McKesson 2009 Annual Report Download - page 34

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
28
In 2009, other income, net includes a pre-tax impairment charge of $63 million ($60 million after-tax) on two
equity-held investments and a pre-tax gain of $24 million ($14 million after-tax) from the sale of an equity-held
investment. Excluding these items, other income, net decreased over the last two years primarily due to a decrease
in interest income due to lower average cash and cash equivalents balances and interest rates.
Interest expense increased slightly in 2009 and 43% to $142 million in 2008. Interest expense for 2009 reflects
the repayment of $150 million of long-term debt during the fourth quarter of 2008 and the issuance of $700 million
of long-term debt during the fourth quarter of 2009. Interest expense in 2008 reflects additional expense associated
with the issuance of $1.0 billion of long-term debt in the fourth quarter of 2007 as part of our $1.8 billion acquisition
of Per-Se.
Income from continuing operations before income taxes was $1.1 billion, $1.5 billion and $1.3 billion in 2009,
2008 and 2007 reflecting the above noted factors.
Our reported income tax rates were 22.7%, 32.1% and 25.4% in 2009, 2008 and 2007. 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. In 2009, income tax expense included
$111 million of net income tax benefits for discrete items, which primarily consists of the recognition of previously
unrecognized tax benefits and related accrued interest. The recognition of these discrete items is primarily due to
the lapsing of the statutes of limitations. 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. These tax reserves were initially established in 2005 and were favorably resolved
in 2007.
In 2007, our 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.
Net income was $823 million, $990 million and $913 million in 2009, 2008 and 2007 and diluted earnings per
share was $2.95, $3.32 and $2.99.
Revenues:
Years Ended March 31,
(In millions) 2009 2008 2007
Distribution Solutions
U.S. pharmaceutical direct distribution & services $ 66,876 $ 60,436 $ 54,127
U.S. pharmaceutical sales to customers’ warehouses 25,809 27,668 27,555
Subtotal 92,685 88,104 81,682
Canada pharmaceutical distribution & services 8,225 8,106 6,692
Medical-Surgical distribution & services 2,658 2,509 2,364
Total Distribution Solutions 103,568 98,719 90,738
Technology Solutions
Services 2,337 2,240 1,537
Software and software systems 572 591 536
Hardware 155 153 166
Total Technology Solutions 3,064 2,984 2,239
Total Revenues $ 106,632 $ 101,703 $ 92,977
Revenues increased 5% to $106.6 billion in 2009 and 9% to $101.7 billion in 2008. The growth in revenues
was primarily driven by our Distribution Solutions segment, which accounted for 97% of revenues.