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~~2023


☐
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



~~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.

131,408,286 shares of the issuer’s common stock were outstanding as of December 31, 2023.



~~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 t hree and nine mo nths ended December 31, 2023 and 2022	3

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2023 and 2022	4

	Condensed Consolidated Balance Sheets as of December 31, 2023 and March 31, 2023	5

	Condensed Consolidated Statements of Stockholders’ Deficit for the three and nine months ended December 31, 2023 and 2022	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2023 and 2022	8

	Financial Notes	9

	Note 1 - Significant Accounting Policies	9

	Note 2 - Business Acquisitions and Divestitures	11

	Note 3 - Restructuring, Impairment, and Related Charges, Net	14

	Note 4 - Income Taxes	16

	Note 5 - Earnings (Loss) Per Common Share	17

	Note 6 - Goodwill and Intangible Assets, Net	18

	Note 7 - Debt and Financing Activities	19

	Note 8 - Hedging Activities	21

	Note 9 - Fair Value Measurements	25

	Note 10 - Commitments and Contingent Liabilities	27

	Note 11 - Stockholders’ Deficit	30

	Note 12 - Segments of Business	33

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

3	Quantitative and Qualitative Disclosures About Market Risk	53

4	Controls and Procedures	53

	PART II—OTHER INFORMATION

1	Legal Proceedings	54

1A	Risk Factors	54

2	Unregistered Sales of Equity Securities and Use of Proceeds	54

3	Defaults Upon Senior Securities	55

4	Mine Safety Disclosures	55

5	Other Information	55

6	Exhibits	56

	Signatures	57

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 December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Revenues	$	80,898	$	70,490	$	232,596	$	207,801
Cost of sales	(77,746)		(67,316)		(223,353)		(198,509)
Gross profit	3,152		3,174		9,243		9,292
Selling, distribution, general, and administrative expenses	(2,506)		(1,903)		(6,468)		(5,812)
Claims and litigation charges, net	—		1		2		5

Restructuring, impairment, and related charges, net	(4)		(31)		(84)		(84)
Total operating expenses	(2,510)		(1,933)		(6,550)		(5,891)
Operating income	642		1,241		2,693		3,401
Other income, net	34		276		98		466


Interest expense	(64)		(69)		(172)		(169)
Income from continuing operations before income taxes	612		1,448		2,619		3,698
Income tax benefit (expense)	18		(329)		(289)		(799)
Income from continuing operations	630		1,119		2,330		2,899
Income (loss) from discontinued operations, net of tax	—		1		—		(3)
Net income	630		1,120		2,330		2,896
Net income attributable to noncontrolling interests	(41)		(41)		(119)		(123)
Net income attributable to McKesson Corporation	$	589	$	1,079	$	2,211	$	2,773

Earnings (loss) per common share attributable to McKesson Corporation
Diluted
Continuing operations	$	4.42	$	7.65	$	16.39	$	19.32
Discontinued operations	—		0.01		—		(0.02)
Total	$	4.42	$	7.66	$	16.39	$	19.30
Basic
Continuing operations	$	4.45	$	7.70	$	16.49	$	19.48
Discontinued operations	—		0.01		—		(0.02)
Total	$	4.45	$	7.71	$	16.49	$	19.46

Weighted-average common shares outstanding
Diluted	133.3		141.0		134.9		143.7
Basic	132.5		139.9		134.0		142.5

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 December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Net income	$	630	$	1,120	$	2,330	$	2,896

Other comprehensive income, net of tax
Foreign currency translation adjustments	72		252		60		642
Unrealized gains (losses) on cash flow and other hedges	5		(65)		37		(29)
Changes in retirement-related benefit plans	(2)		28		(4)		66
Other comprehensive income, net of tax	75		215		93		679

Comprehensive income	705		1,335		2,423		3,575
Comprehensive income attributable to noncontrolling interests	(41)		(41)		(119)		(167)
Comprehensive income attributable to McKesson Corporation	$	664	$	1,294	$	2,304	$	3,408

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)


	December 31, 2023		March 31, 2023
ASSETS
Current assets
Cash and cash equivalents	$	1,982	$	4,678
Receivables, net	23,066		19,410
Inventories, net	22,020		19,691

Prepaid expenses and other	572		513
Total current assets	47,640		44,292
Property, plant, and equipment, net	2,201		2,177
Operating lease right-of-use assets	1,679		1,635
Goodwill	9,973		9,947
Intangible assets, net	2,097		2,277
Other non-current assets	2,922		1,992
Total assets	$	66,512	$	62,320

LIABILITIES AND DEFICIT
Current liabilities
Drafts and accounts payable	$	46,699	$	42,490
Short-term borrowings	218		—
Current portion of long-term debt	48		968
Current portion of operating lease liabilities	296		299

Other accrued liabilities	4,400		4,200
Total current liabilities	51,661		47,957
Long-term debt	5,625		4,626
Long-term deferred tax liabilities	978		1,387
Long-term operating lease liabilities	1,421		1,402
Long-term litigation liabilities	6,128		6,625
Other non-current liabilities	2,381		1,813

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, 278 and 277 shares issued at December 31, 2023 and March 31, 2023, respectively	3		3
Additional paid-in capital	7,962		7,747
Retained earnings	14,268		12,295
Accumulated other comprehensive loss	(812)		(905)

Treasury shares, at cost, 147 and 141 shares at December 31, 2023 and March 31, 2023, respectively	(23,474)		(20,997)
Total McKesson Corporation stockholders’ deficit	(2,053)		(1,857)
Noncontrolling interests	371		367
Total deficit	(1,682)		(1,490)
Total liabilities and deficit	$	66,512	$	62,320

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’ DEFICIT

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended December 31, 2023
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Deficit
	Shares	Amount				Common Shares					Amount
Balance, September 30, 2023	278	$	3	$	7,899		$	13,761	$	(887)	(145)	$	(22,604)	$	364	$	(1,464)
Issuance of shares under employee plans, net of forfeitures	—	—		21			—		—		—	(2)		—		19
Share-based compensation	—	—		45			—		—		—	—		—		45
Repurchase of common stock	—	—		—			—		—		(2)	(868)		—		(868)
Net income	—	—		—			589		—		—	—		41		630
Other comprehensive income	—	—		—			—		75		—	—		—		75
Cash dividends declared, $0.62 per common share	—	—		—			(83)		—		—	—		—		(83)
Payments to noncontrolling interests	—	—		—			—		—		—	—		(37)		(37)



Other	—	—		(3)			1		—		—	—		3		1
Balance, December 31, 2023	278	$	3	$	7,962		$	14,268	$	(812)	(147)	$	(23,474)	$	371	$	(1,682)


	Three Months Ended December 31, 2022
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Deficit
	Shares	Amount				Common Shares					Amount
Balance, September 30, 2022	277	$	3	$	7,609		$	10,579	$	(1,114)	(135)	$	(18,844)	$	518	$	(1,249)
Issuance of shares under employee plans, net of forfeitures	—	—		16			—		—		—	(3)		—		13
Share-based compensation	—	—		36			—		—		—	—		—		36
Repurchase of common stock	—	—		(146)			—		—		(5)	(1,830)		—		(1,976)
Net income	—	—		—			1,079		—		—	—		41		1,120
Other comprehensive income	—	—		—			—		215		—	—		—		215
Cash dividends declared, $0.54 per common share	—	—		—			(77)		—		—	—		—		(77)
Payments to noncontrolling interests	—	—		—			—		—		—	—		(36)		(36)
Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—	—		(1)		(1)
Formation of SCRI Oncology, LLC	—	—		22			—		—		—	—		225		247
Derecognition of noncontrolling interests in McKesson Europe AG	—	—		—			—		—		—	—		(382)		(382)
Other	—	—		(1)			1		—		—	—		1		1
Balance, December 31, 2022	277	$	3	$	7,536		$	11,582	$	(899)	(140)	$	(20,677)	$	366	$	(2,089)

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(In millions, except per share amounts)

(Unaudited)


	Nine Months Ended December 31, 2023
	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, 2023	277	$	3	$	7,747	$	12,295	$	(905)		(141)		$	(20,997)	$	367	$	(1,490)
Issuance of shares under employee plans, net of forfeitures	1	—		75		—		—			—		(96)		—		(21)
Share-based compensation	—	—		136		—		—			—		—		—		136
Repurchase of common stock	—	—		—		—		—			(6)		(2,381)		—		(2,381)
Net income	—	—		—		2,211		—			—		—		119		2,330
Other comprehensive income	—	—		—		—		93			—		—		—		93
Cash dividends declared, $1.78 per common share	—	—		—		(240)		—			—		—		—		(240)
Payments to noncontrolling interests	—	—		—		—		—			—		—		(114)		(114)




Other	—	—		4		2		—			—		—		(1)		5
Balance, December 31, 2023	278	$	3	$	7,962	$	14,268	$	(812)		(147)		$	(23,474)	$	371	$	(1,682)


	Nine Months Ended December 31, 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		143			—		—		—	(157)		—		(13)
Share-based compensation	—	—		122			—		—		—	—		—		122
Repurchase of common stock	—	—		(25)			—		—		(10)	(3,475)		—		(3,500)
Net income	—	—		—			2,773		—		—	—		123		2,896
Other comprehensive income	—	—		—			—		635		—	—		44		679
Cash dividends declared, $1.55 per common share	—	—		—			(222)		—		—	—		—		(222)
Payments to noncontrolling interests	—	—		—			—		—		—	—		(113)		(113)
Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—	—		(5)		(5)
Formation of SCRI Oncology, LLC	—	—		22			—		—		—	—		225		247
Derecognition of noncontrolling interests in McKesson Europe AG	—	—		—			—		—		—	—		(382)		(382)
Other	—	—		(1)			1		—		—	—		(6)		(6)
Balance, December 31, 2022	277	$	3	$	7,536		$	11,582	$	(899)	(140)	$	(20,677)	$	366	$	(2,089)

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


	Nine Months Ended December 31,
	2023		2022
OPERATING ACTIVITIES
Net income	$	2,330	$	2,896
Adjustments to reconcile to net cash provided by operating activities:
Depreciation	191		185
Amortization	284		262
Long-lived asset impairment charges	28		13
Deferred taxes	(552)		55
Charges (credits) associated with last-in, first-out inventory method	89		(31)
Non-cash operating lease expense	186		183
Gain from sales of businesses and investments	(17)		(215)

Provision for bad debts	780		31
Other non-cash items	137		190
Changes in assets and liabilities, net of acquisitions:
Receivables	(4,298)		(2,193)
Inventories	(2,384)		(2,190)
Drafts and accounts payable	4,163		3,531
Operating lease liabilities	(247)		(256)
Taxes	(40)		381
Litigation liabilities	(529)		(1,021)
Other	46		13
Net cash provided by operating activities	167		1,834

INVESTING ACTIVITIES
Payments for property, plant, and equipment	(243)		(265)
Capitalized software expenditures	(175)		(111)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired	(6)		(856)
Proceeds from sales of businesses and investments, net	47		1,074
Other	(118)		(140)
Net cash used in investing activities	(495)		(298)

FINANCING ACTIVITIES
Proceeds from short-term borrowings	4,770		1,100
Repayments of short-term borrowings	(4,552)		(483)
Proceeds from issuances of long-term debt	991		499
Repayments of long-term debt	(280)		(412)
Purchase of U.S. government obligations for the satisfaction and discharge of long-term debt	(647)		—

Common stock transactions:
Issuances	75		143
Share repurchases	(2,347)		(3,500)
Dividends paid	(232)		(216)

Other	(152)		(309)
Net cash used in financing activities	(2,374)		(3,178)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	6		15
Change in cash, cash equivalents, and restricted cash classified as Assets held for sale	—		470
Net decrease in cash, cash equivalents, and restricted cash	(2,696)		(1,157)
Cash, cash equivalents, and restricted cash at beginning of period	4,679		3,935
Cash, cash equivalents, and restricted cash at end of period	1,983		2,778
Less: Restricted cash at end of period included in Prepaid expenses and other	(1)		(4)

Cash and cash equivalents at end of period	$	1,982	$	2,774

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 four reportable segments: U.S. Pharmaceutical, Prescription Technology Solutions (“RxTS”), Medical-Surgical Solutions, and International. Refer to Financial Note 12, “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.

Net income attributable to noncontrolling interests includes third-party equity interests in the Company’s consolidated entities, including ClarusONE Sourcing Services LLP, Vantage Oncology Holdings, LLC, and SCRI Oncology, LLC. Net income attributable to noncontrolling interests also included recurring compensation that the Company was obligated to pay to the noncontrolling shareholders of McKesson Europe AG (“McKesson Europe”) through the divestiture date. The Company’s noncontrolling interest in McKesson Europe was included in the divestiture of certain of the Company’s businesses in the European Union (“E.U.”) in October 2022, which is discussed further in Financial Note 2, “Business Acquisitions and Divestitures.”

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 instead has the ability to 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. 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~~three and nine months ended December 31, ~~2017~~2023 are not necessarily indicative of the results that may be ~~expected~~anticipated 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~~2023, previously filed with the SEC on May ~~22, 2017 (“2017~~9, 2023 (the “2023 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 in 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 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 to the equity method of accounting. This standard eliminates 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.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Derivatives~~On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IRA”). Among other provisions, the IRA includes a 15% corporate minimum tax, a 1% excise tax on certain repurchases of an entity’s own common stock after December 31, 2022, and ~~Hedging:~~ ~~In the first quarter of 2018, we adopted amended guidance for derivative instrument novations.~~various drug pricing reforms. The ~~amendments clarify that a novation, a change in the counterparty, to a derivative instrument that has been designated as a hedging instrument~~Company does not ~~in and of itself, require dedesignation of~~anticipate 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 notlegislation will have a material ~~effect~~impact on ~~our condensed~~its consolidated financial ~~statements.~~statements or related disclosures; however the Company continues to evaluate the impact of these legislative changes. Refer to Financial Note 11, “Stockholders' Deficit,” for further details regarding excise taxes incurred on the Company’s share repurchases during the three and nine months ended December 31, 2023.

~~Inventory:~~ InRecently Adopted Accounting Pronouncements

There were no accounting standards adopted by the ~~first quarter of 2018, we adopted amended guidance for~~Company during 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.nine months ended December 31, 2023.

Recently Issued Accounting Pronouncements Not Yet Adopted

~~Derivatives~~In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 improves the transparency of income tax disclosures by requiring, on an annual basis, consistent categories, 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 eliminategreater disaggregation of information in 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 guidancerate reconciliation as well as income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for ~~us on a prospective basis commencing in~~ the ~~first quarter of 2020.~~Company for fiscal years beginning after December 15, 2024. Early adoption is permitted. ~~We are~~The amendments in this update should be applied prospectively, however, retrospective application is permitted. The Company is currently evaluating the impact that this guidance will have on its disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 expands reportable segment disclosures by requiring disclosure, on an annual and interim basis, of ~~this amended guidance on our condensed consolidated financial statements.~~

~~Share-Based Payments:~~ ~~In May 2017, amended guidance was issued for employee share-based payment awards. This amendment provides guidance on which changes~~significant segment expenses that are regularly provided to the ~~terms~~chief operating decision maker (“CODM”) and included within each reported measure of segment profit or ~~conditions~~loss as well as an amount and description of other segment items. ASU 2023-07 also requires interim disclosures 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 conditionsreportable segment’s profit or ~~the classification (as an equity instrument or a liability instrument)~~loss and assets, disclosure of the ~~modified award change from that~~title and position of the ~~original award immediately before~~CODM, and an explanation of how the ~~modification. The amended guidance~~CODM uses the reported measure of segment profit or loss in assessing performance and allocating resources. ASU 2023-07 is effective for ~~us on a prospective basis commencing in~~ the ~~first quarter of 2019.~~Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. WeThe amendments in this update are required to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact that this guidance will have on its disclosures.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of ~~this amended~~Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance ~~on our condensed consolidated financial statements.~~

~~Premium Amortization~~when measuring the fair value of ~~Purchased Callable Debt Securities:~~ ~~In March 2017, amended guidance was issued~~an equity security subject to ~~shorten~~contractual restrictions that prohibit the ~~amortization period for certain callable debt securities held at a premium. The amended guidance~~sale of such equity security and requires the premium of callable debt securities to be amortized to the earliest call date but does not require an accounting change for securities held at a discount as they would still be amortized to maturity. The amended guidanceadditional disclosure requirements. ASU 2022-03 is effective for ~~us on a modified retrospective basis commencing in~~ the ~~first quarter of 2020.~~Company for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. ~~We are currently evaluating the impact of~~The amendments in 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. Other components of net benefit costupdate are required to be ~~presented in the statements of operations separately from the service cost component outside of operating income. This amended~~applied prospectively. The Company does not anticipate that this guidance ~~is effective for us in the first quarter of 2019~~will have a material impact on ~~a retrospective basis. Early adoption is permitted. We expect the adoption of this amended guidance to have no material effect on our condensed~~its 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).

statements or related disclosures.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

2. Business Acquisitions and Divestitures

~~Derecognition~~

Acquisitions

Rx Savings Solutions, LLC

On November 1, 2022, the Company completed its acquisition of ~~Nonfinancial Assets:~~ ~~In February 2017, amended guidance~~100% of the shares of Rx Savings Solutions, LLC (“RxSS”), a privately-owned company headquartered in Overland Park, Kansas, to further connect biopharma and payer services to patients. RxSS is a prescription price transparency and benefit insight company that offers affordability and adherence solutions to health plans and employers. The purchase consideration included a payment of $600 million in cash made upon closing and a maximum of $275 million of contingent consideration based on RxSS’ operational and financial performance through calendar year 2025. The payment made upon closing was ~~issued that defines~~funded from cash on hand. The financial results of RxSS are included in the ~~term “in substance nonfinancial asset”~~Company’s RxTS segment as of the acquisition date. The transaction was accounted for as a ~~financial asset promised to~~business combination.

