EX-99.1 2 d864278dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

LOGO

McKESSON REPORTS FISCAL 2015 THIRD-QUARTER RESULTS

 

  •   Revenues of $47 billion for the third quarter, up 37%.

 

  •   Third-quarter GAAP earnings per diluted share from continuing operations of $2.01, up 187%.

 

  •   Third-quarter Adjusted Earnings per diluted share from continuing operations of $2.89, up 95%.

 

  •   Fiscal 2015 Outlook: Adjusted Earnings per diluted share of $10.80 to $10.95, up from previous outlook of $10.50 to $10.90.

SAN FRANCISCO, February 5, 2015 – McKesson Corporation (NYSE:MCK) today reported that revenues for the third quarter ended December 31, 2014 were $47.0 billion, up 37% compared to $34.3 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), third-quarter earnings per diluted share from continuing operations was $2.01 compared to $0.70 a year ago.

“I am pleased by the strong performance of our business for the first nine months of our fiscal year. We have raised our outlook for the year and now expect Adjusted Earnings per diluted share from continuing operations of $10.80 to $10.95 for the fiscal year ending March 31, 2015. McKesson’s third-quarter results reflect solid execution across our business,” said John H. Hammergren, chairman and chief executive officer.

Third-quarter Adjusted Earnings per diluted share was $2.89, up 95% compared to $1.48 a year ago. Third-quarter results benefitted from the pull forward of earnings generated by our branded portfolio of products previously anticipated in the fourth quarter and a lower than expected tax rate driven by the enactment of recent legislation.

For the first nine months of the fiscal year, McKesson generated cash from operations of $1.2 billion, and ended the quarter with cash and cash equivalents of $4.6 billion. Through nine months of the fiscal year, McKesson

 

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paid $171 million in dividends, had internal capital spending of $405 million, and spent $40 million on acquisitions.

Segment Results

Distribution Solutions revenues were $46.3 billion, up 38% on a reported basis and 39% on a constant currency basis for the quarter, mainly driven by the contribution from our acquisition of Celesio and market growth.

North America pharmaceutical distribution and services revenues, which include results from U.S. Pharmaceutical, McKesson Canada and McKesson Specialty Health, were up 17% on a reported and constant currency basis for the quarter, reflecting market growth including growth from existing customers and continued demand for recently launched drugs for the treatment of Hepatitis C.

International pharmaceutical distribution and services revenues were $7.3 billion, an increase of 7% on the underlying results of Celesio on a constant currency basis.

Medical-Surgical distribution and services revenues were up 7% for the quarter, driven by market growth.

In the third quarter, Distribution Solutions GAAP operating profit was $785 million and GAAP operating margin was 1.70%. Third-quarter adjusted operating profit was $1,043 million and the adjusted operating margin was 2.26%.

Technology Solutions revenues were $755 million, down 7% in the third quarter compared to the prior year, driven by anticipated revenue softness from the Horizon clinical software platform and the planned elimination of a product line, partially offset by growth in other technology businesses. GAAP operating profit was $111 million for the third quarter and GAAP operating margin was 14.70%. Adjusted operating profit was $123 million for the third quarter and adjusted operating margin was 16.29%.

Fiscal Year 2015 Outlook

McKesson expects Adjusted Earnings per diluted share from continuing operations between $10.80 and $10.95 for the fiscal year ending March 31,

 

2

2015, based on an updated full year average exchange rate of $1.29 per Euro, which excludes the following GAAP items:

 

  •   Amortization of acquisition-related intangible assets of $1.48 per diluted share.

 

  •   Acquisition expenses and related adjustments of 63 cents per diluted share.

 

  •   LIFO inventory-related charges of 97 cents to $1.07 per diluted share.

Adjusted Earnings

McKesson separately reports financial results on the basis of Adjusted Earnings. Adjusted Earnings is a non-GAAP financial measure defined as GAAP income from continuing operations, excluding amortization of acquisition-related intangible assets, acquisition expenses and related adjustments, certain litigation reserve adjustments, and Last-In-First-Out (“LIFO”) inventory-related 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.

