Cardinal Health 2009 Annual Report Download - page 57

acquisition. Other factors favorably impacting gross margin included increased sales of clinical and medical
products and related services ($152 million), increased manufacturer cash discounts ($72 million), distribution
service agreement fees and pharmaceutical price appreciation (combined impact of $84 million) and foreign
exchange ($59 million). Gross margin was negatively impacted primarily by an increase in customer discounts
within the Healthcare Supply Chain Services—Pharmaceutical segment ($307 million) as a result of the repricing
of several large customer contracts and increased sales to bulk customers. Also negatively impacting gross
margin was a decrease in sales to non-bulk customers.
Selling, General and Administrative Expenses
SG&A expenses for fiscal 2009 increased $48 million or 1% driven by the impact of acquisitions, net of
divestitures ($69 million) and increased bad debt expense ($40 million) driven by the general economic
conditions impacting certain customers and bankruptcy filings by four regional chain customers within the
Healthcare Supply Chain Services segment. The Company is continuing to closely monitor its portfolio of
outstanding accounts receivable to identify and mitigate customer credit risk; however, future results could be
adversely impacted if there is a deterioration in the financial condition of one or more large customers. The
increases in SG&A expenses were largely offset by cost control initiatives. Refer to “Segment Results of
Operations” below for further discussion of the specific factors affecting SG&A expenses in each of the
Company’s reportable segments.
SG&A expenses increased $329 million or 11% in fiscal 2008 primarily in support of revenue growth,
which includes the impact of acquisitions ($262 million). SG&A expenses were favorably impacted by a year-
over-year reduction in incentive compensation expense ($46 million) and equity-based compensation expense
($16 million) in fiscal 2008 compared to the prior year. The reduction in equity-based compensation expense was
due to changes made to the Company’s employee equity compensation program.
Impairment, (Gain)/Loss on Sale of Assets and Other, net
The Company recognized impairments, (gain)/loss on sale of assets and other, net of $25 million in fiscal
2009, $(32) million in fiscal 2008 and $17 million in fiscal 2007. 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 2009, 2008 and 2007 (in millions):
2009 2008 2007
Restructuring charges ................................................... $164.3 $ 65.7 $ 40.1
Acquisition integration charges ........................................... 14.5 44.9 101.5
Litigation and other .................................................... (1.4) 19.5 630.4
Total special items ................................................. $177.4 $130.1 $772.0
Fiscal 2009 special items charges included restructuring charges of $164 million primarily related to the
Spin-Off ($97 million), restructuring of the Company’s segment operating structure ($31 million), and headcount
reductions within the Clinical and Medical Products segment ($19 million).
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. See Note 3 of “Notes to
Consolidated Financial Statements” for additional detail regarding the Derivative Action.
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