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McKesson Reports Fiscal 2013 Second-Quarter Results

  • Revenues of $29.9 billion for the second quarter, down 1%.
  • Second-quarter GAAP earnings per diluted share of $1.67, up 42%.
  • Second-quarter Adjusted Earnings per diluted share of $1.92, up 18%.
  • Fiscal 2013 Outlook: Adjusted Earnings per diluted share of $7.15 to $7.35.

SAN FRANCISCO--(BUSINESS WIRE)-- McKesson Corporation (NYSE: MCK) today reported that revenues for the second quarter ended September 30, 2012 were $29.9 billion, down 1% compared to $30.2 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), second-quarter earnings per diluted share was $1.67 compared to $1.18 a year ago.

Second-quarter GAAP results included a pre-tax charge of $44 million, recorded in the Distribution Solutions segment, to increase an existing litigation reserve for claims against McKesson relating to First DataBank’s published drug reimbursement benchmarks, commonly referred to as Average Whole Prices (“AWP”).

Second-quarter Adjusted Earnings per diluted share was $1.92, up 18% compared to $1.63 a year ago.

For the first half of the fiscal year, McKesson generated cash from operations of $459 million, and ended the quarter with cash and cash equivalents of $2.8 billion. During the first half of the fiscal year, the company paid $100 million in dividends, had internal capital spending of $167 million and spent $251 million on acquisitions.

“McKesson delivered another quarter of solid operating performance,” said John H. Hammergren, chairman and chief executive officer. “I am pleased with our accomplishments during the first half of our fiscal year. Based on our performance to date, we are updating our previous outlook for the fiscal year and now expect Adjusted Earnings per diluted share of $7.15 to $7.35 for the fiscal year ending March 31, 2013.”

Distribution Solutions revenues were down 1% in the second quarter, driven mainly by a 1% decline in U.S. pharmaceutical distribution revenues, reflecting brand-to-generic conversions and one fewer sales day.

Canadian revenues, on a constant currency basis, decreased 3% for the second quarter. Including the unfavorable currency impact of 2%, Canadian revenues decreased 5% for the second quarter.

Medical-Surgical distribution and services revenues were flat for the quarter, due to the impact of five fewer sales days.

In the second quarter, Distribution Solutions GAAP operating profit was $621 million and GAAP operating margin was 2.14%. Second-quarter adjusted operating profit was $699 million and the adjusted operating margin was 2.41%.

Technology Solutions revenues were flat for the second quarter. GAAP operating profit was $97 million for the second quarter and GAAP operating margin was 11.77%. Adjusted operating profit was $114 million for the second quarter and adjusted operating margin was 13.83%.

Fiscal Year 2013 Outlook

McKesson expects Adjusted Earnings per diluted share of $7.15 to $7.35 for the fiscal year ending March 31, 2013, which excludes the following GAAP items:

  • Amortization of acquisition-related intangible assets of approximately 54 cents per diluted share in Fiscal 2013.
  • Acquisition expenses and related adjustments expected to add approximately 18 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 8:30 AM 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 6474406. 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) (1) (2) (3) (4)

(1)

(2)

Represent charges for the Average Wholesale Price ("AWP") litigation.

(3)

(4)

Schedule 2A

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

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)

%

(1) (2)

%

%

As Reported
(GAAP)

Amortization
of Acquisition-
Related
Intangibles

Acquisition
Expenses and
Related
Adjustments

Litigation
Reserve
Adjustments

Adjusted
Earnings
(Non-GAAP)

(2)

(1)

(2)

Adjusted Earnings (Non-GAAP) Financial Information

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.

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.

Schedule 2B

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

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)

(1) (2) (3)

As Reported
(GAAP)

Amortization
of Acquisition-
Related
Intangibles

Acquisition
Expenses and
Related
Adjustments

Litigation
Reserve
Adjustments

Adjusted
Earnings
(Non-GAAP)

(3) (1) (2) (3)

Schedule 3A

McKESSON CORPORATION RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) (unaudited) (in millions)

As
Reported
(GAAP)

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

Adjusted
Earnings
(Non-GAAP)

Total U.S. pharmaceutical distribution & services

(1)

Distribution Solutions (2)

Distribution Solutions (1)(2)

Income before interest expense and income taxes

Operating profit as a % of revenues

Distribution Solutions (1)(2)

(1)

(2)

For the second quarters of fiscal years 2013 and 2012, results, as reported under GAAP, include AWP litigation charges of $44 million and $118 million.

Schedule 3B

McKESSON CORPORATION RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) (unaudited) (in millions)

As
Reported
(GAAP)

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

Adjusted
Earnings
(Non-GAAP)

As
Reported
(GAAP)

Adjusted
Earnings
(Non-GAAP)

Total U.S. pharmaceutical distribution & services

(1)

Distribution Solutions (2)

Corporate (3)

Distribution Solutions (1)(2)

Income before interest expense and income taxes

Distribution Solutions (1)(2)

(1)

(2)

For the first six months of fiscal years 2013 and 2012, results, as reported under GAAP, include AWP litigation charges of $60 million and $118 million.

(3)

Schedule 4A

McKESSON CORPORATION RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE (unaudited) (in millions)

Distribution
Solutions

Technology
Solutions

Corporate
& Interest
Expense

Distribution
Solutions

Technology
Solutions

Corporate
& Interest
Expense

As Reported (GAAP):

(1)

Pre-Tax Adjustments:

Operating expenses - Acquisition expenses and related adjustments

Adjusted Earnings (Non-GAAP):

(1)

Income before income taxes

(1)

Schedule 4B

McKESSON CORPORATION RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE (unaudited) (in millions)

Distribution
Solutions

Technology
Solutions

Corporate
& Interest
Expense

Distribution
Solutions

Technology
Solutions

Corporate
& Interest
Expense

As Reported (GAAP):

(1) (2)

Pre-Tax Adjustments:

Operating expenses - Acquisition expenses and related adjustments

Adjusted Earnings (Non-GAAP):

(1) (1) (2)

Schedule 5

McKESSON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in millions) ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY

Schedule 6

McKESSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in millions)

McKesson Corporation
Erin Lampert, 415-983-8391 (Investors and Financial Media)
Erin.Lampert@McKesson.com
Kris Fortner, 415-983-8352 (General and Business Media)
Kris.Fortner@McKesson.com

Source: McKesson Corporation