1
File No. 001-13252
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the plan year ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to ______
A. Full title of the plan and address of the plan, if different from that
of the issuer named below:
McKesson Corporation Profit-Sharing Investment Plan
B. Name of issuer of the securities held pursuant to the plan
and the address of its principal executive office:
McKesson Corporation
McKesson Plaza
One Post Street
San Francisco, CA 94104
(415) 983-8300
2
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
FINANCIAL STATEMENTS, SUPPLEMENTAL SCHEDULES AND EXHIBIT
TABLE OF CONTENTS
--------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED MARCH 31, 2001 AND 2000:
Statements of Net Assets Available for Benefits 2
Statements of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-14
SUPPLEMENTAL SCHEDULES AS OF AND FOR THE YEAR
ENDED MARCH 31, 2001:
Schedule of Assets Held for Investment Purposes 15
Schedule of Reportable Transactions 16
Schedule of Nonexempt Transactions 17
EXHIBIT:
23.1 Independent Auditors' Consent
3
INDEPENDENT AUDITORS' REPORT
McKesson Corporation Profit-Sharing Investment Plan:
We have audited the accompanying statements of net assets available for benefits
of the McKesson Corporation Profit-Sharing Investment Plan (the "Plan"),
formerly the McKesson HBOC, Inc. Profit-Sharing Investment Plan, as of March 31,
2001 and 2000, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of March 31, 2001
and 2000, and the changes in net assets available for benefits for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in the
Table of Contents are presented for the purpose of additional analysis and are
not a required part of the basic financial statements, but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These schedules are the responsibility of the Plan's management. Such
schedules have been subjected to the auditing procedures applied in our audit of
the basic 2001 financial statements and, in our opinion, are fairly stated in
all material respects when considered in relation to the basic financial
statements taken as a whole.
/s/ Deloitte & Touche LLP
September 26, 2001
4
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF MARCH 31, 2001 AND 2000 (IN 000'S)
--------------------------------------------------------------------------------
2001
-----------------------------------------
PARTICIPANT NON-PARTICIPANT
DIRECTED DIRECTED
---------- ------------- PROFIT-
PLAN'S SHARING
SHARE OF COMPANY INVESTMENT
MASTER STOCK PLAN
TRUST FUND TOTAL
---------- ------------- ----------
ASSETS:
Cash and cash equivalents $ $ 408 $ 408
Investments:
Interest in Master Trust 648,978 648,978
Institutional commingled funds
Registered investment funds
McKesson Corporation common stock:
Allocated stock 206,455 206,455
Unallocated stock 227,970 227,970
---------- ------------- ----------
Total investments 648,978 434,425 1,083,403
---------- ------------- ----------
Receivables:
Contributions
Dividends 999 999
Interest 7 7
Interfund balances
Due from broker for securities sold 9,226 9,226
---------- ------------- ----------
Total receivables - 10,232 10,232
---------- ------------- ----------
Total assets 648,978 445,065 1,094,043
---------- ------------- ----------
LIABILITIES:
Line of credit - Unallocated 8,000 8,000
ESOP promissory notes payable - Unallocated 80,998 80,998
Dividends payable
Accrued interest expense - Unallocated 2,910 2,910
---------- ------------- ----------
Total liabilities - 91,908 91,908
---------- ------------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $ 648,978 $ 353,157 $1,002,135
========== ============= ==========
2000
----------------------------------------------------------------------------
PARTICIPANT NON-PARTICIPANT
DIRECTED DIRECTED
--------------------------- ------------------------------ PROFIT-
PLAN'S SHARING
HBOC SHARE OF COMPANY COMPANY INVESTMENT
FUND MASTER STOCK INVESTMENT PLAN
GROUP TRUST FUND FUND TOTAL
------------- ---------- ------------- ------------- ----------
ASSETS:
Cash and cash equivalents $ $ $ 979 $ 1 $ 980
Investments:
Interest in Master Trust 400,636 400,636
Institutional commingled funds 157,281 157,281
Registered investment funds 186,417 186,417
McKesson Corporation common stock:
Allocated stock 32,553 230,732 263,285
Unallocated stock 152,030 152,030
Participant loans 3,430 3,430
Money market 11,230 11,230
2,801 2,801
------------- ---------- ------------- ------------- ----------
Total investments 236,431 400,636 382,762 157,281 1,177,110
------------- ---------- ------------- ------------- ----------
Receivables:
Contributions 2,855 2,855
Dividends 1,099 1,099
Interest 5 5
Interfund balances 995 (469) (526) -
Due from broker for securities sold
------------- ---------- ------------- ------------- ----------
Total receivables 2,855 995 635 (526) 3,959
------------- ---------- ------------- ------------- ----------
Total assets 239,286 401,631 384,376 156,756 1,182,049
------------- ---------- ------------- ------------- ----------
LIABILITIES:
Line of credit - Unallocated 8,000 8,000
ESOP promissory notes payable - Unallocated 91,923 91,923
Dividends payable 420 420
Accrued interest expense - Unallocated 3,084 3,084
------------- ---------- ------------- ------------- ----------
Total liabilities - - 103,427 - 103,427
------------- ---------- ------------- ------------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $ 239,286 $ 401,631 $ 280,949 $ 156,756 $1,078,622
============= ========== ============= ============= ==========
See notes to financial statements.
