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Cardinal Health
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$50.14 298 $14,940
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
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 2018-01-16 Officers
BA Boeing 199,240
ADVM Adverum Biotechnologies 415
XOMA Xoma 129
ZSAN Zosano Pharma 60
DGL Invesco DB Gold Fund 0
GPLB Green Planet Bio Engineering 0
CSBB CSB Bancorp 0
ARRS Arris 0
CARD Cardinal Ethanol 0
BDMS Birner Dental Management Services 0
CAH 2019-03-31
EX-31.1 a19q3_10qx33119xexhibit311.htm
EX-31.2 a19q3_10qx33119xexhibit312.htm
EX-32.1 a19q3_10qx33119xexhibit321.htm
EX-99.1 a19q3_10qx33119xexhibit991.htm

Cardinal Health Earnings 2019-03-31

CAH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a19q3_10qx33119xform10-q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
o
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)
 
 
(614) 757-5000
(Registrant’s telephone number, including area code)
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  þ    No  o
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 and post such files).    Yes  þ    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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  þ
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
 
Emerging growth company  o
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 o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  þ
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
The number of the registrant’s common shares, without par value, outstanding as of April 30, 2019, was the following: 298,059,831.



Cardinal Health  
Q3 Fiscal 2019 Form 10-Q

Table of Contents
 

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 2019 and fiscal 2018 are to the fiscal years ending or ended June 30, 2019 and June 30, 2018, respectively.
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q for the quarter ended March 31, 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 expense accruals. 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 Exhibit 99.1 to this Form 10-Q and in "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (our “2018 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 | Q3 Fiscal 2019 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 March 31, 2019 and June 30, 2018, and in our condensed consolidated statements of earnings for the three and nine months ended March 31, 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 2018 Form 10-K.

Overview of Consolidated Results
Revenue
 
chart-331d92c2065a5633bb3a01.jpg
During the three and nine months ended March 31, 2019, revenue increased 5 percent to $35.2 billion and 7 percent to $108.2 billion, respectively, primarily due to sales growth from pharmaceutical distribution and specialty pharmaceutical customers, partially offset by the February 2018 divestiture of our China distribution business.


 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
2



MD&A
Overview
 

GAAP and Non-GAAP Operating Earnings
 
chart-b293129ea8165a88a64.jpgchart-8dccf1b8fbef5afaa4ea01.jpg
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(in millions)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
GAAP operating earnings
$
432

 
$
546

 
(21
)%
 
$
1,752

 
$
1,206

 
45
 %
Restructuring and employee severance
53

 
2

 
 
 
97

 
155

 
 
Amortization and other acquisition-related costs
154

 
175

 
 
 
468

 
543

 
 
Impairments and (gain)/loss on disposal of assets
11

 
(6
)
 
 
 
(492
)
 
62

 
 
Litigation (recoveries)/charges, net
17

 
64

 
 
 
20

 
155

 
 
Non-GAAP operating earnings
$
667

 
$
781

 
(15
)%
 
$
1,845

 
$
2,121

 
(13
)%
The sum of the components may not equal the total due to rounding.
The decrease in GAAP operating earnings during the three months ended March 31, 2019 was primarily due to the decrease in our Pharmaceutical and Medical segment profit and an increase in restructuring costs, partially offset by a smaller amount of net litigation charges. The change in Pharmaceutical and Medical segment profit is primarily due to the negative impact of our Pharmaceutical segment generics program, performance of Medical segment Cardinal Health Brand products and the adverse impact of Pharmaceutical segment customer contract renewals. These factors were partially offset by growth from our specialty pharmaceutical products distribution and services business within our Pharmaceutical segment.
The increase in GAAP operating earnings during the nine months ended March 31, 2019 was primarily due to a $508 million gain from the divestiture of our naviHealth Holdings, LLC ("naviHealth") business and a smaller amount of net litigation charges. These positive factors were partially offset by the Pharmaceutical and Medical segment profit discussed above.
The decrease in non-GAAP operating earnings during the three and nine months ended March 31, 2019 was due to the decrease in Pharmaceutical and Medical segment profit discussed above.




 
 
 
 3
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
 



MD&A
Overview
 

GAAP and Non-GAAP Diluted EPS
 
chart-f49ca35444ba5230a93.jpgchart-21536c1a91255b159b2a01.jpg
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
($ per share)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
GAAP (1)
$
0.99

 
$
0.81

 
22
%
 
$
3.88

 
$
4.50

 
(14
)%
Restructuring and employee severance
0.13

 
0.06

 
 
 
0.24

 
0.40

 
 
Amortization and other acquisition-related costs
0.39

 
0.42

 
 
 
1.18

 
1.27

 
 
Impairments and (gain)/loss on disposal of assets
0.03

 
0.02

 
 
 
(1.20
)
 
0.38

 
 
Litigation (recoveries)/charges, net
0.03

 
0.14

 
 
 
0.04

 
0.33

 
 
Transitional tax benefit, net
0.02

 
(0.06
)
 
 
 
0.03

 
(2.88
)
 
