Attached files
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| 8-K - FORM 8-K - MCKESSON CORP | d722508d8k.htm |
Exhibit 99.1
McKESSON REPORTS FISCAL 2014 FOURTH-QUARTER
AND FULL-YEAR RESULTS
| • | Revenues of $38.1 billion for the fourth quarter and $137.6 billion for the full year. |
| • | Fourth-quarter GAAP earnings per diluted share from continuing operations of $1.56 and full-year GAAP earnings per diluted share from continuing operations of $5.83. |
| • | Fourth-quarter Adjusted Earnings per diluted share of $2.55 and full-year Adjusted Earnings per diluted share of $8.35. |
| • | Fiscal 2014 cash flow from operations of $3.1 billion. |
| • | Fiscal 2015 Outlook: Adjusted Earnings per diluted share of $10.40 to $10.80. |
SAN FRANCISCO, May 12, 2014 – McKesson Corporation (NYSE:MCK) today reported that revenues for the fourth quarter ended March 31, 2014 were $38.1 billion, up 25% compared to $30.5 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), fourth-quarter earnings per diluted share from continuing operations was $1.56 compared to $1.11 a year ago.
For the fiscal year, McKesson had revenues of $137.6 billion compared to $122.1 billion a year ago. Full-year GAAP earnings per diluted share from continuing operations was $5.83 compared to $5.62 a year ago.
Fourth-quarter Adjusted Earnings per diluted share was $2.55, up 72% compared to $1.48 a year ago. Full-year Adjusted Earnings per diluted share was $8.35, up 31% compared to $6.38 for the prior year. The results of Celesio did not have a material impact on fourth-quarter or full-year adjusted earnings per share. McKesson’s share of Celesio’s net income for the two months ended March 31, 2014 was offset by a charge to cost of sales associated with the reversal of a step-up to fair value of Celesio’s inventory at the date of acquisition.
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“I am pleased with our fourth-quarter results led by solid execution across the Distribution Solutions and Technology Solutions segments,” said John H. Hammergren, chairman and chief executive officer. “For the full year, we had strong growth in adjusted earnings, up 31% from the prior year, and a record year for operating cash flow generated by the business. These results were driven primarily by outstanding performance in the Distribution Solutions segment and disciplined working capital management across the company. Additionally, during the fourth-quarter, we secured the acquisition of Celesio which marks an important step for McKesson as we expand to serve our customers and manufacturing partners with global scale.”
For the year, McKesson generated cash from operations of $3.1 billion, and ended the year with cash and cash equivalents of $4.2 billion. During the year, McKesson spent $4.6 billion on acquisitions, paid $214 million in dividends, and had internal capital spending of $415 million.
“The strength of our balance sheet and our ability to deliver excellent cash flow results reflect the health of our businesses, and during the fourth quarter we successfully funded the Celesio acquisition while maintaining our investment-grade rating,” Hammergren commented. “We have a strong track record of creating long-term value for shareholders through our portfolio approach to capital deployment and plan to continue that approach through a mix of acquisitions, share repurchases, dividends and internal investments.”
Segment Results
Distribution Solutions revenues were up 26% for the fourth quarter and up 13% for the full year compared to the prior year. North America pharmaceutical distribution and services revenues, which include results from U.S. Pharmaceutical, McKesson Canada and McKesson Specialty Health, were up 9% for the fourth quarter, primarily reflecting market growth and growth from existing customers. For the full year, North America pharmaceutical distribution and services revenues were up 7% compared to the prior year.
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International pharmaceutical distribution and services revenues, which represent the results of Celesio for the two months ended March 31, 2014, were $4.8 billion for the fourth quarter and full year.
Medical-Surgical distribution and services revenues were up 28% for the fourth quarter and 57% for the full year driven by the acquisition of PSS World Medical (“PSS”) and market growth.
In the fourth quarter, Distribution Solutions GAAP operating profit was $605 million and GAAP operating margin was 1.62%. Fourth-quarter adjusted operating profit was $905 million and the adjusted operating margin was 2.42%. For the full year, GAAP operating profit was $2.5 billion and GAAP operating margin was 1.83%. For the full year, adjusted operating profit was $3.2 billion, up 30% from the prior year, and the adjusted operating margin was 2.39%, up 31 basis points year-over-year.
“Distribution Solutions had another outstanding year with strong performance across the segment. We continue to deliver tremendous value for our customers through the combination of our industry-leading service, our depth of experience in the healthcare supply chain and our global sourcing expertise,” said Hammergren. “Distribution Solutions also has a strong track record of delivering value through acquisitions. During the fourth quarter, we passed the one-year anniversary of the PSS acquisition and we continue to perform well against our original expectations. We are also excited about the opportunities we see for McKesson’s future as a global healthcare leader through our acquisition of Celesio.”
Technology Solutions products and services revenues were down 1% for the fourth quarter and up 5% for the full year. GAAP operating profit was $118 million for the fourth quarter and GAAP operating margin was 14.59%. Adjusted operating profit was $131 million for the fourth quarter and adjusted operating margin was 16.19%. For the full year, GAAP operating profit was $387 million and GAAP operating margin was 12.16%. For the full year, adjusted operating profit was $467 million, up 25% from the prior year, and the adjusted operating margin was 14.67%.
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“Fourth-quarter Technology Solutions revenues were impacted by an anticipated year-over-year decline in our Horizon hospital software business. This revenue decline was partially offset by the solid growth we experienced in our connectivity and payer-focused businesses. Our Technology businesses remain focused on innovating for important customer priorities including solutions for value-based reimbursement, business intelligence and analytics, and healthcare data interoperability,” Hammergren said.
Fiscal Year 2014 Reconciliation of GAAP Results to Adjusted Earnings
Adjusted Earnings per diluted share of $8.35 for the fiscal year ended March 31, 2014 excludes the following GAAP items:
| • | Amortization of acquisition-related intangible assets of 85 cents per diluted share. |
| • | Acquisition expenses and related adjustments of 63 cents per diluted share. |
| • | Litigation reserve adjustments of 23 cents per diluted share. |
| • | LIFO inventory-related adjustments of 81 cents per diluted share. |
Fiscal Year 2015 Outlook
“Our Fiscal 2015 guidance reflects solid growth across our broad portfolio of businesses and McKesson’s share of the results of Celesio. McKesson expects Adjusted Earnings per diluted share between $10.40 and $10.80 for the fiscal year ending March 31, 2015,” Hammergren concluded.
