McKesson Corporation (NYSE:MCK) today reported that revenues for
the fourth quarter ended March 31, 2008 were $26.2 billion compared to
$24.2 billion a year ago. Fourth-quarter earnings per diluted share
was $1.05 compared to 85 cents per diluted share a year ago. Fourth-quarter earnings per diluted share from continuing operations
was $1.04 compared to 85 cents a year ago.
For the fiscal year, McKesson had revenues of $101.7 billion
versus $93.0 billion a year ago, and earnings per diluted share of
$3.32 compared to $2.99 a year ago. Earnings per diluted share from
continuing operations for the full year was $3.31 compared to $2.89 a
year ago excluding adjustments to Securities Litigation reserves.
"The fourth-quarter and full-year financial results demonstrate
continued operating excellence and the benefit of acquisitions and
share repurchases to create additional shareholder value," said John
H. Hammergren, chairman and chief executive officer. "Driven by strong
revenue growth and solid operating margins in both Distribution
Solutions and Technology Solutions, McKesson's annual revenues
exceeded $100 billion for the first time. Our enhanced value
proposition for customers provides great market momentum into our next
fiscal year." In the fourth quarter, McKesson revenues were up 9%, with strong
performance in both segments. Distribution Solutions revenues were up
8%, driven primarily by solid growth in pharmaceutical direct
distribution and services revenues in both the U.S. and Canada, and
the acquisition of Oncology Therapeutics Network (OTN). Technology
Solutions revenues grew 19%, driven by the Per-Se Technologies, Inc. (Per-Se) acquisition and continued growth in software and services for
hospitals, clinics, physician offices, and payors.
"Over the past three years, our strong operating results have been
furthered by the acquisitions of D&K Healthcare, OTN, and Per-Se,"
said Hammergren. "D&K expanded the opportunity for our generics
business, OTN enhanced our position in the rapidly growing specialty
pharmaceutical sector, and Per-Se represents a unique opportunity to
change the game in healthcare information technology." For the year, McKesson generated cash from operations of $1.8
billion before considering the impact of releasing restricted cash of
$962 million related to the Consolidated Securities Litigation Action. The company continues to execute a balanced capital deployment
strategy to create additional shareholder value. During Fiscal 2008,
McKesson completed $610 million of acquisitions, repurchased $1.7
billion of its common stock, including $772 million in the fourth
quarter, paid $70 million in dividends, and made $356 million in
internal investments and capitalized software. The company ended the
year with a cash balance of $1.4 billion and a gross debt-to-capital
ratio of 23%.
"Our strong balance sheet and solid cash flow give us the
flexibility to use our portfolio approach to capital deployment for
synergistic acquisitions, share repurchases, and dividends,"
Hammergren commented. "Based on the positive outlook for our business,
the Board of Directors authorized an additional share repurchase of $1
billion, bringing our total authorization to $1.3 billion, and
approved a policy doubling the quarterly dividend from six cents to
twelve cents per share." "Our financial strength and our commitment to operating excellence
ensure that we will continue McKesson's 175-year old tradition of
creating value for our customers, employees and shareholders by
improving the cost and quality of healthcare." Segment Results Distribution Solutions revenues were up 8% for the fourth quarter
and 9% for the year. U.S. pharmaceutical direct distribution and
services revenues grew 14% for the quarter and 12% for the year,
primarily reflecting customer growth and the OTN acquisition. Warehouse revenues were down 10% for the quarter, primarily due to a
decrease in purchases from a customer, and were flat for the year.
Canadian revenues increased 38% for the quarter, primarily due to
new and expanded distribution agreements and a favorable currency
impact of 20%. For the full year, Canadian revenues grew 21% and
included a favorable currency impact of 12%. Medical-Surgical
distribution and services revenues were up 9% in the fourth quarter
and 6% for the full year.
In the fourth quarter, Distribution Solutions gross profit of $1.1
billion was up 15% compared to the fourth quarter a year ago. Full-year gross profit of $3.6 billion was up 10% from a year ago. The
increases in gross profit for the quarter and year resulted from
stronger branded price inflation and an increased mix of higher-margin
products and services.
Gross profit in the fourth quarter included a $5 million pre-tax
LIFO credit compared to $26 million in the fourth quarter a year ago. For the full year, the pre-tax LIFO credit was $14 million compared to
$64 million a year ago. The company fully utilized its pharmaceutical
products LIFO reserve in Fiscal 2008.
Operating profit was up 12% for the quarter and 6% for the year. Operating margin rate for the fourth quarter was 1.83% compared to
1.76% a year ago, and was 1.50% for the full year compared to 1.54% a
year ago.
"We continue to expand our great relationships with customers to
provide them with higher-value products and services," said
Hammergren. "When combined with our disciplined approach to contract
renewals, it produced outstanding financial performance." In Technology Solutions, revenues were up 19% for the quarter and
33% for the full year, reflecting the incremental impact of revenues
from Per-Se, which was acquired January 26, 2007, increased
implementations, and continued strong demand for clinical software and
imaging solutions. Services revenues grew 25% in the fourth quarter
and 46% for the full year, driven by growth in the business and the
Per-Se acquisition. Software and software systems revenues increased
9% for the quarter and 10% for the full year.
Operating expenses were up 4% for the quarter. For the year,
operating expenses were up 26% due to the impact of acquisitions,
continued investments in new product development, December quarter
charges to streamline staffing and product lines, and equity-based
compensation expense.
Technology Solutions operating profit in the fourth quarter was
$104 million, up 89% compared to the fourth quarter a year ago, and
for the full year was $319 million, up 55%. Traditionally, operating
profit in this segment is strongest in the fourth quarter, and this
year's growth was further aided by the incremental impact of the
Per-Se acquisition and improved performance in our Payor business. Operating margin rate was 12.90% for the quarter and 10.69% for the
year.
