McKesson 2005 Annual Report Download - page 65

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
During the last three years we also completed several smaller acquisitions and investments within all three of our operating segments.
Purchase prices have been allocated based on estimated fair values at the date of acquisition and may be subject to change. Pro forma results of
operations for our business acquisitions have not been presented because the effects were not material to the consolidated financial statements
on either an individual or aggregate basis.
In 2003, we sold the net assets of a marketing fulfillment business which was previously included in our Pharmaceutical Solutions segment.
Net proceeds from the sale of this business were $4.5 million. The disposition resulted in an after-tax loss of $3.7 million or $0.01 per diluted
share. The net assets and results of operations of this business have been presented as a discontinued operation.
In 2003, we recorded a $51.0 million provision for expected losses on five multi-year contracts in our Provider Technologies segment’s
international business. Substantially all of the expected losses pertain to contracts that were entered into in 2001 or earlier. These contracts
contained multiple-element deliverables, including customization of software. In addition, these contracts place significant reliance on third
party vendors as well as the customers.
During the software development and implementation phases of these contracts, despite experiencing certain operational issues, we believed
these contracts could be fully performed on a timely basis and remain profitable. In 2003, after experiencing numerous delays in product
delivery and functionality, we conducted a reassessment of the contract delivery and project methodology, including assessment of our third
party vendors’ ability to perform under these contracts. We determined that certain contract obligations, including software functionality, could
not be met within existing contract cost estimates and delivery dates. Accordingly in 2003, we reassessed our estimate of the costs to fulfill our
contract obligations and recorded a $51.0 million provision for the expected contract losses.
During the third quarter of 2004, the Company and a customer decided to exit one contract and had commenced discussions to mutually
terminate the contract and negotiate settlement terms and conditions, and as a result, we recorded an additional $20.0 million contract loss
provision. In the fourth quarter of 2004, we reduced our accrued contract loss provision by $15.2 million primarily to reflect the final terms and
conditions of our termination agreement with this customer.
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• In 2003, we purchased the remaining interest in an investment of our Pharmaceutical Solutions segment for approximately $32 million,
retained a small portion of the business and subsequently sold the balance for approximately $40 million, the proceeds of which consisted of
an interest bearing ten-year note receivable, resulting in a nominal loss.
3. Divestiture
4. Contracts