- Total revenues of $57.6 billion, reflecting 9%
growth.
- Loss per diluted share of $(3.99) and Adjusted Earnings per
diluted share of $3.60.
- Reaffirmed fiscal 2020 Adjusted EPS guidance range of $14.00
to $14.60.
McKesson Corporation (NYSE:MCK) today reported results for the
second quarter ended September 30, 2019.
Fiscal 2020 Second-Quarter and Year-to-Date Result
Summary
Second Quarter
Year-to-Date
($ in millions,
except per share amounts)
FY20
FY19
Change
FY20
FY19
Change
Revenues
$57,616
$53,075
9%
$113,344
$105,682
7%
Net income / (loss)1
($729)
$498
(246)%
($300)
$359
(184)%
Adjusted Earnings1,2
$661
$714
(7)%
$1,286
$1,303
(1)%
Earnings / (loss) per diluted
share
($3.99)
$2.51
(259)%
($1.62)
$1.79
(191)%
Adjusted Earnings per diluted
share2
$3.60
$3.60
--
$6.91
$6.50
6%
1
Represents continuing operations
attributable to McKesson
2
Represents a non-GAAP financial measure;
refer to the reconciliations of non-GAAP financial measures
included in accompanying schedules
“McKesson’s second-quarter results reflect continued momentum
across the business as well as further progress against our cost
savings initiatives,” said Brian Tyler, chief executive officer.
“As we look forward to the second half of our fiscal year, we
remain confident in the strength of our broad set of solutions and
capabilities, delivering execution against our strategic
imperatives as we become a more focused and efficient
organization.”
Revenues increased 9% year-over-year, primarily driven by growth
in the U.S. Pharmaceutical and Specialty Solutions segment, largely
due to branded pharmaceutical price increases and higher volumes
from a retail national account customer.
Loss per diluted share of $(3.99) included charges of
approximately $1.4 billion, or $5.73 per diluted share, primarily
related to an impairment in connection with McKesson’s planned exit
of its investment in Change Healthcare. Adjusted Earnings per
diluted share of $3.60 was flat year-over-year, as a lower share
count and growth in the Medical-Surgical and McKesson Prescription
Technology Solutions (MRxTS) businesses were offset primarily by
the lapping of a prior year pre-tax benefit of $90 million, or
$0.33 per diluted share, related to a reversal of a contractual
liability associated with McKesson’s investment in Change
Healthcare. Excluding the prior year benefit of $0.33 per diluted
share from Adjusted Earnings, second-quarter results per diluted
share increased 10%.
During the first half of the fiscal year, McKesson returned $1.6
billion of cash to shareholders via $1.4 billion of common stock
repurchases and $148 million of dividend payments. For the first
half of the fiscal year, McKesson used cash from operations of $159
million, and invested $184 million internally, resulting in
negative free cash flow of $343 million.
U.S. Pharmaceutical and Specialty Solutions Segment
- Revenues were $46.0 billion, up 10%, driven primarily by
branded pharmaceutical price increases and increased specialty
pharmaceutical volume from the company’s largest retail national
account customer, partially offset by branded to generic
conversions.
- Operating profit was $639 million and operating margin was
1.39%. Adjusted operating profit was $641 million, up 1%, due to
continued growth in the specialty businesses, partially offset by
customer and product mix. Adjusted operating margin was 1.39%, down
14 basis points, primarily resulting from the higher volume of
specialty pharmaceuticals.
European Pharmaceutical Solutions Segment
- Revenues were $6.6 billion, down 1% on a reported basis and up
4% on an FX-adjusted basis, driven primarily by growth in the
pharmaceutical distribution business.
- Operating profit was $1 million and operating margin was 0.02%.
Adjusted operating profit was $41 million, down 23%, and adjusted
operating margin was 0.62%. On an FX-adjusted basis, adjusted
operating profit was $43 million, down 19%, and adjusted operating
margin was 0.62%, down 18 basis points, driven by the challenging
retail pharmacy environment in the U.K.
