McKesson 2016 Annual Report Download - page 47

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
2016 vs. 2015: Gross profit margin benefited from the sale of our nurse triage business, transitioning of our
workforce business within our International Technology business to a third party, and higher pull-through of
deferred revenue. These increases were partially offset by $49 million of pre-tax reduction-in-force severance
charges, including charges associated with the Cost Alignment Plan. Additionally, in 2015 we recorded a
$34 million pre-tax non-cash charge representing a catch-up in depreciation and amortization expense associated
with our workforce business within our International Technology business. This business, which was previously
designated as a discontinued operation, was reclassified to a continuing operation in 2015 when we decided to
retain the business.
2015 vs. 2014: In 2015, gross profit margin was negatively impacted by the $34 million non-cash
depreciation and amortization charge, partially offset by a decrease in product alignment charges. In 2014, we
recorded $57 million of pre-tax product alignment charges, which primarily relate to employee severance and
asset impairments. Charges were recorded in our 2014 financial results as follows: $34 million in cost of sales
and $23 million in operating expenses. Additionally, gross profit margin was favorably impacted by the planned
elimination of a product line.
Operating Expenses:
Years Ended March 31, Change
(Dollars in millions) 2016 2015 2014 2016 2015
Operating Expenses
Distribution Solutions (1) (2) (3) $6,436 $6,938 $4,301 (7)% 61%
Technology Solutions (1) (2) 951 1,039 1,161 (8) (11)
Corporate 484 466 451 4 3
Total $7,871 $8,443 $5,913 (7)% 43%
Operating Expenses as a Percentage of Revenues
Distribution Solutions 3.42% 3.94% 3.21% (52)bp 73bp
Technology Solutions 32.96 33.85 34.86 (89) (101)
Total 4.12 4.72 4.30 (60) 42
(1) Operating expenses for 2016 include pre-tax charges associated with the Cost Alignment Plan of
$156 million, $30 million and $17 million within our Distribution Solutions and Technology Solutions
segments, and Corporate.
(2) Operating expenses for 2016 include pre-tax gains of $52 million from the sale of our ZEE Medical business
within our Distribution Solutions segment and $51 million from the sale of our nurse triage business within
our Technology Solutions segment.
(3) Operating expenses for 2015 and 2014 include pre-tax claim and litigation charges of $150 million and
$68 million.
Operating expenses for 2016 decreased 7% and increased 43% in 2015 compared to the same periods a year
ago. Excluding unfavorable foreign currency effects of 5%, operating expenses decreased 2% for 2016.
On March 14, 2016, the Company committed to a restructuring plan to lower its operating costs, as
previously discussed. The Cost Alignment Plan primarily consists of a reduction in workforce and business
process initiatives that will be substantially implemented prior to the end of 2019. Business process initiatives
41