McKesson Reports Fiscal 2014 Fourth-Quarter and Full-Year Results

  McKesson Reports Fiscal 2014 Fourth-Quarter and Full-Year Results    *Revenues of $38.1 billion for the fourth quarter and $137.6 billion for     the full year.   *Fourth-quarter GAAP earnings per diluted share from continuing operations     of $1.56 and full-year GAAP earnings per diluted share from continuing     operations of $5.83.   *Fourth-quarter Adjusted Earnings per diluted share of $2.55 and full-year     Adjusted Earnings per diluted share of $8.35.   *Fiscal 2014 cash flow from operations of $3.1 billion.   *Fiscal 2015 Outlook: Adjusted Earnings per diluted share of $10.40 to     $10.80.  Business Wire  SAN FRANCISCO -- May 12, 2014  McKesson Corporation (NYSE:MCK) today reported that revenues for the fourth quarter ended March 31, 2014 were $38.1 billion, up 25% compared to $30.5 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), fourth-quarter earnings per diluted share from continuing operations was $1.56 compared to $1.11 a year ago.  For the fiscal year, McKesson had revenues of $137.6 billion compared to $122.1 billion a year ago. Full-year GAAP earnings per diluted share from continuing operations was $5.83 compared to $5.62 a year ago.  Fourth-quarter Adjusted Earnings per diluted share was $2.55, up 72% compared to $1.48 a year ago. Full-year Adjusted Earnings per diluted share was $8.35, up 31% compared to $6.38 for the prior year. The results of Celesio did not have a material impact on fourth-quarter or full-year adjusted earnings per share. McKesson’s share of Celesio’s net income for the two months ended March 31, ^ 2014 was offset by a charge to cost of sales associated with the reversal of a step-up to fair value of Celesio’s inventory at the date of acquisition.  “I am pleased with our fourth-quarter results led by solid execution across the Distribution Solutions and Technology Solutions segments,” said John H. Hammergren, chairman and chief executive officer. “For the full year, we had strong growth in adjusted earnings, up 31% from the prior year, and a record year for operating cash flow generated by the business. These results were driven primarily by outstanding performance in the Distribution Solutions segment and disciplined working capital management across the company. Additionally, during the fourth-quarter, we secured the acquisition of Celesio which marks an important step for McKesson as we expand to serve our customers and manufacturing partners with global scale.”  For the year, McKesson generated cash from operations of $3.1 billion, and ended the year with cash and cash equivalents of $4.2 billion. During the year, McKesson spent $4.6 billion on acquisitions, paid $214 million in dividends, and had internal capital spending of $415 million.  “The strength of our balance sheet and our ability to deliver excellent cash flow results reflect the health of our businesses, and during the fourth quarter we successfully funded the Celesio acquisition while maintaining our investment-grade rating,” Hammergren commented. “We have a strong track record of creating long-term value for shareholders through our portfolio approach to capital deployment and plan to continue that approach through a mix of acquisitions, share repurchases, dividends and internal investments.”  Segment Results  Distribution Solutions revenues were up 26% for the fourth quarter and up 13% for the full year compared to the prior year. North America pharmaceutical distribution and services revenues, which include results from U.S. Pharmaceutical, McKesson Canada and McKesson Specialty Health, were up 9% for the fourth quarter, primarily reflecting market growth and growth from existing customers. For the full year, North America pharmaceutical distribution and services revenues were up 7% compared to the prior year.  International pharmaceutical distribution and services revenues, which represent the results of Celesio for the two months ended March 31, 2014, were $4.8 billion for the fourth quarter and full year.  Medical-Surgical distribution and services revenues were up 28% for the fourth quarter and 57% for the full year driven by the acquisition of PSS World Medical (“PSS”) and market growth.  In the fourth quarter, Distribution Solutions GAAP operating profit was $605 million and GAAP operating margin was 1.62%. Fourth-quarter adjusted operating profit was $905 million and the adjusted operating margin was 2.42%. For the full year, GAAP operating profit was $2.5 billion and GAAP operating margin was 1.83%. For the full year, adjusted operating profit was $3.2 billion, up 30% from the prior year, and the adjusted operating margin was 2.39%, up 31 basis points year-over-year.  “Distribution Solutions had another outstanding year with strong performance across the segment. We continue to deliver tremendous value for our customers through the combination of our industry-leading service, our depth of experience in the healthcare supply chain and our global sourcing expertise,” said Hammergren. “Distribution Solutions also has a strong track record of delivering value through acquisitions. During the fourth quarter, we passed the one-year anniversary of the PSS acquisition and we continue to perform well against our original expectations. We are also excited about the opportunities we see for McKesson’s future as a global healthcare leader through our acquisition of Celesio.”  Technology Solutions products and services revenues were down 1% for the fourth quarter and up 5% for the full year. GAAP operating profit was $118 million for the fourth quarter and GAAP operating margin was 14.59%. Adjusted operating profit was $131 million for the fourth quarter and adjusted operating margin was 16.19%. For the full year, GAAP operating profit was $387 million and GAAP operating margin was 12.16%. For the full year, adjusted operating profit was $467 million, up 25% from the prior year, and the adjusted operating margin was 14.67%.  “Fourth-quarter Technology Solutions revenues were impacted by an anticipated year-over-year decline in our Horizon hospital software business. This revenue decline was partially offset by the solid growth we experienced in our connectivity and payer-focused businesses. Our Technology businesses remain focused on innovating for important customer priorities including solutions for value-based reimbursement, business intelligence and analytics, and healthcare data interoperability,” Hammergren said.  Fiscal Year 2014 Reconciliation of GAAP Results to Adjusted Earnings  Adjusted Earnings per diluted share of $8.35 for the fiscal year ended March 31, 2014 excludes the following GAAP items:    *Amortization of acquisition-related intangible assets of 85 cents per     diluted share.   *Acquisition expenses and related adjustments of 63 cents per diluted     share.   *Litigation reserve adjustments of 23 cents per diluted share.   *LIFO inventory-related adjustments of 81 cents per diluted share.  Fiscal Year 2015 Outlook  “Our Fiscal 2015 guidance reflects solid growth across our broad portfolio of businesses and McKesson’s share of the results of Celesio. McKesson expects Adjusted Earnings per diluted share between $10.40 and $10.80 for the fiscal year ending March 31, 2015,” Hammergren concluded.  Key Assumptions for Fiscal Year 2015 Outlook  The Fiscal 2015 outlook is based on the following key assumptions and is also subject to the Risk Factors outlined below:    *Distribution Solutions revenue growth will increase significantly driven     by the acquisition of Celesio.   *North America pharmaceutical distribution and services and     Medical-Surgical distribution and services will deliver mid-single digit     revenue growth in Fiscal 2015 compared to Fiscal 2014.   *Branded drug price trends in Fiscal 2015 are expected to be similar to     those we experienced in Fiscal 2014.   *We expect the contribution to profit from the launch of new oral generic     pharmaceuticals will increase year-over-year.   *Price trends on generic drugs outside an exclusivity period are expected     to be in the high single digits in Fiscal 2015, a decline from the price     trends experienced in Fiscal 2014.   *Technology Solutions revenue will decline modestly year-over-year driven     by the elimination of a low-margin product line and an expected revenue     decline in our Horizon hospital software business.   *The guidance range assumes a full-year adjusted tax rate of approximately     31.5%, which may vary from quarter to quarter.   *Property acquisitions and capitalized software expenditures should be     between $575 million and $625 million.   *We assume that our ownership position in Celesio will be approximately 76%     for Fiscal 2015.   *The guidance range assumes an exchange rate of$1.36per Euro.   *Weighted average diluted shares used in the calculation of earnings are     expected to be approximately 236 million for the year.   *Cash flow from operations is expected to be approximately $3 billion.   *Based on acquisitions closed as of March 31, 2014:         *We expect amortization of acquisition-related intangible assets of          approximately $1.31 per diluted share.        *We expect acquisition expenses and related adjustments of 54 cents          per diluted share.        *We expect LIFO inventory-related charges of 86 cents per diluted          share.    *The Fiscal 2015 guidance range does not include any potential litigation     reserve adjustments, or the impact of any potential new acquisitions,     divestitures, impairments or material restructurings.  Adjusted Earnings  McKesson separately reports financial results on the basis of Adjusted Earnings. Adjusted Earnings is a non-GAAP financial measure defined as GAAP income from continuing operations, excluding amortization of acquisition-related intangible assets, acquisition expenses and related adjustments, certain litigation reserve adjustments, and Last-In-First-Out (“LIFO”) inventory-related adjustments. A reconciliation of McKesson’s financial results determined in accordance with GAAP to Adjusted Earnings is provided in Schedules 2, 3 and 4 of the financial statement tables included with this release.  Risk Factors  Except for historical information contained in this press release, matters discussed may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These statements may be identified by their use of forward-looking terminology such as “believes”, “expects”, “anticipates”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates” or the negative of these words or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. It is not possible to predict or identify all such risks and uncertainties; however, the most significant of these risks and uncertainties are described in the company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: changes in the U.S. healthcare industry and regulatory environment; changes in the Canadian healthcare industry and regulatory environment; changes in the European regulatory environment with respect to privacy and data protection regulations; managing foreign expansion, including the related operating, economic, political and regulatory risks; the company’s ability to successfully identify, consummate, finance and integrate acquisitions; material adverse resolution of pending legal proceedings; exposure to European economic conditions, including recent austerity measures taken by certain European governments; competition; substantial defaults in payment or a material reduction in purchases by, or the loss of, a large customer or group purchasing organization; the loss of government contracts as a result of compliance or funding challenges; public health issues in the U.S. or abroad; malfunction, failure or breach of sophisticated internal information systems to perform as designed; the adequacy of insurance to cover property loss or liability claims; the company’s failure to attract and retain customers for its software products and solutions due to integration and implementation challenges, or due to an inability to keep pace with technological advances; the company’s proprietary products and services may not be adequately protected, and its products and solutions may be found to infringe on the rights of others; system errors or failure of our technology products and solutions to conform to specifications; disaster or other event causing interruption of customer access to data residing in our service centers; the delay or extension of our sales or implementation cycles for external software products; changes in circumstances that could impair our goodwill or intangible assets; new or revised tax legislation or challenges to our tax positions; general economic conditions, including changes in the financial markets that may affect the availability and cost of credit to the company, its customers or suppliers; changes in accounting principles generally accepted in the United States of America; and withdrawal from participation in multiemployer pension plans or if such plans are reported to have underfunded liabilities. The reader should not place undue reliance on forward-looking statements, which speak only as of the date they are first made. Except to the extent required by law, the company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.  The company has scheduled a conference call for 5:00 PM ET. The dial-in number for individuals wishing to participate on the call is 719-234-7317. Erin Lampert, senior vice president, Investor Relations, is the leader of the call, and the password to join the call is ‘McKesson’. A replay of this conference call will be available for five calendar days. The dial-in number for individuals wishing to listen to the replay is 888-203-1112 and the pass code is 3302075. A webcast of the conference call will also be available live and archived on the company’s Investor Relations website at http://investor.mckesson.com.  Shareholders are encouraged to review SEC filings and more information about McKesson, which are located on the company’s website.  About McKesson  McKesson Corporation, currently ranked 14th on the FORTUNE 500, is a healthcare services and information technology company dedicated to making the business of healthcare run better. We partner with payers, hospitals, physician offices, pharmacies, pharmaceutical companies and others across the spectrum of care to build healthier organizations that deliver better care to patients in every setting. McKesson helps its customers improve their financial, operational, and clinical performance with solutions that include pharmaceutical and medical-surgical supply management, healthcare information technology, and business and clinical services. For more information, visit http://www.mckesson.com.                                                                                    