MCK
$153.81
Mckesson
$1.24
.81%
Earnings Details
2nd Quarter September 2017
Thursday, October 26, 2017 7:00:10 AM
Tweet Share Watch
Summary

McKesson Reaffirms

Mckesson (MCK) reported 2nd Quarter September 2017 earnings of $3.28 per share on revenue of $52.1 billion. The consensus earnings estimate was $2.78 per share on revenue of $51.6 billion. Revenue grew 4.2% on a year-over-year basis.

The company said it continues to expect fiscal 2018 earnings of $11.80 to $12.50 per share. The current consensus earnings estimate is $12.09 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
$3.28
Earnings Whisper
-
Consensus Estimate
$2.78
Reported Revenue
$52.06 Bil
Revenue Estimate
$51.60 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

McKesson Reports Fiscal 2018 Second-Quarter Results

Second-quarter GAAP earnings per diluted share from continuing operations of $0.01, down 99% year-over-year. GAAP earnings per diluted share includes impairment and restructuring charges of $2.60 related to our retail pharmacy business in the United Kingdom (U.K.).

Second-quarter Adjusted Earnings per diluted share of $3.28, up 11% year-over-year, compared to $2.96 in the prior year.

Fiscal 2018 Outlook: GAAP earnings per diluted share from continuing operations of $4.80 to $6.90.

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

Paul Julian, executive vice president and group president, Distribution Solutions, will retire at the close of the calendar year.

McKesson Corporation (MCK) today reported that revenues for the second quarter ended September 30, 2017, were $52.1 billion, up 4% compared to $50.0 billion a year ago. On the basis of U.S. generally accepted accounting principles ("GAAP"), second-quarter earnings per diluted share from continuing operations was $0.01, compared to $1.35 a year ago. During the quarter, McKesson initiated a number of strategic and operational actions within our U.K. retail pharmacy business in response to the previously discussed U.K. government reimbursement reductions. As a result, second-quarter GAAP earnings per diluted share included $2.41 of non-cash goodwill and other long-lived asset impairment charges and $0.19 of restructuring charges.

Second-quarter Adjusted Earnings per diluted share was $3.28, up 11% compared to $2.96 a year ago. Second-quarter results were driven by organic growth across multiple business units, including the company’s strategic sourcing benefits through ClarusONE, a lower share count and incremental profit contribution from acquisitions. This growth more than offset the year-over-year lapping effect of the previously disclosed lower profit contribution from increased price competition in our independent pharmacy business in Fiscal 2017, and the impact of reduced reimbursement in the company’s U.K. retail pharmacy business.

For the first half 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. During the first half of the year, McKesson repaid $545 million in long-term debt, paid $1.9 billion for acquisitions, repurchased $650 million of its common stock, invested $255 million internally and paid $121 million in dividends.

In addition, immediately following the close of the second quarter, McKesson completed the sale to Allscripts of the company’s Enterprise Information Solutions (EIS) business within the Technology Solutions segment.

"As expected, we generated strong sequential results in the second quarter, and our solid year-to-date cash flow performance allowed us to deploy meaningful capital for acquisitions and share repurchases, delivering further value for our shareholders," said John H. Hammergren, chairman and chief executive officer. "Additionally, we took important actions during the quarter to better position our business in light of reimbursement pressures levied by the National Health Service across our retail pharmacy operations in the U.K."

"We continue to focus on executing across our businesses and are reiterating our previous Fiscal 2018 Adjusted Earnings outlook of $11.80 to $12.50 per diluted share, as we work towards a strong finish to our Fiscal 2018," Hammergren concluded.

McKesson Executive Management Update

Paul Julian, executive vice president and group president, Distribution Solutions, will retire at the close of the calendar year, following 21 years of dedicated service to McKesson. Among his many accomplishments, Julian helped McKesson regain its position as the largest North American pharmaceutical distributor during his tenure as president of McKesson Pharmaceutical.

"For more than two decades, Paul has been a tremendous asset to McKesson. He has helped the company become the healthcare leader that it is today, and has developed a deep bench of talented leaders who are ready to take the company forward. Paul’s dedication and tireless commitment to our customers, our people, and the industry set him apart. Paul and I have worked together for longer than just his time at McKesson. He has been a great business partner and friend, and I will miss him," commented Hammergren.

Segment Results

Distribution Solutions revenues were $51.9 billion for the quarter, up 5% both on a reported and constant currency basis.

North America pharmaceutical distribution and services revenues of $43.5 billion for the quarter were up 5% both on a reported and constant currency basis, primarily reflecting market growth and acquisitions.

