Exhibit 99.1
McKesson Reports Fiscal 2002 Third Quarter Results
SAN FRANCISCO--(BW HealthWire)--Jan. 22, 2002--McKesson Corporation
(NYSE:MCK) today reported that earnings per diluted share before special items
increased 58% in its third quarter ended December 31, 2001, on a 20% increase in
revenues, to $9.6 billion, excluding sales to customers' warehouses. McKesson
had net income before special items of $111.7 million or 38 cents per diluted
share in the quarter, compared to net income before special items and
discontinued operations of $69.3 million and 24 cents in the third quarter a
year ago.
As reported under U.S. Generally Accepted Accounting Principles (GAAP) for
the three months ended December 31, 2001, McKesson had revenues of $13.2
billion, including warehouse sales, and net earnings of $108.8 million including
the $2.9 million after-tax impact of special items. Including special items and
the results of discontinued operations, in the third quarter a year ago McKesson
had revenues of $11.0 billion, including warehouse sales, and net earnings of
$1.7 million.
McKesson considers pro forma net income and operating profit, which excludes
special items and discontinued operations, to be the most relevant benchmarks of
the company's core operating performance. Unless otherwise noted, all subsequent
financial results described in this release exclude special items.
McKesson's earnings improvement was driven by continued strong revenue
growth and operating margin expansion in its Supply Solutions segment as well as
a significant increase in the operating profit of its Information Solutions
segment.
Supply Solutions segment operating profit increased 32%, to $223.9 million
from $169.7 million in the third quarter a year ago. The increase resulted from
revenue growth of 21%, combined with operating margin expansion of 21 basis
points, to 2.39% from 2.18% in the third quarter a year ago.
Information Solutions segment operating profit increased to $15.1 million
from $1.7 million in the third quarter a year ago, reflecting an increase in
operating margin to 6.14% from 0.76%. Information Solutions segment revenues
increased 10%, led by a 34% increase in software revenues. One-time software
bookings were up more than 100% from a year ago.
"We continue to achieve operating margin improvement and strong revenue
growth in our Supply Solutions segment," said John H. Hammergren, president and
chief executive officer. "The Supply Solutions segment has had six consecutive
quarters of year-over-year operating margin expansion. A series of initiatives
to improve processes in our U.S. pharmaceutical business are continuing to drive
increases in the operating margin. We also have been able to exceed our target
of revenue growth in line with industry growth by attracting new business that
had not previously been in the wholesale distribution channel."
"Our Information Solutions segment had its fourth consecutive quarter of
year-over-year revenue growth. Our backlog is up significantly, driven by a
large outsourcing contract with the National Health Service of England and
Wales. The strong customer interest in our Horizon Clinicals offering following
its introduction in July is now materializing in new software agreements and a
substantially larger pipeline of active sales opportunities compared to a year
ago. This activity should drive future growth in Information Solutions."
Highlights of the Third Quarter
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Supply Solutions
-- Revenues were up 21%, to $9.4 billion, versus the third quarter a year
ago. U.S. pharmaceutical distribution and service revenues were up 23%
in the quarter to $7.9 billion, international revenues increased 10%, to
$758 million, and medical-surgical revenues were up 6% to $756 million.
The increase in U.S. pharmaceutical revenues resulted primarily from the
impact of the implementation of several large distribution agreements
which took effect in prior quarters, including revenues from new
business that previously had not been part of the wholesale distribution
channel. U.S. pharmaceutical revenues also included an extra selling day
in the third quarter this year.
-- Operating profit was up 32% and operating margin increased 21 basis
points over the third quarter a year ago. Operating profit in McKesson's
Supply Solutions segment was $223.9 million in the third quarter. The
operating margin expanded to 2.39% from 2.18% in the third quarter a
year ago. Continued operating efficiencies, improved product sourcing
activities and discontinuance of goodwill amortization were the major
factors producing the margin expansion.
Information Solutions
-- Revenues were up 10%, to $246.1 million, compared to the third quarter a
year ago. Software revenues in the third quarter were $37.8 million, a
34% increase from the third quarter a year ago. One-time software
bookings in the third quarter were $53 million, an increase of more than
100% from the third quarter last year. The increase in software bookings
reflects greater demand for the company's clinical applications, with
more than 60% of the bookings from the Horizon Clinicals offering. Third
quarter sales activities included large agreements with Presbyterian
Healthcare Services, Atlantic Health Systems, Catholic Healthcare
Partners and Memorial Health University Medical Center. Services and
outsourcing revenues in the third quarter were $185.2 million, a 6%
increase compared to the same quarter last year. Hardware revenue was
$23.1 million.
