- Revenues of $52.6 billion for the first
quarter, up 3% year over year.
- First-quarter GAAP loss per diluted
share from continuing operations of $(0.69).
- First-quarter Adjusted Earnings per
diluted share of $2.90, up 18% year over year.
- Fiscal 2019 Outlook: Adjusted Earnings
of $13.00 to $13.80 per diluted share.
- Board of Directors approved raising the
quarterly dividend by 15% from 34 cents to 39 cents per share.
McKesson Corporation (NYSE:MCK) today reported that revenues for
the first quarter ended June 30, 2018, were $52.6 billion, up 3%
compared to $51.1 billion a year ago. On a constant currency basis,
revenues increased 2% over the prior year. On the basis of U.S.
generally accepted accounting principles (“GAAP”), first-quarter
loss per diluted share from continuing operations was $(0.69),
compared to earnings per diluted share of $1.44 a year ago. GAAP
loss per diluted share included a pre-tax and after-tax non-cash
goodwill impairment charge of $570 million, or $2.81 per diluted
share, in the European Pharmaceutical Solutions segment, primarily
triggered by additional U.K. government reimbursement reductions
announced on June 29, 2018, as well as the change to the company’s
segment reporting structure.
First-quarter Adjusted Earnings per diluted share was $2.90, up
18% compared to $2.46 a year ago, driven by a lower tax rate and
share count, and growth in the U.S. Pharmaceutical and Specialty
Solutions segment.
For the first quarter, McKesson used $1.1 billion in cash from
operations, and invested $145 million internally, resulting in
negative free cash flow of $1.2 billion, in line with the company’s
expectations. During the quarter, McKesson also paid $826 million
for acquisitions, repurchased approximately $300 million of its
common stock, paid $71 million in dividends and the company ended
the quarter with cash and cash equivalents of $2.2 billion.
“McKesson’s first quarter adjusted earnings results were in line
with our expectations. We are, however, disappointed by the recent
government-initiated reimbursement cuts in the U.K. These
incremental cuts create ongoing challenges in our U.K. retail
pharmacy business,” said John H. Hammergren, chairman and chief
executive officer. “During the quarter, we began executing against
our multi-year strategic growth initiative, which included our
acquisition of Medical Specialties Distributors. And I am pleased
with the initial progress made on transforming our operating model,
which will allow us to become a more efficient organization, and
drive savings that will help fund investments in our priority
growth areas.”
New Segment Financial Reporting Effective Fiscal Year
2019
As previously disclosed on May 24, 2018, McKesson revised its
reportable segments effective with the first quarter of Fiscal
2019. McKesson’s new reportable segments are:
- U.S. Pharmaceutical and Specialty
Solutions;
- European Pharmaceutical Solutions;
and
- Medical-Surgical Solutions.
All remaining operating segments and business activities are
included in Other. Other primarily includes McKesson Canada,
McKesson Prescription Technology Solutions (MRxTS) and the
company’s equity method investment in Change Healthcare.
Segment Results
U.S. Pharmaceutical and Specialty Solutions revenues were $41.0
billion for the quarter, up 2%, driven primarily by market growth
and acquisitions, partially offset by previously announced customer
losses and branded to generic conversions. Segment GAAP operating
profit was $543 million and GAAP operating margin was 1.33%.
Segment adjusted operating profit was $540 million and adjusted
operating margin was 1.32%.
European Pharmaceutical Solutions revenues were $6.9 billion for
the quarter, up 9% on a reported basis and 1% on a constant
currency basis, driven primarily by market growth and acquisitions,
largely offset by the previously disclosed increased competition in
France and a reduction in owned retail pharmacies in the U.K.
versus the prior year. Segment GAAP operating loss was $560 million
and GAAP operating margin was (8.07)%. Segment adjusted operating
profit was $74 million and adjusted operating margin was 1.07%. On
a constant currency basis, adjusted operating profit was $69
million and adjusted operating margin was 1.07%.
Medical-Surgical Solutions revenues were $1.7 billion for the
quarter, up 11%, driven primarily by market growth and an
acquisition. Segment GAAP operating profit was $93 million and GAAP
operating margin was 5.46%. Segment adjusted operating profit was
$125 million and adjusted operating margin was 7.34%.