Medical-Surgical Solutions Segment
- Revenues were $2.1 billion, up 6%, driven primarily by growth
in the Primary Care business, largely due to the increase in volume
of pharmaceutical products.
- Operating profit was $129 million and operating margin was
6.27%. Adjusted operating profit was $166 million, up 20%, and
adjusted operating margin was 8.07%, up 99 basis points. The
year-over-year growth primarily reflects growth in the Primary Care
business and the lapping of bad debt expense in the prior
year.
Other remaining businesses
- Revenues were $3.0 billion, up 4% on a reported basis and up 5%
on an FX-adjusted basis, driven by growth in the Canadian and MRxTS
businesses.
- Operating loss was $(1.3) billion driven by charges of
approximately $1.4 billion, primarily related to an impairment in
connection with McKesson’s planned exit of its investment in Change
Healthcare. Adjusted operating profit was $221 million, down 26% on
both a reported and FX-adjusted basis, primarily due to the lapping
of the $90 million contractual liability reversal in the prior year
and lower contribution from the company’s investment in Change
Healthcare, partially offset by higher volumes in the MRxTS
business.
Company Updates
- On October 21, 2019, the company announced an agreement in
principle to settle all claims against the company in the first
track of the multi-district opioid litigation, related to two Ohio
counties. As a result, McKesson recorded a pre-tax charge of $82
million within operating expenses for the second quarter of fiscal
2020.
- McKesson recently published its FY19 Corporate Responsibility
Report, describing how the company continues to work to use its
economic, environmental, social and governance resources
thoughtfully and responsibly. This global report puts emphasis on
three topics: product quality and patient safety; eco-efficient
transportation and operations; and better health for employees and
communities.
- McKesson opened a new distribution center in the Seattle area,
an eco-friendly facility featuring the latest in supply chain
technology and state-of-the-art automation.
- Maria Martinez joined McKesson’s Board of Directors as a new
independent director effective October 18, 2019.
Fiscal 2020 Outlook
- McKesson reaffirmed fiscal 2020 Adjusted Earnings per diluted
share guidance range of $14.00 - $14.60.
Conference Call Details
The company has scheduled a conference call for today,
Wednesday, October 30th, at 8:00 AM ET to discuss the company’s
financial results. 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 786-815-8297. The password is ‘McKesson’. A
telephonic replay of this conference call will be available for 14
calendar days. For individuals wishing to listen to the replay, the
dial-in number is 404-537-3406 and the pass code is 6206708. 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:
- 38th Annual J.P. Morgan Healthcare Conference, January 13-16,
2020, in San Francisco, CA.
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, impairment and related charges, and
other adjustments as well as the related income tax effects for
each of these items, as applicable. 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, impairment and related 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 (used in) 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. It is
not possible to identify all such risks and uncertainties. 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. 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
healthcare industry and regulatory environment; fluctuations in
foreign currency exchange rates; the impact of the Change
Healthcare joint venture on the company’s results of operations;
the company’s ability to manage and complete divestitures and
distributions; material adverse resolution of pending legal
proceedings, including those related to the distribution of
controlled substances; cyberattack, natural disaster, or
malfunction of sophisticated internal computer systems to perform
as designed; and the potential inadequacy of insurance to cover
property loss or liability claims.
