McKesson Reports Fiscal 2015 First-Quarter Results

  • Revenues of $44.1 billion for the first quarter, up 37%.
  • First-quarter GAAP earnings per diluted share from continuing operations of $1.78, down 3%.
  • First-quarter Adjusted Earnings per diluted share from continuing operations of $2.49, up 18%.
  • Fiscal 2015 Outlook: Adjusted Earnings per diluted share of $10.50 to $10.90.

SAN FRANCISCO--()--McKesson Corporation (NYSE:MCK) today reported that revenues for the first quarter ended June 30, 2014 were $44.1 billion, up 37% compared to $32.2 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), first-quarter earnings per diluted share from continuing operations was $1.78 compared to $1.84 a year ago.

First-quarter Adjusted Earnings per diluted share from continuing operations was $2.49, up 18% compared to $2.11 a year ago.

First-quarter GAAP and Adjusted Earnings reflect a pre-tax charge of $34 million, or 11 cents per diluted share, related to the reclassification of a portion of our International Technology business, previously reported in discontinued operations, to continuing operations.

“McKesson fiscal first quarter results represent a strong start to the year with solid execution across our business and particularly strong growth in our Distribution Solutions segment,” said John H. Hammergren, chairman and chief executive officer. “Based on the strength of our Distribution Solutions results in the first quarter and our confidence in the full year, we are raising our previous outlook and now expect Adjusted Earnings per diluted share from continuing operations of $10.50 to $10.90 for the fiscal year ending March 31, 2015.”

For the first quarter, McKesson generated cash from operations of $182 million, and ended the quarter with cash and cash equivalents of $4.1 billion. During the quarter, McKesson paid $59 million in dividends, had internal capital spending of $119 million, and spent $14 million on acquisitions.

Segment Results

Distribution Solutions revenues were $43.3 billion, up 38% for the quarter on a constant currency basis, 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 15% for the quarter on a constant currency basis, primarily reflecting market growth and our mix of business.

International pharmaceutical distribution and services revenues were $7.6 billion, an increase of 3% on the underlying results of Celesio, as reported, on a constant currency basis.

Medical-Surgical distribution and services revenues were up 2% for the quarter, driven by market growth.

In the first quarter, Distribution Solutions GAAP operating profit was $748 million and GAAP operating margin was 1.73%. First-quarter adjusted operating profit was $1 billion, up 44% from the prior year, driven by the acquisition of Celesio and strong results in our North America pharmaceutical distribution and services business. Adjusted operating margin for the Distribution Solutions segment was 2.32%.

Technology Solutions revenues were down 8% in the first quarter 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 $68 million for the first quarter and GAAP operating margin was 8.85%. Adjusted operating profit was $80 million for the first quarter and adjusted operating margin was 10.42%. Technology Solutions first quarter results reflect the reclassification of a portion of our International Technology business from discontinued operations to continuing operations, including an associated pre-tax charge of $34 million, or 11 cents per diluted share.

Fiscal Year 2015 Outlook

McKesson expects Adjusted Earnings per diluted share from continuing operations between $10.50 and $10.90 for the fiscal year ending March 31, 2015, based on an exchange rate of $1.36 per Euro, which excludes the following GAAP items:

  • Amortization of acquisition-related intangible assets of $1.32 per diluted share.
  • Acquisition expenses and related adjustments of 50 cents per diluted share.
  • LIFO inventory-related charges of 95 cents to $1.05 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. Recast Adjusted Earnings for Fiscal 2014 reflecting the reclassification of a portion of our International Technology business from discontinued operations to continuing operations is provided in Schedules 7, 8 and 9.

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: 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 undertakes no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

The company has scheduled a conference call for 8:30 AM ET. The dial-in number for individuals wishing to participate on the call is 719-234-7317. Erin Lampert, 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 3995230. 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.

