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8-K - CURRENT REPORT ON FORM 8-K - MCKESSON CORPd476075d8k.htm

Exhibit 99.1

 

LOGO     

McKESSON REPORTS FISCAL 2013 THIRD-QUARTER RESULTS

 

   

Revenues of $31.2 billion for the third quarter, up 1%.

 

   

Third-quarter GAAP earnings per diluted share of $1.24, up 3%.

 

   

Third-quarter Adjusted Earnings per diluted share of $1.41, up 1%.

 

   

Board of Directors authorized an additional $500 million share repurchase program.

 

   

Fiscal 2013 Outlook: Adjusted Earnings per diluted share of $7.10 to $7.30.

SAN FRANCISCO, January 31, 2013 – McKesson Corporation (NYSE: MCK) today reported that revenues for the third quarter ended December 31, 2012 were $31.2 billion, up 1% compared to $30.8 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), third-quarter earnings per diluted share was $1.24 compared to $1.20 a year ago.

Third-quarter Adjusted Earnings per diluted share was $1.41, up 1% compared to $1.40 a year ago.

For the first nine months of the fiscal year, McKesson generated cash from operations of $276 million, and ended the quarter with cash and cash equivalents of $2.7 billion. During the first nine months of the fiscal year, the company paid $147 million in dividends, had internal capital spending of $268 million and spent $577 million on acquisitions. The company also repurchased $360 million of its common stock during the third quarter.

Distribution Solutions revenues were up 1% in the third quarter, driven mainly by growth in our U.S. pharmaceutical direct distribution and services business and growth in our Medical-Surgical distribution business.

Canadian revenues, on a constant currency basis, increased 3% for the third quarter. Including the favorable currency impact of 3%, Canadian revenues increased 6% for the third quarter.

 

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Medical-Surgical distribution and services revenues were up 15% for the third quarter, driven by market growth, new customers, acquisitions and one additional sales day.

In the third quarter, Distribution Solutions GAAP operating profit was $525 million and GAAP operating margin was 1.73%. Third-quarter adjusted operating profit was $569 million and the adjusted operating margin was 1.87%. Distribution Solutions third-quarter segment results include a $40 million pre-tax charge related to a legal dispute in our Canadian business.

Technology Solutions revenues were flat in the third quarter compared to the prior year. GAAP operating profit was $79 million for the third quarter and GAAP operating margin was 9.56%. Adjusted operating profit was $98 million for the third quarter and adjusted operating margin was 11.86%. Technology Solutions third-quarter segment results were impacted by revenue deferral in our international business.

“Our full year view of the operating performance in our Distribution Solutions segment is now better than our original expectations, and our full year view of the operating performance in the primary businesses in Technology Solution remains unchanged,” said John H. Hammergren, chairman and chief executive officer. “This operating strength is offset by the charge in our Canadian business and revenue deferral in our international technology business, and as a result we are updating our previous outlook for the fiscal year and now expect Adjusted Earnings per diluted share of $7.10 to $7.30 for the fiscal year ending March 31, 2013.”

 

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Fiscal Year 2013 Outlook

McKesson expects Adjusted Earnings per diluted share of $7.10 to $7.30 for the fiscal year ending March 31, 2013, which excludes the following GAAP items:

 

   

Amortization of acquisition-related intangible assets of approximately 55 cents per diluted share in Fiscal 2013.

 

   

Acquisition expenses and related adjustments expected to add approximately 13 cents per diluted share, including the impact of the $81 million pre-tax gain on business combination related to the acquisition of the remaining 50% ownership in McKesson’s corporate headquarters building completed during the first quarter.

 

   

Litigation reserve adjustments of approximately 15 cents per diluted share.

Adjusted Earnings

McKesson separately reports financial results on the basis of Adjusted Earnings. Adjusted Earnings is a non-GAAP financial measure defined as GAAP income from continuing operations, excluding amortization of acquisition-related intangible assets, acquisition expenses and related adjustments, and certain litigation reserve adjustments. A reconciliation of McKesson’s financial results determined in accordance with GAAP to Adjusted Earnings is provided in Schedules 2, 3 and 4 of the financial statement tables included with this release.

