McKesson 2006 Annual Report Download

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the fiscal year ended March 31, 2006
OR
Commission File Number 1-13252
McKESSON CORPORATION
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:
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. Yes No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price as of the
last business day of the registrant’s most recently completed second fiscal quarter, September 2005, was approximately $14.3 billion.
Number of shares of common stock outstanding on April 30, 2006: 304,120,397
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for its Annual Meeting of Stockholders to be held on July 26, 2006 are incorporated by
reference into Part III of this report.
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
(Title o
f
Each Class) (Name o
f
Each Exchan
g
e on Which Re
g
istered)
Common Stock, $0.01
p
ar value New York Stock Exchan
g
e
Pacific Exchan
g
e, Inc.
Preferred Stock Purchase Ri
g
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Pacific Exchan
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Table of contents

  • Page 1
    ...Commission File Number 1-13252 McKESSON CORPORATION 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) Common Stock...

  • Page 2

  • Page 3
    ... Financial Data Management's Discussion and Analysis of Results of Operations and Financial Condition Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls...

  • Page 4
    ... logistics and other services within the United States and Canada. Our Provider Technologies segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and strategic management software solutions, automated pharmaceutical dispensing systems for hospitals, as...

  • Page 5
    ... two-tiered distribution network that supports best-in-class direct store delivery. • RxPakSM - Bulk repackaging service that leverages our purchasing power and supplier relationships to provide pharmaceuticals at reduced prices, help increase inventory turns, and reduce working capital investment...

  • Page 6
    ... software products is marketed to payors, employers and government organizations to help manage the cost and quality of care: • Disease management programs to improve the health status and health outcomes of patients with chronic conditions; • Nurse triage services to provide health information...

  • Page 7
    ... including physicians' offices, clinics and surgery centers (primary care), long-term care facilities and homecare sites (extended care). Through a variety of technology products and services geared towards the supply chain, Medical-Surgical Solutions is focused on helping its customers operate more...

  • Page 8
    ...-of-use supply automation systems for inventory management and revenue capture, and an automated medication administration system for ensuring accuracy at the point of care. Based on a foundation of barcode scanning technology, these integrated solutions are designed to reduce errors and bring new...

  • Page 9
    ...healthcare industry. Competition varies in size from small to large companies, in geographical coverage, and in scope and breadth of products and services offered. Intellectual Property The principal trademarks and service marks of the Pharmaceutical Solutions and Medical-Surgical Solutions segments...

  • Page 10
    McKESSON CORPORATION Suppliers: Over the past few years, our U.S. pharmaceutical distribution business has encountered a business model transition with respect to how it is compensated for the logistical, capital and administrative services that it provides to branded pharmaceutical manufacturers. ...

  • Page 11
    ... in Financial Notes 1 and 21 to the consolidated financial statements, "Significant Accounting Policies" and "Segments of Business," appearing in this Annual Report on Form 10-K. Item 1A. Risk Factors Information regarding our risk factors is included in the Financial Review under the captions...

  • Page 12
    ... Provider Technologies since April 2004; McKesson Information Solutions, Chief Operating Officer (2002-2004), Group President (20012002). Chief Operating Officer, Channel Health (1999-2001). Service with the Company - 5 years. Executive Vice President, General Counsel and Secretary since March 2006...

  • Page 13
    ... Company's common stock at March 31, 2006 was approximately 10,750. (c) Dividends: Dividend information is included in Financial Note 22 to the consolidated financial statements, "Quarterly Financial Information (Unaudited)," appearing in this Annual Report on Form 10-K. (d) Share Repurchase Plans...

  • Page 14
    ... Reporting Management's report on the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) in the Exchange Act), and the related report of our independent registered public accounting firm, are included on page 52 and page 53 of this Annual...

  • Page 15
    ... Information about the Code of Ethics governing our Chief Executive Officer, Chief Financial Officer, Controller and Financial Managers can be found on our Web site, www.mckesson.com, under the Governance tab. The Company's Corporate Governance Guidelines and Charters for the Audit and Compensation...

