Cardinal Health 2009 Annual Report Download - page 114

challenging deductions arising from the sale of trade receivables to a special purpose accounts receivable and
financing entity as described in more detail in Note 9. The amount of additional tax, excluding penalties and
interest, proposed by the IRS in these notices was $178.9 million The Company disagrees with the proposed
adjustments and intends to vigorously contest them. The Company anticipates that this transaction could be the
subject of proposed adjustments by the IRS in tax audits of fiscal years 2006 to present. The Company believes
that it is adequately reserved for the uncertain tax position relating to this arrangement; therefore, it has not
adjusted the amount of previously recorded unrecognized tax benefits related to this issue.
In fiscal 2009, the Company received a Revenue Agent’s Report for tax years 2003 through 2005, which
included the NPA’s discussed above and new NPA’s related to the Company’s transfer pricing arrangements
between foreign and domestic subsidiaries and the transfer of intellectual property among subsidiaries of an
acquired entity prior to its acquisition by the Company. The amount of additional tax proposed by the IRS in the
new notices total $598.1 million, excluding penalties and interest. The Company disagrees with these proposed
adjustments and intends to vigorously contest them.
It is reasonably possible that there could be a change in the amount of unrecognized tax benefits within the
next 12 months due to activities of the IRS or other taxing authorities, including proposed assessments of
additional tax, possible settlement of audit issues, or the expiration of applicable statutes of limitations. The
Company estimates that the range of the possible change in unrecognized tax benefits within the next 12 months
is a decrease of approximately zero to $24 million exclusive of penalties and interest.
11. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
The future minimum rental payments for operating leases having initial or remaining non-cancelable lease
terms in excess of one year at June 30, 2009 are:
(in millions) 2010 2011 2012 2013 2014 Thereafter Total
Minimum rental payments .................... $92.7 $79.9 $67.2 $52.7 $38.8 $86.5 $417.8
Rental expense relating to operating leases was approximately $133.4 million, $124.4 million and
$115.7 million in fiscal 2009, 2008 and 2007, respectively. Sublease rental income was not material for any
period presented herein.
Legal Proceedings
In addition to commitments and obligations in the ordinary course of business, the Company is subject to
various claims, other pending and potential legal actions for damages, investigations relating to governmental
laws and regulations and other matters arising out of the normal conduct of its business. The Company accrues
for contingencies related to litigation in accordance with SFAS No. 5, “Accounting for Contingencies,” which
requires the Company to assess contingencies to determine the degree of probability and range of possible loss.
An estimated loss contingency is accrued in the Company’s consolidated financial statements if it is probable that
a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is
inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective
and requires judgments about future events. The Company regularly reviews contingencies to determine the
adequacy of the accruals and related disclosures. The amount of ultimate loss may differ from these estimates. It
is possible that cash flows or results of operations could be materially affected in any particular period by the
unfavorable resolution of one or more of these contingencies.
92