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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
71
The excess of the purchase price and the noncontrolling interests over the fair value of the acquired net assets has been allocated
to goodwill, which primarily reflects the expected future benefits to be realized upon integrating the business. Most of the goodwill
is not expected to be deductible for tax purposes.
Financial results for Celesio since the acquisition date are included in the results of operations for the fourth quarter and year
ended March 31, 2014 within our International pharmaceutical distribution and services business, which is part of our Distribution
Solutions segment. Celesio contributed $4.8 billion of revenues and immaterial net earnings from the date of the acquisition
through March 31, 2014.
The following table provides pro forma results of operations for the years ended March 31, 2014 and March 31, 2013, as if
Celesio had been acquired as of April 1, 2012. The pro forma results include the effect of preliminary purchase accounting
adjustments such as the estimated changes in depreciation and amortization expense on the acquired tangible and intangible assets,
financing costs, and related income tax expense. These adjustments are subject to change within the measurement period as our
fair values assessments are finalized. The pro forma results do not reflect any material cost of integration activities or benefits that
may result from synergies that may be derived from any integration activities. Accordingly, such amounts are not necessarily
indicative of the results if the acquisition had occurred on the date indicated or which may occur in the future.
Unaudited pro forma for the
Years Ended March 31,
(In millions) 2014 2013
Net revenues $ 161,483 $ 150,395
Net income from continuing operations attributable to McKesson (1) $ 1,493 $ 1,202
(1) Includes $89 million of after-tax acquisition-related expenses and a $28 million after-tax charge associated with our portion of the reversal of a step-up to
fair value of Celesio’s inventory at the date of acquisition. These expenses were incurred in 2014; for pro forma purposes, they are allocated to 2013.
Refer to Financial Note 14, “Debt and Financing Activities,” for additional information on the assumption and extinguishment
of acquired debt and long-term debt issued to fund a portion of this acquisition.
Fiscal 2013
On February 22, 2013, we acquired all of the outstanding shares of PSS World Medical, Inc. (“PSS World Medical”) of
Jacksonville, Florida for $29.00 per share plus the assumption of PSS World Medical’s debt, or approximately $1.9 billion in
aggregate, consisting of cash consideration of $1.3 billion, net of cash acquired, and the assumption of long-term debt with a fair
value of $0.6 billion. The cash paid at acquisition was funded from cash on hand and the issuance of long-term debt. PSS World
Medical markets and distributes medical products and services throughout the United States. The acquisition of PSS World Medical
expands our existing Medical-Surgical business.
Included in the purchase price allocation are acquired identifiable intangibles of $568 million, the fair value of which was
primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and
a discount rate. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance. Acquired
intangibles primarily consist of $539 million of customer lists and $15 million of trademarks and trade names. The estimated
weighted average lives of the customer lists, trademarks and trade names and total intangible assets are nine years, two years and
nine years. The fair values of the debt acquired was determined using quoted market prices and other inputs that were derived
from available market information, which are considered to be Level 2 inputs under the fair value measurements and disclosure
guidance. Refer to Financial Note 14, “Debt and Financing Activities,” for additional information on the assumption and redemption
of acquired debt and long-term debt issued to fund a portion of this acquisition. The excess of the purchase price over the net
tangible and intangible assets of approximately $1,149 million was recorded as goodwill, which primarily reflects the expected
future benefits to be realized upon integrating the business. Most of the goodwill is not expected to be deductible for tax purposes.
Financial results for PSS World Medical since the acquisition date are included in the results of operations within our Medical-
Surgical distributions and services business, which is part of our Distribution Solutions segment beginning in the fourth quarter
of 2013.