacilitiesMember cah:CommittedReceivablesSalesFacilityProgramMember 2019-06-30 0000721371 cah:OpioidLitigationlessCuyahogaandSummitCountiesMember 2019-07-01 2019-09-30 0000721371 cah:ProductLiabilityLawsuitsMember cah:AlamedaCountyMember us-gaap:SubsequentEventMember 2019-11-01 0000721371 cah:ClassActionLawsuitsMember cah:PrivatePartiesMember cah:OpioidLawsuitsMember us-gaap:SubsequentEventMember 2019-11-01 0000721371 cah:OpioidLitigationCuyahogaandSummitCountiesMember 2019-09-30 0000721371 cah:PrivatePartiesMember cah:OpioidLawsuitsMember us-gaap:SubsequentEventMember 2019-11-01 0000721371 cah:OpioidLawsuitsMember us-gaap:SubsequentEventMember 2019-11-01 0000721371 cah:CVSHealthMember 2019-07-01 2019-09-30 0000721371 cah:TotalOpioidLitigationMember 2019-09-30 0000721371 cah:ProductLiabilityLawsuitsMember cah:AlamedaCountyMember us-gaap:SubsequentEventMember 2019-11-01 2019-11-01 0000721371 cah:ProductLiabilityLawsuitsMember cah:OtherJurisdictionsMember us-gaap:SubsequentEventMember 2019-11-01 0000721371 cah:OpioidLitigationlessCuyahogaandSummitCountiesMember 2019-09-30 0000721371 cah:TotalOpioidLitigationnetoftaxMember 2019-09-30 0000721371 us-gaap:SubsequentEventMember 2019-10-21 0000721371 cah:ProductLiabilityLawsuitsMember cah:OtherJurisdictionsMember us-gaap:SubsequentEventMember 2019-11-01 2019-11-01 0000721371 cah:CareFusionMember 2019-06-30 0000721371 cah:PatientRecoveryBusinessMember 2019-09-30 0000721371 cah:CareFusionMember 2019-09-30 0000721371 srt:MinimumMember us-gaap:InternalRevenueServiceIRSMember 2019-07-01 2019-09-30 0000721371 cah:PatientRecoveryBusinessMember 2019-06-30 0000721371 cah:TotalOpioidLitigationMember 2019-07-01 2019-09-30 0000721371 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0000721371 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0000721371 us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0000721371 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-09-30 0000721371 us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0000721371 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0000721371 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0000721371 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-30 0000721371 us-gaap:FairValueInputsLevel2Member 2019-06-30 0000721371 us-gaap:FairValueInputsLevel2Member 2019-09-30 0000721371 us-gaap:CurrencySwapMember 2018-09-30 0000721371 us-gaap:CurrencySwapMember 2019-09-30 0000721371 us-gaap:CashFlowHedgingMember 2019-09-30 0000721371 us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember 2019-06-30 0000721371 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2019-09-30 0000721371 us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember 2019-09-30 0000721371 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2019-06-30 0000721371 us-gaap:AccumulatedForeignCurrencyAdjustmentIncludingPortionAttributableToNoncontrollingInterestMember 2019-07-01 2019-09-30 0000721371 us-gaap:AccumulatedNetGainLossFromCashFlowHedgesIncludingPortionAttributableToNoncontrollingInterestMember 2019-07-01 2019-09-30 0000721371 us-gaap:AccumulatedNetGainLossFromCashFlowHedgesIncludingPortionAttributableToNoncontrollingInterestMember 2019-06-30 0000721371 us-gaap:AccumulatedNetGainLossFromCashFlowHedgesIncludingPortionAttributableToNoncontrollingInterestMember 2019-09-30 0000721371 us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember 2019-07-01 2019-09-30 0000721371 2018-10-25 0000721371 us-gaap:CorporateNonSegmentMember 2018-07-01 2018-09-30 0000721371 us-gaap:OperatingSegmentsMember 2018-07-01 2018-09-30 0000721371 us-gaap:NonUsMember 2019-07-01 2019-09-30 0000721371 us-gaap:OperatingSegmentsMember 2019-07-01 2019-09-30 0000721371 us-gaap:CorporateNonSegmentMember 2019-07-01 2019-09-30 0000721371 country:US 2019-07-01 2019-09-30 0000721371 us-gaap:NonUsMember 2018-07-01 2018-09-30 0000721371 country:US 2018-07-01 2018-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:MedicalMember 2018-07-01 2018-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:PharmaceuticalMember 2018-07-01 2018-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:MedicalMember 2019-07-01 2019-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:PharmaceuticalMember 2019-07-01 2019-09-30 0000721371 us-gaap:CorporateNonSegmentMember 2019-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:PharmaceuticalMember 2019-06-30 0000721371 us-gaap:OperatingSegmentsMember cah:PharmaceuticalMember 2019-09-30 0000721371 us-gaap:CorporateNonSegmentMember 2019-06-30 0000721371 us-gaap:OperatingSegmentsMember cah:MedicalMember 2019-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:MedicalMember 2019-06-30 0000721371 us-gaap:OperatingSegmentsMember cah:MedicalMember cah:MedicaldistributionandproductsMember 2018-07-01 2018-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:PharmaceuticalMember cah:NuclearPrecisionHealthServicesMember 2019-07-01 2019-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:MedicalMember cah:CardinalHealthAtHomeMember 2019-07-01 2019-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:PharmaceuticalMember cah:PharmaceuticalDistributionandSpecialtyMember 2019-07-01 2019-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:PharmaceuticalMember cah:PharmaceuticalDistributionandSpecialtyMember 2018-07-01 2018-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:MedicalMember cah:MedicaldistributionandproductsMember 2019-07-01 2019-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:MedicalMember cah:CardinalHealthAtHomeMember 2018-07-01 2018-09-30 0000721371 us-gaap:OperatingSegmentsMember cah:PharmaceuticalMember cah:NuclearPrecisionHealthServicesMember 2018-07-01 2018-09-30 0000721371 us-gaap:PerformanceSharesMember 2019-07-01 2019-09-30 0000721371 us-gaap:PerformanceSharesMember 2019-06-30 0000721371 us-gaap:PerformanceSharesMember 2019-09-30 0000721371 us-gaap:RestrictedStockUnitsRSUMember 2019-07-01 2019-09-30 0000721371 us-gaap:RestrictedStockUnitsRSUMember 2019-06-30 0000721371 us-gaap:RestrictedStockUnitsRSUMember 2019-09-30 0000721371 us-gaap:RestrictedStockUnitsRSUMember 2018-07-01 2018-09-30 0000721371 us-gaap:PerformanceSharesMember 2018-07-01 2018-09-30 0000721371 us-gaap:EmployeeStockOptionMember 2018-07-01 2018-09-30 0000721371 us-gaap:EmployeeStockOptionMember 2019-07-01 2019-09-30 0000721371 us-gaap:EmployeeStockOptionMember 2018-07-01 2019-06-30 0000721371 us-gaap:EmployeeStockOptionMember 2019-09-30 0000721371 us-gaap:EmployeeStockOptionMember 2019-06-30 0000721371 srt:MinimumMember us-gaap:PerformanceSharesMember 2019-07-01 2019-09-30 0000721371 srt:MaximumMember us-gaap:PerformanceSharesMember 2019-07-01 2019-09-30 xbrli:pure cah:StateAG cah:segment iso4217:USD xbrli:shares cah:Reportable_Segments iso4217:JPY iso4217:USD cah:plaintiff iso4217:EUR xbrli:shares cah:lawsuit
 
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 1-11373
Cardinal Health, Inc.
(Exact name of registrant as specified in its charter)
Ohio
 
31-0958666
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
 
 
 
 
 
7000 Cardinal Place
,
Dublin
,
Ohio
 
43017
(Address of principal executive offices)
 
(Zip Code)
(614757-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common shares (without par value)
CAH
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
The number of the registrant’s common shares, without par value, outstanding as of October 31, 2019, was the following: 292,488,354.



