UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~

~~(Mark One)~~



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 31, 2017~~June 30, 2022



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number: 1-13252

McKESSON CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		94-3207296
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~One Post Street, San Francisco, California~~	~~94104~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~

~~(415) 983-8300~~6555 State Hwy 161,

Irving, TX 75039

(Address of principal executive offices, including zip code)

(972) 446-4800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



(Title of each class)	(Trading Symbol)	(Name of each exchange on which registered)
Common stock, $0.01 par value	MCK	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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

x☒

Accelerated filer

o☐

Non-accelerated filer

o ~~(Do not check if a smaller reporting company)~~

☐

Smaller reporting company

o☐

Emerging growth company

o☐

IfIf 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. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the ~~Exchange~~ Act). Yes o☐ No x☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

143,730,455 shares of the issuer’s common stock were outstanding as of July 29, 2022.



~~Class~~		~~Outstanding as of~~	~~December 31, 2017~~
~~Common stock, $0.01 par value~~	~~206,339,333 shares~~

Table of Contents

McKESSON CORPORATION

TABLE OF CONTENTS


Item		Page

	PART I—FINANCIAL INFORMATION

1	Condensed Consolidated Financial Statements

	Condensed Consolidated Statements of Operations for the three months ended June 30, 2022 and 2021	3

	Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2022 and 2021	4

	Condensed Consolidated Balance Sheets as of June 30, 2022 and March 31, 2022	5

	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three months ended June 30, 2022 and 2021	6

	Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2022 and 2021	7

	Financial Notes	8

	Note 1 - Significant Accounting Policies	8

	Note 2 - Held for Sale	9

	Note 3 - Restructuring, Impairment, and Related Charges , Net	11

	Note 4 - Income Taxes	13

	Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests	13

	Note 6 - Earnings (Loss) per Common Share	14

	Note 7 - Goodwill and Intangible Assets, Net	15

	Note 8 - Debt and Financing Activities	17

	Note 9 - Pension Benefits	18

	Note 10 - Hedging Activities	18

	Note 11 - Fair Value Measurements	22

	Note 12 - Commitments and Contingent Liabilities	23

	Note 13 - Stockholders’ Equity (Deficit)	27

	Note 14 - Segments of Business	30

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

3	Quantitative and Qualitative Disclosures About Market Risk	48

4	Controls and Procedures	49

	PART II—OTHER INFORMATION

1	Legal Proceedings	50

1A	Risk Factors	50

2	Unregistered Sales of Equity Securities and Use of Proceeds	50

3	Defaults Upon Senior Securities	51

4	Mine Safety Disclosures	51

5	Other Information	51

6	Exhibits	52

	Signatures	53

Item Page

PART I—FINANCIAL INFORMATION

1.
Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Operations
Quarters and Nine Months Ended December 31, 2017 and 2016
3

Condensed Consolidated Statements of Comprehensive Income
Quarters and Nine Months Ended December 31, 2017 and 2016
4

Condensed Consolidated Balance Sheets
December 31, 2017 and March 31, 2017
5

Condensed Consolidated Statements of Cash Flows
Nine Months Ended December 31, 2017 and 2016
6

Financial Notes
7

2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
33

3.
Quantitative and Qualitative Disclosures About Market Risk
49

4.
Controls and Procedures
49

PART II—OTHER INFORMATION

1.
Legal Proceedings
49

1A.
Risk Factors
49

2.
Unregistered Sales of Equity Securities and Use of Proceeds
49

3.
Defaults Upon Senior Securities
50

4.
Mine Safety Disclosures
50

5.
Other Information
50

6.
Exhibits
51

Signatures
52

Table of Contents

McKESSON CORPORATION

PART I—FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended June 30,
		2022		2021
Revenues		$	67,154	$	62,674
Cost of sales		(64,131)		(59,642)
Gross profit		3,023		3,032
Selling, distribution, general, and administrative expenses		(1,959)		(2,232)
Claims and litigation charges, net		(5)		(74)

Restructuring, impairment, and related charges, net		(23)		(158)
Total operating expenses		(1,987)		(2,464)
Operating income		1,036		568
Other income, net		15		43


Interest expense		(45)		(49)
Income from continuing operations before income taxes		1,006		562
Income tax expense		(199)		(26)
Income from continuing operations		807		536
Income (loss) from discontinued operations, net of tax		2		(3)
Net income		809		533
Net income attributable to noncontrolling interests		(41)		(47)
Net income attributable to McKesson Corporation		$	768	$	486

Earnings (loss) per common share attributable to McKesson Corporation
Diluted
Continuing operations		$	5.25	$	3.09
Discontinued operations		0.01		(0.02)
Total		$	5.26	$	3.07
Basic
Continuing operations		$	5.31	$	3.13
Discontinued operations		0.01		(0.02)
Total		$	5.32	$	3.11

Weighted-average common shares outstanding
Diluted		145.9		158.1
Basic		144.2		156.2

Quarter Ended December 31, Nine Months Ended December 31,
2017
2016 2017 2016
Revenues $ 53,617
$ 50,130
$ 156,729
$ 149,820
Cost of Sales (50,902 ) (47,318 ) (148,620 ) (141,345 )
Gross Profit 2,715
2,812
8,109
8,475
Operating Expenses (1,984 ) (1,981 ) (5,920 ) (5,802 )
Gain from Sale of Business 109
—
109
—
Goodwill Impairment Charges —
—
(350 ) (290 )
Restructuring and Asset Impairment Charges (6 ) —
(242 ) —
Operating Income 834
831
1,706
2,383
Other Income, Net 20
23
102
65
Loss from Equity Method Investment in Change Healthcare (90 ) —
(271 ) —
Interest Expense (67 ) (74 ) (204 ) (231 )
Income from Continuing Operations Before Income Taxes 697
780
1,333
2,217
Income Tax Benefit (Expense) 263
(131 ) 46
(570 )
Income from Continuing Operations 960

649
1,379

1,647
Income (Loss) from Discontinued Operations, Net of Tax 1

(3 ) 3

(117 )
Net Income 961

646
1,382

1,530
Net Income Attributable to Noncontrolling Interests (58 ) (13 ) (169 ) (48 )
Net Income Attributable to McKesson Corporation $ 903
$ 633
$ 1,213
$ 1,482

Earnings (Loss) Per Common Share Attributable to McKesson Corporation

Diluted

Continuing operations $ 4.32

$ 2.86
$ 5.75

$ 7.07
Discontinued operations 0.01

(0.01 ) 0.01

(0.51 )
Total $ 4.33

$ 2.85
$ 5.76

$ 6.56
Basic

Continuing operations $ 4.34

$ 2.89
$ 5.78

$ 7.14
Discontinued operations 0.01

(0.02 ) 0.02

(0.52 )
Total $ 4.35

$ 2.87
$ 5.80

$ 6.62

Dividends Declared Per Common Share $ 0.34
$ 0.28
$ 0.96
$ 0.84

Weighted Average Common Shares
Diluted 208
222
210
226
Basic 207
221
209
224

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	Three Months Ended June 30,
		2022		2021
Net income		$	809	$	533

Other comprehensive income, net of tax
Foreign currency translation adjustments		582		24
Unrealized gains on cash flow hedges		18		—
Changes in retirement-related benefit plans		36		2
Other comprehensive income, net of tax		636		26

Comprehensive income		1,445		559
Comprehensive income attributable to noncontrolling interests		(91)		(50)
Comprehensive income attributable to McKesson Corporation		$	1,354	$	509

Quarter Ended December 31, Nine Months Ended December 31,
2017
2016 2017 2016
Net Income $ 961
$ 646
$ 1,382
$ 1,530

Other Comprehensive Income (Loss), Net of Tax
Foreign currency translation adjustments arising during the period 30
(398 ) 715
(762 )

Unrealized losses on net investment hedges arising during the period (19 ) —
(127 ) —

Unrealized losses on cash flow hedges arising during the period (16 ) (14 ) (5 ) (20 )

Retirement-related benefit plans 1
8
(7 ) 20
Other Comprehensive Income (Loss), Net of Tax (4 ) (404 ) 576
(762 )

Comprehensive Income (Loss) 957
242
1,958
768
Comprehensive Loss (Income) Attributable to Noncontrolling Interests (70 ) 17
(330 ) 47
Comprehensive Income (Loss) Attributable to McKesson Corporation $ 887
$ 259
$ 1,628
$ 815

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)


	June 30, 2022		March 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	2,233	$	3,532
Receivables, net	19,900		18,583
Inventories, net	19,505		18,702
Assets held for sale	3,155		4,516
Prepaid expenses and other	590		898
Total current assets	45,383		46,231
Property, plant, and equipment, net	2,083		2,092
Operating lease right-of-use assets	1,598		1,548
Goodwill	9,368		9,451
Intangible assets, net	1,976		2,059
Other non-current assets	1,887		1,917
Total assets	$	62,295	$	63,298

LIABILITIES AND DEFICIT
Current liabilities
Drafts and accounts payable	$	39,708	$	38,086

Current portion of long-term debt	799		799
Current portion of operating lease liabilities	293		297
Liabilities held for sale	2,324		4,741
Other accrued liabilities	4,077		4,543
Total current liabilities	47,201		48,466
Long-term debt	4,976		5,080
Long-term deferred tax liabilities	1,541		1,418
Long-term operating lease liabilities	1,364		1,366
Long-term litigation liabilities	7,132		7,220
Other non-current liabilities	1,553		1,540

McKesson Corporation stockholders’ deficit
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.01 par value, 800 shares authorized and 277 and 275 shares issued at June 30, 2022 and March 31, 2022, respectively	3		2
Additional paid-in capital	7,350		7,275
Retained earnings	9,732		9,030
Accumulated other comprehensive loss	(948)		(1,534)

Treasury shares, at cost, 133 and 130 shares at June 30, 2022 and March 31, 2022, respectively	(18,141)		(17,045)
Total McKesson Corporation stockholders’ deficit	(2,004)		(2,272)
Noncontrolling interests	532		480
Total deficit	(1,472)		(1,792)
Total liabilities and deficit	$	62,295	$	63,298

December 31,
2017 March 31,
2017
ASSETS
Current Assets
Cash and cash equivalents $ 2,619
$ 2,783
Receivables, net 20,015
18,215
Inventories, net 17,103
15,278
Prepaid expenses and other 458
672
Total Current Assets 40,195
36,948
Property, Plant and Equipment, Net 2,401
2,292
Goodwill 11,828
10,586
Intangible Assets, Net 4,094
3,665
Equity Method Investment in Change Healthcare 3,704
4,063
Other Noncurrent Assets 1,991
3,415
Total Assets $ 64,213
$ 60,969

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current Liabilities
Drafts and accounts payable $ 33,009
$ 31,022
Short-term borrowings 749
183
Deferred revenue 68
346
Current portion of long-term debt 531
1,057
Other accrued liabilities 3,295
3,004
Total Current Liabilities 37,652
35,612

Long-Term Debt 7,514
7,305
Long-Term Deferred Tax Liabilities 2,833
3,678
Other Noncurrent Liabilities 2,807
1,774
Redeemable Noncontrolling Interests 1,435
1,327
McKesson Corporation Stockholders’ Equity
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding —
—
Common stock, $0.01 par value, 800 shares authorized at December 31, 2017 and March 31, 2017, 274 and 273 shares issued at December 31, 2017 and March 31, 2017 3
3
Additional Paid-in Capital 6,253
6,028
Retained Earnings 14,202
13,189
Accumulated Other Comprehensive Loss (1,726 ) (2,141 )
Other (1 ) (2 )
Treasury Shares, at Cost, 68 and 62 at December 31, 2017 and March 31, 2017 (6,997 ) (5,982 )
Total McKesson Corporation Stockholders’ Equity 11,734
11,095
Noncontrolling Interests 238
178
Total Equity 11,972
11,273
Total Liabilities, Redeemable Noncontrolling Interests and Equity $ 64,213
$ 60,969

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended June 30, 2022
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Deficit
	Shares	Amount				Common Shares					Amount
Balance, March 31, 2022	275	$	2	$	7,275		$	9,030	$	(1,534)	(130)	$	(17,045)	$	480	$	(1,792)
Issuance of shares under employee plans, net of forfeitures	2	1		91			—		—		—	(152)		—		(60)
Share-based compensation	—	—		40			—		—		—	—		—		40
Payments to noncontrolling interests	—	—		—			—		—		—	—		(36)		(36)
Other comprehensive income	—	—		—			—		586		—	—		50		636
Net income	—	—		—			768		—		—	—		41		809
Repurchase of common stock	—	—		(56)			—		—		(3)	(944)		—		(1,000)


Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—	—		(2)		(2)
Cash dividends declared, $0.47 per common share	—	—		—			(67)		—		—	—		—		(67)
Other	—	—		—			1		—		—	—		(1)		—
Balance, June 30, 2022	277	$	3	$	7,350		$	9,732	$	(948)	(133)	$	(18,141)	$	532	$	(1,472)


	Three Months Ended June 30, 2021
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Equity (Deficit)
	Shares	Amount				Common Shares					Amount
Balance, March 31, 2021	273	$	2	$	6,925		$	8,202	$	(1,480)	(115)	$	(13,670)	$	196	$	175
Issuance of shares under employee plans, net of forfeitures	1	—		71			—		—		—	(59)		—		12
Share-based compensation	—	—		33			—		—		—	—		—		33
Payments to noncontrolling interests	—	—		—			—		—		—	—		(39)		(39)
Other comprehensive income	—	—		—			—		23		—	—		—		23
Net income	—	—		—			486		—		—	—		39		525
Repurchase of common stock	—	—		(150)			—		—		(4)	(850)		—		(1,000)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—	—		178			—		(170)		—	—		—		8
Reclassification of McKesson Europe AG redeemable noncontrolling interests	—	—		—			—		—		—	—		287		287

Cash dividends declared, $0.42 per common share	—	—		—			(65)		—		—	—		—		(65)
Other	—	—		—			(5)		—		—	—		1		(4)
Balance, June 30, 2021	274	$	2	$	7,057		$	8,618	$	(1,627)	(119)	$	(14,579)	$	484	$	(45)

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Three Months Ended June 30,
	2022		2021
OPERATING ACTIVITIES
Net income	$	809	$	533
Adjustments to reconcile to net cash used in operating activities:
Depreciation	61		80
Amortization	87		138
Long-lived asset impairment charges	—		104
Deferred taxes	109		36
Credits associated with last-in, first-out inventory method	(13)		(23)
Non-cash operating lease expense	63		90
Gain from sales of businesses and investments	(33)		—
European businesses held for sale	20		—
Other non-cash items	102		194
Changes in assets and liabilities, net of acquisitions:
Receivables	(1,584)		(1,045)
Inventories	(955)		(901)
Drafts and accounts payable	1,006		(609)
Operating lease liabilities	(94)		(90)
Taxes	37		(54)
Litigation liabilities	(370)		74
Other	(186)		(149)
Net cash used in operating activities	(941)		(1,622)

INVESTING ACTIVITIES
Payments for property, plant, and equipment	(71)		(93)
Capitalized software expenditures	(29)		(66)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired	(1)		(1)
Proceeds from sales of businesses and investments, net	240		83
Other	(100)		(22)
Net cash provided by (used in) investing activities	39		(99)

FINANCING ACTIVITIES






Repayments of long-term debt	(2)		(2)

Common stock transactions:
Issuances	91		71
Share repurchases	(1,000)		(1,008)
Dividends paid	(71)		(69)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—		(1,031)
Other	(199)		(112)
Net cash used in financing activities	(1,181)		(2,151)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	18		11
Change in cash, cash equivalents, and restricted cash classified within Assets held for sale	470		—
Net decrease in cash, cash equivalents, and restricted cash	(1,595)		(3,861)
Cash, cash equivalents, and restricted cash at beginning of period	3,935		6,396
Cash, cash equivalents, and restricted cash at end of period	2,340		2,535
Less: Restricted cash at end of period included in Prepaid expenses and other	(107)		(112)

Cash and cash equivalents at end of period	$	2,233	$	2,423

Nine Months Ended December 31,
2017 2016
Operating Activities
Net income $ 1,382
$ 1,530
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 697
663
Goodwill impairment and other asset impairment charges 539
290
Loss from equity method investment in Change Healthcare 271
—
Deferred taxes (847 ) 122
Share-based compensation expense 57
109
Credits associated with last-in-first-out inventory method (5 ) (151 )
Loss (gain) from sale of businesses and equity investments (155 ) 113
Other non-cash items (132 ) 50
Changes in operating assets and liabilities, net of acquisitions:
Receivables (1,046 ) (654 )
Inventories (1,410 ) (374 )
Drafts and accounts payable 1,203
1,891
Deferred revenue (134 ) (58 )
Taxes 689
52
Other 214
(274 )
Net cash provided by operating activities 1,323
3,309

Investing Activities
Payments for property, plant and equipment (269 ) (246 )
Capitalized software expenditures (123 ) (123 )
Acquisitions, net of cash and cash equivalents acquired (1,979 ) (4,174 )
Proceeds from/ (payments for) sale of businesses and equity investments, net 329
(91 )
Payments received on Healthcare Technology Net Asset Exchange 126
—
Restricted cash for acquisitions 1,469
935
Other (36 ) 80
Net cash used in investing activities (483 ) (3,619 )

Financing Activities
Proceeds from short-term borrowings 12,699
2,803
Repayments of short-term borrowings (12,133 ) (1,405 )
Repayments of long-term debt (545 ) (392 )
Common stock transactions:
Issuances 114
89
Share repurchases, including shares surrendered for tax withholding (951 ) (2,060 )
Dividends paid (192 ) (192 )
Other (139 ) 12
Net cash used in financing activities (1,147 ) (1,145 )
Effect of exchange rate changes on cash and cash equivalents 143
(159 )
Net decrease in cash and cash equivalents (164 ) (1,614 )
Cash and cash equivalents at beginning of period 2,783
4,048
Cash and cash equivalents at end of period $ 2,619
$ 2,434

See Financial Notes

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES

(UNAUDITED)

1.Significant Accounting Policies


1.	~~Significant Accounting Policies~~

Nature of Operations: McKesson Corporation (“McKesson,” or the “Company,”) is a diversified healthcare services leader dedicated to advancing health outcomes for patients everywhere. McKesson partners with biopharma companies, care providers, pharmacies, manufacturers, governments, and others to deliver insights, products, and services to help make quality care more accessible and affordable. The Company reports its financial results in 4 reportable segments: U.S. Pharmaceutical, Prescription Technology Solutions (“RxTS”), Medical-Surgical Solutions, and International. Refer to Financial Note 14, “Segments of Business,” for additional information.

Basis of Presentation: The condensed consolidated financial statements ~~of McKesson Corporation (“McKesson,” the “Company,” or “we”~~ and other similar pronouns) include the financial statements of all wholly-owned subsidiaries and majority‑owned or controlled companies. For those consolidated subsidiaries where our ownership is less than 100%, the portion of the net income or loss allocable to the noncontrolling interests is reported as “Net Income Attributable to Noncontrolling Interests” on the condensed consolidated statements of operations. All significant intercompany balances and transactions have been eliminated in consolidation including the intercompany portion of transactions with equity method investees.

~~We consider ourselves to control an entity if we~~accompanying notes are the majority owner of and have voting control over such entity. We also assess control through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business entity is the primary beneficiary of the VIE. We consolidate VIEs when it is determined that we are the primary beneficiary of the VIE. Investments in business entities in which we do not have control, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Refer to Financial Note 2, “Healthcare Technology Net Asset Exchange” for further information on our equity method investment in Change Healthcare, LLC (“Change Healthcare”).

~~The condensed consolidated financial statements have been~~ prepared in accordance with ~~accounting principles~~United States (“U.S.”) generally accepted ~~in the United States of America~~accounting principles (“GAAP”) for interim financial reporting and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and therefore do not include all information and disclosures normally included in the annual consolidated financial statements.

~~To prepare~~The condensed consolidated financial statements of McKesson include the financial statements of all wholly-owned subsidiaries and majority-owned or controlled companies. For those consolidated subsidiaries where the Company’s ownership is less than 100%, the portion of the net income or loss allocable to the noncontrolling interests is reported as “Net income attributable to noncontrolling interests” in the Condensed Consolidated Statements of Operations. All significant intercompany balances and transactions have been eliminated in consolidation, including the intercompany portion of transactions with equity method investees.

The Company considers itself to control an entity if it is the majority owner of or has voting control over such entity. The Company also assesses control through means other than voting rights and determines which business entity is the primary beneficiary of the variable interest entity (“VIE”). The Company consolidates VIEs when it is determined that it is the primary beneficiary of the VIE. Investments in business entities in which the Company does not have control but can exercise significant influence over operating and financial policies are accounted for using the equity method.

Fiscal Period: The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean the Company’s fiscal year.

Reclassifications: Certain prior period amounts have been reclassified to conform to the current year presentation.

Use of Estimates: The preparation of financial statements in conformity with U.S. GAAP ~~management must~~requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of these financial statements and income and expenses during the reporting period. Actual amounts ~~may~~could differ from ~~these~~those estimated amounts. The Company continues to evaluate the ongoing impacts, including the economic consequences, of the pandemic caused by the SARS-CoV-2 coronavirus (“COVID-19”), and therefore the Company’s accounting estimates and assumptions may change over time and may change materially in future periods. In ~~our~~the opinion of management, the ~~accompanying~~ unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of ~~our financial position,~~the results of operations, financial position, and cash flows of McKesson for the interim periods presented.

The results of operations for the ~~quarter and nine~~three months ended ~~December 31, 2017~~June 30, 2022 are not necessarily indicative of the results that may be expected for the entire year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies, and financial notes included in ~~our~~the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017~~2022, previously filed with the SEC on May ~~22, 2017~~9, 2022 (“~~2017~~2022 Annual Report”).

~~The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean the Company’s fiscal year.~~

Recently Adopted Accounting Pronouncements

~~Goodwill Impairment Testing:~~ The amended guidance simplifies goodwill impairment testing by eliminating the second step of the impairment test. Under the second step, the implied fair value of goodwill is calculated in a hypothetical analysis by subtracting the fair value of all assets and liabilities of the reporting unit, including any unrecognized intangible assets, from the fair value of the reporting unit calculated in the first step of the impairment test. If the carrying value of goodwill for the reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for that excess. The amended guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. The amended guidance would have been effective for us commencing inThere were no adopted accounting standards during the first quarter of ~~2021; however, early adoption was permitted. We elected to early adopt this amended guidance in 2018 for interim and annual goodwill impairment tests on~~fiscal 2023 that had a ~~prospective basis. Refer to Financial Note 3, “Goodwill Impairment Charges.”~~

~~Investments:~~ ~~In the first quarter of 2018, we adopted amended guidance for the equity method of accounting. The amended guidance simplifies the transition~~material impact to the ~~equity method~~Company’s results of ~~accounting. This standard eliminates~~operations, financial position, cash flows, or notes to the ~~requirement that when an existing cost method investment qualifies for use of the equity method, an investor must restate its historical~~ financial statements as if the equity method had been used during all previous periods. Additionally, at the point an investment qualifies for the equity method, any unrealized gain or loss in accumulated other comprehensive income (loss) will be recognized through earnings. The adoption of this amended guidance did not have a material effect on our condensed consolidated financial statements.

upon their adoption.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Derivatives and Hedging:~~ In the first quarter of 2018, we adopted amended guidance for derivative instrument novations. The amendments clarify that a novation, a change in the counterparty, to a derivative instrument that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided all other hedge accounting criteria continue to be met. The adoption of this amended guidance did not have an effect on our condensed consolidated financial statements.

~~Consolidation:~~ In the first quarter of 2018, we adopted amended guidance for VIEs. The amended guidance requires a single decision maker of a VIE to consider indirect economic interests in the entity held through related parties that are under common control on a proportionate basis when determining whether it is the primary beneficiary of that VIE. This amendment does not change the existing characteristics of a primary beneficiary. The adoption of this amended guidance did not have a material effect on our condensed consolidated financial statements.

~~Inventory:~~ In the first quarter of 2018, we adopted amended guidance for the subsequent measurement of inventory. The amended guidance requires entities to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The requirement would replace the current lower of cost or market evaluation. Accounting guidance is unchanged for inventory measured using the last-in, first-out (“LIFO”) or the retail method. The adoption of this amended guidance did not have a material effect on our condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

~~Derivatives~~In June 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and ~~Hedging:~~ In August 2017, amended guidance was issued to better align an entity’s risk management activities and financial reporting for hedging relationships. The amended guidance, among other provisions, will eliminate the existing requirement to recognize periodic hedge ineffectiveness for cash flow and net investment hedges in earnings. The amended guidance also allows us to perform the initial quantitative hedge assessment when necessary up until the end of the quarter in which the hedge was designated and to elect to perform subsequent effectiveness assessments qualitatively. This guidancerequires additional disclosure requirements. ASU 2022-03 is effective for usthe Company on a prospective basis ~~commencing in the first quarter of 2020. Early~~for fiscal years beginning after December 15, 2023, with early adoption is permitted. ~~We are~~The Company is currently evaluating the impact of this ~~amended~~ guidance but does not expect it to have a material impact on ~~our condensed~~its consolidated financial ~~statements.~~statements or related disclosures.

~~Share-Based Payments:~~Subsequent Events

In ~~May 2017, amended guidance was issued~~July 2022, the Company exited one of its investments in equity securities for ~~employee share-based payment awards. This amendment provides guidance on which changes~~proceeds of $179 million. The Company expects to recognize a gain within “Other income, net” in its Condensed Consolidated Statement of Operations for the second quarter of fiscal 2023 related to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the amended guidance, we are required to account for the effects of a modification if the fair value, the vesting conditions or the classification (as an equity instrument or a liability instrument)disposition. The cost basis of the ~~modified award change from that~~investment was $38 million.

2. Held for Sale

In July 2021, the Company announced its intention to exit its businesses in Europe resulting in classification of certain assets and liabilities as held for sale. Assets and liabilities of $3.2 billion and $2.3 billion, respectively, at June 30, 2022, and $4.5 billion and $4.7 billion, respectively, at March 31, 2022, met the ~~original award immediately before~~criteria for classification as held for sale, primarily consisting of disposal groups related to the ~~modification.~~Company’s European divestiture activities discussed below. The ~~amended guidance is effective~~decrease in assets and liabilities held for ~~us on a prospective basis commencing in~~sale during the first quarter of ~~2019. Early adoption~~fiscal 2023 was primarily due to the divestiture of the Company’s U.K. disposal group in April 2022, as discussed in more detail below.

Assets and liabilities to be disposed of by sale (“disposal groups”) are classified as “held for sale” if their carrying amounts are principally expected to be recovered through a sale transaction rather than through continuing use. The classification occurs when the disposal group is ~~permitted. We~~available for immediate sale and the sale is probable. These criteria are ~~currently evaluating~~generally met when an agreement to sell exists, or management has committed to a plan to sell the ~~impact~~assets within one year. Disposal groups are measured at the lower of ~~this amended guidance on our condensed consolidated financial statements.~~carrying amount or fair value less costs to sell, and long-lived assets included within the disposal group are not depreciated or amortized. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group. When the net realizable value of a disposal group increases during a period, a gain can be recognized to the extent that it does not increase the value of the disposal group beyond its original carrying value when the disposal group was reclassified as held for sale. The Company determined that the disposal groups classified as held for sale do not meet the criteria for classification as discontinued operations.

~~Premium Amortization~~European Divestiture Activities

On July 5, 2021, the Company entered into an agreement to sell certain of ~~Purchased Callable Debt Securities:~~ ~~In March 2017, amended guidance was issued~~its businesses in the European Union (“E.U.”) located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along with its German headquarters and wound-care business, part of a shared services center in Lithuania, and its ownership stake in a joint venture in the Netherlands (“E.U. disposal group”) to ~~shorten~~ the ~~amortization period~~PHOENIX Group for a purchase price of €1.2 billion (or, approximately $1.3 billion) adjusted for certain ~~callable~~items, including cash, net debt ~~securities~~and working capital adjustments, and reduced by the value of the noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) at the transaction closing date. The transaction is anticipated to close within the second half of fiscal 2023, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals, as applicable. As of June 30, 2022 and March 31, 2022, the E.U. disposal group within the Company’s International segment, was classified as “Assets held for sale” and “Liabilities held for sale,” respectively, in the Condensed Consolidated Balance Sheet.

During the three months ended June 30, 2022, the Company recorded a ~~premium.~~gain of $12 million to remeasure the E.U. disposal group to fair value less costs to sell. This amount was recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statement of Operations. The ~~amended guidance requires~~Company’s measurement of the ~~premium~~fair value of ~~callable debt securities~~the E.U. disposal group was based on the total consideration expected to be ~~amortized to~~received by the ~~earliest call date but does not require an accounting change for securities held at a discount~~Company as ~~they would still be amortized to maturity. The amended guidance is effective for us on a modified retrospective basis commencing~~outlined in the ~~first quarter of 2020. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.~~

~~Compensation - Retirement Benefits:~~ In March 2017, amended guidance was issued which requires us to report the service cost component of defined benefit pension plans and other postretirement plans in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Othertransaction agreement. Certain components of ~~net benefit cost are required to be presented in~~ the ~~statements~~total consideration included fair value measurements that fall within Level 3 of ~~operations separately from~~ the service cost component outside of operating income. This amended guidance is effective for us in the first quarter of 2019 on a retrospective basis. Early adoption is permitted. We expect the adoption of this amended guidance to have no material effect on our condensed consolidated financial statements. This amended guidance is expected to only result in a change in presentation of other components of net benefit costs on our condensed consolidated statement of operations (a reclassification from operating income to non-operating income).

fair value hierarchy.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Derecognition of Nonfinancial Assets:~~ ~~In February 2017, amended guidance was issued that defines the term “in substance nonfinancial asset” as a financial asset promised to a counterparty in a contract if substantially all~~The total assets and liabilities of the ~~fair~~E.U. disposal group that have met the classification of held for sale in the Company’s Condensed Consolidated Balance Sheet are as follows:


(In millions)	June 30, 2022		March 31, 2022
Assets
Current assets
Receivables, net	$	1,277	$	1,322
Inventories, net	819		809
Prepaid expenses and other	92		72
Property, plant, and equipment, net	291		304
Operating lease right-of-use assets	217		224
Intangible assets, net	253		267
Other non-current assets	312		328
Remeasurement of assets of businesses held for sale to fair value less costs to sell (1)	(279)		(302)
Total assets held for sale	$	2,982	$	3,024

Liabilities
Current liabilities
Drafts and accounts payable	$	1,406	$	1,826
Current portion of long-term debt	4		4
Current portion of operating lease liabilities	30		33
Other accrued liabilities	403		473
Long-term debt	11		11
Long-term deferred tax liabilities	60		55
Long-term operating lease liabilities	168		180
Other non-current liabilities	122		138
Total liabilities held for sale	$	2,204	$	2,720

(1)Excludes charges in fiscal 2022 related to the impairment of individual assets, which are primarily comprised of a $113 million impairment of internally developed software recorded directly against the gross value of the ~~asset that is promised is concentrated in nonfinancial assets. The scope~~assets impacted.

