MCK
$146.61
Mckesson
($.56)
(.38%)
Earnings Details
1st Quarter June 2017
Thursday, July 27, 2017 7:30:06 AM
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Summary

Mckesson Misses

Mckesson (MCK) reported 1st Quarter June 2017 earnings of $2.46 per share on revenue of $51.1 billion. The consensus earnings estimate was $2.81 per share on revenue of $51.2 billion. The Earnings Whisper number was $2.86 per share. Revenue grew 2.7% on a year-over-year basis.

The company said it expects fiscal 2018 earnings of $11.80 to $12.50 per share. The company's previous guidance was earnings of $11.75 to $12.45 per share and the current consensus earnings estimate is $12.08 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
$2.46
Earnings Whisper
$2.86
Consensus Estimate
$2.81
Reported Revenue
$51.05 Bil
Revenue Estimate
$51.17 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

McKesson Reports Fiscal 2018 First-Quarter Results

First-quarter GAAP earnings per diluted share from continuing operations of $1.44, down 50% year-over-year.

--First-quarter Adjusted Earnings per diluted share of $2.46, down 22% year-over-year.

Raised Fiscal 2018 Outlook: GAAP earnings per diluted share from continuing operations of $7.10 to $9.00.

--Raised Fiscal 2018 Outlook: Adjusted Earnings of $11.80 to $12.50 per diluted share.

Board of Directors approved raising the quarterly dividend by 21% from 28 cents to 34 cents per share.

McKesson Corporation (MCK) today reported that revenues for the first quarter ended June 30, 2017 were $51.1 billion, up 3% compared to $49.7 billion a year ago. On the basis of U.S. generally accepted accounting principles ("GAAP"), first-quarter earnings per diluted share from continuing operations was $1.44, compared to $2.88 a year ago.

First-quarter Adjusted Earnings per diluted share was $2.46, down 22% compared to $3.15 a year ago. First-quarter results included the lapping effect of the lower profit contribution from increased price competition in our independent pharmacy business in Fiscal 2017 and weaker pharmaceutical manufacturer pricing trends in our U.S. Pharmaceutical business within our Distribution Solutions segment, and lower profit in our Technology Solutions segment driven primarily by the contribution of the majority of the businesses to Change Healthcare.

For the first quarter, McKesson generated cash from operations of $741 million, and ended the quarter with cash and cash equivalents of $2.3 billion. During the quarter, McKesson repaid $541 million in long-term debt, paid $1.5 billion for acquisitions, repurchased $250 million of its common stock, invested $118 million internally and paid $62 million in dividends. Yesterday, the Board of Directors approved an increase to the quarterly dividend from 28 cents to 34 cents per share.

"McKesson’s first-quarter operating results were consistent with our expectations," said John H. Hammergren, chairman and chief executive officer. "We’re off to a solid start to the year and are raising our previous Fiscal 2018 Adjusted Earnings outlook to a range of $11.80 to $12.50 per diluted share. In addition, we generated strong first-quarter cash flows, which allowed us to allocate capital in line with our portfolio approach to capital deployment."

Segment Results

Distribution Solutions revenues were $50.9 billion for the quarter, up 4% on a reported basis and 5% on a constant currency basis.

North America pharmaceutical distribution and services revenues of $43.0 billion for the quarter were up 4% on a reported basis and 5% on a constant currency basis, primarily reflecting market growth and acquisitions.

International pharmaceutical distribution and services revenues were $6.4 billion for the quarter, up 1% on a reported basis and 6% on a constant currency basis, driven by acquisitions and market growth.

Medical-Surgical distribution and services revenues were up 4% for the quarter, driven by market growth.

In the first quarter, Distribution Solutions GAAP operating profit was $713 million and GAAP operating margin was 1.40%. First-quarter adjusted operating profit was $887 million and adjusted operating margin was 1.73%, both on a constant currency basis. Adjusted operating margin excluding noncontrolling interests for the Distribution Solutions segment was 1.64% on a constant currency basis.

