UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 7, 2013
McKesson Corporation
(Exact name of registrant as specified in its charter)
Delaware | 1-13252 | 94-3207296 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) | ||
One Post Street, San Francisco, California | 94104 | |||
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (415) 983-8300
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 | Results of Operations and Financial Condition. |
On May 7, 2013, McKesson Corporation (the Company) announced via press release the Companys preliminary results for the fourth quarter and fiscal year ended March 31, 2013. A copy of the Companys press release is attached hereto as Exhibit 99.1.
The information contained in this Form 8-K, including Exhibit 99.1, is furnished to the Securities and Exchange Commission (the Commission), but shall not be deemed filed with the Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
Exhibit No. |
Description | |
99.1 | Press release issued by the Company dated May 7, 2013. |
SIGNATURES
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 hereunto duly authorized.
Date: May 7, 2013 | McKesson Corporation | |||||
By: | /s/ Jeffrey C. Campbell | |||||
Jeffrey C. Campbell | ||||||
Executive Vice President and Chief Financial Officer |
EXHIBIT INDEX
Exhibit No. |
Description | |
99.1 | Press release issued by the Company dated May 7, 2013. |
Exhibit 99.1
McKESSON REPORTS FISCAL 2013 FOURTH-QUARTER
AND FULL-YEAR RESULTS
| Revenues of $30.6 billion for the fourth quarter and $122.5 billion for the full year. |
| Fourth-quarter GAAP earnings per diluted share of $1.10 and full-year GAAP earnings per diluted share of $5.59. |
| Fourth-quarter Adjusted Earnings per diluted share of $1.45 and full-year Adjusted Earnings per diluted share of $6.33. |
| Fourth-quarter GAAP and Adjusted Earnings per diluted share includes $0.76 in impairment charges and $0.11 in severance and facility exit costs. |
| Fiscal 2013 cash flow from operations of $2.5 billion. |
| Fiscal 2014 Outlook: Adjusted Earnings per diluted share from continuing operations of $7.90 to $8.20. |
SAN FRANCISCO, May 7, 2013 McKesson Corporation (NYSE: MCK) today reported that revenues for the fourth quarter ended March 31, 2013 were $30.6 billion, down 3% compared to $31.7 billion a year ago. On the basis of U.S. generally accepted accounting principles (GAAP), fourth-quarter earnings per diluted share was $1.10 compared to $2.09 a year ago.
For the fiscal year, McKesson had revenues of $122.5 billion compared to $122.7 billion a year ago. Full-year GAAP earnings per diluted share was unchanged at $5.59 compared to the prior year.
Fourth-quarter Adjusted Earnings per diluted share was $1.45, down 31% compared to $2.09 a year ago. During the quarter, McKesson undertook a number of strategic and operational actions to position the Company going forward. As a result, fourth-quarter GAAP and Adjusted Earnings per diluted share included $0.76 of non-cash impairment charges and $0.11 of severance and facility exit charges. Full-year Adjusted Earnings per diluted share was $6.33, compared to $6.38 in the prior year.
In connection with these actions, the Company committed to a plan to sell its 49 percent equity investment in Nadro S.A. de C.V., a privately-held pharmaceutical distributor in Mexico, which resulted in a fourth-quarter non-cash, pre-tax impairment charge of $191 million.
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The Companys actions also include a realignment of the Technology Solutions segment. As part of this realignment, the Company intends to exit its International Technology and Hospital Automation businesses. Results for these two businesses will be reported in discontinued operations beginning in the first fiscal quarter of 2014.
We took important strategic and operational actions during the quarter and while these actions impacted our fourth quarter financial results, I believe they leave the Company well positioned for continued success going forward, said John H. Hammergren, chairman and chief executive officer. Turning to our operating results, I am pleased with the strong performance of our Distribution Solutions segment in the fourth quarter, which capped off another outstanding year in the segment. In addition to the strong operating performance in our Distribution Solutions segment, we had another great year of cash flow performance and deployed a record level of capital for acquisitions and share repurchases, creating further value for our shareholders.
During the fourth quarter, McKesson completed the acquisition of PSS World Medical, Inc. Also during the fourth quarter, McKesson repurchased $800 million of its common stock.
For the year, McKesson generated cash from operations of $2.5 billion, and ended the year with cash and cash equivalents of $2.5 billion and a gross debt-to-capital ratio of 40.8%. During the year, McKesson spent $1.9 billion on acquisitions, repurchased $1.2 billion of its common stock, paid $194 million in dividends, and had internal capital spending of $406 million.
The strength of our balance sheet and cash flow performance continue to provide opportunities to create value for our shareholders through our portfolio approach to capital deployment, Hammergren commented. In the fourth quarter we completed the acquisition of PSS and have begun the process of bringing together the best of our combined businesses to help our customers improve efficiency and deliver better care to their patients. In addition, our strong cash flow allowed us to repurchase shares of common stock valued at more than
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$1.2 billion in Fiscal 2013. We plan to continue our portfolio approach to capital deployment with a mix of acquisitions, share repurchases, dividends and internal investments.
Segment Results
Distribution Solutions revenues were down 4% for the fourth quarter and were flat for the full year compared to the prior year. U.S. pharmaceutical distribution direct revenues were up 1% for the fourth quarter and warehouse sales were down 26%. For the full year, U.S. pharmaceutical distribution direct revenues were up 2% compared to the prior year, primarily reflecting market growth offset by the impact of brand-to-generic conversions. For the full year, warehouse sales were down 9%, primarily reflecting brand-to-generic conversions.
Canadian revenues, on a constant currency basis, decreased 5% for the fourth quarter primarily due to a customer transition and one less sales day. Including an unfavorable currency impact of 1%, Canadian revenues decreased 6% for the fourth quarter. For the full year, Canadian revenues decreased 2% on a constant currency basis. Including an unfavorable currency impact of 1%, Canadian revenues decreased 3% for the full year.
