Financial News

SAN FRANCISCO--(BUSINESS WIRE)--McKesson Corporation (NYSE:MCK) today reported that revenues for the third quarter ended December 31, 2014 were $47.0 billion, up 37% compared to $34.3 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), third-quarter earnings per diluted share from continuing operations was $2.01 compared to $0.70 a year ago.

“I am pleased by the strong performance of our business for the first nine months of our fiscal year. We have raised our outlook for the year and now expect Adjusted Earnings per diluted share from continuing operations of $10.80 to $10.95 for the fiscal year ending March 31, 2015. McKesson’s third-quarter results reflect solid execution across our business,” said John H. Hammergren, chairman and chief executive officer.

Third-quarter Adjusted Earnings per diluted share was $2.89, up 95% compared to $1.48 a year ago. Third-quarter results benefitted from the pull forward of earnings generated by our branded portfolio of products previously anticipated in the fourth quarter and a lower than expected tax rate driven by the enactment of recent legislation.

For the first nine months of the fiscal year, McKesson generated cash from operations of $1.2 billion, and ended the quarter with cash and cash equivalents of $4.6 billion. Through nine months of the fiscal year, McKesson paid $171 million in dividends, had internal capital spending of $405 million, and spent $40 million on acquisitions.

Segment Results

Distribution Solutions revenues were $46.3 billion, up 38% on a reported basis and 39% on a constant currency basis for the quarter, 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 17% on a reported and constant currency basis for the quarter, reflecting market growth including growth from existing customers and continued demand for recently launched drugs for the treatment of Hepatitis C.

International pharmaceutical distribution and services revenues were $7.3 billion, an increase of 7% on the underlying results of Celesio on a constant currency basis.

Medical-Surgical distribution and services revenues were up 7% for the quarter, driven by market growth.

In the third quarter, Distribution Solutions GAAP operating profit was $785 million and GAAP operating margin was 1.70%. Third-quarter adjusted operating profit was $1,043 million and the adjusted operating margin was 2.26%.

Technology Solutions revenues were $755 million, down 7% in the third quarter compared to the prior year, 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 $111 million for the third quarter and GAAP operating margin was 14.70%. Adjusted operating profit was $123 million for the third quarter and adjusted operating margin was 16.29%.

Fiscal Year 2015 Outlook

McKesson expects Adjusted Earnings per diluted share from continuing operations between $10.80 and $10.95 for the fiscal year ending March 31, 2015, based on an updated full year average exchange rate of $1.29 per Euro, which excludes the following GAAP items:

• Amortization of acquisition-related intangible assets of $1.48 per diluted share.
• Acquisition expenses and related adjustments of 63 cents per diluted share.
• LIFO inventory-related charges of 97 cents to $1.07 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.

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 5:00 PM ET. The dial-in number for individuals wishing to participate on the call is 719-234-7317. Erin Lampert, senior vice president, Investor Relations, is the leader of the call, and 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 7328191. 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 December 31,												Nine Months Ended December 31,
		2014				2013				Change				2014				2013				Change
Revenues		$	47,005			$	34,336			37		%		$	135,821			$	99,560			36		%
Cost of sales (1) (2) (3)			(44,063	)			(32,486	)		36					(127,159	)			(93,759	)		36
Gross profit			2,942				1,850			59					8,662				5,801			49
Operating expenses (3)			(2,162	)			(1,339	)		61					(6,406	)			(3,899	)		64
Litigation charges (4)			-				(18	)		-					-				(68	)		-
Total operating expenses			(2,162	)			(1,357	)		59					(6,406	)			(3,967	)		61
Operating income			780				493			58					2,256				1,834			23
Other income (loss), net			13				(6	)		-					57				9			533
Interest expense			(97	)			(69	)		41					(297	)			(187	)		59
Income from continuing operations before income taxes			696				418			67					2,016				1,656			22
Income tax expense (5)			(183	)			(254	)		(28	)				(587	)			(641	)		(8	)
Income from continuing operations after tax			513				164			213					1,429				1,015			41
Loss from discontinued operations, net of tax (6)			(2	)			(99	)		(98	)				(30	)			(122	)		(75	)
Net income			511				65			686					1,399				893			57
Net Income Attributable to Noncontrolling Interests (7)			(39	)			-			-					(55	)			-			-
Net income attributable to McKesson Corporation		$	472			$	65			626				$	1,344			$	893			51
Earnings (loss) per common share attributable to McKesson Corporation (8)
Diluted
Continuing operations		$	2.01			$	0.70			187		%		$	5.84			$	4.36			34		%
Discontinued operations			(0.01	)			(0.42	)		(98	)				(0.12	)			(0.53	)		(77	)
Total		$	2.00			$	0.28			614				$	5.72			$	3.83			49
Basic
Continuing operations		$	2.04			$	0.71			187		%		$	5.93			$	4.43			34		%
Discontinued operations			(0.01	)			(0.43	)		(98	)				(0.13	)			(0.53	)		(75	)
Total		$	2.03			$	0.28			625				$	5.80			$	3.90			49
Dividends declared per common share		$	0.24			$	0.24							$	0.72			$	0.68
Weighted average common shares
Diluted			236				234			1		%			235				233			1		%
Basic			232				230			1					232				229			1