Cardinal Health  
Q1 Fiscal 2020 Form 10-Q

Table of Contents
 
 
Page

About Cardinal Health
 
Cardinal Health, Inc. is an Ohio corporation formed in 1979 and is a globally integrated healthcare services and products company providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices. We provide medical products and pharmaceuticals and cost-effective solutions that enhance supply chain efficiency. We connect patients, providers, payers, pharmacists and manufacturers for integrated care coordination and better patient management. We manage our business and report our financial results in two segments: Pharmaceutical and Medical. As used in this report, “we,” “our,” “us,” and similar pronouns refer to Cardinal Health, Inc. and its subsidiaries, unless the context requires otherwise. Our fiscal year ends on June 30. References to fiscal 2020 and fiscal 2019 and to FY20 and FY19 are to the fiscal years ending or ended June 30, 2020 and June 30, 2019, respectively.
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (this "Form 10-Q") (including information incorporated by reference) includes "forward-looking statements" addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. Many forward-looking statements appear in Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), but there are others in this Form 10-Q, which may be identified by words such as "expect," "anticipate," "intend," "plan," "believe," "will," "should," "could," "would," "project," "continue," "likely," and similar expressions, and include statements reflecting future results, trends or guidance, statements of outlook and various accruals and estimates. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those made, projected or implied. The most significant of these risks and uncertainties are described in this Form 10-Q, including Exhibit 99.1, and in "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (our “2019 Form 10-K”). Forward-looking statements in this Form 10-Q speak only as of the date of this document. Except to the extent required by applicable law, we undertake no obligation to update or revise any forward-looking statement.
Non-GAAP Financial Measures
 
In the "Overview of Consolidated Results" section of MD&A, we use financial measures that are derived from our consolidated financial data but are not presented in our condensed consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). These measures are considered "non-GAAP financial measures" under the Securities and Exchange Commission ("SEC") rules. The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures are included in the “Explanation and Reconciliation of Non-GAAP Financial Measures” section following MD&A in this Form 10-Q.



 
 
 
 1
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


MD&A
Overview
 



Management's Discussion and Analysis of Financial Condition and Results of Operations
The discussion and analysis presented below is concerned with material changes in financial condition and results of operations between the periods specified in our condensed consolidated balance sheets at September 30, 2019 and June 30, 2019, and in our condensed consolidated statements of earnings/(loss) for the three months ended September 30, 2019 and 2018. All comparisons presented are with respect to the prior-year period, unless stated otherwise. This discussion and analysis should be read in conjunction with the MD&A included in our 2019 Form 10-K.


 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
2



MD&A
Overview
 

Overview of Consolidated Results
Revenue
 
chart-986746bac297519d8c3.jpg
Revenue for the three months ended September 30, 2019 increased 6 percent to $37.3 billion due to sales growth from pharmaceutical distribution and specialty pharmaceutical customers.

GAAP and Non-GAAP Operating Earnings/(Loss)
 
 
Three Months Ended September 30,
(in millions)
2019
 
2018
 
Change
GAAP
$
(5,264
)
 
$
816

 
N.M.

State opioid assessment related to prior fiscal years
5

 
29

 
 
Restructuring and employee severance
30

 
32

 
 
Amortization and other acquisition-related costs
132

 
156

 
 
Impairments and (gain)/loss on disposal of assets
1

 
(511
)
 
 
Litigation (recoveries)/charges, net
5,673

 
19

 
 
Non-GAAP
$
577

 
$
542

 
6
%
The sum of the components may not equal the total due to rounding.
We had a GAAP operating loss of $5.3 billion during the three months ended September 30, 2019 due to a $5.63 billion pre-tax charge we recognized for the estimated liability associated with lawsuits and claims brought against us by states and political subdivisions relating to the distribution of prescription opioid pain medications. As described further in the Significant Developments in Fiscal 2020 section in this MD&A and Note 7 of the "Notes to Condensed Consolidated Financial Statements", in October 2019, we agreed in principle to a global settlement framework with a leadership group of four state attorneys general that is designed to resolve all pending and future opioid lawsuits and claims by states and political subdivisions. GAAP operating earnings during the three months ended September 30, 2018 were favorably impacted by a $508 million pre-tax gain from the divestiture of our naviHealth Holdings, LLC ("naviHealth") business.
The 6 percent increase in non-GAAP operating earnings to $577 million was primarily due to the beneficial impact of enterprise-wide cost-savings measures, higher contribution from our Medical distribution and products businesses and growth from our specialty pharmaceutical products distribution and services business, partially offset by the adverse impact of pharmaceutical customer contract renewals.


 
 
 
 3
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


MD&A
Overview
 

GAAP and Non-GAAP Diluted EPS
 
 
Three Months Ended September 30,
($ per share)
2019 (1) (2) (3)
 
2018 (1) (2)
 
Change
GAAP
$
(16.65
)
 
$
1.94

 
N.M.

State opioid assessment related to prior fiscal years
0.01

 
0.07

 
 
Restructuring and employee severance
0.08

 
0.08

 
 
Amortization and other acquisition-related costs
0.33

 
0.39

 
 
Impairments and (gain)/loss on disposal of assets

 
(1.23
)
 
 
Litigation (recoveries)/charges, net
17.51

 
0.05

 
 
Non-GAAP
$
1.27

 
$
1.29

 
(2
)%
(1) The sum of the components may not equal the total due to rounding.
(2) The reconciling items are presented within this table net of tax. See quantification of tax effect of each reconciling item in our GAAP to Non-GAAP Reconciliations in the "Explanation and Reconciliation of Non-GAAP Financial Measures".
(3) First quarter fiscal 2020 GAAP diluted loss per share attributable to Cardinal Health, Inc. ("GAAP diluted EPS") and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 296 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the quarter. First quarter fiscal 2020 non-GAAP diluted EPS is calculated using a weighted average of 297 million common shares, which includes potentially dilutive shares.

We had a $(16.65) GAAP diluted loss per share attributable to Cardinal Health, Inc. ("GAAP diluted EPS") during the three months ended September 30, 2019 due to the charge we recognized for the estimated liability associated with lawsuits and claims brought against us by states and political subdivisions relating to the distribution of prescription opioid pain medications. The charge had a $(17.40) after tax impact on GAAP diluted EPS. GAAP diluted EPS during the three months ended September 30, 2018 was favorably impacted by a $1.24 gain from the divestiture of naviHealth.
During the three months ended September 30, 2019, non-GAAP diluted EPS decreased 2 percent to $1.27 per share. This decrease was primarily due to the prior-year benefit from discrete tax items, largely related to international legal entity changes. The unfavorable year-over-year impact of the discrete tax items was largely offset by the factors discussed above impacting non-GAAP operating earnings and a lower share count as a result of share repurchases.

Cash and Equivalents
 
Our cash and equivalents balance was $1.2 billion at September 30, 2019 compared to $2.5 billion at June 30, 2019. The decrease in cash and equivalents during the three months ended September 30, 2019 was due to $653 million of net cash used in operating activities, $350 million paid for share repurchases and $146 million paid in dividends. Cash used in operating activities for the quarter was primarily driven by changes in working capital associated with the timing of payments to vendors. We expect our operating cash flow to be higher in the quarter ended December 31, 2019 due to expected working capital improvement.