"Technology Solutions performance continues to benefit from having
the industry's broadest product and service offering and the largest
customer base," said Hammergren. "We see strong demand for our
software and service solutions from our large installed base of
hospital customers, and we have unique offerings for the emerging
physician office and consumer-directed healthcare sectors of the
market. With RelayHealth we have an unmatched portfolio of clinical,
financial and administrative connectivity and communications solutions
for hospitals, physicians, payors and retail pharmacies. Our Payor
business is well-positioned with proven software and disease
management solutions. Our international business provides a solid base
of services revenues following the full implementation of our National
Health Service contract." Fiscal Year 2009 Outlook "Based on our expectations for continued strong business
performance, the demonstrated value of our product and service
offerings, and our strategic investments, McKesson enters Fiscal 2009
well-positioned in both Distribution Solutions and Technology
Solutions," Hammergren said. "A strong balance sheet and solid
operating cash flow provide resources to create additional shareholder
value. For the fiscal year ending March 31, 2009, McKesson expects to
earn between $3.75 and $3.90 per fully diluted share, which represents
EPS growth of 13% to 18% from $3.31." Key Assumptions for Fiscal Year 2009 Outlook The Fiscal 2009 outlook is based on the key assumptions provided
below and is also subject to the Risk Factors provided below in this
press release.
-- Revenue growth for Distribution Solutions should be at market
growth rates, adjusted for our mix of business. Technology
Solutions revenue growth should be at the high end of market
revenue growth due to the demand for healthcare information
solutions and a continued steady pace of software
implementations.
-- Our agreements with branded pharmaceutical manufacturers
provide a higher level of predictability for compensation. However, the structures of many agreements use price increases
as the determinant of compensation timing, and thus a seasonal
pattern of earnings is expected to continue. We assume that
branded price inflation in Fiscal 2009 will moderate from
Fiscal 2008 levels, toward levels experienced in Fiscal 2006
and Fiscal 2007.
-- Another year of strong growth in sales and profit from generic
pharmaceuticals is expected.
-- McKesson's incremental equity-based compensation expense is
expected to be between 5 and 7 cents per diluted share in
Fiscal 2009, due to the multi-year ramp-up of expense. This
expense will have a more significant impact on the operating
profit of the Technology Solutions segment. Our share-based
compensation is affected by a number of variables, including
changes in our stock price, levels of grants, forfeiture rates
and the attainment of performance goals. As a result, there
could continue to be variability in this expense in the coming
fiscal year.
-- The guidance range assumes a tax rate of 33%, which may vary
from quarter to quarter.
-- The guidance range assumes lower interest income resulting
from lower prevailing interest rates.
-- Capital expenditures and capitalized software should be
between $350 million and $400 million.
-- Cash flow from operations is expected to be in excess of $1.5
billion.
-- Diluted shares used in the calculation of earnings are
expected to average approximately 281 million for the year.
-- The guidance range does not include any potential Securities
Litigation reserve adjustments, or the impact of any potential
acquisitions, divestitures, or material restructurings and
integration-related actions.
Fourth-Quarter and Full-Year Financial Highlights The quarter and year included the following additional major
highlights: -- On April 23, the Board of Directors authorized an additional
share repurchase of up to $1 billion, for a total
authorization of $1.3 billion.
-- The Board of Directors also approved a change in the Company's
dividend policy by increasing the amount of the Company's
quarterly dividend from six cents to twelve cents per share,
which applies to ensuing quarterly dividend declarations until
further action by the Board of Directors.
-- McKesson signed a definitive agreement to purchase McQueary
Brothers Drug Company, a Springfield, Missouri-based regional
distributor of pharmaceutical, health, and beauty products to
more than 400 independent and regional chain pharmacies in the
Midwestern United States.
-- Since introducing an enhanced Health Mart program in July
2006, our franchise count increased from 350 stores to more
than 1,900 stores, making it the largest independent domestic
pharmacy franchise network.
-- McKesson's revenue management solutions expanded its services
to physician groups by signing a contract with Lucile Packard
Children's Hospital to handle all billing and collection
operations for their 650 physicians. This agreement represents
one of the largest revenue cycle management contracts ever
signed by McKesson.
-- McKesson Technology Solutions continues to win business from
new customers and expand its remote hosting services. Beebe
Medical Center signed a seven-year remote hosting services
engagement for Horizon Clinicals(R) to ensure medical staff
have the right information at the right time to make the best
decisions for patients. Beebe also purchased RelayHealth for
physician connectivity and signed a revenue management
solutions contract.
-- OneMcKesson relationships involving more than one business
unit continue to expand. In the fourth quarter, St. Luke's
Episcopal Health System in Houston, a long standing customer
of both Technology Solutions and U.S. Pharmaceutical
Distribution, decided to implement AcuDose-Rx(R) medication
dispensing cabinets and Automation Decision Support(TM) in
three hospitals. With the installation of more than 300
cabinets, this is one of the largest contracts for McKesson's
automation business.
-- McKesson remains a leader in revenue cycle solutions. To
enhance its RelayHealth customer offering, McKesson acquired
HTP, Inc., a leading provider of revenue cycle management
technology. This acquisition further strengthens McKesson's
automation and connectivity offering to help customers improve
their financial performance by accelerating reimbursement and
minimizing bad debts.
-- McKesson's surgical suite continues to help healthcare
organizations provide safe and efficient patient care. McKesson acquired Rosebud Solutions, LLC, to expand its
materials management solution. Better tracking and management
of surgical instruments, tissues, implants and mobile medical
equipment can improve operating room throughput, dramatically
reduce new instrument purchases, and help improve patient
safety.
-- McKesson completed the implementation of its payroll and human
resources information system for the National Health Service
contract in England and Wales, with 586 trusts live
representing 1.2 million NHS workers.
