Cardinal Health 2009 Annual Report Download - page 131

19. OFF-BALANCE SHEET ARRANGEMENTS
The Company periodically enters into certain off-balance sheet arrangements, primarily receivable sales and
operating leases, in order to maximize diversification of funding and return on assets. The receivable sales, as
described below, also provide for the transfer of credit risk to third parties.
Lease Receivable-Related Arrangements
A subsidiary of the Company has agreements to transfer ownership of certain equipment lease receivables,
plus security interests in the related equipment, to the leasing subsidiary of a bank. In order to qualify for sale
treatment under SFAS No. 140, the Company formed wholly-owned, special purpose, bankruptcy-remote
subsidiaries (the “SPEs”) of its subsidiary, Cardinal Health Solutions, Inc. (“CHS”), and each of the SPEs formed
wholly-owned, qualified special purpose subsidiaries (the “QSPEs”) to effectuate the removal of the lease
receivables from the Company’s consolidated financial statements. In accordance with SFAS No. 140, the
Company consolidates the SPEs and does not consolidate the QSPEs. Both the SPEs and QSPEs are separate
legal entities that maintain separate financial statements from the Company and CHS. The assets of the SPEs and
QSPEs are available first and foremost to satisfy the claims of their respective creditors.
Other Receivable-Related Arrangements
Cardinal Health Funding, LLC (“CHF”) was organized for the sole purpose of buying receivables and
selling undivided interests in those receivables to multi-seller conduits administered by third party banks or other
third party investors. CHF was designed to be a special purpose, bankruptcy-remote entity. Although
consolidated in accordance with GAAP, CHF is a separate legal entity from the Company and the Company’s
subsidiary that sells and contributes the receivables to CHF. The sale of receivables by CHF qualifies for sales
treatment under SFAS No. 140 and accordingly the receivables are not included in the Company’s consolidated
financial statements.
At June 30, 2009 and 2008, the Company had a committed receivables sales facility program available
through CHF with capacity to sell $950.0 and $850.0 million in receivables, respectively. Recourse is provided
under the program by the requirement that CHF retain a subordinated interest in the sold receivables. The
Company did not have any receivables outstanding under the committed receivables sales facility program at
June 30, 2009. During the second quarter of fiscal 2009, the Company amended its committed receivables sales
facility program to extend it for an additional 364 days. On May 1, 2009, the Company amended its committed
sales facility program to replace a minimum net worth covenant of $4.1 billion in the Performance Guaranty with
covenants that require the Company to maintain a consolidated interest coverage ratio as of the end of any fiscal
quarter of at least 4-to-1 and to maintain a consolidated leverage ratio of no more than 3.25-to-1. The amendment
also increased the purchase limit of the revolving receivables purchase facility from $850.0 million to $950.0
million.
Cash Flows from all Receivable-Related Arrangements
The Company’s net cash flow decrease related to receivable interest transfers for fiscal 2009, 2008 and 2007
were as follows:
(in millions) 2009 2008 2007
Proceeds received on transfer of receivables interests ........................... $— $ — $ —
Cash collected in servicing of related receivable interests ....................... — 0.3 1.0
Cash inflow to the Company .............................................. — 0.3 1.0
Repurchase of receivable interests .......................................... — — (550.0)
Cash collection remitted to the bank ........................................ (2.8) (43.2) (99.6)
Net impact to the Company’s cash flow ..................................... $(2.8) $(42.9) $(648.6)
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