McKesson 2012 Annual Report Download

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Annual Report
Fiscal Year Ended March 31, 2012

Table of contents

  • Page 1
    Annual Report Fiscal Year Ended March 31, 2012

  • Page 2
    ...$6.38 $101.7 $3.53 2008 2012 2008 2012 Five-Year Cumulative Total Return** $156.68 McKESSON CORPORATION S&P 500 INDEX VALUE LINE HEALTH CARE INDEX $114.92 $139.72 $100.00 $89.81 $60.73 2007 2008 2009 2010 2011 2012 **Assumes $100 invested in McKesson's common stock and in each index on...

  • Page 3
    ... our employees, thank you for your commitment to McKesson. John Hammergren Chairman of the Board, President and Chief Executive Officer McKesson Corporation *See Appendix A to this 2012 Annual Report for a reconciliation of earnings per share and operating profit as reported under U.S. generally...

  • Page 4

  • Page 5
    ... No.) One Post Street, San Francisco, California (Address of principal executive offices) 94104 (Zip Code) (415) 983-8300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: (Title of each class) (Name of each exchange on which...

  • Page 6
    ..., 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 Director Independence ...Principal Accounting Fees and Services ...PART...

  • Page 7
    ... care, financial, supply chain, strategic management software solutions, pharmacy automation for hospitals, as well as connectivity, outsourcing and other services, including remote hosting and managed services, to healthcare organizations. This segment also includes our Payer group of businesses...

  • Page 8
    McKESSON CORPORATION Distribution Solutions McKesson Distribution Solutions consists of the following businesses: U.S. Pharmaceutical Distribution, McKesson Canada, Medical-Surgical Distribution, McKesson Pharmacy Systems and Automation and McKesson Specialty Health. This segment also includes our ...

  • Page 9
    ... - 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, self-care supplies...

  • Page 10
    ...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 on helping its customers operate...

  • Page 11
    ... time and attendance and payroll. A comprehensive supply chain management solution integrates enterprise resource planning applications, including financials, materials, human resources/payroll, with scheduling, point of use, surgical and anesthesia services and enterprise-wide analytics. Automation...

  • Page 12
    ... revenue cycle outsourcing, remote hosting, managing hospital data processing operations, payroll processing, and business office administration. Professional Services: Professional services help customers achieve business results from their software or automation investment. A wide array of service...

  • Page 13
    McKESSON CORPORATION Competition In every area of healthcare distribution operations, our Distribution Solutions segment faces strong competition, both in price and service, from national, regional and local full-line, short-line and specialty wholesalers, service merchandisers, self-warehousing ...

  • Page 14
    ..., 2012, accounts receivable from our ten largest customers were approximately 49% of total accounts receivable. Accounts receivable from CVS, Wal-Mart Stores, Inc. ("Walmart") and Rite Aid were approximately 17%, 10% and 9% of total accounts receivable. We also have agreements with group purchasing...

  • Page 15
    ... Accounting Policies" and "Segments of Business," to the consolidated financial statements appearing in this Annual Report on Form 10-K. Forward-Looking Statements This Annual Report to Stockholders, including the Chairman's 2012 letter, "Management's Discussion and Analysis of Financial Condition...

  • Page 16
    ...'s or our pharmaceutical suppliers' pricing, selling, inventory, distribution or supply policies or practices could significantly reduce our revenues and net income. Due to the diverse range of healthcare supply management and healthcare information technology products and services that we offer...

  • Page 17
    ... and the State Children's Health Insurance Program ("SCHIP") Extension Act of 2007 requires the Centers for Medicare and Medicaid Services ("CMS") to adjust the calculation of the Medicare Part B drug average sales price to an actual sales volume basis. CMS has proposed new rules for calculating AMP...

  • Page 18
    ... Drug Administration ("FDA"), various state boards of pharmacy, state health departments, the U.S. Department of Health and Human Services ("HHS"), the CMS and other comparable agencies. Certain of our businesses may be required to register for permits and/or licenses with, and comply with operating...

  • Page 19
    ... for systems purchased by these agencies. For example, the HITECH Act requires meaningful use of "certified" healthcare information technology products by healthcare providers in order to receive stimulus funds from the federal government. Effective September 27, 2010, CMS issued a rule that...

