Cardinal Health 2010 Annual Report Download - page 71

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Pursuant to the transition services agreement, during fiscal 2010, we recognized
$
99.2 million in transition
service fee income, which approximately offsets the costs associated with providing the transition services
.
Additionally, during fiscal 2010 we purchased
$
605.6 million of CareFusion trade receivables pursuant to a
n
accounts receivable factoring arrangement between CareFusion and us.
Under the tax matters agreement, CareFusion is obligated to indemnify us for certain tax exposures and
transaction taxes
p
rior to the S
p
in-Off. As of June 30, 2010, we have a
$
244.6 million indemnification receivable
o
n our balance sheet related to this item.
Basis o
f
Presentation
.
Our consolidated financial statements include the accounts of all majority-owned
subsidiaries, and all significant intercompany transactions and amounts have been eliminated. Certain prior yea
r
balances have been reclassified to conform to the current year presentation. The results of businesses acquired o
r
dis
p
osed of are included in the consolidated financial statements from the effective date of the ac
q
uisition or u
p
to the date of dis
p
osal.
U
se o
f
Estimates
.
The consolidated financial statements are prepared in accordance with accounting
p
rinciples generally accepted in the United States (“GAAP”). The preparation of financial statements in
accordance with GAAP requires us to make estimates, judgments and assumptions that affect the amounts
r
eported in the consolidated financial statements and accompanying notes. Estimates, judgments and assumption
s
are used in the accounting and disclosure related to, among other items, allowance for doubtful accounts,
inventory valuation, goodwill and intangible asset impairment, vendor reserves, share-based compensation, and
income taxes. Actual amounts could ultimately differ from these estimated amounts.
C
ash Equivalents
.
We consider all liquid investments purchased with a maturity of three months or less t
o
be cash equivalents. The carrying value of cash equivalents approximates fair value.
Receivables. Trade receivables are primarily comprised of amounts owed to us through our distributio
n
businesses and are
p
resented net of an allowance for doubtful accounts of
$
131.4 million and
$
111.8 million at
June 30, 2010 and 2009, respectively. An account is considered past due on the first day after its due date. In
accordance with contract terms, we generally have the ability to charge customer’s service fees or higher prices if
an account is considered past due. We continuously monitor past due accounts and establish appropriate reserve
s
to cover potential losses. We will write-off any amounts deemed uncollectible against the established allowance
f
or doubtful accounts.
We provide financing to various customers. Such financing arrangements range from 90 days to 10 years, a
t
interest rates that generally are subject to fluctuation. Interest income on these accounts is recognized as it i
s
earned. The financings may be collateralized, guaranteed by third parties or unsecured. Finance notes and
accrued interest receivables were
$
109.9 million (current
p
ortion
$
20.9 million) and
$
54.0 million (curren
t
p
ortion
$
26.8 million) at June 30, 2010 and 2009, respectively, and are included in other assets (current portion is
included in
p
re
p
aid ex
p
enses and other). Finance notes receivable are re
p
orted net of an allowance for doubtfu
l
accounts of
$
8.3 million and
$
5.2 million at June 30, 2010 and 2009, respectively
.
C
oncentrations of Credit Risk and Major Customers. We maintain cash depository accounts with major
banks throughout the world and invest in high quality short-term liquid instruments. Such investments are mad
e
o
nly in instruments issued or enhanced by high quality institutions. These investments mature within thre
e
months and we have not incurred any related losses
.
Our trade receivables, lease receivables, and finance notes and accrued interest receivables are ex
p
osed to
a
concentration of credit risk with customers in the retail and healthcare sectors. Credit risk can be affected by
changes in reimbursement and other economic pressures impacting the hospital and acute care sectors of th
e
healthcare industry. Such credit risk is limited, however, due to supporting collateral and the diversity of the
customer base, including its wide geographic dispersion. We perform ongoing credit evaluations of ou
r
customers’ financial conditions and maintain reserves for credit losses. Such losses historically have been withi
n
o
ur ex
p
ectations
.
4
5