McKesson 2011 Annual Report Download - page 70

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
64
Prior to April 1, 2010, sales of undivided interests in the receivables by the SPE to the Purchaser Groups were
accounted for as sales because we had relinquished control of the receivables. Accounts receivable sold under these
transactions were excluded from receivables, net in the accompanying consolidated balance sheets. Fee charges
from the Purchaser Groups were recorded within administrative expenses in the consolidated statements of
operations.
On April 1, 2010, we adopted amended accounting guidance for transfers of financial assets, including
securitization transactions, in which entities have continued exposure to risks related to transferred financial assets.
This amendment changed the requirements for derecognizing financial assets and expanded the disclosure
requirements for such transactions. The operations of the Facility did not change, however as a result of the
amended accounting guidance from April 1, 2010 forward, accounts receivable transactions under our Facility are
accounted for as secured borrowings rather than asset sales. Accounts receivable continue to be recognized on our
consolidated balance sheet and proceeds from the Purchaser groups are shown as secured borrowings. Commencing
in 2011, fee charges from the Purchaser Groups are recorded as interest expense in the consolidated statements of
operations.
Share-Based Compensation: We account for all share-based compensation transactions using a fair-value based
measurement method. The share-based compensation expense is recognized, for the portion of the awards that is
ultimately expected to vest, on a straight-line basis over the requisite service period for those awards with graded
vesting and service conditions. For awards with performance conditions and multiple vest dates, we recognize the
expense on a graded vesting basis. For awards with performance conditions and a single vest date, we recognize the
expense on a straight-line basis. The compensation expense recognized has been classified in the consolidated
statements of operations or capitalized on the consolidated balance sheets in the same manner as cash compensation
paid to our employees.
Loss Contingencies: We are subject to various claims, other pending and potential legal actions for damages,
investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of
our business. When a loss is considered probable and reasonably estimable, we record a liability in the amount of
our best estimate for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is
often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable
based on the information available and the potential effect of future events and decisions by third parties that will
determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved
over many years, during which time relevant developments and new information must be reevaluated at least
quarterly to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range
of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure of the proceeding is
provided.
Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably
possible that the amount of a loss will exceed the recorded provision. We review all contingencies at least quarterly
to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or
range of the loss can be made. As discussed above, development of a meaningful estimate of loss or a range of
potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties,
such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is
possible to reasonably estimate a range of potential loss and boundaries of high and low estimate.
Business Combinations: We account for acquired businesses using the acquisition method of accounting, which
requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair
values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as
goodwill. Effective April 1, 2009, acquisition-related expenses and restructuring costs are recognized separately
from the business combinations and are expensed as incurred. Acquisition-related expenses totaled $52 million in
2011 and were not material in 2010.