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 ~~September~~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. ~~160,564,425~~154,674,571 shares of the issuer’s common stock were outstanding as of ~~September~~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 three and six months ended September 30, 2020 and 2019	3

		Condensed Consolidated Statements of Comprehensive Income for the three and six months ended September 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 September 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 the three and six months ended September 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 six months ended September 30, 2020 and 2019	8		Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three months ended June 30, 2021 and 2020	6

		Financial Notes	9		Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2021 and 2020	7

		Note 1 - Significant Accounting Policies	9		Financial Notes	8

		Note 2 - Investment in Change Healthcare Joint Venture	11		Note 1 - Significant Accounting Policies	8

		Note 3 - Held for Sale	12		Note 2 - Held for Sale	9

		Note 4 - Restructuring, Impairment , and Related Charges	14		Note 3 - Restructuring, Impairment, and Related Charges	9

		Note 5 - Income Taxes	17		Note 4 - Income Taxes	11

		Note 6 - Redeemable Noncontrolling Interests and Noncontrolling Interests	18		Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests	11

		Note 7 - Earnings per Common Share	20		Note 6 - Earnings (Loss) per Common Share	13

		Note 8 - Goodwill and Intangible Assets, Net	21		Note 7 - Goodwill and Intangible Assets, Net	14

		Note 9 - Debt and Financing Activities	22		Note 8 - Debt and Financing Activities	16

		Note 10 - Pension Benefits	23		Note 9 - Pension Benefits	17

		Note 11 - Hedging Activities	24		Note 1 0 - Hedging Activities	17

		Note 12 - Fair Value Measurements	26		Note 1 1 - Fair Value Measurements	20

		Note 13 - Commitments and Contingent Liabilities	28		Note 1 2 - Commitments and Contingent Liabilities	22

		Note 14 - Stockholders’ Equity	32		Note 13 - Stockholders’ Equity (Deficit)	26

		Note 15 - Segments of Business	36		Note 1 4 - Segments of Business	29

2	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

3	3	Quantitative and Qualitative Disclosures About Market Risk	55	3	Quantitative and Qualitative Disclosures About Market Risk	48

4	4	Controls and Procedures	56	4	Controls and Procedures	48

		PART II—OTHER INFORMATION			PART II—OTHER INFORMATION

1	1	Legal Proceedings	56	1	Legal Proceedings	49

1A	1A	Risk Factors	56	1A	Risk Factors	49

2	2	Unregistered Sales of Equity Securities and Use of Proceeds	56	2	Unregistered Sales of Equity Securities and Use of Proceeds	49

3	3	Defaults Upon Senior Securities	57	3	Defaults Upon Senior Securities	50

4	4	Mine Safety Disclosures	57	4	Mine Safety Disclosures	50

5	5	Other Information	57	5	Other Information	50

6	6	Exhibits	58	6	Exhibits	51

		Signatures	59		Signatures	52

Table of Contents

McKESSON CORPORATION

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)


		Three Months Ended September 30,				Six Months Ended September 30,					Three Months Ended June 30,
		2020		2019		2020		2019				2021		2020
Revenues	Revenues	$	60,808	$	57,616	$	116,487	$	113,344	Revenues		$	62,674	$	55,679
Cost of sales	Cost of sales	(57,808)		(54,749)		(110,787)		(107,690)		Cost of sales		(59,642)		(52,979)
Gross profit	Gross profit	3,000		2,867		5,700		5,654		Gross profit		3,032		2,700
Operating expenses		(2,237)		(2,196)		(4,203)		(4,326)
Goodwill impairment charges		(69)		0		(69)		0
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	Restructuring, impairment, and related charges	(60)		(45)		(116)		(68)		Restructuring, impairment, and related charges		(158)		(56)

Total operating expenses	Total operating expenses	(2,366)		(2,241)		(4,388)		(4,394)		Total operating expenses		(2,464)		(2,022)
Operating income	Operating income	634		626		1,312		1,260		Operating income		568		678
Other income (expense), net		71		(78)		98		(41)
Equity earnings and charges from investment in Change Healthcare Joint Venture		0		(1,454)		0		(1,450)
Other income, net										Other income, net		43		27

Interest expense	Interest expense	(50)		(64)		(110)		(120)		Interest expense		(49)		(60)
Income (loss) from continuing operations before income taxes		655		(970)		1,300		(351)
Income tax benefit (expense)		(28)		294		(178)		158
Income (loss) from continuing operations		627		(676)		1,122		(193)
Income from continuing operations before income taxes										Income from continuing operations before income taxes		562		645
Income tax expense										Income tax expense		(26)		(150)
Income from continuing operations										Income from continuing operations		536		495
Loss from discontinued operations, net of tax	Loss from discontinued operations, net of tax	0		(1)		(1)		(7)		Loss from discontinued operations, net of tax		(3)		(1)
Net income (loss)		627		(677)		1,121		(200)
Net income										Net income		533		494
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	(50)		(53)		(100)		(107)		Net income attributable to noncontrolling interests		(47)		(50)
Net income (loss) attributable to McKesson Corporation		$	577	$	(730)	$	1,021	$	(307)
Net income attributable to McKesson Corporation										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	$	3.54	$	(3.99)	$	6.26	$	(1.62)	Continuing operations		$	3.09	$	2.72
Discontinued operations	Discontinued operations	0		0		0		(0.03)		Discontinued operations		(0.02)		0
Total	Total	$	3.54	$	(3.99)	$	6.26	$	(1.65)	Total		$	3.07	$	2.72
Basic	Basic									Basic
Continuing operations	Continuing operations	$	3.56	$	(3.99)	$	6.31	$	(1.62)	Continuing operations		$	3.13	$	2.74
Discontinued operations	Discontinued operations	0		0		(0.01)		(0.03)		Discontinued operations		(0.02)		0
Total	Total	$	3.56	$	(3.99)	$	6.30	$	(1.65)	Total		$	3.11	$	2.74

Weighted-average common shares outstanding	Weighted-average common shares outstanding									Weighted-average common shares outstanding
Diluted	Diluted	163		183		163		185		Diluted		158.1		163.2
Basic	Basic	162		183		162		185		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 September 30, Six Months Ended September 30,
2020 2019 2020 2019
Net income (loss) $ 627 $ (677) $ 1,121 $ (200)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments 41 (32) 74 12
Unrealized gains (losses) on cash flow hedges (19) 13 (24) 25
Changes in retirement-related benefit plans (9) 75 (8) 96
Other comprehensive income, net of tax 13 56 42 133
Comprehensive income (loss) 640 (621) 1,163 (67)
Comprehensive (income) loss attributable to noncontrolling interests 75 (35) (36) (95)
Comprehensive income (loss) attributable to McKesson Corporation $ 715 $ (656) $ 1,127 $ (162)


	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)


		September 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	$	3,091	$	4,015	Cash and cash equivalents	$	2,423	$	6,278
Receivables, net	Receivables, net	19,285		19,950		Receivables, net	20,198		19,181
Inventories, net	Inventories, net	18,435		16,734		Inventories, net	20,016		19,246
Assets held for sale	Assets held for sale	833		906		Assets held for sale	7		12
Prepaid expenses and other	Prepaid expenses and other	701		617		Prepaid expenses and other	706		665
Total current assets	Total current assets	42,345		42,222		Total current assets	43,350		45,382
Property, plant, and equipment, net	Property, plant, and equipment, net	2,471		2,365		Property, plant, and equipment, net	2,549		2,581
Operating lease right-of-use assets	Operating lease right-of-use assets	1,895		1,886		Operating lease right-of-use assets	2,071		2,100
Goodwill	Goodwill	9,414		9,360		Goodwill	9,520		9,493
Intangible assets, net	Intangible assets, net	3,030		3,156		Intangible assets, net	2,797		2,878

Other non-current assets	Other non-current assets	2,403		2,258		Other non-current assets	2,607		2,581
Total assets	Total assets	$	61,558	$	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	$	36,255	$	37,195	Drafts and accounts payable	$	38,389	$	38,975

Current portion of long-term debt	Current portion of long-term debt	1,760		1,052		Current portion of long-term debt	752		742
Current portion of operating lease liabilities	Current portion of operating lease liabilities	367		354		Current portion of operating lease liabilities	392		390
Liabilities held for sale	Liabilities held for sale	537		683		Liabilities held for sale	5		9
Other accrued liabilities	Other accrued liabilities	3,805		3,340		Other accrued liabilities	4,297		3,987
Total current liabilities	Total current liabilities	42,724		42,624		Total current liabilities	43,835		44,103
Long-term debt	Long-term debt	5,848		6,335		Long-term debt	6,424		6,406
Long-term deferred tax liabilities	Long-term deferred tax liabilities	2,293		2,255		Long-term deferred tax liabilities	1,441		1,411
Long-term operating lease liabilities	Long-term operating lease liabilities	1,669		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	1,669		1,662		Other non-current liabilities	1,748		1,715
Redeemable noncontrolling interests	Redeemable noncontrolling interests	1,265		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	0		0		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 and 273 and 272 shares issued at September 30, 2020 and March 31, 2020, respectively		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	6,780		6,663		Additional paid-in capital	7,057		6,925
Retained earnings	Retained earnings	13,890		13,022		Retained earnings	8,618		8,202
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,597)		(1,703)		Accumulated other comprehensive loss	(1,627)		(1,480)

Treasury shares, at cost, 112 and 110 shares at September 30, 2020 and March 31, 2020, respectively		(13,185)		(12,892)
Total McKesson Corporation stockholders’ equity		5,890		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	200		217		Noncontrolling interests	484		196
Total equity		6,090		5,309
Total liabilities, redeemable noncontrolling interests, and equity		$	61,558	$	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 September 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, June 30, 2020 272 $ 2 $ 6,711 $ 0 $ 13,384 $ (1,735) (110) $ (12,916) $ 207 $ 5,653
Issuance of shares under employee plans 1 — 18 — — — — 0 — 18
Share-based compensation — — 36 — — — — — — 36
Payments to noncontrolling interests — — — — — — — — (50) (50)
Other comprehensive income — — — — — 138 — — — 138
Net income — — — — 577 — — — 40 617
Repurchase of common stock — — — — — — (2) (269) — (269)
Cash dividends declared, $0.42 per common share — — — — (69) — — — — (69)
Other — — 15 — (2) — — — 3 16
Balances, September 30, 2020 273 $ 2 $ 6,780 $ 0 $ 13,890 $ (1,597) (112) $ (13,185) $ 200 $ 6,090


		Six Months Ended September 30, 2020																											Three Months Ended June 30, 2021
		Common Stock			Additional Paid-in Capital				Other Capital		Retained Earnings			Accumulated Other Comprehensive Loss		Treasury					Noncontrolling Interests				Total Equity				Common Stock						Additional Paid-in Capital				Retained Earnings		Accumulated Other Comprehensive Loss		Treasury				Noncontrolling Interests		Total Equity (Deficit)
		Shares	Amount										Common Shares			Amount				Shares								Amount			Common Shares			Amount				Noncontrolling Interests
Balances, March 31, 2020		272	$	2			$	6,663			$	0		$	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				0		13,009			(1,703)		(110)		(12,892)			217				5,296
Balances, March 31, 2021																												Balances, March 31, 2021	273			$	2			$	6,925				$	8,202	$	(1,480)	(115)		$	(13,670)	$	196	$	175
Issuance of shares under employee plans	Issuance of shares under employee plans	1	—		39				—		—			—		—		(24)			—				15			Issuance of shares under employee plans	1			—			71					—		—		—		(59)		—		12
Share-based compensation	Share-based compensation	—	—		59				—		—			—		—		—			—				59			Share-based compensation	—			—			33				—		—		—		—		—		33
Payments to noncontrolling interests	Payments to noncontrolling interests	—	—		—				—		—			—		—		—			(93)				(93)			Payments to noncontrolling interests	—			—			—				—		—		—		—		(39)		(39)
Other comprehensive income	Other comprehensive income	—	—		—				—		—			106		—		—			—				106			Other comprehensive income	—			—			—				—		23		—		—		—		23
Net income	Net income	—	—		—				—		1,021			—		—		—			79				1,100			Net income	—			—			—				486		—		—		—		39		525
Exercise of put right by noncontrolling shareholders of McKesson Europe		—	—		3				—		—			—		—		—			—				3
Repurchase of common stock	Repurchase of common stock	—	—		—				—		—			—		(2)		(269)			—				(269)			Repurchase of common stock	—			—			(150)				—		—		(4)		(850)		—		(1,000)
Cash dividends declared, $0.83 per common share		—	—		—				—		(136)			—		—		—			—				(136)
Exercise of put right by noncontrolling shareholders of McKesson Europe AG																												Exercise of put right by noncontrolling shareholders of McKesson Europe AG	—			—			178				—		(170)		—		—		—		8
Reclassification of McKesson Europe AG redeemable noncontrolling interests																												Reclassification of McKesson Europe AG redeemable noncontrolling interests	—			—			—				—		—		—		—		287		287
Cash dividends declared, $0.42 per common share																												Cash dividends declared, $0.42 per common share	—			—			—				(65)		—		—		—		—		(65)
Other	Other	—	—		16				—		(4)			—		—		—			(3)				9			Other	—			—			—				(5)		—		—		—		1		(4)
Balances, September 30, 2020		273	$	2	$	6,780			$	0	$	13,890		$	(1,597)	(112)		$	(13,185)		$	200			$	6,090

Balances, June 30, 2021																												Balances, June 30, 2021	274			$	2		$	7,057			$	8,618	$	(1,627)	(119)		$	(14,579)	$	484	$	(45)


	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 STOCKHOLDERS’ EQUITY~~

~~(In millions, except per share amounts)~~

~~(Unaudited)~~

Three Months Ended September 30, 2019
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, June 30, 2019 271 $ 3 $ 6,483 $ (1) $ 12,770 $ (1,778) (86) $ (9,603) $ 194 $ 8,068
Issuance of shares under employee plans 1 — 56 — — — — 0 — 56
Share-based compensation — — 34 — — — — — — 34
Payments to noncontrolling interests — — — — — — — — (37) (37)
Other comprehensive income — — — — — 74 — — — 74
Net income (loss) — — — — (730) — — — 42 (688)
Repurchase of common stock — — — — — — (6) (750) — (750)
Cash dividends declared, $0.41 per common share — — — — (75) — — — — (75)
Other — — 0 (1) — — — — 11 10
Balances, September 30, 2019 272 $ 3 $ 6,573 $ (2) $ 11,965 $ (1,704) (92) $ (10,353) $ 210 $ 6,692

Six Months Ended September 30, 2019
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, 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 1 — 78 — — — — (17) — 61
Share-based compensation — — 60 — — — — — — 60
Payments to noncontrolling interests — — — — — — — — (76) (76)
Other comprehensive income — — — — — 145 — — — 145
Net income (loss) — — — — (307) — — — 85 (222)
Repurchase of common stock — — — — — — (11) (1,434) — (1,434)
Cash dividends declared, $0.80 per common share — — — — (148) — — — — (148)
Other — — 0 0 — — — — 8 8
Balances, September 30, 2019 272 $ 3 $ 6,573 $ (2) $ 11,965 $ (1,704) (92) $ (10,353) $ 210 $ 6,692

~~See Financial Notes~~

Table of Contents

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


		Six Months Ended September 30,					Three Months Ended June 30,
		2020		2019			2021		2020
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income (loss)		$	1,121	$	(200)
Net income						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	154		160		Depreciation	80		75
Amortization	Amortization	285		303		Amortization	138		142
Goodwill and other asset impairment charges		104		12
Equity earnings and charges from investment in Change Healthcare Joint Venture		0		1,450
Long-lived asset impairment charges						Long-lived asset impairment charges	104		5

Deferred taxes	Deferred taxes	(35)		(380)		Deferred taxes	36		28
Credits associated with last-in, first-out inventory method	Credits associated with last-in, first-out inventory method	(104)		(48)		Credits associated with last-in, first-out inventory method	(23)		(52)
Non-cash operating lease expense	Non-cash operating lease expense	172		180		Non-cash operating lease expense	90		83
Loss (gain) from sales of businesses and investments		1		(1)
Loss from sales of businesses and investments						Loss from sales of businesses and investments	0		2
Other non-cash items	Other non-cash items	17		145		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	981		(866)		Receivables	(1,045)		2,291
Inventories	Inventories	(1,396)		331		Inventories	(901)		238
Drafts and accounts payable	Drafts and accounts payable	(1,305)		(1,203)		Drafts and accounts payable	(609)		(4,214)
Operating lease liabilities	Operating lease liabilities	(185)		(189)		Operating lease liabilities	(90)		(89)
Taxes	Taxes	(58)		70		Taxes	(54)		76
Litigation liabilities						Litigation liabilities	74		0
Other	Other	207		77		Other	(149)		(150)
Net cash used in operating activities	Net cash used in operating activities	(41)		(159)		Net cash used in operating activities	(1,622)		(1,062)

INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Payments for property, plant, and equipment	Payments for property, plant, and equipment	(174)		(126)		Payments for property, plant, and equipment	(93)		(72)
Capitalized software expenditures	Capitalized software expenditures	(91)		(58)		Capitalized software expenditures	(66)		(45)
Acquisitions, net of cash, cash equivalents, and restricted cash acquired	Acquisitions, net of cash, cash equivalents, and restricted cash acquired	(8)		(95)		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	9		3		Proceeds from sales of businesses and investments, net	83		7
Other	Other	(14)		(9)		Other	(22)		(16)
Net cash used in investing activities	Net cash used in investing activities	(278)		(285)		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		8,670		Proceeds from short-term borrowings	0		5,303
Repayments of short-term borrowings	Repayments of short-term borrowings	(5,303)		(8,122)		Repayments of short-term borrowings	0		(5,303)

Repayments of long-term debt	Repayments of long-term debt	(5)		(5)		Repayments of long-term debt	(2)		(2)
Common stock transactions:	Common stock transactions:					Common stock transactions:
Issuances	Issuances	39		78		Issuances	71		21
Share repurchases, including shares surrendered for tax withholding		(272)		(1,452)
Share repurchases						Share repurchases	(1,008)		0
Dividends paid	Dividends paid	(140)		(148)		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	(23)		(224)		Other	(112)		165
Net cash used in financing activities		(401)		(1,203)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	(2,151)		61
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(63)		22		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	(783)		(1,625)		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	4,023		2,981		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	3,240		1,356		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	(149)		0		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	$	3,091	$	1,356	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. ~~Commencing in the second quarter of 2021, the~~The Company reports its financial results in 4 reportable segments: U.S. Pharmaceutical, ~~International, Medical-Surgical Solutions, and~~ Prescription Technology Solutions (“RxTS”)~~. The Company’s equity method investment in Change Healthcare LLC (“Change Healthcare JV”)~~, which was split-off from McKesson in the fourth quarter of 2020, has been included in Other for retrospective periods presented. All prior segment information has been recast to reflect the Company’s new segment structureMedical-Surgical Solutions, and ~~current period presentation.~~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” in the Condensed Consolidated Statements of Operations. All significant intercompany balances and transactions have been eliminated in consolidation including the intercompany portion of transactions with equity method investees.

The Company considers itself to control an entity if it is the majority owner of or has voting control over such entity. The Company also assesses control through means other than voting rights and determines which business entity is the primary beneficiary of the variable interest entity (“VIE”). The Company consolidates VIEs when it is determined that it is the primary beneficiary of the VIE. Investments in business entities in which the Company does not have control but 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 and six months ended September 30, 2020.

~~The~~ results of operations for the three ~~and six~~ months ended ~~September~~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.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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

~~Recently Adopted Accounting Pronouncements~~

~~In the first quarter of 2021, 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 $219 million was included in Receivables, net on the Condensed Consolidated Balance Sheet as of September 30, 2020. Changes in the allowance were not material for the three and six months ended September 30, 2020.

108

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Recently ~~Issued~~Adopted Accounting Pronouncements ~~Not Yet Adopted~~

In ~~December 2019, ASU~~the first quarter of 2022, the Company adopted Accounting Standards Update (“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 JV on March 10, 2020, the Company accounted for its interest in the joint venture 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 June 27, 2019, common stock and certain other securities of Change Healthcare Inc. (“Change”) began trading on the NASDAQ (“IPO”). Change was a holding company and~~ did not ~~own any material assets or have any operations other than its interest in the Change Healthcare JV.~~

On July 1, 2019, upon the completion of its IPO, Change received net cash proceeds of approximately $888 million. Change contributed the proceeds of $609 million from its offering of common stock to the Change Healthcare JV in exchange for additional membership interests of the Change Healthcare JV (“LLC Units”) at the equivalent of its offering price of $13 per share. The proceeds of $279 million from the concurrent offering of other securities were used by Change to acquire certain securities of the Change Healthcare JV that substantially mirrored the terms of other securities included in the offering by Change. As a result, McKesson’s equity interest in the Change Healthcare JV was diluted from approximately 70% to approximately 58.5% while Change owned approximately 41.5% of the outstanding LLC Units. Accordingly, in the second quarter of 2020, the Company recognized a pre-tax dilution loss of $246 million primarily representing the difference between its proportionate share of the IPO proceeds and the dilution effect on the investment’s carrying value. These items were included in Equity earnings and charges from investment in Change Healthcare Joint Venture in the Company’s Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2019. The Company’s proportionate share of income or loss from this investment was subsequently reduced as immaterial settlements of stock option exercises occurred after the IPO.

In the second quarter of 2020, the Company recorded a pre-tax other-than-temporary impairment (“OTTI”) charge of $1.2 billion to its investment in the Change Healthcare JV, representing the difference between the carrying value of the Company’s investment and the fair value derived from the corresponding closing price of Change’s common stock at September 30, 2019. This charge was included in Equity earnings and charges from investment in Change Healthcare Joint Venture in the Company’s Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2019.

The Company recorded its proportionate share of loss from its investment in Change Healthcare JV of $51 million and $47 million, respectively, for the three and six months ended September 30, 2019. The Company’s proportionate share of income or loss 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. These amounts were included within Equity earnings and charges from investment in Change Healthcare Joint Venture in the Company’s Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2019.

~~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.~~

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~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 were not material during the three and six months ended September 30, 2020 and 2019.

Under the agreement executed in 2019 between the Change Healthcare JV, McKesson, Change, and certain subsidiaries of the Change Healthcare JV, McKesson had the ability to adjust the manner in which certain depreciation or amortization deductions are allocated among Change 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 September 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.

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 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 ~~$833~~$7 million and ~~$537~~$5 million, respectively, at ~~September~~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.~~

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~German Pharmaceutical 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 Walgreens Boots Alliance intending~~ to ~~contribute the majority~~sell certain of its ~~German pharmaceutical 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 International segment. The agreement was~~purchase price of €1.2 billion (or, approximately $1.5 billion), subject to ~~regulatory approvals, which~~certain adjustments, including net debt adjustments, and reduced by the value of the noncontrolling interest held by minority shareholders of McKesson Europe AG (“McKesson Europe”) at the divestiture date. The Company concluded that the held for sale criteria were ~~received~~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 ~~2021, and~~2022, the ~~contribution was completed on November 1, 2020,~~disposal group will be reflected in the Company’s condensed consolidated financial statements as noted below. 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 and six months ended September 30, 2020, the Company recorded a charge of $10 million to remeasure the held for ~~sale assets and liabilities~~sale. The disposal group will be remeasured to the lower of its carrying amount or fair value less 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 of the fair value hierarchy.~~

transaction. The total assets and liabilities of the German pharmaceutical 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) September 30, 2020 March 31, 2020
Assets
Current assets
Receivables, net and other current assets $ 519 $ 548
Inventories, net 463 478
Long-term assets 95 88
Remeasurement of assets of business held for sale to fair value less costs to sell (1)
(296) (272)
Total assets held for sale $ 781 $ 842

Liabilities
Current liabilities
Drafts and accounts payable $ 292 $ 450
Other accrued liabilities 38 40
Long-term liabilities 176 166
Total liabilities held for sale $ 506 $ 656

~~(1)Includes the effect of approximately $11 million unfavorable and $3 million favorable cumulative foreign currency translation adjustments as of September 30, 2020 and March 31, 2020, respectively.~~

~~On November 1, 2020, the Company completed the contribution of the disposal group~~transaction is anticipated to close during 2023, pursuant to the ~~joint venture. The Company accounted for this transaction~~satisfaction of customary closing conditions, including receipt of regulatory approvals, as a sale of the German pharmaceutical wholesale business and a subsequent purchase of a 30% interest in the newly formed joint venture in the third quarter of 2021. As a result of finalization of working capital amounts contributed and other adjustments, the Company may record additional gains or losses in future periods. These adjustments are not expected to have a material impact on the Company’s condensed consolidated financial statements.applicable.

~~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 ~~$60~~$158 million and ~~$116~~$56 million during the three ~~and six~~ months ended ~~September~~June 30, ~~2020, respectively,~~2021 and ~~$45 million and $68 million during the three and six months ended September 30, 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 ~~and six~~ months ended ~~September~~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 $90 million of charges were recorded to date. Charges recorded in the three and six months ended September 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 ~~$300~~$180 million to ~~$320~~$280 million for ~~these programs,~~this initiative, consisting primarily of ~~which $271~~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 ~~and six~~ months ended ~~September~~June 30, ~~2020 and 2019 were not material and primarily represented employee severance, accelerated depreciation expense, and project consulting fees. The Company anticipates these additional programs will~~2021. This initiative is anticipated to be ~~substantially~~ completed in 2022. ~~The estimated remaining charges~~Charges primarily ~~consist of facility~~relate to lease right-of-use 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 is included in the Company’s 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 ~~$100~~$85 million to ~~$120 million.~~$90 million, of which $63 million of charges were recorded to date. The Company recorded charges of ~~$27~~$6 million and ~~$41~~$14 million, respectively, in the three ~~and six~~ months ended ~~September~~June 30, 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 ~~and impairments~~ of long-lived assets, facility and other exit costs, and employee-related costs.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~Fiscal 2021~~

Restructuring, impairment, and related charges during the three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 consisted of the following:


		Three Months Ended September 30, 2020													Three Months Ended June 30, 2021
(In millions)	(In millions)	U.S. Pharmaceutical		International (1)		Medical-Surgical Solutions		Prescription Technology Solutions		Corporate (2)		Total		(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	Severance and employee-related costs, net	$	6	$	3	$	3	$	0	$	4	$	16	Severance and employee-related costs, net	$	2	$	0	$	0	$	12	$	0	$	14
Exit and other-related costs (3)	Exit and other-related costs (3)	4		5		(1)		0		7		15		Exit and other-related costs (3)	2		1		2		14		21		40
Asset impairments and accelerated depreciation	Asset impairments and accelerated depreciation	0		27		1		0��		1		29		Asset impairments and accelerated depreciation	8		17		4		34		41		104
Total	Total	$	10	$	35	$	3	$	0	$	12	$	60	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 ~~associated with~~related to the transition to the partial remote work model and U.K. operating model and cost optimization efforts described ~~above.~~

~~(2)Represents~~above, as well as costs ~~associated with the operating model cost~~for optimization ~~efforts and with the relocation of the Company’s corporate headquarters described above.~~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.~~fees, and other exit costs expensed as incurred.

Six Months Ended September 30, 2020
(In millions) U.S. Pharmaceutical
International (1)
Medical-Surgical Solutions Prescription Technology Solutions
Corporate (2)
Total
Severance and employee-related costs, net $ 7 $ 20 $ 3 $ 0 $ 24 $ 54
Exit and other-related costs (3)
5 7 2 0 14 28
Asset impairments and accelerated depreciation 0 31 1 0 2 34
Total $ 12 $ 58 $ 6 $ 0 $ 40 $ 116
Restructuring, impairment, and related charges during the three months ended June 30, 2020 consisted of the following:


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

(1)Primarily represents costs associated with the U.K. operating model and cost optimization efforts described ~~above.~~

~~(2)Represents costs associated with the~~above, and an operating model and cost optimization ~~efforts and with~~initiative which was substantially completed in the ~~relocation of the Company’s corporate headquarters described above.~~

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

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~Fiscal 2020~~

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

Three Months Ended September 30, 2019
(In millions)
U.S. Pharmaceutical (1)
International (2)
Medical-Surgical Solutions (3)
Prescription Technology Solutions
Corporate (4)
Total
Severance and employee-related costs, net $ 3 $ 5 $ 1 $ 0 $ 10 $ 19
Exit and other-related costs (5)
0 4 2 0 13 19
Asset impairments and accelerated depreciation 0 3 0 0 4 7
Total $ 3 $ 12 $ 3 $ 0 $ 27 $ 45

~~(1)Primarily represents costs associated with the relocation of the Company’s corporate headquarters described above.~~March 31, 2021.

(2)Primarily represents costs associated with ~~the~~an operating model and cost optimization ~~efforts described above.~~

~~(3)Primarily represents costs associated with a growth~~ initiative which ~~included a reduction in workforce, facility consolidation, and store closures. These initiatives were~~was substantially completed in the year ended March 31, ~~2020.~~

~~(4)Represents costs associated with the operating model cost optimization efforts and with the relocation of the Company’s corporate headquarters described above.~~

~~(5)Exit and other-related costs primarily include project consulting fees.~~

Six Months Ended September 30, 2019
(In millions)
U.S. Pharmaceutical (1)
International (2)
Medical-Surgical Solutions (3)
Prescription Technology Solutions
Corporate (4)
Total
Severance and employee-related costs, net $ 2 $ 4 $ 1 $ 0 $ 16 $ 23
Exit and other-related costs (5)
0 6 4 0 23 33
Asset impairments and accelerated depreciation 0 6 1 0 5 12
Total $ 2 $ 16 $ 6 $ 0 $ 44 $ 68

~~(1)Primarily represents costs associated with the relocation of the Company’s corporate headquarters described above.~~

~~(2)Primarily represents costs associated with the operating model and cost optimization efforts described above.~~2021.

(3)Primarily 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.

~~(4)Represents costs associated with the operating model cost optimization efforts and with the relocation of the Company’s corporate headquarters described above.~~

~~(5)~~Exit and other-related costs primarily include project consulting fees.

1610

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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


(In millions)	(In millions)	U.S. Pharmaceutical		International		Medical-Surgical Solutions		Prescription Technology Solutions		Corporate		Total		(In millions)	U.S. Pharmaceutical		Prescription Technology Solutions		Medical-Surgical Solutions		International		Corporate		Total
Balance, March 31, 2020 (1)		$	29	$	66	$	22	$	1	$	39	$	157
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		58		6		0		40		116		Restructuring, impairment, and related charges	12		18		6		60		62		158
Non-cash charges	Non-cash charges	0		(31)		(1)		0		(2)		(34)		Non-cash charges	(8)		(17)		(4)		(34)		(41)		(104)
Cash payments	Cash payments	(15)		(16)		(11)		(1)		(34)		(77)		Cash payments	(5)		(1)		(2)		(5)		(8)		(21)
Other	Other	0		(1)		(1)		0		(5)		(7)		Other	0		0		(1)		(3)		(3)		(7)
Balance, September 30, 2020 (2)		$	26	$	76	$	15	$	0	$	38	$	155
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 ~~September~~June 30, ~~2020,~~2021, the total reserve balance was ~~$155~~$177 million, of which ~~$128~~$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 ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, the Company recorded income tax expense of ~~$28~~$26 million and ~~an income tax benefit of $294~~$150 million, respectively, related to continuing operations. During the six months ended September 30, 2020 and 2019, the Company recorded income tax expense of $178 million and an income tax benefit of $158 million, respectively, related to continuing operations.respectively. The Company’s reported income tax rates were ~~expense of 4.3%~~4.6% and ~~benefit of 30.3%~~23.3% for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively and expense of 13.7% and benefit of 45.0% for the six months ended September 30,~~ 2020, ~~and 2019,~~ respectively. Fluctuations in the Company’s reported income tax rates are primarily due to discrete items recognized in the quarter and changes ~~within~~in the mix of earnings between various taxing ~~jurisdictions and discrete items recognized in the quarters, primarily due to the impact~~jurisdictions.

As of ~~an intercompany sale of intellectual property during the three months ended September~~June 30, ~~2020.~~

~~During the second quarter of~~ 2021, the Company sold intellectual property between wholly-owned legal entities within McKesson that are based in different tax jurisdictions. The transferor entity recognized a gain on the sale of assets which was not subject to income tax in its local jurisdiction; such gain was eliminated upon consolidation. The acquiring entity of the intellectual property is entitled to amortize the purchase price of the assets for tax purposes. In accordance with ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” a discrete tax benefit of $105 million, which reduced the Company’s reported income tax rates by 16.0 percentage points and 8.1 percentage points for the three and six months ended September 30, 2020, respectively, was recognized with a corresponding increase to a deferred tax asset for the temporary difference arising from the buyer’s excess tax basis.

