SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1995
[ ] 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)
DELAWARE 94-3207296
- ------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Post Street, San Francisco, California 94104
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(415) 983-8300
- -----------------------------------------------------------------
(Registrant's 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 X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1995
- ---------------------------- ----------------------------
Common stock, $.01 par value 44,590,244 shares
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
==============================
Item Page
- ---- ----
1. Financial Statements
Consolidated Balance Sheets
June 30, 1995 and March 31, 1995 3 - 4
Statements of Consolidated Income
Quarter ended June 30, 1995 and 1994 5
Statements of Consolidated Cash Flows
Quarter ended June 30, 1995 and 1994 6 - 7
Financial Notes 8
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review 9 - 11
PART II. OTHER INFORMATION
===========================
4. Submission of Matters to a Vote of Security Holders 12
6. Exhibits and Reports on Form 8-K 12
Exhibit Index 14
PART I. FINANCIAL INFORMATION
==============================
McKESSON CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, March 31,
1995 1995
------ ------
(in millions)
ASSETS
- ------
Current Assets
Cash and cash equivalents $ 288.9 $ 385.4
Marketable securities available for sale 412.7 307.3
Receivables 793.5 778.6
Inventories 1,083.2 1,160.2
Prepaid expenses 84.0 67.9
------- -------
Total 2,662.3 2,699.4
Property, Plant and Equipment
Land 40.7 41.0
Buildings, machinery and equipment 722.2 722.1
------- -------
Total 762.9 763.1
Accumulated depreciation (395.4) (396.8)
------- -------
Net 367.5 366.3
Goodwill and other intangibles 213.5 214.3
Other assets 212.0 199.2
------- -------
Total Assets $3,455.3 $3,479.2
======= =======
(Continued)
- 3 -
McKESSON CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, March 31,
1995 1995
------ ------
(in millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Drafts payable $ 212.7 $ 175.7
Accounts payable - trade 1,035.6 1,120.8
Short-term borrowings 76.7 21.7
Current portion of long-term debt 19.4 17.8
Salaries and wages 29.9 40.6
Taxes 99.0 144.0
Interest and dividends 24.7 20.9
Other 185.2 196.7
------- -------
Total 1,683.2 1,738.2
------- -------
Postretirement Obligations and
Other Noncurrent Liabilities 206.9 208.8
------- -------
Long-Term Debt 461.9 458.8
------- -------
Minority Interest in Subsidiary 59.9 59.9
------- -------
Stockholders' Equity
Common stock 0.4 0.4
Other capital 324.1 315.7
Retained earnings 898.1 875.9
Accumulated translation adjustment (49.2) (51.6)
ESOP notes and guarantee (124.8) (126.4)
Treasury shares, at cost (5.2) (0.5)
------- -------
Net 1,043.4 1,013.5
------- -------
Total Liabilities and Stockholders' Equity $3,455.3 $3,479.2
======= =======
See Financial Notes.
(Concluded)
- 4 -
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(unaudited)
Quarter Ended June 30
---------------------
1995 1994
------ ------
(in millions - except
per share amounts)
REVENUES $3,336.0 $3,235.2
COSTS AND EXPENSES
Cost of sales 3,053.7 2,960.7
Selling, distribution and administration 212.1 214.3
Interest 12.4 11.1
------- -------
Total 3,278.2 3,186.1
------- -------
INCOME BEFORE TAXES ON INCOME 57.8 49.1
TAXES ON INCOME (23.4) (19.9)
------- -------
INCOME BEFORE MINORITY INTEREST 34.4 29.2
Minority interest in net
income of subsidiary (1.6) (2.8)
------- -------
INCOME AFTER TAXES
Continuing operations 32.8 26.4
Discontinued operations - 9.6
------- -------
NET INCOME $ 32.8 $ 36.0
======= =======
EARNINGS PER COMMON SHARE
Fully diluted earnings
Continuing operations $ .70 $ .57
Discontinued operations - .22
------- -------
Total $ .70 $ .79
======= =======
Primary earnings
Continuing operations $ .70 $ .60
Discontinued operations - .23
------- -------
Total $ .70 $ .83
======= =======
Dividends $ .25 $ .42
======= =======
SHARES ON WHICH EARNINGS PER
COMMON SHARE WERE BASED
Fully diluted 46.9 44.7
Primary 46.8 41.5
See Financial Notes.
