McKesson 2010 Annual Report Download - page 43

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
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Net Income: Net income was $1,263 million, $823 million and $990 million in 2010, 2009 and 2008 and
diluted earnings per common share were $4.62, $2.95 and $3.32. The net income and diluted earnings per common
share for 2009 included a pre-tax charge of $493 million ($311 million after-tax) for the AWP litigation as discussed
in further detail under the caption “Operating Expenses” in this Financial Review.
Weighted Average Diluted Common Shares Outstanding: Diluted earnings per common share was calculated
based on a weighted average number of shares outstanding of 273 million, 279 million and 298 million for 2010,
2009 and 2008. The decrease in the number of weighted average diluted common shares outstanding over the past
two years primarily reflects a decrease in the number of shares outstanding as a result of stock repurchased, partially
offset by exercise of share-based awards.
International Operations
International operations accounted for 8.6%, 7.9% and 8.2% of 2010, 2009 and 2008 consolidated revenues.
International operations are subject to certain risks, including currency fluctuations. We monitor our operations and
adopt strategies responsive to changes in the economic and political environment in each of the countries in which
we operate. Additional information regarding our international operations is also included in Financial Note 21,
“Segments of Business,” to the accompanying consolidated financial statements.
Business Combinations and Investments
In 2009, we made the following acquisition:
On May 21, 2008, we acquired McQueary Brothers of Springfield, Missouri for approximately $190 million.
McQueary Brothers is a regional distributor of pharmaceutical, health and beauty products to independent and
regional chain pharmacies in the Midwestern U.S. This acquisition expanded our existing U.S. pharmaceutical
distribution business. The acquisition was funded with cash on hand. During the first quarter of 2010, the
acquisition accounting was completed. Approximately $126 million of the purchase price allocation has been
assigned to goodwill, which primarily reflects the expected future benefits from synergies to be realized upon
integrating the business. Included in the purchase price allocation are acquired identifiable intangibles of
$61 million representing a customer relationship with a useful life of 7 years, a trade name of $2 million with a
useful life of less than one year and a not-to-compete agreement of $4 million with a useful life of 4 years. Financial
results for McQueary Brothers have been included within our Distribution Solutions segment since the date of
acquisition.
In 2008, we made the following acquisition:
On October 29, 2007, we acquired all of the outstanding shares of OTN of San Francisco, California for
approximately $519 million, including the assumption of debt and net of $31 million of cash and cash equivalents
acquired from OTN. During the third quarter of 2009, the acquisition accounting was completed. OTN is a U.S.
distributor of specialty pharmaceuticals. The acquisition of OTN expanded our existing specialty pharmaceutical
distribution business. The acquisition was funded with cash on hand. Financial results for OTN are included within
our Distribution Solutions segment since the date of acquisition. Approximately $240 million of the purchase price
allocation has been assigned to goodwill, which primarily reflects the expected future benefits from synergies upon
integrating the business. Included in the purchase price allocation are acquired identifiable intangibles of
$115 million representing customer relationships with a weighted-average life of 9 years, developed technology of
$3 million with a weighted-average life of 4 years and trademarks and trade names of $10 million with a weighted-
average life of 5 years.