e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For quarter ended September 30, 2007
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from ____________ to ____________
Commission file number 1-13252
McKESSON CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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94-3207296
(IRS Employer Identification No.) |
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One Post Street, San Francisco, California
(Address of principal executive offices)
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94104
(Zip Code) |
(415) 983-8300
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of
the Exchange Act. Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
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Class
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Outstanding as of September 30, 2007 |
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Common stock, $0.01 par value
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289,387,335 shares |
McKESSON CORPORATION
TABLE OF CONTENTS
2
McKESSON CORPORATION
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)
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September 30, |
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March 31, |
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2007 |
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2007 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
2,518 |
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$ |
1,954 |
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Restricted cash |
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967 |
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984 |
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Receivables, net |
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6,820 |
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6,566 |
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Inventories |
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8,303 |
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8,153 |
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Prepaid expenses and other |
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181 |
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199 |
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Total |
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18,789 |
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17,856 |
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Property, Plant and Equipment, Net |
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714 |
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684 |
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Capitalized Software Held for Sale, Net |
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185 |
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166 |
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Goodwill |
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3,055 |
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2,975 |
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Intangible Assets, Net |
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578 |
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613 |
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Other Assets |
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1,713 |
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1,649 |
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Total Assets |
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$ |
25,034 |
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$ |
23,943 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities |
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Drafts and accounts payable |
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$ |
11,773 |
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$ |
10,873 |
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Deferred revenue |
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970 |
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1,027 |
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Current portion of long-term debt |
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152 |
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155 |
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Securities Litigation |
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994 |
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983 |
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Other accrued |
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1,723 |
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2,088 |
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Total |
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15,612 |
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15,126 |
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Other Noncurrent Liabilities |
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1,240 |
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741 |
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Long-Term Debt |
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1,798 |
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1,803 |
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Other Commitments and Contingent Liabilities (Note 12) |
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Stockholders Equity |
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Preferred stock, $0.01 par value, 100 shares authorized, no
shares issued or outstanding |
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Common stock, $0.01 par value
Shares authorized: September 30, 2007 and March 31, 2007 800
Shares issued: September 30, 2007 347 and March 31, 2007 341 |
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3 |
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3 |
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Additional Paid-in Capital |
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3,999 |
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3,722 |
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Other Capital |
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(18 |
) |
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(19 |
) |
Retained Earnings |
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5,113 |
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4,712 |
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Accumulated Other Comprehensive Income |
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150 |
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31 |
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ESOP Notes and Guarantees |
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(6 |
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(14 |
) |
Treasury Shares, at Cost, September 30, 2007 58 and March 31,
2007 46 |
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(2,857 |
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(2,162 |
) |
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Total Stockholders Equity |
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6,384 |
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6,273 |
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Total Liabilities and Stockholders Equity |
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$ |
25,034 |
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$ |
23,943 |
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See Financial Notes
3
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
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Quarter Ended |
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Six Months Ended |
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September 30, |
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September 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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Revenues |
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$ |
24,450 |
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$ |
22,386 |
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$ |
48,978 |
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$ |
45,701 |
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Cost of Sales |
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23,269 |
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21,362 |
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46,620 |
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43,681 |
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Gross Profit |
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1,181 |
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1,024 |
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2,358 |
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2,020 |
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Operating Expenses |
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827 |
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724 |
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1,648 |
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1,448 |
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Securities Litigation Credit, Net |
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(5 |
) |
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(6 |
) |
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(5 |
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(6 |
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Total Operating Expenses |
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822 |
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718 |
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1,643 |
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1,442 |
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Operating Income |
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359 |
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306 |
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715 |
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578 |
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Other Income, Net |
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36 |
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32 |
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73 |
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67 |
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Interest Expense |
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(36 |
) |
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(22 |
) |
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(72 |
) |
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(45 |
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Income from Continuing
Operations Before Income Taxes |
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359 |
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316 |
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716 |
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600 |
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Income Tax Provision |
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(112 |
) |
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(29 |
) |
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(233 |
) |
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(129 |
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Income from Continuing Operations |
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247 |
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287 |
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483 |
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471 |
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Discontinued Operations, net |
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(6 |
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(1 |
) |
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(6 |
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Discontinued Operations loss
on sale, net |
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(52 |
) |
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(52 |
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Total Discontinued Operations |
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(58 |
) |
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(1 |
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(58 |
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Net Income |
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$ |
247 |
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$ |
229 |
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$ |
482 |
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$ |
413 |
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Earnings Per Common Share |
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Diluted |
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Continuing operations |
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$ |
0.83 |
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$ |
0.94 |
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$ |
1.60 |
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$ |
1.54 |
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Discontinued operations |
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(0.02 |
) |
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(0.02 |
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Discontinued operations
loss on sale, net |
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(0.17 |
) |
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(0.17 |
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Total |
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$ |
0.83 |
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$ |
0.75 |
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$ |
1.60 |
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$ |
1.35 |
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Basic |
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Continuing operations |
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$ |
0.85 |
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$ |
0.96 |
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$ |
1.64 |
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$ |
1.57 |
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Discontinued operations |
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(0.02 |
) |
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(0.02 |
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Discontinued operations
loss on sale, net |
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(0.17 |
) |
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(0.17 |
) |
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Total |
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$ |
0.85 |
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$ |
0.77 |
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$ |
1.64 |
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$ |
1.38 |
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Dividends Declared Per Common
Share |
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$ |
0.06 |
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$ |
0.06 |
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$ |
0.12 |
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$ |
0.12 |
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Weighted Average Shares |
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Diluted |
|
|
299 |
|
|
|
305 |
|
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|
302 |
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|
307 |
|
Basic |
|
|
293 |
|
|
|
298 |
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|
295 |
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|
300 |
|
See Financial Notes
4
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
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Six Months Ended September 30, |
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2007 |
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2006 |
|
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|
|
|
|
|
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Operating Activities |
|
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Net income |
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$ |
482 |
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$ |
413 |
|
Discontinued operations, net of income taxes |
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1 |
|
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|
58 |
|
Adjustments to reconcile to net cash provided by operating activities: |
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Depreciation and amortization |
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|
178 |
|
|
|
139 |
|
Securities Litigation credit, net |
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|
(5 |
) |
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(6 |
) |
Deferred taxes |
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|
41 |
|
|
|
70 |
|
Share-based
compensation expense |
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|
47 |
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|
24 |
|
Excess tax
benefits from share-based payment arrangements |
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(43 |
) |
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|
(36 |
) |
Other non-cash items |
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19 |
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(3 |
) |
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Total |
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|
720 |
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|
659 |
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Changes in operating assets and liabilities, net of business acquisitions: |
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Receivables |
|
|
(162 |
) |
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|
256 |
|
Inventories |
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|
(65 |
) |
|
|
(635 |
) |
Drafts and accounts payable |
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|
791 |
|
|
|
454 |
|
Deferred revenue |
|
|
(90 |
) |
|
|
12 |
|
Taxes |
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|
192 |
|
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|
33 |
|
Other |
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|
(114 |
) |
|
|
(94 |
) |
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|
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Total |
|
|
552 |
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|
26 |
|
|
|
|
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Net cash provided by operating activities |
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|
1,272 |
|
|
|
685 |
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|
|
|
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Investing Activities |
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Property acquisitions |
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|
(83 |
) |
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|
(51 |
) |
Capitalized software expenditures |
|
|
(78 |
) |
|
|
(86 |
) |
Acquisitions of businesses, less cash and cash equivalents acquired |
|
|
(51 |
) |
|
|
(95 |
) |
Proceeds from sale of businesses |
|
|
|
|
|
|
175 |
|
Other |
|
|
(16 |
) |
|
|
(52 |
) |
|
|
|
|
|
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|
Net cash used in investing activities |
|
|
(228 |
) |
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Financing Activities |
|
|
|
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|
|
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Repayment of debt |
|
|
(8 |
) |
|
|
(8 |
) |
Capital stock transactions: |
|
|
|
|
|
|
|
|
Issuances |
|
|
183 |
|
|
|
191 |
|
Share repurchases |
|
|
(695 |
) |
|
|
(658 |
) |
Excess tax
benefits from share-based payment arrangements |
|
|
43 |
|
|
|
36 |
|
ESOP notes and guarantees |
|
|
8 |
|
|
|
7 |
|
Dividends paid |
|
|
(36 |
) |
|
|
(36 |
) |
Other |
|
|
7 |
|
|
|
1 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(498 |
) |
|
|
(467 |
) |
Effect of
exchange rate changes on cash and cash equivalents |
|
|
18 |
|
|
|
6 |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
564 |
|
|
|
115 |
|
Cash and cash equivalents at beginning of period |
|
|
1,954 |
|
|
|
2,139 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
2,518 |
|
|
$ |
2,254 |
|
|
|
|
|
|
|
|
See Financial Notes
5
McKESSON CORPORATION
FINANCIAL NOTES
(UNAUDITED)
1. Significant Accounting Policies
Basis of Presentation. The condensed consolidated financial statements of McKesson
Corporation (McKesson, the Company, or we and other similar pronouns) include the financial
statements of all majority-owned or controlled companies. Significant intercompany transactions
and balances have been eliminated. In our opinion, these unaudited condensed consolidated
financial statements include all adjustments necessary for a fair presentation of the Companys
financial position as of September 30, 2007, and the results of operations for the quarters and six
months ended September 30, 2007 and 2006 and cash flows for the six months ended September 30, 2007
and 2006.
The results of operations for the quarters and six months ended September 30, 2007 and 2006
are not necessarily indicative of the results that may be expected for the entire year. These
interim financial statements should be read in conjunction with the annual audited financial
statements, accounting policies and financial notes included in our 2007 consolidated financial
statements previously filed with the Securities and Exchange Commission. As described in our
Annual Report on Form 10-K for the year ended March 31, 2007, we realigned our businesses on April
1, 2007. This realignment resulted in changes to our reporting segments. On May 30, 2007, we
provided financial information about the changes in our reporting segments, as it relates to prior
periods, in a Form 8-K. Certain prior period amounts have been reclassified to conform to the
current period presentation.
The Companys fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all
references to a particular year shall mean the Companys fiscal year.
New Accounting Pronouncements. On April 1, 2007, we adopted Financial Accounting Standards
Board Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes. Among other
things, FIN No. 48 requires application of a more likely than not threshold for the recognition
and derecognition of tax positions. It further requires that a change in judgment related to prior
years tax positions be recognized in the quarter of such change. The April 1, 2007 adoption of
FIN No. 48 resulted in a reduction of our retained earnings by $48 million.