-- Operating margin increased to 6.14% from 0.76% in the third quarter a
year ago. The operating margin expansion resulted from increases in
software revenue, management of operating expenses and discontinuance of
goodwill amortization.
-- Segment backlog was almost $2 billion at December 31, 2001, versus $1.4
billion on a comparable basis a year ago. The increase in backlog
resulted primarily from a recently signed $480 million outsourcing
contract to provide a standardized, fully automated human resources and
payroll system for the National Health Service of England and Wales.
McKesson has revised the method by which it reports backlog to eliminate
the impact of annual maintenance billings.
Additional Operating Statement Data
-- Corporate expenses increased to $37.5 million from $27.0 million in the
third quarter a year ago. The increase in the third quarter compared to
a year ago reflects expenses for the sale of receivables associated with
working capital
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requirements, higher benefit costs, and McKesson's share of losses of
HealthNexis. Late in the quarter, HealthNexis merged with the Global
Health Exchange, which reduced McKesson's percentage of ownership in
the combined organization.
-- Net income was reduced by $2.9 million, after tax, for special items.
The special items were primarily associated with a litigation settlement
involving a 1996 acquisition of a pharmaceutical distributor.
-- McKesson's cash flow from operations for the first nine months was $81
million. At December 31, 2001, McKesson's cash and marketable securities
totaled $290 million, total debt was $1.2 billion, stockholders' equity
was $3.8 billion and the company's net debt-to-capital ratio was 19%.
Return on average committed capital was 20.3% compared to 17.8% a year
ago. McKesson's effective tax rate for the year was reduced to 36% as a
result of tax planning initiatives, and this resulted in a
current-quarter tax rate of 35.1%. Earnings per diluted share were based
on 299.2 million average diluted shares. The company had approximately
287 million shares outstanding. During the third quarter, McKesson
repurchased approximately 808,000 shares of common stock as part of the
company's previously announced $250 million share repurchase program.
A Webcast of the company's regular conference call to review financial
results with the financial community is available through McKesson's Website,
www.mckesson.com, live at Noon ET today. McKesson files its financial results
prepared in accordance with U.S. GAAP, with its quarterly report on Form 10-Q
with the Securities and Exchange Commission. Shareholders are encouraged to
review these filings and more information about McKesson, all of which are
located on the company's Website.
McKesson Corporation is the leading provider of supply, information and care
management products and services designed to reduce costs and improve quality
across healthcare. McKesson solutions empower healthcare professionals with the
tools they need to deliver care more effectively and efficiently. With revenues
of $42 billion for the fiscal year ended March 31, 2001, McKesson ranks no. 35
in the 2001 Fortune 500.
Except for the historical information contained herein, the matters
discussed in this press release may constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 that involve
risks and uncertainties that could cause actual results to differ materially
from those projected. These statements may be identified by their use of
forward-looking terminology such as "believes," "expects," "anticipates," "may,"
"will," "should," "seeks," "approximates," "intends," "plans," "estimates" or
the negative of these words or other comparable terminology. The most
significant of these risks and uncertainties are described in the company's Form
10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange
Commission and include, but are not limited to: the resolution or outcome of
pending litigation and government investigations relating to the company's
previously announced financial restatement ("Restatement"); the effect of the
events relating to, or arising out of, the Restatement on the company's ability
to attract and retain employees and management; the changing U.S. healthcare
environment, including potential changes in private and governmental
reimbursement for healthcare products and services, the method by which such
products and services are delivered, legislation or regulations governing such
products and services, or mandated benefits or changes in manufacturer's pricing
or
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distribution policies; substantial defaults in payment or a material reduction
in purchases by large customers; the ability of McKesson Information Solutions
to retain existing customers and to attract new customers in light of rapid
technological advances, challenges in integrating the company's software
products, or the slowing or deferral of demand for such products resulting from
the impact of current or pending government regulations; the timing and amounts
of the ongoing customer settlement process; and the company's ability to
successfully integrate and operate acquired businesses, and manage the risks
associated with such businesses, including the acquisition of the business
formerly known as HBO & Co. The company assumes no obligation to update
information contained in this release.
Schedule I
McKESSON CORPORATION
PRO FORMA AND AS REPORTED INCOME INFORMATION
(unaudited)
(in millions except per share amounts)
Quarter Ended Nine Months Ended
December 31 December 31
FY02 (1) FY01 Chg. FY02 (1) FY01 Chg.
