McKesson 2006 Annual Report Download - page 45

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
Sensitivity to changes in the major assumptions for our U. S. pension and postretirement plans are as follows:
Further information on our pension and postretirement benefit plans is provided in Financial Note 14, “Pension Benefits,” and Note 15,
“Other Postretirement Benefits,” to the accompanying consolidated financial statements.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Net cash flow from operating activities was $2,744 million in 2006, compared with $1,538 million in 2005 and $595 million in 2004. Net
cash flow from operations in 2006 and 2005 increased primarily reflecting 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 from better inventory management. Cash flows
from operations can be significantly impacted by factors such as the timing of receipts from customers and payments to vendors. Operating
activities for 2006 include a $143 million cash receipt in connection with an amended agreement entered into with a customer and cash
settlement payments of $243 million for the Securities Litigation. Additionally, cash flows from operations for 2006 include a reduction in
current income taxes payable and a reduction in our deferred tax assets which largely pertains to our Securities Litigation cash settlement
payments (including the $960 million placed in escrow), which will be deducted in our 2006 income return. Net cash flow from operating
activities in 2005 includes a $1,200 million non-cash ($810 million after-tax) charge for the Securities Litigation. In 2005, working capital
levels also benefited from favorable receivable terms on our then new contract with the Department of Veterans Affairs and improved accounts
receivable management. Partially offsetting our net working capital decreases is increased working capital associated with revenue growth,
including our contract with the Department of Veterans Affairs. Included in our 2005 net cash flow from operating activities is $40 million of
cash provided to a customer in exchange for a note receivable and the cancellation of a credit facility guarantee and another guarantee in favor
of this customer.
Net cash used in investing activities was $1,825 million in 2006, compared with $355 million in 2005 and $300 million in 2004. Investing
activities for 2006 include increases in property acquisitions and capitalized software expenditures which primarily reflect our investment in
our U.S. pharmaceutical distribution center network and our Provider Technologies segment’s investment in software for a contract with the
British government’s National Health Services Information Authority organization. Investing activities for 2006 also include $603 million of
expenditures for our business acquisitions, including D&K and Medcon, and a use of cash of $962 million due to a transfer of cash to an
escrow account for future payment of our Securities Litigation. Partially offsetting these increases were cash proceeds of $63 million pertaining
to the sale of BioServices. Investing activities for 2005 include $109 million of business acquisition expenditures, primarily for the acquisition
of MMC and the increased investment in Nadro. Investing activities for 2005 also reflect a higher level of property acquisitions which
primarily reflect improvements to our warehouse distribution and information technology networks.
Financing activities utilized cash of $577 million, $91 million and $109 million in 2006, 2005 and 2004. Financing activities for 2006
include $958 million of cash paid for stock repurchases and $102 million of cash paid for the repayment of life insurance policy loans, which
was partially offset by $568 million of cash receipts from common stock issuances. Financing activities for 2005 include repayment of
$268 million of long-term debt partially offset by $223 million of cash receipts from common stock issuances. Financing activities for 2004
include $157 million of stock repurchases partially offset by $93 million of cash receipts from the issuance of common stock and the receipt of
$33 million pertaining to the collection of employee loans. Cash received from common stock issuances primarily represent employees’
exercises of stock options. Cash dividends paid in 2006, 2005 and 2004 were $73 million, $70 million and $70 million.
41
Pension Plans Other Postretirement
Percentage Projected Projected
Point Benefit Benefit
(In millions) Change Obligation Expense Obligation Expense
Long-term return on assets +/- 1.0 p
t
$
—
$(3)/3 $ — $
—
Discount rate +/- 1.0 p
t
(35)/41 (3)/4 (14)/17 (4)/5