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 June 30, ~~2020~~2021


☐			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~~
~~0.625% Notes due 2021~~	~~MCK21A~~	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. ~~162,189,761~~154,674,571 shares of the issuer’s common stock were outstanding as of June 30, ~~2020.~~2021.

Table of Contents

McKESSON CORPORATION

TABLE OF CONTENTS


Item	Item		Page	Item		Page

		PART I—FINANCIAL INFORMATION			PART I—FINANCIAL INFORMATION

1	1	Condensed Consolidated Financial Statements		1	Condensed Consolidated Financial Statements

		Condensed Consolidated Statements of Operations for the t hree m onths e nded June 30, 2020 and 2019	3

		Condensed Consolidated Statements of Comprehensive Income for the t hree m onths e nded June 30, 2020 and 2019	4		Condensed Consolidated Statements of Operations for the three months ended June 30, 2021 and 2020	3

		Condensed Consolidated Balance Sheets as of June 30, 2020 and March 31, 2020	5		Condensed Consolidated Statements of Comprehensive Income for the three months ended June 30, 2021 and 2020	4

		Condensed Consolidated Statements of Stockholders’ Equity for t he t hree m onths e nded June 30, 2020 and 2019	6		Condensed Consolidated Balance Sheets as of June 30, 2021 and March 31, 2021	5

		Condensed Consolidated Statements of Cash Flows for the t hree m onths e nded June 30, 2020 and 2019	7		Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three months ended June 30, 2021 and 2020	6

		Financial Notes	8		Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2021 and 2020	7

		Note 1 - Significant Accounting Policies	8		Financial Notes	8

		Note 2 - Investment in Change Healthcare Joint Venture	10		Note 1 - Significant Accounting Policies	8

		Note 3 - Held for Sale	11		Note 2 - Held for Sale	9

		Note 4 - Restruc turing, Impairmen t and Related Charges	12		Note 3 - Restructuring, Impairment, and Related Charges	9

		Note 5 - Income Taxes	13		Note 4 - Income Taxes	11

		Note 6 - Redeemable Non controlling Interests and Non controlling Interests	14		Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests	11

		Note 7 - Earnings per Common Share	16		Note 6 - Earnings (Loss) per Common Share	13

		Note 8 - Goodwill and Intangible Assets, Net	17		Note 7 - Goodwill and Intangible Assets, Net	14

		Note 9 - Debt and Financing Activities	18		Note 8 - Debt and Financing Activities	16

		Note 10 - Pension Benefits	19		Note 9 - Pension Benefits	17

		Note 11 - Hedging Activities	19		Note 1 0 - Hedging Activities	17

		Note 12 - Fair Value Measurements	22		Note 1 1 - Fair Value Measurements	20

		Note 13 - Commitments and Contingent Liabilities	23		Note 1 2 - Commitments and Contingent Liabilities	22

		Note 14 - Stockholders’ Equity	27		Note 13 - Stockholders’ Equity (Deficit)	26

		Note 15 - Segments of Business	29		Note 1 4 - Segments of Business	29

2	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

3	3	Quantitative and Qualitative Disclosures About Market Risk	45	3	Quantitative and Qualitative Disclosures About Market Risk	48

4	4	Controls and Procedures	46	4	Controls and Procedures	48

		PART II—OTHER INFORMATION			PART II—OTHER INFORMATION

1	1	Legal Proceedings	46	1	Legal Proceedings	49

1A	1A	Risk Factors	46	1A	Risk Factors	49

2	2	Unregistered Sales of Equity Securities and Use of Proceeds	46	2	Unregistered Sales of Equity Securities and Use of Proceeds	49

3	3	Defaults Upon Senior Securities	46	3	Defaults Upon Senior Securities	50

4	4	Mine Safety Disclosures	46	4	Mine Safety Disclosures	50

5	5	Other Information	46	5	Other Information	50

6	6	Exhibits	47	6	Exhibits	51

		Signatures	48		Signatures	52

Table of Contents

McKESSON CORPORATION

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial ~~Statements~~Statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)


		Three Months Ended June 30,					Three Months Ended June 30,
		2020		2019			2021		2020
Revenues	Revenues	$	55,679	$	55,728	Revenues	$	62,674	$	55,679
Cost of sales	Cost of sales	(52,979)		(52,941)		Cost of sales	(59,642)		(52,979)
Gross profit	Gross profit	2,700		2,787		Gross profit	3,032		2,700
Operating expenses		(1,966)		(2,130)
Selling, distribution, general, and administrative expenses						Selling, distribution, general, and administrative expenses	(2,232)		(2,097)
Claims and litigation charges, net						Claims and litigation charges, net	(74)		131

Restructuring, impairment and related charges		(56)		(23)

Restructuring, impairment, and related charges						Restructuring, impairment, and related charges	(158)		(56)
Total operating expenses	Total operating expenses	(2,022)		(2,153)		Total operating expenses	(2,464)		(2,022)
Operating income	Operating income	678		634		Operating income	568		678
Other income, net	Other income, net	27		37		Other income, net	43		27
Equity earnings and charges from investment in Change Healthcare Joint Venture		—		4

Interest expense	Interest expense	(60)		(56)		Interest expense	(49)		(60)
Income from continuing operations before income taxes	Income from continuing operations before income taxes	645		619		Income from continuing operations before income taxes	562		645
Income tax expense	Income tax expense	(150)		(136)		Income tax expense	(26)		(150)
Income from continuing operations	Income from continuing operations	495		483		Income from continuing operations	536		495
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	(1)		(6)		Loss from discontinued operations, net of tax	(3)		(1)
Net income	Net income	494		477		Net income	533		494
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(50)		(54)		Net income attributable to noncontrolling interests	(47)		(50)
Net income attributable to McKesson Corporation	Net income attributable to McKesson Corporation	$	444	$	423	Net income attributable to McKesson Corporation	$	486	$	444

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
Continuing operations	Continuing operations	$	2.72	$	2.27	Continuing operations	$	3.09	$	2.72
Discontinued operations	Discontinued operations	—		(0.03)		Discontinued operations	(0.02)		0
Total	Total	$	2.72	$	2.24	Total	$	3.07	$	2.72
Basic	Basic					Basic
Continuing operations	Continuing operations	$	2.74	$	2.28	Continuing operations	$	3.13	$	2.74
Discontinued operations	Discontinued operations	—		(0.03)		Discontinued operations	(0.02)		0
Total	Total	$	2.74	$	2.25	Total	$	3.11	$	2.74

Weighted-average common shares outstanding	Weighted-average common shares outstanding					Weighted-average common shares outstanding
Diluted	Diluted	163		189		Diluted	158.1		163.2
Basic	Basic	162		188		Basic	156.2		162.0

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

Three Months Ended June 30,
2020 2019
Net income $ 494 $ 477
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments 33 44
Unrealized gains (losses) on cash flow hedges (5) 12
Changes in retirement-related benefit plans 1 21
Other comprehensive income, net of tax 29 77
Comprehensive income 523 554
Comprehensive income attributable to noncontrolling interests (111) (60)
Comprehensive income attributable to McKesson Corporation $ 412 $ 494


	Three Months Ended June 30,
		2021		2020
Net income		$	533	$	494

Other comprehensive income (loss), net of tax
Foreign currency translation adjustments		24		33
Unrealized losses on cash flow hedges		0		(5)
Changes in retirement-related benefit plans		2		1
Other comprehensive income, net of tax		26		29

Comprehensive income		559		523
Comprehensive income attributable to noncontrolling interests		(50)		(111)
Comprehensive income attributable to McKesson Corporation		$	509	$	412

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(Unaudited)


		June 30, 2020		March 31, 2020			June 30, 2021		March 31, 2021
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	2,613	$	4,015	Cash and cash equivalents	$	2,423	$	6,278
Receivables, net	Receivables, net	17,768		19,950		Receivables, net	20,198		19,181
Inventories, net	Inventories, net	16,607		16,734		Inventories, net	20,016		19,246
Assets held for sale	Assets held for sale	844		906		Assets held for sale	7		12
Prepaid expenses and other	Prepaid expenses and other	850		617		Prepaid expenses and other	706		665
Total current assets	Total current assets	38,682		42,222		Total current assets	43,350		45,382
Property, plant and equipment, net		2,392		2,365
Property, plant, and equipment, net						Property, plant, and equipment, net	2,549		2,581
Operating lease right-of-use assets	Operating lease right-of-use assets	1,857		1,886		Operating lease right-of-use assets	2,071		2,100
Goodwill	Goodwill	9,419		9,360		Goodwill	9,520		9,493
Intangible assets, net	Intangible assets, net	3,090		3,156		Intangible assets, net	2,797		2,878

Other non-current assets	Other non-current assets	2,226		2,258		Other non-current assets	2,607		2,581
Total assets	Total assets	$	57,666	$	61,247	Total assets	$	62,894	$	65,015

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY (DEFICIT)						LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY (DEFICIT)
Current liabilities	Current liabilities					Current liabilities
Drafts and accounts payable	Drafts and accounts payable	$	33,209	$	37,195	Drafts and accounts payable	$	38,389	$	38,975

Current portion of long-term debt	Current portion of long-term debt	1,053		1,052		Current portion of long-term debt	752		742
Current portion of operating lease liabilities	Current portion of operating lease liabilities	358		354		Current portion of operating lease liabilities	392		390
Liabilities held for sale	Liabilities held for sale	509		683		Liabilities held for sale	5		9
Other accrued liabilities	Other accrued liabilities	3,471		3,340		Other accrued liabilities	4,297		3,987
Total current liabilities	Total current liabilities	38,600		42,624		Total current liabilities	43,835		44,103
Long-term debt	Long-term debt	6,395		6,335		Long-term debt	6,424		6,406
Long-term deferred tax liabilities	Long-term deferred tax liabilities	2,274		2,255		Long-term deferred tax liabilities	1,441		1,411
Long-term operating lease liabilities	Long-term operating lease liabilities	1,627		1,660		Long-term operating lease liabilities	1,888		1,867
Long-term litigation liabilities						Long-term litigation liabilities	7,596		8,067
Other non-current liabilities	Other non-current liabilities	1,703		1,662		Other non-current liabilities	1,748		1,715
Redeemable noncontrolling interests	Redeemable noncontrolling interests	1,414		1,402		Redeemable noncontrolling interests	7		1,271
McKesson Corporation stockholders’ equity
McKesson Corporation stockholders’ deficit						McKesson Corporation stockholders’ deficit
Preferred stock, $0.01 par value, 100 shares authorized, 0 shares issued or outstanding	Preferred stock, $0.01 par value, 100 shares authorized, 0 shares issued or outstanding	—		—		Preferred stock, $0.01 par value, 100 shares authorized, 0 shares issued or outstanding	0		0
Common stock, $0.01 par value, 800 shares authorized at June 30, 2020 and March 31, 2020, and 272 shares issued at June 30, 2020 and March 31, 2020		2		2
Common stock, $0.01 par value, 800 shares authorized and 274 and 273 shares issued at June 30, 2021 and March 31, 2021, respectively						Common stock, $0.01 par value, 800 shares authorized and 274 and 273 shares issued at June 30, 2021 and March 31, 2021, respectively	2		2
Additional paid-in capital	Additional paid-in capital	6,711		6,663		Additional paid-in capital	7,057		6,925
Retained earnings	Retained earnings	13,384		13,022		Retained earnings	8,618		8,202
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,735)		(1,703)		Accumulated other comprehensive loss	(1,627)		(1,480)

Treasury shares, at cost, 110 shares at June 30, 2020 and March 31, 2020		(12,916)		(12,892)
Total McKesson Corporation stockholders’ equity		5,446		5,092
Treasury shares, at cost, 119 and 115 shares at June 30, 2021 and March 31, 2021, respectively						Treasury shares, at cost, 119 and 115 shares at June 30, 2021 and March 31, 2021, respectively	(14,579)		(13,670)
Total McKesson Corporation stockholders’ deficit						Total McKesson Corporation stockholders’ deficit	(529)		(21)
Noncontrolling interests	Noncontrolling interests	207		217		Noncontrolling interests	484		196
Total equity		5,653		5,309
Total liabilities, redeemable noncontrolling interests and equity		$	57,666	$	61,247
Total equity (deficit)						Total equity (deficit)	(45)		175
Total liabilities, redeemable noncontrolling interests, and equity (deficit)						Total liabilities, redeemable noncontrolling interests, and equity (deficit)	$	62,894	$	65,015

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(In millions, except per share amounts)

(Unaudited)

Three Months Ended June 30, 2020
Common Stock Additional Paid-in Capital Other Capital Retained Earnings Accumulated Other Comprehensive
Loss Treasury Noncontrolling
Interests Total
Equity
Shares Amount Common Shares Amount
Balances, March 31, 2020 272 $ 2 $ 6,663 $ — $ 13,022 $ (1,703) (110) $ (12,892) $ 217 $ 5,309
Opening retained earnings adjustment: adoption of new accounting standard — — — — (13) — — — — (13)
Balances, April 1, 2020 272 2 6,663 — 13,009 (1,703) (110) (12,892) 217 5,296
Issuance of shares under employee plans — — 21 — — — — (24) — (3)
Share-based compensation — — 23 — — — — — — 23
Payments to noncontrolling interests — — — — — — — — (43) (43)
Other comprehensive loss — — — — — (32) — — — (32)
Net income — — — — 444 — — — 39 483
Exercise of put right by noncontrolling shareholders of McKesson Europe — — 3 — — — — — — 3
Cash dividends declared, $0.41 per common share — — — — (67) — — — — (67)
Other — — 1 — (2) — — — (6) (7)
Balances, June 30, 2020 272 $ 2 $ 6,711 $ — $ 13,384 $ (1,735) (110) $ (12,916) $ 207 $ 5,653


	Three Months Ended June 30, 2021
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Equity (Deficit)
	Shares	Amount				Common Shares					Amount
Balances, March 31, 2021	273	$	2	$	6,925		$	8,202	$	(1,480)	(115)	$	(13,670)	$	196	$	175
Issuance of shares under employee plans	1	—		71			—		—		—	(59)		—		12
Share-based compensation	—	—		33			—		—		—	—		—		33
Payments to noncontrolling interests	—	—		—			—		—		—	—		(39)		(39)
Other comprehensive income	—	—		—			—		23		—	—		—		23
Net income	—	—		—			486		—		—	—		39		525
Repurchase of common stock	—	—		(150)			—		—		(4)	(850)		—		(1,000)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—	—		178			—		(170)		—	—		—		8
Reclassification of McKesson Europe AG redeemable noncontrolling interests	—	—		—			—		—		—	—		287		287
Cash dividends declared, $0.42 per common share	—	—		—			(65)		—		—	—		—		(65)
Other	—	—		—			(5)		—		—	—		1		(4)
Balances, June 30, 2021	274	$	2	$	7,057		$	8,618	$	(1,627)	(119)	$	(14,579)	$	484	$	(45)

Three Months Ended June 30, 2019
Common Stock Additional Paid-in Capital Other Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Noncontrolling
Interests Total
Equity
Shares Amount Common Shares Amount
Balances, March 31, 2019 271 $ 3 $ 6,435 $ (2) $ 12,409 $ (1,849) (81) $ (8,902) $ 193 $ 8,287
Opening retained earnings adjustments: adoption of new accounting standards — — — — 11 — — — — 11
Balances, April 1, 2019 271 3 6,435 (2) 12,420 (1,849) (81) (8,902) 193 8,298
Issuance of shares under employee plans — — 22 — — — — (17) — 5
Share-based compensation — — 26 — — — — — — 26
Payments to noncontrolling interests — — — — — — — — (39) (39)
Other comprehensive income — — — — — 71 — — — 71
Net income — — — — 423 — — — 43 466
Repurchase of common stock — — — — — — (5) (684) — (684)
Cash dividends declared, $0.39 per common share — — — — (73) — — — — (73)
Other — — — 1 — — — — (3) (2)
Balances, June 30, 2019 271 $ 3 $ 6,483 $ (1) $ 12,770 $ (1,778) (86) $ (9,603) $ 194 $ 8,068


	Three Months Ended June 30, 2020
	Common Stock			Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury			Noncontrolling Interests		Total Equity
	Shares	Amount				Common Shares					Amount
Balances, March 31, 2020	272	$	2	$	6,663		$	13,022	$	(1,703)	(110)	$	(12,892)	$	217	$	5,309
Opening retained earnings adjustment: adoption of new accounting standard	—	—		—			(13)		—		—	—		—		(13)
Balances, April 1, 2020	272	2		6,663			13,009		(1,703)		(110)	(12,892)		217		5,296
Issuance of shares under employee plans	—	—		21			—		—		—	(24)		—		(3)
Share-based compensation	—	—		23			—		—		—	—		—		23
Payments to noncontrolling interests	—	—		—			—		—		—	—		(43)		(43)
Other comprehensive loss	—	—		—			—		(32)		—	—		—		(32)
Net income	—	—		—			444		—		—	—		39		483

Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—	—		3			—		—		—	—		—		3
Cash dividends declared, $0.41 per common share	—	—		—			(67)		—		—	—		—		(67)
Other	—	—		1			(2)		—		—	—		(6)		(7)
Balances, June 30, 2020	272	$	2	$	6,711		$	13,384	$	(1,735)	(110)	$	(12,916)	$	207	$	5,653

See Financial Notes

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


		Three Months Ended June 30,							Three Months Ended June 30,
		2020		2019			2021		2020
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income	Net income	$	494	$	477	Net income	$	533	$	494
Adjustments to reconcile to net cash used in operating activities:	Adjustments to reconcile to net cash used in operating activities:					Adjustments to reconcile to net cash used in operating activities:
Depreciation	Depreciation	75		82		Depreciation	80		75
Amortization	Amortization	142		147		Amortization	138		142
Goodwill and other asset impairment charges		5		5
Equity earnings and charges from investment in Change Healthcare Joint Venture		—		(4)
Long-lived asset impairment charges						Long-lived asset impairment charges	104		5

Deferred taxes	Deferred taxes	28		16		Deferred taxes	36		28
Credits associated with last-in, first-out inventory method	Credits associated with last-in, first-out inventory method	(52)		(15)		Credits associated with last-in, first-out inventory method	(23)		(52)
Non-cash operating lease expense	Non-cash operating lease expense	83		98		Non-cash operating lease expense	90		83
Loss from sales of businesses and investments	Loss from sales of businesses and investments	2		—		Loss from sales of businesses and investments	0		2
Other non-cash items	Other non-cash items	9		23		Other non-cash items	194		9
Changes in assets and liabilities, net of acquisitions:	Changes in assets and liabilities, net of acquisitions:					Changes in assets and liabilities, net of acquisitions:
Receivables	Receivables	2,291		(1,061)		Receivables	(1,045)		2,291
Inventories	Inventories	238		145		Inventories	(901)		238
Drafts and accounts payable	Drafts and accounts payable	(4,214)		127		Drafts and accounts payable	(609)		(4,214)
Operating lease liabilities	Operating lease liabilities	(89)		(99)		Operating lease liabilities	(90)		(89)
Taxes	Taxes	76		82		Taxes	(54)		76
Litigation liabilities						Litigation liabilities	74		0
Other	Other	(150)		(74)		Other	(149)		(150)
Net cash used in operating activities	Net cash used in operating activities	(1,062)		(51)		Net cash used in operating activities	(1,622)		(1,062)

INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Payments for property, plant and equipment		(72)		(87)
Payments for property, plant, and equipment						Payments for property, plant, and equipment	(93)		(72)
Capitalized software expenditures	Capitalized software expenditures	(45)		(24)		Capitalized software expenditures	(66)		(45)
Acquisitions, net of cash, cash equivalents and restricted cash acquired		(4)		(46)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired						Acquisitions, net of cash, cash equivalents, and restricted cash acquired	(1)		(4)
Proceeds from sales of businesses and investments, net	Proceeds from sales of businesses and investments, net	7		1		Proceeds from sales of businesses and investments, net	83		7
Other	Other	(16)		27		Other	(22)		(16)
Net cash used in investing activities	Net cash used in investing activities	(130)		(129)		Net cash used in investing activities	(99)		(130)

FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Proceeds from short-term borrowings	Proceeds from short-term borrowings	5,303		2,610		Proceeds from short-term borrowings	0		5,303
Repayments of short-term borrowings	Repayments of short-term borrowings	(5,303)		(2,610)		Repayments of short-term borrowings	0		(5,303)

Repayments of long-term debt	Repayments of long-term debt	(2)		(2)		Repayments of long-term debt	(2)		(2)
Common stock transactions:	Common stock transactions:					Common stock transactions:
Issuances	Issuances	21		22		Issuances	71		21
Share repurchases, including shares surrendered for tax withholding		(24)		(701)
Share repurchases						Share repurchases	(1,008)		0
Dividends paid	Dividends paid	(74)		(75)		Dividends paid	(69)		(74)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG						Exercise of put right by noncontrolling shareholders of McKesson Europe AG	(1,031)		(49)
Other	Other	140		(116)		Other	(112)		165
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	61		(872)		Net cash provided by (used in) financing activities	(2,151)		61
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(28)		18
Net decrease in cash, cash equivalents and restricted cash		(1,159)		(1,034)
Cash, cash equivalents and restricted cash at beginning of period		4,023		2,981
Cash, cash equivalents and restricted cash at end of period		2,864		1,947
Effect of exchange rate changes on cash, cash equivalents, and restricted cash						Effect of exchange rate changes on cash, cash equivalents, and restricted cash	11		(28)
Net decrease in cash, cash equivalents, and restricted cash						Net decrease in cash, cash equivalents, and restricted cash	(3,861)		(1,159)
Cash, cash equivalents, and restricted cash at beginning of period						Cash, cash equivalents, and restricted cash at beginning of period	6,396		4,023
Cash, cash equivalents, and restricted cash at end of period						Cash, cash equivalents, and restricted cash at end of period	2,535		2,864
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	(251)		—		Less: Restricted cash at end of period included in Prepaid expenses and other	(112)		(251)

Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	2,613	$	1,947	Cash and cash equivalents at end of period	$	2,423	$	2,613

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 global leader in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information solutions. McKesson partners with ~~life sciences companies,~~pharmaceutical manufacturers, providers, pharmacies, governments, and other organizations in healthcare ~~organizations~~ to help provide the right medicines, medical products, and healthcare services to the right patients at the right time, safely, and cost-effectively. ~~Through the end of the first quarter of 2021, the~~The Company ~~reported~~reports its financial results in 34 reportable segments: U.S. Pharmaceutical, ~~and Specialty~~Prescription Technology Solutions ~~European Pharmaceutical~~(“RxTS”), Medical-Surgical Solutions, and ~~Medical-Surgical Solutions. All remaining operating segments and business activities that are not significant enough to require separate reportable segment disclosure are included in Other.~~International. Refer to Financial Note ~~15,~~14, “Segments of Business,” for more information.

Basis of Presentation: 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” onin the Condensed Consolidated Statements of Operations. All significant intercompany balances and transactions have been eliminated in consolidation including the intercompany portion of transactions with equity method investees.

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

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

To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of these financial statements and income and expenses during the reporting period. Actual amounts may differ from these estimated amounts. The ~~severity, magnitude, and duration, as well as~~Company continues to evaluate the ongoing impacts, including the economic consequences, of the coronavirus disease 2019 (“COVID-19”) ~~pandemic, are uncertain, rapidly changing and difficult to predict. Therefore,~~pandemic. As COVID-19 evolves, the Company’s accounting estimates and assumptions may change over time ~~in response to COVID-19~~ 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 financial position, results of operations, and cash flows of McKesson for the interim periods presented.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the U.S., and includes several provisions related to employment and income taxes, including provisions for the deferral of the employer portion of social security taxes through December 31, 2020. The Company continues to evaluate the legislation for future impacts to its consolidated financial statements, however it did not cause a material impact to the Company’s financial results for the three months ended June 30, 2020.

~~The~~ results of operations for the three months ended June 30, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the entire year. These interim financial statements should be read in conjunction with the annual audited financial statements, accounting policies, and financial notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2020~~2021, previously filed with the SEC on May ~~22, 2020~~12, 2021 (“~~2020~~2021 Annual Report”).

