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McKesson Corporation : McKesson Reports Fiscal 2012 Third-Quarter Results

01/30/2012 | 04:30pm US/Eastern
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  • Revenues of $30.8 billion for the third quarter, up 9%.
  • Third-quarter GAAP earnings per diluted share of $1.20.
  • Third-quarter Adjusted Earnings per diluted share of $1.40, up 9%.
  • Announced definitive agreement to acquire the independent banner and franchise businesses of Katz Group Canada Inc.
  • Board of Directors authorized an additional $650 million share repurchase program, bringing the total authorization to $1.5 billion.
  • Fiscal 2012 Outlook: Adjusted Earnings of $6.19 to $6.39 per diluted share.

McKesson Corporation (NYSE: MCK) today reported that revenues for the third quarter ended December 31, 2011 were up 9% to $30.8 billion compared to $28.2 billion a year ago. On the basis of U.S. generally accepted accounting principles ("GAAP"), third-quarter earnings per diluted share was $1.20 compared to $0.60 a year ago.

Third-quarter GAAP results included a pre-tax charge of $27 million ($15 million after-tax or six cents per diluted share), recorded in the Distribution Solutions segment, to increase an existing litigation reserve for claims against McKesson relating to First DataBank's published drug reimbursement benchmarks, commonly referred to as Average Wholesale Prices ("AWP"). Last year's third-quarter GAAP results also included a pre-tax AWP litigation charge of $189 million ($133 million after-tax or 52 cents per diluted share).

McKesson separately reports financial results on the basis of Adjusted Earnings in addition to GAAP. Adjusted Earnings is a non-GAAP financial measure defined as GAAP earnings from continuing operations, excluding acquisition-related expenses, amortization of acquisition-related intangible assets, 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. Third-quarter Adjusted Earnings per diluted share was $1.40 compared to $1.28 a year ago.

For the first nine months of the fiscal year, McKesson generated cash from operations of $1.7 billion and ended the quarter with cash and cash equivalents of $4.2 billion. During the first nine months of the fiscal year, the company deployed $204 million for acquisitions, repurchased $650 million of common stock, and paid $146 million in dividends.

The Board of Directors authorized the repurchase of up to an additional $650 million of common stock, bringing the total authorization to approximately $1.5 billion.

"McKesson delivered another quarter of solid operating results, and I am pleased with our accomplishments during the first nine months of our fiscal year," said John H. Hammergren, chairman and chief executive officer. "Our strong balance sheet and cash flow also provide us with significant opportunities to create shareholder value. Today, we announced a definitive agreement to purchase for approximately CAD $920 million the independent banner and franchise businesses of Katz Group Canada Inc., a privately-owned company that operates an integrated retail pharmacy network in Canada. We are excited about this acquisition which, combined with our increased share repurchase authorization, demonstrates our commitment to using a portfolio approach to deploy our significant cash balances. Based on our year-to-date progress, we continue to expect Adjusted Earnings between $6.19 and $6.39 per diluted share for the fiscal year ending March 31, 2012."

Distribution Solutions revenues were up 9% in the third quarter, driven mainly by strong growth in U.S. pharmaceutical direct distribution and services revenues, reflecting market growth and our mix of business, as well as the acquisition of US Oncology.

Canadian revenues, on a constant currency basis, were down 3% for the quarter due in part to the impact of government imposed price reductions on generic drugs. Including an unfavorable currency impact of 1%, Canadian revenues were down 4% for the quarter. Medical-Surgical distribution revenues increased 2% for the quarter.

In the third quarter, Distribution Solutions gross profit improved due to the positive impact of the US Oncology acquisition.

Distribution Solutions GAAP operating profit was $510 million for the quarter and the GAAP operating margin was 1.70%. Adjusted operating profit was $572 million for the quarter and the adjusted operating margin was 1.91%.