(1)		The third quarter and first nine months of fiscal year 2015 include charges of $95 million and $287 million related to our last-in-first-out ("LIFO") method of accounting for inventories. The third quarter and first nine months of fiscal year 2014 include $142 million and $186 million of LIFO charges.
(2)		The first nine months of fiscal year 2015 reflect a non-cash charge of $34 million ($27 million after-tax) related to the workforce business within our International Technology business, which was primarily recorded in cost of sales.
(3)		Fiscal year 2014, as reported under GAAP, includes pre-tax charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses. These charges primarily consist of $35 million of product alignment charges, $15 million of integration-related expenses and $7 million of severance charges.
(4)		Represents charges for our Average Wholesale Price ("AWP") litigation.
(5)		Fiscal year 2014 includes a charge of $122 million related to our litigation with the Canadian Revenue Agency.
(6)		Fiscal year 2014 includes an $80 million pre-tax and after-tax impairment charge related to our International Technology business, which was sold in part during the second quarter of fiscal year 2015.
(7)		The third quarter and first nine months of fiscal year 2015 primarily reflect guaranteed dividends that McKesson became obligated to pay to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, upon the December 2, 2014 effectiveness of the Domination and Profit and Loss Transfer agreement.
(8)		Certain computations may reflect rounding adjustments.

Schedule 2A
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
																										Change
		Quarter Ended December 31, 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		$	47,005			$	-			$	-			$	-			$	-			$	47,005			37		%		37		%
Gross profit		$	2,942			$	2			$	1			$	-			$	95			$	3,040			59				52
Operating expenses			(2,162	)			123				50				-				-				(1,989	)		59				61
Other income, net			13				-				-				-				-				13			-				86
Interest expense			(97	)			-				-				-				-				(97	)		41				64
Income from continuing operations before income taxes			696				125				51				-				95				967			67				35
Income tax expense			(183	)			(40	)			(18	)			-				(37	)			(278	)		(28	)			(24	)
Income from continuing operations after tax			513				85				33				-				58				689			213				99
Net Income Attributable to Noncontrolling Interests (1)			(39	)			23				6				-				-				(10	)		-				-
Income from continuing operations, net of tax, attributable to McKesson Corporation		$	474			$	108			$	39			$	-			$	58			$	679			189				96
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (2)		$	2.01			$	0.46			$	0.17			$	-			$	0.25			$	2.89			187		%		95		%
Diluted weighted average common shares			236				236				236				-				236				236			1		%		1		%
		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 (3)		$	1,850			$	4			$	3			$	-			$	142			$	1,999
Operating expenses (3)			(1,357	)			66				40				18				-				(1,233	)
Other income (loss), 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 (4)			(254	)			(27	)			(23	)			(7	)			(56	)			(367	)
Income from continuing operations after tax			164				43				43				11				86				347
Net Income 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 (2)		$	0.70			$	0.19			$	0.17			$	0.05			$	0.37			$	1.48
Diluted weighted average common shares			234				234				234				234				234				234

