Cardinal Health 2015 Annual Report Download - page 36

Risk Factors
35 Cardinal Health | Fiscal 2015 Form 10-K
privacy and data protection could subject us to civil or criminal
penalties, breach of contract claims, costs for remediation and harm
to our reputation.
The U.S. federal government and most states have enacted antitrust
laws that prohibit certain types of conduct deemed to be anti-
competitive. Violations of federal or state antitrust laws can result in
various sanctions, including criminal and civil penalties. Private
plaintiffs also could bring civil lawsuits against us for alleged antitrust
law violations, including claims for treble damages.
Our global operations are required to comply with the U.S. Foreign
Corrupt Practices Act, Chinese anti-corruption laws, the U.K. Bribery
Act and similar anti-bribery laws in other jurisdictions and U.S. and
foreign export control, trade embargo and customs laws. If we fail to
comply with any of these laws, we could suffer civil or criminal
sanctions.
Our China operations are subject to national, regional and local
regulations. The regulatory environment in China is evolving, and
officials in the Chinese government exercise broad discretion in
deciding how to interpret and apply regulations. It is possible that the
Chinese government's current or future interpretation and application
of existing or new regulations will negatively impact our China
operations, result in regulatory investigations or lead to fines or
penalties.
CVS Health is a large customer that generates a significant
amount of our revenue.
Our sales and credit concentration is significant. CVS Health
accounted for 27 percent of our fiscal 2015 revenue and 20 percent
of our gross trade receivable balance at June 30, 2015. If CVS Health
were to terminate the agreement due to an alleged default by us,
default in payment or significantly reduce its purchases of our
products and services, our results of operations and financial
condition could be adversely affected.
The anticipated benefits of our generic pharmaceutical sourcing
venture with CVS Health may not be realized.
In July 2014, we established the Red Oak Sourcing venture with CVS
Health with an initial term of 10 years. Red Oak Sourcing negotiates
generic pharmaceutical supply contracts on behalf of both
companies. We are required to pay quarterly payments to CVS
Health. If the venture does not continue to be successful, our results
of operations and financial condition could be adversely affected.
We could be subject to adverse changes in the tax laws or
challenges to our tax positions.
We are a large multinational corporation with operations in the United
States and many foreign countries. As a result, we are subject to the
tax laws of many jurisdictions. From time to time, legislative initiatives
are proposed in the United States, such as the repeal of last-in, first-
out, or LIFO, treatment of inventory or a change in the current U.S.
taxation of income earned by foreign subsidiaries, that could
adversely affect our tax positions, effective tax rate, tax payments or
financial condition. Tax laws are complex and subject to varying
interpretations. Tax authorities have challenged some of our tax
positions and it is possible that they will challenge others. These
challenges may adversely affect our effective tax rate, tax payments
or financial condition.
The U.S. healthcare environment is changing in many ways,
some of which may not be favorable to us.
The healthcare industry continues to undergo significant changes
designed to increase access to medical care, improve safety, contain
costs and increase efficiencies. Medicare and Medicaid
reimbursement levels have generally declined and the basis for
payments is changing, shifting away from fee-for-service and towards
value-based payments and risk-sharing models. The use of managed
care has increased. Distributors, manufacturers, healthcare
providers and pharmacy chains have consolidated and have formed
strategic alliances. And large purchasing groups are prevalent. The
industry also is experiencing a shift away from traditional healthcare
venues like hospitals and into clinics and physician offices, and, in
some cases, patients’ homes. We could be adversely affected directly
or indirectly (if our customers are adversely affected) by these and
other changes in the delivery, pricing or utilization of, or
reimbursement for, pharmaceuticals, medical products or healthcare
services.
Our business and operations depend on the proper functioning
of information systems and critical facilities.
We rely on our information systems to obtain, rapidly process,
analyze and manage data to:
• facilitate the purchase and distribution of inventory items from
numerous distribution centers;
• receive, process and ship orders on a timely basis;
• manage the accurate billing and collections for thousands of
customers;
• process payments to suppliers;
• facilitate the manufacturing and assembly of medical products;
and
• generate financial information.
Our business also depends on the proper functioning of our critical
facilities, including our national logistics center. Our results of
operations could be adversely affected if our information systems or
critical facilities, or our customers' access to them, are interrupted;
these systems or facilities are damaged; or these systems or facilities
fail, whether due to physical disruptions, such as fire, natural disaster,
pandemic or power outage, or due to cyber security incidents or other
actions of third parties.
Our business relies on the secure transmission, storage and hosting
of patient-identifiable health information, financial information and
other sensitive information relating to our customers, company and
workforce. The techniques used by those seeking to obtain
unauthorized access to our information systems or to those of a third-
party service provider, or to disable them, degrade their service or
sabotage them, change frequently. In addition, these techniques may
be difficult to detect for a long time and often are not recognized until
launched against a target. As a result, we may be unable to anticipate
these techniques or to implement adequate preventative measures.
Any compromise of our information systems or those of a third-party