Technology Solutions revenues were up 4% in the third quarter. GAAP operating profit was $69 million and the GAAP operating margin was 8.38%. Adjusted operating profit in the third quarter was $89 million and the adjusted operating margin was 10.81%. In the third quarter, we recorded a pre-tax product alignment charge of $42 million. This charge related to Technology Solutions' strategy to converge core clinical and revenue cycle information technology solutions for the Horizon and Paragon® product lines onto Paragon's Microsoft® platform over time.

Fiscal Year 2012 Outlook

McKesson expects Adjusted Earnings between $6.19 and $6.39 per diluted share for the fiscal year ending March 31, 2012, which excludes the following GAAP items:

  • Amortization of acquisition-related intangible assets of approximately 48 cents per diluted share in Fiscal 2012.
  • Acquisition-related expenses of approximately seven cents per diluted share in Fiscal 2012.
  • Litigation reserve adjustments of 37 cents per diluted share.

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 or failure 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 PM ET. The dial-in number for individuals wishing to participate on the call is 719-234-7317. Ana Schrank, 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 passcode is 9240566. 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 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.

 

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,
 
2011 2010 Change 2011 2010 Change
 
Revenues (1) $ 30,839 $ 28,247 9 % $ 91,035 $ 83,231 9 %
 
Cost of sales (2) (3)   29,273     26,786   9   86,313     79,012   9
 
Gross profit 1,566 1,461 7 4,722 4,219 12
 
Operating expenses (2) 1,047 965 8 3,135 2,808 12
Litigation charges (4)   27     189   (86 )   145     213   (32 )
Total operating expenses   1,074     1,154   (7 )   3,280     3,021   9
 
Operating income 492 307 60 1,442 1,198 20
 
Other income (expense), net (2 ) 7

(129

)

12 19 (37 )
Interest expense   (64 )   (53 ) 21   (192 ) (140 ) 37
 

Income from continuing operations before income taxes

426 261 63 1,262 1,077 17
 
Income tax expense   (126 )   (106 ) 19   (380 )   (369 ) 3
 
Income from continuing operations 300 155 94 882 708 25
 
Discontinued operation - gain on sale, net of tax (5) -     -   -   -     72   -
 
Net income $ 300   $ 155   94 $ 882   $ 780   13
 
Earnings per common share (6)
Diluted
Continuing operations $ 1.20 $ 0.60 100 % $ 3.51 $ 2.69 30 %
Discontinued operation - gain on sale   -     -   -   -     0.27   -
Total $ 1.20   $ 0.60   100 $ 3.51   $ 2.96   19
 
Basic
Continuing operations $ 1.22 $ 0.61 100 % $ 3.57 $ 2.73 31 %
Discontinued operation - gain on sale   -     -   -   -     0.28   -
Total $ 1.22   $ 0.61   100 $ 3.57   $ 3.01   19
 
Shares on which earnings per common share were based
Diluted 251 258 (3 ) % 252 264 (5 ) %
Basic 246 254 (3 ) 247 259 (5 )
 

(1)

  Revenues for fiscal year 2011 include the recognition of $23 million of revenue for a disease management contract for which the related expenses were previously recognized as incurred.
 
(2)

Technology Solutions segment results for the fiscal year 2012 include a charge of $42 million for a product alignment plan, of which $26 million and $16 million were included in cost of sales and operating expenses.

 
(3) Cost of sales for the first nine months of 2011 includes an asset impairment charge of $72 million in our Technology Solutions segment for capitalized software held for sale and a credit of $51 million in our Distribution Solutions segment representing our share of a settlement of an antitrust class action lawsuit brought against a drug manufacturer.
 
(4) Operating expenses includes charges for the Average Wholesale Price ("AWP") litigation.
 
(5) In the second quarter of 2011 we sold a Technology Solutions business for $109 million of net sales proceeds. The after-tax gain on sale of $72 million has been recorded as a discontinued operation. Financial operating results for this business were immaterial.
 