  • Page 20
    ...ten largest customers were approximately 49% of total accounts receivable. Accounts receivable from CVS, Walmart and Rite Aid were approximately 17%, 10% and 9% of total accounts receivable. As a result, our sales and credit concentration is significant. We also have agreements with group purchasing...

  • Page 21
    McKESSON CORPORATION We generally sell our products and services to customers on credit that is short-term in nature and unsecured. Any adverse change in general economic conditions can adversely reduce sales to our customers, affect consumer buying practices or cause our customers to delay or be ...

  • Page 22
    ... information systems in our business to obtain, rapidly process, analyze and manage data to: (1) facilitate the purchase and distribution of thousands of inventory items from numerous distribution centers; (2) receive, process and ship orders and handle other product and services on a timely...

  • Page 23
    ... exposed to significant claims, particularly if the access interruption is associated with problems in the timely delivery of medical care. If customers' access is interrupted from failure or breach of our operational or information security systems, or those of our third party service providers, we...

  • Page 24
    ... replace, or expand an information 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. Any decision by our customers to delay or cancel...

  • Page 25
    ... of potential operating synergies; the assimilation and retention of the personnel of the acquired companies; accounting, regulatory or compliance issues that could arise, including internal control over financial reporting; challenges in retaining the customers, including physician affiliates...

  • Page 26
    McKESSON CORPORATION Our $1.35 billion accounts receivable sales facility is generally renewed annually and will expire in May 2012. Historically, we have primarily used the accounts receivable sales facility to fund working capital requirements, as needed. We anticipate renewing this facility ...

  • Page 27
    ...President and Group President since June 2009; President of McKesson Specialty Care Solutions (now McKesson Specialty Health) from April 2006 to June 2009. Service with the Company - 16 years. Executive Vice President, Human Resources since May 2008; Senior Vice President, Human Resources, Dow Jones...

  • Page 28
    ...Related Stockholder Matters and Issuer Purchases of Equity Securities. (a) Market Information: The principal market on which the Company's common stock is traded is the New York Stock Exchange ("NYSE"). The following table sets forth the high and low sales prices for our common stock as reported on...

  • Page 29
    McKESSON CORPORATION The following table provides information on the Company's share repurchases during the fourth quarter of 2012: Share Repurchases (1) Total Number of Shares Purchased as Part of Publicly Total Announced Number of Shares Average Price Paid per Share Purchased Programs Approximate ...

  • Page 30
    ... CORPORATION (f) Stock Price Performance Graph*: The following graph compares 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 158 companies in the health care...

  • Page 31
    ... Gross profit Income from continuing operations before income taxes Income after income taxes Continuing operations Discontinued operations Net income Financial Position Working capital Days sales outstanding for: (1) Customer receivables Inventories Drafts and accounts payable Total assets Total...

  • Page 32
    ... McKesson Technology Solutions. See Financial Note 22, "Segments of Business," to the consolidated financial statements appearing in this Annual Report on Form 10-K for a description of these segments. RESULTS OF OPERATIONS Overview: (Dollars in millions, except per share data) Revenues Gross Profit...

  • Page 33
    ... associated with supporting our higher revenues, the addition of US Oncology, and higher employee compensation and benefits costs, which includes expenses associated with our Profit Sharing Investment Plan ("PSIP"). Operating expenses were also impacted by Average Wholesale Price ("AWP") litigation...

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

  • Page 35
    ... to higher revenues for claims processing, increased revenues associated with the sale and installation of our software products, an increase in maintenance revenues from new and existing customers and a number of small acquisitions made during 2012. Technology Solutions revenues increased slightly...

  • Page 36
    ...clinical and revenue cycle Horizon and Paragon product lines onto Paragon's Microsoft®- based platform over time. Additionally, we have stopped development of our HzERM software product. The plan resulted in a pre-tax charge of $51 million in 2012, of which $31 million was recorded to cost of sales...

  • Page 37
    ... and benefits, including our Profit Sharing Investment Plan ("PSIP"), and the acquisition of US Oncology. The McKesson Corporation PSIP was a member of the settlement class in the Consolidated Securities Litigation Action. On April 27, 2009, the court issued an order approving the distribution of...

