McKesson 2011 Annual Report Download - page 44

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
38
Net Income: Net income was $1,202 million, $1,263 million and $823 million in 2011, 2010 and 2009 and
diluted earnings per common share were $4.57, $4.62 and $2.95. The net income and diluted earnings per common
share for 2011 included a pre-tax charge of $213 million ($149 million after-tax). Net income and diluted earnings
per common share for 2011 also included an after-tax gain of $72 million (or $0.28 per diluted share) relating to our
sale of MAP. 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.
Weighted Average Diluted Common Shares Outstanding: Diluted earnings per common share was calculated
based on a weighted average number of shares outstanding of 263 million, 273 million and 279 million for 2011,
2010 and 2009. 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 the exercise/settlement of share-based awards.
International Operations
International operations accounted for 8.9%, 8.6% and 7.9% of 2011, 2010 and 2009 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 20,
“Segments of Business,” to the consolidated financial statements appearing in this Annual Report on Form 10-K.
Business Combinations
On December 30, 2010, we acquired all of the outstanding shares of US Oncology for approximately $2.1
billion, consisting of cash consideration of $0.2 billion, net of cash acquired, and the assumption of liabilities with a
fair value of $1.9 billion. As an integrated oncology company, US Oncology is affiliated with community-based
oncologists, and works with patients, hospitals, payers and the medical industry across all phases of the cancer
research and delivery continuum. The acquisition of US Oncology expands our existing specialty pharmaceutical
distribution business and adds practice management services for oncologists. The cash paid at acquisition was
funded from cash on hand.
Included in the purchase price allocation are acquired identifiable intangibles of $1.0 billion, which primarily
consist of $0.7 billion of service agreements and $0.2 billion of customer lists. The estimated weighted average
lives of the service agreements, customer lists and total acquired intangibles are 18 years, 10 years and 16 years.
The excess of the purchase price over the net tangible and intangible assets of approximately $808 million was
recorded as goodwill, which primarily reflects the expected future benefits to be realized upon integrating the
business. Due to the recent timing of the acquisition, the fair value measurements of assets and liabilities assumed
as of the acquisition date are subject to change within the measurement period as our fair value assessments are
finalized. Financial results for US Oncology have been included in the results of operations within our Distribution
Solutions segment beginning in the fourth quarter of 2011.
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. Financial results for McQueary Brothers have
been included within our Distribution Solutions segment since the date of acquisition. During the first quarter of
2010, the fair value measurements of assets acquired and liabilities assumed as of the acquisition date were
completed. The excess of the purchase price over the net tangible and intangible assets of approximately
$126 million was recorded as goodwill, which primarily reflected the expected future benefits from synergies to be
realized upon integrating the business. Included in the purchase price allocation were acquired identifiable
intangibles of $61 million primarily 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.