Third Quarter Highlights, Year-over-Year:
- Consolidated revenues of $59.2 billion, reflecting 5%
growth.
- Earnings per diluted share decreased 56% to $1.06.
- Adjusted Earnings per diluted share of $3.81, an increase of
12%.
Fiscal 2020 Guidance:
- Reaffirmed fiscal 2020 Adjusted Earnings per diluted share
guidance range of $14.60 to $14.80; previously raised from $14.00
to $14.60 on January 13, 2020.
McKesson Corporation (NYSE:MCK) today reported results for the
third quarter ended December 31, 2019.
Fiscal 2020 Third-Quarter and Year-to-Date Result
Summary
Third Quarter
Year-to-Date
($ in millions,
except per share amounts)
FY20
FY19
Change
FY20
FY19
Change
Revenues
$
59,172
$
56,208
5
%
$
172,516
$
161,890
7
%
Income / (loss) from continuing
operations1
191
470
(59
)
(109
)
829
(113
)
Adjusted Earnings1,2
685
664
3
1,971
1,967
—
Earnings / (loss) per diluted
share1
1.06
2.41
(56
)
(0.60
)
4.17
(114
)
Adjusted Earnings per diluted
share1,2
3.81
3.40
12
10.71
9.89
8
1Reflects continuing operations
attributable to McKesson, net of tax
2Represents a non-GAAP financial measure;
refer to the reconciliations of non-GAAP financial measures
included in accompanying schedules
“We delivered solid operating performance and we are pleased to
report third-quarter adjusted earnings results ahead of our
expectations,” said Brian Tyler, chief executive officer.
“McKesson’s unwavering focus on strategic and operational execution
is demonstrated in the adjusted operating profit growth we reported
in the third quarter across our core operating segments.
Additionally, we have deployed meaningful capital toward share
repurchases year-to-date, delivering further value to our
shareholders. Our outlook for fiscal 2020 Adjusted EPS remains
unchanged from the prior guidance we provided on January 13th,
2020.”
Third-quarter revenues were $59.2 billion, up 5% from a year
ago. On an FX-adjusted basis, revenues grew 6%, primarily driven by
growth in the U.S. Pharmaceutical and Specialty Solutions segment,
largely due to branded pharmaceutical price increases and higher
volumes from retail national account customers.
Third-quarter earnings per diluted share of $1.06 included a
pre- and post-tax charge of $282 million within our European
Pharmaceutical Solutions segment for the remeasurement to fair
value of assets and liabilities held for sale related to the
expected formation of a new German wholesale joint venture with
Walgreens Boots Alliance.
Third-quarter Adjusted Earnings per diluted share was $3.81
compared to $3.40 a year ago, an increase of 12%, primarily driven
by growth in the U.S. Pharmaceutical and Specialty Solutions,
Medical Surgical and European segments and a lower share count,
partially offset by the previously anticipated increase in
corporate expenses and a higher tax rate. Prior year third-quarter
results included a pre-tax charge of $60 million related to a
customer bankruptcy, partially offset by a $17 million pre-tax
reversal of an accrued estimated liability related to the New York
State Opioid Stewardship Act. Excluding the impact of these prior
year items from Adjusted Earnings, third-quarter adjusted results
per diluted share increased approximately 7% year-over-year.
For the first nine months of the fiscal year, McKesson returned
$2.2 billion of cash to shareholders via $1.9 billion of common
stock repurchases and $222 million of dividend payments. During the
first nine months of the fiscal year, McKesson used cash from
operations of $280 million, and invested $338 million internally,
resulting in negative free cash flow of $618 million.
U.S. Pharmaceutical and Specialty Solutions Segment
- Third-quarter revenues were $46.9 billion, up 6%, driven
primarily by branded pharmaceutical price increases and higher
volumes from retail national account customers, partially offset by
branded to generic conversions.
- Third-quarter operating profit was $687 million and operating
margin was 1.46%. Adjusted operating profit was $658 million, up
11% from a year ago. Prior year third-quarter results included a
$60 million pre-tax charge related to a customer bankruptcy,
partially offset by a $17 million pre-tax reversal of an accrued
estimated liability related to the New York State Opioid
Stewardship Act. Excluding the net $43 million impact of these
prior year items, adjusted operating profit increased approximately
3%, driven by continued growth in the specialty businesses.
Adjusted operating margin was 1.40%, up 6 basis points.
