McKesson Reports Fiscal 2013 Third-Quarter Results

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

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

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

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

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

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

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

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

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

Fiscal Year 2013 Outlook

McKesson expects Adjusted Earnings per diluted share of $7.10 to $7.30 for the fiscal year ending March 31, 2013, which excludes the following GAAP items:
  • Amortization of acquisition-related intangible assets of approximately 55 cents per diluted share in Fiscal 2013.
  • Acquisition expenses and related adjustments expected to add approximately 13 cents per diluted share, including the impact of the $81 million pre-tax gain on business combination related to the acquisition of the remaining 50% ownership in McKesson’s corporate headquarters building completed during the first quarter.
  • Litigation reserve adjustments of approximately 15 cents per diluted share.

Adjusted Earnings

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

Risk Factors

Except for historical information contained in this press release, matters discussed may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These statements may be identified by their use of forward-looking terminology such as “believes”, “expects”, “anticipates”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates” or the negative of these words or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. It is not possible to predict or identify all such risks and uncertainties; however, the most significant of these risks and uncertainties are described in the company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: material adverse resolution of pending legal proceedings; changes in the U.S. healthcare industry and regulatory environment; changes in the Canadian healthcare industry and regulatory environment; competition; substantial defaults in payment or a material reduction in purchases by, or the loss of, a large customer or group purchasing organization; the loss of government contracts as a result of compliance or funding challenges; public health issues in the U.S. or abroad; implementation delay, malfunction, failure or breach of internal information systems; the adequacy of insurance to cover property loss or liability claims; the company’s failure to attract and retain customers for its software products and solutions due to integration and implementation challenges, or due to an inability to keep pace with technological advances; the company’s proprietary products and services may not be adequately protected, and its products and solutions may be found to infringe on the rights of others; system errors or failure of our technology products and solutions to conform to specifications; disaster or other event causing interruption of customer access to data residing in our service centers; the delay or extension of our sales or implementation cycles for external software products; changes in circumstances that could impair our goodwill or intangible assets; foreign currency fluctuations or disruptions to our foreign operations; new or revised tax legislation or challenges to our tax positions; the company’s ability to successfully identify, consummate and integrate strategic acquisitions; general economic conditions, including changes in the financial markets that may affect the availability and cost of credit to the company, its customers or suppliers; and changes in accounting principles generally accepted in the United States of America. The reader should not place undue reliance on forward-looking statements, which speak only as of the date they are first made. Except to the extent required by law, the company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

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

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

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.
               

Schedule 1
 
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP
(unaudited)
(in millions, except per share amounts)
 
Quarter Ended December 31, Nine Months Ended December 31,
2012 2011 Change 2012 2011 Change
 
Revenues $ 31,187 $ 30,839 1 % $ 91,835 $ 91,035 1 %
 
Cost of sales (1) (3)   (29,519 )   (29,273 ) 1   (86,847 )   (86,313 ) 1
 
Gross profit 1,668 1,566 7 4,988 4,722 6
 
Operating expenses (2) (3) (1,183 ) (1,047 ) 13 (3,334 ) (3,135 ) 6
Litigation charges (4) - (27 ) - (60 ) (145 ) (59 )
Gain on business combination (5)   -     -   -   81     -   -
Total operating expenses   (1,183 )   (1,074 ) 10   (3,313 )   (3,280 ) 1
 
Operating income 485 492 (1 ) 1,675 1,442 16
 
Other income (expense), net 10 (2 ) - 28 12 133
Interest expense   (59 )   (64 ) (8 )   (170 ) (192 ) (11 )
 
Income before income taxes 436 426 2 1,533 1,262 21
 
Income tax expense   (138 )   (126 ) 10   (454 )   (380 ) 19
Net income $ 298   $ 300   (1 ) $ 1,079   $ 882   22
 
Earnings per common share (6)
Diluted $ 1.24   $ 1.20   3 % $ 4.49   $ 3.51   28 %
Basic $ 1.27   $ 1.22   4 % $ 4.58   $ 3.57   28 %
 
Weighted average common shares
Diluted 240 251 (4 ) % 240 252 (5 ) %
Basic 235 246 (4 ) 236 247 (4 )
 
(1)   Cost of sales for the third quarter and first nine months of fiscal year 2013 includes the receipt of $8 million and $27 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
 
(2) Distribution Solutions segment operating expenses for the third quarter and first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
 
(3) Technology Solutions segment results for the third quarter and first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
 
(4) Represent charges for the Average Wholesale Price ("AWP") litigation.
 
