- First-quarter fiscal 2020 revenues of $55.7 billion, an
increase of 6%.
- First-quarter GAAP earnings per diluted share from
continuing operations of $2.27, up 429% year over year.
- First-quarter Adjusted Earnings per diluted share of $3.31,
up 14% year over year.
- Raised fiscal 2020 Adjusted EPS guidance range to $14.00 to
$14.60 from $13.85 to $14.45.
- Board of Directors increased the quarterly dividend by 5% to
41 cents per share.
McKesson Corporation (NYSE:MCK) today reported that revenues for
the first quarter ended June 30, 2019, were $55.7 billion compared
to $52.6 billion a year ago, an increase of 6% on a reported basis
and an increase of 7% on an FX-adjusted basis.
On the basis of U.S. generally accepted accounting principles
(“GAAP”), first-quarter earnings per diluted share from continuing
operations was $2.27, compared to a loss per diluted share of
$(0.69) a year ago.
First-quarter Adjusted Earnings per diluted share was $3.31, an
increase of 14% compared to $2.90 a year ago, primarily driven by
growth in the U.S. Pharmaceutical and Specialty Solutions segment
and a lower share count, partially offset by a higher tax rate.
“McKesson is off to a strong start in fiscal 2020, and our
first-quarter earnings performance exceeded our expectations,” said
Brian Tyler, chief executive officer. “Based on the momentum from
our first-quarter results and our confidence in the full year
outlook, we are raising our previous guidance range for fiscal 2020
and now expect Adjusted Earnings per diluted share of $14.00 to
$14.60.”
For the first quarter, McKesson used cash from operations of $51
million, and invested $111 million internally, resulting in
negative free cash flow of $162 million. During the quarter,
McKesson paid $46 million for acquisitions, and returned $759
million of cash to shareholders via $684 million of common stock
repurchases and $75 million of dividend payments. The Board of
Directors also approved a 5% increase in the quarterly dividend to
$0.41 per share. The company ended the quarter with cash and cash
equivalents of $1.9 billion.
U.S. Pharmaceutical and Specialty Solutions Segment
- First-quarter revenues were $44.2 billion, up 8%, driven
primarily by market growth, partially offset by branded to generic
conversions. GAAP operating profit was $579 million and GAAP
operating margin was 1.31%. Adjusted operating profit was $600
million, up 11%, and adjusted operating margin was 1.36%.
European Pharmaceutical Solutions Segment
- First-quarter revenues were $6.7 billion, down 3% on a reported
basis and up 3% on an FX-adjusted basis, driven primarily by market
growth in the pharmaceutical distribution business. GAAP operating
profit was $5 million and GAAP operating margin was 0.07%. Adjusted
operating profit was $35 million, down 53%, and adjusted operating
margin was 0.52%. On an FX-adjusted basis, adjusted operating
profit was $37 million, down 50%, and adjusted operating margin was
0.52%, driven by the weak retail pharmacy environment in the
U.K.
Medical-Surgical Solutions Segment
- First-quarter revenues were $1.9 billion, up 12%, driven by an
acquisition and growth in the Primary Care and Extended Care
businesses. The aforementioned acquisition closed in the prior
fiscal year on June 1, 2018, and has now been fully lapped. GAAP
operating profit was $125 million and GAAP operating margin was
6.57%. Adjusted operating profit was $159 million, up 27%, and
adjusted operating margin was 8.36%.
Other remaining businesses (primarily including
McKesson Canada, McKesson Prescription Technology Solutions (MRxTS)
and the equity method investment in the Change Healthcare Joint
Venture (Change Healthcare))
- First-quarter revenues were $3.0 billion, down 1% on a reported
basis and up 2% on an FX-adjusted basis, driven primarily by growth
in our MRxTS business. GAAP operating profit was $141 million and
adjusted operating profit was $276 million, up 30%. On an
FX-adjusted basis, adjusted operating profit was $279 million, up
31%.
Company Updates
- Change Healthcare, Inc., a leading independent healthcare
technology company, began trading on the Nasdaq Global Select
Market under the trading symbol “CHNG” on June 27, 2019.