Key Assumptions for Fiscal Year 2015 Outlook
The Fiscal 2015 outlook is based on the following key assumptions and is also subject to the Risk Factors outlined below:
| • | Distribution Solutions revenue growth will increase significantly driven by the acquisition of Celesio. |
| • | North America pharmaceutical distribution and services and Medical-Surgical distribution and services will deliver mid-single digit revenue growth in Fiscal 2015 compared to Fiscal 2014. |
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| • | Branded drug price trends in Fiscal 2015 are expected to be similar to those we experienced in Fiscal 2014. |
| • | We expect the contribution to profit from the launch of new oral generic pharmaceuticals will increase year-over-year. |
| • | Price trends on generic drugs outside an exclusivity period are expected to be in the high single digits in Fiscal 2015, a decline from the price trends experienced in Fiscal 2014. |
| • | Technology Solutions revenue will decline modestly year-over-year driven by the elimination of a low-margin product line and an expected revenue decline in our Horizon hospital software business. |
| • | The guidance range assumes a full-year adjusted tax rate of approximately 31.5%, which may vary from quarter to quarter. |
| • | Property acquisitions and capitalized software expenditures should be between $575 million and $625 million. |
| • | We assume that our ownership position in Celesio will be approximately 76% for Fiscal 2015. |
| • | The guidance range assumes an exchange rate of $1.36 per Euro. |
| • | Weighted average diluted shares used in the calculation of earnings are expected to be approximately 236 million for the year. |
| • | Cash flow from operations is expected to be approximately $3 billion. |
| • | Based on acquisitions closed as of March 31, 2014: |
| ¡ | We expect amortization of acquisition-related intangible assets of approximately $1.31 per diluted share. |
| ¡ | We expect acquisition expenses and related adjustments of 54 cents per diluted share. |
| ¡ | We expect LIFO inventory-related charges of 86 cents per diluted share. |
| • | The Fiscal 2015 guidance range does not include any potential litigation reserve adjustments, or the impact of any potential new acquisitions, divestitures, impairments or material restructurings. |
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Adjusted Earnings
McKesson separately reports financial results on the basis of Adjusted Earnings. Adjusted Earnings is a non-GAAP financial measure defined as GAAP income from continuing operations, excluding amortization of acquisition-related intangible assets, acquisition expenses and related adjustments, certain litigation reserve adjustments, and Last-In-First-Out (“LIFO”) inventory-related adjustments. A reconciliation of McKesson’s financial results determined in accordance with GAAP to Adjusted Earnings is provided in Schedules 2, 3 and 4 of the financial statement tables included with this release.
Risk Factors
Except for historical information contained in this press release, matters discussed may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These statements may be identified by their use of forward-looking terminology such as “believes”, “expects”, “anticipates”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates” or the negative of these words or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. It is not possible to predict or identify all such risks and uncertainties; however, the most significant of these risks and uncertainties are described in the company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and 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
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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 5:00 PM ET. The dial-in number for individuals wishing to participate on the call is 719-234-7317. Erin Lampert, senior vice president, Investor Relations, is the leader of the call, and
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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 3302075. 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 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.
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Contact:
Erin Lampert, 415-983-8391 (Investors and Financial Media)
Erin.Lampert@McKesson.com
Kris Fortner, 415-983-8352 (General and Business Media)
Kris.Fortner@McKesson.com
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Exhibit 99.1
Schedule 1
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP
(unaudited)
(in millions, except per share amounts)
| Quarter Ended March 31, | Year Ended March 31, | |||||||||||||||||||||||
| 2014 | 2013 | Change | 2014 | 2013 | Change | |||||||||||||||||||
| Revenues |
$ | 38,141 | $ | 30,516 | 25 | % | $ | 137,609 | $ | 122,069 | 13 | % | ||||||||||||
| Cost of sales (1) |
(35,601 | ) | (28,557 | ) | 25 | (129,300 | ) | (115,221 | ) | 12 | ||||||||||||||
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| Gross profit |
2,540 | 1,959 | 30 | 8,309 | 6,848 | 21 | ||||||||||||||||||
| Operating expenses |
(1,984 | ) | (1,302 | ) | 52 | (5,874 | ) | (4,532 | ) | 30 | ||||||||||||||
| Litigation charges (2) |
— | (12 | ) | — | (68 | ) | (72 | ) | (6 | ) | ||||||||||||||
| Gain on business combination (3) |
— | — | — | — | 81 | — | ||||||||||||||||||
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| Total operating expenses |
(1,984 | ) | (1,314 | ) | 51 | (5,942 | ) | (4,523 | ) | 31 | ||||||||||||||
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| Operating income |
556 | 645 | (14 | ) | 2,367 | 2,325 | 2 | |||||||||||||||||
| Other income, net |
25 | 6 | 317 | 32 | 34 | (6 | ) | |||||||||||||||||
| Impairment of an equity investment (4) |
— | (191 | ) | — | — | (191 | ) | — | ||||||||||||||||
| Interest expense |
(116 | ) | (70 | ) | 66 | (303 | ) | (240 | ) | 26 | ||||||||||||||
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| Income from continuing operations before income taxes |
465 | 390 | 19 | 2,096 | 1,928 | 9 | ||||||||||||||||||
| Income tax expense (5) |
(103 | ) | (127 | ) | (19 | ) | (742 | ) | (581 | ) | 28 | |||||||||||||
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| Income from continuing operations |
362 | 263 | 38 | 1,354 | 1,347 | 1 | ||||||||||||||||||
| Income (loss) from discontinued operations, net of tax (6) |
4 | (4 | ) | — | (96 | ) | (9 | ) | — | |||||||||||||||
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| Net income |
366 | 259 | 41 | 1,258 | 1,338 | (6 | ) | |||||||||||||||||
| Net loss attributable to noncontrolling interests (7) |
5 | — | — | 5 | — | — | ||||||||||||||||||
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| Net income attributable to McKesson Corporation |
$ | 371 | $ | 259 | 43 | $ | 1,263 | $ | 1,338 | (6 | ) | |||||||||||||
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| Earnings (loss) per common share attributable to McKesson Corporation (8) |
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| Diluted |
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| Continuing operations |
$ | 1.56 | $ | 1.11 | 41 | % | $ | 5.83 | $ | 5.62 | 4 | % | ||||||||||||