On April 6, 2022, the Company completed the previously announced sale of this amendment includes nonfinancial assets transferred within a legal entity including a parent entity’s transfer of nonfinancial assets by transferring ownership interests in consolidated subsidiaries. The amendment excludes allits retail and distribution businesses and nonprofit activities from its scope and therefore all entities, with limited exceptions, are required to account for the derecognition of a business or nonprofit activity in accordance with the consolidation guidance once this amended guidance becomes effective. We are required to apply this amended guidance at the same time we apply the amended revenue guidance in the ~~first quarter~~United Kingdom (“U.K. disposal group”) to Aurelius Elephant Limited for a purchase price of 2019. It allows for either full retrospective adoption or modified retrospective adoption. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.

~~Business Combinations:~~ In January 2017, amended guidance was issued to clarify the definition of a business to assist entities in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amended guidance provides a practical screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all£110 million (or, approximately $144 million), including certain adjustments. As part of the ~~fair value~~transaction, the Company divested net assets of $615 million and released $731 million of accumulated other comprehensive loss, within the ~~gross assets acquired is concentrated in~~International segment, and the buyer assumed and repaid a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amended guidance requires that to be considered a business, a set must include an input and a substantive process that together significantly contributenote payable to the ~~ability to create output. The amended guidance is effective for us commencing in the first quarter~~Company of ~~2019 on a prospective basis. Early adoption is permitted in certain circumstances. We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.~~

~~Restricted Cash:~~ In November 2016, amended guidance was issued that requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Transfers between cash and cash equivalents and restricted cash or restricted cash equivalents are not reported as cash flow activities in the statement of cash flows. The amended guidance is effective for us commencing in the first quarter of 2019 on a retrospective basis. Early adoption is permitted. We expect the adoption of this amended guidance to have no effect on our condensed consolidated statements of operations, comprehensive income or our consolidated balance sheets. This amended guidance is expected to only result in a change in presentation of restricted cash and restricted cash equivalents on our condensed consolidated statement of cash flows.

~~Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory:~~ In October 2016, amended guidance was issued to require entities to recognize income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amended guidance is effective for us commencing in the first quarter of 2019 on a modified retrospective basis. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.

~~Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments:~~ In August 2016, amended guidance was issued to provide clarification on cash flow classification related to eight specific issues including contingent consideration payments made after a business combination and distributions received from equity method investees. The amended guidance is effective for us commencing in the first quarter of 2019 on a retrospective basis. Early adoption is permitted. We intend to make policy elections within the amended standard that are consistent with our current presentations. We do not expect the adoption of this amended guidance to have a material effect on our condensed consolidated financial statements.

~~Financial Instruments - Credit Losses:~~ In June 2016, amended guidance was issued, which will change the impairment model for most financial assets and require additional disclosures. The amended guidance requires financial assets that are measured at amortized cost, be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of financial assets. The amended guidance also requires us to consider historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount in estimating credit losses. The amended guidance becomes effective for us commencing in the first quarter of 2021 and will be applied through a cumulative-effect adjustment to the beginning retained earnings in the year of adoption. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.

approximately $118 million.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Leases:~~ ~~In February 2016, amended guidance was issued~~Following the completion of the transaction on April 6, 2022, there were no assets or liabilities of the U.K. disposal group classified as held for ~~lease arrangements.~~sale in the Company’s Condensed Consolidated Balance Sheet. The ~~amended standard will require lessees to recognize~~total assets and liabilities onof the ~~balance sheet~~U.K. disposal group that met the classification of held for ~~all leases with terms longer than 12~~sale in the Company’s Condensed Consolidated Balance Sheet at March 31, 2022 were as follows:


(In millions)	March 31, 2022
Assets
Current assets
Cash and cash equivalents	$	531
Receivables, net	931
Inventories, net	563
Prepaid expenses and other	50
Property, plant, and equipment, net	91
Operating lease right-of-use assets	270
Intangible assets, net	117
Other non-current assets	88
Remeasurement of assets of businesses held for sale to fair value less costs to sell	(1,159)
Total assets held for sale	$	1,482

Liabilities
Current liabilities
Drafts and accounts payable	$	1,593

Current portion of operating lease liabilities	50
Other accrued liabilities	59

Long-term deferred tax liabilities	16
Long-term operating lease liabilities	262
Other non-current liabilities	38
Total liabilities held for sale	$	2,018

3.Restructuring, Impairment, and Related Charges, Net

The Company recorded restructuring, impairment, and related charges, net of $23 million and $158 million for the three months ended June 30, 2022 and ~~provide enhanced disclosures on key information~~2021, respectively. These charges were included in “Restructuring, impairment, and related charges, net” in the Condensed Consolidated Statements of ~~leasing arrangements. The amended guidance is effective for us commencing in~~Operations.

Restructuring Initiatives

During the first quarter of ~~2020, on~~fiscal 2022, the Company approved an initiative to increase operational efficiencies and flexibility by transitioning to a ~~modified retrospective basis. Early adoption is permitted. We plan to adopt~~partial remote work model for certain employees. This initiative primarily included the ~~new standard on the effective date and are currently evaluating the impact of this amended guidance on our consolidated financial statements. We anticipate that the adoption~~rationalization of the ~~amended lease guidance will materially affect our condensed consolidated balance sheet and will require certain changes to our systems and processes.~~

~~Financial Instruments:~~ ~~In January 2016, amended guidance was issued that requires equity investments to be measured at fair value with changes~~Company’s office space in ~~fair value recognized in net income and enhanced disclosures about those investments. This guidance also simplifies~~North America. Where the ~~impairment assessments of equity investments without readily determinable fair value. The investments that are accounted for under~~Company ceased using office space, it exited the ~~equity method of accounting or result in consolidation~~portion of the ~~investee are excluded from~~facility no longer used. It also retained and repurposed certain other office locations. The Company recorded charges of $95 million for the ~~scope of this amended guidance. The amended guidance will become effective for us commencing~~three months ended June 30, 2021 primarily related to lease right-of-use and other long-lived asset impairments, lease exit costs, and accelerated depreciation and amortization. This initiative was substantially complete in fiscal 2022 and remaining costs the first quarter of 2019 and will be applied through a cumulative-effect adjustment. Early adoption is not permitted except for certain provisions. We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.

~~Revenue Recognition:~~ In May 2014, amended guidance was issued for recognizing revenue from contracts with customers. The amended guidance eliminates industry specific guidance and applies to all companies. Revenues will be recognized when an entity satisfies a performance obligation by transferring control of a promised good or service to a customer in an amount that reflects the consideration to which the entityCompany expects to be entitled for that good or service. Revenue from a contract that contains multiple performance obligations is allocated to each performance obligation generally on a relative standalone selling price basis. The amended guidance also requires additional quantitative and qualitative disclosures. In March, April and May 2016, amended guidance was further issued including clarifying guidance on principal versus agent considerations, ability to choose an accounting policy election to account for shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise to transfer the good, and provided certain scope improvements and practical expedients. The amended standard is effective for us commencing in the first quarter of 2019 and allows for either full retrospective adoption or modified retrospective adoption. Early adoption is permitted.record under this initiative are not material.

The majority of our revenue is generated from sales of pharmaceutical products, which will continue to be recognized when control of the goods is transferred to the customer. We generally anticipate having substantially similar performance obligations under the amended guidance as compared with deliverables and units of account currently being recognized. We intend to make policy elections within the amended standard that are consistent with our current accounting. We do not expect the adoption of this amended standard to have a material impact on our condensed consolidated financial statements. We anticipate adopting this amended standard on a modified retrospective basis in our first quarter of 2019.

~~2. Healthcare Technology Net Asset Exchange~~

On March 1, 2017, we contributed the majority of our McKesson Technology Solutions businesses (“Core MTS Business”) to the newly formed joint venture, Change Healthcare, under the terms of a contribution agreement previously entered into between McKesson and Change Healthcare Holdings, Inc. (“Change”) and others including shareholders of Change. We retained our RelayHealth Pharmacy (“RHP”) and Enterprise Information Solutions (“EIS”) businesses. The EIS business was subsequently sold to a third party in the third quarter of 2018. In exchange for the contribution, we own 70% of the joint venture with the remaining equity ownership held by shareholders of Change. The joint venture is jointly governed by us and shareholders of Change.

~~Gain from Healthcare TechnologyNet Asset Exchange~~

We accounted for this transaction as a sale of the Core MTS Business and a subsequent purchase of a 70% interest in the newly formed joint venture. Accordingly, in the fourth quarter of 2017, we deconsolidated the Core MTS Business and recorded a pre-tax gain of $3,947 million (after-tax gain of $3,018 million). Additionally, in the first quarter of 2018, we recorded a pre-tax gain of $37 million (after-tax gain of $22 million) in operating expenses in the accompanying condensed consolidated statement of operations upon the finalization of net working capital and other adjustments. During the second quarter of 2018, we received $126 million in cash from Change Healthcare representing the final settlement of the net working capital and other adjustments.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Equity Method Investment in Change Healthcare~~

~~Our investment in~~Restructuring, impairment, and related charges, net, for the ~~joint venture is accounted for using the equity method of accounting on a one-month reporting lag. During the third quarter~~three months ended June 30, 2022 and first nine months of 2018, we recorded our proportionate share of loss from Change Healthcare of $90 million and $271 million, which included transaction and integration expenses incurred by the joint venture and fair value adjustments including incremental intangible assets amortization associated with basis differences. This amount was recorded under the caption, “Loss from Equity Method Investment in Change Healthcare,” in our condensed consolidated statement of operations.

~~As our investment is accounted for using a one-month lag, the effects~~2021 consisted of the ~~enactment of the 2017 Tax Cuts~~following:


	Three Months Ended June 30, 2022
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Severance and employee-related costs, net	$	3	$	—	$	—	$	—	$	(1)	$	2
Exit and other-related costs (1)	1		2		1		2		15		21
Asset impairments and accelerated depreciation	—		5		—		—		(5)		—
Total	$	4	$	7	$	1	$	2	$	9	$	23

(1)Exit and Jobs Act (the “2017 Tax Act”) are expected to be recognized in our condensed statement of operations in the fourth quarter of 2018. We expect our proportionate share of a provisional net benefit recognized by Change Healthcare from the enactment of the 2017 Tax Act to be approximately $70 million to $110 million primarily due to a reduction in future applicable tax rate. The impact of the 2017 Tax Act for Change Healthcare may differ materially from this provisional amount.

At December 31, 2017, the carrying value of our investment was $3,704 million, which exceeded our proportionate share of the joint venture’s book value of net assets by approximately $4,526 million, primarily reflecting equity method intangible assets, goodwill and other fair value adjustments.

~~Related Party Transactions~~

In connection with the transaction, McKesson, Change Healthcare and certain shareholders of Change entered into various ancillary agreements, including transition services agreements (“TSA”), a transaction and advisory fee agreement (“Advisory Agreement”), a tax receivable agreement (“TRA”) and certain other commercial agreements.

At March 31, 2017, we had a $136 million noncurrent liability payable to shareholders of Change associated with the TRA. At December 31, 2017, the amount was reduced to $90 million reflecting a reduction in future applicable tax rate under the 2017 Tax Act. The amount is based on certain estimates and could become payable in periods after a disposition of our investment in Change Healthcare.

The total fees charged by us to the joint venture for various transition services under the TSA were $22 million and $69 million for the third quarter and first nine months of 2018. Transition services fees are included within operating expenses in our condensed consolidated statements of operations.

~~During the third quarter and first nine months of 2018, we did not earn material transaction and advisory fees under the Advisory Agreement.~~

~~Revenues recognized and expenses incurred under commercial arrangements with Change Healthcare were not material during the third quarter and first nine months of 2018.~~

~~At December 31, 2017, receivables due from the joint venture were $54 million and at March 31, 2017, receivables due from the joint venture were not material.~~


3.	~~Goodwill Impairment Charges~~

Goodwill impairment testing is conducted at the reporting unit level, which is generally defined as an operating segment or at one level below an operating segment (also known as a component), for which discrete financial information is available and segment management regularly reviews the operating results of that reporting unit. We evaluate goodwill for impairment on an annual basis as of January 1 each year and at an interim date, if indicators of impairment exist.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~McKesson Europe AG (“McKesson Europe”)~~

During the second quarter of 2018, our McKesson Europe reporting unit within our Distribution Solutions segment experienced a decline in its estimated future cash flows, primarily in our United Kingdom (“U.K.”) retail business, driven by significant government reimbursement reductions affecting retail pharmacy economics across the U.K. market. Accordingly, we performed an interim one-step goodwill impairment test in accordance with the amended goodwill guidance for this reporting unit prior to our annual impairment test.

As a result of the test, the estimated fair value of this reporting unit was determined to be lower than the carrying value. In the second quarter of 2018, we recorded a non-cash pre-tax and after-tax charge of $350 million to impair the carrying value of this reporting unit’s goodwill under the caption, “Goodwill Impairment Charges” in the accompanying condensed consolidated statement of operations. There were no tax benefits associated with the goodwill impairment charge. The fair value of the reporting unit was determined using a combination of an income approach based on a discounted cash flow (“DCF”) model and a market approach based on guideline public companies’ revenues and earnings before interest, tax, depreciation and amortization multiples. Fair value estimates result from a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by management as of the measurement date. Any changes in key assumptions, including failure to improve operations of certain retail pharmacy stores, additional government reimbursement reductions, deterioration in the financial market, an increase in interest rates or an increase in the cost of equity financing by market participants within the industry, or other unanticipated events and circumstances, may affect such estimates. Fair value assessments of the reporting unit are considered a Level 3 measurement due to the significance of unobservable inputs developed using company specific information. The discount rate and terminal growth rate used in our 2018 second quarter impairment testing for this reporting unit were 7.5% and 1.25% compared to 7.0% and 1.5% in our 2017 annual impairment test. No additional significant indicators of goodwill impairment exist during the third quarter of 2018. At December 31, 2017, the McKesson Europe reporting unit had a remaining goodwill balance of $2,692 million.

Other risks, expenses and future developments that we were unable to anticipate as of the interim testing date in the second quarter of 2018 may require us to further revise the future projected cash flows, which could adversely affect the fair value of this reporting unit in future periods. As a result, we may be required to record additional impairment charges. Refer to Financial Note 4, “Restructuring and Asset Impairment Charges,” for more information.

~~Enterprise Information Solutions~~

In conjunction with the Healthcare Technology Net Asset Exchange, we evaluated strategic options for our EIS business, which was a reporting unit within our Technology Solutions segment during 2017. In the second quarter of 2017, we recorded a non-cash pre-tax charge of $290 million ($282 million after-tax) to impair the carrying value of this reporting unit’s goodwill. The impairment primarily resulted from a decline in estimated cash flows. The amount of goodwill impairment for the EIS business was determined under the former accounting guidance on goodwill impairment testing, and computed as the excess of the carrying value of the reporting unit’s goodwill over the implied fair value of its goodwill. The charge was recorded under the caption, “Goodwill Impairment Charges,” within our Technology Solutions segment in the accompanying condensed consolidated statement of operations. Most of the goodwill impairment was not deductible for income tax purposes. Refer to Financial Note 5, “Divestitures” for more information on the sale of the EIS business.

~~Refer to Financial Note 15, “Fair Value Measurements” for more information on these nonrecurring fair value measurements.~~

~~4. Restructuring and Asset Impairment Charges~~

~~Fiscal 2018 McKesson Europe Plan~~

During the second quarter of 2018, we performed an interim impairment test of long-lived assets primarily for our U.K. retail business due to the previously discussed decline in the estimated future cash flows driven by significant government reimbursement reductions in the U.K. As a result, we recognized non-cash pre-tax charges of $189 million ($157 million after-tax) to impair the carrying value of certain intangible assets (notably pharmacy licenses) and store assets (primarily fixtures) in the second quarter of 2018. We utilized a combination of an income approach (primarily DCF model) and a market approach for estimating the fair value of intangible assets. The fair value of the intangible assets is considered a Level 3 fair value measurement due to the significance of unobservable inputs developed using company specific information.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

On September 29, 2017, we committed to a restructuring plan, which primarily consists of the closures of underperforming retail stores in the U.K. and a reduction in workforce. The plan is expected to be substantially implemented prior to the first half of 2019. As part of this plan, we recorded a pre-tax charge of $6 million ($5 million after-tax) and $53 million ($45 million after-tax) during the third quarter and first nine months of 2018 primarily representing employee severance and lease exit costs.

We expect to record total pre-tax impairment and restructuring charges of approximately $650 million to $750 million during 2018 for our McKesson Europe business, of which $592 million of pre-tax charges (including the 2018 second quarter goodwill impairment charge of $350 million) were recorded during the first nine months of 2018. Estimated remaining restructuring chargesother-related costs primarily consist of ~~lease termination~~accruals for costs to be incurred without future economic benefits, project consulting fees, and other exit ~~costs.~~costs expensed as incurred.


	Three Months Ended June 30, 2021
(In millions)	U.S. Pharmaceutical (1)		Prescription Technology Solutions (1)		Medical-Surgical Solutions (1)		International (2)		Corporate (1)		Total
Severance and employee-related costs, net	$	2	$	—	$	—	$	12	$	—	$	14
Exit and other-related costs (3)	2		1		2		14		21		40
Asset impairments and accelerated depreciation	8		17		4		34		41		104
Total	$	12	$	18	$	6	$	60	$	62	$	158

~~Long-lived asset impairment and restructuring charges were recorded under~~(1)Includes costs related to the ~~caption, “Restructuring and Asset Impairment Charges” in operating expenses in the accompanying condensed consolidated statements of operations.~~

~~Fiscal 2016 Cost Alignment Plan~~

~~In the fourth quarter of 2016, we committed~~transition to a ~~restructuring plan to lower our operating~~partial remote work model described above.

(2)Includes costs ~~(the “Cost Alignment Plan”). The Cost Alignment Plan primarily consists of a reduction in workforce, and business process initiatives that will be substantially implemented prior~~related to the ~~end of 2019. Business process initiatives primarily include plans~~transition to ~~reduce~~a partial remote work model described above and U.K. operating ~~costs of our distribution~~model and ~~pharmacy operations, administrative support functions, and technology platforms,~~cost optimization efforts, as well as ~~the disposal~~costs for optimization programs in Canada.

(3)Exit and abandonment of certain non-core businesses. Under the Cost Alignment Plan, we recorded total pre-tax charges of $252 million since the inception of this plan through the third quarter of 2018. The remaining charges under this programother-related costs primarily consist of ~~exit-related~~accruals for costs to be incurred without future economic benefits, project consulting fees, and ~~accelerated depreciation and amortization related to our Distribution Solutions segment.~~

~~There were no material restructuring charges recorded during the third quarters and first nine months of 2018 and 2017.~~

other exit costs expensed as incurred.

The following table summarizes the activity related to the ~~restructuring~~ liabilities associated with the ~~Cost Alignment Plan~~Company’s restructuring initiatives for the ~~first nine~~three months ended June 30, 2022:


(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Balance, March 31, 2022 (1)	$	11	$	3	$	1	$	56	$	59	$	130
Restructuring, impairment, and related charges, net	4		7		1		2		9		23
Non-cash charges	—		(5)		—		—		5		—
Cash payments	(2)		(2)		(1)		(2)		(15)		(22)
Other (2)	(1)		—		—		(15)		1		(15)
Balance, June 30, 2022 (3)	$	12	$	3	$	1	$	41	$	59	$	116

(1)As of ~~2018:~~

(In millions) Balance March 31, 2017 Net restructuring charges recognized Non-cash charges Cash Payments Other
Balance December 31, 2017 ⁽¹⁾
Cost Alignment Plan
Distribution Solutions $ 90
$ 8
$ —
$ (26 ) $ 3
$ 75
Technology Solutions 10
(1 ) —
(4 ) (5 ) —
Corporate 6
2
—
(2 ) (1 ) 5
Total $ 106
$ 9
$ —
$ (32 ) $ (3 ) $ 80


~~(1)~~	The reserve balances as of December 31, 2017 include $51 million recorded in other accrued liabilities and $29 million recorded in other noncurrent liabilities in our condensed consolidated balance sheet.


5.	~~Divestitures~~

~~Enterprise Information Solutions~~

~~On August 1, 2017, we entered into an agreement with a third party to sell our EIS business for $185 million, subject to adjustments for net debt and working capital. On October 2, 2017,~~March 31, 2022, the ~~transaction closed upon satisfaction of all closing conditions including the termination of the waiting period under U.S. antitrust laws. We received net cash proceeds of $169 million after $16~~total reserve balance was $130 million, of ~~assumed net debt by the third party. We recognized a pre-tax gain of $109~~which $58 million ~~(after-tax gain of $30 million) upon the disposition of this business~~was recorded in “Other accrued liabilities,” $36 million was recorded in “Liabilities held for sale,” and $36 million was recorded in “Other non-current liabilities” in the ~~third quarter of 2018 within operating expenses in our Technology Solutions segment.~~Condensed Consolidated Balance Sheet.

~~Equity Investment~~

~~On July 18, 2017, we completed the sale of an equity method investment from our Distribution Solutions segment~~(2)Other primarily includes cumulative translation adjustments and transfers to ~~a third party for total cash proceeds of $42 million and recorded a pre-tax gain of $43 million ($26 million after-tax) within~~certain other ~~income, net in our condensed consolidated statement of operations during the first nine months of 2018.~~

These divestitures did not meet the criteria to qualify as discontinued operations. Pre- and after-tax income from continuing operations of these businesses were not material for the third quarter and first nine months of 2018.

liabilities.

1312

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)


6.	~~Business Combinations~~

~~2018 Acquisitions~~

~~RxCrossroads~~

~~On January 2, 2018, we completed our acquisition~~(3)As of ~~RxCrossroads for~~June 30, 2022, the ~~net purchase consideration~~total reserve balance was $116 million, of ~~$724~~which $62 million~~, which~~ was funded from cash on hand. RxCrossroads is headquartered in Louisville, Kentucky and provides tailored services to pharmaceutical and biotechnology manufacturers. This acquisition will enhance our existing commercialization solutions for manufacturers of branded, specialty, generic and biosimilar drugs. The financial results of the acquired business will be included in our North America pharmaceutical distribution and services business within our Distribution Solutions segment commencing the fourth quarter of 2018.

~~CoverMyMeds LLC (“CMM”)~~

On April 3, 2017, we completed our acquisition of CMM for the net purchase consideration of $1.3 billion, which was funded from cash on hand. The cash consideration was initially paid into an escrow account prior to our 2017 fiscal year end, and was includedrecorded in “Other ~~Noncurrent Assets” within our consolidated balance sheet at March 31, 2017. CMM is headquartered~~accrued liabilities,” $26 million was recorded in ~~Columbus, Ohio~~“Liabilities held for sale,” and ~~provides electronic prior authorization solutions to pharmacies, providers, payers, and pharmaceutical manufacturers. The financial results of CMM are included~~$28 million was recorded in ~~our North America pharmaceutical distribution and services business within our Distribution Solutions segment since the acquisition date.~~

Pursuant to the agreement, McKesson may pay up to an additional $160 million of contingent consideration based on CMM’s financial performance for 2018 and 2019. As a result, we recorded a liability for this remaining contingent consideration at its estimated fair value of $113 million as of the acquisition date on our condensed consolidated balance sheet. The contingent consideration was estimated using a Monte Carlo simulation, which utilized Level 3 inputs under the fair value measurement and disclosure guidance, including estimated financial forecasts. The contingent liability is re-measured at fair value at each reporting date until the liability is extinguished with changes in fair value being recorded to our statements of operations. There was no material change“Other non-current liabilities” in the ~~fair value of this contingent liability during the third quarter and the first nine months of 2018. The initial fair value of this contingent consideration was a non-cash investing activity.~~Condensed Consolidated Balance Sheet.

4. Income Taxes

During the ~~third quarter~~three months ended June 30, 2022 and ~~first nine months~~2021, the Company recorded income tax expense of 2018, we recorded certain measurement period adjustments to the provisional fair value of assets acquired and liabilities assumed as of the acquisition date. The adjusted provisional fair value of assets acquired and liabilities assumed as of the acquisition date, excluding goodwill and intangibles, was $52$199 million and ~~$7 million. Approximately $870~~$26 million, of the adjusted preliminary purchase price allocation has been assigned to goodwill, which reflects the expected future benefits of certain synergies and intangible assets that do not qualify for separate recognition. Included in the adjusted preliminary purchase price allocation are acquired identifiable intangibles of $487 million primarily representing customer relationships with a weighted average life of 17 years. Amounts recognized as of the acquisition date are provisional and subject to change within the measurement period as our fair value assessments are finalized.

~~Other~~

During the first nine months of 2018, we also completed our acquisitions of intraFUSION, Inc. (“intraFUSION”), BDI Pharma, LLC (“BDI”) and Uniprix Group (“Uniprix”) for net cash consideration of $480 million, which was funded from cash on hand. intraFUSION is a healthcare management company based in Houston, Texas providing services to physician office infusion centers. BDI is a plasma distributor headquartered in Columbia, South Carolina. We acquired the Uniprix banner which serves 375 independent pharmacies in Quebec, Canada.respectively. The adjusted provisional fair value of assets and liabilities recognized as of the acquisition dates for these three acquisitions included approximately $235 million of goodwill and $118 million of identifiable intangibles, primarily representing customer relationships. The amounts as of the acquisition date are provisional and subject to change within the measurement period as our fair value assessments are finalized. The financial results of intraFUSION, BDI and Uniprix are included within our Distribution Solutions segment since the acquisition dates.

The fair value of acquired intangibles from these acquisitions was primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~2017 Acquisitions~~

~~Rexall Health~~

On December 28, 2016, we completed our acquisition of Rexall Health which operates approximately 450 retail pharmacies in Canada, primarily in Ontario and Western Canada. The initial net cash purchase consideration of $2.9 billion Canadian dollars (or, approximately $2.1 billion) was funded from cash on hand. As part of the transaction, McKesson agreed to divest 27 stores that the Competition Bureau of Canada (the “Bureau”) identified during its review of the transaction. During the first nine months of 2018, we completed the sales of all 27 stores and received net cash proceeds of $116 million Canadian dollars (or, approximately $94 million) from a third-party buyer. We also received $147 million Canadian dollars (or, approximately $119 million) in cash from the third-party seller of Rexall Health as the settlement of the post-closing purchase price adjustment related to these store divestitures. No gain or loss was recognized from the sales of these stores. The financial results of Rexall Health are included in our North America pharmaceutical distribution and services business within our Distribution Solutions segment since the acquisition date.

The fair value measurements of assets and liabilities assumed of Rexall Health as of the acquisition date were finalized upon completion of the measurement period. At December 31, 2017, the final amounts of fair value recognized for the assets acquired and liabilities assumed as of the acquisition date, excluding goodwill and intangibles, were $560 million and $210 million. Approximately $948 million of the final purchase price allocation was assigned to goodwill, which primarily reflects the expected future benefits of certain synergies and intangible assets that do not qualify for separate recognition. Included in the final purchase price allocation were acquired identifiable intangibles of $872 million, net of intangibles classified as held for sale, primarily representing trade names with a weighted average life of 19 years and customer relationships with a weighted average life of 19 years.

The fair value of acquired intangibles from the acquisition was primarily determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate. These inputs are considered Level 3 inputs.

~~Other~~

During the first nine months of 2017, we completed our acquisitions of Vantage Oncology Holdings, LLC (“Vantage”), Biologics, Inc., UDG Healthcare Plc and other businesses for net cash payments of $2.0 billion.

~~Other Acquisitions~~

During the last two years, we also completed other acquisitions within both of our operating segments. Financial results for our business acquisitions have been included in our consolidated financial statements since their respective acquisition dates. Purchase prices for our business acquisitions have been allocated based on estimated fair values at the date of acquisition.

Goodwill recognized for our business acquisitions is generally not expected to be deductible for tax purposes. However, if we acquire the assets of a company, the goodwill may be deductible for tax purposes.


7.	~~Discontinued Operations~~

In the first quarter of 2017, we completed the sale of our Brazilian pharmaceutical distribution business within our Distribution Solutions segment to a third party and recognized an after-tax loss of $113 million within discontinued operations primarily for the settlement of certain indemnification matters as well as the release of cumulative translation losses. We made a payment of approximately $100 million related to the sale of this business in the first quarter of 2017.

The results of discontinued operations for the third quarters and first nine months of 2018 and 2017 were not material except for the loss recognized upon the disposition of our Brazilian business in 2017. As of December 31, 2017 and March 31, 2017, the carrying amounts of total assets and liabilities of discontinued operations were not material.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


8.	~~Income Taxes~~

~~Our~~Company’s reported income tax ~~benefit rates were 37.7%~~expense rate was 19.8% and ~~3.5%~~4.6% for the ~~third quarter~~three months ended June 30, 2022 and ~~first nine months of 2018 compared to income tax expense rates of 16.8% and 25.7% for the third quarter and first nine months of 2017.~~2021, respectively. Fluctuations in ~~our~~the Company’s reported income tax rates are primarily due to discrete ~~items mainly driven by~~benefits recognized in the ~~impact of the 2017 Tax Act, as discussed below, the impact of nondeductible impairment charges, changes within our business mix of income, and the effect of an intercompany sale of software.~~

quarter. During the ~~third quarters of 2018 and 2017, income tax benefit was $263 million and income tax expense was $131 million related to continuing operations and included~~three months ended June 30, 2022, the Company recognized a net discrete tax ~~benefits~~benefit of $424 million and $12 million. During the first nine months of 2018 and 2017, income tax benefit was $46 million and tax expense was $570 million related to continuing operations and included net discrete tax benefits of $420 million and $69 million.

~~Our discrete tax benefits for 2018 included a provisional $370 million related to the impact of the 2017 Tax Act, further described below, and other discrete tax benefits of $54~~$45 million primarily related to the ~~conclusion~~tax impact of ~~certain tax audits. Our~~share-based compensation. During the three months ended June 30, 2021, the Company recognized a net discrete tax ~~benefits for the first nine months~~benefit of ~~2017 included $47~~$97 million primarily related to statute of limitation expirations in various taxing jurisdictions.

