First-Quarter Highlights, Year-over-Year:
- Total revenues of $55.7 billion, flat year-over-year.
- Earnings per diluted share increased 20% to $2.72.
- Adjusted Earnings per diluted share decreased 16% to
$2.77.
- Board of Directors increased the quarterly dividend to 42 cents
per share.
Fiscal 2021 Guidance:
- Increased fiscal 2021 Adjusted Earnings per diluted share
guidance range to $14.70 to $15.50, from the previous range of
$13.95 to $14.75.
- McKesson continues to expect Adjusted Earnings per diluted
share growth in the second half of fiscal 2021.
McKesson Corporation (NYSE:MCK) today reported results for the
first quarter ended June 30, 2020.
Fiscal 2021 First-Quarter Result Summary
First-Quarter
($ in millions, except per share
amounts)
FY21
FY20
Change
Revenues
$
55,679
$
55,728
—
%
Income from Continuing
Operations1
445
429
4
Adjusted Earnings1,2
453
625
(28)
Earnings per Diluted Share1
2.72
2.27
20
Adjusted Earnings per Diluted
Share1,2
2.77
3.31
(16)
1Reflects continuing operations
attributable to McKesson, net of tax
2Represents a non-GAAP financial measure;
refer to the reconciliations of non-GAAP financial measures
included in accompanying schedules
“I am proud of the dedication and discipline of McKesson’s
employees as we navigate the complexities and uncertainties of the
COVID-19 pandemic while continuing to serve our customers and our
communities” said Brian Tyler, chief executive officer. “Thanks to
the strong execution of our employees around the world, McKesson
delivered first-quarter results ahead of our original expectations,
as volumes across the business improved earlier than anticipated.
Based on our first-quarter performance and current outlook for the
remainder of the year, we are raising our previous guidance range
for fiscal 2021 and now expect Adjusted Earnings per diluted share
of $14.70 to $15.50”.
First-quarter revenues were $55.7 billion, flat year-over-year,
as market growth and higher volumes from retail national account
customers within the U.S Pharmaceutical and Specialty Solutions
segment were largely offset by the impact of lower prescription
volumes and primary care patient visits across the enterprise.
First-quarter Earnings per diluted share of $2.72 included an
after-tax net gain of $97 million for insurance proceeds received
in connection with the settlement of the shareholder derivative
action related to McKesson’s controlled substances monitoring
program.
First-quarter Adjusted Earnings per diluted share was $2.77
compared to $3.31 a year ago, a decrease of 16%, driven by the
impact of lower prescription volumes and primary care patient
visits and the lapping of the prior year contribution from the
company’s now separated investment in Change Healthcare LLC
(“Change Healthcare”), partially offset by a lower share count.
For the first quarter, McKesson used cash from operations of
$1.1 billion, returned $74 million to shareholders via dividend
payments, and invested $117 million internally, resulting in
negative Free Cash Flow of $1.2 billion.
U.S. Pharmaceutical and Specialty Solutions Segment
- First-quarter revenues were $45.1 billion, up 2%, driven by
market growth and higher volumes from retail national account
customers, partially offset by branded to generic conversions and
lower prescription volumes in the quarter.
- First-quarter Segment Operating Profit was $608 million and
operating margin was 1.35%. Adjusted Segment Operating Profit was
$589 million, down 2% from a year ago, driven by lower prescription
volumes, partially offset by growth in the specialty provider
business. Adjusted operating margin was 1.31%, down 5 basis
points.
European Pharmaceutical Solutions Segment
- First-quarter revenues were $6.2 billion, down 7% on a reported
basis and down 4% on an FX-Adjusted basis, primarily driven by
lower volumes in the pharmaceutical distribution business.
- First-quarter Segment Operating Loss was ($10) million and
operating margin was (0.16%), and included restructuring charges
related to our business in the U.K. Adjusted Segment Operating
Profit was $35 million, flat on a reported basis. On an FX-Adjusted
basis, Adjusted Segment Operating Profit was $36 million, up 3%,
driven by lower operating expenses, partially offset by lower
volumes in the pharmaceutical distribution and retail pharmacy
businesses. On both a reported and FX-Adjusted basis, adjusted
operating margin was 0.56%, up 4 basis points.
Medical-Surgical Solutions Segment
- First-quarter revenues were $1.8 billion, down 5%, driven by
declines in primary care patient visits, partially offset by higher
volumes of personal protective equipment.
- First-quarter Segment Operating Profit was $89 million and
operating margin was 4.94%. Adjusted Segment Operating Profit was
$124 million, down 22%, driven by declines in primary care patient
visits. Adjusted operating margin was 6.89%, down from 8.36% in the
prior year.
Other remaining businesses
- First-quarter revenues were $2.6 billion, down 13% on a
reported basis and down 10% on an FX-Adjusted basis, driven by
lower pharmaceutical volumes in the Canadian business.
