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McKesson Reports Fiscal 2012 Second-Quarter Results

10/25/2011
  • Revenues of $30.2 billion for the second quarter, up 10%.
  • Second-quarter GAAP earnings per diluted share of $1.18.
  • Second-quarter Adjusted Earnings per diluted share of $1.63, up 48%.
  • Fiscal 2012 Outlook: Adjusted Earnings of $6.19 to $6.39 per diluted share.

SAN FRANCISCO--(BUSINESS WIRE)--McKesson Corporation (NYSE: MCK) today reported that revenues for the second quarter ended September 30, 2011 were up 10% to $30.2 billion compared to $27.5 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), second-quarter earnings per diluted share was $1.18 compared to $1.25 a year ago.

Second-quarter GAAP results included a pre-tax, non-cash charge of $118 million ($77 million after-tax or 31 cents per diluted share). McKesson has reached an agreement in the matter known as Douglas County to settle the public entity claims brought by a nationwide class of cities and counties relating to First DataBank’s published drug reimbursement benchmarks, commonly referred to as Average Wholesale Prices (“AWPs”), for $82 million. The settlement agreement included an express denial of any liability on the part of the company. Based on a combination of the Douglas County settlement and progress made toward potentially resolving other public entity claims, the company increased its AWP reserve of $324 million by $118 million to bring the total reserve for AWP public entity claims to $442 million. Last year’s second-quarter GAAP results also included a pre-tax AWP litigation charge of $24 million ($16 million after-tax or six cents per diluted share).

McKesson separately reports financial results on the basis of Adjusted Earnings in addition to GAAP. Adjusted Earnings is a non-GAAP financial measure defined as GAAP earnings from continuing operations, excluding acquisition-related expenses, amortization of acquisition-related intangible assets, and certain litigation reserve adjustments. A reconciliation of McKesson’s financial results determined in accordance with GAAP to Adjusted Earnings is provided in Schedules 2, 3 and 4 of the financial statement tables included with this release. Second-quarter Adjusted Earnings per diluted share was $1.63 compared to $1.10 a year ago.

For the first half of the fiscal year, McKesson generated cash from operations of $1.4 billion and ended the quarter with cash and cash equivalents of $3.9 billion. During the first half of the fiscal year, the company deployed $191 million for acquisitions, repurchased $650 million of common stock, and paid $97 million in dividends.

“I am pleased with McKesson’s second-quarter operating results, with strong execution from both Distribution Solutions and Technology Solutions driving earnings growth,” said John H. Hammergren, chairman and chief executive officer. “Based on the momentum from our first-half results, we are raising our previous outlook for the fiscal year and now expect Adjusted Earnings between $6.19 and $6.39 per diluted share for the fiscal year ending March 31, 2012.”

Distribution Solutions revenues were up 10% in the second quarter, driven mainly by strong growth in U.S. pharmaceutical direct distribution and services revenues, reflecting market growth and our mix of business, as well as the acquisition of US Oncology.

Canadian revenues, on a constant currency basis, were up 2% for the quarter due to market growth, partially offset by the impact of government imposed price reductions on generic drugs. Including a favorable currency impact of 6%, Canadian revenues increased 8% for the quarter. Medical-Surgical distribution revenues were up 13% for the quarter, mainly due to five additional days of sales in the quarter.

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

Distribution Solutions GAAP operating profit was $477 million for the quarter and the GAAP operating margin was 1.62%. Adjusted operating profit was $635 million for the quarter and the adjusted operating margin was 2.16%.

In Technology Solutions, revenues were up 7% for the quarter. GAAP operating profit in the second quarter was $108 million and the GAAP operating margin was 13.09%. Adjusted operating profit in the second quarter was $126 million and the adjusted operating margin was 15.27%. Technology Solutions performance was aided by solid progress on achieving certain customer implementation milestones. In last year’s second quarter, Technology Solutions results included a non-cash, pre-tax asset impairment charge of $72 million.

Fiscal Year 2012 Outlook

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

  • Amortization of acquisition-related intangible assets of approximately 46 cents per diluted share in Fiscal 2012.
  • Acquisition-related expenses of approximately seven cents per diluted share in Fiscal 2012.
  • Litigation reserve adjustments of 31 cents per diluted share.