Other revenues were $3.0 billion for the quarter, up 5% on a
reported basis and 1% on a constant currency basis, driven
primarily by market growth, mostly offset by the impact of
government actions on the McKesson Canada business. Other GAAP
operating profit was $114 million and adjusted operating profit was
$213 million. On a constant currency basis, adjusted operating
profit was $204 million.
Fiscal Year 2019 Outlook
McKesson expects Adjusted Earnings per diluted share of $13.00
to $13.80 for the fiscal year ending March 31, 2019.
McKesson does not provide forward-looking guidance on a GAAP
basis as the company is unable to provide a quantitative
reconciliation of this forward-looking non-GAAP measure to the most
directly comparable forward-looking GAAP measure without
unreasonable effort, as items are inherently uncertain and depend
on various factors, many of which are beyond the company’s
control.
Dividend Declaration
The company’s Board of Directors yesterday declared a regular
dividend of $0.39 cents per share of common stock, a 15% increase
from $0.34 cents per share in the prior quarter. The dividend will
be payable on October 1, 2018, to stockholders of record on
September 4, 2018.
Adjusted Earnings
McKesson separately reports financial results on the basis of
Adjusted Earnings. Adjusted Earnings is a non-GAAP financial
measure defined as GAAP income from continuing operations,
excluding amortization of acquisition-related intangible assets,
acquisition-related expenses and adjustments, LIFO
inventory-related adjustments, gains from antitrust legal
settlements, restructuring and asset impairment charges, and other
adjustments. A reconciliation of McKesson’s GAAP financial results
to Adjusted Earnings is provided in Schedules 2 and 3 of the
financial statement tables included with this release.
The company does not provide forward-looking guidance on a GAAP
basis prospectively as McKesson is unable to provide a quantitative
reconciliation of this forward-looking non-GAAP measure to the most
directly comparable forward-looking GAAP measure, without
unreasonable effort, because McKesson cannot reliably forecast LIFO
inventory-related adjustments, gains from antitrust legal
settlements, restructuring and asset impairment charges, and other
adjustments, which are difficult to predict and estimate. These
items are inherently uncertain and depend on various factors, many
of which are beyond the company’s control, and as such, any
associated estimate and its impact on GAAP performance could vary
materially.
Constant Currency
McKesson also presents its financial results on a constant
currency basis. The company conducts business worldwide in local
currencies, including the Euro, British pound and Canadian dollar.
As a result, the comparability of the financial results reported in
U.S. dollars can be affected by changes in foreign currency
exchange rates. Constant currency information is presented to
provide a framework for assessing how the company’s business
performed excluding the effect of foreign currency exchange rate
fluctuations. The supplemental constant currency information of the
company’s GAAP financial results and Adjusted Earnings (Non-GAAP)
is provided in Schedule 3 of the financial statement tables
included with this release.
Free Cash Flow
McKesson also provides free cash flow, a non-GAAP measure. Free
cash flow is defined as net cash provided by operating activities
less property acquisitions and capitalized software expenditures,
as outlined in the company’s condensed consolidated statements of
cash flows.