           

Schedule 1

 
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP
(unaudited)
(in millions, except per share amounts)
 
Quarter Ended June 30,
2014 2013 Change
 
Revenues $ 44,058 $ 32,239 37 %
Cost of sales (1) (2)   (41,261 )   (30,309 ) 36
Gross profit 2,797 1,930 45
 
Operating expenses (1) (2,109 ) (1,260 ) 67
Litigation charges   -     (15 ) -
Total operating expenses   (2,109 )   (1,275 ) 65
Operating income 688 655 5
Other income, net 20 6 233
Interest expense   (101 )   (59 ) 71
Income from continuing operations before income taxes 607

 

602 1
Income tax expense   (182 )   (174 ) 5
Income from continuing operations after tax 425 428 (1 )
Loss from discontinued operations, net of tax (3)   (14 )   (4 ) 250
Net income 411 424 (3 )
Net income attributable to noncontrolling interests (4)   (8 )   -   -
Net income attributable to McKesson Corporation $ 403   $ 424   (5 )
 
 
Earnings (loss) per common share attributable to McKesson Corporation (5)
Diluted
Continuing operations $ 1.78 $ 1.84 (3 ) %
Discontinued operations   (0.06 )   (0.01 ) -
Total $ 1.72   $ 1.83   (6 )
 
 
Basic
Continuing operations $ 1.81 $ 1.88 (4 ) %
Discontinued operations   (0.06 )   (0.02 ) -
Total $ 1.75   $ 1.86   (6 )
 
 
Weighted average common shares
Diluted 235 232 1 %
Basic 231 227 2
 
(1)   Technology solutions segment results for the first quarter of fiscal year 2015 reflect a non-cash pre-tax charge of $34 million ($27 million after-tax) primarily relating to depreciation and amortization expense due to the reclassification of the workforce business within our International Technology business from discontinued operations to continuing operations. The charge was recorded as follows: $32 million in cost of sales and $2 million in operating expenses.
 
(2) Cost of sales for fiscal year 2015 and 2014 includes charges of $98 million and nil, which were recorded in our Distribution Solutions segment, related to our last-in-first-out ("LIFO") method of accounting for inventories.
 
(3) Primarily represents the software business within our International Technology business in our Technology Solutions segment. Fiscal year 2014 also reflects our Hospital Automation business in our Technology Solutions segment, which was sold in the third quarter of fiscal 2014. The amounts are fully attributable to McKesson Corporation.
 
(4) Primarily represents the noncontrolling shareholders' portion of net income from Celesio, our majority-owned subsidiary, acquired in the fourth quarter of fiscal year 2014.
 
(5) Certain computations may reflect rounding adjustments.
 

Schedule 2

                 
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
 
Change
Quarter Ended June 30, 2014 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 $ 44,058 $ - $ - $ - $ - $ 44,058 37 % 37 %
 
Gross profit (1) $ 2,797 $ 2 $ - $ - $ 98 $ 2,897 45 50
Operating expenses (1) (2,109 ) 127 49 - - (1,933 ) 65 64
Other income, net 20 1 - - - 21 233 250
Interest expense   (101 )     -       -       -       -       (101 ) 71 71

Income from continuing operations before income taxes

607 130 49 - 98 884 1 26
Income tax expense   (182 )     (41 )     (15 )     -       (38 )     (276 ) 5 30
Income from continuing operations after tax 425 89 34 - 60 608 (1 ) 24

Income from continuing operations, net of tax, attributable to noncontrolling interests (2)

  (8 )     (11 )     (4 )     -       -       (23 ) - -
Income from continuing operations, net of tax, attributable to McKesson Corporation $ 417     $ 78     $ 30     $ -     $ 60     $ 585   (3 ) 20
 
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (3) $ 1.78     $ 0.33     $ 0.13     $ -     $ 0.25     $ 2.49   (3 ) % 18 %
Diluted weighted average common shares   235       235       235       -       235       235   1 % 1 %
 
 
Quarter Ended June 30, 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 $ 32,239

 

$ - $ - $ - $ - $ 32,239
 
Gross profit $ 1,930

 

$ 6 $ -

 