  • Page 16
    ...remain available for issuance. Rights to purchase shares are granted under the SPP to key employees of the Company as determined by the Compensation Committee of the Board. The purchase price, to be paid in cash or using promissory notes of the Company's common stock, subject to rights granted under...

  • Page 17
    ... shares of common stock subject to the NYSE limits. No further grants will be made from the 1999 SPP. Rights to purchase shares were granted under the 1999 SPP to eligible employees of the Company. The purchase price, to be paid in cash or using promissory notes, for the Company's common stock...

  • Page 18
    ...because the required information, where material, is shown in the financial statements, financial 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...

  • Page 19
    ..., the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MCKESSON CORPORATION Dated: May 16, 2006 /s/ Jeffrey C. Campbell Jeffrey C. Campbell Executive Vice President and Chief Financial Officer On behalf of the Registrant and pursuant...

  • Page 20
    McKESSON CORPORATION SCHEDULE II SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT SCHEDULE VALUATION AND QUALIFYING ACCOUNTS For the Years Ended March 31, 2006, 2005 and 2004 (In millions) Additions Deductions From Allowance Accounts(1) (39)(3) (4) (43) Description Year Ended March 31, 2006 ...

  • Page 21
    ... Settlement between Lead Plaintiff and Defendants McKesson HBOC, Inc. and HBO & Company) thereto in connection with the consolidated securities class action (Exhibit 99.1 to the Company's Current Report on Form 8-K. Date of Report January 18, 2005, File No. 1-13252). McKesson Corporation 1999 Stock...

  • Page 22
    10.10 McKesson Corporation 1984 Executive Benefit Retirement Plan, as amended and restated as of October 28, 2004 (Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2005, File No. 1-13252). 20

  • Page 23
    ... Employees Pursuant to the 2005 Stock Plan, effective April 25, 2006. Deed of Settlement and Amendment in Relation to Human Resources and Payroll Services Contract dated as of June 22, 2005 between the Secretary of State for Health for the United Kingdom and McKesson Information Solutions UK Limited...

  • Page 24
    (Exhibit 10.42 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2003, File No. 1-13252). 10.29 Form of Termination Agreement by and between the Company and certain designated Corporate Officers (Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal ...

  • Page 25
    McKESSON CORPORATION Exhibit Number Description 10.30 Employment Agreement, dated as of April 1, 2004, by and between the Company and its Chairman, President and Chief Executive Officer (Exhibit 10.43 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004, File No 1-...

  • Page 26
    McKESSON CORPORATION INDEX TO CONSOLIDATED FINANCIAL INFORMATION Page 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: Consolidated Statements of ...

  • Page 27
    ... (loss) Financial 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 Common Share Information Common shares outstanding at year...

  • Page 28
    24

  • Page 29
    ... mean the Company's fiscal year. We conduct our business through three operating segments: Pharmaceutical Solutions, Medical-Surgical Solutions and Provider Technologies. See Financial Note 1 to the accompanying consolidated financial statements, "Significant Accounting Policies," for a description...

  • Page 30
    ... 2004 Pharmaceutical Solutions U.S. Healthcare direct distribution & services U.S. Healthcare sales to customers' warehouses Subtotal Canada distribution & services Total Pharmaceutical Solutions Medical-Surgical Solutions Provider Technologies Services Software and software systems Hardware Total...

  • Page 31
    ... includes mail-order businesses. In early 2005, we implemented a new pharmaceutical distribution contract with the Department of Veterans Affairs, which significantly contributed to the segment's total increase in revenues. Market growth rates reflect growing drug utilization and price increases...

  • Page 32
    ...risks associated with product being available to, and distributed in, the secondary market. These changes limited our ability to purchase inventory in advance of price increases. In 2005, manufacturers also reduced the number and average magnitude of price increases. As a result, gross profit margin...

