UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
x | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2009
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Period from to
Commission File Number 1-11373
A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
Syncor International Corporation Employees Savings and Stock Ownership Plan
B. | Name of the issuer of the securities held pursuant to the plan and the address of its principal executive office: |
Cardinal Health, Inc.
7000 Cardinal Place
Dublin, Ohio 43017
Syncor International Corporation Employees Savings and Stock Ownership Plan
Financial Statements and Supplemental Information
Years Ended December 31, 2009 and 2008
Page | ||
1 | ||
Financial Statements: |
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2 | ||
3 | ||
4 | ||
Supplemental Schedule*: |
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Schedule H, Part IV, Line 4i on Form 5500: Schedule of Assets (Held at End of Year) |
20 | |
21 | ||
Exhibit: |
||
Exhibit 23.01 |
* | All other financial schedules required by Section 2520.103-10 of the U.S. Department of Labors Annual Reporting and Disclosure Requirements under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable. |
Report of Independent Registered Public Accounting Firm
To the Financial Benefit Plans Committee and the Benefits Policy Committee of the Syncor International Corporation Employees Savings and Stock Ownership Plan
We have audited the accompanying statements of net assets available for benefits of Syncor International Corporation Employees Savings and Stock Ownership Plan as of December 31, 2009 and 2008, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plans management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Plans internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plans internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2009 and 2008, and the changes in its net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2009, is presented for purposes of additional analysis and are not a required part of the financial statements but is supplementary information required by the Department of Labors Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plans management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
Columbus, Ohio
June 28, 2010
1
Syncor International Corporation Employees Savings and Stock Ownership Plan
Statements of Net Assets Available for Benefits
December 31, 2009 and 2008
December 31 | ||||||
2009 | 2008 | |||||
Assets |
||||||
Plans interest in Master Trusts assets at fair value |
$ | 80,220,549 | $ | 62,927,004 | ||
Participant loans, net of reserve for defaulted loans of $104,596 and $79,495 at December 31, 2009 and 2008, respectively |
2,093,205 | 1,912,365 | ||||
Total assets |
82,313,754 | 64,839,369 | ||||
Liabilities |
||||||
Accrued fees |
12,361 | 13,281 | ||||
Total liabilities |
12,361 | 13,281 | ||||
Net assets reflecting investments at fair value |
82,301,393 | 64,826,088 | ||||
Adjustment from fair value to contract value for fully benefit-responsive investment contracts |
52,506 | 797,056 | ||||
Net assets available for benefits |
$ | 82,353,899 | $ | 65,623,144 | ||
The accompanying notes are an integral part of these financial statements.
2
Syncor International Corporation Employees Savings and Stock Ownership Plan
Statements of Changes in Net Assets Available for Benefits
For the Years Ended December 31, 2009 and 2008
2009 | 2008 | ||||||
Additions to net assets attributed to: |
|||||||
Investment income (loss): |
|||||||
Interest |
$ | 139,186 | $ | 156,057 | |||
Plans interest in Master Trusts net investment income (loss) |
15,557,084 | (31,368,884 | ) | ||||
Total investment income (loss) |
15,696,270 | (31,212,827 | ) | ||||
Total additions |
15,696,270 | (31,212,827 | ) | ||||
Deductions from net assets attributed to: |
|||||||
Benefits paid to participants |
3,805,332 | 7,528,829 | |||||
Increase (decrease) in reserve for defaulted participant loans |
25,101 | (4,756 | ) | ||||
Administrative expenses |
91,578 | 133,705 | |||||
Total deductions |
3,922,011 | 7,657,778 | |||||
Net increase (decrease) prior to litigation settlements |
11,774,259 | (38,870,605 | ) | ||||
Shareholder Securities Litigation, SEC |
|||||||
Investigation and ERISA litigation settlement proceeds |
4,956,496 | | |||||
Net increase (decrease) |
16,730,755 | (38,870,605 | ) | ||||
Beginning of year |
65,623,144 | 104,493,749 | |||||
End of year |
$ | 82,353,899 | $ | 65,623,144 | |||
The accompanying notes are an integral part of these financial statements.
3
Syncor International Corporation Employees Savings and Stock Ownership Plan
Notes to Financial Statements
December 31, 2009 and 2008
1. | Description of Plan |
General
The Syncor International Corporation Employees Savings and Stock Ownership Plan (the Plan) is a defined contribution plan covering substantially all employees of Cardinal Health, 414, Inc. (Syncor) not covered by a collective bargaining agreement who have attained age 18 and completed three months of employment, as defined in the Plan document, prior to August 1, 2003. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
The Plan acquired 1,750,000 shares of Syncor common stock with funds borrowed from or guaranteed by Syncor. As of December 31, 2001, all such borrowings had been fully repaid. With the acquisition of Syncor by Cardinal Health (the Company) as of January 1, 2003 (the Effective Date), the common stock of Syncor International Corporation was converted to Cardinal Health common shares of equal fair value on the Effective Date.
