McKesson 2005 Annual Report Download - page 42

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
investment inventory and the number and timing of new fee-based arrangements with pharmaceutical manufacturers. Consolidated working
capital has increased over the past two years primarily as a result of our higher sales volume.
Our ratio of net debt to net capital employed declined over the past two years as a growth in our operating profit was in excess of the growth
in working capital and other investments needed to fund the increase in revenue.
As previously discussed in this financial review, we recorded a pre-tax charge of $1.2 billion ($810.0 million after-tax) for the Securities
Litigation charge in the third quarter of 2005. We do not expect to have difficulties financing the settlement as payment becomes due later this
calendar year 2005 based on available information.
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.
Recently, a dividend of $0.06 per share was declared by the Company’s Board of Directors on January 26, 2005, and was paid on April 1, 2005
to stockholders of record at the close of business on March 1, 2005. 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 Company’s Board of
Directors and will depend upon the Company’s future earnings, financial condition, capital requirements and other factors.
Financial Obligations and Commitments:
The table below presents our significant financial obligations and commitments at March 31, 2005:
(1) Primarily includes estimated payments for pension and postretirement benefit plans.
(2) Primarily includes operating lease obligations.
We define a purchase obligation as an arrangement to purchase goods or services that is enforceable and legally binding on the Company.
These obligations primarily relate to inventory purchases, capital commitments and service agreements.
We have agreements with certain of our customers’ financial institutions (primarily for our Canadian business) under which we have
guaranteed the repurchase of inventory at a discount in the event these customers are unable to meet certain obligations to those financial
institutions. Among other limitations, these inventories must be in resalable condition. We have also guaranteed loans, credit facilities and the
payment of leases for some customers; and we are a secured lender for substantially all of these guarantees. Customer guarantees range from
one to ten years and were primarily provided to facilitate financing for certain strategic customers. At March 31, 2005, the maximum amounts
of inventory repurchase guarantees and other customer guarantees were $179.5 million and $10.3 million. In 2005, we converted a
$40.0 million credit facility guarantee in favor of a customer to a note receivable due from this customer. This secured note bears interest and is
repayable in 2007. In conjunction with this modification, an inventory repurchase guarantee in favor of this customer for approximately
$12 million was also terminated in 2004. The amount due under the note receivable from this customer was approximately $36 million at
March 31, 2005. We consider it unlikely that we would make significant payments under these guarantees, and accordingly, amounts accrued
for these guarantees were nominal.
42
Years
(In millions) Total Within 1 Over 1 to 3 Over 3 to 5 After 5
On balance sheet
Securities Litigation $1,200.0 $1,200.0 $ — $
—
$
—
Long-term debt 1,208.1 7.8 184.4 230.7 785.2
Other (1) 325.7 27.9 56.0 49.3 192.5
Off balance sheet
Purchase obligations 2,742.1 2,681.9 15.6 12.5 32.1
Customer guarantees 189.8 24.2 33.9 1.7 130.0
Other (2) 323.3 87.9 123.5 53.2 58.7
Total $5,989.0 $4,029.7 $413.4 $ 347.4 $1,198.5