-------- -------- ---- -------- -------- ----
Revenues
Excluding
sales to
customers'
warehouses $9,629.0 $8,002.7 20% $27,094.2 $22,885.2 18%
Sales to
customers'
warehouses 3,567.7 3,015.1 18 9,915.7 7,715.7 29
-------- -------- -------- --------
Total 13,196.7 11,017.8 20 37,009.9 30,600.9 21
Costs and
expenses
excluding
special items 13,004.7 10,884.8 19 36,484.0 30,222.0 21
-------- -------- -------- --------
Pro forma
operating
income 192.0 133.0 44 525.9 378.9 39
Interest
expense (27.2) (28.3) (4) (81.2) (84.4) (4)
Other income
excluding
special items 9.5 11.4 (17) 26.8 31.6 (15)
-------- -------- -------- --------
Pro forma
income before
income taxes 174.3 116.1 50 471.5 326.1 45
Income taxes (61.1) (45.3) (169.6) (127.2)
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Dividends on
preferred
securities of
subsidiary
trust (1.5) (1.5) (4.6) (4.6)
-------- -------- -------- --------
Pro forma
income before
special items
and discontinued
operations $111.7 $69.3 61 $297.3 $194.3 53
======== ======== ======== ========
Pro forma income
before special
items and
discontinued
operations $111.7 $69.3 61 $297.3 $194.3 53
Special items:
Expense (2) (4.5) (101.7) (53.7) (99.5)
Income tax
benefit 1.6 39.7 49.6 38.0
Discontinued
operations -- (5.6) -- (5.6)
-------- -------- -------- --------
Net income as
reported
(U.S. GAAP) $108.8 $1.7 6,300 $293.2 $127.2 131
======== ======== ======== ========
Earnings per
common share
Diluted
Pro forma
before
special
items and
discontinued
operations $0.38 $0.24 58 $1.01 $0.68 49
Special items (0.01) (0.21) (0.01) (0.21)
Discontinued
operations -- (0.02) -- (0.02)
-------- -------- -------- --------
As reported
(U.S. GAAP) $0.37 $0.01 3,600 $1.00 $0.45 122
======== ======== ======== ========
Basic
Pro forma
before
special
items and
discontinued
operations $0.39 $0.24 63 $1.04 $0.69 51
Special items (0.01) (0.21) (0.01) (0.22)
Discontinued
operations -- (0.02) -- (0.02)
-------- -------- -------- --------
As reported
(U.S. GAAP) $0.38 $0.01 3,700 $1.03 $0.45 129
======== ======== ======== ========
Shares on which
earnings per
common share
were based
Page 5
Diluted 299.2 295.1 1 299.0 292.3 2
Basic 285.6 283.4 1 284.9 283.0 1
(1) Excludes goodwill amortization in accordance with the Company's adoption of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets". For the quarter ended December 31, 2000, net income
excluding special items and discontinued operations, would have been $81.3
million and diluted earnings per share would have been $0.28, excluding
pre-tax goodwill amortization of $12.8 million ($12.0 million after-tax).
For the nine months ended December 31, 2000, net income as adjusted, would
have been $228.3 million and diluted earnings per share would have been
$0.80, excluding pre-tax goodwill amortization of $36.4 million ($34.0
million after-tax).
(2) See notes (2) and (3) on Schedule II.
Schedule II
McKESSON CORPORATION
PRO FORMA AND AS REPORTED RESULTS BY BUSINESS SEGMENT
(unaudited)
(in millions)
Quarter Ended December 31 Nine Months Ended December 31
------------------------------ -----------------------------
FY02 FY01 Chg. FY02 FY01 Chg.
