EX-99.1 2 d426902dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

LOGO

McKESSON REPORTS FISCAL 2013 SECOND-QUARTER RESULTS

 

  •  

Revenues of $29.9 billion for the second quarter, down 1%.

 

  •  

Second-quarter GAAP earnings per diluted share of $1.67, up 42%.

 

  •  

Second-quarter Adjusted Earnings per diluted share of $1.92, up 18%.

 

  •  

Fiscal 2013 Outlook: Adjusted Earnings per diluted share of $7.15 to $7.35.

SAN FRANCISCO, October 25, 2012 – McKesson Corporation (NYSE: MCK) today reported that revenues for the second quarter ended September 30, 2012 were $29.9 billion, down 1% compared to $30.2 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), second-quarter earnings per diluted share was $1.67 compared to $1.18 a year ago.

Second-quarter GAAP results included a pre-tax charge of $44 million, recorded in the Distribution Solutions segment, to increase an existing litigation reserve for claims against McKesson relating to First DataBank’s published drug reimbursement benchmarks, commonly referred to as Average Whole Prices (“AWP”).

Second-quarter Adjusted Earnings per diluted share was $1.92, up 18% compared to $1.63 a year ago.

For the first half of the fiscal year, McKesson generated cash from operations of $459 million, and ended the quarter with cash and cash equivalents of $2.8 billion. During the first half of the fiscal year, the company paid $100 million in dividends, had internal capital spending of $167 million and spent $251 million on acquisitions.

“McKesson delivered another quarter of solid operating performance,” said John H. Hammergren, chairman and chief executive officer. “I am pleased with our accomplishments during the first half of our fiscal year. Based on our performance to date, we are updating our previous outlook for the fiscal year and

now expect Adjusted Earnings per diluted share of $7.15 to $7.35 for the fiscal year ending March 31, 2013.”

Distribution Solutions revenues were down 1% in the second quarter, driven mainly by a 1% decline in U.S. pharmaceutical distribution revenues, reflecting brand-to-generic conversions and one fewer sales day.

Canadian revenues, on a constant currency basis, decreased 3% for the second quarter. Including the unfavorable currency impact of 2%, Canadian revenues decreased 5% for the second quarter.

Medical-Surgical distribution and services revenues were flat for the quarter, due to the impact of five fewer sales days.

In the second quarter, Distribution Solutions GAAP operating profit was $621 million and GAAP operating margin was 2.14%. Second-quarter adjusted operating profit was $699 million and the adjusted operating margin was 2.41%.

Technology Solutions revenues were flat for the second quarter. GAAP operating profit was $97 million for the second quarter and GAAP operating margin was 11.77%. Adjusted operating profit was $114 million for the second quarter and adjusted operating margin was 13.83%.

Fiscal Year 2013 Outlook

McKesson expects Adjusted Earnings per diluted share of $7.15 to $7.35 for the fiscal year ending March 31, 2013, which excludes the following GAAP items:

 

  •  

Amortization of acquisition-related intangible assets of approximately 54 cents per diluted share in Fiscal 2013.

 

  •  

Acquisition expenses and related adjustments expected to add approximately 18 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.

 

2

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.

 

3

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

 

4

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 8:30 AM 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 6474406. 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.

 

5

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

 

6

Schedule 1

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — GAAP

(unaudited)

(in millions, except per share amounts)

 

     Quarter Ended September 30,            Six Months Ended September 30,        
     2012     2011     Change      2012     2011     Change  

Revenues

    $ 29,850      $ 30,216        (1)%       $ 60,648      $ 60,196        1 %   

Cost of sales (1)

      (28,130 )      (28,569 )      (2)            (57,328 )      (57,040 )      1       
  

 

 

    

 

 

       

 

 

    

 

 

    

Gross profit

      1,720        1,647        4             3,320        3,156        5       

Operating expenses

      (1,065 )      (1,051 )      1             (2,151 )      (2,088 )      3       

Litigation charges (2)

      (44 )      (118 )      (63)            (60 )      (118 )      (49)      

