Third-Quarter Highlights, Year-over-Year:
- Total revenues of $62.6 billion, reflecting 6% growth.
- McKesson recorded a pre-tax charge of $8.1 billion related to
opioid litigation, resulting in third-quarter Loss per diluted
share of ($39.03).
- Adjusted Earnings per diluted share of $4.60, an increase of
21%.
- Board of Directors authorized an additional $2.0 billion share
repurchase program.
Fiscal 2021 Guidance:
- Increased fiscal 2021 Adjusted Earnings per diluted share
guidance range to $16.95 to $17.25, from the previous range of
$16.00 to $16.50.
- Fiscal 2021 Adjusted Earnings per diluted share guidance
assumes $0.25 to $0.35 related to COVID-19 vaccine distribution and
$0.20 to $0.30 related to the kitting and distribution of ancillary
supplies for COVID-19 vaccines.
McKesson Corporation (NYSE:MCK) today reported results for the
third quarter ended December 31, 2020.
Fiscal 2021 Third-Quarter Result Summary
Third-Quarter
Year-to-Date
($ in millions, except per share
amounts)
FY21
FY20
Change
FY21
FY20
Change
Revenues
$
62,599
$
59,172
6
%
$
179,086
$
172,516
4
%
Income (loss) from Continuing
Operations1
(6,226
)
191
NM
(5,204
)
(109
)
NM
Adjusted Earnings1,2
741
685
8
1,978
1,971
-
Earnings (loss) per Diluted
Share1
(39.03
)
1.06
NM
(32.28
)
(0.60
)
NM
Adjusted Earnings per Diluted
Share1,2
4.60
3.81
21
12.17
10.71
14
1 Reflects continuing operations
attributable to McKesson, net of tax
2 Represents a non-GAAP financial measure;
refer to the reconciliations of non-GAAP financial measures
included in accompanying schedules
“McKesson continued to demonstrate its operational excellence
and extensive healthcare supply chain expertise, as we began the
distribution of COVID-19 vaccine doses to the entire U.S. in the
third quarter,” said Brian Tyler, chief executive officer.
“McKesson’s long history of serving as the centralized distributor
for the Vaccines for Children program for the Centers for Disease
Control and Prevention, including during the H1N1 public health
crisis, positions us well to distribute hundreds of millions of
COVID-19 vaccines safely and efficiently to the right location, in
the right quantity, and in the right condition. Our COVID-19
vaccine distribution has been highly successful, achieving all
volume and timing requirements by the government, and I want to
thank our 80,000 employees around the world for their tremendous
efforts and dedication.”
“While the overall environment remains challenging due to the
sustained impact of the COVID-19 pandemic, we are pleased to report
third-quarter adjusted earnings results ahead of our expectations.
McKesson’s performance reflects strong execution and the benefits
from our ongoing strategic investments in the growth areas of
oncology and biopharma services. Based on our year-to-date progress
and the successful execution of distributing COVID-19 vaccines and
ancillary supplies in the U.S., we are raising and narrowing our
guidance range for fiscal 2021 and now expect Adjusted Earnings per
diluted share of $16.95 to $17.25.”
Third-quarter revenues were $62.6 billion, up 6% from a year
ago, driven by growth in the U.S. Pharmaceutical segment, largely
due to market growth and higher specialty volumes, partially offset
by branded to generic conversions.
Third-quarter Loss per diluted share of ($39.03) included a
pre-tax $8.1 billion expense accrual related to opioid litigation
and a pre-tax long-lived asset impairment charge of $115 million
primarily related to McKesson’s retail pharmacy businesses in the
International segment. Third-quarter Adjusted Earnings per diluted
share does not include these charges.
Third-quarter Adjusted Earnings per diluted share was $4.60
compared to $3.81 a year ago, an increase of 21%, driven by a lower
share count and growth in the Medical-Surgical Solutions segment,
partially offset by a higher tax rate and the lapping of the prior
year contribution from the company's now separated investment in
Change Healthcare LLC ("Change Healthcare"). Third-quarter Adjusted
Earnings per diluted share also included pre-tax net gains of
approximately $30 million, or $0.14 per diluted share, associated
with McKesson Ventures’ equity investments.
For the first nine months of the fiscal year, McKesson returned
$709 million of cash to shareholders via $500 million of common
stock repurchases and $209 million of dividend payments. During the
first nine months of the fiscal year, McKesson generated cash from
operations of $1.2 billion, and invested $427 million internally,
resulting in Free Cash Flow of $745 million.
Opioid-related charges
- In the third quarter of fiscal 2021, McKesson recorded a
GAAP-only pre-tax charge of $8.1 billion, $6.7 billion post-tax,
related to the estimated liability for opioid-related claims of
governmental entities. The Company is in ongoing, advanced
discussions with state attorneys general and plaintiffs’ attorneys
regarding a settlement framework under which the Company would pay
its portion of a broad settlement over a period of 18 years. A loss
in this amount has now been deemed probable and reasonably
estimable.
U.S. Pharmaceutical Segment
- Third-quarter revenues were $49.5 billion, up 7%, driven by
market growth and higher specialty volumes, partially offset by
branded to generic conversions.
- Third-quarter Segment Operating Profit was $635 million and
operating margin was 1.28%. Adjusted Segment Operating Profit was
$656 million, up 2% from a year ago, driven by growth in specialty,
partially offset by higher operating expenses in support of the
company’s strategic growth initiatives. Adjusted operating margin
was 1.33%, down 5 basis points.
International Segment
- Third-quarter revenues were $9.3 billion, down 6% on a reported
basis and down 10% on an FX-Adjusted basis, driven by the
contribution of McKesson's German wholesale business to a joint
venture with Walgreens Boots Alliance.
- Third-quarter Segment Operating Loss was ($71) million and
operating margin was (0.77%), driven by a GAAP-only pre-tax
long-lived asset impairment charge of $115 million primarily
related to McKesson’s retail pharmacy businesses in Canada and
Europe. Adjusted Segment Operating Profit was $158 million, up 9%.
