Cardinal Health 2011 Annual Report Download - page 47

Acquisitions
I
n December 2010, we acquired Kinray for a cash payment of $1.3 billion. This acquisition expanded th
e
a
bilit
y
of our pharmaceutical distribution business to serve retail independent pharmacies in the northeastern
Un
i
te
d
States.
I
n November 2010, we acquired Yon
g
Yu, a leadin
g
health care distribution business in China, for $458
million, including the assumption of
$
57 million in debt. The pharmaceutical market in China is expected t
o
g
row s
i
gn
ifi
cant
l
y
f
aster t
h
an t
h
e mar
k
et
i
nt
h
eUn
i
te
d
States over t
h
e next
f
ew years.
I
n Jul
y
2010, we completed the acquisition of P4 Healthcare, a specialt
y
pharmaceutical services compan
y
,
f
or a cash payment of
$
506 million. This acquisition contributes to the expansion of our presence in specialty
pharmaceutical services and distribution. The acquisition a
g
reement also included a contin
g
ent consideratio
n
o
bli
g
ation of up to $150 million over the next three
y
ears. Since we completed the acquisition, we have made a
cash payment of
$
10 million for the first measurement period. Subsequent to June 30, 2011, we amended th
e
ag
reement with the former owners to extend the last measurement period b
y
one
y
ear and to reduce the
maximum contin
g
ent consideration pa
y
out to $100 million. At June 30, 2011, we estimate the remainin
g
contingent consideration obligation to have a fair value of
$
75 million
.
T
he three acquisitions are reported within our Pharmaceutical se
g
ment. For fiscal 2011, the
y
increased
revenues by
$
2.9 billion and operating earnings by
$
61 million compared to fiscal 2010.
S
ee Note 2 of the “Notes to Consolidated Financial Statements” for additional information on the Kinra
y
,
Yong Yu and P4 Healthcare acquisitions.
S
pin-Off of CareFusio
n
Effective Au
g
ust 31, 2009, we separated our clinical and medical products business throu
g
h the distribution
to our shareholders of 81 percent of the then outstanding common stock of CareFusion and retained the
rema
i
n
i
ng 41.4 m
illi
on s
h
ares o
f
CareFus
i
on common stoc
k
. Dur
i
ng
fi
sca
l
2011 an
d
2010, we
di
spose
d
o
f
30.
5
million and 10.9 million shares of CareFusion common stock, respectivel
y
.
O
nJu
l
y 22, 2009, we entere
di
nto a separat
i
on agreement w
i
t
h
CareFus
i
on to e
ff
ect t
h
eSp
i
n-O
ff
an
d
provide a framework for our relationship with CareFusion after the Spin-Off. In addition, on Au
g
ust 31, 2009, we
entered into a transition services a
g
reement, a tax matters a
g
reement and an accounts receivable factorin
g
a
greement w
i
t
h
CareFus
i
on, among ot
h
er agreements.
Under the transition services a
g
reement, durin
g
fiscal 2011 and 2010, we reco
g
nized $65 million and $99
m
illi
on, respect
i
ve
l
y,
i
n trans
i
t
i
on serv
i
ce
f
ees, w
hi
c
h
approx
i
mate
l
yo
ff
sets t
h
e costs assoc
i
ate
d
w
i
t
h
prov
idi
n
g
t
h
e trans
i
t
i
on serv
i
ces. Su
b
stant
i
a
ll
ya
ll
o
f
t
h
e trans
i
t
i
on serv
i
ce arrangements exp
i
re
di
n
fi
sca
l
2011 an
d
ear
l
y
f
iscal 2012. We expect that transition service fees in fiscal 2012 will be substantiall
y
less than in fiscal 2011 and
t
h
at t
h
e
l
oss o
ff
ees
i
n
fi
sca
l
2012 w
ill b
e part
i
a
ll
yo
ff
set
b
y cost re
d
uct
i
ons. For per
i
o
d
ssu
b
sequent to
fi
sca
l
2012, we
h
ave p
l
ans
i
np
l
ace to
l
arge
l
yo
ff
set t
h
e
l
oss o
ff
ees w
i
t
h
cost re
d
uct
i
ons
.
Under the accounts receivable factoring agreement, during fiscal 2011 and 2010, we purchased
$
460 millio
n
a
nd
$
606 million, respectively, of CareFusion trade receivables. The accounts receivable factoring arrangemen
t
ex
p
ired on A
p
ril 1, 2011
.
Un
d
er t
h
e tax matters agreement, CareFus
i
on
i
so
bli
gate
d
to
i
n
d
emn
if
yus
f
or certa
i
n tax exposures an
d
transaction taxes prior to the Spin-Off. The indemnification receivable was $264 million and $245 million a
t
J
une 30, 2011 and 2010, respectivel
y
, and is included in our consolidated financial statements
.
We expect t
h
e trans
i
t
i
on o
f
our re
l
at
i
ons
hi
pw
i
t
h
CareFus
i
on to a tra
di
t
i
ona
ldi
str
ib
ut
i
on mo
d
e
ld
ur
i
n
g
t
h
e
f
ourth quarter of fiscal 2011 to have a $50 to $60 million per quarter positive impact on medical se
g
ment revenu
e
f
or t
h
e
fi
rst t
h
ree quarters o
ffi
sca
l
2012. However, we expect t
hi
sc
h
ange to
h
ave m
i
n
i
ma
li
mpact on me
di
ca
l
se
g
ment pro
fi
t.
21