McKesson 2015 Annual Report Download

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Expanding
Globally
For Better
Health
Annual Report
Fiscal Year Ended March 31, 2015

Table of contents

  • Page 1
    Expanding Globally For Better Health Annual Report Fiscal Year Ended March 31, 2015

  • Page 2
    ... hand in hand. Our supply chain and information technology solutions help healthcare businesses run better, improve patient care and integrate the care experience-all for better health. United by our strong company values, our global team of nearly 77,000 associates is working to create a healthier...

  • Page 3
    ...a major step in our strategy to expand the scale and strength of our global supply chain. In Fiscal 2014, we acquired Celesio, a German company that provides logistics and services to the pharmaceutical and healthcare sectors primarily in Europe. Like McKesson, Celesio has a long, successful history...

  • Page 4
    ... of PSS World Medical. In Fiscal 2015, our team did a tremendous amount of work to harmonize our distribution network, product portfolio and general operations. We are pleased to have successfully increased our market share while expanding the support we provide to our Medical-Surgical customers...

  • Page 5
    ... general counsel and chief compliance officer, and Bansi Nagji, executive vice president for corporate strategy and business development. Both of these talented executives bring tremendous experience and a history of accomplishment to their new roles. We also added three new directors in Fiscal 2015...

  • Page 6
    ... $45.0 billion. Number of shares of common stock outstanding on April 30, 2015: 231,553,531 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for its 2015 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

  • Page 7
    McKESSON CORPORATION TABLE OF CONTENTS Item Page PART I 1 Business 3 12 28 28 28 28 29 PART II 5 6 7 8 9 Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial ...

  • Page 8
    ...The Technology Solutions segment delivers enterprise-wide clinical, patient care, financial, supply chain and strategic management software solutions, as well as connectivity, outsourcing and other services, including remote hosting and managed services, to healthcare organizations. Net revenues for...

  • Page 9
    ..., McKesson Canada, and McKesson Pharmacy Systems and Automation. U.S. Pharmaceutical Distribution: 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...

  • Page 10
    ... purchasing scale and supplier relationships to provide pharmaceuticals at reduced prices, help increase inventory turns and reduce working capital investment. Inventory Management - An integrated solution comprising forecasting software and automated replenishment technologies that reduce inventory...

  • Page 11
    ... brands. FrontEdgeâ„¢ - Strategic planning, merchandising and price maintenance program that helps independent pharmacies maximize store profitability. McKesson Sponsored Clinical Services (SCS) Network - Access to patient-support services that allow pharmacists to earn service fees and develop...

  • Page 12
    ... to a plan to sell our Brazilian pharmaceutical distribution business, which we acquired through our February 2014 acquisition of Celesio. Refer to Financial Note 4, "Discontinued Operations" to the consolidated financial statements appearing in this Annual Report on Form 10-K. Medical-Surgical...

  • Page 13
    ... of software and services to help healthcare organizations improve quality and patient safety, reduce the cost and variability of care and better manage their resources and revenue stream. The Technology Solutions segment markets its products and services to integrated delivery networks, hospitals...

  • Page 14
    ... and compliance services, revenue cycle services and strategic services. Enterprise Information Solutions: We provide comprehensive clinical and financial information systems for hospitals and health systems of all sizes. These systems are designed to improve the safety and quality of patient care...

  • Page 15
    ... 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 16
    ...is important to the long-term success of this business. Additional information regarding our development activities is included in Financial Note 1, "Significant Accounting Policies," to the consolidated financial statements appearing in this Annual Report on Form 10-K. Environmental Regulation: Our...

  • Page 17
    ... in the healthcare industry'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...

  • Page 18
    ... to protect us. The healthcare industry is highly regulated and further regulation of our distribution businesses and technology-related products and services could impose increased costs, negatively impact our profit margins, and the profit margins of our customers, delay the introduction or...

  • Page 19
    ... Medicare program payments for all healthcare providers became generally effective for services provided on or after April 1, 2013. This automatic reduction is known as "sequestration." Medicare generally reimburses physicians for Part B drugs at the rate of average sales price ("ASP") plus 6%. The...

