McKesson 2014 Annual Report Download

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Creating a Healthier Future
Annual Report
Fiscal Year Ended March 31, 2014

Table of contents

  • Page 1
    Creating a Healthier Future Annual Report Fiscal Year Ended March 31, 2014

  • Page 2
    ... to alternate care sites Generic pharmaceutical distribution Medical-management software and services to payers 31 % Increase ** in Adjusted EPS 3.1 Billion in 2014 Operating Cash Flow · 64 % Appreciation in Stock Price Added $16B to Market Capitalization **Increase from fiscal 2013 to...

  • Page 3
    ...same time, our technology businesses continued to make progress in repositioning themselves to address our customers' evolving needs. We realigned our technology portfolio to focus greater attention on emerging markets, including analytics, connectivity solutions, and tools and services that support...

  • Page 4
    ... reference to the closing price as of the last business day of the registrant's most recently completed second fiscal quarter, September 30, 2013, was approximately $29.4 billion. Number of shares of common stock outstanding on April 30, 2014: 230,576,753 DOCUMENTS INCORPORATED BY REFERENCE Portions...

  • Page 5
    ... on Accounting and Financial Disclosure ...9A...Controls and Procedures...9B...Other Information...PART III 10...Directors, Executive Officers and Corporate Governance...11...Executive Compensation...12...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...

  • Page 6
    ... clinical criteria solution, claims payment solutions and network performance tools. This segment also delivers enterprise-wide clinical, patient care, financial, supply chain, strategic management software solutions, as well as connectivity, outsourcing and other services, including remote hosting...

  • Page 7
    ...: This business supplies pharmaceuticals and/or other healthcare-related products to customers throughout the United States in three primary customer channels: (1) retail national accounts (including national and regional chains, food/drug combinations, mail order pharmacies and mass merchandisers...

  • Page 8
    McKESSON CORPORATION Institutional Healthcare Providers - Electronic ordering/purchasing and supply chain management systems that help customers improve financial performance, increase operational efficiencies and deliver better patient care. Solutions include: Fulfill-RxSM - Ordering and inventory ...

  • Page 9
    ... - delivering their products to retail pharmacies, hospitals, long-term care centers, clinics and institutions throughout Canada. Beyond pharmaceutical distribution, logistics and order fulfillment, McKesson Canada also provides automation solutions to its retail and hospital customers, dispensing...

  • Page 10
    ...Technology Solutions consists of the following businesses: McKesson Health Solutions, Connected Care and Analytics, Imaging and Workflow Solutions, Business Performance Services and Enterprise Information Solutions. In the first quarter of 2014, we committed to a plan to sell our Hospital Automation...

  • Page 11
    ...department and ambulatory EHR systems, and a Web-based physician portal. Revenue management solutions are designed to improve financial performance by reducing days in accounts receivable, preventing insurance claim denials, reducing costs and improving productivity. Solutions include online patient...

  • Page 12
    ... revenues. At March 31, 2014, trade accounts receivable from our ten largest customers were approximately 32% of total trade accounts receivable. Accounts receivable from CVS were approximately 12% of total trade accounts receivable. We also have agreements with group purchasing organizations...

  • Page 13
    ... included in Financial Notes 1 and 25, "Significant Accounting Policies" and "Segments of Business," to the consolidated financial statements appearing in this Annual Report on Form 10-K. Forward-Looking Statements This Annual Report to Stockholders, including the Chairman's 2014 letter, "Management...

  • Page 14
    ...'s or our pharmaceutical suppliers' pricing, selling, inventory, distribution or supply policies or practices could significantly reduce our revenues and net income. Due to the diverse range of healthcare supply management and healthcare information technology products and services that we offer...

  • Page 15
    ... generic drugs available for purchase by retail community pharmacies on a nationwide basis to a limit of not less than 175% of the weighted average (determined on the basis of utilization) of the most recently reported monthly average manufacturer price ("AMP") using a smoothing process. The Centers...

  • Page 16
    ... and/or mislabeled drugs into the pharmaceutical distribution system ("pedigree tracking"). In November 2013, Congress passed and the President signed into law the Drug Quality and Security Act ("DQSA"). The DQSA will establish federal standards requiring supply-chain stakeholders to participate...

