Cardinal Health 2008 Annual Report Download - page 110

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inventory within the core distribution facilities. As such, the LIFO reserve is the difference between (a) inventory
at the lower of LIFO cost or market and (b) inventory at replacement cost determined using the average cost
method of inventory valuation. In fiscal 2008 and 2007, the Company did not record any LIFO reserve reductions.
If the Company had used the average cost method of inventory valuation for all inventory within the core
distribution facilities, inventories would not have changed in fiscal 2008 or fiscal 2007. In fact, primarily due to
continued deflation in generic pharmaceutical inventories, inventories at LIFO were $42.5 million and
$55.8 million higher than the average cost value as of June 30, 2008 and 2007, respectively. The Company’s
policy, however, is not to record inventories in excess of its current market value.
The remaining inventory is primarily stated at the lower of cost, using the FIFO method, or market.
Inventories recorded on the Company’s consolidated balance sheets are net of reserves for excess and
obsolete inventory which were $94.5 million and $95.8 million at June 30, 2008 and 2007, respectively. The
Company reserves for inventory obsolescence using estimates based on historical experiences, sales trends,
specific categories of inventory and age of on-hand inventory.
8. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
PTS Business
During the second quarter of fiscal 2007, the Company committed to plans to sell the PTS Business, thereby
meeting the held for sale criteria set forth in SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets.” In accordance with SFAS No. 144 and EITF Issue No. 03-13, “Applying the Conditions in
Paragraph 42 of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in
Determining Whether to Report Discontinued Operations,” the net assets of the PTS Business are presented
separately as held for sale and the operating results are presented within discontinued operations for all periods
presented. The net assets held for sale of the PTS Business are included within Corporate.
During the fourth quarter of fiscal 2007, the Company completed the sale of the PTS Business to an affiliate
of The Blackstone Group. At the closing of the sale, the Company received approximately $3.2 billion in cash,
which was the purchase price of approximately $3.3 billion as adjusted pursuant to certain provisions in the
purchase agreement. The Company recognized an after-tax book gain of approximately $1.1 billion during the
fiscal year ended June 30, 2007 from this transaction. The Company incurred activity during the fiscal year ended
June 30, 2008 as a result of changes in certain estimates made at the time of the sale, activity under transition
service agreements and other adjustments. Also included within the year ended June 30, 2008, was an adjustment
for a deferred tax item which should not have been included in the book basis of the PTS Business when it was
sold in the fourth quarter of fiscal 2007. This adjustment resulted in a $12.3 million increase in the gain on sale
of the PTS Business.
The results of the PTS Business included in discontinued operations for fiscal years ended June 30, 2008,
2007 and 2006 are summarized as follows:
For the Fiscal Year Ended
June 30,
(in millions) 2008 2007 2006
Revenue ........................................................... $ — $1,344.8 $1,699.4
Operating income/(loss) before taxes .................................... (2.0) 98.9 94.6
Income tax expense .................................................. (5.7) (23.5) (13.2)
Operating income/(loss) after tax ....................................... (7.7) 75.4 81.4
Gain/(loss) from sale, net of tax expense of $26.2 million, $16.3 million and $0
million for 2008, 2007 and 2006, respectively ........................... (7.6) 1,072.4 —
Earnings/(loss) from discontinued operations ............................. (15.3) 1,147.8 81.4
Comprehensive income/(loss) from discontinued operations .................. (15.3) 1,178.9 69.8
86