Cardinal Health 2015 Annual Report Download - page 37

Risk Factors
Cardinal Health | Fiscal 2015 Form 10-K 36
service provider, including the unauthorized access, use or disclosure
of sensitive information, could adversely impact our operations,
results of operations or our ability to satisfy legal requirements,
including those related to patient-identifiable health information.
The Pharmaceutical segment is in the initial phases of a multi-year
upgrade of certain finance and operating systems. If these system
upgrades are not effectively implemented or they fail to operate as
intended, it could adversely affect the Pharmaceutical segment’s
supply chain operations and the effectiveness of our internal control
over financial reporting.
Because of the nature of our business, we may become involved
in legal proceedings that could adversely impact our cash flows
or results of operations.
Due to the nature of our businesses, which includes the manufacture
and distribution of healthcare products, we may from time to time
become involved in disputes or legal proceedings. For instance,
some of the products that we manufacture or distribute may be
alleged to cause personal injury, subjecting us to product liability
claims. We also may be named in breach of contract claims or qui
tam actions (false claims cases initiated by private parties purporting
to act on behalf of federal or state governments).
Our Medical segment's manufacturing businesses operate in an
industry characterized by extensive intellectual property litigation.
Patent litigation can result in significant damage awards and
injunctions that could prevent the manufacture and sale of affected
products or force us to make royalty payments in order to continue
selling the affected products.
Litigation is inherently unpredictable, and the unfavorable resolution
of one or more of these legal proceedings could adversely affect our
cash flows or results of operations.
Acquisitions can have unanticipated results.
An important element of our growth strategy has been to acquire
other businesses that expand or complement our existing
businesses. In fiscal 2015, we spent $503 million to acquire other
businesses, and we acquired Harvard Drug in July 2015 for $1.1
billion and entered into an agreement to acquire Cordis for $1.9 billion.
Acquisitions involve risks: we may overpay for a business or fail to
realize the synergies and other benefits we expect from the
acquisition; future developments may impair the value of our
purchased goodwill or intangible assets; or we may encounter
unforeseen accounting, internal control, regulatory or compliance
issues. Once completed, the Cordis acquisition will subject us to
additional risks relating to regulatory matters, legal proceedings, tax
laws or positions and, as discussed later in this section, global
operations.
We depend on certain suppliers to make their raw materials and
products available to us and are subject to fluctuations in costs
of raw materials and products.
We depend on the availability of various components, compounds,
raw materials (including radioisotopes) and energy supplied by others
for our operations. Any of our supplier relationships could be
interrupted due to events beyond our control, including natural
disasters, or could be terminated. A sustained supply interruption
could have an adverse effect on our business.
Our manufacturing businesses use oil-based resins, cotton, latex and
other commodities as raw materials in many products. Prices of oil
and gas also affect our distribution and transportation costs. Prices
of these commodities are volatile and can fluctuate significantly,
causing our costs to produce and distribute our products to fluctuate.
Due to competitive dynamics and contractual limitations, we may be
unable to pass along cost increases through higher prices. If we
cannot fully offset cost increases through other cost reductions, or
recover these costs through price increases or surcharges, our
results of operations could be adversely affected.
Our results of operations may suffer upon the bankruptcy,
insolvency, or other credit failure of a customer or supplier that
has a substantial amount owed to us.
Most of our customers buy products and services from us on credit,
which is made available to customers based on our assessment of
creditworthiness. In addition, our relationships with suppliers give rise
to amounts owed to us for returned or defective goods and
chargebacks, and amounts due to us for services provided to the
suppliers. The bankruptcy, insolvency or other credit failure of any
customer or supplier that has a substantial amount owed to us could
adversely affect our results of operations.
Our global operations are subject to economic, political and
currency risks.
We conduct our operations in various regions of the world outside of
the United States, including North America, South America, Europe
and Asia. The scope and complexity of our international operations
will expand with the acquisition of Cordis. Global economic and
regulatory developments can affect our business in many ways. Our
global operations are affected by local economic environments,
including inflation, recession, currency volatility and competition.
Political changes also can disrupt our global operations, as well as
our customers and suppliers, in a particular location. We may not be
able to hedge to protect us against these risks, and any hedges may
not successfully mitigate these risks. Divergent or unfamiliar
regulatory systems and labor markets can increase the risks and
burdens of operating in numerous countries.
Economic conditions may adversely affect demand for our
products and services.
Deterioration in general economic conditions in the United States
and other countries in which we do business could adversely affect
the amount of prescriptions filled and the number of medical
procedures undertaken and, therefore, reduce purchases of our
products and services by our customers, which could adversely affect
our results of operations. In addition, deteriorating economic
conditions may increase bankruptcies, insolvencies or other credit
failures of customers or suppliers, which, if they have a substantial
amount owed to us, also could adversely affect our results of
operations.