-- Our Payor Group, in collaboration with the Illinois Department
of Healthcare and Family Services, completed the program
year-one reconciliation for the Your Healthcare Plus(TM)
Medicaid Disease Management program. Reconciliation results
show that the program helped the state achieve nearly $34
million in net savings.
-- Full-year results reflect a tax rate of 32%.
-- Fourth-quarter results included $18 million in pre-tax
share-based compensation expense associated with the
implementation of FAS 123R. For Fiscal 2008, this pre-tax
expense totaled $91 million, or approximately 20 cents per
diluted share.
-- Discontinued operations in the fourth quarter totaled an
after-tax gain of $1 million, or one cent per diluted share,
primarily associated with adjustments to prior years'
divestitures.
Risk Factors Except for historical information contained in this press release,
matters discussed may constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties that could cause actual results to differ
materially from those projected, anticipated or implied. These
statements may be identified by their use of forward-looking
terminology such as "believes", "expects", "anticipates", "may",
"should", "seeks", "approximately", "intends", "plans", "estimates" or
the negative of these words or other comparable terminology. The
discussion of financial trends, strategy, plans or intentions may also
include forward-looking statements. It is not possible to predict or
identify all such risks and uncertainties; however, the most
significant of these risks and uncertainties are described in the
company's Form 10-K, Form 10-Q and Form 8-K reports filed with the
Securities and Exchange Commission and include, but are not limited
to: material adverse resolution of pending legal proceedings; changes
in the U.S. healthcare industry and regulatory environment;
competition; the frequency or rate of branded drug price inflation and
generic drug price deflation; substantial defaults or material
reduction in purchases by large customers; implementation delay,
malfunction or failure of internal information systems; the adequacy
of insurance to cover property loss or liability claims; the company's
failure to attract and retain customers for its software products and
solutions due to integration and implementation challenges, or due to
an inability to keep pace with technological advances; loss of third
party licenses for technology incorporated into the company's products
and solutions; the company's proprietary products and services may not
be adequately protected, and its products and solutions may be found
to infringe on the rights of others; failure of our technology
products and solutions to conform to specifications; disaster or other
event causing interruption of customer access to data residing in our
service centers; increased costs or product delays required to comply
with existing and changing regulations applicable to our businesses
and products; changes in government regulations relating to patient
confidentiality and to format and data content standards; the delay or
extension of our sales or implementation cycles for external software
products; changes in circumstances that could impair our goodwill or
intangible assets; foreign currency fluctuations or disruptions to our
foreign operations; new or revised tax legislation or challenges to
our tax positions; the company's ability to successfully identify,
consummate and integrate strategic acquisitions; changes in generally
accepted accounting principles (GAAP); and general economic
conditions. The reader should not place undue reliance on
forward-looking statements, which speak only as of the date they are
made. The company assumes no obligation to update or revise any such
statements, whether as a result of new information or otherwise.
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 5 PM ET today and on
replay afterwards. Shareholders are encouraged to review SEC filings
and more information about McKesson, which are located on the
company's website.
About McKesson McKesson Corporation, currently ranked 18th on the FORTUNE 500, is
a healthcare services and information technology company dedicated to
helping its customers deliver high-quality healthcare by reducing
costs, streamlining processes, and improving the quality and safety of
patient care. McKesson is the longest-operating company in healthcare
today and in 2008 is marking 175 years of continuous operations. Over
the course of its history, McKesson has grown by providing
pharmaceutical and medical-surgical supply management across the
spectrum of care; healthcare information technology for hospitals,
physicians, homecare and payors; hospital and retail pharmacy
automation; and services for manufacturers and payors designed to
improve outcomes for patients. For more information, visit us at
www.mckesson.com.
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Schedule I
-------------
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in millions except per share amounts) Quarter Ended March 31, Year Ended March 31,
------------------------ -----------------------
FY08 FY07 Chg. FY08 FY07 Chg. ---------- -------- ---- --------- -------- ----
Revenues $26,231 $24,165 9 % $101,703 $92,977 9 % Cost of sales 24,784 22,914 8 96,694 88,645 9
---------- -------- --------- -------- Gross profit 1,447 1,251 16 5,009 4,332 16 Operating expenses 966 883 9 3,536 3,074 15
Securities
Litigation
credits, net - - - (5) (6) (17)
---------- -------- --------- --------
Total operating
expenses 966 883 9 3,531 3,068 15
---------- -------- --------- -------- Operating income 481 368 31 1,478 1,264 17 Other income, net 17 26 (35) 121 132 (8)
Interest expense (34) (31) 10 (142) (99) 43
---------- -------- --------- -------- Income from
continuing
operations
before income
taxes 464 363 28 1,457 1,297 12 Income taxes (1) (159) (106) 50 (468) (329) 42
---------- -------- --------- -------- Income from
continuing
operations 305 257 19 989 968 2 Discontinued
operations, net
(2) 2 - - 1 (55) -
---------- -------- --------- -------- Net income $ 307 $ 257 19 $ 990 $ 913 8
========== ======== ========= ======== Earnings per common
share (3)
Diluted (4)
Continuing
operations $ 1.04 $ 0.85 22 % $ 3.32 $ 3.17 5 %
Discontinued
operations 0.01 - - - (0.18) -
---------- -------- --------- --------
Total $ 1.05 $ 0.85 24 $ 3.32 $ 2.99 11
========== ======== ========= ========
Basic
Continuing
operations $ 1.07 $ 0.87 23 % $ 3.40 $ 3.25 5 %
Discontinued
operations 0.01 - - - (0.19) -
---------- -------- --------- --------
Total $ 1.08 $ 0.87 24 $ 3.40 $ 3.06 11
========== ======== ========= ======== Shares on which
earnings per common
share were based
Diluted 291 304 (4)% 298 305 (2)%
Basic 285 296 (4) 291 298 (2) (1)Income tax expense for the year ended March 31, 2007 includes an
$83 million credit to reverse previously recorded Securities
Litigation tax reserves.
