Cardinal Health 2009 Annual Report Download - page 120

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The following table summarizes the gain/(loss) recognized in earnings for interest rate swaps designated as
fair value hedges for the fiscal years ended June 30, 2009, 2008 and 2007 (in millions):
Fiscal Year Ended June 30,
Fair Value Hedging Instruments Statement of Earnings Location 2009 2008 2007
Pay-floating interest rate swaps .......... Interest expense and other $ 21.6 $ 4.2 $(11.2)
Fixed-rate debt ....................... Interest expense and other (21.6) (4.2) 11.2
There was no ineffectiveness associated with these derivative instruments.
Cash Flow Hedges
The Company enters into derivative instruments to hedge its exposure to changes in cash flows attributable
to currency, interest rate and commodity price fluctuations associated with certain forecasted transactions. These
derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the
gain or loss on the derivative instrument is reported as a component of other comprehensive income (“OCI”) and
reclassified into earnings in the same line item associated with the forecasted transaction and in the same period
during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative
instrument is recognized in earnings immediately.
The Company enters into pay-fixed interest rate swaps to hedge the variability of cash flows relating to
interest rate payments on the Company’s variable rate debt. At June 30, 2009 and 2008, the Company held two
and three pay-fixed interest rate swaps, respectively, to hedge the variability of cash flows relating to these
forecasted transactions. During fiscal 2008, the Company held three additional pay-fixed interest rate swaps to
hedge the variability of cash flows related to forecasted transactions. These contracts were terminated during
fiscal 2008, resulting in cash receipts totaling $6.4 million. These proceeds are classified as cash provided by
operating activities in the consolidated statements of cash flows. The ineffective portion of the contracts, totaling
a gain of $0.1 million, was recorded in interest expense and other during fiscal 2008. The remaining $6.3 million
of the receipts that relate to the portion of the contracts that was effective was recorded to OCI during fiscal
2008, and an adjustment will be recognized in interest expense and other in future periods in conjunction with the
occurrence of the originally forecasted transactions.
The Company also enters into foreign currency forward contracts to protect the value of anticipated foreign
currency revenues and expenses. At June 30, 2009 and 2008, the Company held forward contracts to hedge
probable, but not firmly committed, revenue and expenses. The principal currencies hedged are the Canadian
dollar, European euro, Mexican peso, Thai baht, British pound, and Australian dollar.
The Company also enters into derivative contracts to manage the price risk associated with forecasted
purchases of certain commodities used in its Healthcare Supply Chain Services segment.
The following table summarizes the outstanding cash flow hedges as of June 30, 2009 and 2008 (in
millions):
June 30, 2009 June 30, 2008
Type
Notional
Amount
Maturity Date
Gain/(Loss)
Notional
Amount
Maturity Date
Gain/(Loss)
Pay-fixed interest rate swaps ...... $350.0 October 2009 $498.0 October 2009 - June 2013
Foreign currency forward
contracts ....................
568.2 July 2009 - June 2010 344.1 July 2008 - June 2009
Commodity contracts ............ 14.5 July 2009 - December 2011 — —
98