McKesson 2014 Annual Report Download - page 78

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
75
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.
5. Impairment and Sale of an Equity Investment
During 2013, 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 reflected 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), were included in Accumulated Other
Comprehensive Income on our consolidated balance sheet at March 31, 2013. The impairment charge was recorded in impairment
of an equity investment in the consolidated statements of operations within our Distribution Solutions segment. Refer to Financial
Note 19, “Fair Value Measurements,” for more information on this fair value measurement.
In September 2013, we completed the sale of our 49% equity interest in Nadro which resulted in no material gain or loss.
Under the terms of the agreement, we received $41 million in total cash consideration. There was no material gain or loss on the
disposition based on the adjusted net realizable value of the investment at the time of the sale. Prior to the sale, our investment in
Nadro was accounted for under the equity method of accounting within our Distribution Solutions segment.
6. Share-Based Compensation
We provide share-based compensation to our employees, officers and non-employee directors, including stock options, an
employee stock purchase plan, restricted stock units (“RSUs”) and performance-based restricted stock units (“PeRSUs”)
(collectively, “share-based awards”). Most of our share-based awards are granted in the first quarter of each fiscal year.
Compensation expense for the share-based awards is recognized for the portion of awards ultimately expected to vest. We
estimate the number of share-based awards, which will ultimately vest primarily based on historical experience. The estimated
forfeiture rate established upon grant is re-assessed throughout the requisite service period and is adjusted when actual forfeitures
occur. The actual forfeitures in future reporting periods could be higher or lower than current estimates.
The compensation expense recognized has been classified in the consolidated statements of operations or capitalized in the
consolidated balance sheets in the same manner as cash compensation paid to our employees. There was no material share-based
compensation expense capitalized as part of the cost of an asset in 2014, 2013 and 2012.