8-K
MCKESSON CORP (MCK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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): September 22, 2020
McKESSON CORPORATION
(Exact Name of Registrant as Specified in Charter)
| Delaware | 1-13252 | 94-3207296 |
|---|---|---|
| (State or Other Jurisdiction<br><br>of Incorporation) | (Commission<br><br>File Number) | (I.R.S. Employer<br><br>Identification No.) |
6555 State Hwy 161
Irving, TX 75039
(Address of Principal Executive Offices, and Zip Code)
(972) 446-4800
Registrant’s Telephone Number, Including Area Code
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 (see General Instruction A.2. below):
| ☐ | Written communication 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 communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br>Symbol(s) | Name of each exchange<br><br>on which registered |
|---|---|---|
| Common stock, $0.01 par value | MCK | New York Stock Exchange |
| 0.625% Notes due 2021 | MCK21A | New York Stock Exchange |
| 1.500% Notes due 2025 | MCK25 | New York Stock Exchange |
| 1.625% Notes due 2026 | MCK26 | New York Stock Exchange |
| 3.125% Notes due 2029 | MCK29 | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
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 2.02 Results of Operations and Financial Condition.
McKesson Corporation (“McKesson,” the “Company,” “we,” “our,” and other similar pronouns) is furnishing to investors supplemental historical financial information by new reportable segment for the fiscal quarters ended June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, and June 30, 2020, and for the fiscal years ended March 31, 2020 and 2019.
As previously described in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020, we changed our organizational structure effective on July 1, 2020, to reflect our continued focus on delivering new and innovative solutions to respond to the evolving needs of the healthcare industry, customers, and patients. Upon the completion of this change, our operating structure was realigned, and we will report our financial results in four reportable segments on a retrospective basis commencing in the second quarter of fiscal 2021 as follows: U.S. Pharmaceutical, International, Medical-Surgical Solutions, and Prescription Technology Solutions ("RxTS"). The segment changes reflect how our chief operating decision maker allocates resources and assesses performance commencing in the second quarter of fiscal 2021. The segment changes did not impact the previously issued consolidated financial statements nor earnings per common share of McKesson for historical periods.
Through the fiscal year ended March 31, 2020, the business operations in Other included our equity ownership interest in a joint venture, Change Healthcare LLC ("Change Healthcare JV"), which was accounted for using the equity investment method of accounting. We completed the separation from our investment in Change Healthcare JV during the fourth quarter of fiscal 2020 and therefore the financial results for Change Healthcare JV will be included in Other for retrospective periods presented.
Additional information regarding our new reportable segments is as follows:
Our U.S. Pharmaceutical segment distributes branded, generic, specialty, biosimilar, and over-the-counter pharmaceutical drugs and other healthcare-related products. This segment also provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices. In addition, the segment sells financial, operational, and clinical solutions to pharmacies (retail, hospital, alternate site) and provides consulting, outsourcing, technological, and other services.
Our International segment includes our operations in Europe and Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. Our operations in Europe provide distribution and services to wholesale, institutional, and retail customers in 13 European countries where we own, partner, or franchise with retail pharmacies and operate through two businesses: Pharmaceutical Distribution and Retail Pharmacy. Our operations in Canada provide better care by delivering vital medicines, supplies, and information technology services throughout Canada and operates Rexall Health retail pharmacies.
Our Medical-Surgical Solutions segment provides medical-surgical supply distribution, logistics, and other services to healthcare providers, including physician offices, surgery centers, nursing homes, hospital reference labs, and home health care agencies. We offer more than 275,000 national brand medical-surgical products as well as McKesson’s own line of high-quality products through a network of distribution centers within the United States.
Our RxTS segment brings together CoverMyMeds, RelayHealth, RxCrossroads, and High Volume Solutions to serve our biopharma and life sciences partners and patients. Together, we work across the healthcare delivery system to connect pharmacies, providers, payers, and biopharma for next-generation patient access and adherence solutions that help people get the medicine they need to live healthier lives.