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

 

3

Exchange Commission and include, but are not limited to: changes in the U.S. healthcare industry and regulatory environment; changes in the Canadian healthcare industry and regulatory environment; changes in the European regulatory environment with respect to privacy and data protection regulations; managing foreign expansion, including the related operating, economic, political and regulatory risks; the company’s ability to successfully identify, consummate, finance and integrate acquisitions; material adverse resolution of pending legal proceedings; exposure to European economic conditions, including recent austerity measures taken by certain European governments; 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 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 intangible assets; new or revised tax legislation or challenges to our tax positions; 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; changes in accounting principles generally accepted in the United States of America; and withdrawal from participation in multiemployer pension plans or if such plans are reported to have underfunded liabilities. 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

 

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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, senior 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 719-457-0820 and the pass code is 7328191. A webcast of the conference call will also be available live and archived on the company’s Investor Relations website at http://investor.mckesson.com.

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

About McKesson

McKesson Corporation, currently ranked 15th 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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Exhibit 99.1

Schedule 1

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP

(unaudited)

(in millions, except per share amounts)

 

     Quarter Ended
December 31,		           Nine Months Ended
December 31,		        
     2014     2013     Change     2014     2013     Change  

Revenues

    $ 47,005      $ 34,336        37 %    $ 135,821      $ 99,560        36 % 

Cost of sales (1) (2) (3)

      (44,063 )      (32,486 )      36        (127,159 )      (93,759 )      36   
  

 

 

    

 

 

      

 

 

    

 

 

    

Gross profit

   2,942      1,850      59      8,662      5,801      49   

Operating expenses (3)

   (2,162 )    (1,339 )    61      (6,406 )    (3,899 )    64   

Litigation charges (4)

   —        (18 )    —        —        (68 )    —     
  

 

 

    

 

 

      

 

 

    

 

 

    

Total operating expenses

   (2,162 )    (1,357 )    59      (6,406 )    (3,967 )    61   
  

 

 

    

 

 

      

 

 

    

 

 

    

Operating income

   780      493      58      2,256      1,834      23   

Other income (loss), net

   13      (6 )    —        57      9      533   

Interest expense

   (97 )    (69 )    41      (297 )    (187 )    59   
  

 

 

    

 

 

      

 

 

    

 

 

    

Income from continuing operations before income taxes

   696      418      67      2,016      1,656      22   

Income tax expense (5)

   (183 )    (254 )    (28 )    (587 )    (641 )    (8 ) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Income from continuing operations after tax

   513      164      213      1,429      1,015      41   

Loss from discontinued operations, net of tax (6)

   (2 )    (99 )    (98 )    (30 )    (122 )    (75 ) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Net income

   511      65      686      1,399      893      57   

Net Income Attributable to Noncontrolling Interests (7)

   (39 )    —        —        (55 )    —        —     
  

 

 

    

 

 

      

 

 

    

 

 

    

Net income attributable to McKesson Corporation

 $ 472    $ 65      626    $ 1,344    $ 893      51   
  

 

 

    

 

 

      

 

 

    

 

 

    

Earnings (loss) per common share attributable to McKesson Corporation (8)

Diluted

Continuing operations

 $ 2.01    $ 0.70      187 %  $ 5.84    $ 4.36      34 % 

Discontinued operations

   (0.01 )    (0.42 )    (98 )    (0.12 )    (0.53 )    (77 ) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

 $ 2.00    $ 0.28      614    $ 5.72    $ 3.83      49   
  

 

 

    

 

 

      

 

 

    

 

 

    

Basic

Continuing operations

 $ 2.04    $ 0.71      187 %  $ 5.93    $ 4.43      34 % 

Discontinued operations

   (0.01 )    (0.43 )    (98 )    (0.13 )    (0.53 )    (75 ) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

 $ 2.03    $ 0.28      625    $ 5.80    $ 3.90      49   
  

 

 

    

 

 

      

 

 

    

 

 

    

Dividends declared per common share

 $ 0.24    $ 0.24    $ 0.72    $ 0.68   
  

 

 

    

 

 

      

 

 

    

 

 

    

Weighted average common shares

Diluted

   236      234      1 %    235      233      1 % 

Basic

   232      230      1      232      229      1   

 