  • Page 38
    ... 52 $ (In millions) Operating Expenses: Distribution Solutions $ Technology Solutions Corporate Total Other Income: reimbursement of post-acquisition interest expense from former US Oncology shareholders Interest Expense: bridge loan fees Total Acquisition-related Expenses $ 2012 24 6 1 31 - - 31...

  • Page 39
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Distribution Solutions segment's operating expenses increased in 2012 compared to 2011 primarily reflecting the addition of US Oncology, higher employee compensation and benefits expenses and an increase in expenses associated with supporting higher ...

  • Page 40
    ...of revenue, including a $213 million AWP litigation charge, partially offset by a higher gross profit margin, which included the receipt of $51 million representing our share of an antitrust class action lawsuit brought against a drug manufacturer. Operating profit margin in our Technology Solutions...

  • Page 41
    ... U.S. Internal Revenue Service ("IRS") relating to 2003 through 2006. We disagree with a substantial portion of the tax assessments primarily relating to transfer pricing. We are pursuing administrative relief through the appeals process and an opening conference has been scheduled for May 15, 2012...

  • Page 42
    ... oncologists, and works with patients, hospitals, payers and the medical industry across all phases of the cancer research and delivery continuum. The acquisition of US Oncology expands our existing specialty pharmaceutical distribution business and adds practice management services for oncologists...

  • Page 43
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Goodwill recognized for our business acquisitions is generally not expected to be deductible for tax purposes. However, if we acquire the assets of a company, the goodwill may be deductible for tax purposes. The pro forma results of operations for ...

  • Page 44
    ... receivable from CVS, Wal-Mart Stores, Inc. ("Walmart") and Rite Aid were approximately 17%, 10% and 9% of total accounts receivable. As a result, our sales and credit concentration is significant. A default in payments, a material reduction in purchases from these, or any other large customer...

  • Page 45
    ... estimated quantities of slow-moving inventory by reviewing on-hand quantities, outstanding purchase obligations and forecasted sales. Shifts in market trends and conditions, changes in customer preferences due to the introduction of generic drugs or new pharmaceutical products or the loss of one or...

  • Page 46
    ...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 which...

  • Page 47
    ... from continuing operations would have increased/decreased tax expense by approximately $19 million, or $0.08 per diluted share, for 2012. Share-Based Compensation: Our compensation programs include share-based compensation. We account for all share-based compensation transactions using a fair-value...

  • Page 48
    ... related tax impact. These variables include 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 may differ from the Company...

  • Page 49
    ... of cash receipts from employees' exercises of stock options. The Company's Board has authorized the repurchase of McKesson's common stock from time-to-time in open market transactions, privately negotiated transactions, through accelerated share repurchase ("ASR") programs, or by any combination...

  • Page 50
    ...-weighted average price of our common stock during the program, less a discount. This program is anticipated to be completed no later than the second quarter of 2013. In April 2012, the Board authorized the repurchase of an additional $700 million of the Company's common stock, bringing the total...

  • Page 51
    ...our estimated benefit payments for the unfunded benefit plans and minimum funding requirements for the pension plans. Primarily represents interest that will become due on our fixed rate long-term debt obligations. A purchase obligation is defined as an arrangement to purchase goods or services that...

  • Page 52
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Credit Resources: We fund our working capital requirements primarily with cash and cash equivalents, as well as, short-term borrowings under the accounts receivable sales facility, revolving credit facility and from commercial paper issuances. Senior...

  • Page 53
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Revolving Credit Facility In September 2011, we renewed our existing syndicated $1.3 billion five-year senior unsecured revolving credit facility, which was scheduled to mature in June 2012. This renewed credit facility has terms and conditions ...

  • Page 54
    ... risk is also managed through the use of foreign currency forward-exchange contracts. These contracts are used to offset the potential earnings effects from mostly intercompany foreign currency investments and loans. As of March 31, 2012, a hypothetical adverse 10% change in quoted foreign currency...

  • Page 55
    McKESSON CORPORATION Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL INFORMATION Page 52 53 54 55 56 57 58 Management's Annual Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Financial ...

  • Page 56
    McKESSON CORPORATION MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 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)...

  • Page 57
    ... statement schedule, and an opinion on the Company's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to...

