SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number 1-13252
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McKESSON CORPORATION
- -----------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3207296
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Post Street, San Francisco, California 94104
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
- -------------------------------------------------------------
(415) 983-8300
- -----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
- ---------------------------- ---------------------------------
Common stock, $.01 par value 41,941,126 shares
<PAGE>
The Registrant hereby amends the items, financial statements,
exhibits, or other portions of its Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 as set forth below.
LIST OF ITEMS AMENDED
PART I. FINANCIAL INFORMATION
==============================
Item Page
- ---- ----
1. Condensed Financial Statements
Consolidated Balance Sheets
September 30, 1996 and March 31, 1996 3 - 4
Statements of Consolidated Income
Three and Six month periods ended
September 30, 1996 and 1995 5
Statements of Consolidated Cash Flows
Three and Six month periods ended
September 30, 1996 and 1995 6 - 7
Financial Notes 8 - 9
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Review 10 - 12
PART II. OTHER INFORMATION
===========================
6. Exhibits and Reports on Form 8-K 13
Exhibit Index 15
TEXT OF ITEMS AMENDED
Each of the above listed Items is hereby amended by deleting
the Item in its entirety and replacing it with the Items attached
hereto and filed herewith.
The purpose of the amendment is to restate the historical
financial statements for operations discontinued subsequent to the
original filing. On December 31, 1996, the Registrant sold its 55%
equity interest in Armor All Products Corporation ("Armor All") to
The Clorox Company. Also in December 1996, the Registrant made the
decision to divest the net assets of its Service Merchandising
Division, Millbrook Distribution Services Inc. ("Service
Merchandising"). All of the net assets and results of operations
of both Armor All and Service Merchandising have been reclassified
as discontinued operations for all periods presented.
<PAGE>
PART I. FINANCIAL INFORMATION
===============================
McKESSON CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, March 31,
1996 1996
------ ------
(in millions)
ASSETS
- ------
Current Assets
Cash and cash equivalents $ 133.3 $ 260.8
Marketable securities available for sale 57.0 195.4
Receivables 933.0 672.8
Inventories 1,283.8 1,317.0
Prepaid expenses and other 26.2 17.0
------- -------
Total 2,433.3 2,463.0
------- -------
Property, Plant and Equipment
Land 37.9 38.0
Buildings, machinery and equipment 709.0 675.7
------- -------
Total 746.9 713.7
Accumulated depreciation (380.2) (357.7)
------- -------
Net 366.7 356.0
Goodwill and other intangibles 240.7 183.7
Net assets of discontinued
operations (Note 3) 121.1 125.7
Other assets 271.9 231.8
------- -------
Total Assets $3,433.7 $3,360.2
======= =======
(Continued)
- 3 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, March 31,
1996 1996
------ ------
(in millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Drafts payable $ 240.2 $ 194.0
Accounts payable - trade 1,176.1 1,149.2
Short-term borrowings 95.0 6.6
Current portion of long-term debt 23.8 27.9
Salaries and wages 27.1 26.3
Taxes 100.3 92.2
Interest and dividends 18.5 19.0
Other 122.6 127.3
------- -------
Total 1,803.6 1,642.5
------- -------
Postretirement Obligations and
Other Noncurrent Liabilities 212.7 216.6
------- -------
Long-Term Debt 439.5 436.5
------- -------
Stockholders' Equity
Common stock 0.4 0.4
Additional paid-in capital 330.9 332.0
Other capital (37.6) (36.2)
Retained earnings 1,007.4 968.9
Accumulated translation adjustment (42.8) (49.7)
ESOP notes and guarantee (120.2) (122.5)
Treasury shares, at cost (160.2) (28.3)
------- -------
Net 977.9 1,064.6
------- -------
Total Liabilities
and Stockholders' Equity $3,433.7 $3,360.2
======= =======
See Financial Notes.
