Filed On 2/13/97 · SEC File 33-86536 · Accession Number 898430-97-500
As Of Filer Filing On/For/As Docs:Pgs Issuer Agent
2/13/97 McKesson Corp 10-K/A 3/31/96 4:54 Donnelley R R & S..05/FA
Document/Exhibit Description Pages Size
1: 10-K/A Amendment to Annual Report 49 249K
2: EX-11 Computation of Earnings 2± 13K
3: EX-23 Independent Auditors' Consent 1 6K
4: EX-27 Financial Data Schedule 2 6K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-13252
McKESSON CORPORATION
A Delaware Corporation
I.R.S. Employer Number 94-3207296
McKesson Plaza, One Post Street, San Francisco, CA 94104
Telephone - Area Code (415) 983-8300
Securities registered pursuant to Section 12(b) of the Act:
(Name Of Each Exchange
(Title Of Each Class) On Which Registered)
Common Stock, $.01 par value New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None.
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by nonaffiliates of the Registrant
at June 3, 1996 $1,453,307,348
-------------
Number of shares of common stock outstanding at June 3, 1996: 42,939,511
----------
The undersigned Registrant hereby amends the items, financial statements,
exhibits or other portions of its Annual Report on Form 10-K for the fiscal year
ended March 31, 1996 as set forth below.
LIST OF ITEMS AMENDED
---------------------
Item Page
---- ----
PART II
6. Selected Financial Data............................ 1
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Review................................... 6
8. Financial Statements and Supplementary Data........ 15
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K................................ 45
Signatures......................................... 46
TEXT OF AMENDMENTS
------------------
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.
PART II
ITEM 6. Selected Financial Data
The following selected consolidated financial data for each of the six
years in the period ended March 31, 1996 has been derived from the audited
consolidated financial statements of the Company included herein. The selected
consolidated financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this report.
1
SIX-YEAR HIGHLIGHTS
CONSOLIDATED OPERATIONS(1)
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YEARS ENDED MARCH 31
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1996 1995 1994 1993 1992 1991
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(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Revenues/(2)/........... $ 9,953.7 $ 9,438.7 $ 8,520.8 $ 7,991.8 $ 7,219.1 $5,646.3
Percent change......... 5.5% 10.8% 6.6% 10.7% 27.9% 10.5%
Gross profit/(3)/....... 915.5 808.2/(3)/ 783.6 777.2 723.3 665.6
Percent of revenues.... 9.2% 8.6% 9.2% 9.7% 10.0% 11.8%
Operating profit........ 245.7 90.6/(4)/ 202.6 200.3 129.2/(5)/ 186.2
Percent change......... 171.2% (55.3)% 1.1% 55.0% (30.6)% (6.1)%
Percent of revenues.... 2.5% 1.0% 2.4% 2.5% 1.8% 3.3%
Operating margin
(deficit)/(6)/......... 241.3 (9.0)/(7)/ 153.6/(8)/ 156.5 79.3/(9)/ 157.5
Percent of revenues.... 2.4% (.1)% 1.8% 2.0% 1.1% 2.8%
Interest expense........ 44.4 44.5 39.3 47.5 52.9 51.2
Income (loss) before
taxes on income........ 196.9 (53.5)/(7)/ 114.3/(8)/ 109.0 26.4/(9)/ 106.3
Percent change......... -- -- 4.9% 312.9% (75.2)% 6.5%
Taxes on income......... 76.2 96.6/(10)/ 45.0 42.2 10.9 40.5
Effective tax rate..... 38.7% -- 39.4% 38.7% 41.3% 38.1%
Income (loss) after
taxes
Continuing operations.. 120.7 (150.1)/(7)//(10)/ 69.3/(8)/ 66.8 15.5/(9)/ 65.8
Percent change........ -- -- 3.7% 331.0% (76.4)% 14.6%
Discontinued
operations............ 14.7 554.6/(11)/ 87.8/(12)/ 47.9 16.8/(13)/ 29.5
Extraordinary item--
debt extinguishment... -- -- (4.2) -- -- --
Cumulative effects of
accounting changes.... -- -- (16.7) -- (110.5) --
Net income (loss)....... 135.4 404.5 136.2 114.7 (78.2) 95.3
Percent change......... (66.5)% 197.0% 18.7% -- -- 1.7%
Average stockholders'
equity................. 1,043.3 808.3 623.1 581.5 593.3 660.1
Return on
equity/(14)/.......... 13.0% 50.0% 21.9% 19.7% (13.2)% 14.4%
Total dividends
declared............... 44.7 61.5 77.1 74.4 72.3 71.8
Common dividends
declared............... 44.7 56.5 66.9 64.0 61.8 61.2
Fully diluted earnings
(loss) per common share
Continuing operations.. $ 2.59 $ (3.34) $ 1.49 $ 1.44 $ .22 $ 1.47
Percent change........ -- -- 3.5% 554.5% (85.0)% 17.7%
Discontinued
operations............ .31 12.20 1.99 1.07 .43 .66
Extraordinary item..... -- -- (.10) -- -- --
Cumulative effects of
accounting changes.... -- -- (.38) -- (2.85) --
Total.................. 2.90 8.86 3.00 2.51 (2.20) 2.13
Percent change........ (67.3)% 195.3% 19.5% -- -- 4.9%
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(1) Restated to reflect the Armor All and Service Merchandising segments as
discontinued operations.
(2) Reflects the reclassification of sales and cost of sales associated with
sales to customers' warehouses and includes only the gross margin on such
sales in revenues.
(3) Revenues less cost of sales, in fiscal 1995 includes $35.9 million of
charges for restructuring, asset impairment and other operating items,
0.4% of revenues.
(4) Includes $124.6 million in charges for restructuring, asset impairment
and other operating items, 1.3% of revenues.
(5) Net of restructuring charges of $65.1 million, 0.9% of revenues.
(6) Income from continuing operations before interest expense and taxes on
income.
(7) Includes $59.4 million of compensation costs related to the PCS
Transaction, $139.5 million of charges for restructuring, asset impairment
and other operating items representing 2.1% of revenues in the aggregate,
$130.6 million after-tax.
(8) Includes a loss on the termination of interest rate swap arrangements
of $13.4 million, $8.2 million after-tax.
(9) Net of restructuring charges of $65.1 million, 0.9% of revenues, $41.0
million after-tax.
