SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 2)
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 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 June 30, 1996
- ---------------------------- ----------------------------
Common stock, $.01 par value 42,820,705 shares
<PAGE>
The Registrant hereby amends the items, financial statements,
exhibits, or portions of the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 as set forth below.
LIST OF ITEMS AMENDED
PART I. FINANCIAL INFORMATION
==============================
Item Page
- ---- ----
1. Financial Statements
Consolidated Balance Sheets
June 30, 1996 and March 31, 1996 3 - 4
Condensed Statements of Consolidated Income
Quarter ended June 30, 1996 and 1995 5
Statements of Consolidated Cash Flows
Quarter ended June 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 this amendment is to reflect, in the first quarter
ended June 30, 1996, the $48.2 million charge to write off the
portion of the purchase price of Automated Healthcare, Inc. ("AHI")
allocated to technology for which feasibility had not been
established as of the acquisition date of April 23, 1996. Such
charge was recorded in the third quarter ended December 31, 1996 in
the originally filed financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION
==============================
McKESSON CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Restated
(unaudited)
June 30, March 31,
1996 1996
------ ------
(in millions)
ASSETS
- ------
Current Assets
Cash and cash equivalents $ 115.5 $ 260.8
Marketable securities available for sale 139.3 195.4
Receivables 791.0 672.8
Inventories 1,266.0 1,317.0
Prepaid expenses 21.0 17.0
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Total 2,332.8 2,463.0
------- -------
Property, Plant and Equipment
Land 37.9 38.0
Buildings, machinery and equipment 690.7 675.7
------- -------
Total 728.6 713.7
Accumulated depreciation (368.5) (357.7)
------- -------
Net 360.1 356.0
Goodwill and other intangibles 195.1 183.7
Net assets of discontinued
operations (Note 3) 120.1 125.7
Other assets 244.9 231.8
------- -------
Total Assets $3,253.0 $3,360.2
======= =======
(Continued)
- 3 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Restated
(unaudited)
June 30, March 31,
1996 1996
------ ------
(in millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Drafts payable $ 148.6 $ 194.0
Accounts payable - trade 1,119.0 1,149.2
Short-term borrowings 85.8 6.6
Current portion of long-term debt 27.5 27.9
Salaries and wages 23.7 26.3
Taxes 103.1 92.2
Interest and dividends 20.6 19.0
Other 126.1 127.3
------- -------
Total 1,654.4 1,642.5
------- -------
Postretirement Obligations and
Other Noncurrent Liabilities 215.8 216.6
------- -------
Long-Term Debt 438.6 436.5
------- -------
Stockholders' Equity
Common stock 0.4 0.4
Additional paid-in capital 333.3 332.0
Other capital (38.0) (36.2)
Retained earnings 940.9 968.9
Accumulated translation adjustment (50.0) (49.7)
ESOP notes and guarantee (120.7) (122.5)
Treasury shares, at cost (121.7) (28.3)
------- -------
Net 944.2 1,064.6
------- -------
Total Liabilities and
Stockholders' Equity $3,253.0 $3,360.2
======= =======
See Financial Notes.
(Concluded)
- 4 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
Restated
(unaudited)
Quarter Ended June 30
---------------------
1996 1995
------ ------
(in millions - except
per share amounts)
REVENUES $2,670.6 $2,388.3
------- -------
COSTS AND EXPENSES
Cost of sales 2,438.7 2,167.1
Selling, distribution and administration 177.5 162.5
Purchased in-process technology (Note 2) 48.2 -
Interest 10.9 11.7
------- -------
Total 2,675.3 2,341.3
------- -------
INCOME (LOSS) BEFORE TAXES ON INCOME (4.7) 47.0
TAXES ON INCOME (16.7) (19.0)
------- -------
INCOME (LOSS) AFTER TAXES
Continuing operations (21.4) 28.0
Discontinued operations (Note 3) 3.3 4.8
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NET INCOME (LOSS) $ (18.1) $ 32.8
======= =======
EARNINGS (LOSS) PER COMMON SHARE
Fully diluted earnings (loss)
Continuing operations $ (.49) $ .60
Discontinued operations .08 .10
------- -------
Total $ (.41) $ .70
======= =======
Primary earnings (loss)
Continuing operations $ (.49) $ .60
Discontinued operations .08 .10
------- -------
Total $ (.41) $ .70
======= =======
DIVIDENDS PER COMMON SHARE $ .25 $ .25
======= =======
SHARES ON WHICH EARNINGS PER
COMMON SHARE WERE BASED
Fully diluted 43.8 46.9
Primary 43.8 46.8
See Financial Notes.