Risk Factors

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

The company has scheduled a conference call for 5 PM ET. The dial-in number for individuals wishing to participate on the call is 719-234-7317. Ana Schrank, vice president, Investor Relations, is the leader of the call, and the password to join the call is ‘McKesson’. A replay of this conference call will be available for five calendar days. The dial-in number for individuals wishing to listen to the replay is 888-203-1112 and the passcode is 6764061. A webcast of the conference call will also be available live and archived on the company’s Investor Relations website at www.mckesson.com/investors.

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

About McKesson

McKesson Corporation, currently ranked 15th on the FORTUNE 500, is a healthcare services and information technology company dedicated to making the business of healthcare run better. We partner with payers, hospitals, physician offices, pharmacies, pharmaceutical companies and others across the spectrum of care to build healthier organizations that deliver better care to patients in every setting. McKesson helps its customers improve their financial, operational, and clinical performance with solutions that include pharmaceutical and medical-surgical supply management, healthcare information technology, and business and clinical services. For more information, visit http://www.mckesson.com.

 
 

Schedule 1

 

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP

(unaudited)
(in millions, except per share amounts)
 
  Quarter Ended September 30,   Six Months Ended September 30,  
 
   

2011

 

2010

Change

2011

 

2010

Change
 
Revenues $ 30,216 $ 27,534 10 % $ 60,196 $ 54,984 9 %
 
Cost of sales (1)   28,569     26,168   9   57,040     52,226   9
 
Gross profit 1,647 1,366 21 3,156 2,758 14
 
Operating expenses 1,051 925 14 2,088 1,843 13
Litigation charges (2)   118     24   392   118     24   392
Total operating expenses   1,169     949   23   2,206     1,867   18
 
Operating income 478 417 15 950 891 7
 
Other income, net 6 3 100 14 12 17
Interest expense   (64 )   (44 ) 45   (128 ) (87 ) 47
 
Income from continuing operations before income taxes 420 376 12 836 816 2
 
Income tax expense   (124 )   (121 ) 2   (254 )   (263 ) (3 )
 
Income from continuing operations 296 255 16 582 553 5
 
Discontinued operation - gain on sale, net of tax (3)   -     72   -   -     72   -
 
Net income $ 296   $ 327   (9 ) $ 582   $ 625   (7 )
 
Earnings per common share (4)
Diluted
Continuing operations $ 1.18 $ 0.97 22 % $ 2.31 $ 2.07 12 %
Discontinued operation - gain on sale   -     0.28   -   -     0.27   -

Total

$ 1.18   $ 1.25   (6 ) $ 2.31   $ 2.34   (1 )
 
Basic
Continuing operations $ 1.20 $ 0.99 21 % $ 2.35 $ 2.11 11 %
Discontinued operation - gain on sale   -     0.28   -   -     0.28   -

Total

$ 1.20   $ 1.27   (6 ) $ 2.35   $ 2.39   (2 )
 
Shares on which earnings per common share were based
Diluted 250 262 (5 ) % 252 267 (6 ) %
Basic 246 258 (5 ) 247 262 (6 )
 

(1)

Cost of sales for fiscal year 2011 includes an asset impairment charge of $72 million in our Technology Solutions segment for capitalized software held for sale and for the first six months of fiscal year 2011 includes a credit of $51 million in our Distribution Solutions segment representing our share of a settlement of an antitrust class action lawsuit brought against a drug manufacturer.

 

(2)

Operating expenses includes charges for the Average Wholesale Price ("AWP") litigation.

 

(3)

In fiscal year 2011 we sold a Technology Solutions business for $109 million of net sales proceeds. The after-tax gain on sale of $72 million has been recorded as a discontinued operation. Financial operating results for this business were immaterial.