  • Page 33
    ...cost than do other accounting methods, thereby mitigating the effects of inflation and deflation on operating profit. The practice in the Pharmaceutical Solutions' distribution businesses is to pass on to customers published price changes from suppliers. Manufacturers generally provide us with price...

  • Page 34
    ... employees for the purchase of McKesson common stock primarily in February 1999, which were included in Corporate expenses, - increases in pension expense of $14 million primarily for our U.S. defined benefit pension plans. In 2004 and 2003, we reduced the assumed long-term rate of asset return...

  • Page 35
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Other Income, net: (In millions) 2006 Years Ended March 31, 2005 2004 By Segment Pharmaceutical Solutions Medical-Surgical Solutions Provider Technologies Corporate Total $ 36 3 13 86 $138 $24 4 13 27 $68 $22 4 11 11 $48 Other income, net ...

  • Page 36
    ... lack of flu vaccine supply as well as an $7 million charge to operating expenses due to an increase in litigation reserves. The Company has decided to explore its strategic options with regard to the acute care portion of this segment's business. Provider Technologies segment's operating profit as...

  • Page 37
    ...favorable tax settlements and adjustments with the U.S. Internal Revenue Service and with various taxing authorities. A large portion of this benefit, which was not previously recognized by the Company, resulted from the filing of amended tax returns by our subsidiary, McKesson Information Solutions...

  • Page 38
    ... still managing a 2001/2000 restructuring plan associated with customer settlements for the discontinuance of overlapping and nonstrategic products and other product development projects within our Provider Technologies segment. Customer settlement reserves were established, reviewed and assessed...

  • Page 39
    ... weighted-average useful life of nine years. - Also in the second quarter of 2006, we acquired all of the issued and outstanding shares of Medcon, an Israeli company, for an aggregate purchase price of $82 million. Medcon provides web-based cardiac image and information management services to...

  • Page 40
    ... and notes receivables was 2.1%. Additional information concerning our allowance for doubtful accounts may be found in Schedule II included in this annual report on Form 10-K. Inventories: We state inventories at the lower of cost or market. Inventories for our Pharmaceutical Solutions and Medical...

  • Page 41
    ...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 42
    ... guideline companies and when considering the income approach, include the required rate of return used in the discounted cash flow method, which reflects capital market conditions and the specific risks associated with the business. Other estimates inherent in the income approach include long-term...

  • Page 43
    ... to the Company's consolidated financial statements. Share-Based Payment: Our compensation programs include share-based payments. Stock options, which entitle the holder to purchase shares of McKesson's common stock at a pre-determined price at the end of a vesting term, are accounted for under...

  • Page 44
    ... benefit and postretirement plans, include discount rate, expected salary increases, certain employee-related factors, such as turnover, retirement age and mortality (life expectancy), expected return on assets and healthcare cost trend rates. We evaluate these critical assumptions at least annually...

  • Page 45
    ...improved working capital balances for our U.S. pharmaceutical distribution business as purchases from certain of our suppliers are better aligned with customer demand and as a result, net financial inventory (inventory, net of accounts payable) decreased. Operating activities for 2006 also benefited...

  • Page 46
    ... distribution business. Our ratio of net debt to net capital employed declined as growth in our operating profit was in excess of the growth in working capital and other investments needed to fund increases in revenue. The Company has paid quarterly cash dividends at the rate of $0.06 per share...

  • Page 47
    ... to purchase goods or services that is enforceable and legally binding on the Company. These obligations primarily relate to inventory purchases, capital commitments and service agreements. We have agreements with certain of our customers' financial institutions (primarily for our Canadian business...

  • Page 48
    ... stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the volatility of our stock price, employee stock option exercise behaviors, timing, level and types of our grants of annual share...

  • Page 49
    ... Action"). In general, under the agreement to settle the Consolidated Action, we agreed to pay the settlement class a total of $960 million in cash. The settlement agreement was subject to various conditions, including, but not limited to, preliminary approval by the Court, notice to the Class...

  • Page 50
    ... reduce the amount of our products and services they purchase or the price they are willing to pay for our products and services. Changes in the healthcare industry's pricing, selling, inventory, distribution or supply policies or practices, or changes in our customer mix could also significantly...

