2014 Shareholder Presentation - McKesson Investor Relations

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Jan 13, 2015 - J.P. Morgan Healthcare Conference ... The Company's SEC reports are available at www.mckesson.com under .
McKesson Corporation J.P. Morgan Healthcare Conference

John Hammergren Chairman and Chief Executive Officer

January 13, 2015

Forward-Looking Statements Some of the information in this presentation is not historical in nature and may constitute forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking terminology such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or the negative of these words or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied by such statements. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, those described in the Company’s annual, quarterly and current reports (i.e., Form 10-K, Form 10-Q and Form 8-K) as filed or furnished with the Securities and Exchange Commission (SEC). You are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date such statements were first made. To the degree financial information is included in this presentation, it is in summary form only and must be considered in the context of the full details provided in the Company’s most recent annual, quarterly or current report as filed or furnished with the SEC. The Company’s SEC reports are available at www.mckesson.com under the “Investors” tab. Except to the extent required by law, the Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

GAAP / Non-GAAP Reconciliation In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of non-GAAP information, a reconciliation of that information to GAAP, and other related information is available in the supplemental material attached as an appendix to this presentation and posted to www.mckesson.com under the “Investors” tab.

2

McKesson At-A-Glance Driving Better Health for Over 180 Years

2

Core Segments

Founded in

1833

>$170B Distribution Solutions

2

Combined Revenues

85,000 Technology Solutions 1

3

Employees1 Worldwide

Operates in Over

20

Countries3 Serves

120K

Pharmacies and Hospitals Globally Daily1

>12K

Owned or Banner Pharmacies1

Approximated as of December 2, 2014; 2 Approximates reported revenues of McKesson and Celesio AG for the twelve months ended September 30, 2014 (USD); 3 As of December 2, 2014.

Global Healthcare Industry in Transformation Demand for Healthcare is

Growing Demographic Trends • Aging Population • Increase in Chronic Conditions

Convergence & Consolidation 4

Regulatory Environment Rising Healthcare

Costs

The Age of the `

Consumer

A Vision for Better Health… Payers Pharmaceutical Manufacturers

Regulatory Agencies/ Government

Consumer

Better Business We make healthcare businesses run better

Retail Pharmacy

Hospitals

Alternate Care

Physicians

Better Connectivity We connect healthcare stakeholders 5

Better Care We enable better clinical outcomes

…Delivering Solutions and Value Globally Market Leading Positions • U.S. and Canada – Pharmaceutical Distribution and Services • Specialty Distribution and Services • Medical-Surgical Distribution • European Retail Pharmacy, Distribution and Service Operations • Technology – connectivity and payer-provider solutions 6

OneStopSM

Healthcare Services Leader in North America

7

US Pharmaceutical: Operational Excellence…

99.98 %

OneStopSM

Order Accuracy

Generics

Operational Excellence Best-in-class network quality, efficiency and speed

21% CAGR Since FY031

A Broad Value Proposition Manufacturer Services 1 As

8

of March 31, 2014

…Creating Value for Our Customers Scale and supply chain excellence

Creating Value for Retail Pharmacy

Expanding Relationships with

Institutional Pharmacy

Partnering with

Independent Pharmacy More than 3,5001 stores 1,600+ new stores since 2008 1 As

9

of October 31, 2014

Canada: Innovation and Market Leadership

Banner Programs Best-in-class network

Generic Rx and speed Quality, efficiency

>1,700 stores in all 10 provinces and 2 territories Medicine Shoppe Canada

16 Distribution Centers 7 Specialty Pharmacies Specialty Pharmacies & Distribution As of March 31, 2014

10

85+ Infusion Clinics

Specialty Health: Positioned for Continued Growth A Broad Value Proposition • Oncology and Multi-Specialty Distribution and Practice Management • One of the largest community-based Oncology networks in the U.S. • Advanced technology solutions for patients, providers and manufacturers

We touch all aspects of Specialty patient care… Physicians

Pharmacies Pharma & Biotech

Hospitals

Patients

Payers 11

Government

Medical-Surgical: A Leader in Alternate Site Combined sales force of more than

1,400

Reps

Revenues 14% CAGR FY08 – FY14

Focus on Investments to drive growth

the customer while furthering PSS integration

Executing on supplier and sourcing opportunities As of March 31, 2014

12

Optimizing distribution network

Technology Solutions: Powering Connectivity McKesson’s Unique Value Proposition – 360° View • Expertise working with payers, hospitals, physicians, pharmacies • Scaled leadership positions

