McKesson 2008 Annual Report Download - page 53

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
46
Historically, we have provided contributions for our profit sharing investment plan (“PSIP”) for U.S. employees
primarily through a leveraged employee stock ownership plan (“ESOP”). At March 31, 2008, almost all of the 24
million common shares in the ESOP had been allocated to plan participants. In 2008, 2007 and 2006, we granted 1
million shares per year to plan participants. As a result, we will need to fund most of our future PSIP contributions
with cash or treasury shares. In 2008, had we paid cash for our PSIP contributions, such contributions would have
amounted to $53 million.
Selected Measures of Liquidity and Capital Resources:
March 31,
(Dollars in millions) 2008 2007 2006
Cash and cash equivalents $ 1,362 $ 1,954 $ 2,139
Working capital 2,438 2,730 3,527
Debt, net of cash and cash equivalents 435 4 (1,148)
Debt to capital ratio (1) 22.7% 23.8% 14.4%
Net debt to net capital employed (2) 6.6% 0.1% (24.1)%
Return on stockholders’ equity (3) 15.6% 15.2% 13.1%
(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, divided by a five-quarter average of stockholders’ equity.
As of March 31, 2008, a significant portion of our cash and cash equivalents are on deposit with foreign
financial institutions and are used to fund operations.
Working capital primarily includes cash, receivables and inventories, net of drafts and accounts payable and
other liabilities. Our Distribution 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 and new customer build-up requirements. Consolidated
working capital at March 31, 2008 decreased compared with that of the prior year end. Working capital was
negatively impacted by decreases in cash and cash equivalents and net financial inventory (inventory, net of drafts
and accounts payable) as well as an increase in other accrued liabilities. These decreases in working capital were
partially offset by an increase in account receivables and the one-time benefit associated with a $420 million
reclassification of short-term tax liabilities to long-term liabilities as a result of our implementation of FIN No. 48.
In 2007, our working capital decreased primarily as a result of increases in other liabilities and deferred revenue.
Net financial inventory resulted in a small increase to working capital in 2007.
Our ratio of net debt to net capital employed increased in 2008 primarily reflecting an increase in net debt (i.e.,
a decrease in cash and cash equivalents as well as long-term debt). Our ratio of net debt to net capital employed
increased in 2007 primarily due to our issuance of $1.0 billion of long-term debt in relation to the Per-Se acquisition.
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 23, 2008, and was paid
on April 1, 2008 to stockholders of record at the close of business on March 3, 2008. In 2008, we paid total cash
dividends of $70 million. The Company anticipates that it will continue to pay quarterly cash dividends in the
future. In April 2008, the Board approved a change in the Company’ s dividend policy by increasing the amount of
the Company’ s quarterly dividend from six cents to twelve cents per share, which will apply to ensuing quarterly
dividend declarations until further action by the Board. 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.