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McKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED MARCH 31, 2001 AND 2000 (in 000's)
--------------------------------------------------------------------------------
2001
--------------------------------------------------------------------------
PARTICIPANT NON-PARTICIPANT
DIRECTED DIRECTED
--------------------------- -------------------------- PROFIT-
PLAN'S SHARING
HBOC SHARE OF COMPANY COMPANY INVESTMENT
FUND MASTER STOCK INVESTMENT PLAN
GROUP TRUST FUND FUND TOTAL
----------- ----------- ----------- ----------- -----------
ADDITIONS:
Investment income:
Net appreciation (depreciation)
in fair value of investments $ (48) $ (67,484) $ 91,392 $ (9,665) $ 14,195
Dividends and interest 13,628 9,635 4,132 27,395
----------- ----------- ----------- ----------- -----------
Total investment income (loss) 13,580 (57,849) 95,524 (9,665) 41,590
----------- ----------- ----------- ----------- -----------
Contributions:
Participants 18,506 37,097 55,603
Employer 5,584 10,021 15,605
----------- ----------- ----------- ----------- -----------
Total additions 37,670 (20,752) 105,545 (9,665) 112,798
----------- ----------- ----------- ----------- -----------
DEDUCTIONS:
Benefits paid to participants 16,224 74,002 46,579 41,370 178,175
Interest expense 7,410 7,410
Administrative fees 155 3,543 2 3,700
----------- ----------- ----------- ----------- -----------
Total deductions 16,379 77,545 53,991 41,370 189,285
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS AVAILABLE FOR BENEFITS
BEFORE INTERFUND TRANSFERS 21,291 (98,297) 51,554 (51,035) (76,487)
INTERFUND TRANSFERS (260,577) 345,644 20,654 (105,721) --
MERGER OF NET ASSETS AVAILABLE
FOR BENEFITS:
HBO & Company Profit Sharing and
Savings Plan
RedLine HealthCare Corporation
Investment Savings Plan
CookCo, Inc. 401(k) Plan
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS AVAILABLE FOR BENEFITS (239,286) 247,347 72,208 (156,756) (76,487)
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 239,286 401,631 280,949 156,756 1,078,622
----------- ----------- ----------- ----------- -----------
End of Year $ -- $ 648,978 $ 353,157 $ -- $ 1,002,135
=========== =========== =========== =========== ===========
2000
---------------------------------------------------------------------------
PARTICIPANT NON-PARTICIPANT
DIRECTED DIRECTED
--------------------------- --------------------------- PROFIT-
PLAN'S SHARING
HBOC SHARE OF COMPANY COMPANY INVESTMENT
FUND MASTER STOCK INVESTMENT PLAN
GROUP TRUST FUND FUND TOTAL
----------- ----------- ----------- ----------- -----------
ADDITIONS:
Investment income:
Net appreciation (depreciation)
in fair value of investments $ (40,209) $ 27,510 $ (864,368) $ 21,108 $ (855,959)
Dividends and interest 13,885 9,345 4,644 27,874
----------- ----------- ----------- ----------- -----------
Total investment income (loss) (26,324) 36,855 (859,724) 21,108 (828,085)
----------- ----------- ----------- ----------- -----------
Contributions:
Participants 29,497 34,919 49 64,465
Employer 10,552 6,226 16,778
----------- ----------- ----------- ----------- -----------
Total additions 13,725 71,774 (853,449) 21,108 (746,842)
----------- ----------- ----------- ----------- -----------
DEDUCTIONS:
Benefits paid to participants 27,674 56,056 26,607 16,361 126,698
Interest expense 7,850 7,850
Administrative fees 72 1,792 109 1,973
----------- ----------- ----------- ----------- -----------
Total deductions 27,746 57,848 34,566 16,361 136,521
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS AVAILABLE FOR BENEFITS
BEFORE INTERFUND TRANSFERS (14,021) 13,926 (888,015) 4,747 (883,363)
INTERFUND TRANSFERS (1,159) 2,099 (940) --
MERGER OF NET ASSETS AVAILABLE
FOR BENEFITS:
HBO & Company Profit Sharing and
Savings Plan 253,307 253,307
RedLine HealthCare Corporation
Investment Savings Plan 26,919 26,919
CookCo, Inc. 401(k) Plan 58 58
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS AVAILABLE FOR BENEFITS 239,286 39,744 (885,916) 3,807 (603,079)
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of Year 361,887 1,166,865 152,949 1,681,701
----------- ----------- ----------- ----------- -----------
End of Year $ 239,286 $ 401,631 $ 280,949 $ 156,756 $ 1,078,622
=========== =========== =========== =========== ===========
See notes to financial statements.
