Adjusted Earnings
McKesson separately reports financial results on the basis of Adjusted Earnings. Adjusted Earnings is a non-GAAP financial measure defined as
GAAP income from continuing operations, excluding amortization of acquisition-related intangible assets, acquisition expenses and related
adjustments, certain claim and litigation reserve adjustments, and Last-In-First-Out (“LIFO”) inventory-related adjustments.
****
Definitions related to Adjusted Earnings (Non-GAAP) Financial Information
Adjusted Earnings represents income from continuing operations, excluding the effects of the following items from the Company’s GAAP financial
results, including the related income tax effects. The Company evaluates its definition of Adjusted Earnings on a periodic basis and will update the
definition from time to time. The evaluation considers both the quantitative and qualitative aspect of the Company’s presentation of Adjusted Earnings.
Amortization of acquisition-related intangibles - Amortization expense of acquired intangible assets purchased in connection with business
acquisitions by the Company.
Acquisition expenses and related adjustments - Transaction and integration expenses that are directly related to business acquisitions by the
Company. Examples include transaction closing costs, professional service fees, restructuring or severance charges, retention payments,
employee relocation expenses, facility or other exit-related expenses, recoveries of acquisition-related expenses or post-closing expenses, bridge
loan fees, gains or losses related to foreign currency contracts, and gains or losses on business combinations.
Claim and litigation reserve adjustments - Adjustments to the Company’s reserves, including accrued interest, for estimated probable losses for its
Controlled Substance Distribution Claims and the Average Wholesale Price litigation matters, as such terms are defined in the Company’s Annual
Report on Form 10-K for the fiscal year ended March 31, 2015.
LIFO-related adjustments - Last-In-First-Out ("LIFO") inventory-related adjustments.
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.
The Company believes the presentation of non-GAAP measures such as Adjusted Earnings provides useful supplemental information to investors with
regard to its core 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 Adjusted Earnings assists investors’ ability to compare its financial results to those of
other companies in the same industry. However, the Company's Adjusted Earnings measure may be defined and calculated differently by other
companies in the same industry.
The Company internally uses non-GAAP financial measures such as Adjusted Earnings 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. 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.
The Company is providing investors the following updated Presentation of Adjusted Earnings (Non-GAAP):
Exhibit I: provides a reconciliation of certain line items from the Company’s GAAP Condensed Consolidated Statements of Operations to Adjusted
Earnings (Non-GAAP) for the fiscal years ended March 31, 2015 through March 31, 2009; and,
Exhibit II: provides a reconciliation of the Company’s GAAP segment financial results to Adjusted Earnings (Non-GAAP) for the fiscal
years ended March 31, 2015 through March 31, 2009.
Exhibit I
Page 1 of 3
McKESSON CORPORATION
RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
FOR FISCAL 2015 - 2009
(unaudited)
(in millions, except per share amounts)
As Reported
(GAAP)
Amortization
of AcquisitionRelated
Intangibles
Year Ended March 31, 2015
Acquisition
Claim and
Expenses and
Litigation
Related
Reserve
Adjustments
Adjustments
LIFO-Related
Adjustments
Adjusted
Earnings
(Non-GAAP)
Revenues
$
$
-
$
-
$
-
$
-
$
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Interest expense
Income from continuing operations before income
taxes
Income tax expense
Income from continuing operations after tax
Net income attributable to noncontrolling interest
Income from continuing operations, net of tax,
attributable to McKesson Corporation
$
$
9
483
2
-
$
1
223
-
$
150
-
$
337
-
$
Diluted earnings per common share from continuing
operations, net of tax, attributable to McKesson
(a)
Corporation
Diluted weighted average common shares
179,045
11,411
(8,443)
63
(374)
2,657
(815)
1,842
(67)
494
(157)
337
-
224
(78)
146
-
150
150
-
337
(131)
206
-
179,045
11,758
(7,587)
65
(374)
3,862
(1,181)
2,681
(67)
$
1,775
$
337
$
146
$
150
$
206
$
2,614
$
7.54
235
$
1.43
235
$
0.63
235
$
0.64
235
$
0.87
235
$
11.11
235
As Reported
(GAAP)
Amortization
of AcquisitionRelated
Intangibles
Year Ended March 31, 2014
Acquisition
Claim and
Expenses and
Litigation
Related
Reserve
Adjustments
Adjustments
LIFO-Related
Adjustments
Adjusted
Earnings
(Non-GAAP)
Revenues
$
$
-
$
-
$
-
$
-
$
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Interest expense
Income from continuing operations before income
taxes
Income tax expense
Income from continuing operations after tax
Net income attributable to noncontrolling interest
Income from continuing operations, net of tax,
attributable to McKesson Corporation
$
$
11
308
-
$
3
155
14
46
$
-
$
311
-
$
Diluted earnings per common share from continuing
operations, net of tax, attributable to McKesson
(a)
Corporation
Diluted weighted average common shares
137,392
8,352
(5,913)
32
(300)
2,171
(757)
1,414
5
319
(115)
204
(7)
68
-
218
(69)
149
(2)
68
(15)
53
-
311
(121)
190
-
137,392
8,677
(5,382)
46
(254)
3,087
(1,077)
2,010
(4)
$
1,419
$
197
$
147
$
53
$
190
$
2,006
$
6.08
233
$
0.85
233
$
0.63
233
$
0.23
233
$
0.81
233
$
8.60
233
(a) Certain computations may reflect rounding adjustments.