Technology Solutions revenues were down 83% on both a reported and constant currency basis in the first quarter, following the contribution of the majority of our Technology Solutions businesses to the Change Healthcare joint venture on March 1, 2017, and reflecting our remaining Enterprise Information Solutions business.

First-quarter GAAP loss from McKesson’s equity investment in Change Healthcare was $120 million. Adjusted income from McKesson’s equity investment in Change Healthcare was $70 million for the first quarter.

Technology Solutions GAAP operating loss was $78 million for the first quarter. Adjusted operating profit was $87 million for the first quarter, primarily reflecting our equity share of Change Healthcare’s net income.

Fiscal Year 2018 Outlook

McKesson expects GAAP earnings per diluted share between $7.10 to $9.00 for the fiscal year ending March 31, 2018, which includes the following items:

Amortization of acquisition-related intangibles of $2.40 to $2.70 per diluted share;

Acquisition-related expenses and adjustments of $1.10 to $1.30 per diluted share;

LIFO inventory-related adjustments include charges of 20 cents to 60 cents per diluted share;

Gains from antitrust legal settlements of up to 10 cents per diluted share;

-- Restructuring charges of up to 10 cents per diluted share; and

Other adjustments include net credits of up to 10 cents per diluted share.

McKesson expects Adjusted Earnings of $11.80 to $12.50 per diluted share for the fiscal year ending March 31, 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, Last-In-First-Out ("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, July 27th, at 8:30 AM ET. The dial-in number for individuals wishing to participate on the call is 323-794-2130. 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 3179042. 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 June 30,
2017
2016
Change
Revenues
$
51,051
$
49,733
3
%
Cost of sales (1)
(48,491 )
(46,826 )
4
Gross profit
2,560
2,907
(12 )
Operating expenses
(1,964 )
(1,935 )
1
Gain on net asset exchange (2)
37
-
-
Total operating expenses
(1,927 )
(1,935 )
-
Operating income
633
972
(35 )
Other income, net
13
19
(32 )
Loss from equity method investment in Change Healthcare (3)
(120 )
-
-
Interest expense
(68 )
(79 )
(14 )
Income from continuing operations before income taxes
458
912
(50 )
Income tax expense (4)
(95 )
(239 )
(60 )
Income from continuing operations after tax
363
673
(46 )
Income (Loss) from discontinued operations, net of tax (5)
2
(113 )
(102 )
Net income
365
560
(35 )
Net income attributable to noncontrolling interests
(56 )
(18 )
211
Net income attributable to McKesson Corporation
$
309
$
542
(43 )
%
Earnings (loss) per common share attributable to
McKesson Corporation (6)
Diluted
Continuing operations
$
1.44
$
2.88
(50 )
%
Discontinued operations
0.01
(0.50 )
(102 )
$
1.45
$
2.38
(39 )
%
Total
Basic
Continuing operations
$
1.46
$
2.91
(50 )
%
Discontinued operations
-
(0.50 )
(100 )
Total
$
1.46
$
2.41
(39 )
%
Dividends declared per common share
$
0.28
$
0.28
Weighted average common shares
Diluted
213
228
(7 )
%
Basic
211
225
(6 )
(1)
Fiscal years 2018 and 2017 include pre-tax charges of $26 million
