Cardinal Health 2014 Annual Report Download - page 32

Cardinal Health, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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assumptions or changes in the industry or peer groups could
materially affect the determination of fair value for each reporting
unit and potentially result in goodwill impairment.
We performed annual impairment testing in fiscal 2014, 2013
and 2012 and, with the exception of our Nuclear Pharmacy
Services division in fiscal 2013, concluded that there were no
impairments of goodwill as the estimated fair value of each
reporting unit exceeded its carrying value. For our fiscal 2014,
2013 and 2012 testing, we elected to bypass the optional
qualitative assessment. As discussed further in Note 5, during
the fourth quarter of fiscal 2013 we recognized an $829 million
($799 million, net of tax) goodwill impairment charge related to
our Nuclear Pharmacy Services division, which is included in
impairments and loss on disposal of assets in our consolidated
statements of earnings.
We review intangible assets with finite lives for impairment
whenever events or changes in circumstances indicate that the
related carrying amounts may not be recoverable. Determining
whether an impairment loss occurred requires a comparison of
the carrying amount to the sum of the undiscounted cash flows
expected to be generated by the asset.
Investments
Investments in non-marketable equity securities are accounted
for under either the cost or equity method of accounting and are
included in other assets in the consolidated balance sheets. For
investments in which we can exercise significant influence, we
use the equity method of accounting and our share of the
earnings and losses, which was immaterial, both individually
and in the aggregate, for all periods presented, is recorded in
other income, net in the consolidated statements of the earnings.
We monitor investments for other-than-temporary impairment
by considering factors such as the operating performance of the
investment and current economic and market conditions.
During fiscal 2014, we sold our minority equity interests in two
investments for proceeds of $47 million, which resulted in a pre-
tax gain of $32 million ($20 million, net of tax) included in other
income, net in the consolidated statements of earnings.
Also during fiscal 2014, we purchased marketable securities,
which are classified as available-for-sale and are carried at fair
value in the consolidated balance sheets. Unrealized gains and
losses on available-for-sale securities, net of applicable taxes,
are included within shareholders’ equity in accumulated other
comprehensive income ("AOCI"). We monitor these securities
for other-than-temporary impairment by considering factors
such as the duration that, and the extent to which, the fair value
is below cost, the operating performance and credit worthiness
of the issuer of the securities and current economic and market
conditions. See Note 6 for additional information regarding
available-for-sale securities.
We previously held $72 million of investments in fixed income
corporate debt securities, which were classified as held-to-
maturity and matured during fiscal 2013.
Vendor Reserves
In the ordinary course of business, our vendors may dispute
deductions taken against payments otherwise due to them or
assert other billing disputes. 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 in 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 of
reserves based on the type of claim and status of review. Though
the claim types are relatively consistent, we periodically refine
our 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 and
may require an adjustment. All adjustments to vendor reserves
are included in cost of products sold. In addition, the reserve
balance will fluctuate due to variations of outstanding claims
from period-to-period, timing of settlements and specific vendor
issues, such as bankruptcies. Vendor reserves were $82 million
and $66 million at June 30, 2014 and 2013, respectively,
excluding third-party returns. See separate section in Note 1 for
a description of third-party returns.
Vendor Incentives
Fees for services and other incentives received from vendors
relating to the purchase or distribution of inventory represent
product discounts and are recorded as a reduction of cost of
products sold in the consolidated statements of earnings upon
sale of the related inventory.
Loss Contingencies
We accrue for contingencies related to disputes, litigation and
regulatory matters if it is probable that a liability has been
incurred and the amount of the loss can be reasonably
estimated. Because these matters are inherently unpredictable
and unfavorable developments or resolutions can occur,
assessing contingencies is highly subjective and requires
judgments about future events. We regularly review
contingencies to determine whether our accruals and related
disclosures are adequate. The amount of ultimate loss may differ
from these estimates. See Note 9 for additional information
regarding loss contingencies.
Income Taxes
We account for income taxes using the asset and liability
method. The asset and liability method requires recognition of
deferred tax assets and liabilities for expected future tax
consequences of temporary differences that currently exist