  • Page 17
    ... compliance with the new rules may result in postponement or cancellation of our customers' decisions to purchase our software and systems. Medical Billing and Coding: Medical billing, coding and collection activities are governed by numerous federal and state civil and criminal laws. In connection...

  • Page 18
    ... adverse impact on our financial condition and results of operations. We have operations based in, and we source and contract manufacture pharmaceutical and medical-surgical products in, a number of foreign countries. The Company's acquisition of Celesio significantly increases the importance...

  • Page 19
    ... benefits of the Celesio acquisition could result in increased costs or decreases in the amount of expected revenues, and could adversely affect our future business, financial condition, operating results and prospects. Events outside of our control, including the market price of Celesio shares...

  • Page 20
    ...corporate register is complex and we do not expect to complete the steps required to exercise operating control of Celesio until late in the first half of our fiscal 2015. Until the domination and profit and loss agreement is registered and effective, Celesio will not be subject to direct management...

  • Page 21
    ... including other software services firms, consulting firms, shared service vendors, certain hospitals and hospital groups, payers, care management organizations, hardware vendors and internet-based companies with technology applicable to the healthcare industry. Competition varies in size from small...

  • Page 22
    ... of inventory items from numerous distribution centers; (2) receive, process and ship orders and handle other product and services on a timely basis; (3) manage the accurate billing and collections for thousands of customers; and (4) process payments to suppliers. In Europe, Celesio outsources its...

  • Page 23
    ... in our Technology Solutions segment, deliver and single entity clinical, patient care, financial, supply chain and strategic management software solutions to hospitals, physicians, homecare providers, retail and mail order pharmacies and payers. Challenges integrating software products could impair...

  • Page 24
    ... use or disclosure of confidential or proprietary information. We must maintain disaster recovery and business continuity plans that rely upon third-party providers of related services and if those vendors fail us at a time that our center is not operating correctly, we could incur a loss of revenue...

  • Page 25
    ... with the customer to completion of implementation. How and when to implement, replace, or expand an information system, or modify or add business processes, are major decisions for healthcare organizations. Many of the solutions we provide typically require significant capital expenditures and time...

  • Page 26
    ... able to pay, or may delay payment of accounts receivable owed to us and suppliers may restrict credit, impose different payment terms or be unable to make payments due to us for fees, returned products or incentives. Any inability of customers to pay us for our products and services or any demands...

  • Page 27
    ... a long-term basis. We consider our operating properties to be in satisfactory condition and adequate to meet our needs for the next several years without making capital expenditures materially higher than historical levels. Information as to material lease commitments is included in Financial Note...

  • Page 28
    ...October 2013; Senior Vice President and Chief Financial Officer, AMR Corporation and its principal subsidiary, American Airlines, Inc., from 2004 to 2006, Service with the Company - 7 months. Executive Vice President and Group President since June 2009; President of McKesson Specialty Care Solutions...

  • Page 29
    ..., Related Stockholder Matters and Issuer Purchases of Equity Securities. (a) Market Information: The principal market on which the Company's common stock is traded is the New York Stock Exchange ("NYSE"). The following table sets forth the high and low sales prices for our common stock as reported...

  • Page 30
    McKESSON CORPORATION (f) Stock Price Performance Graph*: The following graph compares the cumulative total stockholder return on the Company's common stock for the periods indicated with the Standard & Poor's 500 Index and the Value Line Healthcare Sector Index (composed of 154 companies in the ...

  • Page 31
    ...capital Days sales outstanding for: (3) Customer receivables Inventories Drafts and accounts payable Total assets Total debt, including capital lease obligations Total McKesson stockholders' equity Property acquisitions Acquisitions, net of cash and cash equivalents acquired Common Share Information...

  • Page 32
    ... business, financial condition and results of operations. We conduct our business through two operating segments: McKesson Distribution Solutions and McKesson Technology Solutions. See Financial Note 25, "Segments of Business," to the consolidated financial statements appearing in this Annual Report...

  • Page 33
    ... Operations Total Weighted Average Diluted Common Shares NM - not meaningful Revenues for 2014 increased from 2013 primarily due to market growth, reflecting growing drug utilization and price increases, our acquisitions of Celesio AG ("Celesio") and PSS World Medical, Inc. ("PSS World Medical...

  • Page 34
    ... 31, 2014 2013 2012 Change 2014 2013 Distribution Solutions North America pharmaceutical distribution & services International pharmaceutical distribution & services Medical-Surgical distribution & services Total Distribution Solutions Technology Solutions - products and services Total Revenues...

