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 September 30, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9626
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McKESSON CORPORATION
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(Exact name of Registrant as specified in its charter)
DELAWARE 94-3040479
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Post Street, San Francisco, California 94104
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(Address of principal executive offices) (Zip Code)
(415) 983-8300
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(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 September 30, 1994
- -------------------------- ---------------------------------
Common stock, $2 par value 41,127,499 shares
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
==============================
Pages
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Item
- ----
1. Financial Statements
Consolidated Balance Sheets
September 30, 1994 and March 31, 1994 3 - 4
Statements of Consolidated Income
Six months ended September 30, 1994 and 1993 5 - 6
Statements of Consolidated Cash Flows
Six months ended September 30, 1994 and 1993 7 - 8
Financial Notes 9 - 10
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Review 11 - 15
PART II. OTHER INFORMATION
===========================
Item
- ----
6. Exhibits and Reports on Form 8-K 16
Index to Exhibits 18
- 2 -
PART I. FINANCIAL INFORMATION
==============================
McKESSON CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, March 31,
1994 1994
-------- --------
(in millions)
ASSETS
- ------
Current Assets
Cash and short-term investments $ 74.4 $ 89.0
Receivables 802.6 744.4
Inventories 1,069.3 993.5
Prepaid expenses 55.0 46.6
------- -------
Total 2,001.3 1,873.5
------- -------
Property, Plant and Equipment
Land 42.7 43.4
Buildings, machinery and equipment 767.4 744.7
------- -------
Total 810.1 788.1
Accumulated depreciation (407.2) (391.5)
------- -------
Net 402.9 396.6
Goodwill and other intangibles 275.3 281.4
Other assets 322.5 283.5
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Total $3,002.0 $2,835.0
======= =======
(Continued)
- 3 -
PART I. FINANCIAL INFORMATION
==============================
McKESSON CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, March 31,
1994 1994
-------- --------
(in millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Drafts payable $ 227.2 $ 205.1
Accounts payable - trade 1,055.1 925.4
Short-term borrowings 76.8 57.2
Current portion of long-term debt 21.0 18.5
Salaries and wages 31.4 38.4
Taxes 13.0 28.1
Interest and dividends 27.1 28.5
Other 105.6 127.0
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Total 1,557.2 1,428.2
------- -------
Postretirement Obligations and
Other Noncurrent Liabilities 215.4 214.8
------- -------
Long-Term Debt 462.2 462.3
------- -------
Minority Interest in Subsidiary 54.4 51.1
------- -------
Stockholders' Equity
Preferred stocks 120.0 125.3
Common stock 89.2 89.2
Other capital 156.1 164.9
Retained earnings 634.4 610.3
Accumulated translation adjustment (23.0) (22.3)
ESOP notes and guarantee (160.0) (165.1)
Treasury shares, at cost (103.9) (123.7)
------- -------
Net 712.8 678.6
------- -------
Total $3,002.0 $2,835.0
======= =======
See Financial Notes.
