Cardinal Health 2011 Annual Report Download - page 49

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Cost o
f
Pro
d
ucts So
ld
Consistent with the increases in revenue, our cost of
p
roducts sold increased $3.8 billion, or 4
p
ercent,
d
uring fiscal 2011 and increased by
$
2.5 billion, or 3 percent, during fiscal 2010
.
Gross Margin
Change
G
ross Margin
(
in millions, except
g
rowth rates
)
2
011
2
010 201
1
201
0
2009
Gross mar
gi
n
.
.........................................
10% 1%
$4
,
162.0 $3
,
780.7 $3
,
747.
5
F
iscal 2011 Com
p
ared to Fiscal 201
0
P
harmaceutical se
g
men
t
Gross mar
g
in increased $446 million in fiscal 2011 primaril
y
as a result of the factors listed below.
• Stron
g
performance in our
g
eneric pharmaceutical pro
g
rams, includin
g
the impact of new produc
t
launches, increased gross margin by
$
239 million.
• Acquisitions, net of divestitures, positively impacted gross margin by
$
198 million
.
• Increased mar
g
in from branded pharmaceutical sales (exclusive of the related volume impact) had
a
p
ositive impact on gross margin of
$
72 million. The increase was primarily due to our performanc
e
under distribution service a
g
reements and the transition of certain vendors to distribution service
a
g
reements. Factors that can influence mar
g
in from branded pharmaceutical sales include our service-
l
eve
l
per
f
ormance un
d
er
di
str
ib
ut
i
on serv
i
ce agreements; our
i
nventory
l
eve
l
an
d
m
i
x; an
d
t
he
m
a
g
nitude and timin
g
of pharmaceutical price appreciation
.
• Customer pr
i
c
i
ng c
h
anges
i
nc
l
u
di
ng re
b
ates (exc
l
us
i
ve o
f
t
h
ere
l
ate
d
vo
l
ume
i
mpact) a
d
verse
ly
i
mpacted
g
ross mar
g
in b
y
$99 million. The adverse impact of these customer pricin
g
chan
g
es i
s
p
art
i
a
ll
yo
ff
set
b
y pro
d
uct m
i
x, sourc
i
ng programs an
d
ot
h
er sources o
f
marg
i
n
.
M
edical segment
Gross mar
g
in decreased $59 million in fiscal 2011 primaril
y
as a result of the factors listed below
.
• Increase
d
cost o
f
o
il
-
b
ase
d
res
i
ns
,
cotton
,l
atex
,di
ese
lf
ue
l
an
d
ot
h
er commo
di
t
i
es use
di
n our se
lf
-
m
anufactured and private brand products decreased
g
ross mar
g
in b
y
$59 million
.
• Increased net sales volume resulted in a $22 million favorable impact to
g
ross mar
g
in
.
• In the first quarter of fiscal 2010, we realized a one-time
g
ain of $14 million as a result of th
e
r
eco
g
nition of previousl
y
deferred intercompan
y
revenue for sales to CareFusion.
• Somewhat slu
gg
ish healthcare utilization disproportionatel
y
affected sur
g
ical procedures and
c
onsequent
l
y our
hi
g
h
er-marg
i
n pro
d
ucts.
F
iscal 2010 Compared to Fiscal 200
9
P
harmaceutical segmen
t
Gross mar
g
in decreased
$
65 million in fiscal 2010 as a result of the factors listed below.
•Pr
i
c
i
ng c
h
anges on renewe
d
customer contracts (exc
l
us
i
ve o
f
t
h
ere
l
ate
d
vo
l
ume
i
mpact)
d
ecrease
d
g
ross mar
g
in b
y
$103 million
.
• In fiscal 2009, Medicine Sho
pp
e offered an alternative franchise model to its franchisees to
p
osition the
franchise s
y
stem for future
g
rowth. This transformation adversel
y
impacted
g
ross mar
g
in b
y
$6
5
milli
on
i
n
fi
sca
l
2010;
h
owever, t
hi
s was part
i
a
ll
yo
ff
set
b
ye
ffi
c
i
enc
i
es ga
i
ne
d
w
i
t
hi
n SG&A
.
23