• Comprehensive portfolio

13

Global Sourcing Expertise A Valuable Generics Channel Partner with Global Scale NorthStar / Sivem Collaboration in Canada

Cypress Acquisition

2002

NorthStar Program Launch

14

2007

2012

2014

Sivem Launched / PSS Acquisition

Celesio: Executing Acquisition Synergies A Platform for International Expansion • Global procurement team • Experienced executive leadership teams • Shared values and goals to create opportunities for customers, business partners and shareholders

$275M – $325M Annual by FY19 Synergies

15

Celesio: Acquisition Milestones Priorities Post Operating Control FY15

FY16

Operating Control Secured Begin Execution on Synergies

• • • •

16

FY17

FY18

FY19

Annual Synergies $275M - $325M by FY19

Our current ownership remains 76% We continue to consolidate Celesio’s results Minority shareholders will receive an annual dividend of €0.83 per share Minority shareholders have a put right at €22.99 per share

In Business for Better Health Pharmaceutical Distribution

Medical Surgical Supplies

Global Reach Technology

Specialty 17

Strong Performance: First Half of FY15

$89B

36% Growth

Total Revenues

Total Revenues

20%

Adjusted EPS Growth

48%

% 26

Adjusted

Gross Profit Expansion

Growth

Adjusted Operating Profit

For the six months ended September 30, 2014. Percentage growth expressed on a year over year basis relative to the six month period ended September 30, 2013. Reflects non-GAAP information calculated on an Adjusted Earnings basis. A reconciliation to GAAP is available in the appendix to this presentation and on the Company’s website under the “Investors” tab.

18

We Have a Track Record of Steady Revenue Growth… ($ Billions)

19

$101

$106

$108

FY08

FY09

FY10

$112

FY11

$122

$122

FY12

FY13

$138

FY14

…That We Have Leveraged into Higher Adjusted EPS Growth

FY15 Guidance $10.50 - $10.90

$8.56 $3.45 FY08

$4.27

$4.70

$5.19

FY09

FY10

FY11

$6.35

$6.45

FY12

FY13

FY14

FY15

Reflects non-GAAP information calculated on an Adjusted Earnings basis. A reconciliation to GAAP is available in the appendix to this presentation and on the Company’s website under the “Investors” tab.

20

Our Operating Cash Flows Have Steadily Increased OCF ($ Billions)

7 Year Moving Average

$3.0

$2.5

$2.0

$1.5

$1.0

$0.5 FY08*

FY09

*FY08 excludes $962 million Securities Litigation payment.

21

FY10

FY11

FY12

FY13

FY14

We Remain Committed to Our Historical Portfolio Approach to Capital Deployment… FY08 - FY14 ($ Billions)

$1.1

Dividends

Internal Capital Spending

$25B

$2.6

$7.8 Share Repurchases

$13.7 Acquisitions

22

of capital deployed from FY08 – FY14

…And We are Well Positioned to Drive Continued Growth • Making key capital investments internally to support long-term growth • Pursuing strategic acquisitions and managing our portfolio of assets • Maintaining investment grade ratings • Maintaining our long-term and balanced approach to capital deployment to create shareholder value

23

McKesson Drives Sustained Value Creation Attractive Healthcare Markets • Public policy agenda supports greater access and improved efficiency • Demographics drive long-term demand in North America and globally

Strong operating profit, cash flow growth and a portfolio approach to capital deployment

24

Experienced and tenured management team with a steady track record of delivering results

Well-Positioned Businesses with Margin Expansion Opportunities • Leading positions • Operational excellence • Focus on higher-margin products and services • Global sourcing expertise

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP) FOR FISCAL 2008 THROUGH SIX MONTHS ENDED SEPTEMBER 30, 2014 (unaudited) (in millions, except per share amounts)

Six Months Ended September 30, 2014 Acquisition Expenses and Litigation Related Reserve LIFO-Related Adjustments Adjustments Adjustments

As Reported (GAAP)