(Concluded)
- 4 -
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(unaudited)
Quarter Ended Six Months Ended
September 30 September 30
---------------- ----------------
1994 1993 1994 1993
------ ------ ------ ------
(in millions - except per share amounts)
REVENUES $3,255.8 $2,988.8 $6,491.0 $5,920.5
COSTS AND EXPENSES
Cost of sales 2,986.0 2,733.0 5,946.7 5,398.0
Selling, distribution
and administration 227.2 204.7 441.5 418.1
Interest 11.2 9.4 22.3 20.4
------- ------- ------- -------
Total 3,224.4 2,947.1 6,410.5 5,836.5
------- ------- ------- -------
SPECIAL ITEMS
Gain on sale and donation
of subsidiary stock 2.3 - 2.3 55.1
Donation to
McKesson Foundation (3.1) - (3.1) (4.3)
Termination of
swap arrangements - - - (13.4)
------- ------- ------- -------
(0.8) - (0.8) 37.4
------- ------- ------- -------
INCOME BEFORE
TAXES ON INCOME 30.6 41.7 79.7 121.4
TAXES ON INCOME (11.6) (17.4) (31.5) (47.0)
------- ------- ------- -------
INCOME BEFORE
MINORITY INTEREST 19.0 24.3 48.2 74.4
Minority interest in net
income of subsidiary (1.9) (1.8) (4.7) (3.3)
------- ------- ------- -------
INCOME (LOSS) AFTER TAXES
Continuing operations 17.1 22.5 43.5 71.1
Discontinued operations 8.4 7.2 18.0 13.9
Extraordinary item - - - (4.2)
Cumulative effect of
accounting change - - - (16.7)
------- ------- ------- -------
NET INCOME $ 25.5 $ 29.7 $ 61.5 $ 64.1
======= ======= ======= =======
(Continued)
- 5 -
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(unaudited)
Quarter Ended Six Months Ended
September 30 September 30
---------------- ----------------
1994 1993 1994 1993
------ ------ ------ ------
(in millions - except per share amounts)
EARNINGS (LOSS) PER COMMON SHARE
Fully diluted earnings
Continuing operations $ .36 $ .48 $ .93 $ 1.58
Discontinued operations .18 .17 .40 .32
Extraordinary item - - - (.10)
Cumulative effect of
accounting change - - - (.38)
------- ------- ------- -------
Total $ .54 $ .65 $ 1.33 $ 1.42
======= ======= ======= =======
Primary earnings
Continuing operations $ .36 $ .51 $ .96 $ 1.67
Discontinued operations .20 .18 .43 .34
Extraordinary item - - - (.10)
Cumulative effect of
accounting change - - - (.41)
------- ------- ------- -------
Total $ .56 $ .69 $ 1.39 $ 1.50
======= ======= ======= =======
Dividends $ .42 $ .42 $ .84 $ .82
======= ======= ======= =======
SHARES ON WHICH EARNINGS PER
COMMON SHARE WERE BASED
Fully diluted 45.0 43.9 45.0 43.9
Primary 42.0 40.5 41.7 40.5
See Financial Notes.
(Concluded)
- 6 -
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(unaudited)
Six Months Ended
September 30
--------------------
1994 1993
-------- --------
(in millions)
Operating Activities
Income after taxes from
continuing operations $ 43.5 $ 71.1
Adjustments to reconcile to net cash
provided by operating activities
Depreciation 29.5 27.4
Amortization 5.8 5.9
Provision for bad debts 20.9 3.3
Deferred taxes on income (1.1) (2.7)
Gain on sale of subsidiary stock - (52.0)
Other 1.2 (1.3)
------- -------
Total 99.8 51.7
------- -------
Effects of changes in
Receivables (76.4) (29.4)
Inventories (72.0) (149.2)
Accounts and drafts payable 147.5 164.8
Other (51.1) (52.6)
------- -------
Total (52.0) (66.4)
------- -------
Net cash provided (used)
by continuing operations 47.8 (14.7)
Discontinued operations (5.6) 17.2
------- -------
Net cash provided by
operating activities 42.2 2.5
------- -------
Investing Activities
Property acquisitions (40.4) (35.3)
Properties sold 5.0 4.6
Proceeds from sales of subsidiary stock - 78.7
Acquisitions of businesses, less cash
and short-term investments acquired - (50.6)
Investing activities
- discontinued operations (9.1) (49.7)
Other (1.5) 13.2
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Net cash used by
investing activities (46.0) (39.1)
------- -------
(Continued)
- 7 -
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(unaudited)
Six Months Ended
September 30
--------------------
1994 1993
-------- --------
(in millions)
Financing Activities
Proceeds from issuance of debt $ 48.0 $ 123.1
Repayment of debt (27.9) (74.5)
Capital stock transactions
Treasury stock - (31.5)
Issuances 4.6 11.6
ESOP notes and guarantee 5.2 4.9
Dividends paid (41.7) (37.3)
Financing activities
- discontinued operations 1.0 0.4
------- -------
Net cash used by
financing activities (10.8) (3.3)
------- -------
Net Decrease in Cash and
Short-Term Investments (14.6) (39.9)
Cash and Short-Term Investments
at beginning of period 89.0 111.5
------- -------
Cash and Short-Term Investments
at end of period $ 74.4 $ 71.6
======= =======
See Financial Notes.