  • Page 20
    ... of 2009, new laws and regulations in this area could further restrict our or our customers' ability to obtain, use or disseminate personal or patient information, or could require us to incur significant additional costs to re-design our products or systems in a timely manner, either of which could...

  • Page 21
    ... effect on the Company at this time. Interoperability and Meaningful Use Requirement: There is increasing demand among customers, industry groups and government authorities that healthcare software and systems provided by various vendors be compatible with each other. In 2013, in order to address...

  • Page 22
    ... not be processed, and health plans not accepting transactions using Version 5010 and ICD-10 may experience significant increases in customer service inquiries. We may incur increased development costs and delays in delivering solutions and upgrading our software and systems to be in compliance with...

  • Page 23
    ... timelines for pharmaceuticals and may cause our customers to purchase fewer of our products and services and reduce the prices they are willing to pay. Countries with existing healthcare-related austerity measures may impose additional laws, regulations, or requirements on the healthcare industry...

  • Page 24
    ... the credit markets. If we are unable to successfully complete and integrate strategic acquisitions in a timely manner, our business and our growth strategies could be negatively affected. On February 6, 2014, we completed the acquisition of 77.6% of the then outstanding common shares of Celesio and...

  • Page 25
    McKESSON CORPORATION integration of the two companies upon the effectiveness of the domination and profit and loss transfer agreement (the "Domination Agreement"). Achieving the anticipated benefits of our acquisition of Celesio is subject to a number of risks and uncertainties, including foreign ...

  • Page 26
    ... 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 27
    ... default in payment, change in our customer mix, reduction in purchases, or the loss of a large customer or GPO could have a material adverse impact on our financial position and results of operations. We generally sell our products and services to customers on credit that is short-term in nature...

  • Page 28
    ... 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...

  • Page 29
    ... our Technology Solutions segment, deliver enterprise-wide 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...

  • Page 30
    ..., our Technology Solutions segment's systems are intended to provide information to healthcare professionals in the course of delivering patient care. Therefore, users of our software and technology services have a greater sensitivity to errors than the general market for software products. If...

  • Page 31
    ..., significant changes in the use of the assets, significant negative industry, or economic trends or a significant decline in the Company's stock price and/or market capitalization for a sustained period of time. In addition, we periodically review our intangible assets for impairment when events or...

  • Page 32
    ... from tighter capital and credit markets or a slowdown in the general economy. As a result, customers may modify, delay or cancel plans to purchase or implement our products or services and suppliers may increase their prices, reduce their output or change their terms of sale. Additionally, if...

  • Page 33
    ...without making capital expenditures materially higher than historical levels. Information as to material lease commitments is included in Financial Note 21, "Lease Obligations," to the consolidated financial statements appearing in this Annual Report on Form 10-K. Item 3. Legal Proceedings. Certain...

  • Page 34
    ...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 - 1 year, 7 months. Executive Vice President and Group President since June 2009; President of McKesson Specialty Care Solutions...

  • Page 35
    ...Company's future earnings, financial condition, capital requirements and other factors. (d) Securities Authorized for Issuance under Equity Compensation Plans: Information relating to this item is provided under Part III, Item 12, to this Annual Report on Form 10-K. (e) Share Repurchase Plans: Stock...

  • Page 36
    ... in 2016. The S&P 500 Health Care Index was selected as a comparator because it is generally available to investors and broadly used by other companies in our same industry. $400 $350 D O L L A R S $300 $250 $200 $150 $100 $50 $0 2010 2011 2012 2013 2014 2015 McKesson Corporation S&P 500...

  • Page 37
    ...Working capital Days sales outstanding for: (2) Customer receivables Inventories Drafts and accounts payable Total assets Total debt, including capital lease obligations Total McKesson stockholders' equity (3) Property acquisitions Acquisitions, net of cash and cash equivalents acquired Common Share...

  • Page 38
    ... guaranteed dividends and annual recurring compensation that McKesson became obligated to pay to the noncontrolling shareholders of Celesio AG upon the effectiveness of the Domination Agreement in December 2014. (2) Based on year-end balances and sales or cost of sales for the last 90 days of...