Medical-Surgical distribution and services revenues were up 37% for the fourth quarter driven primarily by the acquisition of PSS. For the full year, Medical-Surgical revenues were up 15% driven by market growth, new customers and the acquisition of PSS.
In the fourth quarter, Distribution Solutions GAAP operating profit was $551 million and GAAP operating margin was 1.85%. Fourth-quarter adjusted operating profit was $643 million and the adjusted operating margin was 2.16%. Distribution Solutions fourth-quarter results include a $191 million non-cash, pre-tax charge related to the impairment of our investment in Nadro and a $16 million pre-tax charge for severance and facility exit costs related to the actions taken to position this segment for future growth. For the full year, GAAP operating profit was $2.2 billion and GAAP operating margin was 1.85%. For the full year, adjusted operating profit was $2.5 billion and the adjusted operating margin was 2.07%.
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Our businesses in Distribution Solutions had another great year with strong operating performance across the segment. The tremendous efficiency of our pharmaceutical distribution business and the comprehensive value we provide allow us to establish and maintain our longstanding customer relationships. I am also particularly pleased with the performance of our Medical-Surgical distribution business in Fiscal 2013. With the acquisition of PSS now complete, our combined products, services, technology and people provide a great platform to continue this momentum and enhance the value we bring to our customers, said Hammergren.
In Technology Solutions, revenues were up 6% for the fourth quarter and up 3% for the full year. GAAP operating profit was $28 million for the fourth quarter and GAAP operating margin was 3.07%. Adjusted operating profit was $50 million for the fourth quarter and adjusted operating margin was 5.48%. Technology Solutions fourth-quarter results include a $46 million non-cash, pre-tax impairment charge primarily for goodwill, and a $16 million pre-tax severance and facility exit charge related to the realignment of the businesses in this segment. For the full year, GAAP operating profit was $297 million and GAAP operating margin was 8.73%. For the full year, adjusted operating profit was $371 million and the adjusted operating margin was 10.91%.
In our Technology Solutions segment we are taking a number of steps to focus in the areas where we have a leading position and invest in the opportunities where we can provide innovative solutions to our customers. These steps will enhance the strength of our solutions, and help our customers deliver better business results and provide better care to their patients in an increasingly connected healthcare environment, Hammergren said.
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Fiscal Year 2013 Reconciliation of GAAP Results to Adjusted Earnings
Adjusted Earnings per diluted share of $6.33 for the fiscal year ended March 31, 2013 excludes the following GAAP items:
| Amortization of acquisition-related intangible assets of 57 cents per diluted share. |
| Acquisition expenses and related adjustments add two 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 interest in McKessons corporate headquarters building completed during the first quarter. |
| Litigation reserve adjustments of 19 cents per diluted share. |
Fiscal Year 2014 Outlook
Our Fiscal 2014 guidance reflects solid growth across our broad portfolio of businesses, aided by the continued strength of our balance sheet. McKesson expects Adjusted Earnings per diluted share from continuing operations between $7.90 and $8.20 for the fiscal year ending March 31, 2014, Hammergren concluded.
Key Assumptions for Fiscal Year 2014 Outlook
The Fiscal 2014 outlook is based on the following key assumptions and is also subject to the Risk Factors outlined below.
| Distribution Solutions revenue growth will rebound significantly as brand-to-generic conversions slow, aided by expected growth from our existing customers and the acquisition of PSS World Medical. |
| Branded and generic drug price trends in Fiscal 2014 are expected to be similar to those we experienced in Fiscal 2013. |
| We expect the contribution to profit from the launch of new oral generic pharmaceuticals will decline significantly year-over-year. |
| Technology Solutions revenue growth will accelerate from the level of growth in Fiscal 2013 driven primarily by acquisitions completed in that fiscal year. |
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| The guidance range assumes a full-year adjusted tax rate of approximately 31%, which may vary from quarter to quarter. |
| Property acquisitions and capitalized software expenditures should be between $400 million and $450 million. |
| Cash flow from operations is expected to be approximately $2 billion. |
| Weighted average diluted shares used in the calculation of earnings are expected to be approximately 231 million for the year. |
| Based on acquisitions closed as of March 31, 2013: |
| We expect amortization of acquisition-related intangible assets of approximately 78 cents per diluted share. |
| We expect acquisition expenses and related adjustments of 22 cents per diluted share. |
| The Fiscal 2014 guidance range does not include any potential litigation reserve adjustments, or the impact of any potential new acquisitions, divestitures, impairments, material restructurings or charges for LIFO inventory accounting adjustments. |
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 McKessons 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 companys 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; malfunction, failure or breach of sophisticated internal information systems to perform as designed; the adequacy of insurance to cover property loss or liability claims; the companys 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 companys 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