- First-quarter Segment Operating Profit was $98 million, down
30%. Adjusted Segment Operating Profit was $137 million, down 50%
on both a reported and FX-Adjusted basis, driven by the lapping of
the prior year contribution of $108 million from the company’s
investment in Change Healthcare and the negative impact of lower
prescription volume trends within the Canadian and MRxTS
businesses.
Company Updates
- On July 29, 2020, McKesson’s Board of Directors declared an
increase in the regular quarterly dividend to 42 cents per share of
common stock, demonstrating McKesson’s commitment to returning cash
to shareholders and confidence in its outlook.
- On July 1, 2020, McKesson announced the realignment of its
reportable segments commencing in the second quarter of fiscal
2021.
- McKesson appointed Tom Rodgers as Executive Vice President and
Chief Strategy and Business Development Officer effective June 5,
2020.
- For the fifth year in a row, McKesson was named a ‘Best Place
to Work’ for Disability Inclusion. McKesson earned a top-ranking
score of 100 on the 2020 Disability Equality Index® (DEI), a joint
initiative of the American Association of People with Disabilities
(AAPD) and Disability:IN.
Fiscal 2021 Outlook
McKesson raised fiscal 2021 Adjusted Earnings per diluted share
guidance to $14.70 to $15.50 from the previous range of $13.95 to
$14.75 to reflect earlier improvement in volumes relative to
original expectations. McKesson continues to expect Adjusted
Earnings per diluted share growth in the second half of fiscal
2021.
Conference Call Details
The company has scheduled a conference call for today, Monday,
August 3rd at 8:00 AM ET to discuss the company’s financial
results. A live audio webcast of the conference call will be
available on McKesson’s Investor Relations website at http://investor.mckesson.com. An archive of the
conference call will also be available on the company’s Investor
Relations website at http://investor.mckesson.com.
Upcoming Investor Events
McKesson management will be participating in the following
investor conferences:
- Baird Global Healthcare Conference, September 9, 2020
- Morgan Stanley 18th Annual Global Healthcare Conference,
September 15, 2020
Webcasts will be available live and archived on the company’s
Investor Relations website at http://investor.mckesson.com. A complete listing
of upcoming events for the investment community, including details
and updates, will be available on the company’s Investor Relations
website.
Non-GAAP Financial Measures
GAAP refers to the U.S. generally accepted accounting
principles. This press release includes GAAP financial measures as
well as Non-GAAP financial measures, including Adjusted Gross
Profit, Adjusted Operating Expenses, Adjusted Other Income,
Adjusted Equity Income from Change Healthcare, Adjusted Income from
Continuing Operations Before Income Taxes, Adjusted Income Tax
Expense, Adjusted Earnings, Adjusted Earnings per Diluted Share,
Adjusted Segment Operating Profit, Adjusted Corporate Expenses,
Adjusted Operating Profit, FX-Adjusted results and Free Cash Flow
which are financial measures not calculated in accordance with
GAAP. Refer to the “Supplemental Non-GAAP Financial Information”
section of the accompanying financial statement tables for the
definitions and usefulness of the Company’s Non-GAAP financial
measures and the attached schedules for reconciliations of the
differences between the Non-GAAP financial measures and their most
directly comparable GAAP financial measures.
The Company does not provide forward-looking guidance on a GAAP
basis as McKesson is unable to provide a quantitative
reconciliation of this forward-looking Non-GAAP measure to the most
directly comparable forward-looking GAAP measure, without
unreasonable effort, because McKesson cannot reliably forecast LIFO
inventory-related adjustments, gains from antitrust legal
settlements, restructuring, impairment and related charges, and
other adjustments, which are difficult to predict and estimate.
These items are inherently uncertain and depend on various factors,
many of which are beyond the company’s control, and as such, any
associated estimate and its impact on GAAP performance could vary
materially.
Cautionary Statements
Except for historical information contained in this press
release, matters discussed may constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934,
that involve risks and uncertainties that could cause actual
results to differ materially from those in those statements. It is
not possible to identify all such risks and uncertainties. The
reader should not place undue reliance on forward-looking
statements, such as financial performance forecasts, which speak
only as of the date they are first made. Except to the extent
required by law, the company undertakes no obligation to publicly
update forward-looking statements. Forward-looking statements may
be identified by their use of terminology such as “believes”,
“expects”, “anticipates”, “may”, “will”, “should”, “seeks”,
“approximately”, “intends”, “plans”, “estimates” or the negative of
these words or other comparable terminology. The discussion of
financial trends, strategy, plans, assumptions or intentions may
also include forward-looking statements. We encourage investors to
read the important risk factors described in the company’s Form
10-K, Form 10-Q and Form 8-K reports filed with the Securities and
Exchange Commission.