  • Page 39
    ...of Business," to the consolidated financial statements appearing in this Annual Report on Form 10-K for a description of these segments. RESULTS OF OPERATIONS Overview: (Dollars in millions, except per share data) 2015 Years Ended March 31, 2014 2013 Change 2015 2014 Revenues Gross Profit Operating...

  • Page 40
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Revenues increased over the last two years primarily due to our February 2014 acquisition of Celesio AG ("Celesio") and February 2013 acquisition of PSS World Medical, Inc. ("PSSI"), as well as due to market growth and our mix of business. Market ...

  • Page 41
    ...Celesio's outstanding and fully diluted common shares at March 31, 2014. Financial results for Celesio are included within our International pharmaceutical distribution and services business, which is part of our Distribution Solutions segment, since the date of Acquisition. On May 22, 2014, Celesio...

  • Page 42
    ... 2013 acquisition of PSSI. Technology Solutions Technology Solutions revenues decreased in 2015 compared to 2014 primarily due to a decline in software products and services revenues, the planned elimination of a product line and lower revenues from the workforce business within our International...

  • Page 43
    ..., 2015 and 2014, pharmaceutical inventories at LIFO did not exceed market. Additional information regarding our LIFO accounting is included under the caption "Critical Accounting Policies and Estimates," included in this Financial Review. Technology Solutions Technology Solutions gross profit margin...

  • Page 44
    ... asset amortization, and higher compensation and benefit costs. Operating expenses in 2015 also included a pre-tax and after-tax $150 million charge associated with the settlement of controlled substance distribution claims with the DEA, DOJ and various U.S. Attorney's offices, and 2014 and 2013...

  • Page 45
    ... consolidated financial statements in this Annual Report on Form 10-K for further information on the controlled substance distribution claim and the AWP litigation matter. Technology Solutions Technology Solutions segment's operating expenses and operating expenses as a percentage of revenue in 2015...

  • Page 46
    ..., employee retention incentives, outside service fees and other costs to integrate the business, and bridge loan fees. Additionally, our acquisition-related expenses for our PSSI acquisition include amounts associated with distribution center rationalization and information technology conversions...

  • Page 47
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Amortization Expenses of Acquired Intangible Assets Amortization expenses of acquired intangible assets purchased in connection with acquisitions recorded in operating expenses were $483 million, $308 million and $196 million in 2015, 2014 and 2013. ...

  • Page 48
    ... effects of our acquisitions. In 2015, 2014 and 2013, operating profit and operating profit margin were also impacted by $150 million, $68 million and $72 million of reserve adjustments for estimated probable losses related to our controlled substance distribution claims and Average Wholesale Price...

  • Page 49
    ... incurred for bridge loan fees. Refer to our discussion under the caption "Credit Resources" within this Financial Review for additional information regarding our financing activities. Income Taxes Our reported income tax rates were 30.7%, 34.9% and 30.1% in 2015, 2014 and 2013. Fluctuations in...

  • Page 50
    ...'s outstanding and fully diluted common shares. 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...

  • Page 51
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) the issuance of long-term debt. PSSI markets and distributes medical products and services throughout the United States. The acquisition of PSSI expanded our existing Medical-Surgical business. Financial results for PSSI since the acquisition date ...

  • Page 52
    .... Additional information concerning our allowance for doubtful accounts may be found in Schedule II included in this Annual Report on Form 10-K. Inventories: We report inventories at the lower of cost or market ("LCM"). Inventories for our Distribution Solutions segment consist of merchandise held...

  • Page 53
    ...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 54
    ...results of operations. The valuations are based on information available as of the impairment review date and are based on expectations and assumptions that have been deemed reasonable by management. Any changes in key assumptions, including failure to meet business plans, a further deterioration in...

  • Page 55
    ...taxable income and are consistent with the plans and estimates we use to manage the underlying businesses. We had deferred income tax assets (net of valuation allowances) of $1,189 million and $1,286 million at March 31, 2015 and 2014 and deferred tax liabilities of $3,791 million and $4,075 million...

