McKesson to Restate 1999 Profit

McKesson HBOC Inc., the largest U.S. drug wholesaler, said Wednesday that it will lower its fiscal 1999 earnings by $152.2 million, or 53 cents a share, as it fixes accounting improprieties at its software unit that caused its stock to lose more than half its value since January.

San Francisco-based McKesson said the problems at its HBOC software unit caused it to slash $327.4 million off revenue for three fiscal years. It cut earnings for fiscal 1998 by $25.8 million, or 9 cents, and fiscal 1997 by $13.5 million, or 5 cents.

It also said it won’t meet analysts’ earnings expectations of 49 cents a share for the first quarter of its fiscal 2000, which ended June 30.

McKesson bought HBO & Co., the largest software maker for the health-care industry, for $13.9 billion in January.

Three months later, it said it would restate several quarters of earnings because of improperly recorded sales by HBOC. Wednesday’s restatement is said to be the last of the fallout.

“The restatement is still a big problem,” said Andrew Speller, an A.G. Edwards analyst with a “maintain position” rating on McKesson. “I don’t know where the margins are now after what they put out today.”

McKesson shares fell $2.06 to close at $31 on the New York Stock Exchange. The company announced the earnings revision after the close of U.S. trading.

HBOC’s improper accounting cost Chief Executive Mark A. Pulido, Chairman Charles W. McCall and four senior managers their jobs and brought several dozen lawsuits from shareholders.

McKesson said the U.S. attorney’s office for Northern California and the San Francisco office of the Securities and Exchange Commission are investigating the improperly recorded sales, which were limited to HBOC’s operations.

After the restatement, McKesson had fiscal 1999 net income of $84.9 million, or 31 cents a share, from revenue of $30.4 billion, down from income of $304.6 million, or $1.10, on revenue of $22.4 billion a year earlier.

The 1999 results include charges of $293.9 million; the 1998 results, $60.7 million.

McKesson cut fiscal 1999 revenue by $245.8 million, fiscal 1998 by $48.4 million and fiscal 1997 revenue by $33.2 million.

It estimates it will receive $160 million of that $327.4 million in restated revenue as sales in the future, while about $50 million will never be recaptured. The rest, about $115 million, could be recorded at some point, it said.

Last month, McKesson named David Mahoney, the head of its pharmaceutical services unit, and John Hammergren, the head of its supply management business, co-chief executive officers. Alan Seelenfreund, a former McKesson chief executive, is non-executive chairman.

The new management is trying to rebuild trust lost with investors because of the problems at HBOC.

“The new management will get a break, but they need to prove their strategy is going to work,” Speller said.

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