Annually, we file a federal consolidated income tax return with the U.S., and over 1,100
returns with various state and foreign jurisdictions. Our major taxing jurisdictions are the U.S.
and Canada. In the U.S., the Internal Revenue Service (IRS) has completed an examination of our
consolidated income tax returns for 2000 to 2002 resulting in a signed Revenue Agent Report
(RAR), which is subject to approval by the Joint Committee on Taxation. The IRS and the Company
have agreed to certain adjustments, principally related to transfer pricing. We have made adequate
provisions related to the 2000 to 2002 IRS audit and, therefore, believe the outcome of this RAR is
not likely to have a material adverse impact on our financial position, cash flows or results of
operations. We further believe that we have made adequate provision for all remaining income tax
uncertainties. In Canada, we are under examination for 2002 to 2005. In nearly all jurisdictions,
the tax years prior to 1999 are no longer subject to examination.
At April 1, 2007, our unrecognized tax benefits, defined as the aggregate tax effect of
differences between tax return positions and the benefits recognized in our financial statements,
amounted to $465 million. This amount increased by $23 million during the six months ended
September 30, 2007. If recognized, $292 million of our unrecognized tax benefits would reduce
income tax expense and the effective tax rate. During the next 12 months, it is reasonably
possible that audit resolutions and expiration of statutes of limitations could potentially reduce
our unrecognized tax benefits by up to $124 million.
We continue to report interest and penalties on tax deficiencies as income tax expense. At
April 1, 2007, before any tax benefits, our accrued interest on unrecognized tax benefits amounted
to $95 million. This amount increased by $11 million during the six months ended September 30,
2007. We have no amounts accrued for penalties.
Effective March 31, 2007, we adopted Statement of Financial Accounting Standards (SFAS) No.
158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. SFAS No.
158 required the Company to record a transition adjustment to recognize the funded status of
pension and postretirement defined benefit plans measured as the difference between the fair
value of plan assets and the benefit obligations in our balance sheet after adjusting for
derecognition of the Companys minimum pension liability as of March 31, 2007.
6
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
Subsequent to the issuance of the Companys 2007 Annual Report on Form 10-K, it was determined
that we incorrectly presented the SFAS No. 158 transition adjustment of $63 million, net, as a
reduction of 2007 comprehensive income within our Consolidated Statement of Stockholders Equity for the year
ended March 31, 2007. We will correct this error when we file the Companys 2008 Annual Report on
Form 10-K, increasing previously reported comprehensive income from $889 million to $952 million
for the fiscal year ended March 31, 2007.
2. Acquisitions and Investments
In 2007, we made the following acquisitions and investments:
|
|
|
On January 26, 2007, we acquired all of the outstanding shares of Per-Se Technologies,
Inc. (Per-Se) of Alpharetta, Georgia for $28.00 per share in cash plus the assumption of
Per-Ses debt, or approximately $1.8 billion in aggregate, including cash acquired of $76
million. Per-Se is a leading provider of financial and administrative healthcare solutions
for hospitals, physicians and retail pharmacies. Financial results for Per-Se are
primarily included within our Technology Solutions segment since the date of acquisition.
The acquisition was initially funded with cash on hand and through the use of an interim
credit facility. In March 2007, we issued $1 billion of long-term debt, with such net
proceeds after offering expenses from the issuance, together with cash on hand, being used
to fully repay borrowings outstanding under the interim credit facility. |
|
|
|
|
The following table summarizes the preliminary estimated fair values of the assets acquired
and liabilities assumed in the acquisition as of September 30, 2007: |
|
|
|
|
|
(In millions) |
|
|
|
|
|
Accounts receivable |
|
$ |
107 |
|
Property and equipment |
|
|
41 |
|
Other current and noncurrent assets |
|
|
92 |
|
Goodwill |
|
|
1,252 |
|
Intangible assets |
|
|
471 |
|
Accounts payable |
|
|
(8 |
) |
Other current liabilities |
|
|
(119 |
) |
Deferred revenue |
|
|
(30 |
) |
Long-term liabilities |
|
|
(71 |
) |
|
|
|
|
Net assets acquired, less cash and cash equivalents |
|
$ |
1,735 |
|
|
|
|
|
Approximately $1,252 million of the preliminary purchase price allocation has been assigned
to goodwill. Included in the purchase price allocation are acquired identifiable
intangibles of $402 million representing customer relationships with a weighted-average life
of 10 years, developed technology of $56 million with a weighted-average life of 5 years,
and trademarks and tradenames of $13 million with a weighted-average life of 5 years. |
|
|
|
|
Our Technology Solutions segment acquired RelayHealth Corporation (RelayHealth) based
in Emeryville, California. RelayHealth is a provider of secure online healthcare
communication services linking patients, healthcare professionals, payors and pharmacies.
This segment also acquired two other entities, one specializing in patient billing
solutions designed to simplify and enhance healthcare providers financial interactions
with their patients, as well as a provider of integrated software for electronic health
records, medical billing and appointment scheduling for independent physician practices.
The total cost of these three entities was $90 million, which was paid in cash. Goodwill
recognized in these transactions amounted to $63 million. |
7
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
|
|
|
Our Distribution Solutions segment acquired Sterling Medical Services LLC (Sterling) based
in Moorestown, New Jersey. Sterling is a national provider and distributor of disposable
medical supplies, health management services and quality management programs to the home
care market. This segment also acquired a medical supply sourcing agent. The total cost of
these two entities was $95 million, which was paid in cash. Goodwill recognized in these
transactions amounted to $47 million. |
|
|
|
|
We contributed $36 million in cash and $45 million in net assets, primarily from our
Automated Prescription Systems business, to Parata Systems, LLC (Parata), in exchange for
a minority interest in Parata. Parata is a manufacturer of pharmacy robotic equipment. In
connection with the investment, we abandoned certain assets which resulted in a $15 million
charge to cost of sales and incurred $6 million of other expenses related to the
transaction which were recorded within operating expenses. We did not recognize any
additional gains or losses as a result of this transaction as we believe the fair value of
our investment in Parata approximates the carrying value of consideration contributed to
Parata. Our investment in Parata is accounted for under the equity method of accounting
within our Distribution Solutions segment. |
During the last two years, we also completed a number of other smaller acquisitions and
investments within both of our operating segments. Financial results for our business acquisitions
have been included in our consolidated financial statements since their respective acquisition
dates. Purchase prices for our business acquisitions have been allocated based on estimated fair
values at the date of acquisition and, for certain recent acquisitions, may be subject to change.
Goodwill recognized for our business acquisitions is not expected to be deductible for tax
purposes. Pro forma results of operations for our business acquisitions have not been presented
because the effects were not material to the consolidated financial statements on either an
individual or an aggregate basis.
3. Discontinued Operations
In the second quarter of 2007, we completed the following divestitures:
|
|
|
Our Distribution Solutions segment sold its Acute Care medical-surgical supply business
to Owens & Minor, Inc. for net cash proceeds of approximately $160 million. The
divestiture resulted in an after-tax loss of $61 million, which included a $79 million
non-tax deductible write-off of goodwill. We allocated a portion of our goodwill to the
Acute Care business as required by SFAS No. 142, Goodwill and Other Intangible Assets.
The allocation was based on the relative fair values of the Acute Care business and the
continuing businesses that are being retained by the Company. The fair value of the Acute
Care business was determined based on the net cash proceeds resulting from the divestiture.
As a result, we allocated $79 million of the segments goodwill to the Acute Care
business. |
|
|
|
|
Our Distribution Solutions segment also sold a wholly-owned subsidiary, Pharmaceutical
Buyers Inc., for net cash proceeds of $10 million. The divestiture generated an after-tax
gain of $5 million resulting from the tax basis of the subsidiary exceeding its carrying
value. The financial results for this business were not material to our condensed
consolidated financial statements. |
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the financial results of these businesses are classified as discontinued operations for
all periods presented in the accompanying condensed consolidated financial statements.
8
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
4. Share-Based Payment
We provide share-based compensation for our employees, officers and non-employee directors,
including stock options, an employee stock purchase plan, restricted stock (RS), restricted stock
units (RSUs) and performance-based restricted stock units (PeRSUs) (collectively, share-based
awards). PeRSUs are RSUs for which the number of RSUs awarded is conditional upon the attainment
of one or more performance objectives over a specified performance period, typically one year. At
the end of the performance period, if the goals are attained, the award is classified as a RSU and
is accounted for on that basis.
Share-based compensation expense is measured based on the grant-date fair value of the
share-based awards. For those awards with graded vesting and service conditions, we recognize
compensation expense for the portion of the awards that is ultimately expected to vest on a
straight-line basis over the requisite service period. For PeRSUs that have been converted to
RSUs, we recognize the expense on a straight-line basis primarily over three years and treat each
vesting tranche as a separate award. We develop an estimate of the number of share-based awards
which will ultimately vest primarily based on historical experience. The estimated forfeiture rate
is adjusted throughout the requisite service period. As required, forfeiture estimates are
adjusted to reflect actual forfeiture and vesting activity as they occur.
Compensation expense recognized for share-based compensation has been classified in the income
statement or capitalized on the balance sheet in the same manner as cash compensation paid to our
employees. There was no material share-based compensation expense capitalized in the balance sheet
as of September 30, 2007.
Most of the Companys share-based awards are granted in the first quarter of each fiscal year.
The components of share-based compensation expense and the related tax benefit are shown in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
(In millions, except per share amounts) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
RSUs and RS (1) |
|
$ |
14 |
|
|
$ |
6 |
|
|
$ |
27 |
|
|
$ |
9 |
|
PeRSUs (2) |
|
|
8 |
|
|
|
6 |
|
|
|
10 |
|
|
|
8 |
|
Stock options |
|
|
4 |
|
|
|
2 |
|
|
|
6 |
|
|
|
3 |
|
Employee stock purchase plan |
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
Share-based compensation
expense |
|
|
28 |
|
|
|
16 |
|
|
|
47 |
|
|
|
24 |
|
Tax benefit for share-based
compensation expense |
|
|
(10 |
) |
|
|
(6 |
) |
|
|
(17 |
) |
|
|
(8 |
) |
|
|
|
Share-base compensation
expense, net of tax
(3) |
|
$ |
18 |
|
|
$ |
10 |
|
|
$ |
30 |
|
|
$ |
16 |
|
|
|
|
Impact of share-based
compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.06 |
|
|
$ |
0.03 |
|
|
$ |
0.10 |
|
|
$ |
0.05 |
|
Basic |
|
|
0.06 |
|
|
|
0.03 |
|
|
|
0.10 |
|
|
|
0.05 |
|
|
|
|
|
(1) |
|
Substantially all of the 2008 expense was the result of our 2007 PeRSUs that have been
converted to RSUs in 2008 due to the attainment of goals during the 2007 performance period. |
|
(2) |
|
Represents estimated compensation expense for PeRSUs that are conditional upon attaining
performance objectives during the 2008 and 2007 performance periods. |
|
(3) |
|
No material share-based compensation expense was included in Discontinued Operations. |
9
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
Due to the accelerated vesting of share-based awards prior to 2007, we anticipate the impact
of SFAS No. 123(R), Share-Based Payment, to increase in significance as future awards of share-based compensation are
granted and amortized over the requisite service period. Share-based compensation charges are
affected by our stock price as well as assumptions regarding a number of complex and subjective
variables and the related tax impact. These variables include, but are not limited to, the
volatility of our stock price, employee stock option exercise behavior, timing, level and types of
our grants of annual share-based awards, the attainment of performance goals and actual forfeiture
rates. As a result, the actual future share-based compensation expense may differ from historical
levels of expense.
