Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended December 31, ~~2022~~2023


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

For the transition period from to

Commission File Number: 1-13252

McKESSON CORPORATION

(Exact name of registrant as specified in its charter)


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

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If 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 Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. ~~136,939,227~~131,408,286 shares of the issuer’s common stock were outstanding as of December 31, ~~2022.~~2023.

Table of Contents

McKESSON CORPORATION

TABLE OF CONTENTS


Item	Item		Page	Item				Page

		PART I—FINANCIAL INFORMATION
		PART I—FINANCIAL INFORMATION
		PART I—FINANCIAL INFORMATION
		PART I—FINANCIAL INFORMATION

1	1	Condensed Consolidated Financial Statements

1
		Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2022 and 2021	3
1

		Condensed Consolidated Statements of Operations for the t hree and nine mo nths ended December 31, 2023 and 2022
		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2022 and 2021	4
		Condensed Consolidated Statements of Operations for the t hree and nine mo nths ended December 31, 2023 and 2022

		Condensed Consolidated Statements of Operations for the t hree and nine mo nths ended December 31, 2023 and 2022					3
		Condensed Consolidated Balance Sheets as of December 31, 2022 and March 31, 2022	5
		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2023 and 2022
		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2023 and 2022
		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
		Condensed Consolidated Balance Sheets as of December 31, 2023 and March 31, 2023
		Condensed Consolidated Balance Sheets as of December 31, 2023 and March 31, 2023					5
		Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended December 31, 2022 and 2021	6
		Condensed Consolidated Statements of Stockholders’ Deficit for the three and nine months ended December 31, 2023 and 2022
		Condensed Consolidated Statements of Stockholders’ Deficit for the three and nine months ended December 31, 2023 and 2022
		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
		Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2023 and 2022
		Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2023 and 2022					8
		Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2022 and 2021	8
		Financial Notes
		Financial Notes
		Financial Notes					9

		Note 1 - Significant Accounting Policies
		Note 1 - Significant Accounting Policies
		Note 1 - Significant Accounting Policies					9
		Financial Notes	9
		Note 2 - Business Acquisitions and Divestitures
		Note 2 - Business Acquisitions and Divestitures
		Note 2 - Business Acquisitions and Divestitures					11

		Note 3 - Restructuring, Impairment, and Related Charges, Net
		Note 3 - Restructuring, Impairment, and Related Charges, Net
		Note 3 - Restructuring, Impairment, and Related Charges, Net					14
		Note 1 - Significant Accounting Policies	9
		Note 4 - Income Taxes
		Note 4 - Income Taxes
		Note 4 - Income Taxes					16

		Note 5 - Earnings (Loss) Per Common Share
		Note 5 - Earnings (Loss) Per Common Share
		Note 5 - Earnings (Loss) Per Common Share					17
		Note 2 - Business Acquisitions and Divestitures	10
		Note 6 - Goodwill and Intangible Assets, Net
		Note 6 - Goodwill and Intangible Assets, Net
		Note 6 - Goodwill and Intangible Assets, Net					18

		Note 7 - Debt and Financing Activities
		Note 7 - Debt and Financing Activities
		Note 7 - Debt and Financing Activities					19
		Note 3 - Restructuring, Impairment, and Related Charges, Net	16
		Note 8 - Hedging Activities
		Note 8 - Hedging Activities
		Note 8 - Hedging Activities					21

		Note 9 - Fair Value Measurements
		Note 9 - Fair Value Measurements
		Note 9 - Fair Value Measurements					25
		Note 4 - Income Taxes	18
		Note 10 - Commitments and Contingent Liabilities
		Note 10 - Commitments and Contingent Liabilities
		Note 10 - Commitments and Contingent Liabilities					27

		Note 11 - Stockholders’ Deficit
		Note 11 - Stockholders’ Deficit
		Note 11 - Stockholders’ Deficit					30
		Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests	19
		Note 12 - Segments of Business
		Note 12 - Segments of Business
		Note 12 - Segments of Business					33

		Note 6 - Earnings (Loss) per Common Share	21

		Note 7 - Goodwill and Intangible Assets, Net	22

		Note 8 - Debt and Financing Activities	24

		Note 9 - Pension Benefits	26

		Note 10 - Hedging Activities	26

		Note 11 - Fair Value Measurements	30

		Note 12 - Commitments and Contingent Liabilities	32

		Note 13 - Stockholders’ Equity (Deficit)	35

		Note 14 - Segments of Business	39

2
2
2	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42	Management’s Discussion and Analysis of Financial Condition and Results of Operations		36

3	3	Quantitative and Qualitative Disclosures About Market Risk	63
3
3					Quantitative and Qualitative Disclosures About Market Risk		53

4	4	Controls and Procedures	63
4
4					Controls and Procedures		53

		PART II—OTHER INFORMATION
		PART II—OTHER INFORMATION
		PART II—OTHER INFORMATION
		PART II—OTHER INFORMATION
1

1

1	1	Legal Proceedings	64	Legal Proceedings		54

1A	1A	Risk Factors	64
1A
1A					Risk Factors		54

2
2
2	2	Unregistered Sales of Equity Securities and Use of Proceeds	64	Unregistered Sales of Equity Securities and Use of Proceeds		54

3	3	Defaults Upon Senior Securities	64
3
3					Defaults Upon Senior Securities		55

4
4
4	4	Mine Safety Disclosures	65	Mine Safety Disclosures		55

5	5	Other Information	65
5
5					Other Information		55

6	6	Exhibits	66
6
6					Exhibits		56

		Signatures	67
		Signatures
		Signatures
		Signatures					57

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,
		Three Months Ended December 31,
		Three Months Ended December 31,

		Three Months Ended December 31,				Nine Months Ended December 31,
		2022		2021		2022		2021
Revenues	Revenues	$	70,490	$	68,614	$	207,801	$	197,864
Revenues
Revenues
Cost of sales
Cost of sales
Cost of sales	Cost of sales	(67,316)		(65,186)		(198,509)		(188,052)
Gross profit	Gross profit	3,174		3,428		9,292		9,812
Gross profit
Gross profit
Selling, distribution, general, and administrative expenses	Selling, distribution, general, and administrative expenses	(1,903)		(3,105)		(5,812)		(8,006)
Selling, distribution, general, and administrative expenses
Selling, distribution, general, and administrative expenses
Claims and litigation charges, net
Claims and litigation charges, net
Claims and litigation charges, net	Claims and litigation charges, net	1		(7)		5		(193)

Restructuring, impairment, and related charges, net	Restructuring, impairment, and related charges, net	(31)		(18)		(84)		(208)

Restructuring, impairment, and related charges, net

Restructuring, impairment, and related charges, net
Total operating expenses
Total operating expenses
Total operating expenses	Total operating expenses	(1,933)		(3,130)		(5,891)		(8,407)
Operating income	Operating income	1,241		298		3,401		1,405
Operating income
Operating income
Other income, net	Other income, net	276		20		466		202
Loss on debt extinguishment		—		—		—		(191)
Other income, net
Other income, net

Interest expense

Interest expense

Interest expense	Interest expense	(69)		(41)		(169)		(135)
Income from continuing operations before income taxes	Income from continuing operations before income taxes	1,448		277		3,698		1,281
Income tax expense		(329)		(238)		(799)		(396)
Income from continuing operations before income taxes
Income from continuing operations before income taxes
Income tax benefit (expense)
Income tax benefit (expense)
Income tax benefit (expense)
Income from continuing operations
Income from continuing operations
Income from continuing operations	Income from continuing operations	1,119		39		2,899		885
Income (loss) from discontinued operations, net of tax	Income (loss) from discontinued operations, net of tax	1		—		(3)		(3)
Income (loss) from discontinued operations, net of tax
Income (loss) from discontinued operations, net of tax
Net income
Net income
Net income	Net income	1,120		39		2,896		882
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(41)		(46)		(123)		(136)
Net income (loss) attributable to McKesson Corporation		$	1,079	$	(7)	$	2,773	$	746
Net income attributable to noncontrolling interests
Net income attributable to noncontrolling interests
Net income attributable to McKesson Corporation
Net income attributable to McKesson Corporation
Net income attributable to McKesson Corporation

Earnings (loss) per common share attributable to McKesson Corporation

Earnings (loss) per common share attributable to McKesson Corporation

Earnings (loss) per common share attributable to McKesson Corporation	Earnings (loss) per common share attributable to McKesson Corporation
Diluted	Diluted
Diluted
Diluted
Continuing operations
Continuing operations
Continuing operations	Continuing operations	$	7.65	$	(0.04)	$	19.32	$	4.81
Discontinued operations	Discontinued operations	0.01		—		(0.02)		(0.02)
Discontinued operations
Discontinued operations
Total
Total
Total	Total	$	7.66	$	(0.04)	$	19.30	$	4.79
Basic	Basic
Basic
Basic
Continuing operations
Continuing operations
Continuing operations	Continuing operations	$	7.70	$	(0.04)	$	19.48	$	4.87
Discontinued operations	Discontinued operations	0.01		—		(0.02)		(0.02)
Discontinued operations
Discontinued operations
Total
Total
Total	Total	$	7.71	$	(0.04)	$	19.46	$	4.85

Weighted-average common shares outstanding	Weighted-average common shares outstanding

Weighted-average common shares outstanding

Weighted-average common shares outstanding
Diluted
Diluted
Diluted	Diluted	141.0		151.6		143.7		155.8
Basic	Basic	139.9		151.6		142.5		154.0
Basic
Basic

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,				Three Months Ended December 31,		Nine Months Ended December 31,
		2022		2021		2022		2021		2023	2022		2023	2022
Net income	Net income	$	1,120	$	39	$	2,896	$	882

Other comprehensive income (loss), net of tax
Other comprehensive income, net of tax
Other comprehensive income, net of tax
Other comprehensive income, net of tax
Foreign currency translation adjustments	Foreign currency translation adjustments	252		16		642		(8)
Unrealized gains (losses) on cash flow hedges		(65)		(6)		(29)		2
Foreign currency translation adjustments
Foreign currency translation adjustments
Unrealized gains (losses) on cash flow and other hedges
Changes in retirement-related benefit plans	Changes in retirement-related benefit plans	28		(2)		66		2
Other comprehensive income (loss), net of tax		215		8		679		(4)
Other comprehensive income, net of tax

Comprehensive income
Comprehensive income
Comprehensive income	Comprehensive income	1,335		47		3,575		878
Comprehensive income attributable to noncontrolling interests	Comprehensive income attributable to noncontrolling interests	(41)		(44)		(167)		(137)
Comprehensive income attributable to McKesson Corporation	Comprehensive income attributable to McKesson Corporation	$	1,294	$	3	$	3,408	$	741

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)


		December 31, 2022		March 31, 2022
	December 31, 2023						December 31, 2023	March 31, 2023
ASSETS	ASSETS
Current assets	Current assets
Current assets
Current assets
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents	Cash and cash equivalents	$	2,774	$	3,532
Receivables, net	Receivables, net	20,537		18,583
Inventories, net	Inventories, net	20,657		18,702
Assets held for sale		14		4,516

Prepaid expenses and other
Prepaid expenses and other
Prepaid expenses and other	Prepaid expenses and other	675		898
Total current assets	Total current assets	44,657		46,231
Property, plant, and equipment, net	Property, plant, and equipment, net	2,140		2,092
Operating lease right-of-use assets	Operating lease right-of-use assets	1,653		1,548
Goodwill	Goodwill	9,934		9,451
Intangible assets, net	Intangible assets, net	2,273		2,059
Other non-current assets	Other non-current assets	2,033		1,917
Total assets	Total assets	$	62,690	$	63,298
						LIABILITIES AND DEFICIT
LIABILITIES AND DEFICIT
LIABILITIES AND DEFICIT
Current liabilities	Current liabilities
Drafts and accounts payable
Drafts and accounts payable
Drafts and accounts payable	Drafts and accounts payable	$	42,238	$	38,086
Short-term borrowings	Short-term borrowings	617		—
Current portion of long-term debt	Current portion of long-term debt	404		799
Current portion of operating lease liabilities	Current portion of operating lease liabilities	292		297
Liabilities held for sale		2		4,741

Other accrued liabilities
Other accrued liabilities
Other accrued liabilities	Other accrued liabilities	4,453		4,543
Total current liabilities	Total current liabilities	48,006		48,466
Long-term debt	Long-term debt	5,452		5,080
Long-term deferred tax liabilities	Long-term deferred tax liabilities	1,465		1,418
Long-term operating lease liabilities	Long-term operating lease liabilities	1,410		1,366
Long-term litigation liabilities	Long-term litigation liabilities	6,642		7,220
Other non-current liabilities	Other non-current liabilities	1,804		1,540

McKesson Corporation stockholders’ deficit	McKesson Corporation stockholders’ deficit
McKesson Corporation stockholders’ deficit
McKesson Corporation stockholders’ deficit
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding	Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.01 par value, 800 shares authorized, 277 and 275 shares issued at December 31, 2022 and March 31, 2022, respectively		3		2
Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding
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
Additional paid-in capital	Additional paid-in capital	7,536		7,275
Retained earnings	Retained earnings	11,582		9,030
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(899)		(1,534)

Treasury shares, at cost, 140 and 130 shares at December 31, 2022 and March 31, 2022, respectively		(20,677)		(17,045)
Treasury shares, at cost, 147 and 141 shares at December 31, 2023 and March 31, 2023, respectively
Treasury shares, at cost, 147 and 141 shares at December 31, 2023 and March 31, 2023, respectively
Treasury shares, at cost, 147 and 141 shares at December 31, 2023 and March 31, 2023, respectively
Total McKesson Corporation stockholders’ deficit	Total McKesson Corporation stockholders’ deficit	(2,455)		(2,272)
Noncontrolling interests	Noncontrolling interests	366		480
Total deficit	Total deficit	(2,089)		(1,792)
Total liabilities and deficit	Total liabilities and deficit	$	62,690	$	63,298

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ ~~EQUITY (DEFICIT)~~DEFICIT

(In millions, except per share amounts)

(Unaudited)


		Three Months Ended December 31, 2023
		Three Months Ended December 31, 2023
		Three Months Ended December 31, 2023
		Common Stock
		Common Stock
		Common Stock
		Shares
		Shares
		Shares																							Amount	Common Shares	Amount
Balance, September 30, 2023
Issuance of shares under employee plans, net of forfeitures
Issuance of shares under employee plans, net of forfeitures
Issuance of shares under employee plans, net of forfeitures
Share-based compensation
Share-based compensation
Share-based compensation
Repurchase of common stock
Repurchase of common stock
Repurchase of common stock
Net income
Net income
Net income
Other comprehensive income
Other comprehensive income
Other comprehensive income
Cash dividends declared, $0.62 per common share
Cash dividends declared, $0.62 per common share
Cash dividends declared, $0.62 per common share
Payments to noncontrolling interests
Payments to noncontrolling interests
Payments to noncontrolling interests

		Three Months Ended December 31, 2022
		Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Treasury					Noncontrolling Interests			Total Deficit
Other
		Shares	Amount				Additional Paid-in Capital					Common Shares		Retained Earnings			Accumulated Other Comprehensive Loss			Amount			Noncontrolling Interests	Total Deficit
Balance, September 30, 2022		277	$	3				(135)		$	(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 an oncology research business		—	—		22			—		—			—		—			225			247
Derecognition of noncontrolling interests in McKesson Europe AG		—	—		—			—		—			—		—			(382)			(382)

Other	Other	—	—		(1)			1		—			—		—			1			1
Balance, December 31, 2022		277	$	3	$	7,536		$	11,582	$	(899)		(140)		$	(20,677)		$	366		$	(2,089)

Other
Balance, December 31, 2023
Balance, December 31, 2023
Balance, December 31, 2023


		Three Months Ended December 31, 2021
		Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Deficit
		Shares	Amount				Common Shares					Amount	Noncontrolling Interests
Balance, September 30, 2021		275	$	2	$	7,311		$	8,812	$	(1,665)	(122)			$	484	$	(87)
		Three Months Ended December 31, 2022
		Three Months Ended December 31, 2022
		Three Months Ended December 31, 2022
	Common Stock																			Common Stock			Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Treasury	Noncontrolling Interests	Total Deficit
	Shares																		Shares		Amount	Common Shares				Amount
Balance, September 30, 2022
Issuance of shares under employee plans, net of forfeitures	Issuance of shares under employee plans, net of forfeitures	—	—		63			—		—		—	(7)		—		56
Share-based compensation	Share-based compensation	—	—		36			—		—		—	—		—		36
Repurchase of common stock	Repurchase of common stock	—	—		—			—		—		(3)	(728)		—		(728)
Net income (loss)		—	—		—			(7)		—		—	—		46		39
Other comprehensive income (loss)		—	—		—			—		10		—	—		(2)		8
Cash dividends declared, $0.47 per common share		—	—		—			(72)		—		—	—		—		(72)
Net income
Other comprehensive income
Cash dividends declared, $0.54 per common share
Payments to noncontrolling interests	Payments to noncontrolling interests	—	—		—			—		—		—	—		(38)		(38)
Reclassification of recurring compensation to other accrued liabilities	Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—	—		(3)		(3)
Formation of SCRI Oncology, LLC
Derecognition of noncontrolling interests in McKesson Europe AG
Other	Other	—	—		1			1		—		—	—		—		2
Balance, December 31, 2021		275	$	2	$	7,411		$	8,734	$	(1,655)	(125)	$	(15,766)	$	487	$	(787)
Balance, December 31, 2022

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ ~~EQUITY (DEFICIT)~~DEFICIT

(In millions, except per share amounts)

(Unaudited)


		Nine Months Ended December 31, 2023
		Nine Months Ended December 31, 2023
		Nine Months Ended December 31, 2023
		Common Stock
		Common Stock
		Common Stock
		Shares
		Shares
		Shares
Balance, March 31, 2023
Balance, March 31, 2023
Balance, March 31, 2023
Issuance of shares under employee plans, net of forfeitures
Issuance of shares under employee plans, net of forfeitures
Issuance of shares under employee plans, net of forfeitures
Share-based compensation
Share-based compensation
Share-based compensation
Repurchase of common stock
Repurchase of common stock
Repurchase of common stock
Net income
Net income
Net income
Other comprehensive income
Other comprehensive income
Other comprehensive income
Cash dividends declared, $1.78 per common share
Cash dividends declared, $1.78 per common share
Cash dividends declared, $1.78 per common share
Payments to noncontrolling interests
Payments to noncontrolling interests
Payments to noncontrolling interests

		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 an oncology research business		—	—		22				—				—				—		—				225		247
Derecognition of noncontrolling interests in McKesson Europe AG		—	—		—				—				—				—		—				(382)		(382)
Other	Other	—	—		(1)				1				—				—		—				(6)		(6)
Balance, December 31, 2022		277	$	3	$	7,536			$	11,582			$	(899)			(140)		$	(20,677)			$	366	$	(2,089)

Other

Other
Balance, December 31, 2023
Balance, December 31, 2023
Balance, December 31, 2023


		Nine Months Ended December 31, 2021
		Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Equity (Deficit)
		Shares	Amount				Common Shares					Amount	Noncontrolling Interests
Balance, March 31, 2021		273	$	2	$	6,925		$	8,202	$	(1,480)	(115)			$	196	$	175
		Nine Months Ended December 31, 2022
		Nine Months Ended December 31, 2022
		Nine Months Ended December 31, 2022
		Common Stock
		Common Stock
		Common Stock
		Shares
		Shares
		Shares																	Amount	Common Shares	Amount
Balance, March 31, 2022
Issuance of shares under employee plans, net of forfeitures
Issuance of shares under employee plans, net of forfeitures
Issuance of shares under employee plans, net of forfeitures	Issuance of shares under employee plans, net of forfeitures	2	—		174			—		—		—	(67)		—		107
Share-based compensation	Share-based compensation	—	—		112			—		—		—	—		—		112
Share-based compensation
Share-based compensation
Repurchase of common stock
Repurchase of common stock
Repurchase of common stock	Repurchase of common stock	—	—		21			—		—		(10)	(2,029)		—		(2,008)
Net income	Net income	—	—		—			746		—		—	—		128		874
Other comprehensive loss		—	—		—			—		(5)		—	—		(2)		(7)
Cash dividends declared, $1.36 per common share		—	—		—			(211)		—		—	—		—		(211)
Net income
Net income
Other comprehensive income
Other comprehensive income
Other comprehensive income
Cash dividends declared, $1.55 per common share
Cash dividends declared, $1.55 per common share
Cash dividends declared, $1.55 per common share
Payments to noncontrolling interests	Payments to noncontrolling interests	—	—		—			—		—		—	—		(117)		(117)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG		—	—		178			—		(170)		—	—		—		8
Reclassification of McKesson Europe AG redeemable noncontrolling interests		—	—		—			—		—		—	—		287		287
Payments to noncontrolling interests
Payments to noncontrolling interests
Reclassification of recurring compensation to other accrued liabilities	Reclassification of recurring compensation to other accrued liabilities	—	—		—			—		—		—	—		(5)		(5)
Reclassification of recurring compensation to other accrued liabilities
Reclassification of recurring compensation to other accrued liabilities
Formation of SCRI Oncology, LLC
Formation of SCRI Oncology, LLC
Formation of SCRI Oncology, LLC
Derecognition of noncontrolling interests in McKesson Europe AG
Derecognition of noncontrolling interests in McKesson Europe AG
Derecognition of noncontrolling interests in McKesson Europe AG
Other	Other	—	—		1			(3)		—		—	—		—		(2)
Balance, December 31, 2021		275	$	2	$	7,411		$	8,734	$	(1,655)	(125)	$	(15,766)	$	487	$	(787)
Other
Other
Balance, December 31, 2022
Balance, December 31, 2022
Balance, December 31, 2022

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


		Nine Months Ended December 31,				Nine Months Ended December 31,
		2022		2021		2023	2022
OPERATING ACTIVITIES	OPERATING ACTIVITIES
Net income	Net income	$	2,896	$	882
Net income
Net income
Adjustments to reconcile to net cash provided by operating activities:	Adjustments to reconcile to net cash provided by operating activities:
Depreciation
Depreciation
Depreciation	Depreciation	185		215
Amortization	Amortization	262		383
Long-lived asset impairment charges	Long-lived asset impairment charges	13		128
Deferred taxes	Deferred taxes	55		12
Credits associated with last-in, first-out inventory method		(31)		(79)
Charges (credits) associated with last-in, first-out inventory method
Non-cash operating lease expense	Non-cash operating lease expense	183		198
Gain from sales of businesses and investments	Gain from sales of businesses and investments	(215)		(117)
European businesses held for sale		—		1,271

Provision for bad debts
Provision for bad debts
Provision for bad debts
Other non-cash items	Other non-cash items	221		452
Changes in assets and liabilities, net of acquisitions:	Changes in assets and liabilities, net of acquisitions:
Receivables
Receivables
Receivables	Receivables	(2,193)		(1,925)
Inventories	Inventories	(2,190)		(1,659)
Drafts and accounts payable	Drafts and accounts payable	3,531		1,612
Operating lease liabilities	Operating lease liabilities	(256)		(276)
Taxes	Taxes	381		176
Litigation liabilities	Litigation liabilities	(1,021)		146
Other	Other	13		128
Net cash provided by operating activities	Net cash provided by operating activities	1,834		1,547

INVESTING ACTIVITIES	INVESTING ACTIVITIES
INVESTING ACTIVITIES
INVESTING ACTIVITIES
Payments for property, plant, and equipment
Payments for property, plant, and equipment
Payments for property, plant, and equipment	Payments for property, plant, and equipment	(265)		(253)
Capitalized software expenditures	Capitalized software expenditures	(111)		(127)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired	Acquisitions, net of cash, cash equivalents, and restricted cash acquired	(856)		(6)
Proceeds from sales of businesses and investments, net	Proceeds from sales of businesses and investments, net	1,074		197
Other	Other	(140)		(83)
Net cash used in investing activities	Net cash used in investing activities	(298)		(272)

FINANCING ACTIVITIES	FINANCING ACTIVITIES
FINANCING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from short-term borrowings
Proceeds from short-term borrowings
Proceeds from short-term borrowings	Proceeds from short-term borrowings	1,100		3,642
Repayments of short-term borrowings	Repayments of short-term borrowings	(483)		(3,270)
Proceeds from issuances of long-term debt	Proceeds from issuances of long-term debt	499		498
Repayments of long-term debt	Repayments of long-term debt	(412)		(1,646)
Payments for debt extinguishments		—		(184)
Purchase of U.S. government obligations for the satisfaction and discharge of long-term debt

Common stock transactions:	Common stock transactions:
Common stock transactions:
Common stock transactions:
Issuances
Issuances
Issuances	Issuances	143		174
Share repurchases	Share repurchases	(3,500)		(1,986)
Dividends paid	Dividends paid	(216)		(206)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG		—		(1,031)

Other
Other
Other	Other	(309)		(323)
Net cash used in financing activities	Net cash used in financing activities	(3,178)		(4,332)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	15		35
Change in cash, cash equivalents, and restricted cash classified within Assets held for sale		470		(215)
Change in cash, cash equivalents, and restricted cash classified as Assets held for sale
Net decrease in cash, cash equivalents, and restricted cash	Net decrease in cash, cash equivalents, and restricted cash	(1,157)		(3,237)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	3,935		6,396
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	2,778		3,159
Less: Restricted cash at end of period included in Prepaid expenses and other	Less: Restricted cash at end of period included in Prepaid expenses and other	(4)		(405)

Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	2,774	$	2,754
Cash and cash equivalents at end of period
Cash and cash equivalents at end of period

See Financial Notes

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES

(UNAUDITED)

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 ~~14,~~12, “Segments of Business,” for additional information.