  • Page 51
    ... such plans, our business and the results of operations may be adversely impacted. Competition may erode our profit In every area of healthcare distribution operations, our Pharmaceutical Solutions and Medical-Surgical Solutions segments face strong competition, both in price and service, from...

  • Page 52
    ... our medical management businesses (which include disease management programs and our nurse triage services) and the provision of products that assist clinical decision-making and relate to patient medical histories and treatment plans. If customers assert liability claims against our products, any...

  • Page 53
    ... may be released. These regulations govern both the disclosure and use of confidential patient medical record information and will require the users of such information to implement specified security measures. Regulations currently in place governing electronic health data transmissions continue...

  • Page 54
    ...have an adverse impact on our business and results of operations. Part of our growth strategy focuses on developing health and care support programs to address chronic diseases and medical conditions as well as the overall health of all enrollees of a health plan. Our success in this area, including...

  • Page 55
    ...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 56
    ... ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of McKesson Corporation is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With the participation of the Chief Executive Officer and the Chief Financial Officer...

  • Page 57
    ... and whether effective internal control over financial reporting was maintained in all material respects. Our audit of financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and...

  • Page 58
    McKESSON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) 2006 Years Ended March 31, 2005 2004 Revenues Cost of Sales Gross Profit Operating Expenses Selling Distribution Research and development Administrative Securities Litigation charges, net Total ...

  • Page 59
    ... and other Total Property, Plant and Equipment, Net Capitalized Software Held for Sale Notes Receivable Goodwill Intangible Assets, Net Other Assets Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Drafts and accounts payable Deferred revenue Current portion of long-term debt...

  • Page 60
    McKESSON CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended March 31, 2006, 2005 and 2004 (In millions except per share amounts) Common Stock Shares Amount Additional Paid-in Capital Accumulated Treasury Other ESOP Notes Comprehensive and Common Stockholders' Comprehensive ...

  • Page 61
    Translation adjustment Additional minimum pension liability, net of tax of $2 Net income Unrealized loss on investments, net of tax of $(2) Conversion of Debentures Repurchase of common stock Cash dividends declared, $0.24 per common share Balances, March 31, 2006 24 24 24 (4) 751 3 6 - 195 (19)...

  • Page 62
    ...Drafts and accounts payable Deferred revenue Taxes Securities Litigation settlement payments Proceeds from sale of notes receivable Other Total Net cash provided by operating activities Investing Activities Property acquisitions Capitalized software expenditures Acquisitions of businesses, less cash...

  • Page 63
    ... logistics and other services within the United States and Canada. Our Provider Technologies segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and strategic management software solutions, automated pharmaceutical dispensing systems for hospitals, as...

  • Page 64
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Property, Plant and Equipment: We state our property, plant and equipment at cost and depreciate them on the straight-line method at rates designed to distribute the cost of properties over estimated service lives ranging from one to 30 years. ...

  • Page 65
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Included in our Pharmaceutical Solutions segment's revenues are large volume sales of pharmaceuticals to a limited number of large selfwarehousing customers whereby we order bulk product from the manufacturer, receive and process the product through ...

  • Page 66
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Manufacturer Incentives: We generally account for fees and other incentives received from our suppliers, relating to the purchase or distribution of inventory, as a reduction to cost of goods sold, in accordance with EITF Issue No. 02-16, "Accounting ...

  • Page 67
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Share-based Payment: We account for our employee stock-based compensation plans using the intrinsic value method under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." We apply the disclosure provisions ...

  • Page 68
    ... stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the volatility of our stock price, employee stock option exercise behaviors, timing, level and types of our grants of annual share...

  • Page 69
    ... stock of D&K Healthcare Resources, Inc. ("D&K") of St. Louis, Missouri, for an aggregate cash purchase price of $479 million, including the assumption of D&K's debt. D&K is primarily a wholesale distributor of branded and generic pharmaceuticals and over-the-counter health and beauty products...

