Fourth-Quarter Highlights, Year-over-Year:
- Total revenues of $58.5 billion, reflecting 12% growth.
- Earnings per diluted share increased by $9.99 to $5.82.
- Adjusted Earnings per diluted share of $4.27, an increase of
16%.
Full-Year Highlights:
- Total revenues of $231.1 billion, reflecting 8% growth.
- Earnings per diluted share increased by $4.82 to $4.99.
- Adjusted Earnings per diluted share of $14.95, an increase of
10%.
- Cash flow from operations of $4.4 billion and free cash flow of
$3.9 billion.
- Returned $2.2 billion of cash to shareholders through share
repurchases and dividends.
Fiscal 2021 Outlook:
- Adjusted Earnings per diluted share guidance range of $13.95 to
$14.75.
- Fiscal 2021 guidance reflects impacts from the COVID-19
pandemic and investments.
- McKesson expects Adjusted Earnings per diluted share growth in
the second half of fiscal 2021.
- Long-term fundamentals remain solid; continuing to execute
strategic growth initiatives.
McKesson Corporation (NYSE:MCK) today reported results for the
fourth quarter and fiscal year ended March 31, 2020.
Fiscal 2020 Fourth-Quarter and Year-to-Date Result
Summary
Fourth-Quarter
Year-to-Date
($ in millions, except per share
amounts)
FY20
FY19
Change
FY20
FY19
Change
Revenues
$
58,535
$
52,429
12
%
$
231,051
$
214,319
8
%
Income (loss) from
continuing operations1
1,015
(796
)
228
906
33
NM
Adjusted Earnings1,2
745
707
5
2,716
2,674
2
Earnings (loss) per diluted
share1
5.82
(4.17
)
240
4.99
0.17
NM
Adjusted Earnings per diluted
share1,2
4.27
3.69
16
14.95
13.57
10
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
“McKesson delivered a strong finish to fiscal 2020, reflecting
continued momentum in the business and meaningful progress in our
transformation towards becoming a more focused organization as we
look to capture future growth opportunities,” said Brian Tyler,
chief executive offer. “During fiscal 2020, we achieved adjusted
operating profit growth in all three operating segments, generated
$3.9 billion of free cash flow, and successfully completed the exit
of our investment in Change Healthcare.”
“As we enter fiscal 2021, McKesson is leveraging our expertise,
leadership and scale to play a critical role in the fight against
the COVID-19 pandemic,” Mr. Tyler continued. “We continue to remain
focused on supporting our people, our customers and our communities
during this challenging time. I want to thank caregivers worldwide
for their heroic efforts and acknowledge the entire McKesson team,
particularly our frontline workers, for their extraordinary
dedication. Despite the uncertainties in the near-term macro
environment, we remain confident in the resiliency of our business
model and committed to creating long-term shareholder value.”
Fourth-quarter revenues were $58.5 billion, up 12%, and
full-year revenues were $231.1 billion, up 8%, 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.
Fourth-quarter earnings per diluted share of $5.82 included an
after-tax gain of $414 million, recognized upon the separation of
the company’s investment in Change Healthcare LLC (“Change
Healthcare”). Full-year earnings per diluted share of $4.99 also
included after-tax impairment and dilution charges of $1 billion
related to Change Healthcare and after-tax charges of $275 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.
Fourth-quarter Adjusted Earnings per diluted share was $4.27
compared to $3.69 a year ago, an increase of 16%, primarily driven
by a lower share count and growth in the European Pharmaceutical
Solutions segment. Full-year Adjusted Earnings per diluted share
was $14.95 compared to $13.57 a year ago, an increase of 10%,
primarily driven by a lower share count and growth in the U.S.
Pharmaceutical and Specialty Solutions and Medical Surgical
segments, partially offset by higher corporate expenses and the
lapping of a prior year pre-tax benefit of $90 million related to a
reversal of a contractual liability associated with McKesson’s
investment in Change Healthcare.
For the full year, McKesson returned $2.2 billion of cash to
shareholders via $1.9 billion of common stock repurchases and $294
million of dividend payments. During the fiscal year, McKesson
generated cash from operations of $4.4 billion, and invested $506
million internally, resulting in free cash flow of $3.9
billion.
U.S. Pharmaceutical and Specialty Solutions Segment
Fourth-Quarter:
- Revenues were $46.3 billion, up 13%, driven by branded
pharmaceutical price increases and higher volumes from retail
national account customers, partially offset by branded to generic
conversions.
- Operating profit was $862 million and operating margin was
1.86%. Adjusted operating profit was $772 million, up 3% from a
year ago, driven by continued growth in the specialty businesses.