As of June 30, 2022, the ~~adoption~~Company had $1.5 billion of ~~the amended accounting guidance on employee share-based compensation.~~

~~The non-cash pre-tax charge~~unrecognized tax benefits, of ~~$350 million to impair~~which $1.3 billion would reduce income tax expense and the carrying value of goodwill related to our McKesson Europe reporting unit within our Distribution Solutions segment, described in our Financial Note 3, “Goodwill Impairment Charges,” had an unfavorable impact on our effective tax rate ~~in 2018 given~~if recognized. During the next twelve months, it is reasonably possible that ~~this charge was not~~our unrecognized tax ~~deductible.~~

~~The non-cash pre-tax charge of $290~~benefits may decrease by as much as $150 million to ~~impair~~$190 million due to settlements of tax examinations and statute of limitation expirations based on the ~~carrying value~~information currently available. However, this may change as the Company continues to have ongoing discussions with various taxing authorities throughout the year or statute of ~~goodwill related~~limitations expire, and if the ultimate resolution of unrecognized tax benefits differs from this estimated range, the Company will record any additional income tax expense or benefit as necessary in the appropriate period. The unrecognized tax benefit may also increase or decrease due to ~~our EIS business within our Technology Solutions segment, described~~future developments in opioid-related litigation and claims, as discussed in Financial Note ~~3, "Goodwill Impairment Charges," had an unfavorable impact on our effective tax rate in 2017 given that approximately $269 million of the goodwill impairment charge was not tax deductible.~~12, “Commitments and Contingent Liabilities.”

~~We signed the Revenue Agent’s Report from the U.S. Internal Revenue Services (“IRS”) relating to 2010 through 2012 on December 29, 2017. We file~~The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. ~~We are subject to audit by~~The Internal Revenue Service (“IRS”) is currently examining the ~~IRS~~Company’s U.S. corporation income tax returns for ~~fiscal years 2013 through the current fiscal year. We are~~2018 and 2019. The Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years ~~2010~~2014 through the current fiscal year.

~~As of December 31, 2017, we had $944 million of unrecognized tax benefits, of which $833 million would reduce income tax expense~~

5. Redeemable Noncontrolling Interests and the effective tax rate, if recognized. The increase in unrecognized tax benefit is mainly due to uncertainty relating to the application of the 2017 Tax Act, partially offset by the impact of the IRS audit resolution. During the next twelve months, we do not anticipate a significant increase or decrease to our unrecognized tax benefits based on the information currently available. However, this amount may change as we continue to have ongoing negotiations with various taxing authorities throughout the year and complete our accounting related to the impact of the 2017 Tax Act.Noncontrolling Interests

~~2017 Tax Act~~

On December 22, 2017, the U.S. government enacted comprehensive new tax legislation referred to as the 2017 Tax Act. The 2017 Tax Act makes broad and complex changes to the U.S. tax code that affect our fiscal year 2018, including but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; and (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries.

The 2017 Tax Act also establishes new tax provisions that will affect our fiscal year 2019, including, but not limited to, (1) eliminating the corporate alternative minimum tax (“AMT”); (2) creating the base erosion anti-abuse tax (“BEAT”); (3) establishing new limitations on deductible interest expense and certain executive compensation; (4) creating a new provision designed to tax global intangible low-tax income (“GILTI”); (5) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

The accounting guidance on income taxes requires us to recognize the effects of new legislation upon enactment. Accordingly, we are required to recognize the effects of the 2017 Tax Act in the third quarter of 2018. Shortly after the enactment, however, the SEC staff issued guidance on accounting for the 2017 Tax Act. This guidance provides a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the accounting for income taxes. In accordance with the SEC staff guidance, a company must reflect the income tax effects of those aspects of the 2017 Tax Act for which the accounting for the income taxes is complete. To the extent that a company’s accounting for the income tax effect of certain provisions of the 2017 Tax Act is incomplete but the company is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the accounting guidance on income taxes on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the 2017 Tax Act.

Regarding the new GILTI tax rules, we are allowed to make an accounting policy election to either (1) treat taxes due on future GILTI inclusions in U.S. taxable income as a current-period expense when incurred or (2) reflect such portion of the future GILTI inclusions in U.S. taxable income that relate to existing basis differences in the company’s current measurement of deferred taxes. Our analysis of the new GILTI rules and how they may impact us is incomplete. Accordingly, we have not made a policy election regarding the treatment of the GILTI tax.

In connection with our initial analysis of the impact of the 2017 Tax Act, we recorded a net discrete tax benefit of $370 million during the third quarter of 2018. This net benefit mainly arises from changing the expected future consequences of settling differences between the book and tax basis of assets and liabilities, mainly driven by a decrease of our deferred tax liabilities for inventories and investments; partially offset by establishing a new obligation for the taxation of certain unrepatriated earnings of our foreign subsidiaries. Although our accounting for the impact of the 2017 Tax Act is incomplete, we have made reasonable estimates and recorded provisional amounts as follows:

~~Reduction of U.S. federal corporate tax rate:~~ The 2017 Tax Act reduces the corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. U.S. tax law stipulates that our fiscal year 2018 will have a blended tax rate of 31.6 percent, which is based on the pro rata number of days in the fiscal year before and after the effective date. For the fiscal year 2019, the tax rate will be 21 percent. As a result, we have remeasured certain deferred tax assets and deferred tax liabilities and recorded a provisional net discrete tax benefit of $1.26 billion, mainly driven by a decrease of our deferred tax liabilities for inventories and investments. While we were able to make a reasonable estimate of the impact of the reduction in the corporate tax rate, it may be affected by, among other items, changes to estimates the company has utilized to calculate the reversal pattern of our existing temporary differences and the state effect of adjustments made to federal temporary differences.

~~Deemed Repatriation Transition Tax (“Transition Tax”):~~ The 2017 Tax Act imposes a Transition Tax on certain accumulated earnings and profits (“E&P”) of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries as well as the amount of non-U.S. income taxes paid on such earnings. We were able to make a reasonable estimate of the impact of the Transition Tax and recorded a provisional discrete tax expense of $434 million. This estimate may change as we gather additional information to more precisely compute the amount of the Transition Tax.

~~Uncertainty relating to the application of the new legislation:~~ The 2017 Tax Act makes broad and complex changes to the U.S. tax code, including substantial changes to the taxation of cumulative foreign earnings and the treatment of future U.S. inclusions. The application of certain provisions of the 2017 Tax Act may involve some uncertainty. Accordingly, we recognized a provisional discrete tax expense of $452 million to increase our unrecognized tax benefits and to reflect the amount of benefit that is more likely than not expected to be sustained. This estimate may change, among other things, due to clarifications of the application of certain provisions of the 2017 Tax Act.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


9.	~~Redeemable Noncontrolling Interests and Noncontrolling Interests~~

Redeemable Noncontrolling Interests

~~Our~~The Company’s previously recognized redeemable noncontrolling interests ~~relate~~primarily related to ~~our~~its consolidated subsidiary, McKesson Europe. Under the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”), the noncontrolling shareholders of McKesson Europe ~~have~~are entitled to receive an annual recurring compensation amount of €0.83 per share. As a result, the Company recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $8 million during the three months ended June 30, 2021. This amount was recorded in “Net income attributable to noncontrolling interests” in the Company’s Condensed Consolidated Statement of Operations and the corresponding liability balance was recorded in “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheet.

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe had a right to put (“Put Right”) their noncontrolling shares at €22.99 per share, increased annually for interest in the amount of 5 percentage points above a base rate published by the German Bundesbank semi-annually, less any compensation amount or guaranteed dividend already paid by McKesson with respect to the relevant time period (“Put Amount”). ~~The exercise of the Put Right will reduce the balance of redeemable noncontrolling interests.~~ During the ~~third quarter of 2018, there were no material exercises of~~three months ended June 30, 2021, the ~~Put Right. During the first nine months of 2018, we~~Company paid ~~$50 million~~$1.0 billion to purchase ~~1.9~~34.5 million shares of McKesson Europe through ~~the~~ exercises of the Put Right by the noncontrolling ~~shareholders, which~~shareholders. This decreased the carrying value of the redeemable noncontrolling interests by ~~$53 million.~~$983 million for the three months ended June 30, 2021, and the Company recorded the associated effect of the increase in the Company’s ownership interest of $178 million as an increase to McKesson stockholders’ additional paid-in capital. The ~~balance of redeemable noncontrolling interests is reported as~~Put Right expired on June 15, 2021, at which point the ~~greater of its carrying value or its maximum redemption value at each reporting date. The redemption value is~~remaining shares owned by the ~~Put Amount adjusted for exchange rate fluctuations each period. At December 31, 2017 and March 31, 2017, the~~minority shareholders, with a carrying value of ~~redeemable~~$287 million, were transferred from “Redeemable noncontrolling ~~interests~~interests” to “Noncontrolling interests” in the Condensed Consolidated Balance Sheet.

Table of $1.44 billion and $1.33 billion exceeded the maximum redemption value of $1.31 billion and $1.21 billion. At December 31, 2017 and March 31, 2017, we owned approximately 77% and 76% of McKesson Europe’s outstanding common shares.Contents

McKESSON CORPORATION

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe are entitled to receive an annual recurring compensation amount of €0.83 per share. As a result, we recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $12 million and $32 million during the third quarter and first nine months of 2018 and $10 million and $33 million during the third quarter and first nine months of 2017. All amounts were recorded in our condensed consolidated statements of operations within the caption, “Net Income Attributable to Noncontrolling Interests,” and the corresponding liability balance was recorded within other accrued liabilities on our condensed consolidated balance sheets.FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Noncontrolling Interests

~~The balances of our noncontrolling~~Noncontrolling interests represent third-party equity interests in ~~our~~the Company’s consolidated entities primarily ~~Vantage and~~related to ClarusONE Sourcing Services LLP and ~~were $238~~Vantage Oncology Holdings, LLC. As discussed above, after June 15, 2021, noncontrolling interests also represent minority shareholder equity interests in McKesson Europe. The Company’s noncontrolling interest in McKesson Europe will be included in the sale of the E.U. disposal group, as discussed in Financial Note 2, “Held for Sale.” The Company allocated $41 million and ~~$178 million at December 31, 2017 and March 31, 2017. We allocated a total of $46 million and $137~~$39 million of net income to noncontrolling interests during the ~~third quarter and first nine months of 2018, and $3 million and $15 million~~ during the ~~third quarter~~three months ended June 30, 2022 and ~~first nine~~2021, respectively, which was recorded in “Net income attributable to noncontrolling interests” in the Company’s Condensed Consolidated Statements of Operations.

Changes in noncontrolling interests for the three months ~~of 2017.~~ended June 30, 2022 were as follows:


(In millions)	Noncontrolling Interests
Balance, March 31, 2022	$	480
Net income attributable to noncontrolling interests	41
Other comprehensive income	50
Reclassification of recurring compensation to other accrued liabilities	(2)
Payments to noncontrolling interests	(36)


Other	(1)
Balance, June 30, 2022	$	532

Changes in redeemable noncontrolling interests and noncontrolling interests for the ~~first nine~~three months ~~of 2018~~ended June 30, 2021 were as follows:


(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests
Balance, March 31, 2021	$	196	$	1,271
Net income attributable to noncontrolling interests	39		8
Other comprehensive income	—		3
Reclassification of recurring compensation to other accrued liabilities	—		(8)
Payments to noncontrolling interests	(39)		—
Exercises of Put Right	—		(983)
Reclassification of McKesson Europe redeemable noncontrolling interests	287		(287)
Other	1		3
Balance, June 30, 2021	$	484	$	7

6.Earnings (Loss) Per Common Share

(In millions)

Noncontrolling
Interests
Redeemable
Noncontrolling
Interests
Balance, March 31, 2017 $ 178
$ 1,327
Net income attributable to noncontrolling interests 137
32
Other comprehensive income —
161
Reclassification of recurring compensation to other accrued liabilities —
(32 )
Payments to noncontrolling interests (73 ) —
Exercises of Put Right —
(53 )
Other (4 ) —
Balance, December 31, 2017 $ 238
$ 1,435

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~Changes in redeemable noncontrolling interests and noncontrolling interests for the first nine months of 2017 were as follows:~~

(In millions)

Noncontrolling
Interests
Redeemable
Noncontrolling
Interests
Balance, March 31, 2016 $ 84
$ 1,406
Net income attributable to noncontrolling interests 15
33
Other comprehensive income —
(95 )
Reclassification of recurring compensation to other accrued liabilities —
(33 )
Purchase of noncontrolling interests 93
—
Other (32 ) —
Balance, December 31, 2016 $ 160
$ 1,311

The effect of changes in our ownership interests with noncontrolling interests on our equity of $3 million was recorded as a net increase to McKesson’s stockholders’ paid-in capital during the first nine months of 2018. Net income attributable to McKesson and transfers from noncontrolling interests amounted to $1,216 million during the first nine months of 2018.


~~10.~~	~~Earnings Per Common Share~~

Basic earnings per common share are computed by dividing net income by the ~~weighted average~~weighted-average number of common shares outstanding during the reporting period. ~~Diluted~~The computation of diluted earnings per common share is ~~computed~~ similar to that of basic earnings per common share, except that itthe former reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~The computations for basic and diluted earnings per common share are as follows:~~

Quarter Ended December 31, Nine Months Ended December 31,
(In millions, except per share amounts) 2017 2016 2017 2016
Income from continuing operations $ 960
$ 649
$ 1,379
$ 1,647
Net income attributable to noncontrolling interests (58 ) (13 ) (169 ) (48 )
Income from continuing operations attributable to McKesson 902
636
1,210
1,599
Income (loss) from discontinued operations, net of tax 1
(3 ) 3
(117 )
Net income attributable to McKesson $ 903
$ 633
$ 1,213
$ 1,482

Weighted average common shares outstanding:
Basic 207
221
209
224
Effect of dilutive securities:
Options to purchase common stock —
—
—
1
Restricted stock units 1
1
1
1
Diluted 208
222
210
226

Earnings (loss) per common share attributable to McKesson: ⁽¹⁾

Diluted
Continuing operations $ 4.32
$ 2.86
$ 5.75
$ 7.07
Discontinued operations 0.01
(0.01 ) 0.01
(0.51 )
Total $ 4.33
$ 2.85
$ 5.76
$ 6.56
Basic
Continuing operations $ 4.34
$ 2.89
$ 5.78
$ 7.14
Discontinued operations 0.01
(0.02 ) 0.02
(0.52 )
Total $ 4.35
$ 2.87
$ 5.80
$ 6.62


~~(1)~~	~~Certain computations may reflect rounding adjustments.~~

Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based and other restricted stock units. ~~Approximately 2~~Fewer than 1 million potentially dilutive securities for each of the three months ended June 30, 2022 and 2021, respectively, were excluded from the ~~computations~~computation of diluted ~~net~~ earnings per common share ~~for each of the quarters ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~and for the nine months ended December 31, 2017 and 2016,~~ as they were anti-dilutive.

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~~11.~~	~~Goodwill and Intangible Assets, Net~~

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The computations for basic and diluted earnings per common share are as follows:


	Three Months Ended June 30,
(In millions, except per share amounts)	2022		2021
Income from continuing operations	$	807	$	536
Net income attributable to noncontrolling interests	(41)		(47)
Income from continuing operations attributable to McKesson Corporation	766		489
Income (loss) from discontinued operations, net of tax	2		(3)
Net income attributable to McKesson Corporation	$	768	$	486

Weighted-average common shares outstanding:
Basic	144.2		156.2
Effect of dilutive securities:
Stock options	0.3		0.1
Restricted stock units (1)	1.4		1.8
Diluted	145.9		158.1

Earnings (loss) per common share attributable to McKesson Corporation: (2)
Diluted
Continuing operations	$	5.25	$	3.09
Discontinued operations	0.01		(0.02)
Total	$	5.26	$	3.07
Basic
Continuing operations	$	5.31	$	3.13
Discontinued operations	0.01		(0.02)
Total	$	5.32	$	3.11

(1)Includes dilutive effect from restricted stock units and performance-based stock units.

(2)Certain computations may reflect rounding adjustments.

7. Goodwill and Intangible Assets, Net

The Company evaluates goodwill for impairment on an annual basis and at an interim date, if indicators of potential impairment exist. The Company voluntarily changed its annual goodwill impairment testing date from October 1st to April 1st to align with a change in timing of the Company’s annual long-term planning process. Accordingly, management determined that the change in accounting principle is preferable under the circumstance. This change has been applied prospectively from April 1, 2022 as retrospective application is deemed impracticable due to the inability to objectively determine the assumptions and significant estimates used in earlier periods without the benefit of hindsight. This change was not material to the Company’s consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill impairment charge. The annual impairment testing performed as of April 1, 2022 did not indicate an impairment of goodwill.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Changes in the carrying amount of goodwill were as follows:

(In millions)
Distribution
Solutions

Technology
Solutions
Total
Balance, March 31, 2017 $ 10,132
$ 454
$ 10,586
Goodwill acquired 1,258
—
1,258
Acquisition accounting, transfers and other adjustments ⁽¹⁾
364
(330 ) 34
Goodwill impairment charges (350 ) —
(350 )
Goodwill disposed ⁽²⁾
—
(124 ) (124 )
Amount reclassified to assets held for sale (11 ) —
(11 )
Foreign currency translation adjustments, net 435
—
435
Balance, December 31, 2017 $ 11,828
$ —
$ 11,828

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


~~(1)~~	~~Effective April 1, 2017, our RHP business was transitioned from the Technology Solutions segment to the Distribution Solutions segment.~~


~~(2)~~	~~Technology Solutions segment amount represents goodwill disposal associated with the sale of our EIS business. Refer to Financial Note 5, “Divestitures” for more information.~~

As of December 31, 2017 and March 31, 2017, accumulated goodwill impairment losses for our Distribution Solutions segment were $350 million and nil, and nil and $290 million for our Technology Solutions segment. Refer to Financial Note 3, “Goodwill Impairment Charges,” for more information on goodwill impairment charges recorded in the second quarters of 2018 and 2017.


(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Total
Balance, March 31, 2022	$	3,923	$	1,542	$	2,453	$	1,533	$	9,451



Foreign currency translation adjustments, net	(33)		—		—		(48)		(81)
Other adjustments	(3)		—		—		1		(2)
Balance, June 30, 2022	$	3,887	$	1,542	$	2,453	$	1,486	$	9,368

Information regarding intangible assets is as follows:


	June 30, 2022							March 31, 2022
(Dollars in millions)	Weighted- Average Remaining Amortization Period (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Customer relationships	12	$	2,747	$	(1,695)	$	1,052	$	2,777	$	(1,691)	$	1,086
Service agreements	9	1,078		(584)		494		1,085		(573)		512

Trademarks and trade names	11	802		(397)		405		819		(386)		433
Technology	1	127		(118)		9		128		(116)		12
Other	9	188		(172)		16		187		(171)		16
Total		$	4,942	$	(2,966)	$	1,976	$	4,996	$	(2,937)	$	2,059

December 31, 2017 March 31, 2017
(Dollars in millions)
Weighted
Average
Remaining
Amortization
Period
(years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount
Customer relationships 12 $ 3,480
$ (1,458 ) $ 2,022
$ 2,893
$ (1,295 ) $ 1,598
Service agreements 12 1,043
(366 ) 677
1,009
(316 ) 693
Pharmacy licenses 26 630
(140 ) 490
741
(150 ) 591
Trademarks and trade names 14 914
(171 ) 743
845
(124 ) 721
Technology 4 148
(79 ) 69
69
(64 ) 5
Other 4 263
(170 ) 93
201
(144 ) 57
Total $ 6,478

$ (2,384 ) $ 4,094
$ 5,758
$ (2,093 ) $ 3,665

Amortization expense of intangible assets was ~~$123~~$56 million and ~~$370~~$98 million ~~for~~during the ~~third quarter and nine~~three months ended ~~December 31, 2017,~~June 30, 2022 and ~~$102 million and $332 million for the third quarter and nine months ended December 31, 2016.~~2021, respectively. Estimated ~~annual~~ amortization expense of these assets is as follows: ~~$113~~$166 million, ~~$437~~$211 million, ~~$421~~$206 million, ~~$403~~$174 million, and ~~$370~~$168 million for the remainder of ~~2018~~fiscal 2023 and each of the succeeding years through ~~2022~~fiscal 2027, respectively, and ~~$2,350 million~~$1.1 billion thereafter. All intangible assets were subject to amortization as of ~~December 31, 2017~~June 30, 2022 and March 31, ~~2017~~.

~~Refer to Financial Note 4, “Restructuring and Asset Impairment Charges,”~~2022. Amortization of intangible assets of the E.U. disposal group classified as held for ~~more information on intangible asset impairment charges recorded~~sale ceased in the second quarter of ~~2018.~~fiscal 2022.

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~~12.~~	~~Debt and Financing Activities~~

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

8.Debt and Financing Activities

Long-term debt consisted of the following:


(In millions)	June 30, 2022		March 31, 2022
U.S. Dollar notes (1) (2)
2.70% Notes due December 15, 2022	$	400	$	400
2.85% Notes due March 15, 2023	360		360
3.80% Notes due March 15, 2024	918		918
0.90% Notes due December 3, 2025	500		500
1.30% Notes due August 15, 2026	498		498
7.65% Debentures due March 1, 2027	150		150
3.95% Notes due February 16, 2028	343		343
4.75% Notes due May 30, 2029	196		196
6.00% Notes due March 1, 2041	217		217
4.88% Notes due March 15, 2044	255		255
Foreign currency notes (1) (3)
1.50% Euro Notes due November 17, 2025	627		662
1.63% Euro Notes due October 30, 2026	524		554
3.13% Sterling Notes due February 17, 2029	548		582

Lease and other obligations	239		244
Total debt	5,775		5,879
Less: Current portion	799		799
Total long-term debt	$	4,976	$	5,080

(1)These notes are unsecured and unsubordinated obligations of the Company.

(2)Interest on these notes is payable semi-annually.

(3)Interest on these foreign currency notes is payable annually.

Long-Term Debt

~~Our~~The Company’s long-term debt includes both U.S. dollar and foreign ~~currency (primarily Euro~~currency-denominated borrowings. Debt outstanding totaled $5.8 billion and ~~British pound sterling) denominated borrowings. At December 31, 2017~~$5.9 billion at June 30, 2022 and March 31, ~~2017, $8,045 million and $8,362 million of total long-term debt were outstanding,~~2022, respectively, of which ~~$531~~$799 million, ~~and $1,057 million were~~was included under the caption “Current portion of long-term debt” within the ~~condensed consolidated balance sheets.~~

~~During the first nine months~~Company’s Condensed Consolidated Balance Sheets at each of ~~2018, we repaid a €500 million bond that matured on April 26, 2017.~~

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

June 30, 2022 and March 31, 2022.

Revolving Credit Facilities

~~We have~~The Company has a Credit Agreement, dated as of September 25, 2019, as amended (the “2020 Credit Facility”), that provides a syndicated ~~$3.5~~$4.0 billion five-year senior unsecured ~~revolving~~ credit facility ~~(the “Global Facility”), which has~~with a ~~$3.15~~$3.6 billion aggregate sublimit of availability in Canadian dollars, British pound sterling, and ~~Euros. The Global Facility matures on October 22, 2020.~~Euro. Borrowings under the ~~Global~~2020 Credit Facility bear interest based upon the London Interbank Offered Rate (“LIBOR”), Canadian Dealer Offered Rate for credit extensions denominated in Canadian ~~Dollars,~~dollars, a prime rate, or alternative overnight rates as applicable, plus agreed margins. The ~~Global~~2020 Credit Facility matures in September 2024 and had no borrowings during the three months ended June 30, 2022 and 2021 and no amounts outstanding as of June 30, 2022 and March 31, 2022.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The 2020 Credit Facility contains various customary investment grade covenants, including a financial covenant which obligates the Company to maintain a ~~debt~~maximum Total Debt to ~~capital~~Consolidated EBITDA ratio, ~~of no greater than 65% and other customary investment grade covenants.~~as defined in the amended credit agreement. If ~~we do~~the Company does not comply with these covenants, ~~our~~its ability to use the ~~Global~~2020 Credit Facility may be suspended and repayment of any outstanding balances under the ~~Global~~2020 Credit Facility may be required. At ~~December 31, 2017, we were~~June 30, 2022, the Company was in compliance with all covenants. ~~There were no borrowings under this facility during the third quarters and first nine months of 2018 and 2017, and no borrowings outstanding as of December 31, 2017 and March 31, 2017.~~

WeThe Company also ~~maintain~~maintains bilateral credit ~~lines~~facilities primarily denominated in Euros with a ~~total~~ committed amount of $1 million and an uncommitted ~~balance~~amount of ~~$314 million.~~$105 million as of June 30, 2022. Borrowings and repayments were not material during the ~~first nine~~three months ~~of 2018~~ended June 30, 2022 and ~~2017. As of December 31, 2017 and March 31, 2017, amounts~~2021. Amounts outstanding under these credit lines were not ~~material.~~material as of June 30, 2022 and March 31, 2022.

Commercial Paper

~~We maintain~~The Company maintains a commercial paper program to support ~~our~~its working capital requirements and for other general corporate purposes. Under the program, wethe Company can issue up to ~~$3.5~~$4.0 billion in outstanding commercial paper notes. During the ~~first nine~~three months ~~of 2018, we borrowed $12,699 million~~ended June 30, 2022 and ~~repaid $12,133 million under the program. During the first nine months of 2017,~~2021, there were no material ~~commercial paper issuances. As of December 31, 2017~~borrowings under the program. At June 30, 2022 and March 31, ~~2017, we had $749 million and $183 million~~2022, there were no commercial paper notes ~~outstanding with a weighted average interest rate of 2.07% and 1.20%.~~outstanding.


~~13.~~	~~Pension Benefits~~

9.Pension Benefits

The net periodic expense for ~~our~~ defined benefit pension ~~benefit~~ plans was ~~$6 million~~not material for each of the three months ended June 30, 2022 and ~~$16 million for the third quarter and first nine months of 2018, and $8 million and $22 million for the third quarter and first nine months of 2017.~~

2021. Cash contributions to these plans were $5$3 million and ~~$46~~$14 million for the ~~third quarter~~three months ended June 30, 2022 and ~~first nine months of 2018 and $6 million and $16 million for the third quarter and first nine months of 2017.~~2021, respectively. The projected unit credit method is utilized in measuring net periodic pension expense over the employees’ service life for the pension plans. Unrecognized actuarial losses exceeding 10% of the greater of the projected benefit obligation or the market value of assets are amortized on a straight-line basis over the average remaining future service periods and expected life expectancy.

As part of the European divestiture activities discussed in more detail in Financial Note 2, “Held for Sale,” pension liabilities of $79 million and $85 million as of June 30, 2022 and March 31, 2022, respectively, were included under the caption “Liabilities held for sale,” in the Condensed Consolidated Balance Sheets as part of the E.U. disposal group. During the first quarter of fiscal 2023, the Company derecognized pension assets of $49 million and released $30 million of accumulated other comprehensive loss related to the sale of its U.K. disposal group. The pension assets were included within “Assets held for sale” in the Condensed Consolidated Balance Sheet as of March 31, 2022.


~~14.~~	~~Hedging Activities~~

10.Hedging Activities

In the normal course of business, ~~we are~~the Company is exposed to interest rate and foreign currency exchange rate fluctuations. At times, ~~we limit~~the Company limits these risks through the use of derivatives ~~such~~ as ~~interest rate swaps, cross currency swaps and foreign currency forward contracts.~~described below. In accordance with ~~our~~the Company’s policy, derivatives are only used for hedging purposes. ~~We do~~It does not use derivatives for trading or speculative purposes. The Company uses different counterparties for its derivative contracts to minimize the exposure to credit risk but does not anticipate non-performance by these parties.

Foreign ~~currency exchange risk~~Currency Exchange Risk

~~We conduct our~~The Company conducts its business ~~internationally~~worldwide in U.S. dollars and the functional currencies of ~~our~~its foreign subsidiaries, including Euro, British pound sterling, and Canadian dollars. Changes in foreign currency exchange rates could have a material adverse impact on ~~our~~the Company’s financial results that are reported in U.S. dollars. ~~We are~~The Company is also exposed to foreign currency exchange rate risk related to ~~our~~its foreign subsidiaries, including intercompany loans denominated in non-functional currencies. ~~We have~~The Company has certain foreign currency exchange rate risk programs that use foreign currency forward contracts and ~~cross currency~~cross-currency swaps. These forward contracts and ~~cross currency~~cross-currency swaps are generally used to offset the potential income statement effects from intercompany loans and other obligations denominated in non-functional currencies. These programs reduce but do not entirely eliminate foreign currency exchange rate risk.

Subsequent to the completion of the U.K. divestiture in April 2022 as discussed in Financial Note 2, “Held for Sale,” the Company’s foreign currency exchange rate risk is limited to the Euro and Canadian dollar.

2218

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Net Investment Hedges and Derivatives~~Non-Derivative Instruments Designated as Hedges

~~We have €1.2~~At June 30, 2022 and March 31, 2022, the Company had €1.1 billion of Euro-denominated notes ~~and £450 million British pound sterling-denominated notes which~~designated as non-derivative net investment hedges. These hedges are utilized to hedge portions of ~~our~~the Company’s net investments in non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. ~~dollar (“Net Investment Hedges”).~~dollar. For all notes that are designated as net investment hedges and meet effectiveness requirements, the changes in carrying value of the notes attributable to the change in spot rates are recorded as foreign currency translation adjustments in “Accumulated other comprehensive ~~income (loss)~~loss” in the Condensed Consolidated Statements of Stockholders’ Equity (Deficit) where they offset foreign currency translation gains and losses recorded on ~~our~~the Company’s net investments. To the extent foreign currency denominated notes designated as net investment hedges are ineffective, changes in carrying value attributable to the change in spot rates are recorded in ~~current~~ earnings. ~~Losses~~

In connection with the sale of the U.K. disposal group as discussed in more detail in Financial Note 2, “Held for Sale,” the Company reclassified $26 million of gains from accumulated other comprehensive loss and recorded in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. This amount related to the Company’s £450 million British pound sterling-denominated notes, which were previously accounted for as net investment hedges ~~recorded~~until de-designated in fiscal 2020, and was included in the fiscal 2022 calculation of charges to remeasure the assets and liabilities held for sale to fair value less costs to sell.

