-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P5hToxXCVMKQMaZjetA2MFZ/Bk2MbocPJVV7aMZip6csnWwacsV4+X4GIpiXOnhO zMKGW+XgfdhieGCND85Vxg== 0000927653-96-000012.txt : 19961115 0000927653-96-000012.hdr.sgml : 19961115 ACCESSION NUMBER: 0000927653-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCKESSON CORP CENTRAL INDEX KEY: 0000927653 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 943207296 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-86536 FILM NUMBER: 96662402 BUSINESS ADDRESS: STREET 1: ONE POST ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4159838300 FORMER COMPANY: FORMER CONFORMED NAME: SP VENTURES INC DATE OF NAME CHANGE: 19940728 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended September 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission file number 1-13252 McKESSON CORPORATION - ----------------------------------------------------------------- (Exact name of Registrant as specified in its charter) DELAWARE 94-3207296 - ------------------------------- -------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Post Street, San Francisco, California 94104 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (415) 983-8300 - ----------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at September 30, 1996 - ---------------------------- --------------------------------- Common stock, $.01 par value 41,941,126 shares TABLE OF CONTENTS PART I. FINANCIAL INFORMATION ============================== Item Page - ---- ---- 1. Financial Statements Consolidated Balance Sheets September 30, 1996 and March 31, 1996 3 - 4 Statements of Consolidated Income Three and Six month periods ended September 30, 1996 and 1995 5 Statements of Consolidated Cash Flows Six month periods ended September 30, 1996 and 1995 6 - 7 Financial Notes 8 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Review 9 - 11 PART II. OTHER INFORMATION =========================== 6. Exhibits and Reports on Form 8-K 12 Exhibit Index 14 PART I. FINANCIAL INFORMATION ============================== McKESSON CORPORATION and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) September 30, March 31, 1996 1996 -------- -------- (in millions) ASSETS - ------ Current Assets Cash and cash equivalents $ 188.3 $ 281.8 Marketable securities available for sale 57.0 195.4 Receivables 989.2 781.4 Inventories 1,342.7 1,379.1 Prepaid expenses 41.1 27.3 ------- ------- Total 2,618.3 2,665.0 ------- ------- Property, Plant and Equipment Land 38.9 39.0 Buildings, machinery and equipment 794.3 760.6 ------- ------- Total 833.2 799.6 Accumulated depreciation (444.3) (419.8) ------- ------- Net 388.9 379.8 Goodwill and other intangibles 279.2 223.4 Other assets 277.2 235.7 ------- ------- Total Assets $3,563.6 $3,503.9 ======= ======= (Continued) -3- McKESSON CORPORATION and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) September 30, March 31, 1996 1996 -------- -------- (in millions) LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities Drafts payable $ 248.0 $ 200.4 Accounts payable - trade 1,208.3 1,188.6 Short-term borrowings 95.0 6.6 Current portion of long-term debt 24.2 28.3 Salaries and wages 31.8 30.3 Taxes 104.1 97.0 Interest and dividends 20.1 20.6 Other 137.1 150.8 ------- ------- Total 1,868.6 1,722.6 ------- ------- Postretirement Obligations and Other Noncurrent Liabilities 213.2 217.0 ------- ------- Long-Term Debt 445.7 442.5 ------- ------- Minority Interest in Subsidiary 58.2 57.2 ------- ------- Stockholders' Equity Common stock 0.4 0.4 Other capital 293.3 295.8 Retained earnings 1,007.4 968.9 Accumulated translation adjustment (42.8) (49.7) ESOP notes and guarantee (120.2) (122.5) Treasury shares, at cost (160.2) (28.3) ------- ------- Net 977.9 1,064.6 ------- ------- Total Liabilities and Stockholders' Equity $3,563.6 $3,503.9 ======= ======= See Financial Notes. (Concluded) -4- McKESSON CORPORATION and SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (unaudited) Three Months Ended Six Months Ended September 30 September 30 ------------------ ------------------ 1996 1995 1996 1995 ------ ------ ------ ------ (in millions - except per share amounts) REVENUES $3,566.5 $3,348.4 $7,068.0 $6,684.4 COSTS AND EXPENSES Cost of sales 3,286.5 3,063.2 6,496.8 6,116.9 Selling, distribution and administration 221.0 218.7 448.0 430.8 Interest 10.5 12.0 22.1 24.4 ------- ------- ------- ------- Total 3,518.0 3,293.9 6,966.9 6,572.1 ------- ------- ------- ------- INCOME BEFORE TAXES ON INCOME 48.5 54.5 101.1 112.3 TAXES ON INCOME (18.9) (21.5) (39.4) (44.9) ------- ------- ------- ------- INCOME