Adjusted operating margin was 1.67%, down 17 basis points.
Full-Year:
- Revenues were $183.3 billion, up 9%, driven by branded
pharmaceutical price increases and higher volumes from retail
national account customers, partially offset by branded to generic
conversions.
- Operating profit was $2.8 billion and operating margin was
1.51%. Adjusted operating profit was $2.7 billion, up 6% from a
year ago, driven by growth in the specialty businesses and the
lapping of a prior year approximately $60 million pre-tax charge
related to a customer bankruptcy. Adjusted operating margin was
1.46%, down 4 basis points.
European Pharmaceutical Solutions Segment
Fourth-Quarter:
- Revenues were $7.2 billion, up 6% on a reported basis and up 9%
on an FX-adjusted basis, driven by growth in the pharmaceutical
distribution business.
- Operating profit was $36 million and operating margin was
0.50%. Adjusted operating profit was $75 million, up 226%, and
adjusted operating margin was 1.05%. On an FX-adjusted basis,
adjusted operating profit was $78 million, up 239%, and adjusted
operating margin was 1.06%, up 72 basis points, driven by expense
rationalization and the lapping of a prior year inventory charge of
approximately $20 million.
Full-Year:
- Revenues were $27.4 billion, up 1% on a reported basis and up
5% on an FX-adjusted basis, driven by growth in the pharmaceutical
distribution business.
- Operating loss was ($261) million and operating margin was
(0.95%), driven by after-tax charges of $275 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 $231 million, up 5%, and adjusted operating margin was 0.84%.
On an FX-adjusted basis, adjusted operating profit was $240
million, up 10%, and adjusted operating margin was 0.84%, driven by
expense rationalization and the lapping of a prior year inventory
charge of approximately $20 million.
Medical-Surgical Solutions Segment
Fourth-Quarter:
- Revenues were $2.2 billion, up 13%, driven by growth in the
Primary Care business, due to higher pharmaceutical volumes and a
stronger influenza season.
- Operating profit was $121 million and operating margin was
5.49%. Adjusted operating profit was $170 million, down 1%, driven
primarily by higher operating expenses, partially offset by growth
in the Primary Care business. Adjusted operating margin was 7.71%,
down 109 basis points.
Full-Year:
- Revenues were $8.3 billion, up 9%, driven by growth in the
Primary Care business.
- Operating profit was $499 million and operating margin was
6.01%. Adjusted operating profit was $679 million, up 12%, and
adjusted operating margin was 8.18%, up 24 basis points, driven by
growth in the Primary Care business.
Other remaining businesses
Fourth-Quarter:
- Revenues were $2.9 billion, up 3% on a reported basis and up 4%
on an FX-adjusted basis, driven by growth in the Canadian and MRxTS
businesses.
- Operating profit was $514 million, driven by an after-tax gain
of $414 million, recognized upon the separation of the company’s
investment in Change Healthcare. Adjusted operating profit was $242
million, down 6% on both a reported and FX-adjusted basis, driven
by a lower contribution from the company’s investment in Change
Healthcare, partially offset by growth in the MRxTS business.
Full-Year:
- Revenues were $12.0 billion, up 3% on a reported basis and up
4% on an FX-adjusted basis, driven by growth in the Canadian and
MRxTS businesses.
- Operating loss was ($595) million, primarily driven by a
previously disclosed impairment in the second quarter, in
connection with McKesson’s separation of its investment in Change
Healthcare. Adjusted operating profit was $953 million, down 4% on
both a reported and FX-adjusted basis, driven by the lapping of the
$90 million contractual liability reversal in the prior year
partially offset by organic growth in the MRxTS and Canadian
businesses.
Company Updates
- On March 10, 2020, McKesson completed the separation of its
investment in Change Healthcare.
- McKesson awarded approximately $30 million in special one-time
bonus payments in the fourth-quarter to recognize frontline workers
and other non-bonus eligible employees for their
contributions.
- McKesson invested approximately $20 million into the McKesson
Foundation in the fourth-quarter, designating $5 million for
deployment to McKesson’s “Taking Care of Our Own Fund” to provide
support for employees impacted by the COVID-19 pandemic.
Fiscal 2021 Outlook
McKesson expects full-year fiscal 2021 Adjusted Earnings per
diluted share of $13.95 to $14.75, which reflects anticipated
headwinds in fiscal 2021 as a result of the COVID-19 pandemic and a
continuation of disciplined, efficient capital deployment,
including investments in the business. McKesson expects Adjusted
Earnings per diluted share growth in the second half of fiscal
2021.
