McKesson 2009 Annual Report Download

Download and view the complete annual report

Please find the complete 2009 McKesson annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

Annual Report
Fiscal Year Ended March 31, 2009

Table of contents

  • Page 1
    Annual Report Fiscal Year Ended March 31, 2009

  • Page 2
    ... significant change to healthcare, and we are uniquely positioned to make a difference while creating superior results for our customers, our suppliers, and our stockholders. FINANCIAL RESULTS REVENUES ( in billions) DILUTED EARNINGS PER SHARE* 2009 $106.6 2009 $4.07 2008 $101.7 2008 $3.31...

  • Page 3
    ...short-term effects of this downturn, most of our businesses executed extremely well, and I continue to be very optimistic about our long-term prospects due to our leadership in an attractive industry. Our Distribution Solutions segment, which includes the largest pharmaceutical wholesale business in...

  • Page 4
    ... customer accounts and expanded our solution footprint. We retained all of our national retail pharmacy customers, who increasingly benefit from our broad array of services, from pharmacy systems and centralized fulfillment, to claims processing, automation, and many other solutions designed to meet...

  • Page 5
    ... delayed technology purchases by some customers and a general easing of growth rates across the industry as the year progressed. We responded to these developments by managing expenses in disciplined and innovative ways, including cost containment initiatives and our Global Sourcing program, where...

  • Page 6
    ... value for our customers, our suppliers, and you, our stockholders. On behalf of the board of directors and McKesson's 32,500 employees worldwide, I thank you for your confidence and continued support. John H. Hammergren Chairman, President and Chief Executive Officer McKesson Corporation

  • Page 7
    ... A Delaware Corporation I.R.S. Employer Identification Number 94-3207296 McKesson Plaza One Post Street, San Francisco, CA 94104 Telephone (415) 983-8300 Securities registered pursuant to Section 12(b) of the Act: (Title of Each Class) (Name of Each Exchange on Which Registered) Common Stock, $0.01...

  • Page 8
    ......Controls and Procedures...Other Information...PART III 10. 11. 12. Directors, Executive Officers and Corporate Governance ...Executive Compensation...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...Certain Relationships and Related Transactions and...

  • Page 9
    ... CORPORATION PART I Item 1. General Business McKesson Corporation ("McKesson," the "Company," the "Registrant" or "we" and other similar pronouns), is a Fortune 15 corporation providing supply, information and care management products and services designed to reduce costs and improve quality...

  • Page 10
    ...tiered distribution network that supports best-in-class direct store delivery. EnterpriseRxâ„¢ - McKesson EnterpriseRxâ„¢ is a fully integrated and centrally hosted pharmacy management solution (Application Service Provider model). Built utilizing the latest technology, EnterpriseRx centralizes data...

  • Page 11
    ... brands. FrontEdgeâ„¢ - Strategic planning, merchandising and price maintenance program that helps independent pharmacies maximize store profitability. McKesson Home Health Care - Comprehensive line of more than 1,800 home health care products, including durable medical equipment, diabetes supplies...

  • Page 12
    ..., including physicians' offices, clinics and surgery centers (primary care), long-term care, occupational health facilities and homecare sites (extended care). Through a variety of technology products and services geared towards the supply chain, our Medical-Surgical Distribution business is focused...

  • Page 13
    ... a clinical data repository, clinical decision support, physician order entry, point-ofcare documentation with bar-coded medication administration, enterprise laboratory, radiology, pharmacy, surgical management, an emergency department solution and an ambulatory EHR system. Horizon Clinicals® also...

  • Page 14
    ...business and/or clinical process improvement and re-design as well as implementation, project management, technical and education services relating to all products in the Technology Solutions segment. Payor Group: The following suite of services and software products is marketed to payors, employers...

  • Page 15
    ...largest customers were approximately 49% of total accounts receivable. Accounts receivable from Caremark and Rite Aid were approximately 14% and 10% of total accounts receivable. Substantially all of these revenues and accounts receivable are included in our Distribution Solutions segment. Suppliers...