European Pharmaceutical Solutions Segment
- Third-quarter revenues were $6.9 billion, flat on a reported
basis and up 3% on an FX-adjusted basis, driven primarily by growth
in the pharmaceutical distribution business.
- Third-quarter operating loss was ($303 million) and operating
margin was (4.37)%, primarily driven by a pre- and post-tax charge
of $282 million for the remeasurement to fair value of assets and
liabilities held for sale related to the expected formation of a
new German wholesale joint venture with Walgreens Boots Alliance.
Adjusted operating profit was $80 million, up 16%, and adjusted
operating margin was 1.15%. On an FX-adjusted basis, adjusted
operating profit was $82 million, up 19%, and adjusted operating
margin was 1.16%, up 16 basis points, driven in part by expense
rationalization.
Medical-Surgical Solutions Segment
- Third-quarter revenues were $2.1 billion, up 6%, driven
primarily by growth in the Primary Care business, largely due to
higher pharmaceutical volumes and an early start to influenza
season.
- Third-quarter operating profit was $124 million and operating
margin was 5.79%. Adjusted operating profit was $184 million, up
8%, and adjusted operating margin was 8.59%, up 14 basis points.
The year-over-year increase primarily reflects organic growth in
the Primary Care business.
Other remaining businesses
- Third-quarter revenues were $3.2 billion, up 6% on a reported
basis and up 5% on an FX-adjusted basis, primarily driven by growth
in the Canadian business.
- Third-quarter operating profit was $61 million. Adjusted
operating profit was $214 million, down 4% on both a reported and
FX-adjusted basis, as increased investment spend within the MRxTS
business was partially offset by growth in the Canadian
business.
Company Updates
- On February 4, 2020, McKesson’s wholly-owned subsidiary, PF2
SpinCo, Inc., filed a registration statement with the Securities
and Exchange Commission (SEC) relating to a potential exit of the
company from its investment in the Change Healthcare joint
venture.
- McKesson was selected by the Department of Veterans Affairs to
continue to serve as the prime pharmaceutical provider when the
current contract expires in August 2020.
- On December 12, 2019, McKesson and Walgreens Boots Alliance
announced an agreement to create a joint venture that is expected
to combine their respective pharmaceutical wholesale businesses in
Germany.
- For the seventh year in a row, McKesson was honored as one of
the “Best Places to Work for LGBTQ Equality” by the Human Rights
Campaign (HRC) Foundation, achieving 100 percent on the HRC’s 2020
Corporate Equality Index (CEI).
- McKesson appointed Nancy Flores as Executive Vice President,
Chief Information and Technology Officer effective January 13,
2020, following Kathy McElligott’s announced retirement.
Fiscal 2020 Outlook
- McKesson reaffirmed fiscal 2020 Adjusted Earnings per diluted
share guidance range of $14.60 to $14.80, which was previously
narrowed and raised from $14.00 to $14.60 on January 13, 2020.
Conference Call Details
The company has scheduled a conference call for today, Tuesday,
February 4th 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.
Non-GAAP Financial Measures
GAAP refers to the U.S. generally accepted accounting
principles. This press release includes GAAP financial measures as
well as Non-GAAP financial measures, including Adjusted Earnings,
FX-Adjusted results and Free Cash Flow which are financial measures
not calculated in accordance with GAAP. Refer to the “Supplemental
Non-GAAP Financial Information” section of the accompanying
financial statement tables for the definitions and usefulness of
the Company’s Non-GAAP financial measures and the attached
schedules for reconciliations of the differences between the
Non-GAAP financial measures and their most directly comparable GAAP
financial measures.
The company does not provide forward-looking guidance on a GAAP
basis 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.
