Cardinal Health 2011 Annual Report Download - page 58

complex and subjective estimates based upon past experience and management’s judgment. Other companies
a
pp
l
y
i
ng reasona
bl
e
j
u
d
gment to t
h
e same
f
acts an
d
c
i
rcumstances cou
ld d
eve
l
op
diff
erent est
i
mates. Becaus
e
o
ur estimates are inherentl
y
uncertain, actual results ma
y
differ. In this section, we describe the policies applied
in preparing our consolidated financial statements that management believes are the most dependent on estimate
s
a
n
d
assumpt
i
ons. For a
ddi
t
i
ona
l
account
i
ng po
li
c
i
es, see Note 1 o
f
“Notes to Conso
lid
ate
d
F
i
nanc
i
a
l
Statements.”
Allowance for Doubtful Accounts
T
rade receivables—amounts owed to us throu
g
h our operatin
g
activities—are presented net of an allowanc
e
f
or doubtful accounts. We also provide financing to various customers. Such financing arrangements range fro
m
90
d
ays to 10 years at
i
nterest rates t
h
at genera
ll
y are su
bj
ect to
fl
uctuat
i
on. F
i
nanc
i
ngs may
b
eco
ll
atera
li
ze
d,
g
uaranteed b
y
third parties or unsecured. Finance notes and accrued interest receivables are recorded net of a
n
a
llowance for doubtful accounts and are included in other assets. We must use judgment when deciding whethe
r
to exten
d
cre
di
tan
d
w
h
en ca
l
cu
l
at
i
ng t
h
e requ
i
re
d
a
ll
owance
f
or
d
ou
b
t
f
u
l
accounts
.
T
he allowance for doubtful accounts includes
p
ortfolio and s
p
ecific reserves. We determine the a
pp
ro
p
riate
all
owance
b
y rev
i
ew
i
ng accounts rece
i
va
bl
eag
i
ng,
i
n
d
ustry tren
d
s, customer
fi
nanc
i
a
l
strengt
h
an
d
cre
di
t
standin
g
, historical write-off trends and pa
y
ment histor
y
. We also re
g
ularl
y
evaluate how chan
g
es in economic
conditions may affect credit risks
.
R
eserve methodolo
g
ies are assessed annuall
y
based on historical losses and economic, business and marke
t
trends. In addition, reserves are reviewed quarterly and updated if appropriate. We may adjust the allowance fo
r
d
ou
b
t
f
u
l
accounts
if
c
h
anges
i
n customers’
fi
nanc
i
a
l
con
di
t
i
on or genera
l
econom
i
c con
di
t
i
ons ma
k
e
d
e
f
au
l
t
s
more fre
q
uent or severe.
Th
e
f
o
ll
ow
i
ng ta
bl
eg
i
ves
i
n
f
ormat
i
on regar
di
ng t
h
ea
ll
owance
f
or
d
ou
b
t
f
u
l
accounts over t
h
e past t
h
re
e
f
iscal
y
ears.
Fi
scal
y
ear
e
nded June 30
,
A
llowance
f
o
r
doub
t
fu
l
accou
nt
s
(
in millions
)
A
llowance as
a percenta
ge
of cus
t
o
m
er
receivab
l
es
A
llowance a
s
a
percenta
g
e
of
r
eve
n
ue
R
educt
i
on to
allowance
f
or customer
deduc
t
io
n
sa
n
d
write-offs
(
in millions
)
A
ddi
t
io
nt
o
All
owa
n
ce
(
in millions
)
2
011
$
150.0 2.4% 0.15%
$
21.9
$
27.2
2
010 $140.1 2.6% 0.14% $ 8.5 $26.8
2
009
$
117.6 2.2% 0.12%
$
48.3
$
51.4
A
h
y
pothetical 0.1 percent increase or decrease in the reserve as a percenta
g
e of trade receivables, sales-t
y
p
e
l
eases and finance notes receivables at June 30, 2011, would result in an increase or decrease in bad debt ex
p
ens
e
o
f approximately
$
6 million.
We believe the reserve maintained and ex
p
enses recorded in fiscal 2011 are a
pp
ro
p
riate. At this time, we are
not aware o
f
any ana
l
yt
i
ca
lfi
n
di
ngs or customer
i
ssues t
h
at m
i
g
h
t
l
ea
d
to a s
i
gn
ifi
cant
f
uture
i
ncrease
i
nt
he
a
llowance for doubtful accounts as a percenta
g
e of net revenue.
Inventorie
s
A
substantial
p
ortion of inventories (70
p
ercent at June 30, 2011, and 73
p
ercent at June 30, 2010) is state
d
a
tt
h
e
l
ower o
f
cost, us
i
ng t
h
e LIFO (“
l
ast
i
n,
fi
rst out”) met
h
o
d
, or mar
k
et. T
h
ese are pr
i
mar
il
y merc
h
an
di
s
e
inventories at the core pharmaceutical distribution facilities within our Pharmaceutical se
g
ment. The LIFO
impact on the consolidated statements of earnings in a given year depends on pharmaceutical price appreciation
a
n
d
t
h
e
l
eve
l
o
fi
nventory. Pr
i
ces
f
or
b
ran
d
e
d
p
h
armaceut
i
ca
l
s ten
d
to r
i
se, w
hi
c
h
resu
l
ts
i
nan
i
ncrease
i
n cost o
f
products sold, whereas prices for
g
eneric pharmaceuticals tend to decline, which results in a decrease in cost o
f
p
roducts sold
.
32