Cardinal Health 2010 Annual Report Download - page 49

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Medical segment
M
edical se
g
ment revenue was positivel
y
impacted b
y
increased volume from existin
g
hospital, laborator
y
and ambulator
y
care customers ($462 million), driven partiall
y
b
y
stron
g
demand for flu-related products. Als
o
p
ositivel
y
impactin
g
revenue were new products ($74 million) and the favorable impact of forei
g
n exchan
g
e ($5
5
million). In addition, in connection with the Spin-Off, we reco
g
nized previousl
y
deferred inter-compan
y
revenu
e
f
or sales to CareFusion of $51 million (
p
rior to the S
p
in-Off, we deferred revenue for
p
roducts sold to
CareFusion businesses until the products were sold to the end customers). Losses of existin
g
customers in exces
s
o
f
g
ains from new customers reduced revenue b
y
$200 million.
F
isca
l
2009 Compare
d
to Fisca
l
2008
P
h
armaceutica
l
se
g
ment
Pharmaceutical segment revenue was positively impacted by pharmaceutical price appreciation an
d
increased volume from existing customers (a combined impact of
$
7.8 billion). Revenue was negatively
impacted by lost customer revenue from the DEA’s suspensions of licenses to distribute controlled substances
held by three of our distribution centers and because of enhanced controlled substance anti-diversion efforts tha
t
we undertook. We resumed controlled substance distributions from distribution centers that were impacted by the
license suspensions during the second quarter of fiscal 2009
.
Medical segment
M
edical se
g
ment revenue was positivel
y
impacted b
y
increased volume from existin
g
hospital, laborator
y
and ambulator
y
care customers ($386 million). Revenue was ne
g
ativel
y
impacted b
y
forei
g
n exchan
g
e ($8
8
million).
C
ost o
f
Pro
d
ucts So
ld
Consistent with the increases in revenue, our cost of products sold increased $2.5 billion, or 3%, durin
g
f
iscal 2010 and increased b
y
$8.6 billion, or 10%, durin
g
fiscal 2009
.
Gross Mar
g
i
n
C
hang
e
G
ross Marg
in
2010
2009
2010
2009
2008
G
ross mar
g
in.......................................... 1
%
(
1)% $3,780.7 $3,747.5 $3,777.1
F
isca
l
2010 Compare
d
to Fisca
l
200
9
P
h
armaceutica
l
se
g
ment
Gross margin decreased
$
65 million as a result of the factors listed below
.
• Pricin
g
chan
g
es on renewed customer contracts (exclusive of the related volume impact) decreased
g
ross mar
g
in b
y
$103 million.
•In
fi
sca
l
2009, Me
di
c
i
ne S
h
oppe o
ff
ere
d
an a
l
ternat
i
ve
f
ranc
hi
se mo
d
e
l
to
i
ts
f
ranc
hi
sees to pos
i
t
i
on t
he
f
ranchise system for future growth. This transformation adversely impacted gross margin by $65
milli
on;
h
owever, t
hi
s was part
i
a
ll
yo
ff
set
b
ye
ffi
c
i
enc
i
es ga
i
ne
d
w
i
t
hi
n SG&A.
• Increased branded margin (exclusive of the related volume impact) had a positive impact on gros
s
m
argin of
$
38 million despite the adverse timing impact of the transition of a significant vendor
r
elationship to a distribution service agreement. Several factors can influence branded margin,
i
ncluding: our service level performance under distribution service agreements; our inventory level and
m
ix; and the magnitude and timing of pharmaceutical price appreciation.
• Sales volume
g
rowth in pharmaceutical distribution had a positive impact of $22 million
.
23