(Concluded)
- 4 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(unaudited)
Three Months Ended Six Months Ended
September 30 September 30
--------------- ---------------
1996 1995 1996 1995
------ ------ ------ ------
(in millions - except
per share amounts)
REVENUES $2,730.9 $2,402.6 $5,401.5 $4,790.9
------- ------- ------- -------
COSTS AND EXPENSES
Cost of sales 2,499.9 2,173.3 4,938.6 4,340.4
Selling, distribution
and administration 179.0 171.4 356.5 333.9
Interest 10.2 11.5 21.1 23.2
------- ------- ------- -------
Total 2,689.1 2,356.2 5,316.2 4,697.5
------- ------- ------- -------
INCOME BEFORE TAXES ON INCOME 41.8 46.4 85.3 93.4
TAXES ON INCOME (16.0) (18.2) (32.7) (37.2)
------- ------- ------- -------
INCOME AFTER TAXES
Continuing operations 25.8 28.2 52.6 56.2
Discontinued
operations (Note 3) 2.3 3.5 5.6 8.3
------- ------- ------- -------
NET INCOME $ 28.1 $ 31.7 $ 58.2 $ 64.5
======= ======= ======= =======
EARNINGS PER COMMON SHARE
Fully diluted earnings
Continuing operations $ 0.59 $ 0.61 $ 1.18 $ 1.21
Discontinued operations 0.05 0.07 0.12 0.17
------- ------- ------- -------
Total $ 0.64 $ 0.68 $ 1.30 $ 1.38
======= ======= ======= =======
Primary earnings
Continuing operations $ 0.59 $ 0.61 $ 1.18 $ 1.21
Discontinued operations 0.05 0.07 0.12 0.17
------- ------- ------- -------
Total $ 0.64 $ 0.68 $ 1.30 $ 1.38
======= ======= ======= =======
Dividends $ 0.25 $ 0.25 $ 0.50 $ 0.50
======= ======= ======= =======
SHARES ON WHICH EARNINGS
PER COMMON SHARE WERE BASED
Fully diluted 43.8 46.7 44.6 46.8
Primary 43.8 46.7 44.6 46.7
See Financial Notes.
- 5 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(unaudited)
Six Months Ended
September 30
------------------
1996 1995
------ ------
(in millions)
Operating Activities
Income from continuing operations $ 52.6 $ 56.2
Adjustments to reconcile to net cash
provided (used) by operating activities
Depreciation 31.3 27.5
Amortization 4.9 3.5
Provision for receivables reserves 3.6 4.6
Deferred taxes on income 2.0 (5.5)
Gain on sale of subsidiary - (11.2)
Other non-cash charges (2.3) (1.3)
------- -------
Total 92.1 73.8
------- -------
Effects of changes in
Receivables (256.3) (96.4)
Inventories 35.1 48.1
Accounts and drafts payable 74.1 113.5
Taxes 17.1 (55.5)
Other (27.5) (79.2)
------- -------
Total (157.5) (69.5)
------- -------
Net cash provided (used) by
continuing operations (65.4) 4.3
------- -------
Discontinued operations 9.0 21.8
------- -------
Net cash provided (used) by
operating activities (56.4) 26.1
------- -------
Investing Activities
Purchases of marketable securities (0.2) (130.3)
Maturities of marketable securities 141.8 49.9
Property acquisitions (41.4) (37.7)
Properties sold 1.3 5.8
Acquisitions of businesses, less cash and
short-term investments acquired (61.4) (11.3)
Proceeds from sale of subsidiary - 36.1
Investing activities of
discontinued operations (0.9) 6.5
Other (23.9) (5.3)
------- -------
Net cash provided (used) by
investing activities 15.3 (86.3)
------- -------
(Continued)
- 6 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(unaudited)
Six Months Ended
September 30
------------------
1996 1995
------ ------
(in millions)
Financing Activities
Proceeds from issuance of debt $ 95.4 $ 72.2
Repayment of debt (24.5) (4.7)
Capital stock transactions
Treasury stock acquired (145.2) (25.7)
Issuances 6.6 3.8
ESOP notes and guarantee 2.4 2.2
Dividends paid (21.2) (21.8)
Financing activities of
discontinued operations 0.1 0.1
------- -------
Net cash provided (used) by
financing activities (86.4) 26.1
------- -------
Net Decrease in Cash
and Cash Equivalents (127.5) (34.1)
Cash and Cash Equivalents
at beginning of period 260.8 363.1
------- -------
Cash and Cash Equivalents
at end of period $ 133.3 $ 329.0
======= =======
See Financial Notes.