 
Non-GAAP (1)
$
1.59

 
$
1.39

 
14
%
 
$
4.17

 
$
3.99

 
5
 %
The sum of the components may not equal the total due to rounding.
(1)
diluted earnings per share attributable to Cardinal Health, Inc. ("diluted EPS")
During the three months ended March 31, 2019, GAAP diluted EPS increased primarily due to a $0.31 per share impact from the lower effective tax rate in the current period compared to the significantly higher prior year effective tax rate, partially offset by the decrease in GAAP operating earnings.
During the nine months ended March 31, 2019, GAAP diluted EPS decreased primarily due to the $2.88 per share impact in the prior year from the estimated net transitional benefit from the remeasurement of our deferred tax assets and liabilities partially offset by the repatriation tax on cash and earnings of foreign subsidiaries. This decrease was mostly offset by the increase in GAAP operating earnings, favorable changes in discrete tax items and the benefits from applying a lower federal statutory tax rate to our U.S. pre-tax earnings as a result of the U.S. Tax Cuts and Jobs Act ("Tax Act"). The increase in GAAP operating earnings during the nine months ended March 31, 2019 was primarily due to a $508 million gain from the divestiture of our naviHealth business and a smaller amount of net litigation charges.
During the three months ended March 31, 2019, non-GAAP diluted EPS increased primarily due to a $0.32 per share impact from the lower effective tax rate in the current period compared to the significantly higher prior year effective tax rate and due to a lower share count as a result of share repurchases, partially offset by the decrease in non-GAAP operating earnings. The tax rate is lower in the current year because of the prior year unfavorable impact from changes in jurisdictional mix, favorable changes in discrete tax items and the benefits from applying a lower federal statutory tax rate to our U.S. pre-tax earnings as a result of the Tax Act.
During the nine months ended March 31, 2019, non-GAAP diluted EPS increased primarily due to a $0.58 per share impact from the lower effective tax rate in the current period compared to the significantly higher prior year effective tax rate and due to a lower share count as a result of share repurchases, mostly offset by the decrease in non-GAAP operating earnings. The tax rate is lower in the current year because of favorable changes in discrete tax items, the benefits from applying a lower federal statutory tax rate to our U.S. pre-tax earnings as a result of the Tax Act and the prior year unfavorable impact from changes in jurisdictional mix.







 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
4



MD&A
Overview
 

Cash and Equivalents
 
Our cash and equivalents balance was $3.4 billion at March 31, 2019 compared to $1.8 billion at June 30, 2018. The increase in cash and equivalents during the nine months ended March 31, 2019 was due to $2.2 billion provided by operating activities and $737 million of net cash proceeds from the sale of our naviHealth business, offset in part by $600 million paid for share repurchases and $435 million paid in dividends. We plan to repay our outstanding 1.948% notes at maturity in June 2019 with $1.0 billion of available cash.

Significant Developments in Fiscal 2019
Divestitures
 
In August 2018, we sold our 98 percent ownership interest in naviHealth in exchange for cash proceeds of $737 million and a 44 percent equity interest in a partnership that owns 100 percent of naviHealth. We also have certain call rights to reacquire naviHealth. We recognized a pre-tax gain of $508 million related to this divestiture during the nine months ended March 31, 2019.



 
 
 
 5
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
 



MD&A
Results of Operations
 

Results of Operations
Revenue

chart-fb0a983c94e15710be5a01.jpgchart-bf90aa5146d15d99af7a01.jpg
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(in millions)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Pharmaceutical
$
31,361

 
$
29,720

 
6
 %
 
$
96,516

 
$
89,786

 
7
 %
Medical
3,871

 
3,916

 
(1
)%
 
11,678

 
11,684

 
 %
Total segment revenue
35,232

 
33,636

 
5
 %
 
108,194

 
101,470

 
7
 %
Corporate
(4
)
 
(3
)
 
33
 %
 
(13
)
 
(10
)
 
30
 %
Total revenue
$
35,228

 
$
33,633

 
5
 %
 
$
108,181

 
$
101,460

 
7
 %
Pharmaceutical Segment
Pharmaceutical segment revenue growth was primarily due to sales growth from pharmaceutical distribution and specialty pharmaceutical customers, which together increased revenue by $2.0 billion and $8.7 billion during the three and nine months ended March 31, 2019, respectively. The increase was partially offset by the February 2018 divestiture of our China distribution business.
Medical Segment
Medical segment revenue decreased slightly during the three and nine months ended March 31, 2019 due to the divestitures of our China distribution and naviHealth businesses, largely offset by sales growth from existing customers. The nine months ended March 31, 2019 benefited from an extra month of contribution from the Patient Recovery acquisition.
Cost of Products Sold
 
Cost of products sold for the three and nine months ended March 31, 2019 increased $1.7 billion (5 percent) and $7.0 billion (7 percent) compared to the respective prior-year periods as a result of the factors affecting the changes in revenue and gross margin.





 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
6



MD&A
Results of Operations
 

Gross Margin
 
chart-8e8b4055ab7c5860991a01.jpgchart-87e6162c256d53379f7a01.jpg
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(in millions)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Gross margin
$
1,764

 
$
1,913

 
(8
)%
 
$
5,160

 
$
5,446

 
(5
)%
Gross margin decreased $149 million during the three months ended March 31, 2019 primarily due to lower contribution from our Pharmaceutical segment generics program and from Medical segment Cardinal Health Brand products, partially offset by sales growth from our specialty pharmaceutical products distribution and services business within our Pharmaceutical segment.
Gross margin decreased $286 million during the nine months ended March 31, 2019 primarily due to lower contribution from our Pharmaceutical segment generics program and the adverse impact of Pharmaceutical segment customer contract renewals, partially offset by sales growth from our specialty pharmaceutical products distribution and services business within our Pharmaceutical segment.
Gross margin rate declined 68 and 60 basis points during the three and nine months ended March 31, 2019, respectively, mainly due to changes in product mix, lower contribution from our Pharmaceutical segment generics program and the adverse impact of Pharmaceutical segment customer contract renewals.
Distribution, Selling, General and Administrative ("SG&A") Expenses
 
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(in millions)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
SG&A expenses
$
1,097

 
$
1,132

 
(3
)%
 
$
3,315

 
$
3,325

 
 %
During the three and nine months ended March 31, 2019, SG&A expenses decreased due to the beneficial impact of divestitures and enterprise-wide cost saving measures, largely offset by certain costs to exit transition service agreements for our Patient Recovery Business and legal expenses for opioid-related matters.