(1)  The third quarter and first nine months of fiscal year 2015 include charges of $95 million and $287 million related to our last-in-first-out (“LIFO”) method of accounting for inventories. The third quarter and first nine months of fiscal year 2014 include $142 million and $186 million of LIFO charges.
(2)  The first nine months of fiscal year 2015 reflect a non-cash charge of $34 million ($27 million after-tax) related to the workforce business within our International Technology business, which was primarily recorded in cost of sales.
(3)  Fiscal year 2014, as reported under GAAP, includes pre-tax charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses. These charges primarily consist of $35 million of product alignment charges, $15 million of integration-related expenses and $7 million of severance charges.
(4)  Represents charges for our Average Wholesale Price (“AWP”) litigation.
(5)  Fiscal year 2014 includes a charge of $122 million related to our litigation with the Canadian Revenue Agency.
(6)  Fiscal year 2014 includes an $80 million pre-tax and after-tax impairment charge related to our International Technology business, which was sold in part during the second quarter of fiscal year 2015.
(7)  The third quarter and first nine months of fiscal year 2015 primarily reflect guaranteed dividends that McKesson became obligated to pay to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, upon the December 2, 2014 effectiveness of the Domination and Profit and Loss Transfer agreement.
(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)

 

    Quarter Ended December 31, 2014     Change
Vs. Prior Quarter		  
    As Reported
(GAAP)		     Amortization
of Acquisition-
Related
Intangibles		     Acquisition
Expenses and
Related
Adjustments		     Litigation
Reserve
Adjustments		     LIFO-Related
Adjustments		     Adjusted
Earnings
(Non-GAAP)		     As
Reported
(GAAP)		     Adjusted
Earnings
(Non-GAAP)		  

Revenues

   $ 47,005      $ —        $ —        $ —        $ —        $ 47,005        37 %      37 % 

Gross profit

   $ 2,942      $ 2      $ 1      $ —        $ 95      $ 3,040        59        52   

Operating expenses

     (2,162 )      123        50        —          —          (1,989 )      59        61   

Other income, net

     13        —          —          —          —          13        —          86   

Interest expense

     (97 )      —          —          —          —          (97 )      41        64   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations before income taxes

     696        125        51        —          95        967        67        35   

Income tax expense

     (183 )      (40 )      (18 )      —          (37 )      (278 )      (28 )      (24 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations after tax

     513        85        33        —          58        689        213        99   

Net Income Attributable to Noncontrolling Interests (1)

     (39 )      23        6        —          —          (10 )      —          —     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations, net of tax, attributable to McKesson Corporation

   $ 474      $ 108      $ 39      $ —        $ 58      $ 679        189        96   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (2)

  $ 2.01      $ 0.46      $ 0.17      $ —        $ 0.25      $ 2.89        187 %      95 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Diluted weighted average common shares

     236        236        236        —          236        236        1 %      1 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      
    Quarter Ended December 31, 2013              
    As Reported
(GAAP)		     Amortization
of Acquisition-
Related
Intangibles		     Acquisition
Expenses and
Related
Adjustments		     Litigation
Reserve
Adjustments		     LIFO-Related
Adjustments		     Adjusted
Earnings
(Non-GAAP)		              

Revenues

   $ 34,336      $ —        $ —        $ —        $ —        $ 34,336       

Gross profit (3)

   $ 1,850      $ 4      $ 3      $ —        $ 142      $ 1,999       

Operating expenses (3)

     (1,357 )      66        40        18        —          (1,233 )     

Other income (loss), net

     (6 )      —          13        —          —          7       

Interest expense

     (69 )      —          10        —          —          (59 )     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations before income taxes

     418        70        66        18        142        714       

Income tax expense (4)

     (254 )      (27 )      (23 )      (7 )      (56 )      (367 )     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations after tax

     164        43        43        11        86        347       

Net Income Attributable to Noncontrolling Interests

     —          —          —          —          —          —         
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations, net of tax, attributable to McKesson Corporation

   $ 164      $ 43      $ 43      $ 11      $ 86      $ 347       
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (2)

   $ 0.70      $ 0.19      $ 0.17      $ 0.05      $ 0.37      $ 1.48       
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Diluted weighted average common shares

     234        234        234        234        234        234       
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

(1) The third quarter of fiscal year 2015 primarily reflects guaranteed dividends that McKesson became obligated to pay to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, upon the December 2, 2014 effectiveness of the Domination and Profit and Loss Transfer agreement.
(2)  Certain computations may reflect rounding adjustments.
(3)  Fiscal year 2014, as reported under GAAP, includes pre-tax charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(4)  Fiscal year 2014 includes a charge of $122 million related to our litigation with the Canadian Revenue Agency.

Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 2B

McKESSON CORPORATION

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

(unaudited)

(in millions, except per share amounts)

 

    Nine Months Ended December 31, 2014     Change
Vs. Prior Period		  
    As Reported
(GAAP)		     Amortization
of Acquisition-
Related
Intangibles		     Acquisition
Expenses and
Related
Adjustments		     Litigation
Reserve
Adjustments		     LIFO-Related
Adjustments		     Adjusted
Earnings
(Non-GAAP)		     As
Reported
(GAAP)		     Adjusted
Earnings
(Non-GAAP)		  

Revenues

   $ 135,821      $ —        $ —        $ —        $ —        $ 135,821        36 %      36 % 

Gross profit (1)

   $ 8,662      $ 7      $ 1      $ —        $ 287      $ 8,957        49        49   

Operating expenses

     (6,406 )      379        161        —          —          (5,866 )      61        61   

Other income, net

     57        —          —          —          —          57        533        159   

Interest expense

     (297 )      —          —          —          —          (297 )      59        68   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations before income taxes

     2,016        386        162        —          287        2,851        22        29   

Income tax expense

     (587 )      (120 )      (55 )      —          (112 )      (874 )      (8 )      4   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations after tax

     1,429        266        107        —          175        1,977        41        44   

Net Income Attributable to Noncontrolling Interests (2)

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations, net of tax, attributable to McKesson Corporation

   $ 1,374      $ 266      $ 107      $ —        $ 175      $ 1,922        35        40   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (3)

  $ 5.84      $ 1.13      $ 0.46      $ —        $ 0.74      $ 8.17        34 %      39 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Diluted weighted average common shares

     235        235        235        —          235        235        1 %      1 % 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      
    Nine Months Ended December 31, 2013              
    As Reported
(GAAP)		     Amortization
of Acquisition-
Related
Intangibles		     Acquisition
Expenses and
Related
Adjustments		     Litigation
Reserve
Adjustments		     LIFO-Related
Adjustments		     Adjusted
Earnings
(Non-GAAP)		              

Revenues

   $ 99,560      $ —        $ —        $ —        $ —        $ 99,560       

Gross profit (4)

   $ 5,801      $ 15      $ 3      $ —        $ 186      $ 6,005       

Operating expenses (4)

     (3,967 )      196        66        68        —          (3,637 )     

Other income, net

     9        —          13        —          —          22       

Interest expense

     (187 )      —          10        —          —          (177 )     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations before income taxes

     1,656        211        92        68        186        2,213       

Income tax expense (5)

     (641 )      (79 )      (33 )      (15 )      (73 )      (841 )     
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations after tax

     1,015        132        59        53        113        1,372       

Net Income Attributable to Noncontrolling Interests

     —          —          —          —          —          —         
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations, net of tax, attributable to McKesson Corporation

   $ 1,015      $ 132      $ 59      $ 53      $ 113      $ 1,372       
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (3)

   $ 4.36      $ 0.57      $ 0.24      $ 0.23      $ 0.49      $ 5.89       
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Diluted weighted average common shares

     233        233        233        233        233        233       
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

(1) The first nine months of fiscal year 2015 reflect a non-cash charge of $34 million ($27 million after-tax) related to the workforce business within our International Technology business. The amount was primarily recorded in cost of sales.
(2) Fiscal year 2015 primarily reflects guaranteed dividends that McKesson became obligated to pay to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, upon the December 2, 2014 effectiveness of the Domination and Profit and Loss Transfer agreement.
(3)  Certain computations may reflect rounding adjustments.
(4)  Fiscal year 2014, as reported under GAAP, includes pre-tax charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(5)  Fiscal year 2014 includes a charge of $122 million related to our litigation with the Canadian Revenue Agency.

Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 3A

McKESSON CORPORATION

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

(unaudited)

(in millions)

 

    Quarter Ended December 31, 2014     Quarter Ended December 31, 2013     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

    

North America pharmaceutical distribution & services

   $ 37,398      $ —        $ 37,398      $ 32,060      $ —        $ 32,060        17 %      17 % 

International pharmaceutical distribution & services

     7,288        —          7,288        —          —          —          —          —     

Medical-Surgical distribution & services

     1,564       —          1,564        1,462        —          1,462        7        7   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Total Distribution Solutions

     46,250       —          46,250        33,522       —          33,522        38        38   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Technology Solutions - Products and Services

     755       —          755        814       —          814        (7 )      (7 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Revenues