(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, 2011 Vs. Prior Quarter

As Reported
(GAAP)

 

Amortization

of Acquisition-
Related
Intangibles

 

Acquisition-
Related
Expenses

 

Litigation
Reserve
Adjustments

 

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

 

Adjusted
Earnings
(Non-GAAP)

 
Revenues $ 30,839 $ - $ - $ - $ 30,839 9 % 9 %
 
Gross profit $ 1,566 $ 5 $ - $ - $ 1,571 7 7
Operating expenses (1,074 ) 44 8 27 (995 ) (7 ) 9
Other income (expense), net (2 ) - - - (2 ) (129 ) (129 )
Interest expense   (64 )     -       -       -       (64 ) 21 49
Income from continuing operations before income taxes 426 49 8 27 510 63 -
Income tax expense   (126 )     (18 )     (3 )     (12 )     (159 ) 19 (13 )
Income from continuing operations $ 300     $ 31     $ 5     $ 15     $ 351   94 6
 

Diluted earnings per common share from continuing operations (1)

$ 1.20     $ 0.12     $ 0.02     $ 0.06     $ 1.40   100 % 9 %
Diluted weighted average shares   251       251       251       251       251   (3 ) % (3 ) %
 
 
Quarter Ended December 31, 2010

As Reported
(GAAP)

 

Amortization
of Acquisition-
Related
Intangibles

 

Acquisition-
Related
Expenses

 

Litigation
Reserve
Adjustments

 

Adjusted
Earnings
(Non-GAAP)

 
Revenues $ 28,247

 

$ - $ - $ - $ 28,247
 
Gross profit $ 1,461

 

$ 4 $ - $ - $ 1,465
Operating expenses (1,154 ) 24 24 189 (917 )
Other income (expense), net 7 - - - 7
Interest expense   (53 )     -       10       -       (43 )
Income from continuing operations before income taxes 261 28 34 189 512
Income tax expense   (106 )     (11 )     (9 )     (56 )     (182 )
Income from continuing operations $ 155     $ 17     $ 25     $ 133     $ 330  
 

Diluted earnings per common share from continuing operations (1)

$ 0.60     $ 0.07     $ 0.10     $ 0.52     $ 1.28  
Diluted weighted average shares   258       258       258       258       258  
  (1)   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-related expenses - 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, or bridge loan fees.

 

Litigation reserve adjustments - Adjustments to the Company's reserves 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, 2011 and 2009, respectively.

 
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, 2011 Vs. Prior Period

As Reported
(GAAP)

 

Amortization
of Acquisition-
Related
Intangibles

 

Acquisition-
Related
Expenses

 

Litigation
Reserve
Adjustments

 

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

 

Adjusted
Earnings
(Non-GAAP)

 
Revenues $ 91,035 $ - $ - $ - $ 91,035 9 % 9 %
 
Gross profit $ 4,722 $ 16 $ - $ - $ 4,738 12 12
Operating expenses (3,280 ) 131 26 145 (2,978 ) 9 10
Other income, net 12 - - - 12 (37 ) (37 )
Interest expense   (192 )     -       -       -       (192 ) 37 48
Income from continuing operations before income taxes 1,262 147 26 145 1,580 17 12
Income tax expense   (380 )     (56 )     (9 )     (53 )     (498 ) 3 5
Income from continuing operations $ 882     $ 91     $ 17     $ 92     $ 1,082   25 16
 

Diluted earnings per common share from continuing operations (1)

$ 3.51     $ 0.36     $ 0.06     $ 0.37     $ 4.30   30 % 21 %
Diluted weighted average shares   252       252       252       252       252   (5 ) % (5 ) %
 
 
Nine Months Ended December 31, 2010

As Reported
(GAAP)

 

Amortization
of Acquisition-
Related
Intangibles

 

Acquisition-
Related
Expenses

 

Litigation
Reserve
Adjustments

 

Adjusted
Earnings
(Non-GAAP)

 
Revenues $ 83,231

 

$ - $ - $ - $ 83,231
 
Gross profit $ 4,219

 

$ 12 $ - $ - $ 4,231
Operating expenses (3,021 ) 72 24 213 (2,712 )
Other income, net 19 - - - 19
Interest expense   (140 )     -       10       -       (130 )
Income from continuing operations before income taxes 1,077 84 34 213 1,408
Income tax expense   (369 )     (33 )     (9 )     (64 )     (475 )
Income from continuing operations $ 708     $ 51     $ 25     $ 149     $ 933  
 

Diluted earnings per common share from continuing operations (1)

$ 2.69     $

0.19

    $ 0.09     $ 0.57     $ 3.54  
Diluted weighted average shares   264       264       264       264       264  
  (1)   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, 2011

Quarter Ended
December 31, 2010

Change

As
Reported
(GAAP)

    Adjust.    