 

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Risk Factors

Except for historical information contained in this press release, matters discussed may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These statements may be identified by their use of forward-looking terminology such as “believes”, “expects”, “anticipates”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates” or the negative of these words or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. It is not possible to predict or identify all such risks and uncertainties; however, the most significant of these risks and uncertainties are described in the company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: material adverse resolution of pending legal proceedings; changes in the U.S. healthcare industry and regulatory environment; changes in the Canadian healthcare industry and regulatory environment; competition; substantial defaults in payment or a material reduction in purchases by, or the loss of, a large customer or group purchasing organization; the loss of government contracts as a result of compliance or funding challenges; public health issues in the U.S. or abroad; implementation delay, malfunction, failure or breach of internal information systems; the adequacy of insurance to cover property loss or liability claims; the company’s failure to attract and retain customers for its software products and solutions due to integration and implementation challenges, or due to an inability to keep pace with technological advances; the company’s proprietary products and services may not be adequately protected, and its products and solutions may be found to infringe on the rights of others; system errors or failure of our technology products and solutions to conform to specifications; disaster or other event causing interruption of customer access to data residing in our service centers; the delay or extension of our sales or implementation cycles for external software products; changes in circumstances that could impair our goodwill or

 

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intangible assets; foreign currency fluctuations or disruptions to our foreign operations; new or revised tax legislation or challenges to our tax positions; the company’s ability to successfully identify, consummate and integrate strategic acquisitions; general economic conditions, including changes in the financial markets that may affect the availability and cost of credit to the company, its customers or suppliers; and changes in accounting principles generally accepted in the United States of America. The reader should not place undue reliance on forward-looking statements, which speak only as of the date they are first made. Except to the extent required by law, the company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

The company has scheduled a conference call for 5:00 PM ET. The dial-in number for individuals wishing to participate on the call is 719-234-7317. Erin Lampert, vice president, Investor Relations, is the leader of the call, and the password to join the call is ‘McKesson’. A replay of this conference call will be available for five calendar days. The dial-in number for individuals wishing to listen to the replay is 888-203-1112 and the pass code is 8164902. A webcast of the conference call will also be available live and archived on the company’s Investor Relations website at www.mckesson.com/investors.

Shareholders are encouraged to review SEC filings and more information about McKesson, which are located on the company’s website.

 

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About McKesson

McKesson Corporation, currently ranked 14th on the FORTUNE 500, is a healthcare services and information technology company dedicated to making the business of healthcare run better. We partner with payers, hospitals, physician offices, pharmacies, pharmaceutical companies and others across the spectrum of care to build healthier organizations that deliver better care to patients in every setting. McKesson helps its customers improve their financial, operational, and clinical performance with solutions that include pharmaceutical and medical-surgical supply management, healthcare information technology, and business and clinical services. For more information, visit http://www.mckesson.com.

###

Contact:

Erin Lampert, 415-983-8391 (Investors and Financial Media)

Erin.Lampert@McKesson.com

Kris Fortner, 415-983-8352 (General and Business Media)

Kris.Fortner@McKesson.com

 

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Schedule 1

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — GAAP

(unaudited)

(in millions, except per share amounts)

 

     Quarter Ended December 31,            Nine Months Ended December 31,        
     2012     2011     Change      2012     2011     Change  

Revenues

   $ 31,187      $ 30,839        1 %       $ 91,835      $ 91,035        1 %   

Cost of sales (1) (3)

     (29,519     (29,273     1             (86,847     (86,313     1       
  

 

 

   

 

 

      

 

 

   

 

 

   

Gross profit

     1,668        1,566        7             4,988        4,722        6       

Operating expenses (2) (3)

     (1,183     (1,047     13             (3,334     (3,135     6       

Litigation charges (4)

            (27     —             (60     (145     (59)      

Gain on business combination (5)

                   —             81               —       
  

 

 

   

 

 

      

 

 

   

 

 

   

Total operating expenses

     (1,183     (1,074     10             (3,313     (3,280     1       
  

 

 

   

 

 

      

 

 

   

 

 

   

Operating income

     485        492        (1)            1,675        1,442        16       

Other income (expense), net

     10        (2     —             28        12        133       

Interest expense

     (59     (64     (8)            (170     (192     (11)      
  

 

 

   

 

 

      

 

 

   

 

 

   

Income before income taxes

     436        426        2             1,533        1,262        21       

Income tax expense

     (138     (126     10             (454     (380     19       
  

 

 

   

 

 

      

 

 

   

 

 

   

Net income

   $ 298      $ 300        (1)          $ 1,079      $ 882        22       
  

 

 

   

 

 

      

 

 

   

 

 

   

Earnings per common share (6)

             

Diluted

   $ 1.24      $ 1.20        3 %       $ 4.49      $ 3.51        28 %   
  

 

 

   

 

 

      

 

 

   

 

 

   

Basic

   $ 1.27      $ 1.22        4 %       $ 4.58      $ 3.57        28 %   
  

 

 

   

 

 

      

 

 

   

 

 

   

Weighted average common shares

             

Diluted

     240        251        (4) %         240        252        (5) %   

Basic

     235        246        (4)             236        247        (4)       

 

 

(1) 

Cost of sales for the third quarter and first nine months of fiscal year 2013 includes the receipt of $8 million and $27 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

Distribution Solutions segment operating expenses for the third quarter and first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.