~~As of September 30, 2020, the Company~~ had $1$1.7 billion of unrecognized tax benefits, of which ~~$882 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, ~~it is reasonably possible that~~ the ~~Company’s~~Company does not estimate any material reduction in its unrecognized tax ~~benefits may decrease by as much as $105 million due to settlements of tax examinations and statute of limitations expirations in the U.S. federal and state jurisdictions and in foreign jurisdictions.~~benefits. However, this ~~amount~~ may change as the Company continues to have ongoing negotiations with various taxing authorities throughout the year. 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.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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 ~~$10~~$8 million and ~~$21 million during the three and six months ended September 30, 2020, respectively, and~~ $11 million, ~~and $22 million during the three and six months ended September 30, 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.

Table of Contents

McKESSON CORPORATION

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 of redeemable noncontrolling interests.~~guaranteed dividend. During the ~~six~~pendency of 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 ~~September~~June 30, 2021 and 2020, the Company paid $1.0 billion and $49 million, respectively, to purchase 34.5 million 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 2021. During~~capital. The Put Right expired on June 15, 2021, at which point the ~~three months ended September 30, 2020 and~~remaining shares owned by the three and six months ended September 30, 2019, there were no material exercises of the Put Right. The balance of the associated liability for Redeemable noncontrolling interests is reported as the greater of itsminority shareholders, with a carrying value ~~or its maximum redemption value at each reporting date.~~ of $287 million, were transferred from “Redeemable noncontrolling interests” to “Noncontrolling interests” on the Condensed Consolidated Balance Sheet.

The ~~redemption value is the Put Amount adjusted for exchange rate fluctuations each period. The Redeemable~~redeemable noncontrolling interest ~~is also~~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 balance of the redeemable noncontrolling interests was reported as the greater of its carrying value or its maximum redemption value at each reporting date. At ~~September 30, 2020 and~~ March 31, ~~2020,~~2021, the carrying value of ~~redeemable noncontrolling interests of~~ $1.3 billion ~~and $1.4 billion, respectively,~~ exceeded the maximum redemption value of $1.2 ~~billion. At September 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, and~~LLC. As of June 30, 2021, noncontrolling interests also represent minority shareholder equity interests in McKesson Europe, ~~which were $200 million~~as discussed above. During the three months ended June 30, 2021 and ~~$217 million at September 30,~~ 2020, ~~and March 31, 2020, respectively, in~~ the ~~Company’s Condensed Consolidated Balance Sheets. The~~ Company allocated a total of ~~$40 million and $79~~$39 million of net income to noncontrolling interests.

Changes in redeemable noncontrolling interests ~~during~~and noncontrolling interests for the three ~~and six~~ months ended ~~September~~June 30, ~~2020, respectively, and $42 million and $85 million during the three and six months ended September 30, 2019, respectively.~~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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Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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


(In millions)	(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests		(In millions)	Noncontrolling Interests		Redeemable Noncontrolling Interests
Balance, June 30, 2020		$	207	$	1,414
Balance, March 31, 2020						Balance, March 31, 2020	$	217	$	1,402
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	40		10		Net income attributable to noncontrolling interests	39		11
Other comprehensive loss		0		(151)
Other comprehensive income						Other comprehensive income	0		61
Reclassification of recurring compensation to other accrued liabilities	Reclassification of recurring compensation to other accrued liabilities	—		(10)		Reclassification of recurring compensation to other accrued liabilities	—		(11)
Payments to noncontrolling interests	Payments to noncontrolling interests	(50)		0		Payments to noncontrolling interests	(43)		0

Exercises of Put Right						Exercises of Put Right	—		(49)
Other	Other	3		2		Other	(6)		0
Balance, September 30, 2020		$	200	$	1,265
Balance, June 30, 2020						Balance, June 30, 2020	$	207	$	1,414

(In millions) Noncontrolling Interests Redeemable Noncontrolling Interests
Balance, March 31, 2020 $ 217 $ 1,402
Net income attributable to noncontrolling interests 79 21
Other comprehensive loss 0 (90)
Reclassification of recurring compensation to other accrued liabilities — (21)
Payments to noncontrolling interests (93) 0
Exercises of Put Right — (49)
Other (3) 2
Balance, September 30, 2020 $ 200 $ 1,265

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

(In millions) Noncontrolling Interests Redeemable Noncontrolling Interests
Balance, June 30, 2019 $ 194 $ 1,399
Net income attributable to noncontrolling interests 42 11
Other comprehensive loss 0 (18)
Reclassification of recurring compensation to other accrued liabilities — (11)
Payments to noncontrolling interests (37) 0
Other 11 3
Balance, September 30, 2019 $ 210 $ 1,384

(In millions) Noncontrolling Interests Redeemable Noncontrolling Interests
Balance, March 31, 2019 $ 193 $ 1,393
Net income attributable to noncontrolling interests 85 22
Other comprehensive loss 0 (12)
Reclassification of recurring compensation to other accrued liabilities — (22)
Payments to noncontrolling interests (76) 0
Other 8 3
Balance, September 30, 2019 $ 210 $ 1,384

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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. The computation of diluted earnings (loss) per common share is similar to that of basic earnings (loss) per common share, except that the former reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Diluted loss per common share for the three and six months ended September 30, 2019 was calculated by excluding potentially dilutive securities from the denominator of the share computation due to their anti-dilutive effects.

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

Three Months Ended September 30, Six Months Ended September 30,
(In millions, except per share amounts) 2020 2019 2020 2019
Income (loss) from continuing operations $ 627 $ (676) $ 1,122 $ (193)
Net income attributable to noncontrolling interests (50) (53) (100) (107)
Income (loss) from continuing operations attributable to McKesson 577 (729) 1,022 (300)
Loss from discontinued operations, net of tax 0 (1) (1) (7)
Net income (loss) attributable to McKesson $ 577 $ (730) $ 1,021 $ (307)
Weighted-average common shares outstanding:
Basic 162 183 162 185
Effect of dilutive securities:
Restricted stock units 1 0 1 0
Diluted 163 183 163 185
Earnings (loss) per common share attributable to McKesson: (1)
Diluted
Continuing operations $ 3.54 $ (3.99) $ 6.26 $ (1.62)
Discontinued operations 0 0 0 (0.03)
Total $ 3.54 $ (3.99) $ 6.26 $ (1.65)
Basic
Continuing operations $ 3.56 $ (3.99) $ 6.31 $ (1.62)
Discontinued operations 0 0 (0.01) (0.03)
Total $ 3.56 $ (3.99) $ 6.30 $ (1.65)

~~(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 21 million and 3 million of potentially dilutive securities for the three months ~~and six months~~ ended ~~September~~June 30, 2021 and 2020 were excluded from the ~~computations~~computation of diluted net earnings per common share as they were anti-dilutive.

2013

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(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

In the second quarter of 2021, the Company implemented a new segment reporting structure which resulted in 4 reportable segments: U.S. Pharmaceutical, International, Medical-Surgical Solutions, and RxTS. These reportable segments encompass all operating segments of the Company. This segment change prompted changes in multiple reporting units across the Company. As a result, goodwill included in impacted reporting units was reallocated using a relative fair value approach and assessed for impairment both before and after the reallocation.

The Company recorded a goodwill impairment charge of $69 million (pre-tax and after-tax) in the three and six months ended September 30, 2020 as the estimated fair value of the Europe Retail Pharmacy reporting unit was lower than its reassigned carrying value based on changes in the composition of the Europe Retail Pharmacy reporting unit within the International segment. This impairment charge is included under the caption, “Goodwill impairment charges” in the Condensed Consolidated Statements of Operations. At September 30, 2020, the reporting units in Europe had 0 remaining balance of goodwill and the remaining balance of goodwill in the International segment relates to one of its reporting units in Canada.

~~Refer to Financial Note 12, “Fair Value Measurements,” for more information.~~

Changes in the carrying amount of goodwill were as follows:

(In millions) U.S. Pharmaceutical International Medical-Surgical Solutions Prescription Technology Solutions Total
Balance, March 31, 2020 $ 3,924 $ 1,443 $ 2,453 $ 1,540 $ 9,360
Goodwill acquired 0 1 0 0 1
Acquisition accounting, transfers and other adjustments 0 0 0 2 2
Impairment charges
0 (69) 0 0 (69)
Foreign currency translation adjustments, net 39 81 0 0 120
Balance, September 30, 2020 $ 3,963 $ 1,456 $ 2,453 $ 1,542 $ 9,414


(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

Table of Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Information regarding intangible assets is as follows:


		September 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	12	$	3,736	$	(2,127)	$	1,609	$	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	997		(506)		491		994		(480)		514		Service agreements	10	1,088		(530)		558		1,081		(513)		568
Pharmacy licenses	Pharmacy licenses	26	502		(222)		280		492		(232)		260		Pharmacy licenses	23	503		(252)		251		497		(244)		253
Trademarks and trade names	Trademarks and trade names	12	894		(314)		580		808		(242)		566		Trademarks and trade names	12	934		(412)		522		925		(394)		531
Technology	Technology	5	147		(113)		34		175		(111)		64		Technology	4	150		(127)		23		150		(122)		28
Other	Other	5	253		(217)		36		273		(221)		52		Other	6	255		(230)		25		254		(226)		28
Total	Total		$	6,529	$	(3,499)	$	3,030	$	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 $98 million and $106 million ~~and $212 million during~~for the three ~~and six~~ months ended ~~September~~June 30, ~~2020, respectively,~~2021 and ~~$118 million and $230 million during the three and six months ended September 30, 2019,~~2020, respectively. Estimated amortization expense of these assets is as follows: ~~$196~~$279 million, ~~$367~~$273 million, ~~$265~~$261 million, ~~$248~~$255 million, and ~~$245~~$223 million for the remainder of ~~2021~~2022 and each of the succeeding years through ~~2025~~2026 and ~~$1.7~~$1.5 billion thereafter. All intangible assets were subject to amortization as of ~~September~~June 30, ~~2020~~2021 and March 31, ~~2020.~~2021.

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

9.8. Debt and Financing Activities

Long-term debt consisted of the following:


(In millions)	(In millions)	September 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	703		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	700		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	586		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	597		557		3.13% Sterling Notes due February 17, 2029	635		627

Lease and other obligations	Lease and other obligations	239		174		Lease and other obligations	270		270
Total debt	Total debt	7,608		7,387		Total debt	7,176		7,148
Less: Current portion	Less: Current portion	1,760		1,052		Less: Current portion	752		742
Total long-term debt	Total long-term debt	$	5,848	$	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. Debt outstanding totaled ~~$7.6~~$7.2 billion and ~~$7.4~~$7.1 billion at ~~September~~June 30, ~~2020~~2021 and March 31, ~~2020,~~2021, respectively, of which ~~$1.8 billion~~$752 million and ~~$1.1 billion,~~$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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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

Revolving Credit Facilities

~~In the second quarter~~The Company has a Credit Agreement, dated as of ~~2020, the Company entered into~~September 25, 2019 (the “2020 Credit Facility”), that provides a syndicated $4$4.0 billion five-year senior unsecured credit facility ~~(the “2020 Credit Facility”), which has~~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 and six months ended September 30, 2020 and 0 amounts outstanding as of September 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 ~~September~~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 $9$8 million and an uncommitted amount of ~~$176~~$118 million as of ~~September~~June 30, ~~2020.~~2021. Borrowings and repayments were not material during the three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, and amounts outstanding under these credit lines were not material as of ~~September~~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 ~~six~~three months ended ~~September~~June 30, 2020, ~~and 2019,~~ the Company borrowed $5.3 billion and ~~$8.7 billion, respectively, and~~ repaid $5.3 billion ~~and $8.1 billion, respectively,~~ under the program. At ~~September~~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 ~~$14~~$7 million for the three ~~and six~~ months ended ~~September~~June 30, ~~2020, respectively,~~2021 and ~~$111 million and $135 million for the three and six months ended September 30, 2019,~~2020, respectively.

Cash contributions to these plans were $4$14 million and ~~$11~~$7 million for the three ~~and six~~ months ended ~~September~~June 30, ~~2020, respectively,~~2021 and ~~$7 million and $13 million for the three and six months ended September 30, 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 pre-tax settlement charge of $17 million was recorded during the first quarter of 2020. During the second quarter of 2020, the Company transferred the remainder of the Plan’s pension obligation to a third-party insurance provider by purchasing annuity contracts for approximately $280 million which was fully funded directly by Plan assets. The third-party insurance provider assumed the obligation to pay future benefits and provide administrative services on November 1, 2019. As a result, the remaining previously recorded unrecognized losses in accumulated other comprehensive loss for the Plan were recognized as expense and a pre-tax settlement charge of approximately $105 million was recorded in Other income (expense), net in the Company’s Condensed Consolidated Statements of Operations during the second quarter of 2020.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~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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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(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 ~~September~~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 were ~~losses of $83~~$22 million and ~~$117~~$34 million during the three ~~and six~~ months ended ~~September~~June 30, ~~2020, respectively,~~2021 and ~~gains of $91 million and $67 million during the three and six months ended September 30, 2019,~~2020, respectively. There was no ineffectiveness in non-derivative net investment hedges during the three ~~and six~~ months ended ~~September~~June 30, ~~2020. Ineffectiveness on the Company’s non-derivative net investment hedges during the three~~2021 and six months ended September 30, 2019 resulted in gains of $20 million and $30 million, respectively, which were recorded in earnings in Other income (expense), net in the Condensed Consolidated Statements of Operations.2020.

Derivatives Designated as Hedges

At ~~September~~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 ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

~~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 six months ended September 30, 2019. This gain was recorded in earnings in Other income (expense), net, 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 were losses of ~~$12~~$5 million and ~~$63~~$51 million during the three ~~and six~~ months ended ~~September~~June 30, ~~2020, respectively,~~2021 and ~~gains of $20 million and $9 million during the three and six months ended September 30, 2019,~~2020, respectively. There was no ineffectiveness in the Company’s cross-currency swap hedges for the three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 and ~~2019. These cross-currency swaps will mature between November 2020 and November 2024.~~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. Gains from these fair value hedges recorded in earnings ~~for the three and six months September 30, 2020 and 2019~~ were largely offset by the 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 ~~September~~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.

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 ~~losses~~0 and a loss of ~~$23 million and $28~~$5 million during the three ~~and six~~ months ended ~~September~~June 30, ~~2020, respectively,~~2021 and ~~were gains of $17 million and $35 million during the three and six months ended September 30, 2019,~~2020, respectively. Gains or losses reclassified from Accumulated other comprehensive income and recorded in ~~Operating expenses~~“Selling, distribution, general, and administrative expenses” in the Condensed Consolidated Statements of Operations were not material in the three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. There was no ineffectiveness in the Company’s cash flow hedges for the three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~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.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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 ~~September~~June 30, ~~2020~~2021 and March 31, ~~2020,~~2021, the total gross notional amounts of these contracts were ~~$44~~$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 ~~and six~~ months ended ~~September~~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.

~~During the three and six months ended September 30, 2019, the Company also entered into a number~~

Table of forward contracts to offset a portion of the earnings impacts from the ineffectiveness of the net investment hedges discussed above. These contracts matured in September 2019 and none of these contracts were designated for hedge accounting. Changes in the fair values for contracts not designated as hedges are recorded directly in earnings. During the three and six months ended September 30, 2019, losses of $20 million and $39 million, respectively, were recorded in earnings within Other income (expense), net in the Condensed Consolidated Statements of Operations.Contents

McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

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


		Balance Sheet Caption	September 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				Fair Value of Derivative				U.S. Dollar Notional		Fair Value of Derivative				U.S. Dollar Notional
(In millions)	(In millions)		Asset		Liability				Asset		Liability				(In millions)		Asset		Liability				Asset		Liability
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	$	20	$	12	$	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	81		42		3,313		182		0		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	0		11		1,203		0		0		0		Forward starting interest rate swaps (current)	Other accrued liabilities	0		5		711		0		7		704

Total	Total		$	101	$	65			$	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	$	0	$	32	$	2	$	0	$	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	0		0		13		0		0		5		Foreign exchange contracts (current)	Other accrued liabilities	0		0		12		0		1		10
Total	Total		$	1	$	0			$	2	$	0			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 September~~The Company measures certain assets and liabilities at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures. The fair value hierarchy consists of three levels of inputs that may be used to measure fair value as follows:

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

Level 2 - significant other observable market-based inputs.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Cash and cash equivalents at June 30, ~~2020~~2021 and March 31, ~~2020,~~2021 included investments in money market funds of $521 million and $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. 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, including quoted interest rates, foreign currency exchange rates, and other observable inputs from available market information. These inputs are considered Level 2 under the fair value measurements and disclosure guidance, and may not be representative of actual values that could have been realized or that will be realized in the future. Refer to Financial Note 10, “Hedging Activities,” for fair value and other information on the Company’s 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

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, 2021, assets measured at fair value on a nonrecurring basis included long-lived assets associated with the Company’s 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 Company’s Europe Retail Pharmacy reporting unit within the International segment.

