Financial News

SAN FRANCISCO--(BUSINESS WIRE)--McKesson Corporation (NYSE: MCK) today reported that revenues for the third quarter ended December 31, 2012 were $31.2 billion, up 1% compared to $30.8 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), third-quarter earnings per diluted share was $1.24 compared to $1.20 a year ago.

Third-quarter Adjusted Earnings per diluted share was $1.41, up 1% compared to $1.40 a year ago.

For the first nine months of the fiscal year, McKesson generated cash from operations of $276 million, and ended the quarter with cash and cash equivalents of $2.7 billion. During the first nine months of the fiscal year, the company paid $147 million in dividends, had internal capital spending of $268 million and spent $577 million on acquisitions. The company also repurchased $360 million of its common stock during the third quarter.

Distribution Solutions revenues were up 1% in the third quarter, driven mainly by growth in our U.S. pharmaceutical direct distribution and services business and growth in our Medical-Surgical distribution business.

Canadian revenues, on a constant currency basis, increased 3% for the third quarter. Including the favorable currency impact of 3%, Canadian revenues increased 6% for the third quarter.

Medical-Surgical distribution and services revenues were up 15% for the third quarter, driven by market growth, new customers, acquisitions and one additional sales day.

In the third quarter, Distribution Solutions GAAP operating profit was $525 million and GAAP operating margin was 1.73%. Third-quarter adjusted operating profit was $569 million and the adjusted operating margin was 1.87%. Distribution Solutions third-quarter segment results include a $40 million pre-tax charge related to a legal dispute in our Canadian business.

Technology Solutions revenues were flat in the third quarter compared to the prior year. GAAP operating profit was $79 million for the third quarter and GAAP operating margin was 9.56%. Adjusted operating profit was $98 million for the third quarter and adjusted operating margin was 11.86%. Technology Solutions third-quarter segment results were impacted by revenue deferral in our international business.

“Our full year view of the operating performance in our Distribution Solutions segment is now better than our original expectations, and our full year view of the operating performance in the primary businesses in Technology Solution remains unchanged,” said John H. Hammergren, chairman and chief executive officer. “This operating strength is offset by the charge in our Canadian business and revenue deferral in our international technology business, and as a result we are updating our previous outlook for the fiscal year and now expect Adjusted Earnings per diluted share of $7.10 to $7.30 for the fiscal year ending March 31, 2013.”

Fiscal Year 2013 Outlook

McKesson expects Adjusted Earnings per diluted share of $7.10 to $7.30 for the fiscal year ending March 31, 2013, which excludes the following GAAP items:

• Amortization of acquisition-related intangible assets of approximately 55 cents per diluted share in Fiscal 2013.
• Acquisition expenses and related adjustments expected to add approximately 13 cents per diluted share, including the impact of the $81 million pre-tax gain on business combination related to the acquisition of the remaining 50% ownership in McKesson’s corporate headquarters building completed during the first quarter.
• Litigation reserve adjustments of approximately 15 cents 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, 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.

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, failure or breach 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 5:00 PM ET. The dial-in number for individuals wishing to participate on the call is 719-234-7317. Erin Lampert, 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 pass code is 8164902. 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 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.

																						Schedule 1
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP
(unaudited)
(in millions, except per share amounts)
				Quarter Ended December 31,													Nine Months Ended December 31,
				2012				2011				Change					2012				2011				Change
Revenues				$	31,187			$	30,839			1		%			$	91,835			$	91,035			1		%
Cost of sales (1) (3)					(29,519	)			(29,273	)		1						(86,847	)			(86,313	)		1
Gross profit					1,668				1,566			7						4,988				4,722			6
Operating expenses (2) (3)					(1,183	)			(1,047	)		13						(3,334	)			(3,135	)		6
Litigation charges (4)					-				(27	)		-						(60	)			(145	)		(59	)
Gain on business combination (5)					-				-			-						81				-			-
Total operating expenses					(1,183	)			(1,074	)		10						(3,313	)			(3,280	)		1
Operating income					485				492			(1	)					1,675				1,442			16
Other income (expense), net					10				(2	)		-						28				12			133
Interest expense					(59	)			(64	)		(8	)					(170	)			(192	)		(11	)
Income before income taxes					436				426			2						1,533				1,262			21
Income tax expense					(138	)			(126	)		10						(454	)			(380	)		19
Net income				$	298			$	300			(1	)				$	1,079			$	882			22
Earnings per common share (6)
Diluted				$	1.24			$	1.20			3		%			$	4.49			$	3.51			28		%
Basic				$	1.27			$	1.22			4		%			$	4.58			$	3.57			28		%
Weighted average common shares
Diluted					240				251			(4	)	%				240				252			(5	)	%
Basic					235				246			(4	)					236				247			(4	)

