Cardinal Health 2008 Annual Report Download - page 127

13. GUARANTEES
The Company has contingent commitments related to a certain operating lease agreement (see Note 19).
This operating lease consists of certain real estate used in the operations of the Company. In the event of
termination of this operating lease, which matures in June 2013, the Company guarantees reimbursement for a
portion of any unrecovered property cost. At June 30, 2008, the maximum amount the Company could be
required to reimburse was $120.9 million. In accordance with FIN No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an
interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34,” the
Company has a liability of $2.4 million recorded as of June 30, 2008 related to this agreement. The Company’s
maximum amount to be reimbursed decreased significantly during fiscal 2007 due to the Company’s decision to
repurchase certain buildings, equipment and land of approximately $51.2 million which were previously under
operating lease agreements. Of this total amount repurchased, approximately $44.2 million related to the PTS
Business, which was divested in the fourth quarter of fiscal 2007. During fiscal 2008, the Company did not
repurchase any buildings, equipment or land under operating lease agreements.
In the ordinary course of business, the Company, from time to time, agrees to indemnify certain other
parties under agreements with the Company, including under acquisition and disposition agreements, customer
agreements and intellectual property licensing 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, the Company has not,
individually or in the aggregate, made payments under these indemnification obligations in any material
amounts. In certain circumstances, the Company believes that its 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, the Company believes that the likelihood of a material liability being
triggered under these indemnification obligations is not significant.
In the ordinary course of business, the Company, from time to time, enters into agreements that obligate the
Company to make fixed payments upon the occurrence of certain events. Such obligations primarily relate to
obligations arising under acquisition transactions, where the Company has 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. The Company’s aggregate exposure for these obligations, assuming the
achievement of all financial performance measures, is not material. Any potential payment for these obligations
would be treated as an adjustment to the purchase price of the related entity and would have no impact on the
Company’s results of operations.
In the ordinary course of business, the Healthcare Supply Chain Services—Pharmaceutical segment, from
time to time, extends loans to its customers which are subsequently sold to a bank. The bank services and
administers these loans as well as any new loans the Company may direct. In order for the bank to purchase such
loans, it requires the absolute and unconditional obligation of the Company to repurchase such loans upon the
occurrence of certain events described in the agreement including, but not limited to, borrower payment default
that exceeds 90 days, insolvency and bankruptcy. In the event of default, in addition to repurchasing the loans,
the Company must repay any premium that was received in advance of the bank’s collection of the loan. At
June 30, 2008 and 2007, notes in the program subject to the guaranty of the Company totaled $33.4 million and
$36.7 million, respectively. At June 30, 2008 and 2007, accruals for premiums received in advance of the bank’s
collection of notes were $0.7 million and $0.8 million, respectively.
14. FINANCIAL INSTRUMENTS
Interest Rate Risk Management. The Company is exposed to the impact of interest rate changes. The
Company’s objective is to manage the impact of interest rate changes on cash flows and the market value of its
borrowings. The Company utilizes a mix of debt maturities along with both fixed-rate and variable-rate debt to
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