(Concluded)
- 8 -
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL NOTES
1. Proposed Sale of the PCS Business
On July 10, 1994, McKesson Corporation ("McKesson" or "the Company")
entered into an Agreement and Plan of Merger providing for the acquisition by
Eli Lilly and Company ("Eli Lilly") of McKesson's pharmaceutical benefits
management business (the "PCS Business"), which is primarily operated by PCS
Health Systems, Inc. and Clinical Pharmaceuticals, Inc., both of which are
wholly-owned subsidiaries of McKesson, for approximately $4 billion.
As required by the Merger Agreement, on July 15, 1994 ECO Acquisition
Corporation, a subsidiary of Eli Lilly (the "Purchaser"), commenced a cash
tender offer to purchase from McKesson shareholders all outstanding shares of
McKesson common stock (the "Shares") at a price of $76.00 net per Share (the
"Offer"). The Offer is conditioned upon, among other things, satisfaction of
the condition that there be validly tendered and not withdrawn, prior to the
expiration of the Offer, a number of Shares that represent at least a
majority of the total voting power of McKesson. Following the purchase of
Shares under the Offer and satisfaction of certain other conditions, McKesson
and the Purchaser will merge (the "Merger") and each Share not purchased in
the Offer (other than Shares held by Eli Lilly and certain other related
entities) will be converted into the right to receive $76.00 in cash or such
higher price per Share as may be offered pursuant to the Offer, without
interest.
In addition, prior to the consummation of the Offer, McKesson and its
subsidiaries will (i) transfer all of the assets and liabilities of McKesson
other than those related to the PCS Business to SP Ventures, Inc., a
newly-formed wholly-owned subsidiary of McKesson which currently has no
assets or liabilities ("New McKesson") and (ii) declare a dividend
(conditioned upon consummation of the Offer) of one share of common stock of
New McKesson for each Share held of record as of such date (collectively, the
"Spin-Off"). After giving effect to the Spin-Off and the consummation of the
Offer, the current business of McKesson (other than its PCS Business) will be
continued through New McKesson. The net result of the proposed transaction
is that each existing McKesson shareholder will receive a cash payment of $76
per Share (representing the proceeds from the sale of the PCS Business)
together with one common share of New McKesson for each share held as of the
record date for the Spin-Off (representing their continuing interest in the
retained businesses).
Approximately $600 million, subject to certain adjustments, of the $4
billion will be contributed by Eli Lilly to the capital of McKesson, which
will transfer such amount to New McKesson to meet certain tax and transaction
costs and for the general corporate purposes of New McKesson, including the
funding of investments in new and current businesses. Management believes
that consummation of the proposed transaction will result in an estimated
gain on sale of the PCS Business of approximately $500 million, after taxes,
transaction costs and other expenses.
For financial statement purposes, New McKesson will be the continuing
entity and New McKesson will retain the name McKesson Corporation. The
accompanying unaudited consolidated financial statements present the PCS
Business as a discontinued operation.
- 9 -
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL NOTES
2. 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 September 30, 1994, and the results of its
operations and its cash flows for the six months then ended. Such
adjustments were of a normal recurring nature.
The results of operations for the six months ended September 30, 1994
and 1993 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 Company's 1994 consolidated
financial information which has previously been filed with the Commission in
a Report on Form 8-K dated July 29, 1994.