 
 
 
 7
Cardinal Health | Q3 Fiscal 2019 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.
chart-f58fa39140675474967a01.jpgchart-1c6728ec67015cc3992a01.jpg
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(in millions)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Pharmaceutical
$
536

 
$
596

 
(10
)%
 
$
1,388

 
$
1,576

 
(12
)%
Medical
155

 
199

 
(22
)%
 
479

 
548

 
(13
)%
Total segment profit
691

 
795

 
(13
)%
 
1,867

 
2,124

 
(12
)%
Corporate
(259
)
 
(249
)
 
4
 %
 
(115
)
 
(918
)
 
(87
)%
Total consolidated operating earnings
$
432

 
$
546

 
(21
)%
 
$
1,752

 
$
1,206

 
45
 %
Pharmaceutical Segment Profit
Pharmaceutical segment profit during the three and nine months ended March 31, 2019 was adversely impacted by our generics program performance and customer contract renewals. The decreases were partially offset by growth from our specialty pharmaceutical products distribution and services business.
Medical Segment Profit
The decrease in Medical segment profit during the three and nine months ended March 31, 2019 was primarily due to the performance of Cardinal Health Brand products. The decrease during the nine months ended March 31, 2019 was partially offset by the net impact of acquisitions and divestitures, which includes the beneficial comparison to the prior-year fair value step-up of inventory acquired with the Patient Recovery Business.
Corporate
The changes in Corporate during the three and nine months ended March 31, 2019 were due to the factors discussed in the Other Components of Consolidated Operating Earnings section that follows.


 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
8



MD&A
Results of Operations
 

Other Components of Consolidated Operating Earnings
 
In addition to revenue, gross margin and SG&A expenses discussed previously, consolidated operating earnings were impacted by the following:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(in millions)
2019
 
2018
 
2019
 
2018
Restructuring and employee severance
$
53

 
$
2

 
$
97

 
$
155

Amortization and other acquisition-related costs
154

 
175

 
468

 
543

Impairments and (gain)/loss on disposal of assets, net
11

 
(6
)
 
(492
)
 
62

Litigation (recoveries)/charges, net
17

 
64

 
20

 
155

Restructuring and Employee Severance
During the three and nine months ended March 31, 2019, we recognized $27 million and $60 million, respectively, of employee-related severance costs in connection with enterprise-wide cost-saving measures that began in fiscal 2019.
During the nine months ended March 31, 2018, we incurred $125 million of contract termination costs to transition the distribution of our Medical segment surgeon gloves in certain international markets from a third-party distribution arrangement to a direct distribution model.
Amortization and Other Acquisition-Related Costs
Amortization of acquisition-related intangible assets was $133 million and $148 million for the three months ended March 31, 2019 and 2018, respectively, and $399 million and $435 million for the nine months ended March 31, 2019 and 2018, respectively.
Transaction and integration costs associated with the acquisition of the Patient Recovery Business were $17 million and $25 million for the three months ended March 31, 2019 and 2018, respectively, and $62 million and $85 million for the nine months ended March 31, 2019 and 2018, respectively.
Impairments and (Gain)/Loss On Disposal of Assets, Net
During the nine months ended March 31, 2019, we recognized a pre-tax gain of $508 million related to the divestiture of our naviHealth business.
During the nine months ended March 31, 2018, we recognized a $67 million write-down of the net assets held for sale from the divestiture of our China distribution business.
Litigation (Recoveries)/Charges, Net
During the three and nine months ended March 31, 2019, we recognized $46 million and $94 million, respectively, of recoveries in class action antitrust lawsuits in which we were a class member. The costs we recognized in connection with the IVC filter product liability claims during the three months ended March 31, 2019 and 2018 were $58 million and $69 million, respectively, and $104 million and $159 million for the nine months ended March 31, 2019 and 2018, respectively.
Earnings Before Income Taxes

In addition to the items discussed above, earnings before income taxes were impacted by the following:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(in millions)
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Other (income)/expense, net
$
(13
)
 
$
(2
)
 
N.M.

 
$
13

 
$
(6
)
 
N.M.

Interest expense, net
75

 
84

 
(11
)%
 
227

 
251

 
(10
)%
Loss on extinguishment of debt

 

 
N.M.

 

 
2

 
N.M.