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

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

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Recently Adopted Accounting Pronouncements

In the first quarter of ~~2021,~~2022, the Company ~~prospectively~~ adopted Accounting Standards Update (“ASU”) ~~2018-15,~~ ~~Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs in a cloud computing arrangement that has a software license. As a result, the Company began capitalizing eligible implementation costs for such contracts and recognizing the expense over the service period. The adoption of this amended guidance did not have a material impact on the Company’s condensed consolidated financial statements or disclosures.

~~In the first quarter of 2021, the Company retrospectively adopted ASU 2018-14,~~ ~~Compensation - Retirement Benefits - Defined Benefit Plans~~, which requires the Company to disclose the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates, and an explanation of reasons for significant gains and losses related to changes in the benefit obligation for the period. The amended guidance also requires the Company to remove disclosures on the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit costs over the next fiscal year. The adoption of this amended guidance resulted in changes in disclosures but did not have an impact on the Company’s Condensed Consolidated Statements of Operations, Comprehensive Income, Balance Sheets, or Cash Flows.

~~In the first quarter of 2021, the Company adopted ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~, to remove, modify and add disclosure requirements on fair value measurements. Certain requirements were applied prospectively while other changes were applied retrospectively on the effective date. The amended guidance removes disclosure requirements for transfers between Level 1 and Level 2 measurements and valuation processes for Level 3 measurements but adds new disclosure requirements including changes in unrealized gains or losses in other comprehensive income related to recurring Level 3 measurements and requirements to disclose the range, and weighted-average used to develop significant unobservable inputs for Level 3 fair value measurements. The adoption of this amended guidance resulted in changes in disclosures but did not have an impact on the Company’s Condensed Consolidated Statements of Operations, Comprehensive Income, Balance Sheets, or Cash Flows.

~~In the first quarter of 2021, the Company adopted ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ (“ASU 2016-13”), which changed the impairment model for most financial assets from one based on current losses to a forward-looking model based on expected losses. The forward-looking model requires the Company to consider historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount in estimating credit losses. The amended guidance requires financial assets that are measured at amortized cost be presented at the net amount expected to be collected. An allowance for credit losses is established as a valuation account that is deducted from the amortized cost basis of financial assets. The guidance also requires enhanced disclosures. This guidance was adopted on a modified retrospective basis and did not have a material impact on the Company’s condensed consolidated financial statements or disclosures. Upon adoption of the amended guidance in the first quarter of 2021, the Company recorded a cumulative-effect adjustment of $13 million to the opening balance of retained earnings, primarily as a result of adjustments to allowances for trade accounts receivable.

~~Allowance for Credit Losses:~~ ~~Upon the adoption of~~ ~~ASU 2016-13~~ in the first quarter of 2021, the Company began using the Current Expected Credit Losses ("CECL") methodology to determine an allowance for credit losses related to financial assets measured at amortized cost. The Company considers historical experience, the current economic environment, customer credit ratings or bankruptcies, and reasonable and supportable forecasts to develop its allowance for credit losses. Management reviews these factors quarterly to determine if any adjustments are needed to the allowance. Trade accounts receivable represent the majority of the Company's financial assets, for which an allowance for credit losses of $225 million was included in Receivables, net on the Condensed Consolidated Balance Sheet as of June 30, 2020. Changes in the allowance were not material for the three months ended June 30, 2020.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

~~In December 2019, ASU~~ 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, ~~was issued with the intent to simplify various aspects related to accounting for income taxes. The guidance~~which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The guidance also simplifies and clarifies certain other aspects of accounting for income taxes. The ~~guidance is effective for the Company in the first quarter of 2022 and early~~ adoption ~~is permitted. The Company is currently evaluating the impact~~ of this amended guidance ~~on its condensed consolidated financial statements.~~

~~2. Investment in Change Healthcare Joint Venture~~

Until the separation of its interest in the Change Healthcare LLC joint venture (“Change Healthcare JV”) on March 10, 2020, the Company accounted for its interest in this investment using the equity method of accounting with a one-month reporting lag, with disclosure made for any intervening events of the joint venture in the lag period that could materially affect its condensed consolidated financial statements. Effective April 1, 2019, the Change Healthcare JV adopted the amended revenue recognition guidance. In the first quarter of 2020, the Company recorded its proportionate share of the joint venture’s adoption impact of the amended revenue recognition guidance of approximately $80 million, net of tax, to the Company’s opening retained earnings.

~~On March 10, 2020, the Company completed the previously announced separation of its interest in the Change Healthcare JV which eliminated the Company’s investment in the joint venture.~~

The Company recorded its proportionate share of income from its investment in Change Healthcare JV of $4 million for the three months ended June 30, 2019. The Company’s proportionate share of income from this investment included integration expenses incurred by Change Healthcare JV and basis differences between the joint venture and McKesson including amortization of fair value adjustments primarily representing incremental intangible assets. This amount was included within Equity earnings and charges from investment in Change Healthcare Joint Venture in the Company’s Condensed Consolidated Statements of Operations.

~~Related Party Transactions~~

While a party to the joint venture, the Company had various ancillary agreements related to the Change Healthcare JV, including transition services agreements (“TSA”), a transaction and advisory fee agreement (“Advisory Agreement”), a tax receivable agreement (“TRA”), and certain other agreements. Revenues recognized and expenses incurred under these agreements with the Change Healthcare JV weredid not ~~material during the three months ended June 30, 2020 or 2019.~~

Under the agreement executed in 2019 between the Change Healthcare JV, McKesson, Change Healthcare Inc. (“Change”), and certain subsidiaries of the Change Healthcare JV, McKesson has the ability to adjust the manner in which certain depreciation or amortization deductions are allocated among Change Healthcare Inc. and McKesson. McKesson exercised its right under the agreement and allocated certain depreciation and amortization deductions to Change for the tax year ended March 31, 2019, and estimated certain depreciation and amortization deductions for the tax year ended March 31, 2020. These allocated depreciation and amortization deductions may change as certain events occur, including the filing of the Change Healthcare JV tax return for the tax year ended March 31, 2020.

After McKesson’s separation of its interest in the Change Healthcare JV, the aforementioned TRA agreement requires the Change Healthcare JV to pay McKesson 85% of the net cash tax savings realized, or deemed to be realized, by Change resulting from the depreciation or amortization allocated to Change by McKesson. The receipt of any payments from the Change Healthcare JV under the TRA is dependent upon Change benefiting from this depreciation or amortization in future tax return filings. This creates uncertainty over the amount, timing, and probability of the gain recognized. As such, the Company accounts for the TRA as a gain contingency, with no receivable recognized as of June 30, 2020.

During the fourth quarter of 2020 in conjunction with the separation transaction, the Company recorded a reversal of the deferred tax liability related to its investment. Under the agreement with the Change Healthcare JV, McKesson, Change, and certain subsidiaries of the Change Healthcare JV, there may be changes in future periods to the amount reversed. Any such change is not expected to have a material impact on the Company’s condensed consolidated financial ~~statements.~~

statements or disclosures.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

32. Held for Sale

Assets and liabilities to be disposed of by sale (“disposal groups”) are reclassified into “held for sale” if their carrying amounts are principally expected to be recovered through a sale transaction rather than through continuing use. The reclassification occurs when the disposal group is available for immediate sale and the sale is highly 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 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~~cost to sell is reported as an adjustment to the carrying value of the disposal group. Assets and liabilities that have met the classification of held for sale were ~~$844~~$7 million and ~~$509~~$5 million, respectively, at June 30, ~~2020~~2021 and ~~$906~~$12 million and ~~$683~~$9 million, respectively, at March 31, ~~2020. These amounts primarily consist of~~2021. Based on its analysis, the ~~majority of~~Company determined that the ~~Company’s German pharmaceutical wholesale business described below.~~

~~German Wholesale Joint Venture~~disposal groups classified as held for sale do not meet the criteria for classification as discontinued operations and are not considered to be significant disposals based on its quantitative and qualitative evaluation.

On ~~December 12, 2019,~~July 5, 2021, the Company ~~announced that it had~~ entered into an agreement ~~(the “Contribution Agreement”) with a third-party intending~~ to ~~contribute the majority~~sell certain of its ~~German wholesale business~~European businesses (“disposal group”) to ~~create~~the PHOENIX Group for a ~~joint venture in which McKesson will have a noncontrolling interest. This business is within the Company’s European Pharmaceutical Solutions segment. The agreement is~~purchase price of €1.2 billion (or, approximately $1.5 billion), subject to ~~regulatory approvals~~certain adjustments, including net debt adjustments, and ~~is expected to close within~~reduced by the ~~next six months.~~value of the noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) at the divestiture date. The transaction does not meet the criteria to be reported as a discontinued operation as it does not constitute a significant strategic business shift. For the three months ended June 30, 2020, other than adjustments related to cumulative foreign currency translation, there was no change in the adjustment to remeasureCompany concluded that the held for sale criteria were not met in the first quarter of 2022 and continued to classify the assets and liabilities of these businesses as held and used in the condensed consolidated balance sheet. Beginning in the second quarter of 2022, the disposal group will be reflected in the Company’s condensed consolidated financial statements as held for sale. The disposal group will be remeasured to the lower of its carrying amount or fair value less ~~cost~~costs to ~~sell. The Company’s measurement~~sell, which the Company estimates will result in a charge of between $500 million and $700 million, primarily related to the inclusion of the ~~fair value~~accumulated other comprehensive income balances into the carrying amount of the disposal group ~~was~~and the impairment of internal-use software that will not be completed. While this range reflects the Company’s best estimate as of the date of this Quarterly Report on Form 10-Q, actual charges could differ based on ~~the total consideration received by the Company as outlined~~operating results, changes in ~~the Contribution Agreement. Certain components~~foreign exchange rates, and other factors prior to closing of the ~~total consideration included fair value measurements that fall within Level 3~~transaction. The transaction is anticipated to close during 2023, pursuant to the satisfaction of ~~the fair value hierarchy.~~customary closing conditions, including receipt of regulatory approvals, as applicable.

~~The total assets and liabilities of the German wholesale joint venture that have met the classification of held for sale on the Company’s Condensed Consolidated Balance Sheets are as follows:~~

(In millions) June 30, 2020 March 31, 2020
Assets
Current assets
Receivables, net and other current assets $ 481 $ 548
Inventories, net 499 478
Long-term assets 90 88
Remeasurement of assets of business held for sale to fair value less cost to sell⁽¹⁾
(278) (272)
Total assets held for sale $ 792 $ 842

Liabilities
Current liabilities
Drafts and accounts payable $ 278 $ 450
Other accrued liabilities 41 40
Long-term liabilities 169 166
Total liabilities held for sale $ 488 $ 656

~~(1)Includes the effect of approximately $3 million unfavorable and $3 million favorable cumulative foreign currency translation adjustment as of June 30, 2020 and March 31, 2020, respectively.~~

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

4.3. Restructuring, Impairment, and Related Charges

The Company recorded restructuring, impairment, and related charges of ~~$56~~$158 million and ~~$23~~$56 million during the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. These charges are included ~~under the caption,~~in “Restructuring, impairment, and related charges” ~~in Operating expenses~~ in the Condensed Consolidated Statements of Operations. In addition, charges related to restructuring initiatives are included ~~under the caption~~in “Cost of sales” in ~~its~~the Condensed Consolidated Statements of Operations and were not material for the three months ended June 30, ~~2020~~2021 and ~~2019.~~2020.

Restructuring Initiatives

~~As previously announced on November 30, 2018,~~During the first quarter of 2022, the Company ~~relocated its corporate headquarters, effective April 1, 2019, from San Francisco, California~~approved an initiative to ~~Irving, Texas~~increase operational efficiencies and flexibility by transitioning to ~~improve efficiency, collaboration, and cost competitiveness. The Company expects~~a partial remote work model for certain employees. This initiative primarily includes the rationalization of the Company’s office space in North America. Where it determines to record total charges of approximately $90 million to $125 million, of which $83 million of charges were recorded to date. Charges recorded in the three months ended June 30, 2020 and 2019 were not material. The estimated remaining charges primarily consist of lease and other exit-related costs, and employee-related expenses. The Company anticipates that the relocation will be complete by January 2021.

~~During the fourth quarter of 2019,~~cease using office space, the Company ~~committed~~plans to exit the portion of the facility no longer used. It also may retain and repurpose certain programs to continue its operating model and cost optimization efforts. The Company continues to implement centralization of certain functions and outsourcing through an expanded arrangement with a third-party vendor to achieve operational efficiency. The programs also include reorganization and consolidation of business operations, related headcount reductions, the further closures of retail pharmacy stores in Europe, and closures of other ~~facilities.~~office locations. The Company expects to incur total charges of approximately ~~$290~~$180 million to ~~$320~~$280 million for ~~these programs,~~this initiative, consisting primarily of ~~which $245~~exit related costs, accelerated depreciation and amortization of long-lived assets, and asset impairments. The Company recorded charges of $95 million ~~of charges were recorded to date. Charges recorded~~ in the three months ended June 30, ~~2020~~2021. This initiative is anticipated to be completed in 2022. Charges primarily relate to lease right-of-use and 2019 were not material and primarily represented employee severance, accelerated depreciation expense, and project consulting fees. The Company anticipates these additional programs will be substantially completed by the end of 2021. The estimated remaining charges primarily consist of facility and other long-lived asset impairments, lease exit costs, and ~~employee-related costs.~~accelerated depreciation and amortization.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

During the first quarter of 2021, the Company committed to an initiative within the United Kingdom (“U.K.”), which ~~forms part of~~is included in the Company’s ~~European Pharmaceutical Solutions~~International segment, to further drive ~~transformational~~operational changes in technologies and business processes, ~~operational~~ efficiencies, and cost savings. The initiative includes reducing the number of retail pharmacy stores, decommissioning obsolete technologies and processes, reorganizing and consolidating certain business operations, and related headcount reductions. The Company expects to incur total charges of approximately $85 million to $90 million, ~~to $110 million for this initiative,~~ of which $63 million of charges were recorded to date. The Company recorded charges of $6 million and $14 million, ~~primarily related to employee severance and other employee-related costs, have been recorded~~respectively, in the three months ended June 30, ~~2020.~~2021 and 2020, primarily related to asset impairments and accelerated depreciation expense as well as employee severance and other employee-related costs. The initiative is ~~expected~~anticipated to be substantially complete ~~by the end of 2021~~in 2022 and estimated remaining charges primarily consist of accelerated amortization of long-lived assets, facility and other exit costs, and employee-related costs.

~~Fiscal~~Restructuring, impairment, and related charges during the three months ended June 30, 2021 consisted of the following:


	Three Months Ended June 30, 2021
(In millions)	U.S. Pharmaceutical (1)		Prescription Technology Solutions (1)		Medical-Surgical Solutions (1)		International (2)		Corporate (1)		Total
Severance and employee-related costs, net	$	2	$	0	$	0	$	12	$	0	$	14
Exit and other-related costs (3)	2		1		2		14		21		40
Asset impairments and accelerated depreciation	8		17		4		34		41		104
Total	$	12	$	18	$	6	$	60	$	62	$	158

(1)Costs primarily relate to the transition to the partial remote work model described above.

(2)Primarily represents costs related to the transition to the partial remote work model and U.K. operating model and cost optimization efforts described above, as well as costs for optimization programs in Canada.

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

Restructuring, impairment, and related charges during the three months ended June 30, 2020 consisted of the following:


		Three Months Ended June 30, 2020																							Three Months Ended June 30, 2020
(In millions)	(In millions)	U.S. Pharmaceutical and Specialty Solutions		European Pharmaceutical Solutions ⁽¹⁾		Medical-Surgical Solutions		Other		Corporate ⁽¹⁾		Total		(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International (1)		Corporate (2)		Total
Severance and employee-related costs, net	Severance and employee-related costs, net	$	1	$	13	$	—	$	4	$	20	$	38	Severance and employee-related costs, net	$	1	$	0	$	0	$	17	$	20	$	38
Exit and other-related costs ⁽²⁾⁽³⁾	Exit and other-related costs ⁽²⁾⁽³⁾	1		1		3		1		7		13		Exit and other-related costs ⁽²⁾⁽³⁾	1		0		3		2		7		13
Asset impairments and accelerated depreciation	Asset impairments and accelerated depreciation	—		4		—		—		1		5		Asset impairments and accelerated depreciation	0		0		0		4		1		5
Total	Total	$	2	$	18	$	3	$	5	$	28	$	56	Total	$	2	$	0	$	3	$	23	$	28	$	56

(1)Primarily represents costs associated with the U.K. operating model and cost optimization efforts described ~~above.~~above, and an operating model and cost optimization initiative which was substantially completed in the year ended March 31, 2021.

(2)Primarily represents costs associated with an operating model and cost optimization initiative which was substantially completed in the year ended March 31, 2021.

(3)Exit and other-related costs primarily ~~consist of~~include project consulting fees.

1210

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Fiscal 2020~~

~~Restructuring, impairment and related charges during the three months ended June 30, 2019 consisted of the following:~~

Three Months Ended June 30, 2019
(In millions)
U.S. Pharmaceutical
and Specialty Solutions ⁽¹⁾
European Pharmaceutical Solutions⁽¹⁾
Medical-Surgical Solutions ⁽²⁾
Other⁽²⁾
Corporate⁽³⁾
Total
Severance and employee-related costs, net $ (1) $ (1) $ — $ — $ 6 $ 4
Exit and other-related costs ⁽⁴⁾
— 1 2 1 10 14
Asset impairments and accelerated depreciation — 3 1 — 1 5
Total $ (1) $ 3 $ 3 $ 1 $ 17 $ 23

~~(1)Represents costs associated with the operating model and cost optimization efforts described above.~~

~~(2)~~Represents costs associated with a growth initiative which included a reduction in workforce, facility consolidation, and store closures. These initiatives were substantially completed in the year ended March 31, 2020.

~~(3)Represents costs associated with the operating model cost optimization efforts and with the relocation of the Company’s corporate headquarters described above.~~

~~(4)Exit and other-related costs primarily include project consulting fees.~~

The following table summarizes the activity related to the restructuring liabilities associated with the Company’s restructuring initiatives for the three months ended June 30, ~~2020:~~2021:


(In millions)	(In millions)	U.S. Pharmaceutical and Specialty Solutions		European Pharmaceutical Solutions		Medical-Surgical Solutions		Other		Corporate		Total		(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Balance, March 31, 2020 ⁽¹⁾		$	24	$	56	$	20	$	18	$	39	$	157
Restructuring, impairment and related charges		2		18		3		5		28		56
Balance, March 31, 2021 (1)														Balance, March 31, 2021 (1)	$	19	$	4	$	3	$	66	$	59	$	151
Restructuring, impairment, and related charges														Restructuring, impairment, and related charges	12		18		6		60		62		158
Non-cash charges	Non-cash charges	—		(4)		—		—		(1)		(5)		Non-cash charges	(8)		(17)		(4)		(34)		(41)		(104)
Cash payments	Cash payments	(7)		(3)		—		(5)		(16)		(31)		Cash payments	(5)		(1)		(2)		(5)		(8)		(21)
Other	Other	—		(2)		(4)		—		(3)		(9)		Other	0		0		(1)		(3)		(3)		(7)
Balance, June 30, 2020 ⁽²⁾		$	19	$	65	$	19	$	18	$	47	$	168
Balance, June 30, 2021 (2)														Balance, June 30, 2021 (2)	$	18	$	4	$	2	$	84	$	69	$	177

(1)As of March 31, ~~2020,~~2021, the total reserve balance was ~~$157~~$151 million, of which ~~$118~~$99 million was recorded in ~~Other~~“Other accrued ~~liabilities~~liabilities” and ~~$39~~$52 million was recorded in ~~Other~~“Other non-current ~~liabilities.~~liabilities” in the Condensed Consolidated Balance Sheet.

(2)As of June 30, ~~2020,~~2021, the total reserve balance was ~~$168~~$177 million, of which ~~$141~~$127 million was recorded in ~~Other~~“Other accrued ~~liabilities~~liabilities” and ~~$27~~$50 million was recorded in ~~Other~~“Other non-current ~~liabilities.~~liabilities” in the Condensed Consolidated Balance Sheet.

5.4. Income Taxes

During the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recorded income tax expense of $26 million and $150 million, ~~and $136 million, respectively, related to continuing operations.~~respectively. The Company’s reported income tax ~~expense~~ rates were ~~23.3%~~4.6% and ~~22.0%~~23.3% for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Fluctuations in the Company’s reported income tax rates are primarily due to discrete items recognized in the quarter and changes in the mix of earnings between various taxing jurisdictions.

As of June 30, ~~2020,~~2021, the Company had ~~$979 million~~$1.7 billion of unrecognized tax benefits, of which ~~$850 million~~$1.3 billion would reduce income tax expense and the effective tax rate if recognized. During the three months ended June 30, 2021, the Company recognized a net discrete tax benefit of $97 million primarily related to statute of limitation expirations in various taxing jurisdictions. During the next twelve months, the Company does not ~~anticipate a significant increase or decrease to~~estimate any material reduction in its unrecognized tax ~~benefits based on the information currently available.~~benefits. However, this ~~amount~~ may change as the Company continues to have ongoing negotiations with various taxing authorities throughout the year.

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~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

The unrecognized tax benefit may also increase or decrease due to future developments in the Opioid related litigation and claims, as discussed in Financial Note 12, “Commitments and Contingent Liabilities.”

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 ~~2016 through~~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 2013 through the current fiscal year.

6.5. Redeemable Noncontrolling Interests and Noncontrolling Interests

Redeemable Noncontrolling Interests

The Company’s redeemable noncontrolling interests primarily ~~relate~~related to its consolidated subsidiary, McKesson ~~Europe AG (“McKesson Europe”).~~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. As a result, during the three months ended June 30, 2021 and 2020, the Company recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $8 million and $11 million, ~~during the three months ended June 30, 2020 and 2019.~~respectively. All amounts were recorded in ~~Net~~“Net income attributable to noncontrolling ~~interests~~interests” in the Company’s Condensed Consolidated Statements of Operations and the corresponding liability balance was recorded in ~~Other~~“Other accrued ~~liabilities~~liabilities” in the Company’s Condensed Consolidated Balance Sheets.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe ~~have~~had a right to put (“Put Right”) their noncontrolling shares at €22.99 per share, increased annually for interest in the amount of 5 percentage points above a base rate published by the German Bundesbank semi-annually, less any compensation amount or guaranteed dividend already paid by McKesson with respect to the relevant time period (“Put Amount”). ~~The exercise~~Subsequent to the Domination Agreement’s registration, certain noncontrolling shareholders of McKesson Europe initiated appraisal proceedings (“Appraisal Proceedings”) with the Stuttgart Regional Court (the “Court”) to challenge the adequacy of the Put ~~Right will reduce~~Amount, annual recurring compensation amount, and/or the ~~balance~~guaranteed dividend. During the pendency of ~~redeemable noncontrolling interests.~~ the Appraisal Proceedings, such amount was paid as specified currently in the Domination Agreement. On September 19, 2018, the Court ruled that the Put Amount shall be increased by €0.51 resulting in an adjusted Put Amount of €23.50. The annual recurring compensation amount and/or the guaranteed dividend remained unadjusted. Noncontrolling shareholders of McKesson Europe appealed this decision. McKesson Europe Holdings GmbH & Co. KGaA also appealed the decision. On April 12, 2021, the Company received notice that the Stuttgart Court of Appeals ruled that the Put Amount shall remain €22.99, thereby rejecting the lower court’s increase, and the recurring compensation remained at €0.83 per share.

During the three months ended June 30, 2021 and 2020, the Company paid $1.0 billion and $49 million, ~~including interest of $3~~respectively, to purchase 34.5 million ~~to purchase~~and 1.8 million shares, respectively, of McKesson Europe through exercises of the Put Right by the noncontrolling shareholders. This decreased the carrying value of the noncontrolling interests by $983 million and $49 million, respectively, for the three months ended June 30, 2021 and 2020, and the Company recorded the associated effect of the increase in the Company’s ownership interest ~~on its equity~~ of $178 million and $3 million, ~~was recorded~~respectively, as ~~a net~~an increase to McKesson’s stockholders additional paid-in ~~capital during 2020. During~~capital. The Put Right expired on June 15, 2021, at which point the ~~three months ended June 30, 2019, there~~remaining shares owned by the minority shareholders, with a carrying value of $287 million, were ~~no material exercises~~transferred from “Redeemable noncontrolling interests” to “Noncontrolling interests” on the Condensed Consolidated Balance Sheet.

