Cardinal Health 2009 Annual Report Download - page 29

Download and view the complete annual report

Please find page 29 of the 2009 Cardinal Health annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 154

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154

segment, excluding the certain generic-focused businesses that were not sold, is referred to as the “PTS
Business”) to an affiliate of The Blackstone Group. At the closing of the PTS Business sale, the Company
received approximately $3.2 billion in cash, which represented the purchase price of approximately $3.3 billion
as adjusted pursuant to certain provisions in the purchase agreement. Also during fiscal 2007, the Company
divested its healthcare marketing services business and its United Kingdom-based Intercare pharmaceutical
distribution business. During fiscal 2008, the Company divested its Tecomet (orthopedic implants and
instruments) and MedSystems (enteral devices and airway management products) businesses.
The Company continues to evaluate the performance and strategic fit of its businesses and may decide to
sell a business or product line based on such an evaluation. See “Spin-Off of CareFusion Corporation” above for
information on the Company’s plans to spin off CareFusion on August 31, 2009. In addition, during the fourth
quarter of fiscal 2009, the Company approved plans to divest the United Kingdom-based Martindale injectable
manufacturing business and SpecialtyScripts.
For additional information concerning certain of the transactions described above, see Notes 2, 3 and 8 of
“Notes to Consolidated Financial Statements” and “Item 7—Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Customers
The Company’s largest customers, CVS Caremark Corporation (“CVS”) and Walgreen Co. (“Walgreens”),
accounted for approximately 21% and 23%, respectively, of the Company’s revenue for fiscal 2009. The
aggregate of the Company’s five largest customers, including CVS and Walgreens, accounted for approximately
54% of the Company’s revenue for fiscal 2009. All of the Company’s business with its five largest customers is
included in its Healthcare Supply Chain Services segment. The loss of one or more of these five customers could
adversely affect the Company’s results of operations and financial condition.
Businesses in each of the Company’s reportable segments have agreements with group purchasing
organizations (“GPOs”) that act as agents that negotiate vendor contracts on behalf of their members.
Approximately 16% of the Company’s revenue for fiscal 2009 was derived from GPO members through the
contractual arrangements established with Novation, LLC (“Novation”) and Premier Purchasing Partners, L.P.
(“Premier”), the Company’s two largest GPO relationships in terms of member revenue. Although GPO vendor
selections are influential to GPO member sourcing decisions, compliance by GPO members with those vendor
selections is generally voluntary. As such, the Company believes the loss of any of the Company’s agreements
with a GPO would not mean the loss of sales to all members of the GPO, although the loss of such an agreement
could adversely affect the Company’s results of operations and financial condition. See Note 1 of “Notes to
Consolidated Financial Statements” for further information regarding the Company’s concentrations of credit
risk and major customers.
Suppliers
The Company obtains its products from many different suppliers. Products obtained from the Company’s
five largest suppliers accounted on a combined basis for approximately 22% of the Company’s revenue during
fiscal 2009. No one supplier’s products accounted for more than 6% of the Company’s revenue in fiscal 2009.
Overall, the Company believes that its relationships with its suppliers are good. The loss of certain suppliers
could adversely affect the Company’s results of operations and financial condition if alternative sources of
supply were unavailable at reasonable prices.
The pharmaceutical supply chain business uses a fee-for-service model with respect to the compensation it
receives for the services it provides to pharmaceutical manufacturers. These fee-for-service arrangements are
reflected in written distribution service agreements. Distribution service agreements between the Company and
pharmaceutical manufacturers generally range from a one-year term with an automatic renewal feature to a five-
7