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 September 30,
Six Months Ended September
30,
2019
2018
Change
2019
2018
Change
Revenues
$
57,616
$
53,075
9
%
$
113,344
$
105,682
7
%
Cost of sales
(54,749
)
(50,271
)
9
(107,690
)
(100,099
)
8
Gross profit
2,867
2,804
2
5,654
5,583
1
Operating expenses (1) (2)
(2,196
)
(2,033
)
8
(4,326
)
(4,063
)
6
Goodwill impairment charges (3)
-
-
-
-
(570
)
(100
)
Restructuring, impairment and related charges (4)
(45
)
(82
)
(45
)
(68
)
(178
)
(62
)
Total operating expenses
(2,241
)
(2,115
)
6
(4,394
)
(4,811
)
(9
)
Operating income
626
689
(9
)
1,260
772
63
Other income (expense), net (5)
(78
)
20
(490
)
(41
)
60
(168
)
Equity earnings and charges from investment in Change Healthcare
Joint Venture (6) (7) (8)
(1,454
)
(56
)
NM
(1,450
)
(112
)
NM
Interest expense
(64
)
(66
)
(3
)
(120
)
(127
)
(6
)
Income (loss) from continuing operations before income taxes
(970
)
587
(265
)
(351
)
593
(159
)
Income tax benefit (expense)
294
(35
)
(940
)
158
(122
)
(230
)
Income (loss) from continuing operations after tax
(676
)
552
(222
)
(193
)
471
(141
)
Income (loss) from discontinued operations, net of tax
(1
)
1
(200
)
(7
)
2
(450
)
Net income (loss)
(677
)
553
(222
)
(200
)
473
(142
)
Net income attributable to noncontrolling interests
(53
)
(54
)
(2
)
(107
)
(112
)
(4
)
Net income (loss) attributable to McKesson Corporation
$
(730
)
$
499
(246
)
%
$
(307
)
$
361
(185
)
%
Earnings (loss) per common share attributable to
McKesson Corporation (a) Diluted (b) Continuing operations
$
(3.99
)
$
2.51
(259
)
%
$
(1.62
)
$
1.79
(191
)
%
Discontinued operations
-
-
-
(0.03
)
0.01
(400
)
Total
$
(3.99
)
$
2.51
(259
)
%
$
(1.65
)
$
1.80
(192
)
%
Basic Continuing operations
$
(3.99
)
$
2.52
(258
)
%
$
(1.62
)
$
1.80
(190
)
%
Discontinued operations
-
-
-
(0.03
)
0.01
(400
)
Total
$
(3.99
)
$
2.52
(258
)
%
$
(1.65
)
$
1.81
(191
)
%
Dividends declared per common share
$
0.41
$
0.39
$
0.80
$
0.73
Weighted average common shares Diluted
183
199
(8
)
%
185
201
(8
)
%
Basic
183
198
(8
)
185
200
(8
)
(a)
Certain computations may reflect
rounding adjustments.
(b)
Net loss per diluted share for
the second quarter and first half of fiscal 2020 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.
For additional disclosures, refer to our applicable filings with
the SEC, 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
2A
McKESSON CORPORATION RECONCILIATION OF GAAP OPERATING
RESULTS TO ADJUSTED EARNINGS (NON-GAAP) (unaudited)
(in millions, except per share amounts) Change
Quarter Ended September 30, 2019 Vs. Prior Quarter As
Reported(GAAP) Amortizationof Acquisition-RelatedIntangibles
Transaction-RelatedExpenses andAdjustments LIFO
Inventory-RelatedAdjustments Gains fromAntitrust LegalSettlements
Restructuring,Impairment andRelatedCharges, Net
OtherAdjustments,Net AdjustedEarnings(Non-GAAP) As Reported(GAAP)
AdjustedEarnings(Non-GAAP) Gross profit
$
2,867
$
-
$
-
$
(33
)
$
-
$
(2
)
$
-
$
2,832
2
%