 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
4



MD&A
Overview
 

Significant Developments in Fiscal 2020

Opioid Lawsuits Development
 
In October 2019, we agreed in principle to a global settlement framework with a leadership group of four state attorneys general from the multi-state task force that is designed to resolve all pending and future opioid lawsuits and claims by states and political subdivisions, but not private plaintiffs (the "Settlement Framework"). This Settlement Framework is subject to contingencies and uncertainties as to final terms, but is the basis for our negotiation of definitive terms and documentation. The Settlement Framework includes (1) a cash component, pursuant to which we would pay up to $5.56 billion over eighteen years, (2) development and participation in a program for free or rebated distribution of opioid abuse treatment medications for a period of ten years, and (3) industry-wide changes to be specified to controlled substance anti-diversion programs. In order to continue working on the Settlement Framework, we also agreed, with two other national distributors, to a $215 million settlement with two plaintiffs counties in a trial that had been scheduled for October 2019; our portion of that settlement is $66 million, which will be payable upon execution of a final settlement agreement.
In connection with these matters, we recorded a total pre-tax charge of $5.63 billion ($5.14 billion after tax) during the three months ended September 30, 2019 for the cash component. We accrue for contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. Moreover, the global Settlement Framework is in its early phases, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be satisfied. We will regularly review these opioid litigation matters to determine whether our accrual is adequate. We are unable to reasonably estimate the liability associated with any potential distribution of treatment medications and any incremental costs for changes to our controlled substance anti-diversion program that we may agree to under the Settlement Framework. The amount of ultimate loss may differ materially from this accrual. See Note 7 of the "Notes to Condensed Consolidated Financial Statements" for additional information.
Also in connection with these matters, we recorded a tax benefit of $487 million, which is net of unrecognized tax benefits of $468 million, during the three months ended September 30, 2019, reflecting our current assessment of the estimated future deductibility of the amount that may be paid under the $5.63 billion accrual taken in connection with the opioid litigation. Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination of the technical merits of the position, including resolutions of any related appeals or litigation. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement. For tax benefits that do not qualify for recognition, we recognize a liability for unrecognized tax benefits. Our assumptions and estimates around this benefit and uncertain tax position require significant judgment since the definitive settlement terms and documentation, including provisions related to deductibility, under the Settlement Framework have not been negotiated and the U.S. tax law governing deductibility was changed by the U.S. Tax Cuts and Jobs Act (“Tax Act”). We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the Tax Act which is subject to further interpretation by the U.S. Internal Revenue Service ("IRS"). Further, it is possible that the tax authorities could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of tax benefit related to uncertain tax positions may differ materially from these estimates. See Note 8 of the “Notes to the Condensed Consolidated Financial Statements” for additional information.

Cost-savings Initiatives
 
We are implementing certain cost-savings initiatives intended to optimize and simplify our operating model and cost structure. As a result of these initiatives, we recognized $20 million in restructuring and employee severance expense during the three months ended September 30, 2019. We expect these cost-savings initiatives, which will affect various functional and commercial areas across the Company, to be substantially implemented during fiscal year 2020.





 
 
 
 5
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


MD&A
Results of Operations
 

Results of Operations
Revenue

chart-0e7efb26c0365e6cb47.jpgchart-5f32bf9b0ca256e99b2.jpg
 
Three Months Ended September 30,
(in millions)
2019
 
2018
 
Change
Pharmaceutical
$
33,428

 
$
31,416

 
6
%
Medical
3,917

 
3,801

 
3
%
Total segment revenue
37,345

 
35,217

 
6
%
Corporate
(4
)
 
(4
)
 
N.M.

Total revenue
$
37,341

 
$
35,213

 
6
%

Pharmaceutical Segment
Pharmaceutical segment revenue increased during the three months ended September 30, 2019 due to sales growth from pharmaceutical distribution and specialty pharmaceutical customers, which together increased revenue by $2.0 billion.
Medical Segment
Medical segment revenue increased during the three months ended September 30, 2019 primarily due to sales growth from our distribution and products businesses and Cardinal Health at-Home Solutions. The increase was partially offset by the divestiture of naviHealth in the prior year.
Cost of Products Sold
 
Cost of products sold increased 6 percent to $35.7 billion due to the factors affecting the changes in revenue and gross margin.








 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
6



MD&A
Results of Operations
 

Gross Margin
 
chart-ff3385a010ad5ef68c1.jpgchart-f4d60677c0e25c84939.jpg
 
Three Months Ended September 30,
(in millions)
2019
 
2018
 
Change
Gross margin
$
1,679

 
$
1,667

 
1
%
Gross margin during the three months ended September 30, 2019 was essentially flat versus the prior-year period.
Gross margin rate declined 23 basis points during the three months ended September 30, 2019 mainly due to the adverse impact of pharmaceutical customer contract renewals and pharmaceutical distribution product mix.
Distribution, Selling, General, and Administrative ("SG&A") Expenses
 
 
Three Months Ended September 30,
(in millions)
2019
 
2018
 
Change
SG&A expenses
$
1,107

 
$
1,155

 
(4
)%

During the three months ended September 30, 2019, SG&A expenses decreased due to the beneficial impact of enterprise-wide cost-savings measures and lower state assessments on sales of prescription opioid medications. In the three months ended September 30, 2018, we accrued $34 million for an assessment on prescription opioid medications that were sold or distributed in New York state, which was reversed in the three months ended December 31, 2018 when the New York state assessment was declared unconstitutional.


 
 
 
 7
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


MD&A
Results of Operations
 

Segment Profit
 
We evaluate segment performance based on segment profit, among other measures. See Note 13 of the "Notes to Condensed Consolidated Financial Statements" for additional information on segment profit.
 
Three Months Ended September 30,
(in millions)
2019
 
2018
 
Change
Pharmaceutical
$
398

 
$
409

 
(3
)%
Medical
170

 
135

 
26
 %
Total segment profit
568

 
544

 
4
 %
Corporate
(5,832
)
 
272

 
N.M

Total consolidated operating earnings/(loss)
$
(5,264
)
 
$
816

 
N.M

 
Pharmaceutical Segment Profit
The decrease in Pharmaceutical segment profit during the three months ended September 30, 2019 was primarily due to the adverse impact of customer contract renewals. This decrease was partially offset by the beneficial impact of cost-savings measures and growth from our specialty pharmaceutical products and services business.
Medical Segment Profit
The increase in Medical segment profit during the three months ended September 30, 2019 was primarily due to the beneficial impact of cost-savings measures and higher contribution from the segment's distribution and products businesses.
Corporate
The changes in Corporate during the three months ended September 30, 2019 are due to the factors discussed in the Other Components of Consolidated Operating Earnings/(Loss) section that follows.


 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
8



MD&A
Results of Operations
 

Other Components of Consolidated Operating Earnings/(Loss)
 
In addition to revenue, gross margin, and SG&A expenses discussed previously, consolidated operating earnings/(loss) were impacted by the following:
 
Three Months Ended September 30,
(in millions)
2019
 
2018
Restructuring and employee severance
$
30

 
$
32

Amortization and other acquisition-related costs
132

 
156

Impairments and (gain)/loss on disposal of assets, net
1

 
(511
)
Litigation (recoveries)/charges, net
5,673

 
19

Restructuring and Employee Severance
During the three months ended September 30, 2019 and 2018, we recognized $20 million and $26 million, respectively, of expenses in connection with our implementation of certain enterprise-wide cost-saving measures.
Amortization and Other Acquisition-Related Costs
Amortization of acquisition-related intangible assets was $129 million and $133 million for the three months ended September 30, 2019 and 2018, respectively. Transaction and integration costs associated with the Patient Recovery Business acquisition were $1 million and $22 million for the three months ended September 30, 2019 and 2018, respectively.
Impairments and (Gain)/Loss on Disposal of Assets, Net
During the three months ended September 30, 2018, we recognized a pre-tax gain of $508 million related to the divestiture of our naviHealth business.
Litigation (Recoveries)/Charges, Net
During the three months ended September 30, 2019, we recognized a pre-tax charge of $5.63 billion ($5.14 billion after tax) associated with the opioid litigation. See Significant Developments in Fiscal 2020 section in this MD&A for additional information.
Earnings/(Loss) Before Income Taxes

In addition to the items discussed above, earnings/(loss) before income taxes was impacted by the following:
 
Three Months Ended September 30,
(in millions)
2019
 
2018
 
Change
Other (income)/expense, net
$
14

 
$
3

 
N.M.