5. Income Taxes
During the second quarter of 2007, we recorded a credit to income tax expense of $83 million
which primarily pertains to our receipt of a private letter ruling from the IRS holding that our
payment of approximately $960 million to settle the Consolidated Action (see
Financial Note 12, Other Commitments and Contingent Liabilities) is fully tax-deductible. We
previously established tax reserves to reflect the lack of certainty regarding the tax
deductibility of settlement amounts paid in the Consolidated Action and related litigation.
6. Restructuring Activities
The following table summarizes the activity related to our restructuring liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Solutions |
|
Technology Solutions |
|
|
(In millions) |
|
Severance |
|
Exit-Related |
|
Severance |
|
Exit-Related |
|
Total |
|
Balance, March 31, 2007 |
|
$ |
3 |
|
|
$ |
6 |
|
|
$ |
16 |
|
|
$ |
5 |
|
|
$ |
30 |
|
Cash expenditures |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(13 |
) |
|
|
(1 |
) |
|
|
(17 |
) |
Adjustments to liabilities
related to Per-Se
acquisition |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
Other |
|
|
(2 |
) |
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
Balance, September 30, 2007 |
|
$ |
|
|
|
$ |
5 |
|
|
$ |
11 |
|
|
$ |
4 |
|
|
$ |
20 |
|
|
7. Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of
common shares outstanding during the reporting period. Diluted earnings per share is computed
similarly except that it reflects the potential dilution that could occur if dilutive securities or
other obligations to issue common stock were exercised or converted into common stock.
10
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
The computations for basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
(In millions, except per share data) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Income from continuing operations |
|
$ |
247 |
|
|
$ |
287 |
|
|
$ |
483 |
|
|
$ |
471 |
|
Discontinued operations |
|
|
|
|
|
|
(6 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
Discontinued operations loss on sale,
net |
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
(52 |
) |
|
|
|
Net income |
|
$ |
247 |
|
|
$ |
229 |
|
|
$ |
482 |
|
|
$ |
413 |
|
|
|
|
|
Weighted average common shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
293 |
|
|
|
298 |
|
|
|
295 |
|
|
|
300 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock |
|
|
5 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Restricted stock |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
Diluted |
|
|
299 |
|
|
|
305 |
|
|
|
302 |
|
|
|
307 |
|
|
|
|
|
Earnings Per Common Share: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.83 |
|
|
$ |
0.94 |
|
|
$ |
1.60 |
|
|
$ |
1.54 |
|
Discontinued operations, net |
|
|
|
|
|
|
(0.02 |
) |
|
|
|
|
|
|
(0.02 |
) |
Discontinued operations loss on
sale, net |
|
|
|
|
|
|
(0.17 |
) |
|
|
|
|
|
|
(0.17 |
) |
|
|
|
Total |
|
$ |
0.83 |
|
|
$ |
0.75 |
|
|
$ |
1.60 |
|
|
$ |
1.35 |
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.85 |
|
|
$ |
0.96 |
|
|
$ |
1.64 |
|
|
$ |
1.57 |
|
Discontinued operations, net |
|
|
|
|
|
|
(0.02 |
) |
|
|
|
|
|
|
(0.02 |
) |
Discontinued operations loss on
sale, net |
|
|
|
|
|
|
(0.17 |
) |
|
|
|
|
|
|
(0.17 |
) |
|
|
|
Total |
|
$ |
0.85 |
|
|
$ |
0.77 |
|
|
$ |
1.64 |
|
|
$ |
1.38 |
|
|
|
|
|
(1) |
|
Certain computations may reflect rounding adjustments. |
Approximately 10 million and 11 million stock options were excluded from the computations of
diluted net earnings per share for the quarters ended September 30, 2007 and 2006 as their exercise
price was higher than the Companys average stock price for the quarter. For the six months ended
September 30, 2007 and 2006, the number of stock options excluded was approximately 11 million and
12 million.
11
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
8. Goodwill and Intangible Assets, Net
Changes in the carrying amount of goodwill for the six months ended September 30, 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution |
|
Technology |
|
|
(In millions) |
|
Solutions |
|
Solutions |
|
Total |
|
Balance, March 31, 2007 |
|
$ |
1,386 |
|
|
$ |
1,589 |
|
|
$ |
2,975 |
|
Goodwill acquired |
|
|
9 |
|
|
|
45 |
|
|
|
54 |
|
Foreign currency adjustments |
|
|
5 |
|
|
|
21 |
|
|
|
26 |
|
|
|
|
Balance, September 30, 2007 |
|
$ |
1,400 |
|
|
$ |
1,655 |
|
|
$ |
3,055 |
|
|
Information regarding intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
March 31, |
(In millions) |
|
2007 |
|
2007 |
|
Customer lists |
|
$ |
601 |
|
|
$ |
593 |
|
Technology |
|
|
169 |
|
|
|
161 |
|
Trademarks and other |
|
|
53 |
|
|
|
56 |
|
|
|
|
Gross intangibles |
|
|
823 |
|
|
|
810 |
|
Accumulated amortization |
|
|
(245 |
) |
|
|
(197 |
) |
|
|
|
Intangible assets, net |
|
$ |
578 |
|
|
$ |
613 |
|
|
Amortization expense of other intangibles was $26 million and $52 million for the quarter and
six months ended September 30, 2007 and $11 million and $19 million for the quarter and six months
ended September 30, 2006. The weighted average remaining amortization periods for customer lists,
technology and trademarks and other intangible assets at September 30, 2007 were: 9 years, 3 years
and 6 years. Estimated future annual amortization expense of these assets is as follows: $49
million, $92 million, $80 million, $72 million and $65 million for 2008 through 2012, and $215
million thereafter. At September 30, 2007, there was $5 million of other intangibles not subject
to amortization.
9. Financing Activities
In June 2007, we renewed our $700 million committed accounts receivable sales facility. The
facility was renewed under substantially similar terms to those previously in place. The renewed
facility expires in June 2008.
In June 2007, we renewed our existing $1.3 billion five-year, senior unsecured revolving
credit facility, which was scheduled to expire in September 2009. The new credit facility has
terms and conditions substantially similar to those previously in place and expires in June 2012.
Borrowings under this new credit facility bear interest based upon either a Prime rate or the
London Interbank Offering Rate.
As of September 30, 2007, there were no amounts outstanding under any of our borrowing
facilities.
In January 2007, we entered into a $1.8 billion interim credit facility. The interim credit
facility was a single-draw 364-day unsecured facility with terms substantially similar to those
contained in the Companys existing revolving credit facility. We utilized $1.0 billion of this
facility to fund a portion of our purchase of Per-Se. On March 5, 2007, we issued $500 million of
5.25% notes due 2013 and $500 million of 5.70% notes due 2017. The notes are unsecured and
interest is paid semi-annually on March 1 and September 1. The notes are redeemable at any time,
in whole or in part, at our option. In addition, upon occurrence of both a change of control and a
ratings downgrade of the notes to non-investment-grade levels, we are required to make an offer to
redeem the notes at a price equal to 101% of the principal amount plus accrued interest. We
utilized net proceeds after offering expenses of $990 million from the issuance of the notes,
together with cash on hand, to repay all amounts outstanding under the interim credit facility plus
accrued interest.
12
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
10. Pension and Other Postretirement Benefit Plans
Net expense for the Companys defined benefit pension and postretirement plans was $5 million
and $16 million for the second quarter and first half of 2008 compared to $12 million and $23
million for the comparable prior year periods. Cash contributions to these plans for 2008 and 2007
were $19 million and $20 million.
11. Financial Guarantees and Warranties
Financial Guarantees
We have agreements with certain of our customers financial institutions under which we have
guaranteed the repurchase of inventory (primarily for our Canadian businesses), at a discount, in
the event these customers are unable to meet certain obligations to those financial institutions.
Among other limitations, these inventories must be in resalable condition. We have also guaranteed
loans and the payment of leases for some customers; and we are a secured lender for substantially
all of these guarantees. Customer guarantees range from one to ten years and are primarily
provided to facilitate financing for certain strategic customers. At September 30, 2007, the
maximum amounts of inventory repurchase guarantees and other customer guarantees were approximately
$125 million and $7 million, of which a nominal amount has been accrued.
In addition, our banks and insurance companies have issued $92 million of standby letters of
credit and surety bonds on our behalf in order to meet the security requirements for statutory
licenses and permits, court and fiduciary obligations, and our workers compensation and automotive
liability programs.
Our software license agreements generally include certain provisions for indemnifying
customers against liabilities if our software products infringe a third partys intellectual
property rights. To date, we have not incurred any material costs as a result of such
indemnification agreements and have not accrued any liabilities related to such obligations.
In conjunction with certain transactions, primarily divestitures, we may provide routine
indemnification agreements (such as retention of previously existing environmental, tax and
employee liabilities) whose terms vary in duration and often are not explicitly defined. Where
appropriate, obligations for such indemnifications are recorded as liabilities. Because the
amounts of these indemnification obligations often are not explicitly stated, the overall maximum
amount of these commitments cannot be reasonably estimated. Other than obligations recorded as
liabilities at the time of divestiture, we have historically not made significant payments as a
result of these indemnification provisions.
Warranties
In the normal course of business, we provide certain warranties and indemnification protection
for our products and services. For example, we provide warranties that the pharmaceutical and
medical-surgical products we distribute are in compliance with the Food, Drug and Cosmetic Act and
other applicable laws and regulations. We have received the same warranties from our suppliers,
who customarily are the manufacturers of the products. In addition, we have indemnity obligations
to our customers for these products, which have also been provided to us from our suppliers, either
through express agreement or by operation of law.