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that could impair our goodwill or intangible assets; foreign currency fluctuations or disruptions to our foreign operations; new or revised tax legislation or challenges to our tax positions; the companys 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 8412149. A webcast of the conference call will also be available live and archived on the companys 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 companys 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 March 31, | Year Ended March 31, | |||||||||||||||||||||||||
2013 | 2012 | Change | 2013 | 2012 | Change | |||||||||||||||||||||
Revenues |
$ | 30,620 | $ | 31,699 | (3) % | $ | 122,455 | $ | 122,734 | % | ||||||||||||||||
Cost of sales (1) (2) (3) |
(28,624 | ) | (29,854 | ) | (4) | (115,471 | ) | (116,167 | ) | (1) | ||||||||||||||||
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|
|
|
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Gross profit |
1,996 | 1,845 | 8 | 6,984 | 6,567 | 6 | ||||||||||||||||||||
Operating expenses (2) (3) (4) |
(1,344 | ) | (1,134 | ) | 19 | (4,678 | ) | (4,269 | ) | 10 | ||||||||||||||||
Litigation charges (5) |
(12 | ) | (4 | ) | 200 | (72 | ) | (149 | ) | (52) | ||||||||||||||||
Gain on business combination (6) |
| | | 81 | | | ||||||||||||||||||||
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|
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Total operating expenses |
(1,356 | ) | (1,138 | ) | 19 | (4,669 | ) | (4,418 | ) | 6 | ||||||||||||||||
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Operating income |
640 | 707 | (9) | 2,315 | 2,149 | 8 | ||||||||||||||||||||
Other income, net |
7 | 9 | (22) | 35 | 21 | 67 | ||||||||||||||||||||
Impairment of an equity investment (7) |
(191 | ) | | | (191 | ) | | | ||||||||||||||||||
Interest expense |
(70 | ) | (59 | ) | 19 | (240 | ) | (251 | ) | (4) | ||||||||||||||||
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Income before income taxes |
386 | 657 | (41) | 1,919 | 1,919 | | ||||||||||||||||||||
Income tax expense |
(127 | ) | (136 | ) | (7) | (581 | ) | (516 | ) | 13 | ||||||||||||||||
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Net income |
$ | 259 | $ | 521 | (50) | $ | 1,338 | $ | 1,403 | (5) | ||||||||||||||||
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Earnings per common share (8) |
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Diluted |
$ | 1.10 | $ | 2.09 | (47) % | $ | 5.59 | $ | 5.59 | % | ||||||||||||||||
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Basic |
$ | 1.12 | $ | 2.14 | (48) % | $ | 5.71 | $ | 5.70 | % | ||||||||||||||||
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Weighted average common shares |
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Diluted |
237 | 249 | (5) % | 239 | 251 | (5) % | ||||||||||||||||||||
Basic |
231 | 244 | (5) | 235 | 246 | (4) |
(1) | Cost of sales for the fourth quarter and fiscal year 2013 includes the receipt of $17 million and $44 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 fourth quarter and fiscal year 2013 include asset impairment charges of $46 million, of which $10 million was recorded in cost of sales and $36 million was recorded in operating expenses. |
(3) | Technology Solutions segment results for the fourth quarter and fiscal year 2012 include product alignment charges of $9 million and $51 million, of which $5 million and $31 million was recorded in cost of sales and $4 million and $20 million was recorded in operating expenses. |
(4) | Distribution Solutions segment operating expenses for fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business. |
(5) | Represent charges for the Average Wholesale Price (AWP) litigation. |
(6) | 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. |
(7) | Represents $191 million pre tax ($139 million after tax) impairment charge related to equity investment in Nadro S.A. de C.V. (Nadro), a pharmaceutical distributor in Mexico. |
(8) | 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 March 31, 2013 | Vs. Prior Quarter | |||||||||||||||||||||||||
As Reported (GAAP) |
Amortization Related |
Acquisition Related |
Litigation Reserve Adjustments |
Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjusted Earnings (Non-GAAP) | ||||||||||||||||||||
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| |||||||||||||||||||||||
Revenues |
$ | 30,620 | $ | | $ | | $ | | $ | 30,620 | (3) % | (3) % | ||||||||||||||
Gross profit (1) (2) |
$ | 1,996 | $ | 5 | $ | | $ | | $ | 2,001 | 8 | 8 | ||||||||||||||
Operating expenses (2) |
(1,356 | ) | 58 | 57 | 12 | (1,229 | ) | 19 | 13 | |||||||||||||||||
Other income, net |
7 | | | | 7 | (22) | (22) | |||||||||||||||||||
Impairment of an equity investment (3) |
(191 | ) | | | | (191 | ) | | | |||||||||||||||||
Interest expense |
(70 | ) | | 10 | | (60 | ) | 19 | 2 | |||||||||||||||||
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Income before income taxes |
386 | 63 | 67 | 12 | 528 | (41) | (26) | |||||||||||||||||||
Income tax expense |
(127 | ) | (21 | ) | (33 | ) | (4 | ) | (185 | ) | (7) | (3) | ||||||||||||||
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Net Income |
$ | 259 | $ | 42 | $ | 34 | $ | 8 | $ | 343 | (50) | (34) | ||||||||||||||
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Diluted earnings per common share (6) |
$ | 1.10 | $ | 0.17 | $ | 0.14 | $ | 0.04 | $ | 1.45 | (47) % | (31) % | ||||||||||||||
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Diluted weighted average common shares |
237 | 237 | 237 | 237 | 237 | (5) % | (5) % | |||||||||||||||||||
