Cardinal Health 2008 Annual Report Download - page 58

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SG&A expenses increased $200 million or 7% during fiscal 2007 primarily in support of revenue growth.
Additional items impacting SG&A expenses included increases due to acquisitions ($72 million) and the
Company’s charitable contribution to the Cardinal Health Foundation ($30 million). SG&A expenses were
favorably impacted by the year-over-year reduction in equity-based compensation expense ($70 million). The
reduction in equity-based compensation expense was due in part to changes made to the Company’s equity
compensation program and the grant of stock appreciation rights in the prior year.
Impairment, (Gain)/Loss on Sale of Assets and Other, net
The Company recognized impairments, (gain)/loss on sale of assets and other, net of $(32) million in fiscal
2008 compared to $17 million in fiscal 2007. During fiscal 2008, the Company divested an investment within the
Healthcare Supply Chain Services – Pharmaceutical segment. As a result of the divestiture, the Company
recognized a $23 million gain in impairments, (gain)/loss on sale of assets and other, net. See Note 3 of “Notes to
Consolidated Financial Statements” for additional detail regarding impairments, (gain)/loss on sale of assets and
other, net.
Special Items
The following is a summary of the Company’s special items for fiscal 2008, 2007 and 2006 (in millions):
2008 2007 2006
Restructuring charges .................................................... $ 65.7 $ 40.1 $47.6
Acquisition integration charges ............................................ 44.9 101.5 25.4
Litigation and other ..................................................... 19.5 630.4 7.5
Total special items .................................................. $130.1 $772.0 $80.5
Fiscal 2008 special items charges primarily related to the Company’s restructuring programs and the
integration costs of certain acquisitions. During fiscal 2008, the Company also recorded litigation charges
totaling $74 million primarily related to the DEA matter ($34 million) and other matters. These charges were
offset by $58 million of income related to the settlement of the Derivative Actions discussed in Note 12 of
“Notes to the Consolidated Financial Statements.” In fiscal 2009, the Company expects to incur approximately
$54 million in charges related to the restructuring of its segment operating structure effective July 1, 2008, which
is when it consolidated its businesses into two primary operating and reportable segments to reduce costs and
align resources with the needs of each segment.
Fiscal 2007 special items charges primarily related to reserves for litigation settlements ($655 million) and
in-process research and development costs (“IPR&D”) expenses ($85 million) primarily in connection with the
Viasys acquisition. The Company recorded litigation charges and made payments of $655 million during fiscal
2007 related to the settlement of the Cardinal Health federal securities litigation ($600 million), Cardinal Health
ERISA litigation ($40 million) and other matters. These charges were offset by $29 million of income related to
pharmaceutical manufacturer antitrust litigation. In addition, the Company settled and made payment for the
penalty associated with the SEC investigation ($35 million), which was reserved in fiscal 2006 and 2005.
See Note 3 of “Notes to Consolidated Financial Statements” for additional detail of the Company’s special
items.
Operating Earnings/(Loss)
Operating earnings increased $748 million or 54% during fiscal 2008 compared to the prior year. The
increase was primarily due to the $600 million expense recognized within special items in the prior year related
to shareholder litigation. In addition, operating earnings were favorably impacted by higher gross margin ($389
million) and negatively impacted by increased SG&A expenses ($333 million).
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