The Cardinal Health, Inc. U.S. Qualified Plans Master Trust (the Main Master Trust), the Cardinal Health Balanced Fund (the Balanced Master Trust), and the Cardinal Health Stable Value Fund (the Stable Value Master Trust) were established for the Plan and certain other plans of the Company. See Note 3 for more information regarding the Master Trusts.
The following description of the Plan provides only general information. Participants should refer to the Plan document for a more complete description of the Plans provisions.
Administration
The Companys Financial Benefit Plans Committee (the Committee) is responsible for the general operation and administration of the Plan.
Fidelity Management Trust Company (Fidelity) serves as the Plan trustee, record keeper and asset custodian.
Spin-Off of CareFusion Corporation
Effective August 31, 2009, the Company completed a distribution to its shareholders of approximately 81% of the then outstanding common stock of CareFusion Corporation (CareFusion), a wholly owned subsidiary of the Company, with the Company retaining the remaining shares of CareFusion common stock (the Spin-Off). Under the requirements of the Private Letter Ruling obtained from the Internal Revenue Service, the Company is required to dispose of the retained shares of CareFusion common stock within five years of the Spin-Off.
4
Notes to Financial Statements (continued)
1. | Description of Plan (continued) |
Shareholder Securities Litigation against Cardinal Health / SEC Investigation
On and after July 2, 2004, multiple purported class action complaints were filed by putative purchasers of the Companys securities against the Company and certain of its current and former officers and directors, asserting claims under the federal securities laws. All of these actions were filed in the United States District Court for the Southern District of Ohio, where, on December 15, 2004, they were consolidated into a single proceeding referred to as In re Cardinal Health, Inc. Federal Securities Litigation (the Shareholder Securities Litigation). On April 22, 2005, the lead plaintiff filed a consolidated amended complaint naming the Company, certain current and former officers and employees and the Companys external auditors as defendants. The Shareholder Securities Litigation purported to be brought on behalf of all purchasers of the Companys securities during various periods beginning as early as October 24, 2000 and ending as late as July 26, 2004. The consolidated amended complaint alleged, among other things, that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by issuing a series of false and/or misleading statements concerning the Companys financial results, prospects and condition. The alleged misstatements related to the Companys accounting for recoveries relating to antitrust litigation against vitamin manufacturers, classification of revenue in the Companys pharmaceutical supply chain business (formerly referred to as the pharmaceutical distribution business) as either operating revenue or revenue from bulk deliveries to customer warehouses, and other accounting and business model transition issues, including reserve accounting. The alleged misstatements were claimed to have caused an artificial inflation in the Companys stock price during the proposed class period. The consolidated amended complaint sought unspecified money damages and other unspecified relief against the defendants. On March 27, 2006, the Court granted a Motion to Dismiss with respect to the Companys external auditors and a former officer and denied the Motion to Dismiss with respect to the Company and the other individual defendants. On December 12, 2006, the parties stipulated that the case could proceed as a class action with a class comprised of all persons other than Company officers or directors who purchased or otherwise acquired the Companys stock during the class period. The Company entered into a memorandum of understanding effective on May 24, 2007, to settle the Shareholder Securities Litigation in exchange for a payment of $600 million. The Company established a reserve of $600 million for the quarter ended March 31, 2007, and transferred the $600 million into an escrow account on May 25, 2007. On July 31, 2007, the Court preliminarily approved the settlement. On September 17, 2007, the plaintiffs moved for final approval of the settlement and plan of allocation and an award of attorneys fees and expenses. On November 14, 2007, the Court approved the plan of allocation and entered final judgment. On December 31, 2007, the Court granted the plaintiffs motions for attorneys fees and expenses in part.
On July 26, 2007, the Company announced a settlement with the SEC that concluded, with respect to the Company, an SEC investigation relating principally to the Companys financial reporting and disclosures (SEC Investigation). For further information regarding this investigation, see the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2007, as amended. The final judgment entered by a court to resolve this matter, among other things, enjoined the Company from future violations of the federal securities laws and required the Company to pay a civil penalty of $35 million and retain an independent consultant to review certain company policies and procedures. In July 2007, the Company paid the fine.
The settlement proceeds from the Shareholder Securities Litigation and the SEC Investigation were jointly administered and allocated to eligible plan participants. On October 8, 2009, $1,029,567 was deposited into the Syncor International Corporation Employees Savings and Stock Ownership Plan (Syncor ESSOP). On December 22, 2009, the settlement proceeds were allocated to eligible plan participants.