Basis of Presentation: The condensed consolidated financial statements and accompanying notes are prepared in accordance with United States (“U.S.”) generally accepted 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.

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 ~~can~~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 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 could differ from those estimated amounts. The Company continues to evaluate the ongoing impacts, including the economic consequences, of the pandemic caused by the SARS-CoV-2 coronavirus (“COVID-19”), and therefore the Company’s accounting estimates and assumptions may change over time and may change materially in future periods. In the opinion of management, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the results of operations, financial position, and cash flows of McKesson for the interim periods presented.

The results of operations for the three and nine months ended December 31, ~~2022~~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 the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2022,~~2023, previously filed with the SEC on May 9, ~~2022 (“2022~~2023 (the “2023 Annual Report”).

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the ~~“IR Act”~~“IRA”). Among other provisions, the ~~IR Act~~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. ~~Based on its preliminary assessment, the~~The Company does not ~~currently expect the IR Act to~~anticipate that this legislation will have a material impact on its ~~results of operations,~~consolidated financial ~~position,~~statements or ~~cash flows in the foreseeable future;~~related disclosures; however the Company ~~will continue~~continues to evaluate the ~~full~~ impact of these legislative changes.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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.

Recently Adopted Accounting Pronouncements

There were no ~~adopted~~ accounting standards adopted by the Company during the nine months ended December 31, ~~2022 that had a material impact to the Company’s results of operations, financial position, cash flows, or notes to the financial statements upon their adoption.~~2023.

Recently Issued Accounting Pronouncements Not Yet Adopted

In ~~June 2022,~~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 greater disaggregation of information in the rate reconciliation as well as income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for the Company for fiscal years beginning after December 15, 2024. Early adoption is permitted. 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 significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss as well as an amount and description of other segment items. ASU 2023-07 also requires interim disclosures of a reportable segment’s profit or loss and assets, disclosure of the title and position of the CODM, and an explanation of how the CODM uses the reported measure of segment profit or loss in assessing performance and allocating resources. ASU 2023-07 is effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The 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 Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of ~~the~~such equity security and requires additional disclosure requirements. ASU 2022-03 is effective for the Company ~~on a prospective basis~~ for fiscal years beginning after December 15, 2023, ~~with early~~and interim periods within those fiscal years. Early adoption is permitted. The amendments in this update are required to be applied prospectively. The Company does not ~~expect~~anticipate that this guidance will have a material impact on its consolidated financial statements or related disclosures.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

2. Business Acquisitions and Divestitures

Acquisitions

Rx Savings Solutions, LLC

On November 1, 2022, the Company completed its acquisition of 100% of the shares of Rx Savings Solutions, LLC (“RxSS”), a privately-owned company headquartered in Overland Park, Kansas, to ~~expand on connecting~~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 funded from cash on hand. The financial results of RxSS are included in the Company’s RxTS segment as of the acquisition date. The transaction was accounted for as a business combination.

The Company recorded a liability for the contingent consideration at its fair value of $92 million as of the acquisition ~~date, which is included within “Other non-current liabilities” in the Company’s Condensed Consolidated Balance Sheet as of December 31, 2022.~~date. The fair value of the 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 ~~resolved~~settled with changes in fair value being recognized within “Selling, distribution, general, and administrative expenses” in the Company’s Condensed Consolidated Statements of 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 included within “Other accrued liabilities” and as of March 31, 2023, the long-term portion of $9 million is included within “Other non-current liabilities” in the Company’s Condensed Consolidated Balance Sheets. Recognition of the initial fair value of this contingent consideration iswas a non-cash investing activity.

The purchase price allocation included acquired identifiable intangible assets of $229 million, primarily representing customer relationships and technology with a weighted average amortization period of 12 years, and goodwill of $463 million. Goodwill has been ~~preliminarily~~ allocated to the Company’s RxTS segment, which reflects the expected future benefits from certain synergies and intangible assets that do not qualify for separate recognition. Goodwill attributable to the acquisition is deductible for tax purposes.

The following table summarizes the final purchase price allocation for this 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

1011

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~The following table summarizes the preliminary purchase price allocation for this acquisition:~~


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

~~Identifiable assets acquired and liabilities assumed:~~
~~Current assets~~	$	6
~~Intangible assets~~	~~229~~
~~Other non-current assets~~	3
~~Current liabilities~~	~~(9)~~

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

SCRI Oncology, ~~Research Business~~LLC

On October 31, 2022, the Company completed a transaction with HCA Healthcare, Inc. (“HCA”) to form SCRI Oncology, LLC (“SCRI Oncology”), an oncology research business combining McKesson’s U.S. Oncology Research (“USOR”) and HCA’s Sarah Cannon Research Institute (“SCRI”) based in Nashville, Tennessee, to advance cancer care and increase access to oncology clinical research. ~~Upon consummation of the transaction,~~ McKesson owns a 51% controlling interest in the combined business, and the financial results are consolidated by the Company and reported within its U.S. Pharmaceutical segment as of the acquisition date. Transaction consideration included the transfer of full ownership interest in USOR to the combined business and ~~$173~~$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 ~~$120~~$113 million. Goodwill has been allocated to the Company’s U.S. Pharmaceutical segment, which reflects the expected future benefits from certain synergies and intangible assets that do not qualify for separate recognition. Goodwill attributable to the acquisition of ~~$49~~$46 million is deductible for tax purposes. The Company recorded noncontrolling interest of $225 million as a component of equity, which includes HCA’s proportionate interest in the identifiable net assets of SCRI at fair value of ~~$205~~$202 million and its proportionate interest in the contributed net assets of USOR at carrying value of ~~$20~~$23 million. The difference between the fair value of the Company’s acquired interest in SCRI net assets and the ~~$173~~$166 million of net cash paid to HCA was recognized as additional paid in capital, as well as the Company’s reduction in ownership interest in USOR net assets.

The following table summarizes the final 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

1112

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~The following table summarizes the preliminary purchase price allocation for this acquisition:~~


~~(In millions)~~	~~Amounts Recognized as of Acquisition Date~~
~~Purchase consideration:~~
~~Cash~~	$	~~173~~
~~Contribution of USOR~~	40
~~Total purchase consideration~~	$	~~213~~

~~Identifiable assets acquired and liabilities assumed:~~
~~Receivables~~	$	~~224~~

~~Property, plant, and equipment~~	22
~~Operating lease right-of-use assets~~	31
~~Intangible assets~~	~~177~~

~~Current liabilities~~	~~(42)~~
~~Long-term operating lease liabilities~~	~~(29)~~
~~Other non-current liabilities~~	~~(43)~~
~~Total identifiable net assets~~	~~340~~
~~Noncontrolling interest~~	~~(225)~~
~~Additional paid-in capital~~	~~(22)~~
~~Goodwill~~	~~120~~
~~Net assets acquired~~	$	~~213~~

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 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. ~~Due to the recent timing of these acquisitions, the amounts presented above are subject to change as the~~The Company’s fair value assessments ~~are finalized.~~of these acquisitions were finalized upon completion of the measurement period in 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 resulting in classification of certain assets and liabilities as held for sale. Assets and liabilities of $4.5 billion and $4.7 billion, respectively, at March 31, 2022, met the criteria for classification as held for sale in the Company’s Condensed Consolidated Balance Sheet, primarily consisting of disposal groups related to the Company’s European divestiture activities discussed below. At December 31, 2022, the Company had no assets or liabilities related to these divestiture activities that met the classification of held for sale. The decrease in assets and liabilities held for sale during fiscal 2023 was driven by the divestiture of the Company’s E.U. disposal group in October 2022 and U.K. disposal group in April 2022, as discussed in more detail below. During the three months ended December 31, 2022 and 2021, the Company recorded gains of $31 million and charges of $879 million, respectively, and during the nine months ended December 31, 2022 and 2021, recorded gains of $66 million and charges of $1.4 billion, respectively, primarily to remeasure the assets and liabilities of the disposal groups related to European divestiture activities discussed below to the lower of their carrying value or fair value less costs to sell. The fiscal 2022 charges were largely driven by declines in the British pound sterling and the Euro.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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

~~European Divestiture Activities~~

Europe. On October 31, 2022, the Company completed its previously announced transaction to sell certain of its businesses in the ~~European Union (“~~E.U.”) located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along with its German headquarters and wound-care business, part of a shared services center in Lithuania, and its ownership stake in a joint venture in the Netherlands (“E.U. disposal group”) to 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 ~~AG (“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 $31 million and $66 million, respectively, ~~and during the three and nine months ended December 31, 2021, recorded charges totaling $26 million and $517 million, respectively,~~ to remeasure ~~the assets and liabilities of~~ the E.U. disposal group to fair value less costs to sell. The charges for the nine months ended December 31, 2021 also included impairments of individual assets, such as certain internal-use software that will not be utilized in the future, prior to adjusting the E.U. disposal group as a whole and net losses of $230 million related to the accumulated other comprehensive income balances associated with the E.U. disposal group, driven by declines in the Euro. These amounts weresell which was recorded within “Selling, distribution, general, and 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 ~~expected to be~~ received by the Company as outlined in the transaction agreement. Certain components of the total consideration included fair value measurements that fall within Level 3 of the fair value hierarchy.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~The total assets and liabilities of the E.U. disposal group that met the classification of held for sale in the Company’s Condensed Consolidated Balance Sheet at March 31, 2022 were as follows:~~


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

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

~~(1)~~Excludes charges in fiscal 2022 related to the impairment of individual assets, including a $113 million impairment of internally developed software recorded directly against the gross value of the assets impacted.

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 transaction, the Company divested net assets of $615 million and released $731 million of accumulated other comprehensive loss, within the International segment, and the buyer assumed and repaid a note payable to the Company of $118 million.

~~During the three and nine months ended~~At December 31, ~~2021,~~2023 and March 31, 2023, the Company ~~recorded charges totaling $823 million to remeasure the U.K. disposal group to the lower of its carrying value~~had no assets or ~~fair value less costs to sell. The remeasurement adjustment included a $731 million loss~~liabilities related to the accumulated other comprehensive loss balances associated with the U.K. disposal group, driven by declines in the British pound sterling. The charges were recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. The Company’s measurement of the fair value of the U.K. disposal group was based on the total consideration expected to be received by the Company as outlined in the transaction agreement. Certain components of the total consideration included fair value measurements that fall within Level 3 of the fair value hierarchy.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~The total assets and liabilities of the U.K. disposal group~~these European divestiture activities that met the criteria for classification ofas held for ~~sale in the Company’s Condensed Consolidated Balance Sheet at March 31, 2022 were as follows:~~


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

~~Liabilities~~
~~Current liabilities~~
~~Drafts and accounts payable~~	$	~~1,593~~

~~Current portion of operating lease liabilities~~	50
~~Other accrued liabilities~~	59

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

On January 31, 2022, the Company completed the sale of its Austrian business to Quadrifolia Management GmbH in a management-led buyout for a purchase price of €244 million (or, approximately $276 million), including certain adjustments. In the three and nine months ended December 31, 2021, the Company recognized a loss of $30 million to remeasure the assets and liabilities of the business to the lower of its carrying value or fair value less costs to sell. The charge was recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations.

sale. Subsequent to the divestiture activities discussed above, the Company’s European operations primarily consist of its retail and distribution businesses in 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 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 ~~$31~~$4 million and ~~$18~~$31 million for the three months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively, and $84 million ~~and $208 million~~ for each of the nine months ended December 31, ~~2022~~2023 and ~~2021, respectively.~~2022. These charges were included in “Restructuring, impairment, and related charges, net” in the Condensed Consolidated Statements of Operations.

Restructuring Initiatives

During the ~~first~~fourth quarter of fiscal ~~2022,~~2023, the Company approved ~~an initiative~~a broad set of initiatives to ~~increase~~drive operational efficiencies and ~~flexibility by transitioning to a partial remote work model for~~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 employees. This initiative primarily included the rationalization of the Company’s office space in North America. Where the Company ceased using office space, it exited the portion of the facility no longer used. It also retained and repurposed certain other office locations.facilities. The Company ~~recorded~~anticipates total charges of $5approximately $125 million across its RxTS and ~~$115~~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 ~~for~~of cumulative charges were recorded through December 31, 2023. For the three and nine months ended December 31, 2021, respectively, primarily related to lease right-of-use and other long-lived asset impairments, lease exit costs, and accelerated depreciation and amortization. This initiative was substantially completed in fiscal 2022 and remaining costs2023, the Company recorded charges of $2 million and ~~expects~~$41 million related to ~~record under~~ this ~~initiative are not material.~~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 for the three months ended December 31, ~~2022~~2023 and ~~2021~~2022 consisted of the 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 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.

Three Months Ended December 31, 2021
(In millions) U.S. Pharmaceutical Prescription Technology Solutions Medical-Surgical Solutions International Corporate Total
Severance and employee-related costs, net $ — $ — $ — $ — $ 1 $ 1
Exit and other-related costs (1)
3 — 1 6 6 16
Asset impairments and accelerated depreciation — — — (1) 2 1
Total $ 3 $ — $ 1 $ 5 $ 9 $ 18

~~(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.~~

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Restructuring, impairment, and related charges, net, for the nine months ended December 31, ~~2022~~2023 and ~~2021~~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

Nine Months Ended December 31, 2021
(In millions)
U.S. Pharmaceutical (1)
Prescription Technology Solutions (1)
Medical-Surgical Solutions (1)
International (2)
Corporate (1)
Total
Severance and employee-related costs, net $ 2 $ (1) $ 1 $ 10 $ 2 $ 14
Exit and other-related costs (3)
7 2 3 21 33 66
Asset impairments and accelerated depreciation 16 17 5 35 55 128
Total $ 25 $ 18 $ 9 $ 66 $ 90 $ 208

~~(1)Includes costs related to the transition to a partial remote work model described above.~~

~~(2)Includes costs related to the transition to a partial remote work model described above, U.K. operating model and cost optimization efforts, and costs for optimization programs in Canada.~~

~~(3)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.~~

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

The following table summarizes the activity related to the liabilities associated with the Company’s restructuring initiatives for the nine months ended December 31, ~~2022:~~2023:


(In millions)	(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total		(In millions)	U.S. Pharmaceutical	Prescription Technology Solutions	Medical-Surgical Solutions	International	Corporate	Total
Balance, March 31, 2022 (1)		$	11	$	3	$	1	$	56	$	59	$	130
Balance, March 31, 2023 (1)
Restructuring, impairment, and related charges, net	Restructuring, impairment, and related charges, net	9		15		3		19		38		84
Non-cash charges	Non-cash charges	(4)		(11)		—		(2)		4		(13)
Cash payments	Cash payments	(4)		(4)		(3)		(7)		(57)		(75)
Other (2)	Other (2)	(1)		—		—		(54)		1		(54)
Balance, December 31, 2022 (3)		$	11	$	3	$	1	$	12	$	45	$	72
Balance, December 31, 2023 (3)

(1)As of March 31, ~~2022,~~2023, the total reserve balance was ~~$130~~$92 million, of which ~~$58~~$66 million was recorded in “Other accrued ~~liabilities,” $36 million was recorded in “Liabilities held for sale,”~~liabilities” and ~~$36~~$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 certain other liabilities. For the Company’s International segment, other also includes a reduction to the liability for the divestitures of the E.U. disposal group and the U.K. disposal group in fiscal 2023, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.”

(3)As of December 31, ~~2022,~~2023, the total reserve balance was ~~$72~~$54 million, of which ~~$48~~$21 million was recorded in “Other accrued liabilities” and ~~$24~~$33 million was recorded in “Other non-current liabilities” in the Company’s Condensed Consolidated Balance Sheet.

Table of Contents

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,
	Three Months Ended December 31,																	Three Months Ended December 31,			Nine Months Ended December 31,
(Dollars in millions)	(Dollars in millions)	2022			2021			2022			2021			(Dollars in millions)	2023		2022		2023			2022
Income tax expense		$	329		$	238		$	799		$	396
Income tax expense (benefit)
Reported income tax rate	Reported income tax rate	22.7		%	85.9		%	21.6		%	30.9		%	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 ~~non-cash charges related to remeasuring the value of the E.U. and U.K. disposal groups held for sale to fair value less costs to sell in fiscal 2022,~~ 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. During the third quarter of fiscal 2022, the Company recognized a net discrete tax benefit of $42 million primarily related to a decrease in the income recognized pursuant to the global intangible low-tax income (“GILTI”) regime in its 2021 U.S. Federal income tax return and the statute of limitation expirations in various taxing jurisdictions. During the nine months ended December 31, 2021, the Company recognized net discrete tax benefits primarily related to statute of limitation expirations of $115 million in various taxing jurisdictions and $81 million related to a reduction of GILTI income in the prior year.

During the nine months ended December 31, 2021, the Company recorded non-cash pre-tax charges of $517 million primarily to remeasure the E.U. disposal group to fair value less costs to sell, and, during the three and nine months ended December 31, 2021, recorded non-cash pre-tax charges of $853 million to remeasure the U.K. disposal group and the Austrian business to fair value less costs to sell, as described in Financial Note 2, “Business Acquisitions and Divestitures.” The Company’s reported income tax rates for the three and nine months ended December 31, 2021 were unfavorably impacted by this due to the non-deductible nature of the majority of these charges for income tax purposes.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

As of December 31, ~~2022,~~2023, the Company had ~~$1.5~~$1.4 billion of unrecognized tax benefits, of which ~~$1.4~~$1.3 billion would reduce income tax expense and the effective tax rate if recognized. During the next twelve months, ~~it is reasonably possible that our~~the Company does not anticipate any material reduction in its unrecognized tax benefits ~~may decrease by as much as $170 million to $195 million due to settlements of tax examinations and statute of limitation expirations~~ based on the information currently available. However, this may change as the Company continues to have ongoing discussions with various taxing authorities throughout the year, and if the ultimate resolution of unrecognized tax benefits differs from this estimated range, the Company will record any additional income tax expense or benefit as necessary in the appropriate period. The unrecognized tax benefit may also increase or decrease due to future developments in opioid-related litigation and claims, as discussed in Financial Note 12, “Commitments and Contingent Liabilities.”year.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The ~~Internal Revenue Service (“IRS”) is currently examining the Company’s U.S. corporation income tax returns for 2018 and 2019. The~~ Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years ~~2014~~2016 through the current fiscal year.

5. ~~Redeemable Noncontrolling Interests and Noncontrolling Interests~~

~~Redeemable Noncontrolling Interests~~

The Company’s previously recognized redeemable noncontrolling interests primarily related to its former consolidated subsidiary, McKesson Europe. Under the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”), the noncontrolling shareholders of McKesson Europe are entitled to receive an annual recurring compensation amount of €0.83 per share. The Company recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $8 million during the nine months ended December 31, 2021. This amount was recorded in “Net income attributable to noncontrolling interests” in the Company’s Condensed Consolidated Statement of Operations and the corresponding liability balance was recorded in “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheet.

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe had a right to put (“Put Right”) their noncontrolling shares at €22.99 per share, increased annually for interest in the amount of five 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”). During the nine months ended December 31, 2021, the Company paid $1.0 billion to purchase 34.5 million shares of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders. This decreased the carrying value of the redeemable noncontrolling interests by $983 million for the nine months ended December 31, 2021, and the Company recorded the associated effect of the increase in the Company’s ownership interest of $178 million as an increase to McKesson stockholders’ additional paid-in capital. The Put Right expired on June 15, 2021, at which point the remaining shares owned by the minority shareholders, with a carrying value of $287 million, were transferred from “Redeemable noncontrolling interests” to “Noncontrolling interests” in the Condensed Consolidated Balance Sheet.

