Cardinal Health 2009 Annual Report Download - page 79

outstanding claims from period to period, timing of settlements and specific vendor issues, such as bankruptcies
(significant events would be described above in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations”). Though vendor transactions remain relatively consistent from period to period,
unforeseen events such as the deterioration in the financial condition of a large vendor or a settlement of
numerous outstanding claims could cause the reserve to fluctuate, and thus, have a financial impact on the
period’s financial results.
At any given time, there are outstanding items in various stages of research and resolution. The ultimate
outcome of certain claims may be different than the Company’s original estimate and may require adjustment.
The Company believes, however, that reserves recorded for such disputes are adequate based upon current facts
and circumstances.
Self Insurance Accruals
The Company is self-insured for employee medical and dental insurance programs. The Company had
recorded liabilities totaling $21.4 million and $20.7 million for estimated costs related to outstanding claims at
June 30, 2009 and 2008, respectively. These costs include an estimate for expected settlements on pending
claims, administrative fees and an estimate for claims incurred but not reported. These estimates are based on the
Company’s assessment of outstanding claims, historical analysis and current payment trends. The Company
records an estimate for the claims incurred but not reported using an estimated lag period. This lag period
assumption has been consistently applied for the periods presented. If the lag period was hypothetically adjusted
by a period equal to a half month, the impact on earnings would be $6.9 million. If the amount of claims, medical
or dental costs increase beyond what was estimated, the reserve might not be sufficient and additional expense
could be required. The Company believes, however, that the liabilities recorded are adequate based upon current
facts and circumstances. Medical and dental insurance expense was $243.9 million, $166.8 million and
$174.6 million in fiscal 2009, 2008 and 2007, respectively.
Through a wholly owned insurance subsidiary, the Company has certain deductibles or is self-insured for
various risks including general liability, product liability, pharmacist professional liability, auto liability, property
and workers’ compensation. Claims in excess of certain limits, however, are insured with commercial insurers.
The Company had recorded liabilities totaling $79.6 million and $77.3 million for anticipated costs related to
liability, property and workers’ compensation at June 30, 2009 and 2008, respectively. These costs include an
estimate for expected settlements on pending claims, defense costs, claims adjustment costs and an estimate for
claims incurred but not reported. For certain types of exposures the Company develops the estimate of expected
ultimate costs to settle each claim which is based on specific information related to each claim. For claims
incurred but not reported the liabilities are calculated and derived in accordance with generally accepted actuarial
practices. The amount of ultimate liability in respect to these matters is dependent on future contingent events
that cannot be predicted with certainty and may differ from these estimates. Although the Company believes that
liability estimates are appropriate based on information available at June 30, 2009, it is possible, based on
generally accepted actuarial analysis, that under adverse conditions the ultimate liability could exceed recorded
expected liabilities as of June 30, 2009 by as much as $8.0 million. The insurance expense for general liability,
product liability, pharmacist professional liability, auto liability, property and workers’ compensation was $52.8
million, $51.1 million and $70.4 million in fiscal 2009, 2008 and 2007, respectively.
Provision for Income Taxes
The Company’s income tax expense, deferred tax assets and liabilities and unrecognized tax benefits reflect
management’s assessment of estimated future taxes to be paid on items in the financial statements.
Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases
of assets and liabilities, as well as net operating loss and tax credit carryforwards for tax purposes. The Company
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