| Discontinued operations |
0.02 | (0.01 | ) | — | (0.42 | ) | (0.03 | ) | — | |||||||||||||||
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| Total |
$ | 1.58 | $ | 1.10 | 44 | $ | 5.41 | $ | 5.59 | (3 | ) | |||||||||||||
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| Basic |
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| Continuing operations |
$ | 1.59 | $ | 1.13 | 41 | % | $ | 5.93 | $ | 5.74 | 3 | % | ||||||||||||
| Discontinued operations |
0.02 | (0.01 | ) | — | (0.42 | ) | (0.03 | ) | — | |||||||||||||||
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| Total |
$ | 1.61 | $ | 1.12 | 44 | $ | 5.51 | $ | 5.71 | (4 | ) | |||||||||||||
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| Weighted average common shares |
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| Diluted |
235 | 237 | (1 | )% | 233 | 239 | (3 | )% | ||||||||||||||||
| Basic |
230 | 231 | — | 229 | 235 | (3 | ) | |||||||||||||||||
| (1) | Cost of sales for the fourth quarter and fiscal year 2014 includes charges of $125 million and $311 million and, for the fourth quarter and fiscal year 2013 includes charges of $8 million and $13 million, which were recorded in our Distribution Solutions segment related to our last-in-first-out (“LIFO”) method of accounting for inventories. Cost of sales for the 2014 fourth quarter also includes a $50 million charge associated with the reversal of a step-up to fair value of Celesio AG’s (“Celesio”) inventory at the date of acquisition. |
| (2) | Represent charges for the Average Wholesale Price (“AWP”) litigation. |
| (3) | 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. |
| (4) | Represents $191 million pre tax ($139 million after tax) impairment charge related to equity investment in Nadro S.A. de C.V. (“Nadro”), a pharmaceutical distributor in Mexico. |
| (5) | Income tax expense for fiscal year 2014 includes a charge of $122 million relating to our litigation with the Canadian Revenue Agency. |
| (6) | Represents our International Technology and Hospital Automation businesses in our Technology Solutions segment and certain small businesses in our Distribution Solutions segment. The amounts are fully attributable to McKesson Corporation. For fiscal year 2014, loss from discontinued operations, net, includes an $80 million pre-tax and after-tax impairment charge related to our International Technology business. |
| (7) | Primarily represents the noncontrolling shareholders’ portion of net loss from Celesio, our majority owned subsidiary, acquired in the fourth quarter of fiscal year 2014. |
| (8) | Certain computations may reflect rounding adjustments. |
Schedule 2A
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
| Quarter Ended March 31, 2014 | Change Vs. Prior Quarter |
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| 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) |
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| Revenues |
$ | 38,141 | $ | — | $ | — | $ | — | $ | — | $ | 38,141 | 25 | % | 25 | % | ||||||||||||||||
| Gross profit (1) |
$ | 2,540 | $ | (4 | ) | $ | — | $ | — | $ | 125 | $ | 2,661 | 30 | 35 | |||||||||||||||||
| Operating expenses |
(1,984 | ) | 112 | 89 | — | — | (1,783 | ) | 51 | 50 | ||||||||||||||||||||||
| Other income, net |
25 | — | 1 | — | — | 26 | 317 | 333 | ||||||||||||||||||||||||
| Interest expense |
(116 | ) | — | 36 | — | — | (80 | ) | 66 | 33 | ||||||||||||||||||||||
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| Income from continuing operations before income taxes |
465 | 108 | 126 | — | 125 | 824 | 19 | 53 | ||||||||||||||||||||||||
| Income tax expense |
(103 | ) | (35 | ) | (36 | ) | — | (48 | ) | (222 | ) | (19 | ) | 18 | ||||||||||||||||||
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| Income from continuing operations after tax |
362 | 73 | 90 | — | 77 | 602 | 38 | 72 | ||||||||||||||||||||||||
| Loss (Income) from continuing operations, net of tax, attributable to noncontrolling interests (2) |
5 | (7 | ) | (2 | ) | — | — | (4 | ) | — | — | |||||||||||||||||||||
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| Income from continuing operations, net of tax, attributable to McKesson Corporation |
$ | 367 | $ | 66 | $ | 88 | $ | — | $ | 77 | $ | 598 | 40 | 70 | ||||||||||||||||||
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| Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (3) |
$ | 1.56 | $ | 0.28 | $ | 0.38 | $ | — | $ | 0.33 | $ | 2.55 | 41 | % | 72 | % | ||||||||||||||||
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| Diluted weighted average common shares |
235 | 235 | 235 | — | 235 | 235 | (1 | )% | (1 | )% | ||||||||||||||||||||||
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| Quarter Ended March 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) |
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| Revenues |
$ | 30,516 | $ | — | $ | — | $ | — | $ | — | $ | 30,516 | ||||||||||||||||||||
| Gross profit |
$ | 1,959 | $ | 4 | $ | — | $ | — | $ | 8 | $ | 1,971 | ||||||||||||||||||||
| Operating expenses |
(1,314 | ) | 58 | 57 | 12 | — | (1,187 | ) | ||||||||||||||||||||||||
| Other income, net |
6 | — | — | — | — | 6 | ||||||||||||||||||||||||||
| Impairment of an equity investment (4) |
(191 | ) | — | — | — | — | (191 | ) | ||||||||||||||||||||||||
| Interest expense |
(70 | ) | — | 10 | — | — | (60 | ) | ||||||||||||||||||||||||
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| Income from continuing operations before income taxes |
390 | 62 | 67 | 12 | 8 | 539 | ||||||||||||||||||||||||||
| Income tax expense |
(127 | ) | (21 | ) | (33 | ) | (4 | ) | (3 | ) | (188 | ) | ||||||||||||||||||||
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| Income from continuing operations after tax |
263 | 41 | 34 | 8 | 5 | 351 | ||||||||||||||||||||||||||
| Income from continuing operations, net of tax, attributable to noncontrolling interests |
— | — | — | — | — | — | ||||||||||||||||||||||||||
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| Income from continuing operations, net of tax, attributable to McKesson Corporation |
$ | 263 | $ | 41 | $ | 34 | $ | 8 | $ | 5 | $ | 351 | ||||||||||||||||||||
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| Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (3) |
$ | 1.11 | $ | 0.17 | $ | 0.14 | $ | 0.04 | $ | 0.02 | $ | 1.48 | ||||||||||||||||||||
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| Diluted weighted average common shares |
237 | 237 | 237 | 237 | 237 | 237 | ||||||||||||||||||||||||||
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| (1) | For the fourth quarter of fiscal year 2014 gross profit includes a $50 million charge associated with the reversal of a step-up to fair value of Celesio’s inventory at the date of acquisition. |
| (2) | Primarily represents the noncontrolling shareholders’ portion of loss 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. |
| (4) | Represents $191 million pre tax ($139 million after tax) impairment charge related to equity investment in Nadro, a pharmaceutical distributor in Mexico. |
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.
