Cardinal Health 2008 Annual Report Download - page 70

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During the fourth quarter of fiscal 2008, the Company discovered it had failed to recognize a portion of
profit on sales pertaining to prior years. The error resulted from system interface and reconciliation discrepancies
over a period of several years. As a result, the Company recorded income of approximately $11 million in fiscal
2008, of which $7 million pertained to fiscal 2007 and $4 million pertained to fiscal 2006. In connection with
this matter, the Company implemented an action plan that has addressed the issues related to the error.
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.
During fiscal 2007, Medical Products and Technologies segment revenue grew $203 million or 12%.
Revenue growth was favorably impacted by increased sales volume ($74 million) from existing customers and
new customers won through new GPO contracts and competitor exits. Revenue growth was also favorably
impacted by new product launches ($50 million), including innovations in gloves, respiratory products, surgical
instruments and software, and international revenue growth ($62 million), which includes the impact of foreign
exchange ($18 million). Acquisitions, including Denver Biomedical and Viasys, favorably impacted the year-
over-year comparison ($37 million).
Medical Products and Technologies segment profit increased $33 million or 20% during fiscal 2007. Gross
margin increased segment profit by $72 million primarily as a result of revenue growth. Factors favorably
impacting gross margin included manufacturing cost reductions ($20 million) driven by strategic sourcing and
expense control related to the Company’s restructuring program and the integration of acquisitions ($21 million),
primarily Denver Biomedical. Increases in SG&A expenses negatively impacted segment profit by $39 million
primarily in support of the segment’s revenue growth and from the impact of acquisitions ($13 million).
Favorably impacting SG&A expenses was the reduction in equity-based compensation expense ($12 million).
Other Matters
Acquisitions
During fiscal 2008, the Company acquired the assets of privately held Enturia, which included Enturia’s line
of infection prevention products sold under the ChloraPrep®brand name. The value of the transaction, including
the assumption of liabilities, totaled approximately $490 million. In addition, during fiscal 2008, the Company
completed other acquisitions that individually were not significant. The aggregate purchase price of these other
acquisitions, which was paid in cash, was approximately $35 million. Assumed liabilities of these acquired
businesses were approximately $6 million. The consolidated financial statements include the results of operations
from each of these business combinations from the date of acquisition. For further information regarding the
Company’s acquisitions see “Item 1—Business—Acquisitions and Divestitures” and Note 2 of “Notes to
Consolidated Financial Statements.”
During fiscal 2007, the Company acquired Viasys, which offered products and services directed at critical
care ventilation, respiratory diagnostics and clinical services and other medical and surgical products markets.
The value of the transaction, including the assumption of liabilities, totaled approximately $1.5 billion. In
addition, during fiscal 2007, the Company completed other acquisitions that individually were not significant.
The aggregate purchase price of these other acquisitions, which was paid in cash, was approximately
$174 million. Assumed liabilities of these acquired businesses were approximately $22 million. The consolidated
financial statements include the results of operations from each of these business combinations from the date of
acquisition.
During fiscal 2006, the Company completed acquisitions that individually were not significant. The
aggregate purchase price of these acquisitions, which was paid in cash, was approximately $364 million.
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