  • Page 58
    ... $ 2012 Revenues Cost of Sales Gross Profit Operating Expenses Selling Distribution Research and development Administrative Litigation charges (credit), net Total Operating Expenses Operating Income Other Income, Net Interest Expense Income from Continuing Operations Before Income Taxes Income Tax...

  • Page 59
    ... revenue Deferred tax liabilities Current portion of long-term debt Other accrued liabilities Total Current Liabilities Long-Term Debt Other Noncurrent Liabilities Other Commitments and Contingent Liabilities (Note 19) Stockholders' Equity Preferred stock, $0.01 par value, 100 shares authorized...

  • Page 60
    ... $ (4,144) (24) Stockholders' Equity $ 6,193 194 114 11 238 Other Comprehensive Income Other Capital $ (8) Balances, March 31, 2009 Issuance of shares under employee plans Share-based compensation Tax benefit related to issuance of shares under employee plans Translation adjustments Unrealized net...

  • Page 61
    ...Impairment of capitalized software held for sale Other non-cash items Changes in operating assets and liabilities, net of acquisitions: Receivables Inventories Drafts and accounts payable Deferred revenue Taxes Litigation charges (credit) Litigation settlement payments Deferred tax (benefit) expense...

  • Page 62
    McKESSON CORPORATION FINANCIAL NOTES 1. Significant Accounting Policies Nature of Operations: McKesson Corporation ("McKesson," the "Company," the "Registrant" or "we" and other similar pronouns) delivers pharmaceuticals, medical supplies and health care information technologies that make health ...

  • Page 63
    ... 49% of total accounts receivable. Accounts receivable from CVS, Wal-Mart Stores, Inc. ("Walmart") and Rite Aid were approximately 17%, 10% and 9% of total accounts receivable. As a result, our sales and credit concentration is significant. We also have agreements with group purchasing organizations...

  • Page 64
    ... 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 which discrete financial information is available and segment management regularly reviews the operating...

  • Page 65
    ... of selling prices exists for all new arrangements or materially modified existing arrangements. Revenues for our Technology Solutions segment are generated primarily by licensing software and software systems (consisting of software, hardware and maintenance support), and providing outsourcing and...

  • Page 66
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Software systems are marketed under information systems agreements as well as service agreements. Perpetual software arrangements are recognized at the time of delivery or under the percentage-of-completion method based on the terms and conditions in ...

  • Page 67
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Supplier Incentives: Fees for service and other incentives received from suppliers, relating to the purchase or distribution of inventory, are generally reported as a reduction to cost of goods sold. We consider these fees and other incentives to ...

  • Page 68
    ... the use of a vendor's best estimate of selling price and the elimination of the residual method for the allocation of arrangement consideration did not materially change how we allocate arrangement consideration to our various products and services or the amount and timing of reported net revenues...

  • Page 69
    ... oncologists, and works with patients, hospitals, payers and the medical industry across all phases of the cancer research and delivery continuum. The acquisition of US Oncology expands our existing specialty pharmaceutical distribution business and adds practice management services for oncologists...

  • Page 70
    ... $919 million, net of cash acquired. The total purchase price is subject to change due to working capital adjustments within 60 days of closing. The cash paid at acquisition was funded from cash on hand. The acquisition of the assets from the Drug Trading Company Limited consists of a marketing and...

  • Page 71
    ... consist of $317 million of service agreements and $114 million of trademarks and trade names. Service agreements, trademarks and trade names and total acquired intangibles assets each has an estimated weighted average life of 20 years. The excess of the purchase price over the net tangible and...

  • Page 72
    ... is computed using the tax rates of applicable tax jurisdictions. Additionally, a portion of pre-tax compensation expense is not tax-deductible. Stock Plans The 2005 Stock Plan provides our employees, officers and non-employee director's share-based long-term incentives. The 2005 Stock Plan permits...

  • Page 73
    ... Number of Options WeightedExercisable Average at Year End Exercise (In millions) Price 1 $ 36.52 1 46.36 2 61.20 - 74.57 4 The following table summarizes stock option activity during 2012, 2011 and 2010: WeightedAverage Remaining Contractual Term (Years) 3 (In millions, except per share data...

