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Disclosures About Market Risk
Cardinal Health | Fiscal 2015 Form 10-K 26
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to cash flow and earnings fluctuations as a result of certain market risks. These market risks primarily relate to foreign
exchange, interest rate and commodity price-related changes. We maintain a hedging program to manage volatility related to these market
exposures which employs operational, economic and derivative financial instruments in order to mitigate risk. See Notes 1 and 12 of the
“Notes to Consolidated Financial Statements” for further discussion regarding our use of derivative instruments.
Foreign Exchange Rate Sensitivity
By nature of our global operations, we are exposed to cash flow and
earnings fluctuations resulting from foreign exchange rate variation.
These exposures are transactional and translational in nature.
Principal drivers of this foreign exchange exposure include the
Canadian dollar, Chinese renminbi, Thai baht, Mexican peso,
European euro, Singapore dollar, Japanese yen, and the Australian
dollar.
Transactional Exposure
Transactional exposure arises from the purchase and sale of goods
and services in currencies other than our functional currency or the
functional currency of our subsidiaries. As part of our risk
management program, at the end of each fiscal year we perform a
sensitivity analysis on our forecasted transactional exposure for the
upcoming fiscal year. These analyses include the estimated impact
of our hedging program, which mitigates transactional exposure. At
June 30, 2015 and 2014, we had hedged approximately 37 and 48
percent of transactional exposures, respectively.
The following table summarizes the analysis as it relates to
transactional exposure and the impact of a hypothetical 10 percent
fluctuation in foreign currencies, assuming rates collectively shift in
the same direction and we are unable to change customer pricing in
response to those shifts, for the upcoming fiscal year period:
June 30
(in millions) 2015 (1) 2014 (1)
Net estimated transactional exposure $ 392 $ 378
Sensitivity gain/loss $ 39 $ 38
Estimated offsetting impact of hedges (15) (18)
Estimated net gain/loss $ 24 $ 20
(1) This analysis excludes exposures that may be added as a result of acquisitions
that have not yet closed as of June 30, 2015.
Translational Exposure
We have exposure related to the translation of financial statements
of our foreign operations into U.S. dollars, our functional currency.
We perform a similar analysis to that described above related to this
translational exposure. We do not typically hedge any of our
translational exposure and no hedging impact was included in our
analysis at June 30, 2015 and 2014.
The following table summarizes translational exposure and the
impact of a hypothetical 10 percent strengthening or weakening in
the U.S. dollar, assuming rates collectively shift in the same direction
and we are unable to change customer pricing in response to those
shifts, for the upcoming fiscal year period:
June 30
(in millions) 2015 (1) 2014 (1)
Net estimated translational exposure $ 55 $ 62
Sensitivity gain/loss 66
(1) This analysis excludes exposures that may be added as a result of acquisitions
that have not yet closed as of June 30, 2015.