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.
| Exhibit No. | Description |
|---|---|
| 99.1 | Supplemental Historical Financial Information by New Reportable Segment For Fiscal Quarters Ended June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, and June 30, 2020, and Fiscal Years Ended March 31, 2020 and 2019 |
| 104 | Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the Inline XBRL document |
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: September 22, 2020
| McKesson Corporation | ||
|---|---|---|
| By: | /s/ Britt J. Vitalone | |
| Britt J. Vitalone | ||
| Executive Vice President and | ||
| Chief Financial Officer |
Exhibit
Exhibit 99.1
SUPPLEMENTAL HISTORICAL SEGMENT FINANCIAL INFORMATION
McKesson Corporation (the "Company," "we," or "our") is furnishing to investors supplemental historical financial information by new reportable segment for our quarterly results of fiscal 2020 and first quarter of fiscal 2021 as well as annual results for fiscal 2020 and 2019. 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.
We reassessed our reportable segments following a change in our organizational structure to reflect our continued focus on delivering new and innovative solutions to respond to the evolving needs of the healthcare industry, customers, and patients. In connection with the completion of this change, our operating structure was realigned, and commencing in the second quarter of fiscal 2021, we will report our financial results in four reportable segments on a retrospective basis as follows: U.S. Pharmaceutical, International, Medical-Surgical Solutions, and Prescription Technology Solutions. Our equity method investment in Change Healthcare LLC, which was split-off from McKesson in the fourth quarter of 2020, will be included in Other for retrospective periods presented. The segment changes reflect how our chief operating decision maker allocates resources and assesses performance commencing in the second quarter of fiscal 2021. The segment changes did not impact the previously issued consolidated financial statements nor earnings per common share of McKesson for historical periods.
Exhibit I provides a reconciliation of the Company’s previously reported GAAP segment financial results to Non-GAAP financial results supplemental to our quarterly results of fiscal 2020 and first quarter of fiscal 2021 as well as annual results for fiscal 2020 and 2019.
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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 financial measures in this press release.
| • | Adjusted Segment Operating Profit (Non-GAAP) and Adjusted Segment Operating Profit Margin (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. We define Adjusted Segment Operating Profit Margin as Adjusted Segment Operating Profit (Non-GAAP) divided by GAAP segment revenues. |
|---|---|
| • | 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. |
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| • | 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 financial 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 believes the presentation of Non-GAAP financial 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 financial measures assists investors’ ability to compare its financial results to those of other companies in the same industry. However, Non-GAAP financial measures used in the press tables may be defined and calculated differently by other companies in the same industry.
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SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION (continued)