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

    Adjust.    

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

Adjusted
Earnings
(Non-GAAP)

REVENUES
Distribution Solutions
Direct distribution & services $ 21,585 $ - $ 21,585 $ 19,408 $ - $ 19,408 11 % 11 %
Sales to customers' warehouses 5,198         -       5,198     4,731         -       4,731   10 10

Total U.S. pharmaceutical distribution & services

26,783 - 26,783 24,139 - 24,139 11 11
Canada pharmaceutical distribution & services 2,473 - 2,473 2,574 - 2,574 (4 ) (4 )
Medical-Surgical distribution & services 760         -       760     744         -       744   2 2
Total Distribution Solutions 30,016         -       30,016     27,457         -       27,457   9 9
 
Technology Solutions
Services (1) 643 - 643 629 - 629 2 2
Software & software systems 152 - 152 135 - 135 13 13
Hardware   28         -       28     26         -       26   8 8
Total Technology Solutions   823         -       823     790         -       790   4 4
Revenues $ 30,839       $ -     $ 30,839   $ 28,247       $ -     $ 28,247   9 9
 
GROSS PROFIT
Distribution Solutions $ 1,201 $ - $ 1,201 $ 1,082 $ - $ 1,082 11 11
Technology Solutions (1) (2)   365         5       370     379         4       383   (4 ) (3 )
Gross profit $ 1,566       $ 5     $ 1,571   $ 1,461       $ 4     $ 1,465   7 7
 
OPERATING EXPENSES
Distribution Solutions $ (690 ) $ 62 $ (628 ) $ (797 ) $ 226 $ (571 ) (13 ) 10
Technology Solutions (2) (297 ) 15 (282 ) (273 ) 11 (262 ) 9 8
Corporate   (87 )       2       (85 )   (84 )       -       (84 ) 4 1
Operating expenses $ (1,074 )     $ 79     $ (995 ) $ (1,154 )   $ 237   $ (917 ) (7 ) 9
 
OTHER INCOME (EXPENSE), NET
Distribution Solutions $ (1 ) $ - $ (1 ) $ 4 $ - $ 4 (125 ) (125 )
Technology Solutions 1 - 1 - - - - -
Corporate   (2 )       -       (2 )   3         -       3   (167 ) (167 )
Other income (expense), net $ (2 )     $ -     $ (2 ) $ 7       $ -     $ 7   (129 ) (129 )
 
OPERATING PROFIT
Distribution Solutions $ 510 $ 62 $ 572 $ 289 $ 226 $ 515 76 11
Technology Solutions (1) (2)   69         20       89     106         15       121   (35 ) (26 )
Operating profit 579 82 661 395 241 636 47 4
Corporate   (89 )       2       (87 )   (81 )       -       (81 ) 10 7

Income from continuing operations before interest expense and income taxes

$ 490       $ 84     $ 574   $ 314       $ 241     $ 555   56 3
 
STATISTICS
Operating profit as a % of revenues
Distribution Solutions 1.70

 

%

1.91

 

%

 

1.05 % 1.88

%

 

65 bp 3 bp
Technology Solutions (1) (2) 8.38 10.81

13.42

15.32 (504 ) (451 )
  (1)   Revenues and results for the third quarter of fiscal year 2011 include the recognition of $23 million of revenue for a disease management contract for which the related expenses were previously recognized as incurred.
 
(2)

For the third quarter of fiscal year 2012, segment results include a charge of $42 million for a product alignment plan, of which $26 million and $16 million were included in cost of sales and operating expenses.