 
 
 
 9
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
 



MD&A
Results of Operations
 

Provision for/(Benefit from) Income Taxes
 
During the three months ended March 31, 2019 and 2018, the effective tax rate was 20.0 percent and 45.1 percent, respectively. The change in the effective tax rate for the three months ended March 31, 2019 compared to the prior period was due to discrete tax items, a lower federal statutory tax rate applied to our U.S. pre-tax earnings as a result of the Tax Act and the prior year unfavorable impact from changes in jurisdictional mix. The three months ended March 31, 2019 benefited from net favorable discrete items of $12 million and the three months ended March 31, 2018 were adversely affected by net unfavorable discrete items of $18 million.
During the nine months ended March 31, 2019 and 2018, the effective tax rate was 22.6 percent and (48.6) percent, respectively. The change in the effective tax rates for the nine months ended March 31, 2019 compared to the prior period was primarily due to the prior year transitional tax benefits from the enactment of the Tax Act. The nine months ended March 31, 2019 also included net discrete benefits of $50 million, primarily related to international legal entity changes, and the nine months ended March 31, 2018 were adversely affected by net unfavorable discrete items of $12 million.
The transitional tax benefits from the Tax Act during the three and nine months ended March 31, 2018 included a provisional net tax benefit of $18 million and $952 million, respectively, related to the remeasurement of our deferred tax assets and liabilities to the new federal statutory rate and the nine months ended March 31, 2018 included a provisional tax expense of $41 million for the one-time repatriation tax applied to our undistributed foreign earnings. Our effective tax rates for the three and nine months ended March 31, 2018 also included $57 million of tax expense recognized in connection with the sale of our China distribution business.


 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
10



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. If we decide to engage in one or more acquisitions, depending on the size and timing of such transactions, we may need to access capital markets for additional financing.
Cash and Equivalents
 
Our cash and equivalents balance was $3.4 billion at March 31, 2019 compared to $1.8 billion at June 30, 2018. At March 31, 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 nine months ended March 31, 2019, net cash provided by operating activities was $2.2 billion, driven by net earnings and changes in net working capital, including timing of inventory purchases. In August 2018, we completed the sale of our interest in naviHealth and received proceeds of $737 million and a 44 percent equity interest in a partnership that owns naviHealth. Also, during the nine months ended March 31, 2019, we deployed $600 million for share repurchases and $435 million for cash dividends.
The cash and equivalents balance at March 31, 2019 includes $795 million of cash held by subsidiaries outside of the United States.
Though our foreign earnings have been deemed to be repatriated from a U.S. federal tax perspective, we have not yet completed our assessment of any additional pending regulatory changes on our plans to reinvest foreign earnings, and as such, we have not changed our prior conclusion that the earnings are indefinitely reinvested. If
 
we decide to change our assertion on indefinite reinvestment or repatriate these earnings in the future, we may be subject to certain non-U.S. taxes at that time. See Note 7 of the "Notes to Condensed Consolidated Financial Statements" for additional information on the Tax Act.
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.
We expect our cash and equivalents balance at June 30, 2019 to be lower than the balance at March 31, 2019 primarily due to our plan to repay $1.0 billion of 1.948% notes that mature in June 2019 with available cash. In addition, we expect our net cash provided by operating activities to be lower during the three months ending June 30, 2019 than the three months ended March 31, 2019 primarily due to anticipated changes in working capital largely driven by the timing of inventory purchases.

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 March 31, 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 March 31, 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 $630 million and $785 million during the three and nine months ended March 31, 2019, respectively, and an average daily amount outstanding of $14 million and $20 million during the three and nine months ended March 31, 2019, respectively.
 
Our revolving credit and committed receivables facilities provide that, as of the end of any calendar quarter, our maximum consolidated leverage ratio may be no more than 4.25-to-1. The maximum permitted ratio will reduce to 4.00-to-1 in September 2019, to 3.75-to-1 in March 2020 and to 3.25-to-1 in September 2020. As of March 31, 2019, we were in compliance with this financial covenant.
Long-Term Debt
At March 31, 2019, we had total long-term obligations, including the current portion and other short-term borrowings, of $9.1 billion. We plan to repay our outstanding 1.948% notes at maturity in June 2019 with $1.0 billion of available cash.


 
 
 
 11
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
 



MD&A
Liquidity and Capital Resources
 

Capital Deployment
 
Capital Expenditures
Capital expenditures during the nine months ended March 31, 2019 and 2018 were $192 million and $246 million, respectively.
Dividends
On February 6, 2019, our Board of Directors approved a quarterly dividend of $0.4763 per share, or $1.91 per share on an annualized basis, payable on April 15, 2019 to shareholders of record on April 1, 2019.
On May 8, 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 July 15, 2019 to shareholders of record on July 1, 2019.

 
Share Repurchases
During the nine months ended March 31, 2019, we repurchased $600 million of our common shares. See Note 11 of the "Notes to condensed consolidated financial statements" for additional information. At March 31, 2019, we had $1.3 billion authorized for share repurchases remaining under all programs.


 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
12



MD&A
Other Items
 


Other Items
The MD&A in our 2018 Form 10-K addresses our contractual obligations and off-balance sheet arrangements, as of and for the fiscal year ended June 30, 2018. There have been no subsequent material changes outside of the ordinary course of business to those items.
Critical Accounting Policies and Sensitive Accounting Estimates
The discussion and analysis presented below is a supplemental disclosure to the critical accounting policies and sensitive accounting estimates specified in our consolidated balance sheets at June 30, 2018. This discussion and analysis should be read in conjunction with the Critical Accounting Policies and Sensitive Accounting Estimates included in our 2018 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. In this section, we describe the significant policies applied in preparing our consolidated financial statements that management believes are the most dependent on estimates and assumptions for goodwill impairment testing.
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 Qualitative Assessment
During the fourth quarter of fiscal 2018, we recorded a $1.4 billion goodwill impairment within our Medical segment. Although we believe the assumptions used to arrive at the estimate of fair value during the fourth quarter of fiscal 2018 continue to be reasonable and appropriate, changes in key assumptions during the remainder of fiscal 2019, including a failure to meet expected earnings or other financial plans, or other unanticipated events and circumstances, such as a rise 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 further decline in fair value below the carrying value in the future and an additional impairment in our Medical segment in future periods, which could adversely affect our results of operations.



