Cardinal Health 2009 Annual Report Download - page 82

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translational exposure. The Company does not typically hedge any of its translational exposure and no hedging
impact was included in the Company’s analysis at June 30, 2009 and 2008. The following table summarizes the
Company’s translational exposure and the impact of a hypothetical 10% strengthening or weakening in the
U.S. dollar (in millions):
2009 2008
Net estimated translational exposure ............................................ $185.9 $219.0
Sensitivity gain/loss ......................................................... $ 18.6 $ 21.9
Interest Rate Sensitivity
The Company is exposed to changes in interest rates primarily as a result of its borrowing and investing
activities to maintain liquidity and fund business operations. The nature and amount of the Company’s long-term
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, 2009 and 2008, the potential increase or decrease in interest expense under
this analysis as a result of this hypothetical change was $0.1 million and $5.9 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. The
Company did not hedge any of these exposures at June 30, 2008. As of June 30, 2009, the Company has hedged a
portion of these commodity exposures (see Note 13 of “Notes to Consolidated Financial Statements” for further
discussion). 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, 2009 and 2008 (in millions):
2009 2008
Estimated commodity exposure .................................................. $188.5 $288.6
Sensitivity gain/loss ........................................................... $ 18.9 $ 28.9
Estimated offsetting impact of hedges ............................................. (1.0) —
Estimated net gain/loss ......................................................... $ 17.9 $ 28.9
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.
60