 

Schedule 3B

                   
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
 

Nine Months Ended
December 31, 2011

Nine Months Ended
December 31, 2010

Change

As
Reported
(GAAP)

    Adjust.    

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

    Adjust.    

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

Adjusted
Earnings
(Non-GAAP)

REVENUES
Distribution Solutions
Direct distribution & services $ 63,484 $ - $ 63,484 $ 57,094 $ - $ 57,094 11 % 11 %
Sales to customers' warehouses 14,998         -       14,998     14,133         -       14,133   6 6

Total U.S. pharmaceutical distribution & services

78,482 - 78,482 71,227 - 71,227 10 10
Canada pharmaceutical distribution & services 7,739 - 7,739 7,485 - 7,485 3 3
Medical-Surgical distribution & services 2,364         -       2,364     2,200         -       2,200   7 7
Total Distribution Solutions 88,585         -       88,585     80,912         -       80,912   9 9
 
Technology Solutions
Services (1) 1,916 - 1,916 1,828 - 1,828 5 5
Software & software systems 449 - 449 408 - 408 10 10
Hardware   85         -       85     83         -       83   2 2
Total Technology Solutions   2,450         -       2,450     2,319         -       2,319   6 6
Revenues $ 91,035       $ -     $ 91,035   $ 83,231       $ -     $ 83,231   9 9
 
GROSS PROFIT
Distribution Solutions (3) $ 3,590 $ 1 $ 3,591 $ 3,239 $ - $ 3,239 11 11
Technology Solutions (1) (2) (4)   1,132         15       1,147     980         12       992   16 16
Gross profit $ 4,722       $ 16     $ 4,738   $ 4,219       $ 12     $ 4,231   12 12
 
OPERATING EXPENSES
Distribution Solutions $ (2,136 ) $ 258 $ (1,878 ) $ (1,963 ) $ 275 $ (1,688 ) 9 11
Technology Solutions (2) (857 ) 42 (815 ) (798 ) 34 (764 ) 7 7
Corporate   (287 )       2       (285 )   (260 )       -       (260 ) 10 10
Operating expenses $ (3,280 )     $ 302     $ (2,978 ) $ (3,021 )     $ 309     $ (2,712 ) 9 10
 
OTHER INCOME, NET
Distribution Solutions $ 8 $ - $ 8 $ 9 $ - $ 9 (11 ) (11 )
Technology Solutions 2 - 2 2 - 2 - -
Corporate   2         -       2     8         -       8   (75 ) (75 )
Other income, net $ 12       $ -     $ 12   $ 19       $ -     $ 19   (37 ) (37 )
 
OPERATING PROFIT
Distribution Solutions (3) $ 1,462 $ 259 $ 1,721 $ 1,285 $ 275 $ 1,560 14 10
Technology Solutions (1) (2) (4)   277         57       334     184         46       230   51 45
Operating profit 1,739 316 2,055 1,469 321 1,790 18 15
Corporate   (285 )       2       (283 )   (252 )       -       (252 ) 13 12

Income from continuing operations before interest expense and income taxes

$ 1,454       $ 318     $ 1,772   $ 1,217       $ 321     $ 1,538   19 15
 
STATISTICS
Operating profit as a % of revenues
Distribution Solutions (3) 1.65 % 1.94 % 1.59 % 1.93

%

 

6 bp 1 bp
Technology Solutions (1) (2) (4) 11.31 13.63 7.93 9.92 338 371
  (1)   Revenues and results for the first nine months of 2011 include the recognition of $23 million of revenue for a disease management contract for which the related expenses were previously recognized as incurred.
 
(2)

For the first nine months of fiscal year 2012, segment results include a charge of $42 million for a product alignment plan, of which $26 million and $16 million were included in cost of sales and operating expenses.

 
(3) Results for the first nine months of fiscal year 2011 include a credit of $51 million representing our share of a settlement of an antitrust class action lawsuit brought against a drug manufacturer.
 