(10) Includes $107.0 million of income tax expense related to the sale of
PCS.
(11) Includes gain on sale of PCS of $576.7 million after-tax, write-down of the
Company's investment in Service Merchandising of $72.8 million after-tax,
and $1.0 million of income after-tax from a donation of Armor All stock to
the McKesson Foundation.
(12) Includes $32.7 million after-tax relating to a gain on the
sale and donation of Armor All stock.
(13) Net of restructuring charges of $15.8 million after-tax related to
Service Merchandising.
(14) Based on net income.
2
SIX-YEAR HIGHLIGHTS
CONSOLIDATED FINANCIAL POSITION/(1)/
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YEARS ENDED MARCH 31
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1996 1995 1994 1993 1992 1991
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(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Customer receivables.... $ 631.7 $ 635.6 $ 615.3 $ 605.3 $ 566.4 $ 373.0
Days of sales/(2)/..... 22.9 24.2 26.0 27.3 28.2 23.8
Inventories--LIFO cost.. 1,317.0 1,081.9 900.5 777.1 746.2 587.6
Inventories--FIFO cost.. 1,602.5 1,376.2 1,204.3 1,090.9 1,042.1 855.8
Days of sales/(2)/..... 63.8 57.4 56.0 54.4 57.8 61.9
Drafts and accounts
payable................ 1,343.2 1,229.8 1,061.5 999.9 910.2 642.0
Days of sales/(2)/..... 53.5 51.3 49.4 49.9 50.4 46.4
Current assets.......... 2,463.0 2,464.2 1,627.9 1,490.0 1,487.4 1,132.4
Current liabilities..... 1,642.5 1,585.2 1,326.5 1,298.6 1,196.4 881.7
Working capital......... 820.5 879.0 301.4 191.4 291.0 250.7
Percent of
revenues/(2)/......... 8.2% 9.3% 3.6% 2.4% 4.0% 4.4%
Property, plant and
equipment--net......... 356.0 341.6 345.7 334.2 333.8 320.8
Percent of reve-
nues/(2)/............. 3.6% 3.6% 4.1% 4.2% 4.6% 5.7%
Capital expenditures.... 73.6 76.4 68.1 49.0 67.1 66.9
Total assets............ 3,360.2 3,260.2 2,676.6 2,458.4 2,439.1 2,115.3
Total debt/(3)/......... 471.0 492.1 532.1 429.2 574.3 598.2
Stockholders' equity.... 1,064.6 1,013.5 678.6 619.4 554.5 675.6
Capital employed/(4)/... 1,535.6 1,505.6 1,210.7 1,048.6 1,128.8 1,273.8
Ratio of debt to
capital employed...... 30.7% 32.7% 43.9% 40.9% 50.9% 47.0%
Average capital
employed/(4)/.......... 1,599.4 1,373.0 1,115.9 1,088.4 1,179.6 1,214.8
Turnover/(5)/.......... 6.2 6.9 7.6 7.3 6.1 4.6
Fully diluted shares.... 46.7 45.5 44.1 44.8 38.8/(6)/ 44.6
Common shares
outstanding at 3/31.... 44.8 44.4 40.6 40.6 38.9 38.2
Dividends per common
share.................. 1.00 1.34 1.66 1.60 1.60 1.60
Cash distribution from
PCS
Transaction per common
share................. -- 76.00/(7)/ -- -- -- --
Book value per common
share/(8)/............. 23.76 22.83 16.38 14.99 13.97 17.44
Market price
High................... 55 5/8 109 1/4 68 1/2 47 1/8 40 1/8 38
Low.................... 37 1/4 30 1/8 38 5/8 30 1/4 32 26 7/8
At year end............ 51 1/4 40 3/8 59 1/2 44 3/4 32 5/8 32 7/8
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(1) Restated to reflect the Armor All and Service Merchandising segments as
discontinued operations.
(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) Received by shareholders directly from Eli Lilly and Company.
(8) 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
SIX-YEAR HIGHLIGHTS
REPORTING SEGMENTS/(1)/
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YEARS ENDED MARCH 31
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1996 1995 1994 1993 1992 1991
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(DOLLARS IN MILLIONS)
HEALTH CARE SERVICES
Revenues/(2)/.......... $9,656.7 $9,177.7 $8,274.7 $7,753.4 $6,976.9 $5,399.1
Percent change........ 5.2% 10.9% 6.7% 11.1% 29.2% 10.9%
Operating profit....... 206.1 76.1/(3)/ 165.6 169.9 105.1/(4)/ 161.9
Percent change........ 170.8% (54.0)% (2.5)% 61.7% (35.1)% 18.3%
Percent of revenues... 2.1% .8%/(3)/ 2.0% 2.2% 1.5%/(4)/ 3.0%
Average capital
employed/(5)/......... 1,043.5 989.5 836.9 663.3 722.7 656.4
Turnover/(6)/......... 9.3 9.3 9.9 11.7 9.7 8.2
Return/(7)/........... 19.8% 7.7% 19.8% 25.6% 14.5% 24.6%
Segment assets......... 2,525.3 2,148.6 1,951.6 1,759.5
Capital expenditures... 43.5 44.4 34.4 24.5 38.3 26.4
Depreciation........... 33.9 30.2 23.1 20.2 20.4 16.5
Amortization of
intangibles........... 6.9 7.0 6.9 6.1 7.0 7.6
WATER PRODUCTS
Revenues............... $ 259.3 $ 246.0 $ 240.3 $ 229.6 $ 232.8 $ 236.7
Percent change........ 5.4% 2.4% 4.7% (1.4)% (1.6)% 1.8%
Operating profit....... 39.6 14.5/(8)/ 37.0 30.4 24.1 24.3
Percent change........ 173.1% (60.8)% 21.7% 26.1% (0.8)% (34.5)%
Percent of revenues... 15.3% 5.9%/(8)/ 15.4% 13.2% 10.4% 10.3%
Average capital
employed/(5)/......... 114.2 122.7 119.4 107.9 104.4 103.1
Turnover/(6)/......... 2.3 2.0 2.0 2.1 2.2 2.3
Return/(7)/........... 34.7% 11.8% 31.0% 28.2% 23.1% 23.6%
Segment assets......... 142.0 142.3 150.4 135.7
Capital expenditures... 24.8 26.3 28.7 20.6 25.9 25.9
Depreciation........... 21.4 20.3 18.3 16.8 15.9 15.5
Amortization of
intangibles........... 0.1 0.2 -- -- -- --
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(1) Restated to reflect the Armor All and Service Merchandising segments as
discontinued operations.