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MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
1. PLAN DESCRIPTION
The following brief description of the McKesson Corporation
Profit-Sharing Investment Plan, (the "PSIP" or the "Plan"), formerly
the McKesson HBOC, Inc. Profit-Sharing Investment Plan, is provided
for general information purposes only. Participants should refer to
the Plan document for more complete information. The PSIP is a defined
contribution plan covering all persons who have two months of service
and are regular or part-time employees, or are casual employees
working 1,000 hours in a year, of McKesson Corporation, formerly
McKesson HBOC, Inc., (the "Company" or "McKesson") or a participating
subsidiary, except those covered by a collectively bargained pension
plan. It is subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). Certain administrative costs
incurred by the PSIP are paid by the Company. The Plan is comprised of
the following:
A. PROFIT-SHARING INVESTMENT PLAN
MERGER OF HBO & COMPANY PROFIT SHARING AND SAVINGS PLAN - During
fiscal year 1999, McKesson Corporation completed the acquisition of
the former HBO & Company, now known as McKesson Information Solutions,
Inc. ("MIS"), a wholly-owned subsidiary of the Company. Effective
April 1, 1999, the net assets available for benefits of the HBO &
Company Profit Sharing and Savings Plan (totaling $253,307,000) were
merged into the PSIP. MIS participants (MIS employees and certain
employees of a former MIS subsidiary) have retained their existing
matching percentage which is different from other McKesson employees.
TRANSFERS FROM OTHER QUALIFIED PLANS - Effective November 1, 1999, and
March 1, 2000, the assets available for benefits of the CookCo, Inc.
401(k) Plan (totalling $58,000) and the RedLine HealthCare Corporation
Investment Savings Plan (totaling $26,919,000), respectively, were
merged into the Plan.
CONTRIBUTIONS - Participants may elect to make basic contributions
ranging from 1%-6% of compensation, 1%-4% for MIS participants.
Participants who make basic contributions of 6% (4% for MIS
participants) may elect to make supplemental contributions of up to an
additional 10% of compensation (12% for MIS participants). A
participant's pretax contributions are limited to $10,500 per year for
calendar years 2001 and 2000. Total contributions are limited to the
lesser of $30,000 or 25% of taxable compensation per fiscal year.
Additional limits may apply to individuals classified as highly
compensated employees.
Effective the last day of each month throughout the fiscal year,
participants are credited with matching Company contributions, in the
form of Company common stock, based on a percentage of their basic
contributions. An additional annual matching contribution may be
granted at the discretion of the Company. For the fiscal year 2001,
the matching percentage was 70% of contributed amounts up to the first
6% of contributions for all eligible employees of the McKesson
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MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
divisions and subsidiaries, except MIS. MIS employees received 105% of
contributed amounts up to the first 4% of contributions for eligible
employees.
In fiscal 2000, the total matching percentage for eligible McKesson
employees was 50% of contributed amounts, up to 6% contributed. For
MIS participants, the Company matched 75% of contributed amounts up to
the first 4% contributed.
PARTICIPANT ACCOUNTS - Each participant's account is credited with the
participant's contribution and an allocation of the Company's
contribution and Plan earnings. Allocations are based on participant
earnings, or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
VESTING - Participant contributions and earnings thereon are 100%
vested at all times. PSIP employer matching contributions vest 20%
annually. A participant is 100% vested after five years of accredited
service.
INVESTMENT OPTIONS - Upon enrollment in the PSIP, a participant may
direct their contributions in 1% increments to any of the investments
offered to the participant's specific employee group within the Plan.
Effective January 1, 2001, the asset manager was changed to Fidelity
Trust and investment options expanded to include a mutual fund window
and a brokerage window. The following are descriptions from each
fund's prospectus or fund manager's report:
CERTUS STABLE VALUE FUND invests in low-risk, high-quality
fixed-income investments issued by credit-worthy life insurance
companies and financial institutions. This is a separately managed
account, not a mutual fund.
DODGE & COX LARGE CAP VALUE FUND invests in the common stock of
well-established companies when the fund managers believe the
long-term earnings prospects are not reflected in the current
price.
FIDELITY MAGELLAN FUND represents shares invested in common stocks
and other securities and investments.
PUTNAM INTERNATIONAL GROWTH FUND Y invests primarily in a
diversified portfolio of equity securities of companies located
outside of the U.S.