- 5 -
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(unaudited)
Quarter Ended June 30
---------------------
1995 1994
------ ------
(in millions)
Operating Activities
Income after taxes from
continuing operations $ 32.8 $ 26.4
Adjustments to reconcile to net cash
provided (used) by operating activities
Depreciation 14.4 14.5
Amortization 2.3 2.9
Provision for bad debts 1.0 3.5
Deferred taxes on income 0.2 (0.3)
Other (7.8) (0.7)
------- -------
Total 42.9 46.3
------- -------
Effects of changes in
Receivables (14.4) (26.6)
Inventories 79.7 (22.7)
Accounts and drafts payable (50.9) 69.9
Taxes (46.0) 14.7
Other (37.1) (20.3)
------- -------
Total (68.7) 15.0
------- -------
Net cash provided (used) by
continuing operations (25.8) 61.3
Discontinued operations 2.1 42.9
------- -------
Net cash provided (used) by
operating activities (23.7) 104.2
------- -------
Investing Activities
Purchases of marketable securities (131.8) -
Maturities of marketable securities 35.0 -
Property acquisitions (16.0) (16.7)
Properties sold 3.6 1.0
Acquisitions of businesses, less cash and
short-term investments acquired (11.2) -
Investing activities - discontinued operations - (5.3)
Other 1.6 3.8
------- -------
Net cash used by investing activities (118.8) (17.2)
------- -------
(Continued)
- 6 -
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(unaudited)
Quarter Ended June 30
---------------------
1995 1994
------ ------
(in millions)
Financing Activities
Proceeds from issuance of debt $ 61.1 $ 42.5
Repayment of debt (3.3) (24.9)
Capital stock transactions
Treasury stock acquired (4.7) -
Issuances 1.5 3.2
ESOP notes and guarantee 1.6 1.8
Dividends paid (10.2) (19.7)
Financing activities -
discontinued operations - 0.9
------- -------
Net cash provided by
financing activities 46.0 3.8
------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents (96.5) 90.8
Cash and Cash Equivalents
at beginning of period 385.4 89.0
------- -------
Cash and Cash Equivalents
at end of period $ 288.9 $ 179.8
======= =======
See Financial Notes.
(Concluded)
- 7 -
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL NOTES
1. Interim Financial Statements
- ---------------------------------
In the opinion of the Company, these unaudited consolidated
financial statements include all adjustments necessary to a fair
presentation of its financial position as of June 30, 1995 and the
results of its operations and its cash flows for the three months
ended June 30, 1995 and 1994. Such adjustments were of a normal
recurring nature.
The results of operations for the three months ended June 30,
1995 and 1994 are not necessarily indicative of the results for the
full years.
It is suggested that these interim financial statements be
read in conjunction with the annual audited financial statements,
accounting policies and financial notes thereto included in the
Appendix to the Company's 1995 Proxy Statement which has previously
been filed with the Commission.
2. Discontinued Operations
- ---------------------------
Earnings from discontinued operations in the prior year
quarter consist of the operations of PCS Health Systems, Inc. that
were divested in November 1994.
- 8 -
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL REVIEW
Segment Results
- ---------------
The operating profits of the Company by business segment are
as follows:
Quarter Ended June 30
------------------------
%
1995 1994 Chg.
------ ------ ---
(in millions)
REVENUES
Health Care Services (1) $3,209.4 $3,115.6 3.0
Water Products 64.0 61.2 4.6
Armor All 50.2 56.6 (11.3)
Corporate 12.4 1.8
------- -------
Total $3,336.0 $3,235.2 3.1
======= =======
OPERATING PROFIT
Health Care Services $ 54.2 $ 48.5 11.8
Water Products 8.9 8.0 11.3
Armor All 5.7 10.8 (47.2)
------- -------
Total 68.8 67.3 2.2
Interest - net (2) (3.3) (10.3)
Corporate and other (7.7) (7.9)
------- -------
Income before taxes $ 57.8 $ 49.1 17.7
======= =======
(1) Health Care Services Revenues include:
Sales to customers' warehouses $751.0 $727.6 3.2
International revenues 383.1 334.7 14.5
(2) Interest is shown net of corporate interest income.
- 9 -
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL REVIEW
Overview of Results
- -------------------
First quarter income from continuing operations was $32.8
million or $.70 per fully diluted share compared to $26.4 million
or $.57 in the prior year quarter. Net income was $32.8 million in
the first quarter compared to $36.0 million in the prior year. The
prior year net income included $9.6 million from the discontinued
operations of PCS Health Systems, Inc. ("PCS") that were divested
in November 1994 ("PCS Transaction"). In the $4.0 billion PCS
Transaction, approximately $3.4 billion was distributed directly to
McKesson shareholders and approximately $0.6 billion was received
by the Company.
HEALTH CARE SERVICES
The Health Care Services segment includes the results of the
Company's U.S. pharmaceutical and health care products distribution
businesses and its international pharmaceutical operations
(including Canada, Mexico, and Central America). The segment
accounted for 96% of consolidated revenues and 79% of total
operating profit in the June 1995 quarter.
Revenues of the Health Care Services segment, excluding sales
to customers' warehouses, increased 3% in the quarter. The sales
growth was lower than in recent prior quarters, reflecting the loss
of a high-volume account at the beginning of the quarter in the
U.S. pharmaceutical distribution business. Sales to Valu-Rite
pharmacies continued to be strong in the quarter reflecting an
increase in the number of members in the Company's voluntary
pharmacy program and expansion of generic drug and private label
programs.