Foreign currency gains (losses) from non-derivative instruments included in other comprehensive income in the Condensed Consolidated Statements of Comprehensive Income were ~~$28 million and $205 million during the third quarter and first nine months of 2018.~~ as follows:


	Three Months Ended June 30,
(In millions)	2022		2021
Non-derivatives designated as net investment hedges: (1)
Euro-denominated notes	$	64	$	(22)

(1)There was no ineffectiveness in ~~our net investment~~these hedges ~~as of December 31, 2017~~for the three months ended June 30, 2022 and 2021.

Derivative Instruments

At June 30, 2022 and March 31, ~~2017.~~2022, the notional amounts of the Company’s outstanding derivatives were as follows:

~~At December 31, 2017~~


			June 30, 2022		March 31, 2022
(In millions)	Currency	Maturity Date	Notional
Derivatives designated as net investment hedges: (1)
Cross-currency swaps (2)	CAD	Nov-24	$	500	$	500

Derivatives designated as fair value hedges: (1)
Cross-currency swaps (3)	GBP	Feb-23	£	450	£	450
Floating interest rate swaps (4)	USD	Aug-27	$	180	$	—

Derivatives designated as cash flow hedges: (1)
Cross-currency swaps (2)	CAD	Jul-22 to Jan-24	$	1,678	$	1,678
Fixed interest rate swaps (5)	USD	Mar-23	$	500	$	500

(1)There was no ineffectiveness in these hedges for the three months ended June 30, 2022 and ~~March 31, 2017, we had forward contracts~~2021.

(2)The Company agreed with third parties to exchange fixed interest payments in one currency for fixed interest payments in another currency at specified intervals and to exchange principal in one currency for principal in another currency, calculated by reference to agreed-upon notional amounts.

(3)The Company agreed with third parties to exchange fixed interest payments in British pound sterling for floating interest payments in U.S. dollars based on three-month LIBOR plus a spread.

(4)The Company entered into fixed-to-floating interest rate swaps to hedge the ~~U.S. dollar against cash flows~~changes in fair value caused by fluctuations in the benchmark interest rates.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

(5)The Company entered into agreements with financial institutions to lock into the fixed benchmark interest rates for future bond issuance.

Net Investment Hedges

The Company uses cross-currency swaps to hedge portions of the Company’s net investments denominated in Canadian dollars ~~with total gross notional values~~against the effect of ~~$243 million, which were~~exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. The changes in the fair value of these derivatives attributable to the changes in spot currency exchange rates and differences between spot and forward interest rates are recorded in accumulated other comprehensive loss and offset foreign currency translation gains and losses recorded on the Company’s net investments denominated in Canadian dollars. To the extent cross-currency swaps designated as ~~cash flow hedges. These contracts will mature between March 2018~~hedges are ineffective, changes in carrying value attributable to the change in spot rates are recorded in earnings.

Fair Value Hedges

The Company uses cross-currency swaps to hedge the changes in the fair value of British pound sterling notes resulting from changes in benchmark interest rates and ~~March 2020.~~foreign exchange rates. The changes in the fair value of these derivatives and the offsetting changes in the fair value of the hedged notes are recorded in earnings. Gains from the changes in the Company’s fair value hedges recorded in earnings were largely offset by the losses recorded in earnings on the hedged item.

During the first quarter of fiscal 2023, the Company entered into floating interest rate swaps to convert $180 million of its fixed rate debt to floating interest rate in order to hedge the changes in fair value caused by fluctuations in the benchmark interest rate. The changes in the fair value of these derivatives are recorded in earnings.

Cash Flow Hedges

From time to time, ~~we enter~~the Company enters into ~~cross currency~~cross-currency swaps to hedge intercompany loans denominated in non-functional currencies. For our cross currency swap transactions, we agree with another party to exchange, at specified intervals, one currency for another currency at a fixed exchange rate, generally set at inception, calculated by reference to agreed upon notional amounts. These cross currency swaps are designedcurrencies to reduce the income statement effects arising from fluctuations in foreign ~~exchange~~currency rates and ~~have been designated as cash flow hedges.~~

At December 31, 2017 and March 31, 2017, we had cross currency swaps with total gross notional amounts of $3,411 million and $2,663 million, which are designated as cash flow hedges. These swaps will mature between February 2018 and January 2024.

~~For~~also enters into forward contracts ~~and cross currency swaps that are designated as cash flow hedges,~~to hedge the variability future benchmark interest rates on planned bond issuances. The effective portion of changes in the fair value of ~~the~~these hedges is recorded ~~into~~in accumulated other comprehensive ~~income (loss)~~loss and reclassified into earnings in the same period in which the hedged transaction affects earnings. Changes in fair values representing hedge ineffectiveness are recognized in current earnings. Gains or losses ~~on these hedges~~reclassified from accumulated other comprehensive loss and recorded in ~~other comprehensive income~~“Selling, distribution, general, and ~~earnings~~administrative expenses” in the Condensed Consolidated Statements of Operations were not material infor the ~~third quarters~~three months ended June 30, 2022 and ~~first nine months of 2018 and 2017.~~2021.

Derivatives Not Designated as Hedges

~~At March 31, 2017, we had forward contracts~~Derivative instruments not designated as hedges are mark-to-market at the end of each accounting period with the change in fair value included in earnings. From time to ~~hedge~~time, the U.S. dollar against cash flows denominated in Canadian dollars with total gross notional value of $173 million. These contracts matured in April 2017 and none of these contracts were designated for hedge accounting. Losses from these contracts were not material for the third quarters and first nine months of 2018 and 2017.

~~We also have a number of~~Company enters into forward contracts to hedge the Euro against cash flows denominated ~~primarily~~ in British pound sterling and other European currencies. ~~At December 31, 2017 and March 31, 2017, the total gross notional amounts of these contracts were $34 million and $62 million.~~

~~These contracts will mature through July 2018 and none of these contracts were designated for hedge accounting.~~ Changes in the fair values offor contracts not designated as hedges are recorded directly into ~~current earnings. Gains from these contracts were recorded within operating expenses~~earnings in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. Changes in the fair values were not material for the ~~third quarters~~three months ended June 30, 2022 and ~~first nine months of 2018 and 2017. The gains~~2021. Gains or losses from these contracts are largely offset by changes in the value of the underlying intercompany ~~foreign currency loans.~~

obligations.

2320

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Other Information on Derivative Instruments

Gains and (losses) of derivatives included in other comprehensive income (loss) in the Condensed Consolidated Statements of Comprehensive Income were as follows:


	Three Months Ended June 30,
(In millions)	2022		2021
Derivatives designated as net investment hedges:
Cross-currency swaps	$	12	$	(5)

Derivatives designated as cash flow hedges:
Cross-currency swaps	$	(2)	$	(2)
Fixed interest rate swaps	27		2

Information regarding the fair value of derivatives on a gross basis iswere as follows:

Balance Sheet
Caption
December 31, 2017 March 31, 2017

Fair Value of
Derivative
U.S. Dollar Notional
Fair Value of
Derivative
U.S. Dollar Notional
(In millions) Asset Liability Asset Liability
Derivatives designated for hedge accounting
Foreign exchange contracts (current) Prepaid expenses and other $ 14
$ —
$ 81
$ 17
$ —
$ 81
Foreign exchange contracts (non-current) Other Noncurrent Assets 27
—
162
32
—
162
Cross currency swaps (current) Prepaid expenses and other —
—
307
17
—
174
Cross currency swaps (non-current) Other Noncurrent Assets/Liabilities —
163
3,104
90
—
2,489
Total $ 41
$ 163
$ 156
$ —

Derivatives not designated for hedge accounting
Foreign exchange contracts (current) Prepaid expenses and other $ —
$ —
$ 28
$ 1
$ —
$ 198
Foreign exchange contracts (current) Other accrued liabilities —
—
6
—
—
37
Total $ —
$ —
$ 1
$ —


	Balance Sheet Caption	June 30, 2022						March 31, 2022
		Fair Value of Derivative				U.S. Dollar Notional		Fair Value of Derivative				U.S. Dollar Notional
(In millions)		Asset		Liability				Asset		Liability
Derivatives designated for hedge accounting:

Cross-currency swaps (current)	Prepaid expenses and other/Other accrued liabilities	$	4	$	30	$	1,537	$	30	$	39	$	1,537
Cross-currency swaps (non-current)	Other non-current liabilities	—		15		679		—		36		679
Fixed interest rate swaps (current)	Prepaid expenses and other	57		—		500		31		—		500


Floating interest rate swaps (non-current)	Other non-current assets	2		—		180		—		—		—
Total		$	63	$	45			$	61	$	75

Refer to Financial Note ~~15,~~11, "Fair Value Measurements," for more information on these recurring fair value measurements.

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~~15.~~	~~Fair Value Measurements~~

At ~~December 31, 2017~~McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

11. Fair Value Measurements

The Company measures certain assets and ~~March 31, 2017, the carrying amounts of cash, certain cash equivalents, restricted cash, marketable securities, receivables, drafts~~liabilities at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and ~~accounts payable, short-term borrowings and other current liabilities approximated their estimated fair values because of the short maturity of these financial instruments.~~

Disclosures. The fair value hierarchy consists of ~~our commercial paper was determined using~~three levels of inputs that may be used to measure fair value as follows:

Level 1 - quoted prices in active markets for identical ~~liabilities,~~assets or liabilities.

Level 2 - significant other observable market-based inputs.

Level 3 - significant unobservable inputs for which little or no market data exists and requires considerable assumptions that are ~~considered~~significant to ~~be Level 1 inputs.~~the fair value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

~~Our long-term debt is carried at amortized cost. The carrying amounts and estimated fair values of these liabilities were $8.0 billion and $8.5 billion at~~ ~~December 31, 2017, and $8.4 billion and $8.7 billion at~~ ~~March 31, 2017~~. The estimated fair value of our long-term debt was determined using quoted market prices in a less active market and other observable inputs from available market information, which are considered to be Level 2 inputs, and may not be representative of actual values that could have been realized or that will be realized in the future.

Cash and cash equivalents at ~~December 31, 2017~~June 30, 2022 and March 31, ~~2017~~2022 included investments in money market funds of ~~$1,066~~$547 million and ~~$478~~$981 million, respectively, which are reported at fair value. The fair value of ~~the~~ money market funds was determined using quoted prices for identical investments in active markets, which are considered to be Level 1 inputs under the fair value measurements and disclosure guidance. The carrying value of all other cash equivalents approximates their fair value due to their relatively short-term nature.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

Fair values for the Company’s marketable securities were not material at June 30, 2022 and March 31, 2022.

Fair values of ~~our derivatives~~the Company’s interest rate swaps, foreign currency forward contracts, and cross-currency swaps were determined using ~~quoted market prices of similar instruments in an active market and other~~ observable inputs from available market ~~information. Fair values of our foreign currency swaps were determined using the~~information, including quoted interest rates, foreign currency exchange rates, and other observable inputs from available market information. These inputs are considered Level 2 under the fair value measurements and disclosure guidance, and may not be representative of actual values that could have been realized or that will be realized in the future. Refer to Financial Note ~~14, "Hedging~~10, “Hedging Activities,"” for ~~more~~fair value and other information on ~~our~~the Company’s derivatives including interest rate swaps, forward foreign currency ~~forward~~ contracts, and ~~cross currency~~cross-currency swaps.

~~There were no transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy during the quarters~~Assets and ~~nine months ended December 31,~~ ~~2017~~ ~~and~~ ~~2016~~.

~~Assets~~Liabilities Measured at Fair Value on a Nonrecurring Basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company’s assets and liabilities are also subject to nonrecurring fair value measurements. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.

At ~~December~~June 30, 2022 and March 31, ~~2017,~~2022, the assets and liabilities associated with the disposal groups in Europe held for sale were measured at the lower of carrying value or fair value less costs to sell, as discussed in more detail in Financial Note 2, “Held for Sale." At March 31, 2022, assets measured at fair value on a nonrecurring basis ~~consisted of goodwill~~also included certain long-lived assets within the International segment related to the Company’s operations in Denmark and ~~intangible assets for our McKesson Europe business within our Distribution Solutions segment, as further discussed below.~~its retail pharmacy businesses in Canada.

~~At March 31, 2017, assets~~There were no other material liabilities measured at fair value on a nonrecurring basis at June 30, 2022 and March 31, 2022.

Other Fair Value Disclosures

At June 30, 2022 and March 31, 2022, the carrying amounts of cash, certain cash equivalents, restricted cash, marketable securities, receivables, drafts and accounts payable, short-term borrowings, and other current liabilities approximated their estimated fair values because of the short maturity of these financial instruments.

The Company determines the fair value of commercial paper using quoted prices in active markets for identical instruments, which are considered Level 1 inputs under the fair value measurements and disclosure guidance.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The Company’s long-term debt is recorded at amortized cost. The carrying value and fair value of the Company’s long-term debt was as follows:


	June 30, 2022				March 31, 2022
(In millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	5,775	$	5,674	$	5,879	$	5,999

The estimated fair value of the Company’s long-term debt was determined using quoted market prices in a less active market and other observable inputs from available market information, which are considered to be Level 2 inputs, and may not be representative of actual values that could have been realized or that will be realized in the future.

Restricted Cash

Restricted cash, included within “Prepaid expenses and other” in the Company’s Condensed Consolidated Balance Sheets primarily ~~consisted~~consists of ~~goodwill~~$100 million and $395 million as of June 30, 2022 and March 31, 2022, respectively, held in escrow related to obligations under settlement agreements for ~~our EIS business within our Technology Solutions segment.~~

~~Goodwill~~

Asopioid-related claims of governmental entities, as discussed in more detail in Financial Note ~~3, “Goodwill Impairment Charges,” we recorded non-cash pre-tax~~12, “Commitments and after-tax impairment charges of $350 million during the second quarter of 2018 for our McKesson Europe reporting unit within the Distribution Solutions segment, and $290 million ($282 million after-tax) during the second quarter of 2017 for our EIS reporting unit within the Technology Solutions segment. The impairments primarily resulted from a decline in the reporting units’ estimated cash flows.Contingent Liabilities.”

Goodwill

Fair value assessments of the reporting unit and the reporting unit's net assets, which are performed for goodwill impairment tests, are considered a Level 3 measurement due to the significance of unobservable inputs developed using ~~company specific~~company-specific information. WeThe Company considered a market approach as well as an income approach using ~~the~~a DCF model to determine the fair value of ~~the~~each reporting unit.

~~Intangible~~Long-lived Assets

~~We measure~~The Company measures certain long-lived and intangible assets at fair value on a nonrecurring basis when ~~they are deemed to~~events occur that indicate an asset group may not be ~~other-than-temporarily impaired.~~recoverable. If the ~~cost~~carrying amount of an ~~investment exceeds its fair value, we evaluate, among other factors, our intent to hold the investment, general market conditions, the duration and extent to which the fair value~~asset group is ~~less than cost and the financial outlook for the industry and location. An~~not recoverable, an impairment charge is recorded ~~when~~to reduce the ~~cost of~~carrying amount by the ~~asset exceeds~~excess over its fair ~~value~~value.

The Company utilizes multiple approaches including the DCF model and ~~this condition is determined to be other-than-temporary.~~

As discussed in Financial Note 4, “Restructuring and Asset Impairment Charges,” we recorded non-cash pre-tax charges of $189 million ($157 million after-tax) during the second quarter of 2018 to impair the carrying values of certain long-lived assets including intangible assets. We utilized a combination of an income approach (primarily DCF method) and a market ~~approach~~approaches for estimating the fair value of intangible assets. The future cash flows used in the analysis are based on internal cash flow projections ~~based on our~~from its long-range plans and include significant assumptions by management. Accordingly, the fair value assessment of the ~~intangible~~long-lived assets is considered a Level 3 fair value measurement.

12.Commitments and Contingent Liabilities ~~Measured at Fair Value on a Nonrecurring Basis~~

At December 31, 2017, we remeasured the contingent consideration liability related to our acquisition of CMM at fair value on a nonrecurring basis. Refer to Financial Note 6, “Business Combinations,” for more information on the fair value of the contingent consideration liability. There were no liabilities measured at fair value on a nonrecurring basis at March 31, 2017.


~~16.~~	~~Commitments and Contingent Liabilities~~

In addition to commitments and obligations incurred in the ordinary course of business, ~~we are~~the Company is subject to ~~various~~a variety of claims and legal proceedings, including claims ~~with~~from customers and vendors, pending and potential legal actions for damages, ~~investigations relating to~~ governmental ~~laws and regulations~~investigations, and other ~~matters arising out of~~matters. The Company and its affiliates are parties to the ~~normal conduct of our business. As~~legal claims and proceedings described below ~~many~~and in Financial Note 18 to the Company’s 2022 Annual Report, which disclosure is incorporated in this footnote by this reference. The Company is vigorously defending itself against those claims and in those proceedings. Significant developments in those matters are described below. If the Company is unsuccessful in defending, or if it determines to settle, any of these ~~proceedings are at preliminary stages and many seek an indeterminate amount~~matters, it may be required to pay substantial sums, be subject to injunction and/or be forced to change how it operates its business, which could have a material adverse impact on its financial position or results of ~~damages.~~

operations.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~When a loss~~Unless otherwise stated, the Company is ~~considered probable and~~unable to reasonably ~~estimable, we record a liability in the amount of our best~~ estimate ~~for the ultimate loss. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of~~ the loss or a range of possible loss ~~may not be practicable based on~~for the matters described below. Often, the Company is unable to determine that a loss is probable, or to reasonably estimate the amount of loss or a range of loss, for a claim because of the limited information available and the potential ~~effect~~effects of future events and decisions by third parties, such as courts and regulators, that will determine the ultimate resolution of the ~~contingency. Moreover, it~~claim. Many of the matters described are at preliminary stages, raise novel theories of liability, or seek an indeterminate amount of damages. It is not uncommon for ~~such matters~~claims to ~~be resolved~~remain unresolved over many ~~years, during which time relevant developments and new information must be reevaluated~~years. The Company reviews loss contingencies at least quarterly to determine ~~both~~whether the likelihood of ~~potential~~ loss has changed and whether it ~~is possible to reasonably estimate a range of possible loss. When a loss is probable but~~can make a reasonable estimate ~~cannot be made, disclosure~~ of the ~~proceeding~~loss or range of loss. When the Company determines that a loss from a claim is ~~provided.~~

~~Disclosure~~probable and reasonably estimable, it records a liability for an estimated amount. The Company also ~~is provided~~provides disclosure when it is reasonably possible that a loss ~~will~~may be incurred or when it is reasonably possible that the amount of a loss will exceed its recorded liability. Amounts included within “Claims and litigation charges, net” in the ~~recorded provision. We review all~~Condensed Consolidated Statements of Operations consist of estimated loss contingencies ~~at least quarterly~~related to ~~determine whether~~opioid-related litigation matters.

I. Litigation and Claims Involving Distribution of Controlled Substances

The Company and its affiliates have been sued as defendants in many cases asserting claims related to distribution of controlled substances. They have been named as defendants along with other pharmaceutical wholesale distributors, pharmaceutical manufacturers, and retail pharmacy chains. The plaintiffs in these actions have included state attorneys general, county and municipal governments, school districts, tribal nations, hospitals, health and welfare funds, third-party payors, and individuals. These actions have been filed in state and federal courts throughout the ~~likelihood~~U.S., and in Puerto Rico and Canada. They seek monetary damages and other forms of ~~loss has changed~~relief based on a variety of causes of action, including negligence, public nuisance, unjust enrichment, and ~~to assess whether a reasonable estimate~~civil conspiracy, as well as alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), state and federal controlled substances laws, and other statutes.

The Company and the 2 other national pharmaceutical distributors (collectively “Distributors”) settled with 46 of 49 eligible states and their participating subdivisions, as well as the District of Columbia and all eligible territories (collectively, “Settling Governmental Entities”) effective on April 2, 2022 (“Settlement”). If all conditions to the Settlement are satisfied, including the receipt of approval by relevant courts of consent decrees to dismiss the lawsuits, the Distributors would pay the Settling Governmental Entities up to approximately $19.5 billion over 18 years, with up to approximately $7.4 billion to be paid by the Company for its 38.1% portion. Under the Settlement, a minimum of 85% of the settlement payments must be used by state and local governmental entities to remediate the opioid epidemic. Most of the remaining percentage relates to plaintiffs’ attorneys’ fees and costs, and would be payable over a shorter time period. Under the Settlement, the Distributors will establish a clearinghouse to consolidate their controlled-substance distribution data, which will be available to the settling U.S. states to use as part of their anti-diversion efforts. The Distributors do not admit liability or wrongdoing and do not waive any defenses pursuant to the Settlement.

Three eligible states, Alabama, Washington, and Oklahoma did not join the Settlement, but they have all now reached agreements in principle with the Company. With respect to the claims of the Alabama attorney general, the Company has negotiated an agreement in principle under which the Company will pay $141 million in 10 equal annual installments and an additional approximately $33 million in attorney fees and costs to resolve the opioid-related claims of the state of Alabama and its subdivisions. On May 3, 2022, the Distributors announced an agreement with the attorney general of Washington to settle the claims of the state of Washington and its subdivisions. Under that agreement, Washington and its subdivisions would be paid up to $518 million over 18 years, of which the Company’s portion would be 38.1% (or approximately $197 million), consistent with Washington’s allocation under the comprehensive framework, as well as certain additional attorneys’ fees and costs. On June 27, 2022, an agreement was announced between the Distributors and the attorney general of Oklahoma to settle claims of the state of Oklahoma and its subdivisions. Under that agreement, Oklahoma and its subdivisions would be paid up to $250 million over 18 years, of which the Company’s portion would be 38.1%, consistent with Oklahoma’s allocation under the comprehensive framework, as well as certain additional attorneys’ fees and costs. The Company’s loss contingency accruals for these three states and their subdivisions reflect the amounts of these agreements in principle.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The Company previously settled with the state of West Virginia, and West Virginia and its subdivisions were not eligible to participate in the comprehensive Settlement. Claims of various West Virginia subdivisions remain pending in both state and federal courts. Trial in the case of Cabell County and City of Huntington occurred in the U.S. District Court for the Southern District of West Virginia and concluded on July 28, 2021. On July 4, 2022, the court entered judgment in defendants’ favor. On August 2, 2022, the plaintiffs filed an appeal. The claims of certain other West Virginia subdivisions are pending in the federal Multi-district Litigation and before the state Mass Litigation Panel. On September 30, 2021, the Mass Litigation Panel issued an order scheduling a liability-only trial on the public nuisance claims of certain political subdivisions against the Distributors for July 5, 2022. On July 5, 2022, the Mass Litigation Panel entered an order postponing the trial in light of an agreement in principle between a group of plaintiffs’ attorneys representing the municipalities and the three companies. Under that agreement in principle, the three companies would pay $400 million over approximately 11 years, with the Company responsible for 38.1% of the total amount (or approximately $152 million). The agreement in principle is contingent on participation of certain litigating subdivisions in West Virginia, but does not include school districts or the claims of Cabell County and the City of Huntington. The Company’s loss contingency accruals for the West Virginia subdivisions are reflected in the estimated liability for the opioid-related claims as of June 30, 2022.

With respect to the claims of Native American tribes, on September 28, 2021, the Company announced that the Distributors reached an agreement with the Cherokee Nation to pay approximately $75 million over 6.5 years to resolve opioid-related claims, of which the Company’s portion would be 38.1% (or, approximately $29 million). The Company has also negotiated a broad resolution of opioid-related claims brought by Native American tribes. Under the proposed agreement, which has been endorsed by the leadership committee of counsel representing the tribes, the Distributors would pay the Native American tribes, other than the Cherokee Nation, approximately $440 million over 6 years, of which the Company’s portion would be 38.1% (or, approximately $167 million). This broad resolution is contingent on the participation of a substantial majority of the Native American tribes that have brought opioid-related claims against the Distributors. Under these agreements, a minimum of 85% of the settlement payments must be used by the Native American tribes to remediate the opioid epidemic. The Company’s loss-contingency accruals for the Native American tribes reflect these amounts and are reflected in the estimated liability for the opioid-related claims as of June 30, 2022.

Although the Settlement terminated the substantial majority of opioid-related suits by governmental entities pending against the Company, a small number of subdivisions in participating states have opted not to participate in the comprehensive settlement, and other suits brought by subdivisions in non-participating states remain pending. The Company continues to prepare for trial in these pending matters and believes that it has valid defenses to the claims pending against it, and it intends to vigorously defend against all such claims if acceptable settlement terms are not achieved. The Company’s loss contingency accruals for these subdivisions are reflected in the estimated liability for the opioid-related claims consistent with what would be allocated under the framework of the settlement.

In the first quarter of fiscal 2023, the Company paid $375 million, and in July 2022 paid an additional $470 million, associated with the Settlement and separate settlement agreements of opioid-related claims of participating states, subdivisions, and Native American tribes.

The Company’s estimated accrued liability for the opioid-related claims of governmental entities is as follows:


(In millions)	June 30, 2022		March 31, 2022
Current litigation liabilities (1)	$	759	$	1,046
Long-term litigation liabilities	7,132		7,220

Total litigation liabilities	$	7,891	$	8,266

(1)These amounts as of June 30, 2022 and March 31, 2022, recorded in “Other accrued liabilities” in the Condensed Consolidated Balance Sheets, are the amounts estimated to be paid within the next twelve months following each respective period end date.

Consistent with the terms of the Settlement and a separate agreement with the Alabama attorney general, the Company placed approximately $395 million into escrow during the fiscal year ended March 31, 2022. During the period ended June 30, 2022, the Company released $296 million from escrow consistent with the terms of the opioid settlement agreements. The remaining escrow amounts were presented as restricted cash within “Prepaid expenses and other” in our Condensed Consolidated Balance Sheet as of June 30, 2022. The Settlement created a binding obligation to release the funds from escrow upon entry of consent judgments and establishment of a settlement administrator.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Although the vast majority of opioid claims have been brought by governmental entities in the U.S., the Company is also a defendant in cases brought in the U.S. by private plaintiffs, such as hospitals, health and welfare funds, third-party payors, and individuals, as well as 4 cases brought in Canada (3 by governmental or tribal entities and 1 by an individual). These claims, and those of private entities generally, are not included in the Settlement or in the charges recorded by the Company, described above. The Company believes it has valid legal defenses in these matters and intends to mount a vigorous defense. One such case was brought by a group of individual plaintiffs in Glynn County, Georgia Superior Court. These plaintiffs seek to recover for damages allegedly arising from their family members’ abuse of prescription opioids. Poppell v. Cardinal Health, Inc. et al., CE19-00472. Although trial began in this case on July 18, 2022, the court declared a mistrial on July 22, 2022; no new trial date has been set. The Company has not concluded a loss is probable in any of these matters; nor is any possible loss or range of loss ~~can be made. As discussed above, development~~reasonably estimable.

Because of ~~a meaningful estimate of loss or a range of potential loss~~the many uncertainties associated with the remaining opioid-related litigation matters, the Company is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possiblenot able to reasonably estimate athe upper or lower ends of the range of ~~potential~~ultimate possible loss ~~and boundaries of high and low estimates.~~

~~Significant developments~~for all opioid-related litigation matters. An adverse judgment or negotiated resolution in previously reported proceedings and in other litigation and claims, since the filing of our 2017 Annual Report and our Quarterly Report on Form 10-Q for the quarters ended June 30, 2017 and September 30, 2017 are set out below. We are party to the legal proceedings described below. Unless otherwise stated, we are currently unable to estimate a range of reasonably possible losses for the unresolved proceedings described below. Should any ~~one or a combination of more than one~~ of these ~~proceedings be successful, or should we determine to settle any or a combination of these~~ matters ~~we may be required to pay substantial sums, become subject to the entry of an injunction or be forced to change the manner in which we operate our business, which~~ could have a material adverse impact on ~~our~~the Company’s financial position, cash flows or liquidity, or results of operations.

II. Other Litigation ~~Government Subpoenas~~ and ~~Investigations~~Claims

~~As previously reported,~~On May 17, 2013, the Company is a defendant in many cases alleging claims related to the distribution of controlled substances to pharmacies, often together with other pharmaceutical wholesale distributors and pharmaceutical manufacturers and retail pharmacy chains named as defendants. The Company has beenwas served with ~~192 complaints~~a complaint filed in state and federal courts in Alabama, Arkansas, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, West Virginia and Wisconsin. These complaints allege violations of controlled substance laws and various other statutes in addition to common law claims, including negligence and public nuisance, and seek monetary damages and equitable relief. On December 5, 2017, the cases pending in federal district courts were transferred to a multi-district litigation proceeding in the United States District Court for the Northern District of Ohio captioned ~~In re: National Prescription Opiate Litigation,~~ ~~Case No. 17-md-2804. Approximately 29 cases remain in state courts in Connecticut, Florida, New Mexico, New York, Pennsylvania, Tennessee and Texas.~~

~~As previously disclosed, the Company and others filed suit in the United States District Court for the Northern District of Oklahoma,~~ ~~McKesson Corporation, et al. v. Todd Hembree, Attorney General of the Cherokee Nation, et al.,~~ ~~seeking a declaratory judgment that the Cherokee Nation District Court has no jurisdiction over the claims asserted by the Cherokee Nation in the suit captioned~~ ~~Cherokee Nation v. McKesson Corporation, et al.~~ On January 9, 2018, the court granted the motion for a preliminary injunction enjoining the defendants from taking any action in the case pending in the tribal court. On January 19, 2018, the Cherokee Nation refiled its suit against the Company and five other original defendants in the district court of Sequoyah County, Oklahoma. ~~The Cherokee Nation v. McKesson Corporation, et al., Case no. CT-2081-11.~~

As previously disclosed, two shareholder derivative suits filed against certain officers and directors of the Company and the Company as a nominal defendant, alleging violations of fiduciary duties relating to the Company’s previously disclosed agreement with the DEA and the Department of Justice and various United States Attorneys’ offices to settle all potential administrative and civil claims relating to investigations about the Company’s suspicious order reporting practices for controlled substances were consolidated in the United States District Court for the Northern District of California by True Health Chiropractic Inc., alleging that McKesson sent unsolicited marketing faxes in violation of the Telephone Consumer Protection Act of 1991 (“TCPA”), as ~~In re~~amended by the Junk Fax Protection Act of 2005 or JFPA, True Health Chiropractic Inc., et al. v. McKesson Corporation, ~~Derivative Litigation~~et al., No. ~~4:17-cv-1850.~~CV-13-02219 (HG). Plaintiffs seek statutory damages from $500 to $1,500 per violation plus injunctive relief. Plaintiffs alleged that defendants violated the TCPA by sending faxes that did not contain notices regarding how to opt out of receiving the faxes. On ~~January 5, 2018,~~August 13, 2019, the court granted plaintiffs’ renewed motion for class certification. After class notice and the opt-out period, 9,490 fax numbers remain in the class, representing 48,769 faxes received. On October 8, 2021, the court de-certified the class citing the plaintiffs lacked class-wide proof identifying the manner of receipt, thus leaving two named Plaintiffs remaining in the case. On April 27, 2022, the Court found that the named Plaintiffs had failed to meet their burden to show Defendants willfully or knowingly violated the TCPA and therefore were not entitled to treble damages. The Court found McKesson liable for statutory damages in the amount of $6,500. The Company appealed the finding of liability and the plaintiffs cross-appealed the denial of class certification and the ruling denying treble damages.