(1)		Cost of sales for the third quarter and first nine months of fiscal year 2013 includes the receipt of $8 million and $27 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
(2)		Distribution Solutions segment operating expenses for the third quarter and first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
(3)		Technology Solutions segment results for the third quarter and first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
(4)		Represent charges for the Average Wholesale Price ("AWP") litigation.
(5)		For the first nine months of 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.
(6)		Certain computations may reflect rounding adjustments.

																								Schedule 2A
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
																								Change
				Quarter Ended December 31, 2012																				Vs. Prior Quarter
				As Reported (GAAP)				Amortization of Acquisition- Related Intangibles				Acquisition Expenses and Related Adjustments				Litigation Reserve Adjustments				Adjusted Earnings (Non-GAAP)				As Reported (GAAP)			Adjusted Earnings (Non-GAAP)
Revenues				$	31,187			$	-			$	-			$	-			$	31,187			1		%	1		%
Gross profit (1)				$	1,668			$	3			$	-			$	-			$	1,671			7			6
Operating expenses (2)					(1,183	)			50				10				-				(1,123	)		10			13
Other income (expense), net					10				-				-				-				10			-			-
Interest expense					(59	)			-				1				-				(58	)		(8	)		(9	)
Income before income taxes					436				53				11				-				500			2			(2	)
Income tax expense					(138	)			(20	)			(2	)			-				(160	)		10			1
Net Income				$	298			$	33			$	9			$	-			$	340			(1	)		(3	)
Diluted earnings per common share (4)				$	1.24			$	0.14			$	0.03			$	-			$	1.41			3		%	1		%
Diluted weighted average common shares					240				240				240				240				240			(4	)	%	(4	)	%
				Quarter Ended December 31, 2011
				As Reported (GAAP)				Amortization of Acquisition- Related Intangibles				Acquisition Expenses and Related Adjustments				Litigation Reserve Adjustments				Adjusted Earnings (Non-GAAP)
Revenues				$	30,839			$	-			$	-			$	-			$	30,839
Gross profit (3)				$	1,566			$	5			$	-			$	-			$	1,571
Operating expenses (3)					(1,074	)			44				8				27				(995	)
Other income (expense), net					(2	)			-				-				-				(2	)
Interest expense					(64	)			-				-				-				(64	)
Income before income taxes					426				49				8				27				510
Income tax expense					(126	)			(18	)			(3	)			(12	)			(159	)
Net Income				$	300			$	31			$	5			$	15			$	351
Diluted earnings per common share (4)				$	1.20			$	0.12			$	0.02			$	0.06			$	1.40
Diluted weighted average common shares					251				251				251				251				251

(1)		Gross profit for the third quarter of fiscal year 2013 includes the receipt of $8 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
(2)		Distribution Solutions segment operating expenses for the third quarter of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
(3)		Technology Solutions segment results for the third quarter of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
(4)		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 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, 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 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, 2012 and 2009.