Amortization of AcquisitionRelated Intangibles

Revenues

$

88,816

$

-

$

-

$

-

$

-

$

88,816

Gross profit Operating expenses Other income, net Impairment of equity investment Interest expenses Income from continuing operations before income taxes Income tax expense Income from continuing operations after tax

$

5,720 (4,244) 44 (200)

$

5 256 -

$

111 -

$

-

$

192 -

$

5,917 (3,877) 44 (200)

Income (loss) from continuing operations, net of tax, attributable to noncontrolling interests Income from continuing operations, net of tax, attributable to McKesson Corporation Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a)

1,320 (404)

261 (80)

111 (37)

-

192 (75)

1,884 (596)

916

181

74

-

117

1,288

(16)

(23)

(6)

-

-

900

$

158

$

68

$

-

$

117

$

1,243

$

3.83

$

0.66

$

0.30

$

-

$

0.50

$

5.29

235

As Recast (GAAP) Revenues

$

Gross profit Operating expenses Other income, net Impairment of equity investment Interest expense Income from continuing operations before income taxes Income tax expense Income from continuing operations after tax

$

Income (loss) from continuing operations, net of tax, attributable to noncontrolling interests

Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) Diluted weighted average common shares

(a) Certain computations may reflect rounding adjustments

(45)

$

Diluted weighted average common shares

Income from continuing operations, net of tax, attributable to McKesson Corporation

Adjusted Earnings (Non-GAAP)

137,756 8,374 (5,947) 33 (303)

235

Amortization of AcquisitionRelated Intangibles

235

-

Year Ended March 31, 2014 Acquisition Expenses and Litigation Related Reserve Adjustments Adjustments

235

235

LIFO-Related Adjustments

As Recast Adjusted Earnings (Non-GAAP)

$

-

$

-

$

-

$

-

$

$

11 308 -

$

3 155 14 46

$

-

$

311 -

$

68 -

137,756 8,699 (5,416) 47 (257)

2,157 (752)

319 (114)

218 (69)

68 (15)

311 (121)

3,073 (1,071)

1,405

205

149

53

190

2,002

5

(7)

(2)

-

-

(4)

$

1,410

$

198

$

147

$

53

$

190

$

1,998

$

6.04

$

0.85

$

0.63

$

0.23

$

0.81

$

8.56

233

233

233

233

233

233

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP) FOR FISCAL 2008 THROUGH SIX MONTHS ENDED SEPTEMBER 30, 2014 (unaudited) (in millions, except per share amounts)

Year Ended March 31, 2013 Acquisition Expenses and Litigation Related Reserve Adjustments Adjustments

As Reported (GAAP)

Amortization of AcquisitionRelated Intangibles

Revenues

$

$

-

$

-

$

Gross profit Operating expenses Other income, net Impairment of equity investment Interest expense

$

$

13 196 -

$

(10) 11

$

Income from continuing operations before income taxes Income tax expense Income from continuing operations after tax Income from continuing operations, net of tax, attributable to noncontrolling interests Income from continuing operations, net of tax, attributable to McKesson Corporation Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) Diluted weighted average common shares

122,196 6,881 (4,534) 34 (191) (240)

$

$

-

$ 72

13

$

-

-

122,196 6,907 (4,276) 34 (191) (229)

1 (6)

72 (27)

13 (5)

2,245 (701)

1,363

133

(5)

45

8

1,544

-

-

-

-

-

-

$

1,363

$

133

$

(5)

$

45

$

8

$

1,544

$

5.69 239

$

0.56 239

$

(0.02) 239

$

0.19 239

$

0.03 239

$

6.45 239

Year Ended March 31, 2012 Acquisition Expenses and Litigation Related Reserve Adjustments Adjustments

Revenues

$

$

-

$

-

Gross profit Operating expenses Other income, net Impairment of equity investment Interest expense Income from continuing operations before income taxes Income tax expense

$

$

17 167 -

$

-

Income from continuing operations after tax Income from continuing operations, net of tax, attributable to noncontrolling interests

(a) Certain computations may reflect rounding adjustments

-

209 (76)

As Reported (GAAP)

Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) Diluted weighted average common shares

Adjusted Earnings (Non-GAAP)

1,950 (587)

Amortization of AcquisitionRelated Intangibles

Income from continuing operations, net of tax, attributable to McKesson Corporation

LIFO-Related Adjustments

122,453 6,435 (4,289) 20 (251)