(1)		The third quarter of fiscal year 2015 primarily reflects guaranteed dividends that McKesson became obligated to pay to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, upon the December 2, 2014 effectiveness of the Domination and Profit and Loss Transfer agreement.
(2)		Certain computations may reflect rounding adjustments.
(3)		Fiscal year 2014, as reported under GAAP, includes pre-tax charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(4)		Fiscal year 2014 includes a charge of $122 million related to our litigation with the Canadian Revenue Agency.
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 2B
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
																										Change
		Nine Months Ended December 31, 2014																								Vs. Prior Period
		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		$	135,821			$	-			$	-			$	-			$	-			$	135,821			36		%		36		%
Gross profit (1)		$	8,662			$	7			$	1			$	-			$	287			$	8,957			49				49
Operating expenses			(6,406	)			379				161				-				-				(5,866	)		61				61
Other income, net			57				-				-				-				-				57			533				159
Interest expense			(297	)			-				-				-				-				(297	)		59				68
Income from continuing operations before income taxes			2,016				386				162				-				287				2,851			22				29
Income tax expense			(587	)			(120	)			(55	)			-				(112	)			(874	)		(8	)			4
Income from continuing operations after tax			1,429				266				107				-				175				1,977			41				44
Net Income Attributable to Noncontrolling Interests (2)			(55	)			-				-				-				-				(55	)		-				-
Income from continuing operations, net of tax, attributable to McKesson Corporation		$	1,374			$	266			$	107			$	-			$	175			$	1,922			35				40
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (3)		$	5.84			$	1.13			$	0.46			$	-			$	0.74			$	8.17			34		%		39		%
Diluted weighted average common shares			235				235				235				-				235				235			1		%		1		%
		Nine Months 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		$	99,560			$	-			$	-			$	-			$	-			$	99,560
Gross profit (4)		$	5,801			$	15			$	3			$	-			$	186			$	6,005
Operating expenses (4)			(3,967	)			196				66				68				-				(3,637	)
Other income, net			9				-				13				-				-				22
Interest expense			(187	)			-				10				-				-				(177	)
Income from continuing operations before income taxes			1,656				211				92				68				186				2,213
Income tax expense (5)			(641	)			(79	)			(33	)			(15	)			(73	)			(841	)
Income from continuing operations after tax			1,015				132				59				53				113				1,372
Net Income Attributable to Noncontrolling Interests			-				-				-				-				-				-
Income from continuing operations, net of tax, attributable to McKesson Corporation		$	1,015			$	132			$	59			$	53			$	113			$	1,372
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (3)		$	4.36			$	0.57			$	0.24			$	0.23			$	0.49			$	5.89
Diluted weighted average common shares			233				233				233				233				233				233