 
 
 
 13
Cardinal Health | Q3 Fiscal 2019 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, 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 assessment related to prior fiscal years is the portion of the New York State assessment under the Opioid Stewardship Act for prescription opioid medications that were sold or distributed in periods prior to fiscal 2019. This portion was excluded from non-GAAP financial measures because it related to sales in prior fiscal years and inclusion would have obscured analysis of the current fiscal year results of our underlying, ongoing business. Additionally, while the New York law would have required us to make payments on an ongoing basis, the portion of the assessment related to sales in periods prior to fiscal 2019 was contemplated to be a one-time, nonrecurring item. In December 2018, this assessment was declared to be 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-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.


 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
14



Explanation and Reconciliation of Non-GAAP Financial Measures
 
 

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 Form 10-Q are determined by dividing the difference between current-period results and prior-period results by prior-period results.
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 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 EPS attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.


 
 
 
 15
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
 



Explanation and Reconciliation of Non-GAAP Financial Measures
 
 

GAAP to Non-GAAP Reconciliations
(in millions, except per common share amounts)
Operating Earnings
Operating Earnings Growth Rate
Earnings Before Income Taxes
Provision for Income Taxes
Net Earnings1
Net Earnings1 Growth Rate
Effective
Tax
Rate
Diluted EPS1,3,4
Diluted EPS1 Growth Rate
 
Three Months Ended March 31, 2019
GAAP
$
432

(21
)%
$
370

$
74

$
296

16
 %
20.0
 %
$
0.99

22
 %
Restructuring and employee severance
53


53

14

39


 
0.13


Amortization and other acquisition-related costs
154


154

38

116


 
0.39


Impairments and (gain)/loss on disposal of assets, net
11


11

4

7


 
0.03


Litigation (recoveries)/charges, net
17


17

7

10


 
0.03


Transitional tax benefit, net2



(5
)
5


 
0.02


Non-GAAP
$
667

(15
)%
$
605

$
130

$
475

9
 %
21.6
 %
$
1.59

14
 %
 
Three Months Ended March 31, 2018
GAAP
$
546

(10
)%
$
464

$
209

$
255

(33
)%
45.1
 %
$
0.81

(33
)%
Restructuring and employee severance
2


2

(17
)
19



0.06


Amortization and other acquisition-related costs
175


175

44

131



0.42


Impairments and (gain)/loss on disposal of assets, net
(6
)

(6
)
(14
)
8



0.02


Litigation (recoveries)/charges, net
64


64

21

43



0.14


Transitional tax benefit, net2



17

(17
)


(0.06
)

Non-GAAP
$
781

3
 %
$
700

$
262

$
437

(10
)%
37.5
 %
$
1.39

(9
)%
 
Nine Months Ended March 31, 2019
GAAP
$
1,752

45
 %
$
1,512

$
342

$
1,169

(18
)%
22.6
 %
$
3.88

(14
)%
Restructuring and employee severance
97


97

25

72



0.24


Amortization and other acquisition-related costs
468


468

112

356



1.18


Impairments and (gain)/loss on disposal of assets, net
(492
)

(492
)
(129
)
(363
)


(1.20
)

Litigation (recoveries)/charges, net
20


20

7

13



0.04


Transitional tax benefit, net2



(8
)
8



0.03


Non-GAAP
$
1,845

(13
)%
$
1,605

$
349

$
1,255

 %
21.7
 %
$
4.17

5
 %
 
Nine Months Ended March 31, 2018
GAAP
$
1,206

(28
)%
$
959

$
(466
)
$
1,422

40
 %
(48.6
)%
$
4.50

42
 %
Restructuring and employee severance
155


155

29

126



0.40


Amortization and other acquisition-related costs
543


543

143

400



1.27


Impairments and (gain)/loss on disposal of assets, net
62


62

(57
)
119



0.38


Litigation (recoveries)/charges, net
155


155

51

104



0.33


Loss on extinguishment of debt


2

1

1





Transitional tax benefit, net2



911

(911
)


(2.88
)

Non-GAAP
$
2,121

 %
$
1,875

$
612

$
1,261

(4
)%
32.6
 %
$
3.99

(3
)%
1 
attributable to Cardinal Health, Inc.
2 
Reflects the net transitional benefit from the remeasurement of our deferred tax assets and liabilities partially offset by the repatriation tax on cash and earnings of foreign subsidiaries. See Note 7 of the "Notes to Condensed Consolidated Financial Statements" for more information on the Tax Act.