~~Noncontrolling Interests~~

~~Noncontrolling interests represent third-party equity interests in the Company’s consolidated entities primarily related to the formation of an oncology research business during the third~~fourth quarter of fiscal 2023, ClarusONE Sourcing Services LLP, and Vantage Oncology Holdings, LLC. As discussed above, after June 15, 2021, noncontrolling interests also represented minority shareholder equity interests in McKesson Europe. The Company’s noncontrolling interest in McKesson Europe was included in the ~~divestiture of the E.U. disposal group in October 2022. Refer~~Internal Revenue Service (“IRS”) communicated proposed adjustments to ~~Financial Note 2, “Business Acquisitions and Divestitures,” for more information on these transactions.~~

~~The Company allocated $41 million and $46 million of net~~taxable income to noncontrolling interests during the three months ended December 31, 2022 and 2021, respectively, and $123 million and $128 million during the nine months ended December 31, 2022 and 2021, respectively, which was recorded in “Net income attributable to noncontrolling interests”reported in the Company’s ~~Condensed Consolidated Statements~~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 ~~Operations.~~$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)

~~Changes in noncontrolling interests for the three and nine months ended December 31, 2022 were as follows:~~


~~(In millions)~~	~~Noncontrolling Interests~~
~~Balance, September 30, 2022~~	$	~~518~~
~~Net income attributable to noncontrolling interests~~	41

~~Payments to noncontrolling interests~~	~~(36)~~
~~Reclassification of recurring compensation to other accrued liabilities~~	~~(1)~~


~~Formation of an oncology research business~~	~~225~~
~~Derecognition of noncontrolling interests in McKesson Europe~~	~~(382)~~
~~Other~~	1
~~Balance, December 31, 2022~~	$	~~366~~


~~(In millions)~~	~~Noncontrolling Interests~~
~~Balance, March 31, 2022~~	$	~~480~~
~~Net income attributable to noncontrolling interests~~	~~123~~
~~Other comprehensive income~~	44
~~Payments to noncontrolling interests~~	~~(113)~~
~~Reclassification of recurring compensation to other accrued liabilities~~	~~(5)~~


~~Formation of an oncology research business~~	~~225~~
~~Derecognition of noncontrolling interests in McKesson Europe~~	~~(382)~~
~~Other~~	~~(6)~~
~~Balance, December 31, 2022~~	$	~~366~~

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~Changes in redeemable noncontrolling interests and noncontrolling interests for the three and nine months ended December 31, 2021 were as follows:~~

~~(In millions)~~

~~Noncontrolling Interests~~

~~Balance, September 30, 2021~~

~~484~~

~~Net income attributable to noncontrolling interests~~

~~Other comprehensive loss~~

~~(2)~~

~~Payments to noncontrolling interests~~

~~(38)~~

~~Reclassification of recurring compensation to other accrued liabilities~~

~~(3)~~

~~Balance, December 31, 2021~~

~~487~~

(In millions) Noncontrolling Interests Redeemable Noncontrolling Interests
Balance, March 31, 2021 $ 196 $ 1,271
Net income attributable to noncontrolling interests 128 8
Other comprehensive income (loss) (2) 3
Payments to noncontrolling interests (117) —
Reclassification of recurring compensation to other accrued liabilities (5) (8)
Exercises of Put Right — (983)
Reclassification of McKesson Europe redeemable noncontrolling interests 287 (287)
Other — (4)
Balance, December 31, 2021 $ 487 $ —

6.5. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share is computed by dividing net income ~~(loss)~~ 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. Diluted loss per common share for the three months ended December 31, 2021 was calculated by excluding all dilutive securities from the denominator of the share computation due to their anti-dilutive effects. Less than 1one million of potentially dilutive securities for the three and nine months ended December 31, ~~2022,~~2023 and ~~for the nine months ended December 31, 2021,~~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)

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

Three Months Ended December 31, Nine Months Ended December 31,
(In millions, except per share amounts) 2022 2021 2022 2021
Income from continuing operations $ 1,119 $ 39 $ 2,899 $ 885
Net income attributable to noncontrolling interests (41) (46) (123) (136)
Income (loss) from continuing operations attributable to McKesson Corporation 1,078 (7) 2,776 749
Income (loss) from discontinued operations, net of tax 1 — (3) (3)
Net income (loss) attributable to McKesson Corporation $ 1,079 $ (7) $ 2,773 $ 746
Weighted-average common shares outstanding:
Basic 139.9 151.6 142.5 154.0
Effect of dilutive securities:
Stock options 0.2 — 0.3 0.2
Restricted stock units (1)
0.9 — 0.9 1.6
Diluted 141.0 151.6 143.7 155.8
Earnings (loss) per common share attributable to McKesson Corporation: (2)
Diluted
Continuing operations $ 7.65 $ (0.04) $ 19.32 $ 4.81
Discontinued operations 0.01 — (0.02) (0.02)
Total $ 7.66 $ (0.04) $ 19.30 $ 4.79
Basic
Continuing operations $ 7.70 $ (0.04) $ 19.48 $ 4.87
Discontinued operations 0.01 — (0.02) (0.02)
Total $ 7.71 $ (0.04) $ 19.46 $ 4.85

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

~~(2)Certain computations may reflect rounding adjustments.~~

7.6. Goodwill and Intangible Assets, Net

Goodwill

The Company evaluates goodwill for impairment on an annual basis in the first fiscal quarter, and ~~at an interim date,~~more frequently if indicators offor potential impairment exist. ~~During the first quarter of fiscal 2023, the Company voluntarily changed its annual goodwill~~Goodwill impairment testing ~~date from October 1~~st ~~to April 1~~st ~~to align with~~is conducted at the reporting unit level, which is generally defined as an operating segment or one level below an operating segment (also known as a ~~change in timing~~component), for which discrete financial information is available and segment management regularly reviews the operating results of ~~the Company’s annual long-term planning process. Accordingly, management determined~~ that the change in accounting principle is preferable under the circumstance. This change has been applied prospectively from April 1, 2022 as retrospective application is deemed impracticable due to the inability to objectively determine the assumptions and significant estimates used in earlier periods without the benefit of hindsight. This change was not material to the Company’s consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill impairment charge.reporting unit. The annual impairment testing performed ~~as of April 1, 2022~~in fiscal 2024 and fiscal 2023 did not indicate anany impairment of goodwill.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

Changes in the carrying amount of goodwill were as follows:


(In millions)	(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Total		(In millions)	U.S. Pharmaceutical (1)	Prescription Technology Solutions	Medical-Surgical Solutions	International	Total
Balance, March 31, 2022		$	3,923	$	1,542	$	2,453	$	1,533	$	9,451
Balance, March 31, 2023

Goodwill acquired	Goodwill acquired	160		463		—		2		625

Goodwill acquired

Goodwill acquired
Foreign currency translation adjustments, net	Foreign currency translation adjustments, net	(21)		—		—		(109)		(130)
Other adjustments		(12)		—		—		—		(12)
Balance, December 31, 2022		$	4,050	$	2,005	$	2,453	$	1,426	$	9,934
Other adjustments (2)
Balance, December 31, 2023

(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.

(2)Includes purchase price allocation adjustments related to the formation of SCRI Oncology, which is discussed in Financial Note 2, “Business Acquisitions and Divestitures.”

Intangible Assets

Information regarding intangible assets was as follows:


		December 31, 2022							March 31, 2022							December 31, 2023			March 31, 2023
(Dollars in millions)	(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		(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	Customer relationships	12	$	2,974	$	(1,735)	$	1,239	$	2,777	$	(1,691)	$	1,086
Service agreements	Service agreements	8	1,071		(608)		463		1,085		(573)		512

Trademarks and trade names	Trademarks and trade names	12	833		(418)		415		819		(386)		433
Trademarks and trade names
Trademarks and trade names
Technology	Technology	11	261		(124)		137		128		(116)		12
Other	Other	9	191		(172)		19		187		(171)		16
Total			$	5,330	$	(3,057)	$	2,273	$	4,996	$	(2,937)	$	2,059
Total (1)

~~Amortization expense~~(1)During the third quarter of fiscal 2024, the Company performed a review of its intangible assets ~~was $57 million~~ and ~~$80 million~~removed from the balance sheet $1.4 billion of fully amortized gross intangible assets and the corresponding accumulated amortization associated with the assets that no longer provide an economic benefit, are no longer in use, or for which the three months ended December 31, 2022 and 2021, respectively, and $170 million and $262 million for the nine months ended December 31, 2022 and 2021, respectively. Estimated amortization expense of these assets is as follows: $63 million, $243 million, $237 million, $204 million, and $198 million for the remainder of fiscal 2023 and each of the succeeding years through fiscal 2027, respectively, and $1.3 billion thereafter. related contract has expired.

All intangible assets were subject to amortization as of December 31, ~~2022~~2023 and March 31, ~~2022.~~2023. Amortization expense of intangible assets was $62 million and $57 million for 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 ~~E.U. disposal group previously classified as held for sale and disposed of in October 2022 ceased~~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 fiscal ~~2022.~~

~~Refer to Financial Note 2, “Business Acquisitions~~2024 and ~~Divestitures,” for a description~~each of the ~~goodwill~~succeeding years through fiscal 2028, respectively, and ~~intangible assets acquired as part of the RxSS acquisition and formation of an oncology research business.~~$1.2 billion thereafter.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

8.7. Debt and Financing Activities

Long-term debt consisted of the following:


(In millions)	(In millions)	December 31, 2022		March 31, 2022		(In millions)	December 31, 2023	March 31, 2023
U.S. Dollar notes (1) (2)	U.S. Dollar notes (1) (2)
2.70% Notes due December 15, 2022		$	—	$	400
2.85% Notes due March 15, 2023		360		360
3.80% Notes due March 15, 2024
3.80% Notes due March 15, 2024
3.80% Notes due March 15, 2024	3.80% Notes due March 15, 2024	918		918
0.90% Notes due December 3, 2025	0.90% Notes due December 3, 2025	500		500
5.25% Notes due February 15, 2026
1.30% Notes due August 15, 2026	1.30% Notes due August 15, 2026	498		498
7.65% Debentures due March 1, 2027	7.65% Debentures due March 1, 2027	150		150
3.95% Notes due February 16, 2028	3.95% Notes due February 16, 2028	343		343
4.90% Notes due July 15, 2028
4.75% Notes due May 30, 2029	4.75% Notes due May 30, 2029	196		196
5.10% Notes due July 15, 2033
6.00% Notes due March 1, 2041	6.00% Notes due March 1, 2041	218		217
4.88% Notes due March 15, 2044	4.88% Notes due March 15, 2044	255		255
Foreign currency notes (1) (3)	Foreign currency notes (1) (3)
1.50% Euro Notes due November 17, 2025	1.50% Euro Notes due November 17, 2025	640		662
1.50% Euro Notes due November 17, 2025
1.50% Euro Notes due November 17, 2025
1.63% Euro Notes due October 30, 2026	1.63% Euro Notes due October 30, 2026	535		554
3.13% Sterling Notes due February 17, 2029	3.13% Sterling Notes due February 17, 2029	544		582

Term loan (4)		500		—
Lease and other obligations
Lease and other obligations
Lease and other obligations	Lease and other obligations	199		244
Total debt	Total debt	5,856		5,879
Less: Current portion	Less: Current portion	404		799
Total long-term debt	Total long-term debt	$	5,452	$	5,080

(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.

~~(4)This loan is under the 2022 Term Loan Credit Facility.~~

Long-Term Debt

The Company’s long-term debt includes both U.S. dollar and foreign currency-denominated borrowings. ~~Debt outstanding totaled $5.9 billion at~~At December 31, ~~2022~~2023 and March 31, ~~2022,~~2023, $5.7 billion and $5.6 billion of total debt was outstanding, respectively, of which ~~$404~~$48 million and ~~$799~~$968 million, respectively, was included under the caption “Current portion of long-term debt” ~~within~~in the Company’s Condensed Consolidated Balance Sheets. ~~On December 15, 2022, the Company retired its $400 million outstanding principal amount of 2.70% notes upon maturity. These notes were repaid using cash on hand.~~

On July 23, 2021, the Company completed a cash tender offer for a portion of its existing outstanding (i) 2.85% Notes due 2023, (ii) 3.80% Notes due 2024, (iii) 7.65% Debentures due 2027, (iv) 3.95% Notes due 2028, (v) 4.75% Notes due 2029, (vi) 6.00% Notes due 2041, and (vii) 4.88% Notes due 2044 (collectively referred to herein as the “Tender Offer Notes”). In connection with the tender offer, the Company paid an aggregate consideration of $1.1 billion to redeem $922 million principal amount of the notes at a redemption price equal to 100% of the principal amount and premiums of $182 million, plus accrued and unpaid interest of $14 million. The redemption of the Tender Offer Notes was accounted for as a debt extinguishment. As a result of the redemption, the Company incurred a pre-tax loss on debt extinguishment of $191 million, which included premiums of $182 million as well as the write-off of unamortized debt issuance costs and transaction fees incurred totaling $9 million.

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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.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Revolving Credit Facilities

On November 7, 2022, the Company entered into a Credit Agreement (the “2022 Credit Facility”), that provides a syndicated $4.0 billion ~~five-year~~ senior unsecured credit facility with a $3.6 billion aggregate sublimit of availability in Canadian dollars, British pound sterling, and Euro. The 2022 Credit Facility was scheduled to mature in November 2027. On November 7, 2023, the maturity date of the 2022 Credit Facility was extended from November 2027 to November 2028. The 2022 Credit Facility replaced the Company’s previous syndicated $4.0 billion five-year senior unsecured credit facility, dated as of September 25, 2019, as amended (the “2020 Credit Facility”), which was scheduled to mature in September 2024. The 2020 Credit Facility was terminated in connection with the execution of the 2022 Credit Facility. There were no borrowings under the 2020 Credit Facility during the nine months ended December 31, 2022, and ~~2021, and~~ no amounts outstanding at the time of its termination.

~~Borrowings~~ There were no borrowings under the 2022 Credit Facility ~~bear interest based upon~~during the Term Secured Overnight Financing Rate (“SOFR”) for credit extensions denominated in U.S. dollars, the Sterling Overnight Index Average Reference Rate for credit extensions denominated in British pound sterling, the Euro Interbank Offered Rate for credit extensions denominated in Euros, the Canadian Dealer Offered Rate for credit extensions denominated in Canadian dollars, a prime rate, or alternative overnight rates, as applicable, plus agreed upon margins. The 2022 Credit Facility contains various customary investment grade covenants, including a financial covenant which obligates the Company to maintain a maximum Total Debt to Consolidated EBITDA ratio, as defined in the 2022 Credit Facility. If the Company does not comply with these covenants, its ability to use the 2022 Credit Facility may be suspendednine months ended December 31, 2023 and ~~repayment of any~~no amounts outstanding ~~balances under the 2022 Credit Facility may be required.~~at December 31, 2023. At December 31, ~~2022,~~2023, the Company was in compliance with all covenants under the 2022 Credit Facility. The 2022 Credit Facility also permits the Company to establish key performance indicators with respect to certain environmental, social, and governance targets of the Company in consultation with certain sustainability coordinators, and enter into an amendment to the 2022 Credit Facility to provide for certain adjustments to the otherwise applicable facility fee and margins. The 2022 Credit Facility is scheduled to mature in November 2027. The remaining terms and conditions of the 2022 Credit Facility are substantially similar to those previously in place under the 2020 Credit Facility. The Company can use funds obtained under the 2022 Credit Facility for general corporate purposes. There were no borrowings under the 2022 Credit Facility during the third quarter of fiscal 2023 and no amounts outstanding as of December 31, 2022.

The Company also maintained bilateral credit facilities primarily denominated in Euros which were transferred as part of the divestiture of the E.U. disposal group in October 2022. Borrowings and repayments were not material during the nine months ended December 31, 2022 and 2021. Amounts outstanding under these credit lines were not material as of March 31, 2022.

~~2022 Term Loan Credit Facility~~

~~On November 7, 2022, the Company entered into a~~ ~~Credit Agreement (the “2022 Term Loan Credit Facility”) pursuant to which t~~he Company has an unsecured delayed draw term loan facility up to $500 million which was available for borrowing for 90 days after the closing date in up to three separate borrowings, and which is subject to increase as provided for in the 2022 Term Loan Credit Facility. ~~The 2022 Term Loan Credit Facility~~ contains various customary investment grade covenants, including a financial covenant which obligates the Company to maintain a maximum Total Debt to Consolidated EBITDA ratio, as defined in the 2022 Term Loan Credit Facility. At December 31, 2022, the Company was in compliance with all covenants under the 2022 Term Loan Credit Facility. In the case of event of default under the 2022 Term Loan Credit Facility, the lenders may elect, among other things, to declare any unpaid amounts obtained under the 2022 Term Loan Credit Facility to be immediately due and payable. The 2022 Term Loan Credit Facility bears interest based upon Term SOFR, a prime rate, or alternative overnight rates, as applicable, plus agreed upon margins. The remaining terms and conditions of the 2022 Term Loan Credit Facility are substantially similar to those under the 2022 Credit Facility. The Company can use funds obtained under the 2022 Term Loan Credit Facility for general corporate purposes. As of December 31, 2022, the Company had $500 million in borrowings outstanding under the 2022 Term Loan Credit Facility which bear interest at three-month Term SOFR plus 110 basis points, payable quarterly, and mature on November 7, 2025.

Commercial Paper

The Company maintains a commercial paper program to support its working capital requirements and for other general corporate purposes. Under the program, the Company can issue up to $4.0 billion in outstanding commercial paper notes. During the nine months ended December 31, 2023, the Company borrowed $4.8 billion and repaid $4.6 billion under the program. During the nine months ended December 31, 2022, the Company borrowed $1.1 billion and repaid $483 million under the program. ~~During the nine months ended December 31, 2021, the Company borrowed $3.6 billion and repaid $3.3 billion under the program.~~ At December 31, ~~2022,~~2023, there were ~~$617~~$218 million commercial paper notes outstanding included under the caption “Short-term borrowings” in the Company’s Condensed Consolidated Balance Sheets at a weighted average interest rate of ~~4.73%~~5.53%. At March 31, ~~2022,~~2023, there were no commercial paper notes outstanding.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

9.~~Pension Benefits~~

The net periodic expense for defined benefit pension plans was not material for each of the three and nine months ended December 31, 2022 and 2021. Cash contributions to these plans were $2 million and $18 million for the three months ended December 31, 2022 and 2021, respectively, and $7 million and $35 million for the nine months ended December 31, 2022 and 2021, respectively. The cash contributions for the three and nine months ended December 31, 2021 included a $17 million payment to a U.K. pension plan. The projected unit credit method is utilized in measuring net periodic pension expense over the employees’ service life for the pension plans. Unrecognized actuarial losses exceeding 10% of the greater of the projected benefit obligation or the market value of assets are amortized on a straight-line basis over the average remaining future service periods and estimated life expectancy.

As part of the European divestiture activities discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” pension liabilities of $85 million, as part of the E.U. disposal group, and pension assets of $49 million, as part of the U.K. disposal group, were included under the captions “Liabilities held for sale” and “Assets held for sale,” respectively, in the Condensed Consolidated Balance Sheet as of March 31, 2022. During the third quarter of fiscal 2023, the Company derecognized pension liabilities totaling $75 million and released $13 million of gains from accumulated other comprehensive loss related the divestiture of the E.U. disposal group. During the first quarter of fiscal 2023, the Company derecognized pension assets of $49 million and released $30 million of accumulated other comprehensive loss related to the divestiture of the U.K. disposal group.

~~10.~~8. Hedging Activities

In the normal course of business, the Company is exposed to interest rate and foreign currency exchange rate fluctuations. At times, the Company limits these risks through the use of derivatives as described below. In accordance with the Company’s policy, derivatives are only used for hedging purposes. ItThe Company does not use derivatives for trading or speculative purposes. The Company uses ~~different~~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

The Company conducts its business worldwide in U.S. dollars and the functional currencies of its foreign subsidiaries, including ~~Euro,~~ Canadian dollars, Euro, and British ~~pound~~pounds sterling. Changes in foreign currency exchange rates could have a material adverse impact on the Company’s financial results that are reported in U.S. dollars. The Company is also exposed to foreign currency exchange rate risk related to its foreign subsidiaries, including intercompany loans denominated in non-functional currencies. The Company has certain foreign currency exchange rate risk programs that use foreign currency forward contracts and cross-currency swaps. These forward contracts and cross-currency swaps are generally used to offset the potential income statement effects from intercompany loans and other obligations denominated in non-functional currencies. These programs reduce but do not entirely eliminate foreign currency exchange rate risk. Subsequent to the completion of the U.K. divestiture in April 2022 as discussed in Financial Note 2, “Business Acquisitions and Divestitures,” the Company’s foreign currency exchange rate risk is limited to the Canadian dollar and Euro.

Non-Derivative Instruments Designated as Hedges

~~At March 31, 2022,~~Prior to the divestiture of the E.U. disposal group, the Company had €1.1 billion of Euro-denominated notes designated as non-derivative net investment hedges. These hedges were utilized to hedge portions of 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. For all notes that 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 were recorded as foreign currency translation adjustments in “Accumulated other comprehensive loss” ~~in the Condensed Consolidated Statements of Stockholders’ Equity (Deficit)~~ where they offset foreign currency translation gains and losses recorded on the Company’s net investments. To the extent foreign currency denominated notes designated as net investment hedges were ineffective, changes in carrying value attributable to the change in spot rates ~~are~~were recorded in earnings.

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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, 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 ~~Statements~~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 as follows:


		Three Months Ended December 31,				Nine Months Ended December 31,
	Three Months Ended December 31,												Three Months Ended December 31,		Nine Months Ended December 31,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023	2022		2023		2022
Non-derivatives designated as net investment hedges: (1)	Non-derivatives designated as net investment hedges: (1)
Euro-denominated notes (2)	Euro-denominated notes (2)	$	(132)	$	23	$	7	$	34
Euro-denominated notes (2)
Euro-denominated notes (2)

(1)There was no ineffectiveness in these hedges for the three and nine months ended December 31, ~~2022 and 2021.~~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, ~~2022~~2023 and March 31, ~~2022,~~2023, the notional amounts of the Company’s outstanding derivatives were as follows:

December 31, 2022 March 31, 2022
(In millions) Currency Maturity Date Notional
Derivatives designated as net investment hedges: (1)
Cross-currency swaps (2)
CAD Nov-24 $ 500 $ 500
Derivatives designated as fair value hedges: (1)
Cross-currency swaps (3)
GBP Feb-23 £ 450 £ 450
Cross-currency swaps (4)
EUR Aug-25 to Jul-26 € 1,100 € —
Floating interest rate swaps (5)
USD Aug-27 to Sep-29 $ 750 $ —
Derivatives designated as cash flow hedges: (1)
Cross-currency swaps (2)
CAD Jul-22 to Jan-24 $ 1,085 $ 1,678
Fixed interest rate swaps (6)
USD Nov-22 $ — $ 500


			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, 2023.