3. Special Items
Special items in the prior year of $37.4 million ($24.5 million
after-tax, $0.56 per fully diluted share) included a gain of $55.1 million
from the sale of 5,175,000 shares and the donation of 250,000 shares of the
Company's majority-owned Armor All Products Corporation subsidiary. The
shares donated to the McKesson Foundation had a market value of $4.3 million.
Also included in special items was a loss of $13.4 million resulting from the
termination of interest rate swap arrangements. These interest rate swap
arrangements had been designated, through March 31, 1993, as a hedge of the
Company's short-term variable interest domestic borrowings. As a result of
the Company's May 12, 1993 sale of Armor All shares and other factors, the
interest rate swap arrangements were no longer considered effective as a
hedge against the variable-rate borrowings as the Company, at that time, no
longer expected to borrow domestically on a short-term basis in fiscal 1994.
The current year special item represents an additional contribution of Armor
All shares to the McKesson Foundation.
4. Extraordinary Loss
An extraordinary loss of $4.2 million was recognized in the prior year
on the early retirement of $50 million of 8-5/8% debt.
5. Accounting Change
As of April 1, 1993, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits". The cumulative effect of adopting
the new standard resulted in a charge to net income of $16.7 million, net of
a $10.4 million tax benefit ($0.38 per fully diluted share).
- 10 -
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL REVIEW
(unaudited)
Operating Results
- -----------------
The operating results of the Company's continuing operations by business
segment are as follows:
Quarter Ended Six Months Ended
September 30 September 30
----------------------- -----------------------
% %
1994 1993 Chg. 1994 1993 Chg.
------ ------ ---- ------ ------ ----
(in millions)
REVENUES
Health Care
Services(1) $3,143.9 $2,886.7 8.9 $6,259.5 $5,711.0 9.6
Water Products 69.4 64.8 7.1 130.6 123.5 5.7
Armor All 41.1 36.3 13.2 97.7 84.0 16.3
Corporate 1.4 1.0 3.2 2.0
------- ------- ------- -------
Total $3,255.8 $2,988.8 8.9 $6,491.0 $5,920.5 9.6
======= ======= ======= =======
OPERATING PROFIT
Health Care
Services $ 33.0(2) $ 42.2 (21.8) $ 81.5(2) $ 87.3 (6.6)
Water Products 10.9 11.6 (6.0) 18.9 19.1 (1.0)
Armor All 7.3 7.0 4.3 18.1 16.1 12.4
------- ------- ------- -------
Total 51.2 60.8 (15.8) 118.5 122.5 (3.3)
Interest - net(3) (10.5) (9.2) (20.8) (19.7)
Corporate and other (10.1)(4) (9.9) (18.0)(4) 18.6(5)
------- ------- ------- -------
Income before
taxes $ 30.6 $ 41.7 (26.6) $ 79.7 $ 121.4 (34.3)
======= ======= ======= =======
(1) Health Care Services Revenues includes:
Sales to customers'
warehouses $712.9 $693.5 2.8 $1,440.5 $1,334.5 7.9
International
revenues 343.0 317.4 8.1 677.7 653.7 3.7
(2) Includes $11.5 million charge in FY95 due to a credit loss arising from
a problem receivable in the U.S. pharmaceutical and health care products
distribution business.
(3) Interest expense is shown net of corporate interest income.
(4) Includes special expense item of $0.8 million in FY95 resulting from a
contribution of Armor All stock to the McKesson Foundation.
(5) Includes income from special items of $37.4 million in FY94 consisting
of a gain on the sale and donation of Armor All stock of $55.1 million,
partially offset by a contribution of Armor All stock to the McKesson
Foundation of $4.3 million and a loss on the termination of interest
rate swap arrangements of $13.4 million.