LIFO-Related Adjustments

Adjusted Earnings (Non-GAAP) $

$

-

$

$

$

-

149 -

26

11

$

-

122,453 6,463 (3,947) 20 (251)

1,915 (521)

184 (71)

26 (10)

149 (89)

11 (4)

2,285 (695)

1,394

113

16

60

7

1,590

-

-

-

-

-

-

$

1,394

$

113

$

16

$

60

$

7

$

1,590

$

5.56 251

$

0.45 251

$

0.07 251

$

0.24 251

$

0.03 251

$

6.35 251

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP) FOR FISCAL 2008 THROUGH SIX MONTHS ENDED SEPTEMBER 30, 2014 (unaudited) (in millions, except per share amounts)

Year Ended March 31, 2011 Acquisition Expenses and Litigation Related Reserve Adjustments Adjustments

As Reported (GAAP)

Amortization of AcquisitionRelated Intangibles

Revenues

$

$

-

$

-

$

Gross profit Operating expenses Other income, net Impairment of equity investment Interest expense Income from continuing operations before income taxes Income tax expense Income from continuing operations after tax Income from continuing operations, net of tax, attributable to noncontrolling interests

$

$

16 115 -

$

-

$

Income from continuing operations, net of tax, attributable to McKesson Corporation Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) Diluted weighted average common shares

111,804 5,828 (4,041) 35 (222)

$

$

$

43 (16) 25

213 -

3

$

-

111,804 5,847 (3,670) 19 (197)

52 (16)

213 (64)

3 (1)

1,999 (635)

1,097

80

36

149

2

1,364

-

-

-

-

-

-

$

1,097

$

80

$

36

$

149

$

2

$

1,364

$

4.17 263

$

0.30 263

$

0.14 263

$

0.57 263

$

0.01 263

$

5.19 263

Revenues

$

$

Gross profit Operating expenses Other income, net Impairment of equity investment Interest expense Income from continuing operations before income taxes Income tax expense

$

Income from continuing operations after tax Income from continuing operations, net of tax, attributable to noncontrolling interests

(a) Certain computations may reflect rounding adjustments

-

131 (51)

As Reported (GAAP)

Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) Diluted weighted average common shares

Adjusted Earnings (Non-GAAP)

1,600 (503)

Amortization of AcquisitionRelated Intangibles

Income from continuing operations, net of tax, attributable to McKesson Corporation

LIFO-Related Adjustments

108,425 5,527 (3,558) 43 (187)

-

$

21 97

Year Ended March 31, 2010 Acquisition Expenses and Litigation Related Reserve Adjustments Adjustments

LIFO-Related Adjustments

Adjusted Earnings (Non-GAAP) $

$

-

$

-

$

$

-

$

(20) -

$

-

8

$

-

108,425 5,556 (3,481) 43 (187)

1,825 (605)

118 (46)

-

(20) 8

8 (3)

1,931 (646)

1,220

72

-

(12)

5

1,285

-

-

-

-

-

-

$

1,220

$

72

$

-

$

(12)

$

5

$

1,285

$

4.46 273

$

0.26 273

$

-

$

(0.04) 273

$

0.02 273

$

4.70 273

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP) FOR FISCAL 2008 THROUGH SIX MONTHS ENDED SEPTEMBER 30, 2014 (unaudited) (in millions, except per share amounts)

As Reported (GAAP)

Amortization of AcquisitionRelated Intangibles

Revenues

$

$

Gross profit Operating expenses Other income, net Impairment of equity investment Interest expense Income from continuing operations before income taxes Income tax expense Income from continuing operations after tax

$

Income from continuing operations, net of tax, attributable to noncontrolling interests Income from continuing operations, net of tax, attributable to McKesson Corporation Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) Diluted weighted average common shares

106,376 5,251 (4,080) 74 (63) (144)

-

$

29 97

$

-

$

-

$

$

-

$

493 -

$

8

$

-

106,376 5,288 (3,490) 74 (63) (144)

126 (49)

-

493 (182)

8 (3)

1,665 (474)

798

77

-

311

5

1,191

-

-

-

-

-

-

$

798

$

77

$

-

$

311

$

5

$

1,191

$

2.86 279

$

0.28 279

$

-

$

1.11 279

$

0.02 279

$

4.27 279

Revenues

$

$

Gross profit Operating expenses Other income, net Impairment of equity investment Interest expense Income from continuing operations before income taxes Income tax expense Income from continuing operations after

