<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------
Date of Report (Date of earliest event reported): July 29, 1994 (July 10,
1994)
MCKESSON CORPORATION
(Exact Name of Registrant as Specified in Charter)
---------------------
DELAWARE 1-9626 94-3040479
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
MCKESSON PLAZA 94104
ONE POST STREET (Zip Code)
SAN FRANCISCO, CALIFORNIA
(Address of principal executive
offices)
(415) 983-8300
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS
Attached as exhibits to this Current Report on Form 8-K are 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 with the Securities and Exchange Commission on July 19,
1994 and which included as part of Exhibit 99.1 thereto a summary of such
restated financial information.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
(C) EXHIBITS DESCRIPTION
- --- -------- -----------
<C> <C> <S>
12.1 Computation of Earnings Per Common Share for the Five Years
Ended March 31, 1994.
20.1 Consolidated Supplementary Financial Schedules.
. Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees (other than related parties).
. Valuation and Qualifying Accounts.
. Short-term Borrowings.
20.2 McKesson Corporation Restated Financial Information for
fiscal year ended March 31, 1994.
</TABLE>
II-1
<PAGE>
SIGNATURES
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)
By: /s/ Nancy A. Miller
---------------------
Name: Nancy A. Miller
Title: Vice President and
Secretary
Dated: July 29, 1994
II-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
12.1 Computation of Earnings Per Common Share for the Five Years
Ended March 31, 1994.
20.1 Consolidated Supplementary Financial Schedules.
. Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees (other than
related parties).
. Valuation and Qualifying Accounts.
. Short-term Borrowings.
20.2 McKesson Corporation Restated Financial Information for
fiscal year ended March 31, 1994.
</TABLE>
<PAGE>
EXHIBIT 12.1
MCKESSON CORPORATION--CONSOLIDATED
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE FIVE YEARS ENDED MARCH 31
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
FULLY DILUTED EARNINGS
PER SHARE
Income after taxes from
continuing operations... $126,428 $ 95,070 $ 22,077 $ 85,016 $ 86,360
Dividend requirements--
convertible preferred
stocks.................. -- -- (7,081)(1) -- --
Interest charges on
convertible debentures--
net of tax.............. 18 1,352 -- (2) 3,391 3,628
Contribution adjustment--
Series B ESOP
convertible preferred
stock(3)................ (3,706) (3,758) -- (2) (3,711) (3,273)
-------- -------- --------- -------- --------
122,740 92,664 14,996 84,696 86,715
Income after taxes from
discontinued operations. 30,628 19,665 10,256 10,311 7,317
Extraordinary item....... (4,186) -- -- -- --
Cumulative effects of
accounting changes...... (16,660) -- (110,500) -- --
-------- -------- --------- -------- --------
Total................ $132,522 $112,329 $ (85,248) $ 95,007 $ 94,032
======== ======== ========= ======== ========
Fully diluted shares
Common shares
outstanding(4)........ 40,943 40,025 38,776 38,544 40,493
Convertible
securities--dilutive.. 3,160 4,783 -- (2) 6,060 5,761
-------- -------- --------- -------- --------
Total................ 44,103 44,808 38,776 44,604 46,254
======== ======== ========= ======== ========
Fully diluted earnings
per share
Continuing operations.. $ 2.78 $ 2.07 $ .39 $ 1.90 $ 1.87
Discontinued
operations............ .70 .44 .26 .23 .16
Extraordinary item..... (.10) -- -- -- --
Cumulative effects of
accounting changes.... (.38) -- (2.85) -- --
-------- -------- --------- -------- --------
Total................ $ 3.00 $ 2.51 $ (2.20) $ 2.13 $ 2.03
======== ======== ========= ======== ========
PRIMARY EARNINGS PER
SHARE
Income after taxes from
continuing operations... $126,428 $ 95,070 $ 22,077 $ 85,016 $ 86,360
Dividend requirements--
convertible preferred
stocks(1)............... (7,052) (7,010) (7,081) (6,973) (5,523)
-------- -------- --------- -------- --------
119,376 88,060 14,996 78,043 80,837
Income after taxes from
discontinued operations. 30,628 19,665 10,256 10,311 7,317
Extraordinary item....... (4,186) -- -- -- --
Cumulative effects of
accounting changes...... (16,660) -- (110,500) -- --
-------- -------- --------- -------- --------
Total................ $129,158 $107,725 $ (85,248) $ 88,354 $ 88,154
======== ======== ========= ======== ========
Common shares
outstanding(4).......... 40,789 40,025 38,776 38,539 40,429
======== ======== ========= ======== ========
Primary earnings per
share
Continuing operations.. $ 2.93 $ 2.20 $ .39 $ 2.02 $ 2.00
Discontinued
operations............ .75 .49 .26 .27 .18
Extraordinary item..... (.10) -- -- -- --
Cumulative effects of
accounting changes.... (.41) -- (2.85) -- --
-------- -------- --------- -------- --------
Total................ $ 3.17 $ 2.69 $ (2.20) $ 2.29 $ 2.18
======== ======== ========= ======== ========
</TABLE>
- --------
(1) Net of certain related tax benefits.
(2) 1992 fully diluted earnings per share computation excludes the effect of
convertible securities which were anti-dilutive.
(3) Represents the assumed additional ESOP contribution expense that the
Company would have incurred if the Series B ESOP convertible preferred
stock had been converted at the beginning of the period presented.
(4) Common shares outstanding have been computed by adding the monthly average
(beginning of the month plus end of the month divided by 2), dividing the
aggregate by 12 and adjusting this total for dilutive stock options using
the treasury stock method.
<PAGE>
EXHIBIT 20.1
MCKESSON CORPORATION--CONSOLIDATED
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES (OTHER THAN RELATED PARTIES)
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------- ---------- --------- ---------- ---------------------------
DEDUCTIONS BALANCE AT END OF PERIOD
---------- ---------------------------
BALANCE AT DUE
BEGINNING AMOUNTS WITHIN DUE AFTER
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED ONE YEAR ONE YEAR
- ---------------- ---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Officers and
Employees:
Year Ended March
31, 1994
R. Abrams (1)..... $450 $ 73 $ 4 $498 $ 21
R. Ashworth (2)... 236 -- 36 -- 200
A. Chong (2)...... 200 -- -- -- 200
K. Evans (3)...... 25 -- 25 -- --
T. Field (4)...... 600 -- -- 600 --
S. Geringer (1)... -- 200 -- -- 200
R. Harrison (2)... 438 -- 438 -- --
R. Hawkins (5).... -- 285 9 23 253
K. Hicken (6)..... 400 -- 400 -- --
W. Howard (2)..... 100 -- 100 -- --
R. Johnson (2)(5). 406 96 3 9 490
S. Kliff (1)...... -- 520 -- -- 520
D. McDowell (2)... 600 -- -- -- 600
D. Nelson (6)..... 200 -- 200 -- --
J. Perkins (2)(5). -- 338 28 19 291
J. Smith (2)...... -- 400 -- -- 400
G. Treude (7)..... 108 3 -- -- 111
D. Vanderhelm (6). 140 -- 14 -- 126
C. Villani (2).... 100 -- 20 20 60
Year Ended March
31, 1993
R. Abrams (2)..... $450 $ -- $ -- $ -- $450
R. Ashworth (2)... -- 236 -- -- 236
A. Chong (2)...... 200 -- -- -- 200
K. Evans (3)...... 150 -- 125 25 --
T. Field (4)...... 770 6 176 600 --
R. Harrison (2)... 500 -- 62 63 375
K. Hicken (6)..... 400 -- -- -- 400
W. Howard (2)..... -- 100 -- 20 80
R. Johnson (2).... 406 -- -- -- 406
S. Kliff (8)...... 290 -- 290 -- --
R. Malson (9)..... 126 1 127 -- --
D. McDowell (2)... 600 -- -- -- 600
D. Nelson (6)..... 200 -- -- 200 --
G. Treude (7)..... -- 108 -- -- 108
D. Vanderhelm (6). -- 140 -- 14 126
C. Villani (2).... -- 100 -- 20 80
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------- ---------- --------- ---------- ---------------------------
DEDUCTIONS BALANCE AT END OF PERIOD
---------- ---------------------------
BALANCE AT DUE
BEGINNING AMOUNTS WITHIN DUE AFTER
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED ONE YEAR ONE YEAR
- ---------------- ---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended March
31, 1992
R. Abrams (2).. $450 $ -- $ -- $ -- $450
A. Chong (2)... 200 -- -- -- 200
K. Evans (3)... -- 550 400 125 25
T. Field (4)... 828 19 77 77 693
J. Gillen (2).. 145 -- 145 -- --
R. Harrison
(2)........... -- 500 -- -- 500
K. Hicken (6).. 400 -- -- -- 400
R. Johnson (2). 406 -- -- -- 406
C. Kennedy (2). 485 -- 485 -- --
S. Kliff (8)... -- 290 -- 290 --
R. Malson (9).. 141 12 27 27 99
D. McDowell
(2)........... -- 600 -- -- 600
D. Nelson (6).. 200 -- -- -- 200
</TABLE>
- --------
NOTES: 1 Loan is secured by a deed of trust and is interest bearing.
2 Includes a loan secured by a deed of trust that is noninterest bearing
so long as the individual remains in the employ of the Company or is
under an employment contract.
3 Includes a $450,000 note used by the employee in connection with his
purchase of real property. The note is unsecured and non-interest
bearing.
4 Loan is secured by a deed of trust and was entered into when the
individual was in the employ of the Company.
5 Includes 6.75% interest bearing recourse notes relating to the
Company's Stock Purchase Plan due in installments through 2003 and
collateralized with common stock of the Registrant.
6 Loan is secured by a deed of trust and is noninterest bearing.
7 Includes a $100,000 secured note with interest equal to McKesson's cost
of funds.
8 Noninterest bearing short-term relocation loan.
9 Recourse note relating to the Company's Stock Purchase Plan due in
installments through 1992 and collateralized with common stock of the
Registrant.
2
<PAGE>
MCKESSON CORPORATION--CONSOLIDATED
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------ ---------- --------------------- ---------- -------------
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ------------------------ ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
AMOUNTS DEDUCTED FROM
ASSETS
TO WHICH THEY APPLY:
Year Ended March 31,
1994
- --------------------
Allowances for doubtful
accounts receivable.... $26,346 $ 9,994 $ 1 $17,704 $18,637
Other reserves.......... 14,886 5,144 -- 4,431 15,599
------- ------- ------- ------- -------
$41,232 $15,138 $ 1(3) $22,135(1) $34,236(2)
======= ======= ======= ======= =======
Year Ended March 31,
1993
- --------------------
Allowances for doubtful
accounts receivable.... $19,585 $17,670 $ 76 $10,985 $26,346
Other reserves.......... 13,823 3,855 -- 2,792 14,886
------- ------- ------- ------- -------
$33,408 $21,525 $ 76(3) $13,777(1) $41,232(2)
======= ======= ======= ======= =======
Year Ended March 31,
1992
- --------------------
Allowances for doubtful
accounts receivable.... $17,751 $13,662 $ 2,543 $14,371 $19,585
Other reserves.......... 11,995 4,883 -- 3,055 13,823
------- ------- ------- ------- -------
$29,746 $18,545 $ 2,543(3) $17,426(1) $33,408(2)
======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C> <C>
NOTES: 1 Deductions:
Written off............................... $17,704 $12,995 $15,926
Credited to other accounts................ 4,431 782 1,500
------- ------- -------
Total.................................... $22,135 $13,777 $17,426
======= ======= =======
2 Amounts shown as deductions from:
Current receivables....................... $30,826 $38,014 $30,284
Other assets.............................. 3,410 3,218 3,124
------- ------- -------
Total................................... $34,236 $41,232 $33,408
======= ======= =======
3 Recorded on the books of companies acquired.
</TABLE>
3
<PAGE>
MCKESSON CORPORATION--CONSOLIDATED
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E/1/ COLUMN F/1/
- ------------------------- -------- -------- ----------- ----------- -----------
WEIGHTED
MAXIMUM AVERAGE AVERAGE
BALANCE WEIGHTED AMOUNT AMOUNT INTEREST
AT END AVERAGE OUTSTANDING OUTSTANDING RATE
OF INTEREST DURING DURING DURING
PERIOD RATE THE PERIOD THE PERIOD THE PERIOD
-------- -------- ----------- ----------- -----------
Category of Short-Term
Borrowings
- ----------------------
Year Ended March 31, 1994
- -------------------------
<S> <C> <C> <C> <C> <C>
Bank borrowings........ -- -- $195,000 $18,361 3.4%
Commercial paper....... $19,992 3.5% 299,787 160,184 3.2%
International
borrowings............ 37,175 5.8% 63,050 62,872 5.0%
<CAPTION>
Year Ended March 31, 1993
- -------------------------
<S> <C> <C> <C> <C> <C>
Bank borrowings........ -- -- $ 45,000 $ 973 3.5%
Commercial paper....... -- -- 194,929 20,359 3.1%
International
borrowings............ $61,189 6.3% 77,760 57,960 7.2%
<CAPTION>
Year Ended March 31, 1992
- -------------------------
<S> <C> <C> <C> <C> <C>
Bank borrowings........ -- -- $ 60,000 $ 1,593 5.1%
Commercial paper....... -- -- 112,090 26,825 7.4%
International
borrowings............ $67,667 7.5% 97,215 59,669 8.4%
</TABLE>
- --------------------------------------------------------------------------------
NOTES: 1 Based on average daily balances except for international borrowings
which are based on average monthly balances.