There were 0 liabilities measured at fair value on a nonrecurring basis at June 30, 2021 and March 31, 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.~~inputs under the fair value measurements and disclosure guidance.

The Company’s long-term debt is ~~carried~~recorded at amortized cost. The carrying ~~amounts~~value and ~~estimated~~ fair ~~values~~value of ~~these liabilities were $7.6 billion and $8.4 billion at September 30, 2020, respectively, and $7.4 billion and $7.8 billion at March 31, 2020, respectively.~~ 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.

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~~McKESSON CORPORATION~~

~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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

Cash and cash equivalents at September 30, 2020 and March 31, 2020 included investments in money market funds of $129 million and $2.0 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.

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

The Company holds investments in equity securities of U.S. growth stage companies that address both current and emerging business challenges in the healthcare industry. These investments, with a carrying value of $235 million and $170 million, respectively, at September 30, 2020 and March 31, 2020, and primarily consisting of investments without readily determinable fair values, are included within Other non-current assets in the Condensed Consolidated Balance Sheets. In the second quarter of 2021, 3 of the companies in which McKesson holds investments in equity securities were converted into shares of public common stock through initial public offerings and an acquisition. Net gains related to the Company’s investments in equity securities, primarily representing unrealized gains on the publicly traded securities discussed above, were $49 million and $59 million for the three and six months ended September 30, 2020, respectively. These gains were recorded under the caption, “Other income (expense), net,” in the Condensed Consolidated Income Statements. There were no other material changes in the carrying value of these investments during the three or six months ended September 30, 2020. The carrying value of publicly traded investments was determined using quoted prices for identical investments in active markets and are considered to be Level 1 inputs.

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

Assets measured at fair value on a nonrecurring basis as of September 30, 2020 included long-lived assets in the U.K. as discussed in more detail in Financial Note 4, “Restructuring, Impairment, and Related Charges,” and goodwill of the Company’s Europe Retail Pharmacy reporting unit within the International segment. Refer to Financial Note 8, “Goodwill and Intangible Assets, Net,” for more information. At March 31, 2020, assets measured at fair value on a nonrecurring basis included long-lived assets of the Company’s European and Rexall Health businesses within the International segment.

The aforementioned investments in equity securities includes the carrying value of investments without readily determinable fair values, which were determined using a measurement alternative and are recorded at cost less impairment, plus or minus any changes in observable price from orderly transactions of the same or similar security of the same issuer. These inputs 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.

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

Restricted Cash

Restricted cash, included within ~~Prepaid~~“Prepaid expenses and ~~other~~other” on the Company’s Condensed Consolidated Balance ~~Sheet~~Sheets as of ~~September~~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 ~~September~~June 30, ~~2020.~~

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~~FINANCIAL NOTES (CONTINUED)~~

~~(UNAUDITED)~~

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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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 ~~2020~~2021 Annual Report ~~and~~ ~~Financial Note 13 to the Company~~’~~s 10-Q filing for the quarterly period ended June 30, 2020~~, which disclosure is incorporated in this footnote by this reference. The Company is vigorously defending itself against those claims and in those proceedings. Significant developments in those matters are described below. If the Company is unsuccessful in defending, or if it determines to settle, any of these matters, it may be required to pay substantial sums, be subject to injunction and/or be forced to change how it operates its business, which could have a material adverse impact on its financial position or results of operations.

Unless otherwise stated, the Company is unable to reasonably estimate the loss or a range of possible loss for the matters described below. Often, 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.

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~~(UNAUDITED)~~

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. In the suits filed against the Company by Cuyahoga County, Ohio in October 2017 and Summit County, Ohio in December 2017, the parties reached an agreement in principle on October 21, 2019 to settle all claims against the Company. ~~County of Cuyahoga v. Purdue Pharma L.P., et al., Case No. 1:17-op-45004-DAP (N.D. Ohio);~~ ~~County of Summit, Ohio et al. v. Purdue Pharma L.P., et. al.~~, Case No. 1:18-op-45090-DAP (N.D. Ohio). The Company does not admit liability and expressly denies wrongdoing. As a result, the Company recorded a pre-tax charge of $82 million related to 2 Ohio counties within operating expenses for the second quarter of 2020.

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. ~~A trial has been scheduled for January 4, 2021.~~Trial in that case ended on July 28, 2021 and 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 28, 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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The Company is also named in approximately ~~400~~300 similar state court cases pending in 3638 states plus Puerto 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~~cases brought by the Ohio and Washington attorneys general are scheduled for aSeptember 2021; the case brought by the ~~New York~~Alabama attorney general ~~and 2 New York county governments, but~~is scheduled to go to trial in November 2021; the ~~trial was postponed in light of the COVID-19 pandemic.~~

~~The Company continues to be involved in discussions with the objective of achieving broad resolution of opioid-related claims~~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 national pharmaceutical distributors announced that they had negotiated a comprehensive proposed settlement agreement which, if all conditions are satisfied, would result in the settlement of a substantial majority of opioid lawsuits filed by state and local governmental entities. ~~For example, in October 2020, a group of state attorneys general~~If the proposed ~~a framework for the potential~~ settlement ~~of opioid claims of governmental entities, including political subdivisions,~~agreement and ~~compensation for the private attorneys representing these governmental entities.~~

~~Under the framework proposed by the attorneys general,~~settlement process leads to final settlement, the 3 ~~largest U.S. pharmaceutical~~ distributors ~~could be expected to~~would pay ~~an aggregate amount of~~ up to ~~$21.0~~approximately $21 billion over 18 years, with up to ~~approximately $8.0~~$7.9 billion ~~over 18 years expected from the Company. The proposed framework would also require the three distributors, including~~to be paid by the Company ~~to adopt changes to anti-diversion programs. If the negotiating parties agree on the terms~~ for its 38.1% portion; a ~~broad resolution, those potential terms would need to~~minimum of 85% of such payments must be ~~agreed to~~used by ~~numerous other~~ state and local ~~governments before an~~governmental entities to remediate the opioid epidemic. Most of the remaining percentage relates to plaintiffs’ attorneys’ fees and costs, and would be payable over a shorter time period.

The proposed agreement ~~could~~would also establish a clearinghouse that would consolidate controlled-substance distribution data from the 3 largest U.S. distributors, which will be ~~accepted~~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 ~~Company~~proposed agreement; and, ~~finalized. Under~~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 ~~framework, before~~agreement (or otherwise had their claims foreclosed).

The exact amount that would be due under the ~~distributors determine whether~~proposed agreement depends on several factors, including the participation rate of states and political subdivisions, the extent to ~~enter into any final settlement, they would assess the sufficiency of the scope of settlement, based in part on the number and identities of the~~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 ~~that would participate in any such settlement. If states, political subdivisions or other governmental entities did~~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 to account for ~~this.~~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 defendants.

~~Discussions with~~This settlement process only addresses the claims of 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. To~~national pharmaceutical distributors had agreed to pay up to $1.2 billion, of which the Company’s portion would be ~~viable,~~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 broad settlement is finalized, New York and its participating subdivisions will become part of that broader agreement.

The Company believes that a broad settlement ~~arrangement would require participation~~ of numerous parties and the resolution of many complex issues. Because of the many uncertainties associated with any potential settlement arrangements, and the uncertainty of the scope of potential participationopioid claims by ~~plaintiffs, the Company has not reached a point where settlement~~governmental entities is probable, and ~~as such has not recognized any liability~~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 ~~any potential~~its share of the global settlement ~~framework~~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 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 governmental entities.

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FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

The Company’s estimated accrued liability for opioid-related claims of governmental entities, including the $482 million initial payment under the proposed settlement agreement, is as follows as of ~~September~~June 30, ~~2020.~~2021:

~~While~~


(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 ~~Company continues~~Condensed Consolidated Balance Sheet, is the amount estimated to be ~~involved in discussions regarding~~paid prior to June 30, 2022.

If a ~~potential global~~broad settlement ~~framework,~~is not reached under the proposed agreement, litigation will continue. The Company ~~also~~ continues to prepare for trial in these ~~matters. The Company~~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 ~~novelty~~many uncertainties associated with any potential settlement arrangement or other resolution of all of these opioid-related litigation matters, including the ~~claims asserted and~~uncertain scope of participation by governmental entities in any potential settlement under the ~~complexity of litigation,~~framework described above, the Company ~~has determined that liability is not probable, and~~ is not able to reasonably estimate ~~a loss~~the upper or lower ends of the range of ~~loss.~~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.

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In December 2019, the Company was served with a two qui tam ~~complaint~~ complaints filed by 2the 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.~~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 ~~August 18, 2020,~~February 16, 2021, the court ~~entered an order granting~~in the ~~Company’s motion to dismiss~~federal action dismissed the second amended complaint with prejudice, and ~~giving~~ the relators ~~permission to file an amended complaint. On September 8, 2020, pursuant~~appealed the dismissal to the ~~court’s order, the relators filed a Second Amended Complaint.~~

~~II. Other Litigation and Claims~~

On May 17, 2013, the Company was served with a complaint filed in the United States District Court for the Northern District of California by True Health Chiropractic Inc., alleging that McKesson sent unsolicited marketing faxes in violation of the Telephone Consumer Protection Act of 1991 (“TCPA”), as amended by 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 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~~complaint with prejudice.

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II. Other Litigation 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.Claims

On March 5, 2018, the Company’s subsidiary, RxC Acquisition Company (d/b/a RxCrossroads), was served with a qui tam complaint filed in July 2017 in the United States District Court for the Southern District of Illinois by a relator against RxC Acquisition Company, among others, alleging that 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, the False Claims Act, and various state false claims statutes. United States ex rel. CIMZNHCA, LLC v. UCB, Inc., et al., No. 17-cv-00765. The complaint sought treble damages, civil penalties, and further relief. The United States and the states named in the complaint declined to intervene in the 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 relator sought a re-hearing en banc at the Seventh Circuit, which was denied.The ~~relator did not pursue any further appeals and the~~ relator’s False Claims Act case was dismissed, with judgment entered in favor of the defendants on September 30, 2020.

~~The Company is~~ On February 10, 2021, the relator filed a ~~defendant in an amended complaint filed on June 15, 2018 in a case pending in~~Petition for Writ of Certiorari at the United States ~~District~~Supreme Court ~~for the Southern District~~seeking review of Illinois alleging that the Company’s subsidiary, McKesson Medical-Surgical Inc., among others, violated the Sherman Act by restraining trade in the sale of safety and conventional syringes and safety IV catheters. M~~arion Diagnostic Center, LLC v. Becton, Dickinson, et al.~~, No. 18:1059. The action is filed on behalf of a purported class of purchasers, and seeks treble damages and further relief, all in unspecified amounts. On July 20, 2018, the defendants filed a motion to dismiss. On November 30, 2018, the district court granted the motion to dismiss, and dismissed the complaint with prejudice. On December 27, 2018, plaintiffs appealed the order to the United States Court of Appeals for the Seventh ~~Circuit. On March 5, 2020, the United States Court of Appeals for the Seventh Circuit vacated the district court’s order, and ruled~~Circuit’s ruling; that ~~dismissal~~petition was ~~appropriate~~denied on ~~alternative grounds. The case was remanded to the district court to allow the plaintiffs an opportunity to amend their complaint. Plaintiffs filed an amended complaint on August 21, 2020.~~

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~~(UNAUDITED)~~

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. The plaintiff did not file an appeal.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 ~~July 21, 2020, McKesson received correspondence from~~May 19, 2021, the ~~U.S. Attorney’s Office~~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 the Western District of Tennessee alleging reporting and documentation deficiencies in violation of the Controlled Substances Act at the Company’s former and no longer operational RxPak facility and at its Distribution Center in Memphis, Tennessee, and seeking civil penalties.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 6, 2018, the Healthcare Distribution Alliance filed a lawsuit challenging the constitutionality of the law and seeking an injunction against its enforcement. On December 19, 2018, the U.S. District Court for the Southern District of New York found the law unconstitutional and issued an injunction preventing the State of New York from enforcing the law. The State appealed that decision. On September 14, 2020, a panel of the U.S. Court of Appeals for the Second Circuit reversed the district court’s decision on procedural grounds. The Company has accrued a $50 million pre-tax charge ($37 million after-tax) as its estimated share of the OSA surcharge for calendar years 2017 and 2018. This OSA provision was recognized ~~as Operating expenses~~in “Selling, distribution, general, and administrative expenses” in the ~~accompanying condensed consolidated statement~~Consolidated Statement of ~~operations~~Operations for the year ended March 31, 2021 and ~~as Other~~in “Other accrued ~~liabilities~~liabilities” in the ~~condensed consolidated balance sheets~~Consolidated Balance Sheet as of ~~September 30, 2020.~~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 mandate pending the filing and 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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(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 combinations of such methods, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. 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.

~~During~~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, there were 0 share repurchases made under previously~~2020.

In January 2021, the Board approved an increase of $2.0 billion for the authorized share repurchase ~~programs. During the three months ended September 30, 2020, the Company repurchased 1.8 million~~ of the Company’s shares for $269 million through open market transactions at an average price per share of $151.23, of which $21 million was accrued within “Other accrued liabilities” on the Company’s Condensed Consolidated Balance Sheets for share repurchases that were executed in late September and settled in early October.McKesson’s common stock. The total remaining authorization outstanding for repurchases of the Company’s common stock at June 30, 2021 was ~~$1.3 billion at September 30, 2020.~~$1.8 billion.

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(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 September 30, Six Months Ended September 30,
(In millions) 2020 2019 2020 2019
Foreign currency translation adjustments (1)
Foreign currency translation adjustments arising during period, net of income tax expense of NaN, NaN, NaN, and NaN (2) (3)
$ 111 $ (114) $ 207 $ (44)
Reclassified to income statement, net of income tax expense of NaN, NaN, NaN, and NaN 0 0 0 0
111 (114) 207 (44)
Unrealized gains (losses) on net investment hedges
Unrealized gains (losses) on net investment hedges arising during period, net of income tax (expense) benefit of $25, $(29), $47, and $(20) (3)(4)
(70) 82 (133) 56
Reclassified to income statement, net of income tax expense of NaN, NaN, NaN, and NaN 0 0 0 0
(70) 82 (133) 56
Unrealized gains (losses) on cash flow hedges
Unrealized gains (losses) on cash flow hedges arising during period, net of income tax (expense) benefit of $4, $(4), $4, and $(10) (19) 13 (24) 25
Reclassified to income statement, net of income tax expense of NaN, NaN, NaN, and NaN 0 0 0 0
(19) 13 (24) 25
Changes in retirement-related benefit plans (5)
Net actuarial gain and prior service cost arising during the period, net of income tax benefit of NaN, $2, NaN, and $1 0 (9) 0 (3)
Amortization of actuarial loss, prior service cost and transition obligation, net of income tax expense of $1, NaN, $1, and NaN (6)
0 1 2 2
Foreign currency translation adjustments and other, net of income tax expense of NaN, NaN, NaN, and NaN (9) 5 (10) 7
Reclassified to income statement, net of income tax expense of NaN, $27, NaN, and $32 (7)
0 78 0 90
(9) 75 (8) 96
Other comprehensive income, net of tax $ 13 $ 56 $ 42 $ 133


	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 ~~and six~~ months ended ~~September~~June 30, ~~2020, the net foreign currency translation adjustments were primarily due to the strengthening of the Canadian dollar~~2021 and Euro against the U.S. dollar from April 1, 2020 to September 30, 2020. During the three and six months ended September 30, 2019, the net foreign currency translation adjustments were primarily due to the weakening of the Euro and British pound sterling against the U.S. dollar from April 1, 2019 to September 30, 2019.