(2)In the second quarter of 2007, our Distribution Solutions segment
sold its Acute Care business and a small wholly-owned subsidiary. Financial results for these businesses have been presented as
discontinued operations. Results for our 2007 discontinued
operations include the write-off of $79 million of goodwill
allocated to the sale of the Acute Care business, none of which
was tax deductible.
(3)Certain computations may reflect rounding adjustments.
(4)Diluted earnings per share from continuing operations, excluding
the impact of our Securities Litigation, is as follows (a): Quarter Ended March 31, Year Ended March 31,
------------------------ -----------------------
FY08 FY07 Chg. FY08 FY07 Chg. ---------- -------- ---- --------- -------- ----
Income from
continuing
operations - as
reported $ 305 $ 257 19 % $ 989 $ 968 2 %
---------- -------- --------- -------- Exclude:
Securities
Litigation
credits, net - - - (5) (6) (17)
Income taxes on
credits, net - - - 2 2 -
Income tax
reserve
reversals - - - - (83) -
---------- -------- --------- --------
- - - (3) (87) (97)
---------- -------- --------- --------
Income from
continuing
operations,
excluding the
Securities
Litigation
credits, net $ 305 $ 257 19 $ 986 $ 881 12
========== ======== ========= ======== Diluted earnings
per common share
from continuing
operations,
excluding the
Securities
Litigation
credits, net (3) $ 1.04 $ 0.85 22 % $ 3.31 $ 2.89 15 % (a) These pro forma amounts are non-GAAP financial measures. The
Company uses these measures internally and considers these results to
be useful to investors as they provide relevant benchmarks of core
operating performance. *T -0-
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Schedule
II
--------
McKESSON CORPORATION
CONDENSED CONSOLIDATED INCOME INFORMATION BY BUSINESS SEGMENT
(unaudited)
(in millions except per share amounts) Quarter Ended March 31, Year Ended March 31,
----------------------- -----------------------
FY08 FY07 Chg. FY08 FY07 Chg. --------- -------- ---- --------- -------- ----
REVENUES
Distribution
Solutions
U.S. pharmaceutical
direct
distribution &
services $16,163 $14,163 14 % $ 60,436 $54,127 12 %
U.S. pharmaceutical
sales to
customers'
warehouses 6,417 7,142 (10) 27,668 27,555 -
--------- -------- --------- --------
Subtotal 22,580 21,305 6 88,104 81,682 8
Canada
pharmaceutical
distribution &
services 2,220 1,606 38 8,106 6,692 21
Medical-Surgical
distribution &
services 625 575 9 2,509 2,364 6
--------- -------- --------- --------
Total
Distribution
Solutions 25,425 23,486 8 98,719 90,738 9
--------- -------- --------- -------- Technology
Solutions
Services 596 477 25 2,240 1,537 46
Software &
software
systems 164 151 9 591 536 10
Hardware 46 51 (10) 153 166 (8)
--------- -------- --------- --------
Total
Technology
Solutions 806 679 19 2,984 2,239 33
--------- -------- --------- --------
Revenues $26,231 $24,165 9 $101,703 $92,977 9
========= ======== ========= ======== GROSS PROFIT
Distribution
Solutions $ 1,057 $ 923 15 $ 3,586 $ 3,252 10
Technology
Solutions 390 328 19 1,423 1,080 32
--------- -------- --------- --------
Gross profit $ 1,447 $ 1,251 16 $ 5,009 $ 4,332 16
========= ======== ========= ======== OPERATING
EXPENSES
Distribution
Solutions $ 597 $ 516 16 $ 2,138 $ 1,896 13
Technology
Solutions 288 276 4 1,115 884 26
Corporate 81 91 (11) 283 294 (4)
--------- -------- --------- --------
Subtotal 966 883 9 3,536 3,074 15
Securities
Litigation
credits, net - - - (5) (6) (17)
--------- -------- --------- --------
Operating
expenses $ 966 $ 883 9 $ 3,531 $ 3,068 15
========= ======== ========= ======== OTHER INCOME,
NET
Distribution
Solutions $ 5 $ 7 (29) $ 35 $ 39 (10)
Technology
Solutions 2 3 (33) 11 10 10
Corporate 10 16 (38) 75 83 (10)
--------- -------- --------- --------
Other income,
net $ 17 $ 26 (35) $ 121 $ 132 (8)
========= ======== ========= ======== OPERATING PROFIT
Distribution
Solutions $ 465 $ 414 12 $ 1,483 $ 1,395 6
Technology
Solutions 104 55 89 319 206 55
--------- -------- --------- --------
Operating
profit 569 469 21 1,802 1,601 13
Corporate (71) (75) (5) (208) (211) (1)
Securities
Litigation
credits, net - - - 5 6 (17)
--------- -------- --------- --------
Income from
continuing
operations
before interest
expense and
income taxes $ 498 $ 394 26 $ 1,599 $ 1,396 15
========= ======== ========= ========
STATISTICS
Operating profit
as a % of
revenues
Distribution
Solutions 1.83% 1.76% 7 bp 1.50% 1.54% (4) bp
Technology
Solutions 12.90% 8.10% 480 10.69% 9.20% 149 Return on
Stockholders'
Equity (1) 15.8% 15.2% 60 bp (1) Ratio is computed as the sum of net income for the last four
quarters, divided by the average of stockholders' equity for the last
five quarters. *T -0-
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Schedule
III
----------
McKESSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions) March 31, March 31,
2008 2007
---------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 1,362 $ 1,954
Restricted cash for Consolidated Securities
Litigation Action - 962
Receivables, net 7,213 6,566
Inventories, net 9,000 8,153
Prepaid expenses and other 211 221
---------- -----------
Total 17,786 17,856
Property, Plant and Equipment, Net 775 684
Capitalized Software Held for Sale, Net 199 166
Goodwill 3,345 2,975
Intangible Assets, Net 661 613
Other Assets 1,837 1,649
---------- -----------
Total Assets $ 24,603 $ 23,943
========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Drafts and accounts payable $ 12,032 $ 10,873
Deferred revenue 1,210 1,027
Current portion of long-term debt 2 155
Consolidated Securities Litigation
Action - 962
Other accrued 2,104 2,109
---------- -----------
Total 15,348 15,126
Other Noncurrent Liabilities 1,339 741
Long-Term Debt 1,795 1,803