5
Notes to Financial Statements (continued)
1. | Description of Plan (continued) |
ERISA Litigation against Syncor International
A purported class action complaint, captioned Pilkington v. Cardinal Health, et al., was filed on April 8, 2003, against the Company, Syncor and certain officers and employees of the Company by a purported participant in the Syncor International Corporation Employees Savings and Stock Ownership Plan. A related purported class action complaint, captioned Donna Brown, et al. v. Syncor International Corp, et al., was filed on September 11, 2003, against the Company, Syncor and certain individual defendants. Another related purported class action complaint, captioned Thompson v. Syncor International Corp., et al., was filed on January 14, 2004, against the Company, Syncor and certain individual defendants. Each of these actions was brought in the United States District Court for the Central District of California. A consolidated complaint was filed on February 24, 2004 against Syncor and certain former Syncor officers, directors and/or employees alleging that the defendants breached certain fiduciary duties owed under the Employee Retirement Income Security Act (ERISA) based on the same underlying allegations of improper and unlawful conduct alleged in the federal securities litigation (the Syncor ERISA litigation). The consolidated complaint sought unspecified money damages and other unspecified relief against the defendants. On April 26, 2004, the defendants filed motions to dismiss the consolidated complaint. On August 24, 2004, the District Court granted in part and denied in part defendants motions to dismiss. The District Court dismissed, without prejudice, all claims against two individual defendants, all claims alleging co-fiduciary liability against all defendants, and all claims alleging that the individual defendants had conflicts of interest precluding them from properly exercising their fiduciary duties under ERISA. A claim for breach of the duty to prudently manage plan assets against Syncor was not dismissed, and a claim for breach of the alleged duty to monitor the performance of Syncors Plan Administrative Committee against certain individual defendants was not dismissed.
On January 10, 2006, Syncor and the other parties entered into a term sheet to settle the Syncor ERISA litigation for a cash payment of $4.0 million and payment of an additional amount not to exceed $4.0 million for litigation fees and expenses and reported the settlement to the District Court. Also on January 10, 2006, the District Court entered summary judgment in favor of all defendants on all remaining claims. Consistent with that ruling, on January 11, 2006, the District Court entered a final order dismissing this case and the lead plaintiff appealed this decision to the United States Court of Appeals for the Ninth Circuit. On February 19, 2008, the Court of Appeals entered an order reversing the District Courts dismissal of the plaintiffs claims and remanded the case to the District Court to hold a hearing to review the fairness of the settlement agreement. On June 25, 2008, the parties submitted the settlement agreement to the District Court for preliminary approval. On July 29, 2008, the District Court preliminarily approved the $4.0 million settlement amount, but ordered the parties to revise the attorneys fees to not exceed 33 1/3% of the settlement amount. On October 22, 2008, the District Court entered a final Order approving the settlement and dismissing all claims asserted in the Syncor ERISA litigation against the defendants. In accordance with the final settlement, $2,505,001 (net of administrative expenses) was distributed to the class members individual plan accounts on October 22, 2009. At December 31, 2009, $1,421,928 of the settlement amount remained unallocated. See Note 5 for additional information.
6
Notes to Financial Statements (continued)
1. | Description of Plan (continued) |
Contributions
Prior to July 31, 2003, participant contributions to the Plan consisted of participant elective contributions and Company matching and discretionary profit sharing contributions.
As of August 1, 2003, all active participants in the Plan were permitted to begin participating in another Cardinal Health sponsored retirement plan. In conjunction with this change, participants in the Plan were no longer allowed to make contributions to the Plan.
Participant Accounts
Individual accounts are maintained for past participant and employer contributions. Earnings are allocated to participant account balances on a daily basis. A participant is entitled to the benefit provided from the participants vested account balance. All amounts in participant accounts are directed by participants in 1% increments, into any of the available investment options.
Vesting
Participants were vested immediately in their elective contributions, plus actual earnings thereon. Vesting in the Company contribution portion of their accounts is based on years of continuous service. Prior to August 1, 2003, the graded vesting schedule provided that a participant was 100% vested after five years of vesting service. On and after August 1, 2003, active participants in the Plan are subject to a cliff vesting schedule providing that a participant is 100% vested after three years of vesting service (with preservation of prior vesting levels, as applicable). Participants are 100% vested at age 65 or in the case of disability or death, as defined.
Forfeitures
Forfeitures are either used to reduce Company contributions to the Plan or to pay reasonable expenses of the Plan, as determined by the Committee.
There were no forfeitures used to reduce Company contributions and pay reasonable expenses during 2009 and 2008. At December 31, 2009 and 2008, forfeited non-vested accounts were $1,950,585 and $1,620,588, respectively.
Administrative Expenses
Administrative expenses are paid by the Company or the Plan, except for loan fees, which are paid by the borrowing participant.
Participant Loans
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 less the highest outstanding balance during the prior 12 months or 50% of their vested account balance. Loan terms range from 1 to 5 years or up to 15 years for the purchase of a primary residence. Participant loans are secured by the remaining vested balance in the participants account and bear interest at a reasonable rate, as established by the Committee, currently Prime plus 1%, set monthly for the life of the loan. Loan repayments, including interest and applicable loan fees, are generally repaid through payroll deductions.
7
Notes to Financial Statements (continued)
2. | Summary of Significant Accounting Policies |
Payment of Benefits
Upon termination of employment, death, retirement or disability, all distributions will be made in the form of a lump-sum payment. In addition, the Plan includes a provision for participants to make withdrawals from their account under certain hardship circumstances or obtaining age 59 1/2, as defined in the Plan document.