(5) For the first nine months of fiscal year 2013, operating expenses include an $81 million pre-tax ($51 million after-tax) gain on business combination related to the acquisition of the remaining 50% ownership interest in our corporate headquarters building.
 
(6) Certain computations may reflect rounding adjustments.
 
               

Schedule 2A
 
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
 
Change
Quarter Ended December 31, 2012 Vs. Prior Quarter

As Reported(GAAP)
 

Amortizationof Acquisition-RelatedIntangibles
 

AcquisitionExpenses andRelatedAdjustments
 

LitigationReserveAdjustments
 

AdjustedEarnings(Non-GAAP)

AsReported(GAAP)
 

AdjustedEarnings(Non-GAAP)
 
Revenues $ 31,187 $ - $ - $ - $ 31,187 1 % 1 %
 
Gross profit (1) $ 1,668 $ 3 $ - $ - $ 1,671 7 6
Operating expenses (2) (1,183 ) 50 10 - (1,123 ) 10 13
Other income (expense), net 10 - - - 10 - -
Interest expense   (59 )     -       1       -       (58 ) (8 ) (9 )
Income before income taxes 436 53 11 - 500 2 (2 )
Income tax expense   (138 )     (20 )     (2 )     -       (160 ) 10 1
Net Income $ 298     $ 33     $ 9     $ -     $ 340   (1 ) (3 )
 
Diluted earnings per common share (4) $ 1.24     $ 0.14     $ 0.03     $ -     $ 1.41   3 % 1 %
Diluted weighted average common shares   240       240       240       240       240   (4 ) % (4 ) %
 
 
Quarter Ended December 31, 2011

As Reported(GAAP)
 

Amortizationof Acquisition-RelatedIntangibles
 

AcquisitionExpenses andRelatedAdjustments
 

LitigationReserveAdjustments
 

AdjustedEarnings(Non-GAAP)
 
Revenues $ 30,839

 
$ - $ - $ - $ 30,839
 
Gross profit (3) $ 1,566

 
$ 5 $ - $ - $ 1,571
Operating expenses (3) (1,074 ) 44 8 27 (995 )
Other income (expense), net (2 ) - - - (2 )
Interest expense   (64 )     -       -       -       (64 )
Income before income taxes 426 49 8 27 510
Income tax expense   (126 )     (18 )     (3 )     (12 )     (159 )
Net Income $ 300     $ 31     $ 5     $ 15     $ 351  
 
Diluted earnings per common share (4) $ 1.20     $ 0.12     $ 0.02     $ 0.06     $ 1.40  
Diluted weighted average common shares   251       251       251       251       251  
 
(1)   Gross profit for the third quarter of fiscal year 2013 includes the receipt of $8 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
 
(2) Distribution Solutions segment operating expenses for the third quarter of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
 
(3) Technology Solutions segment results for the third quarter of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
 
(4) Certain computations may reflect rounding adjustments.
 
Adjusted Earnings (Non-GAAP) Financial Information
 
Adjusted Earnings represents income from continuing operations, excluding the effects of the following items from the Company’s GAAP financial results, including the related income tax effects:
 

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

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

Litigation reserve adjustments - Adjustments to the Company’s reserves, including accrued interest, for estimated probable losses for its Average Wholesale Price and Securities Litigation matters, as such terms were defined in the Company’s Annual Reports on Form 10-K for the fiscal years ended March 31, 2012 and 2009.
 
Income taxes on Adjusted Earnings are calculated in accordance with Accounting Standards Codification 740, “Income Taxes,” which is the same accounting principles used by the Company when presenting its GAAP financial results.
 
The Company believes the presentation of non-GAAP measures such as Adjusted Earnings provides useful supplemental information to investors with regard to its core operating performance, as well as assists with the comparison of its past financial performance to the Company’s future financial results. Moreover, the Company believes that the presentation of Adjusted Earnings assists investors’ ability to compare its financial results to those of other companies in the same industry. However, the Company's Adjusted Earnings measure may be defined and calculated differently by other companies in the same industry.
 