and $47 million related to our last-in-first-out ("LIFO") method
of accounting for inventories. Fiscal year 2017 includes $142
million of net cash proceeds representing our share of antitrust
legal settlements. These charges and credits are included within
our Distribution Solutions segment.
(2)
Fiscal year 2018 operating expenses include a pre-tax gain of $37
million (after-tax gain of $22 million) related to the final net
working capital and other adjustments from the Healthcare Technology
Net Asset Exchange.
(3)
On March 1, 2017, we contributed the majority of our McKesson
Technology Solutions businesses to form a joint venture, Change
Healthcare.
(4)
Fiscal year 2017 includes a tax benefit of $37 million related to
the amended accounting guidance on share-based compensation adopted
in the first quarter of fiscal year 2017.
(5)
Fiscal year 2017 includes an after-tax loss of $113 million
recognized from the 2017 first quarter sale of our Brazilian
pharmaceutical distribution business within our discontinued
operations.
(6)
Certain computations may reflect rounding adjustments.
Schedule 2
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS
(NON-GAAP)
(unaudited)
(in millions, except per share amounts)
Change
Quarter Ended June 30, 2017
Vs. Prior Quarter
Amortization
Acquisition-
LIFO
of Acquisition-
Related
Inventory-
Gains from
Other
Adjusted
As
Adjusted
As Reported
Related
Expenses and
Related
Antitrust Legal
Restructuring
Adjustments,
Earnings
Reported
Earnings
(GAAP)
Intangibles
Adjustments
Adjustments
Settlements
Charges, Net
Net
(Non-GAAP)
(GAAP)
(Non-GAAP)
Gross profit
$
2,560
$
-
$
4
$
26
$
-
$
-
$
-
$
2,590
(12 )
%
(8 ) %
Operating expenses (1)
$ (1,927 )
$
121
$
(11 )
$
-
$
-
$
3
$
(2 )
$ (1,816 )
-
%
2
%
Other income, net
$
13
$
-
$
-
$
-
$
-
$
-
$
-
$
13
(32 )
%
(43 ) %
Income (Loss) from equity method investment in Change Healthcare
$
(120 )
$
71
$
119
$
-
$
-
$
-
$
-
$
70
-
%
-
%
Income from continuing operations before income taxes
$
458
$
192
$
112
$
26
$
-
$
3
$
(2 )
$
789
(50 )
%
(20 ) %
Income tax expense
$
(95 )
$
(66 )
$
(39 )
$
(10 )
$
-
$
(1 )
$
1
$
(210 )
(60 )
%
(16 ) %
Income from continuing operations, net of tax, attributable to
$
307
$
126
$
73
$
16
$
-
$
2
$
(1 )
$
523
(53 )
%
(27 ) %
McKesson Corporation
Diluted earnings per common share from continuing operations, net
$
1.44
$
0.60
$ 0.34
$ 0.08
$
-
$ 0.01
$ (0.01 )
$
2.46
(3)
(50 )
%
(22 ) %
of tax, attributable to McKesson Corporation (2)
Diluted weighted average common shares
213
213
213
213
-
213
213
213
(7 )
%
(7 ) %
Quarter Ended June 30, 2016
Amortization
Acquisition-
LIFO
of Acquisition-
Related
Inventory-
Gains from
Other
Adjusted
As Reported
Related
Expenses and
Related
Antitrust Legal
Restructuring
Adjustments,
Earnings
(GAAP)
Intangibles
Adjustments
Adjustments
Settlements
Charges, Net
Net
(Non-GAAP)
Gross profit
$
2,907
$
2
$
-
$
47
$
(142 )
$
(1 )
$
-
$
2,813
Operating expenses
$ (1,935 )
$
113
$
46
$
-
$
-
$
10
$
(6 )
$ (1,772 )
Other income, net
$
19
$
-
$
4
$
-
$
-
$
-
$
-
$
23
Income from continuing operations before income taxes
$
912
$
115
$
50
$
47
$
(142 )
$
9
$
(6 )
$
985
Income tax expense (4)
$
(239 )
$
(36 )
$
(12 )
$
(18 )
$
55
$
(3 )
$
2
$
(251 )