Gain on business combination (3)

      —        —        —             81        —        —       
  

 

 

    

 

 

       

 

 

    

 

 

    

Total operating expenses

      (1,109 )      (1,169 )      (5)            (2,130 )      (2,206 )      (3)      
  

 

 

    

 

 

       

 

 

    

 

 

    

Operating income

      611        478        28             1,190        950        25       

Other income, net

      10        6        67             18        14        29       

Interest expense

      (55 )      (64 )      (14)            (111 )      (128 )      (13)      
  

 

 

    

 

 

       

 

 

    

 

 

    

Income before income taxes

      566        420        35             1,097        836        31       

Income tax expense

      (165 )      (124 )      33             (316 )      (254 )      24       
  

 

 

    

 

 

       

 

 

    

 

 

    

Net income

    $ 401      $ 296        35           $ 781      $ 582        34       
  

 

 

    

 

 

       

 

 

    

 

 

    

Earnings per common share (4)

              

Diluted

    $ 1.67      $ 1.18        42 %       $ 3.25      $ 2.31        41 %   
  

 

 

    

 

 

       

 

 

    

 

 

    

Basic

    $ 1.70      $ 1.20        42 %       $ 3.31      $ 2.35        41 %   
  

 

 

    

 

 

       

 

 

    

 

 

    

Weighted average common shares

              

Diluted

      240        250        (4) %         240        252        (5) %   

Basic

      236        246        (4)             236        247        (4)       

 

 

(1) 

Cost of sales for fiscal year 2013 includes the receipt of $19 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

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

 

(3) 

For the first six 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.

 

(4) 

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 September 30, 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

    $ 29,850      $ —      $ —      $ —      $ 29,850        (1)%       (1)%

Gross profit (1)

    $ 1,720      $ 4      $ —      $ —      $ 1,724        4           4   

Operating expenses

      (1,109 )      44        3        44        (1,018 )      (5)          2   

Other income, net

      10        —        —        —        10        67           67    

Interest expense

      (55 )      —        —        —        (55 )      (14)          (14)   
  

 

 

       

Income before income taxes

      566        48        3        44        661        35           11    

Income tax expense

      (165 )      (18 )      —        (17 )      (200 )      33           6   
  

 

 

       

Net Income

    $ 401      $ 30      $ 3      $ 27      $ 461        35           13    
  

 

 

       

Diluted earnings per common share (2)

    $ 1.67      $ 0.13      $ 0.01      $ 0.11      $ 1.92        42 %       18 %
  

 

 

       

Diluted weighted average common shares

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

 

 

       
     Quarter Ended September 30, 2011             
     As Reported
(GAAP)		    

Amortization

of Acquisition-
Related
Intangibles

     Acquisition
Expenses and
Related
Adjustments		     Litigation
Reserve
Adjustments		    

Adjusted

Earnings

(Non-GAAP)

             
  

 

 

       

Revenues

    $ 30,216      $ —      $ —      $ —      $ 30,216        

Gross profit

    $ 1,647      $ 6      $ —      $ —      $ 1,653        

Operating expenses

      (1,169 )      44        8        118        (999 )      

Other income, net

      6        —        —        —        6        

Interest expense

      (64 )      —        —        —        (64 )      
  

 

 

       

Income before income taxes

      420        50        8        118        596        

Income tax expense

      (124 )      (20 )      (3 )      (41 )      (188 )      
  

 

 

       

Net Income

    $ 296      $ 30      $ 5      $ 77      $ 408        
  

 

 

       

Diluted earnings per common share (2)

    $ 1.18      $ 0.12      $ 0.02      $ 0.31      $ 1.63        
  

 

 

       

Diluted weighted average common shares

      250        250        250        250        250        
  

 

 

       

 

 

(1) 

Gross profit for the second quarter of fiscal year 2013 includes the receipt of $19 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

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  
    Six Months Ended September 30, 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

   $ 60,648      $ —      $ —      $ —      $ 60,648        1 %         1 %   

Gross profit (1)