Schedule 2B
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
| Year Ended March 31, 2014 | Change Vs. Prior Period |
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| 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) |
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| Revenues |
$ | 137,609 | $ | — | $ | — | $ | — | $ | — | $ | 137,609 | 13 | % | 13 | % | ||||||||||||||||
| Gross profit (1) |
$ | 8,309 | $ | 11 | $ | 3 | $ | — | $ | 311 | $ | 8,634 | 21 | 26 | ||||||||||||||||||
| Operating expenses |
(5,942 | ) | 308 | 155 | 68 | — | (5,411 | ) | 31 | 27 | ||||||||||||||||||||||
| Other income, net |
32 | — | 14 | — | — | 46 | (6 | ) | 35 | |||||||||||||||||||||||
| Interest expense |
(303 | ) | — | 46 | — | — | (257 | ) | 26 | 12 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Income from continuing operations before income taxes |
2,096 | 319 | 218 | 68 | 311 | 3,012 | 9 | 35 | ||||||||||||||||||||||||
| Income tax expense (2) |
(742 | ) | (114 | ) | (69 | ) | (15 | ) | (121 | ) | (1,061 | ) | 28 | 53 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Income from continuing operations after tax |
1,354 | 205 | 149 | 53 | 190 | 1,951 | 1 | 28 | ||||||||||||||||||||||||
| Loss (Income) from continuing operations, net of tax, attributable to noncontrolling interests (3) |
5 | (7 | ) | (2 | ) | — | — | (4 | ) | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Income from continuing operations, net of tax, attributable to McKesson Corporation |
$ | 1,359 | $ | 198 | $ | 147 | $ | 53 | $ | 190 | $ | 1,947 | 1 | 27 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (4) |
$ | 5.83 | $ | 0.85 | $ | 0.63 | $ | 0.23 | $ | 0.81 | $ | 8.35 | 4 | % | 31 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Diluted weighted average common shares |
233 | 233 | 233 | 233 | 233 | 233 | (3 | )% | (3 | )% | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Year Ended March 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 |
$ | 122,069 | $ | — | $ | — | $ | — | $ | — | $ | 122,069 | ||||||||||||||||||||
| Gross profit |
$ | 6,848 | $ | 13 | $ | — | $ | — | $ | 13 | $ | 6,874 | ||||||||||||||||||||
| Operating expenses (5) |
(4,523 | ) | 196 | (10 | ) | 72 | — | (4,265 | ) | |||||||||||||||||||||||
| Other income, net |
34 | — | — | — | — | 34 | ||||||||||||||||||||||||||
| Impairment of an equity investment (6) |
(191 | ) | — | — | — | — | (191 | ) | ||||||||||||||||||||||||
| Interest expense |
(240 | ) | — | 11 | — | — | (229 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Income from continuing operations before income taxes |
1,928 | 209 | 1 | 72 | 13 | 2,223 | ||||||||||||||||||||||||||
| Income tax expense |
(581 | ) | (76 | ) | (6 | ) | (27 | ) | (5 | ) | (695 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Income from continuing operations after tax |
1,347 | 133 | (5 | ) | 45 | 8 | 1,528 | |||||||||||||||||||||||||
| Income from continuing operations, net of tax, attributable to noncontrolling interests |
— | — | — | — | — | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Income from continuing operations, net of tax, attributable to McKesson Corporation |
$ | 1,347 | $ | 133 | $ | (5 | ) | $ | 45 | $ | 8 | $ | 1,528 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (4) |
$ | 5.62 | $ | 0.56 | $ | (0.02 | ) | $ | 0.19 | $ | 0.03 | $ | 6.38 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Diluted weighted average common shares |
239 | 239 | 239 | 239 | 239 | 239 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| (1) | Fiscal year 2014 gross profit includes a $50 million charge associated with the reversal of a step-up to fair value of Celesio’s inventory at the date of acquisition. |
| (2) | Income tax expense includes a charge of $122 million for fiscal year 2014 relating to our litigation with the Canadian Revenue Agency. |
| (3) | Primarily represents the noncontrolling shareholders’ portion of loss from continuing operations from Celesio, our majority owned subsidiary, acquired in the fourth quarter of fiscal year 2014. |
| (4) | Certain computations may reflect rounding adjustments. |
| (5) | For fiscal year 2013 operating expenses, as reported under GAAP, include an $81 million pre-tax ($51 million after-tax) gain on business combination related to the acquisition of the remaining 50% ownership interest in our corporate headquarters building. |
| (6) | Represents $191 million pre tax ($139 million after tax) impairment charge related to equity investment in Nadro, a pharmaceutical distributor in Mexico. |
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.
