Cardinal Health 2008 Annual Report Download - page 129

Download and view the complete annual report

Please find page 129 of the 2008 Cardinal Health annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 164

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164

The counterparties to these contracts are major financial institutions and the Company does not have
significant exposure to any one counterparty. Management believes the risk of loss is remote and in any event
would not be material.
Currency Risk Management. The Company conducts business in several major international currencies and
is subject to risks associated with changing foreign exchange rates. The Company’s objective is to reduce
earnings and cash flow volatility associated with foreign exchange rate changes to allow management to focus its
attention on its business operations. Accordingly, the Company enters into various contracts that change in value
as foreign exchange rates change to protect the value of existing foreign currency assets and liabilities,
commitments and anticipated foreign currency revenue and expenses. The gains and losses on these contracts
offset changes in the value of the underlying transactions as they occur.
At June 30, 2008 and 2007, the Company held forward contracts expiring through June 2009 and June 2008,
respectively, to hedge probable, but not firmly committed, revenue and expenses. These hedging contracts are
classified as cash flow hedges and, accordingly, are adjusted to current market values through other
comprehensive income until the underlying transactions are recognized. Upon recognition, such gains and losses
are recorded in operations as an adjustment to the recorded amounts of the underlying transactions in the period
in which these transactions are recognized. The principal currencies hedged are the Canadian dollar, European
euro, Mexican peso, Thai baht, British pound, and Australian dollar.
The Company also held other forward contracts expiring through December 2013 at June 30, 2008 and 2007
to manage its foreign exchange exposure of foreign currency assets and liabilities subject to revaluation. These
instruments do not meet the requirements for hedge accounting treatment and are adjusted to current market
values through interest expense and other.
The following table represents the notional amount hedged and the value of the forward contracts
outstanding at June 30, 2008 and 2007 included in other assets or liabilities:
(in millions)
June 30,
2008
June 30,
2007
Forward contracts—cash flow hedge:
Notional amount ................................................ $344.1 $300.2
Assets ........................................................ 3.6 1.8
Liabilities ..................................................... 8.8 5.3
Forward contracts—other (1):
Notional amount ................................................ $859.1 $817.6
Assets ........................................................ 47.7 —
Liabilities ..................................................... 0.3 18.3
(1) “Forward contracts—other” refers to forward contracts used to manage the Company’s foreign exchange
exposure of intercompany financing transactions and other balance sheet items subject to revaluation which
do not meet the requirements for hedge accounting treatment. The amount of net losses related to these
instruments recognized through interest expense and other during fiscal 2008, 2007 and 2006 were
approximately $36.8 million, $19.5 million, and $9.7 million, respectively. The income/(loss) recorded on
these instruments is substantially offset by the remeasurement adjustment on the foreign currency
denominated asset or liability. The settlement of the derivative instrument and the remeasurement
adjustment on the foreign currency denominated asset or liability are both recorded in interest expense and
other at the end of each period.
At June 30, 2008 and 2007, the Company had net deferred losses related to forward contract cash flow
hedges of $5.2 million and $3.5 million, respectively. These gains and losses were recorded in other
comprehensive income. During fiscal 2008 and 2007, the Company recognized losses of approximately $14.4
million and $2.9 million, respectively, within net earnings related to these forward contracts. The Company did
not recognize any material gains/(losses) related to contracts that were not effective or forecasted transactions
that did not occur during fiscal 2008 and 2007.
105