  • Page 16
    ... expenditures is important to the long-term success of this business. Additional information regarding our development activities is included in Financial Note 1, "Significant Accounting Policies," to the consolidated financial statements appearing in this Annual Report on Form 10-K. Environmental...

  • Page 17
    ... Vice President and General Counsel of McKesson Provider Technologies from February 2000 to March 2006. Service with the Company - 9 years. Executive Vice President, Chief Technology Officer and Chief Information Officer since April 2009; Executive Vice President, Chief Information Officer from July...

  • Page 18
    McKESSON CORPORATION PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, Issuer Purchases of Equity Securities and Stock Price Performance Graph (a) Market Information: The principal market on which the Company's common stock is traded is the New York Stock ...

  • Page 19
    ... the cumulative total stockholder return on the Company's common stock for the periods indicated with the Standard & Poor's 500 Index and the Value Line Healthcare Sector Index (composed of 154 companies in the health care industry, including the Company). $250.00 McKesson Corporation S&P 500 Index...

  • Page 20
    McKESSON CORPORATION Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of the Company's results of operations and financial condition are presented in the Financial Review section of this Annual Report on Form 10-K. ...

  • Page 21
    ...Secretary McKesson Corporation One Post Street, 35th Floor San Francisco, CA 94104 (800) 826-9360 The Company intends to disclose required information regarding any amendment to or waiver under the Code of Ethics referred to above by posting such information on our Web site within four business days...

  • Page 22
    ...to pay an exercise price to receive the shares subject to these awards. (2) Represents option and RSU awards, outstanding under the following plans: (i) 1994 Stock Option and Restricted Stock Plan; (ii) 1997 Non-Employee Directors' Equity Compensation and Deferral Plan; and (iii) the 2005 Stock Plan...

  • Page 23
    ... will be used to purchase shares of the Company's common stock. The purchase price of each share of the Company's common stock is based on 85% of the fair market value of each share on the last day of the applicable Purchase Period. In general, the maximum number of shares of common stock that may...

  • Page 24
    ... notes or supplementary financial information. Exhibits submitted with this Annual Report on Form 10-K as filed with the SEC and those incorporated by reference to other filings are listed on the Exhibit Index...Consolidated Financial Statements and Report of Independent Registered Public Accounting...

  • Page 25
    ... Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MCKESSON CORPORATION Dated: May 5, 2009 /s/ Jeffrey C. Campbell Jeffrey C. Campbell Executive Vice President and Chief Financial Officer On behalf of the Registrant and pursuant to the...

  • Page 26
    McKESSON CORPORATION SCHEDULE II SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT SCHEDULE VALUATION AND QUALIFYING ACCOUNTS For the Years Ended March 31, 2009, 2008 and 2007 (In millions) Additions Balance at Beginning of Year Charged to Costs and Expenses Charged to Other Accounts (3) Deductions ...

  • Page 27
    ... 2001. McKesson Corporation 1999 Stock Option and Restricted Stock Plan, as amended through May 26, 2004. McKesson Corporation 1997 Non-Employee Directors' Equity Compensation and Deferral Plan, as amended through January 29, 2003. McKesson Corporation Supplemental Profit Sharing Investment Plan, as...

  • Page 28
    ...to Awards Pursuant to the McKesson Corporation 2005 Management Incentive Plan, effective April 1, 2009. McKesson Corporation Long-Term Incentive Plan, as amended and restated on October 24, 2008 and effective as of January 1, 2009. McKesson Corporation Stock Purchase Plan, as amended through July 31...

  • Page 29
    ... several managing agents from time to time party to the Agreement, and Bank One, N.A. (Main Office Chicago), as collateral agent. Amended and Restated Credit Agreement, dated as of June 8, 2007 among the Company and McKesson Canada Corporation, collectively, the Borrowers, Bank of America, N.A., as...

  • Page 30
    ... Vice President and President, McKesson Technology Solutions. 10.28* Amended and Restated Employment Agreement, 10-Q dated as of November 1, 2008, by and between the Company and its Executive Vice President and Group President. Computation of Ratio of Earnings to Fixed Charges. List of Subsidiaries...