(1)		The first nine months of fiscal year 2015 reflect a non-cash charge of $34 million ($27 million after-tax) related to the workforce business within our International Technology business. The amount was primarily recorded in cost of sales.
(2)		Fiscal year 2015 primarily reflects guaranteed dividends that McKesson became obligated to pay to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, upon the December 2, 2014 effectiveness of the Domination and Profit and Loss Transfer agreement.
(3)		Certain computations may reflect rounding adjustments.
(4)		Fiscal year 2014, as reported under GAAP, includes pre-tax charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(5)		Fiscal year 2014 includes a charge of $122 million related to our litigation with the Canadian Revenue Agency.
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 3A
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
		Quarter Ended December 31, 2014												Quarter Ended December 31, 2013													Change
		As Reported (GAAP)				Adjustments			Adjusted Earnings (Non-GAAP)					As Reported (GAAP)					Adjustments			Adjusted Earnings (Non-GAAP)					As Reported (GAAP)				Adjusted Earnings (Non-GAAP)
REVENUES
Distribution Solutions
North America pharmaceutical distribution & services		$	37,398			$	-		$	37,398				$	32,060				$	-		$	32,060				17		%		17		%
International pharmaceutical distribution & services			7,288				-			7,288					-					-			-				-				-
Medical-Surgical distribution & services			1,564				-			1,564					1,462					-			1,462				7				7
Total Distribution Solutions			46,250				-			46,250					33,522					-			33,522				38				38
Technology Solutions - Products and Services			755				-			755					814					-			814				(7	)			(7	)
Revenues		$	47,005			$	-		$	47,005				$	34,336				$	-		$	34,336				37				37
GROSS PROFIT
Distribution Solutions		$	2,571			$	97		$	2,668				$	1,499				$	142		$	1,641				72				63
Technology Solutions (1)			371				1			372					351					7			358				6				4
Gross profit		$	2,942			$	98		$	3,040				$	1,850				$	149		$	1,999				59				52
OPERATING EXPENSES
Distribution Solutions		$	(1,794	)		$	161		$	(1,633	)			$	(950	)			$	89		$	(861	)			89				90
Technology Solutions (1)			(261	)			11			(250	)				(305	)				23			(282	)			(14	)			(11	)
Corporate			(107	)			1			(106	)				(102	)				12			(90	)			5				18
Operating expenses		$	(2,162	)		$	173		$	(1,989	)			$	(1,357	)			$	124		$	(1,233	)			59				61
OTHER INCOME (LOSS), NET
Distribution Solutions		$	8			$	-		$	8				$	3				$	-		$	3				167				167
Technology Solutions			1				-			1					1					-			1				-				-
Corporate			4				-			4					(10	)				13			3				-				33
Other income (loss), net		$	13			$	-		$	13				$	(6	)			$	13		$	7				-				86
OPERATING PROFIT
Distribution Solutions		$	785			$	258		$	1,043				$	552				$	231		$	783				42				33
Technology Solutions (1)			111				12			123					47					30			77				136				60
Operating profit			896				270			1,166					599					261			860				50				36
Corporate			(103	)			1			(102	)				(112	)				25			(87	)			(8	)			17
Interest Expense			(97	)			-			(97	)				(69	)				10			(59	)			41				64
Income from continuing operations before income taxes (2)		$	696			$	271		$	967				$	418				$	296		$	714				67				35
STATISTICS
Operating profit as a % of revenues
Distribution Solutions			1.70			%				2.26		%			1.65		%						2.34		%		5		bp		(8	)	bp
Technology Solutions			14.70							16.29					5.77								9.46				893				683