4
<PAGE>
EXHIBIT 20.2
MCKESSON CORPORATION RESTATED
FINANCIAL INFORMATION
FISCAL YEAR 1994
LOGO
OF MCKESSON
<PAGE>
FINANCIAL INFORMATION
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Selected Financial Information--Six-Year Highlights....................... 2
Management's Discussion and Analysis of Results of Operations and
Financial Condition of the Company....................................... 6
Statement of Management's Responsibility.................................. 14
Independent Auditors' Report.............................................. 15
Consolidated Financial Statements
Statements of Consolidated Income for the years ended March 31, 1994,
1993 and 1992.......................................................... 16
Consolidated Balance Sheets, March 31, 1994, 1993, and 1992............. 17
Statements of Consolidated Stockholders' Equity for the years ended
March 31, 1994, 1993 and 1992.......................................... 18
Statements of Consolidated Cash Flows for the years ended March 31,
1994, 1993 and 1992.................................................... 20
Financial Notes......................................................... 21
</TABLE>
<PAGE>
SELECTED FINANCIAL INFORMATION
CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 (1)
---------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
--------- --------- --------- -------- -------- --------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $12,251.4 $11,555.7 $10,209.3 $8,325.1 $7,695.6 $6,955.1
Percent change......... 6.0% 13.2% 22.6 % 8.2 % 10.6 % 7.2%
Gross profit(2)......... 1,064.4 1,064.8 997.5 941.8 942.1 898.5
Percent of revenues.... 8.7% 9.2% 9.8 % 11.3 % 12.2 % 12.9%
Operating profit........ 262.4 253.2 153.3 (7) 224.1 230.7 221.5
Percent change......... 3.6% 65.2% (31.6)% (2.9)% 4.2 % 12.8%
Percent of revenues.... 2.1% 2.2% 1.5 %(7) 2.7 % 3.0 % 3.2%
Operating margin(3)..... 265.4(5) 213.6 107.4 (8) 198.4 207.8 195.1
Percent of revenues.... 2.2% 1.8% 1.1 %(8) 2.4 % 2.7 % 2.8%
Interest expense........ 41.3 49.5 55.2 55.3 52.9 46.7
Income before taxes on
income................. 224.1(5) 164.1 52.2 (8) 143.1 154.9 148.4
Percent change......... 36.6% 214.4% (63.5)% (7.6)% 4.4 % 6.8%
Taxes on income......... 88.6 65.6 28.0 56.9 64.0 61.6
Effective tax rate..... 39.5% 40.0% 53.6 % 39.8 % 41.3 % 41.5%
Income (loss) after
taxes
Continuing operations.. 126.5(6) 95.1 22.0 (8) 85.0 86.4 80.5
Percent change........ 33.0% 332.3% (74.1)% (1.6)% 7.3 % 10.4%
Discontinued opera-
tions................. 30.6 19.6 10.3 10.3 7.3 18.0
Extraordinary item--
debt extinguishment... (4.2) -- -- -- -- --
Cumulative effects of
accounting changes.... (16.7) -- (110.5) -- -- --
Net income (loss)....... 136.2 114.7 (78.2) 95.3 93.7 98.5
Percent change......... 18.7% -- -- 1.7 % (4.9)% 2.8%
Average stockholders'
equity................. 623.1 581.5 593.3 660.1 694.1 706.5
Return on equity(4).... 21.9% 19.7% (13.2)% 14.4 % 13.5 % 13.9%
Total dividends de-
clared................. 77.1 74.4 72.3 71.8 66.3 60.2
Common dividends de-
clared................. 66.9 64.0 61.8 61.2 57.6 59.8
Fully diluted earnings
(loss) per common share
Continuing operations.. 2.78 2.07 .39 1.90 1.87 1.84
Percent change........ 34.3% 430.8% (79.5)% 2.2 % 1.6 % 10.8%
Discontinued opera-
tions................. .70 .44 .26 .23 .16 .39
Extraordinary item..... (.10) -- -- -- -- --
Cumulative effects of
accounting changes.... (.38) -- (2.85) -- -- --
Total.................. 3.00 2.51 (2.20) 2.13 2.03 2.23
Percent change........ 19.5% -- -- 4.9 % (9.0)% 3.2%
</TABLE>
- --------
(1) Restated to reflect the PCS Business as a discontinued operation.
(2) Revenues less cost of sales.
(3) Income from continuing operations before interest expense, taxes on income
and minority interest.
(4) Based on net income.
(5) Includes pre-tax gain from special items of $37.4 million, 0.3% of
revenues.
(6) Includes special items after-tax of $24.5 million.
(7) Net of restructuring charges of $69.7 million, 0.7% of revenues.
(8) Net of restructuring charges of $82.8 million, 0.8% of revenues, $56.8
million after-tax.
2
<PAGE>
CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31(1)
------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- ---------
(DOLLARS AND SHARES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Customer receivables.... $ 737.8 $ 723.5 $ 669.7 $ 494.1 $ 521.5 $ 511.4
Days of sales(2)....... 21.7 22.5 23.0 21.4 24.4 26.5
Inventories--LIFO cost.. 993.5 885.4 847.8 694.7 617.1 564.6
Inventories--FIFO cost.. 1,311.6 1,214.4 1,157.4 976.6 857.7 768.1
Days of sales(2)....... 42.2 41.7 44.1 47.6 45.7 45.7
Drafts and accounts pay-
able................... 1,130.5 1,074.6 990.4 723.3 672.4 548.9
Days of sales(2)....... 36.4 36.9 37.8 35.3 35.8 32.6
Current assets.......... 1,873.5 1,757.5 1,702.3 1,363.4 1,292.2 1,133.7
Current liabilities..... 1,428.2 1,419.1 1,316.7 992.4 973.5 802.1
Working capital......... 445.3 338.4 385.6 371.0 318.7 331.6
Percent of revenues(2). 3.6% 2.9% 3.7% 4.5% 4.1% 4.8%
Property, plant and
equipment-net.......... 396.6 390.2 391.5 386.5 417.8 407.0
Percent of revenues(2). 3.2% 3.4% 3.7% 4.6% 5.4% 5.9%
Capital expenditures.... 74.1 56.9 70.6 74.1 61.6 89.8
Total assets............ 2,835.0 2,603.6 2,580.6 2,246.4 2,161.1 1,980.7
Total debt(3)........... 538.0 434.1 579.1 602.7 538.1 469.6
Stockholders' equity.... 678.6 619.4 554.5 675.6 684.1 692.2
Capital employed(4)..... 1,216.6 1,053.5 1,133.6 1,278.3 1,222.2 1,161.8
Ratio of debt to capi-
tal employed.......... 44.2% 41.2% 51.1% 47.1% 44.0% 40.4%
Average capital em-
ployed(4).............. 1,121.1 1,093.3 1,184.2 1,219.1 1,226.0 1,192.8
Turnover(5)............ 10.9 10.6 8.6 6.8 6.3 5.8
Fully diluted shares.... 44.1 44.8 38.8(6) 44.6 46.3 45.8
Common shares outstand-
ing at 3/31............ 40.6 40.6 38.9 38.2 39.3 40.3
Dividends per common
share.................. 1.66 1.60 1.60 1.60 1.44 1.44
Book value per common
share(7)............... 16.38 14.99 13.97 17.44 17.24 17.00
Market price
High................... 68 1/2 47 1/8 40 1/8 38 39 3/4 35 5/8
Low.................... 38 5/8 30 1/4 32 26 7/8 29 5/8 30
At year end............ 59 1/2 44 3/4 32 5/8 32 7/8 38 30
</TABLE>
- --------
(1) Restated to reflect the PCS Business as a discontinued operation.
(2) Based on year-end balances and sales or cost of sales assuming major
acquisitions occurred at beginning of year.
(3) Total debt includes all interest-bearing debt and capitalized lease
obligations.
(4) Capital employed consists of total debt and stockholders' equity.
(5) Revenues divided by average capital employed.
(6) Excludes convertible securities which were anti-dilutive.
(7) Stockholders' equity less preferred stock plus portion of ESOP notes and
guarantee related to the Series B ESOP Preferred Stock divided by year-end
common shares outstanding.
3
<PAGE>
REPORTING SEGMENTS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
--------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
--------- --------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
HEALTH CARE SERVICES(1)
Revenues................. $11,823.0 $11,148.9 $9,821.0 $7,944.1 $7,284.1 $6,572.1
Percent change.......... 6.0 % 13.5 % 23.6 % 9.1 % 10.8 % 10.8%
Sales to customers'
warehouses.............. 2,800.7 2,607.2 2,066.3 1,706.5 1,575.4 1,298.1
Revenues excluding sales
to customers'
warehouses.............. 9,022.3 8,541.7 7,754.7 6,237.6 5,708.7 5,274.0
Percent change.......... 5.6 % 10.1 % 24.3 % 9.3 % 8.2 % 4.3%
Operating profit......... 187.1 190.7 107.8 (2) 186.4 161.3 137.9
Percent change.......... (1.9)% 76.9 % (42.2)% 15.6 % 17.0 % 10.9%
Percent of revenues..... 1.6 % 1.7 % 1.1 %(2) 2.3 % 2.2 % 2.1%
Percent of revenues
excluding sales to
customers' warehouses.. 2.1 % 2.2 % 1.4 %(2) 3.0 % 2.8 % 2.6%
Average capital
employed(3)............. 1,011.5 830.6 904.6 853.2 837.6 837.6
Turnover(4)............. 11.7 13.4 10.9 9.3 8.7 7.8
Return(5)............... 18.5 % 23.0 % 11.9 % 21.8 % 19.3 % 16.5%
Segment assets........... 2,199.4 2,035.3 1,963.0 1,633.5 1,521.2 1,490.8
Capital expenditures..... 39.0 31.7 41.0 32.3 23.7 59.6
Depreciation............. 30.2 28.4 30.2 26.9 26.4 23.4
Amortization of
intangibles............. 8.7 7.9 9.5 9.9 10.3 10.6
WATER PRODUCTS
Revenues................. 240.3 229.6 232.8 236.7 232.6 213.5
Percent change.......... 4.7 % (1.4)% (1.6)% 1.8 % 8.9 % 8.4%
Operating profit......... 37.0 30.4 24.1 24.3 37.1 38.1
Percent change.......... 21.7 % 26.1 % (0.8)% (34.5)% (2.6)% 10.4%
Percent of revenues..... 15.4 % 13.2 % 10.4 % 10.3 % 16.0 % 17.8%
Average capital
employed(3)............. 119.4 107.9 104.4 103.1 98.9 79.9
Turnover(4)............. 2.0 2.1 2.2 2.3 2.4 2.7
Return(5)............... 31.0 % 28.2 % 23.1 % 23.6 % 37.5 % 47.7%
Segment assets........... 150.4 135.7 132.6 127.3 120.8 114.0
Capital expenditures..... 28.7 20.6 25.9 25.9 23.3 19.8
Depreciation............. 18.3 16.8 15.9 15.5 14.3 13.2
</TABLE>
- --------
(1) Restated to reflect the PCS Business as a discontinued operation.
(2) Net of restructuring charges of $69.7 million, 0.7% of revenues, 0.9% of
revenues excluding sales to customers' warehouses.
(3) Net assets of the segment.
(4) Revenues divided by average capital employed.
(5) Operating profit divided by average capital employed.
4
<PAGE>
REPORTING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
------------------------------------------------
1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
ARMOR ALL
Revenues................... $182.3 $168.4 $146.1 $133.8 $165.4 $163.0
Percent change............ 8.3% 15.3% 9.2% (19.1)% 1.5 % 29.0%
Operating profit........... 38.3 32.1 21.4 13.4 32.3 45.5
Percent change............ 19.3% 50.0% 59.7% (58.5)% (29.0)% 21.0%
Percent of revenues....... 21.0% 19.1% 14.6% 10.0 % 19.5 % 27.9%
Average capital
employed(2)--net of
minority interest......... 66.7 84.7 77.1 81.7 75.7 65.5
Turnover(3,6)............. 1.7 1.6 1.6 1.4 1.7 1.9
Return(4,6)............... 35.0% 31.3% 22.9% 13.6 % 32.8 % 53.7%
Segment assets(5).......... 151.8 140.6 138.8 115.9 124.0 127.2
Capital expenditures....... 1.4 0.7 0.8 1.3 1.4 0.4
Depreciation............... 1.1 1.2 1.2 0.8 0.4 0.3
Amortization of
intangibles............... 2.7 3.8 4.3 4.4 4.4 2.7
CORPORATE(1)
Revenues................... 5.8 8.8 9.4 10.5 13.5 6.5
Expenses................... (35.6) (45.4) (53.1) (30.6) (32.7) (28.7)
Average capital
employed(2)............... (76.5) 70.1 98.1 181.1 213.8 209.8
Total assets*.............. 333.4 292.0 346.2 369.7 395.1 248.7
Capital expenditures....... 5.0 3.9 2.9 14.6 13.2 10.0
Depreciation............... 6.2 9.9 10.1 10.0 7.3 6.0
*Total assets include:
Cash and short-term
investments(5)........... 62.7 77.6 145.2 155.4 155.2 46.7
Net assets of discontinued
operations in other
assets................... 119.1 66.2 60.4 21.2 -- 0.9
</TABLE>
- --------
(1) Restated to reflect the PCS Business as a discontinued operation.
