Form 8-K MCKESSON CORP For: May 24
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 24, 2018
McKesson Corporation
(Exact name of registrant as specified in its charter)
Delaware | 1-13252 | 94-3207296 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
One Post Street, San Francisco, California |
94104 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (415) 983-8300
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 8.01 | Other Events. |
McKesson Corporation (McKesson, the Company or we and other similar pronouns) is furnishing to investors supplemental historical financial information by new reportable segment for the fiscal years ended March 31, 2018, March 31, 2017, and March 31, 2016 and the fiscal quarters ended June 30, 2017, September 30, 2017, December 31, 2017, and March 31, 2018.
As previously described in our Quarterly Reports on Form 10-Q for the quarters ended September 30, 2017 and December 31, 2017, and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018, the executive who was our segment manager of the Distribution Solutions segment retired from the Company in January 2018. As a result, the Companys chief operating decision maker (CODM) evaluated our management and operating structure. In connection with the completion of this evaluation in the first quarter of fiscal 2019, our operating structure is realigned and, we will report our financial results in three reportable segments on a retrospective basis commencing in the first quarter of fiscal 2019 as follows: U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions and Medical-Surgical Solutions. All remaining operating segments and business activities that are not significant enough to require separate reportable segment disclosure are included in Other. The segment changes reflect how our CODM allocates resources and assesses performance commencing in the first quarter of fiscal 2019. The segment changes did not impact the previously issued consolidated financial statements nor earnings per common share of McKesson for historical periods.
Additional information regarding our new reportable segments is as follows:
Our U.S. Pharmaceutical and Specialty Solutions segment distributes brand, generic, specialty, biosimilar and over-the-counter (OTC) pharmaceutical drugs and other healthcare-related products and provides services to customers throughout the United States and Puerto Rico. This segment also provides specialty pharmaceutical solutions to pharmaceutical manufacturers including offering multiple distribution channels and clinical trial access to our network of oncology physicians.
Our European Pharmaceutical Solutions segment provides distribution and services to wholesale, institutional and retail customers in 13 European countries where we own, partner or franchise with retail pharmacies. This segments Pharmacy Solutions business delivers pharmaceutical and other healthcare-related products to pharmacies across Europe. This segments Consumer Solutions business directly serves patients and consumers in European countries through our own pharmacies and participant pharmacies that operate under brand partnership and franchise arrangements.
Our Medical-Surgical Solutions segment provides medical-surgical supply distribution, logistics and other services to healthcare providers, including physicians offices, surgery centers, extended care facilities, hospital reference labs, homecare and occupational health sites. We offer more than 275,000 national brand medical-surgical products as well as McKessons own line of high-quality products through a network of distribution centers within the United States.
Other primarily consists of the following:
| McKesson Canada, which is one of Canadas largest wholesale distributors, owner of approximately 450 Rexall retail pharmacies and provider of retail banner services; |
| McKesson Prescription Technology Solutions, which provides innovative solutions that help our customers drive business growth, realize greater business efficiencies, deliver high-quality care, enhance medication adherence and safety, and more effectively collaborate with other participants in the pharmaceutical supply chain; and |
| Our 70% equity ownership interest in a joint venture, Change Healthcare, LLC (Change Healthcare), which is accounted for by us using the equity investment method of accounting. Change Healthcare is a healthcare technology company that leverages software and analytics, network solutions, and technology-enabled services to enable better patient care, choice, and outcomes at scale. |
The Company is furnishing supplemental historical segment financial information, which conforms to the new reportable segment structure, in the exhibit included as Exhibit 99.1. The Company believes the presentation of its historical segment financial information by new reportable segment provides useful supplemental information for investors to better understand the impact of segment changes.
Item 9.01 | Financial Statements and Exhibits. |
(d) | Exhibits. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: May 24, 2018
McKesson Corporation | ||
By: | /s/ Britt J. Vitalone | |
Britt J. Vitalone | ||
Executive Vice President and Chief Financial Officer |
Exhibit 99.1
SUPPLEMENTAL HISTORICAL SEGMENT FINANCIAL INFORMATION
We are furnishing to investors supplemental historical financial information by new reportable segment for our quarterly and annual results of fiscal 2018 as well as annual results for fiscal 2017 and 2016. We believe the presentation of our historical segment financial information by new reportable segment provides useful supplemental information to investors to better understand the impact of segment changes.
The executive who was our segment manager of the Distribution Solutions segment retired from the Company in January 2018. As a result, the Companys chief operating decision maker (CODM) evaluated our management and operating structure. In connection with the completion of this evaluation in the first quarter of fiscal 2019, our operating structure is realigned, and commencing in the first quarter of fiscal 2019, we report our financial results in three reportable segments on a retrospective basis: U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions and Medical-Surgical Solutions. All remaining operating segments and business activities that are not significant enough to require separate reportable segment disclosure are included in Other. The segment changes reflect how our CODM allocates resources and assesses performance commencing in first quarter of fiscal 2019. The segment changes did not affect the previously issued consolidated financial statements nor earnings per common share of McKesson for historical periods.