(2)There was no ineffectiveness in these hedges for the three and nine months ended December 31, ~~2022~~2023 and ~~2021.~~2022.

~~(2)~~(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.

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

~~(4)The Company entered into cross-currency fixed-to-fixed interest rate swaps to mitigate the foreign currency exchange fluctuations on its Euro-denominated notes.~~

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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)~~The Company entered into~~Represents fixed-to-floating interest rate swaps to hedge the 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 payments due to a third party in the United Kingdom for capital expenditures.

(7)The Company entered into agreements with financial institutions to lock ~~into~~in the fixed benchmark interest ~~rates~~rate for a future bond issuance, which were terminated during the ~~third~~first quarter of fiscal ~~2023~~2024 as discussed further ~~discussed~~ below.

Net Investment Hedges

The Company uses cross-currency swaps to hedge portions of the Company’s net investments denominated in Canadian dollars against the effect of 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 hedges are ineffective, changes in carrying value attributable to the change in spot rates are recorded in earnings.

Fair Value Hedges

The Company uses cross-currency swaps to hedge the changes in the fair value of ~~British pound sterling notes resulting from changes in benchmark interest rates and~~its foreign exchange rates. During the third quarter of fiscal 2023, the Company entered into cross-currency fixed-to-fixed interest rate swaps with a total notional amount of €1.1 billion to hedge the changes in the fair value of its underlying Euro-denominatedcurrency notes resulting from changes in benchmark interest rates and foreign currency exchange rates.

~~During the nine months ended December 31, 2022, the~~ The Company also ~~entered into floating~~uses interest rate swaps to ~~convert $750 million of its fixed rate debt to floating interest rate in order to~~ hedge the ~~changes in fair value caused by fluctuations in the benchmark interest rate. The~~ changes in the fair value of ~~these derivatives are recorded~~its U.S. dollar notes resulting from changes in ~~“Interest expense” in the Condensed Consolidated Statements of Operations.~~

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 the change in the fair value of the excluded component and the amount amortized into earnings during the period is recorded in other comprehensive income.

Cash Flow Hedges

From time to time, the Company enters into cross-currency swaps to hedge intercompany loans denominated in non-functional currencies to reduce the income statement effects arising from fluctuations in foreign currency ~~rates and~~exchange rates. The Company also enters into forward contracts to hedge the variability of future benchmark interest rates on any planned bond ~~issuances.~~issuances and to offset the potential income statement effects from obligations denominated in non-functional currencies. The effective portion of changes in the fair value of these hedges is recorded in accumulated other comprehensive 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 reclassified from accumulated other comprehensive loss and recorded in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations were not material for the three and nine months ended December 31, ~~2022~~2023 and ~~2021.~~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 quarter of fiscal 2023, the Company terminated its $500 millionnotional fixed interest rate swaps and recognized a gain of $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

Derivative instruments not designated as hedges are marked-to-market at the end of each accounting period with the change in fair value included in earnings. ~~From time to time, the Company has entered into forward contracts to hedge the Euro against cash flows denominated in British pound sterling and other European currencies.~~ Changes in the fair values for contracts not designated as hedges ~~were~~are recorded directly into earnings in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. ~~Changes in the fair values were not material for the three and nine months ended December 31, 2021 and the~~The Company did not have any outstanding derivative instruments not designated as hedges during ~~fiscal 2023. Gains or losses from these contracts were largely offset by changes in~~ the ~~value of the underlying intercompany obligations.~~

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

periods presented.

Other Information on Derivative Instruments

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


		Three Months Ended December 31,				Nine Months Ended December 31,
	Three Months Ended December 31,												Three Months Ended December 31,		Nine Months Ended December 31,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023	2022		2023		2022
Derivatives designated as net investment hedges:	Derivatives designated as net investment hedges:
Cross-currency swaps	Cross-currency swaps	$	(7)	$	(2)	$	26	$	3
Cross-currency swaps
Cross-currency swaps

Derivatives designated as cash flow hedges:
Cross-currency swaps		$	(1)	$	(5)	$	(6)	$	(6)
Derivatives designated as cash flow and other hedges:
Derivatives designated as cash flow and other hedges:
Derivatives designated as cash flow and other hedges:
Cross-currency swaps (1)
Cross-currency swaps (1)
Cross-currency swaps (1)
Foreign currency forwards
Fixed interest rate swaps	Fixed interest rate swaps	(85)		(3)		(30)		9

(1)Includes other comprehensive income (loss) related to the excluded component of certain fair value hedges.

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


	Balance Sheet Caption																					Balance Sheet Caption	December 31, 2023		March 31, 2023
			Fair Value of Derivative																					Fair Value of Derivative	U.S. Dollar Notional	Fair Value of Derivative	U.S. Dollar Notional
(In millions)
Derivatives designated for hedge accounting:
Derivatives designated for hedge accounting:
Derivatives designated for hedge accounting:

Cross-currency swaps (current)
Cross-currency swaps (current)
Cross-currency swaps (current)
Cross-currency swaps (non-current)

		Balance Sheet Caption		December 31, 2022							March 31, 2022
				Fair Value of Derivative				U.S. Dollar Notional			Fair Value of Derivative								U.S. Dollar Notional
(In millions)				Asset		Liability			Asset				Liability
Derivatives designated for hedge accounting:
Cross-currency swaps (current)		Prepaid expenses and other/Other accrued liabilities		$	18	$	17		$	1,080			$	30			$	39		$	1,537
Cross-currency swaps (non-current)		Other non-current assets/liabilities		68		—		1,774			—				36				679
Fixed interest rate swaps (current)		Prepaid expenses and other		—		—		—			31				—				500
Interest rate swaps (non-current)

Floating interest rate swaps (non-current)		Other non-current liabilities		—		30		750			—				—				—
Interest rate swaps (non-current)

Interest rate swaps (non-current)
Foreign currency forwards (current)
Foreign currency forwards (non-current)
Total	Total			$	86	$	47				$	61			$	75

Refer to Financial Note ~~11,~~9, "Fair Value Measurements," for more information on these recurring fair value measurements.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~11.~~9. Fair Value Measurements

The Company measures certain assets and liabilities at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. The fair value hierarchy consists of three levels of inputs that may be used to measure fair value as follows:

Level 1 - quoted prices in active markets for identical 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 significant to the fair value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Cash and cash equivalents at December 31, ~~2022~~2023 and March 31, ~~2022~~2023 included investments in money market funds of ~~$696~~$432 million and ~~$981 million,~~$1.4 billion, respectively, which are reported at fair value. The fair value of 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. ~~The Company’s marketable securities were not material at December 31, 2022 and March 31, 2022.~~

Fair values of the Company’s interest rate swaps, ~~and~~ cross-currency swaps, and foreign currency forward contracts were determined using observable inputs from available market 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 ~~10,~~8, “Hedging Activities,” for fair ~~value~~values and other information on the Company’s derivatives.

The Company holds investments in equity securities of U.S. growth stage companies that address both current and emerging business challenges in the healthcare industry and which had a carrying ~~values~~value of ~~$253~~$213 million and ~~$346~~$237 million at December 31, ~~2022~~2023 and March 31, ~~2022,~~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. During the nine months ended December 31, 2022, the Company recognized impairment charges and realized gains on the exit of certain investments. During the nine months ended December 31, 2021, certain of the Company’s investments in equity securities without readily determinable fair values were remeasured to fair value based on transactions which resulted in changes in the observable price of those securities. The impact from the Company’s investments in these equity securities were net losses of $24 million and net gains of $104 million for the nine months ended December 31, 2022 and 2021, respectively. These amounts were recorded in “Other income, net” in the Condensed Consolidated Statements of Operations. 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 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 three and nine months ended December 31, 2023 and 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, ~~2022,~~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. At March 31, 2022, the assets and liabilities associated with the disposal groups in Europe previously classified as held for sale were measured at the lower of carrying value or fair value less costs to sell. The E.U. disposal group was divested in October 2022 and the U.K. disposal group was divested in April 2022. Refer to Financial Note 2, “Business Acquisitions and Divestitures," for more information on these transactions. At March 31, 2022, assets measured at fair value on a nonrecurring basis also included certain long-lived assets within the International segment related to the Company’s previous operations in Denmark and its retail pharmacy businesses in Canada.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. ~~The~~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 at December 31, ~~2022~~2023 and March 31, ~~2022.~~2023.

Other Fair Value Disclosures

At December 31, ~~2022~~2023 and March 31, ~~2022,~~2023, the carrying amounts of cash, certain cash equivalents, restricted cash, ~~marketable securities,~~ receivables, drafts and accounts payable, short-term borrowings, and other current assets and liabilities approximated their estimated fair values because of the short-term maturity of these financial instruments.

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

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, 2022

March 31, 2022

December 31, 2023

(In millions)

Carrying Value

Fair Value

Carrying Value

Fair Value

Long-term debt, including current maturities

5,856

5,607

5,879

5,999

Long-term debt, including current maturities

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

~~Restricted Cash~~

Restricted cash, included within “Prepaid expenses and other” in the Company’s Condensed Consolidated Balance Sheet, primarily consisted of $395 million as of March 31, 2022 held in escrow related to obligations under settlement agreements for opioid-related claims of governmental entities and were released during the nine months ended December 31, 2022, as discussed in more detail in Financial Note 12, “Commitments and Contingent Liabilities.”

Goodwill

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

Long-lived Assets

The Company measures certain long-lived and intangible assets at fair value on a nonrecurring basis 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.

~~The Company~~ utilizes multiple approaches, including the DCF model and market approaches, for estimating the fair value of intangible assets. The future cash flows used in the analysis are based on internal cash flow projections from its long-range plans and include significant assumptions by management. Accordingly, the fair value assessment of long-lived assets is considered a Level 3 fair value measurement.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~12.~~10. Commitments and Contingent Liabilities

In addition to commitments and obligations incurred in the ordinary course of business, the Company is subject to a variety of claims and legal proceedings, including claims from customers and vendors, pending and potential legal actions for damages, governmental investigations, and other matters. The Company and its affiliates are parties to the legal claims and proceedings described below and in Financial Note 1817 to the Company’s ~~2022~~2023 Annual Report, Financial Note 1210 to the Company’s 10-Q filing for the quarterly period ended June 30, ~~2022~~2023, and Financial Note 1210 to the Company’s 10-Q filing for the quarterly period ended September 30, ~~2022~~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 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 operations.

Unless otherwise stated, the Company is unable to reasonably estimate the loss or a range of possible loss 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 effects of future events and decisions by third parties, such as courts and regulators, that will determine the ultimate resolution of the 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 claims to remain unresolved over many years. The Company reviews loss contingencies at least quarterly to determine whether the likelihood of loss has changed and whether it can make a reasonable estimate of the loss or range of loss. When the Company determines that a loss from a claim is probable and reasonably estimable, it records a liability for an estimated amount. The Company also provides disclosure when it is reasonably possible that a loss 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 Condensed Consolidated Statements of Operations consist of estimated loss contingencies related to opioid-related litigation ~~matters.~~matters, as well as any applicable income items or credit adjustments due to subsequent changes in estimates.

I. Litigation and Claims Involving Distribution of Controlled Substances

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

The Company and two other national pharmaceutical distributors (collectively “Distributors”) ~~settled~~entered into a settlement agreement (the “Settlement”) and consent judgment with ~~46 of 49 eligible~~48 states and their participating subdivisions, as well as the District of Columbia and all eligible territories ~~(collectively,~~(the “Settling Governmental Entities”) ~~effective on April 2, 2022 (“Settlement”)~~. 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 ~~Distributors~~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 ~~$19.5~~$6.3 billion ~~over 18 years, with up to approximately $7.4 billion to be paid by the Company for its 38.1% portion.~~through 2038. A minimum of 85% of the Settlement payments must be used by state and local governmental entities to remediate the opioid ~~epidemic. Most of~~epidemic, while the ~~remaining percentage~~remainder relates to plaintiffs’ attorneys’ fees and costs and ~~would~~will be ~~payable over a shorter time period. Under~~paid out through 2030. Pursuant to the Settlement, the Distributors ~~will establish~~are in the process of 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. ~~The Distributors do~~Alabama and West Virginia did not ~~admit liability or wrongdoing and do not waive any defenses pursuant to~~participate in the Settlement. ~~Consent judgments have been entered in all participating states and territories, and approximately 2,300 cases have been dismissed pursuant to the Settlement.~~

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

Three eligible states, Alabama, Washington, and Oklahoma did not join the Settlement, but they have all reached agreements with the Company. With respect to the claims of the Alabama attorney general, the Company has an agreement under which the Company will pay $141 million in ten equal annual installments and an additional approximately $33 million in attorney fees and costs to resolve the opioid-related claims of the state of Alabama and its subdivisions. Under ana separate settlement agreement with ~~the attorney general of Washington to settle the claims of the state of Washington~~Alabama and its subdivisions, the ~~Distributors~~Company has paid approximately $61 million as of December 31, 2023, and additionally will pay ~~up to $518~~approximately $113 million over 18 years, of which the Company’s portion will be 38.1% (or approximately $197 million), consistent with Washington’s allocation under the comprehensive framework, as well as certain additional attorneys’ fees and costs. Under an agreement with the attorney general of Oklahoma to settle claims of the state of Oklahoma and its subdivisions, the Distributors will pay up to approximately $308 million over 18 years, of which the Company’s portion would be 38.1% (or approximately $117 million), consistent with Oklahoma’s allocation under the comprehensive framework.

through 2031. The Company previously settled with the state of West Virginia ~~and~~in 2018, so West Virginia and its subdivisions were not eligible to participate in the ~~comprehensive~~ Settlement. ~~Trial in~~Under a separate settlement agreement, the case of Cabell County and the City of Huntington occurred in the U.S. District Court for the Southern District of West Virginia and concluded on July 28, 2021. On July 4, 2022, the court entered judgment in defendants’ favor. On August 2, 2022, the plaintiffs filed an appeal. The claims ofCompany has paid certain ~~other~~ West Virginia subdivisions ~~were pending~~approximately $38 million as of December 31, 2023. The Company also paid $15 million in ~~the federal Multidistrict Litigation~~January 2024 and before the state Mass Litigation Panel. On July 5, 2022, the Mass Litigation Panel entered an order noting an agreement in principle between a group of plaintiffs’ attorneys representing the municipalities and the Distributors. Under the settlement agreement with the participating West Virginia municipalities, the Distributors will pay ~~$400~~approximately $99 million over approximately 11 years, with the Company responsible for 38.1% of the total amount (or approximately $152 million). All participating litigating subdivisions have dismissed their claims against the Company. Thethrough 2033. That agreement does not include school districts or the claims of Cabell County and the City of Huntington.

~~With respect to~~ After a trial, the claims of Cabell County and the City of Huntington, were decided in the Company’s favor on July 4, 2022. Those subdivisions appealed that decision.

Some other state and local governmental subdivisions did not participate in the 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 Settlement or other dispositive defenses, but the subdivisions contend that their claims are not foreclosed. The City of Baltimore, Maryland, is one such subdivision, and a trial of its claims is scheduled to begin September 26, 2024. The district attorneys of the City of 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 ~~tribes, on September 28, 2021, the~~Tribe Claims

The Company ~~announced that the Distributors reached an agreement with the Cherokee Nation to pay approximately $75 million over 6.5 years to resolve~~also entered into settlement agreements for opioid-related claims of which the Company’s portion will be 38.1% (or approximately $29 million). The Company has also negotiated an agreement to resolve opioid-related claims brought by other Native American tribes. Under that agreement, which was executed on October 26, 2022, the Distributors will pay those other Native American tribes approximately $440 million over 6 years, of which the Company’s portion will be 38.1% (or, approximately $167 million). The agreement achieves broad resolution of opioid-related claims brought against the Distributors by federally recognized Native American tribes. Under ~~these~~those agreements, athe 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.

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

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)	(In millions)	December 31, 2022		March 31, 2022		(In millions)	December 31, 2023	March 31, 2023
Current litigation liabilities (1)	Current litigation liabilities (1)	$	598	$	1,046
Long-term litigation liabilities	Long-term litigation liabilities	6,642		7,220

Total litigation liabilities	Total litigation liabilities	$	7,240	$	8,266
Total litigation liabilities
Total litigation liabilities

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

During the ~~three and~~ nine months ended December 31, ~~2022,~~2023, the Company ~~paid $106~~made payments totaling $529 million ~~and $1.0 billion, respectively,~~ associated with the Settlement and the separate settlement agreements offor opioid-related claims ~~of participating states, subdivisions, and Native American tribes. In conjunction with the payments made in the nine months ended December 31, 2022, all funds have been released from escrow.~~discussed above.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Though the vast majority of opioid claims have been brought by governmental entities in the U.S., the~~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, as well as four cases brought in Canada (three by governmental or tribal entities and one by an individual).~~individuals. These claims, and those of private entities generally, are not included in the ~~Settlement~~settlement agreements described above or in the charges recorded by the ~~Company, described above. The Company believes it has valid legal defenses in these matters and intends to mount a vigorous defense.~~ 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; trial began on January 30, 2023.~~ opioids. Poppell v. 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;~~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 ~~2023.~~8, 2024. Fort Payne Hospital Corporation et al. v. McKesson Corp., CV-2021-900016.~~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 ~~these~~the matters; nor is any possible loss or range of loss reasonably estimable.

Because of the many uncertainties associated with the remaining opioid-related litigation matters, the Company is not able to reasonably estimate the upper or lower ends of the range of ultimate possible loss for all opioid-related litigation matters. 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. 3:20-cv-07469 (N.D. Cal.) was initiated by AIG in the Northern District of California on October 23, 2020. Ace Property and Casualty Insurance Company v. McKesson Corporation et al., No. 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 Appeals for the Ninth Circuit on January 26, 2024.

II. Government Subpoenas and 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 manner. These responses sometimes require time and effort and can result in considerable costs being incurred by the Company. Such subpoenas and requests can lead to the assertion of claims or the commencement of civil or criminal legal proceedings against the Company and other members of the health care industry, as well as to settlements of claims against the Company. The Company responds to these requests in the ordinary course of business.

~~III. State Opioid Statutes~~

In April 2018, the State of New York Opioid Stewardship Act (“OSA”) imposed an aggregate $100 million annual surcharge for 2017 and 2018 on all manufacturers and distributors licensed to sell or distribute opioids in New York. Pending resolution of a challenge to the OSA filed by the Healthcare Distribution Alliance (“HDA”), the Company accrued its estimated OSA surcharges as a $50 million provision in “Selling, distribution, general, and administrative expenses” in the Consolidated Statement of Operations for the year ended March 31, 2021 and in “Other accrued liabilities” in the Consolidated Balance Sheet as of March 31, 2021. In December 2021, after the HDA challenge was dismissed, the Company paid $26 million for the 2017 OSA surcharge assessment. On May 18, 2022, the Company filed a lawsuit in New York state court challenging the constitutionality of the OSA. In November 2022, the Company received a 2018 OSA surcharge assessment of approximately $42 million, and therefore the Company accrued an additional $18 million provision in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations during the three and nine months ended December 31, 2022. On December 14, 2022, the state court ruled that the OSA is constitutional. In December 2022, the Company paid $11 million as the first installment of the 2018 OSA surcharge assessment. The Company’s OSA challenge is pending before the New York Appellate Division. The Company reserves its rights and intends to vigorously challenge the OSA and the OSA surcharge assessments.

~~IV. Antitrust Settlements~~

In October 2022, the Company received proceeds of $129 million related to its share of an antitrust settlement. A lawsuit was filed against a brand manufacturer alleging that the manufacturer, by itself or in concert with others, took improper actions to delay or prevent generic drugs from entering the market. The Company was not a named party to the litigation but was a member of the class of those who purchased directly from the pharmaceutical manufacturer. The Company recognized a gain in that amount within "Cost of sales" in the Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2022 related to the settlement.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~V. Environmental Matters~~

Primarily as a result of the operation of the Company’s former chemical businesses, which were fully divested by 1987, the Company is involved in various matters pursuant to environmental laws and regulations. The Company has been designated as a Potentially Responsible Party (“PRP”) under the Superfund law for environmental assessment and cleanup costs as the result of its alleged disposal of hazardous substances at 14 sites. For one such site, the Company was one of multiple recipients of a New Jersey Department of Environmental Protection Agency directive and a separate U.S. Environmental Protection Agency (“EPA”) directive concerning natural resources damages to the Passaic River associated with the Company's Newark, New Jersey facility. In March 2016, the EPA selected a preferred remedy for this Lower Passaic River site with an estimated cost of approximately $1.4 billion. In December 2022, the Company entered into a Consent Decree with the EPA that is currently pending approval by the U.S. District Court for the District of New Jersey and requires the Company to pay $3 million, which had already been accrued for in the Condensed Consolidated Balance Sheets based on past estimated probable loss.

~~13.~~11. Stockholders' ~~Equity (Deficit)~~Deficit

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

In July ~~2022,~~2023, the quarterly dividend was raised from ~~$0.47~~$0.54 to ~~$0.54~~$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

The Board has authorized the repurchase of ~~McKesson’s~~ common stock. ~~Stock~~The Company may affect stock repurchases ~~may be made~~ from time-to-time inthrough open market transactions, privately negotiated transactions, ~~through~~ accelerated share repurchase (“ASR”) programs, or by combinations of such 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, as amended.~~1934. The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including the Company’s stock price, corporate and regulatory requirements, tax implications, restrictions under 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 December 2022, the Company entered into an ASR program with a third-party financial institution to repurchase $972 million shares of ~~the Company’s~~ common stock. ~~Pursuant to the ASR agreement, the Company paid $972 million in cash to the financial institution and received an initial delivery of 2.2 million shares in December 2022.~~ The ~~transaction will be completed during the fourth quarter of fiscal 2023, at which point the Company expects to receive additional shares. The final~~total number of shares repurchased ~~and the~~under this ASR program was 2.6 million shares at an average price per share ~~paid will be determined based on~~of $369.20. The Company received 2.2 million shares as the ~~volume-weighted average price~~initial share settlement, and in February 2023, the Company received an additional 0.4 million shares upon the completion of ~~the Company’s common stock during the term of the~~this ASR ~~program, less a pre-negotiated discount.~~program.