Schedule 1                                                                                                   McKESSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP (unaudited) (in millions, except per share amounts)                                                                                                                      Quarter Ended March 31,                  Year Ended March 31,                    2014          2013          Change       2014           2013           Change                                                                                                   Revenues           $ 38,141      $ 30,516      25     %     $ 137,609      $ 122,069      13     % Cost of sales       (35,601 )    (28,557 )   25            (129,300 )    (115,221 )   12 ^(1) Gross profit         2,540         1,959       30             8,309          6,848        21                                                                                                   Operating            (1,984  )     (1,302  )   52             (5,874   )     (4,532   )   30 expenses Litigation           -             (12     )   -              (68      )     (72      )   (6  ) charges ^(2) Gain on business            -           -          -             -            81          - combination ^(3) Total operating           (1,984  )    (1,314  )   51            (5,942   )    (4,523   )   31 expenses Operating            556           645         (14  )         2,367          2,325        2 income Other income,        25            6           317            32             34           (6  ) net Impairment of an equity            -             (191    )   -              -              (191     )   - investment ^ (4) Interest            (116    )    (70     )   66            (303     )     (240     )   26 expense Income from continuing operations           465          390         19            2,096         1,928        9 before income taxes Income tax          (103    )    (127    )   (19  )        (742     )    (581     )   28 expense ^(5) Income from continuing           362           263         38             1,354          1,347        1 operations Income (loss) from discontinued        4           (4      )   -             (96      )    (9       )   - operations, net of tax ^(6) Net income           366           259         41             1,258          1,338        (6  ) Net loss attributable to                  5           -          -             5            -           - noncontrolling interests ^(7) Net income attributable       $ 371        $ 259        43           $ 1,263       $ 1,338       (6  ) to McKesson Corporation                                                                                                                                                                                                     Earnings (loss) per common share attributable to McKesson Corporation ^(8) Diluted Continuing         $ 1.56        $ 1.11        41     %     $ 5.83         $ 5.62         4      % operations Discontinued        0.02        (0.01   )   -             (0.42    )    (0.03    )   - operations Total              $ 1.58       $ 1.10       44           $ 5.41        $ 5.59        (3  )                                                                                                   Basic Continuing         $ 1.59        $ 1.13        41     %     $ 5.93         $ 5.74         3      % operations Discontinued        0.02        (0.01   )   -             (0.42    )    (0.03    )   - operations Total              $ 1.61       $ 1.12       44           $ 5.51        $ 5.71        (4  )                                                                                                   Weighted average common shares Diluted              235           237         (1   ) %       233            239          (3  )  % Basic                230           231         -              229            235          (3  )                                                                                                           Cost of sales for the fourth quarter and fiscal year 2014 includes        charges of $125 million and $311 million and, for the fourth quarter        and fiscal year 2013 includes charges of $8 million and $13 million, ^(1)  which were recorded in our Distribution Solutions segment related to        our last-in-first-out ("LIFO") method of accounting for inventories.        Cost of sales for the 2014 fourth quarter also includes a $50 million        charge associated with the reversal of a step-up to fair value of        Celesio AG's ("Celesio") inventory at the date of acquisition.         ^(2)   Represent charges for the Average Wholesale Price ("AWP") litigation.                Fiscal year 2013 operating expenses include an $81 million pre-tax ($51 ^(3)   million after-tax) gain on business combination related to the        acquisition of the remaining 50% ownership interest in our corporate        headquarters building.                Represents $191 million pre tax ($139 million after tax) impairment ^(4)   charge related to equity investment in Nadro S.A. de C.V. ("Nadro"), a        pharmaceutical distributor in Mexico.         ^(5)   Income tax expense for fiscal year 2014 includes a charge of $122        million relating to our litigation with the Canadian Revenue Agency.                Represents our International Technology and Hospital Automation        businesses in our Technology Solutions segment and certain small        businesses in our Distribution Solutions segment. The amounts are fully ^(6)   attributable to McKesson Corporation. For fiscal year 2014, loss from        discontinued operations, net, includes an $80 million pre-tax and        after-tax impairment charge related to our International Technology        business.                Primarily represents the noncontrolling shareholders' portion of net ^(7)   loss from Celesio, our majority owned subsidiary, acquired in the        fourth quarter of fiscal year 2014.         ^(8)   Certain computations may reflect rounding adjustments.                                                                                                                      Schedule 2A                                                                                                                                   McKESSON CORPORATION RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP) (unaudited) (in millions, except per share amounts)                                                                                                                                                                                                                                            Change                    Quarter Ended March 31, 2014                                                          Vs. Prior Quarter                                        Amortization   Acquisition                    As           of             Expenses      Litigation    LIFO-Related   Adjusted       As           Adjusted                    Reported    Acquisition-  and          Reserve      Adjustments   Earnings       Reported   Earnings                       (GAAP)       Related        Related       Adjustments                  (Non-GAAP)     (GAAP)       (Non-GAAP)                                 Intangibles    Adjustments                                                                                                                                   Revenues           $ 38,141     $   -          $  -          $  -          $   -          $ 38,141       25       %   25         %                                                                                                                                   Gross profit       $ 2,540      $   (4    )    $  -          $  -          $   125        $ 2,661        30           35 ^(1) Operating            (1,984 )       112           89            -              -            (1,783 )     51           50 expenses Other income,        25             -             1             -              -            26           317          333 net Interest            (116   )     -          36         -           -         (80    )     66           33 expense Income from continuing operations           465            108           126           -              125          824          19           53 before income taxes Income tax          (103   )     (35   )     (36   )     -           (48   )    (222   )     (19   )      18 expense Income from continuing           362            73            90            -              77           602          38           72 operations after tax Loss (Income) from continuing operations, net of tax,         5           (7    )     (2    )     -           -         (4     )     -            - attributable to noncontrolling interests ^(2) Income from continuing operations, net of tax,        $ 367      $   66       $  88       $  -        $   77       $ 598         40           70 attributable to McKesson Corporation                                                                                                                                   Diluted earnings per common share from continuing operations,        $ 1.56     $   0.28     $  0.38     $  -        $   0.33     $ 2.55        41       %   72         % net of tax, attributable to McKesson Corporation ^ (3) Diluted weighted            235         235        235        -           235       235         (1    )  %   (1     )   % average common shares                                                                                                                                                                                                                                                                                        Quarter Ended March 31, 2013                                 Amortization   Acquisition                    As           of             Expenses      Litigation    LIFO-Related   Adjusted                    Reported    Acquisition-  and          Reserve      Adjustments   Earnings                    (GAAP)       Related        Related       Adjustments                  (Non-GAAP)                                 Intangibles    Adjustments                                                                                                                                   Revenues           $ 30,516    $   -          $  -          $  -          $   -          $ 30,516                                                                                                                                   Gross profit       $ 1,959     $   4          $  -         $  -          $   8          $ 1,971 Operating            (1,314 )       58            57            12             -            (1,187 ) expenses Other income,        6              -             -             -              -            6 net Impairment of an equity            (191   )       -             -             -              -            (191   ) investment ^(4) Interest            (70    )     -          10         -           -         (60    ) expense Income from continuing operations           390            62            67            12             8            539 before income taxes Income tax          (127   )     (21   )     (33   )     (4    )      (3    )    (188   ) expense Income from continuing           263            41            34            8              5            351 operations after tax Income from continuing operations, net of tax,         -           -          -          -           -         -       attributable to noncontrolling interests Income from continuing operations, net of tax,        $ 263      $   41       $  34       $  8        $   5        $ 351     attributable to McKesson Corporation                                                                                                                                   Diluted earnings per common share from continuing operations,        $ 1.11     $   0.17     $  0.14     $  0.04     $   0.02     $ 1.48    net of tax, attributable to McKesson Corporation ^(3) Diluted weighted            237         237        237        237         237       237     average common shares                                                                                                                                           For the fourth quarter of fiscal year 2014 gross profit includes a $50 ^(1)  million charge associated with the reversal of a step-up to fair value        of Celesio's inventory at the date of acquisition.                Primarily represents the noncontrolling shareholders' portion of loss ^(2)   from continuing operations from Celesio, our majority owned subsidiary,        acquired in the fourth quarter of fiscal year 2014.         ^(3)   Certain computations may reflect rounding adjustments.                Represents $191 million pre tax ($139 million after tax) impairment ^(4)   charge related to equity investment in Nadro, a pharmaceutical        distributor in Mexico.         Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.   Schedule 2B                                                                                                               McKESSON CORPORATION RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP) (unaudited) (in millions, except per share amounts)                                                                                                                                                                                                                                                Change                    Year Ended March 31, 2014                                                               Vs. Prior Period                                  Amortization   Acquisition                    As Reported   of             Expenses      Litigation    LIFO-Related   Adjusted        As           Adjusted                    (GAAP)       Acquisition-  and          Reserve      Adjustments   Earnings        Reported   Earnings                                     Related        Related       Adjustments                  (Non-GAAP)      (GAAP)       (Non-GAAP)                                  Intangibles    Adjustments                                                                                                                                     Revenues           $ 137,609     $   -          $  -          $  -          $   -          $ 137,609       13       %   13         %                                                                                                                                     Gross profit       $ 8,309       $   11         $  3          $  -          $   311        $ 8,634         21           26 ^(1) Operating            (5,942  )       308           155           68             -            (5,411  )     31           27 expenses Other income,        32              -             14            -              -            46            (6   )       35 net Interest            (303    )     -          46         -           -         (257    )     26           12 expense Income from continuing operations           2,096           319           218           68             311          3,012         9            35 before income taxes Income tax          (742    )     (114  )     (69    )    (15   )      (121  )    (1,061  )     28           53 expense ^(2) Income from continuing           1,354           205           149           53             190          1,951         1            28 operations after tax Loss (Income) from continuing operations, net of tax,         5            (7    )     (2     )    -           -         (4      )     -            - attributable to noncontrolling interests ^(3) Income from continuing