The Company recorded a ~~counterparty in a contract if substantially all~~liability for the contingent consideration at its fair value of $92 million as of the acquisition date. The fair value of the ~~asset that~~contingent consideration liability was estimated using a Monte Carlo simulation model, utilizing internal cash flow projections which are Level 3 inputs under Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures. The contingent consideration liability will be remeasured to fair value at each reporting date until the liability is ~~promised is concentrated~~settled with changes in ~~nonfinancial assets. The scope of this amendment includes nonfinancial assets transferred~~fair value being recognized within ~~a legal entity including a parent entity’s transfer of nonfinancial assets by transferring ownership interests in consolidated subsidiaries. The amendment excludes all businesses~~“Selling, distribution, general, 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 guidanceadministrative expenses” in the ~~first quarter~~Company’s Condensed Consolidated Statements of ~~2019. It allows for either full retrospective adoption or modified retrospective adoption. Early adoption~~Operations. During the three and nine months ended December 31, 2023, the Company recognized fair value adjustment gains of $2 million and $78 million, respectively, which reduced its contingent consideration liability, based on the estimated amount and timing of projected operational and financial information and the probability of achievement of performance milestones. As of December 31, 2023 and March 31, 2023, the current portion of the contingent consideration liability of $14 million and $83 million, respectively, is ~~permitted. We are currently evaluating~~included within “Other accrued liabilities” and as of March 31, 2023, the ~~impact~~long-term portion of ~~this amended guidance on our condensed consolidated financial statements.~~

~~Business Combinations:~~ ~~In January 2017, amended guidance was issued to clarify~~$9 million is included within “Other non-current liabilities” in the ~~definition~~Company’s Condensed Consolidated Balance Sheets. Recognition 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 of the initial fair value of ~~the gross~~this contingent consideration was a non-cash investing activity.

The purchase price allocation included acquired identifiable intangible assets ~~acquired is concentrated in~~of $229 million, primarily representing customer relationships and technology with a ~~single identifiable asset or a group~~weighted average amortization period 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~~12 years, and ~~a substantive process that together significantly contribute~~goodwill of $463 million. Goodwill has been allocated to the ~~ability to create output. The amended guidance is effective for us commencing in~~Company’s RxTS segment, which reflects the ~~first quarter of 2019 on a prospective basis. Early adoption is permitted in~~expected future benefits from 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~~synergies and intangible assets 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~~qualify 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 adjustmentseparate recognition. Goodwill attributable to the ~~beginning retained earnings in~~acquisition is deductible for tax purposes.

The following table summarizes the ~~year of adoption. Early adoption is permitted. We are currently evaluating the impact of~~final purchase price allocation for this ~~amended guidance on our condensed consolidated financial statements.~~acquisition:


(In millions)	Amounts Recognized as of Acquisition Date (Final)
Purchase consideration:
Cash	$	600
Contingent consideration	92
Total purchase consideration	$	692

Identifiable assets acquired and liabilities assumed:
Current assets	$	5
Intangible assets	229
Other non-current assets	3
Current liabilities	(8)

Total identifiable net assets	229
Goodwill	463
Net assets acquired	$	692

911

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

SCRI Oncology, LLC

~~Leases:~~ ~~In February 2016, amended guidance was issued for lease arrangements. The amended standard will require lessees~~On October 31, 2022, the Company completed a transaction with HCA Healthcare, Inc. (“HCA”) to ~~recognize assets~~form SCRI Oncology, LLC (“SCRI Oncology”), an oncology research business combining McKesson’s U.S. Oncology Research (“USOR”) and ~~liabilities on the balance sheet for all leases with terms longer than 12 months~~HCA’s Sarah Cannon Research Institute (“SCRI”) based in Nashville, Tennessee, to advance cancer care and ~~provide enhanced disclosures on key information of leasing arrangements. The amended guidance is effective for us commencing~~increase access to oncology clinical research. McKesson owns a 51% controlling interest in the ~~first quarter of 2020, on a modified retrospective basis. Early adoption is permitted. We plan to adopt~~combined business, and the ~~new standard on~~financial results are consolidated by the ~~effective date~~Company and ~~are currently evaluating the impact of this amended guidance on our consolidated financial statements. We anticipate that the adoption~~reported within its U.S. Pharmaceutical segment as of the ~~amended lease guidance will materially affect our condensed consolidated balance sheet~~acquisition date. Transaction consideration included the transfer of full ownership interest in USOR to the combined business and ~~will require~~$166 million of net cash paid to HCA, which was funded from cash on hand. The transaction was accounted for as a business combination.

The purchase price allocation included acquired identifiable intangible assets of $177 million, primarily representing customer relationships as well as trademarks and trade names with a weighted average amortization period of 17 years, and goodwill of $113 million. Goodwill has been allocated to the Company’s U.S. Pharmaceutical segment, which reflects the expected future benefits from certain ~~changes~~synergies and intangible assets that do not qualify for separate recognition. Goodwill attributable to ~~our systems and processes.~~

~~Financial Instruments:~~ ~~In January 2016, amended guidance was issued that requires~~the acquisition of $46 million is deductible for tax purposes. The Company recorded noncontrolling interest of $225 million as a component of equity, ~~investments to be measured~~which includes HCA’s proportionate interest in the identifiable net assets of SCRI at fair value ~~with changes in fair value recognized in net income~~of $202 million and enhanced disclosures about those investments. This guidance also simplifies the impairment assessments of equity investments without readily determinable fair value. The investments that are accounted for under the equity method of accounting or result in consolidation of the investee are excluded from the scope of this amended guidance. The amended guidance will become effective for us commencing in 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 entity 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.

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%~~its proportionate interest in the ~~newly formed joint venture. Accordingly,~~contributed net assets of USOR at carrying value of $23 million. The difference between the fair value of the Company’s acquired interest in SCRI net assets and the ~~fourth quarter of 2017, we deconsolidated the Core MTS Business and recorded a pre-tax gain of $3,947~~$166 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~~cash paid to HCA was recognized as additional paid in capital, ~~and other adjustments. During~~as well as the ~~second quarter of 2018, we received $126 million~~Company’s reduction in ~~cash from Change Healthcare representing~~ownership interest in USOR net assets.

The following table summarizes the final ~~settlement of the net working capital and other adjustments.~~purchase price allocation for this acquisition:


(In millions)	Amounts Recognized as of Acquisition Date (Final)
Purchase consideration:
Cash	$	166
Contribution of USOR	46
Total purchase consideration	$	212

Identifiable assets acquired and liabilities assumed:
Receivables	$	224

Property, plant, and equipment	22
Operating lease right-of-use assets	31
Intangible assets	177
Other non-current assets	6
Current liabilities	(42)
Long-term operating lease liabilities	(29)
Other non-current liabilities	(43)
Total identifiable net assets	346
Noncontrolling interest	(225)
Additional paid-in capital	(22)
Goodwill	113
Net assets acquired	$	212

1012

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Equity Method Investment~~The fair value of the acquired identifiable intangible assets from the acquisitions discussed above were determined by applying the income approach, using a discounted cash flow model in ~~Change Healthcare~~

~~Our investment~~which cash flows anticipated over several periods are discounted to their present value using an appropriate rate that is commensurate with the risk inherent with the transaction. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance. The Company’s fair value assessments of these acquisitions were finalized upon completion of the measurement period in ~~the joint venture is accounted for using the equity method of accounting on a one-month reporting lag. During~~ the third quarter of fiscal 2024. There were no material changes to the purchase price allocations since the respective acquisition dates. Pro forma financial information has not been provided as these acquisitions did not have a material impact, individually, or in the aggregate, to the Company’s consolidated results of operations.

Divestitures

European Divestiture Activities

In July 2021, the Company announced its intention to exit its businesses in Europe. On October 31, 2022, the Company completed its previously announced transaction to sell certain of its businesses in the E.U. located in France, Italy, Ireland, Portugal, Belgium, and ~~first~~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 the PHOENIX Group. As part of the transaction, the Company received cash proceeds of $892 million and divested net assets of $1.3 billion, including cash of $319 million, derecognized the carrying value of its noncontrolling interest held by minority shareholders of McKesson Europe of $382 million, and released $153 million of net accumulated other comprehensive loss.

During the three and nine months ended December 31, 2022, the Company recorded net gains of ~~2018, we recorded our proportionate share of loss from Change Healthcare of $90~~$31 million and ~~$271~~$66 million, respectively, to remeasure the E.U. disposal group to fair value less costs to sell which ~~included transaction~~was recorded within “Selling, distribution, general, and ~~integration expenses incurred~~administrative expenses” in the Condensed Consolidated Statements of Operations. The Company’s measurement of the fair value of the E.U. disposal group was based on the total consideration received by the ~~joint venture and~~Company as outlined in the transaction agreement. Certain components of the total consideration included 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~~measurements that fall within Level 3 of the ~~enactment~~fair value hierarchy.

On April 6, 2022, the Company completed the previously announced sale of its retail and distribution businesses in the United Kingdom (“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 ~~2017 Tax Cuts~~transaction, the Company divested net assets of $615 million and ~~Jobs Act (the “2017 Tax Act”) are expected~~released $731 million of accumulated other comprehensive loss, within the International segment, and the buyer assumed and repaid a note payable to ~~be recognized~~the Company of $118 million.

At December 31, 2023 and March 31, 2023, the Company had no assets or liabilities related to these European divestiture activities that met the criteria for classification as held for sale. Subsequent to the divestiture activities discussed above, the Company’s European operations primarily consist of its retail and distribution businesses in ~~our condensed statement~~Norway.

Other

For the periods presented, the Company also completed de minimis acquisitions and divestitures within its operating segments. Financial results for the Company’s business acquisitions have been included in its consolidated financial statements as of ~~operations~~their respective acquisition dates. Purchase prices for business acquisitions have been allocated based on estimated fair values at the respective acquisition dates.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

3.Restructuring, Impairment, and Related Charges, Net

The Company recorded restructuring, impairment, and related charges, net of $4 million and $31 million for the three months ended December 31, 2023 and 2022, respectively, and $84 million for each of the nine months ended December 31, 2023 and 2022. These charges were included in “Restructuring, impairment, and related charges, net” in the Condensed Consolidated Statements of Operations.

Restructuring Initiatives

During the fourth quarter of ~~2018. We expect our proportionate share~~fiscal 2023, the Company approved a broad set of ~~a provisional~~initiatives to drive operational efficiencies and increase cost optimization efforts, with the intent of simplifying its infrastructure and realizing long-term sustainable growth. These initiatives include headcount reductions and the exit or downsizing of certain facilities. The Company anticipates total charges of approximately $125 million across its RxTS and U.S. Pharmaceutical segments as well as Corporate, consisting primarily of employee severance and other employee-related costs, facility and other exit-related costs, as well as long-lived asset impairments. Of this amount, $101 million of cumulative charges were recorded through December 31, 2023. For the three and nine months ended December 31, 2023, the Company recorded charges of $2 million and $41 million related to this program, respectively, which primarily includes real estate and other related asset impairments and facility costs within Corporate. This restructuring program is anticipated to be substantially complete by the end of fiscal 2024.

Restructuring, impairment, and related charges, net ~~benefit recognized by Change Healthcare from~~for the ~~enactment~~three months ended December 31, 2023 and 2022 consisted of the ~~2017 Tax Act~~following:


	Three Months Ended December 31, 2023
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions (1)		Medical-Surgical Solutions		International		Corporate		Total
Severance and employee-related costs, net	$	(6)	$	1	$	—	$	—	$	(2)	$	(7)
Exit and other-related costs (2)	1		1		3		—		6		11
Asset impairments and accelerated depreciation	—		—		—		—		—		—
Total	$	(5)	$	2	$	3	$	—	$	4	$	4

(1)Includes costs related to operational efficiencies and cost optimization efforts described above to support the Company’s technology solutions.

(2)Exit and other-related costs consist of accruals for costs to be ~~approximately $70~~incurred without future economic benefits, project consulting fees, and other exit costs expensed as incurred.


	Three Months Ended December 31, 2022
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Severance and employee-related costs, net	$	—	$	—	$	—	$	—	$	4	$	4
Exit and other-related costs (1)	1		1		1		7		15		25
Asset impairments and accelerated depreciation	1		—		—		1		—		2
Total	$	2	$	1	$	1	$	8	$	19	$	31

(1)Exit and other-related costs consist of accruals for costs to be incurred without future economic benefits, project consulting fees, and other exit costs expensed as incurred. Corporate includes costs for business transformation and optimization efforts related to the Company’s technology organization. The International segment includes costs related to the Company’s European divestitures.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Restructuring, impairment, and related charges, net, for the nine months ended December 31, 2023 and 2022 consisted of the following:


	Nine Months Ended December 31, 2023
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions (1)		Medical-Surgical Solutions		International		Corporate (1)		Total
Severance and employee-related costs, net	$	3	$	1	$	—	$	2	$	(1)	$	5
Exit and other-related costs (2)	3		6		9		9		24		51
Asset impairments and accelerated depreciation	—		—		—		1		27		28
Total	$	6	$	7	$	9	$	12	$	50	$	84

(1)Includes costs related to operational efficiencies and cost optimization efforts described above to support the Company’s technology solutions.

(2)Exit and other-related costs consist of accruals for costs to be incurred without future economic benefits, project consulting fees, and other exit costs expensed as incurred.


	Nine Months Ended December 31, 2022
(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Severance and employee-related costs, net	$	3	$	—	$	—	$	2	$	(2)	$	3
Exit and other-related costs (1)	2		4		3		15		44		68
Asset impairments and accelerated depreciation	4		11		—		2		(4)		13
Total	$	9	$	15	$	3	$	19	$	38	$	84

The following table summarizes the activity related to the liabilities associated with the Company’s restructuring initiatives for the nine months ended December 31, 2023:


(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Balance, March 31, 2023 (1)	$	15	$	26	$	3	$	13	$	35	$	92
Restructuring, impairment, and related charges, net	6		7		9		12		50		84
Non-cash charges	—		—		—		(1)		(27)		(28)
Cash payments	(14)		(28)		(10)		(4)		(33)		(89)
Other (2)	5		—		—		(10)		—		(5)
Balance, December 31, 2023 (3)	$	12	$	5	$	2	$	10	$	25	$	54

(1)As of March 31, 2023, the total reserve balance was $92 million, of which $66 million was recorded in “Other accrued liabilities” and $26 million was recorded in “Other non-current liabilities” in the Company’s Condensed Consolidated Balance Sheet.

(2)Other primarily includes cumulative translation adjustments and transfers to ~~$110~~certain other liabilities.

(3)As of December 31, 2023, the total reserve balance was $54 million, of which $21 million was recorded in “Other accrued liabilities” and $33 million was recorded in “Other non-current liabilities” in the Company’s Condensed Consolidated Balance Sheet.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

4. Income Taxes

Income tax expense (benefit) related to continuing operations was as follows:


	Three Months Ended December 31,						Nine Months Ended December 31,
(Dollars in millions)	2023			2022			2023			2022
Income tax expense (benefit)	$	(18)		$	329		$	289		$	799
Reported income tax rate	(2.9)		%	22.7		%	11.0		%	21.6		%

Fluctuations in the Company’s reported income tax rates were primarily due to changes in the mix of earnings between various taxing jurisdictions and discrete items recognized in the quarters.

During the three months ended December 31, 2023, the Company recognized a net discrete tax benefit of $141 million primarily related to the release of a valuation allowance based on management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2023, management determined that there is sufficient positive evidence to conclude that it is more likely than not that additional deferred tax assets of $154 million will be realized and reduced the valuation allowance accordingly. During the nine months ended December 31, 2023, the Company repatriated certain intellectual property between McKesson wholly-owned legal entities that are based in different tax jurisdictions. The transferor entity of the intellectual property was not subject to income tax on this transaction. The recipient entity of the intellectual property is entitled to amortize the fair value of the assets for tax purposes. As a result of this repatriation, and in accordance with ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, a net discrete tax benefit of $147 million was recognized during the nine months ended December 31, 2023. During the nine months ended December 31, 2022, the Company recognized net discrete tax benefits primarily related to the tax impact of share-based compensation of $55 million.

As of December 31, 2023, the Company had $1.4 billion of unrecognized tax benefits, of which $1.3 billion would reduce income tax expense and the effective tax rate if recognized. During the next twelve months, the Company does not anticipate any material reduction in ~~future applicable~~its unrecognized 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 isbenefits based on ~~certain estimates and could become payable in periods after a disposition of our investment in Change Healthcare.~~the information currently available. However, this may change as the Company continues to have ongoing discussions with various taxing authorities throughout the year.

The ~~total fees charged~~Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The Company is generally subject to audit by ~~us to~~taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years 2016 through 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.current fiscal year.

During the ~~third~~fourth quarter of fiscal 2023, the Internal Revenue Service (“IRS”) communicated proposed adjustments to taxable income reported in the Company’s fiscal 2018 and fiscal 2019 U.S. Federal Corporate Income Tax returns. The adjustments would increase the Company’s federal income tax liability in the range of $600 million to $700 million. The Company disagrees with the proposed adjustments and intends to pursue resolution through the administrative process with the IRS Independent Office of Appeals and, if necessary, through judicial remedies. During the first quarter of fiscal 2024, the Company filed a formal protest with the IRS. The Company does not anticipate a final resolution of these matters in the next twelve months. Although the final resolution of these matters is uncertain, the Company believes in the merits of its tax positions and believes that it has adequately reserved for any adjustments to the provision of income taxes that may ultimately result. However, if the IRS prevails in these matters, the assessed tax and interest could have a material adverse effect on the Company’s financial position, results of operations, and cash flows in future periods.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

5.Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. The computation of diluted earnings (loss) per common share is similar to that of basic earnings (loss) per common share, except that the 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. Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based restricted stock units. Less than one million of potentially dilutive securities for the three and nine months ended December 31, 2023 and 2022 were excluded from the computation of diluted earnings (loss) per common share as they were anti-dilutive.

The computations for basic and diluted earnings (loss) per common share were as follows:


	Three Months Ended December 31,				Nine Months Ended December 31,
(In millions, except per share amounts)	2023		2022		2023		2022
Income from continuing operations	$	630	$	1,119	$	2,330	$	2,899
Net income attributable to noncontrolling interests	(41)		(41)		(119)		(123)
Income from continuing operations attributable to McKesson Corporation	589		1,078		2,211		2,776
Income (loss) from discontinued operations, net of tax	—		1		—		(3)
Net income attributable to McKesson Corporation	$	589	$	1,079	$	2,211	$	2,773

Weighted-average common shares outstanding:
Basic	132.5		139.9		134.0		142.5
Effect of dilutive securities:
Stock options	0.1		0.2		0.2		0.3
Restricted stock units (1)	0.7		0.9		0.7		0.9
Diluted	133.3		141.0		134.9		143.7

Earnings (loss) per common share attributable to McKesson Corporation: (2)
Diluted
Continuing operations	$	4.42	$	7.65	$	16.39	$	19.32
Discontinued operations	—		0.01		—		(0.02)
Total	$	4.42	$	7.66	$	16.39	$	19.30
Basic
Continuing operations	$	4.45	$	7.70	$	16.49	$	19.48
Discontinued operations	—		0.01		—		(0.02)
Total	$	4.45	$	7.71	$	16.49	$	19.46

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

(2)Certain computations may reflect rounding adjustments.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

6. Goodwill and Intangible Assets, Net

Goodwill

The Company evaluates goodwill for impairment on an annual basis in the first fiscal 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~~

more frequently if indicators for potential impairment exist. 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.~~

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~~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 ourThe 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~~testing performed in fiscal 2024 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 charges primarily consist of lease termination and other exit costs.