On an FX-Adjusted basis, Adjusted Segment Operating Profit was $150
million, up 3%. Adjusted operating margin was 1.70%, up 23 basis
points. On an FX-Adjusted basis, adjusted operating margin was
1.69%, up 22 basis points.
Medical-Surgical Solutions Segment
- Third-quarter revenues were $3.1 billion, up 43%, primarily
driven by demand for COVID-19 tests in the Primary Care and
Extended Care businesses.
- Third-quarter Segment Operating Profit was $260 million and
operating margin was 8.51%. Adjusted Segment Operating Profit was
$279 million, up 52%, driven by demand for COVID-19 tests and the
contribution from kitting and distribution of ancillary supplies
for COVID-19 vaccines, partially offset by inventory charges.
Adjusted operating margin was 9.14%, up 55 basis points.
Prescription Technology Solutions Segment
- Third-quarter revenues were $777 million, up 9%, driven by new
brand support programs and higher volumes of existing brand support
programs.
- Third-quarter Segment Operating Profit was $114 million and
operating margin was 14.67%. Adjusted Segment Operating Profit was
$131 million, up 27%, reflecting organic growth in the segment.
Adjusted operating margin was 16.86%, up from 14.43% in the prior
year.
Company Updates
- McKesson launched Ontada, an oncology technology and insights
business within the U.S. Pharmaceutical Segment, designed to
support innovation, acceleration and evidence generation to drive
better outcomes for cancer patients.
- McKesson’s Board of Directors authorized an additional $2.0
billion share repurchase program, demonstrating confidence in
McKesson’s diversified capital allocation strategy.
Recent Sustainability and ESG Highlights
- Dr. Kelvin A. Baggett joined McKesson in the newly created role
of chief impact officer effective November 30, 2020.
- McKesson issued its FY20 Corporate Responsibility report
highlighting its strategy and action towards better health for
people and the planet and has joined the United Nations Global
Compact initiative, a voluntary leadership platform for the
development, implementation and disclosure of responsible business
practices.
- For the eighth consecutive year, McKesson was recognized 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 2021
Corporate Equality Index.
Fiscal 2021 Outlook
McKesson raised and narrowed fiscal 2021 Adjusted Earnings per
diluted share guidance to $16.95 to $17.25 from the previous range
of $16.00 to $16.50 to primarily reflect improved growth in the
business and the contribution from McKesson’s successful
distribution of COVID-19 vaccines and ancillary supplies. Fiscal
2021 Adjusted Earnings per diluted share guidance assumes $0.25 to
$0.35 related to COVID-19 vaccine distribution and $0.20 to $0.30
related to the kitting and distribution of ancillary supplies for
COVID-19 vaccines.
Fiscal 2021 guidance continues to assume that a full recovery of
pharmaceutical prescription volumes and patient visits will not
occur this fiscal year.
Other remaining businesses
As a result of the segment realignment effective in the second
quarter of fiscal 2021, Other reflects equity earnings and charges
for retrospective periods for the company's previous investment in
Change Healthcare, which was separated from the company during the
fourth quarter of fiscal 2020.
Conference Call Details
The company has scheduled a conference call for today, Tuesday,
February 2nd 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. 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:
- Cowen 41st Annual Health Care Conference, March 1, 2021
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 Gross
Profit, Adjusted Operating Expenses, Adjusted Other Income,
Adjusted Equity Income from Change Healthcare, Adjusted Income Tax
Expense, Adjusted Earnings, Adjusted Earnings per Diluted Share,
Adjusted Segment Operating Profit, Adjusted Segment Operating
Profit Margin, Adjusted Corporate Expenses, Adjusted Operating
Profit, 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
regarding our role in distributing controlled substances such as
opioids; we might experience losses not covered by insurance; we
from time to time 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; we might experience
significant problems with information systems or networks; 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 adversely impacted by healthcare reform such as changes in
pricing and reimbursement models; we might be adversely impacted by
changes or disruptions in product supply and we have experienced
and may experience difficulties in sourcing products and changes in
pricing due to 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 by an economic slowdown (including the effects we have
experienced from the COVID-19 pandemic) or recession and by
disruption in capital and credit markets that 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 fluctuations in foreign currency exchange
rates; we might be adversely impacted by events outside of our
control, such as widespread public health issues (including the
effects we have experienced from the COVID-19 pandemic), natural
disasters, political events and other catastrophic events; and we
face uncertainties and risks related to vaccination distribution
programs.