~~(3)The three and six months ended September 30,~~ 2020 includes net foreign currency translation adjustments of ~~$119~~$9 million and ~~$61 million, respectively, and the three and six months ended September 30, 2019 includes net foreign currency translation adjustments of $19 million and $13~~$58 million, respectively, attributable to redeemable noncontrolling interests.

~~(4)~~(3)The three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 includes foreign currency losses of ~~$83~~$22 million ~~and $117 million, respectively,~~ on the net investment hedges from the €1.7 billion Euro-denominated notes, ~~and £450 million British pound sterling-denominated notes,~~ losses of ~~$12~~$5 million ~~and $63 million, respectively,~~ on the net investment hedges from cross-currency swaps, and losses on net investment hedges of $1$6 million attributable to redeemable noncontrolling interests. The three ~~and six~~ months ended ~~September~~June 30, ~~2019~~2020 include foreign currency ~~gains~~losses of ~~$91~~$34 million ~~and $67 million, respectively,~~ on the net investment hedges from the ~~€1.95~~€1.7 billion Euro-denominated notes and ~~£450~~losses of $51 million ~~British pound sterling-denominated notes and gains of $20 million and $9 million, respectively,~~ on the net investment hedges from cross-currency swaps.

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

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

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~(5)~~The three and six months ended September 30, 2020 include net actuarial losses of $5 million and $2 million, respectively, and the three and six months ended September 30, 2019 include net actuarial gains of $1 million, which are attributable to redeemable noncontrolling interests.

~~(6)~~Pre-tax amount was reclassified into Cost of sales and Operating expenses in the Condensed Consolidated Statements of Operations. The related tax expense was reclassified into Income tax benefit (expense) in the Condensed Consolidated Statements of Operations.

~~(7)~~The three and six months ended September 30, 2019 primarily reflects a reclassification of a pension settlement charge from Accumulated other comprehensive loss to Other income (expense), net in the Condensed Consolidated Statement of Operations.

Accumulated Other Comprehensive Income (Loss)

Information regarding changes in the Company’s Accumulated other comprehensive income (loss) by component for the three ~~and six~~ months ended ~~September~~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 Losses and Other Components of Benefit Plans, Net of Tax Total Accumulated Other Comprehensive Loss
Balance at June 30, 2020 $ (1,742) $ 75 $ 44 $ (112) $ (1,735)
Other comprehensive income (loss) before reclassifications 111 (70) (19) (9) 13
Amounts reclassified to earnings and other 0 0 0 0 0
Other comprehensive income (loss) 111 (70) (19) (9) 13
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests (119) (1) 0 (5) (125)
Other comprehensive income (loss) attributable to McKesson 230 (69) (19) (4) 138
Balance at September 30, 2020 $ (1,512) $ 6 $ 25 $ (116) $ (1,597)

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 Loss
Balance at March 31, 2020 $ (1,780) $ 138 $ 49 $ (110) $ (1,703)
Other comprehensive income (loss) before reclassifications 207 (133) (24) (10) 40
Amounts reclassified to earnings and other 0 0 0 2 2
Other comprehensive income (loss) 207 (133) (24) (8) 42
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests (61) (1) 0 (2) (64)
Other comprehensive income (loss) attributable to McKesson 268 (132) (24) (6) 106
Balance at September 30, 2020 $ (1,512) $ 6 $ 25 $ (116) $ (1,597)

~~Table of Contents~~

~~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 ~~and six~~ months ended ~~September~~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 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		(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 June 30, 2019		$	(1,564)	$	27	$	(25)	$	(216)	$	(1,778)
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	(114)		82		13		(4)		(23)		Other comprehensive income (loss) before reclassifications	96		(63)		(5)		(1)		27
Amounts reclassified to earnings and other	Amounts reclassified to earnings and other	0		0		0		79		79		Amounts reclassified to earnings and other	0		0		0		2		2
Other comprehensive income (loss)	Other comprehensive income (loss)	(114)		82		13		75		56		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	(19)		0		0		1		(18)		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	(95)		82		13		74		74		Other comprehensive income (loss) attributable to McKesson	38		(63)		(5)		(2)		(32)
Balance at September 30, 2019		$	(1,659)	$	109	$	(12)	$	(142)	$	(1,704)
Balance at June 30, 2020												Balance at June 30, 2020	$	(1,742)	$	75	$	44	$	(112)	$	(1,735)

Foreign Currency Translation Adjustments
(In millions) Foreign Currency Translation Adjustments, Net of Tax Unrealized Gains 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)
Other comprehensive income (loss) before reclassifications (44) 56 25 4 41
Amounts reclassified to earnings and other 0 0 0 92 92
Other comprehensive income (loss) (44) 56 25 96 133
Less: amounts attributable to noncontrolling and redeemable noncontrolling interests (13) 0 0 1 (12)
Other comprehensive income (loss) attributable to McKesson (31) 56 25 95 145
Balance at September 30, 2019 $ (1,659) $ 109 $ (12) $ (142) $ (1,704)

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McKESSON CORPORATION

FINANCIAL NOTES (CONTINUED)

(UNAUDITED)

~~15.~~14. Segments of Business

Commencing inwith the second quarter of 2021, the Company implemented a new segment reporting structure which resulted in 4 reportable segments: U.S. Pharmaceutical, ~~International,~~RxTS, Medical-Surgical Solutions, and ~~RxTS. Other, for retrospective periods presented, consists of the Company’s equity method investment in Change Healthcare JV, which was split-off from McKesson in the fourth quarter of 2020.~~International. All prior segment information has been recast to reflect the Company’s new segment structure and 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 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 ~~International~~RxTS segment ~~includes~~unifies the Company’s operations in Europe and Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. The Company’s operations in Europe provide distributionsolutions and services of CoverMyMeds, RelayHealth, RxCrossroads, and McKesson Prescription Automation to ~~wholesale, institutional,~~serve biopharma and ~~retail customers in 13 European countries where it owns,~~life sciences partners ~~or franchises with retail~~and patients. By combining automation and expert navigation of the healthcare ecosystem, RxTS connects pharmacies, providers, payers, and ~~operates through two businesses: Pharmaceutical Distribution~~biopharma to address patients’ medication access, adherence, and Retail Pharmacy. The Company’s Canada operations deliver vital medicines, supplies, and information technology services throughout Canada and includes Rexall Health retail pharmacies. McKesson Europeaffordability challenges to help people get the medicine they need to live healthier lives. RxCrossroads was previously ~~reflected as~~included in the ~~European~~former U.S. Pharmaceutical and Specialty Solutions reportable segment and CoverMyMeds, RelayHealth, and McKesson ~~Canada was~~Prescription Automation were previously included in Other.

The Medical-Surgical Solutions segment provides medical-surgical supply distribution, logistics, and other services to healthcare providers, including physician offices, surgery centers, nursing homes, hospital reference labs, and home health care agencies. This segment offers more than 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 ~~RxTS~~International segment ~~brings together existing businesses, including CoverMyMeds, RelayHealth, RxCrossroads, and High Volume Solutions, to serve~~includes the Company’s ~~biopharma~~operations in Europe and ~~life sciences~~Canada, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. The Company’s operations in Europe provide distribution and services to wholesale, institutional, and retail customers in 12 European countries where it owns, partners, or franchises with retail pharmacies and ~~patients, connecting pharmacies, providers, payers,~~operates through 2 businesses: Pharmaceutical Distribution and ~~biopharma. RxCrossroads~~Retail Pharmacy. The Company’s Canada operations deliver vital medicines, supplies, and information technology services throughout Canada and includes Rexall Health retail pharmacies. McKesson Europe was previously reflected as the European Pharmaceutical Solutions reportable segment and McKesson Canada was previously included in Other. In the ~~former U.S. Pharmaceutical~~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 ~~Specialty Solutions reportable segment and CoverMyMeds, RelayHealth, and High Volume Solutions were previously included in Other.~~

~~Other, for retrospective periods presented consists of~~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 (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 September 30,				Six Months Ended September 30,					Three Months Ended June 30,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2021		2020
Segment revenues (1)	Segment revenues (1)									Segment revenues (1)
U.S. Pharmaceutical	U.S. Pharmaceutical	$	48,067	$	45,613	$	92,737	$	89,402	U.S. Pharmaceutical	$	50,019	$	44,670
Prescription Technology Solutions										Prescription Technology Solutions	881		656
Medical-Surgical Solutions										Medical-Surgical Solutions	2,528		1,801
International	International	9,540		9,321		18,092		18,728		International	9,246		8,552
Medical-Surgical Solutions		2,533		2,056		4,334		3,959
Prescription Technology Solutions		668		626		1,324		1,255

Total revenues	Total revenues	$	60,808	$	57,616	$	116,487	$	113,344	Total revenues	$	62,674	$	55,679

Segment operating profit (loss) (2)
Segment operating profit (2)										Segment operating profit (2)
U.S. Pharmaceutical (3)	U.S. Pharmaceutical (3)	$	623	$	641	$	1,236	$	1,217	U.S. Pharmaceutical (3)	$	682	$	613
International (4)		(45)		30		(42)		61
Prescription Technology Solutions										Prescription Technology Solutions	104		68
Medical-Surgical Solutions(4)	Medical-Surgical Solutions(4)	187		129		276		254		Medical-Surgical Solutions(4)	75		89
Prescription Technology Solutions		88		98		156		198
Other (5)		0		(1,454)		0		(1,450)
International										International	53		3

Subtotal	Subtotal	853		(556)		1,626		280		Subtotal	914		773
Corporate expenses, net ~~(6)~~(5)	Corporate expenses, net ~~(6)~~(5)	(148)		(350)		(216)		(511)		Corporate expenses, net ~~(6)~~(5)	(303)		(68)
Interest expense	Interest expense	(50)		(64)		(110)		(120)		Interest expense	(49)		(60)
Income (loss) from continuing operations before income taxes		$	655	$	(970)	$	1,300	$	(351)

Income from continuing operations before income taxes										Income from continuing operations before income taxes	$	562	$	645

(1)Revenues from services on a disaggregated basis represent less than 1% of the U.S. Pharmaceutical segment’s total revenues, ~~less than 6%~~approximately 35% of the ~~International~~RxTS segment’s total revenues, less than 2% of the Medical-Surgical Solutions segment’s total revenues, and approximately ~~40%~~7% of the ~~RxTS~~International segment’s total revenues. The International segment reflects foreign revenues. Revenues for the remaining 3three 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. For retrospective periods presented, Operating loss for Other reflects equity earnings and charges from the Company’s equity method investment in the Change Healthcare JV, which was split-off from McKesson in the fourth quarter of 2020.

(3)The Company’s U.S. Pharmaceutical segment’s operating profit for the three ~~and six~~ months ended ~~September~~June 30, 2021 and 2020 includes ~~$52~~$23 million and ~~$104 million, respectively, and for the three and six months ended September 30, 2019 includes $33 million and $48~~$52 million, respectively, of ~~pre-tax~~ credits related to the last-in, first-out (“LIFO”) method of accounting for inventories. The three and six months ended September 30, 2020 also includes a charge of $50 million recorded in connection with the Company’s estimated liability under the State of New York’s Opioid Stewardship Act.

(4)The Company’s ~~International~~Medical-Surgical Solutions segment’s operating ~~loss~~profit for the three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 includes ~~restructuring, impairment,~~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 ~~$35~~$74 million ~~and $58 million, respectively, primarily associated with~~related to the ~~closure of retail pharmacy stores within the U.K. business,~~Company’s estimated liability for opioid-related claims, as discussed in more detail in Financial Note ~~4, “Restructuring, Impairment,~~12, “Commitments and Related Charges,” and a goodwill impairment charge of $69 million (pre-tax and after-tax) related to one of the Company’s reporting units in Europe, as discussed in more detail in Financial Note 8, “Goodwill and Intangible Assets, Net.”

~~(5)~~Operating loss for Other for the three and six months ended September 30, 2019 includes a pre-tax impairment charge of $1.2 billion and a pre-tax dilution loss of $246 million associated with the Company’s investment in Change Healthcare JV. Operating loss for Other also includes the Company’s proportionate share of loss from Change Healthcare JV of $51 million and $47 million for the three and six months ended September 30, 2019, respectively.

~~(6)~~Contingent Liabilities." Corporate expenses, net for the ~~six~~three months ended ~~September~~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. Corporate expenses, net, for the three and six months ended September 30, 2020 include net gains of $49 million and $59 million, respectively, associated with certain of the Company’s equity investments and, for the three and six months ended September 30, 2019, include settlement charges of $105 million and $122 million, respectively, from the termination of the Company’s defined benefit pension plan and a settlement charge of $82 million related to opioid claims. The three and six months ended September 30, 2020 includes $41 million and $84 million, respectively, and the three and six months ended September 30, 2019 includes $36 million and $72 million, respectively, of pre-tax charges opioid-related costs, primarily litigation expenses.

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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 implemented a new segment reporting structure commencing inwith the second quarter of 2021, which resulted in four reportable segments: U.S. Pharmaceutical, ~~International, Medical-Surgical Solutions, and~~ Prescription Technology Solutions (“RxTS”)~~. Other, for retrospective periods presented, consists of our equity method investment in Change Healthcare LLC (“Change Healthcare JV”)~~, ~~which was split-off from McKesson in the fourth quarter of 2020.~~Medical-Surgical Solutions, and International. All prior segment information has been recast to reflect our 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.

The following summarizes our four reportable segments and the changes made to our reporting structure commencing in the second quarter of 2021. Refer to Financial Note ~~15,~~14, “Segments of Business,” into the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further information regarding our reportable segments.

•U.S. Pharmaceutical, 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 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.

Table of Contents

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

•International is a ~~new~~ 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.

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

•~~RxTS~~ is a new reportable segment that brings together existing businesses, including CoverMyMeds, RelayHealth, RxCrossroads, and High Volume Solutions to serve our biopharma and life sciences partners and patients. RxCrossroads was previously included in our former U.S. Pharmaceutical and Specialty Solutions reportable segment and CoverMyMeds, RelayHealth, and High Volume Solutions were previously included in Other.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

Executive Summary:

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

•Coronavirus disease 2019 (“COVID-19”) ~~impacted~~continues to impact our ~~results of operations for the three and six months ended September 30, 2020. Following the onset of the pandemic,~~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 as a result of the weakened and uncertain global economic environment and COVID-19 restrictions ~~including government shutdowns~~following the onset of the pandemic. We remain in a dynamic environment and ~~shelter-in-place orders. While the COVID-19 pandemic continues~~volume trends continue to be ~~fluid, we saw pharmaceutical~~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 ~~volumes begin to improve across our businesses~~programs during the ~~second~~first quarter ~~as well as an~~of 2022 and a year over year increase in ~~demand for~~sales of COVID-19 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 ~~second~~first quarter of ~~2021,~~2022, we ~~expanded~~recorded inventory charges totaling $164 million on certain PPE and other related products in our ~~existing partnership with~~Medical-Surgical Solutions segment. The majority of these charges are driven by the ~~Centers for Disease Control~~intent of management not to sell certain excess PPE inventory and ~~Prevention (“CDC”)~~instead direct it to support the U.S. government’s Operation Warp Speed (“OWS”) team as a centralized distributor of future COVID-19 vaccines and ancillary supplies needed to administer vaccinations. We have also partnered with the Department of Health and Human Services (“HHS”) to manage the assembly and distribution of the ancillary supplies needed to administer the future COVID-19 vaccines. For a more in-depth discussion of how COVID-19 impacted our business, operations, and outlook, refercharitable 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 ~~$60.8~~$62.7 billion for the three months ended ~~September~~June 30, ~~2020~~2021 increased 6%13% from the prior year ~~and revenues of $116.5 billion for the six months ended September 30, 2020 increased 3% from the prior year. The increase in revenues is~~ primarily driven by market growth in our U.S. Pharmaceutical segment. Revenues for the six months ended September 30, 2020 also includes adverse impacts from COVID-19, primarily due to pharmaceutical distribution volume declines across our businesses largely during the first quarter of 2021.segment;

•Gross profit increased 5%12% for the three months ended ~~September~~June 30, ~~2020~~2021 compared to the prior year primarily in our International segment driven by ~~sales~~favorable effects of ~~COVID-19 tests in our Medical-Surgical Solutions segment~~foreign currency exchange fluctuations, and ~~growth in our U.S. Pharmaceutical segment. Gross profit increased 1% for the six months ended September 30, 2020 compared to the prior year primarily due to higher LIFO credits and growth~~ in our U.S. Pharmaceutical segment ~~partially offset~~driven by the ~~net adverse impacts of COVID-19;~~contribution from our COVID-19 vaccine distribution program;