- For the fourth year in a row, McKesson was named a ‘Best Place
to Work’ for Disability Inclusion. McKesson earned a top-ranking
score of 100 on the 2019 Disability Equality Index® (DEI), a joint
initiative of the American Association of People with Disabilities
(AAPD) and Disability:IN.
- Dr. Ken Washington joined McKesson’s Board of Directors as a
new independent director effective July 1, 2019.
Fiscal 2020 Outlook and Change Healthcare Update
McKesson raised fiscal 2020 Adjusted Earnings per diluted share
guidance to $14.00 - $14.60 from a range of $13.85 - $14.45.
Following the completion of the Change Healthcare, Inc. IPO,
McKesson owns approximately 58.5% of Change Healthcare, reduced
from 70%. McKesson will continue to report the equity income from
its interest in Change Healthcare based on its revised equity
ownership percentage and with a one-month lag.
McKesson reaffirmed the guidance range for adjusted equity
earnings from Change Healthcare of approximately $250 million to
$270 million in fiscal 2020. This range reflects McKesson’s revised
equity ownership, and includes the expected benefit of lower
interest expense for Change Healthcare driven by its repayment of
long-term debt.
Dividend Declaration
The company’s Board of Directors yesterday declared a 5%
increase in the regular quarterly dividend to 41 cents per share of
common stock. The dividend will be payable on October 1, 2019, to
stockholders of record on September 3, 2019.
Conference Call Details
The company has scheduled a conference call for today,
Wednesday, July 31st, at 5:00 PM ET to discuss the company’s
financial performance. A live audio webcast of the conference call
will be available on McKesson’s Investor Relations website at
http://investor.mckesson.com. The conference call can also be
accessed by dialing 323-994-2093. The password is ‘McKesson’. A
telephonic replay of this conference call will be available for
five calendar days. For individuals wishing to listen to the
replay, the dial-in number is 719-457-0820 and the pass code is
5579684. An archive of the conference call will also be available
on the company’s Investor Relations website at
http://investor.mckesson.com.
Upcoming Investor Events
McKesson management will be participating in the following
investor conference:
- Morgan Stanley 17th Annual Global Healthcare Conference,
September 9-11, 2019, in New York, New York.
Audio webcasts will be available live and archived on the
company’s Investor Relations website at
http://investor.mckesson.com. A complete listing of upcoming events
for the investment community is available on the company’s Investor
Relations website.
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,
transaction-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.
FX-Adjusted
McKesson also presents its financial results on an FX-adjusted
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.
FX-adjusted 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
FX-adjusted 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 payments for property, plant and equipment and capitalized
software expenditures, as outlined in the company’s condensed
consolidated statements of cash flows.
Cautionary Statements
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,
that involve risks and uncertainties that could cause actual
results to differ materially from those in those statements. 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 update forward-looking statements.
Forward-looking statements may be identified by their use of
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,
assumptions or intentions may also include forward-looking
statements. It is not possible to predict or identify all such
risks and uncertainties. We encourage investors to read the
important risk factors described in the company’s Form 10-K, Form
10-Q and Form 8-K reports filed with the Securities and Exchange
Commission. These risk factors 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 company’s results of operations
impacted by the Change Healthcare joint venture; the company’s
ability to manage and complete divestitures and distributions;
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, intangible and other long-lived assets
or investments; 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.
