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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
38
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, “Accounting for the Impairment or Disposal of Long-Lived Assets,”
financial results for these businesses have been classified as discontinued operations for all periods presented.
Net Income: Net income was $823 million, $990 million and $913 million in 2009, 2008 and 2007 and diluted
earnings per share was $2.95, $3.32 and $2.99. The net income and diluted earnings per share for 2009 included a
pre-tax charge of $493 million ($311 million after-tax) for the AWP Litigation as discussed in further detail under
the caption “Operating Expenses” in this financial review.
Weighted Average Diluted Shares Outstanding: Diluted earnings per share was calculated based on a weighted
average number of shares outstanding of 279 million, 298 million and 305 million for 2009, 2008 and 2007. The
decrease in the number of weighted average diluted shares outstanding over the past two years primarily reflects a
decrease in the number of common shares outstanding as a result of stock repurchased, partially offset by exercised
stock options.
International Operations
International operations accounted for 7.9%, 8.2% and 7.5% of 2009, 2008 and 2007 consolidated revenues.
International operations are subject to certain risks, including currency fluctuations. We monitor our operations and
adopt strategies responsive to changes in the economic and political environment in each of the countries in which
we operate. Additional information regarding our international operations is also included in Financial Note 22,
“Segments of Business,” to the accompanying consolidated financial statements.
Acquisitions and Investment
In 2009, we made the following acquisition:
−On May 21, 2008, we acquired McQueary Brothers of Springfield, Missouri for approximately $190 million.
McQueary Brothers is a regional distributor of pharmaceutical, health and beauty products to independent and
regional chain pharmacies in the Midwestern U.S. This acquisition expanded our existing U.S. pharmaceutical
distribution business. The acquisition was funded with cash on hand. Approximately $126 million of the
purchase price allocation has been assigned to goodwill, which primarily reflects the expected future benefits
from synergies to be realized upon integrating the business. Included in the purchase price allocation are
acquired identifiable intangibles of $61 million representing a customer relationship with a useful life of 7
years, a trade name of $2 million with a useful life of less than one year and a not-to-compete agreement of $4
million with a useful life of 4 years. Financial results for McQueary Brothers have been included within our
Distribution Solutions segment since the date of acquisition.
In 2008, we made the following acquisition:
−On October 29, 2007, we acquired all of the outstanding shares of OTN of San Francisco, California for
approximately $519 million, including the assumption of debt and net of $31 million of cash and cash
equivalents acquired from OTN. OTN is a U.S. distributor of specialty pharmaceuticals. The acquisition of
OTN expanded our existing specialty pharmaceutical distribution business. The acquisition was funded with
cash on hand. Financial results for OTN are included within our Distribution Solutions segment since the date
of acquisition. Approximately $240 million of the purchase price allocation has been assigned to goodwill,
which primarily reflects the expected future benefits from synergies upon integrating the business. Included in
the purchase price allocation are acquired identifiable intangibles of $115 million representing customer
relationships with a weighted-average life of 9 years, developed technology of $3 million with a weighted-
average life of 4 years and trademarks and trade names of $10 million with a weighted-average life of 5 years.