Long-lived asset impairment and restructuring charges were recorded under 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 to a restructuring plan to lower our operating 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 to the end of 2019. Business process initiatives primarily include plans to reduce operating costs of our distribution and pharmacy operations, administrative support functions, and technology platforms, as well as the disposal 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 program primarily consist of exit-related costs 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.~~

~~The following table summarizes the activity related to the restructuring liabilities associated with the Cost Alignment Plan for the first nine months 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, 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.

~~Equity Investment~~

On July 18, 2017, we completed the sale of an equity method investment from our Distribution Solutions segment 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 other income, net in our condensed consolidated statement of operations during the first nine months of 2018.

~~These divestitures~~fiscal 2023 did not ~~meet the criteria to qualify as discontinued operations. Pre- and after-tax income from continuing operations~~indicate any impairment of ~~these businesses were not material for the third quarter and first nine months of 2018.~~goodwill.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


6.	~~Business Combinations~~

~~2018 Acquisitions~~

~~RxCrossroads~~

~~On January 2, 2018, we completed our acquisition of RxCrossroads for the net purchase consideration of~~ ~~$724 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 included in “Other Noncurrent Assets” within our consolidated balance sheet at March 31, 2017. CMM is headquartered in Columbus, Ohio and provides electronic prior authorization solutions to pharmacies, providers, payers, and pharmaceutical manufacturers. The financial results of CMM are included 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 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.

During the third quarter and first nine months 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 million and $7 million. Approximately $870 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. 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.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


8.	~~Income Taxes~~

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, 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.

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 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 to the impact of the 2017 Tax Act, further described below, and other discrete tax benefits of $54 million primarily related to the conclusion of certain tax audits. Our discrete tax benefits for the first nine months of 2017 included $47 million related to the adoption of the amended accounting guidance on employee share-based compensation.

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, described in our Financial Note 3, “Goodwill Impairment Charges,” 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, described 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.

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 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 IRS for fiscal years 2013 through the current fiscal year. We are generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years 2010 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 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.

~~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.

~~Table of Contents~~

~~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.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


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

~~Redeemable Noncontrolling Interests~~

Our redeemable noncontrolling interests relate to our consolidated subsidiary, McKesson Europe. Under the domination and profit and loss transfer agreement (the “Domination Agreement”), the noncontrolling shareholders of McKesson Europe have 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 the Put Right. During the first nine months of 2018, we paid $50 million to purchase 1.9 million shares of McKesson Europe through the exercises of the Put Right by the noncontrolling shareholders, which decreased the carrying value of redeemable noncontrolling interests by $53 million. The balance of redeemable noncontrolling interests is reported as the greater of its carrying value or its maximum redemption value at each reporting date. The redemption value is the Put Amount adjusted for exchange rate fluctuations each period. At December 31, 2017 and March 31, 2017, the carrying value of redeemable noncontrolling interests 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.

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.

~~Noncontrolling Interests~~

The balances of our noncontrolling interests represent third-party equity interests in our consolidated entities primarily Vantage and ClarusONE Sourcing Services LLP, and were $238 million and $178 million at December 31, 2017 and March 31, 2017. We allocated a total of $46 million and $137 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 and first nine months of 2017.

~~Changes in redeemable noncontrolling interests and noncontrolling interests for the first nine months of 2018 were as follows:~~

(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

~~Table of Contents~~

~~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 number of common shares outstanding during the reporting period. Diluted earnings per common share is computed similar to basic earnings per common share except that it 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 million potentially dilutive securities were excluded from the computations 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.~~


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

Changes in the carrying amount of goodwill were as follows:


(In millions)	U.S. Pharmaceutical (1)		Prescription Technology Solutions		Medical-Surgical Solutions		International		Total
Balance, March 31, 2023	$	4,050	$	2,005	$	2,453	$	1,439	$	9,947



Goodwill acquired	—		—		—		3		3
Foreign currency translation adjustments, net	—		—		—		30		30
Other adjustments (2)	(7)		—		—		—		(7)
Balance, December 31, 2023	$	4,043	$	2,005	$	2,453	$	1,472	$	9,973

(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
(1)The goodwill balance allocated to the U.S. Pharmaceutical segment related to McKesson Europe’s Celesio AG acquisition no longer reflects foreign currency translation adjustments as its functional currency was changed from Euros to U.S. dollars with the completion of the sale of the E.U. disposal group.

~~Table~~(2)Includes purchase price allocation adjustments related to the formation 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 toSCRI Oncology, which is discussed in Financial Note ~~3, “Goodwill Impairment Charges,” for more information on goodwill impairment charges recorded in the second quarters of 2018~~2, “Business Acquisitions and ~~2017.~~Divestitures.”

Intangible Assets

Information regarding intangible assets iswas as follows:


	December 31, 2023							March 31, 2023
(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	11	$	1,800	$	(676)	$	1,124	$	2,971	$	(1,765)	$	1,206
Service agreements	10	1,131		(663)		468		1,137		(623)		514

Trademarks and trade names	12	760		(388)		372		833		(430)		403
Technology	10	244		(120)		124		264		(129)		135
Other	6	33		(24)		9		193		(174)		19
Total (1)		$	3,968	$	(1,871)	$	2,097	$	5,398	$	(3,121)	$	2,277

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 million and $370 million for~~(1)During the third quarter of fiscal 2024, the Company performed a review of its intangible assets and ~~nine months ended December 31, 2017,~~removed from the balance sheet $1.4 billion of fully amortized gross intangible assets and ~~$102 million and $332 million~~the corresponding accumulated amortization associated with the assets that no longer provide an economic benefit, are no longer in use, or for which the third quarter and nine months ended December 31, 2016. Estimated annual amortization expense of these assets is as follows: $113 million, $437 million, $421 million, $403 million and $370 million for the remainder of 2018 and each of the succeeding years through 2022 and $2,350 million thereafter. related contract has expired.

All intangible assets were subject to amortization as of December 31, ~~2017~~2023 and March 31, ~~2017~~.

~~Refer to Financial Note 4, “Restructuring~~2023. Amortization expense of intangible assets was $62 million and ~~Asset Impairment Charges,”~~$57 million for ~~more information on intangible asset impairment charges recorded~~the three months ended December 31, 2023 and 2022, respectively, and $186 million and $170 million for the nine months ended December 31, 2023 and 2022, respectively. Estimated amortization expense of the assets listed in the ~~second quarter~~table above is as follows: $62 million, $240 million, $208 million, $202 million, and $198 million for the remainder of ~~2018.~~fiscal 2024 and each of the succeeding years through fiscal 2028, respectively, and $1.2 billion thereafter.

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

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

7.Debt and Financing Activities

Long-term debt consisted of the following:


(In millions)	December 31, 2023		March 31, 2023
U.S. Dollar notes (1) (2)
3.80% Notes due March 15, 2024	$	—	$	918
0.90% Notes due December 3, 2025	500		500
5.25% Notes due February 15, 2026	499		499
1.30% Notes due August 15, 2026	499		498
7.65% Debentures due March 1, 2027	150		150
3.95% Notes due February 16, 2028	343		343
4.90% Notes due July 15, 2028	399		—
4.75% Notes due May 30, 2029	196		196
5.10% Notes due July 15, 2033	596		—
6.00% Notes due March 1, 2041	218		218
4.88% Notes due March 15, 2044	255		255
Foreign currency notes (1) (3)
1.50% Euro Notes due November 17, 2025	661		649
1.63% Euro Notes due October 30, 2026	552		542
3.13% Sterling Notes due February 17, 2029	573		555

Lease and other obligations	232		271
Total debt	5,673		5,594
Less: Current portion	48		968
Total long-term debt	$	5,625	$	4,626

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

(2)Interest on these U.S. dollar 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 and British pound sterling) denominated~~currency-denominated borrowings. At December 31, ~~2017~~2023 and March 31, ~~2017, $8,045~~2023, $5.7 billion and $5.6 billion of total debt was outstanding, respectively, of which $48 million and ~~$8,362~~$968 million, ~~of total long-term debt were outstanding, of which $531 million and $1,057 million were~~respectively, was included under the caption “Current portion of long-term debt” ~~within~~in the ~~condensed consolidated balance sheets.~~

~~During the first nine months of 2018, we repaid a €500 million bond that matured on April 26, 2017.~~

Company’s Condensed Consolidated Balance Sheets.

2119

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Notes Offerings

On June 15, 2023, the Company completed a public offering of 4.90% Notes due July 15, 2028 in a principal amount of $400 million (the “2028 Notes”) and a public offering of 5.10% Notes due July 15, 2033 in a principal amount of $600 million (the “2033 Notes” and, together with the 2028 Notes, the “Notes”). Interest on the Notes is payable semi-annually on January 15th and July 15th of each year, commencing on January 15, 2024. Proceeds received from the issuance of the Notes, net of discounts and offering expenses, were $397 million for the 2028 Notes and $592 million for the 2033 Notes. The Company utilized a portion of the net proceeds from the offerings of the Notes to fund the purchase price payable with respect to the portion of the Company’s then outstanding 3.80% Notes due March 15, 2024 (the “2024 Notes”) that was validly tendered and accepted for purchase pursuant to the Concurrent Tender Offer (as defined below) and to effect the satisfaction and discharge of the remaining portion of the 2024 Notes, all of which is described further below. The remaining net proceeds from the offerings of the Notes was available for general corporate purposes.

Each series of the Notes is an unsecured and unsubordinated obligation of the Company and ranks equally with all of the Company’s existing, and future unsecured and unsubordinated indebtedness that may be outstanding from time-to-time. The Notes are governed by an indenture and officers’ certificate that are materially similar to those of other series of notes issued by the Company. Upon at least 10 days’ and not more than 60 days’ notice to holders of the applicable series of the Notes, the Company may redeem either series of the Notes for cash in whole, at any time, or in part, from time to time, at redemption prices that include accrued and unpaid interest and a make-whole premium before a specified date, and at par plus accrued and unpaid interest thereafter until maturity, each as specified in the indenture and the officers’ certificate. If there were to occur both (1) a change of control of the Company and (2) a downgrade of the applicable series of the Notes below an investment grade rating by each of the Ratings Agencies (as defined in the officers’ certificate) within a specified period, then the Company would be required to make an offer to purchase those Notes at a price equal to 101% of the then outstanding principal amount of such Notes, plus accrued and unpaid interest to, but not including, the date of repurchase. The indenture and the related officers’ certificate for the Notes, subject to the exceptions and in compliance with the conditions as applicable, specify that the Company may not consolidate, merge or sell all or substantially all of its assets, incur liens, or enter into sale-leaseback transactions exceeding specific terms, without the lenders’ consent. The indenture also contains customary events of default provisions.

Concurrent Tender Offer

On June 16, 2023, the Company completed a cash tender offer for any and all of its then outstanding 2024 Notes, which was made concurrently with the offerings of the Notes (the “Concurrent Tender Offer”). The Company paid an aggregate consideration of $268 million in the Concurrent Tender Offer to repurchase $271 million principal amount of the 2024 Notes at a repurchase price equal to 98.75% of the principal amount plus accrued and unpaid interest. The repurchase of the 2024 Notes accepted for purchase in the Concurrent Tender Offer was accounted for as a debt extinguishment.

Satisfaction and Discharge of the 2024 Notes

On June 16, 2023, after completing the Concurrent Tender Offer, the Company irrevocably deposited with the trustee under the indenture governing the 2024 Notes (the “2024 Notes Indenture”) U.S. government obligations in an amount sufficient to fund the payment of accrued and unpaid interest of the remaining $647 million principal amount of the 2024 Notes as it becomes due, and of the principal amount of those 2024 Notes on their March 15, 2024 maturity date. The U.S. government obligations were purchased using a portion of the net proceeds from the offerings of the Notes. After the deposit of such funds with the trustee, the Company’s obligations under the 2024 Notes Indenture with respect to the 2024 Notes were satisfied and discharged and the transaction was accounted for as a debt extinguishment.

The total gain recognized on the debt extinguishments described above for the nine months ended December 31, 2023 was $9 million and included within “Interest expense” in the Company’s Condensed Consolidated Statement of Operations.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Revolving Credit Facilities

~~We have~~On November 7, 2022, the Company entered into a Credit Agreement (the “2022 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.~~Euro. The ~~Global~~2022 Credit Facility ~~matures on October 22, 2020. Borrowings under~~was scheduled to mature in November 2027. On November 7, 2023, the ~~Global~~maturity date of the 2022 Credit Facility ~~bear interest based upon~~was extended from November 2027 to November 2028. The 2022 Credit Facility replaced the ~~London Interbank Offered Rate, Canadian Dealer Offered Rate for~~Company’s previous syndicated $4.0 billion five-year senior unsecured credit ~~extensions denominated~~facility, dated as of September 25, 2019, as amended (the “2020 Credit Facility”), which was scheduled to mature in ~~Canadian Dollars, a prime rate, or alternative overnight rates as applicable, plus agreed margins.~~September 2024. The ~~Global~~2020 Credit Facility ~~contains a financial covenant which obligates~~was terminated in connection with the ~~Company to maintain a debt to capital ratio~~execution of ~~no greater than 65% and other customary investment grade covenants. If we do not comply with these covenants, our ability to use~~ the ~~Global Facility may be suspended and repayment of any outstanding balances under the Global Facility may be required. At December 31, 2017, we were in compliance with all covenants.~~2022 Credit Facility. There were no borrowings under ~~this facility~~the 2020 Credit Facility during the ~~third quarters and first~~ nine months ~~of 2018 and 2017,~~ended December 31, 2022, and no amounts outstanding at the time of its termination. There were no borrowings ~~outstanding as of~~under the 2022 Credit Facility during the nine months ended December 31, ~~2017~~2023 and ~~March 31, 2017.~~

We also maintain bilateral credit lines primarily denominated in Euros with a total committed and uncommitted balance of $314 million. Borrowings and repayments were not material during the first nine months of 2018 and 2017. As ofno amounts outstanding at December 31, ~~2017 and March~~2023. At December 31, ~~2017, amounts outstanding~~2023, the Company was in compliance with all covenants under ~~these credit lines were not material.~~the 2022 Credit Facility.

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 months ~~of 2018, we~~ended December 31, 2023, the Company borrowed ~~$12,699 million~~$4.8 billion and repaid ~~$12,133 million~~$4.6 billion under the program. During the ~~first~~ nine months ~~of 2017,~~ended December 31, 2022, the Company borrowed $1.1 billion and repaid $483 million under the program. At December 31, 2023, there were ~~no material commercial paper issuances. As of December 31, 2017 and March 31, 2017, we had $749 million and $183~~$218 million commercial paper notes outstanding ~~with~~included under the caption “Short-term borrowings” in the Company’s Condensed Consolidated Balance Sheets at a weighted average interest rate of ~~2.07% and 1.20%~~5.53%. At March 31, 2023, there were no commercial paper notes outstanding.


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

The net periodic expense for our defined pension benefit plans was $6 million 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.

8.Hedging Activities

Cash contributions to these plans were $5 million and $46 million for the third quarter and first nine months of 2018 and $6 million and $16 million for the third quarter and first nine months of 2017. 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 straight-line over the average remaining future service periods and expected life expectancy.


~~14.~~	~~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~~The Company does not use derivatives for trading or speculative purposes. The Company uses various 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 Canadian dollars, Euro, and British ~~pound sterling and Canadian dollars.~~pounds sterling. 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.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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

~~We have €1.2~~Prior to the divestiture of the E.U. disposal group, 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 were 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~~were designated as net investment hedges and ~~meet~~met effectiveness requirements, the changes in carrying value of the notes attributable to the change in spot rates ~~are~~were recorded as foreign currency translation adjustments in “Accumulated other comprehensive ~~income (loss)~~loss” 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~~were ineffective, changes in carrying value ~~are~~attributable to the change in spot rates were recorded in ~~current~~ earnings. ~~Losses~~

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

In connection with the sale of the E.U. disposal group in October 2022, the Company reclassified $112 million of gains from accumulated other comprehensive loss to“Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2022. This amount related to the €1.1 billion of Euro-denominated notes described above which were de-designated as net investment hedges, ~~recorded~~along with certain other Euro-denominated notes which were previously accounted for as net investment hedges and matured in prior periods, and was included in the fiscal 2023 and fiscal 2022 calculations of charges to remeasure the assets and liabilities of the disposal group to fair value less costs to sell.

In connection with the sale of the U.K. disposal group in April 2022, the Company reclassified $26 million of gains from accumulated other comprehensive loss to “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statement of Operations for the nine months ended December 31, 2022. This amount related to the Company’s £450 million of British pound sterling-denominated notes, which were previously accounted for as net investment hedges until de-designated in fiscal 2020, and was included in the fiscal 2022 calculation of charges to remeasure the assets and liabilities of the disposal group 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 December 31,				Nine Months Ended December 31,
(In millions)	2023		2022		2023		2022
Non-derivatives designated as net investment hedges: (1)
Euro-denominated notes (2)	$	—	$	(132)	$	—	$	7

(1)There was no ineffectiveness in ~~our net investment~~these hedges for the three and nine months ended December 31, 2022.

(2)Includes amounts reclassified to earnings of $112 million for the three and nine months ended December 31, 2022.