Exhibit I
Page 2 of 3
As Reported
(GAAP)
Amortization
of AcquisitionRelated
Intangibles
Year Ended March 31, 2013
Acquisition
Claim and
Expenses and
Litigation
Related
Reserve
Adjustments
Adjustments
LIFO-Related
Adjustments
Adjusted
Earnings
(Non-GAAP)
Revenues
$
$
-
$
-
$
-
$
$
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Interest expense
Income from continuing operations before income
taxes
Income tax expense
Income from continuing operations after tax
Net income attributable to noncontrolling interest
Income from continuing operations, net of tax,
attributable to McKesson Corporation
$
$
13
196
-
$
(10)
11
$
-
Diluted earnings per common share from continuing
operations, net of tax, attributable to McKesson
(a)
Corporation
Diluted weighted average common shares
122,196
6,881
(4,534)
34
(191)
(240)
1,950
(587)
1,363
-
209
(76)
133
-
$
72
72
(27)
45
-
-
13
$
-
-
1
(6)
(5)
-
13
(5)
8
122,196
6,907
(4,276)
34
(191)
(229)
2,245
(701)
1,544
-
-
$
1,363
$
133
$
(5)
$
45
$
8
$
1,544
$
5.69
239
$
0.56
239
$
(0.02)
239
$
0.19
239
$
0.03
239
$
6.45
239
As Reported
(GAAP)
Amortization
of AcquisitionRelated
Intangibles
Year Ended March 31, 2012
Acquisition
Claim and
Expenses and
Litigation
Related
Reserve
Adjustments
Adjustments
LIFO-Related
Adjustments
Adjusted
Earnings
(Non-GAAP)
Revenues
$
$
-
$
-
$
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Interest expense
Income from continuing operations before income
taxes
Income tax expense
Income from continuing operations after tax
Net income attributable to noncontrolling interest
Income from continuing operations, net of tax,
attributable to McKesson Corporation
$
$
17
167
-
$
-
Diluted earnings per common share from continuing
operations, net of tax, attributable to McKesson
(a)
Corporation
Diluted weighted average common shares
122,453
6,435
(4,289)
20
(251)
1,915
(521)
1,394
-
$
-
$
$
$
-
149
-
26
(10)
16
-
149
(89)
60
-
26
184
(71)
113
-
11
$
11
(4)
7
122,453
6,463
(3,947)
20
(251)
2,285
(695)
1,590
-
-
$
1,394
$
113
$
16
$
60
$
7
$
1,590
$
5.56
251
$
0.45
251
$
0.07
251
$
0.24
251
$
0.03
251
$
6.35
251
As Reported
(GAAP)
Amortization
of AcquisitionRelated
Intangibles
Year Ended March 31, 2011
Acquisition
Claim and
Expenses and
Litigation
Related
Reserve
Adjustments
Adjustments
LIFO-Related
Adjustments
Adjusted
Earnings
(Non-GAAP)
Revenues
$
$
-
$
-
$
-
$
$
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Interest expense
Income from continuing operations before income
taxes
Income tax expense
Income from continuing operations after tax
Net income attributable to noncontrolling interest
Income from continuing operations, net of tax,
attributable to McKesson Corporation
$
$
16
115
-
$
-
$
213
-
$
43
(16)
25
52
(16)
36
-
213
(64)
149
-
Diluted earnings per common share from continuing
operations, net of tax, attributable to McKesson
Corporation (a)
Diluted weighted average common shares
111,804
5,828
(4,041)
35
(222)
1,600
(503)
1,097
-
131
(51)
80
-
3
$
3
(1)
2
111,804
5,847
(3,670)
19
(197)
1,999
(635)
1,364
-
-
$
1,097
$
80
$
36
$
149
$
2
$
1,364
$
4.17
263
$
0.30
263
$
0.14
263
$
0.57
263
$
0.01
263
$
5.19
263
(a) Certain computations may reflect rounding adjustments.