  • Page 31
    McKESSON CORPORATION INDEX TO CONSOLIDATED FINANCIAL INFORMATION Page 26 27 62 63 64 65 66 67 68 Five-Year Highlights Financial Review Management's Annual Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Financial Statements: ...

  • Page 32
    ... Position Working capital Days sales outstanding for: (1) Customer receivables Inventories Drafts and accounts payable Total assets Total debt, including capital lease obligations Stockholders' equity Property acquisitions Acquisitions of businesses, net Common Share Information Common shares...

  • Page 33
    ... reflects market growth rates in our Distribution Solutions segment, which accounted for 97% of our consolidated revenues. Revenues for 2009 also benefited from our acquisitions of Oncology Therapeutics Network ("OTN") in October 2007 and McQueary Brothers Drug Company ("McQueary Brothers") in...

  • Page 34
    ... Solutions U.S. pharmaceutical direct distribution & services U.S. pharmaceutical sales to customers' warehouses Subtotal Canada pharmaceutical distribution & services Medical-Surgical distribution & services Total Distribution Solutions Technology Solutions Services Software and software systems...

  • Page 35
    ... number of our large retail chain customers purchase products through both the Company's direct and warehouse distribution methods, the latter of which generally has a significantly lower gross profit margin due to the low cost-to-serve model. When evaluating and pricing customer contracts, we...

  • Page 36
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Canadian pharmaceutical distribution and services revenues for 2009 increased slightly primarily reflecting new and expanded business and market growth rates, which were almost fully offset by unfavorable foreign exchange rates and the loss of a ...

  • Page 37
    ...profit. The practice in the Distribution Solutions' distribution businesses is to pass on to customers published price changes from suppliers. Manufacturers generally provide us with price protection, which limits price-related inventory losses. Price declines on many generic pharmaceutical products...

  • Page 38
    ... review. As a result, actual future share-based compensation expense may differ from historical levels of expense. Additional information regarding our share based payments is also included in Financial Note 3, "Share-Based Payment," to the consolidated financial statements appearing in this Annual...

  • Page 39
    ... Litigation Action (refer to Financial Note 18, "Other Commitments and Contingent Liabilities," to the consolidated financial statements appearing in this Annual Report on Form 10-K). On April 27, 2009, the court issued an order approving the distribution of the settlement funds. At this time, we...

  • Page 40
    ... percentage of revenues increased primarily due to the AWP Litigation charge as well as additional costs incurred to support our sales volume growth. Share-based compensation expense for this segment was $26 million for 2009 and 2008 and $17 million for 2007. Technology Solutions segment's operating...

  • Page 41
    ... in our Technology Solutions segment increased over the last two years primarily due to a decrease in operating expenses as a percentage of revenues, partially offset by a decrease in gross profit margin. Operating profit margin for this segment has benefited from cost containment efforts. Corporate...

  • Page 42
    ..., was signed into law. The Stabilization Act extends the federal research and development credit to December 31, 2009. In 2009, we recorded a benefit to our income tax provision as a result of these research and development credits. In Canada, we received an assessment from the Canada Revenue Agency...

  • Page 43
    ...asset impairment charges and employee severance costs. The after-tax loss of $61 million for the business' disposition includes a $79 million non-tax deductible write-off of goodwill, as further described below. In connection with the divestiture, we allocated a portion of our Distribution Solutions...

  • Page 44
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) 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 accordance with SFAS No. 144, "...

  • Page 45
    .... Our Distribution Solutions segment acquired Sterling Medical Services, LLC ("Sterling,") which is based in Moorestown, New Jersey. Sterling is a national provider and distributor of disposable medical supplies, health management services and quality management programs to the home care market...

  • Page 46
    ... Company reviews accounts receivable aging, industry trends, customer financial strength, credit standing, historical write-off trends and payment history to assess the probability of collection. If the frequency and severity of customer defaults due to our customers' financial condition or general...