Exhibit I: provides a reconciliation of the Companys previously reported GAAP segment financial results to Adjusted Earnings (Non-GAAP) supplemental to our quarterly and annual results of fiscal 2018 as well as annual results for fiscal 2017 and 2016.
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SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION
In an effort to provide investors with additional information regarding the Companys 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 Companys 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 Companys 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 Companys presentation of Adjusted Earnings. A reconciliation of McKessons GAAP financial results to Adjusted Earnings (Non-GAAP) is provided in Exhibit I 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 Companys share of antitrust lawsuit settlements.
Restructuring 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. 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. These restructuring charges are reflected under various captions within our operating expenses.
Other adjustments - The Company evaluates the nature and significance of transactions qualitatively and quantitatively on an individual basis and may include them in the determination of our Adjusted Earnings from time to time. While not all-inclusive, other adjustments may include: gains or losses from divestitures of businesses that do not qualify as discontinued operations and from dispositions of assets; asset impairments; adjustments to claim and litigation reserves for estimated probable losses; certain discrete benefits related to the December 2017 enactment of the 2017 Tax Cuts and Jobs Act; gains or losses from debt extinguishment; 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.
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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. The supplemental constant currency information of the Companys GAAP financial results and Adjusted Earnings (Non-GAAP) is provided in Exhibit I of the financial statement tables included with this release. |
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. 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.
Exhibit I
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McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) SUPPLEMENTAL
FOR FISCAL YEAR AND FISCAL QUARTERS OF 2018
(unaudited)
(in millions)
Quarter Ended June 30, 2017 | Quarter Ended September 30, 2017 | Quarter Ended December 31, 2017 | Quarter Ended March 31, 2018 | Year Ended March 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
||||||||||||||||||||||||||||||||||||||||||||||
REVENUES |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Pharmaceutical and Specialty Solutions |
$ | 40,282 | $ | | $ | 40,282 | $ | 40,603 | $ | | $ | 40,603 | $ | 41,969 | $ | | $ | 41,969 | $ | 39,733 | $ | | $ | 39,733 | $ | 162,587 | $ | | $ | 162,587 | ||||||||||||||||||||||||||||||
European Pharmaceutical Solutions |
6,382 | | 6,382 | 6,773 | | 6,773 | 6,989 | | 6,989 | 7,176 | | 7,176 | 27,320 | | 27,320 | |||||||||||||||||||||||||||||||||||||||||||||
Medical-Surgical Solutions |
1,533 | | 1,533 | 1,660 | | 1,660 | 1,693 | | 1,693 | 1,725 | | 1,725 | 6,611 | | 6,611 | |||||||||||||||||||||||||||||||||||||||||||||
Other (1) |
2,854 | | 2,854 | 3,025 | | 3,025 | 2,966 | | 2,966 | 2,994 | | 2,994 | 11,839 | | 11,839 | |||||||||||||||||||||||||||||||||||||||||||||
Revenues |
$ | 51,051 | $ | | $ | 51,051 | $ | 52,061 | $ | | $ | 52,061 | $ | 53,617 | $ | | $ | 53,617 | $ | 51,628 | $ | | $ | 51,628 | $ | 208,357 | $ | | $ | 208,357 | ||||||||||||||||||||||||||||||
OPERATING PROFIT |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Pharmaceutical and Specialty Solutions |
$ | 475 | $ | 54 | $ | 529 | $ | 710 | $ | (40 | ) | $ | 670 | $ | 565 | $ | 40 | $ | 605 | $ | 785 | $ | (23 | ) | $ | 762 | $ | 2,535 | $ | 31 | $ | 2,566 | ||||||||||||||||||||||||||||
European Pharmaceutical Solutions |
35 | 49 | 84 | (547 | ) | 636 | 89 | 16 | 69 | 85 | (1,185 | ) | 1,267 | 82 | (1,681 | ) | 2,021 | 340 | ||||||||||||||||||||||||||||||||||||||||||
Medical-Surgical Solutions |
108 | 17 | 125 | 118 | 18 | 136 | 123 | 18 | 141 | 112 | 30 | 142 | 461 | 83 | 544 | |||||||||||||||||||||||||||||||||||||||||||||
Other (1) (2) |
