McKesson Reports Fiscal 2020 First-Quarter Results

  • First-quarter fiscal 2020 revenues of $55.7 billion, an increase of 6%.
  • First-quarter GAAP earnings per diluted share from continuing operations of $2.27, up 429% year over year.
  • First-quarter Adjusted Earnings per diluted share of $3.31, up 14% year over year.
  • Raised fiscal 2020 Adjusted EPS guidance range to $14.00 to $14.60 from $13.85 to $14.45.
  • Board of Directors increased the quarterly dividend by 5% to 41 cents per share.

IRVING, Texas--()--McKesson Corporation (NYSE:MCK) today reported that revenues for the first quarter ended June 30, 2019, were $55.7 billion compared to $52.6 billion a year ago, an increase of 6% on a reported basis and an increase of 7% on an FX-adjusted basis.

On the basis of U.S. generally accepted accounting principles (“GAAP”), first-quarter earnings per diluted share from continuing operations was $2.27, compared to a loss per diluted share of $(0.69) a year ago.

First-quarter Adjusted Earnings per diluted share was $3.31, an increase of 14% compared to $2.90 a year ago, primarily driven by growth in the U.S. Pharmaceutical and Specialty Solutions segment and a lower share count, partially offset by a higher tax rate.

McKesson is off to a strong start in fiscal 2020, and our first-quarter earnings performance exceeded our expectations,” said Brian Tyler, chief executive officer. “Based on the momentum from our first-quarter results and our confidence in the full year outlook, we are raising our previous guidance range for fiscal 2020 and now expect Adjusted Earnings per diluted share of $14.00 to $14.60.”

For the first quarter, McKesson used cash from operations of $51 million, and invested $111 million internally, resulting in negative free cash flow of $162 million. During the quarter, McKesson paid $46 million for acquisitions, and returned $759 million of cash to shareholders via $684 million of common stock repurchases and $75 million of dividend payments. The Board of Directors also approved a 5% increase in the quarterly dividend to $0.41 per share. The company ended the quarter with cash and cash equivalents of $1.9 billion.

U.S. Pharmaceutical and Specialty Solutions Segment

  • First-quarter revenues were $44.2 billion, up 8%, driven primarily by market growth, partially offset by branded to generic conversions. GAAP operating profit was $579 million and GAAP operating margin was 1.31%. Adjusted operating profit was $600 million, up 11%, and adjusted operating margin was 1.36%.

European Pharmaceutical Solutions Segment

  • First-quarter revenues were $6.7 billion, down 3% on a reported basis and up 3% on an FX-adjusted basis, driven primarily by market growth in the pharmaceutical distribution business. GAAP operating profit was $5 million and GAAP operating margin was 0.07%. Adjusted operating profit was $35 million, down 53%, and adjusted operating margin was 0.52%. On an FX-adjusted basis, adjusted operating profit was $37 million, down 50%, and adjusted operating margin was 0.52%, driven by the weak retail pharmacy environment in the U.K.

Medical-Surgical Solutions Segment

  • First-quarter revenues were $1.9 billion, up 12%, driven by an acquisition and growth in the Primary Care and Extended Care businesses. The aforementioned acquisition closed in the prior fiscal year on June 1, 2018, and has now been fully lapped. GAAP operating profit was $125 million and GAAP operating margin was 6.57%. Adjusted operating profit was $159 million, up 27%, and adjusted operating margin was 8.36%.

Other remaining businesses (primarily including McKesson Canada, McKesson Prescription Technology Solutions (MRxTS) and the equity method investment in the Change Healthcare Joint Venture (Change Healthcare))

  • First-quarter revenues were $3.0 billion, down 1% on a reported basis and up 2% on an FX-adjusted basis, driven primarily by growth in our MRxTS business. GAAP operating profit was $141 million and adjusted operating profit was $276 million, up 30%. On an FX-adjusted basis, adjusted operating profit was $279 million, up 31%.