$

101,454 4,888 (3,427) 119 (142)

-

$

27 78

Year Ended March 31, 2008 Acquisition Expenses and Litigation Related Reserve Adjustments Adjustments $

-

$

-

-

$

-

Adjusted Earnings (Non-GAAP)

$

-

$

$

(14) -

$

4 (2) 2

-

LIFO-Related Adjustments

(5)

-

105 (40) 65

-

$

4

-

1,438 (466) 972

Income from continuing operations, net of tax, attributable to noncontrolling interests

(a) Certain computations may reflect rounding adjustments

Adjusted Earnings (Non-GAAP)

1,038 (240)

As Reported (GAAP)

Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a) Diluted weighted average common shares

LIFO-Related Adjustments

$

-

Amortization of AcquisitionRelated Intangibles

Income from continuing operations, net of tax, attributable to McKesson Corporation

Year Ended March 31, 2009 Acquisition Expenses and Litigation Related Reserve Adjustments Adjustments

(5) 2 (3)

-

(14) 5 (9)

-

101,454 4,901 (3,350) 119 (142) 1,528 (501) 1,027

-

-

$

972

$

65

$

2

$

(3)

$

(9)

$

1,027

$

3.26 298

$

0.22 298

$

0.01 298

$

(0.01) 298

$

(0.03) 298

$

3.45 298

RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) FOR FISCAL 2008 THROUGH SIX MONTHS ENDED SEPTEMBER 30, 2014 (unaudited) (in millions)

Six Months Ended September 30, 2014

As Reported (GAAP): Revenues Gross profit Operating expenses Other income, net Impairment of equity investment Income from continuing operations before interest expense Interest expense Income from continuing operations before income taxes

Distribution Solutions

Technology Solutions

Corporate & Interest Expense

$

87,278

$

$

$

4,998 (3,494) 37 1,541 1,541

$

$

Gross profit margin Operating expenses as a % of revenues Operating pre-tax profit as a % of revenues Pre-Tax Adjustments: Gross profit Operating expenses Amortization of acquisition-related intangibles

$

5.73% 4.00% 1.77%

$

236 236

1,538 722 (531) 2 193 193

$

$

46.94% 34.53% 12.55%

$

5 20 25

Gross profit Operating expenses Other income, net Interest expense Acquisition expenses and related adjustments

100 100

-

Operating expenses - Litigation reserve adjustments

-

Gross profit - LIFO-related adjustments

192

$

$

87,278

$

1,538

$

$

5,190 (3,158) 37 2,069 2,069

$

$

727 (510) 2 219 219

$

$

47.27% 33.16% 14.24%

(a) Certain computations may reflect rounding adjustments

(209) 5 (204) (200) (404) -

1,607 (1,161) 2 448 448

$

$

6.44% 4.78% 1.71%

$

5 256 261

192

Adjusted Earnings (Non-GAAP): Revenues

5.95% 3.62% 2.37%

$

10

$

$

$

$

5,720 (4,244) 44 1,520 (200) 1,320

-

26

3,330

$

-

$

$

$

-

1

Corporate & Interest Expense

88,816

111 111

528

$

-

Technology Solutions

$

10 10

1 -

$

Gross profit margin Operating expenses as a % of revenues Operating pre-tax profit as a % of revenues

(219) 5 (214) (200) (414)

Total

-

Total pre-tax adjustments

Gross profit Operating expenses Other income, net Impairment of equity investment Income from continuing operations before interest expense Interest expense Income from continuing operations before income taxes

-

Year ended March 31, 2014 Distribution Solutions 134,426 6,767 (4,335) 29 2,461 2,461