--------- --------- ------- --------- --------- ----
REVENUES
Supply Solutions
Pharmaceutical
Distribution
& Services (1)
U.S. Health
Care $ 7,868.6 $ 6,375.8 23% $21,942.1 $18,101.9 21%
International 757.6 691.6 10 2,184.6 1,967.4 11
--------- --------- --------- ---------
Total
Pharmaceutical
Distribution
& Services 8,626.2 7,067.4 22 24,126.7 20,069.3 20
Medical-
Surgical
Distribution
& Services 756.1 710.6 6 2,240.5 2,144.6 4
--------- --------- --------- ---------
Total
Supply
Solutions 9,382.3 7,778.0 21 26,367.2 22,213.9 19
--------- --------- --------- ---------
Information
Solutions
Software 37.8 28.3 34 125.4 88.1 42
Services 185.2 174.5 6 543.8 525.1 4
Hardware 23.1 21.5 7 56.0 56.3 (1)
--------- --------- --------- ---------
Total
Information
Page 6
Solutions 246.1 224.3 10 725.2 669.5 8
--------- --------- --------- ---------
Corporate 0.6 0.4 1.8 1.8
--------- --------- --------- ---------
Total $ 9,629.0 $ 8,002.7 20 $27,094.2 $22,885.2 18
========= ========= ========= =========
OPERATING PROFIT
Supply
Solutions $ 223.9 $ 169.7 32% $ 621.8 $ 474.3 31%
Information
Solutions 15.1 1.7 788 39.2 6.4 513
--------- --------- --------- ---------
Pro forma
operating
profit 239.0 171.4 39 661.0 480.7 38
Special
items (2) -- (2.1) (45.7) 0.8
--------- --------- --------- ---------
Operating
profit
as reported
(U.S. GAAP) 239.0 169.3 41 615.3 481.5 28
--------- --------- --------- ---------
Interest expense (27.2) (28.3) (4) (81.2) (84.4) (4)
Corporate
excluding
special items (37.5) (27.0) (108.3) (70.2)
Special
items (3) (4.5) (99.6) (8.0) (100.3)
--------- --------- --------- ---------
Corporate as
reported
(U.S. GAAP) (42.0) (126.6) (116.3) (170.5)
--------- --------- --------- ---------
Income before
income taxes
excluding
special items 174.3 116.1 50 471.5 326.1 45
Special
items (2),(3) (4.5) (101.7) (53.7) (99.5)
--------- --------- --------- ---------
Income before
income taxes
as reported
(U.S. GAAP) 169.8 14.4 1,079 417.8 226.6 84
--------- --------- --------- ---------
Income taxes
excluding
special items (61.1) (45.3) 35 (169.6) (127.2) 33
Income tax
benefit on
special items 1.6 39.7 49.6 38.0
--------- --------- --------- ---------
Total
income
taxes (59.5) (5.6) (120.0) (89.2)
--------- --------- --------- ---------
Dividends on
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preferred
securities of
subsidiary
trust (1.5) (1.5) (4.6) (4.6)
--------- --------- --------- ---------
Income after
taxes from
continuing
operations 108.8 7.3 1,390 293.2 132.8 121
Discontinued
operations (4) -- (5.6) -- (5.6)
--------- --------- --------- ---------
Net income as
reported
(U.S. GAAP) $ 108.8 $ 1.7 6,300 $ 293.2 $ 127.2 131
========= ========= ========= =========
STATISTICS
(excluding
special items)
Pro forma
operating profit
as a % of
revenues (1)
Supply
Solutions 2.39% 2.18% 21 bp 2.36% 2.14% 22 bp
Information
Solutions 6.14% 0.76% 538 bp 5.41% 0.96% 445 bp
Return on
committed
capital
- 5 quarter
average 20.3% 17.8%
Return on equity
- 5 quarter
average 10.5% 7.2%
(1) Excludes sales to customers' warehouses of $3,567.7 million and $3,015.1
million for the quarters ended December 31, 2001 and 2000, and $9,915.7
million and $7,715.7 million for the nine months ended December 31, 2001 and
2000.
(2) Special items for the nine months ended December 31, 2001 primarily consist
of a $29.1 million charge for asset impairments, severance and exit-related
costs to consolidate facilities in the medical-surgical distribution
business, $18.4 million in losses incurred on the sales of businesses and
$3.2 million of asset impairment charges. These charges were partially
offset by $3.8 million of proceeds from the settlements of claims with third
parties and net reductions of $1.2 million in costs associated with prior
year restructuring plans.
For the quarter and nine months ended December 31, 2000, special charges
include $1.7 million and $4.5 million for asset impairments, severance and
exit related costs and a $0.4 million
Page 8
equity investment impairment loss. For the nine months ended December 30,
2000, special items also include a $7.8 million gain on liquidation of an
investment and a $2.1 million charge to write off purchased in-process
technology related to an acquisition.
(3) For the quarter and nine months ended December 31, 2001, Corporate special
items include $4.3 million and $5.8 million of legal settlement and
shareholder litigation costs and $0.2 million and $5.9 million of losses on
equity investments. Special charges for the nine months ended December 31,
2001 also include a $2.8 million reversal of prior year severance reserves
and $0.9 million in settlement proceeds from an investment that was written
off in prior years.