Stockholders' Equity 6,121 6,273
---------- -----------
Total Liabilities and Stockholders'
Equity $ 24,603 $ 23,943
========== ===========
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Schedule IV
------------
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions) March 31, March 31,
2008 2007
----------- ------------ OPERATING ACTIVITIES
Net income $ 990 $ 913
Discontinued operations, net of income
taxes (1) 55
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation and amortization 371 295
Securities Litigation credits, net (5) (6)
Deferred taxes 198 167
Share-based compensation expense 91 60
Excess tax benefits from share-based
payment arrangements (83) (70)
Other non-cash items 17 (42)
Changes in operating assets and liabilities,
net of business acquisitions:
Receivables (288) (209)
Inventories (676) (928)
Drafts and accounts payable 762 872
Deferred revenue 98 181
Taxes 336 144
Other 21 107
----------- ------------
Net cash provided by operating activities
before
Consolidated Securities Litigation
Action settlement 1,831 1,539
Consolidated Securities Litigation Action
settlement (962) -
----------- ------------
Net cash provided by operating activities 869 1,539
----------- ------------ INVESTING ACTIVITIES
Property acquisitions (195) (126)
Capitalized software expenditures (161) (180)
Acquisitions of businesses, less cash and
cash equivalents acquired (610) (1,938)
Proceeds from sales of businesses - 179
Restricted cash for Consolidated Securities
Litigation Action 962 -
Other (1) (43)
----------- ------------
Net cash used in investing activities (5) (2,108)
----------- ------------ FINANCING ACTIVITIES
Proceeds from issuance of debt - 1,997
Repayment of debt (162) (1,031)
Capital stock transactions:
Issuances 354 399
Share repurchases (1,698) (1,003)
Excess tax benefits from share-based
payment arrangements 83 70
ESOP notes and guarantees 11 10
Dividends paid (70) (72)
Other 12 9
----------- ------------
Net cash (used in) provided by financing
activities (1,470) 379
Effect of exchange rate changes on cash and
cash equivalents 14 5
----------- ------------
Net decrease in cash and cash equivalents (592) (185)
Cash and cash equivalents at beginning of
period 1,954 2,139
----------- ------------
Cash and cash equivalents at end of period $ 1,362 $ 1,954
=========== ============
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McKesson Corporation (NYSE:MCK) today reported that revenues for the
fourth quarter ended March 31, 2008 were $26.2 billion compared to $24.2
billion a year ago. Fourth-quarter earnings per diluted share was $1.05
compared to 85 cents per diluted share a year ago. Fourth-quarter
earnings per diluted share from continuing operations was $1.04 compared
to 85 cents a year ago.
For the fiscal year, McKesson had revenues of $101.7 billion versus
$93.0 billion a year ago, and earnings per diluted share of $3.32
compared to $2.99 a year ago. Earnings per diluted share from continuing
operations for the full year was $3.31 compared to $2.89 a year ago
excluding adjustments to Securities Litigation reserves.
“The fourth-quarter and full-year financial
results demonstrate continued operating excellence and the benefit of
acquisitions and share repurchases to create additional shareholder
value,” said John H. Hammergren, chairman and
chief executive officer. “Driven by strong
revenue growth and solid operating margins in both Distribution
Solutions and Technology Solutions, McKesson’s
annual revenues exceeded $100 billion for the first time. Our enhanced
value proposition for customers provides great market momentum into our
next fiscal year.”
In the fourth quarter, McKesson revenues were up 9%, with strong
performance in both segments. Distribution Solutions revenues were up
8%, driven primarily by solid growth in pharmaceutical direct
distribution and services revenues in both the U.S. and Canada, and the
acquisition of Oncology Therapeutics Network (OTN). Technology Solutions
revenues grew 19%, driven by the Per-Se Technologies, Inc. (Per-Se)
acquisition and continued growth in software and services for hospitals,
clinics, physician offices, and payors.
“Over the past three years, our strong
operating results have been furthered by the acquisitions of D&K
Healthcare, OTN, and Per-Se,” said
Hammergren. “D&K expanded the opportunity for
our generics business, OTN enhanced our position in the rapidly growing
specialty pharmaceutical sector, and Per-Se represents a unique
opportunity to change the game in healthcare information technology.”
For the year, McKesson generated cash from operations of $1.8 billion
before considering the impact of releasing restricted cash of $962
million related to the Consolidated Securities Litigation Action. The
company continues to execute a balanced capital deployment strategy to
create additional shareholder value. During Fiscal 2008, McKesson
completed $610 million of acquisitions, repurchased $1.7 billion of its
common stock, including $772 million in the fourth quarter, paid $70
million in dividends, and made $356 million in internal investments and
capitalized software. The company ended the year with a cash balance of
$1.4 billion and a gross debt-to-capital ratio of 23%.
“Our strong balance sheet and solid cash flow
give us the flexibility to use our portfolio approach to capital
deployment for synergistic acquisitions, share repurchases, and
dividends,” Hammergren commented. “Based
on the positive outlook for our business, the Board of Directors
authorized an additional share repurchase of $1 billion, bringing our
total authorization to $1.3 billion, and approved a policy doubling the
quarterly dividend from six cents to twelve cents per share.”