Derivative Instruments

At December 31, 2023 and March 31, 2023, the notional amounts of the Company’s outstanding derivatives were as follows:


			December 31, 2023		March 31, 2023
(In millions)	Currency	Maturity Date (1)	Notional
Derivatives designated as net investment hedges: (2)
Cross-currency swaps (3)	CAD	Nov-24 to Mar-25	C$	1,500	C$	1,500

Derivatives designated as fair value hedges: (2)
Cross-currency swaps (4)	GBP	Nov-28	£	450	£	450
Cross-currency swaps (4)	EUR	Aug-25 to Jul-26	€	1,100	€	1,100
Floating interest rate swaps (5)	USD	Feb-26 to Sep-29	$	1,250	$	1,250

Derivatives designated as cash flow hedges: (2)
Cross-currency swaps (3)	CAD	Jan-24	C$	400	C$	400
Foreign currency forwards (6)	GBP	Jan-24 to Jul-25	£	45	£	—
Fixed interest rate swaps (7)	USD	Jun-23	$	—	$	450

(1)The maturity date reflected is for outstanding derivatives as of December 31, ~~2017~~2023.

(2)There was no ineffectiveness in these hedges for the three and ~~March 31, 2017.~~

Atnine months ended December 31, ~~2017~~2023 and ~~March 31, 2017, we had forward contracts~~2022.

(3)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.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

(4)Represents cross-currency fixed-to-fixed interest rate swaps to mitigate the foreign currency exchange fluctuations on its foreign currency-denominated notes.

(5)Represents fixed-to-floating interest rate swaps to hedge the ~~U.S. dollar against~~changes in fair value caused by fluctuations in the benchmark interest rates.

(6)The Company entered into agreements with financial institutions to hedge the variability of foreign currency exchange fluctuations in future cash ~~flows~~payments due to a third party in the United Kingdom for capital expenditures.

(7)The Company entered into agreements with financial institutions to lock in the fixed benchmark interest rate for a future bond issuance, which were terminated during the first quarter of fiscal 2024 as discussed further below.

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~~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 its foreign currency notes resulting from changes in benchmark interest rates and foreign currency exchange rates. The Company also uses interest rate swaps to hedge the changes in the fair value of its U.S. dollar notes resulting from changes in benchmark interest 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. For components excluded from the assessment of hedge effectiveness, the initial value of the excluded component is recognized in accumulated other comprehensive loss and then released into earnings over the life of the hedging instrument. The difference between ~~March 2018~~the change in the fair value of the excluded component and ~~March 2020.~~the amount amortized into earnings during the period is recorded in other comprehensive income.

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 currency exchange ~~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~~rates. The Company also enters into forward contracts to hedge the variability of future benchmark interest rates on any planned bond issuances and ~~cross currency swaps that are designated as cash flow hedges,~~to offset the potential income statement effects from obligations denominated in non-functional currencies. 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 for the three and nine months ended December 31, 2023 and 2022.

During the third quarter of fiscal 2024, the Company entered into foreign currency forward contracts designated as cash flow hedges with a notional amount of £45 million to hedge the variability of foreign currency exchange fluctuations in future cash payments due to a third party for capital expenditures.

The Company entered into forward-starting fixed interest rate swaps designated as cash flow hedges in fiscal 2023 with a notional amount of $450 million, and in the first quarter of fiscal 2024 with a notional amount of $50 million, to hedge the variability of future benchmark interest rates on a planned bond issuance. On June 15, 2023, the Company completed a public offering of the 2033 Notes, at which point the $500 million cash flow hedges were terminated and the proceeds will be amortized to interest expense over the life of the 2033 Notes, or 10 years. Refer to Financial Note 7, “Debt and Financing Activities,” for additional information on the public offering of the 2033 Notes.

During the third ~~quarters~~quarter of fiscal 2023, the Company terminated its $500 million notional fixed interest rate swaps and ~~first nine months~~recognized a gain of ~~2018 and 2017.~~$97 million within “Other income, net” in the Condensed Consolidated Statements of Operations.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Derivatives Not Designated as Hedges

~~At March 31, 2017, we had forward contracts to hedge~~Derivative instruments not designated as hedges are marked-to-market at the ~~U.S. dollar against cash flows denominated~~end of each accounting period with the change in ~~Canadian dollars with total gross notional~~fair value ~~of $173 million. These contracts matured~~included 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 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.~~earnings. 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 ~~were not material for the third quarters and first nine months of 2018 and 2017. The gains or losses from these contracts are largely offset by changes~~administrative expenses” in the Condensed Consolidated Statements of Operations. The Company did not have any outstanding derivative instruments not designated as hedges during the periods presented.

Other Information on Derivative Instruments

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


	Three Months Ended December 31,				Nine Months Ended December 31,
(In millions)	2023		2022		2023		2022
Derivatives designated as net investment hedges:
Cross-currency swaps	$	(27)	$	(7)	$	(20)	$	26

Derivatives designated as cash flow and other hedges:
Cross-currency swaps (1)	$	9	$	(1)	$	36	$	(6)
Foreign currency forwards	(1)		—		(1)		—
Fixed interest rate swaps	(1)		(85)		15		(30)

(1)Includes other comprehensive income (loss) related to the excluded component of certain fair value ~~of the underlying intercompany foreign currency loans.~~

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

hedges.

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	December 31, 2023						March 31, 2023
		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	$	—	$	2	$	679	$	5	$	—	$	301
Cross-currency swaps (non-current)	Other non-current assets/liabilities	138		10		2,382		74		2		2,760



Interest rate swaps (non-current)	Other non-current assets/liabilities	—		22		1,250		1		15		1,700
Foreign currency forwards (current)	Other accrued liabilities	—		1		33		—		—		—
Foreign currency forwards (non-current)	Other non-current liabilities	—		—		24		—		—		—
Total		$	138	$	35			$	80	$	17

Refer to Financial Note ~~15,~~9, "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)

9. 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 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~~2023 and March 31, ~~2017~~2023 included investments in money market funds of ~~$1,066~~$432 million and ~~$478 million,~~$1.4 billion, 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 of ~~our derivatives~~the Company’s interest rate swaps, cross-currency swaps, and foreign currency forward contracts 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~~8, “Hedging Activities,"” for ~~more~~fair values and other information on ~~our derivatives including foreign currency forward contracts~~the Company’s derivatives.

The Company holds investments in equity securities of U.S. growth stage companies that address both current and ~~cross currency swaps.~~

~~There were no transfers between~~emerging business challenges in the healthcare industry and which had a carrying value of $213 million and $237 million at December 31, 2023 and March 31, 2023, respectively. These investments primarily consist of equity securities without readily determinable fair values and are included in “Other non-current assets” in the Condensed Consolidated Balance Sheets. The carrying value of publicly-traded investments, which was not material for the periods presented, was determined using quoted prices for identical investments in active markets and are considered to be Level 1 ~~Level 2 or Level 3~~inputs. The net realized and unrealized gains and losses as well as impairment charges related to these investments are included within “Other income, net” in the Condensed Consolidated Statements of Operations and were not material for the ~~fair value hierarchy during the quarters~~three and nine months ended December 31, ~~2017~~2023 and ~~2016~~.2022.

Assets and 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 or as a result of charges to remeasure assets classified as held for sale to fair value less costs to sell.

At December 31, ~~2017,~~2023 and March 31, 2023, the contingent consideration liability related to the Company’s acquisition of RxSS in November 2022 was measured at fair value on a nonrecurring basis. Refer to Financial Note 2, “Business Acquisitions and Divestitures," for more information on this transaction.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The aforementioned investments in equity securities of U.S. growth stage companies include the carrying value of investments without readily determinable fair values, which were determined using a measurement alternative and are recorded at cost less impairment, plus or minus any changes in observable price from orderly transactions of the same or similar security of the same issuer. These inputs related to changes in observable price 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. Inputs related to impairments of investments are generally considered Level 3 fair value measurements due to their inherently unobservable nature based on significant assumptions by management and use of company-specific information.

There were no other material assets or liabilities measured at fair value on a nonrecurring basis ~~consisted of goodwill~~at December 31, 2023 and ~~intangible assets for our McKesson Europe business within our Distribution Solutions segment, as further discussed below.~~March 31, 2023.

Other Fair Value Disclosures

At December 31, 2023 and March 31, ~~2017,~~2023, the carrying amounts of cash, certain cash equivalents, restricted cash, receivables, drafts and accounts payable, short-term borrowings, and other current assets ~~measured at~~and liabilities approximated their estimated fair values because of the short-term maturity of these financial instruments.

The Company determines the fair value onof 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.

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:


	December 31, 2023				March 31, 2023
(In millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	5,673	$	5,581	$	5,594	$	5,386

The estimated fair value of the Company’s long-term debt was determined using quoted market prices in a ~~nonrecurring basis primarily consisted~~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 ~~goodwill for our EIS business within our Technology Solutions segment.~~

~~Goodwill~~

As discussed in Financial Note 3, “Goodwill Impairment Charges,” we recorded non-cash pre-tax 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 declineactual values that could have been realized or that will be realized in the ~~reporting units’ estimated cash flows.~~future.

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 DCF~~a discounted cash flow (“DCF”) model to determine the fair value of ~~the~~each reporting unit.

~~Intangible~~Long-lived Assets

~~We measure certain long-lived assets at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. If~~The Company utilizes multiple approaches, including the ~~cost of an investment exceeds its fair value, we evaluate, among other factors, our intent to hold the investment, general~~DCF model and market conditions, the duration and extent to which the fair value is less than cost and the financial outlook for the industry and location. An impairment charge is recorded when the cost of the asset exceeds its fair value 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 approachapproaches, 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.

~~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 measuredThe Company measures certain long-lived and intangible assets at fair value on a nonrecurring basis ~~at March 31, 2017.~~when events occur that indicate an asset group may not be recoverable. If the carrying amount of an asset group is not recoverable, an impairment charge is recorded to reduce the carrying amount by the excess over its fair value.

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

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

10.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 17 to the Company’s 2023 Annual Report, Financial Note 10 to the Company’s 10-Q filing for the quarterly period ended June 30, 2023, and Financial Note 10 to the Company’s 10-Q filing for the quarterly period ended September 30, 2023, 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 the likelihood of loss has changed and~~opioid-related litigation matters, as well as any applicable income items or credit adjustments due to assess whether a reasonable estimate of the loss or range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss 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 possible to reasonably estimate a range of potential loss and boundaries of high and lowsubsequent changes in estimates.

~~Significant developments in previously reported proceedings~~I. Litigation and ~~in other litigation~~Claims Involving Distribution of Controlled Substances

The Company 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 couldits affiliates have ~~a material adverse impact on our financial position or results of operations.~~

~~Litigation, Government Subpoenas and Investigations~~

~~As previously reported, the Company is a defendant~~been sued as defendants in many cases ~~alleging~~asserting claims related to ~~the~~ distribution of controlled ~~substances to pharmacies, often together~~substances. They have been named as defendants along with other pharmaceutical wholesale distributors, ~~and~~ pharmaceutical manufacturers, and retail ~~pharmacy chains named as defendants.~~pharmacies. The ~~Company has~~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 ~~served with 192 complaints~~ filed in state and federal courts throughout the U.S., and 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 VirginiaPuerto Rico 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~~Canada. They have sought monetary damages and ~~equitable relief. On December 5, 2017, the cases pending in federal district courts were transferred to~~other forms of relief based on a ~~multi-district litigation proceeding in the United States District Court for the Northern District~~variety 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~~causes of action, including negligence, public nuisance, unjust enrichment, 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~~civil conspiracy, as ~~a nominal defendant,~~well as alleging violations of ~~fiduciary duties relating to~~ the ~~Company’s previously disclosed agreement with the DEA~~Racketeer Influenced and ~~the Department of Justice~~Corrupt Organizations Act (“RICO”), state 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~~federal controlled substances ~~were consolidated in~~laws, and other statutes. Because of the ~~United States District Court~~many uncertainties associated with opioid-related litigation matters, the Company is not able to conclude that a liability is probable or provide a reasonable estimate for the ~~Northern District~~range of ~~California as~~ ~~In re McKesson Corporation Derivative Litigation, No. 4:17-cv-1850. On January 5, 2018, the defendants moved to dismiss the consolidated suit.~~

ultimate possible loss for opioid-related litigation matters other than those for which an accrual is described below.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

State and Local Government Claims

~~As previously disclosed, Chaile Steinberg,~~The Company and two other national pharmaceutical distributors (collectively “Distributors”) entered into a ~~purported shareholder, filed a shareholder derivative complaint~~settlement agreement (the “Settlement”) and consent judgment with 48 states and their participating subdivisions, as well as the District of Columbia and all eligible territories (the “Settling Governmental Entities”). Approximately 2,300 cases have been dismissed. The Distributors did not admit liability or wrongdoing and do not waive any defenses pursuant to the Settlement. Under the Settlement, the Company has paid the Settling Governmental Entities approximately $1.5 billion as of December 31, 2023, and additionally will pay the Settling Governmental Entities up to approximately $6.3 billion through 2038. A minimum of 85% of the Settlement payments must be used by state and local governmental entities to remediate the opioid epidemic, while the remainder relates to plaintiffs’ attorneys’ fees and costs and will be paid out through 2030. Pursuant to the Settlement, the Distributors are in the ~~Court~~process of ~~Chancery~~establishing 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. Alabama and West Virginia did not participate in the ~~State of Delaware against certain officers~~Settlement. Under a separate settlement agreement with Alabama and ~~directors of~~its subdivisions, the Company has paid approximately $61 million as of December 31, 2023, and additionally will pay approximately $113 million through 2031. The Company previously settled with the state of West Virginia in 2018, so West Virginia and its subdivisions were not eligible to participate in the Settlement. Under a separate settlement agreement, the Company has paid certain West Virginia subdivisions approximately $38 million as of December 31, 2023. The Company also paid $15 million in January 2024 and will pay approximately $99 million through 2033. That agreement does not include school districts or the claims of Cabell County and the ~~Company as~~City of Huntington. After a ~~nominal defendant, alleging violations~~trial, the claims of ~~fiduciary duties relating to~~Cabell County and the City of Huntington, were decided in the Company’s ~~previously disclosed agreement with~~favor on July 4, 2022. Those subdivisions appealed that decision.

Some other state and local governmental subdivisions did not participate in the ~~DEA~~Settlement, including certain municipal governments, government hospitals, school districts, and government-affiliated third-party payors. The Company contends that those subdivisions’ claims are foreclosed by the ~~Department~~Settlement or other dispositive defenses, but the subdivisions contend that their claims are not foreclosed. The City of ~~Justice~~Baltimore, Maryland, is one such subdivision, and ~~various United States Attorneys’ offices~~a trial of its claims is scheduled 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~~begin September 26, 2024. The district attorneys of the City of ~~Detroit~~Philadelphia, Pennsylvania, and Allegheny County, Pennsylvania did not participate in the settlement and sought to bring separate claims against the Company, notwithstanding the settlement with the state of Pennsylvania and its attorney general. On January 26, 2024, the Commonwealth Court of Pennsylvania ruled that the Pennsylvania attorney general had settled and fully released the claims brought by those district attorneys under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. An accrual for the remaining governmental subdivision claims is reflected in the total estimated liability for opioid-related claims in a manner consistent with how Settlement amounts were allocated to Settling Governmental Entities.

Native American Tribe Claims

The Company also entered into settlement agreements for opioid-related claims of federally recognized Native American tribes. Under those agreements, the Company has paid the settling Native American tribes approximately $84 million as of December 31, 2023, and additionally will pay approximately $112 million through 2027. A minimum of 85% of the total settlement payments must be used by the settling Native American tribes to remediate the opioid epidemic.

The Company’s estimated accrued liability for the opioid-related claims of U.S. governmental entities, including Native American tribes, was as follows:


(In millions)	December 31, 2023		March 31, 2023
Current litigation liabilities (1)	$	516	$	548
Long-term litigation liabilities	6,128		6,625

Total litigation liabilities	$	6,644	$	7,173

(1)These amounts, 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.

During the nine months ended December 31, 2023, the Company made payments totaling $529 million associated with the Settlement and the separate settlement agreements for opioid-related claims discussed above.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Non-Governmental Plaintiff Claims

The Company is also a defendant in approximately 400 opioid-related cases brought in the U.S. by private plaintiffs, such as hospitals, health and welfare funds, third-party payors, and individuals. These claims, and those of private entities generally, are not included in the settlement agreements described above or in the charges recorded by the Company.

One such case was brought by a group of individual plaintiffs in Glynn County, Georgia Superior Court seeking to recover for damages allegedly arising from their family members’ abuse of prescription opioids. Poppell v. ~~McKessson~~Cardinal Health, Inc., CE19-00472. On March 1, 2023, the jury in that case returned a verdict in favor of the defendants, including the Company. Plaintiffs have appealed. In another case, several hospitals brought suit in the Circuit Court of Conecuh County, Alabama, seeking damages based on the cost of, and profits lost from, treating patients addicted to opioids; trial on the claims of eight of these hospitals is currently scheduled for July 8, 2024. Fort Payne Hospital Corporation et al. v. McKesson Corp., CV-2021-900016.

Canadian Plaintiff Claims

The Company and its Canadian affiliate are also defendants in four opioid-related cases pending in Canada. These cases involve the claims of the provincial governments, a group representing indigenous people, as well as one case brought by an individual.

Defense of Opioids Claims

The Company believes it has valid legal defenses in all opioid-related matters, including claims not covered by settlement agreements, and it intends to mount a vigorous defense in such matters. Other than the settlement agreements and the U.S. governmental subdivision claims described above, the Company has not concluded a loss is probable in any of the matters; nor is any possible loss or range of loss reasonably estimable. An adverse judgment or negotiated resolution in any of these matters could have a material adverse impact on the Company’s financial position, cash flows or liquidity, or results of operations.

