Cardinal Health 2013 Annual Report Download - page 38

Cardinal Health, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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for shipment to the end customer. Shipping and handling costs were $419
million, $389 million and $342 million, for fiscal 2013, 2012 and 2011,
respectively. Revenue received for shipping and handling was immaterial
for all periods presented.
Restructuring and Employee Severance
We consider restructuring activities to be programs whereby we
fundamentally change our operations, such as closing and consolidating
facilities, moving manufacturing of a product to another location,
production or business process sourcing, employee severance (including
rationalizing headcount or other significant changes in personnel) and
realigning operations (including substantial realignment of the
management structure of a business unit in response to changing market
conditions). See Note 3 for additional information regarding our
restructuring activities.
Acquisition-Related Costs
We classify costs incurred in connection with acquisitions as acquisition-
related costs in our consolidated statements of earnings. These costs
consist primarily of transaction costs, integration costs, changes in the fair
value of contingent consideration obligations and amortization of
acquisition-related intangible assets. Transaction costs are incurred
during the initial evaluation of a potential acquisition and primarily relate
to costs to analyze, negotiate and consummate the transaction as well as
due diligence activities. Integration costs relate to activities required to
combine the operations of an acquired enterprise into our operations. We
record changes in the fair value of contingent consideration obligations
relating to acquisitions as income or expense in acquisition-related costs.
See Note 5 for additional information regarding amortization of acquisition-
related intangible assets and Note 10 for additional information regarding
changes in the fair value of contingent consideration obligations.
Translation of Foreign Currencies
Financial statements of our subsidiaries outside the United States are
generally measured using the local currency as the functional currency.
Adjustments to translate the assets and liabilities of these foreign
subsidiaries into U.S. dollars are accumulated in shareholders’ equity
through accumulated other comprehensive income ("AOCI") utilizing
period-end exchange rates. Revenues and expenses of these foreign
subsidiaries are translated using average exchange rates during the year.
The foreign currency translation gains/(losses) included in AOCI at
June 30, 2013 and 2012 are presented in Note 12. Foreign currency
transaction gains and losses for the period are included in the consolidated
statements of earnings in other income, net, and were immaterial for all
periods presented.
Interest Rate, Currency and Commodity Risk
All derivative instruments are recognized at fair value on the consolidated
balance sheets and all changes in fair value are recognized in net earnings
or shareholders’ equity through AOCI, net of tax.
For contracts that qualify for hedge accounting treatment, our policy
requires that the hedge contracts must be effective at reducing the risk
associated with the exposure being hedged and must be designated as
a hedge at the inception of the contract. Hedge effectiveness is assessed
periodically. Any contract not designated as a hedge, or so designated but
ineffective, is adjusted to fair value and recognized immediately in net
earnings. If a fair value or cash flow hedge ceases to qualify for hedge
accounting treatment, the contract would continue to be carried on the
balance sheet at fair value until settled and future adjustments to the
contract’s fair value would be recognized immediately in net earnings. If
a forecasted transaction was no longer considered probable of occurring,
amounts previously deferred in AOCI would be recognized immediately
in net earnings. See Note 11 for additional information regarding our
derivative instruments, including the accounting treatment for instruments
designated as fair value, cash flow and economic hedges.
Earnings per Common Share
Basic earnings per share (“EPS”) is computed by dividing net earnings
(the numerator) by the weighted-average number of common shares
outstanding during each period (the denominator). Diluted EPS is similar
to the computation for basic EPS, except that the denominator is increased
by the dilutive effect of vested and nonvested stock options, restricted
shares, restricted share units and performance share units, computed
using the treasury stock method. The total number of common shares
issued, less the common shares held in treasury, is used to determine the
common shares outstanding. See Note 13 for additional information
regarding EPS.
Recent Financial Accounting Standards
In July 2013, the Financial Accounting Standards Board ("FASB") issued
amended accounting guidance related to the presentation of an
unrecognized tax benefit when a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward exists. This guidance requires an
entity to present an unrecognized tax benefit, or a portion of an
unrecognized tax benefit, as a reduction to a deferred tax asset for a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward,
unless certain conditions exists. This guidance will be effective for us in
the first quarter of fiscal 2015, with early adoption permitted. We do not
expect the adoption of this guidance to impact our financial position or
results of operations.
In March 2013, the FASB issued amended accounting guidance related
to a parent company's accounting for the cumulative translation
adjustment upon derecognition of certain subsidiaries or group of assets
within a foreign entity or of an investment in a foreign entity. The amended
guidance requires the release of any cumulative translation adjustment
into net income only upon complete or substantially complete liquidation
of a controlling interest in a subsidiary or a group of assets within a foreign
entity. Also, it requires the release of all or a pro rata portion of the
cumulative translation adjustment to net income in case of sale of an equity
method investment that is a foreign entity. This amendment will be effective
for us in the first quarter of fiscal 2015, with early adoption permitted. We
do not expect the adoption of this guidance to impact our financial position
or results of operations.
In February 2013, the FASB issued amended accounting guidance related
to reclassifications out of AOCI. An entity is required to present, either
parenthetically on the face of the statement where net income is presented
or in the notes, the significant amounts, by component, reclassified out of
AOCI by the respective line items of net income and to report changes in
its AOCI balances by component. This amendment will be effective for us
in the first quarter of fiscal 2014, with early adoption permitted. We do not
expect the adoption of this guidance to impact our financial position or
results of operations.
In January 2013, the FASB issued updated guidance to limit the scope of
the balance sheet offsetting disclosures to derivatives, repurchase
agreements and securities lending transactions to the extent they are