(2) Reflects the reclassification of sales and cost of sales associated with
sales to customers' warehouses and includes only the gross margin on such
sales in revenues.
(3) Includes $107.3 million of charges for restructuring, asset impairment and
other operating items, 1.2% of revenues.
(4) Net of restructuring charges of $69.7 million, 1.0% of revenues.
(5) Net assets of the segment.
(6) Revenues divided by average capital employed.
(7) Operating profit divided by average capital employed.
(8) Includes $17.3 million of charges for restructuring, asset impairment and
other operating items, 7.0% of revenues.
4
SIX-YEAR HIGHLIGHTS
REPORTING SEGMENTS/(1)/
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YEARS ENDED MARCH 31
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1996 1995 1994 1993 1992 1991
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(DOLLARS IN MILLIONS)
CORPORATE
Revenues......................... $ 37.7 $ 15.0 $ 5.8 $ 8.8 $ 9.4 $ 10.5
Expenses......................... (35.5) (112.7)/(3)/ (50.0)/(4)/ (49.4) (56.8) (33.4)
Average capital employed/(2)/.... 441.7 260.8 159.6 317.2 352.5 455.3
Total assets*.................... 692.9 969.3 574.6 563.2 607.3 647.8
Capital expenditures............. 5.3 5.7 5.0 3.9 2.9 14.6
Depreciation..................... 1.9 1.4 6.2 9.9 10.1 10.0
*Total assets include:
Cash and cash equivalents and
marketable securities.......... 456.2 670.4 62.7 77.5 140.0 151.1
Net assets of discontinued
operations/(5)/................ 125.7 88.2 353.9 333.3 287.2 303.1
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(1) Restated to reflect the Armor All and Service Merchandising segments as
discontinued operations.
(2) Net assets of segment.
(3) Includes $74.3 million of expense related to compensation costs associated
with the PCS Transaction, charges for restructuring, asset impairment and
other operating items.
(4) Includes a loss on the termination of interest rate swap arrangements of
$13.4 million.
(5) Includes the net assets of the Armor All and Service Merchandising segments,
and PCS prior to its disposition on November 21, 1994.
5
FINANCIAL REVIEW
ITEM 7.
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. 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.
RESULTS OF OPERATIONS
Fiscal 1996 income from continuing operations was $120.7 million, $2.59 per
fully diluted share, an increase of 38% over the prior year's income from
continuing operations of $87.5 million before unusual items. Fiscal 1995 income
includes expenses associated with the sale of PCS and charges resulting from
initiatives to streamline the distribution and water businesses. Fiscal 1994
results include a loss on the termination of interest rate swap arrangements.
For purposes of discussing the results of operations, these income and expense
items are referred to as "unusual items" in the Financial Review as management
believes that these items either represent one-time occurrences and/or events
which are not related to normal, on-going operations or represent charges that
are in excess of normal/historical operating amounts.
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YEARS ENDED MARCH 31
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1996 1995 1994
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PRE-TAX AFTER-TAX PRE-TAX AFTER-TAX PRE-TAX AFTER-TAX
------- --------- ------- --------- ------- ---------
(IN MILLIONS)
Income from Continuing
Operations
Before unusual items... $196.9 $120.7 $ 145.4 $ 87.5 $127.7 $ 77.5
Unusual Items
Compensation costs
related to the PCS
Transaction.......... (59.4) (45.3)
Income tax expense
related to the PCS
Transaction.......... (107.0)
Charges for
restructuring, asset
impairment and other
operating items...... (139.5) ( 85.3)
Interest rate swap
terminations......... (13.4) (8.2)
------ ------ ------- ------- ------ ------
Income (loss) from
Continuing Operations... $196.9 $120.7 $ (53.5) $(150.1) $114.3 $ 69.3
====== ====== ======= ======= ====== ======
PCS Transaction
On November 21, 1994 McKesson and Eli Lilly and Company ("Eli Lilly")
completed a transaction whereby Eli Lilly effectively acquired McKesson's
pharmaceutical benefits management business which consisted primarily of PCS
Health Systems, Inc. and Clinical Pharmaceuticals, Inc., both wholly-owned
subsidiaries of McKesson. Of the approximately $4 billion of proceeds from this
transaction, approximately $600 million was paid to the Company. An additional
$24 million of the $4 billion consideration was received from Eli Lilly to fund
deferred vested stock option payments. The remainder of the $4 billion was paid
directly to the McKesson shareholders by Eli Lilly.
Unusual Items--Fiscal 1995
The $59.4 million of pre-tax compensation costs related to the PCS
Transaction consists of $23.6 million associated with an allocation of cash and
shares to ESOP plan participants resulting from a paydown of ESOP debt by the
ESOP trust, and $35.8 million associated with the Company's vested stock
options and other compensation programs.
The $107.0 million of income tax expense resulted from the distribution of
McKesson common stock to effect the PCS Transaction.
The $139.5 million pre-tax charge for restructuring, asset impairment and
other operating items resulted, in part, from the initiation by the Company's
management of several measures designed to
6
FINANCIAL REVIEW--(CONTINUED)
streamline operations and improve productivity in the Company's Health Care
Services and Water Products segments. These measures included consolidation of
certain facilities, workforce reductions and divestiture of under-performing
assets and were expected to reduce operating expenses, improve working capital
efficiency and enhance customer service. Other charges consist primarily of
write-downs of assets to be disposed of to fair value less costs to sell,
impairment losses on capitalized software due to changes in technology,
severance for announced workforce reductions, write-downs of inventory
associated with the discontinuation of certain product lines, and receivables
reserves related to facility closures and a reassessment of credit risks in the
Health Care Services segment. The assets to be disposed of are associated with
facility consolidations in the Health Care Services and Water Products segments
and surplus properties held by the Company. The disposition of these properties
is expected to occur over the next three years. See Financial Note 3 "Charges
and Gains in Continuing Operations" on pages 24 and 25 of the accompanying
financial statements.
Unusual Items--Fiscal 1994
Fiscal 1994 income from continuing operations includes a pre-tax loss of $13.4
million from the termination of interest rate swap arrangements.