PUTNAM INVESTORS FUND Y invests primarily in common stocks.
STATE STREET BALANCED FUND is a custom mix of comingled pools that
invests 60% in State Street Global Advisors S&P 500 Index Fund and
40% in State Street Global Advisors Bond Market Index Fund. This
fund strives to match the total rate of return of the Lehman
Brothers Aggregate Bond Index.
STATE STREET BOND INDEX FUND is a comingled pool that seeks to
provide investment results that correspond to the total return of
the bonds in the Lehman Brothers Aggregate Bond Index.
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8
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
STATE STREET S&P 500 INDEX FUND is a comingled pool that invests
in stocks in the benchmark S&P 500 Index.
WELLINGTON SMALL CAP FUND represents shares of a registered
investment company that invests in stocks within the market
capitalization range of the Russell 2000 Index.
MCKESSON CORPORATION STOCK FUND represents shares invested in
Company stock.
MUTUAL FUND WINDOW provides access to approximately 170 mutual
fund options from more than 20 investment companies.
BROKERAGE WINDOW provides access to a discount brokerage account
which allows participants to develop a self-directed brokerage
option. Commissions and account fees are charged to the
participant's account as well as standard plan-related fees.
LOANS - Participants may apply for a loan from the Plan. The total
amount owed to the Plan by an individual participant cannot exceed the
lowest of 50% of such participant's vested account balances, $50,000
or the value of the participant's accounts attributable to basic,
supplemental and rollover contributions. The loans bear interest at
the then current prime rate of interest plus 1%. Contractual interest
rates ranged from 6.50% to 11% in 2001 and from 8.75% to 11% in 2000.
Loans may be repaid over a period not to exceed 5 years, except for
residential loans which must not exceed a term of 10 years.
PAYMENT OF BENEFITS - Participants have the right to withdraw the
value of their vested accounts from the PSIP at the time of
retirement, death, disability or termination of employment. In
general, benefit payments are made in a cash lump sum. Employees may
remain participants in the Participant Directed Funds by electing to
receive installment payments or deferring withdrawal until a later
date. Effective October 1, 1999, all dividends earned on Company stock
are paid directly to the participants.
B. EMPLOYEE STOCK OWNERSHIP PLANS
GENERAL - The Company Stock Fund consists of a leveraged Employee
Stock Ownership Plan ("ESOP"). In fiscal 2001 and 2000, shares from
ESOP I, II and III were used to fund all employer's allocations for
the year.
ESOP I - In January 1985, the Company amended the Plan to add a
leveraged ESOP for the benefit of persons eligible to participate
in the PSIP. In July 1986, the PSIP purchased from the
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9
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
Company 2,000,000 shares of Company common stock for $30,250,000,
financed by a ten-year term loan from a bank, guaranteed by the
Company. Additionally, in connection with a transaction involving
subsidiaries of the Company completed on November 21, 1994 (the
"PCS Transaction"), the ESOP purchased 1,087,754 additional shares
in fiscal 1996. The Company extended the existing term of the
outstanding loan balance from its original maturity in fiscal 1997
to 2005.
ESOP II - In October 1987, the Company amended the Plan to provide
for the purchase of shares of Company common stock by the ESOP. In
conjunction with this amendment, the PSIP purchased from the
Company 4,200,000 common shares of Company common stock in 1987 for
$54,900,000, financed by a fifteen-year term loan from the Company.
Additionally, during fiscal 1996, in connection with the PCS
Transaction, the ESOP purchased 3,036,484 additional shares of
Company common stock.
ESOP III - In June 1989, the Company amended the Plan to add an
additional leveraged ESOP to provide for the PSIP-PLUS allocation.
Certain persons who are contributing at least 2% of their total
compensation to the PSIP are eligible to participate in PSIP-PLUS.
In June 1989, the Plan purchased from the Company 2,849,003 shares
of McKesson Corporation Series B ESOP Convertible Preferred Stock
($43.875 stated value) for $125,000,000, financed by a twenty-year
term loan from the Company. During fiscal 1995, in connection with
the PCS Transaction, all shares of Series B ESOP Convertible
Preferred Stock held by the Plan were converted into 5,440,914
shares of Company common stock. The ESOP purchased 6,259,080
additional shares of Company common stock in fiscal 1996.
RETIREMENT SHARE PLAN ALLOCATION - Effective January 1, 1997, the Plan
provides for a Retirement Share Plan Allocation. The Retirement Share
Plan Allocation, at the Company's election, may be in cash or shares
of Company common stock. The Retirement Share Plan Allocation formula
allocates to each eligible participant a percentage of the
participant's compensation. Such percentage depends on the
participant's combined age and years of service, or Retirement Share
Plan "points" as defined in the Plan document, as of March 31.