(1)		Fiscal year 2014, as reported under GAAP, includes pre-tax charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(2)		For the fiscal year 2015, the amount is prior to recording guaranteed dividends to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, under the Domination and Profit and Loss Transfer agreement.
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 3B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
		Nine Months Ended December 31, 2014													Nine Months Ended December 31, 2013													Change
		As Reported (GAAP)					Adjustments			Adjusted Earnings (Non-GAAP)					As Reported (GAAP)					Adjustments			Adjusted Earnings (Non-GAAP)					As Reported (GAAP)				Adjusted Earnings (Non-GAAP)
REVENUES
Distribution Solutions
North America pharmaceutical distribution & services		$	106,850				$	-		$	106,850				$	92,808				$	-		$	92,808				15		%		15		%
International pharmaceutical distribution & services			22,207					-			22,207					-					-			-				-				-
Medical-Surgical distribution & services			4,471					-			4,471					4,286					-			4,286				4				4
Total Distribution Solutions			133,528					-			133,528					97,094					-			97,094				38				38
Technology Solutions - Products and Services			2,293					-			2,293					2,466					-			2,466				(7	)			(7	)
Revenues		$	135,821				$	-		$	135,821				$	99,560				$	-		$	99,560				36				36
GROSS PROFIT
Distribution Solutions		$	7,569				$	289		$	7,858				$	4,642				$	187		$	4,829				63				63
Technology Solutions (1) (2)			1,093					6			1,099					1,159					17			1,176				(6	)			(7	)
Gross profit		$	8,662				$	295		$	8,957				$	5,801				$	204		$	6,005				49				49
OPERATING EXPENSES
Distribution Solutions		$	(5,288	)			$	497		$	(4,791	)			$	(2,799	)			$	267		$	(2,532	)			89				89
Technology Solutions (2)			(792	)				32			(760	)				(866	)				50			(816	)			(9	)			(7	)
Corporate			(326	)				11			(315	)				(302	)				13			(289	)			8				9
Operating expenses		$	(6,406	)			$	540		$	(5,866	)			$	(3,967	)			$	330		$	(3,637	)			61				61
OTHER INCOME (LOSS), NET
Distribution Solutions		$	45				$	-		$	45				$	13				$	-		$	13				246				246
Technology Solutions			3					-			3					1					-			1				200				200
Corporate			9					-			9					(5	)				13			8				-				13
Other income, net		$	57				$	-		$	57				$	9				$	13		$	22				533				159
OPERATING PROFIT
Distribution Solutions		$	2,326				$	786		$	3,112				$	1,856				$	454		$	2,310				25				35
Technology Solutions (1) (2)			304					38			342					294					67			361				3				(5	)
Operating profit			2,630					824			3,454					2,150					521			2,671				22				29
Corporate			(317	)				11			(306	)				(307	)				26			(281	)			3				9
Interest Expense			(297	)				-			(297	)				(187	)				10			(177	)			59				68
Income from continuing operations before income taxes (3)		$	2,016				$	835		$	2,851				$	1,656				$	557		$	2,213				22				29
STATISTICS
Operating profit as a % of revenues
Distribution Solutions			1.74		%						2.33		%			1.91		%						2.38		%		(17	)	bp		(5	)	bp
Technology Solutions			13.26								14.91					11.92								14.64				134				27

(1)		The first nine months of fiscal year 2015 reflect a non-cash charge of $34 million ($27 million after-tax) related to the workforce business within our International Technology business. The amount was primarily recorded in cost of sales.
(2)		Fiscal year 2014, as reported under GAAP, includes pre-tax charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(3)		For the fiscal year 2015, the amount is prior to recording guaranteed dividends to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, under the Domination and Profit and Loss Transfer agreement.
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 4A
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
		Quarter Ended December 31, 2014																Quarter Ended December 31, 2013
		Distribution Solutions				Technology Solutions				Corporate & Interest Expense				Total				Distribution Solutions				Technology Solutions				Corporate & Interest Expense				Total
As Reported (GAAP):
Revenues		$	46,250			$	755			$	-			$	47,005			$	33,522			$	814			$	-			$	34,336
Gross profit (1)		$	2,571			$	371			$	-			$	2,942			$	1,499			$	351			$	-			$	1,850
Operating expenses (1)			(1,794	)			(261	)			(107	)			(2,162	)			(950	)			(305	)			(102	)			(1,357	)
Other income (loss), net			8				1				4				13				3				1				(10	)			(6	)
Income from continuing operations before interest expense and income taxes			785				111				(103	)			793				552				47				(112	)			487
Interest expense			-				-				(97	)			(97	)			-				-				(69	)			(69	)
Income from continuing operations before income taxes (2)		$	785			$	111			$	(200	)		$	696			$	552			$	47			$	(181	)		$	418
Pre-Tax Adjustments:
Gross profit		$	1			$	1			$	-			$	2			$	-			$	4			$	-			$	4
Operating expenses			111				12				-				123				55				11				-				66
Amortization of acquisition-related intangibles			112				13				-				125				55				15				-				70
Gross profit			1				-				-				1				-				3				-				3
Operating expenses			50				(1	)			1				50				16				12				12				40
Other income, net			-				-				-				-				-				-				13				13
Interest expense			-				-				-				-				-				-				10				10
Acquisition expenses and related adjustments			51				(1	)			1				51				16				15				35				66
Operating expenses - Litigation reserve adjustments			-				-				-				-				18				-				-				18
Gross profit - LIFO-related adjustments			95				-				-				95				142				-				-				142
Total pre-tax adjustments		$	258			$	12			$	1			$	271			$	231			$	30			$	35			$	296
Adjusted Earnings (Non-GAAP):
Revenues		$	46,250			$	755			$	-			$	47,005			$	33,522			$	814			$	-			$	34,336
Gross profit (1)		$	2,668			$	372			$	-			$	3,040			$	1,641			$	358			$	-			$	1,999
Operating expenses (1)			(1,633	)			(250	)			(106	)			(1,989	)			(861	)			(282	)			(90	)			(1,233	)
Other income, net			8				1				4				13				3				1				3				7
Income from continuing operations before interest expense and income taxes			1,043				123				(102	)			1,064				783				77				(87	)			773
Interest expense			-				-				(97	)			(97	)			-				-				(59	)			(59	)
Income from continuing operations before income taxes (2)		$	1,043			$	123			$	(199	)		$	967			$	783			$	77			$	(146	)		$	714