(Concluded)
- 7 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL NOTES
1. Interim Financial Statements
----------------------------
In the opinion of the Company, these unaudited condensed
consolidated financial statements include all adjustments necessary
to a fair presentation of its financial position as of September
30, 1996 and the results of its operations and its cash flows for
the six months ended September 30, 1996 and 1995. Such adjustments
were of a normal recurring nature.
Revenues and cost of sales have been restated to change the
classification of sales and cost of sales associated with sales to
customers' warehouses to present only the gross profit on such
sales in revenues.
The results of operations for the six months ended September
30, 1996 and 1995 are not necessarily indicative of the results for
the full years.
It is suggested that these interim financial statements be
read in conjunction with the annual audited financial statements,
accounting policies and financial notes thereto included in the
Appendix to the Company's 1996 Proxy Statement which has previously
been filed with the Securities and Exchange Commission. Such
document is expected to be amended in February 1997 to reflect the
discontinuance of Armor All Products Corporation ("Armor All") and
Millbrook Distribution Services Inc. ("Service Merchandising").
2. Acquisitions
------------
In April 1996, the Company acquired Automated Healthcare,
Inc. ("AHI") for $61.4 million in cash and the assumption of $3.2
million of employee stock incentives. AHI designs, manufactures,
sells and installs automated pharmaceutical dispensing equipment
for use by health care institutions. The goodwill related to the
acquisition is being amortized on a straight-line basis over a 20
year period.
3. Discontinued Operations
-----------------------
On December 31, 1996, the Company sold its 55% equity interest
in Armor All Products Corporation to The Clorox Company for $221.9
million and recognized an after-tax gain of $120.2 million. In
addition, in December 1996 the Company made the decision to divest
the net assets of its Service Merchandising Division, Millbrook
Distribution Services Inc. for which no loss on disposition is
anticipated. All of the net assets and results of operations of
both Armor All and Service Merchandising have been reclassified as
discontinued operations for all periods presented.
- 8 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL NOTES
The net assets of discontinued operations at September 30,
1996 and March 31, 1996 were as follows:
September 30 March 31
1996 1996
------ ------
(in millions)
Total assets $ 256.1 $ 275.5
Total liabilities (135.0) (149.8)
------ ------
Net assets $ 121.1 $ 125.7
====== ======
Assets of discontinued operations consist primarily of cash,
receivables, inventory, property plant and equipment, and goodwill
of Armor All and Service Merchandising at September 30, 1996 and
March 31, 1996. Liabilities of discontinued operations consist
primarily of accounts payable and other accrued liabilities of
Armor All and Service Merchandising at September 30, 1996 and March
31, 1996.
The results of discontinued operations for the six months
ended September 30, 1996 and 1995 were as follows:
September 30 September 30
1996 1995
------ ------
(in millions)
Revenues $ 329.9 $ 380.2
====== ======
Income from discontinued
operations before taxes $ 15.7 $ 18.8
Provision for taxes on income (6.6) (7.6)
Less: Minority interest (3.5) (2.9)
------ ------
Net income from
discontinued operations $ 5.6 $ 8.3
====== ======
Discontinued operations include $4.3 million and $3.5 million
after-tax from the operations of Armor All and $1.3 million and
$4.8 million after-tax from the operations of Service Merchandising
for the six months ended September 30, 1996 and 1995, respectively.
4. Subsequent Event
----------------
On November 11, 1996, the Company announced the completion of
its acquisition of the healthcare business of FoxMeyer Corporation
("FoxMeyer"), pursuant to an expedited auction process in the
FoxMeyer bankruptcy proceeding in Wilmington, Delaware. The
Company received regulatory clearance and court approval enabling
the transaction to close on November 8, 1996. Through an amended
sale agreement, the Company paid approximately $23 million in cash
to the debtors, paid off approximately $500 million in secured debt
and assumed an additional $75 million in other liabilities. The
Company acquired assets consisting primarily of accounts receivable
and inventories of approximately $650 million, customer contracts
and fixed assets. The Company utilized proceeds from commercial
paper issuances and a note payable to a bank to fund the
transaction. The commercial paper issuances were backed by the
Company's revolving credit agreements that were recently increased
to provide borrowing availability of $500 million.