Schedule 3A
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
| Quarter Ended March 31, 2014 | Quarter Ended March 31, 2013 | Change | ||||||||||||||||||||||||||||||
| As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjusted Earnings (Non-GAAP) |
|||||||||||||||||||||||||
| REVENUES |
||||||||||||||||||||||||||||||||
| Distribution Solutions |
||||||||||||||||||||||||||||||||
| North America pharmaceutical distribution & services |
$ | 31,122 | $ | — | $ | 31,122 | $ | 28,638 | $ | — | $ | 28,638 | 9 | % | 9 | % | ||||||||||||||||
| International pharmaceutical distribution & services |
4,848 | — | 4,848 | — | — | — | — | — | ||||||||||||||||||||||||
| Medical-Surgical distribution & services |
1,362 | — | 1,362 | 1,061 | — | 1,061 | 28 | 28 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Distribution Solutions |
37,332 | — | 37,332 | 29,699 | — | 29,699 | 26 | 26 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Technology Solutions - Products and Services |
809 | — | 809 | 817 | — | 817 | (1 | ) | (1 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Revenues |
$ | 38,141 | $ | — | $ | 38,141 | $ | 30,516 | $ | — | $ | 30,516 | 25 | 25 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| GROSS PROFIT |
||||||||||||||||||||||||||||||||
| Distribution Solutions (1) |
$ | 2,125 | $ | 125 | $ | 2,250 | $ | 1,594 | $ | 8 | $ | 1,602 | 33 | 40 | ||||||||||||||||||
| Technology Solutions |
415 | (4 | ) | 411 | 365 | 4 | 369 | 14 | 11 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Gross profit |
$ | 2,540 | $ | 121 | $ | 2,661 | $ | 1,959 | $ | 12 | $ | 1,971 | 30 | 35 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| OPERATING EXPENSES |
||||||||||||||||||||||||||||||||
| Distribution Solutions |
$ | (1,536 | ) | $ | 175 | $ | (1,361 | ) | $ | (856 | ) | $ | 92 | $ | (764 | ) | 79 | 78 | ||||||||||||||
| Technology Solutions |
(299 | ) | 17 | (282 | ) | (332 | ) | 17 | (315 | ) | (10 | ) | (10 | ) | ||||||||||||||||||
| Corporate |
(149 | ) | 9 | (140 | ) | (126 | ) | 18 | (108 | ) | 18 | 30 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Operating expenses |
$ | (1,984 | ) | $ | 201 | $ | (1,783 | ) | $ | (1,314 | ) | $ | 127 | $ | (1,187 | ) | 51 | 50 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| OTHER INCOME, NET |
||||||||||||||||||||||||||||||||
| Distribution Solutions |
$ | 16 | $ | — | $ | 16 | $ | 2 | $ | — | $ | 2 | 700 | 700 | ||||||||||||||||||
| Technology Solutions |
2 | — | 2 | 1 | — | 1 | 100 | 100 | ||||||||||||||||||||||||
| Corporate |
7 | 1 | 8 | 3 | — | 3 | 133 | 167 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Other income, net |
$ | 25 | $ | 1 | $ | 26 | $ | 6 | $ | — | $ | 6 | 317 | 333 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| IMPAIRMENT OF AN EQUITY INVESTMENT |
||||||||||||||||||||||||||||||||
| Distribution Solutions (2) |
$ | — | $ | — | $ | — | $ | (191 | ) | $ | — | $ | (191 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Impairment of an equity investment |
$ | — | $ | — | $ | — | $ | (191 | ) | $ | — | $ | (191 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| OPERATING PROFIT |
||||||||||||||||||||||||||||||||
| Distribution Solutions (1) |
$ | 605 | $ | 300 | $ | 905 | $ | 549 | $ | 100 | $ | 649 | 10 | 39 | ||||||||||||||||||
| Technology Solutions |
118 | 13 | 131 | 34 | 21 | 55 | 247 | 138 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Operating profit |
723 | 313 | 1,036 | 583 | 121 | 704 | 24 | 47 | ||||||||||||||||||||||||
| Corporate |
(142 | ) | 10 | (132 | ) | (123 | ) | 18 | (105 | ) | 15 | 26 | ||||||||||||||||||||
| Interest Expense |
(116 | ) | 36 | (80 | ) | (70 | ) | 10 | (60 | ) | 66 | 33 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Income from continuing operations before income taxes (3) |
$ | 465 | $ | 359 | $ | 824 | $ | 390 | $ | 149 | $ | 539 | 19 | 53 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| STATISTICS |
||||||||||||||||||||||||||||||||
| Operating profit as a % of revenues |
||||||||||||||||||||||||||||||||
| Distribution Solutions (1) |
1.62 | % | 2.42 | % | 1.85 | % | 2.19 | % | (23 | ) bp | 23 | bp | ||||||||||||||||||||
| Technology Solutions |
14.59 | 16.19 | 4.16 | 6.73 | 1,043 | 946 | ||||||||||||||||||||||||||
| (1) | For the fourth quarters of fiscal years 2014 and 2013, results, as reported under GAAP, include LIFO charges of $125 million and $8 million. The results of 2014 fourth quarter also includes a $50 million charge associated with the reversal of a step-up to fair value of Celesio’s inventory at the date of acquisition. |
| (2) | Represents $191 million pre tax ($139 million after tax) impairment charge related to equity investment in Nadro, a pharmaceutical distributor in Mexico. |
| (3) | For the fourth quarter of fiscal 2014, the amount is prior to attributing net loss of Celesio to the shareholders of noncontrolling interests. |
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.
Schedule 3B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
| Year Ended March 31, 2014 | Year Ended March 31, 2013 | Change | ||||||||||||||||||||||||||||||
| As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjusted Earnings (Non-GAAP) |
|||||||||||||||||||||||||
| REVENUES |
||||||||||||||||||||||||||||||||
| Distribution Solutions |
||||||||||||||||||||||||||||||||
| North America pharmaceutical distribution & services |
$ | 123,930 | $ | — | $ | 123,930 | $ | 115,443 | $ | — | $ | 115,443 | 7 | % | 7 | % | ||||||||||||||||
| International pharmaceutical distribution & services |
4,848 | — | 4,848 | — | — | — | — | — | ||||||||||||||||||||||||
| Medical-Surgical distribution & services |
5,648 | — | 5,648 | 3,603 | — | 3,603 | 57 | 57 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total Distribution Solutions |
134,426 | — | 134,426 | 119,046 | — | 119,046 | 13 | 13 | ||||||||||||||||||||||||