 

(3) 

Technology Solutions segment results for the third quarter and first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.

 

(4) 

Represent charges for the Average Wholesale Price (“AWP”) litigation.

 

(5) 

For the first nine months of fiscal year 2013, operating expenses include an $81 million pre-tax ($51 million after-tax) gain on business combination related to the acquisition of the remaining 50% ownership interest in our corporate headquarters building.

 

(6) 

Certain computations may reflect rounding adjustments.


Schedule 2A

McKESSON CORPORATION

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)

(unaudited)

(in millions, except per share amounts)

 

                                   Change
     Quarter Ended December 31, 2012     Vs. Prior Quarter
     As Reported
(GAAP)
   

Amortization

of Acquisition-
Related

Intangibles

   

Acquisition

Expenses and
Related

Adjustments

    Litigation
Reserve
Adjustments
   

Adjusted

Earnings

(Non-GAAP)

    As
Reported
(GAAP)
    

Adjusted

Earnings

(Non-GAAP)

  

 

 

   

 

 

Revenues

   $ 31,187      $      $      $      $ 31,187        1 %       1 %

Gross profit (1)

   $ 1,668      $ 3      $      $      $ 1,671        7           6    

Operating expenses (2)

     (1,183     50        10               (1,123     10           13     

Other income (expense), net

     10                             10        —           —     

Interest expense

     (59            1               (58     (8)          (9)   
  

 

 

      

Income before income taxes

     436        53        11               500        2           (2)   

Income tax expense

     (138     (20     (2            (160     10           1    
  

 

 

      

Net Income

   $ 298      $ 33      $ 9      $      $ 340        (1)          (3)   
  

 

 

      

Diluted earnings per common share (4)

   $ 1.24      $ 0.14      $ 0.03      $      $ 1.41        3 %       1 %
  

 

 

      

Diluted weighted average common shares

     240        240        240        240        240        (4)%       (4)%
  

 

 

      
     Quarter Ended December 31, 2011             
     As Reported
(GAAP)
   

Amortization

of Acquisition-
Related

Intangibles

   

Acquisition

Expenses and
Related

Adjustments

    Litigation
Reserve
Adjustments
   

Adjusted

Earnings

(Non-GAAP)

            
  

 

 

      

Revenues

   $ 30,839      $      $      $      $ 30,839        

Gross profit (3)

   $ 1,566      $ 5      $      $      $ 1,571        

Operating expenses (3)

     (1,074     44        8        27        (995     

Other income (expense), net

     (2                          (2     

Interest expense

     (64                          (64     
  

 

 

      

Income before income taxes

     426        49        8        27        510        

Income tax expense

     (126     (18     (3     (12     (159     
  

 

 

      

Net Income

   $ 300      $ 31      $ 5      $ 15      $ 351        
  

 

 

      

Diluted earnings per common share (4)

   $ 1.20      $ 0.12      $ 0.02      $ 0.06      $ 1.40        
  

 

 

      

Diluted weighted average common shares

     251        251        251        251        251        
  

 

 

      

 

(1) 

Gross profit for the third quarter of fiscal year 2013 includes the receipt of $8 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

Distribution Solutions segment operating expenses for the third quarter of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.

 

(3) 

Technology Solutions segment results for the third quarter of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.

 

(4) 

Certain computations may reflect rounding adjustments.

Adjusted Earnings (Non-GAAP) Financial Information

Adjusted Earnings represents income from continuing operations, excluding the effects of the following items from the Company’s GAAP financial results, including the related income tax effects:

Amortization of acquisition-related intangibles — Amortization expense of acquired intangible assets purchased in connection with acquisitions by the Company.

Acquisition expenses and related adjustments — Transaction and integration expenses that are directly related to acquisitions by the Company. Examples include transaction closing costs, professional service fees, restructuring or severance charges, retention payments, employee relocation expenses, facility or other exit-related expenses, recoveries of acquisition-related expenses or post-closing expenses, bridge loan fees, and gains or losses on business combinations.

Litigation reserve adjustments — Adjustments to the Company’s reserves, including accrued interest, for estimated probable losses for its Average Wholesale Price and Securities Litigation matters, as such terms were defined in the Company’s Annual Reports on Form 10-K for the fiscal years ended March 31, 2012 and 2009.

Income taxes on Adjusted Earnings are calculated in accordance with Accounting Standards Codification 740, “Income Taxes,” which is the same accounting principles used by the Company when presenting its GAAP financial results.