 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
16



Explanation and Reconciliation of Non-GAAP Financial Measures
 
 

3 
GAAP diluted EPS for the three months ended March 31,2019 compared to the prior year period was favorably impacted by $0.36 per share, which includes $0.31 per share due to change in the effective tax rate and $0.05 per share due to the change in weighted average shares outstanding. GAAP diluted EPS for the nine months ended March 31, 2019 compared to the prior year period was unfavorably impacted by $(3.39) per share, which includes $(3.57) per share due to change in the effective tax rate and $0.18 per share due to the change in weighted average shares outstanding. The change in GAAP diluted EPS due to the effective tax rate is calculated as ((GAAP Earnings before Income Taxes for the current period times (one minus the current period GAAP Effective Tax Rate)) minus (GAAP Earnings before Income Taxes for the current period times (one minus the prior period GAAP Effective Tax Rate))) divided by the current period weighted average shares outstanding. The change in GAAP diluted EPS due to the weighted average shares outstanding is calculated as (GAAP Net Earnings for the current period divided by the current period weighted average shares outstanding) minus (GAAP Net Earnings for the current period divided by the prior period weighted average shares outstanding).
4 
Non-GAAP diluted EPS for the three months ended March 31, 2019 compared to the prior year period was favorably impacted by $0.40 per share, which includes $0.32 per share due to change in the effective tax rate and $0.08 per share due to the change in weighted average shares outstanding. Non-GAAP diluted EPS for the nine months ended March 31, 2019 compared to the prior year period was favorably impacted by $0.77 per share, which includes $0.58 per share due to change in the effective tax rate and $0.19 per share due to the change in weighted average shares outstanding. The change in Non-GAAP diluted EPS due to the effective tax rate is calculated as ((Non-GAAP Earnings before Income Taxes for the current period times (one minus the current period Non-GAAP Effective Tax Rate)) minus (Non-GAAP Earnings before Income Tax for the current period times (one minus the prior period Non-GAAP Effective Tax Rate))) divided by the current period weighted average shares outstanding. The change in Non-GAAP diluted EPS due to the weighted average shares outstanding is calculated as (Non-GAAP Net Earnings for the current period divided by the current period weighted average shares outstanding) minus (Non-GAAP Net Earnings for the current period divided by the prior period weighted average shares outstanding).

The sum of the components may not equal the total due to rounding.
We generally apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.


 
 
 
 17
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
 



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 2018 Form 10-K since the end of fiscal 2018 through March 31, 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 March 31, 2019. Based on this evaluation, our principal executive officer and principal financial officer have concluded that as of March 31, 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 March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Legal Proceedings
The legal proceedings described in Note 8 of the "Notes to Condensed Consolidated Financial Statements" are incorporated in this "Legal Proceedings" section by reference.
Risk Factors
You should carefully consider the information in this Form 10-Q and the risk factors discussed in "Risk Factors" and other risks discussed in our 2018 Form 10-K and our filings with the SEC since June 30, 2018. 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.
Other Information
In May 2019, we announced that we renewed our pharmaceutical distribution contracts with CVS Health for a four-year term, through June 2023.
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
 
Total Number of Shares
Purchased
as Part of Publicly Announced Programs (2)
 
Approximate
Dollar Value of
Shares That May
Yet be Purchased
Under the Program (2)
(in millions)
January 2019
259

 
$
48.49

 

 
$
1,293

February 2019
258

 
53.78

 

 
1,293

March 2019
257

 
48.53

 

 
1,293

Total
774

 
$
50.26

 

 
$
1,293

(1)
Reflects 259, 258 and 257 common shares purchased in January, February and March 2019, respectively, through a rabbi trust as investments of participants in our Deferred Compensation Plan.
(2)
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 an additional $1.0 billion share repurchase program that expires on December 31, 2021. As of March 31, 2019, we have $1.3 billion authorized for share repurchases remaining under these programs.


 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
18



Financial Statements
 
 


Condensed Consolidated Statements of Earnings
(Unaudited)
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(in millions, except per common share amounts)
2019
 
2018
 
2019
 
2018
Revenue
$
35,228

 
$
33,633

 
$
108,181

 
$
101,460

Cost of products sold
33,464

 
31,720

 
103,021

 
96,014

Gross margin
1,764

 
1,913

 
5,160

 
5,446

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Distribution, selling, general and administrative expenses
1,097

 
1,132

 
3,315

 
3,325

Restructuring and employee severance
53

 
2

 
97

 
155

Amortization and other acquisition-related costs
154

 
175

 
468

 
543

Impairments and (gain)/loss on disposal of assets, net
11

 
(6
)
 
(492
)
 
62

Litigation (recoveries)/charges, net
17

 
64

 
20

 
155

Operating earnings
432

 
546

 
1,752

 
1,206

 
 
 
 
 
 
 
 
Other (income)/expense, net
(13
)
 
(2
)
 
13

 
(6
)
Interest expense, net
75

 
84

 
227

 
251

Loss on extinguishment of debt

 

 

 
2

Earnings before income taxes
370

 
464

 
1,512

 
959

 
 
 
 
 
 
 
 
Provision for/(benefit from) income taxes
74

 
209

 
342

 
(466
)
Net earnings
296

 
255

 
1,170

 
1,425

 
 
 
 
 
 
 
 
Less: Net earnings attributable to noncontrolling interests

 

 
(1
)
 
(3
)
Net earnings attributable to Cardinal Health, Inc.
$
296

 
$
255

 
$
1,169

 
$
1,422

 
 
 
 
 
 
 
 
Earnings per common share attributable to Cardinal Health, Inc.:
 
 
 
 
 
 
 
Basic
$
0.99

 
$
0.81

 
$
3.89

 
$
4.52

Diluted
0.99

 
0.81

 
3.88

 
4.50

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
298

 
313

 
301

 
314

Diluted
299

 
315

 
302

 
316

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.4763

 
$
0.4624

 
$
1.4289

 
$
1.3872

See notes to condensed consolidated financial statements.


