Cardinal Health 2008 Annual Report Download - page 94

certain events or changes in operating conditions occur, an impairment assessment may be performed on the
recoverability of the carrying amounts. The Company expenses repairs and maintenance expenditures as
incurred. Repairs and maintenance expense was $61.2 million, $61.3 million and $52.2 million for fiscal 2008,
2007 and 2006, respectively. The Company capitalizes interest on long-term fixed asset projects using a rate of
5.9%, which approximates the Company’s weighted average interest rate on long-term obligations. The amount
of capitalized interest was immaterial for all fiscal years presented. Certain prior year balances have been
reclassified to conform to the current year presentation.
Goodwill and Other Intangibles. The Company accounts for purchased goodwill and other intangible assets
in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting
Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, purchased
goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment at
least annually. Intangible assets with finite lives, primarily customer relationships, patents and trademarks,
continue to be amortized over their useful lives. SFAS No. 142 requires that impairment testing be conducted at
the reporting unit level, which can be at the operating segment level as defined by SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information,” or one level below the operating segment. In
conducting the impairment test, the fair value of each of the Company’s reporting units is compared to its
respective carrying amount including goodwill. If the fair value exceeds the carrying amount, then no impairment
exists. If the carrying amount exceeds the fair value, further analysis is performed to assess impairment.
The Company’s determination of fair value of the reporting units is based on a discounted cash flow
analysis, a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and, if
available, a review of the price/earnings ratio for publicly traded companies similar in nature, scope and size. The
methods and assumptions used to test impairment have been revised for any segment realignments for the periods
presented. The discount rates used for impairment testing are based on the risk-free rate plus an adjustment for
risk factors. The EBITDA multiples used for impairment testing are judgmentally selected based on factors such
as the nature, scope and size of the applicable reporting unit. The use of alternative estimates, peer groups or
changes in the industry, or adjusting the discount rate, EBITDA multiples or price earnings ratios used could
affect the estimated fair value of the assets and potentially result in impairment. Any identified impairment
would result in an adjustment to the Company’s results of operations. The Company performed its annual
impairment test in fiscal 2008 and 2007, neither of which resulted in the recognition of impairment charges. See
Note 9 for additional information regarding goodwill and other intangible assets.
Income Taxes. In accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes,” the
Company accounts 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 between tax bases and financial reporting bases of the Company’s assets and liabilities.
Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which the
Company operates. Deferred taxes are not provided on the unremitted earnings of subsidiaries outside of the
U.S. when it is expected that these earnings are permanently reinvested.
In the first quarter of fiscal 2008, the Company adopted the provisions of FASB Interpretation (“FIN”)
No. 48, “Accounting for Uncertainty in Income Taxes.” FIN No. 48 clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance with SFAS No. 109, “Accounting for Income
Taxes.” This standard provides that a tax benefit from an uncertain tax position may be recognized when it is
more likely than not that the position will be sustained upon examination, including resolutions of any related
appeals or litigation processes, based on the technical merits. The amount recognized is measured as the largest
amount of tax benefit that is greater than 50% likely of being realized upon settlement.
Accounting for Vendor Reserves. In the ordinary course of business, vendors may challenge deductions or
billings taken against payments otherwise due to them from the Company. These contested transactions are
researched and resolved based upon Company policy and findings of the research performed. At any given time,
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