About McKesson Corporation
McKesson Corporation, currently ranked 7th on the FORTUNE 500,
is a global leader in healthcare supply chain management solutions,
retail pharmacy, healthcare technology, community oncology and
specialty care. McKesson partners with life sciences companies,
manufacturers, providers, pharmacies, governments and other
healthcare organizations 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 to improve patient care in every setting —
one product, one partner, one patient at a time. McKesson has been
named a “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,
2019
2018
Change
Revenues
$
55,728
$
52,607
6
%
Cost of sales
(52,941
)
(49,828
)
6
Gross profit
2,787
2,779
-
Operating expenses
(2,130
)
(2,127
)
-
Goodwill impairment charges (1)
-
(570
)
(100
)
Restructuring and asset impairment charges (2)
(23
)
(96
)
(76
)
Gain from escrow settlement (3)
-
97
(100
)
Total operating expenses
(2,153
)
(2,696
)
(20
)
Operating income
634
83
664
Other income, net (4)
37
40
(8
)
Income (loss) from equity method investment in Change Healthcare
Joint Venture (5)
4
(56
)
107
Interest expense
(56
)
(61
)
(8
)
Income from continuing operations before income taxes
619
6
NM
Income tax expense
(136
)
(87
)
56
Income (loss) from continuing operations after tax
483
(81
)
696
Income (loss) from discontinued operations, net of tax
(6
)
1
(700
)
Net income (loss)
477
(80
)
696
Net income attributable to noncontrolling interests
(54
)
(58
)
(7
)
Net income (loss) attributable to McKesson Corporation
$
423
$
(138
)
407
%
Earnings (loss) per common share attributable to
McKesson Corporation (a) Diluted (b) Continuing operations
$
2.27
$
(0.69
)
429
%
Discontinued operations
(0.03
)
0.01
(400
)
Total
$
2.24
$
(0.68
)
429
%
Basic Continuing operations
$
2.28
$
(0.69
)
430
%
Discontinued operations
(0.03
)
0.01
(400
)
Total
$
2.25
$
(0.68
)
431
%
Dividends declared per common share
$
0.39
$
0.34
Weighted average common shares (b) Diluted
189
202
(6
)
%
Basic
188
202
(7
)
(a)
Certain computations may reflect rounding adjustments.
(b)
Net loss per diluted share for fiscal 2019 is calculated by
excluding dilutive securities from the denominator due to their
antidilutive effects.
NM
Computation not meaningful. Refer to the section entitled
"Financial Statement Notes" of this release. Refer to our
applicable filings with the SEC for additional disclosures
including our Quarterly Reports on Form 10-Q for fiscal 2020 and
2019 as well as our Annual Report on Form 10-K for fiscal 2019.
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, 2019 Vs. Prior Quarter As Reported(GAAP)
Amortizationof Acquisition-RelatedIntangibles
Transaction-RelatedExpenses andAdjustments LIFO
Inventory-RelatedAdjustments Gains fromAntitrust LegalSettlements
Restructuringand AssetImpairmentCharges, Net OtherAdjustments,Net
AdjustedEarnings(Non-GAAP) As Reported(GAAP)
AdjustedEarnings(Non-GAAP) Gross profit
$
2,787
$
-
$
-
$
(15
)
$
-
$
(3
)
$
-
$
2,769
-
%
2
%
Operating expenses (2)
$
(2,153
)
$
112
$
17
$
-
$
-
$
23
$
2
$
(1,999
)
(20
)
%
1
%
Other income, net (4)
$
37
$
-
$
-
$
-
$
-
$
-
$
18
$
55
(8
)
%
34
%
Income from equity method investment in Change Healthcare