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 solutions. 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 a “Most Admired Company” in the healthcare
wholesaler category by FORTUNE, a “Best Place to Work” by the Human
Rights Campaign Foundation, and a top military-friendly company by
Military Friendly. For more information, visit
https://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,
2020
2019
Change
2020
2019
Change
Revenues
$
62,599
$
59,172
6
%
$
179,086
$
172,516
4
%
Cost of sales
(59,448
)
(56,139
)
6
(170,235
)
(163,829
)
4
Gross profit
3,151
3,033
4
8,851
8,687
2
Operating expenses
(2,291
)
(2,535
)
(10
)
(6,625
)
(6,779
)
(2
)
Claims and litigation charges, net
(8,067
)
—
NM
(7,936
)
(82
)
NM
Goodwill impairment charges
—
(2
)
(100
)
(69
)
(2
)
NM
Restructuring, impairment, and related
charges
(155
)
(136
)
14
(271
)
(204
)
33
Total operating expenses
(10,513
)
(2,673
)
293
(14,901
)
(7,067
)
111
Operating income (loss)
(7,362
)
360
NM
(6,050
)
1,620
(473
)
Other income (expense), net
54
26
108
152
(15
)
NM
Equity earnings and charges from
investment in Change Healthcare Joint Venture
—
(28
)
(100
)
—
(1,478
)
(100
)
Interest expense
(55
)
(64
)
(14
)
(165
)
(184
)
(10
)
Income (loss) from continuing operations
before income taxes
(7,363
)
294
NM
(6,063
)
(57
)
NM
Income tax benefit (expense)
1,189
(47
)
NM
1,011
111
811
Income (loss) from continuing
operations
(6,174
)
247
NM
(5,052
)
54
NM
Loss from discontinued operations, net of
tax
—
(5
)
(100
)
(1
)
(12
)
(92
)
Net income (loss)
(6,174
)
242
NM
(5,053
)
42
NM
Net income attributable to noncontrolling
interests
(52
)
(56
)
(7
)
(152
)
(163
)
(7
)
Net income (loss) attributable to McKesson
Corporation
$
(6,226
)
$
186
NM
$
(5,205
)
$
(121
)
NM
Earnings (loss) per common share
attributable to McKesson Corporation (a)
Diluted (b)
Continuing operations
$
(39.03
)
$
1.06
NM
$
(32.28
)
$
(0.60
)
NM
Discontinued operations
—
(0.03
)
(100
)
(0.01
)
(0.06
)
(83
)
Total
$
(39.03
)
$
1.03
NM
$
(32.29
)
$
(0.66
)
NM
Basic
Continuing operations
$
(39.03
)
$
1.06
NM
$
(32.28
)
$
(0.60
)
NM
Discontinued operations
—
(0.02
)
(100
)
(0.01
)
(0.06
)
(83
)
Total
$
(39.03
)
$
1.04
NM
$
(32.29
)
$
(0.66
)
NM
Dividends declared per common share
$
0.42
$
0.41
$
1.25
$
1.21
Weighted-average common shares
outstanding
Diluted
159.5
179.7
(11
)%
161.2
183.1
(12
)%
Basic
159.5
178.7
(11
)
161.2
183.1
(12
)
(a)
Certain computations may reflect rounding
adjustments.
(b)
Net loss per diluted share for the three
and nine months ended December 31, 2020 and 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 our applicable filings with the
SEC for additional disclosures including our Quarterly Reports on
Form 10-Q for fiscal 2021 and 2020 as well as our Annual Report on
Form 10-K for fiscal 2020.
Schedule
2
McKESSON CORPORATION
RECONCILIATION OF GAAP
OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)
(unaudited)
(in millions, except per share
amounts)
Three Months Ended December
31,
Nine Months Ended December
31,
2020
2019
Change
2020
2019
Change
Income (loss) from continuing operations
(GAAP)
$
(6,174
)
$
247
NM
$
(5,052
)
$
54
NM
Net income attributable to noncontrolling
interests (GAAP)
(52
)
(56
)
(7
)
(152
)
(163
)
(7
)
Income (loss) from continuing
operations attributable to McKesson Corporation (GAAP)
(6,226
)
191
NM
(5,204
)
(109
)
NM
Pre-tax adjustments:
Amortization of acquisition-related
intangibles (1)
109
177
(38
)
321
547
(41
)
Transaction-related expenses and
adjustments (2) (3)
55
341
(84
)
84
667
(87
)
LIFO inventory-related adjustments
(11
)
(66
)
(83
)
(115
)
(114
)
1
Gains from antitrust legal settlements
—
(22
)
(100
)
—
(22
)
(100
)
Restructuring, impairment, and related
charges, net (4)
155
136
14
274
199
38
Claims and litigation charges, net (5) (6)
(7)
8,067
—
NM
7,936
82
NM
Other adjustments, net (8) (9) (10)
(11)
(1
)
34
(103
)
124
1,328
(91
)
Income tax effect on pre-tax
adjustments
(1,407
)
(106
)
NM
(1,438
)
(607
)
137
Net income attributable to noncontrolling
interests effect on other adjustments, net (10)
—
—
NM
(4
)
—
NM
Adjusted Earnings (Non-GAAP)
$
741
$
685
8
%
$
1,978
$
1,971
—
%
Diluted weighted-average common shares
outstanding
161.0
179.7
(10
)%
162.5
184.0
(12
)%
Earnings (loss) per diluted common
share from continuing operations attributable to McKesson
Corporation (GAAP) (a) (b)
$
(39.03
)
$
1.06
NM
$
(32.28
)
$
(0.60
)
NM
After-tax adjustments:
Amortization of acquisition-related
intangibles
0.51
0.75
(32
)
1.52
2.27
(33
)
Transaction-related expenses and
adjustments
0.34
1.71
(80
)
0.49
2.99
(84
)
LIFO inventory-related adjustments
(0.05
)
(0.27
)
(81
)
(0.53
)
(0.46
)
15
Gains from antitrust legal settlements
—
(0.09
)
(100
)
—
(0.09
)
(100
)
Restructuring, impairment, and related
charges, net
0.85
0.64
33
1.41
0.89
58
Claims and litigation charges, net
41.62
(0.12
)
NM
40.65
0.33
NM
Other adjustments, net
—
0.13
(100
)
0.65
5.39
(88
)
Adjusted Earnings per Diluted Share
(Non-GAAP) (b) (c)
$
4.60
$
3.81
21
%
$
12.17
$
10.71
14
%
(a)
Certain computations may reflect rounding
adjustments.
(b)
We calculate loss per diluted common share
from continuing operations attributable to McKesson Corporation
(GAAP) for the three and nine months ended December 31, 2020 and
the nine months ended December 31, 2019 using a weighted average of
159.5 million, 161.2 million, and 183.1 million common shares,
respectively, 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 and nine months ended December 31,
2020 and the nine months ended December 31, 2019 on a fully diluted
basis, using a weighted average of 161.0 million, 162.5 million,
and 184.0 million common shares, respectively. Because we show the
GAAP to Non-GAAP per share reconciling items on a fully diluted
basis, any footing differences in those items are due to different
weighted average share counts. This methodology results in per
share differences of $0.36, $0.26, and $0.01 for the three and nine
months ended December 31, 2020 and the nine months ended December
31, 2019, respectively.
(c)
Adjusted earnings per diluted share on an
FX-adjusted basis for the three and nine months ended December 31,
2020 was $4.58 and $12.15, respectively, which excludes the foreign
currency exchange effect of $0.02 in both periods.