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, such as references to the expected joint venture in
Germany, 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 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)
Three Months Ended December
31,
Nine Months Ended December
31,
2019
2018
Change
2019
2018
Change
Revenues
$
59,172
$
56,208
5
%
$
172,516
$
161,890
7
%
Cost of Sales
(56,139
)
(53,238
)
5
(163,829
)
(153,337
)
7
Gross Profit
3,033
2,970
2
8,687
8,553
2
Operating Expenses (1) (2) (3)
(2,535
)
(2,156
)
18
(6,861
)
(6,219
)
10
Goodwill Impairment Charges (4)
(2
)
(21
)
(90
)
(2
)
(591
)
(100
)
Restructuring, Impairment and Related
Charges (5)
(136
)
(110
)
24
(204
)
(288
)
(29
)
Total Operating Expenses
(2,673
)
(2,287
)
17
(7,067
)
(7,098
)
—
Operating Income
360
683
(47
)
1,620
1,455
11
Other Income (Expense), Net (6) (7)
26
84
(69
)
(15
)
144
(110
)
Equity Earnings and Charges from
Investment in Change Healthcare Joint Venture (8) (9) (10)
(28
)
(50
)
(44
)
(1,478
)
(162
)
812
Interest Expense
(64
)
(67
)
(4
)
(184
)
(194
)
(5
)
Income (Loss) from Continuing Operations
Before Income Taxes
294
650
(55
)
(57
)
1,243
(105
)
Income Tax Benefit (Expense) (11)
(47
)
(123
)
(62
)
111
(245
)
(145
)
Income from Continuing Operations
247
527
(53
)
54
998
(95
)
Income (Loss) from Discontinued
Operations, Net of Tax
(5
)
(1
)
400
(12
)
1
NM
Net Income
242
526
(54
)
42
999
(96
)
Net Income Attributable to Noncontrolling
Interests
(56
)
(57
)
(2
)
(163
)
(169
)
(4
)
Net Income (Loss) Attributable to McKesson
Corporation
$
186
$
469
(60
)
%
$
(121
)
$
830
(115
)
%
Earnings (Loss) Per Common Share
Attributable to McKesson Corporation (a)
Diluted (b)
Continuing operations
$
1.06
$
2.41
(56
)
%
$
(0.60
)
$
4.17
(114
)
%
Discontinued operations
(0.03
)
(0.01
)
200
(0.06
)
0.01
(700
)
Total
$
1.03
$
2.40
(57
)
%
$
(0.66
)
$
4.18
(116
)
%
Basic
Continuing operations
$
1.06
$
2.42
(56
)
%
$
(0.60
)
$
4.19
(114
)
%
Discontinued operations
(0.02
)
(0.01
)
100
(0.06
)
—
NM
Total
$
1.04
$
2.41
(57
)
%
$
(0.66
)
$
4.19
(116
)
%
Dividends Declared per Common Share
$
0.41
$
0.39
$
1.21
$
1.12
Weighted Average Common Shares
Diluted
180
195
(8
)
%
183
199
(8
)
%
Basic
179
194
(8
)
183
198
(8
)
(a)
Certain computations may reflect rounding
adjustments.
(b)
Net loss per diluted share for the nine
months ended December 31, 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.
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)
Three Months Ended December
31, 2019
Change Vs. Prior
Quarter
As Reported (GAAP)
Amortization of Acquisition-
Related Intangibles
Transaction- Related Expenses and
Adjustments
LIFO Inventory- Related
Adjustments
Gains from Antitrust Legal
Settlements
Restructuring, Impairment and
Related Charges, Net
Other Adjustments, Net
Adjusted Earnings (Non-GAAP)
As Reported (GAAP)
Adjusted Earnings (Non-GAAP)
Gross Profit
$
3,033
$
—
$
—
$
(66
)
$
(22
)
$
—
$
—
$
2,945
2
%
4
%
Total Operating Expenses (3) (5)
$
(2,673
)
$
113
$
324
$
—
$
—
$
136
$
23
$
(2,077
)
17
%
3
%
Other Income, Net
$
26
$
1
$
2
$
—
$
—
$
—
$
10
$
39
(69
)%
39
%
Equity Earnings and Charges from
Investment in Change Healthcare Joint Venture (10)
$
(28
)
$
63
$
15
$
—
$
—
$
—
$
1
$
51
(44
)%
(2
)%
Income from Continuing Operations Before
Income Taxes
$
294
$
177
$
341
$
(66
)
$
(22
)
$
136
$
34
$
894
(55
)%
5
%
Income Tax Expense (11)
$
(47
)
$
(43
)
$
(34
)
$
17
$
6
$
(21
)
$
(31
)
$
(153
)
(62
)%
18
%
Income from Continuing Operations, Net of
Tax, Attributable to McKesson Corporation (a)
$
191
$
134
$
307
$
(49
)
$
(16
)
$
115