- 11 -
McKESSON CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW
Proposed Sale of the PCS Business
- ---------------------------------
On July 10, 1994, McKesson Corporation ("McKesson" or "the Company")
entered into an Agreement and Plan of Merger providing for the acquisition by
Eli Lilly and Company ("Eli Lilly") of McKesson's pharmaceutical benefits
management business (the "PCS Business"), which is primarily operated by PCS
Health Systems, Inc. and Clinical Pharmaceuticals, Inc., both of which are
wholly-owned subsidiaries of McKesson, for approximately $4 billion.
As required by the Merger Agreement, on July 15, 1994 ECO Acquisition
Corporation, a subsidiary of Eli Lilly (the "Purchaser"), commenced a cash
tender offer to purchase from McKesson shareholders all outstanding shares of
McKesson common stock (the "Shares") at a price of $76.00 net per Share (the
"Offer"). The Offer is conditioned upon, among other things, satisfaction of
the condition that there be validly tendered and not withdrawn, prior to the
expiration of the Offer, a number of Shares that represent at least a
majority of the total voting power of McKesson. Following the purchase of
Shares under the Offer and satisfaction of certain other conditions, McKesson
and the Purchaser will merge (the "Merger") and each Share not purchased in
the Offer (other than Shares held by Eli Lilly and certain other related
entities) will be converted into the right to receive $76.00 in cash or such
higher price per Share as may be offered pursuant to the Offer, without
interest.
In addition, prior to the consummation of the Offer, McKesson and its
subsidiaries will (i) transfer all of the assets and liabilities of McKesson
other than those related to the PCS Business to SP Ventures, Inc., a
newly-formed wholly-owned subsidiary of McKesson which currently has no
assets or liabilities ("New McKesson") and (ii) declare a dividend
(conditioned upon consummation of the Offer) of one share of common stock of
New McKesson for each Share held of record as of such date (collectively, the
"Spin-Off"). After giving effect to the Spin-Off and the consummation of the
Offer, the current business of McKesson (other than its PCS Business) will be
continued through New McKesson. The net result of the proposed transaction
is that each existing McKesson shareholder will receive a cash payment of $76
per Share (representing the proceeds from the sale of the PCS Business)
together with one common share of New McKesson for each share held as of the
record date for the Spin-Off (representing their continuing interest in the
retained businesses).
Approximately $600 million, subject to certain adjustments, of the $4
billion will be contributed by Eli Lilly to the capital of McKesson, which
will transfer such amount to New McKesson to meet certain tax and transaction
costs and for the general corporate purposes of New McKesson, including the
funding of investments in new and current businesses. Management believes
that consummation of the proposed transaction will result in an estimated
gain on sale of the PCS Business of approximately $500 million, after taxes,
transaction costs and other expenses.
For financial statement purposes, New McKesson will be the continuing
entity and New McKesson will retain the name McKesson Corporation. The
accompanying unaudited consolidated financial statements present the PCS
Business as a discontinued operation.
- 12 -
McKESSON CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW
Overview of Results
- -------------------
Revenues in the second quarter increased 9% to $3.26 billion, net income
declined 14% to $25.5 million and earnings per fully diluted share declined
17% to $0.54.
Second quarter net income included income from continuing operations of
$17.1 million, net of an after-tax charge of $7 million ($0.16 per fully
diluted share) due to a credit loss arising from a problem receivable in the
Company's U.S. pharmaceutical distribution business, and $8.4 million in
earnings from discontinued operations. Prior year results included $7.2
million of earnings from discontinued operations.
In the first half, revenues increased 10% to $6.49 billion, net income
declined 4% to $61.5 million and earnings per fully diluted share declined 6%
to $1.33. First half net income included income from continuing operations
of $43.5 million, net of the $7 million after-tax charge for the credit loss,
and $18.0 million in earnings from discontinued operations. Prior year
results included an after-tax gain of $24.5 million for special items, $13.9
million in earnings from discontinued operations, an extraordinary loss of
$4.2 million after-tax on the early retirement of $50 million of 8-5/8% debt
and a $16.7 million after-tax charge for the cumulative effect of adopting
SFAS No. 112 "Employers' Accounting for Postemployment Benefits."