 
 
 
 19
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
 



Financial Statements
 
 

Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(in millions)
2019
 
2018
 
2019
 
2018
Net earnings
$
296

 
$
255

 
$
1,170

 
$
1,425

 
 
 
 
 
 
 
 
Other comprehensive income/(loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments and other
13

 
110

 
(16
)
 
141

Amounts reclassified to earnings

 
(23
)
 

 
(23
)
Net unrealized gain/(loss) on derivative instruments, net of tax
(1
)
 
3

 
(3
)
 
2

Total other comprehensive income/(loss), net of tax
12

 
90

 
(19
)
 
120

 
 
 
 
 
 
 
 
Total comprehensive income
308

 
345

 
1,151

 
1,545

 
 
 
 
 
 
 
 
Less: comprehensive income attributable to noncontrolling interests

 

 
(1
)
 
(3
)
Total comprehensive income attributable to Cardinal Health, Inc.
$
308

 
$
345

 
$
1,150

 
$
1,542

See notes to condensed consolidated financial statements.



 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
20



Financial Statements
 
 

Condensed Consolidated Balance Sheets
(Unaudited)
(in millions)
March 31, 2019
 
June 30, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
3,438

 
$
1,763

Trade receivables, net
7,879

 
7,800

Inventories, net
12,622

 
12,308

Prepaid expenses and other
1,643

 
1,926

Assets held for sale

 
756

Total current assets
25,582

 
24,553

 
 
 
 
Property and equipment, net
2,322

 
2,487

Goodwill and other intangibles, net
11,860

 
12,229

Other assets
1,045

 
682

Total assets
$
40,809

 
$
39,951

 
 
 
 
Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
20,517

 
$
19,677

Current portion of long-term obligations and other short-term borrowings
1,451

 
1,001

Other accrued liabilities
1,951

 
2,002

Liabilities related to assets held for sale


213

Total current liabilities
23,919

 
22,893

 
 
 
 
Long-term obligations, less current portion
7,629

 
8,012

Deferred income taxes and other liabilities
3,029

 
2,975

 
 
 
 
Redeemable noncontrolling interests

 
12

 
 
 
 
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 March 31, 2019 and June 30, 2018, respectively
2,748

 
2,730

Retained earnings
5,386

 
4,645

Common shares in treasury, at cost: 29 million shares and 18 million shares at March 31, 2019 and June 30, 2018, respectively
(1,793
)
 
(1,224
)
Accumulated other comprehensive loss
(111
)
 
(92
)
Total Cardinal Health, Inc. shareholders' equity
6,230

 
6,059

Noncontrolling interests
2

 

Total shareholders’ equity
6,232

 
6,059

Total liabilities, redeemable noncontrolling interests and shareholders’ equity
$
40,809

 
$
39,951

See notes to condensed consolidated financial statements.



 
 
 
 21
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
 



Financial Statements
 
 

Condensed Consolidated Statements of Shareholders' Equity
(Unaudited)
 
Common Shares
 
 
 
Treasury Shares
 
Accumulated Other
Comprehensive
Income/(Loss)
 
Noncontrolling Interests
 
Total
Shareholders’
Equity
(in millions)
Shares Issued
 
Amount
 
Retained
Earnings
 
Shares
 
Amount
 
 
 
 
Three Months Ended March 31, 2019
Balance at December 31, 2018
327

 
$
2,728

 
$
5,233

 
(29
)
 
$
(1,795
)
 
$
(123
)
 
$

 
$
6,043

Net earnings
 
 
 
 
296

 
 
 
 
 
 
 

 
296

Other comprehensive income/(loss), net of tax
 
 
 
 
 
 
 
 
 
 
12

 
 
 
12

Employee stock plans activity, net of shares withheld for employee taxes

 
20

 
 
 

 
2

 
 
 
 
 
22

Treasury shares acquired
 
 
 
 

 

 

 
 
 
 
 

Dividends declared
 
 
 
 
(143
)
 
 
 
 
 
 
 
 
 
(143
)
Other
 
 
 
 

 
 
 
 
 
 
 
2

 
2

Balance at March 31, 2019
327

 
$
2,748

 
$
5,386

 
(29
)
 
$
(1,793
)
 
$
(111
)
 
$
2

 
$
6,232

 
Three Months Ended March 31, 2018
Balance at December 31, 2017
327

 
$
2,694

 
$
5,848

 
(12
)
 
$
(848
)
 
$
(95
)
 
$
20

 
$
7,619

Net earnings
 
 
 
 
255

 
 
 
 
 
 
 

 
255

Other comprehensive income/(loss), net of tax
 
 
 
 
 
 
 
 
 
 
90

 
 
 
90

Purchase and divestiture of noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
(19
)
 
(19
)
Employee stock plans activity, net of shares withheld for employee taxes

 
16

 
 
 

 
22

 
 
 
 
 
38

Treasury shares acquired
 
 
 
 


 
(4
)
 
(300
)
 
 
 
 
 
(300
)
Dividends declared
 
 
 
 
(144
)
 
 
 
 
 
 
 
 
 
(144
)
Other
 
 
 
 
(1
)
 
 
 
 
 
 
 
 
 
(1
)
Balance at March 31, 2018
327

 
$
2,710

 
$
5,958

 
(16
)
 