2
%
Operating expenses (2) (4)
$
(2,241
)
$
118
$
16
$
-
$
-
$
45
$
84
$
(1,978
)
6
%
5
%
Other income (expense), net (5)
$
(78
)
$
-
$
3
$
-
$
-
$
-
$
105
$
30
(490
)
%
50
%
Equity earnings and charges from investment in Change
Healthcare Joint Venture (6) (7) (8)
$
(1,454
)
$
63
$
263
$
-
$
-
$
-
$
1,167
$
39
NM
(30
)
%
Income (loss) from continuing operations before income taxes
$
(970
)
$
181
$
282
$
(33
)
$
-
$
43
$
1,356
$
859
(265
)
%
(6
)
%
Income tax benefit (expense)
$
294
$
(42
)
$
(72
)
$
8
$
-
$
(10
)
$
(323
)
$
(145
)
(940
)
%
(3
)
%
Income (loss) from continuing operations, net of tax,
attributable to McKesson Corporation
$
(729
)
$
139
$
210
$
(25
)
$
-
$
33
$
1,033
$
661
(246
)
%
(7
)
%
Earnings (loss) per diluted common share
from continuing operations, net of tax, attributable to McKesson
Corporation (a) (b)
$
(3.99
)
$
0.76
$
1.14
$
(0.14
)
$
-
$
0.18
$
5.62
$
3.60
(c)
(259
)
%
-
%
Diluted weighted average common shares
183
184
184
184
184
184
184
184
(8
)
%
(8
)
%
Quarter Ended September 30, 2018 As Reported(GAAP)
Amortizationof Acquisition-RelatedIntangibles
Transaction-RelatedExpenses andAdjustments LIFO
Inventory-RelatedAdjustments Gains fromAntitrust LegalSettlements
Restructuring,Impairment andRelatedCharges, Net
OtherAdjustments,Net AdjustedEarnings(Non-GAAP) Gross profit
$
2,804
$
-
$
-
$
(22
)
$
-
$
-
$
-
$
2,782
Operating expenses (4)
$
(2,115
)
$
121
$
37
$
-
$
-
$
82
$
-
$
(1,875
)
Other income, net
$
20
$
-
$
-
$
-
$
-
$
-
$
-
$
20
Equity earnings and charges from investment in Change
Healthcare Joint Venture (8)
$
(56
)
$
77
$
34
$
-
$
-
$
-
$
1
$
56
Income from continuing operations before income taxes
$
587
$
198
$
71
$
(22
)
$
-
$
82
$
1
$
917
Income tax expense
$
(35
)
$
(48
)
$
(17
)
$
5
$
-
$
(15
)
$
(39
)
$
(149
)
Income from continuing operations, net of tax, attributable
to McKesson Corporation
$
498
$
150
$
54
$
(17
)
$
-
$
67
$
(38
)
$
714
Earnings per diluted common share from continuing
operations, net of tax attributable to McKesson Corporation (a)
$
2.51
$
0.75
$
0.27
$
(0.08
)
$
-
$
0.34
$
(0.19
)
$
3.60
Diluted weighted average common shares
199
199
199
199
199
199
199
199
(a)
Certain computations may reflect
rounding adjustments.
(b)
We calculate GAAP net loss per
diluted share for the second quarter of fiscal 2020 using a
weighted average of 183 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 the second
quarter of fiscal 2020 on a fully diluted basis, using a weighted
average of 184 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 diluted
share on an FX-Adjusted basis for the second quarter of fiscal 2020
was $3.60.
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
2B
McKESSON CORPORATION RECONCILIATION OF GAAP OPERATING
RESULTS TO ADJUSTED EARNINGS (NON-GAAP) (unaudited)
(in millions, except per share amounts) Change Six
Months Ended September 30, 2019 Vs. Prior Period As Reported(GAAP)
Amortizationof Acquisition-RelatedIntangibles