operations, net of tax,        $ 1,359     $   198      $  147      $  53       $   190      $ 1,947        1            27 attributable to McKesson Corporation                                                                                                                                     Diluted earnings per common share from continuing operations,        $ 5.83      $   0.85     $  0.63     $  0.23     $   0.81     $ 8.35         4        %   31         % net of tax, attributable to McKesson Corporation ^(4) Diluted weighted            233          233        233        233         233       233          (3   )   %   (3    )    % average common shares                                                                                                                                                                                                                                                                                            Year Ended March 31, 2013                                  Amortization   Acquisition                    As Reported   of             Expenses      Litigation    LIFO-Related   Adjusted                    (GAAP)       Acquisition-  and          Reserve      Adjustments   Earnings                                  Related        Related       Adjustments                  (Non-GAAP)                                  Intangibles    Adjustments                                                                                                                                     Revenues           $ 122,069    $   -          $  -          $  -          $   -          $ 122,069                                                                                                                                     Gross profit       $ 6,848      $   13         $  -         $  -          $   13         $ 6,874 Operating            (4,523  )       196           (10    )      72             -            (4,265  ) expenses ^(5) Other income,        34              -             -             -              -            34 net Impairment of an equity            (191    )       -             -             -              -            (191    ) investment ^(6) Interest            (240    )     -          11         -           -         (229    ) expense Income from continuing operations           1,928           209           1             72             13           2,223 before income taxes Income tax          (581    )     (76   )     (6     )    (27   )      (5    )    (695    ) expense Income from continuing           1,347           133           (5     )      45             8            1,528 operations after tax Income from continuing operations, net of tax,         -            -          -          -           -         -        attributable to noncontrolling interests Income from continuing operations, net of tax,        $ 1,347     $   133      $  (5     )  $  45       $   8        $ 1,528    attributable to McKesson Corporation                                                                                                                                     Diluted earnings per common share from continuing operations,        $ 5.62      $   0.56     $  (0.02  )  $  0.19     $   0.03     $ 6.38     net of tax, attributable to McKesson Corporation ^(4) Diluted weighted            239          239        239        239         239       239      average common shares                                                                                                                                             Fiscal year 2014 gross profit includes a $50 million charge associated ^(1)  with the reversal of a step-up to fair value of Celesio's inventory at        the date of acquisition.         ^(2)   Income tax expense includes a charge of $122 million for fiscal year        2014 relating to our litigation with the Canadian Revenue Agency.                Primarily represents the noncontrolling shareholders' portion of loss ^(3)   from continuing operations from Celesio, our majority owned subsidiary,        acquired in the fourth quarter of fiscal year 2014.         ^(4)   Certain computations may reflect rounding adjustments.                For fiscal year 2013 operating expenses, as reported under GAAP, ^(5)   include an $81 million pre-tax ($51 million after-tax) gain on business        combination related to the acquisition of the remaining 50% ownership        interest in our corporate headquarters building.                Represents $191 million pre tax ($139 million after tax) impairment ^(6)   charge related to equity investment in Nadro, a pharmaceutical        distributor in Mexico.         Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.   Schedule 3A                                                                                                                     McKESSON CORPORATION RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) (unaudited) (in millions)                                                                                                                                                                                                                                                                                                    Quarter Ended March 31, 2014                Quarter Ended March 31, 2013                Change                      As                           Adjusted       As                           Adjusted       As            Adjusted                      Reported    Adjustments   Earnings       Reported    Adjustments   Earnings       Reported      Earnings                      (GAAP)                       (Non-GAAP)     (GAAP)                       (Non-GAAP)     (GAAP)        (Non-GAAP) REVENUES Distribution Solutions North America pharmaceutical       $ 31,122     $   -         $ 31,122         $ 28,638     $    -        $ 28,638         9        %    9          % distribution & services International pharmaceutical         4,848          -           4,848            -               -          -              -             - distribution & services Medical-Surgical distribution &        1,362       -        1,362          1,061        -        1,061         28            28 services Total Distribution          37,332      -        37,332         29,699       -        29,699        26            26 Solutions                                                                                                                                        Technology Solutions -           809         -        809            817          -        817           (1     )      (1     ) Products and Services Revenues             $ 38,141   $   -       $ 38,141        $ 30,516   $    -       $ 30,516        25            25                                                                                                                                        GROSS PROFIT Distribution         $ 2,125      $   125       $ 2,250          $ 1,594      $    8        $ 1,602          33            40 Solutions ^(1) Technology            415         (4   )    411            365          4        369           14            11 Solutions Gross profit         $ 2,540    $   121     $ 2,661         $ 1,959    $    12      $ 1,971         30            35                                                                                                                                        OPERATING EXPENSES Distribution         $ (1,536 )   $   175       $ (1,361  )      $ (856   )   $    92       $ (764    )      79            78 Solutions Technology             (299   )       17          (282    )        (332   )        17         (315    )      (10    )      (10    ) Solutions Corporate             (149   )     9        (140    )       (126   )      18       (108    )      18            30 Operating            $ (1,984 )  $   201     $ (1,783  )      $ (1,314 )  $    127     $ (1,187  )      51            50 expenses                                                                                                                                        OTHER INCOME, NET Distribution         $ 16         $   -         $ 16             $ 2          $    -        $ 2              700           700 Solutions Technology             2              -           2                1               -          1              100           100 Solutions Corporate             7           1        8              3            -        3             133           167 Other income,        $ 25       $   1       $ 26            $ 6        $    -       $ 6             317           333 net                                                                                                                                        IMPAIRMENT OF AN EQUITY INVESTMENT Distribution         $ -        $   -       $ -             $ (191   )  $    -       $ (191    )      -             - Solutions ^ (2) Impairment of an equity               $ -        $   -       $ -             $ (191   )  $    -       $ (191    )      -             - investment                                                                                                                                        OPERATING PROFIT Distribution         $ 605        $   300       $ 905            $ 549        $    100      $ 649            10            39 Solutions ^(1) Technology            118         13       131            34           21       55            247           138 Solutions Operating profit       723            313         1,036            583             121        704            24            47 Corporate              (142   )       10          (132    )        (123   )        18         (105    )      15            26 Interest Expense      (116   )     36       (80     )       (70    )      10       (60     )      66            33 Income from continuing operations           $ 465      $   359     $ 824           $ 390      $    149     $ 539           19            53 before income taxes ^(3)                                                                                                                                        STATISTICS Operating profit as a % of revenues Distribution           1.62     %                 2.42       %     1.85     %                 2.19       %   (23    ) bp   23         bp Solutions ^(1) Technology             14.59                      16.19            4.16                       6.73           1,043         946 Solutions                                                                                                                                                For the fourth quarters of fiscal years 2014 and 2013, results, as        reported under GAAP, include LIFO charges of $125 million and $8 ^(1)  million. The results of 2014 fourth quarter also includes a $50 million        charge associated with the reversal of a step-up to fair value of        Celesio's inventory at the date of acquisition.                Represents $191 million pre tax ($139 million after tax) impairment ^(2)   charge related to equity investment in Nadro, a pharmaceutical        distributor in Mexico.                For the fourth quarter of fiscal 2014, the amount is prior to ^(3)   attributing net loss of Celesio to the shareholders of noncontrolling        interests.         Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.   Schedule 3B                                                                                                        McKESSON CORPORATION RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) (unaudited) (in millions)                                                                                                                                                                                                                                                                                                Year Ended March 31, 2014                   Year Ended March 31, 2013                   Change                      As Reported                 Adjusted        As Reported                 Adjusted        As          Adjusted                      (GAAP)       Adjustments  Earnings        (GAAP)       Adjustments  Earnings        Reported    Earnings                                                  (Non-GAAP)                                  (Non-GAAP)      (GAAP)      (Non-GAAP) REVENUES Distribution Solutions North America pharmaceutical       $ 123,930     $    -        $ 123,930       $ 115,443     $   -         $ 115,443       7        %  7          % distribution & services International pharmaceutical         4,848            -          4,848           -               -           -             -           - distribution & services Medical-Surgical distribution &        5,648         -        5,648         3,603        -        3,603        57          57 services Total Distribution           134,426          -          134,426         119,046         -           119,046       13          13 Solutions                                                                                                                                      Technology Solutions -           3,183         -        3,183         3,023        -        3,023        5           5 Products and Services Revenues             $ 137,609   $    -       $ 137,609      $ 122,069   $   -       $ 122,069      13          13                                                                                                                                      GROSS PROFIT Distribution         $ 6,767       $    312      $ 7,079         $ 5,435       $   15        $ 5,450         25          30 Solutions ^(1) Technology            1,542         13       1,555         1,413        11       1,424        9           9 Solutions Gross profit         $ 8,309     $    325     $ 8,634        $ 6,848     $   26      $ 6,874        21          26                                                                                                                                      OPERATING EXPENSES Distribution         $ (4,335  )   $    442      $ (3,893  )     $ (3,068  )   $   265       $ (2,803  )     41          39 Solutions ^ (2) Technology             (1,156  )        67         (1,089  )       (1,109  )       56          (1,053  )     4           3 Solutions Corporate ^(3)        (451    )      22       (429    )      (346    )     (63  )    (409    )     30          5 Operating            $ (5,942  )  $    531     $ (5,411  )     $ (4,523  )  $   258     $ (4,265  )     31          27 expenses                                                                                                                                      OTHER INCOME, NET Distribution         $ 29          $    -        $ 29            $ 19          $   -         $ 19            53          53 Solutions Technology             1                -          1               4               -           4             (75   )     (75    ) Solutions Corporate             2             14       16            11           -        11           (82   )     45 Other income,        $ 32        $    14      $ 46           $ 34        $   -       $ 34           (6    )     35 net                                                                                                                                      