Employees hired after December 31, 1999, are not eligible to
participate in the Retirement Share Plan.
CONTRIBUTIONS AND PARTICIPANTS' ACCOUNTS - Dividends on unallocated
ESOP I and II shares of Company common stock, plus the Company's cash
contributions to the ESOP, are used to pay the obligations under the
ESOP I and II loans. For the ESOP III loan, dividends on all shares of
Company common stock (allocated to PSIP-PLUS and unallocated) plus the
Company's cash contributions to the ESOP III are used to pay the
obligations under the loan. Under the terms of the loan agreements,
the Company is required to make cash contributions to each ESOP to the
extent that the dividends are not sufficient to service the debt. The
cash contributions amounted to $15,604,705 and $13,230,825 for the
years ended March 31, 2001 and 2000, respectively.
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10
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
The Company allocates shares to participants' accounts on the basis of
compensation and basic contributions for the plan year. The Company
common stock in the PSIP-PLUS is allocated to eligible participants'
accounts on a per capita basis each year for a period of twenty years
through fiscal 2010. Employees hired after December 31, 1999, are not
eligible for the PSIP-PLUS.
VESTING - Employees become vested in all PSIP allocations after five
years of employment (20% annually over five years). Employees hired on
or before December 31, 1996 become vested in PSIP matching
contributions and PSIP-PLUS after three years of employment.
Generally, 100% vesting is provided upon retirement, disability,
death, termination of the Plan, or a substantial reduction in work
force initiated by the Company. A rehired employee who has met certain
levels of service prior to termination may be entitled to have
forfeited interests in the PSIP reinstated. Each plan year, forfeited
interests are used to reinstate previously forfeited amounts of
rehired employees, and other plan expenses as appropriate. Forfeitures
for the years ended March 31, 2001 and 2000 were $2,154,460 and
$2,463,657.
PAYMENT OF BENEFITS - Distributions are made only upon participant
retirement, death (in which case, payment shall be made to the
participants' beneficiary or, if none, his or her legal
representatives), or other termination of employment with the Company.
Distributions are made in cash or, if a participant elects, in the
form of Company common shares plus cash for any fractional share.
INVESTMENTS - The following ESOP information regarding the shares of
McKesson Corporation common stock held is as of March 31 (in
thousands):
2001 2000
---------------------------------------- ----------------------------------------
NUMBER OF COST FAIR VALUE NUMBER OF COST FAIR VALUE
SHARES BASIS OF SHARES SHARES BASIS OF SHARES
---------- ------------ ------------ ---------- ------------ ------------
Unallocated 8,522 $160,820 $227,970 10,987 $207,307 $230,732
Allocated 7,718 190,053 206,455 7,240 188,219 152,030
---------- ------------ ------------ ---------- ------------ ------------
Total 16,240 $350,873 $434,425 18,227 $395,526 $382,762
========== ============ ============ ========== ============ ============
The following is a reconciliation of the allocated and unallocated shares of the
Company Stock Fund for the years ended (in thousands):
2001 2000
------------------------------------- --------------------------------------
ALLOCATED UNALLOCATED TOTAL ALLOCATED UNALLOCATED TOTAL
--------- ----------- -------- --------- ----------- ----------
Net Assets (Beginning of Year) $174,699 $106,250 $280,949 $ 498,010 $ 668,855 $1,166,865
Net Appreciation (Depreciation) at fair value 42,682 48,710 91,392 (300,525) (563,843) (864,368)
Dividends and interest 1,698 2,434 4,132 1,782 2,862 4,644
Contributions
Employer 10,021 10,021 6,226 6,226
Participant 49 49
Benefits Paid to Participants (46,579) (46,579) (26,607) (26,607)
Interest Expense (7,410) (7,410) (7,850) (7,850)
Administrative Expense (2) (2) (109) (109)
Transfers 20,654 20,654 2,099 2,099
-------- -------- -------- --------- --------- ----------
Net Assets (End of Year) $193,152 $160,005 $353,157 $ 174,699 $ 106,250 $ 280,949
======== ======== ======== ========= ========= ==========
C. COMPANY INVESTMENT FUND
Effective January 1, 2001, the Company Investment Fund investment
control became participant directed and is now included in the Master
Trust.
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11
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The financial statements of the Plan are prepared
under the accrual method of accounting.
CASH EQUIVALENTS - The Plan considers all highly liquid debt instruments
purchased with remaining maturities of less than three months to be cash
equivalents.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
INVESTMENT VALUATION AND INCOME RECOGNITION - Investments are stated at
fair value which is based on independent valuations or publicly quoted
market prices, except for investments in the Stable Value Fund which are
stated at contract value (or cost), plus accrued interest. Shares of
registered investment companies are valued at quoted market prices which
represent the net asset value of shares held by the Plan at year-end.