On December 9, 2019, the United States District Court for the Eastern District of New York ordered the unsealing of a complaint filed by a relator, purportedly on behalf of the United States, 30 states, the District of Columbia, and 2 cities, against US Oncology, Inc. alleging that from 2001 through 2010 the Company repackaged and sold single-dose syringes of oncology medications in a manner that violated the federal False Claims Act and various state and local false claims statutes, and seeking damages, treble damages, civil penalties, attorneys’ fees and costs of suit, all in unspecified amounts, United States ex rel. Omni Healthcare, Inc. v. US Oncology, Inc., 19-cv-05125. The United States and the named states declined to intervene in the case. On July 21, 2022, US Oncology, Inc.’s motion to dismiss was granted without prejudice. The related case against other Company defendants ~~moved~~remains pending, United States ex rel. Omni Healthcare Inc. v. McKesson Corporation, et al., 12-CV-06440 (NG).

On December 30, 2019, a group of independent pharmacies and a hospital filed a purported class action complaint alleging that the Company and other distributors violated the Sherman Act by colluding with manufacturers to restrain trade in the sale of generic drugs. Reliable Pharmacy, et al. v. Actavis Holdco US, et al., No. 2:19-cv-6044; MDL No. 16-MD-2724. The complaint seeks relief including treble damages, disgorgement, attorney fees, and costs in unspecified amounts. On May 25, 2022, the district court granted distributor defendants’ motion to dismiss the ~~consolidated suit.~~

complaint, but granted the plaintiffs leave to amend the complaint. Plaintiffs filed an amended complaint on July 1, 2022.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~As previously disclosed, Chaile Steinberg,~~In July 2020, the Company was served with a ~~purported shareholder,~~first amended qui tam complaint filed ~~a shareholder derivative complaint~~ in the United States District Court for the Southern District of ~~Chancery~~New York by a relator on behalf of the ~~State of Delaware against certain officers and directors of the Company~~U.S., 27 states and the ~~Company as a nominal defendant,~~District of Columbia against McKesson Corporation, McKesson Specialty Distribution LLC, and McKesson Specialty Care Distribution Corporation, alleging ~~violations of fiduciary duties relating to~~that defendants violated the ~~Company’s previously disclosed agreement with the DEA and the Department of Justice~~Anti-Kickback Statute, federal False Claims Act, and various state false claims statutes by providing certain business analytical tools to oncology practice customers, United States Attorneys’ offices to settle all potential administrative and civil claims relating to investigations about the Company’s suspicious order reporting practices for controlled substances. Two similar suits were then filed by purported shareholders, including ~~Police & Fire Ret. Sys of the City of Detroit v. McKessson Corporation, et al., No. 2017-0803, and~~ ~~Amalgamated Bank~~ex rel. Hart v. McKesson Corporation, et al., ~~No. 2017-0881.~~15-cv-00903-RA. The ~~Court of Chancery consolidated these three actions~~U.S. and the ~~plaintiffs designated the complaint~~named states have declined to intervene in the ~~Steinberg~~ ~~action as~~case. The complaint seeks relief including damages, treble damages, civil penalties, attorney fees, and costs of suit, all in unspecified amounts. On May 5, 2022, the ~~operative complaint on January 11, 2018. The consolidated matter is captioned~~ ~~In re McKesson Corporation Stockholder Derivative Litigation,~~ ~~No. 2017-0736. The defendants filed a~~district court granted the Company’s motion to dismiss ~~this action~~the complaint, but granted the plaintiff leave to amend the complaint. The relator filed the second amended complaint on ~~January 18, 2018. On January 19, 2018, purported shareholder Katielou Greene filed a shareholder derivative complaint in the Court of Chancery that is similar to the operative complaint in~~ ~~In re McKesson Corporation Stockholder Derivative Litigation~~. ~~Greene v. McKesson Corporation, et al.~~June 7, 2022.

On May 21, 2014, four hedge funds managed by Magnetar Capital filed a complaint against McKesson Europe Holdings GmbH & Co. KGaA (“McKesson Europe Holdings”, formerly known as “Dragonfly GmbH & Co. KGaA”), a wholly‑owned subsidiary of the Company, in a German court in Frankfurt, Germany, alleging that McKesson Europe Holdings violated German takeover law in connection with the Company’s acquisition of McKesson Europe by paying more to some holders of McKesson Europe’s convertible bonds than it paid to the shareholders of McKesson Europe’s stock, ~~Magnetar Capital Master Fund Ltd. et al. v. Dragonfly GmbH & Co KGaA~~, No. 3-05 O 44/14. On December 5, 2014, the court dismissed Magnetar’s lawsuit. Magnetar subsequently appealed that ruling. On January 19, 2016, the Appellate Court reversed the lower court’s rulingIII. Government Subpoenas and entered judgment against McKesson Europe Holdings. On February 22, 2016, McKesson Europe Holdings filed a notice of appeal, on which oral argument was heard by the German Federal Supreme Court on November 7, 2017. The final decision upholding the Appellate Court’s ruling in favor of Magnetar was issued on December 12, 2017; this decision does not materially impact McKesson’s consolidated financial statements.

Investigations

From time to time, the Company receives subpoenas or requests for information from various government agencies. The Company generally responds to such subpoenas and requests in a cooperative, thorough and timely ~~matter.~~manner. These responses sometimes require time and effort and can result in considerable costs being incurred by the Company. Such subpoenas and requests ~~also~~ can lead to the assertion of claims or the commencement of civil or criminal legal proceedings against the Company and other members of the ~~healthcare industry. Examples~~health care industry, as well as to settlements of ~~such subpoenas and investigations are included~~claims against the Company. The Company responds to these requests in the ordinary course of business.

IV. State Opioid Statutes

Legislative, regulatory, or industry measures to address the misuse of prescription opioid medications could affect the Company’s business in ways that it may not be able to predict. For example, in April 2018, the State of New York adopted the Opioid Stewardship Act (the “OSA”) which required the creation of an aggregate $100 million annual surcharge on all manufacturers and distributors licensed to sell or distribute opioids in New York. The initial surcharge payment would have been due on January 1, 2019 for opioids sold or distributed during calendar year 2017. On July 6, 2018, the Healthcare Distribution Alliance filed a lawsuit challenging the constitutionality of the law and seeking an injunction against its enforcement. On December 19, 2018, the U.S. District Court for the Southern District of New York found the law unconstitutional and issued an injunction preventing the State of New York from enforcing the law. The State appealed that decision. On September 14, 2020, a panel of the U.S. Court of Appeals for the Second Circuit reversed the district court’s decision on procedural grounds. The Company has accrued a $50 million pre-tax charge ($37 million after-tax) as its estimated share of the OSA surcharge for calendar years 2017 ~~Annual Report~~and 2018. This OSA provision was recognized in “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations for the year ended March 31, 2021 and in “Other accrued liabilities” in the Consolidated Balance Sheet as of March 31, 2021. The State of New York adopted an excise tax on ~~Form 10-K~~sales of opioids in the State, which became effective July 1, 2019. The law adopting the excise tax made clear that the OSA does not apply to sales or distributions occurring after December 31, 2018. The Healthcare Distribution Alliance filed a petition for panel rehearing, or, in the alternative, for rehearing en banc with the U.S. Court of Appeals for the Second Circuit; that petition was denied on December 18, 2020. On February 12, 2021, the Court of Appeals for the Second Circuit granted a motion by the Healthcare Distribution Alliance to stay its mandate pending the filing and ~~previously~~disposition of a petition for writ of certiorari before the U.S. Supreme Court. That petition was denied on October 4, 2021. In December 2021, McKesson paid $26 million for the assessment for calendar year 2017 while reserving all rights to challenge the constitutionality of the assessment. McKesson filed ~~10-Qs.~~a new lawsuit challenging the constitutionality of the OSA on May 18, 2022.


~~17.~~	~~Stockholders’ Equity~~

13. Stockholders' Equity (Deficit)

Each share of the Company’s outstanding common stock is permitted ~~one~~1 vote on proposals presented to stockholders and is entitled to share equally in any dividends declared by the Company’s Board of Directors (the “Board”).

OnIn July ~~26, 2017,~~2022, the ~~Company’s~~ quarterly dividend was raised from ~~$0.28~~$0.47 to ~~$0.34~~$0.54 per common share for dividends declared on or after such date by the Board. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company's future earnings, financial condition, capital requirements, and other factors.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Share Repurchase Plans

Stock repurchases may be made from ~~time to time~~time-to-time in open market transactions, privately negotiated transactions, through accelerated share repurchase (“ASR”) programs, or by ~~any combination~~combinations of such ~~methods.~~methods, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including ~~our~~the Company’s stock price, corporate and regulatory requirements, restrictions under ~~our~~the Company’s debt obligations, and other market and economic conditions. The ASR programs discussed below were designed to comply with Rule 10b5-1(c).

In ~~March 2017, we~~May 2022, the Company entered into an ASR program with a third-party financial institution to repurchase ~~$250~~$1.0 billion of the Company’s common stock. Pursuant to the ASR agreement, the Company paid $1.0 billion to the financial institution and received an initial delivery of 2.6 million shares in May 2022. The transaction will be completed during the second quarter of fiscal 2023, at which point the Company expects to receive additional shares. The final number of shares repurchased and the average price per share paid will be determined based on the volume-weighted average price of the Company’s common stock ~~and~~during the term of the ASR program, less a pre-negotiated discount.

In February 2022, the Company entered into an ASR program with a third-party financial institution to repurchase $1.5 billion of the Company’s common stock. The total number of shares repurchased under this ASR program was 5.1 million shares at an average price per share of $295.16. The Company received ~~1.4~~4.8 million shares as the initial share ~~settlement. In April 2017, we~~settlement during the fourth quarter of fiscal 2022 and, in May 2022, the Company received an additional 0.3 million shares upon the completion of this ASR program.

In May 2021, the Company entered into an ASR program with a third-party financial institution to repurchase $1.0 billion of the Company’s common stock. The total number of shares repurchased under this ASR program was 5.2 million shares at an average price per share of $193.22. The Company received 4.3 million shares as the initial share settlement during the first quarter of fiscal 2022 and, in August 2021, the Company received an additional 0.9 million shares upon the completion of this ASR program.

There were no other shares repurchased during the three months ended June 30, 2022 and 2021.

The total remaining authorization outstanding for repurchases of the Company’s common stock at June 30, 2022 was $2.3 billion. In July 2022, the Board approved an increase of $4.0 billion in the authorization for repurchase of McKesson’s common stock.

2728

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Accumulated Other Comprehensive Loss

InInformation regarding changes in accumulated other comprehensive loss, including noncontrolling interests and redeemable noncontrolling interests, by components for the three months ended June ~~2017~~30, 2022 and ~~August 2017, we entered into two separate ASR programs with third-party~~2021 are as follows:


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains on Net Investment Hedges, Net of Tax			Unrealized Gains on Cash Flow Hedges, Net of Tax		Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance at March 31, 2022	$	(1,504)	$	10		$	27	$	(67)	$	(1,534)
Other comprehensive income (loss) before reclassifications	(176)		45		⁽²⁾	18		12		(101)
Amounts reclassified to earnings and other (3)	730		(17)			—		24		737
Other comprehensive income	554		28			18		36		636
Less: amounts attributable to noncontrolling interests	47		—			—		3		50
Other comprehensive income attributable to McKesson	507		28			18		33		586
Balance at June 30, 2022	$	(997)	$	38		$	45	$	(34)	$	(948)

(1)Primarily results from the conversion of non-U.S. dollar financial ~~institutions to repurchase $250 million and $400 million~~statements of the Company’s ~~common stock. During~~operations in Europe and Canada into the ~~first nine~~Company’s reporting currency, U.S. dollars.

(2)Amounts recorded for the three months ended June 30, 2022 include gains of ~~2018, we received a total~~$64 million related to net investment hedges from Euro-denominated notes and gains of ~~1.5~~$12 million ~~shares under~~related to net investment hedges from cross-currency swaps. These amounts are net of income tax expense of $31 million.

(3)Primarily includes adjustments for amounts related to the ~~June 2017 ASR program and a total~~sale of ~~2.7 million shares under~~ the ~~August 2017 ASR program. The June 2017 ASR program was completed~~U.K. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale.” These amounts were included in the ~~second quarter~~fiscal 2022 calculation of ~~2018~~charges to remeasure the assets and ~~the August 2017 ASR program was completed~~liabilities held for sale to fair value less costs to sell recorded within “Selling, distribution, general, and administrative expenses” in the ~~third quarter~~Consolidated Statement of ~~2018.~~Operations.

~~In November 2017, we repurchased 1.8 million of the Company’s shares for $250 million through open market transactions at an average price per share of $138.12.~~

~~The total authorization outstanding for repurchases of the Company’s common stock was $1.8 billion at December 31, 2017.~~

~~Other Comprehensive Income (Loss)~~

~~Information regarding other comprehensive income (loss) including redeemable noncontrolling interests, net of tax, by component is as follows:~~

Quarter Ended December 31, Nine Months Ended December 31,
(In millions) 2017 2016 2017 2016
Foreign currency translation adjustments ⁽¹⁾

Foreign currency translation adjustments arising during period, net of income tax expense (benefit) of nil, nil, nil and $1 ^{(2) (3)}
$ 30
$ (398 ) $ 715
$ (782 )
Reclassified to income statement, net of income tax expense of nil, nil, nil and nil ⁽⁴⁾
—
—
—
20
30
(398 ) 715
(762 )
Unrealized gains (losses) on net investment hedges ⁽⁵⁾

Unrealized gains (losses) on net investment hedges arising during period, net of income tax benefit of $9, nil, $78 and nil (19 ) —
(127 ) —
Reclassified to income statement, net of income tax expense of nil, nil, nil and nil —
—
—
—
(19 ) —
(127 ) —
Unrealized gains (losses) on cash flow hedges
Unrealized gains (losses) on cash flow hedges arising during period, net of income tax expense of $2, nil, $2 and nil (16 ) (14 ) (5 ) (20 )

Changes in retirement-related benefit plans ⁽⁶⁾

Net actuarial loss and prior service cost arising during the period, net of income tax benefit of nil, nil, nil and nil —
—
—
—
Amortization of actuarial loss and prior service costs, net of income tax expense of nil, $1, nil and $3 ⁽⁷⁾
1
2
3
6
Foreign currency translation adjustments and other, net of income tax expense of nil, nil, nil and nil —
6
(10 ) 14
1
8
(7 ) 20

Other comprehensive income (loss), net of tax $ (4 ) $ (404 ) $ 576
$ (762 )
29


~~(1)~~	~~Foreign currency translation adjustments primarily result from the conversion of non-U.S. dollar financial statements of our foreign subsidiaries into the Company’s reporting currency, U.S. dollars.~~

~~(2)~~

During the third quarter of 2018, the net foreign currency translation gains were primarily due to the strengthening of the Euro against the U.S. dollar from October 1, 2017 to December 31, 2017. The net foreign currency translation gains during the first nine months of 2018 were primarily due to the strengthening of the Euro, Canadian dollar and British pound sterling against the U.S. dollar from April 1, 2017 to December 31, 2017. During the third quarter and first nine months of 2017, the currency translation losses were primarily due to the weakening of the British pound sterling and Euro against the U.S. dollar from April 1, 2016 to December 31, 2016.


~~(3)~~	The third quarter and first nine months of 2018 include net foreign currency translation gains of $12 million and $160 million and the third quarter and first nine months of 2017 include net foreign currency translation losses of $31 million and $97 million attributable to redeemable noncontrolling interests.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)


~~(4)~~	The first nine months of 2017 includes net foreign currency translation losses of $20 million reclassified from accumulated other comprehensive income (loss) to loss from discontinued operations, net of tax, within our condensed consolidated statements of operations due to the sale of our Brazilian pharmaceutical distribution business.


~~(5)~~	The third quarter and first nine months of 2018 include foreign currency losses of $28 million and $205 million on the net investment hedges from the €1.2 billion Euro-denominated notes and £450 million British pound sterling-denominated notes.


~~(6)~~	The third quarter and first nine months of 2018 include net actuarial losses of nil and $1 million, and the third quarter and first nine months of 2017 include net actuarial losses of $2 million and $3 million, which are attributable to redeemable noncontrolling interests.


~~(7)~~	Pre-tax amount reclassified into cost of sales and operating expenses in our condensed consolidated statements of operations. The related tax expense was reclassified into income tax expense (benefit) in our condensed consolidated statements of operations.


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Losses on Net Investment Hedges, Net of Tax			Unrealized Gains on Cash Flow Hedges, Net of Tax		Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance at March 31, 2021	$	(1,361)	$	(36)		$	13	$	(96)	$	(1,480)
Other comprehensive income (loss) before reclassifications	34		(27)		⁽²⁾	—		5		12
Amounts reclassified to earnings and other	17		—			—		(3)		14
Other comprehensive income (loss)	51		(27)			—		2		26
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	9		(6)			—		—		3
Other comprehensive income (loss) attributable to McKesson	42		(21)			—		2		23
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	(158)		—			—		(12)		(170)
Balance at June 30, 2021	$	(1,477)	$	(57)		$	13	$	(106)	$	(1,627)

(1)Primarily results from the conversion of non-U.S. dollar financial statements of the Company’s operations in Europe and Canada into the Company’s reporting currency, U.S. dollars.

~~Table~~(2)Amounts recorded for the three months ended June 30, 2021 include losses of ~~Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~Accumulated Other Comprehensive Income (Loss)~~

~~Information regarding changes in our accumulated other comprehensive income (loss),~~$22 million related to net investment hedges from Euro-denominated notes and losses of $5 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax ~~by component for the third quarter and first nine months~~benefit of ~~2018 is as follows:~~$6 million.

Foreign Currency Translation Adjustments
(In millions) Foreign Currency Translation Adjustments, Net of Tax
Unrealized Losses on Net Investment Hedges,
Net of Tax

Unrealized Gains (Losses) on Cash Flow Hedges,
Net of Tax
Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax Total Accumulated Other Comprehensive Income (Loss)
Balance at September 30, 2017 $ (1,336 ) $ (116 ) $ (20 ) $ (238 ) $ (1,710 )

Other comprehensive income (loss) before reclassifications 30
(19 ) (16 ) —
(5 )
Amounts reclassified to earnings and other —
—
—
1
1
Other comprehensive income (loss) 30
(19 ) (16 ) 1
(4 )
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests 12
—
—
—
12
Other comprehensive income (loss) attributable to McKesson 18
(19 ) (16 ) 1
(16 )
Balance at December 31, 2017 $ (1,318 ) $ (135 ) $ (36 ) $ (237 ) $ (1,726 )
14. Segments of Business

Foreign Currency Translation Adjustments
(In millions) Foreign Currency Translation Adjustments, Net of Tax
Unrealized Losses on Net Investment Hedges,
Net of Tax

Unrealized Gains (Losses) on Cash Flow Hedges,
Net of Tax
Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax Total Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2017 $ (1,873 ) $ (8 ) $ (31 ) $ (229 ) $ (2,141 )

Other comprehensive income (loss) before reclassifications 715
(127 ) (5 ) (10 ) 573
Amounts reclassified to earnings and other —
—
—
3
3
Other comprehensive income (loss) 715
(127 ) (5 ) (7 ) 576
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests 160
—
—
1
161
Other comprehensive income (loss) attributable to McKesson 555
(127 ) (5 ) (8 ) 415
Balance at December 31, 2017 $ (1,318 ) $ (135 ) $ (36 ) $ (237 ) $ (1,726 )

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


~~18.~~	~~Segment Information~~

~~We currently report our operations~~The Company reports its financial results in ~~two operating~~4 reportable segments: ~~McKesson Distribution~~U.S. Pharmaceutical, RxTS, Medical-Surgical Solutions, and ~~McKesson Technology Solutions.~~International. The organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments ~~included~~include the manner in which management evaluates the performance of the Company combined with the nature of the individual business activities. ~~We evaluate~~The Company evaluates the performance of ~~our~~its operating segments on a number of measures, including revenues and operating profit (loss) before interest expense and income ~~taxes~~taxes. Assets by operating segment are not reviewed by management for the purpose of assessing performance or allocating resources.

The U.S. Pharmaceutical segment distributes branded, generic, specialty, biosimilar, and ~~results from discontinued operations.~~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.

The RxTS segment serves McKesson’s biopharma and life sciences partners and patients to address medication challenges for patients throughout their journeys. RxTS works across healthcare to connect pharmacies, providers, payers, and biopharma companies to deliver innovative access and adherence solutions designed to benefit stakeholders and help people get the medicine they need to live healthier lives. RxTS also offers third-party logistics and wholesale distribution support across various therapeutic categories and temperature ranges to biopharma customers throughout the product lifecycle.

The 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. This segment offers more than 285,000 national brand medical-surgical products as well as McKesson’s own line of high-quality products through a network of distribution centers within the U.S.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The International segment includes the Company’s operations in Europe and Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. The Company’s operations in Europe provide distribution and services to wholesale, institutional, and retail customers in 10 European countries where it owns, partners, or franchises with retail pharmacies and operates through 2 businesses: Pharmaceutical Distribution and Retail Pharmacy. The Company’s Canada operations deliver vital medicines, supplies, and information technology solutions throughout Canada and includes Rexall Health retail pharmacies. In the second quarter of fiscal 2022, the Company entered into an agreement to sell the E.U. disposal group which is anticipated to close within the second half of fiscal 2023. International segment assets at June 30, 2022 were $10.9 billion, a decrease during the first quarter of fiscal 2023 primarily due to the completed the sale of the U.K. disposal group. Refer to Financial Note 2, “Held for Sale,” for more information.

Financial information relating to ~~our~~the Company’s reportable operating segments and reconciliations to the condensed consolidated totals is as follows:


	Three Months Ended June 30,
(In millions)	2022		2021
Segment revenues (1)
U.S. Pharmaceutical	$	56,947	$	50,019
Prescription Technology Solutions	1,066		881
Medical-Surgical Solutions	2,592		2,528
International	6,549		9,246
Total revenues	$	67,154	$	62,674

Segment operating profit (loss) (2)
U.S. Pharmaceutical (3)	$	696	$	682
Prescription Technology Solutions	144		104
Medical-Surgical Solutions (4)	256		75
International (5)	(6)		53
Subtotal	1,090		914
Corporate expenses, net (6)	(39)		(303)
Interest expense	(45)		(49)
Income from continuing operations before income taxes	$	1,006	$	562

Quarter Ended December 31, Nine Months Ended December 31,
(In millions) 2017 2016 2017 2016
Revenues
Distribution Solutions ⁽¹⁾

North America pharmaceutical distribution and services $ 44,935
$ 41,685
$ 131,459
$ 124,271
International pharmaceutical distribution and services 6,989
6,193
20,144
18,794
Medical-Surgical distribution and services 1,693
1,558
4,886
4,657
Total Distribution Solutions 53,617
49,436
156,489
147,722

Technology Solutions- products and services ⁽²⁾
—
694
240
2,098
Total Revenues $ 53,617
$ 50,130
$ 156,729
$ 149,820

Operating profit
Distribution Solutions ^{(3) (4)}
$ 819
$ 813
$ 1,920
$ 2,592
Technology Solutions ^{(5) (6)}
65
132
(46 ) 126
Total 884
945
1,874
2,718
Corporate Expenses, Net (120 ) (91 ) (337 ) (270 )
Interest Expense (67 ) (74 ) (204 ) (231 )
Income from Continuing Operations Before Income Taxes $ 697
$ 780
$ 1,333
$ 2,217


~~(1)~~	~~Revenues derived from services represent less than 2% of this segment’s total revenues.~~


~~(2)~~	2018 revenues for the Technology Solutions segment only include the results of our EIS business. Effective April 1, 2017, our RHP business was transitioned from the Technology Solutions segment to the Distribution Solutions segment. The third quarter and first nine months of 2017 included the majority of our Core MTS Business which was contributed to Change Healthcare on March 1, 2017.

~~(3)~~

Distribution Solutions operating profit for the third quarter and first nine months of 2018 include pre-tax credits of $2 million and $5 million, and for the third quarter and first nine months of 2017 include pre-tax credits of $155 million and $151 million related to our LIFO method of accounting for inventories. LIFO credits were higher in 2017 compared to 2018 primarily due to changes made to full year expectations for net price increases during the third quarter of 2017 and changes in estimated year end inventory levels. Additionally, the first nine months of 2017 included $144 million of net cash proceeds representing our share of net settlements of antitrust class action lawsuits against drug manufacturers.

~~(4)~~

Operating profit for our Distribution Solutions segment for the first nine months of 2018 includes a pre-tax gain of $43 million recognized from the 2018 second quarter sale of an equity investment. The first nine months of 2018 included a pre-tax non-cash charge of $189 million primarily to impair certain long-lived assets for our U.K. retail business, as well as non-cash pre-tax goodwill impairment charges of $350 million for the McKesson Europe reporting unit.

~~(5)~~

Operating profit for our Technology Solutions segment for the third quarter and first nine months of 2018 includes a pre-tax gain of $109 million from the 2018 third quarter sale of our EIS business, a pre-tax credit of $46 million representing a reduction in our TRA liability and our proportionate share of loss from Change Healthcare of $90 million and $271 million. Additionally, operating profit for the first nine months of 2018 includes a pre-tax gain of $37 million from the Healthcare Technology Net Asset Exchange related to the final net working capital and other adjustments.


~~(6)~~	~~The first nine months of 2017 include a non-cash pre-tax goodwill impairment charge of $290 million for the EIS reporting unit within our Technology Solutions segment.~~

(1)Revenues from services on a disaggregated basis represent less than 1% of the U.S. Pharmaceutical segment’s total revenues, less than 35% of the RxTS segment’s total revenues, less than 1% of the Medical-Surgical Solutions segment’s total revenues, and less than 8% of the International segment’s total revenues. The International segment reflects foreign revenues. Revenues for the remaining 3 reportable segments are derived in the U.S.

(2)Segment operating profit (loss) includes gross profit, net of total operating expenses, as well as other income, net, for the Company’s reportable segments.

(3)The Company’s U.S. Pharmaceutical segment’s operating profit for the three months ended June 30, 2022 and 2021 includes $13 million and $23 million, respectively, of credits related to the last-in, first-out (“LIFO”) method of accounting for inventories.

(4)The Company’s Medical-Surgical Solutions segment’s operating profit for the three months ended June 30, 2021 includes $164 million of inventory charges on certain personal protective equipment and other related products.

(5)The Company’s International segment’s operating loss for the three months ended June 30, 2022 includes charges of $94 million to remeasure assets and liabilities of the E.U. disposal group to fair value less costs to sell, as discussed in more detail in Financial Note 2, “Held for Sale.”

(6)Corporate expenses, net includes the following:

•gains of $106 million for the three months ended June 30, 2022 primarily related to the effect of accumulated other comprehensive loss components from the E.U. disposal group, as discussed in more detail in Financial Note 2, “Held for Sale;”

•charges of $5 million and $74 million for the three months ended June 30, 2022 and 2021, respectively, related to the Company’s estimated liability for opioid-related claims, as discussed in more detail in Financial Note 12, “Commitments and Contingent Liabilities;”

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McKESSON CORPORATION

FINANCIAL NOTES (CONCLUDED)

(UNAUDITED)

~~As previously disclosed in our Quarterly Report on Form 10-Q~~•charges of $19 million and $35 million for the ~~quarter~~three months ended ~~September~~June 30, ~~2017, on January 2, 2018,~~2022 and 2021, respectively, of opioid-related costs, primarily litigation expenses; and

•restructuring charges of $62 million for the ~~Executive Vice President and Group President who was our segment manager of~~three months ended June 30, 2021 primarily due to the ~~Distribution Solutions segment retired from the Company. As~~transition to a result, the Company’s chief operating decision maker is currently evaluating our management and operating structure. We anticipate this evaluation will result in a change in our existing operating segment structure, commencing with our first quarter of 2019.

partial remote work model for certain employees.

~~Table of Contents~~


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McKESSON CORPORATION

FINANCIAL REVIEW

(UNAUDITED)

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

INDEX TO MANAGEMENT’S DISCUSSION AND ANALYSIS

GENERAL

Management’s discussion and analysis of financial condition and results of operations, referred to as the ~~Financial~~“Financial Review,” is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of McKesson Corporation ~~(“McKesson,”~~together with its subsidiaries (collectively, the “Company,” “McKesson,” “we,” “our,” or ~~“we”~~“us” and other similar pronouns) ~~together with its subsidiaries.~~. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and accompanying financial notes in Item 1 of Part I of this Quarterly Report on Form 10-Q (“Quarterly Report”) and in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017~~2022 previously filed with the ~~SEC~~Securities and Exchange Commission on May ~~22, 2017~~9, 2022 (“~~2017~~2022 Annual Report”).

~~The Company’s~~Our fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean ~~the Company’s~~our fiscal year.

Certain statements in this report constitute forward-looking statements. See ~~“Factors Affecting~~“Cautionary Notice About Forward-Looking Statements” included in this Quarterly Report.

Overview of our Business:

We are a diversified healthcare services leader dedicated to advancing health outcomes for patients everywhere. Our teams partner with biopharma companies, care providers, pharmacies, manufacturers, governments, and others to deliver insights, products, and services to help make quality care more accessible and affordable.

We report our results in four reportable segments: U.S. Pharmaceutical, Prescription Technology Solutions (“RxTS”), Medical-Surgical Solutions, and International. Our organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments include the manner in which management evaluates the performance of the Company combined with the nature of individual business activities. We evaluate the performance of our operating segments on a number of measures, including revenues and operating profit before interest expense and income taxes.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

The following summarizes our four reportable segments. Refer to Financial Note 14, “Segments of Business,” to the accompanying condensed consolidated financial statements included in this Quarterly Report ~~on Form 10-Q.~~for further information regarding our reportable segments.

•U.S. Pharmaceutical is a reportable segment that 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.