| Technology Solutions - Products and Services |
3,183 | — | 3,183 | 3,023 | — | 3,023 | 5 | 5 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Revenues |
$ | 137,609 | $ | — | $ | 137,609 | $ | 122,069 | $ | — | $ | 122,069 | 13 | 13 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| GROSS PROFIT |
||||||||||||||||||||||||||||||||
| Distribution Solutions (1) |
$ | 6,767 | $ | 312 | $ | 7,079 | $ | 5,435 | $ | 15 | $ | 5,450 | 25 | 30 | ||||||||||||||||||
| Technology Solutions |
1,542 | 13 | 1,555 | 1,413 | 11 | 1,424 | 9 | 9 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Gross profit |
$ | 8,309 | $ | 325 | $ | 8,634 | $ | 6,848 | $ | 26 | $ | 6,874 | 21 | 26 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| OPERATING EXPENSES |
||||||||||||||||||||||||||||||||
| Distribution Solutions (2) |
$ | (4,335 | ) | $ | 442 | $ | (3,893 | ) | $ | (3,068 | ) | $ | 265 | $ | (2,803 | ) | 41 | 39 | ||||||||||||||
| Technology Solutions |
(1,156 | ) | 67 | (1,089 | ) | (1,109 | ) | 56 | (1,053 | ) | 4 | 3 | ||||||||||||||||||||
| Corporate (3) |
(451 | ) | 22 | (429 | ) | (346 | ) | (63 | ) | (409 | ) | 30 | 5 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Operating expenses |
$ | (5,942 | ) | $ | 531 | $ | (5,411 | ) | $ | (4,523 | ) | $ | 258 | $ | (4,265 | ) | 31 | 27 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| OTHER INCOME, NET |
||||||||||||||||||||||||||||||||
| Distribution Solutions |
$ | 29 | $ | — | $ | 29 | $ | 19 | $ | — | $ | 19 | 53 | 53 | ||||||||||||||||||
| Technology Solutions |
1 | — | 1 | 4 | — | 4 | (75 | ) | (75 | ) | ||||||||||||||||||||||
| Corporate |
2 | 14 | 16 | 11 | — | 11 | (82 | ) | 45 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Other income, net |
$ | 32 | $ | 14 | $ | 46 | $ | 34 | $ | — | $ | 34 | (6 | ) | 35 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| IMPAIRMENT OF AN EQUITY INVESTMENT |
||||||||||||||||||||||||||||||||
| Distribution Solutions (4) |
$ | — | $ | — | $ | — | $ | (191 | ) | $ | — | $ | (191 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Impairment of an equity investment |
$ | — | $ | — | $ | — | $ | (191 | ) | $ | — | $ | (191 | ) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| OPERATING PROFIT |
||||||||||||||||||||||||||||||||
| Distribution Solutions (1) (2) |
$ | 2,461 | $ | 754 | $ | 3,215 | $ | 2,195 | $ | 280 | $ | 2,475 | 12 | 30 | ||||||||||||||||||
| Technology Solutions |
387 | 80 | 467 | 308 | 67 | 375 | 26 | 25 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Operating profit |
2,848 | 834 | 3,682 | 2,503 | 347 | 2,850 | 14 | 29 | ||||||||||||||||||||||||
| Corporate (3) |
(449 | ) | 36 | (413 | ) | (335 | ) | (63 | ) | (398 | ) | 34 | 4 | |||||||||||||||||||
| Interest Expense |
(303 | ) | 46 | (257 | ) | (240 | ) | 11 | (229 | ) | 26 | 12 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Income from continuing operations before income taxes (5) |
$ | 2,096 | $ | 916 | $ | 3,012 | $ | 1,928 | $ | 295 | $ | 2,223 | 9 | 35 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| STATISTICS |
||||||||||||||||||||||||||||||||
| Operating profit as a % of revenues |
||||||||||||||||||||||||||||||||
| Distribution Solutions |
1.83 | % | 2.39 | % | 1.84 | % | 2.08 | % | (1 | ) bp | 31 | bp | ||||||||||||||||||||
| Technology Solutions |
12.16 | 14.67 | 10.19 | 12.40 | 197 | 227 | ||||||||||||||||||||||||||
| (1) | For fiscal years 2014 and 2013, results, as reported under GAAP, include LIFO charges of $311 million and $13 million. The results of 2014 fourth quarter also includes a $50 million charge associated with the reversal of a step-up to fair value of Celesio’s inventory at the date of acquisition. |
| (2) | Results for fiscal years 2014 and 2013, as reported under GAAP, include AWP litigation charges of $68 million and $72 million. Results for fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business. |
| (3) | 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. |
| (4) | Represents $191 million pre tax ($139 million after tax) impairment charge related to equity investment in Nadro, a pharmaceutical distributor in Mexico. |
| (5) | For the fourth quarter of fiscal 2014, the amount is prior to attributing net loss of Celesio to the shareholders of noncontrolling interests. |
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.
Schedule 4A
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
| Quarter Ended March 31, 2014 | Quarter Ended March 31, 2013 | |||||||||||||||||||||||||||||||
| Distribution Solutions |
Technology Solutions |
Corporate & Interest Expense |
Total | Distribution Solutions |
Technology Solutions |
Corporate & Interest Expense |
Total | |||||||||||||||||||||||||
| As Reported (GAAP): |
||||||||||||||||||||||||||||||||
| Revenues |
$ | 37,332 | $ | 809 | $ | — | $ | 38,141 | $ | 29,699 | $ | 817 | $ | — | $ | 30,516 | ||||||||||||||||
| Gross profit (1) |
$ | 2,125 | $ | 415 | $ | — | $ | 2,540 | $ | 1,594 | $ | 365 | $ | — | $ | 1,959 | ||||||||||||||||
| Operating expenses |
(1,536 | ) | (299 | ) | (149 | ) | (1,984 | ) | (856 | ) | (332 | ) | (126 | ) | (1,314 | ) | ||||||||||||||||
| Other income, net |
16 | 2 | 7 | 25 | 2 | 1 | 3 | 6 | ||||||||||||||||||||||||
| Impairment of an equity investment (2) |
— | — | — | — | (191 | ) | — | — | (191 | ) | ||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Income from continuing operations before interest expense and income taxes |
605 | 118 | (142 | ) | 581 | 549 | 34 | (123 | ) | 460 | ||||||||||||||||||||||
| Interest expense |
— | — | (116 | ) | (116 | ) | — | — | (70 | ) | (70 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Income from continuing operations before income taxes (3) |
$ | 605 | $ | 118 | $ | (258 | ) | $ | 465 | $ | 549 | $ | 34 | $ | (193 | ) | $ | 390 | ||||||||||||||
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|
|
|
|
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|