These risk factors include, but are not limited to: we
experience costly and disruptive legal disputes, including
regarding our role in distributing controlled substances such as
opioids; we might experience losses not covered by insurance; we
might record significant charges from impairment to goodwill,
intangibles and other assets or investments; we may be unsuccessful
in retail pharmacy profitability; we might be harmed by large
customer purchase reductions, payment defaults or contract
non-renewal; our contracts with government entities involve future
funding and compliance risks; we might be harmed by changes in our
relationships or contracts with suppliers; we might be adversely
impacted by healthcare reform such as changes in pricing and
reimbursement models; we might be adversely impacted by changes or
disruptions in product supply and we have experienced and may
experience difficulties in sourcing products due to the effects of
the COVID-19 pandemic on supply chains; we might be adversely
impacted as a result of our distribution of generic
pharmaceuticals; we might be adversely impacted by an economic
slowdown (including the effects we have experienced from the
COVID-19 pandemic) or recession and by disruption in capital and
credit markets that might impede our access credit, increase our
borrowing costs and impair the financial soundness of our customers
and suppliers; we might be adversely impacted by fluctuations in
foreign currency exchange rates; we might be adversely impacted by
events outside of our control, such as widespread public health
issues (including the effects we have experienced from the COVID-19
pandemic), natural disasters, political events and other
catastrophic events.
About McKesson Corporation
McKesson Corporation is a global leader in healthcare supply
chain management solutions, retail pharmacy, community oncology and
specialty care, and healthcare information solutions. McKesson
partners with pharmaceutical manufacturers, providers, pharmacies,
governments and other organizations in healthcare to help provide
the right medicines, medical products and healthcare services to
the right patients at the right time, safely and cost-effectively.
United by our ICARE shared principles, our employees work every day
to innovate and deliver opportunities that make our customers and
partners more successful - all for the better health of patients.
McKesson has been named the “Most Admired
Company” in the healthcare wholesaler category by FORTUNE, a
“Best Place to Work” by the Human
Rights Campaign Foundation, and a top military-friendly company by Military Friendly.
For more information, visit www.mckesson.com.
Schedule
1
McKESSON CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS - GAAP
(unaudited)
(in millions, except per share
amounts)
Three Months Ended June
30,
2020
2019
Change
Revenues
$
55,679
$
55,728
—
%
Cost of sales
(52,979
)
(52,941
)
—
Gross profit
2,700
2,787
(3
)
Operating expenses
(1,966
)
(2,130
)
(8
)
Restructuring, impairment and related
charges
(56
)
(23
)
143
Total operating expenses
(2,022
)
(2,153
)
(6
)
Operating income
678
634
7
Other income, net
27
37
(27
)
Equity earnings and charges from
investment in Change Healthcare Joint Venture
—
4
(100
)
Interest expense
(60
)
(56
)
7
Income from continuing operations before
income taxes
645
619
4
Income tax expense
(150
)
(136
)
10
Income from continuing operations
495
483
2
Loss from discontinued operations, net of
tax
(1
)
(6
)
(83
)
Net income
494
477
4
Net income attributable to noncontrolling
interests
(50
)
(54
)
(7
)
Net income attributable to McKesson
Corporation
$
444
$
423
5
%
Earnings (loss) per common share
attributable to McKesson Corporation (a)
Diluted
Continuing operations
$
2.72
$
2.27
20
%
Discontinued operations
—
(0.03
)
(100
)
Total
$
2.72
$
2.24
21
%
Basic
Continuing operations
$
2.74
$
2.28
20
%
Discontinued operations
—
(0.03
)
(100
)
Total
$
2.74
$
2.25
22
%
Dividends declared per common share
$
0.41
$
0.39
Weighted-average common shares
outstanding
Diluted
163
189
(14
)%
Basic
162
188
(14
)
(a)
Certain computations may reflect rounding
adjustments.
Refer to our applicable filings with the SEC for additional
disclosures including our Quarterly Reports on Form 10-Q for fiscal
2021 and 2020 as well as our Annual Report on Form 10-K for fiscal
2020.