The fiscal 2021 outlook is based on the following key
assumptions and expectations and is also subject to risk factors
such as those described in the Cautionary Statements below:
Fiscal 2021 Outlook
Revenues
2% to 4% growth
Adjusted Income from
Operations1
10% to 15% decline
Adjusted Effective Tax Rate
18% to 20%
Adjusted Earnings per diluted
share2
$13.95 to $14.75
Free Cash Flow
$2.3 billion to $2.7
billion
Property Acquisitions and Capitalized
Software
$400 million to $550
million
1Reflects continuing operations before
Interest Expense and Income Taxes
2Reflects continuing operations
attributable to McKesson, net of tax
Note: Percentages represent year-over-year
change versus fiscal 2020
Conference Call Details
The company has scheduled a conference call for today,
Wednesday, May 20th 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 passcode 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 conferences:
- Jefferies Virtual Healthcare Conference, June 2, 2020
- Goldman Sachs 41st Annual Global Healthcare Conference, June 9,
2020
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, including details and updates, will
be available on the company’s Investor Relations website.
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 financial performance forecasts, 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: we
experience costly and disruptive legal disputes, including legal
disputes, government actions and adverse publicity regarding our
role in distributing controlled substances such as opioids; we
might experience losses not covered by insurance; we are subject to
extensive, complex and challenging healthcare, controlled
substance, privacy, anti-corruption and other laws; we might record
significant charges from impairment to goodwill, intangibles and
other assets or investments; we experience cybersecurity incidents
and might experience significant computer system compromises or
data breaches or other significant problems with information
systems or networks, including as an effect of our employees
working from remote locations due to the COVID-19 pandemic; we may
be unsuccessful in retail pharmacy profitability; we might be
harmed by large customer purchase reductions, payment defaults or
contract non-renewal; our contracts with government entities
involve future funding and compliance risks; we might be harmed by
changes in our relationships or contracts with suppliers; we might
be unable to successfully recruit and retain qualified employees;
we might be adversely impacted by healthcare reform such as changes
in pricing and reimbursement models; we might be adversely impacted
by competition and industry consolidation; we might be adversely
impacted by changes or disruptions in product supply and we may
have difficulties in sourcing or selling products due to a variety
of causes, such as the effects of the COVID-19 pandemic on supply
chains; we might be adversely impacted as a result of our
distribution of generic pharmaceuticals; we might be adversely
impacted, including as an effect of the COVID-19 pandemic, by an
economic slowdown or recession and by disruption in capital and
credit markets might impede our access credit, increase our
borrowing costs and impair the financial soundness of our customers
and suppliers; we might be adversely impacted by tax legislation or
challenges to our tax positions, and we might not realize the
expected tax treatment from our split-off of Change Healthcare; we
might be adversely impacted by fluctuations in foreign currency
exchange rates, including volatility due to the COVID-19 pandemic;
we might be adversely impacted by events outside of our control,
such as widespread public health issues (including the COVID-19
pandemic), natural disasters, political events and other
catastrophic events.
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 March
31,
Year Ended March 31,
2020
2019
Change
2020
2019
Change
Revenues
$
58,535
$
52,429
12
%
$
231,051
$
214,319
8
%
Cost of Sales
(55,199
)
(49,228
)
12
(219,028
)
(202,565
)
8
Gross Profit
3,336
3,201
4
12,023
11,754
2
Operating Expenses (1) (2) (3)
(2,403
)
(2,255
)
7
(9,264
)
(8,474
)
9
Goodwill Impairment Charges (4)
—
(1,206
)
(100
)
(2
)
(1,797
)
(100
)
Restructuring, Impairment and Related
Charges (5)
(64
)
(309
)
(79
)
(268
)
(597
)
(55
)
Total Operating Expenses
(2,467
)
(3,770
)
(35
)
(9,534
)
(10,868
)
(12
)
Operating Income (Loss)
869
(569
)
253
2,489
886
181
Other Income, Net (6) (7)
27
38
(29
)
12
182
(93
)
Equity Earnings and Charges from
Investment in Change Healthcare Joint Venture (8) (9) (10) (11)
370
(32
)
NM
(1,108
)
(194
)
471
Interest Expense
(65
)
(70
)
(7
)
(249
)
(264
)
(6
)
Income (Loss) from Continuing Operations
Before Income Taxes
1,201
(633
)
290
1,144
610
88
Income Tax Expense (12)
(129
)
(111
)
16
(18
)
(356
)
(95
)
Income (Loss) from Continuing
Operations
1,072
(744
)
244
1,126
254
343
Income (Loss) from Discontinued
Operations, Net of Tax
6
—
NM
(6
)
1
(700
)
Net Income (Loss)
1,078
(744
)
245
1,120
255
339
Net Income Attributable to Noncontrolling
Interests
(57
)
(52
)
10
(220
)
(221
)
-
Net Income (Loss) Attributable to McKesson
Corporation
$
1,021
$
(796
)
228
%
$
900
$
34
NM
Earnings (Loss) Per Common Share
Attributable to McKesson Corporation (a)
Diluted (b)
Continuing operations
$
5.82
$
(4.17
)
240
%
$
4.99
$
0.17
NM
Discontinued operations
0.03
—
NM
(0.04
)
—
NM
Total
$
5.85
$
(4.17
)
240
%
$
4.95
$
0.17
NM
Basic
Continuing operations
$
5.86
$
(4.17
)
241
%
$
5.01
$
0.17
NM
Discontinued operations
0.03
—
NM
(0.03
)
—
NM
Total
$
5.89
$
(4.17
)
241
%
$
4.98
$
0.17
NM
Dividends Declared per Common Share
$
0.41
$
0.39
$
1.62
$
1.51
Weighted Average Common Shares
Diluted
174
191
(9
)%
182
197
(8
)%
Basic
173
191
(9
)
181
196
(8
)
(a)
Certain computations may reflect rounding
adjustments.