  • Page 74
    ...a vesting term a specified number of shares of the Company's common stock, are accounted for at fair value at the date of grant. Total compensation expense for 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...

  • Page 75
    ... on the period-end market price of the Company's common stock) and the weighted-average period over which the cost is expected to be recognized is 3 years. Employee Stock Purchase Plan ("ESPP") The Company has an ESPP under which 16 million shares have been authorized for issuance. The ESPP allows...

  • Page 76
    ... core clinical and revenue cycle Horizon and Paragon product lines onto Paragon's Microsoft®- based platform over time. Additionally, we have stopped development of our Horizon Enterprise Revenue Management™ ("HzERM") software product. The plan resulted in a pre-tax charge of $51 million in 2012...

  • Page 77
    ... U.S. Internal Revenue Service ("IRS") relating to 2003 through 2006. We disagree with a substantial portion of the tax assessments primarily relating to transfer pricing. We are pursuing administrative relief through the appeals process and an opening conference has been scheduled for May 15, 2012...

  • Page 78
    ...) 72 - (964) Assets Receivable allowances Deferred revenue Compensation and benefit related accruals AWP litigation accrual Loss and credit carryforwards Other Subtotal Less: valuation allowance Total assets Liabilities Inventory valuation and other assets Fixed assets and systems development costs...

  • Page 79
    ... accrued for penalties. 7. Discontinued Operation In July 2010, our Technology Solutions segment sold its wholly-owned subsidiary, McKesson Asia Pacific Pty Limited ("MAP"), a provider of phone and web-based healthcare services in Australia and New Zealand, for net sales proceeds of $109 million...

  • Page 80
    ... - gain on sale, net of tax Net income Weighted average common shares outstanding: Basic Effect of dilutive securities: Options to purchase common stock Restricted stock units Diluted Earnings per common share: (1) Basic Continuing operations Discontinued operation, net Total Diluted Continuing...

  • Page 81
    ...$ 5,032 Information regarding intangible assets is as follows: March 31, 2012 Weighted Average Remaining Amortization Gross Carrying Period Accumulated (Dollars in millions) Amount (Years) Amortization Customer lists 7 $ 1,081 $ (554) Service agreements 18 1,022 (52) Trademarks and trade names 18...

  • Page 82
    ... the time it was outstanding, the Bridge Loan bore interest of 1.76%, which was based on the London Interbank Offered Rate plus a margin based on the Company's credit rating. Bridge Loan fees in 2011 of $25 million were included in interest expense. US Oncology Debt Acquired Upon our purchase of...

  • Page 83
    ...-remote subsidiary of McKesson Corporation that is consolidated in our financial statements. This SPE then sells undivided interests in the pool of accounts receivable to third-party purchaser groups (the "Purchaser Groups"), which include financial institutions and commercial paper conduits...

  • Page 84
    ... all VIEs was $1.1 billion and $1.2 billion at March 31, 2012 and 2011, which primarily represents the value of intangible assets related to service agreements and lease and loan receivables. These amounts exclude the customer loan guarantees discussed in Financial Note 18, "Financial Guarantees and...

  • Page 85
    ... Actual return on plan assets Employer and participant contributions Benefits paid Foreign exchange impact and other Fair value of plan assets at end of period Funded status at end of period Amounts recognized on the balance sheet Long-term assets Current liabilities Long-term liabilities Total...

  • Page 86
    ... 31, (In millions) Net actuarial loss Prior service cost Net transition obligation Total $ $ 2012 274 1 1 276 $ $ 2011 239 2 1 242 Other changes in plan assets and benefit obligations recognized in other comprehensive income during the reporting periods were as follows: Years Ended March 31...

  • Page 87
    ...term investment returns consistent with capital preservation and prudent investment practices, with a diversification of asset types and investment strategies. Periodic adjustments are made to provide liquidity for benefit payments and to rebalance plan assets to their target allocations. The target...

  • Page 88
    ... and preferred stock Equity commingled funds Fixed income securities: Government securities Corporate bonds Mortgage-backed securities Asset-backed securities and other Fixed income commingled funds Other: Real estate funds Hedge funds Total Receivables (1) Payables (1) Total (1) $ Level 1 14...