- 5 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Restated
(unaudited)
Quarter Ended June 30
---------------------
1996 1995
------ ------
(in millions)
Operating Activities
Income (loss) from continuing operations $ (21.4) $ 28.0
Adjustments to reconcile to net cash
used by operating activities
Depreciation 15.3 13.3
Amortization 2.3 1.7
Provision for bad debts 1.7 1.3
Deferred taxes on income 1.0 -
Other non-cash items (Note 2) 49.4 (7.8)
------- -------
Total 48.3 36.5
------- -------
Effects of changes in
Receivables (113.3) (59.4)
Inventories 51.8 76.7
Accounts and drafts payable (75.0) (42.6)
Taxes 16.5 (45.1)
Other (15.1) (18.8)
------- -------
Total (135.1) (89.2)
------- -------
Net cash used by continuing operations (86.8) (52.7)
------- -------
Discontinued operations 4.6 16.5
------- -------
Net cash used by operating activities (82.2) (36.2)
------- -------
Investing Activities
Purchases of marketable securities (0.2) (131.8)
Maturities of marketable securities 58.3 35.0
Property acquisitions (19.8) (15.1)
Properties sold 0.2 3.6
Acquisitions of businesses, less cash
and short-term investments acquired (61.4) (11.2)
Investing activities of
discontinued operations (0.4) (2.4)
Other (15.3) 3.2
------- -------
Net cash used by investing activities (38.6) (118.7)
------- -------
(Continued)
- 6 -
<PAGE>
McKESSON CORPORATION and SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Restated
(unaudited)
Quarter Ended June 30
---------------------
1996 1995
------ ------
(in millions)
Financing Activities
Proceeds from issuance of debt $ 84.2 $ 61.1
Repayment of debt (3.3) (3.3)
Capital stock transactions
Treasury stock acquired (101.9) (4.7)
Issuances 5.3 1.5
ESOP notes and guarantee 1.8 1.6
Dividends paid (10.7) (10.2)
Financing activities of
discontinued operations 0.1 -
------- -------
Net cash (used) provided
by financing activities (24.5) 46.0
------- -------
Net Decrease in Cash
and Cash Equivalents (145.3) (108.9)
Cash and Cash Equivalents
at beginning of period 260.8 363.1
------- -------
Cash and Cash Equivalents
at end of period $ 115.5 $ 254.2
======= =======
See Financial Notes.
(Concluded)
- 7 -
<PAGE>
McKESSON CORPORATION AND SUBSIDIARIES
FINANCIAL NOTES
1. Interim Financial Statements
----------------------------
In the opinion of the Company, these unaudited consolidated
financial statements include all adjustments necessary for a fair
presentation of its financial position as of June 30, 1996 and the
results of its operations and its cash flows for the three months
ended June 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 three months ended June 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 Commission. Such document was 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 acquisition was accounted
for as a purchase and accordingly, AHI's results are included in
the consolidated financial statements since the date of
acquisition. The results of operations of AHI were not material in
relation to the Company's consolidated results of operations. The
goodwill related to the acquisition of approximately $13.4 million
is being amortized on a straight-line basis over a ten year period.
A $48.2 million charge was recorded to write off the portion of the
purchase price of AHI allocated to technology for which
technological feasibility had not been established as of the
acquisition date and for which there were no alternative uses.
Existing technology was valued at $.4 million and is being
amortized on a straight-line basis over a three year period. The
Company utilized a discounted cash flow methodology by product line
to value in-process and existing technologies as of the acquisition
date. The resulting valuations represent management's best
estimate of the respective fair values as of that date. As of the
acquisition date, further costs necessary to develop the purchased
technologies into commercially viable products were approximately
$3.4 million, based on current estimates. Such costs are expected
to be incurred during fiscal 1997 and 1998 and are associated with
the following activities: engineering required to advance the
design of products to the point that they meet specific functional
and economic requirements and are ready for manufacture, prototype
development, and product testing.