Income from continuing operations, net of tax, attributable to
$
655
$
79
$
38
$
29
$
(87 )
$
6
$
(4 )
$
716
McKesson Corporation
Diluted earnings per common share from continuing operations, net
$
2.88
$
0.35
$ 0.17
$ 0.12
$ (0.38 )
$ 0.03
$ (0.02 )
$
3.15
of tax, attributable to McKesson Corporation (2)
Diluted weighted average common shares
228
228
228
228
228
228
228
228
(1)
Fiscal year 2018 operating expenses as reported under GAAP include a
pre-tax gain of $37 million (after-tax gain of $22 million) related
to the final net working capital and other adjustments from the
Healthcare Technology Net Asset Exchange.
(2)
Certain computations may reflect rounding adjustments.
(3)
Adjusted Earnings per share on a Constant Currency basis for the
first quarter of fiscal year 2018 was $2.48 per diluted share, which
excludes the foreign currency exchange effect of $0.02 per diluted
share.
(4)
Fiscal year 2017 includes a tax benefit of $37 million related to
the amended accounting guidance on share-based compensation adopted
in the first quarter of fiscal year 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 3
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED
EARNINGS (NON-GAAP)
(unaudited)
(in millions)
Quarter Ended June 30, 2017
Quarter Ended June 30, 2016
GAAP
Non-GAAP
Change
Adjusted
Constant
Adjusted
Adjusted
Foreign
Foreign
As
Earnings
Constant
Currency
As Reported
Earnings
As Reported
Earnings
Currency
Constant
Currency
Constant
Reported
(Non-
Currency
(Non-
(GAAP)
Adjustments
(Non-GAAP)
(GAAP)
Adjustments
(Non-GAAP)
Effects
Currency
Effects
Currency
(GAAP)
GAAP)
(GAAP)
GAAP)
REVENUES
Distribution Solutions
$ 43,016
$
-
$ 43,016
$ 41,211
$
-
$ 41,211
$
110
$
43,126
$
110
$
43,126
4
%
4
%
5
%
5
%
North America pharmaceutical distribution & services
6,382
-
6,382
6,330
-
6,330
333
6,715
333
6,715
1
1
6
6
International pharmaceutical distribution & services
1,533
-
1,533
1,468
-
1,468
-
1,533
-
1,533
4
4
4
4
Medical-Surgical distribution & services
Total Distribution Solutions
50,931
-
50,931
49,009
-
49,009
443
51,374
443
51,374
4
4
5
5
Technology Solutions - Products and Services
120
-
120
724
-
724
-
120
-
120
(83 )
(83 )
(83 )
(83 )
Revenues
$ 51,051
$
-
$ 51,051
$ 49,733
$
-
$ 49,733
$
443
$
51,494
$
443
$
51,494
3
%
3
%
4
%
4
%
GROSS PROFIT
Distribution Solutions
$
2,500
$
29
$
2,529
$
2,513
$
(95 )
$
2,418
$
59
$
2,559
$
59
$
2,588
(1 )
%
5
%
2
%
7
%
Technology Solutions
60
1
61
394
1
395
-
60
-
61
(85 )
(85 )
(85 )
(85 )
Gross profit
$
2,560
$
30
$
2,590
$
2,907
$
(94 )
$
2,813
$
59
$
2,619
$
59
$
2,649
(12 )
%
(8 )
%
(10 )
%
(6 )
%
OPERATING EXPENSES
Distribution Solutions
$ (1,798 )
$
140
$ (1,658 )
$ (1,599 )
$
150
$ (1,449 )
$
(56 )
$
(1,854 )
$
(54 )
$
(1,712 )
12
%
14
%
16
%
18
%
Technology Solutions (1)
(18 )
(26 )
(44 )
(226 )
11
(215 )
(1 )
(19 )
-
(44 )
(92 )
(80 )
(92 )
(80 )
Corporate
(111 )
(3 )
(114 )
(110 )
2
(108 )
-
(111 )
1
(113 )
1
6
1
5
Operating expenses
$ (1,927 )
$
111
$ (1,816 )
$ (1,935 )
$
163
$ (1,772 )
$
(57 )
$
(1,984 )
$
(53 )
$
(1,869 )
-
%
2
%
3
%
5
%
OTHER INCOME, NET
Distribution Solutions
$
11
$
-
$
11
$
14
$
4
$
18
$
(1 )
$
10
$
-
$
11
(21 )
%
(39 )
%
(29 )
%
(39 )
%
Technology Solutions
-
-
-
-
-
-
1
1
-
-
-
-
-
-
Corporate
2
-
2
5
-