  • Page 35
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Distribution Solutions North America pharmaceutical distribution and services revenues increased in 2014 compared to 2013 primarily due to market growth, reflecting growing drug utilization and price increases, and our mix of business. These ...

  • Page 36
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Distribution Solutions Distribution Solutions segment's gross profit margin increased in 2014 compared to 2013 primarily due to our business acquisitions, growth in sales of higher margin generic drugs, and an increase in buy margin. Buy margin ...

  • Page 37
    ...our business acquisitions and higher employee compensation and benefit costs. Operating expenses in 2013 were also impacted by lower AWP charges and a $40 million charge for a legal dispute in our Canadian business. The Company has a reserve relating to AWP public entity claims, which is reviewed at...

  • Page 38
    ... directly related to acquisitions by the Company and gains and losses related to business combinations were $218 million, $1 million and $26 million in 2014, 2013 and 2012. Expenses for 2014 were primarily related to our acquisition of Celesio and integration of PSS World Medical. Expenses for 2013...

  • Page 39
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Acquisition expenses and related adjustments by segment were as follows: (In millions) Cost of Sales - Technology Solutions Operating Expenses Distribution Solutions Technology Solutions Corporate Total Corporate - Other Income, Net Corporate - ...

  • Page 40
    ... paid in connection with our acquisition of PSS World Medical. Interest expense fluctuates based on timing, amounts and interest rates of term debt that is repaid and new term debt issued, as well as amounts incurred for bridge loan fees. Refer to our discussion under the caption "Credit Resources...

  • Page 41
    ... other long-lived assets and as a result, there was no tax benefit associated with this portion of the charge. The ultimate selling price of our International Technology business may be higher or lower than our current assessment of fair value. In 2014, we sold our Hospital Automation business for...

  • Page 42
    ...to our April 2012 acquisition of the remaining 50% ownership interest in our corporate headquarters building located in San Francisco, California, on February 22, 2013, we acquired all of the outstanding shares of PSS World Medical for $29.00 per share plus the assumption of PSS World Medical's debt...

  • Page 43
    ... independent pharmacies in Canada. Financial results for the acquired Katz Assets have been included in the results of operations within our Canadian pharmaceutical distribution and services business, which is part of our Distribution Solutions segment, beginning in the first quarter of 2013. During...

  • Page 44
    ...purchase price using the first-in, first-out method ("FIFO"). Technology Solutions segment inventories consist of computer hardware with cost generally determined by the standard cost method, which approximates average cost. Rebates, cash discounts and other incentives received from vendors relating...

  • Page 45
    ...of time. Impairment testing is conducted at the reporting unit level, which is generally defined as a component - one level below our Distribution Solutions and Technology Solutions operating segments, for which discrete financial information is available and segment management regularly reviews the...

  • Page 46
    ..., the required rate of return used in the discounted cash flow method, which reflects capital market conditions and the specific risks associated with the business. Other estimates inherent in both the market and income approaches include long-term growth rates, projected revenues and earnings and...

  • Page 47
    ... at March 31, 2014 and 2013 and deferred tax liabilities of $4,133 million and $3,114 million. Deferred tax assets primarily consist of timing differences on our compensation and benefit related accruals and net operating loss and credit carryforwards. Deferred tax liabilities primarily consist of...

  • Page 48
    ... accounts payable primarily associated with longer payment terms for certain purchases, partially offset by an increase in receivables and higher inventories primarily associated with revenue growth. Net cash used in investing activities was $5,046 million in 2014 compared to $2,209 million in 2013...

  • Page 49
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Financing activities for 2013 included cash receipts of $1,325 million and cash paid of $1,725 million from short-term borrowings. In addition, in connection with our acquisition of PSS World Medical, we borrowed $900 million for bridge financing in...

  • Page 50
    ... and cash equivalents, receivables and inventories net of drafts and accounts payable, short-term borrowings, current portion of long-term debt, deferred revenue and other current liabilities. Our Distribution Solutions segment requires a substantial investment in working capital that is susceptible...

  • Page 51
    ...due on our fixed rate long-term debt obligations. A purchase obligation is defined as an arrangement to purchase goods or services that is enforceable and legally binding on the Company. These obligations primarily relate to inventory purchases, capital commitments and service agreements. Represents...