Insurance Coverage Litigation

Two cases pending in the Northern District of California were filed against McKesson by its liability umbrella insurers about policies they issued to the Company for the period 1999-2017, AIU Insurance Company and National Union Fire Insurance Company of Pittsburgh, Pa. (together "AIG") and ACE Property and Casualty Insurance Company ("ACE"). AIU Insurance Company et al. v. McKesson Corporation, No. ~~2017-0803,~~3:20-cv-07469 (N.D. Cal.) was initiated by AIG in the Northern District of California on October 23, 2020. Ace Property and ~~Amalgamated Bank~~Casualty Insurance Company v. McKesson Corporation et al., No. ~~2017-0881. The~~3:20-cv-09356 (N.D. Cal.) was brought by ACE in California state court on November 2, 2020, and was removed by McKesson to federal court, transferred to the Northern District of California, and designated as related to the AIU action. AIG and ACE are seeking declarations that they have no duty to defend or indemnify McKesson in the thousands of lawsuits filed in federal and state courts related to opioids. In both actions, McKesson has asserted claims under the AIG and ACE policies seeking declarations and damages for past and future defense and indemnity costs. On April 5, 2022, the court issued an order granting partial summary judgment to the insurers that the Company’s costs of defending against certain opioid-related litigation, such as legal fees, were not covered by two of the insurance policies. That partial summary judgment order was affirmed by the U.S. Court of ~~Chancery consolidated these three actions and~~Appeals for the ~~plaintiffs designated the complaint in the~~ ~~Steinberg~~ ~~action as the operative complaint~~Ninth Circuit on January ~~11, 2018. The consolidated matter is captioned~~ ~~In re McKesson Corporation Stockholder Derivative Litigation,~~ No. 2017-0736. The defendants filed a motion to dismiss this action 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.~~26, 2024.

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 rulingII. 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 ~~Company’s 2017 Annual Report on Form 10-K and previously filed 10-Qs.~~ordinary course of business.

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~~17.~~	~~Stockholders’ Equity~~

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

11. Stockholders' Deficit

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

OnIn July ~~26, 2017,~~2023, the ~~Company’s~~ quarterly dividend was raised from ~~$0.28~~$0.54 to ~~$0.34~~$0.62 per share of common ~~share~~stock 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, legal requirements, and other factors.

Share Repurchase Plans

~~Stock~~The Board has authorized the repurchase of common stock. The Company may affect stock repurchases ~~may be made~~ from ~~time to time in~~time-to-time through 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, tax implications, restrictions under ~~our~~the Company’s debt obligations, other uses for capital, impacts on the value of remaining shares, and ~~other~~ market and economic conditions. The ASR programs discussed below were designed to comply with Rule 10b5-1(c).

Effective January 1, 2023, the Company’s repurchase of common stock, adjusted for allowable items, are subject to a 1% excise tax as a result of the IRA. Excise taxes incurred on share repurchases of an entity’s own common stock are direct and incremental costs to purchase treasury stock, and accordingly are included in the total cost basis of the common stock acquired and reflected as a reduction of stockholders’ equity within “Treasury shares” in the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Stockholders’ Deficit. Excise taxes do not reduce the Company’s remaining authorization for the repurchase of common stock.

During the three months ended December 31, 2023, the Company repurchased 1.9 million shares of common stock for $868 million through open market transactions at an average price per share of $457.16, of which $41 million was accrued within “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheet for share repurchases that were executed in late December 2023 and settled in early January 2024. During the three months ended September 30, 2023, the Company repurchased 2.0 million shares of common stock for $840 million through open market transactions at an average price per share of $422.39. During the three months ended June 30, 2023, the Company repurchased 1.8 million shares of common stock for $673 million through open market transactions at an average price per share of $379.14. Excise taxes of $8 million and $20 million were incurred for the three and nine months ended December 31, 2023, respectively, and $20 million was accrued within “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheet for shares repurchased during the first nine months of fiscal 2024. As of March 31, 2023, the Company had $27 million accrued within “Other accrued liabilities” for share repurchases that were executed in late March 2023, which settled in early April 2023.

During the three months ended December 31, 2022, the Company repurchased 2.7 million shares of common stock for $1.0 billion through open market transactions at an average price per share of $370.13. During the three months ended September 30, 2022, the Company repurchased 1.5 million shares of common stock for $524 million through open market transactions at an average price per share of $355.75. There were no open market share repurchases during the three months ended June 30, 2022.

In ~~March 2017, we~~December 2022, the Company entered into an ASR program with a third-party financial institution to repurchase ~~$250~~$972 million shares of ~~the Company’s~~ common ~~stock and~~stock. The total number of shares repurchased under this ASR program was 2.6 million shares at an average price per share of $369.20. The Company received ~~1.4~~2.2 million shares as the initial share ~~settlement.~~ settlement, and in February 2023, the Company received an additional 0.4 million shares upon the completion of this ASR program.

In ~~April 2017, we~~May 2022, the Company entered into an ASR program with a third-party financial institution to repurchase $1.0 billion shares of common stock. The total number of shares repurchased under this ASR program was 3.1 million shares at an average price per share of $321.05. The Company received 2.6 million shares as the initial share settlement, and in August 2022, the Company received an additional 0.5 million shares upon the completion of this ASR program.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

In February 2022, the Company entered into an ASR program with a third-party financial institution to repurchase $1.5 billion shares of 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 4.8 million shares as the initial share settlement in 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 July 2023, the Board approved an increase of $6.0 billion in the authorization for the repurchase of common stock. The total remaining authorization outstanding for repurchases of common stock at December 31, 2023 was $7.3 billion.

Accumulated Other Comprehensive Loss

Information regarding changes in accumulated other comprehensive loss, including noncontrolling interests, by components for the three months ended December 31, 2023 and 2022 was as follows:


	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 (Losses) on Cash Flow and Other Hedges, Net of Tax		Unrealized Losses and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance, September 30, 2023	$	(864)	$	(9)		$	(4)	$	(10)	$	(887)
Other comprehensive income (loss) before reclassifications	92		(20)		⁽²⁾	5		(1)		76
Amounts reclassified to earnings and other	—		—			—		(1)		(1)
Other comprehensive income (loss)	92		(20)			5		(2)		75
Less: amounts attributable to noncontrolling interests	—		—			—		—		—
Other comprehensive income (loss) attributable to McKesson	92		(20)			5		(2)		75

Balance, December 31, 2023	$	(772)	$	(29)		$	1	$	(12)	$	(812)

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

(2)Amounts recorded for the three months ended December 31, 2023 include losses of $27 million related to net investment hedges from cross-currency swaps, which are net of income tax benefit of $7 million.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains (Losses) on Cash Flow and Other Hedges, Net of Tax		Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance, September 30, 2022	$	(1,254)	$	109		$	63	$	(32)	$	(1,114)
Other comprehensive income (loss) before reclassifications	96		(5)			8		18		117
Amounts reclassified to earnings and other (2)	280		(119)			(73)		10		98
Other comprehensive income (loss)	376		(124)		(3)	(65)		28		215
Less: amounts attributable to noncontrolling interests	—		—			—		—		—
Other comprehensive income (loss) attributable to McKesson	376		(124)			(65)		28		215

Balance, December 31, 2022	$	(878)	$	(15)		$	(2)	$	(4)	$	(899)

~~In June 2017 and August 2017, we entered into two separate ASR programs with third-party~~(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 Canada and Europe into the ~~first nine months~~Company’s reporting currency, U.S. dollars.

(2)Primarily includes adjustments for amounts related to the divestiture of ~~2018, we received a total~~the E.U. disposal group in October 2022, including the impact of ~~1.5 million shares under~~amounts previously attributed to the ~~June 2017 ASR program~~noncontrolling interest in McKesson Europe, as discussed in more detail in Financial Note 2, “Business Acquisitions and ~~a total of 2.7 million shares under the August 2017 ASR program. The June 2017 ASR program was completed~~Divestitures.” These amounts were included in the ~~second quarter~~fiscal 2023 and fiscal 2022 calculations of ~~2018~~charges to remeasure the assets and liabilities of the ~~August 2017 ASR program was completed~~disposal group to fair value less costs to sell recorded within “Selling, distribution, general, and administrative expenses” in the ~~third quarter~~Consolidated Statements of ~~2018.~~Operations. Amounts reclassified to earnings and other includes a net income tax impact of $22 million.

~~In November 2017, we repurchased 1.8 million of~~(3)Amounts recorded for 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~~three months ended December 31, ~~2017.~~2022 include losses of $132 million related to net investment hedges from Euro-denominated notes and losses of $7 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax benefit of $15 million.

~~Other Comprehensive Income (Loss)~~

Information regarding changes in accumulated other comprehensive ~~income (loss)~~loss, including ~~redeemable~~ noncontrolling interests, ~~net of tax,~~ by ~~component is~~components for the nine months ended December 31, 2023 and 2022 was 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 )


~~(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.


	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 (Losses) on Cash Flow and Other Hedges, Net of Tax		Unrealized Losses and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance, March 31, 2023	$	(847)	$	(14)		$	(36)	$	(8)	$	(905)
Other comprehensive income (loss) before reclassifications	75		(15)		⁽²⁾	37		(2)		95
Amounts reclassified to earnings and other	—		—			—		(2)		(2)
Other comprehensive income (loss)	75		(15)			37		(4)		93
Less: amounts attributable to noncontrolling interests	—		—			—		—		—
Other comprehensive income (loss) attributable to McKesson	75		(15)			37		(4)		93
Balance, December 31, 2023	$	(772)	$	(29)		$	1	$	(12)	$	(812)

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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

~~(4)~~

~~The first nine months of 2017 includes net foreign currency translation~~

(2)Amounts recorded for the nine months ended December 31, 2023 include 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 related to net investment hedges from cross-currency swaps, 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.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~Accumulated Other Comprehensive Income (Loss)~~

~~Information regarding changes in our accumulated other comprehensive income (loss),~~ net of income tax ~~by component~~benefit of $5 million.


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax (1)		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax			Unrealized Gains (Losses) on Cash Flow and Other Hedges, Net of Tax		Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance, March 31, 2022	$	(1,504)	$	10		$	27	$	(67)	$	(1,534)
Other comprehensive income (loss) before reclassifications	(360)		111			44		32		(173)
Amounts reclassified to earnings and other (2)	1,027		(136)			(73)		34		852
Other comprehensive income (loss)	667		(25)		(3)	(29)		66		679
Less: amounts attributable to noncontrolling interests	41		—			—		3		44
Other comprehensive income (loss) attributable to McKesson	626		(25)			(29)		63		635

Balance, December 31, 2022	$	(878)	$	(15)		$	(2)	$	(4)	$	(899)

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

(2)Primarily includes adjustments for amounts related to the divestitures of the E.U. disposal group in October 2022, including the impact of amounts previously attributed to the noncontrolling interest in McKesson Europe, and U.K. disposal group in April 2022, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.” These amounts were included in the fiscal 2023 and fiscal 2022 calculations of charges to remeasure the assets and liabilities of the disposal groups to fair value less costs to sell recorded within “Selling, distribution, general, and administrative expenses” in the Consolidated Statements of Operations. Amounts reclassified to earnings and other includes a net income tax impact of $6 million.

(3)Amounts recorded for the ~~third quarter and first~~ nine months ended December 31, 2022 include gains of ~~2018 is as follows:~~$7 million related to net investment hedges from Euro-denominated notes and gains of $26 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax expense of $32 million and gains of $26 million reclassified to earnings related to previously de-designated British pound sterling notes.

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 )
12. 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 )

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


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

~~We currently report our operations~~The Company reports its financial results in ~~two operating~~four 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 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 in the U.S. This segment 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 sites) and provides consulting, outsourcing, technological, and other services.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The RxTS segment helps solve medication access, affordability, and adherence challenges for patients by working across healthcare to connect patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies. RxTS serves our biopharma and life sciences partners, delivering innovative solutions that help people get the medicine they need to live healthier lives. RxTS also offers prescription price transparency, benefit insight, dispensing support services, 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 national brand medical-surgical products as well as McKesson’s own line of high-quality products through a network of distribution centers in the U.S.

The International segment includes the Company’s operations in Canada and Europe, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. The Company’s Canadian operations deliver medicines, supplies, and information technology solutions throughout Canada and includes Rexall Health retail pharmacies. The Company completed the divestitures of the U.K. disposal group in April 2022 and the E.U. disposal group in October 2022, as discussed in Financial Note 2, “Business Acquisitions and Divestitures.” The Company’s remaining operations in Europe provide distribution and services to wholesale and retail customers in Norway where it owns, partners, or franchises with retail pharmacies.

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


	Three Months Ended December 31,				Nine Months Ended December 31,
(In millions)	2023		2022		2023		2022
Segment revenues (1)
U.S. Pharmaceutical	$	73,023	$	61,934	$	209,949	$	178,940
Prescription Technology Solutions	1,205		1,121		3,589		3,205
Medical-Surgical Solutions	3,031		2,986		8,476		8,421
International	3,639		4,449		10,582		17,235
Total revenues	$	80,898	$	70,490	$	232,596	$	207,801

Segment operating profit (2)
U.S. Pharmaceutical (3)	$	307	$	850	$	1,727	$	2,442
Prescription Technology Solutions (4)	178		136		647		400
Medical-Surgical Solutions	268		328		739		883
International (5)	126		136		249		93
Subtotal	879		1,450		3,362		3,818
Corporate expenses, net (6)	(203)		67		(571)		49

Interest expense	(64)		(69)		(172)		(169)
Income from continuing operations before income taxes	$	612	$	1,448	$	2,619	$	3,698

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 approximately 1% of the U.S. Pharmaceutical segment’s total revenues, less than 38% of the RxTS segment’s total revenues, less than 2% of the Medical-Surgical Solutions segment’s total revenues, and less than 1% of the International segment’s total revenues. The International segment reflects foreign revenues. Revenues for the remaining three reportable segments are derived in the U.S.

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

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FINANCIAL NOTES (CONCLUDED)

(UNAUDITED)

(3)The Company’s U.S. Pharmaceutical segment’s operating profit includes the following:

~~As previously disclosed in our Quarterly Report on Form 10-Q~~•a provision for bad debts of $515 million and $725 million for the ~~quarter~~three and nine months ended ~~September 30, 2017, on January 2, 2018,~~December 31, 2023, respectively, related to the ~~Executive Vice President and Group President who was our segment manager~~bankruptcy of the ~~Distribution Solutions segment retired from~~Company’s customer, Rite Aid Corporation (including certain of its subsidiaries, “Rite Aid”). In October 2023, Rite Aid filed a voluntary petition for reorganization under Chapter 11 of the ~~Company.~~Bankruptcy Code. As a result, the ~~Company’s chief operating decision maker is currently evaluating our management and operating structure. We anticipate this evaluation will result~~Company recognized a provision for bad debts of $515 million in ~~a change in our existing operating segment structure, commencing with our first~~the third quarter of ~~2019.~~fiscal 2024 for uncollected trade accounts receivable from sales to Rite Aid in October 2023 prior to its bankruptcy petition filing. The Company also recognized a provision for bad debts of $210 million during the second quarter of fiscal 2024, which represented the uncollected trade accounts receivable balance as of September 30, 2023 due from Rite Aid. These charges were recorded within “Selling, distribution, general, and administrative expenses” in the Company’s Condensed Consolidated Statements of Operations;

•cash receipts for the Company’s share of antitrust legal settlements of $23 million and $129 million for the three months ended December 31, 2023 and 2022, respectively, and $220 million and $129 million for the nine months ended December 31, 2023 and 2022, respectively. These gains were recorded within “Cost of sales” in the Company’s Condensed Consolidated Statements of Operations;

•charges of $2 million and $5 million related to the last-in, first-out (“LIFO”) method of accounting for inventories for the three months ended December 31, 2023 and 2022, respectively, and a charge of $89 million and a credit of $31 million for the nine months ended December 31, 2023 and 2022, respectively. These charges and credits were recorded within “Cost of sales” in the Company’s Condensed Consolidated Statements of Operations; and

•a gain of $142 million for the nine months ended December 31, 2022 related to the exit of one of the Company’s investments in equity securities in July 2022 for proceeds of $179 million, which was recorded within “Other income, net” in the Company’s Condensed Consolidated Statements of Operations.

(4)The Company’s RxTS segment’s operating profit for the three and nine months ended December 31, 2023 includes fair value adjustment gains of $2 million and $78 million, respectively, which reduced the Company’s contingent consideration liability related to the RxSS acquisition, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.”

(5)The Company’s International segment’s operating profit for the three and nine months ended December 31, 2022 includes charges of $3 million and $240 million, respectively, to remeasure the 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, “Business Acquisitions and Divestitures.”

(6)Corporate expenses, net includes the following:

•restructuring charges of $50 million and $38 million for the nine months ended December 31, 2023 and 2022, respectively, for restructuring initiatives as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges, Net;”

•gains of $34 million and $306 million for the three and nine months ended December 31, 2022, respectively, 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, “Business Acquisitions and Divestitures;”

•a gain of $126 million for the three and nine months ended December 31, 2022 related to a cash payment received for the early termination of a tax receivable agreement exercised by Change Healthcare Inc. and was recorded within “Other income, net” in the Condensed Consolidated Statements of Operations; and

•a gain of $97 million for the three and nine months ended December 31, 2022 from the termination of fixed interest rate swaps accounted for as cash flow hedges, as discussed in more detail in Financial Note 8, “Hedging Activities.”

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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~~2023 previously filed with the ~~SEC~~Securities and Exchange Commission (the “SEC”) on May ~~22, 2017~~9, 2023 (“~~2017~~2023 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 financial 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, as well as 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 (loss) before interest expense and income taxes.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

The following summarizes our four reportable segments. Refer to Financial Note 12, “Segments of Business,” to the accompanying condensed consolidated financial statements included in this Quarterly Report 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 in the United States (“U.S.”). 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 sites) 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 ecosystems to connect patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies to address patients’ medication access, affordability, and adherence challenges. RxTS also offers prescription price transparency, benefit insight, dispensing support services, third-party logistics, and wholesale distribution support across various therapeutic categories and temperature ranges to biopharma customers throughout the product lifecycle.

•Medical-Surgical Solutions is a reportable segment that provides medical-surgical supply distribution, logistics, and other services to healthcare providers in the U.S., including physician offices, surgery centers, nursing homes, hospital reference labs, and home health care agencies. This segment offers 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.

•International is a reportable segment that includes our operations in Canada and Europe, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. Our operations in Canada deliver medicines, supplies, and information technology solutions throughout Canada and includes Rexall Health pharmacies. During fiscal 2023, we completed transactions to sell certain of our businesses in the European Union (“E.U. disposal group”), and our retail and distribution businesses in the United Kingdom (“U.K. disposal group”). Our remaining operations in Europe provide distribution and services to wholesale and retail customers in Norway where we own, partner, or franchise with retail pharmacies. Refer to Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information regarding these divestiture transactions.