   $ 47,005     $ —        $ 47,005      $ 34,336     $ —        $ 34,336        37        37   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

GROSS PROFIT

            

Distribution Solutions

   $ 2,571      $ 97      $ 2,668      $ 1,499      $ 142      $ 1,641        72        63   

Technology Solutions (1)

     371        1        372        351        7        358        6        4   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Gross profit

   $ 2,942     $ 98      $ 3,040      $ 1,850     $ 149      $ 1,999        59        52   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

OPERATING EXPENSES

            

Distribution Solutions

   $ (1,794 )    $ 161      $ (1,633 )    $ (950 )    $ 89      $ (861 )      89        90   

Technology Solutions (1)

     (261 )      11        (250 )      (305 )      23        (282 )      (14 )      (11 ) 

Corporate

     (107 )     1        (106 )      (102 )     12        (90 )      5        18   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Operating expenses

   $ (2,162 )   $ 173      $ (1,989 )    $ (1,357 )   $ 124      $ (1,233 )      59        61   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

OTHER INCOME (LOSS), NET

            

Distribution Solutions

   $ 8      $ —        $ 8      $ 3      $ —        $ 3        167        167   

Technology Solutions

     1        —          1        1        —          1        —          —     

Corporate

     4        —          4        (10 )     13        3        —          33   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Other income (loss), net

   $ 13     $ —        $ 13      $ (6 )   $ 13      $ 7        —          86   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

OPERATING PROFIT

            

Distribution Solutions

   $ 785      $ 258      $ 1,043      $ 552      $ 231      $ 783        42        33   

Technology Solutions (1)

     111       12        123        47       30        77        136        60   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Operating profit

     896        270        1,166        599        261        860        50        36   

Corporate

     (103 )      1        (102 )      (112 )      25        (87 )      (8 )      17   

Interest Expense

     (97 )     —          (97 )      (69 )     10        (59 )      41        64   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations before income taxes (2)

   $ 696     $ 271      $ 967      $ 418     $ 296      $ 714        67        35   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

STATISTICS

        

Operating profit as a % of revenues

                

Distribution Solutions

     1.70 %        2.26 %      1.65 %        2.34 %      5bp        (8 )bp 

Technology Solutions

     14.70          16.29        5.77          9.46        893        683   

 

(1)  Fiscal year 2014, as reported under GAAP, includes pre-tax charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(2)  For the fiscal year 2015, the amount is prior to recording guaranteed dividends to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, under the Domination and Profit and Loss Transfer agreement.

Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 3B

McKESSON CORPORATION

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

(unaudited)

(in millions)

 

    Nine Months Ended
December 31, 2014		     Nine Months Ended
December 31, 2013		     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

          

North America pharmaceutical distribution & services

   $ 106,850      $ —        $ 106,850      $ 92,808      $ —        $ 92,808        15 %      15 % 

International pharmaceutical distribution & services

     22,207        —          22,207        —          —          —          —          —     

Medical-Surgical distribution & services

     4,471       —          4,471        4,286       —          4,286        4        4   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Total Distribution Solutions

     133,528       —          133,528        97,094       —          97,094        38        38   

Technology Solutions - Products and Services

     2,293       —          2,293        2,466       —          2,466        (7 )      (7 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Revenues

   $ 135,821     $ —        $ 135,821      $ 99,560     $ —        $ 99,560        36        36   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

GROSS PROFIT

            

Distribution Solutions

   $ 7,569      $ 289      $ 7,858      $ 4,642      $ 187      $ 4,829        63        63   

Technology Solutions (1) (2)

     1,093        6        1,099        1,159        17        1,176        (6 )      (7 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Gross profit

   $ 8,662     $ 295      $ 8,957      $ 5,801     $ 204      $ 6,005        49        49   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

OPERATING EXPENSES

            

Distribution Solutions

   $ (5,288 )    $ 497      $ (4,791 )    $ (2,799 )    $ 267      $ (2,532 )      89        89   

Technology Solutions (2)

     (792 )      32        (760 )      (866 )      50        (816 )      (9 )      (7 ) 

Corporate

     (326 )     11        (315 )      (302 )     13        (289 )      8        9   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Operating expenses

   $ (6,406 )   $ 540      $ (5,866 )    $ (3,967 )   $ 330      $ (3,637 )      61        61   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

OTHER INCOME (LOSS), NET

            