  • Page 56
    ...customers and payments to vendors. Additionally, working capital is primarily a function of sales and purchase volumes, inventory requirements and vendor payment terms. Operating activities for 2014 were primarily affected by an increase in drafts and accounts payable reflecting longer payment terms...

  • Page 57
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) Investing activities for 2014 included $4,634 million of net cash payments for acquisitions, including $4,497 million for our acquisition of Celesio. Investing activities in 2014 also included $278 million and $141 million in capital expenditures for...

  • Page 58
    McKESSON CORPORATION FINANCIAL REVIEW (Continued) The Board authorized the repurchase of up to $500 million of the Company's common stock in January 2013. In 2015 and 2013, we repurchased 1.5 million and 13 million of our shares through an ASR program and open market repurchases: (In millions, ...

  • Page 59
    ... 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 to...

  • Page 60
    ... fixed rate long-term debt obligations. (4) 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. (5) Represents...

  • Page 61
    ... financial statements appearing in this Annual Report on Form 10-K for additional information. Credit Resources: We fund our working capital requirements primarily with cash and cash equivalents as well as short-term borrowings under the accounts receivable sales facilities, revolving credit...

  • Page 62
    McKESSON CORPORATION FINANCIAL REVIEW (Concluded) $223 million and $134 million. However, our risk management programs are designed such that the potential loss in value of these risk management portfolios described above would be largely offset by changes in the value of the underlying exposure. ...

  • Page 63
    McKESSON CORPORATION Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL INFORMATION Page Management's Annual Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Financial Statements: Consolidated ...

  • Page 64
    ... of McKesson Corporation is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). With the participation of the Chief Executive Officer and the Chief Financial Officer, our...

  • Page 65
    ... opinions. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other...

  • Page 66
    ... financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control...

  • Page 67
    McKESSON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) 2015 Years Ended March 31, 2014 2013 Revenues Cost of Sales Gross Profit Operating Expenses Selling, distribution and administrative expenses Research and development Claim and litigation charges Gain...

  • Page 68
    McKESSON CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Years Ended March 31, 2015 2014 2013 Net Income Other Comprehensive Income (Loss), Net of Tax Foreign currency translation adjustments arising during the period Unrealized losses on cash flow hedges arising during ...

  • Page 69
    ... Liabilities Long-Term Debt Other Noncurrent Liabilities Other Commitments and Contingent Liabilities (Note 23) Redeemable Noncontrolling Interests McKesson Corporation Stockholders' Equity Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding Common stock, $0.01...

  • Page 70
    ... retirement of treasury stock Cash dividends declared, $0.80 per common share Other Balances, March 31, 2013 Issuance of shares under employee plans Share-based compensation Tax benefit related to issuance of shares under employee plans Acquisition of Celesio Conversion of Celesio convertible bonds...

  • Page 71
    ... accounts payable Deferred revenue Taxes Claim and litigation charges Litigation settlement payments Other Net cash provided by operating activities Investing Activities Property acquisitions Capitalized software expenditures Acquisitions, net of cash and cash equivalents acquired Proceeds from sale...

  • Page 72
    ... Accounting Policies Nature of Operations: McKesson Corporation ("McKesson," the "Company," the "Registrant" or "we" and other similar pronouns) delivers pharmaceuticals, medical supplies and healthcare information technology that make healthcare safer while reducing costs. We conduct our business...

  • Page 73
    ... 14% of total trade accounts receivable. As a result, our sales and credit concentration is significant. We also have agreements with group purchasing organizations ("GPOs"), each of which functions as a purchasing agent on behalf of member hospitals, pharmacies and other healthcare providers. The...

  • Page 74
    ...non-pharmaceutical products. In 2015, 2014 and 2013, we recognized LIFO related expenses of $337 million, $311 million and $13 million in cost of sales within our consolidated statements of operations. A LIFO expense is recognized when the net effect of price increases on branded pharmaceuticals and...

  • Page 75
    ... unamortized capitalized software costs based on estimated future undiscounted revenues net of estimated related costs over the remaining amortization period. Capitalized Software Held for Internal Use: We capitalize costs of software held for internal use during the application development stage of...

