Cardinal Health 2008 Annual Report Download - page 85

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and short-term debt can be expected to fluctuate as a result of business requirements, market conditions and other
factors. The Company’s policy is to manage exposures to interest rates using a mix of fixed and floating rate debt
as deemed appropriate by management. The Company utilizes interest rate swap instruments to mitigate its
exposure to interest rate movements.
As part of its risk management program, the Company annually performs a sensitivity analysis on its
forecasted exposure to interest rates for the following fiscal year. This analysis assumes a hypothetical 10%
change in interest rates. At June 30, 2008 and 2007, the potential increase or decrease in interest expense under
this analysis as a result of this hypothetical change was $5.9 million and $9.4 million, respectively.
Commodity Price Sensitivity
The Company purchases certain commodities for use in its manufacturing processes, which include latex,
heating oil, diesel fuel and polystyrene, among others. The Company typically purchases these commodities at
market prices, and as a result, is affected by price fluctuations. As part of its risk management program, the
Company performs sensitivity analysis on its forecasted commodity exposure for the following fiscal year. At
June 30, 2008 and 2007, the Company had not hedged any of these exposures. The table below summarizes the
Company’s analysis of these forecasted commodity exposures and a hypothetical 10% fluctuation in commodity
prices as of June 30, 2008 and 2007 (in millions):
2008 2007
Estimated commodity exposure ........................................ $288.6 $251.3
Sensitivity gain/loss ................................................. 28.9 25.1
The Company also has exposure to certain energy related commodities, including natural gas and electricity
through its normal course of business. These exposures result primarily from operating the Company’s
distribution, manufacturing, and corporate facilities. In certain deregulated markets, the Company from time to
time enters into long-term purchase contracts to supply these items at a specific price.
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