Cardinal Health 2015 Annual Report Download - page 50

Notes to Financial Statements
49 Cardinal Health | Fiscal 2015 Form 10-K
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of
Significant Accounting Policies
Cardinal Health, Inc. is a healthcare services and products company
that improves the cost-effectiveness of health care. Cardinal Health,
Inc. helps pharmacies, hospitals, and other healthcare providers
focus on patient care while reducing costs, enhancing efficiency and
improving quality. Cardinal Health, Inc. also provides medical
products to patients in the home. References to “we”, “our” and similar
pronouns in these consolidated financial statements are to Cardinal
Health, Inc. and its majority-owned or controlled subsidiaries unless
the context otherwise requires.
Our fiscal year ends on June 30. References to fiscal 2015, 2014
and 2013 in these consolidated financial statements are to the fiscal
years ended June 30, 2015, 2014 and 2013, respectively.
Basis of Presentation
Our consolidated financial statements include the accounts of all
majority-owned or controlled subsidiaries, and all significant
intercompany transactions and amounts have been eliminated. The
results of businesses acquired or disposed of are included in the
consolidated financial statements from the date of the acquisition or
up to the date of disposal, respectively.
Use of Estimates
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States
(“GAAP”). The preparation of financial statements in accordance with
GAAP requires us to make estimates, judgments and assumptions
that affect the amounts reported in the consolidated financial
statements and accompanying notes. Estimates, judgments and
assumptions are used in the accounting and disclosure related to,
among other items, allowance for doubtful accounts, inventory
valuation, business combinations, goodwill and other intangible asset
impairment, vendor reserves, loss contingencies, income taxes and
share-based compensation. Actual amounts could ultimately differ
from these estimated amounts.
Cash Equivalents
We consider liquid investments purchased with a maturity of three
months or less to be cash equivalents. The carrying value of cash
equivalents approximates fair value.
Receivables
Trade receivables are primarily comprised of amounts owed to us
through our distribution businesses and are presented net of an
allowance for doubtful accounts of $135 million and $137 million at
June 30, 2015 and 2014, respectively. An account is considered past
due on the first day after its due date. In accordance with contract
terms, we generally have the ability to charge customers service fees
or higher prices if an account is considered past due. We continuously
monitor past due accounts and establish appropriate reserves to
cover potential losses, which are based primarily on historical
collection rates and the credit worthiness of the customer. We write
off any amounts deemed uncollectible against the established
allowance for doubtful accounts.
We provide financing to various customers. Such financing
arrangements range from 270 days to 5 years, at interest rates that
are generally subject to fluctuation. Interest income on these
arrangements is recognized as it is earned. The financings may be
collateralized, guaranteed by third parties or unsecured. Finance
notes and related accrued interest were $161 million (current portion
$53 million) and $158 million (current portion $51 million) at June 30,
2015 and 2014, respectively, and are included in other assets (current
portion is included in prepaid expenses and other) in the consolidated
balance sheets. Finance notes receivable are reported net of an
allowance for doubtful accounts of $14 million and $18 million at
June 30, 2015 and 2014, respectively. We estimate an allowance for
these financing receivables based on historical collection rates and
the credit worthiness of the customer. We write off any amounts
deemed uncollectible against the established allowance for doubtful
accounts.
Concentrations of Credit Risk
We maintain cash depository accounts with major banks, and we
invest in high quality, short-term liquid instruments and in marketable
securities. Our short-term liquid instruments mature within three
months and we have not historically incurred any related losses.
Investments in marketable securities consist of a portfolio of high-
grade instruments. Such investments are made only in instruments
issued by highly-rated institutions, whose financial condition we
monitor.
Our trade receivables and finance notes and related accrued interest
are exposed to a concentration of credit risk with customers in the
retail and healthcare sectors. Credit risk can be affected by changes
in reimbursement and other economic pressures impacting the
healthcare industry. Such credit risk is limited due to supporting
collateral and the diversity of the customer base, including its wide
geographic dispersion. We perform ongoing credit evaluations of our
customers’ financial conditions and maintain reserves for credit
losses. Historically, such losses have been within our expectations.
Refer to the "Receivables" section within this Note 1 for additional
information on the accounting treatment of reserves for credit losses.