Cardinal Health 2009 Annual Report Download - page 67

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Segment profit from bulk customers decreased $36 million during fiscal 2008 compared to the prior year due to
increased customer discounts as a result of customer repricings 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.
Clinical and Medical Products Segment Performance
Fiscal Year Ended June 30, 2009 Compared to Fiscal Year Ended June 30, 2008
During fiscal 2009, Clinical and Medical Products revenue and segment profit declined compared to the
prior year. The declines were primarily driven by the deferral in hospital customers’ capital spending and the
unfavorable impact of foreign exchange partially offset by the Enturia acquisition. Additionally, segment profit
was negatively impacted by product recalls and reserves and the Alaris corrective action plan submitted to the
FDA, and a hold on shipping certain infusion products. The Company expects the deferral in hospital capital
spending referenced above to have an adverse impact on CareFusion results through the middle of calendar year
2010. The hold on shipping certain infusion products referenced above was lifted in July 2009.
Clinical and Medical Products segment revenue decreased $17 million or 0% during fiscal 2009 compared
to the prior year primarily due to the negative impact of foreign exchange ($118 million) and decreased volume
to existing customers primarily as a result of the ship hold ($65 million) partially offset by the impact of
acquisitions ($171 million).
Clinical and Medical Products segment profit decreased $65 million or 9% during fiscal 2009 compared to
the prior year period. In addition to the factors described above, gross margin decreased segment profit by $58
million primarily as a result of the revenue decline, the unfavorable impact of foreign exchange ($77 million) and
an increase in raw material cost ($50 million) partly offset by the favorable impact of acquisitions ($112 million).
In addition, negatively impacting segment profit during fiscal 2009 were $21 million in charges for product
recalls and reserves and the corrective action plan submitted to the FDA. Product recalls and reserves were also
$21 million for the fiscal 2008. SG&A expenses remained relatively flat compared to the prior year primarily due
to cost control initiatives offset by the impact of acquisitions ($60 million).
Fiscal Year Ended June 30, 2008 Compared to Fiscal Year Ended June 30, 2007
Clinical and Medical Products segment revenue increased $1.1 billion or 30% during fiscal 2008 primarily
due to acquisitions ($708 million). Revenue was also positively impacted by new products ($97 million), foreign
exchange ($91 million), new customers ($60 million) and increased volume from existing customers ($43
million).
Clinical and Medical Products segment profit increased $200 million or 37% during fiscal 2008. Gross
margin increased segment profit by $508 million primarily due to acquisitions ($321 million). Gross margin was
also favorably impacted by a favorable mix of higher margin products (combined impact of $109 million), the
impact of foreign exchange ($48 million) and the correction of a prior year error ($11 million), as described
below. The year over year impact of Alaris product corrective actions and recalls negatively impacted gross
margin in fiscal 2008 by $8 million. Increases in SG&A expenses negatively impacted segment profit by $308
million primarily due to acquisitions ($246 million) and to a lesser degree the impact of foreign exchange ($21
million) and increased investment in product quality and research and development costs ($11 million).
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.
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