McKesson 2014 Annual Report Download - page 33

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
30
RESULTS OF OPERATIONS
Overview:
(Dollars in millions, except per share data) Years Ended March 31, Change
2014 2013 2012 2014 2013
Revenues $ 137,609 $ 122,069 $ 122,321 13 % — %
Gross Profit $ 8,309 $ 6,848 $ 6,402 21 % 7 %
Operating Expenses $ 5,942 $ 4,523 $ 4,278 31 6
Income from Continuing Operations Before Income
Taxes $ 2,096 $ 1,928 $ 1,893 9 2
Income Tax Expense (742)(581)(514) 28 13
Income from Continuing Operations 1,354 1,347 1,379 1 (2)
Income (Loss) from Discontinued Operations, Net of
Tax (96)(9) 24 NM NM
Net Income 1,258 1,338 1,403 (6)(5)
Net Loss Attributable to Noncontrolling Interests 5 — — — —
Net Income Attributable to McKesson Corporation $ 1,263 $ 1,338 $ 1,403 (6)(5)
Diluted Earnings (Loss) Per Common Share
Attributable to McKesson Corporation
Continuing Operations $ 5.83 $ 5.62 $ 5.49 4 % 2 %
Discontinued Operations (0.42)(0.03) 0.10 NM NM
Total $ 5.41 $ 5.59 $ 5.59 (3) —
Weighted Average Diluted Common Shares 233 239 251 (3) % (5) %
NM - not meaningful
Revenues for 2014 increased from 2013 primarily due to market growth, reflecting growing drug utilization and price increases,
our acquisitions of Celesio AG (“Celesio”) and PSS World Medical, Inc. (“PSS World Medical”) which were completed in February
2014 and 2013, and our mix of business. Revenues for 2014 were also impacted by price deflation associated with brand to generics
drug conversion. Revenues for 2013 approximated 2012 primarily reflecting market growth, net of price deflation.
Gross profit and gross profit margin increased in 2014 and 2013 primarily due to our business acquisitions, growth in sales
of higher margin generic drugs, higher buy margin and our mix of business, partially offset by a decrease in sell margin. Additionally,
2014 gross profit was impacted by LIFO-related inventory charges of $311 million.
Operating expenses increased in 2014 and 2013 primarily due to our business acquisitions, including increases in acquisition-
related expenses and higher intangible asset amortization, and higher compensation and benefit costs. Operating expenses in 2013
were favorably impacted by an $81 million non-cash gain on business combination and lower Average Wholesale Price (“AWP”)
litigation charges, partially offset by a $40 million charge for a legal dispute and a $36 million charge for goodwill impairment.
AWP litigation charges were $68 million, $72 million and $149 million in 2014, 2013 and 2012.
Income from continuing operations before income taxes increased in 2014 and 2013 reflecting higher gross profit, partially
offset by higher operating and interest expenses. Increased interest expense in 2014 was primarily attributable to our acquisition
of Celesio. Additionally, in 2013 we committed to a plan to sell our 49% equity interest in Nadro, S.A. de C.V (“Nadro”) and
recorded a pre-tax non-cash impairment charge of $191 million reducing the investment’s carrying value to its estimated fair value.
Nadro was sold in 2014 with no material gain or loss on its disposition.