Cardinal Health 2009 Annual Report Download - page 118

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$39.9 million and $33.4 million, respectively. These loans do not qualify for sale treatment under SFAS No. 140
and, as such, are reported in the Company’s consolidated balance sheet.
13. FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to manage exposure to certain risks related to its
ongoing operations. The primary risks managed through the use of derivative instruments include interest rate
risk, currency exchange risk and commodity price risk. The Company does not use derivative instruments for
trading or speculative purposes. While the majority of the Company’s derivative instruments are designated as
hedging instruments, the Company also enters into derivative instruments that are designed to hedge a risk, but
are not designated as hedging instruments. These derivative instruments are adjusted to current market value
through interest expense and other at the end of each period.
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
manage changes in interest rates. In addition, the Company enters into interest rate swaps to further manage its
exposure to interest rate variations related to its borrowings and to lower its overall borrowing costs.
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.
Commodity Price Risk Management. The Company is exposed to changes in the price of certain
commodities. The Company’s objective is to reduce earnings and cash flow volatility associated with forecasted
purchases of these commodities to allow management to focus its attention on its business operations.
Accordingly, the Company enters into derivative contracts to manage the price risk associated with these
forecasted purchases.
The Company is exposed to counterparty credit risk on all of its derivative instruments. Accordingly, the
Company has established and maintains strict counterparty credit guidelines and enters into derivative
instruments only with major financial institutions that are investment grade or better. The Company does not
have significant exposure to any one counterparty and management believes the risk of loss is remote and in any
event would not be material. Additionally, the Company does not require collateral under these agreements.
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