International pharmaceutical distribution and services revenues were $6.8 billion for the quarter, up 8% 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 2%, primarily driven by market growth.

In the second quarter, Distribution Solutions GAAP operating profit was $388 million and GAAP operating margin was 0.75%. Second-quarter adjusted operating profit was $1.0 billion, up 13% from the prior year on a reported basis and 12% on a constant currency basis. Adjusted operating margin for the Distribution Solutions segment was 2.01% on a constant currency basis. Adjusted operating margin excluding noncontrolling interests for the Distribution Solutions segment was 1.92% on a constant currency basis.

Technology Solutions revenues were down 82% on both a reported and constant currency basis in the second quarter, following the contribution of the majority of McKesson’s Technology Solutions businesses to the Change Healthcare joint venture on March 1, 2017. Technology Solutions revenues now reflect the remaining EIS business.

Second-quarter GAAP loss from McKesson’s equity investment in Change Healthcare was $61 million. Adjusted income from McKesson’s equity investment in Change Healthcare was $75 million for the second quarter.

Technology Solutions GAAP operating loss was $33 million for the second quarter. Adjusted operating profit was $92 million for the second quarter, primarily reflecting our equity share of Change Healthcare’s net income.

Fiscal Year 2018 Outlook

McKesson expects GAAP earnings per diluted share of $4.80 to $6.90 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 $0.90 to 1.10 per diluted share;

LIFO inventory-related charges of 20 cents to credits of 10 cents per diluted share;

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

-- Restructuring charges of $1.10 to $1.40 per diluted share; and

-- Other adjustments of $1.40 to $1.60 per diluted share.

McKesson expects Adjusted Earnings of $11.80 to $12.50 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 thirty-four cents per share of common stock. The dividend will be payable on January 2, 2018, to stockholders of record on December 1, 2017.