$ - $ - $ 1,936
Operating expenses (1,275 ) 65 13 15 - (1,182 )
Other income, net 6 - - - - 6
Interest expense   (59 )     -       -       -       -       (59 )
Income from continuing operations before income taxes 602 71 13 15 - 701
Income tax expense   (174 )     (27 )     (5 )     (6 )     -       (212 )
Income from continuing operations after tax 428 44 8 9 - 489
Income from continuing operations, net of tax, attributable to noncontrolling interests   -       -       -       -       -       -  
Income from continuing operations, net of tax, attributable to McKesson Corporation $ 428     $ 44     $ 8     $ 9     $ -     $ 489  
 
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (3) $ 1.84     $ 0.19     $ 0.04     $ 0.04     $ -     $ 2.11  
Diluted weighted average common shares   232       232       232       232       -       232  
 
(1)   Technology solutions segment results for the first quarter of fiscal year 2015 reflect a non-cash pre-tax charge of $34 million ($27 million after-tax) primarily relating to depreciation and amortization expense due to the reclassification of the workforce business within our International Technology business from discontinued operations to continuing operations. The charge was recorded as follows: $32 million in cost of sales and $2 million in operating expenses.
 
(2) Primarily represents the noncontrolling shareholders' portion of income from continuing operations from Celesio, our majority-owned subsidiary, acquired in the fourth quarter of fiscal year 2014.
 
(3) Certain computations may reflect rounding adjustments.
 
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.
 

Schedule 3

             
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
 
 
Quarter Ended June 30, 2014 Quarter Ended June 30, 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

$ 34,304 $ - $ 34,304 $ 30,046 $ - $ 30,046 14 % 14 %

International pharmaceutical distribution & services

7,607 - 7,607 - - - - -

Medical-Surgical distribution & services

  1,379       -     1,379     1,357       -     1,357   2 2
Total Distribution Solutions   43,290       -     43,290     31,403       -     31,403   38 38
 

Technology Solutions - Products and Services

  768       -     768     836       -     836   (8 ) (8 )
Revenues $ 44,058     $ -   $ 44,058   $ 32,239     $ -   $ 32,239   37 37
 
GROSS PROFIT

 

Distribution Solutions $ 2,458 $ 98 $ 2,556 $ 1,520 $ - $ 1,520 62 68
Technology Solutions (1)   339       2     341     410       6     416   (17 ) (18 )
Gross profit $ 2,797     $ 100   $ 2,897   $ 1,930     $ 6   $ 1,936   45 50
 
OPERATING EXPENSES
Distribution Solutions $ (1,728 ) $ 159 $ (1,569 ) $ (905 ) $ 81 $ (824 ) 91 90
Technology Solutions (1) (271 ) 10 (261 ) (283 ) 12 (271 ) (4 ) (4 )
Corporate   (110 )     7     (103 )   (87 )     -     (87 ) 26 18
Operating expenses $ (2,109 )   $ 176   $ (1,933 ) $ (1,275 )   $ 93   $ (1,182 ) 65 64
 
OTHER INCOME, NET
Distribution Solutions $ 18 $ 1 $ 19 $ 4 $ - $ 4 350 375
Technology Solutions - - - - - - - -
Corporate   2       -     2     2       -     2   - -
Other income, net $ 20     $ 1   $ 21   $ 6     $ -   $ 6   233 250
 
 
OPERATING PROFIT
Distribution Solutions $ 748 $ 258 $ 1,006 $ 619 $ 81 $ 700 21 44
Technology Solutions   68       12     80     127       18     145   (46 ) (45 )
Operating profit 816 270 1,086 746 99 845 9 29
Corporate (108 ) 7 (101 ) (85 ) - (85 ) 27 19
Interest Expense   (101 )     -     (101 )   (59 )     -     (59 ) 71 71

Income from continuing operations before income taxes (2)

$ 607     $ 277   $ 884   $ 602     $ 99   $ 701   1 26
 
STATISTICS
Operating profit as a % of revenues
Distribution Solutions 1.73 % 2.32 % 1.97 % 2.23 % (24 ) bp 9 bp
Technology Solutions 8.85 10.42 15.19 17.34 (634 ) (692 )
 
(1)   Technology solutions segment results for the first quarter of fiscal year 2015 reflect a non-cash pre-tax charge of $34 million ($27 million after-tax) primarily relating to depreciation and amortization expense due to the reclassification of the workforce business within our International Technology business from discontinued operations to continuing operations. The charge was recorded as follows: $32 million in cost of sales and $2 million in operating expenses.
 