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 Adjusted Earnings per Diluted
Share (Non-GAAP) definitions, refer to the section entitled
“Supplemental Non-GAAP Financial Information” of this release.
Schedule
2 (continued)
McKESSON CORPORATION
RECONCILIATION OF GAAP
OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)
(unaudited)
(in millions)
Three Months Ended December
31,
Nine Months Ended December
31,
2020
2019
Change
2020
2019
Change
Gross profit (GAAP)
$
3,151
$
3,033
4
%
$
8,851
$
8,687
2
%
Pre-tax adjustments:
LIFO inventory-related adjustments
(11
)
(66
)
(83
)
(115
)
(114
)
1
Gains from antitrust legal settlements
—
(22
)
(100
)
—
(22
)
(100
)
Restructuring, impairment, and related
charges, net
—
—
NM
3
(5
)
160
Other adjustments, net
(1
)
—
NM
—
—
NM
Adjusted Gross Profit
(Non-GAAP)
$
3,139
$
2,945
7
%
$
8,739
$
8,546
2
%
Total operating expenses (GAAP)
$
(10,513
)
$
(2,673
)
293
%
$
(14,901
)
$
(7,067
)
111
%
Pre-tax adjustments:
Amortization of acquisition-related
intangibles
109
113
(4
)
321
343
(6
)
Transaction-related expenses and
adjustments (3)
55
324
(83
)
84
357
(76
)
Restructuring, impairment, and related
charges, net (4)
155
136
14
271
204
33
Claims and litigation charges, net (5) (6)
(7)
8,067
—
NM
7,936
82
NM
Other adjustments, net (10) (11)
(1
)
23
(104
)
123
27
356
Adjusted Operating Expenses
(Non-GAAP)
$
(2,128
)
$
(2,077
)
2
%
$
(6,166
)
$
(6,054
)
2
%
Other income (expense), net
(GAAP)
$
54
$
26
108
%
$
152
$
(15
)
NM
Pre-tax adjustments:
Amortization of acquisition-related
intangibles
—
1
(100
)
—
1
(100
)
Transaction-related expenses and
adjustments
—
2
(100
)
—
5
(100
)
Other adjustments, net (8)
1
10
(90
)
1
133
(99
)
Adjusted Other Income
(Non-GAAP)
$
55
$
39
41
%
$
153
$
124
23
%
Equity earnings and charges from
investment in Change Healthcare Joint Venture (GAAP)
$
—
$
(28
)
(100
)%
$
—
$
(1,478
)
(100
)%
Pre-tax adjustments:
Amortization of acquisition-related
intangibles (1)
—
63
(100
)
—
203
(100
)
Transaction-related expenses and
adjustments (2)
—
15
(100
)
—
305
(100
)
Other adjustments, net (9)
—
1
(100
)
—
1,168
(100
)
Adjusted Equity Income from Change
Healthcare
(Non-GAAP)
$
—
$
51
(100
)%
$
—
$
198
(100
)%
Income tax benefit (expense)
(GAAP)
$
1,189
$
(47
)
NM
$
1,011
$
111
811
%
Tax adjustments:
Amortization of acquisition-related
intangibles
(27
)
(43
)
(37
)
(75
)
(130
)
(42
)
Transaction-related expenses and
adjustments
—
(34
)
(100
)
(5
)
(117
)
(96
)
LIFO inventory-related adjustments
3
17
(82
)
30
29
3
Gains from antitrust legal settlements
—
6
(100
)
—
6
(100
)
Restructuring, impairment, and related
charges, net
(17
)
(21
)
(19
)
(44
)
(36
)
22
Claims and litigation charges, net
(1,365
)
(21
)
NM
(1,331
)
(21
)
NM
Other adjustments, net
(1
)
(10
)
(90
)
(13
)
(338
)
(96
)
Adjusted Income Tax Expense
(Non-GAAP)
$
(218
)
$
(153
)
42
%
$
(427
)
$
(496
)
(14
)%
NM Computation not meaningful
Refer to the section entitled "Financial
Statement Notes" of this release.
For more information relating to the
Adjusted Gross Profit (Non-GAAP), Adjusted Operating Expenses
(Non-GAAP), Adjusted Other Income (Non-GAAP), Adjusted Equity
Income from Change Healthcare (Non-GAAP), and Adjusted Income Tax
Expense (Non-GAAP) definitions, refer to the section entitled
“Supplemental Non-GAAP Financial Information” of this release.
