Cardinal Health 2009 Annual Report Download - page 58

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Fiscal 2007 special items charges primarily related to reserves for litigation settlements ($655 million) and
in-process research and development costs (“IPR&D”) expenses ($85 million) primarily in connection with the
Viasys acquisition. The Company recorded litigation charges and made payments of $655 million during fiscal
2007 related to the settlement of the Cardinal Health federal securities litigation ($600 million), Cardinal Health
ERISA litigation ($40 million) and other matters. These charges were offset by $29 million of income related to
pharmaceutical manufacturer antitrust litigation. In addition, the Company settled and made payment for the
penalty associated with the SEC investigation ($35 million), which was reserved in fiscal 2006 and 2005.
See Note 3 of “Notes to Consolidated Financial Statements” for additional detail of the Company’s special
items.
The Company estimates it will incur additional costs in future periods associated with currently anticipated
acquisition integration and restructuring activities totaling approximately $168 million. These estimated costs are
primarily due to costs associated with the Spin-Off, the integration of Viasys and headcount reductions within the
Clinical and Medical Products segment.
Operating Earnings
Operating earnings decreased $206 million or 10% during fiscal 2009. The decrease was primarily due to
increased restructuring charges ($99 million) and lower gross margin ($53 million).
Operating earnings increased $745 million or 55% during fiscal 2008 compared to the prior year. The
increase was primarily due to the $600 million expense recognized within special items in the prior year related
to shareholder litigation. In addition, operating earnings were favorably impacted by higher gross margin ($382
million) and negatively impacted by increased SG&A expenses ($329 million).
Interest Expense and Other
Interest expense and other increased $49 million or 29% during fiscal 2009 primarily due to the unfavorable
impact of foreign exchange and other items ($43 million).
On March 20, 2009, the Company terminated certain fixed-to-floating interest rate swaps and received
settlement proceeds totaling $123 million. There was no immediate impact to the statement of earnings; however,
the fair value adjustment to debt will be amortized over the life of the underlying debt as a reduction to interest
expense.
Interest expense and other increased $49 million or 41% during fiscal 2008 compared to the prior year.
Interest expense and other was impacted during fiscal 2008 by increased borrowing levels ($72 million) and the
impact of the prior year allocation of a portion of interest expense related to the PTS Business divestiture to
discontinued operations ($26 million). The increase in interest expense for fiscal 2008 was partially offset by the
favorable impact of foreign exchange and other items ($19 million) and increased investment income ($18
million).
Provision for Income Taxes
Effective July 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes an interpretation of FASB Statement No. 109” (“FIN No. 48”), resulting in a $139
million reduction of retained earnings.
The Company had $849 million and $763 million of unrecognized tax benefits at June 30, 2009 and
June 30, 2008, respectively. Included in these balances are $611 million and $548 million, respectively, of
unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate. The remaining
unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain but for which
there is uncertainty as to the timing of such deductibility. Recognition of these tax benefits would not affect the
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