The Company internally uses non-GAAP financial measures such as Adjusted Earnings in connection with its own financial planning and reporting processes. Specifically, Adjusted Earnings serves as one of the measures management utilizes when allocating resources, deploying capital and assessing business performance and employee incentive compensation. Nonetheless, non-GAAP financial results and related measures disclosed by the Company should not be considered a substitute for, nor superior to, financial results and measures as determined or calculated in accordance with GAAP.
 
               

Schedule 2B
 
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
 
Change
Nine Months Ended December 31, 2012 Vs. Prior Period

As Reported(GAAP)
 

Amortizationof Acquisition-RelatedIntangibles
 

AcquisitionExpenses andRelatedAdjustments
 

LitigationReserveAdjustments
 

AdjustedEarnings(Non-GAAP)

AsReported(GAAP)
 

AdjustedEarnings(Non-GAAP)
 
 
Revenues $ 91,835 $ - $ - $ - $ 91,835 1 % 1 %
 
Gross profit (1) $ 4,988 $ 11 $ - $ - $ 4,999 6 6
Operating expenses (2) (3) (3,313 ) 141 (66 ) 60 (3,178 ) 1 7
Other income, net 28 - - - 28 133 133
Interest expense   (170 )     -       1       -       (169 ) (11 ) (12 )
Income before income taxes 1,533 152 (65 ) 60 1,680 21 6
Income tax expense   (454 )     (57 )     27       (23 )     (507 ) 19 2
Net Income $ 1,079     $ 95     $ (38 )   $ 37     $ 1,173   22 8
 
Diluted earnings per common share (5) $ 4.49     $ 0.40     $ (0.16 )   $ 0.15     $ 4.88   28 % 13 %
Diluted weighted average common shares   240       240       240       240       240   (5 ) % (5 ) %
 
 
Nine Months Ended December 31, 2011

As Reported(GAAP)
 

Amortizationof Acquisition-RelatedIntangibles
 

AcquisitionExpenses andRelatedAdjustments
 

LitigationReserveAdjustments
 

AdjustedEarnings(Non-GAAP)
 
Revenues $ 91,035

 
$ - $ - $ - $ 91,035
 
Gross profit (4) $ 4,722

 
$ 16 $ - $ - $ 4,738
Operating expenses (4) (3,280 ) 131 26 145 (2,978 )
Other income, net 12 - - - 12
Interest expense   (192 )     -       -       -       (192 )
Income before income taxes 1,262 147 26 145 1,580
Income tax expense   (380 )     (56 )     (9 )     (53 )     (498 )
Net Income $ 882     $ 91     $ 17     $ 92     $ 1,082  
 
Diluted earnings per common share (5) $ 3.51     $ 0.36     $ 0.06     $ 0.37     $ 4.30  
Diluted weighted average common shares   252       252       252       252       252  
 
(1)   Gross profit for the first nine months of fiscal year 2013 includes the receipt of $27 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
 
(2) Distribution Solutions segment operating expenses for the first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
 
(3) For the first nine months of fiscal year 2013, operating expenses, as reported under GAAP, include an $81 million pre-tax ($51 million after-tax) gain on business combination related to the acquisition of the remaining 50% ownership interest in our corporate headquarters building.
 
(4) Technology Solutions segment results for the first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
 
(5) Certain computations may reflect rounding adjustments.
 
           

Schedule 3A
     
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
 
 
Quarter Ended December 31, 2012 Quarter Ended December 31, 2011 Change

As Reported(GAAP)
 

Adjustments
 

AdjustedEarnings(Non-GAAP)

As Reported(GAAP)

 

Adjustments
 

AdjustedEarnings(Non-GAAP)

AsReported(GAAP)

AdjustedEarnings(Non-GAAP)
REVENUES
Distribution Solutions
Direct distribution & services $ 22,386 $ - $ 22,386 $ 21,585 $

-

 
$ 21,585 4 % 4 %
Sales to customers' warehouses   4,468       -       4,468     5,198       -       5,198   (14 ) (14 )

