McKesson 2016 Annual Report Download - page 152

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, 2016.
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.
•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. To present Adjusted Earnings per diluted share on a constant currency 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. Revenues and Adjusted Earnings
per share on a Constant Currency basis for fiscal year 2016 were $195.3 billion and $12.21 per diluted
share, which exclude the foreign currency exchange effect of $4.4 billion and $0.13 per diluted share.
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 worldwide in local currencies, including Euro, British pound
and Canadian dollar. 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.
****
Euro to U.S. Dollar Average Foreign Exchange Rates by Quarter
Our international pharmaceutical distribution and services business reflects the results from Celesio AG
(“Celesio”). Celesio independently reports its financial results in Euros. Our financial results fiscal year 2016, as
provided on a constant currency basis, exclude primarily the effects of the Euro to the U.S. dollar exchange rate
fluctuations between the current periods and the comparable periods previously reported.
Euro to $1 U.S. Dollar *
Fiscal 2015 Fiscal 2016
First Quarter 1.37 1.10
Second Quarter 1.33 1.11
Third Quarter 1.25 1.09
Fourth Quarter 1.13 1.10
* Quarterly exchange rates are computed as a simple average using the average monthly Euro to U.S. dollar
exchange rate as reported by the European Central Bank.