Interest expense, net
66

 
77

 
(14
)%
Other (Income)/Expense, Net
The increase in other (income)/expense, net during the three months ended September 30, 2019 was primarily due to fluctuations in foreign exchange rates.
Interest Expense, Net
The decrease in interest expense during the three months ended September 30, 2019 was primarily due to less debt outstanding.
Provision for/(Benefit From) Income Taxes
 
During the three months ended September 30, 2019 and 2018, the effective tax rate was 7.9 percent and 19.4 percent, respectively. The decrease in the effective tax rate from fiscal 2019 to fiscal 2020 is primarily due to the net tax benefit of $487 million related to the opioid litigation pre-tax charge of $5.63 billion, as described further in the Significant Developments in Fiscal 2020 section in this MD&A, partially offset by the prior-year benefit of discrete tax items.
 


 
 
 
 9
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


MD&A
Liquidity and Capital Resources
 

Liquidity and Capital Resources
We currently believe that, based on available capital resources (cash on hand and committed credit facilities) and projected operating cash flow, we have adequate capital resources to fund working capital needs; currently anticipated capital expenditures; currently anticipated business growth and expansion; contractual obligations; tax payments; and current and projected debt service requirements, dividends and share repurchases as well as potential opioid litigation settlement payments associated with the Settlement Framework. If we were to decide to engage in one or more additional acquisitions, depending on the size and timing of such transactions, we might need to access capital markets for additional financing.
Cash and Equivalents
 
Our cash and equivalents balance was $1.2 billion at September 30, 2019 compared to $2.5 billion at June 30, 2019. At September 30, 2019, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.
During the three months ended September 30, 2019, net cash used in operating activities was $653 million, primarily driven by increases in working capital associated with the timing of payments to vendors. We also deployed $350 million for share repurchases and $146 million for cash dividends. We expect our operating cash flow to be
 
higher in the quarter ended December 31, 2019 due to expected working capital improvement.
Changes in working capital, which impact operating cash flow, can vary significantly depending on factors such as the timing of customer payments, inventory purchases and payments to vendors in the regular course of business, as well as fluctuating working capital needs driven by customer and product mix.
The cash and equivalents balance at September 30, 2019 included $710 million of cash held by subsidiaries outside of the United States.
Other Financing Arrangements and Financial Instruments
 
Credit Facilities and Commercial Paper
In addition to cash and equivalents and operating cash flow, other sources of liquidity at September 30, 2019 include a $2.0 billion commercial paper program, backed by a $2.0 billion revolving credit facility. We also have a $1.0 billion committed receivables sales facility. At September 30, 2019, we had no amounts outstanding under our commercial paper program, revolving credit facility or our committed receivables sales facility. Under our commercial paper program, we had maximum amounts outstanding of $190 million and an average daily amount outstanding of $6 million during three months ended September 30, 2019.
In September 2019, we renewed our committed receivables sales facility program through Cardinal Health Funding, LLC (“CHF”) through September 30, 2022. Our revolving credit facility and committed receivables sales facilities require us to maintain, as of the end of every fiscal quarter from September 30, 2019 through December 2020, a consolidated net leverage ratio of no more than 4.00-to-1. The maximum quarter-end permitted ratio will reduce to 3.75-to-1 in March 2021 and as of the end of every fiscal quarter thereafter. As of September 30, 2019, we were in compliance with our financial covenants.

 
Long-Term Debt
At September 30, 2019, we had total long-term obligations, including the current portion and other short-term borrowings, of $8.0 billion at both September 30, 2019 and June 30, 2019. During the three months ended September 30, 2019, we repurchased a total of $74 million of notes due in 2022 and 2047 with available cash. We plan to repay our outstanding 2.40% notes at maturity in November 2019 with $450 million of available cash.



 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
10



MD&A
Liquidity and Capital Resources
 

Capital Deployment
 
Opioid Settlement Framework
In October 2019, we agreed in principle to a Settlement Framework which includes a cash component, pursuant to which we would pay up to $5.56 billion over eighteen years. We currently expect payment amounts under the Settlement Framework to be spread through the 18-year period subject to participation by states and political subdivisions. See Significant Developments in Fiscal 2020 section in this MD&A for additional information.
Capital Expenditures
Capital expenditures during the three months ended September 30, 2019 and 2018 were $72 million and $58 million, respectively.
Dividends
On each of May 8, 2019 and August 7, 2019, our Board of Directors approved a quarterly dividend of $0.4811 per share, or $1.92 per share on an annualized basis, which were paid on July 15, 2019 and October 15, 2019 to shareholders of record on July 1, 2019 and October 1, 2019, respectively.
On November 6, 2019, our Board of Directors approved a quarterly dividend of $0.4811 per share, or $1.92 per share on an annualized basis, payable on January 15, 2020 to shareholders of record on January 2, 2020.

 
Share Repurchases
During the three months ended September 30, 2019, we deployed $350 million to purchase our common shares under an accelerated share repurchase ("ASR") program. We funded the ASR program with available cash and short-term borrowings. At September 30, 2019, we had $1.0 billion remaining under our existing share repurchase authorization. The ASR program is expected to conclude in the second quarter of fiscal 2020, which will reduce the amount remaining under our existing share repurchase authorization to $943 million. See Note 11 of the "Notes to Condensed Consolidated Financial Statements" for additional information on our ASR program.







 
 
 
 11
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


MD&A
Other Items
 


Other Items
The MD&A in our 2019 Form 10-K addresses our contractual obligations and off-balance sheet arrangements, as of and for the fiscal year ended June 30, 2019. There have been no subsequent material changes outside of the ordinary course of business to those items except for the agreement in principle on a global settlement framework designed to resolve all pending and future opioid lawsuits and claims brought by states and political subdivisions described in the Significant Developments in Fiscal 2020 section in this MD&A and Note 7 of the "Notes to Condensed Consolidated Financial Statements".
Critical Accounting Policies and Sensitive Accounting Estimates
The discussion and analysis presented below are supplemental disclosures to the critical accounting policies and sensitive accounting estimates specified in our consolidated balance sheets at June 30, 2019. This discussion and analysis should be read in conjunction with the Critical Accounting Policies and Sensitive Accounting Estimates included in our 2019 Form 10-K.
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 the 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.
Goodwill
 
Purchased goodwill is tested for impairment annually or when indicators of impairment exist. Goodwill impairment testing involves a comparison of the estimated fair value of reporting units to the respective carrying amount, which may be performed utilizing either a qualitative or quantitative assessment. Qualitative factors are first assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined that it is more likely than not that the fair value does not exceed the carrying amount, then a quantitative test is performed. The quantitative goodwill impairment test involves a comparison of the estimated fair value of the reporting unit to the respective carrying amount. A reporting unit is defined as an operating segment or one level below an operating segment (also known as a component).
Goodwill impairment testing involves judgment, including the identification of reporting units, qualitative evaluation of events and circumstances to determine if it is more likely than not that an impairment exists, and, if necessary, the estimation of the fair value of the applicable reporting unit. Our qualitative evaluation considers
 
the weight of evidence and significance of all identified events and circumstances and most relevant drivers of fair value, both positive and negative, in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
Medical Unit Goodwill
For our annual impairment test in fiscal 2019, the fair value of our Medical Unit exceeded its carrying value of $10.8 billion by approximately 4 percent. Although we believe the assumptions used to arrive at the estimate of fair value during the fourth quarter of fiscal 2019 continue to be reasonable and appropriate, changes in key assumptions during fiscal 2020, including a failure to meet expected earnings or other financial plans, or other unanticipated events and circumstances, such as an increase in interest rates or a significant change in industry or economic trends, may affect future estimates. Adverse changes in key assumptions may result in a decline in fair value below the carrying value in the future resulting in an impairment in our Medical segment in future periods, which could adversely affect our results of operations.