Exhibit I
Page 3 of 3
As Reported
(GAAP)
Amortization
of AcquisitionRelated
Intangibles
Year Ended March 31, 2010
Acquisition
Claim and
Expenses and
Litigation
Related
Reserve
Adjustments
Adjustments
LIFO-Related
Adjustments
Adjusted
Earnings
(Non-GAAP)
Revenues
$
$
$
-
$
-
$
$
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Interest expense
Income from continuing operations before income
taxes
Income tax expense
Income from continuing operations after tax
Net income attributable to noncontrolling interest
Income from continuing operations, net of tax,
attributable to McKesson Corporation
$
$
$
(20)
-
$
-
-
118
(46)
72
-
-
Diluted earnings per common share from continuing
operations, net of tax, attributable to McKesson
(a)
Corporation
Diluted weighted average common shares
108,425
5,527
(3,558)
43
(187)
-
$
1,825
(605)
1,220
-
21
97
8
$
-
(20)
8
(12)
-
8
(3)
5
108,425
5,556
(3,481)
43
(187)
1,931
(646)
1,285
-
-
$
1,220
$
72
$
-
$
(12)
$
5
$
1,285
$
4.46
273
$
0.26
273
$
-
$
(0.04)
273
$
0.02
273
$
4.70
273
As Reported
(GAAP)
Amortization
of AcquisitionRelated
Intangibles
Year Ended March 31, 2009
Acquisition
Claim and
Expenses and
Litigation
Related
Reserve
Adjustments
Adjustments
LIFO-Related
Adjustments
Adjusted
Earnings
(Non-GAAP)
Revenues
$
$
$
-
$
-
$
$
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Interest expense
Income from continuing operations before income
taxes
Income tax expense
Income from continuing operations after tax
Net income attributable to noncontrolling interest
Income from continuing operations, net of tax,
attributable to McKesson Corporation
$
$
$
493
-
$
-
-
126
(49)
77
-
-
Diluted earnings per common share from continuing
operations, net of tax, attributable to McKesson
Corporation (a)
Diluted weighted average common shares
106,376
5,251
(4,080)
74
(63)
(144)
-
$
1,038
(240)
798
-
29
97
8
$
-
493
(182)
311
-
8
(3)
5
106,376
5,288
(3,490)
74
(63)
(144)
1,665
(474)
1,191
-
-
$
798
$
77
$
-
$
311
$
5
$
1,191
$
2.86
279
$
0.28
279
$
-
$
1.11
279
$
0.02
279
$
4.27
279
(a) Certain computations may reflect rounding adjustments.
Exhibit II
Page 1 of 2
McKESSON CORPORATION
RECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
FOR FISCAL 2015 - 2009
(unaudited)
(in millions)
Year Ended March 31, 2015
As Reported (GAAP):
Revenues
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Income from continuing operations before interest
expense and income taxes
Interest expense
Income from continuing operations before income
taxes
Distribution
Solutions
Technology
Solutions
Corporate &
Interest
Expense
$
$
3,069
$
$
1,474
(1,039)
3
-
$
$
9,937
(6,938)
48
3,047
-
$
Gross profit margin
Operating expenses as a % of revenues
Operating pre-tax profit as a % of revenues
Pre-Tax Adjustments:
Gross profit
Operating expenses
Other income, net
Amortization of acquisition-related
intangibles
175,976
3,047
438
$
5.65%
3.94%
1.73%
$
Gross profit
Operating expenses
Other income, net
Interest expense
Acquisition expenses and related
adjustments
1
442
2
445
438
8
40
48
$