Schedule
2
McKESSON CORPORATION
RECONCILIATION OF GAAP
OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)
(unaudited)
(in millions, except per share
amounts)
Three Months Ended June 30,
2020
Change vs. Prior
Quarter
As reported (GAAP)
Amortization of acquisition-
related intangibles
Transaction- related expenses and
adjustments
LIFO inventory- related
adjustments
Gains from antitrust legal
settlements
Restructuring, impairment and
related charges, net
Other adjustments, net
As adjusted (Non-GAAP)
As reported (GAAP)
As adjusted (Non-GAAP)
Gross profit
$
2,700
$
—
$
—
$
(52
)
$
—
$
1
$
—
$
2,649
(3
)%
(4
)%
Total operating expenses (1) (2)
$
(2,022
)
$
106
$
16
$
—
$
—
$
56
$
(125
)
$
(1,969
)
(6
)%
(2
)%
Other income, net
$
27
$
—
$
—
$
—
$
—
$
—
$
—
$
27
(27
)%
(51
)%
Equity earnings and charges from
investment in Change Healthcare Joint Venture
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
(100
)%
(100
)%
Income from continuing operations before
income taxes
$
645
$
106
$
16
$
(52
)
$
—
$
57
$
(125
)
$
647
4
%
(26
)%
Income tax expense
$
(150
)
$
(23
)
$
(4
)
$
14
$
—
$
(12
)
$
31
$
(144
)
10
%
(27
)%
Income from continuing operations, net of
tax, attributable to McKesson Corporation (a)
$
445
$
83
$
12
$
(38
)
$
—
$
45
$
(94
)
$
453
4
%
(28
)%
Earnings per diluted common share from
continuing operations, net of tax, attributable to McKesson
Corporation (b)
$
2.72
$
0.51
$
0.08
$
(0.24
)
$
—
$
0.27
$
(0.57
)
$
2.77
(c)
20
%
(16
)%
Diluted weighted average common shares
163
163
163
163
163
163
163
163
(14
)%
(14
)%
Three Months Ended June 30,
2019
As reported (GAAP)
Amortization of acquisition-
related intangibles
Transaction- related expenses and
adjustments
LIFO inventory- related
adjustments
Gains from antitrust legal
settlements
Restructuring, impairment and
related charges, net
Other adjustments, net
As adjusted (Non-GAAP)
Gross profit
$
2,787
$
—
$
—
$
(15
)
$
—
$
(3
)
$
—
$
2,769
Total operating expenses
$
(2,153
)
$
112
$
17
$
—
$
—
$
23
$
2
$
(1,999
)
Other income, net (3)
$
37
$
—
$
—
$
—
$
—
$
—
$
18
$
55
Equity earnings and charges from
investment in Change Healthcare Joint Venture (4)
$
4
$
77
$
27
$
—
$
—
$
—
$
—
$
108
Income from continuing operations before
income taxes
$
619
$
189
$
44
$
(15
)
$
—
$
20
$
20
$
877
Income tax expense
$
(136
)
$
(45
)
$
(11
)
$
4
$
—
$
(5
)
$
(5
)
$
(198
)
Income from continuing operations, net of
tax, attributable to McKesson Corporation (a)
$
429
$
144
$
33
$
(11
)
$
—
$
15
$
15
$
625
Earnings per diluted common share from
continuing operations, net of tax, attributable to McKesson
Corporation (b)
$
2.27
$
0.76
$
0.18
$
(0.06
)
$
—
$
0.08
$
0.08
$
3.31
Diluted weighted average common shares
189
189
189
189
189
189
189
189
(a)
Calculated as "Net income
attributable to McKesson Corporation" less "Loss from discontinued
operations, net of tax" as presented in the Condensed Consolidated
Statements of Operations - GAAP.
(b)
Certain computations may reflect
rounding adjustments.
(c)
Adjusted Earnings per Diluted
Share on an FX-Adjusted basis for the three months ended June 30,
2020 was $2.78, which excludes the foreign currency exchange effect
of $0.01.
Refer to the section entitled "Financial Statement Notes" of this
release.
For more information relating to the
Adjusted Gross Profit (Non-GAAP), Adjusted Operating Expenses
(Non-GAAP), Adjusted Other Income (Non-GAAP), Adjusted Equity
Income from Change Healthcare (Non-GAAP), Adjusted Income from
Continuing Operations Before Income Taxes (Non-GAAP), Adjusted
Income Tax Expense (Non-GAAP), Adjusted Earnings (Non-GAAP),
Adjusted Earnings per Diluted Share (Non-GAAP), and FX-Adjusted
(Non-GAAP) definitions, refer to the section entitled “Supplemental
Non-GAAP Financial Information” of this release.
Schedule
3
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT
OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)
(unaudited)
(in millions)
Three Months Ended June
30,
2020
2019
As reported
As adjusted
Change
As reported (GAAP)
Adjustments
As adjusted (Non- GAAP)
As reported (GAAP)
Adjustments
As adjusted (Non GAAP)
Foreign currency effects
FX- Adjusted (Non- GAAP)
Foreign currency effects
FX- Adjusted (Non- GAAP)
As reported (GAAP)
As adjusted (Non- GAAP)
As reported FX-Adjusted
(Non-GAAP)
As adjusted FX-Adjusted
(Non-GAAP)
REVENUES U.S. Pharmaceutical and Specialty Solutions $
45,062
$
—
$
45,062
$
44,165
$
—
$
44,165
$
—
$
45,062
$
—
$
45,062
2
%
2
%
2
%
2
%
European Pharmaceutical Solutions
6,246
—
6,246
6,710
—
6,710
184
6,430
184
6,430
(7
)
(7
)
(4
)
(4
)
Medical-Surgical Solutions
1,801
—
1,801
1,903
—
1,903
—
1,801
—
1,801
(5
)
(5
)
(5
)
(5
)
Other (a)
2,570
—
2,570
2,950
—
2,950
80
2,650
80
2,650
(13
)
(13
)
(10
)
(10
)
Revenues $
55,679
$
—
$
55,679
$
55,728
$
—
$
55,728
$
264
$
55,943
$
264
$
55,943
—
%
—
%
—
%
—
%
OPERATING PROFIT (LOSS) (2) U.S. Pharmaceutical and
Specialty Solutions $
608
$
(19
)
$
589
$
579
$
21
$
600
$
—
$
608
$
—
$
589
5
%
(2
)%
5
%
(2
)%
European Pharmaceutical Solutions
(10
)
45
35
5
30
35
(1
)
(11
)
1
36
(300
)
—
(320
)
3
Medical-Surgical Solutions
89
35
124
125
34
159
—
89
—
124
(29
)
(22
)
(29
)
(22
)
Other (a) (4)
98
39
137
141
135
276
2
100
—
137
(30
)
(50
)
(29
)
(50
)
Subtotal
785
100
885
850
220
1,070
1
786
1
886
(8
)
(17
)
(8
)
(17
)
Corporate expenses, net (1) (3)
(80
)
(98
)
(178
)
(175
)
38
(137
)
(1
)
(81
)
—
(178
)
(54
)
30
(54
)
30
Income from continuing operations before interest expense and
income taxes $
705
$
2
$
707
$
675
$
258
$
933
$
—
$
705
$
1
$
708
4
%
(24
)%
4
%
(24
)%
OPERATING PROFIT (LOSS) AS A % OF REVENUES U.S.