Shares of McKesson Corporation common stock are valued at quoted market
prices on March 31, 2001 and March 31, 2000.
Purchases and sales of securities are recorded on a trade-date basis.
Realized gains and losses from security transactions are reported on the
average cost method. Interest income is recorded on the accrual basis.
Dividends are recorded on the declaration date.
A portion of the Plan's investments are in the Master Trust which was
established for the investment of assets of the Plan and several other
McKesson sponsored retirement plans. Each participating retirement plan
has an undivided interest in the Master Trust.
Amounts allocated to withdrawing participants are recorded on the Form
5500 for benefit claims that have been processed and approved for payment
prior to March 31, 2001, but not yet paid as of that date.
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12
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
3. MCKESSON CORPORATION PROFIT-SHARING MASTER TRUST
The assets of the Master Trust are held by Chase Manhattan Bank, N.A.
Global Securities Services ("The Trustee"). Short-term investments included
in the Master Trust earn interest at a current short-term market rate. At
March 31, 2001 and 2000, the Plan's ownership interest in the Master Trust
overall was 96.78% and 93.93%, respectively. Investment income and
administrative expenses relating to the Master Trust are allocated to the
individual plans based on daily balances invested in each plan. The Master
Trust assets consisted of the following at March 31, 2001 and 2000 (in
thousands):
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13
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
2001 2000
-------------------------- ---------------------------
PLAN'S PLAN'S
OWNERSHIP OWNERSHIP
AMOUNT % AMOUNT %
--------- --------- --------- ---------
Certus Stable Value Fund:
Cash and cash equivalents $ 13,438 $ 17,292
Investment contracts 89,858 80,101
Accrued income 59 408
Accrued liabilities (1,189)
Interfund balances 790
--------- ---------
Total Certus Stable Value Fund 102,166 92.87% 98,591 90.48%
Dodge & Cox Large Cap Value Fund
(formerly Equity Income Fund)
Cash and cash equivalents 2,604 5,370
Investments in stock 84,349 101,910
Accrued income 218 44
Accrued liabilities (92)
Interfund balances (18,829)
Contribution receivable 1,230
Trade payables (1,181)
--------- ---------
Total Dodge & Cox Large Cap Value Fund 87,079 92.49% 88,544 91.55%
Fidelity Magellan Fund investments 50,100 99.90%
Putnam International Growth Fund Y
(formerly Putnam Int'l. Equity Fund)
Cash and cash equivalents 46
Investments in equity securities 12,811 14,520
Accrued income 2
Interfund balances 980
--------- ---------
Total Putnam International Growth Fund Y 12,859 97.06% 15,500 98.15%
Putnam Investors Fund Y 115
Cash and cash equivalents 1
---------
Total Putnam Investors Fund Y 116 100.00%
State Street Balanced Fund:
Cash and cash equivalents (10)
Investments 30,003 24,557
Interfund balances (44)
--------- ---------
Total State Street Balanced Fund 29,993 98.01% 24,513 98.32%
State Street Bond Index Fund investments 21,136 100.00%
State Street S&P 500 Index Fund:
Cash and cash equivalents 53
Investments in stock 195,648 152,062
Interfund balances 17,132
--------- ---------
Total State Street S&P 500 Index Fund 195,701 97.08% 169,194 95.34%
Wellington Small Cap Fund:
Cash and cash equivalents 591
Investments in stock 19,009 18,001
Accrued income 161
Accrued liabilities (298)
Interfund balances 968
--------- ---------
Total Wellington Small Cap Fund 19,463 96.92% 18,969 97.49%
Mutual Fund Window investments 104,989 100.00%
McKesson Corporation Stock
Cash and cash equivalents 1,668
Investments in stock 31,361
Accrued income 77
---------
Total McKesson Corporation Stock 33,106 100.00%
Cash and cash equivalents 2,208 100.00%
Participant Loans 11,630 96.26% 12,264 100.00%
--------- ---------
Total Master Trust Assets $ 670,546 96.78% $ 427,575 93.93%
========= =========
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14
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
The Stable Value Fund contains benefit-responsive guaranteed investment
contracts with several insurance companies carried at contract value plus
accrued interest totaling $25,744,928 and $43,868,479 at March 31, 2001 and
2000, respectively. The guaranteed rates range from 5.24% to 7.72% and the
contracts mature at various dates through September 2006. The Stable Value
Fund also includes synthetic investment contracts which are
benefit-responsive and are carried at contract value plus accrued interest
totaling $64,153,634 and $39,177,808 at March 31, 2001 and 2000,
respectively. Contract crediting rates ranged from 5.26% to 7.29% at March
31, 2001. There are no reserves against contract value for credit risk of
the contract issuer or otherwise. Certain of the contracts contain
limitations on contract value guarantees for liquidation other than to pay
benefits. The contracts mature at various dates through April 2004. The
Plan's investment guidelines require these contracts to be with companies
rated AA- or better, with no more than 10% of the pool invested with one
traditional Guaranteed Income Contract issuer and no more than 40% invested
with any one synthetic wrap provider.