Net Income
Fiscal 1996 net income was $135.4 million or $2.90 per fully-diluted share,
including $14.7 million ($.31 per share) of income from the discontinued Armor
All and Service Merchandising segments. Fiscal 1995 net income was $404.5
million or $8.86 per share, both of which include amounts related to the PCS
Transaction, and to initiatives taken by the Company to enhance the productivity
of its businesses. The Company recorded income of $554.6 million from
discontinued operations, including a gain on the sale of PCS of $576.7 million,
$21.0 million for PCS earnings during the part of the year it was owned by the
Company, and a $44.1 million loss from the discontinued Armor All and Service
Merchandising segments, reflecting a $72.8 million charge to write-down the
Company's investment in its Service Merchandising segment. Fiscal 1994 net
income was $136.2 million or $3.00 per share which includes $69.3 million from
continuing operations, $55.1 million from discontinued operations, $32.7 million
from the gain on sale/donation of Armor All stock, an extraordinary after-tax
loss of $4.2 million from the early retirement of debt and a $16.7 million
after-tax charge for the cumulative effect of the accounting change to adopt
Statement of Financial Accounting Standards ("SFAS") No. 112 "Employers'
Accounting for Postemployment Benefits."
BUSINESS SEGMENTS
The Company's business segments of continuing operations consist of Health
Care Services and Water Products. Health Care Services is the Company's primary
business and includes the U.S. pharmaceutical and health care products
distribution business, its operations to support the needs of pharmaceutical and
other health care product manufacturers, institutional and retail customers and
its international pharmaceutical distribution operations (including Canada and
an equity interest in a Mexican distribution business).
Water Products is engaged in the processing, delivery and sale of bottled
drinking water and the sale of packaged water to retail stores.
7
FINANCIAL REVIEW--(CONTINUED)
REVENUE GROWTH
In fiscal 1996, revenues increased by $515.0 million or 6% to $10.0 billion
from the prior year. Revenues of $9.4 billion in fiscal 1995 increased 11%
from fiscal 1994. Substantially all of the revenue growth represents volume
growth from existing businesses.
Revenues for Health Care Services increased 5% in fiscal 1996 compared with
increases of 11% and 7%, respectively, in 1995 and 1994. The growth in fiscal
1996 was dampened by the loss of a high-volume customer at the beginning of the
fiscal year. All customer segments (retail and institutional) recorded revenue
increases, with significant contributions from the Valu-Rite and proprietary
generic drug programs. Revenue growth accelerated in the fourth quarter of
fiscal 1996, increasing 9% compared with the fourth quarter of fiscal 1995.
The practice in the Health Care Services distribution business is to pass on
to customers price changes from suppliers. In each of fiscal 1996, 1995 and
1994, prices declined on many generic pharmaceutical products sold by the Health
Care Services business. These price declines were offset, in part, by moderate
inflation on other product lines, which resulted in almost no net price
increases in such fiscal years.
Water Products revenues increased 5% in fiscal 1996 to $259.3 million and 2%
to $246.0 million in fiscal 1995. The increases in both years resulted from
higher packaged water sales to the grocery trade and moderate growth in the
direct-delivery business, mitigated by a decrease in sales of vended water.
Corporate revenues in fiscal 1996 increased to $37.7 million from $15.0
million in fiscal 1995, primarily due to increased interest income from higher
cash and short-term investment balances as a result of the full year benefit
from the PCS Transaction proceeds.
OPERATING PROFIT
Health Care Services operating profit before unusual items rose 12% to
$206.1 million in fiscal 1996. Operating profit for Health Care Services in
fiscal 1995 included charges of $107.3 million for unusual items. The U.S.
distribution business experienced intense competition in fiscal 1996 which
caused a decline in selling margins. This decline was offset by product
management efforts under the Company's proprietary generic pharmaceutical
program and other inventory management programs, as well as operating expense
efficiencies. Fiscal 1996 operating profits also included the start-up and
research and development costs of strategic initiatives. These costs were
offset by a pre-tax gain of $11.2 million on the sale of the Company's
interest in a Central American pharmaceutical manufacturer for $36.1 million.
The operating profit for fiscal 1995 reflects lower operating expenses due to
workforce reductions and ongoing consolidation of facilities and
administrative services and moderate increases in international operations.
The Company uses the last-in, first-out (LIFO) method of accounting for
inventories which results in cost of sales that more closely reflect replacement
cost than other accounting methods, thereby mitigating the effects of inflation
and deflation on operating profit. As previously discussed, price declines on
many generic pharmaceutical products in the Health Care Services segment in each
of the fiscal years ended March 31, 1996, 1995 and 1994 moderated the effects of
inflation in other product categories, which resulted in minimal overall cost
changes in those fiscal years.
8
FINANCIAL REVIEW--(CONTINUED)
Water Products operating profit before unusual items increased 25% to $39.6
million in fiscal 1996 due to moderate sales growth and lower overall
operating costs, due in part to ongoing programs to improve customer service
which have reduced customer turnover expenses and increased productivity.
Fiscal 1995 operating profit, excluding unusual items of $17.3 million,
declined 14% due to expenses in the grocery products division related to the
introduction of new products, promotional activities and increased packaging
raw materials costs and competitive pressures in the vended water division.
Corporate expenses in fiscal 1995 and 1994 included charges of $74.3 million
and $13.4 million respectively, for unusual items. Adjusting for such unusual
items, Corporate expenses were $35.5 million, $38.4 million and $36.6 million in
fiscal 1996, 1995, 1994, respectively.
The following table identifies the operating margin (income before interest
expense and taxes on income as a percent of revenues) components for the past
three years.
Computed based on total revenues:
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1996 1995 1994
---- ---- ----
Gross profit margin/(1)/........................ 9.2% 8.6%/(2)/ 9.2%
Operating expenses.............................. 6.8 8.7/(2)/ 7.4/(3)/
--- ---- ---
Operating margin (deficit)...................... 2.4% (0.1)%/(2)/ 1.8%/(3)/
=== ==== ===
--------
(1) Revenues less cost of sales.
(2) Excluding fiscal 1995 unusual items, the gross profit margin is 8.9%,
operating expenses are 6.9% and the operating margin is 2.0%.
(3) Excluding fiscal 1994 unusual items, operating expenses are 7.2% and the
operating margin is 2.0%.
9
FINANCIAL REVIEW--(CONTINUED)
Operating margin excluding unusual items, increased to 2.4% in fiscal 1996
from 2.0% in fiscal 1995 due to successful cost control efforts at Health Care
Services and Water Products.