|
|
|
|
|
|
|||||||||||||||||
| Pre-Tax Adjustments: |
||||||||||||||||||||||||||||||||
| Gross profit |
$ | — | $ | (4 | ) | $ | — | $ | (4 | ) | $ | — | $ | 4 | $ | — | $ | 4 | ||||||||||||||
| Operating expenses |
94 | 17 | 1 | 112 | 43 | 14 | 1 | 58 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Amortization of acquisition-related intangibles |
94 | 13 | 1 | 108 | 43 | 18 | 1 | 62 | ||||||||||||||||||||||||
| Operating expenses |
81 | — | 8 | 89 | 37 | 3 | 17 | 57 | ||||||||||||||||||||||||
| Other income, net |
— | — | 1 | 1 | — | — | — | — | ||||||||||||||||||||||||
| Interest expense |
(1 | ) | — | 37 | 36 | — | — | 10 | 10 | |||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Acquisition expenses and related adjustments |
80 | — | 46 | 126 | 37 | 3 | 27 | 67 | ||||||||||||||||||||||||
| Operating expenses - Litigation reserve adjustments |
— | — | — | — | 12 | — | — | 12 | ||||||||||||||||||||||||
| Gross profit - LIFO-related adjustments |
125 | — | — | 125 | 8 | — | — | 8 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total pre-tax adjustments |
$ | 299 | $ | 13 | $ | 47 | $ | 359 | $ | 100 | $ | 21 | $ | 28 | $ | 149 | ||||||||||||||||
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|
|
|
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|
|
|
|
|||||||||||||||||
| Adjusted Earnings (Non-GAAP): |
||||||||||||||||||||||||||||||||
| Revenues |
$ | 37,332 | $ | 809 | $ | — | $ | 38,141 | $ | 29,699 | $ | 817 | $ | — | $ | 30,516 | ||||||||||||||||
| Gross profit |
$ | 2,250 | $ | 411 | $ | — | $ | 2,661 | $ | 1,602 | $ | 369 | $ | — | $ | 1,971 | ||||||||||||||||
| Operating expenses |
(1,361 | ) | (282 | ) | (140 | ) | (1,783 | ) | (764 | ) | (315 | ) | (108 | ) | (1,187 | ) | ||||||||||||||||
| Other income, net |
16 | 2 | 8 | 26 | 2 | 1 | 3 | 6 | ||||||||||||||||||||||||
| Impairment of an equity investment (2) |
— | — | — | — | (191 | ) | — | — | (191 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Income from continuing operations before interest expense and income taxes |
905 | 131 | (132 | ) | 904 | 649 | 55 | (105 | ) | 599 | ||||||||||||||||||||||
| Interest expense |
(1 | ) | — | (79 | ) | (80 | ) | — | — | (60 | ) | (60 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Income from continuing operations before income taxes (3) |
$ | 904 | $ | 131 | $ | (211 | ) | $ | 824 | $ | 649 | $ | 55 | $ | (165 | ) | $ | 539 | ||||||||||||||
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|
|
|
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|
|||||||||||||||||
| (1) | Fiscal year 2014 gross profit includes a $50 million charge associated with the reversal of a step-up to fair value of Celesio’s inventory at the date of acquisition. |
| (2) | Represents $191 million pre tax ($139 million after tax) impairment charge related to equity investment in Nadro, a pharmaceutical distributor in Mexico. |
| (3) | For the fourth quarter of fiscal 2014, the amount is prior to attributing net loss of Celesio to the shareholders of noncontrolling interests. |
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.
Schedule 4B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
| Year Ended March 31, 2014 | Year Ended March 31, 2013 | |||||||||||||||||||||||||||||||
| Distribution Solutions |
Technology Solutions |
Corporate & Interest Expense |
Total | Distribution Solutions |
Technology Solutions |
Corporate & Interest Expense |
Total | |||||||||||||||||||||||||
| As Reported (GAAP): |
||||||||||||||||||||||||||||||||
| Revenues |
$ | 134,426 | $ | 3,183 | $ | — | $ | 137,609 | $ | 119,046 | $ | 3,023 | $ | — | $ | 122,069 | ||||||||||||||||
| Gross profit (1) |
$ | 6,767 | $ | 1,542 | $ | — | $ | 8,309 | $ | 5,435 | $ | 1,413 | $ | — | $ | 6,848 | ||||||||||||||||
| Operating expenses (2) |
(4,335 | ) | (1,156 | ) | (451 | ) | (5,942 | ) | (3,068 | ) | (1,109 | ) | (346 | ) | (4,523 | ) | ||||||||||||||||
| Other income, net |
29 | 1 | 2 | 32 | 19 | 4 | 11 | 34 | ||||||||||||||||||||||||
| Impairment of an equity investment (3) |
— | — | — | — | (191 | ) | — | — | (191 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Income from continuing operations before interest expense and income taxes |
2,461 | 387 | (449 | ) | 2,399 | 2,195 | 308 | (335 | ) | 2,168 | ||||||||||||||||||||||
| Interest expense |
(1 | ) | — | (302 | ) | (303 | ) | — | — | (240 | ) | (240 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Income from continuing operations before income taxes (4) |
$ | 2,460 | $ | 387 | $ | (751 | ) | $ | 2,096 | $ | 2,195 | $ | 308 | $ | (575 | ) | $ | 1,928 | ||||||||||||||
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|||||||||||||||||
| Pre-Tax Adjustments: |
||||||||||||||||||||||||||||||||
| Gross profit |
$ | 1 | $ | 10 | $ | — | $ | 11 | $ | 2 | $ | 11 | $ | — | $ | 13 | ||||||||||||||||
| Operating expenses |
255 | 52 | 1 | 308 | 146 | 49 | 1 | 196 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Amortization of acquisition-related intangibles |
256 | 62 | 1 | 319 | 148 | 60 | 1 | 209 | ||||||||||||||||||||||||
| Gross profit |
— | 3 | — | 3 | — | — | — | — | ||||||||||||||||||||||||
| Operating expenses |
119 | 15 | 21 | 155 | 47 | 7 | (64 | ) | (10 | ) | ||||||||||||||||||||||
| Other income, net |
— | — | 14 | 14 | — | — | — | — | ||||||||||||||||||||||||
| Interest expense |
— | — | 46 | 46 | — | — | 11 | 11 | ||||||||||||||||||||||||
| Acquisition expenses and related adjustments |
119 | 18 | 81 | 218 | 47 | 7 | (53 | ) | 1 | |||||||||||||||||||||||
| Operating expenses - Litigation reserve adjustments |
68 | — | — | 68 | 72 | — | — | 72 | ||||||||||||||||||||||||
| Gross profit - LIFO-related adjustments |
311 | — | — | 311 | 13 | — | — | 13 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total pre-tax adjustments |
$ | 754 | $ | 80 | $ | 82 | $ | 916 | $ | 280 | $ | 67 | $ | (52 | ) | $ | 295 | |||||||||||||||