IMPAIRMENT OF AN EQUITY INVESTMENT Distribution         $ -         $    -       $ -            $ (191    )  $   -       $ (191    )     -           - Solutions ^ (4) Impairment of an equity               $ -         $    -       $ -            $ (191    )  $   -       $ (191    )     -           - investment                                                                                                                                      OPERATING PROFIT Distribution Solutions ^(1)       $ 2,461       $    754      $ 3,215         $ 2,195       $   280       $ 2,475         12          30 (2) Technology            387           80       467           308          67       375          26          25 Solutions Operating profit       2,848            834        3,682           2,503           347         2,850         14          29 Corporate ^(3)         (449    )        36         (413    )       (335    )       (63  )      (398    )     34          4 Interest Expense      (303    )      46       (257    )      (240    )     11       (229    )     26          12 Income from continuing operations           $ 2,096     $    916     $ 3,012        $ 1,928     $   295     $ 2,223        9           35 before income taxes ^(5)                                                                                                                                      STATISTICS Operating profit as a % of revenues Distribution           1.83      %                 2.39      %     1.84      %                 2.08      %   (1    )  bp 31         bp Solutions Technology             12.16                       14.67           10.19                       12.40         197         227 Solutions                                                                                                                                              For fiscal years 2014 and 2013, results, as reported under GAAP,        include LIFO charges of $311 million and $13 million. The results of ^(1)  2014 fourth quarter also includes a $50 million charge associated with        the reversal of a step-up to fair value of Celesio's inventory at the        date of acquisition.                Results for fiscal years 2014 and 2013, as reported under GAAP, include ^(2)   AWP litigation charges of $68 million and $72 million. Results for        fiscal year 2013 include a $40 million charge for a legal dispute in        our Canadian business.                Fiscal year 2013 operating expenses, as reported under GAAP, include an ^(3)   $81 million pre-tax gain on business combination related to the        acquisition of the remaining 50% ownership interest in our corporate        headquarters building.                Represents $191 million pre tax ($139 million after tax) impairment ^(4)   charge related to equity investment in Nadro, a pharmaceutical        distributor in Mexico.                For the fourth quarter of fiscal 2014, the amount is prior to ^(5)   attributing net loss of Celesio to the shareholders of noncontrolling        interests.         Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.   Schedule 4A                                                                                                              McKESSON CORPORATION RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE (unaudited) (in millions)                                                                                                                                                                                                                                                                         Quarter Ended March 31, 2014                           Quarter Ended March 31, 2013                                                     Corporate                                              Corporate                         Distribution  Technology  &          Total          Distribution  Technology  &          Total                         Solutions      Solutions    Interest                   Solutions      Solutions    Interest                                                     Expense                                                Expense As Reported (GAAP): Revenues                $  37,332      $  809       $  -        $ 38,141       $  29,699      $  817       $  -        $ 30,516                                                                                                                         Gross profit ^(1)       $  2,125       $  415       $  -        $ 2,540        $  1,594       $  365       $  -        $ 1,959 Operating expenses         (1,536  )      (299  )      (149 )     (1,984 )        (856    )      (332  )      (126 )     (1,314 ) Other income, net          16             2            7          25              2              1            3          6 Impairment of an equity investment ^       -           -         -       -             (191    )    -         -       (191   ) (2) Income from continuing operations before          605            118          (142 )     581             549            34           (123 )     460 interest expense and income taxes Interest expense          -           -         (116 )   (116   )       -           -         (70  )   (70    ) Income from continuing              $  605       $  118     $  (258 )  $ 465         $  549       $  34      $  (193 )  $ 390     operations before income taxes ^(3)                                                                                                                                                                                                                                                 Pre-Tax Adjustments: Gross profit            $  -           $  (4    )   $  -        $ (4     )     $  -           $  4         $  -        $ 4 Operating expenses        94          17        1       112           43          14        1       58      Amortization of acquisition-related        94             13           1          108             43             18           1          62 intangibles                                                                                                                         Operating expenses         81             -            8          89              37             3            17         57 Other income, net          -              -            1          1               -              -            -          - Interest expense          (1      )    -         37      36            -           -         10      10      Acquisition expenses and               80             -            46         126             37             3            27         67 related adjustments                                                                                                                         Operating expenses - Litigation               -              -            -          -               12             -            -          12 reserve adjustments                                                                                                                         Gross profit - LIFO-related               125            -            -          125             8              -            -          8 adjustments                                                                                                            Total pre-tax           $  299       $  13      $  47     $ 359         $  100       $  21      $  28     $ 149     adjustments                                                                                                                                                                                                                                                 Adjusted Earnings (Non-GAAP): Revenues                $  37,332      $  809       $  -        $ 38,141       $  29,699      $  817       $  -        $ 30,516                                                                                                                         Gross profit            $  2,250       $  411       $  -        $ 2,661        $  1,602       $  369       $  -        $ 1,971 Operating expenses         (1,361  )      (282  )      (140 )     (1,783 )        (764    )      (315  )      (108 )     (1,187 ) Other income, net          16             2            8          26              2              1            3          6 Impairment of an equity investment ^       -           -         -       -             (191    )    -         -       (191   ) (2) Income from continuing operations before          905            131          (132 )     904             649            55           (105 )     599 interest expense and income taxes Interest expense          (1      )    -         (79  )   (80    )       -           -         (60  )   (60    ) Income from continuing              $  904       $  131     $  (211 )  $ 824         $  649       $  55      $  (165 )  $ 539     operations before income taxes ^(3)                                                                                                                                          Fiscal year 2014 gross profit includes a $50 million charge associated ^(1)  with the reversal of a step-up to fair value of Celesio's inventory at        the date of acquisition.                Represents $191 million pre tax ($139 million after tax) impairment ^(2)   charge related to equity investment in Nadro, a pharmaceutical        distributor in Mexico.                For the fourth quarter of fiscal 2014, the amount is prior to ^(3)   attributing net loss of Celesio to the shareholders of noncontrolling        interests.         Refer to the definitions related to Adjusted Earnings (Non-GAAP) financial information.   Schedule 4B                                                                                                               McKESSON CORPORATION RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE (unaudited) (in millions)                                                                                                                                                                                                                                                                           Year Ended March 31, 2014                               Year Ended March 31, 2013                                                     Corporate                                               Corporate                         Distribution  Technology  &          Total           Distribution  Technology  &          Total                         Solutions      Solutions    Interest                    Solutions      Solutions    Interest                                                     Expense                                                 Expense As Reported (GAAP): Revenues                $  134,426     $ 3,183      $  -        $ 137,609       $  119,046     $ 3,023      $  -        $ 122,069                                                                                                                          Gross profit ^(1)       $  6,767       $ 1,542      $  -        $ 8,309         $  5,435       $ 1,413      $  -        $ 6,848 Operating expenses         (4,335  )     (1,156 )      (451 )     (5,942  )        (3,068  )     (1,109 )      (346 )     (4,523  ) ^(2) Other income, net          29            1             2          32               19            4             11         34 Impairment of an equity investment ^       -          -          -       -              (191    )   -          -       (191    ) (3) Income from continuing operations before          2,461         387           (449 )     2,399            2,195         308           (335 )     2,168 interest expense and income taxes Interest expense          (1      )   -          (302 )   (303    )       -          -          (240 )   (240    ) Income from continuing              $  2,460     $ 387      $  (751 )  $ 2,096        $  2,195     $ 308      $  (575 )  $ 1,928    operations before income taxes ^(4)                                                                                                                                                                                                                                                   Pre-Tax Adjustments: Gross profit            $  1           $ 10         $  -        $ 11            $  2           $ 11         $  -        $ 13 Operating expenses        255        52         1       308            146        49         1       196      Amortization of acquisition-related        256           62            1          319              148           60            1          209 intangibles                                                                                                                          Gross profit               -             3             -          3                -             -             -          - Operating expenses         119           15            21         155              47            7             (64  )     (10     ) Other income, net          -             -             14         14               -             -             -          - Interest expense          -          -          46      46             -          -          11      11       Acquisition expenses and               119           18            81         218              47            7             (53  )     1 related adjustments                                                                                                                          Operating expenses - Litigation               68            -             -          68               72            -             -          72 reserve adjustments                                                                                                                          Gross profit - LIFO-related               311           -             -          311              13            -             -          13 adjustments                                                                                                             Total pre-tax           $  754       $ 80       $  82     $ 916          $  280       $ 67       $  (52  )  $ 295      adjustments                                                                                                                                                                                                                                                   Adjusted Earnings (Non-GAAP): Revenues                $  134,426     $ 3,183      $  -        $ 137,609       $  119,046     $ 3,023      $  -        $ 122,069                                                                                                                          Gross profit            $  7,079       $ 1,555      $  -        $ 8,634         $  5,450       $ 1,424      $  -        $ 6,874 Operating expenses         (3,893  )     (1,089 )      (429 )     (5,411  )        (2,803  )     (1,053 )      (409 )     (4,265  ) ^(2)                                                                                                                           *Story Other income, net          29            1             16         46               19            4             11         too                                                                                                                           large*  [TRUNCATED]