13
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
We also provide warranties regarding the performance of software and automation products we
sell. Our liability under these warranties is to bring the product into compliance with previously
agreed upon specifications. For software products, this may result in additional project costs
which are reflected in our estimates used for the percentage-of-completion method of accounting for
software installation services within these contracts. In addition, most of our customers who
purchase our software and automation products also purchase annual maintenance agreements. Revenue
from these maintenance agreements is recognized on a straight-line basis over the contract period
and the cost of servicing product warranties is charged to expense when claims become estimable.
Accrued warranty costs were not material to the condensed consolidated balance sheets.
12. Other Commitments and Contingent Liabilities
In our annual report on Form 10-K for the year ended March 31, 2007 and in our Form 10-Q for
the quarter ended June 30, 2007, we reported on numerous legal proceedings, including those arising
out of our 1999 announcement of accounting improprieties at HBO & Company (HBOC), now known as
McKesson Information Solutions LLC (the Securities Litigation). Significant developments in the
Securities Litigation and in other litigation and claims since the referenced filings are as
follows:
I. Securities Litigation
In the previously reported federal class action, In re McKesson HBOC, Inc. Securities
Litigation, (No. C-99-20743 RMW) (Consolidated Action), the last remaining defendant, Bear
Stearns & Co., Inc. (Bear Stearns), Lead Plaintiff for the class and the Company have entered
into a stipulation of settlement (Bear Stearns Settlement) which was given preliminary approval
by Judge Whyte by order entered on September 28, 2007. The court has scheduled a hearing on final
approval of the Bear Stearns Settlement for January 4, 2008. If final approval is granted, and if
that approval is not upset on appeal, the Bear Stearns Settlement will dispose of the last of the
claims by the class in the federal class action and will also fully and finally settle all disputes
and claims brought by Bear Stearns against the Company, including the previously reported action,
Bear Stearns & Co., Inc. v. McKesson Corporation (No. 604304/5), pending in the trial court for the
State and County of New York. Also pursuant to the terms of the Bear Stearns Settlement, on
October 9, 2007, the previously reported appeal taken by Bear Stearns from Judge Whytes February
24, 2006 order granting final approval of the Companys own settlement in the Consolidated Action
(McKesson Settlement) was dismissed with prejudice, thus triggering the effective date of the
McKesson Settlement and eliminating the last condition to its finality. The dismissal of the Bear
Stearns appeal, and thus the effective date and finality of the McKesson Settlement, is not
conditioned on final approval of the Bear Stearns Settlement. As a result of this development,
during the third quarter of 2008, the Company will remove its $962 million Securities Litigation
liability and corresponding restricted cash balances from its consolidated financial statements as
all criteria for the extinguishment of this liability have been met.
The previously reported federal action in which we brought suit against Arthur Andersen LLP
(Andersen) and its former partner, Robert A. Putnam, on various legal theories in connection with
those defendants role as auditors for HBOC, McKesson Corporation et al. v. Arthur Andersen et al.,
(No. 05-04020 RMW), and the related federal action in which Andersen brought suit against us and
HBOC, Arthur Andersen v. McKesson Corporation et al., (No. C-06-02035-JW), have been settled.
14
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
II. Other Litigation and Claims
On August 27, 2007, in the previously reported class action, New England Carpenters Health
Benefits Fund et al., v. First DataBank, Inc. and McKesson Corporation, (Civil Action No.
05-11148), pending in the United States District Court of Massachusetts, the court issued its
ruling on plaintiffs petition for class certification. The court certified a class of third party
payors for purposes of liability and equitable relief, but declined to certify such a class for
purposes of a damages award. The court did certify a class of percentage co-pay consumers on
issues of both liability and damages. The court has set a hearing date of November 13, 2007 to
further address the class issues, including whether a damages class can be certified for third
party payors. Following the courts class certification order, plaintiffs filed a motion seeking
leave to amend their complaint to add a new class of uninsured consumers who paid usual and
customary cash prices, and to add a Sherman Act or alternatively a state antitrust claim on behalf
of all classes. The court has set a hearing date of January 22, 2008 to consider final approval of
the previously publicly reported proposed settlements with both First DataBank, Inc. and Medi-Span,
Inc.
As indicated in our previous periodic reports, the health care industry is highly regulated
and government agencies continue to increase their scrutiny over certain practices affecting
government programs. From time to time, the Company receives subpoenas or requests for information
from various government agencies. The Company generally responds to such subpoenas and requests
for information in a cooperative, thorough and timely manner. These responses sometimes require
considerable time and effort, and can result in considerable costs to
the Company. Such
subpoenas and requests also can lead to the assertion of claims or
the commencement of legal proceedings against the Company and other
members of the health care industry, as well as to settlements,
penalties or other outcomes having an adverse impact on our results of
operations.
13. Stockholders Equity
Comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
(In millions) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Net income |
|
$ |
247 |
|
|
$ |
229 |
|
|
$ |
482 |
|
|
$ |
413 |
|
Foreign currency
translation adjustments |
|
|
59 |
|
|
|
1 |
|
|
|
110 |
|
|
|
42 |
|
Other |
|
|
9 |
|
|
|
(1 |
) |
|
|
9 |
|
|
|
(3 |
) |
|
|
|
Comprehensive income |
|
$ |
315 |
|
|
$ |
229 |
|
|
$ |
601 |
|
|
$ |
452 |
|
|
In April 2007, the Companys Board of Directors approved a plan to repurchase up to $1.0
billion of the Companys common stock. In the second quarter and first half of 2008, we
repurchased a total of 8 million and 12 million shares for $427 million and $684 million leaving
$316 million remaining on the April 2007 plan. In September 2007, an additional $1.0 billion share
repurchase program was approved and $1,316 million remains available for future repurchases as of
September 30, 2007. Stock repurchases may be made from time-to-time in open market or private
transactions.
15
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
14. Segment Information
Beginning with the first quarter of 2008, we report our operations in two operating segments:
McKesson Distribution Solutions and McKesson Technology Solutions. This change resulted from a
realignment of our businesses to better coordinate our operations with the needs of our customers.
The factors for determining the reportable segments included the manner in which management
evaluated the performance of the Company combined with the nature of the individual business
activities. We evaluate the performance of our operating segments based on operating profit before
interest expense, income taxes and results from discontinued operations. In accordance with SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information, all prior period
amounts are reclassified to conform to the 2008 segment presentation.
The Distribution Solutions segment distributes ethical and proprietary drugs, medical-surgical
supplies and equipment, and health and beauty care products throughout North America. We have
combined two of our former segments known as our Pharmaceutical Solutions and Medical-Surgical
Solutions segments into this new segment, which reflects the increasing synergies the Company seeks
through combined activities and best-practice process improvements. This segment also provides
specialty pharmaceutical solutions for biotech and pharmaceutical manufacturers, sells pharmacy
software, and provides consulting, outsourcing and other services. This segment includes a 49%
interest in Nadro, S.A. de C.V., the leading pharmaceutical distributor in Mexico and a 39%
interest in Parata, which sells automated pharmaceutical dispensing systems to retail pharmacies.
The Technology Solutions segment (formerly known as our Provider Technologies segment)
delivers enterprise-wide patient care, clinical, financial, supply chain, strategic management
software solutions, pharmacy automation for hospitals, as well as connectivity, outsourcing and
other services, to healthcare organizations throughout North America, the United Kingdom and other
European countries. The segments customers include hospitals, physicians, homecare providers,
retail pharmacies and payors. We have added our Payor group of businesses, which includes our
InterQual® and clinical auditing and compliance software businesses, and our disease and medical
management programs to this segment. The change to move our Payor group to this segment from our
former Pharmaceutical Solutions segment reflects our decision to more closely align this business
with the strategy of our Technology Solutions segment, that is to create value by promoting
connectivity, economic alignment and transparency of information between payors and providers.
Revenues for our Technology Solutions segment are classified in one of three categories:
services, software and software systems and hardware. Service revenues primarily include fees
associated with installing our software and software systems, as well as revenues associated with
software maintenance and support, remote processing, disease and medical management, and other
outsourcing and professional services. Software and software systems revenues primarily include
revenues from licensing our software and software systems, including the segments clinical
auditing and compliance and InterQual® businesses.
Our Corporate segment includes expenses associated with Corporate functions and projects,
certain employee benefits, and the results of certain joint venture investments. Corporate
expenses are allocated to the operating segments to the extent that these items can be directly
attributable to the segment.
16
McKESSON CORPORATION
FINANCIAL
NOTES (CONTINUED)
(UNAUDITED)
Financial information relating to our segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
(In millions) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. pharmaceutical direct distribution &
services |
|
$ |
14,372 |
|
|
$ |
13,147 |
|
|
$ |
28,570 |
|
|
$ |
26,550 |
|
U.S. pharmaceutical sales to customers
warehouses |
|
|
6,826 |
|
|
|
6,483 |
|
|
|
14,068 |
|
|
|
13,577 |
|
|
|
|
Subtotal |
|
|
21,198 |
|
|
|
19,630 |
|
|
|
42,638 |
|
|
|
40,127 |
|
Canada pharmaceutical distribution & services |
|
|
1,898 |
|
|
|
1,651 |
|
|
|
3,662 |
|
|
|
3,401 |
|
Medical-Surgical distribution and services |
|
|
642 |
|
|
|
580 |
|
|
|
1,236 |
|
|
|
1,157 |
|
|
|
|
Total Distribution Solutions |
|
$ |
23,738 |
|
|
$ |
21,861 |
|
|
$ |
47,536 |
|
|
$ |
44,685 |
|
|
|
|
Technology Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services (1) |
|
|
538 |
|
|
|
355 |
|
|
|
1,091 |
|
|
|
687 |
|
Software and software systems |
|
|
139 |
|
|
|
134 |
|
|
|
277 |
|
|
|
253 |
|
Hardware |
|
|
35 |
|
|
|
36 |
|
|
|
74 |
|
|
|
76 |
|
|
|
|
Total Technology Solutions |
|
|
712 |
|
|
|
525 |
|
|
|
1,442 |
|
|
|
1,016 |
|
|
|
|
Total |
|
$ |
24,450 |
|
|
$ |
22,386 |
|
|
$ |
48,978 |
|
|
$ |
45,701 |
|
|
|
|
Operating profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Solutions (2) (3) |
|
$ |
366 |
|
|
$ |
328 |
|
|
$ |
706 |
|
|
$ |
641 |
|
Technology Solutions (1) |
|
|
66 |
|
|
|
52 |
|
|
|
166 |
|
|
|
88 |
|
|
|
|
Total |
|
|
432 |
|
|
|
380 |
|
|
|
872 |
|
|
|
729 |
|
Corporate |
|
|
(42 |
) |
|
|
(48 |
) |
|
|
(89 |
) |
|
|
(90 |
) |
Securities Litigation credit, net |
|
|
5 |
|
|
|
6 |
|
|
|
5 |
|
|
|
6 |
|
Interest Expense |
|
|
(36 |
) |
|
|
(22 |
) |
|
|
(72 |
) |
|
|
(45 |
) |
|
|
|
Income from continuing operations before income
taxes |
|
$ |
359 |
|
|
$ |
316 |
|
|
$ |
716 |
|
|
$ |
600 |
|
|
|
|
|
(1) |
|
Revenues and operating profit for the first half of 2008 reflect the recognition of $21
million of disease management deferred revenues. Expenses associated with these revenues were
previously recognized as incurred. |
|
(2) |
|
During the first half of 2008, and the second quarter and first half of 2007, we received $14
million, $10 million and $10 million as our share of settlements of antitrust class action
lawsuits brought against certain drug manufacturers. These settlements were recorded as
reductions to cost of sales within our consolidated statements of operations in our
Distribution Solutions segment. |
|
(3) |
|
During the first half of 2007, we recorded $21 million of charges within our Distribution
Solutions segment as a result of our transaction with Parata. Refer to Financial Note 2,
Acquisitions and Investments. |
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
March 31, |
(In millions) |
|
2007 |
|
2007 |
|
Segment assets |
|
|
|
|
|
|
|
|
Distribution Solutions |
|
$ |
16,912 |
|
|
$ |
16,429 |
|
Technology Solutions |
|
|
3,752 |
|
|
|
3,642 |
|
|
|
|
Total |
|
|
20,664 |
|
|
|
20,071 |
|
Corporate
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
2,518 |
|
|
|
1,954 |
|
Other |
|
|
1,852 |
|
|
|
1,918 |
|
|
|
|
Total |
|
$ |
25,034 |
|
|
$ |
23,943 |
|
|
17
McKESSON CORPORATION
FINANCIAL
NOTES (CONCLUDED)
(UNAUDITED)
15. Subsequent Event
On
October 29, 2007, we acquired all of the outstanding shares of Oncology Therapeutics
Network (OTN) of San Francisco, California for
approximately $575 million, including the
assumption of debt. OTN is a U.S. distributor of specialty pharmaceuticals. The acquisition was
funded with cash on hand. The results of OTN will be included in the consolidated financial
statements within our Distribution Solutions segment.