BEFORE MINORITY INTEREST 29.6 33.0 61.7 67.4 Minority interest in net income of subsidiary (1.5) (1.3) (3.5) (2.9) ------- ------- ------- ------- NET INCOME $ 28.1 $ 31.7 $ 58.2 $ 64.5 ======= ======= ======= ======= EARNINGS PER COMMON SHARE Fully diluted earnings $0.64 $0.68 $1.30 $1.38 ==== ==== ==== ==== Primary earnings $0.64 $0.68 $1.30 $1.38 ==== ==== ==== ==== Dividends $0.25 $0.25 $0.50 $0.50 ==== ==== ==== ==== SHARES ON WHICH EARNINGS PER COMMON SHARE WERE BASED Fully diluted 43.8 46.7 44.6 46.8 ==== ==== ==== ==== Primary 43.8 46.7 44.6 46.7 ==== ==== ==== ==== See Financial Notes. -5- McKESSON CORPORATION and SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (unaudited) Six Months Ended September 30 ------------------- 1996 1995 -------- -------- (in millions) Operating Activities Net Income $ 58.2 $ 64.5 Adjustments to reconcile to net cash (used) provided by operating activities Depreciation 33.6 29.7 Amortization 6.2 4.7 Provision for bad debts 3.3 4.2 Deferred taxes on income 2.0 (5.2) Gain on sale of subsidiary - (11.2) Other non-cash (2.3) (1.3) ------- ------- Total 101.0 85.4 ------- ------- Effects of changes in Receivables (208.8) (37.7) Inventories 37.6 49.3 Accounts and drafts payable 67.2 104.3 Taxes 17.5 (56.3) Other (36.9) (99.3) ------- ------- Total (123.4) (39.7) ------- ------- Net cash (used) provided by operating activities (22.4) 45.7 ------- ------- Investing Activities Purchases of marketable securities (0.2) (130.3) Maturities of marketable securities 141.8 49.9 Property acquisitions (42.1) (39.7) Properties sold 1.3 5.8 Acquisitions of businesses, less cash and short-term investments acquired (61.4) (11.3) Proceeds from sale of subsidiary - 36.1 Other (24.1) 3.1 ------- ------- Net cash provided (used) by investing activities 15.3 (86.4) ------- ------- (Continued) -6- McKESSON CORPORATION and SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (unaudited) Six Months Ended September 30 ------------------- 1996 1995 -------- -------- (in millions) Financing Activities Proceeds from issuance of debt $ 95.7 $ 72.3 Repayment of debt (24.7) (4.7) Capital stock transactions Treasury stock acquired (145.2) (25.7) Issuances 6.6 3.8 ESOP notes and guarantee 2.4 2.2 Dividends paid (21.2) (21.8) ------- ------- Net cash (used) provided by financing activities (86.4) 26.1 ------- ------- Net Decrease in Cash and Cash Equivalents (93.5) (14.6) Cash and Cash Equivalents at beginning of period 281.8 385.4 ------- ------- Cash and Cash Equivalents at end of period $ 188.3 $ 370.8 ======= ======= See Financial Notes. (Concluded) -7- McKESSON CORPORATION and SUBSIDIARIES FINANCIAL NOTES 1. Interim Financial Statements ---------------------------- In the opinion of the Company, these unaudited consolidated financial statements include all adjustments necessary to a fair presentation of its financial position as of September 30, 1996 and the results of its operations and its cash flows for the six months ended September 30, 1996 and 1995. Such adjustments were of a normal recurring nature. The results of operations for the six months ended September 30, 1996 and 1995 are not necessarily indicative of the results for the full years. It is suggested that these interim financial statements be read in conjunction with the annual audited financial statements, accounting policies and financial notes thereto included in the Appendix to the Company's 1996 Proxy Statement which has previously been filed with the Securities and Exchange Commission. 2. Acquisitions ------------ In April 1996, the Company acquired Automated Healthcare, Inc. ("AHI") for $61.4 million in cash and the assumption of $3.2 million of employee stock incentives. AHI designs, manufactures and installs automated pharmaceutical dispensing equipment for use by health care institutions. The goodwill related to the acquisition is being amortized on a straight-line basis over a 20 year period. 