Executive Summary:

The following summary provides highlights and key factors that impacted our business, operating results, financial condition, and liquidity for the three and nine months ended December 31, 2023:

•For the three months ended December 31, 2023 compared to the prior year, revenues increased by 15%, gross profit decreased by 1%, total operating expenses increased by 30%, and other income, net decreased by $242 million. For the nine months ended December 31, 2023 compared to the prior year, revenues increased by 12%, gross profit decreased by 1%, total operating expenses increased by 11%, and other income, net decreased by $368 million. 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 decreased to $4.42 from $7.65 for the three months ended December 31, 2023 and decreased to $16.39 from $19.32 for the nine months ended December 31, 2023 compared to the respective prior year periods;

•For the three and nine months ended December 31, 2023, we recorded a provision for bad debts of $515 million and $725 million, respectively, related to the bankruptcy of our customer, Rite Aid Corporation (including certain of its subsidiaries, “Rite Aid”), in October 2023. Refer to the “Trends and Uncertainties” section below for more information;

•We received $23 million and $220 million for the three and nine months ended December 31, 2023, respectively, related to our share of antitrust legal settlements. These amounts were recorded as a gain within "Cost of sales" in the Condensed Consolidated Statements of Operations within our U.S. Pharmaceutical segment;

•For the three and nine months ended December 31, 2023, we recognized a discrete tax benefit of $154 million related to the release of a valuation allowance based on ~~Form 10-Q.~~

management’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized;

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

•For the nine months ended December 31, 2023, we recognized a net discrete tax benefit of $147 million related to the repatriation of certain intellectual property between McKesson wholly-owned legal entities that are based in different tax jurisdictions;

•During the three and nine months ended December 31, 2023, we recorded fair value adjustment gains of $2 million and $78 million, respectively, related to the contingent consideration liability recognized as part of our acquisition of Rx Savings Solutions, LLC. The gains, within Prescription Technology Solutions, resulted from remeasurement of the liability to fair value at the end of each reporting period based on the estimated amount and timing of projected operational and financial information and the probability of achievement of performance milestones;

•On June 15, 2023, we completed a public offering of 4.90% Notes due July 15, 2028 in a principal amount of $400 million and 5.10% Notes due July 15, 2033 in a principal amount of $600 million, for proceeds received, net of discounts and offering expenses, of $397 million and $592 million, respectively. A portion of the net proceeds from these offerings was utilized to fund the repurchase of our 3.80% Notes due March 15, 2024 (the “2024 Notes”) discussed below, while the remaining net proceeds was available for general corporate purposes;

•On June 16, 2023, we completed a cash tender offer for any and all of the 2024 Notes with a principal amount of $918 million, which was made concurrently with the June 15, 2023 notes offering described above. Using a portion of the net proceeds from the June 15, 2023 notes offering described above, we paid an aggregate consideration of $268 million to repurchase $271 million of principal amount of the 2024 Notes plus any accrued and unpaid interest;

•Following the consummation of the cash tender offer discussed above, on June 16, 2023, we irrevocably deposited U.S. government obligations with the trustee under the indenture governing the 2024 Notes sufficient to fund the payment of accrued and unpaid interest of the remaining $647 million principal amount of the 2024 Notes as it becomes due, and of the principal amount of those 2024 Notes on their March 15, 2024 maturity date. Refer to Financial Note 7, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information; and

•We returned $2.6 billion of cash to shareholders during the nine months ended December 31, 2023 through $2.3 billion of common stock repurchases through open market transactions and $232 million of dividend payments. In July 2023, our Board of Directors (the “Board”) approved an increase of $6.0 billion in the authorization for repurchase of the Company’s common stock and raised our quarterly dividend to $0.62 from $0.54 per share of common stock. The total remaining authorization outstanding for repurchases of the Company’s common stock at December 31, 2023 was $7.3 billion.

Trends and Uncertainties:

Legislative Developments

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “IRA”). Among other provisions, the IRA includes a 15% corporate minimum tax, a 1% excise tax on certain repurchases of an entity’s own common stock after December 31, 2022, and various drug pricing reforms. We do not anticipate that this legislation will have a material impact on our consolidated financial statements or related disclosures; however, we continue to evaluate the impact of these legislative changes. Refer to Financial Note 11, “Stockholders' Deficit,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further details regarding excise taxes incurred on our share repurchases during the three and nine months ended December 31, 2023.

COVID-19

The U.S. federal government and World Health Organization suspended their respective public health emergencies in regards to the SARS-CoV-2 coronavirus (“COVID-19”) in May 2023. In the second quarter of fiscal 2024, we began transitioning the distribution of COVID-19 vaccines to commercial channels, the results of which are included primarily within our U.S. Pharmaceutical and Medical-Surgical Solutions segments. The impacts from COVID-19 related items were not material to revenues and operating profit for the three and nine months ended December 31, 2023. For additional disclosure of trends and uncertainties due to COVID-19, refer to Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Overview:~~ in Part II of our 2023 Annual Report.


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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 ) %
Opioid-Related Litigation and Claims

As described in the discussion of opioid-related matters in Financial Note 10, “Commitments and Contingent Liabilities,” to the condensed consolidated financial statements accompanying this Quarterly Report, 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. The Company believes it has valid legal defenses in all opioid-related matters, including claims not covered by settlement agreements, and it intends to mount a vigorous defense. Other than as to the settlement agreements and the U.S. governmental subdivision claims described in Financial Note 10, the Company has not concluded a loss is probable in any of the matters; nor is any possible loss or range of loss reasonably estimable. An adverse judgment or negotiated resolution in any of these matters could have a material adverse impact on the Company’s financial position, cash flows or liquidity, or results of operations. During the nine months ended December 31, 2023, the Company made payments totaling $529 million associated with various settlement agreements for opioid-related claims of states, subdivisions, and Native American tribes. Our total estimated liability for opioid-related claims was $6.6 billion as of December 31, 2023, of which $516 million was included within “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.

Rite Aid Bankruptcy Proceedings

In October 2023, our customer Rite Aid filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. As a result, we recorded provisions for bad debts of $515 million and $725 million during the three and nine months ended December 31, 2023, respectively. The provision for bad debts of $515 million recorded in the third quarter of fiscal 2024 related to uncollected trade accounts receivable from sales to Rite Aid in October 2023 prior to its bankruptcy petition filing. During the second quarter of fiscal 2024, we recorded a provision for bad debts of $210 million, which represented the uncollected trade accounts receivable balance as of September 30, 2023 due from Rite Aid. These charges were recorded within “Selling, distribution, general, and administrative expenses” in the Company’s Condensed Consolidated Statements of Operations and included within the U.S. Pharmaceutical segment.

We believe the reserves maintained and expenses recorded in fiscal 2024 for Rite Aid trade accounts receivable are appropriate and consistent with our accounting policy and assessment of the information currently available. We evaluate our reserves periodically and as circumstances warrant which may result in changes to our reserves. For additional disclosure of our policy regarding allowances for credit losses, refer to the “Critical Accounting Estimates” section within Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of our 2023 Annual Report.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

RESULTS OF OPERATIONS

Overview of Consolidated Results:


(Dollars in millions, except per share data)	Three Months Ended December 31,								Nine Months Ended December 31,
	2023			2022			Change		2023			2022			Change
Revenues	$	80,898		$	70,490		15	%	$	232,596		$	207,801		12	%
Gross profit	3,152			3,174			(1)		9,243			9,292			(1)
Gross profit margin	3.90		%	4.50		%	(60)	bp	3.97		%	4.47		%	(50)	bp
Total operating expenses	$	(2,510)		$	(1,933)		30	%	$	(6,550)		$	(5,891)		11	%
Total operating expenses as a percentage of revenues	3.10		%	2.74		%	36	bp	2.82		%	2.83		%	(1)	bp
Other income, net	$	34		$	276		(88)	%	$	98		$	466		(79)	%

Interest expense	(64)			(69)			(7)		(172)			(169)			2
Income from continuing operations before income taxes	612			1,448			(58)		2,619			3,698			(29)
Income tax benefit (expense)	18			(329)			105		(289)			(799)			(64)
Reported income tax rate	(2.9)		%	22.7		%	(2,560)	bp	11.0		%	21.6		%	(1,060)	bp
Income from continuing operations	$	630		$	1,119		(44)	%	$	2,330		$	2,899		(20)	%
Income (loss) from discontinued operations, net of tax	—			1			(100)		—			(3)			(100)
Net income	630			1,120			(44)		2,330			2,896			(20)
Net income attributable to noncontrolling interests	(41)			(41)			—		(119)			(123)			(3)
Net income attributable to McKesson Corporation	$	589		$	1,079		(45)	%	$	2,211		$	2,773		(20)	%

Diluted earnings (loss) per common share attributable to McKesson Corporation
Continuing operations	$	4.42		$	7.65		(42)	%	$	16.39		$	19.32		(15)	%
Discontinued operations	—			0.01			(100)		—			(0.02)			(100)
Total	$	4.42		$	7.66		(42)	%	$	16.39		$	19.30		(15)	%

Weighted-average diluted common shares outstanding	133.3			141.0			(5)	%	134.9			143.7			(6)	%

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

bp - basis points

~~NM - not meaningful~~


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Revenues

Revenues increased for ~~2018~~the three and nine months ended December 31, 2023 compared to ~~2017 primarily~~the same prior year periods largely due to market growth in our ~~business acquisitions~~U.S. Pharmaceutical segment, including higher volumes from retail national account customers and ~~expanded business with existing customers within our North America pharmaceutical distribution businesses.~~growth in specialty pharmaceuticals. 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. This revenue growth was partially offset by lower revenues in our International segment driven by the completed divestiture of our E.U. disposal group and unfavorable effects of foreign currency exchange fluctuations.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

Gross Profit

Gross profit decreased ~~in 2018 primarily due~~for the three and nine months ended December 31, 2023 compared to the ~~2017 fourth quarter contribution of~~same prior year periods primarily driven by the ~~majority~~completed divestiture of our McKesson Technology Solutions businesses (“Core MTS Business”) to a joint venture, as further discussed below, significant government reimbursement reductions in the United Kingdom (“U.K.”), the competitive sell-side environment and lower last-in, first-out (“LIFO”) credits. These decreases in 2018 wereE.U. disposal group within our International segment, partially offset by ~~market~~ growth ~~procurement benefits realized through the joint sourcing entity, ClarusONE Sourcing Services LLP (“ClarusONE”) and~~of specialty pharmaceuticals, our ~~business acquisitions. Gross profit for~~share of antitrust legal settlements received in the first nine months of ~~2018 was unfavorably affected by weaker pharmaceutical manufacturer pricing trends,~~fiscal 2024, increased contributions from our generics programs in our U.S. Pharmaceutical segment, and increased technology services revenue from higher volumes in our RxTS segment.

We recognized gains of $23 million and $129 million for the ~~first~~three months ended December 31, 2023 and 2022, respectively, and $220 million and $129 million for the nine months ~~of 2017 benefited from $144 million of cash receipts representing~~ended December 31, 2023 and 2022, respectively, related to our share of antitrust legal settlements. ~~LIFO credits~~We recognized these amounts within "Cost of sales" in the Condensed Consolidated Statements of Operations within our U.S. Pharmaceutical segment.

Last-in, first-out (“LIFO”) inventory charges recognized during the three months ended December 31, 2023 and 2022 were comparable, with $2 million and ~~$155 million for the third quarters of 2018 and 2017, and~~ $5 million and $151 million for 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 partyrecorded in the third quarter of ~~2018. We accounted for this transaction as a sale~~fiscal 2024 and fiscal 2023, respectively. A LIFO charge of ~~the Core MTS Business~~$89 million and a ~~subsequent purchase~~credit of ~~a 70% interest in~~$31 million were recognized during 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% compared to the same periods a 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~~ended December ~~2017 Tax Cuts~~31, 2023 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.

~~Table of Contents~~

~~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 million2022, respectively, 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~~higher brand inventory levels, slightly higher estimated brand inflation, 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.estimated generics deflation, as well as lower off patent launch activity.

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~~

~~Table of Contents~~

~~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~~charge 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~~adjustment is based on our estimates of the annual LIFO ~~expense~~adjustment 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.~~adjustment. 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 and nine months ended December 31, 2023 and 2022 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, provisions for bad debts, 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: Charges recorded under this component include those 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.

3941

~~Table of Contents~~


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)


	Three Months Ended December 31,								Nine Months Ended December 31,
(Dollars in millions)	2023			2022			Change		2023			2022			Change
Selling, distribution, general, and administrative expenses	$	2,506		$	1,903		32	%	$	6,468		$	5,812		11	%
Claims and litigation charges, net	—			(1)			(100)		(2)			(5)			(60)

Restructuring, impairment, and related charges, net	4			31			(87)		84			84			—
Total operating expenses	$	2,510		$	1,933		30	%	$	6,550		$	5,891		11	%
Percent of revenues	3.10		%	2.74		%	36	bp	2.82		%	2.83		%	(1)	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

Any 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~~three 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 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~~ended December 31, 2023, total 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 ($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~~prior 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 our 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 higherperiods. Total operating expenses as a percentage of revenues ~~driven by our business acquisitions. Operating profit and operating profit margin~~increased for the three months ended December 31, 2023, however slightly decreased for the ~~segment for the first~~ nine months ~~of 2018~~ended December 31, 2023, when compared to the same prior year periods. Total operating expenses were impacted by the following significant items:

•SDG&A for the three and nine months ended December 31, 2023 includes a provision for bad debts of $515 million and $725 million, respectively, related to the bankruptcy of Rite Aid in October 2023. Refer to the Rite Aid Bankruptcy Proceedings section of "Trends and Uncertainties" for further discussion;

•SDG&A for the three and nine months ended December 31, 2023 includes fair value adjustment gains of $2 million and $78 million, respectively, which reduced our contingent consideration liability related to the RxSS acquisition, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report;

•SDG&A for the three and nine months ended December 31, 2023 was impacted by lower operating expenses from the completed divestiture of our E.U. disposal group in fiscal 2023, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report;

•Claims and litigation charges, net was not material. Refer to the Opioid-Related Litigation and Claims section of "Trends and Uncertainties" for further discussion; and

•Restructuring, impairment, and related charges, net were $4 million and $31 million, respectively, for the three months ended December 31, 2023 and 2022 and $84 million for each of the nine months ended December 31, 2023 and 2022, as discussed in more detail below under “Restructuring Initiatives.”

Goodwill Impairment

We evaluate goodwill for impairment on an annual basis in the first fiscal quarter, and at an interim date if indicators of potential impairment exist. The annual impairment testing performed in fiscal 2024 and fiscal 2023 did not indicate any impairment of goodwill, and no goodwill impairment charges were recorded during the three and nine months ended December 31, 2023 and 2022. 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

We recorded restructuring, impairment, and related charges of $4 million and $31 million for the three months ended December 31, 2023 and 2022, respectively, and $84 million for each of the nine months ended December 31, 2023 and 2022. These charges were included in “Restructuring, impairment, and related charges, net” in the Condensed Consolidated Statements of Operations.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

During the fourth quarter of fiscal 2023, we approved a broad set of initiatives to drive operational efficiencies and increase cost optimization efforts, with the intent of simplifying our infrastructure and realizing long-term sustainable growth. These initiatives include headcount reductions and the exit or downsizing of certain facilities. We anticipate total charges of approximately $125 million across our RxTS and U.S. Pharmaceutical segments as well as Corporate, consisting primarily of employee severance and other employee-related costs, facility and other exit-related costs, as well as long-lived asset impairments. Of this amount, $101 million of cumulative charges were recorded through December 31, 2023. For the three and nine months ended December 31, 2023, we recorded charges of $2 million and $41 million related to this program, respectively, which primarily includes real estate and other related asset impairments and facility costs within Corporate. This restructuring program is anticipated to be substantially complete by the end of fiscal 2024.

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.

Other Income, Net

Other income, net decreased for the three and nine months ended December 31, 2023 compared to the same prior year ~~ago~~periods primarily due to:

•a gain in the third quarter of fiscal 2023 of $126 million due to ~~our mix~~the cash received for the early termination of ~~business~~a tax receivable agreement (“TRA”) entered into as part of the formation of the joint venture with Change Healthcare Inc. (“Change”). This gain was recorded within Corporate expenses, net;

•a gain in the third quarter of fiscal 2023 of $97 million from the termination of fixed interest rate swaps accounted for as cash flow hedges within Corporate expenses, net; and ~~higher operating expenses as~~

•a ~~percentage~~gain in the second quarter of ~~revenues driven primarily by a goodwill impairment charge and restructuring and asset impairment charges~~fiscal 2023 of $142 million related to the exit of one of our ~~McKesson Europe business. These decreases were partially offset by the improved gross profit margin primarily due to market growth~~investments in equity securities held within our ~~North America distribution businesses, procurement benefits and our business acquisitions.~~U.S. Pharmaceutical segment.

~~Technology Solutions:~~ ~~Operating profit~~Interest Expense

Interest expense decreased for the ~~segment decreased~~three months ended December 31, 2023 compared to the same prior year period primarily driven by changes in our loan portfolio. Interest expense increased for ~~2018~~the nine months ended December 31, 2023 compared to the same prior year period primarily due to the ~~2017 fourth quarter deconsolidation~~impact of higher interest rates on our ~~Core MTS Business~~debt and ~~loss from the equity method investment in Change Healthcare. The decrease is~~derivative portfolios, partially offset by a $9 million gain ~~from the sale of our EIS business and reduction~~on debt extinguishment in ~~our TRA liability. Operating profit for~~ the first quarter of fiscal 2024. Refer to Financial Note 7, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information. Interest expense 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.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Income Tax (Benefit) Expense

For the three months ended December 31, 2023 and 2022, we recorded income tax (benefit) of ($18 million) and expense of $329 million, respectively. For the nine months ended December 31, 2023 and 2022, we recorded income tax expense 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~~$289 million and ~~lower other income compared to the same periods a year ago.~~

~~Interest Expense:~~ ~~Interest expense for 2018 decreased primarily due to the refinancing of debt at lower interest rates.~~

~~Income Taxes:~~$799 million, respectively. Our reported income tax ~~benefit~~ rates were ~~37.7%~~(2.9)% and ~~3.5%~~22.7% for the ~~third quarter~~three months ended December 31, 2023 and ~~first~~2022, respectively, and 11.0% and 21.6% for the nine months ~~of 2018 compared to income tax expense rates of 16.8%~~ended December 31, 2023 and ~~25.7% for the third quarter and first nine months of 2017.~~ 2022, respectively.