The redeemable noncontrolling interest was adjusted each period for the proportion of other comprehensive income, primarily due to changes in foreign currency exchange rates, attributable to the noncontrolling shareholders. Prior to expiration of the Put ~~Right. The~~Right, the balance of the ~~associated liability for Redeemable~~redeemable noncontrolling interests iswas reported as the greater of its carrying value or its maximum redemption value at each reporting date. ~~The redemption value is the Put Amount adjusted for exchange rate fluctuations each period.~~ At ~~June 30, 2020 and~~ March 31, ~~2020,~~2021, the carrying value of ~~redeemable noncontrolling interests of $1.4~~$1.3 billion exceeded the maximum redemption value of $1.2 ~~billion. At June 30, 2020~~billion and ~~March 31, 2020,~~ the Company owned approximately 78% ~~and 77%~~of McKesson Europe’s outstanding common shares. At June 30, 2021, the Company owned approximately 95%, ~~respectively,~~ of McKesson Europe’s outstanding common shares.

Noncontrolling Interests

Noncontrolling interests represent third-party equity interests in the Company’s consolidated entities primarily related to ClarusONE Sourcing Services LLP and Vantage Oncology Holdings, ~~LLC, which were $207 million and $217 million at~~LLC. As of June 30, ~~2020 and March 31, 2020, respectively,~~2021, noncontrolling interests also represent minority shareholder equity interests in ~~the Company’s Condensed Consolidated Balance Sheets.~~McKesson Europe, as discussed above. During the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, the Company allocated a total of $39 million ~~and $43 million, respectively,~~ of net income to noncontrolling interests.

Changes in redeemable noncontrolling interests and noncontrolling interests for the three months ended June 30, 2021 were as follows:


(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests
Balance, March 31, 2021	$	196	$	1,271
Net income attributable to noncontrolling interests	39		8
Other comprehensive income	0		3
Reclassification of recurring compensation to other accrued liabilities	—		(8)
Payments to noncontrolling interests	(39)		0
Exercises of Put Right	—		(983)
Reclassification of McKesson Europe redeemable noncontrolling interests	287		(287)
Other	1		3
Balance, June 30, 2021	$	484	$	7

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(UNAUDITED)

Changes in redeemable noncontrolling interests and noncontrolling interests for the three months ended June 30, 2020 were as follows:

(In millions) Noncontrolling Interests Redeemable Noncontrolling Interests
Balance, March 31, 2020 $ 217 $ 1,402
Net income attributable to noncontrolling interests 39 11
Other comprehensive income — 61
Reclassification of recurring compensation to other accrued liabilities — (11)
Payments to noncontrolling interests (43) —
Exercises of Put Right — (49)
Other (6) —
Balance, June 30, 2020 $ 207 $ 1,414

~~Changes in redeemable noncontrolling interests and noncontrolling interests for the three months ended June 30, 2019 were as follows:~~

(In millions) Noncontrolling Interests Redeemable Noncontrolling Interests
Balance, March 31, 2019 $ 193 $ 1,393
Net income attributable to noncontrolling interests 43 11
Other comprehensive income — 6
Reclassification of recurring compensation to other accrued liabilities — (11)
Payments to noncontrolling interests (39) —
Other (3) —
Balance, June 30, 2019 $ 194 $ 1,399

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~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests
Balance, March 31, 2020	$	217	$	1,402
Net income attributable to noncontrolling interests	39		11
Other comprehensive income	0		61
Reclassification of recurring compensation to other accrued liabilities	—		(11)
Payments to noncontrolling interests	(43)		0
Exercises of Put Right	—		(49)
Other	(6)		0
Balance, June 30, 2020	$	207	$	1,414

7.6. Earnings (Loss) Per Common Share

Basic earnings (loss) per common share are computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. ~~Diluted~~The computation of diluted earnings (loss) per common share ~~are computed~~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.

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

Three Months Ended June 30,
(In millions, except per share amounts) 2020 2019
Income from continuing operations $ 495 $ 483
Net income attributable to noncontrolling interests (50) (54)
Income from continuing operations attributable to McKesson 445 429
Loss from discontinued operations, net of tax (1) (6)
Net income attributable to McKesson $ 444 $ 423
Weighted-average common shares outstanding:
Basic 162 188
Effect of dilutive securities:
Restricted stock units 1 1
Diluted 163 189
Earnings (loss) per common share attributable to McKesson: ⁽¹⁾
Diluted
Continuing operations $ 2.72 $ 2.27
Discontinued operations — (0.03)
Total $ 2.72 $ 2.24
Basic
Continuing operations $ 2.74 $ 2.28
Discontinued operations — (0.03)
Total $ 2.74 $ 2.25

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

Potentially dilutive securities include outstanding stock options, restricted stock units, and performance-based and other restricted stock units. Approximately 1 million and 3 million of potentially dilutive securities for the three months ended June 30, ~~2020~~2021 and ~~2019~~2020 were excluded from the ~~computations~~computation of diluted net earnings per common share as they were anti-dilutive.

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(UNAUDITED)

8.The computations for basic and diluted earnings or loss per common share are as follows:


	Three Months Ended June 30,
(In millions, except per share amounts)		2021		2020
Income from continuing operations		$	536	$	495
Net income attributable to noncontrolling interests		(47)		(50)
Income from continuing operations attributable to McKesson Corporation		489		445
Loss from discontinued operations, net of tax		(3)		(1)
Net income attributable to McKesson Corporation		$	486	$	444

Weighted-average common shares outstanding:
Basic		156.2		162.0
Effect of dilutive securities:
Stock options		0.1		0
Restricted stock units (1)		1.8		1.2
Diluted		158.1		163.2

Earnings (loss) per common share attributable to McKesson: (2)
Diluted
Continuing operations		$	3.09	$	2.72
Discontinued operations		(0.02)		0
Total		$	3.07	$	2.72
Basic
Continuing operations		$	3.13	$	2.74
Discontinued operations		(0.02)		0
Total		$	3.11	$	2.74

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

(2)Certain computations may reflect rounding adjustments.

7. Goodwill and Intangible Assets, Net

Changes in the carrying amount of goodwill were as follows:

(In millions) U.S. Pharmaceutical and Specialty Solutions European Pharmaceutical Solutions Medical-Surgical Solutions Other Total
Balance, March 31, 2020 $ 4,067 $ 63 $ 2,453 $ 2,777 $ 9,360
Goodwill acquired — 1 — — 1
Foreign currency translation adjustments, net 12 1 — 45 58
Balance, June 30, 2020 $ 4,079 $ 65 $ 2,453 $ 2,822 $ 9,419


(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Total
Balance, March 31, 2021	$	3,963	$	1,542	$	2,453	$	1,535	$	9,493




Foreign currency translation adjustments, net	7		0		0		20		27
Balance, June 30, 2021	$	3,970	$	1,542	$	2,453	$	1,555	$	9,520

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Information regarding intangible assets is as follows:


		June 30, 2020															March 31, 2020									June 30, 2021				March 31, 2021
(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	11	$	3,679	$	(2,025)	$	1,654	$	3,650	$	(1,950)	$	1,700	Customer relationships	12		$	3,747	$	(2,329)	$	1,418	$	3,739	$	(2,269)	$	1,470
Service agreements	Service agreements	10	1,002		(497)		505		994		(480)		514		Service agreements	10		1,088		(530)		558		1,081		(513)		568
Pharmacy licenses	Pharmacy licenses	26	497		(240)		257		492		(232)		260		Pharmacy licenses	23		503		(252)		251		497		(244)		253
Trademarks and trade names	Trademarks and trade names	12	826		(259)		567		808		(242)		566		Trademarks and trade names	12		934		(412)		522		925		(394)		531
Technology	Technology	3	177		(117)		60		175		(111)		64		Technology	4		150		(127)		23		150		(122)		28
Other	Other	5	272		(225)		47		273		(221)		52		Other	6		255		(230)		25		254		(226)		28
Total	Total		$	6,453	$	(3,363)	$	3,090	$	6,392	$	(3,236)	$	3,156	Total			$	6,677	$	(3,880)	$	2,797	$	6,646	$	(3,768)	$	2,878

Amortization expense of intangible assets was ~~$106~~$98 million and ~~$112~~$106 million for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Estimated amortization expense of these assets is as follows: ~~$361~~$279 million, ~~$355~~$273 million, ~~$254~~$261 million, ~~$237~~$255 million, and ~~$234~~$223 million for the remainder of ~~2021~~2022 and each of the succeeding years through ~~2025~~2026 and ~~$1.6~~$1.5 billion thereafter. All intangible assets were subject to amortization as of June 30, ~~2020~~2021 and March 31, ~~2020.~~2021.

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(UNAUDITED)

9.8. Debt and Financing Activities

Long-term debt consisted of the following:


(In millions)	(In millions)	June 30, 2020		March 31, 2020		(In millions)	June 30, 2021		March 31, 2021
U.S. Dollar notes ^{(1) (2)}	U.S. Dollar notes ^{(1) (2)}					U.S. Dollar notes (1) (2)
3.65% Notes due November 30, 2020		$	700	$	700
4.75% Notes due March 1, 2021		323		323
2.70% Notes due December 15, 2022	2.70% Notes due December 15, 2022	400		400		2.70% Notes due December 15, 2022	$	400	$	400
2.85% Notes due March 15, 2023	2.85% Notes due March 15, 2023	400		400		2.85% Notes due March 15, 2023	400		400
3.80% Notes due March 15, 2024	3.80% Notes due March 15, 2024	1,100		1,100		3.80% Notes due March 15, 2024	1,100		1,100
0.90% Notes due December 3, 2025						0.90% Notes due December 3, 2025	500		500
7.65% Debentures due March 1, 2027	7.65% Debentures due March 1, 2027	167		167		7.65% Debentures due March 1, 2027	167		167
3.95% Notes due February 16, 2028	3.95% Notes due February 16, 2028	600		600		3.95% Notes due February 16, 2028	600		600
4.75% Notes due May 30, 2029	4.75% Notes due May 30, 2029	400		400		4.75% Notes due May 30, 2029	400		400
6.00% Notes due March 1, 2041	6.00% Notes due March 1, 2041	282		282		6.00% Notes due March 1, 2041	282		282
4.88% Notes due March 15, 2044	4.88% Notes due March 15, 2044	411		411		4.88% Notes due March 15, 2044	411		411
Foreign currency notes ^{(1) (3)}	Foreign currency notes ^{(1) (3)}					Foreign currency notes (1) (3)
0.63% Euro Notes due August 17, 2021	0.63% Euro Notes due August 17, 2021	674		662		0.63% Euro Notes due August 17, 2021	711		704
1.50% Euro Notes due November 17, 2025	1.50% Euro Notes due November 17, 2025	671		659		1.50% Euro Notes due November 17, 2025	708		700
1.63% Euro Notes due October 30, 2026	1.63% Euro Notes due October 30, 2026	562		552		1.63% Euro Notes due October 30, 2026	592		587
3.13% Sterling Notes due February 17, 2029	3.13% Sterling Notes due February 17, 2029	566		557		3.13% Sterling Notes due February 17, 2029	635		627

Lease and other obligations	Lease and other obligations	192		174		Lease and other obligations	270		270
Total debt	Total debt	7,448		7,387		Total debt	7,176		7,148
Less: Current portion	Less: Current portion	1,053		1,052		Less: Current portion	752		742
Total long-term debt	Total long-term debt	$	6,395	$	6,335	Total long-term debt	$	6,424	$	6,406

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

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

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

Long-Term Debt

The Company’s long-term debt includes both U.S. dollar and foreign currency-denominated borrowings. AtDebt outstanding totaled $7.2 billion and $7.1 billion at June 30, ~~2020~~2021 and March 31, ~~2020, $7.4 billion of total debt was outstanding,~~2021, respectively, of which ~~$1.1 billion~~$752 million and $742 million, respectively, was included under the caption “Current portion of long-term debt” within the Company’s Condensed Consolidated Balance Sheets.

On July 17, 2021, the Company redeemed its 0.63% €600 million (or, approximately $709 million) total principal Euro-denominated notes, originally due on August 17, 2021, prior to maturity. The notes were redeemed at par value using cash on hand.

Tender Offer

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. The redemption of the Tender Offer Notes was accounted for as a debt extinguishment and in the second quarter of 2022 the Company will record a loss on debt extinguishment, consisting of the premiums paid and a portion of the unamortized discounts and debt issuance costs proportional to the principal amount of debt retired.

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(UNAUDITED)

Revolving Credit Facilities

~~In the second quarter~~The Company has a Credit Agreement, dated as of ~~2020, the Company entered into a syndicated $4 billion~~ ~~five-year senior unsecured credit facility~~September 25, 2019 (the “2020 Credit Facility”), ~~which has~~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 2020 Credit Facility matures in September 2024 and had 0 borrowings during the three months ended June 30, 2020 and 0 amounts outstanding as of June 30, 2020 and March 31, 2020. The remaining terms and conditions of the 2020 Credit Facility are substantially similar to those previously in place under the $3.5 billion ~~five~~-year senior unsecured revolving credit facility (the “Global Facility”), which was scheduled to mature in October 2020. The Global Facility was terminated in connection with the execution of the 2020 Credit Facility in September 2019.

Borrowings under the 2020 Credit Facility bear interest based upon the London Interbank Offered Rate (“LIBOR”), Canadian Dealer Offered Rate for credit extensions denominated in Canadian dollars, a prime rate, or alternative overnight rates as applicable, plus agreed margins. The 2020 Credit Facility matures in September 2024 and had 0 borrowings during the three months ended June 30, 2021 and 2020 and 0 amounts outstanding as of June 30, 2021 and March 31, 2021.

On March 31, 2021, the Company entered into Amendment No. 2 to the 2020 Credit Facility, which superseded Amendment No. 1, dated as of February 1, 2021. The 2020 Credit Facility, as amended, contains various customary investment grade covenants, including a financial covenant which obligates the Company to maintain a ~~debt~~maximum Total Debt to ~~capital~~Consolidated EBITDA ratio, ~~of no greater than 65% and other customary investment grade covenants.~~as defined in the amended credit agreement. If the Company does not comply with these covenants, its ability to use the 2020 Credit Facility may be suspended and repayment of any outstanding balances under the 2020 Credit Facility may be required. At June 30, ~~2020,~~2021, the Company was in compliance with all covenants.

The Company also maintains bilateral credit facilities primarily denominated in Euro with a committed amount of $8 million and an uncommitted amount of ~~$169~~$118 million as of June 30, ~~2020.~~2021. Borrowings and repayments were not material during the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, and amounts outstanding under these credit lines were not material as of June 30, ~~2020~~2021 and March 31, ~~2020.~~2021.

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. There were 0 borrowings or repayments during the three months ended June 30, 2021. During the three months ended June 30, 2020, ~~and 2019,~~ the Company borrowed $5.3 billion and ~~$2.6 billion, respectively, and~~ repaid $5.3 billion ~~and $2.6 billion, respectively,~~ under the program. At June 30, ~~2020~~2021 and March 31, ~~2020,~~2021, there were 0 commercial paper notes outstanding.

~~10.~~9. Pension Benefits

The net periodic expense for defined benefit pension plans was ~~$7 million~~approximately 0 and ~~$24~~$7 million for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

Cash contributions to these plans were $7$14 million and $6$7 million for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The projected unit credit method is utilized in measuring net periodic pension expense over the employees’ service life for the pension plans. Unrecognized actuarial losses exceeding 10% of the greater of the projected benefit obligation or the market value of assets are amortized on a straight-line basis over the average remaining future service periods and expected life expectancy.

On May 23, 2018, the Company’s Board of Directors approved the termination of its frozen U.S. defined benefit pension plan (“Plan”). During the first quarter of 2020, the Company offered the option of receiving a lump sum payment to certain participants with vested qualified Plan benefits in lieu of receiving monthly annuity payments. Approximately 1,300 participants elected to receive the settlement, and lump sum payments of approximately $49 million were made from plan assets to these participants in June 2019. The benefit obligation settled approximated payments to plan participants and a settlement charge of $17 million was recorded during the first quarter of 2020.

~~11.~~10. 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 such as cross-currency swaps, foreign currency forward contracts, and interest rate swaps. In accordance with the Company’s policy, derivatives are only used for hedging purposes. It does not use derivatives for trading or speculative purposes.

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(UNAUDITED)

Foreign Currency Exchange Risk

The Company conducts its business worldwide in U.S. dollars and the functional currencies of its foreign subsidiaries, including Euro, British pound sterling, and Canadian dollars. 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.

Non-Derivative Instruments Designated as Hedges

At June 30, ~~2020~~2021 and March 31, ~~2020,~~2021, the Company had €1.7 billion of Euro-denominated notes designated as non-derivative net investment hedges. These hedges are 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 are designated as net investment hedges and meet effectiveness requirements, the changes in carrying value of the notes attributable to the change in spot rates are recorded in foreign currency translation adjustments ~~within Accumulated~~in “Accumulated other comprehensive ~~loss~~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 are ineffective, changes in carrying value attributable to the change in spot rates are recorded in earnings.

~~Gains or losses~~Losses from net investment hedges recorded within Other comprehensive income ~~net of tax~~ were ~~losses of $34~~$22 million and ~~$24~~$34 million during the three months ended June 30, 2021 and 2020, ~~and 2019,~~ respectively. Ineffectiveness on the Company’s non-derivative net investment hedges during the three months ended June 30, 2019 resulted in gains of $10 million, which was recorded in earnings in Other income (expense), net in the Condensed Consolidated Statements of Operations. There was no ineffectiveness in non-derivative net investment hedges during the three months ended June 30, 2021 and 2020.

Derivatives Designated as Hedges

At June 30, ~~2020~~2021 and March 31, ~~2020,~~2021, the Company had cross-currency swaps designated as net investment hedges with a total gross notional amount of ~~$1.5 billion~~$500 million Canadian dollars. Under the terms of the cross-currency swap contracts, the Company agrees 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. These swaps are utilized 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~~“Accumulated other comprehensive ~~loss~~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 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. There was no ineffectiveness in the Company’s net investment hedges for the three months ended June 30, ~~2020~~2021 and ~~2019.~~

~~During the first quarter of 2020, the Company terminated~~2020. The remaining cross-currency swaps with a total gross notional amount of £932 million British pound sterling due to ineffectiveness in its British pound sterling hedging program that arose due to 2019 impairments of goodwill and certain long-lived assets in the U.K. businesses. Proceeds from the termination of these swaps totaled $84 million and resulted in a settlement gain of $34 million for the three months ended June 30, 2019. This gain was recorded in earnings in Other income (expense), net in the Condensed Consolidated Statements of Operations.will mature November 2024.

Gains or losses from the Company’s cross-currency swaps designated as net investment hedges recorded in Other comprehensive income ~~net of tax~~ were losses of ~~$51~~$5 million and ~~$11~~$51 million during the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. There was no ineffectiveness in the Company’s cross-currency swap hedges for the three months ended June 30, ~~2020~~2021 and ~~2019. These cross-currency swaps will mature between November 2020 and November 2024.~~

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

2020.

On September 30, 2019, the Company entered into a number of cross-currency swaps designated as fair value hedges with total notional amounts of £450 million British pound sterling. Under the terms of the cross-currency swap contracts, 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. These swaps are utilized to hedge the changes in the fair value of the underlying £450 million British pound sterling notes resulting from changes in benchmark interest rates and foreign exchange rates. The changes in the fair value of these derivatives, which are designated as fair value hedges, and the offsetting changes in the fair value of the hedged notes are recorded in earnings. ~~Losses~~Gains from these fair value hedges recorded in earnings were ~~not material for~~largely offset by the ~~three months ended June 30, 2020, largely offsetting the gains~~losses recorded in earnings related to these notes. The swaps will mature in February 2023.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

From time to time, the Company also enters into cross-currency swaps to hedge intercompany loans denominated in non-functional currencies. For cross-currency swap transactions, the Company agrees 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. These cross-currency swaps are designed to reduce the income statement effects arising from fluctuations in foreign exchange rates and have been designated as cash flow hedges. At June 30, ~~2020~~2021 and March 31, ~~2020,~~2021, the Company had cross-currency swaps with total gross notional amounts of approximately $2.6 billion, ~~and $2.9 billion, respectively,~~ which are designated as cash flow hedges. These swaps will mature between ~~February~~August 2021 and January 2024.

For forward contracts and cross-currency swaps that are designated as cash flow hedges, the effective portion of changes in the fair value of the 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 from cash flow hedges recorded in other comprehensive income were not material during the three months ended June 30, 2020 and 2019. Gains or losses reclassified from Accumulated other comprehensive income and recorded in Operating expenses in the Condensed Consolidated Statements of Operations were not material in the three months ended June 30, 2020 and 2019. There was no ineffectiveness in the Company’s cash flow hedges for the three months ended June 30, 2020 and 2019.

On April 27, 2020, the Company entered into forward starting interest rate swaps designated as cash flow hedges, with combined notional amounts of $500 million and €600 million, to hedge the variability of future benchmark interest rates on planned bond issuances. Under the terms of the forward interest rate swap contracts, the Company agreed with third parties to pay fixed interest payments for the $500 million swaps for floating interest payments in U.S. dollars based on three-month LIBOR and to pay fixed interest payments for floating interest payments in Euros based on six-month Euro Interbank Offered Rate (“EURIBOR”) for the €600 million swaps. The $500 million swaps were terminated upon the issuance of the 2025 Notes in November 2020. The settlement loss on the swaps was not material and will be amortized on a straight-line basis as interest expense over the five-year life of the 2025 Notes. Refer to Financial Note 8, “Debt and Financing Activities,” for more information.

Gains or losses from cash flow hedges recorded in Other comprehensive income were 0 and a loss of $5 million during the three months ended June 30, 2021 and 2020, respectively. Gains or losses reclassified from Accumulated other comprehensive income and recorded in “Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations were not material in the three months ended June 30, 2021 and 2020. There was no ineffectiveness in the Company’s cash flow hedges for the three months ended June 30, 2021 and 2020.

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.

The Company has a number of forward contracts to hedge the Euro against cash flows denominated in British pound sterling and other European currencies. At June 30, ~~2020~~2021 and March 31, ~~2020,~~2021, the total gross notional amounts of these contracts were ~~$31~~$54 million and ~~$29~~$39 million, respectively. These contracts will predominantly mature ~~through~~between July 2021 and December ~~2020~~2021 and none of these contracts were designated for hedge accounting. Changes in the fair values for contracts not designated as hedges are recorded directly into earnings in ~~operating expenses.~~“Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. Changes in the fair values were not material in the three months ended June 30, ~~2020~~2021 and ~~2019.~~2020. Gains or losses from these contracts are largely offset by changes in the value of the underlying intercompany obligations.