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, October 26th, at 8:00 AM ET. The dial-in number for individuals wishing to participate on the call is 323-794-2423. 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 1076652. 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 September 30,
Six Months Ended September 30,
2017
2016
Change
2017
2016
Change
Revenues
$
52,061
$
49,957
4
%
$
103,112
$
99,690
3
%
Cost of sales (1)
(49,227)
(47,201)
4
(97,718)
(94,027)
4
Gross profit
2,834
2,756
3
5,394
5,663
(5)
Operating expenses (2)
(2,009)
(1,886)
7
(3,936)
(3,821)
3
Goodwill impairment charges (3)
(350)
(290)
21
(350)
(290)
21
Restructuring and asset impairment charges (4)
(236)
-
-
(236)
-
-
Total operating expenses
(2,595)
(2,176)
19
(4,522)
(4,111)
10
Operating income
239
580
(59)
872
1,552
(44)
Other income, net (5)
69
23
200
82
42
95
Loss from equity method investment in Change Healthcare (6)
(61)
-
-
(181)
-
-
Interest expense
(69)
(78)
(12)
(137)
(157)
(13)
Income from continuing operations before income taxes
178
525
(66)
636
1,437
(56)
Income tax expense (7)
(122)
(200)
(39)
(217)
(439)
(51)
Income from continuing operations after tax
56
325
(83)
419
998
(58)
Income (Loss) from discontinued operations, net of tax (8)
-
(1)
(100)
2
(114)
(102)
Net income
56
324
(83)
421
884
(52)
Net income attributable to noncontrolling interests
(55)
(17)
224
(111)
(35)
217
Net income attributable to McKesson Corporation
$
1
$
307
(100)
%
$
310
$
849
(63)
%
Earnings (loss) per common share attributable to
McKesson Corporation (9)
Diluted
Continuing operations
$
0.01
$
1.35
(99)
%
$
1.46
$
4.22
(65)
%
Discontinued operations
-
(0.01)
(100)
0.01
(0.50)
(102)
Total
$
0.01
$
1.34
(99)
%
$
1.47
$
3.72
(60)
%
Basic
Continuing operations
$
0.01
$
1.36
(99)
%
$
1.47
$
4.27
(66)
%
Discontinued operations
-
-
-
0.01
(0.51)
(102)
Total
$
0.01
$
1.36
(99)
%
$
1.48
$
3.76
(61)
%
Dividends declared per common share
$
0.34
$
0.28
$
0.62
$
0.56
Weighted average common shares
Diluted
210
228
(8)
%
211
228
(7)
%
Basic
209
226
(8)
210
226
(7)
(1)
The second quarters of fiscal 2018 and 2017 include pre-tax credits
of $29 million and $43 million, and the first half of fiscal 2018
and 2017 include pre-tax credits of $3 million and pre-tax charges
of $4 million related to our last-in-first-out ("LIFO") method of
accounting for inventories. The first half of fiscal 2017 include
$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)
The first half of fiscal 2018 includes 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 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. Fiscal
2017 includes 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.
(4)
Fiscal 2018 includes a non-cash pre-tax 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. Fiscal 2018 also includes a pre-tax restructuring
charge of $47 million ($40 million after-tax) primarily representing
employee severance.
(5)
Fiscal 2018 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)
In the fourth quarter of fiscal 2017, we contributed the majority
of our McKesson Technology Solutions businesses ("Core MTS
Business") to form a joint venture, Change Healthcare. 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.
(7)
The first half of fiscal 2017 includes a tax benefit of $46 million
related to the adoption of the amended accounting guidance on
share-based compensation in the first quarter of fiscal 2017.
(8)
The first half of fiscal 2017 includes 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.
(9)
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 September 30, 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
$
2,834
$
-
$
2
$
(29 )
$
-
$
-
$
-
$
2,807
3
%
3
%
Operating expenses (1) (2)
$ (2,595 )
$
125
$
6
$
-
$
-
$
257
$
341
$
(1,866 )
19
%
8
%
Other income, net (3)
$
69
$
1
$
-
$
-
$
-
$
-
$
(43 )
$
27
200
%
8
%
Income (Loss) from equity method investment in Change Healthcare (4)
$
(61 )
$
73
$
63
$
-
$
-
$
-
$
-
$
75
-
%
-
%
Income from continuing operations before income taxes
$
178
$
199
$
71
$
(29 )
$
-
$
257
$
298
$
974
(66 )
%
5
%
Income tax expense
$
(122 )
$
(64 )
$
(24 )
$
11
$
-
$
(51 )
$
20
$
(230 )
(39 )
%
(3 )
%
Income from continuing operations, net of tax, attributable to
$
1
$
135
$
47
$
(18 )
$
-
$
206
$
318
$
689
(100 )
%
2
%
McKesson Corporation
Diluted earnings per common share from continuing operations, net