Distribution Solutions

   $ 45      $ —        $ 45      $ 13      $ —        $ 13        246        246   

Technology Solutions

     3        —          3        1        —          1        200        200   

Corporate

     9        —          9        (5 )     13        8        —          13   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Other income, net

   $ 57     $ —        $ 57      $ 9     $ 13      $ 22        533        159   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

OPERATING PROFIT

            

Distribution Solutions

   $ 2,326      $ 786      $ 3,112      $ 1,856      $ 454      $ 2,310        25        35   

Technology Solutions (1) (2)

     304       38        342        294       67        361        3        (5 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Operating profit

     2,630        824        3,454        2,150        521        2,671        22        29   

Corporate

     (317 )      11        (306 )      (307 )      26        (281 )      3        9   

Interest Expense

     (297 )     —          (297 )      (187 )     10        (177 )      59        68   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

Income from continuing operations before income taxes (3)

   $ 2,016     $ 835      $ 2,851      $ 1,656     $ 557      $ 2,213        22        29   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

STATISTICS

            

Operating profit as a % of revenues

            

Distribution Solutions

     1.74 %        2.33 %      1.91 %        2.38 %      (17 )bp      (5 )bp 

Technology Solutions

     13.26          14.91        11.92          14.64        134        27   

 

(1) The first nine months of fiscal year 2015 reflect a non-cash charge of $34 million ($27 million after-tax) related to the workforce business within our International Technology business. The amount was primarily recorded in cost of sales.
(2) Fiscal year 2014, as reported under GAAP, includes pre-tax charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(3) For the fiscal year 2015, the amount is prior to recording guaranteed dividends to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, under the Domination and Profit and Loss Transfer agreement.

Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 4A

McKESSON CORPORATION

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

(unaudited)

(in millions)

 

     Quarter Ended December 31, 2014     Quarter Ended December 31, 2013  
     Distribution
Solutions		     Technology
Solutions		     Corporate
& Interest
Expense		     Total     Distribution
Solutions		     Technology
Solutions		     Corporate
& Interest
Expense		     Total  

As Reported (GAAP):

               

Revenues

    $ 46,250      $ 755      $ —        $ 47,005      $ 33,522      $ 814      $ —        $ 34,336   

Gross profit (1)

    $ 2,571      $ 371      $ —        $ 2,942      $ 1,499      $ 351      $ —        $ 1,850   

Operating expenses (1)

     (1,794 )      (261 )      (107 )      (2,162 )      (950 )      (305 )      (102 )      (1,357 ) 

Other income (loss), net

      8        1        4        13        3        1        (10 )      (6 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income from continuing operations before interest expense and income taxes

   785      111      (103 )    793      552      47      (112 )    487   

Interest expense

   —        —        (97 )    (97 )    —        —        (69 )    (69 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income from continuing operations before income taxes (2)

 $ 785    $ 111    $ (200 )  $ 696    $ 552    $ 47    $ (181 )  $ 418   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Pre-Tax Adjustments:

Gross profit

 $ 1    $ 1    $ —      $ 2    $ —      $ 4    $ —      $ 4   

Operating expenses

   111      12      —        123      55      11      —        66   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Amortization of acquisition-related intangibles

   112      13      —        125      55      15      —        70   

Gross profit

   1      —        —        1      —        3      —        3   

Operating expenses

   50      (1 )    1      50      16      12      12      40   

Other income, net

   —        —        —        —        —        —        13      13   

Interest expense

   —        —        —        —        —        —        10      10   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Acquisition expenses and related adjustments

   51      (1 )    1      51      16      15      35      66   

Operating expenses - Litigation reserve adjustments

   —        —        —        —        18      —        —        18   

Gross profit - LIFO-related adjustments

   95      —        —        95      142      —        —        142   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total pre-tax adjustments

 $ 258    $ 12    $ 1    $ 271    $ 231    $ 30    $ 35    $ 296   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted Earnings (Non-GAAP):

Revenues

 $ 46,250    $ 755    $ —      $ 47,005    $ 33,522    $ 814    $ —      $ 34,336   

Gross profit (1)

 $ 2,668    $ 372    $ —      $ 3,040    $ 1,641    $ 358    $ —      $ 1,999   

Operating expenses (1)

  (1,633 )    (250 )    (106 )    (1,989 )    (861 )    (282 )    (90 )    (1,233 ) 

Other income, net

   8      1      4      13      3      1      3      7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income from continuing operations before interest expense and income taxes

   1,043      123      (102 )    1,064      783      77      (87 )    773   

Interest expense

   —        —        (97 )    (97 )    —        —        (59 )    (59 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income from continuing operations before income taxes (2)

 $ 1,043    $ 123    $ (199 )  $ 967    $ 783    $ 77    $ (146 )  $ 714   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1)  Fiscal year 2014, as reported under GAAP, includes pre-tax Technology Solutions charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(2)  For the fiscal year 2015, the amount is prior to recording guaranteed dividends to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, under the Domination and Profit and Loss Transfer agreement.

Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 4B

McKESSON CORPORATION

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

(unaudited)

(in millions)

 

     Nine Months Ended December 31, 2014     Nine Months Ended December 31, 2013  
     Distribution
Solutions		     Technology
Solutions		     Corporate
& Interest
Expense		     Total     Distribution
Solutions		     Technology
Solutions		     Corporate
& Interest
Expense		     Total  

As Reported (GAAP):

               

Revenues

    $ 133,528      $ 2,293      $ —        $ 135,821      $ 97,094      $ 2,466      $ —        $ 99,560   

Gross profit (1) (2)

    $ 7,569      $ 1,093      $ —        $ 8,662      $ 4,642      $ 1,159      $ —        $ 5,801   

Operating expenses (2)

     (5,288 )      (792 )      (326 )      (6,406 )      (2,799 )      (866 )      (302 )      (3,967 ) 

Other income (loss), net

      45        3        9        57        13        1        (5 )      9   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income from continuing operations before interest expense and income taxes

   2,326      304      (317 )    2,313      1,856      294      (307 )    1,843   

Interest expense

   —        —        (297 )    (297 )    —        —        (187 )    (187 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income from continuing operations before income taxes (3)

 $ 2,326    $ 304    $ (614 )  $ 2,016    $ 1,856    $ 294    $ (494 )  $ 1,656   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Pre-Tax Adjustments:

Gross profit

 $ 1    $ 6    $ —      $ 7    $ 1    $ 14    $ —      $ 15   

Operating expenses

   347      32      —        379      161      35      —        196   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Amortization of acquisition-related intangibles

   348      38      —        386      162      49      —        211   

Gross profit

   1      —        —        1      —        3      —        3   

Operating expenses

   150      —        11      161      38      15      13      66   

Other income, net

   —        —        —        —        —        —        13      13   

Interest expense

   —        —        —        —        —        —        10      10   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Acquisition expenses and related adjustments

   151      —        11      162      38      18      36      92   

Operating expenses - Litigation reserve adjustments

   —        —        —        —        68      —        —        68   

Gross profit - LIFO-related adjustments

   287      —        —        287      186      —        —        186   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total pre-tax adjustments

 $ 786    $ 38    $ 11    $ 835    $ 454    $ 67    $ 36    $ 557   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Adjusted Earnings (Non-GAAP):

Revenues

 $ 133,528    $ 2,293    $ —      $ 135,821    $ 97,094    $ 2,466    $ —      $ 99,560   

Gross profit (1) (2)

 $ 7,858    $ 1,099    $ —      $ 8,957    $ 4,829    $ 1,176    $ —      $ 6,005   

Operating expenses (2)

  (4,791 )    (760 )    (315 )    (5,866 )    (2,532 )    (816 )    (289 )    (3,637 ) 

Other income, net

   45      3      9      57      13      1      8      22   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income from continuing operations before interest expense and income taxes

   3,112      342      (306 )    3,148      2,310      361      (281 )    2,390   

Interest expense

   —        —        (297 )    (297 )    —        —        (177 )    (177 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Income from continuing operations before income taxes (3)

 $ 3,112    $ 342    $ (603 )  $ 2,851    $ 2,310    $ 361    $ (458 )  $ 2,213   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) The first nine months of fiscal year 2015 reflect a non-cash charge of $34 million ($27 million after-tax) related to the workforce business within our International Technology business. The amount was primarily recorded in cost of sales.
(2) Fiscal year 2014, as reported under GAAP, includes pre-tax Technology Solutions charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(3) For the fiscal year 2015, the amount is prior to recording guaranteed dividends to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, under the Domination and Profit and Loss Transfer agreement.

Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 5

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions)

 

     December 31,      March 31,  
     2014      2014  

ASSETS

      

Current Assets

      

Cash and cash equivalents

    $ 4,587       $ 4,193   

Receivables, net

      16,581         14,193   

Inventories, net

      15,378         13,308   

Prepaid expenses and other

      595         879   
  

 

 

     

 

 

  

Total Current Assets

   37,141      32,573   

Property, Plant and Equipment, Net

   2,156      2,222   

Goodwill

   9,956      9,927   

Intangible Assets, Net

   3,864      5,022   

Other Assets

   1,993      2,015   
  

 

 

     

 

 

  

Total Assets

 $ 55,110    $ 51,759   
  

 

 

     

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Drafts and accounts payable

 $ 25,205    $ 21,429   

Short-term borrowings

   407      346   

Deferred revenue

   1,231      1,236   

Deferred tax liabilities

   1,705      1,588   

Current portion of long-term debt

   1,006      1,424   

Other accrued liabilities

   3,224      3,478   
  

 

 

     

 

 

  

Total Current Liabilities

   32,778      29,501   

Long-Term Debt

   8,981      8,949   

Other Noncurrent Liabilities

   2,734      2,991   

Commitments and Contingent Liabilities

Redeemable Noncontrolling Interests

   1,461      —     

McKesson Corporation Stockholders’ Equity

   9,084      8,522   

Noncontrolling Interests

   72      1,796   
  

 

 

     

 

 

  

Total Equity

   9,156      10,318   
  

 

 

     

 

 

  

Total Liabilities, Redeemable Noncontrolling Interests and Equity

 $ 55,110    $ 51,759   
  

 

 

     

 

 

  

Schedule 6

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

 

     Nine Months Ended December 31,  
     2014     2013  

OPERATING ACTIVITIES

     

Net income

    $ 1,399      $ 893   

Adjustments to reconcile to net cash provided by operating activities:

     

Depreciation and amortization

      793        495   

Deferred taxes

      55        86   

Share-based compensation expense

      127        115   

LIFO charges

      287        186   

Other non-cash items

      (53 )      83   

Changes in operating assets and liabilities, net of acquisitions:

     

Receivables

      (2,832 )      (875 ) 

Inventories

      (2,654 )      (1,387 ) 

Drafts and accounts payable

      4,164        581   

Deferred revenue

      (19 )      (12 ) 

Taxes

      (203 )      151   

Litigation charges

      —          68   

Litigation settlement payments

      —          (86 ) 

Other

      165        174   
  

 

 

    

 

 

  

Net cash provided by operating activities

   1,229      472   
  

 

 

    

 

 

  

INVESTING ACTIVITIES

Property acquisitions

   (286 )    (191 ) 

Capitalized software expenditures

   (119 )    (108 ) 

Acquisitions, less cash and cash equivalents acquired

   (40 )    (116 ) 

Proceeds from sale of businesses and equity investment

   15      97   

Other

   (9 )    (104 ) 
  

 

 

    

 

 

  

Net cash used in investing activities

   (439 )    (422 ) 
  

 

 

    

 

 

  

FINANCING ACTIVITIES

Proceeds from short-term borrowings

   2,451      150   

Repayments of short-term borrowings

   (2,327 )    (150 ) 

Proceeds from issuances of long-term debt

   11      —     

Repayments of long-term debt

   (240 )    —     

Common stock transactions:

Issuances

   115      150   

Share repurchases, including shares surrendered for tax withholding

   (106 )    (128 ) 

Dividends paid

   (171 )    (154 ) 

Other

   15      59   
  

 

 

    

 

 

  

Net cash used in financing activities

   (252 )    (73 ) 
  

 

 

    

 

 

  

Effect of exchange rate changes on cash and cash equivalents

   (144 )    (2 ) 
  

 

 

    

 

 

  

Net increase (decrease) in cash and cash equivalents

   394      (25 ) 

Cash and cash equivalents at beginning of period

   4,193      2,456   
  

 

 

    

 

 

  

Cash and cash equivalents at end of period

 $ 4,587    $ 2,431   
  

 

 

    

 

 

  

Definitions related to 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, gains or losses related to foreign currency contracts, 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 litigation matter, as such term is defined in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014.

LIFO-related adjustments - Last-In-First-Out (“LIFO”) inventory-related adjustments.

Income taxes on Adjusted Earnings are calculated in accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes,” which is the same accounting principle 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.