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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
32
Operating Expenses:
Years Ended March 31,
(Dollars in millions) 2009 2008 2007
Operating Expenses
Distribution Solutions (1) $ 2,777 $ 2,138 $ 1,896
Technology Solutions 1,096 1,115 884
Corporate 309 283 294
Subtotal 4,182 3,536 3,074
Securities Litigation credits, net - (5) (6)
Total $ 4,182 $ 3,531 $ 3,068
Operating Expenses as a Percentage of Revenues
Distribution Solutions 2.68% 2.17% 2.09%
Technology Solutions 35.77 37.37 39.48
Total 3.92 3.47 3.30
(1) Operating expenses for 2009 include the $493 million AWP Litigation charge.
Operating expenses increased 18% to $4.2 billion in 2009 and 15% to $3.5 billion in 2008. Operating expenses
for 2009 include a pre-tax charge of $493 million for the AWP Litigation. Excluding this charge, 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 2009, we recorded a $493 million charge for the AWP Litigation. As discussed in Financial Note 18, “Other
Commitments and Contingent Liabilities,” to the accompanying consolidated financial statements, we reached an
agreement to settle all private party claims relating to First DataBank, Inc.’s published drug reimbursement
benchmarks for $350 million. The settlement terms, which are subject to final court approval, include an express
denial of liability of any kind. We also recorded a reserve for pending and expected AWP-related claims by public
payors, which is currently estimated to be $143 million.
The combination of the AWP settlement for all private party claims and the decision by us to establish an
estimated reserve for the pending and expected AWP-related claims by public payors resulted in a pre-tax, non-cash
charge of $493 million ($311 million after-tax). We do not currently expect to have difficulties funding the
settlement payments associated with the claims by private parties and any settlement or other resolution of the
claims by public payors.
In 2009, 2008 and 2007, we recorded share-based compensation expense of $99 million, $91 million and $60
million. At the beginning of our fiscal 2007, we adopted Statement of Financial Accounting Standards (“SFAS”)
No. 123(R), “Share-Based Payment,” which requires the recognition of expense resulting from transactions in which
we acquire goods and services by issuing our shares, share options or other equity instruments. Due to the
accelerated vesting of share-based awards prior to 2007, share-based compensation expense has increased over the
past two years as share-based compensation is granted and amortized over the requisite service period. The rate of
increase from 2009 and 2008 was mitigated by a decrease in our stock price and a change in terms of the grants.
Share-based compensation charges are affected by a number of variables as further described under the caption
“Critical Accounting Policies and Estimates” included in this financial 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 Report on Form 10-K.