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Quarter Ended March 31, 2012 | ||||||||||||||||||||||||||
As Reported (GAAP) |
Amortization Related |
Acquisition Related |
Litigation Reserve Adjustments |
Adjusted |
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Revenues |
$ | 31,699 | $ | | $ | | $ | | $ | 31,699 | ||||||||||||||||
Gross profit (4) |
$ | 1,845 | $ | 4 | $ | | $ | | $ | 1,849 | ||||||||||||||||
Operating expenses (4) |
(1,138 | ) | 40 | 5 | 4 | (1,089 | ) | |||||||||||||||||||
Other income, net |
9 | | | | 9 | |||||||||||||||||||||
Impairment of an equity investment |
| | | | | |||||||||||||||||||||
Interest expense |
(59 | ) | | | | (59 | ) | |||||||||||||||||||
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Income before income taxes |
657 | 44 | 5 | 4 | 710 | |||||||||||||||||||||
Income tax expense (5) |
(136 | ) | (16 | ) | (2 | ) | (36 | ) | (190 | ) | ||||||||||||||||
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Net Income |
$ | 521 | $ | 28 | $ | 3 | $ | (32 | ) | $ | 520 | |||||||||||||||
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Diluted earnings per common share (6) |
$ | 2.09 | $ | 0.11 | $ | 0.02 | $ | (0.13 | ) | $ | 2.09 | |||||||||||||||
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Diluted weighted average common shares |
249 | 249 | 249 | 249 | 249 | |||||||||||||||||||||
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|
(1) | Gross profit for the fourth quarter of fiscal year 2013 includes the receipt of $17 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 fourth quarter of fiscal year 2013 include asset impairment charges of $46 million, of which $10 million was recorded in cost of sales and $36 million was recorded in operating expenses. |
(3) | Distribution Solutions results for the fourth quarter of fiscal year 2013 includes impairment of an equity investment in Nadro of $191 million. |
(4) | Technology Solutions segment results for the fourth quarter of fiscal year 2012 include product alignment charges of $9 million, of which $5 million was recorded in cost of sales and $4 million was recorded in operating expenses. |
(5) | Litigation reserve adjustments for the fourth quarter of fiscal year 2012 includes a $34 million credit to income tax expense as a result of a reversal of an income tax reserve. |
(6) | 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 Companys 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 Companys reserves, including accrued interest, for estimated probable losses for its Average Wholesale Price and Securities Litigation matters, as such terms were defined in the Companys 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 Companys 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 Companys 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 | ||||||||||||||||||||||||||
Year Ended March 31, 2013 | Vs. Prior Period | |||||||||||||||||||||||||
As Reported (GAAP) |
Amortization of Acquisition- |
Acquisition Expenses and Related Adjustments |
Litigation Reserve Adjustments |
Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjusted Earnings (Non-GAAP) | ||||||||||||||||||||
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| |||||||||||||||||||||||
Revenues |
$ | 122,455 | $ | | $ | | $ | | $ | 122,455 | % | % | ||||||||||||||
Gross profit (1) (2) |
$ | 6,984 | $ | 16 | $ | | $ | | $ | 7,000 | 6 | 6 | ||||||||||||||
Operating expenses (2) (3) (4) |
(4,669 | ) | 199 | (9 | ) | 72 | (4,407 | ) | 6 | 8 | ||||||||||||||||
Other income, net |
35 | | | | 35 | 67 | 67 | |||||||||||||||||||
Impairment of an equity investment (5) |
(191 | ) | | | | (191 | ) | | | |||||||||||||||||
Interest expense |
(240 | ) | | 11 | | (229 | ) | (4) | (9) | |||||||||||||||||
|
|
|||||||||||||||||||||||||
Income before income taxes |
1,919 | 215 | 2 | 72 | 2,208 | | (4) | |||||||||||||||||||
Income tax expense |
(581 | ) | (78 | ) | (6 | ) | (27 | ) | (692 | ) | 13 | 1 | ||||||||||||||
|
|
|||||||||||||||||||||||||
Net Income |
$ | 1,338 | $ | 137 | $ | (4 | ) | $ | 45 | $ | 1,516 | (5) | (5) | |||||||||||||
|
|
|||||||||||||||||||||||||
Diluted earnings per common share (7) |
$ | 5.59 | $ | 0.57 | $ | (0.02 | ) | $ | 0.19 | $ | 6.33 | % | (1)% | |||||||||||||
|
|
|||||||||||||||||||||||||
Diluted weighted average common shares |
239 | 239 | 239 | 239 | 239 | (5)% | (5)% | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Year Ended March 31, 2012 | ||||||||||||||||||||||||||
As Reported (GAAP) |
Amortization of Acquisition- Related Intangibles |
Acquisition Expenses and Related Adjustments |
Litigation Reserve Adjustments |
Adjusted Earnings (Non-GAAP) |
||||||||||||||||||||||
|
|
|||||||||||||||||||||||||
Revenues |
$ | 122,734 | $ | | $ | | $ | | $ | 122,734 | ||||||||||||||||
Gross profit (6) |
$ | 6,567 | $ | 20 | $ | | $ | | $ | 6,587 | ||||||||||||||||
Operating expenses (6) |
(4,418 | ) | 171 | 31 | 149 | (4,067 | ) | |||||||||||||||||||
Other income, net |
21 | | | | 21 | |||||||||||||||||||||
Impairment of an equity investment |
| | | | | |||||||||||||||||||||
Interest expense |
(251 | ) | | | | (251 | ) | |||||||||||||||||||
|
|
|||||||||||||||||||||||||
Income before income taxes |
1,919 | 191 | 31 | 149 | 2,290 | |||||||||||||||||||||
Income tax expense |
(516 | ) | (72 | ) | (11 | ) | (89 | ) | (688 | ) | ||||||||||||||||
|
|
|||||||||||||||||||||||||
Net Income |
$ | 1,403 | $ | 119 | $ | 20 | $ | 60 | $ | 1,602 | ||||||||||||||||
|
|
|||||||||||||||||||||||||
Diluted earnings per common share (7) |
$ | 5.59 | $ | 0.47 | $ | 0.08 | $ | 0.24 | $ | 6.38 | ||||||||||||||||
|
|
|||||||||||||||||||||||||
Diluted weighted average common shares |
251 | 251 | 251 | 251 | 251 | |||||||||||||||||||||
|
|
