McKesson 2010 Annual Report Download - page 38

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
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In 2010, our Technology Solutions segment’s gross profit margin was favorably affected by a change in
revenue mix, partially offset by a higher software revenue deferral rate.
In 2009, our Technology Solutions segment’s gross profit margin decreased compared to the prior year
primarily reflecting a change in revenue mix and the recognition in 2008 of $21 million of disease management
deferred revenues for which associated expenses were previously recognized as incurred.
Operating Expenses:
Years Ended March 31,
(Dollars in millions) 2010 2009 2008
Operating Expenses
Distribution Solutions (1) $ 2,260 $ 2,777 $ 2,138
Technology Solutions 1,077 1,096 1,115
Corporate 351 309 283
Subtotal 3,688 4,182 3,536
Litigation (credit), net (20) - (5)
Total $ 3,668 $ 4,182 $ 3,531
Operating Expenses as a Percentage of Revenues
Distribution Solutions 2.14% 2.68% 2.17%
Technology Solutions 34.48 35.77 37.37
Total 3.37 3.92 3.47
(1) Operating expenses for 2009 include the $493 million AWP litigation charge.
Operating expenses decreased 12% to $3.7 billion in 2010 and increased 18% to $4.2 billion in 2009.
Operating expenses for 2010 decreased compared to 2009, which included the AWP litigation charge as more fully
described below. Excluding the AWP litigation charge, operating expenses for 2010 approximated the same period
a year ago primarily due to lower PSIP expense as more fully described below, cost containment efforts, the sale of
two businesses during the first and third quarters in 2009 and the reversal of a previously established litigation
accrual. These decreases were partially offset by an increase in expenses associated with employee compensation
and benefit costs, our 2009 business acquisitions and other business initiatives.
Excluding the AWP litigation charge, operating expenses for 2009 increased primarily due to additional
expenses incurred to support our sales growth, expenses associated with our business acquisitions and higher
employee compensation.
The McKesson Corporation PSIP is a member of the settlement class in the Consolidated Securities Litigation
Action. On April 27, 2009, the court issued an order approving the distribution of the settlement funds. On October
9, 2009, the PSIP received approximately $119 million of the Consolidated Securities Litigation Action proceeds.
Approximately $42 million of the proceeds were attributable to the allocated shares of McKesson common stock
owned by the PSIP participants during the Consolidated Securities Litigation Action class-holding period and were
allocated to the respective participants on that basis in the third quarter of 2010. Approximately $77 million of the
proceeds were attributable to the unallocated shares (the “Unallocated Proceeds”) of McKesson common stock
owned by the PSIP in an employee stock ownership plan (“ESOP”) suspense account. In accordance with the plan
terms, the PSIP distributed all of the Unallocated Proceeds to current PSIP participants after the close of the plan
year in April 2010. The receipt of the Unallocated Proceeds by the PSIP was reimbursement for the loss in value of
the Company’s common stock held by the PSIP in its ESOP suspense account during the Consolidated Securities
Litigation Action class-holding period and was not a contribution made by the Company to the PSIP or ESOP.
Accordingly, there were no accounting consequences to the Company’s financial statements relating to the receipt of
the Unallocated Proceeds by the PSIP.