  • Page 52
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) In connection with our acquisition of PSS World Medical, in December 2012 we entered into a $2.1 billion unsecured Senior Bridge Term Loan Agreement ("2013 Bridge Loan"). In February 2013, we reduced the 2013 Bridge Loan commitment to $900 million. ...

  • Page 53
    ... 15, 2014 and our $500 million 5.25% Notes due March 1, 2013, at maturity. Scheduled future payments of long-term debt are $1,424 million in 2015, $1,535 million in 2016, $1,277 million in 2017, $520 million in 2018, $1,485 million in 2019 and $4,132 million thereafter. Accounts Receivable Sales...

  • Page 54
    ... our accounts receivable sales facility is included in Financial Notes 1 and 14, "Significant Accounting Policies" and "Debt and Financing Activities," to the consolidated financial statements appearing in this Annual Report on Form 10-K. RELATED PARTY BALANCES AND TRANSACTIONS Information regarding...

  • Page 55
    ... have recorded foreign revenues and earnings primarily from Canada, the United Kingdom, Ireland, other European countries and Israel, which exposed us to changes in foreign currency exchange rates. Our acquisition of a majority interest in Celesio in the fourth quarter of 2014 increased our exposure...

  • Page 56
    ...61 62 Management's Annual Report on Internal Control Over Financial Reporting...Report of Independent Registered Public Accounting Firm Consolidated Financial Statements: Consolidated Statements of Operations for the years ended March 31, 2014, 2013 and 2012 Consolidated Statements of Comprehensive...

  • Page 57
    ... acquisition. Celesio AG constituted 27% of the total assets and 4% of total revenues of the consolidated financial statements of the Company as of and for the fiscal year ended March 31, 2014. Based on this assessment, our management has concluded that our internal control over financial reporting...

  • Page 58
    ... Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Celesio AG, which was acquired on February 6, 2014. Celesio AG constituted 27% of the total assets and 4% of total revenues of the consolidated financial statements of the Company as...

  • Page 59
    ... financial position of McKesson Corporation and subsidiaries as of March 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three fiscal years in the period ended March 31, 2014, in conformity with accounting principles generally accepted in the United States...

  • Page 60
    ...34 (191) (240) 1,928 (581) 1,347 (9) 1,338 - 1,338 Revenues Cost of Sales Gross Profit Operating Expenses Selling, distribution and administrative expenses Research and development Litigation charges Gain on business combination Total Operating Expenses Operating Income Other Income, Net Impairment...

  • Page 61
    ... 31, 2014 2013 2012 Net Income Other Comprehensive Income (Loss), Net of Tax Foreign currency translation adjustments, net of income tax expense (benefit) of $24, ($2) and $2 Unrealized losses on cash flow hedges, net of income tax benefit of nil, nil and nil Retirement-related benefit plans, net...

  • Page 62
    ... accounts payable Short-term borrowings Deferred revenue Deferred tax liabilities Current portion of long-term debt Other accrued liabilities Total Current Liabilities Long-Term Debt Other Noncurrent Liabilities Other Commitments and Contingent Liabilities (Note 22) McKesson Corporation Stockholders...

  • Page 63
    ... STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended March 31, 2014, 2013 and 2012 (In millions, except per share amounts) McKesson Corporation Stockholders' Equity Common Stock Shares Balances, March 31, 2011 Issuance of shares under employee plans Share-based compensation Tax benefit related...

  • Page 64
    ...taxes Share-based compensation expense Gain on business combination Impairment of an equity investment Charges associated with last-in-first-out inventory method Other non-cash items Changes in operating assets and liabilities, net of acquisitions: Receivables Inventories Drafts and accounts payable...

  • Page 65
    ...) delivers pharmaceuticals, medical supplies and healthcare information technology that make healthcare safer while reducing costs. We conduct our business through two operating segments, McKesson Distribution Solutions and McKesson Technology Solutions, as further described in Financial Note 25...

  • Page 66
    ... trade receivables are subject to a concentration of credit risk with customers primarily in our Distribution Solutions segment. During 2014, sales to our ten largest customers accounted for approximately 48% of our total consolidated revenues. Sales to our largest customer, CVS Caremark Corporation...

  • Page 67
    ... testing is conducted at the reporting unit level, which is generally defined as a component - one level below our Distribution Solutions and Technology Solutions operating segments, for which discrete financial information is available and segment management regularly reviews the operating...

