McKesson 2008 Annual Report Download - page 78

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
71
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the
acquisition as of March 31, 2008:
(In millions)
Accounts receivable $ 107
Property and equipment 41
Other current and non-current assets 115
Goodwill 1,258
Intangible assets 471
Accounts payable (8)
Other current liabilities (126)
Deferred revenue (30)
Long-term liabilities (96)
Net assets acquired, less cash and cash equivalents $ 1,732
Approximately $1,258 million of the purchase price allocation has been assigned to goodwill. Included in the
purchase price allocation are acquired identifiable intangibles of $402 million representing customer
relationships with a weighted-average life of 10 years, developed technology of $56 million with a weighted-
average life of 5 years, and trademark and trade names of $13 million with a weighted-average life of 5 years.
In connection with the purchase price allocation, we have estimated the fair value of the support obligations
assumed from Per-Se in connection with the acquisition. The estimated fair value of these obligations was
determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating
the costs relating to fulfilling the obligations plus a normal profit margin. The sum of the costs and operating
profit approximates, in theory, the amount that we would be required to pay a third party to assume these
obligations. As a result, in allocating the purchase price, we recorded an adjustment to reduce the carrying
value of Per-Se’ s deferred revenue by $17 million to $30 million, which represents our estimate of the fair value
of the obligation assumed.
−Our Technology Solutions segment acquired RelayHealth Corporation (“RelayHealth”) based in Emeryville,
California. RelayHealth is a provider of secure online healthcare communication services linking patients,
healthcare professionals, payors and pharmacies. This segment also acquired two other entities, one
specializing in patient billing solutions designed to simplify and enhance healthcare providers’ financial
interactions with their patients as well as a provider of integrated software for electronic health records, medical
billing and appointment scheduling for independent physician practices. The total cost of these three entities
was $90 million, which was paid in cash. Goodwill recognized in these transactions amounted to $63 million.
−Our Distribution Solutions segment acquired Sterling Medical Services LLC (“Sterling”) which is based in
Moorestown, New Jersey. Sterling is a national provider and distributor of disposable medical supplies, health
management services and quality management programs to the home care market. This segment also acquired a
medical supply sourcing agent. The total cost of these two entities was $95 million, which was paid in cash.
Goodwill recognized in these transactions amounted to $47 million.
−We contributed $36 million in cash and $45 million in net assets primarily from our Automated Prescription
Systems business to Parata Systems LLC (“Parata”), in exchange for a significant minority interest in Parata.
Parata is a manufacturer of pharmacy robotic equipment. In connection with the investment, we abandoned
certain assets which resulted in a $15 million charge to cost of sales and we incurred $6 million of other
expenses related to the transaction which were recorded within operating expenses. We did not recognize any
additional gains or losses as a result of this transaction as we believe the fair value of our investment in Parata
approximates the carrying value of consideration contributed to Parata. Our investment in Parata is accounted
for under the equity method of accounting within our Distribution Solutions segment.