Basis of Presentation
The financial statements of the Plan are prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (GAAP).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4). FSP 157-4 amended FASB Statement No. 157 (codified as ASC 820) to provide additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to its normal market activity. FSP 157-4 also provided additional guidance on circumstances that may indicate that a transaction is not orderly and on defining major categories of debt and equity securities to comply with the disclosure requirements of ASC 820. The Plan adopted the guidance in FSP 157-4 for the reporting period ended December 31, 2009. Adoption of FSP 157-4 did not have a material effect on the Plans net assets available for benefits or its changes in net assets available for benefits.
In May 2009, the FASB issued authoritative guidance included in Accounting Standards Codification (ASC) Subtopic 855, Subsequent Events, which incorporates guidance on subsequent events into authoritative accounting literature and clarifies the time following the balance sheet date that must be considered for subsequent events disclosures in the financial statements. The adoption of this guidance, which requires disclosure of the date through which subsequent events have been reviewed, did not change the Plans procedures for reviewing subsequent events. In February 2010, the FASB issued Accounting Standards Update (ASU) 2010-9 to amend ASC Subtopic 855, Subsequent Events, to not require disclosure of the date through which management evaluated subsequent events in the financial statements for either originally issued financial statements or reissued financial statements for SEC registrants.
In June 2009, the FASB issued ASC Subtopic 105, Generally Accepted Accounting Principles, which reorganizes the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics and displays all topics using a consistent structure. It also includes relevant SEC guidance that follows the same topical structure in separate sections in the Codification. The historical U.S. GAAP references were changed to comply with the Codification. The adoption of this guidance did not impact the Plan since the Codification is not intended to change or alter existing U.S. GAAP.
8
Notes to Financial Statements (continued)
2. | Summary of Significant Accounting Policies (continued) |
Recently Issued Accounting Pronouncements (continued)
In September 2009, the FASB issued ASU 2009-12, Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent). ASU 2009-12 amended ASC 820 to allow entities to use net asset value (NAV) per share (or its equivalent), as a practical expedient, to measure fair value when the investment does not have a readily determinable fair value and the net asset value is calculated in a manner consistent with investment company accounting. The Plan adopted this guidance in ASU 2009-12 for the reporting period ended December 31, 2009 and has utilized the practical expedient to measure the fair value of investments within the scope of this guidance based on the investments NAV. In addition, as a result of adopting ASU 2009-12, the Plan has provided additional disclosures regarding the nature and risks of investments within the scope of this guidance. Refer to Note 4 for these disclosures. Adoption of ASU 2009-12 did not have a material effect on the Plans net assets available for benefits or its changes in net assets available for benefits.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amended ASC 820 to clarify certain existing fair value disclosures and required a number of additional disclosures. The guidance in ASU 2010-06 clarified that disclosures should be presented separately for each class of assets and liabilities measured at fair value and provided guidance on how to determine the appropriate classes of assets and liabilities to be presented. ASU 2010-06 also clarified the requirement for entities to disclosure information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. In addition, ASU 2010-06 introduced new requirements to disclose the amounts (on a gross basis) and reasons for any significant transfers between Levels 1, 2 and 3 of the fair value hierarchy and present information regarding purchases, sales, issuances and settlements of Level 3 assets and liabilities on a gross basis. With the exception of the requirement to present changes in Level 3 measurements on a gross basis, which is delayed until 2011, the guidance in ASU 2010-06 becomes effective for reporting periods beginning after December 15, 2009. Plan management is currently evaluating the effect that the provisions of ASU 2010-06 will have on the Plans financial statements.
Investment Valuation and Income Recognition
In accordance with FASB authoritative guidance included in ASC Subtopic 962, Defined Contribution Pension Plans, the Statements of Assets Available for Benefits present investment contracts at fair value as well as an additional line item showing the adjustment of fully benefit-responsive contracts from fair value to contract value. The Statements of Changes in Net Assets Available for Benefits are prepared on a contract value basis for the fully benefit-responsive investment contracts. Contract value represents contributions plus earnings, less participant withdrawals and administrative expenses.
Plan investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 4 for discussion of fair value measurements.
Purchases and sales of securities are recorded on a trade-date basis using fair market value, except for those investments in investment contracts that are transacted at contract value. Dividends are recorded on the ex-dividend date. Interest is recorded on the accrual basis.
Adjustment from Fair Value to Contract Value for Fully Benefit-Responsive Investment Contracts
This amount represents the difference between fair value and contract value of investment contracts issued by the insurance companies and banks that are considered fully benefit-responsive.
Payment of Benefits
Benefit payments are recorded when paid.
9
Notes to Financial Statements (continued)
3. | Assets Held in Master Trusts |
Certain of the Plans investments are held in the Main Master Trust, Balanced Master Trust, and Stable Value Master Trust (collectively, the Master Trusts), which were established for the investment of assets of the Plan and several other Company sponsored retirement plans. Each participating plans interest in the investment funds (i.e., separate accounts) of the Master Trusts are based on account balances of the participants and their elected investment funds. The Master Trusts assets are allocated among the participating plans by assigning to each plan those transactions (primarily contributions, benefit payments, and plan specific expenses) that can be specifically identified. The Plans interest in Master Trusts net investment income (loss) presented in the Statements of Changes in Net Assets Available for Benefits consists of the unrealized and realized gains (losses) and the earnings on those investments.