“Our financial strength and our commitment to
operating excellence ensure that we will continue McKesson’s
175-year old tradition of creating value for our customers, employees
and shareholders by improving the cost and quality of healthcare.”
Segment Results
Distribution Solutions revenues were up 8% for the fourth quarter and 9%
for the year. U.S. pharmaceutical direct distribution and services
revenues grew 14% for the quarter and 12% for the year, primarily
reflecting customer growth and the OTN acquisition. Warehouse revenues
were down 10% for the quarter, primarily due to a decrease in purchases
from a customer, and were flat for the year.
Canadian revenues increased 38% for the quarter, primarily due to new
and expanded distribution agreements and a favorable currency impact of
20%. For the full year, Canadian revenues grew 21% and included a
favorable currency impact of 12%. Medical-Surgical distribution and
services revenues were up 9% in the fourth quarter and 6% for the full
year.
In the fourth quarter, Distribution Solutions gross profit of $1.1
billion was up 15% compared to the fourth quarter a year ago. Full-year
gross profit of $3.6 billion was up 10% from a year ago. The increases
in gross profit for the quarter and year resulted from stronger branded
price inflation and an increased mix of higher-margin products and
services.
Gross profit in the fourth quarter included a $5 million pre-tax LIFO
credit compared to $26 million in the fourth quarter a year ago. For the
full year, the pre-tax LIFO credit was $14 million compared to $64
million a year ago. The company fully utilized its pharmaceutical
products LIFO reserve in Fiscal 2008.
Operating profit was up 12% for the quarter and 6% for the year.
Operating margin rate for the fourth quarter was 1.83% compared to 1.76%
a year ago, and was 1.50% for the full year compared to 1.54% a year ago.
“We continue to expand our great
relationships with customers to provide them with higher-value products
and services,” said Hammergren. “When
combined with our disciplined approach to contract renewals, it produced
outstanding financial performance.”
In Technology Solutions, revenues were up 19% for the quarter and 33%
for the full year, reflecting the incremental impact of revenues from
Per-Se, which was acquired January 26, 2007, increased implementations,
and continued strong demand for clinical software and imaging solutions.
Services revenues grew 25% in the fourth quarter and 46% for the full
year, driven by growth in the business and the Per-Se acquisition.
Software and software systems revenues increased 9% for the quarter and
10% for the full year.
Operating expenses were up 4% for the quarter. For the year, operating
expenses were up 26% due to the impact of acquisitions, continued
investments in new product development, December quarter charges to
streamline staffing and product lines, and equity-based compensation
expense.
Technology Solutions operating profit in the fourth quarter was $104
million, up 89% compared to the fourth quarter a year ago, and for the
full year was $319 million, up 55%. Traditionally, operating profit in
this segment is strongest in the fourth quarter, and this year’s
growth was further aided by the incremental impact of the Per-Se
acquisition and improved performance in our Payor business. Operating
margin rate was 12.90% for the quarter and 10.69% for the year.
“Technology Solutions performance continues
to benefit from having the industry’s
broadest product and service offering and the largest customer base,”
said Hammergren. “We see strong demand for
our software and service solutions from our large installed base of
hospital customers, and we have unique offerings for the emerging
physician office and consumer-directed healthcare sectors of the market.
With RelayHealth we have an unmatched portfolio of clinical, financial
and administrative connectivity and communications solutions for
hospitals, physicians, payors and retail pharmacies. Our Payor business
is well-positioned with proven software and disease management
solutions. Our international business provides a solid base of services
revenues following the full implementation of our National Health
Service contract.”
Fiscal Year 2009 Outlook
“Based on our expectations for continued
strong business performance, the demonstrated value of our product and
service offerings, and our strategic investments, McKesson enters Fiscal
2009 well-positioned in both Distribution Solutions and Technology
Solutions,” Hammergren said. “A
strong balance sheet and solid operating cash flow provide resources to
create additional shareholder value. For the fiscal year ending March
31, 2009, McKesson expects to earn between $3.75 and $3.90 per fully
diluted share, which represents EPS growth of 13% to 18% from $3.31.”
Key Assumptions for Fiscal Year 2009 Outlook
The Fiscal 2009 outlook is based on the key assumptions provided below
and is also subject to the Risk Factors provided below in this press
release.
Revenue growth for Distribution Solutions should be at market growth
rates, adjusted for our mix of business. Technology Solutions revenue
growth should be at the high end of market revenue growth due to the
demand for healthcare information solutions and a continued steady
pace of software implementations.
Our agreements with branded pharmaceutical manufacturers provide a
higher level of predictability for compensation. However, the
structures of many agreements use price increases as the determinant
of compensation timing, and thus a seasonal pattern of earnings is
expected to continue. We assume that branded price inflation in Fiscal
2009 will moderate from Fiscal 2008 levels, toward levels experienced
in Fiscal 2006 and Fiscal 2007.
Another year of strong growth in sales and profit from generic
pharmaceuticals is expected.
McKesson’s incremental equity-based
compensation expense is expected to be between 5 and 7 cents per
diluted share in Fiscal 2009, due to the multi-year ramp-up of
expense. This expense will have a more significant impact on the
operating profit of the Technology Solutions segment. Our share-based
compensation is affected by a number of variables, including changes
in our stock price, levels of grants, forfeiture rates and the
attainment of performance goals. As a result, there could continue to
be variability in this expense in the coming fiscal year.
The guidance range assumes a tax rate of 33%, which may vary from
quarter to quarter.
The guidance range assumes lower interest income resulting from lower
prevailing interest rates.
Capital expenditures and capitalized software should be between $350
million and $400 million.
Cash flow from operations is expected to be in excess of $1.5 billion.
Diluted shares used in the calculation of earnings are expected to
average approximately 281 million for the year.