The Company internally uses both GAAP and Non-GAAP financial measures in connection with its own financial planning and reporting processes. Management utilizes Non-GAAP financial measures when allocating resources, deploying capital, as well as assessing business performance, and determining employee incentive compensation. Nonetheless, Non-GAAP financial 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 OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP) SUPPLEMENTAL
FOR FISCAL QUARTERS OF 2020 AND FIRST FISCAL QUARTER OF 2021
(unaudited)
(in millions)
| FISCAL 2020 | FISCAL 2021 | |||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter Ended June 30, 2019 | Quarter Ended September 30, 2019 | Quarter Ended December 31, 2019 | Quarter Ended March 31, 2020 | Quarter Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||
| As reported (GAAP) | Adjustments | As adjusted (Non-GAAP) | As reported (GAAP) | Adjustments | As adjusted (Non-GAAP) | As reported (GAAP) | Adjustments | As adjusted (Non-GAAP) | As reported (GAAP) | Adjustments | As adjusted (Non-GAAP) | As reported (GAAP) | Adjustments | As adjusted (Non-GAAP) | ||||||||||||||||||||||||||||||
| REVENUES | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Pharmaceutical | $ | 43,789 | $ | — | $ | 43,789 | $ | 45,613 | $ | — | $ | 45,613 | $ | 46,453 | $ | — | $ | 46,453 | $ | 45,845 | $ | — | $ | 45,845 | $ | 44,670 | $ | — | $ | 44,670 | ||||||||||||||
| International | 9,407 | — | 9,407 | 9,321 | — | 9,321 | 9,864 | — | 9,864 | 9,749 | — | 9,749 | 8,552 | — | 8,552 | |||||||||||||||||||||||||||||
| Medical-Surgical Solutions | 1,903 | — | 1,903 | 2,056 | — | 2,056 | 2,141 | — | 2,141 | 2,205 | — | 2,205 | 1,801 | — | 1,801 | |||||||||||||||||||||||||||||
| Prescription Technology Solutions | 629 | — | 629 | 626 | — | 626 | 714 | — | 714 | 736 | — | 736 | 656 | — | 656 | |||||||||||||||||||||||||||||
| Revenues | $ | 55,728 | $ | — | $ | 55,728 | $ | 57,616 | $ | — | $ | 57,616 | $ | 59,172 | $ | — | $ | 59,172 | $ | 58,535 | $ | — | $ | 58,535 | $ | 55,679 | $ | — | $ | 55,679 | ||||||||||||||
| OPERATING PROFIT (LOSS) | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Pharmaceutical | $ | 576 | $ | 14 | $ | 590 | $ | 641 | $ | (3 | ) | $ | 638 | $ | 677 | $ | (34 | ) | $ | 643 | $ | 851 | $ | (94 | ) | $ | 757 | $ | 613 | $ | (23 | ) | $ | 590 | ||||||||||
| International | 31 | 51 | 82 | 30 | 67 | 97 | (290 | ) | 435 | 145 | 68 | 69 | 137 | 3 | 70 | 73 | ||||||||||||||||||||||||||||
| Medical-Surgical Solutions | 125 | 34 | 159 | 129 | 37 | 166 | 124 | 60 | 184 | 121 | 49 | 170 | 89 | 35 | 124 | |||||||||||||||||||||||||||||
| Prescription Technology Solutions | 100 | 18 | 118 | 98 | 17 | 115 | 82 | 21 | 103 | 116 | 16 | 132 | 68 | 18 | 86 | |||||||||||||||||||||||||||||
| Other ^(a)^ | 4 | 104 | 108 | (1,454 | ) | 1,493 | 39 | (33 | ) | 84 | 51 | 370 | (315 | ) | 55 | — | — | — | ||||||||||||||||||||||||||
| Subtotal | 836 | 221 | 1,057 | (556 | ) | 1,611 | 1,055 | 560 | 566 | 1,126 | 1,526 | (275 | ) | 1,251 | 773 | 100 | 873 | |||||||||||||||||||||||||||
| Corporate expenses, net | (161 | ) | 37 | (124 | ) | (350 | ) | 218 | (132 | ) | (202 | ) | 34 | (168 | ) | (260 | ) | 44 | (216 | ) | (68 | ) | (98 | ) | (166 | ) | ||||||||||||||||||
| Income (loss) from continuing operations before interest expense and income taxes | $ | 675 | $ | 258 | $ | 933 | $ | (906 | ) | $ | 1,829 | $ | 923 | $ | 358 | $ | 600 | $ | 958 | $ | 1,266 | $ | (231 | ) | $ | 1,035 | $ | 705 | $ | 2 | $ | 707 | ||||||||||||
| OPERATING PROFIT (LOSS) AS A % OF REVENUES | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Pharmaceutical | 1.32 | % | 1.35 | % | 1.41 | % | 1.40 | % | 1.46 | % | 1.38 | % | 1.86 | % | 1.65 | % | 1.37 | % | 1.32 | % | ||||||||||||||||||||||||
