What is the primary reason for this 8-K filing?

This 8-K filing announces that McKesson Corporation has reached an agreement in principle with the Drug Enforcement Administration (DEA) and Department of Justice (DOJ) to settle investigations concerning the company's suspicious order reporting practices for controlled substances. This settlement involves a $150 million payment and operational adjustments at several distribution centers.

Will the suspension of DEA registrations at distribution centers affect McKesson's ability to serve its customers?

McKesson expects that the suspensions will not result in a supply disruption to any customer. Customers in the affected service areas will receive controlled substances from alternative distribution centers during the suspension periods. Additionally, shipments to customers under the pharmaceutical prime vendor contract with the Department of Veterans Affairs will continue from the Livonia, Washington Courthouse, and Lakeland distribution centers.

How does McKesson define 'Adjusted Earnings' and why is this settlement excluded?

Adjusted Earnings is a non-GAAP financial measure that McKesson uses to present its results. It is defined as GAAP income from continuing operations, excluding several items, including amortization of acquisition-related intangible assets, acquisition expenses, certain claim and litigation reserve adjustments, and LIFO inventory-related adjustments. The $150 million settlement is a 'claim and litigation reserve adjustment,' which is why it is excluded from Adjusted Earnings.

MCK 8-K SEC Disclosure — Apr 30, 2015

Q: What is the financial impact of this settlement on McKesson?

McKesson has agreed to pay $150 million to settle the claims. This amount has been accrued and will be excluded from the company's Adjusted Earnings for fiscal year 2015, as it falls under 'certain claim and litigation reserve adjustments' for their non-GAAP reporting.

Summary

McKesson Corporation announced on April 30, 2015, that it has reached an agreement in principle with the Drug Enforcement Administration (DEA) and Department of Justice (DOJ) to settle all potential administrative and civil claims related to investigations into its suspicious order reporting practices for controlled substances. This settlement, previously disclosed in the company's February 5, 2015, 10-Q filing, involves a payment of $150 million and the suspension of DEA registrations for controlled substances at several distribution centers for specified periods. Investors should note the financial impact of this settlement, which has been accrued for and will be excluded from the company's adjusted earnings for fiscal year 2015. While the settlement involves significant monetary and operational aspects, including distribution center suspensions, McKesson expects no supply disruption for customers, with controlled substances being rerouted from alternative facilities. The company also clarified its non-GAAP financial reporting, defining Adjusted Earnings and specifying items excluded from this measure.

Key Highlights

1McKesson reached an agreement in principle to settle all potential administrative and civil claims with the DEA and DOJ regarding suspicious order reporting of controlled substances.
2The global settlement includes a payment of $150 million.
3DEA registrations for controlled substances will be suspended at four distribution centers: Aurora, CO (3 years), Livonia, MI (2 years), Washington Courthouse, OH (2 years following Livonia's suspension), and Lakeland, FL (1 year for hydromorphone products).
4The company anticipates no supply disruption to customers due to these suspensions, as shipments will be rerouted from other distribution centers.
5The $150 million settlement amount has been accrued and will be excluded from McKesson's Adjusted Earnings for fiscal year 2015.
6Adjusted Earnings is a non-GAAP measure that excludes specific items like amortization of acquisition-related intangible assets, acquisition expenses, certain claim and litigation reserve adjustments, and LIFO inventory adjustments.

MCKESSON CORP 8-K Report, Corporate Update (Apr 30, 2015)

Summary

Key Highlights

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