•Total operating expenses for the three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 includes ~~a goodwill impairment charge~~charges of ~~$69 million recorded in connection with our segment realignment that commenced in the second quarter of 2021. Refer to the~~ ~~“Goodwill Impairment”~~ ~~section below for further details;~~

•~~Total operating expenses for the three and six months ended September 30, 2020 reflects a charge of $50~~$74 million related to our estimated liability ~~under~~for opioid-related claims as further described in the ~~State of New York’s Opioid Stewardship Act (the “OSA”). Refer to the State Opioid Statutes section of~~ “Trends and Uncertainties” ~~below for further details;~~

•Total operating expenses for the six months ended September 30, 2020 includes a net gain of $131 million recorded in connection with insurance proceeds received from the settlement of the shareholder derivative action related to our controlled substances monitoring program;section included below;

•Diluted earnings per common share from continuing operations attributable to McKesson Corporation for the three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 of ~~$3.54 and $6.26, respectively,~~$3.09 reflects the aforementioned items, ~~a lower~~net of any respective tax ~~rate,~~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 ~~$388 million~~$1.1 billion of cash to shareholders during the three months ended June 30, 2021 through ~~$248 million~~$1.0 billion of ~~common stock~~share repurchases ~~excluding shares surrendered for tax withholding,~~under an accelerated share repurchase (“ASR”) program entered into in May 2021, and ~~$140~~$69 million of dividend ~~payments during the six months ended September 30, 2020.~~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; ~~and~~

•On ~~November 1, 2020,~~July 5, 2021, we ~~completed the contribution~~entered into an agreement to sell certain of our ~~German pharmaceutical wholesale business~~European businesses to the PHOENIX Group for a ~~newly formed joint venture with Walgreens Boots Alliance~~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 ~~subsequent purchase~~impairment of ~~a 30% interest~~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 ~~joint venture. Future equity earnings and charges from the joint venture will be included in other income (expense), net.~~Quarterly Report on Form 10-Q for more information;

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•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 23, 2021, we completed a cash tender offer and paid an aggregate consideration of $1.1 billion to redeem certain notes with a principal amount of $922 million. As a result of the redemption, we incurred a loss on debt extinguishment in the second quarter of 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 principal amount of debt retired. Refer to Financial Note 8, “Debt and Financing Activities,” to the 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 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 have increased to higher levels throughout our first two quarters of 2021, 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 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 ~~have taken the necessary steps to ensure that 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 ~~customers and protect the safety of our employees.~~Medical-Surgical Solutions segment. The ~~various responses we put in place to mitigate 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 ~~on our business operations, including telecommuting~~section.

McKesson Canada and ~~work-from-home policies, restricted travel requirements, employee~~McKesson Europe are also playing a role in helping support ~~programs,~~governments 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 topublic health entities in not only ~~protect employee safety,~~distributing COVID-19 vaccines, 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 withinadministering them in pharmacies as well.

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Trends in our ~~facilities by promoting~~Business

At the ~~practice~~onset 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. We have also added technology resources to support our employees working remotely. These responses were initially putthe COVID-19 pandemic late in ~~place during~~ our fourth quarter of 2020, ~~which~~ we ~~maintained through the first half of 2021. During the second quarter of 2021, we also implemented on-site workplace temperature screening~~experienced higher pharmaceutical distribution volumes and increased retail pharmacy foot traffic as ~~we continue to adapt~~ our ~~health and safety practices~~customers increased supplies on hand in response to the COVID-19 pandemic. 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 six months ended September 30, 2020. 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~~of 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 prior year period. Specialty drug volumes increased, but were negatively impacted by lower demand for elective specialty drugs, as compared to the same prior year period.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 PPE and COVID-19 ~~tests and personal protective equipment.~~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 trends improved during~~This drove favorability in our results when comparing the ~~second~~first quarter ~~as we~~of 2022 versus 2021.

We have experienced ~~stabilization of~~significant improvements in prescription volumes ~~across the enterprise~~ and ~~improved frequency of~~ primary care patient ~~visits. Additionally,~~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 U.S. favorably impacted our results. While demand for PPE remained relatively flat year over year, we saw ~~improvements~~higher sales for COVID-19 tests primarily due to limited product availability in ~~both operations~~the first quarter of ~~doctor’s offices~~2021.

Impact to our Results of Operations, Financial Condition, and ~~retail pharmacy foot traffic in Europe and Canada~~Liquidity

For the three months ended June 30, 2021, COVID-19 tests as well as ~~continued sales~~the kitting and distribution of ~~personal protective equipment and increased demand~~ancillary supplies for COVID-19 ~~tests.~~

~~Table~~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 ~~Contents~~

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~~The demand for~~ COVID-19 ~~tests and personal protective equipment had a favorable impact to revenues~~vaccines in our U.S. Pharmaceutical segment contributed less than 10% in segment operating profit for the three ~~and six~~ months ended ~~September~~June 30, ~~2020. However,~~2021. The financial impact from the COVID-19 vaccine efforts in our International segment during the ~~first quarter,~~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 ~~which had a negative impact on~~that negatively impacted our consolidated revenues and income from continuing operations before income 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 ~~the six months ended September 30, 2020.~~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 ~~and six~~ months ended ~~September~~June 30, ~~2020,~~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 ~~decreased as a result~~for excess inventory which has already been committed for donation during our first quarter of ~~the pandemic largely due~~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 aforementioned~~mitigate such risk.

Overall, these COVID-19 related items had a net favorable impact on consolidated income from continuing operations before income taxes for the three months ended ~~September~~June 30, ~~2020, but an unfavorable impact on the six months ended September 30, 2020, when~~2021 compared to the same prior year periods. Additionally, supplier price increases on certain personal protective equipment continue to compress our margins. These personal protective equipment items have been recognized within our inventory at increased supplier prices, which, if not supported by future market prices, would require a write-down to net realizable value. While we have not recognized a material write-down of inventory in our financial results to date, we are not able to predict whether future market price volatility may require such write-downs in future periods.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 ~~the virus, potential seasonality of new outbreaks, as well as the approval and subsequent distribution of a vaccine.~~this COVID-19 section.

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 forDuring the three ~~and six~~ months ~~ending September~~ended June 30, ~~2020.~~

On August 14, 2020, we expanded our partnership with the CDC through an amendment to our existing Vaccines for Children Program contract for the distribution of certain COVID-19 vaccines. While the terms of the final vaccine distribution agreement are subject to further negotiation and finalization, we will support the U.S. government’s OWS team as a centralized distributor of future COVID-19 vaccines and ancillary supplies needed to administer vaccinations. In the centralized model, the U.S. government directs us on the distribution of the vaccines and related supplies to point-of-care sites across the country. We make no decisions on where products are to be distributed. We will utilize our expertise and capabilities to support the CDC’s efforts to vaccinate everyone in the U.S. who wants to receive a COVID-19 vaccine. The CDC and McKesson collaborated similarly in response to the H1N1 pandemic. The related results of operations in future periods will be reflected in our U.S. Pharmaceutical segment. During the second quarter of 2021, we commenced initial capital expenditures to prepare for future vaccine distribution which were not material to our financial condition or liquidity. We currently cannot estimate the entire financial impact that the vaccine distribution agreement with the CDC will have on our future financial condition, results of operations,maintained appropriate labor and ~~liquidity.~~

~~On September 23, 2020, we announced our contract with the HHS where our Medical-Surgical Solutions segment will leverage its expertise to manage the assembly of~~overall vendor supply ~~kits needed to administer COVID-19 vaccines, including sourcing of some of those supplies. The kits will be produced~~levels and distributed to other HHS contractors at the direction of HHS. Ancillary supply kits will include alcohol prep pads, face shields, surgical masks, additional personal protective equipment, needles and syringes, and vaccine administrative items. The financial impact of these arrangements with the CDC and HHS depend on numerous uncertainties, including timing of when a vaccine will be approved and made available for production and distribution to the public.

~~Our condensed consolidated balance sheets and ability to maintain financial liquidity remains strong. We have~~ 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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~~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 are also working with manufacturers through several channels, including our ClarusONE and global sourcing teams in London, and our leaders are actively engaged in addressing potential shortages. 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 half of 2021. 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 ~~and Item 1A - Risk Factors in Part II of this Quarterly Report on Form 10-Q~~ 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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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 ~~OSA~~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 tofor 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.

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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. IfThe 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 ~~stands,~~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. WeDuring the second quarter of 2021, we reflected an estimated liability of $50 million for the OSA surcharge in our ~~accompanying condensed~~ consolidated financial statements on the assumption that the appellate court’s decision will stand. 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.

~~RESULTS OF OPERATIONS~~

~~Overview of Consolidated Results:~~

(In millions, except per share data) Three Months Ended September 30, Six Months Ended September 30,
2020 2019 Change 2020 2019 Change
Revenues $ 60,808 $ 57,616 6 % $ 116,487 $ 113,344 3 %
Gross profit 3,000 2,867 5 5,700 5,654 1
Gross profit margin 4.93 % 4.98 % (5) bp 4.89 % 4.99 % (10) bp
Total operating expenses (2,366) (2,241) 6 (4,388) (4,394) —
Total operating expenses as a percentage of revenues 3.89 % 3.89 % — bp 3.77 % 3.88 % (11) bp
Other income (expense), net $ 71 $ (78) 191 % $ 98 $ (41) 339 %
Equity earnings and charges from investment in Change Healthcare Joint Venture — (1,454) (100) — (1,450) (100)
Interest expense (50) (64) (22) (110) (120) (8)
Income (loss) from continuing operations before income taxes 655 (970) 168 1,300 (351) 470
Income tax benefit (expense) (28) 294 (110) (178) 158 (213)
Income (loss) from continuing operations 627 (676) 193 1,122 (193) 681
Loss from discontinued operations, net of tax — (1) (100) (1) (7) (86)
Net income (loss) 627 (677) 193 1,121 (200) 661
Net income attributable to noncontrolling interests (50) (53) (6) (100) (107) (7)
Net income (loss) attributable to McKesson Corporation $ 577 $ (730) 179 % $ 1,021 $ (307) 433 %
Diluted earnings (loss) per common share attributable to McKesson Corporation
Continuing operations $ 3.54 $ (3.99) 189 % $ 6.26 $ (1.62) 486 %
Discontinued operations — — NM — (0.03) (100)
Total $ 3.54 $ (3.99) 189 % $ 6.26 $ (1.65) 479 %
Weighted-average diluted common shares outstanding 163 183 (11) % 163 185 (12) %

~~bp - basis points~~

~~NM - computation not meaningful~~

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

RESULTS OF OPERATIONS

Overview of Consolidated Results:


(In millions, except per share data)	Three Months Ended June 30,
	2021			2020			Change
Revenues	$	62,674		$	55,679		13	%
Gross profit	3,032			2,700			12
Gross profit margin	4.84		%	4.85		%	(1)	bp
Total operating expenses	$	(2,464)		$	(2,022)		22	%
Total operating expenses as a percentage of revenues	3.93		%	3.63		%	30	bp
Other income, net	$	43		$	27		59	%
Interest expense	(49)			(60)			(18)
Income from continuing operations before income taxes	562			645			(13)
Income tax expense	(26)			(150)			(83)
Income from continuing operations	536			495			8
Loss from discontinued operations, net of tax	(3)			(1)			200
Net income	533			494			8
Net income attributable to noncontrolling interests	(47)			(50)			(6)
Net income attributable to McKesson Corporation	$	486		$	444		9	%

Diluted earnings (loss) per common share attributable to McKesson Corporation
Continuing operations	$	3.09		$	2.72		14	%
Discontinued operations	(0.02)			—			—
Total	$	3.07		$	2.72		13	%

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

Revenues

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

Gross Profit

Gross profit increased for the three months ended ~~September~~June 30, ~~2020 compared~~2021 largely due to the ~~same~~pandemic, including the recovery of the prior year period primarily due to increased demand for COVID-19 tests in our Medical-Surgical Solutions segment and growth of specialty pharmaceuticals in our U.S. Pharmaceutical segment. Gross profit and gross profit margin were favorably impacted by the effects of foreign currency exchange fluctuations and higher last-in, first-out (“LIFO”) credits in the second quarter of 2021, as further described below.

Gross profit increased for the six months ended September 30, 2020 compared to the same prior year period primarily due to higher LIFO credits for the first half of 2021 compared to the same prior year period and growth of specialty pharmaceuticals in our U.S. Pharmaceutical segment. Gross profit and gross profit margin were adversely impactedimpacts from COVID-19, ~~largely during the first quarter of 2021, including~~such as disruptions of doctors’ 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 ~~demand~~inventory charges on certain PPE and other related products. Gross profit was also favorably impacted by foreign currency exchange fluctuations for ~~COVID-19 tests~~the three months ended June 30, 2021 and ~~personal protective equipment.~~unfavorably impacted by the contribution of our German pharmaceutical wholesale business to a joint venture with Walgreens Boots Alliance (“WBA”) on November 1, 2020.

~~LIFO~~

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

Last-in, first-out (“LIFO”) inventory credits were ~~$52~~$23 million and ~~$33~~$52 million for the three months ended ~~September~~June 30, 2021 and 2020, ~~and 2019, respectively, and $104 million and $48 million for the six months ended September 30, 2020 and 2019, respectively, which favorably impacted our gross profit margin both~~respectively. LIFO credits are lower in the ~~second~~first quarter ~~and first half~~ of ~~2021~~2022 compared to the same prior year ~~periods.~~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 second quarter and first half of 2021 compared to the same prior year periods 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 ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 is as follows:

Three Months Ended September 30, Six Months Ended September 30,
(Dollars in millions) 2020 2019 Change 2020 2019 Change
Operating expenses $ 2,237 $ 2,196 2 % $ 4,203 $ 4,326 (3) %
Goodwill impairment charges 69 — NM 69 — NM
Restructuring, impairment, and related charges 60 45 33 116 68 71
Total operating expenses $ 2,366 $ 2,241 6 % $ 4,388 $ 4,394 - %
Percent of revenues 3.89 % 3.89 % — bp 3.77 % 3.88 % (11) 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.

•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

~~NM - computation not meaningful~~

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~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

For the three months ended ~~September~~June 30, ~~2020,~~2021, total operating expenses ~~increased~~ and total operating expenses as a percentage of revenues remained flat compared to the same prior year period. For the six months ended September 30, 2020, total operating expenses remained flat and total operating expenses as a percentage of revenues decreasedincreased compared to the same prior year period. Total operating expenses were impacted by the following significant items:

•~~Operating expenses~~SDG&A for the three ~~and six~~ months ended ~~September~~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 contribution of our German pharmaceutical wholesale business to a ~~charge~~joint venture with WBA;

•Claims and litigation charges, net for the three months ended June 30, 2021 includes charges of ~~$50~~$74 million related to our estimated liability ~~under the OSA~~for opioid-related claims as previously discussed in the “Trends and Uncertainties” section;

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

•~~Operating expenses~~Claims and litigation charges, net for the three months ended September 30, 2020 and 2019 includes opioid-related expenses of $41 million and $36 million, respectively, and $84 million and $72 million for the six months ended September 30, 2020 and 2019, respectively, primarily related to litigation expenses;

•~~Operating expenses for the six months ended September~~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 three and six months ended September 30, 2019 includes a settlement charge of $82 million recorded in connection with an agreement to settle all opioid-related claims filed by two Ohio counties;

•Operating expenses for the three and six months ended September 30, 2020 reflects cost savings of $20 million and $52 million, respectively, on travel and entertainment due to travel restrictions associated with COVID-19;

•Operating expenses for the three and six months ended September 30, 2020 when compared to the same prior year periods includes higher corporate expenses and increased costs to support business growth, particularly in our Medical-Surgical Solutions and RxTS segments.