| International | 0.33 | 0.87 | 0.32 | 1.04 | (2.94 | ) | 1.47 | 0.70 | 1.41 | 0.04 | 0.85 | |||||||||||||||||||||||||||||||||
| Medical-Surgical Solutions | 6.57 | 8.36 | 6.27 | 8.07 | 5.79 | 8.59 | 5.49 | 7.71 | 4.94 | 6.89 | ||||||||||||||||||||||||||||||||||
| Prescription Technology Solutions | 15.90 | 18.76 | 15.65 | 18.37 | 11.48 | 14.43 | 15.76 | 17.93 | 10.37 | 13.11 | ||||||||||||||||||||||||||||||||||
| (a) | Operating profit (loss) for Other primarily includes equity earnings and charges from our investment in Change Healthcare LLC ("Change Healthcare JV"). Additional items included within operating profit (loss) for Other include immaterial expenses in the third quarter of fiscal 2020 related to our separation from Change Healthcare JV, which were treated as GAAP only. We completed the separation from our investment in Change Healthcare JV in the fourth quarter of fiscal 2020. | |||||||||||||||||||||||||||||||||||||||||||
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Exhibit I
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McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP) SUPPLEMENTAL
FOR FISCAL 2020 and 2019
(unaudited)
(in millions)
| Year Ended March 31, 2020 | Year Ended March 31, 2019 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As reported (GAAP) | Adjustments | As adjusted (Non-GAAP) | As reported (GAAP) | Adjustments | As adjusted (Non-GAAP) | |||||||||||||
| REVENUES | ||||||||||||||||||
| U.S. Pharmaceutical | $ | 181,700 | $ | — | $ | 181,700 | $ | 166,189 | $ | — | $ | 166,189 | ||||||
| International | 38,341 | — | 38,341 | 38,023 | — | 38,023 | ||||||||||||
| Medical-Surgical Solutions | 8,305 | — | 8,305 | 7,618 | — | 7,618 | ||||||||||||
| Prescription Technology Solutions | 2,705 | — | 2,705 | 2,489 | — | 2,489 | ||||||||||||
| Revenues | $ | 231,051 | $ | — | $ | 231,051 | $ | 214,319 | $ | — | $ | 214,319 | ||||||
| OPERATING PROFIT (LOSS) | ||||||||||||||||||
| U.S. Pharmaceutical | $ | 2,745 | $ | (117 | ) | $ | 2,628 | $ | 2,710 | $ | (233 | ) | $ | 2,477 | ||||
| International | (161 | ) | 622 | 461 | (1,903 | ) | 2,345 | 442 | ||||||||||
| Medical-Surgical Solutions | 499 | 180 | 679 | 455 | 150 | 605 | ||||||||||||
| Prescription Technology Solutions | 396 | 72 | 468 | 355 | 74 | 429 | ||||||||||||
| Other ^(a)^ | (1,113 | ) | 1,366 | 253 | (104 | ) | 436 | 332 | ||||||||||
| Subtotal | 2,366 | 2,123 | 4,489 | 1,513 | 2,772 | 4,285 | ||||||||||||
| Corporate expenses, net | (973 | ) | 333 | (640 | ) | (639 | ) | 138 | (501 | ) | ||||||||
| Income from continuing operations before interest expense and income taxes | $ | 1,393 | $ | 2,456 | $ | 3,849 | $ | 874 | $ | 2,910 | $ | 3,784 | ||||||
| OPERATING PROFIT (LOSS) AS A % OF REVENUES | ||||||||||||||||||
| U.S. Pharmaceutical | 1.51 | % | 1.45 | % | 1.63 | % | 1.49 | % | ||||||||||
| International | (0.42 | ) | 1.20 | (5.00 | ) | 1.16 | ||||||||||||
| Medical-Surgical Solutions | 6.01 | 8.18 | 5.97 | 7.94 | ||||||||||||||
| Prescription Technology Solutions | 14.64 | 17.30 | 14.26 | 17.24 | ||||||||||||||
| (a) | Operating profit (loss) for Other includes equity earnings and charges from our investment in Change Healthcare JV. Additional items included within operating profit (loss) for Other include a credit of $90 million in fiscal 2019 resulting from the derecognition of a tax receivable agreement liability payable to the shareholders of Change Healthcare, Inc. and immaterial expenses in the third quarter of fiscal 2020 related to our separation from Change Healthcare JV, which were treated as GAAP only. We completed the separation from our investment in Change Healthcare JV in the fourth quarter of fiscal 2020. | |||||||||||||||||
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