The following table summarizes operating profit as a percentage of revenues
by segment:
· Download Table
AS A PERCENT OF REVENUES
------------------------------
1996 1995 1994
------- ------- -------
Health Care Services........................ 2.1% 0.8%/(1)/ 2.0%
Water Products.............................. 15.3 5.9/(2)/ 15.4
--------
(1) Excluding fiscal 1995 unusual items, the percentage is 2.0%.
(2) Excluding fiscal 1995 unusual items, the percentage is 12.9%.
Operating profit for Health Care Services increased moderately from fiscal
1995 excluding unusual items due to operating expense improvements and product
management efforts which offset declines in selling margins.
INTERNATIONAL OPERATIONS
International operations accounted for 16% of fiscal 1996 consolidated
operating profits and 7% of consolidated assets at March 31, 1996. Fiscal 1995
international operations were 12% of consolidated operating profits excluding
unusual items and 7% of consolidated assets at March 31, 1995. International
operations are subject to certain opportunities and risks, including currency
fluctuations. The Company monitors its operations and adopts strategies
responsive to changes in the economic and political environment in each of the
countries in which it operates.
WORKING CAPITAL
The following table shows working capital at March 31 of each year as a
percentage of revenues for the fiscal year. Working capital for the purposes of
this presentation excludes cash, cash equivalents, marketable securities and
interest-bearing obligations.
· Download Table
MARCH 31 WORKING CAPITAL
AS A PERCENT OF REVENUES
------------------------------
1996 1995 1994
-------- -------- --------
Health Care Services.......................... 5.6% 4.6% 4.5%
Total Company............................... 4.0 2.6 3.7
The decrease in the 1995 total company working capital ratio is primarily due
to approximately $120 million of accrued liabilities at March 31, 1995 related
to the PCS Transaction. Excluding such items, the March 31, 1995 total company
working capital ratio would have been 3.9%. The increase in fiscal 1996 is
primarily due to an increased investment in inventories of $239.6 million to
obtain favorable purchase terms on certain items from vendors and to support
the increasing sales growth in Health Care Services. The increase in payables
associated with higher inventory levels partially mitigated the effect of the
higher inventory investment.
10
FINANCIAL REVIEW--(CONTINUED)
CASH FLOW AND LIQUIDITY
Cash and cash equivalents and marketable securities (primarily U.S. Treasury
securities with maturities of two years or less) were $456 million, $670
million and $63 million at March 31, 1996, 1995 and 1994, respectively. The
increase in fiscal 1995 reflects the proceeds received by the Company from the
PCS Transaction.
Cash Flow from Operations for Capital Expenditures and Dividends
The following table summarizes the excess (deficit) of cash flow from
operations over capital expenditures and dividends:
· Download Table
YEARS ENDED MARCH 31
----------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
Net cash provided (used) by continuing operations
Income (loss) after taxes from continuing
operations........................................ $ 121 $ (150) $ 69
Depreciation....................................... 57 52 48
Amortization of intangibles........................ 7 7 7
Gain on sale of subsidiary......................... (11) -- --
Other noncash charges.............................. 49 190 24
Working capital changes............................ (212) 57 (132)
------ ------ ------
Total............................................. 11 156 16
Capital expenditures................................ (74) (76) (68)
------ ------ ------
Excess (deficit).................................. (63) 80 (52)
Net cash provided (used) by discontinued operations. (7) 43 65
Dividends paid...................................... (44) (70) (77)
------ ------ ------
Net excess (deficit).............................. $ (114) $ 53 $ (64)
====== ====== ======
Cash flow from continuing operations reflects the cash earnings of the
Company's continuing businesses and the effects of the changes in working
capital. Working capital in fiscal 1996 was impacted by the $136 million
increase in inventories net of related payables and the payment in fiscal 1996
of PCS Transaction liabilities. The cash used for working capital changes in
fiscal 1994 primarily reflects a management decision to increase inventories
early in that year.
Capital expenditures for the fiscal years ended March 31, 1996, 1995 and 1994
for the Health Care Services segment were $44 million, $44 million and $34
million, respectively, and for the Water Products segment were $25 million, $26
million and $29 million, respectively.
The decrease in dividends paid during fiscal 1996 reflects the conversion
during 1995 of preferred stock in connection with the PCS Transaction
(converting the associated dividend requirements to the lower common stock
dividend) and the change in the annual common stock dividend from $1.68 per
share to $1.00 per share following the PCS Transaction.
11
FINANCIAL REVIEW--(CONTINUED)
Other Financing Activities
During fiscal 1996, the Company repurchased 1.35 million of its common shares
for $63 million as part of a 3.5 million share repurchase program authorized in
May 1995. On May 31, 1996, the Company announced the authorization for the
repurchase of an additional 3.5 million common shares and that substantially
all of the shares in the initial authorization had been repurchased.
The reductions in long-term debt in fiscal 1996 and 1995 reflect scheduled
debt repayments and an advanced ESOP debt payment in 1995.
In fiscal 1996, the Company made a $20 million acquisition in the Health Care
Services segment. The acquired company provides support services to commercial,
non-profit and governmental organizations engaged in drug and biomedical
development. The Company also acquired interests in two companies engaged in
the development of new technology based initiatives for $13.3 million to
enhance Health Care Services' competitive position. In April 1996, the Company
acquired another company in the Health Care Services segment for approximately
$65 million. The newly acquired company designs, manufactures, installs and
supports automated pharmaceutical dispensing equipment for use by health care
institutions.
The Company has $250 million of available credit under domestic committed
revolving credit lines. As a result of the Company's investment grade credit
rating (S&P A+; Moody's A2), management believes the Company has access to
additional private credit sources and to public capital markets at favorable
terms. Funds necessary for future debt maturities and other cash requirements
of the Company are expected to be met by existing cash balances, cash flow from
operations, existing credit sources and other available debt capacity.