•Goodwill impairment charges of $69 million for the three and six months ended September 30, 2020 was recorded in connection with our segment realignment that commenced in the second quarter of 2021. Refer to the ~~“Goodwill Impairment”~~ ~~section below for further details;~~

•Restructuring, impairment, and related charges for three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 primarily includes charges related to our European and Canadian 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 ~~and six~~ months ended ~~September~~June 30, ~~2020 and 2019.~~2020. Refer to the “Restructuring ~~Initiatives”~~Initiatives and Long-Lived Asset Impairments” ~~section~~and “Segment Operating Profit and Corporate Expenses, Net”sections below ~~and~~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 unfavorably impacted by foreign currency exchange fluctuations for the three ~~and six~~ months ended ~~September~~June 30, ~~2020.~~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 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.~~

~~Table~~facility no longer used. We also may retain and repurpose certain other office locations. We expect to incur total charges of ~~Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

The segment realignment resulted in changes in multiple reporting units across the Company, as previously disclosed in the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2020. As a result, we were requiredapproximately $180 million to ~~perform a goodwill impairment test for these reporting units and recorded a goodwill impairment charge in our Europe Retail Pharmacy reporting unit of $69~~$280 million for ~~the three~~this initiative, of which $95 million of charges were recorded to date. This initiative is anticipated to be complete in 2022 and ~~six months ended September 30, 2020. At September 30, 2020, the Europe Retail Pharmacy reporting unit had no~~estimated remaining ~~balance~~charges consist primarily of ~~goodwill. These reporting units are included within the International reportable segment. Other risks, expenses~~lease right-of-use and future developments that we were unable to anticipate as of the testing date may require us to further revise the future projected cash flows, which could adversely affect the fair value of our reporting units in future periods. As a result, we may be required to record additional impairment charges. Refer to Financial Note 8, “Goodwillother long-lived asset impairments, lease exit costs, and ~~Intangible Assets, Net” to the accompanying condensed financial statements appearing in this Quarterly Report on Form 10-Q.~~

~~Restructuring Initiatives~~accelerated depreciation and amortization.

During the first quarter of 2021, we committed to an initiative within the United Kingdom, ~~(“U.K.”),~~ which ~~forms part of the~~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. ~~The initiative is expected to be substantially completed by the end of 2021.~~

~~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 in 2022.

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.

~~In connection with the above initiatives, we~~ expect to ~~record~~incur total charges of approximately~~$490~~ $85 millionto ~~$565~~$90 million for this initiative, of which ~~$402~~$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 ~~and impairments~~ of long-lived assets, facility ~~lease,~~ 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, ~~(Expense),~~ Net

The ~~change~~increase in other income, net for the three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 compared to ~~other expense, net for~~ the same prior year ~~periods~~period was primarily due to higher net equity in earnings and a pension settlement ~~charges of $105 million and $122 million~~gain in our International segment recognized during the ~~three and six months ended September 30, 2019, respectively, related to our previously approved termination~~first quarter of the frozen U.S. defined benefit pension plan. 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.

Other income, net for the three and six months ended September 30, 2020 also includes net gains recognized from our equity investments of $49 million and $59 million, respectively. This primarily reflects mark-to-market gains on our investments in publicly traded securities as further described in Financial Note 12, “Fair Value Measurements,” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. In future periods, fair value adjustments recognized in our operating results for these types of investments may be adversely impacted by market volatility. Other expense, net for the six months ended September 30, 2019 includes net settlement gains of $26 million from our derivative contracts.2022.

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(UNAUDITED)

~~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 $51 million and $47 million for the three and six months ended September 30, 2019, respectively, 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.

On June 27, 2019, common stock and certain other securities of Change Healthcare, Inc. (“Change”) began trading on the NASDAQ (“IPO”). On July 1, 2019, upon the completion of its IPO, Change contributed net cash proceeds it received from its offering of common stock to Change Healthcare JV in exchange for additional membership interests of Change Healthcare JV (“LLC Units”) at the equivalent of its offering price of $13 per share. The proceeds from the concurrent offering of other securities were also used by Change to acquire certain securities of Change Healthcare JV. As a result, McKesson’s equity interest in Change Healthcare JV was reduced from 70% to approximately 58.5%, which was used to recognize our proportionate share in net loss from Change Healthcare JV, commencing in the second quarter of 2020. As a result of the ownership dilution to 58.5% from 70%, we recognized a dilution loss of approximately $246 million in the second quarter of 2020. Additionally, our proportionate share of income or loss from this investment was subsequently reduced as immaterial settlements of stock option exercises occurred after the IPO and further diluted our ownership.

In the second quarter of 2020, we recorded an other-than-temporary-impairment (“OTTI”) charge of $1.2 billion to our investment in Change Healthcare JV, representing the difference between the carrying value of our investment and the fair value derived from the corresponding closing price of Change’s common stock at September 30, 2019. This charge was included within equity earnings and charges from investment in Change Healthcare joint venture in our condensed consolidated statements of operations for the three and six months ended September 30, 2019.

The March 10, 2020 split-off transaction eliminated our investment in the joint venture. During the fourth 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.

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 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 September 30, 2020.

Interest Expense

Interest expense decreased for the three ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 compared to the same prior year ~~periods~~period primarily due to ~~a decrease~~the repayment of $1.0 billion of long-term debt in the ~~issuance~~third quarter of ~~commercial paper.~~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 ~~Benefit (Expense)~~Expense

During the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, we recorded income tax expense of ~~$28~~$26 million and ~~income tax benefit of $294~~$150 million, respectively, related to continuing operations. During the six months ended September 30, 2020 and 2019, we recorded income tax expense of $178 million and income tax benefit of $158 million, respectively, related to continuing operations. Ourrespectively. We reported income tax rates ~~were 4.3%~~of 4.6% and ~~30.3%~~23.3% for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively, and 13.7% and 45.0% for the six months ended September 30,~~ 2020, ~~and 2019,~~ 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 income ~~and discrete items recognized.~~between various taxing jurisdictions. Refer to Financial Note 5,4, “Income Taxes,” 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)~~

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests for the three ~~and six~~ months ended ~~September~~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. 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 ~~(Loss)~~ Attributable to McKesson Corporation

Net income ~~(loss)~~ attributable to McKesson Corporation was ~~$577~~$486 million and ~~$(730)~~$444 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively, and $1.0 billion and $(307) million for the six months ended September 30,~~ 2020, ~~and 2019,~~ respectively. Diluted earnings ~~(loss)~~ per common share attributable to McKesson Corporation was ~~$3.54~~$3.07 and ~~$(3.99)~~$2.72 for the three months ended ~~September~~June 30, 2021 and 2020, ~~and 2019, respectively, and $6.26 and $(1.65) for the six months ended September 30, 2020 and 2019,~~ respectively. ~~Additionally, our diluted earnings per share for the for the three and six months ended September 30, 2020 and 2019 reflects the cumulative effects of share repurchases.~~

Weighted-Average Diluted Common Shares Outstanding

Diluted earnings ~~(loss)~~ per common share was calculated based on a weighted-average number of shares outstanding of ~~163~~158.1 million and ~~183~~163.2 million for the three months ended ~~September~~June 30, 2021 and 2020, ~~and 2019, respectively, and 163 million and 185 million for the six months ended September 30, 2020 and 2019,~~ respectively. ~~Net loss per~~Weighted-average diluted ~~share~~shares outstanding for the three ~~and six~~ months ended ~~September~~June 30, ~~2019 is calculated by excluding dilutive securities from the denominator due to their antidilutive effects. Weighted-average diluted shares for three and six months ended September 30, 2020~~2021 decreased from the same prior year ~~periods~~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 September 30,						Six Months Ended September 30,							Three Months Ended June 30,
(Dollars in millions)	(Dollars in millions)	2020		2019		Change		2020		2019		Change		(Dollars in millions)	2021		2020		Change
Segment revenues	Segment revenues													Segment revenues
U.S. Pharmaceutical	U.S. Pharmaceutical	$	48,067	$	45,613	5	%	$	92,737	$	89,402	4	%	U.S. Pharmaceutical	$	50,019	$	44,670	12	%
Prescription Technology Solutions														Prescription Technology Solutions	881		656		34
Medical-Surgical Solutions														Medical-Surgical Solutions	2,528		1,801		40
International	International	9,540		9,321		2		18,092		18,728		(3)		International	9,246		8,552		8
Medical-Surgical Solutions		2,533		2,056		23		4,334		3,959		9
Prescription Technology Solutions		668		626		7		1,324		1,255		5
Total revenues	Total revenues	$	60,808	$	57,616	6	%	$	116,487	$	113,344	3	%	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

Three Months Ended ~~September~~June 30, ~~2020~~2021 vs. ~~2019~~2020

U.S. Pharmaceutical revenues for the three months ended ~~September~~June 30, ~~2020~~2021 increased 5%12% compared to the same prior year period primarily due to market growth, including ~~branded pharmaceutical price increases, growth in specialty pharmaceuticals, and~~ higher volumes from retail national account customers, branded pharmaceutical price increases, and growth in specialty pharmaceuticals, partially offset by branded to generic drug conversions. Revenues for this segment were also favorable year over year due to the 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.

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(UNAUDITED)

~~Six~~Prescription Technology Solutions

Three Months Ended ~~September~~June 30, ~~2020~~2021 vs. ~~2019~~2020

~~U.S. Pharmaceutical~~RxTS revenues for the ~~six~~three months ended ~~September~~June 30, ~~2020~~2021 increased 4%34% compared to the same prior year period primarily due to ~~market growth, including branded pharmaceutical price increases, growth~~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, 2021 increased 40% compared to the same prior year period largely in ~~specialty pharmaceuticals,~~our primary care business due to improvements in patient care visits as a result of prior year customer closures due to COVID-19 and higher ~~volumes from retail national account customers, partially offset by branded to generic drug conversions.~~sales of COVID-19 tests in the first quarter of 2022. Revenues for this segment were ~~unfavorably~~also favorably impacted by the ~~loss~~contribution from kitting and distribution of ~~customers and reduced demand~~ancillary supplies for ~~pharmaceuticals in retail pharmacies and institutional healthcare providers due to~~ COVID-19 ~~particularly during the first quarter of 2021.~~vaccines.

International

Three Months Ended ~~September~~June 30, ~~2020~~2021 vs. ~~2019~~2020

International revenues for the three months ended ~~September~~June 30, ~~2020~~2021 increased 2%8% compared to the same prior year period. Excluding the favorable effects of foreign currency exchange fluctuations, revenues for this segment decreased ~~1% primarily~~3% largely due to the ~~exit~~contribution of ~~unprofitable customers in~~ our ~~Canadian~~German pharmaceutical wholesale business ~~partially offset by one additional sales day this quarter in our European pharmaceutical distribution business compared~~ to ~~the same prior year period and market growth in our European retail business.~~

~~Six Months Ended September 30, 2020 vs. 2019~~

International revenues for the six months ended September 30, 2020 decreased 3% compared to the same prior year period. Excluding the favorable effects of foreign currency exchange fluctuations, revenues for this segment decreased 4% primarily due to lower pharmaceutical distribution volumes resulting from the adverse impacts from COVID-19 largely during the first quarter of 2021 and the exit of unprofitable customers in our Canadian business. These decreases were partially offset by favorability due to additional sales days for the six months ended September 30, 2020 compared to the same prior year period in our European operations.

~~Medical-Surgical Solutions~~

~~Three Months Ended September 30, 2020 vs. 2019~~

Medical-Surgical Solutions revenues for the three months ended September 30, 2020 increased 23% compared to the same prior year period primarily due to sales of COVID-19 tests and personal protective equipment, as well as organic growth across the segment. Revenues for this segment were unfavorably impacted by a ~~divestiture that closed during the fourth quarter of 2020.~~

~~Six Months Ended September 30, 2020 vs. 2019~~

Medical-Surgical Solutions revenues for the six months ended September 30, 2020 increased 9% compared to the same prior year period primarily due to sales of COVID-19 tests and personal protective equipment, partially offset by lower demand due to customer closures in our primary care business largely during the first quarter of 2021. Revenues for this segment were unfavorably impacted by a divestiture that closed during the fourth quarter of 2020.

~~Prescription Technology Solutions~~

~~Three Months Ended September 30, 2020 vs. 2019~~

~~RxTS revenues for the three months ended September 30, 2020 increased 7% compared to the same prior year period primarily driven by increased volume~~joint venture with ~~new and existing customers, partially offset by a change in mix of certain biopharma brands within our programs.~~

~~Six Months Ended September 30, 2020 vs. 2019~~

~~RxTS revenues for the six months ended September 30, 2020 increased 5% compared to the same prior year period primarily driven by increased volume with new and existing customers.~~WBA. This was partially offset by favorability year over year due to the ~~adverse impacts~~recovery of volumes from COVID-19 ~~largely during~~in our pharmaceutical distribution and retail pharmacy businesses across the ~~first quarter of 2021.~~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 September 30,								Six Months Ended September 30,									Three Months Ended June 30,
(Dollars in millions)	(Dollars in millions)	2020			2019			Change		2020			2019			Change		(Dollars in millions)	2021			2020			Change
Segment operating profit (loss) (1)
Segment operating profit (1)																		Segment operating profit (1)
U.S. Pharmaceutical ~~(2)~~	U.S. Pharmaceutical ~~(2)~~	$	623		$	641		(3)	%	$	1,236		$	1,217		2	%	U.S. Pharmaceutical ~~(2)~~	$	682		$	613		11	%
International (3)		(45)			30			(250)		(42)			61			(169)
Prescription Technology Solutions																		Prescription Technology Solutions	104			68			53
Medical-Surgical Solutions(2)	Medical-Surgical Solutions(2)	187			129			45		276			254			9		Medical-Surgical Solutions(2)	75			89			(16)
Prescription Technology Solutions		88			98			(10)		156			198			(21)
Other (4)		—			(1,454)			(100)		—			(1,450)			(100)
International																		International	53			3			—

Subtotal	Subtotal	853			(556)			253		1,626			280			481		Subtotal	914			773			18
Corporate expenses, net ~~(5)~~(3)	Corporate expenses, net ~~(5)~~(3)	(148)			(350)			(58)		(216)			(511)			(58)		Corporate expenses, net ~~(5)~~(3)	(303)			(68)			346
Interest expense	Interest expense	(50)			(64)			(22)		(110)			(120)			(8)		Interest expense	(49)			(60)			(18)
Income (loss) from continuing operations before income taxes		$	655		$	(970)		168	%	$	1,300		$	(351)		470	%
Income from continuing operations before income taxes																		Income from continuing operations before income taxes	$	562		$	645		(13)

Segment operating profit (loss) margin
Segment operating profit margin																		Segment operating profit margin
U.S. Pharmaceutical	U.S. Pharmaceutical	1.30		%	1.41		%	(11)	bp	1.33		%	1.36		%	(3)	bp	U.S. Pharmaceutical	1.36		%	1.37		%	(1)	bp
Prescription Technology Solutions																		Prescription Technology Solutions	11.80			10.37			143
Medical-Surgical Solutions																		Medical-Surgical Solutions	2.97			4.94			(197)
International	International	(0.47)			0.32			(79)		(0.23)			0.33			(56)		International	0.57			0.04			53
Medical-Surgical Solutions		7.38			6.27			111		6.37			6.42			(5)
Prescription Technology Solutions		13.17			15.65			(248)		11.78			15.78			(400)

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. For retrospective periods presented, operating loss for Other reflects equity earnings and charges from our equity method investment in Change Healthcare JV, which we split-off in the fourth quarter of 2020.

(2)Operating profit for our ~~U.S. Pharmaceutical~~Medical-Surgical Solutions segment for the three months ended June 30, 2021 includes ~~a charge~~inventory charges totaling $164 million on certain PPE and other related products primarily driven by the intent of ~~$50~~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 ~~and six~~ months ended ~~September~~June 30, ~~2020~~2021 related to our estimated liability ~~under the OSA.~~

~~(3)Operating loss~~ for ~~our International segment includes restructuring, impairment,~~opioid-related claims and related charges of $35 million and $58 million for the three and six months ended September 30, 2020, respectively, associated with the closure of retail pharmacy stores within the U.K. business and a goodwill impairment charge of $69 million for the three and six months ended September 30, 2020 related to our European retail business.

~~(4)~~Operating loss for Other for the three and six months ended September 30, 2019 includes an impairment charge of $1.2 billion and a dilution loss of $246 million related to our investment in Change Healthcare JV.