(b)
Net loss per diluted share for the three
months ended March 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.
Refer to our applicable filings with the
SEC for additional disclosures including our Annual Report on Form
10-K for fiscal 2020 and 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 March 31,
2020
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
$
3,336
$
—
$
1
$
(138
)
$
—
$
1
$
—
$
3,200
4
%
7
%
Total Operating Expenses (5)
$
(2,467
)
$
119
$
15
$
—
$
—
$
64
$
28
$
(2,241
)
(35
)%
8
%
Other Income, Net
$
27
$
—
$
—
$
—
$
—
$
—
$
(6
)
$
21
(29
)%
(45
)%
Equity Earnings and Charges from
Investment in Change Healthcare Joint Venture (10) (11)
$
370
$
64
$
(380
)
$
—
$
—
$
—
$
1
$
55
NM
(21
)%
Income from Continuing Operations Before
Income Taxes
$
1,201
$
183
$
(364
)
$
(138
)
$
—
$
65
$
23
$
970
290
%
1
%
Income Tax Expense
$
(129
)
$
(45
)
$
(8
)
$
37
$
—
$
(16
)
$
(7
)
$
(168
)
16
%
(15
)%
Income from Continuing Operations, Net of
Tax, Attributable to McKesson Corporation (a)
$
1,015
$
138
$
(372
)
$
(101
)
$
—
$
49
$
16
$
745
228
%
5
%
Earnings per Diluted Common Share from
Continuing Operations, Net of Tax, Attributable to McKesson
Corporation (b)
$
5.82
$
0.79
$
(2.14
)
$
(0.58
)
$
—
$
0.28
$
0.10
$
4.27
(c)
240
%
16
%
Diluted Weighted Average Common Shares
174
174
174
174
174
174
174
174
(9
)%
(9
)%
Three Months Ended March 31,
2019
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
$
3,201
$
—
$
—
$
(146
)
$
(63
)
$
4
$
—
$
2,996
Total Operating Expenses (4) (5)
$
(3,770
)
$
121
$
34
$
—
$
—
$
309
$
1,228
$
(2,078
)
Other Income, Net
$
38
$
—
$
—
$
—
$
—
$
—
$
—
$
38
Equity Earnings and Charges from
Investment in Change Healthcare Joint Venture (10)
$
(32
)
$
75
$
27
$
—
$
—
$
—
$
—
$
70
Income (Loss) from Continuing Operations
Before Income Taxes
$
(633
)
$
196
$
61
$
(146
)
$
(63
)
$
313
$
1,228
$
956
Income Tax Expense (12)
$
(111
)
$
(47
)
$
(15
)
$
37
$
16
$
(58
)
$
(19
)
$
(197
)
Income (Loss) from Continuing Operations,
Net of Tax, Attributable to McKesson Corporation (a)
$
(796
)
$
149
$
46
$
(109
)
$
(47
)
$
255
$
1,209
$
707
Earnings (Loss) per Diluted Common Share
from Continuing Operations, Net of Tax, Attributable to McKesson
Corporation (b) (d)
$
(4.17
)
$
0.78
$
0.24
$
(0.56
)
$
(0.24
)
$
1.33
$
6.30
$
3.69
Diluted Weighted Average Common Shares
191
192
192
192
192
192
192
192
(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 three months ended March 31, 2020 was
$4.29, which excludes the foreign currency exchange effect of
$0.02.