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

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

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

																								Schedule 2B
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
																								Change
				Nine Months Ended December 31, 2012																				Vs. Prior Period
				As Reported (GAAP)				Amortization of Acquisition- Related Intangibles				Acquisition Expenses and Related Adjustments				Litigation Reserve Adjustments				Adjusted Earnings (Non-GAAP)				As Reported (GAAP)			Adjusted Earnings (Non-GAAP)
Revenues				$	91,835			$	-			$	-			$	-			$	91,835			1		%	1		%
Gross profit (1)				$	4,988			$	11			$	-			$	-			$	4,999			6			6
Operating expenses (2) (3)					(3,313	)			141				(66	)			60				(3,178	)		1			7
Other income, net					28				-				-				-				28			133			133
Interest expense					(170	)			-				1				-				(169	)		(11	)		(12	)
Income before income taxes					1,533				152				(65	)			60				1,680			21			6
Income tax expense					(454	)			(57	)			27				(23	)			(507	)		19			2
Net Income				$	1,079			$	95			$	(38	)		$	37			$	1,173			22			8
Diluted earnings per common share (5)				$	4.49			$	0.40			$	(0.16	)		$	0.15			$	4.88			28		%	13		%
Diluted weighted average common shares					240				240				240				240				240			(5	)	%	(5	)	%
				Nine Months Ended December 31, 2011
				As Reported (GAAP)				Amortization of Acquisition- Related Intangibles				Acquisition Expenses and Related Adjustments				Litigation Reserve Adjustments				Adjusted Earnings (Non-GAAP)
Revenues				$	91,035			$	-			$	-			$	-			$	91,035
Gross profit (4)				$	4,722			$	16			$	-			$	-			$	4,738
Operating expenses (4)					(3,280	)			131				26				145				(2,978	)
Other income, net					12				-				-				-				12
Interest expense					(192	)			-				-				-				(192	)
Income before income taxes					1,262				147				26				145				1,580
Income tax expense					(380	)			(56	)			(9	)			(53	)			(498	)
Net Income				$	882			$	91			$	17			$	92			$	1,082
Diluted earnings per common share (5)				$	3.51			$	0.36			$	0.06			$	0.37			$	4.30
Diluted weighted average common shares					252				252				252				252				252

(1)		Gross profit for the first nine months of fiscal year 2013 includes the receipt of $27 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
(2)		Distribution Solutions segment operating expenses for the first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
(3)		For the first nine months of 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.
(4)		Technology Solutions segment results for the first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
(5)		Certain computations may reflect rounding adjustments.

																						Schedule 3A
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
				Quarter Ended December 31, 2012													Quarter Ended December 31, 2011													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
Direct distribution & services				$	22,386			$	-			$	22,386				$	21,585			$	-			$	21,585				4		%		4		%
Sales to customers' warehouses					4,468				-				4,468					5,198				-				5,198				(14	)			(14	)
Total U.S. pharmaceutical distribution & services					26,854				-				26,854					26,783				-				26,783				-				-
Canada pharmaceutical distribution & services					2,633				-				2,633					2,473				-				2,473				6				6
Medical-Surgical distribution & services					874				-				874					760				-				760				15				15
Total Distribution Solutions					30,361				-				30,361					30,016				-				30,016				1				1
Technology Solutions
Services					661				-				661					643				-				643				3				3
Software & software systems					145				-				145					152				-				152				(5	)			(5	)
Hardware					20				-				20					28				-				28				(29	)			(29	)
Total Technology Solutions					826				-				826					823				-				823				-				-
Revenues				$	31,187			$	-			$	31,187				$	30,839			$	-			$	30,839				1				1
GROSS PROFIT
Distribution Solutions (1)				$	1,287			$	-			$	1,287				$	1,201			$	-			$	1,201				7				7
Technology Solutions (2)					381				3				384					365				5				370				4				4
Gross profit				$	1,668			$	3			$	1,671				$	1,566			$	5			$	1,571				7				6
OPERATING EXPENSES
Distribution Solutions (3) (4)				$	(769	)		$	44			$	(725	)			$	(690	)		$	62			$	(628	)			11				15
Technology Solutions (2)					(302	)			16				(286	)				(297	)			15				(282	)			2				1
Corporate					(112	)			-				(112	)				(87	)			2				(85	)			29				32
Operating expenses				$	(1,183	)		$	60			$	(1,123	)			$	(1,074	)		$	79			$	(995	)			10				13
OTHER INCOME (EXPENSE), NET
Distribution Solutions				$	7			$	-			$	7				$	(1	)		$	-			$	(1	)			-				-
Technology Solutions					-				-				-					1				-				1				-				-
Corporate					3				-				3					(2	)			-				(2	)			-				-
Other income (expense), net				$	10			$	-			$	10				$	(2	)		$	-			$	(2	)			-				-
OPERATING PROFIT
Distribution Solutions (1) (3) (4)				$	525			$	44			$	569				$	510			$	62			$	572				3				(1	)
Technology Solutions (2)					79				19				98					69				20				89				14				10
Operating profit					604				63				667					579				82				661				4				1
Corporate					(109	)			-				(109	)				(89	)			2				(87	)			22				25
Income before interest expense and income taxes				$	495			$	63			$	558				$	490			$	84			$	574				1				(3	)
STATISTICS
Operating profit as a % of revenues
Distribution Solutions (1) (3) (4)					1.73		%						1.87		%			1.70		%						1.91		%		3		bp		(4	)	bp
Technology Solutions (2)					9.56								11.86					8.38								10.81				118				105