The Company believes the presentation of non-GAAP measures such as Adjusted Earnings provides useful supplemental information to investors with regard to its core operating performance, as well as assists with the comparison of its past financial performance to the Company’s future financial results. Moreover, the Company believes that the presentation of Adjusted Earnings assists investors’ ability to compare its financial results to those of other companies in the same industry. However, the Company’s Adjusted Earnings measure may be defined and calculated differently by other companies in the same industry.

The Company internally uses non-GAAP financial measures such as Adjusted Earnings in connection with its own financial planning and reporting processes. Specifically, Adjusted Earnings serves as one of the measures management utilizes when allocating resources, deploying capital and assessing business performance and employee incentive compensation. Nonetheless, non-GAAP financial results and related measures disclosed by the Company should not be considered a substitute for, nor superior to, financial results and measures as determined or calculated in accordance with GAAP.


Schedule 2B

McKESSON CORPORATION

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)

(unaudited)

(in millions, except per share amounts)

 

                                  Change  
    Nine Months Ended December 31, 2012     Vs. Prior Period  
    As Reported
(GAAP)
   

Amortization
of Acquisition-
Related

Intangibles

   

Acquisition

Expenses and
Related

Adjustments

    Litigation
Reserve
Adjustments
   

Adjusted

Earnings

(Non-GAAP)

    As
Reported
(GAAP)
    

Adjusted

Earnings

(Non-GAAP)

 
 

 

 

   

 

 

 

Revenues

  $ 91,835      $      $      $      $ 91,835        1 %         1 %   

Gross profit (1)

  $ 4,988      $ 11      $      $      $ 4,999        6             6       

Operating expenses (2) (3)

    (3,313     141        (66     60        (3,178     1             7       

Other income, net

    28                             28        133             133       

Interest expense

    (170            1               (169     (11)            (12)      
 

 

 

      

Income before income taxes

    1,533        152        (65     60        1,680        21             6       

Income tax expense

    (454     (57     27        (23     (507     19             2       
 

 

 

      

Net Income

  $ 1,079      $ 95      $ (38   $ 37      $ 1,173        22             8       
 

 

 

      

Diluted earnings per common share (5)

  $ 4.49      $ 0.40      $ (0.16   $ 0.15      $ 4.88        28 %         13 %   
 

 

 

      

Diluted weighted average common shares

    240        240        240        240        240        (5)%         (5)%   
 

 

 

      
    Nine Months Ended December 31, 2011        
    As Reported
(GAAP)
    Amortization
of Acquisition-
Related
Intangibles
    Acquisition
Expenses and
Related
Adjustments
    Litigation
Reserve
Adjustments
    Adjusted
Earnings
(Non-GAAP)
              
 

 

 

      

Revenues

  $ 91,035      $      $      $      $ 91,035        

Gross profit (4)

  $ 4,722      $ 16      $      $      $ 4,738        

Operating expenses (4)

    (3,280     131        26        145        (2,978     

Other income, net

    12                             12        

Interest expense

    (192                          (192     
 

 

 

      

Income before income taxes

    1,262        147        26        145        1,580        

Income tax expense

    (380     (56     (9     (53     (498     
 

 

 

      

Net Income

  $ 882      $ 91      $ 17      $ 92      $ 1,082        
 

 

 

      

Diluted earnings per common share (5)

  $ 3.51      $ 0.36      $ 0.06      $ 0.37      $ 4.30        
 

 

 

      

Diluted weighted average common shares

    252        252        252        252        252        
 

 

 

      

 

 

(1) 

Gross profit for the first nine months of fiscal year 2013 includes the receipt of $27 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

Distribution Solutions segment operating expenses for the first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.

 

(3) 

For the first nine months of fiscal year 2013, operating expenses, as reported under GAAP, include an $81 million pre-tax ($51 million after-tax) gain on business combination related to the acquisition of the remaining 50% ownership interest in our corporate headquarters building.

 

(4) 

Technology Solutions segment results for the first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.

 

(5) 

Certain computations may reflect rounding adjustments.


Schedule 3A

McKESSON CORPORATION

RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)

(unaudited)

(in millions)

 

     Quarter Ended December 31, 2012      Quarter Ended December 31, 2011      Change  
     As Reported
(GAAP)
     Adjustments     

Adjusted

Earnings

(Non-GAAP)

     As Reported
(GAAP)
     Adjustments      Adjusted
Earnings
(Non-GAAP)
     As
Reported
(GAAP)
    

Adjusted

Earnings

(Non-GAAP)

 
  

 

 

    

 

 

 

REVENUES

                       

Distribution Solutions

                       

Direct distribution & services

   $ 22,386            $       $ 22,386            $ 21,585            $       $ 21,585              4%          4%    

Sales to customers’ warehouses

     4,468                     4,468              5,198                     5,198              (14)             (14)       
  

 

 

    

 

 

       

