McKesson 2015 Annual Report Download - page 44

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
In 2014, the segment recorded pre-tax charges totaling $57 million. These charges primarily consisted of
$35 million of product alignment charges, $15 million of integration-related expenses and $7 million of
reduction-in-workforce severance charges. Included in the total charge was $35 million for severance for
employees primarily in our research and development, customer services and sales functions, and $15 million for
asset impairments which primarily represents the write-off of deferred costs for a product that will no longer be
developed. Charges were recorded in our consolidated statement of operations as follows: $34 million in cost of
sales and $23 million in operating expenses.
In 2013, this segment recorded $46 million of non-cash pre-tax impairment charges. These charges were the
result of a significant decrease in estimated revenues for a software product. The charge included a $36 million
goodwill impairment to reduce the carrying value of goodwill within the applicable reporting unit to its implied
fair value. In addition, the goodwill had a nominal tax basis. This impairment charge was recorded in operating
expenses within our consolidated statement of operations. The balance of the charge represents a $10 million
impairment to reduce the carrying value of the unamortized capitalized software held for sale costs for this
product to its net realizable value. We concluded that the estimated future undiscounted revenues, net of
estimated related costs, were insufficient to recover its carrying value. This impairment charge was recorded in
cost of sales within our consolidated statement of operations.
Operating Expenses:
Years Ended March 31, Change
(Dollars in millions) 2015 2014 2013 2015 2014
Operating Expenses
Distribution Solutions $6,938 $4,301 $3,068 61% 40%
Technology Solutions 1,039 1,161 1,120 (11) 4
Corporate 466 451 346 3 30
Total $8,443 $5,913 $4,534 43% 30%
Operating Expenses as a Percentage of Revenues
Distribution Solutions 3.94% 3.21% 2.58% 73bp 63bp
Technology Solutions 33.85 34.86 35.56 (101) (70)
Total 4.72 4.30 3.71 42 59
Operating expenses increased over the last two years primarily due to our Distribution Solutions segment,
which includes our Celesio and PSSI business acquisitions.
Distribution Solutions
Distribution Solutions segment’s operating expenses and operating expenses as a percentage of revenues
increased over the last two years 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 2015 also included a pre-tax and after-tax $150 million charge associated with the settlement of
controlled substance distribution claims with the DEA, DOJ and various U.S. Attorney’s offices, and 2014 and
2013 operating expenses included $68 million and $72 million of charges associated with our AWP litigation.
Additionally, operating expenses for 2013 were negatively impacted by a $40 million charge for a legal dispute
in our Canadian business.
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