(2) Net assets of the segment.
(3) Revenues divided by average capital employed.
(4) Operating profit divided by average capital employed.
(5) Armor All segment assets include $26.3 million, $33.9 million and $15.7
million of cash and short-term investments at March 31, 1994, 1993 and
1992, respectively.
(6) Calculated on average capital employed before deduction for minority
interest.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF THE COMPANY
PROPOSED TRANSACTION
On July 10, 1994, McKesson Corporation ("McKesson" or the "Company") entered
into an Agreement and Plan of Merger (the "Merger Agreement") 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. ("PCS") and Clinical Pharmaceuticals, Inc. ("CPA"),
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 wholly-owned subsidiary of Eli Lilly (the "Purchaser"),
commenced a cash tender offer to purchase from McKesson shareholders all
outstanding shares of McKesson common stock, par value $2.00 per share, (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, including such approval by McKesson stockholders
as may be required by law, 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 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 ("New McKesson") and (ii) declare a dividend
(conditioned upon consummation of the Offer) of one share of common stock of
New McKesson, par value $.01 per share, 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 would 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 of the Spin-Off (representing his continuing
interest in the retained businesses). Of the $4 billion to be paid by Eli
Lilly, Eli Lilly has agreed to contribute approximately $600 million, subject
to certain adjustments, 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 would result in an estimated gain on
sale of the PCS Business of approximately $500 million, after tax expenses,
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
consolidated financial statements have been restated to present the PCS
Business as a discontinued operation.
RESULTS OF OPERATIONS
On a restated basis, the Company reported earnings from continuing operations
of $126.5 million, or $2.78 per fully diluted share, in the fiscal year ended
March 31, 1994, which included special items of $24.5 million, or $.56 per
share. Excluding the special items, fiscal 1994 earnings from continuing
operations were $102.0 million, or $2.22, per share compared to $95.1 million,
or $2.07 per share, in fiscal 1993.
Fiscal 1994 net income was $136.2 million, or $3.00 per share and included
earnings from continuing operations of $126.5 million, earnings from the PCS
Business discontinued operations of $30.6 million, 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
Statement of Financial Accounting Standards ("SFAS") No. 112 "Employers'
Accounting for Postemployment Benefits."
6
<PAGE>
The fiscal 1994 results reflect profit growth in both the Water Products and
Armor All segments and a moderate decline in the operating profits of the
Health Care Services segment. 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 Health Care Services
segment results reflect lower gross margins resulting from the competitive
environment. In response to lower margins in fiscal 1994, the Company's drug
distribution business continued consolidation of certain distribution centers
and reduced its workforce through a restructuring of the sales organization and
administrative functions. In addition, other programs are being implemented to
reduce expenses and increase productivity through process improvements. The
growth in the Water Products and Armor All segments is due primarily to
programs implemented over the past several years that have improved the cost
structure and competitive position of these businesses, through the
introduction of new value-added services and products.
The special items of $37.4 million ($24.5 million after-tax, $.56 per fully
diluted share) in continuing operations included a pre-tax gain of $55.1
million from the sale and donation of Armor All shares (see "Armor All
Transactions" below). The donated shares 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 against
the Company's short-term variable interest domestic borrowings. As a result of
the 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, because the Company, at that time, no longer expected
to borrow domestically on a short-term basis in fiscal 1994.
Acquisitions
The Company made four acquisitions in fiscal 1994 for an aggregate cash
purchase price of $63.5 million. These included the purchase of a local direct
delivery water company in the Water Products segment and a brand acquisition in
the Armor All segment. In addition, two acquisitions were made in fiscal 1994
that expanded the Company's capabilities in the Health Care Services segment.
In April 1993, the Company acquired a 22.7% interest in Nadro S.A. de C.V.
("Nadro"). Nadro is the leading pharmaceutical wholesale distributor in Mexico.
At the same time, the Company received an option to acquire an additional 9% of
Nadro's common stock. In January 1994, the Company acquired an interest in
Technology Assessment Group, a consulting firm specializing in health outcomes
assessment.
Armor All Transactions
Reflecting the Company's plan to make Armor All Products Corporation ("Armor
All") an independent entity over time, in fiscal 1994, the Company sold
5,175,000 shares of Armor All common stock to the public and donated 250,000
additional shares to the McKesson Foundation. These transactions reduced the
Company's equity interest in Armor All from 83% to 57%. In addition, the
Company sold $180 million of subordinated debentures that are exchangeable, at
the option of the holders, into 6.9 million additional shares of Armor All
common stock owned by the Company, subject to the Company's right to pay cash
equal to the market price of the stock in lieu of making the exchange. If all
of the debentures were exchanged into Armor All shares, the Company's ownership
interest in Armor All would be reduced to approximately 24%.
REVENUE GROWTH
In fiscal 1994 revenues increased $0.7 billion, or 6%, to $12.3 billion. The
following table identifies the components of revenue growth over the past three
fiscal years.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-------------------------
1994 1993 1992
------ ------- -------
<S> <C> <C> <C>
Existing businesses
Real volume growth....... 6.6% 6.0% 7.4%
Price increases (de-
creases)................ (.6) 2.4 3.6
Growth from acquired busi-
nesses................... -- 4.8 11.6
------ ------- -------
Total revenue growth.... 6.0% 13.2% 22.6%
====== ======= =======
</TABLE>
7
<PAGE>
The rate of real growth in fiscal 1994 reflects a growth rate in the Health
Care Services segment of 7% compared to 6% in fiscal 1993 and 7% in fiscal
1992. The increase in 1994 Health Care Services real growth is due primarily to
increased sales to Valu-Rite pharmacies, with sales growth being particularly
strong in the second half of the year. The Valu-Rite program was expanded
during fiscal 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.
Water Products revenue increased 5% in fiscal 1994 reflecting an increase in
its home and commercial delivery customer base and increased sales of packaged
water to the grocery trade. Armor All revenues increased 8% due primarily to
the introduction of new products.
Price declines reduced the overall rate of revenue growth in fiscal 1994. The
decline in prices reflects substantial price reductions on many generic
pharmaceutical products, offset in part by moderate inflation on other product
lines. The practice in the Health Care Services distribution businesses is to
pass on to customers price changes from suppliers. The use of the last-in,
first-out accounting method results in cost of sales that more closely reflect
replacement cost, thereby mitigating the effect of inflation on the Company's
operating profit. The Company receives price protection from manufacturers that
prevents inventory losses from being incurred as a result of manufacturer price
reductions.
OPERATING PROFIT
The Company achieved a 6.7% increase in income before taxes, interest and
special items on a 6.0% increase in revenues. The results reflect operating
profit improvements in the Water Products and Armor All segments offset, in
part, by a moderate decline in the operating profits of the Health Care
Services segment.
The operating profit of the Health Care Services segment declined $3.6
million in fiscal 1994, reflecting declines in the U.S. Health Care Services
distribution business operating profits in fiscal 1994 and in the profitability
of the Canadian operations due to lower tobacco sales and the lower exchange
rate. These results were offset, in part, by an increase in international
operating profits due to the inclusion of the Company's interest in Nadro,
acquired in April 1993.
Water Products operating profit increased $6.6 million reflecting sales
growth and the implementation of programs designed to increase productivity and
reduce costs through the consolidation of facilities and delivery routes and
reorganization of the Company's sales, marketing and financial management
structure.
Armor All's operating profit increased $6.2 million due primarily to an 8%
sales increase, steady gross margins, and a reduction in selling and
administrative costs as a percentage of sales.
The following table identifies the operating margin (income before special
items, interest expense and taxes on income as a percent of revenues excluding
sales to customers' warehouses) components for the past three years.
<TABLE>
<CAPTION>
AS A PERCENT OF REVENUE(1)
-------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Gross profit margin(2)................. 11.3% 11.9% 12.2%
Operating expenses..................... 8.9 9.5 10.9(3)
-------- -------- --------
Operating margin....................... 2.4%(4) 2.4% 1.3%(3)
======== ======== ========
</TABLE>
--------
(1) Computed with revenues excluding sales to customers' warehouses.
(2) Revenues less cost of sales.
(3) Excluding fiscal 1992 restructuring costs, operating expense
margin is 9.9% and operating margin is 2.3%.
(4) Including special items in fiscal 1994, the operating margin is
2.8%.
8
<PAGE>
Productivity improvements offset the decline in gross profit margin in fiscal
1994. Gross profit margins declined in the year due primarily to competitive
pricing in the U.S. and Canadian pharmaceutical distribution businesses. The
gross profit margin decline in fiscal 1993 was offset by productivity
improvements.
The following table summarizes operating profits as a percentage of revenues
by segment:
<TABLE>
<CAPTION>
AS A PERCENT OF REVENUE
-------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Health Care Services....................... 1.6% 1.7% 1.1%(1)
Health Care Services (excluding sales to
customers' warehouses).................... 2.1 2.2 1.4 (1)
Water Products............................. 15.4 13.2 10.4
Armor All.................................. 21.0 19.1 14.6
</TABLE>
--------
(1) Excluding fiscal 1992 restructuring costs, the percentages are 1.8% of
total revenues and 2.3% of revenues excluding sales to customers'
warehouses.
The improvement in Water Products margins in fiscal 1994 and 1993 reflects a
series of cost reduction programs including route, plant and administrative
consolidations.
The improvement in Armor All's margin in fiscal 1994 is primarily due to
lower selling and marketing costs as a percentage of revenues. In addition,
fixed administrative expenses were spread over a higher sales volume. The
significant improvement in the Company's margin in fiscal 1993 is primarily due
to more efficient trade promotion practices and the spreading of fixed
administrative expenses over a higher volume.
CAPITAL EXPENDITURES
Capital expenditures were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Health Care Services................................... $ 39 $ 32 $ 41
Water Products......................................... 29 21 26
Corporate and Other.................................... 6 4 4
------ ------ ------
Total................................................ $ 74 $ 57 $ 71
====== ====== ======
</TABLE>
WORKING CAPITAL
Working capital as defined in the following table excludes cash and interest-
bearing obligations.
<TABLE>
<CAPTION>
MARCH 31 WORKING CAPITAL
AS A PERCENT OF REVENUES
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Health Care Services.......................... 3.7% 3.2% 3.8%
Health Care Services (excluding sales to cus-
tomers' warehouses).......................... 4.9 4.2 4.8
Total Company................................. 3.5 2.7 3.1
</TABLE>
The consolidated working capital ratio increased in fiscal 1994 due primarily
to higher inventory and lower trade payables levels in the Health Care Services
distribution operations. This situation resulted from management's decision
earlier in the year to temporarily increase inventories. Inventories were
partially reduced during the latter part of the fiscal year resulting in lower
inventory purchases during the fourth quarter, and therefore, lower related
payables levels, than would otherwise have been required.
9
<PAGE>
CASH FLOW AND LIQUIDITY
Capital Expenditure and Dividend Coverage
Net cash provided by operations has exceeded capital expenditures and
dividends, in the aggregate, during the fiscal 1992-1994 period, by $87
million.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
------------------------
1994 1993 1992
------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C>
Net cash provided by continuing operations
Income after taxes from continuing operations... $ 126 $ 95 $ 22
Restructuring charges........................... -- -- 83
Depreciation.................................... 56 56 57
Amortization of intangibles..................... 11 12 14
Provision for bad debts......................... 10 18 14
Deferred taxes and other........................ 14 12 (35)
Gain on sale of subsidiary stock................ (52) -- --
Working capital changes......................... (132) 2 87
------- ------ -------
Total......................................... 33 195 242
Capital expenditures.............................. (74) (57) (71)
------- ------ -------
Excess (deficit)................................ (41) 138 171
Net cash provided by PCS operations, net of capi-
tal expenditures................................. 5 18 19
Dividends paid.................................... (77) (74) (72)
------- ------ -------
Net excess (deficit)............................ $ (113) $ 82 $ 118
======= ====== =======
</TABLE>
The cash used for working capital changes in fiscal 1994 primarily reflects
the previously discussed management decision to temporarily increase inventory
levels earlier in the year.
It is currently anticipated that the annual dividend rate per Share will be
reduced from $1.68 to $1.00 following the completion of the Offer, the Spin-
Off, and the Merger.
Other Financing Activities
Long-term debt increased $108 million reflecting the Company's issuance of
$180 million of 4 1/2% exchangeable subordinated debentures net of the
redemption of $50 million of 8 5/8% debt and other scheduled debt repayments in
fiscal 1994. The exchangeable subordinated debentures are exchangeable, at the
option of the holder, into shares of Armor All common stock owned by the
Company at an exchange price of $25.94 per share, subject to the Company's
right to pay cash equal to the market price of the stock in lieu of making the
exchange. Net interest expense declined in fiscal 1994 due to lower borrowing
rates.
The Company had $89 million of cash and short-term investments at March 31,
1994 and has approximately $280 million of available credit under domestic
committed revolving credit lines. As a result of the Company's strong
investment grade credit rating, management believes the Company has access to
additional private credit sources and public capital markets at favorable
terms. Funds required for future debt maturities are expected to be met by
existing cash balances, cash flow from operations, existing credit sources, and
other debt capacity available at favorable terms.
The Company expects to receive from Eli Lilly approximately $600 million,
subject to certain adjustments, upon completion of the Offer, the Spin-Off, and
the Merger. The Company plans to use this cash for certain tax and transaction
costs and for general corporate purposes, including the funding of investments
in new and current businesses.