Total U.S. pharmaceutical distribution & services
26,854 - 26,854 26,783 - 26,783 - -
Canada pharmaceutical distribution & services 2,633 - 2,633 2,473 - 2,473 6 6
Medical-Surgical distribution & services   874       -       874     760       -       760   15 15
Total Distribution Solutions   30,361       -       30,361     30,016       -       30,016   1 1
 
Technology Solutions
Services 661 - 661 643 - 643 3 3
Software & software systems 145 - 145 152 - 152 (5 ) (5 )
Hardware   20       -       20     28       -       28   (29 ) (29 )
Total Technology Solutions   826       -       826     823       -       823   - -
Revenues $ 31,187     $ -     $ 31,187   $ 30,839     $ -     $ 30,839   1 1
 
GROSS PROFIT
Distribution Solutions (1) $ 1,287 $ - $ 1,287 $ 1,201 $ - $ 1,201 7 7
Technology Solutions (2)   381       3       384     365       5       370   4 4
Gross profit $ 1,668     $ 3     $ 1,671   $ 1,566     $ 5     $ 1,571   7 6
 
OPERATING EXPENSES
Distribution Solutions (3) (4) $ (769 ) $ 44 $ (725 ) $ (690 ) $ 62 $ (628 ) 11 15
Technology Solutions (2) (302 ) 16 (286 ) (297 ) 15 (282 ) 2 1
Corporate   (112 )     -       (112 )   (87 )     2       (85 ) 29 32
Operating expenses $ (1,183 )   $ 60     $ (1,123 ) $ (1,074 )   $ 79     $ (995 ) 10 13
 
OTHER INCOME (EXPENSE), NET
Distribution Solutions $ 7 $ - $ 7 $ (1 ) $ - $ (1 ) - -
Technology Solutions - - - 1 - 1 - -
Corporate   3       -       3     (2 )     -       (2 ) - -
Other income (expense), net $ 10     $ -     $ 10   $ (2 )   $ -     $ (2 ) - -
 
OPERATING PROFIT
Distribution Solutions (1) (3) (4) $ 525 $ 44 $ 569 $ 510 $ 62 $ 572 3 (1 )
Technology Solutions (2)   79       19       98     69       20       89   14 10
Operating profit 604 63 667 579 82 661 4 1
Corporate   (109 )     -       (109 )   (89 )     2       (87 ) 22 25

Income before interest expense and income taxes
$ 495     $ 63     $ 558   $ 490     $ 84     $ 574   1 (3 )
 
STATISTICS
Operating profit as a % of revenues
Distribution Solutions (1) (3) (4) 1.73 % 1.87 % 1.70 % 1.91 % 3 bp (4 ) bp
Technology Solutions (2) 9.56 11.86 8.38 10.81 118 105
 
(1)   Results for the third quarter of fiscal year 2013 include the receipt of $8 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
 
(2) Results for the third quarter of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
 
(3) Results for the third quarter of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
 
(4) For the third quarter of fiscal year 2012, results, as reported under GAAP, include an AWP litigation charge of $27 million.
 
             

Schedule 3B
 
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
 
Nine Months Ended December 31, 2012 Nine Months Ended December 31, 2011 Change

As Reported(GAAP)
 

Adjustments
 

AdjustedEarnings(Non-GAAP)

As Reported(GAAP)
 

Adjustments
 

AdjustedEarnings(Non-GAAP)

AsReported(GAAP)

AdjustedEarnings(Non-GAAP)
REVENUES
Distribution Solutions
Direct distribution & services $ 64,625 $ - $ 64,625 $ 63,484 $

-

 
$ 63,484 2 % 2 %
Sales to customers' warehouses   14,621       -       14,621     14,998       -       14,998   (3 ) (3 )

Total U.S. pharmaceutical distribution & services
79,246 - 79,246 78,482 - 78,482 1 1
Canada pharmaceutical distribution & services 7,559 - 7,559 7,739 - 7,739 (2 ) (2 )
Medical-Surgical distribution & services   2,542       -       2,542     2,364       -       2,364   8 8
Total Distribution Solutions   89,347       -       89,347     88,585       -       88,585   1 1
 
