MCK
$149.03
Mckesson
($1.47)
(.98%)
Earnings Details
3rd Quarter December 2017
Thursday, February 1, 2018 7:00:45 AM
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Summary

McKesson Raises Guidance

Mckesson (MCK) reported 3rd Quarter December 2017 earnings of $3.41 per share on revenue of $53.6 billion. The consensus earnings estimate was $2.92 per share on revenue of $52.0 billion. Revenue grew 7.0% on a year-over-year basis.

The company said it expects fiscal 2018 earnings of $12.50 to $12.80 per share. The company's previous guidance was earnings of $11.80 to $12.50 per share and the current consensus earnings estimate is $12.33 per share for the year ending March 31, 2018.

McKesson Corporation distributes pharmaceuticals, medical supplies and healthcare information technology that make healthcare safer while reducing costs.

Results
Reported Earnings
$3.41
Earnings Whisper
-
Consensus Estimate
$2.92
Reported Revenue
$53.62 Bil
Revenue Estimate
$52.00 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

McKesson Reports Fiscal 2018 Third-Quarter Results

Third-quarter GAAP earnings per diluted share from continuing operations of $4.32, up 51% year-over-year. GAAP earnings per diluted share included a net tax benefit of approximately $370 million, or $1.78, related to the Tax Cuts and Jobs Act of 2017.

Third-quarter Adjusted Earnings per diluted share of $3.41, up 12% year-over-year, compared to $3.04 in the prior year.

Fiscal 2018 Outlook: GAAP earnings per diluted share from continuing operations of $7.65 to $9.00.

--Fiscal 2018 Outlook: Adjusted Earnings of $12.50 to $12.80 per diluted share.

McKesson Corporation (MCK) today reported that revenues for the third quarter ended December 31, 2017, were $53.6 billion, up 7% compared to $50.1 billion a year ago. On the basis of U.S. generally accepted accounting principles ("GAAP"), third-quarter earnings per diluted share from continuing operations was $4.32, compared to $2.86 a year ago. Third-quarter GAAP earnings per diluted share included a net tax benefit of approximately $370 million, or $1.78, driven by the Tax Cuts and Jobs Act of 2017.

Third-quarter Adjusted Earnings per diluted share, which excludes the $1.78 net tax benefit driven by the Tax Cuts and Jobs Act of 2017, was $3.41, up 12% compared to $3.04 a year ago. Third-quarter results were driven by a lower share count, organic growth across multiple business units, including the company’s strategic sourcing benefits through ClarusONE, incremental profit contribution from acquisitions and a lower tax rate, which included discrete tax benefits unrelated to the Tax Cuts and Jobs Act of 2017. These positive drivers were partially offset by lower profit in our Technology Solutions segment driven by the contribution of the majority of the businesses to Change Healthcare and the sale of our Enterprise Information Solutions business, and the impact of reduced reimbursement in the company’s U.K. retail pharmacy business. Prior year third-quarter results included two non-recurring charges totaling approximately $60 million in our Distribution Solutions segment.

"Our third-quarter results reflected operating performance in line with our expectations, complemented by a lower share count and lower tax rate," said John H. Hammergren, chairman and chief executive officer. "As a result of the lower tax rate and share count, we are raising and narrowing our Fiscal 2018 Adjusted Earnings outlook from a range of $11.80 to $12.50 per diluted share to a new range of $12.50 to $12.80 per diluted share."

For the first nine months of the fiscal year, McKesson generated cash from operations of $1.3 billion and ended the quarter with cash and cash equivalents of $2.6 billion. Through the first nine months of the year, McKesson repaid $545 million in long-term debt, paid $2.0 billion for acquisitions, repurchased $900 million of its common stock, invested $392 million internally and paid $192 million in dividends.

"We deployed capital in line with our portfolio approach during the third quarter, announcing the RxCrossroads acquisition and repurchasing shares, providing a return to shareholders while continuing to position McKesson for growth in a rapidly evolving industry," concluded Hammergren.

Segment Results

Distribution Solutions revenues were $53.6 billion for the quarter, up 8% on a reported basis and 7% on a constant currency basis.

North America pharmaceutical distribution and services revenues of $44.9 billion for the quarter were up 8% on a reported basis and 7% on a constant currency basis, primarily reflecting market growth and acquisitions.

International pharmaceutical distribution and services revenues were $7.0 billion for the quarter, up 13% on a reported basis and 4% on a constant currency basis, driven by acquisitions and market growth.

Medical-Surgical distribution and services revenues were $1.7 billion for the quarter, up 9%, primarily driven by market growth.

In the third quarter, Distribution Solutions GAAP operating profit was $819 million and GAAP operating margin was 1.53%. Third-quarter adjusted operating profit was $991 million, up 23% from the prior year on a reported basis and 22% on a constant currency basis. Adjusted operating margin for the Distribution Solutions segment was 1.85% on a constant currency basis. Adjusted operating margin excluding noncontrolling interests for the Distribution Solutions segment was 1.77% on a constant currency basis.

Technology Solutions GAAP operating profit was $65 million for the third quarter, primarily driven by a gain on the sale of the company’s Enterprise Information Solutions business. Third-quarter adjusted operating profit was $53 million, primarily driven by our proportionate share of the income from McKesson’s equity investment in Change Healthcare.

Fiscal Year 2018 Outlook

McKesson expects GAAP earnings per diluted share of $7.65 to $9.00 for the fiscal year ending March 31, 2018, which includes the following items:

Amortization of acquisition-related intangibles of $2.35 to $2.65 per diluted share;

Acquisition-related expenses and adjustments of $1.00 to $1.20 per diluted share;

Last-In-First-Out ("LIFO") inventory-related charges of five cents to credits of five cents per diluted share;

Gains from antitrust legal settlements of up to five cents per diluted share;

-- Restructuring charges of $1.25 to $1.45 per diluted share; and

Other adjustments resulting in credits of $0.50 to $0.70 per diluted share.

McKesson expects Adjusted Earnings of $12.50 to $12.80 per diluted share for the fiscal year ending March 31, 2018.

Dividend Declaration

The company’s Board of Directors yesterday declared a regular dividend of $0.34 cents per share of common stock. The dividend will be payable on April 2, 2018, to stockholders of record on March 1, 2018.

Adjusted Earnings

McKesson separately reports financial results on the basis of Adjusted Earnings. Adjusted Earnings is a non-GAAP financial measure defined as GAAP income from continuing operations, excluding amortization of acquisition-related intangible assets, acquisition-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring charges, and other adjustments. A reconciliation of McKesson’s GAAP financial results to Adjusted Earnings is provided in Schedules 2, 3 and 4 of the financial statement tables included with this release.

Constant Currency

McKesson also presents its financial results on a constant currency basis. The company conducts business worldwide in local currencies, including the Euro, British pound and Canadian dollar. As a result, the comparability of the financial results reported in U.S. dollars can be affected by changes in foreign currency exchange rates. Constant currency information is presented to provide a framework for assessing how the company’s business performed excluding the effect of foreign currency exchange rate fluctuations. The supplemental constant currency 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.