(d)
We calculate GAAP net loss per diluted
share for the three months ended March 31, 2019 using a weighted
average of 191 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 three months
ended March 31, 2019 on a fully diluted basis, using a weighted
average of 192 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.
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)
Year Ended March 31,
2020
Change Vs. Prior Year
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
$
12,023
$
—
$
1
$
(252
)
$
(22
)
$
(4
)
$
—
$
11,746
2
%
4
%
Total Operating Expenses (2) (3) (5)
$
(9,534
)
$
462
$
372
$
—
$
—
$
268
$
137
$
(8,295
)
(12
)%
5
%
Other Income, Net (6)
$
12
$
1
$
5
$
—
$
—
$
—
$
127
$
145
(93
)%
14
%
Equity Earnings and Charges from
Investment in Change Healthcare Joint Venture (8) (9) (10) (11)
$
(1,108
)
$
267
$
(75
)
$
—
$
—
$
—
$
1,169
$
253
471
%
5
%
Income from Continuing Operations Before
Income Taxes
$
1,144
$
730
$
303
$
(252
)
$
(22
)
$
264
$
1,433
$
3,600
88
%
2
%
Income Tax Expense (12)
$
(18
)
$
(175
)
$
(125
)
$
66
$
6
$
(52
)
$
(366
)
$
(664
)
(95
)%
6
%
Income from Continuing Operations, Net of
Tax, Attributable to McKesson Corporation (a)
$
906
$
555
$
178
$
(186
)
$
(16
)
$
212
$
1,067
$
2,716
NM
2
%
Earnings Per Diluted Common Share from
Continuing Operations, Net of Tax, Attributable to McKesson
Corporation (b)
$
4.99
$
3.06
$
0.98
$
(1.03
)
$
(0.09
)
$
1.16
$
5.88
$
14.95
(c)
NM
10
%
Diluted Weighted Average Common Shares
182
182
182
182
182
182
182
182
(8
)%
(8
)%
Year Ended March 31,
2019
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
$
11,754
$
—
$
1
$
(210
)
$
(202
)
$
4
$
—
$
11,347
Total Operating Expenses (1) (4) (5)
$
(10,868
)
$
485
$
118
$
—
$
—
$
597
$
1,736
$
(7,932
)
Other Income, Net (7)
$
182
$
1
$
—
$
—
$
—
$
—
$
(56
)
$
127
Equity Earnings and Charges from
Investment in Change Healthcare Joint Venture (10)
$
(194
)
$
304
$
126
$
—
$
—
$
—
$
6
$
242
Income from Continuing Operations Before
Income Taxes
$
610
$
790
$
245
$
(210
)
$
(202
)
$
601
$
1,686
$
3,520
Income Tax Expense (12)
$
(356
)
$
(195
)
$
(61
)
$
54
$
52
$
(102
)
$
(17
)
$
(625
)
Income from Continuing Operations, Net of
Tax, Attributable to McKesson Corporation (a)
$
33
$
595
$
184
$
(156
)
$
(150
)
$
499
$
1,669
$
2,674
Earnings Per Diluted Common Share from
Continuing Operations, Net of Tax, Attributable to McKesson
Corporation (b)
$
0.17
$
3.02
$
0.93
$
(0.79
)
$
(0.76
)
$
2.53
$
8.47
$
13.57
Diluted Weighted Average Common Shares
197
197
197
197
197
197
197
197
(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 year ended March 31, 2020 was $15.00,
which excludes the foreign currency exchange effect of $0.05.