The prior year's special items of $37.4 million ($24.5 million
after-tax, $0.56 per fully diluted share) in continuing operations included
a pre-tax gain of $55.1 million on the sale and donation of Armor All stock,
partially offset by a contribution to the McKesson Foundation of $4.3 million
and a loss on the termination of interest rate swap arrangements of $13.4
million. The current year special item represents an additional contribution
of Armor All shares to the McKesson Foundation.
Segment Results
- ---------------
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 97% of consolidated revenues and
64% of total operating profits in the quarter.
Sales of the U.S. distribution services businesses, excluding sales to
customers' warehouses, increased 11% in the quarter and the half, reflecting
real volume growth. The increase in volume was driven by increased sales to
Valu-Rite pharmacies. The Valu-Rite program was expanded during fiscal year
1994 to provide more profit-improvement opportunities for customers including
the establishment of a pharmacy provider network and the implementation of
expanded generic drug and private label programs. The number of Valu-Rite
pharmacies has increased to approximately 4,800, an increase of nearly 300
since the beginning of the fiscal year.
- 13 -
McKESSON CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW
Operating profits for the U.S. businesses declined in the quarter and
the half as a result of the $11.5 million credit loss which offset moderate
improvement in the U.S. pharmaceutical distribution business and improved
results in the Company's Millbrook Distribution unit, a distributor of health
care products and general merchandise to supermarkets and mass merchandisers.
Profitability in the U.S. pharmaceutical distribution business continues to
be impacted by lower forward-buying profits resulting from a slowdown in drug
price inflation and a highly competitive business environment. Previously
disclosed measures to reduce operating expenses continue to yield results but
the gains were not sufficient to offset the impact of the pressures on gross
margins.
Revenues for the international pharmaceutical operations, principally
Canada, were up 8% in the quarter and 4% in the half. Operating profits in
the international pharmaceutical operations increased in the quarter and the
half.
WATER PRODUCTS
Revenues in the Water Products segment were up 7% in the quarter and 6%
in the half. Sales increased to residential and commercial customers.
However, operating profits declined 6% in the quarter and 1% in the half due
primarily to costs associated with the introduction of a new line of
single-service packaged water products and one-time costs incurred in
upgrading the company's water vending machines.
ARMOR ALL
Revenues from the Armor All segment increased 13% in the quarter and 16%
in the half reflecting strong new product sales offset, in part, by lower
protectant product sales. Operating profits grew at a slower rate than
revenues, up 4% in the quarter and 12% in the half, primarily due to start-up
costs and introductory promotional spending associated with sales of new
products.
DISCONTINUED OPERATIONS
Earnings from discontinued operations were up 17% in the quarter to $8.4
million and 29% in the half to $18 million. The results of the PCS Business
are included in discontinued operations. Sales of the PCS Business increased
31% to $51.7 million in the quarter and 34% to $103.7 million in the half.
Operating profits in the second quarter of this year were affected by a
highly competitive claims processing environment and start-up expenses
associated with expansion of the PCS Businesses' managed care and managed
infusion programs.
Discontinued operations also included earnings of $1.2 million in the
quarter and $1.6 million in the half resulting from settlements recovered in
insurance litigation related to environmental matters associated with the
former operations of the Company's chemical businesses, which were divested
in fiscal 1987.
- 14 -
McKESSON CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW
Liquidity and Capital Resources
- -------------------------------
Cash and short-term investments decreased $15 million in the half
compared to a $40 million decline in the prior year.
Net interest expense increased in the quarter and the half due to an
increase in interest rates. The Company's debt-to-capital ratio was 44.0% at
September 30, 1994 compared to 44.2% at March 31, 1994.