(1) | Gross profit for fiscal year 2013 includes the receipt of $44 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 fiscal year 2013 include asset impairment charges of $46 million, of which $10 million was recorded in cost of sales and $36 million was recorded in operating expenses. |
(3) | Distribution Solutions segment operating expenses for fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business. |
(4) | For 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. |
(5) | Distribution Solutions results for fiscal year 2013 includes impairment of an equity investment in Nadro of $191 million. |
(6) | Technology Solutions segment results for fiscal year 2012 include product alignment charges of $51 million, of which $31 million was recorded in cost of sales and $20 million was recorded in operating expenses. |
(7) | 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 March 31, 2013 | Quarter Ended March 31, 2012 | 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 |
$ | 22,191 | $ | | $ | 22,191 | $ | 22,039 | $ | | $ | 22,039 | 1% | 1% | ||||||||||||||||||
Sales to customers warehouses |
4,025 | | 4,025 | 5,455 | | 5,455 | (26) | (26) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Total U.S. pharmaceutical distribution & services |
26,216 | | 26,216 | 27,494 | | 27,494 | (5) | (5) | ||||||||||||||||||||||||
Canada pharmaceutical distribution & services |
2,422 | | 2,422 | 2,564 | | 2,564 | (6) | (6) | ||||||||||||||||||||||||
Medical-Surgical distribution & services |
1,069 | | 1,069 | 781 | | 781 | 37 | 37 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Total Distribution Solutions |
29,707 | | 29,707 | 30,839 | | 30,839 | (4) | (4) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Technology Solutions |
||||||||||||||||||||||||||||||||
Services |
741 | | 741 | 678 | | 678 | 9 | 9 | ||||||||||||||||||||||||
Software & software systems |
144 | | 144 | 147 | | 147 | (2) | (2) | ||||||||||||||||||||||||
Hardware |
28 | | 28 | 35 | | 35 | (20) | (20) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Total Technology Solutions |
913 | | 913 | 860 | | 860 | 6 | 6 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Revenues |
$ | 30,620 | $ | | $ | 30,620 | $ | 31,699 | $ | | $ | 31,699 | (3) | (3) | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
GROSS PROFIT |
||||||||||||||||||||||||||||||||
Distribution Solutions (1) |
$ | 1,598 | $ | | $ | 1,598 | $ | 1,467 | $ | | $ | 1,467 | 9 | 9 | ||||||||||||||||||
Technology Solutions (2) (3) |
398 | 5 | 403 | 378 | 4 | 382 | 5 | 5 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Gross profit |
$ | 1,996 | $ | 5 | $ | 2,001 | $ | 1,845 | $ | 4 | $ | 1,849 | 8 | 8 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
OPERATING EXPENSES |
||||||||||||||||||||||||||||||||
Distribution Solutions (4) |
$ | (859) | $ | 92 | $ | (767) | $ | (718) | $ | 35 | $ | (683) | 20 | 12 | ||||||||||||||||||
Technology Solutions (2) (3) |
(371) | 17 | (354) | (294) | 15 | (279) | 26 | 27 | ||||||||||||||||||||||||
Corporate |
(126) | 18 | (108) | (126) | (1) | (127) | | (15) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Operating expenses |
$ | (1,356) | $ | 127 | $ | (1,229) | $ | (1,138) | $ | 49 | $ | (1,089) | 19 | 13 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
OTHER INCOME (EXPENSE), NET |
||||||||||||||||||||||||||||||||
Distribution Solutions |
$ | 3 | $ | | $ | 3 | $ | 8 | $ | | $ | 8 | (63) | (63) | ||||||||||||||||||
Technology Solutions |
1 | | 1 | 3 | | 3 | (67) | (67) | ||||||||||||||||||||||||
Corporate |
3 | | 3 | (2) | | (2) | | | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Other income (expense), net |
$ | 7 | $ | | $ | 7 | $ | 9 | $ | | $ | 9 | (22) | (22) | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
IMPAIRMENT OF AN EQUITY INVESTMENT |
||||||||||||||||||||||||||||||||
Distribution Solutions (5) |
$ | (191) | $ | | $ | (191) | $ | | $ | | $ | | | | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Impairment of an equity investment |
$ | (191) | $ | | $ | (191) | $ | | $ | | $ | | | | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
OPERATING PROFIT |
||||||||||||||||||||||||||||||||
Distribution Solutions (1) (4) (5) |
$ | 551 | $ | 92 | $ | 643 | $ | 757 | $ | 35 | $ | 792 | (27) | (19) | ||||||||||||||||||
Technology Solutions (2) (3) |
28 | 22 | 50 | 87 | 19 | 106 | (68) | (53) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Operating profit |
579 | 114 | 693 | 844 | 54 | 898 | (31) | (23) | ||||||||||||||||||||||||
Corporate |
(123) | 18 | (105) | (128) | (1) | (129) | (4) | (19) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Income before interest expense and income taxes |
$ | 456 | $ | 132 | $ | 588 | $ | 716 | $ | 53 | $ | 769 | (36) | (24) | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
STATISTICS |
||||||||||||||||||||||||||||||||
Operating profit as a % of revenues |
||||||||||||||||||||||||||||||||
Distribution Solutions (1) (4) (5) |
1.85 % | 2.16 % | 2.45 % | 2.57 % | (60) bp | (41) bp | ||||||||||||||||||||||||||
Technology Solutions (2) (3) |
3.07 | 5.48 | 10.12 | 12.33 | (705) | (685) |
(1) | Results for the fourth quarter of fiscal year 2013 include the receipt of $17 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers. |
(2) | Results for the fourth quarter of fiscal year 2013 include asset impairment charges of $46 million, of which $10 million was recorded in cost of sales and $36 million was recorded in operating expenses. |
(3) | Results for the fourth quarter of fiscal year 2012 include product alignment charges of $9 million, of which $5 million was recorded in cost of sales and $4 million was recorded in operating expenses. |
(4) | For the fourth quarter of fiscal year 2013 and 2012, results, as reported under GAAP, include AWP litigation charges of $12 million and $4 million. |
