Cardinal Health 2008 Annual Report Download - page 121

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challenging deductions arising from the sale of trade receivables to a special purpose accounts receivable and
financing entity as described in more detail in Note 10. The amount of additional tax, excluding penalties and
interest which may be significant, proposed by the IRS in these notices was $178.9 million. The Company
disagrees with the proposed adjustments and intends to vigorously contest them. The Company anticipates that
this transaction could be the subject of proposed adjustments by the IRS in tax audits of fiscal years 2006 to
present. The Company believes that it is adequately reserved for the uncertain tax position relating to this
arrangement; therefore, it has not adjusted the amount of previously recorded unrecognized tax benefits related to
this issue.
Subsequent to the fiscal year ended June 30, 2008, the Company received an IRS Revenue Agent Report for
tax years 2003 through 2005, which included the NPAs discussed above and new NPAs related to the Company’s
transfer pricing arrangements between foreign and domestic subsidiaries and the transfer of intellectual property
among subsidiaries of an acquired entity prior to its acquisition by the Company. The amount of additional tax
proposed by the IRS in the new notices total $598.1 million, excluding penalties and interest which may be
significant. The Company disagrees with these proposed adjustments and intends to vigorously contest them.
It is possible that there could be a change in the amount of unrecognized tax benefits within the next 12
months due to activities of the IRS or other taxing authorities, including proposed assessments of additional tax,
possible settlement of audit issues, or the expiration of applicable statutes of limitations. The Company estimates
that the range of the possible change in unrecognized tax benefits within the next 12 months is approximately
zero to $275.0 million, exclusive of penalties and interest, up to $125.0 million of which would not affect the
Company’s effective tax rate because it relates to acquired entities.
12. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
The future minimum rental payments for operating leases (including those referenced in Note 19) having
initial or remaining non-cancelable lease terms in excess of one year at June 30, 2008 are:
(in millions) 2009 2010 2011 2012 2013 Thereafter Total
Minimum rental payments ................... $101.3 $84.5 $73.6 $60.7 $50.3 $95.3 $465.7
The amounts above within 2009 and thereafter include the Company’s obligation to purchase certain
buildings and equipment at the end of the related lease term. See Note 19 for additional information related to
these lease agreements.
Rental expense relating to operating leases (including those referenced in Note 19) was approximately
$125.9 million, $117.1 million and $91.7 million in fiscal 2008, 2007 and 2006, respectively. Sublease rental
income was not material for any period presented herein.
Legal Proceedings
In addition to commitments and obligations in the ordinary course of business, the Company is subject to
various claims, other pending and potential legal actions for damages, investigations relating to governmental
laws and regulations and other matters arising out of the normal conduct of its business. The Company accrues
for contingencies related to litigation in accordance with SFAS No. 5, “Accounting for Contingencies,” which
requires the Company to assess contingencies to determine the degree of probability and range of possible loss.
An estimated loss contingency is accrued in the Company’s consolidated financial statements if it is probable that
a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is
inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective
and requires judgments about future events. The Company regularly reviews contingencies to determine the
adequacy of the accruals and related disclosures. The amount of ultimate loss may differ from these estimates. It
is possible that cash flows or results of operations could be materially affected in any particular period by the
unfavorable resolution of one or more of these contingencies.
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