$
3
$
685
(59
)%
3
%
Earnings per Diluted Common Share from
Continuing Operations, Net of Tax, Attributable to McKesson
Corporation (b)
$
1.06
$
0.75
$
1.71
$
(0.27
)
$
(0.09
)
$
0.64
$
0.01
$
3.81
(c)
(56
)%
12
%
Diluted Weighted Average Common Shares
180
180
180
180
180
180
180
180
(8
)%
(8
)%
Three Months Ended December
31, 2018
As Reported (GAAP)
Amortization of Acquisition-
Related Intangibles
Transaction- Related Expenses and
Adjustments
LIFO Inventory- Related
Adjustments
Gains from Antitrust Legal
Settlements
Restructuring, Impairment and
Related Charges, Net
Other Adjustments, Net
Adjusted Earnings (Non-GAAP)
Gross Profit
$
2,970
$
—
$
—
$
(21
)
$
(104
)
$
—
$
—
$
2,845
Total Operating Expenses (5)
$
(2,287
)
$
122
$
27
$
—
$
—
$
110
$
21
$
(2,007
)
Other Income, Net (7)
$
84
$
—
$
—
$
—
$
—
$
—
$
(56
)
$
28
Equity Earnings and Charges from
Investment in Change Healthcare Joint Venture (10)
$
(50
)
$
75
$
25
$
—
$
—
$
—
$
2
$
52
Income from Continuing Operations Before
Income Taxes
$
650
$
197
$
52
$
(21
)
$
(104
)
$
110
$
(33
)
$
851
Income Tax Expense (11)
$
(123
)
$
(50
)
$
(13
)
$
6
$
27
$
(18
)
$
41
$
(130
)
Income from Continuing Operations, Net of
Tax, Attributable to McKesson Corporation (a)
$
470
$
147
$
39
$
(15
)
$
(77
)
$
92
$
8
$
664
Earnings per Diluted Common Share from
Continuing Operations, Net of Tax, Attributable to McKesson
Corporation (b)
$
2.41
$
0.76
$
0.20
$
(0.08
)
$
(0.39
)
$
0.47
$
0.03
$
3.40
Diluted Weighted Average Common Shares
195
195
195
195
195
195
195
195
(a)
Calculated as "Net Income (Loss)
Attributable to McKesson Corporation" less "Income (Loss) from
Discontinued Operations, Net of Tax" as presented in the Condensed
Consolidated Statements of Operations - GAAP.
(b)
Certain computations may reflect rounding
adjustments.
(c)
Adjusted Earnings per diluted share on an
FX-Adjusted basis for the third quarter of fiscal 2020 was $3.82,
which excludes the foreign currency exchange effect of $0.01.
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)
Nine Months Ended December 31,
2019
Change Vs. Prior
Period
As Reported (GAAP)
Amortization of Acquisition-
Related Intangibles
Transaction- Related Expenses and
Adjustments
LIFO Inventory- Related
Adjustments
Gains from Antitrust Legal
Settlements
Restructuring, Impairment and
Related Charges, Net
Other Adjustments, Net
Adjusted Earnings (Non-GAAP)
As Reported (GAAP)
Adjusted Earnings (Non-GAAP)
Gross Profit
$
8,687
$
—
$
—
$
(114
)
$
(22
)
$
(5
)
$
—
$
8,546
2
%
2
%
Total Operating Expenses (2) (3) (5)
$
(7,067
)
$
343
$
357
$
—
$
—
$
204
$
109
$
(6,054
)
—
%
3
%
Other Income (Expense), Net (6)
$
(15
)
$
1
$
5
$
—
$
—
$
—
$
133
$
124
(110
)%
39
%
Equity Earnings and Charges from
Investment in Change Healthcare Joint Venture (8) (9) (10)
$
(1,478
)
$
203
$
305
$
—
$
—
$
—
$
1,168
$
198
812
%
15
%
Income (Loss) from Continuing Operations
Before Income Taxes
$
(57
)
$
547
$
667
$
(114
)
$
(22
)
$
199
$
1,410
$
2,630
(105
)%
3
%
Income Tax Benefit (Expense) (11)
$
111
$
(130
)
$
(117
)
$
29
$
6
$
(36
)
$
(359
)
$
(496
)
(145
)%
16
%
Income (Loss) from Continuing Operations,
Net of Tax, Attributable to McKesson Corporation (a)
$
(109
)
$
417
$
550
$
(85
)
$
(16
)
$
163
$
1,051
$
1,971
(113
)%
—
%
Earnings (Loss) Per Diluted Common Share
from Continuing Operations, Net of Tax, Attributable to McKesson
Corporation (b) (c)
$
(0.60
)
$
2.27
$
2.99
$
(0.46
)
$
(0.09
)
$
0.89
$
5.72
$
10.71
(d)
(114
)%
8
%
Diluted Weighted Average Common Shares
183
184
184
184
184
184
184
184
(8
)%
(8
)%
Nine Months Ended December 31,
2018
