McKesson 2009 Annual Report Download - page 76

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
70
Capitalized Software Held for Sale: Development costs for software held for sale, which primarily pertain to
our Technology Solutions segment, are capitalized once a project has reached the point of technological feasibility.
Completed projects are amortized after reaching the point of general availability using the straight-line method
based on an estimated useful life of approximately three years. We monitor the net realizable value of capitalized
software held for sale to ensure that the investment will be recovered through future sales.
Additional information regarding our capitalized software expenditures is as follows:
Years Ended March 31,
(In millions) 2009 2008 2007
Amounts capitalized $ 74 $ 73 $ 76
Amortization expense 50 44 43
Third-party royalty fees paid 50 52 43
Goodwill: Goodwill is tested for impairment on an annual basis or more frequently if indicators for potential
impairment exist. Impairment testing is conducted at the reporting unit level, which is generally defined as a
component, one level below our Distribution Solutions and Technology Solutions operating segments, for which
discrete financial information is available and segment management regularly reviews the operating results of that
unit. Components that have essentially similar operations, products, services and customers are aggregated as a
single reporting unit.
Impairment tests require that we first compare the carrying value of net assets to the estimated fair value of net
assets for the reporting units. If the carrying value exceeds the fair value, a second step is performed to calculate the
amount of impairment, which would be recorded as a charge in the consolidated statements of operations. The fair
value of a reporting unit is based upon a number of considerations including projections of revenues, earnings and
discounted cash flows and determination of market value multiples for similar businesses or guideline companies
whose securities are actively traded in public markets. The discount rate used for cash flows reflects capital market
conditions and the specific risks associated with the business. In addition, we compare the aggregate of the
reporting units’ fair value to the Company’s market capitalization as a further corroboration of the fair value. The
testing requires a complex series of assumptions and judgment by management in projecting future operating results,
selecting guideline companies for comparisons and assessing risks. The use of alternative assumptions and
estimates could affect the fair values and change the impairment determinations. Other than our goodwill
impairment relating to the disposition of our Acute Care business (see Financial Note 7, “Discontinued
Operations,”) there have been no goodwill impairments during the years presented.
Intangible assets: Substantially all of our intangible assets are subject to amortization and are amortized over
their estimated period of benefit, ranging from one to fifteen years. We evaluate the recoverability of intangible
assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or
that indicate that impairment exists. No material impairments of intangible assets have been identified during any of
the years presented.
Capitalized Software Held for Internal Use: We capitalize costs of software held for internal use during the
application development stage of a project and amortize those costs over the assets’ estimated useful lives ranging
from one to ten years. As of March 31, 2009 and 2008, capitalized software held for internal use was $475 million
and $458 million, net of accumulated amortization of $567 million and $467 million and was included in other
assets in the consolidated balance sheets.