~~(5)~~Corporate expenses, net for the three and six months ended September 30, 2020 includes net gains from our equity investments of $49 million and $59 million, respectively. Corporate expenses, net for the six months ended September 30, 2020 also includes 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 and six months ended September 30, 2019 includes pension settlement charges of $105 million and $122 million, respectively, and a settlement charge of $82 million related to opioid claims.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

U.S. Pharmaceutical

Three Months Ended ~~September~~June 30, ~~2020~~2021 vs. ~~2019~~2020

Operating profit ~~and operating profit margin decreased~~increased for this segment for the three months ended ~~September~~June 30, 2021 compared to the same prior year period primarily due to the contribution from our COVID-19 vaccine distribution program and growth in specialty pharmaceuticals, partially offset by a decrease in LIFO credits of $29 million and increased costs for strategic growth initiatives. Operating profit 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, 2021 compared to the same prior year period primarily due to inventory charges on certain PPE and other related products. This was partially offset by favorability in our primary care business from improvements in patient care visits as a result of prior year customer closures due to COVID-19, as well as the contribution from kitting and distribution of ancillary supplies for COVID-19 vaccines and higher sales of COVID-19 tests in the first quarter of 2022.

International

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 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 partially offset by higher restructuring charges for optimization programs in Canada.

Corporate Expenses, Net

Corporate expenses, net increased for the three months ended June 30, 2021 compared to the same prior year period primarily due to a ~~charge~~net gain of ~~$50~~$131 million recorded during the second quarter of 2021 related to our estimated liability under the OSA and increased costs for strategic growth initiatives. This was partially offset by higher LIFO credits and growth in specialty pharmaceuticals.

~~Six Months Ended September 30, 2020 vs. 2019~~

Operating profit increased for this segment for the six months ended September 30, 2020 compared to the same prior year period primarily resulting from higher LIFO credits and growth in specialty pharmaceuticals, partially offset by increased costs for strategic growth initiatives. Additionally, the aforementioned OSA charge of $50 million adversely impacted our operating profit and operating profit margin for the six months ended September 30, 2020.

~~International~~

~~Three Months Ended September 30, 2020 vs. 2019~~

The change in operating loss and operating loss margin for this segment for the three months ended September 30, 2020 compared to operating profit and operating profit margin for the same prior year period was primarily due to a goodwill impairment charge of $69 million related to our European retail business and higher restructuring charges related to our initiative in the U.K., partially offset by lower operating expenses across our European businesses.

~~Six Months Ended September 30, 2020 vs. 2019~~

The change in operating loss and operating loss margin for this segment for the six months ended September 30, 2020 compared to operating profit and operating profit margin for the same prior year period was primarily due to a goodwill impairment charge of $69 million related to our European retail business and higher restructuring charges related to our initiative in the U.K., partially offset by lower operating expenses across our European businesses.

~~Medical-Surgical Solutions~~

~~Three Months Ended September 30, 2020 vs. 2019~~

~~Operating profit and operating profit margin for this segment increased for the three months ended September 30, 2020 compared to the same prior year period primarily due to sales of COVID-19 tests.~~

~~Six Months Ended September 30, 2020 vs. 2019~~

Operating profit for this segment increased for the six months ended September 30, 2020 compared to the same prior year period primarily due to sales of COVID-19 tests and personal protective equipment, partially offset by customer closures in our primary care business largelyrecognized during the first quarter of ~~2021. Operating profit margin for the six months ended September 30, 2020 was also negatively impacted by supplier price increases on personal protective equipment and changes in our product mix.~~

~~Prescription Technology Solutions~~

~~Three Months Ended September 30, 2020 vs. 2019~~

Operating profit and operating profit margin for this segment decreased for the three months ended September 30, 2020 compared to the same prior year period primarily driven by higher operating expenses to support business growth. Operating profit margin for this segment also decreased due to changes in our product mix.

~~Six Months Ended September 30, 2020 vs. 2019~~

Operating profit and operating profit margin for this segment decreased for the six months ended September 30, 2020 compared to the same prior year period primarily due to higher operating expenses to support business growth. Operating profit margin for this segment also decreased due to changes in our product mix.

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONTINUED)~~

~~(UNAUDITED)~~

~~Other~~

Operating loss for Other for the three and six months ended September 30, 2019 includes an impairment charge of $1.2 billion and a dilution loss of $246 million related to our investment in Change Healthcare JV. Operating loss for Other also includes our proportionate share of loss from Change Healthcare JV of $51 million and $47 million for the three and six months ended September 30, 2019, respectively.

~~Corporate Expenses, Net~~

Corporate expenses, net, decreased for the three and six months ended September 30, 2020 compared to the same prior year periods primarily due to pension settlement charges of $105 million and $122 million recognized during the three and six months ended September 30, 2019, respectively, and an opioid claim settlement charge of $82 million recognized in the second quarter of 2020. Additionally, we recognized net gains from our equity investments of $49 million and $59 million during the three and six months ended September 30, 2020, respectively, and a net gain of $131 million during the six months ended September 30, 20202021 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 ~~six months ended September 30, 2019 includes net settlement gains of $26 million from our derivative contracts.~~transition to a partial remote work model for certain employees.

New Accounting Pronouncements

New accounting pronouncements that we have recently adopted as well as those that have been recently issued but not yet adopted by us are included in Financial Note 1, “Significant Accounting Policies,” to the accompanying condensed consolidated financial statements 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 continued 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~~future.

Table of ~~our credit agreements.~~Contents

McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

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

Six Months Ended September 30,
(Dollars in millions) 2020 2019 Change
Net cash provided by (used in):
Operating activities $ (41) $ (159) $ 118
Investing activities (278) (285) 7
Financing activities (401) (1,203) 802
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (63) 22 (85)
Net change in cash, cash equivalents, and restricted cash $ (783) $ (1,625) $ 842

~~Table of Contents~~

~~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 ~~$41 million~~$1.6 billion and ~~$159 million~~$1.1 billion during the ~~six~~three months ended ~~September~~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 ~~six~~three months ended ~~September~~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 ~~increases in inventory of $1.4 billion due to higher stock levels to meet sales demand, decreases~~a decrease in drafts and accounts payable of $1.3 billion primarily from effective working capital management at year end, and decreases in receivables of $981 million primarily due to higher sales recognized at the end of March 2020. Operating activities for the six months ended September 30, 2019 were affected by decreases in drafts and accounts payable of $1.2$4.2 billion primarily associated with timing and ~~increases~~management of inventory levels as well as a decrease in receivables of ~~$866 million~~$2.3 billion primarily due to ~~revenue growth. Operating activities~~lower revenues. Other non-cash items for the ~~six~~three months ended ~~September~~June 30, ~~2019 also~~2021 includes a non-cash ~~pension settlement charge of $122 million.~~inventory charges totaling $164 million on certain PPE and other related products in our Medical-Surgical Solutions segment.

Investing Activities

Investing activities used cash of ~~$278~~$99 million and ~~$285~~$130 million during the ~~six~~three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Investing activities for the ~~six~~three months ended ~~September~~June 30, 2021 and 2020 ~~and 2019~~ includes ~~$265~~$159 million and ~~$184~~$117 million, respectively, in capital expenditures for property, plant, and equipment, and capitalized software.

Financing Activities

Financing activities used cash of ~~$401 million and $1.2~~$2.2 billion during the ~~six~~three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively.~~provided cash of $61 million during the three months ended June 30, 2020. Financing activities for the ~~six~~three months ended ~~September~~June 30, 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 activities for the six months ended September 30, 2019 includes cash receipts of $8.7 billion and payments of $8.1 billion for short-term borrowings, primarily commercial paper. Financing activities for the six months ended September 30, 2020 and 2019 includes $272 million and $1.5 billion, respectively, of cash paid for stock repurchases, including shares surrendered for tax withholding. Additionally, financing activities for the six months ended September 30, 2020 and 2019 includes~~$140 millionand $148 million of cash paid for dividends, respectively.~~ Cash used for other financing activities generally includes shares surrendered for tax withholding and payments to noncontrolling interests. Other financing activities for the ~~six~~three months ended ~~September~~June 30, 2020 also includes restricted cash inflow related to funds temporarily held on behalf of unaffiliated medical practice ~~groups and a payment of $49 million to purchase shares of McKesson Europe through exercises of a put right option by noncontrolling shareholders.~~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 combinations of such methods, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. 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.

In May 2019, we entered into an ASR program with a third-party financial institution to repurchase $600 million of the Company’s common stock. We repurchased a total of 4.7 million shares at an average price per share of $127.68 during the six months ended September 30, 2019.

During the three months ended June 30, 2019, 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. During the three months ended September 30, 2019, we repurchased 5.2 million of the Company’s shares for $750 million through open market transactions at an average price per share of $144.28.

During the three months ended June 30, 2020, there were no share repurchases made under previously authorized share repurchase programs. During the three months ended September 30, 2020, the Company repurchased 1.8 million of the Company’s shares for $269 million through open market transactions at an average price per share of $151.23, of which $21 million was accrued within “Other accrued liabilities” on our Condensed Consolidated Balance Sheets for share repurchases that were executed in late September and settled in early October.

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McKESSON CORPORATION

FINANCIAL REVIEW (CONTINUED)

(UNAUDITED)

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 we 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 ~~$1.3~~$1.8 billion at ~~September~~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.

Selected Measures of Liquidity and Capital Resources


(Dollars in millions)	(Dollars in millions)	September 30, 2020			March 31, 2020			(Dollars in millions)	June 30, 2021			March 31, 2021
Cash, cash equivalents, and restricted cash	Cash, cash equivalents, and restricted cash	$	3,240		$	4,023		Cash, cash equivalents, and restricted cash	$	2,535		$	6,396
Working capital	Working capital	(379)			(402)			Working capital	(485)			1,279
Debt to capital ratio (1)	Debt to capital ratio (1)	50.4		%	52.1		%	Debt to capital ratio (1)	86.7		%	83.1		%
Return on McKesson stockholders’ equity (2)		38.3			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 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 ~~September~~June 30, ~~2020~~2021 and March 31, ~~2020~~2021 included approximately $~~1.6~~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 ~~improved~~decreased at ~~September~~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. The increase in 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 Uncertainties” of this Financial Review and 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.

Table of Contents

McKESSON CORPORATION

FINANCIAL REVIEW (CONCLUDED)

(UNAUDITED)

Our debt to capital ratio increased for the three months ended June 30, 2021 primarily due to an increase in ~~inventory and a decrease~~McKesson stockholders’ deficit driven by share repurchases under an ASR program entered into in ~~drafts and accounts payable,~~May 2021, partially offset ~~by decreases in cash and cash equivalents and receivables and an increase in our current portion of long-term debt.~~

~~Our debt to capital ratio decreased for the six months ended September 30, 2020 primarily due to an increase in stockholders’ equity driven~~ by net income for the ~~first half~~quarter. Our unfavorable return on McKesson’s stockholders’ deficit as of June 30, 2021 ~~partially offset~~and March 31, 2021 was primarily driven by ~~share repurchases.~~net loss for the year ended March 31, 2021, which includes an after-tax non-cash charge of $6.8 billion related to our estimated liability for opioid-related claims, as discussed in “Trends and Uncertainties” of this Financial Review and Financial Note 12, “Commitments and Contingent Liabilities,” to 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

~~Table of Contents~~

~~McKESSON CORPORATION~~

~~FINANCIAL REVIEW (CONCLUDED)~~

~~(UNAUDITED)~~

Our redeemable noncontrolling interests primarily related to our consolidated subsidiary, McKesson Europe. At ~~September 30, 2020 and~~ March 31, ~~2020,~~2021, the carrying value ~~of redeemable noncontrolling interests related to McKesson Europe of~~was $1.3 billion and ~~$1.4 billion, respectively, exceeded the maximum redemption value~~we owned approximately 78% 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 of~~McKesson Europe’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 ~~six~~three months ended ~~September~~June 30, 2021 and 2020, we paid $1.0 billion and $49 million, respectively, to purchase 34.5 million 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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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, as updated in Item 1A of Part II of this report. The reader should not consider that discussion to be a complete statement of all potential risks and uncertainties.~~10-K.

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 ~~September~~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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McKESSON CORPORATION

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.

~~Except as noted below,~~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.~~

~~Our participation in vaccination distribution programs may materially affect our operating results, reputation, and business.~~

We participate as a distributor in government-sponsored vaccination programs, such as the U.S. government’s Vaccines for Children program for childhood disease immunization and its Operation Warp Speed (“OWS”) program for COVID-19 vaccines. We also provide supplies used for vaccine administration in those programs. Our participation in such programs exposes us to various uncertainties. For example, the novel nature of the SARS-CoV‑2 virus and the broad scope of the planned COVID-19 vaccine distribution program introduce uncertainty about which vaccine candidates may be approved, when such approvals may occur, what volumes of products may become available for distribution by us, the effectiveness of vaccines, and the cost of distribution. Because of such uncertainties, our operating results may be subject to variability. Our participation in such programs also exposes us to various risks, including regulatory compliance, government oversight, dependenceReport on government funding, contractual performance, litigation, security risks, and supply chain challenges. Any significant problems with our participation in such programs might have a materially adverse impact on our reputation and our business. Because of these risks and uncertainties our operating results may be materially higher or lower than our projections.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, accelerated share repurchase (“ASR”) programs, or by combinations of such methods, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1(c) of the Securities Exchange Act of 1934. 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.

~~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. During the three months ended September 30, 2020, the Company repurchased 1.8 million of the Company’s shares for $269 million through open market transactions at an average price per share of $151.23. 2020.

The total remaining authorization outstanding for repurchases of the Company’s common stock was ~~$1.3~~$1.8 billion at ~~September~~June 30, ~~2020.~~

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~~McKESSON CORPORATION~~

2021.

The following table provides information on the Company’s share repurchases during the three months ended ~~September~~June 30, ~~2020.~~2021.

Share Repurchases (1)
(In millions, except price per share) Total Number
of Shares
Purchased Average Price
Paid Per Share Total Number of
Shares Purchased
As Part of Publicly
Announced
Program Approximate
Dollar Value of
Shares that May
Yet Be Purchased Under the Programs
July 1, 2020 – July 31, 2020 — $ — — $ 1,535
August 1, 2020 – August 31, 2020 0.3 152.66 0.3 1,487
September 1, 2020 – September 30, 2020 1.5 150.93 1.5 1,267
Total 1.8 1.8


	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 ~~shares tendered to satisfy~~ the ~~exercise price in connection with cashless exercises~~value of ~~employee stock options or shares tendered~~equity awards surrendered to satisfy tax withholding ~~obligations~~obligations.

(2)The average price paid per share in ~~connection with employee equity awards.~~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.

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

Not 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
~~10.1*†~~			~~Forms of Statement of Terms and Conditions and Grant Notices Applicable to Awards Pursuant to the McKesson Corporation 2013 Stock Plan.~~

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

31.2			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 ~~September~~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).

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

~~† Filed herewith.~~

†† Furnished herewith.

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


		MCKESSON CORPORATION

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

5952


	Three Months Ended September 30, 2019
	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, June 30, 2019	271	$	3	$	6,483	$	(1)	$	12,770	$	(1,778)	(86)	$	(9,603)	$	194	$	8,068
Issuance of shares under employee plans	1	—		56		—		—		—		—	0		—		56
Share-based compensation	—	—		34		—		—		—		—	—		—		34
Payments to noncontrolling interests	—	—		—		—		—		—		—	—		(37)		(37)
Other comprehensive income	—	—		—		—		—		74		—	—		—		74
Net income (loss)	—	—		—		—		(730)		—		—	—		42		(688)
Repurchase of common stock	—	—		—		—		—		—		(6)	(750)		—		(750)

Cash dividends declared, $0.41 per common share	—	—		—		—		(75)		—		—	—		—		(75)
Other	—	—		0		(1)		—		—		—	—		11		10
Balances, September 30, 2019	272	$	3	$	6,573	$	(2)	$	11,965	$	(1,704)	(92)	$	(10,353)	$	210	$	6,692


	Six Months Ended September 30, 2019
	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, 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	1	—		78		—		—		—		—	(17)		—		61
Share-based compensation	—	—		60		—		—		—		—	—		—		60
Payments to noncontrolling interests	—	—		—		—		—		—		—	—		(76)		(76)
Other comprehensive income	—	—		—		—		—		145		—	—		—		145
Net income (loss)	—	—		—		—		(307)		—		—	—		85		(222)
Repurchase of common stock	—	—		—		—		—		—		(11)	(1,434)		—		(1,434)

Cash dividends declared, $0.80 per common share	—	—		—		—		(148)		—		—	—		—		(148)
Other	—	—		0		0		—		—		—	—		8		8
Balances, September 30, 2019	272	$	3	$	6,573	$	(2)	$	11,965	$	(1,704)	(92)	$	(10,353)	$	210	$	6,692