18
McKESSON CORPORATION
FINANCIAL REVIEW
(UNAUDITED)
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Financial Overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
(In millions, except per share data) |
|
2007 |
|
2006 |
|
Change |
|
2007 |
|
2006 |
|
Change |
|
Revenues |
|
$ |
24,450 |
|
|
$ |
22,386 |
|
|
|
9 |
% |
|
$ |
48,978 |
|
|
$ |
45,701 |
|
|
|
7 |
% |
Securities Litigation
pre-tax credit, net |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
(17 |
) |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
(17 |
) |
Income from Continuing
Operations Before Income
Taxes |
|
|
359 |
|
|
|
316 |
|
|
|
14 |
|
|
|
716 |
|
|
|
600 |
|
|
|
19 |
|
Income Tax Provision |
|
|
(112 |
) |
|
|
(29 |
) |
|
|
286 |
|
|
|
(233 |
) |
|
|
(129 |
) |
|
|
81 |
|
Discontinued Operations, net |
|
|
|
|
|
|
(58 |
) |
|
NM |
|
|
(1 |
) |
|
|
(58 |
) |
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
247 |
|
|
$ |
229 |
|
|
|
8 |
|
|
$ |
482 |
|
|
$ |
413 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
$ |
0.83 |
|
|
$ |
0.94 |
|
|
|
(12 |
)% |
|
$ |
1.60 |
|
|
$ |
1.54 |
|
|
|
4 |
% |
Discontinued Operations |
|
|
|
|
|
|
(0.19 |
) |
|
NM |
|
|
|
|
|
|
(0.19 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
0.83 |
|
|
$ |
0.75 |
|
|
|
11 |
|
|
$ |
1.60 |
|
|
$ |
1.35 |
|
|
|
19 |
|
|
NM not meaningful
Revenues for the quarter ended September 30, 2007 grew 9% to $24.5 billion, net income
increased 8% to $247 million and diluted earnings per share increased 11% to $0.83 compared to the
same period a year ago. For the first half of 2008, revenue increased 7% to $49.0 billion, net
income increased 17% to $482 million and diluted earnings per share increased 19% to $1.60 compared
to the same period a year ago.
Increases in net income and diluted earnings per share reflect higher operating profit in our
Distribution Solutions and Technology Solutions segments, including our fourth quarter 2007
acquisition of Per-Se Technologies, Inc. (Per-Se), and a decrease in our effective tax rate.
Additionally, net income and diluted earnings per share for 2007 were impacted by an $83 million
credit to our income tax provision relating to the reversal of income tax reserves for our
Securities Litigation. This credit was partially offset by $58 million of after-tax losses
associated with our discontinued operations, primarily due to the disposal of our Medical-Surgical
Acute Care business. On September 30, 2006, we sold this business for net cash proceeds of $160
million. Second quarter 2007 financial results for the Acute Care business were an after-tax loss
of $67 million, which includes a $79 million non-tax deductible write-off of goodwill.
19
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)
Results of Operations
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
(In millions) |
|
2007 |
|
2006 |
|
Change |
|
2007 |
|
2006 |
|
Change |
|
Distribution Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
pharmaceutical
direct
distribution &
services |
|
$ |
14,372 |
|
|
$ |
13,147 |
|
|
|
9 |
% |
|
$ |
28,570 |
|
|
$ |
26,550 |
|
|
|
8 |
% |
U.S.
pharmaceutical
sales to
customers
warehouses |
|
|
6,826 |
|
|
|
6,483 |
|
|
|
5 |
|
|
|
14,068 |
|
|
|
13,577 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
21,198 |
|
|
|
19,630 |
|
|
|
8 |
|
|
|
42,638 |
|
|
|
40,127 |
|
|
|
6 |
|
Canada
pharmaceutical
distribution &
services |
|
|
1,898 |
|
|
|
1,651 |
|
|
|
15 |
|
|
|
3,662 |
|
|
|
3,401 |
|
|
|
8 |
|
Medical-Surgical
distribution &
services |
|
|
642 |
|
|
|
580 |
|
|
|
11 |
|
|
|
1,236 |
|
|
|
1,157 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Distribution
Solutions |
|
|
23,738 |
|
|
|
21,861 |
|
|
|
9 |
|
|
|
47,536 |
|
|
|
44,685 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
538 |
|
|
|
355 |
|
|
|
52 |
|
|
|
1,091 |
|
|
|
687 |
|
|
|
59 |
|
Software and
software systems |
|
|
139 |
|
|
|
134 |
|
|
|
4 |
|
|
|
277 |
|
|
|
253 |
|
|
|
9 |
|
Hardware |
|
|
35 |
|
|
|
36 |
|
|
|
(3 |
) |
|
|
74 |
|
|
|
76 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Technology
Solutions |
|
|
712 |
|
|
|
525 |
|
|
|
36 |
|
|
|
1,442 |
|
|
|
1,016 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
$ |
24,450 |
|
|
$ |
22,386 |
|
|
|
9 |
|
|
$ |
48,978 |
|
|
$ |
45,701 |
|
|
|
7 |
|
|
Revenues increased by 9% and 7% to $24.5 billion and $49.0 billion during the quarter and six
months ended September 30, 2007 compared to the same periods a year ago. The increase primarily
reflects growth in our Distribution Solutions segment. The Distribution Solutions segment
accounted for over 97% of consolidated revenues.
U.S. pharmaceutical direct distribution and services revenues increased primarily reflecting
market growth rates and new business. For the first half of 2008, these revenues were also
impacted by the loss of a large customer. U.S. pharmaceutical sales to customers warehouses
increased primarily due to expanded agreements with customers. For the first half of 2008, these
revenues were also impacted by a decrease in volume from a large customer.
Canadian pharmaceutical distribution revenues increased primarily reflecting market growth
rates and favorable foreign exchange rates. Partially offsetting these increases, revenues for the
first half of 2008 had one less week of sales. Canadian revenues benefited in the second quarter
and first half of 2008 from an 8% and a 5% foreign currency increase compared to the same periods a
year ago.
Medical-Surgical distribution and services revenues increased primarily reflecting market
growth rates, an acquisition and greater sales of flu vaccines due to
earlier market availability. For the first half of 2008, these
revenues were also impacted by one less week of sales.
Technology Solutions segment revenues increased primarily due to the acquisition of Per-Se,
increased services revenues, primarily reflecting the segments expanded customer bases, and
clinical software implementations. On January 26, 2007, we acquired Per-Se of Alpharetta, Georgia
for approximately $1.8 billion. Per-Se is a leading provider of financial and administrative
healthcare solutions for hospitals, physicians and retail pharmacies. For the first half of 2008,
these revenues also benefited from the recognition of $21 million of disease management deferred
revenues. Expenses associated with these revenues were previously recognized as incurred.
20
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
(Dollars in millions) |
|
2007 |
|
2006 |
|
Change |
|
2007 |
|
2006 |
|
Change |
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Solutions |
|
$ |
848 |
|
|
$ |
769 |
|
|
|
10 |
% |
|
$ |
1,670 |
|
|
$ |
1,539 |
|
|
|
9 |
% |
Technology Solutions |
|
|
333 |
|
|
|
255 |
|
|
|
31 |
|
|
|
688 |
|
|
|
481 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,181 |
|
|
$ |
1,024 |
|
|
|
15 |
|
|
$ |
2,358 |
|
|
$ |
2,020 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Solutions |
|
|
3.57 |
% |
|
|
3.52 |
% |
| |
5 |
bp | |
|
3.51 |
% |
|
|
3.44 |
% |
| |
7 |
bp |
Technology Solutions |
|
|
46.77 |
|
|
|
48.57 |
|
|
|
(180 |
) |
|
|
47.71 |
|
|
|
47.34 |
|
|
|
37 |
|
Total |
|
|
4.83 |
|
|
|
4.57 |
|
|
|
26 |
|
|
|
4.81 |
|
|
|
4.42 |
|
|
|
39 |
|
|
Gross profit for the second quarter and first half of 2008 increased 15% and 17% to $1,181
million and $2,358 million. As a percentage of revenues, gross profit margin increased 26 basis
points to 4.83% for the second quarter of 2008 and 39 basis points to 4.81% for the first half of
2008. Gross profit margin increased primarily reflecting a greater proportion of higher
margin Technology Solutions products and favorable margin expansion
in our Distribution Solutions segment.