  • Page 68
    ...selling price nor TPE is available. Technology Solutions Revenues for our Technology Solutions segment are generated primarily by licensing software and software systems (consisting of software, hardware and maintenance support), and providing claims processing, outsourcing and professional services...

  • Page 69
    McKESSON CORPORATION FINANCIAL NOTES (Continued) We also offer certain products on an application service provider basis, making our software functionality available on a remote hosting basis from our data centers. The data centers provide system and administrative support, as well as hosting ...

  • Page 70
    ... retirement-related benefit plans. Noncontrolling Interests: Noncontrolling interests primarily represent the portion of Celesio's profit or loss, net assets and comprehensive income that is not allocable to McKesson Corporation. Share-Based Compensation: We account for all share-based compensation...

  • Page 71
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Business Combinations: We account for acquired businesses using the acquisition method of accounting, which requires that once control is obtained of a business, 100% of the assets acquired and liabilities assumed, including amounts attributed to ...

  • Page 72
    .... The Acquisition was funded by utilizing a senior bridge loan, our existing accounts receivable sales facility and cash on hand. Celesio is an international wholesale and retail company and a provider of logistics and services to the pharmaceutical and healthcare sectors. Celesio's headquarters is...

  • Page 73
    ... of trademarks. The estimated weighted average life of the customer relationships, pharmacy licenses, trademarks and total intangible assets are eleven years, twenty-six years, fourteen years and seventeen years. The fair value of Celesio's long-term debt was determined by quoted market prices in...

  • Page 74
    ... the issuance of long-term debt. PSS World Medical markets and distributes medical products and services throughout the United States. The acquisition of PSS World Medical expands our existing Medical-Surgical business. Included in the purchase price allocation are acquired identifiable intangibles...

  • Page 75
    ...in Canada. Financial results for the acquired Katz Assets have been included in the results of operations within our Canadian pharmaceutical distribution and services business, which is part of our Distribution Solutions segment, beginning in the first quarter of 2013. Included in the purchase price...

  • Page 76
    ... because the effects were not material to the consolidated financial statements on either an individual or an aggregate basis. 3. Discontinued Operations In 2014, we committed to a plan to sell our International Technology and our Hospital Automation businesses from our Technology Solutions segment...

  • Page 77
    ... long-lived assets and as a result, there was no tax benefit associated with this charge. The ultimate selling price of our International Technology business may be higher or lower than our current assessment of fair value. During the third quarter of 2014, we sold our Hospital Automation business...

  • Page 78
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Fiscal 2012 During the third quarter of 2012, we approved a plan to align our hospital clinical and revenue cycle healthcare software products within our Technology Solutions segment. As part of this alignment strategy, we began converging our core ...

  • Page 79
    ... stock plans provide our employees, officers and non-employee directors the opportunity to receive equity-based, long-term incentives in the form of stock options, restricted stock, RSUs, PeRSUs and other share-based awards. The 2013 Stock Plan reserves 30.0 million shares plus the remaining number...

  • Page 80
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Weighted-average assumptions used to estimate the fair value of employee stock options were as follows: 2014 22% 0.7% 0.7% 4 Years Ended March 31, 2013 27% 0.9% 0.8% 5 2012 27% 1.0% 2.1% 5 Expected stock price volatility Expected dividend yield Risk-...

  • Page 81
    ...Total compensation expense for RSUs under our stock plans is determined by the product of the number of shares that are expected to vest and the grant date market price of the Company's common stock. The Compensation Committee determines the vesting terms at the time of grant. These awards generally...

  • Page 82
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Employee Stock Purchase Plan ("ESPP") The Company has an ESPP under which 21 million shares have been authorized for issuance. The ESPP allows eligible employees to purchase shares of our common stock through payroll deductions. The deductions occur ...

  • Page 83
    ... tax benefit relating to our AWP litigation. The 2013 federal and state current income tax expense reflects the utilization of alternative minimum tax credit carryforwards. We have received reassessments from the Canada Revenue Agency ("CRA") for a total of $219 million related to a transfer pricing...

  • Page 84
    ...) (1,867) Assets Receivable allowances Deferred revenue Compensation and benefit related accruals Net operating loss and credit carryforwards Other Subtotal Less: valuation allowance Total assets Liabilities Inventory valuation and other assets Fixed assets and systems development costs Intangibles...