Joint Venture (5)
$
4
$
77
$
27
$
-
$
-
$
-
$
-
$
108
107
%
69
%
Income from continuing operations before income taxes
$
619
$
189
$
44
$
(15
)
$
-
$
20
$
20
$
877
NM
10
%
Income tax expense
$
(136
)
$
(45
)
$
(11
)
$
4
$
-
$
(5
)
$
(5
)
$
(198
)
56
%
33
%
Income from continuing operations, net of tax, attributable
to McKesson Corporation
$
429
$
144
$
33
$
(11
)
$
-
$
15
$
15
$
625
409
%
6
%
Earnings per diluted common share from continuing
operations, net of tax, attributable to McKesson Corporation (a)
$
2.27
$
0.76
$
0.18
$
(0.06
)
$
-
$
0.08
$
0.08
$
3.31
(c)
429
%
14
%
Diluted weighted average common shares
189
189
189
189
189
189
189
189
(6
)
%
(7
)
%
Quarter Ended June 30, 2018 As Reported(GAAP)
Amortizationof Acquisition-RelatedIntangibles
Transaction-RelatedExpenses andAdjustments LIFO
Inventory-RelatedAdjustments Gains fromAntitrust LegalSettlements
Restructuringand AssetImpairmentCharges, Net OtherAdjustments,Net
AdjustedEarnings(Non-GAAP) Gross profit
$
2,779
$
-
$
1
$
(21
)
$
(35
)
$
-
$
-
$
2,724
Operating expenses (1) (2) (3)
$
(2,696
)
$
121
$
20
$
-
$
-
$
96
$
487
$
(1,972
)
Other income, net
$
40
$
1
$
-
$
-
$
-
$
-
$
-
$
41
Income (loss) from equity method investment in Change
Healthcare Joint Venture (5)
$
(56
)
$
77
$
40
$
-
$
-
$
-
$
3
$
64
Income from continuing operations before income taxes
$
6
$
199
$
61
$
(21
)
$
(35
)
$
96
$
490
$
796
Income tax expense
$
(87
)
$
(50
)
$
(16
)
$
6
$
9
$
(11
)
$
-
$
(149
)
Income (loss) from continuing operations, net of tax,
attributable to McKesson Corporation
$
(139
)
$
149
$
45
$
(15
)
$
(26
)
$
85
$
490
$
589
Earnings (loss) per diluted 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
Diluted weighted average common shares (b)
202
203
203
203
203
203
203
203
(a)
Certain computations may reflect rounding adjustments.
(b)
We calculate GAAP net loss per diluted share for fiscal 2019 using
a weighted average of 202 million common shares, which excludes
dilutive securities from the denominator due to their antidilutive
effect when calculating a net loss per diluted share. We calculate
Adjusted Earnings per diluted share (Non-GAAP) for fiscal 2019 on a
fully diluted basis, using a weighted average of 203 million common
shares. Because we show the GAAP to Non-GAAP per share reconciling
items on a fully-diluted basis, any cross-footing differences in
those items are due to different weighted average share counts.
(c)
Adjusted Earnings per share on an FX-Adjusted basis for fiscal 2020
was $3.33 per diluted share, which excludes the foreign currency
exchange effect of $0.02 per diluted share. NM Computation
not meaningful. Refer to the section entitled "Financial
Statement Notes" of this release. For more information
relating to the Adjusted Earnings (Non-GAAP) and FX-Adjusted
(Non-GAAP) definitions, 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, 2019 Quarter Ended June 30, 2018 GAAP Non-GAAP Change
AdjustedEarnings(Non-GAAP) AdjustedEarnings(Non-GAAP)
ForeignCurrencyEffects FX-Adjusted ForeignCurrency Effects
FX-Adjusted As Reported(GAAP) AdjustedEarnings(Non-GAAP)
FX-Adjusted(GAAP) FX-Adjusted(Non-GAAP) As Reported(GAAP)
Adjustments As Reported(GAAP) Adjustments
REVENUES U.S.