(466)
12
-
$
(454)
(374)
$
48.03%
33.85%
14.27%
$
-
Year Ended March 31, 2014
(828)
Technology
Solutions
Corporate &
Interest
Expense
179,045
$
$
3,330
$
$
1,607
(1,161)
2
-
$
11,411
(8,443)
63
-
$
3,031
(374)
$
-
$
Total
Distribution
Solutions
2,657
$
1
9
483
2
494
1
-
6,745
(4,301)
28
2,472
-
$
6.37%
4.72%
1.69%
-
134,062
2,472
448
$
5.03%
3.21%
1.84%
$
1
255
256
448
10
52
62
$
(451)
2
-
$
(449)
(300)
$
48.26%
34.86%
13.45%
$
-
Year Ended March 31, 2013
(749)
Technology
Solutions
Corporate &
Interest
Expense
137,392
$
$
3,150
$
$
1,446
(1,120)
4
-
$
8,352
(5,913)
32
-
$
2,471
(300)
$
-
$
Total
Distribution
Solutions
2,171
$
1
11
308
319
1
-
5,435
(3,068)
19
(191)
2,195
-
$
6.08%
4.30%
1.80%
-
119,046
2,195
330
$
4.57%
2.58%
1.84%
$
2
146
148
330
11
49
60
$
(346)
11
-
$
(335)
(240)
$
45.90%
35.56%
10.48%
$
-
Year Ended March 31, 2012
(575)
$
Corporate &
Interest
Expense
122,196
$
$
3,029
$
$
1,378
(1,022)
4
-
$
6,881
(4,534)
34
(191)
$
1,950
-
$
119,424
5,057
(2,854)
16
2,219
-
$
5.63%
3.71%
1.79%
2,219
1
(64)
11
(10)
11
24
-
(53)
1
24
1
360
$
4.23%
2.39%
1.86%
13
196
209
-
$
1
120
121
360
$
(413)
-
$
(413)
(251)
$
45.49%
33.74%
11.89%
$
-
Total
(664)
122,453
6,435
(4,289)
20
2,166
(251)
$
1,915
-
5.26%
3.50%
1.77%
16
47
63
-
17
167
184
-
-
1
211
-
-
12
-
1
223
-
120
-
3
15
-
20
14
46
3
155
14
46
47
-
212
-
12
224
120
18
80
218
47
Operating expenses - Litigation
reserve adjustments
150
-
-
150
68
-
-
68
72
-
-
72
149
-
-
149
Gross profit - LIFO-related adjustments
337
-
-
337
311
-
-
311
13
-
-
13
11
-
-
11
Total pre-tax adjustments
$
1,144
$
48
$
Adjusted Earnings (Non-GAAP):
Revenues
$
175,976
$
3,069
$
$
1,482
(999)
3
-
$
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Income from continuing operations before interest
expense and income taxes
Interest expense
Income from continuing operations before income
taxes
Gross profit margin
Operating expenses as a % of revenues
Operating pre-tax profit as a % of revenues
$
10,276
(6,135)
50
4,191
-
$
4,191
5.84%
3.49%
2.38%
486
$
486
48.29%
32.55%
15.84%
13
(453)
12
-
$
1,205
$
755
$
80
$
$
179,045
$
134,062
$
3,330
$
$
1,620
(1,094)
2
-
$
$
(441)
(374)
$
(815)
-
11,758
(7,587)
65
-
$
4,236
(374)
$
3,862
6.57%
4.24%
2.37%
7,057
(3,858)
28
3,227
-
$
3,227
5.26%
2.88%
2.41%
528
$
528
48.65%
32.85%
15.86%
81
(430)
16
-
(668)
-
7
7
1
-
1
1
916
$
280
$
67
$
(52)
$
295
$
305
$
64
$
$
137,392
$
119,046
$
3,150
$
-
$
122,196
$
119,424
$
3,029
$
$
1,457
(1,064)
4
-
$
$
1,394
(974)
4
-
$
$
8,677
(5,382)
46
-
$
3,341
(254)
$
3,087
6.32%
3.92%
2.43%
5,450
(2,803)
19
(191)
2,475
-
$
2,475
4.58%
2.35%
2.08%
397
$
397
46.25%
33.78%
12.60%
(409)
11
-
$
(398)
(229)
$
(627)
-
6,907
(4,276)
34
(191)
$
2,474
(229)
$
2,245
5.65%
3.50%
2.02%
5,069
(2,561)
16
2,524
-
$
2,524
4.24%
2.14%
2.11%
424
$
26
-
1
$
(414)
(254)
$
-
Technology
Solutions
2,190
(240)
-
$
Total
Distribution
Solutions
424
46.02%
32.16%
14.00%
1
(412)
-
26
$
370
$
122,453
$
(412)
(251)
$
(663)
-
6,463
(3,947)
20
2,536
(251)
$
2,285
5.28%
3.22%
2.07%
Exhibit II
Page 2 of 2
As Reported (GAAP):