Adjusted Operating Profit Margin Excluding Noncontrolling Interests

McKesson also provides adjusted operating profit margin excluding noncontrolling interests. The company has arrangements involving third-party noncontrolling interests. As a result, pre-tax results are affected by the portion of pre-tax earnings attributable to noncontrolling interests. Adjusted operating profit margin excluding noncontrolling interests information is presented to provide a framework for assessing how the company’s business performed excluding the effect of pre-tax earnings that is not attributable to McKesson. The supplemental adjusted operating profit margin excluding noncontrolling interests 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.

Risk Factors

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, as amended, that involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These statements may be identified by their use of forward-looking 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 or intentions may also include forward-looking statements. It is not possible to predict or identify all such risks and uncertainties; however, the most significant of these risks and uncertainties are described in the company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: changes in the U.S. healthcare industry and regulatory environment; managing foreign expansion, including the related operating, economic, political and regulatory risks; changes in the Canadian healthcare industry and regulatory environment; exposure to European economic conditions, including recent austerity measures taken by certain European governments; changes in the European regulatory environment with respect to privacy and data protection regulations; fluctuations in foreign currency exchange rates; the company’s ability to successfully identify, consummate, finance and integrate acquisitions; the company’s ability to manage and complete divestitures; material adverse resolution of pending legal proceedings; competition and industry consolidation; substantial defaults in payment or a material reduction in purchases by, or the loss of, a large customer or group purchasing organization; the loss of government contracts as a result of compliance or funding challenges; public health issues in the U.S. or abroad; cyberattack, natural disaster, or malfunction of sophisticated internal computer systems to perform as designed; the adequacy of insurance to cover property loss or liability claims; the company’s failure to attract and retain customers for its software products and solutions due to integration and implementation challenges, or due to an inability to keep pace with technological advances; the company’s proprietary products and services may not be adequately protected, and its products and solutions may be found to infringe on the rights of others; system errors or failure of our technology products or services to conform to specifications; disaster or other event causing interruption of customer access to data residing in our service centers; the delay or extension of our sales or implementation cycles for external software products; changes in circumstances that could impair our goodwill or intangible assets; new or revised tax legislation or challenges to our tax positions; general economic conditions, including changes in the financial markets that may affect the availability and cost of credit to the company, its customers or suppliers; changes in accounting principles generally accepted in the United States of America; withdrawal from participation in multiemployer pension plans or if such plans are reported to have underfunded liabilities; inability to realize the expected benefits from the company’s restructuring and business process initiatives; difficulties with outsourcing and similar third party relationships; risks associated with the company’s retail expansion; and the company’s inability to keep existing retail store locations or open new retail locations in desirable places. The reader should not place undue reliance on forward-looking statements, which speak only as of the date they are first made. Except to the extent required by law, the company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

Conference Call Details

The company has scheduled a conference call for today, Thursday, February 1st, at 8:00 AM ET. The dial-in number for individuals wishing to participate on the call is 323-794-2093. Craig Mercer, senior vice president, Investor Relations, is the leader of the call, and the password to join the call is ’McKesson’. A telephonic replay of this conference call will be available for five calendar days. The dial-in number for individuals wishing to listen to the replay is 719-457-0820 and the pass code is 3106087. An archive of the conference call will also be available on the company’s Investor Relations website at http://investor.mckesson.com.

Shareholders are encouraged to review the company’s filings with the Securities and Exchange Commission.