2119

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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


		Balance Sheet Caption	June 30, 2020												March 31, 2020													Balance Sheet Caption			June 30, 2021											March 31, 2021
					Fair Value of Derivative							U.S. Dollar Notional			Fair Value of Derivative								U.S. Dollar Notional				Balance Sheet Caption				Fair Value of Derivative				U.S. Dollar Notional				Fair Value of Derivative				U.S. Dollar Notional
(In millions)	(In millions)				Asset			Liability					Asset				Liability			U.S. Dollar Notional	(In millions)	Balance Sheet Caption			Asset						U.S. Dollar Notional								Liability			U.S. Dollar Notional
Derivatives designated for hedge accounting	Derivatives designated for hedge accounting																Derivatives designated for hedge accounting

Cross-currency swaps (current)	Cross-currency swaps (current)	Prepaid expenses and other/Other accrued liabilities	$	40		$	8	$	925	$	112		$	19	$	1,279	Cross-currency swaps (current)	Prepaid expenses and other/Other accrued liabilities	$		4				$	50			$	895			$	4			$	47		$	826
Cross-currency swaps (non-current)	Cross-currency swaps (non-current)	Other non-current assets/liabilities	103			7		3,313		182			—		3,313		Cross-currency swaps (non-current)	Other non-current assets/liabilities	77				128		2,594				72				92			2,663
Forward starting interest rate swaps (current)	Forward starting interest rate swaps (current)	Other accrued liabilities	—			3		500		—			—		—		Forward starting interest rate swaps (current)	Other accrued liabilities	0			5		711				0				7			704
Forward starting interest rate swaps (non-current)		Other accrued liabilities	—			8		674		—			—		—

Total	Total		$	143		$	26			$	294		$	19			Total		$	81		$	183					$	76			$	146
Derivatives not designated for hedge accounting	Derivatives not designated for hedge accounting																Derivatives not designated for hedge accounting
Foreign exchange contracts (current)	Foreign exchange contracts (current)	Prepaid expenses and other	$	1		$	—	$	27	$	2		$	—	$	24	Foreign exchange contracts (current)	Prepaid expenses and other	$	0		$	0	$	42			$	0			$	0		$	29
Foreign exchange contracts (current)	Foreign exchange contracts (current)	Other accrued liabilities	—			—		5		—			—		5		Foreign exchange contracts (current)	Other accrued liabilities	0			0		12				0				1			10
Total	Total		$	1		$	—			$	2		$	—			Total		$	0		$	0					$	0			$	1

Refer to Financial Note ~~12,~~11, "Fair Value Measurements," for more information on these recurring fair value measurements.

~~12.~~11. Fair Value Measurements

~~At June 30, 2020~~The Company measures certain assets and ~~March 31, 2020, the carrying amounts of cash, certain cash equivalents, restricted cash, marketable securities, receivables, drafts~~liabilities at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and ~~accounts payable, short-term borrowings, and other current liabilities approximated their estimated fair values because of the short maturity of these financial instruments.~~

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

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

Level 2 - significant other observable market-based inputs.

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

The Company’s long-term debt is carried at amortized cost. The carrying amounts and estimated fair values of these liabilities were $7.4 billion and $8.1 billion at June 30, 2020, respectively, and $7.4 billion and $7.8 billion at March 31, 2020, respectively. The estimatedsignificant to the fair value ~~of the Company’s long-term debt was determined using quoted market prices in a less active market~~measurement.

Assets 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.

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

Cash and cash equivalents at June 30, ~~2020~~2021 and March 31, ~~2020~~2021 included investments in money market funds of ~~$139~~$521 million and ~~$2.0~~$1.6 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.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

Fair values for the Company’s marketable securities were not material at June 30, 2021 and March 31, 2021.

Fair values of the Company’s interest rate swaps, foreign currency forward contracts, and cross-currency swaps were determined using observable inputs from available market ~~information. Fair values of the Company’s cross-currency swaps were determined using~~information, including quoted interest rates, foreign currency exchange rates, and other ~~observable inputs from available market information. Fair values of the Company’s interest rate swaps were determined using~~ 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 ~~11,~~10, “Hedging Activities,” for fair value and other information on the Company’s ~~foreign currency~~ derivatives including interest rate swaps, forward foreign currency contracts, and cross-currency swaps.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

~~There were 0~~In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company’s assets and liabilities are also subject to nonrecurring fair value measurements. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.

At June 30, ~~2020. At March 31, 2020,~~2021, assets measured at fair value on a nonrecurring basis included long-lived assets ~~for~~associated with the Company’s ~~European Pharmaceutical Solutions~~restructuring initiatives as discussed in more detail in Financial Note 3, “Restructuring, Impairment, and Related Charges.” At March 31, 2021, assets measured at fair value on a nonrecurring basis included long-lived assets of the Company’s International segment and goodwill of the ~~Rexall Health business~~Company’s Europe Retail Pharmacy reporting unit within ~~Other.~~the International segment.

There were 0 liabilities measured at fair value on a nonrecurring basis at June 30, ~~2020~~2021 and March 31, ~~2020.~~2021.

Other Fair Value Disclosures

At June 30, 2021 and March 31, 2021, the carrying amounts of cash, certain cash equivalents, restricted cash, marketable securities, receivables, drafts and accounts payable, short-term borrowings, and other current liabilities approximated their estimated fair values because of the short maturity of these financial instruments.

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

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


	June 30, 2021				March 31, 2021
(In millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, including current maturities	$	7,176	$	7,865	$	7,148	$	7,785

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 ~~under Prepaid~~within “Prepaid expenses and ~~other~~other” on the Company’s Condensed Consolidated Balance ~~Sheet~~Sheets as of June 30, ~~2020,~~2021 and March 31, 2021, primarily consists of funds temporarily held on behalf of unaffiliated medical practice groups related to their COVID-19 business continuity borrowings. The amounts have been designated as restricted cash due to contractual provisions requiring their segregation from all other funds until utilized by the medical practices for a limited list of qualified activities. Corresponding deposit liabilities associated with these funds have been recorded by the Company within ~~Other~~“Other accrued ~~liabilities~~liabilities” on the Company’s Condensed Consolidated Balance ~~Sheet~~Sheets as of June 30, ~~2020.~~2021 and March 31, 2021.

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 the 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.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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 the long-lived assets is considered a Level 3 fair value measurement.

~~13.~~12. 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 2119 to the Company’s 20 2 02021 Annual Report, which disclosure is incorporated in this footnote by this reference. The Company is vigorously defending itself against those claims and in those proceedings. Significant developments in those matters are described below. If the Company is unsuccessful in defending, or if it determines to settle, any of these 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.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

Unless otherwise stated, the Company is unable to reasonably estimate the loss or a range of possible loss for the matters described below. Often, itthe Company is ~~not reasonably possible for the Company~~unable to determine that a loss is probable, ~~for a claim,~~ 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 ~~be resolved~~remain unresolved over many years. The Company reviews loss contingencies at least quarterly to determine whether the likelihood of loss ~~probability~~ has changed and whether it can make a reasonable estimate of the ~~possible~~ loss or range of loss. When the Company determines that a loss from a claim is probable and reasonably estimable, it records a liability ~~in the amount of its estimate~~ for ~~the ultimate loss.~~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.

I. Litigation and Claims Involving Distribution of Controlled Substances

The Company and its affiliates are defendants in many cases asserting claims related to distribution of controlled substances. They are named as defendants along with other pharmaceutical wholesale distributors, pharmaceutical manufacturers, and retail pharmacy chains. The plaintiffs in these actions include state attorneys general, county and municipal governments, tribal nations, hospitals, ~~Indian tribes, pension~~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 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.

Since December 5, 2017, nearly all such cases pending in federal district courts have been transferred for consolidated pre-trial proceedings to a multi-district litigation (“MDL”) in the United States District Court for the Northern District of Ohio captioned In re: National Prescription Opiate Litigation, Case No. 17-md-2804. At present, there are approximately ~~2,800~~2,900 cases under the jurisdiction of the MDL court.

NaN cases involving McKesson that were previously part of the federal MDL have been remanded to other federal courts for discovery and trial. On January 14, 2020, the Judicial Panel on Multidistrict Litigation finalized its Conditional Remand Order, ordering that the cases ~~against the 3 largest distributors~~ brought by Cabell County, West Virginia and the City of Huntington, West Virginia be remanded to the U.S. District Court for the Southern District of West ~~Virginia~~Virginia. Trial in that case ended on July 28, 2021 and ~~a trial date has been scheduled for October 19, 2020.~~the outcome is pending. On February 5, 2020, the case brought by the City and County of San Francisco was remanded to the U.S. District Court for the Northern District of California; trial has been set for ~~June 2021.~~April 25, 2022. Also on February 5, 2020, the case brought by the Cherokee Nation was remanded by the MDL court to the U.S. District Court for the Eastern District of ~~Oklahoma.~~Oklahoma; trial has been set for September 2022.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The Company is also named in approximately ~~360~~300 similar state court cases pending in 3738 states plus Puerto ~~Rico.~~Rico, along with 3 cases in Canada. These include actions filed by 26 state attorneys general, and some by or on behalf of individuals, including wrongful death lawsuits, and putative class action lawsuits brought on behalf of children with neonatal abstinence syndrome due to alleged exposure to opioids in utero. Trial dates have been set in several of these state court cases. For example, ~~trial was previously set to begin in March 2020~~trials in the ~~Supreme Court of New York, Suffolk County for a case~~cases brought by the ~~New York attorney~~Ohio and Washington attorneys general ~~and 2 New York county governments, but the trial was postponed in light of the COVID-19 pandemic. A trial has been~~are scheduled for ~~October 19, 2020, in~~September 2021; the case brought by the ~~Ohio~~Alabama attorney general ~~against McKesson~~is scheduled to go to trial in November 2021; the case brought by the Rhode Island attorney general is scheduled for January 2022; and the case brought by Dallas County, Texas, is scheduled for trial in January 2022.

On July 21, 2021, the Company and the 2 other ~~large distributors.~~

~~The Company has been involved~~national pharmaceutical distributors announced that they had negotiated a comprehensive proposed settlement agreement which, if all conditions are satisfied, would result in ~~discussions with~~ the ~~objective~~settlement of ~~achieving broad resolution~~a substantial majority of ~~opioid-related claims brought~~opioid lawsuits filed by state and local governmental entities. ~~For example, on October 21, 2019, 4 state attorneys general announced certain terms of a~~If the proposed ~~framework for the potential~~ settlement ~~of those opioid claims which they indicated they would find acceptable. The proposed framework would have expected~~agreement and settlement process leads to final settlement, the 3 ~~largest U.S. pharmaceutical~~ distributors towould pay ~~an aggregate amount of~~ up to ~~$18.0~~approximately $21 billion over 18 years, with up to ~~approximately $6.9~~$7.9 billion to be paid by the Company for its 38.1% portion; a minimum of 85% of such payments must be used by state and local governmental entities to remediate the opioid epidemic. Most of the remaining percentage relates to plaintiffs’ attorneys’ fees and costs, and would be payable over ~~18 years expected~~a shorter time period.

The proposed agreement would also establish a clearinghouse that would consolidate controlled-substance distribution data from the 3 largest U.S. distributors, which will be available to the settling states to use as part of their anti-diversion efforts.

The Agreement is subject to contingencies and will not become effective unless the Company determines that (1) following a sign-on period of 30 days, a sufficient number of states have agreed to be bound by the proposed agreement; and, subsequently, (2) following a sign-on period of 120 days, that a sufficient number of states and political subdivisions, including those that have not sued, have agreed to be bound by the agreement (or otherwise had their claims foreclosed).

The exact amount that would be due under the proposed agreement depends on several factors, including the participation rate of states and political subdivisions, the extent to which states take action to foreclose opioid lawsuits by political subdivisions, and the extent to which political subdivisions in settling states file additional opioid lawsuits against the Company after the proposed agreement becomes effective. The proposed agreement contemplates that if certain governmental entities do not agree to a settlement under the framework, but the distributors nonetheless conclude that there is sufficient participation to warrant the settlement, there would be a corresponding reduction in the amount due from the Company ~~with any finally-determined amount being subject~~ to ~~adjustment based on various contingencies, including sufficient resolution with States, political subdivisions,~~account for the unresolved claims of the governmental entities that do not participate. Those non-participating governmental entities would be entitled to pursue their claims against the Company and other ~~governmental entities nationwide. The proposed framework also would have required~~defendants.

This settlement process only addresses the ~~3 distributors, including the Company, to adopt changes to anti-diversion programs and to participate in a program involving the distribution~~claims of ~~certain medication used to treat opioid use disorder. Discussions with~~U.S. state attorneys general and political subdivisions in participating states. The West Virginia subdivisions and Native American tribes are not part of this settlement process. The proposed agreement provides that the Company will place its first annual payment, estimated to be approximately $482 million, into escrow on or before September 30, 2021, to be disbursed when and if the proposed agreement becomes effective. Subsequent payments would be due on July 15 of each year.

On July 20, 2021, the Company announced that it and the 2 other ~~parties continue.~~national pharmaceutical distributors had agreed to pay up to $1.2 billion, of which the Company’s portion would be 38.1%, in a settlement with the State of New York and its participating subdivisions, including Nassau and Suffolk Counties, to resolve opioid-related claims. This settlement was negotiated in connection with the broad proposed settlement described above, but provides assurance that New York and its participating subdivisions will receive a settlement amount consistent with their allocations under the broad settlement framework, as well as certain attorneys’ fees and costs. If the ~~negotiating parties agree on potential terms for~~broad settlement is finalized, New York and its participating subdivisions will become part of that broader agreement.

The Company believes that a broad ~~resolution, those potential terms would need~~settlement of opioid claims by governmental entities is probable, and that the loss related thereto can be reasonably estimated. The Company recorded a charge of $8.1 billion ($6.8 billion after-tax) in the fiscal year ended March 31, 2021 related to ~~be agreed~~its share of the global settlement as well as claims of West Virginia municipalities and the Native American tribes. In connection with the matters described above, the Company recorded additional charges of $74 million ($61 million after-tax) in the quarter ended June 30, 2021 within “Claims and litigation charges, net” in the Condensed Consolidated Statements of Operations, including a pre-tax charge of $27 million ($22 million after-tax) related to ~~by numerous other~~the settlement with New York and its participating subdivisions, and a pre-tax charge of $47 million ($39 million after-tax) related to the proposed settlement agreement with state and local ~~governments before an agreement could be finalized.~~governmental entities.

2423

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~Because~~The Company’s estimated accrued liability for opioid-related claims of the novelty of the claims asserted and the complexity of litigation involving numerous parties across multiple jurisdictions, the Company has determined that liability is not probable, and is not able to reasonably estimate a loss or range of loss. The COVID-19 pandemic introduced additional uncertainty related to delays in proceedings, economic impacts and other implications. To be viable, a broad settlement arrangement would require participation of numerous parties and the resolution of many complex issues. The scope and terms of any settlement framework,governmental entities, including the ~~financial terms, have not been determined. Because of~~$482 million initial payment under the ~~many uncertainties associated with any potential~~proposed settlement arrangements, the significance of unresolved elements of a potential settlement, and the uncertainty of the scope of potential participation by plaintiffs, the Company has not reached a point where settlementagreement, is ~~probable, and~~ as ~~such has not recognized any liability related to any potential settlement framework~~follows as of June 30, ~~2020.~~2021:


(In millions)	June 30, 2021
Current litigation liabilities (1)	$	545
Long-term litigation liabilities	7,596

Total litigation liabilities	$	8,141

(1)This amount, recorded in “Other accrued liabilities” on the Condensed Consolidated Balance Sheet, is the amount estimated to be paid prior to June 30, 2022.

If a broad settlement is not reached under the proposed agreement, litigation will continue. 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.~~claims if acceptable settlement terms are not achieved.

Although the vast majority of opioid claims have been brought by governmental entities in the U.S., the Company is also a defendant in cases brought in the U.S. by private plaintiffs, such as hospitals, health and welfare funds, third-party payors, and individuals, as well as 3 cases brought in Canada (2 by governmental entities and 1 by an individual). These claims, and those of private entities generally, are not included in the settlement framework for governmental entities, or in the charges recorded by the Company, described above. The Company believes it has valid legal defenses in these matters and intends to mount a vigorous defense. One such case brought by a group of individual plaintiffs in Glynn County, Georgia Superior Court seeks to recover for damages allegedly arising from their family members’ abuse of prescription opioids; trial in that case is scheduled to begin in October 2021. Poppell v. Cardinal Health, Inc. et al.,CE19-00472. The Company has not concluded a loss is probable in any of these matters; nor is the amount of any loss reasonably estimable.

Because of the many uncertainties associated with any potential settlement arrangement or other resolution of all of these opioid-related litigation matters, including the uncertain scope of participation by governmental entities in any potential settlement under the framework described above, 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.

~~The Company and certain of its current and former directors and officers were defendants in a consolidated shareholder derivative action in the Northern District of California captioned~~ In ~~re McKesson Corporation Derivative Litigation~~, No. 4:17-cv-1850. The consolidated complaint alleged claims of breach of fiduciary duty, waste, and insider trading purportedly on behalf of the Company. The Company was named as a nominal defendant. The consolidated complaint alleged that the defendants violated their fiduciary duties by causing, allowing, or otherwise failing to prevent the purported conduct underlying the Company's previously disclosed agreement with the Drug Enforcement Administration (“DEA”), Department of Justice (“DOJ”), and various U.S. Attorneys' offices to settle potential administrative and civil claims relating to investigations about the Company's suspicious order reporting practices for controlled substances. The consolidated complaint sought unspecified damages, restitution, disgorgement, attorneys' fees, and other equitable relief. The Company and certain of its current and former directors and officers were also defendants in a similar consolidated shareholder derivative action in the Delaware Court of Chancery captioned ~~In re McKesson Corporation Stockholder Derivative Litigation, No. 2017-0736. The parties reached an agreement to resolve these shareholder derivative actions. The court in the~~ ~~In re McKesson Corporation Derivative Litigation~~ action issued a final judgment and order approving the settlement on April 22, 2020. Under that agreement: (i) on June 9, 2020, insurance carriers paid the Company $131 million net of attorneys’ fees and expenses awarded by the court to plaintiffs’ counsel; and (ii) the Company is required to implement and maintain certain corporate governance enhancements for at least ~~four~~ ~~years. On April 24, 2020, pursuant to the terms of the settlement agreement, the parties to the~~ ~~In re McKesson Corporation Stockholder Derivative Litigation action pending in the Delaware Court of Chancery filed a stipulation dismissing that action with prejudice.~~

~~II. Other Litigation and Claims~~

~~On May 17, 2013,~~December 2019, the Company was served with ~~a complaint~~two qui tam complaints filed by the same two relators alleging violations of the federal False Claims Act, the California False Claims Act, and the California Unfair Business Practices statute based on alleged predicate violations of the Controlled Substances Act and its implementing regulations, United States ex rel. Kelley,19-cv-2233, and State of California ex rel. Kelley, CGC-19-576931. The complaints seek relief including treble damages, civil penalties, attorney fees, and costs in unspecified amounts. On February 16, 2021, the court in the ~~United States District Court for~~federal action dismissed the ~~Northern District of California by True Health Chiropractic Inc., alleging that McKesson sent unsolicited marketing faxes in violation of~~second amended complaint with prejudice, and the ~~Telephone Consumer Protection Act of 1991 (“TCPA”), as amended by~~relators appealed the ~~Junk Fax Protection Act of 2005 or JFPA,~~ ~~True Health Chiropractic Inc., et al. v. McKesson Corporation, et al., No. CV-13-02219 (HG). Plaintiffs seek statutory damages from $500~~dismissal to $1,500 per violation plus injunctive relief. True Health Chiropractic later amended its complaint, adding McLaughlin Chiropractic Associates as an additional named plaintiff and McKesson Technologies Inc. as a defendant. Both plaintiffs alleged that defendants violated the TCPA by sending faxes that did not contain notices regarding how to opt out of receiving the faxes. On July 16, 2015, plaintiffs filed a motion for class certification. On August 22, 2016, the court denied plaintiffs’ motion. On July 17, 2018, the United StatesU.S. Court of Appeals for the Ninth ~~Circuit Court affirmed in part and reversed in part the district court’s denial of class certification and remanded the case to the district court for further proceedings.~~Circuit. On ~~August 13, 2019,~~June 28, 2021, the court ~~granted plaintiffs’ renewed motion for class certification. After class notice and the opt-out period, 9,490 fax numbers remain~~ in the ~~class, representing 48,769 faxes received. On March 5, 2020, McKesson moved to decertify~~state action dismissed the class and moved for summary judgment on plaintiffs’ claim for treble damages. Plaintiffs’ moved for summary judgment on the same day. Due to the COVID-19 pandemic, the trial date for this case was taken off calendar to be re-scheduled during 2021.complaint with prejudice.

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(UNAUDITED)

II. Other Litigation and Claims

On ~~June 17, 2014, U.S. Oncology Specialty, LP (“USOS”)~~March 5, 2018, the Company’s subsidiary, RxC Acquisition Company (d/b/a RxCrossroads), was served with a ~~fifth amended~~ qui tam complaint filed in the United States District Court for the Eastern District of New York by a relator alleging that USOS, among others, solicited and received illegal “kickbacks” from Amgen in violation of the Anti-Kickback Statute, the federal False Claims Act, and various state false claims statutes, and seeking damages, treble damages, civil penalties, attorneys’ fees, and costs of suit, all in unspecified amounts, ~~United States ex rel. Hanks v. Amgen, Inc., et al.~~, CV-08-03096 (SJ). Previously, the U.S. declined to intervene in the case as to all allegations and defendants except for Amgen. On September 17, 2018, the court granted USOS’s motion to dismiss. Following the relator’s appeal, the United States Court of Appeals for the Second Circuit vacated the district court’s order and remanded the suit to the district court, directing it to consider the question of whether the suit should be dismissed for lack of jurisdiction.

On May 21, 2019, Jean E. Henry, a purported Company shareholder, filed a shareholder derivative complaint in the Superior Court of San Francisco, California against certain current and former officers and directors of the Company, and the Company as a nominal defendant, alleging violations of fiduciary duties and waste of corporate assets with respect to an alleged conspiracy to fix the prices of generic drugs, ~~Henry v. Tyler, et al.~~, CGC-19-576119. On May 23, 2019, the Company removed the case to the United States District Court for the Northern District of California, Case No. 19-cv-02869. On August 26, 2019, the plaintiff filed an amended complaint, removing all claims except for an alleged breach of fiduciary duty by the named current and former officers and directors of the Company. On January 21, 2020, the United States District Court for the Northern District of California granted the defendants’ motion to dismiss the complaint, and on July ~~1, 2020, the court granted the defendant’s motion to dismiss the plaintiff’s amended complaint with prejudice.~~

In October 2019, the Company’s subsidiary NDCHealth Corporation dba RelayHealth (“RelayHealth”) was served with 3 purported class action complaints filed in the United States District Court for the Northern District of Illinois. The complaints allege that RelayHealth violated the Sherman Act by entering into an agreement with co-defendant Surescripts, LLC not to compete in the electronic prescription routing market, and by conspiring with Surescripts, LLC to monopolize that market, ~~Powell Prescription Center, et al. v. Surescripts, LLC, et al., No. 1:19-cv-06627;~~ ~~Intergrated Pharmaceutical Solutions LLC v. Surescripts, LLC, et al., 1:19-cv-06778;~~ ~~Falconer Pharmacy, Inc. v. Surescripts LLC, et al., No. 1:19-cv-07035. In November 2019, 3 similar complaints were filed in the United States District Court for the Northern District of Illinois.~~ ~~Kennebunk Village Pharmacy, Inc. v. SureScripts, LLC, et al., 1:19-cv-7445;~~ ~~Whitman v. SureScripts, LLC et al., No. 1:19-cv-7448;~~ ~~BBK Global Corp. v. SureScripts, LLC et al.~~, 1:19-cv-7640. In December 2019, the 6 actions were consolidated in the Northern District of Illinois. The complaints seek relief including treble damages, attorney fees, and costs. Subject to court approval, plaintiffs and RelayHealth reached an agreement to resolve the class action lawsuits with RelayHealth paying an amount that is not expected to be material in the context of the Company’s overall financial results. The settlement does not include any admission of liability, and RelayHealth expressly denies wrongdoing.