In May 2022, the Company entered into an ASR program with a third-party financial institution to repurchase $1.0 billion shares of ~~the Company’s~~ 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 ~~the Company’s~~ common stock. The total number of shares repurchased under this ASR program was 5.1 million shares at an average price per share of $295.16. The Company received 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 May 2021, the Company entered into an ASR program with a third-party financial institution to repurchase $1.0 billion of the Company’s common stock. The total number of shares repurchased under this ASR program was 5.2 million shares at an average price per share of $193.22. The Company received 4.3 million shares as the initial share settlement, and in August 2021, the Company received an additional 0.9 million shares upon the completion of this ASR program.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

During the three months ended December 31, 2022, the Company repurchased 2.7 million of the Company’s 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 of the Company’s 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.

During the three months ended December 31, 2021, the Company repurchased 3.3 million of the Company’s shares of common stock for $728 million through open market transactions at an average price per share of $223.89, of which $30 million was accrued at December 31, 2021 within “Other accrued liabilities” in the Company’s Condensed Consolidated Balance Sheet for share repurchases that were executed in late December 2021 and settled in early January 2022. During the three months ended September 30, 2021, the Company repurchased 1.4 million of the Company’s shares of common stock for $280 million through open market transactions at an average price per share of $203.20. There were no open market share repurchases during the three months ended June 30, 2021.

In July ~~2022,~~2023, the Board approved an increase of ~~$4.0~~$6.0 billion in the authorization for the repurchase of ~~McKesson’s~~ common stock. The total remaining authorization outstanding for repurchases of ~~the Company’s~~ common stock at December 31, ~~2022~~2023 was ~~$3.8~~$7.3 billion.

Accumulated Other Comprehensive Loss

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


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

Balance at December 31, 2022		$	(878)	$	(15)		$	(2)	$	(4)	$	(899)
Balance, December 31, 2023
Balance, December 31, 2023
Balance, December 31, 2023

(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)

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

(2)Primarily includes adjustments for amounts related to the divestiture of the E.U. disposal group in October 2022, including the impact of amounts previously attributed to the noncontrolling interest in McKesson Europe, 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 group to fair value less costs to sell recorded within “Selling, distribution, general, and administrative expenses” in the Consolidated ~~Statements~~Statements of Operations. Amounts reclassified to earnings and other includes a net income tax impact of $22 million.

(3)Amounts recorded for the three months ended December 31, 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.

Information regarding changes in accumulated other comprehensive loss, including noncontrolling interests, by components for the nine 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, 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)

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 Hedges,
Net of Tax Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax Total Accumulated Other Comprehensive Loss
Balance at March 31, 2022 $ (1,504) $ 10 $ 27 $ (67) $ (1,534)
Other comprehensive income (loss) before reclassifications (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 at 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)Amounts recorded for the nine months ended December 31, 2023 include losses of $20 million related to net investment hedges from cross-currency swaps, which are net of income tax 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 ~~Canada~~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 nine months ended December 31, 2022 include ~~net~~ gains of $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.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

Information regarding changes in accumulated other comprehensive loss, including noncontrolling interests and redeemable noncontrolling interests, by components for the three and nine months ended December 31, 2021 was as follows:

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 Hedges,
Net of Tax Unrealized Losses and Other Components of Benefit Plans, Net of Tax Total Accumulated Other Comprehensive Loss
Balance at September 30, 2021 $ (1,557) $ (25) $ 21 $ (104) $ (1,665)
Other comprehensive income (loss) before reclassifications — 16 (6) (1) 9
Amounts reclassified to earnings and other — — — (1) (1)
Other comprehensive income (loss) — 16 ⁽²⁾ (6) (2) 8
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests (2) — — — (2)
Other comprehensive income (loss) attributable to McKesson 2 16 (6) (2) 10
Balance at December 31, 2021 $ (1,555) $ (9) $ 15 $ (106) $ (1,655)

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

~~(2)~~Amounts recorded for the three months ended December 31, 2021 include gains of $23 million related to net investment hedges from Euro-denominated notes and losses of $2 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax expense 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 Hedges,
Net of Tax Unrealized Gains (Losses) and Other Components of Benefit Plans, Net of Tax Total Accumulated Other Comprehensive Loss
Balance at March 31, 2021 $ (1,361) $ (36) $ 13 $ (96) $ (1,480)
Other comprehensive income (loss) before reclassifications (47) 21 (3) 5 (24)
Amounts reclassified to earnings and other 18 — 5 (3) 20
Other comprehensive income (loss) (29) 21 ⁽²⁾ 2 2 (4)
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests 7 (6) — — 1
Other comprehensive income (loss) attributable to McKesson (36) 27 2 2 (5)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG (158) — — (12) (170)
Balance at December 31, 2021 $ (1,555) $ (9) $ 15 $ (106) $ (1,655)

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

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~(2)~~Amounts recorded for the nine months ended December 31, 2021 include gains of $34 million related to net investment hedges from Euro-denominated notes and gains of $3 million related to net investment hedges from cross-currency swaps. These amounts are net of income tax expense of $10 million.

~~14.~~12. Segments of Business

The Company reports its financial results in four reportable segments: U.S. Pharmaceutical, RxTS, Medical-Surgical Solutions, and 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 include the manner in which management evaluates the performance of the Company combined with the nature of the individual business activities. The Company evaluates the performance of its operating segments on a number of measures, including revenues and operating profit ~~(loss)~~ before interest expense and income 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 over-the-counter pharmaceutical drugs, and other healthcare-related ~~products.~~products in the 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 ~~site)~~sites) and provides consulting, outsourcing, technological, and other services.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The RxTS segment ~~serves McKesson’s biopharma and life sciences partners and~~ helps solve medication access, affordability, and adherence challenges for ~~patients. RxTS works~~patients by working across healthcare to connect patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma ~~to deliver~~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 ~~more than 285,000~~ national brand medical-surgical products as well as McKesson’s own line of high-quality products through a network of distribution centers ~~within~~in the U.S.

The International segment includes the Company’s operations in ~~Europe~~Canada and ~~Canada,~~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 ~~institutional,~~ and retail customers in Norway where it owns, partners, or franchises with retail pharmacies. The Company’s Canadian operations deliver vital medicines, supplies, and information technology solutions throughout Canada and includes Rexall Health retail pharmacies. International segment assets at December 31, 2022 were $6.2 billion, a decrease from the end of fiscal 2022 primarily due to the completed divestitures of the E.U. disposal group in October 2022 and the U.K. disposal group in April 2022, along with unfavorable effects of foreign currency exchange fluctuations. Refer to Financial Note 2, “Business Acquisitions and Divestitures,” for more information.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended December 31,		Nine Months Ended December 31,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023	2022		2023	2022
Segment revenues (1)	Segment revenues (1)
U.S. Pharmaceutical
U.S. Pharmaceutical
U.S. Pharmaceutical	U.S. Pharmaceutical	$	61,934	$	55,041	$	178,940	$	158,471
Prescription Technology Solutions	Prescription Technology Solutions	1,121		1,031		3,205		2,844
Medical-Surgical Solutions	Medical-Surgical Solutions	2,986		3,082		8,421		8,734
International	International	4,449		9,460		17,235		27,815
Total revenues	Total revenues	$	70,490	$	68,614	$	207,801	$	197,864

Segment operating profit (loss) (2)
Segment operating profit (2)
Segment operating profit (2)
Segment operating profit (2)
U.S. Pharmaceutical (3)	U.S. Pharmaceutical (3)	$	850	$	744	$	2,442	$	2,186
Prescription Technology Solutions		136		129		400		361
Medical-Surgical Solutions (4)		328		308		883		679
U.S. Pharmaceutical (3)
U.S. Pharmaceutical (3)
Prescription Technology Solutions (4)
Medical-Surgical Solutions
International (5)	International (5)	136		(668)		93		(761)
Subtotal	Subtotal	1,450		513		3,818		2,465
Corporate expenses, net (6)	Corporate expenses, net (6)	67		(195)		49		(858)
Loss on debt extinguishment (7)		—		—		—		(191)

Interest expense
Interest expense
Interest expense	Interest expense	(69)		(41)		(169)		(135)
Income from continuing operations before income taxes	Income from continuing operations before income taxes	$	1,448	$	277	$	3,698	$	1,281

(1)Revenues from services on a disaggregated basis represent ~~less than~~approximately 1% of the U.S. Pharmaceutical segment’s total revenues, less than ~~36%~~38% of the RxTS segment’s total revenues, less than 3%2% of the Medical-Surgical Solutions segment’s total revenues, and less than 8%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 ~~(loss)~~ 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:

•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 the 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 Bankruptcy Code. As a result, the Company recognized a provision for bad debts of $515 million in the third quarter of 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 ~~and nine~~ months ended December 31, 2023 and 2022, respectively, and ~~$46~~$220 million and $129 million for the nine months ended December 31, ~~2021;~~2023 and 2022, respectively. These gains were recorded within “Cost of sales” in the Company’s Condensed Consolidated Statements of Operations;

•~~a charge~~charges of $5$2 million and ~~a credit of $33~~$5 million related to the last-in, first-out (“LIFO”) method of accounting for inventories for the three months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~credits~~a charge of ~~$31~~$89 million and ~~$79~~a credit of $31 million for the nine months ended December 31, 2023 and 2022, respectively. These charges and ~~2021, respectively;~~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 ~~is reflected~~was recorded within “Other income, net” in the Company’s Condensed Consolidated Statements of Operations.

(4)The Company’s ~~Medical-Surgical Solutions~~RxTS segment’s operating profit ~~for the nine months ended December 31, 2021 includes $164 million of inventory charges on certain personal protective equipment and other related products.~~

~~(5)The Company’s International segment’s operating profit (loss) includes the following:~~

•~~charges of $3 million and $240 million~~ for the three and nine months ended December 31, ~~2022, respectively, and charges~~2023 includes fair value adjustment gains of ~~$58~~$2 million and ~~$400~~$78 million, ~~for~~respectively, which reduced the ~~three and nine months ended December 31, 2021, respectively,~~Company’s contingent consideration liability related to ~~remeasure~~ the assets and liabilities of the E.U. disposal group to fair value less costs to sell and, in fiscal 2022, to impair certain assets, including internal-use software that will not be utilized in the future,RxSS acquisition, as discussed in more detail in Financial Note 2, “Business Acquisitions and ~~Divestitures;~~Divestitures.”

•(5)~~charges of $787 million~~The Company’s International segment’s operating profit for the three and nine months ended December 31, ~~2021~~2022 includes charges of $3 million and $240 million, respectively, to remeasure the assets and liabilities of the ~~U.K.~~E.U. disposal group to fair value less costs to sell, as discussed in more detail in Financial Note 2, “Business Acquisitions and ~~Divestitures;~~Divestitures.” ~~and~~

•~~a gain of $59 million for the nine months ended December 31, 2021 related to the sale of the Company’s Canadian health benefit claims management and plan administrative services business.~~

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~~FINANCIAL NOTES (CONCLUDED)~~

~~(UNAUDITED)~~

(6)Corporate expenses, net includes the following:

•~~credits~~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, and credits of $32 million and charges of $117 million for the three and nine months ended December 31, 2021,~~ 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 ~~(“TRA”)~~ exercised by Change Healthcare Inc. ~~(“Change”) in October 2022~~ and was recorded within “Other income, net” in the Condensed Consolidated Statements of Operations. The Company was a party to a TRA entered into as part of the formation of the joint venture with Change, from which McKesson has since exited. The TRA generally required Change to pay McKesson 85% of the net cash tax savings realized, or deemed to be realized, by Change resulting from the amortization allocated to Change by the joint venture. In October 2022, Change exercised its right pursuant to the TRA to terminate the agreement;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 10, “Hedging Activities;”~~

•charges of $193 million for the nine months ended December 31, 2021, related to the Company’s estimated liability for opioid-related claims, as discussed in more detail in Financial Note 12, “Commitments and Contingent Liabilities;”

•charges of $9 million and $33 million for the three months ended December 31, 2022 and 2021, respectively, and charges of $37 million and $104 million for the nine months ended December 31, 2022 and 2021, respectively, of opioid-related costs, primarily litigation expenses;

•~~restructuring charges of $90 million for the nine months ended December 31, 2021 primarily due to the transition to a partial remote work model for certain employees; and~~

•~~net losses of $24 million and net gains of $104 million for the nine months ended December 31, 2022 and 2021, respectively, associated with certain of the Company’s equity investments.~~

~~(7)~~Loss on debt extinguishment for the nine months ended December 31, 2021 consists of a charge of $191 million related to the Company’s July 2021 tender offer to redeem a portion of its existing debt, as discussed in more detail in Financial Note 8, ~~“Debt and Financing~~“Hedging Activities.”

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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 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 together with its subsidiaries (collectively, the “Company,” “McKesson,” “we,” “our,” or “us,” and other similar pronouns). 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, ~~2022~~2023 previously filed with the Securities and Exchange Commission (the “SEC”) on May 9, ~~2022~~2023 (“~~2022~~2023 Annual Report”).

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

Certain statements in this report constitute forward-looking statements. See “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, ~~and~~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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The following summarizes our four reportable segments. Refer to Financial Note ~~14,~~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.~~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 ~~site)~~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 ~~ecosystem~~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 ~~United States (“~~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 ~~Europe~~Canada and ~~Canada,~~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”) ~~in October 2022,~~, and our retail and distribution businesses in the United Kingdom (“U.K.” disposal group”). Our remaining operations in ~~April 2022. In the fourth quarter of fiscal 2022, we completed the sale of our Austrian business. These divestitures are further described in the~~ ~~“European Divestiture Activities”~~ ~~section below. Subsequent to these divestiture activities, our remaining European business operations are in Norway.~~

~~Business Acquisitions~~Europe provide distribution and ~~Divestitures~~

~~Rx Savings Solutions, LLC~~

On November 1, 2022, we completed the acquisition of 100% of the shares of Rx Savings Solutions, LLC (“RxSS”), a privately-owned company headquartered in Overland Park, Kansas, to expand on connecting our biopharma and payer services to ~~patients. RxSS is a prescription price transparency~~wholesale and ~~benefit insight company that offers affordability and adherence solutions to health plans and employers. The purchase consideration included a payment of $600 million~~retail customers 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 funded from cash on hand, and we recorded a liability of $92 million as of the acquisition date representing the estimated fair value of the contingent consideration. The financial results of RxSS are included in our RxTS segment as of the acquisition date. The transaction was accounted for as a business combination.

~~Oncology Research Business~~

On October 31, 2022, we completed a transaction with HCA Healthcare, Inc. (“HCA”) to form an oncology research business, combining our U.S. Oncology Research (“USOR”) and HCA’s Sarah Cannon Research Institute (“SCRI”) based in Nashville, Tennessee, to advance cancer care and increase access to oncology clinical research. Upon consummation of the transaction,Norway where we own, a 51% controlling interest in the combined business, and the financial results are consolidated and reported within our U.S. Pharmaceutical segment as of the acquisition date. Transaction consideration included the transfer of full ownership interest in USOR to the combined business and $173 million of cash paid to HCA, which was funded from cash on hand. The transaction was accounted for as a business combination.


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~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~European Divestiture Activities~~

~~On October 31, 2022, we completed the previously announced transaction to sell certain of our businesses in the E.U. located in France, Italy, Ireland, Portugal, Belgium, and Slovenia, along~~partner, or franchise with our German headquarters and wound-care business, part of a shared services center in Lithuania, and our ownership stake in a joint venture in the Netherlands (“E.U. disposal group”) to the PHOENIX Group. As part of the transaction, we received cash proceeds of $892 million and divested net assets of $1.3 billion, including cash of $319 million, derecognized the carrying value of the noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) of $382 million, and released $153 million of net accumulated other comprehensive loss. For the three months ended December 31, 2022 and 2021, we recorded net gains of $31 million and charges of $26 million, respectively, and for the nine months ended December 31, 2022 and 2021, we recorded net gains of $66 million and charges of $517 million, respectively, in total operating expenses to remeasure the assets and liabilities of our E.U. disposal group to fair value less costs to sell. The fiscal 2022 charges also included impairments of certain internal-use software that will not be utilized in the future, prior to adjusting the E.U. disposal group as a whole, and a $230 million loss related to the accumulated other comprehensive income balances associated with our E.U. disposal group, driven by declines in the Euro.

~~On April 6, 2022, we completed the previously announced sale of our~~ retail and distribution businesses in the U.K. (“U.K. disposal group”) to Aurelius Elephant Limited for a purchase price of £110 million (or, approximately $144 million), including certain adjustments. As part of the transaction, we divested net assets of $615 million and released $731 million of accumulated other comprehensive loss. During the three and nine months ended December 31, 2021, we recorded charges totaling $823 million within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations to remeasure the U.K. disposal group to fair value less costs to sell. The remeasurement adjustment included a $731 million loss related to the accumulated other comprehensive loss balances associated with the U.K. disposal group, driven by declines in the British pound sterling.

On January 31, 2022, we completed the sale of our Austrian business to Quadrifolia Management GmbH in a management-led buyout for a purchase price of €244 million (or, approximately $276 million), including certain adjustments. In the three and nine months ended December 31, 2021, we recognized a loss of $30 million to remeasure the assets and liabilities of the business to fair value less costs to sell. The charge was recorded within “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations.

~~As of December 31, 2022, we had no assets or liabilities related to these European divestiture activities that met the classification of held for sale in the Condensed Consolidated Balance Sheet.~~

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 ~~acquisition and~~ 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, ~~2022.~~2023:

•~~On November 1, 2022, we completed our acquisition~~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 ~~RxSS. The purchase consideration included a payment~~Consolidated Results” section below for an analysis of ~~$600 million in cash made upon closing and a maximum of $275 million of contingent consideration, as discussed in further detail in the~~ ~~“Business Acquisitions and Divestitures”~~ ~~section above;~~these changes;

•~~On October~~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, ~~2022, we completed a transaction with HCA~~2023 and decreased to ~~form an oncology research business. The transaction consideration included~~$16.39 from $19.32 for the ~~transfer of full ownership interest in USOR~~nine months ended December 31, 2023 compared to the ~~combined business and $173 million of cash paid to HCA as discussed in further detail in the~~ ~~“Business Acquisitions and Divestitures”~~ ~~section above;~~respective prior year periods;

•~~On October~~For the three and nine months ended December 31, ~~2022,~~2023, we ~~completed~~recorded a provision for bad debts of $515 million and $725 million, respectively, related to the ~~sale~~bankruptcy of our ~~E.U. disposal group~~customer, Rite Aid Corporation (including certain of its subsidiaries, “Rite Aid”), in October 2023. Refer to the “Trends and ~~received net cash proceeds of $892 million, as discussed in further detail in the~~ Uncertainties~~“Business Acquisitions and Divestitures”~~” section ~~above;~~below for more information;

•~~In October 2022, we~~We received ~~$129~~$23 million and $220 million for the three and nine months ended December 31, 2023, respectively, related to our share of an antitrust ~~settlement. This amount was~~legal settlements. These amounts were recorded as a gain within ~~“Cost~~"Cost of ~~sales”~~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 management’s reassessment of the amount of our deferred tax assets that are more likely than not to be realized;

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•~~In October 2022,~~For the nine months ended December 31, 2023, we ~~received $126~~recognized a net discrete tax benefit of $147 million ~~due~~related to ~~early termination~~the repatriation of ~~our~~certain intellectual property between McKesson wholly-owned legal entities that are based in different tax receivable agreement with Change Healthcare Inc. (“Change”). This amount was recorded as a gain within “Other income, net” in the Condensed Consolidated Statements of Operations within Corporate;jurisdictions;

•During ~~the third quarter of fiscal 2023, we terminated our $500 million notional fixed interest rate swaps and recognized a gain on the termination of $97 million in “Other income, net” for~~ the three and nine months ended December 31, ~~2022 in the Condensed Consolidated Statements~~2023, we recorded fair value adjustment gains of ~~Operations within Corporate;~~

•McKesson continues to play a leading role in the fight against the pandemic disease caused by the SARS-CoV-2 coronavirus (“COVID-19”). For a more in-depth discussion of how COVID-19 impacted our business, operations, financial results,$2 million and ~~outlook, refer~~$78 million, respectively, related to the ~~COVID-19 section~~contingent consideration liability recognized as part of ~~"Trends~~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 ~~Uncertainties" included below;~~

•~~For~~timing of projected operational and financial information and the three months ended December 31, 2022 compared to the prior year, revenues increased by 3%, gross profit decreased by 7%, total operating expenses decreased by 38%, and other income, net increased by $256 million. For the nine months ended December 31, 2022 compared to the prior year, revenues increased by 5%, gross profit decreased by 5%, total operating expenses decreased by 30%, and other income, net increased by 131%. Refer to the “Overviewprobability of ~~Consolidated Results” section below for an analysis~~achievement of ~~these changes;~~performance milestones;

•On ~~November 7, 2022,~~June 15, 2023, we ~~entered into~~completed a ~~syndicated $4 billion five-year senior unsecured credit facility~~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 ~~“2022 Credit Facility”~~“2024 Notes”), which has a $3.6 billion aggregate sublimit of availability in Canadian dollars, British pound sterling and Euro. The 2022 Credit Facility matures in November 2027 and replaced our previous syndicated senior unsecured credit facility which discussed below, while the remaining net proceeds was ~~scheduled to mature in September 2024;~~

•Concurrent with our entry into the 2022 Credit Facility, on November 7, 2022, we entered into a Credit Agreement (the “2022 Term Loan Credit Facility”) which provides an unsecured delayed draw term loan facility up to $500 million. The 2022 Term Loan Credit Facility will mature in November 2025. We drew $500 million of cash on the term loan in December 2022 which can be usedavailable for general corporate purposes;

•On ~~December 15, 2022,~~June 16, 2023, we ~~retired our $400 million outstanding~~completed a cash tender offer for any and all of the 2024 Notes with a principal amount of ~~2.70%~~$918 million, which was made concurrently with the June 15, 2023 notes ~~upon maturity. These~~offering described above. Using a portion of the net proceeds from the June 15, 2023 notes ~~were repaid using cash on hand;~~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;

•~~During~~Following the ~~third quarter~~consummation of ~~fiscal~~the cash tender offer discussed above, on June 16, 2023, we entered into cross-currency fixed-to-fixed interest rate swaps with total notional amounts of €1.1 billion to hedge changes in the fair value of our underlying Euro-denominated notes resulting from changes in benchmark interest rates and foreign currency exchange rates. In connectionirrevocably deposited U.S. government obligations with the ~~sale~~trustee under the indenture governing the 2024 Notes sufficient to fund the payment of accrued and unpaid interest of the ~~E.U. disposal group in October 2022, we de-designated our €1.1 billion of Euro-denominated notes as net investment hedges upon divestiture~~remaining $647 million principal amount of the ~~E.U. disposal group;~~

•~~Diluted earnings (loss) per common share from continuing operations attributable~~2024 Notes as it becomes due, and of the principal amount of those 2024 Notes on their March 15, 2024 maturity date. Refer to ~~McKesson Corporation increased to $7.65 from $(0.04) in the three months ended December 31, 2022~~Financial Note 7, “Debt and ~~increased to $19.32 from $4.81 in the nine months ended December 31, 2022 compared~~Financing Activities,” to the ~~prior year, primarily driven by year-over-year favorability from higher remeasurement charges of the U.K. and E.U. disposal groups recorded~~accompanying condensed consolidated financial statements included in ~~the prior year, and a lower share count due to the cumulative effect of share repurchases;~~this Quarterly Report for more information; and

•We returned ~~$3.7~~$2.6 billion of cash to shareholders during the nine months ended December 31, ~~2022~~2023 through ~~$3.5~~$2.3 billion of common stock repurchases ~~both under accelerated share repurchase (“ASR”) programs as well as~~ through open market transactions and ~~$216~~$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, ~~2022~~2023 was ~~$3.8~~$7.3 billion.