Company Updates

  • Change Healthcare, Inc., a leading independent healthcare technology company, began trading on the Nasdaq Global Select Market under the trading symbol “CHNG” on June 27, 2019.
  • For the fourth 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 2019 Disability Equality Index® (DEI), a joint initiative of the American Association of People with Disabilities (AAPD) and Disability:IN.
  • Dr. Ken Washington joined McKesson’s Board of Directors as a new independent director effective July 1, 2019.

Fiscal 2020 Outlook and Change Healthcare Update

McKesson raised fiscal 2020 Adjusted Earnings per diluted share guidance to $14.00 - $14.60 from a range of $13.85 - $14.45.

Following the completion of the Change Healthcare, Inc. IPO, McKesson owns approximately 58.5% of Change Healthcare, reduced from 70%. McKesson will continue to report the equity income from its interest in Change Healthcare based on its revised equity ownership percentage and with a one-month lag.

McKesson reaffirmed the guidance range for adjusted equity earnings from Change Healthcare of approximately $250 million to $270 million in fiscal 2020. This range reflects McKesson’s revised equity ownership, and includes the expected benefit of lower interest expense for Change Healthcare driven by its repayment of long-term debt.

Dividend Declaration

The company’s Board of Directors yesterday declared a 5% increase in the regular quarterly dividend to 41 cents per share of common stock. The dividend will be payable on October 1, 2019, to stockholders of record on September 3, 2019.

Conference Call Details

The company has scheduled a conference call for today, Wednesday, July 31st, at 5:00 PM ET to discuss the company’s financial performance. A live audio webcast of the conference call will be available on McKesson’s Investor Relations website at http://investor.mckesson.com. The conference call can also be accessed by dialing 323-994-2093. The password is ‘McKesson’. A telephonic replay of this conference call will be available for five calendar days. For individuals wishing to listen to the replay, the dial-in number is 719-457-0820 and the pass code is 5579684. 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 conference:

  • Morgan Stanley 17th Annual Global Healthcare Conference, September 9-11, 2019, in New York, New York.

Audio 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 is available on the company’s Investor Relations website.

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, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring and asset impairment charges, and other adjustments. A reconciliation of McKesson’s GAAP financial results to Adjusted Earnings is provided in Schedules 2 and 3 of the financial statement tables included with this release.

The company does not provide forward-looking guidance on a GAAP basis prospectively 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 and asset impairment 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.

FX-Adjusted

McKesson also presents its financial results on an FX-adjusted 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. FX-adjusted 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 FX-adjusted 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.

Free Cash Flow

McKesson also provides free cash flow, a non-GAAP measure. Free cash flow is defined as net cash provided by operating activities less payments for property, plant and equipment and capitalized software expenditures, as outlined in the company’s condensed consolidated statements of cash flows.

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. 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 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. It is not possible to predict or identify all such risks and uncertainties. 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: 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 results of operations impacted by the Change Healthcare joint venture; the company’s ability to manage and complete divestitures and distributions; 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 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; changes in circumstances that could impair our goodwill, intangible and other long-lived assets or investments; 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.

About McKesson Corporation

McKesson Corporation, currently ranked 7th on the FORTUNE 500, is a global leader in healthcare supply chain management solutions, retail pharmacy, healthcare technology, community oncology and specialty care. McKesson partners with life sciences companies, manufacturers, providers, pharmacies, governments and other healthcare organizations 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 to improve patient care in every setting — one product, one partner, one patient at a time. McKesson has been named a “Most Admired Company” in the healthcare wholesaler category by FORTUNE, a “Best Place to Work” by the Human Rights Campaign Foundation, and a top military-friendly company by Military Friendly. For more information, visit www.mckesson.com.