~~In July 2020, the Company was served with a first amended~~ ~~qui tam~~ ~~complaint filed~~2017 in the United States District Court for the Southern District of ~~New York~~Illinois by a relator ~~on behalf of the U.S., 27 states and the District of Columbia~~ against ~~McKesson Corporation, McKesson Specialty Distribution LLC, and McKesson Specialty Care Distribution Corporation,~~RxC Acquisition Company, among others, alleging that ~~defendants violated~~UCB, Inc. provided illegal “kickbacks” to providers, including nurse educator services and reimbursement assistance services provided through RxC Acquisition Company, in violation of the Anti-Kickback Statute, ~~federal~~the False Claims Act, and various state false claims ~~statutes by providing certain business analytical tools to oncology practice customers,~~statutes. United States ex rel. ~~Hart~~CIMZNHCA, LLC v. ~~McKesson Corporation,~~UCB, Inc., et al., ~~15-cv-00903-RA.~~No. 17-cv-00765. The ~~U.S.~~complaint sought treble damages, civil penalties, and further relief. The United States and the states named ~~states have~~in the complaint declined to intervene in the ~~case.~~suit. On December 17, 2018, the United States filed a motion to dismiss the complaint in its entirety; this motion was denied on April 15, 2019. On June 7, 2019, the court denied the United States’ motion for reconsideration. On July 8, 2019, the United States appealed to the United States Court of Appeals for the Seventh Circuit seeking interlocutory review of the denial of its motion for reconsideration of the denial of the motion to dismiss the complaint. On September 3, 2019, the United States District Court for the Southern District of Illinois stayed the district court proceedings pending the appeal. On August 17, 2020, the Seventh Circuit reversed the district court’s decision on the United States’ motion to dismiss and remanded the case with instructions that the district court enter judgment for the defendants on the relator’s claims under the False Claims Act. The ~~complaint seeks relief including damages, treble damages, civil penalties, attorneys’ fees, and costs~~relator sought a re-hearing en banc at the Seventh Circuit, which was denied. The relator’s False Claims Act case was dismissed, with judgment entered in favor of ~~suit, all in unspecified amounts.~~the defendants on September 30, 2020. On February 10, 2021, the relator filed a Petition for Writ of Certiorari at the United States Supreme Court seeking review of the Seventh Circuit’s ruling; that petition was denied on June 28, 2021.

III. 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.

On May 19, 2021, the Norwegian Competition Authority carried out an inspection of Norsk Medisinaldepot AS regarding alleged sharing of competitively sensitive information.

In June 2021, the United States Department of Justice served a Civil Investigative Demand on the Company seeking documents related to distribution arrangements for ophthalmology products.

IV. State Opioid Statutes

Legislative, regulatory or industry measures to address the misuse of prescription opioid medications could affect the Company’s business in ways that it may not be able to predict. For example, in April 2018, the State of New York adopted the Opioid Stewardship Act (the “OSA”) which required the creation of an aggregate $100 million annual surcharge on all manufacturers and distributors licensed to sell or distribute opioids in New York. The initial surcharge payment would have been due on January 1, 2019 for opioids sold or distributed during calendar year 2017. On July ~~21, 2020, McKesson received correspondence from~~6, 2018, the Healthcare Distribution Alliance filed a lawsuit challenging the constitutionality of the law and seeking an injunction against its enforcement. On December 19, 2018, the U.S. ~~Attorney’s Office~~District Court for the ~~Western~~Southern District of ~~Tennessee alleging reporting~~New York found the law unconstitutional and ~~documentation deficiencies in violation~~issued an injunction preventing the State of New York from enforcing the law. The State appealed that decision. On September 14, 2020, a panel of the ~~Controlled Substances Act at~~U.S. Court of Appeals for the ~~Company’s former~~Second Circuit reversed the district court’s decision on procedural grounds. The Company has accrued a $50 million pre-tax charge ($37 million after-tax) as its estimated share of the OSA surcharge for calendar years 2017 and ~~no longer operational RxPak facility~~2018. This OSA provision was recognized in “Selling, distribution, general, and atadministrative expenses” in the Consolidated Statement of Operations for the year ended March 31, 2021 and in “Other accrued liabilities” in the Consolidated Balance Sheet as of March 31, 2021. The State of New York adopted an excise tax on sales of opioids in the State, which became effective July 1, 2019. The law adopting the excise tax made clear that the OSA does not apply to sales or distributions occurring after December 31, 2018. The Healthcare Distribution Alliance filed a petition for panel rehearing, or, in the alternative, for rehearing en banc with the U.S. Court of Appeals for the Second Circuit; that petition was denied on December 18, 2020. On February 12, 2021, the Court of Appeals for the Second Circuit granted a motion by the Healthcare Distribution Alliance to stay its ~~Distribution Center in Memphis, Tennessee,~~mandate pending the filing and ~~seeking civil penalties.~~disposition of a petition for writ of certiorari before the U.S. Supreme Court. The petition was filed on May 17, 2021.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~14.~~13. Stockholders' Equity (Deficit)

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

On July ~~29, 2020,~~23, 2021, the Company raised its quarterly dividend from ~~$0.41~~$0.42 to ~~$0.42~~$0.47 per common share for dividends declared on or after such date by the Board. The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company's future earnings, financial condition, capital requirements, and other factors.

Share Repurchase Plans

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

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. Pursuant to the ASR agreement, the Company paid $1.0 billion to the financial institution and received an initial delivery of 4.3 million shares in May 2021. The transaction will be completed during the second quarter of 2022, at which point the Company expects to receive additional shares. There were 0 share repurchases during the three months ended June 30, 2020.

In January 2021, the Board approved an increase of $2.0 billion for the authorized share repurchase of McKesson’s common stock. The total remaining authorization outstanding for repurchases of the Company’s common stock ~~was $1.5 billion~~ at June 30, ~~2020.~~2021 was $1.8 billion.

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Other Comprehensive Income (Loss)

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

Three Months Ended June 30,
(In millions) 2020 2019
Foreign currency translation adjustments ⁽¹⁾
Foreign currency translation adjustments arising during period, net of income tax expense of NaN and NaN ^{(2) (3)}
$ 96 $ 70
Reclassified to income statement, net of income tax expense of NaN and NaN — —
96 70
Unrealized losses on net investment hedges
Unrealized losses on net investment hedges arising during period, net of income tax benefit of $22 and $9 ⁽⁴⁾
(63) (26)
Reclassified to income statement, net of income tax expense of NaN and NaN — —
(63) (26)
Unrealized gains (losses) on cash flow hedges
Unrealized gains (losses) on cash flow hedges arising during period, net of income tax expense of NaN and $6 (5) 12
Reclassified to income statement, net of income tax expense of NaN and NaN — —
(5) 12
Changes in retirement-related benefit plans ⁽⁵⁾
Net actuarial gain and prior service cost arising during the period, net of income tax expense of NaN and $1 — 6
Amortization of actuarial loss, prior service cost and transition obligation, net of income tax expense of NaN and NaN ⁽⁶⁾
2 1
Foreign currency translation adjustments and other, net of income tax expense of NaN and NaN (1) 2
Reclassified to income statement, net of income tax expense of NaN and $5 ⁽⁷⁾
— 12
1 21
Other comprehensive income, net of tax $ 29 $ 77

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


	Three Months Ended June 30,
(In millions)		2021		2020
Foreign currency translation adjustments (1)
Foreign currency translation adjustments arising during period, net of income tax expense of 0 and 0 (2)		$	34	$	96
Reclassified to income statement, net of income tax expense of 0 and 0		17		0
		51		96
Unrealized losses on net investment hedges
Unrealized losses on net investment hedges arising during period, net of income tax benefit of $6 and $22 (3)		(27)		(63)
Reclassified to income statement, net of income tax expense of 0 and 0		0		0
		(27)		(63)
Unrealized losses on cash flow hedges
Unrealized losses on cash flow hedges arising during period, net of income tax benefit of 0 and 0		0		(5)
Reclassified to income statement, net of income tax expense of 0 and 0		0		0
		0		(5)
Changes in retirement-related benefit plans (4)
Net actuarial gain and prior service cost arising during the period, net of income tax expense of 0 and 0		5		0
Amortization of actuarial gain (loss), prior service cost and transition obligation, net of income tax benefit expense of 0 and 0 (5)		(1)		2
Foreign currency translation adjustments and other, net of income tax benefit of 0 and 0		0		(1)
Reclassified to income statement, net of income tax benefit of $1 and 0		(2)		0
		2		1

Other comprehensive income, net of tax		$	26	$	29

(1)Foreign currency translation adjustments primarily result from the conversion of non-U.S. dollar financial statements of the Company’s foreign subsidiary, McKesson Europe, and its operations in Canada into the Company’s reporting currency, U.S. dollars.

(2)~~During the~~The three months ended June 30, 2021 and 2020 ~~the~~includes net foreign currency translation ~~gains were primarily due~~adjustments of $9 million and $58 million, respectively, attributable to the strengthening of the Canadian dollar and Euro against the U.S. dollar from April 1, 2020 to June 30, 2020. During the three months ended June 30, 2019, the net foreign currency translation gains were primarily due to the strengthening of the Canadian dollar and Euro against the U.S. dollar from April 1, 2019 to June 30, 2019.redeemable noncontrolling interests.

(3)The three months ended June 30, ~~2020 include net~~2021 includes foreign currency ~~translation gains~~losses of ~~$58~~$22 million on the net investment hedges from the €1.7 billion Euro-denominated notes, losses of $5 million on the net investment hedges from cross-currency swaps, and ~~the three months ended June 30, 2019 include~~losses on net ~~foreign currency translation gains~~investment hedges of $6 million attributable to redeemable noncontrolling interests.

~~(4)~~The three months ended June 30, 2020 include foreign currency losses of $34 million on the net investment hedges from the €1.7 billion Euro-denominated notes and ~~£450 million British pound sterling-denominated notes and~~ losses of $51 million on the net investment hedges from cross-currency swaps. The three months ended June 30, 2019 include foreign currency losses of $24 million on the net investment hedges from the €1.95 billion Euro-denominated notes and £450 million British pound sterling-denominated notes and losses of $11 million on the net investment hedges from cross-currency swaps.

~~(5)~~(4)The three months ended June 30, ~~2020~~2021 and ~~2019~~2020 include net actuarial gains of 0 and $3 million, ~~and NaN,~~ respectively, which are attributable to redeemable noncontrolling interests.

~~(6)~~(5)Pre-tax amount was reclassified into ~~Cost~~“Cost of ~~sales~~sales” and ~~Operating expenses~~“Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations. The related tax expense was reclassified into ~~Income~~“Income tax ~~expense~~expense” in the Condensed Consolidated Statements of Operations.

~~(7)~~

~~The three months ended June 30, 2019 primarily reflects a reclassification~~Table of ~~a pension settlement charge from Accumulated other comprehensive loss to Other income, net in the Condensed Consolidated Statement of Operations.~~Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Accumulated Other Comprehensive Income (Loss)

Information regarding changes in the Company’s Accumulated other comprehensive income (loss) by component for the three months ended June 30, ~~2020~~2021 are as follows:

Foreign Currency Translation Adjustments
(In millions) Foreign Currency Translation Adjustments, Net of Tax Unrealized Gains (Losses) on Net Investment Hedges,
Net of Tax Unrealized Gains (Losses) on Cash Flow Hedges,
Net of Tax Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax Total Accumulated Other Comprehensive Income (Loss)
Balance at March 31, 2020 $ (1,780) $ 138 $ 49 $ (110) $ (1,703)
Other comprehensive income (loss) before reclassifications 96 (63) (5) (1) 27
Amounts reclassified to earnings and other — — — 2 2
Other comprehensive income (loss) 96 (63) (5) 1 29
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests 58 — — 3 61
Other comprehensive income (loss) attributable to McKesson 38 (63) (5) (2) (32)
Balance at June 30, 2020 $ (1,742) $ 75 $ 44 $ (112) $ (1,735)

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~


	Foreign Currency Translation Adjustments
(In millions)	Foreign Currency Translation Adjustments, Net of Tax		Unrealized Losses on Net Investment Hedges, Net of Tax		Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax		Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance at March 31, 2021	$	(1,361)	$	(36)	$	13	$	(96)	$	(1,480)
Other comprehensive income (loss) before reclassifications	34		(27)		0		5		12
Amounts reclassified to earnings and other	17		0		0		(3)		14
Other comprehensive income (loss)	51		(27)		0		2		26
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	9		(6)		0		0		3
Other comprehensive income (loss) attributable to McKesson	42		(21)		0		2		23
Exercise of put right by noncontrolling shareholders of McKesson Europe AG	(158)		0		0		(12)		(170)
Balance at June 30, 2021	$	(1,477)	$	(57)	$	13	$	(106)	$	(1,627)

Information regarding changes in the Company’s Accumulated other comprehensive income (loss) by component for the three months ended June 30, ~~2019~~2020 are as follows:


		Foreign Currency Translation Adjustments													Foreign Currency Translation Adjustments
(In millions)	(In millions)	Foreign Currency Translation Adjustments, Net of Tax		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax		Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax		Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Income (Loss)		(In millions)	Foreign Currency Translation Adjustments, Net of Tax		Unrealized Gains (Losses) on Net Investment Hedges, Net of Tax		Unrealized Gains (Losses) on Cash Flow Hedges, Net of Tax		Unrealized Net Gains (Losses) and Other Components of Benefit Plans, Net of Tax		Total Accumulated Other Comprehensive Loss
Balance at March 31, 2019		$	(1,628)	$	53	$	(37)	$	(237)	$	(1,849)
Balance at March 31, 2020												Balance at March 31, 2020	$	(1,780)	$	138	$	49	$	(110)	$	(1,703)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	70		(26)		12		8		64		Other comprehensive income (loss) before reclassifications	96		(63)		(5)		(1)		27
Amounts reclassified to earnings and other	Amounts reclassified to earnings and other	—		—		—		13		13		Amounts reclassified to earnings and other	0		0		0		2		2
Other comprehensive income (loss)	Other comprehensive income (loss)	70		(26)		12		21		77		Other comprehensive income (loss)	96		(63)		(5)		1		29
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	6		—		—		—		6		Less: amounts attributable to noncontrolling and redeemable noncontrolling interests	58		0		0		3		61
Other comprehensive income (loss) attributable to McKesson	Other comprehensive income (loss) attributable to McKesson	64		(26)		12		21		71		Other comprehensive income (loss) attributable to McKesson	38		(63)		(5)		(2)		(32)
Balance at June 30, 2019		$	(1,564)	$	27	$	(25)	$	(216)	$	(1,778)
Balance at June 30, 2020												Balance at June 30, 2020	$	(1,742)	$	75	$	44	$	(112)	$	(1,735)

~~15.~~

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

14. Segments of Business

~~The~~Commencing with the second quarter of 2021, the Company ~~reports its financial results~~implemented a new segment reporting structure which resulted in 34 reportable segments: U.S. Pharmaceutical, ~~and Specialty Solutions, European Pharmaceutical~~RxTS, Medical-Surgical Solutions, and ~~Medical-Surgical Solutions.~~International. All ~~remaining operating segments~~prior segment information has been recast to reflect the Company’s new segment structure and ~~business activities that are not significant enough to require separate reportable segment disclosure are included in Other.~~current period presentation. The organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments included 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 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 ~~Company’s~~U.S. Pharmaceutical segment distributes branded, generic, specialty, biosimilar, and over-the-counter pharmaceutical drugs and other healthcare-related products. This segment also provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices. In addition, the segment sells financial, operational, and clinical solutions to pharmacies (retail, hospital, alternate site) and provides consulting, outsourcing, technological, and other services.

The RxTS segment unifies the solutions and services of CoverMyMeds, RelayHealth, RxCrossroads, and McKesson Prescription Automation to serve biopharma and life sciences partners and patients. By combining automation and expert navigation of the healthcare ecosystem, RxTS connects pharmacies, providers, payers, and biopharma to address patients’ medication access, adherence, and affordability challenges to help people get the medicine they need to live healthier lives. RxCrossroads was previously included in the former U.S. Pharmaceutical and Specialty Solutions reportable segment ~~distributes pharmaceutical~~ and ~~other healthcare-related products~~CoverMyMeds, RelayHealth, and ~~also provides pharmaceutical solutions to life sciences companies~~McKesson Prescription Automation were previously included in ~~the U.S..~~Other.

The Company’s European Pharmaceutical Solutions segment provides distribution and services to wholesale, institutional, and retail customers and serves patients and consumers in 13 European countries through its own pharmacies and participating pharmacies that operate under brand partnership and franchise arrangements.

~~The Company’s~~ 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 275,000 national brand medical-surgical products as well as McKesson’s own line of products through a network of distribution centers within the United States.

The International segment includes the Company’s operations in ~~the U.S..~~

~~Other primarily consists of the following:~~

•~~McKesson~~Europe and Canada, ~~which distributes pharmaceutical~~bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and ~~medical products~~infusion care services. The Company’s operations in Europe provide distribution and services to wholesale, institutional, and retail customers in 12 European countries where it owns, partners, or franchises with retail pharmacies and operates through 2 businesses: Pharmaceutical Distribution and Retail Pharmacy. The Company’s Canada operations deliver vital medicines, supplies, and information technology services throughout Canada and includes Rexall Health retail ~~pharmacies;~~

•pharmacies. McKesson ~~Prescription Technology~~Europe was previously reflected as the European Pharmaceutical Solutions ~~which provides innovative technologies that support retail pharmacies;~~reportable segment and

• McKesson Canada was previously included in Other. In the second quarter of 2022, the Company entered into an agreement to sell certain of its Europe businesses, primarily located in France, Italy, Ireland, Portugal, Belgium, and Slovenia. The sale also includes the Company’s ~~investment~~German headquarters and wound-care business, business center in Lithuania, and an ownership stake in its joint venture in the ~~Change Healthcare JV, which was split-off from the Company in the fourth quarter of 2020.~~

Netherlands. Refer to Financial Note 2, “Held for Sale,” for more information.

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McKESSON CORPORATION

FINANCIAL NOTES ~~(CONTINUED)~~(CONCLUDED)

(UNAUDITED)

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

Three Months Ended June 30,
(In millions) 2020 2019
Revenues
U.S. Pharmaceutical and Specialty Solutions ⁽¹⁾
$ 45,062 $ 44,165
European Pharmaceutical Solutions ⁽¹⁾
6,246 6,710
Medical-Surgical Solutions ⁽¹⁾
1,801 1,903
Other 2,570 2,950
Total revenues $ 55,679 $ 55,728
Segment operating profit (loss) ⁽²⁾
U.S. Pharmaceutical and Specialty Solutions ⁽³⁾
$ 608 $ 579
European Pharmaceutical Solutions (10) 5
Medical-Surgical Solutions 89 125
Other 98 141
Subtotal 785 850
Corporate expenses, net ⁽⁴⁾
(80) (175)
Interest expense (60) (56)
Income from continuing operations before income taxes $ 645 $ 619
Revenues, net by geographic area
United States $ 47,129 $ 46,321
Foreign 8,550 9,407
Total revenues $ 55,679 $ 55,728


	Three Months Ended June 30,
(In millions)	2021		2020
Segment revenues (1)
U.S. Pharmaceutical	$	50,019	$	44,670
Prescription Technology Solutions	881		656
Medical-Surgical Solutions	2,528		1,801
International	9,246		8,552

Total revenues	$	62,674	$	55,679

Segment operating profit (2)
U.S. Pharmaceutical (3)	$	682	$	613
Prescription Technology Solutions	104		68
Medical-Surgical Solutions (4)	75		89
International	53		3

Subtotal	914		773
Corporate expenses, net (5)	(303)		(68)
Interest expense	(49)		(60)
Income from continuing operations before income taxes	$	562	$	645

(1)Revenues from services on a disaggregated basis represent less than 1% of the ~~Company’s~~ U.S. Pharmaceutical ~~and Specialty Solutions~~segment’s total revenues, approximately 35% of the RxTS segment’s total revenues, less than ~~10%~~2% of the ~~Company’s European Pharmaceutical~~Medical-Surgical Solutions segment’s total revenues, and ~~less than 2%~~approximately 7% of the ~~Company’s Medical-Surgical Solutions~~International segment’s total revenues. The International segment reflects foreign revenues. Revenues for the remaining three reportable segments are domestic.

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

(3)The Company’s U.S. Pharmaceutical ~~and Specialty Solutions~~ segment’s operating profit for the three months ended June 30, 2021 and 2020 ~~and 2019~~ includes ~~credits of~~$23 million and $52 million, ~~and $15 million,~~ respectively, of credits related to the last-in, first-out (“LIFO”) method of accounting for inventories.

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

(5)Corporate expenses, net for the three months ended June 30, 2021 includes charges of $74 million related to the Company’s estimated liability for opioid-related claims, as discussed in more detail in Financial Note 12, “Commitments and Contingent Liabilities." Corporate expenses, net for the three months ended June 30, 2020 includes a net gain of $131 million recorded in connection with insurance proceeds received during the first quarter of 2021 from the settlement of the shareholder derivative action related to the Company’s controlled substances monitoring program as discussed in Financial Note 13, “Commitments and Contingent Liabilities.” Corporate expenses, net for the three months ended June 30, 2019 includes net settlement gains of $25 million from the Company’s derivative contracts and a settlement charge of $17 million related to the termination of the Company’s defined benefit pension plan.

program.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

On July 1, 2020, the Company announced a change to its organizational structure to reflect the Company’s continued focus on delivering new and innovative solutions to respond to the evolving needs of the healthcare industry, customers, and patients. In connection with the completion of this change, the Company’s operating structure will be realigned commencing in the second quarter of 2021 and it will begin reporting its financial results in 4 reportable segments on a retrospective basis as follows:

•~~U.S. Pharmaceutical~~

•~~International~~

•~~Medical-Surgical Solutions~~

•~~Prescription Technology Solutions~~

The Company’s equity method investment in Change Healthcare, which was split-off from McKesson in the fourth quarter of 2020, will be included in Other for retrospective periods presented. The segment changes reflect how the Company’s chief operating decision maker will begin allocating resources and assessing performance commencing in the second quarter of 2021.

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McKESSON CORPORATION

FINANCIAL REVIEW

(UNAUDITED)

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

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 and in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2020~~2021 previously filed with the Securities and Exchange Commission on May ~~22, 2020~~12, 2021 (“~~2020~~2021 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 on Form 10-Q.

Overview of Our Business:

We are a global leader in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information solutions. We partner with ~~life sciences companies,~~pharmaceutical manufacturers, providers, pharmacies, governments, and other organizations in healthcare ~~organizations~~ to help provide the right medicines, medical products, and healthcare services to the right patients at the right time, safely, and cost-effectively.

We ~~report our financial results~~implemented a new segment reporting structure commencing with the second quarter of 2021, which resulted in ~~three~~four reportable segments: U.S. Pharmaceutical, and Specialty Solutions, European Pharmaceutical Solutions, and Medical-Surgical Solutions. All remaining operating segments and business activities that are not significant enough to require separate reportable segment disclosure are included in Other, which primarily consists of McKesson Canada, McKesson Prescription Technology Solutions (“~~MRxTS”~~RxTS”), Medical-Surgical Solutions, and International. All prior segment information has been recast to reflect our ~~investment in Change Healthcare LLC (“Change Healthcare JV”), which was split-off from the Company in the fourth quarter of 2020 as further discussed in this Financial Review.~~new segment structure and current period presentation. Our organizational structure also includes Corporate, which consists of income and expenses associated with administrative functions and projects, and the results of certain investments. The factors for determining the reportable segments include the manner in which management evaluates the performance of the Company combined with the nature of individual business activities. We evaluate the performance of our operating segments on a number of measures, including revenues and operating profit before interest expense and income taxes.

~~On July 1, 2020, we announced a change in~~The following summarizes our organizational structure to reflect our continued focus on delivering new and innovative solutions to respond to the evolving needs of the healthcare industry, customers, and patients. In connection with the completion of this change, our operating structure will be realigned, and we will report our financial results in four reportable segments ~~on a retrospective basis commencing in~~and the ~~second quarter of 2021 as follows:~~

•~~U.S. Pharmaceutical~~

•~~International~~

•~~Medical-Surgical Solutions~~

•~~Prescription Technology Solutions (“RxTS”)~~

~~Our equity method investment in Change Healthcare JV, which was split-off from McKesson in the fourth quarter of 2020, will be included in Other for retrospective periods presented. The segment~~ changes ~~reflect how~~made to our ~~chief operating decision maker allocates resources and assesses performance~~reporting structure commencing in the second quarter of 2021. ~~The segment changes will not affect~~Refer to Financial Note 14, “Segments of Business,” to the ~~previously issued~~accompanying condensed consolidated financial statements ~~nor earnings per common share~~included in this Quarterly Report on Form 10-Q for further information regarding our reportable segments.