  • Page 47
    ... stated using the first-in, first-out ("FIFO") method. Technology Solutions segment inventories consist of computer hardware with cost determined by the standard cost method. Rebates, fees, cash discounts, allowances, chargebacks and other incentives received from vendors are generally accounted for...

  • Page 48
    ... decline in the Company's stock price and/or market capitalization for a sustained period of time. Impairment testing is conducted at the reporting unit level, which is generally defined as a component -- one level below our Distribution Solutions and Technology Solutions operating segments, for...

  • Page 49
    ... fair values of the Acute Care business and continuing businesses that were retained by the Company. Supplier Incentives: We receive fees for service and other incentives from our suppliers, such as volumerelated rebates and cash discounts, relating to the purchase or distribution of inventory. We...

  • Page 50
    ...the related tax impact. These variables include, but are not limited to, the volatility of our stock price, employee stock option exercise behavior, timing, number and types of annual share-based awards and the attainment of performance goals. As a result, the future share-based compensation expense...

  • Page 51
    ...our accounts receivable sales facility and short-term borrowings under the revolving credit facility and commercial paper, will be sufficient to fund our long-term and short-term capital expenditures, working capital and other cash requirements. In addition, from time to time, we may access the long...

  • Page 52
    ... authorized the repurchase of McKesson's common stock from time to time in open market or private transactions, which is described in more detail in Financial Note 19, "Stockholders' Equity," to the accompanying consolidated financial statements. During 2009, 2008 and 2007, the Company repurchased...

  • Page 53
    ...drafts and accounts payable) and 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...

  • Page 54
    ...in order to meet the security requirements for statutory licenses and permits, court and fiduciary obligations and our workers' compensation and automotive liability programs. Credit Resources: We fund our working capital requirements primarily with cash and cash equivalents, our accounts receivable...

  • Page 55
    ...which is a wholly-owned, bankruptcy-remote subsidiary of McKesson Corporation that is consolidated in our financial statements. This SPE then sells undivided interests in the receivables to third-party purchaser groups, each of which includes commercial paper conduits ("Conduits"), which are special...

  • Page 56
    ... fund a portion of our purchase of Per-Se. Commercial Paper We issued and repaid approximately $3.3 billion and $260 million in commercial paper during 2009 and 2008. There were no commercial paper issuances outstanding at March 31, 2009 and 2008. Our senior debt credit ratings from S&P, Fitch, and...

  • Page 57
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) RELATED PARTY BALANCES AND TRANSACTIONS Information regarding our related party balances and transactions is included in "Critical Accounting Policies and Estimates" appearing within this Financial Review and Financial Note 20, "Related Party ...

  • Page 58
    ...our pharmaceutical suppliers' pricing, selling, inventory, distribution or supply policies or practices, or changes in our customer mix could also significantly reduce our revenues and net income. Due to the diverse range of healthcare supply management and healthcare information technology products...

  • Page 59
    ...government-sponsored healthcare programs, (2) impose a number of restrictions upon referring physicians and providers of designated health services under Medicare and Medicaid programs and (3) prohibit the knowing submission of a false or fraudulent claim for payment to a federal health care program...

  • Page 60
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Claims Transmissions: Medical billing and collection activities are governed by numerous federal and state civil and criminal laws that pertain to companies that provide billing and collection services or that provide consulting services in ...

  • Page 61
    ... time decide to develop, for their own internal needs, supply management capabilities which would otherwise be provided by the segment. Price, quality of service, and in some cases, convenience to the customer are generally the principal competitive elements in this segment. Our Technology Solutions...

  • Page 62
    ..., patient care, financial, supply chain, strategic management software solutions and pharmacy automation to hospitals, physicians, homecare providers, retail and mail order pharmacies and payors. Challenges in integrating software products could impair our ability to attract and retain customers and...

  • Page 63
    ..., our Technology Solutions segment's business systems are intended to provide information for healthcare providers in providing patient care. Therefore, users of our systems have a greater sensitivity to errors than the general market for software products. Failure of a client's system to perform...