Schedule
3
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT
OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)
(unaudited)
(in millions)
Three Months Ended December
31,
2020
2019
As reported
As adjusted
Change
As reported (GAAP)
Adjustments
As adjusted (Non-GAAP)
As reported (GAAP)
Adjustments
As adjusted (Non-GAAP)
Foreign currency effects
FX-Adjusted (Non-GAAP)
Foreign currency effects
FX-Adjusted (Non-GAAP)
As reported (GAAP)
As adjusted (Non-GAAP)
As reported FX-Adjusted
(Non-GAAP)
As adjusted FX-Adjusted
(Non-GAAP)
REVENUES
U.S. Pharmaceutical
$
49,495
$
—
$
49,495
$
46,453
$
—
$
46,453
$
—
$
49,495
$
—
$
49,495
7
%
7
%
7
%
7
%
International
9,273
—
9,273
9,864
—
9,864
(386
)
8,887
(386
)
8,887
(6
)
(6
)
(10
)
(10
)
Medical-Surgical Solutions
3,054
—
3,054
2,141
—
2,141
—
3,054
—
3,054
43
43
43
43
Prescription Technology Solutions
777
—
777
714
—
714
—
777
—
777
9
9
9
9
Revenues
$
62,599
$
—
$
62,599
$
59,172
$
—
$
59,172
$
(386
)
$
62,213
$
(386
)
$
62,213
6
%
6
%
5
%
5
%
OPERATING PROFIT (LOSS) (4)
U.S. Pharmaceutical
$
635
$
21
$
656
$
677
$
(34
)
$
643
$
—
$
635
$
—
$
656
(6
)%
2
%
(6
)%
2
%
International (3)
(71
)
229
158
(290
)
435
145
(2
)
(73
)
(8
)
150
(76
)
9
(75
)
3
Medical-Surgical Solutions
260
19
279
124
60
184
—
260
—
279
110
52
110
52
Prescription Technology Solutions
114
17
131
82
21
103
—
114
—
131
39
27
39
27
Other (a) (1)
—
—
—
(33
)
84
51
—
—
—
—
(100
)
(100
)
(100
)
(100
)
Subtotal
938
286
1,224
560
566
1,126
(2
)
936
(8
)
1,216
68
9
67
8
Corporate expenses, net (5)
(8,246
)
8,088
(158
)
(202
)
34
(168
)
1
(8,245
)
1
(157
)
NM
(6
)
NM
(7
)
Income (loss) from continuing operations
before interest expense and income taxes
$
(7,308
)
$
8,374
$
1,066
$
358
$
600
$
958
$
(1
)
$
(7,309
)
$
(7
)
$
1,059
NM
11
%
NM
11
%
OPERATING PROFIT (LOSS) AS A % OF
REVENUES
U.S. Pharmaceutical
1.28
%
1.33
%
1.46
%
1.38
%
1.28
%
1.33
%
(18
) bp
(5
) bp
(18
) bp
(5
) bp
International
(0.77
)
1.70
(2.94
)
1.47
(0.82
)
1.69
217
23
212
22
Medical-Surgical Solutions
8.51
9.14
5.79
8.59
8.51
9.14
272
55
272
55
Prescription Technology Solutions
14.67
16.86
11.48
14.43
14.67
16.86
319
243
319
243
(a)
Operating profit (loss) for Other for the
three months ended December 31, 2019 includes equity earnings and
charges from investment in Change Healthcare Joint Venture. We
completed the separation from our investment in Change Healthcare
Joint Venture during the fourth quarter of fiscal 2020.
NM Computation not meaningful
Refer to the section entitled "Financial
Statement Notes" of this release.
For more information relating to the
Adjusted Segment Operating Profit (Non-GAAP), Adjusted Operating
Profit (Non-GAAP), Adjusted Corporate Expenses (Non-GAAP),
FX-Adjusted (Non-GAAP), and Adjusted Segment Operating Profit
Margin (Non-GAAP) definitions, refer to the section entitled
“Supplemental Non-GAAP Financial Information” of this release.
Schedule
3 (continued)
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT
OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)
(unaudited)
(in millions)
Nine Months Ended December
31,
2020
2019
As reported
As adjusted
Change
As reported (GAAP)
Adjustments
As adjusted (Non-GAAP)
As reported (GAAP)
Adjustments
As adjusted (Non-GAAP)
Foreign currency effects
FX-Adjusted (Non-GAAP)
Foreign currency effects
FX-Adjusted (Non-GAAP)
As reported (GAAP)
As adjusted (Non-GAAP)
As reported FX-Adjusted
(Non-GAAP)
As adjusted FX-Adjusted
(Non-GAAP)
REVENUES
U.S. Pharmaceutical
$
142,232
$
—
$
142,232
$
135,855
$
—
$
135,855
$
—
$
142,232
$
—
$
142,232
5
%
5
%
5
%
5
%
International
27,365
—
27,365
28,592
—
28,592
(417
)
26,948
(417
)
26,948
(4
)
(4
)
(6
)
(6
)
Medical-Surgical Solutions
7,388
—
7,388
6,100
—
6,100
—
7,388
—
7,388
21
21
21
21
Prescription Technology Solutions
2,101
—
2,101
1,969
—
1,969
—
2,101
—
2,101
7
7
7
7
Revenues
$
179,086
$
—
$
179,086
$
172,516
$
—
$
172,516
$
(417
)
$
178,669
$
(417
)
$
178,669
4
%
4
%
4
%
4
%
OPERATING PROFIT (LOSS) (4)
U.S. Pharmaceutical (11)
$
1,871
$
33
$
1,904
$
1,894
$
(23
)
$
1,871
$
—
$
1,871
$
—
$
1,904
(1
)%
2
%
(1
)%
2
%
International (3) (10)
(113
)
460
347
(229
)
553
324
4
(109
)
(7
)
340
(51
)
7
(52
)
5
Medical-Surgical Solutions
536
77
613
378
131
509
—
536
—
613
42
20
42
20
Prescription Technology Solutions
270
51
321
280
56
336
—
270
—
321
(4
)
(4
)
(4
)
(4
)
Other (a) (1) (2) (9)
—
—
—
(1,483
)
1,681
198
—
—
—
—
(100
)
(100
)
(100
)
(100
)
Subtotal
2,564
621
3,185
840
2,398
3,238
4
2,568
(7
)
3,178
205
(2
)
206
(2
)
Corporate expenses, net (5) (6) (7)
(8)
(8,462
)
8,003
(459
)
(713
)
289
(424
)
—
(8,462
)
—
(459
)
NM
8
NM
8
Income (loss) from continuing operations
before interest expense and income taxes
$
(5,898
)
$
8,624
$
2,726
$
127
$
2,687
$
2,814
$
4
$
(5,894
)
$
(7
)
$
2,719
NM
(3
)%
NM
(3
)%
OPERATING PROFIT (LOSS) AS A % OF
REVENUES
U.S. Pharmaceutical
1.32
%
1.34
%
1.39
%
1.38
%
1.32
%
1.34
%
(7
) bp
(4
) bp
(7
) bp
(4
) bp
International
(0.41
)
1.27
(0.80
)
1.13
(0.40
)
1.26
39
14
40
13
Medical-Surgical Solutions
7.26
8.30
6.20
8.34
7.26
8.30
106
(4
)
106
(4
)
Prescription Technology Solutions
12.85
15.28
14.22
17.06
12.85
15.28
(137
)
(178
)
(137
)
(178
)
(a)
Operating profit (loss) for Other for the
nine months ended December 31, 2019 includes equity earnings and
charges from investment in Change Healthcare Joint Venture. We
completed the separation from our investment in Change Healthcare
Joint Venture during the fourth quarter of fiscal 2020.