Total U.S. pharmaceutical distribution & services

     26,854                      26,854              26,783                      26,783              —              —        

Canada pharmaceutical distribution & services

     2,633                      2,633              2,473                      2,473              6              6        

Medical-Surgical distribution & services

     874                     874              760                     760              15              15        
  

 

 

    

 

 

       

Total Distribution Solutions

     30,361                     30,361              30,016                     30,016              1              1        
  

 

 

    

 

 

       

Technology Solutions

                       

Services

     661                      661              643                      643              3              3        

Software & software systems

     145                      145              152                      152              (5)             (5)       

Hardware

     20                      20              28                      28              (29)             (29)       
  

 

 

    

 

 

       

Total Technology Solutions

     826                     826              823                     823              —              —        
  

 

 

    

 

 

       

Revenues

   $ 31,187            $       $ 31,187            $ 30,839            $       $ 30,839              1              1        
  

 

 

    

 

 

       

GROSS PROFIT

                       

Distribution Solutions (1)

   $ 1,287            $       $ 1,287            $ 1,201            $       $ 1,201              7              7        

Technology Solutions (2)

     381              3         384              365              5         370              4              4        
  

 

 

    

 

 

       

Gross profit

   $ 1,668            $ 3       $ 1,671            $ 1,566            $ 5       $ 1,571              7              6        
  

 

 

    

 

 

       

OPERATING EXPENSES

                       

Distribution Solutions (3) (4)

   $ (769)           $ 44       $ (725)           $ (690)           $ 62       $ (628)             11              15        

Technology Solutions (2)

     (302)             16         (286)             (297)             15         (282)             2              1        

Corporate

     (112)                    (112)             (87)             2         (85)             29              32        
  

 

 

    

 

 

       

Operating expenses

   $ (1,183)           $ 60       $ (1,123)           $ (1,074)           $ 79       $ (995)             10              13        
  

 

 

    

 

 

       

OTHER INCOME (EXPENSE), NET

                       

Distribution Solutions

   $ 7            $       $ 7            $ (1)           $       $ (1)             —              —        

Technology Solutions

     —                      —              1                      1              —              —        

Corporate

     3                      3              (2)                    (2)             —              —        
  

 

 

    

 

 

       

Other income (expense), net

   $ 10            $       $ 10            $ (2)           $       $ (2)             —              —        
  

 

 

    

 

 

       

OPERATING PROFIT

                       

Distribution Solutions (1) (3) (4)

   $ 525            $ 44       $ 569            $ 510            $ 62       $ 572              3              (1)       

Technology Solutions (2)

     79              19         98              69              20         89              14              10        
  

 

 

    

 

 

       

Operating profit

     604              63         667              579              82         661              4              1        

Corporate

     (109)                    (109)             (89)             2         (87)             22              25        
  

 

 

    

 

 

       

Income before interest expense and income taxes

   $ 495            $ 63       $ 558            $ 490            $ 84       $ 574              1              (3)       
  

 

 

    

 

 

       

STATISTICS

                       

Operating profit as a % of revenues

                       

Distribution Solutions (1) (3) (4)

     1.73 %            1.87 %         1.70 %            1.91 %         3 bp         (4) bp   

Technology Solutions (2)

     9.56                 11.86              8.38                 10.81              118              105          

 

 

(1)

Results for the third quarter of fiscal year 2013 include the receipt of $8 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

Results for the third quarter of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.

 

(3) 

Results for the third quarter of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.

 

(4) 

For the third quarter of fiscal year 2012, results, as reported under GAAP, include an AWP litigation charge of $27 million.


Schedule 3B

McKESSON CORPORATION

RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)

(unaudited)

(in millions)

 

     Nine Months Ended December 31, 2012      Nine Months Ended December 31, 2011      Change  
     As Reported
(GAAP)
     Adjustments     

Adjusted

Earnings

(Non-GAAP)

     As Reported
(GAAP)
     Adjustments     

Adjusted

Earnings

(Non-GAAP)

     As Reported
(GAAP)
    

Adjusted

Earnings

(Non-GAAP)

 
  

 

 

    

 

 

    

 

 

 

REVENUES

                       

Distribution Solutions

                       

Direct distribution & services

   $ 64,625            $ —        $ 64,625            $ 63,484            $ —        $ 63,484              2%          2%    

Sales to customers’ warehouses

     14,621              —         14,621              14,998              —         14,998              (3)             (3)       
  

 

 

    

 

 

       

Total U.S. pharmaceutical distribution & services

     79,246              —          79,246              78,482              —          78,482              1              1        

Canada pharmaceutical distribution & services

     7,559              —          7,559              7,739              —          7,739              (2)             (2)       

Medical-Surgical distribution & services

     2,542              —         2,542              2,364              —         2,364              8              8        
  