   $ 3,320      $ 8      $ —      $ —      $ 3,328        5             5       

Operating expenses (2)

     (2,130 )      91        (76 )      60        (2,055 )      (3)            4       

Other income, net

     18        —        —        —        18        29             29       

Interest expense

     (111 )      —        —        —        (111 )      (13)            (13)      
 

 

 

       

Income before income taxes

     1,097        99        (76 )      60        1,180        31             10       

Income tax expense

     (316 )      (37 )      29        (23 )      (347 )      24             2       
 

 

 

       

Net Income

   $ 781      $ 62      $ (47 )    $ 37      $ 833        34             14       
 

 

 

       

Diluted earnings per common share (3)

   $ 3.25      $ 0.26      $ (0.19 )    $ 0.15      $ 3.47        41 %         20 %   
 

 

 

       

Diluted weighted average common shares

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

 

 

       
    Six Months Ended September 30, 2011        
    As Reported
(GAAP)		     Amortization
of Acquisition-
Related
Intangibles		     Acquisition
Expenses and
Related
Adjustments		     Litigation
Reserve
Adjustments		     Adjusted
Earnings
(Non-GAAP)		               
 

 

 

       

Revenues

   $ 60,196      $ —      $ —      $ —      $ 60,196        

Gross profit

   $ 3,156      $ 11      $ —      $ —      $ 3,167        

Operating expenses

     (2,206 )      87        18        118        (1,983 )      

Other income, net

     14        —        —        —        14        

Interest expense

     (128 )      —        —        —        (128 )      
 

 

 

       

Income before income taxes

     836        98        18        118        1,070        

Income tax expense

     (254 )      (38 )      (6 )      (41 )      (339 )      
 

 

 

       

Net Income

   $ 582      $ 60      $ 12      $ 77      $ 731        
 

 

 

       

Diluted earnings per common share (3)

   $ 2.31      $ 0.24      $ 0.04      $ 0.31      $ 2.90        
 

 

 

       

Diluted weighted average common shares

     252        252        252        252        252        
 

 

 

       

 

 

(1) 

Gross profit for the first six months of fiscal year 2013 includes the receipt of $19 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

For the first six 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.

 

(3) 

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 September 30, 2012      Quarter Ended September 30, 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

    $ 20,938            $ —        $ 20,938            $ 21,072            $ —       $ 21,072              (1)%         (1)%   

Sales to customers’ warehouses

      4,806              —          4,806              4,909              —         4,909              (2)             (2)       
  

 

 

     

 

 

        

Total U.S. pharmaceutical distribution & services

      25,744              —          25,744              25,981              —         25,981              (1)             (1)       

Canada pharmaceutical distribution & services

      2,409               —          2,409              2,537              —         2,537              (5)             (5)       

Medical-Surgical distribution & services

      873              —          873              873              —         873              —              —        
  

 

 

     

 

 

        

Total Distribution Solutions

      29,026              —          29,026              29,391              —         29,391              (1)             (1)       
  

 

 

     

 

 

        

Technology Solutions

                        

Services

      656              —          656              643              —         643              2              2        

Software & software systems

      142              —          142              153              —         153              (7)             (7)       

Hardware

      26              —          26              29              —         29              (10)             (10)       
  

 

 

     

 

 

        

Total Technology Solutions

      824              —          824              825              —         825              —              —        
  

 

 

     

 

 

        

Revenues

    $     29,850            $ —        $     29,850            $     30,216            $ —       $     30,216              (1)             (1)       
  

 

 

     

 

 

        

GROSS PROFIT

                        

Distribution Solutions (1)

    $ 1,339            $ 1        $ 1,340            $ 1,258            $ 1       $ 1,259              6              6        

Technology Solutions

      381              3          384              389              5         394              (2)             (3)       
  

 

 

     

 

 

        

Gross profit

    $ 1,720            $ 4        $ 1,724            $ 1,647            $ 6       $ 1,653              4              4        
  

 

 

     

 

 

        

OPERATING EXPENSES

                        