  • Page 76
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Revenues for our Distribution Solutions segment include large volume sales of pharmaceuticals primarily to a limited number of large customers who warehouse their own product. We order bulk product from the manufacturer, receive and process the ...

  • Page 77
    ... the software group, and revenue is recognized for all elements under the applicable accounting guidance and our policies described above. Supplier Incentives: Fees for service and other incentives received from suppliers, relating to the purchase or distribution of inventory, are generally reported...

  • Page 78
    ...and were not material to our consolidated results of operations in 2015, 2014 or 2013. Derivative Financial Instruments: Derivative financial instruments are used principally in the management of foreign currency and interest rate exposures and are recorded on the consolidated balance sheets at fair...

  • Page 79
    ... Business Combinations: In November 2014, amended guidance related to pushdown accounting was issued and became effective immediately. This guidance provides an acquired entity with an option to use the acquirer's accounting and reporting basis in the preparation of its separate financial statements...

  • Page 80
    .... If the arrangement contains a software element, the related fees paid should be accounted for as an acquisition of a software license. If the arrangement does not contain a software license, it is accounted for as a service contract. The amended guidance will become effective for us commencing in...

  • Page 81
    ... 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 in Stuttgart, Germany...

  • Page 82
    ... acquired net assets has been allocated to goodwill, which primarily reflects the expected future benefits to be realized upon integrating the business. Most of the goodwill is not expected to be deductible for tax purposes. Domination and Profit and Loss Transfer Agreement On May 22, 2014, Celesio...

  • Page 83
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Fiscal 2013 On February 22, 2013, we acquired all of the outstanding shares of PSS World Medical, Inc. ("PSSI") of Jacksonville, Florida for $29.00 per share plus the assumption of PSSI's debt, or approximately $1.9 billion in aggregate, consisting of...

  • Page 84
    ...relation to Celesio's fiscal year ended December 31, 2014. Under the Domination Agreement, McKesson also became obligated to pay the annual recurring Compensation Amount of â,¬0.83 per Celesio share effective January 1, 2015. The Compensation Amount is recognized ratably during the applicable annual...

  • Page 85
    ... a small business from our Technology Solutions segment. We acquired the Brazilian distribution business through our February 2014 acquisition of Celesio. In 2014, we committed to a plan to sell our International Technology and our Hospital Automation businesses from our Technology Solutions segment...

  • Page 86
    ... in cost of sales within our consolidated statement of operations. 6. Equity Investments We own a 45% interest in Brocacef Holding N.V. ("Brocacef"), which provides, through its subsidiaries, wholesale distribution services and supplies pharmaceutical and other healthcare products to pharmacies...

  • Page 87
    ...of the cost of an asset in 2015, 2014 and 2013. Impact on Net Income The components of share-based compensation expense and related tax benefits are as follows: (In millions) Years Ended March 31, 2015 2014 2013 Restricted stock unit awards (1) Stock options Employee stock purchase plan Share-based...

  • Page 88
    ... compared to our historical grants. • • • Weighted-average assumptions used to estimate the fair value of employee stock options were as follows: Years Ended March 31, 2015 2014 2013 Expected stock price volatility Expected dividend yield Risk-free interest rate Expected life (in years) 22...

  • Page 89
    ... table provides data related to stock option activity: (In millions, except per share data) Years Ended March 31, 2015 2014 2013 Weighted-average grant date fair value per stock option Aggregate intrinsic value on exercise Cash received upon exercise Tax benefits realized related to exercise...

  • Page 90
    ...Years Ended March 31, 2015 2014 2013 Total fair value of shares vested Total compensation cost, net of estimated forfeitures, related to nonvested restricted stock unit awards not yet recognized, pre-tax Weighted-average period in years over which restricted stock unit award cost is expected to be...

  • Page 91
    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 92
    ...in our 2015 financial statements. We will record the final settlement amount in a subsequent quarter and do not expect it to have a material impact to income tax expense. During 2015, we reached an agreement with the Internal Revenue Service ("IRS") to settle all outstanding issues relating to years...