Technology Solutions
Services 1,983 - 1,983 1,916 - 1,916 3 3
Software & software systems 432 - 432 449 - 449 (4 ) (4 )
Hardware   73       -       73     85       -       85   (14 ) (14 )
Total Technology Solutions   2,488       -       2,488     2,450       -       2,450   2 2
Revenues $ 91,835     $ -     $ 91,835   $ 91,035     $ -     $ 91,035   1 1
 
GROSS PROFIT
Distribution Solutions (1) $ 3,841 $ 2 $ 3,843 $ 3,590 $ 1 $ 3,591 7 7
Technology Solutions (2)   1,147       9       1,156     1,132       15       1,147   1 1
Gross profit $ 4,988     $ 11     $ 4,999   $ 4,722     $ 16     $ 4,738   6 6
 
OPERATING EXPENSES
Distribution Solutions (3) (4) $ (2,212 ) $ 173 $ (2,039 ) $ (2,136 ) $ 258 $ (1,878 ) 4 9
Technology Solutions (2) (881 ) 43 (838 ) (857 ) 42 (815 ) 3 3
Corporate (5)   (220 )     (81 )     (301 )   (287 )     2       (285 ) (23 ) 6
Operating expenses $ (3,313 )   $ 135     $ (3,178 ) $ (3,280 )   $ 302     $ (2,978 ) 1 7
 
OTHER INCOME, NET
Distribution Solutions $ 17 $ - $ 17 $ 8 $ - $ 8 113 113
Technology Solutions 3 - 3 2 - 2 50 50
Corporate   8       -       8     2       -       2   300 300
Other income, net $ 28     $ -     $ 28   $ 12     $ -     $ 12   133 133
 
OPERATING PROFIT
Distribution Solutions (1) (3) (4) $ 1,646 $ 175 $ 1,821 $ 1,462 $ 259 $ 1,721 13 6
Technology Solutions (2)   269       52       321     277       57       334   (3 ) (4 )
Operating profit 1,915 227 2,142 1,739 316 2,055 10 4
Corporate   (212 )     (81 )     (293 )   (285 )     2       (283 ) (26 ) 4

Income before interest expense and income taxes
$ 1,703     $ 146     $ 1,849   $ 1,454     $ 318     $ 1,772   17 4
 
STATISTICS
Operating profit as a % of revenues
Distribution Solutions (1) (3) (4) 1.84 % 2.04 % 1.65 % 1.94 % 19 bp 10 bp
Technology Solutions (2) 10.81 12.90 11.31 13.63 (50 ) (73 )
 
(1)   Results for the first nine months of fiscal year 2013 include the receipt of $27 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
 
(2) Results for the first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
 
(3) Results for the first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
 
(4) For the first nine months of fiscal years 2013 and 2012, results, as reported under GAAP, include AWP litigation charges of $60 million and $145 million.
 
(5) For the first nine months of fiscal year 2013, operating expenses, as reported under GAAP, include an $81 million pre-tax gain on business combination related to the acquisition of the remaining 50% ownership interest in our corporate headquarters building.
 
                   

Schedule 4A
   
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
 
 
Quarter Ended December 31, 2012 Quarter Ended December 31, 2011

DistributionSolutions
 

TechnologySolutions
 

Corporate& InterestExpense
 

Total

DistributionSolutions
 

TechnologySolutions
 

Corporate& InterestExpense
  Total

As Reported (GAAP):
Revenues $ 30,361 $ 826 $ - $ 31,187 $ 30,016 $ 823 $ - $ 30,839
 
Gross profit (1) (2) $ 1,287 $ 381 $ - $ 1,668 $ 1,201 $ 365 $ - $ 1,566
Operating expenses (2) (3) (769 ) (302 ) (112 ) (1,183 ) (690 ) (297 ) (87 ) (1,074 )
Other income (expense), net   7       -       3       10     (1 )     1       (2 )     (2 )
Income before interest expense and income taxes 525 79 (109 ) 495 510 69 (89 ) 490
Interest expense   -       -       (59 )     (59 )   -       -       (64 )     (64 )
Income before income taxes $ 525     $ 79     $ (168 )   $ 436   $ 510     $ 69     $ (153 )   $ 426  
 

Pre-Tax Adjustments:

 
Gross profit $ - $ 3 $ - $ 3 $ - $ 5 $ - $ 5
Operating expenses   37       13       -       50     31       13       -       44  
Amortization of acquisition-related intangibles 37 16 - 53 31 18 - 49
 