(4) Results for the first nine months of fiscal year 2011 include a $72 million asset impairment charge for capitalized software held for sale.
 

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, 2011 Quarter Ended December 31, 2010

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

As Reported (GAAP):

Revenues $ 30,016 $ 823 $ - $ 30,839 $ 27,457 $ 790 $ - $ 28,247
 
Gross profit $ 1,201 $ 365 $ - $ 1,566 $ 1,082 $ 379 $ - $ 1,461
Operating expenses (690 ) (297 ) (87 ) (1,074 ) (797 ) (273 ) (84 ) (1,154 )
Other income (expense), net   (1 )     1       (2 )     (2 )   4       -       3       7  

Income from continuing operations before interest expense and income taxes

510 69 (89 ) 490 289 106 (81 ) 314
Interest expense   -       -       (64 )     (64 )   -       -       (53 )     (53 )
Income from continuing operations before income taxes $ 510     $ 69     $ (153 )   $ 426   $ 289     $ 106     $ (134 )   $ 261  
 

Pre-Tax Adjustments:

Gross profit $ - $ 5 $ - $ 5 $ - $ 4 $ - $ 4
Operating expenses   31       13       -       44     13       11       -       24  
Amortization of acquisition-related intangibles 31 18 - 49 13 15 - 28
 
Operating expenses 4 2 2 8 24 - - 24
Interest expense   -       -       -       -     -       -       10       10  
Acquisition-related expenses 4 2 2 8 24 - 10 34
 
Operating expenses - Litigation reserve adjustments 27 - - 27 189 - - 189
                           
Total pre-tax adjustments $ 62     $ 20     $ 2     $ 84   $ 226     $ 15     $ 10     $ 251  
 

Adjusted Earnings (Non-GAAP):

Revenues $ 30,016 $ 823 $ - $ 30,839 $ 27,457 $ 790 $ - $ 28,247
 
Gross profit $ 1,201 $ 370 $ - $ 1,571 $ 1,082 $ 383 $ - $ 1,465
Operating expenses (628 ) (282 ) (85 ) (995 ) (571 ) (262 ) (84 ) (917 )
Other income (expense), net   (1 )     1       (2 )     (2 )   4       -       3       7  

Income from continuing operations before interest expense and income taxes

572 89 (87 ) 574 515 121 (81 ) 555
Interest expense   -       -       (64 )     (64 )   -       -       (43 )     (43 )
Income from continuing operations before income taxes $ 572     $ 89     $ (151 )   $ 510   $ 515     $ 121     $ (124 )   $ 512  
 

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, 2011 Nine Months Ended December 31, 2010

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

As Reported (GAAP):

Revenues $ 88,585 $ 2,450 $ - $ 91,035 $ 80,912 $ 2,319 $ - $ 83,231
 
Gross profit $ 3,590 $ 1,132 $ - $ 4,722 $ 3,239 $ 980 $ - $ 4,219
Operating expenses (2,136 ) (857 ) (287 ) (3,280 ) (1,963 ) (798 ) (260 ) (3,021 )
Other income, net   8       2       2       12     9       2       8       19  

Income from continuing operations before interest expense and income taxes

1,462 277 (285 ) 1,454 1,285 184 (252 ) 1,217
Interest expense   -       -       (192 )     (192 )   -       -       (140 )     (140 )
Income from continuing operations before income taxes $ 1,462     $ 277     $ (477 )   $ 1,262   $ 1,285     $ 184     $ (392 )   $ 1,077  
 

Pre-Tax Adjustments:

Gross profit $ 1 $ 15 $ - $ 16 $ - $ 12 $ - $ 12
Operating expenses   93       38       -       131     38       34       -       72  
Amortization of acquisition-related intangibles 94 53 - 147 38 46 - 84
 
Operating expenses 20 4 2 26 24 - - 24
Interest expense   -       -       -       -     -       -       10       10  
Acquisition-related expenses 20 4 2 26 24 - 10 34
 