10
<PAGE>
CAPITALIZATION
The Company's capitalization was as follows:
<TABLE>
<CAPTION>
MARCH 31
----------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Short-term borrowings................................ $ 57 $ 61 $ 68
Term debt............................................ 301 372 462
Exchangeable Debt.................................... 180 -- --
Convertible debt..................................... -- 1 49
------ ------ ------
Total debt......................................... 538 434 579
Stockholders' equity--net............................ 679 619 555
------ ------ ------
Total capitalization............................... $1,217 $1,053 $1,134
====== ====== ======
Debt-to-capital ratio at March 31.................... 44.2% 41.2% 51.1%
Average interest rate during year
Total debt......................................... 6.1% 8.7% 8.8%
Short-term borrowings.............................. 3.7 6.1 8.0
Other debt......................................... 7.9 9.2 8.9
</TABLE>
The increase in the debt-to-capital ratio in fiscal 1994 was due to the
previously discussed net increase in debt. The decrease in the debt-to-capital
ratio in fiscal 1993 was due to the redemption of $75 million of 10 3/4% Notes,
the conversion of $48.8 million of 9% and 9 3/4% convertible subordinated
debentures into 2.2 million shares of common stock and other scheduled debt
repayments. The increase in equity in fiscal 1993 from the debenture
conversions was offset by the repurchase of approximately 1.2 million Shares in
connection with its previously announced share repurchase program.
Upon consummation of the Offer, the Company expects equity to increase by
approximately $475 million reflecting the estimated net gain on sale of
discontinued operations offset, in part, by the deemed distribution of the net
assets of the PCS Business. The debt-to-capital ratio is expected to decline to
approximately 32%.
Average fully diluted shares were 44 million in fiscal 1994, 45 million in
fiscal 1993 and 39 million in fiscal 1992. The lower number of fully diluted
shares in fiscal 1992 was due to the exclusion of convertible securities which
were anti-dilutive in fiscal 1992 but dilutive in fiscal 1994 and 1993. The
anti-dilutive effect of these securities in fiscal 1992 was due to the net loss
resulting from restructuring charges and accounting changes.
11
<PAGE>
CAPITAL EMPLOYED
Capital employed was as follows:
<TABLE>
<CAPTION>
MARCH 31
----------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Health Care Services........ $1,062 $ 911 $ 924
Water Products.............. 123 111 107
Armor All--net of minority
interest(1)................ 69 90 83
------ ------ ------
Total Operations.......... 1,254 1,112 1,114
Corporate
Cash...................... 63 78 145
Other..................... (100) (137) (125)
------ ------ ------
Total Capital Employed.. $1,217 $1,053 $1,134
====== ====== ======
Return on Average Capital
Employed(2)
Health Care Services...... 18.5% 23.0% 11.9%(3)
Water..................... 31.0 28.2 23.1
Armor All(4).............. 35.0 31.3 22.9
Total Consolidated
Operations(5)............ 20.3 19.5 9.1(6)
Return on Equity(7)......... 21.9% 19.7% (13.2)%
</TABLE>
--------
(1) Armor All capital employed includes $26.3 million, $33.9 million
and $15.7 million of cash and short-term investments at March 31,
1994, 1993 and 1992, respectively.
(2) Operating profit divided by average capital employed.
(3) 19.6% before restructuring charges.
(4) Calculated on average capital employed before deduction for
minority interest.
(5) Income from continuing operations before taxes, special items,
interest expense and minority interest divided by average
consolidated capital employed.
(6) 16.1% before restructuring charges.
(7) Based on net income (loss). Net loss in fiscal 1992 reflects $56.8
million after-tax charge for restructuring and $110.5 million
after-tax charge for the cumulative effects of accounting changes.
The decline in return on average capital employed in the Health Care Services
segment reflects the previously discussed increase in working capital levels.
The improved returns in the Water Products and Armor All segments reflect
improved operating results.
RESTRUCTURING CHARGES
In fiscal 1992, the Company initiated a program to restructure its U.S. and
Canadian health care services distribution businesses and wrote off an
investment, resulting in a charge of $82.8 million ($56.8 million after-tax) in
fiscal 1992. The fiscal 1992 restructuring program was geared to achieving cost
and working capital efficiencies through the consolidation of facilities and
workforce reductions, made possible by enhanced automation and other
productivity improvements. During fiscal 1993 and 1994, eight distribution
facilities were closed and workforce reductions were made. Charges to the
restructuring reserve have consisted primarily of asset write-offs, lease
settlements and moving and severance costs which, through March 31, 1994, have
totaled approximately $72 million, including $49 million of non-cash charges.
Also during 1994, the Company reallocated a portion of its restructuring
reserve from facility consolidation costs to severance costs associated with
workforce reductions.
12
<PAGE>
ENVIRONMENTAL MATTERS
The Company's continuing operations do not require ongoing material
expenditures to comply with federal, state and local environmental laws and
regulations. However, in connection with the disposition of its chemical
operations in fiscal 1987, the Company retained responsibility for certain
environmental obligations. In addition, the Company is a party to a number of
proceedings brought under the Comprehensive Environmental Response,
Compensation and Liability Act, commonly known as Superfund, and other federal
and state statutes. While it is not possible to predict the outcome of these
proceedings, management does not believe that its environmental matters will
have a material impact on the Company's consolidated financial position.
INCOME TAXES
The Company's effective tax rate was 39.5% in fiscal 1994, 40.0% in fiscal
1993 and 53.6% in fiscal 1992. The 1994 effective rate reflects, in part, the
tax benefit received on the contribution to the McKesson Foundation of Armor
All stock and the impact of tax legislation. The Omnibus Budget Reconciliation
Act of 1993 increased the federal corporate income tax rate from 34% to 35%
retroactive to January 1993. Absent the Armor All transactions, the Company's
effective tax rate in fiscal 1994 would have approximated 40.5%.
POSTEMPLOYMENT BENEFITS
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 $10.4
million tax benefit. The accounting change had no significant impact on current
period results.
13
<PAGE>
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
Management is responsible for the preparation and accuracy of the financial
statements and other information included in this report. The financial
statements have been prepared in conformity with generally accepted accounting
principles using, where appropriate, management's best estimates and judgments.
In meeting its responsibility for the reliability of the financial
statements, management has developed and relies on the Company's system of
internal accounting control. The system is designed to provide reasonable
assurance that assets are safeguarded and that transactions are executed as
authorized and are properly recorded. The system is augmented by written
policies and procedures and an internal audit department.
The Board of Directors reviews the financial statements and reporting
practices of the Company through its Audit Committee, which is composed
entirely of directors who are not officers or employees of the Company. The
committee meets regularly with the independent auditors, internal auditors and
management to discuss audit scope and results and to consider internal control
and financial reporting matters. Both the independent and internal auditors
have direct unrestricted access to the Audit Committee. The entire Board of
Directors reviews the Company's financial performance and financial plan.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of McKesson Corporation:
We have audited the accompanying consolidated balance sheets of McKesson
Corporation and subsidiaries as of March 31, 1994, 1993, and 1992, and the
related statements of consolidated income, consolidated stockholders' equity
and consolidated cash flows for the years then ended. Our audits also included
the consolidated supplementary financial schedules listed in Item 7. These
financial statements and consolidated supplementary financial schedules are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements and consolidated supplementary
financial schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of McKesson Corporation and
subsidiaries at March 31, 1994, 1993, and 1992, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles. Also, in our opinion, such
consolidated supplementary financial schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
As discussed in Note 18 of the consolidated financial statements, in 1994 the
Corporation changed its method of accounting for postemployment benefits to
conform with Statement of Financial Accounting Standards ("SFAS") No. 112 and
in 1992 changed its method of accounting for postretirement benefits other than
pensions to conform with SFAS No. 106, and changed its method of accounting for
estimated environmental clean-up obligations.
/s/ DELOITTE & TOUCHE
DELOITTE & TOUCHE
San Francisco, California
May 16, 1994
(July 10, 1994 as to Note 1)
15
<PAGE>
MCKESSON CORPORATION
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------------------------
1994 1993 1992
------------ ------------ ------------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES............................ $12,251.4 $11,555.7 $10,209.3
------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales....................... 11,187.0 10,490.9 9,211.8
Selling............................. 242.8 233.2 230.3
Distribution........................ 375.9 383.0 354.7
Administrative...................... 217.7 235.0 222.3
Restructuring charges (Note 17)..... -- -- 82.8
Interest............................ 41.3 49.5 55.2
------------ ------------ ------------
Total........................... 12,064.7 11,391.6 10,157.1
------------ ------------ ------------
SPECIAL ITEMS (Note 3)
Gain on sale and donation of subsid-
iary stock......................... 55.1 -- --
Donation to McKesson Foundation..... (4.3) -- --
Termination of swap arrangements.... (13.4) -- --
------------ ------------ ------------
37.4 -- --
------------ ------------ ------------
INCOME BEFORE TAXES ON INCOME....... 224.1 164.1 52.2
Taxes on income (Note 13)........... 88.6 65.6 28.0
------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST..... 135.5 98.5 24.2
Minority interest in net income of
subsidiary......................... (9.0) (3.4) (2.2)
------------ ------------ ------------
INCOME (LOSS) AFTER TAXES...........
Continuing operations............... 126.5 95.1 22.0
Discontinued operations (Note 8).... 30.6 19.6 10.3
Extraordinary item--debt extinguish-
ment (Note 9)...................... (4.2) -- --
Cumulative effects of accounting
changes (Note 18).................. (16.7) -- (110.5)
------------ ------------ ------------
NET INCOME (LOSS)................... $ 136.2 $ 114.7 $ (78.2)
============ ============ ============
Earnings (Loss) Per Common Share
Fully diluted.......................
Continuing operations............. $ 2.78 $ 2.07 $ .39
Discontinued operations........... .70 .44 .26
Extraordinary item................ (.10) -- --
Cumulative effects of accounting
changes.......................... (.38) -- (2.85)
------------ ------------ ------------
Total........................... $ 3.00 $ 2.51 $ (2.20)
============ ============ ============
Primary
Continuing operations............. $ 2.93 $ 2.20 $ .39
Discontinued operations........... .75 .49 .26
Extraordinary item................ (.10) -- --
Cumulative effects of accounting
changes.......................... (.41) -- (2.85)
------------ ------------ ------------
Total........................... $ 3.17 $ 2.69 $ (2.20)
============ ============ ============
SHARES ON WHICH EARNINGS (LOSS) PER
COMMON SHARE WERE BASED
Fully diluted....................... 44.1 44.8 38.8
Primary............................. 40.8 40.0 38.8
</TABLE>
See Financial Notes.
16
<PAGE>
MCKESSON CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
-------------------------------
1994 1993 1992
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Cash and short-term investments............... $ 89.0 $ 111.5 $ 160.9
Receivables (Note 6).......................... 744.4 713.2 664.3
Inventories (Note 7).......................... 993.5 885.4 847.8
Prepaid expenses (Note 13).................... 46.6 47.4 29.3
--------- --------- ---------
Total current assets...................... 1,873.5 1,757.5 1,702.3
--------- --------- ---------
Land.......................................... 43.4 43.4 43.6
Buildings..................................... 236.0 236.9 233.9
Machinery and equipment....................... 508.7 480.0 459.5
--------- --------- ---------
Total property, plant and equipment....... 788.1 760.3 737.0
Accumulated depreciation...................... (391.5) (370.1) (345.5)
--------- --------- ---------
Net property, plant and equipment............. 396.6 390.2 391.5
Goodwill and other intangibles................ 281.4 278.5 295.0
Other assets (Notes 8, 13 and 14)............. 283.5 177.4 191.8
--------- --------- ---------
Total assets.............................. $ 2,835.0 $ 2,603.6 $ 2,580.6
========= ========= =========
LIABILITIES
Drafts payable................................ $ 205.1 $ 160.2 $ 165.4
Accounts payable--trade....................... 925.4 914.4 825.0
Short-term borrowings......................... 57.2 61.2 67.7
Current portion of long-term debt (Note 9).... 18.5 27.1 21.7
Salaries and wages............................ 38.4 39.6 41.8
Taxes......................................... 28.1 36.7 35.7
Interest and dividends........................ 28.5 28.8 28.8
Other......................................... 127.0 151.1 130.6
--------- --------- ---------
Total current liabilities................. 1,428.2 1,419.1 1,316.7
--------- --------- ---------
Postretirement obligations and other
noncurrent liabilities
(Notes 8 and 14)............................. 214.8 199.6 203.0
--------- --------- ---------
Long-term debt (Note 9)....................... 462.3 345.8 489.7
--------- --------- ---------
Minority interest in subsidiary............... 51.1 19.7 16.7
--------- --------- ---------
STOCKHOLDERS' EQUITY
Preferred stocks.............................. 125.3 126.5 128.8
Common stock.................................. 89.2 89.2 89.2
Other capital................................. 164.9 172.4 204.2
Retained earnings............................. 610.3 546.8 501.7
Accumulated translation adjustment............ (22.3) (17.0) (13.5)
ESOP notes and guarantee (Note 12)............ (165.1) (177.1) (188.2)
Treasury shares, at cost...................... (123.7) (121.4) (167.7)
--------- --------- ---------
Stockholders' equity (Notes 9 and 12)..... 678.6 619.4 554.5
--------- --------- ---------
Total liabilities and stockholders'
equity................................... $ 2,835.0 $ 2,603.6 $ 2,580.6
========= ========= =========
</TABLE>
See Financial Notes.