Loss Contingencies
 
In connection with the opioid litigation as described further in the Significant Developments in Fiscal 2020 section in this MD&A, we recorded a pre-tax charge of $5.63 billion ($5.14 billion after tax) during the three months ended September 30, 2019. We accrue for contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur the assessment is highly subjective and requires judgments about future events. Moreover, the global Settlement Framework is in its early phases, and there is no assurance that the necessary parties will agree to a
 
definitive settlement agreement or that the contingencies to any agreement will be satisfied. We will regularly review opioid litigation matters to determine whether our accrual is adequate. The amount of ultimate loss may differ materially from this accrual.


 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
12



MD&A
Other Items
 


Provision for Income Taxes
 
Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination of the technical merits of the position, including resolutions of any related appeals or litigation. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement. For tax benefits that do not qualify for recognition, we recognize a liability for unrecognized tax benefits.
In connection with the $5.63 billion pre-tax charge for the opioid litigation, we recorded a tax benefit of $487 million, which is net of unrecognized tax benefits of $468 million, reflecting our current assessment of the estimated future deductibility of the amount that may be paid. We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the Tax Act; however, these estimates require significant judgment since the definitive settlement terms and documentation, including provisions related to deductibility, under the Settlement Framework have not been negotiated and the U.S. tax law governing deductibility was changed by the Tax Act. Further, it is possible that the tax authorities could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of the tax benefit related to uncertain tax positions may differ materially from these estimates. See Note 8 of the Notes to the "Condensed Consolidated Financial Statements" for more information regarding these matters.
We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years 2008 through the current fiscal year. Tax laws are complex and subject to varying interpretations. Tax authorities have challenged some of our tax positions, including IRS challenges to our international transfer pricing for the periods from 2008 to 2014, and it is possible that they will challenge others. These challenges may adversely affect our effective tax rate or tax payments.









 
 
 
 13
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


Explanation and Reconciliation of Non-GAAP Financial Measures
 
 

Explanation and Reconciliation of Non-GAAP Financial Measures
The "Overview of Consolidated Results" section within MD&A in this Form 10-Q contains financial measures that are not calculated in accordance with GAAP.
In addition to analyzing our business based on financial information prepared in accordance with GAAP, we use these non-GAAP financial measures internally to evaluate our performance, evaluate the balance sheet, engage in financial and operational planning, and determine incentive compensation because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance to that of our competitors. However, the non-GAAP financial measures that we use may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The non-GAAP financial measures disclosed by us should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth below should be carefully evaluated.
Exclusions from Non-GAAP Financial Measures
Management believes it is useful to exclude the following items from the non-GAAP measures presented in this report for its own and for investors’ assessment of the business for the reasons identified below:
LIFO charges and credits are excluded because the factors that drive last-in first-out ("LIFO") inventory charges or credits, such as pharmaceutical manufacturer price appreciation or deflation and year-end inventory levels (which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end), are largely out of our control and cannot be accurately predicted. The exclusion of LIFO charges and credits from non-GAAP metrics facilitates comparison of our current financial results to our historical financial results and to our peer group companies’ financial results.
State opioid assessments related to prior fiscal years is the portion of state assessments for prescription opioid medications that were sold or distributed in periods prior to the fiscal year of the initial assessment. This portion is excluded from non-GAAP financial measures because it is retrospectively applied to sales in prior fiscal years and inclusion would obscure analysis of the current fiscal year results of our underlying, ongoing business. Additionally, while states' laws may require us to make payments on an ongoing basis, the portion of the assessment related to sales in prior periods are contemplated to be one-time, nonrecurring items. Reversals of these accruals have occurred when certain assessments were declared unconstitutional.
Restructuring and employee severance costs are excluded because they are not part of the ongoing operations of our underlying business.
Amortization and other acquisition-related costs, which include transaction costs, integration costs, and changes in the fair value of contingent consideration obligations, are excluded because they are not part of the ongoing operations of our underlying business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies' financial results. Additionally, costs for amortization of acquisition-related intangible assets are non-cash amounts, which are variable in amount and frequency and are significantly impacted by the timing and size of acquisitions, so their exclusion facilitates comparison of historical, current and forecasted financial results. We also exclude other acquisition-related costs, which are directly related to an acquisition but do not meet the criteria to be recognized on the acquired entity’s initial balance sheet as part of the purchase price allocation. These costs are also significantly impacted by the timing, complexity and size of acquisitions.
Impairments and gain or loss on disposal of assets are excluded because they do not occur in or reflect the ordinary course of our ongoing business operations and are inherently unpredictable in timing and amount, and in the case of impairments, are non-cash amounts, so their exclusion facilitates comparison of historical, current and forecasted financial results.
Litigation recoveries or charges, net are excluded because they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount.
Loss on extinguishment of debt is excluded because it does not typically occur in the normal course of business and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt extinguishment transactions.
Transitional tax benefit, net related to the Tax Cuts and Jobs Act is excluded because it results from the one-time impact of a very significant change in the U.S. federal corporate tax rate and, due to the significant size of the benefit, obscures analysis of trends and financial performance. The transitional tax benefit includes the initial estimate and subsequent adjustments for the re-


 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
14



Explanation and Reconciliation of Non-GAAP Financial Measures
 
 

measurement of deferred tax assets and liabilities due to the reduction of the U.S. federal corporate income tax rate and the repatriation tax on undistributed foreign earnings.
The tax effect for each of the items listed above, other than the transitional tax benefit item, is determined using the tax rate and other tax attributes applicable to the item and the jurisdiction(s) in which the item is recorded. The gross, tax and net impact of each item are presented with our GAAP to non-GAAP reconciliations.
Definitions
Growth rate calculation: growth rates in this report are determined by dividing the difference between current-period results and prior-period results by prior-period results.
Non-GAAP distribution, selling, general and administrative expenses or Non-GAAP SG&A: distribution, selling, general and administrative expenses, excluding state opioid assessments related to prior fiscal years.
Non-GAAP operating earnings: operating earnings excluding (1) LIFO charges/(credits), (2) state opioid assessment related to prior fiscal years, (3) restructuring and employee severance, (4) amortization and other acquisition-related costs, (5) impairments and (gain)/loss on disposal of assets, and (6) litigation (recoveries)/charges, net.
Non-GAAP earnings before income taxes: earnings before income taxes excluding (1) LIFO charges/(credits), (2) state opioid assessment related to prior fiscal years, (3) restructuring and employee severance, (4) amortization and other acquisition-related costs, (5) impairments and (gain)/loss on disposal of assets, (6) litigation (recoveries)/charges, net, and (7) loss on extinguishment of debt.
Non-GAAP Net Earnings attributable to Cardinal Health, Inc.: net earnings attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) state opioid assessment related to prior fiscal years, (3) restructuring and employee severance, (4) amortization and other acquisition-related costs, (5) impairments and (gain)/loss on disposal of assets, (6) litigation (recoveries)/charges, net, (7) loss on extinguishment of debt, each net of tax, and (8) transitional tax benefit, net.
Non-GAAP effective tax rate: provision for/(benefit from) income taxes adjusted for (1) LIFO charges/(credits), (2) state opioid assessment related to prior fiscal years, (3) restructuring and employee severance, (4) amortization and other acquisition-related costs, (5) impairments and (gain)/loss on disposal of assets, (6) litigation (recoveries)/charges, net, (7) loss on extinguishment of debt, and (8) transitional tax benefit, (net) divided by (earnings before income taxes adjusted for the first seven items).
Non-GAAP diluted earnings/(loss) per share attributable to Cardinal Health, Inc.: non-GAAP net earnings/(loss) attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.


 
 
 
 15
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


Explanation and Reconciliation of Non-GAAP Financial Measures
 
 

GAAP to Non-GAAP Reconciliations
(in millions, except per common share amounts)
SG&A1
SG&A1 Growth Rate
Operating Earnings/(Loss)
Operating Earnings Growth Rate
Earnings/(Loss) Before Income Taxes
Provision for/ (Benefit from) Income Taxes
Net Earnings/(Loss)2
Net Earnings2 Growth Rate
Diluted EPS2,3
Diluted EPS2
 Growth Rate
 
Three Months Ended September 30, 2019
GAAP
$
1,107

(4
)%
$
(5,264
)
N.M.

