McKesson 2013 Annual Report Download - page 41

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
During the fourth quarter of 2013, we recorded $46 million of non-cash pre-tax impairment charges in our Technology
Solutions segment. These charges were the result of a significant decrease in estimated revenues for a software product. The
charge included a $36 million goodwill impairment to reduce the carrying value of goodwill within the applicable reporting
unit to its implied fair value. In addition, the goodwill had a nominal tax basis. This impairment charge was recorded in
operating expenses within our consolidated statement of operations. The balance of the charge represents a $10 million
impairment to reduce the carrying value of the unamortized capitalized software held for sale costs for this product to its net
realizable value. We concluded that the estimated future undiscounted revenues, net of estimated related costs, were
insufficient to recover its carrying value. This impairment charge was recorded in cost of sales within our consolidated
statement of operations.
Technology Solutions segment's operating expenses and operating expenses as a percentage of revenues increased in
2012 compared to 2011 primarily due to our continued investment in research and development activities, a number of small
business acquisitions in 2012 and product alignment charges of $20 million. These increases were partially offset by cost
containment efforts.
Corporate expenses decreased in 2013 compared to 2012 primarily due to the gain on business combination and a
charitable contribution in 2012. These decreases were partially offset by an increase in a reserve for an environmental
liability, acquisition-related expenses and other corporate initiatives. Corporate expenses for 2012 increased compared to
2011 primarily due to higher employee compensation and benefits costs and a charitable contribution.
Other Income, Net:
Years Ended March 31, Change
(Dollars in millions) 2013 2012 2011 2013 2012
Distribution Solutions $ 20 $ 16 $ 5 25 % 220 %
Technology Solutions 4 5 4 (20) 25
Corporate 11
—
27 100 (100)
Total $ 35 $ 21 $ 36 67 (42)
Other income, net increased in 2013 compared to 2012 primarily due to an impairment of an asset in 2012. Other income,
net decreased in 2012 compared to 2011 primarily due to a receipt in 2011 of $16 million representing the reimbursement of
post-acquisition interest expense by former shareholders of US Oncology, which was recorded in Corporate and an
impairment of an asset in 2012.
Impairment of an Equity Investment:
Based on a recent evaluation, we committed to a plan to sell our 49% equity interest in Nadro, S.A. de C.V. ("Nadro")
and in the fourth quarter of 2013 recorded a pre-tax impairment charge of $191 million reducing the investment's carrying
value to its estimated fair value. The charge reflects deterioration in Nadro's market position, projected lower revenue growth
rates and operating margins and continued business challenges in the wholesale pharmaceutical distribution business in
Mexico. Cumulative foreign currency translation losses of $69 million were included in the assessment of the investment's
carrying value for purposes of calculating the impairment charge. Cumulative foreign currency translation losses (net of tax),
are included in Accumulated Other Comprehensive Income on our consolidated balance sheet. The charge was recorded in
impairment of an equity investment in the consolidated statements of operations within our Distribution Solutions segment.
The ultimate selling price of our investment in Nadro may be different than our current assessment of fair value. The fair
value of the investment will be reviewed quarterly for any additional impairment.