  • Page 85
    ... operations, net of tax Net income attributable to McKesson Weighted average common shares outstanding: Basic Effect of dilutive securities: Options to purchase common stock Restricted stock units Diluted Earnings (loss) per common share attributable to McKesson: (1) Diluted Continuing operations...

  • Page 86
    McKESSON CORPORATION FINANCIAL NOTES (Continued) 10. Receivables, Net March 31, (In millions) Customer accounts Other Total Allowances Net $ $ 2014 12,543 1,780 14,323 (130) 14,193 $ $ 2013 8,683 1,423 10,106 (131) 9,975 Other receivables primarily include amounts due from suppliers and ...

  • Page 87
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Information regarding intangible assets is as follows: March 31, 2014 Weighted Average Remaining Amortization Period (Years) March 31, 2013...Amount Customer lists Service agreements Pharmacy licenses Trademarks and trade names Technology Other Total ...

  • Page 88
    ... Offered Rate plus a margin based on the Company's credit rating. Interest expense for 2014 included a total of $46 million of fees related to the 2014 Bridge Loan and a bridge loan agreement entered into during the third quarter of 2014 in anticipation of an earlier acquisition of Celesio. 85

  • Page 89
    McKESSON CORPORATION FINANCIAL NOTES (Continued) In connection with our acquisition of PSS World Medical, in December 2012 we entered into a $2.1 billion unsecured Senior Bridge Term Loan Agreement ("2013 Bridge Loan"). In February 2013, we reduced the 2013 Bridge Loan commitment to $900 million. On...

  • Page 90
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Long-Term Debt In connection with the acquisition of Celesio, on March 5, 2014, we issued floating rate notes ("Floating Rate Notes") due September 10, 2015 in an aggregate principal amount of $400 million, 1.29% notes due March 10, 2017 in an ...

  • Page 91
    ..., which expires in September 2016. Prior to the Celesio acquisition, we amended this facility to increase the maximum debt to capital ratio from 56.5% to 65%, and added an extended cure period with respect to defaults under the credit facility relating to Celesio. Borrowings under this renewed...

  • Page 92
    ... United Kingdom, several Celesio subsidiaries participate in a joint pension plan. This plan is largely funded by contractual trust arrangements that hold Company assets that may only be used to pay pension obligations. The Trustee Board decides on the minimum contribution to the plan in association...

  • Page 93
    McKESSON CORPORATION FINANCIAL NOTES (Continued) The net periodic expense, which includes net pension expense for Celesio since the date of acquisition, for our pension plans is as follows: U.S. Plans Years Ended March 31, 2014 2013 2012 $ 4 19 (20) 32 - 35 $ 4 21 (20) 28 - 33 $ 4 24 (23) 24 - 29 $ ...

  • Page 94
    ... return on plan assets Employer and participant contributions Benefits paid Acquisitions Foreign exchange impact and other Fair value of plan assets at end of period Funded status at end of period Amounts recognized on the balance sheet Current liabilities Long-term liabilities Total (1) The benefit...

  • Page 95
    ... used to estimate the net periodic pension expense and the actuarial present value of benefit obligations were as follows: U.S. Plans Years Ended March 31, 2014 2013 2012 Net periodic pension expense Discount rates Rate of increase in compensation Expected long-term rate of return on plan assets...

  • Page 96
    ... quality corporate bonds rated AA or better whose maturities are aligned with the expected benefit payments of our plans. For March 31, 2014, our U.S. defined benefit liabilities are valued using a weighted average discount rate of 3.58%, which represents an increase of 18 basis points from our 2013...

  • Page 97
    ... securities - Corporate bonds - Mortgage-backed securities - Asset-backed securities and other - Fixed income commingled funds - Other: Real estate funds - Other commingled funds - Other - Total $ 27 (1) Receivables Total (In millions) (1) Represents pending trades at March 31, 2014. $ Total...

  • Page 98
    ... and preferred stock Equity commingled funds Fixed income securities: Government securities Corporate bonds Mortgage-backed securities Asset-backed securities and other Fixed income commingled funds Other: Real estate funds Total $ (1) Receivables Total (1) Level 1 $ - 20 20 Total $ 8 20 127...