Risk Factors
Except for historical information contained in this press
release, matters discussed may constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934, as
amended, that involve risks and uncertainties that could cause
actual results to differ materially from those projected,
anticipated or implied. These statements may be identified by their
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. It is not possible to predict or identify all such
risks and uncertainties; however, the most significant of these
risks and uncertainties are described in the company’s Form 10-K,
Form 10-Q and Form 8-K reports filed with the Securities and
Exchange Commission and include, but are not limited to: changes in
the U.S. healthcare industry and regulatory environment; managing
foreign expansion, including the related operating, economic,
political and regulatory risks; changes in the Canadian healthcare
industry and regulatory environment; exposure to European economic
conditions, including recent austerity measures taken by certain
European governments; changes in the European regulatory
environment with respect to privacy and data protection
regulations; fluctuations in foreign currency exchange rates; the
company’s ability to successfully identify, consummate, finance and
integrate acquisitions; the performance of the company’s investment
in Change Healthcare; the company’s ability to manage and complete
divestitures; material adverse resolution of pending legal
proceedings; competition and industry consolidation; substantial
defaults in payment or a material reduction in purchases by, or the
loss of, a large customer or group purchasing organization; the
loss of government contracts as a result of compliance or funding
challenges; public health issues in the U.S. or abroad;
cyberattack, natural disaster, or malfunction of sophisticated
internal computer systems to perform as designed; the adequacy of
insurance to cover property loss or liability claims; the company’s
proprietary products and services may not be adequately protected,
and its products and solutions may be found to infringe on the
rights of others; system errors or failure of our technology
products or services to conform to specifications; disaster or
other event causing interruption of customer access to data
residing in our service centers; changes in circumstances that
could impair our goodwill or intangible assets; new or revised tax
legislation or challenges to our tax positions; general economic
conditions, including changes in the financial markets that may
affect the availability and cost of credit to the company, its
customers or suppliers; changes in accounting principles generally
accepted in the United States of America; withdrawal from
participation in multiemployer pension plans or if such plans are
reported to have underfunded liabilities; inability to realize the
expected benefits from the company’s restructuring and business
process initiatives; difficulties with outsourcing and similar
third party relationships; risks associated with the company’s
retail expansion; and the company’s inability to keep existing
retail store locations or open new retail locations in desirable
places. The reader should not place undue reliance on
forward-looking statements, which speak only as of the date they
are first made. 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.
Conference Call Details
The company has scheduled a conference call for today, Thursday,
July 26th, at 8:00 AM ET. The dial-in number for individuals
wishing to participate on the call is 323-994-2093. Craig Mercer,
senior vice president, Investor Relations, is the leader of the
call, and the password to join the call is ‘McKesson’. A telephonic
replay of this conference call will be available for five calendar
days. The dial-in number for individuals wishing to listen to the
replay is 719-457-0820 and the pass code is 1175861. An archive of
the conference call will also be available on the company’s
Investor Relations website
at http://investor.mckesson.com.
Shareholders are encouraged to review the company’s filings with
the Securities and Exchange Commission.
About McKesson Corporation
McKesson Corporation, currently ranked 6th on the FORTUNE 500,
is a global leader in healthcare supply chain management solutions,
retail pharmacy, community oncology and specialty care, and
healthcare information technology. McKesson partners with
pharmaceutical manufacturers, providers, pharmacies, governments
and other organizations in healthcare to help provide the right
medicines, medical products and healthcare services to the right
patients at the right time, safely and cost-effectively. United by
our ICARE shared principles, our employees work every day to
innovate and deliver opportunities that make our customers and
partners more successful — all for the better health of patients.
McKesson has been named the “Most Admired Company” in the
healthcare wholesaler category by FORTUNE, a “Best Place to Work”
by the Human Rights Campaign Foundation, and a
top military-friendly company by Military Friendly. For
more information, visit www.mckesson.com.
Schedule
1
McKESSON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS - GAAP (unaudited) (in millions, except
per share amounts) Quarter Ended June 30, 2018
2017 Change Revenues $ 52,607 $ 51,051 3 % Cost of sales (1)
(49,828 ) (48,491 ) 3 Gross profit 2,779 2,560
9 Operating expenses (2) (2,127 ) (1,927 ) 10 Goodwill impairment
charges (3) (570 ) - - Restructuring and asset impairment charges
(4) (96 ) - - Gain from escrow settlement (5) 97
- - Total operating expenses (2,696 )
(1,927 ) 40 Operating income 83 633 (87 ) Other income, net 40 13
208 Loss from equity method investment in Change Healthcare (6) (56
) (120 ) (53 ) Interest expense (61 ) (68 ) (10 )
Income from continuing operations before income taxes
6 458 (99 ) Income tax expense (87 ) (95 ) (8 )
Income (loss) from continuing operations after tax (81 ) 363 (122 )
Income from discontinued operations, net of tax 1
2 (50 ) Net income (loss) (80 ) 365 (122 ) Net
income attributable to noncontrolling interests (58 )
(56 ) 4 Net income (loss) attributable to McKesson Corporation $
(138 ) $ 309 (145 ) %
Earnings (loss) per common share
attributable to McKesson Corporation (a)
Diluted (b) Continuing operations $ (0.69 ) $ 1.44 (148 ) %
Discontinued operations 0.01 0.01 -
Total $ (0.68 ) $ 1.45 (147 ) % Basic
Continuing operations $ (0.69 ) $ 1.46 (147 ) % Discontinued
operations 0.01 - - Total $ (0.68 ) $
1.46 (147 ) % Dividends declared per common share $
0.34 $ 0.28 Weighted
average common shares (b) Diluted 202 213 (5 ) % Basic 202 211 (4 )
(a) Certain computations may reflect rounding
adjustments. (b) Fiscal year 2019 diluted loss per share is
calculated by excluding dilutive securities from the denominator
due to their anti-dilutive effects.