The Master Trust's investment income for the years ended March 31, was as
follows (in thousands):
2001 2000
------------------------------- -------------------------------
Net Appreciation Net Appreciation
(Depreciation) Dividends & (Depreciation) Dividends &
in fair value of Interest in fair value of Interest
Investments Income Investments Income
---------------- ----------- ---------------- -----------
Certus Stable Value Fund $ (20) $ 5,795 $ - $5,780
Dodge & Cox Large Cap Value Fund 12,403 3,103 (7,414) 2,951
Fidelity Magellan Fund (7,093)
Putnam International Growth Fund Y (4,000) 10 4,805 8
Putnam Investors Fund Y (3)
State Street Balanced Fund (2,344) 2,366
State Street Bond Index Fund 443
State Street S&P 500 Index Fund (42,456) 22,600 8
Wellington Small Cap Fund (1,798) 242 5,370 161
Mutual Fund Window investments (12,445) 295
McKesson Corporation Stock (10,845) 167
Loans 430 883
-------- ------- ------- -------
Total $(68,158) $10,042 $27,727 $9,791
======== ======= ======= =======
Effective January 1, 2001, the HBO Fund Group merged with the Master Trust.
4. INVESTMENTS
The recorded values of individual investments that represent 5% or more of
the Plan's net assets at March 31, 2001 and 2000 were as follows (in
thousands):
2001 2000
-------- --------
Interest in Master Trust $648,978 $401,631
Fidelity Magellan Fund -- 65,006
McKesson Corporation stock 434,425 382,762
S&P 500 Index II Fund -- 131,419
5. ESOP PROMISSORY NOTES PAYABLE
The ESOP I(b) promissory note supporting the July 1986 stock purchase is
payable to Wells Fargo Bank in increasing annual installments (ranging from
2% to 3% of original principal) over an 18-year term beginning in fiscal
1987 through fiscal 2005 (Note 1,B). The interest rate is the London
Interbank Offered Rate ("LIBOR") plus .4%, with an option to the Plan to
fix the LIBOR rate for a period ranging
-12-
15
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
from 1 month to 1 year. On March 31, 2001, the interest rate was 5.9%, and
the outstanding balance was $3,456,408 ($4,190,142 at March 31, 2000). The
note is guaranteed by the Company, without recourse to the participants'
accounts, and is collateralized by 490,612 unallocated shares of McKesson
Corporation common stock remaining from 3,087,754 shares.
The ESOP II promissory note is payable to the Company in increasing annual
installments (ranging from 4% to 11% of original principal) over a
fifteen-year term beginning in fiscal 1988 through fiscal 2003. The
interest rate is 77.5% of the prime rate or 89.08% of LIBOR, with an option
to the borrower to fix the LIBOR rate for a period ranging from 1 month to
1 year. On March 31, 2001, the interest rate was 4.53%, and the outstanding
balance was $11,408,220 ($16,491,960 at March 31, 2000). This note is
collateralized by 1,653,989 unallocated shares of McKesson Corporation
common stock remaining from 7,236,484 shares.
The ESOP promissory note supporting the ESOP III purchase is payable to the
Company in increasing annual installments (ranging from 3% to 8% of
original principal) plus interest at 8.6% over a twenty-year term beginning
in fiscal 1990 through fiscal 2010. On March 31, 2001, the outstanding
balance of the note was $66,133,526 ($71,240,925 at March 31, 2000). This
note is collateralized by 5,739,745 unallocated shares of McKesson
Corporation common stock remaining from 11,699,994 shares.
Future minimum principal payments required on the ESOP notes are as follows
(in thousands):
2002 $11,823
2003 12,802
2004 7,465
2005 8,102
2006 7,781
Thereafter 33,025
-------
Total $80,998
=======
6. LINE OF CREDIT
In 1998, the Plan obtained a $35 million line of credit with ABN AMRO Bank
N.V. in order to refinance a portion of the principal payable under the
ESOP loans. The line of credit was obtained in order to reduce the number
of shares necessary to fund the employee benefits. The Plan released only
the shares required to fund the annual ESOP benefits. The interest rate is
the LIBOR rate multiplied by the applicable LIBOR adjustment. The loans
mature on June 1, 2009. At March 31, 2001 and 2000, interest rates ranged
from 4.50% to 4.73% and from 5.26% to 5.46% on the outstanding balance of
$8,000,000, in both years. The loans are collateralized by 637,895
unallocated shares of McKesson Corporation common stock.