- 9 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL REVIEW
Segment Results
- ---------------
The Company's Armor All and Service Merchandising segments
have been classified as discontinued operations in the current
quarter, and prior periods have been restated accordingly (see
Financial Note 3). The revenues and operating profit of the
Company's continuing operations by business segment are as follows:
Three Months Ended Six Months Ended
September 30 September 30
-------------------- --------------------
% %
1996 1995 Chg. 1996 1995 Chg.
------ ------ --- ------ ------ ---
(in millions)
REVENUES
Health Care Services
Direct Delivery
U.S. (1) $2,272.4 $1,935.9 17.4 $4,491.9 $3,864.9 16.2
International 375.0 387.1 (3.1) 751.8 770.2 (2.4)
------- ------- ------- -------
Total Health
Care Services 2,647.4 2,323.0 14.0 5,243.7 4,635.1 13.1
Water Products 77.6 74.1 4.7 148.0 138.1 7.2
Corporate 5.9 5.5 9.8 17.7
------- ------- ------- -------
Total $2,730.9 $2,402.6 13.7 $5,401.5 $4,790.9 12.7
======= ======= ======= =======
OPERATING PROFIT
Health Care Services $ 45.3 $ 45.1 0.4 $ 96.8 $ 94.0 3.0
Water Products 14.4 13.6 5.9 24.0 22.5 6.7
------ ------ ------ ------
Total 59.7 58.7 1.7 120.8 116.5 3.7
Interest - net (2) (7.5) (2.2) (15.2) (4.8)
Corporate and other (10.4) (10.1) (20.3) (18.3)
------ ------ ------ ------
Income before taxes $ 41.8 $ 46.4 (9.9) $ 85.3 $ 93.4 (8.7)
====== ====== ====== ======
(1) U.S. Health Care revenues reflect the reclassification of
sales and cost of sales associated with sales to customers'
warehouses and include only the gross margin on such sales in
revenues.
(2) Interest expense is shown net of corporate interest income.
- 10 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL REVIEW
Overview of Results
- -------------------
Net income for the second quarter decreased to $28.1 million,
$.64 per fully-diluted share, from $31.7 million, $.68 per share in
the prior year. For the six month period, net income decreased to
$58.2 million, $1.30 per share, from $64.5 million, $1.38 per share
for the comparable period in the prior year. The results included
income from the discontinued Armor All and Service Merchandising
segments of $2.3 million, $.05 per share and $3.5 million, $.07 per
share in the second quarter and $5.6 million, $.12 per share, and
$8.3 million, $.17 per share for the six month periods of fiscal
1997 and 1996, respectively. The increase in earnings in the
Health Care Services segment, including costs associated with
strategic initiatives, was more than offset by lower earnings from
the discontinued Service Merchandising segment and higher net
interest expense.
HEALTH CARE SERVICES
The Health Care Services segment includes the operations of
the Company's U.S. pharmaceutical and health care products
distribution businesses and its international pharmaceutical
operations (Canada and Mexico). This segment accounted for 97% of
consolidated revenues for the second quarter and for the six month
period ended September 30, 1996.
Segment revenues increased by 14% and 13% for the three and
six month periods, respectively, from the comparable periods in the
prior year. U.S. Health Care revenue growth of 17% in the second
quarter and 16% for the six month period was partially offset by
declines in international sales. Year to year comparisons for
international operations were affected by the sale of the Company's
Central American pharmaceutical manufacturing operation in the
second quarter of fiscal 1996.
Operating profit for the quarter was flat with the prior year
but increased by 3% for the six month period. Results for the
three and six month periods include $4.0 million and $8.2 million,
respectively, of costs associated with a series of strategic
initiatives designed to improve the Company's competitiveness in
the retail and institutional market segments. These costs were
partially offset by continued growth in the Company's U.S. Health
Care business in every customer segment (independents, chain stores
and hospitals) and operating expense efficiencies. The prior year
second quarter results included a pretax gain of $11.2 million from
the sale of the Central American operation. This gain was offset
by research and development costs associated with retail and
institutional initiatives and expenses incurred to further
streamline operating and administrative functions.
