10-QPeriod: Q3 FY2011

MCKESSON CORP Quarterly Report for Q3 Ended Dec 31, 2010

Filed February 1, 2011For Securities:MCK

Summary

McKesson Corporation reported its third-quarter and nine-month results for the period ending December 31, 2010. For the third quarter, revenues remained stable year-over-year at $28.2 billion, while net income saw a significant decrease of 52% to $155 million, leading to diluted EPS of $0.60. This decline was largely impacted by a substantial $189 million pre-tax charge related to Average Wholesale Price (AWP) litigation, increased acquisition costs for the US Oncology acquisition, and a decrease in demand due to the H1N1 flu virus. For the nine-month period, revenues increased by 1% to $83.2 billion, but net income decreased by 15% to $780 million, with diluted EPS at $2.96. The nine-month results were also affected by AWP litigation charges and an asset impairment charge on capitalized software, though partially offset by a gain from the sale of a subsidiary and an antitrust settlement. The company completed the significant acquisition of US Oncology for approximately $2.1 billion, which expands its specialty pharmaceutical distribution business and adds practice management services.

Financial Highlights

48 data points
Beta

Revenue

$28.25B

5.2% Gross Margin

Net Income

$155.00M

0.5% Net Margin

EPS (Diluted)

$0.60

Total Assets

$30.40B

Cash & Equivalents

$3.21B

Free Cash Flow

$490.00M

Financial Statements
Beta
Revenue$28.25B
Cost of Revenue$26.79B
Gross Profit$1.46B
Operating Expenses$1.15B
Operating Income$307.00M
Net Income$155.00M
EPS (Basic)$0.61
EPS (Diluted)$0.60
Shares Outstanding (Basic)254.00M
Shares Outstanding (Diluted)258.00M

Key Highlights

  • 1Revenues for the third quarter ended December 31, 2010, remained stable at $28.2 billion compared to the prior year quarter.
  • 2Net income for the third quarter decreased by 52% to $155 million, resulting in diluted EPS of $0.60, significantly impacted by a $189 million AWP litigation charge.
  • 3The company completed a major acquisition of US Oncology for approximately $2.1 billion, expanding its oncology services and practice management offerings.
  • 4For the nine months ended December 31, 2010, revenues increased 1% to $83.2 billion, while net income decreased 15% to $780 million ($2.96 diluted EPS).
  • 5Operating expenses increased substantially in the quarter due to the AWP litigation charge and acquisition costs related to US Oncology.
  • 6The Distribution Solutions segment, which represents the majority of revenue, saw a decrease in operating profit margin, primarily due to litigation charges and a decline in demand related to H1N1.
  • 7McKesson declared a quarterly dividend of $0.18 per common share, an increase from the previous year's $0.12.

Frequently Asked Questions

The primary driver for the significant decrease in net income for the third quarter was a pre-tax charge of $189 million related to Average Wholesale Price (AWP) litigation. Additionally, acquisition costs for the US Oncology purchase and a decline in demand due to the H1N1 flu virus contributed to the lower net income.

McKesson acquired US Oncology Holdings, Inc. on December 30, 2010, for approximately $2.1 billion. This acquisition was funded by $0.2 billion in cash and the assumption of $1.9 billion in liabilities. US Oncology operates as an integrated oncology company, and its acquisition is expected to expand McKesson's specialty pharmaceutical distribution business and add practice management services for oncologists.

For the third quarter ended December 31, 2010, McKesson's total revenues remained stable at $28.2 billion compared to the same period last year. For the first nine months of the fiscal year, revenues increased by 1% to $83.2 billion, primarily driven by market growth in the Distribution Solutions segment, partially offset by factors like the H1N1 flu virus and a shift in sales channels.

McKesson expects its available cash generated from operations, along with its existing liquidity sources from its accounts receivable securitization facility and short-term borrowings, to be sufficient to fund its capital expenditures, working capital, and other cash requirements. The company also anticipates accessing long-term debt markets to discharge other liabilities as needed.