Cardinal Health 2014 Annual Report Download - page 35

Cardinal Health, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
33
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 continues
to be carried on the balance sheet at fair value until settled and
future adjustments to the contract’s fair value are recognized
immediately in net earnings. If a forecasted transaction is no
longer considered probable of occurring, amounts previously
deferred in AOCI are recognized immediately in net earnings.
See Note 12 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 14 for
additional information regarding EPS.
Fair Value Measurements
Fair value is defined as the price that would be received upon
selling an asset or the price paid to transfer a liability on the
measurement date. It focuses on the exit price in the principal
or most advantageous market for the asset or liability in an
orderly transaction between willing market participants. A three-
tier fair value hierarchy is established as a basis for considering
such assumptions and for inputs used in the valuation
methodologies in measuring fair value. This hierarchy requires
entities to maximize the use of observable inputs and minimize
the use of unobservable inputs. The three levels of inputs used
to measure fair values are:
Level 1 - Observable prices in active markets for identical
assets and liabilities.
Level 2 - Observable inputs other than quoted prices in active
markets for identical assets and liabilities.
Level 3 - Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value
of the assets and liabilities.
See Note 11 for additional information regarding fair value
measurements.
Recent Financial Accounting Standards
In June 2014, the Financial Accounting Standards Board
("FASB") issued guidance on accounting for share-based
payments with performance targets. This guidance requires that
a performance target that affects vesting and that could be
achieved after the requisite service period be treated as a
performance condition. This guidance will be effective for us in
the first quarter of fiscal 2017, with early adoption permitted. We
do not expect the adoption of this guidance to have a material
impact on our financial position or results of operations.
In May 2014, the FASB issued amended accounting guidance
related to revenue recognition. This guidance is based on the
principle that revenue is recognized in an amount that reflects
the consideration to which an entity expects to be entitled in
exchange for the transfer of goods or services to customers.
The guidance also requires additional disclosure about the
nature, amount, timing and uncertainty of revenue and cash
flows arising from customer contracts, including significant
judgments and changes in judgments and assets recognized
from costs incurred to obtain or fulfill a contract. This
amendment will be effective for us in the first quarter of fiscal
2018. We are currently evaluating the options for adoption and
the impact on our financial position and results of operations.
In April 2014, the FASB issued amended accounting guidance
related to the reporting of discontinued operations and
disclosures of disposals of components of an entity. The
amended guidance changes the thresholds for disposals to
qualify as discontinued operations and requires additional
disclosures. This amendment will be effective for us in the first
quarter of fiscal 2016, with early adoption permitted. We will
adopt this guidance on a prospective basis, and we do not
expect the adoption to impact our financial position or results of
operations.
In July 2013, the 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.
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