As Reported (GAAP)
Amortization of Acquisition-
Related Intangibles
Transaction- Related Expenses and
Adjustments
LIFO Inventory- Related
Adjustments
Gains from Antitrust Legal
Settlements
Restructuring, Impairment and
Related Charges, Net
Other Adjustments, Net
Adjusted Earnings (Non-GAAP)
Gross Profit
$
8,553
$
—
$
1
$
(64
)
$
(139
)
$
—
$
—
$
8,351
Total Operating Expenses (1) (4) (5)
$
(7,098
)
$
364
$
84
$
—
$
—
$
288
$
508
$
(5,854
)
Other Income, Net (7)
$
144
$
1
$
—
$
—
$
—
$
—
$
(56
)
$
89
Equity Earnings and Charges from
Investment in Change Healthcare Joint Venture (10)
$
(162
)
$
229
$
99
$
—
$
—
$
—
$
6
$
172
Income from Continuing Operations Before
Income Taxes
$
1,243
$
594
$
184
$
(64
)
$
(139
)
$
288
$
458
$
2,564
Income Tax Expense (11)
$
(245
)
$
(148
)
$
(46
)
$
17
$
36
$
(44
)
$
2
$
(428
)
Income from Continuing Operations, Net of
Tax, Attributable to McKesson Corporation (a)
$
829
$
446
$
138
$
(47
)
$
(103
)
$
244
$
460
$
1,967
Earnings Per Diluted Common Share from
Continuing Operations, Net of Tax, Attributable to McKesson
Corporation (b)
$
4.17
$
2.24
$
0.69
$
(0.24
)
$
(0.52
)
$
1.23
$
2.32
$
9.89
Diluted Weighted Average Common Shares
199
199
199
199
199
199
199
199
(a)
Calculated as "Net Income (Loss)
Attributable to McKesson Corporation" less "Income (Loss) from
Discontinued Operations, Net of Tax" as presented in the Condensed
Consolidated Statements of Operations - GAAP.
(b)
Certain computations may reflect rounding
adjustments.
(c)
We calculate GAAP net loss per diluted
share for the nine months ended December 31, 2019 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 nine months
ended December 31, 2019 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.
(d)
Adjusted Earnings per diluted share on an
FX-Adjusted basis for fiscal 2020 was $10.74, which excludes the
foreign currency exchange effect of $0.03.
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 OPERATING RESULTS TO ADJUSTED
EARNINGS (NON-GAAP) (unaudited) (in millions)
Three Months Ended December
31,
2019
2018
GAAP
Non-GAAP
Change
As Reported (GAAP)
Adjustments
Adjusted Earnings (Non-GAAP)
As Reported (GAAP)
Adjustments
Adjusted Earnings (Non-GAAP)
Foreign Currency Effects
FX-Adjusted
Foreign Currency Effects
FX-Adjusted
As Reported (GAAP)
Adjusted Earnings (Non-GAAP)
FX-Adjusted (GAAP)
FX-Adjusted (Non-GAAP)
REVENUES U.S. Pharmaceutical and Specialty Solutions
$
46,923
$
—
$
46,923
$
44,279
$
—
$
44,279
$
—
$
46,923
$
—
$
46,923
6
%
6
%
6
%
6
%
European Pharmaceutical Solutions
6,931
—
6,931
6,911
—
6,911
168
7,099
168
7,099
—
—
3
3
Medical-Surgical Solutions
2,141
—
2,141
2,012
—
2,012
—
2,141
—
2,141
6
6
6
6
Other (a)
3,177
—
3,177
3,006
—
3,006
(7
)
3,170
(7
)
3,170
6
6
5
5
Revenues
$
59,172
$
—
$
59,172
$
56,208
$
—
$
56,208
$
161
$
59,333
$
161
$
59,333
5
%
5
%
6
%
6
%
OPERATING PROFIT (5) U.S. Pharmaceutical and
Specialty Solutions
$
687
$
(29
)
$
658
$
671
$
(78
)
$
593
$
—
$
687
$
—
$
658
2
%
11
%
2
%
11
%
European Pharmaceutical Solutions (3)
(303
)
383
80
26
43
69
(3
)
(306
)
2
82
NM
16
NM
19
Medical-Surgical Solutions
124
60
184
136
34
170
—
124
—
184
(9
)
8
(9
)
8
Other (a) (7) (10)
61
153
214
74
150
224
2
63
1
215
(18
)
(4
)
(15
)
(4
)
Operating Profit
569
567
1,136
907
149
1,056
(1
)
568
3
1,139
(37
)
8
(37
)
8
Corporate
(211
)
33
(178
)
(190
)
52
(138
)
(1
)
(212
)
—
(178
)
11
29
12
29
Income from Continuing Operations Before Interest Expense and
Income Taxes
$
358
$
600
$
958
$
717
$
201
$
918
$
(2
)
$
356
$
3
$
961
(50
)%
4
%
(50
)%
5
%
OPERATING PROFIT AS A % OF REVENUES U.S.