(1)		Results for the third quarter of fiscal year 2013 include the receipt of $8 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
(2)		Results for the third quarter of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
(3)		Results for the third quarter of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
(4)		For the third quarter of fiscal year 2012, results, as reported under GAAP, include an AWP litigation charge of $27 million.

																														Schedule 3B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
				Nine Months Ended December 31, 2012													Nine Months Ended December 31, 2011													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
Direct distribution & services				$	64,625			$	-			$	64,625				$	63,484			$	-			$	63,484				2		%	2		%
Sales to customers' warehouses					14,621				-				14,621					14,998				-				14,998				(3	)		(3	)
Total U.S. pharmaceutical distribution & services					79,246				-				79,246					78,482				-				78,482				1			1
Canada pharmaceutical distribution & services					7,559				-				7,559					7,739				-				7,739				(2	)		(2	)
Medical-Surgical distribution & services					2,542				-				2,542					2,364				-				2,364				8			8
Total Distribution Solutions					89,347				-				89,347					88,585				-				88,585				1			1
Technology Solutions
Services					1,983				-				1,983					1,916				-				1,916				3			3
Software & software systems					432				-				432					449				-				449				(4	)		(4	)
Hardware					73				-				73					85				-				85				(14	)		(14	)
Total Technology Solutions					2,488				-				2,488					2,450				-				2,450				2			2
Revenues				$	91,835			$	-			$	91,835				$	91,035			$	-			$	91,035				1			1
GROSS PROFIT
Distribution Solutions (1)				$	3,841			$	2			$	3,843				$	3,590			$	1			$	3,591				7			7
Technology Solutions (2)					1,147				9				1,156					1,132				15				1,147				1			1
Gross profit				$	4,988			$	11			$	4,999				$	4,722			$	16			$	4,738				6			6
OPERATING EXPENSES
Distribution Solutions (3) (4)				$	(2,212	)		$	173			$	(2,039	)			$	(2,136	)		$	258			$	(1,878	)			4			9
Technology Solutions (2)					(881	)			43				(838	)				(857	)			42				(815	)			3			3
Corporate (5)					(220	)			(81	)			(301	)				(287	)			2				(285	)			(23	)		6
Operating expenses				$	(3,313	)		$	135			$	(3,178	)			$	(3,280	)		$	302			$	(2,978	)			1			7
OTHER INCOME, NET
Distribution Solutions				$	17			$	-			$	17				$	8			$	-			$	8				113			113
Technology Solutions					3				-				3					2				-				2				50			50
Corporate					8				-				8					2				-				2				300			300
Other income, net				$	28			$	-			$	28				$	12			$	-			$	12				133			133
OPERATING PROFIT
Distribution Solutions (1) (3) (4)				$	1,646			$	175			$	1,821				$	1,462			$	259			$	1,721				13			6
Technology Solutions (2)					269				52				321					277				57				334				(3	)		(4	)
Operating profit					1,915				227				2,142					1,739				316				2,055				10			4
Corporate					(212	)			(81	)			(293	)				(285	)			2				(283	)			(26	)		4
Income before interest expense and income taxes				$	1,703			$	146			$	1,849				$	1,454			$	318			$	1,772				17			4
STATISTICS
Operating profit as a % of revenues
Distribution Solutions (1) (3) (4)					1.84		%						2.04		%			1.65		%						1.94		%		19		bp	10		bp
Technology Solutions (2)					10.81								12.90					11.31								13.63				(50	)		(73	)

(1)		Results for the first nine months of fiscal year 2013 include the receipt of $27 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
(2)		Results for the first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
(3)		Results for the first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
(4)		For the first nine months of fiscal years 2013 and 2012, results, as reported under GAAP, include AWP litigation charges of $60 million and $145 million.
(5)		For the first nine months of 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.

