McKesson 2008 Annual Report Download - page 44

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
37
In 2005, our Acute Care business entered into an agreement with a third party vendor to sell the vendor’ s
proprietary software and services. The terms of the contract required us to prepay certain royalties. During the third
quarter of 2006, we ended marketing and sale of the software under the contract. As a result of this decision, we
recorded a $15 million pre-tax charge in the third quarter of 2006 to write-off the remaining balance of the prepaid
royalties.
In the second quarter of 2007, we also sold a wholly-owned subsidiary, Pharmaceutical Buyers Inc., for net cash
proceeds of $10 million. The divestiture resulted in an after-tax gain of $5 million resulting from the tax basis of the
subsidiary exceeding its carrying value. The gain on disposition was also recorded in the second quarter of 2007.
Financial results for this business, which were previously included in our Distribution Solutions segment, were not
material to our consolidated financial statements.
The results for discontinued operations for 2007 also include an after-tax gain of $6 million associated with the
collection of a note receivable from a business sold in 2003 and the sale of a small business.
In the second quarter of 2006, we sold our wholly-owned subsidiary, McKesson BioServices Corporation
(“BioServices”), for net cash proceeds of $63 million. The divestiture resulted in an after-tax gain of $13 million.
Financial results for this business, which were previously included in our Distribution Solutions segment, were not
material to our consolidated financial statements.
In accordance with SFAS No. 144, financial results for these businesses have been classified as discontinued
operations for all periods presented.
Net Income: Net income was $990 million, $913 million and $751 million in 2008, 2007 and 2006 and diluted
earnings per share was $3.32, $2.99 and $2.38. Excluding the Securities Litigation credits or charges, 2008 net
income and net income per diluted share would have been $987 million and $3.31, for 2007, $826 million and
$2.71, and for 2006, $781 million and $2.48.
A reconciliation between our net income per share reported under accounting standards generally accepted in
the United States (“GAAP”) and our earnings per diluted share, excluding charges for the Securities Litigation is as
follows:
Years Ended March 31,
(In millions except per share amounts) 2008 2007 2006
Net income, as reported $ 990 $ 913 $ 751
Exclude:
Securities Litigation charge (credit), net (5) (6) 45
Estimated income tax expense (benefit) 2 2 (15)
Income tax reserve reversal - (83) -
Securities Litigation charge (credit), net of tax (3) (87) 30
Net income, excluding Securities Litigation charge $ 987 $ 826 $ 781
Diluted earnings per common share, excluding Securities
Litigation charge (1) $ 3.31 $ 2.71 $ 2.48
Shares on which diluted earnings per common share,
excluding the Securities Litigation charge, were based 298 305 316
(1) For 2006, interest expense, net of related income taxes, of $1 million has been added to net income, excluding the Securities
Litigation charges, for purpose of calculating diluted earnings per share. This calculation also includes the impact of
dilutive securities (stock options, convertible junior subordinated debentures and restricted stock).