The effective tax rate, computed before the effect of special items, was
40.6% in the half, unchanged from the prior year.
Fully diluted shares increased to 45 million in the half from 43.9
million in the prior year reflecting the impact of employee stock options.
The Company is in the process of reevaluating its long-term business
strategy as a result of the planned disposition of the PCS Business. A
revision, if any, to that strategy could result in costs being recorded in
future periods related to asset impairments, severance, relocation and other
costs associated with a future restructuring. It is not anticipated that any
such actions would have an adverse impact on the Company's liquidity.
- 15 -
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
(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
September 30, 1994 except for the following which were included in the
report on Form 10-Q filed on August 12, 1994:
1. Form 8-K dated July 19, 1994
Item 5. Other Events
The Registrant announced it had entered into an Agreement and Plan
of Merger dated as of July 10, 1994 by and among the Registrant,
Eli Lilly and Company ("Parent") and ECO Acquisition Corporation,
a wholly-owned subsidiary of Parent, as well as certain other
agreements which provide for a corporate restructuring pursuant to
which it will sell to Parent its pharmaceutical benefits management
business, which is primarily operated by PCS Health Systems, Inc.
and Clinical Pharmaceuticals, Inc., two subsidiaries of the
Registrant for $4 billion in cash.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
2. Form 8-K dated July 29, 1994
Item 5. Other Events
Attached as exhibits to this current Report on Form 8-K were
certain financial statements, schedules and other information of
the Registrant which have been restated to reflect the pending
transaction described in the Form 8-K Report filed by the
Registrant on July 19, 1994.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
- 16 -
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: October 24, 1994 By /s/ Garret A. Scholz
----------------------------------------
Garret A. Scholz
Vice President Finance
By /s/ Richard H. Hawkins
----------------------------------------
Richard H. Hawkins
Vice President and Controller
- 17 -
INDEX TO EXHIBITS
Exhibit
Number
- ----------
(11) Computation of Earnings per Common Share
(27) Financial Data Schedule
- 18 -
Exhibit (11)
McKESSON CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(unaudited)
(in millions except per share amounts)
Quarter Ended Six Months Ended
September 30 September 30
-------------- --------------
1994 1993 1994 1993
------ ------ ------ ------
FULLY DILUTED EARNINGS PER SHARE
Income after taxes from
continuing operations $ 17.1 $ 22.5 $ 43.5 $ 71.1
Contribution adjustment - Series B ESOP
convertible preferred stock(1) (1.0) (0.9) (1.9) (1.9)
----- ----- ----- -----
16.1 21.6 41.6 69.2
Discontinued operations 8.4 7.2 18.0 13.9
Extraordinary item - - - (4.2)
Cumulative effect of
accounting change - - - (16.7)
----- ----- ----- -----
Total $ 24.5 $ 28.8 $ 59.6 $ 62.2
===== ===== ===== =====
Fully diluted shares
Common shares outstanding(2) 42.0 40.5 41.7 40.5
Convertible securities - dilutive 3.0 3.4 3.3 3.4
----- ----- ----- -----
Total 45.0 43.9 45.0 43.9
===== ===== ===== =====
Fully diluted earnings per share
Continuing operations $ .36 $ .48 $ .93 $ 1.58
Discontinued operations .18 .17 .40 .32
Extraordinary item - - - (.10)
Cumulative effect of accounting change - - - (.38)
----- ----- ----- -----
Total $ .54 $ .65 $ 1.33 $ 1.42
===== ===== ===== =====
PRIMARY EARNINGS PER SHARE
Income after taxes from
continuing operations $ 17.1 $ 22.5 $ 43.5 $ 71.1
Dividend requirements - preferred stocks(1) (1.7) (1.8) (3.5) (3.6)
----- ----- ----- -----
15.4 20.7 40.0 67.5
Discontinued operations 8.4 7.2 18.0 13.9
Extraordinary item - - - (4.2)
Cumulative effect of accounting change - - - (16.7)
----- ----- ----- -----
Total $ 23.8 $ 27.9 $ 58.0 $ 60.5
===== ===== ===== =====
Primary shares
Common shares outstanding(2) 42.0 40.5 41.7 40.5
===== ===== ===== =====
Primary earnings per share
Continuing operations $ .36 $ .51 $ .96 $ 1.67
Discontinued operations .20 .18 .43 .34
Extraordinary item - - - (.10)
Cumulative effect of accounting change - - - (.41)