 

 

    

 

 

       

Total Distribution Solutions

     89,347              —         89,347              88,585              —         88,585              1              1        
  

 

 

    

 

 

       

Technology Solutions

                       

Services

     1,983              —          1,983              1,916              —          1,916              3              3        

Software & software systems

     432              —          432              449              —          449              (4)             (4)       

Hardware

     73              —          73              85              —          85              (14)             (14)       
  

 

 

    

 

 

       

Total Technology Solutions

     2,488              —         2,488              2,450              —         2,450              2              2        
  

 

 

    

 

 

       

Revenues

   $ 91,835            $ —       $ 91,835            $ 91,035            $ —       $ 91,035              1              1        
  

 

 

    

 

 

       

GROSS PROFIT

                       

Distribution Solutions (1)

   $ 3,841            $       $ 3,843            $ 3,590            $       $ 3,591              7              7        

Technology Solutions (2)

     1,147                      1,156              1,132              15          1,147              1              1        
  

 

 

    

 

 

       

Gross profit

   $ 4,988            $ 11        $ 4,999            $ 4,722            $ 16        $ 4,738              6              6        
  

 

 

    

 

 

       

OPERATING EXPENSES

                       

Distribution Solutions (3) (4)

   $ (2,212)           $ 173        $ (2,039)           $ (2,136)           $ 258        $ (1,878)             4              9        

Technology Solutions (2)

     (881)             43          (838)             (857)             42          (815)             3              3        

Corporate (5)

     (220)             (81)         (301)             (287)                     (285)             (23)             6        
  

 

 

    

 

 

       

Operating expenses

   $ (3,313)           $ 135        $ (3,178)           $ (3,280)           $ 302        $ (2,978)             1              7        
  

 

 

    

 

 

       

OTHER INCOME, NET

                       

Distribution Solutions

   $ 17            $ —        $ 17            $ 8            $ —        $ 8              113              113        

Technology Solutions

     3              —          3              2              —          2              50              50        

Corporate

     8              —          8              2              —         2              300              300        
  

 

 

    

 

 

       

Other income, net

   $ 28            $ —       $ 28            $ 12            $ —       $ 12              133              133        
  

 

 

    

 

 

       

OPERATING PROFIT

                       

Distribution Solutions (1) (3) (4)

   $ 1,646            $ 175        $ 1,821            $ 1,462            $ 259        $ 1,721              13              6        

Technology Solutions (2)

     269              52          321              277              57          334              (3)             (4)       
  

 

 

    

 

 

       

Operating profit

     1,915              227          2,142              1,739              316          2,055              10              4        

Corporate

     (212)             (81)         (293)             (285)                     (283)             (26)             4        
  

 

 

    

 

 

       

Income before interest expense and income taxes

   $ 1,703            $ 146        $ 1,849            $ 1,454            $ 318        $ 1,772              17              4        
  

 

 

    

 

 

       

STATISTICS

                       

Operating profit as a % of revenues

                       

Distribution Solutions (1) (3) (4)

     1.84 %             2.04 %          1.65 %             1.94 %          19 bp         10 bp   

Technology Solutions (2)

     10.81                 12.90              11.31                 13.63              (50)              (73)        

 

 

(1)

Results for the first nine months of fiscal year 2013 include the receipt of $27 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

Results for the first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.

 

(3) 

Results for the first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.

 

(4) 

For the first nine months of fiscal years 2013 and 2012, results, as reported under GAAP, include AWP litigation charges of $60 million and $145 million.

 

(5)

For the first nine months of fiscal year 2013, operating expenses, as reported under GAAP, include an $81 million pre-tax gain on business combination related to the acquisition of the remaining 50% ownership interest in our corporate headquarters building.


Schedule 4A

McKESSON CORPORATION

RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) — BY ADJUSTMENT TYPE

(unaudited)

(in millions)

 

     Quarter Ended December 31, 2012      Quarter Ended December 31, 2011  
     Distribution
Solutions
     Technology
Solutions
     Corporate
& Interest
Expense
     Total      Distribution
Solutions
     Technology
Solutions
     Corporate
& Interest
Expense
     Total  
  

 

 

    

 

 

 

As Reported (GAAP):

                       

Revenues

   $ 30,361        $ 826        $ —        $ 31,187        $ 30,016        $ 823        $ —        $ 30,839    

Gross profit (1) (2)

   $ 1,287        $ 381        $ —        $ 1,668        $ 1,201        $ 365        $ —        $ 1,566    

Operating expenses (2) (3)

     (769)         (302)         (112)         (1,183)         (690)         (297)         (87)         (1,074)   

Other income (expense), net

             —                  10          (1)                 (2)         (2)   
  