$
(1,126
)
 
$
(5
)
 
$
1

 
$
7,538

 
Nine Months Ended March 31, 2019
Balance at June 30, 2018
327

 
$
2,730

 
$
4,645

 
(18
)
 
$
(1,224
)
 
$
(92
)
 
$

 
$
6,059

Net earnings
 
 
 
 
1,169

 
 
 
 
 
 
 
1

 
1,170

Other comprehensive income/(loss), net of tax
 
 
 
 
 
 
 
 
 
 
(19
)
 
 
 
(19
)
Employee stock plans activity, net of shares withheld for employee taxes

 
18

 
 
 
1

 
31

 
 
 
 
 
49

Treasury shares acquired
 
 
 
 


 
(12
)
 
(600
)
 
 
 
 
 
(600
)
Dividends declared
 
 
 
 
(429
)
 
 
 
 
 
 
 
 
 
(429
)
Other
 
 
 
 
1

 
 
 
 
 
 
 
1

 
2

Balance at March 31, 2019
327

 
$
2,748

 
$
5,386

 
(29
)
 
$
(1,793
)
 
$
(111
)
 
$
2

 
$
6,232

 
Nine Months Ended March 31, 2018
Balance at June 30, 2017
327

 
$
2,697

 
$
4,967

 
(11
)
 
$
(731
)
 
$
(125
)
 
$
20

 
$
6,828

Net earnings
 
 
 
 
1,422

 
 
 
 
 
 
 

 
1,422

Other comprehensive income/(loss), net of tax
 
 
 
 
 
 
 
 
 
 
120

 
 
 
120

Purchase and divestiture of noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
(19
)
 
(19
)
Employee stock plans activity, including tax benefit of $9 million

 
13

 
 
 
1

 
55

 
 
 
 
 
68

Treasury shares acquired
 
 
 
 


 
(6
)
 
(450
)
 
 
 
 
 
(450
)
Dividends declared
 
 
 
 
(436
)
 
 
 
 
 
 
 
 
 
(436
)
Other
 
 
 
 
5

 
 
 
 
 
 
 
 
 
5

Balance at March 31, 2018
327

 
$
2,710

 
$
5,958

 
(16
)
 
$
(1,126
)
 
$
(5
)
 
$
1

 
$
7,538

See notes to condensed consolidated financial statements.



 
 
 
 
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
22



Financial Statements
 
 

Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended March 31,
(in millions)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net earnings
$
1,170

 
$
1,425

 
 
 
 
Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
759

 
779

Impairments and loss on sale of other investments
2

 
6

Impairments and (gain)/loss on disposal of assets, net
(492
)
 
62

Share-based compensation
64

 
64

Provision for bad debts
59

 
50

Change in fair value of contingent consideration obligation

 
(2
)
Change in operating assets and liabilities, net of effects from acquisitions and divestitures:
 
 
 
Increase in trade receivables
(156
)
 
(632
)
Increase in inventories
(345
)
 
(865
)
Increase in accounts payable
846

 
1,635

Other accrued liabilities and operating items, net
309

 
(308
)
Net cash provided by operating activities
2,216

 
2,214

 
 
 
 
Cash flows from investing activities:
 
 
 
Acquisition of subsidiaries, net of cash acquired
(38
)
 
(6,142
)
Additions to property and equipment
(192
)
 
(246
)
Purchase of available-for-sale securities and other investments
(11
)
 
(7
)
Proceeds from sale of available-for-sale securities and other investments
3

 
65

Proceeds from divestitures, net of cash sold, and disposal of property and equipment
749

 
862

Net cash provided by/(used in) investing activities
511

 
(5,468
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Payment of contingent consideration obligation

 
(22
)
Net change in short-term borrowings

 
(50
)
Purchase of noncontrolling interests

 
(106
)
Proceeds from long-term obligations, net of issuance costs
1

 
3

Reduction of long-term obligations
(3
)
 
(403
)
Net tax withholdings from share-based compensation
(13
)
 
(3
)
Dividends on common shares
(435
)
 
(436
)
Purchase of treasury shares
(600
)
 
(450
)
Net cash used in financing activities
(1,050
)
 
(1,467
)
 
 
 
 
Effect of exchange rates changes on cash and equivalents
(2
)
 
17

 
 
 
 
Net increase/(decrease) in cash and equivalents
1,675

 
(4,704
)
Cash and equivalents at beginning of period
1,763

 
6,879

Cash and equivalents at end of period
$
3,438

 
$
2,175

See notes to condensed consolidated financial statements.


 
 
 
 23
Cardinal Health | Q3 Fiscal 2019 Form 10-Q
 



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. References to "we," "our," and similar pronouns in these condensed consolidated financial statements 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 2019 and 2018 in these condensed consolidated financial statements are to the fiscal years ending or ended June 30, 2019 and June 30, 2018, 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 2019 interim period are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2019. 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, 2018 (the "2018 Form 10-K").
Recent Financial Accounting Standards
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 will be effective for us in the first quarter of fiscal 2020 and must be applied on a prospective basis. The impact of adoption on our condensed consolidated financial statements is contingent upon future events.
In March 2018, the FASB issued amended accounting guidance to codify SEC staff accounting bulletin 118 (“SAB 118”), which was issued in connection with the Tax Cuts and Jobs Act (the “Tax Act”)
 
of December 2017. The guidance allows companies to use provisional estimates to record the effects of the Tax A