McKesson 2008 Annual Report Download - page 71

McKESSON CORPORATION
FINANCIAL NOTES
64
1. Significant Accounting Policies
Nature of Operations: The consolidated financial statements of McKesson Corporation (“McKesson,” the
“Company,” or “we” and other similar pronouns) include the financial statements of all majority-owned or
controlled companies. Significant intercompany transactions and balances have been eliminated. The Company’ s
fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall
mean the Company’ s fiscal year.
We conduct our business through two segments, Distribution Solutions and Technology Solutions.
Commencing in 2008, we realigned our business segments as further described in Financial Note 21, “Segments of
Business.”
Reclassifications: Certain prior year amounts have been reclassified to conform to the current year
presentation. The reclassifications are primarily related to changes to our segment reporting and had no impact on
net income.
Use of Estimates: The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires that we make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents: All highly liquid debt instruments purchased with a maturity of three months or
less at the date of acquisition are included in cash and cash equivalents.
Restricted Cash: Cash that is subject to legal restrictions or is unavailable for general operating purposes is
classified as restricted cash. At March 31, 2007, restricted cash included $962 million paid into an escrow account
for future distribution to class members of our Securities Litigation settlement. The corresponding liability is in
current liabilities under the caption “Consolidated Securities Litigation Action.” In 2008, the Company removed its
$962 million Consolidated Securities Litigation Action liability and corresponding restricted cash balance from its
consolidated financial statements as all criteria for the extinguishment of this liability were met. Refer to Financial
Note 17, “Other Commitments and Contingent Liabilities.”
Marketable Securities Available for Sale: We carry our marketable securities which are available for sale at fair
value and the net unrealized gains and losses, net of the related tax effect, computed in marking these securities to
market have been reported within stockholders’ equity. At March 31, 2008 and 2007, marketable securities were
not material.
Inventories: We state inventories at the lower of cost or market. Inventories for our Distribution Solutions
segment consist of merchandise held for resale. For our Distribution Solutions segment, the majority of the cost of
domestic inventories is determined on the last-in, first-out (“LIFO”) method and Canadian inventories are stated
using the first-in, first-out (“FIFO”) method. Technology Solutions segment inventories consist of computer
hardware with cost determined by the standard cost method. The LIFO method is used to value approximately 88%
of our inventories at March 31, 2008 and 2007. Total inventories before the LIFO cost adjustment, which
approximates replacement cost, were $9,077 million and $8,244 million at March 31, 2008 and 2007. Vendor
rebates, cash discounts, allowances and chargebacks received from vendors are generally accounted for as a
reduction in the cost of inventory and are recognized when the inventory is sold.