(1) (2) (3) (4) (5) (6) Refer to the
section entitled "Financial Statement Footnotes" of this
release.
Schedule
2
McKESSON CORPORATION RECONCILIATION OF GAAP OPERATING
RESULTS TO ADJUSTED EARNINGS (NON-GAAP) (unaudited)
(in millions, except per share amounts)
Change Quarter Ended June 30,
2018 Vs. Prior Period
As Reported(GAAP)
Amortizationof
Acquisition-RelatedIntangibles
Acquisition-RelatedExpenses
andAdjustments
LIFO Inventory-RelatedAdjustments
Gains fromAntitrust LegalSettlements
Restructuringand AssetImpairmentCharges,
Net
OtherAdjustments,Net
AdjustedEarnings(Non-GAAP)
AsReported(GAAP)
AdjustedEarnings(Non-GAAP)
Gross profit (1) $ 2,779 $ - $ 1 $ (21 ) $ (35 ) $ - $ - $
2,724 9 % 5 %
Operating expenses (2) (3) (4) (5)
$ (2,696 ) $ 121 $ 20 $ - $ - $ 96 $ 487 $ (1,972 ) 40 % 9 %
Other income, net $ 40 $ 1 $ - $ - $ - $ - $ - $ 41 208 % 215 %
Income (Loss) from equity method
investment in Change Healthcare (6)
$ (56 ) $ 77 $ 40 $ - $ - $ - $ 3 $ 64 (53 ) % (9 ) %
Income from continuing operations before
income taxes
$ 6 $ 199 $ 61 $ (21 ) $ (35 ) $ 96 $ 490 $ 796 (99 ) % 1 %
Income tax expense
$ (87 ) $ (50 ) $ (16 ) $ 6 $ 9 $ (11 ) $ - $ (149 ) (8 ) % (29 ) %
Income (loss) from continuing operations,
net of tax, attributable to McKesson Corporation
$ (139 ) $ 149 $ 45 $ (15 ) $ (26 ) $ 85 $ 490 $ 589 (145 ) % 13 %
Diluted earnings (loss) per common share
from continuing operations, net of tax, attributable to McKesson
Corporation (a) (b)
$ (0.69 ) $ 0.74 $ 0.22 $ (0.07
) $ (0.13 ) $ 0.42 $ 2.41
$
2.90(c)
(148 ) % 18 %
Diluted weighted average common shares
(b)
202 203 203
203 203 203
203 203 (5 ) % (5
) % Quarter Ended June 30, 2017
As Reported(GAAP)
Amortizationof
Acquisition-RelatedIntangibles
Acquisition-RelatedExpenses
andAdjustments
LIFO Inventory-RelatedAdjustments
Gains fromAntitrust LegalSettlements
Restructuringand AssetImpairmentCharges,
Net
OtherAdjustments,Net
AdjustedEarnings(Non-GAAP)
Gross profit (1) $ 2,560 $ - $ 4 $ 26 $ - $ - $ - $ 2,590
Operating expenses (2) $ (1,927 ) $ 121 $ (11 ) $ - $ - $ 3
$ (2 ) $ (1,816 ) Other income, net $ 13 $ - $ - $ - $ - $ -
$ - $ 13
Income (Loss) from equity method
investment in Change Healthcare (6)
$ (120 ) $ 71 $ 119 $ - $ - $ - $ - $ 70
Income from continuing operations before
income taxes
$ 458 $ 192 $ 112 $ 26 $ - $ 3 $ (2 ) $ 789 Income tax
expense $ (95 ) $ (66 ) $ (39 ) $ (10 ) $ - $ (1 ) $ 1 $ (210 )
Income from continuing operations, net of
tax, attributable to McKesson Corporation
$ 307 $ 126 $ 73 $ 16 $ - $ 2 $ (1 ) $ 523
Diluted earnings per common share from
continuing operations, net of tax, attributable to McKesson
Corporation (a)
$ 1.44 $ 0.60 $ 0.34 $
0.08 $ - $ 0.01 $ (0.01 )
$ 2.46
Diluted weighted average common shares
213 213 213
213 - 213
213 213
(a) Certain computations may reflect rounding
adjustments. (b) Fiscal year 2019 diluted loss per share, as
reported under GAAP, is calculated using a weighted average of 202
million common shares and excludes dilutive securities from the
denominator due to their anti-dilutive effects. Potentially