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
OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)
(unaudited)
(in millions)
Three Months Ended March
31,
2020
2019
GAAP
Non-GAAP
Change
As Reported (GAAP)
Adjustments
As Adjusted (Non-GAAP)
As Reported (GAAP)
Adjustments
As Adjusted (Non-GAAP)
Foreign Currency Effects
FX- Adjusted
Foreign Currency Effects
FX- Adjusted
As Reported (GAAP)
As Adjusted (Non-GAAP)
FX- Adjusted (GAAP)
FX- Adjusted (Non-GAAP)
REVENUES U.S. Pharmaceutical and Specialty Solutions
$
46,274
$
—
$
46,274
$
40,897
$
—
$
40,897
$
—
$
46,274
$
—
$
46,274
13
%
13
%
13
%
13
%
European Pharmaceutical Solutions
7,151
—
7,151
6,757
—
6,757
217
7,368
217
7,368
6
6
9
9
Medical-Surgical Solutions
2,205
—
2,205
1,955
—
1,955
—
2,205
—
2,205
13
13
13
13
Other (a)
2,905
—
2,905
2,820
—
2,820
29
2,934
29
2,934
3
3
4
4
Revenues
$
58,535
$
—
$
58,535
$
52,429
$
—
$
52,429
$
246
$
58,781
$
246
$
58,781
12
%
12
%
12
%
12
%
OPERATING PROFIT (LOSS) (5) U.S. Pharmaceutical and
Specialty Solutions
$
862
$
(90
)
$
772
$
873
$
(121
)
$
752
$
—
$
862
$
—
$
772
(1
)%
3
%
(1
)%
3
%
European Pharmaceutical Solutions (4)
36
39
75
(1,454
)
1,477
23
—
36
3
78
102
226
102
239
Medical-Surgical Solutions
121
49
170
121
51
172
—
121
—
170
-
(1
)
-
(1
)
Other (a) (10) (11)
514
(272
)
242
111
147
258
—
514
—
242
363
(6
)
363
(6
)
Subtotal
1,533
(274
)
1,259
(349
)
1,554
1,205
—
1,533
3
1,262
539
4
539
5
Corporate Expenses, Net
(267
)
43
(224
)
(214
)
35
(179
)
—
(267
)
—
(224
)
25
25
25
25
Income (Loss) from Continuing Operations Before Interest Expense
and Income Taxes
$
1,266
$
(231
)
$
1,035
$
(563
)
$
1,589
$
1,026
$
—
$
1,266
$
3
$
1,038
325
%
1
%
325
%
1
%
OPERATING PROFIT (LOSS) AS A % OF REVENUES U.S.
Pharmaceutical and Specialty Solutions
1.86
%
1.67
%
2.13
%
1.84
%
1.86
%
1.67
%
(27
) bp
(17
) bp
(27
) bp
(17
) bp
European Pharmaceutical Solutions
0.50
1.05
(21.52
)
0.34
0.49
1.06
2,202
71
2,201
72
Medical-Surgical Solutions
5.49
7.71
6.19
8.80
5.49
7.71
(70
)
(109
)
(70
)
(109
)
(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
3B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT
OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)
(unaudited)
(in millions)
Year Ended March 31,
2020
2019
GAAP
Non-GAAP
Change
As Reported (GAAP)
Adjustments
As Adjusted (Non-GAAP)
As Reported (GAAP)
Adjustments
As Adjusted (Non-GAAP)
Foreign Currency Effects
FX- Adjusted
Foreign Currency Effects
FX- Adjusted
As Reported (GAAP)
As Adjusted (Non-GAAP)
FX- Adjusted (GAAP)
FX- Adjusted (Non-GAAP)
REVENUES U.S. Pharmaceutical and Specialty Solutions
$
183,341
$
—
$
183,341
$
167,763
$
—
$
167,763
$
—
$
183,341
$
—
$
183,341
9
%
9
%
9
%
9
%
European Pharmaceutical Solutions
27,390
—
27,390
27,242
—
27,242
1,133
28,523
1,133
28,523
1
1
5
5
Medical-Surgical Solutions
8,305
—
8,305
7,618
—
7,618
—
8,305
—
8,305
9
9
9
9
Other (a)
12,015
—
12,015
11,696
—
11,696
150
12,165
150
12,165
3
3
4
4
Revenues
$
231,051
$
—
$
231,051
$
214,319
$
—
$
214,319
$
1,283
$
232,334
$
1,283
$
232,334
8
%
8
%
8
%
8
%
OPERATING PROFIT (LOSS) (5) U.S. Pharmaceutical and
Specialty Solutions
$
2,767
$
(96
)
$
2,671
$
2,697
$
(177
)
$
2,520
$
—
$
2,767
$
—
$
2,671
3
%
6
%
3
%
6
%
European Pharmaceutical Solutions (3) (4)
(261
)
492
231
(1,978
)
2,197
219
(3
)
(264
)
9
240
(87
)
5
(87
)
10
Medical-Surgical Solutions
499
180
679
455
150
605
—
499
—
679
10
12
10
12
Other (a) (1) (7) (8) (9) (10) (11)
(595
)
1,548
953
394
601
995
3
(592
)
4
957
(251
)
(4
)
(250
)
(4
)
Subtotal
2,410
2,124
4,534
1,568
2,771
4,339
—
2,410
13
4,547
54
4
54
5
Corporate Expenses, Net (2) (6)
(1,017
)
332
(685
)
(694
)
139
(555
)
(1
)
(1,018
)
(1
)
(686
)
47
23
47
24
Income from Continuing Operations Before Interest Expense and
Income Taxes
$
1,393
$
2,456
$
3,849
$
874
$
2,910
$
3,784
$
(1
)
$
1,392
$
12
$
3,861
59
%
2
%
59
%
2
%
OPERATING PROFIT (LOSS) AS A % OF REVENUES U.S.