•Prescription Technology Solutions is a reportable segment that combines automation and our ability to navigate the healthcare ecosystem to connect pharmacies, providers, payers, and biopharma companies to address patients’ medication access, adherence, and affordability challenges to help people get the medicine they need to live healthier lives.

•Medical-Surgical Solutions is a reportable segment that provides medical-surgical supply distribution, logistics, and other services to healthcare providers in the United States (“U.S.”).

•International is a reportable segment that includes our operations in Europe and Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. During fiscal 2022, we entered into agreements to sell certain of our businesses in the European Union (“E.U.”) and our retail and distribution businesses in the United Kingdom (“U.K.”), as well as completed the sale of our Austrian business. During the three months ended June 30, 2022, we completed the sale of our retail and distribution businesses in the U.K. These divestitures are further described in the “European Divestiture Activities” section below.

European Divestiture Activities

On July 5, 2021, we entered into an agreement to sell certain of our businesses in the E.U. located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along with our German headquarters and wound-care business, part of a shared services center in Lithuania, and our ownership stake in a joint venture in the Netherlands (“E.U. disposal group”) to the PHOENIX Group for a purchase price of €1.2 billion (or, approximately $1.3 billion) adjusted for certain items, including cash, net debt and working capital adjustments, and reduced by the value of the noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) at the transaction closing date. We recorded a gain of $12 million for the three months ended June 30, 2022 in total operating expenses to remeasure the E.U. disposal group to fair value less costs to sell, of which gains of $106 million are included within Corporate expenses, net, partially offset by charges of $94 million included within our International segment. The transaction is anticipated to close within the second half of fiscal 2023, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals.

On April 6, 2022, we completed the previously announced sale of our retail and distribution businesses in the U.K. (“U.K. disposal group”) to Aurelius Elephant Limited for a purchase price of £110 million (or, approximately $144 million), including certain adjustments. As part of the transaction, we divested net assets of $615 million and released $731 million of accumulated other comprehensive loss.

As of June 30, 2022, we had $3.2 billion of assets and $2.3 billion of liabilities classified as “Assets held for sale” and “Liabilities held for sale,” respectively, in the Condensed Consolidated Balance Sheet primarily related to the pending sale of our E.U. disposal group described above. Refer to Financial Note 2, “Held for Sale,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information.

Executive Summary:

The following summary provides highlights and key factors that impacted our business, operating results, financial condition, and liquidity for the three months ended June 30, 2022.

•The pandemic disease caused by the SARS-CoV-2 coronavirus (“COVID-19”) impacted our results of operations for the three months ended June 30, 2022. For a more in-depth discussion of how COVID-19 impacted our business, operations, and outlook, refer to the COVID-19 section of "Trends and Uncertainties" included below;

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

•For the three months ended June 30, 2022 compared to the prior year, revenues increased by 7%, gross profit was flat, total operating expenses decreased by 19%, and other income, net decreased by 65%. Refer to the “Overview of Consolidated Results” section below for an analysis of these changes;

•Diluted earnings per common share from continuing operations attributable to McKesson Corporation for the three months ended June 30, 2022 increased 70% to $5.25, primarily driven by reduced corporate expenses, growth across our North American businesses, and a lower share count compared to the prior year due to the cumulative effect of share repurchases; and

•We returned $1.1 billion of cash to shareholders during the three months ended June 30, 2022 through $1.0 billion of common stock repurchases under an accelerated share repurchase (“ASR”) program entered into in May 2022 and $71 million of dividend payments. In July 2022, our Board of Directors (the “Board”) approved an increase of $4.0 billion in the authorization for repurchases of McKesson’s common stock and raised our quarterly dividend from $0.47 to $0.54 per common share.

Trends and Uncertainties:

The Impact of Inflationary and Global Events

Our business and results of operations, financial condition, and liquidity are impacted by broad economic conditions including inflation, increased competition for talent, and disruption of the supply chain, as well as by political or civil unrest or military action, including indirect results such as commodity price increases from the conflict between Russia and Ukraine (“Russo-Ukrainian War”). Cost inflation generally affects us by increasing transportation, operational, and other administrative costs associated with our business operations which we might not be able to fully pass along to our customers. Although it is difficult to predict the impact that these factors may have on our business in the future, they did not have a material effect on our results of operations, financial condition, or liquidity for the three months ended June 30, 2022.

COVID-19

COVID-19 has continued to evolve since it was declared a global pandemic by the World Health Organization on March 11, 2020. We continue to evaluate the nature and extent of the ongoing impacts of COVID-19 on our business, operations, and financial results. Refer to Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of our 2022 Annual Report for additional disclosure of trends and uncertainties due to COVID-19. The disclosures below include significant updates that occurred during the first quarter of fiscal 2023 and the financial impacts compared to fiscal 2022.

~~Overview:~~Our Role in the Distribution of COVID-19 Vaccines and Ancillary Supply Kits

As a diversified healthcare services leader, we are well positioned to respond to the COVID-19 pandemic in the U.S., Canada, and Europe. We work closely with national and local governments, agencies, and industry partners to ensure that available supplies, including personal protective equipment (“PPE”), and medicine reach our customers and their patients.

In December 2020, we began distributing certain COVID-19 vaccines in support of the U.S. government through a contract with the Centers for Disease Control and Prevention (“CDC”). In July 2022, we renewed our relationship with the CDC, under which we serve as a centralized distributor of COVID-19 vaccines and ancillary supplies used to administer vaccines. The results of operations related to our vaccine distribution are reflected in our U.S. Pharmaceutical segment. We also extended our contract to manage the assembly, storage, and distribution of ancillary supply kits as directed by the Department of Health and Human Services (“HHS”), the results of which are reflected in our Medical-Surgical Solutions segment.

McKesson Canada and McKesson Europe support governments and public health entities through distributing COVID-19 vaccines and administering them in pharmacies as well as distributing COVID-19 tests and certain PPE.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

(Dollars in millions, except per share data) Quarter Ended December 31,
Nine Months Ended December 31,
2017 2016 Change 2017 2016 Change
Revenues $ 53,617
$ 50,130
7
% $ 156,729
$ 149,820
5
%

Gross Profit $ 2,715
$ 2,812
(3 ) % $ 8,109
$ 8,475
(4 ) %

Gross Profit Margin 5.06
5.61
(55 ) bp 5.17
5.66
(49 ) bp

Operating Expenses:
Operating Expenses $ (1,984 ) $ (1,981 ) -
% $ (5,920 ) $ (5,802 ) 2
%
Gain from Sale of Business 109
—
NM
109
—
NM

Goodwill Impairment Charges —
—
NM
(350 ) (290 ) 21

Restructuring and Asset Impairment Charges (6 ) —
NM
(242 ) —
NM

Total Operating Expenses $ (1,881 ) $ (1,981 ) (5 ) % $ (6,403 ) $ (6,092 ) 5
%

Loss from Equity Method Investment in Change Healthcare $ (90 ) $ —
NM
$ (271 ) $ —
NM

Income from Continuing Operations Before Income Taxes $ 697
$ 780
(11 ) % $ 1,333
$ 2,217
(40 ) %
Income Tax Benefit (Expense) 263
(131 ) (301 ) 46
(570 ) (108 )
Income from Continuing Operations 960
649
48
1,379
1,647
(16 )
Income (Loss) from Discontinued Operations, Net of Tax 1
(3 ) (133 ) 3
(117 ) (103 )
Net Income 961
646
49
1,382
1,530
(10 )
Net Income Attributable to Noncontrolling Interests (58 ) (13 ) 346
(169 ) (48 ) 252

Net Income Attributable to McKesson Corporation $ 903
$ 633
43
% $ 1,213
$ 1,482
(18 ) %

Diluted Earnings (Loss) Per Common Share Attributable to McKesson Corporation
Continuing Operations $ 4.32
$ 2.86
51
% $ 5.75
$ 7.07
(19 ) %
Discontinued Operations 0.01
(0.01 ) (200 ) 0.01
(0.51 ) (102 )
Total $ 4.33
$ 2.85
52
% $ 5.76
$ 6.56
(12 ) %

Weighted Average Diluted Common Shares 208
222
(6 ) % 210
226
(7 ) %
Trends in our Business

We observed increases in prescription volumes within our U.S. Pharmaceutical segment and favorability in our primary care business within our Medical-Surgical Solutions segment during the three months ended June 30, 2022 compared to the same prior year period. The contributions from COVID-19 tests and our vaccine and related kitting distribution programs have decreased year over year primarily driven by lower demand.

Impacts to our Supply Chain

We continue to monitor and address the COVID-19 pandemic impacts on our supply chain. Although the availability of various products is dependent on our suppliers, their locations, and the extent to which they are impacted by the COVID-19 pandemic, we proactively work with manufacturers, industry partners, and government agencies to meet the needs of our customers. During the quarter, we had an increase in supply chain costs primarily related to transportation and labor; however, this did not materially impact our results of operations for the three months ended June 30, 2022. As potential shortages or disruptions of any products are identified, we address supply continuity which includes securing additional products when available, sourcing back-up products when needed, and following allocation procedures to maintain and protect supply as much as possible. We utilize business continuity action planning to maintain and protect operations across all locations and facilities.

Impact to our Results of Operations, Financial Condition, and Liquidity

For the three months ended June 30, 2022, COVID-19 tests and the kitting and distribution of ancillary supplies for COVID-19 vaccines in our Medical-Surgical Solutions segment contributed approximately $201 million and $49 million to segment revenues and segment operating profit, respectively. For the three months ended June 30, 2021, the contribution was approximately $323 million to segment revenues and including total inventory charges that are further described below, reduced our segment operating profit by approximately $90 million.

The distribution of COVID-19 vaccines in our U.S. Pharmaceutical segment decreased during the first quarter of fiscal 2023 when compared to the same prior year period. The contribution was less than 10% to segment operating profit for each of the three months ended June 30, 2022 and 2021. The financial impact from our COVID-19 response efforts in the International segment during the three months ended June 30, 2022 and 2021 was not material to our consolidated results, but favorably contributed to our segment operating results.

Additionally, we recorded inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment during the three months ended June 30, 2021. We have taken measures to mitigate risks for market price volatility and changes to anticipated customer demand that may require additional write-downs in future periods of other PPE and related product categories.

These COVID-19 related items had a net favorable impact on consolidated income from continuing operations before income taxes for the three months ended June 30, 2022 compared to the same prior year period, primarily due to prior year inventory charges on certain PPE and other related products as mentioned above.

During the three months ended June 30, 2022 and 2021, we maintained appropriate labor and overall vendor supply levels and experienced no material impacts to our liquidity or net working capital due to the COVID-19 pandemic.

Opioid-Related Litigation and Claims

We are a defendant in many legal proceedings asserting claims related to the distribution of controlled substances (opioids) in federal and state courts throughout the U.S., and in Puerto Rico and Canada. The plaintiffs in these actions have included state attorneys general, county and municipal governments, tribal nations, hospitals, health and welfare funds, third-party payors, and individuals.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

On February 25, 2022, the Company and two other United States pharmaceutical distribution companies (collectively, "Distributors") determined that there was sufficient State and subdivision participation to proceed with an agreement ("Settlement") to settle a substantial majority of opioids-related lawsuits filed against the Distributors by U.S. states, territories and local governmental entities. Under the Settlement, 46 of 49 eligible states and their participating subdivisions, as well as the District of Columbia and all eligible territories (collectively, "Settling Governmental Entities"), have agreed to join the Settlement. The Settlement became effective on April 2, 2022. If all conditions to the Settlement are satisfied, including the receipt of approval by relevant courts of consent decrees to dismiss the lawsuits, the Distributors would pay the Settling Governmental Entities up to approximately $19.5 billion over 18 years, with up to approximately $7.4 billion to be paid by the Company for its 38.1% portion. Under the Settlement, a minimum of 85% of the settlement payments must be used by state and local governmental entities to remediate the opioid epidemic. Most of the remaining percentage relates to plaintiffs’ attorneys’ fees and costs, and would be payable over a shorter time period. Under the Settlement, the Distributors will establish a clearinghouse to consolidate their controlled-substance distribution data, which will be available to the settling U.S. states to use as part of their anti-diversion efforts. The Settlement provides that the Distributors do not admit liability or wrongdoing and do not waive any defenses.

The Settlement only addresses the claims of attorneys general of U.S. states and territories and political subdivisions in participating states and territories. Governmental entities not participating in the Settlement may continue to pursue their claims. The states of Alabama, Oklahoma and Washington chose not to participate in the Settlement, but, since the announcement of the Settlement, we have reached separate agreements in principle with the attorneys general of these states to settle the claims of the states and their subdivisions. The Distributors previously settled with the Cherokee Nation and reached a separate agreement in principle to settle the claims of the remaining federally recognized Native American Tribes.

We recorded a charge of $8.3 billion during the year ended March 31, 2022 related to our estimated liability to U.S. governmental entities, including those expected to participate in the Settlement, the states and subdivisions that were not expected to participate or were not eligible, and the Native American tribes. Our total estimated liability for opioid-related claims was $7.9 billion as of June 30, 2022, of which $759 million was included in “Other accrued liabilities” for the amount estimated to be paid within the next twelve months, and the remaining liability was included in “Long-term litigation liabilities” in our Condensed Consolidated Balance Sheet.

Because of the many uncertainties associated with ongoing opioid-related litigation matters, we are not able to reasonably estimate the upper or lower ends of the range of ultimate possible loss for all opioid-related litigation matters. In light of the uncertainty, the amount of any ultimate loss may differ materially from the amount accrued.

Notwithstanding the Settlement, we also continue to prepare for trial in pending matters. We believe that we have valid defenses to the claims pending against us and, absent an acceptable settlement, intend to vigorously defend against all such claims. An adverse judgment or negotiated resolution in any of these matters could have a material adverse impact on our financial position, cash flows or liquidity, or results of operations. Refer to Financial Note 12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Risks and Forward-Looking Information

Recent events such as the COVID-19 pandemic, the Russo-Ukrainian War, and associated economic impacts have disrupted the global economy and exacerbated uncertainties inherent in estimates, judgments, and assumptions used in our forecasts. We have experienced and may experience difficulties in sourcing products and changes in costs and pricing due to the effects of these events on supply chains. Our participation in government-sponsored vaccination distribution and related ancillary supply kit programs with the CDC and HHS exposes us to various uncertainties, such as the scope and length of related agreements and the amount of COVID-19 vaccines and ancillary supply kits that we are contracted to distribute, which could materially impact our future financial performance. Additionally, we periodically review our intangible and other long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Key assumptions and estimates about future values in our impairment assessments can be affected by a variety of factors, including the impacts of socio-political events on industry and economic trends as well as on our business strategy and internal forecasts. Impairment charges have been recognized in prior periods due to the impact from the COVID-19 pandemic. Material changes to key assumptions and estimates could decrease the projected cash flows or increase the discount rates that could potentially result in future impairment charges. Refer to Item 1A - Risk Factors in Part I of our 2022 Annual Report for a discussion of risk factors that could cause our actual results to differ materially from our projections.

RESULTS OF OPERATIONS

Overview of Consolidated Results:


(Dollars in millions, except per share data)	Three Months Ended June 30,
	2022			2021			Change
Revenues	$	67,154		$	62,674		7	%
Gross profit	3,023			3,032			-
Gross profit margin	4.50		%	4.84		%	(34)	bp
Total operating expenses	$	(1,987)		$	(2,464)		(19)	%
Total operating expenses as a percentage of revenues	2.96		%	3.93		%	(97)	bp
Other income, net	$	15		$	43		(65)	%

Interest expense	(45)			(49)			(8)
Income from continuing operations before income taxes	1,006			562			79
Income tax expense	(199)			(26)			665
Income from continuing operations	807			536			51
Income (loss) from discontinued operations, net of tax	2			(3)			167
Net income	809			533			52
Net income attributable to noncontrolling interests	(41)			(47)			(13)
Net income attributable to McKesson Corporation	$	768		$	486		58	%

Diluted earnings (loss) per common share attributable to McKesson Corporation
Continuing operations	$	5.25		$	3.09		70	%
Discontinued operations	0.01			(0.02)			150
Total	$	5.26		$	3.07		71	%

Weighted-average diluted common shares outstanding	145.9			158.1			(8)	%

All percentage changes displayed above which are not meaningful are displayed as zero percent.

bp - basis points

~~NM - not meaningful~~


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Revenues

Revenues increased for ~~2018~~the three months ended June 30, 2022 compared to ~~2017~~the same prior year period primarily due to market growth in our ~~business acquisitions~~U.S. Pharmaceutical segment. This was partially offset by lower revenues in our International segment driven by the completed divestiture of our U.K. disposal group in April 2022 and ~~expanded business with existing customers within our North America pharmaceutical distribution businesses.~~unfavorable effects of foreign currency exchange fluctuations. Market growth includes growing drug utilization, price increases, and newly launched products, partially offset by price deflation associated with ~~brand~~branded to generic drug conversion.

Gross Profit

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

Gross profit was flat for the three months ended June 30, 2022 compared to the same prior year period. Gross profit decreased in ~~2018~~our International segment primarily driven by the completed divestiture of our U.K. disposal group in April 2022 and unfavorable effects of foreign currency exchange fluctuations. This was partially offset by an increase in gross profit in our Medical-Surgical Solutions segment due to ~~the 2017 fourth quarter contribution~~prior year inventory charges on PPE and other related products as well as growth in our primary care business. Gross profit was also favorably impacted by growth of ~~the majority of~~specialty pharmaceuticals in our ~~McKesson Technology Solutions businesses (“Core MTS Business”) to a joint venture,~~U.S. Pharmaceutical segment as ~~further discussed below, significant government reimbursement reductions~~well as increased volume with new and existing customers in ~~the United Kingdom (“U.K.”), the competitive sell-side environment and lower last-in,~~our RxTS segment.

Last-in, first-out (“LIFO”) ~~credits. These decreases in 2018~~inventory credits were ~~partially offset by market growth, procurement benefits realized through the joint sourcing entity, ClarusONE Sourcing Services LLP (“ClarusONE”)~~$13 million and ~~our business acquisitions. Gross profit~~$23 million for the ~~first nine~~three months ~~of 2018 was unfavorably affected by weaker pharmaceutical manufacturer pricing trends,~~ended June 30, 2022 and ~~for the first nine months of 2017 benefited from $144 million of cash receipts representing our share of antitrust legal settlements.~~2021, respectively. LIFO credits were ~~$2 million and $155 million for the third quarters of 2018 and 2017, and $5 million and $151 million for~~lower in the first ~~nine months of 2018 and 2017. LIFO credits were higher in 2017 due to changes made to full year expectations for net price increases during the third~~ quarter of ~~2017 and changes in estimated year end inventory levels.~~

Gross profit margin for 2018 decreased primarily due to the 2017 fourth quarter contribution of the Core MTS Business, the competitive sell-side pricing environment and our mix of business. These decreases were partially offset by our business acquisitions.

On March 1, 2017, we contributed our Core MTS Business to the newly formed joint venture, Change Healthcare, LLC (“Change Healthcare”) under the terms of a contribution agreement previously entered into between McKesson and Change Healthcare Holdings, Inc. (“Change”) and others including shareholders of Change. We retained our RelayHealth Pharmacy (“RHP”) and Enterprise Information Solutions (“EIS”) businesses. The EIS business was subsequently sold to a third party in the third quarter of 2018. We accounted for this transaction as a sale of the Core MTS Business and a subsequent purchase of a 70% interest in the newly formed joint venture. Refer to Financial Note 2, “Healthcare Technology Net Asset Exchange,” to the accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form 10‑Q.

~~Operating expenses for the third quarter of 2018 decreased 5% and for the first nine months of 2018 increased 5%~~fiscal 2023 compared to the same ~~periods a~~prior year ~~ago. Additionally, operating expenses were affected by:~~

~~Higher operating expenses from our business acquisitions;~~

~~Pre-tax gain of $109 million (after-tax gain of $30 million) for the third quarter of 2018 from the sale of our EIS business in our Technology Solutions segment, as further discussed below;~~

Pre-tax credit of $46 million ($30 million after tax) for the third quarter of 2018 representing a reduction in our tax receivable agreement (“TRA”) liability due to the December 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”);

2018 second quarter non-cash goodwill impairment charge of $350 million (pre-tax and after-tax) related to our McKesson Europe AG (“McKesson Europe”) reporting unit within our Distribution Solutions segment for the first nine months of 2018, as further discussed below;

2017 second quarter non-cash goodwill impairment charge of $290 million pre-tax ($282 million after-tax) related to our EIS reporting unit within our Technology Solutions segment for the first nine months of 2017;

2018 second quarter non-cash asset impairment charge of $189 million pre-tax ($157 million after-tax) and restructuring charge of $53 million pre-tax ($45 million after-tax) for the first nine months of 2018 primarily related to our retail business in the U.K., as further discussed below. These charges were all recorded within our Distribution Solutions segment; and

2018 first quarter gain of $37 million pre-tax ($22 million after-tax) for the first nine months of 2018 from the final net working capital and other adjustments related to the Healthcare Technology Net Asset Exchange.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

Our investment in Change Healthcare is accounted for using the equity method of accounting. During the third quarter and first nine months of 2018, we recorded our proportionate share of loss from Change Healthcare of $90 million and $271 million under the caption, “Loss from Equity Method Investment in Change Healthcare,” in our condensed consolidated statements of operations. As our investment is accounted for using a one-month lag, the effects of the enactment of the 2017 Tax Act are expected to be recognized in our condensed statement of operations in the fourth quarter of 2018. We expect our proportionate share of a provisional net benefit recognized by Change Healthcare from the enactment of the 2017 Tax Act to be approximately $70 million to $110 millionperiod primarily due to ~~reduction in future applicable tax rate. The impact of the 2017 Tax Act for Change Healthcare may differ materially from this provisional amount.~~

Income from continuing operations before income taxes for 2018 decreased primarily due to lower gross profit and our proportionate share of loss from our equity method investment in Change Healthcare. The results for the first nine months of 2018 decreased also due to higher ~~operating expenses driven by the goodwill impairment charge and the restructuring and asset impairment charges related to our McKesson Europe business within our Distribution Solutions segment.~~

expected brand inflation. Our reported income tax benefit rates were 37.7% and 3.5% for the third quarter and first nine months of 2018 compared to income tax expense rates of 16.8% and 25.7% for the third quarter and first nine months of 2017. Fluctuations in our reported income tax rates are primarily due to discrete items mainly driven by the impact of the 2017 Tax Act, the impact of nondeductible impairment charges, changes within our business mix of income, and the effect of an intercompany sale of software.

In connection with our initial analysis of the impact of the 2017 Tax Act, we recorded a provisional net discrete tax benefit of $370 million during the third quarter of 2018. This net benefit mainly arises from changing the expected future consequences of settling differences between the book and tax basis of assets and liabilities, mainly driven by a decrease of our deferred tax liabilities for inventories and investments; partially offset by establishing a new obligation for the taxation of certain unrepatriated earnings of our foreign subsidiaries. Refer to Financial Note 8, “Income Taxes,” to the accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q.

Our tax rates for 2018 and 2017 were unfavorably affected by non-deductible goodwill impairment charges. Income tax benefit for the first nine months of 2018 included a discrete tax benefit of $370 million related to the impact of the 2017 Tax Act, as described above, and other discrete tax benefits of $54 million primarily related to the conclusion of certain tax audits. Income tax expense for the first nine months of 2017 included discrete tax benefits of $47 million related to the adoption of the amended accounting guidance on share-based compensation.

Loss from discontinued operations, net of tax, for the first nine months of 2017 included an after-tax loss from discontinued operations of $113 million resulting from the sale of our Brazilian pharmaceutical distribution business.

Net income attributable to McKesson Corporation for the third quarters of 2018 and 2017 was $903 million and $633 million and for the first nine months of 2018 and 2017 was $1,213 million and $1,482 million. Diluted earnings per common share attributable to McKesson for the third quarters of 2018 and 2017 were $4.33 and $2.85 and for the first nine months of 2018 and 2017 were $5.76 and $6.56. Additionally, our 2018 diluted earnings per share reflect the cumulative effects of share repurchases.

~~Operating Segments~~

As previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, on January 2, 2018, the Executive Vice President and Group President who was our segment manager of the Distribution Solutions segment retired from the Company. As a result, the Company’s chief operating decision maker is currently evaluating our management and operating structure. We anticipate this evaluation will result in a change in our existing operating segment structure, commencing with our first quarter of 2019.

~~Sale of EIS Business~~

On August 1, 2017, we entered into an agreement with a third party to sell our EIS business for $185 million, subject to adjustments for net debt and working capital. On October 2, 2017, the transaction closed upon satisfaction of all closing conditions including the termination of the waiting period under U.S. antitrust laws. We received net cash proceeds of $169 million after $16 million of assumed net debt by the third party. We recognized a pre-tax gain of $109 million (after-tax gain of $30 million) upon the disposition of this business in the third quarter of 2018 within operating expenses in our Technology Solutions segment.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~McKesson Europe Impairments and Restructuring~~

During the second quarter of 2018, our McKesson Europe business within our Distribution Solutions segment experienced a decline in its estimated future cash flows, primarily in our U.K. retail business, driven by significant government reimbursement reductions affecting retail pharmacy economics across the U.K. market. As a result, we recognized a non-cash pre-tax and after-tax charge of $350 million to impair the carrying value of goodwill for our McKesson Europe reporting unit in the second quarter of 2018. Other risks, expenses and future developments that we were unable to anticipate in the second quarter of 2018 may require us to further revise the future projected cash flows, which could adversely affect the fair value of this reporting unit. Accordingly, we may be required to record additional goodwill impairment charges in future periods.

In the second quarter of 2018, we also recorded non-cash pre-tax charges of $189 million ($157 million after-tax) to impair the carrying value of certain intangible assets and other assets primarily related to McKesson Europe’s U.K. retail business. The charges were primarily due to the previously discussed government reimbursement reductions.

We expect to record total pre-tax impairment and restructuring charges of approximately $650 million to $750 million during 2018 for our McKesson Europe business, of which $592 million of pre-tax charges (including the $350 million goodwill impairment charge) were recorded during the first nine months of 2018. Estimated remaining restructuring charges primarily consist of lease termination and other exit costs.

Refer to Financial Notes 3 and 4, “Goodwill Impairment Charges” and “Restructuring and Asset Impairment Charges,” to the accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Revenues:~~

Quarter Ended December 31, Nine Months Ended December 31,
(Dollars in millions) 2017 2016 Change 2017 2016 Change
Distribution Solutions
North America pharmaceutical distribution and services $ 44,935
$ 41,685
8
% $ 131,459
$ 124,271
6
%
International pharmaceutical distribution and services 6,989
6,193
13
20,144
18,794
7

Medical-Surgical distribution and services 1,693
1,558
9
4,886
4,657
5

Total Distribution Solutions 53,617
49,436
8
156,489
147,722
6

Technology Solutions - products and services —
694
NM
240
2,098
(89 )
Total Revenues $ 53,617
$ 50,130
7
% $ 156,729
$ 149,820
5
%

~~NM - not meaningful~~

~~Revenues for the third quarter and first nine months of 2018 increased 7% and 5% compared to the same periods a year ago due to our Distribution Solutions segment.~~

~~Distribution Solutions~~

North America pharmaceutical distribution and services revenues for the third quarter and first nine months of 2018 increased 8% and 6% primarily due to market growth, our business acquisitions including the 2017 third quarter acquisition of Rexall Health and expanded business with existing customers. The increases were partially offset by lost customers. Market growth includes growing drug utilization, price increases and newly launched products, partially offset by price deflation associated with brand to generic drug conversions.

International pharmaceutical distribution and services revenues for the third quarter and first nine months of 2018 increased 13% and 7% compared to the same periods a year ago primarily due to our business acquisitions and market growth. International revenues were impacted by favorable foreign currency effects of 9% for the third quarter of 2018 primarily reflecting an increase in British pound sterling and Euro against the U.S. Dollar.

~~Medical-Surgical distribution and services revenues for 2018 increased primarily due to market growth.~~

~~Technology Solutions:~~ Technology Solutions revenues for 2018 decreased primarily due to the deconsolidation of the Core MTS Business in March 2017, the transition of our RHP business to our Distribution Solutions segment in April 2017 and the sale of our EIS business in October 2017. As a result, this segment’s 2018 revenues included only our EIS business.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Gross Profit:~~

Quarter Ended December 31, Nine Months Ended December 31,
(Dollars in millions) 2017 2016 Change 2017 2016 Change
Gross Profit
Distribution Solutions $ 2,715
$ 2,424
12
% $ 7,989
$ 7,333
9
%
Technology Solutions —
388
NM
120
1,142
(89 )
Total $ 2,715
$ 2,812
(3 ) % $ 8,109
$ 8,475
(4 ) %
Gross Profit Margin
Distribution Solutions 5.06
4.90
16
bp 5.11
4.96
15
bp
Technology Solutions —
55.91
NM
50.00
54.43
(443 )
Total 5.06
5.61
(55 ) bp 5.17
5.66
(49 ) bp

~~bp - basis points~~

~~NM - not meaningful~~

~~Gross profit and gross profit margin decreased for 2018 compared to the same periods a year ago.~~

~~Distribution Solutions~~

Distribution Solutions segment’s gross profit and gross profit margin for 2018 increased compared to the same periods a year ago primarily due to market growth, procurement benefits realized through ClarusONE, our business acquisitions and the transition of our RHP business from our Technology Solutions segment. These increases were partially offset by significant government reimbursement reductions in the U.K., the competitive sell-side pricing environment, and our mix of business. Gross profit for the third quarter and first nine months of 2018 reflected lower LIFO credits, as further discussed below. Gross profit for the first nine months of 2017 included $144 million of cash receipts representing our share of antitrust legal settlements. Gross profit margin for the first nine months of 2018 was also unfavorably affected by weaker pharmaceutical manufacturer pricing trends.