About McKesson Corporation

McKesson Corporation, currently ranked 5th on the FORTUNE 500, 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)
Quarter Ended December 31,
Nine Months Ended December 31,
2017
2016
Change
2017
2016
Change
Revenues
$
53,617
$
50,130
7
%
$
156,729
$
149,820
5
%
Cost of sales (1)
(50,902)
(47,318)
8
(148,620)
(141,345)
5
Gross profit
2,715
2,812
(3)
8,109
8,475
(4)
Operating expenses (2)
(1,984)
(1,981)
-
(5,920)
(5,802)
2
Gain from sale of business (3)
109
-
-
109
-
-
Goodwill impairment charges (4)
-
-
-
(350)
(290)
21
Restructuring and asset impairment charges (5)
(6)
-
-
(242)
-
-
Total operating expenses
(1,881)
(1,981)
(5)
(6,403)
(6,092)
5
Operating income
834
831
-
1,706
2,383
(28)
Other income, net (6)
20
23
(13)
102
65
57
Loss from equity method investment in Change Healthcare (7)
(90)
-
-
(271)
-
-
Interest expense
(67)
(74)
(9)
(204)
(231)
(12)
Income from continuing operations before income taxes
697
780
(11)
1,333
2,217
(40)
Income tax benefit (expense) (8) (9)
263
(131)
(301)
46
(570)
(108)
Income from continuing operations after tax
960
649
48
1,379
1,647
(16)
Income (Loss) from discontinued operations, net of tax (10)
1
(3)
(133)
3
(117)
(103)
Net income
961
646
49
1,382
1,530
(10)
Net income attributable to noncontrolling interests
(58)
(13)
346
(169)
(48)
252
Net income attributable to McKesson Corporation
$
903
$
633
43
%
$
1,213
$
1,482
(18)
%
Earnings (loss) per common share attributable to
McKesson Corporation (11)
Diluted
Continuing operations
$
4.32
$
2.86
51
%
$
5.75
$
7.07
(19)
%
Discontinued operations
0.01
(0.01)
(200)
0.01
(0.51)
(102)
Total
$
4.33
$
2.85
52
%
$
5.76
$
6.56
(12)
%
Basic
Continuing operations
$
4.34
$
2.89
50
%
$
5.78
$
7.14
(19)
%
Discontinued operations
0.01
(0.02)
(150)
0.02
(0.52)
(104)
Total
$
4.35
$
2.87
52
%
$
5.80
$
6.62
(12)
%
Dividends declared per common share
$
0.34
$
0.28
$
0.96
$
0.84
Weighted average common shares
Diluted
208
222
(6)
%
210
226
(7)
%
Basic
207
221
(6)
209
224
(7)
(1)
The third quarters of fiscal 2018 and 2017 include pre-tax credits
of $2 million and $155 million, and the first nine months of fiscal
2018 and 2017 include pre-tax credits of $5 million and $151 million
related to our last-in-first-out ("LIFO") method of accounting for
inventories. The third quarter and first nine months of fiscal 2017
include $2 million and $144 million of net cash proceeds
representing our share of antitrust legal settlements. These credits
are included within our Distribution Solutions segment.
(2)
The third quarter and the first nine months of fiscal 2018 include a
pre-tax credit of $46 million ($30 million after-tax) representing a
reduction in our tax receivable agreement ("TRA") liability within
our Technology Solutions segment as a result of the enactment of the
2017 Tax Cuts and Jobs Act (the "2017 Tax Act"). The first nine
months of fiscal 2018 include a pre-tax gain of $37 million ($22
million after-tax) related to the final net working capital and
other adjustments from the fiscal 2017 fourth quarter Healthcare
Technology Net Asset Exchange within our Technology Solutions
segment.
(3)
Fiscal 2018 includes a pre-tax gain of $109 million ($30 million
after-tax) recognized from the fiscal 2018 third quarter sale of our
Enterprise Information Solutions ("EIS") business within the
Technology Solutions segment.
(4)
The first nine months of fiscal 2018 include a non-cash pre-tax and
after-tax goodwill impairment charge of $350 million for our
McKesson Europe reporting unit within the Distribution Solutions
segment. There were no tax benefits associated with this goodwill
impairment charge. The first nine months of fiscal 2017 include a
non-cash pre-tax goodwill impairment charge of $290 million ($282
million after-tax) for our EIS reporting unit within the Technology
Solutions segment.
(5)
The third quarter and the first nine months of fiscal 2018 include
a pre-tax restructuring charge of $6 million ($5 million
after-tax) and $53 million ($45 million after-tax) primarily
representing employee severance and lease exit costs. The first
nine months of fiscal 2018 include a non-cash pre-tax
restructuring charge of $189 million ($157 million after-tax) to
impair the carrying value of certain intangible assets and other
assets primarily related to our retail business in the United
Kingdom ("U.K.") within our Distribution Solutions segment.
(6)
The first nine months of fiscal 2018 include a pre-tax gain of $43
million ($26 million after-tax) recognized from the fiscal 2018
second quarter sale of an equity method investment within our
Distribution Solutions segment.
(7)
Our investment in Change Healthcare is accounted for using the
equity method of accounting. The amount represents our proportionate
share of the net income or loss of the joint venture.
(8)
The third quarter and first nine months of fiscal 2018 include a
provisional net discrete tax benefit of $370 million realized in
connection with the December 2017 enactment of the 2017 Tax Act.
The third quarter and first nine months of fiscal 2018 also
include other net discrete tax benefits of $54 million and $50
million.
(9)
The first nine months of fiscal 2017 include a tax benefit of $47
million related to the adoption of the amended accounting guidance
on share-based compensation in the first quarter of fiscal 2017.
(10)
The first nine months of fiscal 2017 include an after-tax loss of
$113 million recognized from the fiscal 2017 first quarter sale of
our Brazilian pharmaceutical distribution business within our
discontinued operations.
(11)
Certain computations may reflect rounding adjustments.
Schedule 2A
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS
(NON-GAAP)
(unaudited)
(in millions, except per share amounts)
Change
Quarter Ended December 31, 2017
Vs. Prior Quarter
As Reported
Amortization
Acquisition-
LIFO
Gains from
Restructuring
Other
Adjusted
As
Adjusted
(GAAP)
of Acquisition-
Related
Inventory-
Antitrust
Charges, Net
Adjustments,
Earnings
Reported
Earnings
Related
Expenses
Related
Legal
Net
(Non-GAAP)
(GAAP)
(Non-GAAP)
Intangibles
and
Adjustments
Settlements
Adjustments
Gross profit
$
2,715
$
-
$
6
$
(2 )
$
-
$
(1 )
$
-
$
2,718
(3 )
%
2
%
Operating expenses (1) (2) (3)
$ (1,881 )
$
123
$
24
$
-
$
-
$
33
$
(157 )
$ (1,858 )
(5 )
%
3
%
Other income, net
$
20
$
-
$
1
$
-
$
-
$
-
$
1
$
22
(13 )
%
(15 )
%
Income (Loss) from equity method investment in
$
(90 )
$
70
$
63
$
-
$
-
$
-
$
12
$
55
-
%
-
%
Change Healthcare (4)
Income from continuing operations before
$
697
$
193
$
94
$
(2 )
$
-
$
32
$
(144 )
$
870
(11 )
%
8
%
income taxes
Income tax benefit (expense) (5)
$
263
$
(53 )
$
(27 )
$
1
$
-
$
(4 )
$
(280 )
$
(100 )
(301 )
%
(12 )
%
Income from continuing operations, net of tax,
$
902
$
140
$
67
$
(1 )
$
-
$
28
$
(424 )
$
712
42
%
5
%
attributable to McKesson Corporation
Diluted earnings per common share from
$
4.32
$
0.67
$ 0.32
$ (0.01 )
$
-
$ 0.14
$ (2.03 )
$
3.41 (7)
51
%
12
%
continuing operations, net of tax, attributable to
McKesson Corporation (6)
Diluted weighted average common shares
208
208
208
208
-
208
208
208
(6 )
%
(6 )
%
Quarter Ended December 31, 2016
As Reported
Amortization
Acquisition-
LIFO
Gains from
Restructuring
Other
Adjusted
(GAAP)
of Acquisition-
Related
Inventory-
Antitrust
Charges, Net
Adjustments,
Earnings
Related
Expenses
Related
Legal
Net