$
(5,344
)
$
(423
)
$
(4,922
)
N.M.

$
(16.65
)
N.M.

State opioid assessment related to prior fiscal years
(5
)
 
5


5

1

4


0.01


Restructuring and employee severance

 
30

 
30

8

22

 
0.08

 
Amortization and other acquisition-related costs

 
132

 
132

34

98

 
0.33

 
Impairments and (gain)/loss on disposal of assets

 
1

 
1


1

 

 
Litigation (recoveries)/charges, net 4

 
5,673

 
5,673

498

5,175

 
17.51

 
Non-GAAP
$
1,102

(2
)%
$
577

6
 %
$
496

$
117

$
378

(4
)%
$
1.27

(2
)%
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
GAAP
$
1,155

9
 %
$
816

211
 %
$
736

$
142

$
593

416
 %
$
1.94

439
 %
State opioid assessment related to prior fiscal years
(29
)
 
29


29

8

21


0.07


Restructuring and employee severance

 
32


32

8

24


0.08


Amortization and other acquisition-related costs

 
156


156

36

120


0.39


Impairments and (gain)/loss on disposal of assets

 
(511
)

(511
)
(134
)
(377
)

(1.23
)

Litigation (recoveries)/charges, net

 
19


19

5

14


0.05


Non-GAAP
$
1,126

6
 %
$
542

(11
)%
$
461

$
65

$
396

14
 %
$
1.29

18
 %
1 
Distribution, selling, general and administrative expenses.
2 
Attributable to Cardinal Health, Inc.
3 
First quarter fiscal 2020 GAAP diluted loss per share attributable to Cardinal Health, Inc. ("GAAP diluted EPS") and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 296 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the quarter. First quarter fiscal 2020 non-GAAP diluted EPS is calculated using a weighted average of 297 million common shares, which includes potentially dilutive shares.
4 
Litigation (recoveries)/charges, net includes a pre-tax charge of $5.63 billion ($5.14 billion after tax) recorded in the first quarter of fiscal 2020 related to the opioid litigation.
The sum of the components may not equal the total due to rounding.
We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.






 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
16



Other
 


Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the quantitative and qualitative market risk disclosures included in our 2019 Form 10-K since the end of fiscal 2019 through September 30, 2019.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of September 30, 2019. Based on this evaluation, our principal executive officer and principal financial officer have concluded that as of September 30, 2019, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Legal Proceedings
In addition to the proceeding described below, the legal proceedings described in Note 7 of the "Notes to Condensed Consolidated Financial Statements" are incorporated in this "Legal Proceedings" section by reference.
In June 2019, Melissa Cohen, a purported shareholder, filed an action on behalf of Cardinal Health, Inc. in the U.S. District Court for the Southern District of Ohio against certain current and former members of our Board of Directors alleging that the defendants breached their fiduciary duties by failing to effectively monitor Cardinal Health's distribution of controlled substances. The derivative complaint seeks, among other things, unspecified money damages against the defendants and an award of attorneys' fees.


 
 
 
 17
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


Other
 

Risk Factors
You should carefully consider the information in this Form 10-Q, including the risk factors below, and the risk factors discussed in "Risk Factors" and other risks discussed in our 2019 Form 10-K and our filings with the SEC since June 30, 2019. These risks could materially and adversely affect our results of operations, financial condition, liquidity, and cash flows. Our business also could be affected by risks that we are not presently aware of or that we currently consider immaterial to our operations.

The public health crisis involving the abuse of prescription opioid pain medication and our efforts to resolve related claims could have additional or unexpected material negative effects on our business.
Our Pharmaceutical segment distributes prescription opioid pain medications. In recent years, the abuse of prescription opioid pain medication has become a public health crisis.
A significant number of counties, municipalities and other plaintiffs, including a number of state attorneys general, have filed lawsuits against pharmaceutical manufacturers, pharmaceutical wholesale distributors (including us), retail chains and others relating to the manufacturing, marketing or distribution of prescription opioid pain medications. In addition, we are currently being investigated or sued by most other states for the same activities and expect to be named as a defendant in additional lawsuits. The defense and resolution of current and future lawsuits and events relating to these lawsuits are subject to uncertainty and could have a material adverse effect on our results of operations, financial condition, cash flows, liquidity, our ability to pay dividends or repurchase our shares, or have adverse reputational or operational effects on our business.
In October 2019, we agreed in principle to Settlement Framework and in connection with this development we recorded a pre-tax accrual of $5.56 billion in the quarter ended September 30, 2019. This Settlement Framework is subject to contingencies but is the basis for our negotiation of definitive terms and documentation. Moreover, the Settlement Framework is in its early phases, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be satisfied. We will regularly review opioid litigation matters to determine whether our accrual is adequate. The amount of ultimate loss may differ materially from this accrual. See Note 7 of the "Notes to Condensed Consolidated Financial Statements" for more information regarding these matters.
Other legislative, regulatory or industry measures related to the public health crisis involving the abuse of prescription opioid pain medication and the distribution of these medications could affect our business in ways that we may not be able to predict. For example, several states have now adopted taxes or other fees on the sale of opioids, and several other states have proposed similar legislative initiatives. These laws and proposals vary in the tax amounts imposed and the means of calculation. Liabilities for taxes or assessments under any such laws could have an adverse impact on our results of operations unless we are able to mitigate them through operational changes or commercial arrangements where permitted.
Ongoing unfavorable publicity regarding the abuse or misuse of prescription opioid pain medications and the role of wholesale
 
distributors in the supply chain of such prescription medications, as well as the continued proliferation of the opioid lawsuits, investigations, regulations and legislative actions, and unfavorable publicity in relation to those lawsuits could have a material adverse effect on our reputation or results of operations.
We could be subject to adverse changes in the tax laws or challenges to our tax positions.
We are a large multinational corporation with operations in the United States and many foreign countries. As a result, we are subject to the tax laws of many jurisdictions.
From time to time, initiatives are proposed in the United States and other jurisdictions in which we operate that could adversely affect our tax positions, effective tax rate or tax payments. Specific initiatives that may impact us include the repeal of the LIFO (last-in, first-out) method of inventory accounting for income tax purposes, the establishment or increase in taxation at the U.S. state level on the basis of gross revenues, recommendations of the recently completed base erosion and profit shifting project undertaken by the Organization for Economic Cooperation and Development and the European Commission’s investigation into illegal state aid.
Additionally, in connection with the $5.63 billion pre-tax charge for the opioid litigation, we recorded a tax benefit of $487 million, which is net of unrecognized tax benefits of $468 million, reflecting our current assessment of the estimated future deductibility of the amount that may be paid. We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the Tax Act; however, these estimates require significant judgment since the definitive settlement terms and documentation, including provisions related to deductibility, under the Settlement Framework have not been negotiated and the U.S. tax law governing deductibility was changed by the Tax Act. Further, it is possible that the tax authorities could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of the tax benefit related to uncertain tax positions may differ materially from these estimates. See Note 8 of the "Notes to Condensed Consolidated Financial Statements" for more information regarding these matters.
We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years 2008 through the current fiscal year. Tax laws are complex and subject to varying interpretations. Tax authorities have challenged some of our tax positions, including IRS challenges to our international transfer pricing for the periods from 2008 to 2014, and


 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
18



Other
 

it is possible that they will challenge others. These challenges may adversely affect our effective tax rate or tax payments.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Period
Total Number
of Shares
Purchased (1)
 
Average Price Paid per Share (2)
 
Total Number of Shares
Purchased
as Part of Publicly Announced Programs (2, 3)
 
Approximate
Dollar Value of
Shares That May
Yet be Purchased
Under the Program (3)
(in millions)
July 2019
1,203

 
$
47.26

 

 
$
1,293

August 2019
6,400,332

 
43.76

 
6,398,537

 
1,013

September 2019
285

 
47.36

 

 
1,013

Total
6,401,820

 
$
43.76

 
6,398,537

 
$
1,013

(1)
Reflects 1,203, 1,795 and 285 common shares purchased in July, August and September 2019, respectively, through a rabbi trust as investments of participants in our Deferred Compensation Plan.
(2)
On August 20, 2019, we entered into an accelerated share repurchase ("ASR") program to purchase common shares for an aggregate purchase price of $350 million and received an initial delivery of 6.4 million common shares using a reference price of $43.76. The program is expected to conclude in the second quarter of fiscal 2020. See Note 11 of the "Notes to Condensed Consolidated Financial Statements" for additional information.
(3)
On February 7, 2018, our Board of Directors approved a $1.0 billion share repurchase program that expires on December 31, 2020. On November 7, 2018, our Board of Directors approved a new $1.0 billion share repurchase program that expires on December 31, 2021. As of September 30, 2019, we have $1.0 billion authorized for share repurchases remaining under these programs. The approximate dollar value of shares that may yet be purchased under these programs has been reduced by the initial delivery of 6.4 million shares under the ASR program.