17
<PAGE>
MCKESSON CORPORATION
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1994, 1993 AND 1992
(SHARES IN THOUSANDS, DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PREFERRED STOCKS COMMON STOCK
------------------ -------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- ------ ------
<S> <C> <C> <C> <C>
BALANCES, MARCH 31, 1991...................... 3,013 $ 130.6 44,583 $89.2
Issuance of shares under employee plans (Note
12)..........................................
Conversion or redemption of debentures and
preferred stock.............................. (45) (1.8)
ESOP note payment.............................
Tax benefit of unallocated ESOP share
dividends....................................
Other.........................................
Translation adjustment........................
Net loss......................................
Cash dividends declared.......................
Preferred stock (Series A, $1.80 per share).
Preferred stock (Series B ESOP, $3.62 per
share).....................................
Common, $1.60 per share.....................
------- -------- ------ -----
BALANCES, MARCH 31, 1992...................... 2,968 128.8 44,583 89.2
Purchase of shares............................
Issuance of shares under employee plans (Note
12)..........................................
Conversion or redemption of debentures and
preferred stock.............................. (55) (2.3)
ESOP note payment.............................
Tax benefit of unallocated ESOP share
dividends....................................
Other.........................................
Translation adjustment........................
Net income....................................
Cash dividends declared.......................
Preferred stock (Series A, $1.80 per share).
Preferred stock (Series B ESOP, $3.62 per
share).....................................
Common, $1.60 per share.....................
------- -------- ------ -----
BALANCES, MARCH 31, 1993...................... 2,913 126.5 44,583 89.2
Purchase of shares............................
Issuance of shares under employee plans (Note
12)..........................................
Conversion or redemption of debentures and
preferred stock.............................. (30) (1.2)
ESOP note payment.............................
Tax benefit of unallocated ESOP share
dividends....................................
Other.........................................
Translation adjustment........................
Net income....................................
Cash dividends declared.......................
Preferred stock (Series A, $1.80 per share).
Preferred stock (Series B ESOP, $3.62 per
share).....................................
Common, $1.66 per share.....................
------- -------- ------ -----
BALANCES, MARCH 31, 1994...................... 2,883 $ 125.3 44,583 $89.2
======= ======== ====== =====
</TABLE>
See Financial Notes.
18
<PAGE>
<TABLE>
<CAPTION>
TREASURY
ACCUMULATED ESOP ---------------
OTHER RETAINED TRANSLATION NOTES AND COMMON STOCKHOLDERS'
CAPITAL EARNINGS ADJUSTMENT GUARANTEE SHARES AMOUNT EQUITY
------- -------- ----------- --------- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
$211.1 $647.2 $(11.4) $(198.5) (6,393) $(192.6) $675.6
(3.0) 375 12.6 9.6
(5.2) 366 12.3 5.3
10.3 10.3
5.0 5.0
1.3 1.3
(2.1) (2.1)
(78.2) (78.2)
(0.3) (0.3)
(10.2) (10.2)
(61.8) (61.8)
------ ------ ------ ------- ------ ------- ------
204.2 501.7 (13.5) (188.2) (5,652) (167.7) 554.5
(1,177) (49.4) (49.4)
(5.8) 547 18.8 13.0
(28.0) 2,273 76.9 46.6
11.1 11.1
4.8 4.8
2.0 2.0
(3.5) (3.5)
114.7 114.7
(0.3) (0.3)
(10.1) (10.1)
(64.0) (64.0)
------ ------ ------ ------- ------ ------- ------
172.4 546.8 (17.0) (177.1) (4,009) (121.4) 619.4
(769) (31.5) (31.5)
(3.3) 705 25.6 22.3
(1.1) 37 1.4 (0.9)
12.0 12.0
4.4 4.4
(3.1) 58 2.2 (0.9)
(5.3) (5.3)
136.2 136.2
(0.2) (0.2)
(10.0) (10.0)
(66.9) (66.9)
------ ------ ------ ------- ------ ------- ------
$164.9 $610.3 $(22.3) $(165.1) (3,978) $(123.7) $678.6
====== ====== ====== ======= ====== ======= ======
</TABLE>
19
<PAGE>
MCKESSON CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-------------------------
1994 1993 1992
------- ------- -------
(IN MILLIONS)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Income after taxes from continuing operations....... $ 126.5 $ 95.1 $ 22.0
Adjustments to reconcile to net cash provided by op-
erating activities
Restructuring charges............................. -- -- 82.8
Depreciation...................................... 55.8 56.3 57.4
Amortization of intangibles....................... 11.4 11.7 13.8
Provision for bad debts........................... 10.0 17.7 13.7
Deferred taxes on income.......................... 15.8 7.0 (35.3)
Gain on sale of subsidiary stock.................. (52.0) -- --
Other............................................. (2.5) 5.2 0.8
------- ------- -------
Total........................................... 165.0 193.0 155.2
------- ------- -------
Effects of changes in
Receivables...................................... (47.6) (50.3) (75.6)
Inventories...................................... (118.9) (38.9) (29.9)
Accounts and drafts payable...................... 67.8 89.5 137.7
Other............................................ (33.6) 1.7 54.6
------- ------- -------
Total........................................... (132.3) 2.0 86.8
------- ------- -------
NET CASH PROVIDED BY CONTINUING OPERATIONS...... 32.7 195.0 242.0
Discontinued operations (Note 8).................... 41.1 16.5 (4.1)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES....... 73.8 211.5 237.9
------- ------- -------
INVESTING ACTIVITIES
Property acquisitions............................... (74.1) (56.9) (70.6)
Properties sold..................................... 9.8 5.2 6.7
Acquisitions of businesses, less cash and short-term
investments acquired (Note 4)...................... (63.5) (3.0) (15.8)
Proceeds from sales of discontinued operations (Note
8)................................................. -- 16.0 17.7
Proceeds from sale of subsidiary stock.............. 78.7 -- --
Investing activities of discontinued operations..... (67.4) (17.8) (2.7)
Other............................................... (6.6) (9.9) (2.8)
------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES........... (123.1) (66.4) (67.5)
------- ------- -------
FINANCING ACTIVITIES (Notes 9 and 12)
Proceeds from issuance of debt...................... 204.9 2.0 47.9
Repayment of debt................................... (104.1) (97.9) (135.4)
Financing activities of discontinued operations..... .4 .5 (24.1)
Capital stock transactions..........................
Issuances......................................... 21.7 13.0 8.5
Treasury stock acquired........................... (31.5) (49.4) --
ESOP note payments................................ 11.9 11.1 10.3
Dividends paid.................................... (76.5) (73.8) (72.1)
------- ------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVI-
TIES........................................... 26.8 (194.5) (164.9)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM IN-
VESTMENTS.......................................... (22.5) (49.4) 5.5
Cash and Short-Term Investments at beginning of
year............................................... 111.5 160.9 155.4
------- ------- -------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR...... $ 89.0 $ 111.5 $ 160.9
======= ======= =======
</TABLE>
See Financial Notes. Above referenced Notes describe related noncash investing
and financing activities. In addition, see Note 9 for interest paid and Note 13
for income taxes paid.
20
<PAGE>
MCKESSON CORPORATION
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 (the "Merger Agreement") 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. ("PCS") and Clinical Pharmaceuticals, Inc. ("CPA"),
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 wholly-owned subsidiary of Eli Lilly (the "Purchaser"),
commenced a cash tender offer to purchase from McKesson shareholders all
outstanding shares of McKesson common stock, par value $2.00 per share, (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, including such approval by McKesson stockholders
as may be required by law, 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 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 ("New McKesson") and (ii) declare a dividend
(conditioned upon consummation of the Offer) of one share of common stock of
New McKesson, par value $.01 per share, 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 would 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 of the Spin-Off (representing his continuing
interest in the retained businesses). Of the $4 billion to be paid by Eli
Lilly, Eli Lilly has agreed to contribute approximately $600 million, subject
to certain adjustments, 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 would result in an estimated gain on
sale of the PCS Business of approximately $500 million, after tax expenses,
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
consolidated financial statements have been restated to present the PCS
Business as a discontinued operation. See Note 8, "Discontinued Operations."
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidated Financial Statements of the Company include the financial
statements of all majority-owned companies, except those classified as
discontinued operations. All significant intercorporate amounts have been
eliminated. Minority interest represents the minority shareholders'
proportionate share in the equity or income of the Company's majority-owned
Armor All Products Corporation ("Armor All") subsidiary. Certain prior year
amounts have been restated to conform to the current year presentation.
Cash and Short-Term Investments include all highly liquid debt instruments
purchased with a maturity of three months or less at the date of acquisition.
Inventories consist of merchandise held for resale and are stated at the
lower of cost or market. The cost of substantially all domestic inventories is
determined on the last-in, first-out ("LIFO") method. International inventories
are stated at average cost.
21
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
Property, Plant and Equipment is stated at cost and depreciated on the
straight-line method at rates designed to distribute the cost of properties
over estimated service lives.
Capitalized Software included in other assets reflects costs related to
internally developed or purchased software for projects in excess of $250,000
that are capitalized and amortized on a straight-line basis over periods not
exceeding five years.
Goodwill and Other Intangibles are amortized straight-line over periods
estimated to be benefitted, generally 25 to 40 years. Accumulated amortization
balances netted against goodwill and other intangibles were $84.5 million,
$73.3 million and $66.4 million at March 31, 1994, 1993 and 1992.
Insurance Programs. Under the Company's insurance programs, coverage is
obtained for catastrophic exposures as well as those risks required to be
insured by law or contract. It is the policy of the Company to retain a
significant portion of certain losses related primarily to workers'
compensation, physical loss to property, business interruption resulting from
such loss and comprehensive general, product, and vehicle liability. Provisions
for losses expected under these programs are recorded based upon the Company's
estimates of the aggregate liability for claims incurred. Such estimates
utilize certain actuarial assumptions followed in the insurance industry.
Income Taxes. The Company accounts for income taxes under the liability
method in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", see Note 13.
Earnings per Common Share. Primary earnings per share are calculated by
dividing net income less preferred dividends by the weighted average shares
outstanding adjusted for the dilutive effect of stock options. Fully diluted
earnings per share reflect the dilutive effect of stock options and assume the
conversion of the preferred stocks and convertible debentures and related
earnings adjustments, except, in fiscal 1992, when certain potentially dilutive
securities were anti-dilutive.
Foreign Currency Translation. Assets and liabilities of the Company's foreign
affiliates are translated at current exchange rates, while revenue and expenses
are translated at average rates prevailing during the year. Translation
adjustments are reported as a component of stockholders' equity.
3. SPECIAL ITEMS
Special items of $37.4 million ($24.5 million after-tax, $.56 per fully
diluted share) recorded in fiscal 1994 included a pre-tax gain of $55.1 million
from the sale of 5,175,000 shares and the donation of 250,000 shares of common
stock of Armor All. 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 against the Company's short-term variable interest domestic
borrowings. As a result of the 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.
4. ACQUISITIONS AND INVESTMENTS
The Company made four acquisitions in fiscal 1994 for an aggregate cash
purchase price of $63.5 million. These included the purchase of a local direct
delivery water company in the Water Products segment and a brand acquisition in
the Armor All segment. In addition, two acquisitions were made in fiscal 1994
that expanded the Company's capabilities in the Health Care Services segment.
In April 1993, the Company acquired a 22.7% interest in Nadro S.A. de C.V.
("Nadro"). Nadro is the leading pharmaceutical wholesale
22
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
distributor in Mexico. At the same time, the Company received an option to
acquire an additional 9% of Nadro's common stock. In January 1994, the Company
acquired a 30% interest in Technology Assessment Group ("TAG"), a consulting
firm specializing in health outcomes assessment.
The impact on fiscal 1994 and 1993 net income and earnings per share, had the
acquisitions occurred at the beginning of fiscal 1993, is not material.
In June 1991, the Company purchased for $13.4 million the 50% equity interest
in Medis Health and Pharmaceutical Services Inc. ("Medis") that it did not
previously hold. (The Company's initial 50% equity interest had been acquired
in February 1990 for $13.9 million.) Medis, the largest and only nationwide
drug distributor in Canada, is now a wholly-owned subsidiary of the Company and
has been consolidated in the accompanying financial statements since June 1991.
Debt and other liabilities assumed at the date of acquisition were
approximately $36 million and $131 million, respectively. Had the acquisition
occurred at the beginning of fiscal 1992, fiscal 1992 consolidated revenues
would have approximated $10.5 billion. The impact on fiscal 1992 net income and
earnings per share, had the acquisition occurred at the beginning of fiscal
1992, is not material.
In January 1992, the Company, through Medis, purchased 95.1% of the
outstanding shares of Groupe Pharmaceutique Focus Inc. ("Focus"), a major
Quebec pharmaceutical wholesaler, for approximately $1 million. In February
1992, Medis acquired the balance of the Focus shares. In connection with the
purchase, Medis assumed all of the outstanding indebtedness of Focus,
approximately $35 million at the date of acquisition. Focus had annual revenues
of approximately $230 million in its fiscal year ended December 31, 1991.
5. OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
Trade receivables subject the Company to a concentration of credit risk with
customers in the retail sector. This risk is spread over a large number of
geographically dispersed customers.
At March 31, 1994, the Company was contingently liable for approximately $30
million of customer financing notes receivable and $40 million of trade
receivables. These notes and receivables were sold to three banks with recourse
to the Company for certain uncollectible amounts.