Trends and Uncertainties:

Legislative Developments

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the ~~“IR Act”~~“IRA”). Among other provisions, the ~~IR Act~~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. ~~Based on our preliminary assessment, we~~We do not ~~currently expect the IR Act to~~anticipate that this legislation will have a material impact on our ~~results of operations,~~consolidated financial ~~position,~~statements or ~~cash flows in the foreseeable future;~~related disclosures; however, we ~~will~~ continue to evaluate the ~~full~~ 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 in Part II of our 2023 Annual Report.

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(UNAUDITED)

~~The Impact of Inflationary and Global Events~~

Our business and results of operations, financial condition, and liquidity are impacted by broad economic conditions including rising interest rates, inflation, increased competition for talent, and disruption of the supply chain, as well as by political or civil unrest or military action, including indirect results such as commodity price increases from the conflict between Russia and Ukraine (“Russo-Ukrainian War”). Cost inflation generally affects us by increasing transportation, operational, and other administrative costs associated with our business operations which we might not be able to fully pass along to our customers. Although it is difficult to predict the impact that these factors may have on our business in the future, they did not have a material impact on our results of operations, financial condition, or liquidity for the three and nine months ended December 31, 2022.

~~COVID-19~~

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

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

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

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

McKesson Canada and McKesson Europe, prior to the divestiture of the E.U. disposal group, support governments and public health entities through distributing COVID-19 vaccines and administering them in pharmacies as well as distributing COVID-19 tests and certain PPE.

~~Trends in our Business~~

We observed growth in prescription volumes within our U.S. Pharmaceutical segment and stability in patient visits in our primary care business within our Medical-Surgical Solutions segment during the three and nine months ended December 31, 2022 compared to the same prior year periods. The contributions from COVID-19 tests and our vaccine and related kitting distribution programs have decreased year over year primarily driven by lower demand.

~~Impacts to our Supply Chain~~

We continue to monitor and address the COVID-19 pandemic impacts on our supply chain. Although the availability of various products is dependent on our suppliers, their locations, and the extent to which they are impacted by the COVID-19 pandemic, we proactively work with manufacturers, industry partners, and government agencies to meet the needs of our customers. During the first nine months of fiscal 2023, we had an increase in supply chain costs primarily related to transportation and labor; however, this did not materially impact our results of operations for the three and nine months ended December 31, 2022. As potential shortages or disruptions of any products are identified, we address supply continuity which includes securing additional products when available, sourcing back-up products when needed, and following allocation procedures to maintain and protect supply as much as possible. We utilize business continuity action planning to maintain and protect operations across all locations and facilities.


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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

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

For the three months ended December 31, 2022, COVID-19 tests and the kitting and distribution of ancillary supplies for COVID-19 vaccines in our Medical-Surgical Solutions segment contributed approximately $211 million and $72 million to segment revenues and segment operating profit, respectively, and for the three months ended December 31, 2021, contributed approximately $544 million and $118 million to segment revenues and segment operating profit, respectively. For the nine months ended December 31, 2022, the contribution was approximately $639 million and $186 million to segment revenues and segment operating profit, respectively, and for the nine months ended December 31, 2021, the contribution was approximately $1.4 billion to segment revenues and, including total inventory charges that are further described below, increased our segment operating profit by approximately $121 million.

The distribution of COVID-19 vaccines in our U.S. Pharmaceutical segment decreased during the third quarter and first nine months of fiscal 2023 when compared to the same prior year periods. The contribution was less than 10% to segment operating profit for each of the three and nine months ended December 31, 2022 and 2021. The financial impact from our COVID-19 response efforts in the International segment during the three and nine months ended December 31, 2022 and 2021 was not material to our consolidated or segment operating results.

Additionally, we recorded inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment during the nine months ended December 31, 2021. We have taken measures to mitigate risks for market price volatility and changes to anticipated customer demand that may require additional write-downs in future periods of other PPE and related product categories.

Excluding the prior year inventory charges on certain PPE and other related products for the nine months ended December 31, 2021 mentioned above, these COVID-19 related items had a net unfavorable impact on consolidated income from continuing operations before income taxes for the three and nine months ended December 31, 2022 compared to the same prior year periods, primarily driven by lower demand for COVID-19 tests as well as COVID-19 vaccines and related ancillary supply kits.

During the three and nine months ended December 31, 2022 and 2021, we maintained appropriate labor and overall vendor supply levels and experienced no material impacts to our liquidity or net working capital due to the COVID-19 pandemic.

Opioid-Related Litigation and Claims

WeAs 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 ~~two other national pharmaceutical distributors (collectively “Distributors”) settled with 46 of 49 eligible states~~it intends to mount a vigorous defense. Other than as to the settlement agreements and ~~their participating subdivisions, as well as~~ the District of Columbia and all eligible territories (collectively, “Settling Governmental Entities”) effective on April 2, 2022 (“Settlement”). Under the Settlement, the Distributors will pay the Settling Governmental Entities up to approximately $19.5 billion over 18 years, with up to approximately $7.4 billion to be paid byU.S. governmental subdivision claims described in Financial Note 10, the Company ~~for its 38.1% portion. Consent judgments have been entered~~has not concluded a loss is probable in ~~all participating states and territories, and approximately 2,300 cases have been dismissed pursuant to the Settlement. A minimum of 85%~~any of the ~~Settlement~~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 must be used by state and local governmental entities to remediate the opioid epidemic. Most of the remaining percentage relates to plaintiffs’ attorneys’ fees and costs, and is payable over a shorter time period. Under the Settlement, the Distributors will establish a clearinghouse to consolidate their controlled-substance distribution data, which will be available to the settling U.S. states to use as part of their anti-diversion efforts. The Settlement provides that the Distributors do not admit liability or wrongdoing and do not waive any defenses.

~~The Settlement only addresses the~~totaling $529 million associated with various settlement agreements for opioid-related claims of ~~attorneys general of U.S.~~ states, ~~and territories and political~~ subdivisions, ~~in participating states~~ and territories. Governmental entities not participating in the Settlement may continue to pursue their claims. The states of Alabama, Oklahoma and Washington chose not to participate in the Settlement, but, since the announcement of the Settlement, we have reached separate agreements with the attorneys general of these states to settle the claims of the states and their subdivisions. The Distributors previously settled with the Cherokee Nation and reached an agreement to settle the claims of federally recognized Native American ~~Tribes.~~


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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

tribes. Our total estimated liability for opioid-related claims was ~~$7.2~~$6.6 billion as of December 31, ~~2022,~~2023, of which ~~$598~~$516 million was included inwithin “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.

~~Although~~Rite Aid Bankruptcy Proceedings

In October 2023, our customer Rite Aid filed a voluntary petition for reorganization under Chapter 11 of the ~~vast majority~~Bankruptcy Code. As a result, we recorded provisions for bad debts of ~~opioid claims have been brought by governmental entities~~$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 ~~U.S.,~~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 ~~Company is also~~second quarter of fiscal 2024, we recorded a ~~defendant in cases brought~~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. ~~by private plaintiffs, such as hospitals, health~~Pharmaceutical segment.

We believe the reserves maintained and ~~welfare funds, third-party payors,~~expenses recorded in fiscal 2024 for Rite Aid trade accounts receivable are appropriate and ~~individuals, as well as four cases brought in Canada (three by governmental or tribal entities~~consistent with our accounting policy and one by an individual). These claims, and those of private individuals or entities generally, are not included in the Settlement or in the charges recorded by the Company, described above. The Company believes it has valid legal defenses in these matters and intends to mount a vigorous defense.

~~Because~~assessment of the ~~many uncertainties associated with ongoing opioid-related litigation matters, we are not able~~information currently available. We evaluate our reserves periodically and as circumstances warrant which may result in changes to ~~reasonably estimate the upper or lower ends~~our reserves. For additional disclosure of ~~the range of ultimate possible loss~~our policy regarding allowances for ~~all opioid-related litigation matters. In light of the uncertainty, the amount of any ultimate loss may differ materially from the amount accrued.~~

~~Notwithstanding the Settlement, we also continue to prepare for trial in pending matters. We believe that we have valid defenses~~credit losses, refer to the ~~claims pending against us~~“Critical Accounting Estimates” section within Item 7 - Management’s Discussion and ~~absent an acceptable settlement, intend to vigorously defend against all such claims. An adverse judgment or negotiated resolution in any~~Analysis of ~~these matters could have a material adverse impact on our financial position, cash flows or liquidity, or results~~Financial Condition and Results of operations. Refer to Financial Note 12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information.

~~Risks and Forward-Looking Information~~

Recent events such as the COVID-19 pandemic, the Russo-Ukrainian War, and associated economic impacts have disrupted the global economy and exacerbated uncertainties inherent in estimates, judgments, and assumptions used in our forecasts. We have experienced and may experience difficulties in sourcing products and changes in costs and pricing due to the effects of these events on supply chains. Our participation in government-sponsored vaccination distribution and related ancillary supply kit programs with the CDC and HHS exposes us to various uncertainties, such as the scope and length of related agreements and the amount of COVID-19 vaccines and ancillary supply kits that we are contracted to distribute, which could materially impact our future financial performance. Additionally, we periodically review our intangible and other long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Key assumptions and estimates about future values in our impairment assessments can be affected by a variety of factors, including the impacts of socio-political events on industry and economic trends as well as on our business strategy and internal forecasts. Impairment charges have been recognized in prior periods due to the impact from the COVID-19 pandemic. Material changes to key assumptions and estimates could decrease the projected cash flows or increase the discount rates that could potentially result in future impairment charges. Refer to Item 1A - Risk FactorsOperations in Part III of our ~~2022~~2023 Annual ~~Report for a discussion of risk factors that could cause our actual results to differ materially from our projections.~~Report.

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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

RESULTS OF OPERATIONS

Overview of Consolidated Results:


(Dollars in millions, except per share data)	(Dollars in millions, except per share data)	Three Months Ended December 31,								Nine Months Ended December 31,
		2022			2021			Change		2022			2021			Change
2023
2023																									2022									Change												2023									2022								Change
Revenues	Revenues	$	70,490		$	68,614		3	%	$	207,801		$	197,864		5	%	Revenues		$	80,898			$				$	70,490			15						15			%	%								$	232,596			$					$	207,801		12			12			%	%
Gross profit	Gross profit	3,174			3,428			(7)		9,292			9,812			(5)
Gross profit margin
Gross profit margin
Gross profit margin	Gross profit margin	4.50		%	5.00		%	(50)	bp	4.47		%	4.96		%	(49)	bp	3.90			%	%		4.50		%	%		(60)			bp	bp								3.97			%	%		4.47			%	%		(50)			bp	bp
Total operating expenses	Total operating expenses	$	(1,933)		$	(3,130)		(38)	%	$	(5,891)		$	(8,407)		(30)	%	Total operating expenses		$	(2,510)			$				$	(1,933)			30						30			%	%								$	(6,550)			$					$	(5,891)		11			11			%	%
Total operating expenses as a percentage of revenues	Total operating expenses as a percentage of revenues	2.74		%	4.56		%	(182)	bp	2.83		%	4.25		%	(142)	bp	Total operating expenses as a percentage of revenues		3.10			%	%	2.74			%	%		36			bp	bp								2.82			%	%		2.83			%	%		(1)			bp	bp
Other income, net	Other income, net	$	276		$	20		—	%	$	466		$	202		131	%	Other income, net		$	34			$				$	276			(88)						(88)			%	%								$	98			$					$	466		(79)			(79)			%	%
Loss on debt extinguishment		—			—			—		—			(191)			(100)

Interest expense
Interest expense
Interest expense	Interest expense	(69)			(41)			68		(169)			(135)			25
Income from continuing operations before income taxes	Income from continuing operations before income taxes	1,448			277			423		3,698			1,281			189
Income tax expense		(329)			(238)			38		(799)			(396)			102
Income from continuing operations before income taxes
Income from continuing operations before income taxes
Income tax benefit (expense)
Income tax benefit (expense)
Income tax benefit (expense)
Reported income tax rate
Reported income tax rate
Reported income tax rate	Reported income tax rate	(22.7)		%	(85.9)		%	6,320	bp	(21.6)		%	(30.9)		%	930	bp	(2.9)			%	%		22.7		%	%		(2,560)			bp	bp								11.0			%	%		21.6			%	%		(1,060)			bp	bp
Income from continuing operations	Income from continuing operations	$	1,119		$	39		—	%	$	2,899		$	885		228	%	Income from continuing operations		$	630			$				$	1,119			(44)						(44)			%	%								$	2,330			$					$	2,899		(20)			(20)			%	%
Income (loss) from discontinued operations, net of tax	Income (loss) from discontinued operations, net of tax	1			—			—		(3)			(3)			—
Net income	Net income	1,120			39			—		2,896			882			228
Net income
Net income
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(41)			(46)			(11)		(123)			(136)			(10)
Net income (loss) attributable to McKesson Corporation		$	1,079		$	(7)		—	%	$	2,773		$	746		272	%
Net income attributable to noncontrolling interests
Net income attributable to noncontrolling interests
Net income attributable to McKesson Corporation
Net income attributable to McKesson Corporation
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	Diluted earnings (loss) per common share attributable to McKesson Corporation
Diluted earnings (loss) per common share attributable to McKesson Corporation
Diluted earnings (loss) per common share attributable to McKesson Corporation
Continuing operations
Continuing operations
Continuing operations	Continuing operations	$	7.65		$	(0.04)		—	%	$	19.32		$	4.81		302	%	$	4.42			$				$	7.65			(42)						(42)			%	%								$	16.39			$					$	19.32			(15)			(15)		%	%
Discontinued operations	Discontinued operations	0.01			—			—		(0.02)			(0.02)			—
Total	Total	$	7.66		$	(0.04)		—	%	$	19.30		$	4.79		303	%
Total
Total																				$	4.42							$	7.66								(42)			%									$	16.39								$	19.30					(15)		%

Weighted-average diluted common shares outstanding	Weighted-average diluted common shares outstanding	141.0			151.6			(7)	%	143.7			155.8			(8)	%
Weighted-average diluted common shares outstanding
Weighted-average diluted common shares outstanding																				133.3								141.0									(5)			%									134.9									143.7						(6)		%

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

bp - basis points

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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Revenues

Revenues increased for the three and nine months ended December 31, ~~2022~~2023 compared to the same prior year periods largely due to market growth in our U.S. Pharmaceutical ~~segment.~~segment, including higher volumes from retail national account customers and growth in specialty pharmaceuticals. Market growth includes growing drug utilization, price increases, and newly launched products, partially offset by price deflation associated with branded to generic drug conversion. This revenue growth was partially offset by lower revenues in our International segment driven by the completed ~~divestitures~~divestiture of our ~~U.K. and~~ E.U. disposal ~~groups, our Austrian business,~~group and unfavorable effects of foreign currency exchange fluctuations.

Gross Profit

Gross profit decreased for the three and nine months ended December 31, ~~2022~~2023 compared to the same prior year periods primarily ~~in our International segment~~ driven by the completed ~~divestitures~~divestiture of our ~~U.K. and~~ E.U. disposal ~~groups,~~group within our ~~Austrian business, and unfavorable effects of foreign currency exchange fluctuations,~~International segment, partially offset by growth of specialty pharmaceuticals, our share of antitrust legal settlements received in the first nine months of 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. ~~For~~

We recognized gains of $23 million and $129 million for the ~~nine~~three months ended December 31, 2023 and 2022, ~~the decrease was partially offset by an increase in gross profit in our Medical-Surgical Solutions segment due to prior year inventory charges on certain PPE~~respectively, and ~~other related products~~$220 million and ~~favorability in our primary care business. Gross profit~~$129 million for the nine months ended December 31, 2023 and 2022, ~~was also favorably impacted by increased volume with new and existing customers in our RxTS segment.~~

~~For the three and nine months ended December 31, 2022, we recognized a gain of $129 million and for the nine months ended December 31, 2021, we recognized a gain of $46 million~~respectively, related to our share of antitrust legal settlements. We recognized these amounts within "Cost of sales" in the Condensed Consolidated ~~Statement~~Statements of Operations within our U.S. Pharmaceutical segment.

~~A last-in,~~Last-in, first-out (“LIFO”) inventory ~~charge of $5 million and a credit of $33 million were~~charges recognized during the three months ended December 31, 2023 and 2022 were comparable, with $2 million and ~~2021,~~$5 million recorded in the third quarter of fiscal 2024 and ~~credits~~fiscal 2023, respectively. A LIFO charge of $89 million and a credit of $31 ~~million and $79~~ million were recognized during the nine months ended December 31, 2023 and 2022, ~~and 2021, respectively. LIFO credits were lower in the first nine months of fiscal 2023 compared to the same prior year period~~respectively, primarily due to higher ~~expected~~ brand ~~inflation.~~ inventory levels, slightly higher estimated brand inflation, lower estimated generics deflation, as well as lower off patent launch activity.

Our U.S. Pharmaceutical 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 inventory losses. A LIFO 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 adjustment is based on our estimates of the annual LIFO ~~credit~~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 factors. Changes to any of the above factors could have a material impact to our annual LIFO ~~credit.~~adjustment. The actual valuation of inventory under the LIFO method is calculated at the end of the fiscal year.

Total Operating Expenses

A summary of the components of our total operating expenses for the three and nine months ended December 31, ~~2022~~2023 and ~~2021~~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 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 subsequent changes in estimates. Legal fees to defend claims, which are expensed as incurred, are included within SDG&A.

•Restructuring, impairment, and related charges, net: ~~Restructuring charges are~~Charges recorded under this component include those incurred for programs in which we change our operations, the scope of a business undertaken by our business units, or the manner in which that business is conducted, as well as long-lived asset impairments.

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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)


		Three Months Ended December 31,								Nine Months Ended December 31,
	Three Months Ended December 31,
(Dollars in millions)
(Dollars in millions)
(Dollars in millions)	(Dollars in millions)	2022			2021			Change		2022			2021			Change		2023								2022								Change									2023									2022							Change
Selling, distribution, general, and administrative expenses	Selling, distribution, general, and administrative expenses	$	1,903		$	3,105		(39)	%	$	5,812		$	8,006		(27)	%	Selling, distribution, general, and administrative expenses		$	2,506			$				$	1,903			32				32			%	%						$	6,468			$					$	5,812		11			11			%	%
Claims and litigation charges, net	Claims and litigation charges, net	(1)			7			114		(5)			193			103

Restructuring, impairment, and related charges, net	Restructuring, impairment, and related charges, net	31			18			72		84			208			(60)

Restructuring, impairment, and related charges, net

Restructuring, impairment, and related charges, net
Total operating expenses
Total operating expenses
Total operating expenses	Total operating expenses	$	1,933		$	3,130		(38)	%	$	5,891		$	8,407		(30)	%	$	2,510			$				$	1,933			30					30		%	%						$	6,550			$					$	5,891			11			11		%	%
Percent of revenues	Percent of revenues	2.74		%	4.56		%	(182)	bp	2.83		%	4.25		%	(142)	bp	Percent of revenues		3.10			%	%	2.74			%	%		36		bp	bp							2.82	%	%		2.83			%	%		(1)			bp	bp

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

bp - basis points

For the three and nine months ended December 31, ~~2022,~~2023, total operating expenses ~~and total~~increased compared to the same prior year periods. Total operating expenses as a percentage of revenues increased for the three months ended December 31, 2023, however slightly decreased for the nine months 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, ~~2022 reflects lower operating expenses due~~2023 includes a provision for bad debts of $515 million and $725 million, respectively, related to the ~~completed divestitures~~bankruptcy of ~~our U.K.~~Rite Aid in October 2023. Refer to the Rite Aid Bankruptcy Proceedings section of "Trends and ~~E.U. disposal groups in April 2022 and October 2022, respectively;~~Uncertainties" for further discussion;

•SDG&A for the three and nine months ended December 31, ~~2022~~2023 includes fair value adjustment gains of ~~$31~~$2 million and ~~$66~~$78 million, respectively, ~~and for the three and nine months ended December 31, 2021 includes charges of $26 million and $517 million, respectively, to remeasure the assets and liabilities of~~which reduced our ~~E.U. disposal group to fair value less costs to sell. The charges for the nine months ended December 31, 2021 include a $230 million loss~~contingent consideration liability related to the ~~accumulated other comprehensive income balances associated with~~RxSS acquisition, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the ~~E.U. disposal group, driven by declines~~accompanying condensed consolidated financial statements included in ~~the Euro;~~this Quarterly Report;

•SDG&A for the three and nine months ended December 31, ~~2021 includes charges totaling $823 million to remeasure~~2023 was impacted by lower operating expenses from the ~~assets and liabilities~~completed divestiture of our ~~U.K.~~E.U. disposal group ~~to fair value less costs to sell. The remeasurement adjustment includes a $731 million loss related~~in fiscal 2023, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures,” to the ~~accumulated other comprehensive income balances associated with the U.K. disposal group, driven by declines~~accompanying condensed consolidated financial statements included in ~~the British pound sterling;~~

•~~SDG&A for the for the nine months ended December 31, 2021 includes a gain of $59 million related to the sale of our Canadian health benefit claims management and plan administrative services business;~~

•SDG&A for the three months ended December 31, 2022 and 2021 includes charges of $9 million and $33 million, respectively, and for the nine months ended December 31, 2022 and 2021 includes charges of $37 million and $104 million, respectively, of opioid-related costs, primarily litigation expenses;this Quarterly Report;

•Claims and litigation charges, net ~~for fiscal 2023~~ was not material and for the three and nine months ended December 31, 2021 includes charges of $7 million and $193 million, respectively, related to our estimated liability for opioid-related claims of government entities, including Native American tribes.material. Refer to the Opioid-Related Litigation and Claims section of "Trends and Uncertainties" for further discussion; and

•Restructuring, impairment, and related charges, net ~~for fiscal 2023 was not material,~~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, ~~2021 includes charges of $5 million~~2023 and ~~$115 million, respectively, related to our transition to a partial remote work model approved during the first quarter of fiscal~~ 2022, as ~~further described below; and~~

•discussed in more detail below under “~~Total operating expenses were favorably impacted by foreign currency exchange fluctuations for the three and nine months ended December 31, 2022.~~Restructuring Initiatives.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

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. ~~During the first quarter of fiscal 2023, we voluntarily changed our annual goodwill impairment testing date from October 1~~st ~~to April 1~~st to align with the change in timing of our annual long-term planning process. This change was not material to our consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill impairment charge. Refer to Financial Note 7, “Goodwill and Intangible Assets, Net,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information.

