Cardinal Health 2011 Annual Report Download - page 60

u
nits: Pharmaceutical segment (excluding our nuclear and pharmacy services division and Yong Yu division)
;
Me
di
ca
l
segment; nuc
l
ear an
d
p
h
armacy serv
i
ces
di
v
i
s
i
on; an
d
Yong Yu
di
v
i
s
i
on. Fa
i
rva
l
ues can
b
e
d
eterm
i
ne
d
u
sin
g
market, income or cost-based approaches. Our determination of estimated fair value of the reportin
g
unit
s
is based on a combination of income-based and market-based a
pp
roaches. Under the market-based a
pp
roach w
e
d
eterm
i
ne
f
a
i
rva
l
ue
b
y compar
i
ng our report
i
ng un
i
ts to s
i
m
il
ar
b
us
i
nesses, or gu
id
e
li
ne compan
i
es w
h
ose
securities are activel
y
traded in public markets. Under the income-based approach, we use a discounted cash flow
model in which cash flows antici
p
ated over several
p
eriods,
p
lus a terminal value at the end of that time horizon
,
a
re
di
scounte
d
to t
h
e
i
r present va
l
ue us
i
ng an appropr
i
ate rate o
f
return. To
f
urt
h
er con
fi
rm t
h
e
f
a
i
rva
l
ue, we
compare our a
gg
re
g
ate fair value of our reportin
g
units to our market capitalization. The use of alternate
estimates and assumptions or changes in the industry or peer groups could materially affect the determination o
f
f
a
i
rva
l
ue
f
or eac
h
report
i
ng un
i
tan
d
potent
i
a
ll
y resu
l
t
i
n goo
d
w
ill i
mpa
i
rment.
We performed annual impairment testing in fiscal 2011, 2010 and 2009 and concluded that there were no
impairments of goodwill as the fair value of each reporting unit exceeded its carrying value. See Note
6
of
“Notes to Consolidated Financial Statements” for additional information re
g
ardin
gg
oodwill and other intan
g
ible
a
ssets
.
I
f we alter our impairment testin
g
b
y
increasin
g
the discount rate in the discounted cash flow anal
y
sis b
y
1
percent, there still would not be any impairment indicated for any of our reporting units for fiscal 2011, 2010 or
2009
.
V
endor Reserves
I
n the ordinar
y
course of business, our vendors ma
y
dispute deductions taken a
g
ainst pa
y
ments otherwise
d
ue to them or assert other billing disputes. These disputed transactions are researched and resolved based upon
o
ur po
li
cy an
dfi
n
di
ngs o
f
t
h
e researc
h
per
f
orme
d
. At any g
i
ven t
i
me, t
h
ere are outstan
di
ng
i
tems
i
n var
i
ou
s
sta
g
es of research and resolution. In determinin
g
appropriate reserves for areas of exposure with our vendors, we
a
ssess historical experience and current outstanding claims. We have established various levels of reserves based
o
nt
h
e type o
f
c
l
a
i
man
d
status o
f
rev
i
ew. T
h
oug
h
t
h
e transact
i
on types are re
l
at
i
ve
l
y cons
i
stent, we per
i
o
di
ca
ll
y
refine our estimate methodolo
gy
b
y
updatin
g
the reserve estimate percenta
g
es to reflect actual historical
experience. Changes to the estimate percentages affect the cost of products sold in the period in which the change
w
as ma
d
e
.
V
endor reserves were
$
41 million and
$
28 million at June 30, 2011 and 2010, respectively. Approximately
65 percent of the vendor reserve at June 30, 2011, pertained to the Pharmaceutical segment, compared to 59
percent at the end of fiscal 2010. The reserve balance will fluctuate due to variations of outstandin
g
claims from
period to period, timing of settlements, and specific vendor issues, such as bankruptcies
.
T
he ultimate outcome of specific claims ma
y
be different than our ori
g
inal estimate and ma
y
requir
e
a
djustment. We believe, however, that reserves recorded for such disputes are adequate based upon current fact
s
a
n
d
c
i
rcumstances.
P
rovision for Income Taxes
O
ur income tax expense, deferred tax assets and liabilities, and unreco
g
nized tax benefits reflect
management’s assessment of estimated future taxes to be paid on items in the consolidated financial statements
.
34