(Non-GAAP)
Intangibles
and
Adjustments
Settlements
Adjustments
Gross profit
$
2,812
$
-
$
-
$
(155 )
$
(2 )
$
(1 )
$
-
$
2,654
Operating expenses
$ (1,981 )
$
102
$
72
$
-
$
-
$
3
$
-
$ (1,804 )
Other income, net
$
23
$
-
$
3
$
-
$
-
$
-
$
-
$
26
Income from continuing operations before
$
780
$
102
$
75
$
(155 )
$
(2 )
$
2
$
-
$
802
income taxes
Income tax expense
$
(131 )
$
(31 )
$
(14 )
$
61
$
1
$
-
$
-
$
(114 )
Income from continuing operations, net of tax,
$
636
$
71
$
61
$
(94 )
$
(1 )
$
2
$
-
$
675
attributable to McKesson Corporation
Diluted earnings per common share from
$
2.86
$
0.32
$ 0.27
$ (0.42 )
$
-
$ 0.01
$
-
$
3.04
continuing operations, net of tax, attributable to
McKesson Corporation (6)
Diluted weighted average common shares
222
222
222
222
-
222
-
222
(1)
Fiscal 2018, as reported under GAAP, includes a pre-tax
restructuring charge of $6 million ($5 million after-tax) within our
Distribution Solutions segment.
(2)
Fiscal 2018, as reported under GAAP, includes a pre-tax credit of
$46 million ($30 million after-tax) representing a reduction in our
TRA liability within our Technology Solutions segment as a result of
the enactment of the 2017 Tax Act.
(3)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $109
million ($30 million after-tax) recognized from the fiscal 2018
third quarter sale of our EIS business within the Technology
Solutions segment.
(4)
The amount represents our proportionate share of the net income or
loss of the Change Healthcare joint venture. The amortization of
equity investment intangibles and other acquired intangibles of $70
million is included in our proportionate share of the income (loss)
from this equity method investment.
(5)
Fiscal 2018, as reported under GAAP, includes a provisional net
discrete tax benefit of $370 million related to the 2017 Tax Act.
Fiscal 2018 also includes other net discrete tax benefits of $54
million.
(6)
Certain computations may reflect rounding adjustments.
(7)
Adjusted Earnings per share on a Constant Currency basis for the
third quarter of fiscal 2018 was $3.39 per diluted share, which
excludes the foreign currency exchange effect of $0.02 per diluted
share.
For more information relating to the Adjusted Earnings (Non-GAAP)
and Constant Currency (Non-GAAP) definitions, refer to the section
entitled "Supplemental Non-GAAP Financial Information" of this
release.
Schedule 2B
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS
(NON-GAAP)
(unaudited)
(in millions, except per share amounts)
Change
Nine Months Ended December 31, 2017
Vs. Prior Period
As
Amortization
Acquisition-
LIFO
Gains from
Restructuring
Other
Adjusted
As
Adjusted
Reported
of
Related
Inventory-
Antitrust
Charges, Net
Adjustments,
Earnings
Reported
Earnings
(GAAP)
Acquisition
Expenses
Related
Legal
Net
(Non-
(GAAP)
(Non-
-Related
and
Adjustments
Settlements
GAAP)
GAAP)
Intangibles
Adjustments
Gross profit
$
8,109
$
-
$
12
$
(5 )
$
-
$
(1 )
$
-
$
8,115
(4 )
%
(1 )
%
Operating expenses (1) (2) (3) (4)
$ (6,403 )
$
369
$
19
$
-
$
-
$
293
$
182
$ (5,540 )
5
%
4
%
Other income, net (5)
$
102
$
1
$
1
$
-
$
-
$
-
$
(42 )
$
62
57
%
(16 )
%
Income (Loss) from equity method investment in
$
(271 )
$
214
$
245
$
-
$
-
$
-
$
12
$
200
-
%
-
%
Change Healthcare (6)
Income from continuing operations before
$
1,333
$
584
$
277
$
(5 )
$
-
$
292
$
152
$
2,633
(40 )
%
(3 )
%
income taxes
Income tax benefit (expense) (7)
$
46
$
(183 )
$
(90 )
$
2
$
-
$
(56 )
$
(259 )
$
(540 )
(108 )
%
(10 )
%
Income from continuing operations, net of tax,
$
1,210
$
401
$
187
$
(3 )
$
-
$
236
$
(107 )
$
1,924
(24 )
%
(7 )
%
attributable to McKesson Corporation
Diluted earnings per common share from
$
5.75
$
1.90
$ 0.89
$ (0.01 )
$
-
$ 1.12
$ (0.51 )
$
9.14 (9)
(19 )
%
-
%
continuing operations, net of tax, attributable to
McKesson Corporation (8)
Diluted weighted average common shares
210
210
210
210
-
210
210
210
(7 )
%
(7 )
%
Nine Months Ended December 31, 2016
As Reported
Amortization
Acquisition-
LIFO
Gains from
Restructuring
Other
Adjusted
(GAAP)
of Acquisition-
Related
Inventory-
Antitrust
Charges, Net
Adjustments,
Earnings
Related
Expenses and
Related
Legal
Net
(Non-GAAP)
Intangibles
Adjustments
Adjustments
Settlements
Gross profit (10)
$
8,475
$
3
$
1
$
(151 )
$
(144 )
$
(2 )
$
-
$
8,182
Operating expenses (11)
$ (6,092 )
$
328
$
157
$
-
$
-
$
16
$
284
$ (5,307 )
Other income, net
$
65
$
1
$
8
$
-
$
-
$
-
$
-
$
74
Income from continuing operations before
$
2,217
$
332
$
166
$
(151 )
$
(144 )
$
14
$
284
$
2,718
income taxes
Income tax expense (12)
$
(570 )
$
(100 )
$
(37 )
$
59
$
56
$
(5 )
$
(6 )
$
(603 )
Income from continuing operations, net of tax,
$
1,599
$
232
$
129
$
(92 )
$
(88 )
$
9
$
278
$
2,067
attributable to McKesson Corporation
Diluted earnings per common share from
$
7.07
$
1.02
$ 0.57
$ (0.40 )
$ (0.39 )
$ 0.04
$
1.23
$
9.14
continuing operations, net of tax, attributable to
McKesson Corporation (8)
Diluted weighted average common shares
226
226
226
226
226
226
226
226
(1)
Fiscal 2018, as reported under GAAP, includes a pre-tax credit of
$46 million ($30 million after-tax) representing a reduction in our
TRA liability within our Technology Solutions segment as a result of
the enactment of the 2017 Tax Act. Fiscal 2018, as reported under
GAAP, includes a pre-tax gain of $37 million ($22 million after-tax)
recognized in the first quarter of fiscal 2018 related to the final
net working capital and other adjustments from the fiscal 2017
fourth quarter Healthcare Technology Net Asset Exchange within our
Technology Solutions segment.
(2)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax
restructuring charge of $189 million ($157 million after-tax) to
impair the carrying value of certain intangible assets and other
assets primarily related to our retail business in the U.K. within
our Distribution Solutions segment recognized in the second
quarter of fiscal 2018. Fiscal 2018, as reported under GAAP, also
includes a pre-tax restructuring charge of $53 million ($45
million after-tax) primarily representing employee severance and
lease exit costs.
(3)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax and
after-tax goodwill impairment charge of $350 million recognized in
the second quarter of fiscal 2018 for our McKesson Europe reporting
unit within the Distribution Solutions segment. There were no tax
benefits associated with this goodwill impairment charge.
(4)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $109
million ($30 million after-tax) recognized from the fiscal 2018
third quarter sale of our EIS business within the Technology
Solutions segment.
(5)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $43
million ($26 million after-tax) recognized from the fiscal 2018
second quarter sale of an equity method investment within our
Distribution Solutions segment.
(6)
The amount represents our proportionate share of the net income or
loss of the Change Healthcare joint venture. The amortization of
equity investment intangibles and other acquired intangibles of $214
million is included in our proportionate share of the income (loss)
from this equity method investment.
(7)
Fiscal 2018, as reported under GAAP, includes a provisional net
discrete tax benefit of $370 million related to the 2017 Tax Act.
Fiscal 2018 also includes other net discrete tax benefits of $50
million.
(8)
