UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 8, 2004
CARDINAL HEALTH, INC.
(Exact Name of Registrant as Specified in its Charter)
OHIO
(State or Other Jurisdiction of Incorporation)
1-11373 31-0958666
(Commission File Number) (IRS Employer Identification Number)
7000 CARDINAL PLACE, DUBLIN, OHIO 43017
(Address of Principal Executive Offices, Including Zip Code)
(614) 757-5000
(Registrant's Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On December 8, 2004, the shareholders of Cardinal Health, Inc. (the
"Company") approved amendments to the Company's Performance-Based Incentive
Compensation Plan (the "Performance-Based Plan"). The amendments include an
increase in the maximum award payable to any individual for any single fiscal
year under the Performance-Based Plan to $7.5 million from the prior $3.0
million limit. Other amendments include expanding the potential performance
measures that performance goals under the Performance-Based Plan may be based
upon and changing the name of the plan to the "Cardinal Health, Inc. Management
Incentive Plan."
Also on December 8, 2004, the Board of Directors of the Company
approved the amendment and restatement of the Company's Deferred Compensation
Plan to be effective January 1, 2005. The amendments reflect the consolidation
of the Company's Directors Deferred Compensation Plan with and into the Deferred
Compensation Plan for Company executives and to address changes required of
nonqualified deferred compensation plans by new Section 409A of the Internal
Revenue Code of 1986, as amended, enacted as part of the American Jobs Creation
Act of 2004 ("AJCA"). Changes to the Deferred Compensation Plan include (i)
restrictions on the time when compensation deferral elections may be made, (ii)
immediate vesting for Company matching contributions made after January 1, 2005,
(iii) distribution options must be elected at enrollment, (iv) changes in the
distribution option elected will not be effective for at least 12 months and
cannot result in any acceleration of payments to be made, (v) distributions will
not commence for at least six months after termination of employment, and (vi)
withdrawals will now be permitted for unforeseeable financial emergencies in
accordance with the provisions of AJCA.
ITEM 2.05 COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
As previously announced, the Company has launched a restructuring
program with a goal of increasing the value the Company provides its customers
through better integration of existing businesses and improved efficiency from a
more disciplined approach to procurement and resource allocation. The Company
expects the program to be completed over a three-year period and to generate
cost savings in the fiscal year ending June 30, 2005 and beyond and position
the Company for future growth.
The Company expects the program to be implemented in two phases. The
first phase of the program ("Phase I") will focus on business consolidations and
process improvements, including rationalizing approximately 25 of the Company's
facilities worldwide, reducing the Company's approximately 58,000 global
workforce by approximately 4,200 employees, and rationalizing and discontinuing
overlapping and under-performing product lines. The Company expects the second
phase of the program ("Phase II") will focus on longer term integration to help
generate future revenue growth and create greater productivity, including a
focus on:
o Company-wide, world-class shared services for administrative
functions such as finance, human resources and information
technology.
o Strategic sourcing to better leverage the Company's global
scale and purchasing power.
o An integrated go-to-market strategy for the Company's hospital
and pharmaceutical manufacturer customers.
o Efficiency and quality improvements across the Company's
manufacturing and logistics operations.
On December 10, 2004, the Board of Directors of the Company authorized
the Company to incur certain costs in connection with Phase I. These costs
include non-cash asset impairment charges primarily for facility closures,
reductions in value of operating assets and the exiting of certain product
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lines. Such impairment charges will be recognized as incurred and reflected in
the Company's statement of earnings as either a component of selling, general
and administrative expenses or interest expense and other or as a special item
depending on the nature of the specific charge. Excluding the previously-
approved $19 million in costs discussed below, the total costs associated with
Phase I are expected to be approximately $300 to $350 million, with
approximately $226 to $263 million of such costs expected to be incurred in
fiscal 2005, approximately $42 to $49 million in fiscal 2006, and
the remainder beyond fiscal 2006. Approximately $123 to $143 million of the
total costs for Phase I are expected to result in future cash expenditures.
Aggregate costs of approximately $174 to $203 million, $88 to $103
million and $27 to $31 million are expected to be incurred during Phase I in the
Company's Pharmaceutical Technologies and Services, Medical Products and
Services, and Pharmaceutical Distribution and Provider Services business
segments, respectively, as well as approximately $11 to $13 million of costs
expected to be incurred at the Company's corporate level. The major types of
costs associated with Phase I are expected to be as follows:
Employee-Related Costs $65 to $75 million
Restructuring-Related Asset Impairment $108 to $126 million
Non-Restructuring-Related Asset Impairment $69 to $81 million
Exit and Other Costs $58 to $68 million
The costs discussed above are in addition to the previously approved
costs of approximately $19 million relating to certain restructuring activities
in the Company's Pharmaceutical Technologies and Services segment, as disclosed
in a Form 8-K filed by the Company on September 27, 2004.
Phase II of the program remains subject to approval by the Company's
Board of Directors. At this time, the Company is unable to estimate the expected
costs for Phase II. The Company expects to provide greater detail for these
costs when Phase II is approved by the Company's Board of Directors.
As a result of the acquisition of ALARIS Medical Systems, Inc.
("ALARIS") completed in July 2004, the Company expanded its former Automation
and Information Services business segment to include ALARIS among other business
units, and subsequently renamed this business segment "Clinical Technologies and
Services." Costs associated with the integration of business units included
within this segment will be recorded as merger-related charges when the
underlying expenses are incurred. The Company expects to complete its estimation
of costs to be incurred with this integration by the end of the second quarter
of fiscal 2005.
Portions of this Form 8-K include "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Forward-looking statements are subject to risks, uncertainties and
other factors which could cause actual results to differ materially from those
projected, anticipated or implied. The most significant of these risks,
uncertainties and other factors are described in the Company's Form 10-K for the
fiscal year ended June 30, 2004 (including in the section titled "Risk Factors
That May Affect Future Results" within "Item 1: Business") and in Exhibit 99.01
to that Form 10-K and include (but not limited to) the costs, difficulties, and
uncertainties related to the integration of acquired businesses, the loss of
one or more key dustomer or supplier relationships or changes to the terms of
those relationships, changes in distribution patterns or reimbursement rates for
health-care products and/or services, the results, consequences, effects or
timing of any inquiry or investigation by any regulatory authority or any legal
and adminstrative proceedings, the effects, timing or success of restructuring
programs or plans, the impact of previously announced restatements, and general
economic and market conditions. Except to the limited extent required by
applicable law, the Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
ITEM 2.06 MATERIAL IMPAIRMENTS
See the information in Item 2.05 above, which is incorporated herein by
reference.
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ITEM 7.01 REGULATION FD DISCLOSURE
On December 13, 2004, the Company issued the press release attached
hereto as Exhibit 99.01, which is incorporated herein by reference.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
10.01 Cardinal Health, Inc. Management Incentive Plan.
10.02 Cardinal Health Deferred Compensation Plan, as amended and
restated effective January 1, 2005.
99.01 Press release issued by the Company on December 13, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Cardinal Health, Inc.
(Registrant)
Date: December 14, 2004 By: /s/ Paul S. Williams
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Name: Paul S. Williams
Title: Executive Vice President,
Chief Legal Officer
and Secretary
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EXHIBIT INDEX
10.01 Cardinal Health, Inc. Management Incentive Plan.
10.02 Cardinal Health Deferred Compensation Plan, as amended and restated
effective January 1, 2005.
99.01 Press release issued by the Company on December 13, 2004.
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