CAPITALIZATION
The Company's capitalization was as follows:
· Download Table
MARCH 31
----------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
Short-term borrowings................................ $ 7 $ 22 $ 57
Term debt............................................ 284 290 295
Exchangeable debt.................................... 180 180 180
------ ------ ------
Total debt......................................... 471 492 532
Stockholders' equity................................. 1,065 1,014 679
------ ------ ------
Total capitalization............................... $1,536 $1,506 $1,211
====== ====== ======
Debt-to-capital ratio at March 31.................... 30.7% 32.7% 43.9%
Average interest rate during year
Total debt......................................... 6.6% 6.5% 6.0%
Short-term borrowings.............................. 7.3 6.2 3.7
Other debt......................................... 6.4 6.5 7.6
The decreases in the debt-to-capital ratios in fiscal 1996 and 1995 resulted
primarily from the increase in stockholders' equity from the PCS Transaction,
scheduled debt reductions, repayments of short-term borrowings and an advanced
ESOP debt payment in 1995.
Average fully-diluted shares were 46.7 million in fiscal 1996, 45.5 million
in fiscal 1995 and 44.1 million in fiscal 1994. Common shares outstanding
increased to 44.8 million at March 31, 1996 from 44.4 million at March 31, 1995
primarily due to shares issued upon exercise of employee stock options in
excess of the 1.35 million shares repurchased during the year.
12
FINANCIAL REVIEW--(CONTINUED)
CAPITAL EMPLOYED
Capital employed (net assets) by segment was:
· Download Table
MARCH 31
---------------------------
1996 1995 1994
------ ------ ------
(IN MILLIONS)
Health Care Services....................... $1,149 $ 898 $ 887
Water Products............................. 110 110 123
------ ------ ------
Total Operations......................... 1,259 1,008 1,010
Corporate
Cash, cash equivalents and marketable
securities............................... 456 670 63
Discontinued operations................... 126 88 354
Other..................................... (305) (260) (216)
------ ------ ------
Total Capital Employed................... $1,536 $1,506 $1,211
====== ====== ======
Return on Average Capital Employed
Health Care Services/(1)/................. 19.8% 7.7%/(2)/ 19.8%
Water Products/(1)/....................... 34.7 11.8/(2)/ 31.0
Total Consolidated Operations/(3)/....... 15.1 (0.7)/(4)/ 13.8/(4)/
Return on Average Stockholders' Equity..... 13.0% 50.0%/(5)/ 21.9%
--------
(1) Operating profit divided by average capital employed.
(2) Excluding fiscal 1995 unusual items from operating profit, Health Care
Services is 18.5% and Water Products is 25.9%.
(3) Income from continuing operations before taxes and interest expense divided
by average capital employed.
(4) Excluding fiscal 1995 and 1994 unusual items, consolidated return is 13.8%
and 15.0% in fiscal 1995 and 1994, respectively.
(5) Net income includes $576.7 million gain on sale of PCS.
The increase in capital employed in Health Care Services in fiscal 1996
reflects the increased investment spending for retail and institutional
strategic initiatives and the additional inventory investment. The increase in
capital employed in fiscal 1995 resulted from the cash received from the PCS
Transaction, net of fiscal 1995 reserves for restructuring, asset impairments
and other operating items.
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 environmental statutes primarily involving sites associated with the
operation of the Company's former chemical distribution businesses. Increases
(decreases) to reserves for these environmental matters, primarily recorded
within discontinued operations, amounted
13
FINANCIAL REVIEW--(CONCLUDED)
to ($1.5) million, $3.4 million and $8.7 million in fiscal 1996, 1995 and 1994,
respectively. The increase in fiscal 1995 primarily resulted from a governmental
directive to do additional remedial work at a former operating site in Syracuse,
New York. The increase in fiscal 1994 was primarily required as a result of
adverse technical developments at former operating sites in Santa Fe Springs and
Union City, California, offset in part by a positive soil remedy selection at
the Syracuse site. Management does not believe that changes in the remediation
cost estimates in future periods, or the ultimate resolution of the Company's
environmental matters, will have a material impact on the Company's consolidated
financial position. See "Legal Proceedings."
INCOME TAXES
The tax rate on income from continuing operations (excluding fiscal 1995 and
1994 unusual items) was 39%, 40% and 39% in fiscal 1996, 1995 and 1994,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 "Significant Accounting Policies" on pages 22 and 23 of the
accompanying financial statements.
14
ITEM 8. Financial Statements and Supplementary Data
Index to Financial Statements and Financial Statement Schedule
--------------------------------------------------------------
Page
----
Consolidated Financial Statements:
Independent Auditors' Report....................................... 16
Statements of Consolidated Income for the years ended
March 31, 1996, 1995 and 1994................................ 17
Consolidated Balance Sheets, March 31, 1996, 1995, and 1994........ 18
Statements of Consolidated Stockholders' Equity for the years
ended March 31, 1996, 1995 and 1994.......................... 19
Statements of Consolidated Cash Flows for the years ended
March 31, 1996, 1995, and 1994............................... 21
Financial Notes.................................................... 22
Supplementary Financial Schedule:
Independent Auditors' Report on Supplementary Financial Schedule... 43
Schedule II--Consolidated Valuation and Qualifying Accounts........ 44
Financial statements and schedules not included herein have been omitted
because of the absence of conditions under which they are required or because
the required information, where material, is shown in the financial statements,
financial notes or supplementary financial information.
15
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, 1996, 1995, and 1994, and the
related statements of consolidated income, consolidated stockholders' equity and
consolidated cash flows for the years then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements 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, 1996, 1995, and 1994, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 14 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 No. 112.