(5) | Distribution Solutions results for the fourth quarter of fiscal year 2013 includes impairment of an equity investment in Nadro of $191 million. |
Schedule 3B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
Year Ended March 31, 2013 | Year Ended March 31, 2012 | 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 |
$ | 86,816 | $ | | $ | 86,816 | $ | 85,523 | $ | | $ | 85,523 | 2 % | 2 % | ||||||||||||||||||
Sales to customers warehouses |
18,646 | | 18,646 | 20,453 | | 20,453 | (9) | (9) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Total U.S. pharmaceutical distribution & services |
105,462 | | 105,462 | 105,976 | | 105,976 | | | ||||||||||||||||||||||||
Canada pharmaceutical distribution & services |
9,981 | | 9,981 | 10,303 | | 10,303 | (3) | (3) | ||||||||||||||||||||||||
Medical-Surgical distribution & services |
3,611 | | 3,611 | 3,145 | | 3,145 | 15 | 15 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Total Distribution Solutions |
119,054 | | 119,054 | 119,424 | | 119,424 | | | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Technology Solutions |
||||||||||||||||||||||||||||||||
Services |
2,724 | | 2,724 | 2,594 | | 2,594 | 5 | 5 | ||||||||||||||||||||||||
Software & software systems |
576 | | 576 | 596 | | 596 | (3) | (3) | ||||||||||||||||||||||||
Hardware |
101 | | 101 | 120 | | 120 | (16) | (16) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Total Technology Solutions |
3,401 | | 3,401 | 3,310 | | 3,310 | 3 | 3 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Revenues |
$ | 122,455 | $ | | $ | 122,455 | $ | 122,734 | $ | | $ | 122,734 | | | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
GROSS PROFIT |
||||||||||||||||||||||||||||||||
Distribution Solutions (1) |
$ | 5,439 | $ | 2 | $ | 5,441 | $ | 5,057 | $ | 1 | $ | 5,058 | 8 | 8 | ||||||||||||||||||
Technology Solutions (2) (3) |
1,545 | 14 | 1,559 | 1,510 | 19 | 1,529 | 2 | 2 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Gross profit |
$ | 6,984 | $ | 16 | $ | 7,000 | $ | 6,567 | $ | 20 | $ | 6,587 | 6 | 6 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
OPERATING EXPENSES |
||||||||||||||||||||||||||||||||
Distribution Solutions (4) (5) |
$ | (3,071) | $ | 265 | $ | (2,806) | $ | (2,854) | $ | 293 | $ | (2,561) | 8 | 10 | ||||||||||||||||||
Technology Solutions (2) (3) |
(1,252) | 60 | (1,192) | (1,151) | 57 | (1,094) | 9 | 9 | ||||||||||||||||||||||||
Corporate (6) |
(346) | (63) | (409) | (413) | 1 | (412) | (16) | (1) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Operating expenses |
$ | (4,669) | $ | 262 | $ | (4,407) | $ | (4,418) | $ | 351 | $ | (4,067) | 6 | 8 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
OTHER INCOME (EXPENSE), NET |
||||||||||||||||||||||||||||||||
Distribution Solutions |
$ | 20 | $ | | $ | 20 | $ | 16 | $ | | $ | 16 | 25 | 25 | ||||||||||||||||||
Technology Solutions |
4 | | 4 | 5 | | 5 | (20) | (20) | ||||||||||||||||||||||||
Corporate |
11 | | 11 | | | | | | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Other income (expense), net |
$ | 35 | $ | | $ | 35 | $ | 21 | $ | | $ | 21 | 67 | 67 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
IMPAIRMENT OF AN EQUITY INVESTMENT |
||||||||||||||||||||||||||||||||
Distribution Solutions (7) |
$ | (191) | $ | | $ | (191) | $ | | $ | | $ | | | | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Impairment of an equity investment |
$ | (191) | $ | | $ | (191) | $ | | $ | | $ | | | | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
OPERATING PROFIT |
||||||||||||||||||||||||||||||||
Distribution Solutions (1) (4) (5) (7) |
$ | 2,197 | $ | 267 | $ | 2,464 | $ | 2,219 | $ | 294 | $ | 2,513 | (1) | (2) | ||||||||||||||||||
Technology Solutions (2) (3) |
297 | 74 | 371 | 364 | 76 | 440 | (18) | (16) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Operating profit |
2,494 | 341 | 2,835 | 2,583 | 370 | 2,953 | (3) | (4) | ||||||||||||||||||||||||
Corporate |
(335) | (63) | (398) | (413) | 1 | (412) | (19) | (3) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Income before interest expense and income taxes |
$ | 2,159 | $ | 278 | $ | 2,437 | $ | 2,170 | $ | 371 | $ | 2,541 | (1) | (4) | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
STATISTICS |
||||||||||||||||||||||||||||||||
Operating profit as a % of revenues |
||||||||||||||||||||||||||||||||
Distribution Solutions (1) (4) (5) (7) |
1.85 % | 2.07 % | 1.86 % | 2.10 % | (1) bp | (3) bp | ||||||||||||||||||||||||||
Technology Solutions (2) (3) |
8.73 | 10.91 | 11.00 | 13.29 | (227) | (238) |
(1) | Results for fiscal year 2013 include the receipt of $44 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers. |
(2) | Results for fiscal year 2013 include asset impairment charges of $46 million, of which $10 million was recorded in cost of sales and $36 million was recorded in operating expenses. |
(3) | Results for fiscal year 2012 include product alignment charges of $51 million, of which $31 million was recorded in cost of sales and $20 million was recorded in operating expenses. |
(4) | Results for fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business. |
(5) | For fiscal years 2013 and 2012, results, as reported under GAAP, include AWP litigation charges of $72 million and $149 million. |
(6) | For 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. |
(7) | Distribution Solutions results for fiscal year 2013 includes impairment of an equity investment in Nadro of $191 million. |
Schedule 4A
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) BY ADJUSTMENT TYPE
(unaudited)
(in millions)
Quarter Ended March 31, 2013 | Quarter Ended March 31, 2012 | |||||||||||||||||||||||||||||||
Distribution Solutions |
Technology Solutions |
Corporate & Interest Expense |
Total | Distribution Solutions |
Technology Solutions |
Corporate & Interest Expense |
Total | |||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