5
-
2
-
2
(60 )
(60 )
(60 )
(60 )
Other income, net
$
13
$
-
$
13
$
19
$
4
$
23
$
-
$
13
$
-
$
13
(32 )
%
(43 )
%
(32 )
%
(43 )
%
INCOME (LOSS) FROM EQUITY METHOD INVESTMENT IN
$
(120 )
$
190
$
70
$
-
$
-
$
-
$
-
$
(120 )
$
-
$
70
-
%
-
%
-
%
-
%
CHANGE HEALTHCARE - Technology Solutions
OPERATING PROFIT
Distribution Solutions
$
713
$
169
$
882
$
928
$
59
$
987
$
2
$
715
$
5
$
887
(23 )
%
(11 )
%
(23 )
%
(10 )
%
Technology Solutions (1)
(78 )
165
87
168
12
180
-
(78 )
-
87
(146 )
(52 )
(146 )
(52 )
Operating profit
635
334
969
1,096
71
1,167
2
637
5
974
(42 )
(17 )
(42 )
(17 )
Corporate
(109 )
(3 )
(112 )
(105 )
2
(103 )
-
(109 )
1
(111 )
4
9
4
8
$
526
$
331
$
857
$
991
$
73
$
1,064
$
2
$
528
$
6
$
863
(47 )
%
(19 )
%
(47 )
%
(19 )
%
Income from continuing operations before interest expense and
income taxes
STATISTICS
Operating profit as a % of revenues
Distribution Solutions
1.40
%
1.73
%
1.89
%
2.01
%
1.39
%
1.73
%
(49 )
bp
(28 )
bp
(50 )
bp
(28 )
bp
Adjusted operating profit excluding noncontrolling interests as a %
of revenues
Distribution Solutions (2)
1.64
%
2.00
%
1.64
%
(36 )
bp
(36 )
bp
(1)
Fiscal year 2018 operating expenses as reported under GAAP include a
pre-tax gain of $37 million (after-tax gain of $22 million) related
to the final net working capital and other adjustments from the
Healthcare Technology Net Asset Exchange.
(2)
Our Distribution Solutions segment’s noncontrolling interests
primarily include the third-party equity interests related to
Vantage Oncology Holdings, LLC and ClarusONE Sourcing Services LLP.
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 4
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED
EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
(unaudited)
(in millions)
Quarter Ended June 30, 2017
Quarter Ended June 30, 2016
Distribution
Technology
Distribution
Technology
Solutions
Solutions
Corporate
Total
Solutions
Solutions
Corporate
Total
As Reported (GAAP):
Revenues
$
50,931
$
120
$
-
$ 51,051
$ 49,009
$
724
$
-
$ 49,733
Income from continuing operations before interest expense and income
$
713
$
(78 )
$
(109 )
$
526
$
928
$
168
$
(105 )
$
991
taxes (1) (2)
Pre-Tax Adjustments:
Amortization of acquisition-related intangibles
$
121
$
71
$
-
$
192
$
106
$
9
$
-
$
115
Acquisition-Related Expenses and Adjustments
19
94
(1 )
112
44
4
2
50
LIFO Inventory-Related Adjustments
26
-
-
26
47
-
-
47
Gains from Antitrust Legal Settlements
-
-
-
-
(142 )
-
-
(142 )
Restructuring Charges, Net
3
-
-
3
10
(1 )
-
9
Other Adjustments, Net
-
-
(2 )
(2 )
(6 )
-
-
(6 )
Total pre-tax adjustments
$
169
$
165
$
(3 )
$
331
$
59
$
12
$
2
$
73
Adjusted Earnings (Non-GAAP):
Revenues
$
50,931
$
120
$
-
$ 51,051
$ 49,009
$
724
$
-
$ 49,733
Income from continuing operations before interest expense and income
$
882
$
87
$
(112 )
$
857
$
987
$
180
$
(103 )
$
1,064
taxes (2)
(1)
Fiscal year 2018 operating expenses as reported under GAAP include a
pre-tax gain of $37 million (after-tax gain of $22 million) related
to the final net working capital and other adjustments from the
Healthcare Technology Net Asset Exchange.
(2)
Fiscal year 2018 includes our proportionate share of income or loss
from Change Healthcare.
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)