DELOITTE & TOUCHE LLP
San Francisco, California
May 13, 1996 (December 31, 1996 as to Notes 8 and 17)
16
MCKESSON CORPORATION
STATEMENTS OF CONSOLIDATED INCOME
· Download Table
YEARS ENDED MARCH 31
----------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
REVENUES (Note 1).................... $ 9,953.7 $ 9,438.7 $ 8,520.8
------------ ------------ ------------
COSTS AND EXPENSES (Note 3)
Cost of sales........................ 9,038.2 8,630.5 7,737.2
Selling.............................. 114.0 116.5 107.7
Distribution......................... 327.4 316.4 319.3
Administrative....................... 232.8 384.3 203.0
Interest............................. 44.4 44.5 39.3
------------ ------------ ------------
Total............................ 9,756.8 9,492.2 8,406.5
------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES ON INCOME. 196.9 (53.5) 114.3
Income taxes (Note 13)............... 76.2 96.6 45.0
------------ ------------ ------------
INCOME (LOSS) AFTER TAXES
Continuing operations................ 120.7 (150.1) 69.3
Discontinued operations (Notes 2,
8 and 17)........................... 14.7 (23.1) 55.1
Discontinued operations--(Notes 2,
8 and 17)
Gain on sale/donation of Armor All
stock............................. -- 1.0 32.7
Gain on sale of PCS................ -- 576.7 --
Extraordinary item--debt
extinguishment (Note 9)............. -- -- (4.2)
Cumulative effect of accounting
change (Note 14).................... -- -- (16.7)
------------ ------------ ------------
NET INCOME........................... $ 135.4 $ 404.5 $ 136.2
============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE
Fully diluted
Continuing operations.............. $ 2.59 $ (3.34) $ 1.49
Discontinued operations............ .31 (.51) 1.25
Discontinued operations--
Gain on sale/donation of Armor All
stock............................ -- .02 .74
Gain on sale of PCS............... -- 12.69 --
Extraordinary item................. -- -- (.10)
Cumulative effect of accounting
change............................ -- -- (.38)
------------ ------------ ------------
Total............................ $ 2.90 $ 8.86 $ 3.00
============ ============ ============
Primary
Continuing operations.............. $ 2.59 $ (3.52) $ 1.53
Discontinued operations............ .31 (.53) 1.35
Discontinued operations--
Gain on sale/donation of Armor All
stock............................ -- .02 .80
Gain on sale of PCS............... -- 13.23 --
Extraordinary item................. -- -- (.10)
Cumulative effect of accounting
change............................ -- -- (.41)
------------ ------------ ------------
Total............................ $ 2.90 $ 9.20 $ 3.17
============ ============ ============
SHARES ON WHICH EARNINGS (LOSS)
PER COMMON SHARE WERE BASED
Fully diluted........................ 46.7 45.5 44.1
Primary.............................. 46.6 43.6 40.8
See Financial Notes.
17
MCKESSON CORPORATION
CONSOLIDATED BALANCE SHEETS
· Download Table
MARCH 31
----------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
ASSETS
Cash and cash equivalents........................ $ 260.8 $ 363.1 $ 62.7
Marketable securities available for sale (Note
1).............................................. 195.4 307.3 --
Receivables (Note 6)............................. 672.8 651.7 625.1
Inventories (Note 7)............................. 1,317.0 1,081.9 900.5
Prepaid expenses (Note 13)....................... 17.0 60.2 39.6
-------- -------- --------
Total current assets........................... 2,463.0 2,464.2 1,627.9
-------- -------- --------
Land............................................. 38.0 39.9 38.8
Buildings........................................ 205.8 199.9 198.8
Machinery and equipment.......................... 469.9 433.5 431.7
-------- -------- --------
Total property, plant and equipment............ 713.7 673.3 669.3
Accumulated depreciation......................... (357.7) (331.7) (323.6)
-------- -------- --------
Net property, plant and equipment.............. 356.0 341.6 345.7
Goodwill and other intangibles................... 183.7 172.4 180.0
Net assets of discontinued operations
(Notes 8 and 17)............................... 125.7 88.2 353.9
Other assets (Notes 13 and 14)................... 231.8 193.8 169.1
-------- -------- --------
Total assets................................... $3,360.2 $3,260.2 $2,676.6
======== ======== ========
LIABILITIES
Drafts payable................................... $ 194.0 $ 160.1 $ 188.1
Accounts payable--trade.......................... 1,149.2 1,069.7 873.4
Short-term borrowings............................ 6.6 21.7 57.2
Current portion of long-term debt (Note 9)....... 27.9 17.4 18.2
Salaries and wages............................... 26.3 33.5 30.5
Taxes............................................ 92.2 138.9 24.0
Interest and dividends........................... 19.0 19.3 27.1
Other............................................ 127.3 124.6 108.0
-------- -------- --------
Total current liabilities...................... 1,642.5 1,585.2 1,326.5
-------- -------- --------
Postretirement obligations and other noncurrent
liabilities (Note 14)........................... 216.6 208.5 214.8
-------- -------- --------
Long-term debt (Note 9).......................... 436.5 453.0 456.7
-------- -------- --------
STOCKHOLDERS' EQUITY
Preferred stocks................................. -- -- 125.3
Common stock..................................... 0.4 0.4 89.2
Additional paid-in capital....................... 332.0 319.8 174.4
Other capital.................................... (36.2) (4.1) (9.5)
Retained earnings................................ 968.9 875.9 610.3
Accumulated translation adjustment............... (49.7) (51.6) (22.3)
ESOP notes and guarantee (Note 12)............... (122.5) (126.4) (165.1)
Treasury shares, at cost......................... (28.3) (0.5) (123.7)
-------- -------- --------
Stockholders' equity (Notes 9 and 12).......... 1,064.6 1,013.5 678.6
-------- -------- --------
Total liabilities and stockholders' equity..... $3,360.2 $3,260.2 $2,676.6
======== ======== ========
See Financial Notes.
18
MCKESSON CORPORATION
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(SHARES IN THOUSANDS, DOLLARS IN MILLIONS)
· Enlarge/Download Table
PREFERRED STOCKS COMMON STOCK
----------------- --------------
(100,000 Shares Authorized) (200,000 Shares Authorized)
SHARES AMOUNT SHARES AMOUNT
-------- -------- ------ ------
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 payments..........................
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, 1994.................... 2,883 125.3 44,583 89.2
Issuance of shares under employee plans
(Note 12).................................. 538 0.1
Purchase of shares (Note 12)................ (2,883) (125.3) (733) (1.5)
Change in par value of common stock from
$2.00 to $.01 per share (Note 12).......... (87.4)
ESOP note payments..........................
Distribution of net assets of PCS...........
Other.......................................
Translation adjustment......................
Unrealized gain on marketable securities....
Net income..................................
Cash dividends declared
Preferred stock (Series A, $.90 per
share)...................................
Preferred stock (Series B ESOP, $1.8098
per share)...............................
Common, $1.34 per share...................
------- -------- ------ ------
BALANCES, MARCH 31, 1995.................... -- -- 44,388 0.4
Issuance of shares under employee plans
(Note 12).................................. 1,062
Purchase of shares (Note 12)................
ESOP note payments..........................
Other (Note 14).............................
Translation adjustment......................
Unrealized gain on marketable securities....
Net income..................................
Cash dividends declared
Common, $1.00 per share...................
------- -------- ------ ------
BALANCES, MARCH 31, 1996.................... -- $ -- 45,450 $ 0.4
======= ======== ====== ======
See Financial Notes.