Operating expenses 7 3 - 10 4 2 2 8
Interest expense   -       -       1       1     -       -       -       -  
Acquisition expenses and related adjustments 7 3 1 11 4 2 2 8
 
Operating expenses - Litigation reserve adjustments - - - - 27 - - 27
                           
Total pre-tax adjustments $ 44     $ 19     $ 1     $ 64   $ 62     $ 20     $ 2     $ 84  
 

Adjusted Earnings (Non-GAAP):
Revenues $ 30,361 $ 826 $ - $ 31,187 $ 30,016 $ 823 $ - $ 30,839
 
Gross profit (1) (2) $ 1,287 $ 384 $ - $ 1,671 $ 1,201 $ 370 $ - $ 1,571
Operating expenses (2) (3) (725 ) (286 ) (112 ) (1,123 ) (628 ) (282 ) (85 ) (995 )
Other income (expense), net   7       -       3       10     (1 )     1       (2 )     (2 )
Income before interest expense and income taxes 569 98 (109 ) 558 572 89 (87 ) 574
Interest income (expense), net   -       -       (58 )     (58 )   -       -       (64 )     (64 )
Income before income taxes $ 569     $ 98     $ (167 )   $ 500   $ 572     $ 89     $ (151 )   $ 510  
 
(1)   Gross profit for the third quarter of fiscal year 2013 includes the receipt of $8 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
 
(2) Technology Solutions segment results for the third quarter of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
 
(3) Distribution Solutions segment operating expenses for the third quarter of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
 
                   

Schedule 4B
   
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
 
 
Nine Months Ended December 31, 2012 Nine Months Ended December 31, 2011

DistributionSolutions
 

TechnologySolutions
 

Corporate& InterestExpense
  Total

DistributionSolutions
 

TechnologySolutions
 

Corporate& InterestExpense
  Total

As Reported (GAAP):
Revenues $ 89,347 $ 2,488 $ - $ 91,835 $ 88,585 $ 2,450 $ - $ 91,035
 
Gross profit (1) (2) $ 3,841 $ 1,147 $ - $ 4,988 $ 3,590 $ 1,132 $ - $ 4,722
Operating expenses (2) (3) (4) (2,212 ) (881 ) (220 ) (3,313 ) (2,136 ) (857 ) (287 ) (3,280 )
Other income, net   17       3       8       28     8       2       2       12  
Income before interest expense and income taxes 1,646 269 (212 ) 1,703 1,462 277 (285 ) 1,454
Interest expense   -       -       (170 )     (170 )   -       -       (192 )     (192 )
Income before income taxes $ 1,646     $ 269     $ (382 )   $ 1,533   $ 1,462     $ 277     $ (477 )   $ 1,262  
 

Pre-Tax Adjustments:
Gross profit $ 2 $ 9 $ - $ 11 $ 1 $ 15 $ - $ 16
Operating expenses   103       38       -       141     93       38       -       131  
Amortization of acquisition-related intangibles 105 47 - 152 94 53 - 147
 
Operating expenses 10 5 (81 ) (66 ) 20 4 2 26
Interest expense   -       -       1       1     -       -       -       -  
Acquisition expenses and related adjustments 10 5 (80 ) (65 ) 20 4 2 26
 
Operating expenses - Litigation reserve adjustments 60 - - 60 145 - - 145
                           
Total pre-tax adjustments $ 175     $ 52     $ (80 )   $ 147   $ 259     $ 57     $ 2     $ 318  
 

Adjusted Earnings (Non-GAAP):
Revenues $ 89,347 $ 2,488 $ - $ 91,835 $ 88,585 $ 2,450 $ - $ 91,035
 
Gross profit (1) (2) $ 3,843 $ 1,156 $ - $ 4,999 $ 3,591 $ 1,147 $ - $ 4,738
Operating expenses (2) (3) (2,039 ) (838 ) (301 ) (3,178 ) (1,878 ) (815 ) (285 ) (2,978 )
Other income, net   17       3       8       28     8       2       2       12  
Income before interest expense and income taxes 1,821 321 (293 ) 1,849 1,721 334 (283 ) 1,772
Interest expense   -       -       (169 )     (169 )   -       -       (192 )     (192 )
Income before income taxes $ 1,821     $ 321     $ (462 )   $ 1,680   $ 1,721     $ 334     $ (475 )   $ 1,580  
 