 

 

    

 

 

 

Income before interest expense and income taxes

     525          79          (109)         495          510          69          (89)         490    

Interest expense

     —          —          (59)         (59)         —          —          (64)         (64)   
  

 

 

    

 

 

 

Income before income taxes

   $ 525        $ 79        $ (168)       $ 436        $ 510        $ 69        $ (153)       $ 426    
  

 

 

    

 

 

 

Pre-Tax Adjustments:

                       

Gross profit

   $ —        $       $ —        $       $ —        $       $ —        $   

Operating expenses

     37          13          —          50          31          13          —          44    
  

 

 

    

 

 

 

Amortization of acquisition-related intangibles

     37          16          —          53          31          18          —          49    

Operating expenses

                     —          10                                    

Interest expense

     —          —                          —          —          —          —    
  

 

 

    

 

 

 

Acquisition expenses and related adjustments

                             11                                    

Operating expenses - Litigation reserve adjustments

     —          —          —          —          27          —          —          27    
  

 

 

    

 

 

 

Total pre-tax adjustments

   $ 44        $ 19        $       $ 64        $ 62        $ 20        $       $ 84    
  

 

 

    

 

 

 

Adjusted Earnings (Non-GAAP):

                       

Revenues

   $ 30,361        $ 826        $ —        $ 31,187        $ 30,016        $ 823        $ —        $ 30,839    

Gross profit (1) (2)

   $ 1,287        $ 384        $ —        $ 1,671        $ 1,201        $ 370        $ —        $ 1,571    

Operating expenses (2) (3)

     (725)         (286)         (112)         (1,123)         (628)         (282)         (85)         (995)   

Other income (expense), net

             —                  10          (1)                 (2)         (2)   
  

 

 

    

 

 

 

Income before interest expense and income taxes

     569          98          (109)         558          572          89          (87)         574    

Interest income (expense), net

     —          —          (58)         (58)         —          —          (64)         (64)   
  

 

 

    

 

 

 

Income before income taxes

   $ 569        $ 98        $ (167)       $ 500        $ 572        $ 89        $ (151)       $ 510    
  

 

 

    

 

 

 

 

 

(1)

Gross profit for the third quarter of fiscal year 2013 includes the receipt of $8 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

Technology Solutions segment results for the third quarter of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.

 

(3) 

Distribution Solutions segment operating expenses for the third quarter of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.


Schedule 4B

McKESSON CORPORATION

RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) — BY ADJUSTMENT TYPE

(unaudited)

(in millions)

 

     Nine Months Ended December 31, 2012      Nine Months Ended December 31, 2011  
     Distribution
Solutions
     Technology
Solutions
     Corporate
& Interest
Expense
     Total      Distribution
Solutions
     Technology
Solutions
     Corporate
& Interest
Expense
     Total  
  

 

 

    

 

 

 

As Reported (GAAP):

                       

Revenues

   $ 89,347        $ 2,488        $ —        $ 91,835        $ 88,585        $ 2,450        $ —        $ 91,035    

Gross profit (1) (2)

   $ 3,841        $ 1,147        $ —        $ 4,988        $ 3,590        $ 1,132        $ —        $ 4,722    

Operating expenses (2) (3) (4)

     (2,212)         (881)         (220)         (3,313)         (2,136)         (857)         (287)         (3,280)   

Other income, net

     17                          28                                  12    
  

 

 

    

 

 

 

Income before interest expense and income taxes

     1,646          269         (212)         1,703          1,462          277          (285)         1,454    

Interest expense

     —          —          (170)         (170)         —          —          (192)         (192)   
  

 

 

    

 

 

 

Income before income taxes

   $ 1,646        $ 269        $ (382)       $ 1,533        $ 1,462        $ 277        $ (477)       $ 1,262    
  

 

 

    

 

 

 

Pre-Tax Adjustments:

                       

Gross profit

   $       $       $ —        $ 11        $       $ 15        $ —        $ 16    

Operating expenses

     103          38          —          141          93          38          —          131    
  

 

 

    

 

 

 

Amortization of acquisition-related intangibles

     105          47          —          152          94          53          —          147    

Operating expenses

     10                  (81)         (66)         20                          26    

Interest expense

     —          —                          —          —          —          —    
  

 

 

    

 

 

 

Acquisition expenses and related adjustments

     10                  (80)         (65)         20                          26    

Operating expenses - Litigation reserve adjustments

     60          —          —          60          145          —          —          145    
  

 

 

    

 

 

 

Total pre-tax adjustments

   $ 175        $ 52        $ (80)       $ 147        $ 259        $ 57        $       $ 318    
  

 

 

    

 

 

 

Adjusted Earnings (Non-GAAP):

                       