Certain computations may reflect rounding adjustments.
(9)
Adjusted Earnings per share on a Constant Currency basis for fiscal
2018 was $9.11 per diluted share, which excludes the foreign
currency exchange effect of $0.03 per diluted share.
(10)
Fiscal 2017, as reported under GAAP, includes $144 million of net
cash proceeds primarily received in the first quarter of fiscal 2017
representing our share of antitrust legal settlements within our
Distribution Solutions segment.
(11)
Fiscal 2017 includes a non-cash pre-tax goodwill impairment charge
of $290 million ($282 million after-tax) recognized in the second
quarter of fiscal 2017 for our EIS reporting unit within the
Technology Solutions segment.
(12)
Fiscal 2017 includes a tax benefit of $47 million related to the
amended accounting guidance on share-based compensation adopted in
the first quarter of fiscal 2017.
For more information relating to the Adjusted Earnings (Non-GAAP)
and Constant Currency (Non-GAAP) definitions, refer to the section
entitled "Supplemental Non-GAAP Financial Information" of this
release.
Schedule 3A
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED
EARNINGS (NON-GAAP)
(unaudited)
(in millions)
Quarter Ended December 31, 2017
Quarter Ended December 31, 2016
GAAP
Non-GAAP
Change
As Reported
Adjustments
Adjusted
As Reported
Adjustments
Adjusted
Foreign
Constant
Foreign
Constant
As
Adjusted
Constant
Constant
(GAAP)
Earnings
(GAAP)
Earnings
Currency
Currency
Currency
Currency
Reported
Earnings
Currency
Currency
(Non-GAAP)
(Non-GAAP)
Effects
Effects
(GAAP)
(Non-
(GAAP)
(Non-
GAAP)
GAAP)
REVENUES
Distribution Solutions
$
44,935
$
-
$
44,935
$
41,685
$
-
$
41,685
$ (133)
$
44,802
$ (133)
$
44,802
8 %
8 %
7 %
7 %
North America pharmaceutical distribution & services
6,989
-
6,989
6,193
-
6,193
(530)
6,459
(530)
6,459
13
13
4
4
International pharmaceutical distribution & services
1,693
-
1,693
1,558
-
1,558
-
1,693
-
1,693
9
9
9
9
Medical-Surgical distribution & services
Total Distribution Solutions
53,617
-
53,617
49,436
-
49,436
(663)
52,954
(663)
52,954
8
8
7
7
Technology Solutions - Products and Services
-
-
-
694
-
694
-
-
-
-
(100)
(100)
(100)
(100)
Revenues
$
53,617
$
-
$
53,617
$
50,130
$
-
$
50,130
$ (663)
$
52,954
$ (663)
$
52,954
7 %
7 %
6 %
6 %
GROSS PROFIT
Distribution Solutions
$
2,715
$
3
$
2,718
$
2,424
$ (158)
$
2,266
$
(66)
$
2,649
$
(65)
$
2,653
12 %
20 %
9 %
17 %
Technology Solutions
-
-
-
388
-
388
-
-
-
-
(100)
(100)
(100)
(100)
Gross profit
$
2,715
$
3
$
2,718
$
2,812
$ (158)
$
2,654
$
(66)
$
2,649
$
(65)
$
2,653
(3) %
2 %
(6) %
- %
OPERATING EXPENSES
Distribution Solutions (1)
$ (1,914)
$
167
$ (1,747)
$ (1,628)
$
147
$ (1,481)
$
63
$ (1,851)
$
56
$ (1,691)
18 %
18 %
14 %
14 %
Technology Solutions (2) (3)
155
(157)
(2)
(256)
31
(225)
-
155
-
(2)
(161)
(99)
(161)
(99)
Corporate
(122)
13
(109)
(97)
(1)
(98)
2
(120)
1
(108)
26
11
24
10
Operating expenses
$ (1,881)
$
23
$ (1,858)
$ (1,981)
$
177
$ (1,804)
$
65
$ (1,816)
$
57
$ (1,801)
(5) %
3 %
(8) %
- %
OTHER INCOME, NET
Distribution Solutions
$
18
$
2
$
20
$
17
$
3
$
20
$
-
$
18
$
-
$
20
6 %
- %
6 %
- %
Technology Solutions
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Corporate
2
-
2
6
-
6
(1)
1
(1)
1
(67)
(67)
(83)
(83)
Other income, net
$
20
$
2
$
22
$
23
$
3
$
26
$
(1)
$
19
$
(1)
$
21
(13) %
(15) %
(17) %
(19) %
INCOME (LOSS) FROM EQUITY METHOD INVESTMENT
$
(90)
$
145
$
55
$
-
$
-
$
-
$
-
$
(90)
$
-
$
55
- %
- %
- %
- %
IN CHANGE HEALTHCARE - Technology Solutions (4)
OPERATING PROFIT
Distribution Solutions (1)
$
819
$
172
$
991
$
813
$
(8)
$
805
$
(3)
$
816
$
(9)
$
982
1 %
23 %
- %
22 %
Technology Solutions (2) (3) (4) (6)
65
(12)
53
132
31
163
-
65
-
53
(51)
(67)
(51)
(67)
Operating profit
884
160
1,044
945
23
968
(3)
881
(9)
1,035
(6)
8
(7)
7
Corporate
(120)
13
(107)
(91)
(1)
(92)
1
(119)
-
(107)
32
16
31
16
$
764
$
173
$
937
$
854
$
22
$
876
$
(2)
$
762
$
(9)
$
928
(11) %
7 %
(11) %
6 %
Income from continuing operations before interest expense and
income taxes
STATISTICS
Operating profit as a % of revenues
Distribution Solutions
1.53 %
1.85 %
1.64 %
1.63 %
1.54 %
1.85 %
(11) bp
22 bp
(10) bp
22 bp
Adjusted operating profit excluding noncontrolling interests as a %
of revenues
Distribution Solutions (5)
1.76 %
1.62 %
1.77 %
14 bp
15 bp
(1)
Fiscal 2018, as reported under GAAP, includes a pre-tax
restructuring charge of $6 million ($5 million after-tax) within our
Distribution Solutions segment.
(2)
Fiscal 2018, as reported under GAAP, includes a pre-tax credit of
$46 million ($30 million after-tax) representing a reduction in our
TRA liability within our Technology Solutions segment as a result of
the enactment of the 2017 Tax Act.
(3)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $109
million ($30 million after-tax) recognized from the sale of our EIS
business within the Technology Solutions segment.
(4)
The amount represents our proportionate share of the net income or
loss of the Change Healthcare joint venture.
(5)
Our Distribution Solutions segment’s noncontrolling interests
primarily include the third-party equity interests related to
ClarusONE Sourcing Services LLP and Vantage Oncology Holdings, LLC.
(6)
Operating profit for our Technology Solutions segment for fiscal
2018 includes only our gain on sale of our EIS business, as reported
under GAAP, and our proportionate share of income (loss) from Change
Healthcare. Fiscal 2017 operating profit for this segment also
included the core MTS businesses, which were contributed to the
Change Healthcare joint venture in the fourth quarter of fiscal 2017.
For more information relating to the Adjusted Earnings (Non-GAAP),
Constant Currency (Non-GAAP) and Adjusted Operating Profit Margin
Excluding Noncontrolling Interests (Non-GAAP) definitions, refer to
the section entitled "Supplemental Non-GAAP Financial Information"
of this release.
Schedule 3B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED
EARNINGS (NON-GAAP)
(unaudited)
(in millions)
Nine Months Ended December 31, 2017
Nine Months Ended December 31, 2016
GAAP
Non-GAAP
Change
As Reported
Adjustments
Adjusted
As Reported
Adjustments
Adjusted
Foreign
Constant
Foreign
Constant
As Reported
Adjusted
Constant
Constant
(GAAP)
Earnings
(GAAP)
Earnings
Currency
Currency
Currency
Currency
(GAAP)
Earnings
Currency
Currency (Non-
(Non-GAAP)
(Non-GAAP)
Effects
Effects
(Non-GAAP)
(GAAP)
GAAP)
REVENUES
Distribution Solutions
$ 131,459
$
-
$ 131,459
$ 124,271
$
-
$ 124,271
$ (130)
$ 131,329
$ (130)
$ 131,329
6 %
6 %
6 %
6 %
North America pharmaceutical distribution & services
20,144
-
20,144
18,794
-
18,794
(434)
19,710
(434)
19,710
7
7
5
5
International pharmaceutical distribution & services
4,886
-
4,886
4,657
-
4,657
-
4,886
-
4,886
5
5
5
5
Medical-Surgical distribution & services
Total Distribution Solutions
156,489
-
156,489
147,722
-
147,722
(564)
155,925
(564)
155,925
6
6
6
6
Technology Solutions - Products and Services
240
-
240
2,098
-
2,098
-
240
-
240
(89)
(89)
(89)
(89)
Revenues
$ 156,729
$
-
$ 156,729
$ 149,820
$
-
$ 149,820
$ (564)
$ 156,165
$ (564)
$ 156,165
5 %
5 %
4 %
4 %
GROSS PROFIT
Distribution Solutions (1)
$
7,989
$
5
$
7,994
$
7,333
$ (295)
$
7,038
$
(39)
$
7,950
$
(39)
$
7,955
9 %
14 %
8 %
13 %
Technology Solutions
120
1
121
1,142
2
1,144
-
120
-
121
(89)
(89)
(89)
(89)
Gross profit
$
8,109
$
6
$
8,115
$
8,475
$ (293)
$
8,182
$
(39)
$
8,070
$
(39)
$
8,076
(4) %
(1) %
(5) %