•U.S. Pharmaceutical, previously the U.S. Pharmaceutical and Specialty Solutions reportable segment, continues to distribute branded, generic, specialty, biosimilar, and over-the-counter pharmaceutical drugs and other healthcare-related products. This segment also provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices. In addition, the segment sells financial, operational, and clinical solutions to pharmacies (retail, hospital, alternate site) and provides consulting, outsourcing, technological, and other services.

•RxTS is a reportable segment that unifies the solutions and services of CoverMyMeds, RelayHealth, RxCrossroads, and McKesson ~~for historical periods.~~Prescription Automation to serve our biopharma and life sciences partners and patients. By combining automation and expert navigation of the healthcare ecosystem, RxTS connects pharmacies, providers, payers, and biopharma to address patients’ medication access, adherence, and affordability challenges to help people get the medicine they need to live healthier lives. RxCrossroads was previously included in the former U.S. Pharmaceutical and Specialty Solutions reportable segment and CoverMyMeds, RelayHealth, and McKesson Prescription Automation were previously included in Other.

•Medical-Surgical Solutions provides medical-surgical supply distribution, logistics, and other services to healthcare providers in the United States (“U.S.”) and was unaffected by the segment realignment.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

•International is a reportable segment that includes our operations in Europe and Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. McKesson Europe was previously reflected as the European Pharmaceutical Solutions reportable segment and McKesson Canada was previously included in Other.

Executive Summary:

The following summary provides highlights and key factors that impacted our business, operating results, financial condition, and liquidity for the three months ended June 30, ~~2020.~~2021.

•Coronavirus disease 2019 (“COVID-19”) ~~impacted~~continues to impact our ~~results of operations for~~year over year results. As previously disclosed in our 2021 Annual Report, pharmaceutical distribution volumes decreased across the enterprise during the first quarter of 2021 ~~primarily due to the decreased pharmaceutical distribution volumes resulting from~~as a result of the weakened and uncertain global economic environment and COVID-19 restrictions ~~including government shutdowns and shelter-in-place orders,~~ following the onset of the pandemic. ~~For~~We remain in a ~~more in-depth discussion~~dynamic environment and volume trends continue to be non-linear. However, the recovery from the pandemic is favorably reflected in our results when comparing 2022 versus 2021. We also had favorable contributions from our COVID-19 vaccine and related ancillary supply kit distribution programs during the first quarter of ~~how~~2022 and a year over year increase in sales of COVID-19 ~~impacted~~tests;

•In response to the global pandemic, McKesson plans to donate certain personal protective equipment (“PPE”) to charitable organizations to assist with COVID-19 recovery efforts. During the first quarter of 2022, we recorded inventory charges totaling $164 million on certain PPE and other related products in our ~~business, operations,~~Medical-Surgical Solutions segment. The majority of these charges are driven by the intent of management not to sell certain excess PPE inventory and ~~outlook, see~~instead direct it to charitable organizations. Refer to the ~~COVID-19 section of~~ "“Trends and ~~Uncertainties"~~Uncertainties” section included ~~below;~~below for further information on COVID-19 and related impacts;

•Revenues of ~~$55.7~~$62.7 billion ~~remained flat~~for the three months ended June 30, 2021 increased 13% from the ~~same~~ prior year ~~period. Revenues decreased from COVID-19 impacts~~ primarily ~~due to pharmaceutical distribution volume declines across our businesses, which was largely offset~~driven by market growth in our U.S. Pharmaceutical ~~and Specialty Solutions~~ segment;

•Gross profit ~~decreased 3% from~~increased 12% for the ~~same~~three months ended June 30, 2021 compared to the prior year ~~period~~ primarily in our International segment driven by ~~declines~~favorable effects of foreign currency exchange fluctuations, and in our ~~Medical-Surgical Solutions and European~~U.S. Pharmaceutical ~~Solutions segments due to~~segment driven by the contribution from our COVID-19 ~~including doctors’ office closures, deferred and cancelled elective procedures, lower~~vaccine distribution ~~volumes, and reduced retail pharmacy foot traffic;~~program;

•Total operating expenses for the three months ended June 30, ~~2020~~2021 includes ~~a net gain~~charges of ~~$131~~$74 million ~~recorded in connection with insurance proceeds received from the settlement of the shareholder derivative action~~ related to our ~~controlled substances monitoring program, within Corporate expenses, net;~~estimated liability for opioid-related claims as further described in the “Trends and Uncertainties” section included below;

•Diluted earnings per common share from continuing operations attributable to McKesson Corporation for the three months ended June 30, ~~2020~~2021 of ~~$2.72~~$3.09 reflects the aforementioned items, net of any respective tax impacts, discrete tax items recognized in the quarter, and a lower share count compared to the prior year ~~driven largely~~due to the cumulative effect of share repurchases;

•We paid $1.0 billion to purchase 34.5 million shares of McKesson Europe AG (“McKesson Europe”) during the three months ended June 30, 2021 through exercises of a put right by the ~~separation of our investment in Change Healthcare JV on March 10, 2020;~~noncontrolling shareholders pursuant to the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”);

•We returned ~~$74 million~~$1.1 billion of cash to shareholders ~~through dividend payments~~ during the ~~quarter,~~three months ended June 30, 2021 through $1.0 billion of share repurchases under an accelerated share repurchase (“ASR”) program entered into in May 2021, and on$69 million of dividend payments. On July ~~29, 2020,~~23, 2021, we raised our quarterly dividend from ~~$0.41~~$0.42 to ~~$0.42~~$0.47 per common share;

•On July 5, 2021, we entered into an agreement to sell certain of our European businesses to the PHOENIX Group for a purchase price of €1.2 billion (or, approximately $1.5 billion), subject to certain adjustments under the agreement. Beginning in the second quarter of 2022, the disposal group will be reflected in our condensed consolidated financial statements as held for sale and will be remeasured to the lower of its carrying amount or fair value less costs to sell, which we estimate will result in a charge between $500 million and $700 million, primarily related to the inclusion of the accumulated other comprehensive income balances into the carrying amount of the disposal group and the impairment of internal-use software that will not be completed. The transaction is anticipated to close in 2023, pursuant to customary closing conditions, including receipt of required regulatory approvals. Refer to Financial Note 2, “Held for Sale,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information;

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

•On July 17, 2021, we 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. The notes were redeemed using cash on hand; and

•On July ~~1, 2020,~~23, 2021, we ~~announced~~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. As a result of the ~~realignment of our reportable segments commencing~~redemption, we incurred a loss on debt extinguishment in the second quarter of ~~2021 to respond~~2022, consisting of the premiums paid and a portion of the write-off of unamortized discounts and debt issuance costs in an amount proportional to the ~~evolving needs~~principal amount of debt retired. Refer to Financial Note 8, “Debt and Financing Activities,” to the ~~healthcare industry, customers, and patients.~~accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.

Trends and Uncertainties:

COVID-19

~~In December 2019, a~~The novel strain of coronavirus, which causes the infectious disease known as COVID-19, continues to evolve since it was ~~reported in Wuhan, China. The World Health Organization~~ declared ~~COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020 and~~ a global pandemic on March 11, ~~2020.~~

2020 by the World Health Organization. We continue to evaluate the nature and extent of the ongoing impacts COVID-19 ~~may have to~~has on our business, operations, and ~~operations.~~financial results. Refer to Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of our 2021 Annual Report for a full disclosure of trends and uncertainties due to COVID-19 since the onset of the pandemic. The ~~pandemic developed rapidly~~disclosures below include significant updates that occurred during ~~our fourth~~the first quarter of ~~2020 and continues to evolve. Infection rates and COVID-19 cases began to increase to higher levels late in the current period, particularly in the United States (“U.S.”).~~2022. The full extent to which COVID-19 will impact us depends on many factors and future developments, ~~including~~which are described at the ~~continued duration~~end of this COVID-19 section.

Our Response to COVID-19 in the Workplace

During this unprecedented time, we are committed in continuing to supply our customers and ~~spread~~protect the safety of ~~the virus, as well as potential new outbreaks.~~

~~In response to the COVID-19 pandemic, federal, state, and local government directives and policies have been~~our employees. The various responses we put in place initially at the onset of the pandemic to mitigate the impact of COVID-19 on our business operations include telecommuting and work-from-home policies, restricted travel, employee support programs, and enhanced safety measures. During the first quarter of 2022, we approved changes to our real estate strategy to increase efficiencies and support flexibility for our employees, including a transition to a partial remote work model for certain employees on a go-forward basis as further discussed in this Financial Review and in Financial Note 3, “Restructuring, Impairment, and Related Charges,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. In July 2021, we also lifted certain travel restrictions across the enterprise. We continue to enforce the safety measures in the ~~U.S. to enhance availability~~workplace as recommended by the Centers for Disease Control and Prevention (“CDC”).

Our Role in the Distribution of ~~medications~~COVID-19 Vaccines and supplies to meet the increased demand, assist front-line healthcare providers, manage public health concerns by creating social distancing, and address the economic impacts, including sharply reduced business activity, increased unemployment, and overall uncertainty presented by this new healthcare emergency. Similar governmental actions have occurred in Canada and Europe, the timing of which has varied across geographies.Ancillary Supply Kits

As a global leader in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information ~~technology,~~solutions, we ~~are~~remain well positioned to respond to the COVID-19 pandemic in the U.S., Canada, and Europe. We have worked and continue to work closely with national and local governments, agencies, and industry partners to ensure that available supplies, including ~~personal protective equipment,~~PPE, and medicine ~~reached~~reach our customers and patients.

We continue to support the U.S. government as a centralized distributor of COVID-19 vaccines and ancillary supplies needed to administer vaccines through a contract with the CDC. We have been distributing COVID-19 vaccines since December 2020, when the first Emergency Use Authorization was issued by the U.S. Food and Drug Administration. In the first quarter of 2022, McKesson began supporting the U.S. government’s commitment to donate COVID-19 vaccines worldwide. For this initiative, we are responsible for picking and packing the COVID-19 vaccines into temperature-controlled coolers and preparing them for pickup by an international partner. We will not manage the actual shipments of the vaccines to other countries. The results of operations related to our vaccine distribution are reflected in our U.S. Pharmaceutical segment. We also continue to manage the assembly and distribution of ancillary supply kits needed to administer COVID-19 vaccines, including sourcing some of those supplies, through agreements with both the Department of Health and Human Services (“HHS”) and Pfizer, Inc. The results of operations for the kitting and distribution of ancillary supplies are reflected in our Medical-Surgical Solutions segment. The future financial impact of the arrangements with the CDC and HHS depend on numerous uncertainties, which are described at the end of this COVID-19 section.

McKesson Canada and McKesson Europe are also playing a role in helping support governments and public health entities in not only distributing COVID-19 vaccines, but administering them in pharmacies as well.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

~~We have taken~~Trends in our Business

At the ~~necessary steps to ensure that we continue to supply our customers and protect~~onset of the ~~safety of our employees. The various responses we put~~COVID-19 pandemic late in place to mitigate the impact of COVID-19 on our business operations, including telecommuting and work-from-home policies, restricted travel requirements, employee support programs, and enhanced safety measures are intended to limit exposure to COVID-19. We expanded employee medical benefits covering COVID-19 related visits, treatments, and testing as well as expanded telehealth options to not only protect employee safety, but to provide further support including additional emergency leave and an internal paid time off donation platform for employees impacted by COVID-19. We have taken steps to enhance employee safety within our facilities by promoting the practice of social distancing where feasible, providing reminders to wash or disinfect their hands, avoiding unnecessary face touching, placing hand sanitizers within our operating environments, and periodically cleaning and disinfecting our facilities. These responses were initially put in place during our fourth quarter of 2020, ~~which~~ we ~~maintained~~experienced higher pharmaceutical distribution volumes and increased retail pharmacy foot traffic as our customers increased supplies on hand in the first quarter of 2021. These steps to protect the safety of our employees have resulted in limited disruption of our normal business operations, productivity trends, and have not materially impacted our operating expenses or operating margins.

We have evaluated the impact of our telecommuting and work-from-home policies on our system of internal controls and we have concluded that these policies did not have a material effect on our internal control over financial reportingMarch. Subsequently, during the first quarter of ~~2021. We also took various actions to mitigate the impact of COVID-19 on our results from operations through cost-containment and payroll-related expenses.~~

~~During the first quarter, we experienced growth in pharmaceutical distribution and specialty drug volumes at a lower rate in the U.S., while~~2021, pharmaceutical distribution volumes decreased ~~in Europe~~as a result of the weakened and ~~Canada due to the~~uncertain global economic environment and COVID-19 pandemic, as compared to the same period in the prior year. Specialty drug volumes increased, but were negatively impacted by lower demand for elective specialty drugs, as compared to the same period in the prior year.restrictions, including government shutdowns and shelter-in-place orders. We also experienced ~~continued~~ decreased demand for primary care medical-surgical supplies due to deferrals in elective procedures in hospitals and surgery centers as well as decreased traffic and closures inof doctors’ offices, which was partially offset by ~~increased~~ demand for ~~personal protective equipment~~PPE and COVID-19 ~~tests and related products.~~tests. Additionally, the decreased traffic in doctors’ offices and general shelter-in-place guidance by governmental authorities negatively impacted retail pharmacy foot traffic in both Europe and Canada. ~~These lower volumes had a negative impact on consolidated revenues during~~This drove favorability in our results when comparing the first quarter ~~which caused consolidated revenues to decline as~~of 2022 versus 2021.

We have experienced significant improvements in prescription volumes and primary care patient visits during our first quarter of 2022 compared to the same prior year period, however, the recovery of COVID-19 continues to be non-linear and tracked with patient mobility. During the first quarter of 2022, the COVID-19 vaccine and related ancillary kit distribution in the ~~prior year.~~U.S. favorably impacted our results. While demand for PPE remained relatively flat year over year, we saw higher sales for COVID-19 tests primarily due to limited product availability in the first quarter of 2021.

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

For the three months ended June 30, 2021, COVID-19 tests as well as the kitting and distribution of ancillary supplies for COVID-19 vaccines in our Medical-Surgical Solutions segment contributed approximately $323 million, or 13%, in segment revenues, and including total inventory charges which is further described below, reduced our segment operating profit by approximately $90 million, or 120%. Additionally, the distribution of COVID-19 vaccines in our U.S. Pharmaceutical segment contributed less than 10% in segment operating profit for the three months ended June 30, 2021. The ~~decreased~~financial impact from the COVID-19 vaccine efforts in our International segment during the three months ended June 30, 2021 was not material to our consolidated results, but contributed to year over year favorability in segment operating profit. During the three months ended June 30, 2020, we had lower pharmaceutical volumes, specialty drug volumes, and patient care visits that negatively impacted our consolidated revenues ~~unfavorably impacted~~and income from continuing operations before income ~~taxes, partially offset~~taxes. The recovery of prescription volume trends and patient care visits, which are also described in more detail above in the Trends in our Business section, resulted in favorability year over year across our businesses when comparing 2022 versus 2021.

Additionally, certain PPE items held for resale were valued in our inventory at costs that were inflated by earlier COVID-19 pandemic demand levels. That inventory valuation, if not supported by market resale prices, may be written down to net realizable value. We may also write-off inventory due to decreased customer demand and excess inventory. During the three months ended June 30, 2021, we recorded inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment. Of this amount, we recorded $147 million in cost of sales driven by the intent of management not to sell certain excess PPE inventory, which required an inventory write-down to zero, and instead direct it to charitable organizations. We recorded $8 million in total operating expenses ~~largely due~~for excess inventory which has already been committed for donation during our first quarter of 2022. In addition, $9 million of inventory charges were recorded in cost of sales for PPE and other related products that management intends to ~~savings from restricted travel requirements, decreased meetings,~~sell. Although market price volatility and ~~decreased payroll-related expenses. The favorable reduction~~changes to anticipated customer demand may require additional write-downs in ~~operating expenses was partially offset by increased costs~~future periods of ~~transport, costs for enhanced sterilization procedures~~other PPE and related product categories, we are taking measures to ~~sanitize operating facilities, and costs of personal protective equipment for our employees. The above~~mitigate such risk.

Overall, these COVID-19 related items had a ~~negative~~net favorable impact on consolidated income from continuing operations before income taxes asfor the three months ended June 30, 2021 compared to the same ~~period in the~~ prior ~~year.~~year period. Impacts to future periods due to COVID-19 may differ based on future developments, ~~including~~which is described at the ~~duration and spread~~end of this COVID-19 section.

During the ~~virus as well as potential seasonality of new outbreaks.~~

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) to address the economic impact of the COVID-19 pandemic. Among other things, the CARES Act provides certain changes to tax laws and includes provisions to provide relief for healthcare providers and patients. We have taken advantage of the provision to defer certain employer payroll taxes and continue to monitor the potential impact of other tax legislation changes as result of the CARES Act. We anticipate changes in the timing of certain cash flows, with no material impact to our financial results for the quarter endingthree months ended June 30, ~~2020.~~

~~Our Condensed Consolidated Balance Sheets~~2021, we maintained appropriate labor and ~~ability to maintain financial liquidity remains strong. We have~~overall vendor supply levels and experienced no material impacts to our liquidity or net working ~~capital. With many of our customers anticipating extended declines in their businesses~~capital due to the COVID-19 ~~pandemic, we~~pandemic. We continue to monitor the COVID-19 situation closely and engage with manufacturers, industry partners, and government agencies to anticipate shortages and respond to demand for certain medications and therapies. We are monitoring our customers closely for ~~trends that may impact~~changes to their timing of payments or ability to pay amounts owed to ~~us.~~us as a result of COVID-19 pandemic impacts to their businesses. We remain well-capitalized with access to liquidity from our revolving credit facility. Long-term debt markets and commercial paper markets, our primary sources of capital after cash flow from operations, have remained open and accessible to us during the COVID-19 pandemic. WeAt June 30, 2021, we were in compliance with all debt covenants, and believe we have the ability to continue to meet our debt covenants in the ~~covenants of our credit agreements.~~future.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

~~We continue to monitor the~~Risks and Forward-Looking Information

The COVID-19 pandemic ~~impact on~~has disrupted the global economy and exacerbated uncertainties inherent in estimates, judgments, and assumptions used in our supply chain. Although the availability of various products is dependent on our suppliers, their location, and the extent to which they are impacted by the COVID-19 pandemic, we are proactively working with manufacturers, industry partners, and government agencies to meet the needs of our customers during the pandemic.forecasts. We have assembled a Critical Care Drug Task Force, made up of our procurement specialists, clinical health systems pharmacists, and supply chain professionals, focused on securing additional product where available, sourcing back-up products, adjusting allocations to ensure equitable distribution, and to protect our operations across all locations and facilities. We have a robust Business Continuity and Disaster Recovery Program (“BCRP”) and we have proactively enhanced our BCRP in response to the COVID-19 pandemic to support our priorities to protect our customers, ensure the safety and security of our employees and workplaces, and ensure the continuity of critical business processes.

We were able to maintain appropriate labor and overall vendor supply levels during the first quarter. Our inventory levels have fluctuated in response to supply availability and customer demand patterns for certain products, with varying inventory level impacts depending on the specific product within our portfolio of offerings. We collaborated closely with the federal government and other healthcare stakeholders to source more critical personal protective equipment to the U.S. This collaboration expedited the shipment of critical medical supplies to areas hit hardest by COVID-19, as identified by the Federal Emergency Management Agency. We are closely monitoring demand and usage of personal protective equipment. As our supply levels improve, and the federal government evolves guidance on the prioritization of providers or geographic markets, we will continue to adapt our distribution policies.

Westill face numerous uncertainties in estimating the direct and indirect effects of COVID-19 on our future business operations, financial condition, results of operations, and liquidity. ~~Additionally, continued responses from authorities and regulators at all levels of government may materially~~The full extent to which COVID-19 will impact us depends on many factors and future developments, including: the duration and spread of the virus; governmental actions to limit the spread of the virus; potential seasonality of viral outbreaks; potential new variants of the original virus; the amount of COVID-19 vaccines authorized, manufactured, distributed, and administered; the amount of ancillary supply kits assembled and distributed; the effectiveness of COVID-19 vaccines and governmental measures in ~~future periods.~~controlling the spread of the virus; and the effectiveness of treatments of infected individuals. Due to several rapidly changing variables related to the COVID-19 pandemic, estimations of future economic trends and the timing of when stability will return remains challenging. 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 the global pandemic on industry and economic trends as well as on our business strategy and internal forecasts. Material changes to key assumptions and estimates can decrease the projected cash flows or increase the discount rates and have resulted in impairment charges of certain long-lived assets and could potentially result in future impairment charges. Refer to Item 1A - Risk Factors in Part I of our ~~2020~~2021 Annual Report for a disclosure of risk factors related to COVID-19.

Opioid-Related Litigation and Claims

We are a defendant in ~~over 3,100~~approximately 3,200 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. WeThose proceedings include approximately 2,900 federal cases and approximately 300 state court cases throughout the U.S., and cases in Puerto Rico and Canada.

On July 21, 2021, we and the two other national pharmaceutical distributors announced that we had negotiated a comprehensive proposed settlement agreement which, if all conditions are ~~vigorously defending ourselves against such claims~~satisfied, would result in the settlement of a substantial majority of opioid lawsuits filed by state and ~~proceedings~~local governmental entities. Under the proposed agreement, the three distributors would pay up to approximately $21 billion over a period of 18 years, with up to approximately $7.9 billion to be paid by us for our 38.1% portion if all eligible entities participate. In addition, the proposed agreement would require the three distributors, including the Company, to establish a clearinghouse for controlled substances distribution data and ~~are~~adopt changes to anti-diversion programs.

On July 20, 2021, we announced that we and the two other national pharmaceutical distributors had agreed to pay up to $1.2 billion, of which our portion would be 38.1%, in a ~~party to discussions~~settlement with the ~~objective~~State of ~~achieving~~New York and its participating subdivisions, including Nassau and Suffolk Counties, to resolve opioid-related claims. This settlement was negotiated in connection with the broad ~~resolution~~proposed settlement described above, but provides assurance that New York and its participating subdivisions will receive a settlement amount consistent with their allocations under the broad settlement framework, as well as certain attorneys’ fees and costs. If the broad settlement is finalized, New York and its participating subdivisions will become part of that broader agreement. We previously recorded a charge of $8.1 billion for the year ended March 31, 2021 within “Claims and litigation charges, net” in our Consolidated Statement of Operations, related to our share of the settlement framework described above, as well as other opioid-related claims. We have increased that by $74 million this quarter, including a charge of $27 million related to the settlement with New York and its participating subdivisions and a charge of $47 million related to the proposed settlement agreement with state and local governmental entities. We also reclassified $545 million to “Other accrued liabilities” for the estimated payment due within one year, and the remaining ~~claims.~~liability is recorded in “Long-term litigation liabilities” in our Condensed Consolidated Balance Sheet as of June 30, 2021. Because of the ~~large number~~many uncertainties associated with any potential settlement arrangement or other resolution of ~~parties involved, together with~~opioid-related litigation, including the ~~novelty and complexity~~uncertainty of the ~~issues,~~scope of participation by plaintiffs in any potential settlement, we are not able to reasonably estimate the upper or lower ends of the range of ultimate possible loss for ~~which there~~all opioid-related litigation matters. In light of the uncertainty, the amount of any ultimate loss may ~~be different considerations among~~differ materially from the ~~parties,~~amount accrued.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Notwithstanding the progress toward a broad settlement, we ~~cannot predict~~also continue to prepare for trial in these pending matters. We believe that we have valid defenses to the ~~successful resolution through a negotiated settlement.~~claims pending against us and, absent an acceptable settlement, intend to vigorously defend against all such claims. An adverse judgment or negotiated resolution in any of these matters could have a material adverse impact on our financial position, cash flows or liquidity, or results of operations. Refer to Financial Note ~~13,~~12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form ~~10-Q~~10‑Q for more information.

