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Healthcare Technology Net Asset Exchange | 9 Months Ended
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Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract] |
Healthcare Technology Net Asset Exchange | Healthcare Technology Net Asset Exchange In the fourth quarter of 2017, we contributed the majority of our McKesson Technology Solutions businesses (“Core MTS Business”) to the newly formed joint venture, Change Healthcare, under the terms of a contribution agreement previously entered into between McKesson and Change Healthcare Holdings, Inc. (“Change”) and others including shareholders of Change. We retained our RelayHealth Pharmacy and Enterprise Information Solutions (“EIS”) businesses. The EIS business was subsequently sold to a third party in the third quarter of 2018. In exchange for the contribution, we own 70% of the joint venture with the remaining equity ownership held by shareholders of Change. The joint venture is jointly governed by us and shareholders of Change. Gain from Healthcare Technology Net Asset Exchange We accounted for this transaction as a sale of the Core MTS Business and a subsequent purchase of a 70% interest in the newly formed joint venture. Accordingly, in the fourth quarter of 2017, we deconsolidated the Core MTS Business and recorded a pre-tax gain of $3.9 billion (after-tax gain of $3.0 billion) in operating expenses. Additionally, in the first quarter of 2018, we recorded a pre-tax gain of $37 million (after-tax gain of $22 million) in operating expenses in the accompanying condensed consolidated statement of operations upon the finalization of net working capital and other adjustments. During the second quarter of 2018, we received $126 million in cash from Change Healthcare representing the final net working capital settlement and other adjustments. Equity Method Investment in Change Healthcare Our investment in the joint venture is accounted for using the equity method of accounting with a one-month reporting lag. We recorded our proportionate share of loss from Change Healthcare of $50 million and $162 million for the third quarter and first nine months of 2019, and $90 million and $271 million for the third quarter and first nine months of 2018. Our proportionate share of income or loss from this equity method investment includes transaction and integration expenses incurred by the joint venture and basis differences between the joint venture and McKesson including amortization of fair value adjustments primarily representing incremental intangible amortization and removal of profit associated with the recognition of deferred revenue. These amounts were recorded under the caption, “Loss from Equity Method Investment in Change Healthcare,” in our condensed consolidated statements of operations. At December 31, 201 8 and March 31, 2018, our carrying value of this equity method investment was $3,566 million and $3,728 million, which exceeded our proportionate share of the joint venture’s book value of net assets by approximately $4,226 million and $4,472 million, primarily reflecting equity method intangible assets, goodwill and other fair value adjustments. Related Party Transactions In connection with the transaction, McKesson, Change Healthcare and certain shareholders of Change entered into various ancillary agreements, including transition services agreements (“TSA”), a transaction and advisory fee agreement (“Advisory Agreement”) and certain other commercial agreements. Fees incurred or earned from Advisory Agreement were not material for the third quarters and first nine months of 2019 and 2018. Fees incurred or earned from TSA were $12 million and $48 million for the third quarter and first nine months of 2019 and $22 million and $69 million for the third quarter and first nine months of 2018. Transition service fees are included within operating expenses in our condensed consolidated statements of operations. Revenues recognized and expenses incurred under commercial arrangements with Change Healthcare were not material during the third quarters and first nine months of 2019 and 2018. At December 31, 2018 and March 31, 2018, receivables due from the joint venture were not material. Tax Receivable Agreement In connection with the net asset exchange transaction, we also entered into a tax receivable agreement (“TRA”) with the shareholders of Change. At March 31, 2018, we had a $90 million noncurrent liability payable to the shareholders of Change. During the second quarter of 2019, we renegotiated the terms of the TRA which resulted in the extinguishment and derecognition of the $90 million noncurrent liability. In exchange for the shareholders of Change agreeing to extinguish the liability, we agreed to an allocation of certain tax amortization that had the effect of reducing the amount of a distribution from Change Healthcare that would otherwise have been required to be made to the shareholders of Change. As a result of the renegotiation, McKesson was relieved from any potential future obligations associated with the noncurrent liability and recognized a pre-tax credit of $90 million ($66 million after-tax) in operating expenses in the accompanying condensed consolidated statement of operations in the second quarter of 2019. We had no outstanding payable balance to the shareholders of Change at December 31, 2018.

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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