Annual Report Fiscal Year Ended March 31, 2010 “In fi scal 2010, McKesson continued its track record of delivering outstanding stockholder returns.” John H. Hammergren Chairman, President and Chief Executive Offi cer McKesson Corporation
Financial Results
*Diluted earnings per share (“EPS”) excludes adjustments for litigation charges (credits), net. For supplemental fi nancial data and corresponding reconciliation to U.S. generally accepted accounting principles (“GAAP”), see Appendix A to this 2010 Annual Report. Non-GAAP measures should be viewed in addition to, and not as an alternative for, fi nancial results prepared in accordance with GAAP.
**Assumes $100 invested in McKesson’s common stock and in each index on March 31, 2005, and reinvestment of all dividends. Dear Fellow Stockholders: I am pleased to report that McKesson delivered strong results in fiscal 2010, an achievement made all the more remarkable by the challenging economic environment we faced coming into the year.
Rarely in our 177-year history has the Company insurance reimbursement methods. We believe that experienced an era like the present — one that offers our unmatched HIT solution portfolio positions us so many opportunities for success and growth in extremely well to meet these demands. the healthcare industry, while presenting so many questions about the path forward. 3. Deep Customer Relationships
An important lesson to be learned from our long With so much change occurring in healthcare, and successful history is that change presents customers are looking for strategic partners who can opportunities, and I can say with confidence that we help them improve their financial, operational, and are well positioned to thrive in the years ahead. clinical performance. As reflected in our fiscal 2010 results, McKesson has been successful at building Five factors support my positive outlook for fiscal broad and deep customer relationships in all areas 2011 and beyond: of healthcare. These long-lasting partnerships open doors to new opportunities with existing customers, 1. Expanding Market for Pharmaceuticals and and they help the Company secure new business. Medical Supplies 4. Strong Balance Sheet and Financial Flexibility In addition to the demographic shifts driving long-term demand for pharmaceuticals, the Solid operating profit, significant cash flow, and a pharmaceutical market is expected to expand in the strong balance sheet give McKesson the ability to coming years due to the new Patient Protection and deploy capital for acquisitions, share repurchases, Affordable Care Act, which will add approximately and dividends. Our financial strength also allows us 32 million new patients to the healthcare system over to invest in research and development, infrastructure, the next decade. The legislation also seeks to lower and strategic initiatives that enhance our competitive healthcare costs, and pharmaceuticals offer one of position in the markets we serve. the most cost-effective ways to treat many illnesses and chronic conditions. As the nation’s leading 5. Proven Leadership Team with a Track Record distributor of pharmaceuticals and medical-surgical of Superior Performance supplies, one with unique solutions for enhancing the Our experienced executive team has consistently efficiency and effectiveness of the delivery process proven its ability to overcome challenges, exercise for these products, we stand to benefit from these financial discipline, and successfully execute on market trends. opportunities to increase stockholder value. Since 2. Growing Demand for Healthcare March 31, 2006, our revenues have increased from Information Technology $87.0 billion to $108.7 billion, a compound annual growth rate of 5.7%, and diluted earnings per share, The American Recovery and Reinvestment Act excluding adjustments for litigation charges (credits) offers incentives totaling approximately $19 net, has increased from $2.48 to $4.58, a compound billion to care providers who adopt healthcare annual growth rate of 16.6%. Reflecting our information technology (HIT). McKesson can help earnings per share growth, McKesson’s stock price providers qualify for these funds with our market- has substantially outperformed both the Value Line leading clinical systems, analytics, and connectivity Healthcare Sector Index and the S&P 500 Index. solutions. The need for HIT is also expected to rise due to increased reporting requirements, initiatives to prevent hospital re-admissions, and complex Clearly, the coming years will bring significant Strong Performance in Distribution Solutions change to healthcare. We believe the trends are in McKesson’s favor, and, as we have demonstrated over In our Distribution Solutions segment we performed our history, we consistently lead the way — creating well, with solid contributions from all of our exceptional value for our customers, suppliers, businesses. Highlights included the following: employees, and stockholders. We look forward to s #ONTINUED %XPANSION OF #ORE leading again in fiscal 2011. Distribution Business Fiscal 2010: Another Year of Above-Market In our U.S. pharmaceutical business, we delivered Revenue and Earnings Growth strong results despite the loss of two large customer buying groups in our prior fiscal year. At McKesson, we view our financial performance as We executed well for our branded pharmaceutical the ultimate measure of how well we have helped partners, continued to grow gross profit from our our customers achieve their own strategic goals. Our proprietary generics program, and realized many fiscal 2010 results show that, even in the face of one benefits from our global sourcing activities. In our of the most challenging economic environments of the Canadian distribution business, we grew revenues past 100 years, we succeeded once again in fulfilling and increased operating leverage through this mission. We helped make our partners and our additional investment in our distribution center stockholders more successful than ever before. network and increased utilization of McKesson’s global sourcing programs. I am pleased to report that McKesson’s fiscal 2010 revenues totaled $108.7 billion, with diluted earnings s 3UCCESSFUL (. &LU