NM Computation not meaningful
Refer to the section entitled "Financial
Statement Notes" of this release.
For more information relating to the
Adjusted Segment Operating Profit (Non-GAAP), Adjusted Operating
Profit (Non-GAAP), Adjusted Corporate Expenses (Non-GAAP),
FX-Adjusted (Non-GAAP), and Adjusted Segment Operating Profit
Margin (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, except per share
amounts)
December 31, 2020
March 31, 2020
ASSETS
Current assets
Cash and cash equivalents
$
3,577
$
4,015
Receivables, net
18,877
19,950
Inventories, net
19,211
16,734
Assets held for sale
15
906
Prepaid expenses and other
688
617
Total current assets
42,368
42,222
Property, plant, and equipment, net
2,518
2,365
Operating lease right-of-use assets
1,955
1,886
Goodwill
9,511
9,360
Intangible assets, net
2,980
3,156
Other non-current assets
2,513
2,258
Total assets
$
61,845
$
61,247
LIABILITIES, REDEEMABLE NONCONTROLLING
INTERESTS, AND EQUITY (DEFICIT)
Current liabilities
Drafts and accounts payable
$
36,509
$
37,195
Short-term borrowings
152
—
Current portion of long-term debt
777
1,052
Current portion of operating lease
liabilities
384
354
Liabilities held for sale
14
683
Other accrued liabilities
4,094
3,340
Total current liabilities
41,930
42,624
Long-term debt
6,467
6,335
Long-term deferred tax liabilities
773
2,255
Long-term operating lease liabilities
1,747
1,660
Long-term litigation liabilities
8,067
—
Other non-current liabilities
1,846
1,662
Redeemable noncontrolling interests
1,292
1,402
McKesson Corporation stockholders’ equity
(deficit)
Preferred stock, $0.01 par value, 100
shares authorized, no shares issued or outstanding
—
—
Common stock, $0.01 par value, 800 shares
authorized and 273 and 272 shares issued at December 31, 2020 and
March 31, 2020, respectively
2
2
Additional paid-in capital
6,847
6,663
Retained earnings
7,595
13,022
Accumulated other comprehensive loss
(1,503
)
(1,703
)
Treasury shares, at cost, 114 and 110
shares at December 31, 2020 and March 31, 2020, respectively
(13,418
)
(12,892
)
Total McKesson Corporation stockholders’
equity (deficit)
(477
)
5,092
Noncontrolling interests
200
217
Total equity (deficit)
(277
)
5,309
Total liabilities, redeemable
noncontrolling interests, and equity (deficit)
$
61,845
$
61,247
Schedule
5
McKESSON CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
Nine Months Ended December
31,
2020
2019
OPERATING ACTIVITIES
Net income (loss)
$
(5,053
)
$
42
Adjustments to reconcile to net cash
provided by (used in) operating activities:
Depreciation
237
239
Amortization
429
452
Goodwill and other asset impairment
charges
236
113
Equity earnings and charges from
investment in Change Healthcare Joint Venture
—
1,478
Deferred taxes
(1,520
)
(387
)
Credits associated with last-in, first-out
inventory method
(115
)
(114
)
Non-cash operating lease expense
264
276
Loss from sales of businesses and
investments
50
8
Other non-cash items
67
534
Changes in assets and liabilities, net of
acquisitions:
Receivables
1,500
(1,044
)
Inventories
(2,046
)
(689
)
Drafts and accounts payable
(1,240
)
(929
)
Operating lease liabilities
(291
)
(287
)
Taxes
184
11
Litigation liabilities
8,067
—
Other
403
17
Net cash provided by (used in) operating
activities
1,172
(280
)
INVESTING ACTIVITIES
Payments for property, plant, and
equipment
(293
)
(242
)
Capitalized software expenditures
(134
)
(96
)
Acquisitions, net of cash, cash
equivalents, and restricted cash acquired
(33
)
(97
)
Proceeds from sales of businesses and
investments, net
325
6
Other
(75
)
20
Net cash used in investing activities
(210
)
(409
)
FINANCING ACTIVITIES
Proceeds from short-term borrowings
5,455
15,852
Repayments of short-term borrowings
(5,303
)
(13,743
)
Proceeds from issuances of long-term
debt
500
—
Repayments of long-term debt
(1,030
)
(8
)
Common stock transactions:
Issuances
55
89
Share repurchases, including shares
surrendered for tax withholding
(526
)
(1,951
)
Dividends paid
(209
)
(222
)
Other
(118
)
(271
)
Net cash used in financing activities
(1,176
)
(254
)
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
(77
)
27
Net decrease in cash, cash equivalents,
and restricted cash
(291
)
(916
)
Cash, cash equivalents, and restricted
cash at beginning of period
4,023
2,981
Cash, cash equivalents, and restricted
cash at end of period
3,732
2,065
Less: Restricted cash at end of period
included in Prepaid expenses and other
(155
)
—
Cash and cash equivalents at end of
period
$
3,577
$
2,065
Schedule
6
McKESSON CORPORATION
RECONCILIATION OF GAAP CASH
FLOW TO FREE CASH FLOW (NON-GAAP)
(unaudited)
(in millions)
Nine Months Ended December
31,
2020
2019
Change
GAAP CASH FLOW CATEGORIES
Net cash provided by (used in) operating
activities
$
1,172
$
(280
)
519
%
Net cash used in investing activities
(210
)
(409
)
(49
)
Net cash used in financing activities
(1,176
)
(254
)
363
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
(77
)
27
(385
)
Net decrease in cash, cash equivalents,
and restricted cash
$
(291
)
$
(916
)
(68
)%
FREE CASH FLOW (NON-GAAP)
Net cash provided by (used in) operating
activities
$
1,172
$
(280
)
519
%
Payments for property, plant, and
equipment
(293
)
(242
)
21
Capitalized software expenditures
(134
)
(96
)
40
Free Cash Flow (Non-GAAP)
$
745
$
(618
)
221
%
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)
Amortization of acquisition-related
intangibles 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 for the three months
ended December 31, 2019 and $203 million for the nine months ended
December 31, 2019. These charges are included under "equity
earnings and charges from investment in Change Healthcare Joint
Venture" in the reconciliation of McKesson's GAAP operating results
to adjusted results (Non-GAAP) provided in Schedule 2 of the
accompanying financial statement tables.