 

(4)

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 September 30, 2011    

Change
Vs. Prior Quarter

As Reported
(GAAP)

 

Amortization
of Acquisition-
Related
Intangibles

 

Acquisition-
Related
Expenses

 

Litigation
Reserve
Adjustments

 

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

 

Adjusted
Earnings
(Non-GAAP)

         
Revenues $ 30,216 $ - $ - $ - $ 30,216 10 % 10 %
 
Gross profit $ 1,647 $ 6 $ - $ - $ 1,653 21 21
Operating expenses (1,169 ) 44 8 118 (999 ) 23 11
Other income, net 6 - - - 6 100 100
Interest expense   (64 )     -       -       -       (64 ) 45 45
Income from continuing operations before income taxes 420 50 8 118 596 12 39
Income tax expense   (124 )     (20 )     (3 )     (41 )     (188 ) 2 34
Income from continuing operations $ 296     $ 30     $ 5     $ 77     $ 408   16 42
 

Diluted earnings per common share
from continuing operations (1)

$ 1.18     $ 0.12     $ 0.02     $ 0.31     $ 1.63   22 % 48 %
Diluted weighted average shares   250       250       250       250       250   (5 ) % (5 ) %
 
 
Quarter Ended September 30, 2010

As Reported
(GAAP)

 

Amortization
of Acquisition-
Related
Intangibles

 

Acquisition-
Related
Expenses

 

Litigation
Reserve
Adjustments

 

Adjusted
Earnings
(Non-GAAP)

 
Revenues $ 27,534

 

$ - $ - $ - $ 27,534
 
Gross profit $ 1,366

 

$ 4 $ - $ - $ 1,370
Operating expenses (949 ) 24 - 24 (901 )
Other income, net 3 - - - 3
Interest expense   (44 )     -       -       -       (44 )
Income from continuing operations before income taxes 376 28 - 24 428
Income tax expense   (121 )     (11 )     -       (8 )     (140 )
Income from continuing operations $ 255     $ 17     $ -     $ 16     $ 288  
 

Diluted earnings per common share
from continuing operations (1)

$ 0.97     $ 0.06     $ -     $ 0.06     $ 1.10  
Diluted weighted average shares   262       262           262       262  
(1) Certain computations may reflect rounding adjustments.

Adjusted Earnings (Non-GAAP) Financial Information

Adjusted Earnings represents income from continuing operations, excluding the effects of the following items from the Company’s GAAP financial results, including the related income tax effects:

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

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

Litigation reserve adjustments - Adjustments to the Company’s reserves for estimated probable losses for its Average Wholesale Price and Securities Litigation matters, as such terms were defined in the Company’s Annual Reports on Form 10-K for the fiscal years ended March 31, 2011 and 2009, respectively.

Income taxes on Adjusted Earnings are calculated in accordance with Accounting Standards Codification 740, “Income Taxes,” which is the same accounting principles used by the Company when presenting its GAAP financial results.

The Company believes the presentation of non-GAAP measures such as Adjusted Earnings provides useful supplemental information to investors with regard to its core operating performance, as well as assists with the comparison of its past financial performance to the Company’s future financial results. Moreover, the Company believes that the presentation of Adjusted Earnings assists investors’ ability to compare its financial results to those of other companies in the same industry. However, the Company's Adjusted Earnings measure may be defined and calculated differently by other companies in the same industry.

The Company internally uses non-GAAP financial measures such as Adjusted Earnings in connection with its own financial planning and reporting processes. Specifically, Adjusted Earnings serves as one of the measures management utilizes when allocating resources, deploying capital and assessing business performance and employee incentive compensation. Nonetheless, non-GAAP financial results and related measures disclosed by the Company should not be considered a substitute for, nor superior to, financial results and measures as determined or calculated in accordance with GAAP.

 

Schedule 2B

 
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
 

 

    Six Months Ended September 30, 2011

Change
Vs. Prior Period

As Reported
(GAAP)

 

Amortization
of Acquisition-
Related
Intangibles

 

Acquisition-
Related
Expenses

 

Litigation
Reserve
Adjustments

 

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

 

Adjusted
Earnings
(Non-GAAP)

         
Revenues $ 60,196 $ - $ - $ - $ 60,196 9 % 9 %
 
Gross profit $ 3,156 $ 11 $ - $ - $ 3,167 14 14
Operating expenses (2,206 ) 87 18 118 (1,983 ) 18 10
Other income, net 14 - - - 14 17 17
Interest expense   (128 )     -       -       -       (128 ) 47 47
Income from continuing operations before income taxes 836 98 18 118 1,070 2 19
Income tax expense   (254 )     (38 )     (6 )     (41 )     (339 ) (3 ) 16
Income from continuing operations $ 582     $ 60     $ 12     $ 77     $ 731   5 21