Schedule 1
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - GAAP
(unaudited)
(in millions, except per share amounts)
 
Quarter Ended June 30,

2019

2018

Change

 
Revenues

$

 

55,728

 

$

 

52,607

 

6

 

%

Cost of sales

(52,941

)

(49,828

)

6

 

Gross profit

2,787

 

2,779

 

-

 

Operating expenses

(2,130

)

(2,127

)

-

 

Goodwill impairment charges (1)

-

 

(570

)

(100

)

Restructuring and asset impairment charges (2)

(23

)

(96

)

(76

)

Gain from escrow settlement (3)

-

 

97

 

(100

)

Total operating expenses

(2,153

)

(2,696

)

(20

)

Operating income

634

 

83

 

664

 

Other income, net (4)

37

 

40

 

(8

)

Income (loss) from equity method investment in Change Healthcare Joint Venture (5)

4

 

(56

)

107

 

Interest expense

(56

)

(61

)

(8

)

Income from continuing operations before income taxes

619

 

6

 

NM

 

Income tax expense

(136

)

(87

)

56

 

Income (loss) from continuing operations after tax

483

 

(81

)

696

 

Income (loss) from discontinued operations, net of tax

(6

)

1

 

(700

)

Net income (loss)

477

 

(80

)

696

 

Net income attributable to noncontrolling interests

(54

)

(58

)

(7

)

Net income (loss) attributable to McKesson Corporation

$

 

423

 

$

 

(138

)

407

 

%

 
 
Earnings (loss) per common share attributable to McKesson Corporation (a)
Diluted (b)
Continuing operations

$

 

2.27

 

$

 

(0.69

)

429

 

%

Discontinued operations

(0.03

)

0.01

 

(400

)

Total

$

 

2.24

 

$

 

(0.68

)

429

 

%

 
 
Basic
Continuing operations

$

 

2.28

 

$

 

(0.69

)

430

 

%

Discontinued operations

(0.03

)

0.01

 

(400

)

Total

$

 

2.25

 

$

 

(0.68

)

431

 

%

 
Dividends declared per common share

$

 

0.39

 

$

 

0.34

 

 
Weighted average common shares (b)
Diluted

189

 

202

 

(6

)

%

Basic

188

 

202

 

(7

)

(a)

Certain computations may reflect rounding adjustments.

(b)

Net loss per diluted share for fiscal 2019 is calculated by excluding dilutive securities from the denominator due to their antidilutive effects.

NM

Computation not meaningful.
 
Refer to the section entitled "Financial Statement Notes" of this release.
 
Refer to our applicable filings with the SEC for additional disclosures including our Quarterly Reports on Form 10-Q for fiscal 2020 and 2019 as well as our Annual Report on Form 10-K for fiscal 2019.

Schedule 2

McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions, except per share amounts)
 
Change
Quarter Ended June 30, 2019 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
and Asset
Impairment
Charges, Net
Other
Adjustments,
Net
Adjusted
Earnings
(Non-GAAP)
As Reported
(GAAP)
Adjusted
Earnings
(Non-GAAP)
 
Gross profit

$

2,787

 

$

-

 

$

-

 

$

(15

)

$

-

 

$

(3

)

$

-

 

$

2,769

 

-

 

%

2

 

%

 
Operating expenses (2)

$

(2,153

)

$

112

 

$

17

 

$

-

 

$

-

 

$

23

 

$

2

 

$

(1,999

)

(20

)

%

1

 

%

 
Other income, net (4)

$

37

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

18

 

$

55

 

(8

)

%

34

 

%

 
Income from equity method investment in Change Healthcare Joint Venture (5)

$

4

 

$

77

 

$

27

 

$

-

 

$

-

 

$

-

 

$

-

 

$

108

 

107

 

%

69

 

%

 
Income from continuing operations before income taxes

$

619

 

$

189

 

$

44

 

$

(15

)

$

-

 

$

20

 

$

20

 

$

877

 

NM

 

10

 

%

 
Income tax expense

$

(136

)

$

(45

)

$

(11

)

$

4

 

$

-

 

$

(5

)

$

(5

)

$

(198

)

56

 

%

33

 

%

 
Income from continuing operations, net of tax, attributable to McKesson Corporation