(1) %
OPERATING EXPENSES
Distribution Solutions (2) (3)
$ (6,164)
$ 1,032
$ (5,132)
$ (4,784)
$
413
$ (4,371)
$
58
$ (6,106)
$
28
$ (5,104)
29 %
17 %
28 %
17 %
Technology Solutions (3) (4) (5)
104
(194)
(90)
(1,017)
369
(648)
-
104
-
(90)
(110)
(86)
(110)
(86)
Corporate
(343)
25
(318)
(291)
3
(288)
2
(341)
1
(317)
18
10
17
10
Operating expenses
$ (6,403)
$
863
$ (5,540)
$ (6,092)
$
785
$ (5,307)
$
60
$ (6,343)
$
29
$ (5,511)
5 %
4 %
4 %
4 %
OTHER INCOME, NET
Distribution Solutions (6)
$
95
$
(40)
$
55
$
43
$
9
$
52
$
-
$
95
$
-
$
55
121 %
6 %
121 %
6 %
Technology Solutions
1
-
1
1
-
1
-
1
-
1
-
-
-
-
Corporate
6
-
6
21
-
21
(1)
5
(1)
5
(71)
(71)
(76)
(76)
Other income, net
$
102
$
(40)
$
62
$
65
$
9
$
74
$
(1)
$
101
$
(1)
$
61
57 %
(16) %
55 %
(18) %
INCOME (LOSS) FROM EQUITY METHOD INVESTMENT
$
(271)
$
471
$
200
$
-
$
-
$
-
$
-
$
(271)
$
-
$
200
-%
-%
-%
-%
IN CHANGE HEALTHCARE - Technology Solutions (7)
OPERATING PROFIT
Distribution Solutions (1) (2) (3) (6)
$
1,920
$
997
$
2,917
$
2,592
$
127
$
2,719
$
19
$
1,939
$
(11)
$
2,906
(26) %
7 %
(25) %
7 %
Technology Solutions (3) (4) (5) (7) (9)
(46)
278
232
126
371
497
-
(46)
-
232
(137)
(53)
(137)
(53)
Operating profit
1,874
1,275
3,149
2,718
498
3,216
19
1,893
(11)
3,138
(31)
(2)
(30)
(2)
Corporate
(337)
25
(312)
(270)
3
(267)
1
(336)
-
(312)
25
17
24
17
$
1,537
$ 1,300
$
2,837
$
2,448
$
501
$
2,949
$
20
$
1,557
$
(11)
$
2,826
(37) %
(4) %
(36) %
(4) %
Income from continuing operations before interest expense and
income taxes
STATISTICS
Operating profit as a % of revenues
Distribution Solutions
1.23 %
1.86 %
1.75 %
1.84 %
1.24 %
1.86 %
(52) bp
2 bp
(51) bp
2 bp
Adjusted operating profit excluding noncontrolling interests as a %
of revenues
Distribution Solutions (8)
1.78 %
1.83 %
1.78 %
(5) bp
(5) bp
(1)
Fiscal 2017, as reported under GAAP, includes $144 million of net
cash proceeds primarily received in the first quarter of fiscal 2017
representing our share of antitrust legal settlements within our
Distribution Solutions segment.
(2)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax
restructuring charge of $189 million ($157 million after-tax) to
impair the carrying value of certain intangible assets and other
assets primarily related to our retail business in the U.K. within
our Distribution Solutions segment recognized in the second
quarter of fiscal 2018. Fiscal 2018, as reported under GAAP, also
includes a pre-tax restructuring charge of $53 million ($45
million after-tax) primarily representing employee severance and
lease exit costs.
(3)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax and
after-tax goodwill impairment charge of $350 million recognized in
the second quarter of fiscal 2018 for our McKesson Europe reporting
unit within the Distribution Solutions segment. There were no tax
benefits associated with this goodwill impairment charge. Fiscal
2017, as reported under GAAP, includes a non-cash pre-tax goodwill
impairment charge of $290 million ($282 million after-tax)
recognized in the second quarter of fiscal 2017 for our EIS
reporting unit within the Technology Solutions segment.
(4)
Fiscal 2018, as reported under GAAP, includes a pre-tax credit of
$46 million ($30 million after-tax) recognized in the third quarter
of fiscal 2018 representing a reduction in our TRA liability within
our Technology Solutions segment as a result of the enactment of the
2017 Tax Act. Fiscal 2018, as reported under GAAP, includes a
pre-tax gain of $37 million ($22 million after-tax) recognized in
the first quarter of fiscal 2018 related to the final net working
capital and other adjustments from the fiscal 2017 fourth quarter
Healthcare Technology Net Asset Exchange within our Technology
Solutions segment.
(5)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $109
million ($30 million after-tax) recognized from the fiscal 2018
third quarter sale of our EIS reporting unit within the Technology
Solutions segment.
(6)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $43
million ($26 million after-tax) recognized from the fiscal 2018
second quarter sale of an equity method investment within our
Distribution Solutions segment.
(7)
The amount represents our proportionate share of the net income or
loss of the Change Healthcare joint venture.
(8)
Our Distribution Solutions segment’s noncontrolling interests
primarily include the third-party equity interests related to
ClarusONE Sourcing Services LLP and Vantage Oncology Holdings, LLC.
(9)
Operating profit for our Technology Solutions segment for fiscal
2018 includes only our EIS business, the gain on sale of our EIS
business, as reported under GAAP, and our proportionate share of
income (loss) from Change Healthcare. Fiscal 2017 operating profit
for this segment also included the core MTS businesses, which were
contributed to the Change Healthcare joint venture in the fourth
quarter of fiscal 2017.
For more information relating to the Adjusted Earnings (Non-GAAP),
Constant Currency (Non-GAAP) and Adjusted Operating Profit Margin
Excluding Noncontrolling Interests (Non-GAAP) definitions, refer to
the section entitled "Supplemental Non-GAAP Financial Information"
of this release.
Schedule 4A
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED
EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
Quarter Ended December 31, 2017
Quarter Ended December 31, 2016
Distribution
Technology
Corporate
Total
Distribution
Technology
Corporate
Total
Solutions
Solutions
Solutions
Solutions
As Reported (GAAP):
Revenues
$ 53,617
$
-
$
-
$ 53,617
$ 49,436
$
694
$
-
$ 50,130
Income from continuing operations before interest expense and income
$
819
$
65
$
(120 )
$
764
$
813
$
132
$
(91 )
$
854
taxes (1) (2) (3) (4) (5)
Pre-Tax Adjustments:
Amortization of acquisition-related intangibles (4)
$
122
$
71
$
-
$
193
$
100
$
2
$
-
$
102
Acquisition-Related Expenses and Adjustments
31
61
2
94
43
33
(1 )
75
LIFO Inventory-Related Adjustments
(2 )
-
-
(2 )
(155 )
-
-
(155 )
Gains from Antitrust Legal Settlements
-
-
-
-
(2 )
-
-
(2 )
Restructuring Charges, Net
20
(1 )
13
32
6
(4 )
-
2
Other Adjustments, Net
1
(143 )
(2 )
(144 )
-
-
-
-
Total pre-tax adjustments
$
172
$
(12 )
$
13
$
173
$
(8 )
$
31
$
(1 )
$
22
Adjusted Earnings (Non-GAAP):
Revenues
$ 53,617
$
-
$
-
$ 53,617
$ 49,436
$
694
$
-
$ 50,130
Income from continuing operations before interest expense and income
$
991
$
53
$
(107 )
$
937
$
805
$
163
$
(92 )
$
876
taxes (4) (5)
(1)
Fiscal 2018, as reported under GAAP, includes a pre-tax
restructuring charge of $6 million ($5 million after-tax) within our
Distribution Solutions segment.
(2)
Fiscal 2018, as reported under GAAP, includes a pre-tax credit of
$46 million ($30 million after-tax) representing a reduction in our
TRA liability within our Technology Solutions segment as a result of
the enactment of the 2017 Tax Act.
(3)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $109
million ($30 million after-tax) recognized from the sale of our EIS
reporting unit within the Technology Solutions segment.
(4)
Fiscal 2018 for our Technology Solutions segment includes
amortization of equity investment intangibles and other acquired
intangibles of $70 million included in our proportionate share of
the income (loss) from our equity method investment in Change
Healthcare.
(5)
The results of our Technology Solutions segment for fiscal 2018