  • Page 93
    ...) March 31, 2015 2014 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...

  • Page 94
    ... payment of interest and penalties on unrecognized tax benefits. 10. Earnings Per Common Share Basic earnings per common share attributable to McKesson are computed by dividing net income attributable to McKesson by the weighted average number of common shares outstanding during the reporting period...

  • Page 95
    ... 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 96
    ... follows: (In millions) Distribution Solutions $ 207 3,237 $ 221 3,155 3,444 (1,399) $ 2,045 3,376 (1,180) $ 2,196 Technology Solutions Total Balance, March 31, 2013 Goodwill acquired Amount reclassified to assets held-for-sale Acquisition accounting, transfers and other adjustments Foreign...

  • Page 97
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Amortization expense of intangible assets was $494 million, $319 million and $215 million for 2015, 2014 and 2013. Estimated annual amortization expense of intangible assets is as follows: $419 million, $389 million, $360 million, $332 million and $...

  • Page 98
    ... discounts and offering expenses, for general corporate purposes and replenishing working capital that was used to repay long-term debt that matured. Each Series constitutes an unsecured and unsubordinated obligation of the Company and ranks equally with all of the Company's existing and, from time...

  • Page 99
    ... 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. In connection...

  • Page 100
    ... issuance of long-term debt and the bridge loan agreement was subsequently terminated. During the time it was outstanding, the 2013 Bridge Loan borrowings bore interest at 1.20% per annum, based on the London Interbank Offered Rate plus a margin based on the Company's credit rating. Interest expense...

  • Page 101
    ...we generally own or lease all of the real estate and equipment used by the affiliated practices and manage the practices' administrative functions. We also have relationships with certain pharmacies in Europe with whom we may provide financing, have equity ownership and/or a supply agreement whereby...

  • Page 102
    ... in Norway, United Kingdom and Germany. Benefits for these plans are based primarily on each employee's final salary, with annual adjustments for inflation. The obligations in Norway are largely related to the state-regulated pension plan which is managed by the Norwegian Public Service Pension Fund...

  • Page 103
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Information regarding the changes in benefit obligations and plan assets for our pension plans is as follows: U.S. Plans Years Ended March 31, 2015 2014 Non-U.S. Plans Years Ended March 31, 2015 2014 (In millions) Change in benefit obligations ...

  • Page 104
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Amounts recognized in accumulated other comprehensive income (pre-tax) consist of: U.S. Plans March 31, 2015 2014 Non-U.S. Plans March 31, 2015 2014 (In millions) Net actuarial loss Prior service credit Total $220 - $220 $188 (7) $181 $175 (6) $...

  • Page 105
    ... quality corporate bonds rated AA or better whose maturities are aligned with the expected benefit payments of our plans. For March 31, 2015, our U.S. defined benefit liabilities are valued using a weighted average discount rate of 3.18%, which represents a decrease of 40 basis points from our 2014...

  • Page 106
    ...-quality corporate and government bond funds and equity securities. Assets are properly diversified to avoid excessive reliance on any particular asset, issuer or group of undertakings so as to avoid accumulations of risk in the portfolio as a whole. We develop the expected long-term rate of return...

  • Page 107
    ... stock-This investment class consists of common and preferred shares issued by U.S. and non-U.S. corporations. Common shares are traded actively on exchanges and price quotes are readily available. Preferred shares may not be actively traded. Holdings of common shares are generally classified...

  • Page 108
    ... 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, 2015 and 2014: U.S. Plans Real Estate Funds Real Estate...

  • Page 109
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Multiemployer Plans The Company contributes to a number of multiemployer pension plans under the terms of collectivebargaining agreements that cover union-represented employees in the U.S. In 2015, we also contributed to the Pensjonsordningen for ...

  • Page 110
    ... employee service. Expected contributions to be made for our postretirement welfare benefit plans are $10 million for 2016. Weighted-average discount rates used to estimate postretirement welfare benefit expenses were 4.07%, 3.84% and 4.44% for 2015, 2014 and 2013. Weighted-average discount rates...

