Cardinal Health 2008 Annual Report Download - page 93

Receivables. Trade receivables are primarily comprised of amounts owed to the Company through its
distribution businesses within the Healthcare Supply Chain Services—Pharmaceutical and Healthcare Supply
Chain Services—Medical segments and are presented net of an allowance for doubtful accounts. See Note 5 for
additional information.
Concentrations of Credit Risk and Major Customers. The Company maintains cash depository accounts
with major banks throughout the world and invests in high quality short-term liquid instruments. Such
investments are made only in instruments issued or enhanced by high quality institutions. These investments
mature within three months and the Company has not incurred any related losses.
The Company’s trade receivables, lease receivables, and finance notes and accrued interest receivables are
exposed to a concentration of credit risk with customers in the retail and healthcare sectors. Credit risk can be
affected by changes in reimbursement and other economic pressures impacting the hospital and acute care sectors
of the healthcare industry. Such credit risk is limited, however, due to supporting collateral and the diversity of
the customer base, including its wide geographic dispersion. The Company performs ongoing credit evaluations
of its customers’ financial conditions and maintains reserves for credit losses. Such losses historically have been
within the Company’s expectations.
The following table summarizes all of the Company’s customers, which individually account for at least
10% of the Company’s revenue. The customers in the table below are serviced through the Healthcare Supply
Chain Services—Pharmaceutical segment.
Percent of Revenue
2008 2007 2006
CVS Caremark Corporation (“CVS”) ............................................. 22% 21% 22%
Walgreen Co. (“Walgreens”) .................................................... 19% 19% 15%
At June 30, 2008 and 2007, CVS accounted for 19% and 20%, respectively, and Walgreens accounted for
26% and 27%, respectively, of the Company’s gross trade receivable balance.
Certain of the Company’s businesses have entered into agreements with group purchasing organizations
(“GPOs”) which act as purchasing agents that negotiate vendor contracts on behalf of their members. In fiscal
2008, 2007 and 2006, approximately 16%, 10% and 15%, respectively, of revenue was derived from GPO
members through the contractual arrangements established with Novation, LLC and Premier Purchasing Partners,
L.P., the Company’s two largest GPO relationships in terms of revenue. However, the Company’s trade
receivable balances are with individual members of the GPO and therefore no significant concentration of credit
risk exists with these types of arrangements.
Inventories. A substantial portion of inventories is stated at the lower of cost, using the last-in, first-out
(“LIFO”) method, or market. The remaining inventory is stated at the lower of cost, using the first-in, first-out
(“FIFO”) method, or market. See Note 7 for additional information.
Cash Discounts. Manufacturer cash discounts are recorded as a component of inventory cost and recognized
as a reduction of cost of products sold when the related inventory is sold.
Property and Equipment. Property and equipment are stated at cost. Property and equipment held for sale
are recorded at the lower of cost or fair value less cost to sell. Depreciation expense for financial reporting
purposes is computed using the straight-line method over the estimated useful lives of the assets, including
capital lease assets which are depreciated over the terms of their respective leases. The Company uses the
following range of useful lives for its property and equipment categories: buildings and improvements—1 to
50 years; machinery and equipment—2 to 20 years; furniture and fixtures—3 to 10 years. Depreciation expense
was $289.7 million, $252.2 million and $238.7 million for fiscal 2008, 2007 and 2006, respectively. When
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