Cardinal Health 2015 Annual Report Download - page 64

Notes to Financial Statements
63 Cardinal Health | Fiscal 2015 Form 10-K
DOJ declined to intervene as to us and the plaintiff voluntarily
dismissed us from the action.
Antitrust Litigation Proceeds
We recognized income resulting from settlements of class action
antitrust claims in which we were a class member of $71 million, $24
million, and $38 million during fiscal 2015, 2014 and 2013,
respectively.
10. Guarantees
In the ordinary course of business, we agree to indemnify certain
other parties under acquisition and disposition agreements, customer
agreements, intellectual property licensing agreements, and other
agreements. Such indemnification obligations vary in scope and,
when defined, in duration. In many cases, a maximum obligation is
not explicitly stated, and therefore the overall maximum amount of
the liability under such indemnification obligations cannot be
reasonably estimated. Where appropriate, such indemnification
obligations are recorded as a liability. Historically, we have not,
individually or in the aggregate, made payments under these
indemnification obligations in any material amounts. In certain
circumstances, we believe that existing insurance arrangements,
subject to the general deduction and exclusion provisions, would
cover portions of the liability that may arise from these indemnification
obligations. In addition, we believe that the likelihood of a material
liability being triggered under these indemnification obligations is not
significant.
From time to time we enter into agreements that obligate us to make
fixed payments upon the occurrence of certain events. Such
obligations primarily relate to obligations arising under acquisition
transactions, where we have agreed to make payments based upon
the achievement of certain financial performance measures by the
acquired business. Generally, the obligation is capped at an explicit
amount. See Note 11 for detail regarding contingent consideration
obligations.
11. Fair Value Measurements
The following tables present the fair values for assets and (liabilities)
measured on a recurring basis at June 30:
2015
(in millions) Level 1 Level 2 Level 3 Total
Assets:
Cash equivalents (1) $ 1,809 $ — $ — $ 1,809
Forward contracts (2) — 5 — 5
Available-for-sale securities (3) — 193 — 193
Other investments (4) 111 — — 111
Liabilities:
Contingent Consideration (5) — — (53) (53)
Total $ 1,920 $ 198 $ (53) $ 2,065
2014
(in millions) Level 1 Level 2 Level 3 Total
Assets:
Cash equivalents (1) $ 740 $ — $ — $ 740
Forward contracts (2) — 10 — 10
Available-for-sale securities (3) — 100 — 100
Other investments (4) 106 — — 106
Liabilities:
Contingent Consideration (5) — — (12) (12)
Total $ 846 $ 110 $ (12) $ 944
(1) Cash equivalents are comprised of highly liquid investments purchased with a
maturity of three months or less. The carrying value of these cash equivalents
approximates fair value due to their short-term maturities.
(2) The fair value of interest rate swaps, foreign currency contracts and commodity
contracts is determined based on the present value of expected future cash
flows considering the risks involved, including non-performance risk, and using
discount rates appropriate for the respective maturities. Observable Level 2
inputs are used to determine the present value of expected future cash flows.
The fair value of these derivative contracts, which are subject to master netting
arrangements under certain circumstances, is presented on a gross basis in
the consolidated balance sheets.
(3) We invest in marketable securities, which are classified as available-for-sale
and are carried at fair value in the consolidated balance sheets. Observable
Level 2 inputs such as quoted prices for similar securities, interest rate spreads,
yield curves and credit risk are used to determine the fair value. See Note 6 for
additional information regarding available-for-sale securities.
(4) The other investments balance includes investments in mutual funds, which are
used to offset fluctuations in deferred compensation liabilities. These mutual
funds primarily invest in the equity securities of companies with large market
capitalization and high quality fixed income debt securities. The fair value of
these investments is determined using quoted market prices.
(5) Contingent consideration represents the obligations incurred in connection with
acquisitions. We do not deem the fair value of the contingent consideration
obligations under any single acquisition to be significant. The estimate of fair
value of the contingent consideration obligations requires subjective
assumptions to be made regarding future business results, discount rates,
discount periods and probabilities assigned to various potential business result
scenarios and was determined using probability assessments with respect to
the likelihood of reaching various targets or from achieving certain milestones.
The fair value measurement is based on significant inputs unobservable in the
market and thus represents a Level 3 measurement. Failure to meet current
expectations of progress could increase the probability of not achieving the
targets within the measurement periods and result in a reduction in the fair value
of the contingent consideration obligation.