McKesson 2016 Annual Report Download - page 3

Dear Shareholders:
McKesson celebrates its 183rd year in business this year, and while I am very proud of our long track
record of growth and success, I believe our future is even brighter than our past.
Never in the history of our industry have we seen so much change, from rapid convergence and
consolidation, to the implementation of new, value-based care models, to an increase in consumerism.
Across every sector, healthcare is changing before our eyes, and McKesson is at the nexus of
the transformation.
I’m delighted to be writing my 15th chairman’s letter in which I can reflect on our accomplishments
in the past fiscal year and share my perspective on why we are so well positioned for the new future of
healthcare. While fiscal 2016 was a year of many successes, it also included some new challenges,
which I’m proud to say we responded to quickly and decisively. Your company ended the fiscal year in
excellent shape, poised for continued growth in fiscal 2017 and beyond.
A Healthy Fiscal 2016
I am pleased to report that McKesson generated revenues of approximately $190.9 billion in fiscal 2016,
up 9% year over year in constant currency, and adjusted earnings per diluted share of $12.08, up 10%,
again in constant currency.1
McKesson saw a drop in our stock price in fiscal 2016. There were a number of contributing factors
to this movement, including the softening of generics price inflation, some customer losses due to
acquisition activity and general weakness in stock prices across the healthcare sector. But this was
balanced by a strong operating performance across the company.
In our Distribution Solutions segment, we saw major customer wins, expanded our global
pharmaceutical sourcing and procurement scale, grew the number of banner and retail pharmacies
in our networks, and continued to execute on our planned Celesio acquisition synergies.
On the Technology Solutions side of the business, we saw a strong performance that reflects our focus on
key growth areas, specifically revenue and payment management for payers and providers, imaging and
workflow solutions, and other offerings that support the transition to value-based care models.
In response to softening generic price inflation as well as customer consolidation, in the fourth quarter
of fiscal 2016, we also took steps to reduce our cost structure and improve efficiency.
In total, we generated cash from operations of $3.7 billion during the year, repaid approximately
$1.6 billion in long-term debt, and ended the year with cash and cash equivalents
of $4.0 billion. Further, we maintained our long-standing portfolio approach to capital
deployment. The company had internal capital spending of $677 million, spent
$40 million on acquisitions, repurchased approximately $1.5 billion of its common
stock and paid $244 million in dividends.
As stewards of your investment, we continually balance the need to invest in the
business, pay down debt, and return profits to you, our shareholders.
The Future of Better Health
McKesson helps our customers improve their business health, deliver better care, and
work more effectively with other organizations across the healthcare ecosystem through
an extensive suite of healthcare distribution services and technology offerings.
We believe we are extremely well positioned, especially in the businesses where we see the
greatest growth opportunities, including specialty, retail pharmacy and manufacturer services.
Our scale, our reputation for operational excellence and our broad value proposition allow us to
build deep, long-term relationships with our customers and supplier partners.
1 See Appendix A to this 2016 Annual Report for a reconciliation of earnings per share as reported under U.S. generally accepted
accounting principles (GAAP) to adjusted earnings per share (non-GAAP). Adjusted earnings per share is a non-GAAP measure, which
should be viewed in addition to, and not as an alternative for, financial results prepared in accordance with GAAP.
Adjusted EPS
Revenues
INCREASE1
10%
$190.9B