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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
60
Shipping and Handling Costs: We include all costs to warehouse, pick, pack and deliver inventory to our
customers in distribution expenses.
Property, Plant and Equipment: We state our property, plant and equipment at cost and depreciate them under
the straight-line method at rates designed to distribute the cost of properties over estimated service lives ranging
from one to 30 years.
Goodwill: Goodwill is tested for impairment on an annual basis in the fourth quarter 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 compare the carrying value of our reporting units to the estimated fair value of
the reporting units. Goodwill is reviewed for impairment utilizing either a qualitative or quantitative assessment. If
we decide that it is appropriate to perform a qualitative assessment and conclude that the fair value of a reporting
unit more likely than not exceeds its carrying value, no further evaluation is necessary. For reporting units where we
perform a quantitative assessment, 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. There were no goodwill impairments during 2012, 2011, or 2010.
Intangible Assets: Currently all of our intangible assets are subject to amortization and are generally amortized
on a straight line basis over their estimated useful lives, ranging from one to twenty years. We review identifiable
intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the
assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated
undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any
impairment loss is based on the excess of the carrying value of the asset over its fair value. There were no material
impairments of intangible assets during 2012, 2011 or 2010.
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. At each balance sheet date, or earlier if an indicator
of an impairment exists, we evaluate the recoverability of unamortized capitalized software costs based on estimated
future undiscounted revenues net of estimated related costs over the remaining amortization period. As of March
31, 2012 and 2011, capitalized software held for sale was $144 million and $152 million, net of accumulated
amortization and was included in other assets in the consolidated balance sheets.
Additional information regarding our capitalized software held for sale is as follows:
Years Ended March 31,
(In millions) 2012 2011 2010
Amounts capitalized $ 47 $ 64 $ 75
Amortization expense 53 75 67
Impairment charge — 72 —
Third-party royalty fees paid 95 72 63