McKesson 2006 Annual Report Download - page 46

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
The Company’s Board of Directors (the “Board”) approved share repurchase plans in October 2003, August 2005, December 2005 and
January 2006. The plans permitted the Company to repurchase up to a total of $1 billion ($250 million per plan) of the Company’s common
stock. Under these plans, we repurchased 19 million shares for $958 million during 2006, made no repurchases in 2005 and repurchased
5 million shares for $157 million in 2004. As a result of these repurchases, less than $1 million of the plans remain available. Repurchased
shares will be used to support our stock-based employee compensation plans and for other general corporate purposes. Stock repurchases may
be made in open market or private transactions. In April 2006, the Board approved an additional share repurchase plan of up to $500 million of
the Company’s common stock.
Selected Measures of Liquidity and Capital Resources:
Working capital primarily includes cash, receivables and inventories, net of drafts and accounts payable, deferred revenue and the Securities
Litigation and other accruals. Our Pharmaceutical Solutions segment requires a substantial investment in working capital that is susceptible to
large variations during the year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of
sales activity, new customer build-up requirements and the number and timing of new fee-based arrangements with pharmaceutical
manufacturers. Our working capital has decreased primarily as a result of a decrease in our net financial inventory, partially offset by
improvements in our cash and cash equivalent balances and additionally, for 2005, due to our Securities Litigation accrual. Improvements in
our net financial inventory primarily reflect a better alignment of our purchases with customer demand for our U.S. pharmaceutical distribution
business.
Our ratio of net debt to net capital employed declined as growth in our operating profit was in excess of the growth in working capital and
other investments needed to fund increases in revenue.
The Company has paid quarterly cash dividends at the rate of $0.06 per share on its common stock since the fourth quarter of 1999. A
dividend of $0.06 per share was declared by the Board on January 25, 2006, and was paid on April 3, 2006 to stockholders of record at the
close of business on March 1, 2006. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the
payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company’s future earnings,
financial condition, capital requirements and other factors.
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March 31,
(Dollars in millions) 2006 2005 2004
Cash and cash equivalents $2,142 $1,800 $708
Working capital 3,404 3,570 3,616
Debt net of cash and cash equivalents (1,151) (589)777
Debt to capital ratio (1) 14.4% 18.7% 22.3%
Net debt to net capital employed (2) (24.2)% (12.6)% 13.1%
Return on stockholders’ equity (3) 13.1% (3.0)% 13.4%
(1) Ratio is computed as total debt divided by total debt and stockholders’ equity.
(2) Ratio is computed as total debt, net of cash and cash equivalents (“net debt”), divided by net debt and stockholders’ equity (“net capital
employed”).
(3) Ratio is computed as net income (loss), divided by a five-quarter average of stockholders’ equity.