Cardinal Health 2015 Annual Report Download - page 55

Notes to Financial Statements
Cardinal Health | Fiscal 2015 Form 10-K 54
Revenues and expenses of these foreign subsidiaries are translated
using average exchange rates during the year.
The foreign currency translation gains/(losses) included in AOCI at
June 30, 2015 and 2014 are presented in Note 13. Foreign currency
transaction gains and losses for the period are included in the
consolidated statements of earnings in other income, net, and were
immaterial for all periods presented.
Interest Rate, Currency and Commodity Risk
All derivative instruments are recognized at fair value on the
consolidated balance sheets and all changes in fair value are
recognized in net earnings or shareholders’ equity through AOCI, net
of tax.
For contracts that qualify for hedge accounting treatment, the hedge
contracts must be effective at reducing the risk associated with the
exposure being hedged and must be designated as a hedge at the
inception of the contract. Hedge effectiveness is assessed
periodically. Any contract not designated as a hedge, or so
designated but ineffective, is adjusted to fair value and recognized
immediately in net earnings. If a fair value or cash flow hedge ceases
to qualify for hedge accounting treatment, the contract continues to
be carried on the balance sheet at fair value until settled and future
adjustments to the contract’s fair value are recognized immediately
in net earnings. If a forecasted transaction is no longer considered
probable of occurring, amounts previously deferred in AOCI are
recognized immediately in net earnings. See Note 12 for additional
information regarding our derivative instruments, including the
accounting treatment for instruments designated as fair value, cash
flow and economic hedges.
Earnings per Common Share
Basic earnings per share (“EPS”) is computed by dividing net
earnings (the numerator) by the weighted-average number of
common shares outstanding during each period (the denominator).
Diluted EPS is similar to the computation for basic EPS, except that
the denominator is increased by the dilutive effect of vested and
nonvested stock options, restricted share units and performance
share units, computed using the treasury stock method. The total
number of common shares outstanding is the number of common
shares issued, less those held in treasury. See Note 14 for additional
information regarding EPS.
Fair Value Measurements
Fair value is defined as the price that would be received upon selling
an asset or the price paid to transfer a liability on the measurement
date. It focuses on the exit price in the principal or most advantageous
market for the asset or liability in an orderly transaction between
willing market participants. A three-tier fair value hierarchy is
established as a basis for considering such assumptions and for
inputs used in the valuation methodologies in measuring 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:
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.
See Note 11 for additional information regarding fair value
measurements.
Recent Financial Accounting Standards
In July 2015, the Financial Accounting Standards Board ("FASB")
issued amended accounting guidance that simplifies the current
guidance surrounding the measurement of inventory. Under this
amended guidance, inventory is measured at the lower of cost and
net realizable value, which eliminates the need to determine
replacement cost and evaluate whether the inventory is above or
below net realizable value. Net realizable value is defined as the
estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal and
transportation. The amended guidance does not apply to inventory
measured under the LIFO method. This amendment will be effective
for us in the first quarter of fiscal 2018. We are currently evaluating
the impact of adoption on our financial position and results of
operations.
In April 2015, the FASB issued amended accounting guidance that
clarifies the circumstances under which a cloud computing customer
would account for the arrangement as a license of internal-use
software. If it is determined that a software license does not exist in
the arrangement, the customer would account for this arrangement
as a service contract. This amendment will be effective for us in the
first quarter of fiscal 2017, with early adoption permitted. We are
currently evaluating the impact of adoption on our financial position
and results of operations and the timing of adoption.
Also in April 2015, the FASB issued amended accounting guidance
related to the presentation of debt issuance costs in the financial
statements. This guidance requires an entity to present such costs
in the balance sheet as a direct deduction from the related debt rather
than as an asset. This amendment will be effective for us in the first
quarter of fiscal 2017, with early adoption permitted. Adoption of the
guidance would reclassify debt issuance costs from other assets to
long-term obligations, less current portion within the consolidated
balance sheet. We do not expect the adoption to have a material
impact on our financial position or results of operations, and are
currently evaluating the timing of adoption.
In August 2014, the FASB issued amended accounting guidance
related to uncertainties about an entity’s ability to continue as a going
concern. This guidance requires management to evaluate whether
there is substantial doubt about a company’s ability to continue as a
going concern. This amendment will be effective for us in the fourth
quarter of fiscal 2017, with early adoption permitted. We do not expect
the adoption of this guidance to impact our financial statement
disclosures.
In June 2014, the FASB issued guidance on accounting for share-
based payments with performance targets. This guidance requires