dilutive securities were excluded from the fiscal year 2019 GAAP
per share computations due to our reported net loss for fiscal year
2019. Diluted earnings per share (Non-GAAP), and GAAP to Non-GAAP
per share reconciling items, are calculated using a weighted
average of 203 million common shares and includes dilutive
securities. (c) Adjusted Earnings per share on a Constant Currency
basis for fiscal year 2019 was $2.85 per diluted share, which
excludes the foreign currency exchange effect of $0.05 per diluted
share. (1) (2) (3) (4) (5) (6) Refer to the section entitled
"Financial Statement Footnotes" of this release.
For more information relating to the
Adjusted Earnings (Non-GAAP) definition, refer to the section
entitled “Supplemental Non-GAAP Financial Information” of this
release.
Schedule
3
McKESSON CORPORATION RECONCILIATION OF GAAP SEGMENT
FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited) (in millions)
Quarter Ended June 30,
2018 Quarter Ended June 30, 2017 GAAP Non-GAAP
Change
As Reported(GAAP)
Adjustments
AdjustedEarnings(Non-GAAP)
As Reported(GAAP)
Adjustments
AdjustedEarnings(Non-GAAP)
ForeignCurrencyEffects
ConstantCurrency
ForeignCurrencyEffects
ConstantCurrency
AsReported(GAAP)
AdjustedEarnings(Non-GAAP)
ConstantCurrency(GAAP)
ConstantCurrency(Non-GAAP)
REVENUES
U.S. Pharmaceutical and Specialty
Solutions
$ 40,977 $ - $ 40,977 $ 40,282 $ - $ 40,282 $ - $ 40,977 $ - $
40,977 2 % 2 % 2 % 2 % European Pharmaceutical Solutions 6,935 -
6,935 6,382 - 6,382 (487 ) 6,448 (487 ) 6,448 9 9 1 1
Medical-Surgical Solutions 1,703 - 1,703 1,533 - 1,533 - 1,703 -
1,703 11 11 11 11 Other (a) 2,992
- 2,992 2,854
- 2,854
(111 ) 2,881 (111 )
2,881 5 5 1 1 Revenues $ 52,607
$ - $ 52,607 $ 51,051
$ - $ 51,051 $ (598 )
$ 52,009 $ (598 ) $ 52,009
3 % 3 % 2 % 2 %
OPERATING PROFIT (4)
U.S. Pharmaceutical and Specialty
Solutions (1)
$ 543 $ (3 ) $ 540 $ 475 $ 54 $ 529 $ - $ 543 $ - $ 540 14 % 2 % 14
% 2 % European Pharmaceutical Solutions (3) (560 ) 634 74 35 49 84
21 (539 ) (5 ) 69 (1,700 ) (12 ) (1,640 ) (18 ) Medical-Surgical
Solutions 93 32 125 108 17 125 - 93 - 125 (14 ) - (14 ) - Other (a)
(2) (5) (6) 114 99
213 17 214
231 (13 )
101 (9 ) 204 571 (8 ) 494
(12 ) Operating profit 190 762 952 635 334 969 8 198 (14 ) 938 (70
) (2 ) (69 ) (3 ) Corporate (123 ) 28
(95 ) (109 )
(3 ) (112 ) -
(123 ) 1 (94 ) 13 (15 )
13
(16 )
Income from continuing operations before
interest expense and income taxes
$ 67 $ 790 $ 857 $ 526
$ 331 $ 857 $ 8
$ 75 $ (13 ) $ 844
(87 ) % - % (86 ) % (2 ) %
OPERATING PROFIT AS A %
OF REVENUES U.S. Pharmaceutical and Specialty Solutions 1.33 %
1.32 % 1.18 % 1.31 % 1.33 % 1.32 % 15 bp 1 bp 15 bp 1 bp European
Pharmaceutical Solutions (8.07 ) 1.07 0.55 1.32 (8.36 ) 1.07 (862 )
(25 ) (891 ) (25 ) Medical-Surgical Solutions 5.46 7.34 7.05 8.15
5.46 7.34 (159 ) (81 ) (159 ) (81 ) (a) Other
primarily includes the results of our McKesson Canada and McKesson
Prescription Technology Solutions businesses. Other for fiscal year
2018 includes the Enterprise Information Solutions ("EIS")
business, which was sold in the third quarter of fiscal year 2018.