Pharmaceutical and Specialty Solutions
1.35
%
1.31
%
1.31
%
1.36
%
1.35
%
1.31
%
4
bp
(5
)
bp
4
bp
(5
)
bp
European Pharmaceutical Solutions
(0.16
)
0.56
0.07
0.52
(0.17
)
0.56
(23
)
4
(24
)
4
Medical-Surgical Solutions
4.94
6.89
6.57
8.36
4.94
6.89
(163
)
(147
)
(163
)
(147
)
(a)
Other primarily includes the results of
our McKesson Canada and McKesson Prescription Technology Solutions
businesses. Operating profit (loss) for Other for the three months
ended June 30, 2019 also includes equity earnings and charges from
investment in Change Healthcare Joint Venture. We completed the
separation from our investment in Change Healthcare Joint Venture
during the fourth quarter of fiscal 2020.
Refer to the section entitled "Financial Statement Notes" of this
release. For more information relating to the Adjusted Segment
Operating Profit (Non-GAAP), Adjusted Operating Profit (Non-GAAP),
Adjusted Corporate Expenses (Non-GAAP), and FX-Adjusted (Non-GAAP)
definitions, refer to the section entitled “Supplemental Non-GAAP
Financial Information” of this release.
Schedule
4
McKESSON CORPORATION
CONDENSED CONSOLIDATED BALANCE
SHEETS
(unaudited)
(in millions, except per share
amounts)
June 30, 2020
March 31, 2020
ASSETS
Current assets
Cash and cash equivalents
$
2,613
$
4,015
Receivables, net
17,768
19,950
Inventories, net
16,607
16,734
Assets held for sale
844
906
Prepaid expenses and other
850
617
Total current assets
38,682
42,222
Property, plant and equipment, net
2,392
2,365
Operating lease right-of-use assets
1,857
1,886
Goodwill
9,419
9,360
Intangible assets, net
3,090
3,156
Other non-current assets
2,226
2,258
Total assets
$
57,666
$
61,247
LIABILITIES, REDEEMABLE NONCONTROLLING
INTERESTS AND EQUITY
Current liabilities
Drafts and accounts payable
$
33,209
$
37,195
Current portion of long-term debt
1,053
1,052
Current portion of operating lease
liabilities
358
354
Liabilities held for sale
509
683
Other accrued liabilities
3,471
3,340
Total current liabilities
38,600
42,624
Long-term debt
6,395
6,335
Long-term deferred tax liabilities
2,274
2,255
Long-term operating lease liabilities
1,627
1,660
Other non-current liabilities
1,703
1,662
Redeemable noncontrolling interests
1,414
1,402
McKesson Corporation stockholders’
equity
Preferred stock, $0.01 par value, 100
shares authorized, no shares issued or outstanding
—
—
Common stock, $0.01 par value, 800 shares
authorized at June 30, 2020 and March 31, 2020, and 272 shares
issued at June 30, 2020 and March 31, 2020
2
2
Additional paid-in capital
6,711
6,663
Retained earnings
13,384
13,022
Accumulated other comprehensive loss
(1,735)
(1,703)
Treasury shares, at cost, and 110 shares
at June 30, 2020 and March 31, 2020
(12,916)
(12,892)
Total McKesson Corporation stockholders’
equity
5,446
5,092
Noncontrolling interests
207
217
Total equity
5,653
5,309
Total liabilities, redeemable
noncontrolling interests and equity
$
57,666
$
61,247
Schedule
5
McKESSON CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
Three Months Ended June
30,
2020
2019
OPERATING ACTIVITIES
Net income
$
494
$
477
Adjustments to reconcile to net cash used
in operating activities:
Depreciation
75
82
Amortization
142
147
Goodwill and other asset impairment
charges
5
5
Equity earnings and charges from
investment in Change Healthcare Joint Venture
—
(4
)
Deferred taxes
28
16
Credits associated with last-in, first-out
inventory method
(52
)
(15
)
Non-cash operating lease expense
83
98
Loss from sales of businesses and
investments
2
—
Other non-cash items
9
23
Changes in assets and liabilities, net of
acquisitions:
Receivables
2,291
(1,061
)
Inventories
238
145
Drafts and accounts payable
(4,214
)
127
Operating lease liabilities
(89
)
(99
)
Taxes
76
82
Other
(150
)
(74
)
Net cash used in operating activities
(1,062
)
(51
)
INVESTING ACTIVITIES
Payments for property, plant and
equipment
(72
)
(87
)
Capitalized software expenditures
(45
)
(24
)
Acquisitions, net of cash, cash
equivalents and restricted cash acquired
(4
)
(46
)
Proceeds from sales of businesses and
investments, net
7
1
Other
(16
)
27
Net cash used in investing activities
(130
)
(129
)
FINANCING ACTIVITIES
Proceeds from short-term borrowings