  • Page 70
    ... included in our Pharmaceutical Solutions segment and were not material to our consolidated financial statements. 4. Contract In 2005, our Medical-Surgical Solutions segment entered into an agreement with a third party vendor to sell the vendor's proprietary software and services. The terms of the...

  • Page 71
    ... liabilities, excluding customer settlement reserves, for the three years ended March 31, 2006: Pharmaceutical Solutions ExitSeverance Related Medical-Surgical Solutions ExitSeverance Related Provider Technologies ExitSeverance Related Corporate Severance Total (In millions) Balance, March 31...

  • Page 72
    ..., net of tax Income from continuing operations - diluted Discontinued operation Discontinued operation - gain on sale, net Net income (loss) - diluted Weighted average common shares outstanding: Basic Effect of dilutive securities: Options to purchase common stock Convertible junior subordinated...

  • Page 73
    ...Intangible Assets, net Changes in the carrying amount of goodwill were as follows: (In millions) Pharmaceutical Solutions Medical-Surgical Solutions $ 38 1,493 1,531 (860) $ 671 $ 35 1,372 1,407 (791) $ 616 Provider Technologies Total Balance, March 31, 2004 Goodwill acquired Sale of business...

  • Page 74
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Amortization expense of intangible assets was $28 million, $24 million and $21 million for 2006, 2005 and 2004. The weighted average remaining amortization period for customer lists, technology, and trademarks and intangible assets at March 31, 2006 ...

  • Page 75
    McKESSON CORPORATION FINANCIAL NOTES (Continued) In 2006, 2005 and 2004, we sold customer lease portfolio receivables for cash proceeds of $60 million, $59 million and $45 million. The employee stock ownership program ("ESOP") debt bears interest at rates ranging from 8.6% fixed rate to ...

  • Page 76
    ... 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 77
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Information regarding the changes in benefit obligations and plan assets for our pension plans is as follows: March 31, (In millions) 2006 2005 Change in benefit obligations Benefit obligation at beginning of year Service cost Interest cost ...

  • Page 78
    ... objective. Weighted-average assumptions used to estimate the net periodic pension expense and the actuarial present value of benefit obligations were as follows: 2006 2005 2004 Net periodic expense Discount rates Rate of increase in compensation Expected long-term rate of return on plan assets...

  • Page 79
    ... Contribution Plans We have a contributory profit sharing investment plan ("PSIP") for U.S. employees not covered by collective bargaining arrangements. Eligible employees may contribute up to 20% of their compensation to an individual retirement savings account. Prior to 2006, the Company made...

  • Page 80
    ... healthcare cost trends used in measuring the accumulated postretirement benefit obligation were 13% and 15% for prescription drugs, 10% and 13% for medical and 5% and 6% for dental in 2006 and 2005. The healthcare cost trend rate assumption has a significant effect on the amounts reported. For...

  • Page 81
    ... Revenue Service and with various other taxing authorities. A large portion of this benefit, which was not previously recognized by the Company, resulted from the filing of amended tax returns by our subsidiary, McKesson Information Solutions LLC (formerly known as HBO & Company ("HBOC")) for...

  • Page 82
    ... inventory valuation and other assets Basis difference for fixed assets Systems development costs Retirement plans Other Total liabilities Net deferred tax asset (liability) Current net deferred tax asset (liability) Long term net deferred tax asset Net deferred tax asset (liability) 77 $ 48 290...

  • Page 83
    ... obligations, and our workers' compensation and automotive liability programs. Our software license agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe on a third party's intellectual property rights. To date, we have not...

  • Page 84
    ... project costs, which are reflected in our estimates used for the percentage-of-completion method of accounting for software installation services within these contracts. In addition, most of our customers who purchase our software and automation products also purchase annual maintenance agreements...

  • Page 85
    ..., Andersen filed an action against the Company and HBOC in federal court in San Jose captioned Andersen v. McKesson Corporation et al. , (No. C-06-02035-JW). In its complaint, Andersen asserts claims against McKesson and HBOC for fraud, negligent misrepresentation, breach of contract, breach of the...