Pharmaceutical and Specialty Solutions
1.46
%
1.40
%
1.52
%
1.34
%
1.46
%
1.40
%
(6
)bp
6
bp
(6
)bp
6
bp
European Pharmaceutical Solutions
(4.37
)
1.15
0.38
1.00
(4.31
)
1.16
(475
)
15
(469
)
16
Medical-Surgical Solutions
5.79
8.59
6.76
8.45
5.79
8.59
(97
)
14
(97
)
14
(a)
Other primarily includes the results of
our McKesson Canada and McKesson Prescription Technology Solutions
businesses. Operating profit 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 OPERATING RESULTS TO ADJUSTED
EARNINGS (NON-GAAP) (unaudited) (in millions)
Nine Months Ended December
31,
2019
2018
GAAP
Non-GAAP
Change
As Reported (GAAP)
Adjustments
Adjusted Earnings (Non-GAAP)
As Reported (GAAP)
Adjustments
Adjusted Earnings (Non-GAAP)
Foreign Currency Effects
FX-Adjusted
Foreign Currency Effects
FX-Adjusted
As Reported (GAAP)
Adjusted Earnings (Non-GAAP)
FX-Adjusted (GAAP)
FX-Adjusted (Non-GAAP)
REVENUES
U.S. Pharmaceutical and Specialty
Solutions
$
137,067
$
—
$
137,067
$
126,866
$
—
$
126,866
$
—
$
137,067
$
—
$
137,067
8
%
8
%
8
%
8
%
European Pharmaceutical
Solutions
20,239
—
20,239
20,485
—
20,485
916
21,155
916
21,155
(1
)
(1
)
3
3
Medical-Surgical Solutions
6,100
—
6,100
5,663
—
5,663
—
6,100
—
6,100
8
8
8
8
Other (a)
9,110
—
9,110
8,876
—
8,876
121
9,231
121
9,231
3
3
4
4
Revenues
$
172,516
$
—
$
172,516
$
161,890
$
—
$
161,890
$
1,037
$
173,553
$
1,037
$
173,553
7
%
7
%
7
%
7
%
OPERATING PROFIT (5)
U.S. Pharmaceutical and Specialty
Solutions
$
1,905
$
(6
)
$
1,899
$
1,824
$
(56
)
$
1,768
$
—
$
1,905
$
—
$
1,899
4
%
7
%
4
%
7
%
European Pharmaceutical Solutions
(3) (4)
(297
)
453
156
(524
)
720
196
(3
)
(300
)
6
162
(43
)
(20
)
(43
)
(17
)
Medical-Surgical Solutions
378
131
509
334
99
433
—
378
—
509
13
18
13
18
Other (a) (1) (7) (8) (9)
(10)
(1,109
)
1,820
711
283
454
737
3
(1,106
)
4
715
(492
)
(4
)
(491
)
(3
)
Operating Profit
877
2,398
3,275
1,917
1,217
3,134
—
877
10
3,285
(54
)
4
(54
)
5
Corporate (2) (6)
(750
)
289
(461
)
(480
)
104
(376
)
(1
)
(751
)
(1
)
(462
)
56
23
56
23
Income from Continuing Operations
Before Interest Expense and Income Taxes
$
127
$
2,687
$
2,814
$
1,437
$
1,321
$
2,758
$
(1
)
$
126
$
9
$
2,823
(91
)%
2
%
(91
)%
2
%
OPERATING PROFIT AS A % OF REVENUES
U.S. Pharmaceutical and Specialty
Solutions
1.39
%
1.39
%
1.44
%
1.39
%
1.39
%
1.39
%
(5
)bp
—
bp
(5
)bp
—
bp
European Pharmaceutical
Solutions
(1.47
)
0.77
(2.56
)
0.96
(1.42
)
0.77
109
(19
)
114
(19
)
Medical-Surgical Solutions
6.20
8.34
5.90
7.65
6.20
8.34
30
69
30
69
(a)
Other primarily includes the results of
our McKesson Canada and McKesson Prescription Technology Solutions
businesses. Operating profit 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)
December 31, 2019
March 31, 2019
ASSETS
Current Assets
Cash and cash equivalents
$
2,065
$
2,981
Receivables, net
18,831
18,246
Inventories, net
17,020
16,709
Assets held for sale
856
—
Prepaid expenses and other
618
529
Total Current Assets
39,390
38,465
Property, Plant and Equipment, Net
2,408
2,548
Operating Lease Right-of-Use Assets
2,013
—
Goodwill
