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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
Brazilian distribution business to its estimated fair value, less cost to sell. The fair value of this business was
determined using income and market valuation approaches. Under the income approach, we used a discounted
cash flow (“DCF”) analysis based on the 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. Under the market approach, we apply valuation multiples of reasonably similar
publicly traded companies to the operating data of the subject business to derive the estimated fair value. This
valuation approach is also considered a Level 3 fair value measurement. The key inputs for the market valuation
approach were revenues and a selection of market multiples. The ultimate loss from the sale of the business may
be higher or lower than our current assessment of the business’ fair value.
Fiscal 2014
As discussed in Financial Note 4, “Discontinued Operations,” during 2014, we recorded an $80 million non-
cash pre-tax and after-tax impairment charge to reduce the carrying value of our International Technology
business to its estimated fair value, less costs to sell. The impairment charge was primarily the result of the terms
of the preliminary purchase offers received for this business during 2014. Accordingly, the fair value
measurement is classified as Level 3 in the fair value hierarchy.
Fiscal 2013
As discussed in Financial Note 6, “Equity Investments,” during 2013, 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. The 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. 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. In September 2013, we completed the sale of our 49% interest
in Nadro which resulted in no material gain or loss.
As discussed in Financial Note 5, “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 of 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.
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