  • Page 111
    ... our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes. Foreign currency rate risk The majority of our operations are conducted in U.S. dollars; however, certain assets and liabilities, revenues and expense and purchasing activities...

  • Page 112
    ... is conducted by our accounting and finance personnel who organizationally report to the Chief Financial Officer. There is a three-level hierarchy that prioritizes the inputs used in determining fair value by their reliability and preferred use, as follows: Level 1-Valuations based on quoted prices...

  • Page 113
    McKESSON CORPORATION FINANCIAL NOTES (Continued) billion and $10.7 billion at March 31, 2014. The estimated fair values of our long-term debt and other financing were determined using quoted market prices in a less active market and other observable inputs from available market information, which ...

  • Page 114
    McKESSON CORPORATION FINANCIAL NOTES (Continued) Brazilian distribution business to its estimated fair value, less cost to sell. The fair value of this business was determined using income and market valuation approaches. Under the income approach, we used a discounted cash flow ("DCF") analysis ...

  • Page 115
    ... material for 2015, 2014 and 2013. 22. Financial Guarantees and Warranties Financial Guarantees We have agreements with certain of our customers' financial institutions, mainly in Canada and Europe, under which we have guaranteed the repurchase of our customers' inventory or our customers' debt in...

  • Page 116
    ... costs, which are reflected in our estimates used for the percentageof-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 117
    McKESSON CORPORATION FINANCIAL NOTES (Continued) a range of possible loss. When a loss is ... 2013, the court granted the United States' motion to dismiss. On April 4, 2014, USON filed a motion to dismiss the claims pled against it. The court has not yet ruled on USON's motion. On June 17, 2014, ...

  • Page 118
    ... of the health care industry, as well as to settlements. An example is the subpoena from the office of the Attorney General of West Virginia in the fourth quarter of 2015 seeking information about the Company's distribution of controlled substances in West Virginia. The Company has provided the...

  • Page 119
    ... information, we believe the ultimate outcome of these matters will not have a material adverse effect on our financial position, cash flows or results of operations. V. Average Wholesale Price ("AWP") Litigation The Company has a reserve relating to AWP public entity claims, which is reviewed...

  • Page 120
    ... price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards. (2) All of the shares purchased were part of the publicly announced programs. (3) The number of shares purchased reflects...

  • Page 121
    McKESSON CORPORATION FINANCIAL NOTES (Continued) In May 2015, the Board authorized the repurchase of up to $500 million of the Company's common stock. During the fourth quarter of 2013, we retired approximately 2 million shares that were repurchased for $217 million by the Company. The retired ...

  • Page 122
    ... Celesio has investments in pharmacies located across Europe that are accounted for under the equitymethod. Celesio maintains distribution arrangements with these pharmacies for the sale of related goods and services under which revenues of $114 million are included in our consolidated statement...

  • Page 123
    .... The McKesson Technology Solutions segment delivers enterprise-wide clinical, patient care, financial, supply chain, strategic management software solutions, as well as connectivity, outsourcing and other services, including remote hosting and managed services, to healthcare organizations. This...

  • Page 124
    ... from services represent less than 2% of this segment's total revenues. (2) Amounts primarily include amortization of acquired intangible assets purchased in connection with acquisitions, capitalized software held for sale and capitalized software for internal use. (3) Long-lived assets consist...

  • Page 125
    ... in cost of sales. (2) Fourth quarter of 2015 includes a non-cash after-tax charge of $150 million related to the settlement of controlled substance distribution claims. (3) Fourth quarter of 2015 includes $235 million non-cash after-tax impairment charges related to our Brazilian pharmaceutical...

  • Page 126
    ... Financial results for the third quarter of 2014 include an $80 million after-tax impairment charge related to our International Technology Business, which was sold in part during the second quarter of 2015. (4) Primarily represents the noncontrolling shareholders' portion of net loss from Celesio...

  • Page 127
    ... over Financial Reporting Management's report on the Company's internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and the related report of our independent registered public accounting firm are included in this Annual Report on Form 10...