The quarter and nine months ended December 31, 2000 primarily include
special charges of $98.5 million for equity investment impairments. Special
charges also include charges of $1.1 million in the quarter and $1.8 million
in the nine months for legal fees incurred in connection with the pending
shareholder litigation.
(4) The quarter and nine months ended December 31, 2000 include charges
primarily resulting from an adjustment to a previously recorded gain on the
sale of a business.
Schedule III
McKESSON CORPORATION
CONDENSED BALANCE SHEET INFORMATION
(unaudited)
(in millions)
December 31, March 31,
2001 2001
--------- ---------
ASSETS
Current Assets
Cash and equivalents $ 284.9 $ 433.7
Marketable securities
available for sale 5.3 11.9
Receivables 3,604.2 3,443.4
Inventories 6,259.3 5,116.4
Prepaid expenses and other 160.7 158.6
--------- ---------
Total 10,314.4 9,164.0
Property, Plant and Equipment, net 579.8 595.3
Capitalized Software 118.8 103.7
Notes Receivable 225.4 131.3
Goodwill and Other Intangibles 1,063.3 1,064.4
Other Assets 487.2 471.2
--------- ---------
Total Assets $12,788.9 $11,529.9
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Drafts and accounts payable $ 6,249.1 $ 5,361.9
Deferred revenue 427.6 378.5
Short-term borrowings 15.0 --
Current portion of long-term debt 318.4 194.1
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Other liabilities 633.7 615.2
--------- ---------
Total 7,643.8 6,549.7
Postretirement Obligations and
Other Noncurrent Liabilities 272.5 255.8
Long-Term Debt 893.4 1,035.6
McKesson Corporation - Obligated
Mandatorily Redeemable Convertible
Preferred Securities of Subsidiary
Grantor Trust Whose Sole Assets Are
Junior Subordinated Debentures
of McKesson Corporation 196.1 195.9
Stockholders' Equity 3,783.1 3,492.9
--------- ---------
Total $12,788.9 $11,529.9
========= =========
Schedule IV
McKESSON CORPORATION
CONDENSED CASH FLOW INFORMATION
(unaudited)
(in millions)
Nine Months Ended
December 31
2001 2000
---------- ----------
OPERATING ACTIVITIES
Net Income From Continuing Operations $ 293.2 $ 132.8
Adjustments to Reconcile to Net
Cash Provided (Used) By
Operating Activities
Depreciation 87.4 85.4
Amortization 66.1 92.4
Provision for bad debts 40.0 37.3
Deferred taxes on income 9.5 40.7
Loss on sale of businesses 18.4 --
Other non-cash items 19.0 60.5
---------- ----------
Total 533.6 449.1
---------- ----------
Effects of Changes In
Receivables (323.1) (566.6)
Inventories (1,151.1) (780.9)
Accounts and drafts payable 891.8 1,136.4
Deferred revenue 52.9 36.4
Taxes 100.0 (213.9)
Other (22.7) (9.0)
---------- ----------
Total (452.2) (397.6)
---------- ----------
Net cash provided by
continuing operations 81.4 51.5
Discontinued Operations (0.2) (6.7)
---------- ----------
Net cash provided by
operating activities 81.2 44.8
---------- ----------
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INVESTING ACTIVITIES
Property Acquisitions (74.8) (96.0)
Acquisition of Businesses, Less
Cash and Short-Term
Investments Acquired (10.7) (50.7)
Notes Receivable Issuances, Net (46.2) (26.2)
Other (76.9) (16.7)
---------- ----------
Net cash used by investing
activities (208.6) (189.6)
---------- ----------
FINANCING ACTIVITIES
Proceeds From the Issuance of Debt 18.9 5.6
Repayment of Debt (23.6) (38.8)
Dividends Paid on Preferred
Securities of Subsidiary Trust (7.5) (7.5)
Capital Stock Transactions
Issuances 71.9 34.2
Repurchases (44.2) (25.7)
ESOP notes and guarantees 14.5 10.9
Dividends paid (51.4) (51.3)
Other -- 1.7
---------- ----------
Net cash used by financing
activities (21.4) (70.9)
---------- ----------
Net Decrease in Cash and Equivalents (148.8) (215.7)
Cash and Equivalents at Beginning
of Period 433.7 548.9
---------- ----------
Cash and Equivalents at End of Period $ 284.9 $ 333.2
========== ==========
--30--
CONTACT: McKesson Corporation
Larry Kurtz, 415/983-8418 (V.P., Investor Relations)
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