 

Diluted earnings per common share
from continuing operations (1)

$ 2.31     $ 0.24     $ 0.04     $ 0.31     $ 2.90   12 % 28 %
Diluted weighted average shares   252       252       252       252       252   (6 ) % (6 ) %
 
 
Six Months Ended September 30, 2010

As Reported
(GAAP)

 

Amortization
of Acquisition-
Related
Intangibles

 

Acquisition-
Related
Expenses

 

Litigation
Reserve
Adjustments

 

Adjusted
Earnings
(Non-GAAP)

 
Revenues $ 54,984

 

$ - $ - $ - $ 54,984
 
Gross profit $ 2,758

 

$ 8 $ - $ - $ 2,766
Operating expenses (1,867 ) 48 - 24 (1,795 )
Other income, net 12 - - - 12
Interest expense   (87 )     -       -       -       (87 )
Income from continuing operations before income taxes 816 56 - 24 896
Income tax expense   (263 )     (22 )     -       (8 )     (293 )
Income from continuing operations $ 553     $ 34     $ -     $ 16     $ 603  
 

 

Diluted earnings per common share
from continuing operations (1)

$ 2.07     $ 0.13     $ -     $ 0.06     $ 2.26  
Diluted weighted average shares   267       267           267       267  
(1) Certain computations may reflect rounding adjustments.

Schedule 3A

 
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
 
      Quarter Ended September 30, 2011  

Quarter Ended September 30, 2010

  Change

As
Reported
(GAAP)

 

Adjust.

 

Adjusted
Earnings
(Non-
GAAP)

As
Reported
(GAAP)

 

Adjust.

 

Adjusted
Earnings
(Non-
GAAP)

As
Reported
(GAAP)

Adjusted
Earnings

(Non-
GAAP)

REVENUES    
Distribution Solutions
Direct distribution & services $ 21,072 $ - $ 21,072 $ 18,984 $ - $ 18,984 11

%

 

11 %
Sales to customers' warehouses   4,909       -     4,909     4,659       -     4,659   5 5

 

Total U.S. pharmaceutical distribution
& services

25,981 - 25,981 23,643 - 23,643 10 10
Canada pharmaceutical distribution & services 2,537 - 2,537 2,351 - 2,351 8 8
Medical-Surgical distribution & services   873       -     873     770       -     770   13 13
Total Distribution Solutions   29,391       -     29,391     26,764       -     26,764   10 10
 
Technology Solutions
Services 643 - 643 604 - 604 6 6
Software & software systems 153 - 153 138 - 138 11 11
Hardware   29       -     29     28       -     28   4 4
Total Technology Solutions   825       -     825     770       -     770   7 7
Revenues $ 30,216     $ -   $ 30,216   $ 27,534     $ -   $ 27,534   10 10
 
GROSS PROFIT
Distribution Solutions $ 1,258 $ 1 $ 1,259 $ 1,090 $ - $ 1,090 15 16
Technology Solutions (1)   389       5     394     276       4     280   41 41
Gross profit $ 1,647     $ 6   $ 1,653   $ 1,366     $ 4   $ 1,370   21 21
 
OPERATING EXPENSES
Distribution Solutions $ (785 ) $ 157 $ (628 ) $ (598 ) $ 37 $ (561 ) 31 12
Technology Solutions (281 ) 13 (268 ) (263 ) 11 (252 ) 7 6
Corporate   (103 )     -     (103 )   (88 )     -     (88 ) 17 17
Operating expenses $ (1,169 )   $ 170   $ (999 ) $ (949 )   $ 48   $ (901 ) 23 11
 
OTHER INCOME (EXPENSE), NET
Distribution Solutions $ 4 $ - $ 4 $ (1 ) $ - $ (1 ) - -
Technology Solutions - - - 1 - 1 (100 ) (100 )
Corporate   2       -     2     3       -     3   (33 ) (33 )
Other income, net $ 6     $ -   $ 6   $ 3     $ -   $ 3   100 100
 