5,303
2,610
Repayments of short-term borrowings
(5,303
)
(2,610
)
Repayments of long-term debt
(2
)
(2
)
Common stock transactions:
Issuances
21
22
Share repurchases, including shares
surrendered for tax withholding
(24
)
(701
)
Dividends paid
(74
)
(75
)
Other
140
(116
)
Net cash provided by (used in) financing
activities
61
(872
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(28
)
18
Net decrease in cash, cash equivalents and
restricted cash
(1,159
)
(1,034
)
Cash, cash equivalents and restricted cash
at beginning of period
4,023
2,981
Cash, cash equivalents and restricted cash
at end of period
2,864
1,947
Less: Restricted cash at end of period
included in Prepaid expenses and other
(251
)
—
Cash and cash equivalents at end of
period
$
2,613
$
1,947
Schedule
6
McKESSON CORPORATION
RECONCILIATION OF GAAP CASH
FLOW TO FREE CASH FLOW (NON-GAAP)
(unaudited)
(in millions)
Three Months Ended June
30,
2020
2019
Change
GAAP CASH FLOW CATEGORIES
Net cash used in operating activities
$
(1,062
)
$
(51
)
NM
Net cash used in investing activities
(130
)
(129
)
1
%
Net cash provided by (used in) financing
activities
61
(872
)
107
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(28
)
18
(256
)
Net decrease in cash, cash equivalents and
restricted cash
$
(1,159
)
$
(1,034
)
12
FREE CASH FLOW (NON-GAAP)
Net cash used in operating activities
$
(1,062
)
$
(51
)
NM
Payments for property, plant and
equipment
(72
)
(87
)
(17
)%
Capitalized software expenditures
(45
)
(24
)
88
Free Cash Flow (Non-GAAP)
$
(1,179
)
$
(162
)
628
NM Computation not meaningful
For more information relating to the Free
Cash Flow (Non-GAAP) definition, refer to the section entitled
“Supplemental Non-GAAP Financial Information” of this release.
McKESSON CORPORATION
FINANCIAL STATEMENT
NOTES
(1)
Total operating expenses for the three
months ended June 30, 2020 includes a pre-tax net gain of $131
million ($97 million after-tax) related to insurance proceeds
received, net of attorneys' fees and expenses awarded to
plaintiffs' counsel, in connection with the $175 million settlement
of the shareholder derivative action related to our controlled
substances monitoring program, within Corporate Expenses, Net. This
gain is included under "Other Adjustments, Net" in the
reconciliation of McKesson's GAAP operating results to adjusted
results (Non-GAAP) provided in Schedule 2 of the accompanying
financial statement tables.
(2)
Total operating expenses for the three
months ended June 30, 2020 includes pre-tax restructuring,
impairment and related charges of $56 million ($44 million
after-tax), primarily for Corporate Expenses, Net as well as our
Europe and Canada businesses. The three months ended March 31, 2019
includes pre-tax restructuring, impairment and related charges of
$23 million ($17 million after-tax), primarily for our Canada and
the United Kingdom retail businesses as well as Corporate Expenses,
Net. These charges are included in the reconciliation of McKesson's
GAAP operating results to adjusted results (Non-GAAP) provided in
Schedule 2 of the accompanying financial statement tables.
(3)
Other income, net for the three months
ended June 30, 2019 primarily includes pre-tax charges of $17
million ($12 million after-tax) representing settlement charges
related to our frozen U.S. defined benefit pension plan, within
Corporate Expenses, Net. This charge is included under "Other
Adjustments, Net" in the reconciliation of McKesson's GAAP
operating results to adjusted results (Non-GAAP) provided in
Schedule 2 of the accompanying financial statement tables.
(4)
Equity earnings and charges from
investment in Change Healthcare Joint Venture includes our
proportionate share of loss from investment in Change Healthcare
Joint Venture within Other. Such amount includes the amortization
of equity investment intangibles and other acquired intangibles of
$77 million for the three months ended June 30, 2019. This charge
is included under "Amortization of Acquisition-Related Intangibles"
in the reconciliation of McKesson's GAAP operating results to
adjusted results (Non-GAAP) provided in Schedule 2 of the
accompanying financial statement tables.