$
0.01
$
0.63
$ 0.23
$ (0.09 )
$
-
$ 0.98
$ 1.52
$
3.28
(6)
(99 )
%
11
%
of tax, attributable to McKesson Corporation (5)
Diluted weighted average common shares
210
210
210
210
-
210
210
210
(8 )
%
(8 )
%
Quarter Ended September 30, 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
$
2,756
$
1
$
1
$
(43 )
$
-
$
-
$
-
$
2,715
Operating expenses (7)
$ (2,176 )
$
113
$
39
$
-
$
-
$
3
$
290
$
(1,731 )
Other income, net
$
23
$
1
$
1
$
-
$
-
$
-
$
-
$
25
Income from continuing operations before income taxes
$
525
$
115
$
41
$
(43 )
$
-
$
3
$
290
$
931
Income tax expense
$
(200 )
$
(33 )
$
(11 )
$
16
$
-
$
(2 )
$
(8 )
$
(238 )
Income from continuing operations, net of tax, attributable to
$
308
$
82
$
30
$
(27 )
$
-
$
1
$
282
$
676
McKesson Corporation
Diluted earnings per common share from continuing operations, net
$
1.35
$
0.36
$ 0.13
$ (0.12 )
$
-
$
-
$ 1.24
$
2.96
of tax, attributable to McKesson Corporation (5)
Diluted weighted average common shares
228
228
228
228
-
-
228
228
(1)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax
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. Fiscal 2018, as reported under GAAP,
also includes a pre-tax restructuring charge of $47 million ($40
million after-tax) primarily representing employee severance.
(2)
Fiscal 2018, as reported under GAAP, includes 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.
(3)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $43
million ($26 million after-tax) recognized from the sale of an
equity method investment within our Distribution Solutions segment.
(4)
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. The
amortization of acquisition-related intangibles of $73 million is
included in our proportionate share of the income (loss) from this
equity method investment.
(5)
Certain computations may reflect rounding adjustments.
(6)
Adjusted Earnings per share on a Constant Currency basis for the
second quarter of fiscal 2018 was $3.24 per diluted share, which
excludes the foreign currency exchange effect of $0.04 per diluted
share.
(7)
Fiscal 2017 includes 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.
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
Six Months Ended September 30, 2017
Vs. Prior Period
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 and
Related
Legal
Net
(Non-GAAP)
(GAAP)
(Non-GAAP)
Intangibles
Adjustments
Adjustments
Settlements
Gross profit
$
5,394
$
-
$
6
$
(3 )
$
-
$
-
$
-
$
5,397
(5 )
%
(2 )
%
Operating expenses (1) (2) (3)
$ (4,522 )
$
246
$
(5 )
$
-
$
-
$
260
$
339
$ (3,682 )
10
%
5
%
Other income, net (4)
$
82
$
1
$
-
$
-
$
-
$
-
$
(43 )
$
40
95
%
(17 )
%
Income (Loss) from equity method investment in Change Healthcare (5)
$
(181 )
$
144
$
182
$
-
$
-
$
-
$
-
$
145
-
%
-
%
Income from continuing operations before income taxes
$
636
$
391
$
183
$
(3 )
$
-
$
260
$
296
$
1,763
(56 )
%
(8 )
%
Income tax expense
$
(217 )
$
(130 )
$
(63 )
$
1
$
-
$
(52 )
$
21
$
(440 )
(51 )
%
(10 )
%
Income from continuing operations, net of tax, attributable to
$
308
$
261
$
120
$
(2 )
$
-
$
208
$
317
$
1,212
(68 )
%
(13 )
%
McKesson Corporation
Diluted earnings per common share from continuing operations, net
$
1.46
$
1.23
$ 0.57
$ (0.01 )
$
-
$ 0.98
$ 1.50
$
5.73
(7) (65 )
%
(6 )
%
of tax, attributable to McKesson Corporation (6)
Diluted weighted average common shares
211
211
211
211
-
211
211
211
(7 )
%
(7 )
%
Six Months Ended September 30, 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 (8)
$
5,663
$
3
$
1
$
4
$
(142 )
$
(1 )
$
-
$
5,528
Operating expenses (9)
$ (4,111 )
$
226
$
85
$
-
$
-
$
13
$
284
$ (3,503 )
Other income, net
$
42
$
1
$
5
$
-
$
-
$
-
$
-
$
48
Income from continuing operations before income taxes
$
1,437
$
230
$
91
$
4
$
(142 )
$
12
$
284
$
1,916
Income tax expense (10)
$
(439 )
$
(69 )
$
(23 )
$
(2 )
$
55
$
(5 )
$
(6 )
$
(489 )
Income from continuing operations, net of tax, attributable to
$
963
$
161
$
68
$
2
$
(87 )
$
7
$
278
$
1,392
McKesson Corporation
Diluted earnings per common share from continuing operations, net
$
4.22
$
0.70
$ 0.30
$
0.02
$ (0.38 )
$ 0.03
$ 1.22
$
6.11
of tax, attributable to McKesson Corporation (6)
Diluted weighted average common shares
228
228
228
228
228
228
228
228
(1)
Fiscal 2018, as reported under GAAP, includes 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.
(2)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax
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. Fiscal 2018, as reported under GAAP,
also includes a pre-tax restructuring charge of $47 million ($40
million after-tax) primarily representing employee severance.
(3)
Fiscal 2018, as reported under GAAP, includes 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.
(4)
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.
(5)
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. The
amortization of acquisition-related intangibles of $144 million is
included in our proportionate share of the income (loss) from this
equity method investment.
(6)
Certain computations may reflect rounding adjustments.
(7)
Adjusted Earnings per share on a Constant Currency basis for fiscal
2018 was $5.72 per diluted share, which excludes the foreign
currency exchange effect of $0.01 per diluted share.
(8)
Fiscal 2017, as reported under GAAP, includes $142 million of net
cash proceeds representing our share of antitrust legal settlements
within our Distribution Solutions segment.
(9)
Fiscal 2017 includes 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.
(10)
Fiscal 2017 includes a tax benefit of $46 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 September 30, 2017
Quarter Ended September 30, 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
$ 43,508
$
-
$ 43,508
$ 41,375
$
-
$ 41,375
$ (107 )
$ 43,401
$ (107 )
$ 43,401
5
%
5
%
5
%
5
%
North America pharmaceutical distribution & services
6,773
-
6,773
6,271
-
6,271
(237 )
6,536
(237 )
6,536
8
8
4
4
International pharmaceutical distribution & services
1,660
-
1,660
1,631
-
1,631
-
1,660
-
1,660
2
2
2
2
Medical-Surgical distribution & services
Total Distribution Solutions
51,941
-
51,941
49,277
-
49,277
(344 )
51,597
(344 )
51,597
5
5
5
5
Technology Solutions - Products
and Services
120
-
120
680
-
680
-
120
-
120
(82 )
(82 )
(82 )
(82 )
Revenues
$ 52,061
$
-
$ 52,061
$ 49,957
$
-
$ 49,957
$ (344 )
$ 51,717
$ (344 )
$ 51,717
4
%
4
%
4
%
4
%
GROSS PROFIT
Distribution Solutions
$
2,774
$ (27 )
$
2,747
$
2,396
$ (42 )
$
2,354
$
(32 )
$
2,742
$
(33 )
$
2,714
16
%
17
%
14
%
15
%
Technology Solutions
60
-
60
360
1
361
-
60
-
60
(83 )
(83 )
(83 )
(83 )
Gross profit
$
2,834
$ (27 )
$
2,807
$
2,756
$ (41 )
$
2,715
$
(32 )
$
2,802
$
(33 )
$
2,774
3
%
3
%
2
%
2
%
OPERATING EXPENSES
Distribution Solutions (1) (2)
$ (2,452 )
$ 725
$ (1,727 )
$ (1,557 )
$ 116
$ (1,441 )
$
51
$ (2,401 )
$
26
$ (1,701 )
57
%
20
%
54
%
18
%
Technology Solutions (2)
(33 )
(11 )
(44 )
(535 )
327
(208 )
1
(32 )
-
(44 )
(94 )
(79 )
(94 )
(79 )
Corporate
(110 )
15
(95 )
(84 )
2
(82 )
-
(110 )
(1 )
(96 )
31
16
31
17
Operating expenses
$ (2,595 )
$ 729
$ (1,866 )
$ (2,176 )
$ 445
$ (1,731 )
$
52
$ (2,543 )
$
25
$ (1,841 )
19
%
8
%
17
%
6
%
OTHER INCOME, NET
Distribution Solutions (3)
$
66
$ (42 )
$
24
$
12
$
2
$
14
$
1
$
67
$
-
$
24
450
%
71
%
458
%
71
%
Technology Solutions
1
-
1
1
-
1
(1 )
-
-
1
-
-
(100 )
-
Corporate
2
-
2
10
-
10
-
2
-
2
(80 )
(80 )
(80 )
(80 )
Other income, net
$
69
$ (42 )
$
27
$
23
$
2
$
25
$
-
$
69
$
-
$
27
200
%
8
%
200
%
8
%
INCOME (LOSS) FROM EQUITY METHOD INVESTMENT IN
$
(61 )
$ 136
$
75
$
-
$
-
$
-
$
-
$
(61 )
$
-
$
75
-
%
-
%
-
%
-
%
CHANGE HEALTHCARE - Technology Solutions (4)
OPERATING PROFIT
Distribution Solutions (1) (2) (3)
$
388
$ 656
$
1,044
$
851
$
76
$
927
$
20
$
408
$
(7 )
$
1,037
(54 )
%
13
%
(52 )
%
12
%
Technology Solutions (2) (4) (6)
(33 )
125
92
(174 )
328
154
-
(33 )
-
92
(81 )
(40 )
(81 )
(40 )
Operating profit
355
781
1,136
677
404
1,081
20
375
(7 )
1,129
(48 )
5
(45 )
4
Corporate
(108 )
15
(93 )
(74 )
2
(72 )
-
(108 )
(1 )
(94 )
46
29
46
31
$
247
$ 796
$
1,043
$
603
$ 406
$
1,009
$
20
$
267
$
(8 )
$
1,035
(59 )
%
3
%
(56 )
%
3
%
Income from continuing operations before interest expense and
income taxes
STATISTICS
Operating profit as a % of revenues
Distribution Solutions
0.75
%
2.01
%
1.73
%
1.88
%
0.79
%
2.01
%
(98 )
bp
13
bp
(94 )
bp
13
bp
Adjusted operating profit excluding noncontrolling interests as a %
of revenues
Distribution Solutions (5)
1.93
%
1.87
%
1.92
%
6
bp
5
bp
(1)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax
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. Fiscal 2018, as reported under GAAP,
also includes a pre-tax restructuring charge of $47 million ($40
million after-tax) primarily representing employee severance.
(2)