The annual impairment testing performed in fiscal ~~2023~~2024 and fiscal ~~2022~~2023 did not indicate any impairment of goodwill, and no goodwill impairment charges were recorded during the three and nine months ended December 31, ~~2022~~2023 and ~~2021.~~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 ~~and Long-Lived Asset Impairments~~

We recorded restructuring, impairment, and related charges of ~~$31~~$4 million and ~~$18~~$31 million for the three months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively, and $84 million ~~and $208 million~~ for each of the nine months ended December 31, ~~2022~~2023 and ~~2021, respectively.~~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 ~~first~~fourth quarter of fiscal ~~2022,~~2023, we approved ~~an initiative~~a broad set of initiatives to ~~increase~~drive operational efficiencies and ~~flexibility by transitioning to a partial remote work model for~~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 ~~employees. This initiative primarily included the rationalization of our office space in North America. Where we ceased using office space, we exited the portion of the facility no longer used.~~facilities. We ~~also retained and repurposed certain other office locations. We recorded~~anticipate total charges of $5approximately $125 million across our RxTS and ~~$115~~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 ~~for~~of cumulative charges were recorded through December 31, 2023. For the three and nine months ended December 31, ~~2021, respectively, primarily~~2023, we recorded charges of $2 million and $41 million related to ~~lease right-of-use~~this program, respectively, which primarily includes real estate and other ~~long-lived~~related asset impairments ~~lease exit~~and facility costs ~~and accelerated depreciation and amortization.~~within Corporate. This ~~initiative was~~restructuring program is anticipated to be substantially ~~completed in~~complete by the end of fiscal ~~2022 and remaining costs we recorded and expect to record under this initiative are not material.~~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 ~~increased~~decreased for the three and nine months ended December 31, ~~2022~~2023 compared to the same prior year periods primarily due to:

•a gain in the third quarter of fiscal 2023 of $126 million due to the cash received for the early termination of a tax receivable agreement (“TRA”) entered into as part of the formation of the joint venture with Change ~~from which McKesson has now exited.~~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

•a gain in the second quarter of fiscal 2023 of $142 million related to the exit of one of our investments in equity securities held within our U.S. Pharmaceutical ~~segment; and~~segment.

•~~a favorable impact to interest income from higher interest rates on certain of our cash balances~~Interest Expense

Interest expense decreased for the three months ended December 31, 2023 compared to the same prior year ~~periods.~~

~~These gains were partially offset~~period primarily driven by ~~prior year net gains from~~changes in our ~~equity investments held within Corporate of $104 million recognized~~loan portfolio. Interest expense increased for the nine months ended December 31, ~~2021~~2023 compared to ~~net losses of $24 million recognized for~~ the ~~nine months ended December 31, 2022. Refer to Note 11, “Fair Value Measurements,”~~same prior year period primarily due to the ~~accompanying condensed consolidated financial statements included in this Quarterly Report for more information.~~


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~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Loss~~impact of higher interest rates on ~~Debt Extinguishment~~

~~The loss~~our debt and derivative portfolios, partially offset by a $9 million gain on debt extinguishment ~~recorded for~~in the ~~nine months ended December 31, 2021~~first quarter of $191 million includes premiums of $182 million as well as the write-off of unamortized debt issuance costs and transaction fees incurred of $9 million, and was driven by our July 2021 tender offer to redeem a portion of our then-existing debt.fiscal 2024. Refer to Financial Note 8,7, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information.

~~Interest Expense~~

Interest expense increased for the three and nine months ended December 31, 2022 compared to the same prior year periods primarily due to the unfavorable impact of higher interest rates, and unfavorable impacts from changes in our derivative portfolio as a result of our European divestiture activities. For the nine months ended December 31, 2022, this was partially offset by a decrease in interest expense driven by lower existing debt due to our tender offer in late July 2021. 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.

~~Income Tax Expense~~

For the three months ended December 31, 2022 and 2021, we recorded income tax expense of $329 million and $238 million, respectively. For the nine months ended December 31, 2022 and 2021, we recorded income tax expense of $799 million and $396 million, respectively. Our reported income tax rates were 22.7% and 85.9% for the three months ended December 31, 2022 and 2021, respectively, and 21.6% and 30.9% for the nine months ended December 31, 2022 and 2021, respectively. Fluctuations in our reported income tax rates are primarily due to non-cash charges related to remeasuring the value of our E.U. and U.K. disposal groups held for sale to fair value less costs to sell in fiscal 2022, changes in our business mix of earnings between various taxing jurisdictions, and discrete tax benefits recognized in the quarters. Refer to Financial Note 4, “Income Taxes,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information.

~~Net Income Attributable to Noncontrolling Interests~~

Net income attributable to noncontrolling interests for the three and nine months ended December 31, 2022 and 2021 primarily represents ClarusONE Sourcing Services LLP, Vantage Oncology Holdings, LLC, and the accrual of the annual recurring compensation amount of €0.83 per McKesson Europe share that McKesson was obligated to pay to the noncontrolling shareholders of McKesson Europe under the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”) through its divestiture in October 2022. For the third quarter of fiscal 2023, noncontrolling interests also includes the proportionate results of our newly formed oncology research business from its acquisition date. Noncontrolling interests with redemption features, such as put rights, that are not solely within our control are considered redeemable noncontrolling interests. Refer to the ~~“Selected Measures of Liquidity and Capital Resources”~~ section of this Financial Review and Financial Note 5, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for more information on changes to our redeemable and noncontrolling interests during the third quarter of fiscal 2023 and the first quarter of fiscal 2022.

~~Net Income (Loss) Attributable to McKesson Corporation~~

Net income (loss) attributable to McKesson Corporation was $1.1 billion and $(7) million for the three months ended December 31, 2022 and 2021, respectively, and $2.8 billion and $746 million for the nine months ended December 31, 2022 and 2021, respectively. Diluted earnings (loss) per common share attributable to McKesson Corporation was $7.66 and $(0.04) for the three months ended December 31, 2022 and 2021, respectively, and $19.30 and $4.79 for the nine months ended December 31, 2022 and 2021, respectively. Diluted loss per common share attributable to McKesson Corporation for the three months ended December 31, 2021 was calculated excluding dilutive securities from the denominator due to their anti-dilutive effects.

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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 $289 million and $799 million, respectively. Our reported income tax rates were (2.9)% and 22.7% for the three months ended December 31, 2023 and 2022, respectively, and 11.0% and 21.6% for the nine months ended December 31, 2023 and 2022, respectively.

Fluctuations in our reported income tax rates are primarily due to changes in our business mix of earnings between various taxing jurisdictions and discrete tax items recognized in the quarters. We recognized a net discrete tax benefit of $141 million in the three months ended December 31, 2023, including $154 million 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. We also recognized a net discrete tax benefit of $147 million in the nine months ended December 31, 2023 primarily related to the repatriation of certain intellectual property between McKesson wholly-owned legal entities that are based in different tax jurisdictions. Refer to Financial Note 4, “Income Taxes,” to the accompanying condensed consolidated financial statements 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 October 31, 2022.

Net Income Attributable to McKesson Corporation

Net income attributable to McKesson Corporation was $589 million and $1.1 billion for the three months ended December 31, 2023 and 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 was $4.42 and $7.66 for the three months ended December 31, 2023 and 2022, respectively, and $16.39 and $19.30 for the nine months ended December 31, 2023 and 2022, respectively. Our diluted earnings per share also reflects the cumulative effects of share repurchases during each period.

Weighted-Average Diluted Common Shares Outstanding

Diluted earnings per common share ~~were~~was calculated based on a weighted-average number of shares outstanding of ~~141.0~~133.3 million and ~~151.6~~141.0 million for the three months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~143.7~~134.9 million and ~~155.8~~143.7 million for the nine months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Weighted-average diluted shares outstanding for the three and nine months ended December 31, ~~2022~~2023 decreased from the same prior year periods primarily due to the cumulative effect of share repurchases.

~~Overview of Segment Results:~~

~~Segment Revenues:~~

Three Months Ended December 31, Nine Months Ended December 31,
(Dollars in millions) 2022 2021 Change 2022 2021 Change
Segment revenues
U.S. Pharmaceutical $ 61,934 $ 55,041 13 % $ 178,940 $ 158,471 13 %
Prescription Technology Solutions 1,121 1,031 9 3,205 2,844 13
Medical-Surgical Solutions 2,986 3,082 (3) 8,421 8,734 (4)
International 4,449 9,460 (53) 17,235 27,815 (38)
Total revenues $ 70,490 $ 68,614 3 % $ 207,801 $ 197,864 5 %

~~U.S. Pharmaceutical~~

~~Three Months Ended December 31, 2022 vs. 2021~~

~~U.S. Pharmaceutical revenues for the three months ended December 31, 2022 increased $6.9 billion or~~13% compared to the same prior year period. Within the segment, sales to pharmacies and institutional healthcare providers increased $6.6 billion and sales to specialty practices and other, which reflects the results for the distribution of COVID-19 vaccines, increased $305 million. Overall, these increases were primarily due to market growth, including growth in specialty pharmaceuticals driven by higher volumes from retail national account customers, higher volumes from other existing customers, and branded pharmaceutical price increases, partially offset by branded to generic drug conversions and unfavorability from one less sales day this quarter compared to the same prior year period.

~~Nine Months Ended December 31, 2022 vs. 2021~~

~~U.S. Pharmaceutical revenues for the nine months ended December 31, 2022 increased $20.5 billion or~~13% compared to the same prior year period. Within the segment, sales to pharmacies and institutional healthcare providers increased $19.6 billion and sales to specialty practices and other, which reflects the results for the distribution of COVID-19 vaccines, increased $855 million. Overall, these increases were primarily due to market growth, including growth in specialty pharmaceuticals driven by higher volumes from retail national account customers, higher volumes from other existing customers, and branded pharmaceutical price increases, partially offset by branded to generic drug conversions.

~~Prescription Technology Solutions~~

~~Three Months Ended December 31, 2022 vs. 2021~~

RxTS revenues for the three months ended December 31, 2022 increased $90 million or 9% compared to the same prior year period due to increased volumes with new and existing customers primarily in our third-party logistics and wholesale distribution services as well as higher technology service revenues.

~~Nine Months Ended December 31, 2022 vs. 2021~~

RxTS revenues for the nine months ended December 31, 2022 increased $361 million or 13% compared to the same prior year period due to increased volumes with new and existing customers primarily in our third-party logistics and wholesale distribution services as well as higher technology service revenues.

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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, ~~2022~~2023 vs. ~~2021~~2022

Medical-Surgical Solutions revenues for the three months ended December 31, ~~2022 decreased $96~~2023 increased $45 million or 3%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 ~~decreased $30~~increased by $31 million, ~~and $5 million, respectively. The decrease in our primary care business was~~ driven by ~~lower sales of COVID-19 tests,~~underlying business growth. These increases were partially offset by ~~underlying core business growth.~~our Other segment sales which declined ~~$61~~by $63 million driven by lower contribution from the kitting and distribution of ancillary supplies used to administer COVID-19 vaccines.


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Nine Months Ended December 31, ~~2022~~2023 vs. ~~2021~~2022

Medical-Surgical Solutions revenues for the nine months ended December 31, ~~2022 decreased $313~~2023 increased $55 million or 4%1% compared to the same prior year period. Within the segment, sales to ~~primary care and~~our extended care customers ~~decreased $170~~increased $159 million and ~~$3 million, respectively. The decrease in~~sales to our primary care ~~business was~~customers increased $57 million driven by ~~lower sales of COVID-19 tests, partially offset by~~ underlying ~~core~~ business ~~growth including higher sales of flu test kits.~~growth. Other sales declined ~~$140~~$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, ~~2022~~2023 vs. ~~2021~~2022

International revenues for the three months ended December 31, ~~2022~~2023 decreased ~~$5.0 billion~~$810 million or ~~53%~~18%, including unfavorable effects of foreign currency exchange fluctuations of $25 million, compared to the same prior year period. Within the segment, ~~foreign currency exchange fluctuations were unfavorable by $461 million and~~ sales in Europe declined by ~~$4.9 billion,~~$913 million 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 $318 million. Excluding the unfavorable effects of foreign currency exchange fluctuations, revenues for this segment decreased 48% largely due to the completed divestitures of our U.K. and E.U. disposal groups, and Austrian business.$128 million which was primarily driven by higher pharmaceutical distribution volumes.

Nine Months Ended December 31, ~~2022~~2023 vs. ~~2021~~2022

International revenues for the nine months ended December 31, ~~2022~~2023 decreased ~~$10.6~~$6.7 billion or ~~38%~~39%, including unfavorable effects of foreign currency exchange fluctuations of $324 million, compared to the same prior year period. Within the segment, ~~foreign currency exchange fluctuations were unfavorable by $1.7 billion and~~ sales in Europe declined by ~~$9.6~~$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 $718 million. Excluding the unfavorable effects of foreign currency exchange fluctuations, revenues for this segment decreased 32% largely due to the completed divestitures of our U.K. and E.U. disposal groups, and Austrian business.$520 million which was primarily driven by higher pharmaceutical distribution volumes.


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~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

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


		Three Months Ended December 31,								Nine Months Ended December 31,									Three Months Ended December 31,															Nine Months Ended December 31,
(Dollars in millions)	(Dollars in millions)	2022			2021			Change		2022			2021			Change		(Dollars in millions)	2023						2022				Change							2023						2022		Change
Segment operating profit (loss) (1)
Segment operating profit (1)
U.S. Pharmaceutical (2)	U.S. Pharmaceutical (2)	$	850		$	744		14	%	$	2,442		$	2,186		12	%
Prescription Technology Solutions		136			129			5		400			361			11
Medical-Surgical Solutions (3)		328			308			6		883			679			30
U.S. Pharmaceutical (2)
U.S. Pharmaceutical (2)																			$	307					$	850			(64)	%						$	1,727					$	2,442	(29)	%
Prescription Technology Solutions (3)
Medical-Surgical Solutions
Medical-Surgical Solutions
Medical-Surgical Solutions
International (4)
International (4)
International (4)	International (4)	136			(668)			120		93			(761)			112

Subtotal	Subtotal	1,450			513			183		3,818			2,465			55

Subtotal

Subtotal
Corporate expenses, net (5)	Corporate expenses, net (5)	67			(195)			134		49			(858)			106
Loss on debt extinguishment (6)		—			—			—		—			(191)			(100)
Corporate expenses, net (5)
Corporate expenses, net (5)
Interest expense
Interest expense
Interest expense	Interest expense	(69)			(41)			68		(169)			(135)			25
Income from continuing operations before income taxes	Income from continuing operations before income taxes	$	1,448		$	277		423	%	$	3,698		$	1,281		189	%
Income from continuing operations before income taxes
Income from continuing operations before income taxes																			$	612					$	1,448			(58)	%						$	2,619					$	3,698	(29)	%

Segment operating profit (loss) margin
Segment operating profit margin
Segment operating profit margin
Segment operating profit margin
U.S. Pharmaceutical
U.S. Pharmaceutical
U.S. Pharmaceutical	U.S. Pharmaceutical	1.37		%	1.35		%	2	bp	1.36		%	1.38		%	(2)	bp	0.42		%	%	1.37	%	%		(95)	bp	bp			0.82	%	%		1.36		%	%	(54)	bp	bp
Prescription Technology Solutions	Prescription Technology Solutions	12.13			12.51			(38)		12.48			12.69			(21)
Medical-Surgical Solutions	Medical-Surgical Solutions	10.98			9.99			99		10.49			7.77			272
Medical-Surgical Solutions
Medical-Surgical Solutions
International	International	3.06			(7.06)			1,012		0.54			(2.74)			328
International
International

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

bp - basis points

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

(2)Operating profit for our 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;


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•cash receipts for our share of antitrust legal settlements of $23 million and $129 million for the three ~~and nine~~ months ended December 31, 2023 and 2022, respectively, and ~~$46~~$220 million and $129 million for the nine months ended December 31, ~~2021;~~2023 and 2022, respectively;

•~~a charge~~charges of $2 million and $5 million related to the LIFO method of accounting for inventories ~~of $5 million and a credit of $33 million~~ for the three months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~credits~~a charge of ~~$31~~$89 million and ~~$79~~a credit of $31 million for the nine months ended December 31, ~~2022~~2023 and ~~2021,~~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 ~~nine months ended December 31, 2022.~~Company’s Condensed Consolidated Statements of Operations.

(3)Operating profit for our ~~Medical-Surgical Solutions~~RxTS segment for the three and nine months ended December 31, ~~2021~~2023 includes ~~$164~~fair value adjustment gains of $2 million ~~of inventory charges on certain PPE~~ and ~~other~~$78 million, respectively, which reduced our contingent consideration liability related ~~products.~~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.

(4)Operating profit for our International segment ~~includes the following:~~

•~~charges of $3 million and $240 million~~ for the three and nine months ended December 31, 2022 ~~respectively, and~~includes charges of ~~$58~~$3 million and ~~$400~~$240 million, ~~for the three and nine months ended December 31, 2021,~~ 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 ~~in fiscal 2022, to impair certain assets, including internal-use software that will not be utilized in the future;~~

•~~charges of $787 million for the three and nine months ended December 31, 2021 to remeasure the assets and liabilities of our U.K. disposal group to fair value less costs to sell; and~~

•~~a gain of $59 million for the nine months ended December 31, 2021 related~~Divestitures,” to the ~~sale of our Canadian health benefit claims management and plan administrative services business.~~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, ~~and a credit of $32 million and a charge of $117 million for the three and nine months ended December 31, 2021, respectively,~~ primarily related to the effect of accumulated other comprehensive loss components from our E.U. disposal ~~group;~~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


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~~(UNAUDITED)~~

•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;~~

•~~a net loss of $24 million and a net gain of $104 million for the nine months ended December 31, 2022 and 2021, respectively, associated with certain of our equity investments;~~

•~~charges of $193 million for the nine months ended December 31, 2021 related to our estimated liability for opioid-related claims; and~~

•~~restructuring charges of $90 million for the nine months ended December 31, 2021 primarily due to the transition to a partial remote work model for certain employees.~~

~~(6)Loss on debt extinguishment for the nine months ended December 31, 2021 consists of a charge of $191 million related to our July 2021 tender offer to redeem a portion of our existing debt.~~hedges.

U.S. Pharmaceutical

Three Months Ended December 31, ~~2022~~2023 vs. ~~2021~~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, ~~2022~~2023 compared to the same prior year period primarily due to an increase in net cash proceeds received of $129 million representing our share of antitrust legal settlements, and growth in specialty pharmaceuticals, partially offset by a decrease in our LIFO adjustment from a credit in the prior year period to a charge in the third quarter of 2023.

~~Nine Months Ended December 31, 2022 vs. 2021~~

Operating profit for this segment increased for the nine months ended December 31, 2022 compared to the same prior year period primarily due to a gain recognized from the exit of one of our investments in equity securities in July 2022, growth in specialty pharmaceuticals, and cash proceeds received representing our share of antitrust legal settlements. This was partially offset by a decrease in our LIFO credits, and a decrease in the contribution from our COVID-19 vaccine distribution program.

~~Prescription Technology Solutions~~

~~Three Months Ended December 31, 2022 vs. 2021~~

~~Operating profit for this segment increased for the three months ended December 31, 2022 compared to the same prior year period primarily~~ driven by increased volumes ~~with new and existing customers due to growth in~~from our access ~~affordability, and adherence solutions.~~

~~Nine Months Ended December 31, 2022 vs. 2021~~

~~Operating profit for this segment increased for the nine months ended December 31, 2022 compared~~solutions, primarily related to ~~the same~~ prior ~~year period primarily driven by increased volumes with new and existing customers due to growth in our access, affordability, and adherence solutions.~~

~~Medical-Surgical Solutions~~

~~Three Months Ended December 31, 2022 vs. 2021~~

Operating profit for this segment increased for the three months ended December 31, 2022 compared to the same prior year period due to favorability in our primary care business, partially offset by lower sales of COVID-19 tests, and a lower contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines.

~~Nine Months Ended December 31, 2022 vs. 2021~~

Operating profit for this segment increased for the nine months ended December 31, 2022 compared to the same prior year period largely due to favorability in our core primary care business, and prior year inventory charges on certain PPE and other related products, partially offset by lower sales of COVID-19 tests, and a lower contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines.authorization services.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

~~International~~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, ~~2022~~2023 vs. ~~2021~~2022

Operating profit for this segment decreased for the three months ended December 31, ~~2022~~2023 compared to ~~operating loss in~~ the same prior year period ~~was largely~~ due to ~~the favorable impact~~a lower contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines, partially offset by growth in our ~~divestitures of the U.K. and E.U. disposal groups and our Austrian business, primarily as a result of higher remeasurement charges recorded in the prior year.~~extended care business.