  • Page 89
    ... net asset values derived from the underlying securities; these are classified as Level 2 investments. Common and preferred stock - This investment class consists of common and preferred shares issued by U.S. and non-U.S. corporations. Common shares are traded actively on exchanges and price quotes...

  • Page 90
    ... assets. As of March 31, 2012 and 2011, 10% and 11% of our plan assets are comprised of Bartram International Fund, which predominantly holds actively traded stock. Multiemployer Plans We also contribute to a number of multiemployer pension plans under the terms of collective-bargaining agreements...

  • Page 91
    McKESSON CORPORATION FINANCIAL NOTES (Continued) The McKesson Corporation PSIP was a member of the settlement class in the Consolidated Securities Litigation Action. On April 27, 2009, the court issued an order approving the distribution of the settlement funds. On October 9, 2009, the PSIP received...

  • Page 92
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Information regarding the changes in benefit obligations for our postretirement welfare plans is as follows: Years Ended March 31, 2012 2011 152 $ 154 2 1 7 8 (4) 2 (13) (13) 144 $ 152 (In millions) Benefit obligation at beginning of period Service ...

  • Page 93
    ... exchange contracts. In accordance with our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes. Foreign currency rate risk The majority of our operations are conducted in US dollars however, certain assets and liabilities, revenues...

  • Page 94
    ... for our products and services. For example, we provide warranties that the pharmaceutical and medical-surgical products we distribute are in compliance with the Food, Drug and Cosmetic Act and other applicable laws and regulations. We have received the same warranties from our suppliers, which...

  • Page 95
    ... customers who purchase our software and automation products also purchase annual maintenance agreements. Revenues from these maintenance agreements are 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 96
    ... and Education Employees Group Insurance Board. Pursuant to these settlements, the court dismissed with prejudice all claims asserted by the States of Oklahoma and Montana in the Douglas County, Kansas Action. On October 25, 2011, the Company executed a settlement agreement with the certified class...

  • Page 97
    ... and added claims on behalf of the Mississippi state employee health plan. On August 25, 2011, the Company filed a motion to dismiss the State's claim under Mississippi's Medicaid Fraud Control Act, which the court denied on March 12, 2012. On March 9, 2012, the Company filed a motion to extend the...

  • Page 98
    McKESSON CORPORATION FINANCIAL NOTES (Continued) The Utah Action On October 20, 2010, an action was filed in the United States District Court for the Northern District of California by the State of Utah against the Company as the sole defendant asserting claims under RICO and for civil conspiracy, ...

  • Page 99
    .... The Virginia Action On June 8, 2011, an action was filed in the United States District Court for the Northern District of California by the Commonwealth of Virginia against the Company and two of its employees asserting claims under RICO, Virginia's false claims statute, Virginia's fraud statute...

  • Page 100
    McKESSON CORPORATION FINANCIAL NOTES (Continued) B. The New Jersey United States Attorney's Office AWP Investigation In June 2007, the Company was informed that a relator had previously filed a qui tam action in the United States District Court for the District of New Jersey, purportedly on behalf ...

  • Page 101
    ... ex rel. Jamison v. McKesson Corporation, et al., (No. 2:08-CV-00214-SA). The United States ("USA") alleges violations of the federal False Claims Act, 31 U.S.C. Sections 3729-33, in connection with billing and supply services rendered by MediNet to the long-term care facility operator co-defendants...

  • Page 102
    ... 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 it, or entities acquired by it, formerly conducted operations and the Company, by administrative order...

  • Page 103
    .... The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including our stock price, corporate and regulatory requirements, restrictions under our debt obligations and other market and economic conditions. The Board authorized the repurchase...

  • Page 104
    ...-weighted average price of our common stock during the program, less a discount. This program is anticipated to be completed no later than the second quarter of 2013. In April 2012, the Board authorized the repurchase of an additional $700 million of the Company's common stock, bringing the total...

  • Page 105
    ... care, financial, supply chain, strategic management software solutions, pharmacy automation for hospitals, as well as connectivity, outsourcing and other services, including remote hosting and managed services, to healthcare organizations. This segment also includes our Payer group of businesses...