(1)		Fiscal year 2014, as reported under GAAP, includes pre-tax Technology Solutions charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(2)		For the fiscal year 2015, the amount is prior to recording guaranteed dividends to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, under the Domination and Profit and Loss Transfer agreement.
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 4B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
		Nine Months Ended December 31, 2014																Nine Months Ended December 31, 2013
		Distribution Solutions				Technology Solutions				Corporate & Interest Expense				Total				Distribution Solutions				Technology Solutions				Corporate & Interest Expense				Total
As Reported (GAAP):
Revenues		$	133,528			$	2,293			$	-			$	135,821			$	97,094			$	2,466			$	-			$	99,560
Gross profit (1) (2)		$	7,569			$	1,093			$	-			$	8,662			$	4,642			$	1,159			$	-			$	5,801
Operating expenses (2)			(5,288	)			(792	)			(326	)			(6,406	)			(2,799	)			(866	)			(302	)			(3,967	)
Other income (loss), net			45				3				9				57				13				1				(5	)			9
Income from continuing operations before interest expense and income taxes			2,326				304				(317	)			2,313				1,856				294				(307	)			1,843
Interest expense			-				-				(297	)			(297	)			-				-				(187	)			(187	)
Income from continuing operations before income taxes (3)		$	2,326			$	304			$	(614	)		$	2,016			$	1,856			$	294			$	(494	)		$	1,656
Pre-Tax Adjustments:
Gross profit		$	1			$	6			$	-			$	7			$	1			$	14			$	-			$	15
Operating expenses			347				32				-				379				161				35				-				196
Amortization of acquisition-related intangibles			348				38				-				386				162				49				-				211
Gross profit			1				-				-				1				-				3				-				3
Operating expenses			150				-				11				161				38				15				13				66
Other income, net			-				-				-				-				-				-				13				13
Interest expense			-				-				-				-				-				-				10				10
Acquisition expenses and related adjustments			151				-				11				162				38				18				36				92
Operating expenses - Litigation reserve adjustments			-				-				-				-				68				-				-				68
Gross profit - LIFO-related adjustments			287				-				-				287				186				-				-				186
Total pre-tax adjustments		$	786			$	38			$	11			$	835			$	454			$	67			$	36			$	557
Adjusted Earnings (Non-GAAP):
Revenues		$	133,528			$	2,293			$	-			$	135,821			$	97,094			$	2,466			$	-			$	99,560
Gross profit (1) (2)		$	7,858			$	1,099			$	-			$	8,957			$	4,829			$	1,176			$	-			$	6,005
Operating expenses (2)			(4,791	)			(760	)			(315	)			(5,866	)			(2,532	)			(816	)			(289	)			(3,637	)
Other income, net			45				3				9				57				13				1				8				22
Income from continuing operations before interest expense and income taxes			3,112				342				(306	)			3,148				2,310				361				(281	)			2,390
Interest expense			-				-				(297	)			(297	)			-				-				(177	)			(177	)
Income from continuing operations before income taxes (3)		$	3,112			$	342			$	(603	)		$	2,851			$	2,310			$	361			$	(458	)		$	2,213