OPERATING PROFIT
Distribution Solutions $ 477 $ 158 $ 635 $ 491 $ 37 $ 528 (3 ) 20
Technology Solutions (1)   108       18     126     14       15     29   671 334
Operating profit 585 176 761 505 52 557 16 37
Corporate   (101 )     -     (101 )   (85 )     -     (85 ) 19 19

 

Income from continuing operations before
interest expense and income taxes

$ 484     $ 176   $ 660   $ 420     $ 52   $ 472   15 40
 
STATISTICS
Operating profit as a % of revenues
Distribution Solutions 1.62 % 2.16

%

 

1.83 % 1.97

%

 

(21 ) bp 19 bp
Technology Solutions (1) 13.09 15.27 1.82 3.77 1,127 1,150
(1) Results for fiscal year 2011 include a $72 million asset impairment charge for capitalized software held for sale.
 

Schedule 3B

 
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
 
      Six Months Ended September 30, 2011   Six Months Ended September 30, 2010   Change
 

As
Reported
(GAAP)

 

 

Adjust.

   

Adjusted
Earnings
(Non-
GAAP)

 

As
Reported
(GAAP)

 

 

Adjust.

   

Adjusted
Earnings
(Non-
GAAP)

As
Reported
(GAAP)

Adjusted
Earnings
(Non-
GAAP)

REVENUES    
Distribution Solutions
Direct distribution & services $ 41,899 $ - $ 41,899 $ 37,686 $ - $ 37,686 11 % 11 %
Sales to customers' warehouses   9,800       -     9,800     9,402       -     9,402   4 4

 

Total U.S. pharmaceutical distribution
& services

51,699 - 51,699 47,088 - 47,088 10 10
Canada pharmaceutical distribution & services 5,266 - 5,266 4,911 - 4,911 7 7
Medical-Surgical distribution & services   1,604       -     1,604     1,456       -     1,456   10 10
Total Distribution Solutions   58,569       -     58,569     53,455       -     53,455   10 10
 
Technology Solutions
Services 1,273 - 1,273 1,199 - 1,199 6 6
Software & software systems 297 - 297 273 - 273 9 9
Hardware   57       -     57     57       -     57   - -
Total Technology Solutions   1,627       -     1,627     1,529       -     1,529   6 6
Revenues $ 60,196     $ -   $ 60,196   $ 54,984     $ -   $ 54,984   9 9
 
GROSS PROFIT
Distribution Solutions (1) $ 2,389 $ 1 $ 2,390 $ 2,157 $ - $ 2,157 11 11
Technology Solutions (2)   767       10     777     601       8     609   28 28
Gross profit $ 3,156     $ 11   $ 3,167   $ 2,758     $ 8   $ 2,766   14 14
 
OPERATING EXPENSES
Distribution Solutions $ (1,446 ) $ 196 $ (1,250 ) $ (1,166 ) $ 49 $ (1,117 ) 24 12
Technology Solutions (560 ) 27 (533 ) (525 ) 23 (502 ) 7 6
Corporate   (200 )     -     (200 )   (176 )     -     (176 ) 14 14
Operating expenses $ (2,206 )   $ 223   $ (1,983 ) $ (1,867 )   $ 72   $ (1,795 ) 18 10
 
OTHER INCOME, NET
Distribution Solutions $ 9 $ - $ 9 $ 5 $ - $ 5 80 80
Technology Solutions 1 - 1 2 - 2 (50 ) (50 )
Corporate   4       -     4     5       -     5   (20 ) (20 )
Other income, net $ 14     $ -   $ 14   $ 12     $ -   $ 12   17 17
 
OPERATING PROFIT
Distribution Solutions (1) $ 952 $ 197 $ 1,149 $ 996 $ 49 $ 1,045 (4 ) 10
Technology Solutions (2)   208       37     245     78       31     109   167 125
Operating profit 1,160 234 1,394 1,074 80 1,154 8 21
Corporate   (196 )     -     (196 )   (171 )     -     (171 ) 15 15

 

Income from continuing operations before
interest expense and income taxes

$ 964     $ 234   $ 1,198   $ 903     $ 80   $ 983   7 22
 
STATISTICS
Operating profit as a % of revenues
Distribution Solutions 1.63 % 1.96

%

 

1.86 % 1.95

%

 

(23 ) bp 1 bp
Technology Solutions (1) 12.78 15.06 5.10 7.13 768 793
 
(1) Results for the first six months of fiscal year 2011 includes a credit of $51 million representing our share of a settlement of an antitrust class action lawsuit brought against a drug manufacturer.
 
