• 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.
    Thursday, July 31, 2014 4:30 am PDT

    Dateline:

    SAN FRANCISCO

    Public Company Information:

    NYSE:
    MCK
    "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"

    SAN FRANCISCO--(BUSINESS WIRE)--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 %

    Contact:

    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

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