Revenues
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Income from continuing operations before interest
expense and income taxes
Interest expense
Income from continuing operations before income
taxes
Year Ended March 31, 2010
Year Ended March 31, 2009
Distribution
Solutions
Technology
Solutions
Corporate &
Interest
Expense
$
$
2,915
$
$
1,263
(1,000)
3
-
$
$
108,889
4,565
(2,673)
5
1,897
(1)
$
Gross profit margin
Operating expenses as a % of revenues
Operating pre-tax profit as a % of revenues
Pre-Tax Adjustments:
Gross profit
Operating expenses
Other income, net
Amortization of acquisition-related
intangibles
Year Ended March 31, 2011
1,896
266
$
4.19%
2.45%
1.74%
$
Gross profit
Operating expenses
Other income, net
Interest expense
Acquisition expenses and related
adjustments
Operating expenses - Litigation
reserve adjustments
Gross profit - LIFO-related adjustments
266
$
111,804
$
$
2,847
$
$
1,308
(967)
5
-
$
5,828
(4,041)
35
-
$
1,600
-
16
115
131
41
-
-
2
(16)
25
43
(16)
25
41
-
11
213
-
3
61
$
Adjusted Earnings (Non-GAAP):
Revenues
$
108,889
$
2,915
$
$
1,279
(955)
3
-
$
4,568
(2,349)
5
2,224
(1)
2,223
4.20%
2.16%
2.04%
327
$
327
43.88%
32.76%
11.22%
105,578
4,219
(2,260)
29
1,988
(2)
$
1,986
346
(2)
$
(331)
9
-
$
$
(322)
(183)
$
Technology
Solutions
108,425
$
$
2,808
$
$
1,296
(994)
6
-
$
5,527
(3,558)
43
-
$
1,825
-
21
97
118
-
-
-
-
52
-
-
-
-
213
-
-
(20)
-
3
-
-
(366)
11
-
(551)
-
1
50
51
$
8
$
2,012
(187)
20
47
67
$
45.94%
33.97%
12.15%
(505)
Distribution
Solutions
5.10%
3.28%
1.86%
11
4.00%
2.14%
1.88%
344
-
Total
Corporate &
Interest
Expense
-
103,568
3,955
(2,777)
43
(63)
1,158
2
$
1,160
308
(4)
$
3.82%
2.68%
1.12%
304
(309)
25
-
Total
$
$
(284)
(142)
$
5,251
(4,080)
74
(63)
1,182
(144)
$
1,038
-
4.94%
3.84%
1.11%
28
47
75
-
29
97
126
-
-
-
-
-
-
-
-
-
(20)
493
-
-
493
8
-
-
8
$
8
1
50
51
46.15%
35.40%
10.97%
(426)
106,376
$
$
399
$
59
$
67
$
(20)
$
106
$
552
$
75
$
-
$
627
$
111,804
$
105,578
$
2,847
$
-
$
108,425
$
103,568
$
2,808
$
-
$
106,376
$
1,328
(920)
5
-
$
$
1,324
(947)
6
-
$
$
(355)
(196)
$
$
1,822
(222)
16
45
61
$
$
Gross profit margin
Operating expenses as a % of revenues
Operating pre-tax profit as a % of revenues
(562)
Technology
Solutions
5.21%
3.61%
1.63%
327
$
$
Distribution
Solutions
-
70
70
43.33%
34.31%
9.13%
$
$
(368)
27
-
$
(341)
(221)
Total pre-tax adjustments
Gross profit
Operating expenses
Other income, net
Impairment of equity investment
Income from continuing operations before interest
expense and income taxes
Interest expense
Income from continuing operations before income
taxes
-
Total
Corporate &
Interest
Expense
5,847
(3,670)
19
-
$
2,196
(197)
$
1,999
5.23%
3.28%
1.96%
4,228
(2,210)
29
2,047
(2)
$
2,045
4.00%
2.09%
1.94%
413
(2)
$
411
46.65%
32.31%
14.51%
(351)
9
-
$
(342)
(183)
$
(525)
-
5,556
(3,481)
43
-
$
2,118
(187)
$
1,931
5.12%
3.21%
1.95%
3,964
(2,234)
43
(63)
1,710
2
$
1,712
3.83%
2.16%
1.65%
383
(4)
$
379
47.15%
33.73%
13.64%
(309)
25
-
$
(284)
(142)
$
(426)
-
5,288
(3,490)
74
(63)
1,809
(144)
$
1,665
4.97%
3.28%
1.70%