WATER PRODUCTS
Segment revenues increased by 5% and 7% for the three and six
month periods, respectively, from the comparable periods in the
prior year. Operating profit for the quarter increased by 6% and
by 7% for the six month period. This improvement reflects sales
growth in the direct delivery and grocery products businesses which
have more than offset the costs of continuing geographic expansion
into Washington and Texas.
- 11 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
FINANCIAL REVIEW
DISCONTINUED OPERATIONS
The after tax results of the discontinued operations of Armor
All and Service Merchandising decreased to $2.3 million in the
quarter from $3.5 million in the second quarter of fiscal 1996, and
to $5.6 million from $8.2 million in the comparable six month
periods. Revenues of Armor All decreased by 6% for the quarter but
increased 3% for the six month period, compared to the prior year
primarily attributable to sales growth of Armor All Protectant and
to sales of two new products introduced in December 1995. In the
quarter, sales were down across all product lines. Pre-tax income
increased by 23% in the quarter and six month period due primarily
to a focus on controlling selling and marketing costs. Sales in
the Service Merchandising segment decreased by 18% for both the
three and six month periods from the comparable periods in the
prior year. Strong competitive pressures and customer
consolidations resulted in the loss of volume from several large
customers in late fiscal 1996. Pre-tax income for the quarter
decreased by 76% and by 70% for the six month period due primarily
to the impact of fixed expenses over a lower revenue base.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents decreased $127.5 million during the
six months to $133.3 million primarily due to a temporary increase
in certain customer receivable balances, stock repurchase activity,
the cost of the acquisition referred to in Financial Note 2 and
investments in technology associated with strategic initiatives.
During the first six months of fiscal 1997, the Company
repurchased 3.2 million shares of its common stock for $145 million
under a share repurchase program initiated in June 1995 and
expanded in May 1996. As of September 30, 1996, authorization to
purchase up to an additional 2.4 million shares remained.
The Company's debt-to-capital ratio increased from 31% at
March 31, 1996 to 36% at September 30, 1996 largely as a result of
short-term borrowings by its health care products distribution
operations in Canada.
On November 11, 1996, the Company announced the completion of
the acquisition referred to in Financial Note 4.
- 12 -
<PAGE>
PART II. OTHER INFORMATION
===========================
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
1. There were no reports on Form 8-K filed during the
quarter ended September 30, 1996.
2. The following report on Form 8-K was filed October 9,
1996:
Item 5. Other Events
---------------------
The registrant announced that it had executed a
definitive agreement to acquire substantially all of the
assets of the healthcare distribution business of
FoxMeyer Corporation.
- 13 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
McKESSON CORPORATION
(Registrant)
Dated: February 13, 1997 By /s/ Richard H. Hawkins
----------------------------
Richard H. Hawkins
Vice President and
Chief Financial Officer
By /s/ Heidi E. Yodowitz
----------------------------
Heidi E. Yodowitz
Controller
- 14 -
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000927653
<NAME> MCKESSON
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 133,300
<SECURITIES> 57,000
<RECEIVABLES> 977,300
<ALLOWANCES> 44,300
<INVENTORY> 1,283,800
<CURRENT-ASSETS> 2,433,300
<PP&E> 746,900
<DEPRECIATION> 380,200
<TOTAL-ASSETS> 3,433,700
<CURRENT-LIABILITIES> 1,803,600
<BONDS> 439,500
0
0
<COMMON> 400
<OTHER-SE> 977,500
<TOTAL-LIABILITY-AND-EQUITY> 3,433,700
<SALES> 5,401,500
<TOTAL-REVENUES> 5,401,500
<CGS> 4,938,600
<TOTAL-COSTS> 5,316,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,600
<INTEREST-EXPENSE> 21,100
<INCOME-PRETAX> 85,300
<INCOME-TAX> 32,700
<INCOME-CONTINUING> 52,600
<DISCONTINUED> 5,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,200
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
