10-QPeriod: Q1 FY2003

MCKESSON CORP Quarterly Report for Q1 Ended Jun 30, 2002

Filed August 9, 2002For Securities:MCK

Summary

McKesson Corporation's Q1 FY2003 (ended June 30, 2002) report indicates robust revenue growth of 17%, driven primarily by its Pharmaceutical Solutions segment. Despite this top-line increase, the company faced various challenges including ongoing litigation stemming from the 1999 HBOC acquisition, restructuring charges impacting the Medical-Surgical segment, and a slight decrease in cash and equivalents. The company also made a significant acquisition of A.L.I. Technologies Inc. for approximately $350 million, expected to result in substantial goodwill. Operationally, the company saw improved inventory management and a reduction in cash used by operating activities compared to the prior year, though this was partially offset by a decrease in accounts payable. While profitability measures like net income and diluted EPS saw modest increases on a GAAP basis, pro forma figures excluding special charges show a more substantial growth of 39% in net income and 35% in diluted EPS. Investors should note the company's continued focus on restructuring and integration, as well as its ongoing legal battles, which still carry material uncertainty.

Key Highlights

  • 1Total revenues increased by 17% to $13.6 billion for the quarter ended June 30, 2002, compared to the prior year period.
  • 2Net income increased by 11% to $117.3 million, and diluted EPS rose by $0.03 to $0.39 on a U.S. GAAP basis.
  • 3Pro forma net income (excluding special charges) increased by 39% to $125.3 million, with diluted EPS up 35% to $0.42.
  • 4The company completed the acquisition of A.L.I. Technologies Inc. for approximately $350 million, expecting a substantial portion to be allocated to goodwill.
  • 5Restructuring charges were incurred, primarily in the Pharmaceutical Solutions and Medical-Surgical Solutions segments, impacting operating results.
  • 6Net cash used by operating activities decreased to $203.0 million from $394.4 million in the prior year's quarter, largely due to improved inventory management.
  • 7Ongoing legal proceedings related to the 1999 HBOC restatement continue, with no predictable outcome or estimable range of loss, posing a potential material adverse impact.

Frequently Asked Questions

McKesson reported a 17% increase in total revenues to $13.6 billion, driven by strong performance in its Pharmaceutical Solutions segment. On a U.S. GAAP basis, net income grew 11% to $117.3 million, and diluted EPS increased to $0.39. Pro forma figures, which exclude special charges, showed more significant growth, with net income up 39% and diluted EPS up 35%.

McKesson completed the acquisition of A.L.I. Technologies Inc. for approximately $350 million, a Canadian company providing medical imaging solutions. A joint venture, Verispan, L.L.C., was also formed with Quintiles Transnational Corporation, in which McKesson holds a 46% equity interest.

The company is still dealing with significant litigation arising from the 1999 HBOC accounting restatement, with no clear resolution or estimated financial impact. Additionally, restructuring activities, particularly within the Medical-Surgical Solutions segment, are ongoing and impacting operational costs. There is also a general mention of risks in the healthcare environment and the potential for changes in manufacturers' pricing or distribution policies.

McKesson's net cash used by operating activities decreased significantly due to improved inventory management. The company has access to credit resources, including revolving credit agreements and a receivables sale facility, and reported no short-term borrowings or borrowings under its revolving credit facilities at quarter-end. The debt-to-capital ratio was 25.0%.