(2)
Transaction-related expenses and
adjustments for the nine months ended December 31, 2019 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 in
Change Healthcare Joint Venture 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 "equity
earnings and charges from investment in Change Healthcare Joint
Venture" in the reconciliation of McKesson's GAAP operating results
to adjusted results (Non-GAAP) provided in Schedule 2 of the
accompanying financial statement tables.
(3)
Transaction-related expenses and
adjustments for the three and nine months ended December 31, 2020
includes charges of $47 million (pre-tax and after-tax) and $57
million (pre-tax and after-tax), respectively, to remeasure assets
and liabilities held for sale to fair value less costs to sell
related to the contribution of the majority of our German
pharmaceutical wholesale business to create a joint venture in
which McKesson has a non-controlling interest within our
International segment. On November 2, 2020, McKesson announced the
completion of the creation of the joint venture.
Transaction-related expenses and adjustments 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 fair value less costs to sell related to the joint
venture for those reporting periods. These charges are included
under "total operating expenses" in the reconciliation of
McKesson's GAAP operating results to adjusted results (Non-GAAP)
provided in Schedule 2 of the accompanying financial statement
tables.
(4)
Restructuring, impairment, and related
charges, net for the three and nine months ended December 31, 2020
includes pre-tax charges of $155 million ($138 million after-tax)
and $271 million ($227 million after-tax), respectively, primarily
for our Canada and Europe businesses as well as Corporate expenses,
net. The three and nine months ended December 31, 2019 includes
charges of $136 million ($115 million after-tax) and $204 million
($167 million after-tax), respectively, primarily for our Europe
and Canada businesses as well as Corporate expenses, net. Our
Europe and Canada businesses are included within International.
These charges are included under "total operating expenses" in the
reconciliation of McKesson's GAAP operating results to adjusted
results (Non-GAAP) provided in Schedule 2 of the accompanying
financial statement tables. Additionally, restructuring,
impairment, and related charges, net for the three and nine months
ended December 31, 2020 and 2019 includes immaterial amounts under
“gross profit” in the reconciliation of McKesson's GAAP operating
results to adjusted results (Non-GAAP) provided in Schedule 2 of
the accompanying financial statement tables.
(5)
Claims and litigation charges, net for the
three and nine months ended December 31, 2020 includes a pre-tax
charge of $8.1 billion ($6.7 billion after-tax) related to our
estimated liability for opioid-related claims of states, their
political subdivisions, and other government entities, within
Corporate expenses, net. This charge is included under "total
operating expenses" in the reconciliation of McKesson's GAAP
operating results to adjusted results (Non-GAAP) provided in
Schedule 2 of the accompanying financial statement tables.
(6)
Claims and litigation charges, net for the
nine months ended December 31, 2020 includes a pre-tax net gain of
$131 million ($97 million after-tax) related to insurance proceeds
received, net of attorneys' fees and expenses awarded to
plaintiffs' counsel, in connection with the $175 million settlement
of the shareholder derivative action related to our controlled
substances monitoring program within Corporate expenses, net. This
gain is included under "total operating expenses" in the
reconciliation of McKesson's GAAP operating results to adjusted
results (Non-GAAP) provided in Schedule 2 of the accompanying
financial statement tables. In prior periods, this gain was
included under other adjustments, net.
(7)
Claims and litigation charges, net for the
nine months ended December 31, 2019 includes a pre-tax charge of
$82 million ($61 million after-tax) recorded in connection with an
agreement to settle all opioids related claims filed by two Ohio
counties within Corporate expenses, net. The related $21 million
income tax benefit was recognized in the three and the nine months
ended December 31, 2019. This charge is included under "total
operating expenses" in the reconciliation of McKesson's GAAP
operating results to adjusted results (Non-GAAP) provided in
Schedule 2 of the accompanying financial statement tables. In prior
periods, this charge was included under other adjustments, net.
(8)
Other adjustments, net for the nine months
ended December 31, 2019 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. This charge is included under "other income
(expense), net" in the reconciliation of McKesson's GAAP operating
results to adjusted results (Non-GAAP) provided in Schedule 2 of
the accompanying financial statement tables.
(9)
Other adjustments, net for the nine months
ended December 31, 2019 includes a pre-tax charge of $1.2 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 “equity
earnings and charges from investment in Change Healthcare Joint
Venture” in the reconciliation of McKesson’s GAAP operating results
to adjusted results (Non-GAAP) provided in Schedule 2 of the
accompanying financial statement tables.
(10)
Other adjustments, net for the nine months
ended December 31, 2020 includes a non-cash goodwill impairment
charge of $69 million (pre-tax and after-tax) within International
related to our European retail business, partially offset by the
related indirect effect of $4 million benefit in net income
attributable to noncontrolling interests. This impairment charge is
included under "total operating expenses" in the reconciliation of
McKesson's GAAP operating results to adjusted results (Non-GAAP)
provided in Schedule 2 of the accompanying financial statement
tables.