(1)		The first nine months of fiscal year 2015 reflect a non-cash charge of $34 million ($27 million after-tax) related to the workforce business within our International Technology business. The amount was primarily recorded in cost of sales.
(2)		Fiscal year 2014, as reported under GAAP, includes pre-tax Technology Solutions charges of $57 million, of which $34 million was recorded in cost of sales and $23 million was recorded in operating expenses; as reported under an Adjusted Earnings basis (Non-GAAP), pre-tax charges were $42 million, of which $31 million was recorded in cost of sales and $11 million was recorded in operating expenses. These charges, as reported under an Adjusted Earnings basis (Non-GAAP), primarily consist of $35 million of product alignment charges and $7 million of severance charges.
(3)		For the fiscal year 2015, the amount is prior to recording guaranteed dividends to the noncontrolling interests of McKesson’s subsidiary, Celesio AG, under the Domination and Profit and Loss Transfer agreement.
Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.

Schedule 5
McKESSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions)
				December 31,				March 31,
				2014				2014
ASSETS
Current Assets
Cash and cash equivalents				$	4,587			$	4,193
Receivables, net					16,581				14,193
Inventories, net					15,378				13,308
Prepaid expenses and other					595				879
Total Current Assets					37,141				32,573
Property, Plant and Equipment, Net					2,156				2,222
Goodwill					9,956				9,927
Intangible Assets, Net					3,864				5,022
Other Assets					1,993				2,015
Total Assets				$	55,110			$	51,759
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Drafts and accounts payable				$	25,205			$	21,429
Short-term borrowings					407				346
Deferred revenue					1,231				1,236
Deferred tax liabilities					1,705				1,588
Current portion of long-term debt					1,006				1,424
Other accrued liabilities					3,224				3,478
Total Current Liabilities					32,778				29,501
Long-Term Debt					8,981				8,949
Other Noncurrent Liabilities					2,734				2,991
Commitments and Contingent Liabilities
Redeemable Noncontrolling Interests					1,461				-
McKesson Corporation Stockholders' Equity					9,084				8,522
Noncontrolling Interests					72				1,796
Total Equity					9,156				10,318
Total Liabilities, Redeemable Noncontrolling Interests and Equity				$	55,110			$	51,759

Schedule 6
McKESSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in millions)
				Nine Months Ended December 31,
				2014				2013
OPERATING ACTIVITIES
Net income				$	1,399			$	893
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization					793				495
Deferred taxes					55				86
Share-based compensation expense					127				115
LIFO charges					287				186
Other non-cash items					(53	)			83
Changes in operating assets and liabilities, net of acquisitions:
Receivables					(2,832	)			(875	)
Inventories					(2,654	)			(1,387	)
Drafts and accounts payable					4,164				581
Deferred revenue					(19	)			(12	)
Taxes					(203	)			151
Litigation charges					-				68
Litigation settlement payments					-				(86	)
Other					165				174
Net cash provided by operating activities					1,229				472
INVESTING ACTIVITIES
Property acquisitions					(286	)			(191	)
Capitalized software expenditures					(119	)			(108	)
Acquisitions, less cash and cash equivalents acquired					(40	)			(116	)
Proceeds from sale of businesses and equity investment					15				97
Other					(9	)			(104	)
Net cash used in investing activities					(439	)			(422	)
FINANCING ACTIVITIES
Proceeds from short-term borrowings					2,451				150
Repayments of short-term borrowings					(2,327	)			(150	)
Proceeds from issuances of long-term debt					11				-
Repayments of long-term debt					(240	)			-
Common stock transactions:
Issuances					115				150
Share repurchases, including shares surrendered for tax withholding					(106	)			(128	)
Dividends paid					(171	)			(154	)
Other					15				59
Net cash used in financing activities					(252	)			(73	)
Effect of exchange rate changes on cash and cash equivalents					(144	)			(2	)
Net increase (decrease) in cash and cash equivalents					394				(25	)
Cash and cash equivalents at beginning of period					4,193				2,456
Cash and cash equivalents at end of period				$	4,587			$	2,431

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.