  • Page 64
    ... claims, particularly if the access interruption is associated with problems in the timely delivery of medical care. We must maintain disaster recovery and business continuity plans that rely upon third-party providers of related services and if those vendors fail us at a time that our center...

  • Page 65
    ... system, or modify or add business processes, are major decisions for healthcare organizations. Many of the solutions we provide typically require significant capital expenditures and time commitments by the customer. Recent legislation that provides incentives to purchase health information systems...

  • Page 66
    ...the tax laws and regulations of the United States federal, state and local governments and of many international jurisdictions. From time to time, various legislative initiatives may be proposed that could adversely affect our tax positions. There can be no assurance that our effective tax rate will...

  • Page 67
    ... able to pay, or may delay payment of accounts receivable owed to us and suppliers may restrict credit, impose different payment terms or be unable to make payments due to us for fees, returned products or incentives. Any inability of customers to pay us for our products and services or any demands...

  • Page 68
    ...The management of McKesson Corporation is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). With the participation of the Chief Executive Officer and the Chief Financial...

  • Page 69
    ... Income Taxes- an interpretation of FASB Statement No. 109, on April 1, 2007 and Statement of Financial Accounting Standards ("SFAS") No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, on March 31, 2007. /S/ Deloitte & Touche LLP San Francisco, California May...

  • Page 70
    McKESSON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Years Ended March 31, 2008 $ 101,703 96,694 5,009 744 886 347 1,559 (5) 3,531 1,478 121 (142) 1,457 (468) 989 1 990 $ 2009 Revenues Cost of Sales Gross Profit Operating Expenses Selling Distribution ...

  • Page 71
    ... and accounts payable Deferred revenue Current portion of long-term debt Other accrued liabilities Total Long-Term Debt Other Noncurrent Liabilities Other Commitments and Contingent Liabilities (Note 18) Stockholders' Equity Preferred stock, $0.01 par value, 100 shares authorized, no shares issued...

  • Page 72
    ... CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended March 31, 2009, 2008 and 2007 (In millions except per share amounts) Common Additional Paid-in Other Stock Amount Capital Capital Shares Balances, March 31, 2006 Issuance of shares under employee plans Share-based compensation Tax benefit...

  • Page 73
    ... assets and liabilities, net of business acquisitions: Receivables Inventories Drafts and accounts payable Deferred revenue Taxes Consolidated Securities Litigation Action settlement payments Other Net cash provided by operating activities Investing Activities Property acquisitions Capitalized...

  • Page 74
    McKESSON CORPORATION FINANCIAL NOTES 1. Significant Accounting Policies McKesson Corporation ("McKesson," the "Company," or "we" and other similar pronouns) is a corporation providing supply, information and care management products and services designed to reduce costs and improve quality across ...

  • Page 75
    ... stated using the first-in, first-out ("FIFO") method. Technology Solutions segment inventories consist of computer hardware with cost determined by the standard cost method. Rebates, fees, cash discounts, allowances, chargebacks and other incentives received from vendors are generally accounted for...

  • Page 76
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Capitalized Software Held for Sale: Development costs for software held for sale, which primarily pertain to our Technology Solutions segment, are capitalized once a project has reached the point of technological feasibility. Completed projects are ...

  • Page 77
    ... from revenues. The revenues for our Distribution Solutions segment include large volume sales of pharmaceuticals to a limited number of large customers who warehouse their own product. We order bulk product from the manufacturer, receive and process the product through our central distribution...

  • Page 78
    ...performance goals under these contracts. Supplier Incentives: We generally account for fees for service and other incentives received from our suppliers, relating to the purchase or distribution of inventory, as a reduction to cost of goods sold. We consider these fees to represent product discounts...

  • Page 79
    ...which is a wholly-owned, bankruptcy-remote subsidiary of McKesson Corporation that is consolidated in our financial statements. This SPE then sells undivided interests in the receivables to third-party purchaser groups, each of which includes commercial paper conduits ("Conduits"), which are special...

