Cardinal Health 2008 Annual Report Download - page 68

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The Company defines bulk customers based on the way in which the Company operates its business and the
services it performs for its customers. The Company is not aware of an industry standard regarding the definition
of bulk customers and based solely on a review of the Annual Reports on Form 10-K of other national
pharmaceutical wholesalers, the Company notes that other companies in comparable businesses may, or may not,
use a different definition of bulk customers.
During fiscal 2008 revenue from non-bulk customers decreased $681 million compared to the prior year due
to the loss of customers, including the impact from the DEA license suspensions and the Company’s controlled
substance anti-diversion efforts, partially offset by additional volume from existing customers. Segment profit
from non-bulk customers decreased $142 million during fiscal 2008 compared to the prior year due to an
increase in customer discounts and the impact of generic launches in the prior year which did not occur in the
current year, coupled with greater generic deflation. The decrease during fiscal 2008 was partially offset by an
increase in distribution service agreement fees and pharmaceutical price appreciation.
During fiscal 2008 revenue from bulk customers increased $3.4 billion compared to the prior year due to
new contracts signed with existing customers which resulted in increased volume from existing customers.
Segment profit from bulk customers decreased $36 million during fiscal 2008 compared to the prior year due to
increased customer discounts partially offset by increased manufacturer cash discounts related to sales volume
growth. The decrease during fiscal 2008 was also partially offset by an increase in distribution service agreement
fees and pharmaceutical price appreciation.
During fiscal 2007, revenue from bulk customers increased $4.0 billion compared to the prior year due to
additional volume from existing customers and new customers. Segment profit from bulk customers increased
$59 million due to increased sales volume described above and the year-over-year increase in distribution service
agreement fees and pharmaceutical price appreciation. During fiscal 2008, revenue from non-bulk customers
increased $2.5 billion due to additional sales volume from existing customers and pharmaceutical price
appreciation. Segment profit for non-bulk customers increased $125 million compared to fiscal 2006. This
increase in segment profit from non-bulk customers was due primarily to the increase in sales volume described
above and the impact of generic products which had a greater impact on the profitability of non-bulk customers
due to the mix of pharmaceuticals distributed to non-bulk customers.
Healthcare Supply Chain Services—Medical Performance
During fiscal 2008, Healthcare Supply Chain Services—Medical segment revenue grew $570 million or 8%
compared to fiscal 2007 primarily due to increased volume from existing hospital, laboratory, and ambulatory
care customers ($630 million), new customers ($87 million) and the impact of foreign exchange ($61 million).
Revenue was negatively impacted by the loss of customers ($193 million).
Healthcare Supply Chain Services—Medical segment profit decreased $15 million or 5% during fiscal 2008
compared to fiscal 2007. Segment profit improved in the second half of fiscal 2008 compared to the first half of
fiscal 2008 due to positive growth in the core U.S. medical distribution business. Gross margin increased
segment profit by $38 million during fiscal 2008 compared to the prior year primarily as a result of revenue
growth. Increases in SG&A expenses decreased segment profit by $53 million during fiscal 2008 partially as a
result of the impact of foreign exchange ($10 million). In addition, the impact of changing the methodology for
allocating corporate costs for the Healthcare Supply Chain Services—Pharmaceutical and Healthcare Supply
Chain Services—Medical segments resulted in increased expense ($22 million) allocated to the Healthcare
Supply Chain Services—Medical segment. This change was made in an effort to better align corporate spending
with the segment that receives the related benefits.
The Company expects segment profit to be negatively impacted in fiscal 2009 by the rising cost of oil and
oil-related commodities. The Company has taken steps to offset these rising costs through other cost reductions,
including restructuring initiatives, and may also recover these rising costs through price increases or fuel
surcharges, where possible.
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