Cardinal Health 2011 Annual Report Download - page 73

Business
C
ombinations
.
The
p
urchase
p
rice of an ac
q
uired business is allocated to the assets ac
q
uired an
d
li
a
bili
t
i
es assume
db
ase
d
on t
h
e
i
r est
i
mate
df
a
i
rva
l
ues as o
f
t
h
e
d
ate o
f
acqu
i
s
i
t
i
on,
i
nc
l
u
di
ng
id
ent
ifi
a
ble
intan
g
ible assets. When an acquisition involves contin
g
ent consideration, we reco
g
nize a liabilit
y
equal to the fair
v
alue of the contingent consideration obligation at the date of acquisition. The excess of the purchase price over
t
h
e est
i
mate
df
a
i
rva
l
ue o
f
t
h
e net tang
ibl
ean
did
ent
ifi
a
bl
e
i
ntang
ibl
e assets acqu
i
re
di
s recor
d
e
d
as goo
d
w
ill
.We
base the fair values of identifiable intan
g
ible assets on detailed valuations that require mana
g
ement to make
significant judgments, estimates and assumptions. Critical estimates and assumptions include: expected futur
e
cas
hfl
ows
f
or tra
d
e names, customer re
l
at
i
ons
hi
ps an
d
ot
h
er
id
ent
ifi
a
bl
e
i
ntang
ibl
e assets;
di
scount rates t
h
a
t
reflect the risk factors associated with future cash flows; and estimates of useful lives. See Note 2 for additional
information regarding our acquisitions, including the contingent consideration related to the P4 Healthcare
a
cqu
i
s
i
t
i
on
.
G
oodwill and Other Intan
g
ibles.
P
urchased goodwill and intangible assets with indefinite lives are no
t
a
mort
i
ze
d
,
b
ut
i
nstea
d
are teste
df
or
i
mpa
i
rment annua
ll
yorw
h
en
i
n
di
cators o
fi
mpa
i
rment ex
i
st. Intang
ibl
e
a
ssets with finite lives—primaril
y
customer relationships, patents and trademarks—are amortized over their
u
seful lives.
Goodwill impairment testin
g
involves a comparison of estimated fair value of reportin
g
units to the
respective carrying amount. If estimated fair value exceeds the carrying amount, then no impairment exists. If th
e
carry
i
ng amount excee
d
st
h
e est
i
mate
df
a
i
rva
l
ue, t
h
en a secon
d
step
i
s per
f
orme
d
to
d
eterm
i
ne t
h
e amount o
f
impairment, which would be recorded as an expense to our results of operations. Application of
g
oodwill
impairment testing involves judgment, including but not limited to the identification of reporting units an
d
est
i
mat
i
ng t
h
e
f
a
i
rva
l
ue o
f
eac
h
report
i
ng un
i
t. A report
i
ng un
i
t
i
s
d
e
fi
ne
d
as an operat
i
ng segment or one
l
eve
l
below an operatin
g
se
g
ment. In fiscal 2011, we identified four reportin
g
units: Pharmaceutical se
g
ment,
excluding our nuclear and pharmacy services division and Yong Yu division; Medical segment; nuclear an
d
p
h
armacy serv
i
ces
di
v
i
s
i
on; an
d
Yong Yu
di
v
i
s
i
on. Fa
i
rva
l
ues can
b
e
d
eterm
i
ne
d
us
i
ng mar
k
et,
i
ncome or cost-
based approaches. Our determination of estimated fair value of the reportin
g
units is based on a combination of
income-based and market-based approaches. Under the market-based approach we determine fair value by
compar
i
ng our report
i
ng un
i
ts to s
i
m
il
ar
b
us
i
nesses or gu
id
e
li
ne compan
i
es w
h
ose secur
i
t
i
es are act
i
ve
l
y tra
d
e
d
in
p
ublic markets. Under the income-based a
pp
roach, we use a discounted cash flow model in which cash flow
s
a
ntici
p
ated over several
p
eriods,
p
lus a terminal value at the end of that time horizon, are discounted to their
present va
l
ue us
i
ng an appropr
i
ate rate o
f
return. To
f
urt
h
er con
fi
rm t
h
e
f
a
i
rva
l
ue, we compare t
h
e aggregate
f
a
ir
v
alue of our reportin
g
units to our market capitalization. The use of alternate estimates and assumptions o
r
changes in the industry or peer groups could materially affect the determination of fair value for each reportin
g
u
n
i
tan
d
potent
i
a
ll
y resu
l
t
i
n goo
d
w
ill i
mpa
i
rment.
We performed annual impairment testing in fiscal 2011, 2010 and 2009 and concluded that there were no
impairments of goodwill as the fair value of each reporting unit exceeded its carrying value. See Note
6
fo
r
a
dditional information re
g
ardin
gg
oodwill and other intan
g
ible assets.
Income Taxe
s.
We account
f
or
i
ncome taxes us
i
ng t
h
e asset an
dli
a
bili
ty met
h
o
d
.T
h
e asset an
dli
a
bili
t
y
method requires reco
g
nition of deferred tax assets and liabilities for expected future tax consequences of
temporary differences that currently exist between the tax bases and financial reporting bases of our assets and
li
a
bili
t
i
es. De
f
erre
d
tax assets an
dli
a
bili
t
i
es are measure
d
us
i
ng enacte
d
tax rates
i
nt
h
e respect
i
ve
j
ur
i
s
di
ct
i
ons
i
n
which we operate. Deferred taxes are not provided on the unremitted earnin
g
s of subsidiaries outside of th
e
United States when it is expected that these earnings are permanently reinvested.
T
ax benefits from uncertain tax positions are reco
g
nized when it is more likel
y
than not that the positio
n
will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on
t
h
e tec
h
n
i
ca
l
mer
i
ts. T
h
e amount recogn
i
ze
di
s measure
d
as t
h
e
l
argest amount o
f
tax
b
ene
fi
tt
h
at
i
s greater t
h
a
n
5
0 percent likel
y
of bein
g
realized upon settlement. See Note 9 for additional information re
g
ardin
g
income
taxes
.
4
7