The financial statements have been restated to reflect in the first
quarter ended June 30, 1996, the $48.2 million charge to write off
the portion of the purchase price of AHI allocated to technology
for which feasibility had not been established as of the
acquisition date of April 23, 1996. Such charge was recorded in
the third quarter ended December 31, 1996 in the originally filed
financial statements. The effects of the restatement on the
financial statements as of and for the period ended June 30, 1996
are as follows:
As Previously Reported As Restated
---------------------- -----------
(in millions, except per share amounts)
Total Assets $3,301.2 $3,253.0
Stockholders' Equity 992.4 944.2
Net Income (Loss) 30.1 (18.1)
Fully Diluted
Earnings Per Share .66 (.41)
- 8 -
<PAGE>
McKESSON CORPORATION AND SUBSIDIARIES
FINANCIAL NOTES
3. Discontinued Operations
-----------------------
On December 31, 1996, the Company sold its 55% equity interest
in Armor All 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 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.
The net assets of discontinued operations at June 30, 1996 and
March 31, 1996 were as follows:
June 30, March 31,
1996 1996
------ ------
(in millions)
Total assets $ 271.9 $ 275.5
Total liabilities (151.8) (149.8)
------ ------
Net assets $ 120.1 $ 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 June 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 June 30, 1996 and March 31, 1996.
The results of discontinued operations for the three months
ended June 30, 1996 and 1995 were as follows:
June 30, March 31,
1996 1996
------ ------
(in millions)
Revenues $174.5 $197.0
===== =====
Income from discontinued
operations before taxes $ 9.0 $ 10.8
Provision for taxes on income (3.7) (4.4)
Less: Minority interest (2.0) (1.6)
----- -----
Net income discontinued operations $ 3.3 $ 4.8
===== =====
Discontinued operations include $2.4 million and $2.0 million
after tax from the operations of Armor All and $0.9 million and
$2.8 million after tax from the operations of Service Merchandising
for the three months ended June 30, 1996 and 1995, respectively.
- 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 years have been restated accordingly (see
Financial Note 3). The revenues and operating profits of the
Company's continuing operations by business segment are as
follows:
Quarter Ended June 30
-------------------------
%
1996 1995 Chg.
------ ------ ----
(in millions)
REVENUES
- --------
Health Care Services
Direct Delivery
US (1) $2,219.5 $1,929.0 15.1
International 376.8 383.1 (1.6)
------- -------
Total Direct Delivery 2,596.3 2,312.1 12.3
Water Products 70.4 64.0 10.0
Corporate 3.9 12.2
------- -------
Total $2,670.6 $2,388.3 11.8
======= =======
OPERATING PROFIT
- ----------------
Health Care Services(2) $ 3.3 $ 48.9 (93.3)
Water Products 9.6 8.9 7.9
------- -------
Total 12.9 57.8 (77.7)
Interest - net (3) (7.7) (2.6)
Corporate and other (9.9) (8.2)
------- -------
Income before taxes $ (4.7) $ 47.0
======= =======
(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) Health Care Services operating profit for the period ended
June 30, 1996, includes a charge for $48.2 million to write
off the portion of the purchase price of AHI allocated to
technology for which feasibility had not been established as
of the acquisition date.
(3) Interest is shown net of corporate interest income.
- 10 -
<PAGE>
McKESSON CORPORATION AND SUBSIDIARIES
FINANCIAL REVIEW
Overview of Results
- -------------------
Net loss for the first quarter was $18.1 million, $.41 per
fully-diluted share, compared to net income of $32.8 million, $.70
per share in the prior year. Results for the first quarter include
a $48.2 million charge to write off the portion of the purchase
price of AHI allocated to technology for which feasibility had not
been established as of the acquisition date. Results for the first
quarter also include $3.3 million, $.08 per share, compared to
$4.8 million, $.10 per share, in the prior year from the
discontinued Armor All and Service Merchandising segments.
Earnings growth in the Health Care Services segment (before the
$48.2 million charge noted above) including costs associated with
strategic initiatives, was more than offset by lower earnings from
the discontinued Service Merchandising segment and higher net
interest expense.
The effective income tax rate applicable to continuing
operations for the quarter ended June 30, 1996 differed from the
effective tax rate for the comparable period in fiscal 1996
primarily due to the write-off in the current period of purchased
in-process technology acquired with AHI of $48.2 million, which had
no associated tax benefit.
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 first quarter.
Segment revenues increased by 12% for the three months
compared with the prior year. Revenue growth of 15% in the U.S.
Health Care businesses was partially offset by declines in sales at
Medis, the Company's Canadian unit.
Operating profit for the quarter, excluding the effect of the
$48.2 million charge noted above, increased by 5% from the prior
year due to sales growth in every customer segment (independents,
chain stores and hospitals) and to cost reduction efforts. First
quarter results include $4.2 million of costs associated with a
series of strategic initiatives designed to improve the Company's
competitiveness in the retail and institutional market segments.
