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McKESSON CORPORATION
FINANCIAL REVIEW
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
Management’s discussion and analysis of financial condition and results of operations, referred to as the
Financial Review, is intended to assist the reader in the understanding and assessment of significant changes and
trends related to the results of operations and financial position of the Company together with its subsidiaries. This
discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying
financial notes. The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all
references in this document to a particular year shall mean the Company’s fiscal year.
We conduct our business through two operating segments: Distribution Solutions and Technology Solutions.
See Financial Note 22, “Segments of Business,” to the accompanying consolidated financial statements for a
description of these segments.
RESULTS OF OPERATIONS
Overview:
Years Ended March 31,
(In millions, except per share data) 2009 2008 2007
Revenues $ 106,632 $ 101,703 $ 92,977
Litigation Charge (Credits), Net 493 (5) (6)
Income from Continuing Operations Before Income
Taxes $ 1,064 $ 1,457 $ 1,297
Income Tax Provision (241) (468) (329)
Income from Continuing Operations 823 989 968
Discontinued Operations, Net - 1 (55)
Net Income $ 823 $ 990 $ 913
Diluted Earnings Per Share
Continuing Operations $ 2.95 $ 3.32 $ 3.17
Discontinued Operations - - (0.18)
Total $ 2.95 $ 3.32 $ 2.99
Weighted Average Diluted Shares 279 298 305
Revenues increased 5% to $106.6 billion and 9% to $101.7 billion in 2009 and 2008. The increase in revenues
primarily 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 May 2008. Revenues
for 2008 also benefited from our acquisitions of OTN and Per-Se Technologies, Inc. (“Per-Se”) in January 2007.
Gross profit increased 7% to $5.4 billion and 16% to $5.0 billion in 2009 and 2008. As a percentage of
revenues, gross profit increased 11 basis points (“bp”) to 5.04% and 27 bp to 4.93% in 2009 and 2008. The increase
in our 2009 gross profit margin was primarily due to an improvement in our Distribution Solutions segment margin,
partially offset by a decline in our Technology Solutions segment margin. Gross profit margin increased in 2008
primarily reflecting a greater proportion of higher margin Technology Solutions products and an improvement in our
Distribution Solutions segment margin.
Operating expenses were $4.2 billion, $3.5 billion and $3.1 billion in 2009, 2008 and 2007. Operating expenses
increased primarily due to additional expenses incurred to support our sales growth, expenses associated with our
business acquisitions and higher employee compensation expenses. In addition, operating expenses for 2009
include a pre-tax charge of $493 million for the Average Wholesale Price (“AWP”) Litigation as further discussed
under the caption “Operating Expenses” in this Financial Review.