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~~in our business mix of ~~income,~~earnings between various taxing jurisdictions and discrete tax items recognized in 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 to continuing operations and included~~quarters. We recognized a net discrete tax ~~benefits~~benefit of ~~$424~~$141 million ~~and $12 million. During~~in the ~~first nine~~three 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~~ended December 31, 2023, including $154 million related to the ~~impact~~release of a valuation allowance based on management’s reassessment of the ~~2017 Tax Act and other~~amount of its deferred tax assets that are more likely than not to be realized. We also recognized a net discrete tax ~~benefits~~benefit of ~~$54~~$147 million in the nine months ended December 31, 2023 primarily related to the ~~conclusion~~repatriation of certain intellectual property between McKesson wholly-owned legal entities that are based in different tax audits. As previously discussed, the impact of the 2017 Tax Act may differ materially from this provisional amount. Our discrete tax benefits for the first nine months of 2017 included $47 million related to the adoption of the amended accounting guidance on employee share-based compensation.

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:~~ Net income attributable to noncontrolling interests for 2018 primarily represents ClarusONE, 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 a domination and profit and loss transfer agreement (the “Domination Agreement”).jurisdictions. Refer to Financial Note ~~9, “Redeemable Noncontrolling Interests and Noncontrolling Interests,~~4, “Income Taxes,” to the accompanying condensed consolidated financial statements ~~appearing~~included in this Quarterly Report for more information.

Income (Loss) from Discontinued Operations, Net of Tax

Income (loss) from discontinued operations, net of tax, was $1 million and ($3 million) for the three and nine months ended December 31, 2022, respectively. Subsequent to our divestiture of the E.U. disposal group in October 2022, we no longer have discontinued operations.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the three and nine months ended December 31, 2023 and 2022 primarily represents the proportionate results of third-party equity interests in the Company’s consolidated entities of ClarusONE Sourcing Services LLP and Vantage Oncology Holdings, LLC. Net income attributable to noncontrolling interests also includes the proportionate results of third-party equity interest in SCRI Oncology, LLC (“SCRI Oncology”) from its formation on ~~Form10-Q for additional information.~~October 31, 2022.

Net Income Attributable to McKesson Corporation:

Net income attributable to McKesson Corporation was ~~$903~~$589 million and ~~$633 million,~~$1.1 billion for the three months ended December 31, 2023 and ~~diluted~~2022, respectively, and $2.2 billion and $2.8 billion for the nine months ended December 31, 2023 and 2022, respectively. Diluted earnings per common share attributable to McKesson Corporation ~~were $4.33~~was $4.42 and ~~$2.85~~$7.66 for the ~~third quarters of 2018~~three months ended December 31, 2023 and ~~2017. Net income attributable to McKesson Corporation was $1,213 million~~2022, respectively, and ~~$1,482 million,~~$16.39 and $19.30 for the nine months ended December 31, 2023 and 2022, respectively. Our diluted earnings per ~~common~~ share ~~attributable to McKesson Corporation were $5.76 and $6.56 for~~also reflects the ~~first nine months~~cumulative effects of ~~2018 and 2017.~~share repurchases during each period.

~~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~~133.3 million and ~~222~~141.0 million for the ~~third quarters of 2018~~three months ended December 31, 2023 and ~~2017~~2022, respectively, and ~~210~~134.9 million and ~~226~~143.7 million for the ~~first~~ nine months ~~of 2018~~ended December 31, 2023 and ~~2017. Weighted average~~2022, respectively. Weighted-average diluted shares outstanding for ~~2018~~the three and nine months ended December 31, 2023 decreased from ~~2017~~the same prior year periods primarily ~~reflecting common stock repurchases~~due to the cumulative effect of share repurchases.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Overview of Segment Results:

Segment Revenues:


	Three Months Ended December 31,						Nine Months Ended December 31,
(Dollars in millions)	2023		2022		Change		2023		2022		Change
Segment revenues
U.S. Pharmaceutical	$	73,023	$	61,934	18	%	$	209,949	$	178,940	17	%
Prescription Technology Solutions	1,205		1,121		7		3,589		3,205		12
Medical-Surgical Solutions	3,031		2,986		2		8,476		8,421		1
International	3,639		4,449		(18)		10,582		17,235		(39)
Total revenues	$	80,898	$	70,490	15	%	$	232,596	$	207,801	12	%

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

U.S. Pharmaceutical

Three Months Ended December 31, 2023 vs. 2022

U.S. Pharmaceutical revenues for the three months ended December 31, 2023 increased $11.1 billion or18% compared to the same prior year period. Within the segment, sales to pharmacies and healthcare providers increased $9.8 billion and sales to specialty practices and other increased $1.3 billion. Overall, these increases were primarily due to market growth, including growth in specialty pharmaceuticals and higher volumes from retail national account customers, and branded pharmaceutical price increases, partially offset by branded to generic drug conversions.

Nine Months Ended December 31, 2023 vs. 2022

U.S. Pharmaceutical revenues for the nine months ended December 31, 2023 increased $31.0 billion or 17% compared to the same prior year period. Within the segment, sales to pharmacies and healthcare providers increased $28.2 billion and sales to specialty practices and other increased $2.8 billion. Overall, these increases were primarily due to market growth, including higher volumes from retail national account customers and growth in specialty pharmaceuticals, and branded pharmaceutical price increases, partially offset by branded to generic drug conversions and unfavorability from one less sales day compared to the same prior year period.

Prescription Technology Solutions

Three Months Ended December 31, 2023 vs. 2022

RxTS revenues for the three months ended December 31, 2023 increased $84 million or 7% compared to the same prior year period due to higher technology service revenues and increased volumes primarily in our third-party logistics and wholesale distribution services.

Nine Months Ended December 31, 2023 vs. 2022

RxTS revenues for the nine months ended December 31, 2023 increased $384 million or 12% compared to the same prior year period due to higher technology service revenues and increased volumes primarily in our third-party logistics and wholesale distribution services.

Medical-Surgical Solutions

Three Months Ended December 31, 2023 vs. 2022

Medical-Surgical Solutions revenues for the three months ended December 31, 2023 increased $45 million or 2% compared to the same prior year period. Within the segment, sales to primary care customers increased $77 million and sales to our extended care customers increased by $31 million, driven by underlying business growth. These increases were partially offset by our Other segment sales which declined by $63 million driven by lower contribution from the kitting and distribution of ancillary supplies used to administer COVID-19 vaccines.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Nine Months Ended December 31, 2023 vs. 2022

Medical-Surgical Solutions revenues for the nine months ended December 31, 2023 increased $55 million or 1% compared to the same prior year period. Within the segment, sales to our extended care customers increased $159 million and sales to our primary care customers increased $57 million driven by underlying business growth. Other sales declined $161 million driven by lower contribution from the kitting and distribution of ancillary supplies used to administer COVID-19 vaccines.

International

Three Months Ended December 31, 2023 vs. 2022

International revenues for the three months ended December 31, 2023 decreased $810 million or 18%, including unfavorable effects of foreign currency exchange fluctuations of $25 million, compared to the same prior year period. Within the segment, sales in Europe declined by $913 million largely due to the completed divestiture of our E.U. disposal group in the ~~second half~~third quarter of ~~2017 and~~fiscal 2023, partially offset by increased sales in Canada of $128 million which was primarily driven by higher pharmaceutical distribution volumes.

Nine Months Ended December 31, 2023 vs. 2022

International revenues for the ~~first~~ nine months ended December 31, 2023 decreased $6.7 billion or 39%, including unfavorable effects of ~~2018.~~foreign currency exchange fluctuations of $324 million, compared to the same prior year period. Within the segment, sales in Europe declined by $6.9 billion largely due to the completed divestiture of our E.U. disposal group in the third quarter of fiscal 2023, partially offset by increased sales in Canada of $520 million which was primarily driven by higher pharmaceutical distribution volumes.

~~Business Combinations~~Segment Operating Profit and Corporate Expenses, Net:

~~Refer~~


	Three Months Ended December 31,								Nine Months Ended December 31,
(Dollars in millions)	2023			2022			Change		2023			2022			Change
Segment operating profit (1)
U.S. Pharmaceutical (2)	$	307		$	850		(64)	%	$	1,727		$	2,442		(29)	%
Prescription Technology Solutions (3)	178			136			31		647			400			62
Medical-Surgical Solutions	268			328			(18)		739			883			(16)
International (4)	126			136			(7)		249			93			168

Subtotal	879			1,450			(39)		3,362			3,818			(12)
Corporate expenses, net (5)	(203)			67			(403)		(571)			49			—
Interest expense	(64)			(69)			(7)		(172)			(169)			2
Income from continuing operations before income taxes	$	612		$	1,448		(58)	%	$	2,619		$	3,698		(29)	%

Segment operating profit margin
U.S. Pharmaceutical	0.42		%	1.37		%	(95)	bp	0.82		%	1.36		%	(54)	bp
Prescription Technology Solutions	14.77			12.13			264		18.03			12.48			555
Medical-Surgical Solutions	8.84			10.98			(214)		8.72			10.49			(177)
International	3.46			3.06			40		2.35			0.54			181

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

bp - basis points

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

(2)Operating profit for our U.S. Pharmaceutical segment includes the following:

•a provision for bad debts of $515 million and $725 million for the three and nine months ended December 31, 2023, respectively, related to the bankruptcy of Rite Aid in October 2023, as discussed in more detail in the “Trends and Uncertainties” section;


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

•cash receipts for our share of antitrust legal settlements of $23 million and $129 million for the three months ended December 31, 2023 and 2022, respectively, and $220 million and $129 million for the nine months ended December 31, 2023 and 2022, respectively;

•charges of $2 million and $5 million related to the LIFO method of accounting for inventories for the three months ended December 31, 2023 and 2022, respectively, and a charge of $89 million and a credit of $31 million for the nine months ended December 31, 2023 and 2022, respectively; and

•a gain of $142 million for the nine months ended December 31, 2022 related to the exit of one of our investments in equity securities in July 2022 for proceeds of $179 million, which was recorded within “Other income, net” in the Company’s Condensed Consolidated Statements of Operations.

(3)Operating profit for our RxTS segment for the three and nine months ended December 31, 2023 includes fair value adjustment gains of $2 million and $78 million, respectively, which reduced our contingent consideration liability related to the RxSS acquisition, as discussed in more detail in Financial Note 6,2, “Business ~~Combinations,~~Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements ~~appearing~~included in this Quarterly Report.

(4)Operating profit for our International segment for the three and nine months ended December 31, 2022 includes charges of $3 million and $240 million, respectively, to remeasure the assets and liabilities of our E.U. disposal group to fair value less costs to sell, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report.

(5)Corporate expenses, net includes the following:

•gains of $34 million and $306 million for the three and nine months ended December 31, 2022, respectively, primarily related to the effect of accumulated other comprehensive loss components from our E.U. disposal group, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report;

•a gain of $126 million for the three and nine months ended December 31, 2022 related to the cash payment received for the early termination of our TRA with Change; and

•a gain of $97 million for the three and nine months ended December 31, 2022 from the termination of fixed interest rate swaps accounted for as cash flow hedges.

U.S. Pharmaceutical

Three Months Ended December 31, 2023 vs. 2022

Operating profit for this segment decreased for the three months ended December 31, 2023 compared to the same prior year period primarily due to a provision for bad debts of $515 million related to the bankruptcy of Rite Aid in October 2023, a decrease from net cash proceeds received representing our share of antitrust legal settlements, and an increase in operating expenses to support higher volumes, partially offset by growth in specialty pharmaceuticals.

Nine Months Ended December 31, 2023 vs. 2022

Operating profit for this segment decreased for the nine months ended December 31, 2023 compared to the same prior year period primarily due to a provision for bad debts of $725 million related to the bankruptcy of Rite Aid in October 2023, a gain of $142 million related to the exit of one of our investments in equity securities in fiscal 2023, a LIFO charge in the first nine months of fiscal 2024 compared to a credit in the same prior year period, and an increase in operating expenses to support higher volumes, partially offset by growth in specialty pharmaceuticals, an increase from net cash proceeds received representing our share of antitrust legal settlements, and increased contributions from our generics programs.

Prescription Technology Solutions

Three Months Ended December 31, 2023 vs. 2022

Operating profit for this segment increased for the three months ended December 31, 2023 compared to the same prior year period driven by increased volumes from our access solutions, primarily related to prior authorization services.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Nine Months Ended December 31, 2023 vs. 2022

Operating profit for this segment increased for the nine months ended December 31, 2023 compared to the same prior year period driven by increased volumes, primarily from growth in our access solutions related to prior authorization services, and fair value adjustment gains which reduced our contingent consideration liability related to the RxSS acquisition.

Medical-Surgical Solutions

Three Months Ended December 31, 2023 vs. 2022

Operating profit for this segment decreased for the three months ended December 31, 2023 compared to the same prior year period due to a lower contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines, partially offset by growth in our extended care business.

Nine Months Ended December 31, 2023 vs. 2022

Operating profit for this segment decreased for the nine months ended December 31, 2023 compared to the same prior year period due to a lower contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines and higher expenses to support business growth, partially offset by growth in our extended care business.

International

Three Months Ended December 31, 2023 vs. 2022

Operating profit for this segment decreased for the three months ended December 31, 2023 compared to the same prior year period primarily as a result of lower contributions from the European operations divested in fiscal 2023, partially offset by remeasurement charges recorded in the prior year related to the E.U. disposal group.

Nine Months Ended December 31, 2023 vs. 2022

Operating profit for this segment increased for the nine months ended December 31, 2023 compared to the same prior year period primarily as a result of remeasurement charges recorded in the prior year related to the E.U. disposal group, partially offset by lower contributions from the European operations divested in fiscal 2023.

Corporate Expenses, Net

Three Months Ended December 31, 2023 vs. 2022

Corporate expenses, net increased for the three months ended December 31, 2023 compared to the same prior year period primarily as a result of gains in the third quarter of fiscal 2023 of $126 million related to the cash payment received for the early termination of our TRA with Change, $97 million from the termination of fixed interest rate swaps accounted for as cash flow hedges, and remeasurement gains recorded in the prior year related to the E.U. disposal group.

Nine Months Ended December 31, 2023 vs. 2022

Corporate expenses, net increased for the nine months ended December 31, 2023 compared to the same prior year period primarily due to:

•prior year remeasurement gains related to the E.U. disposal group;

•a gain in the third quarter of 2023 related to the cash payment received for the early termination of our TRA with Change;

•a gain in the third quarter of 2023 related to the termination of fixed interest rate swaps accounted for as cash flow hedges; and

•higher restructuring charges recorded in fiscal 2024.

These were partially offset by a favorable impact to interest income from higher interest rates on certain of our cash balances compared to the prior year period.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Business Combinations

Refer to Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for our disclosures on ~~Form 10‑Q for further information.~~business combinations.

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~~

~~McKESSON CORPORATION~~

FINANCIAL ~~REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Financial Condition, Liquidity and Capital Resources~~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, and other borrowings 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, including access to liquidity from ~~time~~our $4.0 billion revolving credit facility. At December 31, 2023, 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:


	Nine Months Ended December 31,
(Dollars in millions)	2023		2022		Change
Net cash provided by (used in):
Operating activities	$	167	$	1,834	$	(1,667)
Investing activities	(495)		(298)		(197)
Financing activities	(2,374)		(3,178)		804
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	6		15		(9)
Change in cash, cash equivalents, and restricted cash classified as Assets held for sale (1)	—		470		(470)
Net change in cash, cash equivalents, and restricted cash	$	(2,696)	$	(1,157)	$	(1,539)

(1)The fiscal 2023 change reflects a reversal of cash, cash equivalents, and restricted cash previously classified as 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.

Operating Activities

Operating activities ~~generated~~provided cash of ~~$1,323~~$167 million and ~~$3,309 million~~$1.8 billion during the ~~first~~ nine months ~~of 2018~~ended December 31, 2023 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.2022, 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~~Operating activities ~~utilized cash~~for the nine months ended December 31, 2023 were affected by net income of ~~$483~~$2.3 billion, adjusted for non-cash items, including a provision for bad debts of $725 million related to the bankruptcy of Rite Aid in October 2023, as well as increases in receivables of $4.3 billion, accounts payable of $4.2 billion, and ~~$3,619~~inventories of $2.4 billion, all primarily driven by higher revenues and timing. Our litigation liabilities also decreased by $529 million due to payments made during the first nine months of ~~2018~~fiscal 2024 associated with various settlement agreements for opioid-related claims of states, subdivisions, and ~~2017.~~Native American tribes, as discussed in more detail in Financial Note 10, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Operating activities for the nine months ended December 31, 2022 were affected by net income of $2.9 billion, adjusted for non-cash items and changes in receivables, drafts and accounts payables, and inventories classified as held for sale, as well as increases in drafts and accounts payable of $3.5 billion, receivables of $2.2 billion, and inventories of $2.2 billion, all primarily driven by higher revenues and timing. Our litigation liabilities also decreased by $1.0 billion due to payments made during the nine months of fiscal 2023 associated with various settlement agreements for opioid-related claims of states, subdivisions, and Native American tribes, as discussed in more detail in Financial Note 10, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report.

Investing Activities

Investing activities used cash of $495 million and $298 million during the nine months ended December 31, 2023 and 2022, respectively. Investing activities for ~~2018~~the nine months ended December 31, 2023 and 2022 includes $418 million and $376 million, respectively, in capital expenditures for property, plant, and equipment and capitalized software.

Investing activities for the nine months ended December 31, 2022 include ~~$1,979~~$856 million of net cash payments for acquisitions, including ~~$1.3 billion~~$600 million for our acquisition of ~~CMM, which was prepaid before March 31, 2017~~RxSS and ~~was released from restricted cash balances in~~$173 million for our contribution for the ~~first quarter~~formation of ~~2018.~~SCRI Oncology. Investing activities for ~~2018 also included $329~~the nine months ended December 31, 2022 reflects proceeds from sales of businesses and investments of $1.1 billion, including cash proceeds, net of cash divested, of $573 million from the completed divestiture of our E.U. disposal group, $202 million of net cash proceeds from the ~~sale~~completed divestiture of ~~businesses~~our U.K. disposal group in April 2022, and ~~equity method investments and a $126 million cash payment received related to the Healthcare Technology Net Asset Exchange. Investing activities for 2017 included $4,174~~$179 million of cash proceeds from the exit of one of our investments in equity securities in July 2022.