As Reported (GAAP): |
||||||||||||||||||||||||||||||||
Revenues |
$ | 29,707 | $ | 913 | $ | | $ | 30,620 | $ | 30,839 | $ | 860 | $ | | $ | 31,699 | ||||||||||||||||
Gross profit (1) (2) (3) |
$ | 1,598 | $ | 398 | $ | | $ | 1,996 | $ | 1,467 | $ | 378 | $ | | $ | 1,845 | ||||||||||||||||
Operating expenses (2) (3) |
(859) | (371) | (126) | (1,356) | (718) | (294) | (126) | (1,138) | ||||||||||||||||||||||||
Other income (expense), net |
3 | 1 | 3 | 7 | 8 | 3 | (2) | 9 | ||||||||||||||||||||||||
Impairment of an equity investment (4) |
(191) | | | (191) | | | | | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Income before interest expense and income taxes |
551 | 28 | (123) | 456 | 757 | 87 | (128) | 716 | ||||||||||||||||||||||||
Interest expense |
| | (70) | (70) | | | (59) | (59) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Income before income taxes |
$ | 551 | $ | 28 | $ | (193) | $ | 386 | $ | 757 | $ | 87 | $ | (187) | $ | 657 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Pre-Tax Adjustments: |
||||||||||||||||||||||||||||||||
Gross profit |
$ | | $ | 5 | $ | | $ | 5 | $ | | $ | 4 | $ | | $ | 4 | ||||||||||||||||
Operating expenses |
43 | 14 | 1 | 58 | 27 | 13 | | 40 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Amortization of acquisition-related intangibles |
43 | 19 | 1 | 63 | 27 | 17 | | 44 | ||||||||||||||||||||||||
Operating expenses |
37 | 3 | 17 | 57 | 4 | 2 | (1) | 5 | ||||||||||||||||||||||||
Interest expense |
| | 10 | 10 | | | | | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Acquisition expenses and related adjustments |
37 | 3 | 27 | 67 | 4 | 2 | (1) | 5 | ||||||||||||||||||||||||
Operating expenses - Litigation reserve adjustments |
12 | | | 12 | 4 | | | 4 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Total pre-tax adjustments |
$ | 92 | $ | 22 | $ | 28 | $ | 142 | $ | 35 | $ | 19 | $ | (1) | $ | 53 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Adjusted Earnings (Non-GAAP): |
||||||||||||||||||||||||||||||||
Revenues |
$ | 29,707 | $ | 913 | $ | | $ | 30,620 | $ | 30,839 | $ | 860 | $ | | $ | 31,699 | ||||||||||||||||
Gross profit (1) (2) (3) |
$ | 1,598 | $ | 403 | $ | | $ | 2,001 | $ | 1,467 | $ | 382 | $ | | $ | 1,849 | ||||||||||||||||
Operating expenses (2) (3) |
(767) | (354) | (108) | (1,229) | (683) | (279) | (127) | (1,089) | ||||||||||||||||||||||||
Other income (expense), net |
3 | 1 | 3 | 7 | 8 | 3 | (2) | 9 | ||||||||||||||||||||||||
Impairment of an equity investment (4) |
(191) | | | (191) | | | | | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Income before interest expense and income taxes |
643 | 50 | (105) | 588 | 792 | 106 | (129) | 769 | ||||||||||||||||||||||||
Interest expense |
| | (60) | (60) | | | (59) | (59) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Income before income taxes |
$ | 643 | $ | 50 | $ | (165) | $ | 528 | $ | 792 | $ | 106 | $ | (188) | $ | 710 | ||||||||||||||||
|
|
|
|
(1) | Gross profit for the fourth quarter of fiscal year 2013 includes the receipt of $17 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 fourth quarter of fiscal year 2013 include asset impairment charges of $46 million, of which $10 million was recorded in cost of sales and $36 million was recorded in operating expenses. |
(3) | Technology Solutions segment results for the fourth quarter of fiscal year 2012 include product alignment charges of $9 million, of which $5 million was recorded in cost of sales and $4 million was recorded in operating expenses. |
(4) | Distribution Solutions results for the fourth quarter of fiscal year 2013 includes impairment of an equity investment in Nadro of $191 million. |
Schedule 4B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) BY ADJUSTMENT TYPE
(unaudited)
(in millions)
Year Ended March 31, 2013 | Year Ended March 31, 2012 | |||||||||||||||||||||||||||||||
Distribution Solutions |
Technology Solutions |
Corporate & Interest Expense |
Total | Distribution Solutions |
Technology Solutions |
Corporate & Interest Expense |
Total | |||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
As Reported (GAAP): |
||||||||||||||||||||||||||||||||
Revenues |
$ | 119,054 | $ | 3,401 | $ | | $ | 122,455 | $ | 119,424 | $ | 3,310 | $ | | $ | 122,734 | ||||||||||||||||
Gross profit (1) (2) (3) |
$ | 5,439 | $ | 1,545 | $ | | $ | 6,984 | $ | 5,057 | $ | 1,510 | $ | | $ | 6,567 | ||||||||||||||||
Operating expenses (2) (3) (4) (5) |
(3,071) | (1,252) | (346) | (4,669) | (2,854) | (1,151) | (413) | (4,418) | ||||||||||||||||||||||||
Other income (expense), net |
20 | 4 | 11 | 35 | 16 | 5 | | 21 | ||||||||||||||||||||||||
Impairment of an equity investment (6) |
(191) | | | (191) | | | | | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Income before interest expense and income taxes |
2,197 | 297 | (335) | 2,159 | 2,219 | 364 | (413) | 2,170 | ||||||||||||||||||||||||
Interest expense |
| | (240) | (240) | | | (251) | (251) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Income before income taxes |
$ | 2,197 | $ | 297 | $ | (575) | $ | 1,919 | $ | 2,219 | $ | 364 | $ | (664) | $ | 1,919 | ||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Pre-Tax Adjustments: |
||||||||||||||||||||||||||||||||
Gross profit |
$ | 2 | $ | 14 | $ | | $ | 16 | $ | 1 | $ | 19 | $ | | $ | 20 | ||||||||||||||||
Operating expenses |
146 | 52 | 1 | 199 | 120 | 51 | | 171 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Amortization of acquisition-related intangibles |
148 | 66 | 1 | 215 | 121 | 70 | | 191 | ||||||||||||||||||||||||
Operating expenses |
47 | 8 | (64) | (9) | 24 | 6 | 1 | 31 | ||||||||||||||||||||||||
Interest expense |
| | 11 | 11 | | | | | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Acquisition expenses and related adjustments |
47 | 8 | (53) | 2 | 24 | 6 | 1 | 31 | ||||||||||||||||||||||||