Pharmaceutical and Specialty Solutions
1.51
%
1.46
%
1.61
%
1.50
%
1.51
%
1.46
%
(10
) bp
(4
) bp
(10
) bp
(4
) bp
European Pharmaceutical Solutions
(0.95
)
0.84
(7.26
)
0.80
(0.93
)
0.84
631
4
633
4
Medical-Surgical Solutions
6.01
8.18
5.97
7.94
6.01
8.18
4
24
4
24
(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)
March 31,
2020
2019
ASSETS
Current Assets
Cash and cash equivalents
$
4,015
$
2,981
Receivables, net
19,950
18,246
Inventories, net
16,734
16,709
Assets held for sale
906
—
Prepaid expenses and other
617
529
Total Current Assets
42,222
38,465
Property, Plant and Equipment, Net
2,365
2,548
Operating Lease Right-of-Use Assets
1,886
—
Goodwill
9,360
9,358
Intangible Assets, Net
3,156
3,689
Investment in Change Healthcare Joint
Venture
—
3,513
Other Noncurrent Assets
2,258
2,099
Total Assets
$
61,247
$
59,672
LIABILITIES, REDEEMABLE NONCONTROLLING
INTERESTS AND EQUITY
Current Liabilities
Drafts and accounts payable
$
37,195
$
33,853
Current portion of long-term debt
1,052
330
Current portion of operating lease
liabilities
354
—
Liabilities held for sale
683
—
Other accrued liabilities
3,340
3,443
Total Current Liabilities
42,624
37,626
Long-Term Debt
6,335
7,265
Long-Term Deferred Tax Liabilities
2,255
2,998
Long-Term Operating Lease Liabilities
1,660
—
Other Noncurrent Liabilities
1,662
2,103
Redeemable Noncontrolling Interests
1,402
1,393
McKesson Corporation Stockholders’
Equity
5,092
8,094
Noncontrolling Interests
217
193
Total Equity
5,309
8,287
Total Liabilities, Redeemable
Noncontrolling Interests and Equity
$
61,247
$
59,672
Schedule
5
McKESSON CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
Years Ended March 31,
2020
2019
Operating Activities
Net income
$
1,120
$
255
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization
922
949
Goodwill and other asset impairment
charges
139
2,079
Deferred taxes
(342
)
189
Credits associated with last-in, first-out
inventory method
(252
)
(210
)
Equity earnings and charges from
investment in Change Healthcare Joint Venture
1,084
194
Non-cash operating lease expense
366
—
Other non-cash items
648
(34
)
Changes in assets and liabilities, net of
acquisitions:
Receivables
(2,494
)
(967
)
Inventories
(376
)
(368
)
Drafts and accounts payable
3,952
1,976
Taxes
(8
)
(95
)
Operating lease liabilities
(377
)
—
Other
(8
)
68
Net cash provided by operating
activities
4,374
4,036
Investing Activities
Payments for property, plant and
equipment
(362
)
(426
)
Capitalized software expenditures
(144
)
(131
)
Acquisitions, net of cash, cash
equivalents and restricted cash acquired
(133
)
(905
)
Other
60
81
Net cash used in investing activities
(579
)
(1,381
)
Financing Activities
Proceeds from short-term borrowings
21,437
37,265
Repayments of short-term borrowings
(21,437
)
(37,268
)
Proceeds from issuances of long-term
debt
—
1,099
Repayments of long-term debt
(298
)
(1,112
)
Common stock transactions:
Issuances
113
75
Share repurchases, including shares
surrendered for tax withholding
(1,954
)
(1,639
)
Dividends paid
(294
)
(292
)
Other
(301
)
(355
)
Net cash used in financing activities
(2,734
)
(2,227
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(19
)
(119
)
Net increase in cash, cash equivalents and
restricted cash
1,042
309
Cash, cash equivalents and restricted cash
at beginning of year
2,981
2,672
Cash, cash equivalents and restricted cash
at end of year
$
4,023
$
2,981
Schedule
6
McKESSON CORPORATION
RECONCILIATION OF GAAP CASH
FLOW TO FREE CASH FLOW (NON-GAAP)
(unaudited)
(in millions)
Years Ended March 31,
2020
2019
Change
GAAP CASH FLOW CATEGORIES
Net cash provided by operating
activities
$
4,374
$
4,036
8
%
Net cash used in investing activities
(579
)
(1,381
)
(58
)
Net cash used in financing activities
(2,734
)
(2,227
)
23
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(19
)
(119
)
(84
)
Net increase in cash, cash equivalents and
restricted cash
$
1,042
$
309
237
%
FREE CASH FLOW (NON-GAAP)
Net cash provided by operating
activities
$
4,374
$
4,036
8
%
Payments for property, plant and
equipment
(362
)
(426
)
(15
)
Capitalized software expenditures
(144
)
(131
)
10
Free cash flow (non-GAAP)
$
3,868
$
3,479
11
%
For more information relating to the Free
Cash Flow (Non-GAAP) definition, refer to the section entitled
“Supplemental Non-GAAP Financial Information” of this release.