Fiscal 2018, as reported under GAAP, includes 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. Fiscal 2017, as reported under GAAP, includes 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.
(3)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $43
million ($26 million after-tax) recognized from the sale of an
equity method investment.
(4)
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.
(5)
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.
(6)
Operating profit for our Technology Solutions segment for fiscal
2018 only includes our EIS business and our proportionate share of
income (loss) from Change Healthcare. Fiscal 2017 operating profit
for this segment also included the Core MTS Business.
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)
Six Months Ended September 30, 2017
Six Months Ended September 30, 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-GAAP)
(Non-GAAP)
Effects
Effects
(Non-
(GAAP)
(Non-
GAAP)
GAAP)
REVENUES
Distribution Solutions
$
86,524
$
-
$
86,524
$ 82,586
$
-
$ 82,586
$
3
$
86,527
$
3
$
86,527
5
%
5
%
5
%
5
%
North America pharmaceutical distribution & services
13,155
-
13,155
12,601
-
12,601
96
13,251
96
13,251
4
4
5
5
International pharmaceutical distribution & services
3,193
-
3,193
3,099
-
3,099
-
3,193
-
3,193
3
3
3
3
Medical-Surgical distribution & services
Total Distribution Solutions
102,872
-
102,872
98,286
-
98,286
99
102,971
99
102,971
5
5
5
5
Technology Solutions - Products and Services
240
-
240
1,404
-
1,404
-
240
-
240
(83 )
(83 )
(83 )
(83 )
Revenues
$ 103,112
$
-
$ 103,112
$ 99,690
$
-
$ 99,690
$ 99
$ 103,211
$
99
$ 103,211
3
%
3
%
4
%
4
%
GROSS PROFIT
Distribution Solutions (1)
$
5,274
$
2
$
5,276
$
4,909
$ (137 )
$
4,772
$ 27
$
5,301
$
26
$
5,302
7
%
11
%
8
%
11
%
Technology Solutions
120
1
121
754
2
756
-
120
-
121
(84 )
(84 )
(84 )
(84 )
Gross profit
$
5,394
$
3
$
5,397
$
5,663
$ (135 )
$
5,528
$ 27
$
5,421
$
26
$
5,423
(5 )
%
(2 )
%
(4 )
%
(2 )
%
OPERATING EXPENSES
Distribution Solutions (2) (3)
$
(4,250 )
$
865
$
(3,385 )
$ (3,156 )
$
266
$ (2,890 )
$ (5 )
$
(4,255 )
$ (28 )
$
(3,413 )
35
%
17
%
35
%
18
%
Technology Solutions (3) (4)
(51 )
(37 )
(88 )
(761 )
338
(423 )
-
(51 )
-
(88 )
(93 )
(79 )
(93 )
(79 )
Corporate
(221 )
12
(209 )
(194 )
4
(190 )
-
(221 )
-
(209 )
14
10
14
10
Operating expenses
$
(4,522 )
$
840
$
(3,682 )
$ (4,111 )
$
608
$ (3,503 )
$ (5 )
$
(4,527 )
$ (28 )
$
(3,710 )
10
%
5
%
10
%
6
%
OTHER INCOME, NET
Distribution Solutions (5)
$
77
$
(42 )
$
35
$
26
$
6
$
32
$
-
$
77
$
-
$
35
196
%
9
%
196
%
9
%
Technology Solutions
1
-
1
1
-
1
-
1
-
1
-
-
-
-
Corporate
4
-
4
15
-
15
-
4
-
4
(73 )
(73 )
(73 )
(73 )
Other income, net
$
82
$
(42 )
$
40
$
42
$
6
$
48
$
-
$
82
$
-
$
40
95
%
(17 )
%
95
%
(17 )
%
INCOME (LOSS) FROM EQUITY METHOD INVESTMENT IN
$
(181 )
$
326
$
145
$
-
$
-
$
-
$
-
$
(181 )
$
-
$
145
-
-
-
-
CHANGE HEALTHCARE - Technology Solutions (6)
OPERATING PROFIT
Distribution Solutions (1) (2) (3) (5)
$
1,101
$
825
$
1,926
$
1,779
$
135
$
1,914
$ 22
$
1,123
$
(2 )
$
1,924
(38 )
%
1
%
(37 )
%
1
%
Technology Solutions (3) (4) (6) (8)
(111 )
290
179
(6 )
340
334
-
(111 )
-
179
1,750
(46 )
1,750
(46 )
Operating profit
990
1,115
2,105
1,773
475
2,248
22
1,012
(2 )
2,103
(44 )
(6 )
(43 )
(6 )
Corporate
(217 )
12
(205 )
(179 )
4
(175 )
-
(217 )
-
(205 )
21
17
21
17
$
773
$ 1,127
$
1,900
$
1,594
$
479
$
2,073
$ 22
$
795
$
(2 )
$
1,898
(52 )
%
(8 )
%
(50 )
%
(8 )
%
Income from continuing operations before interest expense and
income taxes
STATISTICS
Operating profit as a % of revenues
Distribution Solutions
1.07
%
1.87
%
1.81
%
1.95
%
1.09
%
1.87
%
(74 )
bp
(8 )
bp
(72 )
bp
(8 )
bp
Adjusted operating profit excluding noncontrolling interests as a %
of revenues
Distribution Solutions (7)
1.78
%
1.94
%
1.78
%
(16 )
bp
(16 )
bp
(1)
Fiscal 2017, as reported under GAAP, includes $142 million of net
cash proceeds 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
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. Fiscal 2018, as reported under GAAP,
also includes a pre-tax restructuring charge of $47 million ($40
million after-tax) primarily representing employee severance.
(3)
Fiscal 2018, as reported under GAAP, includes 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. Fiscal 2017, as reported under GAAP, includes 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.
(4)