19
· Enlarge/Download Table
TREASURY
------------------
ADDITIONAL ACCUMULATED ESOP STOCK-
PAID-IN OTHER RETAINED TRANSLATION NOTES AND COMMON HOLDERS'
CAPITAL CAPITAL EARNINGS ADJUSTMENT GUARANTEE SHARES AMOUNT EQUITY
---------- ------- --------- ----------- --------- ------ ------- --------
$180.7 $ (8.3) $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
(1.9) (1.2) 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)
------ ------ ------ ------ ------- ------ ------- --------
174.4 (9.5) 610.3 (22.3) (165.1) (3,978) (123.7) 678.6
11.1 1.4 118 4.5 17.1
5.1 3,846 118.7 (3.0)
87.4 --
26.9 38.7 65.6
(80.1) (80.1)
14.9 2.1 2.7 19.7
(29.3) (29.3)
1.9 1.9
404.5 404.5
(0.1) (0.1)
(4.9) (4.9)
(56.5) (56.5)
------ ------ ------ ------ ------- ------ ------- --------
319.8 (4.1) 875.9 (51.6) (126.4) (14) (0.5) 1,013.5
(10.6) (4.0) 761 34.9 20.3
(1,349) (62.7) (62.7)
3.9 3.9
22.8 (27.3) 2.3 (2.2)
1.9 1.9
(0.8) (0.8)
135.4 135.4
(44.7) (44.7)
------ ------ ------ ------ ------- ------ ------- --------
$332.0 $(36.2) $968.9 $(49.7) $(122.5) (602) $ (28.3) $1,064.6
====== ====== ====== ====== ======= ====== ======= ========
20
MCKESSON CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
· Download Table
YEARS ENDED MARCH 31
-------------------------
1996 1995 1994
------- ------- -------
(IN MILLIONS)
OPERATING ACTIVITIES
Income (loss) after taxes from continuing
operations......................................... $ 120.7 $(150.1) $ 69.3
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation....................................... 57.2 51.9 47.6
Amortization of intangibles........................ 7.0 7.2 6.9
Provision for bad debts............................ 13.7 49.0 8.9
Deferred taxes on income........................... 42.9 (80.4) 18.0
Gain on sale of subsidiary......................... (11.2) -- --
Other noncash (Note 3)............................. (7.4) 220.9 (2.5)
------- ------- -------
Total........................................... 222.9 98.5 148.2
------- ------- -------
Effects of changes in
Receivables....................................... -- (76.1) (41.4)
Inventories....................................... (239.6) (213.7) (134.3)
Accounts and drafts payable....................... 103.9 167.2 75.1
Taxes............................................. (13.1) 115.3 (7.8)
Other............................................. (62.9) 64.5 (23.3)
------- ------- -------
Total........................................... (211.7) 57.2 (131.7)
------- ------- -------
NET CASH PROVIDED BY CONTINUING OPERATIONS...... 11.2 155.7 16.5
Discontinued operations (Notes 2 and 8)............. (7.4) 43.4 64.9
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES....... 3.8 199.1 81.4
------- ------- -------
INVESTING ACTIVITIES
Purchases of marketable securities.................. (130.6) (324.0) --
Maturities of marketable securities................. 244.8 19.9 --
Property acquisitions............................... (73.6) (76.4) (68.1)
Properties sold..................................... 6.7 4.3 6.9
Proceeds from sale of subsidiaries (Notes 2 and 4).. 36.1 568.5 --
Acquisitions of businesses, less cash and short-term
investments acquired (Note 4)...................... (33.5) (0.7) (56.1)
Proceeds from sale of subsidiary stock.............. -- -- 78.7
Investing activities of discontinued operations..... (4.4) (24.5) (82.7)
Other (Note 14)..................................... (49.5) (2.9) (1.8)
------- ------- -------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES..................................... (4.0) 164.2 (123.1)
------- ------- -------
FINANCING ACTIVITIES (Notes 9 and 12)
Proceeds from issuance of debt...................... 0.6 29.8 204.0
Repayment of debt................................... (19.1) (50.9) (104.1)
Capital stock transactions
Issuances.......................................... 19.2 13.5 21.7
Share repurchases.................................. (62.7) (3.1) (31.5)
ESOP note payments................................. 3.9 13.6 11.9
Dividends paid..................................... (44.2) (69.9) (76.5)
Financing activities of discontinued operations..... 0.2 4.1 1.3
------- ------- -------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES..................................... (102.1) (62.9) 26.8
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ (102.3) 300.4 (14.9)
Cash and Cash Equivalents at beginning of year...... 363.1 62.7 77.6
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR............ $ 260.8 $ 363.1 $ 62.7
======= ======= =======
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.
21
FINANCIAL NOTES
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of McKesson Corporation (the "Company"
or "McKesson") include the financial statements of all majority-owned companies,
except those classified as discontinued operations. All significant
intercorporate amounts have been eliminated. Certain prior year amounts have
been restated to conform to the current year presentation.
Within the United States and Canada, McKesson is the largest wholesale
distributor of ethical and proprietary drugs and health and beauty care
products. The Company is also engaged in the processing and sale of bottled
drinking water to homes and businesses and packaged water through retail stores.
The principal markets for the drug and health and beauty care distribution
businesses are chain and independent drug stores, hospitals, alternate care
sites, food stores and mass merchandisers.
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents include all highly liquid debt instruments
purchased with a maturity of three months or less at the date of acquisition.
Marketable Securities Available for Sale are carried at fair value and the
net unrealized gains and losses computed in marking these securities to market
have been reported within stockholders' equity. At March 31, 1996, the fair
value exceeded the amortized cost of these securities by $1.1 million. The
investments mature on various dates through fiscal 1998.
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.
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 $1.0
million that are capitalized and amortized on a straight-line basis over
periods not exceeding seven years.
Goodwill and Other Intangibles are amortized on a straight-line basis
over periods estimated to be benefited, generally 25 to 40 years. Accumulated
amortization balances netted against goodwill and other intangibles were $54.8
million, $47.8 million and $40.4 million at March 31, 1996, 1995 and 1994,
respectively. The Company periodically assesses the recoverability of the cost
of its goodwill based on a review of projected undiscounted cash flows of the
related operating entities. These cash flows are prepared and reviewed by
management in connection with the Company's annual long range planning process.
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FINANCIAL NOTES--(CONTINUED)
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'
compensati