McKesson 2015 Annual Report Download - page 48

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
Segment Operating Profit, Corporate Expenses, Net and Interest Expense:
Years Ended March 31, Change
(Dollars in millions) 2015 2014 2013 2015 2014
Segment Operating Profit (1)
Distribution Solutions $3,047 $2,472 $2,195 23% 13%
Technology Solutions 438 448 330 (2) 36
Subtotal 3,485 2,920 2,525 19 16
Corporate Expenses, Net (454) (449) (335) 1 34
Interest Expense (374) (300) (240) 25 25
Income From Continuing Operations Before
Income Taxes $2,657 $2,171 $1,950 22% 11%
Segment Operating Profit Margin
Distribution Solutions 1.73% 1.84% 1.84% (11)bp — bp
Technology Solutions 14.27 13.45 10.48 82 297
(1) Segment operating profit includes gross profit, net of operating expenses, plus other income (loss), net, for
our two operating segments.
Segment Operating Profit:
Distribution Solutions: Operating profit increased over the last two years primarily reflecting growth in our
business and our business acquisitions. Operating profit margin for 2015 decreased from 2014 primarily due to
our acquisition of Celesio and the unfavorable impact from the newly launched drugs for Hepatitis C, partially
offset by our other mix of business. Operating profit margin in 2014 was flat compared to 2013 primarily
reflecting an increase in gross profit margin and the $191 million impairment charge on an equity investment
incurred in 2013, partially offset by higher operating expenses as a percentage of revenues, which included the
effects of our acquisitions. In 2015, 2014 and 2013, operating profit and operating profit margin were also
impacted by $150 million, $68 million and $72 million of reserve adjustments for estimated probable losses
related to our controlled substance distribution claims and Average Wholesale Price litigation.
Technology Solutions: Operating profit decreased slightly in 2015 and increased in 2014 compared to the
prior years. Operating profit margin increased in 2015 primarily due to lower operating expenses as a percentage
of revenues, partially offset by a decline in gross profit margin. Operating profit margin increased in 2014
primarily due to an increase in gross profit margin and a decrease in operating expenses as a percentage of
revenues. In 2015, 2014 and 2013, operating profit and operating profit margin were impacted by $34 million,
$57 million and $46 million of charges associated with a depreciation and amortization catch-up related to the
prior year, and product alignment and impairment charges.
Corporate: Corporate expenses, net, increased in 2015 and 2014 primarily due to higher operating expenses,
partially offset by higher other income. Corporate expenses, net, for 2013 also included the $81 million gain on
business combination.
Interest Expense: Interest expense increased over the last two years primarily due to the March 2014
issuance of $4.1 billion of new debt to fund the acquisition of Celesio and due to interest on Celesio’s debt.
Interest expense for 2014 also included $46 million of bridge loan fees associated with the initial funding of the
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