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I
nventories recorded on the consolidated balance sheets are net of reserves for excess and obsolete
inventory, which were
$
34.4 million at June 30, 2010, and
$
39.5 million at June 30, 2009. We determine reserves
f
or inventory obsolescence based on historical experiences, sales trends, specific categories of inventory and ag
e
o
f on-hand inventory. If actual conditions are less favorable than our assumptions, additional inventory reserve
s
may be required. However, these reserves are unlikely to have a material adverse impact on the consolidate
d
f
inancial statements
.
Goo
d
wi
ll
an
d
Ot
h
er Intangi
bl
e
s
Purchased goodwill and intangible assets with indefinite lives are not amortized, but instead are tested fo
r
impairment annually or when indicators of impairment exist. Intangible assets with finite lives—primarily
customer relationshi
p
s and
p
atents and trademarks—continue to be amortized over their useful lives. Im
p
airmen
t
testing involves a comparison of estimated fair value to the respective carrying amount. If estimated fair value
exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the estimated fair value,
then a second ste
p
is
p
erformed to determine the amount of im
p
airment which would be recorded as an ex
p
ense
to our results of o
p
erations.
A
pplication of goodwill impairment testing involves judgment, including but not limited to, th
e
identification of reporting units and estimating the fair value of each reporting unit. A reporting unit is defined a
s
an operating segment or one level below an operating segment. In fiscal 2010, we identified three reportin
g
units: Pharmaceutical segment excluding our nuclear and pharmacy services division, Medical segment an
d
nuclear and pharmacy services division. Fair values can be determined using market, income or cost-based
approaches. Our determination of estimated fair value of the reporting units is based on a combination of income-
based and market-based approaches. Under the market-based approach we determine fair value by comparing ou
r
r
eporting units to similar businesses, or guideline companies whose securities are actively traded in public
markets. Under the income-a
pp
roach, we use a discounted cash flow model in which cash flows antici
p
ated ove
r
several periods, plus a terminal value at the end of that time horizon, are discounted to their present value usin
g
an appropriate rate of return. To further confirm the fair value, we compare our aggregate fair value of ou
r
r
eporting units to our market capitalization. The use of alternate estimates and assumptions or changes in th
e
industry or peer groups could materially affect the determination of fair value for each reporting unit an
d
p
otentially result in goodwill impairment
.
We performed annual impairment testing in fiscal 2010 and concluded that there were no impairments of
goodwill as the fair value of each reporting unit exceeded its carrying value. Due to the Spin-Off and
r
eorganization of the reporting units, goodwill was also tested for impairment in the first quarter of fisca
l
2010. Based on this analysis there was no impairment. We also performed annual impairment testing in fisca
l
2009 and 2008 using similar fair value approaches; however, our market-based approach historically included a
r
eview of the price/earnings ratio for publicly traded companies that were similar in nature, scope and size to our
r
eporting units to the extent available. Based on this analysis there was no impairment. See Note 6 of “Notes t
o
Consolidated Financial Statements” for additional information regarding goodwill and other intangible assets.
I
f we alter our impairment testing by increasing the discount rate in the discounted cash flow analysis by
1%, there still would not be any impairment indicated for any of our reporting units for fiscal 2010 or 2009.
V
en
d
or Reserve
s
I
n the ordinary course of business, our vendors may dispute deductions or billings taken against payments
o
therwise due to them. These disputed transactions are researched and resolved based upon our policy and
f
indings of the research performed. At any given time, there are outstanding items in various stages of research
and resolution. In determining appropriate reserves for areas of exposure with our vendors, we assess historical
experience and current outstanding claims. We have established various levels of reserves based on the type o
f
claim and status of review. Though the transaction types are relatively consistent, we periodically refine ou
r
34