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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
36
In 2009, other income, net included a pre-tax impairment charge of $63 million ($60 million after-tax) on two
equity-held investments (as further described below) and a pre-tax gain of $24 million ($14 million after-tax) from
the sale of our 42% equity interest in Verispan, LLC (“Verispan”). The impairment charge and the gain on sale of
our investment in Verispan were both recorded within our Distribution Solutions segment.
We evaluate our investments for impairment when events or changes in circumstances indicate that the carrying
values of such investment may have experienced an other-than-temporary decline in value. In 2009, we determined
that the fair value of our interest in Parata Systems, LLC (“Parata”) was lower than its carrying value and that such
impairment was other-than-temporary. Fair value was determined using a discounted cash flow analysis based on
estimated future results and market capitalization rates. We determined the impairment was other-than-temporary
based on our assessment of all relevant factors including deterioration in the investee’s financial condition and weak
market conditions. As a result, we recorded a pre-tax impairment of $58 million ($55 million after-tax) on this
investment which is recorded as other income, net in the consolidated statements of operations within our
Distribution Solutions segment. Our investment in Parata is accounted for under the equity method of accounting.
In 2009, we also recorded a pre-tax impairment of $5 million ($5 million after-tax) on another equity-held
investment within our Distribution Solutions segment.
Segment Operating Profit and Corporate Expenses:
Years Ended March 31,
(Dollars in millions)
2011
2010
2009
Segment Operating Profit
(1)
Distribution Solutions
$
(2)
1,897
$
1,988
$
1,158
Technology Solutions
301
385
334
Subtotal
2,198
2,373
1,492
Corporate Expenses, Net
(341)
(342)
(284)
Litigation Credit, Net
—
20
—
Interest Expense
(222)
(187)
(144)
Income from Continuing Operations Before Income
Taxes
$
1,635
$
1,864
$
1,064
Segment Operating Profit Margin
Distribution Solutions
1.74%
1.88%
1.12%
Technology Solutions
9.42
12.32
10.90
(1) Segment operating profit includes gross profit, net of operating expenses, plus other income (expense), net for our two
operating segments.
(2) Operating expenses for 2011 and 2009 for our Distribution Solutions segment included $213 million and $493 million of
AWP litigation charges.
Operating profit margin for our Distribution Solutions segment decreased in 2011 compared to 2010 primarily
due to higher operating expenses as a percentage of revenue, including a $213 million AWP litigation charge,
partially offset by a higher gross profit margin, which included a $51 million antitrust settlement.
Operating profit margin for our Distribution Solutions segment increased in 2010 compared to 2009 primarily
due to a higher gross profit margin, lower operating expenses as a percentage of revenues and higher other income.
Results for 2010 included the $17 million gain on sale of MLS. Results for 2009 included the $493 million AWP
litigation charge, $63 million of charges to write-down two equity-held investments and a $24 million gain on the
sale of the segment’s 42% equity investment in Verispan.
Operating profit margin in our Technology Solutions segment decreased in 2011 compared to 2010 primarily
reflecting a decrease in gross profit margin, which included the $72 million asset impairment charge and an increase
in operating expenses as a percentage of revenues. Operating profit margin in our Technology Solutions segment
increased in 2010 compared to 2009 primarily due to lower operating expenses as a percentage of revenues and an
improvement in gross profit margin.