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69
McKESSON CORPORATION
FINANCIAL NOTES (Continued)
3. Asset Impairments and Product Alignment Charges
In 2013, 2012 and 2011, we recorded asset impairments and product alignment charges of $46 million, $51 million and
$72 million in our Technology Solutions segment:
Fiscal 2013
During the fourth quarter of 2013, we recorded $46 million of non-cash pre-tax impairment charges. 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. Refer to Financial Note 19, "Fair Value Measurements," for more information on this nonrecurring
fair value measurement. 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.
Fiscal 2012
During the third quarter of 2012, we approved a plan to align our hospital clinical and revenue cycle healthcare software
products within our Technology Solutions segment. As part of this alignment strategy, we began converging our core clinical
and revenue cycle Horizon and Paragon product lines onto Paragon's Microsoft®-based platform. Additionally, we stopped
development of our Horizon Enterprise Revenue Management™ (“HzERM”) software product. The plan resulted in a pre-tax
charge of $51 million in 2012, of which $31 million was recorded to cost of sales and $20 million was recorded to operating
expenses within our consolidated statement of operations. The majority of these charges were incurred in the third quarter of
2012. The pre-tax charge included $24 million of non-cash asset impairment charges, primarily for the write-off of prepaid
licenses and commissions and capitalized internal use software that were determined to be obsolete as they would not be
utilized going forward, $10 million for severance, $7 million for customer allowances and $10 million for other charges.
Fiscal 2011
At the end of the second quarter of 2010, our HzERM software product became generally available. In October 2010, we
decreased our estimated revenues over the next 24 months for our HzERM software product and as a result, concluded that
the estimated future revenues, net of estimated related costs, were insufficient to recover its carrying value. Accordingly, we
recorded a $72 million non-cash impairment charge in the second quarter of 2011 to reduce the carrying value of the software
product to its net realizable value. The charge was recorded in cost of sales within our consolidated statement of operations.
4. 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 impairment 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.
Refer to Financial Note 19, "Fair Value Measurements," for more information on this fair value measurement.