McKesson HBOC, Inc. Reports Fourth Quarter Results.

Publication: Business Wire

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COPYRIGHT 2001 Business Wire

BW0152 APR 30,2001 5:09 PACIFIC 08:09 EASTERN</PRE>

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Business Writers and Health/Medical Writers

SAN FRANCISCO--(BW HealthWire)--April 30, 2001

McKesson HBOC, Inc. (NYSE:MCK) (McKessonHBOC) today reported income from continuing operations before special items of $88.7 million or 31 cents per diluted share in its fourth quarter ended March 31, 2001, compared to $61.4 million and 22 cents in the fourth quarter a year ago, an increase of 41% in earnings per share.

In the fourth quarter, McKessonHBOC also recorded pre-tax special charges of $359 million ($264 million net of taxes), which resulted in a net loss from continuing operations of $175.5 million or 62 cents per diluted share. The special charges include costs associated with the restructuring of the former iMcKesson business segment and provision for customer settlements in the company's information technology segment.

In the fourth quarter a year ago, including special charges of $150 million, the company had a net loss from continuing operations of $88.2 million or 31 cents per diluted share. Tables detailing the special charges are attached to this release along with income statements that show the results of the former iMcKesson business as a separate segment and its reclassified results. Unless otherwise noted, all subsequent financial discussion covers fourth quarter results from continuing operations excluding special items for three segments, including the former iMcKesson business as a separate segment as previously reported.

Including sales to customers' warehouses, McKessonHBOC's revenues in the fourth quarter were up 23% to $11.4 billion from $9.3 billion in the fourth quarter a year ago. Excluding sales to customers' warehouses, the company's revenues in the fourth quarter were up 17% to $8.4 billion from $7.2 billion in the fourth quarter a year ago. Including sales to customers' warehouses, the company's revenues for the year were $42.0 billion, up 15% from $36.7 billion.

The company's increase in earnings per diluted share was driven by a continued strong performance from its supply management segment and the ongoing operating turnaround in the information technology segment. The increase was negatively impacted by significant operating losses in the former iMcKesson segment.

In the fourth quarter, supply management segment operating profit increased 51% as a result of revenue growth of 17% and operating margin expansion of 61 basis points, to 2.75%, compared to 2.14% in the fourth quarter a year ago. For the full year, supply management segment revenues increased 13% and the operating margin expanded 27 basis points, to 2.28%, delivering a 28% increase in operating profit.

During the quarter, the company's information technology segment continued its operating turnaround. Total revenues and bookings of one-time software orders were up sequentially and year-over-year in the fourth quarter. Total revenues reached their highest level in six quarters, $236 million, up 7% from the fourth quarter a year ago, despite the company's adoption earlier in the year of a new contracting method that led to percentage-of-completion accounting. Operating profit was up 18% in the fourth quarter compared to a year ago. Backlog of approximately $1.60 billion at March 31, 2001, was up 16% from March 31, 2000.

"Our fourth quarter caps a year in which we achieved strong double-digit improvement in the operating margin for supply management while sustaining solid revenue growth, and stabilization of our information technology business," said John H. Hammergren, president and chief executive officer.

"Looking ahead to fiscal 2002, we enter the year with positive market and operating fundamentals in our supply management segment, including increased utilization of pharmaceuticals and emphasis on generic drugs, as a large number of major branded pharmaceuticals are scheduled to go off patent. For the year, we should report supply management revenue growth in the mid-teens, in line with the market, adjusted for our mix of business. We expect to continue our progress achieving efficiencies in operations and asset management, which will drive continued improvement in the financial performance of this business."

"Demand for information solutions that improve the quality of healthcare continues to grow, and we continue to strengthen our products and services for hospital providers and related physicians, including the application of the former iMcKesson resources to our clinical offering. Including the results of iMcKesson's Provider Solutions business, information technology segment revenues should increase at least 10% in fiscal 2002, and its profit margin on a combined basis should expand, driven by the continued growth of software revenues, operating efficiencies and net costs removed from the iMcKesson business and infrastructure.

"To position the company for sustained growth, we are continuing our investments in infrastructure and for product initiatives to develop solutions for supply chain, medication management and clinical information needs, offset by the elimination of approximately $20 million in goodwill amortization associated with iMcKesson in fiscal 2001."

"The special charges should not distract from the very solid operating results we are achieving across the company. Restructuring iMcKesson has eliminated overlap and focused resources on near-term clinical opportunities in our core base of hospital and health systems customers. In our information technology segment, we recorded a special charge in the fourth quarter to increase our reserves for anticipated customer settlements related to disputes under certain pre-July 1999 contracts. The special charge in the supply management segment for business shutdowns and related severance reflects focusing of our strategy for the payor, employer and pharmaceutical manufacturer offerings of our medical management and pharmaceutical services businesses."

Highlights of the Quarter...

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