Cardinal Health 2012 Annual Report Download - page 42

Cardinal Health, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
40
interest rate swaps designated as fair value hedges for fiscal 2012, 2011
and 2010:
(in millions) 2012 2011 2010
Pay-floating interest rate swaps (1) $38$36$47
Fixed-rate debt (1) (38) (36) (47)
(1) Included in Interest expense, net on the consolidated statements of earnings.
There was no ineffectiveness associated with these derivative
instruments.
Cash Flow Hedges
We enter into derivative instruments to hedge our exposure to changes
in cash flows attributable to currency, interest rate and commodity price
fluctuations associated with certain forecasted transactions. These
derivative instruments are designated and qualify as cash flow hedges.
Accordingly, the effective portion of the gain or loss on the derivative
instrument is reported as a component of other comprehensive income
(“OCI”) and reclassified into earnings in the same line item associated
with the forecasted transaction and in the same period during which the
hedged transaction affects earnings. The ineffective portion of the gain or
loss on the derivative instrument is recognized in earnings immediately.
We enter into foreign currency contracts to protect the value of anticipated
foreign currency revenues and expenses. At June 30, 2012 and 2011, we
held contracts to hedge probable, but not firmly committed, revenue and
expenses. The principal currencies hedged are the Canadian dollar,
European euro, Mexican peso, Thai baht, and Japanese yen.
We enter into commodity contracts to manage the price risk associated
with forecasted purchases of certain commodities used in our Medical
segment.
The following tables summarize the outstanding cash flow hedges as of
June 30, 2012 and 2011:
June 30, 2012
(in millions) Notional
Amount Maturity Date
Foreign currency contracts $ 158 Jul 2012 -Jun 2013
Commodity contracts 23 Jul 2012 -Mar 2015
June 30, 2011
(in millions) Notional
Amount Maturity Date
Foreign currency contracts $ 163 Jul 2011 - Jun 2012
Commodity contracts 22 Jul 2011 - Mar 2014
The following table summarizes the accumulated gain/(loss) included in
OCI for derivative instruments designated as cash flow hedges as of
June 30, 2012 and 2011:
(in millions) 2012 2011
Foreign currency contracts $—$(2)
Commodity contracts (1) 2
The following table summarizes the gain/(loss) reclassified from
accumulated OCI into earnings for derivative instruments designated as
cash flow hedges for fiscal 2012, 2011 and 2010:
(in millions) 2012 2011 2010
Pay-fixed interest rate swaps (1) $—$—$(2)
Foreign currency contracts (2) 1——
Foreign currency contracts (3) (1) (3) (11)
Foreign currency contracts (4) (1) 31
Commodity contracts (4) 22—
(1) Included in Interest expense, net on the consolidated statements of earnings.
(2) Included in Revenue on the consolidated statements of earnings.
(3) Included in Cost of products sold on the consolidated statements of earnings.
(4) Included in SG&A expenses on the consolidated statements of earnings.
The amount of ineffectiveness associated with these derivative
instruments was not material.
Economic (Non-Designated) Hedges
We enter into foreign currency contracts to manage our foreign exchange
exposure related to intercompany financing transactions and other
balance sheet items subject to revaluation that do not meet the
requirements for hedge accounting treatment. Accordingly, these
derivative instruments are adjusted to current market value at the end of
each period through earnings. The gain or loss recorded on these
instruments is substantially offset by the remeasurement adjustment on
the foreign currency denominated asset or liability. The settlement of the
derivative instrument and the remeasurement adjustment on the foreign
currency denominated asset or liability are both recorded in other
(income)/expense, net at the end of each period. During fiscal 2010, we
received cash receipts from a cross currency swap settlement totaling $43
million. These proceeds are classified as cash provided by operating
activities in the consolidated statement of cash flows.
During fiscal 2011, we entered into swap contracts of certain commodities
to mitigate price volatility for materials we purchase or use in our
manufacturing and distribution businesses. These instruments do not
qualify for hedge accounting and as such fair value changes as well as
periodic settlements of these contracts are recorded within other (income)/
expense, net in our consolidated statements of earnings.
The following tables summarize the economic (non-designated) derivative
instruments outstanding as of June 30, 2012 and 2011:
June 30, 2012
(in millions) Notional
Amount Maturity Date
Foreign currency contracts $ 500 Jul 2012 -Sep 2012
June 30, 2011
(in millions) Notional
Amount Maturity Date
Foreign currency contracts $ 392 Jul 2011
Commodity contracts 10 Jul 2011 - Jun 2012
The following table summarizes the gain/(loss) recognized in earnings for
economic (non-designated) derivative instruments for fiscal 2012, 2011
and 2010:
(in millions) 2012 2011 2010
Foreign currency contracts (1) $ (39) $36$24
Commodity contracts (1) (1) (1) —
(1) Included in Other income, net on the consolidated statements of earnings.