6. RECEIVABLES
<TABLE>
<CAPTION>
MARCH 31
----------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Customer accounts.................................... $737.8 $723.5 $669.7
Other................................................ 37.4 27.7 24.9
------ ------ ------
Total.............................................. 775.2 751.2 694.6
Allowances........................................... (30.8) (38.0) (30.3)
------ ------ ------
Net................................................ $744.4 $713.2 $664.3
====== ====== ======
</TABLE>
The allowances are for uncollectible accounts, discounts, returns and other
adjustments.
7. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31
----------------------------
1994 1993 1992
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Inventories before LIFO reserve (approximates
replacement cost)........................... $1,311.6 $1,214.4 $1,157.4
LIFO reserve................................. (318.1) (329.0) (309.6)
-------- -------- --------
Total...................................... $ 993.5 $ 885.4 $ 847.8
======== ======== ========
</TABLE>
23
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
The LIFO method was used to value approximately 86%, 83%, and 81% of the
inventories at March 31, 1994, 1993 and 1992.
8. DISCONTINUED OPERATIONS
The net assets of discontinued operations at March 31 included in "Other
Assets" were as follows:
<TABLE>
<CAPTION>
MARCH 31
-------------------------
1994 1993 1992
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Total assets...................................... $ 487.1 $ 272.2 $ 247.8
Total liabilities................................. (368.0) (206.0) (187.4)
------- ------- -------
Net assets...................................... $ 119.1 $ 66.2 $ 60.4
======= ======= =======
</TABLE>
Assets of discontinued operations consist primarily of PCS claim
reimbursements and rebate receivables, and property plant and equipment and
goodwill associated with the PCS operations. Liabilities of discontinued
operations consist primarily of PCS claim and rebate payables and other accrued
liabilities.
In fiscal 1994, the Company acquired CPA, an administrator of clinically
based managed prescription drug benefit programs, and an interest in Integrated
Medical Systems, a developer of community medical information systems. These
investments are included in the PCS Business to be sold.
In fiscal 1993, the results of the Company's Central American pharmaceutical
operation were included in continuing operations. The results of this operation
had previously been included in discontinued operations. Prior year results
were not restated as the effect would not have been material.
Results of operations and dispositions of discontinued operations were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues................................................ $178.5 $116.5 $135.8
====== ====== ======
Operating income before taxes........................... $ 52.3 $ 34.8 $ 32.1
Provision for taxes on income........................... (21.0) (13.4) (14.3)
------ ------ ------
Net operating income.................................. 31.3 21.4 17.8
------ ------ ------
Loss on dispositions.................................... 1.2 2.9 12.1
Tax benefit............................................. 0.5 1.1 4.6
------ ------ ------
Net loss on dispositions.............................. 0.7 1.8 7.5
------ ------ ------
Income from discontinued operations..................... $ 30.6 $ 19.6 $ 10.3
====== ====== ======
Interest expense included in discontinued operations.... $ 0.2 $ 0.2 $ 2.8
====== ====== ======
</TABLE>
The net operating income includes $30.6 million, $19.6 million and $17.6
million from the operations of PCS in fiscal 1994, 1993 and 1992, respectively.
The $1.2 million loss on dispositions in fiscal 1994 includes adjustments to
environmental and other reserves associated with previously divested
operations, offset, in part, by a gain from the settlement of tax refund
litigation associated with the Company's former wine and spirits operations in
the state of Florida.
The $2.9 million loss on dispositions in fiscal 1993 includes adjustments to
environmental and other reserves associated with previously divested
operations, offset, in part, by a gain, net of previously established reserves,
on the disposal of an equity investment in an office products distribution
company.
24
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
The $12.1 million loss on dispositions in fiscal 1992 includes the gain from
the sale of the Company's previously discontinued Georgia wine and spirits
distribution business, the discontinuance and write-down of an equity
investment in an office products distribution company and adjustments to
environmental reserves associated with previously divested chemical operations.
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31
--------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
ESOP related debt....................................... $165.1 $177.1 $188.2
4.50% exchangeable subordinated debentures due 2004..... 180.0 -- --
8 5/8% Notes due 1998................................... 49.0 99.7 99.6
10 3/4% Notes due 1995.................................. -- -- 74.9
8.75% Notes due 1997.................................... 10.0 20.0 25.0
2.35% to 11.0% IDRBs due through 2013................... 25.9 26.2 26.5
Capital lease obligations (averaging 8.3%).............. 5.0 6.8 7.3
Other, 6.5% to 15.7%, due through 2021.................. 45.3 42.6 40.5
Convertible debentures
9 3/4% due through 2006................................ -- -- 45.1
9% due through 2005.................................... -- -- 3.7
6% due through June 1994............................... 0.5 0.5 0.6
------ ------ ------
Total................................................. 480.8 372.9 511.4
Less current portion.................................... 18.5 27.1 21.7
------ ------ ------
Total................................................. $462.3 $345.8 $489.7
====== ====== ======
</TABLE>
The Company has a U.S. revolving credit agreement with six banks whereby the
banks commit borrowing availability up to $200 million at the reference rate
(6.25% at March 31, 1994) or money-market-based rates. Each year the agreement
is extended an additional twelve months unless the banks decide not to extend
their participation. To terminate its participation, a bank must give at least
27 months notice, in which event any borrowings outstanding at the expiration
of the notice period must be repaid in four equal annual installments beginning
October 31 of the year following the notice expiration period. The agreement
contains limitations on additional indebtedness and lease obligations, and
requires maintenance of minimum levels of working capital and net worth. The
Company also has a 364 day U.S. revolving credit agreement which it entered
into October 1993 with two banks whereby the banks commit borrowing
availability up to $100 million at the reference rate or money-market-based
rates. The agreement is cross-referenced to the covenants contained in the $200
million revolving credit agreement. At March 31, 1994, the Company had
outstanding $20 million of commercial paper borrowings supported by these
agreements and $280 million of unused borrowing capacity. Compensating balances
are not required.
In addition, the Company has a revolving credit agreement with one bank to
support Canadian dollar borrowing needs of its wholly-owned Canadian
subsidiary, Medis, whereby the bank commits borrowing availability up to $94
million. This facility bears interest at the Canadian prime rate (6.0% at March
31, 1994) or money-market based rates and expires on April 1, 1995. At March
31, 1994, $34 million of borrowings were outstanding under the revolving credit
agreement and available borrowing capacity was $60 million. Compensating
balances are not required under the credit agreement.
Total interest payments were $43.3 million, $51.0 million and $59.7 million
in fiscal 1994, 1993 and 1992.
25
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
ESOP related debt (see Note 14) is payable to banks and insurance companies,
bears interest at rates ranging from 8.6% fixed rate to approximately 80% of
the prime or 85% of money-market-based interest rates and is due in
installments through 2009.
The exchangeable subordinated debentures are exchangeable, at the option to
the holder, into shares of Armor All common stock owned by the Company at an
exchange price of $25.94 per share (equivalent to an exchange rate of 38.55
shares of Armor All common stock for each $1,000 principal amount of
debentures), subject to the Company's right to pay cash equal to the market
price of the stock in lieu of making the exchange.
During fiscal 1994, the Company redeemed $50.7 million of 8 5/8% Notes and in
fiscal 1993 redeemed $74.9 million of 10 3/4% Notes. An extraordinary loss of
$4.2 million was recorded in fiscal 1994 on the early retirement of the 8 5/8%
debt.
The 6% debentures are convertible into common stock at $15.33 per share.
Debenture conversions to common stock were $0.05 million in fiscal 1994, $48.9
million in fiscal 1993 and $6.7 million in fiscal 1992.
Aggregate annual payments on long-term debt and capitalized lease obligations
(see Note 10) for the years ending March 31 are:
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES TOTAL
--------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
1995................................................ $ 18.3 $0.2 $ 18.5
1996................................................ 21.4 0.2 21.6
1997................................................ 31.4 0.3 31.7
1998................................................ 66.2 0.3 66.5
1999................................................ 14.7 0.3 15.0
Later years......................................... 323.8 3.7 327.5
------ ---- ------
Total............................................... $475.8 $5.0 $480.8
====== ==== ======
</TABLE>
10. LEASE OBLIGATIONS
The Company leases facilities and equipment under both capital and operating
leases. Net assets held under capital leases included in property, plant and
equipment were $4.2 million, $5.8 million and $6.3 million at March 31, 1994,
1993 and 1992. Amortization of capital leases is included in depreciation
expense.
As of March 31, 1994, future minimum lease payments and sublease rentals in
years ending March 31 are:
<TABLE>
<CAPTION>
NON- NON-
CANCELABLE CANCELABLE
OPERATING SUBLEASE CAPITAL
LEASES RENTALS LEASES
---------- ---------- -------
(IN MILLIONS)
<S> <C> <C> <C>
1995........................................... $ 22.1 $(1.7) $ 0.7
1996........................................... 18.5 (1.6) 0.7
1997........................................... 14.9 (1.3) 0.7
1998........................................... 10.6 (1.0) 0.6
1999........................................... 8.2 (0.4) 0.6
Later years.................................... 36.8 (0.7) 5.4
------ ----- -----
Total minimum lease payments................... $111.1 $(6.7) 8.7
====== =====
Less amounts representing interest............. 3.7
-----
Present value of minimum lease payments........ $ 5.0
=====
</TABLE>
26
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
Rental expense was $30.7 million, $29.8 million and $25.6 million in fiscal
1994, 1993 and 1992.
Most real property leases contain renewal options and provisions requiring
the Company to pay property taxes and operating expenses in excess of base
period amounts.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
At March 31, 1994, the carrying amount and the fair value of the Company's
financial instruments, as determined under SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments," were as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(IN MILLIONS)
<S> <C> <C>
Cash and short-term investments.......................... $ 89.0 $ 89.0
Short-term borrowings.................................... 57.2 57.2
Long-term debt, including current portion................ 480.8 489.8
</TABLE>
The estimated fair values were determined as follows:
Cash and short-term investments and short-term borrowings: carrying
amount approximates fair value.
Long-term debt: quoted market prices or market comparables.
12. STOCKHOLDERS' EQUITY
At March 31, 1994, there were 6,000,000 shares of cumulative preferred stock
($35 par value) authorized of which 131,953 shares of cumulative Series A
preferred stock were outstanding. Series A preferred shares are convertible
into 3.25 shares of common stock and are callable at $37 per share. Each share
has voting rights equivalent to a share of common stock. Series A preferred
stock of $0.4 million in fiscal 1994, $0.6 million in 1993 and $0.5 million in
1992 was converted to common stock.
At March 31, 1994, there were 10,000,000 shares of series preferred stock ($1
par value) authorized of which 2,751,017 shares of Series B ESOP convertible
preferred stock ($43.875 stated value) were outstanding and held by the
Company's employee stock ownership plan ("ESOP"). Each share of Series B ESOP
preferred stock is convertible into, and has voting rights equivalent to, one
share of common stock. Shares which have been allocated to the accounts of ESOP
participants and not converted into common stock are redeemable, at the
holder's option, at $43.875 per share or the common share price, if higher, in
cash or common stock, at the Company's option. Shares are redeemable at the
Company's option at $46.51 at March 31, 1994 declining to $43.875 in 1999 and
thereafter, payable in cash or common stock. Dividends are cumulative and are
earned at the greater of 8.25% of stated value or the dividend declared on a
common share in a given fiscal year.
In May 1986, the Company's Board of Directors declared a dividend to common
stockholders of rights to purchase, under certain conditions, Series A Junior
Participating Series Preferred Stock. Such rights are exercisable only in the
event of acquisition of 20% or more of the Company's common stock by another
entity or a tender offer for 30% or more of the Company's common stock. Such
rights will cause substantial dilution to a person or group that attempts to
acquire the Company without conditioning the offer on a substantial number of
rights being redeemed. The rights expire in 1996.
At March 31, 1994, there were 120,000,000 shares of $2 par value common stock
authorized, of which 40,604,252 were outstanding net of treasury shares. Common
shares totaling 3,210,530 were reserved for conversion of preferred stock and
convertible debentures. As discussed in Note 16, approximately 58,000 shares
were issued in fiscal 1994 as final settlement of certain contingent
liabilities relating to the acquisition of Mass Merchandisers Inc. ("MMI").
27
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
Options to purchase common stock at various times through the year 2002 have
been granted at market prices at date of grant to key employees.
Option information follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- -------------
<S> <C> <C> <C>
OPTION SHARES
Outstanding at beginning of
year...................... 3,240,719 2,426,863 2,311,151
Granted.................... 828,675 1,378,425 557,850
Exercised.................. (684,310) (493,896) (356,970)
Cancelled.................. (175,355) (60,085) (57,796)
Surrendered (stock appreci-
ation rights)............. (4,704) (10,588) (27,372)
--------------- --------------- -------------
Outstanding at year end.... 3,205,025 3,240,719 2,426,863
Available for additional
grants at year end........ 648,410 1,297,996 2,605,748
--------------- --------------- -------------
Reserved at end of year.... 3,853,435 4,538,715 5,032,611
=============== =============== =============
Exercisable at end of year. 1,174,526 1,206,641 1,342,232
AT MARCH 31
Range of outstanding option
prices.................... $19.625-$59.625 $19.375-$44.875 $15.00-$39.25
Aggregate amounts (in mil-
lions)
Option price............. $134.4 $117.9 $76.7
Market value............. $190.7 $145.0 $79.2
</TABLE>
The ranges of outstanding option prices exclude the options issued in fiscal
1987 in exchange for options of acquired companies at option prices averaging
$8.80 and ranging from $1.26 to $19.35. At March 31, 1994, there were no such
options outstanding. Options exercised during the three years ended March 31,
1994 had prices ranging from $9.17 to $43.75 per share.
