McKesson 2013 Annual Report Download - page 98

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
Assets Measured at Fair Value on a Nonrecurring Basis
We measure certain long-lived assets at fair value on a nonrecurring basis when they are deemed to be other-than-
temporarily impaired. If the cost of an investment exceeds its fair value, we evaluate, among other factors, our intent to hold
the investment, general market conditions, the duration and extent to which the fair value is less than cost and the financial
outlook for the industry and location. An impairment charge is recorded when the cost of the asset exceeds its fair value and
this condition is determined to be other-than-temporary.
For the year ended March 31, 2013, assets measured at fair value on a nonrecurring basis consisted of our investment in
Nadro and goodwill for a reporting unit within our Technology Solutions segment. Both of these assets were measured using
Level 3 inputs. There were no liabilities measured at fair value on a nonrecurring basis for the year ended March 31, 2013.
There were no assets or liabilities measured at fair value on a nonrecurring basis for the year ended March 31, 2012.
Impairment of an Equity Investment:
As discussed in Financial Note 4, “Impairment of an Equity Investment,” based on a recent evaluation we committed to a
plan to sell our investment in Nadro and in the fourth quarter of 2013 recorded an impairment charge of $191 million to
reduce the carrying value to fair value. Fair value of our investment in Nadro was determined using income and market
valuation approaches. Under the income approach, we used a discounted cash flow (“DCF”) analysis based on estimated
future results. This valuation approach is considered a Level 3 fair value measurement due to the use of significant
unobservable inputs related to the timing and amount of future cash flows based on projections of revenues and operating
costs and discounting those cash flows to their present value. The key inputs and assumptions of the DCF method are the
projected cash flows, the terminal value of the business and the discount rate. The key inputs for the market valuation
approach were Nadro's fiscal 2012 unaudited earnings before interest, depreciation and amortization ("EBITDA") and an
EBITDA multiple based on similar guideline U.S. pharmaceutical companies whose securities are actively traded in public
markets. This valuation approach is considered a Level 3 fair value measurement. Finally, we evaluated the fair values under
both valuation methods and concluded on an average of the two methods.
Goodwill:
As discussed in Financial Note 3, "Asset Impairments and Product Alignment Charges," in 2013 we recorded a goodwill
impairment charge of $36 million in one of Technology Solutions segment's reporting units. The impairment charge was
primarily the result of a significant decrease in estimated revenues for a software product. As required under step two
goodwill impairment testing, we determined the fair value of the reporting unit and the fair value of the reporting units' net
assets, excluding goodwill but including any unrecognized intangible assets. The implied fair value of goodwill was then
calculated on a residual basis – that is, by subtracting the sum of the fair value of the net assets from the fair value of the
reporting unit. The impairment was equal to the carrying amount of goodwill.
Fair value assessment of the reporting unit as well as the reporting unit's net assets are considered a Level 3 measurement
due to the significance of unobservable inputs developed using company specific information. We used the market approach
and income approach (DCF model) to determine the fair value of the reporting unit and a DCF model to determine the fair
value of the reporting unit's most significant assets – intangibles. Additionally, fair values reflect a risk premium to the
discount rate due to the uncertainty in forecasting future cash flows.