includes only the gain on sale of our EIS business, as reported
under GAAP, and our proportionate share of income (loss) from Change
Healthcare. Fiscal 2017 operating profit for this segment also
included the core MTS businesses, which were contributed to the
Change Healthcare joint venture in the fourth quarter of fiscal 2017.
For more information relating to the Adjusted Earnings (Non-GAAP)
definition, refer to the section entitled "Supplemental Non-GAAP
Financial Information" of this release.
Schedule 4B
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED
EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
Nine Months Ended December 31, 2017
Nine Months Ended December 31, 2016
Distribution
Technology
Corporate
Total
Distribution
Technology
Corporate
Total
Solutions
Solutions
Solutions
Solutions
As Reported (GAAP):
Revenues
$ 156,489
$
240
$
-
$ 156,729
$ 147,722
$
2,098
$
-
$ 149,820
Income from continuing operations before interest expense and
$
1,920
$
(46 )
$
(337 )
$
1,537
$
2,592
$
126
$
(270 )
$
2,448
income taxes (1) (2) (3) (4) (5) (6) (7) (8)
Pre-Tax Adjustments:
Amortization of acquisition-related intangibles (6)
$
369
$
215
$
-
$
584
$
311
$
21
$
-
$
332
Acquisition-Related Expenses and Adjustments
68
207
2
277
104
58
4
166
LIFO Inventory-Related Adjustments
(5 )
-
-
(5 )
(151 )
-
-
(151 )
Gains from Antitrust Legal Settlements
-
-
-
-
(144 )
-
-
(144 )
Restructuring Charges, Net
261
(1 )
32
292
13
2
(1 )
14
Other Adjustments, Net
304
(143 )
(9 )
152
(6 )
290
-
284
Total pre-tax adjustments
$
997
$
278
$
25
$
1,300
$
127
$
371
$
3
$
501
Adjusted Earnings (Non-GAAP):
Revenues
$ 156,489
$
240
$
-
$ 156,729
$ 147,722
$
2,098
$
-
$ 149,820
Income from continuing operations before interest
$
2,917
$
232
$
(312 )
$
2,837
$
2,719
$
497
$
(267 )
$
2,949
expense and income taxes (6) (8)
(1)
Fiscal 2018, as reported under GAAP, includes a pre-tax credit of
$46 million ($30 million after-tax) recognized in the third quarter
of fiscal 2018 representing a reduction in our TRA liability within
our Technology Solutions segment as a result of the enactment of the
2017 Tax Act. Fiscal 2018, as reported under GAAP, includes a
pre-tax gain of $37 million ($22 million after-tax) recognized in
the first quarter of fiscal 2018 related to the final net working
capital and other adjustments from the fiscal 2017 fourth quarter
Healthcare Technology Net Asset Exchange within our Technology
Solutions segment.
(2)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax
restructuring charge of $189 million ($157 million after-tax) to
impair the carrying value of certain intangible assets and other
assets primarily related to our retail business in the U.K. within
our Distribution Solutions segment recognized in the second
quarter of fiscal 2018. Fiscal 2018, as reported under GAAP, also
includes a pre-tax restructuring charge of $53 million ($45
million after-tax) primarily representing employee severance and
lease exit costs.
(3)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax and
after-tax goodwill impairment charge of $350 million recognized in
the second quarter of fiscal 2018 for our McKesson Europe reporting
unit within the Distribution Solutions segment. There were no tax
benefits associated with this goodwill impairment charge. Fiscal
2017, as reported under GAAP, includes a non-cash pre-tax goodwill
impairment charge of $290 million ($282 million after-tax)
recognized in the second quarter of fiscal 2017 for our EIS
reporting unit within the Technology Solutions segment.
(4)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $109
million ($30 million after-tax) recognized from the fiscal 2018
third quarter sale of our EIS reporting unit within the Technology
Solutions segment.
(5)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $43
million ($26 million after-tax) recognized from the fiscal 2018
second quarter sale of an equity method investment within our
Distribution Solutions segment.
(6)
Fiscal 2018 for our Technology Solutions segment includes
amortization of equity investment intangibles and other acquired
intangibles of $214 million included in our proportionate share of
the income (loss) from our equity method investment in Change
Healthcare.
(7)
Fiscal 2017, as reported under GAAP, includes $144 million of net
cash proceeds primarily received in the first quarter of fiscal 2017
representing our share of antitrust legal settlements within our
Distribution Solutions segment.
(8)
The results of our Technology Solutions segment for fiscal 2018
includes only our EIS business, the gain on sale of our EIS
business, as reported under GAAP, and our proportionate share of
income (loss) from Change Healthcare. Fiscal 2017 operating profit
for this segment also included the core MTS businesses, which were
contributed to the Change Healthcare joint venture in the fourth
quarter of fiscal 2017.
For more information relating to the Adjusted Earnings (Non-GAAP)
definition, refer to the section entitled "Supplemental Non-GAAP
Financial Information" of this release.
Schedule 5
McKESSON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions)
December 31,
March 31,
2017
2017
ASSETS
Current Assets
Cash and cash equivalents
$
2,619
$
2,783
Receivables, net
20,015
18,215
Inventories, net
17,103
15,278
Prepaid expenses and other
458
672
Total Current Assets
40,195
36,948
Property, Plant and Equipment, Net
2,401
2,292
Goodwill
11,828
10,586
Intangible Assets, Net
4,094
3,665
Equity Method Investment in Change Healthcare
3,704
4,063
Other Noncurrent Assets
1,991
3,415
Total Assets
$ 64,213
$
60,969
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current Liabilities
Drafts and accounts payable
$ 33,009
$
31,022
Short-term borrowings
749
183
Deferred revenue
68
346
Current portion of long-term debt
531
1,057
Other accrued liabilities
3,295
3,004
Total Current Liabilities
37,652
35,612
Long-Term Debt
7,514
7,305
Long-Term Deferred Tax Liabilities
2,833
3,678
Other Noncurrent Liabilities
2,807
1,774
Redeemable Noncontrolling Interests
1,435
1,327
McKesson Corporation Stockholders’ Equity
11,734
11,095
Noncontrolling Interests
238
178
Total Equity
11,972
11,273
Total Liabilities, Redeemable Noncontrolling Interests and Equity
$ 64,213
$
60,969
Schedule 6
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
Nine Months Ended December 31,
2017
2016
OPERATING ACTIVITIES
Net income
$
1,382
$
1,530
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation and amortization
697
663
Goodwill impairment and other asset impairment charges
539
290
Deferred taxes
(847 )
122
Share-based compensation expense
57
109
LIFO credits
(5 )
(151 )
Loss from equity method investment in Change Healthcare
271
-
Loss (gain) from sale of businesses and equity investments
(155 )
113
Other non-cash items
(132 )
50
Changes in operating assets and liabilities, net of acquisitions:
Receivables
(1,046 )
(654 )
Inventories
(1,410 )
(374 )
Drafts and accounts payable
1,203
1,891
Deferred revenue
(134 )
(58 )
Taxes
689
52
Other
214
(274 )
Net cash provided by operating activities
1,323
3,309
INVESTING ACTIVITIES
Property acquisitions
(269 )
(246 )
Capitalized software expenditures
(123 )
(123 )
Acquisitions, net of cash and cash equivalents acquired
(1,979 )
(4,174 )
Proceeds from/(payments for) sale of businesses and equity
329
(91 )
investments, net