Distribution Solutions (2)

    $ (724)           $ 77        $ (647)           $ (785)           $ 157       $ (628)             (8)             3        

Technology Solutions

      (286)             14          (272)             (281)             13         (268)             2              1        

Corporate

      (99)             —          (99)             (103)             —         (103)             (4)             (4)       
  

 

 

     

 

 

        

Operating expenses

    $ (1,109)           $ 91        $ (1,018)           $ (1,169)           $ 170       $ (999)             (5)             2        
  

 

 

     

 

 

        

OTHER INCOME, NET

                        

Distribution Solutions

    $ 6            $ —         $ 6            $ 4            $ —       $ 4              50              50        

Technology Solutions

      2              —          2              —              —         —             —              —        

Corporate

      2              —          2              2              —         2              —              —        
  

 

 

     

 

 

        

Other income, net

    $ 10            $ —        $ 10            $ 6            $ —       $ 6              67              67        
  

 

 

     

 

 

        

OPERATING PROFIT

                        

Distribution Solutions (1)(2)

    $ 621            $ 78        $ 699            $ 477            $ 158       $ 635              30              10        

Technology Solutions

      97              17          114              108              18         126              (10)             (10)       
  

 

 

     

 

 

        

Operating profit

      718              95          813              585              176         761              23              7        

Corporate

      (97)             —          (97)             (101)             —         (101)             (4)             (4)       
  

 

 

     

 

 

        

Income before interest expense and income taxes

    $ 621            $ 95        $ 716            $ 484            $ 176       $ 660              28              8        
  

 

 

     

 

 

        

STATISTICS

                        

Operating profit as a % of revenues

                        

Distribution Solutions (1)(2)

      2.14 %             2.41 %          1.62 %             2.16 %          52 bp         25 bp   

Technology Solutions

      11.77                 13.83              13.09                 15.27              (132)              (144)        

 

 

(1) 

Results for the second quarter of fiscal year 2013 include the receipt of $19 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

For the second quarters of fiscal years 2013 and 2012, results, as reported under GAAP, include AWP litigation charges of $44 million and $118 million.

Schedule 3B

McKESSON CORPORATION

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

(unaudited)

(in millions)

 

     Six Months Ended September 30, 2012      Six Months Ended September 30, 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

    $ 42,239            $ —        $ 42,239            $ 41,899            $ —        $ 41,899              1%          1%    

Sales to customers’ warehouses

      10,153              —          10,153              9,800              —          9,800              4              4        
  

 

 

     

 

 

        

Total U.S. pharmaceutical distribution & services

      52,392              —          52,392              51,699              —          51,699              1              1        

Canada pharmaceutical distribution & services

      4,926              —          4,926              5,266              —          5,266              (6)             (6)       

Medical-Surgical distribution & services

      1,668              —          1,668              1,604              —          1,604              4              4        
  

 

 

     

 

 

        

Total Distribution Solutions

      58,986              —          58,986              58,569              —          58,569              1              1        
  

 

 

     

 

 

        

Technology Solutions

                        

Services

      1,322              —          1,322              1,273              —          1,273              4              4        

Software & software systems

      287              —          287              297              —          297              (3)             (3)       

Hardware

      53              —          53              57              —          57              (7)             (7)       
  

 

 

     

 

 

        

Total Technology Solutions

      1,662              —          1,662              1,627              —          1,627              2              2        
  

 

 

     

 

 

        

Revenues

    $ 60,648            $ —        $ 60,648            $ 60,196            $ —        $ 60,196              1              1        
  

 

 

     

 

 

        

GROSS PROFIT

                        

Distribution Solutions (1)

    $ 2,554            $ 2        $ 2,556            $ 2,389            $ 1        $ 2,390              7              7        

Technology Solutions

      766              6          772              767              10          777              —              (1)       
  

 

 

     

 

 

        

Gross profit

    $ 3,320            $ 8        $ 3,328            $ 3,156            $ 11        $ 3,167              5              5        
  

 

 

     

 

 

        

OPERATING EXPENSES

                        