9,456
9,358
Intangible Assets, Net
3,364
3,689
Investment in Change Healthcare Joint
Venture
2,143
3,513
Other Noncurrent Assets
2,099
2,099
Total Assets
$
60,873
$
59,672
LIABILITIES, REDEEMABLE NONCONTROLLING
INTERESTS AND EQUITY
Current Liabilities
Drafts and accounts payable
$
32,744
$
33,853
Short-term borrowings
2,109
—
Current portion of long-term debt
1,007
330
Current portion of operating lease
liabilities
365
—
Liabilities held for sale
471
—
Other accrued liabilities
3,359
3,443
Total Current Liabilities
40,055
37,626
Long-Term Debt
6,734
7,265
Long-Term Deferred Tax Liabilities
2,686
2,998
Long-Term Operating Lease Liabilities
1,780
—
Other Noncurrent Liabilities
1,836
2,103
Redeemable Noncontrolling Interests
1,397
1,393
McKesson Corporation Stockholders’
Equity
6,174
8,094
Noncontrolling Interests
211
193
Total Equity
6,385
8,287
Total Liabilities, Redeemable
Noncontrolling Interests and Equity
$
60,873
$
59,672
Schedule
5
McKESSON CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
Nine Months Ended December
31,
2019
2018
Operating Activities
Net income
$
42
$
999
Adjustments to reconcile to net cash
provided by (used in) operating activities:
Depreciation and amortization
691
714
Goodwill and other asset impairment
charges
113
671
Deferred taxes
(387
)
170
Credits associated with last-in, first-out
inventory method
(114
)
(64
)
Equity earnings and charges from
investment in Change Healthcare Joint Venture
1,478
162
Non-cash operating lease expense
276
—
Other non-cash items
542
(95
)
Changes in assets and liabilities, net of
acquisitions:
Receivables
(1,044
)
(1,543
)
Inventories
(689
)
(756
)
Drafts and accounts payable
(929
)
175
Taxes
11
(131
)
Operating lease liabilities
(287
)
—
Other
17
(161
)
Net cash provided by (used in) operating
activities
(280
)
141
Investing Activities
Payments for property, plant and
equipment
(242
)
(309
)
Capitalized software expenditures
(96
)
(96
)
Acquisitions, net of cash, cash
equivalents and restricted cash acquired
(97
)
(866
)
Other
26
120
Net cash used in investing activities
(409
)
(1,151
)
Financing Activities
Proceeds from short-term borrowings
15,852
30,392
Repayments of short-term borrowings
(13,743
)
(29,346
)
Proceeds from issuances of long-term
debt
—
1,099
Common stock transactions:
Issuances
89
46
Share repurchases, including shares
surrendered for tax withholding
(1,951
)
(1,388
)
Dividends paid
(222
)
(216
)
Other
(279
)
(270
)
Net cash provided by (used in) financing
activities
(254
)
317
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
27
(130
)
Net decrease in cash, cash equivalents and
restricted cash
(916
)
(823
)
Cash, cash equivalents and restricted cash
at beginning of period
2,981
2,672
Cash, cash equivalents and restricted cash
at end of period
$
2,065
$
1,849
McKESSON CORPORATION
FINANCIAL STATEMENT NOTES
(1)
Operating expenses for the nine months
ended December 31, 2018 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
Schedule 2B of the accompanying financial statement tables.