(2) Results for fiscal year 2011 include a $72 million asset impairment charge for capitalized software held for sale.
 
 

Schedule 4A

 
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
 
 
  Quarter Ended September 30, 2011     Quarter Ended September 30, 2010

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

As Reported (GAAP):

         
Revenues $ 29,391 $ 825 $ - $ 30,216 $ 26,764 $ 770 $ - $ 27,534
 
Gross profit $ 1,258 $ 389 $ - $ 1,647 $ 1,090 $ 276 $ - $ 1,366
Operating expenses (785 ) (281 ) (103 ) (1,169 ) (598 ) (263 ) (88 ) (949 )
Other income (expense), net   4       -       2       6     (1 )     1       3       3  

Income from continuing operations before interest
expense and income taxes

477 108 (101 ) 484 491 14 (85 ) 420
Interest income (expense), net   1       1       (66 )     (64 )   -       -       (44 )     (44 )
Income from continuing operations before income taxes $ 478     $ 109     $ (167 )   $ 420   $ 491     $ 14     $ (129 )   $ 376  
 

Pre-Tax Adjustments:

Gross profit $ 1 $ 5 $ - $ 6 $ - $ 4 $ - $ 4
Operating expenses   31       13       -       44     13       11       -       24  

Amortization of acquisition-related intangibles

32 18 - 50 13 15 - 28
 
Operating expenses - Acquisition-related expenses 8 - - 8 - - - -
 
Operating expenses - Litigation reserve adjustments 118 - - 118 24 - - 24
                           
Total pre-tax adjustments $ 158     $ 18     $ -     $ 176   $ 37     $ 15     $ -     $ 52  
 

Adjusted Earnings (Non-GAAP):

Revenues $ 29,391 $ 825 $ - $ 30,216 $ 26,764 $ 770 $ - $ 27,534
 
Gross profit $ 1,259 $ 394 $ - $ 1,653 $ 1,090 $ 280 $ - $ 1,370
Operating expenses (628 ) (268 ) (103 ) (999 ) (561 ) (252 ) (88 ) (901 )
Other income (expense), net   4       -       2       6     (1 )     1       3       3  

Income from continuing operations before interest
expense and income taxes

635 126 (101 ) 660 528 29 (85 ) 472
Interest income (expense), net   1       1       (66 )     (64 )   -       -       (44 )     (44 )
Income from continuing operations before income taxes $ 636     $ 127     $ (167 )   $ 596   $ 528     $ 29     $ (129 )   $ 428  
 

Schedule 4B

 
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
 
 
  Six Months Ended September 30, 2011     Six Months Ended September 30, 2010

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

Distribution
Solutions

 

Technology
Solutions

 

Corporate
& Interest
Expense

  Total

As Reported (GAAP):

         
Revenues $ 58,569 $ 1,627 $ - $ 60,196 $ 53,455 $ 1,529 $ - $ 54,984
 
Gross profit $ 2,389 $ 767 $ - $ 3,156 $ 2,157 $ 601 $ - $ 2,758
Operating expenses (1,446 ) (560 ) (200 ) (2,206 ) (1,166 ) (525 ) (176 ) (1,867 )
Other income, net   9       1       4       14     5       2       5       12  

Income from continuing operations before interest
expense and income taxes

952 208 (196 ) 964 996 78 (171 ) 903
Interest expense   -       -       (128 )     (128 )   -       -       (87 )     (87 )
Income from continuing operations before income taxes $ 952     $ 208     $ (324 )   $ 836   $ 996     $ 78     $ (258 )   $ 816  
 

Pre-Tax Adjustments:

Gross profit $ 1 $ 10 $ - $ 11 $ - $ 8 $ - $ 8
Operating expenses   62       25       -       87     25       23       -       48  

Amortization of acquisition-related intangibles

63 35 - 98 25 31 - 56
 
Operating expenses - Acquisition-related expenses 16 2 - 18 - - - -
 
Operating expenses - Litigation reserve adjustments 118 - - 118 24 - - 24
                           
Total pre-tax adjustments $ 197     $ 37     $ -     $ 234   $ 49     $ 31     $ -     $ 80  
 

Adjusted Earnings (Non-GAAP):

Revenues $ 58,569 $ 1,627 $ - $ 60,196 $ 53,455 $ 1,529 $ - $ 54,984
 
Gross profit $ 2,390 $ 777 $ - $ 3,167 $ 2,157 $ 609 $ - $ 2,766
Operating expenses (1,250 ) (533 ) (200 ) (1,983 ) (1,117 ) (502 ) (176 ) (1,795 )
Other income, net   9       1       4       14     5       2       5       12  

Income from continuing operations before interest
expense and income taxes

1,149 245 (196 ) 1,198 1,045 109 (171 ) 983
Interest expense   -       -       (128 )     (128 )   -       -       (87 )     (87 )
Income from continuing operations before income taxes $ 1,149     $ 245     $ (324 )   $ 1,070   $ 1,045     $ 109     $ (258 )   $ 896  

Schedule 5

           
McKESSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions)
 
September 30,
2011
March 31,
2011
 
ASSETS
Current Assets
Cash and cash equivalents $ 3,943 $ 3,612
Receivables, net 9,525 9,187
Inventories, net 9,426 9,225
Prepaid expenses and other   368   333
Total Current Assets 23,262 22,357
Property, Plant and Equipment, Net 1,006 991
Goodwill 4,487 4,364
Intangible Assets, Net 1,383 1,456
Other Assets   1,769   1,718
Total Assets $ 31,907 $ 30,886
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Drafts and accounts payable $ 14,895 $ 14,090
Deferred revenue 1,528 1,321
Deferred tax liabilities 1,028 1,037
Current portion of long-term debt 414 417
Other accrued liabilities   1,980   1,861
Total Current Liabilities 19,845 18,726
Long-Term Debt 3,578 3,587
Other Noncurrent Liabilities 1,368 1,353
Stockholders' Equity   7,116   7,220
Total Liabilities and Stockholders' Equity $ 31,907 $ 30,886
 

Schedule 6

   
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
Six Months Ended September 30,
2011 2010
 
 
OPERATING ACTIVITIES
Net income $   582 $ 625
Discontinued operation – gain on sale, net of tax - (72 )
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 271 238
Asset impairment charge - capitalized software held for sale - 72
Share-based compensation expense 78 66
Other non-cash items 52 81
Changes in operating assets and liabilities, net of business acquisition:
Receivables (435 ) (145 )
Inventories (269 ) 662
Drafts and accounts payable 880 (417 )
Deferred revenue 191 (178 )
Litigation charges 118 24
Deferred tax benefit on litigation charges (41 ) (8 )
Other     (32 )   (150 )
Net cash provided by operating activities     1,395     798  
 
INVESTING ACTIVITIES
Property acquisitions (126 ) (107 )
Capitalized software expenditures (101 ) (75 )
Acquisitions of businesses, less cash and cash equivalents acquired (191 ) (34 )
Proceeds from sale of business - 109
Other     69     12  
Net cash used in investing activities     (349 )   (95 )
 
FINANCING ACTIVITIES
Repayments of debt (17 ) -
Common stock repurchases, including shares surrendered for tax withholding (672 ) (1,547 )
Common stock Issuances 82 194
Dividends paid (97 ) (80 )
Other     19     57  
Net cash used in financing activities     (685 )   (1,376 )
Effect of exchange rate changes on cash and cash equivalents     (30 )   (8 )
Net increase (decrease) in cash and cash equivalents 331 (681 )
Cash and cash equivalents at beginning of period     3,612     3,731  
Cash and cash equivalents at end of period $   3,943   $ 3,050  

Contact:

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

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