Distribution Solutions (2)

    $ (1,443)           $ 129        $ (1,314)           $ (1,446)           $ 196        $ (1,250)             —              5        

Technology Solutions

      (579)             27          (552)             (560)             27          (533)             3              4        

Corporate (3)

      (108)             (81)         (189)             (200)             —          (200)             (46)             (6)       
  

 

 

     

 

 

        

Operating expenses

    $ (2,130)           $ 75        $ (2,055)           $ (2,206)           $ 223        $ (1,983)             (3)             4        
  

 

 

     

 

 

        

OTHER INCOME, NET

                        

Distribution Solutions

    $ 10            $ —        $ 10            $ 9            $ —        $ 9              11              11        

Technology Solutions

      3              —          3              1              —          1              200              200        

Corporate

      5              —          5              4              —          4              25              25        
  

 

 

     

 

 

        

Other income, net

    $ 18            $ —        $ 18            $ 14            $ —        $ 14              29              29        
  

 

 

     

 

 

        

OPERATING PROFIT

                        

Distribution Solutions (1)(2)

    $ 1,121            $ 131        $ 1,252            $ 952            $ 197        $ 1,149              18              9        

Technology Solutions

      190              33          223              208              37          245              (9)             (9)       
  

 

 

     

 

 

        

Operating profit

      1,311              164          1,475              1,160              234          1,394              13              6        

Corporate

      (103)             (81)         (184)             (196)             —          (196)             (47)             (6)       
  

 

 

     

 

 

        

Income before interest expense and income taxes

    $ 1,208            $ 83        $ 1,291            $ 964            $ 234       $ 1,198              25              8        
  

 

 

     

 

 

        

STATISTICS

                        

Operating profit as a % of revenues

                        

Distribution Solutions (1)(2)

      1.90 %             2.12 %          1.63 %             1.96 %          27 bp         16 bp   

Technology Solutions

      11.43                 13.42              12.78                 15.06              (135)              (164)        

 

 

(1)

Results for the first six months of fiscal year 2013 include the receipt of $19 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2) 

For the first six months of fiscal years 2013 and 2012, results, as reported under GAAP, include AWP litigation charges of $60 million and $118 million.

 

(3)

For the first six 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 September 30, 2012      Quarter Ended September 30, 2011  
     Distribution
Solutions		      Technology
Solutions		      Corporate
& Interest
Expense		      Total      Distribution
Solutions		      Technology
Solutions		      Corporate
& Interest
Expense		      Total  
  

 

 

     

 

 

  

As Reported (GAAP):

                        

Revenues

    $ 29,026        $ 824        $ —        $ 29,850        $ 29,391        $ 825        $ —        $ 30,216    

Gross profit (1)

    $ 1,339        $ 381        $ —        $ 1,720        $ 1,258        $ 389        $ —        $ 1,647    

Operating expenses

      (724)         (286)         (99)         (1,109)         (785)         (281)         (103)         (1,169)   

Other income, net

      6          2          2          10          4          —          2          6    
  

 

 

     

 

 

  

Income before interest expense and income taxes

      621          97          (97)         621          477          108          (101)         484    

Interest income (expense), net

      —          —          (55)         (55)         1          1          (66)         (64)   
  

 

 

     

 

 

  

Income before income taxes

    $ 621        $ 97        $ (152)       $ 566        $ 478        $ 109        $ (167)       $ 420    
  

 

 

     

 

 

  

Pre-Tax Adjustments:

                        

Gross profit

    $ 1        $ 3        $ —        $ 4        $ 1        $ 5        $ —        $ 6    

Operating expenses

      31          13          —          44          31          13          —          44    
  

 

 

     

 

 

  

Amortization of acquisition-related intangibles

      32          16          —          48          32          18          —          50    

Operating expenses - Acquisition expenses and related adjustments

      2          1          —          3          8          —          —          8    

Operating expenses - Litigation reserve adjustments

      44          —          —          44          118          —          —          118    
  

 

 

     

 

 

  