(2)
Operating expenses for the nine months
ended December 31, 2019 include a pre-tax charge of $82 million
($61 million after-tax) recorded in connection with an agreement
executed in December 2019 to settle all opioids related claims
filed by two Ohio counties, 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 Schedule 2B of the accompanying financial statement
tables.
(3)
Operating expenses for the three and nine
months ended December 31, 2019 includes a charge of $282 million
(pre-tax and after-tax) to remeasure assets and liabilities held
for sale to the lower of carrying value or fair value less costs to
sell related to the expected contribution of the majority of our
German wholesale business to create a joint venture in which
McKesson will have a non-controlling interest within our European
Pharmaceutical Solutions segment. 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 Schedule 2A and Schedule 2B of the
accompanying financial statement tables.
(4)
Operating expenses for the nine months
ended December 31, 2018 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 2B of the accompanying financial statement tables.
(5)
Operating expenses for the three and nine
months ended December 31, 2019 include pre-tax restructuring,
impairment and related charges of $136 million ($115 million
after-tax) and $204 million ($167 million after-tax), primarily for
our Europe and Canada businesses as well as Corporate. The three
and nine months ended December 31, 2018 include pre-tax
restructuring, impairment and related charges of $110 million ($92
million after-tax) and $288 million ($244 million after-tax),
primarily for our Canada and Europe businesses as well as
Corporate.
(6)
Other income (expense), net for the nine
months ended December 31, 2019 includes a pre-tax charge of $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 Schedule 2B of the
accompanying financial statement tables.
(7)
Other income (expense), net for the three
and nine months ended December 31, 2018 include a pre-tax gain of
$56 million ($41 million after-tax) recognized from the sale of an
equity method investment. This gain is included under "Other
Adjustments, Net" in the reconciliation of McKesson's GAAP
financial results to Adjusted Earnings (Non-GAAP) provided in
Schedule 2A and Schedule 2B of the accompanying financial statement
tables.
(8)
Equity earnings and charges from
investment in Change Healthcare Joint Venture for the nine months
ended December 31, 2019 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 Schedule 2B of the accompanying
financial statement tables within Other.
(9)
Equity earnings and charges from
investment in Change Healthcare Joint Venture for the nine months
ended December 31, 2019 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 Schedule 2B of
the accompanying financial statement tables within Other.
(10)
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 $75 million for the three months ended December 31,
2019 and December 31, 2018 and $203 million and $229 million for
the nine months ended December 31, 2019 and December 31, 2018.
(11)
Income tax benefit (expense) for the three
and the nine months ended December 31, 2019 include net discrete
tax benefits of $21 million recognized in connection with an
agreement executed in December 2019 to settle all opioids related
claims filed by two Ohio counties. Income tax benefit (expense) for
the three and the nine months ended December 31, 2018 include net
discrete tax expenses of $27 million and net discrete tax benefits
of $11 million recognized in connection with the 2017 Tax Act.
These discrete tax expenses and benefits are included under "Other
Adjustments, Net" in the reconciliation of McKesson's GAAP
financial results to Adjusted Earnings (Non-GAAP) provided in
Schedule 2A and Schedule 2B of the accompanying financial statement
tables.
McKESSON CORPORATION
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.
- 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.
- Free Cash Flow (Non-GAAP): We define free cash flow as net cash
provided by (used in) operating activities less payments for
property, plant and equipment and capitalized software
expenditures, as disclosed in our condensed consolidated statements
of cash flows. For the nine months ended December 31, 2019, free
cash flow was $(618) million, calculated as $(280) million net cash
used in operating activities less $(242) million in payments for
property, plant and equipment and $(96) million in payments for
capitalized software expenditures. For the nine months ended
December 31, 2018, free cash flow was $(264) million, calculated as
$141 million net cash provided by operating activities less $(309)
million in payments for property, plant and equipment and $(96)
million in payments for capitalized software expenditures. We
believe free cash flow is important to management and useful to
investors as a supplemental measure as it indicates the cash flow
available for working capital needs, re-investment opportunities,
strategic acquisitions, dividend payments or other strategic uses
of cash.
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.
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version on businesswire.com: https://www.businesswire.com/news/home/20200204005523/en/
Holly Weiss, 972-969-9174 (Investors) Holly.Weiss@McKesson.com David Matthews,
214-952-0833 (Media) David.Matthews@McKesson.com
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