Fiscal 2018, as reported under GAAP, includes 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.
(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.
(6)
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.
(7)
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.
(8)
Operating profit for our Technology Solutions segment for fiscal
2018 only includes our EIS business and our proportionate share of
income (loss) from Change Healthcare. Fiscal 2017 operating profit
for this segment also included the Core MTS Business.
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 September 30, 2017
Quarter Ended September 30, 2016
Distribution
Technology
Corporate
Total
Distribution
Technology
Corporate
Total
Solutions
Solutions
Solutions
Solutions
As Reported (GAAP):
Revenues
$ 51,941
$
120
$
-
$ 52,061
$ 49,277
$
680
$
-
$ 49,957
Income from continuing operations before interest expense and
$
388
$
(33 )
$
(108 )
$
247
$
851
$
(174 )
$
(74 )
$
603
income taxes (1) (2) (3) (4) (5)
Pre-Tax Adjustments:
Amortization of acquisition-related intangibles (4)
$
126
$
73
$
-
$
199
$
105
$
10
$
-
$
115
Acquisition-Related Expenses and Adjustments
18
52
1
71
17
21
3
41
LIFO Inventory-Related Adjustments
(29 )
-
-
(29 )
(43 )
-
-
(43 )
Gains from Antitrust Legal Settlements
-
-
-
-
-
-
-
-
Restructuring Charges, Net
238
-
19
257
(3 )
7
(1 )
3
Other Adjustments, Net
303
-
(5 )
298
-
290
-
290
Total pre-tax adjustments
$
656
$
125
$
15
$
796
$
76
$
328
$
2
$
406
Adjusted Earnings (Non-GAAP):
Revenues
$ 51,941
$
120
$
-
$ 52,061
$ 49,277
$
680
$
-
$ 49,957
Income from continuing operations before interest expense and
$
1,044
$
92
$
(93 )
$
1,043
$
927
$
154
$
(72 )
$
1,009
income taxes (4) (5)
(1)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax
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. Fiscal 2018, as reported under GAAP,
also includes a pre-tax restructuring charge of $47 million ($40
million after-tax) primarily representing employee severance.
(2)
Fiscal 2018, as reported under GAAP, includes a pre-tax gain of $43
million ($26 million after-tax) recognized from the sale of an
equity method investment within our Distribution Solutions segment.
(3)
Fiscal 2018, as reported under GAAP, includes 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. Fiscal 2017, as reported under GAAP, includes 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.
(4)
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. The
amortization of acquisition-related intangibles of $73 million is
included in our proportionate share of the income (loss) from this
equity method investment.
(5)
The results of our Technology Solutions segment for fiscal 2018
only include our EIS business and our proportionate share of
income (loss) from Change Healthcare. Fiscal 2017 results for this
segment also included the Core MTS Business.
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)
Six Months Ended September 30, 2017
Six Months Ended September 30, 2016
Distribution
Technology
Corporate
Total
Distribution
Technology
Corporate
Total
Solutions
Solutions
Solutions
Solutions
As Reported (GAAP):
Revenues
$ 102,872
$
240
$
-
$ 103,112
$ 98,286
$
1,404
$
-
$ 99,690
Income from continuing operations before interest expense and
$
1,101
$
(111 )
$
(217 )
$
773
$
1,779
$
(6 )
$
(179 )
$
1,594
income taxes (1) (2) (3) (4) (5) (6) (7)
Pre-Tax Adjustments:
Amortization of acquisition-related intangibles (5)
$
247
$
144
$
-
$
391
$
211
$
19
$
-
$
230
Acquisition-Related Expenses and Adjustments
37
146
-
183
61
25
5
91
LIFO Inventory-Related Adjustments
(3 )
-
-
(3 )
4
-
-
4
Gains from Antitrust Legal Settlements
-
-
-
-
(142 )
-
-
(142 )
Restructuring Charges, Net
241
-
19
260
7
6
(1 )
12
Other Adjustments, Net
303
-
(7 )
296
(6 )
290
-
284
Total pre-tax adjustments
$
825
$
290
$
12
$
1,127
$
135
$
340
$
4
$
479
Adjusted Earnings (Non-GAAP):
Revenues
$ 102,872
$
240
$
-
$ 103,112
$ 98,286
$
1,404
$
-
$ 99,690
Income from continuing operations before interest
$
1,926
$
179
$
(205 )
$
1,900
$
1,914
$
334
$
(175 )
$
2,073
expense and income taxes (5) (7)
(1)
Fiscal 2018, as reported under GAAP, includes 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.
(2)
Fiscal 2018, as reported under GAAP, includes a non-cash pre-tax
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. Fiscal 2018, as reported under GAAP,
also includes a pre-tax restructuring charge of $47 million ($40