  • Page 106
    ... of acquired intangible assets purchased in connection with acquisitions, capitalized software held for sale and capitalized software for internal use. Amounts have been recast for 2011 and 2010 to reflect the transfer of assets from our Distribution Solutions segment to Corporate effective...

  • Page 107
    ... our share of a settlement of an antitrust class action lawsuit brought against a drug manufacturer, which was recorded as a reduction to cost of sales. Financial results for the second quarter of 2011 include a $72 million asset impairment charge for capitalized software held for sale, which...

  • Page 108
    McKESSON CORPORATION FINANCIAL NOTES (Concluded) 24. Subsequent Event In April 2012, we purchased the remaining 50% interest in our corporate headquarters building located in San Francisco, California, for total cash of $90 million. The cash paid was funded from cash on hand. We previously held a 50...

  • Page 109
    ...15. Internal Control over Financial Reporting Management's report on the Company's internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and the related report of our independent registered public accounting firm are included in this Annual...

  • Page 110
    ... Code of Ethics governing our Chief Executive Officer, Chief Financial Officer, Controller and Financial Managers can be found on our website, www.mckesson.com, under the Investors - Corporate Governance tab. The Company's Corporate Governance Guidelines and Charters for the Audit and Compensation...

  • Page 111
    McKESSON CORPORATION The following table sets forth information as of March 31, 2012 with respect to the plans under which the Company's common stock is authorized for issuance: Number of securities remaining available for future issuance under equity compensation plans (excluding securities ...

  • Page 112
    ...2000 Employee Stock Purchase Plan (the "ESPP"): The ESPP is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code. In March 2002, the Board amended the ESPP to allow for participation in the plan by employees of certain of the Company...

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    McKESSON CORPORATION PART IV Item 15. Exhibits and Financial Statement Schedule. Page (a)(1) Consolidated Financial Statements...Report of Deloitte & Touche, LLP, Independent Registered Public Accounting Firm Consolidated Statements of Operations for the years ended March 31, 2012, 2011 and 2010 ...

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    ... by the undersigned, thereunto duly authorized. MCKESSON CORPORATION Dated: May 2, 2012 /s/ Jeffrey C. Campbell Jeffrey C. Campbell Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

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    McKESSON CORPORATION SCHEDULE II SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT SCHEDULE VALUATION AND QUALIFYING ACCOUNTS For the Years Ended March 31, 2012, 2011 and 2010 (In millions) Additions Balance at Beginning of Year Charged to Costs and Expenses Charged to Other Accounts (3) Deductions ...

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    McKESSON CORPORATION EXHIBIT INDEX The agreements included as exhibits to this report are included to provide information regarding their terms and not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain...

  • Page 117
    ... Change in Control Policy for Selected Executive Employees, as amended and restated on October 26, 2010. 10.14* McKesson Corporation 2005 Management Incentive Plan, as amended and restated on April 21, 2010, effective July 28, 2010. 10.15* Form of Statement of Terms and Conditions Applicable to...

  • Page 118
    ... McKesson Corporation 2005 Stock Plan, as amended and restated on October 26, 2010. 10.20 Fourth Amended and Restated Receivables Purchase Agreement, dated as of May 18, 2011, among the Company, as Servicer, CGSF Funding Corporation, as Seller, the several conduit purchasers from time to time party...

  • Page 119
    ... of Earnings to Fixed Charges. List of Subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP. Power of Attorney. Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as...

  • Page 120
    ...in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who...

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    ...in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who...

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    ... Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 2. /s/ John H. Hammergren John H. Hammergren Chairman of the Board, President and Chief Executive Officer May 2, 2012...

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    ... Earnings in connection with its own financial planning and reporting processes. Specifically, Adjusted Earnings serves as one of the measures management utilizes when allocating resources, deploying capital and assessing business performance and employee incentive compensation. Nonetheless, non...

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    ..., Chief Technology Officer and Chief Information Officer Nicholas A. Loiacono Vice President and Treasurer Nigel A. Rees Vice President and Controller Willie C. Bogan Secretary Common Stock McKesson Corporation common stock is listed on the New York Stock Exchange (ticker symbol MCK) and is quoted...

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    McKesson Corporation One Post Street San Francisco, CA 94104 www.mckesson.com © 2012 McKesson Corporation. All rights reserved.