(2) For the fiscal year 2015, the amount is prior to attributing income from continuing operations from Celesio to the shareholders of noncontrolling interests.
 
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.
 

Schedule 4

                   
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
 
 
Quarter Ended June 30, 2014 Quarter Ended June 30, 2013

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

As Reported (GAAP):

Revenues $ 43,290 $ 768 $ - $ 44,058 $ 31,403 $ 836 $ - $ 32,239
 
Gross profit (1) $ 2,458 $ 339 $ - $ 2,797 $ 1,520 $ 410 $ - $ 1,930
Operating expenses (1) (1,728 ) (271 ) (110 ) (2,109 ) (905 ) (283 ) (87 ) (1,275 )
Other income, net   18       -       2       20     4       -       2       6  
Income from continuing operations before interest expense and income taxes 748 68 (108 ) 708 619 127 (85 ) 661
Interest expense   -       -       (101 )     (101 )   -       -       (59 )     (59 )
Income from continuing operations before income taxes (2) $ 748     $ 68     $ (209 )   $ 607   $ 619     $ 127     $ (144 )   $ 602  
 
 

Pre-Tax Adjustments:

Gross profit $ - $ 2 $ - $ 2 $ - $ 6 $ - $ 6
Operating expenses 117 10 - 127 54 11 - 65
Other income, net   1       -       -       1     -       -       -       -  
Amortization of acquisition-related intangibles 118 12 - 130 54 17 - 71
 
Gross profit - - - - - - - -
Operating expenses 42 - 7 49 12 1 - 13
Interest expense   -       -       -       -     -       -       -       -  
Acquisition expenses and related adjustments 42 - 7 49 12 1 - 13
 
Operating expenses - Litigation reserve adjustments - - - - 15 - - 15
 
Gross profit - LIFO-related adjustments 98 - - 98 - - - -
                           
Total pre-tax adjustments $ 258     $ 12     $ 7     $ 277   $ 81     $ 18     $ -     $ 99  
 
 

Adjusted Earnings (Non-GAAP):

Revenues $ 43,290 $ 768 $ - $ 44,058 $ 31,403 $ 836 $ - $ 32,239
 
Gross profit (1) $ 2,556 $ 341 $ - $ 2,897 $ 1,520 $ 416 $ - $ 1,936
Operating expenses (1) (1,569 ) (261 ) (103 ) (1,933 ) (824 ) (271 ) (87 ) (1,182 )
Other income, net   19       -       2       21     4       -       2       6  
Income from continuing operations before interest expense and income taxes 1,006 80 (101 ) 985 700 145 (85 ) 760
Interest expense   -       -       (101 )     (101 )   -       -       (59 )     (59 )
Income from continuing operations before income taxes (2) $ 1,006     $ 80     $ (202 )   $ 884   $ 700     $ 145     $ (144 )   $ 701  
 
(1)   Technology solutions segment results for the first quarter of fiscal year 2015 reflect a non-cash pre-tax charge of $34 million ($27 million after-tax) primarily relating to depreciation and amortization expense due to the reclassification of the workforce business within our International Technology business from discontinued operations to continuing operations. The charge was recorded as follows: $32 million in cost of sales and $2 million in operating expenses.
 
(2) For the fiscal year 2015, the amount is prior to attributing income from continuing operations from Celesio to the shareholders of noncontrolling interests.
 
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.
 