McKESSON CORPORATION
FINANCIAL STATEMENT
NOTES
(1)
Total operating expenses for the year
ended March 31, 2019 includes 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)
Total operating expenses for the year
ended March 31, 2020 primarily includes 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 Expenses, Net.
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)
Total operating expenses for the year
ended March 31, 2020 primarily includes charges of $275 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. These charges are 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.
(4)
Total operating expenses for the three
months and year ended March 31, 2019 primarily includes pre-tax
non-cash goodwill impairment charges of $1.21 billion ($1.19
billion after-tax) and $1.78 billion ($1.76 billion after-tax) for
our European Pharmaceutical Solutions segment. 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 2A and Schedule 2B of the accompanying
financial statement tables.
(5)
Total operating expenses for the three
months and year ended March 31, 2020 includes pre-tax
restructuring, impairment and related charges of $64 million ($48
million after-tax) and $268 million ($215 million after-tax),
primarily for our Canada and Europe businesses as well as Corporate
Expenses, Net. The three months and year ended March 31, 2019
includes pre-tax restructuring, impairment and related charges of
$309 million ($251 million after-tax) and $597 million ($495
million after-tax), primarily for our Canada and Europe businesses
as well as Corporate Expenses, Net. These charges are included 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.
(6)
Other income, net for the year ended March
31, 2020 primarily includes pre-tax charges of $122 million ($90
million after-tax) representing settlement charges related to our
frozen U.S. defined benefit pension plan, within Corporate
Expenses, Net. 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, net for the year ended March
31, 2019 includes a pre-tax gain of $56 million ($41 million
after-tax) recognized from the sale of an equity method investment
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.
(8)
Equity earnings and charges from
investment in Change Healthcare Joint Venture for the year ended
March 31, 2020 primarily includes a pre-tax charge of $1.16 billion
($864 million after-tax) representing an other-than-temporary
impairment of McKesson’s investment in Change Healthcare Joint
Venture within Other. 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.
(9)
Equity earnings and charges from
investment in Change Healthcare Joint Venture for the year ended
March 31, 2020 primarily includes a pre-tax charge of $246 million
($184 million after-tax) within Other representing the difference
between our proportionate share of the IPO proceeds and the
dilution effect on our investment's carrying value. 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.
(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
$64 million and $75 million for the three months ended March 31,
2020 and March 31, 2019 and $267 million and $304 million for the
year ended March 31, 2020 and March 31, 2019. These charges are
included under "Amortization of Acquisition-Related Intangibles" 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.
(11)
Equity earnings and charges from
investment in Change Healthcare Joint Venture for the three months
and year ended March 31, 2020 includes an estimated gain of $414
million (pre-tax and after-tax) within Other recognized upon the
separation of our investment in Change Healthcare LLC ("Change
Healthcare"). The separation was completed on March 10, 2020 and
involved a series of transactions, including an exchange offer to
split-off our wholly-owned subsidiary PF2 SpinCo, Inc. ("SpinCo")
which held all of McKesson's interest in Change Healthcare and a
merger of SpinCo with and into Change Healthcare, Inc. ("Change").
McKesson no longer holds an interest in any securities of Change
Healthcare or Change following the transactions. After the
separation, Change Healthcare is required under an agreement to pay
McKesson 85% of the net cash tax savings realized, or so deemed,
from the depreciation or amortization allocated to Change by
McKesson. The receipt of any payments from this agreement is
dependent upon Change benefiting from this depreciation or
amortization in future tax return filings, which creates
uncertainty such that McKesson accounts for the agreement as a gain
contingency. This estimated gain 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.
(12)
Income tax expense for the year ended
March 31, 2020 includes 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 expense for the three months and year ended
March 31, 2019 includes net discrete tax expenses of $54 million
and net discrete tax benefits of $424 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.
- 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. A reconciliation of McKesson’s GAAP financial
results to Free Cash Flow (Non-GAAP) is provided in Schedule 6 of
the financial statement tables included with this 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. 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. 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. 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/20200520005377/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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