The guidance range does not include any potential Securities
Litigation reserve adjustments, or the impact of any potential
acquisitions, divestitures, or material restructurings and
integration-related actions.
Fourth-Quarter and Full-Year Financial Highlights
The quarter and year included the following additional major highlights:
On April 23, the Board of Directors authorized an additional share
repurchase of up to $1 billion, for a total authorization of $1.3
billion.
The Board of Directors also approved a change in the Company's
dividend policy by increasing the amount of the Company’s
quarterly dividend from six cents to twelve cents per share, which
applies to ensuing quarterly dividend declarations until further
action by the Board of Directors.
McKesson signed a definitive agreement to purchase McQueary Brothers
Drug Company, a Springfield, Missouri-based regional distributor of
pharmaceutical, health, and beauty products to more than 400
independent and regional chain pharmacies in the Midwestern United
States.
Since introducing an enhanced Health Mart program in July 2006, our
franchise count increased from 350 stores to more than 1,900 stores,
making it the largest independent domestic pharmacy franchise network.
McKesson’s revenue management solutions
expanded its services to physician groups by signing a contract with
Lucile Packard Children’s Hospital to
handle all billing and collection operations for their 650 physicians.
This agreement represents one of the largest revenue cycle management
contracts ever signed by McKesson.
McKesson Technology Solutions continues to win business from new
customers and expand its remote hosting services. Beebe Medical Center
signed a seven-year remote hosting services engagement for Horizon
Clinicals® to ensure medical staff have the
right information at the right time to make the best decisions for
patients. Beebe also purchased RelayHealth for physician connectivity
and signed a revenue management solutions contract.
OneMcKesson relationships involving more than one business unit
continue to expand. In the fourth quarter, St. Luke’s
Episcopal Health System in Houston, a long standing customer of both
Technology Solutions and U.S. Pharmaceutical Distribution, decided to
implement AcuDose-Rx® medication dispensing
cabinets and Automation Decision Support™
in three hospitals. With the installation of more than 300 cabinets,
this is one of the largest contracts for McKesson’s
automation business.
McKesson remains a leader in revenue cycle solutions. To enhance its
RelayHealth customer offering, McKesson acquired HTP, Inc., a leading
provider of revenue cycle management technology. This acquisition
further strengthens McKesson’s automation
and connectivity offering to help customers improve their financial
performance by accelerating reimbursement and minimizing bad debts.
McKesson’s surgical suite continues to
help healthcare organizations provide safe and efficient patient care.
McKesson acquired Rosebud Solutions, LLC, to expand its materials
management solution. Better tracking and management of surgical
instruments, tissues, implants and mobile medical equipment can
improve operating room throughput, dramatically reduce new instrument
purchases, and help improve patient safety.
McKesson completed the implementation of its payroll and human
resources information system for the National Health Service contract
in England and Wales, with 586 trusts live representing 1.2 million
NHS workers.
Our Payor Group, in collaboration with the Illinois Department of
Healthcare and Family Services, completed the program year-one
reconciliation for the Your Healthcare Plus™
Medicaid Disease Management program. Reconciliation results show that
the program helped the state achieve nearly $34 million in net savings.
Full-year results reflect a tax rate of 32%.
Fourth-quarter results included $18 million in pre-tax share-based
compensation expense associated with the implementation of FAS 123R.
For Fiscal 2008, this pre-tax expense totaled $91 million, or
approximately 20 cents per diluted share.
Discontinued operations in the fourth quarter totaled an after-tax
gain of $1 million, or one cent per diluted share, primarily
associated with adjustments to prior years’
divestitures.
Risk Factors
Except for historical information contained in this press release,
matters discussed may constitute “forward-looking
statements” within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended, that involve risks and uncertainties
that could cause actual results to differ materially from those
projected, anticipated or implied. These statements may be identified by
their use of forward-looking terminology such as “believes”,
“expects”, “anticipates”,
“may”, “should”,
“seeks”, “approximately”,
“intends”, “plans”,
“estimates” or
the negative of these words or other comparable terminology. The
discussion of financial trends, strategy, plans or intentions may also
include forward-looking statements. It is not possible to predict or
identify all such risks and uncertainties; however, the most significant
of these risks and uncertainties are described in the company’s
Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and
Exchange Commission and include, but are not limited to: material
adverse resolution of pending legal proceedings; changes in the U.S.
healthcare industry and regulatory environment; competition; the
frequency or rate of branded drug price inflation and generic drug price
deflation; substantial defaults or material reduction in purchases by
large customers; implementation delay, malfunction or failure of
internal information systems; the adequacy of insurance to cover
property loss or liability claims; the company’s
failure to attract and retain customers for its software products and
solutions due to integration and implementation challenges, or due to an
inability to keep pace with technological advances; loss of third party
licenses for technology incorporated into the company’s
products and solutions; the company’s
proprietary products and services may not be adequately protected, and
its products and solutions may be found to infringe on the rights of
others; failure of our technology products and solutions to conform to
specifications; disaster or other event causing interruption of customer
access to data residing in our service centers; increased costs or
product delays required to comply with existing and changing regulations
applicable to our businesses and products; changes in government
regulations relating to patient confidentiality and to format and data
content standards; the delay or extension of our sales or implementation
cycles for external software products; changes in circumstances that
could impair our goodwill or intangible assets; foreign currency
fluctuations or disruptions to our foreign operations; new or revised
tax legislation or challenges to our tax positions; the company’s
ability to successfully identify, consummate and integrate strategic
acquisitions; changes in generally accepted accounting principles
(GAAP); and general economic conditions. The reader should not place
undue reliance on forward-looking statements, which speak only as of the
date they are made. The company assumes no obligation to update or
revise any such statements, whether as a result of new information or
otherwise.
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 5 PM ET today and on replay afterwards. Shareholders are
encouraged to review SEC filings and more information about McKesson,
which are located on the company’s website.