Schedule 5

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions)

       
June 30, March 31,
2014 2014
 
ASSETS
Current Assets
Cash and cash equivalents $ 4,105 $ 4,193
Receivables, net 14,920 14,193
Inventories, net 14,124 13,308
Prepaid expenses and other   824   879
Total Current Assets 33,973 32,573
Property, Plant and Equipment, Net 2,209 2,222
Goodwill 10,431 9,927
Intangible Assets, Net 4,390 5,022
Other Assets   2,003   2,015
Total Assets $ 53,006 $ 51,759
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Drafts and accounts payable $ 22,812 $ 21,429
Short-term borrowings 507 346
Deferred revenue 1,124 1,236
Deferred tax liabilities 1,656 1,588
Current portion of long-term debt 25 1,424
Other accrued liabilities   3,121   3,478
Total Current Liabilities 29,245 29,501
Long-Term Debt 10,141 8,949
Other Noncurrent Liabilities 2,855 2,991
 
McKesson Corporation Stockholders' Equity 8,979 8,522
Noncontrolling Interests   1,786   1,796
Total Equity   10,765   10,318
Total Liabilities and Equity $ 53,006 $ 51,759
 

Schedule 6

       
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
Quarter Ended June 30,
2014 2013
 
 
OPERATING ACTIVITIES
Net income $ 411 $ 424
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 284 162
Deferred taxes 135 98
LIFO charges 98 -
Other non-cash items 14 32
Changes in operating assets and liabilities, net of acquisitions:
Receivables (699 ) (139 )
Inventories (901 ) (60 )
Drafts and accounts payable 1,368 589
Deferred revenue (134 ) (116 )
Taxes (134 ) 31
Other   (260 )   (305 )
Net cash provided by operating activities   182     716  
 
INVESTING ACTIVITIES
Property acquisitions (86 ) (69 )
Capitalized software expenditures (33 ) (32 )
Acquisitions, less cash and cash equivalents acquired (14 ) (74 )
Other   21     (9 )
Net cash used in investing activities   (112 )   (184 )
 
FINANCING ACTIVITIES
Proceeds from short-term borrowings 917 100
Repayments of short-term borrowings (759 ) (100 )
Proceeds from issuances of long-term debt 6 -
Repayments of long-term debt (230 ) -
Common stock transactions:
Issuances 34 50
Share repurchases, including shares surrendered for tax withholding (102 ) (127 )
Dividends paid (59 ) (53 )
Other   26     57  
Net cash used in financing activities   (167 )   (73 )
Effect of exchange rate changes on cash and cash equivalents   9     (10 )
Net increase (decrease) in cash and cash equivalents (88 ) 449
Cash and cash equivalents at beginning of period   4,193     2,456  
Cash and cash equivalents at end of period $ 4,105   $ 2,905  
 

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.
 

Schedule 7

McKESSON CORPORATION
RECONCILIATION OF RECAST ADJUSTED EARNINGS PER SHARE (ADJUSTED EPS, NON-GAAP)
FOR FISCAL 2014
(unaudited)
               
 
The following are Fiscal 2014 Adjusted Earnings Per Share (Non-GAAP), recast to reflect the reclassifications of the workforce business within our International Technology business from discontinued operations to continuing operations:
 
Quarters Ended

Year Ended
March 31,
2014

June 30,
2013

September 30,
2013

December 31,
2013

March 31,
2014

 
Adjusted EPS, as previously reported $ 2.07 $ 2.27 $ 1.45 $ 2.55 $ 8.35

Adjustments due to the reclassifications of the workforce business from discontinued operations to continuing operations

  0.04   0.03   0.03   0.12   0.21
 
Adjusted EPS, as recast $ 2.11 $ 2.30 $ 1.48 $ 2.67 $ 8.56
 
Certain computations may reflect rounding adjustments.
 

Schedule 8

             
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
FOR FISCAL 2014
(unaudited)
(in millions, except per share amounts)
 
The following are Fiscal 2014 Adjusted Earnings (Non-GAAP), recast to reflect the reclassifications of the workforce business within our International Technology business from discontinued operations to continuing operations:
 
 
Quarter Ended June 30, 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 $ 32,239 $ - $ - $ - $ - $ 32,239
 
Gross profit $ 1,930 $ 6 $ - $ - $ - $ 1,936
Operating expenses (1,275 ) 65 13 15 - (1,182 )
Other income, net 6 - - - - 6
Interest expense   (59 )     -       -       -       -       (59 )
Income from continuing operations before income taxes 602 71 13 15 - 701
Income tax expense   (174 )

 

  (27 )     (5 )     (6 )     -       (212 )
 