  • Page 86
    ...Yurick v. McKesson HBOC, Inc. et al. , (Case No. 303857) was settled in November 2005. On December 16, 2005, the Company and certain of its present and former directors and officers filed a stipulation in the Delaware Court of Chancery setting out the terms of a settlement of the previously-reported...

  • Page 87
    ... and distributed by a number of distributors, including McKesson Medical-Surgical Inc. Efforts to resolve tenders of defense to its suppliers are continuing and final agreements have been reached with two major suppliers. The Company is a defendant in approximately 500 California cases alleging...

  • Page 88
    ...these motions. On June 2, 2005, a civil class action complaint was filed against the Company in the United States District Court, District of Massachusetts, New England Carpenters Health Benefits Fund et al., v. First DataBank, Inc. and McKesson Corporation, (Civil Action No.05-11148), alleging that...

  • Page 89
    ...be used to support our stock-based employee compensation plans and for other general corporate purposes. Stock repurchases may be made in open market or private transactions. In April 2006, the Board approved an additional share repurchase plan of up to $500 million of the Company's common stock. 84

  • Page 90
    McKESSON CORPORATION FINANCIAL NOTES (Continued) In 2005, the Board renewed the common stock rights plan. Under the renewal of the plan, effective October 22, 2004, the Board declared a dividend distribution of one right (a "Right") for each outstanding share of Company common stock. Each Right ...

  • Page 91
    ... price volatility Expected dividend yield Risk-free interest rate Expected life (in years) 36.3% 0.53% 3.9% 6 28.6% 0.67% 4.2% 7 34.3% 0.59% 3.8% 7 The Company also has an employee stock purchase plan ("ESPP") under which 11 million shares have been authorized for issuance. Eligible employees...

  • Page 92
    ... million representing our share of settlements of antitrust class action lawsuits brought against certain drug manufactures. These settlements were recorded as reductions to cost of sales within our consolidated statements of operations in our Pharmaceutical Solutions segment. Corporate expenses in...

  • Page 93
    87

  • Page 94
    ... Pharmaceutical Solutions segment. Our Provider Technologies business has operations in the United Kingdom, Canada, Europe and Israel. We also have a software manufacturing and a printing facility in Ireland. Net revenues were attributed to geographic areas based on the customers' shipment locations...

  • Page 95
    ... Vice President and Chief Financial Officer Paul C. Julian Executive Vice President, Group President Paul E. Kirincic Executive Vice President, Human Resources Nicholas A. Loiacono Vice President and Treasurer Marc E. Owen Executive Vice President, Corporate Strategy and Business Development Pamela...

  • Page 96
    ...and is quoted in the daily stock tables carried by most newspapers. Stockholder Information The Bank of New York, 101 Barclay Street, 11 East, New York, NY 10286 acts as transfer agent, registrar, dividend-paying agent and dividend reinvestment plan agent for McKesson Corporation stock and maintains...

  • Page 97
    ... should consult a tax adviser prior to such settlement or disposition. Please sign your name in the space provided below on this Restricted Stock Unit Agreement and return an executed copy to Evelyn Shaffer, Stock Administrator, McKesson Corporation, One Post Street, Suite 3300, San Francisco, CA...

  • Page 98
    ... Chief Executive Officer McKesson Corporation PLEASE RETURN ONE SIGNED COPY OF THIS AGREEMENT TO: McKesson Corporation The Corporate Secretary's Office One Post Street, 33rd Floor San Francisco, CA 94104 ATTACHMENTS: • 2005 Stock Plan Document • 2005 Stock Plan Prospectus • Statement of Terms...

  • Page 99
    ...10.23 McKESSON CORPORATION STATEMENT OF TERMS AND CONDITIONS APPLICABLE TO OPTIONS, RESTRICTED STOCK, RESTRICTED STOCK UNITS AND PERFORMANCE SHARES GRANTED TO EMPLOYEES PURSUANT TO THE 2005 STOCK PLAN (As Amended through April 25, 2006) I. INTRODUCTION The following terms and conditions shall apply...