  • Page 80
    ... receivables sold over the servicing period are insignificant. Servicing costs are recognized as incurred over the servicing period. See Financial Note 12, "Long-Term Debt and Other Financing," for additional information. Share-Based Payment: We account for all share-based payment transactions using...

  • Page 81
    ...FAS 140-4 and FIN No. 46(R)-8, "Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities." This FSP amends SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," and FIN No. 46...

  • Page 82
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Newly Issued Accounting Pronouncements: In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations." SFAS No. 141(R) amends SFAS No. 141, "Business Combinations" and provides revised guidance for recognizing and measuring ...

  • Page 83
    ...(In millions) Accounts receivable Inventory Goodwill Intangible assets Other assets Accounts payable and other liabilities Deferred tax liability Net assets acquired, less cash and cash equivalents $ $ 37 41 126 67 11 (60) (32) 190 Approximately $126 million of the purchase price allocation has...

  • Page 84
    McKESSON CORPORATION FINANCIAL NOTES (Continued) In 2008, we made the following acquisition: âˆ' On October 29, 2007, we acquired all of the outstanding shares of Oncology Therapeutics Network ("OTN") of San Francisco, California for approximately $519 million, including the assumption of debt and ...

  • Page 85
    .... Our Distribution Solutions segment acquired Sterling Medical Services, LLC ("Sterling") which is based in Moorestown, New Jersey. Sterling is a national provider and distributor of disposable medical supplies, health management services and quality management programs to the home care market...

  • Page 86
    ...because the effects were not material to the consolidated financial statements on either an individual or an aggregate basis. 3. Share-Based Payment We provide share-based compensation for our employees, officers and non-employee directors, including stock options, an employee stock purchase plan...

  • Page 87
    ...) RSUs and RS (1) PeRSUs (2) Stock options Employee stock purchase plan Share-based compensation expense Tax benefit for share-based compensation expense (3) Share-based compensation expense, net of tax (4) Impact of share-based compensation: Earnings per share Diluted Basic $ $ 2009 60 13...

  • Page 88
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Compensation expense for stock options is recognized on a straight-line basis over the requisite service period and is based on the grant-date fair value for the portion of the awards that is ultimately expected to vest. We continue to use the Black-...

  • Page 89
    ... RS and RSUs under our stock plans is determined by the product of the number of shares that are expected to vest and the grant date market price of the Company's common stock. The Compensation Committee determines the vesting terms at the time of grant. These awards generally vest in four years. We...

  • Page 90
    ... July 2008 Annual Meeting of Stockholders is delayed until the director is no longer performing services for the Company. For those RSUs granted subsequent to July 2008, the director may receive payment immediately or defer receipt of shares if they meet director stock ownership guidelines. At March...

  • Page 91
    ... 2009 as the performance goals have been achieved. Employee Stock Purchase Plan ("ESPP") The Company has an ESPP under which 16 million shares have been authorized for issuance. The ESPP allows eligible employees to purchase shares of our common stock through payroll deductions. The deductions occur...

  • Page 92
    ... of facility exit costs. In connection with our Per-Se acquisition within our Technology Solutions segment, we recorded a total of $19 million of employee severance costs and $3 million of facility exit and contract termination costs. In 2007, in connection with the Company's investment in Parata...

  • Page 93
    ... of $58 million ($55 million after-tax) on this investment which is recorded within other income, net in the consolidated statements of operations. Our investment in Parata is accounted for under the equity method of accounting within our Distribution Solutions segment. During the fourth quarter of...

  • Page 94
    ..., was signed into law. The Stabilization Act extends the federal research and development credit to December 31, 2009. In 2009, we recorded a benefit to our income tax provision as a result of these research and development credits. In Canada, we received an assessment from the Canada Revenue Agency...

  • Page 95
    ...tax return with the IRS, and over 1,200 returns with various state and foreign jurisdictions. Our income tax expense, deferred tax assets and liabilities reflect management's best assessment of estimated current and future taxes to be paid. The reconciliation between the Company's effective tax rate...