Payments received on Healthcare Technology Net Asset Exchange
126
-
Restricted cash for acquisitions
1,469
935
Other
(36 )
80
Net cash used in investing activities
(483 )
(3,619 )
FINANCING ACTIVITIES
Proceeds from short-term borrowings
12,699
2,803
Repayments of short-term borrowings
(12,133 )
(1,405 )
Repayments of long-term debt
(545 )
(392 )
Common stock transactions:
Issuances
114
89
Share repurchases, including shares surrendered for tax withholding
(951 )
(2,060 )
Dividends paid
(192 )
(192 )
Other
(139 )
12
Net cash used in financing activities
(1,147 )
(1,145 )
Effect of exchange rate changes on cash and cash equivalents
143
(159 )
Net decrease in cash and cash equivalents
(164 )
(1,614 )
Cash and cash equivalents at beginning of period
2,783
4,048
Cash and cash equivalents at end of period
$
2,619
$
2,434
1 of 2
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
In an effort to provide investors with additional information
regarding the Company’s financial results as determined by generally
accepted accounting principles ("GAAP"), McKesson Corporation (the
"Company" or "we") also presents the following Non-GAAP measures in
this press release. The Company believes the presentation of
Non-GAAP measures provides useful supplemental information to
investors with regard to its operating performance, as well as
assists with the comparison of its past financial performance to the
Company’s future financial results. Moreover, the Company believes
that the presentation of Non-GAAP measures assists investors’
ability to compare its financial results to those of other companies
in the same industry. However, the Company’s Non-GAAP measures used
in the press tables may be defined and calculated differently by
other companies in the same industry.
?
Adjusted Earnings (Non-GAAP): We define Adjusted Earnings as
GAAP income from continuing operations attributable to McKesson,
excluding amortization of acquisition-related intangibles,
acquisition-related expenses and adjustments, Last-In-First-Out
("LIFO") inventory-related adjustments, gains from antitrust legal
settlements, restructuring 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, 3 and 4 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/or the formation of
joint ventures and equity method investments.
Acquisition-related expenses and adjustments
- Transaction, integration and other expenses that are directly
related to business combinations, the formation of joint ventures
and the Healthcare Technology Net Asset Exchange. Examples include
transaction closing costs, professional service fees, legal fees,
restructuring or severance charges, retention payments and
employee relocation expenses, facility or other exit-related
expenses, certain fair value adjustments including deferred
revenues, contingent consideration and inventory, recoveries of
acquisition-related expenses or post-closing expenses, bridge loan
fees, gains or losses related to foreign currency contracts
entered into directly due to acquisitions, gains or losses on
business combinations, and gain on the Healthcare Technology Net
Asset Exchange.
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 charges -
Non-acquisition related restructuring charges that are incurred
for significant 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. Such charges may
include employee severance, retention bonuses, facility closure or
consolidation costs, lease or contract termination costs, asset
impairments, accelerated depreciation and amortization, and other
related expenses. The restructuring programs may be implemented
due to the sale or discontinuation of a product line,
reorganization or management structure changes, headcount
rationalization, realignment of operations or products, and/or
Company-wide cost saving initiatives. The amount and/or frequency
of these restructuring charges are not part of our underlying
business, which includes normal levels of reinvestment in the
business. Any credit adjustments due to subsequent changes in
estimates are also excluded.
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: gains or losses from divestitures of businesses that do
not qualify as discontinued operations and from dispositions of
assets; asset impairments; adjustments to claim and litigation
reserves for estimated probable losses; certain discrete benefits
related to the December 2017 enactment of the 2017 Tax Cuts and
Jobs Act; and other similar substantive and/or infrequent items as
deemed appropriate.
Income taxes on Adjusted Earnings are calculated in accordance with
Accounting Standards Codification ("ASC") 740, "Income Taxes," which
is the same accounting principle used by the Company when presenting
its GAAP financial results.
Additionally, our equity method investments’ financial results are
adjusted for the above noted items.
2 of 2
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION (continued)
?
Constant Currency (Non-GAAP): To present our financial
results on a constant currency 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 a constant
currency 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 constant currency 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.
?
Adjusted Operating Profit Margin Excluding Noncontrolling
Interests (Non-GAAP): The Company has arrangements involving
third-party noncontrolling interests. As a result, our pre-tax
results are affected by the portion of pre-tax earnings attributable
to noncontrolling interests. To provide additional useful
information to investors, we present adjusted operating profit
margin excluding noncontrolling interests for our Distribution
Solutions segment. We believe such information provides a framework
for assessing how our business performed excluding the effect of
pre-tax earnings that is not attributable to McKesson. We calculate
adjusted operating profit excluding noncontrolling interests by
removing pre-tax earnings attributable to noncontrolling interests
from adjusted operating profit (Non-GAAP). Adjusted operating profit
margin excluding noncontrolling interests is calculated by dividing
the adjusted operating profit excluding noncontrolling interests
with the applicable segment’s revenues. This information is
supplemental to the Company’s GAAP financial results and is provided
in Schedule 3 of this document.
The Company internally uses 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 business 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 constant currency information to provide a
framework for assessing how our business performed excluding the
estimated effect of foreign currency exchange rate fluctuations. We
present adjusted operating profit margin excluding noncontrolling
interests to provide a framework for assessing how our business
performed excluding the effect of net income that is not
attributable to McKesson. Nonetheless, Non-GAAP financial results
and related measures disclosed by the Company should not be
considered a substitute for, nor superior to, financial results and
measures as determined or calculated in accordance with GAAP.

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SOURCE: McKesson Corporation

McKesson Corporation
Craig Mercer, 415-983-8391 (Investors and Financial Media)
Craig.Mercer@McKesson.com
or
Kristin Hunter Chasen, 415-983-8974 (General and Business Media)
Kristin.Chasen@McKesson.com