$

5.03% 3.22% 1.83%

$

1 255 256

$

48.26% 34.86% 13.45%

$

$

$

137,756

$ 119,046

$

3,150

$

$

$

1,446 (1,120) 4 330 330

$

8,374 (5,947) 33 2,460 (303) 2,157

$

6.08% 4.32% 1.79%

47 47

-

68

-

-

68

72

-

311

-

-

311

13

-

80

$

$

88,816

$

134,426

$

3,330

$

$

5,917 (3,877) 44 2,084 (200) 1,884

$

$

1,620 (1,094) 2 528 528

$

7,079 (3,893) 29 3,215 3,215 5.27% 2.90% 2.39%

$

48.65% 32.85% 15.86%

$

82

(429) 16 (413) (257) (670) -

$

916

$

137,756

$

$

8,699 (5,416) 47 3,330 (257) 3,073 6.31% 3.93% 2.42%

$

$

2 146 148

$

45.90% 35.56% 10.48%

3 155 14 46 218

$

$

$

4.57% 2.58% 1.84%

21 14 46 81

754

-

5,435 (3,068) 19 (191) 2,195 2,195

3 15 18

$

$

$

Corporate & Interest Expense

11 308 319

564

6.66% 4.37% 2.35%

(451) 2 (449) (303) (752) -

$

$

$

Total

Technology Solutions

1 1

119 119

10 52 62

-

Year ended March 31, 2013 Distribution Solutions

$

11 49 60

(346) 11 (335) (240) (575)

Year ended March 31, 2012

Total

Distribution Solutions

Technology Solutions

Corporate & Interest Expense

$ 122,196

$ 119,424

$

3,029

$

$

$

$

1,378 (1,022) 4 360 360

$

$

-

$

7 7

-

$

24 24

-

-

72

149

-

-

-

13

11

-

-

$

$ 119,046

$

3,150

$

-

$

$

1,457 (1,064) 4 397 397

$

46.25% 33.78% 12.60%

$

(409) 11 (398) (229) (627) -

16 47 63

$

1

1

$ 122,196

$ 119,424

$

3,029

$

$

$

$

1,394 (974) 4 424 424

$

$

4.24% 2.14% 2.11%

$

46.02% 32.16% 14.00%

$

149 11 1

(412) (412) (251) (663) -

17 167 184 26 26

1 -

$

5.65% 3.50% 2.02%

$

-

64

5,069 (2,561) 16 2,524 2,524

$

6,435 (4,289) 20 2,166 (251) 1,915 5.26% 3.50% 1.77%

-

1 -

$

6,907 (4,276) 34 (191) 2,474 (229) 2,245

$

$

305

$

295

1 120 121

$

-

(10) 11 1

(52)

$

$

45.49% 33.74% 11.89%

(64) 11 (53)

$

$

$

4.23% 2.39% 1.86%

Total $ 122,453

(413) (413) (251) (664)

13 196 209

67

4.58% 2.35% 2.08%

5,057 (2,854) 16 2,219 2,219

1 1

$

$

$

5.63% 3.71% 1.79%

280

5,450 (2,803) 19 (191) 2,475 2,475

6,881 (4,534) 34 (191) 2,190 (240) 1,950

-

$

370

$ 122,453 $

$

6,463 (3,947) 20 2,536 (251) 2,285 5.28% 3.22% 2.07%

RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) FOR FISCAL 2008 THROUGH SIX MONTHS ENDED SEPTEMBER 30, 2014 (unaudited) (in millions)

As Reported (GAAP): Revenues Gross profit Operating expenses Other income (expense), net Impairment of equity investment Income from continuing operations before interest expense Interest expense Income from continuing operations before income taxes

Year ended March 31, 2010

Year ended March 31, 2009

Distribution Solutions

Technology Solutions

Corporate & Interest Expense

$

$

2,915

$

$

1,263 (1,000) 3 266 266

$

$

$

Gross profit margin Operating expenses as a % of revenues Operating pre-tax profit as a % of revenues Pre-Tax Adjustments: Gross profit Operating expenses Amortization of acquisition-related intangibles

Year ended March 31, 2011

108,889 4,565 (2,673) 5 1,897 (1) 1,896

$

4.19% 2.45% 1.74%

$

70 70

$

43.33% 34.31% 9.13%

$

16 45 61

(368) 27 (341) (221) (562)

$ $

$

-

$

-

Total

Distribution Solutions

Technology Solutions

Corporate & Interest Expense

111,804

$

$

2,847

$

$

1,308 (967) 5 346 (2) 344

$

5,828 (4,041) 35 1,822 (222) 1,600

$

$

5.21% 3.61% 1.63%

$

16 115 131

105,578 4,219 (2,260) 29 1,988 (2) 1,986

$

4.00% 2.14% 1.88%

$

1 50 51

$

45.94% 33.97% 12.15%

$

20 47 67

(331) 9 (322) (183) (505)