Operating profit for Other also includes our proportionate share of
income (loss) from our equity method investment in Change
Healthcare. (1) (2) (3) (4) (5) (6) Refer to the section
entitled "Financial Statement Footnotes" of this release.
For more information relating to the
Adjusted Earnings (Non-GAAP) and Constant Currency (Non-GAAP)
definitions, refer to the section entitled “Supplemental Non-GAAP
Financial Information” of this release.
Schedule
4
McKESSON CORPORATION CONDENSED CONSOLIDATED BALANCE
SHEETS (unaudited) (in millions)
June
30,
March 31,
2018
2018 ASSETS Current Assets Cash and cash
equivalents $ 2,199 $ 2,672 Receivables, net 19,093 17,711
Inventories, net 16,364 16,310 Prepaid expenses and other 558 443
Total Current Assets 38,214 37,136 Property, Plant and Equipment,
Net 2,483 2,464 Goodwill 10,585 10,924 Intangible Assets, Net 4,258
4,102 Equity Method Investment in Change Healthcare 3,672 3,728
Other Noncurrent Assets 2,070 2,027 Total Assets $
61,282 $ 60,381
LIABILITIES, REDEEMABLE NONCONTROLLING
INTERESTS AND EQUITY Current Liabilities Drafts and
accounts payable $ 32,063 $ 32,177 Short-term borrowings 2,033 -
Current portion of long-term debt 1,127 1,129 Other accrued
liabilities 3,125 3,379 Total Current Liabilities
38,348 36,685 Long-Term Debt 6,592 6,751 Long-Term Deferred Tax
Liabilities 2,825 2,804 Other Noncurrent Liabilities 2,448 2,625
Redeemable Noncontrolling Interests 1,422 1,459
McKesson Corporation Stockholders' Equity 9,407 9,804
Noncontrolling Interests 240 253 Total Equity
9,647 10,057 Total Liabilities, Redeemable Noncontrolling
Interests and Equity $ 61,282 $ 60,381
Schedule
5
McKESSON CORPORATION CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited) (in
millions) Quarter Ended June 30,
2018
2017
OPERATING ACTIVITIES
Net income (loss) $ (80 ) $ 365
Adjustments to reconcile to net cash
provided by (used in) operating activities:
Depreciation and amortization 235 227 Goodwill and asset impairment
charges 610 - Deferred taxes 45 85 LIFO charges (credits) (21 ) 26
Loss from equity method investment in Change Healthcare 56 120
Other non-cash items (79 ) 7 Changes in operating assets and
liabilities, net of acquisitions: Receivables (1,414 ) (363 )
Inventories (114 ) (59 ) Drafts and accounts payable 32 463 Taxes
(61 ) (18 ) Other (270 ) (112 ) Net cash provided by
(used in) operating activities (1,061 ) 741
INVESTING ACTIVITIES
Property acquisitions (101 ) (75 ) Capitalized software
expenditures (44 ) (43 ) Acquisitions, net of cash, cash
equivalents and restricted cash acquired (826 ) (1,485 ) Other
96 5 Net cash used in investing
activities (875 ) (1,598 )
FINANCING ACTIVITIES
Proceeds from short-term borrowings 9,036 2,282 Repayments of
short-term borrowings (7,005 ) (2,463 ) Repayments of long-term
debt (2 ) (541 ) Common stock transactions: Issuances 22 27 Share
repurchases, including shares surrendered for tax withholding (307
) (300 ) Dividends paid (71 ) (62 ) Other (132 ) (74
) Net cash provided by (used in) financing activities 1,541
(1,131 ) Effect of exchange rate changes on cash,
cash equivalents and restricted cash (78 ) 75
Net decrease in cash, cash equivalents and restricted cash (473 )
(1,913 ) Cash, cash equivalents and restricted cash at beginning of
period 2,672 4,254
Cash, cash equivalents and restricted cash
at end of period
$ 2,199 $ 2,341
McKESSON
CORPORATION FINANCIAL STATEMENT FOOTNOTES
(1) Fiscal years 2019 and 2018, as reported
under GAAP, include pre-tax credits of $21 million and pre-tax
charges of $26 million related to our last-in-first-out (“LIFO”)
method of accounting for inventories. Fiscal year 2019, as reported
under GAAP, includes $35 million of net cash proceeds representing
our share of antitrust legal settlements. These credits and charges