  • Page 96
    ... Deferred revenue Compensation and benefit-related accruals AWP Litigation accrual Loss and credit carryforwards Other Subtotal Less: valuation allowance Total assets Liabilities Basis difference for inventory valuation and other assets Basis difference for fixed assets and systems development costs...

  • Page 97
    ... 2009. $ $ $ $ $ $ $ $ $ $ In 2007, we sold our Distribution Solutions segment's Medical-Surgical Acute Care business to Owens & Minor, Inc. ("OMI") for net cash proceeds of approximately $160 million. Revenues associated with the Acute Care business prior to its disposition were $597 million...

  • Page 98
    ... 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...

  • Page 99
    ...net earnings per share in 2009, 2008 and 2007 as their exercise price was higher than the Company's average stock price. 9. Receivables, net March 31, (In millions) Customer accounts Other Total Allowances Net The allowances are primarily for uncollectible accounts and sales returns. $ $ 2009...

  • Page 100
    ... Balance, March 31, 2008 Goodwill acquired, net of purchase price adjustments Goodwill written off related to the sale of a business Foreign currency translation adjustments and other Balance, March 31, 2009 Information regarding intangible assets is as follows: $ $ $ Total 2,975 341 29 3,345...

  • Page 101
    ... obligation of the Company and ranks equally with all of the Company's existing and future unsecured and unsubordinated indebtedness outstanding from time to time. Each Series is governed by an indenture common to all Notes and an officers' certificate specifying certain terms of each Series. 95

  • Page 102
    ...by each of Fitch Ratings, Moody's Investors Service, Inc. and Standard & Poor's Ratings Services within a specified period, an offer will be made to purchase that Series from the holders at a price in cash equal to 101% of the then outstanding principal amount of that Series, plus accrued and unpaid...

  • Page 103
    ... employee's plan compensation and creditable service accrued to that date. The Company has made no annual contributions since this plan was frozen. The benefits for this defined benefit retirement plan are based primarily on age of employees at date of retirement, years of service and employees' pay...

  • Page 104
    McKESSON CORPORATION FINANCIAL NOTES (Continued) The projected unit credit method is utilized for measuring net periodic pension expense over the employees' service life for the U.S. pension plans. Unrecognized actuarial losses exceeding 10% of the greater of the projected benefit obligation and the...

  • Page 105
    ...rate of return assumption based on the historical experience of our portfolio and the review of projected returns by asset class on broad, publicly traded equity and fixed-income indices. Our target asset allocation was determined based on the risk tolerance characteristics of the plan and, at times...

  • Page 106
    McKESSON CORPORATION FINANCIAL NOTES (Continued) McKesson's U.S. defined benefit pension plans use a discount rate based on a yield curve approach. We use a portfolio of high quality corporate bonds rated AA or better whose maturity is timed with the expected payments of our plans. For March 31, ...

  • Page 107
    ... 2019. Expected benefit payments are based on the same assumptions used to measure the benefit obligations and include estimated future employee service. Expected contributions to be made for our postretirement welfare benefit plans are $15 million for 2010. Weighted-average discount rates used to...

  • Page 108
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Actuarial gain or loss for the postretirement welfare benefit plan is amortized to income over a three-year period. The assumed healthcare cost trends used in measuring the accumulated postretirement benefit obligation were 9% and 10% for prescription...

  • Page 109
    ...' compensation and automotive liability programs. Our software license agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe a third party's intellectual property rights. To date, we have not incurred any material costs as...

  • Page 110
    ...our customers who purchase our software and automation products also purchase annual maintenance agreements. Revenue from these maintenance agreements is recognized on a straight-line basis over the contract period and the cost of servicing product warranties is charged to expense when claims become...

  • Page 111
    ... State Court, Fulton County, Case No. 06-VS-096763-F). Plaintiffs allege fraud and deceit; additionally, plaintiff Green seeks indemnification in connection with a class action lawsuit, now settled, which was filed on behalf of participants in the McKesson Corporation Profit Sharing Investment Plan...