 
 
 
 19
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


Financial Statements
 
 

Condensed Consolidated Statements of Earnings
(Unaudited)
 
Three Months Ended September 30,
(in millions, except per common share amounts)
2019
 
2018
Revenue
$
37,341

 
$
35,213

Cost of products sold
35,662

 
33,546

Gross margin
1,679

 
1,667

 
 
 
 
Operating expenses:
 
 
 
Distribution, selling, general and administrative expenses
1,107

 
1,155

Restructuring and employee severance
30

 
32

Amortization and other acquisition-related costs
132

 
156

Impairments and (gain)/loss on disposal of assets, net
1

 
(511
)
Litigation (recoveries)/charges, net
5,673

 
19

Operating earnings/(loss)
(5,264
)
 
816

 
 
 
 
Other (income)/expense, net
14

 
3

Interest expense, net
66

 
77

Earnings/(loss) before income taxes
(5,344
)
 
736

 
 
 
 
Provision for (benefit from) income taxes
(423
)
 
142

Net earnings/(loss)
(4,921
)
 
594

 
 
 
 
   Less: Net earnings attributable to noncontrolling interests
(1
)
 
(1
)
Net earnings/(loss) attributable to Cardinal Health, Inc.
$
(4,922
)
 
$
593

 
 
 
 
Earnings/(loss) per common share attributable to Cardinal Health, Inc.:
 
 
 
Basic
$
(16.65
)
 
$
1.95

Diluted
(16.65
)
 
1.94

 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
Basic
296

 
305

Diluted
296

 
306

 
 
 
 
Cash dividends declared per common share
$
0.4811

 
$
0.4763

See notes to condensed consolidated financial statements.


 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
20



Financial Statements
 
 

Condensed Consolidated Statements of Comprehensive Income/(Loss)
(Unaudited)
 
Three Months Ended September 30,
(in millions)
2019
 
2018
Net earnings/(loss)
$
(4,921
)
 
$
594

 
 
 
 
Other comprehensive income/(loss):
 
 
 
Foreign currency translation adjustments and other
(17
)
 
(3
)
Net unrealized gain/(loss) on derivative instruments, net of tax
(5
)
 
(1
)
Total other comprehensive income/(loss), net of tax
(22
)
 
(4
)
 
 
 
 
Total comprehensive income/(loss)
(4,943
)
 
590

 
 
 
 
Less: comprehensive income attributable to noncontrolling interests
(1
)
 
(1
)
Total comprehensive income/(loss) attributable to Cardinal Health, Inc.
$
(4,944
)
 
$
589

See notes to condensed consolidated financial statements.



 
 
 
 21
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


Financial Statements
 
 

Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
September 30, 2019
 
June 30, 2019
Assets
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
1,212

 
$
2,531

Trade receivables, net
8,190

 
8,448

Inventories, net
12,458

 
12,822

Prepaid expenses and other
1,855

 
1,946

Total current assets
23,715

 
25,747

 
 
 
 
Property and equipment, net
2,324

 
2,356

Goodwill and other intangibles, net
11,658

 
11,808

Other assets
1,482

 
1,052

Total assets
$
39,179

 
$
40,963

 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
19,724

 
$
21,535

Current portion of long-term obligations and other short-term borrowings
631

 
452

Other accrued liabilities
2,194

 
2,122

Total current liabilities
22,549

 
24,109

 
 
 
 
Long-term obligations, less current portion
7,360

 
7,579

Deferred income taxes and other liabilities
8,367

 
2,945

 
 
 
 
Shareholders’ equity:
 
 
 
Preferred shares, without par value:
 
 
 
Authorized—500 thousand shares, Issued—none

 

Common shares, without par value:
 
 
 
Authorized—755 million shares, Issued—327 million shares at September 30, 2019 and June 30, 2019, respectively
2,669

 
2,763

Retained earnings
371

 
5,434

Common shares in treasury, at cost: 34 million shares and 28 million shares at September 30, 2019 and June 30, 2019, respectively
(2,039
)
 
(1,790
)
Accumulated other comprehensive loss
(101
)
 
(79
)
Total Cardinal Health, Inc. shareholders' equity
900

 
6,328

Noncontrolling interests
3

 
2

Total shareholders’ equity
903

 
6,330

Total liabilities and shareholders’ equity
$
39,179

 
$
40,963

See notes to condensed consolidated financial statements.



 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
22



Financial Statements
 
 

Condensed Consolidated Statements of Shareholders' Equity
(Unaudited)

 
Common Shares
 
 
 
Treasury Shares
 
Accumulated Other
Comprehensive
Loss
 
Noncontrolling Interests
 
Total
Shareholders’
Equity
(in millions)
Shares Issued
 
Amount
 
Retained
Earnings/(Deficit)
 
Shares
 
Amount
 
 
 
 
Three Months Ended September 30, 2019
Balance at June 30, 2019
327

 
$
2,763

 
$
5,434

 
(28
)
 
$
(1,790
)
 
$
(79
)
 
$
2

 
$
6,330

Net loss
 
 
 
 
(4,922
)
 
 
 
 
 
 
 
1

 
(4,921
)
Other comprehensive income/(loss), net of tax
 
 
 
 
 
 
 
 
 
 
(22
)
 
 
 
(22
)
Employee stock plans activity, net of shares withheld for employee taxes


 
(24
)
 
 
 


 
31

 
 
 
 
 
7

Share repurchase program activity
 
 
(70
)
 


 
(6
)
 
(280
)
 
 
 
 
 
(350
)
Dividends declared
 
 
 
 
(141
)
 
 
 
 
 
 
 
 
 
(141
)
Balance at September 30, 2019
327

 
$
2,669

 
$
371

 
(34
)
 
$
(2,039
)
 
$
(101
)
 
$
3

 
$
903


 
Three Months Ended September 30, 2018
Balance at June 30, 2018
327

 
$
2,730

 
$
4,645

 
(18
)
 
$
(1,224
)
 
$
(92
)
 
$

 
$
6,059

Net earnings
 
 
 
 
593

 
 
 
 
 
 
 
 
 
593

Other comprehensive income/(loss), net of tax
 
 
 
 
 
 
 
 
 
 
(4
)
 
 
 
(4
)
Employee stock plans activity, net of shares withheld for employee taxes


 
(20
)
 
 
 


 
26

 
 
 
 
 
6

Share repurchase program activity
 
 
(120
)
 
 
 
(9
)
 
(480
)
 
 
 
 
 
(600
)
Dividends declared
 
 
 
 
(143
)
 
 
 
 
 
 
 
 
 
(143
)
Other
 
 
 
 
2

 
 
 
 
 
 
 
 
 
2

Balance at September 30, 2018
327

 
$
2,590

 
$
5,097

 
(27
)
 
$
(1,678
)
 
$
(96
)
 
$

 
$
5,913

See notes to condensed consolidated financial statements.