Transaction-RelatedExpenses andAdjustments LIFO
Inventory-RelatedAdjustments Gains fromAntitrust LegalSettlements
Restructuring,Impairment andRelatedCharges, Net
OtherAdjustments,Net AdjustedEarnings(Non-GAAP) As Reported(GAAP)
AdjustedEarnings(Non-GAAP) Gross profit
$
5,654
$
-
$
-
$
(48
)
$
-
$
(5
)
$
-
$
5,601
1
%
2
%
Operating expenses (2) (4)
$
(4,394
)
$
230
$
33
$
-
$
-
$
68
$
86
$
(3,977
)
(9
)
%
3
%
Other income (expense), net (5)
$
(41
)
$
-
$
3
$
-
$
-
$
-
$
123
$
85
(168
)
%
39
%
Equity earnings and charges from investment in Change
Healthcare Joint Venture (6) (7) (8)
$
(1,450
)
$
140
$
290
$
-
$
-
$
-
$
1,167
$
147
NM
23
%
Income (loss) from continuing operations before income taxes
$
(351
)
$
370
$
326
$
(48
)
$
-
$
63
$
1,376
$
1,736
(159
)
%
1
%
Income tax benefit (expense)
$
158
$
(87
)
$
(83
)
$
12
$
-
$
(15
)
$
(328
)
$
(343
)
(230
)
%
15
%
Income (loss) from continuing operations, net of tax,
attributable to McKesson Corporation
$
(300
)
$
283
$
243
$
(36
)
$
-
$
48
$
1,048
$
1,286
(184
)
%
(1
)
%
Earnings (loss) per diluted common share
from continuing operations, net of tax, attributable to McKesson
Corporation (a) (b)
$
(1.62
)
$
1.52
$
1.31
$
(0.19
)
$
-
$
0.26
$
5.63
$
6.91
(c)
(191
)
%
6
%
Diluted weighted average common shares
185
186
186
186
186
186
186
186
(8
)
%
(7
)
%
Six Months Ended September 30, 2018 As
Reported(GAAP) Amortizationof Acquisition-RelatedIntangibles
Transaction-RelatedExpenses andAdjustments LIFO
Inventory-RelatedAdjustments Gains fromAntitrust LegalSettlements
Restructuring,Impairment andRelatedCharges, Net
OtherAdjustments,Net AdjustedEarnings(Non-GAAP) Gross profit
$
5,583
$
-
$
1
$
(43
)
$
(35
)
$
-
$
-
$
5,506
Operating expenses (1) (3) (4)
$
(4,811
)
$
242
$
57
$
-
$
-
$
178
$
487
$
(3,847
)
Other income, net
$
60
$
1
$
-
$
-
$
-
$
-
$
-
$
61
Equity earnings and charges from investment in Change
Healthcare Joint Venture (8)
$
(112
)
$
154
$
74
$
-
$
-
$
-
$
4
$
120
Income from continuing operations before income taxes
$
593
$
397
$
132
$
(43
)
$
(35
)
$
178
$
491
$
1,713
Income tax expense
$
(122
)
$
(98
)
$
(33
)
$
11
$
9
$
(26
)
$
(39
)
$
(298
)
Income from continuing operations, net of tax, attributable
to McKesson Corporation
$
359
$
299
$
99
$
(32
)
$
(26
)
$
152
$
452
$
1,303
Earnings per diluted common share from continuing
operations, net of tax, attributable to McKesson Corporation (a)
$
1.79
$
1.49
$
0.49
$
(0.16
)
$
(0.13
)
$
0.76
$
2.26
$
6.50
Diluted weighted average common shares
201
201
201
201
201
201
201
201
(a) Certain computations may reflect rounding adjustments. (b) We
calculate GAAP net loss per diluted share for fiscal 2020 using a
weighted average of 185 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 2020 on a
fully diluted basis, using a weighted average of 186 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 diluted share on an FX-Adjusted basis for
fiscal 2020 was $6.92, which excludes the foreign currency exchange
effect of $0.01.