  • Page 128
    ... 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 Governance...

  • Page 129
    ... Total Shareholder Return Units ("TSRUs"), which have a threeyear performance period and are payable in shares without an additional vesting period. Non-employee directors may be granted an award on the date of each annual meeting of the stockholders for up to 5,000 RSUs, as determined by the Board...

  • Page 130
    ... be used to purchase shares of the Company's common stock. The purchase price of each share of the Company's common stock is 85% of the fair market value of each share on the last day of the applicable Purchase Period. In general, the maximum number of shares of common stock that may be purchased by...

  • Page 131
    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, 2015, 2014 and 2013 ...

  • Page 132
    ... behalf by the undersigned, thereunto duly authorized. MCKESSON CORPORATION Date: May 12, 2015 /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 133
    McKESSON CORPORATION SCHEDULE II SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENT SCHEDULE VALUATION AND QUALIFYING ACCOUNTS For the Years Ended March 31, 2015, 2014 and 2013 (In millions) Additions Balance at Beginning of Year Charged to Costs and Expenses Charged to Other Accounts (3) Deductions ...

  • Page 134
    ..., 2011. Amended and Restated By-Laws of the Company, as amended July 31, 2013. Indenture, dated as of March 11, 1997, by and between the Company, as issuer, and The First National Bank of Chicago, as trustee. Officers' Certificate, dated as of March 11, 1997, and related Form of 2027 Note. Indenture...

  • Page 135
    ... dated as of March 8, 2013, and related Form of 2018 Note and Form of 2023 Note. 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. McKesson Corporation 1997 Non-Employee Directors...

  • Page 136
    ...Unit Agreement, each as applicable to Awards under the McKesson Corporation 2005 Stock Plan. McKesson Corporation 2013 Stock Plan, as adopted on May 22, 2013. Forms of Statement and Terms and Conditions Applicable to Awards Pursuant to the McKesson Corporation 2013 Stock Plan. Amendment No. 5, dated...

  • Page 137
    ...and Restated Share Purchase Agreement, dated January 23, 2014, by and among Franz Haniel & Cie. GmbH, Dragonfly GmbH & Co KGaA and McKesson Corporation. Business Combination Agreement, dated October 24, 2013, by and between Dragonfly GmbH & Co. KGaA, McKesson Corporation and Celesio AG. Amendment to...

  • Page 138
    ... and Chief Executive Officer. Letter dated February 27, 2014 relinquishing certain rights provided in the McKesson Corporation Executive Benefit Retirement Plan by and between the Company and its Chairman, President and Chief Executive Officer. Amended and Restated Employment Agreement, effective as...

  • Page 139
    ... Reference File Number Exhibit Filing Date Description Form 101†The following materials from the McKesson Corporation Annual Report on Form 10-K for the fiscal year ended March 31, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations...

  • Page 140
    ...financial information; and 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. /s/ John H. Hammergren John H. Hammergren Chairman of the Board, President and Chief Executive Officer...

  • Page 141
    ... information; and 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. /s/ James A. Beer James A. Beer Executive Vice President and Chief Financial Officer b) Date: May 12, 2015

  • Page 142
    ... 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, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and...

  • Page 143
    ... SHARE (NON-GAAP) 2015 Years Ended March 31, 2014 2013 2012 2011 Diluted earnings per share from continuing operations, net of tax, attributable to McKesson Corporation (GAAP) Adjustments, net of tax: Amortization of acquisition-related intangibles Acquisition expenses and related adjustments Claim...

  • Page 144
    ... Controlled Substance Distribution Claims and the Average Wholesale Price litigation matters, as such terms are defined in the Company's Annual Report on Form 10K for the fiscal year ended March 31, 2015. LIFO-related adjustments-Last-In-First-Out ("LIFO") inventory-related adjustments. Income taxes...

  • Page 145
    ... Services also has a website-www.wellsfargo.com/shareownerservices-that stockholders may use 24 hours a day to request account information. Dividends and Dividend Reinvestment Plan Dividends are generally paid on the first business day of January, April, July and October. McKesson Corporation...

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