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|||||||||||||||||
| Adjusted Earnings (Non-GAAP): |
||||||||||||||||||||||||||||||||
| Revenues |
$ | 134,426 | $ | 3,183 | $ | — | $ | 137,609 | $ | 119,046 | $ | 3,023 | $ | — | $ | 122,069 | ||||||||||||||||
| Gross profit |
$ | 7,079 | $ | 1,555 | $ | — | $ | 8,634 | $ | 5,450 | $ | 1,424 | $ | — | $ | 6,874 | ||||||||||||||||
| Operating expenses (2) |
(3,893 | ) | (1,089 | ) | (429 | ) | (5,411 | ) | (2,803 | ) | (1,053 | ) | (409 | ) | (4,265 | ) | ||||||||||||||||
| Other income, net |
29 | 1 | 16 | 46 | 19 | 4 | 11 | 34 | ||||||||||||||||||||||||
| Impairment of an equity investment (3) |
— | — | — | — | (191 | ) | — | — | (191 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Income from continuing operations before interest expense and income taxes |
3,215 | 467 | (413 | ) | 3,269 | 2,475 | 375 | (398 | ) | 2,452 | ||||||||||||||||||||||
| Interest expense |
(1 | ) | — | (256 | ) | (257 | ) | — | — | (229 | ) | (229 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Income from continuing operations before income taxes (4) |
$ | 3,214 | $ | 467 | $ | (669 | ) | $ | 3,012 | $ | 2,475 | $ | 375 | $ | (627 | ) | $ | 2,223 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (1) | Fiscal year 2014 gross profit includes a $50 million charge associated with the reversal of a step-up to fair value of Celesio’s inventory at the date of acquisition. |
| (2) | 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. |
| (3) | Represents $191 million pre tax ($139 million after tax) impairment charge related to equity investment in Nadro, a pharmaceutical distributor in Mexico. |
| (4) | For the fourth quarter of fiscal 2014, the amount is prior to attributing net loss of 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
(In millions)
(unaudited)
| March 31, 2014 |
March 31, 2013 |
|||||||
| ASSETS |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 4,193 | $ | 2,456 | ||||
| Receivables, net |
14,193 | 9,975 | ||||||
| Inventories, net |
13,308 | 10,335 | ||||||
| Prepaid expenses and other |
879 | 404 | ||||||
|
|
|
|
|
|||||
| Total Current Assets |
32,573 | 23,170 | ||||||
| Property, Plant and Equipment, Net |
2,222 | 1,321 | ||||||
| Goodwill |
9,927 | 6,405 | ||||||
| Intangible Assets, Net |
5,022 | 2,270 | ||||||
| Other Assets |
2,015 | 1,620 | ||||||
|
|
|
|
|
|||||
| Total Assets |
$ | 51,759 | $ | 34,786 | ||||
|
|
|
|
|
|||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current Liabilities |
||||||||
| Drafts and accounts payable |
$ | 21,429 | $ | 16,108 | ||||
| Short-term borrowings |
346 | — | ||||||
| Deferred revenue |
1,236 | 1,359 | ||||||
| Deferred tax liabilities |
1,588 | 1,626 | ||||||
| Current portion of long-term debt |
1,424 | 352 | ||||||
| Other accrued liabilities |
3,478 | 1,912 | ||||||
|
|
|
|
|
|||||
| Total Current Liabilities |
29,501 | 21,357 | ||||||
| Long-Term Debt |
8,949 | 4,521 | ||||||
| Other Noncurrent Liabilities |
2,991 | 1,838 | ||||||
| McKesson Corporation Stockholders’ Equity |
8,522 | 7,070 | ||||||
| Noncontrolling Interests |
1,796 | — | ||||||
|
|
|
|
|
|||||
| Total Equity |
10,318 | 7,070 | ||||||
|
|
|
|
|
|||||
| Total Liabilities and Equity |
$ | 51,759 | $ | 34,786 | ||||
|
|
|
|
|
|||||
Schedule 6
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
| Year Ended March 31, | ||||||||
| 2014 | 2013 | |||||||
| OPERATING ACTIVITIES |
||||||||
| Net income |
$ | 1,258 | $ | 1,338 | ||||
| Adjustments to reconcile to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
704 | 530 | ||||||
| Other deferred taxes |
16 | 608 | ||||||
| Share-based compensation expense |
160 | 167 | ||||||
| Gain on business combination |
— | (81 | ) | |||||
| Impairment of Equity Investment |
— | 191 | ||||||
| LIFO charges |
311 | 13 | ||||||
| Other non-cash items |
130 | 90 | ||||||
| Changes in operating assets and liabilities, net of acquisitions: |
||||||||
| Receivables |
(885 | ) | 315 | |||||
| Inventories |
(1,201 | ) | (60 | ) | ||||
| Drafts and accounts payable |
2,412 | (127 | ) | |||||
| Deferred revenue |
(36 | ) | (1 | ) | ||||
| Taxes |
218 | (86 | ) | |||||
| Litigation charges |
68 | 72 | ||||||
| Litigation settlement payments |
(105 | ) | (483 | ) | ||||
| Other |
86 | (3 | ) | |||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
3,136 | 2,483 | ||||||
|
|
|
|
|
|||||
| INVESTING ACTIVITIES |
||||||||
| Property acquisitions |
(274 | ) | (232 | ) | ||||
| Capitalized software expenditures |
(141 | ) | (153 | ) | ||||
| Acquisitions, less cash and cash equivalents acquired |
(4,634 | ) | (1,873 | ) | ||||
| Proceeds from sale of business and equity investment |
97 | — | ||||||
| Other |
(94 | ) | 49 | |||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(5,046 | ) | (2,209 | ) | ||||
|
|
|
|
|
|||||
| FINANCING ACTIVITIES |
||||||||
| Proceeds from short-term borrowings |
6,145 | 2,225 | ||||||
| Repayments of short-term borrowings |
(6,122 | ) | (2,625 | ) | ||||
| Proceeds from issuances of long-term debt |
4,114 | 1,798 | ||||||
| Repayments of long-term debt |
(356 | ) | (1,143 | ) | ||||
| Common stock transactions: |
||||||||
| Issuances |
177 | 166 | ||||||
| Share repurchases, including shares surrendered for tax withholding |
(130 | ) | (1,214 | ) | ||||
| Dividends paid |
(214 | ) | (194 | ) | ||||
| Other |
5 | 31 | ||||||
|
|
|
|
|
|||||
| Net cash provided by (used in) financing activities |
3,619 | (956 | ) | |||||
|
|
|
|
|
|||||
| Effect of exchange rate changes on cash and cash equivalents |
28 | (11 | ) | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
1,737 | (693 | ) | |||||
| Cash and cash equivalents at beginning of period |
2,456 | 3,149 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents at end of period |
$ | 4,193 | $ | 2,456 | ||||
|
|
|
|
|
|||||
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.