  • Page 99
    ..., the investment return credited to this account is determined annually by the SPK based on the performance of long-term government bonds. The following table represents a reconciliation of Level 3 plan assets held during the years ended March 31, 2014 and 2013: U.S. Plans Real Estate Funds $ 12...

  • Page 100
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Contributions and amounts accrued for U.S. Plans were not material for the years ended March 31, 2014, 2013, and 2012. Celesio's contributions to the POA exceeding 5% of total plan contributions were $5 million since our acquisition of Celesio in ...

  • Page 101
    ... employee service. Expected contributions to be made for our postretirement welfare benefit plans are $11 million for 2015. Weighted-average discount rates used to estimate postretirement welfare benefit expenses were 3.84%, 4.44% and 5.09% for 2014, 2013 and 2012. Weighted-average discount rates...

  • Page 102
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Interest rate risk Celesio also has interest rate swaps to hedge the interest rate risk associated with Celesio's variable rate debt. Interest rate swaps are used to modify the market risk exposures in connection with the variable rate debt to achieve...

  • Page 103
    McKESSON CORPORATION FINANCIAL NOTES (Continued) 19. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The analysis of fair value is ...

  • Page 104
    ... for a reporting unit within our Technology Solutions segment. Both of these assets were measured using Level 3 inputs. Impairment of an Equity Investment: As discussed in Financial Note 5, "Impairment and Sale of an Equity Investment," during 2013 we committed to a plan to sell our investment in...

  • Page 105
    ... investment for building and equipment construction. Our software license agreements generally include certain provisions for indemnifying customers against liabilities if our software products infringe a third party's intellectual property rights. To date, we have not incurred any material costs...

  • Page 106
    ...costs, which are reflected in our estimates used for the percentage-of-completion method of accounting for software installation services within these contracts. In addition, most of our customers who purchase our software and automation products also purchase annual maintenance agreements. Revenues...

  • Page 107
    McKESSON CORPORATION FINANCIAL NOTES (Continued) I. Litigation and Claims On April 16, 2013, the Company's wholly-owned subsidiary, U.S. Oncology, Inc. ("USON"), was served with a third amended qui tam complaint filed in the United States District Court for the Eastern District of New York by two ...

  • Page 108
    ... the United States Department of Justice through the United States Attorney's Office for the Eastern District of Tennessee. The Company believes that the investigation is focused on billing and coding services performed by our Technology business. The Company is in the process of providing requested...

  • Page 109
    ... 2011 January 2012 Shares repurchased Balance, March 31, 2012 Share repurchase plans approved: April 2012 January 2013 Shares repurchased Balance, March 31, 2013 Shares repurchased Balance, March 31, 2014 (1) (2) (3) Total Number of Shares Purchased (2) (3) Average Price Paid Per Share 20 $ 83...

  • Page 110
    ... on cash flow hedges arising during period, net of income tax benefit of nil, nil and nil Changes in retirement-related benefit plans Net actuarial gain (loss) and prior service credit (cost) arising during period, net of income tax (benefit) of $16, ($22) and ($18) Amortization of actuarial loss...

  • Page 111
    ... clinical criteria solution, claims payment solutions and network performance tools. This segment also delivers enterprise-wide clinical, patient care, financial, supply chain, strategic management software solutions, as well as connectivity, outsourcing and other services, including remote hosting...

  • Page 112
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Financial information relating to our reportable operating segments and reconciliations to the consolidated totals is as follows: Years Ended March 31, 2013 2012 (In millions) Revenues Distribution Solutions (1) North America pharmaceutical ...

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    McKESSON CORPORATION FINANCIAL NOTES (Continued) Segment assets and property, plant and equipment, net by geographic areas were as follows: March 31, (In millions) Segment assets Distribution Solutions Technology Solutions Total Corporate Cash and cash equivalents Other Total Property, plant and ...

  • Page 114
    ... pre-tax charge to cost of sales within our Distribution Solutions segment representing the reversal of a step-up to fair value of Celesio's inventory at the date of acquisition. Our after-tax portion of this charge (after allocation to noncontrolling interests), was $28 million. Financial results...

  • Page 115
    ... Corporate segment. Financial results for the third quarter of 2013 include a $40 million pre-tax charge for a legal dispute in our Canadian business which was recorded in operating expenses within our Distribution Solutions segment. Financial results for the fourth quarter of 2013 include a pre-tax...