-13-
16
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
YEARS ENDED MARCH 31, 2001 AND 2000
--------------------------------------------------------------------------------
The Internal Revenue Service ("IRS") has indicated it is currently unable
to issue a ruling in regard to the refinancing agreement. If the IRS does
not approve the refinancing, the Plan will release the shares and allocate
them to participants as originally scheduled.
7. TAX STATUS
The IRS has determined and informed the Company by letter dated October 27,
1998, that the Plan is qualified and the trust established under the Plan
is tax-exempt, under the appropriate sections of the Internal Revenue Code.
The Plan has been restated (effective April 1, 1999 and January 1, 2001)
since receiving the determination letter. However, the Plan administrator
believes that the Plan is currently designed and being operated in
compliance with the applicable requirements of the Code. Therefore, the
Plan administrator believes that the Plan was qualified and the related
trust was tax-exempt as of the financial statement date.
The plan sponsor has recently conducted an operational audit of the Plan
and has determined that there may be certain prohibited transactions
involving the Plan which must be corrected. The plan sponsor is in the
process of reviewing these matters in an effort to determine the actual
amounts involved. As soon as this review is completed, the plan sponsor
will promptly take required corrective action. The matters under review
include late deposit of 401(k) contributions and the payment of certain
administrative expenses by the Plan. The plan sponsor does not believe that
the amounts involved in any such matters are of a material nature in the
aggregate.
8. PLAN TERMINATION
The Company's Board of Directors reserves the right to terminate the Plan.
If termination should occur, all participants will immediately vest and
each would receive a distribution equal to his or her vested account
balance, and the unallocated common stock would be liquidated to repay the
ESOP promissory notes payable. If the stock liquidation is insufficient to
satisfy the notes payable, the Company would fund the difference.
9. PENDING LITIGATION
On November 24, 1999, an action entitled Chang v. McKesson HBOC, Inc. et
al. (Case No. C-00-20030 RMW) ("Chang"), was filed in the U.S. District
Court, Northern District of California. By order dated February 7, 2000,
Chang was coordinated with the more than 50 related class actions pending
in the United States District Court for the Northern District of
California. On June 28, 2001, plaintiffs filed a First Amended Complaint
naming as defendants, the Company, HBOC, certain current or former officers
or directors of the Company or HBOC and the Chase Manhattan Bank. The
Amended Complaint is purportedly brought on behalf of participants in the
McKesson Corporation Profit Sharing Investment Plan and the former HBOC
Profit Sharing and Savings Plan. Plaintiffs allege that defendants breached
their fiduciary duties and violated sections of the Employee Retirement
Income Security Act of 1974, causing damages to class members in connection
with the decline in the Company's stock price following the April 28, 1999
announcement regarding accounting improprieties at HBOC. Plan management
does not believe it is feasible to predict or determine the outcome or
resolution of these proceedings.
******
-14-
17
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
MARCH 31, 2001 (in 000's)
--------------------------------------------------------------------------------
INVESTMENT COST BASIS UNITS FAIR VALUE
---------- ---------- ------ ----------
McKesson Corporation
Common Stock $350,873 16,240 $434,425
Total
Note: In addition, McKesson Corporation common stock is held in the Master
Trust and disclosed in the Form 5500.
-15-
18
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
SCHEDULE OF REPORTABLE PLAN TRANSACTIONS
YEAR ENDED MARCH 31, 2000 (in 000's)
--------------------------------------------------------------------------------
PURCHASES SALES/DISPOSITIONS
----------------- ------------------------- GAIN/
IDENTITY OF ISSUE NUMBER AMOUNT NUMBER AMOUNT (LOSS)
----------------- ------ ------ ------- ------------ ------------
SINGLE TRANSACTION
S&P 500 Index II Fund 376 $ 82,396 $ 38,846
-16-
19
MCKESSON CORPORATION
PROFIT-SHARING INVESTMENT PLAN
SCHEDULE OF NONEXEMPT TRANSACTIONS
YEAR ENDED MARCH 31, 2001
--------------------------------------------------------------------------------
The plan sponsor has recently conducted an operational audit of the Plan
and has determined that there may be certain prohibited transactions
involving the Plan which must be corrected. The plan sponsor is in the
process of reviewing these matters in an effort to determine the actual
amounts involved. As soon as this review is completed, the plan sponsor
will promptly take required corrective action. The matters under review
include late deposit of 401(k) contributions and the payment of certain
administrative expenses by the Plan. The plan sponsor does not believe that
the amounts involved in any such matters are of a material nature in the
aggregate.
-17-
20
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan
administrator has duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
McKesson Corporation Profit-Sharing Investment Plan
By: /s/ Paul E. Kirincic
---------------------------
Paul E. Kirincic
Senior Vice President
Human Resources
DATE: September 27, 2001