are included within our U.S. Pharmaceutical and Specialty Solutions
segment. (2) Operating expenses for fiscal year 2018, as reported
under GAAP, include a pre-tax gain of $37 million ($22 million
after-tax) related to the final net working capital settlement and
other adjustments from the contribution of the Core MTS business to
Change Healthcare in the fourth quarter of 2017. This credit is
included under "Acquisition-Related Expenses and Adjustments" in
the Schedule 2 of the accompanying financial statement tables. (3)
Fiscal year 2019, as reported under GAAP, includes non-cash
goodwill impairment charges of $570 million (pre-tax and after-tax)
for our two reporting units within our European Pharmaceutical
Solutions segment. These charges are included under "Other
Adjustments, Net" in the Schedule 2 of the accompanying financial
statement tables. (4) Operating expenses for fiscal year 2019, as
reported under GAAP, include pre-tax restructuring and asset
impairment charges of $96 million ($85 million after-tax). (5)
Operating expenses for fiscal year 2019, as reported under GAAP,
include a gain from an escrow settlement of $97 million
representing certain indemnity and other claims related to our
third quarter 2017 acquisition of Rexall Health. This gain is
included under "Other Adjustments, Net" in the Schedule 2 of the
accompanying financial statement tables. (6) Loss from our equity
method investment in Change Healthcare, as reported under GAAP,
includes the amortization of equity investment intangibles and
other acquired intangibles of $77 million and $71 million for
fiscal years 2019 and 2018. The amortization expenses are included
in our proportionate share of the loss from our equity method
investment in Change Healthcare.
1
of 2 SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
In an effort to provide investors with additional
information regarding the Company's financial results as determined
by generally accepted accounting principles ("GAAP"), McKesson
Corporation (the "Company" or "we") also presents the following
Non-GAAP measures in this press release. The Company believes the
presentation of Non-GAAP measures provides useful supplemental
information to investors with regard to its operating performance,
as well as assists with the comparison of its past financial
performance to the Company’s future financial results. Moreover,
the Company believes that the presentation of Non-GAAP measures
assists investors’ ability to compare its financial results to
those of other companies in the same industry. However, the
Company's Non-GAAP measures used in the press tables may be defined
and calculated differently by other companies in the same industry.
•
Adjusted Earnings (Non-GAAP): We define Adjusted
Earnings as GAAP income from continuing operations attributable to
McKesson, excluding amortization of acquisition-related
intangibles, acquisition-related expenses and adjustments,
Last-In-First-Out (“LIFO”) inventory-related adjustments, gains
from antitrust legal settlements, restructuring and asset
impairment charges, other adjustments as well as the related income
tax effects for each of these items, as applicable. The Company
evaluates its definition of Adjusted Earnings on a periodic basis
and updates the definition from time to time. The evaluation
considers both the quantitative and qualitative aspects of the
Company’s presentation of Adjusted Earnings. A reconciliation of
McKesson’s GAAP financial results to Adjusted Earnings (Non-GAAP)
is provided in Schedules 2 and 3 of the financial statement tables
included with this release.
Amortization of
acquisition-related intangibles - Amortization expenses of
intangible assets directly related to business combinations and/or
the formation of joint ventures and equity method investments.