 
 
 
 23
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


Financial Statements
 
 

Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Three Months Ended September 30,
(in millions)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net earnings/(loss)
$
(4,921
)
 
$
594

 
 
 
 
Adjustments to reconcile net earnings/(loss) to net cash provided by/(used in) operating activities:
 
 
 
Depreciation and amortization
234

 
245

Impairments and (gain)/loss on sale of investments

 
2

Impairments and (gain)/loss on disposal of assets, net
1

 
(511
)
Share-based compensation
20

 
19

Provision for bad debts
29

 
21

Change in operating assets and liabilities, net of effects from acquisitions and divestitures:
 
 
 
(Increase)/decrease in trade receivables
229

 
(302
)
(Increase)/decrease in inventories
356

 
(178
)
Increase/(decrease) in accounts payable
(1,812
)
 
559

Other accrued liabilities and operating items, net
5,211

 
(84
)
Net cash provided by/(used in) operating activities
(653
)
 
365

 
 
 
 
Cash flows from investing activities:
 
 
 
Additions to property and equipment
(72
)
 
(58
)
Purchase of available-for-sale securities and other investments
(3
)
 
(4
)
Proceeds from sale of available-for-sale securities and other investments
2

 
1

Proceeds from divestitures, net of cash sold, and disposal of property and equipment

 
740

Net cash provided by/(used in) investing activities
(73
)
 
679

 
 
 
 
Cash flows from financing activities:
 
 
 
Net change in short-term borrowings
(2
)
 

Reduction of long-term obligations
(74
)
 
(1
)
Net tax proceeds/(withholdings) from share-based compensation
(13
)
 
(13
)
Dividends on common shares
(146
)
 
(150
)
Purchase of treasury shares
(350
)
 
(600
)
Net cash used in financing activities
(585
)
 
(764
)
 
 
 
 
Effect of exchange rate changes on cash and equivalents
(8
)
 
2

 
 
 
 
Net increase/(decrease) in cash and equivalents
(1,319
)
 
282

Cash and equivalents at beginning of period
2,531

 
1,763

Cash and equivalents at end of period
$
1,212

 
$
2,045

See notes to condensed consolidated financial statements.


 
 
 
 
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
24



Notes to Financial Statements
 
 

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Our condensed consolidated financial statements include the accounts of all majority-owned or controlled subsidiaries, and all significant intercompany transactions and amounts have been eliminated. Investments in business entities in which we do not have control, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Refer to Note 4 for further information on our equity method investments.
References to "we," "our," and similar pronouns in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (this "Form 10-Q") refer to Cardinal Health, Inc. and its majority-owned or controlled subsidiaries unless the context requires otherwise.
Our fiscal year ends on June 30. References to fiscal 2020 and 2019 in these condensed consolidated financial statements are to the fiscal years ending or ended June 30, 2020 and June 30, 2019, respectively.
Our condensed consolidated financial statements have been prepared in accordance with the U.S. Securities and Exchange Commission ("SEC") instructions to Quarterly Reports on Form 10-Q and include the information and disclosures required by accounting principles generally accepted in the United States ("GAAP") for interim financial reporting. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements and accompanying notes. Actual amounts may differ from these estimated amounts. In our opinion, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Except as disclosed elsewhere in this Form 10-Q, all such adjustments are of a normal and recurring nature. To conform to the current year presentation, certain prior year amounts have been reclassified. In addition, financial results presented for this fiscal 2020 interim period are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2020. These condensed consolidated financial statements are unaudited and, accordingly, should be read in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (the "2019 Form 10-K").
Recently Adopted Financial Accounting Standards
Derivatives and Hedging
In October 2018, the Financial Accounting Standards Board ("FASB") issued amended accounting guidance related to derivatives and hedging which permits the use of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") as a Benchmark
 
Interest Rate for Hedge Accounting Purposes. This guidance is effective beginning the first quarter of fiscal 2020 and must be applied on a prospective basis. The adoption did not have a material impact on our consolidated financial statements.
Leases
In February 2016, the FASB issued amended accounting guidance that requires lessees to recognize most leases on the balance sheet as a lease liability and corresponding right-of-use asset. The guidance also requires disclosures that meet the objective of enabling financial statement users to assess the amount, timing and uncertainty of cash flows arising from leases. We adopted this guidance during the first quarter of fiscal 2020 and elected the transition option which allows us to apply the guidance prospectively. The adoption resulted in the recognition of lease liabilities in the amount of $422 million and did not have a material impact on our results of operations, liquidity or debt covenant compliance under our current debt agreements. The majority of our lease spend relates to certain real estate with the remaining lease spend primarily related to vehicles and equipment. The adoption required certain changes to our systems and processes. See Note 5 for additional information regarding leases.
Recently Issued Financial Accounting Standards Not Yet Adopted
Financial Instruments - Credit Losses
In June 2016, the FASB issued amended accounting guidance that will require entities to measure credit losses on trade and other receivables, held-to-maturity debt securities, loans and other instruments using an "expected credit loss" model that considers historical experience, current conditions and reasonable supportable forecasts. This guidance also requires that credit losses on available for-sale debt securities with unrealized losses be recognized as allowances rather than as deductions in the amortized cost of the securities. This guidance will be effective for us in the first quarter of fiscal 2021. We are currently evaluating the impact of adoption on our consolidated financial statements.


 
 
 
 25
Cardinal Health | Q1 Fiscal 2020 Form 10-Q
 


Notes to Financial Statements
 
 


2. Restructuring and Employee Severance
The following table summarizes restructuring and employee severance costs:
 
Three months ended September 30,
(in millions)
2019
 
2018
Employee-related costs (1)
$
20

 
$
29

Facility exit and other costs (2)
10

 
3

Total restructuring and employee severance
$
30

 
$
32


(1)
Employee-related costs primarily consist of termination benefits provided to employees who have been involuntarily terminated, duplicate payroll costs and retention bonuses incurred during transition periods.
(2)
Facility exit and other costs primarily consist of product distribution and lease contract termination costs, lease costs associated with vacant facilities, accelerated depreciation, equipment relocation costs, project consulting fees, costs associated with restructuring our delivery of information technology infrastructure services and certain other divestiture-related costs.
During fiscal 2020 and 2019, we implemented certain enterprise-wide cost-saving initiatives affecting various functional and commercial areas intended to optimize and simplify our operating model and cost structure. We incurred $20 million and $26 million for the three months ended September 30, 2019 and 2018, respectively, in expenses related to these cost savings initiatives, which are reflected in restructuring and employee severance in the condensed consolidated statements of earnings.
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, 2019
$
64

 
$
8

 
$
72

Additions
19

 
6

 
25

Payments and other adjustments
(10
)
 
(2
)
 
(12
)
Balance at September 30, 2019
$
73

 
$
12

 
$
85


3. 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, 2019
$
2,663

 
$
5,715

 
$
8,378

Goodwill acquired, net of purchase price adjustments
(5
)
 

 
(5
)
Foreign currency translation adjustments and other

 
(13
)
 
(13
)
Balance at September 30, 2019
$
2,658

 
$
5,702

 
$
8,360


 
Other Intangible Assets
The following tables summarize other intangible assets by class at:
 
September 30, 2019
(in millions)
Gross
Intangible
 
Accumulated
Amortization
 
Net
Intangible
 
Weighted- Average Remaining Amortization Period (Years)
Indefinite-life intangibles:
 
 
 
 
 
 
 
IPR&D, trademarks and other
$
22

 
$

 
$
22

 
N/A
Total indefinite-life intangibles
22

 

 
22

 
N/A
 
 
 
 
 
 
 
 
Definite-life intangibles:
 
 
 
 
 
 
 
Customer relationships
3,555

 
1,592

 
1,963

 
13
Trademarks, trade names and patents
673

 
307

 
366

 
13
Developed technology and other
1,603

 
656

 
947

 
11
Total definite-life intangibles