McKesson 2008 Annual Report Download - page 35

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
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Operating expenses were $3.5 billion, $3.1 billion and $2.7 billion in 2008, 2007 and 2006. Operating expenses
increased 15% in 2008 and 16% in 2007 primarily reflecting additional operating expenses incurred to support our
sales growth, expenses associated with our business acquisitions and higher employee compensation expenses
including expenses for share-based compensation. Additionally, operating expenses for 2007 were impacted by a
decrease in charges associated with our Securities Litigation. Operating expenses for 2008, 2007 and 2006 include
pre-tax credits of $5 million and $6 million and pre-tax charges of $45 million for our Securities Litigation.
Other income, net decreased in 2008 primarily reflecting a decrease in interest income due to lower cash
balances and lower interest rates. Other income, net in 2007 approximated that of 2006.
Interest expense increased 43% to $142 million in 2008 primarily reflecting the issuance of $1.0 billion of long-
term debt as part of our $1.8 billion acquisition of Per-Se. Interest expense increased 5% to $99 million in 2007.
Income from continuing operations before income taxes was $1,457 million, $1,297 million and $1,171 million
in 2008, 2007 and 2006, reflecting the above noted factors.
Our reported income tax rates were 32.1%, 25.4% and 36.4% in 2008, 2007 and 2006. Fluctuations in our
reported income tax rates are primarily due to changes in income within states and foreign countries that have lower
tax rates as well as other discrete tax events that occurred during the year. Additionally, in 2007, we recorded an
$83 million credit to our income tax provision relating to the reversal of income tax reserves related to uncertain tax
matters surrounding our Consolidated Securities Litigation Action costs. The tax reserves were initially established
in 2005 and were favorably resolved in 2007.
In 2007, results from discontinued operations were an after-tax loss of $55 million or $0.18 per diluted share,
which included the divestiture of our Distribution Solutions segment’ s Acute Care medical-surgical supply business.
This business was sold for net cash proceeds of $160 million and resulted in an after-tax loss of $66 million, which
included a $79 million non-tax deductible write-off of goodwill. Financial results for the Acute Care business have
been reclassified as a discontinued operation for all periods presented. Results from discontinued operations for
2008 and 2006 were $1 million and $6 million after-tax, or nil and $0.02 per diluted share.
Net income was $990 million, $913 million and $751 million in 2008, 2007 and 2006 and diluted earnings per
share was $3.32, $2.99 and $2.38. Excluding the Securities Litigation charges or credit, net income would have
been $987 million, $826 million and $781 million in 2008, 2007 and 2006 and diluted earnings per share would
have been $3.31, $2.71 and $2.48 (see reconciliation on page 37).
Revenues:
Years Ended March 31,
(In millions) 2008 2007 2006
Distribution Solutions
U.S. pharmaceutical direct distribution & services $ 60,436 $ 54,127 $ 51,730
U.S. pharmaceutical sales to customers’ warehouses 27,668 27,555 25,462
Subtotal 88,104 81,682 77,192
Canada pharmaceutical distribution & services 8,106 6,692 5,910
Medical-Surgical distribution & services 2,509 2,364 2,037
Total Distribution Solutions 98,719 90,738 85,139
Technology Solutions
Services 2,240 1,537 1,217
Software and software systems 591 536 476
Hardware 153 166 151
Total Technology Solutions 2,984 2,239 1,844
Total Revenues $ 101,703 $ 92,977 $ 86,983