About McKesson
McKesson Corporation, currently ranked 18th on the FORTUNE 500, is a
healthcare services and information technology company dedicated to
helping its customers deliver high-quality healthcare by reducing costs,
streamlining processes, and improving the quality and safety of patient
care. McKesson is the longest-operating company in healthcare today and
in 2008 is marking 175 years of continuous operations. Over the course
of its history, McKesson has grown by providing pharmaceutical and
medical-surgical supply management across the spectrum of care;
healthcare information technology for hospitals, physicians, homecare
and payors; hospital and retail pharmacy automation; and services for
manufacturers and payors designed to improve outcomes for patients. For
more information, visit us at www.mckesson.com.
Schedule I
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in millions except per share amounts)
Quarter Ended March 31,
Year Ended March 31,
FY08
FY07
Chg.
FY08
FY07
Chg.
Revenues
$
26,231
$
24,165
9
%
$
101,703
$
92,977
9
%
Cost of sales
24,784
22,914
8
96,694
88,645
9
Gross profit
1,447
1,251
16
5,009
4,332
16
Operating expenses
966
883
9
3,536
3,074
15
Securities Litigation credits, net
-
-
-
(5
)
(6
)
(17
)
Total operating expenses
966
883
9
3,531
3,068
15
Operating income
481
368
31
1,478
1,264
17
Other income, net
17
26
(35
)
121
132
(8
)
Interest expense
(34
)
(31
)
10
(142
)
(99
)
43
Income from continuing operations before income taxes
464
363
28
1,457
1,297
12
Income taxes (1)
(159
)
(106
)
50
(468
)
(329
)
42
Income from continuing operations
305
257
19
989
968
2
Discontinued operations, net (2)
2
-
-
1
(55
)
-
Net income
$
307
$
257
19
$
990
$
913
8
Earnings per common share (3)
Diluted (4)
Continuing operations
$
1.04
$
0.85
22
%
$
3.32
$
3.17
5
%
Discontinued operations
0.01
-
-
-
(0.18
)
-
Total
$
1.05
$
0.85
24
$
3.32
$
2.99
11
Basic
Continuing operations
$
1.07
$
0.87
23
%
$
3.40
$
3.25
5
%
Discontinued operations
0.01
-
-
-
(0.19
)
-
Total
$
1.08
$
0.87
24
$
3.40
$
3.06
11
Shares on which earnings per common share were based
Diluted
291
304
(4
)
%
298
305
(2
)
%
Basic
285
296
(4
)
291
298
(2
)
(1)
Income tax expense for the year ended March 31, 2007 includes an
$83 million credit to reverse previously recorded Securities
Litigation tax reserves.
(2)
In the second quarter of 2007, our Distribution Solutions segment
sold its Acute Care business and a small wholly-owned subsidiary.
Financial results for these businesses have been presented as
discontinued operations. Results for our 2007 discontinued
operations include the write-off of $79 million of goodwill
allocated to the sale of the Acute Care business, none of which
was tax deductible.
(3)
Certain computations may reflect rounding adjustments.
(4)
Diluted earnings per share from continuing operations, excluding
the impact of our Securities Litigation, is as follows (a):
Quarter Ended March 31,
Year Ended March 31,
FY08
FY07
Chg.
FY08
FY07
Chg.
Income from continuing operations - as reported
$
305
$
257
19
%
$
989
$
968
2
%
Exclude:
Securities Litigation credits, net
-
-
-
(5
)
(6
)
(17
)
Income taxes on credits, net
-
-
-
2
2
-
Income tax reserve reversals
-
-
-
-
(83
)
-
-
-
-
(3
)
(87
)
(97
)
Income from continuing operations, excluding the Securities
Litigation credits, net
$
305
$
257
19
$
986
$
881
12
Diluted earnings per common share from continuing operations,
excluding the Securities Litigation credits, net (3)
$
1.04
$
0.85
22
%
$
3.31
$
2.89
15
%
(a) These pro forma amounts are non-GAAP financial measures. The
Company uses these measures internally and considers these results
to be useful to investors as they provide relevant benchmarks of
core operating performance.
Schedule II
McKESSON CORPORATION
CONDENSED CONSOLIDATED INCOME INFORMATION BY BUSINESS SEGMENT
(unaudited)
(in millions except per share amounts)
Quarter Ended March 31,
Year Ended March 31,
FY08
FY07
Chg.
FY08
FY07
Chg.
REVENUES
Distribution Solutions
U.S. pharmaceutical direct distribution & services
$
16,163
$
14,163
14
%
$
60,436
$
54,127
12
%
U.S. pharmaceutical sales to customers' warehouses
6,417
7,142
(10
)
27,668
27,555
-
Subtotal
22,580
21,305
6
88,104
81,682
8
Canada pharmaceutical distribution & services
2,220
1,606
38
8,106
6,692
21
Medical-Surgical distribution & services
625
575
9
2,509
2,364
6
Total Distribution Solutions
25,425
23,486
8
98,719
90,738
9
Technology Solutions
Services
596
477
25
2,240
1,537
46
Software & software systems
164
151
9
591
536
10
Hardware
46
51
(10
)
153
166
(8
)
Total Technology Solutions
806
679
19
2,984
2,239
33
Revenues
$
26,231
$
24,165
9
$
101,703
$
92,977
9
GROSS PROFIT
Distribution Solutions
$
1,057
$
923
15
$
3,586
$
3,252
10
Technology Solutions
390
328
19
1,423
1,080
32
Gross profit
$
1,447
$
1,251
16
$
5,009
$
4,332
16
OPERATING EXPENSES
Distribution Solutions
$
597
$
516
16
$
2,138
$
1,896
13
Technology Solutions
288
276
4
1,115
884
26
Corporate
81
91
(11
)
283
294
(4
)
Subtotal
966
883
9
3,536
|