Revenues

   $ 89,347        $ 2,488        $ —        $ 91,835        $ 88,585        $ 2,450        $ —        $ 91,035    

Gross profit (1) (2)

   $ 3,843        $ 1,156        $ —        $ 4,999        $ 3,591        $ 1,147        $ —        $ 4,738    

Operating expenses (2) (3)

     (2,039)         (838)         (301)         (3,178)         (1,878)         (815)         (285)         (2,978)   

Other income, net

     17                          28                                  12    
  

 

 

    

 

 

 

Income before interest expense and income taxes

     1,821          321         (293)         1,849          1,721          334          (283)         1,772    

Interest expense

     —          —          (169)         (169)         —          —          (192)         (192)   
  

 

 

    

 

 

 

Income before income taxes

   $ 1,821        $ 321        $ (462)       $ 1,680        $ 1,721        $ 334        $ (475)       $ 1,580    
  

 

 

    

 

 

 

 

 

(1)

Gross profit for the first nine months of fiscal year 2013 includes the receipt of $27 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2)

Technology Solutions segment results for the first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.

 

(3)

Distribution Solutions segment operating expenses for the first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.

 

(4)

For the first nine months of fiscal year 2013, operating expenses include an $81 million pre-tax gain on business combination related to the acquisition of the remaining 50% ownership interest in our corporate headquarters building.


Schedule 5

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions)

 

     December 31,
2012
         March 31,    
2012
 

ASSETS

     

Current Assets

     

Cash and cash equivalents

   $ 2,726       $ 3,149   

Receivables, net

     9,962         9,977   

Inventories, net

     10,390         10,073   

Prepaid expenses and other

     361         404   
  

 

 

    

 

 

 

Total Current Assets

     23,439         23,603   

Property, Plant and Equipment, Net

     1,247         1,043   

Goodwill

     5,310         5,032   

Intangible Assets, Net

     1,799         1,750   

Other Assets

     1,638         1,665   
  

 

 

    

 

 

 

Total Assets

   $ 33,433       $ 33,093   
  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current Liabilities

     

Drafts and accounts payable

   $ 15,047       $ 16,114   

Short-term borrowings

             400   

Deferred revenue

     1,431         1,423   

Deferred tax liabilities

     1,519         1,092   

Current portion of long-term debt

     506         508   

Other accrued liabilities

     1,705         2,149   
  

 

 

    

 

 

 

Total Current Liabilities

     20,208         21,686   

Long-Term Debt

     3,973         3,072   

Other Noncurrent Liabilities

     1,603         1,504   

Stockholders’ Equity

     7,649         6,831   
  

 

 

    

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 33,433       $ 33,093   
  

 

 

    

 

 

 


Schedule 6

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

 

     Nine Months Ended December 31,  
     2012      2011  

OPERATING ACTIVITIES

     

Net income

   $ 1,079         $ 882     

Adjustments to reconcile to net cash provided by operating activities:

     

Depreciation and amortization

     428           408     

Other deferred taxes

     499           (15)    

Share-based compensation expense

     123           113     

Gain on business combination

     (81)          —     

Other non-cash items

     53           75     

Changes in operating assets and liabilities, net of acquisitions:

     

Receivables

     57           (575)    

Inventories

     (313)          (1,200)    

Drafts and accounts payable

     (1,081)          1,636     

Deferred revenue

     49           122     

Taxes

     (88)          171     

Litigation charges

     60           145     

Litigation settlement payments

     (470)          (26)    

Other

     (39)          (20)    
  

 

 

    

 

 

 

Net cash provided by operating activities

     276           1,716     
  

 

 

    

 

 

 

INVESTING ACTIVITIES

     

Property acquisitions

     (151)          (170)    

Capitalized software expenditures

     (117)          (137)    

Acquisitions, less cash and cash equivalents acquired

     (577)          (204)    

Other

     61           81     
  

 

 

    

 

 

 

Net cash used in investing activities

     (784)          (430)    
  

 

 

    

 

 

 

FINANCING ACTIVITIES

     

Proceeds from short-term borrowings

     1,125           —     

Repayments of short-term borrowings

     (1,525)          —     

Proceeds from issuances of long-term debt

     892           —     

Repayments of long-term debt

     (4)          (23)    

Common stock transactions:

     

Issuances

     112           122     

Share repurchases, including shares surrendered for tax withholding

     (413)          (672)    

Dividends paid

     (147)          (146)    

Other

     42           22     
  

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     82           (697)    
  

 

 

    

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     3           (10)    
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     (423)          579     

Cash and cash equivalents at beginning of period

     3,149           3,612     
  

 

 

    

 

 

 

Cash and cash equivalents at end of period

   $ 2,726         $ 4,191