The Stable Value Master Trust invests in guaranteed investment contracts (GICs) and actively managed, structured or synthetic investment contracts (SICs). The GICs are promises by an insurance company to repay principal plus a fixed rate of return through contract maturity. SICs differ from GICs in that there are specific assets supporting the SICs, and these assets are owned by the Plan. The bank or insurance company issues a wrapper contract that allows participant-directed transactions to be made at contract value. The assets supporting the SICs are invested in Wells Fargo fixed income collective trust funds comprised of government agency bonds, corporate bonds, asset-backed securities and collateralized mortgage obligations. The major credit ratings of the issuer or wrapper providers for the GICs and SICs are A+ AAA/A2 Aaa.
Interest crediting rates on the GICs in the Stable Value Master Trust are determined at the time of purchase. Interest crediting rates on the SICs are set at the time of purchase and reset periodically, normally quarterly, based on the market value, duration and yield to maturity of the underlying assets. The crediting interest rate is based on a formula agreed upon with the contract issuer, but may not be less than zero. The crediting interest rates for GICs and SICs ranged from 2.32% to 5.02% and 4.12% to 5.18% at December 31, 2009 and 2008, respectively. To the extent that the underlying portfolio of a security-backed contract has unrealized and/or realized losses that are accounted for, under contract value accounting, through a positive adjustment to contract value, the future crediting rate may be lower over time than then-current market rates. Similarly, if the underlying portfolio generates unrealized and/or realized gains, reflected in a negative adjustment to contract value under contract value accounting, the future crediting rate may be higher than then-current market rates.
For the years ended December 31, 2009 and 2008, the average yield for the investment contracts based on actual earnings was 4.11% and 6.21%, respectively.
For the years ended December 31, 2009 and 2008, the average yield adjusted to reflect the actual interest rate credited to participants was 3.61% and 4.60%, respectively.
Events that may limit the ability of the Plan to transact at contract value are events or conditions the occurrence of which is considered outside the normal operations of the Plan, which the contract issuer determines to be a material adverse financial effect on the issuers interests such as: 1) Plan disqualification under the Code, 2) establishment of a defined contribution plan by the Company that competes for participant contributions, 3) material amendments to the Plan or administration as to investment options, transfer procedures or withdrawals, 4) Companys inducement to participant to withdraw or transfer funds from the contract, 5) termination or partial termination of the Plan, 6) any group termination, layoff, early retirement incentive program or other downsizing by the Company, 7) merger or consolidation of the Plan with another plan or spin-off of any portion of the Plans assets to another plan, and 8) any changes in law, regulation, ruling or administrative or judicial position that, in the issuers reasonable determination, could result in substantial disbursements from the contract. The Committee does not consider that these events are probable in the future.
10
Notes to Financial Statements (continued)
3. | Assets Held in Master Trusts (continued) |
Events that would allow the issuer to terminate the investment contract are: 1) the investment manager or trustee breaches any of its material obligations under the agreement, 2) any representation of the investment manager is or becomes untrue in any material respect, 3) the investment manager with respect to the contract is terminated, unless a qualified professional manager is duly appointed and is agreed to by the issuer, 4) the issuer determines that the execution, delivery or performance of the contract constitutes or will constitute a prohibited transaction, 5) failure to pay amounts due to the issuer, and 6) termination of the plan or disqualification of the trust.
Each investment contract is subject to early termination penalties that may be significant.
The assets in the Master Trusts were as follows:
December 31, 2009 | ||||||||||||
Main Master Trust |
Balanced Master Trust |
Stable Value Master Trust |
||||||||||
Mutual funds |
$ | 730,380,924 | $ | 257,620,099 | $ | | ||||||
Common collective trusts |
121,176,223 | | 308,283,871 | |||||||||
Common stocks: |
||||||||||||
Cardinal Health, Inc. |
126,926,879 | | | |||||||||
CareFusion Corporation |
45,543,335 | | | |||||||||
Guaranteed investment contracts |
| | 16,993,426 | |||||||||
Cash and pending activity |
72,299 | (35,277 | ) | (159,774 | ) | |||||||
Total net assets in Master Trusts at fair value |
1,024,099,660 | 257,584,822 | 325,117,523 | |||||||||
Bank wrappers at fair value |
| | 313,449 | |||||||||
Adjustment from fair value to contract value |
| | 1,512,611 | |||||||||
Total net assets in Master Trusts |
$ | 1,024,099,660 | $ | 257,584,822 | $ | 326,943,583 | ||||||
Plans ownership percentage in: |
||||||||||||
Master Trusts |
6 | % | 1 | % | 3 | % | ||||||
Each investment held of the Master Trusts: |
||||||||||||
Mutual funds |