State Opioid Statutes

Legislative, regulatory, or industry measures to address the misuse of prescription opioid medications could affect our business in ways that we may not be able to predict. In April 2018, the State of New York adopted the Opioid Stewardship Act (“OSA”) which required the imposition of an annual surcharge on all manufacturers and distributors licensed to sell or distribute opioids in New York. On December 19, 2018, the U.S. District Court for the Southern District of New York found the law unconstitutional and issued an injunction preventing the State of New York from enforcing the law. The State of New York appealed to the U.S. Court of Appeals for the Second Circuit. The State of New York has subsequently adopted an excise tax on sales of opioids in the State, which became effective July 1, 2019. The law adopting the excise tax made clear that the OSA would apply only to opioid sales on or before December 31, 2018. The excise tax applies only to the first sale occurring in New York, and thus may not apply to sales from our distribution centers in New York to New York customers.

On September 14, 2020, a panel of the U.S. Court of Appeals for the Second Circuit reversed the district court’s decision striking down the OSA on procedural grounds. The Healthcare Distribution Alliance filed a petition for panel rehearing, or, in the alternative, for rehearing en banc with the U.S. Court of Appeals for the Second Circuit; that petition was denied on December 18, 2020. On February 12, 2021, the U.S. Court of Appeals for the Second Circuit granted a motion by the Healthcare Distribution Alliance to stay its mandate pending the filing and disposition of a petition for writ of certiorari before the U.S. Supreme Court. A petition for certiorari was filed with the Supreme Court on May 17, 2021. Unless the appellate court’s decision is overturned, the OSA will be reinstated for calendar years 2017 and 2018 (but not beyond those years), and, subject to any further legal challenge, we will have to pay our ratable share of the annual surcharge for those two years. During the second quarter of 2021, we reflected an estimated liability of $50 million for the OSA surcharge in our consolidated financial statements on the assumption that the appellate court’s decision will stand. Refer to Note 12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q for more information.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

RESULTS OF OPERATIONS

Overview of Consolidated Results:


(In millions, except per share data)	(In millions, except per share data)	Three Months Ended June 30,												(In millions, except per share data)	Three Months Ended June 30,
				2020			2019		Change						2021			2020		Change
Revenues	Revenues	$	55,679		$	55,728		—	%	Revenues	$	62,674			$	55,679		13	%
Gross profit	Gross profit	2,700			2,787			(3)		Gross profit	3,032				2,700			12
Gross profit margin	Gross profit margin	4.85		%	5.00		%	(15)	bp	Gross profit margin	4.84		%		4.85		%	(1)	bp
Total operating expenses	Total operating expenses	(2,022)			(2,153)			(6)		Total operating expenses	$	(2,464)			$	(2,022)		22	%
Operating expenses as a percentage of revenues		3.63		%	3.86		%	(23)	bp
Total operating expenses as a percentage of revenues										Total operating expenses as a percentage of revenues	3.93		%		3.63		%	30	bp
Other income, net	Other income, net	$	27		$	37		(27)	%	Other income, net	$	43			$	27		59	%
Equity earnings and charges from investment in Change Healthcare Joint Venture		—			4			(100)
Interest expense	Interest expense	(60)			(56)			7		Interest expense	(49)				(60)			(18)
Income from continuing operations before income taxes	Income from continuing operations before income taxes	645			619			4		Income from continuing operations before income taxes	562				645			(13)
Income tax expense	Income tax expense	(150)			(136)			10		Income tax expense	(26)				(150)			(83)
Income from continuing operations	Income from continuing operations	495			483			2		Income from continuing operations	536				495			8
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	(1)			(6)			(83)		Loss from discontinued operations, net of tax	(3)				(1)			200
Net income	Net income	494			477			4		Net income	533				494			8
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(50)			(54)			(7)		Net income attributable to noncontrolling interests	(47)				(50)			(6)
Net income attributable to McKesson Corporation	Net income attributable to McKesson Corporation	$	444		$	423		5	%	Net income attributable to McKesson Corporation	$	486			$	444		9	%

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	$	2.72		$	2.27		20	%	Continuing operations	$	3.09			$	2.72		14	%
Discontinued operations	Discontinued operations	—			(0.03)			(100)		Discontinued operations	(0.02)				—			—
Total	Total	$	2.72		$	2.24		21	%	Total	$	3.07			$	2.72		13	%

Weighted-average diluted common shares outstanding	Weighted-average diluted common shares outstanding	163			189			(14)	%	Weighted-average diluted common shares outstanding	158.1				163.2			(3)	%

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

bp - basis points

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

Revenues

Revenues ~~remained flat~~increased for the three months ended June 30, ~~2020~~2021 compared to the same prior year ~~period. Revenues decreased~~period primarily due to ~~reduced customer demand as a result of COVID-19, which drove declines in pharmaceutical distribution volumes across our businesses during the first quarter of 2021, and was largely offset by~~ market growth in our U.S. Pharmaceutical ~~and Specialty Solutions~~ segment. Revenues were also favorable year over year due to the recovery of pharmaceutical distribution volumes from the prior year impact of COVID-19 across our businesses. Market growth includes growing drug utilization, price increases, and newly launched products, partially offset by price deflation associated with ~~brand~~branded to generic drug conversion.

Gross Profit

Gross profit ~~and gross profit margin decreased~~increased for the three months ended June 30, ~~2020 compared to the same prior year period primarily in our Medical-Surgical Solutions and European Pharmaceutical Solutions segments~~2021 largely due to the pandemic, including the recovery of the prior year impacts from ~~COVID-19. This includes closures~~COVID-19, such as disruptions of doctors’ ~~offices, which we expect to be temporary,~~office operations, deferred or cancelled elective procedures, lower demand for pharmaceuticals, and overall reduction of foot traffic in pharmacies, and the favorable contributions from our COVID-19 vaccine and related ancillary supply kit distribution programs. This was partially offset by ~~increased demand for supplies of personal protective equipment~~inventory charges on certain PPE and ~~COVID-19 tests and~~other related products. Gross profit ~~and gross profit margin~~was also ~~decreased due to unfavorable effects of~~favorably impacted by foreign currency exchange fluctuations ~~partially offset~~for the three months ended June 30, 2021 and unfavorably impacted by ~~higher last-in,~~the contribution of our German pharmaceutical wholesale business to a joint venture with Walgreens Boots Alliance (“WBA”) on November 1, 2020.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Last-in, first-out (“LIFO”) ~~credits in the first quarter of 2021 as further described below.~~

~~LIFO~~ inventory credits were ~~$52~~$23 million and ~~$15~~$52 million for the three months ended June 30, 2021 and 2020, ~~and 2019, respectively, which favorably impacted our gross profit margin~~respectively. LIFO credits are lower in the first quarter of ~~2021~~2022 compared to the same prior year ~~period.~~period primarily due to a decrease in the volume of branded off-patent to generic drug launches and higher brand inflation. 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 expense is recognized when the net effect of price increases on pharmaceutical and non-pharmaceutical products held in inventory exceeds the impact of price declines, including the effect of branded pharmaceutical products that have lost market exclusivity. A LIFO credit is recognized when the net effect of price declines exceeds the impact of price increases on pharmaceutical and non-pharmaceutical products held in inventory. Our quarterly LIFO credit is based on our estimates of the annual LIFO credit which is impacted by expected changes in year-end inventory quantities, product mix, and manufacturer pricing practices, which may be influenced by market and other external ~~influences.~~factors. Changes to any of the above factors could have a material impact to our annual LIFO credit. The actual valuation of inventory under the LIFO method is calculated at the end of the fiscal year. ~~LIFO credits are higher in the first quarter of 2021 compared to the same prior year period primarily due to relatively lower estimated brand inflation and higher generic deflation.~~

Total Operating Expenses

A summary of the components of our total operating expenses for the three months ended June 30, ~~2020~~2021 and ~~2019~~2020 is as follows:

Three Months Ended June 30,
(Dollars in millions) 2020 2019 Change
Operating expenses $ 1,966 $ 2,130 (8) %
Restructuring, impairment and related charges 56 23 143
Total operating expenses $ 2,022 $ 2,153 (6) %
Percent of revenues 3.63 % 3.86 % (23) bp
•Selling, distribution, general, and administrative expenses (“SDG&A”): SDG&A consists of personnel costs, transportation costs, depreciation and amortization, lease costs, professional fee expenses, and administrative expenses.

•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. We have reclassified prior period amounts to conform to the current period presentation.

~~Total~~•Restructuring, impairment, and related charges: Restructuring charges are 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.


	Three Months Ended June 30,
(Dollars in millions)	2021			2020			Change
Selling, distribution, general, and administrative expenses	$	2,232		$	2,097		6	%
Claims and litigation charges, net	74			(131)			(156)

Restructuring, impairment, and related charges	158			56			182
Total operating expenses	$	2,464		$	2,022		22	%
Percent of revenues	3.93		%	3.63		%	30	bp

bp - basis points

For the three months ended June 30, 2021, total operating expenses and total operating expenses as a percentage of revenues ~~decreased~~increased compared to the same prior year period. Total operating expenses were impacted by the following significant items:

•SDG&A for the three months ended June 30, 2021 and 2020 includes opioid-related costs of $35 million and $43 million, respectively, primarily related to litigation expenses;

•SDG&A for the three months ended June 30, 2021 when compared to the same prior year period also includes increased costs primarily to support growth across our businesses, partially offset by lower operating expenses due to the ~~following significant items:~~contribution of our German pharmaceutical wholesale business to a joint venture with WBA;

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

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

•Claims and litigation charges, net for the three months ended June 30, 2020 includes a net gain of $131 million reflecting insurance proceeds received, net of attorneys' fees and expenses awarded to plaintiffs' counsel, in connection with the previously reported $175 million settlement of the shareholder derivative action related to our controlled substances monitoring program;

•~~Operating expenses for the three months ended June 30, 2020 reflects cost savings on travel and entertainment due to travel restrictions associated with COVID-19;~~

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

•~~Operating expenses for the three months ended June 30, 2020 and 2019 includes opioid-related expenses of $43 million and $36 million, respectively, primarily related to litigation expenses;~~

•Restructuring, impairment, and related charges for three months ended June 30, ~~2020~~2021 and ~~2019~~2020 primarily includes charges related to ~~Corporate expenses, net as well as~~ our European and Canadian ~~businesses.~~businesses in our International segment and Corporate expenses, net. The year over year increase in restructuring, impairment, and related charges of $102 million is primarily due to our transition to a partial remote work model approved during the first quarter of 2022 and costs for optimization programs in Canada. In addition, certain charges related to restructuring initiatives are included under the caption “Cost of sales” in our Condensed Consolidated Statements of Operations and were not material for the three months ended June 30, ~~2020 and 2019.~~2020. Refer to the “Restructuring Initiatives and Long-Lived Asset Impairments” and “Segment Operating Profit and Corporate Expenses, Net”sections below as well as Financial Note 4,3, “Restructuring, Impairment, and Related Charges,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information; and

•Total operating expenses were ~~favorably~~unfavorably impacted by foreign currency exchange ~~fluctuations.~~fluctuations for the three months ended June 30, 2021.

Goodwill Impairment

~~As previously disclosed~~We evaluate goodwill for impairment on an annual basis as of October 1, and at an interim date, if indicators of potential impairment exist. The annual impairment testing performed in ~~our 2020 Annual Report, the estimated fair value~~2021 did not indicate any impairment of ~~our McKesson Canada reporting unit exceeded the carrying value as part of our 2020 annual~~goodwill and no goodwill impairment ~~test.~~charges were recorded during the three months ended June 30, 2021 nor 2020. 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 ~~in Other~~within our International segment and our RxCrossroads reporting unit within our RxTS segment, where the risk of a material goodwill impairment is higher than other reporting units.

~~As discussed in~~Restructuring Initiatives and Long-Lived Asset Impairments

During the ~~“Overview of Our Business”~~ ~~section, our operating structure was realigned commencing in the second~~first quarter of ~~2021 into four reportable segments: U.S. Pharmaceutical, International, Medical-Surgical Solutions,~~2022, we approved an initiative to increase operational efficiencies and ~~RxTS. These reportable segments encompass all operating segments~~flexibility by transitioning to a partial remote work model for certain employees. This initiative primarily includes the rationalization of our office space in North America. Where we determine to cease using office space, we plan to exit the portion of the ~~Company.~~

facility no longer used. We also may retain and repurpose certain other office locations. We expect to incur total charges of approximately $180 million to $280 million for this initiative, of which $95 million of charges were recorded to date. This ~~change~~initiative is anticipated to be complete in ~~segment structure will result in changes to the composition~~2022 and estimated remaining charges consist primarily of ~~multiple reporting units across the Company. Accordingly, we will be required to reallocate the goodwill affected by the change in reporting units using a relative fair value approach~~lease right-of-use and ~~assess goodwill for impairment both before,~~other long-lived asset impairments, lease exit costs, and after the reallocation. While we have not identified any triggering events as of June 30, 2020 within the current reporting units, we may recognize a goodwill impairment charge following the reallocation if the carrying value of a new reporting unit exceeds its estimated fair value. More specifically, potential changes in the reporting units within our European Pharmaceutical Solutions operating segment may result in a goodwill impairment charge. As of June 30, 2020, the total goodwill balance within our European Pharmaceutical Solutions operating segment was $65 million. This operating segment will be included within the International reportable segment commencing in the second quarter of 2021.

~~Restructuring Initiatives~~accelerated depreciation and amortization.

During the first quarter of 2021, we committed to an initiative within the United Kingdom, which ~~forms part of the European Pharmaceutical Solutions~~is included in our International segment, to further drive ~~transformational~~operational changes in technologies and business processes, ~~operational~~ efficiencies, and cost savings. The initiative includes reducing the number of retail pharmacy stores, decommissioning obsolete technologies and processes, reorganizing and consolidating certain business operations, and related headcount reductions.

~~In 2019, we committed to certain programs to continue our operating model and cost optimization efforts.~~ We continue to implement centralization of certain functions and outsourcing through an expanded arrangement with a third-party vendor to achieve operational efficiency. The programs also include reorganization and consolidation of business operations, related headcount reductions, the further closures of retail pharmacy stores in Europe, and closures of other facilities. We anticipate these additional programs will be substantially completed by the end of 2021.

Additionally, we committed to certain actions in connection with the previously announced relocation of our corporate headquarters from San Francisco, California to Irving, Texas, which became effective April 1, 2019. We anticipate that the relocation will be completed by January 2021.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~In connection with the above initiatives, we~~ expect to ~~record~~incur total charges of approximately~~$470~~ $85 millionto ~~$555~~$90 million for this initiative, of which ~~$342~~$63 million of charges were recorded to ~~date primarily representing employee severance, exit-related costs, asset impairment charges,~~date. The initiative is anticipated to be substantially complete in 2022 and ~~accelerated depreciation. Estimated~~estimated remaining charges consist primarily ~~consist~~ of accelerated amortization of long-lived assets, facility and other exit costs, and employee-related costs.

Refer to Financial Note 4,3, “Restructuring, Impairment, and Related Charges,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for ~~more~~further information on ~~various initiatives.~~our restructuring initiatives and long-lived asset impairments.

Other Income, Net

~~Other~~The increase in other income, net for the three months ended June 30, 2021 compared to the same prior year period was primarily due to higher net equity in earnings and a pension settlement gain in our International segment recognized during the first quarter of 2022.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Interest Expense

Interest expense decreased for the three months ended June 30, ~~2020~~2021 compared to the same prior year period primarily due to ~~net settlement gains~~the repayment of ~~$25 million from our derivative contracts, partially offset by a pension settlement charge~~$1.0 billion of ~~$17 million~~related to our previously approved termination of the frozen U.S. defined benefit pension plan, both recognized during the three months ended June 30, 2019. In connection with the pension plan termination, we purchased annuity contracts from an insurer that will pay and administer the future pension benefits of the remaining participants.

~~Equity Earnings and Charges from Investment in Change Healthcare Joint Venture~~

Until the separation of our investment in Change Healthcare JV on March 10, 2020, we accounted for this investment using the equity method of accounting. Our proportionate share of income from our investment in Change Healthcare JV was $4 million for the three months ended June 30, 2019, which primarily includes transaction and integration expenses incurred by the joint venture and basis differences between the joint venture and McKesson including amortization of fair value adjustments.

~~During the three months ended June 30, 2019, we owned approximately 70% of the joint venture. The March 10, 2020 split-off transaction eliminated our investment~~long-term debt in the ~~joint venture.~~

After the separation, Change Healthcare JV is required under the tax receivable agreement (“TRA”) to pay McKesson 85% of the net cash tax savings realized, or deemed to be realized, resulting from depreciation or amortization allocated to Change Healthcare, Inc. (“Change”) by McKesson. The receipt of any payments under the TRA is dependent upon Change benefiting from this depreciation or amortization in future tax return filings, which creates uncertainty over the amount, timing, and probability of the gain recognized. As such, we accounted for the TRA as a gain contingency, with no receivable recognized as of June 30, 2020.

~~During the fourth~~third quarter of 2020 in conjunction with the split-off transaction, we recorded a reversal of the deferred tax liability related to our investment. Under the agreement with Change Healthcare JV, McKesson, Change, and certain subsidiaries of the Change Healthcare JV, there may be changes in future periods to the amount reversed. Any such change is not expected to be material.

~~Interest Expense~~

~~Interest expense increased for the three months ended June 30, 2020 compared to the same prior year period primarily due to a decrease in interest income recognized on our cross-currency swaps.~~2021. Interest expense may also fluctuate based on timing, amounts, and interest rates of term debt repaid and new term debt issued, as well as amounts incurred associated with financing fees.

Income Tax Expense

During the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, we recorded income tax expense ~~related to continuing operations~~ of $26 million and $150 million, ~~and $136 million,~~ respectively. ~~Our~~We reported income tax ~~expense~~ rates ~~were~~of 4.6% and 23.3% ~~and 22.0%~~ for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Fluctuations in our reported income tax rates are primarily due to discrete items recognized in the quarter and changes ~~within~~in our business mix of ~~earnings~~income between various ~~tax~~taxing jurisdictions.

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

Refer to Financial Note 4, “Income Taxes,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the three months ended June 30, ~~2020~~2021 and ~~2019~~2020 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 ~~AG (“McKesson Europe”)~~ share that McKesson is obligated to pay to the noncontrolling shareholders of McKesson Europe under ~~a domination and profit and loss transfer agreement (the “Domination Agreement”).~~the Domination Agreement. Noncontrolling interests with redemption features, such as put rights, that are not solely within our control are considered redeemable noncontrolling interests. Redeemable noncontrolling interests are presented outside of McKesson Corporation stockholders’ ~~equity~~deficit on our ~~Condensed Consolidated Balance Sheets.~~condensed consolidated balance sheets. Refer to the “Selected Measures of Liquidity and Capital Resources” section of this Financial Review and Financial Note 6,5, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more ~~information.~~information on changes to our redeemable and noncontrolling interests that occurred during the first quarter of 2022.

Net Income Attributable to McKesson Corporation

Net income attributable to McKesson Corporation was ~~$444~~$486 million and ~~$423~~$444 million for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Diluted earnings per common share attributable to McKesson Corporation was ~~$2.72~~$3.07 and ~~$2.24~~$2.72 for the three months ended June 30, 2021 and 2020, ~~and 2019,~~ respectively. ~~Additionally, our diluted earnings per share for the three months ended June 30, 2020 and 2019 reflects the cumulative effects of share repurchases.~~

Weighted-Average Diluted Common Shares Outstanding

Diluted earnings per common share was calculated based on a weighted-average number of shares outstanding of ~~163~~158.1 million and ~~189~~163.2 million for the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Weighted-average diluted shares outstanding for the three months ended June 30, ~~2020~~2021 decreased from the same prior year period primarily due to the ~~separation from our investment in Change Healthcare JV on March 10, 2020.~~cumulative effect of shares repurchases.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Overview of Segment Results:

Segment Revenues:


		Three Months Ended June 30,										Three Months Ended June 30,
(Dollars in millions)	(Dollars in millions)	2020		2019		Change				(Dollars in millions)	2021			2020		Change
U.S. Pharmaceutical and Specialty Solutions		$	45,062	$	44,165	2	%
European Pharmaceutical Solutions		6,246		6,710		(7)
Segment revenues								Segment revenues
U.S. Pharmaceutical								U.S. Pharmaceutical	$	50,019		$	44,670		12	%
Prescription Technology Solutions								Prescription Technology Solutions	881			656			34
Medical-Surgical Solutions	Medical-Surgical Solutions	1,801		1,903		(5)		Medical-Surgical Solutions	2,528			1,801			40
Other		2,570		2,950		(13)
International								International	9,246			8,552			8
Total revenues	Total revenues	$	55,679	$	55,728	—	%	Total revenues	$	62,674		$	55,679		13	%

The changes in revenues for each of our segments for the three months ended June 30, 2021 compared to the same prior year period consisted of the following:


(Dollars in billions)	Increase (decrease)
Sales to pharmacies and institutional healthcare providers	$	4.6
Sales to specialty practices and other (1)	0.7
Total change in U.S. Pharmaceutical revenues	$	5.3

Total change in Prescription Technology Solutions revenues	$	0.2

Sales to primary care customers	$	0.6
Sales to extended care customers	—
Other (2)	0.1
Total change in Medical-Surgical Solutions revenues	$	0.7

Sales in Europe, excluding FX impact	$	(0.7)
Sales in Canada, excluding FX impact	0.5
Impact from FX	1.0
Total change in International revenues	$	0.8

Total change in revenues	$	7.0

FX - foreign currency exchange fluctuations. We calculate the impact from FX by converting current year period results of our operations in foreign countries, which are recorded in local currencies, into U.S. dollars by applying the average foreign currency exchange rates of the comparable prior year period.

(1)Includes the results for the distribution of COVID-19 vaccines.

(2)Includes the results for the kitting and distribution of ancillary supply kits needed to administer COVID-19 vaccines.

U.S. Pharmaceutical ~~and Specialty Solutions~~

Three Months Ended June 30, 2021 vs. 2020

U.S. Pharmaceutical ~~and Specialty Solutions~~ revenues for the three months ended June 30, ~~2020~~2021 increased 2%12% compared to the same prior year period primarily due to market growth, including ~~branded pharmaceutical price increases,~~ higher volumes from retail national account customers, branded pharmaceutical price increases, and growth in specialty pharmaceuticals, partially offset by ~~brand~~branded to generic drug conversions. ~~As a result of COVID-19, pharmaceutical distribution volumes increased at a lower rate in the U.S. compared to the same prior~~Revenues for this segment were also favorable year ~~period primarily~~over year due to the ~~reduced~~recovery of prescription volumes from the prior year impact of COVID-19, including increased customer demand for pharmaceuticals in retail pharmacies and institutional healthcare providers.

~~European Pharmaceutical Solutions~~

European Pharmaceutical Solutions revenues for the three months ended June 30, 2020 decreased 7% compared to the same prior year period. Excluding the unfavorable effects of foreign currency exchange fluctuations, revenues for this segment decreased 4% primarily due to lower volumes in our pharmaceutical distribution business during the first quarter of 2021 resulting from the adverse impacts from COVID-19.

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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Prescription Technology Solutions

Three Months Ended June 30, 2021 vs. 2020

RxTS revenues for the three months ended June 30, 2021 increased 34% compared to the same prior year period primarily due to increased volume with new and existing customers and the recovery of prescription volumes from the prior year impact of COVID-19.

Medical-Surgical Solutions

Three Months Ended June 30, 2021 vs. 2020

Medical-Surgical Solutions revenues for the three months ended June 30, ~~2020 decreased 5%~~2021 increased 40% compared to the same prior year period ~~primarily due to the impact of COVID-19, including lower demand due to customer closures~~largely in our primary care business ~~which we expect~~due to ~~be temporary, partially offset by increased~~improvements in patient care visits as a result of prior year customer closures due to COVID-19 and higher sales ~~for personal protective equipment and~~of COVID-19 tests ~~and related products.~~in the first quarter of 2022. Revenues for this segment were also ~~decreased as a result~~favorably impacted by the contribution from kitting and distribution of ~~a divestiture that closed during the fourth quarter of 2020.~~ancillary supplies for COVID-19 vaccines.