$

429

 

$

144

 

$

33

 

$

(11

)

$

-

 

$

15

 

$

15

 

$

625

 

409

 

%

6

 

%

 
Earnings per diluted common share from continuing operations, net of tax, attributable to McKesson Corporation (a)

$

2.27

 

$

0.76

 

$

0.18

 

$

(0.06

)

$

-

 

$

0.08

 

$

0.08

 

$

3.31

 

(c)

429

 

%

14

 

%

 
Diluted weighted average common shares

 

189

 

 

189

 

 

189

 

 

189

 

 

189

 

 

189

 

 

189

 

 

189

 

(6

)

%

(7

)

%

 
 
Quarter Ended June 30, 2018
As Reported
(GAAP)
Amortization
of Acquisition-
Related
Intangibles
Transaction-
Related
Expenses and
Adjustments
LIFO Inventory-
Related
Adjustments
Gains from
Antitrust Legal
Settlements
Restructuring
and Asset
Impairment
Charges, Net
Other
Adjustments,
Net
Adjusted
Earnings
(Non-GAAP)
 
Gross profit

$

2,779

 

$

-

 

$

1

 

$

(21

)

$

(35

)

$

-

 

$

-

 

$

2,724

 

 
Operating expenses (1) (2) (3)

$

(2,696

)

$

121

 

$

20

 

$

-

 

$

-

 

$

96

 

$

487

 

$

(1,972

)

 
Other income, net

$

40

 

$

1

 

$

-

 

$

-

 

$

-

 

$

-

 

$

-

 

$

41

 

 
Income (loss) from equity method investment in Change Healthcare Joint Venture (5)

$

(56

)

$

77

 

$

40

 

$

-

 

$

-

 

$

-

 

$

3

 

$

64

 

 
Income from continuing operations before income taxes

$

6

 

$

199

 

$

61

 

$

(21

)

$

(35

)

$

96

 

$

490

 

$

796

 

 
Income tax expense

$

(87

)

$

(50

)

$

(16

)

$

6

 

$

9

 

$

(11

)

$

-

 

$

(149

)

 
Income (loss) from continuing operations, net of tax, attributable to McKesson Corporation

$

(139

)

$

149

 

$

45

 

$

(15

)

$

(26

)

$

85

 

$

490

 

$

589

 

 
Earnings (loss) per diluted common share from continuing operations, net of tax, attributable to McKesson Corporation (a) (b)

$

(0.69

)

$

0.74

 

$

0.22

 

$

(0.07

)

$

(0.13

)

$

0.42

 

$

2.41

 

$

2.90

 

 
Diluted weighted average common shares (b)

 

202

 

 

203

 

 

203

 

 

203

 

 

203

 

 

203

 

 

203

 

 

203

 

(a)

Certain computations may reflect rounding adjustments.

(b)

We calculate GAAP net loss per diluted share for fiscal 2019 using a weighted average of 202 million common shares, which excludes dilutive securities from the denominator due to their antidilutive effect when calculating a net loss per diluted share. We calculate Adjusted Earnings per diluted share (Non-GAAP) for fiscal 2019 on a fully diluted basis, using a weighted average of 203 million common shares. Because we show the GAAP to Non-GAAP per share reconciling items on a fully-diluted basis, any cross-footing differences in those items are due to different weighted average share counts.

(c)

Adjusted Earnings per share on an FX-Adjusted basis for fiscal 2020 was $3.33 per diluted share, which excludes the foreign currency exchange effect of $0.02 per diluted share.
 
NM Computation not meaningful.
 
Refer to the section entitled "Financial Statement Notes" of this release.
 