6 | % | 1 | % | | |||||||
Common collective trusts |
4 | % | | 3 | % | |||||||
Common stocks |
12 | % | | | ||||||||
Other |
3 | % | 1 | % | 3 | % |
11
Notes to Financial Statements (continued)
3. | Assets Held in Master Trusts (continued) |
December 31, 2008 | ||||||||||||
Main Master Trust |
Balanced Master Trust |
Stable Value Master Trust |
||||||||||
Mutual funds |
$ | 669,561,340 | $ | 238,774,965 | $ | | ||||||
Common collective trusts |
117,670,859 | | 341,141,571 | |||||||||
Cardinal Health, Inc. common shares |
143,078,008 | | | |||||||||
Guaranteed investment contracts |
| | 10,330,400 | |||||||||
Cash and pending activity |
145,434 | 488,441 | (148,419 | ) | ||||||||
Total net assets in Master Trusts at fair value |
930,455,641 | 239,263,406 | 351,323,552 | |||||||||
Bank wrappers at fair value |
| | 456,706 | |||||||||
Adjustment from fair value to contract value |
| | 27,099,950 | |||||||||
Total net assets in Master Trusts |
$ | 930,455,641 | $ | 239,263,406 | $ | 378,880,208 | ||||||
Plans ownership percentage in: |
||||||||||||
Master Trusts |
6 | % | Less than 1 | % | 3 | % | ||||||
Each investment held of the Master Trusts: |
||||||||||||
Mutual funds |
5 | % | Less than 1 | % | | |||||||
Common collective trusts |
4 | % | | 3 | % | |||||||
Cardinal Health, Inc. common shares |
11 | % | | | ||||||||
Other |
1 | % | Less than 1 | % | 3 | % |
The investment income (loss) of the Master Trusts was as follows for the years ended:
December 31, 2009 | ||||||||||||
Main Master Trust |
Balanced Master Trust |
Stable Value Master Trust |
||||||||||
Dividend and interest income |
$ | 15,665,202 | $ | 8,793,801 | $ | 11,721,937 | ||||||
Net appreciation in the fair value of investments as determined by: |
||||||||||||
Quoted market price: |
||||||||||||
Mutual funds |
185,369,087 | 53,887,140 | | |||||||||
Common stocks: |
||||||||||||
Cardinal Health, Inc. |
30,748,586 | | | |||||||||
CareFusion Corporation |
10,172,149 | | | |||||||||
226,289,822 | 53,887,140 | | ||||||||||
Estimated fair value: |
||||||||||||
Common collective trusts |
28,502,461 | | 1,204,251 | |||||||||
Net appreciation in the fair value of investments: |
254,792,283 | 53,887,140 | 1,204,251 | |||||||||
Total investment income |
$ | 270,457,485 | $ | 62,680,941 | $ | 12,926,188 | ||||||
Plans investment income percentage |
5 | % | Less than 1 | % | 3 | % |
12
Notes to Financial Statements (continued)
3. | Assets Held in Master Trusts (continued) |
December 31, 2008 | ||||||||||||
Main Master Trust |
Balanced Master Trust |
Stable Value Master Trust |
||||||||||
Dividend and interest income |
$ | 2,116,645 | $ | 14,681,154 | $ | 16,233,291 | ||||||
Net (depreciation) appreciation in the fair value of investments as determined by: |
||||||||||||
Quoted market price: |
||||||||||||
Mutual funds |
(390,465,792 | ) | (87,679,355 | ) | | |||||||
Cardinal Health, Inc. common shares |
(93,359,717 | ) | | | ||||||||
(483,825,509 | ) | (87,679,355 | ) | | ||||||||
Estimated fair value: |
||||||||||||
Common collective trusts |
(70,881,606 | ) | | 1,367,424 | ||||||||
Net (depreciation) appreciation in the fair value of investments: |
(554,707,115 | ) | (87,679,355 | ) | 1,367,424 | |||||||
Total investment (loss) income |
$ | (552,590,470 | ) | $ | (72,998,201 | ) | $ | 17,600,715 | ||||
Plans investment (loss) income percentage |
6 | % | Less than 1 | % | 3 | % |
13
Notes to Financial Statements (continued)
4. | Fair Value Measurements |
ASC 820, Fair Value Measurements and Disclosures, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described as follows:
Level 1 | Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access. | |||
Level 2 |
Inputs to the valuation methodology include: | |||
- | quoted prices for similar assets or liabilities in active markets; | |||
- | quoted prices for identical or similar assets or liabilities in inactive markets; | |||
- | inputs other than quoted prices that are observable for the asset or liability; and | |||
- | inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |||
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability. | ||||
Level 3 |
Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The assets or liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets at measured fair value.
Mutual funds and common shares market values are determined by quoted market prices reported on the active market on which they are traded.
The common collective trusts (CCTs) are designed to deliver safety and stability by preserving principal and accumulating earnings. The CCTs are valued at the respective net asset values (NAV) as reported by such trusts, which are reported at fair value. The fair value has been determined by the trustee sponsoring the common collective trust by dividing the trusts net asset at fair value by its units outstanding at the valuation dates. The trustee sponsoring the common collective trusts has estimated the fair value of those common collective trusts investing in investment contracts with insurance companies and banks. There are no restrictions as to the redemption of these investments nor does the Plan have any contractual obligations to further invest in any of these CCTs. The fair value of investment contracts and contract wrappers issued by insurance companies and banks is estimated based on discounting the related cash flows. See Note 3 for more information.