McKESSON CORPORATION
SUPPLEMENTAL NON-GAAP
FINANCIAL INFORMATION
In an effort to provide investors with
additional information regarding the Company's financial results as
determined by generally accepted accounting principles ("GAAP"),
McKesson Corporation (the "Company" or "we") also presents the
following Non-GAAP measures in this press release.
- Adjusted Gross Profit (Non-GAAP): We define Adjusted
Gross Profit as GAAP gross profit, excluding transaction-related
expenses and adjustments, last-in, first-out (“LIFO”)
inventory-related adjustments, gains from antitrust legal
settlements, restructuring, impairment and related charges, and
other adjustments.
- Adjusted Operating Expenses (Non-GAAP): We define
Adjusted Operating Expenses as GAAP total operating expenses,
excluding amortization of acquisition-related intangibles,
transaction-related expenses and adjustments, restructuring,
impairment and related charges, and other adjustments.
- Adjusted Other Income (Non-GAAP): We define Adjusted
Other Income as GAAP other income, net, excluding amortization of
acquisition-related intangibles, transaction-related expenses and
adjustments, and other adjustments.
- Adjusted Equity Income from Change Healthcare
(Non-GAAP): We define Adjusted Equity Income from Change
Healthcare as GAAP equity earnings and charges from investment in
Change Healthcare Joint Venture, excluding amortization of
acquisition-related intangibles, transaction-related expenses and
adjustments, and other adjustments. We completed the separation
from our investment in Change Healthcare Joint Venture during the
fourth quarter of fiscal 2020.
- Adjusted Income from Continuing Operations Before Income
Taxes (Non-GAAP): We define Adjusted Income from Continuing
Operations Before Income Taxes as GAAP income from continuing
operations before income taxes, excluding amortization of
acquisition-related intangibles, transaction-related expenses and
adjustments, LIFO inventory-related adjustments, gains from
antitrust legal settlements, restructuring, impairment and related
charges, and other adjustments.
- Adjusted Income Tax Expense (Non-GAAP): We define
Adjusted Income Tax Expense as GAAP income tax expense, excluding
the income tax effects of amortization of acquisition-related
intangibles, transaction-related expenses and adjustments, LIFO
inventory-related adjustments, gains from antitrust legal
settlements, restructuring, impairment and related charges, and
other adjustments. Income tax effects are calculated in accordance
with Accounting Standards Codification ("ASC") 740, “Income Taxes,”
which is the same accounting principle used by the Company when
presenting its GAAP financial results.
- Adjusted Earnings (Non-GAAP): We define Adjusted
Earnings as GAAP income from continuing operations attributable to
McKesson, excluding amortization of acquisition-related
intangibles, transaction-related expenses and adjustments, LIFO
inventory-related adjustments, gains from antitrust legal
settlements, restructuring, impairment and related charges, other
adjustments as well as the related income tax effects for each of
these items, as applicable.
- Adjusted Earnings per Diluted Share (Non-GAAP): We
define Adjusted Earnings per Diluted Share as GAAP earnings per
diluted common share from continuing operations attributable to
McKesson, excluding per share impacts of amortization of
acquisition-related intangibles, transaction-related expenses and
adjustments, LIFO inventory-related adjustments, gains from
antitrust legal settlements, restructuring, impairment and related
charges, other adjustments as well as the related income tax
effects for each of these items, as applicable, divided by diluted
weighted-average shares outstanding. Adjusted Earnings per Diluted
Share was not previously adjusted for the effect of potentially
dilutive securities issued by the Change Healthcare Joint
Venture.
- Adjusted Segment Operating Profit (Non-GAAP): We define
Adjusted Segment Operating Profit as GAAP segment operating profit,
excluding amortization of acquisition-related intangibles,
transaction-related expenses and adjustments, LIFO
inventory-related adjustments, gains from antitrust legal
settlements, restructuring, impairment and related charges, and
other adjustments.
- Adjusted Corporate Expenses (Non-GAAP): We define
Adjusted Corporate Expenses as GAAP corporate expenses, net,
excluding transaction-related expenses and adjustments,
restructuring, impairment and related charges, and other
adjustments.
- Adjusted Operating Profit (Non-GAAP): We define Adjusted
Operating Profit as GAAP income from continuing operations before
interest expense and income taxes, excluding amortization of
acquisition-related intangibles, transaction-related expenses and
adjustments, LIFO inventory-related adjustments, gains from
antitrust legal settlements, restructuring, impairment and related
charges, and other adjustments. The following provides further
details regarding the adjustments made to our GAAP financial
results to arrive at our Non-GAAP measures as defined above:
Amortization of acquisition-related
intangibles - Amortization expenses of intangible assets
directly related to business combinations and the formation of
joint ventures. Transaction-related expenses
and adjustments - Transaction, integration and other
expenses that are directly related to business combinations, the
formation of joint ventures, divestitures and other
transaction-related costs including initial public offering costs.