For
the second quarter of 2008, gross profit margin for our Distribution
Solutions segment increased primarily due to higher buy side margin,
the benefit of increased sales of generic drugs with higher margins,
and a benefit associated with a lower proportion of revenues within
the segment attributed to sales to customers warehouses, which
have lower gross profit margins relative to other revenues within the
segment. These positive gross profit margin benefits were partially reduced
by a decrease in sell margin, a decrease in last-in, first-out
(LIFO) inventory credits and a decrease in anti-trust
settlements. There were no LIFO inventory credits or antitrust
settlements during the second quarter of 2008. For the second quarter
of 2007, we recorded $10 million of LIFO inventory credits and
$10 million for an antitrust settlement. LIFO inventory credits
reflected a number of generic product launches partially offset by a
higher level of branded pharmaceutical price increases. Antitrust
settlements represent cash proceeds from various antitrust class
action lawsuits.
For the
first half of 2008, gross profit margin for our Distribution
Solutions segment increased primarily due to higher buy side margin,
the benefit of increased sales of generic drugs with higher margins,
a benefit associated with a lower proportion of revenues within the
segment attributed to sales to customers warehouses, which have
lower gross profit margins relative to other revenues within the
segment, a decrease in asset impairment charges and an increase in
antitrust settlements. During the first quarter of 2007, we recorded
a $15 million charge pertaining to the write-down of certain
abandoned assets within our retail automation group. For the first
half of 2008 and 2007, antitrust settlements were $14 million
and $10 million. These positive gross profit margin benefits were
partially reduced by a decrease in sell margin and a decrease in LIFO
inventory credits. There were no LIFO inventory credits during the
first half of 2008 compared with $20 million for the first half of
2007.
21
McKESSON CORPORATION
FINANCIAL
REVIEW (CONTINUED)
(UNAUDITED)
Technology Solutions segments gross profit margin decreased during the quarter ended
September 30, 2007 and increased for the first half of 2008 compared to the same periods a year
ago. In 2008, gross profit margin declined primarily due to a change
in product mix, including a higher proportion of Per-Se service
revenues. Partially
offsetting this decrease, the segments gross profit margin in the first half of 2008 was
positively impacted by the recognition of $21 million of disease management deferred revenues for
which expenses associated with these revenues were previously recognized as incurred.
Operating Expenses and Other Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
(Dollars in millions) |
|
2007 |
|
2006 |
|
Change |
|
2007 |
|
2006 |
|
Change |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Solutions |
|
$ |
491 |
|
|
$ |
448 |
|
|
|
10 |
% |
|
$ |
987 |
|
|
$ |
918 |
|
|
|
8 |
% |
Technology Solutions |
|
|
270 |
|
|
|
206 |
|
|
|
31 |
|
|
|
527 |
|
|
|
398 |
|
|
|
32 |
|
Corporate |
|
|
66 |
|
|
|
70 |
|
|
|
(6 |
) |
|
|
134 |
|
|
|
132 |
|
|
|
2 |
|
Securities Litigation
credit, net |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
(17 |
) |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
822 |
|
|
$ |
718 |
|
|
|
14 |
|
|
$ |
1,643 |
|
|
$ |
1,442 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses as a
Percentage of Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Solutions |
|
|
2.07 |
% |
|
|
2.05 |
% |
| |
2 |
bp | |
|
2.08 |
% |
|
|
2.05 |
% |
| |
3 |
bp |
Technology Solutions |
|
|
37.92 |
|
|
|
39.24 |
|
|
|
(132 |
) |
|
|
36.55 |
|
|
|
39.17 |
|
|
|
(262 |
) |
Total |
|
|
3.36 |
|
|
|
3.21 |
|
|
|
15 |
|
|
|
3.35 |
|
|
|
3.16 |
|
|
|
19 |
|
Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Solutions |
|
$ |
9 |
|
|
$ |
7 |
|
|
|
29 |
% |
|
$ |
23 |
|
|
$ |
20 |
|
|
|
15 |
% |
Technology Solutions |
|
|
3 |
|
|
|
3 |
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
Corporate |
|
|
24 |
|
|
|
22 |
|
|
|
9 |
|
|
|
45 |
|
|
|
42 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
36 |
|
|
$ |
32 |
|
|
|
13 |
|
|
$ |
73 |
|
|
$ |
67 |
|
|
|
9 |
|
|
Operating expenses for the second quarter and first half of 2008 increased 14% to $822 million
and $1,643 million. As a percentage of revenues, operating expenses for the second quarter and
first half of 2008 increased 15 and 19 basis points to 3.36% and 3.35%. Operating expense dollars
increased primarily due to our business acquisitions, including Per-Se, additional costs incurred
to support our sales volume growth and, to a lesser extent, due to employee compensation costs
associated with the requirement to expense share-based compensation. Pre-tax share-based
compensation for the second quarter and first half of 2008 was $28 million and $47 million and $16
million and $24 million for the comparable prior year periods. Other income, net increased
slightly in 2008 compared with 2007.
Due to the accelerated vesting of share-based awards prior to 2007, we anticipate the impact
of Statement of Financial Accounting Standards (SFAS)
No. 123(R), Share-Based Payment, to increase in significance as
future awards of share-based compensation are granted and amortized over the requisite service
period. Share-based compensation charges are affected by our stock price as well as assumptions
regarding a number of complex and subjective variables and the related tax impact. These variables
include, but are not limited to, the volatility of our stock price, employee stock option exercise
behavior, timing, level and types of our grants of annual share-based awards, the attainment of
performance goals and actual forfeiture rates. As a result, the actual future share-based
compensation expense may differ from historical levels of expense. Refer to Financial Note 4,
Share-Based Payment, to the accompanying condensed consolidated financial statements for further
information on our share-based compensation.
22
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)
Segment Operating Profit and Corporate Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
(Dollars in millions) |
|
2007 |
|
2006 |
|
Change |
|
2007 |
|
2006 |
|
Change |
|
Segment Operating Profit (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Solutions |
|
$ |
366 |
|
|
$ |
328 |
|
|
|
12 |
% |
|
$ |
706 |
|
|
$ |
641 |
|
|
|
10 |
% |
Technology Solutions |
|
|
66 |
|
|
|
52 |
|
|
|
27 |
|
|
|
166 |
|
|
|
88 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
432 |
|
|
|
380 |
|
|
|
14 |
|
|
|
872 |
|
|
|
729 |
|
|
|
20 |
|
Corporate Expenses, net |
|
|
(42 |
) |
|
|
(48 |
) |
|
|
(13 |
) |
|
|
(89 |
) |
|
|
(90 |
) |
|
|
(1 |
) |
Securities Litigation credit, net |
|
|
5 |
|
|
|
6 |
|
|
|
(17 |
) |
|
|
5 |
|
|
|
6 |
|
|
|
(17 |
) |
Interest Expense |
|
|
(36 |
) |
|
|
(22 |
) |
|
|
64 |
|
|
|
(72 |
) |
|
|
(45 |
) |
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations,
Before Income Taxes |
|
$ |
359 |
|
|
$ |
316 |
|
|
|
14 |
|
|
$ |
716 |
|
|
$ |
600 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Profit Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution Solutions |
|
|
1.54 |
% |
|
|
1.50 |
% |
| |
4 |
bp | |
|
1.49 |
% |
|
|
1.43 |
% |
| |
6 |
bp |
Technology Solutions |
|
|
9.27 |
|
|
|
9.90 |
|
|
|
(63 |
) |
|
|
11.51 |
|
|
|
8.66 |
|
|
|
285 |
|
|
|
|
|
(1) |
|
Segment operating profit includes gross profit, net of operating expenses plus other income
for our two business segments. |
Operating profit as a percentage of revenues in our Distribution Solutions segment increased
reflecting higher gross profit margin, partially offset by slightly higher operating expenses as a
percentage of revenues. Operating expenses increased primarily due to additional costs incurred to
support our sales volume growth and business acquisitions.
Operating profit as a percentage of revenues in our Technology Solutions segment decreased
during the second quarter of 2008 and increased during the first half of 2008. Excluding the $21
million of deferred revenue recognized in 2008 for which expenses had been recognized in prior
years, operating profit margin declined in both periods reflecting a decrease in the segments
gross profit margin partially offset by favorable operating expenses as a percentage of revenues.
Operating expenses as a percentage of revenues decreased primarily reflecting the acquisition of
Per-Se. Operating expenses increased primarily due to business acquisitions, including Per-Se,
investments in research and development activities and additional share-based compensation.
Share-based compensation expense for this segment was $11 million and $18 million for the second
quarter and first half of 2008 and $5 million and $8 million for the comparable prior year periods.
In addition, operating expenses for the first half of 2007 include $7 million of restructuring
charges incurred to reallocate product development and marketing resources and to realign one of
the segments international businesses.
Corporate expenses, net of other income, decreased slightly primarily reflecting a decrease in
legal expenses associated with our Securities Litigation. This decrease was partially offset by
additional costs incurred to support our revenue growth and an increase in share-based compensation
expense.
23
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)
Securities Litigation: In 2008 and 2007, we recorded net credits of $5 million and $6 million
relating to various settlements for our Securities Litigation. Recent developments pertaining to
our Securities Litigation are described in Financial Note 12, Other Commitments and Contingent
Liabilities, to the accompanying condensed consolidated financial statements.
Interest Expense: Interest expense for the second quarter and first half of 2008 increased
compared to the same periods a year ago primarily due to $1.0 billion of long-term debt issued in
the fourth quarter of 2007 to fund our acquisition of Per-Se.
Income Taxes: The Companys reported income tax rates for the second quarters of 2008 and
2007 were 31.2% and 9.2% and for the first half of 2008 and 2007, were 32.5% and 21.5%. In
addition to the items noted below, fluctuations in our reported tax rate are primarily due to
changes within state and foreign tax rates resulting from our business mix, including varying
proportions of income attributable to foreign countries that have lower income tax rates.
During the second quarter of 2008, we decreased our estimated annual effective tax rate from a
range of 34% 35% to 33.0% primarily due to an estimated higher proportion of income attributed to
foreign countries. This decrease required a $3 million cumulative catch-up benefit to income taxes
associated with the first quarter of 2008.
During the second quarter of 2007, we recorded a credit to income tax expense of $83 million,
which primarily pertains to our receipt of a private letter ruling from the U.S. Internal Revenue
Service holding that our payment of approximately $960 million
to settle the Consolidated Action is fully tax-deductible. We previously established tax reserves to
reflect the lack of certainty regarding the tax deductibility of settlement amounts paid in the
Consolidated Action and related litigation.