For more information relating to the Adjusted Earnings (Non-GAAP) and 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 FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
(unaudited)
(in millions)
 
Quarter Ended June 30, 2019 Quarter Ended June 30, 2018 GAAP Non-GAAP Change
Adjusted
Earnings
(Non-GAAP)
Adjusted
Earnings
(Non-GAAP)
Foreign
Currency
Effects
FX-Adjusted Foreign
Currency Effects
FX-Adjusted As Reported
(GAAP)
Adjusted
Earnings
(Non-GAAP)
FX-Adjusted
(GAAP)
FX-Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments As Reported
(GAAP)
Adjustments
REVENUES
U.S. Pharmaceutical and Specialty Solutions

$

 

44,165

 

$

 

-

$

 

44,165

 

$

 

40,977

 

$

 

-

 

$

 

40,977

 

$

 

-

$

 

44,165

 

$

 

-

 

$

 

44,165

 

8

 

%

8

 

%

8

 

%

8

 

%

European Pharmaceutical Solutions

6,710

 

-

6,710

 

6,935

 

-

 

6,935

 

412

7,122

 

412

 

7,122

 

(3

)

(3

)

3

 

3

 

Medical-Surgical Solutions

1,903

 

-

1,903

 

1,703

 

-

 

1,703

 

-

1,903

 

-

 

1,903

 

12

 

12

 

12

 

12

 

Other (a)

2,950

 

-

2,950

 

2,992

 

-

 

2,992

 

98

3,048

 

98

 

3,048

 

(1

)

(1

)

2

 

2

 

Revenues

$

 

55,728

 

$

 

-

$

 

55,728

 

$

 

52,607

 

$

 

-

 

$

 

52,607

 

$

 

510

$

 

56,238

 

$

 

510

 

$

 

56,238

 

6

 

%

6

 

%

7

 

%

7

 

%

 
OPERATING PROFIT (2)
U.S. Pharmaceutical and Specialty Solutions

$

 

579

 

$

 

21

$

 

600

 

$

 

543

 

$

 

(3

)

$

 

540

 

$

 

-

$

 

579

 

$

 

-

 

$

 

600

 

7

 

%

11

 

%

7

 

%

11

 

%

European Pharmaceutical Solutions (1)

5

 

30

35

 

(560

)

634

 

74

 

1

6

 

2

 

37

 

101

 

(53

)

101

 

(50

)

Medical-Surgical Solutions

125

 

34

159

 

93

 

32

 

125

 

-

125

 

-

 

159

 

34

 

27

 

34

 

27

 

Other (a) (3) (5)

141

 

135

276

 

114

 

99

 

213

 

-

141

 

3

 

279

 

24

 

30

 

24

 

31

 

Operating profit

850

 

220

1,070

 

190

 

762

 

952

 

1

851

 

5

 

1,075

 

347

 

12

 

348

 

13

 

Corporate (4)

(175

)

38

(137

)

(123

)

28

 

(95

)

-

(175

)

(1

)

(138

)

42

 

44

 

42

 

45

 

Income from continuing operations before interest expense and income taxes

$

 

675

 

$

 

258

$

 

933

 

$

 

67

 

$

 

790

 

$

 

857

 

$

 

1

$

 

676

 

$

 

4

 

$

 

937

 

907

 

%

9

 

%

909

 

%

9

 

%

 
 
OPERATING PROFIT (LOSS) AS A % OF REVENUES
U.S. Pharmaceutical and Specialty Solutions

1.31

 

%

1.36

 

%

1.33

 

%

1.32

 

%

1.31

 

%

1.36

 

%

(2

)

bp

4

 

bp

(2

)

bp

4

 

bp

European Pharmaceutical Solutions

0.07

 

0.52

 

(8.07

)

1.07

 

0.08

 

0.52

 

814

 

(55

)

815

 

(55

)

Medical-Surgical Solutions

6.57

 

8.36

 

5.46

 

7.34

 

6.57

 

8.36

 

111

 

102

 

111

 

102

 

(a)

Other primarily includes the results of our McKesson Canada and McKesson Prescription Technology Solutions businesses. Operating profit for Other includes our proportionate share of income (loss) from our equity method investment in Change Healthcare Joint Venture.
 