Distribution Solutions segment’s gross profit for the third quarter and first nine months of 2018 includes pre-tax credits of $2 million and $5 million and for the third quarter and first nine months of 2017 includes pre-tax credits of $155 million and $151 million related to our LIFO method of accounting for inventories. Our North America distributionPharmaceutical business uses the LIFO method of accounting for the majority of its inventories, which results in cost of sales that more closely reflects replacement cost than under other accounting methods. The business’ practice is to pass on to customers published price changes from suppliers. Manufacturers generally provide us with price protection, which limits ~~price-related~~price related inventory losses. A LIFO expense is recognized when the net effect of price increases on pharmaceutical and non-pharmaceutical products held in inventory exceeds the impact of price declines, including the effect of branded pharmaceutical products that have lost market exclusivity. A LIFO credit is recognized when the net effect of price declines exceeds the impact of price increases on pharmaceutical and non-pharmaceutical products held in inventory. Our quarterly LIFO ~~expense~~credit is based on our estimates of the annual LIFO ~~expense~~credit which is impacted by expected changes in year-end inventory quantities, product mix, and manufacturer pricing practices, which may be influenced by market and other external ~~influences.~~factors. Changes to any of the above factors could have a material impact to our annual LIFO ~~expense.~~credit. The actual valuation of inventory under the LIFO method is calculated at the end of the fiscal year. ~~LIFO credits were higher in 2017 compared~~

Total Operating Expenses

A summary of the components of our total operating expenses for the three months ended June 30, 2022 and 2021 is as follows:

•Selling, distribution, general, and administrative expenses (“SDG&A”): SDG&A consists of personnel costs, transportation costs, depreciation and amortization, lease costs, professional fee expenses, administrative expenses, remeasurement charges to ~~2018 primarily~~the lower of carrying value or fair value less costs to sell, and other general charges.

•Claims and litigation charges, net: These charges include adjustments for estimated probable settlements related to our controlled substance monitoring and reporting, and opioid-related claims, as well as any applicable income items or credit adjustments due to ~~changes made to full year expectations for net price increases during the third quarter of 2017 and~~subsequent changes in ~~estimated year end inventory levels.~~estimates. Legal fees to defend claims, which are expensed as incurred, are included within SDG&A.

~~Technology Solutions~~

~~Technology Solutions segment’s gross profit~~•Restructuring, impairment, and related charges, net: Restructuring charges are incurred for ~~2018 decreased primarily due to~~programs in which we change our operations, the ~~2017 fourth quarter deconsolidation~~scope of a business undertaken by our business units, or the ~~Core MTS Business, the transition of our RHP~~manner in which that business ~~to our Distribution Solutions segment in April 2017 and the sale of our EIS business in October 2017. As a result, this segment’s 2018 gross profit included only our EIS business.~~

is conducted as well as long-lived asset impairments.

~~Table of Contents~~


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)


	Three Months Ended June 30,
(Dollars in millions)	2022			2021			Change
Selling, distribution, general, and administrative expenses	$	1,959		$	2,232		(12)	%
Claims and litigation charges, net	5			74			(93)

Restructuring, impairment, and related charges, net	23			158			(85)
Total operating expenses	$	1,987		$	2,464		(19)	%
Percent of revenues	2.96		%	3.93		%	(97)	bp

~~Operating Expenses, Other Income, Net and Loss from Equity Method Investment:~~

Quarter Ended December 31, Nine Months Ended December 31,
(Dollars in millions) 2017 2016 Change 2017 2016 Change
Operating Expenses
Distribution Solutions
Operating Expenses ⁽¹⁾
$ 1,908
$ 1,628
17
% $ 5,572
$ 4,784
16
%
Goodwill Impairment Charge —
—
NM
350
—
NM

Restructuring and Asset Impairment Charges 6
—
NM
242
—
NM

Total Distribution Solutions 1,914
1,628
18
6,164
4,784
29

Technology Solutions

Operating Expenses ⁽²⁾
(46 ) 256
(118 )    5
727
(99 )
Gain from Sale of Business (109 ) —
NM
(109 ) —
NM

Goodwill Impairment Charge —
—
NM
—
290
NM

Total Technology Solutions (155 ) 256
(161 ) (104 ) 1,017
(110 )
Corporate 122
97
26
   343
291
18

Total $ 1,881
$ 1,981
(5 ) % $ 6,403
$ 6,092
5
%

Operating Expenses as a Percentage of Revenues
Distribution Solutions 3.57
3.29
28
bp 3.94
3.24
70
bp
Technology Solutions —
36.89
NM
   (43.33 ) 48.47
(9,180 )
Total 3.51
3.95
(44 ) bp 4.09
4.07
2
bp

Other Income, Net
Distribution Solutions $ 18
$ 17
6
% $ 95
$ 43
121
%
Technology Solutions —
—
NM
   1
1
-

Corporate 2
6
(67 ) 6
21
(71 )
Total $ 20
$ 23
(13 ) % $ 102
$ 65
57
%

Loss from Equity Method Investment in Change Healthcare - Technology Solutions $ 90
$ —
NM
$ 271
$ —
NM

All percentage changes displayed above which are not meaningful are displayed as zero percent.

bp - basis points

~~NM - not meaningful~~

~~(1) The amounts exclude~~For the ~~goodwill impairment charge and restructuring and asset impairment charges.~~

~~(2) The amounts exclude the gain from sale of business and goodwill impairment charge.~~

~~Operating Expenses~~

~~Operating expenses for the third quarter decreased 5% and first nine~~three months ~~of 2018 increased 5% compared to the same periods a year ago.~~

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Distribution Solutions~~

Distribution Solutions segment’s operating expenses for the first nine months of 2018 increased primarily due to the 2018 second quarter non-cash goodwill impairment charge of $350 million (pre-tax and after-tax) for our McKesson Europe reporting unit, and the 2018 second quarter non-cash asset impairment charges of $189 million pre-tax ($157 million after-tax) and restructuring charges of $53 million pre-tax ($45 million after-tax) primarily related to McKesson Europe’s U.K. retail business. The increases for the third quarter and first nine months of 2018 were also due to higher operating expenses from our business acquisitions. Additionally, fluctuation in foreign currency exchange rates had an unfavorable effect on operating expenses for the third quarter of 2018.

~~Technology Solutions~~

Technology Solutions segment’s operating expenses for 2018 decreased primarily due to the 2017 fourth quarter deconsolidation of our Core MTS Business, a pre-tax gain of $109 million (after-tax gain of $30 million) from the 2018 third quarter sale of our EIS business and a pre-tax credit of $46 million ($ended June 30, million after-tax) representing a reduction in our TRA liability. Operating expenses for the first nine months of 2018 included the 2018 first quarter gain of $37 million pre-tax (after-tax gain of $22 million) from the final net working capital and other adjustments related to the Healthcare Technology Net Asset Exchange. Operating expenses for the first nine months of 2017 included the 2017 second quarter non-cash goodwill impairment charge of $290 million pre-tax ($282 million after-tax) for our EIS reporting unit.

~~Corporate~~

~~Corporate expenses increased for 2018 compared to the same periods a year ago primarily due to higher professional fees incurred for Corporate initiatives.~~

~~Other Income, Net:~~Other income, net, for the third quarter of 2018 decreased due to lower interest income for Corporate and first nine months of 2018 increased compared to the same periods a year ago primarily due to a pre-tax gain of $43 million ($26 million after-tax) recognized from the sale of an equity method investment within our Distribution Solutions segment, partially offset by lower interest income for Corporate.

~~Loss from Equity Method Investment in Change Healthcare:~~ The third quarter and first nine months of 2018 included our proportionate share of loss from Change Healthcare of $90 million and $271 million, which primarily consisted of transaction and integration expenses incurred by the joint venture and fair value adjustments including amortization expenses associated with equity method intangible assets. As our investment is accounted for using a one-month lag, the effects of the enactment of the 2017 Tax Act are expected to be recognized in our condensed statement of operations in the fourth quarter of 2018. We expect our proportionate share of a provisional net benefit recognized by Change Healthcare from the enactment of the 2017 Tax Act to be approximately $70 million to $110 million primarily due to a reduction in future applicable tax rate. The impact of the 2017 Tax Act for Change Healthcare may differ materially from this provisional amount.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Acquisition-Related Expenses and Adjustments~~

Acquisition-related expenses, which included transaction and integration expenses directly related to business acquisitions and the gain on the Healthcare Technology Net Asset Exchange, were $43 million and $75 million for the third quarters of 2018 and 2017, and $95 million and $165 million for the first nine months of 2018 and 2017. The third quarter and first nine months of 2018 include our proportionate share of transaction and integration expenses incurred by Change Healthcare. The first nine months of 2018 includes a $37 million gain associated with the final net working capital and other adjustments from the Healthcare Technology Net Asset Exchange.

~~Acquisition-related expenses and adjustments were as follows:~~

Quarter Ended December 31, Nine Months Ended December 31,
(Dollars in millions) 2017 2016 2017 2016
Operating Expenses
Integration related expenses $ 12
$ 22
$ 27
$ 67
Restructuring, severance and relocation 12
7
18
18
Transaction closing expenses —
43
11
72
Gain on Healthcare Technology Net Asset Exchange —
—
(37 ) —
Other Expense ⁽¹⁾
19
3
76
8
Acquisition Expenses and Related Adjustments $ 43
$ 75
$ 95
$ 165


~~(1)~~	Fiscal 2018 includes our proportionate share of transaction and integration expenses incurred by Change Healthcare, excluding certain fair value adjustments, which was recorded within “Loss from Equity Method Investment in Change Healthcare”.

~~Acquisition-related expenses and adjustments by segment were as follows:~~

Quarter Ended December 31, Nine Months Ended December 31,
(Dollars in millions) 2017 2016 2017 2016
Distributions Solutions $ 25
$ 43
$ 56
$ 103
Technology Solutions 16
33
37
58
Corporate 2
(1 ) 2
4
Acquisition-Related Expenses and Adjustments ⁽¹⁾
$ 43
$ 75
$ 95
$ 165


~~(1)~~	~~The amounts were recorded in operating expenses and other income, net.~~

~~Amortization Expenses of Acquired Intangible Assets~~

Amortization expenses of intangible assets directly related to business acquisitions and the formation of the Change Healthcare joint venture were $193 million and $102 million for the third quarters of 2018 and 2017 and $584 million and $332 million for the first nine months of 2018 and 2017. These expenses were primarily recorded in our2022, total operating expenses and ~~in our proportionate share of loss from the equity method investment in Change Healthcare.~~

~~Amortization expenses by segment were as follows:~~

Quarter Ended December 31, Nine Months Ended December 31,
(Dollars in millions) 2017 2016 2017 2016
Distribution Solutions $ 122
$ 100
$ 369
$ 311
Technology Solutions ⁽¹⁾
71
2
215
21
Total $ 193
$ 102
$ 584
$ 332


~~(1)~~	Fiscal 2018 primarily represents amortization expenses of equity method intangibles associated with the Change Healthcare joint venture, which were recorded in our proportionate share of the loss from Change Healthcare.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Segment Operating Profit, Corporate Expenses, Net and Interest Expense:~~

Quarter Ended December 31, Nine Months Ended December 31,
(Dollars in millions) 2017 2016 Change 2017 2016 Change
Segment Operating Profit (Loss) ⁽¹⁾

Distribution Solutions $ 819
$ 813
1
% $ 1,920
$ 2,592
(26 ) %
Technology Solutions 65
132
(51 ) (46 ) 126
(137 )
Subtotal 884
945
(6 ) 1,874
2,718
(31 )
Corporate Expenses, Net (120 ) (91 ) 32
(337 ) (270 ) 25

Interest Expense (67 ) (74 ) (9 )    (204 ) (231 ) (12 )
Income from Continuing Operations Before Income Taxes $ 697
$ 780
(11 ) % $ 1,333
$ 2,217
(40 ) %

Segment Operating Profit (Loss) Margin
Distribution Solutions 1.53
% 1.64
% (11 ) bp 1.23
% 1.75
% (52 ) bp
Technology Solutions —
19.02
NM
(19.17 ) 6.01
(2,518 )

~~bp - basis points~~

~~NM - not meaningful~~


~~(1)~~	~~Segment operating profit (loss) includes gross profit, net of operating expenses, as well as other income, net, for our two operating segments.~~

~~Segment Operating Profit (Loss)~~

~~Distribution Solutions:~~ Operating profit increased for the segment for the third quarter of 2018 due primarily to higher gross profit from market growth, our business acquisitions and transition of our RHP business from our Technology Solutions segment. Operating profit margin decreased for the segment for the third quarter of 2018 primarily due to our mix of business and highertotal operating expenses as a percentage of revenues ~~driven by our business acquisitions. Operating profit and operating profit margin~~ decreased ~~for the segment for the first nine months of 2018~~ compared to the same prior year period. Total operating expenses were impacted by the following significant items:

•SDG&A for the three months ended June 30, 2022 reflects lower operating expenses due to the completed divestiture of our U.K. disposal group in April 2022;

•Claims and litigation charges, net for the three months ended June 30, 2022 and 2021 includes charges of $5 million and $74 million, respectively, related to our estimated liability for opioid-related claims as previously discussed in the “Trends and Uncertainties” section;

•Restructuring, impairment, and related charges, net for the three months ended June 30, 2021 includes charges of $158 million primarily related to our transition to a partial remote work model approved during the first quarter of fiscal 2022 and costs for optimization programs in Canada; and

•Total operating expenses were favorably impacted by foreign currency exchange fluctuations for the three months ended June 30, 2022.

Goodwill Impairment

We evaluate goodwill for impairment on an annual basis and at an interim date, if indicators of potential impairment exist. We voluntarily changed our annual goodwill impairment testing date from October 1st to April 1st to align with the change in timing of our annual long-term planning process. This change was not material to our consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill impairment charge. Refer to Financial Note 7, “Goodwill and Intangible Assets, Net,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information.

The annual impairment testing performed in fiscal 2023 and fiscal 2022 did not indicate any impairment of goodwill and no goodwill impairment charges were recorded during the three months ended June 30, 2022 and 2021. However, other risks, expenses, and future developments, such as additional government actions, increased regulatory uncertainty, and material changes in key market assumptions limit our ability to estimate projected cash flows, which could adversely affect the fair value of various reporting units in future periods, including our McKesson Canada reporting unit within our International segment, where the risk of a material goodwill impairment is higher than other reporting units.

Restructuring Initiatives and Long-Lived Asset Impairments

During the first quarter of fiscal 2022, we approved an initiative to increase operational efficiencies and flexibility by transitioning to a partial remote work model for certain employees. This initiative primarily included the rationalization of our office space in North America. Where we ceased using office space, we exited the portion of the facility no longer used. We also retained and repurposed certain other office locations. We recorded charges of $95 million for the three months ended June 30, 2021 primarily related to lease right-of-use and other long-lived asset impairments, lease exit costs, and accelerated depreciation and amortization. This initiative was substantially complete in fiscal 2022 and remaining costs we expect to record under this initiative are not material.

Refer to Financial Note 3, “Restructuring, Impairment, and Related Charges, Net,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further information on our restructuring initiatives.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Other Income, Net

Other income, net decreased for the three months ended June 30, 2022 compared to the same prior year ~~ago~~period primarily due to unfavorability from our ~~mix of business~~equity investments and higher operating expenses as a percentage of revenues driven primarily by a goodwill impairment charge and restructuring and asset impairment charges related to our McKesson Europe business. These decreases werelower net equity in earnings. This was partially offset by the ~~improved gross profit margin primarily due~~payment from a tax receivable agreement related to ~~market growth~~our previous joint venture with Change Healthcare, Inc., which was split-off in March 2020.

In July 2022, we exited one of our investments in equity securities for proceeds of $179 million. We expect to recognize a gain within “Other income, net” in our ~~North America distribution businesses, procurement benefits and our business acquisitions.~~

~~Technology Solutions:~~ ~~Operating profit~~Condensed Consolidated Statement of Operations for the ~~segment~~second quarter of fiscal 2023 related to the disposition. The cost basis of the investment was $38 million.

Interest Expense

Interest expense decreased for ~~2018 primarily due to~~ the 2017 fourth quarter deconsolidation of our Core MTS Business and loss from the equity method investment in Change Healthcare. The decrease is partially offset by a gain from the sale of our EIS business and reduction in our TRA liability. Operating profit for the first ninethree months ~~of 2017 included a goodwill impairment charge relating to our EIS business.~~

~~Corporate:~~ ~~Corporate expenses, net, increased for 2018 primarily due to higher operating expenses driven by Corporate initiatives and lower other income~~ended June 30, 2022 when compared to the same ~~periods a~~prior year ~~ago.~~

~~Interest Expense:~~ period. Interest expense ~~for 2018 decreased primarily due to~~may fluctuate based on timing, amounts, and interest rates of term debt repaid and new term debt issued, as well as amounts incurred associated with financing fees.

Income Tax Expense

During the ~~refinancing~~three months ended June 30, 2022 and 2021, we recorded an income tax expense of ~~debt at lower interest rates.~~

~~Income Taxes:~~$199 million and $26 million, respectively. Our reported income tax ~~benefit~~ rates were ~~37.7%~~19.8% and ~~3.5%~~4.6% for the ~~third quarter~~three months ended June 30, 2022 and ~~first nine months of 2018 compared to income tax expense rates of 16.8% and 25.7% for the third quarter and first nine months of 2017.~~2021, respectively. Fluctuations in our reported income tax rates are primarily due to discrete ~~items mainly driven by~~benefits recognized in the ~~impact of the 2017 Tax Act, the impact of nondeductible impairment charges, changes within our business mix of income, and the effect of an intercompany sale of software.~~

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~During the third quarters of 2018 and 2017, income tax benefit was $263 million and income tax expense was $131 million related~~quarter. Refer to continuing operations and included net discrete tax benefits of $424 million and $12 million. During the first nine months of 2018 and 2017, income tax benefit was $46 million and tax expense was $570 million related to continuing operations and included net discrete tax benefits of $420 million and $69 million.

~~Our discrete tax benefits for 2018 included a provisional $370 million related~~Financial Note 4, “Income Taxes,” to the impact of the 2017 Tax Act and other discrete tax benefits of $54 million primarily related to the conclusion of certain tax audits. As previously discussed, the impact of the 2017 Tax Act may differ materially fromaccompanying condensed consolidated financial statements included in this ~~provisional amount. Our discrete tax benefits~~Quarterly Report for ~~the first nine months of 2017 included $47 million related to the adoption of the amended accounting guidance on employee share-based compensation.~~more information.

The non-cash pre-tax charge of $350 million to impair the carrying value of goodwill related to our McKesson Europe reporting unit within our Distribution Solutions segment had an unfavorable impact on our effective tax rate in 2018 given that this charge was not tax deductible. The non-cash pre-tax charge of $290 million to impair the carrying value of goodwill related to our EIS business within our Technology Solutions segment had an unfavorable impact on our effective tax rate in 2017 given that approximately $269 million of the goodwill impairment charge was not tax deductible.

~~Loss from Discontinued Operations, Net of Tax:~~ Loss from discontinued operations, net for the first nine months of 2017 included an after-tax loss of $113 million from the sale of our Brazilian pharmaceutical distribution business. Diluted loss per common share from discontinued operations for the first nine months of 2017 was $0.51.

Net Income Attributable to Noncontrolling ~~Interests:~~Interests

Net income attributable to noncontrolling interests for ~~2018~~the three months ended June 30, 2022 and 2021 primarily represents ClarusONE Sourcing Services LLP, Vantage Oncology Holdings, LLC, and the accrual of the annual recurring compensation amount of €0.83 per McKesson Europe share that McKesson is obligated to pay to the noncontrolling shareholders of McKesson Europe under athe December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”). Noncontrolling interests with redemption features, such as put rights, that are not solely within our control are considered redeemable noncontrolling interests. Refer to the “Selected Measures of Liquidity and Capital Resources” section of this Financial Review and Financial Note 9,5, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” to the accompanying condensed consolidated financial statements ~~appearing~~included in this Quarterly Report for more information on ~~Form10-Q for additional information.~~changes to our redeemable and noncontrolling interests that occurred during the first quarter of fiscal 2022.

Net Income Attributable to McKesson Corporation:

Net income attributable to McKesson Corporation was ~~$903~~$768 million and ~~$633~~$486 million for the three months ended June 30, 2022 and ~~diluted~~2021, respectively. Diluted earnings per common share attributable to McKesson Corporation ~~were $4.33~~was $5.26 and ~~$2.85~~$3.07 for the ~~third quarters of 2018~~three months ended June 30, 2022 and 2017. Net income attributable to McKesson Corporation was $1,213 million and $1,482 million, and diluted earnings per common share attributable to McKesson Corporation were $5.76 and $6.56 for the first nine months of 2018 and 2017.2021, respectively.

~~Weighted Average~~Weighted-Average Diluted Common Shares Outstanding:

Diluted earnings per common share ~~were~~was calculated based on a ~~weighted average~~weighted-average number of shares outstanding of ~~208~~145.9 million and ~~222~~158.1 million for the ~~third quarters~~three months ended June 30, 2022 and 2021, respectively. Weighted-average diluted shares outstanding for the three months ended June 30, 2022 decreased from the same prior year period primarily due to the cumulative effect of ~~2018~~shares repurchases.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Overview of Segment Results:

Segment Revenues:


	Three Months Ended June 30,
(Dollars in millions)	2022		2021		Change
Segment revenues
U.S. Pharmaceutical	$	56,947	$	50,019	14	%
Prescription Technology Solutions	1,066		881		21
Medical-Surgical Solutions	2,592		2,528		3
International	6,549		9,246		(29)
Total revenues	$	67,154	$	62,674	7	%

U.S. Pharmaceutical

Three Months Ended June 30, 2022 vs. 2021

U.S. Pharmaceutical revenues for the three months ended June 30, 2022 increased $6.9 billion or14% compared to the same prior year period. Within the segment, sales to pharmacies and ~~2017~~institutional healthcare providers increased $6.6 billion and ~~210~~sales to specialty practices and other increased $315 million compared to the same prior year period. Other includes the results for the distribution of COVID-19 vaccines. Overall, these increases were primarily due to market growth, including growth in specialty pharmaceuticals driven by higher volumes from retail national account customers, and branded pharmaceutical price increases, partially offset by branded to generic drug conversions.

Prescription Technology Solutions

Three Months Ended June 30, 2022 vs. 2021

RxTS revenues for the three months ended June 30, 2022 increased $185 million or 21% compared to the same prior year period. This increase was due to increased volumes with new and existing customers primarily in our third-party logistics and wholesale distribution services as well as higher technology service revenues.

Medical-Surgical Solutions

Three Months Ended June 30, 2022 vs. 2021

Medical-Surgical Solutions revenues for the three months ended June 30, 2022 increased $64 million or 3% compared to the same prior year period. Within the segment, sales to primary care and extended care customers increased $87 million and ~~226~~$10 million, respectively, partially offset by a $33 million decline in sales primarily related to the results of the kitting and distribution of ancillary supply kits used to administer COVID-19 vaccines. The increase in our primary care business was driven by underlying revenue growth from physician office customers, partially offset by lower sales of COVID-19 tests.

International

Three Months Ended June 30, 2022 vs. 2021

International revenues for the three months ended June 30, 2022 decreased $2.7 billion or 29% compared to the same prior year period. Within the segment, foreign currency exchange fluctuations were unfavorable by $574 million and sales in Europe declined by $2.3 billion, partially offset by increased sales in Canada of $169 million compared to the same prior year period. Excluding the unfavorable effects of foreign currency exchange fluctuations, revenues for this segment decreased 23% largely due to the completed divestitures of our U.K. disposal group in April 2022 and Austrian business in January 2022.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Segment Operating Profit (Loss) and Corporate Expenses, Net:


	Three Months Ended June 30,
(Dollars in millions)	2022			2021			Change
Segment operating profit (loss) (1)
U.S. Pharmaceutical	$	696		$	682		2	%
Prescription Technology Solutions	144			104			38
Medical-Surgical Solutions (2)	256			75			241
International (3)	(6)			53			(111)

Subtotal	1,090			914			19
Corporate expenses, net (4)	(39)			(303)			(87)

Interest expense	(45)			(49)			(8)
Income from continuing operations before income taxes	$	1,006		$	562		79	%

Segment operating profit (loss) margin
U.S. Pharmaceutical	1.22		%	1.36		%	(14)	bp
Prescription Technology Solutions	13.51			11.80			171
Medical-Surgical Solutions	9.88			2.97			691
International	(0.09)			0.57			(66)

All percentage changes displayed above which are not meaningful are displayed as zero percent.

bp - basis points

(1)Segment operating profit (loss) includes gross profit, net of total operating expenses, as well as other income, net, for our reportable segments.

(2)Operating profit for our Medical-Surgical Solutions segment for the three months ended June 30, 2021 includes $164 million of inventory charges on certain PPE and other related products.

(3)Operating loss for our International segment for the three months ended June 30, 2022 includes charges of $94 million to remeasure our E.U. disposal group to fair value less costs to sell.

(4)Corporate expenses, net includes the following:

•gains of $106 million for the ~~first nine~~three months ended June 30, 2022 primarily related to the effect of ~~2018~~accumulated other comprehensive loss components from our E.U. disposal group;

•charges of $5 million and ~~2017. Weighted average diluted shares~~$74 million for ~~2018 decreased from 2017~~the three months ended June 30, 2022 and 2021, respectively, related to our estimated liability for opioid-related claims;

•charges of $19 million and $35 million for the three months ended June 30, 2022 and 2021, respectively, of opioid-related costs, primarily ~~reflecting common stock repurchases~~litigation expenses; and

•restructuring charges of $62 million for the three months ended June 30, 2021 primarily due to the transition to a partial remote work model for certain employees.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

U.S. Pharmaceutical

Three Months Ended June 30, 2022 vs. 2021

Operating profit increased for this segment for the three months ended June 30, 2022 compared to the same prior year period primarily due to growth in specialty pharmaceuticals, partially offset by a decrease in the ~~second half of 2017~~contribution from our COVID-19 vaccine distribution program.

Prescription Technology Solutions

Three Months Ended June 30, 2022 vs. 2021

Operating profit for this segment increased for the three months ended June 30, 2022 compared to the same prior year period primarily driven by increased volumes with new and existing customers due to growth in our access, affordability, and adherence solutions.

Medical-Surgical Solutions

Three Months Ended June 30, 2022 vs. 2021

Operating profit for this segment increased for the three months ended June 30, 2022 compared to the same prior year period primarily due to prior year inventory charges on certain PPE and other related products.

International

Three Months Ended June 30, 2022 vs. 2021

Operating loss for this segment for the three months ended June 30, 2022 compared to operating profit for the same prior year period was largely due to fair value remeasurement charges recorded during the first ~~nine~~quarter of fiscal 2023 related to our E.U. disposal group, partially offset by the cessation of depreciation and amortization expenses from its assets classified as held for sale, as well as unfavorable impacts from the completed divestitures of our Austrian business and U.K. disposal group. These impacts were partially offset by lower restructuring expenses primarily due to optimization programs in Canada.

Corporate Expenses, Net

Three Months Ended June 30, 2022 vs. 2021

Corporate expenses, net decreased for the three months ~~of 2018.~~

~~Business Combinations~~

~~Refer to Financial Note 6, “Business Combinations,”~~ended June 30, 2022 compared to the ~~accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form 10‑Q~~same prior year period primarily due to fair value remeasurement gains recognized during the first quarter of fiscal 2023 related to our E.U. disposal group, lower charges related to our estimated liability for ~~further information.~~opioid-related claims, and prior year restructuring charges for the transition to a partial remote work model for certain employees.

New Accounting Pronouncements

New accounting pronouncements that we have recently adopted as well as those that have been recently issued but not yet adopted by us are included in Financial Note 1, “Significant Accounting Policies,” to the accompanying condensed consolidated financial statements ~~appearing~~included in this Quarterly ~~Report on Form 10-Q.~~

Report.

~~Table of Contents~~


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

~~Financial Condition, Liquidity and Capital Resources~~FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

We expect our available cash generated from operations and our short-term investment portfolio, together with our existing sources of liquidity from our credit facilities and commercial paper program, will be sufficient to fund our ~~long-term~~short-term and ~~short-term~~long-term capital expenditures, working capital, and other cash requirements. ~~In addition,~~We remain adequately capitalized with access to liquidity from ~~time~~our $4.0 billion revolving credit facility. At June 30, 2022, we were in compliance with all debt covenants, and believe we have the ability to ~~time, we may access~~continue to meet our debt covenants in the ~~long-term debt capital markets~~future.

The following table summarizes the net change in cash, cash equivalents, and restricted cash for the periods shown:


	Three Months Ended June 30,
(Dollars in millions)	2022		2021		Change
Net cash provided by (used in):
Operating activities	$	(941)	$	(1,622)	$	681
Investing activities	39		(99)		138
Financing activities	(1,181)		(2,151)		970
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	18		11		7
Change in cash, cash equivalents, and restricted cash classified within Assets held for sale (1)	470		—		470
Net change in cash, cash equivalents, and restricted cash	$	(1,595)	$	(3,861)	$	2,266

(1)This change reflects a reversal of cash, cash equivalents, and restricted cash previously classified within assets held for sale at March 31, 2022 as part of the U.K. disposal group and is offset by cash outflows primarily related to ~~discharge our other liabilities.~~the settlement of liabilities which is reflected in operating activities. Refer to Financial Note 2, “Held for Sale,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further information.

Operating Activities

Operating activities ~~generated~~used cash of ~~$1,323~~$941 million and ~~$3,309 million~~$1.6 billion during the ~~first nine~~three months ~~of 2018~~ended June 30, 2022 and 2017. Operating activities for the first nine months of 2018 and 2017 were affected by higher drafts and accounts payable and increases in receivables and inventories primarily associated with revenue growth. Operating activities for 2017 included cash generated from our Core MTS business.2021, respectively. Cash flows from operations can be significantly impacted by factors such as the timing of receipts from customers, inventory receipts, and payments to vendors. Additionally, working capital is primarily a function of ~~sale~~sales and purchase volumes, inventory requirements, and vendor payment terms.

~~Investing activities utilized cash of~~ ~~$483 million~~ ~~and~~ ~~$3,619 million~~ ~~during the first nine months of 2018 and 2017. Investing~~Operating activities for ~~2018 include $1,979~~the three months ended June 30, 2022 were affected by net income adjusted for non-cash items and changes in receivables, drafts and accounts payables, and inventories classified as held for sale. Refer to the “Selected Measures of Liquidity and Capital Resources” section below of this Financial Review and Financial Note 2, “Held for Sale,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further information. Operating activities for the three months ended June 30, 2022 were affected by increases in receivables of $1.6 billion, drafts and accounts payable of $1.0 billion, and inventory of $955 million, ~~of net cash~~all primarily driven by higher revenues and timing. Our litigation liabilities also decreased by $370 million primarily driven by payments ~~for acquisitions, including $1.3 billion for our acquisition of CMM, which was prepaid before March 31, 2017 and was released from restricted cash balances in~~made during the first quarter of ~~2018.~~fiscal 2023 associated with the Settlement and separate settlement agreements of opioid-related claims of participating states, subdivisions, and Native American tribes.

