Cardinal Health 2010 Annual Report Download - page 74

Tax benefits from uncertain tax positions are recognized when it is more likely than not that the positio
n
will be sustained upon examination, including resolutions of any related appeals or litigation processes, based o
n
the technical merits. The amount recognized is measured as the largest amount of tax benefit that is greater tha
n
5
0% likely of being realized upon settlement.
A
ccounting for Vendor Reserves
.
I
n the ordinary course of business, our vendors may dispute deductions o
r
billings taken against payments otherwise due to them. These disputed transactions are researched and resolved
based upon our policy and findings of the research performed. At any given time, there are outstanding items i
n
various stages of research and resolution. In determining appropriate reserves for areas of exposure with our
vendors, we assess historical experience and current outstanding claims. We have established various levels o
f
r
eserves based on the type of claim and status of review. Though the transaction types are relatively consistent,
we periodically refine our estimate methodology by updating the reserve estimate percentages to reflect actual
historical experience. The ultimate outcome of certain claims may be different than our original estimate an
d
may require adjustment. All adjustments to vendor reserves are included in cost of products sold. In addition, th
e
r
eserve balance will fluctuate due to variations of outstanding claims from period to period, timing o
f
settlements, and specific vendor issues, such as bankruptcies. The following table summarizes vendor reserves at
June 30, 2010 and 2009:
June 30,
(
in millions
)
2010
2009
Vendor reserve
s
.......................................................
$
26.8
$
53.6
A
ccounting for Vendor Incentives
.
Fees for services and other incentives received from vendors, relating to
the purchase or distribution of inventory, are generally reported as a reduction of cost of products sold in th
e
consolidated statements of earnings. We consider these fees and other incentives to represent product discount
s
and, as a result, the amounts are recorded as a reduction of product cost and are recognized through cost of
p
roducts sold upon sale of the related inventory
.
O
ther Accrued Liabilities. Other accrued liabilities represent various current obligations including certain
accrued operating expenses and taxes payable
.
Share-Based Com
p
ensation
.
All share-based compensation to employees, including grants of stock options,
is recognized in the consolidated statement of earnings based on the grant date fair value of the award. The fair
value of stock options is determined using a lattice valuation model. We believe the lattice model provides for
better estimates because it has the ability to take into account employee exercise patterns based on changes in our
stock price and other variables and it provides for a range of input assumptions.
The compensation expense recognized for all share-based awards is net of estimated forfeitures and i
s
r
ecognized ratably over the service period of the award. We classify share-based compensation expense withi
n
distribution, selling, general and administrative (“SG&A”) expenses to correspond with the same line item as th
e
majority of the cash compensation paid to employees. However, certain share-based compensation incurred i
n
connection with the Spin-Off is classified within restructuring and employee severance. See Note 17 fo
r
additional information regarding share-based compensation
.
Di
v
idends
.
The following table summarizes the cash dividends per Common Share that we paid for fiscal
2010
,
2009 and 2008:
F
iscal Year Ended
J
une
30,
(
in millions
)
2010
2009
2008
Cash dividends per Common Share
...........................................
$0.70 $0.56 $0.48
48