  • Page 112
    ... classes and is based on the same set of operative facts as the Private Payor RICO Action. The complaint purports to state claims against the Company for violation of the Sherman Act, 15 U.S.C. § 1, California Business & Professions Code § 16700 et seq., and antitrust laws for indirect purchasers...

  • Page 113
    ... Act, California's false claims act, California Business and Professions Code §§ 17200 and 17500 and seeking damages, treble damages, civil penalties, restitution, interest and attorneys' fees, all in unspecified amounts, San Francisco Health Plan, et al. v. McKesson Corporation, (Civil Action No...

  • Page 114
    ...'s Office AWP Investigation In June of 2007, the Company was informed that a qui tam action by an unknown relator was previously filed in the United States District Court in the District of New Jersey, purportedly on behalf of the United States, twelve states (California, Delaware, Florida, Hawaii...

  • Page 115
    ... was entered against us and one of our employees in the action captioned Roby v. McKesson HBOC, Inc. et al., (Superior Court for Yolo County, California, Case No. CV01-573). Former employee Charlene Roby ("Roby") brought claims for wrongful termination, disability discrimination and disability-based...

  • Page 116
    ... for pharmaceutical products; (4) we have received and have responded, or are in the process of responding to subpoenas and requests for information from a number of Offices of state Attorney Generals or other state agencies, relating to the pricing, including FDB's AWPs, for branded and generic...

  • Page 117
    ... have received claims and demands from governmental agencies relating to investigative and remedial actions purportedly required to address environmental conditions alleged to exist at eight sites where we, or entities acquired by us, formerly conducted operations and we, by administrative order or...

  • Page 118
    ...employee equity awards. (2) All of the shares purchased were part of the publicly announced programs. (3) The number of shares purchased reflects rounding adjustments. In July 2008, the Board authorized the retirement of shares of the Company's common stock that may be repurchased from time to time...

  • Page 119
    ... clinical auditing and compliance software businesses and our disease and medical management programs. The segment's customers include integrated delivery networks, hospitals, physician practices, home healthcare providers, retail pharmacies and payors from North America, the United Kingdom, Ireland...

  • Page 120
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Financial information relating to the reportable operating segments is presented below: Years Ended March 31, (In millions) 2009 2008 Revenues Distribution Solutions (1) U.S. pharmaceutical direct distribution & services $ 66,876 $ 60,436 $ U.S. ...

  • Page 121
    ... operations primarily consist of our operations in Canada, the United Kingdom, Ireland, other European countries, Asia Pacific and Israel. We also have an equity-held investment (Nadro) in Mexico. Net revenues were attributed to geographic areas based on the customers' shipment locations. 115

  • Page 122
    ..., except per share amounts) Fiscal 2009 Revenues $ Gross profit (1)(2)(3)(4) Net income Earnings per common share (1)(2)(3)(4) Diluted Basic Cash dividends per common share Market prices per common share High Low Fiscal 2008 Revenues Gross profit Income after income taxes Continuing operations...

  • Page 123
    ... CERTIFICATION PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John H. Hammergren, certify that: 1. 2. I have reviewed this annual report on Form 10-K of McKesson Corporation; Based on my knowledge...

  • Page 124
    ... CERTIFICATION PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Jeffrey C. Campbell, certify that: 1. 2. I have reviewed this annual report on Form 10-K of McKesson Corporation; Based on my knowledge...

  • Page 125
    Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of McKesson Corporation (the "Company") on Form 10-K for the year ended March 31, 2009 as filed with the Securities and Exchange ...

  • Page 126
    Appendix A Supplemental Information GAAP to Non-GAAP Reconciliation 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 adjustments for the litigation charge (credit) is ...

  • Page 127
    ... Office Center VII, 29th Floor, Jersey City, NJ 07310 acts as transfer agent, registrar, dividend-paying agent, and dividend reinvestment plan agent for McKesson Corporation stock and maintains all registered stockholder records for the Company. For information about McKesson Corporation stock...

  • Page 128
    McKesson Corporation One Post Street San Francisco, CA 94104 www.mckesson.com © 2009 McKesson Corporation. All rights reserved. CORP-02161-06-09