3. Subsequent Event ---------------- On November 11, 1996, the Company announced the completion of its acquisition of the healthcare distribution business of FoxMeyer Corporation ("FoxMeyer"), pursuant to an expedited auction process in the FoxMeyer bankruptcy proceeding in Wilmington, Delaware. The Company received regulatory clearance and court approval enabling the transaction to close on November 8, 1996. Through an amended sale agreement, the Company paid approximately $23 million in cash to the debtors, paid off approximately $500 million in secured debt and assumed an additional $75 million in other liabilities. The Company acquired assets consisting primarily of accounts receivable and inventories of approximately $650 million, customer contracts and fixed assets. The Company utilized proceeds from commercial paper issuances and a note payable to a bank to fund the transaction. The commercial paper issuances were backed by the Company's revolving credit agreements that were recently increased to provide borrowing availability of $500 million. -8- McKESSON CORPORATION and SUBSIDIARIES FINANCIAL REVIEW Segment Results - --------------- The revenues and operating profits of the Company by business segment are as follows: Three Months Ended September 30 ------------------------- % 1996 1995 Chg. ------ ------ ------ ($ in millions) REVENUES Health Care Services Direct Delivery U.S. $2,272.7 $1,935.8 17.4 International 375.0 387.1 (3.1) ------- ------- Total Direct Delivery 2,647.7 2,322.9 14.0 Sales to Customers' Warehouses 679.7 762.6 (10.9) ------- ------- Total Health Care Services 3,327.4 3,085.5 7.8 Service Merchandising 118.2 143.4 (17.6) Water Products 77.6 74.1 4.7 Armor All 37.4 39.8 (6.0) Corporate 5.9 5.6 ------- ------- Total $3,566.5 $3,348.4 6.5 ======= ======= OPERATING PROFIT Health Care Services $ 45.3 $ 45.1 0.4 Service Merchandising 1.3 3.8 (65.8) Water Products 14.4 13.6 5.9 Armor All 5.1 4.2 21.4 ------- ------- Total 66.1 66.7 (0.9) Interest - net(1) (7.7) (2.6) Corporate and other (9.9) (9.6) ------- ------- Income before taxes $ 48.5 $ 54.5 (11.0) ======= ======= (1) Interest expense is shown net of corporate interest income. (Continued) -9- McKESSON CORPORATION and SUBSIDIARIES FINANCIAL REVIEW Segment Results - --------------- Six Months Ended September 30 ------------------------- % 1996 1995 Chg. ------ ------ ------ ($ in millions) REVENUES Health Care Services Direct Delivery U.S. $4,492.6 $3,864.3 16.3 International 751.8 770.2 (2.4) ------- ------- Total Direct Delivery 5,244.4 4,634.5 13.2 Sales to Customers' Warehouses 1,335.8 1,513.6 (11.7) ------- ------- Total Health Care Services 6,580.2 6,148.1 7.0 Service Merchandising 237.3 290.2 (18.2) Water Products 148.0 138.1 7.2 Armor All 92.7 90.0 3.0 Corporate 9.8 18.0 ------- ------- Total $7,068.0 $6,684.4 5.7 ======= ======= OPERATING PROFIT Health Care Services $ 96.8 $ 94.0 3.0 Service Merchandising 3.2 9.1 (64.8) Water Products 24.0 22.5 6.7 Armor All 12.2 9.9 23.2 ------- ------- Total 136.2 135.5 0.5 Interest - net(1) (16.1) (5.9) Corporate and other (19.0) (17.3) ------- ------- Income before taxes $ 101.1 $ 112.3 (10.0) ======= ======= (1) Interest expense is shown net of corporate interest income. (Concluded) -9- McKESSON CORPORATION and SUBSIDIARIES FINANCIAL REVIEW Overview of Results - ------------------- Net income for the second quarter decreased to $28.1 million, $.64 per fully-diluted share, from $31.7 million, $.68 per share in the prior year. For the six month period, net income decreased to $58.2 million, $1.30 per share, from $64.5 million, $1.38 per share for the comparable period in the prior year. The increase in earnings in the Health Care Services segment, including costs associated with strategic initiatives, was more than offset by lower earnings from the Service Merchandising segment and higher net interest expense. HEALTH CARE SERVICES The Health Care Services segment includes the operations of the Company's U.S. pharmaceutical and health care products distribution businesses and its international pharmaceutical operations (Canada and Mexico). This segment accounted for 93% of consolidated revenues and 69% of operating profit for the second quarter, and 93% and 71%, respectively, for the six month period ended September 30, 1996. Segment revenues increased by 8% and 7% for the three and six month periods, respectively, from the comparable periods in the prior year. U.S. Health Care direct delivery revenue growth of 17% in the second quarter and 16% for the six month period was partially offset by declines in U.S. sales to customers' warehouses and international sales. Year to year comparisons for international operations were affected by the sale of the Company's Central American pharmaceutical manufacturing operation in the second quarter of fiscal 1996. Operating profit for the quarter was flat with the prior year but increased by 3% for the six month period. Results for the three and six month periods include $4.0 million and $8.2 million, respectively, of costs associated with a series of strategic initiatives designed to improve the Company's competitiveness in the retail and