Total pre-tax adjustments

    $ 78        $ 17        $ —        $ 95        $ 158        $ 18        $ —        $ 176    
  

 

 

     

 

 

  

Adjusted Earnings (Non-GAAP):

                       

Revenues

    $ 29,026        $ 824        $ —        $ 29,850        $ 29,391        $ 825        $ —        $ 30,216    

Gross profit (1)

    $ 1,340        $ 384        $ —        $ 1,724        $ 1,259        $ 394        $ —        $ 1,653    

Operating expenses

      (647)         (272)         (99)         (1,018)         (628)         (268)         (103)         (999)   

Other income, net

      6          2          2          10          4          —          2          6    
  

 

 

     

 

 

  

Income before interest expense and income taxes

      699          114          (97)         716          635          126          (101)         660    

Interest income (expense), net

      —          —          (55)         (55)         1          1          (66)         (64)   
  

 

 

     

 

 

  

Income before income taxes

    $ 699        $ 114        $ (152)       $ 661        $ 636        $ 127        $ (167)       $ 596    
  

 

 

     

 

 

  

 

 

(1) 

Gross profit for the second quarter of fiscal year 2013 includes the receipt of $19 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

Schedule 4B

McKESSON CORPORATION

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

(unaudited)

(in millions)

 

     Six Months Ended September 30, 2012      Six Months Ended September 30, 2011  
     Distribution
Solutions		      Technology
Solutions		      Corporate
& Interest
Expense		      Total      Distribution
Solutions		      Technology
Solutions		      Corporate
& Interest
Expense		      Total  
  

 

 

     

 

 

  

As Reported (GAAP):

                        

Revenues

    $ 58,986        $ 1,662        $ —        $ 60,648        $ 58,569        $ 1,627        $ —        $ 60,196    

Gross profit (1)

    $ 2,554        $ 766        $ —        $ 3,320        $ 2,389        $ 767        $ —        $ 3,156    

Operating expenses (2)

      (1,443)         (579)         (108)         (2,130)         (1,446)         (560)         (200)         (2,206)   

Other income, net

      10          3          5          18          9          1          4         14    
  

 

 

     

 

 

  

Income before interest expense and income taxes

      1,121          190          (103)         1,208          952          208          (196)         964    

Interest expense

      —          —          (111)         (111)         —          —          (128)         (128)   
  

 

 

     

 

 

  

Income before income taxes

    $ 1,121        $ 190        $ (214)       $ 1,097        $ 952        $ 208        $ (324)       $ 836    
  

 

 

     

 

 

  

Pre-Tax Adjustments:

                        

Gross profit

    $ 2        $ 6        $ —        $ 8        $ 1        $ 10        $ —        $ 11    

Operating expenses

      66          25          —          91          62          25          —          87    
  

 

 

     

 

 

  

Amortization of acquisition-related intangibles

      68          31          —          99          63          35          —          98    

Operating expenses - Acquisition expensesand related adjustments

      3          2          (81)         (76)         16          2          —          18    

Operating expenses - Litigation reserve adjustments

      60          —          —          60          118          —          —          118    
  

 

 

     

 

 

  

Total pre-tax adjustments

    $ 131        $ 33        $ (81)       $ 83        $ 197        $ 37        $ —        $ 234    
  

 

 

     

 

 

  

Adjusted Earnings (Non-GAAP):

                       

Revenues

    $ 58,986        $ 1,662        $ —        $ 60,648        $ 58,569        $ 1,627        $ —        $ 60,196    

Gross profit (1)

    $ 2,556        $ 772        $ —        $ 3,328        $ 2,390        $ 777        $ —        $ 3,167    

Operating expenses

      (1,314)         (552)         (189)         (2,055)         (1,250)         (533)         (200)         (1,983)   

Other income, net

      10          3          5          18          9          1          4          14    
  

 

 

     

 

 

  

Income before interest expense and income taxes

      1,252          223          (184)         1,291          1,149          245          (196)         1,198    

Interest expense

      —          —          (111)         (111)         —          —          (128)         (128)   
  

 

 

     

 

 

  

Income before income taxes

    $ 1,252        $ 223        $ (295)       $ 1,180        $ 1,149        $ 245        $ (324)       $ 1,070    
  

 

 

     

 

 

  

 

 

(1)

Gross profit for the first six months of fiscal year 2013 includes the receipt of $19 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.