17 | 214 | 231 | 74 | 167 | 241 | 180 | 33 | 213 | (378 | ) | 621 | 243 | (107 | ) | 1,035 | 928 | |||||||||||||||||||||||||||||||||||||||||||
Operating profit |
635 | 334 | 969 | 355 | 781 | 1,136 | 884 | 160 | 1,044 | (666 | ) | 1,895 | 1,229 | 1,208 | 3,170 | 4,378 | ||||||||||||||||||||||||||||||||||||||||||||
Corporate |
(109 | ) | (3 | ) | (112 | ) | (108 | ) | 15 | (93 | ) | (120 | ) | 13 | (107 | ) | (227 | ) | 21 | (206 | ) | (564 | ) | 46 | (518 | ) | ||||||||||||||||||||||||||||||||||
Income from continuing operations before interest expense and income taxes |
$ | 526 | $ | 331 | $ | 857 | $ | 247 | $ | 796 | $ | 1,043 | $ | 764 | $ | 173 | $ | 937 | $ | (893 | ) | $ | 1,916 | $ | 1,023 | $ | 644 | $ | 3,216 | $ | 3,860 | |||||||||||||||||||||||||||||
OPERATING PROFIT AS A % OF REVENUES |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Pharmaceutical and Specialty Solutions |
1.18 | % | 1.31 | % | 1.75 | % | 1.65 | % | 1.35 | % | 1.44 | % | 1.98 | % | 1.92 | % | 1.56 | % | 1.58 | % | ||||||||||||||||||||||||||||||||||||||||
European Pharmaceutical Solutions |
0.55 | 1.32 | (8.08 | ) | 1.31 | 0.23 | 1.22 | (16.51 | ) | 1.14 | (6.15 | ) | 1.24 | |||||||||||||||||||||||||||||||||||||||||||||||
Medical-Surgical Solutions |
7.05 | 8.15 | 7.11 | 8.19 | 7.27 | 8.33 | 6.49 | 8.23 | 6.97 | 8.23 |
(1) | Other primarily includes the results of our McKesson Canada, McKesson Prescription Technology Solutions and Enterprise Information Solutions (EIS) businesses. |
(2) | Operating profit also includes the gain on the 2018 third quarter sale of our EIS business, as reported under GAAP, and our proportionate share of income (loss) from our equity method investment in Change Healthcare. Our equity method investment in Change Healthcare includes amortization of acquisition-related intangibles which is included in our proportionate share of the income (loss) from this equity method investment. |
Exhibit I
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McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) SUPPLEMENTAL
FOR FISCAL 2016 - 2017
(unaudited)
(in millions)
Year Ended March 31, 2017 | Year Ended March 31, 2016 | |||||||||||||||||||||||
As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
As Reported (GAAP) |
Adjustments | Adjusted Earnings (Non-GAAP) |
|||||||||||||||||||
REVENUES |
||||||||||||||||||||||||
U.S. Pharmaceutical and Specialty Solutions |
$ | 155,236 | $ | | $ | 155,236 | $ | 149,222 | $ | | $ | 149,222 | ||||||||||||
European Pharmaceutical Solutions |
24,847 | | 24,847 | 23,497 | | 23,497 | ||||||||||||||||||
Medical-Surgical Solutions |
6,244 | | 6,244 | 6,033 | | 6,033 | ||||||||||||||||||
Other (1) |
12,206 | | 12,206 | 12,132 | | 12,132 | ||||||||||||||||||
Revenues |
$ | 198,533 | $ | | $ | 198,533 | $ | 190,884 | $ | | $ | 190,884 | ||||||||||||
OPERATING PROFIT |
||||||||||||||||||||||||
U.S. Pharmaceutical and Specialty Solutions |
$ | 2,488 | $ | (2 | ) | $ | 2,486 | $ | 2,879 | $ | 296 | $ | 3,175 | |||||||||||
European Pharmaceutical Solutions |
173 | 262 | 435 | 149 | 310 | 459 | ||||||||||||||||||
Medical-Surgical Solutions |
401 | 86 | 487 | 280 | 123 | 403 | ||||||||||||||||||
Other (1) (2) |
4,514 | (3,542 | ) | 972 | 764 | 119 | 883 | |||||||||||||||||
Operating profit |
7,576 | (3,196 | ) | 4,380 | 4,072 | 848 | 4,920 | |||||||||||||||||
Corporate |
(377 | ) | (4 | ) | (381 | ) | (469 | ) | 19 | (450 | ) | |||||||||||||
Income from continuing operations before interest expense and income taxes |
$ | 7,199 | $ | (3,200 | ) | $ | 3,999 | $ | 3,603 | $ | 867 | $ | 4,470 | |||||||||||
OPERATING PROFIT AS A % OF REVENUES |
||||||||||||||||||||||||
U.S. Pharmaceutical and Specialty Solutions |
1.60 | % | 1.60 | % | 1.93 | % | 2.13 | % | ||||||||||||||||
European Pharmaceutical Solutions |
0.70 | 1.75 | 0.63 | 1.95 | ||||||||||||||||||||
Medical-Surgical Solutions |
6.42 | 7.80 | 4.64 | 6.68 |
(1) | Other primarily includes the results of McKesson Canada, McKesson Prescription Technology Solutions and our McKesson Technology Solutions (MTS) segment. In the fourth quarter of 2017, we contributed the majority of our MTS businesses to form a joint venture, Change Healthcare, LLC. |
(2) | Operating profit also includes the net gain, as reported under GAAP, recognized from the Healthcare Technology Net Asset Exchange in the fourth quarter of 2017. |
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