WATER PRODUCTS
Revenues in the Water Products segment increased by 10% for
the three months compared with the prior year. Operating profit
increased 8% to $9.6 million from $8.9 million for the first
quarter, compared with the same quarter in the prior year. This
improvement reflects growth in the direct delivery and packaged
water businesses, and the favorable impact of the segment's
ongoing programs to improve customer service which have reduced
customer turnover expenses.
- 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 $3.3 million in the
quarter from $4.8 million in the prior year. Armor All experienced
an increase in revenue of 10% for the three months compared with
the prior year. The increase was primarily attributable to sales
growth of Armor All Protectant(R) and to sales of two new products
introduced in December, 1995. Pre-tax income increased by 24% due
to an increased proportion of higher margin automotive products in
the sales mix. Revenues in the Service Merchandising segment
declined 19% for the three months compared with the prior year.
Strong competitive pressures and customer consolidations resulted
in the loss of several large customers in fiscal 1996. Pre-tax
income decreased 67% due primarily to the impact of fixed expenses
over a lower revenue base. These trends are expected to continue
and to adversely affect the Company's earnings for the rest of the
fiscal year.
Liquidity and Capital Resources
- -------------------------------
Cash, equivalents and marketable securities decreased $201.4
million during the first quarter to $254.8 million primarily due to
stock repurchase activity and the cost of the acquisition referred
to in Financial Note 2.
During the first three months of fiscal 1997, the Company
repurchased 2.2 million shares of its common stock for $102 million
under a share repurchase program initiated in June 1995 and
expanded in May 1996. As of June 30, 1996, 3.4 million shares
remain to be repurchased under the program.
The Company's debt-to-capital ratio increased from 31% at
March 31, 1996 to 37% at June 30, 1996 as debt increased from
short-term borrowings by its health care products distribution
operations in Canada and equity was reduced by the share
repurchases.
- 12 -
<PAGE>
PART II. OTHER INFORMATION
===========================
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
3 Restated By-Laws of the Company, as amended
effective July 31, 1996
10.1 Form of Employment Agreement effective as of
January 31, 1996 by and between the Company and
a corporate Vice President and President of its
Health Systems unit
10.2 McKesson Corporation Severance Policy for
Executive Employees, amended and restated
as of May 31, 1996
27 Financial Data Schedule
(b) Reports on Form 8-K
1. Form 8-K dated April 8, 1996
Item 5. Other Events
---------------------
The Registrant announced that David E. McDowell was
resigning as President and Chief Operating Officer of the
company, effective upon commencement of employment of his
successor.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
--------------------------------------------------
2. Form 8-K dated April 29, 1996
Item 5. Other Events
---------------------
The Registrant announced that Mark A. Pulido had been
elected President and Chief Operating Officer and a
Director of the Registrant, effective May 20, 1996.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
--------------------------------------------------
- 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: June 6, 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
- ------- ----------------------------------------------
3 Restated By-Laws of the Company, as amended
effective July 31, 1996 (1)
10.1 Form of Employment Agreement effective as of
January 31, 1996 by and between the Company
and a corporate Vice President and President
of its Health Systems unit (1)
10.2 McKesson Corporation Severance Policy for
Executive Employees, amended and restated as
of May 31, 1996 (1)
27 Financial Data Schedule
Footnotes to Exhibit Index:
(1) Exhibits as previously filed in the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996 are not being
amended in this filing.
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000927653
<NAME> MCKESSON
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 115,500
<SECURITIES> 139,300
<RECEIVABLES> 833,100
<ALLOWANCES> 42,100
<INVENTORY> 1,266,000
<CURRENT-ASSETS> 2,332,800
<PP&E> 728,600
<DEPRECIATION> 368,500
<TOTAL-ASSETS> 3,253,000
<CURRENT-LIABILITIES> 1,654,400
<BONDS> 438,600
0
0
<COMMON> 400
<OTHER-SE> 943,800
<TOTAL-LIABILITY-AND-EQUITY> 3,253,000
<SALES> 2,675,300
<TOTAL-REVENUES> 2,670,600
<CGS> 2,438,700
<TOTAL-COSTS> 2,627,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,700
<INTEREST-EXPENSE> 10,900
<INCOME-PRETAX> (4,700)
<INCOME-TAX> 16,700
<INCOME-CONTINUING> (21,400)
<DISCONTINUED> 3,300
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,100)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