~~Other~~International

~~Revenues in Other~~Three Months Ended June 30, 2021 vs. 2020

International revenues for the three months ended June 30, ~~2020 decreased 13%~~2021 increased 8% compared to the same prior year ~~period primarily driven by our Canadian businesses, including loss of customers, decreased pharmaceutical distribution volumes due to COVID-19, and unfavorable~~period. Excluding the favorable effects of foreign currency exchange ~~fluctuations.~~fluctuations, revenues for this segment decreased 3% largely due to the contribution of our German pharmaceutical wholesale business to a joint venture with WBA. This was partially offset by favorability year over year due to the recovery of volumes from COVID-19 in our pharmaceutical distribution and retail pharmacy businesses across the segment as well as sales to a new customer in our Canadian business.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

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

Three Months Ended June 30,
(Dollars in millions) 2020 2019 Change
Segment operating profit (loss) ⁽¹⁾
U.S. Pharmaceutical and Specialty Solutions $ 608 $ 579 5 %
European Pharmaceutical Solutions (10) 5 (300)
Medical-Surgical Solutions 89 125 (29)
Other 98 141 (30)
Subtotal 785 850 (8)
Corporate expenses, net ⁽²⁾
(80) (175) (54)
Interest expense (60) (56) 7
Income from continuing operations before income taxes $ 645 $ 619 4 %
Segment operating profit (loss) margin
U.S. Pharmaceutical and Specialty Solutions 1.35 % 1.31 % 4 bp
European Pharmaceutical Solutions (0.16) 0.07 (23)
Medical-Surgical Solutions 4.94 6.57 (163)


	Three Months Ended June 30,
(Dollars in millions)	2021			2020			Change
Segment operating profit (1)
U.S. Pharmaceutical	$	682		$	613		11	%
Prescription Technology Solutions	104			68			53
Medical-Surgical Solutions (2)	75			89			(16)
International	53			3			—

Subtotal	914			773			18
Corporate expenses, net (3)	(303)			(68)			346
Interest expense	(49)			(60)			(18)
Income from continuing operations before income taxes	$	562		$	645		(13)

Segment operating profit margin
U.S. Pharmaceutical	1.36		%	1.37		%	(1)	bp
Prescription Technology Solutions	11.80			10.37			143
Medical-Surgical Solutions	2.97			4.94			(197)
International	0.57			0.04			53

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

bp - basis points

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

(2)~~Corporate expenses, net~~Operating profit for our Medical-Surgical Solutions segment for the three months ended June 30, ~~2020~~2021 includes inventory charges totaling $164 million on certain PPE and other related products primarily driven by the intent of management not to sell certain excess PPE inventory and instead direct it to charitable organizations.

(3)Corporate expenses, net includes charges of $74 million for the three months ended June 30, 2021 related to our estimated liability for opioid-related claims and a net gain of $131 million for the three months ended June 30, 2020 recorded in connection with insurance proceeds received from the settlement of the shareholder derivative action related to our controlled substances monitoring program. ~~Corporate expenses, net for the three months ended June 30, 2019 includes net settlement gains of $25 million from our derivative contracts and a pension settlement charge of $17 million.~~

~~U.S. Pharmaceutical and Specialty Solutions~~

Operating profit and operating profit margin increased for this segment for the three months ended June 30, 2020 compared to the same prior year period primarily resulting from higher LIFO credits and changes to our mix of business, partially offset by a reduction in pharmaceutical distribution volumes due to COVID-19, net of savings from restricted travel requirements.

~~European Pharmaceutical Solutions~~

Operating loss for the three months ended June 30, 2020 compared to operating profit for the same prior year period was primarily due to higher restructuring charges and adverse impacts from COVID-19, both in our pharmaceutical distribution and retail pharmacy businesses, which were driven by lower demand for pharmaceuticals and a reduction in retail pharmacy foot traffic. These decreases were partially offset by favorability due to two additional sales days this quarter compared to the same prior year period.

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FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

~~Medical-Surgical Solutions~~U.S. Pharmaceutical

Three Months Ended June 30, 2021 vs. 2020

Operating profit increased for this segment for the three months ended June 30, 2021 compared to the same prior year period primarily due to the contribution from our COVID-19 vaccine distribution program and ~~operating~~growth in specialty pharmaceuticals, partially offset by a decrease in LIFO credits of $29 million and increased costs for strategic growth initiatives. Operating profit ~~margin~~for this segment was also favorable year over year due to the recovery of prescription volumes from the prior year impact of COVID-19.

Prescription Technology Solutions

Three Months Ended June 30, 2021 vs. 2020

Operating profit for this segment increased for the three months ended June 30, 2021 compared to the same prior year period primarily due to increased volumes with new and existing customers and the recovery of prescription volumes from the prior year impact of COVID-19.

Medical-Surgical Solutions

Three Months Ended June 30, 2021 vs. 2020

Operating profit for this segment decreased for the three months ended June 30, ~~2020~~2021 compared to the same prior year period primarily due to ~~the impact of COVID-19, including customer closures~~inventory charges on certain PPE and other related products. This was partially offset by favorability in our primary care business ~~which we expect~~from improvements in patient care visits as a result of prior year customer closures due to ~~be temporary, partially offset by increased~~COVID-19, as well as the contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines and higher sales of ~~personal protective equipment and~~ COVID-19 tests ~~and related products.~~ in the first quarter of 2022.

International

Three Months Ended June 30, 2021 vs. 2020

Operating profit ~~margin~~for this segment increased for the three months ended June 30, ~~2020~~2021 compared to the same prior year period largely due to favorability year over year due to the volume recovery from COVID-19 in our pharmaceutical distribution and retail pharmacy businesses across the segment and to a lesser extent, the distribution of COVID-19 vaccines, COVID-19 tests, and PPE. This was ~~also negatively impacted~~partially offset by ~~supplier price increases on personal protective equipment and changes to our product mix.~~higher restructuring charges for optimization programs in Canada.

~~Other~~Corporate Expenses, Net

~~Operating profit for Other decreased~~Corporate expenses, net increased for the three months ended June 30, ~~2020~~2021 compared to the same prior year period primarily due to ~~adverse impacts from COVID-19 in our Canadian and MRxTS businesses.~~

~~Corporate~~

~~Corporate expenses, net, decreased for the three months ended June 30, 2020 compared to the same prior year period primarily due to the~~a net gain of $131 million ~~recorded~~recognized during the first quarter of 2021 in connection with insurance proceeds received from the settlement of the shareholder derivative action related to our controlled substances monitoring program. ~~Corporate expenses, net~~We also recorded charges of $74 million related to our estimated liability for opioid-related claims during the first quarter of 2022 and higher restructuring charges for the ~~three months ended June 30, 2019 also includes~~transition to a ~~pension settlement charge of~~ ~~$17 million and~~ ~~net settlement gains of~~ ~~$25 million~~ ~~from our derivative contracts.~~partial remote work model for certain employees.

New Accounting Pronouncements

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

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

We expect our available cash generated from operations and our short-term investment portfolio, together with our existing sources of liquidity from our credit facilities and commercial paper program, will be sufficient to fund our ~~long-term~~short-term and ~~short-term~~long-term capital expenditures, working capital, and other cash requirements. ~~As described withinthe~~ ~~“Trends and Uncertainties”~~ section above, the COVID-19 pandemic is developing rapidly. We continue to monitor its impact on demand within parts of our business, as well as trends potentially impacting the timing or ability for some of our customers to pay amounts owed to us. We remain well-capitalized with access to liquidity from our $4.0 billion revolving credit facility. ~~Additionally, long-term~~At June 30, 2021, we were in compliance with all debt ~~markets~~covenants, and commercial paper markets, our primary sources of capital after cash flow from operations, have remained open during the COVID-19 pandemic. We have seen some improvement in conditions in the debt markets and commercial paper markets as the Federal Reserve has taken steps to stabilize the markets. We believe we have the ability to continue to meet our debt covenants in the ~~covenants of our credit agreements.~~future.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

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

Three Months Ended June 30,
(Dollars in millions) 2020 2019 Change
Net cash provided by (used in):
Operating activities $ (1,062) $ (51) $ (1,011)
Investing activities (130) (129) (1)
Financing activities 61 (872) 933
Effect of exchange rate changes on cash, cash equivalents and restricted cash (28) 18 (46)
Net change in cash, cash equivalents and restricted cash $ (1,159) $ (1,034) $ (125)

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~


	Three Months Ended June 30,
(Dollars in millions)	2021		2020		Change
Net cash provided by (used in):
Operating activities	$	(1,622)	$	(1,062)	$	(560)
Investing activities	(99)		(130)		31
Financing activities	(2,151)		61		(2,212)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	11		(28)		39
Net change in cash, cash equivalents, and restricted cash	$	(3,861)	$	(1,159)	$	(2,702)

Operating Activities

Operating activities used cash of ~~$1.1~~$1.6 billion and ~~$51 million~~$1.1 billion during the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Cash flows from operations can be significantly impacted by factors such as timing of receipts from customers, inventory receipts, and payments to vendors. Additionally, working capital is primarily a function of ~~sale~~sales and purchase volumes, inventory requirements, and vendor payment terms. Operating activities for the three months ended June 30, 2021 were affected by an increase in receivables of $1.0 billion and an increase in inventory of $0.9 billion, both primarily due to timing and higher revenues. Operating activities for the three months ended June 30, 2020 were affected by ~~decreases~~a decrease in drafts and accounts payable of $4.2 billion primarily associated with timing and management of inventory levels as well as ~~decreases~~a decrease in receivables of $2.3 billion primarily due to lower revenues. ~~Operating activities~~Other non-cash items for the three months ended June 30, ~~2019 were affected by increases~~2021 includes non-cash inventory charges totaling $164 million on certain PPE and other related products in ~~receivables of $1.1 billion.~~our Medical-Surgical Solutions segment.

Investing Activities

Investing activities used cash of ~~$130~~$99 million and ~~$129~~$130 million during the three months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Investing activities for the three months ended June 30, 2021 and 2020 ~~and 2019~~ includes ~~$117~~$159 million and ~~$111~~$117 million, respectively, in capital expenditures for property, plant, and equipment, and capitalized software.

Financing Activities

Financing activities used cash of $2.2 billion during the three months ended June 30, 2021 and providedcash of $61 million during the three months ended June 30, ~~2020 and used cash of $872 million during~~2020. Financing activities for the three months ended June 30, ~~2019.~~2021 includes $1.0 billion of cash paid for share repurchases under an ASR program entered into in May 2021. Financing activities for the three months ended June 30, 2021 and 2020 includes$69 millionand $74 million of cash paid for dividends, respectively. Additionally, financing activities for the three months ended June 30, 2021 and 2020 includes payments of $1.0 billion and $49 million, respectively, 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. Financing activities for the three months ended June 30, 2020 includes cash receipts and payments of $5.3 billion for short-term borrowings, primarily commercial paper. ~~Financing~~Cash used for other financing activities ~~for the three months ended June 30, 2019~~generally includes cash receipts and payments of $2.6 billion for short-term borrowings, primarily commercial paper. Financing activities for the three months ended June 30, 2019 include $701 million of cash paid for stock repurchases, including shares surrendered for tax ~~withholding. Additionally,~~withholding and payments to noncontrolling interests. Other financing activities for the three months ended June 30, 2020 ~~and 2019 includes$74 millionand $75 million of cash paid for dividends, respectively. Other financing activities for the three months ended June 30, 2020~~also includes restricted cash inflow related to funds temporarily held on behalf of unaffiliated medical practice ~~groups, partially offset by payments to purchase shares of McKesson Europe through exercises of a put right option by noncontrolling shareholders and payments to noncontrolling interests.~~groups.

Share Repurchase Plans

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

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

In May ~~2019,~~2021, we entered into an ASR program with a third-party financial institution to repurchase ~~$600 million~~$1.0 billion of the Company’s common stock. ~~We repurchased a total~~Pursuant to the ASR agreement, we paid $1.0 billion to the financial institution and received an initial delivery of ~~4.7~~4.3 million shares ~~at an average price per share of $127.68~~in May 2021. The transaction will be completed during the ~~three months ended June 30, 2019.~~

~~During the three months ended June 30, 2019,~~second quarter of 2022, at which point we ~~repurchased 0.7 million of the Company’s shares for $84 million through open market transactions at an average price per share of $128.64.~~

expect to receive additional shares. There were no share repurchases during the three months ended June 30, 2020.

The total remaining authorization outstanding for repurchases of the Company’s common stock was ~~$1.5~~$1.8 billion at June 30, ~~2020.~~2021.

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. ~~As described within the~~ ~~“Trends and Uncertainties”~~ section above, the COVID-19 pandemic is developing rapidly. We continue to monitor its impact on demand within parts of our business, as well as trends potentially impacting the timing or ability for some of our customers to pay amounts owed to us.

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~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

Selected Measures of Liquidity and Capital Resources


(Dollars in millions)	(Dollars in millions)	June 30, 2020			March 31, 2020			(Dollars in millions)	June 30, 2021			March 31, 2021
Cash, cash equivalents and restricted cash		$	2,864		$	4,023
Cash, cash equivalents, and restricted cash								Cash, cash equivalents, and restricted cash	$	2,535		$	6,396
Working capital	Working capital	82			(402)			Working capital	(485)			1,279
Debt to capital ratio ⁽¹⁾	Debt to capital ratio ⁽¹⁾	50.9		%	52.1		%	Debt to capital ratio (1)	86.7		%	83.1		%
Return on McKesson stockholders’ equity ⁽²⁾		14.8		%	13.3		%
Return on McKesson stockholders’ deficit (2)								Return on McKesson stockholders’ deficit (2)	(218.2)		%	(142.5)		%

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

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

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 deposits with financial institutions. Deposits with financial institutions are primarily denominated in U.S. dollars and the functional currencies of our foreign subsidiaries, including Euro, British pound sterling, and Canadian dollars. We mitigate the risk of our short-term investment portfolio by depositing funds with reputable financial institutions and monitoring risk profiles and investment strategies of money market funds.

Our cash and cash equivalents balance as of June 30, ~~2020~~2021 and March 31, ~~2020~~2021 included approximately $~~1.0~~1.2 billion and ~~$1.7~~$2.3 billion of cash held by our subsidiaries outside of the U.S., respectively. Our primary intent is to utilize this cash for foreign operations for an indefinite period of time. Although the vast majority of cash held outside the U.S. is available for repatriation, doing so could subject us to foreign withholding taxes and state income taxes. Following enactment of the 2017 Tax Cuts and Jobs Act, the repatriation of cash to the U.S. is generally no longer taxable for federal income tax purposes.

Working capital primarily includes cash and cash equivalents, receivables, and inventories, net of drafts and accounts payable, short-term borrowings, current portion of long-term debt, and other ~~current~~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. ~~The COVID-19 pandemic has potential to increase the variations in our working capital, which we will continue to monitor closely.~~

Consolidated working capital ~~increased~~decreased at June 30, ~~2020~~2021 compared to March 31, ~~2020~~2021 primarily due to a decrease in cash and cash equivalents and an increase in other accrued liabilities, partially offset by an increase in receivables and inventory as well as a decrease in drafts and accounts ~~payable, partially offset by a decrease~~payable. The increase in ~~receivables~~other accrued liabilities is primarily due to the reclassification of $545 million from long-term to short-term for the amount we expect to pay for opioid-related claims within one year as of June 30, 2021. See “Trends and ~~cash~~Uncertainties” of this Financial Review and ~~cash equivalents.~~Financial Note 12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q for further information.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONCLUDED)

(UNAUDITED)

Our debt to capital ratio ~~decreased~~increased for the three months ended June 30, ~~2020~~2021 primarily due to an increase in McKesson stockholders’ ~~equity~~deficit driven by share repurchases under an ASR program entered into in May 2021, partially offset by net income for the ~~quarter~~quarter. Our unfavorable return on McKesson’s stockholders’ deficit as of June 30, 2021 and March 31, 2021 was primarily driven by net loss for the year ended March 31, 2021, which includes an ~~increase~~after-tax non-cash charge of $6.8 billion related to our estimated liability for opioid-related claims, as discussed in ~~our foreign currency denominated notes due~~“Trends and Uncertainties” of this Financial Review and Financial Note 12, “Commitments and Contingent Liabilities,” to ~~foreign currency remeasurement.~~the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

On July ~~29, 2020,~~23, 2021, we raised our quarterly dividend from ~~$0.41~~$0.42 to ~~$0.42~~$0.47 per common share for dividends declared on or after such date by the Board. We anticipate that we will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon our future earnings, financial condition, capital requirements, and other factors.

Redeemable Noncontrolling Interests

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONCLUDED)~~

~~(UNAUDITED)~~

Our redeemable noncontrolling interests primarily related to our consolidated subsidiary, McKesson Europe. At ~~June 30, 2020 and~~ March 31, ~~2020,~~2021, the carrying value was $1.3 billion and we owned approximately 78% of ~~redeemable noncontrolling interests related to~~ McKesson Europe of $1.4 billion, exceeded the maximum redemption value of $1.2 billion. The balance of redeemable noncontrolling interests is reported at the greater of its carrying value or its maximum redemption value at each reporting date. Upon the effectiveness ofEurope’s outstanding common shares. Under the Domination Agreement, ~~on December 2, 2014,~~ the noncontrolling shareholders of McKesson Europe ~~received~~had a ~~put~~ right ~~that enables them~~ to put (“Put Right”) their ~~McKesson Europe~~ shares ~~to McKesson~~ at €22.99 per share, ~~which price is~~ increased annually for interest in the amount of 5five percentage points above a base rate published ~~semiannually~~semi-annually by the German Bundesbank, less any compensation amount or guaranteed dividend already paid by McKesson (“Put Amount”). ~~The redemption value is the Put Amount adjusted for exchange rate fluctuations each period.~~ During the three months ended June 30, 2021 and 2020, we paid $1.0 billion and $49 million, ~~including interest of $3~~respectively, to purchase 34.5 million ~~to purchase~~and 1.8 million shares, respectively, of McKesson Europe through exercises of the ~~put right~~Put Right by the noncontrolling ~~shareholders.~~ shareholders, which reduced the balance of our redeemable noncontrolling interests.

The ~~ultimate amount and timing~~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. At June 30, 2021, we owned approximately 95% of ~~any future cash payments related to the Put Amount are uncertain.~~ McKesson Europe’s outstanding common shares.

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

Refer to Financial Note 6,5, “Redeemable Noncontrolling Interests and Noncontrolling Interests,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional ~~information.~~information on redeemable noncontrolling interests.

Credit Resources

We fund our working capital requirements primarily with cash and cash equivalents as well as short-term borrowings from our credit facilities and commercial paper issuances. Funds necessary for future debt maturities and our other cash requirements, including any future payments that may be made related to our estimated litigation liability of $8.1 billion for opioid-related claims, are expected to be met by existing cash balances, cash flow from operations, existing credit sources, and other capital market transactions. Long-term debt markets and commercial paper markets, our primary sources of capital after cash flow from operations, are open and accessible to us should we decide to access those markets. Detailed information regarding our debt and financing activities is included in Financial Note 9,8, “Debt and Financing Activities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

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McKESSON CORPORATION

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 Securities Exchange Act of 1934. Some of these statements can be identified by the use of terminology such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “projects,” “plans,” “estimates,” or the negative of these words and other comparable terminology. The discussion of financial trends, strategy, plans, assumptions, or intentions may also include forward-looking statements. Readers ~~are cautioned~~should not to place undue reliance on forward-looking statements, which speak only as of the date such statements were first made. WeExcept to the extent required by law, we undertake no obligation to ~~publicly release any updates~~update or ~~revisions to~~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, factors described in the Risk Factors discussion in Item 1A of Part I of our most ~~recent~~recently filed Annual Report on Form 10-K. ~~The reader should not consider that discussion to be a complete statement of all potential risks and uncertainties.~~

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 ~~2020~~2021 Annual Report.

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~~McKESSON CORPORATION~~

Item 4.Controls and Procedures.

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

There were no changes in our “internal control over financial reporting” (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 and 15d-15 that occurred during the three months ended June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.Legal Proceedings.

The information set forth in Financial Note ~~13,~~12, “Commitments and Contingent Liabilities,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, and in Financial Note 19, “Commitments and Contingent Liabilities,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, is incorporated herein by reference. Disclosure of an environmental proceeding with a governmental agency generally is included only if we expect monetary sanctions in the proceeding to exceed $1 million, unless otherwise material.

Item 1A.Risk Factors.

~~There~~Other than factual updates discussed in this Quarterly Report on Form 10-Q, there have been no material changes ~~during~~for the period covered by this Quarterly Report on Form 10-Q to the risk factors disclosed in Part I, Item 1A, of our ~~2020~~2021 Annual ~~Report.~~Report on Form 10-K.

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

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

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. Pursuant to the ASR agreement, we paid $1.0 billion to the financial institution and received an initial delivery of 4.3 million shares in May 2021. The transaction will be completed during the second quarter of 2022, at which point the Company expects to receive additional shares. There were no share repurchases during the three months ended June 30, ~~2020, there were no share repurchases made under previously authorized share repurchase programs.~~ 2020.

The total remaining authorization outstanding for repurchases of the Company’s common stock was ~~$1.5~~$1.8 billion at June 30, ~~2020.~~2021.

The following table provides information on the Company’s share repurchases during the three months ended June 30, 2021.


	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 Publicly Announced Program		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs
April 1, 2021 – April 30, 2021	—	$	—	—	$	2,785
May 1, 2021 – May 31, 2021	4.3		197.07	4.3		1,785
June 1, 2021 – June 30, 2021	—		—	—		1,785
Total	4.3			4.3

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

(2)The average price paid per share in the above table is an estimate based on the initial share purchase price under an ASR agreement and may differ from the total average price paid for share repurchases under the ASR program upon its final settlement during the second quarter of 2022.

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Item 3.Defaults Upon Senior Securities.

~~None~~None.

Item 4.Mine Safety Disclosures.

Not ~~Applicable~~applicable.

Item 5.Other Information.

Not ~~Applicable~~

applicable.

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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

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 June 30, ~~2020,~~2021, 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), (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).

†† 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:	August ~~3, 2020~~4, 2021	/s/ Britt J. Vitalone
		Britt J. Vitalone
		Executive Vice President and Chief Financial Officer


		MCKESSON CORPORATION

Date:	August ~~3, 2020~~4, 2021	/s/ Sundeep G. Reddy
		Sundeep G. Reddy
		Senior Vice President and Controller

4852


	Three Months Ended June 30, 2019
	Common Stock					Additional Paid-in Capital		Other Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)	Treasury						Noncontrolling Interests	Total Equity
	Shares	Amount																			Common Shares	Amount
Balances, March 31, 2019	271	$	3	$	6,435	$	(2)	$	12,409	$	(1,849)	(81)	$	(8,902)	$	193	$	8,287
Opening retained earnings adjustments: adoption of new accounting standards	—	—		—		—		11		—		—	—		—		11
Balances, April 1, 2019	271	3		6,435		(2)		12,420		(1,849)		(81)	(8,902)		193		8,298
Issuance of shares under employee plans	—	—		22		—		—		—		—	(17)		—		5
Share-based compensation	—	—		26		—		—		—		—	—		—		26
Payments to noncontrolling interests	—	—		—		—		—		—		—	—		(39)		(39)
Other comprehensive income	—	—		—		—		—		71		—	—		—		71
Net income	—	—		—		—		423		—		—	—		43		466
Repurchase of common stock	—	—		—		—		—		—		(5)	(684)		—		(684)

Cash dividends declared, $0.39 per common share	—	—		—		—		(73)		—		—	—		—		(73)
Other	—	—		—		1		—		—		—	—		(3)		(2)
Balances, June 30, 2019	271	$	3	$	6,483	$	(1)	$	12,770	$	(1,778)	(86)	$	(9,603)	$	194	$	8,068


	Three Months Ended June 30, 2019
(In millions)	U.S. Pharmaceutical and Specialty Solutions ⁽¹⁾		European Pharmaceutical Solutions⁽¹⁾		Medical-Surgical Solutions ⁽²⁾		Other⁽²⁾		Corporate⁽³⁾		Total
Severance and employee-related costs, net	$	(1)	$	(1)	$	—	$	—	$	6	$	4
Exit and other-related costs ⁽⁴⁾	—		1		2		1		10		14
Asset impairments and accelerated depreciation	—		3		1		—		1		5
Total	$	(1)	$	3	$	3	$	1	$	17	$	23