Cardinal Health 2012 Annual Report Download - page 36

Cardinal Health, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
34
China for $458 million, including the assumption of $57 million in debt.
Cardinal Health China is a healthcare distributionbusiness headquartered
in Shanghai, China. The valuation of the acquired assets and liabilities
resulted in goodwill of $240 million and identifiable intangible assets of
$56 million.
P4 Healthcare
On July 15, 2010, we completed the acquisition of privately held
Healthcare Solutions Holding, LLC (“P4 Healthcare”) for $506 million in
cash and certain contingent consideration. The valuation of the acquired
assets and liabilities resulted in goodwill of $368 million and identifiable
intangible assets of $226 million.
In accordance with the acquisition agreement, as amended, the former
owners of P4 Healthcare had the right to receive certain contingent
payments based on targeted EBITDA. The contingent consideration was
limited to $100 million and to be earned over four measurement periods,
ending in fiscal 2014, and each measurement period had specific targets
and payout amounts. After completion of the first measurement period, in
fiscal 2011, we paid $10 million in accordance with the agreement. As a
result of changes in our estimate of performance in future periods due in
large part to the loss of revenue from a significant customer of the P4
Healthcare legacy business that occurred in fiscal 2012, we revised the
timing and amount of EBITDA estimates and made changes in probability
assumptions with respect to the likelihood of achieving the EBITDA targets.
These changes, coupled with the progress of discussions with the former
owners regarding an early termination and settlement of the contingent
consideration obligation, resulted in a $71 million decrease in the fair value
of the obligation to $4 million at June 30, 2012. In early July 2012, we
reached final settlement and payment of the remaining contingent
consideration liability for $4 million. See Note 12 for an explanation of the
fair value measurement for the contingent consideration obligation.
Acquisition-Related Costs
We classify costs incurred in connection with acquisitions as acquisition-
related costs in our consolidated statements of earnings. These costs
consist primarily of transaction costs, integration costs, changes in the fair
value of contingent consideration obligations and amortization of
acquisition-related intangible assets. Transaction costs are incurred
during the initial evaluation of a potential targeted acquisition and primarily
relate to costs to analyze, negotiate and consummate the transaction as
well as due diligence activities. Integration costs relate to activities needed
to combine the operations of an acquired enterprise into our operations.
We record changes in the fair value of contingent consideration obligations
relating to acquisitions as income or expense in acquisition-related costs.
See Note 6 for additional information regarding amortization of acquisition-
related intangible assets and Note 12 for additional information regarding
changes in the fair value of contingent consideration obligations.
3. Restructuring and Employee Severance
We consider restructuring activities to be programs whereby we
fundamentally change our operations such as closing and consolidating
certain manufacturing and distribution facilities, moving manufacturing of
a product to another location, outsourcing production, employee
severance (including rationalizing headcount or other significant changes
in personnel) and realigning operations (including substantial realignment
of the management structure of a business unit in response to changing
market conditions).
The following table summarizes our restructuring and employee
severance costs during fiscal 2012, 2011 and 2010:
(in millions) 2012 2011 2010
Employee-related costs (1) $20$7$33
Facility exit and other costs (2) 1858
Total (3) $ 21 $15$91
(1) Employee-related costs primarily consist of termination benefits provided to
employees who have been involuntarily terminated and duplicate payroll costs during
transition periods.
(2) Facility exit and other costs consist of accelerated depreciation, equipment relocation
costs, project consulting fees and costs associated with restructuring our delivery of
information technology infrastructure services.
(3) We incurred restructuring expenses related to the Spin-Off of $7 million and $65
million for fiscal 2011 and 2010, respectively.
The following table summarizes activity related to liabilities associated
with our restructuring and employee severance activities during fiscal
2012, 2011 and 2010:
(in millions)
Employee
Related
Costs
Facility Exit
and Other
Costs Total
Balance at June 30, 2009 $ 13 $ 12 $25
Additions 33 58 91
Payments and other adjustments (37) (63) (100)
Balance at June 30, 2010 9 7 16
Additions 7 8 15
Payments and other adjustments (10) (11) (21)
Balance at June 30, 2011 6 4 10
Additions 22 1 23
Payments and other adjustments (12) (3) (15)
Balance at June 30, 2012 $ 16 $ 2 $ 18
4. Impairments and Loss on Disposal of Assets
During fiscal 2012, we recorded a charge of $16 million to write off an
indefinite life intangible asset related to the P4 Healthcare trade name, an
asset within our Pharmaceutical segment. We rebranded P4 Healthcare
under the Cardinal Health Specialty Solutions name.
During fiscal 2010, we recognized an $18 million impairment charge
related to the write-down of SpecialtyScripts, a business within the
Pharmaceutical segment, to net expected fair value less costs to sell. See
Note 5 for further information regarding the sale of SpecialtyScripts.
5. Discontinued Operations and Assets Held for Sale
As discussed in Note 1, during the first quarter of fiscal 2010, we completed
the spin-off of CareFusion. During the fourth quarter of fiscal 2010, we
completed the sale of the United Kingdom-based Martindale injectable
manufacturing business ("Martindale") within our Pharmaceutical
segment, for $141 million, resulting in a pre-tax gain of $36 million. There
were no assets and liabilities from businesses held for sale at June 30,
2012 and 2011. Cash flows from discontinued operations are presented
separately in the consolidated statements of cash flows.