Discontinued Operations: In the second quarter of 2007, we completed the divestiture of our
Distribution Solutions segments Medical-Surgical Acute Care supply business for net cash proceeds
of approximately $160 million. The divestiture generated an after-tax loss of $61 million, which
included a $79 million non-tax deductible write-off of goodwill. The segment also sold a
wholly-owned subsidiary, Pharmaceutical Buyers Inc., for net cash proceeds of $10 million. The
divestiture resulted in an after-tax gain of $5 million resulting from the tax basis of the
subsidiary exceeding its carrying value. Financial results of these businesses are classified as
discontinued operations for all periods presented in the accompanying condensed consolidated
financial statements.
Net Income: Net income was $247 million and $229 million for the second quarter of 2008 and
2007, or $0.83 and $0.75 per diluted share. Net income was $482 million and $413 million for the
first half of 2008 and 2007, or $1.60 and $1.35 per diluted share. Net income for 2008 and 2007
includes a net after-tax benefit of $3 million and $87 million for our Securities Litigation. Net
income for the second quarter and first half of 2007 also includes $58 million of after-tax losses for our discontinued operations
primarily pertaining to the disposition of our Medical-Surgical Acute Care business.
24
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)
A reconciliation between our income from continuing operations per share reported in
conformity with generally accepted accounting principles in the United States of America (U.S.
GAAP) and our earnings per diluted share from continuing operations, excluding credits for the
Securities Litigation, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
|
September 30, |
|
September 30, |
(In millions except per share amounts) |
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Income from continuing operations,
as reported |
|
$ |
247 |
|
|
$ |
287 |
|
|
$ |
483 |
|
|
$ |
471 |
|
Exclude: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Litigation credit, net |
|
|
(5 |
) |
|
|
(6 |
) |
|
|
(5 |
) |
|
|
(6 |
) |
Income taxes |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
Income tax reserve reversals |
|
|
|
|
|
|
(83 |
) |
|
|
|
|
|
|
(83 |
) |
|
|
|
Securities Litigation credit,
net of tax |
|
|
(3 |
) |
|
|
(87 |
) |
|
|
(3 |
) |
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations,
excluding Securities Litigation
credit, net |
|
$ |
244 |
|
|
$ |
200 |
|
|
$ |
480 |
|
|
$ |
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
from continuing operations, as
reported |
|
$ |
0.83 |
|
|
$ |
0.94 |
|
|
$ |
1.60 |
|
|
$ |
1.54 |
|
Diluted earnings per common share
from continuing operations,
excluding Securities Litigation
credit |
|
$ |
0.82 |
|
|
$ |
0.66 |
|
|
$ |
1.59 |
|
|
$ |
1.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares on which diluted earnings
per common share, excluding the
Securities Litigation credit, were
based |
|
|
299 |
|
|
|
305 |
|
|
|
302 |
|
|
|
307 |
|
|
These pro forma amounts are non-GAAP financial measures. We use these measures internally and
consider these results to be useful to investors as they provide relevant benchmarks of core
operating performance.
25
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)
Weighted Average Diluted Shares Outstanding: Diluted earnings per share were calculated based
on an average number of diluted shares outstanding of 299 million and 305 million for the second
quarters of 2008 and 2007 and 302 million and 307 million for the six months ended September 30,
2007 and 2006. The decrease in the number of weighted average diluted shares outstanding primarily
reflects stock repurchased, partially offset by exercised stock options.
Business Acquisitions
On
October 29, 2007, we acquired all of the outstanding shares of Oncology Therapeutics
Network (OTN) of San Francisco, California for
approximately $575 million, including the
assumption of debt. OTN is a U.S. distributor of specialty pharmaceuticals. The acquisition was
funded with cash on hand. The results of OTN will be included in the consolidated financial
statements within our Distribution Solutions segment.
In 2007, we made the following acquisitions and investment:
|
|
On January 26, 2007, we acquired all of the outstanding shares of
Per-Se of Alpharetta, Georgia for $28.00 per share in cash plus
the assumption of Per-Ses debt, or approximately $1.8 billion in
aggregate, including cash acquired of $76 million. Per-Se is a
leading provider of financial and administrative healthcare
solutions for hospitals, physicians and retail pharmacies.
Financial results for Per-Se are primarily included within our
Technology Solutions segment since the date of acquisition. The
acquisition was initially funded with cash on hand and through the
use of an interim credit facility. In March 2007, we issued $1
billion of long-term debt, with such net proceeds after offering
expenses from the issuance, together with cash on hand, being used
to fully repay borrowings outstanding under the interim credit
facility. |
Approximately $1,252 million of the preliminary purchase price allocation has been assigned to
goodwill. Included in the purchase price allocation are acquired identifiable intangibles of
$402 million representing customer relationships with a weighted-average life of 10 years,
developed technology of $56 million with a weighted-average life of 5 years, and trademarks and
tradenames of $13 million with a weighted-average life of 5 years.
|
|
Our Technology Solutions segment acquired RelayHealth Corporation
(RelayHealth) based in Emeryville, California. RelayHealth is a
provider of secure online healthcare communication services
linking patients, healthcare professionals, payors and pharmacies.
This segment also acquired two other entities, one specializing
in patient billing solutions designed to simplify and enhance
healthcare providers financial interactions with their patients,
and the other a provider of integrated software for electronic
health records, medical billing and appointment scheduling for
independent physician practices. The total cost of these three
entities was $90 million, which was paid in cash. Goodwill
recognized in these transactions amounted to $63 million. |
|
|
|
Our Distribution Solutions segment acquired Sterling Medical
Services LLC (Sterling) based in Moorestown, New Jersey.
Sterling is a national provider and distributor of disposable
medical supplies, health management services and quality
management programs to the home care market. This segment also
acquired a medical supply sourcing agent. The total cost of these
two entities was $95 million, which was paid in cash. Goodwill
recognized in these transactions amounted to $47 million. |
|
|
|
We contributed $36 million in cash and $45 million in net assets
primarily from our Automated Prescription Systems business to
Parata Systems, LLC (Parata,) in exchange for a minority
interest in Parata. Our investment in Parata is accounted for
under the equity method of accounting within our Distribution
Solutions segment. |
26
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)
During the last two years, we also completed a number of other smaller acquisitions and
investments within both of our operating segments. Financial results for our business acquisitions
have been included in our consolidated financial statements since their respective acquisition
dates. Purchase prices for our business acquisitions have been allocated based on estimated fair
values at the date of acquisition and, for certain recent acquisitions, may be subject to change.
Goodwill recognized for our business acquisitions is not expected to be deductible for tax
purposes. Pro forma results of operations for our business acquisitions have not been presented
because the effects were not material to the consolidated financial statements on either an
individual or an aggregate basis. Refer to Financial Note 2, Acquisitions and Investments, to
the accompanying condensed consolidated financial statements for further discussions regarding our
acquisitions and investing activities.
New Accounting Developments
See Financial Note 1, Significant Accounting Policies, to the condensed consolidated
financial statements for information on recently issued accounting standards.
Contractual
Obligations
There
have been no significant changes to our contractual obligations and
commitments table as disclosed in our Annual Report on Form 10-K
for the year ended March 31, 2007, expect for those incurred
during the normal course of business and a change related to our
adoption of Financial Accounting Standards Board Interpretation
(FIN) No. 48, Accounting for Uncertainty in
Income Taxes. As disclosed in Financial Note 1,
Significant Accounting Policies, to the accompanying
condensed consolidated financial statements, we had
$465 million and $488 million of unrecognized tax benefits
at April 1, 2007 and September 30, 2007. These liabilities
would increase our contractual obligations as reported in our 2007
Annual Report on Form 10-K. We can not reasonably estimate the
timing of cash settlement with respective taxing authorities for
these liabilities.
Financial Condition, Liquidity, and Capital Resources
Operating activities provided cash of $1,272 million and $685 million during the first half of
2008 and 2007. Operating activities for 2008 reflect improved inventory management and an increase
in accounts payable associated with longer payment terms, partially offset by an increase in
receivables associated with longer payment terms. Operating activities for 2007 benefited from
improved accounts receivable management, reflecting changes in our customer mix, our termination of
a customer contract and an increase in accounts payable associated with longer payment terms.
These benefits were partially offset by increases in inventory needed to support our growth. Cash
flows from operations can be significantly impacted by factors such as the timing of receipts from
customers and payments to vendors.
Investing
activities utilized cash of $228 million and $109 million during the first half of
2008 and 2007. Investing activities for 2008 and 2007 include $83 million and $51 million of
property acquisitions. The increase primarily reflects investments in our distribution center
network and information systems. Investing activities include $51 million and $95 million in 2008
and 2007 of cash paid for business acquisitions. Investing activities for 2007 also reflect $36
million of cash paid for our investment in Parata and $175 million of cash proceeds from the sale
of businesses, including $164 million for the sale of our Acute Care business.
Financing activities utilized cash of $498 million and $467 million in the first half of 2008
and 2007. Financing activities for 2008 include a $37 million increase in the use of cash for
stock repurchases.
In April 2007, the Companys Board of Directors approved a plan to repurchase up to $1.0
billion of the Companys common stock. In the second quarter and first half of 2008, we
repurchased a total of 8 million and 12 million shares for $427 million and $684 million, leaving
$316 million remaining on the April 2007 plan. In September 2007, an additional $1.0 billion share
repurchase program was approved and $1,316 million remains available for future repurchases as of
September 30, 2007. Stock repurchases may be made from time-to-time in open market or private
transactions.
27
McKESSON CORPORATION
FINANCIAL REVIEW (CONTINUED)
(UNAUDITED)
Selected Measures of Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
March 31, |
(Dollars in millions) |
|
2007 |
|
2007 |
|
Cash and cash equivalents |
|
$ |
2,518 |
|
|
$ |
1,954 |
|
Working capital |
|
|
3,177 |
|
|
|
2,730 |
|
Debt, net of cash and cash equivalents |
|
|
(568 |
) |
|
|
4 |
|
Debt to capital ratio (1) |
|
|
23.4 |
% |
|
|
23.8 |
% |
Net debt to net capital employed (2) |
|
|
(9.8 |
) |
|
|
0.1 |
|
Return on stockholders equity (3) |
|
|
15.8 |
|
|
|
15.2 |
|
|
|
|
|
| | |
(1) |
|
Ratio is computed as total debt divided by total debt and stockholders equity. |
|
(2) |
|
Ratio is computed as total debt, net of cash and cash equivalents (net debt), divided by
net debt and stockholders equity (net capital employed). |
|
(3) |
|
Ratio is computed as net income for the last four quarters, divided by a five-quarter average
of stockholders equity. |
Working capital primarily includes cash, receivables, inventories, drafts and accounts
payable, deferred revenue and other current liabilities. Our Distribution Solutions segment
requires a substantial investment in working capital that is susceptible to large variations during
the year as a result of inventory purchase patterns and seasonal demands. Inventory purchase
activity is a function of sales activity and new customer build-up requirements. Consolidated
working capital increased primarily reflecting $420 million of short-term tax liabilities which
were reclassified to long-term liabilities as result of our
implementation of FIN No. 48, Accounting for Uncertainty in Income Taxes, as well as
an increase in cash balances.