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
3A
McKESSON CORPORATION RECONCILIATION OF GAAP SEGMENT
FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited) (in millions) Quarter Ended
September 30, 2019 Quarter Ended September 30, 2018 GAAP Non-GAAP
Change AdjustedEarnings(Non-GAAP) AdjustedEarnings(Non-GAAP)
ForeignCurrencyEffects FX-Adjusted ForeignCurrencyEffects
FX-Adjusted AsReported(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
$
45,979
$
-
$
45,979
$
41,610
$
-
$
41,610
$
-
$
45,979
$
-
$
45,979
10
%
10
%
10
%
10
%
European Pharmaceutical Solutions
6,598
-
6,598
6,639
-
6,639
336
6,934
336
6,934
(1
)
(1
)
4
4
Medical-Surgical Solutions
2,056
-
2,056
1,948
-
1,948
-
2,056
-
2,056
6
6
6
6
Other (a)
2,983
-
2,983
2,878
-
2,878
30
3,013
30
3,013
4
4
5
5
Revenues
$
57,616
$
-
$
57,616
$
53,075
$
-
$
53,075
$
366
$
57,982
$
366
$
57,982
9
%
9
%
9
%
9
%
OPERATING PROFIT (LOSS) (4) U.S. Pharmaceutical and
Specialty Solutions
$
639
$
2
$
641
$
610
$
25
$
635
$
-
$
639
$
-
$
641
5
%
1
%
5
%
1
%
European Pharmaceutical Solutions
1
40
41
10
43
53
(1
)
-
2
43
(90
)
(23
)
(100
)
(19
)
Medical-Surgical Solutions
129
37
166
105
33
138
-
129
-
166
23
20
23
20
Other (a) (6) (7) (8)
(1,311
)
1,532
221
95
205
300
1
(1,310
)
-
221
NM
(26
)
NM
(26
)
Operating profit (loss)
(542
)
1,611
1,069
820
306
1,126
-
(542
)
2
1,071
(166
)
(5
)
(166
)
(5
)
Corporate (2) (5)
(364
)
218
(146
)
(167
)
24
(143
)
-
(364
)
-
(146
)
118
2
118
2
Income (loss) from continuing operations before interest expense
and income taxes
$
(906
)
$
1,829
$
923
$
653
$
330
$
983
$
-
$
(906
)
$
2
$
925
(239
)
%
(6
)
%
(239
)
%
(6
)
%
OPERATING PROFIT AS A % OF REVENUES U.S.
Pharmaceutical and Specialty Solutions
1.39
%
1.39
%
1.47
%
1.53
%
1.39
%
1.39
%
(8
)
bp
(14
)
bp
(8
)
bp
(14
)
bp European Pharmaceutical Solutions
0.02
0.62
0.15
0.80
-
0.62
(13
)
(18
)
(15
)
(18
)
Medical-Surgical Solutions
6.27
8.07
5.39
7.08
6.27
8.07
88
99
88
99
(a)
Other primarily includes the results of
our McKesson Canada and McKesson Prescription Technology Solutions
businesses. Operating profit (loss) for Other includes equity
earnings and charges from investment in Change Healthcare Joint
Venture.
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
3B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT
FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
Six Months Ended September 30, 2019 Six Months Ended
September 30, 2018 GAAP Non-GAAP Change AdjustedEarnings(Non-GAAP)
AdjustedEarnings(Non-GAAP) ForeignCurrencyEffects
FX- Adjusted
ForeignCurrencyEffects FX-Adjusted AsReported(GAAP)
AdjustedEarnings(Non-GAAP) FX-Adjusted(GAAP) FX-Adjusted(Non-GAAP)
As Reported(GAAP) Adjustments AsReported (GAAP) Adjustments
REVENUES U.S. Pharmaceutical and Specialty Solutions
$
90,144
$
-
$
90,144
$
82,587
$
-
$
82,587
$
-
$
90,144
$
-
$
90,144
9
%
9
%
9
%
9
%
European Pharmaceutical Solutions
13,308
-
13,308
13,574
-
13,574
748
14,056
748
14,056
(2
)
(2
)
4
4
Medical-Surgical Solutions
3,959
-
3,959
3,651
-
3,651
-
3,959
-
3,959
8
8
8
8
Other (a)
5,933
-
5,933
5,870
-
5,870
128
6,061
128
6,061
1
1
3
3
Revenues
$
113,344
$
-
$
113,344
$
105,682
$
-
$
105,682
$
876
$
114,220
$
876
$
114,220
7
%
7
%
8
%
8
%
OPERATING PROFIT (4) U.S. Pharmaceutical and
Specialty Solutions
$
1,218
$
23
$
1,241
$
1,153
$
22
$
1,175
$
-
$
1,218
$
-
$
1,241
6
%
6
%
6
%
6
%
European Pharmaceutical Solutions (3)
6
70
76
(550
)
677
127
-
6
4
80
101
(40
)
101
(37
)
Medical-Surgical Solutions
254
71
325
198
65
263
-
254
-
325
28
24
28
24
Other (a) (1) (6) (7) (8)
(1,170
)
1,667
497
209
304
513
1
(1,169
)
3
500
(660
)
(3
)
(659
)
(3
)
Operating profit
308
1,831
2,139
1,010
1,068
2,078
1
309
7
2,146
(70
)
3
(69
)
3
Corporate (2) (5)
(539
)
256
(283
)
(290
)
52
(238
)
-
(539
)
(1
)
(284
)
86
19
86
19
Income (loss) from continuing operations before interest expense
and income taxes
$
(231
)
$
2,087
