Cardinal Health 2009 Annual Report Download - page 56

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two factors was $8.0 billion), the addition of new customers within the Healthcare Supply Chain Services
segment ($954 million) and the impact of acquisitions ($887 million). The Company uses the internal metric
“pharmaceutical price appreciation index” to evaluate the impact of pharmaceutical and consumer product price
appreciation on revenue from the pharmaceutical supply chain business. This metric is calculated using the
change in the manufacturer’s published price at the beginning of the period compared to the end of the period
weighted by the units sold by the pharmaceutical supply chain business during the period. The pharmaceutical
price appreciation index was 8.8% for the trailing twelve months ended June 30, 2009. Revenue was negatively
impacted during fiscal 2009 by the loss of customers ($972 million). Refer to “Segment Results of Operations”
below for further discussion of the specific factors affecting revenue in each of the Company’s reportable
segments.
Revenue increased $4.2 billion or 5% during fiscal 2008. The increase was due to pharmaceutical price
appreciation and increased volume from existing customers (the combined impact of these two factors was $4.9
billion), the impact of acquisitions ($817 million) and new customers ($643 million). The pharmaceutical price
appreciation index was 7.7% for the trailing twelve months ended June 30, 2008. Revenue was negatively
impacted during fiscal 2008 by the loss of customers ($2.1 billion) within the Healthcare Supply Chain Services
segment. A portion of the customer losses was due to the DEA license suspensions and the Company’s controlled
substance anti-diversion efforts.
Cost of Products Sold
Cost of products sold increased $8.6 billion or 10% and $3.8 billion or 5%, respectively, for the fiscal years
ended June 30, 2009 and 2008. The increases in cost of products sold were mainly due to the respective 9% and
5% growth in revenue for fiscal 2009 and 2008. See the “Gross Margin” discussion below for further discussion
of additional factors impacting cost of products sold.
Gross Margin
Gross margin for fiscal 2009 decreased $53 million or 1%. The decline in gross margin primarily reflects
the deferral in hospital capital spending, Alaris product recalls and reserves and the corrective action plan
submitted to the FDA, and a hold on shipping certain infusion products within the Clinical and Medical Products
segment. See Note 11 of “Notes to Consolidated Financial Statements” for more information regarding the
corrective action plan and the hold on shipping certain infusion products. In addition, gross margin was
negatively impacted by an increase in customer discounts within the Healthcare Supply Chain Services segment
($356 million). This increase was primarily due to increased sales volumes and customer repricings. Gross
margin was also negatively impacted by foreign exchange ($99 million). Gross margin was favorably impacted
by the 9% growth in revenue, which included the impact of acquisitions ($157 million). Gross margin was also
favorably impacted by increased distribution service agreement fees and pharmaceutical price appreciation
(combined impact of $164 million) and increased manufacturer cash discounts ($157 million) within the
Healthcare Supply Chain Services segment. The increased distribution service agreement fees and manufacturer
cash discounts were primarily the result of increased sales volume. Refer to the “Segment Results of Operations”
below for further discussion of the specific factors affecting gross margin in each of the Company’s reportable
segments.
Due to the competitive markets in which the Company’s businesses operate, the Company expects
competitive pricing pressures to continue. In addition, the Company expects certain factors to negatively impact
fiscal 2010 including the timing of generic launches and price deflation, the repricing of certain customer
contracts and strategic positioning moves (such as repositioning Medicine Shoppe and transitioning a significant
vendor relationship to a distribution service agreement).
Gross margin increased $382 million or 7% in fiscal 2008. The increase in gross margin was primarily due
to the 5% growth in revenue, which includes the impact of acquisitions ($332 million), primarily the Viasys
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