Participant loans are valued based on the remaining unpaid principal balance, plus any accrued but unpaid interest, which approximates fair value.
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
14
Notes to Financial Statements (continued)
4. | Fair Value Measurements (continued) |
The following table sets forth by level, within the fair value hierarchy, the assets in the Master Trusts at fair value as of December 31, 2009 and 2008. The following table does not include the Plans interest in participant loans because that information is disclosed separately below:
December 31, 2009 | ||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Mutual funds: |
||||||||||||||
Large cap |
$ | 371,762,118 | $ | | $ | | $ | 371,762,118 | ||||||
Income |
235,978,052 | | | 235,978,052 | ||||||||||
International |
172,468,470 | | | 172,468,470 | ||||||||||
Small cap |
111,452,766 | | | 111,452,766 | ||||||||||
Mid-cap |
94,705,445 | | | 94,705,445 | ||||||||||
Short term |
1,634,172 | | | 1,634,172 | ||||||||||
Total mutual funds |
988,001,023 | | | 988,001,023 | ||||||||||
Common collective trusts |
| 429,460,094 | | 429,460,094 | ||||||||||
Common stocks: |
||||||||||||||
Cardinal Health, Inc. common shares |
126,926,879 | | | 126,926,879 | ||||||||||
CareFusion Corp. common shares |
45,543,335 | | | 45,543,335 | ||||||||||
Total common stocks |
172,470,214 | | | 172,470,214 | ||||||||||
Guaranteed investment contracts |
| 16,993,426 | | 16,993,426 | ||||||||||
Bank wrappers |
| | 313,449 | 313,449 | ||||||||||
Cash and pending activity |
| (122,752 | ) | | (122,752 | ) | ||||||||
Total assets at fair value |
$ | 1,160,471,237 | $ | 446,330,768 | $ | 313,449 | $ | 1,607,115,454 | ||||||
December 31, 2008 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Mutual funds: |
||||||||||||
Large cap |
$ | 327,677,905 | $ | | $ | | $ | 327,677,905 | ||||
Income |
230,253,297 | | | 230,253,297 | ||||||||
International |
162,503,015 | | | 162,503,015 | ||||||||
Small cap |
95,266,084 | | | 95,266,084 | ||||||||
Mid-cap |
92,594,918 | | | 92,594,918 | ||||||||
Short term |
41,086 | | | 41,086 | ||||||||
Total mutual funds |
908,336,305 | | | 908,336,305 | ||||||||
Common collective trusts |
| 458,812,430 | | 458,812,430 | ||||||||
Cardinal Health, Inc. common shares |
143,078,008 | | | 143,078,008 | ||||||||
Guaranteed investment contracts |
| 10,330,400 | | 10,330,400 | ||||||||
Bank wrappers |
| | 456,706 | 456,706 | ||||||||
Cash and pending activity |
| 485,456 | | 485,456 | ||||||||
Total assets at fair value |
$ | 1,051,414,313 | $ | 469,628,286 | $ | 456,706 | $ | 1,521,499,305 | ||||
15
Notes to Financial Statements (continued)
4. | Fair Value Measurements (continued) |
The following table sets forth by level, within the fair value hierarchy, the fair value of the Plans assets not part of the Master Trusts as of December 31, 2009 and 2008:
December 31, 2009 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Participant loans, net |
$ | | $ | | $ | 2,093,205 | $ | 2,093,205 | ||||
Total assets at fair value |
$ | | $ | | $ | 2,093,205 | $ | 2,093,205 | ||||
December 31, 2008 | ||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||
Participant loans, net |
$ | | $ | | $ | 1,912,365 | $ | 1,912,365 | ||||
Total assets at fair value |
$ | | $ | | $ | 1,912,365 | $ | 1,912,365 | ||||
The following table sets forth a summary of changes in the fair value of the Plans level 3 assets (participant loans) and the Stable Value Fund Master Trusts level 3 assets (bank wrappers) for the years ended December 31, 2009 and 2008:
2009 | ||||||||
Participant loans, net |
Bank wrappers |
|||||||
Balance, beginning of year |
$ | 1,912,365 | $ | 456,706 | ||||
Unrealized losses |
| (143,257 | ) | |||||
Change in reserve for defaulted participant loans |
25,101 | | ||||||
Purchases, sales, issuances, and settlements (net) |
155,739 | | ||||||
Balance, end of year |
$ | 2,093,205 | $ | 313,449 | ||||
2008 | ||||||||
Participant loans, net |
Bank wrappers |
|||||||
Balance, beginning of year |
$ | 2,128,325 | $ | (17,431 | ) | |||
Unrealized gains |
| 474,137 | ||||||
Change in reserve for defaulted participant loans |
(4,756 | ) | | |||||
Purchases, sales, issuances, and settlements (net) |
(211,204 | ) | | |||||
Balance, end of year |
$ | 1,912,365 | $ | 456,706 | ||||
16
Notes to Financial Statements (continued)
5. | Nonparticipant-Directed Investments |
Information about the net assets and significant components of the changes in net assets relating to the nonparticipant-directed investment is as follows:
December 31 | ||||||
2009 | 2008 | |||||
Net assets: |
||||||
Fidelity Money Market Fund |
$ | 1,421,928 | $ | | ||
$ | 1,421,928 | $ | | |||
Year Ended December 31, 2009 |
Year Ended December 31, 2008 | |||||
Changes in net assets: |
||||||
ERISA litigation settlement with the Plan Sponsor |
$ | 1,421,426 | $ | | ||
Interest Income |
502 | | ||||
$ | 1,421,928 | $ | | |||
6. | Income Tax Status |
The underlying non-standardized prototype plan has received an opinion letter from the Internal Revenue Service (IRS) dated March 31, 2008, stating that the form of the plan is qualified under Section 401(a) of the Internal Revenue Code, and therefore, the related trust is tax exempt. In accordance with Revenue Procedure 2009-6 and Announcement 2005-16, the Plan Sponsor has determined that it is eligible to and has chosen to rely on the current IRS prototype plan opinion letter. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan is qualified and the related trust is tax exempt.
