Cardinal Health 2009 Annual Report Download - page 53

• allow each of the Company and CareFusion to adopt the capital structure, investment policy and
dividend policy best suited to each business’ financial profile and business needs, as well as resolve the
current competition for capital among the Company and its investors; and
• facilitate incentive compensation arrangements for employees more directly tied to the performance of
the relevant company’s business, and enhance employee hiring and retention by, among other things,
improving the alignment of management and employee incentives with performance and growth
objectives, while at the same time creating an independent equity structure that will facilitate
CareFusion’s ability to effect future acquisitions utilizing its common stock.
The Company’s Board of Directors considered a number of potentially negative factors in evaluating the
separation, including risks relating to the creation of a new public company, possible increased costs and
one-time separation costs, but concluded that the potential benefits of the Spin-Off outweighed these factors.
Significance of CareFusion to the Company’s Consolidated Results of Operations and Financial Position
Following the Spin-Off, the historical operating results of the CareFusion businesses will be reclassified to
discontinued operations in the Company’s consolidated statement of earnings. For the fiscal years ended June 30,
2009, 2008 and 2007, the CareFusion businesses constituted approximately the following percentages of the
Company’s consolidated operating results:
2009 2008 2007
Revenue ......................................................... 4% 4% 3%
Gross margin ..................................................... 32% 32% 25%
Operating earnings ................................................. 31% 33% 36%
At June 30, 2009 and 2008, the CareFusion businesses constituted approximately 28% and 30%,
respectively, of the Company’s consolidated assets and approximately 8% and 9%, respectively, of the
Company’s consolidated liabilities.
Impact of the Spin-Off on the Company’s Capital Structure
Subsequent to fiscal 2009, the Company and CareFusion entered into several transactions in order to
establish their respective capital structures after the Spin-Off. Immediately prior to the Spin-Off, CareFusion will
distribute approximately $1.4 billion in cash to the Company. In order to finance the distribution, on July 1, 2009
CareFusion entered into a $1.4 billion senior unsecured bridge loan facility with a term of 364 days from the date
of funding. Subsequently, on July 14, 2009 CareFusion obtained permanent financing of $1.4 billion in the form
of fixed rate senior notes. As CareFusion was able to obtain permanent financing prior to the Spin-Off, the bridge
loan facility will not be drawn upon and will be terminated upon Spin-Off. The net proceeds of the notes were
placed into an escrow account and will be used to fund the $1.4 billion cash distribution to the Company. On
August 27, 2009, the Company announced it will use up to $1.2 billion of the cash distribution to fund a debt
tender offer for certain of its outstanding debt securities (other than the 7.80% Debentures due October 15, 2016
of Allegiance Corporation and the 7.00% Debentures due October 15, 2026 of Allegiance Corporation, the tender
offer for which will be funded with the Company’s cash on hand, as further described below). The remainder of
the cash distribution will be used to pay off debt maturing in the second quarter of fiscal 2010. See discussion
below for additional detail of the debt securities subject to the debt tender offer.
On August 27, 2009, the Company announced that it commenced a cash tender offer for an aggregate
purchase price, including an early tender premium but excluding accrued interest, fees and expenses, of up to
$1.2 billion of the following series of debt securities (listed in order of acceptance priority): (i) 7.80% Debentures
due October 15, 2016 of Allegiance Corporation; (ii) 6.75% Notes due February 15, 2011 of the Company;
(iii) 6.00% Notes due June 15, 2017 of the Company; (iv) 7.00% Debentures due October 15, 2026 of Allegiance
Corporation; (v) 5.85% Notes due December 15, 2017 of the Company; (vi) 5.80% Notes due October 15, 2016
of the Company; (vii) 5.65% Notes due June 15, 2012 of the Company; (viii) 5.50% Notes due June 15, 2013 of
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