Operating activities for the three months ended June 30, 2021 were affected by increases in receivables of $1.0 billion and inventory of $901 million, both primarily due to timing and higher revenues. Other non-cash items for the three months ended June 30, 2021 includes non-cash inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment.

Investing Activities

Investing activities provided cash of $39 million and used cash of $99 million during the three months ended June 30, 2022 and 2021, respectively. Investing activities for ~~2018 also included $329 million of net cash~~the three months ended June 30, 2022 includes proceeds from ~~the sale~~sales of businesses and ~~equity method~~ investments ~~and a $126~~of $240 million, ~~cash payment received related~~primarily due to the ~~Healthcare Technology Net Asset Exchange.~~completed divestiture of our U.K. disposal group in April 2022. Investing activities for ~~2017 included $4,174 million of net cash payments for acquisitions, of which $935 million was prepaid before March 31, 2016~~the three months ended June 30, 2022 and ~~was released from restricted cash balances in the first quarter of 2017. Investing activities for 2017 also included a payment of approximately~~2021 includes $100 million ~~to sell our Brazilian business.~~and $159 million, respectively, in capital expenditures for property, plant, and equipment, and capitalized software.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Financing Activities

Financing activities ~~utilized~~used cash of ~~$1,147 million~~$1.2 billion and ~~$1,145 million~~$2.2 billion during the ~~first nine~~three months ~~of 2018~~ended June 30, 2022 and ~~2017.~~2021, respectively. Financing activities for ~~2018 include cash receipts~~each of ~~$12,699 million~~the three months ended June 30, 2022 and payments of $12,133 million for short-term borrowings and a payment of $545 million for long-term debt. Financing activities for the first nine months of 2017 included cash receipts of $2,803 million and payments of $1,405 million for short-term borrowings and a payment of $392 million for long-term debt. Financing activities for the first nine months of 2018 and 2017 include $951 million and ~~$2,060 million~~2021 includes $1.0 billion of cash paid for ~~stock~~share repurchases ~~including shares surrendered for tax withholding. Additionally, financing activities for the first nine months of 2018~~ as well as $71 millionand ~~2017 include $192~~$69 million of cash paid for ~~dividends.~~dividends, respectively. Financing activities for the three months ended June 30, 2021 includes a payment of $1.0 billion to purchase shares of McKesson Europe through exercises of a put right option by noncontrolling shareholders. The put right option expired on June 15, 2021 as further described below. Cash used for other financing activities generally includes shares surrendered for tax withholding and payments to noncontrolling interests.

Share Repurchase Plans

The ~~Company’s~~ Board has authorized the repurchase of McKesson’s common stock from ~~time to time~~time-to-time in open market transactions, privately negotiated transactions, ~~accelerated share repurchase~~through ASR programs, or by ~~any combination~~combinations of such ~~methods.~~methods, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including ~~our~~the Company’s stock price, corporate and regulatory requirements, restrictions under ~~our~~the Company’s debt obligations, and other market and economic ~~conditions including our stock price.~~conditions. The ASR programs discussed below were designed to comply with Rule 10b5-1(c).

In ~~March 2017,~~May 2022, we entered into an ~~accelerated share repurchase (“ASR”)~~ASR program with a third-party financial institution to repurchase ~~$250~~$1.0 billion of the Company’s common stock. Pursuant to the ASR agreement, we paid $1.0 billion to the financial institution and received an initial delivery of 2.6 million shares in May 2022. The transaction will be completed during the second quarter of fiscal 2023, at which point we expect to receive additional shares. The final number of shares repurchased and the average price per share paid will be determined based on the volume-weighted average price of the Company’s common stock ~~and~~during the term of the ASR program, less a pre-negotiated discount.

In February 2022, we entered into an ASR program with a third-party financial institution to repurchase $1.5 billion of the Company’s common stock. The total number of shares repurchased under this ASR program was 5.1 million shares at an average price per share of $295.16. We received ~~1.4~~4.8 million shares as the initial share ~~settlement. In April 2017,~~settlement, and in May 2022, we received an additional 0.3 million shares upon the completion of this ASR program.

In ~~June 2017 and August 2017,~~May 2021, we entered into ~~two separate~~an ASR ~~programs~~program with a third-party financial ~~institutions~~institution to repurchase ~~$250 million and $400 million~~$1.0 billion of the Company’s common stock. ~~During the first six months~~The total number of ~~2018, we received a total of 1.5 million~~ shares repurchased under ~~the June 2017 ASR program and a total of 2.7 million shares under the August 2017 ASR program. The June 2017~~this ASR program was ~~completed in the second quarter of 2018 and the August 2017 ASR program was completed in the third quarter of 2018. In November 2017, we repurchased 1.8~~5.2 million ~~of the Company’s~~ shares ~~for $250 million through open market transactions~~ at an average price per share of ~~$138.12.~~ $193.22. We received 4.3 million shares as the initial share settlement, and in August 2021, we received an additional 0.9 million shares upon the completion of this ASR program.

There were no other shares repurchased during the three months ended June 30, 2022 and 2021.

The total remaining authorization outstanding for repurchases of the Company’s common stock at June 30, 2022 was ~~$1.8~~$2.3 billion. In July 2022, the Board approved an increase of $4.0 billion in the authorization for repurchase of McKesson’s common stock.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Selected Measures of Liquidity and Capital Resources


(Dollars in millions)	June 30, 2022			March 31, 2022
Cash, cash equivalents, and restricted cash	$	2,340		$	3,935
Working capital	(1,818)			(2,235)
Debt to capital ratio (1)	122.4		%	114.5		%

(1)This ratio describes the relationship and changes within our capital resources, and is computed as total debt divided by the sum of total debt and McKesson stockholders’ equity (deficit), which excludes noncontrolling interests and accumulated other comprehensive loss.

Cash equivalents, which are readily convertible to known amounts of cash, are carried at ~~December~~fair value. Cash equivalents are primarily invested in AAA-rated U.S. government money market funds and overnight deposits with financial institutions. Deposits with financial institutions are primarily denominated in U.S. dollars and the functional currencies of our foreign subsidiaries, including Euro, British pound sterling, and Canadian dollars. We mitigate the risk of our short-term investment portfolio by depositing funds with reputable financial institutions and monitoring risk profiles and investment strategies of money market funds.

Our cash and cash equivalents balance as of June 30, 2022 and March 31, ~~2017.~~2022 included approximately$821 million and $1.5 billion of cash held by our subsidiaries outside of the U.S., respectively. Our primary intent is to utilize this cash for foreign operations for an indefinite period of time. Although the majority of cash held outside the U.S. is available for repatriation, doing so could subject us to foreign withholding taxes and state income taxes. Following enactment of the 2017 Tax Cuts and Jobs Act, the repatriation of cash to the U.S. is generally no longer taxable for federal income tax purposes.

Working capital primarily includes cash and cash equivalents, receivables, inventories, and net current assets or liabilities classified as held for sale, net of drafts and accounts payable, current portion of long-term debt, and other accrued liabilities. Our businesses require substantial investments in working capital that are susceptible to large variations during the year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of sales activity and other requirements.

Consolidated working capital improved at June 30, 2022 compared to March 31, 2022 primarily due to increases in receivables, net assets classified as held for sale related to our European divestiture activities, and inventory, partially offset by an increase in drafts and accounts payable and a decrease in cash and cash equivalents.

Our debt to capital ratio increased for the three months ended June 30, 2022 primarily due to share repurchases, partially offset by net income for the quarter.

In July 2022, we raised our quarterly dividend from $0.47 to $0.54 per common share for dividends declared on or after such date by the Board. We anticipate that we will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon our future earnings, financial condition, capital requirements, and other factors.

Redeemable Noncontrolling Interests

Our previously recognized redeemable noncontrolling interests primarily related to our consolidated subsidiary, McKesson Europe. Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe had a right to put (“Put Right”) their shares at €22.99 per share, increased annually for interest in the amount of five percentage points above a base rate published semi-annually by the German Bundesbank, less any compensation amount or guaranteed dividend already paid by McKesson (“Put Amount”). During the three months ended June 30, 2021, we paid $1.0 billion to purchase 34.5 million shares of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders, which reduced the balance of our redeemable noncontrolling interests.

The Put Right expired on June 15, 2021, at which point the remaining shares owned by the minority shareholders, valued at $287 million, were transferred from redeemable noncontrolling interests to noncontrolling interests and as a result, we no longer have redeemable noncontrolling interests presented in our condensed consolidated balance sheets at June 30, 2022 or March 31, 2022. Our noncontrolling interest in McKesson Europe will be included in the sale of our E.U. disposal group.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONCLUDED)

(UNAUDITED)

Additionally, we are obligated to pay an annual recurring compensation of €0.83 per McKesson Europe share (the “Compensation Amount”) to the noncontrolling shareholders of McKesson Europe under the Domination Agreement. The Compensation Amount is recognized ratably during the applicable annual period. The Domination Agreement does not expire, but it may be terminated at the end of any fiscal year by giving at least six months’ advance notice.

Refer to Financial Note 5, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for additional information on redeemable noncontrolling interests.

Credit Resources

We fund our working capital requirements primarily with cash and cash equivalents as well as short-term borrowings from our credit facilities and commercial paper issuances. Funds necessary for future debt maturities and our other cash requirements, including any future payments that may be made related to our total estimated litigation liability of $7.9 billion as of June 30, 2022 payable under the Settlement terms for opioid-related claims, are expected to be met by existing cash balances, cash flow from operations, existing credit sources, and other capital market transactions. Long-term debt markets and commercial paper markets, our primary sources of capital after cash flow from operations, are open and accessible to us should we decide to access those markets. Detailed information regarding our debt and financing activities is included in Financial Note 8, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report.

We believe that our future operating cash flow, financial assets, and current access to capital and credit markets, including our existing credit facilities, will give us the ability to meet our financing needs for the foreseeable future. However, there can be no assurance that ~~future~~an increase in volatility ~~and~~or disruption in the global capital and credit markets will not impair our liquidity or increase our costs of borrowing.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Selected Measures of Liquidity and Capital Resources~~

(Dollars in millions) December 31, 2017 March 31, 2017
Cash and cash equivalents $ 2,619
$ 2,783

Working capital 2,543
1,336

Debt to capital ratio ⁽¹⁾
39.5
% 39.2
%
Return on McKesson stockholders’ equity ⁽²⁾
45.3
% 54.6
%


~~(1)~~	Ratio is computed as total debt divided by the sum of total debt and McKesson stockholders’ equity, which excludes noncontrolling and redeemable noncontrolling interests and accumulated other comprehensive income (loss).


~~(2)~~	Ratio is computed as net income attributable to McKesson Corporation for the last four quarters, divided by a five-quarter average of McKesson stockholders’ equity, which excludes noncontrolling and redeemable noncontrolling interests.

Cash equivalents, which are available-for-sale, are carried at fair value. Cash equivalents are primarily invested in AAA rated prime and U.S. government money market funds denominated in U.S. dollars, AAA rated prime money market funds denominated in Euros, AAA rated prime money market funds denominated in British pound sterling, time deposits, and Canadian government debentures.

The remaining cash and cash equivalents are deposited with several financial institutions. We mitigate the risk of our short‑term investment portfolio by depositing funds with reputable financial institutions and monitoring risk profiles and investment strategies of money market funds.

Our cash and cash equivalents balance as of December 31, 2017 included approximately $1.2 billion of cash held by our subsidiaries outside of the United States. Notwithstanding recent tax law changes regarding the repatriation of cash to the U.S., our primary intent remains to invest this cash in our foreign businesses for an indefinite period of time.

Working capital primarily includes cash and cash equivalents, receivables and inventories net of drafts and accounts payable, short-term borrowings, the current portion of long-term debt and other current liabilities. Our Distribution Solutions segment requires a substantial investment in working capital that is susceptible to large variations during the year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of sales activity and other requirements.

~~Our debt to capital ratio increased in 2018 compared to 2017 due to an increase in commercial paper outstanding balance.~~

On July 26, 2017, the Company’s quarterly dividend was raised from $0.28 to $0.34 per common share for dividends declared on or after such date by the Board. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company's future earnings, financial condition, capital requirements and other factors.

The carrying value of redeemable noncontrolling interests related to McKesson Europe was $1.44 billion at December 31, 2017, which exceeded the maximum redemption value of $1.31 billion. The balance of redeemable noncontrolling interests is reported at the greater of its carrying value or its maximum redemption value at each reporting date. Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe have a right to put (“Put Right”) their McKesson Europe shares at €22.99 per share increased annually for interest in the amount of 5 percentage points above a base rate published by the German Bundesbank semiannually, less any compensation amount or guaranteed dividend already paid by McKesson in respect of the relevant time period (“Put Amount”). The exercise of the Put Right will reduce the balance of redeemable noncontrolling interests. Refer to Financial Note 9, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” to the condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q for additional information.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Credit Resources~~

~~We fund our working capital requirements primarily with cash and cash equivalents as well as short-term borrowings from our credit facilities and commercial paper issuance.~~

Funds necessary for future debt maturities and our other cash requirements are expected to be met by existing cash balances, cash flow from operations, existing credit sources and other capital market transactions. Detailed information regarding our debt and financing activities is included in Financial Note 12, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONCLUDED)~~

~~(UNAUDITED)~~

~~FACTORS AFFECTING~~CAUTIONARY NOTICE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 ~~as amended,~~ and Section 21E of the Securities Exchange Act of ~~1934, as amended.~~1934. Some of these statements can be identified by the use of ~~forward-looking~~ terminology such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “projects,” “plans,” “estimates,” or the negative of these words and other comparable terminology. The discussion of financial trends, strategy, plans, assumptions, or intentions may also include forward-looking statements. Readers should not place undue reliance on forward-looking statements, which speak only as of the date such statements were first made. Except to the extent required by law, we undertake no obligation to update or revise our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated, or implied. Although it is not possible to predict or identify all such risks and uncertainties, they ~~may~~ include, but are not limited to, factors described in the ~~following factors. The reader should not consider this list to be a complete statement~~Risk Factors discussion in Item 1A of ~~all potential risks and uncertainties:~~


▪	~~changes in the U.S. healthcare industry and regulatory environment;~~


▪	~~foreign operations subject us to a number of operating, economic, political and regulatory risks;~~


▪	~~changes in the Canadian healthcare industry and regulatory environment;~~


▪	~~general European economic conditions together with austerity measures taken by certain European governments;~~


▪	~~changes in the European regulatory environment with respect to privacy and data protection regulations;~~


▪	~~foreign currency fluctuations;~~


▪	~~the Company’s ability to successfully identify, consummate, finance and integrate strategic acquisitions;~~


▪	~~failure for the Company’s investment in Change Healthcare to perform;~~


▪	~~the Company’s ability to manage and complete divestitures;~~


▪	~~material adverse resolution of pending legal and regulatory proceedings;~~


▪	~~competition;~~


▪	~~substantial defaults in payments or a material reduction in purchases by, or the loss of, a large customer or group purchasing organization;~~


▪	~~the loss of government contracts as a result of compliance or funding challenges;~~


▪	~~public health issues in the United States or abroad;~~


▪	~~cyberattack, disaster, or malfunction to computer systems;~~


▪	~~the adequacy of insurance to cover property loss or liability claims;~~


▪	~~the Company’s proprietary products and services may not be adequately protected, and its products and solutions may be found to infringe on the rights of others;~~


▪	~~system errors or failure of our technology products and solutions to conform to specifications;~~


▪	~~disaster or other event causing interruption of customer access to the data residing in our service centers;~~


▪	~~changes in circumstances that could impair our goodwill or intangible assets;~~


▪	~~new or revised tax legislation or challenges to our tax positions;~~


▪	~~general economic conditions, including changes in the financial markets that may affect the availability and cost of credit to the Company, its customers or suppliers;~~


▪	~~changes in accounting principles generally accepted in the United States of America;~~


▪	~~withdrawal from participation in one or more multiemployer pension plans or if such plans are reported to have underfunded liabilities;~~


▪	~~expected benefits from our restructuring and business process initiatives;~~


▪	~~difficulties with outsourcing and similar third party relationships;~~


▪	~~new challenges associated with our retail expansion; and~~


▪	~~inability to keep existing retail store locations or open new retail locations in desirable places.~~

Part I of our most recently filed Annual Report.

These and other risks and uncertainties are described herein and in other information contained in our publicly available Securities and Exchange Commission filings and press releases. Readers are cautioned not to place undue reliance on forward‑looking statements, which speak only as of the date such statements were first made. Except to the extent required by law, we undertake no obligation to publicly release the result of any revisions to our forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

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~~McKESSON CORPORATION~~


~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk.~~

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

We believe there has been no material change in our exposure to risks associated with fluctuations in interest and foreign currency exchange rates as disclosed in our ~~2017~~2022 Annual ~~Report on Form 10-K.~~Report.

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McKESSON CORPORATION


~~Item 4.~~	~~Controls and Procedures.~~

Item 4.Controls and Procedures.

Our Chief Executive Officer and our Chief Financial Officer, with the participation of other members of the Company’s management, have evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ~~as amended~~ (“Exchange Act”)) as of the end of the period covered by this quarterly report, and our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

There were no changes in our “internal control over financial reporting” (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that occurred during ~~our~~ ~~third quarter of 2018~~the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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McKESSON CORPORATION

PART II—OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings.~~

Item 1.Legal Proceedings.

The information set forth in Financial Note ~~16,~~12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements ~~appearing~~included in this Quarterly Report on Form 10-Q, and in Financial Note 18, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022, is incorporated herein by reference. Disclosure of an environmental proceeding with a governmental agency generally is included only if we expect monetary sanctions in the proceeding to exceed $1 million, unless otherwise material.


~~Item 1A.~~	~~Risk Factors.~~

~~There~~Item 1A.Risk Factors.

Other than factual updates discussed in this Quarterly Report on Form 10-Q, there have been no material changes ~~during~~for the period covered by this Quarterly Report on Form 10-Q to the risk factors disclosed in Part I, Item 1A, of our ~~2017~~2022 Annual Report on Form 10-K.


~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds.~~

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

Stock repurchases may be made from ~~time to time~~time-to-time in open market transactions, privately negotiated transactions, through accelerated share repurchase (“ASR”) programs, or by ~~any combination~~combinations of such ~~methods.~~methods, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price, corporate and regulatory ~~requirements.~~requirements, restrictions under the Company’s debt obligations, and other market and economic conditions. The ASR programs discussed below were designed to comply with Rule 10b5-1(c).

In February 2022, the Company entered into an ASR program with a third-party financial institution to repurchase $1.5 billion of the Company’s common stock. The total number of shares repurchased under this ASR program was 5.1 million shares at an average price per share of $295.16. The Company received ~~1.4~~4.8 million shares as the initial share ~~settlement. In April 2017, we~~settlement, and in May 2022, the Company received an additional 0.3 million shares upon the completion of this ASR program.

In ~~June 2017 and August 2017, we~~May 2021, the Company entered into ~~two separate~~an ASR ~~programs~~program with a third-party financial ~~institutions~~institution to repurchase ~~$250 million and $400 million~~$1.0 billion of the Company’s common stock. ~~During the first nine months~~The total number of ~~2018, we received a total of 1.5 million~~ shares repurchased under ~~the June 2017 ASR program and a total of 2.7 million shares under the August 2017 ASR program. The June 2017~~this ASR program was ~~completed in the second quarter of 2018 and August 2017 ASR program was completed in the third quarter of 2018.~~

~~In November 2017, we repurchased 1.8~~5.2 million ~~of the Company’s~~ shares ~~for $250 million through open market transactions~~ at an average price per share of ~~$138.12.~~$193.22. The Company received 4.3 million shares as the initial share settlement, and in August 2021, the Company received an additional 0.9 million shares upon the completion of this ASR program.

There were no other shares repurchased during the three months ended June 30, 2022 and 2021.

The total remaining authorization outstanding for repurchases of the Company’s common stock at June 30, 2022 was ~~$1.8~~$2.3 billion. In July 2022, the Board approved an increase of $4.0 billion ~~at December 31, 2017.~~in the authorization for repurchase of McKesson’s common stock.

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McKESSON CORPORATION

The following table provides information on the Company’s share repurchases during the ~~third~~three months ended June 30, 2022:


	Share Repurchases (1)
(In millions, except price per share)	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
April 1, 2022 – April 30, 2022	—	$	—	—	$	3,278
May 1, 2022 – May 31, 2022 (2)	2.9	323.42		2.9	2,278
June 1, 2022 – June 30, 2022	—	—		—	2,278
Total	2.9			2.9

(1)This table does not include the value of equity awards surrendered to satisfy tax withholding obligations or forfeitures of equity awards.

(2)Includes shares received upon the completion of the February 2022 ASR program, and the initial delivery of shares under the May 2022 ASR program at a reference price of $326.47, as discussed above. These amounts under the May 2022 ASR program are estimates and may differ from the total number of shares purchased and average price paid per share under the ASR program upon its final settlement in the second quarter of ~~2018~~.fiscal 2023.

Share Repurchases ⁽¹⁾
(In millions, except price per share)
Total Number
of Shares
Purchased

Average Price
Paid Per Share

Total Number of
Shares Purchased
As Part of Publicly
Announced
Program

Approximate
Dollar Value of
Shares that May
Yet Be Purchased Under the Programs
October 1, 2017 – October 31, 2017 0.6 $ 148.20 0.6 $ 2,096
November 1, 2017 – November 30, 2017 1.8 138.12 1.8 1,846
December 1, 2017 – December 31, 2017 — — 1,846
Total 2.4
2.4


~~(1)~~	This table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee equity awards.


~~Item 3.~~	~~Defaults Upon Senior Securities.~~

~~None~~Item 3.Defaults Upon Senior Securities.

None.


~~Item 4.~~	~~Mine Safety Disclosures.~~

Item 4.Mine Safety Disclosures.

Not ~~Applicable~~applicable.


~~Item 5.~~	~~Other Information.~~

Item 5.Other Information.

Not ~~Applicable~~applicable.

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McKESSON CORPORATION


~~Item 6.~~	~~Exhibits.~~

Item 6.Exhibits.

Exhibits identified in parentheses below are on file with the SEC and are incorporated by reference as exhibits hereto.



Exhibit Number			Description
~~31.1~~10.1*			McKesson Corporation 2022 Stock Plan, effective July 22 , 2022 (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-8 filed with the SEC on July 27 , 2022 ).

10.2*†			Forms of Statement of Terms and Conditions and Grant Notices Applicable to Awards Pursuant to the McKesson Corporation 2022 Stock Plan.

31.1†			Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2~~31.2†			Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32††			Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			The following materials from the McKesson Corporation Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2017,~~June 30, 2022, formatted in Inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Stockholders’ Equity (Deficit), (v) Condensed Consolidated Statements of Cash Flows, and ~~(v)~~(vi) related Financial Notes.


†104			~~Furnished herewith.~~Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).

* Management contract or compensation plan or arrangement in which directors and/or executive officers are eligible to participate.

† Filed herewith.

†† Furnished herewith.

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McKESSON CORPORATION

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, thereunto duly authorized.


			MCKESSON CORPORATION

Date:		August 3, 2022	MCK~~ESSON~~ C~~ORPORATION~~

~~Date:~~	~~February 1, 2018~~	/s/ Britt J. Vitalone
			Britt J. Vitalone
			Executive Vice President and Chief Financial Officer


		MCKESSON CORPORATION

Date:	August 3, 2022	MCK~~ESSON~~ C~~ORPORATION~~ /s/ Napoleon B. Rutledge Jr.
		Napoleon B. Rutledge Jr.
~~Date:~~	~~February 1, 2018~~	~~/s/ Erin M. Lampert~~
	~~Erin M. Lampert~~
	Senior Vice President and Controller

5253



	Quarter Ended December 31,						Nine Months Ended December 31,
	2017			2016			2017			2016
Revenues	$	53,617		$	50,130		$	156,729		$	149,820
Cost of Sales	(50,902		)	(47,318		)	(148,620		)	(141,345		)
Gross Profit	2,715			2,812			8,109			8,475
Operating Expenses	(1,984		)	(1,981		)	(5,920		)	(5,802		)
Gain from Sale of Business	109			—			109			—
Goodwill Impairment Charges	—			—			(350		)	(290		)
Restructuring and Asset Impairment Charges	(6		)	—			(242		)	—
Operating Income	834			831			1,706			2,383
Other Income, Net	20			23			102			65
Loss from Equity Method Investment in Change Healthcare	(90		)	—			(271		)	—
Interest Expense	(67		)	(74		)	(204		)	(231		)
Income from Continuing Operations Before Income Taxes	697			780			1,333			2,217
Income Tax Benefit (Expense)	263			(131		)	46			(570		)
Income from Continuing Operations	960			649			1,379			1,647
Income (Loss) from Discontinued Operations, Net of Tax	1			(3		)	3			(117		)
Net Income	961			646			1,382			1,530
Net Income Attributable to Noncontrolling Interests	(58		)	(13		)	(169		)	(48		)
Net Income Attributable to McKesson Corporation	$	903		$	633		$	1,213		$	1,482

Earnings (Loss) Per Common Share Attributable to McKesson Corporation
Diluted
Continuing operations	$	4.32		$	2.86		$	5.75		$	7.07
Discontinued operations	0.01			(0.01		)	0.01			(0.51		)
Total	$	4.33		$	2.85		$	5.76		$	6.56
Basic
Continuing operations	$	4.34		$	2.89		$	5.78		$	7.14
Discontinued operations	0.01			(0.02		)	0.02			(0.52		)
Total	$	4.35		$	2.87		$	5.80		$	6.62

Dividends Declared Per Common Share	$	0.34		$	0.28		$	0.96		$	0.84

Weighted Average Common Shares
Diluted	208			222			210			226
Basic	207			221			209			224



	December 31, 2017			March 31, 2017
ASSETS
Current Assets
Cash and cash equivalents	$	2,619		$	2,783
Receivables, net	20,015			18,215
Inventories, net	17,103			15,278
Prepaid expenses and other	458			672
Total Current Assets	40,195			36,948
Property, Plant and Equipment, Net	2,401			2,292
Goodwill	11,828			10,586
Intangible Assets, Net	4,094			3,665
Equity Method Investment in Change Healthcare	3,704			4,063
Other Noncurrent Assets	1,991			3,415
Total Assets	$	64,213		$	60,969

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Current Liabilities
Drafts and accounts payable	$	33,009		$	31,022
Short-term borrowings	749			183
Deferred revenue	68			346
Current portion of long-term debt	531			1,057
Other accrued liabilities	3,295			3,004
Total Current Liabilities	37,652			35,612

Long-Term Debt	7,514			7,305
Long-Term Deferred Tax Liabilities	2,833			3,678
Other Noncurrent Liabilities	2,807			1,774
Redeemable Noncontrolling Interests	1,435			1,327
McKesson Corporation Stockholders’ Equity
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding	—			—
Common stock, $0.01 par value, 800 shares authorized at December 31, 2017 and March 31, 2017, 274 and 273 shares issued at December 31, 2017 and March 31, 2017	3			3
Additional Paid-in Capital	6,253			6,028
Retained Earnings	14,202			13,189
Accumulated Other Comprehensive Loss	(1,726		)	(2,141		)
Other	(1		)	(2		)
Treasury Shares, at Cost, 68 and 62 at December 31, 2017 and March 31, 2017	(6,997		)	(5,982		)
Total McKesson Corporation Stockholders’ Equity	11,734			11,095
Noncontrolling Interests	238			178
Total Equity	11,972			11,273
Total Liabilities, Redeemable Noncontrolling Interests and Equity	$	64,213		$	60,969



(In millions)	Balance March 31, 2017		Net restructuring charges recognized			Non-cash charges		Cash Payments			Other			Balance December 31, 2017 ⁽¹⁾
Cost Alignment Plan
Distribution Solutions	$	90	$	8		$	—	$	(26	)	$	3		$	75
Technology Solutions	10		(1		)	—		(4		)	(5		)	—
Corporate	6		2			—		(2		)	(1		)	5
Total	$	106	$	9		$	—	$	(32	)	$	(3	)	$	80



(In millions)	Noncontrolling Interests			Redeemable Noncontrolling Interests
Balance, March 31, 2017	$	178		$	1,327
Net income attributable to noncontrolling interests	137			32
Other comprehensive income	—			161
Reclassification of recurring compensation to other accrued liabilities	—			(32		)
Payments to noncontrolling interests	(73		)	—
Exercises of Put Right	—			(53		)
Other	(4		)	—
Balance, December 31, 2017	$	238		$	1,435



(In millions)	Distribution Solutions			Technology Solutions			Total
Balance, March 31, 2017	$	10,132		$	454		$	10,586
Goodwill acquired	1,258			—			1,258
Acquisition accounting, transfers and other adjustments ⁽¹⁾	364			(330		)	34
Goodwill impairment charges	(350		)	—			(350		)
Goodwill disposed ⁽²⁾	—			(124		)	(124		)
Amount reclassified to assets held for sale	(11		)	—			(11		)
Foreign currency translation adjustments, net	435			—			435
Balance, December 31, 2017	$	11,828		$	—		$	11,828



	December 31, 2017								March 31, 2017
(Dollars in millions)	Weighted Average Remaining Amortization Period (years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	12	$	3,480	$	(1,458	)	$	2,022	$	2,893	$	(1,295	)	$	1,598
Service agreements	12	1,043		(366		)	677		1,009		(316		)	693
Pharmacy licenses	26	630		(140		)	490		741		(150		)	591
Trademarks and trade names	14	914		(171		)	743		845		(124		)	721
Technology	4	148		(79		)	69		69		(64		)	5
Other	4	263		(170		)	93		201		(144		)	57
Total		$	6,478	$	(2,384	)	$	4,094	$	5,758	$	(2,093	)	$	3,665


Section			Page

~~Item 2.~~ General			~~Management’s Discussion~~ 33

Overview of o ur Business			33

Executive Summary			34

Trends and ~~Analysis~~Uncertainties			35

Overview of Consolidated Results			38

Overview of Segment Results			42

New Accounting Pronouncements			44

Financial Condition, Liquidity, and ~~Results of Operations.~~Capital Resources			45

Cautionary Notice About Forward-Looking Statements			48



	Share Repurchases ⁽¹⁾
(In millions, except price per share)	Total Number of Shares Purchased		Average Price Paid Per Share	Total Number of Shares Purchased As Part of Publicly Announced Program		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
October 1, 2017 – October 31, 2017	0.6	$	148.20	0.6	$	2,096
November 1, 2017 – November 30, 2017	1.8		138.12	1.8		1,846
December 1, 2017 – December 31, 2017	—			—		1,846
Total	2.4			2.4