(11)
Other adjustments, net for the nine months ended December 31, 2020
includes a pre-tax charge of $50 million ($37 million after-tax)
related to our estimated liability under the New York ("NY") state
Opioid Stewardship Act ("OSA") within U.S. Pharmaceutical for
calendar years 2017 and 2018. In December 2018, a federal district
court struck down the law as unconstitutional and NY replaced the
OSA with an excise tax on opioid sales in the state of NY covering
calendar year 2019 sales and beyond. In September 2020, an
appellate court reversed on procedural grounds the district court’s
decision. An amendment to the Act made clear that the OSA applies
only to NY opioid sales or distributions for calendar years 2017
and 2018. To the extent that further court decisions do not strike
down the law, we will face liability under the OSA and we believe
the estimated OSA liability is one-time in nature because the
liability is retroactively imposed on sales or distributions in
2017 and 2018, and is not indicative of future results. Inclusion
of this accrual in our adjusted results would distort current
period performance. This charge is included under "total operating
expenses" in the reconciliation of McKesson's GAAP operating
results to adjusted results (Non-GAAP) provided in Schedule 2 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 Gross Profit (Non-GAAP): We define Adjusted
Gross Profit as GAAP gross profit, excluding transaction-related
expenses and adjustments, last-in, first-out (“LIFO”)
inventory-related adjustments, gains from antitrust legal
settlements, restructuring, impairment, and related charges, and
other adjustments.
- Adjusted Operating Expenses (Non-GAAP): We define
Adjusted Operating Expenses as GAAP total operating expenses,
excluding amortization of acquisition-related intangibles,
transaction-related expenses and adjustments, restructuring,
impairment, and related charges, claims and litigation charges, and
other adjustments.
- Adjusted Other Income (Non-GAAP): We define Adjusted
Other Income as GAAP other income (expense), net, excluding
amortization of acquisition-related intangibles,
transaction-related expenses and adjustments, and other
adjustments.
- Adjusted Equity Income from Change Healthcare
(Non-GAAP): We define Adjusted Equity Income from Change
Healthcare as GAAP equity earnings and charges from investment in
Change Healthcare Joint Venture, excluding amortization of
acquisition-related intangibles, transaction-related expenses and
adjustments, and other adjustments. We completed the separation
from our investment in Change Healthcare Joint Venture during the
fourth quarter of fiscal 2020.
- Adjusted Income Tax Expense (Non-GAAP): We define
Adjusted Income Tax Expense as GAAP income tax benefit (expense),
excluding the income tax effects of amortization of
acquisition-related intangibles, transaction-related expenses and
adjustments, LIFO inventory-related adjustments, gains from
antitrust legal settlements, restructuring, impairment, and related
charges, claims and litigation charges, and other adjustments.
Income tax effects 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.
- Adjusted Earnings (Non-GAAP): We define Adjusted
Earnings as GAAP income (loss) from continuing operations
attributable to McKesson, excluding amortization of
acquisition-related intangibles, transaction-related expenses and
adjustments, LIFO inventory-related adjustments, gains from
antitrust legal settlements, restructuring, impairment, and related
charges, claims and litigation charges, other adjustments as well
as the related income tax effects for each of these items, as
applicable.
- Adjusted Earnings per Diluted Share (Non-GAAP): We
define Adjusted Earnings per Diluted Share as GAAP earnings (loss)
per diluted common share from continuing operations attributable to
McKesson, excluding per share impacts of amortization of
acquisition-related intangibles, transaction-related expenses and
adjustments, LIFO inventory-related adjustments, gains from
antitrust legal settlements, restructuring, impairment, and related
charges, claims and litigation charges, other adjustments as well
as the related income tax effects for each of these items, as
applicable, divided by diluted weighted-average shares outstanding.
Adjusted Earnings per Diluted Share was not previously adjusted for
the effect of potentially dilutive securities issued by the Change
Healthcare Joint Venture.
- Adjusted Segment Operating Profit (Non-GAAP) and Adjusted
Segment Operating Profit Margin (Non-GAAP): We define Adjusted
Segment Operating Profit as GAAP segment operating profit (loss),
excluding amortization of acquisition-related intangibles,
transaction-related expenses and adjustments, LIFO
inventory-related adjustments, gains from antitrust legal
settlements, restructuring, impairment, and related charges, and
other adjustments. We define Adjusted Segment Operating Profit
Margin as Adjusted Segment Operating Profit (Non-GAAP) divided by
GAAP segment revenues.
- Adjusted Corporate Expenses (Non-GAAP): We define
Adjusted Corporate Expenses as GAAP corporate expenses, net,
excluding transaction-related expenses and adjustments,
restructuring, impairment, and related charges, claims and
litigation charges, and other adjustments.
- Adjusted Operating Profit (Non-GAAP): We define Adjusted
Operating Profit as GAAP income (loss) from continuing operations
before interest expense and income taxes, excluding amortization of
acquisition-related intangibles, transaction-related expenses and
adjustments, LIFO inventory-related adjustments, gains from
antitrust legal settlements, restructuring, impairment, and related
charges, claims and litigation charges, and other adjustments.
The following provides further details regarding the adjustments
made to our GAAP financial results to arrive at our Non-GAAP
measures as defined above: 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 results. Claims and
litigation charges - Adjustments to certain of the Company’s
reserves, including those related to estimated probable settlements
for its controlled substance monitoring and reporting, and
opioid-related claims, as well as any applicable income items or
credit adjustments due to subsequent changes in estimates. This
does not include our legal fees to defend claims, which are
expensed as incurred. 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 results from time to time. While not all-inclusive, other
adjustments may include: other asset impairments; gains or losses
from debt extinguishment; and other similar substantive and/or
infrequent items as deemed appropriate. The Company evaluates the
aforementioned Non-GAAP measures on a periodic basis and updates
the definitions from time to time. The evaluation considers both
the quantitative and qualitative aspects of the Company’s
presentation of Non-GAAP adjusted results. A reconciliation of
McKesson’s GAAP financial results to Non-GAAP financial results is
provided in Schedules 2 and 3 of the financial statement tables
included with this release. 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
results per diluted share.
- FX-Adjusted (Non-GAAP): McKesson also presents its GAAP
financial results and adjusted results (Non-GAAP) 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 results (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. Management utilizes Non-GAAP
financial measures when allocating resources, deploying capital, as
well as assessing business performance, and determining 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 adjusted results and
related Non-GAAP 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/20210202005605/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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