McKesson 2008 Annual Report Download - page 72

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
65
Property, Plant and Equipment: We state our property, plant and equipment at cost and depreciate them on the
straight-line method at rates designed to distribute the cost of properties over estimated service lives ranging from
one to 30 years.
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. We monitor the net realizable value of capitalized
software held for sale to ensure that the investment will be recovered through future sales.
Additional information regarding our capitalized software expenditures is as follows:
Years Ended March 31,
(In millions) 2008 2007 2006
Amounts capitalized $ 73 $ 76 $ 61
Amortization expense 44 43 51
Third-party royalty fees paid 52 43 33
Goodwill: Goodwill is tested for impairment on an annual basis and between annual tests if indicators of
potential impairment exist, using a fair-value based approach. The annual evaluation for impairment is generally
based on valuation models that incorporate internal projections of expected future cash flows and operating plans.
Other than our goodwill impairment relating to the disposition of our Acute Care business (see Financial Note 3,
“Discontinued Operations,”) there have been no goodwill impairments during the years presented.
Intangible assets: Intangible assets are amortized using the straight-line method over their estimated period of
benefit, ranging from one to twenty years. We evaluate the recoverability of intangible assets periodically and take
into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment
exists. Substantially all of our intangible assets are subject to amortization. No material impairments of intangible
assets have been identified during any of the years presented.
Capitalized Software Held for Internal Use: We amortize capitalized software held for internal use over the
assets’ estimated useful lives ranging from one to ten years. As of March 31, 2008 and 2007, capitalized software
held for internal use was $458 million and $465 million, net of accumulated amortization of $467 million and $391
million and was included in Other Assets in the consolidated balance sheets.
Insurance Programs: Under our insurance programs, we seek to obtain coverage for catastrophic exposures as
well as those risks required to be insured by law or contract. It is our policy to retain a significant portion of certain
losses primarily related to workers’ compensation and comprehensive general, product, and vehicle liability.
Provisions for losses expected under these programs are recorded based upon our estimate of the aggregate liability
for claims incurred as well as for claims incurred but not yet reported. Such estimates utilize certain actuarial
assumptions followed in the insurance industry.
Revenue Recognition: Revenues for our Distribution Solutions segment are recognized when we deliver
product and title passes to the customer or when services have been rendered and there are no further obligations to
customers.
Revenues are recorded net of sales returns, allowances and rebates. We accrue sales returns based on estimates
at the time of sale to the customer. Sales returns from customers were approximately $1,093 million, $1,113 million
and $933 million in 2008, 2007 and 2006. Taxes collected from customers and remitted to governmental authorities
are presented on a net basis; that is, they are excluded from revenues.