Nine Months Ended December 31, ~~2022~~2023 vs. ~~2021~~2022

Operating profit for this segment decreased for the nine months ended December 31, ~~2022~~2023 compared to ~~operating loss in~~ the same prior year period ~~was~~ 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 ~~favorable impact of our divestitures of~~three months ended December 31, 2023 compared to the ~~U.K. and E.U. disposal groups and our Austrian business,~~same prior year period primarily as a result of ~~higher~~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 ~~well as lower restructuring expenses due to optimization programs in Canada. This was partially offset by~~ a ~~gain recognized~~result of remeasurement charges recorded in the prior year related to the E.U. disposal group, partially offset by lower contributions from the ~~sale of our Canadian health benefit claims management and plan administrative services business.~~European operations divested in fiscal 2023.

Corporate Expenses, Net

Three Months Ended December 31, ~~2022~~2023 vs. ~~2021~~2022

Corporate expenses, net ~~decreased~~increased for the three months ended December 31, ~~2022~~2023 compared to the same prior year period primarily ~~due to~~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, ~~and~~ $97 million from the termination of fixed interest rate swaps accounted for as cash flow ~~hedges.~~hedges, and remeasurement gains recorded in the prior year related to the E.U. disposal group.

Nine Months Ended December 31, ~~2022~~2023 vs. ~~2021~~2022

Corporate expenses, net ~~decreased~~increased for the nine months ended December 31, ~~2022~~2023 compared to the same prior year period primarily due to:

•~~year-over-year favorability from the fair value~~prior year remeasurement ~~of our E.U. and U.K. disposal groups;~~

•~~lower charges~~gains related to ~~our estimated liability for opioid-related claims;~~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;

•~~a decrease in opioid-related costs, primarily litigation expenses;~~

•~~prior year restructuring charges for the transition to a partial remote work model for certain employees;~~ 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 ~~periods.~~period.

~~These were partially offset by net losses from our equity investments compared to net gains in the prior year period.~~48


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Business Combinations

Refer to ~~the Business Acquisitions and Divestitures section of the “Overview of our Business”~~ ~~within this Financial Review and~~ Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for our disclosures on 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 included in this Quarterly Report.


~~Table of Contents~~			~~MD&A Index~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

We expect our available cash generated from operations and our short-term investment portfolio, together with our existing sources of liquidity from our credit facilities, ~~and~~ commercial paper program, and other borrowings will be sufficient to fund our short-term and long-term capital expenditures, working capital, and other cash requirements. We remain adequately capitalized, ~~with~~including access to liquidity from our $4.0 billion revolving credit facility. At December 31, ~~2022,~~2023, we were in compliance with all debt covenants, and believe we have the ability to continue to meet our debt covenants in the future.

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


		Nine Months Ended December 31,
	Nine Months Ended December 31,
(Dollars in millions)
(Dollars in millions)
(Dollars in millions)	(Dollars in millions)	2022		2021		Change		2023	2022	Change
Net cash provided by (used in):	Net cash provided by (used in):
Operating activities
Operating activities
Operating activities	Operating activities	$	1,834	$	1,547	$	287
Investing activities	Investing activities	(298)		(272)		(26)
Financing activities	Financing activities	(3,178)		(4,332)		1,154
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	15		35		(20)
Change in cash, cash equivalents, and restricted cash classified within Assets held for sale (1)		470		(215)		685
Change in cash, cash equivalents, and restricted cash classified as Assets held for sale (1)
Net change in cash, cash equivalents, and restricted cash	Net change in cash, cash equivalents, and restricted cash	$	(1,157)	$	(3,237)	$	2,080

(1)The fiscal 2023 change reflects a reversal of cash, cash equivalents, and restricted cash previously classified ~~within~~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 the settlement of liabilities which is reflected in operating activities. ~~Refer to Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further information.~~

Operating Activities

Operating activities provided cash of ~~$1.8 billion~~$167 million and ~~$1.5~~$1.8 billion during the nine months ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Cash flows from operations can be significantly impacted by factors such as the timing of receipts from customers, inventory ~~purchases,~~receipts, and payments to vendors. Additionally, working capital is primarily a function of sales and purchase volumes, inventory requirements, and vendor payment terms.

Operating activities for the nine months ended December 31, 2023 were affected by net income of $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 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 fiscal 2024 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.


Table of Contents			MD&A Index

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. Refer Financial Note 2, “Business Acquisitions and Divestitures,” to the accompanying condensed consolidated financial statements included in this Quarterly Report for further information on our European divestiture activities. Operating activities for the nine months ended December 31, 2022 were affected by net income of $2.9 billion,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 ~~first~~ nine months of fiscal 2023 associated with ~~the Settlement and separate~~various settlement agreements offor opioid-related claims of ~~participating~~ states, subdivisions, and Native American tribes. Operating activities for the nine months ended December 31, 2022 were also impacted by our share of antitrust legal settlements of $129 million, cash payment received for the early termination of our TRA with Change of $126 million, and proceeds from the termination of fixed interest rate swaps accounted fortribes, as ~~cash flow hedges of $97 million.~~

Operating activities for the nine months ended December 31, 2021 were affected by net income adjusted for non-cash items, including the losses on our European businesses held for sale and our classifications of receivables, drafts and accounts payables, and inventories as held for sale. Refer todiscussed in more detail in Financial Note ~~2, “Business Acquisitions~~10, “Commitments and ~~Divestitures,~~Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly ~~Report for further information. Excluding~~Report.

Investing Activities

Investing activities used cash of $495 million and $298 million during the ~~aforementioned classifications, operating~~nine months ended December 31, 2023 and 2022, respectively. Investing activities for the nine months ended December 31, ~~2021 were affected by increases in inventory of $1.7 billion~~2023 and drafts and accounts payable of $1.6 billion due to timing of purchases, and an increase in receivables of $1.9 billion resulting from timing of collections and higher revenues. Other non-cash items for the nine months ended December 31, 20212022 includes an adjustment to net income of $191 million related to loss on debt extinguishment and non-cash inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment.


~~Table of Contents~~			~~MD&A Index~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Investing Activities~~

~~Investing activities used cash of $298~~$418 million and ~~$272~~$376 million, ~~during the nine months ended December 31, 2022~~respectively, in capital expenditures for property, plant, and ~~2021, respectively.~~ equipment and capitalized software.

Investing activities for the nine months ended December 31, 2022 include $856 million of net cash payments for acquisitions, including $600 million for our acquisition of RxSS and $173 million for our contribution for the formation of ~~an oncology research business with HCA.~~SCRI Oncology. Investing activities for the nine months ended December 31, 2022 ~~and 2021 includes $376 million and $380 million, respectively, in capital expenditures for property, plant, and equipment, and capitalized software, and~~ 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 completed divestiture of our U.K. disposal group in April 2022, and $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 ~~$3.2~~$2.4 billion and ~~$4.3~~$3.2 billion during the nine months ended December 31, 2023 and 2022, ~~and 2021, respectively, which includes $3.5 billion and $2.0 billion~~respectively. On June 15, 2023, we completed a public offering of ~~cash paid for share repurchases, respectively, as well as $216 millionand $206 million~~4.90% Notes due July 15, 2028 in a principal amount of cash paid for dividends, respectively. Financing activities also includes cash receipts of $1.1 billion and $3.6 billion for the nine months ended December 31, 2022 and 2021, respectively, and repayments of $483$400 million and ~~$3.3 billion~~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 ~~nine months ended December 31, 2022~~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 tender offer for any and ~~2021, respectively, for short-term borrowings, primarily commercial paper.~~ all of our 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 proceeds from the June 15, 2023 notes offering described above, we paid an aggregate consideration of $268 million to repurchase $271 million principal amount of the 2024 Notes. Following the consummation of 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 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 ~~the 2022 Term Loan Credit Facility~~a term loan credit facility which ~~provides~~provided an unsecured term loan facility up to $500 ~~million and matures in November 2025.~~million. We drew $500 million of cash on the loan in December 2022 which ~~can be~~was used for general corporate purposes. Also in December 2022, we retired our $400 million outstanding principal amount of 2.70% notes upon maturity using cash on hand.

Financing activities for the nine months ended December 31, 2023 and 2022 includes $2.3 billion and $3.5 billion of cash paid for share repurchases, as well as $232 millionand $216 million of cash paid for 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.

Financing activities for the nine months ended December 31, 2021 includes a payment of $1.0 billion to purchase shares of McKesson Europe through exercises of a put right option by noncontrolling shareholders. The put right option expired on June 15, 2021 as further described below. In July 2021, we completed a cash tender offer and paid an aggregate consideration of $1.1 billion to redeem certain notes with a principal amount of $922 million and also redeemed our 0.63% Euro-denominated notes with a principal amount of €600 million (or, approximately $709 million) prior to the maturity date of August 17, 2021 using cash on hand. This resulted in total repayments of long-term debt during the nine months ended December 31, 2021 of $1.8 billion, including $184 million of cash paid for premiums and transaction fees. This was partially offset by the issuance of long-term debt in August 2021 from a public offering of 1.30% notes due August 15, 2026 for proceeds received of $498 million, which was utilized for general corporate purposes.50


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Share Repurchase Plans

The Board has authorized the repurchase of ~~McKesson’s~~ common stock. ~~Stock~~We may affect stock repurchases ~~may be made~~ from time-to-time inthrough open market transactions, privately negotiated transactions, ~~through ASR~~accelerated share repurchase (“ASR”) programs, or by combinations of such 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 ~~as amended~~ (“Exchange Act”). The timing of any repurchases and the actual number of shares repurchased will depend on a variety of factors, including ~~the Company’s~~our stock price, corporate and regulatory requirements, tax implications, restrictions under ~~the Company’s~~our 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, our 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 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 December 2022, we entered into an ASR program with a third-party financial institution to repurchase $972 million shares of ~~the Company’s~~ common stock. ~~Pursuant to the ASR agreement, we paid $972 million in cash to the financial institution and received an initial delivery of 2.2 million shares in December 2022.~~ The ~~transaction will be completed during the fourth quarter of fiscal 2023, at which point we expect to receive additional shares. The final~~total number of shares repurchased ~~and the~~under this ASR program was 2.6 million shares at an average price per share ~~paid will be determined based on~~of $369.20. We received 2.2 million shares as the ~~volume-weighted average price~~initial share settlement, and in February 2023, we received an additional 0.4 million shares upon the completion of ~~the Company’s common stock during the term of the~~this ASR ~~program, less a pre-negotiated discount.~~program.

In May 2022, we entered into an ASR program with a third-party financial institution to repurchase $1.0 billion shares of ~~the Company’s~~ 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.


~~Table of Contents~~			~~MD&A Index~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

In February 2022, we entered into an ASR program with a third-party financial institution to repurchase $1.5 billion shares of ~~the Company’s~~ common stock. The total number of shares repurchased under this ASR program was 5.1 million shares at an average price per share of $295.16. We received 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 May 2021, we entered into an ASR program with a third-party financial institution to repurchase $1.0 billion of the Company’s common stock. The total number of shares repurchased under this ASR program was 5.2 million shares at an average price per share of $193.22. We received 4.3 million shares as the initial share settlement, and in August 2021, we received an additional 0.9 million shares upon the completion of this ASR program.

During the three months ended December 31, 2022, we repurchased 2.7 million of the Company’s 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 of the Company’s 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.

During the three months ended December 31, 2021, we repurchased 3.3 million of the Company’s shares of common stock for $728 million through open market transactions at an average price per share of $223.89, of which $30 million was accrued at December 31, 2021 within “Other accrued liabilities” in our Condensed Consolidated Balance Sheet for share repurchases that were executed in late December 2021 and settled in early January 2022. During the three months ended September 30, 2021, we repurchased 1.4 million of the Company’s shares of common stock for $280 million through open market transactions at an average price per share of $203.20. There were no open market share repurchases during the three months ended June 30, 2021.


Table of Contents			MD&A Index

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Selected Measures of Liquidity and Capital Resources


(Dollars in millions)	(Dollars in millions)	December 31, 2022			March 31, 2022
Cash, cash equivalents, and restricted cash	Cash, cash equivalents, and restricted cash	$	2,778		$	3,935
Cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash
Working capital
Working capital
Working capital	Working capital	(3,349)			(2,235)
Debt to capital ratio (1)	Debt to capital ratio (1)	131.6		%	114.5		%
Debt to capital ratio (1)
Debt to capital ratio (1)								126.7	%	120.5	%

(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~~short-term borrowings, total debt, and McKesson stockholders’ deficit, which excludes noncontrolling interests and accumulated other comprehensive loss.

Cash equivalents, which are readily convertible to known amounts of cash, are carried at fair value. Cash equivalents are primarily invested in AAA-rated U.S. government money market funds, ~~and overnight~~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 and the functional currencies of our foreign subsidiaries, including ~~Euro,~~ Canadian dollars, Euro, and British ~~pound~~pounds sterling. Deposits could exceed the amounts insured by the Federal Deposit Insurance Corporation in the U.S. and similar deposit insurance programs in other jurisdictions. We mitigate the risk of our short-term investment portfolio by depositing funds with reputable financial institutions and monitoring risk profiles and investment strategies of money market funds.

Our cash and cash equivalents balance as of December 31, ~~2022~~2023 and March 31, ~~2022~~2023 included approximately $~~849~~790 million and ~~$1.5~~$1.3 billion, respectively, of cash held by our subsidiaries outside of the U.S.~~, respectively.~~ Our primary intent is to utilize this cash for foreign operations for an indefinite period of time. Although the majority of cash held outside the U.S. is available for repatriation, doing so could subject us to foreign withholding taxes and state income taxes. We may remit foreign earnings to the U.S. to the extent it is tax 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. is generally no longer taxable for federal income tax purposes.


~~Table of Contents~~			~~MD&A Index~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

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

Consolidated working capital decreased at December 31, ~~2022~~2023 compared to March 31, ~~2022~~2023 primarily due to an increase in drafts and accounts payable from increased purchasing driven by increased sales and ~~short-term borrowings, 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 ~~inventory,~~inventories, driven by higher revenues and timing, and a decrease in ~~our~~the current portion of long-term debt ~~and net liabilities classified as held for sale related to our European divestiture activities.~~largely funded by an issuance of long-term debt in the first quarter of fiscal 2024.

Our debt to capital ratio increased for the nine months ended December 31, ~~2022~~2023 due to share repurchases ~~repayment~~and dividend payments as well as repayments of our $400 million outstanding principal amount of 2.70% notes in December 2022 upon maturity, and a decrease in the carrying value of our foreign currency denominated notes driven by foreign currency remeasurement,long-term debt, partially offset by net income attributable to McKesson for the ~~year-to-date period,~~year, issuance of new long-term debt, and net issuance of commercial paper notes during fiscal ~~2023, and a draw of $500 million on our term loan facility in December 2022.~~2024.

In July ~~2022,~~2023, we raised our quarterly dividend from ~~$0.47~~$0.54 to ~~$0.54~~$0.62 per share of common ~~share~~stock for dividends declared on or after such date by the Board. We anticipate that we will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon our future earnings, financial condition, capital requirements, legal requirements, and other factors.

~~Redeemable Noncontrolling Interests~~

Our previously recognized redeemable noncontrolling interests primarily related to our consolidated subsidiary, McKesson Europe. Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe had a right to put (“Put Right”) their shares at €22.99 per share, increased annually for interest in the amount of five percentage points above a base rate published semi-annually by the German Bundesbank, less any compensation amount or guaranteed dividend already paid by McKesson (“Put Amount”). During the nine months ended December 31, 2021, we paid $1.0 billion to purchase 34.5 million shares of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders, which reduced the balance of our redeemable noncontrolling interests.

The Put Right expired on June 15, 2021, at which point the remaining shares owned by the minority shareholders, valued at $287 million, were transferred from redeemable noncontrolling interests to noncontrolling interests and as a result, we no longer have redeemable noncontrolling interests presented in our condensed consolidated balance sheets at December 31, 2022 or March 31, 2022. Our noncontrolling interest in McKesson Europe was included in the sale of our E.U. disposal group in October 2022, as discussed in more detail in Financial Note 2, “Business Acquisitions and Divestitures.”

Additionally, prior to the sale of our E.U. disposal group in October 2022, we were obligated to pay an annual recurring compensation of €0.83 per McKesson Europe share (the “Compensation Amount”) to the noncontrolling shareholders of McKesson Europe under the Domination Agreement. The Compensation Amount was recognized ratably during the applicable annual period through the October 31, 2022 divestiture. The Domination Agreement did not expire, but it may be terminated at the end of any fiscal year by giving at least six months’ advance notice.

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

6252


Table of Contents			MD&A Index

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 ~~issuances.~~issuances, and longer-term credit agreements and debt offerings. Funds necessary for future debt maturities and our other cash requirements, including any ~~completed and anticipated acquisitions, or~~ future payments that may be made related to our total estimated litigation liability of ~~$7.2~~$6.6 billion as of December 31, ~~2022~~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 capital market transactions.~~future borrowings. Long-term debt markets and commercial paper markets, our ~~principal~~primary sources of capital after cash flow from operations, are open and accessible to us should we decide to access those markets. Detailed information regarding our debt and financing activities is included in Financial Note 8,7, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report.

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

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 and Section 21E of the Exchange Act. ~~Some of these~~Forward-looking statements ~~can~~may be identified by ~~the~~their use of 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. Readers should not place undue reliance on forward-looking statements, which speak only as of the date such statements were first made. Except to the extent required by law, we undertake no obligation to update or revise our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated, or implied. Although it is not possible to predict or identify all such risks and uncertainties, they include, but are not limited to, the factors ~~described~~discussed in the ~~Risk Factors discussion~~“Risk Factors” section in Item 1A of Part I of the 2023 Annual Report and in our ~~most recently filed Annual Report.~~publicly available SEC filings and press releases. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date such statements were first made. Except to the extent required by federal securities laws, we undertake no obligation to publicly release the result of any revisions to any forward-looking statements to reflect events or circumstances after the date 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.

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 ~~2022~~ Annual ~~Report.~~Report on Form 10-K for the fiscal year ended March 31, 2023.

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 (“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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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 the three months ended December 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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~~McKESSON CORPORATION~~

PART II—OTHER INFORMATION

Item 1.Legal Proceedings.

The information set forth in Financial Note ~~12,~~10, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, and in Financial Note ~~18,~~17, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in ~~the Company’s~~our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2022,~~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.

Other than factual updates discussed in this Quarterly Report on Form 10-Q, there have been no material changes 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 ~~2022~~ 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.

~~The Company’s~~Our Board of Directors has authorized the repurchase of ~~McKesson’s~~ common stock. ~~Stock~~We may affect stock repurchases ~~may be made~~ from time-to-time inthrough open market transactions, privately negotiated transactions, ~~through~~ accelerated share repurchase ~~(“ASR”)~~ programs, or by combinations of such 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 ~~the Company’s~~our stock price, corporate and regulatory requirements, tax implications, restrictions under ~~the Company’s~~our debt obligations, other uses for capital, impacts on the value of remaining shares, and ~~other~~ market and economic conditions. ~~The ASR program discussed below was designed to comply with Rule 10b5-1(c).~~

Refer to Financial Note ~~13,~~11, “Stockholders' ~~Equity (Deficit),~~Deficit,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a full discussion of the Company’s share repurchases for the three and nine months ended December 31, ~~2022~~2023 and ~~2021.~~2022.

The following table provides information on the Company’s share repurchases during the three months ended December 31, ~~2022:~~2023:

Share Repurchases (1)
(In millions, except price per share) Total Number
of Shares
Purchased Average Price
Paid Per Share Total Number of
Shares Purchased
as Part of Publicly
Announced
Program Approximate
Dollar Value of
Shares that May
Yet Be Purchased Under the Programs
October 1, 2022 – October 31, 2022 1.1 $ 362.48 1.1 $ 5,338
November 1, 2022 – November 30, 2022 1.0 374.23 1.0 4,957
December 1, 2022 – December 31, 2022 (2)
2.8 373.55 2.8 3,778
Total 4.9 4.9


	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 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 ~~December~~July 2022 and July 2023, the Board authorized the Company ~~entered into an ASR program with a third-party financial institution~~ to repurchase ~~$972 million~~up to an additional $4.0 billion and $6.0 billion shares of the Company’s common stock. Pursuant to the ASR agreement, the Company paid $972 million in cash to the financial institution and received an initial delivery of 2.2 million shares in December 2022 at a reference price of $372.31. The transaction will be completed during the fourth quarter of fiscal 2023, at which point the Company expects to receive additional shares. The final number of shares repurchased and the average price per share paid will be determined based on the volume-weighted average price of the Company’s common stock, ~~during the term~~respectively, both of ~~the ASR program, less a pre-negotiated discount.~~which have no expiration date.

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Item 3.Defaults Upon Senior Securities.

None.

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~~McKESSON CORPORATION~~

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

~~Not applicable.~~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.

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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

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.~~110.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 7, ~~2022,~~2023, File No. 1-13252).

~~10.2~~			~~Credit Agreement, dated as of November 7, 2022, among the Company, as borrower, the lenders party thereto, Toronto Dominion (Texas) LLC, as administrative agent~~, ~~and the other parties thereto(Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on November 7, 2022, 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†			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, ~~2022,~~2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Stockholders’ ~~Equity (Deficit),~~Deficit, (v) Condensed Consolidated Statements of Cash Flows, and (vi) related Financial Notes.

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

† Filed herewith.

†† Furnished herewith.

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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, 2023~~7, 2024	/s/ Britt J. Vitalone
		Britt J. Vitalone
		Executive Vice President and Chief Financial Officer


		MCKESSON CORPORATION

Date:	February ~~1, 2023~~7, 2024	/s/ Napoleon B. Rutledge Jr.
		Napoleon B. Rutledge Jr.
		Senior Vice President and Controller

6757


(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests
Balance, March 31, 2021	$	196	$	1,271
Net income attributable to noncontrolling interests	128		8
Other comprehensive income (loss)	(2)		3
Payments to noncontrolling interests	(117)		—
Reclassification of recurring compensation to other accrued liabilities	(5)		(8)
Exercises of Put Right	—		(983)
Reclassification of McKesson Europe redeemable noncontrolling interests	287		(287)
Other	—		(4)
Balance, December 31, 2021	$	487	$	—


Section			Page

General			4236

Overview of our Business			4236

Executive Summary			4437

Trends and Uncertainties			4538

Overview of Consolidated Results			4940

Overview of Segment Results			5445

Business Combinations			5849

New Accounting Pronouncements			5849

Financial Condition, Liquidity, and Capital Resources			5949

Cautionary Notice About Forward-Looking Statements			6353

Available Information			53