Cardinal Health 2010 Annual Report Download - page 47

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r
adioisotope from third party suppliers because of a continued and prolonged shortage of a critical raw materia
l
used to derive that radioisotope from two nuclear reactors, which are experiencing prolonged downtimes. Based
o
n information obtained from parties involved with the two affected nuclear reactors, we anticipate the supply of
r
aw material to normalize in the first half of fiscal 2011.
Within the Medical segment, variability in the cost of raw materials such as oil, oil-related and other
commodities can have a significant impact on the cost of products sold. In fiscal 2011, we anticipate a negativ
e
y
ear-over-year impact from higher commodity prices
.
I
n March 2010, Congress approved, and the President signed into law, the Patient Protection and Affordable
Care Act and the Health Care and Education Reconciliation Act (the “Health Reform Acts”). The Health Reform
Acts seek to expand health insurance coverage to approximately 32 million uninsured Americans. Many of th
e
significant changes in the Healthcare Reform Acts do not take effect until 2014, including a requirement that
most Americans carry health insurance. Although we expect expansion of access to health insurance to increase
the demand for our
p
roducts and services, the overall effect of the
p
rovisions of the Health Reform Acts on us is
uncertain and could be adverse. The Health Reform Acts contain many provisions designed to generate the
r
evenues necessary to fund the coverage expansions and to reduce costs of Medicare and Medicaid. We could be
adversely affected by, among other things, changes in the delivery or pricing of or reimbursement fo
r
p
harmaceuticals, medical devices or healthcare services. In addition, beginning in 2013, each medical device
manufacturer will have to pay a tax in an amount equal to 2.3% of the price for which the manufacturer sells its
medical devices. We manufacture and sell medical devices that will be subject to this tax.
Acquisitions and Divestiture
s
I
n July 2010, subsequent to the end of fiscal 2010, we completed the acquisition of P4 Healthcare for a cash
p
ayment of
$
517 million. The acquisition agreement also includes earn-out payments of up to
$
150 million over
the next three years. With this acquisition, we plan to expand our presence in specialty pharmaceutical services
and distribution. P4 Healthcare’s results will be reported within our Pharmaceutical segment.
We consider ac
q
uisitions to ex
p
and our role as a
p
rovider of services and innovative
p
roducts to the
healthcare industry, especially those that complement our existing operations and provide opportunities for us to
develop synergies with, and strengthen, the acquired business. There can be no assurance, however, that we will
be able to successfully take advantage of any such opportunity if and when it arises or consummate any suc
h
transaction, if
p
ursued. As additional transactions are
p
ursued or consummated, we would incur additiona
l
acquisition related charges, and may need to enter into funding arrangements for such acquisitions. There can be
no assurance that the integration efforts associated with any such transaction will be successful
.
During the fourth quarter of fiscal 2010, we sold our United Kingdom-based Martindale injectable
manufacturing business (“Martindale”) for
$
141 million
.
S
pin-Off of CareFusion Corporation
On August 31, 2009, we separated the clinical and medical products businesses from our other businesses
through a pro rata distribution to shareholders of approximately 81% of the then outstanding shares of
CareFusion common stock (the “Spin-Off”). We retained certain surgical and exam gloves, surgical drapes and
apparel and fluid management businesses that were previously part of our clinical and medical products business.
As explained elsewhere in this Form 10-K, the Spin-Off had a significant impact on our results of operations and
f
inancial condition.
During fiscal 2010, we sold approximately 10.9 million shares of the 41.4 million shares of CareFusion
common stock that we held immediately after the Spin-Off for
$
271 million, which resulted in a gross pre-ta
x
r
ealized gain of approximately
$
45 million. As of June 30, 2010, our ownership of approximately 30.5 million
21