McKesson 2010 Annual Report Download - page 40

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
34
On a segment basis, Distribution Solutions’ operating expenses decreased in 2010 and increased in 2009
primarily due to the $493 million AWP litigation charge in 2009. Excluding the AWP litigation charge, operating
expenses and operating expenses as a percentage of revenues decreased in 2010 primarily due to the sale of two
businesses during the first and third quarters of 2009, lower PSIP expense in 2010 and our continued focus on cost
containment, partially offset by an increase in expenses associated with our 2009 business acquisitions.
Excluding the AWP litigation charge, operating expenses in 2009 increased primarily due to business
acquisitions and additional costs incurred to support our sales volume growth. Operating expenses as a percentage
of revenues increased in 2009 primarily due to the AWP litigation charge as well as additional costs incurred to
support our sales volume growth.
As discussed in Financial Note 18, “Other Commitments and Contingent Liabilities,” in 2009 we reached an
agreement to settle all private party claims relating to First DataBank, Inc.’s published drug reimbursement
benchmarks for $350 million. We also recorded an accrual for pending and expected AWP-related claims by public
payors, which is currently estimated to be $143 million. The combination of the AWP settlement for all private
party claims and the decision by us to establish an estimated accrual for the pending and expected AWP-related
claims by public payors resulted in a pre-tax, non-cash charge of $493 million in the third quarter of 2009.
Technology Solutions segment’s operating expenses decreased over the past two years. Operating expenses and
operating expenses as a percentage of revenues for 2010 benefited from lower PSIP expense, cost containment
efforts and reduction in workforce plans implemented in 2009, partially offset by our continued investment in
research and development activities. Operating expenses for 2009 decreased primarily due to cost containment
efforts and a decrease in bad debt expense, partially offset by an increase in net research and development expenses
and additional costs for business acquisitions. Operating expenses as a percentage of revenues for this segment
decreased for 2009 primarily reflecting the segment’s cost containment efforts and a more favorable business mix.
Corporate expenses have increased over the last two years. Corporate expenses for 2010 increased primarily
due to higher compensation and benefits costs, other business initiatives and legal settlement charges, partially offset
by the reversal of a previously established litigation accrual. Corporate expenses increased in 2009 compared to
2008 primarily reflecting an increase in accounts receivable sales facility fees, compensation expense and additional
costs incurred to support various initiatives.
Other Income, net:
Years Ended March 31,
(In millions) 2010 2009 2008
By Segment
Distribution Solutions $ 29 $ (20) $ 35
Technology Solutions 5 7 11
Corporate 9 25 75
Total $ 43 $ 12 $ 121
In 2010, other income, net includes a $17 million pre-tax gain ($14 million after-tax) from the sale of our 50%
equity interest in MLS. The gain on sale of our investment in MLS was recorded within our Distribution Solutions
segment. The increase in other income, net was partially offset by a decrease in interest income due to lower
interest rates in 2010. Interest income, which is primarily recorded in Corporate, was $16 million, $31 million and
$89 million in 2010, 2009 and 2008.
In 2009, other income, net included a pre-tax impairment charge of $63 million ($60 million after-tax) on two
equity-held investments (as further described below) and a pre-tax gain of $24 million ($14 million after-tax) from
the sale of our 42% equity interest in Verispan, LLC (“Verispan”). The impairment charge and the gain on sale of
our investment in Verispan were both recorded within our Distribution Solutions segment. Excluding these items,
other income, net decreased primarily due to a decrease in interest income from lower average cash and cash
equivalents balances and interest rates.