McKesson 2014 Annual Report Download - page 75

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
72
On April 6, 2012, we purchased the remaining 50% ownership interest in our corporate headquarters building located in San
Francisco, California, for $90 million, which was funded from cash on hand. We previously held a 50% ownership interest and
were the primary tenant in this building. This transaction was accounted for as a step acquisition, which required that we re-
measure our previously held 50% ownership interest to fair value and record the difference between the fair value and carrying
value as a gain in the consolidated statements of operations. The re-measurement to fair value resulted in a non-cash pre-tax gain
of $81 million ($51 million after-tax), which was recorded as a gain on business combination within Corporate in the consolidated
statements of operations during the first quarter of 2013.
The total fair value of the net assets acquired was $180 million, which was allocated as follows: building and improvements
of $113 million and land of $58 million with the remainder allocated for settlement of our pre-existing lease and lease intangible
assets. The fair value of the building and improvements was determined based on current market replacement costs less depreciation
and unamortized tenant improvement costs, as well as, other relevant market information, which are considered to be Level 3
inputs under the fair value measurements and disclosure guidance. The building and improvements have a weighted average useful
life of 30 years. The fair value of the land was determined using comparable sales of land within the surrounding market, which
is considered to be a Level 2 input.
Fiscal 2012
On March 25, 2012, we acquired substantially all of the assets of Drug Trading Company Limited, the independent banner
business of the Katz Group Canada Inc. (“Katz Group”), and Medicine Shoppe Canada Inc., the franchise business of the Katz
Group (collectively, “Katz Assets”) for $925 million, which was funded from cash on hand. The acquisition of the assets from
the Drug Trading Company Limited consists of a marketing and purchasing arm of independently owned pharmacies in Canada.
The acquisition of Medicine Shoppe Canada Inc. consists of the franchise business of providing services to independent pharmacies
in Canada. Financial results for the acquired Katz Assets have been included in the results of operations within our Canadian
pharmaceutical distribution and services business, which is part of our Distribution Solutions segment, beginning in the first quarter
of 2013.
Included in the purchase price allocation are acquired identifiable intangibles of $442 million, the fair value of which was
determined by applying the income approach, using several unobservable inputs for projected cash flows and a discount rate.
These inputs are considered Level 3 inputs under the fair value measurement and disclosure guidance. Acquired intangibles
primarily consist of $318 million of service agreements and $114 million of trademarks and trade names. Service agreements,
trademarks and trade names and total acquired intangibles assets each has an estimated weighted average life of 20 years. The
excess of the purchase price over the net tangible and intangible assets of approximately $512 million was recorded as goodwill,
which primarily reflects the expected future benefits to be realized upon integrating the business. The amount of goodwill expected
to be deductible for tax purposes is $290 million.
During the last three years, we also completed a number of other smaller acquisitions within both of our operating segments.
Financial results for our business acquisitions have been included in our consolidated financial statements since their respective
acquisition dates. Purchase prices for our business acquisitions have been allocated based on estimated fair values at the date of
acquisition.