Operating expenses - Litigation reserve adjustments 145 - - 145 213 - - 213
                           
Total pre-tax adjustments $ 259     $ 57     $ 2     $ 318   $ 275     $ 46     $ 10     $ 331  
 

Adjusted Earnings (Non-GAAP):

Revenues $ 88,585 $ 2,450 $ - $ 91,035 $ 80,912 $ 2,319 $ - $ 83,231
 
Gross profit $ 3,591 $ 1,147 $ - $ 4,738 $ 3,239 $ 992 $ - $ 4,231
Operating expenses (1,878 ) (815 ) (285 ) (2,978 ) (1,688 ) (764 ) (260 ) (2,712 )
Other income, net   8       2       2       12     9       2       8       19  

Income from continuing operations before interest expense and income taxes

1,721 334 (283 ) 1,772 1,560 230 (252 ) 1,538
Interest expense   -       -       (192 )     (192 )   -       -       (130 )     (130 )
Income from continuing operations before income taxes $ 1,721     $ 334     $ (475 )   $ 1,580   $ 1,560     $ 230     $ (382 )   $ 1,408  
 

Schedule 5

           
McKESSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions)
 
December 31, March 31,
2011 2011
 
ASSETS
Current Assets
Cash and cash equivalents $ 4,191 $ 3,612
Receivables, net 9,673 9,187
Inventories, net 10,376 9,225
Prepaid expenses and other   329   333
Total Current Assets 24,569 22,357
Property, Plant and Equipment, Net 1,015 991
Goodwill 4,497 4,364
Intangible Assets, Net 1,341 1,456
Other Assets   1,735   1,718
Total Assets $ 33,157 $ 30,886
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Drafts and accounts payable $ 15,677 $ 14,090
Deferred revenue 1,471 1,321
Deferred tax liabilities 1,038 1,037
Current portion of long-term debt 409 417
Other accrued liabilities   2,120   1,861
Total Current Liabilities 20,715 18,726
Long-Term Debt 3,578 3,587
Other Noncurrent Liabilities 1,408 1,353
Stockholders' Equity   7,456   7,220
Total Liabilities and Stockholders' Equity $ 33,157 $ 30,886
 

Schedule 6

       
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
Nine Months Ended December 31,
2011 2010
 
OPERATING ACTIVITIES
Net income $ 882 $ 780
Discontinued operation - gain on sale, net of tax - (72 )
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 408 352
Asset impairment charge - capitalized software held for sale - 72
Share-based compensation expense 113 99
Other non-cash items 102 58
Changes in operating assets and liabilities, net of acquisitions:
Receivables (575 ) (198 )
Inventories (1,200 ) 22
Drafts and accounts payable 1,636 52
Deferred revenue 122 82
Litigation charges 145 213
Litigation settlement payments (26 ) (26 )
Deferred tax benefit on litigation charges (42 ) (56 )
Other   151     (40 )
Net cash provided by operating activities   1,716     1,338  
 
INVESTING ACTIVITIES
Property acquisitions (170 ) (157 )
Capitalized software expenditures (137 ) (111 )
Acquisitions, less cash and cash equivalents acquired (204 ) (292 )
Proceeds from sale of business - 109
Other   81     (15 )
Net cash used in investing activities   (430 )   (466 )
 
FINANCING ACTIVITIES
Repayments of debt (23 ) -
Common stock repurchases, including shares surrendered for tax withholding (672 ) (1,548 )
Common stock Issuances 122 238
Dividends paid (146 ) (126 )
Other   22     40  
Net cash used in financing activities   (697 )   (1,396 )
Effect of exchange rate changes on cash and cash equivalents   (10 )   6  
Net increase (decrease) in cash and cash equivalents 579 (518 )
Cash and cash equivalents at beginning of period   3,612     3,731  
Cash and cash equivalents at end of period $ 4,191   $ 3,213  

McKesson Corporation
Ana Schrank, 415-983-7153 (Investors and Financial Media)
Ana.Schrank@McKesson.com
Kris Fortner, 415-983-8352 (General and Business Media)
Kris.Fortner@McKesson.com


© Business Wire 2012
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