Refer to the section entitled "Financial Statement Notes" of this release.
 
For more information relating to the Adjusted Earnings (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)
 

June 30,

 

March 31,

2019

 

2019

 
ASSETS
Current Assets
Cash and cash equivalents

$

1,947

$

2,981

Receivables, net

19,287

18,246

Inventories, net

16,604

16,709

Prepaid expenses and other

590

529

Total Current Assets

38,428

38,465

Property, Plant and Equipment, Net

2,466

2,548

Operating Lease Right-of-Use Assets

2,031

-

Goodwill

9,441

9,358

Intangible Assets, Net

3,600

3,689

Equity Method Investment in Change Healthcare Joint Venture

3,617

3,513

Other Noncurrent Assets

2,097

2,099

Total Assets

$

61,680

$

59,672

 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current Liabilities
Drafts and accounts payable

$

34,021

$

33,853

Current portion of long-term debt

310

330

Current portion of operating lease liabilities

373

-

Other accrued liabilities

3,248

3,443

Total Current Liabilities

37,952

37,626

Long-Term Debt

7,382

7,265

Long-Term Deferred Tax Liabilities

3,058

2,998

Long-Term Operating Lease Liabilities

1,805

-

Other Noncurrent Liabilities

2,016

2,103

 
Redeemable Noncontrolling Interests

1,399

1,393

 
McKesson Corporation Stockholders' Equity

7,874

8,094

Noncontrolling Interests

194

193

Total Equity

8,068

8,287

Total Liabilities, Redeemable Noncontrolling Interests and Equity

$

61,680

$

59,672

Schedule 5

 
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
 
Quarter ended June 30,

2019

2018

 
OPERATING ACTIVITIES
Net income (loss)

$

477

 

$

(80

)

Adjustments to reconcile to net cash used in operating activities:
Depreciation and amortization

 

229

 

 

235

 

Goodwill and other asset impairment charges

 

5

 

 

610

 

Deferred taxes

 

16

 

 

45

 

Credits associated with last-in, first-out inventory method

 

(15

)

 

(21

)

Loss (Income) from equity method investment in Change Healthcare Joint Venture

 

(4

)

 

56

 

Other non-cash items

 

121

 

 

(79

)

Changes in assets and liabilities, net of acquisitions:
Receivables

 

(1,061

)

 

(1,414

)

Inventories

 

145

 

 

(114

)

Drafts and accounts payable

 

127

 

 

32

 

Taxes

 

82

 

 

(61

)

Other

 

(173

)

 

(270

)

Net cash used in operating activities

 

(51

)

 

(1,061

)

 
INVESTING ACTIVITIES
Payments for property, plant and equipment

 

(87

)

 

(101

)

Capitalized software expenditures

 

(24

)

 

(44

)

Acquisitions, net of cash, cash equivalents and restricted cash acquired

 

(46

)

 

(826

)

Other

 

28

 

 

96

 

Net cash used in investing activities

 

(129

)

 

(875

)

 
FINANCING ACTIVITIES
Proceeds from short-term borrowings

 

2,610

 

 

9,036

 

Repayments of short-term borrowings

 

(2,610

)

 

(7,005

)

Common stock transactions:
Issuances

 

22

 

 

22

 

Share repurchases, including shares surrendered for tax withholding

 

(701

)

 

(307

)

Dividends paid

 

(75

)

 

(71

)

Other

 

(118

)

 

(134

)

Net cash provided by (used in) financing activities

 

(872

)

 

1,541

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

18

 

 

(78

)

Net decrease in cash, cash equivalents and restricted cash

 

(1,034

)

 

(473

)

Cash, cash equivalents and restricted cash at beginning of period

 

2,981

 

 

2,672

 

Cash, cash equivalents and restricted cash at end of period

$

1,947

 

$

2,199

 

McKESSON CORPORATION

FINANCIAL STATEMENT NOTES

 

(1)

Operating expenses for fiscal 2019 include non-cash goodwill impairment charges of $570 million (pre-tax and after-tax) for our European Pharmaceutical Solutions segment. This charge is included under "Other Adjustments, Net" in the reconciliation of McKesson's GAAP financial results to Adjusted Earnings (Non-GAAP) provided in the Schedule 2 of the accompanying financial statement tables.