																										Schedule 4A
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
				Quarter Ended December 31, 2012																		Quarter Ended December 31, 2011
				Distribution Solutions				Technology Solutions				Corporate & Interest Expense				Total						Distribution Solutions				Technology Solutions				Corporate & Interest Expense				Total
As Reported (GAAP):
Revenues				$	30,361			$	826			$	-			$	31,187					$	30,016			$	823			$	-			$	30,839
Gross profit (1) (2)				$	1,287			$	381			$	-			$	1,668					$	1,201			$	365			$	-			$	1,566
Operating expenses (2) (3)					(769	)			(302	)			(112	)			(1,183	)					(690	)			(297	)			(87	)			(1,074	)
Other income (expense), net					7				-				3				10						(1	)			1				(2	)			(2	)
Income before interest expense and income taxes					525				79				(109	)			495						510				69				(89	)			490
Interest expense					-				-				(59	)			(59	)					-				-				(64	)			(64	)
Income before income taxes				$	525			$	79			$	(168	)		$	436					$	510			$	69			$	(153	)		$	426
Pre-Tax Adjustments:
Gross profit				$	-			$	3			$	-			$	3					$	-			$	5			$	-			$	5
Operating expenses					37				13				-				50						31				13				-				44
Amortization of acquisition-related intangibles					37				16				-				53						31				18				-				49
Operating expenses					7				3				-				10						4				2				2				8
Interest expense					-				-				1				1						-				-				-				-
Acquisition expenses and related adjustments					7				3				1				11						4				2				2				8
Operating expenses - Litigation reserve adjustments					-				-				-				-						27				-				-				27
Total pre-tax adjustments				$	44			$	19			$	1			$	64					$	62			$	20			$	2			$	84
Adjusted Earnings (Non-GAAP):
Revenues				$	30,361			$	826			$	-			$	31,187					$	30,016			$	823			$	-			$	30,839
Gross profit (1) (2)				$	1,287			$	384			$	-			$	1,671					$	1,201			$	370			$	-			$	1,571
Operating expenses (2) (3)					(725	)			(286	)			(112	)			(1,123	)					(628	)			(282	)			(85	)			(995	)
Other income (expense), net					7				-				3				10						(1	)			1				(2	)			(2	)
Income before interest expense and income taxes					569				98				(109	)			558						572				89				(87	)			574
Interest income (expense), net					-				-				(58	)			(58	)					-				-				(64	)			(64	)
Income before income taxes				$	569			$	98			$	(167	)		$	500					$	572			$	89			$	(151	)		$	510

(1)		Gross profit for the third quarter of fiscal year 2013 includes the receipt of $8 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
(2)		Technology Solutions segment results for the third quarter of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
(3)		Distribution Solutions segment operating expenses for the third quarter of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.

																										Schedule 4B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
				Nine Months Ended December 31, 2012																		Nine Months Ended December 31, 2011
				Distribution Solutions				Technology Solutions				Corporate & Interest Expense				Total						Distribution Solutions				Technology Solutions				Corporate & Interest Expense				Total
As Reported (GAAP):
Revenues				$	89,347			$	2,488			$	-			$	91,835					$	88,585			$	2,450			$	-			$	91,035
Gross profit (1) (2)				$	3,841			$	1,147			$	-			$	4,988					$	3,590			$	1,132			$	-			$	4,722
Operating expenses (2) (3) (4)					(2,212	)			(881	)			(220	)			(3,313	)					(2,136	)			(857	)			(287	)			(3,280	)
Other income, net					17				3				8				28						8				2				2				12
Income before interest expense and income taxes					1,646				269				(212	)			1,703						1,462				277				(285	)			1,454
Interest expense					-				-				(170	)			(170	)					-				-				(192	)			(192	)
Income before income taxes				$	1,646			$	269			$	(382	)		$	1,533					$	1,462			$	277			$	(477	)		$	1,262
Pre-Tax Adjustments:
Gross profit				$	2			$	9			$	-			$	11					$	1			$	15			$	-			$	16
Operating expenses					103				38				-				141						93				38				-				131
Amortization of acquisition-related intangibles					105				47				-				152						94				53				-				147
Operating expenses					10				5				(81	)			(66	)					20				4				2				26
Interest expense					-				-				1				1						-				-				-				-
Acquisition expenses and related adjustments					10				5				(80	)			(65	)					20				4				2				26
Operating expenses - Litigation reserve adjustments					60				-				-				60						145				-				-				145
Total pre-tax adjustments				$	175			$	52			$	(80	)		$	147					$	259			$	57			$	2			$	318
Adjusted Earnings (Non-GAAP):
Revenues				$	89,347			$	2,488			$	-			$	91,835					$	88,585			$	2,450			$	-			$	91,035
Gross profit (1) (2)				$	3,843			$	1,156			$	-			$	4,999					$	3,591			$	1,147			$	-			$	4,738
Operating expenses (2) (3)					(2,039	)			(838	)			(301	)			(3,178	)					(1,878	)			(815	)			(285	)			(2,978	)
Other income, net					17				3				8				28						8				2				2				12
Income before interest expense and income taxes					1,821				321				(293	)			1,849						1,721				334				(283	)			1,772
Interest expense					-				-				(169	)			(169	)					-				-				(192	)			(192	)
Income before income taxes				$	1,821			$	321			$	(462	)		$	1,680					$	1,721			$	334			$	(475	)		$	1,580