Pharmaceutical and Specialty Solutions
$
44,165
$
-
$
44,165
$
40,977
$
-
$
40,977
$
-
$
44,165
$
-
$
44,165
8
%
8
%
8
%
8
%
European Pharmaceutical Solutions
6,710
-
6,710
6,935
-
6,935
412
7,122
412
7,122
(3
)
(3
)
3
3
Medical-Surgical Solutions
1,903
-
1,903
1,703
-
1,703
-
1,903
-
1,903
12
12
12
12
Other (a)
2,950
-
2,950
2,992
-
2,992
98
3,048
98
3,048
(1
)
(1
)
2
2
Revenues
$
55,728
$
-
$
55,728
$
52,607
$
-
$
52,607
$
510
$
56,238
$
510
$
56,238
6
%
6
%
7
%
7
%
OPERATING PROFIT (2) U.S. Pharmaceutical and
Specialty Solutions
$
579
$
21
$
600
$
543
$
(3
)
$
540
$
-
$
579
$
-
$
600
7
%
11
%
7
%
11
%
European Pharmaceutical Solutions (1)
5
30
35
(560
)
634
74
1
6
2
37
101
(53
)
101
(50
)
Medical-Surgical Solutions
125
34
159
93
32
125
-
125
-
159
34
27
34
27
Other (a) (3) (5)
141
135
276
114
99
213
-
141
3
279
24
30
24
31
Operating profit
850
220
1,070
190
762
952
1
851
5
1,075
347
12
348
13
Corporate (4)
(175
)
38
(137
)
(123
)
28
(95
)
-
(175
)
(1
)
(138
)
42
44
42
45
Income from continuing operations before interest expense and
income taxes
$
675
$
258
$
933
$
67
$
790
$
857
$
1
$
676
$
4
$
937
907
%
9
%
909
%
9
%
OPERATING PROFIT (LOSS) AS A % OF REVENUES
U.S. Pharmaceutical and Specialty Solutions
1.31
%
1.36
%
1.33
%
1.32
%
1.31
%
1.36
%
(2
)
bp
4
bp
(2
)
bp
4
bp
European Pharmaceutical Solutions
0.07
0.52
(8.07
)
1.07
0.08
0.52
814
(55
)
815
(55
)
Medical-Surgical Solutions
6.57
8.36
5.46
7.34
6.57
8.36
111
102
111
102
(a)
Other primarily includes the results of our McKesson Canada and
McKesson Prescription Technology Solutions businesses. Operating
profit for Other includes our proportionate share of income (loss)
from our equity method investment in Change Healthcare Joint
Venture. Refer to the section entitled "Financial Statement
Notes" of this release. For more information relating to the
Adjusted Earnings (Non-GAAP) and FX-Adjusted (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,
2019
2019
ASSETS Current Assets Cash and cash equivalents
$
1,947
$
2,981
Receivables, net
19,287
18,246
Inventories, net
16,604
16,709
Prepaid expenses and other
590
529
Total Current Assets
38,428
38,465
Property, Plant and Equipment, Net
2,466
2,548
Operating Lease Right-of-Use Assets
2,031
-
Goodwill
9,441
9,358
Intangible Assets, Net
3,600
3,689
Equity Method Investment in Change Healthcare Joint Venture
3,617
3,513
Other Noncurrent Assets
2,097
2,099
Total Assets
$
61,680
$
59,672
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
EQUITY Current Liabilities Drafts and accounts payable
$
34,021
$
33,853
Current portion of long-term debt
310
330
Current portion of operating lease liabilities
373
-
Other accrued liabilities
3,248
3,443
Total Current Liabilities
37,952
37,626
Long-Term Debt
7,382
7,265
Long-Term Deferred Tax Liabilities
3,058
2,998
Long-Term Operating Lease Liabilities
1,805
-
Other Noncurrent Liabilities
2,016
2,103
Redeemable Noncontrolling Interests
1,399
1,393
McKesson Corporation Stockholders' Equity
7,874
8,094
Noncontrolling Interests
194
193
Total Equity
8,068
8,287
Total Liabilities, Redeemable Noncontrolling Interests and Equity
$
61,680
$
59,672
Schedule
5
McKESSON CORPORATION CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited) (in
millions) Quarter ended June 30,
2019
2018
OPERATING ACTIVITIES Net income (loss)
$
477
$
(80
)
Adjustments to reconcile to net cash used in operating activities:
Depreciation and amortization
229
235
Goodwill and other asset impairment charges
5
610
Deferred taxes
16
45
Credits associated with last-in, first-out inventory method
(15
)
(21
)
Loss (Income) from equity method investment in Change Healthcare
Joint Venture
(4
)
56
Other non-cash items
121
(79
)
Changes in assets and liabilities, net of acquisitions: Receivables
(1,061
)
(1,414
)
Inventories
145
(114
)
Drafts and accounts payable
127
32
Taxes
82
(61
)
Other
(173
)
(270
)
Net cash used in operating activities
(51
)
(1,061
)
INVESTING ACTIVITIES Payments for property, plant and
equipment
(87
)
(101
)
Capitalized software expenditures
(24
)
(44
)
Acquisitions, net of cash, cash equivalents and restricted cash
acquired
(46
)
(826
)
Other
28
96
Net cash used in investing activities
(129
)
(875
)
FINANCING ACTIVITIES Proceeds from short-term
borrowings
2,610
9,036
Repayments of short-term borrowings
(2,610
)
(7,005
)
Common stock transactions: Issuances
22
22
Share repurchases, including shares surrendered for tax withholding
(701
)
(307
)
Dividends paid
(75
)