 

(2)

For the first six 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)

 

     September 30,
2012		         March 31,    
2012		  

ASSETS

     

Current Assets

     

Cash and cash equivalents

    $ 2,831      $ 3,149   

Receivables, net

      9,823        9,977   

Inventories, net

      10,070        10,073   

Prepaid expenses and other

      367        404   
  

 

 

    

 

 

  

Total Current Assets

      23,091        23,603   

Property, Plant and Equipment, Net

      1,223        1,043   

Goodwill

      5,128        5,032   

Intangible Assets, Net

      1,699        1,750   

Other Assets

      1,827        1,665   
  

 

 

    

 

 

  

Total Assets

    $ 32,968      $ 33,093   
  

 

 

    

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current Liabilities

     

Drafts and accounts payable

    $ 15,501      $ 16,114   

Short-term borrowings

      —        400   

Deferred revenue

      1,528        1,423   

Deferred tax liabilities

      1,710        1,092   

Current portion of long-term debt

      508        508   

Other accrued liabilities

      1,503        2,149   
  

 

 

    

 

 

  

Total Current Liabilities

      20,750        21,686   

Long-Term Debt

      3,073        3,072   

Other Noncurrent Liabilities

      1,430        1,504   

Stockholders’ Equity

      7,715        6,831   
  

 

 

    

 

 

  

Total Liabilities and Stockholders’ Equity

    $ 32,968      $ 33,093   
  

 

 

    

 

 

  

Schedule 6

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

 

     Six Months Ended September 30,  
     2012      2011  

OPERATING ACTIVITIES

      

Net income

    $ 781         $ 582     

Adjustments to reconcile to net cash provided by operating activities:

      

Depreciation and amortization

      282           271     

Other deferred taxes

      251           26     

Share-based compensation expense

      82           78     

Gain on business combination

      (81)          —     

Other non-cash items

      20           26     

Changes in operating assets and liabilities, net of acquisitions:

      

Receivables

      219           (435)    

Inventories

      16           (269)    

Drafts and accounts payable

      (629)          880     

Deferred revenue

      147           191     

Taxes

      (117)          129     

Litigation charges

      60           118     

Litigation settlement payments

      (438)          (6)    

Deferred tax expense (benefit) on litigation

      147           (39)    

Other

      (281)          (157)    
  

 

 

     

 

 

  

Net cash provided by operating activities

      459           1,395     
  

 

 

     

 

 

  

INVESTING ACTIVITIES

      

Property acquisitions

      (86)          (126)    

Capitalized software expenditures

      (81)          (101)    

Acquisitions, less cash and cash equivalents acquired

      (251)          (194)    

Other

      67           72     
  

 

 

     

 

 

  

Net cash used in investing activities

      (351)          (349)    
  

 

 

     

 

 

  

FINANCING ACTIVITIES

      

Proceeds from short-term borrowings

      1,125           —     

Repayments of short-term borrowings

      (1,525)          —     

Repayments of long-term debt

      —           (17)    

Common stock transactions:

      

Issuances

      80           82     

Share repurchases, including shares surrendered for tax withholding

      (53)          (672)    

Dividends paid

      (100)          (97)    

Other

      40           19     
  

 

 

     

 

 

  

Net cash used in financing activities

      (433)          (685)    
  

 

 

     

 

 

  

Effect of exchange rate changes on cash and cash equivalents

      7           (30)    
  

 

 

     

 

 

  

Net increase (decrease) in cash and cash equivalents

      (318)          331     

Cash and cash equivalents at beginning of period

      3,149           3,612     
  

 

 

     

 

 

  

Cash and cash equivalents at end of period

    $ 2,831         $ 3,943