7. | Risks and Uncertainties |
The Plan invests in various investment securities. Investment securities are exposed to various risks, such as interest rate, credit and overall market volatility risk. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
8. | Plan Termination |
Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts.
17
Notes to Financial Statements (continued)
9. | Parties-in-Interest |
Certain Plan investments held by the Main Master Trust at December 31, 2009 and 2008, were shares of mutual funds managed by Fidelity. Fidelity serves as the trustee as defined by the Plan, and, therefore, transactions involving these funds are considered party-in-interest transactions.
The Plans holdings of $14,894,649 and $16,421,837 of Cardinal Health, Inc. common shares were held by the Main Master Trust at December 31, 2009 and 2008, respectively. The Plan held $5,436,641 of CareFusion Corporation common shares in the Main Master Trust at December 31, 2009.
10. | Reconciliation of Financial Statements to Form 5500 |
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500:
December 31 | ||||||||
2009 | 2008 | |||||||
Net assets available for benefits per the financial statements |
$ | 82,353,899 | $ | 65,623,144 | ||||
Adjustment from fair value to contract value for certain fully benefit- responsive investment contracts* |
(92,006 | ) | (804,290 | ) | ||||
Net assets available for benefits per Form 5500 |
$ | 82,261,893 | $ | 64,818,854 | ||||
*Amount differs from the adjustment presented on the Statement of Net Assets Available for Benefits as CCTs and SICs held by the Plan are recorded at fair value for 5500 purposes while they are recorded at contract value for financial statement purposes.
The following is a reconciliation of the net decrease in net assets available for benefits per the financial statements to the Form 5500:
2009 | 2008 | ||||||
Net increase (decrease) in assets per the financial statements |
$ | 16,730,755 | $ | (38,870,605 | ) | ||
Net investment income (loss) difference between fair value and contract value |
712,284 | (854,827 | ) | ||||
Amounts allocated to withdrawing participantsprior year |
| 11,489 | |||||
Net income (loss) per Form 5500 |
$ | 17,443,039 | $ | (39,713,943 | ) | ||
Amounts allocated to withdrawing participants are recorded on the Form 5500 for benefit claims that have been processed and approved for payment on or prior to December 31, but not yet paid at that date.
The following is a reconciliation of the benefits paid to participants per the financial statements to the Form 5500:
2009 | 2008 | ||||||
Benefits paid to participants per the financial statements |
$ | 3,805,332 | $ | 7,528,829 | |||
Amounts allocated to withdrawing participantsprior year |
| (11,489 | ) | ||||
Benefits paid to participants per Form 5500 |
$ | 3,805,332 | $ | 7,517,340 | |||
18
Notes to Financial Statements (continued)
10. | Subsequent Events |
Effective May 28, 2010, the Plan was merged into the Companys 401(k) Savings Plan, as permitted by the plan document.
19
Syncor International Corporation Employees Savings and Stock Ownership Plan
Schedule H, Part IV, Line 4i on Form 5500: Schedule of Assets (Held at End of Year) *
December 31, 2009
EIN: 85-0229124 Plan Number: 002
(a) | (b) | (c) | (e) | ||||
Identity of issuer, borrower, |
Description of investment including maturity date, rate of interest, maturity or par value |
Current value | |||||
Loans: | |||||||
** |
Participant loans | Interest rates ranging from 4.25% to 11.5% with varying maturity dates through 2024 | $ | 2,093,205 | |||
Total | $ | 2,093,205 | |||||
* | Other columns required by the U.S. Department of Labors Annual Reporting and Disclosure Requirements under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable. |
** | Denotes party-in-interest |
20
Pursuant to the requirements of the Securities Exchange Act of 1934, the members of the Plan Committee have duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.
SYNCOR INTERNATIONAL CORPORATION | ||||
EMPLOYEES SAVINGS AND STOCK | ||||
OWNERSHIP PLAN | ||||
Date: June 28, 2010 | /s/ Monica Foster | |||
Monica Foster | ||||
Financial Benefit Plans Committee Member |
21