The increase in operating profit in the quarter was due, in
part, to lower operating expense ratios from on-going cost control
programs and higher margins on certain value-added products and
services.
Revenues for the international pharmaceutical operations were
up 14% in the quarter. Operating profit of these operations also
increased in the period.
WATER PRODUCTS
Revenues in the Water Products segment were up 5% in the June
1995 quarter and operating profit increased 11%. Water Products
operating profit margin improved due, in part, to the
implementation of programs designed to increase productivity and
reduce operating expenses.
- 10 -
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL REVIEW
ARMOR ALL
Revenues in the Armor All segment declined 11% in the June
1995 quarter. Unusually wet and cool spring weather conditions in
many parts of the country contributed to lower consumer spending in
the entire automotive appearance category. Operating profit
declined at a faster rate than revenues due to start-up costs
associated with new products and the fixed nature of certain
marketing and administrative costs.
Liquidity and Capital Resources
- -------------------------------
Cash, cash equivalents and marketable securities increased to
$702 million at June 30, 1995 from $693 million at March 31, 1995.
The $9 million increase compares to an increase of $91 million in
cash, cash equivalents and marketable securities in the prior year
first quarter. The current period was impacted by amounts paid out
in the quarter for certain tax and transaction costs associated
with the PCS Transaction. The prior year also included cash
generated from the operations of PCS.
Net interest expense decreased in the quarter primarily due to
the investment of the proceeds received from the PCS Transaction in
the third quarter of fiscal 1995. Until redeployed, the cash is
being invested in U.S. Treasury securities. The Company's
debt-to-capital ratio increased from 33% at March 31, 1995 to 35%
at June 30, 1995 largely as a result of short-term borrowings by
its distribution operations in Canada.
- 11 -
PART II. OTHER INFORMATION
===========================
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------
The Company's Annual Meeting of Stockholders was held on July
26, 1995. The matters voted upon at the meeting and the
stockholder votes on each such matter are briefly described below.
In an uncontested election, the Board of Directors nominees
for director as listed in the proxy statement were each elected to
serve for a three year term expiring at the Annual Meeting in 1998.
The vote was as follows:
VOTES
VOTES FOR WITHHELD
---------- --------
Mary G. F. Bitterman 39,817,933 465,894
David E. McDowell 39,598,380 685,447
Robert H. Waterman, Jr. 39,918,938 364,889
The proposal to approve the Company's 1994 Stock Option and
Restricted Stock Plan, as amended effective April 26, 1995, for
purposes of compliance with Section 162(m) of the Internal Revenue
Code of 1986 (the "Code") was approved by the following vote:
VOTES VOTES VOTES BROKER
FOR AGAINST ABSTAINING NON-VOTES
---------- --------- ------- ---------
29,406,356 6,932,753 352,055 3,592,663
The proposal to amend and restate the Company's 1989
Management Incentive Plan for purposes of compliance with Section
162(m) of the Code was approved by the following vote:
VOTES VOTES VOTES BROKER
FOR AGAINST ABSTAINING NON-VOTES
---------- --------- ------- ---------
37,721,761 2,028,900 533,166 0
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------
(a) Exhibits
3 Restated By-Laws of the Company, as amended effective
July 26, 1995
10.1 McKesson Corporation 1994 Stock Option and Restricted
Stock Plan (As Amended Effective April 26, 1995)
10.2 McKesson Corporation 1989 Management Incentive Plan
(Amended and Restated Effective April 26, 1995)
11 Computation of Earnings per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended June 30, 1995.
- 12 -
SIGNATURE
S I G N A T U R E
-----------------
Pursuant to the requirements 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
(Registrant)
Dated: August 4, 1995 By /s/ Kevin B. Ferrell
------------------------------
Kevin B. Ferrell
Vice President and
Chief Financial Officer
By /s/ Richard H. Hawkins
------------------------------
Richard H. Hawkins
Vice President and Controller
- 13 -
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3 Restated By-Laws of the Company, as amended effective
July 26, 1995
10.1 McKesson Corporation 1994 Stock Option and Restricted
Stock Plan (As Amended Effective April 26, 1995) (Filed
as Exhibit A to the Company's definitive Proxy Statement
dated June 9, 1995 for the Annual Meeting of Stockholders
held on July 26, 1995 and incorporated herein by
reference.)
10.2 McKesson Corporation 1989 Management Incentive Plan
(Amended and Restated Effective April 26, 1995) (Filed as
Exhibit B to the Company's definitive Proxy Statement
dated June 9, 1995 for the Annual Meeting of Stockholders
held on July 26, 1995 and incorporated herein by
reference.)
11 Computation of Earnings per Common Share
27 Financial Data Schedule
- 14 -