(2)

Operating expenses for fiscals 2020 and 2019 include pre-tax restructuring and asset impairment charges of $23 million ($17 million after-tax) and $96 million ($85 million after-tax), primarily for our Canada and the United Kingdom retail businesses, and Corporate.

(3)

Operating expenses for fiscal 2019 include a gain from an escrow settlement of $97 million (pre-tax and after-tax) representing certain indemnity and other claims related to our third quarter 2017 acquisition of Rexall Health, within Other. This gain is included under "Other Adjustments, Net" in the reconciliation of McKesson's GAAP financial results to Adjusted Earnings (Non-GAAP) provided in the Schedule 2 of the accompanying financial statement tables.

(4)

Other income for fiscal 2020 includes a pre-tax charge of $17 million ($12 million after-tax) representing settlement charges for our frozen U.S. defined benefit pension plan, within Corporate. This charge is included under "Other Adjustments, Net" in the reconciliation of McKesson's GAAP financial results to Adjusted Earnings (Non-GAAP) provided in the Schedule 2 of the accompanying financial statement tables.

(5)

Income or loss from our equity method investment in Change Healthcare Joint Venture includes the amortization of equity investment intangibles and other acquired intangibles of $77 million for fiscals 2020 and 2019. This charge is included in our proportionate share of the income or loss from our equity method investment in Change Healthcare Joint Venture within Other.

1 of 2

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
 
In an effort to provide investors with additional information regarding the Company's financial results as determined by generally accepted accounting principles ("GAAP"), McKesson Corporation (the "Company" or "we") also presents the following Non-GAAP measures in this press release. The Company believes the presentation of Non-GAAP measures provides useful supplemental information to investors with regard to its operating performance, as well as assists with the comparison of its past financial performance to the Company’s future financial results. Moreover, the Company believes that the presentation of Non-GAAP measures assists investors’ ability to compare its financial results to those of other companies in the same industry. However, the Company's Non-GAAP measures used in the press tables may be defined and calculated differently by other companies in the same industry.
 
Adjusted Earnings (Non-GAAP): We define Adjusted Earnings as GAAP income from continuing operations attributable to McKesson, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, last-in, first-out (“LIFO”) inventory-related adjustments, gains from antitrust legal settlements, restructuring and asset impairment 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 and 3 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 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, 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, 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 and asset impairment charges - Non-acquisition related 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, 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 the Adjusted Earnings.
 
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: adjustments to claim and litigation reserves for estimated probable losses and settlements; other asset impairments; certain discrete benefits and subsequent true-up adjustments related to the December 2017 enactment of the 2017 Tax Cuts and Jobs Act; gains or losses from debt extinguishment; and other similar substantive and/or infrequent items as deemed appropriate. Prior to fiscal 2020, this category also included certain gains or losses from divestitures of businesses that did not qualify as discontinued operations.
 
 
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 investment in Change Healthcare Joint Venture's financial results are adjusted for the above noted items.
2 of 2
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION (continued)
 
FX-Adjusted (Non-GAAP): McKesson also presents its financial results 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 Earnings (Non-GAAP) is provided in Schedule 3 of the financial statement tables included with this release.
 
 
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. 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.

 

Contacts

Holly Weiss, 972-969-9174 (Investors and Financial Media)
Holly.Weiss@McKesson.com
Kristin Chasen, 415-983-8974 (General and Business Media)
Kristin.Chasen@McKesson.com

Contacts

Holly Weiss, 972-969-9174 (Investors and Financial Media)
Holly.Weiss@McKesson.com
Kristin Chasen, 415-983-8974 (General and Business Media)
Kristin.Chasen@McKesson.com