  • Page 100
    ...all cases the Option shall be exercisable only to the extent that it was exercisable under the provisions of the foregoing Section II.4 at the time of such termination of employment. If a Participant is absent from work with the Corporation or an affiliate because of his or her Short-Term Disability...

  • Page 101
    ...registered investment broker to sell Shares in an amount sufficient to pay the Exercise Price plus any applicable withholding taxes and to transfer the proceeds of such sale to the Corporation. (B) If required by the Corporation, by giving satisfactory assurance in writing, signed by the Participant...

  • Page 102
    ... order as defined in the Code or Title I of the Employee Retirement Income Security Act; and (iii) any Participant, who is a senior executive officer recommended by the Chief Executive Officer and approved by the Administrator may voluntarily transfer any Nonstatutory Stock Option to a Family...

  • Page 103
    ... the Corporation's transfer agent evidencing shares of stock granted pursuant to a Restricted Stock grant may bear an appropriate legend referring to the terms, conditions and restrictions described in the Plan, the Restricted Stock Agreement and this Statement of Terms and Conditions. 7. Expiration...

  • Page 104
    ... who has been in continuous employment of the Corporation or any of its affiliates since the Grant Date of a Restricted Stock Unit Award or Performance Share Award ceases to be a bona fide employee of the Corporation of an affiliate by reason of Early Retirement, the Administrator may, in its sole...

  • Page 105
    ... the Corporation or its affiliates and obtained by the Participant during the term of his employment, whether or not they are the Participant's work product. Examples of such confidential information or trade secrets include, without limitation, customer lists, supplier lists, pricing and cost data...

  • Page 106
    ..., any of the customers of the Corporation or its affiliates, employees, representatives or consultants to terminate, discontinue or cease working with or for the Corporation or its affiliates, or to breach any contract with the Corporation or any of its affiliates, in order to work with or for...

  • Page 107
    ... local conditions, including custom and legal and tax requirements. 3. Information Notification. Any information required to be given under the terms of a Agreement shall be addressed to the Corporation in care of its Secretary at McKesson Plaza, One Post Street, San Francisco, California 94104...

  • Page 108
    ..., its employees, or its customers. 3. "Early Retirement" means a termination of employment which occurs prior to Normal Retirement but on or after the date on which the Participant's age (expressed in terms of years and completed months) plus service with the Corporation equals 65. 4. "Family Member...

  • Page 109
    EXHIBIT 12 McKESSON CORPORATION CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES (In millions) 2006 2005 Years Ended March 31, 2004 2003 2002 Earnings: Income (Loss) from continuing operations before income taxes Adjustments: Equity in net income of and dividends from equity investees Fixed ...

  • Page 110
    ... SUBSIDIARIES OF THE REGISTRANT There is no parent of the Company. The following is a listing of the significant subsidiaries of the Company, or if indented, subsidiaries of the Company under which they are listed. JURISDICTION OF ORGANIZATION McKesson Information Solutions Holdings Limited Ireland

  • Page 111
    ... statement schedule of McKesson Corporation, and management's report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of McKesson Corporation for the fiscal year ended March 31, 2006. Deloitte & Touche LLP San Francisco, California...

  • Page 112
    ... BY THESE PRESENTS THAT the undersigned directors and officers of McKesson Corporation, a Delaware corporation (the "Company"), do hereby constitute and appoint Jeffrey C. Campbell, Laureen E. Seeger and Kristina Veaco his or her true and lawful attorney and agent, each with full power and authority...

  • Page 113
    ... 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 have a significant role in the registrant's internal controls over financial reporting. Date: May 16, 2006 /s/ John...

  • Page 114
    ... 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 have a significant role in the registrant's internal controls over financial reporting. Date: May 16, 2006 /s/ Jeffrey...

  • Page 115
    ... 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, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and on the...