Cardinal Health 2008 Annual Report Download - page 40

Download and view the complete annual report

Please find page 40 of the 2008 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 164

  • 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
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164

The Company included the certifications of its Chief Executive Officer and Chief Financial officer required
by Section 302 of the Sarbanes-Oxley Act of 2002 and related rules, relating to the quality of the Company’s
public disclosure, in this Annual Report on Form 10-K as Exhibits 31.1 and 31.2.
Item 1A: Risk Factors
The risks described below could materially and adversely affect the Company’s results of operations,
financial condition, liquidity and cash flows. These risks are not the only risks that the Company faces. The
Company’s business operations could also be affected by additional factors that are not presently known to it or
that the Company currently considers not to be material to its operations.
Competitive pressures could adversely affect the Company’s results of operations and financial condition.
The Company operates in markets that are highly competitive. Its pharmaceutical supply chain business
competes with two national, full-line wholesale distributors, McKesson Corporation and AmerisourceBergen
Corporation, and a number of smaller regional wholesale distributors, self-warehousing chains, direct selling
manufacturers, specialty distributors, generic pharmaceutical telemarketing distributors and third-party logistics
companies, among others. The Company’s medical products distribution and manufacturing businesses encounter
competition from numerous and varied competitors in all areas of their businesses. As a result, the Company’s
businesses face continued pricing pressure from their customers. In some cases, the Company is able to offset
these reductions by lowering its costs through effective product sourcing and focus on cost controls. If the
Company is unable to effectively mitigate future pricing pressures, its results of operations could be adversely
affected. In addition, in recent years, the healthcare industry has been subject to increasing consolidation. If this
consolidation trend continues among the Company’s customers and vendors, it could give the resulting
enterprises greater bargaining power, which may further increase pressure on prices for the Company’s products
and services.
Substantial defaults or a material reduction in purchases of the Company’s products by large customers
could have an adverse effect on the Company’s results of operations and financial condition.
In recent years, a significant portion of the Company’s revenue growth has been derived from a limited
number of large customers. The Company’s largest customers, CVS and Walgreens, accounted for approximately
22% and 19%, respectively, of the Company’s revenue for fiscal 2008. The aggregate of the Company’s five
largest customers, including CVS and Walgreens, accounted for approximately 52% of the Company’s revenue
for fiscal 2008. In addition, CVS and Walgreens accounted for 19% and 26%, respectively, of the Company’s
gross trade receivable balance at June 30, 2008. As a result, the Company’s sales and credit concentration is
significant. Any defaults in payment or a material reduction in purchases from these or other large customers
could have an adverse effect on the Company’s results of operations and financial condition.
In addition, certain of the Company’s businesses have entered into agreements with GPOs. Approximately
16% of the Company’s revenue for fiscal 2008 was derived from GPO members through the contractual
arrangements established with Novation and Premier. Generally, compliance by GPO members with GPO vendor
selections is voluntary. Still, the loss of an agreement with a GPO could have an adverse effect on the Company’s
results of operations and financial condition because the Company could lose customers or have to reduce prices
as a result.
Changes in the U.S. healthcare environment could adversely affect the Company’s results of operations and
financial condition.
The Company’s products and services are primarily intended to function within the current structure of the
healthcare industry in the United States. In recent years, the healthcare industry has changed significantly in an
16