Examples include transaction closing costs, professional service
fees, legal fees, severance charges, retention payments and
employee relocation expenses, facility or other exit-related
expenses, certain fair value adjustments including deferred
revenues, contingent consideration and inventory, recoveries of
acquisition-related expenses or post-closing expenses, bridge loan
fees, and gains or losses on business combinations and divestitures
of businesses that do not qualify as discontinued operations.
LIFO inventory-related adjustments -
LIFO inventory-related non-cash expense or credit adjustments
Gains from antitrust legal settlements
- Net cash proceeds representing the Company’s share of antitrust
lawsuit settlements. Restructuring,
impairment and related charges - Restructuring charges that
are incurred for programs in which we change our operations, the
scope of a business undertaken by our business units, or the manner
in which that business is conducted as well as long-lived asset
impairments. Such charges may include employee severance, retention
bonuses, facility closure or consolidation costs, lease or contract
termination costs, asset impairments, accelerated depreciation and
amortization, and other related expenses. The restructuring
programs may be implemented due to the sale or discontinuation of a
product line, reorganization or management structure changes,
headcount rationalization, realignment of operations or products,
integration of acquired businesses, and/or company-wide cost saving
initiatives. The amount and/or frequency of these restructuring
charges are not part of our underlying business, which include
normal levels of reinvestment in the business. Any credit
adjustments due to subsequent changes in estimates are also
excluded from adjusted results. Other
adjustments - The Company evaluates the nature and
significance of transactions qualitatively and quantitatively on an
individual basis and may include them in the determination of our
adjusted results from time to time. While not all-inclusive, other
adjustments may include: adjustments to claim and litigation
reserves for estimated probable losses and settlements; other asset
impairments; gains or losses from debt extinguishment; and other
similar substantive and/or infrequent items as deemed appropriate.
The Company evaluates the aforementioned Non-GAAP measures on a
periodic basis and updates the definitions from time to time. The
evaluation considers both the quantitative and qualitative aspects
of the Company’s presentation of Non-GAAP adjusted results. A
reconciliation of McKesson’s GAAP financial results to Non-GAAP
financial results is provided in Schedules 2 and 3 of the financial
statement tables included with this release. Additionally, the
Company's investment in Change Healthcare Joint Venture's financial
results are adjusted for the above noted items, except for the
effect of potentially dilutive securities issued by the joint
venture on our adjusted results per diluted share.
- FX-Adjusted (Non-GAAP): McKesson also presents its GAAP
financial results and adjusted results (Non-GAAP) on an FX-Adjusted
basis. To present our financial results on an FX-Adjusted basis, we
convert current year period results of our operations in foreign
countries, which are recorded in local currencies, into U.S.
dollars by applying the average foreign currency exchange rates of
the comparable prior year period. To present Adjusted Earnings per
Diluted Share on an FX-Adjusted basis, we estimate the impact of
foreign currency rate fluctuations on the Company’s noncontrolling
interests and adjusted income tax expense, which may vary from
quarter to quarter. The supplemental FX-Adjusted information of the
Company’s GAAP financial results and adjusted results (Non-GAAP) is
provided in Schedule 3 of the financial statement tables included
with this release.
- Free Cash Flow (Non-GAAP): We define free cash flow as
net cash provided by (used in) operating activities less payments
for property, plant and equipment and capitalized software
expenditures, as disclosed in our condensed consolidated statements
of cash flows. A reconciliation of McKesson’s GAAP financial
results to Free Cash Flow (Non-GAAP) is provided in Schedule 6 of
the financial statement tables included with this release.
The Company believes the presentation of
Non-GAAP measures provides useful supplemental information to
investors with regard to its operating performance, as well as
assists with the comparison of its past financial performance to
the Company’s future financial results. Moreover, the Company
believes that the presentation of Non-GAAP measures assists
investors’ ability to compare its financial results to those of
other companies in the same industry. However, the Company's
Non-GAAP measures used in the press tables may be defined and
calculated differently by other companies in the same industry.
The Company internally uses both GAAP and
Non-GAAP financial measures in connection with its own financial
planning and reporting processes. Specifically, Adjusted Earnings
serves as one of the measures management utilizes when allocating
resources, deploying capital and assessing business performance and
employee incentive compensation. The Company conducts its
businesses internationally in local currencies, including Euro,
British pound sterling and Canadian dollars. As a result, the
comparability of our results reported in U.S. dollars can be
affected by changes in foreign currency exchange rates. We present
FX-Adjusted information to provide a framework for assessing how
our business performed excluding the estimated effect of foreign
currency exchange rate fluctuations. We believe free cash flow is
important to management and useful to investors as a supplemental
measure as it indicates the cash flow available for working capital
needs, re-investment opportunities, strategic acquisitions,
dividend payments or other strategic uses of cash. Nonetheless,
Non-GAAP adjusted results and related Non-GAAP measures disclosed
by the Company should not be considered a substitute for, nor
superior to, financial results and measures as determined or
calculated in accordance with GAAP.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200803005350/en/
Holly Weiss, 972-969-9174 (Investors) Holly.Weiss@McKesson.com David Matthews,
214-952-0833 (Media) David.Matthews@McKesson.com
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