McKesson 2006 Annual Report Download - page 38

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
A reconciliation between our net income (loss) per share reported for U.S. GAAP purposes and our earnings per diluted share, excluding
charges for the Securities Litigation is as follows:
These pro forma amounts are non-GAAP financial measures. We use these measures internally and consider these results to be useful to
investors as they provide the most relevant benchmarks of core operating performance.
Weighted Average Diluted Shares Outstanding: Diluted earnings (loss) per share was calculated based on an average number of shares
outstanding of 316 million, 294 million and 299 million for 2006, 2005 and 2004. Weighted average diluted shares outstanding for 2006
primarily reflect an increase in the number of common shares outstanding as a result of exercised stock options, net of treasury stock
repurchased, as well as an increase in the common stock equivalents from stock options due to the increase in the Company’s common stock
price. For 2005, potentially dilutive securities were excluded from the per share computations due to their antidilutive effect.
International Operations
International operations accounted for 6.9%, 6.8% and 6.7% of 2006, 2005 and 2004 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 21, “Segments of Business” to the accompanying consolidated financial statements.
Restructuring Activities
In 2005 and 2004, we were 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 on a customer and contract specific basis, and actual settlements for each customer varied
significantly depending on the specific mix and number of products, and each customer contract or contracts. In 2004, we had significant
customer settlement activity, including the completion and execution of a number of the more difficult settlements. As of March 31, 2004, we
were substantially complete with our settlements and as a result, the customer settlement reserve was reduced by $66 million. In 2005, the
reserves were further reduced by $4 million based on additional favorable settlements. There were no significant offsetting changes in estimates
that increase the provision for customer settlements. Total cash and non-cash settlements of $45 million and $96 million have been incurred
since the inception of this restructuring plan. Non-cash settlements represent write-offs of customer receivables. As of March 31, 2005, accrued
customer settlement reserves were not material to our consolidated financial statements and the restructuring plan was essentially completed.
Refer to Financial Note 5, “Restructuring Activities,” to the accompanying consolidated financial statements for further discussion
regarding our restructuring activities.
34
Years Ended March 31,
(In millions except per share amounts) 2006 2005
Net income (loss), as reported $ 751 $ (157)
Exclude:
Securities Litigation charges, net 45 1,200
Estimated income tax expense (15) (390)
Securities Litigation charges, net of tax 30 810
Net income, excluding Securities Litigation charges $ 781 $ 653
Diluted earnings per common share, excluding Securities Litigation charges (1) $2.48 $ 2.19
Shares on which diluted earnings per common share, excluding the Securities Litigation charges, were
based 316 301
(1) For 2006 and 2005, interest expense, net of related income taxes, of $1 million and $6 million, has been added to net income, excluding
the Securities Litigation charges, for purpose of calculating diluted earnings per share. This calculation also includes the impact of
dilutive securities (stock options, convertible junior subordinated debentures and restricted stock).