$
1,856
$
720
$
1,120
$
1,840
$
1
$
(230
)
$
6
$
1,862
(132
)
%
1
%
(132
)
%
1
%
OPERATING PROFIT (LOSS) AS A % OF REVENUES
U.S. Pharmaceutical and Specialty Solutions
1.35
%
1.38
%
1.40
%
1.42
%
1.35
%
1.38
%
(5
)
bp
(4
)
bp
(5
)
bp
(4
)
bp European Pharmaceutical Solutions
0.05
0.57
(4.05
)
0.94
0.04
0.57
410
(37
)
409
(37
)
Medical-Surgical Solutions
6.42
8.21
5.42
7.20
6.42
8.21
100
101
100
101
(a) Other primarily includes the results of our McKesson
Canada and McKesson Prescription Technology Solutions businesses.
Operating profit (loss) for Other includes equity earnings and
charges from 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)
September 30,
March 31,
2019
2019
ASSETS Current Assets Cash and cash equivalents
$
1,356
$
2,981
Receivables, net
18,984
18,246
Inventories, net
16,356
16,709
Prepaid expenses and other
657
529
Total Current Assets
37,353
38,465
Property, Plant and Equipment, Net
2,493
2,548
Operating Lease Right-of-Use Assets
2,002
-
Goodwill
9,408
9,358
Intangible Assets, Net
3,489
3,689
Investment in Change Healthcare Joint Venture
2,167
3,513
Other Noncurrent Assets
2,082
2,099
Total Assets
$
58,994
$
59,672
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS
AND EQUITY Current Liabilities Drafts and accounts payable
$
32,560
$
33,853
Short-term borrowings
549
-
Current portion of long-term debt
302
330
Current portion of operating lease liabilities
362
-
Other accrued liabilities
3,372
3,443
Total Current Liabilities
37,145
37,626
Long-Term Debt
7,342
7,265
Long-Term Deferred Tax Liabilities
2,718
2,998
Long-Term Operating Lease Liabilities
1,763
-
Other Noncurrent Liabilities
1,950
2,103
Redeemable Noncontrolling Interests
1,384
1,393
McKesson Corporation Stockholders' Equity
6,482
8,094
Noncontrolling Interests
210
193
Total Equity
6,692
8,287
Total Liabilities, Redeemable Noncontrolling Interests and Equity
$
58,994
$
59,672
Schedule 5 McKESSON
CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (unaudited) (in millions)
Six Months Ended September
30,
2019
2018
OPERATING ACTIVITIES Net income (loss)
$
(200
)
$
473
Adjustments to reconcile to net cash provided by (used in)
operating activities: Depreciation and amortization
463
475
Goodwill and other asset impairment charges
12
611
Deferred taxes
(380
)
60
Credits associated with last-in, first-out inventory method
(48
)
(43
)
Equity earnings and charges from investment in Change Healthcare
Joint Venture
1,450
112
Non-cash operating lease expense
180
-
Other non-cash items
144
(138
)
Changes in assets and liabilities, net of acquisitions: Receivables
(866
)
(1,705
)
Inventories
331
(398
)
Drafts and accounts payable
(1,203
)
1,197
Taxes
70
(99
)
Operating lease liabilities
(189
)
-
Other
77
(227
)
Net cash provided by (used in) operating activities
(159
)
318
INVESTING ACTIVITIES Payments for property, plant and
equipment
(126
)
(178
)
Capitalized software expenditures
(58
)
(70
)
Acquisitions, net of cash, cash equivalents and restricted cash
acquired
(95
)
(840
)
Other
(6
)
105
Net cash used in investing activities
(285
)
(983
)
FINANCING ACTIVITIES Proceeds from short-term
borrowings
8,670
19,735
Repayments of short-term borrowings
(8,122
)
(18,342
)
Common stock transactions: Issuances
78
38
Share repurchases, including shares surrendered for tax withholding
(1,452
)
(888
)
Dividends paid
(148
)
(139
)
Other
(229
)
(206
)
Net cash provided by (used in) financing activities
(1,203
)
198
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
22
(87
)
Net decrease in cash, cash equivalents and restricted cash
(1,625
)
(554
)
Cash, cash equivalents and restricted cash at beginning of period
2,981
2,672
Cash, cash equivalents and restricted cash at end of period
$
1,356
$
2,118
McKESSON CORPORATION FINANCIAL STATEMENT NOTES
(1)
Operating expenses for the first half of 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.