----- ----- ----- -----
Total $ .56 $ .69 $ 1.39 $ 1.50
===== ===== ===== =====
1 Net of certain tax benefits.
2 Common shares outstanding have been computed by adding the monthly
averages (beginning of the month plus end of the month divided by 2),
dividing the aggregate by 3 or 6 as appropriate and adjusting this total
for dilutive stock options using the treasury stock method based on the
greater of the common share price at the end of the period or the
average common share price during the period (fully diluted) and on the
average common share price during the period (primary).
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Exhibit (27)
DATA STATED IN MILLION EXCEPT PER SHARE AMOUNTS
<CAPTION>
McKESSON CORPORATION
FINANCIAL DATA SCHEDULE
SEPTEMBER 30, 1994
This schedule contains summary financial information extracted from the McKesson
Corporation Consolidated Financial Statements as of September 30, 1994 and March 31,
1994 and for the six months ended September 30, 1994 and 1993 and is qualified in its
entirety by reference to such financial statements.
REGULATION NUMBER STATEMENT CAPTION FY95 FY94
- ----------------- ---------------------------------------- ---------- ----------
<S> <C> <C> <C>
5-02(1) Cash and cash items $ 74.4 $ 89.0
5-02(2) Marketable securities - -
5-02(3)(a)(1) Note and Accounts receivable - trade 849.1 775.2
5-02(4) Allowance for doubtful accounts (46.5) 30.8
5-02(6) Inventory 1,069.3 993.5
5-02(9) Total current assets 2,001.3 1,873.5
5-02(13) Property, plant and equipment 810.1 788.1
5-02(14) Accumulated depreciation (407.2) (391.5)
5-02(18) Total assets 3,002.0 2,835.0
5-02(21) Total current liabilities 1,557.2 1,428.2
5-02(22) Bonds mortgages & similar debt 462.2 462.3
5-02(28) Preferred stock - mandatory redemption - -
5-02(29) Preferred stock - no mandatory redemption 120.0 125.3
5-02(30) Common stock 89.2 89.2
5-02(31) Other stockholders' equity 503.6 464.1
5-02(32) Total liabilities and stockholders' equity 3,002.0 2,835.0
5-03(b)(1)(a) Net sales of tangible products 6,491.0 5,920.5
5-03(b)(1) Total revenues 6,491.0 5,920.5
5-03(b)(2)(a) Cost of tangible goods sold 5,946.7 5,398.0
5-03(b)(2) Total costs and exp. appl. to sales & revenues 5,946.7 5,398.0
5-03(b)(3) Other costs and expenses - -
5-03(b)(5) Provision for doubtful accounts and notes 20.9 3.3
5-03(b)(8) Interest & amortization of debt discount 22.3 20.4
5-03(b)(10) Income before taxes and other items 79.7 121.4
5-03(b)(11) Income tax expense 31.5 47.0
5-03(b)(14) Income/loss from continuing operations 43.5 71.1
5-03(b)(15) Discontinued operations 18.0 13.9
5-03(b)(17) Extraordinary items - (4.2)
5-03(b)(18) Cumulative effect-chngs. in acctg. prin. - (16.7)
5-03(b)(19) Net income or loss 61.5 64.1
5-03(b)(20) Earnings per share - primary 1.39 1.50
5-03(b)(20) Earnings per share - fully diluted 1.33 1.42
</TABLE>