Financing Activities

Financing activities used cash of $2.4 billion and $3.2 billion during the nine months ended December 31, 2023 and 2022, respectively. On June 15, 2023, we completed a public offering of 4.90% Notes due July 15, 2028 in a principal amount of $400 million and 5.10% Notes due July 15, 2033 in a principal amount of $600 million, for proceeds received, net of discounts and offering expenses, of $397 million and $592 million, respectively. A portion of the net proceeds from these notes was utilized to fund the repurchase of our 2024 Notes discussed below, while the remaining net proceeds was available for general corporate purposes.

On June 16, 2023, we completed a cash ~~payments~~tender offer for ~~acquisitions,~~any and all of our 2024 Notes with a principal amount of $918 million, which ~~$935~~was made concurrently with the June 15, 2023 notes offering described above. Using a portion of the proceeds from the June 15, 2023 notes offering described above, we paid an aggregate consideration of $268 million ~~was prepaid before March 31, 2016 and was released from restricted cash balances in~~to repurchase $271 million principal amount of the ~~first quarter~~2024 Notes. Following the consummation of ~~2017. Investing activities for 2017 also included a~~this tender offer, on June 16, 2023, we irrevocably deposited U.S. government obligations with the trustee under the indenture governing the 2024 Notes sufficient to fund the payment of ~~approximately $100~~accrued and unpaid interest of the remaining $647 million principal amount of the 2024 Notes as it becomes due, and of the principal amount of those 2024 Notes on their March 15, 2024 maturity date.

In November 2022, we entered into a term loan credit facility which provided an unsecured term loan facility up to ~~sell~~$500 million. We drew $500 million of cash on the loan in December 2022 which was used for general corporate purposes. Also in December 2022, we retired our ~~Brazilian business.~~$400 million outstanding principal amount of 2.70% notes upon maturity using cash on hand.

Financing activities utilized cash of $1,147 million and $1,145 million during the first nine months of 2018 and 2017. Financing activities for 2018 include cash receipts of $12,699 million 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~~ended December 31, 2023 and ~~payments of $1,405 million for short-term borrowings~~2022 includes $2.3 billion 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~~$3.5 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 $232 millionand ~~2017 include $192~~$216 million of cash paid for ~~dividends.~~dividends, respectively. Financing activities also includes cash receipts of $4.8 billion and $1.1 billion, and repayments of $4.6 billion and $483 million for the nine months ended December 31, 2023 and 2022, respectively, for short-term borrowings, primarily commercial paper.

Cash used for other financing activities generally includes the cash value of shares surrendered for tax withholding and payments to noncontrolling interests.


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Share Repurchase Plans

The ~~Company’s~~ Board has authorized the repurchase of ~~McKesson’s~~ common stock. We may affect stock repurchases from ~~time to time in~~time-to-time through open market transactions, privately negotiated transactions, 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 (“Exchange Act”). The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including our stock price, corporate and regulatory requirements, tax implications, restrictions under our debt obligations, other uses for capital, impacts on the value of remaining shares, and market and economic ~~conditions including~~conditions. The ASR programs discussed below were designed to comply with Rule 10b5-1(c).

Effective January 1, 2023, our repurchase of common stock, ~~price.~~adjusted for allowable items, are subject to a 1% excise tax as a result of the IRA. Excise taxes incurred on share repurchases of an entity’s own common stock are direct and incremental costs to purchase treasury stock, and accordingly are included in the total cost basis of the common stock acquired and reflected as a reduction of stockholders’ equity within “Treasury shares” in our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Stockholders’ Deficit. Excise taxes do not reduce the Company’s remaining authorization for the repurchase of common stock.

During the three months ended December 31, 2023, we repurchased 1.9 million shares of common stock for $868 million through open market transactions at an average price per share of $457.16, of which $41 million was accrued within “Other accrued liabilities” in our Condensed Consolidated Balance Sheet for share repurchases that were executed in late December 2023 and settled in early January 2024. During the three months ended September 30, 2023, we repurchased 2.0 million shares of common stock for $840 million through open market transactions at an average price per share of $422.39. During the three months ended June 30, 2023, we repurchased 1.8 million shares of common stock for $673 million through open market transactions at an average price per share of $379.14. Excise taxes of $8 million and $20 million were incurred for the three and nine months ended December 31, 2023, respectively, and $20 million was accrued within “Other accrued liabilities” in our Condensed Consolidated Balance Sheet for shares repurchased during the first nine months of fiscal 2024. As of March 31, 2023, we had $27 million accrued within “Other accrued liabilities” for share repurchases that were executed in late March 2023, which settled in early April 2023.

During the three months ended December 31, 2022, we repurchased 2.7 million shares of common stock for $1.0 billion through open market transactions at an average price per share of $370.13. During the three months ended September 30, 2022, we repurchased 1.5 million shares of common stock for $524 million through open market transactions at an average price per share of $355.75. There were no open market share repurchases during the three months ended June 30, 2022.

In ~~March 2017,~~December 2022, we entered into an ~~accelerated share repurchase (“ASR”)~~ASR program with a third-party financial institution to repurchase ~~$250~~$972 million shares of ~~the Company’s~~ common ~~stock and~~stock. The total number of shares repurchased under this ASR program was 2.6 million shares at an average price per share of $369.20. We received ~~1.4~~2.2 million shares as the initial share ~~settlement.~~ settlement, and in February 2023, we received an additional 0.4 million shares upon the completion of this ASR program.

In ~~April 2017,~~May 2022, we entered into an ASR program with a third-party financial institution to repurchase $1.0 billion shares of common stock. The total number of shares repurchased under this ASR program was 3.1 million shares at an average price per share of $321.05. We received 2.6 million shares as the initial share settlement, and in August 2022, we received an additional 0.5 million shares upon the completion of this ASR program.

In February 2022, we entered into an ASR program with a third-party financial institution to repurchase $1.5 billion shares of 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 4.8 million shares as the initial share settlement in the fourth quarter of fiscal 2022, 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, we entered into two separate ASR programs with third-party financial institutions to~~July 2023, the Board approved an increase of $6.0 billion in the authorization for the repurchase ~~$250 million and $400 million~~ of ~~the Company’s~~ common stock. ~~During the first six months of 2018, we received a~~The total of 1.5 million shares under the June 2017 ASR program and a total of 2.7 million shares under the August 2017 ASR program. The June 2017 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 million of the Company’s shares for $250 million through open market transactions at an average price per share of $138.12. The totalremaining authorization outstanding for repurchases of ~~the Company’s~~ common stock ~~was $1.8 billion~~ at December 31, ~~2017.~~

We believe that our 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 volatility and disruption in the global capital and credit markets will not impair our liquidity or increase our costs of borrowing.

2023 was $7.3 billion.

4551

~~Table of Contents~~


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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Selected Measures of Liquidity and Capital Resources


(Dollars in millions)	December 31, 2023			March 31, 2023
Cash, cash equivalents, and restricted cash	$	1,983		$	4,679
Working capital	(4,021)			(3,665)
Debt to capital ratio (1)	126.7		%	120.5		%

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


~~(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,~~readily convertible to known amounts of cash, are carried at fair value. Cash equivalents are primarily invested in ~~AAA rated prime and~~AAA-rated U.S. government money market funds, short-term deposits with financial institutions, and short-term commercial papers issued by non-financial institutions. Deposits with financial institutions are primarily denominated in U.S. dollars ~~AAA rated prime money market funds denominated~~and the functional currencies of our foreign subsidiaries, including Canadian dollars, Euro, and British pounds sterling. Deposits could exceed the amounts insured by the Federal Deposit Insurance Corporation in ~~Euros, AAA rated prime money market funds denominated~~the U.S. and similar deposit insurance programs in ~~British pound sterling, time deposits, and Canadian government debentures.~~

~~The remaining cash and cash equivalents are deposited with several financial institutions.~~other jurisdictions. We mitigate the risk of our ~~short‑term~~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~~2023 and March 31, 2023 included approximately ~~$1.2~~$790 million and $1.3 billion, respectively, of cash held by our subsidiaries outside of the ~~United States. Notwithstanding recent~~U.S. 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. We may remit foreign earnings to the U.S. to the extent it is tax ~~law changes regarding~~efficient to do so. We do not anticipate the tax impact from remitting these earnings to be material. Following enactment of the 2017 Tax Cuts and Jobs Act, the repatriation of cash to the U.S.~~, our primary intent remains to invest this cash in our foreign businesses~~ is generally no longer taxable for ~~an indefinite period of time.~~ federal income tax purposes.

Working capital primarily includes cash and cash equivalents, receivables, inventories, and ~~inventories~~prepaid expenses, net of drafts and accounts payable, short-term borrowings, ~~the~~ current portion of long-term debt, current portion of operating lease liabilities, and other ~~current~~accrued liabilities. Our ~~Distribution Solutions segment requires a~~businesses require substantial ~~investment~~investments in working capital that isare 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 decreased at December 31, 2023 compared to March 31, 2023 primarily due to an increase in drafts and accounts payable from increased purchasing driven by increased sales and timing, a decrease in cash and cash equivalents, and an increase in short-term borrowings outstanding at December 31, 2023. These were partially offset by an increase in receivables, net and inventories, driven by higher revenues and timing, and a decrease in the current portion of long-term debt largely funded by an issuance of long-term debt in the first quarter of fiscal 2024.

Our debt to capital ratio increased ~~in 2018 compared to 2017~~for the nine months ended December 31, 2023 due to ~~an increase in~~share repurchases and dividend payments as well as repayments of long-term debt, partially offset by net income attributable to McKesson for the year, issuance of new long-term debt, and net issuance of commercial paper ~~outstanding balance.~~notes during fiscal 2024.

OnIn July ~~26, 2017, the Company’s~~2023, we raised our quarterly dividend ~~was raised~~ from ~~$0.28~~$0.54 to ~~$0.34~~$0.62 per share of common ~~share~~stock for dividends declared on or after such date by the Board. ~~The Company anticipates~~We anticipate that itwe 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~~our future earnings, financial condition, capital requirements, legal 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.


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McKESSON CORPORATION

FINANCIAL REVIEW ~~(CONTINUED)~~(CONCLUDED)

(UNAUDITED)

~~Credit~~Capital Resources

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

issuances, and longer-term credit agreements and debt offerings. 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 $6.6 billion as of December 31, 2023 payable under the terms of various settlement agreements for opioid-related claims, are expected to be met by existing cash balances, cash flow from operations, existing credit sources, and ~~other~~future borrowings. Long-term debt markets and commercial paper markets, our primary sources of capital ~~market transactions.~~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 ~~12,~~7, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements ~~appearing~~included in this Quarterly ~~Report on Form 10-Q.~~Report.

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

~~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. Some of these~~Act. Forward-looking statements ~~can~~may be identified by ~~the~~their use of ~~forward-looking~~ terminology such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “projects,” “plans,” “estimates,” “targets,” or the negative of these words ~~and~~or other comparable terminology. The discussion of financial trends, strategy, plans, assumptions, expectations, or intentions may also include 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, the ~~following factors. The reader should not consider this list to be a complete statement~~factors discussed in the “Risk Factors” section in Item 1A of ~~all potential risks~~Part I of the 2023 Annual Report 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.~~

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

AVAILABLE INFORMATION

We routinely post on our company website, and via our social media channels, information that may be material to investors, including details and updates to information disclosed elsewhere, which may include business developments, earnings and financial performance, sustainability matters, and materials for presentations to investors and financial analysts. Investors are encouraged to monitor our website www.mckesson.com. Interested parties can sign up on our website, including our Investor Relations site, to receive automated e-mail alerts, such as via RSS newsfeed, when we post certain information. Interested parties can also follow our social media feed @McKesson on X, formerly known as Twitter. The content on any website or social media channel is not incorporated by reference into this report, unless expressly noted otherwise.

~~Table of Contents~~

~~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~~Annual Report on Form ~~10-K.~~10-K for the fiscal year ended March 31, 2023.


~~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 Exchange Act Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange ~~Act of 1934, as amended (“Exchange Act”))~~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.

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McKESSON CORPORATION

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 December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION


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

Item 1.Legal Proceedings.

The information set forth in Financial Note ~~16,~~10, “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 17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, 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 of Item 1A of our ~~2017~~Annual Report on Form ~~10-K.~~10-K for the fiscal year ended March 31, 2023.


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

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

Our Board of Directors has authorized the repurchase of common stock. We may affect stock repurchases ~~may be made~~ from ~~time to time in~~time-to-time through open market transactions, privately negotiated transactions, ~~through~~ accelerated share repurchase 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 Exchange Act. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including our stock price, corporate and regulatory ~~requirements.~~requirements, tax implications, restrictions under our debt obligations, other uses for capital, impacts on the value of remaining shares, and market and economic conditions.

~~In March 2017, we entered into an ASR program with~~Refer to Financial Note 11, “Stockholders' Deficit,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a ~~third-party financial institution to repurchase $250 million~~full discussion of the Company’s ~~common stock~~share repurchases for the three and ~~received 1.4 million shares as the initial share settlement. In April 2017, we received an additional 0.3 million shares upon the completion of this ASR program.~~

In June 2017 and August 2017, we entered into two separate ASR programs with third-party financial institutions to repurchase $250 million and $400 million of the Company’s common stock. During the first nine months of 2018, we received a total of 1.5 million shares under the June 2017 ASR program and a total of 2.7 million shares under the August 2017 ASR program. The June 2017 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 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~~ended December 31, ~~2017.~~2023 and 2022.

~~Table of Contents~~

~~McKESSON CORPORATION~~

The following table provides information on the Company’s share repurchases during the ~~third quarter~~three months ended December 31, 2023:


	Share Repurchases (1)
(In millions, except price per share)	Total Number of Shares Purchased	Average Price Paid Per Share (2)		Total Number of Shares Purchased as Part of a Publicly Announced Program (3)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs (2)
October 1, 2023 – October 31, 2023	0.1	$	437.63	0.1	$	8,056
November 1, 2023 – November 30, 2023	0.6	456.54		0.6	7,770
December 1, 2023 – December 31, 2023	1.2	452.66		1.2	7,251
Total	1.9			1.9

(1)This table does not include the value of ~~2018~~.equity awards surrendered to satisfy tax withholding obligations or forfeitures of equity awards.

(2)The average price paid per share excludes $8 million of excise taxes incurred on share repurchases for the three months ended December 31, 2023. The remaining authorization outstanding for repurchases of common stock excludes $20 million of excise taxes incurred on share repurchases for the nine months ended December 31, 2023.

(3)In July 2022 and July 2023, the Board authorized the Company to repurchase up to an additional $4.0 billion and $6.0 billion shares of common stock, respectively, both of which have no expiration date.

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.

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McKESSON CORPORATION


~~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.~~

~~Not Applicable~~Item 5.Other Information.

Pre-arranged Trading Plans

The following discussion includes trading arrangements adopted, modified, or terminated by our directors and officers during the three months ended December 31, 2023.

On November 3, 2023, LeAnn Smith, our Executive Vice President and Chief Human Resources Officer, adopted a Rule 10b5-1 trading arrangement for the sale of up to 2,848 shares of the Company’s common stock. The duration of the trading arrangement is until November 25, 2024, or earlier if all transactions under the trading arrangement are completed or if the trading arrangement is otherwise terminated according to its terms. The trading arrangement was entered into during a trading window period and Ms. Smith represented to us that she intended for it to satisfy the requirements for the affirmative defense of Rule 10b5-1(c) of the Exchange Act. The number of shares subject to the arrangement includes shares that may be withheld by the Company to satisfy income tax withholding and remittance obligations in connection with the net settlement of equity awards.

On November 16, 2023, Thomas Rodgers, our Executive Vice President and Chief Strategy and Business Development Officer, adopted a Rule 10b5-1 trading arrangement for the sale of up to 5,889 shares of the Company’s common stock. The duration of the trading arrangement is until November 7, 2024, or earlier if all transactions under the trading arrangement are completed or if the trading arrangement is otherwise terminated according to its terms. The trading arrangement was entered into during a trading window period and Mr. Rodgers represented to us that he intended for it to satisfy the requirements for the affirmative defense of Rule 10b5-1(c) of the Exchange Act. The number of shares subject to the arrangement includes shares that may be withheld by the Company to satisfy income tax withholding and remittance obligations in connection with the net settlement of equity awards.

On November 21, 2023, Britt Vitalone, our Executive Vice President and Chief Financial Officer, adopted a Rule 10b5-1 trading arrangement for the sale of up to 15,768 shares of the Company’s common stock. The duration of the trading arrangement is until November 25, 2024, or earlier if all transactions under the trading arrangement are completed or if the trading arrangement is otherwise terminated according to its terms. The trading arrangement was entered into during a trading window period and Mr. Vitalone represented to us that he intended for it to satisfy the requirements for the affirmative defense of Rule 10b5-1(c) of the Exchange Act. The number of shares subject to the arrangement includes shares that may be withheld by the Company to satisfy income tax withholding and remittance obligations in connection with the net settlement of equity awards.

5055

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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			Extension Notice Acknowledgement to Credit Agreement, dated as of November 7, 2022, among the Company, as borrower, the lenders party thereto, the letter of credit issuers party thereto, Bank of America, N.A., as administrative agent, and the other parties thereto (Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 7, 2023, File No. 1-13252).

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,~~2023, 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’ Deficit, (v) Condensed Consolidated Statements of Cash Flows, and ~~(v)~~(vi) related Financial Notes.

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


†	† Filed herewith. †† Furnished herewith.

5156

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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:

February ~~1, 2018~~7, 2024

/s/ Britt J. Vitalone

Britt J. Vitalone

Executive Vice President and Chief Financial Officer

MCKESSON CORPORATION

Date:

February 7, 2024

/s/ Napoleon B. Rutledge Jr.

~~Date:~~

~~February 1, 2018~~

~~/s/ Erin M. Lampert~~Napoleon B. Rutledge Jr.

~~Erin M. Lampert~~

Senior Vice President and Controller

5257



	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~~ 36

Overview of our Business			36

Executive Summary			37

Trends and ~~Analysis~~Uncertainties			38

Overview of Consolidated Results			40

Overview of Segment Results			45

Business Combinations			49

New Accounting Pronouncements			49

Financial Condition, Liquidity, and ~~Results of Operations.~~Capital Resources			49

Cautionary Notice About Forward-Looking Statements			53

Available Information			53



	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