$ $

$

-

$

-

Total

Distribution Solutions

Technology Solutions

Corporate & Interest Expense

108,425

$ 103,568

$

2,808

$

$

$

1,296 (994) 6 308 (4) 304

$

5,527 (3,558) 43 2,012 (187) 1,825

$

5.10% 3.28% 1.86%

$

21 97 118

3,955 (2,777) 43 (63) 1,158 2 1,160

$

3.82% 2.68% 1.12%

$

1 50 51

$

46.15% 35.40% 10.97%

$

28 47 75

(309) 25 (284) (142) (426)

Year ended March 31, 2008

Distribution Solutions

Technology Solutions

Corporate & Interest Expense

$ 106,376

$

98,719

$

2,735

$

$

$

3,586 (2,138) 35 1,483 4 1,487

$

1,302 (1,011) 9 300 (4) 296

$

Total

$

-

$

-

5,251 (4,080) 74 (63) 1,182 (144) 1,038

$

4.94% 3.84% 1.11%

$

29 97 126

$

1 28 29

Gross profit Operating expenses Other income, net Interest expense Acquisition expenses and related adjustments

41 41

-

-

43 (16) 25 52

-

-

-

-

-

-

-

-

-

2 (16) 25 11

Operating expenses - Litigation reserve adjustments

213

-

-

213

-

-

(20)

(20)

493

-

-

493

-

Gross profit - LIFO-related adjustments

3

-

-

Total pre-tax adjustments

$

327

$

61

$

Adjusted Earnings (Non-GAAP): Revenues

$

108,889

$

2,915

$

$

1,279 (955) 3 327 327

$

Gross profit Operating expenses Other income, net Impairment of equity investment Income from continuing operations before interest expense Interest expense Income from continuing operations before income taxes Gross profit margin Operating expenses as a % of revenues Operating pre-tax profit as a % of revenues

$

$

4,568 (2,349) 5 2,224 (1) 2,223 4.20% 2.16% 2.04%

$

$

43.88% 32.76% 11.22%

(a) Certain computations may reflect rounding adjustments

11

(366) 11 (355) (196) (551) -

3

8

-

-

8

$

399

$

59

$

67

$

(20)

$

106

$

111,804

$

105,578

$

2,847

$

-

$

108,425

$

1,328 (920) 5 413 (2) 411

$

$

$

5,847 (3,670) 19 2,196 (197) 1,999 5.23% 3.28% 1.96%

$

$

4,228 (2,210) 29 2,047 (2) 2,045 4.00% 2.09% 1.94%

$

46.65% 32.31% 14.51%

$

(351) 9 (342) (183) (525) -

$

$

5,556 (3,481) 43 2,118 (187) 1,931 5.12% 3.21% 1.95%

8 $

-

-

$

3.63% 2.17% 1.50%

$

26 50 76

4

$

-

$

-

$

627

$

19

$

76

$

$ 103,568

$

2,808

$

-

$ 106,376

$

98,719

$

2,735

$

$

$

1,324 (947) 6 383 (4) 379

$

$

$

3,573 (2,106) 35 1,502 4 1,506

$

1,328 (961) 9 376 (4) 372

$

$

3.83% 2.16% 1.65%

$

47.15% 33.73% 13.64%

$

-

$

4.97% 3.28% 1.70%

$

3.62% 2.13% 1.52%

$

48.56% 35.14% 13.75%

$

-

$

27 78 105 4 4 (5) (14)

(5)

(283) 75 (208) (142) (350) -

4,888 (3,427) 119 1,580 (142) 1,438 4.82% 3.38% 1.56%

-

75

5,288 (3,490) 74 (63) 1,809 (144) 1,665

$

(5)

$

(309) 25 (284) (142) (426)

$

-

552

3,964 (2,234) 43 (63) 1,710 2 1,712

(278) 75 (203) (142) (345)

-

(14)

Total $ 101,454

-

-

4 -

8

$

47.61% 36.97% 10.97%

-

$

90

$ 101,454 $

$

4,901 (3,350) 119 1,670 (142) 1,528 4.83% 3.30% 1.65%