million after-tax) primarily representing employee severance.
(3)
Fiscal 2018, as reported under GAAP, includes 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. Fiscal 2017, as reported under GAAP, includes 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.
(4)
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.
(5)
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. The
amortization of acquisition-related intangibles of $144 million is
included in our proportionate share of the income (loss) from this
equity method investment.
(6)
Fiscal 2017, as reported under GAAP, includes $142 million of net
cash proceeds representing our share of antitrust legal settlements
within our Distribution Solutions segment.
(7)
The results of our Technology Solutions segment for fiscal 2018
only include our EIS business and our proportionate share of
income (loss) from Change Healthcare. Fiscal 2017 results for this
segment also included the Core MTS Business.
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)
September 30,
March 31,
2017
2017
ASSETS
Current Assets
Cash and cash equivalents
$
2,563
$
2,783
Receivables, net
19,627
18,215
Inventories, net
16,885
15,278
Prepaid expenses and other
719
672
Total Current Assets
39,794
36,948
Property, Plant and Equipment, Net
2,348
2,292
Goodwill
11,732
10,586
Intangible Assets, Net
4,206
3,665
Equity Method Investment in Change Healthcare
3,795
4,063
Other Noncurrent Assets
1,971
3,415
Total Assets
$ 63,846
$
60,969
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS
AND EQUITY
Current Liabilities
Drafts and accounts payable
$ 33,580
$
31,022
Short-term borrowings
306
183
Deferred revenue
63
346
Current portion of long-term debt
525
1,057
Other accrued liabilities
3,291
3,004
Total Current Liabilities
37,765
35,612
Long-Term Debt
7,490
7,305
Long-Term Deferred Tax Liabilities
3,724
3,678
Other Noncurrent Liabilities
2,082
1,774
Redeemable Noncontrolling Interests
1,423
1,327
McKesson Corporation Stockholders’ Equity
11,143
11,095
Noncontrolling Interests
219
178
Total Equity
11,362
11,273
Total Liabilities, Redeemable Noncontrolling Interests and Equity
$ 63,846
$
60,969
Schedule 6
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
Six Months Ended September 30,
2017
2016
OPERATING ACTIVITIES
Net income
$
421
$
884
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation and amortization
463
459
539
290
Goodwill impairment and other asset impairment charges
Deferred taxes
42
(90 )
Share-based compensation expense
57
79
LIFO charges (credits)
(3 )
4
Loss from equity method investment in Change Healthcare
181
-
Loss (gain) from sale of businesses and equity investments
(47 )
113
Other non-cash items
(28 )
5
Changes in operating assets and liabilities, net of acquisitions:
Receivables
(812 )
(657 )
Inventories
(1,217 )
162
Drafts and accounts payable
1,808
2,172
Deferred revenue
(138 )
(254 )
Taxes
86
151
Other
(13 )
(390 )
Net cash provided by operating activities
1,339
2,928
INVESTING ACTIVITIES
Property acquisitions
(164 )
(151 )
Capitalized software expenditures
(91 )
(89 )
Acquisitions, net of cash and cash equivalents acquired
(1,874 )
(2,041 )
Proceeds from/(payments for) sale of businesses and equity
164
(98 )
investments, net
Payments received on Healthcare Technology Net Asset Exchange
126
-
Restricted cash for acquisitions
1,469
935
Other
(26 )
98
Net cash used in investing activities
(396 )
(1,346 )
FINANCING ACTIVITIES
Proceeds from short-term borrowings
8,464
10
Repayments of short-term borrowings
(8,343 )
(17 )
Repayments of long-term debt
(545 )
(6 )
Common stock transactions:
Issuances
83
75
Share repurchases, including shares surrendered for tax withholding
(701 )
(58 )
Dividends paid
(121 )
(129 )
Other
(109 )
11
Net cash used in financing activities
(1,272 )
(114 )
Effect of exchange rate changes on cash and cash equivalents
109
(52 )
Net increase (decrease) in cash and cash equivalents
(220 )
1,416
Cash and cash equivalents at beginning of period
2,783
4,048
Cash and cash equivalents at end of period
$
2,563
$
5,464

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 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.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20171026005692r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20171026005692/en/

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