(1)   Gross profit for the first nine months of fiscal year 2013 includes the receipt of $27 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
 
(2) Technology Solutions segment results for the first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
 
(3) Distribution Solutions segment operating expenses for the first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
 
(4) For the first nine months of fiscal year 2013, operating expenses include an $81 million pre-tax gain on business combination related to the acquisition of the remaining 50% ownership interest in our corporate headquarters building.
 
           

Schedule 5
 
McKESSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions)
 
December 31, March 31,
2012 2012
 
ASSETS
Current Assets
Cash and cash equivalents $ 2,726 $ 3,149
Receivables, net 9,962 9,977
Inventories, net 10,390 10,073
Prepaid expenses and other   361   404
Total Current Assets 23,439 23,603
Property, Plant and Equipment, Net 1,247 1,043
Goodwill 5,310 5,032
Intangible Assets, Net 1,799 1,750
Other Assets   1,638   1,665
Total Assets $ 33,433 $ 33,093
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Drafts and accounts payable $ 15,047 $ 16,114
Short-term borrowings - 400
Deferred revenue 1,431 1,423
Deferred tax liabilities 1,519 1,092
Current portion of long-term debt 506 508
Other accrued liabilities   1,705   2,149
Total Current Liabilities 20,208 21,686
Long-Term Debt 3,973 3,072
Other Noncurrent Liabilities 1,603 1,504
Stockholders' Equity   7,649   6,831
Total Liabilities and Stockholders' Equity $ 33,433 $ 33,093
 

Schedule 6
         
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
Nine Months Ended December 31,
2012 2011
 
 
OPERATING ACTIVITIES
Net income $ 1,079 $ 882
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 428 408
Other deferred taxes 499 (15)
Share-based compensation expense 123 113
Gain on business combination (81) -
Other non-cash items 53 75
Changes in operating assets and liabilities, net of acquisitions:
Receivables 57 (575)
Inventories (313) (1,200)
Drafts and accounts payable (1,081) 1,636
Deferred revenue 49 122
Taxes (88) 171
Litigation charges 60 145
Litigation settlement payments (470) (26)
Other   (39)   (20)
Net cash provided by operating activities   276   1,716
 
INVESTING ACTIVITIES
Property acquisitions (151) (170)
Capitalized software expenditures (117) (137)
Acquisitions, less cash and cash equivalents acquired (577) (204)
Other   61   81
Net cash used in investing activities   (784)   (430)
 
FINANCING ACTIVITIES
Proceeds from short-term borrowings 1,125 -
Repayments of short-term borrowings (1,525) -
Proceeds from issuances of long-term debt 892 -
Repayments of long-term debt (4) (23)
Common stock transactions:
Issuances 112 122
Share repurchases, including shares surrendered for tax withholding (413) (672)
Dividends paid (147) (146)
Other   42   22
Net cash provided by (used in) financing activities   82   (697)
Effect of exchange rate changes on cash and cash equivalents   3   (10)
Net increase (decrease) in cash and cash equivalents (423) 579
Cash and cash equivalents at beginning of period   3,149   3,612
Cash and cash equivalents at end of period $ 2,726 $ 4,191

Copyright Business Wire 2010

If you liked this article you might like

House Committee: 2 Pharmacy Managers Sent 12.3 Million Opioid Doses to 1 Store

House Committee: 2 Pharmacy Managers Sent 12.3 Million Opioid Doses to 1 Store

Who Says There Are No Second Chances?

Who Says There Are No Second Chances?

Medical Supply Stocks Get Hit in Latest Example of the 'Amazon Effect'

Medical Supply Stocks Get Hit in Latest Example of the 'Amazon Effect'

Purdue Pharma to Downplay Opioids, Dump 50% of Sales Staff

Purdue Pharma to Downplay Opioids, Dump 50% of Sales Staff

Drug Supply Chain Stocks Dip After White House Recommendations on Drug Pricing

Drug Supply Chain Stocks Dip After White House Recommendations on Drug Pricing