institutional market segments. These costs were partially offset by continued growth in the Company's direct delivery business in every customer segment (independents, chain stores and hospitals) and operating expense efficiencies. The prior year second quarter results included a pretax gain of $11.2 million from the sale of the Central American operation. This gain was offset by research and development costs associated with retail and institutional initiatives and expenses incurred to further streamline operating and administrative functions. -10- McKESSON CORPORATION and SUBSIDIARIES FINANCIAL REVIEW SERVICE MERCHANDISING Segment revenues decreased by 18% for both the three and six month periods from the comparable periods in the prior year. Strong competitive pressures and customer consolidations resulted in the loss of volume from several large customers in fiscal 1996. Operating profit for the quarter decreased by 66% and by 65% for the six month period due primarily to the impact of fixed expenses over a lower revenue base. WATER PRODUCTS Segment revenues increased by 5% and 7% for the three and six month periods, respectively, from the comparable periods in the prior year. Operating profit for the quarter increased by 6% and by 7% for the six month period. This improvement reflects sales growth in the direct delivery and grocery products businesses which have more than offset the costs of continuing geographic expansion into Washington and Texas. ARMOR ALL Armor All Products Corp., which is 55% owned by the Company, experienced a decrease in revenue of 6% for the quarter but an increase of 3% for the six month period, compared with the prior year. The increase for the six month period is primarily attributable to sales growth of Armor All Protectant and to sales of two new products introduced in December, 1995. In the second quarter, sales were down across all domestic product lines. Operating profit increased by 21% in the quarter and by 23% in the six month period due primarily to a focus on controlling selling and marketing costs. (continued) -11- McKESSON CORPORATION and SUBSIDIARIES FINANCIAL REVIEW Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents decreased $93.5 million during the six months to $188.3 million primarily due to a temporary increase in certain customer receivable balances, stock repurchase activity, the cost of the acquisition referred to in Financial Note 2 and investments in technology associated with strategic initiatives. During the first six months of fiscal 1997, the Company repurchased 3.2 million shares of its common stock for $145 million under a share repurchase program initiated in June 1995 and expanded in May 1996. As of September 30, 1996, authorization to purchase up to an additional 2.4 million shares remained. The Company's debt-to-capital ratio increased from 31% at March 31, 1996 to 37% at September 30, 1996 largely as a result of short-term borrowings by its health care products distribution operations in Canada. On November 11, 1996, the Company announced the completion of the acquisition referred to in Financial Note 3. (concluded) -11- PART II. OTHER INFORMATION =========================== Item 6. Exhibits and Reports on Form 8-K - ------------------------------------------ (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K 1. There were no reports on Form 8-K filed during the quarter ended September 30, 1996. 2. The following report on Form 8-K was filed October 9, 1996. Item 5. Other Events ---------------------- The registrant announced that it had executed a definitive agreement to acquire substantially all of the assets of the healthcare distribution business of FoxMeyer Corporation. -12- SIGNATURE S I G N A T U R E ================= Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. McKESSON CORPORATION (Registrant) Dated: November 13, 1996 By /s/Richard H. Hawkins ----------------------------- Richard H. Hawkins Vice President and Chief Financial Officer By /s/Heidi E. Yodowitz ----------------------------- Heidi E. Yodowitz Controller -13- EXHIBIT INDEX Exhibit Number Description - ------- ---------------------------------------------- 27 Financial Data Schedule -14- EX-27 2
5 0000927653 MCKESSON-CORPORATION 1,000 6-MOS MAR-31-1997 APR-01-1996 SEP-30-1996 188,300 57,000 1,037,300 48,100 1,342,700 2,618,300 833,200 444,300 3,563,600 1,868,600 445,700 0 0 400 977,500 3,563,600 7,068,000 7,068,000 6,496,800 6,966,900 0 3,300 22,100 101,100 39,400 58,200 0 0 0 58,200 1.30 1.30
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