The holders of options with stock appreciation rights may exercise the option
or, with the approval of the Compensation Committee of the Board of Directors,
may receive the appreciation in the stock's value in the form of cash or stock.
Certain debt agreements require that the Company maintain minimum levels of
net worth. At March 31, 1994, net worth was approximately $145 million in
excess of such minimum levels, as per the debt agreements amended May 11, 1992.
13. TAXES ON INCOME
The provision for income taxes related to continuing operations consists of
the following:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
CURRENT
Federal.................................................. $51.7 $40.0 $46.3
State and local.......................................... 13.1 9.7 10.4
Foreign.................................................. 8.0 8.9 6.6
----- ----- -----
Total Current.......................................... 72.8 58.6 63.3
----- ----- -----
DEFERRED
Federal.................................................. 10.3 7.5 (30.1)
State.................................................... 2.3 1.4 (5.2)
Foreign.................................................. 3.2 (1.9) --
----- ----- -----
Total Deferred......................................... 15.8 7.0 (35.3)
----- ----- -----
Total Provision...................................... $88.6 $65.6 $28.0
===== ===== =====
</TABLE>
28
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
Deferred income taxes arise from temporary differences between the tax basis
of assets and liabilities and their reported amounts in the financial
statements. Foreign pre-tax earnings were $22.4 million, $16.1 million and
$10.9 million in fiscal 1994, 1993 and 1992, respectively.
The reconciliation between the Company's effective tax rate on income from
continuing operations and the statutory Federal income tax rate follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate............................. 35.0% 34.0% 34.0%
State and local income taxes net of federal tax benefit....... 4.5 4.5 6.6
Nondeductible amortization.................................... 1.6 1.9 6.3
Dividends paid deduction--ESOP allocated shares............... (0.9) (0.9) (2.3)
Donation of Armor All shares.................................. (0.4)
Tax basis differences--restructuring charges.................. 8.2
Other--net.................................................... (0.3) 0.5 0.8
---- ---- ----
Effective tax rate............................................ 39.5% 40.0% 53.6%
==== ==== ====
</TABLE>
The nondeductible amortization and dividend paid deduction percentages are
higher in fiscal 1992 due to the lower level of income from continuing
operations resulting from the restructuring charges.
Income tax payments were $86 million in fiscal 1994, $52 million in fiscal
1993 and $48 million in fiscal 1992.
As of March 31 the deferred tax balances consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Nondeductible accruals for environmental
obligations........................................ $ 15.8 $ 13.2 $ 13.9
Other............................................... 44.4 46.9 36.6
------- ------- -------
Current............................................. 60.2 60.1 50.5
------- ------- -------
Nondeductible accruals for:
Postretirement and postemployment plans........... 82.8 71.1 70.5
Deferred compensation............................. 15.3 13.9 13.6
Restructuring charges............................. 0.8 8.1 17.9
Other............................................... 15.5 13.2 19.9
------- ------- -------
Noncurrent.......................................... 114.4 106.3 121.9
------- ------- -------
Total........................................... $ 174.6 $ 166.4 $ 172.4
======= ======= =======
LIABILITIES
Basis differences for inventory valuation........... $ (26.8) $ (26.5) $ (26.7)
Other............................................... (2.5) (0.8) (6.8)
------- ------- -------
Current............................................. (29.3) (27.3) (33.5)
------- ------- -------
Accelerated depreciation............................ (46.8) (46.7) (48.4)
Basis difference related to tax advantaged
investments........................................ (15.1) (18.5) (21.6)
Systems development costs........................... (13.6) (10.8) (8.5)
Retirement plan..................................... (12.6) (9.8) (6.7)
Other............................................... (18.1) (8.8) (2.1)
------- ------- -------
Noncurrent.......................................... (106.2) (94.6) (87.3)
------- ------- -------
Total........................................... $(135.5) $(121.9) $(120.8)
======= ======= =======
Total net current (included in prepaid expenses).... $ 30.9 $ 32.8 $ 17.0
======= ======= =======
Total net noncurrent (included in other assets)..... $ 8.2 $ 11.7 $ 34.6
======= ======= =======
</TABLE>
29
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
14. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Pension Plans
Substantially all full-time employees of the Company are covered under either
the Company-sponsored defined benefit retirement plan or by bargaining unit
sponsored multi-employer plans. The benefits for Company-sponsored plans are
based primarily on age of employees at date of retirement, years of service and
employees' pay during the five years prior to retirement.
Net pension expense for the Company-sponsored defined benefit retirement plan
and executive supplemental retirement plan consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost--benefits
earned during the year... $ 5.5 $ 5.6 $ 5.0
Interest cost on projected
benefit obligation....... 22.0 21.4 20.4
Return on assets--actual.. (23.6) (17.8) (42.0)
- --deferred gain (loss).... 2.3 (7.0) 20.5
Amortization of unrecog-
nized loss and prior
service costs............ 2.1 2.0 3.4
Amortization of unrecog-
nized net transition as-
set...................... (2.5) (2.5) (2.5)
----- ----- -----
Net pension expense..... $ 5.8 $ 1.7 $ 4.8
===== ===== =====
</TABLE>
The funded status of the Company-sponsored defined benefit retirement plan at
March 31 was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations
Vested benefits................................... $ 226.0 $ 193.7 $ 182.4
Nonvested benefits................................ 13.5 9.9 10.0
------- ------- -------
Accumulated benefit obligation.................... 239.5 203.6 192.4
Effect of assumed increase in future compensation
levels........................................... 21.9 21.6 22.9
------- ------- -------
Projected benefit obligation for services rendered
to date............................................ 261.4 225.2 215.3
Assets of plan at fair value........................ 241.5 227.0 220.4
------- ------- -------
Excess (shortfall) of assets over projected benefit
obligation......................................... (19.9) 1.8 5.1
Unrecognized prior service cost and net loss from
experience different from that assumed............. 63.8 38.2 29.7
Unrecognized net transition asset, recognized
straight-line through 1998......................... (11.7) (14.5) (17.3)
------- ------- -------
Pension asset included in other assets.............. $ 32.2 $ 25.5 $ 17.5
======= ======= =======
</TABLE>
The projected unit credit method is utilized for measuring net periodic
pension cost over the employees' service life. Costs are funded based on the
recommendations of independent actuaries. The projected benefit obligations for
Company-sponsored plans were determined using a discount rate of 7.5% at March
31, 1994 and 8.75% at March 31, 1993 and 1992 and an assumed increase in future
compensation levels of 4.0% at March 31, 1994, 5.0% at March 31, 1993 and 5.5%
at March 31, 1992. The expected long-term rate of return on assets used to
determine pension expense was 9.75% for fiscal 1994 and 11.5% for fiscal 1993
and 1992.
30
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
The assets of the plan consist primarily of listed common stocks and bonds
for which fair value is determined based on quoted market prices.
The projected benefit obligation for the Company's executive supplemental
retirement plan at March 31, 1994 was $36.3 million of which $32.2 million (the
accumulated benefit obligation) is recognized as a liability on the
consolidated balance sheet.
Profit-Sharing Investment Plan
Retirement benefits for employees not covered by collective bargaining
arrangements include a supplementary contributory profit sharing investment
plan ("PSIP"). The leveraged ESOP portion of the PSIP has purchased an
aggregate of 4.1 million shares of common stock since inception and 2.85
million shares of convertible preferred stock from the Company. These purchases
have been financed by 10 to 20-year loans from or guaranteed by the Company.
The Company's related receivables from the ESOP have been classified as a
reduction of stockholders' equity. The loans will be repaid by the ESOP from
preferred stock dividends, common dividends on shares not yet allocated to
participants and future Company cash contributions. The ESOP loan maturities
and rates are identical to the terms of related Company borrowings (see Note
9).
The following are the components of ESOP related expenses:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Interest expense on ESOP debt............................ $ 11.4 $ 12.1 $ 14.3
Contribution expense
Cost associated with ESOP debt principal payments...... 13.7 14.0 11.7
Dividends applied towards ESOP debt service............ (13.1) (13.6) (14.3)
------ ------ ------
Net pre-tax ESOP related expenses........................ 12.0 12.5 11.7
Income tax benefits(1)................................... (6.9) (6.7) (5.8)
------ ------ ------
Net after-tax ESOP related expenses...................... $ 5.1 $ 5.8 $ 5.9
====== ====== ======
</TABLE>
- --------
(1) Additional tax benefits received on dividends paid on unallocated shares of
$4.5 million, $4.8 million and $5.0 million in fiscal 1994, 1993, and 1992
have been credited directly to retained earnings in accordance with SFAS
109.
Contribution expense for the PSIP in fiscal 1994, 1993 and 1992 was all ESOP
related and is reflected in the amounts above. Shares allocated to plan
participants were 506,000 in fiscal 1994, 508,000 in fiscal 1993, and 520,000
in fiscal 1992. Through March 31, 1994, 2.6 million common shares of the 4.1
million total common shares and 0.7 million of the Series B ESOP shares sold to
the ESOP have been allocated to plan participants.
Health Care and Life Insurance
In addition to providing pension benefits, the Company provides health care
and life insurance benefits for certain retired employees. The Company's policy
is to fund these benefits as claims are paid. The benefits have been reduced
significantly for those employees retiring after December 31, 1990. In 1989,
the Company implemented the preferred stock ESOP to provide funds at retirement
that could be used for medical costs or health care coverage.
31
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
Expenses for postretirement health care and life insurance benefits consisted
of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost--benefits earned during the period.............. $ 1.5 $ 1.9 $ 1.5
Interest cost on projected benefit obligation................ 12.8 14.0 14.0
Amortization of unrecognized gain and prior service costs.... (8.6)
----- ----- -----
Total...................................................... $ 5.7 $15.9 $15.5
===== ===== =====
</TABLE>
Payments for postretirement health care and life insurance benefits amounted
to $12.8, $12.4 and $11.6 million in fiscal 1994, 1993 and 1992, respectively.
The funded status and amounts recognized in the consolidated balance sheet
for postretirement health care and life insurance benefits were as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31,
1994 1993 1992
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligations:
Retirees....................................... $122.5 $135.5 $143.0
Active plan participants....................... 21.7 25.8 25.9
------ ------ ------
Total........................................ 144.2 161.3 168.9
Unrecognized prior service cost and accumulated
net gain...................................... 27.0 17.3 4.7
------ ------ ------
Accrued postretirement benefit obligation...... $171.2 $178.6 $173.6
====== ====== ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation is 8.0% for fiscal 1995, gradually declining
to 5% in 1999 and thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. Increasing the trend rate by one
percentage point in each year would increase the accumulated postretirement
health care and life insurance obligation as of March 31, 1994 and March 31,
1993 by $9.6 million and $13.7 million, respectively, and the related fiscal
1994 aggregate service and interest costs by $0.9 million. The discount rate
used in determining the accumulated postretirement benefit obligation was 7.5%
at March 31, 1994, 8.75% at March 31, 1993 and 8.5% at March 31, 1992.
Postemployment Benefits
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. The accounting
change had no significant impact on current period results.
32
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
15. SEGMENTS OF BUSINESS
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Health Care Services......................... $11,823.0 $11,148.9 $ 9,821.0
Water Products............................... 240.3 229.6 232.8
Armor All.................................... 182.3 168.4 146.1
Corporate.................................... 5.8 8.8 9.4
--------- --------- ---------
Total...................................... $12,251.4 $11,555.7 $10,209.3
========= ========= =========
OPERATING PROFIT
Health Care Services(1)...................... $ 187.1(4) $ 190.7 $ 107.8
Water Products............................... 37.0 30.4 24.1
Armor All.................................... 38.3 32.1 21.4
--------- --------- ---------
Total...................................... 262.4 253.2 153.3
Interest--net(2)............................. (40.1) (43.7) (48.0)
Corporate(1)................................. (35.6) (45.4) (53.1)
Special Items................................ 37.4 -- --
--------- --------- ---------
Income before taxes on income.............. $ 224.1 $ 164.1 $ 52.2
========= ========= =========
SEGMENT ASSETS--AT YEAR END
Health Care Services......................... $ 2,199.4 $ 2,035.3 $ 1,963.0
Water Products............................... 150.4 135.7 132.6
Armor All(3)................................. 151.8 140.6 138.8
--------- --------- ---------
Total...................................... 2,501.6 2,311.6 2,234.4
CORPORATE
Cash and short-term investments(3)......... 62.7 77.6 145.2
Net assets of discontinued operations...... 119.1 66.2 60.4
Other...................................... 151.6 148.2 140.6
--------- --------- ---------
Total.................................... $ 2,835.0 $ 2,603.6 $ 2,580.6
========= ========= =========
DEPRECIATION AND AMORTIZATION
Health Care Services......................... $ 38.9 $ 36.3 $ 39.7
Water........................................ 18.3 16.8 15.9
Armor All.................................... 3.8 5.0 5.5
Corporate.................................... 6.2 9.9 10.1
--------- --------- ---------
Total...................................... $ 67.2 $ 68.0 $ 71.2
========= ========= =========
CAPITAL EXPENDITURES
Health Care Services......................... $ 39.0 $ 31.7 $ 41.0
Water........................................ 28.7 20.6 25.9
Armor All.................................... 1.4 0.7 0.8
Corporate.................................... 5.0 3.9 2.9
--------- --------- ---------
Total...................................... $ 74.1 $ 56.9 $ 70.6
========= ========= =========
</TABLE>
- --------
(1) Fiscal 1992 includes restructuring charges of $69.7 million in Health Care
Services and $13.1 in corporate.