Income from continuing operations after tax 428 44 8 9 - 489
Income from continuing operations, net of tax, attributable to noncontrolling interests   -       -       -       -       -       -  
Income from continuing operations, net of tax, attributable to McKesson Corporation $ 428     $ 44     $ 8     $ 9     $ -     $ 489  
 
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) $ 1.84     $ 0.19     $ 0.04     $ 0.04     $ -     $ 2.11  
Diluted weighted average common shares   232       232       232       232       -       232  
 
 
Quarter Ended September 30, 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 $ 32,985 $ - $ - $ - $ - $ 32,985
 
Gross profit $ 2,021 $ 5 $ - $ - $ 44 $ 2,070
Operating expenses (1,335 ) 65 13 35 - (1,222 )
Other income, net 9 - - - - 9
Interest expense   (59 )     -       -       -       -       (59 )
Income from continuing operations before income taxes 636 70 13 35 44 798
Income tax expense   (213 )     (25 )     (5 )     (2 )     (17 )     (262 )
 
Income from continuing operations after tax 423 45 8 33 27 536
Income from continuing operations, net of tax, attributable to noncontrolling interests   -       -       -       -       -       -  
Income from continuing operations, net of tax, attributable to McKesson Corporation $ 423     $ 45     $ 8     $ 33     $ 27     $ 536  
 
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) $ 1.82     $ 0.19     $ 0.03     $ 0.14     $ 0.12     $ 2.30  
Diluted weighted average common shares   233       233       233       233       233       233  
 
 
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 $ 1,850 $ 4 $ 3 $ - $ 142 $ 1,999
Operating expenses (1,357 ) 66 40 18 - (1,233 )
Other income (expense), 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   (254 )     (27 )     (23 )     (7 )     (56 )     (367 )
 
Income from continuing operations after tax 164 43 43 11 86 347
Income from continuing operations, net of tax, 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 (a) $ 0.70     $ 0.19     $ 0.17     $ 0.05     $ 0.37     $ 1.48  
Diluted weighted average common shares   234       234       234       234       234       234  
 
 
Quarter Ended March 31, 2014

As Reported
(GAAP)

 

Amortization
of Acquisition-
Related
Intangibles

 

Acquisition
Expenses and
Related
Adjustments

 

Litigation
Reserve
Adjustments

 

LIFO-Related
Adjustments

 

Adjusted
Earnings
(Non-GAAP)

 
Revenues $ 38,196 $ - $ - $ - $ - $ 38,196
 
Gross profit $ 2,573 $ (4 ) $ - $ - $ 125 $ 2,694
Operating expenses (1,980 ) 112 89 - - (1,779 )
Other income, net 24 - 1 - - 25
Interest expense   (116 )     -       36       -       -       (80 )
Income from continuing operations before income taxes 501 108 126 - 125 860
Income tax expense   (111 )     (35 )     (36 )     -       (48 )     (230 )
 
Income from continuing operations after tax 390 73 90 - 77 630
Income (loss) from continuing operations, net of tax, attributable to noncontrolling interests   5       (7 )     (2 )     -       -       (4 )
Income from continuing operations, net of tax, attributable to McKesson Corporation $ 395     $ 66     $ 88     $ -     $ 77     $ 626  
 
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) $ 1.68     $ 0.28     $ 0.38     $ -     $ 0.33     $ 2.67  
Diluted weighted average common shares   235       235       235       -       235       235  
 
 
Year Ended March 31, 2014

As Reported
(GAAP)

 

Amortization
of Acquisition-
Related
Intangibles

 

Acquisition
Expenses and
Related
Adjustments

 

Litigation
Reserve
Adjustments

 

LIFO-Related
Adjustments

 

Adjusted
Earnings
(Non-GAAP)

 
Revenues $ 137,756 $ - $ - $ - $ - $ 137,756
 
Gross profit $ 8,374 $ 11 $ 3 $ - $ 311 $ 8,699
Operating expenses (5,947 ) 308 155 68 - (5,416 )
Other income, net 33 - 14 - - 47
Interest expense   (303 )     -       46       -       -       (257 )
Income from continuing operations before income taxes 2,157 319 218 68 311 3,073
Income tax expense   (752 )     (114 )     (69 )     (15 )     (121 )     (1,071 )
Income from continuing operations after tax 1,405 205 149 53 190 2,002
Income (loss) from continuing operations, net of tax, attributable to noncontrolling interests   5       (7 )     (2 )     -       -       (4 )
Income from continuing operations, net of tax, attributable to McKesson Corporation $ 1,410     $ 198     $ 147     $ 53     $ 190     $ 1,998  
 