Our ratio of net debt to net capital employed decreased in 2008 primarily due to our favorable
cash and cash equivalent balances.
Credit Resources
We fund our working capital requirements primarily with cash, short-term borrowings and our
receivables sales facility. In June 2007, we renewed our existing $1.3 billion five-year, senior
unsecured revolving credit facility, which was scheduled to expire in September 2009. The new
credit facility has terms and conditions substantially similar to those previously in place and
expires in June 2012. Borrowings under this new credit facility bear interest based upon either a
Prime rate or the London Interbank Offering Rate. As of September 30, 2007, no amounts were
outstanding under this facility.
In June 2007, we renewed our $700 million committed accounts receivable sales facility. The
facility was renewed under substantially similar terms to those previously in place. The renewed
facility expires in June 2008. As of September 30, 2007, no amounts were outstanding under this
facility.
In January 2007, we entered into a $1.8 billion interim credit facility. The interim credit
facility was a single-draw 364-day unsecured facility which had terms substantially similar to
those contained in the Companys existing revolving credit facility. We utilized $1.0 billion of
this facility to fund a portion of our purchase of Per-Se. On March 5, 2007, we issued $500
million of 5.25% notes due 2013 and $500 million of 5.70% notes due 2017. The notes are unsecured
and interest is paid semi-annually on March 1 and September 1. The notes are redeemable at any
time, in whole or in part, at our option. In addition, upon occurrence of both a change of control
and a ratings downgrade of the notes to non-investment-grade levels, we are required to make an
offer to redeem the notes at a price equal to 101% of the principal amount plus accrued interest.
We utilized net proceeds after offering expenses of $990 million from the issuance of the notes,
together with cash on hand, to repay all amounts outstanding under the interim credit facility plus
accrued interest.
Our various borrowing facilities and long-term debt are subject to certain covenants. Our
principal debt covenant is our debt to capital ratio, which cannot exceed 56.5%. If we exceed this
ratio, repayment of debt outstanding under the revolving credit facility and $215 million of term
debt could be accelerated. As of September
30, 2007, this ratio was 23.4% and we were in compliance with our other financial covenants.
A reduction in our credit ratings or the lack of compliance with our covenants could negatively
impact our ability to finance operations through our credit facilities, or issue additional debt at
the interest rates then currently available.
28
McKESSON CORPORATION
FINANCIAL REVIEW (CONCLUDED)
(UNAUDITED)
Funds necessary for future debt maturities and our other cash requirements are expected to be
met by existing cash balances, cash flows from operations, existing credit sources and other
capital market transactions.
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including Managements Discussion and Analysis of
Financial Condition and Results of Operations in Item 2 of Part I of this report, contains certain
forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as
amended and section 21E of the Securities Exchange Act of 1934, as amended. Some of the
forward-looking statements can be identified by use of forward-looking words such as believes,
expects, anticipates, may, should, seeks, approximates, intends, plans, or
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.
Forward-looking statements involve risks and uncertainties that could cause actual results to
differ materially from those projected, anticipated or implied. Although it is not possible to predict or identify all
such risks and uncertainties, they may include, but are not limited to, the following factors. The
reader should not consider this list to be a complete statement of all potential risks and
uncertainties.
|
|
adverse resolution of pending shareholder litigation regarding the 1999 restatement of our
historical financial statements; |
|
|
the changing U.S. healthcare environment, including changes in government regulations and
the impact of potential future mandated benefits; |
|
|
changes in private and governmental reimbursement or in the delivery systems for healthcare
products and services; |
|
|
governmental and manufacturers efforts to regulate or control the pharmaceutical supply
chain; |
|
|
changes in pharmaceutical and medical-surgical manufacturers pricing, selling, inventory,
distribution or supply policies or practices; |
|
|
changes in the availability or pricing of branded and generic drugs; |
|
|
changes in customer mix; |
|
|
substantial defaults in payment or a material reduction in purchases by large customers; |
|
|
challenges in integrating and implementing the Companys internally used or externally sold
software and software systems, or the slowing or deferral of demand or extension of the sales
cycle for external software products; |
|
|
continued access to third-party licenses for software and the patent positions of the
Companys proprietary software; |
|
|
the Companys ability to meet performance requirements in its disease management programs; |
|
|
the adequacy of insurance to cover liability or loss claims; |
|
|
new or revised tax legislation; |
|
|
foreign currency fluctuations or disruptions to foreign operations; |
|
|
the Companys ability to successfully identify, consummate and integrate strategic
acquisitions; |
|
|
changes in generally accepted accounting principles (GAAP); and |
|
|
general economic conditions. |
These and other risks and uncertainties are described herein or in our Forms 10-K, 10-Q, 8-K
and other public documents filed with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking statements, which speak only as of
the date hereof. We undertake no obligation to publicly release the result of any revisions to
these forward-looking statements to reflect events or circumstances after the date of this report
or to reflect the occurrence of unanticipated events.
29
McKESSON CORPORATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We believe there has been no material change in our exposure to risks associated with
fluctuations in interest and foreign currency exchange rates as disclosed in our 2007 Annual Report
on Form 10-K.
Item 4. Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer, with the participation of other
members of the Companys management, have evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)) under the Securities and
Exchange Act of 1934, as amended (Exchange Act) as of the end of the period covered by this
quarterly report, and our Chief Executive Officer and our Chief Financial Officer have concluded
that our disclosure controls and procedures are effective based on their evaluation of these
controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.
There were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15
that occurred during our last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Financial Note 12, Other Commitments and Contingent Liabilities, of our unaudited
condensed consolidated financial statements contained in Part I of this Quarterly Report on Form
10-Q.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of our
2007 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information on the Companys share repurchases during the second
quarter of 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Repurchases(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Dollar Value of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
As Part of Publicly |
|
Yet Be Purchased |
|
|
Total Number of |
|
Average Price Paid |
|
Announced |
|
Under the |
(In millions, except price per share) |
|
Shares Purchased |
|
Per Share |
|
Program |
|
Programs(1) |
|
July 1, 2007 July 31, 2007 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
743 |
|
August 1, 2007 August 31, 2007 |
|
|
7 |
|
|
|
57.87 |
|
|
|
7 |
|
|
|
337 |
|
September 1, 2007 September 30,
2007 |
|
|
1 |
|
|
|
57.61 |
|
|
|
1 |
|
|
|
1,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
8 |
|
|
|
57.85 |
|
|
|
8 |
|
|
|
1,316 |
|
|
|
|
|
|
(1) |
|
This table does not include shares tendered to satisfy the exercise price in connection with
cashless exercises of employee stock options or shares tendered to satisfy tax withholding
obligations in connection with employee equity awards. |
|
(2) |
|
In April and September of 2007, the Companys Board of Directors approved two plans to
repurchase up to a total of $2.0 billion ($1.0 billion per plan) of the Companys common
stock. |
30
McKESSON CORPORATION
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Companys Annual Meeting of Stockholders was held on July 25, 2007. The following matters
were voted upon at the meeting and the stockholder votes on each such matter are briefly described
below.
The Board of Directors nominees for directors as listed in the proxy statement were each
elected to serve for a one-year term. The vote was as follows:
|
|
|
|
|
|
|
|
|
Votes For |
|
Votes Against |
|
Votes Abstained |
|
|
John H. Hammergren |
247,355,459 |
|
15,171,327 |
|
1,763,391 |
|
|
M. Christine Jacobs |
246,367,560 |
|
16,038,092 |
|
1,884,525 |
|
|
The
term of the following directors continued after the meeting. In
connection with the declassification of the Board of Directors
described below, all
Directors will be elected for a one-year term beginning with the
Annual Meeting of Stockholders expected to be held in July 2008.
|
|
|
Wayne A. Budd
|
|
Alton F. Irby III |
Marie L. Knowles
|
|
David M. Lawrence, M.D. |
James V. Napier
|
|
Jane E. Shaw |
The proposal to amend the Restated Certificate of Incorporation to declassify the Board of
Directors received the following vote:
|
|
|
|
|
|
|
|
|
Votes For |
|
Votes Against |
|
Votes Abstained |
|
|
|
260,329,272 |
|
2,024,093 |
|
1,936,812 |
|
|
The
proposal to amend the 2005 Stock Plan, for purpose of increasing the
number of shares of common stock reserved for issuance under the plan
by 15 million shares, received the following vote:
|
|
|
|
|
|
|
|
|
Votes For |
|
Votes Against |
|
Votes Abstained |
|
Broker Non Vote |
|
203,824,356 |
|
33,564,196 |
|
2,038,285 |
|
24,863,340 |
The
proposal to amend the 2000 Employee Stock Purchase Plan, for
purposes of increasing the number of shares of common stock reserved
for issuance under the plan by 5 million shares, received the following vote:
|
|
|
|
|
|
|
|
|
Votes For |
|
Votes Against |
|
Votes Abstained |
|
Broker Non Vote |
|
224,585,853 |
|
12,999,032 |
|
1,841,952 |
|
24,863,340 |
The proposal to ratify the appointment of Deloitte & Touche LLP as our independent registered
public accounting firm for the year ending March 31, 2008 received the following vote:
|
|
|
|
|
|
|
|
|
Votes For |
|
Votes Against |
|
Votes Abstained |
|
|
|
261,179,591 |
|
1,197,889 |
|
1,912,697 |
|
|
Item 5. Other Information
None
31
McKESSON CORPORATION
Item 6. Exhibits
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
3.1 |
|
|
Amended
and Restated Certificate of Incorporation of the Company, as filed
with the Delaware Secretary of State on July 25, 2007. |
|
|
|
|
|
|
10.1 |
|
|
McKesson
Corporation 2005 Stock Plan, as amended and restated effective as of
July 25, 2007. |
|
|
|
|
|
|
31.1 |
|
|
Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of
the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
31.2 |
|
|
Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of
the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
32 |
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
McKesson Corporation
|
|
Dated: October 31, 2007 |
/s/ Jeffrey C. Campbell
|
|
|
Jeffrey C. Campbell |
|
|
Executive Vice President and Chief Financial
Officer |
|
|
|
|
|
|
/s/ Nigel A. Rees
|
|
|
Nigel A. Rees |
|
|
Vice President and Controller |
|
32