(2) Interest expense is shown net of corporate interest income.
(3) Armor All segment assets include $26.3 million, $33.9 million and $15.7
million of cash and short-term investments at March 31, 1994, 1993 and
1992, respectively.
(4) Includes $7.9 million of pre-tax earnings from an equity investment.
33
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
The Health Care Services segment includes wholesale operations that are
distributors of ethical and proprietary drugs and health and beauty care
products. Its products are distributed to chain and independent drug stores,
hospitals, food stores and mass merchandisers throughout the United States and
Canada. The businesses in this segment also market home health care, medical-
surgical and first aid products and computer systems and software for
pharmacists and other businesses and include the results of the Company's
Central American pharmaceutical operation and an equity interest in a
pharmaceutical wholesale distributor in Mexico.
The Water segment is engaged in the processing, delivery and sale of bottled
drinking water and the sale of packaged water to retail stores.
Armor All Products Corporation, a majority-owned subsidiary, is engaged in
developing and marketing branded appearance enhancement and protection products
targeted primarily for the do-it-yourself automotive aftermarket.
Sales to the Company's largest customer, Wal-Mart Stores, Inc., accounted for
10% of consolidated revenues in fiscal 1994.
Information as to the Company's foreign operations was as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
(IN MILLIONS)
<S> <C> <C>
REVENUES
United States.......................................... $10,952.1 $10,212.8
International.......................................... 1,299.3 1,342.9
--------- ---------
Total................................................ $12,251.4 $11,555.7
========= =========
OPERATING PROFIT
United States.......................................... $ 230.5 $ 227.5
International.......................................... 31.9 25.7
--------- ---------
Total................................................ $ 262.4 $ 253.2
========= =========
ASSETS, AT YEAR END
United States.......................................... $ 2,576.7 $ 2,347.1
International.......................................... 258.3 256.5
--------- ---------
Total................................................ $ 2,835.0 $ 2,603.6
========= =========
</TABLE>
16. OTHER COMMITMENTS AND CONTINGENT LIABILITIES
In addition to commitments and obligations in the ordinary course of
business, the Company is subject to various claims, other pending and possible
legal actions for product liability and other damages, investigations relating
to governmental laws and regulations, and other matters arising out of the
normal conduct of the Company's business.
The Company is a defendant in several civil actions filed in late 1993 and
early 1994 by independent pharmacies in the Superior Court for the State of
California (County of San Francisco) and in multiple federal district courts.
Most of the actions were brought as purported class actions on behalf of all
other similarly-situated retail pharmacies, and the Federal actions have since
been transferred to the U.S. District Court for the Northern District of
Illinois for consolidated proceedings. There are numerous other defendants in
these
34
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
actions including pharmaceutical manufacturers, one pharmaceutical mail order
firm, and several other wholesale distributors. These cases allege, in essence,
that the defendants have unlawfully conspired together and agreed to fix the
prices of brand name pharmaceuticals sold to plaintiffs at artificially high,
discriminatory, and non-competitive levels, all in violation of various state
and federal antitrust laws. Plaintiffs seek remedies in the form of injunctive
relief, unquantified monetary damages (trebled as provided by law), and
attorneys fees and costs. The Company believes it has meritorious defenses to
the allegations made against it and intends to vigorously defend itself in this
litigation.
Primarily as a result of the operation of its former chemical businesses,
which were divested in fiscal 1987, the Company is involved in numerous matters
pursuant to various environmental laws and regulations. The Company has
received various claims and demands from governmental agencies relating to
investigative and remedial actions purportedly required to address
environmental conditions alleged to exist at six (6) sites where the Company
formerly conducted operations; and the Company, by administrative order or
otherwise, has agreed to take certain actions at those sites. A seventh site,
in Commerce City, Colorado, is the subject of a consent decree entered in
fiscal 1991 whereby the site has been fully remediated by the successor of the
former site operator and the Company and was removed from the National
Priorities List (i.e., Superfund) in fiscal 1993. Another such Superfund site
is a closed wood treatment facility formerly operated by Mass Merchandisers,
Inc. ("MMI") acquired by the Company in 1985. In fiscal 1993, a consent decree
was entered whereby the Company will remediate the site at a cost estimated by
the EPA to be approximately $11 million, with an additional estimated
contingent cost of approximately $4 million. The Company's escrow dispute with
the former MMI shareholders regarding the costs of investigation and cleanup of
that site has been settled.
In addition to the foregoing remedial actions, the Company has been asked by
current property owners to contribute to the investigation and environmental
cleanup of eight (8) properties which the Company formerly owned or leased. The
Company has also been designated as a potentially responsible party ("PRP") by
the EPA under the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended (the "Superfund" law), for environmental
assessment and cleanup costs as the result of the Company's alleged treatment
or disposal of hazardous substances at thirty-two (32) Superfund sites. With
respect to each of these Superfund sites, numerous other PRPs have similarly
been designated and, while the current state of the law potentially imposes
joint and several liability upon PRPs, as a practical matter costs of these
sites are typically shared with other PRPs. In some cases the Company has
partial indemnity agreements with its insurers or an allocation or contribution
agreement with other PRPs, and settlements and costs paid by the Company in
Superfund matters to date have not been significant.
The potential costs to the Company related to all of these environmental
matters are highly uncertain due to such factors as: the unknown magnitude of
possible pollution and cleanup costs; the complexity and evolving nature of
governmental laws and regulations and their interpretations; the timing,
varying costs and effectiveness of alternative cleanup technologies; the
determination of the Company's liability in proportion to other PRPs; and the
extent, if any, to which such costs are recoverable from insurance or other
parties. The Company has established reserves which it considers to be
appropriate for these environmental matters, net of amounts which third parties
have agreed to pay in settlement, where the Company believes it is probable the
third parties will fulfill their agreements to pay.
Finally, the product liability lawsuits involving the nutrition supplement L-
tryptophan, which the Company has previously reported, have continued to be
resolved by the manufacturer of the product without any payment by the Company.
Only one such lawsuit is currently pending against the Company. Consistent with
its existing agreements with the manufacturer and experience to date, the
Company continues to believe it is entitled to full indemnification both with
respect to the remaining case and any possible future suits
35
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
involving L-tryptophan. While no assurance can be given, it appears unlikely
that the Company will face non-indemnified damages as a result of this
litigation.
In view of the inherent difficulty in predicting the outcome of litigation
and governmental proceedings, management cannot state what the eventual outcome
of such litigation and proceedings will be. Although liabilities associated
with the foregoing matters could be substantial, management believes, based on
current knowledge, that the outcome of such litigation and proceedings will not
have a material adverse effect on the Company's consolidated financial
position.
17. SPECIAL CHARGES FOR RESTRUCTURING
In fiscal 1992, the Company initiated a program to restructure its U.S. and
Canadian health care services distribution businesses and wrote off an
investment, resulting in a charge of $82.8 million ($56.8 million after-tax) in
fiscal 1992. The fiscal 1992 restructuring program was geared to achieving cost
and working capital efficiencies through the consolidation of facilities and
workforce reductions, made possible by enhanced automation and other
productivity improvements. During fiscal 1993 and 1994, eight distribution
facilities were closed and workforce reductions were made. Charges to the
restructuring reserve have consisted primarily of asset write-offs, lease
settlements and moving and severance costs which, through March 31, 1994, have
totaled approximately $72 million, including $49 million of non-cash charges.
Also during 1994, the Company reallocated a portion of its restructuring
reserve from facility consolidation costs to severance costs associated with
workforce reductions.
18. ACCOUNTING CHANGES
Fiscal 1994 results included the cumulative effect of the adoption of the new
accounting standard for postemployment benefits, Statement of Financial
Accounting Standards ("SFAS") No. 112. The cumulative effect of adopting this
standard resulted in a charge to net income of $16.7 million, net of $10.4
million tax benefit, or $.38 per fully diluted share.
Fiscal 1992 results included the cumulative effects of the adoption of the
new accounting standard for postretirement health and life insurance benefits,
SFAS No. 106, and of changing the accounting practice for recording
environmental obligations. Prior to this change, environmental liabilities were
recorded at the present value of estimated future cash flows. Under the new
method, such liabilities are recorded at total estimated future costs. The
cumulative effects of these changes resulted in a charge to net income of
$110.5 million, net of $67.7 million tax benefit, or $2.85 per fully diluted
share.
36
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- ---------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FISCAL 1994
Revenues............... $2,931.7 $2,988.8 $3,206.4 $3,124.5 $12,251.4
Gross profit........... 266.7 255.8 258.6 283.3 1,064.4
Income after taxes
Continuing operations. $ 48.6 $ 22.5 $ 24.2 $ 31.2 $ 126.5
Discontinued opera-
tions................ 6.7 7.2 7.5 9.2 30.6
Extraordinary loss
--debt
extinguishment....... (4.2) (4.2)
Cumulative effect of
accounting change.... (16.7)(1) (16.7)(1)
-------- -------- -------- -------- ---------
Total................ $ 34.4 $ 29.7 $ 31.7 $ 40.4 $ 136.2
======== ======== ======== ======== =========
Earnings per common
share
Fully diluted
Continuing opera-
tions............... $ 1.10 $ 0.48 $ 0.52 $ 0.68 $ 2.78
Discontinued opera-
tions............... .15 .17 .17 .21 .70
Extraordinary loss
--debt extinguish-
ment................ (0.10) (0.10)
Cumulative effect of
accounting change... (0.38) (0.38)
-------- -------- -------- -------- ---------
Total............... $ 0.77 $ 0.65 $ 0.69 $ 0.89 $ 3.00
======== ======== ======== ======== =========
Primary
Continuing opera-
tions............... $ 1.16 $ 0.51 $ 0.54 $ 0.72 $ 2.93
Discontinued opera-
tions............... .16 .18 .19 .22 .75
Extraordinary loss
--debt extinguish-
ment................ (0.10) (0.10)
Cumulative effect of
accounting change... (0.41) (0.41)
-------- -------- -------- -------- ---------
Total............... $ 0.81 $ 0.69 $ 0.73 $ 0.94 $ 3.17
======== ======== ======== ======== =========
Cash dividends per
share
Common................ $ .40 $ .42 $ .42 $ .42 $ 1.66
Series A preferred.... .45 .45 .45 .45 1.80
Series B ESOP pre-
ferred............... .905 .905 .905 .905 3.62
Market prices per com-
mon share
High.................. $ 46 3/8 $ 52 3/4 $ 57 1/4 $ 68 1/2 $ 68 1/2
Low................... 38 5/8 41 7/8 50 1/2 52 1/2 38 5/8
</TABLE>
- --------
(1) Previously reported as $15.8 million, adjusted by $0.9 million for the
effect of changing the discount rate used to compute the present value of
postemployment benefits based on subsequent SEC guidance.
37
<PAGE>
MCKESSON CORPORATION
FINANCIAL NOTES--(CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER(1) YEAR
-------- -------- -------- ---------- ---------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FISCAL 1993
Revenues....................... $2,810.4 $2,843.8 $2,983.2 $2,918.3 $11,555.7
Gross profit................... 256.5 258.6 256.2 293.5 1,064.8
Income after taxes
Continuing operations......... 22.1 20.9 22.4 29.7 95.1
Discontinued operations....... 5.4 4.7 5.4 4.1 19.6
-------- -------- -------- -------- ---------
Total........................ $ 27.5 $ 25.6 $ 27.8 $ 33.8 $ 114.7
======== ======== ======== ======== =========
Earnings per common share
Fully diluted
Continuing operations........ $ .49 $ .45 $ .48 $ .65 $ 2.07
Discontinued operations...... .12 .11 .12 .09 .44
-------- -------- -------- -------- ---------
Total....................... $ .61 $ .56 $ .60 $ .74 $ 2.51
======== ======== ======== ======== =========
Primary
Continuing operations........ $ .52 $ .48 $ .51 $ .69 $ 2.20
Discontinued operations...... .14 .12 .13 .10 .49
-------- -------- -------- -------- ---------
Total....................... $ .66 $ .60 $ .64 $ .79 $ 2.69
======== ======== ======== ======== =========
Cash dividends per share
Common........................ $ .40 $ .40 $ .40 $ .40 $ 1.60
Series A preferred............ .45 .45 .45 .45 1.80
Series B ESOP preferred....... .905 .905 .905 .905 3.62
Market prices per common share
High.......................... $ 34 1/4 $ 40 $ 44 1/4 $ 47 1/8 $ 47 1/8
Low........................... 30 1/4 31 1/4 36 1/2 40 1/2 30 1/4
</TABLE>
- --------
(1) Fourth quarter 1993 net income from continuing operations includes $2.8
million of earnings related to the Company's Central American operations
offset by other reserve adjustments within the Health Care Services
segment. Prior to the fourth quarter of fiscal 1993, the Central American
results were included in discontinued operations. Prior quarter results
were not restated because the adjustments would not have been material.
38