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) $ 6.04     $ 0.85     $ 0.63     $ 0.23     $ 0.81     $ 8.56  
Diluted weighted average common shares   233       233       233       233       233       233  
 

(a) Certain computations may reflect rounding adjustments.

 

Schedule 9

                                                 
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
FOR FISCAL 2014
(unaudited)
(in millions)
 
The following are Fiscal 2014 Adjusted Earnings (Non-GAAP), recast to reflect the reclassifications of the workforce business within our International Technology business from discontinued operations to continuing operations:
 
Quarter Ended June 30, 2013 Quarter Ended September 30, 2013 Quarter Ended December 31, 2013 Quarter Ended March 31, 2014 Year Ended March 31, 2014

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

Distribution
Solutions

 

Technology
Solutions

 

Corporate &
Interest
Expense

  Total

As Reported (GAAP):

Revenues $ 31,403 $ 836 $ - $ 32,239 $ 32,169 $ 816 $ - $ 32,985 $ 33,522 $ 814 $ - $ 34,336 $ 37,332 $ 864 $ - $ 38,196 $ 134,426 $ 3,330 $ - $ 137,756
 
Gross profit $ 1,520 $ 410 $ - $ 1,930 $ 1,623 $ 398 $ - $ 2,021 $ 1,499 $ 351 $ - $ 1,850 $ 2,125 $ 448 $ - $ 2,573 $ 6,767 $ 1,607 $ - $ 8,374
Operating expenses (905 ) (283 ) (87 ) (1,275 ) (944 ) (278 ) (113 ) (1,335 ) (950 ) (305 ) (102 ) (1,357 ) (1,536 ) (295 ) (149 ) (1,980 ) (4,335 ) (1,161 ) (451 ) (5,947 )
Other income (expense), net   4       -       2       6     6       -       3       9     3       1       (10 )     (6 )   16       1       7       24     29       2       2       33  
Income from continuing operations before interest expense and income taxes 619 127 (85 ) 661 685 120 (110 ) 695 552 47 (112 ) 487 605 154 (142 ) 617 2,461 448 (449 ) 2,460
Interest expense   -       -       (59 )     (59 )   -       -       (59 )     (59 )   -       -       (69 )     (69 )   -       -       (116 )     (116 )   -       -       (303 )     (303 )
Income from continuing operations before income taxes $ 619     $ 127     $ (144 )   $ 602   $ 685     $ 120     $ (169 )   $ 636   $ 552     $ 47     $ (181 )   $ 418   $ 605     $ 154     $ (258 )   $ 501   $ 2,461     $ 448     $ (752 )   $ 2,157  
 
Gross profit margin 4.84 % 49.04 % - 5.99 % 5.05 % 48.77 % - 6.13 % 4.47 % 43.12 % - 5.39 % 5.69 % 51.85 % - 6.74 % 5.03 % 48.26 % - 6.08 %
Operating expenses as a % of revenues 2.88 % 33.85 % - 3.95 % 2.93 % 34.07 % - 4.05 % 2.83 % 37.47 % - 3.95 % 4.11 % 34.14 % - 5.18 % 3.22 % 34.86 % - 4.32 %
Operating pre-tax profit as a % of revenues 1.97 % 15.19 % - 2.05 % 2.13 % 14.71 % - 2.11 % 1.65 % 5.77 % - 1.42 % 1.62 % 17.82 % - 1.62 % 1.83 % 13.45 % - 1.79 %
 

Pre-Tax Adjustments:

Gross profit $ - $ 6 $ - $ 6 $ 1 $ 4 $ - $ 5 $ - $ 4 $ - $ 4 $ - $ (4 ) $ - $ (4 ) $ 1 $ 10 $ - $ 11
Operating expenses   54       11       -       65     52       13       -       65     55       11       -       66     94       17       1       112     255       52       1       308  
Amortization of acquisition-related intangibles 54 17 - 71 53 17 - 70 55 15 - 70 94 13 1 108 256 62 1 319
 
Gross profit - - - - - - - - - 3 - 3 - - - - - 3 - 3
Operating expenses 12 1 - 13 10 2 1 13 16 12 12 40 81 - 8 89 119 15 21 155
Other income, net - - - - - - - - - - 13 13 - - 1 1 - - 14 14
Interest expense   -       -       -       -     -       -       -       -     -       -       10       10     (1 )     -       37       36     -       -       46       46  
Acquisition expenses and related adjustments 12 1 - 13 10 2 1 13 16 15 35 66 80 - 46 126 119 18 81 218
 
Operating expenses - Litigation reserve adjustments 15 - - 15 35 - - 35 18 - - 18 - - - - 68 - - 68
 
Gross profit - LIFO-related adjustments - - - - 44 - - 44 142 - - 142 125 - - 125 311 - - 311
                                                                     
Total pre-tax adjustments $ 81     $ 18     $ -     $ 99   $ 142     $ 19     $ 1     $ 162   $ 231     $ 30     $ 35     $ 296   $ 299     $ 13     $ 47     $ 359   $ 754     $ 80     $ 82     $ 916  
 

Adjusted Earnings (Non-GAAP):

Revenues $ 31,403 $ 836 $ - $ 32,239 $ 32,169 $ 816 $ - $ 32,985 $ 33,522 $ 814 $ - $ 34,336 $ 37,332 $ 864 $ - $ 38,196 $ 134,426 $ 3,330 $ - $ 137,756
 
Gross profit $ 1,520 $ 416 $ - $ 1,936 $ 1,668 $ 402 $ - $ 2,070 $ 1,641 $ 358 $ - $ 1,999 $ 2,250 $ 444 $ - $ 2,694 $ 7,079 $ 1,620 $ - $ 8,699
Operating expenses (824 ) (271 ) (87 ) (1,182 ) (847 ) (263 ) (112 ) (1,222 ) (861 ) (282 ) (90 ) (1,233 ) (1,361 ) (278 ) (140 ) (1,779 ) (3,893 ) (1,094 ) (429 ) (5,416 )
Other income, net   4       -       2       6     6       -       3       9     3       1       3       7     16       1       8       25     29       2       16       47  
Income from continuing operations before interest expense and income taxes 700 145 (85 ) 760 827 139 (109 ) 857 783 77 (87 ) 773 905 167 (132 ) 940 3,215 528 (413 ) 3,330
Interest expense   -       -       (59 )     (59 )   -       -       (59 )     (59 )   -       -       (59 )     (59 )   (1 )     -       (79 )     (80 )   -       -       (257 )     (257 )
Income from continuing operations before income taxes $ 700     $ 145     $ (144 )   $ 701   $ 827     $ 139     $ (168 )   $ 798   $ 783     $ 77     $ (146 )   $ 714   $ 904     $ 167     $ (211 )   $ 860   $ 3,215     $ 528     $ (670 )   $ 3,073  
 
Gross profit margin 4.84 % 49.76 % - 6.01 % 5.19 % 49.26 % - 6.28 % 4.90 % 43.98 % - 5.82 % 6.03 % 51.39 % - 7.05 % 5.27 % 48.65 % - 6.31 %
Operating expenses as a % of revenues 2.62 % 32.42 % - 3.67 % 2.63 % 32.23 % - 3.70 % 2.57 % 34.64 % - 3.59 % 3.65 % 32.18 % - 4.66 % 2.90 % 32.85 % - 3.93 %
Operating pre-tax profit as a % of revenues 2.23 % 17.34 % - 2.36 % 2.57 % 17.03 % - 2.60 % 2.34 % 9.46 % - 2.25 % 2.42 % 19.33 % - 2.46 % 2.39 % 15.86 % - 2.42 %

Contacts

McKesson Corporation
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

Sharing

Contacts

McKesson Corporation
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