June 30,
March 31,
2017
2017
ASSETS
Current Assets
Cash and cash equivalents
$
2,339
$
2,783
Receivables, net
19,132
18,215
Inventories, net
15,498
15,278
Prepaid expenses and other
728
672
Total Current Assets
37,697
36,948
Property, Plant and Equipment, Net
2,349
2,292
Goodwill
11,750
10,586
Intangible Assets, Net
4,238
3,665
Equity Method Investment in Change Healthcare
3,855
4,063
Other Noncurrent Assets
1,927
3,415
Total Assets
$
61,816
$ 60,969
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current Liabilities
Drafts and accounts payable
$
32,015
$ 31,022
Short-term borrowings
3
183
Deferred revenue
279
346
Current portion of long-term debt
525
1,057
Other accrued liabilities
2,977
3,004
Total Current Liabilities
35,799
35,612
Long-Term Debt
7,424
7,305
Long-Term Deferred Tax Liabilities
3,752
3,678
Other Noncurrent Liabilities
1,938
1,774
Redeemable Noncontrolling Interests
1,390
1,327
McKesson Corporation Stockholders’ Equity
11,303
11,095
Noncontrolling Interests
210
178
Total Equity
11,513
11,273
Total Liabilities, Redeemable Noncontrolling Interests and Equity
$
61,816
$ 60,969
Schedule 6
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
Quarter Ended June 30,
2017
2016
OPERATING ACTIVITIES
Net income
$
365
$
560
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation and amortization
227
242
Other deferred taxes
85
31
LIFO charges
26
47
Loss from equity method investment in Change Healthcare
120
-
Loss (gain) from sale of businesses
(1 )
113
Other non-cash items
8
29
Changes in operating assets and liabilities, net of acquisitions:
Receivables
(363 )
(300 )
Inventories
(59 )
(121 )
Drafts and accounts payable
463
1,549
Deferred revenue
(73 )
(113 )
Taxes
(18 )
95
Other
(39 )
(273 )
Net cash provided by operating activities
741
1,859
INVESTING ACTIVITIES
Property acquisitions
(75 )
(76 )
Capitalized software expenditures
(43 )
(38 )
Acquisitions, net of cash and cash equivalents acquired
(1,485 )
(1,819 )
Proceeds from/(payments for) sale of businesses, net
3
(101 )
Restricted cash for acquisitions
1,469
935
Other
2
(55 )
Net cash used in investing activities
(129 )
(1,154 )
FINANCING ACTIVITIES
Proceeds from short-term borrowings
2,282
7
Repayments of short-term borrowings
(2,463 )
(14 )
Repayments of long-term debt
(541 )
(1 )
Common stock transactions:
Issuances
27
36
Share repurchases, including shares surrendered for tax withholding
(300 )
(58 )
Dividends paid
(62 )
(66 )
Other
(74 )
14
Net cash used in financing activities
(1,131 )
(82 )
Effect of exchange rate changes on cash and cash equivalents
75
(12 )
Net increase (decrease) in cash and cash equivalents
(444 )
611
Cash and cash equivalents at beginning of period
2,783
4,048
Cash and cash equivalents at end of period
$
2,339
$
4,659
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; 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.
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 worldwide 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. In addition, 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. 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
Kristin Hunter Chasen, 415-983-8974 (General and Business Media)
Kristin.Chasen@McKesson.com