Cardinal Health 2009 Annual Report Download - page 122

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Fair Value of Financial Instruments.
The carrying amounts of cash and equivalents, trade receivables, accounts payable, notes payable-banks,
other short-term borrowings and other accrued liabilities at June 30, 2009 and 2008 approximate their fair value
because of the short-term maturities of these items.
Cash balances are invested in accordance with the Company’s investment policy. These investments are
exposed to market risk from interest rate fluctuations and credit risk from the underlying issuers, although this is
mitigated through diversification.
The estimated fair value of the Company’s long-term obligations and other short-term borrowings was
$3,438.7 million and $3,765.5 million compared to the carrying amounts of $3,647.3 million and
$3,846.4 million at June 30, 2009 and 2008, respectively. The fair value of the Company’s long-term obligations
and other short-term borrowings is estimated based on either the quoted market prices for the same or similar
issues and the current interest rates offered for debt of the same remaining maturities or estimated discounted
cash flows.
The following is a summary of the fair value gain/(loss) of the Company’s derivative instruments, based
upon the estimated amount that the Company would receive (or pay) to terminate the contracts as of June 30,
2009 and 2008. The fair values are based on quoted market prices for the same or similar instruments.
June 30, 2009 June 30, 2008
(in millions)
Notional
Amount
Fair Value
Gain/(Loss)
Notional
Amount
Fair Value
Gain/(Loss)
Foreign currency forward contracts ........................ $1,413.5 $58.6 $1,203.2 $42.2
Interest rate swaps ...................................... 350.0 (3.7) 1,748.0 7.2
Commodity contracts ................................... 14.5 1.2 — —
14. FAIR VALUE MEASUREMENTS
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value
measurements. Additionally, SFAS No. 157 establishes a three-level fair value hierarchy that prioritizes the
inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and
minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:
Level 1 – Observable prices in active markets for identical assets and liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets and liabilities.
Effective July 1, 2008, the Company adopted the provision of SFAS No. 157. The adoption of SFAS
No. 157 did not have a material impact on the Company’s financial position or results of operations. In February
2008, the FASB issued FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157” which permits
a one-year deferral for the implementation of SFAS No. 157 with regard to nonfinancial assets and nonfinancial
liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually). The Company does not expect the adoption of the remaining portions of this statement, which will be
effective in fiscal 2010, to have a material impact on the Company’s financial position or results of operations.
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