(2)
Operating expenses for the second quarter and first half of fiscal
2020 include a charge of $82 million (pre-tax and after-tax)
recorded in connection with an agreement reached in principle to
settle all opioids related claims filed by two Ohio counties,
within Corporate. These charges are 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.
(3)
Operating expenses for the first half of 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.
(4)
Operating expenses for the second quarter and first half of fiscal
2020 include pre-tax restructuring, impairment and related charges
of $45 million ($35 million after-tax) and $68 million ($52 million
after-tax), primarily for our Europe business and Corporate. The
second quarter and first half of fiscal 2019 include pre-tax
restructuring, impairment and related charges of $82 million ($67
million after-tax) and $178 million ($152 million after-tax),
primarily for our Canada and Europe businesses and Corporate.
(5)
Other income (expense) for the second quarter and first half of
fiscal 2020 includes a pre-tax charge of $105 million ($78 million
after-tax) and $122 million ($90 million after-tax) representing
settlement charges related to our frozen U.S. defined benefit
pension plan, within Corporate. These charges are 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.
(6)
Equity earnings and charges from investment in Change Healthcare
Joint Venture for the second quarter and first half of fiscal 2020
includes a pre-tax charge of $1,157 million ($864 million
after-tax) representing an other-than-temporary impairment of
McKesson’s investment in Change Healthcare Joint Venture. 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 within Other.
(7)
Equity earnings and charges from investment in Change Healthcare
Joint Venture for the second quarter and first half of fiscal 2020
includes a pre-tax charge of $246 million ($184 million after-tax)
representing the difference between our proportionate share of the
IPO proceeds and the dilution effect on our investment's carrying
value. Upon the completion of the IPO by Change Healthcare Inc. in
July 2019, McKesson's equity ownership interest in the joint
venture diluted from approximately 70% to 58.5%. This charge is
included under "Transaction-Related Expenses and Adjustments" 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 within Other.
(8)
Equity earnings and charges from investment in Change Healthcare
Joint Venture includes our proportionate share of loss from
investment in Change Healthcare Joint Venture within Other. Such
amount includes the amortization of equity investment intangibles
and other acquired intangibles of $63 million and $77 million for
the second quarters of fiscal 2020 and 2019 and $140 million and
$154 million for the first half of fiscals 2020 and 2019.
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, impairment and related 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, 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, impairment and related
charges - 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,
integration of acquired businesses, 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 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, the Company's
investment in Change Healthcare Joint Venture's financial results
are adjusted for the above noted items, except for the effect of
potentially dilutive securities issued by the joint venture on our
adjusted earnings per diluted share.
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/20191030005492/en/
Holly Weiss, 972-969-9174 (Investors and Financial Media)
Holly.Weiss@McKesson.com David Matthews, 214-952-0833 (General and
Business Media) David.Matthews@McKesson.com
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