Operating expenses - Litigation reserve adjustments |
72 | | | 72 | 149 | | | 149 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Total pre-tax adjustments |
$ | 267 | $ | 74 | $ | (52 | ) | $ | 289 | $ | 294 | $ | 76 | $ | 1 | $ | 371 | |||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Adjusted Earnings (Non-GAAP): |
||||||||||||||||||||||||||||||||
Revenues |
$ | 119,054 | $ | 3,401 | $ | | $ | 122,455 | $ | 119,424 | $ | 3,310 | $ | | $ | 122,734 | ||||||||||||||||
Gross profit (1) (2) (3) |
$ | 5,441 | $ | 1,559 | $ | | $ | 7,000 | $ | 5,058 | $ | 1,529 | $ | | $ | 6,587 | ||||||||||||||||
Operating expenses (2) (3) (4) |
(2,806) | (1,192) | (409) | (4,407) | (2,561) | (1,094) | (412) | (4,067) | ||||||||||||||||||||||||
Other income (expense), net |
20 | 4 | 11 | 35 | 16 | 5 | | 21 | ||||||||||||||||||||||||
Impairment of an equity investment (6) |
(191) | | | (191) | | | | | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Income before interest expense and income taxes |
2,464 | 371 | (398) | 2,437 | 2,513 | 440 | (412) | 2,541 | ||||||||||||||||||||||||
Interest expense |
| | (229) | (229) | | | (251) | (251) | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
Income before income taxes |
$ | 2,464 | $ | 371 | $ | (627) | $ | 2,208 | $ | 2,513 | $ | 440 | $ | (663) | $ | 2,290 | ||||||||||||||||
|
|
|
|
(1) | Gross profit for fiscal year 2013 includes the receipt of $44 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 fiscal year 2013 include asset impairment charges of $46 million, of which $10 million was recorded in cost of sales and $36 million was recorded in operating expenses. |
(3) | Technology Solutions segment results for fiscal year 2012 include product alignment charges of $51 million, of which $31 million was recorded in cost of sales and $20 million was recorded in operating expenses. |
(4) | Distribution Solutions segment operating expenses for fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business. |
(5) | 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. |
(6) | Distribution Solutions results for fiscal year 2013 includes impairment of an equity investment in Nadro of $191 million. |
Schedule 5
McKESSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions)
March 31, 2013 |
March 31, 2012 |
|||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 2,456 | $ | 3,149 | ||||
Receivables, net |
9,975 | 9,977 | ||||||
Inventories, net |
10,335 | 10,073 | ||||||
Prepaid expenses and other |
404 | 404 | ||||||
|
|
|
|
|||||
Total Current Assets |
23,170 | 23,603 | ||||||
Property, Plant and Equipment, Net |
1,321 | 1,043 | ||||||
Goodwill |
6,405 | 5,032 | ||||||
Intangible Assets, Net |
2,270 | 1,750 | ||||||
Other Assets |
1,620 | 1,665 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 34,786 | $ | 33,093 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current Liabilities |
||||||||
Drafts and accounts payable |
$ | 16,108 | $ | 16,114 | ||||
Short-term borrowings |
| 400 | ||||||
Deferred revenue |
1,359 | 1,423 | ||||||
Deferred tax liabilities |
1,626 | 1,092 | ||||||
Current portion of long-term debt |
352 | 508 | ||||||
Other accrued liabilities |
1,912 | 2,149 | ||||||
|
|
|
|
|||||
Total Current Liabilities |
21,357 | 21,686 | ||||||
Long-Term Debt |
4,521 | 3,072 | ||||||
Other Noncurrent Liabilities |
1,838 | 1,504 | ||||||
Stockholders Equity |
7,070 | 6,831 | ||||||
|
|
|
|
|||||
Total Liabilities and Stockholders Equity |
$ | 34,786 | $ | 33,093 | ||||
|
|
|
|
Schedule 6
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
Year Ended March 31, | ||||||||
2013 | 2012 | |||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 1,338 | $ | 1,403 | ||||
Adjustments to reconcile to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
591 | 551 | ||||||
Other deferred taxes |
606 | 164 | ||||||
Share-based compensation expense |
167 | 154 | ||||||
Gain on business combination |
(81 | ) | | |||||
Impairment of an equity investment |
191 | | ||||||
Other non-cash items |
94 | 96 | ||||||
Changes in operating assets and liabilities, net of acquisitions: |
||||||||
Receivables |
326 | (770 | ) | |||||
Inventories |
(59 | ) | (878 | ) | ||||
Drafts and accounts payable |
(125 | ) | 2,027 | |||||
Deferred revenue |
(25 | ) | 66 | |||||
Taxes |
(80 | ) | 15 | |||||
Litigation charges |
72 | 149 | ||||||
Litigation settlement payments |
(483 | ) | (26 | ) | ||||
Other |
(49 | ) | (1 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
2,483 | 2,950 | ||||||
|
|
|
|
|||||
INVESTING ACTIVITIES |
||||||||
Property acquisitions |
(246 | ) | (225 | ) | ||||
Capitalized software expenditures |
(160 | ) | (178 | ) | ||||
Acquisitions, less cash and cash equivalents acquired |
(1,873 | ) | (1,156 | ) | ||||
Restricted cash for litigation charges |
32 | (32 | ) | |||||
Other |
38 | 89 | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(2,209 | ) | (1,502 | ) | ||||
|
|
|
|
|||||
FINANCING ACTIVITIES |
||||||||
Proceeds from short-term borrowings |
2,225 | 400 | ||||||
Repayments of short-term borrowings |
(2,625 | ) | | |||||
Proceeds from issuances of long-term debt |
1,798 | | ||||||
Repayments of long-term debt |
(1,143 | ) | (430 | ) | ||||
Common stock transactions: |
||||||||
Issuances |
166 | 167 | ||||||
Share repurchases, including shares surrendered for tax withholding |
(1,214 | ) | (1,874 | ) | ||||
Dividends paid |
(194 | ) | (195 | ) | ||||
Other |
31 | 27 | ||||||
|
|
|
|
|||||
Net cash used in financing activities |
(956 | ) | (1,905 | ) | ||||
|
|
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents |
(11 | ) | (6 | ) | ||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(693 | ) | (463 | ) | ||||
Cash and cash equivalents at beginning of period |
3,149 | 3,612 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 2,456 | $ | 3,149 | ||||
|
|
|
|