McKesson 2010 Annual Report Download - page 51

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
45
Selected Measures of Liquidity and Capital Resources:
March 31,
(Dollars in millions) 2010 2009 2008
Cash and cash equivalents $ 3,731 $ 2,109 $ 1,362
Working capital 4,492 3,065 2,438
Debt, net of cash and cash equivalents (1,434) 403 435
Debt to capital ratio (1) 23.4% 28.9% 22.7%
Net debt to net capital employed (2) (23.5)% 6.1% 6.6%
Return on stockholders’ equity (3) 18.7% 13.2% 15.6%
(1) Ratio is computed as total debt divided by total debt and stockholders’ equity.
(2) Ratio is computed as total debt, net of cash and cash equivalents (“net debt”), divided by net debt and stockholders’ equity
(“net capital employed”).
(3) Ratio is computed as net income, divided by a five-quarter average of stockholders’ equity.
Our cash and equivalents balance as of March 31, 2010, included approximately $1.2 billion of cash held by our
subsidiaries outside of the United States. Although the vast majority of cash held outside the United States is
available for repatriation, doing so could subject us to U.S. federal, state and local income tax. We may temporarily
access cash held by foreign subsidiaries without subjecting us to U.S. federal, state and local income tax through
intercompany loans. A notice issued by the IRS in January 2009 announced that the Treasury Department will, for a
temporary period, extend the permitted duration of such intercompany loans that qualify for suspended deemed
dividend treatment under Section 956 of the Internal Revenue Code of 1986, as amended. Pursuant to the IRS
notice, such intercompany loans from foreign subsidiaries to the U.S. parent must be less than 60 days in duration
and borrowing activities cannot exceed 180 cumulative days during the year. At March 31, 2010, there were no
intercompany loans outstanding. The position set forth in the notice will apply for the Company until
March 31, 2011.
Working capital primarily includes cash and cash equivalents, receivables and inventories, net of drafts and
accounts payable, deferred revenue and other current liabilities. Our Distribution Solutions segment requires a
substantial investment in working capital that is susceptible to large variations during the year as a result of
inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of sales activity and
customer requirements.
Consolidated working capital increased at March 31, 2010, compared to March 31, 2009, primarily due to
increases in cash and cash equivalents, partially offset by an increase in net financial inventory and repayment of
$215 million of our long-term debt in March 2010. Consolidated working capital increased at March 31, 2009,
compared to March 31, 2008, primarily due to increases in cash and cash equivalents and accounts receivable,
partially offset by our $493 million AWP litigation accrual and a higher current portion of long-term debt.
Our ratio of net debt to net capital employed decreased at March 31, 2010, compared to March 31, 2009,
primarily reflecting an increase in cash and cash equivalents and repayment of $215 million of our long-term debt in
March 2010. This ratio decreased at March 31, 2009, compared to March 31, 2008, primarily reflecting an increase
in cash and cash equivalents, partially offset by our issuance of $700 million of long-term debt.
The Company has paid quarterly cash dividends at the rate of $0.06 per share on its common stock since the
fourth quarter of 1999. In April 2008, the quarterly dividend was raised from six cents to twelve cents per share.
The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment
and amount of future dividends remain within the discretion of the Board and will depend upon the Company’s
future earnings, financial condition, capital requirements and other factors. In 2010, 2009 and 2008, we paid total
cash dividends of $131 million, $116 million and $70 million.