(71
)
Other
(118
)
(134
)
Net cash provided by (used in) financing activities
(872
)
1,541
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
18
(78
)
Net decrease in cash, cash equivalents and restricted cash
(1,034
)
(473
)
Cash, cash equivalents and restricted cash at beginning of period
2,981
2,672
Cash, cash equivalents and restricted cash at end of period
$
1,947
$
2,199
McKESSON CORPORATION
FINANCIAL STATEMENT
NOTES
(1)
Operating expenses for fiscal 2019 include
non-cash goodwill impairment charges of $570 million (pre-tax and
after-tax) for our European Pharmaceutical Solutions segment. This
charge is included under "Other Adjustments, Net" in the
reconciliation of McKesson's GAAP financial results to Adjusted
Earnings (Non-GAAP) provided in the Schedule 2 of the accompanying
financial statement tables.
(2)
Operating expenses for fiscals 2020 and
2019 include pre-tax restructuring and asset impairment charges of
$23 million ($17 million after-tax) and $96 million ($85 million
after-tax), primarily for our Canada and the United Kingdom retail
businesses, and Corporate.
(3)
Operating expenses for fiscal 2019 include
a gain from an escrow settlement of $97 million (pre-tax and
after-tax) representing certain indemnity and other claims related
to our third quarter 2017 acquisition of Rexall Health, within
Other. This gain is included under "Other Adjustments, Net" in the
reconciliation of McKesson's GAAP financial results to Adjusted
Earnings (Non-GAAP) provided in the Schedule 2 of the accompanying
financial statement tables.
(4)
Other income for fiscal 2020 includes a
pre-tax charge of $17 million ($12 million after-tax) representing
settlement charges for our frozen U.S. defined benefit pension
plan, within Corporate. This charge is included under "Other
Adjustments, Net" in the reconciliation of McKesson's GAAP
financial results to Adjusted Earnings (Non-GAAP) provided in the
Schedule 2 of the accompanying financial statement tables.
(5)
Income or loss from our equity method
investment in Change Healthcare Joint Venture includes the
amortization of equity investment intangibles and other acquired
intangibles of $77 million for fiscals 2020 and 2019. This charge
is included in our proportionate share of the income or loss from
our equity method investment in Change Healthcare Joint Venture
within Other.
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,
transaction-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 the formation of
joint ventures.
Transaction-related
expenses and adjustments - Transaction, integration and
other expenses that are directly related to business combinations,
the formation of joint ventures, divestitures and other
transaction-related costs including initial public offering costs.
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, and gains or losses on business
combinations and divestitures of businesses that do not qualify as
discontinued operations.
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 include 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: adjustments to claim
and litigation reserves for estimated probable losses and
settlements; other asset impairments; certain discrete benefits and
subsequent true-up adjustments 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. Prior to fiscal 2020, this
category also included certain gains or losses from divestitures of
businesses that did not qualify as discontinued operations.
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 investment in Change Healthcare
Joint Venture's financial results are adjusted for the above noted
items.
2 of 2 SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
(continued) •
FX-Adjusted (Non-GAAP): McKesson
also presents its financial results on an FX-Adjusted basis. To
present our financial results on an FX-Adjusted 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 an FX-Adjusted 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 FX-Adjusted 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 both GAAP and 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 businesses 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 FX-Adjusted 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190731005937/en/
Holly Weiss, 972-969-9174 (Investors and Financial Media)
Holly.Weiss@McKesson.com Kristin Chasen, 415-983-8974 (General and
Business Media) Kristin.Chasen@McKesson.com
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