(1)		Gross profit for the first nine months of fiscal year 2013 includes the receipt of $27 million in our Distribution Solutions segment representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers.
(2)		Technology Solutions segment results for the first nine months of fiscal year 2012 include product alignment charges of $42 million, of which $26 million was recorded in cost of sales and $16 million was recorded in operating expenses.
(3)		Distribution Solutions segment operating expenses for the first nine months of fiscal year 2013 include a $40 million charge for a legal dispute in our Canadian business.
(4)		For the first nine months of 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.

Schedule 5
McKESSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions)
				December 31,					March 31,
				2012					2012
ASSETS
Current Assets
Cash and cash equivalents				$	2,726				$	3,149
Receivables, net					9,962					9,977
Inventories, net					10,390					10,073
Prepaid expenses and other					361					404
Total Current Assets					23,439					23,603
Property, Plant and Equipment, Net					1,247					1,043
Goodwill					5,310					5,032
Intangible Assets, Net					1,799					1,750
Other Assets					1,638					1,665
Total Assets				$	33,433				$	33,093
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Drafts and accounts payable				$	15,047				$	16,114
Short-term borrowings					-					400
Deferred revenue					1,431					1,423
Deferred tax liabilities					1,519					1,092
Current portion of long-term debt					506					508
Other accrued liabilities					1,705					2,149
Total Current Liabilities					20,208					21,686
Long-Term Debt					3,973					3,072
Other Noncurrent Liabilities					1,603					1,504
Stockholders' Equity					7,649					6,831
Total Liabilities and Stockholders' Equity				$	33,433				$	33,093

Schedule 6
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
				Nine Months Ended December 31,
				2012				2011
OPERATING ACTIVITIES
Net income				$	1,079			$	882
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization					428				408
Other deferred taxes					499				(15)
Share-based compensation expense					123				113
Gain on business combination					(81)				-
Other non-cash items					53				75
Changes in operating assets and liabilities, net of acquisitions:
Receivables					57				(575)
Inventories					(313)				(1,200)
Drafts and accounts payable					(1,081)				1,636
Deferred revenue					49				122
Taxes					(88)				171
Litigation charges					60				145
Litigation settlement payments					(470)				(26)
Other					(39)				(20)
Net cash provided by operating activities					276				1,716
INVESTING ACTIVITIES
Property acquisitions					(151)				(170)
Capitalized software expenditures					(117)				(137)
Acquisitions, less cash and cash equivalents acquired					(577)				(204)
Other					61				81
Net cash used in investing activities					(784)				(430)
FINANCING ACTIVITIES
Proceeds from short-term borrowings					1,125				-
Repayments of short-term borrowings					(1,525)				-
Proceeds from issuances of long-term debt					892				-
Repayments of long-term debt					(4)				(23)
Common stock transactions:
Issuances					112				122
Share repurchases, including shares surrendered for tax withholding					(413)				(672)
Dividends paid					(147)				(146)
Other					42				22
Net cash provided by (used in) financing activities					82				(697)
Effect of exchange rate changes on cash and cash equivalents					3				(10)
Net increase (decrease) in cash and cash equivalents					(423)				579
Cash and cash equivalents at beginning of period					3,149				3,612
Cash and cash equivalents at end of period				$	2,726			$	4,191