  • Page 116
    ... Disclosure Controls and Procedures Our Chief Executive Officer and our Chief Financial Officer, with the participation of other members of the Company's management, have evaluated the effectiveness of the Company's "disclosure controls and procedures" (as such term is defined in Exchange Act Rules...

  • Page 117
    ... Committee Report" and "Audit Committee Financial Expert" in our Proxy Statement. Information about the Code of Conduct applicable to all employees, officers and directors can be found on our website, www.mckesson.com, under the caption "Investors - Corporate Governance." The Company's Corporate...

  • Page 118
    ... Stock Plan as of the effective date of the 2013 Stock Plan, and (iii) the number of shares that become available for reuse under the 2005 Stock Plan following the effective date of the 2013 Stock Plan. For any one share of common stock issued in connection with an RS, RSU, PeRSU, performance share...

  • Page 119
    ... to the terms and conditions of their respective plans, but no new grants will be made under these terminated plans. Item 13. Certain Relationships and Related Transactions, and Director Independence. Information with respect to certain transactions with management is incorporated by reference...

  • Page 120
    McKESSON CORPORATION PART IV Item 15. Exhibits and Financial Statement Schedule. Page (a)(1) Consolidated Financial Statements ...Report of Deloitte & Touche, LLP, Independent Registered Public Accounting Firm Consolidated Statements of Operations for the years ended March 31, 2014, 2013 and 2012 ...

  • Page 121
    ... behalf by the undersigned, thereunto duly authorized. MCKESSON CORPORATION Date: May 13, 2014 /s/ James A. Beer James A. Beer Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 122
    McKESSON CORPORATION SCHEDULE II SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT SCHEDULE VALUATION AND QUALIFYING ACCOUNTS For the Years Ended March 31, 2014, 2013 and 2012 (In millions) Additions Balance at Beginning of Year Charged to Costs and Expenses Charged to Other Accounts (3) Deductions ...

  • Page 123
    ... by reference as exhibits hereto. Incorporated by Reference File Filing Date Number Exhibit 1-13252 1.1 March 10, 2014 Exhibit Description Number 1.1 Underwriting Agreement, dated as of March 5, 2014, by and among McKesson Corporation and Goldman Sachs & Co. and Merrill Lynch, Pierce, Fenner...

  • Page 124
    ...Exhibit Description Number 4.10 Officers' Certificate, dated as of March 10, 2014, and related Form of Floating Rate Note, Form of 2017 Note, Form of 2019 Note, Form of 2024 Note, and Form of 2044 Note. 10.1* McKesson Corporation 1997 Non-Employee Directors' Equity Compensation and Deferral Plan, as...

  • Page 125
    McKESSON CORPORATION Incorporated by Reference File Filing Date Number Exhibit 1-13252 10.2 August 2, 2013 1-13252 10.2 February 5, 2014 Exhibit Description Form Number 10.19* Form of Statement and Terms and conditions applicable to 8-K Awards Pursuant to the McKesson Corporation 2013 Stock Plan. ...

  • Page 126
    ...March 27, 2012 relinquishing certain rights provided in the Amended and Restated Employment Agreement by and between the Company and its Chairman, President and Chief Executive Officer. Letter dated February 27, 2014 relinquishing certain rights provided in the McKesson Corporation Executive Benefit...

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  • Page 128
    ... information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 13, 2014 /s/ John H. Hammergren John H. Hammergren Chairman of the Board, President and Chief...

  • Page 129
    ... information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 13, 2014 /s/ James A. Beer James A. Beer Executive Vice President and Chief Financial Officer

  • Page 130
    ...TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of McKesson Corporation (the "Company") on Form 10-K for the year ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and...

  • Page 131
    ... of acquired intangible assets purchased in connection with acquisitions by the Company. Acquisition expenses and related adjustments - Transaction and integration expenses that are directly related to acquisitions by the Company. Examples include transaction closing costs, professional service fees...

  • Page 132
    ... Strategy and Business Development Nicholas A. Loiacono Vice President and Treasurer Nigel A. Rees Vice President and Controller Willie C. Bogan Secretary Corporate Information Common Stock McKesson Corporation common stock is listed on the New York Stock Exchange (ticker symbol MCK) and is quoted...

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    McKesson Corporation One Post Street San Francisco, CA 94104 www.mckesson.com © 2014 McKesson Corporation. All rights reserved.