Acquisition-related
expenses and adjustments - Transaction, integration and
other expenses that are directly related to business combinations,
the formation of joint ventures and the Healthcare Technology Net
Asset Exchange. Examples include transaction closing costs,
professional service fees, legal fees, restructuring or severance
charges, retention payments and employee relocation expenses,
facility or other exit-related expenses, certain fair value
adjustments including deferred revenues, contingent consideration
and inventory, recoveries of acquisition-related expenses or
post-closing expenses, bridge loan fees, gains or losses related to
foreign currency contracts entered into directly due to
acquisitions, gains or losses on business combinations, and gain on
the Healthcare Technology Net Asset Exchange.
LIFO
inventory-related adjustments - LIFO inventory-related
non-cash expense or credit adjustments.
Gains from antitrust
legal settlements - Net cash proceeds representing the
Company’s share of antitrust lawsuit settlements.
Restructuring and
asset impairment charges - Non-acquisition related
restructuring charges that are incurred for programs in which we
change our operations, the scope of a business undertaken by our
business units, or the manner in which that business is conducted,
as well as long-lived asset impairments. Such charges may include
employee severance, retention bonuses, facility closure or
consolidation costs, lease or contract termination costs, asset
impairments, accelerated depreciation and amortization, and other
related expenses. The restructuring programs may be implemented due
to the sale or discontinuation of a product line, reorganization or
management structure changes, headcount rationalization,
realignment of operations or products, and/or Company-wide cost
saving initiatives. The amount and/or frequency of these
restructuring charges are not part of our underlying business,
which includes normal levels of reinvestment in the business. Any
credit adjustments due to subsequent changes in estimates are also
excluded from the Adjusted Earnings.
Other
adjustments - The Company evaluates the nature and
significance of transactions qualitatively and quantitatively on an
individual basis and may include them in the determination of our
Adjusted Earnings from time to time. While not all-inclusive, other
adjustments may include: gains or losses from divestitures of
businesses that do not qualify as discontinued operations and from
dispositions of assets; other asset impairments; adjustments to
claim and litigation reserves for estimated probable losses and
settlements; certain discrete benefits related to the December 2017
enactment of the 2017 Tax Cuts and Jobs Act; gains or losses from
debt extinguishment; and other similar substantive and/or
infrequent items as deemed appropriate.
Income taxes on Adjusted Earnings are calculated in
accordance with Accounting Standards Codification ("ASC") 740,
“Income Taxes,” which is the same accounting principle used by the
Company when presenting its GAAP financial results.
Additionally, our equity method investments' financial results are
adjusted for the above noted items.
2 of 2
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION (continued)
•
Constant Currency (Non-GAAP): To
present our financial results on a constant currency basis, we
convert current year period results of our operations in foreign
countries, which are recorded in local currencies, into U.S.
dollars by applying the average foreign currency exchange rates of
the comparable prior year period. To present Adjusted Earnings per
diluted share on a constant currency basis, we estimate the impact
of foreign currency rate fluctuations on the Company’s
noncontrolling interests and adjusted income tax expense, which may
vary from quarter to quarter. The supplemental constant currency
information of the Company’s GAAP financial results and Adjusted
Earnings (Non-GAAP) is provided in Schedule 3 of the financial
statement tables included with this release.
The Company internally uses Non-GAAP financial measures in
connection with its own financial planning and reporting processes.
Specifically, Adjusted Earnings serves as one of the measures
management utilizes when allocating resources, deploying capital
and assessing business performance and employee incentive
compensation. The Company conducts its business internationally in
local currencies, including Euro, British pound sterling and
Canadian dollars. As a result, the comparability of our results
reported in U.S. dollars can be affected by changes in foreign
currency exchange rates. We present constant currency information
to provide a framework for assessing how our business performed
excluding the estimated effect of foreign currency exchange rate
fluctuations. Nonetheless, Non-GAAP financial results and related
measures disclosed by the Company should not be considered a
substitute for, nor superior to, financial results and measures as
determined or calculated in accordance with GAAP.
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version on businesswire.com: https://www.businesswire.com/news/home/20180726005399/en/
McKesson CorporationCraig Mercer, 415-983-8391 (Investors and
Financial Media)Craig.Mercer@McKesson.comApril Marks, 415-732-1384
(General and Business Media)April.Marks@McKesson.com
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