Cardinal Health 2009 Annual Report Download - page 90

• no rating agency action that is likely to result in either the Company or CareFusion being downgraded
below investment grade; and
• the making of a cash distribution from CareFusion to the Company prior to the distribution.
The Company cannot assure that any or all of these conditions will be met.
Cash Equivalents. The Company considers all liquid investments purchased with a maturity of three months
or less to be cash equivalents. The carrying value of cash equivalents approximates fair value.
Receivables. Trade receivables are primarily comprised of amounts owed to the Company through its
distribution businesses within the Healthcare Supply Chain Services segment and are presented net of an
allowance for doubtful accounts. See Note 4 for additional information.
Concentrations of Credit Risk and Major Customers. The Company maintains cash depository accounts
with major banks throughout the world and invests in high quality short-term liquid instruments. Such
investments are made only in instruments issued or enhanced by high quality institutions. These investments
mature within three months and the Company has not incurred any related losses.
The Company’s trade receivables, lease receivables, and finance notes and accrued interest receivables are
exposed to a concentration of credit risk with customers in the retail and healthcare sectors. Credit risk can be
affected by changes in reimbursement and other economic pressures impacting the hospital and acute care sectors
of the healthcare industry. Such credit risk is limited, however, due to supporting collateral and the diversity of
the customer base, including its wide geographic dispersion. The Company performs ongoing credit evaluations
of its customers’ financial conditions and maintains reserves for credit losses. Such losses historically have been
within the Company’s expectations.
The following table summarizes all of the Company’s customers, which individually account for at least
10% of the Company’s revenue. The customers in the table below are serviced through the Healthcare Supply
Chain Services segment.
Percent of Revenue
2009 2008 2007
Walgreen Co. (“Walgreens”) .................................................... 23% 19% 19%
CVS Caremark Corporation (“CVS”) ............................................. 21% 22% 21%
At June 30, 2009 and 2008, Walgreens accounted for 33% and 26%, respectively, and CVS accounted for
19% and 19%, respectively, of the Company’s gross trade receivable balance.
Certain of the Company’s businesses have entered into agreements with group purchasing organizations
(“GPOs”) which act as purchasing agents that negotiate vendor contracts on behalf of their members. In fiscal
2009, 2008 and 2007, approximately 16%, 16% and 10%, respectively, of revenue was derived from GPO
members through the contractual arrangements established with Novation, LLC and Premier Purchasing Partners,
L.P., the Company’s two largest GPO relationships in terms of revenue. However, the Company’s trade
receivable balances are with individual members of the GPO and therefore no significant concentration of credit
risk exists with these types of arrangements.
Inventories. A substantial portion of inventories are valued at the lower of cost, using the last-in, first-out
(“LIFO”) method, or market. The remaining inventory is valued at the lower of cost, using the first-in, first-out
(“FIFO”) method, or market. See Note 6 for additional information.
Cash Discounts. Manufacturer cash discounts are recorded as a component of inventory cost and recognized
as a reduction of cost of products sold when the related inventory is sold.
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